UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-55780

Terra Secured Income Fund 5, LLC

(Exact name of registrant as specified in its charter)


Delaware						90-0967526
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

550 Fifth Avenue, 6th Floor

New York, New York 10036

(Address of principal executive offices) (Zip Code)

(212) 753-5100

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Securities Exchange Act of 1934:

None

Securities registered pursuant to section 12(g) of the Securities Exchange Act of 1934:

Units of Limited Liability Company Interests

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		Emerging growth company	☑

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. ☑

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 12, 2020,~~May 13, 2021, the registrant had 6,637.7 units of limited liability company interests outstanding. No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.

TABLE OF CONTENTS


		Page

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Statements of Financial Condition as of ~~September~~March 31, 2021 ~~30, 2020~~ (unaudited) and December 31, ~~2019~~20 20	2

	Statements of Operations for the Three ~~and~~ ~~Nine~~ Months Ended ~~September~~March 31, 2021 and 2020 ~~30, 2020 and 2019~~ (unaudited)	3

	Statements of Changes in Members’ Capital for the Three ~~and~~ ~~Nine~~ Months Ended SMarch 31, 2021 and 2020 ~~eptember~~ ~~30, 2020 and 2019~~ (unaudited)	4

	Statements of Cash Flows for the ~~Nine~~Three Months Ended SMarch 31, 2021 and 2020 ~~eptember~~ ~~30, 2020 and 2019~~ (unaudited)	5

	Schedules of Investment as of SMarch 31, 2021 ~~eptember~~ ~~30, 2020~~ (unaudited) and December 31, ~~2019~~20 20	6

	Notes to Financial Statements as of ~~September~~March 31, 2021 ~~30, 2020~~ (unaudited)	1413

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3736

Item 4.	Controls and Procedures	3837

PART II	OTHER INFORMATION	3837

Item 1.	Legal Proceedings	3837

Item 1A.	Risk Factors	3837

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4137

Item 3.	Defaults upon Senior Securities	4137

Item 4.	Mine Safety Disclosures	4137

Item 5.	Other Information	4137

Item 6.	Exhibits	4138

Signatures		4339

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Terra Secured Income Fund 5, LLC

Statements of Financial Condition


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(unaudited)					(unaudited)
Assets	Assets					Assets
Equity investment in Terra JV, LLC at fair value (cost of $238,509,445 and $0, respectively)		$	236,758,305	$	0
Equity investment in Terra Property Trust, Inc. at fair value (cost of $0 and $243,924,852, respectively)		0		247,263,245
Equity investment in Terra JV, LLC at fair value (cost of $229,062,384 and $230,915,151, respectively)						Equity investment in Terra JV, LLC at fair value (cost of $229,062,384 and $230,915,151, respectively)	$	233,997,676	$	235,357,977
Cash and cash equivalents	Cash and cash equivalents	330,176		97,937		Cash and cash equivalents	135,654		225,214
Other assets	Other assets	7,703		15,064		Other assets	26,330		33,830
Total assets	Total assets	$	237,096,184	$	247,376,246	Total assets	$	234,159,660	$	235,617,021

Liabilities and Members’ Capital	Liabilities and Members’ Capital					Liabilities and Members’ Capital
Liabilities	Liabilities					Liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	169,063	$	271,333	Accounts payable and accrued expenses	$	222,962	$	199,602
Due to related party		0		38,000
Total liabilities	Total liabilities	169,063		309,333		Total liabilities	222,962		199,602
Commitments and contingencies (Note 5)	Commitments and contingencies (Note 5)					Commitments and contingencies (Note 5)	0		0
Members’ capital:	Members’ capital:					Members’ capital:
Managing member	Managing member	0		0		Managing member	0		0
Non-managing members	Non-managing members	236,927,121		247,066,913		Non-managing members	233,936,698		235,417,419
Total members’ capital	Total members’ capital	236,927,121		247,066,913		Total members’ capital	233,936,698		235,417,419
Total liabilities and members’ capital	Total liabilities and members’ capital	$	237,096,184	$	247,376,246	Total liabilities and members’ capital	$	234,159,660	$	235,617,021
Net asset value per unit	Net asset value per unit	$	35,694	$	37,222	Net asset value per unit	$	35,244	$	35,467

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Statements of Operations

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Investment income	Investment income									Investment income
Dividend income	Dividend income	$	3,086,441	$	2,994,149	$	5,032,564	$	6,917,024	Dividend income	$	1,126,895	$	1,264,438
Other operating income	Other operating income	28		82		206		474		Other operating income	20		144
Total investment income	Total investment income	3,086,469		2,994,231		5,032,770		6,917,498		Total investment income	1,126,915		1,264,582
Operating expenses	Operating expenses									Operating expenses
Professional fees	Professional fees	114,547		182,081		449,746		453,414		Professional fees	120,135		174,099
Other	Other	1,603		686		4,347		9,645		Other	385		1,449
Total operating expenses	Total operating expenses	116,150		182,767		454,093		463,059		Total operating expenses	120,520		175,548
Net investment income	Net investment income	2,970,319		2,811,464		4,578,677		6,454,439		Net investment income	1,006,395		1,089,034
Net change in unrealized (depreciation) appreciation on investment		(1,751,564)		1,655,207		(1,223,889)		4,853,466
Net increase in members’ capital resulting from operations		$	1,218,755	$	4,466,671	$	3,354,788	$	11,307,905
Net change in unrealized appreciation (depreciation) on investment										Net change in unrealized appreciation (depreciation) on investment	492,466		(2,286,298)
Net increase (decrease) in members’ capital resulting from operations										Net increase (decrease) in members’ capital resulting from operations	$	1,498,861	$	(1,197,264)
Per unit data:	Per unit data:									Per unit data:
Net investment income per unit	Net investment income per unit	$	447	$	424	$	690	$	972	Net investment income per unit	$	152	$	164
Net increase in members’ capital resulting from operations per unit		$	184	$	673	$	505	$	1,704
Net increase (decrease) in members’ capital resulting from operations per unit										Net increase (decrease) in members’ capital resulting from operations per unit	$	226	$	(180)
Weighted average units outstanding	Weighted average units outstanding	6,638		6,638		6,638		6,638		Weighted average units outstanding	6,638		6,638

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Statements of Changes in Members’ Capital

(Unaudited)


		Managing Member		Non-Managing Members		Total			Managing Member		Non-Managing Members		Total
Balance, December 31, 2019		$	0	$	247,066,913	$	247,066,913
Capital distributions		0		(7,467,271)		(7,467,271)
Decrease in members’ capital resulting from operations:
Net investment income		0		1,089,034		1,089,034
Net change in unrealized depreciation on investment		0		(2,286,298)		(2,286,298)
Net decrease in members’ capital resulting from operations		0		(1,197,264)		(1,197,264)
Balance, March 31, 2020		0		238,402,378		238,402,378
Balance, January 1, 2021								Balance, January 1, 2021	0		$	235,417,419	$	235,417,419
Capital distributions	Capital distributions	0		(3,030,711)		(3,030,711)		Capital distributions	0		(2,979,582)		(2,979,582)
Increase in members’ capital resulting from operations:	Increase in members’ capital resulting from operations:							Increase in members’ capital resulting from operations:
Net investment income	Net investment income	0		519,324		519,324		Net investment income	0		1,006,395		1,006,395
Net change in unrealized appreciation on investment	Net change in unrealized appreciation on investment	0		2,813,973		2,813,973		Net change in unrealized appreciation on investment	0		492,466		492,466
Net increase in members’ capital resulting from operations	Net increase in members’ capital resulting from operations	0		3,333,297		3,333,297		Net increase in members’ capital resulting from operations	0		1,498,861		1,498,861
Balance, June 30, 2020		0		238,704,964		238,704,964
Capital distributions		0		(2,996,598)		(2,996,598)
Increase in members’ capital resulting from operations:
Net investment income		0		2,970,319		2,970,319
Net change in unrealized depreciation on investment		0		(1,751,564)		(1,751,564)
Net increase in members’ capital resulting from operations		0		1,218,755		1,218,755
Balance, September 30, 2020		$	0	$	236,927,121	$	236,927,121
Balance, March 31, 2021								Balance, March 31, 2021	$	0	$	233,936,698	$	233,936,698

Managing
Member Non-Managing Members Total
Balance, December 31, 2018 $ 0 $ 263,080,442 $ 263,080,442
Capital distributions 0 (7,468,094) (7,468,094)
Increase in members’ capital resulting from operations:
Net investment income 0 3,747,080 3,747,080
Net change in unrealized appreciation on investment 0 1,589,251 1,589,251
Net increase in members’ capital resulting from operations 0 5,336,331 5,336,331
Balance, March 31, 2019 0 260,948,679 260,948,679
Capital distributions 0 (7,468,095) (7,468,095)
Increase in members’ capital resulting from operations:
Net investment loss 0 (104,105) (104,105)
Net change in unrealized appreciation on investment 0 1,609,008 1,609,008
Net increase in members’ capital resulting from operations 0 1,504,903 1,504,903
Balance, June 30, 2019 0 254,985,487 254,985,487
Capital distributions 0 (7,468,094) (7,468,094)
Capital redemptions 0 (12,653) (12,653)
Increase in members’ capital resulting from operations:
Net investment income 0 2,811,464 2,811,464
Net change in unrealized appreciation on investment 0 1,655,207 1,655,207
Net increase in members’ capital resulting from operations 0 4,466,671 4,466,671
Balance, September 30, 2019 $ 0 $ 251,971,411 $ 251,971,411


	Managing Member		Non-Managing Members		Total
Balance, January 1, 2020	0		$	247,066,913	$	247,066,913
Capital distributions	0		(7,467,271)		(7,467,271)
Increase in members’ capital resulting from operations:
Net investment income	0		1,089,034		1,089,034
Net change in unrealized depreciation on investment	0		(2,286,298)		(2,286,298)
Net decrease in members’ capital resulting from operations	0		(1,197,264)		(1,197,264)
Balance, March 31, 2020	$	0	$	238,402,378	$	238,402,378

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Statements of Cash Flows

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net increase in members’ capital resulting from operations		$	3,354,788	$	11,307,905
Adjustments to reconcile net increase in members’ capital resulting from operations to net cash provided by operating activities:
Net increase (decrease) in members’ capital resulting from operations						Net increase (decrease) in members’ capital resulting from operations	$	1,498,861	$	(1,197,264)
Adjustments to reconcile net increase (decrease) in members’ capital resulting from operations to net cash provided by operating activities:						Adjustments to reconcile net increase (decrease) in members’ capital resulting from operations to net cash provided by operating activities:
Return of capital on investment	Return of capital on investment	9,281,051		15,834,232		Return of capital on investment	1,852,767		6,562,736
Net change in unrealized depreciation (appreciation) on investment		1,223,889		(4,853,466)
Net change in unrealized (appreciation) depreciation on investment						Net change in unrealized (appreciation) depreciation on investment	(492,466)		2,286,298

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Decrease (increase) in other assets	Decrease (increase) in other assets	7,361		(7,521)		Decrease (increase) in other assets	7,500		(4,873)
(Decrease) increase in accounts payable and accrued expenses		(102,270)		89,524
Increase in accounts payable and accrued expenses						Increase in accounts payable and accrued expenses	23,360		68,885
Decrease in due to related party	Decrease in due to related party	(38,000)		0		Decrease in due to related party	0		(38,000)
Net cash provided by operating activities	Net cash provided by operating activities	13,726,819		22,370,674		Net cash provided by operating activities	2,890,022		7,677,782

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Distributions paid	Distributions paid	(13,494,580)		(22,404,283)		Distributions paid	(2,979,582)		(7,467,271)
Payment for capital redemption		0		(12,653)
Net cash used in financing activities	Net cash used in financing activities	(13,494,580)		(22,416,936)		Net cash used in financing activities	(2,979,582)		(7,467,271)

Net increase (decrease) in cash and cash equivalents		232,239		(46,262)
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(89,560)		210,511
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	97,937		131,784		Cash and cash equivalents at beginning of period	225,214		97,937
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	330,176	$	85,522	Cash and cash equivalents at end of period	$	135,654	$	308,448

Supplemental Non-Cash Disclosure:	Supplemental Non-Cash Disclosure:					Supplemental Non-Cash Disclosure:
Transfer of ownership interest in Terra Property Trust, Inc. to Terra JV, LLC (Note 3)	Transfer of ownership interest in Terra Property Trust, Inc. to Terra JV, LLC (Note 3)	$	244,006,890	$	0	Transfer of ownership interest in Terra Property Trust, Inc. to Terra JV, LLC (Note 3)	$	0	$	244,006,890

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment

~~September 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020

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 ~~September 30,~~both March 31, 2021 and December 31, 2020, Terra JV, LLC (“Terra JV”) held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra Offshore Funds REIT, LLC ~~(formerly known as Terra International Fund 3 REIT, LLC)~~ (“Terra Offshore ~~Funds”~~REIT”), and the Company and Terra Secured Income Fund 7, LLC (“Terra Fund 7”) owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV. Accordingly, as of ~~September 30,~~both March 31, 2021 and December 31, 2020, the Company indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust through Terra JV.

The following table presents a summary of the Company’s investment as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


			Percentage Interest			September 30, 2020										Percentage Interest			March 31, 2021							December 31, 2020
Investment	Investment	Date Acquired		Cost			Fair Value		% of Members’ Capital		Investment		Date Acquired				Cost			Fair Value		% of Members’ Capital		Cost			Fair Value		% of Members’ Capital
Terra JV, LLC	Terra JV, LLC	3/2/2020		87.6	%		$	238,509,445	$	236,758,305		99.9	%	Terra JV, LLC	3/2/2020		87.6	%		$	229,062,384	$	233,997,676	100.0	%		$	230,915,151	$	235,357,977	100.0	%

Number of Shares of Common Stock December 31, 2019
Investment Date Acquired Cost Fair Value % of Members’ Capital
Terra Property Trust, Inc. 1/1/2016 and 3/7/2016 14,912,990 $ 243,924,852 $ 247,263,245 100.1 %

As of~~September 30, 2020~~ both March 31, 2021 and December 31, ~~2019,~~2020, the Company indirectly beneficially owned 76.5% ~~and directly owned 98.6%, respectively,~~ of the outstanding shares of common stock of Terra Property Trust. Additionally, as of ~~September 30,~~both March 31, 2021 and December 31, 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.~~7.

