Tuesday, February 24, 2009
Highlights of this letter:
- Strategy and results review
- Setting the standard: Total Pricing Net Asset Value review imminent
- No-holds-barred push for value creation underway
Greetings fellow Member-Partners and friends,
It is my privilege to provide you with detailed progress reports (following this letter) for the REIT and individual Limited Partnerships managed by League on your behalf.
But first, a review....
You will recall that all of the assets we've purchased for you follow this straight-forward protocol:
- We choose properties that are considered "under-valued" due to their condition, that is, not at their highest/best-use at the time of purchase;
- We immediately make whatever improvements are necessary to increase their value in the shortest time;
- By actively working to create value appreciation–by the work undertaken in step two–we create a "profit buffer" either to maximize their value for re-financing or sale during market up-swings, or offset the negative effect during periods of down-swings.
In my latest (February 1st) unit revaluation report for the IGW REIT, you learned that despite a few properties decreasing in value, others–thanks to the efforts of our redevelopment and leasing personnel–increased enough so that a small increase in the overall unit value was realized. In these times where falling values are the norm, this is extraordinarily good news. Thus, the strategy outlined above, in combination with our positively inter-dependent compensation structure have once more shown their merit.
In May, when all the IGW REIT properties are re-appraised–together for the first time–the independently appraised value of the entire pool will be used to calculate the Pricing Net Asset Value.
What makes this especially exciting is that, to my knowledge, League is a leader in two respects. First, I know of no other private REIT that conducts regular quarterly unit revaluations. And second, I know of no other that conducts independent annual total value reappraisals. The second tenet of Our Credo guides us thusly:
"WE BELIEVE that in all things we should be the leaders and not the followers.
We should set the standard against which all others are measured..."
Especially in times such as these where so many financial leaders have been "weighed in the balance and found wanting", we at League are proud to lead the way by publicly measuring our private performance.
The race is on!
With the total revaluation date fast approaching, the dedicated members of our Asset Development team are indeed "putting on some steam". In these final weeks, they will be working overtime to complete as many projects, sign as many new leases, and create as much increased value as possible.
Our Asset Management team members are no slouches either! They have never been ones to shy away from a friendly competition and have come up with their own way to improve the REIT's performance–while also shoring it up further against any future financial storms that may occur. Their plans include:
- Replacing the REIT's highest-rate mezzanine and bridge financing with lower cost debt, and/or completely eliminating some of the REIT's debt with cash realized from selling certain properties. This will guarantee risk-free return on the funds put to this use as the interest costs will be completely eliminated.
- Increasing the REIT's liquidity reserves and balance sheet, with cash or equivalent
marketable securities.
- Giving preference to deals with vendor-financing (i.e. the vendor is willing to take back some of the debt/mortgage), so that our reliance on institutional debt is diminished. (We have already identified some potential acquisitions of this nature);
- Reduce and more tightly control legal costs by adding new in-house personnel to League's legal team.
- Fine-tuning our dealings with our property management providers to ensure the REIT derives the greatest value from the fees paid.
The above are intended to produce four positive effects :
- Both the REIT's unit price, and funds from operation will be increased;
- The REIT will become more attractive to lenders, especially in light of their current
(i.e. more restrictive) lending criteria;
- The REIT will be strategically poised to act quickly on new acquisitions when market
prices bottom out and credit markets rebound.
- Legal and property management costs will be reduced;
And we haven't stopped there.
To see where else we could find further efficiencies that could enhance the returns, we have re-examined the REIT's asset management fees... But I will update you on this separately. I trust you will read the announcement not only with interest but, dare I say, astonishment!
In the meantime, rest assured that we are keeping our eyes fixed to our original target of increasing cash flow, so we can increase the monthly distributions as soon as prudently possible.
Before closing this letter, I want to thank you for all of the "thank you's" you sent to our Asset Development team following the news of the, albeit modest, increase in the IGW REIT's unit value on February 1st. Here is just one example:
Hi. As a new investor to League I had some trepidation as to what would happen with the re-valuation on Feb 1st. I was delighted to see that the unit value has not dropped even during these economic times. My other publicly traded REITS that I am invested in have lost up to 50%. Please forward my thanks to those responsible for improving the properties that we own that have enabled them to hold their value. It is truly amazing and is a testament to the hard work they are obviously putting in. Thank you.
Sincerely, Brian H.
I want you to know what a positive effect your emails had on our team these last couple of weeks. With beaming smiles, I overheard them discuss each email. To a person, none of them had ever worked at a place where they felt so appreciated. Knowing you care that we care means more to us all than I can express.
As our fellow Member-Partner, Wilbur D. commented in the survey attached to the bottom of all my emails, "I like that you remind ME of what YOU promised, not the other way around."
So, I want to remind you again, that our hard work is driven by our commitment to Our Credo. The 16th tenet states:
"WE BELIEVE our membership is comprised of extraordinary individuals who are deserving of respect. We respect them foremost for the effort, care, and constraint it took to produce, accumulate, and save their investment capital. Having their capital entrusted to our care, we will manage it with exceptional ability on their behalf. ..."
We know that the current state of the world financial markets–and the media's reporting of it–is fueling a temptation to sell assets and hoard the cash in our mattresses. We at League are not oblivious to these sentiments and want you to know that we are doing everything we can to continue to make the IGW REIT the best place to invest one's capital during this "market correction"–and position our "league" of Member-Partners to take advantage of the opportunities that will be available when normalcy returns.
If you have any concerns or questions, I hope you will continue to avail yourself of the services of our Members' Services Managers. As your fellow Member-Partners, each one of them considers it their highest duty to keep you well-informed so you can rest comfortably knowing you relied on your own good judgement, and not media hyperbole or sales rhetoric.
And, if there is anything they cannot answer for you, my partner Adam Gant and I are always available to take your call.
In the pages that follow, is the progress report on all the properties in the REIT pool.
Warmest Regards,
Emanuel.
Emanuel F. Arruda, Founding Partner
League Assets Corp.
Learn, Earn, Live, Give.™
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