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 September 30, 2017
March 31, 2023
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File NumberNumber: 000-55780

Terra Secured Income Fund 5, LLC
(Exact name of registrant as specified in its charter)
Delaware90-0967526
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
805 Third Avenue, 8205 West 28th Street, 12th Floor
New York, New York 1002210001
(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 ¨ þNo þo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☑Smaller reporting company☑
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company þ
Emerging growth companyþ
☑
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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 November 13, 2017,May 12, 2023, the registrant had 6,697.56,622.2 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
Page
PART IItem 1.
Item 1.
Financial Statements
32
43
54
65
86
1415
Item 2.
2523
Item 3.
3836
Item 4.
3837
PART II
Item 1.
3937
Item 1.1A.
3937
Item 1A.2.
39
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3937
Item 3.
3937
Item 4.
3938
Item 5.
3938
Item 6.
3938
4140





1
2




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


March 31, 2023December 31, 2022
(unaudited)
Assets
Equity investment in Terra JV, LLC at fair value (cost of $212,539,131 and
  $215,070,522, respectively)
$206,205,820 $210,008,457 
Cash and cash equivalents42,998 102,256 
Other assets29,980 40,434 
Total assets$206,278,798 $210,151,147 
Liabilities and Members’ Capital
Liabilities
Accounts payable and accrued expenses$212,110 $161,088 
Total liabilities212,110 161,088 
Commitments and contingencies (Note 5)
Members’ capital:
Managing member— — 
Non-managing members206,066,688 209,990,059 
Total members’ capital206,066,688 209,990,059 
Total liabilities and members’ capital$206,278,798 $210,151,147 
Net asset value per unit$31,118 $31,710 
  September 30, 2017 December 31, 2016
  (unaudited)  
Assets    
Equity investment in Terra Property Trust, Inc. at fair value — controlled (cost
   of $277,456,081 and $291,468,567, respectively)
 $277,326,857
 $290,419,317
Cash and cash equivalents 167,784
 41,520
Due from Terra Property Trust, Inc. 25,000
 —
Other assets 4,542
 7,447
Total assets $277,524,183
 $290,468,284
     
Liabilities and Members’ Capital    
Liabilities    
Accounts payable and accrued expenses $189,685
 $441,388
Due to Terra Property Trust, Inc. —
 438,249
Other liabilities 21,697
 —
Distributions payable —
 2,243
Total liabilities 211,382
 881,880
Commitments and contingencies (Note 6)
 
 
Members’ capital:    
Managing member —
 —
Non-managing members 277,312,801
 289,586,404
Total members’ capital 277,312,801
 289,586,404
Total liabilities and members’ capital $277,524,183
 $290,468,284


See notes to consolidatedunaudited financial statements.
    

2

3




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

 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Investment income — controlled       
Dividend income$4,448,792
 $9,824,336
 $15,703,171
 $25,042,346
Investment income       
Other operating income111
 614
 1,064
 8,571
Total investment income4,448,903
 9,824,950
 15,704,235
 25,050,917
Operating expenses       
Professional fees104,100
 269,635
 431,465
 549,211
Merger transaction fees—
 —
 —
 388,692
Other3,448
 (38,342) 35,761
 52,954
Total operating expenses107,548
 231,293
 467,226
 990,857
Net investment income4,341,355
 9,593,657
 15,237,009
 24,060,060
Net change in unrealized depreciation on
investment — controlled		428,032
 (730,673) 920,026
 (1,400,694)
Net increase in members’ capital resulting
from operations		$4,769,387
 $8,862,984
 $16,157,035
 $22,659,366


 Three Months Ended March 31,
 20232022
Investment income
Dividend income$292,254 $758,110 
Other operating income18 11 
Total investment income292,272 758,121 
Operating expenses
Professional fees211,332 127,060 
Other1,458 1,392 
Total operating expenses212,790 128,452 
Net investment income79,482 629,669 
Net change in unrealized (depreciation) appreciation on investment(1,271,246)1,018,522 
Net (decrease) increase in members’ capital resulting from operations$(1,191,764)$1,648,191 
Per unit data:
Net investment income per unit$12 $95 
Net (decrease) increase in members’ capital resulting from operations per unit$(180)$248 
Weighted average units outstanding6,622.3 6,636.6 



See notes to consolidatedunaudited financial statements.


statements.

3
4



Terra Secured Income Fund 5, LLC
Consolidated Statements of Changes in Members’ Capital
(Unaudited)
Nine Months Ended September 30, 2017 and 2016

Managing
Member		Non-Managing MembersTotal
Balance, January 1, 2023$— $209,990,059 $209,990,059 
Capital distributions— (2,731,607)(2,731,607)
Decrease in members’ capital resulting from operations:
Net investment income— 79,482 79,482 
Net change in unrealized depreciation on investment— (1,271,246)(1,271,246)
Net decrease in members’ capital resulting from operations— (1,191,764)(1,191,764)
Balance, March 31, 2023$— $206,066,688 $206,066,688 

 Managing
Member		 Non-Managing Members Total
Balance, January 1, 2017$—
 $289,586,404
 $289,586,404
Capital distributions—
 (23,127,464) (23,127,464)
Capital redemptions—
 (5,303,174) (5,303,174)
Increase in members’ capital resulting from operations:     
Net investment income—
 15,237,009
 15,237,009
Net change in unrealized depreciation on investment—
 920,026
 920,026
Net increase in members’ capital resulting from operations—
 16,157,035
 16,157,035
Balance, September 30, 2017$—
 $277,312,801
 $277,312,801


Managing
Member		Non-Managing MembersTotal
Balance, January 1, 2022$— $218,076,577 $218,076,577 
Capital distributions— (2,979,046)(2,979,046)
Increase in members’ capital resulting from operations:
Net investment income— 629,669 629,669 
Net change in unrealized appreciation on investment— 1,018,522 1,018,522 
Net increase in members’ capital resulting from operations— 1,648,191 1,648,191 
Balance, March 31, 2022$— $216,745,722 $216,745,722 

 Managing
Member		 Non-Managing Members Total
Balance, January 1, 2016$—
 $122,208,698
 $122,208,698
Capital contributions from Merger—
 155,751,516
 155,751,516
Capital contributions, net of selling commissions and dealer
   manager fees of $1,277,916
—
 25,598,261
 25,598,261
Capital distributions—
 (22,949,286) (22,949,286)
Capital redemptions—
 (6,771,430) (6,771,430)
Increase in members’ capital resulting from operations:    
Net investment income—
 24,060,060
 24,060,060
Net change in unrealized depreciation on investment—
 (1,400,694) (1,400,694)
Net increase in members’ capital resulting from operations—
 22,659,366
 22,659,366
Balance, September 30, 2016$—
 $296,497,125
 $296,497,125




See notes to consolidatedunaudited financial statements.



4
5



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

Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net (decrease) increase in members’ capital resulting from operations$(1,191,764)$1,648,191 
Adjustments to reconcile net (decrease) increase in members’ capital resulting
   from operations to net cash provided by operating activities:
Return of capital on investment2,531,391 2,221,551 
Net change in unrealized depreciation (appreciation) investment1,271,246 (1,018,522)
Changes in operating assets and liabilities:
Decrease in other assets10,454 2,244 
Increase in accounts payable and accrued expenses51,022 67,224 
Net cash provided by operating activities2,672,349 2,920,688 
Cash flows from financing activities:
Distributions paid(2,731,607)(2,979,046)
Net cash used in financing activities(2,731,607)(2,979,046)
Net decrease in cash and cash equivalents(59,258)(58,358)
Cash and cash equivalents at beginning of period102,256 836,052 
Cash and cash equivalents at end of period$42,998 $777,694 



See notes to unaudited financial statements.
5
 Nine Months Ended September 30,
 2017 2016
Cash flows from operating activities:   
Net increase in members’ capital resulting from operations$16,157,035
 $22,659,366
Adjustments to reconcile net increase in members’ capital resulting from
   operations to net cash provided by operating activities:
   
Purchase of common stock of Terra Property Trust, Inc.—
 (10,000,000)
Cash transferred to Terra Property Trust, Inc.—
 (5,034,571)
Return of capital on investment14,012,486
 315,730
Net change in unrealized depreciation on investment(920,026) 1,400,694
    
Changes in operating assets and liabilities:   
Interest receivable—
 351,883
Other assets898
 (129,397)
Due to Manager—
 (705,389)
Accounts payable and accrued expenses(251,702) (5,339,803)
Due to Terra Property Trust, Inc.(463,249) —
Taxes payable—
 (621,177)
Interest payable—
 (172,051)
Net cash provided by operating activities28,535,442
 2,725,285
    
Cash flows from financing activities:   
Proceeds from capital contributions, net of selling commissions and dealer
   manager fees
—
 25,598,261
Distributions paid(23,129,410) (22,949,286)
Payments for capital redemptions(5,279,768) (10,198,413)
Cash acquired in the Merger—
 3,480,981
Net cash used in financing activities(28,409,178) (4,068,457)
    
Net increase (decrease) in cash and cash equivalents126,264
 (1,343,172)
Cash and cash equivalents at beginning of period41,520
 1,862,798
Cash and cash equivalents at end of period$167,784
 $519,626
    
Supplemental Disclosure of Cash Flows Information:   
Cash paid for income taxes$—
 $681,033
Cash paid for interest$—
 $—



6



Terra Secured Income Fund 5, LLC
Consolidated StatementsSchedule of Cash Flows (unaudited) (Continued)Investment

March 31, 2023 (Unaudited)and December 31, 2022
Supplemental Non-Cash Investing and Financing Activities:
In December 2015, the members approved the merger of Terra Secured Income Fund 5, LLC (“Terra Fund 1”), Terra Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”(the “Company”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) with and into subsidiariesinvested substantially all 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”). The following table summarizes the fair values of the assets acquired and liabilities assumedits equity capital in the Merger:
Total Consideration:  
Fair value of units issued $155,751,516
  155,751,516
Assets Acquired at Fair Value  
Investments, at fair value 142,768,001
Investments through participation interests, at fair value 7,771,619
Equity investment in Terra Park Green Member, LLC, at fair value 16,900,000
Restricted cash 7,119,078
Interest receivable 1,412,840
Other assets 35,695
Liabilities Assumed at Fair Value  
Obligations under participation agreements (8,154,822)
Interest reserve and other deposits held on loans (7,119,078)
Accounts payable and accrued expenses (3,113,022)
Redemption liability (3,426,983)
Due to Manager (1,343,020)
Taxes payable (232,040)
Interest payable (80,807)
Other liabilities (266,926)
Net assets acquired excluding cash 152,270,535
Cash acquired in the Merger $3,480,981
Following the Merger, the Company contributed the consolidated portfoliopurchase of net assetsshares of the five Terra Funds tocommon stock of Terra Property Trust, Inc. (“Terra Property Trust”), a newly-formedan affiliate, through its parent, Terra JV, LLC (“Terra JV”). As of both March 31, 2023 and wholly-owned subsidiaryDecember 31, 2022, Terra JV held 70.0% of the Company, in exchange for the commonissued and outstanding shares of Terra Property Trust. The following table summarizesTrust’s common stock, and the fair values of the net assets contributed to Terra Property Trust:
Total Consideration:  
Fair value of common stock of Terra Property Trust received $288,259,804
  288,259,804
Assets Contributed at Fair Value  
Investments, at fair value 276,746,475
Investments through participation interests, at fair value 13,789,884
Equity investment in Terra Park Green Member, LLC, at fair value 16,900,000
Restricted cash 21,421,501
Interest receivable 2,382,546
Due from related parties 438,249
Other assets 35,695
Liabilities Transferred at Fair Value  
Obligations under participation agreements (24,147,097)
Interest reserve and other deposits held on loans (21,421,501)
Due to Manager (2,011,003)
Other liabilities (909,516)
Net assets transferred excluding cash 283,225,233
Cash transferred to Terra Property Trust $5,034,571

See notes to consolidated financial statements.


7


Company and Terra Secured Income Fund 5,7, LLC
Consolidated Schedule of Investments
September 30, 2017 (unaudited) (“Terra Fund 7”) owned an 87.6% and December 31, 2016

As of September 30, 201712.4% percentage interest, respectively, in Terra JV, and December 31, 2016,Terra JV became the Company’s only investment is its equity interest in(Note 4). Accordingly, as of both March 31, 2023 and December 31, 2022, the Company indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust through Terra JV. Additionally, as of both March 31, 2023 and December 31, 2022, Terra JV was jointly-controlled by the Company and Terra Fund 7.

    The following table presents a wholly-owned subsidiarysummary of the Company’s investment as presented below:of March 31, 2023 and December 31, 2022:
Percentage InterestMarch 31, 2023December 31, 2022
InvestmentDate AcquiredCostFair Value% of Members’ CapitalCostFair Value% of Members’ Capital
Terra JV, LLC3/2/202087.6 %$212,539,131 $206,205,820 100.1 %$215,070,522 $210,008,457 100.0 %
    Number of Shares of Common Stock September 30, 2017 December 31, 2016
Investment — Controlled Date Acquired  Cost Fair Value % of Net Assets Cost Fair Value % of Net Assets
Terra Property Trust, Inc. — 100% Owned 1/1/2016 and 3/7/2016 14,912,990
 $277,456,081
 $277,326,857
 100.1% $291,468,567
 $290,419,317
 100.3%


The following table presents a schedule of loans held for investment by Terra Property Trust at 100% and the Company’s wholly-owned subsidiary, aspro-rata share of September 30, 2017:the fair value at March 31, 2023:
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Mezzanine loans:
150 Blackstone River Road, LLCUS - MAIndustrial8.5 %8.5 %— %9/21/20179/6/2027$7,000,000 $7,000,000 $6,591,946 $4,040,863 2.0 %
610 Walnut Investors LLC (4)(5)
US - CAOfficeTerm SOFR + 12.0% (2.0% Floor)16.8 %1.0 %8/30/20229/7/202419,398,129 19,533,518 19,550,775 11,984,625 5.8 %
Dwight Mezz II, LLCUS - CAStudent
   housing		11.0 %11.0 %— %5/11/20175/6/20273,000,000 2,921,103 2,896,548 1,775,584 0.9 %
UNJ Sole Member, LLC (6)
US - CAMixed-use15.0 %15.0 %1.0 %11/24/20216/1/20277,444,357 7,484,017 7,465,056 4,576,079 2.2 %
36,842,486 36,938,638 36,504,325 22,377,151 10.9 %
Preferred equity investments:
370 Lex Part Deux, LLC (7)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)13.1 %— %12/17/20187/9/202267,586,792 67,586,792 56,338,078 34,535,242 16.7 %
Ann Street JV LLCUS - GAMultifamily14.0 %14.0 %1.0 %11/12/20216/7/202415,762,248 16,151,228 15,631,287 9,581,979 4.6 %
Asano Bankers Hill, LLCUS - CAMixed-useSOFR + 15.0% (0.25% Floor)19.6 %1.0 %2/2/20227/31/202418,260,832 18,688,513 19,115,636 11,717,885 5.7 %
REEC Harlem Holdings Company, LLC (8)
US - NYMixed-useLIBOR + 12.5%17.4 %— %3/9/20183/9/202315,251,983 15,251,983 2,245,045 1,376,213 0.7 %
RS JZ Driggs, LLC (9)
US - NYMultifamily12.3 %12.3 %1.0 %5/1/20181/1/20215,269,600 5,269,600 5,269,600 3,230,265 1.6 %
122,131,455 122,948,116 98,599,646 60,441,584 29.3 %
See notes to unaudited financial statements.
6
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - ALASA Mgt. Holdings, LLCPreferred equity investmentMultifamily16.0%4/7/20128/1/2022$2,100,000
$2,141,204
$2,124,927
0.8%
 SVA Mgt. Holdings, LLCPreferred equity investmentMultifamily16.0%4/7/20128/1/20221,600,000
1,633,817
1,619,625
0.6%
 Total US - AL     3,700,000
3,775,021
3,744,552
1.4%
US - CAPalmer City-Core Stockton Street, LLCPreferred equity investmentHotel12.0%1/17/201412/17/20174,325,000
4,368,250
4,367,145
1.6%
 Maguire Partners-1733 Ocean, LLCFirst mortgageOfficeLIBOR+8.5%
3/7/20163/9/201852,986,912
53,494,280
53,637,569
19.3%
 
L.A. Warner Hotel Partners, LLC (3)(4)(5)
Preferred equity investmentHotel12.0%7/25/20148/4/201832,100,000
32,669,975
32,417,458
11.7%
 
TSG-Parcel 1, LLC (3)(5)(6)(7)
First mortgageLand12.0%7/10/201510/10/201718,000,000
18,180,000
18,174,048
6.6%
 
SparQ Mezz Borrower, LLC (8)
Mezzanine loanMultifamily12.0%9/29/201710/1/2020—
—
—
—%
 Total US - CA     107,411,912
108,712,505
108,596,220
39.2%
US - DE
BPG Office Partners III/IV LLC (3)(4)(5)
Mezzanine loanOffice13.5%6/5/20156/5/201810,000,000
10,091,154
10,096,628
3.6%
US - FL
1100 Biscayne Management
   Holdco, LLC (3)(5)(7)
Mezzanine loanHotel12.0% current
3.0% PIK
4/24/201510/9/201715,809,601
15,954,054
15,952,786
5.8%
 
37 Gables Member LLC (4)(5) 
Mezzanine loanMultifamily13.0%6/16/20166/16/20195,750,000
5,795,947
5,800,317
2.1%
 
Greystone Gables Holdings Member
   LLC (4)(5)
Preferred equity investmentMultifamily13.0%6/16/20166/16/2019500,000
503,995
504,375
0.2%
 
RS JZ 2700 NW2, LLC (3)(5)
First mortgageLand12.0%9/1/201612/1/201721,360,000
21,569,263
21,575,419
7.8%
 Total US - FL     43,419,601
43,823,259
43,832,897
15.9%
US - GAYMP Georgia Portfolio Mezzanine, LLCMezzanine loanMultifamily14.0%12/19/20131/6/20194,250,000
4,487,398
4,286,112
1.5%
 