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 ~~September 30, 2020:~~March 31, 2021:


Portfolio Company	Portfolio Company	Collateral Location	Property Type	Coupon Rate		Current Interest Rate		Exit Fee		Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		Pro Rata Fair Value (2)		% (3)		Portfolio Company	Collateral Location	Property Type	Coupon Rate		Current Interest Rate		Exit Fee		Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		Pro Rata Fair Value (2)		% (3)
Loans held for investment:	Loans held for investment:																					Loans held for investment:
Mezzanine loans:	Mezzanine loans:																					Mezzanine loans:
150 Blackstone River Road, LLC	150 Blackstone River Road, LLC	US - MA	Industrial	8.5	%	8.5	%	0	%	9/21/2017	9/6/2027	$	7,000,000	$	7,000,000	$	6,933,286	$	5,303,964	2.2	%	150 Blackstone River Road, LLC	US - MA	Industrial	8.5	%	8.5	%	0	%	9/21/2017	9/6/2027	$	7,000,000	$	7,000,000	$	6,995,064	$	5,351,224	2.3	%
Austin H. I. Owner LLC ~~(9)~~(4)	Austin H. I. Owner LLC ~~(9)~~(4)	US - TX	Hotel	12.5	%	12.5	%	1.0	%	9/30/2015	10/6/2020	3,729,649		3,766,866		3,751,748		2,870,087		1.2	%	Austin H. I. Owner LLC ~~(9)~~(4)	US - TX	Hotel - full/ select service	12.5	%	12.5	%	1.0	%	9/30/2015	10/6/2020	3,890,140		3,929,042		3,637,281		2,782,520		1.2	%
High Pointe Mezzanine Investments, LLC ~~(4)~~(5)	High Pointe Mezzanine Investments, LLC ~~(4)~~(5)	US - SC	Student housing	15.0	%	15.0	%	1.0	%	12/27/2013	1/6/2024	3,000,000		3,219,071		2,985,915		2,284,225		1.0	%	High Pointe Mezzanine Investments, LLC ~~(4)~~(5)	US - SC	Student housing	13.0	%	13.0	%	1.0	%	12/27/2013	1/6/2024	3,000,000		3,189,700		2,986,866		2,284,952		1.0	%
LD Milipitas Mezz, LLC ~~(7)~~(6)	LD Milipitas Mezz, LLC ~~(7)~~(6)	US - CA	Hotel	LIBOR +10.25% (2.75% Floor)		13.0	%	1.0	%	6/27/2018	6/27/2021	4,250,000		4,296,001		4,295,636		3,286,162		1.4	%	LD Milipitas Mezz, LLC ~~(7)~~(6)	US - CA	Hotel - extended stay	LIBOR +10.25% (2.75% Floor)		13.0	%	1.0	%	6/27/2018	6/27/2021	4,250,000		4,292,148		4,292,450		3,283,724		1.4	%
Stonewall Station Mezz LLC ~~(6)~~(8)	Stonewall Station Mezz LLC ~~(6)~~(8)	US - NC	Hotel	12.0% current 2.0% PIK		14.0	%	1.0	%	5/31/2018	5/20/2021	10,224,461		10,315,547		10,270,569		7,856,985		3.3	%	Stonewall Station Mezz LLC ~~(6)~~(8)	US - NC	Infill land	12.0% current 2.0% PIK		14.0	%	1.0	%	5/31/2018	5/20/2021	10,669,168		10,768,255		10,789,750		8,254,159		3.5	%
												28,204,110		28,597,485		28,237,154		21,601,423		9.1	%												28,809,308		29,179,145		28,701,411		21,956,579		9.4	%

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

March 31, 2021 (unaudited) and December 31, 2020

Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2021 (Continued):


Portfolio Company	Collateral Location	Property Type	Coupon Rate		Current Interest Rate		Exit Fee		Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		Pro Rata Fair Value (2)		% (3)
Loans held for investment:
Preferred equity investments:
370 Lex Part Deux, LLC (7)(8)	US - NY	Office	LIBOR + 8.25% (2.44% Floor)		10.7	%	0	%	12/17/2018	1/9/2022	$	55,327,153	$	55,355,545	$	53,455,746	$	40,893,646	17.5	%
Orange Grove Property Investors, LLC (7)(8)	US - CA	Multifamily	LIBOR + 8.0% (4.0% Floor)		12.0	%	1.0	%	5/24/2018	6/1/2021	10,600,000		10,703,482		10,703,776		8,188,389		3.5	%
REEC Harlem Holdings Company, LLC (9)	US - NY	Mixed use	LIBOR + 12.5% (no Floor)		12.6	%	0	%	3/9/2018	3/9/2023	16,512,842		16,512,842		13,817,239		10,570,188		4.5	%
RS JZ Driggs, LLC (7)(8)(10)	US - NY	Multifamily	12.3	%	12.3	%	1.0	%	5/1/2018	1/1/2021	8,981,615		9,071,429		9,026,292		6,905,113		3.0	%
The Bristol at Southport, LLC (7)(11)	US - WA	Multifamily	12.0	%	12.0	%	1.0	%	9/22/2017	9/22/2022	23,500,000		23,688,144		23,664,725		18,103,515		7.7	%
											114,921,610		115,331,442		110,667,778		84,660,851		36.2	%
First mortgages:
14th & Alice Street Owner, LLC (7)(11)	US - CA	Multifamily	LIBOR + 5.75% (3.25% Floor)		9.0	%	0.5	%	3/5/2019	3/5/2022	36,558,763		36,837,952		36,537,911		27,951,502		11.9	%
1389 Peachtree St, LP; 1401 Peachtree St, LP; 1409 Peachtree St, LP (12)	US - GA	Office	LIBOR + 4.5% (no Floor)		4.6	%	0.5	%	2/22/2019	2/10/2022	51,649,149		51,917,594		51,814,815		39,638,333		16.9	%
330 Tryon DE LLC (12)	US - NC	Office	LIBOR + 3.85% (2.51% Floor)		6.4	%	0.5	%	2/7/2019	3/1/2022	22,800,000		22,903,897		22,892,124		17,512,475		7.5	%
870 Santa Cruz, LLC	US - CA	Office	LIBOR + 6.75% (0.5% Floor)		7.3	%	1.0	%	12/15/2020	12/15/2023	11,867,818		11,863,875		11,979,443		9,164,274		3.9	%
AGRE DCP Palm Springs, LLC (12)(13)	US - CA	Hotel - full/ select service	LIBOR +5.0% (1.80% Floor)		6.8	%	1.5	%	12/12/2019	1/1/2024	43,222,382		43,775,181		43,864,855		33,556,614		14.4	%
MSC Fields Peachtree Retreat, LLC (12)	US - GA	Multifamily	LIBOR + 3.85% (2.0% Floor)		5.9	%	0.5	%	3/15/2019	4/1/2022	23,308,334		23,434,926		23,421,439		17,917,401		7.7	%
Patrick Henry Recovery Acquisition, LLC (12)	US - CA	Office	LIBOR + 2.95% (1.5% Floor)		4.5	%	0.3	%	11/25/2019	12/1/2023	18,000,000		18,039,903		18,030,565		13,793,382		5.9	%
University Park Berkeley, LLC (12)(14)	US - CA	Multifamily	LIBOR + 4.2% (1.50% Floor)		5.7	%	0.8	%	2/27/2020	3/1/2023	24,709,132		24,863,082		24,877,473		19,031,267		8.1	%
Windy Hill PV Five CM, LLC (15)	US - CA	Office	LIBOR + 6.0% (2.05% Floor)		8.1	%	0.5	%	9/20/2019	9/20/2022	31,883,812		31,936,652		30,679,466		23,469,791		10.0	%
											263,999,390		265,573,062		264,098,091		202,035,039		86.3	%
Total gross loans held for investment											407,730,308		410,083,649		403,467,280		308,652,469		131.9	%
Obligations under participation agreements and secured borrowing (7)(8)(11)(15)											(93,310,285)		(93,596,454)		(91,599,071)		(70,073,289)		(30.0)	%
Allowance for loan losses											—		(4,014,778)		—		—		—	%
Net loans held for investment											$	314,420,023	$	312,472,417	$	311,868,209	$	238,579,180	101.9	%

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

~~September 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020

Terra Property Trust’s Schedule of Loans Held for Investment as of ~~September 30, 2020~~March 31, 2021 (Continued):

Portfolio Company Collateral Location Property
Type Coupon
Rate Current Interest Rate Exit Fee Acquisition Date Maturity
Date Principal Amount Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
Preferred equity investments:
370 Lex Part Deux, LLC (5)(6)
US - NY Office LIBOR + 8.25% (2.44% Floor) 10.7 % 0 % 12/17/2018 1/9/2022 $ 52,444,552 $ 52,491,871 $ 51,406,891 $ 39,326,272 16.6 %
City Gardens 333 LLC (5)(6)
US - CA Multifamily LIBOR + 9.95% (2.0% Floor) 12.0 % 0 % 4/11/2018 4/1/2021 28,021,972 28,029,531 28,018,467 21,434,127 9.1 %
NB Private Capital, LLC (5)(6)(8)
Various Student housing 16.0 % 16.0 % 1.0 % 7/27/2018 4/16/2021 20,228,730 20,402,772 20,428,828 15,628,053 6.6 %
Orange Grove Property Investors, LLC (5)(6)
US - CA Condominium LIBOR + 8.0% (4.0% Floor) 12.0 % 1.0 % 5/24/2018 6/1/2021 10,600,000 10,700,459 10,695,115 8,181,763 3.5 %
REEC Harlem Holdings Company, LLC US - NY Infill land LIBOR + 12.5% (no Floor) 12.6 % 0 % 3/9/2018 3/9/2023 15,850,494 15,850,494 14,652,257 11,208,977 4.7 %
RS JZ Driggs, LLC (5)(6)(9)
US - NY Multifamily 12.3 % 12.3 % 1.0 % 5/1/2018 8/1/2020 8,200,000 8,278,664 8,282,546 6,336,148 2.7 %
The Bristol at Southport, LLC (5)(10)
US - WA Multifamily 12.0 % 12.0 % 1.0 % 9/22/2017 9/22/2022 23,500,000 23,677,094 24,074,138 18,416,716 7.7 %
158,845,748 159,430,885 157,558,242 120,532,056 50.9 %
First mortgages:
14th & Alice Street Owner, LLC (5)(10)
US - CA Multifamily LIBOR + 5.75% (3.25% Floor) 9.0 % 0.5 % 3/5/2019 3/5/2022 29,759,295 29,995,180 29,665,632 22,694,208 9.6 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
1409 Peachtree St, LP (11)
US - GA Office LIBOR + 4.5% (no Floor) 4.6 % 0.5 % 2/22/2019 2/10/2022 48,973,981 49,206,919 49,138,842 37,591,214 15.9 %
330 Tryon DE LLC (11)
US - NC Office LIBOR + 3.85% (2.51% Floor) 6.4 % 0.5 % 2/7/2019 3/1/2022 22,800,000 22,898,718 22,810,937 17,450,367 7.4 %
AGRE DCP Palm Springs, LLC (11)
US - CA Hotel LIBOR +4.75% (1.80% Floor) 6.6 % 0.5 % 12/12/2019 1/1/2023 44,136,105 44,346,025 44,334,772 33,916,101 14.3 %
MSC Fields Peachtree Retreat, LLC (11)
US - GA Multifamily LIBOR + 3.85% (2.0% Floor) 5.9 % 0.5 % 3/15/2019 4/1/2022 23,308,334 23,439,777 23,398,194 17,899,618 7.6 %
Patrick Henry Recovery Acquisition, LLC (11)
US - CA Office LIBOR + 2.95% (1.5% Floor) 4.5 % 0.3 % 11/25/2019 12/1/2023 18,000,000 18,039,014 17,922,482 13,710,699 5.8 %
TSG-Parcel 1, LLC (5)(6)
US - CA Infill land 15.0 % 15.0 % 1.0 % 7/10/2015 12/31/2020 17,000,000 17,170,000 17,167,872 13,133,422 5.5 %
University Park Berkeley, LLC (11)
US - CA Student housing LIBOR + 2.95% (1.50% Floor) 4.5 % 0.3 % 2/27/2020 3/1/2023 23,741,994 23,773,961 23,798,728 18,206,027 7.7 %
Windy Hill PV Five CM, LLC (12)
US - CA Office LIBOR + 6.0% (2.05% Floor) 8.1 % 0.5 % 9/20/2019 9/20/2022 22,580,720 22,439,678 22,630,194 17,312,098 7.2 %
250,300,429 251,309,272 250,867,653 191,913,754 81.0 %
Total gross loans held for investment 437,350,287 439,337,642 436,663,049 334,047,233 141.1 %
Obligations under participation agreements (5)(6)(10)(12)
(89,029,775) (89,232,590) (88,937,172) (68,036,937) (28.7) %
Allowance for loan losses — (1,356,737) — — — %
Net loans held for investment $ 348,320,512 $ 348,748,315 $ 347,725,877 $ 266,010,296 112.4 %

~~See notes to unaudited financial statements~~.

~~Terra Secured Income Fund 5, LLC~~

~~Schedule of Investment (Continued)~~

~~September 30, 2020 (unaudited) and December 31, 2019~~

~~Terra Property Trust’s Schedule of Loans Held for Investment as of September 30, 2020 (Continued):~~

Operating real estate:
Description Acquisition Date Fair Value of Real Estate Encumbrance Net Investment
Pro Rata Net Investment (2)
% (3)(15)

Multi-tenant office building in Santa Monica, CA (13)
7/30/2018 $ 53,580,609 $ 44,210,228 $ 9,370,381 $ 7,168,341 3.0 %
Land in Conshohocken, PA (14)
1/9/2019 13,395,430 0 13,395,430 10,247,504 4.3 %
$ 66,976,039 $ 44,210,228 $ 22,765,811 $ 17,415,845 7.3 %
Portfolio Company Interest/Dividend Rate Acquisition Date Maturity Date Shares Cost Fair Value
Pro Rata
Fair Value (2)
% (3)
Marketable securities (16):
Preferred shares:
Nexpoint Real Estate Finance, Inc. - Cumulative
Series A Preferred Shares 8.50 % 7/30/2020 7/24/2025 50,000 $ 1,176,006 $ 1,205,001 $ 921,826 0.39 %
Total marketable securities $ 1,176,006 $ 1,205,001 $ 921,826 0.39 %


Operating real estate:
Description	Acquisition Date		Fair Value of Real Estate (1)		Encumbrance		Net Investment		Pro Rata Net Investment (2)		% (3)(18)
Multi-tenant office building in Santa Monica, CA (16)	7/30/2018		$	57,321,799	$	40,596,980	$	16,724,819	$	12,794,487	5.5		%
Land in Conshohocken, PA (17)	1/9/2019		13,395,430		0		13,395,430		10,247,504		4.4		%
			$	70,717,229	$	40,596,980	$	30,120,249	$	23,041,991	9.9		%

Portfolio Company	Dividend Yield		Acquisition Date		Maturity Date		Shares		Cost		Fair Value			Pro Rata Fair Value (2)		% (3)
Marketable securities (19):
Common and preferred shares:
Nexpoint Real Estate Finance, Inc. - Cumulative Series A Preferred Shares	8.5	%	7/30/2020		7/24/2025		50,000		$	1,176,006	$	1,305,000		$	998,325	0.4	%
Blackstone Mortgage Trust, Inc. - Class A common shares	7.6	%	3/11/2021		N/A		110,100		3,489,396		3,413,100			2,611,022		1.1	%
Starwood Property Trust, Inc. - Common Shares	7.6	%	3/11/2021		N/A		62,000		1,489,692		1,533,880			1,173,418		0.5	%

Total marketable securities									$	6,155,094	$	6,251,980		$	4,782,765	2.00	%

__________________________

(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 ~~$236.9~~$233.9 million at ~~September 30, 2020.~~March 31, 2021.

