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 SeptemberJune 30, 2019
2020
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-55780
Terra Secured Income Fund 5, LLC
(Exact name of registrant as specified in its charter)
Delaware90-0967526
(State or other jurisdiction of

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

Identification No.)
550 Fifth Avenue, 6th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 753-5100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Sectionsection 12(b) of the Act: None.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 ¨o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☑Smaller reporting company☑
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer þ

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ
As of November 13, 2019,August 10, 2020, the registrant had 6,638.06,637.7 units of limited liability company interests outstanding.
No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.




TABLE OF CONTENTS
Page
PART I
Page
PART IItem 1.
Item 1.
Financial Statements
2
3
4
5
6
1214
Item 2.
2124
Item 3.
3338
Item 4.
3439
PART II
39
Item 1.
3540
Item 1A.
3540
Item 2.
3542
Item 3.
3542
Item 4.
3542
Item 5.
3542
Item 6.
3543
3744


1




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

June 30, 2020December 31, 2019
(unaudited)
Assets
Equity investment in Terra JV, LLC at fair value (cost of $238,509,445 and
$0, respectively)		$238,509,869  $—  
Equity investment in Terra Property Trust, Inc. at fair value (cost of $0 and
$243,924,852, respectively)		—  247,263,245  
Cash and cash equivalents400,213  97,937  
Other assets11,573  15,064  
Total assets$238,921,655  $247,376,246  
Liabilities and Members’ Capital
Liabilities
Accounts payable and accrued expenses$216,691  $271,333  
Due to related party—  38,000  
Total liabilities216,691  309,333  
Commitments and contingencies (Note 5)
Members’ capital:
Managing member—  —  
Non-managing members238,704,964  247,066,913  
Total members’ capital238,704,964  247,066,913  
Total liabilities and members’ capital$238,921,655  $247,376,246  
Net asset value per unit$35,962  $37,222  

  September 30, 2019 December 31, 2018
  (unaudited)  
Assets    
Equity investment in Terra Property Trust, Inc. at fair value — controlled (cost
of $249,366,017 and $265,200,249, respectively)		 $252,111,819
 $263,092,585
Cash and cash equivalents 85,522
 131,784
Other assets 21,804
 14,283
Total assets $252,219,145
 $263,238,652
     
Liabilities and Members’ Capital    
Liabilities    
Accounts payable and accrued expenses $247,734
 $158,210
Total liabilities 247,734
 158,210
Commitments and contingencies (Note 5)
 
 
Members’ capital:    
Managing member —
 —
Non-managing members 251,971,411
 263,080,442
Total members’ capital 251,971,411
 263,080,442
Total liabilities and members’ capital $252,219,145
 $263,238,652
Net asset value per unit $37,959
 $39,630

See notes to consolidatedunaudited financial statements (unaudited).
 

2
2




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

Three Months Ended June 30,Six Months Ended June 30,
 Three Months Ended September 30, Nine Months Ended September 30, 2020201920202019
 2019 2018 2019 2018
Investment income — controlled        
Investment incomeInvestment income
Dividend income $2,994,149
 $5,487,805
 $6,917,024
 $17,829,718
Dividend income$681,685  $—  $1,946,123  $3,922,875  
Investment income        
Other operating income 82
 137
 474
 1,140
Other operating income34  90  178  392  
Total investment income 2,994,231
 5,487,942
 6,917,498
 17,830,858
Total investment income681,719  90  1,946,301  3,923,267  
Operating expenses        Operating expenses
Professional fees 182,081
 126,966
 453,414
 334,802
Professional fees161,100  98,119  335,199  271,333  
Other 686
 2,891
 9,645
 10,832
Other1,295  6,076  2,744  8,959  
Total operating expenses 182,767
 129,857
 463,059
 345,634
Total operating expenses162,395  104,195  337,943  280,292  
Net investment income 2,811,464
 5,358,085
 6,454,439
 17,485,224
Net change in unrealized appreciation
(depreciation) on investment — controlled		 1,655,207
 (179,846) 4,853,466
 (355,600)
Net investment income (loss)Net investment income (loss)519,324  (104,105) 1,608,358  3,642,975  
Net change in unrealized appreciation on investmentNet change in unrealized appreciation on investment2,813,973  1,609,008  527,675  3,198,259  
Net increase in members’ capital resulting
from operations		 $4,466,671
 $5,178,239
 $11,307,905
 $17,129,624
Net increase in members’ capital resulting from
operations		$3,333,297  $1,504,903  $2,136,033  $6,841,234  
Per unit data:        Per unit data:
Net investment income per unit $424
 $806
 $972
 $2,622
Net investment income (loss) per unitNet investment income (loss) per unit$78  $(16) $242  $549  
Net increase in members’ capital resulting from
operations per unit
 $673
 $779
 $1,704
 $2,569
Net increase in members’ capital resulting from
operations per unit		$502  $227  $322  $1,030  
Weighted average units outstanding 6,638
 6,644
 6,638
 6,670
Weighted average units outstanding6,638  6,639  6,638  6,639  




See notes to consolidatedunaudited financial statements (unaudited).

statements.
3




Terra Secured Income Fund 5, LLC
Consolidated Statements of Changes in Members’ Capital (Unaudited)
Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019

(Unaudited)
Managing
Member		Non-Managing MembersTotal
Balance, April 1, 2020$—  $238,402,378  $238,402,378  
Capital distributions—  (3,030,711) (3,030,711) 
Increase in members’ capital resulting from operations:
Net investment income—  519,324  519,324  
Net change in unrealized appreciation on investment—  2,813,973  2,813,973  
Net increase in members’ capital resulting from operations—  3,333,297  3,333,297  
Balance, June 30, 2020$—  $238,704,964  $238,704,964  
 Managing
Member		 Non-Managing Members Total
Balance, July 1, 2019$—
 $254,985,487
 $254,985,487
Capital distributions—
 (7,468,094) (7,468,094)
Capital redemptions—
 (12,653) (12,653)
Increase in members’ capital resulting from operations:     
Net investment income—
 2,811,464
 2,811,464
Net change in unrealized appreciation on investment—
 1,655,207
 1,655,207
Net increase in members’ capital resulting from operations—
 4,466,671
 4,466,671
Balance, September 30, 2019$—
 $251,971,411
 $251,971,411

Managing
Member		Non-Managing MembersTotal
Balance, April 1, 2019$—  $260,948,679  $260,948,679  
Capital distributions—  (7,468,095)(7,468,095) 
Increase in members’ capital resulting from operations:
Net investment loss—  (104,105)(104,105) 
Net change in unrealized appreciation on investment—  1,609,0081,609,008  
Net increase in members’ capital resulting from operations—  1,504,903  1,504,903  
Balance, June 30, 2019$—  $254,985,487  $254,985,487  
 Managing
Member		 Non-Managing Members Total
Balance, July 1, 2018$—
 $270,804,496
 $270,804,496
Capital distributions—
 (7,479,981) (7,479,981)
Capital redemptions—
 (509,859) (509,859)
Increase in members’ capital resulting from operations:     
Net investment income—
 5,358,085
 5,358,085
Net change in unrealized depreciation on investment—
 (179,846) (179,846)
Net increase in members’ capital resulting from operations—
 5,178,239
 5,178,239
Balance, September 30, 2018$—
 $267,992,895
 $267,992,895

Managing
Member		Non-Managing MembersTotal
Balance, January 1, 2020$—  $247,066,913  $247,066,913  
Capital distributions—  (10,497,982) (10,497,982) 
Increase in members’ capital resulting from operations:
Net investment income—  1,608,358  1,608,358  
Net change in unrealized appreciation on investment—  527,675  527,675  
Net increase in members’ capital resulting from operations—  2,136,033  2,136,033  
Balance, June 30, 2020$—  $238,704,964  $238,704,964  
 Managing
Member		 Non-Managing Members Total
Balance, January 1, 2019$—
 $263,080,442
 $263,080,442
Capital distributions—
 (22,404,283) (22,404,283)
Capital redemptions—
 (12,653) (12,653)
Increase in members’ capital resulting from operations:     
Net investment income—
 6,454,439
 6,454,439
Net change in unrealized appreciation on investment—
 4,853,466
 4,853,466
Net increase in members’ capital resulting from operations—
 11,307,905
 11,307,905
Balance, September 30, 2019$—
 $251,971,411
 $251,971,411

Managing
Member		Non-Managing MembersTotal
Balance, January 1, 2019$—  $263,080,442  $263,080,442  
Capital distributions—  (14,936,189) (14,936,189) 
Increase in members’ capital resulting from operations:
Net investment income—  3,642,975  3,642,975  
Net change in unrealized appreciation on investment—  3,198,259  3,198,259  
Net increase in members’ capital resulting from operations—  6,841,234  6,841,234  
Balance, June 30, 2019$—  $254,985,487  $254,985,487  
 Managing
Member		 Non-Managing Members Total
Balance, January 1, 2018$—
 $275,549,455
 $275,549,455
Capital distributions—
 (22,497,394) (22,497,394)
Capital redemptions—
 (2,188,790) (2,188,790)
Increase in members’ capital resulting from operations:    
Net investment income—
 17,485,224
 17,485,224
Net change in unrealized depreciation on investment—
 (355,600) (355,600)
Net increase in members’ capital resulting from operations—
 17,129,624
 17,129,624
Balance, September 30, 2018$—
 $267,992,895
 $267,992,895




See notes to consolidatedunaudited financial statements (unaudited).



4




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


Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net increase in members’ capital resulting from operations$2,136,033  $6,841,234  
Adjustments to reconcile net increase in members’ capital resulting from
operations to net cash provided by operating activities:
Return of capital on investment9,281,051  11,260,039  
Net change in unrealized appreciation on investment(527,675) (3,198,259) 
Changes in operating assets and liabilities:
Decrease (increase) in other assets3,491  (14,260) 
(Decrease) increase in accounts payable and accrued expenses(54,642) 8,804  
Decrease in due to related party(38,000) —  
Net cash provided by operating activities10,800,258  14,897,558  
Cash flows from financing activities:
Distributions paid(10,497,982) (14,936,189) 
Net cash used in financing activities(10,497,982) (14,936,189) 
Net increase (decrease) in cash and cash equivalents302,276  (38,631) 
Cash and cash equivalents at beginning of period97,937  131,784  
Cash and cash equivalents at end of period$400,213  $93,153  
Supplemental Non-Cash Disclosure:
Transfer of ownership interest in Terra Property Trust, Inc. to
   Terra JV, LLC (Note 3)
$244,006,890  $—  
 Nine Months Ended September 30,
 2019 2018
Cash flows from operating activities:   
Net increase in members’ capital resulting from operations$11,307,905
 $17,129,624
Adjustments to reconcile net increase in members’ capital resulting from
   operations to net cash provided by operating activities:
   
Return of capital on investment15,834,232
 7,066,860
Net change in unrealized (appreciation) depreciation on investment(4,853,466) 355,600
    
Changes in operating assets and liabilities:   
Increase in other assets(7,521) (16,716)
Increase in accounts payable and accrued expenses89,524
 69,320
Net cash provided by operating activities22,370,674
 24,604,688
    
Cash flows from financing activities:   
Distributions paid(22,404,283) (22,497,365)
Payments for capital redemptions(12,653) (2,188,790)
Net cash used in financing activities(22,416,936) (24,686,155)
    
Net decrease in cash and cash equivalents(46,262) (81,467)
Cash and cash equivalents at beginning of period131,784
 212,366
Cash and cash equivalents at end of period$85,522
 $130,899
    
Supplemental Disclosure of Cash Flows Information:   
Cash paid for income taxes$—
 $—
Cash paid for interest$—
 $—






See notes to consolidatedunaudited financial statements (unaudited).

5




Terra Secured Income Fund 5, LLC
Consolidated SchedulesSchedule of InvestmentsInvestment
SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019


On January 1, 2016, the Company, the then parent of Terra Property Trust, Inc. (“Terra Property Trust”), contributed its consolidated portfolio of net assets to Terra Property Trust pursuant to a contribution agreement in exchange for shares of Terra Property Trust’s common stock, par value $0.01 per share. Upon receipt of the contribution of the consolidated portfolio of net assets from the Company, Terra Property Trust commenced its operations on January 1, 2016. As discussed in Note 4, on March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of SeptemberJune 30, 20192020, Terra JV, LLC (“Terra JV”) held 87.4% of the issued and December 31, 2018,outstanding shares of Terra Property Trust’s common stock with the Company’s only investment is its equity interest in a majority-owned subsidiary as presented below:

    Number of Shares of Common Stock September 30, 2019 December 31, 2018
Investment — Controlled Date Acquired  Cost Fair Value % of Members’ Capital Cost Fair Value % of Members’ Capital
Terra Property Trust, Inc. — Controlled 1/1/2016 and 3/7/2016 14,912,990
 $249,366,017
 $252,111,819
 100.1% $265,200,249
 $263,092,585
 100.0%

As ofSeptember 30, 2019,remainder held by Terra International Fund 3 REIT, LLC (“TIF3 REIT”), and the Company and Terra Secured Income Fund 7, LLC (“Terra Fund 7”) owned 98.6%an 87.6% and 12.4% percentage interest, respectively, in Terra JV. Accordingly, as of June 30, 2020, the Company indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust Inc. (“through Terra JV.

        The following table presents a summary of the Company’s investment as of June 30, 2020 and December 31, 2019:
Percentage InterestJune 30, 2020
InvestmentDate AcquiredCostFair Value% of Members’ Capital
Terra JV, LLC3/2/202087.6 %$238,509,445  $238,509,869  99.9 %
Number of Shares of Common StockDecember 31, 2019
InvestmentDate AcquiredCostFair Value% of Members’ Capital
Terra Property Trust, Inc.1/1/2016 and 3/7/201614,912,990  $243,924,852  $247,263,245  100.1 %


        As ofJune 30, 2020 and December 31, 2019, the Company indirectly beneficially owned 76.5% and directly owned 98.6%, respectively, of the outstanding shares of common stock of Terra Property Trust”).Trust. Additionally, as of June 30, 2020, Terra JV was jointly-controlled by the Company and Terra Fund 7, and as of December 31, 2019, Terra Property Trust was controlled by the Company.