OHM Atlanta Owner, LLC (5)(6)(9)
First mortgageLand12.0%6/20/20176/20/201824,500,000
24,724,490
24,724,490
8.9%
 Total US - GA     28,750,000
29,211,888
29,010,602
10.4%
US - INMuncie Mezz, LLCMezzanine loanStudent
housing		13.0%8/29/20139/6/20232,700,000
2,688,171
3,059,033
1.1%
US - MA150 Blackstone River Road, LLCMezzanine loanIndustrial8.5%9/21/20179/6/20277,000,000
7,000,000
7,000,000
2.5%
US - NC
Milestone Greensboro Holdings,
   LLC (4)(5)
Mezzanine loanHotel14.0%3/1/20133/1/20183,500,000
3,540,614
3,534,591
1.3%



8




Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017 (unaudited) March 31, 2023 (Unaudited)and December 31, 20162022


Terra Property TrustTrust’s Schedule of Loans Held for Investment as of September 30, 2017March 31, 2023 (Continued):
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
First mortgages:
14th & Alice Street Owner, LLC (10)
US - CAMultifamilyLIBOR + 4.0% (0.25% Floor)8.9 %2.0 %10/15/20214/15/2023$1,364,944 $1,364,944 $— $— — %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (11)
US - GAOfficeLIBOR + 4.50%9.4 %0.5 %2/22/20198/10/202357,221,615 57,496,677 57,133,997 35,023,140 17.1 %
330 Tryon DE LLC (11)
US - NCMixed-useTerm SOFR+ 4.25% (0.1% Floor)9.1 %0.5 %2/7/20193/1/202422,800,000 22,903,981 22,743,319 13,941,655 6.8 %
AGRE DCP Palm Springs, LLC (11)
US - CAHotel - full/
   select service		LIBOR +5.0% (1.8% Floor)9.9 %1.5 %12/12/20191/1/202443,222,382 43,793,356 43,265,735 26,521,896 12.9 %
AARSHW Property LLC (12)(13)
US - NJIndustrialSOFR +7.5% (0.15% Floor)12.1 %0.9 %3/7/20228/17/202452,238,626 52,673,845 53,193,387 32,607,546 15.8 %
AAESUF Property LLC (12)
US - NJLandSOFR + 11.95% (0.05% Floor)16.6 %5%-10%3/15/20223/1/202418,652,873 19,247,035 19,680,057 12,063,875 5.9 %
American Gilsonite CompanyUS - UTInfrastructure14.0 %14.0 %1.0 %8/31/20218/31/202321,250,000 21,698,452 21,459,603 13,154,737 6.4 %
Dallas - Big Town Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)9.3 %1.0 %12/28/202212/27/202526,846,281 27,053,620 27,053,620 16,583,869 8.0 %
Dallas - Oakland Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)9.3 %1.0 %12/28/202212/27/20259,750,265 9,825,568 9,825,568 6,023,073 2.9 %
Dallas - US HWY 80 Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)9.3 %1.0 %12/28/202212/27/202511,485,482 11,574,187 11,574,187 7,094,977 3.4 %
Dallas - 11333 Pagemill Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)9.3 %1.0 %12/28/202212/27/202512,394,405 12,490,129 12,490,129 7,656,449 3.7 %
Dallas - 11221 Pagemill Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)9.3 %1.0 %12/28/202212/27/20257,684,531 7,743,880 7,743,880 4,746,998 2.3 %
Fourth Street's Kingswood, LLC (14)
US - WAMultifamilyTerm SOFR + 7.75% (4.25% Floor)12.6 %1.0 %3/24/20233/24/20262,594,879 2,218,577 2,612,628 1,601,541 0.8 %
Grandview’s Madison Place, LLC (15)
US - WAMultifamilyTerm SOFR + 4.45% (0.05% Floor)9.3 %0.8 %2/10/20222/10/202517,000,000 17,107,426 17,130,108 10,500,756 5.1 %
Grandview’s Remington Place, LLC (15)
US - WAMultifamilyTerm SOFR + 4.45% (0.05% Floor)9.3 %0.5 %4/22/20224/22/202423,100,000 23,201,857 23,205,196 14,224,785 6.9 %
Hillsborough Owners LLCUS - NCMixed-useLIBOR + 8.0% (0.25% Floor)12.9 %1.0 %10/27/202111/1/202321,371,046 21,698,013 21,510,612 13,186,005 6.4 %
Mesa AZ Industrial Owner, LLC (4)(12)
US - AZLandTerm SOFR + 12.7% (2.3% Floor)17.5 %1.0 %9/15/20229/14/202331,000,000 31,288,062 31,288,061 19,179,581 9.3 %
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - NY
Cape Church Mezz, LLC (3)(4)(5)
Mezzanine loanMultifamily12.0%3/15/20167/15/2019$16,663,302
$16,797,445
$16,730,367
6.0 %
 
140 Schermerhorn Street Mezz LLC (5)(6)
Mezzanine loanHotel12.0%11/16/201612/1/201915,000,000
15,115,355
15,130,717
5.5 %
 575 CAD I LLCMezzanine loanLand12.0% current
2.5% PIK
1/31/20178/1/20199,280,360
9,350,309
9,352,034
3.4 %
 WWML96MEZZ, LLCMezzanine loanMultifamily13.0%12/18/201512/31/20187,687,862
7,753,121
7,767,565
2.8 %
 WWML96, LLCPreferred equity investmentMultifamily13.0%12/18/201512/31/20181,438,384
1,450,594
1,447,064
0.5 %
 Total US - NY     50,069,908
50,466,824
50,427,747
18.2 %
US - OR
Pollin Hotels PDX Mezzanine, LLC (4)(5)
Mezzanine loanHotel13.0%9/23/201310/6/20185,000,000
5,225,052
5,240,101
1.9 %
US - PA
Millennium Waterfront Associates,
   L.P.
First mortgageLand12.0%7/2/201512/29/201714,150,000
14,291,500
14,290,080
5.2 %
US - SC
High Pointe Mezzanine Investments,
   LLC (4)(5)
Mezzanine loanStudent
housing		13.0%12/27/20131/6/20243,000,000
3,396,889
3,428,790
1.2 %
US - TN
Kingsport 925-Mezz LLC (4)(5)
Mezzanine loanMultifamily13.0%1/6/201412/5/20183,000,000
3,138,451
3,120,351
1.1 %
US - TX
Northland Museo Member, LLC (4)(5)
Mezzanine loanMultifamily12.0%11/22/201312/6/20184,000,000
3,967,600
4,072,570
1.5 %
 
Austin H. I. Owner LLC (3)(5)
Mezzanine loanHotel12.5%9/30/201510/6/20203,500,000
3,523,928
3,539,140
1.3 %
 AHF-Heritage #1, LLCMezzanine loanMultifamily14.0%7/30/20128/11/20222,689,038
2,919,386
2,729,307
1.0 %
 Total US - TX     10,189,038
10,410,914
10,341,017
3.8 %
US - UT
NB Factory JV, LLC (5)(6)
Preferred equity
   investment
Student
   housing
15.0%6/29/20176/26/20203,595,670
3,595,670
3,595,670
1.2 %
US - WA
The Bristol at Southport, LLC (5)(9)
Preferred equity
   investment
Multifamily10.0% current
2.0% PIK
9/22/201710/1/202222,500,000
22,623,164
22,685,693
8.2 %
US - Various
Nelson Brothers Professional Real
   Estate, LLC (7)
FacilityVarious15.0%8/31/20161/27/20188,000,000
8,080,000
8,078,999
2.9 %
 Total loans held for investment — non-controlled:    325,986,129
330,071,076
330,082,971
119.1 %
           
 
Loan held for investment through participation interest — non-controlled (10):
       
US - PA
KOP Hotel XXXI Mezz LP (3)(5)
Participation in
mezzanine loan		Hotel13.0%11/24/201512/6/20221,800,000
1,804,562
1,820,502
0.7 %
 Total loan held for investment through participation interest — non-controlled   1,800,000
1,804,562
1,820,502
0.7 %
           
 Total gross loans held for investment     327,786,129
331,875,638
331,903,473
119.7 %
 
Obligations under participation agreements (3)(4)(6)(9)(10)
    (70,020,950)(70,992,661)(70,910,091)(25.6)%
 Net loans held for investment     $257,765,179
$260,882,977
$260,993,382
94.1 %


See notes to unaudited financial statements.

7
9



Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017 (unaudited) March 31, 2023 (Unaudited)and December 31, 20162022


Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2023 (Continued):
___________________________
(1)Because there is no readily available market for these loans, the fair values of these loans are approved in good faith by Terra Income Advisors, LLC (the “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 $277.3 million as of September 30, 2017.
(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 the Manager.
(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 the Manager.
(5)
The loan participations from Terra Property Trust do not qualify for sale accounting under Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing, and therefore, the gross amount of these loans remain in the Consolidated Schedule of Loans Held for Investments.
(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 the Manager.
(7)The maturity date of this loan was extended subsequent to September 30, 2017.
(8)On September 29, 2017, Terra Property Trust entered into agreement with the borrower to provide funding commitment of up to $8.7 million. As of September 30, 2017, none of the commitment has been funded.
(9)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 a subsidiary of the Manager.
(10)Terra Property Trust purchased its interest in this loan from Terra Income Fund 6, Inc. through a participation agreement.

Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
First mortgage (continued)s:
NB Factory TIC 1, LLC (15)
US - UTStudent housingTerm SOFR + 5.0% (0.25% Floor)9.8 %3.3 %8/16/20213/5/2024$28,000,000 $28,823,787 $28,908,756 $17,721,067 8.6 %
Patrick Henry Recovery Acquisition, LLC (11)
US - CAOfficeLIBOR +2.95% (1.5% Floor)7.8 %0.3 %11/25/201912/1/2023$18,000,000 $18,042,414 $17,873,381 $10,956,383 5.3 %
The Lux Washington, LLC (12)
US - WAMultifamilyLIBOR + 7.0% (0.75% floor)11.9 %1.0 %7/22/20211/22/202420,681,402 20,906,598 20,984,329 12,863,394 6.2 %
University Park Berkeley, LLC (12)
US - CAMultifamilyTerm SOFR + 5.50% (4.00% Floor)10.3 %1.0 %3/30/202310/5/202427,200,000 27,561,204 27,544,664 16,884,879 8.2 %
473,858,731 478,713,612 477,221,217 292,536,606 142.0 %
Total gross loans held for investment632,832,672 638,600,366 612,325,188 375,355,341 182.2 %
Obligations under participation agreements (4)(5)
(13,106,844)(13,209,982)(13,209,983)(8,097,720)(3.9)%
Allowance for credit losses— (28,651,577)— — — %
Net loans held for investment$619,725,828 $596,738,807 $599,115,205 $367,257,621 178.3 %
Operating real estate:
DescriptionAcquisition Date
Fair Value of Real Estate (1)
EncumbranceNet Investment
Pro Rata Net Investment (2)
% (3)(17)

Multi-tenant office building in Santa Monica, CA (16)
7/30/2018$52,500,000 $29,252,308 $23,247,692 $14,250,835 6.9 %
Industrial buildings in Dallas/Fort Worth, TX3/24/202348,798,273 32,100,000 16,698,273 10,236,041 5.0 %
$101,298,273$61,352,308$39,945,965$24,486,87611.9 %
Portfolio CompanyDividend YieldAcquisition DateMaturity DateSharesCostFair Value
Pro Rata
Fair Value (2)
% (3)
Marketable securities (18):
Corporate Bonds
Terra Property Trust, Inc. Corporate Bonds6.0 %Various6/30/20267,398 $136,265 $154,544 $94,736 0.05 %
Portfolio CompanyCoupon RateAcquisition DateMaturity DateSharesCostFair Value
Pro Rata
Fair Value (2)
% (3)
Held-to-maturity debt securities (18)
Corporate Bonds
KKR Real Estate Finance Trust 6.125% 15May2023 bonds6.125 %Q1 202305/15/2023200,000 $20,025,024 $19,800,000$12,137,400 5.9 %
See notes to unaudited financial statements.



8
10



Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
September 30, 2017 (unaudited) March 31, 2023 (Unaudited)and December 31, 20162022
Equity investments:
Portfolio CompanyOwnership InterestCostFair Value
Pro Rata
Fair Value (2)
% (3)
Mavik Real Estate Special Opportunities Fund, LP - limited partnership interest (19)
23.4%$28,636,905 $28,057,849$17,199,461 8.3 %
LEL Arlington JV LLC - limited liability member units (20)
27.2%6,885,336 7,483,5634,587,424 2.2 %
LEL NW 49th JV LLC - limited liability member units (20)
27.2%1,607,801 2,519,7811,544,626 0.7 %
TCG Corinthian FL Portfolio JV LLC (20)
34.0%6,370,863 7,426,2914,552,316 2.2 %
SF-Dallas Industrial, LLC (21)
N/A10,065,935 10,065,9356,170,418 3.0 %
$53,566,840 $55,553,419$34,054,245 16.4 %
__________________________
(1)Because there is no readily available market for these investments, 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 61.3%, 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 $206.1 million at March 31, 2023.
(4)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to a third party.
(5)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in Terra Property Trust’s consolidated balance sheets.
(6)Terra Property Trust purchased a portion of the interest in this loan from Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party real estate investment trust managed by Terra REIT Advisors, via a participation agreement.
(7)This loan is currently in maturity default. For the three months ended March 31, 2023, Terra Property Trust suspended interest income accrual of $2.3 million on this loan because recovery of such income was doubtful. As of March 31, 2023, Terra Property Trust recorded an allowance for credit losses of $11.2 million on the loan as a result of a decline in the fair value of the collateral.
(8)For the three months ended March 31, 2023, Terra Property Trust suspended interest income accrual of $0.9 million on this loan because recovery of such income was doubtful. Additionally, the fair value of the loan declined as a result of a decline in the fair value of the collateral. As of March 31, 2023, Terra Property Trust recorded an allowance for credit losses of $12.9 million on the loan as a result of a decline in the fair value of the collateral.
(9)This loan is in maturity default. Terra Property Trust initiated a litigation to seek full repayment of the loan from the sponsor. For the three months ended March 31, 2023, Terra Property Trust suspended interest income accrual of $0.2 million on this loan because recovery of such income was doubtful.
(10)This loan is classified as a troubled debt restructuring. Terra Property Trust does not anticipate a full recovery of the remaining principal balance, as such, the loan is fully reserved.
(11)These loans were used as collateral for $101.9 million of borrowings under a repurchase agreement.
(12)These loans were used as collateral for $125.0 million of borrowings under a revolving line of credit.
(13)Amount included $4.0 million of incremental borrowing that bears interest at an annual rate of 20.0% until certain conditions are met, at which time the interest rate will be the same as the original loan.
(14)Terra Property Trust is committed to fund up to $39.0 million of first mortgage as well as $3.0 million of subordinated loan. The subordinated loan bears interest at an annual rate of Term SOFR plus 12.0% with a Term SOFR floor of 4.25%.
(15)These loans were used as collateral for $51.1 million of borrowings under a repurchase agreement.
9

(16) Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage.
(17)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).
(18)From time to time, Terra Property Trust may invest in short-term debt and equity securities. These securities are comprised of shares of common and preferred stock and bonds.
(19)On August 3, 2020, Terra Property Trust entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) whereby Terra Property Trust committed to fund up to $50.0 million to purchase a limited partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of March 31, 2023, the unfunded commitment was $30.3 million.
(20)As of March 31, 2023, Terra Property Trust beneficially owned equity interest in three joint ventures that invest in real estate properties.
(21)On December 28, 2022, Terra Property Trust originated a $10.0 million mezzanine loan to a borrower to finance the acquisition of a real estate portfolio. Additionally, Terra Property Trust entered into a residual profit sharing agreement with the borrower where the borrower will pay Terra Property Trust an additional amount of 35.0% of remaining net cash flow from the sale of the real estate portfolio. Terra Property Trust accounts for this arrangement using the equity method of accounting.


