tsif-20230331

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 March 31, 2023


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

For the Transition Period from to

Commission File 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.)

205 West 28th Street, 12th Floor

New York, New York 10001

(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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of May 12, 2023, the registrant had 6,622.2 units of limited liability company interests outstanding. No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.

TABLE OF CONTENTS


		Page

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Statements of Financial Condition as of March 31, 202 3 (unaudited) and December 31, 2022	2

	Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited)	3

	Statements of Changes in Members’ Capital for the Three Months Ended March 31, 202 3 and 202 2 (unaudited)	4

	Statements of Cash Flows for the Three Months Ended March 31, 202 3 and 202 2 (unaudited)	5

	Schedules of Investment as of March 31, 2023 (unaudited) and December 31, 2022	6

	Notes to Financial Statements as of March 31, 202 3 (unaudited)	15

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults upon Senior Securities	37

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

Signatures		40

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Terra Secured Income Fund 5, LLC

Statements of Financial Condition


	March 31, 2023		December 31, 2022
	(unaudited)
Assets
Equity investment in Terra JV, LLC at fair value (cost of $212,539,131 and $215,070,522, respectively)	$	206,205,820	$	210,008,457
Cash and cash equivalents	42,998		102,256
Other assets	29,980		40,434
Total assets	$	206,278,798	$	210,151,147

Liabilities and Members’ Capital
Liabilities
Accounts payable and accrued expenses	$	212,110	$	161,088
Total liabilities	212,110		161,088
Commitments and contingencies (Note 5)
Members’ capital:
Managing member	—		—
Non-managing members	206,066,688		209,990,059
Total members’ capital	206,066,688		209,990,059
Total liabilities and members’ capital	$	206,278,798	$	210,151,147
Net asset value per unit	$	31,118	$	31,710

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Statements of Operations

(Unaudited)


	Three Months Ended March 31,
		2023		2022
Investment income
Dividend income		$	292,254	$	758,110
Other operating income		18		11
Total investment income		292,272		758,121
Operating expenses
Professional fees		211,332		127,060
Other		1,458		1,392
Total operating expenses		212,790		128,452
Net investment income		79,482		629,669
Net change in unrealized (depreciation) appreciation on investment		(1,271,246)		1,018,522
Net (decrease) increase in members’ capital resulting from operations		$	(1,191,764)	$	1,648,191
Per unit data:
Net investment income per unit		$	12	$	95
Net (decrease) increase in members’ capital resulting from operations per unit		$	(180)	$	248
Weighted average units outstanding		6,622.3		6,636.6

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


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

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net (decrease) increase in members’ capital resulting from operations	$	(1,191,764)	$	1,648,191
Adjustments to reconcile net (decrease) increase in members’ capital resulting from operations to net cash provided by operating activities:
Return of capital on investment	2,531,391		2,221,551
Net change in unrealized depreciation (appreciation) investment	1,271,246		(1,018,522)
Changes in operating assets and liabilities:
Decrease in other assets	10,454		2,244
Increase in accounts payable and accrued expenses	51,022		67,224
Net cash provided by operating activities	2,672,349		2,920,688

Cash flows from financing activities:
Distributions paid	(2,731,607)		(2,979,046)
Net cash used in financing activities	(2,731,607)		(2,979,046)

Net decrease in cash and cash equivalents	(59,258)		(58,358)
Cash and cash equivalents at beginning of period	102,256		836,052
Cash and cash equivalents at end of period	$	42,998	$	777,694

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment

March 31, 2023 (Unaudited) and December 31, 2022

Terra Secured Income Fund 5, LLC (the “Company”) invested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust, Inc. (“Terra Property Trust”), an affiliate, through its parent, Terra JV, LLC (“Terra JV”). As of both March 31, 2023 and December 31, 2022, Terra JV held 70.0% of the issued and outstanding shares of Terra Property Trust’s common stock, 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, and Terra JV became the Company’s only investment (Note 4). Accordingly, as of both March 31, 2023 and December 31, 2022, the Company indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust through Terra JV. Additionally, as of both March 31, 2023 and December 31, 2022, Terra JV was jointly-controlled by the Company and Terra Fund 7.

The following table presents a summary of the Company’s investment as of March 31, 2023 and December 31, 2022:


		Percentage Interest		March 31, 2023						December 31, 2022
Investment	Date Acquired			Cost		Fair Value		% of Members’ Capital		Cost		Fair Value		% of Members’ Capital
Terra JV, LLC	3/2/2020	87.6	%	$	212,539,131	$	206,205,820	100.1	%	$	215,070,522	$	210,008,457	100.0	%

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 March 31, 2023:


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	%	—	%	9/21/2017	9/6/2027	$	7,000,000	$	7,000,000	$	6,591,946	$	4,040,863	2.0	%
610 Walnut Investors LLC (4)(5)	US - CA	Office	Term SOFR + 12.0% (2.0% Floor)		16.8	%	1.0	%	8/30/2022	9/7/2024	19,398,129		19,533,518		19,550,775		11,984,625		5.8	%
Dwight Mezz II, LLC	US - CA	Student housing	11.0	%	11.0	%	—	%	5/11/2017	5/6/2027	3,000,000		2,921,103		2,896,548		1,775,584		0.9	%
UNJ Sole Member, LLC (6)	US - CA	Mixed-use	15.0	%	15.0	%	1.0	%	11/24/2021	6/1/2027	7,444,357		7,484,017		7,465,056		4,576,079		2.2	%
											36,842,486		36,938,638		36,504,325		22,377,151		10.9	%
Preferred equity investments:
370 Lex Part Deux, LLC (7)	US - NY	Office	LIBOR + 8.25% (2.44% Floor)		13.1	%	—	%	12/17/2018	7/9/2022	67,586,792		67,586,792		56,338,078		34,535,242		16.7	%
Ann Street JV LLC	US - GA	Multifamily	14.0	%	14.0	%	1.0	%	11/12/2021	6/7/2024	15,762,248		16,151,228		15,631,287		9,581,979		4.6	%
Asano Bankers Hill, LLC	US - CA	Mixed-use	SOFR + 15.0% (0.25% Floor)		19.6	%	1.0	%	2/2/2022	7/31/2024	18,260,832		18,688,513		19,115,636		11,717,885		5.7	%
REEC Harlem Holdings Company, LLC (8)	US - NY	Mixed-use	LIBOR + 12.5%		17.4	%	—	%	3/9/2018	3/9/2023	15,251,983		15,251,983		2,245,045		1,376,213		0.7	%
RS JZ Driggs, LLC (9)	US - NY	Multifamily	12.3	%	12.3	%	1.0	%	5/1/2018	1/1/2021	5,269,600		5,269,600		5,269,600		3,230,265		1.6	%
											122,131,455		122,948,116		98,599,646		60,441,584		29.3	%

