Terra Property Trust, Inc 8-K, filed Jan 20, 2023
Terra Property Trust, Inc. (TPTS)
About this 8-K
Terra Property Trust, Inc filed this 8-K on January 20, 2023.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c)) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.
| Item 7.01 | Regulation FD Disclosure. |
On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022, by and among Terra Property Trust, Inc. (the “Company”), Terra Income Fund 6, Inc. (“Terra BDC”), Terra Income Advisors, LLC, Terra REIT Advisors, LLC and Terra Income Fund 6, LLC (formerly “Terra Merger Sub, LLC”), a wholly owned subsidiary of the Company (“Terra LLC”), Terra BDC merged with and into Terra LLC, with Terra LLC continuing as the surviving entity of the merger (the “Merger”). This Current Report on Form 8-K is being furnished to provide certain pro forma financial information of the Company in connection with the Merger.
| Item 9.01. | Financial Statements and Exhibits. |
| Exhibit |
Description | |
| 99.1 | Unaudited financial statements of Terra Property Trust, Inc. as of and for the nine months ended September 30, 2022 and for the year ended December 31, 2021. | |
| 104.1 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
Signatures
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed by the undersigned hereunto duly authorized.
| TERRA PROPERTY TRUST, INC. | ||||||
| Date: January 20, 2023 | By: | /s/ Gregory M. Pinkus | ||||
| Name: | Gregory M. Pinkus | |||||
| Title: | Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary | |||||
Exhibit 99.1
TERRA PROPERTY TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
This unaudited pro forma consolidated financial information should be read in conjunction with the unaudited consolidated financial statements of Terra Property Trust, Inc. (“TPT”) and Terra Income Fund 6, Inc. (“Terra BDC”) as of and for the nine months ended September 30, 2022 and the audited consolidated financial statements of TPT and Terra BDC as of and for the year ended December 31, 2021, including the notes thereto either incorporated by reference to this filing or presented elsewhere in this filing, and other financial information and analyses, either incorporated by reference to this filing or presented elsewhere in this filing.
The unaudited pro forma consolidated financial information (i) is based on available information and assumptions that management deems reasonable; (ii) is presented for informational purposes only; (iii) does not purport to be indicative of TPT’s future results of operations or financial positions; and (iv) does not purport to represent the financial position or results of operations that would actually have occurred assuming completion of the activities and transactions described below had occurred on September 30, 2022 for the pro forma consolidated balance sheet or on January 1, 2021 for the pro forma consolidated statement of operations.
The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2022 and the year ended December 31, 2021 reflects TPT’s results as if the Merger (as defined below) occurred as of January 1, 2021. The unaudited pro forma consolidated balance sheet as of September 30, 2022 reflects TPT’s results as if the Merger occurred as of such date.
On October 1, 2022, pursuant to a certain Agreement and Plan of Merger, dated as of May 2, 2022, Terra BDC merged with and into a newly created wholly owned subsidiary of TPT, with the subsidiary being the surviving company of the merger (the “Merger”). Each issued and outstanding share of common stock, par value $0.001 per share, of Terra BDC (“Terra BDC Common Stock”) was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of TPT’s newly designated Class B Common Stock, par value $0.01 per share (“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. The aggregate value of such shares issued in the Merger plus the cash exchanged for the fractional shares and transaction costs was approximately $73.4 million, based on the net asset value per share of TPT Common Stock as of September 30, 2022 of $14.66.
TPT, as the acquirer, accounted for the Merger as an asset acquisition and all direct acquisition-related costs were capitalized to the total cost of the assets acquired and liabilities assumed. Pursuant to Accounting Standard Codification Topic 805, Business Combination, total cost was allocated to the assets acquired and liabilities assumed on a relative fair value basis. Terra BDC’s Merger related transaction costs were expensed.