(4)This loan is currently in maturity default. Terra Property Trust is currently evaluating the options of recovering the principal amount, including foreclosing on the collateral. For the three months ended March 31, 2021, Terra Property Trust suspended interest income accrual of $0.1 million on this loan because recovery of such income was doubtful.

(5)Terra Property Trust entered into a forbearance agreement with the borrower to allow for more time to make the interest payment.

~~(5)~~(6)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.

(7)The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in ~~the~~Terra Property Trust’s consolidated balance sheets.

~~(6)~~(8)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)~~

(9)~~On June 27, 2018,~~For the three months ended March 31, 2021, Terra Property Trust ~~entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25%~~suspended interest ~~or $4.3~~income accrual of $0.5 million ~~in a mezzanine loan. As~~on this loan because recovery of ~~September 30, 2020, the commitment~~such income was ~~fully funded.~~doubtful.

~~(8)~~(10)~~In June 2020,~~This loan is currently in maturity default. Terra Property Trust ~~amended~~has exercised its rights and is facilitating the ~~credit facility agreement to provide for interest at a fixed rate~~completion of ~~16.00%~~construction of the asset in anticipation of lease up and ~~to capitalize any unpaid interest to principal.~~disposition of the asset.

~~(9)As of September 30, 2020, this loan was past due. In October 2020, the maturity of this loan was extended to November 15, 2020.~~

~~(10)~~(11)Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.

~~(11)~~(12)These loans were used as collateral for ~~$105.9~~$106.5 million of borrowings under a term loan payable.

~~(12)~~(13)In March 2021, Terra Property Trust amended the loan agreement to change the spread on the interest rate to 5.0%, increased the exit fee to 1.5% and extended the maturity to January 1, 2024. Additionally, under the loan amendment, the borrower made a partial repayment of $2.6 million.

(14)In December 2020, Terra Property Trust entered into a forbearance agreement with the borrower pursuant to which interest accrues on the loan during the 90-day forbearance period from November 2020 to January 2021. In March 2021, the forbearance period was extended through August 2021.

(15)In March 2020, Terra Property Trust ~~restructured~~entered into a financing transaction where a third-party purchased an A-note position. Because 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~~transaction does not qualify for sale accounting, ~~and therefore,~~ the gross amount of the loan remains in the consolidated balance sheets. The liability is reflected as secured borrowing in Terra Property Trust’s consolidated balance sheets.

~~(13)~~(16)Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage.

~~(14)~~(17)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~~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.~~currently vacant.

~~(15)~~(18)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).

~~(16)~~(19)From time to time, Terra Property Trust might invest in short-term debt and equity securities. These securities are comprised of shares of common and preferred stock and bonds.

See notes to unaudited financial statements.

109

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

~~September 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020

The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, ~~2019:~~2020:

Portfolio Company Collateral Location Property
Type Coupon
Rate Current Interest Rate Exit Fee Acquisition Date Maturity
Date Principal Amount Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment — non-controlled:
Mezzanine loans:
150 Blackstone River Road, LLC US - MA Industrial 8.5 % 8.5 % 0 % 9/21/2017 9/6/2027 $ 7,000,000 $ 7,000,000 $ 7,081,127 $ 6,981,991 2.8 %
2539 Morse, LLC (4)(5)(6)
US - CA Student housing 11.0 % 11.0 % 1.0 % 10/20/2017 11/1/2020 7,000,000 7,067,422 7,069,355 6,970,384 2.8 %
Austin H. I. Owner LLC (4)(6)
US - TX Hotel 12.5 % 12.5 % 1.0 % 9/30/2015 10/6/2020 3,500,000 3,531,776 3,534,499 3,485,016 1.4 %
High Pointe Mezzanine Investments, LLC (5)(6)
US - SC Student housing 13.0 % 13.0 % 1.0 % 12/27/2013 1/6/2024 3,000,000 3,263,285 3,115,139 3,071,527 1.2 %
LD Milipitas Mezz, LLC (9)
US - CA Hotel LIBOR +10.25% (2.75% Floor) 13.0 % 1.0 % 6/27/2018 6/27/2021 3,120,887 3,150,546 3,204,261 3,159,401 1.3 %
SparQ Mezz Borrower, LLC (4)(5)(6)
US - CA Multifamily 12.0 % 12.0 % 1.0 % 9/29/2017 10/1/2020 8,700,000 8,783,139 8,786,127 8,663,121 3.5 %
Stonewall Station Mezz LLC (6)(7)
US - NC Hotel 12.0% current
2.0% PIK 14.0 % 1.0 % 5/31/2018 5/20/2021 9,792,767 9,875,162 9,883,488 9,745,119 3.9 %
42,113,654 42,671,330 42,673,996 42,076,559 16.9 %


Portfolio Company	Collateral Location	Property Type	Coupon Rate		Current Interest Rate		Exit Fee		Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		Pro Rata Fair Value (2)		% (3)
Loans held for investment:
Mezzanine loans:
150 Blackstone River Road, LLC	US - MA	Industrial	8.5	%	8.5	%	0	%	9/21/2017	9/6/2027	$	7,000,000	$	7,000,000	$	7,007,397	$	5,360,659	2.3	%
Austin H. I. Owner LLC (4)	US - TX	Hotel	12.5	%	12.5	%	1.0	%	9/30/2015	10/6/2020	3,848,712		3,887,200		3,533,118		2,702,835		1.1	%
High Pointe Mezzanine Investments, LLC (5)	US - SC	Student housing	15.0	%	15.0	%	1.0	%	12/27/2013	1/6/2024	3,000,000		3,204,375		2,988,110		2,285,904		1.0	%
LD Milipitas Mezz, LLC (6)	US - CA	Hotel	LIBOR +10.25% (2.75% Floor)		13.0	%	1.0	%	6/27/2018	6/27/2021	4,250,000		4,294,053		4,293,969		3,284,886		1.4	%
Stonewall Station Mezz LLC (5)(7)(8)	US - NC	Infill land	12.0% current 2.0% PIK		14.0	%	1.0	%	5/31/2018	5/20/2021	10,442,567		10,537,512		10,472,034		8,011,106		3.4	%
											28,541,279		28,923,140		28,294,628		21,645,390		9.2	%
Preferred equity investments:
370 Lex Part Deux, LLC (7)(8)	US - NY	Office	LIBOR + 8.25% (2.44% Floor)		10.7	%	0	%	12/17/2018	1/9/2022	53,874,507		53,912,363		51,935,025		39,730,294		16.9	%
City Gardens 333 LLC (7)(8)	US - CA	Student housing	LIBOR + 9.95% (2.0% Floor)		12.0	%	0	%	4/11/2018	4/1/2021	28,303,628		28,307,408		28,276,767		21,631,727		9.2	%
Orange Grove Property Investors, LLC (7)(8)	US - CA	Condominium	LIBOR + 8.0% (4.0% Floor)		12.0	%	1.0	%	5/24/2018	6/1/2021	10,600,000		10,701,924		10,707,274		8,191,065		3.5	%
REEC Harlem Holdings Company, LLC	US - NY	land	LIBOR + 12.5% (no Floor)		12.6	%	0	%	3/9/2018	3/9/2023	16,767,984		16,767,984		14,314,585		10,950,658		4.7	%
RS JZ Driggs, LLC (7)(8)(9)	US - NY	Multifamily	12.3	%	12.3	%	1.0	%	5/1/2018	1/1/2021	8,544,513		8,629,929		8,612,869		6,588,845		2.8	%
The Bristol at Southport, LLC (7)(10)	US - WA	Multifamily	12.0	%	12.0	%	1.0	%	9/22/2017	9/22/2022	23,500,000		23,682,536		23,670,806		18,108,167		7.6	%
											141,590,632		142,002,144		137,517,326		105,200,756		44.7	%

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

March 31, 2021 (unaudited) and December 31, 2020

Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2020 (Continued):


Portfolio Company	Collateral Location	Property Type	Coupon Rate	Current Interest Rate		Exit Fee		Acquisition Date	Maturity Date	Principal Amount		Amortized Cost		Fair Value (1)		Pro Rata Fair Value (2)		% (3)
Loans held for investment:
First mortgages:
14th & Alice Street Owner, LLC (7)(10)	US - CA	Multifamily	LIBOR + 5.75% (3.25% Floor)	9.0	%	0.5	%	3/5/2019	3/5/2022	$	32,625,912	$	32,877,544	$	32,551,137	$	24,901,620	10.6	%
1389 Peachtree St, LP; 1401 Peachtree St, LP; 1409 Peachtree St, LP (11)	US - GA	Office	LIBOR + 4.5% (no Floor)	4.6	%	0.5	%	2/22/2019	2/10/2022	50,808,453		51,068,554		50,982,247		39,001,419		16.6	%
330 Tryon DE LLC (11)	US - NC	Office	LIBOR + 3.85% (2.51% Floor)	6.4	%	0.5	%	2/7/2019	3/1/2022	22,800,000		22,901,294		22,869,879		17,495,457		7.4	%
870 Santa Cruz, LLC	US - CA	Office	LIBOR + 6.75% (0.5% Floor)	7.3	%	1.0	%	12/15/2020	12/15/2023	10,760,355		10,724,590		10,859,726		8,307,690		3.5	%
AGRE DCP Palm Springs, LLC (11)(12)	US - CA	Hotel	LIBOR +4.75% (1.80% Floor)	6.6	%	0.5	%	12/12/2019	1/1/2023	45,294,097		45,506,051		45,519,030		34,822,058		14.8	%
MSC Fields Peachtree Retreat, LLC (11)	US - GA	Multifamily	LIBOR + 3.85% (2.0% Floor)	5.9	%	0.5	%	3/15/2019	4/1/2022	23,308,334		23,437,198		23,428,860		17,923,078		7.6	%
Patrick Henry Recovery Acquisition, LLC (11)	US - CA	Office	LIBOR + 2.95% (1.5% Floor)	4.5	%	0.3	%	11/25/2019	12/1/2023	18,000,000		18,039,456		17,994,495		13,765,789		5.8	%
University Park Berkeley, LLC (11)(13)	US - CA	Student housing	LIBOR + 4.2% (1.50% Floor)	5.7	%	0.8	%	2/27/2020	3/1/2023	23,990,786		24,131,808		24,162,710		18,484,473		7.9	%
Windy Hill PV Five CM, LLC (14)	US - CA	Office	LIBOR + 6.0% (2.05% Floor)	8.1	%	0.5	%	9/20/2019	9/20/2022	26,454,910		26,407,494		25,227,156		19,298,774		8.2	%
										254,042,847		255,093,989		253,595,240		194,000,358		82.4	%
Total gross loans held for investment										424,174,758		426,019,273		419,407,194		320,846,504		136.3	%
Obligations under participation agreements and secured borrowing (7)(8)(10)(14)										(89,548,151)		(89,769,560)		(87,730,239)		(67,113,633)		(28.5)	%
Allowance for loan losses										—		(3,738,758)		—		—		—	%
Net loans held for investment										$	334,626,607	$	332,510,955	$	331,676,955	$	253,732,871	107.8	%


Operating real estate:
Description	Acquisition Date		Fair Value of Real Estate		Encumbrance		Net Investment		Pro Rata Net Investment (2)		% (3)(17)
Multi-tenant office building in Santa Monica, CA (15)	7/30/2018		$	57,321,799	$	44,020,225	$	13,301,574	$	10,175,704	4.3		%
Land in Conshohocken, PA (16)	1/9/2019		13,395,430		0		13,395,430		10,247,504		4.4		%
			$	70,717,229	$	44,020,225	$	26,697,004	$	20,423,208	8.7		%

Portfolio Company	Interest/Dividend Rate		Acquisition Date		Maturity Date		Shares		Cost		Fair Value			Pro Rata Fair Value (2)		% (3)
Marketable securities (18):
Preferred shares:
Nexpoint Real Estate Finance, Inc. - Cumulative Series A Preferred Shares	8.50	%	7/30/2020		7/24/2025		50,000		$	1,176,006	$	1,287,500		$	984,938	0.42	%
Total marketable securities									$	1,176,006	$	1,287,500		$	984,938	0.42	%

