two sevens capital residential limited partnership ii q4

Two Sevens Capital Residential Limited Partnership II

Q4 2020 – Quarterly Asset Report

As At Quarter Ended December 31, 2020

2RLP II Quarterly Asset Report – Q4 Fiscal 2020As At December 31, 2020

Table of Contents

Please direct any questions or comments to:

[email protected] Sevens Capital1155 North Service Road WestOakville, ON, L6M 3E31-289-291-3885twosevenscapital.com

@twosevenscapital

linkedin.com/company/twosevenscapital

facebook.com/twosevenscapital

If you haven’t already, please join the conversation….

Two Sevens Capital….………………………………………………..……………..….3Message from The Co-Sponsor / Equity Manager………....4Summary Comments…………………………………..………….………….……..5Quarter by Quarter Recap………………………………………………….....…6Asset Quick Facts……………………..……………………………………………....…7Investment Strategy….……………………………………………………………....8The Value-Add Strategy………………………..……………………..………..….9The ROI of a Value-Add Opportunity…………………………………10Renovation (Capex) Plan…………………………………………………………..11Excellent Revenue Upside for Completed Suites…….……12Renovation Progress……………………………………………..………………….13Income Statement as at December 31, 2020….……………..15Management Team…………………………………………….……....………......16Disclaimer……………………………………………………………………..……………….17

mailto:[email protected]

http://www.twosevenscapital.com/


Two Sevens Capital

Create & Contribute To Community

ExpandBoundaries

Client Obsessed

Deliver Excellence

Operate with Care & Diligence

Execute with Urgency & Intent

StayCurious

Our ValuesOur Mission

Help People.

Create Wealth.

Period.

Our Vision

Provide significant and sustainable wealth creation for individuals and families by simplifying access to direct private investment.

Our Goal

To create $1 billion in wealth for our clients and partners by 2030.


Message from Co-Sponsor/ Equity Manager

Dear Investor-Partner,

I hope this note finds you and your families doing well.

Q4 was an excellent quarter. Record setting revenue of $208,000 was generated in Q4.

Strategic renovation efforts (CapEx) and energy saving initiatives are paying off.

The value-add strategy was hard at work in Q4 with $394,000-$493,000 in additional building value created from the completion of two suites. As at the end of Q4, 18 suites have been completed.

Our goal remains to complete the project by the end of 2023.

As an active participant in the Hamilton multi-family apartment market, Two Sevens Capital has observed recent increases in per unit values as a result of cap rates compressing into to the3.75% range. Our financial modelling has conservatively assumed a 4.0% cap rate for RLP II. Thiscap rate compression represents a potential increase in value of approximately $1,000,000 which is being completely driven by market forces.

Access to and participation in investments like RLP II is especially relevant in these unpredictable times. The volatile and jittery nature of the stock market as of late is exactly why you choose to participate in a private direct investment like RLP II.

As always, I’m grateful for your participation in this opportunity.

Best to you and your families.

Adam J. BatstoneFounderTwo Sevens Capital


Summary Comments

• Over Q4 2020, the investment partnership collected approximately $208,000 in gross rental income. Our best quarter to date.

• Value-add strategy is at work

• 18 total suites completed ($3,550,000 - $4,430,000) in asset value has been created).

• 2 suites completed in Q4 2020.

• 1 unit is currently under renovation.

• New lease rates are almost double the existing rental rates in the building.

• 1 bedroom renovated suite $1,500 - $1,550 vs. $831 for original unit.

• 2 bedroom renovated suite $1,750 - $1,850 vs. $921 for original unit.

• 2 bedroom + den renovated suite $1,850-$1,900 vs. $921 for original unit.

• Select 2 bedroom units in the building that have exceedingly large layouts are being (or will be) turned into 2 bedroom + den suites once renovated. These units will rent for a premium above normal 2 bedroom suites.

• As of writing, no common area upgrades planned for Q1 2021.