See notes to unaudited financial statements.
10

Terra Secured Income Fund 5, LLC
Schedule of Investment (Continued)
March 31, 2023 (Unaudited)and December 31, 2022
The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, 2016:
2022:
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - ALASA Mgt. Holdings, LLCPreferred equity investmentMultifamily15.0%4/7/20128/1/2022$2,100,000
$2,145,498
$2,120,737
0.7%
 SVA Mgt. Holdings, LLCPreferred equity investmentMultifamily15.0%4/7/20128/1/20221,600,000
1,637,463
1,615,800
0.6%
 Total US - AL     3,700,000
3,782,961
3,736,537
1.3%
US - CAPalmer City-Core Stockton Street, LLCPreferred equity investmentHotel12.0%1/17/201412/17/20174,325,000
4,368,250
4,369,096
1.5%
 
Encino Courtyard Mezzanine, LLC (3)
Mezzanine loanRetail13.5%12/19/20121/6/20232,500,000
2,609,852
2,529,828
0.9%
 Maguire Partners-1733 Ocean, LLCFirst mortgageOfficeLIBOR+8.5%
3/7/20163/9/201850,450,061
50,902,766
50,924,056
17.4%
 
L.A. Warner Hotel Partners, LLC (4)(5)
Preferred equity investmentHotel13.3%7/25/20148/4/201720,000,000
20,579,513
20,201,344
7.0%
 
SD Carmel Hotel Partners, LLC (3)(4)(5)
Preferred equity investmentHotel12.0%3/13/20151/31/20176,000,000
6,059,398
6,059,398
2.1%
 
TSG-Parcel 1, LLC (4)(5)(6)
First mortgageLand12.0%7/10/20154/10/201718,000,000
18,180,000
18,178,193
6.3%
 Total US - CA     101,275,061
102,699,779
102,261,915
35.2%
US - DE
BPG Office Partners III/IV LLC (4)(5)
Mezzanine loanOffice13.0%6/5/20156/5/201810,000,000
10,082,308
10,123,340
3.5%
US - FLBeach Resort Management, LLCMezzanine loanHotel13.0%7/16/20128/1/20174,500,000
4,518,850
4,517,228
1.6%
 
CGI Mezz 55MM, LLC (3)(4)(5)
Mezzanine loanMixed use12.0% current
2.0% PIK
8/21/20149/6/20193,593,947
3,619,217
3,610,816
1.2%
 
1100 Biscayne Management
   Holdco, LLC (4)(5)
Mezzanine loanHotel12.0% current
3.0% PIK
4/24/201510/9/201715,359,671
15,488,644
15,257,412
5.2%
 
Caton Mezz, LLC (3)(4)(5)
Mezzanine loanOffice12.0% current
2.0% PIK
7/27/20151/27/20175,160,404
5,210,404
5,189,222
1.8%
 37 Gables Member LLCMezzanine loanMultifamily13.0%6/16/20166/16/20195,750,000
5,791,644
5,797,477
2.0%
 Greystone Gables Holdings Member LLCPreferred equity investmentMultifamily13.0%6/16/20166/16/2019500,000
503,621
504,128
0.2%
 RS JZ 2700 NW2, LLCFirst mortgageLand12.0%9/1/201612/1/201719,620,000
19,795,534
19,800,927
6.8%
 Total US - FL     54,484,022
54,927,914
54,677,210
18.8%
US - GAYMP Georgia Portfolio Mezzanine, LLCMezzanine loanMultifamily14.0%12/19/20131/6/20194,250,000
4,604,941
4,387,683
1.5%
US - INMuncie Mezz, LLCMezzanine loanStudent
housing		13.0%8/29/20139/6/20232,700,000
2,683,938
3,039,674
1.0%
US - MA
Phoenix CR 2012A, LLC, Phoenix CR
   2012B, LLC, & Phoenix CR 2012C,
   LLC
Mezzanine loanMultifamily12.0%7/27/20128/11/20224,000,000
4,112,275
4,071,618
1.4%
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Mezzanine loans:
150 Blackstone River Road, LLCUS - MAIndustrial8.5 %8.5 %— %9/21/20179/6/2027$7,000,000 $7,000,000 $6,638,219 $4,069,228 1.9 %
610 Walnut Investors LLC (4)(5)
US - CAOfficeTerm SOFR + 12.0% (2.0% Floor)16.4 %1.0 %8/30/20229/7/202418,625,738 18,738,386 18,767,281 11,504,343 5.5 %
Dwight Mezz II, LLCUS - CAStudent
   housing		11.0 %11.0 %— %5/11/20175/6/20273,000,000 2,916,369 2,914,042 1,786,308 0.9 %
Havemeyer TSM LLC (6)
US - NYMixed-use15.0 %15.0 %1.0 %12/18/20203/1/20233,282,208 3,313,813 3,315,293 2,032,275 1.0 %
UNJ Sole Member, LLC (6)
US - CAMixed-use15.0 %15.0 %1.0 %11/24/20216/1/20277,444,357 7,482,547 7,371,101 4,518,485 2.2 %
39,352,303 39,451,115 39,005,936 23,910,639 11.5 %
Preferred equity investments:
370 Lex Part Deux, LLC (7)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)12.6 %— %12/17/20187/9/202267,586,792 67,586,792 56,338,079 34,535,242 16.5 %
Ann Street JV LLCUS - GAMultifamily14.0 %14.0 %1.0 %11/12/20216/7/202415,217,540 15,648,482 15,127,126 9,272,928 4.4 %
Asano Bankers Hill, LLCUS - CAMixed-useSOFR + 15.0% (0.25% Floor)19.1 %1.0 %2/2/20227/31/202417,450,623 17,920,424 17,578,839 10,775,828 5.1 %
REEC Harlem Holdings Company, LLC (8)
US - NYMixed-useLIBOR + 12.5%16.9 %— %3/9/20183/9/202315,983,234 15,983,234 3,090,588 1,894,530 0.9 %
RS JZ Driggs, LLC (9)
US - NYMultifamily12.3 %12.3 %1.0 %5/1/20181/1/20214,993,245 4,993,245 4,993,245 3,060,859 1.5 %
121,231,434 122,132,177 97,127,877 59,539,387 28.4 %
First mortgages:
14th & Alice Street Owner, LLC (10)
US - CAMultifamilyLIBOR + 4.0% (0.25% Floor)8.4 %2.0 %10/15/20214/15/20231,364,944 1,364,944 — — — 
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (11)
US - GAOfficeLIBOR + 4.50%8.9 %0.5 %2/22/20198/10/202357,184,178 57,453,482 56,844,322 34,845,569 16.7 %
330 Tryon DE LLC (11)
US - NCOfficeTerm SOFR+ 4.25% (0.1% Floor)8.6 %0.5 %2/7/20193/1/202422,800,000 22,902,215 22,687,235 13,907,275 6.6 %
AGRE DCP Palm Springs, LLC (11)
US - CAHotel - full/
   select service		LIBOR +5.0% (1.8% Floor)9.4 %1.5 %12/12/20191/1/202443,222,382 43,758,804 43,062,933 26,397,578 12.6 %
AARSHW Property LLC (12)(13)
US - NJIndustrialSOFR +7.5% (0.15% Floor)11.6 %0.9 %3/7/20228/17/202444,368,331 44,669,513 44,702,632 27,402,713 13.0 %
AAESUF Property LLC (11)
US - NJLandSOFR + 11.95% (0.05% Floor)16.0 %5%-10%3/15/20223/1/202417,860,291 18,288,969 18,587,586 11,394,190 5.4 %



See notes to unaudited financial statements.




11
11



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
September 30, 2017 (unaudited) and December 31, 2016



Terra Property TrustTrust’s Schedule of Loans Held for Investment as of December 31, 20162022 (Continued):
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
First mortgages (Continued):
American Gilsonite CompanyUS - UTInfrastructure14.0 %14.0 %1.0 %8/31/20218/31/2023$21,250,000 $21,840,359 $21,443,528 $13,144,883 6.3 %
Dallas - Big Town Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)8.9 %1.0 %12/28/202212/27/202526,635,183 26,838,830 26,838,830 16,452,203 7.8 %
Dallas - Oakland Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)8.9 %1.0 %12/28/202212/27/20259,673,597 9,747,559 9,747,559 5,975,254 2.8 %
Dallas - US HWY 80 Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)8.9 %1.0 %12/28/202212/27/202511,395,169 11,482,294 11,482,294 7,038,646 3.4 %
Dallas - 11333 Pagemill Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)8.9 %1.0 %12/28/202212/27/202512,296,945 12,390,965 12,390,965 7,595,662 3.6 %
Dallas - 11221 Pagemill Owner, LLC (12)
US - TXIndustrialTerm SOFR + 4.5% (2.5% Floor)8.9 %1.0 %12/28/202212/27/20257,624,106 7,682,398 7,682,398 4,709,310 2.2 %
Grandview’s Madison Place, LLC (14)
US - WAMultifamilyTerm SOFR + 4.45% (0.05% Floor)8.8 %0.8 %2/10/20222/10/202517,000,000 17,105,928 17,105,928 10,485,934 5.0 %
Grandview’s Remington Place, LLC (14)
US - WAMultifamilyTerm SOFR + 4.45% (0.05% Floor)8.8 %0.5 %4/22/20224/22/202423,100,000 23,199,620 23,203,343 14,223,649 6.8 %
Hillsborough Owners LLCUS - NCMixed-useLIBOR + 8.0% (0.25% Floor)12.4 %1.0 %10/27/202111/1/202320,720,028 21,138,947 20,947,571 12,840,861 6.1 %
Mesa AZ Industrial Owner, LLC (4)(12)
US - AZLandTerm SOFR + 12.7% (2.3% Floor)17.1 %1.0 %9/15/20229/14/202331,000,000 31,276,468 31,276,468 19,172,475 9.1 %
NB Factory TIC 1, LLC (14)
US - UTStudent housingLIBOR + 5.0% (0.25% Floor)9.4 %3.3 %8/16/20213/5/202328,000,000 28,857,892 28,902,234 17,717,069 8.4 %
Patrick Henry Recovery Acquisition, LLC (11)
US - CAOfficeLIBOR +2.95% (1.5% Floor)7.3 %0.3 %11/25/201912/1/202318,000,000 18,041,782 17,824,300 10,926,296 5.2 %
The Lux Washington, LLC (12)
US - WAMultifamilyLIBOR + 7.0% (0.75% floor)11.4 %1.0 %7/22/20211/22/202416,571,267 16,722,091 16,882,333 10,348,870 4.9 %
University Park Berkeley, LLC (11)
US - CAMultifamilyLIBOR + 5.5% (4.0% Floor)8.6 %0.8 %2/27/20203/1/202326,342,468 26,536,122 26,472,938 16,227,911 7.7 %
456,408,889 461,299,182 458,085,397 280,806,348 133.6 %
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 Loans held for investment — non-controlled:        
US - NCMilestone Greensboro Holdings, LLCMezzanine loanHotel14.0%3/1/20133/1/2018$3,500,000
$3,551,028
$3,550,732
1.2%
US - NJEssence 144 Urban Renewal, LLCFirst mortgageMultifamily12.0%1/14/20153/14/201722,639,955
22,865,291
22,864,082
7.9%
US - NYCape Church Mezz, LLCMezzanine loanMultifamily12.0%3/15/20167/15/201915,207,664
15,323,482
15,341,724
5.3%
 140 Schermerhorn Street Mezz LLCMezzanine loanHotel12.0%11/16/201612/1/201915,000,000
15,105,343
15,118,900
5.2%
 WWML96MEZZ, LLCMezzanine loanMultifamily13.0%12/18/201512/31/20184,075,585
4,106,941
4,104,596
1.4%
 WWML96, LLCPreferred equity investmentMultifamily13.0%12/18/201512/31/20181,303,583
1,313,612
1,281,507
0.4%
 Total US - NY     35,586,832
35,849,378
35,846,727
12.3%
US - ORPollin Hotels PDX Mezzanine, LLCMezzanine loanHotel13.0%9/23/201310/6/20185,000,000
5,356,923
5,324,812
1.8%
US - PAPHL Hotel Partners, LLCPreferred equity investmentHotel13.0%10/8/201311/1/20173,742,000
3,779,420
3,772,758
1.3%
 Millennium Waterfront Associates, L.P.First mortgageLand12.0%7/2/20151/2/201713,980,000
14,119,800
14,118,397
4.9%
 Total US - PA     17,722,000
17,899,220
17,891,155
6.2%
US - SC
High Pointe Mezzanine
   Investments, LLC
Mezzanine loanStudent
housing		13.0%12/27/20131/6/20243,000,000
3,441,697
3,176,165
1.1%
US - TNKingsport 925-Mezz LLCMezzanine loanMultifamily13.0%1/6/201412/5/20183,000,000
3,208,266
3,111,362
1.1%
 
315 JV, LLC (6)
Mezzanine loanOffice12.0% current
3.0% PIK
11/15/20135/28/20176,877,843
6,971,219
6,935,693
2.4%
 Total US - TN     9,877,843
10,179,485
10,047,055
3.5%
US - TXNorthland Museo Member, LLCMezzanine loanMultifamily12.0%11/22/201312/6/20184,000,000
3,946,771
4,051,342
1.4%
 
Austin H. I. Owner LLC (4)(5)
Mezzanine loanHotel12.5%9/30/201510/6/20203,500,000
3,521,769
3,549,105
1.2%
 AHF-Heritage #1, LLCMezzanine loanMultifamily14.0%7/30/20128/11/20222,689,038
2,951,669
2,794,286
1.0%
 Total US - TX     10,189,038
10,420,209
10,394,733
3.6%
US - VariousCapital Square Realty Advisors, LLCFacilityVarious13%-14%
12/17/20137/29/201715,500,000
15,643,328
15,643,328
5.4%
 
Nelson Brothers Professional Real
   Estate, LLC
FacilityVarious15.0%8/31/20167/27/20178,000,000
8,073,342
8,073,342
2.8%
 Total US - Various     23,500,000
23,716,670
23,716,670
8.2%
 Total loans held for investment — non-controlled:    311,424,751
316,174,017
315,110,108
108.5%


See notes to unaudited financial statements.










12
12



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
September 30, 2017 (unaudited) and December 31, 2016

Terra Property TrustTrust’s Schedule of Loans Held for Investment as of December 31, 20162022 (Continued):

Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition DateMaturity
Date		Principal AmountAmortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Credit facility:
William A. Shopoff & Cindy L. Shopoff (15)
US - CAIndustrial15.0 %15.0 %1.0 %10/4/20214/4/2023$28,802,833 $29,080,183 $28,926,544 $17,731,971 8.4 %
28,802,833 29,080,183 28,926,544 17,731,971 8.4 %
Total gross loans held for investment645,795,459 651,962,657 623,145,754 381,988,345 181.9 %
Obligations under participation agreements (4)(5)
(12,584,958)(12,680,594)(12,680,595)(7,773,205)(3.7)%
Allowance for credit losses— (25,471,890)— — — %
Net loans held for investment$633,210,501 $613,810,173 $610,465,159 $374,215,140 178.2 %
Operating real estate:
DescriptionAcquisition Date
Fair Value of Real Estate (1)
EncumbranceNet Investment
Pro Rata Net Investment (2)
% (3)(17)

Multi-tenant office building in Santa Monica, CA (16)
7/30/2018$52,500,000 $29,252,308 $23,247,692 $14,250,835 6.8 %
Portfolio CompanyDividend YieldAcquisition DateMaturity DateSharesCostFair Value
Pro Rata
Fair Value (2)
% (3)
Marketable securities (18):
Corporate Bonds
Terra Property Trust, Inc. Corporate Bonds6.0 %Various6/30/20267,398 $136,265 $147,960 $90,699 0.04 %
Total marketable securities$136,265 $147,960 $90,699 0.04 %
Equity investments:
Portfolio CompanyOwnership InterestCostFair Value
Pro Rata
Fair Value (2)
% (3)
Mavik Real Estate Special Opportunities Fund, LP - limited partnership interest (19)
27.9%$36,794,674 $35,718,022$21,895,147 10.4 %
LEL Arlington JV LLC - limited liability member units (20)
27.2%7,271,603 7,483,5634,587,424 2.2 %
LEL NW 49th JV LLC - limited liability member units (20)
27.2%1,521,556 2,519,7811,544,626 0.7 %
TCG Corinthian FL Portfolio JV LLC (20)
34.0%6,896,816 7,426,2914,552,316 2.2 %
SF-Dallas Industrial, LLC (21)
N/A10,013,691 10,013,6916,138,393 2.9 %
$62,498,340 $63,161,348$38,717,906 18.4 %
Collateral LocationPortfolio CompanyStructureProperty
Type		Coupon
Rate		Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% of Net
 Assets (2)
 
Loans held for investment through participation interests — non-controlled (7):
       
US - NY
QPT 24th Street Mezz LLC (4)(5)
Participation in
   mezzanine loan
Land12.0% current
2.0% PIK
12/15/20156/15/201712,780,220
12,897,391
12,897,392
4.5 %
US - PA
KOP Hotel XXXI Mezz LP (4)(5)
Participation in
   mezzanine loan
Hotel13.0%11/24/201512/6/20221,800,000
1,804,135
1,847,839
0.6 %
 Total loans held for investment through participation interest — non-controlled   14,580,220
14,701,526
14,745,231
5.1 %
           
 Total gross loans held for investment     326,004,971
330,875,543
329,855,339
113.6 %
 
Obligations under participation agreements (4)(6)
    (32,635,785)(32,986,194)(32,904,955)(11.3)%
 Net loans held for investment     $293,369,186
$297,889,349
$296,950,384
102.3 %

___________________________
(1)Because there is no readily available market for these loans, the fair values of these loans are approved in good faith by the 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 $290.4 million as of December 31, 2016.
(3)This loan was repaid in full.
(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 the Manager.
(5)
The loan participations from Terra Property Trust do not qualify for sale accounting under ASC Topic 860, Transfers and Servicing, and therefore, the gross amount of these loans remain in the Consolidated Schedule of Loans Held for Investments.
(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 the Manager.
(7)Terra Property Trust purchased its interests in these loans from Terra Income Fund 6, Inc. through participation agreements.


See notes to consolidatedunaudited financial statements.



13
13

__________________________
(1)Because there is no readily available market for these investments, 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 61.3%, 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 $210.0 million at December 31, 2022.
(4)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to a third party.
(5)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in Terra Property Trust’s consolidated balance sheets.
(6)Terra Property Trust purchased a portion of the interest in this loan from Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party real estate investment trust managed by Terra REIT Advisors, via a participation agreement.
(7)This loan is currently in maturity default. For the year ended December 31, 2022, Terra Property Trust suspended interest income accrual of $3.7 million on this loan because recovery of such income was doubtful. As of December 31, 2022, Terra Property Trust recorded a specific allowance for credit losses of $11.2 million on the loan as a result of a decline in the fair value of the collateral.
(8)For the year ended December 31, 2022, Terra Property Trust suspended interest income accrual of $2.9 million on this loan because recovery of such income was doubtful. Additionally, the fair value of the loan declined as a result of a decline in the fair value of the collateral. As of December 31, 2022, Terra Property Trust recorded a specific allowance for credit losses of $12.9 million on the loan as a result of a decline in the fair value of the collateral.
(9)This loan is in maturity default. Terra Property Trust initiated a litigation to seek full repayment of the loan from the sponsor. For the year ended December 31, 2022, Terra Property Trust suspended interest income accrual of $2.0 million on this loan because recovery of such income was doubtful.
(10)This loan is classified as a trouble debt restructuring. Terra Property Trust does not anticipate a full recovery of the remaining principal balance, as such, the loan is fully reserved.
(11)These loans were used as collateral for $119.8 million of borrowings under a repurchase agreement.
(12)These loans were used as collateral for $90.1 million of borrowings under a revolving line of credit.
(13)Amount included $4.0 million of incremental borrowing that bears interest at an annual rate of 20.0% until certain conditions are met, at which time the interest rate will be the same as the original loan.
(14)These loans were used as collateral for $51.1 million of borrowings under a repurchase agreement.
(15)Amount included $3.0 million of incremental borrowing that bears interest at an annual rate of Term SOFR plus 7.0% with a SOFR floor of 4.30%.
(16)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage.
(17)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).
(18)From time to time, Terra Property Trust may invest in short-term debt and equity securities. These securities are comprised of shares of common and preferred stock and bonds.
(19)On August 3, 2020, Terra Property Trust entered into a subscription agreement with RESOF whereby Terra Property Trust committed to fund up to $50.0 million to purchase a limited partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of December 31, 2022, the unfunded commitment was $22.4 million.
(20)As of December 31, 2022, Terra Property Trust beneficially owned equity interest in three joint ventures that invest in real estate properties.
(21)On December 28, 2022, Terra Property Trust originated a $10.0 million mezzanine loan to a borrower to finance the acquisition of a real estate portfolio. Additionally, Terra Property Trust entered into a residual profit sharing agreement with the borrower where the borrower will pay Terra Property Trust an additional amount of 35.0% of remaining net cash flow from the sale of the real estate portfolio. Terra Property Trust accounts for this arrangement using the equity method of accounting.