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

March 31, 2023 (Unaudited) and December 31, 2022

Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2023 (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 (10)	US - CA	Multifamily	LIBOR + 4.0% (0.25% Floor)		8.9	%	2.0	%	10/15/2021	4/15/2023	$	1,364,944	$	1,364,944	$	—	$	—	—	%
1389 Peachtree St, LP; 1401 Peachtree St, LP; 1409 Peachtree St, LP (11)	US - GA	Office	LIBOR + 4.50%		9.4	%	0.5	%	2/22/2019	8/10/2023	57,221,615		57,496,677		57,133,997		35,023,140		17.1	%
330 Tryon DE LLC (11)	US - NC	Mixed-use	Term SOFR+ 4.25% (0.1% Floor)		9.1	%	0.5	%	2/7/2019	3/1/2024	22,800,000		22,903,981		22,743,319		13,941,655		6.8	%
AGRE DCP Palm Springs, LLC (11)	US - CA	Hotel - full/ select service	LIBOR +5.0% (1.8% Floor)		9.9	%	1.5	%	12/12/2019	1/1/2024	43,222,382		43,793,356		43,265,735		26,521,896		12.9	%
AARSHW Property LLC (12)(13)	US - NJ	Industrial	SOFR +7.5% (0.15% Floor)		12.1	%	0.9	%	3/7/2022	8/17/2024	52,238,626		52,673,845		53,193,387		32,607,546		15.8	%
AAESUF Property LLC (12)	US - NJ	Land	SOFR + 11.95% (0.05% Floor)		16.6	%	5%-10%		3/15/2022	3/1/2024	18,652,873		19,247,035		19,680,057		12,063,875		5.9	%
American Gilsonite Company	US - UT	Infrastructure	14.0	%	14.0	%	1.0	%	8/31/2021	8/31/2023	21,250,000		21,698,452		21,459,603		13,154,737		6.4	%
Dallas - Big Town Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		9.3	%	1.0	%	12/28/2022	12/27/2025	26,846,281		27,053,620		27,053,620		16,583,869		8.0	%
Dallas - Oakland Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		9.3	%	1.0	%	12/28/2022	12/27/2025	9,750,265		9,825,568		9,825,568		6,023,073		2.9	%
Dallas - US HWY 80 Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		9.3	%	1.0	%	12/28/2022	12/27/2025	11,485,482		11,574,187		11,574,187		7,094,977		3.4	%
Dallas - 11333 Pagemill Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		9.3	%	1.0	%	12/28/2022	12/27/2025	12,394,405		12,490,129		12,490,129		7,656,449		3.7	%
Dallas - 11221 Pagemill Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		9.3	%	1.0	%	12/28/2022	12/27/2025	7,684,531		7,743,880		7,743,880		4,746,998		2.3	%
Fourth Street's Kingswood, LLC (14)	US - WA	Multifamily	Term SOFR + 7.75% (4.25% Floor)		12.6	%	1.0	%	3/24/2023	3/24/2026	2,594,879		2,218,577		2,612,628		1,601,541		0.8	%
Grandview’s Madison Place, LLC (15)	US - WA	Multifamily	Term SOFR + 4.45% (0.05% Floor)		9.3	%	0.8	%	2/10/2022	2/10/2025	17,000,000		17,107,426		17,130,108		10,500,756		5.1	%
Grandview’s Remington Place, LLC (15)	US - WA	Multifamily	Term SOFR + 4.45% (0.05% Floor)		9.3	%	0.5	%	4/22/2022	4/22/2024	23,100,000		23,201,857		23,205,196		14,224,785		6.9	%
Hillsborough Owners LLC	US - NC	Mixed-use	LIBOR + 8.0% (0.25% Floor)		12.9	%	1.0	%	10/27/2021	11/1/2023	21,371,046		21,698,013		21,510,612		13,186,005		6.4	%
Mesa AZ Industrial Owner, LLC (4)(12)	US - AZ	Land	Term SOFR + 12.7% (2.3% Floor)		17.5	%	1.0	%	9/15/2022	9/14/2023	31,000,000		31,288,062		31,288,061		19,179,581		9.3	%

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

March 31, 2023 (Unaudited) and December 31, 2022

Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2023 (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 mortgage (continued)s:
NB Factory TIC 1, LLC (15)	US - UT	Student housing	Term SOFR + 5.0% (0.25% Floor)	9.8	%	3.3	%	8/16/2021	3/5/2024	$	28,000,000	$	28,823,787	$	28,908,756	$	17,721,067	8.6	%
Patrick Henry Recovery Acquisition, LLC (11)	US - CA	Office	LIBOR +2.95% (1.5% Floor)	7.8	%	0.3	%	11/25/2019	12/1/2023	$	18,000,000	$	18,042,414	$	17,873,381	$	10,956,383	5.3	%
The Lux Washington, LLC (12)	US - WA	Multifamily	LIBOR + 7.0% (0.75% floor)	11.9	%	1.0	%	7/22/2021	1/22/2024	20,681,402		20,906,598		20,984,329		12,863,394		6.2	%
University Park Berkeley, LLC (12)	US - CA	Multifamily	Term SOFR + 5.50% (4.00% Floor)	10.3	%	1.0	%	3/30/2023	10/5/2024	27,200,000		27,561,204		27,544,664		16,884,879		8.2	%
										473,858,731		478,713,612		477,221,217		292,536,606		142.0	%
Total gross loans held for investment										632,832,672		638,600,366		612,325,188		375,355,341		182.2	%
Obligations under participation agreements (4)(5)										(13,106,844)		(13,209,982)		(13,209,983)		(8,097,720)		(3.9)	%
Allowance for credit losses										—		(28,651,577)		—		—		—	%
Net loans held for investment										$	619,725,828	$	596,738,807	$	599,115,205	$	367,257,621	178.3	%


Operating real estate:
Description	Acquisition Date		Fair Value of Real Estate (1)		Encumbrance		Net Investment		Pro Rata Net Investment (2)		% (3)(17)
Multi-tenant office building in Santa Monica, CA (16)	7/30/2018		$	52,500,000	$	29,252,308	$	23,247,692	$	14,250,835	6.9		%
Industrial buildings in Dallas/Fort Worth, TX	3/24/2023		48,798,273		32,100,000		16,698,273		10,236,041		5.0		%
			$101,298,273		$61,352,308		$39,945,965		$24,486,876		11.9		%

Portfolio Company	Dividend Yield		Acquisition Date		Maturity Date		Shares		Cost		Fair Value			Pro Rata Fair Value (2)		% (3)
Marketable securities (18):
Corporate Bonds
Terra Property Trust, Inc. Corporate Bonds	6.0	%	Various		6/30/2026		7,398		$	136,265	$	154,544		$	94,736	0.05	%

Portfolio Company	Coupon Rate		Acquisition Date		Maturity Date		Shares		Cost		Fair Value			Pro Rata Fair Value (2)		% (3)
Held-to-maturity debt securities (18)
Corporate Bonds
KKR Real Estate Finance Trust 6.125% 15May2023 bonds	6.125	%	Q1 2023		05/15/2023		200,000		$	20,025,024	$19,800,000			$	12,137,400	5.9	%

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

March 31, 2023 (Unaudited) and December 31, 2022


Equity investments:
Portfolio Company	Ownership Interest	Cost		Fair Value		Pro Rata Fair Value (2)		% (3)
Mavik Real Estate Special Opportunities Fund, LP - limited partnership interest (19)	23.4%	$	28,636,905	$	28,057,849	$	17,199,461	8.3	%
LEL Arlington JV LLC - limited liability member units (20)	27.2%	6,885,336		7,483,563		4,587,424		2.2	%
LEL NW 49th JV LLC - limited liability member units (20)	27.2%	1,607,801		2,519,781		1,544,626		0.7	%
TCG Corinthian FL Portfolio JV LLC (20)	34.0%	6,370,863		7,426,291		4,552,316		2.2	%
SF-Dallas Industrial, LLC (21)	N/A	10,065,935		10,065,935		6,170,418		3.0	%
		$	53,566,840	$	55,553,419	$	34,054,245	16.4	%

__________________________

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

(2)Amount represents the Company’s portion, or 61.3%, of the fair value or net investment value.

(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $206.1 million at March 31, 2023.