Terra Property Trust, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2022
| Historical | ||||||||||||||||||||
| TPT | Terra BDC | Pro Forma Adjustments |
(Notes) | TPT Pro Forma Consolidated |
||||||||||||||||
| Assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 21,957,216 | $ | 24,321,951 | $ | — | $ | 46,279,167 | ||||||||||||
| Restricted cash |
5,521,080 | 260,614 | — | 5,781,694 | ||||||||||||||||
| Cash held in escrow by lender |
4,697,219 | — | — | 4,697,219 | ||||||||||||||||
| Loans held for investment, net |
445,320,278 | 76,311,192 | 1,251,336 | (A1) | 523,650,995 | |||||||||||||||
| 768,189 | (E) | |||||||||||||||||||
| Loans held for investment acquired through participation, net |
44,858,965 | 36,738,949 | (39,537,404 | ) | (C) | 42,114,874 | ||||||||||||||
| 54,364 | (A1) | |||||||||||||||||||
| Equity investment in unconsolidated investments |
57,071,597 | — | — | 57,071,597 | ||||||||||||||||
| Real estate owned, net |
||||||||||||||||||||
| Land, building and building improvements, net |
47,076,436 | — | — | 47,076,436 | ||||||||||||||||
| Lease intangible assets, net |
3,532,116 | — | — | 3,532,116 | ||||||||||||||||
| Deal deposit |
8,600,000 | — | — | 8,600,000 | ||||||||||||||||
| Operating lease right-of-use asset |
27,382,939 | — | 27,382,939 | |||||||||||||||||
| Interest receivable |
2,192,868 | 1,367,044 | (53,186 | ) | (C) | 3,506,726 | ||||||||||||||
| Other assets |
4,360,059 | 55,465 | (2,296,705 | ) | (A) | 2,118,819 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 672,570,773 | $ | 139,055,215 | $ | (39,813,406 | ) | $ | 771,812,582 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liabilities and Equity |
||||||||||||||||||||
| Liabilities: |
||||||||||||||||||||
| Term loan payable, net |
$ | — | $ | 24,279,081 | $ | 720,919 | (A2) | $ | 25,000,000 | |||||||||||
| Unsecured notes payable, net |
82,325,341 | 36,782,463 | (3,012,463 | ) | (A2) | 116,095,341 | ||||||||||||||
| Repurchase agreements payable, net |
193,178,309 | — | 193,178,309 | |||||||||||||||||
| Obligations under participation agreements |
36,952,837 | 6,114,979 | (43,067,816 | ) | (C) | — | ||||||||||||||
| Mortgage loan payable, net |
31,612,338 | — | 31,612,338 | |||||||||||||||||
| Revolving line of credit payable, net |
23,737,073 | — | 23,737,073 | |||||||||||||||||
| Secured borrowing |
— | — | — | |||||||||||||||||
| Interest reserve and other deposits held on investments |
5,521,080 | 260,614 | — | 5,781,694 | ||||||||||||||||
| Operating lease liability |
27,382,939 | — | 27,382,939 | |||||||||||||||||
| Lease intangible liabilities, net |
8,859,654 | — | 8,859,654 | |||||||||||||||||
| Due to Manager |
2,947,235 | 682,541 | (463,898 | ) | (D) | 4,212,394 | ||||||||||||||
| 1,046,516 | (E) | |||||||||||||||||||
| Interest payable |
667,029 | 53,186 | (59,287 | ) | (C) | 660,928 | ||||||||||||||
| Accounts payable and accrued expenses |
1,864,939 | 740,824 | — | 2,605,763 | ||||||||||||||||
| Unearned income |
373,516 | — | 373,516 | |||||||||||||||||
| Distributions payable |
3,906 | — | 3,906 | |||||||||||||||||
| Other liabilities |
1,068,328 | 387,446 | — | 1,455,774 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities |
416,494,524 | 69,301,134 | (44,836,029 | ) | 440,959,629 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Equity: |
||||||||||||||||||||
| Preferred stock |
— | — | — | — | ||||||||||||||||
| 12.5% Series A Cumulative Non-Voting Preferred Stock |
125,000 | — | 125,000 | |||||||||||||||||
| Common stock |
194,875 | 8,149 | (8,149 | ) | (B) | 243,354 | ||||||||||||||
| 48,479 | (A) | |||||||||||||||||||
| Additional paid-in capital |
373,443,672 | 72,754,590 | (72,754,590 | ) | (B) | 444,449,813 | ||||||||||||||
| 71,006,141 | (A) | |||||||||||||||||||
| Accumulated (deficit) income |
(117,687,298 | ) | (3,008,658 | ) | 3,008,658 | (B) | (113,965,214 | ) | ||||||||||||
| 3,536,513 | (C) | |||||||||||||||||||
| 463,898 | (D) | |||||||||||||||||||
| (278,327 | ) | (E) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total equity |
256,076,249 | 69,754,081 | 5,022,623 | 330,852,953 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities and equity |
$ | 672,570,773 | $ | 139,055,215 | $ | (39,813,406 | ) | $ | 771,812,582 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
Terra Property Trust, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2022
| Historical | ||||||||||||||||||||
| TPT | Terra BDC | Total Pro Forma Adjustments |
(Notes) | TPT Pro Forma Consolidated |
||||||||||||||||
| Revenues |
||||||||||||||||||||
| Interest income |
$ | 28,995,209 | $ | 11,648,944 | $ | (3,379,594 | ) | (C) | $ | 36,986,232 | ||||||||||
| (278,327 | ) | (E) | ||||||||||||||||||