See notes to unaudited financial statements.
Notes to Consolidated Financial Statements (Unaudited)
14


Terra Secured Income Fund 5, LLC
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2023


Note 1. Business
    
Terra Secured Income Fund 5, LLC (and, together with its consolidated subsidiaries,(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 “Company”),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 was formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. The Company was formed to originate, acquire and structure real estate-related loans, including mezzanine loans, first and second mortgage loans, subordinated mortgage loans, bridge loans, preferred equitymakes substantially all of its investments and other loans relatedconducts substantially all of its real estate lending business through Terra Property Trust, which has elected to high quality commercialbe taxed as a real estate. The Company completedestate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its original offering on Januarytaxable year ended December 31, 2015 and raised approximately $142 million in gross proceeds.2016. The Company’s investment strategy isobjectives are to invest substantially all of(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 net proceeds of membership interestsCompany will be successful in and manage a diverse portfolio of, real estate-related loans. The Company seeks to create and maintain a portfolio of investments that generates a low volatility income stream for attractive and consistent cash distributions. The real-estate loans are typically investments between $3 million and $25 million, with unlevered yields on subordinated positions and levered yields on senior positions ranging from 12% to 16% and maturities between one to ten years.meeting its investment objectives.


In December 2015, the members approved the merger of Terra Secured Income Fund, 1, 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, 2016.2016 (collectively, the “Mergers”). Following the Merger,Mergers, 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 real estate investment trust (“REIT”),REIT, in exchange for the shares of common sharesstock of Terra Property Trust. Upon completion of the Merger,Mergers, 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

    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 does not consolidateconsolidated its holdings of shares of common stock of Terra Property Trust asin Terra Fund 4. Subsequent to the Terra Fund Merger, the legal name of Terra Fund 4 was changed to Terra JV, LLC (“Terra JV”). On March 2, 2020, Terra Property Trust is notengaged in a series of transactions pursuant to which Terra Property Trust issued an investment company.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.


The Company’s investment activities are externally managed by Terra IncomeFund Advisors, LLC a private investment firm affiliated with(“Terra Fund Advisors” or the Company.“Manager”). 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 CompanyCompany’s amended and restated operating agreement provides that the Company’s existence will continue in existence until December 31, 2023; however,2023, unless sooner terminated. However, the Company expects that prior to be terminatedsuch date it will consummate a liquidity transaction, which could occur as early as this year and may include an orderly liquidation of its assets or to consummate an alternative liquidity transaction on or prior to the five-year anniversaryevent such as a strategic business combination, a sale of the completionCompany 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 original offering, which was January 31, 2015, unless extended for upmembers.

On October 1, 2022 (the “Closing Date”), pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Terra BDC Merger Agreement”), Terra Income Fund 6, Inc. (“Terra BDC”) merged with and into Terra Income Fund 6, LLC, a maximumwholly owned subsidiary of two one-year extensions atTerra Property Trust (“Terra LLC”), with Terra LLC continuing as the discretionsurviving entity of the Manager,merger (the “BDC Merger”) and as a wholly owned subsidiary of Terra Property Trust (Note 4). As of March 31, 2023, Terra JV, former shareholders of Terra BDC and Terra Offshore REIT held 70.0%, 19.9% and 10.1% of the issued and outstanding shares of Terra Property Trust’s common stock, respectively, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in orderTerra JV (Note 4). Accordingly, as of March 31, 2023, the Company indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust through Terra JV. The Company
15

Notes to facilitate an orderly liquidation orUnaudited Financial Statements

does not consolidate Terra JV because the Company and Terra Fund 7 share joint approval rights with respect to consummate such alternative liquidity transaction.certain major decisions that are taken by Terra JV and Terra Property Trust (Note 4).


Note 2. Summary of Significant Accounting Policies


Basis of Presentation and Principles of Consolidation


The consolidatedinterim 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. The consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented. All intercompany balances and transactions have been eliminated.accounts. 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”) ASCAccounting Standards Codification (“ASC”) Topic 946, Financial Services -— Investment Companies.


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 disclosuresdisclosure of contingent assets and liabilities atas of the date of the consolidated financial statements and the reported amounts of gains (losses), incomerevenues and expenses during the reporting period. Actual results could significantlymay ultimately differ from those estimates. The most significant estimates, inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments.and those differences could be material.



14
Notes to Consolidated Financial Statements (Unaudited)


Equity Investment in Terra Property TrustJV


Equity investment in Terra Property TrustJV represents the Company’s equity interest in Terra Property Trust,JV, 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


Revenue is accounted for under ASC 605, Revenue Recognition, which provides among other things that revenue be recognized when there is persuasive evidence an arrangement exists, delivery and services have been rendered, price is fixed and determinable and collectability is reasonably assured.

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 dividendsdistributions over Terra JV or Terra Property Trust’s cumulative taxable 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 nine months ended September 30, 2017March 31, 2023 and 2016,2022, 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 nine months ended September 30, 2017March 31, 2023 and 2016,2022, the Company did not incur any interest or penalties.
16

Notes to Unaudited Financial Statements

Although the Company files federal and state tax returns, its primary tax jurisdiction is federal. The Company’s inception-to-date2019-2022 federal tax years remain subject to examination by the Internal Revenue Service.


Recent Accounting PronouncementsPronouncement

London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. In May 2014,July 2017, the FASB issued Accounting Standards UpdateU.K. Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“ASU”IBA”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The core principle, announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of the revenue model is that an entity recognizes revenue2021, which has subsequently been delayed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. The Company will adopt this standard on January 1, 2018 using the cumulative effect transition method. The Company is evaluating the impact of ASU 2014-09 but does not currently believe that the application of ASU 2014-09 will have a material impact on its consolidated financial statements and disclosures.

June 30, 2023. In January 2016,March 2020, the FASB issued ASU 2016-01,2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Instruments — Overall (Subtopic 825-10): RecognitionReporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and Measurementexceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for


15
Notes to Consolidated Financial Statements (Unaudited)

financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for the Company beginning onreference rate reform. In January 1, 2018. Management is currently
evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In February 2016,2021, the FASB issued ASU 2016-02, LeasesNo. 2021-01, Reference Rate Reform (Topic 842)848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2016-02”2021-01”). 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 current model, 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 existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for U.S. GAAP public companies for fiscal years beginning afterIn December 15, 2018, including interim periods within those fiscal years. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transition of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. This ASU is not expected to have any impact on the Company’s consolidated financial statements and disclosures as the Company does not have any lease arrangements.

In August 2016,2022, the FASB issued ASU 2016-15, Statement of Cash Flows2022-06, Reference Rate Reform (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a Consensus848) — Deferral of the FASB’s Emerging Issues Task ForceSunset Date of Topic 848 (“ASU 2016-15”2022-06”). ASU 2016-15 provides guidance2022-06 deferred the sunset date of ASU 2020-04 to December 31, 2024. In the event LIBOR is unavailable, Terra Property Trust’s investment documents provide for a substitute index, on how certain transactions are classifieda basis generally consistent with market practice, intended to put the Terra Property Trust in substantially the statement of cash flows. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. The guidance requires application usingsame economic position as LIBOR. As a retrospective transition method. Theresult, the Company does not expect the reference rate reform and the adoption of ASU 2016-152020-04 and ASU 2021-01 to have a material impact on its consolidated financial statements and disclosures.

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The Company adopted the amendments to Regulation S-X on August 1, 2017. The adoption did not have a material impact on its consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Management is currently evaluating the impact of this change will have on the Company’s consolidated financial statements and
disclosures.

Note 3. Investment and Fair Value


Equity Investment in Terra Property TrustJV


The Company investsinvested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust. As of both March 31, 2023 and December 31, 2022, Terra JV held 70.0% of the issued and outstanding shares of Terra Property TrustTrust’s common stock, and its primarythe 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 position is the common shares of Terra Property Trust.(Note 4).


The following table presentstables present a summary of the Company’s investment at September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31, 2023December 31, 2022
InvestmentCostFair Value% of Members’ CapitalCostFair Value% of Members’ Capital
87.6% interest in Terra JV, LLC$212,539,131 $206,205,820 100.1 %$215,070,522 $210,008,457 100.0 %
  September 30, 2017 December 31, 2016
Investment Cost Fair Value % of Net Assets Cost Fair Value % of Net Assets
14,912,990 common shares
   of Terra Property Trust, Inc.
 $277,456,081
 $277,326,857
 100.1% $291,468,567
 $290,419,317
 100.3%


For the three months ended September 30, 2017March 31, 2023 and 2016,2022, the Company received approximately $13.1$2.8 million and $9.6$3.0 million of dividendsdistributions from Terra Property Trust, respectively,JV, of which $8.7$2.5 million and none were returns of capital, respectively. For the nine months ended September 30, 2017 and 2016, the Company received approximately $29.7 million and $25.4 million of dividends from Terra Property Trust, respectively, of which $14.0 million and $0.3$2.2 million were returns of capital, respectively.



17
16

Notes to ConsolidatedUnaudited Financial Statements (Unaudited)



        As of both March 31, 2023 and December 31, 2022, the Company indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust (Note 4). The following tables present the summarized financial information of Terra Property Trust:
March 31, 2023December 31, 2022
Carrying value of loans held for investment$609,948,789 $626,490,767 
Equity investment in unconsolidated investments53,566,840 62,498,340 
Real estate owned, net101,434,025 49,228,687 
Cash, cash equivalent and restricted cash37,052,471 36,469,592 
Other assets56,479,090 38,649,506 
Total assets858,481,215 813,336,892 
Term loan payable, unsecured notes payable, obligations under participation
   agreements, repurchase agreement payable, mortgage loan payable, revolving
   line of credit and secured borrowing		(492,469,492)(442,811,751)
Accounts payable, accrued expenses and other liabilities(40,312,347)(39,996,127)
Lease intangible liabilities(12,668,367)(8,646,840)
Total liabilities(545,450,206)(491,454,718)
Total equity$313,031,009 $321,882,174 
  September 30, 2017 December 31, 2016
Carrying value of investments $331,875,638
 $330,683,840
Other assets 79,469,290
 53,966,401
Total assets 411,344,928
 384,650,241
Mortgage loan payable and obligations under participation agreements (105,051,385) (66,855,038)
Accounts payable, accrued expenses and other liabilities (28,725,822) (26,203,277)
Total liabilities (133,777,207) (93,058,315)
Stockholder’s equity $277,567,721
 $291,591,926

Three Months Ended March 31,
20232022
Revenues$17,002,171 $12,112,270 
Expenses(16,024,416)(14,241,581)
Equity (loss) income from unconsolidated investments(436,860)1,419,335 
Other gains and losses6,584 (47,911)
Net income (loss)$547,479 $(757,887)
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues $9,651,677
 $14,408,350
 $28,197,274
 $37,395,488
Expenses (4,598,716) (4,584,017) (12,379,894) (12,493,517)
Realized gain on investments (604,169) —
 (114,209) 140,375
Net income $4,448,792
 $9,824,333
 $15,703,171
 $25,042,346


Fair Value Measurements


The Company adoptedfollows 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 areis 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
18

Notes to Unaudited Financial Statements

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.
    


17
Notes to Consolidated Financial Statements (Unaudited)

Assets and Liabilities Reported at Fair Value


The following table summarizestables summarize the Company’s equity investment in Terra Property Trust at fair value on a recurring basis as of September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31, 2023
Fair Value Measurements
Level 1Level 2Level 3Total
Investment:
Equity investment in Terra JV$— $— $206,205,820 $206,205,820 
September 30, 2017December 31, 2022
Fair Value MeasurementsFair Value Measurements
Level 1 Level 2 Level 3 TotalLevel 1Level 2Level 3Total
Investment:       Investment:
Equity investment in Terra Property Trust$—
 $—
 $277,326,857
 $277,326,857
Equity investment in Terra JVEquity investment in Terra JV$— $— $210,008,457 $210,008,457 


 December 31, 2016
 Fair Value Measurements
 Level 1 Level 2 Level 3 Total
Investment:       
Equity investment in Terra Property Trust$—
 $—
 $290,419,317
 $290,419,317

Changes in Level 3 investment for the ninethree months ended September 30, 2017March 31, 2023 and 20162022 were as follows:
Equity Investment in Terra JV
Three Months Ended March 31,
20232022
Beginning balance$210,008,457 $217,324,720 
Return of capital(2,531,391)(2,221,551)
Net change in unrealized (depreciation) appreciation on investment(1,271,246)1,018,522 
Ending balance$206,205,820 $216,121,691 
Net change in unrealized (depreciation) appreciation on investment for the period
    relating to those Level 3 assets that were still held by the Company		$(1,271,246)$1,018,522 
  Equity Investment in Terra Property Trust
  Nine Months Ended September 30,
  2017 2016
Beginning balance $290,419,317
 $—
Shares of Terra Property Trust common stock received in exchange for the Company’s
   consolidated portfolio of net assets
 —
 288,259,804
Shares of Terra Property Trust common stock purchased —
 10,000,000
Return of capital (14,012,486) (315,730)
Net change in unrealized depreciation on investment 920,026
 (1,400,694)
Ending balance $277,326,857
 $296,543,380
Net change in unrealized depreciation on investment for the period relating to those
   Level 3 assets that were still held by the Company
 $920,026
 $(1,400,694)


Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, there were no transfers.


The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at September 30, 2017March 31, 2023 and December 31, 20162022 due to their short-term nature.


Valuation Process for Fair Value Measurement


Market quotations are not readily available for the Company’s real estate-related investments throughinvestment in Terra Property Trust all ofor Terra JV, which areis included in Level 3 of the fair value hierarchy,hierarchy. The fair value of the Company’s sole investment takes into consideration the fair value of Terra Property Trust’s assets and therefore these investmentsliabilities which are valued utilizing a yield approach, i.e., a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield.methodology. In following this methodology, investmentsloans are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments,Terra Property Trust’s loans, relevant factors, includingwhich may include 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,provisions; the portfolio company’s ability to make payments, its net operating income, debt-service coverage ratio (“DSCR”),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 investment.


loan. The fair value of Terra Property Trust’s

19
18

Notes to ConsolidatedUnaudited Financial Statements (Unaudited)


investment in an office building is determined using the direct capitalization method, which is using the projected income over the capitalization rate. The fair value of Terra Property Trust’s investment in three industrial buildings is based on the purchase price.

The Manager designates a valuation committee to oversee the entire valuation process of the Company’sTerra 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 the CompanyTerra 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, industry accepted third-party valuation modelsdata 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 September 30, 2017March 31, 2023 and December 31, 2016.2022. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.
Fair ValuePrimary Valuation TechniqueUnobservable InputsMarch 31, 2023
Asset CategoryMinimumMaximumWeighted Average
Assets:
Equity investment in Terra JV$206,205,820 `
Discounted cash flow (1)(2)
Discount rate (1)(2)
5.67 %18.95 %17.98 %
Fair ValuePrimary Valuation TechniqueUnobservable InputsDecember 31, 2022
Asset CategoryMinimumMaximumWeighted Average
Assets:
Equity investment in Terra JV$210,008,457 
Discounted cash flow (1)(2)
Discount rate (1)(2)
5.22 %18.51 %16.80 %
_______________
(1)Discounted cash flows and discount rates applied to Terra Property Trust’s assets and liabilities.
(2)The fair value of Terra Property Trust’s investment in an office building is determined using the direct capitalization method with capitalization rate ranges from 6.00% to 6.25% as of both March 31, 2023 and December 31, 2022. The fair value of Terra Property Trust’s investment in three industrial buildings are based on the purchase price.

Risks and Uncertainties

    The Company’s investment in Terra Property Trust through 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.

  Fair ValuePrimary Valuation Technique Unobservable Inputs September 30, 2017
Asset Category   MinimumMaximumWeighted Average
Assets:          
Equity investment in Terra Property Trust $277,326,857
 Discounted cash flow Discount rate 2.56%15.00%12.71%
  Fair ValuePrimary Valuation Technique Unobservable Inputs December 31, 2016
Asset Category   MinimumMaximumWeighted Average
Assets:          
Equity investment in Terra Property Trust $290,419,317
 Discounted cash flow Discount rate 9.09%15.96%12.19%

Note 4. Related Party Transactions

Merger

In December 2015, the members approved the merger of Terra Fund 1, Terra Fund 2, Terra Fund 3 and Terra Fund 4 with and into subsidiaries of the Company through a series of separate mergers effective January 1, 2016. Following the Merger, the Company contributed the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust in exchange for the common shares 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.

Consent Solicitation

Terra Capital Markets, LLC (“Terra Capital Markets”), an affiliate of the manager, served as the dealer manager for the consent solicitation on the Merger, and was paid a voting advisory fee of $750 per initial unit sold to members in the Terra Funds and a dealer manager fee of 0.5% of the aggregate offering price of the units originally issued by the Terra Funds. Most of these fees were re-allowed to participating dealers. The Terra Funds also incurred costs for legal, accounting, and other professional services in connection with the consent solicitation. For the nine months ended September 30, 2016, the Company incurred $0.4 million of merger transaction costs.

Rights Offering

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 membership units (the “Rights Offering”). Terra Capital Markets served as the dealer manager for the sale of the Company’s membership units and received compensation of 3% in selling commission, 1% in dealer manager fees and a 1% broker dealer fee. Most of these fees are re-allowed to independent broker dealers and financial advisors. These fees amounted to approximately $1.3 million for the nine months ended September 30, 2016 and have been deducted from capital contributions received as selling commissions and dealer manager fees.


Operating Agreement


The Company entered intohas an operating agreement, as amended, with the Manager whereby the Manager is responsible for the Company’s day-to-day operations.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 the Managerits manager pursuant to a management agreement with the Manager.


19
Notes to Consolidated Financial Statements (Unaudited)


Due from Terra Property Trust

As of September 30, 2017, amount due from Terra Property Trust was $0.03 million, related to a professional fee invoice the Company paid on its behalf. As of December 31, 2016, there was no amount due from Terra Property Trust.

