tpt-20200630

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 June 30, 2020


☐			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: 000-56117

Terra Property Trust, Inc.

(Exact name of registrant as specified in its charter)


Maryland						81-0963486
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

550 Fifth Avenue, 6th Floor

New York, New York 10036

(Address of principal executive offices)

(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:

Common Stock $0.01 par value per share

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 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 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	þ	Smaller reporting company	☑
		Emerging growth company	☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

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

As of August 10, 2020, the registrant had 19,487,460 shares of common stock, $0.01 par value, 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.	Consolidated Financial Statements:

	Consolidated Balance Sheets as of June 30 , 2020 (unaudited) and December 31, 2019	2

	Consolidated Statements of Operations for the three and six months ended June 30 , 2020 and 2019 (unaudited)	3

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30 , 2020 and 2019 (unaudited)	4

	Consolidated Statements of Changes in Equity for the three and six months ended June 30 , 2020 and 2019 (unaudited)	5

	Consolidated Statements of Cash Flows for the six months ended June 30 , 2020 and 2019 (unaudited)	9

	Notes to Consolidated Financial Statements (unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	58

PART II	OTHER INFORMATION	58

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3.	Defaults upon Senior Securities	61

Item 4.	Mine Safety Disclosures	61

Item 5.	Other Information	61

Item 6.	Exhibits	61

Signatures			63

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Terra Property Trust, Inc.

Consolidated Balance Sheets


	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Cash and cash equivalents	$	82,553,933	$	29,609,484
Restricted cash	18,459,391		18,542,163
Cash held in escrow by lender	1,931,976		2,398,053
Marketable securities	236,085		—
Loans held for investment, net	410,150,293		375,462,222
Loans held for investment acquired through participation, net	4,297,989		3,150,546
Real estate owned, net (Note 5)
Land, building and building improvements, net	63,966,026		64,751,247
Lease intangible assets, net	11,728,682		12,845,228
Operating lease right-of-use assets	16,109,476		16,112,925
Interest receivable	2,566,443		1,876,799
Other assets	2,231,969		2,594,411
Total assets	$	614,232,263	$	527,343,078
Liabilities and Equity
Liabilities:
Obligations under participation agreements (Note 7)	$	78,246,519	$	103,186,327
Repurchase agreement payable, net of deferred financing fees	94,571,367		79,608,437
Mortgage loan payable, net of deferred financing fees and other	44,753,239		44,753,633
Revolving credit facility payable	35,000,000		—
Interest reserve and other deposits held on investments	18,459,391		18,542,163
Operating lease liabilities	16,109,476		16,112,925
Lease intangible liabilities, net (Note 5)	11,127,360		11,424,809
Due to Manager (Note 7)	1,895,105		1,037,168
Interest payable	1,154,023		1,076,231
Accounts payable and accrued expenses	2,273,686		1,749,525
Unearned income	334,290		624,021
Other liabilities	1,078,934		1,684,106
Total liabilities	305,003,390		279,799,345
Commitments and contingencies (Note 9)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and none issued	—		—
12.5% Series A Cumulative Non-Voting Preferred Stock at liquidation preference, 125 shares authorized and 125 shares issued and outstanding at both June 30, 2020 and December 31, 2019	125,000		125,000
Common stock, $0.01 par value, 450,000,000 shares authorized and 19,487,460 and 15,125,681 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	194,875		151,257
Additional paid-in capital	373,443,672		301,727,297
Accumulated deficit	(64,534,674)		(54,459,821)
Total equity	309,228,873		247,543,733
Total liabilities and equity	$	614,232,263	$	527,343,078

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues
Interest income	$	9,585,175	$	10,805,438	$	19,237,040	$	21,014,402
Real estate operating revenue	2,251,095		2,527,256		4,564,146		4,848,494
Prepayment fee income	—		—		—		98,775
Other operating income	228,359		—		341,014		108,957
	12,064,629		13,332,694		24,142,200		26,070,628
Operating expenses
Operating expenses reimbursed to Manager	1,694,875		1,213,314		3,062,064		2,328,518
Asset management fee	1,140,426		956,985		2,169,959		1,837,340
Asset servicing fee	253,316		226,764		487,524		431,241
Provision for loan losses	169,300		—		1,314,294		—
Real estate operating expenses	871,207		764,108		1,815,725		1,519,963
Depreciation and amortization	946,494		946,494		1,892,988		1,892,988
Impairment charge	—		1,550,000		—		1,550,000
Professional fees	373,098		2,545,321		667,859		2,718,107
Directors fees	33,750		83,750		117,500		167,500
Other	267,702		75,694		332,651		93,278
	5,750,168		8,362,430		11,860,564		12,538,935
Operating income	6,314,461		4,970,264		12,281,636		13,531,693
Other income and expenses
Interest expense from obligations under participation agreements	(1,992,743)		(2,974,837)		(4,593,501)		(5,899,147)
Interest expense on repurchase agreement payable	(1,469,669)		(1,366,562)		(3,020,939)		(2,300,535)
Interest expense on mortgage loan payable	(749,753)		(782,350)		(1,500,389)		(1,562,621)
Interest expense on revolving credit facility	(599,989)		—		(774,978)		—
Net loss on extinguishment of obligations under participation agreements	—		—		(319,453)		—
Realized gains on marketable securities	1,076,213		—		1,085,107		—
Unrealized gains on marketable securities	67,522		—		67,522		—
	(3,668,419)		(5,123,749)		(9,056,631)		(9,762,303)
Net income (loss)	$	2,646,042	$	(153,485)	$	3,225,005	$	3,769,390
Preferred stock dividend declared	(3,906)		(3,906)		(7,812)		(7,812)
Net income (loss) allocable to common stock	$	2,642,136	$	(157,391)	$	3,217,193	$	3,761,578