        The following table presents a schedule of loans held for investment by Terra Property Trust at 100% and the Company’s pro-rata share of the fair value at SeptemberJune 30, 2019:2020:

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  $6,866,583  $5,252,936  2.2 %
Austin H. I. Owner LLCUS - TXHotel12.5 %12.5 %1.0 %9/30/201510/6/20203,613,000  3,647,936  3,645,676  2,788,942  1.2 %
High Pointe Mezzanine Investments, LLC (4)
US - SCStudent housing15.0 %15.0 %1.0 %12/27/20131/6/20243,000,000  3,233,789  2,984,870  2,283,426  1.0 %
LD Milipitas Mezz, LLC (7)
US - CAHotelLIBOR +10.25% (2.75% Floor)13.0 %1.0 %6/27/20186/27/20214,250,000  4,297,989  4,297,730  3,287,763  1.4 %
SparQ Mezz Borrower, LLC (8)
US - CAMultifamily12.0 %12.0 %1.0 %9/29/201710/1/20208,700,000  8,785,415  8,756,821  6,698,968  2.9 %
Stonewall Station Mezz LLC (5)(6)
US - NCHotel12.0% current
2.0% PIK		14.0 %1.0 %5/31/20185/20/202110,010,007  10,097,447  10,121,270  7,742,772  3.2 %
36,573,007  37,062,576  36,672,950  28,054,807  11.9 %


See notes to unaudited financial statements.
7
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment — non-controlled:            
Mezzanine loans:            
150 Blackstone River Road, LLCUS - MAIndustrial8.5%8.5%—%9/21/20179/6/2027$7,000,000
$7,000,000
$7,164,239
$7,063,940
2.8%
2539 Morse, LLC (4)(5)(6)
US - CAStudent housing11.0%11.0%1.0%10/20/201711/1/20207,000,000
7,067,142
7,069,334
6,970,363
2.8%
37 Gables Member LLC (5)(6)
US - FLMultifamily13.0%13.0%1.0%6/16/201612/16/20195,750,000
5,807,500
5,806,875
5,725,579
2.3%
Austin H. I. Owner LLC (4)(6)
US - TXHotel12.5%12.5%1.0%9/30/201510/6/20203,500,000
3,530,790
3,534,111
3,484,633
1.4%
High Pointe Mezzanine Investments, LLC (5)(6)
US - SCStudent housing13.0%13.0%1.0%12/27/20131/6/20243,000,000
3,278,061
3,135,003
3,091,113
1.2%
LD Milipitas Mezz, LLC (9)
US - CAHotelLIBOR +10.25% (2.75% Floor)
13.0%1.0%6/27/20186/27/20211,967,591
1,975,543
1,983,228
1,955,463
0.8%
SparQ Mezz Borrower, LLC (4)(5)(6) 
US - CAMultifamily12.0%12.0%1.0%9/29/201710/1/20208,700,000
8,782,112
8,786,126
8,663,120
3.4%
Stonewall Station Mezz LLC (6)(7)
US - NCHotel12.0% current
2.0% PIK
14.0%1.0%5/31/20185/20/20219,735,113
9,815,561
9,807,313
9,670,011
3.8%
        46,652,704
47,256,709
47,286,229
46,624,222
18.5%

6




Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019


Terra Property TrustTrust’s Schedule of Loans Held for Investment as of SeptemberJune 30, 20192020 (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:
Preferred equity investments:
370 Lex Part Deux, LLC (5)(6)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)10.7 %— %12/17/20181/9/2022$51,037,529 $51,094,313 $49,728,042 $38,041,952 15.9 %
City Gardens 333 LLC (5)(6)
US - CAMultifamilyLIBOR + 9.95% (2.0% Floor)12.0 %— %4/11/20184/1/202127,449,731 27,461,070 27,446,297 20,996,417 8.8 %
NB Private Capital, LLC (5)(6)(8)
VariousStudent housing16.0 %16.0 %1.0 %7/27/20184/16/202119,670,115 19,837,285 19,864,687 15,196,486 6.3 %
Orange Grove Property Investors, LLC (5)(6)
US - CACondominiumLIBOR + 8.0% (4.0% Floor)12.0 %1.0 %5/24/20186/1/202110,600,000 10,699,082 10,680,949 8,170,926 3.4 %
REEC Harlem Holdings Company, LLCUS - NYInfill landLIBOR + 12.5% (no Floor)12.7 %— %3/9/20183/9/202314,759,047 14,759,047 13,573,859 10,384,002 4.4 %
RS JZ Driggs, LLC (5)(6)(9)
US - NYMultifamily12.3 %12.3 %1.0 %5/1/20188/1/20208,200,000 8,276,271 8,282,546 6,336,148 2.7 %
The Bristol at Southport, LLC (8)
US - WAMultifamily12.0 %12.0 %1.0 %9/22/20179/22/202223,500,000 23,671,815 23,951,192 18,322,662 7.7 %
155,216,422 155,798,883 153,527,572 117,448,593 49.2 %
First mortgages:
14th & Alice Street Owner, LLC (5)(10)
US - CAMultifamilyLIBOR + 5.75% (3.25% Floor)9.0 %0.5 %3/5/20193/5/202224,510,905 24,689,333 24,407,964 18,672,092 7.8 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (11)
US - GAOfficeLIBOR + 4.5% (no Floor)4.7 %0.5 %2/22/20192/10/202245,671,947 45,853,379 45,821,197 35,053,216 14.7 %
330 Tryon DE LLC (11))
US - NCOfficeLIBOR + 3.85% (2.51% Floor)6.4 %0.5 %2/7/20193/1/202222,800,000 22,896,169 22,898,866 17,517,632 7.4 %
AGRE DCP Palm Springs, LLC (11)
US - CAHotelLIBOR +4.75% (1.80% Floor)6.6 %0.5 %12/12/20191/1/202332,975,680 33,030,797 33,084,469 25,309,619 10.6 %
MSC Fields Peachtree Retreat, LLC (11)
US - GAMultifamilyLIBOR + 3.85% (2.0% Floor)5.9 %0.5 %3/15/20194/1/202223,308,335 23,442,092 23,108,448 17,677,963 7.4 %
Patrick Henry Recovery Acquisition, LLC (11)
US - CAOfficeLIBOR + 2.95% (1.5% Floor)4.5 %0.3 %11/25/201912/1/202318,000,000 18,038,578 17,845,715 13,651,972 5.7 %
TSG-Parcel 1, LLC (5)(6)
US - CAInfill land15.0 %15.0 %1.0 %7/10/201512/31/202018,000,000 18,180,000 18,177,747 13,905,976 5.8 %
University Park Berkeley, LLCUS - CAStudent housingLIBOR + 2.95% (1.50% Floor)4.5 %0.3 %2/27/20203/1/202323,250,000 23,272,652 23,304,937 17,828,277 7.5 %
Windy Hill PV Five CM, LLC (12)
US - CAOfficeLIBOR + 6.0% (2.05% Floor)8.1 %0.5 %9/20/20199/20/202213,797,643 13,498,117 13,825,988 10,576,881 4.4 %
222,314,510 222,901,117 222,475,331 170,193,628 71.3 %
Total gross loans held for investment414,103,939 415,762,576 412,675,853 315,697,028 132.3 %
Obligations under participation agreements (5)(6)(10)
(78,116,748)(78,246,519)(77,898,387)(59,592,266)(25.1)%
Allowance for loan losses— (1,314,294)— — — %
Net loans held for investment$335,987,191 $336,201,763 $334,777,466 $256,104,762 107.2 %
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment — non-controlled:            
Preferred equity investments:            
370 Lex Part Deux, LLC (6)(7)(8)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)
10.7%—%12/17/20181/9/2022$47,066,628
$47,066,628
$47,066,628
$46,407,695
18.4 %
City Gardens 333 LLC (4)(5)(6)(7)(8)
US - CAStudent housingLIBOR + 9.95% (2.0% Floor)
12.0%—%4/11/20184/1/202127,213,272
27,212,145
27,221,456
26,840,356
10.7 %
Greystone Gables Holdings Member LLC (5)(6)
US - FLMultifamily13.0%13.0%1.0%6/16/201612/16/2019500,000
505,000
504,946
497,877
0.2 %
NB Private Capital, LLC (6)(7)(8)
US - ILStudent housingLIBOR +10.5% (3.5% Floor)
14.0%1.0%7/27/20187/27/202025,500,000
25,726,977
25,726,977
25,366,799
10.1 %
Orange Grove Property Investors, LLC (6)(7)
US - CACondominiumLIBOR + 8.0% (4.0% Floor)
12.0%1.0%5/24/20186/1/20219,350,000
9,421,280
9,433,752
9,301,679
3.7 %
REEC Harlem Holdings Company, LLCUS - NYInfill landLIBOR + 12.5% (no Floor)
14.5%—%3/9/20183/9/202318,444,375
18,444,375
18,419,767
18,161,890
7.2 %
RS JZ Driggs, LLC (6)(7)
US - NYMultifamily12.3%12.3%1.0%5/1/20185/1/20208,200,000
8,290,209
8,276,854
8,160,978
3.2 %
The Bristol at Southport, LLC (4)(5)(6)(8)
US - WAMultifamily12.0%12.0%1.0%9/22/20179/22/202223,500,000
23,656,903
23,767,698
23,434,950
9.3 %
Windy Hill PV Seven CM, LLC (4)(5)(6)
US - CAOffice10.0% current
2.5% PIK
12.5%1.0%1/9/20181/9/202121,492,366
21,684,371
21,669,904
21,366,525
8.5 %
        181,266,641
182,007,888
182,087,982
179,538,749
71.3 %
First mortgages:            
14th & Alice Street Owner, LLCUS - CAMultifamilyLIBOR + 5.75% (3.25% Floor)
9.0%0.5%3/5/20193/5/20226,479,224
6,380,011
6,504,640
6,413,575
2.5 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (10)
US - GAOfficeLIBOR + 4.5% (no Floor)
6.5%0.5%2/22/20192/10/202227,076,048
26,933,741
27,207,707
26,826,799
10.6 %
330 Tryon DE LLC (10)
US - NCOfficeLIBOR + 3.85% (2.5% Floor)
6.4%0.5%2/7/20193/1/202222,800,000
22,888,678
22,904,516
22,583,853
8.9 %
MSC Fields Peachtree Retreat, LLC. (10)
US - GAMultifamilyLIBOR + 3.85% (2.0% Floor)
5.9%0.5%3/15/20194/1/202223,308,334
23,401,586
23,417,352
23,089,509
9.2 %
REEC 286 Lenox LLCUS - NYOfficeLIBOR + 2.95% (no Floor)
5.0%—%8/2/201911/22/20194,740,000
4,740,000
4,740,000
4,673,640
1.9 %
TSG-Parcel 1, LLC (4)(6)(7)
US - CAInfill landLIBOR + 10.0% (2.0% Floor)
12.0%1.0%7/10/201512/31/201918,000,000
18,180,000
18,178,191
17,923,696
7.1 %
Windy Hill PV Five CM, LLCUS - CAOfficeLIBOR + 2.25% (2.05% Floor)
4.3%0.5%9/20/20199/20/20229,572,776
9,095,560
9,615,758
9,481,137
3.8 %
        111,976,382
111,619,576
112,568,164
110,992,209
44.0 %
Total gross loans held for investment       339,895,727
340,884,173
341,942,375
337,155,180
133.8 %
Obligations under participation agreements (4)(5)(6)(7)(8)
      (97,688,326)(98,315,641)(98,321,184)(96,944,687)(38.5)%
Net loans held for investment       $242,207,401
$242,568,532
$243,621,191
$240,210,493
95.3 %


See notes to unaudited financial statements.
7
8




Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019


Terra Property TrustTrust’s Schedule of Loans Held for Investment as of SeptemberJune 30, 2020 (Continued):
Operating real estate:
DescriptionAcquisition DateReal estate owned, netEncumbranceNet Investment
Pro Rata Net Investment (2)
% (3)(15)

Multi-tenant office building in Santa Monica, CA (13)
7/30/2018$50,570,596  $44,481,855  $6,088,741  $4,657,887  2.0 %
Land in Conshohocken, PA (14)
1/9/201913,395,430  —  13,395,430  10,247,504  4.2 %
$63,966,026  $44,481,855  $19,484,171  $14,905,391  6.2 %
Portfolio CompanyInterest RateAcquisition DateMaturity DateSharesCostFair Value
Pro Rata
Fair Value (2)
% (3)
Marketable securities (16):
Preferred shares:
City Office REIT, Inc. - Series A Preferred Shares6.63 %3/19/202010/4/20215,768  $104,653  $136,529  $104,445  0.04 %
City Office REIT, Inc. - Series A Preferred Shares6.63 %3/26/202010/4/20214,206  63,910  99,556  76,160  0.04 %
Total marketable securities$168,563  $236,085  180,605  0.08 %
__________________________
(1)Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)Amount represents the Company’s portion, or 76.5%, of the fair value or net investment value.
(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $238.7 million at June 30, 2020.
(4)Terra Property Trust entered into a forbearance agreement with the borrower to allow for more time to make the interest payment.
(5)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated balance sheets.
(6)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, LLC (“Terra Income Advisors”), an affiliate of our sponsor and Terra Property Trust’s manager.
(7)On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of June 30, 2020, the commitment was fully funded.
(8)In June 2020, Terra Property Trust amended the credit facility agreement to provide for interest at a fixed rate of 16.00% and to capitalize any unpaid interest to principal.
(9)In August 2020, Terra Property Trust extended the maturity of this loan to February 1, 2021.
(10)Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.
(11)These loans were used as collateral for $95.4 million of borrowings under a repurchase agreement.
(12)In March 2020, Terra Property Trust restructured the loan into A-note and B-note. In connection with the restructuring, Terra Property Trust sold the A-note to a third-party. However, the sale did not qualify for sale accounting and therefore, the gross amount of the loan remains in the consolidated balance sheets.
9

(13)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Real estate owned, net amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(14)Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure. On June 30, 2019, (Continued):Terra Property Trust recorded an impairment charge of $1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.
(15)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).
(16)From time to time, Terra Property Trust might invest in short-term debt and equity securities. These securities are comprised of shares of preferred stock and bonds.




See notes to unaudited financial statements.
10
Operating real estate:            
Description Acquisition Date Real estate owned, net Encumbrance Net Investment 
Pro Rata Net Investment (2)
 
% (3)(13)
Multi-tenant office building in Santa Monica, CA (11)
 7/30/2018 $53,578,394
 $44,745,024
 $8,833,370
 $8,709,703
 3.5%
Land in Conshohocken, PA (12)
 1/9/2019 13,395,430
 —
 13,395,430
 13,207,894
 5.2%
    $66,973,824
 $44,745,024
 $22,228,800
 $21,917,597
 8.7%

___________________________
(1)Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)Amount represents the Company’s portion, or 98.6%, of the fair value or net investment value.
(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $252.0 million at September 30, 2019.
(4)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by Terra REIT Advisors.
(5)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Income Fund International, an affiliated fund advised by Terra REIT Advisors.
(6)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated statements of financial condition.
(7)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, LLC (“Terra Income Advisors”), an affiliate of our sponsor and Terra Property Trust’s manager.
(8)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Property Trust 2, Inc., an affiliated fund managed by Terra REIT Advisors.
(9)On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of September 30, 2019, the unfunded commitment was $2.3 million.
(10)These loans were used as collateral for $51.3 million of borrowings under a repurchase agreement.
(11)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Real estate owned, net amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(12)Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure. On June 30, 2019, Terra Property Trust recorded an impairment charge of $1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.
(13)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).



8




Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019
        
The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, 2018:2019:


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 — non-controlled:
Mezzanine loans:
150 Blackstone River Road, LLCUS - MAIndustrial8.5 %8.5 %— %9/21/20179/6/2027$7,000,000  $7,000,000  $7,081,127  $6,981,991  2.8 %
2539 Morse, LLC (4)(5)(6)
US - CAStudent housing11.0 %11.0 %1.0 %10/20/201711/1/20207,000,000  7,067,422  7,069,355  6,970,384  2.8 %
Austin H. I. Owner LLC (4)(6)
US - TXHotel12.5 %12.5 %1.0 %9/30/201510/6/20203,500,000  3,531,776  3,534,499  3,485,016  1.4 %
High Pointe Mezzanine Investments, LLC (5)(6)
US - SCStudent housing13.0 %13.0 %1.0 %12/27/20131/6/20243,000,000  3,263,285  3,115,139  3,071,527  1.2 %
LD Milipitas Mezz, LLC (9)
US - CAHotelLIBOR +10.25% (2.75% Floor)13.0 %1.0 %6/27/20186/27/20213,120,887  3,150,546  3,204,261  3,159,401  1.3 %
SparQ Mezz Borrower, LLC (4)(5)(6)
US - CAMultifamily12.0 %12.0 %1.0 %9/29/201710/1/20208,700,000  8,783,139  8,786,127  8,663,121  3.5 %
Stonewall Station Mezz LLC (6)(7)
US - NCHotel12.0% current
2.0% PIK		14.0 %1.0 %5/31/20185/20/20219,792,767  9,875,162  9,883,488  9,745,119  3.9 %
42,113,654  42,671,330  42,673,996  42,076,559  16.9 %




See notes to unaudited financial statements.