Living Room of Renovated Suite (6H)


Quarter by Quarter Recap

TotalCompleted

Suites

Q2 2019 2

Q3 2019 2

Q4 2019 4

Q1 2020 12

Q2 2020 14

Q3 2020 16

Q4 2020 18

2 24

1214

1618

0

4

8

12

16

20

Total Completed Suites

Suites inProcess

Q2 2019 1

Q3 2019 4

Q4 2019 7

Q1 2020 4

Q2 2020 3

Q3 2020 2

Q4 2020 1

1

4

7

43

21

0

2

4

6

8

Suites in Process

UnitsScheduled for

Renovation

Q2 2019 1

Q3 2019 4

Q4 2019 2

Q1 2020 0

Q2 2020 1

Q3 2020 0

Q4 2020 0

1

4

2

01

0 00

2

4

6

Units Scheduled for Renovation

UnitsRemainingUntil Target

Q2 2019 49

Q3 2019 43

Q4 2019 40

Q1 2020 37

Q2 2020 35

Q3 2020 35

Q4 2020 34

49434037353534

0

20

40

60

Units Remaining Until Target

• Systematic progress is being made every quarter.


Asset Quick Facts

Fitness Center

4Potential New Suites Created By Repurposing Storage Areas

18Suites Renovated

66

Units

271 Bed1 Bath

585Average Unit Square Feet

392 Bed1 Bath

774Average Unit Square Feet


Investment Strategy – Not All Opportunities are Created Equal

Value-Add(10-15% CAGR)

Core Value-Add Opportunistic

Risk Low Mid Range Higher

Target Annual Returns

8-10% 10-15% 15%+

Source of Earnings/ Returns

Mostly from Income

Mix of Capital Appreciation and Income

Mostly from Capital

Appreciation

Holding Period

5+ years 3-7 years 2-5 years

Financial Leverage

0-50% 30-70% 50-80%

Asset Types

Quality assets that are at or near full occupancy, and are achieving market rents.

Aggressive Capex not required.

Assets with significant upside potential that gets unlocked thru repositioning:

* renovation * re-marketing* re-leasing

1. Ground-up development

2. Distressed assets i.e. high vacancy, bad management, poor economics…

Core(8-10% CAGR)

Return

Risk

IncomeOriented

Total Return Oriented

Opportunistic(15%+ CAGR)


The Value-Add Investment Strategy

• Transform a $10M asset into a $22M - $26M asset through ~$5M strategic renovation and systematic increasing of rents.

• Benefits to this strategy:

Strong positive cash flow (rent collection) during renovations

Appreciation from increased building value

Tax-efficient returns

• This strategy cannot work without combining your collective investment capital with our opportunity sourcing and the operational expertise of our partners.

After Renovation (Suite 6H)

Strategic Capex

Higher Rents

Higher Asset Value

Wealth Creation For You


The ROI of a Value-Add Opportunity

• $3,550,000 - $4,430,000 in asset value has been created (18 total suites completed).

• On average, EACH renovated suite is currently adding $197,050 - $246,300 in value to the asset.

• The Return on Investment (ROI) for current Capex (renovations) is 213% - 291%.

Reference

A Average Investment/Cost to Renovate a Unit $63,000

B Cap Rate 4.0% - 5.0%

C Average Lease Rate per Renovated Suite$1,700/ month$20,400/ year

D Average Rents per Unit at Time of Acquisition$879/ month$10,548/ year

E = C - D Average Rate Increase per Suite$821/ month$9,852/ year

F = (E*12)/B Value Added to Asset per Renovated Suite $197,050 - $246,300

G = [(F-A)/A] *100 Return on Investment (ROI) per Renovated Suite 213% - 291%


Renovation (Capex) Plan

YearRenovation Plan (at acquisition)

Renovation Plan (in-stream)

2019 10 to 12 units 10 to 12 units

2020 16 to 18 units 30 units***




• Renovations have slowed due to the COVID-19 pandemic as unit turnover has been slower than anticipated.

• Renovation budget is on track.

• $46,000 invested in renovations In Q4 2020 ($1,096,000 since project start).

The Value-Add Process

1• Notice to Vacate Received

2• Tenant Vacates

3• Renovation (4 - 6 weeks)

4

• Renovated Suites Leased at Higher Rates

***Management plan at the start of 2020. Unit turnover has been slowed due to the pandemic.


$821 $937

$1,500 $1,750

$0

$500

$1,000

$1,500

$2,000

1 Bedroom 2 Bedroom

Avg. Unrenovated Unit Avg. Completed Suite

Excellent Revenue Upside for Completed Suites

• $367,200+ in annual revenue upside already captured (= $20,400 x 18 total completed suites)

Unit Type

Avg. RevenueUnrenovated Unit

(At Acquisition)

Avg. RevenueCompleted Suite (As At Q1 2020)