| Real estate operating revenue |
8,933,587 | — | — | 8,933,587 | ||||||||||||||||
| Prepayment fee income |
1,984,061 | — | — | 1,984,061 | ||||||||||||||||
| Other operating income |
550,692 | 62,821 | — | 613,513 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 40,463,549 | 11,711,765 | (3,657,921 | ) | 48,517,393 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating expenses |
||||||||||||||||||||
| Operating expenses reimbursed to Manager |
6,082,333 | 946,934 | 188,324 | (D) | 7,217,591 | |||||||||||||||
| Asset management fee |
4,740,657 | 1,964,830 | (973,678 | ) | (D) | 5,731,809 | ||||||||||||||
| Asset servicing fee |
1,124,759 | — | 219,296 | (D) | 1,344,055 | |||||||||||||||
| Incentive fee on capital gains |
— | (102,160 | ) | 102,160 | (D) | — | ||||||||||||||
| Servicing fees |
— | (121,504 | ) | — | (121,504 | ) | ||||||||||||||
| Provision for loan losses |
9,264,058 | — | — | 9,264,058 | ||||||||||||||||
| Real estate operating expenses |
3,740,140 | — | — | 3,740,140 | ||||||||||||||||
| Depreciation and amortization |
5,155,119 | — | — | 5,155,119 | ||||||||||||||||
| Impairment charge |
1,604,989 | — | — | 1,604,989 | ||||||||||||||||
| Professional fees |
2,348,190 | 1,139,775 | — | 3,487,965 | ||||||||||||||||
| Directors fees |
108,748 | 84,378 | — | 193,126 | ||||||||||||||||
| Other |
506,640 | 266,918 | — | 773,558 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 34,675,633 | 4,179,171 | (463,898 | ) | 38,390,906 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income |
5,787,916 | 7,532,594 | (3,194,023 | ) | 10,126,487 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Other income and expenses |
||||||||||||||||||||
| Interest expense from obligations under participation agreements |
(2,875,946 | ) | (433,622 | ) | 3,385,695 | (C) | 76,127 | |||||||||||||
| Interest expense on repurchase agreement payable |
(4,815,863 | ) | — | — | (4,815,863 | ) | ||||||||||||||
| Interest expense on mortgage loan payable |
(1,574,063 | ) | — | — | (1,574,063 | ) | ||||||||||||||
| Interest expense on revolving line of credit |
(1,872,504 | ) | — | — | (1,872,504 | ) | ||||||||||||||
| Interest expense on term loan payable |
(164,969 | ) | (1,101,797 | ) | — | (1,266,766 | ) | |||||||||||||
| Interest expense on unsecured notes payable |
(4,299,167 | ) | (2,299,538 | ) | — | (6,598,705 | ) | |||||||||||||
| Interest expense on secured borrowing |
(1,507,572 | ) | — | — | (1,507,572 | ) | ||||||||||||||
| Net unrealized losses on marketable securities |
(133,994 | ) | — | — | (133,994 | ) | ||||||||||||||
| Income from equity investment in unconsolidated investments |
4,267,513 | — | — | 4,267,513 | ||||||||||||||||
| Loss on sale of real estate |
(51,984 | ) | — | — | (51,984 | ) | ||||||||||||||
| Gain on extinguishment of debt |
— | — | 3,530,412 | (C) | 3,530,412 | |||||||||||||||
| Transaction fee expense |
— | (1,459,762 | ) | — | (1,459,762 | ) | ||||||||||||||
| Realized gains on marketable securities |
799,827 | 55,783 | — | 855,610 | ||||||||||||||||
| Unrealized gains on investments |
83,411 | (3,402,083 | ) | — | (3,318,672 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (12,145,311 | ) | (8,641,019 | ) | 6,916,107 | (13,870,223 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (Loss) income before income taxes |
(6,357,395 | ) | (1,108,425 | ) | 3,722,084 | (3,743,736 | ) | |||||||||||||
| Provision for income taxes |
— | (605,787 | ) | — | (605,787 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net (loss) income |
$ | (6,357,395 | ) | $ | (1,714,212 | ) | $ | 3,722,084 | $ | (4,349,523 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Weighted-average shares outstanding – basic and diluted |
19,487,460 | 8,110,351 | 4,847,910 | (F) | 24,335,370 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (Loss) earnings per share – basic and diluted |
$ | (0.33 | ) | $ | (0.21 | ) | $ | (0.18 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||||||
Terra Property Trust, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2021
| Historical | ||||||||||||||||||||
| TPT | Terra BDC | Total Pro Forma Adjustments |
(Notes) | TPT Pro Forma Consolidated |
||||||||||||||||
| Revenues |
||||||||||||||||||||
| Interest income |
$ | 36,743,470 | $ | 12,489,678 | $ | (7,511,209 | ) | (C) | $ | 41,450,554 | ||||||||||
| (271,385 | ) | (E) | ||||||||||||||||||
| Real estate operating revenue |
8,894,991 | — | — | 8,894,991 | ||||||||||||||||
| Prepayment fee income |
190,997 | 485,236 | — | 676,233 | ||||||||||||||||
| Other operating income |
855,799 | 696,964 | — | 1,552,763 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 46,685,257 | 13,671,878 | (7,782,594 | ) | 52,574,541 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating expenses |