11
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% (2)
Loans held for investment — non-controlled:           
Mezzanine loans:           
150 Blackstone River Road, LLCUS - MAIndustrial8.5%8.5%—%9/21/20179/6/2027$7,000,000
$7,000,000
$6,895,383
2.6%
140 Schermerhorn Street Mezz LLC (3)(5)(6)
US - NYHotel12.0%12.0%1.0%11/16/201612/1/201915,000,000
15,134,200
15,148,494
5.8%
221 W. 17th Street Owner, LLC (3)(4)(5)(6)
US - NYCondominium12.8%12.8%1.0%1/19/20183/31/20194,700,000
4,745,513
4,746,499
1.8%
2539 Morse, LLC (3)(4)(5)
US - CAStudent housing11.0%11.0%1.0%10/20/201711/1/20207,000,000
7,057,092
7,063,795
2.7%
37 Gables Member LLC (4)(5)(8) 
US - FLMultifamily13.0%13.0%1.0%6/16/20166/16/20195,750,000
5,804,127
5,806,875
2.2%
575 CAD I LLC (3)(4)(5)
US - NYCondominium12.0% current
2.5% PIK
14.5%1.0%1/31/20177/31/201914,627,148
14,755,657
14,758,825
5.6%
Austin H. I. Owner LLC (3)(5)
US - TXHotel12.5%12.5%1.0%9/30/201510/6/20203,500,000
3,528,012
3,512,468
1.3%
High Pointe Mezzanine Investments, LLC (4)(5)
US - SCStudent housing13.0%13.0%1.0%12/27/20131/6/20243,000,000
3,322,499
3,088,463
1.2%
LD Milipitas Mezz, LLC (9)
US - CAHotelLIBOR +10.25% (2.75% Floor)
13.0%1.0%6/27/20186/27/2021—
—
—
—%
SparQ Mezz Borrower, LLCUS - CAMultifamily12.0%12.0%1.0%9/29/201710/1/20208,150,000
8,215,918
8,224,401
3.1%
Stonewall Station Mezz LLC (5)(6)
US - NCHotel12.0% current
2.0% PIK
14.0%1.0%5/31/20185/20/20218,548,954
8,609,379
8,618,238
3.3%
WWML96MEZZ, LLC (10)
US - NYCondominium13.0%13.0%1.0%12/18/20151/14/201915,950,638
16,110,144
16,108,411
6.1%
        93,226,740
94,282,541
93,971,852
35.7%

9




Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019



Terra Property TrustTrust’s Schedule of Loans Held for Investment as of December 31, 20182019 (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 — non-controlled:
Preferred equity investments:
370 Lex Part Deux, LLC (6)(7)(8)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)10.7 %— %12/17/20181/9/2022$48,349,948  $48,425,659  $48,236,458  $47,561,148  19.3 %
City Gardens 333 LLC (4)(5)(6)(7)(8)
US - CAStudent housingLIBOR + 9.95% (2.0% Floor)12.0 %— %4/11/20184/1/202128,049,717  28,056,179  28,057,779  27,664,970  11.2 %
NB Private Capital, LLC (4)(5)(6)(7)(8)
VariousStudent housingLIBOR +10.5% (3.5% Floor)14.0 %1.0 %7/27/20184/16/202120,000,000  20,166,610  20,180,782  19,898,251  8.1 %
Orange Grove Property Investors, LLC (6)(7)
US - CACondominiumLIBOR + 8.0% (4.0% Floor)12.0 %1.0 %5/24/20186/1/202110,600,000  10,696,587  10,695,415  10,545,679  4.3 %
REEC Harlem Holdings Company, LLCUS - NYInfill landLIBOR + 12.5% (no Floor)14.3 %— %3/9/20183/9/202318,444,375  18,444,375  18,280,168  18,024,246  7.3 %
RS JZ Driggs, LLC (6)(7)
US - NYMultifamily12.3 %12.3 %1.0 %5/1/20185/1/20208,200,000  8,286,629  8,277,336  8,161,453  3.3 %
The Bristol at Southport, LLC (4)(5)(6)(8)
US - WAMultifamily12.0 %12.0 %1.0 %9/22/20179/22/202223,500,000  23,661,724  23,769,361  23,436,590  9.5 %
157,144,040  157,737,763  157,497,299  155,292,337  63.0 %
First mortgages:
14th & Alice Street Owner, LLC (10)
US - CAMultifamilyLIBOR + 5.75% (3.25% Floor)9.0 %0.5 %3/5/20193/5/202212,932,034  12,957,731  12,983,863  12,802,089  5.2 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (11)
US - GAOfficeLIBOR + 4.5% (no Floor)6.3 %0.5 %2/22/20192/10/202238,464,429  38,510,650  38,655,000  38,113,830  15.4 %
330 Tryon DE LLC (11)
US - NCOfficeLIBOR + 3.85% (2.51% Floor)6.4 %0.5 %2/7/20193/1/202222,800,000  22,891,149  22,906,207  22,585,520  9.0 %
AGRE DCP Palm Springs, LLC (11)
US - CAHotelLIBOR +4.75% (1.80% Floor)6.6 %0.5 %12/12/20191/1/202330,184,357  30,174,455  30,326,076  29,901,511  12.1 %
MSC Fields Peachtree Retreat, LLC (11)
US - GAMultifamilyLIBOR + 3.85% (2.0% Floor)5.9 %0.5 %3/15/20194/1/202223,308,335  23,446,793  23,418,996  23,091,130  9.3 %
Patrick Henry Recovery Acquisition, LLCUS - CAOfficeLIBOR + 2.95% (1.5% Floor)4.7 %0.3 %11/25/201912/1/202318,000,000  18,037,329  18,042,390  17,789,797  7.2 %
REEC 286 Lenox LLCUS - NYOfficeLIBOR + 2.95% (no Floor)4.7 %— %8/2/20199/22/20194,740,000  4,740,000  4,740,000  4,673,640  1.9 %
TSG-Parcel 1, LLC (4)(6)(7)
US - CAInfill landLIBOR + 10.0% (2.0% Floor)12.0 %1.0 %7/10/20153/31/202018,000,000  18,180,000  18,174,634  17,920,189  7.3 %
Windy Hill PV Five CM, LLCUS - CAOfficeLIBOR + 6.0% (2.05% Floor)8.1 %0.5 %9/20/20199/20/20229,701,468  9,265,568  9,741,954  9,605,567  3.9 %
178,130,623  178,203,675  178,989,120  176,483,273  71.3 %
Total gross loans held for investment377,388,317  378,612,768  379,160,415  373,852,169  151.3 %
Obligations under participation agreements (4)(5)(6)(7)(8)
(102,564,795) (103,186,327) (103,188,783) (101,744,140) (41.2)%
Net loans held for investment$274,823,522  $275,426,441  $275,971,632  $272,108,029  110.1 %


See notes to unaudited financial statements.
12
Portfolio CompanyCollateral LocationProperty
Type		Coupon
Rate		Current Interest RateExit FeeAcquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% (2)
Loans held for investment — non-controlled:           
Preferred equity investments:           
370 Lex Part Deux, LLC (5)(6)(7)
US - NYOfficeLIBOR + 8.25% (2.44% Floor)
10.8%—%12/17/20181/9/2022$43,500,000
$43,500,000
$43,500,000
16.5 %
ASA Mgt. Holdings, LLCUS - ALMultifamily16.0%16.0%1.0%4/7/20128/1/20222,100,000
2,135,189
2,120,720
0.8 %
City Gardens 333 LLC (5)(6)(7)
US - CAStudent housingLIBOR + 9.95% (2.0% Floor)
12.5%—%4/11/20184/1/202120,816,038
20,816,038
20,816,038
7.9 %
Greystone Gables Holdings Member LLC (4)(5)(8)
US - FLMultifamily13.0%13.0%1.0%6/16/20166/16/2019500,000
504,707
504,946
0.2 %
NB Private Capital, LLC (5)(6)(7)
US - IL
US - OH
Student housingLIBOR +10.5% (3.5% Floor)
14.0%1.0%7/27/20187/27/202025,500,000
25,704,182
25,704,182
9.8 %
Nelson Brothers Professional Real Estate, LLC (11)
US - COStudent housing14.0%14.0%1.0%7/27/20162/1/20194,027,736
4,068,014
4,067,543
1.5 %
Orange Grove Property Investors, LLC (5)(6)
US - CACondominiumLIBOR + 8.0% (4.0% Floor)
12.0%1.0%5/24/20186/1/20218,350,000
8,414,582
8,415,618
3.2 %
REEC Harlem Holdings Company, LLCUS - NYInfill landLIBOR + 12.5% (no Floor)
15.0%—%3/9/20183/9/202320,619,375
20,619,375
20,619,375
7.8 %
RS JZ Driggs, LLC (5)(6)
US - NYMultifamily12.3%12.3%1.0%5/1/20185/1/20204,041,350
4,075,613
4,075,613
1.5 %
SVA Mgt. Holdings, LLCUS - ALMultifamily16.0%16.0%1.0%4/7/20128/1/20221,600,000
1,628,607
1,615,786
0.6 %
The Bristol at Southport, LLC (3)(4)(5)(7)
US - WAMultifamily10.0% current
2.0% PIK
12.0%1.0%9/22/20179/22/202223,115,541
23,258,826
23,185,858
8.8 %
Windy Hill PV Seven CM, LLC (3)(4)(5)
US - CAOffice10.0% current
2.5% PIK
12.5%1.0%1/9/20181/9/202119,001,150
19,146,400
19,146,400
7.3 %
WWML96, LLC (10)
US - NYCondominium13.0%13.0%1.0%12/18/20151/14/20191,549,420
1,564,914
1,564,746
0.6 %
        174,720,610
175,436,447
175,336,825
66.5 %
First mortgages:           
CGI 1100 Biscayne Management LLC (12)
US - FLHotelLIBOR + 5.65% (2.3% Floor)
8.2%2.0%11/19/201811/19/202057,269,351
58,244,986
58,286,097
22.2 %
Millennium Waterfront Associates, L.P. (13)
US - PAInfill land12.0%12.0%1.0%7/2/201512/28/201814,325,000
14,325,000
14,325,000
5.4 %
OHM Atlanta Owner, LLC (5)(6)(7)(14)
US - GAInfill landLIBOR + 9.0% (3.0% Floor)
12.0%1.0%6/20/20171/24/201927,500,000
27,775,000
27,772,240
10.6 %
TSG-Parcel 1, LLC (3)(5)(6)
US - CAInfill landLIBOR + 10.0% (2.0% Floor)
12.5%1.0%7/10/201512/31/201918,000,000
18,180,000
18,178,116
6.9 %
        117,094,351
118,524,986
118,561,453
45.1 %
Total gross loans held for investment       385,041,701
388,243,974
387,870,130
147.4 %
Obligations under participation agreements (3)(4)(5)(6)(7)
      (113,458,723)(114,298,591)(114,189,654)(43.4)%
Net loans held for investment       $271,582,978
$273,945,383
$273,680,476
104.0 %

10




Terra Secured Income Fund 5, LLC
Consolidated Schedule of InvestmentsInvestment (Continued)
SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019


Terra Property TrustTrust’s Schedule of Loans Held for Investment as of December 31, 2018 2019(Continued):
Operating real estate:
DescriptionAcquisition DateReal estate owned, netEncumbranceNet Investment
Pro Rata Net Investment (2)
% (3)(14)
Multi-tenant office building in Santa Monica, CA (12)
7/30/2018$52,776,236  $44,614,480  $8,161,756  $8,047,491  3.3 %
Land in Conshohocken, PA (13)
1/9/201913,395,430  —  13,395,430  13,207,894  5.3 %
$66,171,666  $44,614,480  $21,557,186  $21,255,385  8.6 %
Operating real estate:        
Description 
Real estate owned, net (15)
 Encumbrance Acquisition Date 
% (16)
Multi-tenant office building in Santa Monica, CA $55,984,868
 $45,000,000
 7/30/2018 4.2%


___________________________
(1)Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)Percentages are based on the fair value of the Company’s investment in Terra Property Trust of $263.1 million as of December 31, 2018.
(3)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by Terra REIT Advisors.
(4)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Income Fund International, an affiliated fund advised by Terra REIT Advisors.
(5)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated statements of financial condition.
(6)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, an affiliate of our sponsor and Terra Property Trust’s manager.
(7)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Property Trust 2, Inc., an affiliated fund managed by Terra REIT Advisors.
(8)In January 2019, the borrower extended the maturity of the loan to December 16, 2019.
(9)On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of December 31, 2018, none of the commitment has been funded.
(10)This loan was repaid in January 2019.
(11)In February 2019, Terra Property Trust entered into a forbearance agreement with the borrower whereby the borrower has until April 15, 2019 to repay the loan in full.
(12)This loan was used as collateral for a $34.2 million borrowing under a repurchase agreement.
(13)In January 2019, Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure.
(14)In January 2019, the borrower made a partial repayment of $18.5 million on this loan. In connection with the repayment, the maturity of the loan was extended to March 5, 2019. On March 5, 2019, the loan was repaid in full.
(15)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(16)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).


(1)Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.

(2)Amount represents the Company’s portion, or 98.6%, of the fair value or net investment value.
(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $247.1 million at December 31, 2019.
(4)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by Terra REIT Advisors.
(5)Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Income Fund International, an affiliated fund advised by Terra REIT Advisors.
(6)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated statements of financial condition.
(7)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, an affiliate of our sponsor and Terra Property Trust’s manager.
(8)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to TPT2, an affiliated fund managed by Terra REIT Advisors.
(9)On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of December 31, 2019, the unfunded commitment was $1.1 million.
(10)Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.
(11)These loans were used as collateral for $81.1 million of borrowings under a repurchase agreement.
(12)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Real estate owned, net amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(13)Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure. On June 30, 2019, Terra Property Trust recorded an impairment charge of $1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.
(14)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).



See notes to consolidatedunaudited financial statements (unaudited).


11
13



Terra Secured Income Fund 5, LLC
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20192020


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


In December 2015, the members approved the merger of Terra Secured Income Fund, LLC (“Terra Fund 1”), Terra Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) with and into subsidiaries of the Company (individually, each a “Terra Fund” and collectively, the “Terra Funds”) through a series of separate mergers effective January 1, 2016 (collectively, the “Merger”). Following the Merger, the Company contributed the consolidated portfolio of net assets of the five5 Terra Funds to Terra Property Trust, a newly-formed and wholly-owned subsidiary of the Company that elected to be taxed as a REIT, in exchange for the shares of common stock of Terra Property Trust. Upon completion of the Merger, the Company became the parent company of Terra Funds 1 through 4 and the direct and indirect sole common stockholder of, and began conducting substantially all of its real estate lending business through, Terra Property Trust.

        On March 2, 2020, Terra Fund 1, Terra Fund 2 and Terra Fund 3 merged with and into Terra Fund 4, with Terra Fund 4 continuing as the surviving company (the “Terra Fund Merger”), and the Company consolidated its holdings of shares of common stock of Terra Property Trust in Terra Fund 4. Subsequent to the Terra Fund Merger, the legal name of Terra Fund 4 was changed to Terra JV. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of SeptemberJune 30, 2019,2020, Terra JV held 87.4% of the Company owned 14,912,990issued and outstanding shares or 98.6%, of Terra Property Trust’s outstanding common stock.stock with the remainder held by TIF3 REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV (Note 4). The Company does not consolidate Terra Property Trust asJV because the Company and Terra Fund 7 share joint approval rights with respect to certain major decisions that are taken by Terra JV and Terra Property Trust is not an investment company.(Note 4).


The Company’s investment activities wereare externally managed by Terra Income Advisors, a private investment firm affiliated with the Company until February 8, 2018 when Terra Capital Partners, LLC (“Terra Capital Partners”), the Company’s sponsor, caused a new subsidiary of Terra Capital Partners, Terra Fund Advisors, LLC (“Terra Fund Advisors”), to be admitted as the replacement manager of the Company. When used herein the term “Manager” refers to Terra Income Advisors for periods prior to February 8, 2018 and refers to Terra Fund Advisors beginning on such date.. The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or its affiliates or by individuals who were contracted by the Company or by the Manager or its affiliates to work on behalf of the Company pursuant to the terms of the operating agreement, as amended.


The 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 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 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.

