Year End Bulletin - 2016

I write this year end message from the slopes of Telluride, Colorado.  The election of Mr. Donald Trump was a surprise to me and most of my associates.  Nonetheless, Mr. Trump is our President elect and must be supported.  It remains to be seen how many of his campaign promises are put into effect; what seems apparent, however, is that for the short term, our economy is likely to do well and he is considering practical businessmen and women, such as Mr. Andy Puzder of CKE Restaurants, to be the Secretary of Labor.

This year we acquired 40 leased projects and invested in multiple joint ventures.  Our acquisitions for the portfolio exceeded $100million with properties located in 16 states and a focus on the retail, automotive, pharmaceutical and medical sectors. We also established two new significant lender relationships. We took some risk on the Rite Aid and Walgreens merger which seems almost complete, and in hindsight, we should have acquired more units than we did. Matt Blanchard and Michael Azakie are recognized here as without the two of you we could not have kept our growth going. I am excited about the projects we have acquired and look forward to re-developing some of these sites adding value through both cash flow and imputed profit and ultimately strengthening our portfolio.

Our year was also highlighted by the opening of the Sprouts center in Chandler, AZ and the investment as preferred equity in a shopping center. We look forward to two new significant deals with erstwhile partners in the first quarter of 2017.  We will also expand into Section 8 housing with our partner in Ohio as we see reliability of income in this market.   

Our network of investment brokers has been a huge asset this year and without their loyalty and support we would not have uncovered the opportunities we did.  We hope that they will continue to participate in our success.  I realize now more than ever that they are the lifeblood of our growth.

Our year was also benchmarked by the continued and even more significant support of our group of investors for which I am very grateful.

Sales were fluid until pre-election concerns and stalling in the market due to increased interest rates.  At the end of this year, we saw an incline in dispositions with minor changes to cap rates, which we expect will endure in 2017. If cap rates do rise significantly, we are very satisfied holding all the properties in our portfolio and collecting rent.  As you know, we work hard to ensure that our rents are at or below market and that our rents are replaceable should a tenant in our portfolio falter. We end the year with no vacancy in our wholly owned portfolio and 99.1% rent collection (as of this writing), other than projects under construction or redevelopment. This year, on new deals, we achieved a cash on cash return of over 6% and only one partnership saw an interruption in monthly pro forma distributions due to a capital replacement item that we did not plan for properly. 

Overall 2016 was a challenging year. Our year was impacted by internal issues, legacy issues, staffing issues and redundancy as we moved to new systems.  Our growing pains bore on me but I remained focused and positive thanks to the hard work of all of the people in our team, Mark LaBonte, CPA and Robert Blanchard Esq., of Blanchard, Krasner and French. I see most issues being resolved in 2017 with added transparency through an investor portal which I am very excited about.  I am also enthusiastic about the new team we have assembled. Our heavy focus has been on creating a solid back office ensuring reliability of distributions. We achieved our goal.  Mike Murphy, on the accounting side is recognized here for his unbelievable effort. Next year will bring a higher level of information systems to our group, the benefits of which can already be seen. From me, you can expect much greater involvement on the deal level as I want, and will get, more involved in deals on a day to day basis and play to my strength.

I recognize that there is uncertainty as to where cap rates are going.  Through the worst times of the Great Recession our single tenant properties held up well and were still saleable at decent pricing. 10-YR treasury was approximately 4.8% a decade ago.  Today, it is 2.6%.  Considering our average cap on acquisitions this year was over 8% and loans still today below 6%, I believe we are in a good position. 

We will remain a small but reliable company with focus on investment in main street retailers and locations and low leverage. 

Thank you for the opportunity to have worked side by side with you this year.  We have much to be grateful for.  Enjoy the holiday season and looking forward to working with you in 2017 and beyond.  Merry Christmas, Happy Chanukah and Happy New Year. 

Cheers!

David