(4)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to a third party.

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

(6)Terra Property Trust purchased a portion of the interest in this loan from Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party real estate investment trust managed by Terra REIT Advisors, via a participation agreement.

(7)This loan is currently in maturity default. For the three months ended March 31, 2023, Terra Property Trust suspended interest income accrual of $2.3 million on this loan because recovery of such income was doubtful. As of March 31, 2023, Terra Property Trust recorded an allowance for credit losses of $11.2 million on the loan as a result of a decline in the fair value of the collateral.

(8)For the three months ended March 31, 2023, Terra Property Trust suspended interest income accrual of $0.9 million on this loan because recovery of such income was doubtful. Additionally, the fair value of the loan declined as a result of a decline in the fair value of the collateral. As of March 31, 2023, Terra Property Trust recorded an allowance for credit losses of $12.9 million on the loan as a result of a decline in the fair value of the collateral.

(9)This loan is in maturity default. Terra Property Trust initiated a litigation to seek full repayment of the loan from the sponsor. For the three months ended March 31, 2023, Terra Property Trust suspended interest income accrual of $0.2 million on this loan because recovery of such income was doubtful.

(10)This loan is classified as a troubled debt restructuring. Terra Property Trust does not anticipate a full recovery of the remaining principal balance, as such, the loan is fully reserved.

(11)These loans were used as collateral for $101.9 million of borrowings under a repurchase agreement.

(12)These loans were used as collateral for $125.0 million of borrowings under a revolving line of credit.

(13)Amount included $4.0 million of incremental borrowing that bears interest at an annual rate of 20.0% until certain conditions are met, at which time the interest rate will be the same as the original loan.

(14)Terra Property Trust is committed to fund up to $39.0 million of first mortgage as well as $3.0 million of subordinated loan. The subordinated loan bears interest at an annual rate of Term SOFR plus 12.0% with a Term SOFR floor of 4.25%.

(15)These loans were used as collateral for $51.1 million of borrowings under a repurchase agreement.

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

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

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

(19)On August 3, 2020, Terra Property Trust entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) whereby Terra Property Trust committed to fund up to $50.0 million to purchase a limited partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of March 31, 2023, the unfunded commitment was $30.3 million.

(20)As of March 31, 2023, Terra Property Trust beneficially owned equity interest in three joint ventures that invest in real estate properties.

(21)On December 28, 2022, Terra Property Trust originated a $10.0 million mezzanine loan to a borrower to finance the acquisition of a real estate portfolio. Additionally, Terra Property Trust entered into a residual profit sharing agreement with the borrower where the borrower will pay Terra Property Trust an additional amount of 35.0% of remaining net cash flow from the sale of the real estate portfolio. Terra Property Trust accounts for this arrangement using the equity method of accounting.

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Schedule of Investment (Continued)

March 31, 2023 (Unaudited) and December 31, 2022

The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, 2022:


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	%	—	%	9/21/2017	9/6/2027	$	7,000,000	$	7,000,000	$	6,638,219	$	4,069,228	1.9	%
610 Walnut Investors LLC (4)(5)	US - CA	Office	Term SOFR + 12.0% (2.0% Floor)		16.4	%	1.0	%	8/30/2022	9/7/2024	18,625,738		18,738,386		18,767,281		11,504,343		5.5	%
Dwight Mezz II, LLC	US - CA	Student housing	11.0	%	11.0	%	—	%	5/11/2017	5/6/2027	3,000,000		2,916,369		2,914,042		1,786,308		0.9	%
Havemeyer TSM LLC (6)	US - NY	Mixed-use	15.0	%	15.0	%	1.0	%	12/18/2020	3/1/2023	3,282,208		3,313,813		3,315,293		2,032,275		1.0	%
UNJ Sole Member, LLC (6)	US - CA	Mixed-use	15.0	%	15.0	%	1.0	%	11/24/2021	6/1/2027	7,444,357		7,482,547		7,371,101		4,518,485		2.2	%
											39,352,303		39,451,115		39,005,936		23,910,639		11.5	%
Preferred equity investments:
370 Lex Part Deux, LLC (7)	US - NY	Office	LIBOR + 8.25% (2.44% Floor)		12.6	%	—	%	12/17/2018	7/9/2022	67,586,792		67,586,792		56,338,079		34,535,242		16.5	%
Ann Street JV LLC	US - GA	Multifamily	14.0	%	14.0	%	1.0	%	11/12/2021	6/7/2024	15,217,540		15,648,482		15,127,126		9,272,928		4.4	%
Asano Bankers Hill, LLC	US - CA	Mixed-use	SOFR + 15.0% (0.25% Floor)		19.1	%	1.0	%	2/2/2022	7/31/2024	17,450,623		17,920,424		17,578,839		10,775,828		5.1	%
REEC Harlem Holdings Company, LLC (8)	US - NY	Mixed-use	LIBOR + 12.5%		16.9	%	—	%	3/9/2018	3/9/2023	15,983,234		15,983,234		3,090,588		1,894,530		0.9	%
RS JZ Driggs, LLC (9)	US - NY	Multifamily	12.3	%	12.3	%	1.0	%	5/1/2018	1/1/2021	4,993,245		4,993,245		4,993,245		3,060,859		1.5	%
											121,231,434		122,132,177		97,127,877		59,539,387		28.4	%
First mortgages:
14th & Alice Street Owner, LLC (10)	US - CA	Multifamily	LIBOR + 4.0% (0.25% Floor)		8.4	%	2.0	%	10/15/2021	4/15/2023	1,364,944		1,364,944		—		—		—
1389 Peachtree St, LP; 1401 Peachtree St, LP; 1409 Peachtree St, LP (11)	US - GA	Office	LIBOR + 4.50%		8.9	%	0.5	%	2/22/2019	8/10/2023	57,184,178		57,453,482		56,844,322		34,845,569		16.7	%
330 Tryon DE LLC (11)	US - NC	Office	Term SOFR+ 4.25% (0.1% Floor)		8.6	%	0.5	%	2/7/2019	3/1/2024	22,800,000		22,902,215		22,687,235		13,907,275		6.6	%
AGRE DCP Palm Springs, LLC (11)	US - CA	Hotel - full/ select service	LIBOR +5.0% (1.8% Floor)		9.4	%	1.5	%	12/12/2019	1/1/2024	43,222,382		43,758,804		43,062,933		26,397,578		12.6	%
AARSHW Property LLC (12)(13)	US - NJ	Industrial	SOFR +7.5% (0.15% Floor)		11.6	%	0.9	%	3/7/2022	8/17/2024	44,368,331		44,669,513		44,702,632		27,402,713		13.0	%
AAESUF Property LLC (11)	US - NJ	Land	SOFR + 11.95% (0.05% Floor)		16.0	%	5%-10%		3/15/2022	3/1/2024	17,860,291		18,288,969		18,587,586		11,394,190		5.4	%

See notes to unaudited financial statements.

Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2022 (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 (Continued):
American Gilsonite Company	US - UT	Infrastructure	14.0	%	14.0	%	1.0	%	8/31/2021	8/31/2023	$	21,250,000	$	21,840,359	$	21,443,528	$	13,144,883	6.3	%
Dallas - Big Town Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		8.9	%	1.0	%	12/28/2022	12/27/2025	26,635,183		26,838,830		26,838,830		16,452,203		7.8	%
Dallas - Oakland Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		8.9	%	1.0	%	12/28/2022	12/27/2025	9,673,597		9,747,559		9,747,559		5,975,254		2.8	%
Dallas - US HWY 80 Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		8.9	%	1.0	%	12/28/2022	12/27/2025	11,395,169		11,482,294		11,482,294		7,038,646		3.4	%
Dallas - 11333 Pagemill Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		8.9	%	1.0	%	12/28/2022	12/27/2025	12,296,945		12,390,965		12,390,965		7,595,662		3.6	%
Dallas - 11221 Pagemill Owner, LLC (12)	US - TX	Industrial	Term SOFR + 4.5% (2.5% Floor)		8.9	%	1.0	%	12/28/2022	12/27/2025	7,624,106		7,682,398		7,682,398		4,709,310		2.2	%
Grandview’s Madison Place, LLC (14)	US - WA	Multifamily	Term SOFR + 4.45% (0.05% Floor)		8.8	%	0.8	%	2/10/2022	2/10/2025	17,000,000		17,105,928		17,105,928		10,485,934		5.0	%
Grandview’s Remington Place, LLC (14)	US - WA	Multifamily	Term SOFR + 4.45% (0.05% Floor)		8.8	%	0.5	%	4/22/2022	4/22/2024	23,100,000		23,199,620		23,203,343		14,223,649		6.8	%
Hillsborough Owners LLC	US - NC	Mixed-use	LIBOR + 8.0% (0.25% Floor)		12.4	%	1.0	%	10/27/2021	11/1/2023	20,720,028		21,138,947		20,947,571		12,840,861		6.1	%
Mesa AZ Industrial Owner, LLC (4)(12)	US - AZ	Land	Term SOFR + 12.7% (2.3% Floor)		17.1	%	1.0	%	9/15/2022	9/14/2023	31,000,000		31,276,468		31,276,468		19,172,475		9.1	%
NB Factory TIC 1, LLC (14)	US - UT	Student housing	LIBOR + 5.0% (0.25% Floor)		9.4	%	3.3	%	8/16/2021	3/5/2023	28,000,000		28,857,892		28,902,234		17,717,069		8.4	%
Patrick Henry Recovery Acquisition, LLC (11)	US - CA	Office	LIBOR +2.95% (1.5% Floor)		7.3	%	0.3	%	11/25/2019	12/1/2023	18,000,000		18,041,782		17,824,300		10,926,296		5.2	%
The Lux Washington, LLC (12)	US - WA	Multifamily	LIBOR + 7.0% (0.75% floor)		11.4	%	1.0	%	7/22/2021	1/22/2024	16,571,267		16,722,091		16,882,333		10,348,870		4.9	%
University Park Berkeley, LLC (11)	US - CA	Multifamily	LIBOR + 5.5% (4.0% Floor)		8.6	%	0.8	%	2/27/2020	3/1/2023	26,342,468		26,536,122		26,472,938		16,227,911		7.7	%
											456,408,889		461,299,182		458,085,397		280,806,348		133.6	%

See notes to unaudited financial statements.

Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2022 (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:
Credit facility:
William A. Shopoff & Cindy L. Shopoff (15)	US - CA	Industrial	15.0	%	15.0	%	1.0	%	10/4/2021	4/4/2023	$	28,802,833	$	29,080,183	$	28,926,544	$	17,731,971	8.4	%
											28,802,833		29,080,183		28,926,544		17,731,971		8.4	%
Total gross loans held for investment											645,795,459		651,962,657		623,145,754		381,988,345		181.9	%
Obligations under participation agreements (4)(5)											(12,584,958)		(12,680,594)		(12,680,595)		(7,773,205)		(3.7)	%
Allowance for credit losses											—		(25,471,890)		—		—		—	%
Net loans held for investment											$	633,210,501	$	613,810,173	$	610,465,159	$	374,215,140	178.2	%


Operating real estate:
Description	Acquisition Date		Fair Value of Real Estate (1)		Encumbrance		Net Investment		Pro Rata Net Investment (2)		% (3)(17)
Multi-tenant office building in Santa Monica, CA (16)	7/30/2018		$	52,500,000	$	29,252,308	$	23,247,692	$	14,250,835	6.8		%

Portfolio Company	Dividend Yield		Acquisition Date		Maturity Date		Shares		Cost		Fair Value			Pro Rata Fair Value (2)		% (3)
Marketable securities (18):
Corporate Bonds
Terra Property Trust, Inc. Corporate Bonds	6.0	%	Various		6/30/2026		7,398		$	136,265	$	147,960		$	90,699	0.04	%
Total marketable securities									$	136,265	$	147,960		$	90,699	0.04	%

Equity investments:
Portfolio Company							Ownership Interest		Cost		Fair Value			Pro Rata Fair Value (2)		% (3)
Mavik Real Estate Special Opportunities Fund, LP - limited partnership interest (19)							27.9%		$	36,794,674	$	35,718,022		$	21,895,147	10.4	%
LEL Arlington JV LLC - limited liability member units (20)							27.2%		7,271,603		7,483,563			4,587,424		2.2	%
LEL NW 49th JV LLC - limited liability member units (20)							27.2%		1,521,556		2,519,781			1,544,626		0.7	%
TCG Corinthian FL Portfolio JV LLC (20)							34.0%		6,896,816		7,426,291			4,552,316		2.2	%
SF-Dallas Industrial, LLC (21)							N/A		10,013,691		10,013,691			6,138,393		2.9	%
									$	62,498,340	$	63,161,348		$	38,717,906	18.4	%

See notes to unaudited financial statements.

__________________________

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

(2)Amount represents the Company’s portion, or 61.3%, of the fair value or net investment value.

(3)Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $210.0 million at December 31, 2022.

(4)Terra Property Trust sold a portion of its interest in this loan through a participation agreement to a third party.

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

(7)This loan is currently in maturity default. For the year ended December 31, 2022, Terra Property Trust suspended interest income accrual of $3.7 million on this loan because recovery of such income was doubtful. As of December 31, 2022, Terra Property Trust recorded a specific allowance for credit losses of $11.2 million on the loan as a result of a decline in the fair value of the collateral.

(8)For the year ended December 31, 2022, Terra Property Trust suspended interest income accrual of $2.9 million on this loan because recovery of such income was doubtful. Additionally, the fair value of the loan declined as a result of a decline in the fair value of the collateral. As of December 31, 2022, Terra Property Trust recorded a specific allowance for credit losses of $12.9 million on the loan as a result of a decline in the fair value of the collateral.

(9)This loan is in maturity default. Terra Property Trust initiated a litigation to seek full repayment of the loan from the sponsor. For the year ended December 31, 2022, Terra Property Trust suspended interest income accrual of $2.0 million on this loan because recovery of such income was doubtful.

(10)This loan is classified as a trouble debt restructuring. Terra Property Trust does not anticipate a full recovery of the remaining principal balance, as such, the loan is fully reserved.

(11)These loans were used as collateral for $119.8 million of borrowings under a repurchase agreement.

(12)These loans were used as collateral for $90.1 million of borrowings under a revolving line of credit.

(14)These loans were used as collateral for $51.1 million of borrowings under a repurchase agreement.

(15)Amount included $3.0 million of incremental borrowing that bears interest at an annual rate of Term SOFR plus 7.0% with a SOFR floor of 4.30%.

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

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

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

(19)On August 3, 2020, Terra Property Trust entered into a subscription agreement with RESOF whereby Terra Property Trust committed to fund up to $50.0 million to purchase a limited partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of December 31, 2022, the unfunded commitment was $22.4 million.

(20)As of December 31, 2022, Terra Property Trust beneficially owned equity interest in three joint ventures that invest in real estate properties.