14

Notes to a maximum of two one-year extensions at the discretion of the Manager, in order to facilitate an orderly liquidation or to consummate such alternative liquidity transaction.Unaudited Financial Statements


Note 2. Summary of Significant Accounting Policies


Basis of Presentation and Principles of Consolidation


The interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.(U.S. GAAP”). The financial statements as of December 31, 2019 and includefor the three and six months ended June 30, 2019 and the period from January 1, 2020 to March 1, 2020 included all of the Company’s accounts and those of its consolidated subsidiaries. All intercompany balances and transactions havehad been eliminated. As discussed in Note 1, on March 2, 2020, the Company’s subsidiaries completed the Terra Fund Merger. As a result of the Terra Fund Merger, the Company no longer consolidates the subsidiaries. The financial statements as of June 30, 2020 and for the period from March 2, 2020 to June 30, 2020 and the three months ended June 30, 2020 includes all of the Company’s accounts only.

        The accompanying interim financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. The Company is an investment company, as defined under U.S. GAAP, and applies accounting and reporting guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies.


12


Notes to Consolidated Financial Statements (Unaudited)



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. During the first half of 2020, there was a global outbreak of a novel coronavirus (“COVID-19”), which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading and operations of non-essential offices and retail centers. Such actions are creating disruption in global supply chains, and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of June 30, 2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of June 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. 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 its investment (Note 3).


Equity Investment in Terra JV or Terra Property Trust


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


Revenue Recognition


Dividend Income: Dividend income associated with the Company’s ownership of Terra 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 net income are recorded as return of capital.


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


Cash and Cash Equivalents


The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents.Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
15

Notes to Unaudited Financial Statements

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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, none of the Company’s income was subject to the NYC UBT.


Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the 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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its primary tax jurisdiction is federal. The Company’s 2015-2019 federal tax years remain subject to examination by the Internal Revenue Service.


Recent Accounting Pronouncement
        
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the model under ASC 840, Leases (“ASC 840”), with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces the sale-leaseback guidance under ASC 840 with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 was effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

13


Notes to Consolidated Financial Statements (Unaudited)


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

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

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


Equity Investment in Terra JV or Terra Property Trust


The Company investsinvested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of June 30, 2020, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust.Trust’s common stock with the remainder held by TIF3 REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV, and Terra JV became the Company’s only investment (Note 4).


16

Notes to Unaudited Financial Statements

The following table presentstables present a summary of the Company’s investment at SeptemberJune 30, 20192020 and December 31, 2018:2019:
June 30, 2020
InvestmentCostFair Value% of Members’ Capital
87.6% interest in Terra JV, LLC$238,509,445  $238,509,869  99.9 %
 September 30, 2019 December 31, 2018December 31, 2019
Investment Cost Fair Value % of Members’ Capital Cost Fair Value % of Members’ CapitalInvestmentCostFair Value% of Members’ Capital
14,912,990 common shares
of Terra Property Trust, Inc.
 $249,366,017
 $252,111,819
 100.1% $265,200,249
 $263,092,585
 100.0%14,912,990 common shares of Terra Property Trust, Inc.$243,924,852  $247,263,245  100.1 %


For the three months ended SeptemberJune 30, 20192020 and 2018,2019, the Company received approximately $7.6$3.4 million and $8.1$7.6 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $4.6$2.7 million and $2.6$7.6 million were returns of capital, respectively. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company received approximately $22.8$11.2 million and $24.9$15.2 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $15.8$9.3 million and $7.1$11.3 million were returns of capital, respectively.



14


Notes to Consolidated Financial Statements (Unaudited)


        As of June 30, 2020 and December 31, 2019, the Company indirectly beneficially owned 76.5% (Note 4) and directly owned 98.6% of the outstanding shares of common stock of Terra Property Trust, respectively. The following tables present the summarized financial information of Terra Property Trust:
June 30, 2020December 31, 2019
Carrying value of loans held for investment$414,448,282  $378,612,768  
Real estate owned, net75,694,708  77,596,475  
Cash, cash equivalent and restricted cash102,945,300  50,549,700  
Other assets21,143,973  20,584,135  
Total assets614,232,263  527,343,078  
Mortgage loan payable, repurchase agreement payable, revolving credit facility
payable and obligations under participation agreements		(252,571,125) (227,548,397) 
Accounts payable, accrued expenses and other liabilities(41,304,905) (40,826,139) 
Lease intangible liabilities(11,127,360) (11,424,809) 
Total liabilities(305,003,390) (279,799,345) 
Stockholder’s equity$309,228,873  $247,543,733  
  September 30, 2019 December 31, 2018
Carrying value of loans held for investment $340,884,173
 $388,243,974
Real estate owned, net 78,547,358
 68,004,577
Other assets 81,243,328
 35,306,172
Total assets 500,674,859
 491,554,723
Mortgage loan payable, repurchase agreement payable and obligations under
   participation agreements
 (192,679,205) (190,687,574)
Accounts payable, accrued expenses and other liabilities (43,355,713) (23,555,081)
Lease intangible liabilities (11,573,534) (12,019,709)
Total liabilities (247,608,452) (226,262,364)
Stockholder’s equity $253,066,407
 $265,292,359
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues$12,064,629  $13,332,694  $24,142,200  $26,070,628  
Expenses(10,562,322) (13,486,179) (21,750,371) (22,301,238) 
Net loss on extinguishment of obligations under participation agreements—  —  (319,453) —  
Realized gains on marketable securities1,076,213  —  1,085,107  —  
Unrealized gains on marketable securities67,522  —  67,522  —  
Net income (loss)$2,646,042  $(153,485) $3,225,005  $3,769,390  
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Revenues $13,092,968
 $12,788,205
 $39,163,596
 $35,751,197
Expenses (9,945,334) (7,300,400) (32,246,572) (17,921,479)
Net income $3,147,634
 $5,487,805
 $6,917,024
 $17,829,718


Fair Value Measurements


The Company adopted the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree
17

Notes to Unaudited Financial Statements

of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:


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


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


Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.
       
  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
        

15


Notes to Consolidated Financial Statements (Unaudited)


Assets and Liabilities Reported at Fair Value


The following table summarizes the Company’s equity investment in Terra Property Trust at fair value on a recurring basis as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
June 30, 2020
Fair Value Measurements
Level 1Level 2Level 3Total
Investment:
Equity investment in Terra JV$—  $—  $238,509,869  $238,509,869  
December 31, 2019
Fair Value Measurements
Level 1Level 2Level 3Total
Investment:
Equity investment in Terra Property Trust$—  $—  $247,263,245  $247,263,245  

18

Notes to Unaudited Financial Statements

 September 30, 2019
 Fair Value Measurements
 Level 1 Level 2 Level 3 Total
Investment:       
Equity investment in Terra Property Trust$—
 $—
 $252,111,819
 $252,111,819
 December 31, 2018
 Fair Value Measurements
 Level 1 Level 2 Level 3 Total
Investment:       
Equity investment in Terra Property Trust$—
 $—
 $263,092,585
 $263,092,585

Changes in Level 3 investment for the ninesix months ended SeptemberJune 30, 20192020 and 20182019 were as follows:
Equity Investment in Terra JVEquity Investment in Terra Property Trust
Period from March 2, 2020 to June 30, 2020Period from January 1, 2020 to March 1, 2020Six Months Ended June 30, 2019
Beginning balance$—  $247,263,245  $263,092,586  
Transfer of ownership interest in Terra Property Trust to
Terra JV		244,006,890  (244,006,890) —  
Return of capital(5,497,444) (3,783,607) (11,260,039) 
Net change in unrealized appreciation on investment423  527,252  3,198,259  
Ending balance$238,509,869  $—  $255,030,806  
Net change in unrealized appreciation on investment for the
period relating to those Level 3 assets that were still held by
the Company		$423  $527,252  $3,198,259  
  Equity Investment in Terra Property Trust
  Nine Months Ended September 30,
  2019 2018
Beginning balance $263,092,585
 $275,428,953
Return of capital (15,834,232) (7,066,860)
Net change in unrealized appreciation (depreciation) on investment 4,853,466
 (355,600)
Ending balance $252,111,819
 $268,006,493
Net change in unrealized appreciation (depreciation) on investment for the period
   relating to those Level 3 assets that were still held by the Company
 $4,853,466
 $(355,600)


Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, there were no transfers.


The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at SeptemberJune 30, 20192020 and December 31, 20182019 due to their short-term nature.


Valuation Process for Fair Value Measurement


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


The Manager designates a valuation committee to oversee the entire valuation process of Terra Property Trust’s Level 3 investments. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review Terra Property Trust investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported

16


Notes to Consolidated Financial Statements (Unaudited)


by pertinent data and, in addition to a proprietary valuation model, are based on market data, third-party valuation data and discount rates or other methods the valuation committee deems to be appropriate.
The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of SeptemberJune 30, 20192020 and December 31, 2018.2019. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.
Fair ValuePrimary Valuation TechniqueUnobservable InputsJune 30, 2020
Asset CategoryMinimumMaximumWeighted Average
Assets:
Equity investment in Terra JV$238,509,869  
Discounted cash flow (1)
Discount rate (1)
2.51 %19.05 %16.82 %
  Fair ValuePrimary Valuation Technique Unobservable Inputs September 30, 2019
Asset Category   MinimumMaximumWeighted Average
Assets:          
Equity investment in Terra Property Trust $252,111,819
 
Discounted cash flow (1)
 
Discount rate (1)
 4.27%14.95%13.15%
 Fair ValuePrimary Valuation Technique Unobservable Inputs December 31, 2018Fair ValuePrimary Valuation TechniqueUnobservable InputsDecember 31, 2019
Asset Category MinimumMaximumWeighted AverageAsset CategoryMinimumMaximumWeighted Average
Assets:    Assets:
Equity investment in Terra Property Trust $263,092,585
 
Discounted cash flow (1)
 
Discount rate (1)
 5.02%16.00%14.19%Equity investment in Terra Property Trust$247,263,245  
Discounted cash flow (1)
Discount rate (1)
4.11 %14.95 %12.36 %
_______________
(1)Discounted cash flows and discount rates applied to Terra Property Trust’s assets and liabilities.

19

Notes to Unaudited Financial Statements

(1)Discounted cash flows and discount rates applied to Terra Property Trust’s assets and liabilities.

Risks and Uncertainties


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


Note 4. Related Party Transactions

Axar Transaction

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


Operating Agreement


The Company hadhas an operating agreement, as amended, with Terra Income Advisors whereby Terra Income Advisors was responsible for the Company’s day-to-day operations. As part of the Axar Transaction, on February 8, 2018, Terra Income Advisors assigned all of its rights, title and interest in the Company pursuant to the Amended and Restated Limited Liability Company Agreement of the Company, dated January 1, 2016, to Terra Fund Advisors. The operating agreement, as amended, is scheduled to terminate on December 31, 2023 unless the Company is dissolved earlier. Starting January 1, 2016, the Company conducts all of its real estate lending business through Terra Property Trust. As such, Terra Property Trust is responsible for management compensation paid and operating expenses reimbursed to its manager pursuant to a management agreement with the manager.
        

17


Notes to Consolidated Financial Statements (Unaudited)


Management Agreement

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

Dividend Income
        
As discussed in Note 3, for the three months ended SeptemberJune 30, 20192020 and 2018,2019, the Company received approximately $7.6$3.4 million and $8.1$7.6 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $4.6$2.7 million and $2.6$7.6 million were returns of capital, respectively. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company received approximately $22.8$11.2 million and $24.9$15.2 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $15.8$9.3 million and $7.1$11.3 million was a returnwere returns of capital, respectively.


Terra International 3TPT2 Merger


On September 30, 2019,February 28, 2020, Terra Property Trust entered into a Contributioncertain Agreement and Repurchase Agreement withPlan of Merger (the “Merger Agreement”), by and among Terra International Fund 3, L.P.Property Trust, Terra Property Trust 2, Inc. (“Terra International 3”TPT2”) and Terra International Fund 3 REIT, LLC (“Terra International Fund 3 REIT”), a wholly-owned subsidiary7, the sole stockholder of Terra International 3.

PursuantTPT2, pursuant to this agreement, Terra International 3, through Terra International Fund 3 REIT, contributed cash in the amount of $3.6 million towhich TPT2 merged with and into Terra Property Trust, in exchange for 212,691with Terra Property Trust continuing as the surviving corporation (the “TPT2 Merger”), effective March 1, 2020. In connection with the TPT2 Merger, each share of common stock, par value $0.01 per share, of TPT2 issued and outstanding immediately prior to the effective time of the TPT2 Merger was converted into the right to receive from Terra Property Trust a number of shares of common stock, at a pricepar value $0.01 per share, of $17.02 per share. In addition, Terra International 3 agreed to contribute to Terra Property Trust future cash proceeds, if any, raised from timeequal to time by it, andan exchange ratio, which was 1.2031. The exchange ratio was based on the relative fair value of Terra Property Trust agreedand TPT2 as of December 31, 2019 as adjusted to issuereflect changes in net working capital of each of Terra Property Trust and TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the TPT2 Merger. For purposes of determining the respective fair values of Terra Property Trust and TPT2, the value of the loans (or participation interests therein) held by each of Terra Property Trust and TPT2 was the value of such loans (or participation interests) as set forth in the audited financial statements of Terra Property Trust as of and for the year ended December 31, 2019. As a result, Terra Fund 7 received 2,116,785.76 shares of common stock of Terra Property Trust as consideration in the TPT2 Merger and subsequently contributed these shares to International Fund 3Terra JV. The shares of Terra Property Trust common stock issued in exchange for any such future cash proceeds, in each case pursuant to and in accordanceconnection with the terms and conditions specified in the agreement. The sharesTPT2 Merger were issued in a private placement in reliance on Section 4(a)(2) ofunder the U.S. Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder
Issuance of Common Stock to TIF3 REIT
        In addition, on March 2, 2020, Terra Property Trust entered into two separate contribution agreements, one by and among Terra Property Trust, TIF3 REIT and Terra Income Fund International, and another by and among Terra Property Trust, TIF3 REIT and Terra Secured Income Fund 5 International, pursuant to which Terra Property Trust issued 2,457,684.59 shares of common stock of Terra Property Trust to TIF3 REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by Terra Property Trust, $8.6 million in cash and other working capital (“Issuance of Common Stock to TIF3 REIT”).The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act and the rules and regulations promulgated thereunder. On April 29, 2020, Terra Property Trust repurchased, at a purchase price $17.02 per share, 212,691 shares of common stock that Terra Property Trust had previously sold to TIF3 REIT on September 30, 2019.

20

Notes to Unaudited Financial Statements

Terra JV, LLC

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

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

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

        As of June 30, 2020, Terra JV owns approximately 87.4% of the issued and outstanding shares of Terra International 3Property Trust common stock with the remainder held by TIF3 REIT, and the Company and Terra International Fund 3 REIT. In addition,7 own an 87.6% and 12.4% interest, respectively, in Terra JV. As a result, as of June 30, 2020, the general partnerCompany indirectly beneficially owned 76.5% of Terra International 3 isProperty Trust's outstanding common stock through Terra International Fund 3 GP, LLC, which is an affiliate of Terra Fund Advisors, our manager.JV.


Note 5. Commitments and Contingencies


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


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


Note 6. Members’ Capital


As of Septemberboth June 30, 20192020 and December 31, 2018,2019, the Company had 6,638.06,637.7 units and 6,638.4 units outstanding, respectively, and theoutstanding. The net asset value per unit was $37,959$35,962 and $39,630,$37,222 as of June 30, 2020 and December 31, 2019, respectively.


Capital Contributions


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


18


Notes to Consolidated Financial Statements (Unaudited)



Capital Distributions


At the discretion of the Manager, the Company may make distributions from net cash flow from operations, net disposition proceeds, or other cash available for distribution. Distributions are made to holders of Continuing Income Units (regular units of limited liability company interest in the Company) in proportion to their unit holdings until they receive a return of their initial Deemed Capital Contribution, as defined in the operating agreement, plus a preferred return ranging from 8.5% to 9.0% depending on the historical preferred return applicable to their Terra Fund units, after which time distributions are made 15% to
21

Notes to Unaudited Financial Statements

the Manager which the Company refers to as the carried interest distribution, and 85% to the holders of Continuing Income Units. The preferred return applicable to the Continuing Income Units sold in the offering concurrent with the Merger is 8.5%.


