Financial Statement Annual Letter - 2016

Policy and Future Outlook

2016 marked the first full calendar year since The Niki Group’s reconstitution and we are pleased with the group’s overall progress. We achieved a number of our stated objectives including the continued acquisition of quality core properties and the growth of our team of qualified professionals and partners.

Our acquisitions for the year exceeded $90 million and included over 35 leased projects and multiple joint ventures spanning 16 states. Our balance sheet grew both in terms of assets ($81.3 million increase) and equity ($39.1 million increase). Our acquisition highlights for the year included:

Net Lease Properties:

-             Strategic acquisition of retail properties close to the Augusta National in Georgia;

-             Multiple bankruptcy and estate acquisitions in California, Maryland, Ohio and North Carolina; and

-             Undertaking and/or completing multiple sale-leasebacks and other tenant-driven transactions in California, Arizona and Texas.

Joint Ventures:

-             Preferred equity deal in a $40 million grocery anchored center in Arizona; and

-             Opening of Sprouts-anchored center in Chandler, Arizona.

Core rental income on wholly owned properties, as at December 31, 2016, increased by 57%. We ended the year with annual estimated cash flow from these properties up 41%. At year end, our vacancy was less than 1% of total square footage and rental collection for the year was in excess of 99%; we attribute this success primarily to good market conditions, our conservative underwriting criteria and the hard work of our staff in managing the portfolio.

In 2016, we disposed of 21 properties that no longer met our investment criteria. We managed to remain aggressive with our disposition pricing averaging a sale cap rate of 5.5%, lower than our projection of 6.5%.

For the year to come, we plan to refine and improve the group’s operations, diligence, data and reporting. We will continue to invest in our platform and strengthen our foundation for sustainable growth. We are confident in the reliability of the rental income from our core group of assets which we intend to protect and improve by focusing on projects consistent with our objectives. We are also committed to completing and stabilizing projects currently under construction to safeguard against a potential downturn in the economy. In 2017, we anticipate growing our portfolio by acquiring an additional 30-40 properties and selectively engaging in new joint venture investments with experienced partners in major metropolitan markets. Overall, we believe the real estate industry will remain strong and core assets will grow in value.

David J. Trakman

Managing Partner

San Diego, California

April 14, 2017