Due to Terra Property Trust

As of September 30, 2017, there was no amount due to Terra Property Trust. As of December 31, 2016, approximately $0.4 million was due to Terra Property Trust, as reflected on the consolidated statements of financial condition, primarily related to an adjustment to the contribution of the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust on January 1, 2016.manager.
    
Dividend Income
    
As discussed in Note 3, for the three months ended September 30, 2017March 31, 2023 and 2016,2022, the Company received approximately $13.1$2.8 million and $9.6$3.0 million of distributions from Terra Property Trust, respectively,JV, of which $8.7$2.5 million and none was a return$2.2 million were returns of capital, respectively. For
20

Notes to Unaudited Financial Statements


BDC Merger

On the nine months ended September 30, 2017Closing Date, pursuant to the Terra BDC Merger Agreement, Terra BDC merged with and 2016,into Terra LLC, with Terra LLC surviving as a wholly owned subsidiary of Terra Property Trust. The Certificate of Merger and Articles of Merger with respect to the Company received approximately $29.7 millionBDC Merger were filed with the Secretary of State of the State of Delaware and $25.4 millionState Department of distributions fromAssessments and Taxation of Maryland, respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the Closing Date (the “Effective Time”).

At the Effective Time, except for any shares of common stock, par value $0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by Terra Property Trust respectively,or any wholly owned subsidiary of which $14.0 million and $0.3 million was a return of capital, respectively.

Note 5. Significant Risk Factors

In the normal course of business, the Company enters into transactions in various financial instruments. The Company’s financial instruments are subject to, but are not limited to, the following risks:

Market Risk

The Company’s loans through Terra Property Trust are highly illiquidor Terra BDC, which shares were automatically retired and there isceased to exist with no assurance thatconsideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the Company will achieve its investment objectives, including targeted returns. Dueright to the illiquidityreceive (i) 0.595 shares of the loans, valuationClass B Common Stock, par value $0.01 per share of the loans may be difficult, as there generally will be no established markets for these loans. As the Company’s loans were carried at fair value with fair value changes recognized in the consolidated statements of operations, all changes in market conditions would directly affect the Company’s members’ capital.

Credit Risk

Credit risk represents the potential loss that Terra Property Trust (“TPT Class B Common Stock”) and (ii) cash, without interest, in lieu of any fractional shares of TPT Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of TPT Class B Common Stock to which such holder would incur if the borrowers failed to perform pursuantotherwise be entitled by (y) $14.38.

Pursuant to the terms of their obligationsthe transactions described in the Terra BDC Merger Agreement, approximately 4,847,910 shares of TPT Class B Common Stock were issued to former Terra Property Trust. Thus,BDC stockholders in connection with the valueBDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the underlying collateral,Closing Date. Following the creditworthinessconsummation of the borrower or other counterparty, andBDC Merger, former Terra BDC stockholders owned approximately 19.9% of the priority of Terra Property Trust’s lien on the borrower’s assets are of importance. Terra Property Trust minimizes its exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, Terra Property Trust employs an asset management approach and monitors the portfolio of loans, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value ratio, DSCR and the debt yield. Terra Property Trust also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.

Mezzanine loans and preferredcommon equity investments are subordinate to senior mortgage loans and, therefore, involve a higher degree of risk. In the event of a default, mezzanine loans and preferred equity investments will be satisfied only after the senior lender’s investment is fully recovered. As a result, in the event of a default, Terra Property Trust may not recover all of its investment.

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

Concentration Risk

Terra Property Trust holds real estate related loans. Thus, the loan portfolio of Terra Property Trust may be subject to a more rapid change in value than would be the case if Terra Property Trust maintained a wide diversification among industries, companies and types of loans. The result of such concentration in real estate assets is that a loss in such loans could materially reduce Terra Property Trust’s capital.



20
Notes to Consolidated Financial Statements (Unaudited)

Liquidity Risk

Liquidity risk represents the possibility that the Company may not be able to sell its positions at a reasonable price in timesindirectly beneficially owned approximately 61.3% of low trading volume, high volatility and financial stress.

Interest Rate Risk

Interest rate risk represents the effect from a change in interest rates, which could result in an adverse change in the fair valuecommon equity of Terra Property Trust’s interest-bearing financial instruments.Trust.


Prepayment Risk

Prepayments can either positively or adversely affect the yields on loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond Terra Property Trust’s control, and consequently, such prepayment rates cannot be predicted with certainty. If Terra Property Trust does not collect a prepayment fee in connection with a prepayment or is unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, Terra Property Trust may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios, Terra Property Trust may fail to recoup fully its cost of acquisition of certain loans.

Use of Leverage

As part of Terra Property Trust’s investment strategy, Terra Property Trust may borrow and utilize leverage. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.

Property Acquisitions

Terra Property Trust may find it necessary to take possession of collateral including, without limitation, an asset or a business, through a purchase or foreclosure action. Borrowers may resist mortgage foreclosure or sales actions by asserting numerous claims and defenses, which delay both repayments of existing loan investments and acquisition of the collateral and add cost to such actions.

There can be no assurance that Terra Property Trust will be able to successfully operate, hold or maintain the collateral in accordance with its expectations.

Further, there can be no assurance that there will be a ready market for resale of foreclosed or acquired properties because investments in real estate generally are not liquid and holding periods are difficult to predict. In addition, there may be significant expenditures associated with holding real property, including real estate taxes and maintenance costs. The liquidation proceeds upon sale of the real estate may be less than the amount invested in the loan, and its fair value and such differences could be material.

Note 6.5. 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.




21


Note 7.6. Members’ Capital


As of September 30, 2017both March 31, 2023 and December 31, 2016,2022, the Company had 6,697.56,622.2 units and 6,826.5 units outstanding, respectively.outstanding. The net asset value per unit was $41,405$31,118 and $42,423$$31,710 as of September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively.

Capital Contributions

As of January 31, 2015, the offering period ended and the Company stopped accepting capital contributions.

In connection with the Merger between the Terra Funds, original membership units of Terra Funds 1 through 4 were exchanged for 3,206.7 Continuing Income Units (regular units in the Company) and 463.6 Termination Units (membership interest in the Company offered to members of Terra Funds 1 through 4 who wish to enter the liquidation phase of their investments). The Company also offered existing members of the Terra Funds the opportunity to invest in the Company through the Rights Offering. For the nine months ended September 30, 2016, the Company sold 573.3 units and received capital contributions of approximately $25.6 million, net of selling commissions and dealer manager fees.


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 FundFunds units, after which time distributions are made 15% to the Manager which the Company referredrefers 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 Rights Offeringoffering concurrent with the Mergers is 8.5%.

In addition, holders of Termination Units receive monthly distributions at a fixed rate of 6.0% per annum of the Unreturned Invested Capital, as defined in the operating agreement.


For the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, the Company made total capital distributiondistributions to non-managernon-managing members of $23.1$2.7 million and $22.9$3.0 million, respectively. For the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, the Company did not accrue or make any carried interest distributions to the Manager.
21

Notes to Unaudited Financial Statements

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 will be redeemed on the original expected liquidation dates of the funds. For the nine months ended September 30, 2017, 121.1 Termination Units of Terra Fund 3 were redeemed for $5.0 million. For the nine months ended September 30, 2016, 161.3 Termination Units of Terra Fund 1 were redeemed for $6.8 million. These Termination Units were redeemed at book value as defined in the amended and restated operating agreement. Additionally, for the nine months ended September 30, 2017, 7.9 units of Continuing Income Units were redeemed for $0.3 million. For the nine months ended September 30, 2016, the Company also paid $3.4 million to members the Manager was unable to establish their continuation to qualify as “accredited investors” under the Securities Act of 1933, as amended, and to members holding their interests through a qualified ERISA plan to redeem their units.

The following table presents a summary of the Termination Units outstanding as of September 30, 2017:
Fund
Number of
Units
Scheduled
Redemption Date
Terra Fund 450.4
July 2018

    
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 September 30, 2017March 31, 2023 and December 31, 2016,2022, no such reserve was established. For the three months ended March 31, 2023 and 2022, the Company did not redeem any units.


Allocation of Income (Loss)


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




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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 was 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 nine months ended September 30, 2017 and 2016:
  Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
  
Managing
Member
 Non-Managing Members Total Managing
Member		 Non-Managing Members Total
Units outstanding, beginning of period —
 6,826.5
 6,826.5
 —
 2,878.9
 2,878.9
Units issued in the Merger —
 —
 —
 —
 3,670.4
 3,670.4
Units admitted through the Rights
   Offering
 —
 —
 —
 —
 573.3
 573.3
Early redemption of Continuing
   Income Units
 —
 (7.9) (7.9) —
 —
 —
Termination Units redeemed —
 (121.1) (121.1) —
 (161.3) (161.3)
Units outstanding, end of period —
 6,697.5
 6,697.5
 —
 6,961.3
 6,961.3

Note 8.7. 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 ninethree months ended September 30, 2017March 31, 2023 and 2016.2022. 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.


The following summarizes the Company’s financial highlights for the ninethree months ended September 30, 2017March 31, 2023 and 2016:2022:

Three Months Ended March 31,
20232022
Per unit operating performance:
Net asset value per unit, beginning of period$31,710 $32,860 
(Decrease) increase in members’ capital from operations (1):
Net investment income12 95 
Net change in unrealized (depreciation) appreciation on investment(192)153 
Total (decrease) increase in members’ capital from operations(180)248 
Distributions to members (2):
Capital distributions(412)(449)
Net decrease in members’ capital resulting from distributions(412)(449)
Net asset value per unit, end of period$31,118 $32,659 
Ratios to average net assets:
Expenses0.40 %0.23 %
Net investment income0.15 %1.13 %
IRR, beginning of period4.65 %4.91 %
IRR, end of period4.50 %4.86 %
._______________
(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,622.3 and 6,636.6 for the three months ended March 31, 2023 and 2022.
(2)The per unit data for distributions reflects the actual amount of distributions paid per unit during the periods.

 Nine Months Ended September 30,
 2017 2016
Per unit operating performance:   
Net asset value per unit, beginning of period$42,423
 $42,451
Increase in members’ capital from operations (1):
   
Net investment income2,240
 3,469
Net change in unrealized depreciation on investment135
 (202)
Total increase in members’ capital from operations2,375
 3,267
Distributions to member (2):
   
Capital distributions(3,401) (3,309)
Net decrease in members’ capital resulting from distributions(3,401) (3,309)
Capital share transactions:   
Other (3)
8
 181
Net increase in members’ capital resulting from capital share transactions8
 181
Net asset value per unit, end of period$41,405
 $42,590




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 Nine Months Ended September 30,
 2017 2016
Ratios to average net assets:   
Expenses (4)
0.22% 0.40%
Net investment income7.13% 10.99%
    
IRR, beginning of period5.43% 0.34%
IRR, end of period6.07% 4.91%
_______________
(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,801 units and 6,935 units for the nine months ended September 30, 2017 and 2016, respectively.
(2)The per unit data for distributions reflects the actual amount of distributions paid per share during the periods.
(3)Represents the impact of the different unit amounts used in calculating per unit data as a result of calculating certain per unit data based upon the weighted average units outstanding during the period and certain per unit data based on the units outstanding as of a period end or transaction date.
(4)
Total expenses used for calculating the ratio included $0.4 million of merger transaction fees for the nine months ended September 30, 2016, which are non-recurring expenses.

Note 9.8. 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.




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

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto and other financial information included elsewhere in this quarterly report on Form 10-Q. In this report, the “Company,” “we,” “us” and “our” refer to Terra Secured Income Fund 5, LLC and its consolidated subsidiaries.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, (the “Securities Act”), 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;

•Terra Property Trust’s ability to achieve the expected synergies, cost savings and other benefits from the BDC Merger (as defined below);

•Risks associated with achieving expected synergies, cost savings and other benefits from Terra Property Trust’s increased scale.

•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 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 investments;loans;

•our use of financial leverage;

•actual and potential conflicts of interest with any of the following affiliated entities: Terra IncomeFund Advisors, LLC (“Terra Fund Advisors” or our “Manager”), Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Income Advisors”, or the “Manager”);Advisors, LLC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra SecuredJV, LLC (“Terra JV”); Terra Property Trust, Inc. (“Terra Property Trust”); Terra Income Fund 6, LLC (formerly Terra Merger Sub, LLC), Terra Property Trust’s wholly owned subsidiary (“Terra Fund 1”LLC”); Terra Secured Income Fund 2, LLC6, Inc. (“Terra Fund 2”); Terra Secured Income Fund 3, LLC (“Terra Fund 3”); Terra Secured Income Fund 4, LLC (“Terra Fund 4”BDC”); Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC; Terra Property Trust, Inc.LLC (“Terra Property Trust”Fund 7”), our wholly-owned subsidiary;; Terra Property Trust 2, Inc., a subsidiary of Offshore Funds REIT, LLC (“Terra Secured IncomeOffshore REIT”); Mavik Real Estate Special Opportunities Fund, 7, LLC; Terra Capital Advisors, LLC; Terra Capital Advisors 2, LLC; Terra Income Advisors 2, LLC;LP (“RESOF”); or any of their affiliates;

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

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•liquidity transactions that may be available to us or our subsidiaries or affiliates in the future, including a liquidation of our assets, a sale of our company or an initial public offering andits subsidiaries or affiliates, or a strategic business combination, a listing of the shares of common stock of Terra Property Trust on a national securities exchange, or an adoption of a share repurchase plan, in each case, which may include the distribution of our common stock of Terra Property Trust indirectly owned by our company and certain other fund vehicles managed by Terra Capital Partners or its affiliates to the ultimate investors in these vehicles, 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 or exemption 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-


25


lookingforward-looking statements for any reason, including the factors set forth as “Riskin “Part I — Item 1A. Risk Factors” in our registration statementannual report on Form 10.10-K for the year ended December 31, 2022 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
    
We are a specialized real estate financecredit focused company that originates, structures, funds and manages commercial real estate loans. We focus primarily on the origination ofinvestments, including mezzanine loans, which are subordinate commercial real estate loans secured by ownership interests in the entity that owns commercial real estate. We also originate first mortgage loans, bridgesubordinated mortgage loans and preferred equity investments in each case tothroughout the United States. Our loans finance the acquisition, construction, development or redevelopment of high quality commercial real estate in the U.S.United States. We focus on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties primarily in primary and secondary markets. We believe loans in this size range 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 our wholly-owned subsidiary, Terra Property Trust.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 objective isinvestment objectives are to continue(i) preserve our members’ capital contributions, (ii) realize income from our investments and (iii) make monthly distributions to provide attractive risk-adjusted returns toour members primarily through distributions.from cash generated from investments. There can be no assurances that we will be successful in meeting our objective.investment objectives.


On January 1, 2016, Terra Secured Income Fund, 1,LLC (“Terra Fund”), Terra Fund 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”) merged with and into our subsidiaries (individually, each a “Terra Fund” and collectively,(collectively, the “Terra Funds”) through a series of separate mergers (collectively, the “Merger”“Mergers”). Following the Merger,Mergers, we contributed the consolidated portfolio of our net assets and the net assets of the Terra Funds to Terra Property Trust in exchange for all of the shares of common sharesstock of Terra Property Trust. We elected to engage
24

in thesethe REIT formation transactions, to continuemake our business as a REIT for U.S. federal income tax purposes,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.


Our investment activities are externally    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 we consolidated our 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, LLC. 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 consummation of the BDC Merger (as defined below) and as of December 31, 2022, former Terra BDC stockholders owned approximately 19.9% of Terra Property Trust’s common equity, Terra JV held 70.0% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder of 10.1% held by Terra Offshore REIT; and we and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV. Accordingly, as of March 31, 2023, we indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust through Terra JV.

As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize value for our investors. Examples of the alternative liquidity transactions that, depending on market conditions, may be available to us, or our subsidiaries or affiliates, include a listing of our shares of common stock of Terra Property Trust on a national securities exchange, adoption of a share repurchase plan, a liquidation of assets, a sale of our company or its subsidiaries or affiliates or a strategic business combination, in each case, which may include the in-kind distribution of shares of common stock of Terra Property Trust indirectly owned by our company and certain other fund vehicles managed by our Manager,Terra Capital Partners or its affiliates to the ultimate investors in these vehicles. We cannot provide any assurance that any alternative liquidity transaction will be available to us or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

Recent Developments

BDC Merger

On October 1, 2022 (the “Closing Date”), pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Terra BDC Merger Agreement”), Terra Income Fund 6, Inc. (“Terra BDC”) merged with and into Terra Income Fund 6, LLC, a wholly owned subsidiary of Terra Capital Partners,Property Trust (“Terra LLC”), with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as a real estate financewholly owned subsidiary of Terra Property Trust. The Certificate of Merger and investment firm based in New York City that focus primarilyArticles of Merger with respect to the BDC Merger were filed with the Secretary of State of the State of Delaware and the State Department of Assessments and Taxation of Maryland, respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the originationClosing Date (the “Effective Time”).

At the Effective Time, except for any shares of common stock, par value $0.001 per share (“Terra BDC Common Stock”), of Terra BDC held by Terra Property Trust or any of its wholly owned subsidiaries or Terra BDC, which shares were automatically retired and managementceased to exist with no consideration paid therefor, each issued and outstanding share of mezzanine loans,Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of Class B Common Stock, par value $0.01 per share of Terra Property Trust (“TPT Class B Common Stock”), and (ii) cash, without interest, in lieu of any fractional shares of TPT Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of TPT Class B Common Stock to which such holder would otherwise be entitled by (y) $14.38.