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

For the three months ended SeptemberJune 30, 20192020 and 2018,2019, the Company made total distributions to non-manager members of $7.5$3.0 million and $7.5 million, respectively. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company made total distributions to non-manager members of $22.4$10.5 million and $22.5$14.9 million, respectively. For the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, the Company did not make any carried interest distributions to the Manager.
Capital Redemptions

In the Merger, members of Terra Funds 1 through 4 who wished to enter the liquidation phase of their investments chose to receive Termination Units as merger consideration. These Termination Units were redeemed on the original expected liquidation dates of the funds. As of September 30, 2019 and December 31, 2018, there were no Termination Units outstanding. For the nine months ended September 30, 2019, the Company redeemed 0.4 Continuing Income Units for $0.01 million. For the nine months ended September 30, 2018, the Company redeemed 3.6 Continuing Income Units for $0.1 million and 50.4 Termination Units for $2.1 million.
        
At the discretion of the Manager, a reserve of 5% of cash from operations may be established in order to repurchase units from non-managing members. The Manager is under no obligation to redeem non-managing members’ units. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, no such reserve was established. For the three and six months ended June 30, 2020 and 2019, the Company did not redeem any membership units.


Allocation of Income (Loss)


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


Member Units


Each membership interest through the original offering was offered for a price of $50,000 per unit. The membership interests in Terra Funds 1 through 4 were exchanged for units of the Company at a price of $43,410 per unit, which was the exchange value per unit of the Company on December 31, 2015, and the units in the Rights Offering were offered at a price of $47,000 per unit. The following table provides a roll forward ofFor the units outstanding ofsix months ended June 30, 2020 and 2019, the Company for the nine months ended September 30, 2019 and 2018:did not issue or redeem any membership units.

  Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
  
Managing
Member
 Non-Managing Members Total Managing
Member		 Non-Managing Members Total
Units outstanding, beginning of period —
 6,638.4
 6,638.4
 —
 6,697.4
 6,697.4
Early redemption of Continuing
   Income Units
 —
 (0.4) (0.4) —
 (3.6) (3.6)
Termination Units redeemed —
 —
 —
 —
 (50.4) (50.4)
Units outstanding, end of period —
 6,638.0
 6,638.0
 —
 6,643.4
 6,643.4


19


Notes to Consolidated Financial Statements (Unaudited)


Note 7. Financial Highlights


The financial highlights represent the per unit operating performance, return and ratios for the non-managing members’ class, taken as a whole, for the ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. 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-recurringon-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.


22

Notes to Unaudited Financial Statements

The following summarizes the Company’s financial highlights for the ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
Nine Months Ended September 30,Six Months Ended June 30,
2019 201820202019
Per unit operating performance:   Per unit operating performance:
Net asset value per unit, beginning of period$39,630
 $41,143
Net asset value per unit, beginning of period$37,222  $39,630  
Increase in members’ capital from operations (1):
   
Increase in members’ capital from operations (1):
Net investment income972
 2,622
Net investment income242  549  
Net change in unrealized appreciation (depreciation) on investment732
 (53)
Net change in unrealized appreciation on investmentNet change in unrealized appreciation on investment80  481  
Total increase in members’ capital from operations1,704
 2,569
Total increase in members’ capital from operations322  1,030  
Distributions to member (2):
   
Distributions to member (2):
Capital distributions(3,375) (3,372)Capital distributions(1,582) (2,249) 
Net decrease in members’ capital resulting from distributions(3,375) (3,372)Net decrease in members’ capital resulting from distributions(1,582) (2,249) 
Capital share transactions:—
 —
Net asset value per unit, end of period$37,959
 $40,340
Net asset value per unit, end of period$35,962  $38,411  
   
Ratios to average net assets:   Ratios to average net assets:
Expenses0.24% 0.17%Expenses0.28 %0.21 %
Net investment income3.31% 8.61%Net investment income1.33 %2.76 %
   
IRR, beginning of period6.56% 6.26%IRR, beginning of period6.40 %6.56 %
IRR, end of period6.49% 6.70%IRR, end of period6.07 %6.46 %
_______________
(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,638 units and 6,670 units for the nine months ended September 30, 2019 and 2018, respectively.
(2)The per unit data for distributions reflects the actual amount of distributions paid per unit during the periods.

(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,638 units and 6,639 units for the six months ended June 30, 2020 and 2019, respectively.
(2)The per unit data for distributions reflects the actual amount of distributions paid per unit during the periods.

Note 8. Subsequent Events


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


20


        

23



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


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


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

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

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


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


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


•changes in our investment objectives and business strategy;


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


•the performance and financial condition of our borrowers;


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


•borrower defaults or decreased recovery rates from our borrowers;


•changes in prepayment rates on our loans;


•our use of financial leverage;


•actual and potential conflicts of interest with any of the following affiliated entities: Terra Fund Advisors, LLC (“Terra Fund Advisors” or the “Manager”), Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Income Advisors, LLC (“Terra Income Advisors”);LLC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra SecuredJV, LLC (“Terra JV”); Terra Income Fund LLC6, Inc. (“Terra Fund 1”6”); Terra Secured Income Fund 2, LLC (“Terra Fund 2”); Terra Secured Income Fund 3, LLC (“Terra Fund 3”); Terra Secured Income Fund 4, LLC (“Terra Fund 4”); Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC;LLC (“Terra Fund 7”); Terra Property Trust, Inc. (“Terra Property Trust”), our wholly-owned subsidiary; Terra Property Trust 2, Inc., a subsidiary of Terra Secured Income Fund 7, LLC;; Terra International Fund 3, L.P. (“Terra International 3”); Terra International Fund 3 REIT, LLC (“Terra International 3TIF3 REIT”), a subsidiary of Terra International 3; Terra Capital Advisors, LLC; Terra Capital Advisors 2, LLC; Terra Income Advisors 2, LLC; or any of their affiliates;


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


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

24


•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;



21



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


•the degree and nature of our competition.


In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I — Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018.2019 and in “Part II - Item 1A. Risk Factors” in this quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:


•changes in the economy;


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


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


We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Members are advised to consult any additional disclosures that we may make directly to members or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.


Overview
        
We are a real estate credit focused company that originates, structures, funds and manages high yielding commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States. Our loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the 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 of this size are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. We were formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. We make substantially all of our investments and conduct substantially all of our real estate lending business through Terra Property Trust, which has elected to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016. Our objectives are to (i) preserve our members’ capital contributions, (ii) realize income from our investments and (iii) make monthly distributions to our members from cash generated from investments. There can be no assurances that we will be successful in meeting our objectives.


On January 1, 2016, Terra Secured Income Fund, 1, LLC (“Terra Fund 2,1”), 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”). Following the Merger, 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 in these transactions, which we refer to as the “REIT formation transactions,” to make our investments through Terra Property Trust and to provide our members with a more broadly diversified portfolio of assets, while at the same time providing us with enhanced access to capital and borrowings, lower operating costs and enhanced opportunities for growth.


On February 8, 2018,March 2, 2020, Terra Capital Partners caused (i) a new subsidiaryFund 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 Terra Capital Partners, Terra REIT Advisors, to become the external managershares of common stock of Terra Property Trust (ii) a new subsidiary of Terra Capital Partners, Terra Fund Advisors, to be admitted as the replacement manager of the Company and the equity interests in Terra Fund Advisors to be distributed4. Subsequent to the equity ownersTerra Fund Merger, the legal name of Terra Capital Partners onFund 4 was changed to
25

Terra JV, LLC. On March 2, 2020, Terra Property Trust engaged in a pro rata basis and (iii) the equity interests in another subsidiaryseries of Terra Capital Partners, Terra Income Advisors, which also serves as the external advisor to Terra Income Fund 6, Inc. (“Terra Fund 6”), to be distributed to the equity owners of Terra Capital Partners on a pro rata basis. After the completion of the above steps, a pooled investment vehicle advised by Axar Capital Management L.P. (“Axar”) entered into an investment agreement with Terra Capital Partners and its affiliates (which is referred to collectively as the “Axar Transaction”),transactions pursuant to which Axar acquired fromTerra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the respective owners thereof: (i)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. On April 29, 2020, Terra Property Trust repurchased, at a 49% economicpurchase price of $17.02 per share, 212,691 shares of common stock that Terra Property Trust had previously sold to TIF3 REIT on September 30, 2019. As of June 30, 2020, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by TIF3 REIT, and we and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra Fund Advisors; (ii)JV. Accordingly, as of June 30, 2020, we indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust through Terra JV.

Recent Developments

        During the first half of 2020, there was a 65.7%global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of non-essential offices and retail centers. Such actions are creating disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and voting interest in Terra Capital Partners (and thereby Terra REIT Advisors);market conditions and (iii) an initial 49%trigger a period of global economic interest in Terra Income Advisors. On November

22

slowdown.
        

        While we believe that compelling opportunities for us will emerge as a result of the economic downtown caused by the COVID-19 pandemic, we are in the early stages of assessing its full impact on the commercial real estate market. While it has had a demonstrable effect on employment, the economy and the national psyche, the impact of the pandemic on property values has yet to be fully realized. The reason is that property values are the result of slow moving forces, including consumer behavior, supply and demand for space, availability and pricing of mortgage financing and investor demand for property. As these factors become clear and commercial real estate is repriced accordingly, we believe there will be abundant opportunities available to experienced alternative lenders such as us to provide financing for property acquisition, refinancing, development and redevelopment on attractive terms that reflect the new realities of the economy. 

30, 2018, Axar acquired the remaining 34.3% economic interest in Terra Capital Partners. On April 30, 2019, Axar acquired the remaining 51% economic interest in Terra Income Advisors. When used herein the term “Manager” refers to Terra Income Advisors for periods prior to February 8, 2018 and refers to Terra Fund Advisors beginning on such date.

Portfolio Summary


The following tables provide a summary of Terra Property Trust’s net loan portfolio as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
 September 30, 2019
 Fixed Rate 
Floating
Rate (1)(2)(3)
 Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans11

13
 24
 15
 24
Principal balance$98,377,479
 $241,518,248
 $339,895,727
 $97,688,326
 $242,207,401
Amortized cost99,417,649
 241,466,524
 340,884,173
 98,315,641
 242,568,532
Fair value99,522,403
 242,419,972
 341,942,375
 98,321,184
 243,621,191
Weighted average coupon rate12.12% 9.89% 10.53% 12.05% 9.92%
Weighted-average remaining
   term (years)
2.11
 1.98
 2.02
 1.60
 2.19
 December 31, 2018
 Fixed Rate 
Floating
Rate (1)(2)(3)
 Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans20
 9
 29
 18
 29
Principal balance$163,486,937
 $221,554,764
 $385,041,701
 113,458,723
 $271,582,978
Amortized cost164,989,811
 223,254,163
 388,243,974
 114,298,591
 273,945,383
Fair value164,578,464
 223,291,666
 387,870,130
 114,189,654
 273,680,476
Weighted average coupon rate12.54% 11.35% 11.86% 12.22% 11.70%
Weighted-average remaining
   term (years)
1.84
 2.05
 1.96
 1.84
 2.01
_______________
(1)
These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) plus a fixed spread. Coupon rate shown was determined using LIBOR of 2.02% and 2.50% as of SeptemberJune 30, 2019 and December 31, 2018.
2020
(2)AsFixed Rate
Floating 
Rate (1)(2)(3)
Total Gross LoansObligations under Participation AgreementsTotal Net Loans
Number of September 30, 2019 and December 31, 2018, amounts included $73.2 million and $57.3 million, respectively, of senior mortgages used as collateral for $51.3 million and $34.2 million, respectively, of borrowings under a repurchase agreement. These borrowings bear interest at an annualloans9 13 22 9 22 
Principal balance$101,693,122 $312,410,817 $414,103,939 $78,116,748 $335,987,191 
Amortized cost102,402,613 312,045,669 414,448,282 78,246,519 336,201,763 
Fair value102,651,392 310,024,461 412,675,853 77,898,387 334,777,466 
Weighted average coupon rate of LIBOR plus a spread ranging from 2.25% to 2.50%.10.29 %8.91 %9.25 %10.83 %8.88 %
Weighted-average remaining
term (years)		1.33 1.92 1.77 1.42 1.85 
26

(3)As of September 30, 2019 and December 31, 2018, ten and eight2019
Fixed Rate
Floating 
Rate (1)(2)(3)
Total Gross LoansObligations under Participation AgreementsTotal Net Loans
Number of these loans respectively, are subject to a LIBOR floor.8 15 23 13 23 
Principal balance$70,692,767 $306,695,550 $377,388,317 102,564,795 $274,823,522 
Amortized cost71,469,137 307,143,631 378,612,768 103,186,327 275,426,441 
Fair value71,516,432 307,643,983 379,160,415 103,188,783 275,971,632 
Weighted average coupon rate11.93 %9.13 %9.65 %11.77 %8.87 %
Weighted-average remaining
term (years)		2.28 2.09 2.13 1.58 2.33 

_______________
(1)These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.16% and 1.76% as of June 30, 2020 and December 31, 2019.
(2)As of June 30, 2020 and December 31, 2019, amounts included $142.8 million and $114.8 million, respectively, of senior mortgages used as collateral for $95.4 million and $81.1 million, respectively, of borrowings under a repurchase agreement. These borrowings bear interest at an annual rate of LIBOR plus a spread ranging from 2.00% to 2.50% as of June 30, 2020 and LIBOR plus a spread ranging from 2.25% to 2.50% as of December 31, 2019.
(3)As of June 30, 2020 and December 31, 2019, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

In addition to its net loan portfolio, as of SeptemberJune 30, 2020 and December 31, 2019, Terra Property Trust owns 4.9 acres of adjacent land acquired via deed in lieu of foreclosure and a multi-tenant office building acquired via foreclosure. The land and building and related lease intangible assets and liabilities had a net carrying value of $67.0$64.6 million and $56.0$66.2 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. The mortgage loan payable encumbering the office building had an outstanding principal amount of $44.7$44.5 million and $45.0$44.6 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.


Portfolio Investment Activity

For the three months ended SeptemberJune 30, 20192020 and 2018,2019, Terra Property Trust invested $16.2$2.6 million and $4.8$8.6 million in new and add-on loans, respectively, and had $33.0$5.2 million and $20.6$9.8 million of repayments, respectively, resulting in net repayments of $16.8$2.5 million and $1.2 million respectively. For the six months ended June 30, 2020 and 2019, Terra Property Trust invested $11.9 million and $28.3 million in new and add-on loans, respectively, and had $15.1 million and $45.2 million of repayments, respectively, resulting in net investmentsrepayments of $15.7$3.2 million and $16.9 million, respectively. Amounts are net of obligations under participation agreements mortgage loan payable, repurchase agreement payable and borrowings under the revolving credit facility.master repurchase agreement.

        
For the nine months ended September 30, 2019 and 2018,In addition, in March 2020, Terra Property Trust invested $44.5issued 4,574,470.35 shares of common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that it owned, cash of $25.5 million and $66.6 million in newother working capital. In connection with the transactions, the related participation obligations were settled.

For each of the three and add-on loans, respectively, and had $78.2 million and $65.5six months ended June 30, 2020, Terra Property Trust sold $5.8 million of repayments, respectively, resulting inmarketable securities and recognized net repayments

23



gains on sale of $33.7 million and net investmentsmarketable securities of $1.1 million, respectively. Amounts are net of obligations under participation agreements, mortgage loan payable, repurchase agreement payable and borrowings under the revolving credit facility. million. 

In addition, on January 9, 2019, Terra Property Trust acquired 4.9 acres of adjacent land encumbering a $14.3 million first mortgage via deed in lieu of foreclosure in exchange for the reliefrelease of the first mortgage and related fees and expenses.