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

~~September 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020

~~Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2019 (Continued):~~

Portfolio Company Collateral Location Property
Type Coupon
Rate Current Interest Rate Exit Fee Acquisition Date Maturity
Date Principal Amount Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment — non-controlled:
Preferred equity investments:
370 Lex Part Deux, LLC (6)(7)(8)
US - NY Office LIBOR + 8.25% (2.44% Floor) 10.7 % 0 % 12/17/2018 1/9/2022 $ 48,349,948 $ 48,425,659 $ 48,236,458 $ 47,561,148 19.3 %
City Gardens 333 LLC (4)(5)(6)(7)(8)
US - CA Student housing LIBOR + 9.95% (2.0% Floor) 12.0 % 0 % 4/11/2018 4/1/2021 28,049,717 28,056,179 28,057,779 27,664,970 11.2 %
NB Private Capital, LLC (4)(5)(6)(7)(8)
Various Student housing LIBOR +10.5% (3.5% Floor) 14.0 % 1.0 % 7/27/2018 4/16/2021 20,000,000 20,166,610 20,180,782 19,898,251 8.1 %
Orange Grove Property Investors, LLC (6)(7)
US - CA Condominium LIBOR + 8.0% (4.0% Floor) 12.0 % 1.0 % 5/24/2018 6/1/2021 10,600,000 10,696,587 10,695,415 10,545,679 4.3 %
REEC Harlem Holdings Company, LLC US - NY Infill land LIBOR + 12.5% (no Floor) 14.3 % 0 % 3/9/2018 3/9/2023 18,444,375 18,444,375 18,280,168 18,024,246 7.3 %
RS JZ Driggs, LLC (6)(7)
US - NY Multifamily 12.3 % 12.3 % 1.0 % 5/1/2018 5/1/2020 8,200,000 8,286,629 8,277,336 8,161,453 3.3 %
The Bristol at Southport, LLC (4)(5)(6)(8)
US - WA Multifamily 12.0 % 12.0 % 1.0 % 9/22/2017 9/22/2022 23,500,000 23,661,724 23,769,361 23,436,590 9.5 %
157,144,040 157,737,763 157,497,299 155,292,337 63.0 %
First mortgages:
14th & Alice Street Owner, LLC (10)
US - CA Multifamily LIBOR + 5.75% (3.25% Floor) 9.0 % 0.5 % 3/5/2019 3/5/2022 12,932,034 12,957,731 12,983,863 12,802,089 5.2 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
1409 Peachtree St, LP (11)
US - GA Office LIBOR + 4.5% (no Floor) 6.3 % 0.5 % 2/22/2019 2/10/2022 38,464,429 38,510,650 38,655,000 38,113,830 15.4 %
330 Tryon DE LLC (11)
US - NC Office LIBOR + 3.85% (2.51% Floor) 6.4 % 0.5 % 2/7/2019 3/1/2022 22,800,000 22,891,149 22,906,207 22,585,520 9.0 %
AGRE DCP Palm Springs, LLC (11)
US - CA Hotel LIBOR +4.75% (1.80% Floor) 6.6 % 0.5 % 12/12/2019 1/1/2023 30,184,357 30,174,455 30,326,076 29,901,511 12.1 %
MSC Fields Peachtree Retreat, LLC (11)
US - GA Multifamily LIBOR + 3.85% (2.0% Floor) 5.9 % 0.5 % 3/15/2019 4/1/2022 23,308,335 23,446,793 23,418,996 23,091,130 9.3 %
Patrick Henry Recovery Acquisition, LLC US - CA Office LIBOR + 2.95% (1.5% Floor) 4.7 % 0.3 % 11/25/2019 12/1/2023 18,000,000 18,037,329 18,042,390 17,789,797 7.2 %
REEC 286 Lenox LLC US - NY Office LIBOR + 2.95% (no Floor) 4.7 % 0 % 8/2/2019 9/22/2019 4,740,000 4,740,000 4,740,000 4,673,640 1.9 %
TSG-Parcel 1, LLC (4)(6)(7)
US - CA Infill land LIBOR + 10.0% (2.0% Floor) 12.0 % 1.0 % 7/10/2015 3/31/2020 18,000,000 18,180,000 18,174,634 17,920,189 7.3 %
Windy Hill PV Five CM, LLC US - CA Office LIBOR + 6.0% (2.05% Floor) 8.1 % 0.5 % 9/20/2019 9/20/2022 9,701,468 9,265,568 9,741,954 9,605,567 3.9 %
178,130,623 178,203,675 178,989,120 176,483,273 71.3 %
Total gross loans held for investment 377,388,317 378,612,768 379,160,415 373,852,169 151.3 %
Obligations under participation agreements (4)(5)(6)(7)(8)
(102,564,795) (103,186,327) (103,188,783) (101,744,140) (41.2) %
Net loans held for investment $ 274,823,522 $ 275,426,441 $ 275,971,632 $ 272,108,029 110.1 %

~~See notes to unaudited financial statements~~.

~~Terra Secured Income Fund 5, LLC~~

~~Schedule of Investment (Continued)~~

~~September 30, 2020 (unaudited) and December 31, 2019~~

~~Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2019(Continued):~~

Operating real estate:
Description Acquisition Date Real estate owned, net Encumbrance Net Investment
Pro Rata Net Investment (2)
% (3)(14)
Multi-tenant office building in Santa Monica, CA (12)
7/30/2018 $ 52,776,236 $ 44,614,480 $ 8,161,756 $ 8,047,491 3.3 %
Land in Conshohocken, PA (13)
1/9/2019 13,395,430 0 13,395,430 13,207,894 5.3 %
$ 66,171,666 $ 44,614,480 $ 21,557,186 $ 21,255,385 8.6 %

~~___________________________~~__________________________

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

(2)Amount represents the Company’s portion, or ~~98.6%~~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 ~~$247.1~~$235.4 million at December 31, ~~2019.~~2020.

(4)This loan is currently past due. Terra Property Trust ~~sold a portion~~is currently evaluating the options of ~~its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by Terra REIT Advisors.~~recovering the principal amount, including foreclosing on the collateral.

(5)Terra Property Trust ~~sold~~entered into a ~~portion of its interests in these loans via~~forbearance agreement with the borrower to allow for more time to make the interest payment.

(6)On June 27, 2018, Terra Property Trust entered into a participation ~~agreements to~~agreement with Terra Income Fund ~~International, an affiliated fund advised by Terra REIT Advisors.~~6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of December 31, 2020, the commitment was fully funded.

~~(6)~~(7)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.~~balance sheets.

~~(7)~~(8)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)~~(9)This loan is currently in maturity default. Terra Property Trust ~~sold a portion~~has exercised its rights and is facilitating the completion of ~~its interest~~construction of the asset 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~~anticipation of ~~December 31, 2019,~~lease up and disposition of the ~~unfunded commitment was $1.1 million.~~asset.

(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~~$107.6 million of borrowings under a ~~repurchase agreement.~~term loan payable.

(12)In July 2020, Terra Property Trust amended the loan agreement to change the interest rate to PIK 15% for the period from July 2020 through January 2021.

(13)In December 2020, Terra Property Trust entered into a forbearance agreement with the borrower pursuant to which interest is accrued on the loan during the 90-day forbearance period from November 2020 to January 2021. In connection with entering into the forbearance agreement, the spread on the interest rate was increased to 4.2% and the exit fee was increased to 0.75%.

(14)In March 2020, Terra Property Trust entered into a financing transaction where a third-party purchased an A-note position. However, the sale did not qualify for sale accounting and therefore, the gross amount of the loan remains in the consolidated balance sheets. The liability is reflected as secured borrowing in Terra Property Trust’s consolidated balance sheets.

(15)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)~~(16)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)~~(17)Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).

(18)From time to time, Terra Property Trust 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.

1312

Terra Secured Income Fund 5, LLC

Notes to Financial Statements (Unaudited)

~~September 30, 2020~~March 31, 2021

Note 1. Business

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

In December 2015, the members approved the merger of Terra Secured Income Fund, LLC (“Terra Fund 1”), Terra Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) with and into subsidiaries of the Company (individually, each a “Terra Fund” and collectively, the “Terra Funds”) through a series of separate mergers effective January 1, 2016 (collectively, the “Merger”). Following the Merger, the Company contributed the consolidated portfolio of net assets of the 5 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 ~~September 30, 2020,~~March 31, 2021, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra Offshore ~~Funds,~~REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV (Note 4). The Company does not consolidate Terra JV because the Company and Terra Fund 7 share joint approval rights with respect to certain major decisions that are taken by Terra JV and Terra Property Trust (Note 4).

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

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

On April 1, 2021, Mavik Capital Management, LP (“Mavik”), an entity controlled by Vikram S. Uppal, the Chief Executive Officer of the Company, completed a series of related transactions that resulted in all of the outstanding interests in Terra Capital Partners, LLC, being acquired by Mavik for a combination of cash and interests in Mavik.

Notes to Unaudited Financial Statements

Note 2. Summary of Significant Accounting Policies

Basis of Presentation ~~and Principles of Consolidation~~

The interim financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP”). The financial statements ~~as of December 31, 2019 and~~ for ~~the three and nine ended September 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 had been eliminated. As discussed in Note 1, on March 2, 2020, the Company’s subsidiaries completed the Terra Fund Merger. As a result of the Terra Fund Merger, the Company no longer consolidates the subsidiaries. The financial statements as of ~~September 30,~~March 31, 2021 and December 31, 2020 and for the period from March 2, 2020 to ~~September 30,~~March 31, 2020 and the three months ended ~~September 30, 2020 includes~~March 31, 2021 include all of the Company’s accounts only.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

As of ~~September 30, 2020, there has been a global~~March 31, 2021, the outbreak of ~~a novel~~the coronavirus (“COVID-19”)~~, which has spread~~ pandemic around the globe continues to ~~over 200 countries and territories, including the United States,~~adversely impact global commercial activity and has ~~spread~~contributed to ~~every state~~significant volatility in ~~the United States.~~financial markets The ~~World Health Organization has designated~~ COVID-19 ~~as a~~ pandemic and ~~numerous countries, including~~preventative measures taken by local, state and federal authorities to alleviate the ~~United States,~~public health crisis have ~~declared national emergencies with respect to COVID-19. The global impact of the outbreak has been rapidly evolving,~~had a continued 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 continuedprolonged adverse impact on economic and market conditions and ~~trigger~~have caused a ~~period of~~ global economic ~~slowdown.~~slowdown which has had and could further have a material adverse effect on the Company’s results and financial condition. The ~~rapid development~~pandemic continues to evolve, and ~~fluidity of this situation precludes any prediction as to~~ the ~~ultimate adverse~~full impact of COVID-19 on the real estate industry, the commercial real estate market, and the credit markets generally, and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the Company including, but not limited to, (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, including the administration of vaccines throughout the United States (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of governmental responses to the pandemic, including the PPP and other programs under the CARES Act, (v) the timing and speed of economic recovery, (vi) the availability of a treatment or vaccination for COVID-19, and ~~market conditions.~~(vii) the negative impact on our borrowers, real estate values and cost of capital. The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of ~~September 30, 2020,~~March 31, 2021, 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 ~~September 30, 2020~~March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.

Equity Investment in Terra JV ~~or Terra Property Trust~~

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

Revenue Recognition

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

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

Notes to Unaudited Financial Statements

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.

~~Notes to Unaudited Financial Statements~~

Income Taxes

No provision for U.S. federal and state income taxes has been made in the accompanying financial statements, as individual members are responsible for their proportionate share of the Company’s taxable income. The Company, however, may be liable for New York City Unincorporated Business Tax (the “NYC UBT”) and similar taxes of various other municipalities. New York City imposes the NYC UBT at a statutory rate of 4% on net income generated from ordinary business activities carried on in New York City. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ none of the Company’s income was subject to the NYC UBT.

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

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes, nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its statements of operations. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its primary tax jurisdiction is federal. The Company’s ~~2015-2019~~2017-2019 federal tax years remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncement

London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report certain information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. In ~~February 2016,~~March 2020, the FASB issued ~~Accounting Standards Update 2018-13, Fair Value Measurement~~ASU 2020-04, Reference Rate Reform (Topic ~~820): Disclosure framework~~848) — ~~Changes to~~Facilitation of the ~~Disclosure Requirements for Fair Value Measurement~~Effects of Reference Rate Reform on Financial Reporting (“ASU ~~2018-13”~~2020-04”). ~~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~~2020-04 provide optional expedients and ~~modified~~exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain ~~fair value measurement disclosure requirements.~~criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU ~~2018-13 is~~No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2021-01”). ASU 2020-04 and ASU 2021-01 are effective for all entities ~~for fiscal years,~~through December 31, 2022. The expedients and ~~interim periods within those fiscal years, beginning~~exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December ~~15, 2019. The amendments~~31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. In the event LIBOR is unavailable, Terra Property Trust’s investment documents provide for a substitute index, on ~~changes~~a basis generally consistent with market practice, intended to put the Terra Property Trust in ~~unrealized gains~~substantially the same economic position as LIBOR. As a result, the Company does not expect the reference rate reform and ~~losses,~~ the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU ~~2018-13 did not~~2020-04 and ASU 2021-01 to have a material impact on its financial statements and ~~disclosures.~~disclosures

Note 3. Investment and Fair Value

Equity Investment in Terra JV ~~or Terra Property Trust~~

The Company invested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. As of ~~September 30,~~both March 31, 2021 and December 31, 2020, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra Offshore ~~Funds,~~REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV, and Terra JV became the Company’s only investment (Note 4).

~~The following tables present a summary of the Company’s investment at September 30, 2020 and December 31, 2019:~~

September 30, 2020
Investment Cost Fair Value % of Members’ Capital
87.6% interest in Terra JV, LLC $ 238,509,445 $ 236,758,305 99.9 %

December 31, 2019
Investment Cost Fair Value % of Members’ Capital
14,912,990 common shares of Terra Property Trust, Inc. $ 243,924,852 $ 247,263,245 100.1 %

1615

Notes to Unaudited Financial Statements

The following tables present a summary of the Company’s investment at March 31, 2021 and December 31, 2020:


	March 31, 2021						December 31, 2020
Investment	Cost		Fair Value		% of Members’ Capital		Cost		Fair Value		% of Members’ Capital
87.6% interest in Terra JV, LLC	$	229,062,384	$	233,997,676	100.0	%	$	230,915,151	$	235,357,977	100.0	%

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company received approximately ~~$3.1~~$3.0 million and ~~$7.6~~$7.8 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which ~~$0 and $4.6 million were returns of capital, respectively. For the nine months ended September 30, 2020 and 2019, the Company received approximately $14.3~~$1.9 million and ~~$22.8 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $9.3 million and $15.8~~$6.6 million were returns of capital, respectively.

