2012 – 1st Quarter Update

In the past 18 months, Morris Capital Partners, LLC and our investment partners have assembled an institutional quality retail portfolio with entrepreneurial yields. In general, institutional investors, such as pension funds are seeking and closing on properties and portfolios in trade areas which have positive population and job growth trends with high concentrations of households with sustainable disposable incomes. Institutional investors look for properties with current yields and the ability to add value. They seek properties with credit tenants, who have annual sales of at least 8 to 10 times higher than their rent and related real estate expenses. They seek fee simple properties with strong anchor tenants as a draw to ensure predictable customer traffic and they desire properties which have a high probability of securing long-term, fixed rate, non-recourse financing. They seek properties which are potentially enhanced by a public/private partnership. Institutional investors want properties with tenants, who have a positive track record and a bright future with staggered lease expirations, a low percentage of tenants who pay percentage rent only, have termination provisions or who have unreasonable or too punitive co-tenancy provisions.

Our portfolio will soon consist of over 600,000 square feet of retail space, 87% occupied, in 6 diverse submarkets, which all have projected job and population growth exceeding the national average with high concentrations of households with sustainable incomes, Over 80% of our portfolio is occupied with credit tenants with strong track records and of our tenants who report, have sales exceeding 14 times base rent and related expense reimbursements. All our properties are fee simple, have at least one major sustainable anchor tenant as a draw and our average lease expiration date is 2016. Only 2% of our tenants have a termination provision and only a few of our larger, national credit anchors have co-tenancy provisions, but only one which can be triggered by losing only one co-anchor. Two of our properties have a private/public partnership, which enhance our yield described below.

The primary difference between our portfolio and an institutional portfolio is size and yield. Institutional investors, due to their high fixed overhead and their need to deploy a large amount of capital, will accept much lower going in yields and lower projected internal rates of return, where a majority of the return is based upon a sale. Institutional investors will often purchase “off market” properties or portfolios at premiums in order to secure lengthy feasibility periods and to deploy large amounts of capital, privately. Yield requirements of institutional investors are in the 5% to 7% initial cap rate range with 5-year IRR projections in the 10% to 13% range. Usually more than 50% of the total returns are only realized upon a sale.

Our portfolio currently has a projected 2012 cash yield of 10.31% with a 5-year projected IRR of over 20% to the investors, with less than 40% of the total return derived from a sale. All our properties already have fixed-rate, non-recourse financing in place. We continue to seek and find motivated sellers, usually actively marketing their properties in trade areas with above average job, population and median household income growth with large concentrations of ample, predictable household incomes. Prospective properties will have strong anchor draws nearby, require $2,000,000 to $10,000,000 of equity and our structure will generate projected going in yields of approximately 10% to 13% and projected IRRs to the investors of approximately 20%. Our last few investments were fully committed within 2 weeks. We appreciate the quick commitments as this will allow us to continue to take advantage of motivated seller’s need to move quickly, without the necessity to form a fund.

We look forward to sharing prospective opportunities with you soon. Please feel free to call with any questions.

Bill Morris