See notes to unaudited financial statements.

Terra Secured Income Fund 5, LLC

Notes to Financial Statements (Unaudited)

March 31, 2023

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 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 investment 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 investment 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 “Mergers”). Following the Mergers, the Company contributed the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust, a newly-formed and wholly-owned subsidiary of the Company that elected to be taxed as a REIT, in exchange for the shares of common stock of Terra Property Trust. Upon completion of the Mergers, the Company became the parent company of Terra Funds 1 through 4 and the direct and indirect sole common stockholder of, and began conducting substantially all of its real estate lending business through, Terra Property Trust.

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, LLC (“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.

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 could occur as early as this year and may include an orderly liquidation of its assets or an alternative liquidity event such as a strategic business combination, 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 October 1, 2022 (the “Closing Date”), pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Terra BDC Merger Agreement”), Terra Income Fund 6, Inc. (“Terra BDC”) merged with and into Terra Income Fund 6, LLC, a wholly owned subsidiary of Terra Property Trust (“Terra LLC”), with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as a wholly owned subsidiary of Terra Property Trust (Note 4). As of March 31, 2023, Terra JV, former shareholders of Terra BDC and Terra Offshore REIT held 70.0%, 19.9% and 10.1% of the issued and outstanding shares of Terra Property Trust’s common stock, respectively, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV (Note 4). Accordingly, as of March 31, 2023, the Company indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust through Terra JV. The Company

Notes to Unaudited Financial Statements

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).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include all of the Company’s accounts. 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. Actual results may ultimately differ from those estimates, and those differences could be material.

Equity Investment in Terra JV

Equity investment in Terra JV represents the Company’s equity interest in Terra JV, which was initially recorded at cost. Subsequent to the asset contribution, the equity investment is reported, at each reporting date, at fair value on the 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.

Cash and Cash Equivalents

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

Income Taxes

No provision for U.S. federal and state income taxes has been made in the accompanying 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 months ended March 31, 2023 and 2022, none of the Company’s income was subject to the NYC UBT.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the 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 months ended March 31, 2023 and 2022, the Company did not incur any interest or penalties.

Notes to Unaudited Financial Statements

Although the Company files federal and state tax returns, its primary tax jurisdiction is federal. The Company’s 2019-2022 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. In July 2017, the U.K. Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delayed to June 30, 2023. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 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”). In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”). ASU 2022-06 deferred the sunset date of ASU 2020-04 to December 31, 2024. In the event LIBOR is unavailable, Terra Property Trust’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put the Terra Property Trust in substantially the same economic position as LIBOR. As a result, the Company does not expect the reference rate reform and the adoption of ASU 2020-04 and ASU 2021-01 to have a material impact on its financial statements and disclosures.

Note 3. Investment and Fair Value

Equity Investment in Terra JV

The Company invested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust. As of both March 31, 2023 and December 31, 2022, Terra JV held 70.0% of the issued and outstanding shares of Terra Property Trust’s common stock, 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 March 31, 2023 and December 31, 2022:


	March 31, 2023						December 31, 2022
Investment	Cost		Fair Value		% of Members’ Capital		Cost		Fair Value		% of Members’ Capital
87.6% interest in Terra JV, LLC	$	212,539,131	$	206,205,820	100.1	%	$	215,070,522	$	210,008,457	100.0	%

For the three months ended March 31, 2023 and 2022, the Company received $2.8 million and $3.0 million of distributions from Terra JV, of which $2.5 million and $2.2 million were returns of capital, respectively.

Notes to Unaudited Financial Statements

As of both March 31, 2023 and December 31, 2022, the Company indirectly beneficially owned 61.3% of the outstanding shares of common stock of Terra Property Trust (Note 4). The following tables present the summarized financial information of Terra Property Trust:


	March 31, 2023		December 31, 2022
Carrying value of loans held for investment	$	609,948,789	$	626,490,767
Equity investment in unconsolidated investments	53,566,840		62,498,340
Real estate owned, net	101,434,025		49,228,687
Cash, cash equivalent and restricted cash	37,052,471		36,469,592
Other assets	56,479,090		38,649,506
Total assets	858,481,215		813,336,892
Term loan payable, unsecured notes payable, obligations under participation agreements, repurchase agreement payable, mortgage loan payable, revolving line of credit and secured borrowing	(492,469,492)		(442,811,751)
Accounts payable, accrued expenses and other liabilities	(40,312,347)		(39,996,127)
Lease intangible liabilities	(12,668,367)		(8,646,840)
Total liabilities	(545,450,206)		(491,454,718)
Total equity	$	313,031,009	$	321,882,174


	Three Months Ended March 31,
		2023		2022
Revenues		$	17,002,171	$	12,112,270
Expenses		(16,024,416)		(14,241,581)
Equity (loss) income from unconsolidated investments		(436,860)		1,419,335
Other gains and losses		6,584		(47,911)
Net income (loss)		$	547,479	$	(757,887)

Fair Value Measurements

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

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

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

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments is 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

Notes to Unaudited Financial Statements

financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Assets and Liabilities Reported at Fair Value

The following tables summarize the Company’s equity investment at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Investment:
Equity investment in Terra JV	$	—	$	—	$	206,205,820	$	206,205,820


	December 31, 2022
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Investment:
Equity investment in Terra JV	$	—	$	—	$	210,008,457	$	210,008,457

Changes in Level 3 investment for the three months ended March 31, 2023 and 2022 were as follows:


	Equity Investment in Terra JV
	Three Months Ended March 31,
	2023		2022
Beginning balance	$	210,008,457	$	217,324,720
Return of capital	(2,531,391)		(2,221,551)
Net change in unrealized (depreciation) appreciation on investment	(1,271,246)		1,018,522
Ending balance	$	206,205,820	$	216,121,691
Net change in unrealized (depreciation) appreciation on investment for the period relating to those Level 3 assets that were still held by the Company	$	(1,271,246)	$	1,018,522

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

The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at March 31, 2023 and December 31, 2022 due to their short-term nature.

Valuation Process for Fair Value Measurement

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

Notes to Unaudited Financial Statements

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

The Manager designates a valuation committee to oversee the entire valuation process of 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 March 31, 2023 and December 31, 2022. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

Fair Value

Primary Valuation Technique

Unobservable Inputs

March 31, 2023

Asset Category

Minimum

Maximum

Weighted Average

Assets:

Equity investment in Terra JV

206,205,820

Discounted cash flow (1)(2)

Discount rate (1)(2)

5.67

18.95

17.98


	Fair Value		Primary Valuation Technique	Unobservable Inputs	December 31, 2022
Asset Category					Minimum		Maximum		Weighted Average
Assets:
Equity investment in Terra JV	$	210,008,457	Discounted cash flow (1)(2)	Discount rate (1)(2)	5.22	%	18.51	%	16.80	%

_______________

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

(2)The fair value of Terra Property Trust’s investment in an office building is determined using the direct capitalization method with capitalization rate ranges from 6.00% to 6.25% as of both March 31, 2023 and December 31, 2022. The fair value of Terra Property Trust’s investment in three industrial buildings are based on the purchase price.

Risks and Uncertainties

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

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

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 March 31, 2023 and 2022, the Company received $2.8 million and $3.0 million of distributions from Terra JV, of which $2.5 million and $2.2 million were returns of capital, respectively.