||||||||||||||||||||
| Operating expenses reimbursed to Manager |
6,916,371 | 1,222,217 | 264,359 | (D) | 8,402,947 | |||||||||||||||
| Asset management fee |
5,134,149 | 2,182,947 | (1,086,638 | ) | (D) | 6,230,458 | ||||||||||||||
| Asset servicing fee |
1,181,924 | — | 213,561 | (D) | 1,395,485 | |||||||||||||||
| Incentive fee on capital gains |
— | 291,710 | (291,710 | ) | (D) | — | ||||||||||||||
| Servicing fees |
501,718 | — | 501,718 | |||||||||||||||||
| Provision for loan losses |
10,904,163 | — | — | 10,904,163 | ||||||||||||||||
| Real estate operating expenses |
5,003,893 | — | — | 5,003,893 | ||||||||||||||||
| Depreciation and amortization |
3,989,114 | — | — | 3,989,114 | ||||||||||||||||
| Impairment charge |
3,395,430 | — | — | 3,395,430 | ||||||||||||||||
| Professional fees |
1,795,856 | 1,240,762 | — | 3,036,618 | ||||||||||||||||
| Directors fees |
145,000 | 120,622 | — | 265,622 | ||||||||||||||||
| Other |
448,503 | 419,448 | — | 867,951 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 38,914,403 | 5,979,424 | (900,428 | ) | 43,993,399 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income |
7,770,854 | 7,692,454 | (6,882,166 | ) | 8,581,142 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Other income and expenses |
||||||||||||||||||||
| Interest expense from obligations under participation agreements |
(10,596,545 | ) | (1,513,228 | ) | 7,433,415 | (C) | (4,676,358 | ) | ||||||||||||
| Interest expense on repurchase agreement payable |
(142,495 | ) | — | — | (142,495 | ) | ||||||||||||||
| Interest expense on mortgage loan payable |
(2,449,239 | ) | — | — | (2,449,239 | ) | ||||||||||||||
| Interest expense on revolving line of credit |
(911,811 | ) | — | — | (911,811 | ) | ||||||||||||||
| Interest expense on term loan payable |
(6,835,877 | ) | (313,638 | ) | — | (7,149,515 | ) | |||||||||||||
| Interest expense on unsecured notes payable |
(3,173,673 | ) | (2,703,111 | ) | — | (5,876,784 | ) | |||||||||||||
| Interest expense on secured borrowing |
(1,576,502 | ) | — | — | (1,576,502 | ) | ||||||||||||||
| Net unrealized losses on marketable securities |
22,500 | — | — | 22,500 | ||||||||||||||||
| Income from equity investment in unconsolidated investments |
5,925,802 | — | — | 5,925,802 | ||||||||||||||||
| Realized loss on loan repayments |
(517,989 | ) | — | — | (517,989 | ) | ||||||||||||||
| Realized gain on investments |
129,248 | 582,710 | — | 711,958 | ||||||||||||||||
| Unrealized gains on investments |
— | 875,842 | — | 875,842 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (20,126,581 | ) | (3,071,425 | ) | 7,433,415 | (15,764,591 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (Loss) income before income taxes |
(12,355,727 | ) | 4,621,029 | 551,249 | (7,183,449 | ) | ||||||||||||||
| Provision for income taxes |
— | $ | (534,784 | ) | — | (534,784 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net (loss) income |
$ | (12,355,727 | ) | $ | 4,086,245 | $ | 551,249 | $ | (7,718,233 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Weighted-average shares outstanding – basic and diluted |
19,487,460 | 8,389,604 | 4,847,910 | (F) | 24,335,370 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (Loss) earnings per share – basic and diluted |
$ | (0.63 | ) | $ | 0.49 | $ | (0.32 | ) | ||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
Terra Property Trust, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Information
Basis of Presentation
The accompanying Unaudited Pro Forma Consolidated Financial Statements have been prepared in accordance with Article 11 of Regulation S-X and do not include all of the information and note disclosures required by generally accepted accounting principles of the United States (“GAAP”). Pro forma financial information is intended to provide information about the continuing impact of a transaction by showing how a specific transaction or group of transactions might have affected historical financial statements. Pro forma financial information illustrates only the isolated and objectively measurable (based on historically determined amounts) effects of a particular transaction, and excludes effects based on judgmental estimates of how historical management practices and operating decisions may or may not have changed as a result of the transaction. Therefore, pro forma financial information does not include information about the possible or expected impact of current actions taken by management in response to the pro forma transaction, as if management’s actions were carried out in previous reporting periods.