Revenue Upside

1 bed$9,852/ year $18,000 - $18,600/ year $8,148+/ year

$821/ month $1,500 - $1,575/ month $679+/ month

2 bed$11,244/ year $21,000 - $22,788/ year $9,756+/ year

$937/ month $1,750 - $1,899/ month $813+/ month

$823 +REVENUE

UPSIDE

$679 +REVENUE

UPSIDE

$10,548

$189,864

$20,400

$367,200

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

18 Suites Renovated & Re-Leased

Avg. Unrenovated Unit Avg. Completed Suite

Avg. Monthly RevenueFrom Units or Suites

Avg. Annual RevenueFrom 18 Units or Suites


Renovation Progress

1A

1 Bed 2 Bed Additional Units

CompletedIn Process or Scheduled for Renovation

1B 1D 1E 1G 1J1F 1H1C 1K

2A 2B 2C 2D 2E 2F 2G 2H 2J 2K

3A 3B 3C 3D 3E 3F 3G 3H 3J 3K

4A

5A

6A

7A

5B 5C 5D 5E 5F 5G 5H 5J 5K

6B 6C 6D 6E 6F 6G 6H 6J 6K

7B 7C 7D 7E 7F 7G 7H 7J 7K

4B 4C 4D 4E 4F 4G 4H 4J 4K

18

1

34

13

18 - Total Completed Suites

1 - Suites in Process

0 - Units Scheduled for Renovation

34 - Units Remaining Until Target

13 - Beyond Target


Renovation Process

Full size stainless steel

appliances

Quartz countertops

Contemporary cabinetry

In-suite temperature

controls

Luxury vinyl flooring

In-suite laundry (not pictured)

Typical Unrenovated Unit (Unit 7G)

In good condition, but dated:

• Cabinets• Flooring• Fixtures• Appliances• Layouts

Typical Renovated Suite (Suite 6H)


Income Statement as at December 31, 2020

Ref. Item Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020

ARevenue (Rents)

$126,071 $177,068 $164,119 $164,290 $171,409 $191,866 $207,972

BOperating Expenses

(117,336) (85,525) ($58,860) (97,603) (99,144) (85,639) (95,569)

C = A – BOperating

Income8,735 91,544 105,259 66,686 72,265 106,227 112,403

D Debt Service (61,632) (63,110) (62,852) (62,361) (212,799) (184,958) (97,021)

EGeneral &

Admin(734,166) (136,664) (330,220) (148,768) (280,226) (384,924) (75,000)

F = C –D – E

Net Income* (787,064) (108,231) (287,813) (144,443) (420,760) (463,654) (61,066)

*Net Income Before Amortization, Gains & Taxes**Unaudited. For information purposes only. E. OE.


Management Team

Equity Manager Asset Manager Property Manager


Disclaimer

No information, forward looking statements, or estimations represent any final determination. While every effort has been made to ensure accuracy in this document, numbers are subject to change and are not guaranteed. This document is for general information purposes only and is not to be construed as selling securities or real estate. While the information presented in this information sheet has been researched and thought to be reasonable, in general, real estate investments are highly speculative, real estate values can go up but they can also go down, and thus Two Sevens Capital, partners/and or their agents cannot and do not guarantee any rate of return or invested amount or investment timeline.

The reader acknowledges and agrees that Two Sevens Capital, their directors, officers, partners and/or their agents do not assume and hereby disclaim any liability to any party for any loss or damage caused by the use of information contained herein or errors or omissions in the information contained in this information sheet to make any investment decision in the venture referred to herein, where such errors or omissions result from negligence, accident or any other cause. Investors are required to conduct their own investigations, analysis, due diligence, draw their own conclusions, and make their own decisions. Any areas concerning taxes or specific legal or technical situations should be referred to lawyers, accountants, consultants, realtors, or other professionals licensed, qualified or authorized to render such advice.

In no event shall Two Sevens Capital and/or their agents be liable to any party for direct, indirect, special, incidental, orconsequential damages of any kind whatsoever arising out of the use of the information contained herein even if Two Sevens Capital and/or their agents have been advised of the possibility of such damage. Two Sevens Capital, their partners and/or its agents specifically disclaim any guarantees, including, but not limited to, stated or implied potential profits or rates of return or investment timelines. This is not a solicitation for investments. Investments are sold only to investors that qualify under applicable rules. E & OE.

This report is privileged and contains confidential information. Not for mass distribution.

two sevens capital residential limited partnership ii q4

Documents