Pursuant to the terms of the transactions described in the Terra BDC Merger Agreement, approximately 4,847,910 shares of TPT Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as well as first mortgage loans, bridge loans,of the Closing Date. Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9% of the common equity of Terra Property Trust and preferredwe indirectly beneficially owned approximately 61.3% of the common equity investments in all major property types.of Terra Property Trust.
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Portfolio Summary


The following tables provide a summary of Terra Property Trust’s net loan portfolio as of September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31, 2023
Fixed Rate
Floating
Rate (1)(2)(3)
Total Gross LoansObligations under Participation AgreementsTotal Net Loans
Number of loans6 24 30 1 30 
Principal balance$59,726,205 $573,106,467 $632,832,672 $13,106,844 $619,725,828 
Amortized cost60,121,950 549,826,839 609,948,789 13,209,982 596,738,807 
Fair value59,314,040 553,011,148 612,325,188 13,209,983 599,115,205 
Weighted average coupon rate13.17 %11.78 %11.92 %16.80 %11.81 %
Weighted-average remaining
   term (years)		1.71 1.03 1.09 1.44 1.09 

December 31, 2022
Fixed Rate
Floating
Rate (1)(2)(3)
Total Gross LoansObligations under Participation AgreementsTotal Net Loans
Number of loans8 23 31 1 31 
Principal balance$90,990,183 $554,805,276 $645,795,459 $12,584,958 $633,210,501 
Amortized cost92,274,998 534,215,769 626,490,767 12,680,594 613,810,173 
Fair value90,729,098 532,416,656 623,145,754 12,680,595 610,465,159 
Weighted average coupon rate13.82 %11.23 %11.59 %16.36 %11.50 %
Weighted-average remaining
   term (years)		1.35 1.10 1.14 1.69 1.13 
_______________
(1)These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”) plus a fixed spread. Coupon rate shown was determined using LIBOR of 4.86%, average SOFR of 4.63% and forward-looking term rate based on SOFR (“Term SOFR”) of 4.80% as of March 31, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022, respectively.
(2)As of March 31, 2023 and December 31, 2022, amount included $427.3 million and $413.1 million of senior mortgages used as collateral for $277.9 million and $261.0 million of borrowings under credit facilities, respectively.
(3)As of March 31, 2023 and December 31, 2022, 22 and 21 of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

    In addition to Terra Property Trust’s net loan portfolio, as of March 31, 2023, Terra Property Trust owned three single-tenant industrial buildings acquired in 2023 and a multi-tenant office building acquired pursuant to a foreclosure and as of December 31, 2022, Terra Property Trust owned the aforementioned multi-tenant office building acquired pursuant to a foreclosure. The real estate and related lease intangible assets and liabilities had net carrying values of $88.8 million and $40.6 million as of March 31, 2023 and December 31, 2022, respectively. In connection with the acquisition of the industrial buildings in 2023, Terra Property Trust obtained mortgage financing of $32.1 million. As of March 31, 2023, the mortgage loans payable encumbering the three single-tenant industrial buildings and one multi-tenant office building had an aggregate outstanding principal amount of $61.4 million and as of December 31, 2022, the mortgage loans payable encumbering the multi-tenant office building had an outstanding principal amount of $29.3 million.

Additionally, as of March 31, 2023 and December 31, 2022, Terra Property Trust owned 23.4% and 50.0%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. Terra Property Trust also beneficially owned equity interests in three joint ventures that invest in real estate properties. In 2022, in connection with a mezzanine loan Terra Property Trust originated, Terra Property Trust entered into a residual profit sharing arrangement with the borrower.
26
 September 30, 2017
 Fixed Rate 
Floating
Rate (1)
 Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans32
1
1
 33
 19
 33
Principal balance$274,799,217
 $52,986,912
 $327,786,129
 70,020,950
 $257,765,179
Amortized cost278,381,358
 53,494,280
 331,875,638
 70,992,661
 260,882,977
Fair value278,265,904
 53,637,569
 331,903,473
 70,910,091
 260,993,382
Weighted average coupon rate12.60% 9.73% 12.13% 12.49% 11.99%
Weighted-average remaining
   terms (year)
1.68
 0.44
 1.48
 1.26
 1.54



26



Terra Property Trust accounted for this arrangement as an equity investment. As of March 31, 2023 and December 31, 2022, these equity investments had total carrying values of $53.6 million and $62.5 million, respectively.

 December 31, 2016
 Fixed Rate 
Floating
Rate (1)
 Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans37
 1
 38
 11
 38
Principal balance$275,554,910
 $50,450,061
 $326,004,971
 32,635,785
 $293,369,186
Amortized cost279,781,074
 50,902,766
 330,683,840
 32,986,194
 297,697,646
Fair value278,931,283
 50,924,056
 329,855,339
 32,904,955
 296,950,384
Weighted average coupon rate12.98% 9.19% 12.38% 12.96% 12.33%
Weighted-average remaining
   terms (year)
1.42
 1.19
 1.39
 1.35
 1.37
Portfolio Investment Activity
_______________
(1)
This loan pays an annual coupon rate of London Interbank Offered Rate (“LIBOR”) plus 8.5% with a LIBOR floor of 0.5%. Coupon rate shown was determined using the applicable annual coupon rate as of September 30, 2017 and December 31, 2016.

    For the three months ended March 31, 2023 and 2022, Terra Property Trust invested $25.7 million and $26.0 million in new and add-on investments and had $39.9 million and $1.4 million of repayments, resulting in net investments of $14.3 million and $24.6 million, respectively. Amounts are net of obligations under participation agreements, secured borrowing, borrowings under the master repurchase agreement, the term loan, the repurchase agreements and the revolving line of credit.
Portfolio Information


The tables below detailset forth the types of loansassets in Terra Property Trust’s loan portfolio, as well as the property type and geographic location of the properties securing thesethe loans in the portfolio, on a net loan basis, which represents Terra Property Trust’s proportionate share of the loans, based on its economic ownership of these loans.
March 31, 2023December 31, 2022
Investment StructurePrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
First mortgages$473,858,731 $478,713,612 $477,221,217 61.4 %$456,408,889 $461,299,182 $458,085,397 63.1 %
Preferred equity
   investments		122,131,455 122,948,116 98,599,646 12.7 %121,231,434 122,132,177 97,127,877 13.4 %
Mezzanine loans23,735,642 23,728,656 23,294,342 3.0 %26,767,345 26,770,521 26,325,341 3.6 %
Credit facility— — — — %28,802,833 29,080,183 28,926,544 4.0 %
Allowance for
   credit losses		— (28,651,577)— — %— (25,471,890)— — %
Total loan
   investments		$619,725,828 596,738,807 599,115,205 77.1 %$633,210,501 613,810,173 610,465,159 84.1 %
Marketable securities136,265 154,544 — %136,265 147,960 — %
Real estate owned88,765,658 101,298,273 13.1 %40,581,847 52,500,000 7.2 %
Held-to-maturity debt securities20,025,024 19,800,000 2.6 %— — — %
Equity investment in
   unconsolidated Investments		53,566,840 55,553,419 7.2 %62,498,340 63,161,348 8.7 %
Total$759,232,594 $775,921,441 100.0 %$717,026,625 $726,274,467 100.0 %
  September 30, 2017 December 31, 2016
Loan Structure Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
First mortgages $106,946,912
 $107,981,096
 $108,124,338
 41.4% $117,890,016
 $118,995,391
 $119,018,338
 40.1%
Mezzanine loans 89,335,269
 90,756,354
 90,821,211
 34.8% 118,524,437
 121,037,421
 120,466,609
 40.6%
Preferred equity
   investments
 53,482,998
 54,065,527
 53,968,834
 20.7% 47,415,691
 48,229,921
 47,838,821
 16.1%
Other (1)
 8,000,000
 8,080,000
 8,078,999
 3.1% 9,539,042
 9,626,616
 9,626,616
 3.2%
Allowance for
   loan losses
 —
 —
 —
 —% —
 (191,703) —
 —%
Total $257,765,179
 $260,882,977
 $260,993,382
 100.0% $293,369,186
 $297,697,646
 $296,950,384
 100.0%
_______________
(1)Other includes $8.0 million of unused cash from a credit facility at September 30, 2017 and $9.5 million of unused cash from two credit facilities at December 31, 2016.
  September 30, 2017 December 31, 2016
Property Type Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
Multifamily $71,765,501
 $72,775,385
 $72,426,060
 27.8% $83,510,933
 $85,021,199
 $84,556,067
 28.5%
Office 57,382,912
 57,930,352
 58,076,047
 22.3% 69,506,033
 70,159,209
 70,158,868
 23.6%
Land 53,960,000
 54,486,816
 54,486,769
 20.8% 53,746,133
 54,255,486
 54,258,353
 18.2%
Hotel 53,922,152
 54,641,489
 54,562,580
 20.9% 66,351,287
 67,557,902
 67,077,247
 22.6%
Industrial 7,000,000
 7,000,000
 7,000,000
 2.7% —
 —
 —
 —%
Student housing 5,734,614
 5,968,935
 6,362,927
 2.4% 5,700,000
 6,125,635
 6,215,839
 2.1%
Mixed use —
 —
 —
 —% 2,515,758
 2,533,450
 2,527,566
 0.9%
Other (1)
 8,000,000
 8,080,000
 8,078,999
 3.1% 12,039,042
 12,236,468
 12,156,444
 4.1%
Allowance for
   loan losses
 —
 —
 —
 —% —
 (191,703) —
 —%
Total $257,765,179
 $260,882,977
 $260,993,382
 100.0% $293,369,186
 $297,697,646
 $296,950,384
 100.0%
_______________
(1)Other includes $8.0 million of unused cash from a credit facility at September 30, 2017 and $9.5 million of unused cash from two credit facilities at December 31, 2016. Other also includes $2.5 million of retail properties as of December 31, 2016.



27
27



March 31, 2023December 31, 2022
Property TypePrincipal BalanceAmortized
Cost		Fair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
Office$149,099,692 $149,449,419 $137,686,248 17.6 %$171,611,750 $172,042,063 $159,780,622 22.0 %
Industrial127,399,590 128,361,229 128,472,717 16.5 %147,796,164 148,891,742 148,409,441 20.4 %
Multifamily112,973,073 113,781,434 112,377,812 14.5 %104,589,464 105,570,432 103,784,913 14.3 %
Mixed use85,128,218 86,026,507 73,079,668 9.4 %64,880,450 65,838,965 52,303,392 7.2 %
Infill land49,652,873 50,535,097 50,968,118 6.6 %48,860,291 49,565,437 49,864,054 6.9 %
Hotel - full/select
   service		43,222,382 43,793,356 43,265,735 5.6 %43,222,382 43,758,804 43,062,933 5.9 %
Student housing31,000,000 31,744,890 31,805,304 4.1 %31,000,000 31,774,261 31,816,276 4.4 %
Infrastructure21,250,000 21,698,452 21,459,603 2.8 %21,250,000 21,840,359 21,443,528 3.0 %
Allowance for credit
   losses		— (28,651,577)— — %— (25,471,890)— — %
Total loan
   investments		$619,725,828 596,738,807 599,115,205 77.1 %$633,210,501 613,810,173 610,465,159 84.1 %
Marketable securities136,265 154,544 — %136,265 147,960 — %
Real estate owned88,765,658 101,298,273 13.1 %40,581,847 52,500,000 7.2 %
Held-to-maturity debt securities20,025,024 19,800,000 2.6 %— — — %
Equity investment in unconsolidated
   investments		53,566,840 55,553,419 7.2 %62,498,340 63,161,348 8.7 %
Total$759,232,594 $775,921,441 100.0 %$717,026,625 $726,274,467 100.0 %

 September 30, 2017 December 31, 2016March 31, 2023December 31, 2022
Geographic Location Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of TotalGeographic LocationPrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
United States                United States
California $90,816,912
 $91,818,221
 $91,838,599
 35.2% $89,925,061
 $91,165,200
 $90,798,926
 30.5%California$124,783,800 $126,179,087 $124,501,812 16.0 %$151,668,387 $153,158,967 $150,237,383 20.8 %
New York 37,805,463
 38,107,156
 38,068,216
 14.5% 37,032,965
 37,324,858
 37,315,430
 12.6%New York88,108,375 88,108,375 63,852,723 8.2 %91,845,479 91,877,084 67,737,205 9.3 %
Florida 34,529,152
 34,851,771
 34,858,786
 13.3% 49,122,324
 49,520,673
 49,320,018
 16.6%
GeorgiaGeorgia72,983,863 73,647,905 72,765,284 9.4 %72,401,718 73,101,964 71,971,448 9.9 %
New JerseyNew Jersey70,891,499 71,920,880 72,873,444 9.4 %62,228,622 62,958,482 63,290,218 8.0 %
TexasTexas68,160,964 68,687,384 68,687,384 8.9 %67,625,000 68,142,046 68,142,046 9.4 %
Washington 20,250,000
 20,360,848
 20,417,124
 7.8% —
 —
 —
 —%Washington63,376,281 63,434,458 63,932,261 8.2 %56,671,267 57,027,639 57,191,604 7.9 %
Pennsylvania 15,410,000
 15,554,693
 15,564,431
 6.0% 18,982,000
 19,162,115
 19,184,642
 6.5%
Georgia 15,250,000
 15,588,190
 15,386,904
 5.9% 4,250,000
 4,604,941
 4,387,683
 1.5%
Texas 7,651,038
 7,879,004
 7,764,279
 3.0% 9,139,038
 9,363,678
 9,330,002
 3.1%
UtahUtah49,250,000 50,522,239 50,368,359 6.5 %49,250,000 50,698,251 50,345,762 6.9 %
North CarolinaNorth Carolina44,171,046 44,601,994 44,253,931 5.7 %43,520,028 44,041,162 43,634,806 6.0 %
ArizonaArizona31,000,000 31,288,062 31,288,061 4.0 %31,000,000 31,276,468 31,276,468 4.3 %
Massachusetts 7,000,000
 7,000,000
 7,000,000
 2.7% 4,000,000
 4,112,275
 4,071,618
 1.4%Massachusetts7,000,000 7,000,000 6,591,946 0.8 %7,000,000 7,000,000 6,638,219 0.9 %
Delaware 4,396,000
 4,436,072
 4,438,478
 1.7% 7,000,000
 7,057,616
 7,086,338
 2.4%
Alabama 3,700,000
 3,775,021
 3,744,552
 1.4% 3,844,445
 3,928,742
 3,882,318
 1.3%
Oregon 3,140,000
 3,273,511
 3,290,784
 1.3% 5,000,000
 5,356,923
 5,324,812
 1.8%
North Carolina 2,198,000
 2,222,837
 2,219,723
 0.9% 4,921,404
 4,985,576
 4,985,280
 1.7%
Tennessee 1,884,000
 1,966,718
 1,959,580
 0.8% 9,877,843
 10,179,485
 10,047,055
 3.4%
New Jersey —
 —
 —
 —% 22,639,955
 22,865,291
 22,864,082
 7.7%
Virginia —
 —
 —
 —% 6,675,510
 6,737,238
 6,737,238
 2.3%
Arizona —
 —
 —
 —% 5,719,598
 5,772,487
 5,772,487
 1.9%
Other (1)
 13,734,614
 14,048,935
 14,441,926
 5.5% 15,239,043
 15,752,251
 15,842,455
 5.3%
Allowance for
loan losses
 —
 —
 —
 —% —
 (191,703) —
 —%
Allowance for
credit losses		Allowance for
credit losses		— (28,651,577)— — %— (25,471,890)— — %
Total loan
investments		Total loan
investments		$619,725,828 596,738,807 599,115,205 77.1 %$633,210,501 613,810,173 610,465,159 83.4 %
Marketable securitiesMarketable securities136,265 154,544 — %136,265 147,960 — %
Real estate ownedReal estate owned88,765,658 101,298,273 13.1 %40,581,847 52,500,000 7.2 %
Held-to-maturity debt securitiesHeld-to-maturity debt securities20,025,024 19,800,000 2.6 %
Equity investment in
unconsolidated Investments		Equity investment in
unconsolidated Investments		53,566,840 55,553,419 7.2 %62,498,340 63,161,348 8.7 %
Total $257,765,179
 $260,882,977
 $260,993,382
 100.0% $293,369,186
 $297,697,646
 $296,950,384
 100.0%Total$759,232,594 $775,921,441 100.0 %$717,026,625 $726,274,467 99.3 %
_______________
(1)Other includes $8.0 million of unused cash from a credit facility, $2.7 million of properties in Indiana, $1.9 million of properties in South Carolina and $1.1 million of properties in Utah at September 30, 2017. Other includes $9.5 million of unused cash from two credit facilities, $2.7 million of properties in Indiana and $3.0 million of properties in South Carolina at December 31, 2016.


Factors Impacting Operating Results


Our operating results of operations are affected by a number of factors and primarily depend on, among other things, the level of the interest income generated by Terra Property Trust from targeted assets, the market value of our assets and the supply of, and demand for, real estate-related loans, including mezzanine loans, first and second mortgage loans, subordinated mortgage loans, bridge loans, preferred
28

equity investments and other loans related to high quality commercial real estate in the United States, and the financing and other costs associated with our business. Interest income and borrowing costs of Terra Property Trust may vary as a result of changes in interest rates, which could impact the net interest we receive on our assets. Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets.


Market Risk


Terra Property Trust’s loans are highly illiquid, and there is no assurance that it will achieve its investment objectives, including targeted returns. Due to the illiquidity of the loans, valuation of Terra Property Trust’s loans may be difficult, as there generally will be no established markets for these loans.


Credit Risk


Credit risk represents the potential loss that Terra Property Trust would incur if the borrowers failed to perform pursuant to the terms of their obligations to Terra Property Trust. Terra Property Trust minimizes itsmanages exposure to credit risk by limiting exposure to any one individual borrower and any one asset class. Additionally, Terra Property Trust employs an asset management approach and monitormonitors the portfolio of loans through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value ratio, debt service coverage ratio, and the debt yield. Terra Property Trust also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.


28
    



The performance and value of Terra Property Trust’s loans depend upon the sponsors’ ability to operate or manage the development of the respective properties that serve as collateral so that each property’s value ultimately supports the repayment of the loan balance. Mezzanine loans and preferred equity investments are subordinate to senior mortgage loans and, therefore, involve a higher degree of risk. In the event of a default, mezzanine loans and preferred equity investments will be satisfied only after the senior lender’s investment is fully recovered. As a result, in the event of a default, Terra Property Trust may not recover all of its investments.


    In addition, Terra Property Trust is exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond its control. Terra Property Trust seeks to manage these risks through its underwriting and asset management processes.

We and Terra Property Trust maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.


Concentration Risk


Terra Property Trust holds real estate-related loans. Thus, its loan portfolio may be subject to a more rapid change in value than would be the case if it were required to maintain a wide diversification among industries, companies and types of loans. The result of such concentration in real estate assets is that a loss in such loans could materially reduce Terra Property Trust’s capital.