27

Portfolio Information


The tables below set 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.
June 30, 2020December 31, 2019
Loan StructurePrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
First mortgages$191,170,829  $191,848,919  $191,374,666  57.1 %$160,984,996  $160,948,585  $161,736,057  58.6 %
Preferred equity
investments		112,647,758  113,046,936  111,183,208  33.2 %84,202,144  84,485,061  84,191,396  30.5 %
Mezzanine loans32,168,604  32,620,202  32,219,592  9.6 %29,636,382  29,992,795  30,044,179  10.9 %
Allowance for loan
losses		—  (1,314,294) —  — %—  —  —  — %
Total loan
investments		$335,987,191  336,201,763  334,777,466  99.9 %$274,823,522  275,426,441  275,971,632  100.0 %
Marketable
securities		168,563  236,085  0.1 %—  —  — %
Total$336,370,326  $335,013,551  100.0 %$275,426,441  $275,971,632  100.0 %
  September 30, 2019 December 31, 2018
Loan Structure Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
First mortgages $105,176,382
 $104,751,576
 $105,700,847
 43.4% $95,141,290
 $96,352,394
 $96,391,095
 35.2%
Preferred equity
investments		 104,969,220
 105,374,774
 105,397,836
 43.3% 110,099,644
 110,540,228
 110,470,658
 40.4%
Mezzanine loans 32,061,799
 32,442,182
 32,522,508
 13.3% 66,342,044
 67,052,761
 66,818,723
 24.4%
Total $242,207,401
 $242,568,532
 $243,621,191
 100.0% $271,582,978
 $273,945,383
 $273,680,476
 100.0%
June 30, 2020December 31, 2019
Property TypePrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
Office$123,909,027  $124,175,135  $123,160,449  36.8 %$119,331,369  $119,145,879  $119,597,533  43.2 %
Student housing42,637,550  43,033,299  42,839,458  12.8 %26,470,740  26,725,148  26,638,826  9.7 %
Multifamily83,117,283  83,616,924  83,347,144  24.9 %49,017,844  49,331,885  49,386,995  17.9 %
Hotel46,444,284  46,631,795  46,695,787  13.9 %41,239,194  41,327,772  41,539,239  15.1 %
Infill land30,759,047  30,919,047  29,731,856  8.9 %29,644,375  29,756,375  29,588,829  10.7 %
Industrial7,000,000  7,000,000  6,866,583  2.0 %7,000,000  7,000,000  7,081,127  2.6 %
Condominium2,120,000  2,139,857  2,136,189  0.6 %2,120,000  2,139,382  2,139,083  0.8 %
Allowance for loan
losses		—  (1,314,294) —  — %—  —  —  — %
Total loan
investments		$335,987,191  $336,201,763  $334,777,466  99.9 %$274,823,522  275,426,441  275,971,632  100.0 %
Marketable
securities		168,563  $236,085  0.1 %—  —  — %
Total$336,370,326  $335,013,551  100.0 %$275,426,441  $275,971,632  100.0 %
28
  September 30, 2019 December 31, 2018
Property Type Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
Office $99,880,319
 $99,452,712
 $100,248,246
 41.1% $32,555,575
 $32,628,200
 $32,628,200
 11.9%
Multifamily 56,835,660
 57,065,075
 57,255,842
 23.5% 31,099,953
 31,366,215
 31,307,286
 11.4%
Student housing 37,107,793
 37,468,165
 37,386,272
 15.3% 40,450,320
 40,857,137
 40,716,877
 14.9%
Infill land 29,644,375
 29,756,375
 29,730,641
 12.3% 58,491,314
 58,726,783
 58,724,373
 21.5%
Hotel 9,869,254
 9,946,038
 9,949,201
 4.1% 69,756,765
 70,832,816
 70,873,011
 25.9%
Industrial 7,000,000
 7,000,000
 7,164,239
 2.9% 7,000,000
 7,000,000
 6,895,383
 2.5%
Condominium 1,870,000
 1,880,167
 1,886,750
 0.8% 32,229,051
 32,534,232
 32,535,346
 11.9%
Total $242,207,401
 $242,568,532
 $243,621,191
 100.0% $271,582,978
 $273,945,383
 $273,680,476
 100.0%
  September 30, 2019 December 31, 2018
Geographic Location Principal Balance Amortized Cost Fair
Value		 % of Total Principal Balance Amortized Cost Fair
Value		 % of Total
United States                
California $65,957,112
 $65,708,984
 $66,357,903
 27.2% $48,459,159
 $48,756,874
 $48,768,414
 17.8%
New York 52,229,688
 52,281,761
 52,243,507
 21.4% 81,504,101
 81,860,466
 81,866,377
 29.9%
Georgia 50,384,382
 50,335,327
 50,625,059
 20.8% 12,346,939
 12,470,408
 12,469,169
 4.6%
North Carolina 28,251,663
 28,387,620
 28,396,611
 11.7% 4,787,414
 4,821,252
 4,826,213
 1.8%
Washington 13,525,556
 13,615,861
 13,679,631
 5.6% 13,304,278
 13,386,747
 13,344,750
 4.9%
Illinois 8,909,490
 8,988,794
 8,988,794
 3.7% 11,139,020
 11,228,212
 11,228,212
 4.1%
Massachusetts 7,000,000
 7,000,000
 7,164,239
 2.9% 7,000,000
 7,000,000
 6,895,383
 2.5%
Florida 3,925,000
 3,964,250
 3,963,823
 1.6% 61,194,351
 62,206,934
 62,249,920
 22.7%
Texas 2,450,000
 2,471,553
 2,473,878
 1.1% 2,450,000
 2,469,608
 2,458,728
 0.9%
Ohio —
 —
 —
 —% 5,452,125
 5,495,781
 5,495,781
 2.0%
Colorado —
 —
 —
 —% 4,027,736
 4,068,014
 4,067,543
 1.5%
Alabama —
 —
 —
 —% 3,700,000
 3,763,796
 3,736,506
 1.4%
Pennsylvania —
 —
 —
 —% 14,325,000
 14,325,000
 14,325,000
 5.2%
Other (1)
 9,574,510
 9,814,382
 9,727,746
 4.0% 1,892,855
 2,092,291
 1,948,480
 0.7%
Total $242,207,401
 $242,568,532
 $243,621,191
 100.0% $271,582,978
 $273,945,383
 $273,680,476
 100.0%
_______________
(1)Other includes $7.7 million of unused portion of a credit facility at September 30, 2019. Other also includes a $1.9 million loan with collateral located in South Carolina at September 30, 2019 and December 31, 2018.

24




June 30, 2020December 31, 2019
Geographic LocationPrincipal BalanceAmortized CostFair
Value		% of TotalPrincipal BalanceAmortized CostFair
Value		% of Total
United States
California$141,982,974  $142,446,080  $142,295,102  42.5 %$102,774,905  $102,622,718  $103,333,019  37.4 %
Georgia68,980,282  69,295,471  68,929,645  20.6 %61,772,764  61,957,443  62,073,996  22.5 %
New York52,033,441  52,128,360  50,038,360  14.9 %52,909,847  53,029,923  52,670,818  19.1 %
North Carolina28,405,604  28,551,242  28,566,778  8.5 %28,283,950  28,421,676  28,440,960  10.3 %
Washington18,500,000  18,635,259  18,855,194  5.6 %13,525,556  13,618,636  13,680,588  5.0 %
Massachusetts7,000,000  7,000,000  6,866,583  2.0 %7,000,000  7,000,000  7,081,127  2.6 %
Texas3,613,000  3,647,936  3,645,676  1.1 %2,450,000  2,472,244  2,474,149  0.9 %
Illinois2,836,668  2,860,776  2,864,728  0.9 %2,209,189  2,227,593  8,018,753  2.9 %
Other (1)
12,635,222  12,950,933  12,715,400  3.8 %3,897,311  4,076,208  (1,801,778) (0.7)%
Allowance for loan
losses		—  (1,314,294) —  — %—  —  —  — %
Total loan
investments		$335,987,191  336,201,763  334,777,466  99.9 %$274,823,522  275,426,441  275,971,632  100.0 %
Marketable
securities		168,563  236,085  0.1 %—  —  — %
Total$336,370,326  $335,013,551  100.0 %$275,426,441  $275,971,632  100.0 %

_______________
(1)Other includes $7.1 million and $0.3 million of unused portion of a credit facility, $2.6 million and a $1.7 million of loans with collateral located in Kansas, and $3.0 million and $1.9 million of loans with collateral located in South Carolina at June 30, 2020 and December 31, 2019, respectively.

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 mortgage loans, subordinated mortgage loans, preferred 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.


        The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. U.S. financial markets, in particular, are experiencing limited liquidity and forced selling by certain market participants with insufficient liquidity available to meet current obligations, which puts further downward pressure on asset prices. In reaction to these tumultuous and unpredictable market conditions, banks and other lenders have generally restricted lending activity and requested margin posting or repayments where applicable for secured loans collateralized by assets with depressed valuations. Terra Property Trust’s repurchase agreement contains margin call provisions that provide the lender with certain rights in the event of a decline in the market value of the assets purchased under the repurchase agreement. Upon the occurrence of a margin deficit event, the lender may require Terra Property Trust to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

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 manages 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
29

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, 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.


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.

        The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects currently planned or underway. These negative conditions may persist into the future and impair Terra Property Trust’s borrowers’ ability to pay principal and interest due to Terra Property Trust under its loan agreements.
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 equity 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

25



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-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, 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
30

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; and retroactive changes to building or similar codes.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. Market volatility has been particularly heightened due to the COVID-19 global pandemic. COVID-19 has disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including limited lending from financial institutions, depressed asset values, and limited market liquidity.


Use of Leverage


Terra Property Trust deploys moderate amounts of leverage as part of its operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, 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.



26



Results of Operations
The following table presents the comparative results of our operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
Three Months Ended June 30,Six Months Ended June 30,
20202019Change20202019Change
Investment income
Dividend income$681,685  $—  $681,685  $1,946,123  $3,922,875  $(1,976,752) 
Other operating income34  90  (56) 178  392  (214) 
Total investment income681,719  90  681,629  1,946,301  3,923,267  (1,976,966) 
Operating expenses
Professional fees161,100  98,119  62,981  335,199  271,333  63,866  
Other1,295  6,076  (4,781) 2,744  8,959  (6,215) 
Total operating expenses162,395  104,195  58,200  337,943  280,292  57,651  
Net investment income (loss)519,324  (104,105) 623,429  1,608,358  3,642,975  (2,034,617) 
Net change in unrealized
appreciation on investment		2,813,973  1,609,008  1,204,965  527,675  3,198,259  (2,670,584) 
Net increase in members’
capital resulting from
operations		$3,333,297  $1,504,903  $1,828,394  $2,136,033  $6,841,234  $(4,705,201) 
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 Change 2019 2018 Change
Investment income            
Dividend income $2,994,149
 $5,487,805
 $(2,493,656) $6,917,024
 $17,829,718
 $(10,912,694)
Other operating income 82
 137
 (55) 474
 1,140
 (666)
Total investment income 2,994,231
 5,487,942
 (2,493,711) 6,917,498
 17,830,858
 (10,913,360)
Operating expenses            
Professional fees 182,081
 126,966
 55,115
 453,414
 334,802
 118,612
Other 686
 2,891
 (2,205) 9,645
 10,832
 (1,187)
Total operating expenses 182,767
 129,857
 52,910
 463,059
 345,634
 117,425
Net investment (loss) income 2,811,464
 5,358,085
 (2,546,621) 6,454,439
 17,485,224
 (11,030,785)
Net change in unrealized
   appreciation (depreciation)
   on investment
 1,655,207
 (179,846) 1,835,053
 4,853,466
 (355,600) 5,209,066
Net increase in members’ capital
   resulting from operations
 $4,466,671
 $5,178,239
 $(711,568) $11,307,905
 $17,129,624
 $(5,821,719)


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 for the period. Any excess of distributions received from Terra Property Trust over
31

its net income is recorded as return of capital. As of June 30, 2020 and December 31, 2019, we indirectly beneficially owned 76.5% through Terra JV and directly owned 98.6%, respectively, of the outstanding shares of common stock of Terra Property Trust.


For the three months ended SeptemberJune 30, 20192020 and 2018,2019, we received distributions of $3.4 million and $7.6 million, or $0.23 and $8.1 million, respectively, or $0.51 and $0.54 per share, respectively, from Terra Property Trust and/or Terra JV, as applicable, of which $3.0$0.7 million and $5.5 millionzero was recorded as dividend income respectively, and $4.6$2.7 million and $2.6$7.6 million was recorded as return of capital, respectively. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, we received distributions of $22.8$11.2 million and $24.9$15.2 million, respectively, or $1.53$0.76 and $1.67$1.02 per share, respectively, from Terra Property Trust and/or Terra JV, as applicable, of which $6.9$1.9 million and $17.8$3.9 million was recorded as dividend income respectively, and $15.8$9.3 million and $7.1$11.3 million was recorded as return of capital, respectively.


For the three months ended SeptemberJune 30, 20192020 as compared to the same period in 2018,2019, Terra Property Trust’s net income decreasedincreased by $2.3$2.8 million, primarily due to (i) a $1.5decrease in professional fees of $2.2 million as a result of $2.4 million of professional fees directly incurred for the three months ended June 30, 2019, and which were previously deferred, in contemplation of Terra Property Trust becoming a public entity; (ii) a decrease in net real estate operating loss of $1.2 million, primarily as a result of a $1.6 million of impairment charge recorded for the three months ended June 30, 2019 on a piece of land in order to reduce the carrying value of the land to its estimated fair value; and (iii) a gain on sale of marketable securities of $1.1 million for the three months ended June 30, 2020; partially offset by (i) a decrease in net interest income of $0.9 million as a result of a decrease in the weighted average outstanding principal balance of net investments resulting from a higher volume of loan repayments than new loan originations and a decrease in the weighted average interest rate on net investments driven by new loan originations having lower coupon rates than those of the loans that were repaid and (ii) an increase in fees paid and operating expenses reimbursed to Terra Property Trust’s Manager of $0.7 million as a $0.5 million decreaseresult of an increase in prepayment fee received.assets under management and an increase in allocation ratio in relation to affiliated funds managed by Terra Property Trust’s Manager and its affiliates.

        
For the ninesix months ended SeptemberJune 30, 20192020 as compared to the same period in 2018,2019, Terra Property Trust’s net income decreased by $10.9$0.5 million, primarily due to (i) a $3.7 million decrease in net interest income of $2.0 million as a result of a decrease in the weighted average outstanding principal balance of net investments resulting from a higher volume of loan repayments than new loan originations and a decrease in the weighted average interest rate on net investments driven by new loan originations having lower coupon rates than those of the loans that were repaid; (ii) a provision for loan losses of $1.3 million on five loans with a loan risk rating of “4”; (iii) an increase in fees paid and (ii)operating expenses reimbursed to Terra Property Trust’s Manager of $1.1 million as a result of an increase in assets under management and an increase in allocation ratio in relation to affiliated funds managed by Terra Property Trust’s Manager and its affiliates; and (iv) a net loss of $0.3 million on extinguishment of obligations under participation agreement; partially offset by (i) a decrease in professional fees of $2.1 million as a result of $2.4 million of professional fees directly incurred and which were previously deferred,for the three months ended June 30, 2019 as described above; (ii) a decrease in contemplationnet real estate operating loss of Terra Property Trust consummating an initial public offering which, in the second quarter of 2019, management decided to postpone indefinitely. Terra Property Trust’s net income also decreased$1.0 million primarily as a result of a $2.2 million decrease in prepayment fee received and an $1.6 million of impairment charge recordeddescribed above partially offset by increase in real estate taxes; and (iii) a gain on sale of marketable securities of $1.1 million for the ninethree months ended SeptemberJune 30, 2019 on a piece of land in order to reduce the carrying value of the land to its estimated fair value.2020.