As of ~~September 30, 2020~~both March 31, 2021 and December 31, ~~2019,~~2020, 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.~~Trust. The following tables present the summarized financial information of Terra Property Trust:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Carrying value of loans held for investment	Carrying value of loans held for investment	$	437,980,905	$	378,612,768	Carrying value of loans held for investment	$	406,068,871	$	422,280,515
Equity investment in a limited partnership, net						Equity investment in a limited partnership, net	50,505,511		36,259,959
Real estate owned, net	Real estate owned, net	74,115,053		77,596,475		Real estate owned, net	72,242,825		73,178,939
Cash, cash equivalent and restricted cash	Cash, cash equivalent and restricted cash	93,611,346		50,549,700		Cash, cash equivalent and restricted cash	27,600,059		32,920,323
Other assets	Other assets	23,249,785		20,584,135		Other assets	29,380,759		23,837,445
Total assets	Total assets	628,957,089		527,343,078		Total assets	585,798,025		588,477,181
Mortgage loan payable, repurchase agreement payable, revolving credit facility payable, term loan payable and obligations under participation agreements		(262,011,530)		(227,548,397)
Term loan payable, obligations under participation agreements, mortgage loan payable, revolving line of credit and secured borrowing						Term loan payable, obligations under participation agreements, mortgage loan payable, revolving line of credit and secured borrowing	(245,967,816)		(239,132,654)
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	(49,239,282)		(40,826,139)		Accounts payable, accrued expenses and other liabilities	(28,798,305)		(35,769,686)
Lease intangible liabilities	Lease intangible liabilities	(10,371,307)		(11,424,809)		Lease intangible liabilities	(10,128,244)		(10,249,776)
Total liabilities	Total liabilities	(321,622,119)		(279,799,345)		Total liabilities	(284,894,365)		(285,152,116)
Stockholder’s equity	Stockholder’s equity	$	307,334,970	$	247,543,733	Stockholder’s equity	$	300,903,660	$	303,325,065


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Revenues	Revenues	$	13,062,418	$	13,092,968	$	37,204,618	$	39,163,596	Revenues	$	10,289,252	$	12,077,571
Expenses	Expenses	(10,955,816)		(9,945,334)		(32,706,187)		(32,246,572)		Expenses	(10,136,375)		(11,188,049)
Net loss on extinguishment of obligations under participation agreements	Net loss on extinguishment of obligations under participation agreements	0		0		(319,453)		0		Net loss on extinguishment of obligations under participation agreements	0		(319,453)
Realized gains on marketable securities	Realized gains on marketable securities	75,055		0		1,160,162		0		Realized gains on marketable securities	0		8,894
Unrealized (losses) gains on marketable securities		(38,527)		0		28,995		0
Unrealized losses on marketable securities										Unrealized losses on marketable securities	(14,608)		0
Equity income from investment in a limited partnership										Equity income from investment in a limited partnership	1,337,827		$	0
Net income	Net income	$	2,143,130	$	3,147,634	$	5,368,135	$	6,917,024	Net income	$	1,476,096	$	578,963

Fair Value Measurements

The Company adopted the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:

Notes to Unaudited Financial Statements

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.

~~Notes to Unaudited Financial Statements~~

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.

Assets and Liabilities Reported at Fair Value

The following table summarizes the Company’s equity investment at fair value on a recurring basis as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020									March 31, 2021
		Fair Value Measurements									Fair Value Measurements
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Investment:	Investment:									Investment:
Equity investment in Terra JV	Equity investment in Terra JV	$	0	$	0	$	236,758,305	$	236,758,305	Equity investment in Terra JV	$	0	$	0	$	233,997,676	$	233,997,676


		December 31, 2019									December 31, 2020
		Fair Value Measurements									Fair Value Measurements
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Investment:	Investment:									Investment:
Equity investment in Terra Property Trust		$	0	$	0	$	247,263,245	$	247,263,245
Equity investment in Terra JV										Equity investment in Terra JV	$	0	$	0	$	235,357,977	$	235,357,977

Changes in Level 3 investment for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


		Equity Investment in Terra JV		Equity Investment in Terra Property Trust					Equity Investment in Terra JV				Equity Investment in Terra Property Trust
		Period from March 2, 2020 to September 30, 2020		Period from January 1, 2020 to March 1, 2020		Nine Months Ended September 30, 2019			Three Months Ended March 31, 2021		Period from March 2, 2020 to March 31, 2020		Period from January 1, 2020 to March 1, 2020
Beginning balance	Beginning balance	$	0	$	247,263,245	$	263,092,586	Beginning balance	$	235,357,977	$	0	$	247,263,245
Transfer of ownership interest in Terra Property Trust to Terra JV	Transfer of ownership interest in Terra Property Trust to Terra JV	244,006,890		(244,006,890)		0		Transfer of ownership interest in Terra Property Trust to Terra JV	0		244,006,890		(244,006,890)
Return of capital	Return of capital	(5,497,444)		(3,783,607)		(15,834,232)		Return of capital	(1,852,767)		(2,779,129)		(3,783,607)
Net change in unrealized (depreciation) appreciation on investment		(1,751,141)		527,252		4,853,466
Net change in unrealized appreciation (depreciation) on investment								Net change in unrealized appreciation (depreciation) on investment	492,466		(2,813,550)		527,252
Ending balance	Ending balance	$	236,758,305	$	0	$	252,111,820	Ending balance	$	233,997,676	$	238,414,211	$	0
Net change in unrealized (depreciation) appreciation on investment for the period relating to those Level 3 assets that were still held by the Company		$	(1,751,141)	$	527,252	$	4,853,466
Net change in unrealized appreciation (depreciation) on investment for the period relating to those Level 3 assets that were still held by the Company								Net change in unrealized appreciation (depreciation) on investment for the period relating to those Level 3 assets that were still held by the Company	$	492,466	$	(2,813,550)	$	0

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ there were no transfers.

Notes to Unaudited Financial Statements

The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 due to their short-term nature.

~~Notes to Unaudited Financial Statements~~

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. Valuation of Terra Property Trust’s investment in a 4.9 acre development parcel is based on the estimated selling price. The fair value of Terra Property Trust’s investment in an office building is determined using the direct capitalization method.

The Manager designates a valuation committee to oversee the entire valuation process of Terra Property Trust’s Level 3 investments. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review Terra Property Trust investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, third-party valuation data and discount rates or other methods the valuation committee deems to be appropriate.

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

Fair Value

Primary Valuation Technique

Unobservable Inputs

September 30, 2020

Fair Value

Primary Valuation Technique

Unobservable Inputs

March 31, 2021

Asset Category

Minimum

Maximum

Weighted Average

Asset Category

Minimum

Maximum

Weighted Average

Assets:

Equity investment in Terra JV

236,758,305

Discounted cash flow (1)

Discount rate (1)

4.45

19.05

14.86

Equity investment in Terra JV

$233,997,676

Discounted cash flow (1)(2)

Discount rate (1)(2)

4.00

20.05

14.68

Fair Value

Primary Valuation Technique

Unobservable Inputs

December 31, 2019

Fair Value

Primary Valuation Technique

Unobservable Inputs

December 31, 2020

Asset Category

Minimum

Maximum

Weighted Average

Asset Category

Minimum

Maximum

Weighted Average

Assets:

Equity investment in Terra Property Trust

247,263,245

Discounted cash flow (1)

Discount rate (1)

4.11

14.95

12.36

Equity investment in Terra JV

235,357,977

Discounted cash flow (1)(2)

Discount rate (1)(2)

5.25

20.05

14.17

_______________

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

(2)The fair value of Terra Property Trust’s investment in an office building is determined using the direct capitalization method with a cap rate of 5.77%.

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.

Notes to Unaudited Financial Statements

participants with insufficient liquidity available to meet current obligations, which puts further downward pressure on asset prices.

As the Company’s investment is carried at fair value with fair value changes recognized in the statements of operations, any changes in fair value would directly affect the Company’s members’ capital.

~~Notes to Unaudited Financial Statements~~

Note 4. Related Party Transactions

Operating Agreement

The Company has an operating agreement, as amended, with Terra Fund Advisors. The operating agreement, as amended, is scheduled to terminate on December 31, 2023 unless the Company is dissolved earlier. Starting January 1, 2016, the Company conducts all of its real estate lending business through Terra Property Trust. As such, Terra Property Trust is responsible for management compensation paid and operating expenses reimbursed to its manager pursuant to a management agreement with the manager.

Dividend Income

As discussed in Note 3, for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company received approximately ~~$3.1~~$3.0 million and ~~$7.6~~$7.8 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which ~~$0 and $4.6 million were returns of capital, respectively. For the nine months ended September 30, 2020 and 2019, the Company received approximately $14.3~~$1.9 million and ~~$22.8 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $9.3 million and $15.8~~$6.6 million were returns of capital, respectively.

TPT2 Merger

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

Issuance of Common Stock to Terra Offshore ~~Funds~~REIT

In addition, on March 2, 2020, Terra Property Trust entered into two separate contribution agreements, one by and among Terra Property Trust, Terra Offshore ~~Funds~~REIT and Terra Income Fund International, and another by and among Terra Property Trust, Terra Offshore ~~Funds~~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 Terra Offshore ~~Funds~~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 Terra Offshore ~~Funds”~~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 Terra Offshore ~~Funds~~REIT on September 30, 2019.

Notes to Unaudited Financial Statements

Terra JV, LLC

Prior to the completion of the TPT2 Merger and the Issuance of Common Stock to Terra Offshore ~~Funds~~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 Terra Offshore ~~Funds.~~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

~~Notes to Unaudited Financial Statements~~

Terra JV and became a co-managing member of Terra JV pursuant to the amended and restated operating agreement of Terra JV, dated March 2, 2020 (the “JV Agreement”). The JV Agreement and related stockholders agreement between Terra JV and Terra Property Trust, dated March 2, 2020, provide for the joint approval of the Company and Terra Fund 7 with respect to certain major decisions that are taken by Terra JV and Terra Property Trust.

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

As of ~~September 30, 2020,~~March 31, 2021, Terra JV owns approximately 87.4% of the issued and outstanding shares of Terra Property Trust common stock with the remainder held by Terra Offshore ~~Funds,~~REIT, and the Company and Terra Fund 7 own an 87.6% and 12.4% interest, respectively, in Terra JV. As a result, as of ~~September 30, 2020,~~March 31, 2021, the Company indirectly beneficially owned 76.5% of Terra Property Trust's outstanding common stock through Terra 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 both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had 6,637.7 units outstanding. The net asset value per unit was ~~$35,694~~$35,244 and ~~$37,222~~$35,467 as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

~~Capital Contributions~~

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

Capital Distributions

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

Notes to Unaudited Financial Statements

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company made total distributions to non-manager members of $3.0 million and $7.5 million, respectively. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, the Company made total distributions to non-manager members of $13.5 million and $22.4 million, respectively. For the three and nine months ended September 30, 2020 and 2019,~~ the Company did not make any carried interest distributions to the Manager.

~~Notes to Unaudited Financial Statements~~

Capital Redemptions

At the discretion of the Manager, a reserve of 5% of cash from operations may be established in order to repurchase units from non-managing members. The Manager is under no obligation to redeem non-managing members’ units. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, no such reserve was established. For the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2021 and 2020, the Company ~~redeemed 0.4 units for $0.01 million. There was 0 redemption for the three and nine months ended September 30, 2020.~~did not redeem any units.

Allocation of Income (Loss)

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

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 ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. These financial highlights consist of the operating performance, the internal rate of return (“IRR”) since inception of the Company, and the expense and net investment income ratios which are annualized except for the non-recurring expenses.

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

The following summarizes the Company’s financial highlights for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Nine Months Ended September 30,							Three Months Ended March 31,
		2020			2019				2021			2020
Per unit operating performance:	Per unit operating performance:							Per unit operating performance:
Net asset value per unit, beginning of period	Net asset value per unit, beginning of period	$	37,222		$	39,630		Net asset value per unit, beginning of period	$	35,467		$	37,222
Increase in members’ capital from operations (1):
Increase (decrease) in members’ capital from operations (1):								Increase (decrease) in members’ capital from operations (1):
Net investment income	Net investment income	690			972			Net investment income	152			164
Net change in unrealized (depreciation) appreciation on investment		(185)			732
Total increase in members’ capital from operations		505			1,704
Net change in unrealized appreciation (depreciation) on investment								Net change in unrealized appreciation (depreciation) on investment	74			(344)
Total increase (decrease) in members’ capital from operations								Total increase (decrease) in members’ capital from operations	226			(180)
Distributions to members (2):	Distributions to members (2):							Distributions to members (2):
Capital distributions	Capital distributions	(2,033)			(3,375)			Capital distributions	(449)			(1,126)
Net decrease in members’ capital resulting from distributions	Net decrease in members’ capital resulting from distributions	(2,033)			(3,375)			Net decrease in members’ capital resulting from distributions	(449)			(1,126)
Net asset value per unit, end of period	Net asset value per unit, end of period	$	35,694		$	37,959		Net asset value per unit, end of period	$	35,244		$	35,916

Ratios to average net assets:	Ratios to average net assets:							Ratios to average net assets:
Expenses	Expenses	0.25		%	0.24		%	Expenses	0.21		%	0.29		%
Net investment income	Net investment income	2.54		%	3.31		%	Net investment income	1.72		%	1.79		%

IRR, beginning of period	IRR, beginning of period	6.40		%	6.56		%	IRR, beginning of period	5.82		%	6.40		%
IRR, end of period	IRR, end of period	5.93		%	6.49		%	IRR, end of period	5.73		%	6.08		%

_______________

(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,638 units for both the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

(2)The per unit data for distributions reflects the actual amount of distributions paid per unit during the periods.

Notes to Unaudited Financial Statements

Note 8. Subsequent Events

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

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 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.

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 efficacy of the vaccines or other remedies and the speed of their distribution and administration;

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

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

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

•changes in our investment objectives and business strategy;

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

•the performance and financial condition of our borrowers;

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

•borrower defaults or decreased recovery rates from our borrowers;

•changes in prepayment rates on our loans;

•our use of financial leverage;

•actual and potential conflicts of interest with any of the following affiliated entities: Terra Fund Advisors, LLC (“Terra Fund Advisors” or the “Manager”), Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Income Advisors, LLC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra JV, LLC (“Terra JV”); Terra Income Fund 6, Inc. (“Terra Fund 6”);Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC (“Terra Fund 7”); Terra Property Trust, Inc. (“Terra Property Trust”); Terra International Fund 3, L.P. (“Terra International 3”); Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”); Mavik Real Estate Special Opportunities Fund, LP (“Mavik RESOF”) (formerly known as ~~Terra International Fund 3 REIT, LLC) (“Terra Offshore Funds”);~~ Terra Real Estate Credit Opportunities Fund, ~~L.P. (“Terra Opportunities Fund”)~~LP); ~~Terra Capital Advisors, LLC; Terra Capital Advisors 2, LLC; Terra Income Advisors 2, LLC;~~ or any of their affiliates;

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

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

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

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

•the degree and nature of our competition.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I — Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, ~~2019~~2020 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, LLC (“Terra Fund 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 (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 stock 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 March 2, 2020, Terra Fund 1, Terra Fund 2 and Terra Fund 3 merged with and into Terra Fund 4, with Terra Fund 4 continuing as the surviving company (the “Terra Fund Merger”), and we consolidated our holdings of shares of common stock of Terra Property Trust in Terra Fund 4. Subsequent to the Terra Fund Merger, the legal name of Terra Fund 4 was changed to Terra JV, LLC. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. On April 29, 2020, Terra Property Trust repurchased, at a purchase price of $17.02 per share, 212,691 shares of common stock that Terra Property Trust had previously sold to Terra Offshore ~~Funds~~REIT on September 30, 2019. As of ~~September 30, 2020,~~March 31, 2021, Terra JV held 87.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra Offshore ~~Funds,~~REIT, and we and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV. Accordingly, as of ~~September 30, 2020,~~March 31, 2021, we indirectly beneficially owned 76.5% of the outstanding shares of common stock of Terra Property Trust through Terra JV.