Earnings (loss) per share — basic and diluted	$	0.14	$	(0.01)	$	0.18	$	0.25

Weighted-average shares — basic and diluted	19,555,241		14,912,990		18,131,260		14,912,990

Distributions declared per common share	$	0.23	$	0.51	$	0.76	$	1.02

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Comprehensive income, net of tax
Net income (loss)	$	2,646,042	$	(153,485)	$	3,225,005	$	3,769,390
Other comprehensive income (loss)
Net unrealized gains on marketable securities	—		—		192,919		—
Reclassification of net realized gains on marketable securities into earnings	(184,025)		—		(192,919)		—
	(184,025)		—		—		—
Total comprehensive income (loss)	$	2,462,017	$	(153,485)	$	3,225,005	$	3,769,390
Preferred stock dividend declared	(3,906)		(3,906)		(7,812)		(7,812)
Comprehensive income (loss) attributable to common shares	$	2,458,111	$	(157,391)	$	3,217,193	$	3,761,578

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Three Months Ended June 30, 2020 and 2019

(Unaudited)


	Preferred Stock		12.5% Series A Cumulative Non-Voting Preferred Stock							Common Stock							Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income
													$0.01 Par Value
				Shares			Amount		Shares			Amount										Total equity
Balance at April 1, 2020	$	—	125		$	125,000		19,700,151		197,002			377,061,545		(62,716,835)		$	184,025	$	314,850,737
Issuance of common stock (Note 3)	—		—		—			—		—			—		—		—		—
Repurchase of common stock	—		—		—			(212,691)		(2,127)			(3,617,873)		—		—		(3,620,000)
Distributions declared on common share ($0.23 per share)	—		—		—			—	—	—			—		(4,459,975)		—		(4,459,975)
Distributions declared on preferred shares	—		—		—			—	—	—			—		(3,906)		—		(3,906)
Comprehensive income:
Net income	—		—		—			—		—			—		2,646,042		—		2,646,042
Net unrealized gains on marketable securities	—		—		—			—		—			—		—		—		—
Reclassification of net realized gains on marketable securities into earnings	—		—		—			—		—			—		—		(184,025)		(184,025)
Balance at June 30, 2020	$	—	125		$	125,000		19,487,460		$	194,875		$	373,443,672	$	(64,534,674)	$	—	$	309,228,873

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Three Months Ended June 30, 2020 and 2019 (Continued)

(Unaudited)


	Preferred Stock		12.5% Series A Cumulative Non-Voting Preferred Stock							Common Stock							Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income
													$0.01 Par Value
				Shares			Amount		Shares			Amount										Total equity
Balance at April 1, 2019	$	—	125		$	125,000		14,912,990		$	149,130		$	298,109,424	$	(36,728,639)	$	—	$	261,654,915
Distributions declared on common share ($0.51 per share)	—		—		—			—		—			—		(7,626,503)		—		(7,626,503)
Distributions declared on preferred shares	—		—		—			—		—			—		(3,906)		—		(3,906)
Comprehensive income:
Net loss	—		—		—			—		—			—		(153,485)		—		(153,485)
Net unrealized gains on marketable securities	—		—		—			—		—			—		—		—		—
Reclassification of net realized gains on marketable securities into earnings	—		—		—			—		—			—		—		—		—
Balance at June 30, 2019	$	—	125		$	125,000		14,912,990		$	149,130		$	298,109,424	$	(44,512,533)	$	—	$	253,871,021

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Six Months Ended June 30, 2020 and 2019

(Unaudited)


	Preferred Stock		12.5% Series A Cumulative Non-Voting Preferred Stock							Common Stock							Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income
													$0.01 Par Value
				Shares			Amount		Shares			Amount										Total equity
Balance at January 1, 2020	$	—	125		$	125,000		15,125,681		$	151,257		$	301,727,297	$	(54,459,821)	$	—	$	247,543,733
Issuance of common stock (Note 3)	—		—		—			4,574,470		45,745			75,334,248		—		—		75,379,993
Repurchase of common stock	—		—		—			(212,691)		(2,127)			(3,617,873)		—		—		(3,620,000)
Distributions declared on common share ($0.76 per share)	—		—		—			—		—			—		(13,292,046)		—		(13,292,046)
Distributions declared on preferred shares	—		—		—			—		—			—		(7,812)		—		(7,812)
Comprehensive income:
Net income	—		—		—			—		—			—		3,225,005		—		3,225,005
Net unrealized gains on marketable securities	—		—		—			—		—			—		—		192,919		192,919
Reclassification of net realized gains on marketable securities into earnings	—		—		—			—		—			—		—		(192,919)		(192,919)
Balance at June 30, 2020	$	—	125		$	125,000		19,487,460		$	194,875		$	373,443,672	$	(64,534,674)	$	—	$	309,228,873

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Six Months Ended June 30, 2020 and 2019 (Continued)

(Unaudited)


	Preferred Stock		12.5% Series A Cumulative Non-Voting Preferred Stock							Common Stock							Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income
													$0.01 Par Value
				Shares			Amount		Shares			Amount										Total equity
Balance at January 1, 2019	$	—	125		$	125,000		14,912,990		$	149,130		$	298,109,424	$	(33,091,195)	$	—	$	265,292,359
Distributions declared on common share ($1.02 per share)	—		—		—			—		—			—		(15,182,916)		—		(15,182,916)
Distributions declared on preferred shares	—		—		—			—		—			—		(7,812)		—		(7,812)
Comprehensive income:
Net income	—		—		—			—		—			—		3,769,390