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, mortgage loan payable and repurchase agreement payable.



27
32




The following tables present a reconciliation of Terra Property Trust’s loan portfolio from a gross basis to a net basis for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:

Three Months Ended June 30, 2020Three Months Ended June 30, 2019
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Total portfolio
Gross loans$403,107,647  9.3%$383,193,015  10.8%
Obligations under participation agreements(73,120,692) 10.9%(95,337,563) 12.2%
Repurchase agreement payable(94,768,307) 3.8%(78,140,846) 4.8%
Net loans (3)
$235,218,648  11.0%$209,714,606  12.4%
Senior loans
Gross loans$212,859,783  6.7%$143,125,696  7.9%
Obligations under participation agreements(27,807,684) 9.1%(6,800,000) 12.4%
Repurchase agreement payable(94,768,307) 3.8%(78,140,846) 4.8%
Net loans (3)
$90,283,792  9.1%$58,184,850  11.6%
Subordinated loans (4)
Gross loans$190,247,864  12.2%$240,067,319  12.5%
Obligations under participation agreements(45,313,008) 12.0%(88,537,563) 12.2%
Net loans (3)
$144,934,856  12.2%$151,529,756  12.7%

  Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
  
Weighted Average Principal Amount (1)
 
Weighted Average Coupon Rate (2)
 
Weighted Average Principal Amount (1)
 
Weighted Average Coupon Rate (2)
Total portfolio        
Gross loans $374,934,899
 10.5% $348,579,866
 12.7%
Obligations under participation agreements (96,876,184) 12.1% (94,438,132) 12.7%
Mortgage loan payable —
 —% (11,389,269) 7.3%
Repurchase agreement payable (72,591,206) 4.5% —
 —%
Revolving credit facility (347,826) 6.4% —
 —%
Net loans (3)
 $205,119,683
 11.8% $242,752,465
 12.9%
Senior loans        
Gross loans $143,834,648
 7.6% $78,020,652
 11.6%
Obligations under participation agreements (6,800,000) 12.0% (21,953,061) 12.0%
Mortgage loan payable —
 —% (11,389,269) 7.3%
Repurchase agreement payable (72,591,206) 4.5% —
 —%
Net loans (3)
 $64,443,442
 10.7% $44,678,322
 12.5%
Subordinated loans (4)
        
Gross loans $231,100,251
 12.3% $270,559,214
 13.0%
Obligations under participation agreements (90,076,184) 12.1% (72,485,071) 12.9%
Revolving credit facility (347,826) 6.4% —
 —%
Net loans (3)
 $140,676,241
 12.4% $198,074,143
 13.1%

 Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018Six Months Ended June 30, 2020Six Months Ended June 30, 2019
 
Weighted Average Principal Amount (1)
 
Weighted Average Coupon Rate (2)
 
Weighted Average Principal Amount (1)
 
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Total portfolio        Total portfolio
Gross loans $370,659,620
 10.8% $349,249,585
 12.6%Gross loans$395,636,304  9.4%$368,486,550  11.0%
Obligations under participation agreements (96,571,005) 12.2% (81,621,459) 12.7%Obligations under participation agreements(81,213,576) 11.5%(96,415,887) 12.2%
Mortgage loan payable —
 —% (26,313,017) 7.1%
Repurchase agreement payable (66,824,004) 4.7% —
 —%Repurchase agreement payable(94,617,024) 3.9%(61,443,378) 4.8%
Revolving credit facility (117,216) 6.4% —
 —%
Net loans (3)
 $207,147,395
 12.1% $241,315,109
 13.1%
Net loans (3)
$219,805,704  11.0%$210,627,285  12.3%
Senior loans     Senior loans
Gross loans $132,815,080
 7.9% $104,708,261
 11.4%Gross loans$201,392,405  6.7%$127,213,974  8.3%
Obligations under participation agreements (8,391,500) 12.0% (22,475,039) 12.0%Obligations under participation agreements(23,368,896) 9.7%(9,200,440) 12.3%
Mortgage loan payable —
 —% (26,313,017) 7.1%
Repurchase agreement payable (66,824,004) 4.5% —
 —%Repurchase agreement payable(94,617,024) 3.8%(61,443,378) 4.8%
Net loans (3)
 $57,599,576
 11.3% $55,920,205
 13.3%
Net loans (3)
$83,406,485  9.2%$56,570,156  11.4%
Subordinated loans (4)
     
Subordinated loans (4)
Gross loans $237,844,540
 12.4% $244,541,324
 13.1%Gross loans$194,243,899  12.2%$241,272,576  12.5%
Obligations under participation agreements (88,179,505) 12.2% (59,146,420) 13.0%Obligations under participation agreements(57,844,680) 12.2%(87,215,447) 12.2%
Revolving credit facility (117,216) 6.4% —
 —%
Net loans (3)
 $149,547,819
 12.5% $185,394,904
 13.1%
Net loans (3)
$136,399,219  12.2%$154,057,129  12.7%
_______________

(1)Amount is calculated based on the number of days each loan is outstanding.
28(2)Amount is calculated based on the underlying principal amount of each loan.

(3)The weighted average coupon rate 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.

(4)Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.

(1)Amount is calculated based on the number of days each loan is outstanding.
(2)Amount is calculated based on the underlying principal amount of each loan.
(3)The weighted average coupon rate 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.
(4)Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.


For the three and ninesix months ended SeptemberJune 30, 20192020 as compared to the same periods in 2018,2019, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.


33

Net Change in Unrealized Appreciation (Depreciation) on Investment


Net change in unrealized appreciation or depreciation on investment reflects the change in Terra Property Trust’s fair value during the reporting period. There may be fluctuations in unrealized gains and losses of the underlying portfolio as loans within the portfolio approach their respective maturity dates. In addition, the unrealized gains or losses in the portfolio may fluctuate over time due to changes in the market yields.


2019 — For the three and nine months ended SeptemberJune 30, 2020 as compared to the same period in 2019, we recorded an increasenet change in unrealized appreciation on investmentsinvestment increased by $1.2 million, reflecting an increase in dividends classified as return of $1.7 million and $4.9 million, respectively, ascapital, which reduced the fair valuecost basis of the Company’sour investment in Terra Property Trust went upand/or Terra JV, as applicable. As of June 30, 2020, the fair value of Terra Property Trust’s loans and debt was substantially at par.

For the six months ended June 30, 2020 as compared to the same period in 2019, net change in unrealized appreciation on investment decreased by $2.7 million as a result of higher fair values of the underlying loans and assets.

2018 — For the three and nine months ended September 30, 2018, we recorded a decreasenet decline in the unrealized appreciation on investment of $0.2 million and $0.4 million, respectively, as the fair value of the Company’s investment in Terra Property Trust decline at slightly less than the cost primarilyTrust’s loans and debt due to higher discountwidening credit spreads partially offset by decreases in underlying index rates applied to certainas a result of the underlying loans duringmacro-economic conditions impacted by the periods.COVID-19 outbreak.

Net Increase in Members’ Capital Resulting from Operations


For each of the three and ninesix months ended SeptemberJune 30, 20192020 as compared to the same periods in 2018,2019, the resulting net increase in members’ capital resultsresulting from operations of increased by $1.8 million and decreased by $0.7 million and $5.8$4.7 million, respectively.


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. We expect to use cash distributions received from Terra Property Trust to meet such cash requirements. During the three months ended June 30, 2020, Terra Property Trust paid distributions of $0.0805, $0.0738 and $0.0738 per share of common stock for each of the months of April, May and June, respectively, which translated to a distribution rate of approximately 5.5% of the fair value per share. Going forward, Terra Property Trust intends to target a distribution rate of approximately 5.0% of the fair value per share, which Terra Property Trust believes is more closely aligned with its earnings per share. Distributions are made at the discretion of Terra Property Trust’s board and will depend upon, among other things, its actual results of operations and liquidity.

A total of $26.1 million of Terra Property Trust’s obligations under participation agreements totaling $22.1 million will mature in the next twelve months.months and Terra Property Trust expects to use the proceeds from the repayment of the corresponding investments to repay the participation obligations. Additionally, Terra Property Trust expects to fund approximately $83.7$81.6 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 commitments through matching these commitments with principal repayments on outstanding loans. In addition,Additionally, Terra Property Trust had $44.5 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building. The mortgage loan payable matures on September 27, 2020. Terra Property Trust expects to extend the maturity of the loan payable for another year. 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.


On December 12, 2018, Terra Property Trust entered into a master repurchase agreement that provides for advances of up to $150 million in the aggregate, which Terra Property Trust expects to use to finance certain secured performing commercial real estate loans, including senior mortgage loans. Advances under the master repurchase agreement accrue interest at an annual rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, which ranges from 2.25% to 3.00%, and have a maturity date of December 12, 2020. Terra Property Trust expects to extend the maturity of the master repurchase agreement for another year or refinance it with a different facility. As of SeptemberJune 30, 2019,2020, the weighted average interest rate on borrowings outstanding under the master repurchase agreement was approximately 4.5%3.79%, calculated using the 30-day LIBOR of 2.02%0.16% as of SeptemberJune 30, 2019.2020. As of SeptemberJune 30, 2019,2020, the amount remaining available under the repurchase agreement was $98.7$54.6 million.
        Under the master repurchase agreement, on the second anniversary of the closing date and on each anniversary thereafter, Terra Property Trust is required to pay the buyer the difference, if positive, between $4.2 million and the interest paid during the immediately preceding 12-month period. Terra Property Trust currently expects the actual interest paid in calendar year 2020 on borrowings under the master repurchase agreement to be less than $4.2 million. As a result, Terra Property Trust
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accrued approximately $0.3 million for six months ended June 30, 2020 to make up for the difference between the actual interest paid and the $4.2 million.
        
        The master repurchase agreement contains margin call provisions that provide the buyer with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreement. Upon the occurrence of a margin deficit event, the buyer may require the seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit. During the six months ended June 30, 2020, Terra Property Trust received a margin call on one of the borrowings and as a result, made a repayment of $3.4 million to reduce the outstanding obligation under the master repurchase agreement.
On June 20, 2019, Terra Property Trust entered into a credit agreement that provides for revolving credit loans of up to $35.0 million in the aggregate, which Terra Property Trust expects to use solely for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations. Borrowings under the Revolving Credit Facilityrevolving credit facility can be either prime rate

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loans or LIBOR rate loans and accrue interest at an annual rate of prime rate plus 1% or LIBOR plus 4% with a floor of 6%. The credit facility matures on June 20,September 3, 2020. As of SeptemberJune 30, 2019,2020, the amount remaining available under therevolving credit facility was $35.0 million.fully utilized. Terra Property Trust has sufficient cash on hand to repay the amount outstanding under the revolving credit facility.


Cash Flows Provided by Operating Activities


20192020 — For the ninesix months ended SeptemberJune 30, 2020, cash flows provided by operating activities were $10.8 million, primarily due to $11.2 million of dividends received from Terra Property Trust and/or Terra JV, as applicable, of which $9.3 million was recorded as a return of capital.

2019— For the six months ended June 30, 2019, cash flows provided by operating activities were $22.4$14.9 million, primarily due to $22.8$15.2 million of dividends received from Terra Property Trust, of which $15.8$11.3 million was recorded as a return of capital.

2018— For the nine months ended September 30, 2018, cash flows provided by operating activities were $24.6 million, primarily due to $24.9 million of dividends received from Terra Property Trust, of which $7.1 million was recorded as a return of capital.


Cash Flows used in Financing Activities


20192020 — For the ninesix months ended SeptemberJune 30, 2020, cash flows used in financing activities were $10.5 million primarily related to distributions paid to members.

2019— For the six months ended June 30, 2019, cash flows used in financing activities were $22.4was $14.9 million, primarily related to distributions paid to members.


2018— For the nine months ended September 30, 2018, cash flows used in financing activities was $24.7 million, consisting of distributions paid to members of $22.5 million, and $2.2 million used to redeem 50.4 Termination Units and 3.6 continuing income units.

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.


Fair Value Measurements


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

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•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

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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 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


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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, none of our income was subject to the NYC UBT.


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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, we did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. Our 2015-2019 federal tax years remain subject to examination by the Internal Revenue Service.


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Contractual Obligations of Terra Property Trust


The following table provides a summary of Terra Property Trust’s contractual obligations at SeptemberJune 30, 2019:2020:
TotalLess than
1 year		1-3 years3-5 yearsMore than 5 years
Obligations under participation
   agreements — principal (1)
$78,116,748  26,109,93252,006,816$—  $—  
Mortgage loan payable — principal (2)
44,481,855  44,481,855  —  —  —  
Repurchase agreement payable —
   principal (3)
95,356,360  95,356,360—  —  —  
Revolving credit facility payable —
   principal (4)
35,000,000  35,000,000—  —  —  
Interest on borrowings (5)
14,760,282  9,401,8895,358,393—  —  
Unfunded lending commitments (6)
92,711,431  81,641,92411,069,507—  —  
Ground lease commitment (7)
83,825,813  1,264,5002,529,0002,529,00077,503,313
$444,252,489  $293,256,460  $70,963,716  $2,529,000  $77,503,313  
  Total 
Less than
1 year
 1-3 years 3-5 years More than 5 years
Obligations under participation
   agreements — principal (1)
 $97,688,326
 $22,125,000
 $74,447,325
 $1,116,001
 $—
Mortgage loan payable — principal (2)
 44,745,024
 44,745,024
 —
 —
 —
Repurchase agreement payable —
   principal (3)
 51,290,313
 —
 51,290,313
 —
 —
Interest on borrowings (4)
 25,771,145
 15,574,742
 9,998,654
 197,749
 —
Unfunded lending commitments (5)
 124,852,668
 83,734,108
 41,118,560
 —
 —
Ground lease commitment (6)
 84,668,813
 1,159,125
 2,529,000
 2,529,000
 78,451,688
  $429,016,289
 $167,337,999
 $179,383,852
 $3,842,750
 $78,451,688
___________________________
(1)In the normal course of business, Terra Property Trust enters into participation agreements with related parties whereby it transfers a portion of the loans to them. These loan participations do not qualify for sale treatment. As such, the loans remain on its consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations. Terra Property Trust has no direct liability to a participant under our participation agreements with respect to the underlying loan, and the participants’ share of the loan is repayable only from the proceeds received from the related borrower/issuer of the loans.
(2)Terra Property Trust has an option to extend the maturity of the loan by two years subject to certain conditions provided in the loan agreement. Amount excludes unamortized origination and exit fees of $73,036.

31(1)In the normal course of business, Terra Property Trust enters into participation agreements with related parties, and to a lesser extent, non-related parties, whereby it transfers a portion of the loans to them. These loan participations do not qualify for sale treatment. As such, the loans remain on its consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations. Terra Property Trust has no direct liability to a participant under our participation agreements with respect to the underlying loan, and the participants’ share of the loan is repayable only from the proceeds received from the related borrower/issuer of the loans.

(2)Terra Property Trust has an option to extend the maturity of the loan by two years subject to certain conditions provided in the loan agreement. Amount excludes unamortized origination and exit fees of $0.3 million.

(3)Terra Property Trust may extend the maturity date of the master repurchase agreement for a period of one year. Amount excludes unamortized deferred financing costs of $0.8 million.

(4)Terra Property Trust’s revolving credit facility was scheduled to mature on June 20, 2020. In June and July 2020, Terra Property Trust amended the credit agreement twice to extend the maturity to September 3, 2020. Terra Property Trust has sufficient cash on hand to repay the amount outstanding under the revolving credit facility.
(3)Terra Property Trust may extend the maturity date of the master repurchase agreement for a period of one year. Amount excludes unamortized deferred financing costs of $1.7 million.
(4)Interest was calculated using the applicable annual variable interest rate and balance outstanding at September 30, 2019. Amount represents interest expense through maturity plus exit fee as application.
(5)Certain of Terra Property Trust’s loans provide for a commitment to fund the borrower at a future date. As of September 30, 2019, Terra Property Trust had eight of such loans with total funding commitments of $271.4 million, of which $146.5 million had been funded.
(6)Represents rental obligation under the ground lease, inclusive of imputed interest, for Terra Property Trust’s office building that it acquired through foreclosure.