Recent Developments

~~As of September 30, 2020, there~~The coronavirus (“COVID-19”) pandemic has ~~been~~had, and is expected to continue to have, a significant impact on local, national and global ~~outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States,~~economies and has ~~spread~~resulted in a world-wide economic slowdown. While certain economies have exhibited growth of late when compared to ~~every state~~earlier months of 2020, the amount of economic recovery will continue to be impacted by reductions and restrictions 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~~economic activity resulting from increased coronavirus cases. We continue to ~~COVID-19. The global~~closely monitor the impact of the coronavirus pandemic on all aspects of our investments and operations. The extent to which the coronavirus pandemic may impact our investments and operations going forward will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These developments include the duration of the outbreak, ~~has been rapidly evolving,~~the impact of the global vaccination effort, any new strains of the virus that are resistant to available vaccines, the impact of government stimulus, new information that may emerge concerning the severity of the coronavirus, and actions taken by federal, state and local agencies as ~~cases of COVID-19 have continued~~well as the general public to ~~be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/~~contain the coronavirus 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 adversetreat its impact, ~~on economic and market conditions and trigger a period of global economic slowdown.~~among others.

~~While we~~We believe, however, 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.~~pandemic. 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~~realized because 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.

Portfolio Summary

The following tables provide a summary of Terra Property Trust’s net loan portfolio as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020																March 31, 2021
		Fixed Rate			Floating Rate (1)(2)(3)			Total Gross Loans			Obligations under Participation Agreements			Total Net Loans				Fixed Rate			Floating Rate (1)(2)(3)			Total Gross Loans			Obligations under Participation Agreements and Secured Borrowing			Total Net Loans
Number of loans	Number of loans	8			13			21			10			21			Number of loans	6			13			19			7			19
Principal balance	Principal balance	$	92,882,840		$	344,467,447		$	437,350,287		$	89,029,775		$	348,320,512		Principal balance	$	57,040,923		$	350,689,385		$	407,730,308		$	93,310,285		$	314,420,023
Amortized cost	Amortized cost	93,497,702			344,483,203			437,980,905			89,232,590			348,748,315			Amortized cost	57,157,301			348,911,570			406,068,871			93,596,454			312,472,417
Fair value	Fair value	93,894,902			342,768,147			436,663,049			88,937,172			347,725,877			Fair value	57,099,978			346,367,302			403,467,280			91,599,071			311,868,209
Weighted average coupon rate	Weighted average coupon rate	13.52		%	7.87		%	9.07		%	10.56		%	8.69		%	Weighted average coupon rate	12.07		%	7.66		%	8.28		%	9.97		%	7.78		%
Weighted-average remaining term (years)	Weighted-average remaining term (years)	1.36			1.64			1.58			1.25			1.67			Weighted-average remaining term (years)	1.57			1.41			1.43			0.90			1.59


		December 31, 2019															December 31, 2020
		Fixed Rate			Floating Rate (1)(2)(3)			Total Gross Loans			Obligations under Participation Agreements		Total Net Loans				Fixed Rate			Floating Rate (1)(2)(3)			Total Gross Loans			Obligations under Participation Agreements and Secured Borrowing			Total Net Loans
Number of loans	Number of loans	8			15			23			13		23			Number of loans	6			14			20			8			20
Principal balance	Principal balance	$	70,692,767		$	306,695,550		$	377,388,317		102,564,795		$	274,823,522		Principal balance	$	56,335,792		$	367,838,966		$	424,174,758		$	89,548,151		$	334,626,607
Amortized cost	Amortized cost	71,469,137			307,143,631			378,612,768			103,186,327		275,426,441			Amortized cost	56,464,310			365,816,205			422,280,515			89,769,560			332,510,955
Fair value	Fair value	71,516,432			307,643,983			379,160,415			103,188,783		275,971,632			Fair value	56,284,334			363,122,860			419,407,194			87,730,239			331,676,955
Weighted average coupon rate	Weighted average coupon rate	11.93		%	9.13		%	9.65		%	11.77	%	8.87		%	Weighted average coupon rate	12.17		%	7.95		%	8.51		%	10.16		%	8.07		%
Weighted-average remaining term (years)	Weighted-average remaining term (years)	2.28			2.09			2.13			1.58		2.33			Weighted-average remaining term (years)	1.78			1.44			1.48			1.08			1.59

_______________

(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 ~~0.15%~~0.11% and ~~1.76%~~0.14% as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

(2)As of ~~September 30,~~March 31, 2021 and December 31, 2020, amounts included ~~$181.0~~$183.7 million and $184.2 million of senior mortgages used as collateral for ~~$105.9~~$106.5 million and $107.6 million of borrowings under a term ~~loan. These~~loan, respectively. As of March 31, 2021, amounts also included $11.9 million of senior mortgages used as collateral for $8.0 million of borrowings under a revolving line of credit. Borrowings under the term loan bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.00% as. Borrowings under the revolving line of September 30, 2020. As of December 31, 2019, amounts included $114.8 million of senior mortgages used as collateral for $81.1 million of borrowings under a repurchase agreement. These borrowings borecredit bear interest at ~~an annual~~a minimum rate of ~~LIBOR plus a spread ranging from 2.25% to 2.50% as of December 31, 2019. The repurchase agreement was terminated in September 2020.~~4.0%.

(3)As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

In addition to its net loan portfolio, as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, Terra Property Trust ~~owns~~owned 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 ~~$63.7~~$62.1 million and ~~$66.2~~$62.9 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The mortgage loan payable encumbering the office building had an outstanding principal amount of ~~$44.2~~$40.6 million and ~~$44.6~~$44.0 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Additionally, as of March 31, 2021 and December 31, 2020, Terra Property Trust owned 83.5% and 90.3%, respectively, of equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of March 31, 2021 and December 31, 2020, the equity interest had a carrying value of $50.5 million and $36.3 million, respectively.

Portfolio Investment Activity

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ Terra Property Trust invested ~~$10.3~~$15.5 million and ~~$20.2~~$12.6 million in new ~~and/or add-on loans, respectively,~~investments and had ~~$9.6~~$25.0 million and ~~$37.2~~$10.0 million of repayments, ~~respectively,~~ resulting in net repayments of $9.4 million and net investments of ~~$0.7 million and repayments of $17.0~~$2.6 million, respectively. Amounts are net of obligations under participation agreements, ~~and~~secured borrowing, borrowings under the master repurchase agreement, the term loan and the ~~term loan.~~

~~For the nine months ended September 30, 2020 and 2019, Terra Property Trust invested $22.2 million and $48.5 million in new and/or add-on loans, respectively, and had $24.7 million and $82.4 million~~revolving line of repayments, respectively, resulting in net repayments of $2.5 million and $33.9 million, respectively. Amounts are net of obligations under participation agreements and borrowings under the master repurchase agreement and the term loan.credit.

In addition, in March 2020, Terra Property Trust issued 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 other working capital. In connection with the transactions, the related participation obligations were settled.

For the three and nine months ended September 30, 2020, Terra Property Trust sold $0.2 million and $6.0 million of marketable securities, respectively, and recognized net gains on sale of marketable securities of $0.1 million and $1.2 million, respectively.

In January 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 release of the first mortgage and related fees and expenses.

Portfolio Information

The tables below set forth the types of assets in Terra Property Trust’s portfolio, as well as the property type and geographic location of the properties securing the 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.


		September 30, 2020								December 31, 2019									March 31, 2021								December 31, 2020
Loan Structure	Loan Structure	Principal Balance		Amortized Cost		Fair Value		% of Total		Principal Balance		Amortized Cost		Fair Value		% of Total		Loan Structure	Principal Balance		Amortized Cost		Fair Value		% of Total		Principal Balance		Amortized Cost		Fair Value		% of Total
First mortgages	First mortgages	$	208,999,542	$	210,032,471	$	209,588,855	60.1	%	$	160,984,996	$	160,948,585	$	161,736,057	58.6	%	First mortgages	$	212,718,851	$	214,217,072	$	214,067,237	48.8	%	$	209,660,270	$	210,694,778	$	210,517,299	47.9	%
Preferred equity investments	Preferred equity investments	115,615,623		116,013,401		114,418,918		32.8	%	84,202,144		84,485,061		84,191,396		30.5	%	Preferred equity investments	77,586,298		77,828,409		73,847,051		16.8	%	101,019,788		101,267,732		97,472,723		22.2	%
Mezzanine loans	Mezzanine loans	23,705,347		24,059,180		23,718,104		6.8	%	29,636,382		29,992,795		30,044,179		10.9	%	Mezzanine loans	24,114,874		24,441,714		23,953,921		5.5	%	23,946,549		24,287,203		23,686,933		5.4	%
Allowance for loan losses	Allowance for loan losses	—		(1,356,737)		—		—	%	—		—		—		—	%	Allowance for loan losses	—		(4,014,778)		—		—	%	—		(3,738,758)		—		—	%
Total loan investments	Total loan investments	$	348,320,512	348,748,315		347,725,877		99.7	%	$	274,823,522	275,426,441		275,971,632		100.0	%	Total loan investments	$	314,420,023	312,472,417		311,868,209		71.1	%	$	334,626,607	332,510,955		331,676,955		75.5	%
Marketable securities	Marketable securities			1,176,006		1,205,001		0.3	%			—		—		—	%	Marketable securities			6,155,094		6,251,980		1.4	%			1,176,006		1,287,500		0.3	%
Real estate owned																		Real estate owned			62,114,581		70,717,229		16.1	%			63,385,339		70,717,229		16.1	%
Equity investment in a limited partnership																		Equity investment in a limited partnership			50,505,511		49,919,016		11.4	%			36,385,339		35,678,585		8.1	%
Total	Total			$	349,924,321	$	348,930,878	100.0	%			$	275,426,441	$	275,971,632	100.0	%	Total			$	431,247,603	$	438,756,434	100.0	%			$	433,457,639	$	439,360,269	100.0	%

September 30, 2020 December 31, 2019
Property Type Principal Balance Amortized Cost Fair
Value % of Total Principal Balance Amortized Cost Fair
Value % of Total
Office $ 130,839,098 $ 131,259,038 $ 130,278,184 37.3 % $ 119,331,369 $ 119,145,879 $ 119,597,533 43.2 %
Multifamily 75,959,088 76,411,701 76,520,455 21.9 % 49,017,844 49,331,885 49,386,995 17.9 %
Hotel 57,841,452 58,186,134 58,133,675 16.7 % 41,239,194 41,327,772 41,539,239 15.1 %
Student housing 43,599,269 43,995,342 43,808,666 12.6 % 26,470,740 26,725,148 26,638,826 9.7 %
Infill land 30,961,605 31,112,716 29,912,588 8.6 % 29,644,375 29,756,375 29,588,829 10.7 %
Industrial 7,000,000 7,000,000 6,933,286 2.0 % 7,000,000 7,000,000 7,081,127 2.6 %
Condominium 2,120,000 2,140,121 2,139,023 0.6 % 2,120,000 2,139,382 2,139,083 0.8 %
Allowance for loan
losses — (1,356,737) — — % — — — — %
Total loan
investments $ 348,320,512 $ 348,748,315 $ 347,725,877 99.7 % $ 274,823,522 275,426,441 275,971,632 100.0 %
Marketable
securities 1,176,006 $ 1,205,001 0.3 % — — — %
Total $ 349,924,321 $ 348,930,878 100.0 % $ 275,426,441 $ 275,971,632 100.0 %


	March 31, 2021								December 31, 2020
Property Type	Principal Balance		Amortized Cost		Fair Value		% of Total		Principal Balance		Amortized Cost		Fair Value		% of Total
Office	$	150,129,899	$	150,669,866	$	149,342,121	34.1	%	$	145,560,299	$	146,010,011	$	144,654,237	32.9	%
Multifamily	80,440,026		81,087,592		80,890,073		18.4	%	103,057,678		103,678,464		103,502,170		23.5	%
Hotel - full/select service	47,112,522		47,704,223		47,502,136		10.8	%	49,142,809		49,393,251		49,052,148		11.2	%
Mixed use	16,512,842		16,512,842		13,817,239		3.1	%	16,767,984		16,767,984		14,314,585		3.3	%
Industrial	7,000,000		7,000,000		6,995,064		1.6	%	7,000,000		7,000,000		7,007,397		1.6	%
Infill land	5,974,734		6,030,824		6,042,260		1.4	%	5,847,837		5,901,575		5,864,339		1.3	%
Hotel - extended stay	4,250,000		4,292,148		4,292,450		1.0	%	4,250,000		4,294,053		4,293,969		1.0	%
Student housing	3,000,000		3,189,700		2,986,866		0.7	%	3,000,000		3,204,375		2,988,110		0.7	%
Allowance for loan losses	—		(4,014,778)		—		—	%	—		(3,738,758)		—		—	%
Total loan investments	$	314,420,023	312,472,417		311,868,209		71.1	%	$	334,626,607	332,510,955		331,676,955		75.5	%
Marketable securities			6,155,094		6,251,980		1.4	%			1,176,006		$	1,287,500	0.3	%
Real estate owned			62,114,581		70,717,229		16.1	%			63,385,339		70,717,229		16.1	%
Equity investment in a limited partnership			50,505,511		49,919,016		11.4	%			36,385,339		35,678,585		8.1	%
Total			$	431,247,603	$	438,756,434	100.0	%			$	433,457,639	$	439,360,269	100.0	%

September 30, 2020 December 31, 2019
Geographic Location Principal Balance Amortized Cost Fair
Value % of Total Principal Balance Amortized Cost Fair
Value % of Total
United States
California $ 148,302,789 $ 148,978,995 $ 148,726,831 42.6 % $ 102,774,905 $ 102,622,718 $ 103,333,019 37.4 %
Georgia 72,282,315 72,646,696 72,537,036 20.8 % 61,772,764 61,957,443 62,073,996 22.5 %
New York 54,039,453 54,126,104 52,208,010 15.0 % 52,909,847 53,029,923 52,670,818 19.1 %
North Carolina 28,525,698 28,675,960 28,562,456 8.2 % 28,283,950 28,421,676 28,440,960 10.3 %
Washington 18,500,000 18,639,414 18,951,981 5.4 % 13,525,556 13,618,636 13,680,588 5.0 %
Massachusetts 7,000,000 7,000,000 6,933,286 2.0 % 7,000,000 7,000,000 7,081,127 2.6 %
Texas 3,729,649 3,766,866 3,751,748 1.1 % 2,450,000 2,472,244 2,474,149 0.9 %
Illinois 2,837,397 2,861,810 2,865,464 0.8 % 2,209,189 2,227,593 8,018,753 2.9 %
Other (1)
13,103,211 13,409,207 13,189,065 3.8 % 3,897,311 4,076,208 (1,801,778) (0.7) %
Allowance for loan
losses — (1,356,737) — — % — — — — %
Total loan
investments $ 348,320,512 348,748,315 347,725,877 99.7 % $ 274,823,522 275,426,441 275,971,632 100.0 %
Marketable
securities 1,176,006 1,205,001 0.3 % — — — %
Total $ 349,924,321 $ 348,930,878 100.0 % $ 275,426,441 $ 275,971,632 100.0 %

~~_______________~~

~~(1)~~Other includes $7.5 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 September 30, 2020 and December 31, 2019, respectively.