Notes to Unaudited Financial Statements

BDC Merger

On the Closing Date, pursuant to the Terra BDC Merger Agreement, Terra BDC merged with and into Terra LLC, with Terra LLC surviving as a wholly owned subsidiary of Terra Property Trust. The Certificate of Merger and Articles of Merger with respect to the BDC Merger were filed with the Secretary of State of the State of Delaware and State Department of Assessments and Taxation of Maryland, respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the Closing Date (the “Effective Time”).

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

Pursuant to the terms of the transactions described in the Terra BDC Merger Agreement, approximately 4,847,910 shares of TPT Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date. Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9% of the common equity of Terra Property Trust and the Company indirectly beneficially owned approximately 61.3% of the common equity of Terra Property Trust.

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 March 31, 2023 and December 31, 2022, the Company had 6,622.2 units outstanding. The net asset value per unit was $31,118 and $$31,710 as of March 31, 2023 and December 31, 2022, respectively.

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 Funds 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 Mergers is 8.5%.

For the three months ended March 31, 2023 and 2022, the Company made total distributions to non-managing members of $2.7 million and $3.0 million, respectively. For the three months ended March 31, 2023 and 2022, the Company did not accrue or 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 March 31, 2023 and December 31, 2022, no such reserve was established. For the three months ended March 31, 2023 and 2022, the Company did not redeem any units.

Allocation of Income (Loss)

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

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 three months ended March 31, 2023 and 2022. These financial highlights consist of the operating performance, the internal rate of return (“IRR”) since inception of the Company, and the expense and net investment income ratios which are annualized except for the non-recurring expenses.

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

The following summarizes the Company’s financial highlights for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023			2022
Per unit operating performance:
Net asset value per unit, beginning of period	$	31,710		$	32,860
(Decrease) increase in members’ capital from operations (1):
Net investment income	12			95
Net change in unrealized (depreciation) appreciation on investment	(192)			153
Total (decrease) increase in members’ capital from operations	(180)			248
Distributions to members (2):
Capital distributions	(412)			(449)
Net decrease in members’ capital resulting from distributions	(412)			(449)
Net asset value per unit, end of period	$	31,118		$	32,659

Ratios to average net assets:
Expenses	0.40		%	0.23		%
Net investment income	0.15		%	1.13		%

IRR, beginning of period	4.65		%	4.91		%
IRR, end of period	4.50		%	4.86		%

._______________

(1)The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,622.3 and 6,636.6 for the three months ended March 31, 2023 and 2022.

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

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;

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

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

•the availability of attractive risk-adjusted investment opportunities in our target asset class and other real estate-related investments that satisfy our 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 our “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 Property Trust, Inc. (“Terra Property Trust”); Terra Income Fund 6, LLC (formerly Terra Merger Sub, LLC), Terra Property Trust’s wholly owned subsidiary (“Terra LLC”); Terra Income Fund 6, Inc. (“Terra BDC”); Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC (“Terra Fund 7”); Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”); Mavik Real Estate Special Opportunities Fund, LP (“RESOF”); or any of their affiliates;

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

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

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

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

•the degree and nature of our competition.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-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, 2022 and in “Part II - Item 1A. Risk Factors” in this quarterly report on Form 10-Q. Other factors that could cause actual results to differ materially include:

•changes in the economy;

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

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

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Members are advised to consult any additional disclosures that we may make directly to members or through reports that we may file in the future with the Securities and Exchange Commission, 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 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 in this size range are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. We were formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. We make substantially all of our investments, and conduct substantially all of our real estate lending business, through 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 investment 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 investment objectives.

On January 1, 2016, Terra Secured Income Fund, LLC (“Terra Fund”), Terra Fund Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) merged with and into our subsidiaries (collectively, the “Terra Funds”) through a series of separate mergers (collectively, the “Mergers”). Following the Mergers, we contributed the consolidated portfolio of our net assets and the net assets of the Terra Funds to Terra Property Trust in exchange for all of the shares of common stock of Terra Property Trust. We elected to engage

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

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

Recent Developments

BDC Merger

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

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

Pursuant to the terms of the transactions described in the Terra BDC Merger Agreement, approximately 4,847,910 shares of TPT Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date. Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9% of the common equity of Terra Property Trust and we indirectly beneficially owned approximately 61.3% of the common equity of Terra Property Trust.

Portfolio Summary

The following tables provide a summary of Terra Property Trust’s net loan portfolio as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	Fixed Rate			Floating Rate (1)(2)(3)			Total Gross Loans			Obligations under Participation Agreements			Total Net Loans
Number of loans	6			24			30			1			30
Principal balance	$	59,726,205		$	573,106,467		$	632,832,672		$	13,106,844		$	619,725,828
Amortized cost	60,121,950			549,826,839			609,948,789			13,209,982			596,738,807
Fair value	59,314,040			553,011,148			612,325,188			13,209,983			599,115,205
Weighted average coupon rate	13.17		%	11.78		%	11.92		%	16.80		%	11.81		%
Weighted-average remaining term (years)	1.71			1.03			1.09			1.44			1.09


	December 31, 2022
	Fixed Rate			Floating Rate (1)(2)(3)			Total Gross Loans			Obligations under Participation Agreements			Total Net Loans
Number of loans	8			23			31			1			31
Principal balance	$	90,990,183		$	554,805,276		$	645,795,459		$	12,584,958		$	633,210,501
Amortized cost	92,274,998			534,215,769			626,490,767			12,680,594			613,810,173
Fair value	90,729,098			532,416,656			623,145,754			12,680,595			610,465,159
Weighted average coupon rate	13.82		%	11.23		%	11.59		%	16.36		%	11.50		%
Weighted-average remaining term (years)	1.35			1.10			1.14			1.69			1.13

_______________

(1)These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”) plus a fixed spread. Coupon rate shown was determined using LIBOR of 4.86%, average SOFR of 4.63% and forward-looking term rate based on SOFR (“Term SOFR”) of 4.80% as of March 31, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022, respectively.

(2)As of March 31, 2023 and December 31, 2022, amount included $427.3 million and $413.1 million of senior mortgages used as collateral for $277.9 million and $261.0 million of borrowings under credit facilities, respectively.

(3)As of March 31, 2023 and December 31, 2022, 22 and 21 of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

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

Additionally, as of March 31, 2023 and December 31, 2022, Terra Property Trust owned 23.4% and 50.0%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. Terra Property Trust also beneficially owned equity interests in three joint ventures that invest in real estate properties. In 2022, in connection with a mezzanine loan Terra Property Trust originated, Terra Property Trust entered into a residual profit sharing arrangement with the borrower.

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

Portfolio Investment Activity

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

Portfolio Information

The tables below 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.