(5)Interest was calculated using the applicable annual variable interest rate and balance outstanding at June 30, 2020. Amount represents interest expense through maturity plus exit fee as application.
(6)Certain of Terra Property Trust’s loans provide for a commitment to fund the borrower at a future date. As of June 30, 2020, Terra Property Trust had eight of such loans with total funding commitments of $305.6 million, of which $212.9 million had been funded.
(7)Represents rental obligation under the ground lease, inclusive of imputed interest, for Terra Property Trust’s office building that it acquired through foreclosure.

Management Agreement with Terra REIT Advisors

As part of the Axar Transaction, Terra Income Advisors assigned all of its rights, title and interest in and to its current external management agreement with Terra Property Trust to Terra REIT Advisors and immediately thereafter, Terra REIT Advisors and Terra Property Trust amended and restated such management agreement. Such amended and restated management agreement has the same economic terms and is in all material respects otherwise on the same terms as the management agreement between Terra Income Advisors and Terra Property Trust in effect immediately prior to the Axar Transaction, except for the identity of our manager.
        
Terra Property Trust currently pays the following fees to Terra 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, including any third-party expenses related to such loan. The originationIn the event that the term of any real estate-related loan is extended, Terra REIT Advisors also receives an extension fee is offset byequal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of any origination fee receivedpaid by Terra Property Trust from borrowers.the borrower in connection with such extension.


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


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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 Terra 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. In the event that the term of any real estate-related loan is extended, Terra REIT Advisors also receives an extension 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.


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, Terra 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 Terra REIT Advisors with respect to its evaluation and pursuit of such transactions.


In addition to the fees described above, Terra Property Trust reimburses Terra 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 Terra REIT Advisors’ overhead, such as rent, employee costs, utilities, and technology costs.


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The following table presents a summary of fees paid and costs reimbursed to the predecessor to Terra REIT Advisors and Terra REIT Advisors in the aggregate in connection with providing services to Terra Property Trust:
Three Months Ended June 30,Six Months Ended June 30,
 Three Months Ended September 30, Nine Months Ended September 30,2020201920202019
 2019 2018 2019 2018
Origination fee expense (1)
 $270,036
 $271,964
 $1,070,588
 $983,075
Origination and extension fee expense (1)
Origination and extension fee expense (1)
$250,601  $117,380  $688,218  $800,552  
Asset management fee 942,548
 762,470
 2,779,888
 2,285,610
Asset management fee1,140,426  956,985  2,169,959  1,837,340  
Asset servicing fee 220,881
 184,655
 652,122
 529,403
Asset servicing fee253,316  226,764  487,524  431,241  
Operating expenses reimbursed to Manager 1,308,453
 1,016,040
 3,636,971
 2,663,562
Operating expenses reimbursed to Manager1,694,875  1,213,314  3,062,064  2,328,518  
Disposition and extension fee (2)
 721,612
 348,211
 1,358,636
 1,103,993
Disposition fee (2)
Disposition fee (2)
220,424  167,091  295,944  637,024  
Total $3,463,530
 $2,583,340
 $9,498,205
 $7,565,643
Total$3,559,642  $2,681,534  $6,703,709  $6,034,675  
_______________
(1)Origination fee expense is generally offset with origination fee income. Any excess is deferred and amortized to interest income over the term of the investment.
(2)Disposition and extension fee are generally offset with exit and extension fee income and included in interest income on the consolidated statements of operations.

(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 loan.
(2)Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.

Off-Balance Sheet Arrangements


Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.

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 SeptemberJune 30, 2019,2020, Terra Property Trust had 13 investments with an aggregate principal balance of $183.4$253.1 million, net of obligations under participation agreements, that provide for interest income at an annual rate of LIBOR plus a spread, 11 of which are subject to a LIBOR floor. A decrease of 100 basis points in LIBOR would decrease our annual interest income, net of interest expense on participation agreements, by approximately $0.5$0.1 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 $1.3$0.6 million.
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        Additionally, Terra Property Trust had $44.7$44.5 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building; and $51.3$95.4 million of borrowings outstanding under a repurchase agreement that bear interest at an annual rate of LIBOR plus a spread ranging from 2.25%2.00% to 2.35%2.50% with a LIBOR floor ranging from no floor to 2.49%2.52% and collateralized by $73.2$142.8 million of first mortgages. A decrease of 100 basis points in LIBOR would decrease Terra Property Trust’s total annual interest expense by approximately $0.2$0.04 million and an increase of 100 basis points in LIBOR would increase Terra Property Trust’s annual interest expense by approximately $0.8$0.3 million.


On         In July 27, 2017, the United Kingdom’sU.K. Financial Conduct Authority which regulates LIBOR, announced that it intendswould cease to phase outcompel banks to participate in setting LIBOR as a benchmark by the end of 2021.2021, or the LIBOR transition date. It is unclear if at that time whether or not LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. In addition, in April 2018, the Federal Reserve System, in conjunction with theThe Alternative Reference Rates Committee, announceda steering committee comprised of large U.S. financial institutions convened by the replacement of LIBOR with a new index, calculated by short-term repurchase agreements collateralized by U.S. Treasury securities, called theFederal Reserve, has recommended Secured Overnight Financing Rate (“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 the “SOFR.” At this time, it is not possible to predict whether SOFR will attainattains market traction as a LIBOR replacement. Additionally,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 securities,loans, including Terra Property Trust’s portfolio of LIBOR-indexed, floating-rate debt securities,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 securities,loans, including the value of the LIBOR-indexed, floating-rate debt securitiesloans in Terra Property Trust’s portfolio, or the cost of its borrowings. The potential effect of the phase-out or replacement of LIBOR on Terra Property Trust’s cost of capital and net investment income cannot yet be determined.


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We may hedge against interest 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 investments with fixed interest rates. For the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, 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” 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 the 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 SeptemberJune 30, 2019.2020. Based on that evaluation, the 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.
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

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Item 1. Legal Proceedings.
Neither we, Terra Property Trust, Terra JV nor our Manager is currently subject to any material legal proceedings, nor, to our knowledge, are material legal proceedings threatened against us, Terra Property Trust, Terra JV or our Manager. From time to time, we, Terra Property Trust and individuals employed by our Manager or its affiliates may be a party to certain legal proceedings in the ordinary course of business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.


Item 1A. Risk Factors.
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.2019 other than as set forth below.


Major public health issues, including the current outbreak of COVID-19, and related disruptions in the U.S. and global economy and financial markets have adversely impacted and could continue to adversely impact or disrupt our financial condition and results of operations.
        The recent outbreak of COVID-19 in many countries continues to adversely impact global economic activity and has contributed to significant volatility in financial markets. On March 11, 2020, the World Health Organization publicly characterized COVID-19 as a pandemic. On March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency. The global impact of the outbreak has been rapidly evolving, and as cases of the virus increased around the world, governments and organizations have implemented a variety of actions to mobilize efforts to mitigate the ongoing and expected impact. Many governments, including where real estate is located that secures or underlies a significant portion of Terra Property Trust's commercial real estate loans, have reacted by instituting quarantines, restrictions on travel, school closures, bans on public events and on public gatherings, “shelter in place” or “stay at home” rules, restrictions on types of business that may continue to operate, with exceptions, in certain cases, available for certain essential operations and businesses, and/or restrictions on types of construction projects that may continue. Further, such actions have created, and we expect will continue to create, disruption in real estate financing transactions and the commercial real estate market and adversely impacted a number of industries. The outbreak could have a continued adverse impact on economic and market conditions and continue to cause regional, national and global economic slowdowns and potentially trigger recessions in any or all of these areas.
        In the United States, there have been a number of federal, state and local government initiatives applicable to a significant number of mortgage loans, to manage the spread of the virus and its impact on the economy, financial markets and continuity of businesses of all sizes and industries. On March 27, 2020, the U.S. Congress approved, and President Trump signed into law, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides approximately $2 trillion in financial assistance to individuals and businesses resulting from the outbreak of COVID-19. The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing and loan forgiveness and/or forbearance. Although this action by the federal government, together with other actions taken at the federal, regional and local levels, are intended to support these economies, there is no guarantee that such measures will provide sufficient relief to avoid continued adverse effects on the economy and potentially a recession. Similar actions have been taken by governments around the globe but as is the case in the United States there is no assurance that such measures will prevent further economic disruptions, which may be significant, around the world.
        We believe that our and Terra Property Trust's ability, as well as that of Terra REIT Advisors, LLC ("Terra REIT Advisors"), the external manager of Terra Property Trust, and our Manager, to operate, our and Terra Property Trust's level of business activity and the profitability of our and Terra Property Trust's business, as well as the values of, and the cash flows from, the loan assets Terra Property Trust owns have been, and will continue to be, impacted by the effects of COVID-19 and could in the future be impacted by another pandemic or other major public health issues. While we, Terra Property Trust, Terra REIT Advisors and our Manager have implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the COVID-19 pandemic and such measures may not adequately predict the impact on our or Terra Property Trust's business from such events.
 The effects of COVID-19 have adversely impacted the value of Terra Property Trust's loan assets, and our and Terra Property Trust's business, financial condition and results of operations and cash flows. Some of the factors that impacted us and Terra Property Trust to date and may continue to affect us and Terra Property Trust include the following:
•the decline in the value of commercial real estate, which negatively impacts the value of Terra Property Trust's loans, potentially materially;

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•to the extent the value of commercial real estate declines, which would also likely negatively impact the value of the loans Terra Property Trust owns, Terra Property Trust could become subject to additional margin calls under the master repurchase agreement with Goldman Sachs Bank USA, and if Terra Property Trust fails to resolve such margin calls when due by payment of cash or delivery of additional collateral, the lenders may exercise remedies including demanding payment by Terra Property Trust of its aggregate outstanding financing obligations and/or taking ownership of the loans or other assets securing the applicable obligations. Terra Property Trust may not have the funds available to repay such financing obligations, and it may be unable to raise the funds from alternative sources on favorable terms or at all. Forced sales of the loans or other assets that secure Terra Property Trust's financing obligations in order to pay outstanding financing obligations may be on terms less favorable to it than might otherwise be available in a regularly functioning market and could result in deficiency judgments and other claims against Terra Property Trust;

•difficulty accessing debt and equity capital on attractive terms, or at all;

•a severe disruption and instability in the financial markets or deteriorations in credit and financing conditions may affect Terra Property Trust or its borrowers’ ability to make regular payments of principal and interest (whether due to an inability to make such payments, an unwillingness to make such payments, or a waiver of the requirement to make such payments on a timely basis or at all);

•government-mandated moratoriums on the construction, development or redevelopment of properties underlying our construction loans may prevent the completion, on a timely basis or at all, of such projects;

•unavailability of information, resulting in restricted access to key inputs used to derive certain estimates and assumptions made in connection with evaluating loans for impairments and establishing allowances for loan losses;

•Terra Property Trust's ability to remain in compliance with the financial covenants under its borrowings, including in the event of impairments in the value of the loans it owns;

•a general decline in business activity and demand for mortgage financing, servicing and other real estate and real estate-related transactions, which could adversely affect Terra Property Trust's ability to make new investments or to redeploy the proceeds from repayments of its existing investments;

•disruptions to the efficient function of our or Terra Property Trust's operations because of, among other factors, any inability to access short-term or long-term financing for the loans it makes;

•Terra Property Trust's need to sell assets, including at a loss;

•Terra Property Trust’s loan origination activities;

•inability of other third-party vendors Terra Property Trust or we rely on to conduct Terra Property Trust's or our business to operate effectively and continue to support Terra Property Trust's or our business and operations, including vendors that provide IT services, legal and accounting services, or other operational support services;

•effects of legal and regulatory responses to concerns about the COVID-19 pandemic and related public health issues, which could result in additional regulation or restrictions affecting the conduct of Terra Property Trust's or our business; and

•Terra Property Trust's or our ability to ensure operational continuity in the event our business continuity plan is not effective or ineffectually implemented or deployed during a disruption.

        The rapid development and fluidity of the circumstances resulting from this pandemic precludes any prediction as to the ultimate adverse impact of COVID-19. There are no comparable recent events which provide guidance as to the effect of the spread of COVID-19 and a pandemic on our business. Nevertheless, COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows. Moreover, many risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.
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We may receive distributions from Terra Property Trust on a delayed basis or distributions may decrease over time. Changes in the amount and timing of distributions Terra Property Trust pays or in the tax characterization of distributions Terra Property Trust pays may adversely affect the fair value of our units or may result in our members being taxed on their allocable share of distributions from Terra Property Trust at a higher rate than initially expected.

        Our distributions are driven by a variety of factors, including Terra Property Trust's minimum distribution requirements under the REIT tax laws and Terra Property Trust's REIT taxable income (including certain items of non-cash income) as calculated pursuant to the Internal Revenue Code. Terra Property Trust is generally required to distribute to its stockholders at least 90% of its REIT taxable income, although its reported financial results for GAAP purposes may differ materially from its REIT taxable income.
        In the year ended December 31, 2019, Terra Property Trust paid $30.4 million of cash distributions on its common stock, representing total distributions of $2.03 per share. For the six months ended June 30, 2020, Terra Property Trust's board of directors declared total cash distribution of $0.76 per share that were paid monthly in the same period in which each was declared.
        Terra Property Trust continues to prudently evaluate its liquidity and review the rate of future distributions in light of its financial condition and its applicable minimum distribution requirements under applicable REIT tax laws and regulations. Terra Property Trust may determine to pay distributions on a delayed basis or decrease distributions for a number of factors, including the risk factors described in this quarterly report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019.
        To the extent Terra Property Trust determines that future distributions would represent a return of capital to investors or would not be required under applicable REIT tax laws and regulations, rather than the distribution of income, Terra Property Trust may determine to discontinue distribution payments until such time that distributions would again represent a distribution of income or be required under applicable REIT tax laws and regulations. Any reduction or elimination of Terra Property Trust’s payment of distributions would not only reduce the amount of distributions you would receive as a holder of our units, but could also have the effect of reducing the fair value of our units and the ability of Terra Property Trust to raise capital in future securities offerings.
        In addition, the rate at which holders of our units are taxed on their allocable share of Terra Property Trust’s distributions and the characterization of such distributions - be it ordinary income, capital gains, or a return of capital - could have an impact on the fair value of our units. After Terra Property Trust announces the expected characterization of distributions Terra Property Trust has paid, the actual characterization (and, therefore, the rate at which holders of our units are taxed on their allocable share of Terra Property Trust’s distributions) could vary from Terra Property Trust’s expectations, including due to errors, changes made in the course of preparing Terra Property Trust’s corporate tax returns, or changes made in response to an audit by the Internal Revenue Service, or the IRS, with the result that holders of our units could incur greater income tax liabilities than expected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.


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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
2.1
2.2
2.2
2.3
2.3
2.4
2.4
2.5
2.5
2.6
2.6

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2.7Description and Method of Filing 000-56117) filed with the SEC on March 5, 2020).
3.1
3.1
10.1*
Amended and Restated Contribution and Repurchase Agreement, dated, November 13, 2019, by and among Terra Property Trust, Inc., Terra International Fund 3, L.P. and Terra International Fund 3 REIT, LLC.
31.1*
31.2*
31.2*
32**
101.INS**XBRL Instance Document
101.SCH**XBRL Taxonomy Extension Schema Document
101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**XBRL Taxonomy Extension Label Linkbase Document
101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**XBRL Taxonomy Extension Definition Linkbase Document
_______________
* Filed herewith.
** Furnished herewith.

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


Date: November 13, 2019
August 10, 2020
TERRA SECURED INCOME FUND 5, LLC
By:/s/ Vikram S. Uppal
Vikram S. Uppal
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Gregory M. Pinkus
Gregory M. Pinkus
Chief Financial Officer and Chief Operating Officer,
(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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