This unaudited pro forma consolidated financial information is presented for informational purposes only and does not purport to be indicative of TPT’s financial results or financial position as if the transactions reflected herein had occurred, or been in effect during the Pro Forma periods. In addition, this pro forma consolidated financial information should not be viewed as indicative of TPT’s expected financial results for future periods.
Historical amounts are derived from the unaudited consolidated financial statements of TPT and Terra BDC as of and for the nine months ended September 30, 2022 and the audited consolidated statements of operations of TPT and Terra BDC for the year ended December 31, 2021. The historical financial statements of TPT and Terra BDC are available in TPT’s Quarterly Report on Form 10-Q and Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 14, 2022 and March 11, 2022, respectively, Terra Income Fund 6, LLC’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022, and Terra BDC’s Annual Report on Form 10-K filed with the SEC on March 30, 2022.
A. Purchase Price Allocation
The total consideration was $73.4 million in the aggregate, consisting of the issuance of TPT Class B Common Stock and cash exchanged for fractional shares as well as payment for direct acquisition-related costs. The fair value of shares of TPT Class B Common Stock issued was based on TPT’s net asset value per share of $14.66 as of September 30, 2022. Accordingly, upon completion of the Merger, each share of Terra BDC Common Stock was cancelled and converted into 0.595 shares of TPT Class B Common Stock, other than fractional shares, and as a result, TPT issued 4,847,910 shares of TPT Class B Common Stock to Terra BDC Stockholders in exchange for shares of Terra BDC Common Stock and paid $12,920 in cash in lieu of fractional shares of TPT Class B Common Stock and $2.3 million of direct acquisition-related costs.
| Total Consideration |
||||
| Fair value of shares of TPT Class B Common Stock issued |
$ | 71,054,620 | ||
| Cash paid in lieu of fractional shares of TPT Class B Common Stock |
12,920 | |||
| Direct acquisition-related costs |
2,283,785 | |||
|
|
|
|||
| $ | 73,351,325 | |||
|
|
|
| Terra BDC Historical |
Pro Forma Adjustments |
Fair Value of Terra BDC Assets Acquired and Liabilities Assumed |
||||||||||||||
| Assets |
||||||||||||||||
| Investments, at fair value |
$ | 76,311,192 | $ | 1,251,336 | (1) | $ | 77,562,528 | |||||||||
| Investments through participation interest, at fair value |
36,738,949 | 54,364 | (1) | 36,793,313 | ||||||||||||
| Marketable securities, at fair value |
— | — | ||||||||||||||
| Cash and cash equivalents |
24,321,951 | 24,321,951 | ||||||||||||||
| Restricted cash |
260,614 | 260,614 | ||||||||||||||
| Unsettled sale of marketable securities |
— | — | ||||||||||||||
| Interest receivable |
1,367,044 | 1,367,044 | ||||||||||||||
| Other assets |
55,465 | 55,465 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total assets |
139,055,215 | 1,305,700 | 140,360,915 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Liabilities |
||||||||||||||||
| Unsecured notes payable, net of unamortized debt issuance costs |
36,782,463 | (3,012,463 | ) | (2) | 33,770,000 | |||||||||||
| Term loan payable, net of unamortized debt issuance costs |
24,279,081 | 720,919 | (2) | 25,000,000 | ||||||||||||
| Interest reserve and other deposits held on investments |
260,614 | 260,614 | ||||||||||||||
| Obligations under participation agreements, at fair value |
6,114,979 | 6,114,979 | ||||||||||||||
| Due to Adviser, net |
682,541 | 682,541 | ||||||||||||||
| Accrued expenses |
740,824 | 740,824 | ||||||||||||||
| Interest payable from obligations under participation agreements |
53,186 | 53,186 | ||||||||||||||
| Other liabilities |
387,446 | 387,446 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
69,301,134 | (2,291,544 | ) | 67,009,590 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total identifiable net assets |
$ | 69,754,081 | $ | 3,597,244 | $ | 73,351,325 | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| (1) | The Merger is accounted for as an asset acquisition and total consideration is allocated to the assets acquired and liabilities assumed on a relative fair value basis. |