Liquidity Risk


Liquidity risk represents the possibility that we may not be able to sell, directly or indirectly, our positionsequity interest in Terra Property Trust or Terra JV at a reasonable price in times of low trading volume, high volatility and financial stress.


Interest Rate Risk


Interest rate risk represents the effect from a change in interest rates, which could result in an adverse change in the fair value of our interest-bearing financial instruments. With respect to Terra Property Trust’s business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to increase; (ii) the value of real estate-related loans to decline; (iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates; (iv) to the extent applicable under the terms of Terra Property Trust’s investments, prepayments on real estate-related loans to slow,slow; and (v) to the extent we enter into interest rate swap agreements as part of Terra Property Trust’s hedging strategy, the value of these agreements to increase.

    Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to decrease; (ii) the value of real estate-related loans to increase; (iii) coupons on variable rate real estate-relatedestate-
29

related loans to reset, although on a delayed basis, to lower interest rates (iv) to the extent applicable under the terms of Terra Property Trust’s investments, prepayments on real estate-related loans to increase,increase; and (v) to the extent Terra Property Trust enters into interest rate swap agreements as part of its hedging strategy, the value of these agreements to decrease.


Prepayment Risk


Prepayments can either positively or adversely affect the yields on Terra Property Trust’s loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If Terra Property Trust does not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, Terra Property Trust may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios Terra Property Trust may fail to recoup fully its cost of acquisition of certain loans.


Extension Risk

    Extension risk is the risk that Terra Property Trust’s assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In which case, to the extent Terra Property Trust has financed the acquisition of an asset, Terra Property Trust may have to finance its asset at potentially higher costs without the ability to reinvest principal into higher yielding securities because borrowers prepay their mortgages at a slower pace than originally expected, adversely impacting its net interest spread, and thus its net interest income.

Real Estate Risk

    The market values of commercial and residential mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters; and other acts of god. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause Terra Property Trust to suffer losses.

Use of Leverage


Terra Property Trust may deploydeploys moderate amounts of leverage as part of ourits operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, term loans, repurchase agreements and other credit facilities. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.




30
29



Results of Operations
The following table presents the comparative results of our operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended March 31,
20232022Change
Investment income
Dividend income$292,254 $758,110 $(465,856)
Other operating income18 11 7 
Total investment income292,272 758,121 (465,849)
Operating expenses
Professional fees211,332 127,060 84,272 
Other1,458 1,392 66 
Total operating expenses212,790 128,452 84,338 
Net investment income79,482 629,669 (550,187)
Net change in unrealized (depreciation) appreciation on investment(1,271,246)1,018,522 (2,289,768)
Net (decrease) increase in members’ capital resulting from
   operations		$(1,191,764)$1,648,191 $(2,839,955)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 Change 2017 2016 Change
Investment income           
Dividend income$4,448,792
 $9,824,336
 $(5,375,544) $15,703,171
 $25,042,346
 $(9,339,175)
Other operating income111
 614
 (503) 1,064
 8,571
 (7,507)
Total investment income4,448,903
 9,824,950
 (5,376,047) 15,704,235
 25,050,917
 (9,346,682)
Operating expenses           
Professional fees104,100
 269,635
 (165,535) 431,465
 549,211
 (117,746)
Merger transaction fees—
 —
 —
 —
 388,692
 (388,692)
Other3,448
 (38,342) 41,790
 35,761
 52,954
 (17,193)
Total operating expenses107,548
 231,293
 (123,745) 467,226
 990,857
 (523,631)
Net investment income4,341,355
 9,593,657
 (5,252,302) 15,237,009
 24,060,060
 (8,823,051)
Net change in unrealized
   depreciation on investment
428,032
 (730,673) 1,158,705
 920,026
 (1,400,694) 2,320,720
Net increase in members’
   capital resulting from
   operations
$4,769,387
 $8,862,984
 $(4,093,597) $16,157,035
 $22,659,366
 $(6,502,331)


Dividend Income


Dividend income associated with our indirect ownership of Terra Property Trust primarily represents our proportionate share of Terra Property Trust’s net income or loss for the period. Any excess of distributions received from Terra Property Trust over its net income is recorded as return of capital. As of both March 31, 2023 and December 31, 2022, through Terra JV we indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust.


For the three months ended September 30, 2017March 31, 2023 and 2016,2022, we received distributions of $13.1$2.8 million and $9.6$3.0 million, respectively, or $0.88$0.19 and $0.65$0.20 per share, respectively, from Terra Property Trust, of which $4.4$0.3 million and $9.6$0.8 million was recorded as dividend income respectively, representing Terra Property Trust’s net income for the periods presented, and $8.7$2.5 million and none was recorded as return of capital, respectively. The $5.4 million decrease in Terra Property Trust’s net income was primarily due to (i) $3.6 million of prepayment fee income received from one loan during the three months ended September 30, 2016 as the borrower repaid the loan two years before the scheduled maturity date; (ii) a decrease in net interest income of 0.8 million as a result of lower weighted average principal balance and lower weighted average coupon rate; and (iii) operating income of $0.5 million for three months ended September 30, 2016 from Terra Park Green Members, LLC (“Terra Park Green”), a wholly-owned subsidiary of Terra Property Trust that owned two commercial office building parks and the related operations, which was subsequently sold in November 2016. The $8.7 million increase in return of capital was primarily due to the decrease in Terra Property Trust’s net income as well as additional cash needed to redeem Terra Fund 3’s Termination Units.

For the nine months ended September 30, 2017 and 2016, we received distributions of $29.7 million and $25.4 million, respectively, or $1.99 and $1.71 per share, respectively, from Terra Property Trust, of which $15.7 million and $25.0 million was recorded as dividend income, respectively, representing Terra Property Trust’s net income for the periods presented, and $14.0 million and $0.3$2.2 million was recorded as return of capital, respectively.

For the three months ended March 31, 2023, Terra Property Trust recorded net income of $0.5 million, compared to a net loss of $0.8 recorded in the same period in 2022. The $9.3 million decreasechange in Terra Property Trust’s net income (loss) was primarily due to (i) $3.6 million of prepayment fee income received from one loan during the three months ended September 30, 2016 as the borrower repaid the loan two years before the scheduled maturity date; (ii) a decreasean increase in net interest income of 3.7$2.9 million as a result of loweran increase in the weighted average principal balance lowerof net loans and an increase in the weighted average coupon rate and the suspension of $1.2 million ofon net interest income accrual on two loans as discussed in “Annualized Net Effective Yield” below; and (iii) operating income of $1.5 million for nine months ended September 30, 2016 from Terra Park Green which was subsequently sold in November 2016. The $13.7 million increase in return of capital was primarily due to the decrease innew loans Terra Property Trust’s net incomeTrust entered into as well as additional cash neededloans acquired in connection with the BDC Merge and a reversal in provision for credit losses of $0.9 million due to redeeman improvement in macroeconomic forecasts during the period, partially offset by incremental credit losses incurred on newly originated loans. These increases in net income were partially offset by an increase of $0.9 million in fees paid and operating expenses reimbursed to Terra Fund 3’s Termination Units.REIT Advisors, as a result of an increase in total assets under management, and a decrease in equity income from unconsolidated investments of $1.9 million, as a result of equity loss recognized on the joint ventures.



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Net Loan Portfolio
    
In assessing the performance of Terra Property Trust’s loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements and mortgagesecured borrowing, term loan payable, revolving line of credit and repurchase agreement payable.

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     The following tables presenttable presents a reconciliation of Terra Property Trust’s loan portfolio on a weighted average basis from a gross basis to a net basis for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
  Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
  Weighted Average Principal Amount Weighted Average Coupon Rate Weighted Average Principal Amount Weighted Average Coupon Rate
Gross loans $314,920,884
 12.1% $318,263,084
 12.5%
Obligations under participation
   agreements
 (68,234,833) 12.5% (24,792,000) 13.2%
Mortgage loan payable (34,000,000) 5.7% (34,000,000) 5.8%
Net loans $212,686,051
 
      13.0% (1)
 $259,471,084
 
   13.3% (1)

  Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
  Weighted Average Principal Amount Weighted Average Coupon Rate Weighted Average Principal Amount Weighted Average Coupon Rate
Gross loans $338,889,294
 12.0% $309,970,724
 12.8%
Obligations under participation
   agreements
 (52,385,371) 12.4% (22,848,289) 13.4%
Mortgage loan payable (36,928,955) 5.7% (30,435,055) 5.8%
Net loans $249,574,968
 
   12.8% (1)
 $256,687,380
 
    13.6% (1)
Three Months Ended March 31,
20232022
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Total portfolio
Gross loans$634,362,529 11.9 %$506,206,479 7.7 %
Obligations under participation agreements
   and secured borrowing		(12,900,803)16.8 %(79,023,662)10.4 %
Repurchase agreement payable(166,262,832)6.7 %(102,225,409)2.5 %
Term loan payable— (42,140,886)5.3 %
Revolving line of credit(97,062,727)8.1 %(44,891,269)4.0 %
Net loans (3)
$358,136,167 15.2 %$237,925,253 10.2 %
Senior loans
Gross loans498,798,97811.3 %304,278,9786.2 %
Obligations under participation agreements
   and secured borrowing		—— %(49,397,683)9.9 %
Repurchase agreement payable(166,262,832)6.7 %(102,225,409)2.5 %
Term loan payable— — %(42,140,886)5.3 %
Revolving line of credit(97,062,727)8.1 %(44,891,269)4.0 %
Net loans (3)
$235,473,419 15.9 %$65,623,731 11.3 %
Subordinated loans (4)
Gross loans135,563,55114.0 %201,927,5019.6 %
Obligations under participation agreements(12,900,803)16.8 %(29,625,979)11.2 %
Net loans (3)
$122,662,748 13.7 %$172,301,522 9.3 %
_______________
(1)Represents net interest income over the period calculated using the weighted average coupon rate and weighted average principal amount shown on the table (interest income on the loans less interest expense) divided by the weighted average principal amount of the net loans during the period.

(1)Amount is calculated based on the number of days each loan is outstanding.
For(2)Amount is calculated based on the three and nine months ended September 30, 2017 as compared to the same periods in 2016, the decrease inunderlying principal amount of each loan.
(3)The weighted average coupon rate was due to an increase in investments in seniorrepresents net interest income over the period calculated using the weighted average coupon rate and weighted average principal amount shown on the table (interest income on the loans which are typically larger principal-balanceless interest expense) divided by the weighted average principal amount of the net loans paying lower levels of interest reflecting the lower perceived risk due to their senior position in the borrower's capital structure as compared to investments in subordinated loans, as well as the new subordinated loans we originated and purchased during the current periods have coupon rates that are lower than those of the maturing subordinated loans.period.

(4)Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.
Annualized Net Effective Yield
The following table presents a calculation of Terra Property Trust’s annualized net effective yield on its net loan portfolio for the periods presented:
  Three Months Ended September 30,
  2017 2016 Change
Interest income $9,598,478
 $9,245,815
 $352,663
Interest expense — obligations under participation agreements (2,001,349) (839,996) (1,161,353)
Interest expense — mortgage loan payable (625,477) (503,466) (122,011)
Net interest income $6,971,652
 $7,902,353
 $(930,701)
       
Weighted average carrying value of gross loans $320,242,875
 $325,305,778
 $(5,062,903)
Weighted average carrying value of obligations under
  participation agreements
 (69,032,326) (25,292,536) (43,739,790)
Weighted average carrying value of mortgage loan payable (33,921,185) (33,736,918) (184,267)
Weighted average carrying value of net loans $217,289,364
 $266,276,324
 $(48,986,960)
       
Annualized net effective yield (1)
 12.7% 12.7% —%


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  Three Months Ended September 30,
  2017 2016 Change
Senior loans      
Weighted average carrying value of net loans $84,784,385
 $71,433,279
 $13,351,106
Annualized net effective yield (1)
 11.4% 12.7% (1.3)%
Subordinated loans      
Weighted average carrying value of net loans $132,504,979
 $194,843,045
 $(62,338,066)
Annualized net effective yield (1)
 13.4% 12.6% 0.8 %

  Nine Months Ended September 30,
  2017 2016 Change
Interest income $27,721,062
 $29,008,206
 $(1,287,144)
Interest expense — obligations under participation agreements (4,712,165) (2,321,418) (2,390,747)
Interest expense — mortgage loan payable (2,021,006) (1,174,968) (846,038)
Net interest income $20,987,891
 $25,511,820
 $(4,523,929)
       
Weighted average carrying value of gross loans $345,427,543
 $318,048,375
 $27,379,168
Weighted average carrying value of obligations under
  participation agreements
 (56,230,271) (23,284,885) (32,945,386)
Weighted average carrying value of mortgage loan payable (36,737,795) (26,701,336) (10,036,459)
Weighted average carrying value of net loans $252,459,477
 $268,062,154
 $(15,602,677)
       
Annualized net effective yield (1)
 11.4% 12.8% (1.4)%
       
Senior loans      
Weighted average carrying value of net loans $104,279,060
 $61,575,436
 $42,703,624
Annualized net effective yield (1)
 9.2% 13.0% (3.8)%
Subordinated loans      
Weighted average carrying value of net loans $148,180,417
 $206,486,718
 $(58,306,301)
Annualized net effective yield (1)
 12.8% 12.6% 0.2 %
_______________
(1)Represents the annualized net interest income divided by the weighted average carrying value of net loans during the period. We do not annualize one-time transaction fee income and expenses such as net origination fee income or expenses and net exit fee income or expenses.

The following table presents the components of the annualized net effective yield on Terra Property Trust’s net loan portfolio:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 Change 2017 2016 Change
Net contractual interest income (1)
 12.7 % 13.3 % (0.6)% 12.5 % 13.5 % (1.0)%
Non-collection of interest income, net (2)
 — % — % — % (0.5)% — % (0.5)%
Amortization of net purchase premium (3)
 (0.1)% (0.6)% 0.5 % (0.5)% (0.7)% 0.2 %
Net transaction fee income (expense) 0.1 % — % 0.1 % (0.1)% — % (0.1)%
Total 12.7 % 12.7 % — % 11.4 % 12.8 % (1.4)%
_______________


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(1)The decrease was primarily due to a decrease in weighted average coupon rate (see “Net Loan Portfolio” above).
(2)The increase was primarily due to a decrease in amortization of net purchase premium as a result of the majority of the net purchase premium recognized in connection with the Merger in 2016 became substantially amortized.
(3)During the nine months ended September 30, 2017, Terra Property Trust did not receive interest income payment of $1.2 million, net of interest expense on obligations under participation agreements, on a senior loan and a subordinated loan. In July 2017, the principal balances of these two loans were repaid in full.

Professional Fees

For the three and nine months ended September 30, 2017 as compared to the same periods in 2016, professional fees decreased by $0.2 million and $0.1 million, respectively, primarily due to professional fees incurred in 2016 related to the additional SEC financial statement audit and reporting requirements in relation to the initial filing of our registration statement on Form 10.

Merger Transaction Fees

Merger transaction fees represent fees incurred in connection with the Merger. Terra Capital Markets, LLC, an affiliate of our Manager, served as the dealer manager for the consent solicitation and was paid a voting advisory fee of $750 per initial unit sold to members of the Terra Funds and a dealer manager fee of 0.5% of the aggregate offering price of the units originally issued by the Terra Funds. Most of these fees were re-allowed to participating dealers. The Terra Funds also incurred costs for legal, accounting, and other professional services in connection with the consent solicitation.

For the three and nine months ended September 30, 2017 and the three months ended September 30, 2016, there were no merger transaction fees recorded. For the nine months ended September 30, 2016, we recorded additional merger transaction fees of $0.4 million.

Net Change in Unrealized DepreciationAppreciation on Investment


Net change in unrealized appreciation or depreciation on investment reflects the change in Terra Property Trust’s net loan portfoliofair value during the reporting period, including any reversal of previously recorded unrealized gains or losses, when gains or losses are realized.period. There may be fluctuations in unrealized gains and losses of the underlying portfolio as loans within the portfolio approach their respective maturity dates and fair value premiums are amortized or discounts are accreted to each loan’s respective collectible value.dates. In addition, the unrealized gains or losses in the portfolio may fluctuate over time due to changes in the market yields or carrying value adjustments such as the amortization or accretion of premiums, discounts, origination fees, and exit fees.yields.


2017 — For the three and nine months ended September 30, 2017,March 31, 2023, we recorded a decreaserecognized net change in unrealized depreciation on investment of $0.4$1.3 million, and $0.9 million, respectively, primarily due to an increase in the amortizationtrading price of a substantial portion ofTerra Property Trust’s and Terra LLC’s unsecured notes payable, partially offset by an increase in the net purchase premiums recognized in connection with the Merger in 2016, which reduced the carryingfair value of the loans.   its investments.


2016 — For the three and nine months ended September 30, 2016,March 31, 2022, we recorded an increase in net change in unrealized depreciationappreciation on
investment of $0.7$1.0 million, and $1.4 million, respectively, primarily due to amortization of fair value premiums on loans within the portfolio as they neared their respective maturity dates, which reducedan increase in the fair value of loans Terra Property Trust originated in the loans.current

period as well as a decrease in the trading price of its unsecured notes payable.

Net (Decrease) Increase in Members’ Capital Resulting from Operations


For the three and nine months ended September 30, 2017 asMarch 31, 2023, we recognized net decrease in members’ capital resulting from operations of $1.2 million, compared to the same periods in 2016, the resulting net increase in members’members capital resultsresulting from operations decreased by $4.1of $1.6 million and $6.5 million, respectively.recognized in the same period in 2022.

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Financial Condition, Liquidity and Capital Resources


Liquidity is a measure of our ability to meet potential cash requirements, including funding and maintaining our assets and operations, making distributions to our members and other general business needs. Our primary cash requirements for the next twelve months are making the discretionary recurring distributions to our members and, to a lesser extent, redeeming Terra Fund 4 Termination Units for approximately $2.1 million. “Termination Units” refer to the membership interest in our fund that were issued to members of Terra Funds 1 through 4 who chose to enter the liquidation phase of their investments.members. We expect to use cash distributions received from Terra Property Trust to meet such cash requirements. Distributions are made at the discretion of Terra Property Trust’s expected loanboard of directors and liability maturities during the next twelve months include the sole mortgage loan payable with a principal amountwill depend upon, among other things, its actual results of $34.0 million which matures in March 2018, assuming no extensions,operations and obligations under participation agreements totaling $43.6 million. The first mortgage loan held by Terra Property Trust has a coupon rate of LIBOR plus 8.5%, the borrowings under the mortgage loan incurred to finance the asset bear interest at an annual rate of LIBOR plus 5.25%, and the weighted average net interest spreadliquidity.