	March 31, 2021									December 31, 2020
Geographic Location	Principal Balance		Amortized Cost		Fair Value		% of Total			Principal Balance		Amortized Cost		Fair Value		% of Total
United States
California	$	121,331,368	$	122,393,503	$	122,372,064	28.0	%		$	143,454,602	$	144,066,584	$	143,989,756	32.9	%
Georgia	74,957,483		75,352,520		75,236,254		17.1	%		74,116,787		74,505,752		74,411,107		16.9	%
New York	56,966,298		57,039,596		53,076,619		12.1	%		56,058,669		56,139,234		52,378,785		11.9	%
North Carolina	28,774,734		28,934,721		28,934,384		6.6	%		28,647,837		28,802,869		28,734,218		6.5	%
Washington	18,500,000		18,648,113		18,629,677		4.2	%		18,500,000		18,643,699		18,634,464		4.2	%
Massachusetts	7,000,000		7,000,000		6,995,064		1.6	%		7,000,000		7,000,000		7,007,397		1.6	%
Texas	3,890,140		3,929,042		3,637,281		0.8	%		3,848,712		3,887,200		3,533,118		0.8	%
South Carolina	3,000,000		3,189,700		2,986,866		0.7	%		3,000,000		3,204,375		2,988,110		0.7	%
Allowance for loan losses	—		(4,014,778)		—		—	%		—		(3,738,758)		—		—	%
Total loan investments	$	314,420,023	312,472,417		311,868,209		71.1	%		$	334,626,607	332,510,955		331,676,955		75.5	%
Marketable securities			6,155,094		6,251,980		1.4	%				1,176,006		1,287,500		0.3	%
Real estate owned			62,114,581		70,717,229		16.1	%				63,385,339		70,717,229		16.1	%
Equity investment in a limited partnership			50,505,511		49,919,016		11.4	%				36,385,339		35,678,585		8.1	%
Total			$	431,247,603	$	438,756,434	100.0	%	1			$	433,457,639	$	439,360,269	100.0	%

Factors Impacting Operating Results

Our 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.

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 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 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 assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios Terra Property Trust may fail to recoup fully its cost of acquisition of certain loans.

Extension Risk

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

Real Estate Risk

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

Results of Operations

The following table presents the comparative results of our operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2020		2019		Change		2020		2019		Change			2021		2020		Change
Investment income	Investment income													Investment income
Dividend income	Dividend income	$	3,086,441	$	2,994,149	$	92,292	$	5,032,564	$	6,917,024	$	(1,884,460)	Dividend income	$	1,126,895	$	1,264,438	$	(137,543)
Other operating income	Other operating income	28		82		(54)		206		474		(268)		Other operating income	20		144		(124)
Total investment income	Total investment income	3,086,469		2,994,231		92,238		5,032,770		6,917,498		(1,884,728)		Total investment income	1,126,915		1,264,582		(137,667)
Operating expenses	Operating expenses													Operating expenses
Professional fees	Professional fees	114,547		182,081		(67,534)		449,746		453,414		(3,668)		Professional fees	120,135		174,099		(53,964)
Other	Other	1,603		686		917		4,347		9,645		(5,298)		Other	385		1,449		(1,064)
Total operating expenses	Total operating expenses	116,150		182,767		(66,617)		454,093		463,059		(8,966)		Total operating expenses	120,520		175,548		(55,028)
Net investment income	Net investment income	2,970,319		2,811,464		158,855		4,578,677		6,454,439		(1,875,762)		Net investment income	1,006,395		1,089,034		(82,639)
Net change in unrealized (depreciation) appreciation on investment		(1,751,564)		1,655,207		(3,406,771)		(1,223,889)		4,853,466		(6,077,355)
Net increase in members’ capital resulting from operations		$	1,218,755	$	4,466,671	$	(3,247,916)	$	3,354,788	$	11,307,905	$	(7,953,117)
Net change in unrealized appreciation (depreciation) on investment														Net change in unrealized appreciation (depreciation) on investment	492,466		(2,286,298)		2,778,764
Net increase (decrease) in members’ capital resulting from operations														Net increase (decrease) in members’ capital resulting from operations	$	1,498,861	$	(1,197,264)	$	2,696,125

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 its net income is recorded as return of capital. As of ~~September 30, 2020~~both March 31, 2021 and December 31, ~~2019,~~2020, 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 ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we received distributions of ~~$3.1~~$3.0 million and ~~$7.6~~$7.8 million, or $0.20 and ~~$0.51~~$0.53 per share, from Terra Property Trust, ~~and/or Terra JV, as applicable,~~ of which ~~$3.1~~$1.1 million and ~~$3.0~~$1.3 million was recorded as dividend income and ~~$0.0~~$1.9 million and $4.6 million was recorded as return of capital, respectively. For the nine months ended September 30, 2020 and 2019, we received distributions of $14.3 million and $22.8 million, or $0.96 and $1.53 per share, from Terra Property Trust and/or Terra JV, as applicable, of which $5.0 million and $6.9 million was recorded as dividend income and $9.3 million and $15.8$6.6 million was recorded as return of capital, respectively.

For the three months ended ~~September 30, 2020~~March 31, 2021 as compared to the same period in ~~2019,~~2020, Terra Property Trust’s net income ~~decreased~~increased by ~~$1.0~~$0.9 million, primarily due to ~~an increase in fees paid and operating expenses reimbursed to~~equity income from Terra Property Trust’s ~~Manager~~equity investment in a limited partnership of ~~$0.7~~$1.3 million asand a ~~result~~decrease in provision for loan losses of ~~an increase in assets under management and an increase in allocation ratio in relation to affiliated funds managed~~$0.9 million, partially offset by ~~Terra Property Trust’s Manager and its affiliates, and an increase in net operating loss of $0.2 million from its operating real estate as a result of a lease termination on September 4, 2020.~~

~~For the nine months ended September 30, 2020 as compared to the same period in 2019, Terra Property Trust’s net income decreased by $1.5 million, primarily due to (i)~~ a decrease in net interest income of ~~$2.0~~$1.1 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 $1.4 million on four loans with a loan risk rating of “4” and a past-due loan; (iii) an increase in fees paid and operating expenses reimbursed to Terra Property Trust’s Manager of $1.8 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 $2.0 million as a result of $2.4 million of professional fees directly incurred for the nine months ended September 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 $0.8 million primarily as a result of a $1.6 million of impairment charge recorded for the nine months ended September 30, 2019 on a piece of land in order to reduce the carrying value of the land to its estimated fair value, partially offset by a loss incurred in connection with a lease termination; and (iii) a gain on sale of marketable securities of $1.2 million for the nine months ended September 30, 2020.repaid.

Net Loan Portfolio

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

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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended September 30, 2020 Three Months Ended September 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 $ 422,999,516 9.1% $ 374,934,899 10.5%
Obligations under participation agreements (81,547,833) 10.7% (96,876,184) 12.1%
Repurchase agreement payable (68,952,665) 3.9% (72,591,206) 4.5%
Term loan payable (31,997,627) 5.3% — —%
Revolving credit facility — —% (347,826) 6.4%
Net loans (3)
$ 240,501,391 10.5% $ 205,119,683 11.8%
Senior loans
Gross loans $ 238,098,881 6.7% $ 143,834,648 7.6%
Obligations under participation agreements (34,709,039) 9.0% (6,800,000) 12.0%
Repurchase agreement payable (68,952,665) 3.9% (72,591,206) 4.5%
Term loan payable (31,997,627) 5.3% — —%
Net loans (3)
$ 102,439,550 8.3% $ 64,443,442 10.7%
Subordinated loans (4)
Gross loans $ 184,900,635 12.2% $ 231,100,251 12.3%
Obligations under participation agreements (46,838,794) 12.0% (90,076,184) 12.1%
Revolving credit facility — — (347,826) 0.1
Net loans (3)
$ 138,061,841 12.2% $ 140,676,241 12.4%


		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019					Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
		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									Total portfolio
Gross loans	Gross loans	$	404,720,953	9.2	%	$	370,659,620	10.8	%	Gross loans	$	408,985,092	8.4	%	$	388,164,960	9.5	%
Obligations under participation agreements		(81,325,808)		11.1	%	(96,571,005)		12.2	%
Obligations under participation agreements and secured borrowing										Obligations under participation agreements and secured borrowing	(88,594,532)		10.1	%	(88,056,951)		11.7	%
Repurchase agreement payable	Repurchase agreement payable	(85,999,794)		3.9	%	(66,824,004)		4.7	%	Repurchase agreement payable	—		—	%	(94,465,741)		4.0	%
Term loan payable	Term loan payable	(10,743,729)		5.3	%	—		—	%	Term loan payable	(107,776,898)		5.3	%	—		—	%
Revolving credit facility		—		—	%	(117,216)		6.4	%
Revolving line of credit										Revolving line of credit	(1,745,785)		4.0	%	—		—	%
Net loans (3)	Net loans (3)	$	226,651,622	10.8	%	$	207,147,395	12.1	%	Net loans (3)	$	210,867,877	9.3	%	$	205,642,268	11.1	%
Senior loans	Senior loans									Senior loans
Gross loans	Gross loans	213,614,208		6.7	%	132,815,080		7.9	%	Gross loans	255,124,634		6.4	%	189,925,027		6.9	%
Obligations under participation agreements		(27,176,535)		9.3	%	(8,391,500)		12.0	%
Obligations under participation agreements and secured borrowing										Obligations under participation agreements and secured borrowing	(45,478,823)		8.6	%	(17,680,599)		10.6	%
Repurchase agreement payable	Repurchase agreement payable	(85,999,794)		3.9	%	(66,824,004)		4.5	%	Repurchase agreement payable	—		—	%	(94,465,741)		4.0	%
Term loan payable	Term loan payable	(10,743,729)		5.3	%	—		—	%	Term loan payable	(107,776,898)		5.3	%	—		—	%
Revolving line of credit										Revolving line of credit	(1,745,785)		4.0	%	—		—	%
Net loans (3)	Net loans (3)	$	89,694,150	12.5	%	$	57,599,576	11.3	%	Net loans (3)	$	100,123,128	6.6	%	$	77,778,687	9.7	%
Subordinated loans (4)	Subordinated loans (4)									Subordinated loans (4)
Gross loans	Gross loans	191,106,745		12.2	%	237,844,540		12.4	%	Gross loans	153,860,458		11.7	%	198,239,933		12.0	%
Obligations under participation agreements	Obligations under participation agreements	(54,149,273)		12.1	%	(88,179,505)		12.2	%	Obligations under participation agreements	(43,115,709)		11.6	%	(70,376,352)		12.0	%
Revolving credit facility		—		—	%	(117,216)		6.4	%
Net loans (3)	Net loans (3)	$	136,957,472	12.2	%	$	149,547,819	12.5	%	Net loans (3)	$	110,744,749	11.7	%	$	127,863,581	12.0	%

_______________

(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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019,~~2020, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.

Professional Fees

For the three months ended March 31, 2021 as compared to the same period in 2020, professional fees decreased by $0.1 million as a result of a decrease in the cost of compliance.

Net Change in Unrealized Appreciation (Depreciation) ~~Appreciation~~ 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.

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, we recorded ~~net change~~an increase in unrealized appreciation on investment of $0.5 million, as a result of the recovery of the fair value of Terra Property Trust’s investments, compared to an increase in unrealized depreciation on investment of ~~$1.8~~$2.3 million ~~and $1.2 million, respectively, compared to net change~~recorded for the same period in ~~unrealized appreciation on investment~~2020, as a result of ~~$1.7 million and $4.9 million, respectively. The increase in unrealized depreciation on investment in~~ the ~~current periods was due to~~ widening credit spreads partially offset by decreases in underlying index rates ~~as a result of~~due to the macro-economic conditions impacted by the COVID-19 outbreak. The increase in unrealized appreciation on investment in the prior period was due to the fair value of the Company’s investment in Terra Property Trust went up as a result of higher fair values of the underlying loans and assets.pandemic.

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

For the three ~~and nine~~ months ended ~~September 30, 2020 as compared to the same periods in 2019,~~March 31, 2021, the net increase in members’ capital resulting from operations ~~decreased by $3.2~~was $1.5 million, ~~and decreased by $8.0~~compared to the net decrease in members’ capital resulting from operations of $1.2 million ~~respectively.~~for the same period in 2020.

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 targets 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 ~~$26.3~~$66.3 million of Terra Property Trust’s obligations under participation agreements will mature in the next twelve 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 ~~$60.6~~$53.4 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. Additionally, Terra Property Trust had ~~$44.2~~$40.6 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, 2022. 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 September 3, 2020, Terra Property Trust entered into an indenture and credit agreement that provides for a floating rate term loan of $103.0 million, $3.6 million of additional future advances, and may provide up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under mortgage assets owned by Terra Property Trust and financed under the indenture and credit agreement. The floating rate loan bears interest at a rate equal to LIBOR plus 4.25% with a LIBOR floor of 1.0%, and matures on March 14, 2025. As of ~~September 30, 2020,~~March 31, 2021, the amount outstanding under the indenture and credit agreement was ~~$105.9~~$106.5 million.

