SUBJECT TO COMPLETION, DATED JUNE 1, 2021
PRELIMINARY PROSPECTUS
TERRA PROPERTY TRUST, INC.
$40,000,000
% Notes due 20
Terra Property Trust, Inc. is a real estate credit focused company that originates, structures, funds and manages commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States (our “targeted assets”). Our objective is to continue to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions.
We are externally managed by Terra REIT Advisors, LLC (our “Manager” or “Terra REIT Advisors”), a private investment firm that is registered as an investment adviser with the Securities and Exchange Commission (the “SEC”) and an affiliate of Terra Capital Partners, LLC, our sponsor (“Terra Capital Partners”). Our Manager is responsible for making investment decisions for our portfolio.
We are offering $40.0 million in aggregate principal amount of % notes due 20 , which we refer to as the “notes.” The notes will mature on , 20 . We will pay interest on the notes on , , and of each year, beginning , 2021. We may redeem the notes in whole or in part at any time, or from time to time on or after , 20 , at the redemption price of par, plus accrued interest, as discussed under the caption “Description of the Notes — Optional Redemption” in this prospectus. The notes will be issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.
The notes will be our direct unsecured obligations and rank pari passu with, which means equal to, all outstanding and future unsecured unsubordinated indebtedness issued by us. Because the notes will not be secured by any of our assets, they will be effectively subordinated to any secured indebtedness we have incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness. The notes will be structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries and financing vehicles since they are obligations exclusively of Terra Property Trust, Inc. and not of any of our subsidiaries. As of March 31, 2021, our total secured indebtedness (which consisted of borrowings incurred by our subsidiaries) was approximately $248.4 million, consisting of $71.3 million of obligations under participation agreements and the sale of an A-note with a principal amount of $22.0 million that did not qualify for sale accounting, both of which were accounted for as secured borrowing for financial reporting purposes, $106.5 million outstanding under a term loan, $40.6 million outstanding under a mortgage loan payable and $8.0 million outstanding under a revolving line of credit. None of our subsidiaries is a guarantor of the notes and the notes will not be required to be guaranteed by any subsidiary we may acquire or create in the future. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the notes, and any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the notes.
The notes will also rank pari passu to our general liabilities. In total, these general liabilities were $38.9 million as of March 31, 2021. We currently do not have outstanding debt that is subordinated to the notes and do not currently intend to issue indebtedness that expressly provides that it is subordinated to the notes. Therefore, the notes will not be senior to any indebtedness or obligations.
We intend to list the notes on the New York Stock Exchange (“NYSE”) and we expect trading to commence thereon within 30 days of the original issue date under the trading symbol “TPTA.” The notes are expected to trade “flat.” This means that purchasers will not pay, and sellers will not receive, any accrued and unpaid interest on the notes that is not included in the trading price. Currently, there is no public market for the notes and there can be no assurance that one will develop.
We elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2016. To assist us in preserving our REIT qualification, among other purposes, our charter generally prohibits any person from directly or indirectly owning more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock, the outstanding shares of any class or series of our preferred stock or the aggregate outstanding shares of all classes and series of our capital stock. In addition, our charter contains various other restrictions relating to the ownership and transfer of our capital stock.
Because we are an “emerging growth company” under the federal securities laws, we are subject to reduced public company reporting requirements.
Investing in the notes involves a high degree of risk and is highly speculative. Before investing in the notes, you should read the discussion of the material risks of investing in our securities in “Risk Factors” beginning on page 17 of this prospectus. Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| | | Per Note | | | Total | |
Public offering price(1) | | | | | 100% | | | | | $ | 40,000,000 | | |
Underwriting discount (sales load) | | | | | 3.125% | | | | | $ | 1,250,000 | | |
Proceeds to us, before expenses(2) | | | | | 96.875% | | | | | $ | 38,750,000 | | |
(1)
Ladenburg Thalmann & Co. Inc., as representative of the underwriters, may exercise an option to purchase up to an additional $6.0 million total aggregate principal amount of notes offered hereby, within 30 days of the date of this prospectus. If this option is exercised in full, the total public offering price will be $46,000,000, the total underwriting discount (sales load) paid by us will be $1,437,500, and total proceeds to us, before expenses, will be $44,562,500.
(2)
Total expenses of the offering payable by us, excluding underwriting discounts and commissions, are estimated to be $800,000. See “Underwriting” in this prospectus for complete details of underwriters’ compensation.
Delivery of the notes in book-entry only form through The Depository Trust Company (“DTC”) is expected to be made on , 2021.
Joint Book-Runners
| Ladenburg Thalmann | | | B. Riley Securities | | | Incapital | | | William Blair | |
The date of this prospectus is , 2021