	March 31, 2023								December 31, 2022
Investment Structure	Principal Balance		Amortized Cost		Fair Value		% of Total		Principal Balance		Amortized Cost		Fair Value		% of Total
First mortgages	$	473,858,731	$	478,713,612	$	477,221,217	61.4	%	$	456,408,889	$	461,299,182	$	458,085,397	63.1	%
Preferred equity investments	122,131,455		122,948,116		98,599,646		12.7	%	121,231,434		122,132,177		97,127,877		13.4	%
Mezzanine loans	23,735,642		23,728,656		23,294,342		3.0	%	26,767,345		26,770,521		26,325,341		3.6	%
Credit facility	—		—		—		—	%	28,802,833		29,080,183		28,926,544		4.0	%
Allowance for credit losses	—		(28,651,577)		—		—	%	—		(25,471,890)		—		—	%
Total loan investments	$	619,725,828	596,738,807		599,115,205		77.1	%	$	633,210,501	613,810,173		610,465,159		84.1	%
Marketable securities			136,265		154,544		—	%			136,265		147,960		—	%
Real estate owned			88,765,658		101,298,273		13.1	%			40,581,847		52,500,000		7.2	%
Held-to-maturity debt securities			20,025,024		19,800,000		2.6	%			—		—		—	%
Equity investment in unconsolidated Investments			53,566,840		55,553,419		7.2	%			62,498,340		63,161,348		8.7	%
Total			$	759,232,594	$	775,921,441	100.0	%			$	717,026,625	$	726,274,467	100.0	%


	March 31, 2023								December 31, 2022
Property Type	Principal Balance		Amortized Cost		Fair Value		% of Total		Principal Balance		Amortized Cost		Fair Value		% of Total
Office	$	149,099,692	$	149,449,419	$	137,686,248	17.6	%	$	171,611,750	$	172,042,063	$	159,780,622	22.0	%
Industrial	127,399,590		128,361,229		128,472,717		16.5	%	147,796,164		148,891,742		148,409,441		20.4	%
Multifamily	112,973,073		113,781,434		112,377,812		14.5	%	104,589,464		105,570,432		103,784,913		14.3	%
Mixed use	85,128,218		86,026,507		73,079,668		9.4	%	64,880,450		65,838,965		52,303,392		7.2	%
Infill land	49,652,873		50,535,097		50,968,118		6.6	%	48,860,291		49,565,437		49,864,054		6.9	%
Hotel - full/select service	43,222,382		43,793,356		43,265,735		5.6	%	43,222,382		43,758,804		43,062,933		5.9	%
Student housing	31,000,000		31,744,890		31,805,304		4.1	%	31,000,000		31,774,261		31,816,276		4.4	%
Infrastructure	21,250,000		21,698,452		21,459,603		2.8	%	21,250,000		21,840,359		21,443,528		3.0	%
Allowance for credit losses	—		(28,651,577)		—		—	%	—		(25,471,890)		—		—	%
Total loan investments	$	619,725,828	596,738,807		599,115,205		77.1	%	$	633,210,501	613,810,173		610,465,159		84.1	%
Marketable securities			136,265		154,544		—	%			136,265		147,960		—	%
Real estate owned			88,765,658		101,298,273		13.1	%			40,581,847		52,500,000		7.2	%
Held-to-maturity debt securities			20,025,024		19,800,000		2.6	%			—		—		—	%
Equity investment in unconsolidated investments			53,566,840		55,553,419		7.2	%			62,498,340		63,161,348		8.7	%
Total			$	759,232,594	$	775,921,441	100.0	%			$	717,026,625	$	726,274,467	100.0	%


	March 31, 2023								December 31, 2022
Geographic Location	Principal Balance		Amortized Cost		Fair Value		% of Total		Principal Balance		Amortized Cost		Fair Value		% of Total
United States
California	$	124,783,800	$	126,179,087	$	124,501,812	16.0	%	$	151,668,387	$	153,158,967	$	150,237,383	20.8	%
New York	88,108,375		88,108,375		63,852,723		8.2	%	91,845,479		91,877,084		67,737,205		9.3	%
Georgia	72,983,863		73,647,905		72,765,284		9.4	%	72,401,718		73,101,964		71,971,448		9.9	%
New Jersey	70,891,499		71,920,880		72,873,444		9.4	%	62,228,622		62,958,482		63,290,218		8.0	%
Texas	68,160,964		68,687,384		68,687,384		8.9	%	67,625,000		68,142,046		68,142,046		9.4	%
Washington	63,376,281		63,434,458		63,932,261		8.2	%	56,671,267		57,027,639		57,191,604		7.9	%
Utah	49,250,000		50,522,239		50,368,359		6.5	%	49,250,000		50,698,251		50,345,762		6.9	%
North Carolina	44,171,046		44,601,994		44,253,931		5.7	%	43,520,028		44,041,162		43,634,806		6.0	%
Arizona	31,000,000		31,288,062		31,288,061		4.0	%	31,000,000		31,276,468		31,276,468		4.3	%
Massachusetts	7,000,000		7,000,000		6,591,946		0.8	%	7,000,000		7,000,000		6,638,219		0.9	%
Allowance for credit losses	—		(28,651,577)		—		—	%	—		(25,471,890)		—		—	%
Total loan investments	$	619,725,828	596,738,807		599,115,205		77.1	%	$	633,210,501	613,810,173		610,465,159		83.4	%
Marketable securities			136,265		154,544		—	%			136,265		147,960		—	%
Real estate owned			88,765,658		101,298,273		13.1	%			40,581,847		52,500,000		7.2	%
Held-to-maturity debt securities			20,025,024		19,800,000		2.6	%
Equity investment in unconsolidated Investments			53,566,840		55,553,419		7.2	%			62,498,340		63,161,348		8.7	%
Total			$	759,232,594	$	775,921,441	100.0	%			$	717,026,625	$	726,274,467	99.3	%

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.

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.

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.

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 months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
		2023		2022		Change
Investment income
Dividend income		$	292,254	$	758,110	$	(465,856)
Other operating income		18		11		7
Total investment income		292,272		758,121		(465,849)
Operating expenses
Professional fees		211,332		127,060		84,272
Other		1,458		1,392		66
Total operating expenses		212,790		128,452		84,338
Net investment income		79,482		629,669		(550,187)
Net change in unrealized (depreciation) appreciation on investment		(1,271,246)		1,018,522		(2,289,768)
Net (decrease) increase in members’ capital resulting from operations		$	(1,191,764)	$	1,648,191	$	(2,839,955)

Dividend Income

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

For the three months ended March 31, 2023 and 2022, we received distributions of $2.8 million and $3.0 million, or $0.19 and $0.20 per share, respectively, from Terra Property Trust, of which $0.3 million and $0.8 million was recorded as dividend income and $2.5 million and $2.2 million was recorded as return of capital, respectively.

For the three months ended March 31, 2023, Terra Property Trust recorded net income of $0.5 million, compared to a net loss of $0.8 recorded in the same period in 2022. The change in Terra Property Trust’s net income (loss) was primarily due to an increase in net interest income of $2.9 million as a result of an increase in the weighted average principal balance of net loans and an increase in the weighted average coupon rate on net loans due to new loans Terra Property Trust entered into as well as loans acquired in connection with the BDC Merge and a reversal in provision for credit losses of $0.9 million due to an improvement in macroeconomic forecasts during the period, partially offset by incremental credit losses incurred on newly originated loans. These increases in net income were partially offset by an increase of $0.9 million in fees paid and operating expenses reimbursed to Terra REIT Advisors, as a result of an increase in total assets under management, and a decrease in equity income from unconsolidated investments of $1.9 million, as a result of equity loss recognized on the joint ventures.

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 and repurchase agreement payable.

The following table presents a reconciliation of Terra Property Trust’s loan portfolio on a weighted average basis from gross to net for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023				2022
	Weighted Average Principal Amount (1)		Weighted Average Coupon Rate (2)		Weighted Average Principal Amount (1)		Weighted Average Coupon Rate (2)
Total portfolio
Gross loans	$	634,362,529	11.9	%	$	506,206,479	7.7	%
Obligations under participation agreements and secured borrowing	(12,900,803)		16.8	%	(79,023,662)		10.4	%
Repurchase agreement payable	(166,262,832)		6.7	%	(102,225,409)		2.5	%
Term loan payable	—				(42,140,886)		5.3	%
Revolving line of credit	(97,062,727)		8.1	%	(44,891,269)		4.0	%
Net loans (3)	$	358,136,167	15.2	%	$	237,925,253	10.2	%
Senior loans
Gross loans	498,798,978		11.3	%	304,278,978		6.2	%
Obligations under participation agreements and secured borrowing	—		—	%	(49,397,683)		9.9	%
Repurchase agreement payable	(166,262,832)		6.7	%	(102,225,409)		2.5	%
Term loan payable	—		—	%	(42,140,886)		5.3	%
Revolving line of credit	(97,062,727)		8.1	%	(44,891,269)		4.0	%
Net loans (3)	$	235,473,419	15.9	%	$	65,623,731	11.3	%
Subordinated loans (4)
Gross loans	135,563,551		14.0	%	201,927,501		9.6	%
Obligations under participation agreements	(12,900,803)		16.8	%	(29,625,979)		11.2	%
Net loans (3)	$	122,662,748	13.7	%	$	172,301,522	9.3	%

_______________

(1)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.