On ~~June 20, 2019,~~March 12, 2021, Terra Property Trust entered into a ~~credit agreement that provides~~Business Loan and Security Agreement (the “Revolving Line of Credit”) to provide for ~~revolving credit loans of~~advances up to ~~$35.0~~the lesser of $75.0 million inor the ~~aggregate,~~amount determined by the borrowing base, which ~~Terra Property Trust expects~~is based on the eligible assets pledged to ~~use for short term financing needed to bridge~~ the ~~timing of anticipated loans repayments and funding obligations.~~lender. Borrowings under the ~~revolving credit facility can be either prime rate loans or LIBOR rate loans and accrue~~Revolving Line of Credit bear interest at an annual rate of ~~prime rate plus 1% or~~ LIBOR ~~plus 4%~~+ 3.25% with a combined floor of ~~6%.~~4.0% per annum. The ~~credit facility matured~~Revolving Line of Credit matures on ~~September 3, 2020; however, Terra Property Trust is currently negotiating~~March 12, 2023 with an annual 12-month extension available at the ~~lender~~Company’s option, which are subject to ~~extend the maturity of the revolving credit facility by a year and the lender has waived the maturity default.~~certain conditions. As of ~~September 30, 2020,~~March 31, 2021, the ~~revolving credit facility~~Revolving Line of Credit had an outstanding balance of ~~$25.0~~$8.0 million. ~~Terra Property Trust has sufficient cash on hand to repay the amount outstanding under the revolving credit facility.~~

Cash Flows Provided by Operating Activities

~~2020~~2021 — For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, cash flows provided by operating activities were ~~$13.7~~$2.9 million, primarily due to ~~$14.3~~$3.0 million of dividends received from Terra ~~Property Trust and/or Terra~~ JV, ~~as applicable,~~ of which ~~$9.3~~$1.9 million was recorded as a return of capital.

~~2019~~

2020 — For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, cash flows provided by operating activities were ~~$22.4~~$7.7 million, primarily due to ~~$22.8~~$7.8 million of dividends received from Terra Property Trust, of which ~~$15.8~~$6.6 million was recorded as a return of capital.

Cash Flows used in Financing Activities

~~2020~~2021 — For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, cash flows used in financing activities were ~~$13.5~~$3.0 million primarily related to distributions paid to members.

~~2019~~2020 — For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, cash flows used in financing activities was ~~$22.4~~$7.5 million, primarily related to distributions paid to members.

Critical Accounting Policies and Use of Estimates

Our 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 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 financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the 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 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 statements of assets and liabilities and were categorized based on the inputs valuation techniques as follows:

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

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

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

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

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

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

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

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

Any changes to the valuation methodology will be reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, we will continue to refine our

valuation methodologies. The methods used may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods will be appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of 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 financial statements, as individual members are responsible for their proportionate share of our taxable income. We, however, may be liable for New York City Unincorporated Business Tax (the “NYC UBT”) and similar taxes of various other municipalities. New York City imposes the NYC UBT at a statutory rate of 4% on net income generated from ordinary business activities carried on in New York City. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 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 statements of operations. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 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.

Contractual Obligations of Terra Property Trust

The following table provides a summary of Terra Property Trust’s contractual obligations at ~~September 30, 2020:~~March 31, 2021:


		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years			Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Obligations under participation agreements — principal (1)	Obligations under participation agreements — principal (1)	$	89,029,775	$	26,262,184	$	62,767,591	$	—	$	—	Obligations under participation agreements — principal (1)	$	71,276,756	$	66,276,756	$	5,000,000	$	—	$	—
Secured borrowing — principal (1)												Secured borrowing — principal (1)	22,033,529		—		22,033,529		—		—
Mortgage loan payable — principal (2)	Mortgage loan payable — principal (2)	44,210,228		777,606		43,432,622		—		—		Mortgage loan payable — principal (2)	40,596,980		801,547		39,795,433		—		—
Term loan payable — principal (3)	Term loan payable — principal (3)	105,888,747		—		—		105,888,747		—		Term loan payable — principal (3)	106,454,107		—		44,614,424		61,839,683		—
Revolving credit facility payable — principal (4)		25,000,000		25,000,000		—		—		—
Revolving Line of Credit payable — principal (4)												Revolving Line of Credit payable — principal (4)	8,030,611		—		8,030,611		—		—
Interest on borrowings (5)	Interest on borrowings (5)	43,592,013		15,097,142		19,418,004		9,076,867		—		Interest on borrowings (5)	33,582,806		15,913,261		15,171,799		2,497,746		—
Unfunded lending commitments (6)	Unfunded lending commitments (6)	64,164,152		60,633,211		3,530,941		—		—		Unfunded lending commitments (6)	55,545,829		53,402,223		2,143,606		—		—
Ground lease commitment (7)	Ground lease commitment (7)	83,509,688		1,264,500		2,529,000		2,529,000		77,187,188		Ground lease commitment (7)	82,877,438		1,264,500		2,529,000		2,529,000		76,554,938
		$	455,394,603	$	129,034,643	$	131,678,158	$	117,494,614	$	77,187,188		$	420,398,056	$	137,658,287	$	139,318,402	$	66,866,429	$	76,554,938

___________________________

(1)In the normal course of business, Terra Property Trust enters into participation agreements with related parties, and to a lesser extent, ~~non-related~~unrelated parties, whereby itTerra Property Trust transfers a portion of the loans to them. Additionally, Terra Property Trust may sell a portion of a loan to a third-party. These loan participations and sale do not qualify for sale treatment. As such, the loans remain on ~~its~~Terra Property Trust’s consolidated balance sheets and the proceeds are recorded as obligations under participation ~~agreements.~~agreements or secured borrowing, as applicable. Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest or sold interest is recorded within “Interest expense ~~from~~on obligations under participation agreements” or “Interest expense on secured borrowing”, as applicable, in the consolidated statements of operations. Terra Property Trust has no direct liability to a participant under ~~our~~its 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)Amount excludes unamortized origination and exit fees of $0.1 million.

(3)Amount excludes unamortized deferred financing costs of ~~$2.4~~$2.2 million.

(4)Terra Property Trust’s revolving credit facility was scheduled to mature on June 20, 2020. Terra Property Trust amended the credit agreement to extend the maturity to September 3, 2020. Terra Property Trust is currently negotiating with the lender to extend the revolving credit facility by a year and the lender has waived the maturity default. Terra Property Trust has sufficient cash on hand to repay the amount outstanding under the revolving credit facility.Amount excludes unamortized deferred financing costs of $0.6 million.

(5)Interest was calculated using the applicable annual variable interest rate and balance outstanding at ~~September 30, 2020.~~March 31, 2021. Amount represents interest expense through maturity plus exit fee as ~~application.~~applicable.

(6)Certain of Terra Property Trust’s loans provide for a commitment to fund the borrower at a future date. As of ~~September 30, 2020,~~March 31, 2021, Terra Property Trust had seven of such loans with total funding commitments of ~~$262.1~~$256.0 million, of which ~~$197.9~~$200.5 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.

The table above does not include Terra Property Trust’s commitment under a subscription agreement with ~~Terra Opportunities Fund~~Mavik RESOF to fund up to $50.0 million to purchase the limited partnership interests in ~~Terra Opportunities Fund~~Mavik RESOF as the

subscription agreement does not have fixed or determinable payments. ~~On November 5, 2020, Terra Property Trust funded $3.6 million~~As of March 31, 2021, the ~~commitment.~~unfunded commitment was $1.3 million.

Management Agreement with Terra REIT Advisors

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,~~investments, including any third-party expenses related to such loan. 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.

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

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

Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by 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.

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.

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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Origination and extension fee expense (1)	Origination and extension fee expense (1)	$	285,205	$	270,036	$	973,423	$	1,070,588	Origination and extension fee expense (1)	$	345,384	$	437,617
Asset management fee	Asset management fee	1,151,166		942,548		3,321,125		2,779,888		Asset management fee	1,156,543		1,029,533
Asset servicing fee	Asset servicing fee	258,860		220,881		746,384		652,122		Asset servicing fee	273,207		234,208
Operating expenses reimbursed to Manager	Operating expenses reimbursed to Manager	1,719,767		1,308,453		4,781,831		3,636,971		Operating expenses reimbursed to Manager	1,342,758		1,367,189
Disposition fee (2)	Disposition fee (2)	95,889		721,612		391,833		1,358,636		Disposition fee (2)	250,988		75,520
Total	Total	$	3,510,887	$	3,463,530	$	10,214,596	$	9,498,205	Total	$	3,368,880	$	3,144,067

_______________

(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 ~~September 30, 2020,~~March 31, 2021, Terra Property Trust had 13 investments with an aggregate principal balance of ~~$274.3~~$271.4 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 Terra Property Trust’s annual interest income, net of interest expense on participation agreements, by approximately $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 ~~$0.6~~$0.8 million.

Additionally, Terra Property Trust had ~~$44.2~~$40.6 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 ~~$105.9~~$106.5 million of borrowings outstanding under an indenture and credit facility that bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.0% collateralized by ~~$181.0~~$183.7 million of first mortgages. A decrease of 100 basis points in LIBOR had no impact on Terra Property Trust’s total annual interest expense because the debts are protected by LIBOR floors and an increase of 100 basis points in LIBOR would increase Terra Property Trust’s annual interest expense by approximately ~~$0.2~~$0.1 million.

~~In July 2017, the U.K. Financial Conduct Authority announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by~~At the end of 2021, ~~or the~~banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR ~~transition date. It is unclear whether new methods of calculating LIBOR will~~could be ~~established such that it continues to exist after 2021.~~discontinued. The Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions convened by the U.S. Federal 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 not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain.

Potential changes, or uncertainty related to such potential changes, may adversely affect the market for LIBOR-based loans, including Terra Property Trust’s portfolio of LIBOR-indexed, floating-rate loans, or the cost of its borrowings. In addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based loans, including the value of the LIBOR-indexed, floating-rate loans in Terra Property Trust’s portfolio, or the cost of its borrowings. ~~The potential effect of~~In the ~~phase-out or replacement of~~event LIBOR onis unavailable, Terra Property Trust’s ~~cost of capital and net~~ investment ~~income cannot yet be determined.~~documents provide for a substitute index, on a basis generally consistent with market practice, intended to put us in substantially the same economic position as LIBOR.

We may hedge against interest rate 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 ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 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 ~~September 30, 2020.~~March 31, 2021. 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.

PART II – OTHER INFORMATION

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, Terra JV 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, ~~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;~~

•~~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.

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 nine months ended September 30, 2020, Terra Property Trust’s board of directors declared total cash distribution of $0.96 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.

The documents governing Terra Property Trust's indenture and credit agreement contain, and additional financing arrangements may contain, financial covenants that could restrict Terra Property Trust's borrowings or subject Terra Property Trust to additional risks.

Terra Property Trust has borrowed funds under its indenture and credit agreement. The documents that govern the indenture and credit agreement contain, and additional financing arrangements may contain, various financial and other restrictive covenants, including covenants that require Terra Property Trust to maintain a certain interest coverage ratio and net asset value and that create a maximum balance sheet leverage ratio. The guaranty relating to the indenture and credit agreement requires Terra Property Trust to maintain: (a) a minimum tangible net worth in an amount not less than seventy-five percent (75%) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0. If Terra Property Trust fails to satisfy any of the financial or other restrictive covenants, or otherwise defaults under these agreements, the lender will have the right to accelerate repayment and terminate the indenture and credit agreement. Accelerating repayment and terminating the indenture and credit agreement will require immediate

repayment by Terra Property Trust of the borrowed funds, which may require Terra Property Trust to liquidate assets at a disadvantageous time, causing it to incur further losses and adversely affecting its results of operations and financial condition, which may impair our ability to maintain our current level of distributions.2020.

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.

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						Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, LLC, Terra Secured Income Fund Merger Sub, LLC, and Terra Secured Income Fund, dated January 1, 2016 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).

2.2						Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, LLC, Terra Secured Income Fund Merger Sub 2, LLC, and Terra Secured Income Fund 2, LLC, dated January 1, 2016 (incorporated by reference to Exhibit 2.2 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).

2.3						Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, LLC, Terra Secured Income Fund Merger Sub 3, LLC, and Terra Secured Income Fund 3, LLC, dated January 1, 2016 (incorporated by reference to Exhibit 2.3 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).

2.4						Agreement and Plan of Merger by and among the registrant, Terra Capital Advisors, Terra Capital Advisors 2, Terra Secured Income Fund 4, LLC, and Terra Secured Income Fund 4, LLC, dated January 1, 2016 (incorporated by reference to Exhibit 2.4 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).

2.5						Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated January 1, 2016 (incorporated by reference to Exhibit 2.5 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).

2.6						Amendment No. 1 to the Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated December 31, 2016 (incorporated by reference to Exhibit 2.6 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).

2.7						Agreement and Plan of Merger, dated February 28, 2020, by and among Terra Property Trust, Inc., Terra Property Trust 2, Inc. and Terra Secured Income Fund 7, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 000-56117) filed with the SEC on March 5, 2020).

3.1						Amended and Restated Limited Liability Company Agreement of the registrant, dated January 1, 2016 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 (File No. 000-55780) filed with the SEC on April 28, 2017).


~~Exhibit No.~~						~~Description and Method of Filing~~
31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH**						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**104						Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL ~~Taxonomy Extension Definition Linkbase Document~~document)

_______________

* Filed herewith.

** Furnished herewith.

4238

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 12, 2020~~May 13, 2021


			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.

4339


		Number of Shares of Common Stock	December 31, 2019
Investment	Date Acquired		Cost		Fair Value		% of Members’ Capital
Terra Property Trust, Inc.	1/1/2016 and 3/7/2016	14,912,990	$	243,924,852	$	247,263,245	100.1	%


	Three Months Ended September 30, 2020			Three Months Ended September 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	$	422,999,516	9.1%	$	374,934,899	10.5%
Obligations under participation agreements	(81,547,833)		10.7%	(96,876,184)		12.1%
Repurchase agreement payable	(68,952,665)		3.9%	(72,591,206)		4.5%
Term loan payable	(31,997,627)		5.3%	—		—%
Revolving credit facility	—		—%	(347,826)		6.4%
Net loans (3)	$	240,501,391	10.5%	$	205,119,683	11.8%
Senior loans
Gross loans	$	238,098,881	6.7%	$	143,834,648	7.6%
Obligations under participation agreements	(34,709,039)		9.0%	(6,800,000)		12.0%
Repurchase agreement payable	(68,952,665)		3.9%	(72,591,206)		4.5%
Term loan payable	(31,997,627)		5.3%	—		—%
Net loans (3)	$	102,439,550	8.3%	$	64,443,442	10.7%
Subordinated loans (4)
Gross loans	$	184,900,635	12.2%	$	231,100,251	12.3%
Obligations under participation agreements	(46,838,794)		12.0%	(90,076,184)		12.1%
Revolving credit facility	—		—	(347,826)		0.1
Net loans (3)	$	138,061,841	12.2%	$	140,676,241	12.4%