| (2) | Terra BDC is an investment company, as defined under U.S. GAAP, and applies accounting and reporting guidance in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services — Investment Companies; as such, Terra BDC’s assets are recorded at fair value. Terra BDC has not elected the fair value option for its unsecured notes payable and term loan payable. The pro forma adjustment reflects adjustments to record the debt at their respective estimated fair values. |
| B. | The pro forma adjustment reflects the elimination of Terra BDC’s acquired equity. |
| C. | In the normal course of business, TPT and Terra BDC may acquire or sell a portion of a loan from or to an affiliate through a participation agreement. These loan participations do not qualify for sale treatment and therefore remain on the originating company’s consolidated balance sheet, and the proceeds are recorded as obligations under participation agreements. For the loans for which participation has been granted, the interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the originating company’s consolidated statement of operations. The pro forma adjustment reflects the elimination of the loan participations between TPT and Terra BDC, as well as the related interest income, interest expense on obligations under participation agreements, accounts receivable and interest payable. Additionally, TPT recognized a gain on extinguishment of debt of approximately $3.5 million, representing the difference between the carrying value and fair value of the loan participations. |
| D. | Terra BDC was a party to the Investment Advisory and Administrative Services Agreement, dated September 22, 2021 (the “Terra BDC Advisory Agreement”), with Terra Income Advisors, LLC (the “Terra BDC Advisor”) whereby Terra BDC paid the Terra BDC Advisor a 2.0% base management fee and a 20% incentive fee on capital gains, and reimbursed the Terra BDC Advisor for operating expenses incurred in connection with administrative services provided to Terra BDC. TPT is a party to the Amended and Restated Management Agreement, dated as of February 18, 2018 (the “TPT Advisory Agreement”) with Terra REIT Advisors, LLC (the “TPT Advisor”) whereby TPT pays an 1.0% asset management fee and a 0.25% asset servicing fee to the TPT Advisor, and also reimburses the TPT Advisor for operating expenses incurred in connection with providing services to TPT. In connection with the Merger, the Terra BDC Advisory Agreement was terminated. The pro forma adjustment reflects the reversal of Terra BDC’s fees paid and expenses reimbursed to the Terra BDC Advisor pursuant to the Terra BDC Advisory Agreement and recording new fees payable and expenses reimbursable to the TPT Advisor pursuant to the TPT Advisory Agreement. |
| E. | Prior to the Merger, Terra BDC did not pay the Terra BDC Advisor for transaction fees received from the borrowers. Under the TPT Advisory Agreement, TPT pays the TPT Advisor an 1% origination fee and up to 1% of exit and extension fees on investments. The transaction fees received and paid to the TPT Advisor are recorded in interest income as yield adjustment to the investments. The pro forma adjustment reflects transaction fees on Terra BDC’s investments paid to the TPT Advisor in accordance with the TPT Advisory Agreement. |
| F. | (Loss) earnings per share – Basic and diluted pro forma earnings per share reflect the additional shares expected to be issued as part of the Merger, which are deemed to be outstanding as of January 1, 2021 for the pro forma basic and diluted (loss) earnings per share calculation. Thus, the pro forma outstanding shares are calculated as follows: |
| Historical | Pro Forma Adjustments |
|||||||||||
| TPT | Pro Forma | |||||||||||
| For the nine months ended September 30, 2022: |
||||||||||||
| Weighted-average shares outstanding – basic and diluted |
19,487,460 | 4,847,910 | 24,335,370 | |||||||||
| For the year ended December 31, 2021: |
||||||||||||
| Weighted-average shares outstanding – basic and diluted |
19,487,460 | 4,847,910 | 24,335,370 | |||||||||