Net Change in Unrealized Appreciation on Investment

Net change in unrealized appreciation 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 March 31, 2023, we recognized net change in unrealized depreciation on investment of $1.3 million, primarily due to an increase in the trading price of Terra Property Trust’s and Terra LLC’s unsecured notes payable, partially offset by an increase in the fair value of its investments.

For the three months ended March 31, 2022, we recorded an increase in net change in unrealized appreciation on

investment of $1.0 million, primarily due to an increase in the fair value of loans Terra Property Trust originated in the current

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

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

For the three months ended March 31, 2023, we recognized net decrease in members’ capital resulting from operations of $1.2 million, compared to net increase in members capital resulting from operations of $1.6 million recognized in the same period in 2022.

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. Distributions are made at the discretion of Terra Property Trust’s board of directors and will depend upon, among other things, its actual results of operations and liquidity.

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

Summary of Financing

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


Type of Financing		Maximum Amount Available			Outstanding Balance			Amount Remaining Available			Interest Rate		Maturity Date
Fixed Rate:
Senior unsecured notes		N/A			$	85,125,000		N/A			6.00%		6/30/2026
Senior unsecured notes		N/A			38,375,000			N/A			7.00%		3/31/2026
Term loan		N/A			25,000,000			N/A			5.63%		7/1/2023
					$	148,500,000
Variable Rate:
Mortgage loan payable		N/A			$	29,252,308		N/A			Term SOFR plus 3.85% with a Term SOFR floor of 2.23%		5/31/2023
Mortgage loan payable	1173616	N/A		1,173,616	32,100,000		1,173,616	N/A		1173616	Term SOFR +3.5% (Term SOFR Floor of 3.75%	1173616	4/9/2027
Line of credit		$	125,000,000		125,000,000			$	—		Term SOFR plus 3.35% with a combined floor of 6.00%		3/12/2024
UBS repurchase agreement		195,000,000			51,050,000			143,950,000			LIBOR or Term SOFR depending on repurchased asset index plus a spread ranging from 1.60% to 2.25%		11/7/2024
GS repurchase agreement		200,000,000			101,897,394			98,102,606			Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%)		2/18/2024
		$	520,000,000		$	339,299,702		$	242,052,606

Cash Flows Provided by Operating Activities

2023 — For the three months ended March 31, 2023, cash flows provided by operating activities were $2.7 million, primarily due to $2.8 million of dividends received from Terra JV, of which $2.5 million was recorded as a return of capital.

2022 — For the three months ended March 31, 2022, cash flows provided by operating activities were $2.9 million, primarily due to $3.0 million of dividends received from Terra JV, of which $2.2 million was recorded as a return of capital.

Cash Flows used in Financing Activities

2023 — For the three months ended March 31, 2023, cash flows used in financing activities were $2.7 million, related to distributions paid to members of $2.7 million.

2022 — For the three months ended March 31, 2022, cash flows used in financing activities were $3.0 million, related to distributions paid to members of $3.0 million.

Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in conformity with United States generally accepted accounting principles, 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.

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 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’s overhead, such as rent, employee costs, utilities, and technology costs.

The following table presents a summary of fees paid and costs reimbursed to Terra REIT Advisors in the aggregate in connection with providing services to Terra Property Trust:


	Three Months Ended March 31,
		2023		2022
Origination and extension fee expense (1)(2)		$	471,448	$	686,365
Asset management fee		1,997,427		1,488,095
Asset servicing fee		470,525		349,329
Operating expenses reimbursed to Terra REIT Advisors		2,177,004		1,928,563
Disposition fee (3)		290,813		—
Total		$	5,407,217	$	4,452,352

_______________

(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)Amount for the three months ended March 31, 2023 excluded $0.5 million of origination fees paid to the Terra REIT Advisors in connection with the acquisition of the three industrial buildings in 2023. Amount for the three months ended March 31, 2022 excluded $0.2 million, of origination fees paid to Terra REIT Advisors in connection with its equity investment in an unconsolidated investment. These origination fees were capitalized to the carrying value of the

unconsolidated investment as a transaction cost.

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

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 March 31, 2023, Terra Property Trust had eight investments with an aggregate principal balance of $244.7 million, net of obligations under participation agreements, that provide for interest income at an annual rate of LIBOR plus a spread, six 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 $2.4 million, and an increase of 100 basis points in LIBOR would increase Terra Property Trust’s annual interest income, net of interest expense on participation agreements, by approximately $2.4 million. Additionally, Terra Property Trust had 16 investments with an aggregate principal balance of $316.5 million that provide for interest income at an annual rate of SOFR or Term SOFR plus a spread, all of which were subject to a SOFR or Term SOFR floor. A decrease of 100 basis points in SOFR or Term SOFR would decrease Terra Property Trust’s annual interest income by $3.2 million, and an increase of 100 basis points would increase Terra Property Trust’s annual interest income by $3.2 million.

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

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

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

We may hedge against interest rate 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 three months ended March 31, 2023 and 2022, we did not engage in interest rate hedging activities.

In addition, we may have risks regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Fair Value Measurements” 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 March 31, 2023. 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. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within our company to disclose material information otherwise required to be set forth in our periodic reports.

Changes in Internal Control Over Financial Reporting

During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under

Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

Item 1. Legal Proceedings.

From time to time, we, Terra Property Trust, Terra JV and our Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of Terra Property Trust’s rights under contracts with its portfolio companies. Additionally, as of March 31, 2023, Terra Property Trust owned a multi-tenant office building that is subject to a ground lease. The ground lease provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9% of the fair market value of the land. The next rent reset on the ground lease is scheduled for November 1, 2025. Terra Property Trust is currently litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. Terra Property Trust believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. Terra Property Trust’s position has prevailed in all three of the prior arbitrations to reset the ground rent. Terra Property Trust intends vigorously to pursue the litigation. While Terra Property Trust believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of Terra Property Trust’s interest in the ground lease and the office building.

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

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).

2.8						Agreement and Plan of Merger, dated as of May 2, 2022, by and among Terra Property Trust, Inc., Terra Income Fund 6, Inc., Terra Merger Sub, LLC, Terra Income Advisors, LLC and Terra REIT Advisors, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Terra Income Fund 6, Inc. with the SEC on May 5, 2022).
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

104						Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document)

_______________

* Filed herewith.

** Furnished herewith.

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: May 12, 2023


			TERRA SECURED INCOME FUND 5, LLC

			By:			/s/ Vikram S. Uppal
						Vikram S. Uppal
						Chief Executive Officer and Chief Investment Officer
						(Principal Executive Officer)

			By:			/s/ Gregory M. Pinkus
						Gregory M. Pinkus
						Chief Financial Officer and Chief Operating Officer,
						(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.