33


between the yield on the first mortgage loan and the cost of funds under the mortgage loan payable was 2.26% for the nine months ended September 30, 2017. Terra Property Trust expects to use proceeds from the repayment of the corresponding investments to repay the mortgage loan payable and participation obligations. Additionally, Terra Property Trust expects to fund approximately $27.4$51.3 million of the unfunded commitments to borrowers during the next twelve months. Terra Property Trust expects to maintain sufficient cash on hand to fund such commitmentcommitments through matching these commitments with principal repayments on outstanding loans.loans or draw downs on its credit facilities. Additionally, Terra Property Trust had $29.3 million of borrowings outstanding under a mortgage loan payable that bears interest at an annual rate of Term SOFR plus 3.85% with a Term SOFR floor of 2.23%, that is collateralized by an office building. The mortgage loan payable matures on May 31, 2023. Terra Property Trust expects to refinance the mortgage loan payable before it matures. In connection with the BDC Merger, Terra Property Trust assumed a $25.0 million term loan. This term loan bears interest at an annual rate of 5.625% and matures on July 1, 2023. Terra Property Trust expects to either maintain sufficient cash on hand to repay the facility or refinance the facility. Terra Property Trust may also issue additional equity, equity-related and debt securities to fund its investment strategies. Terra Property Trust may issue these securities to unaffiliated third parties or to vehicles advised by affiliates of Terra Capital Partners or third parties. As part of its capital raising transactions, Terra Property Trust may grant to one or more of these vehicles certain control rights over its activities including rights to approve major decisions it takes as part of its business.

Summary of Financing

The table below summarizes Terra Property Trust’s debt financing as of March 31, 2023:

Type of FinancingMaximum Amount AvailableOutstanding BalanceAmount Remaining AvailableInterest RateMaturity Date
Fixed Rate:
Senior unsecured notesN/A$85,125,000 N/A6.00%6/30/2026
  Senior unsecured notesN/A38,375,000 N/A7.00%3/31/2026
Term loanN/A25,000,000 N/A5.63%7/1/2023
$148,500,000 
Variable Rate:
Mortgage loan payableN/A$29,252,308 N/ATerm SOFR plus 3.85% with a Term SOFR floor of 2.23%5/31/2023
Mortgage loan payable1173616N/A1,173,61632,100,000 1,173,616N/A1173616Term SOFR +3.5% (Term SOFR Floor of 3.75%11736164/9/2027
Line of credit$125,000,000 125,000,000 $— Term SOFR plus 3.35% with a combined floor of 6.00%3/12/2024
UBS repurchase agreement195,000,000 51,050,000 143,950,000 LIBOR or Term SOFR depending on repurchased asset index plus a spread ranging from 1.60% to 2.25%11/7/2024
GS repurchase agreement200,000,000 101,897,394 98,102,606 Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%)2/18/2024
$520,000,000 $339,299,702 $242,052,606 

Cash Flows Provided by Operating Activities


20172023 — For the ninethree months ended September 30, 2017, cash flows provided by operating activities were $28.5 million, primarily due to $29.7 million of dividends received from Terra Property Trust, of which $14.0 million was recorded as a return of capital.

2016— For the nine months ended September 30, 2016,March 31, 2023, cash flows provided by operating activities were $2.7 million, primarily due to $25.4$2.8 million of dividends received from Terra Property Trust,JV, of which $0.3$2.5 million was recorded as a return of capital, partially offsetcapital.

2022— For the three months ended March 31, 2022, cash flows provided by (i) $10.0operating activities were $2.9 million, usedprimarily due to purchase shares of common stock of Terra Property Trust; (ii) the payment of $5.3 million related to merger transaction fees that were accrued; (iii) $5.0$3.0 million of cash transferred todividends received from Terra Property Trust in connection with the Merger; (iv) $0.7JV, of which $2.2 million reimbursed to the Manager for merger transaction fees paid; and (v)was recorded as a $0.6 millionreturn of state and local tax paid in connection with the filing of the 2015 tax returns.capital.


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Cash Flows used in Financing Activities


20172023 — For the ninethree months ended September 30, 2017,March 31, 2023, cash flows used in financing activities was $28.4were $2.7 million, consisting ofrelated to distributions paid to members of $23.1 million and cash of $5.3 million used to primarily redeem Terra Fund 3 Termination Units.$2.7 million.


20162022— For the ninethree months ended September 30, 2016,March 31, 2022, cash flows used in financing activities was $4.1were $3.0 million, primarily duerelated to distributions paid to members of $22.9 million and cash used for capital redemptions of $10.2 million, of which $6.8 million was used to redeem Terra Fund 1 Termination Units and $3.4 million was paid to other redeeming members. These cash outflows were partially offset by $25.6 million of proceeds from capital contributions from the offering concurrent with the Merger, net of selling commissions and dealer manager fees, and cash of $3.5 million acquired in the Merger.$3.0 million.


Critical Accounting Policies and Use of Estimates


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

Allowance for Loan Losses

Terra Property Trust’s investments are typically collateralized by either the sponsors’ equity interest in real estate properties or real estate properties. As a result, Terra Property Trust regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. The Manager employs an asset management approach and monitors the portfolio of investments, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, debt-service coverage ratio and the debt yield, supplemented by occasional site visits to evaluate the assets. The Manager also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments. The information gathered by way of the asset management process is sufficient in assessing collectability.



34


Using the information gathered by way of the asset management process, the Manager performs a quarterly, or more frequently as needed, review of Terra Property Trust’s portfolio of investments. In conjunction with this review, the Manager assesses the risk factors of each investment and assigns each investment a risk rating. Based on a 5-point scale, Terra Property Trust’s investments are rated “1” through “5”, from less risk to greater risk. For investments with a risk rating of “4” and “5”, the Manager assesses each investment for collectability. This includes the ability to realize the full amount of principal and interest in the event that Terra Property Trust needs to exercise its rights under the terms of the agreement and/or any other contemplated workout or modification. To the extent the net realizable amount analysis indicates the principal amount of the recorded investment as of the reporting date is in jeopardy, an appropriate allowance for loan losses will be recorded. Additionally, Terra Property Trust records a general allowance for loan losses equal to 1.5% of the aggregate principal amount of loans rated as a “4” and 5% of the aggregate principal amount of loans rated as a “5”. Loans on which a specific allowance is recorded are removed from the pool of loans on which a general allowance is calculated.


Fair Value Measurements


The fair value of financial instrumentsour investment is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


Our financial assets and liabilities wereinvestment was recorded at fair value on our consolidated statements of assets and liabilities and were categorized based on the inputs valuation techniques as follows:


•Level 1. Quoted prices for identical assets or liabilities in an active market.


•Level 2. Financial assets and liabilities whose values are based on the following:


◦Quoted prices for similar assets or liabilities in active markets.


◦Quoted prices for identical or similar assets or liabilities in non-active markets.


◦Pricing models whose inputs are observable for substantially the full term of the asset or liability.


◦Pricing models whose inputs are derived principally from or corroborated by observable market data for
substantially full term of the asset or liability.


•Level 3. Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.


Unobservable inputs reflect our assumptions about the factors that market participants would use in pricing an asset or liability, and would be based on the best information available.


Any changes to the valuation methodology will be reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, we will continue to refine our valuation methodologies. The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods will be appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of
34

certain financial instruments could result in a different estimate of fair value at the reporting date. We will use inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.


Income Taxes

Management Agreement with Terra REIT Advisors
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 our taxable income. We, 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 nine months ended September 30, 2017 and 2016, none of our income was subject to the NYC UBT.



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We did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification 740-10-25, Income Taxes, nor did we have any unrecognized tax benefits as of the periods presented herein. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. For the three and nine months ended September 30, 2017 and 2016, we did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. Our inception-to-date federal tax years remain subject to examination by the Internal Revenue Service.

Contractual Obligations
Our wholly-owned subsidiary,    Terra Property Trust currently pays the following fees to the ManagerTerra REIT Advisors pursuant to a management agreement:


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


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


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


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


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


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


The following table presents a summary of fees paid and costs reimbursed to Terra REIT Advisors in the Manageraggregate in connection with providing services to Terra Property Trust:
Three Months Ended March 31,
 Three Months Ended September 30, Nine Months Ended September 30,20232022
 2017 2016 2017 2016
Origination fee expense (1)
 $624,255
 $734,706
 $2,381,562
 $2,396,149
Origination and extension fee expense (1)(2)
Origination and extension fee expense (1)(2)
$471,448 $686,365 
Asset management fee 785,748
 948,372
 2,397,595
 2,482,315
Asset management fee1,997,427 1,488,095 
Asset servicing fee 152,047
 227,101
 529,535
 602,662
Asset servicing fee470,525 349,329 
Operating expenses reimbursed to Manager 725,197
 838,287
 2,425,699
 2,516,849
Disposition fee (2)
 197,614
 44,879
 798,333
 451,980
Operating expenses reimbursed to Terra REIT AdvisorsOperating expenses reimbursed to Terra REIT Advisors2,177,004 1,928,563 
Disposition fee (3)
Disposition fee (3)
290,813 — 
Total $2,484,861
 $2,793,345
 $8,532,724
 $8,449,955
Total$5,407,217 $4,452,352 
_______________
(1)
(1)Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the investment.
(2)Disposition fee is generally offset with exit fee income on the consolidated statements of operations. Any excess is deferred


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and amortized to interest income over the term of the investment.loan.

Off-Balance Sheet Arrangements

Other than contractual commitments and other legal contingencies incurred(2)Amount for the three months ended March 31, 2023 excluded $0.5 million of origination fees paid to the Terra REIT Advisors in connection with the normal course of our business, we do not have any off-balance sheet financings or liabilities.
Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The core principleacquisition of the revenue model is that an entity recognizes revenuethree industrial buildings in 2023. Amount for the three months ended March 31, 2022 excluded $0.2 million, of origination fees paid to depict the transfer of promised goods or services to customersTerra REIT Advisors in connection with its equity investment in an amount that reflectsunconsolidated investment. These origination fees were capitalized to the consideration to which the entity expects to be entitled in exchange for the goods or services. We will adopt this standard on January 1, 2018 using the cumulative effect transition method. We are evaluating the impact of ASU 2014-09 but do not currently believe that the adoption of ASU 2014-09 will have a material impact on our consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the faircarrying value of financial instruments. This guidancethe
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unconsolidated investment as a transaction cost.
(3)Disposition fee is effective for us beginning on January 1, 2018. We are currently evaluating the impact these changes will have on our consolidated financial statementsgenerally offset with exit fee income and disclosures.

In February 2016, the FASB issued 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 recordedincluded in interest income on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, 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 existing sale-leaseback guidance with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 is effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application will be permitted for all entities. The new standard must be adopted using a modified retrospective transitionconsolidated statements of the new guidance and provides for certain practical expedients. Transition will require application of the new model at the beginning of the earliest comparative period presented. This ASU is not expected to have any impact on our consolidated financial statements and disclosures as we do not have any lease arrangements.operations.


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a Consensus of the FASB’s Emerging Issues Task Force (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. The guidance requires application using a retrospective transition method. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements and disclosure.

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. We adopted the amendments to Regulation S-X on August 1, 2017. The adoption did not have a material impact on our consolidated financial statements and disclosures.    
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 intends to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes, and outputs. While an integrated set of assets and activities, collectively referred to as a “set,” that is a business usually has outputs, outputs are not required to be present. ASU 2017-01 provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact these changes will have on our consolidated financial statements and disclosures.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We may be subject to financial market risks, including changes in interest rates. To the extent that we borrow money to make investments, our net investment income will be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of rising interest rates, our cost of funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
As of September 30, 2017,March 31, 2023, Terra Property Trust had one investmenteight investments with aan aggregate principal balance of approximately $53.0$244.7 million, net of obligations under participation agreements, that providesprovide for interest income indexedat an annual rate of LIBOR plus a spread, six of which are subject to LIBOR, with a LIBOR floorfloor. A decrease of 0.5%.100 basis points in LIBOR would decrease Terra Property Trust’s annual interest income, net of interest expense on participation agreements, by approximately $2.4 million, and an increase of 100 basis points in LIBOR would increase Terra Property Trust’s annual interest income, net of interest expense on participation agreements, by approximately $2.4 million. Additionally, Terra Property Trust had approximately $34.016 investments with an aggregate principal balance of $316.5 million that provide for interest income at an annual rate of SOFR or Term SOFR plus a spread, all of which were subject to a SOFR or Term SOFR floor. A decrease of 100 basis points in SOFR or Term SOFR would decrease Terra Property Trust’s annual interest income by $3.2 million, and an increase of 100 basis points would increase Terra Property Trust’s annual interest income by $3.2 million.

    Additionally, as of March 31, 2023, Terra Property Trust had $29.3 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of Term SOFR plus a spread that is collateralized by an office building, $32.1 million of borrowings outstanding under another mortgage loan payable that bear interest an annual rate of Term SOFR plus a spread that is collateralized by three industrial buildings, a revolving line of credit with an outstanding balance of $125.0 million that bears interest at an annual rate of Term SOFR plus a spread that is collateralized by $217.9 million of first mortgages; a repurchase agreement with an outstanding balance of $51.1 million that bears interest at an annual rate of LIBOR or Term SOFR, as applicable, plus 5.25%.a spread that is collateralized by $68.1 million of first mortgages; and another repurchase agreement with an outstanding balance of $101.9 million that bears interest at an annual rate of Term SOFR plus a spread that is collateralized by $141.2 million of first mortgages. A decrease of 1%100 basis points in LIBOR and Term SOFR would decrease ourTerra Property Trust’s annual net interest expense by approximately $0.03$3.4 million, and an increase of 1%100 basis points in LIBOR and Term SOFR would increase ourTerra Property Trust’s annual net interest incomeexpense by approximately $0.2$3.4 million.


    In July 2017, the U.K. Financial Conduct Authority, which regulates the LIBOR administrator, IBA, announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delayed to June 30, 2023. The Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions convened by the U.S. Federal Reserve, has recommended SOFR as a more robust reference rate alternative to U.S. dollar LIBOR. SOFR is calculated based on overnight transactions under repurchase agreements, backed by Treasury securities. SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain.

    Potential changes, or uncertainty related to such potential changes, may adversely affect the market for LIBOR-based loans, including Terra Property Trust’s portfolio of LIBOR-indexed, floating-rate loans, or the cost of its borrowings. In addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based loans, including the value of the LIBOR-indexed, floating-rate loans in Terra Property Trust’s portfolio, or the cost of its borrowings. In the event LIBOR is unavailable, Terra Property Trust’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put us in substantially the same economic position as LIBOR.

We may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments, such as futures, options and forward contracts, subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of
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investments with fixed interest rates. For the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, we did not engage in interest rate hedging activities.


In addition, we may have risks regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Fair Value Measurements.”Measurements” in this quarterly report on Form 10-Q.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including ourthe chief executive officer and chief financial officer of our Manager (performing functions equivalent to those a principal executive officer and principal financial officer of our company would perform if we had any officers), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.March 31, 2023. Based on that evaluation, ourthe chief executive officer and chief financial officer of our Manager concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within our company to disclose material information otherwise required to be set forth in our periodic reports.

Changes in Internal Control Over Financial Reporting

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



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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.
Neither we, Terra Property Trust nor Terra Income Advisors is currently subject to any material legal proceedings, nor, to our knowledge, are material legal proceedings threatened against us, Terra Property Trust or Terra Income Advisors.
From time to time, we, Terra Property Trust, Terra JV and individuals employed by Terra Income Advisorsour Manager may be a party to certain legal proceedings in the ordinary course of business.business, including proceedings relating to the enforcement of Terra Property Trust’s rights under contracts with its portfolio companies. Additionally, as of March 31, 2023, Terra Property Trust owned a multi-tenant office building that is subject to a ground lease. The ground lease provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9% of the fair market value of the land. The next rent reset on the ground lease is scheduled for November 1, 2025. Terra Property Trust is currently litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. Terra Property Trust believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. Terra Property Trust’s position has prevailed in all three of the prior arbitrations to reset the ground rent. Terra Property Trust intends vigorously to pursue the litigation. While Terra Property Trust believes its arguments will likely prevail, the outcome of thesethe legal proceedingsproceeding cannot be predicted with certainty, we do not expect that these proceedings will havecertainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a material effect upon our financial condition or resultssignificant diminution in the value of operations.Terra Property Trust’s interest in the ground lease and the office building.

Item 1A. Risk Factors.
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the amendment no. 2 to Form 10 filed on July 24, 2017.year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.

Item 3. Defaults Upon Senior Securities.
Not applicable.
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Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.None.

Item 6.  Exhibits.
The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit No.Description and Method of Filing
Exhibit No.2.1Description and Method of Filing
2.1
2.2
2.2
2.3
2.3
2.4
2.4
2.5
2.5


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Exhibit No.2.6Description and Method of Filing
2.6
3.12.7
2.8
3.1
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31.1*
Exhibit No.Description and Method of Filing
31.1*
31.2*
31.2*
32**
32**
101.INS
101.INS**Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH**101.SCHXBRL Taxonomy Extension Schema Document
101.CAL**101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PRE**101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**104Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL Taxonomy Extension Definition Linkbase Documentdocument)
_______________
* Filed herewith.
** Furnished herewith.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Quarterly Report on Form10-Qreport to be signed on its behalf by the undersigned in the capacities indicated* thereunto duly authorized.


Date: November 13, 2017
May 12, 2023
TERRA SECURED INCOME FUND 5, LLC
By:/s/ Bruce D. BatkinVikram S. Uppal
Bruce D. BatkinVikram S. Uppal
Chief Executive Officer and Chief Investment Officer
(Principal Executive Officer)
By:/s/ Gregory M. Pinkus
Gregory M. Pinkus
Chief Financial Officer and Chief Operating Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)

___________

*  The registrant is a limited liability company managed by Terra Fund Advisors, LLC, its sole and managing member and the persons are signing in their respective capacities as officers of Terra Fund Advisors, LLC.



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