WHAT IS THE STATE CONTRACT BETWEEN FINANCE … · Preferred habitat of PE investors; large funds...

WHAT IS THE STATE

OF THE SOCIAL

CONTRACT

BETWEEN

FINANCE

PROFESSIONALS

AND THOSE WE

SERVE?

This material is reproduced with permission of John Wiley & Sons, Inc.

PE is a methodology AND an asset class

4 www.TrinityPEG.com

www.TrinityPEG.com 5

Trends in Private Equity: Current and Perpetual


Funds flow market trends drive PE investment cycles

Vintage investing; Zombie funds of 2008- 50% of existing funds

Defined benefit funds being replaced by offshore capital

ROE> WACC; top line growth is the trump card

Value creation vs. Financial engineering

GP/LP return dynamics; transparency and fairness

Preferred habitat of PE investors; large funds vs. small funds vs. HNW

Fee structures; Promoted interests

Risk Measurement and portfolio risk monitoring

Industry/Regional economic trends

Operating Management acumen and focus


Persistent returns encourage investment in proven winners Many of the new funds able to raise money are started by former

managers of proven funds


October 2014

Family Offices Prefer Direct PE to PE

Funds


April 2014


Illiquidity of private equity investments combined with lack of secondary market for LP stakes in single assets forces investors to wait for liquidity events which are not under their control

Avoiding the sentiment cycle is one benefit of this illiquidity

TPEG is a middle market private equity sponsor that utilizes an “ever-green” fund model, with an open ended investment horizon. The current portfolio consists of 31 assets with a FMV of $550M+

TPEG’s three principals (Bill Burke, Sanjay Chandra CFA, Dan Meader CFA CPA) are experienced entrepreneurs from multiple industries

TPEG backs existing management teams in strong businesses through recapitalizations and management buyouts. The company also makes direct commercial real estate investments

Investors are typically individuals, family offices, or RIAs seeking cash flow investments, and are more income driven vs. IRR driven. A unique group of accredited investors is assembled for each transaction

For full team bios, please visit www.TrinityPEG.com


http://www.trinitypeg.com/





TPEG contributes between 5-10% of required equity under the same terms as investors

Require “skin in the game” from all operating partners. Align interests

Exhaustive due diligence on transaction economics and the background of operating partners

Protect principal/ preserve wealth

Make smart investments, then constantly reduce risk

Develop multiple exit strategies

Stay small to produce alpha

Opportunities abound in the $5-50MM EV range

Negotiate strong governance controls and covenants

Active management with quarterly investor reports; maintain high level of transparency

Refinance between year two and year four to recover principal and maintain an equity interest


FUND INVESTING

Timeline is more rigid and subject to cyclical, systemic risk - may create pressure to overpay on purchase or sell at fire sale price to meet fund timeline

Higher fees, including some charged on committed, un-deployed capital and on “zombie funds”

May be more liquid to investor through secondary markets

Often place restrictions on size and industry of individual deals

Timing of capital calls unpredictable

Investors consider each deal individually

Deal may be tailored to specific time horizons, risk profiles and income and return requirements; truly proprietary

Higher transparency

GPs contribute relatively more capital and are more likely to provide personal guarantees

Highly-flexible, unrestricted timeframe

DIRECT ASSET INVESTING


Annual sales of $10MM+ EBITDA $2-10MM Industry strong margins or the potential to significantly increase margins Innovative companies with strong brands, patent protection or a path to

obtain patent protection Sound management teams with history of success and capital at risk


Base – 5%Rev. Growth

Buy Portfolio Co. Cheaper

Grow Co. Faster

Balance Sheet Leverage

Reduce Operating Costs

2%

Expand Exit Multiple

(1x)

GP

Co

ntr

ibu

tio

ns

Potential Return

8%

6%

7%

5%

5%

11%

42% www.TrinityPEG.com 19

Systemic Factors: GDP Interest Rates Credit Spreads Cap Rates Supply/Demand

Characteristics for Real Estate as an Asset Class

Asystemic Factors: Sub-Market

Economics Land Use Local Job Growth and

Income Opportunities Tenant Credit Quality Rent Growth

Opportunities

20 www.trinitypeg.com

www.trinitypeg.com 21

TPEG’s current real estate portfolio includes 21 real estate assets:

Income Producing Properties

Shopping Centers (2)

Multi-Family (9)

Condominium Redevelopment (1)

Hotel Redevelopment (1)

Development

Age-Restricted, Planned Communities (2)

Multi-Family (4)

Limited-Service Hotel Development(1)

Senior Living Facility (1)

Exited/Refinanced 8 Investments in past 2 years with over $44M of Class A investor Capital returned

Average Cash on Cash return in excess of 2.39x for exited real estate equity invested

Summary of exits:

PS Condos – Exited in December of 2012 with an IRR of 24% Walgreens – Exited in March of 2012 with an IRR of 13.4% Cimarron – Exited in September of 2012 with an IRR of 58.5% Trinity Beach (Redneck Heaven) – Exited in June of 2013 with an IRR of 18% Isle at Watercrest – Exited in May of 2014 with an IRR of 26.0% TPEG Fairways – Exited in September 0f 2014 with an IRR of 34% TPEG Ventana – refinanced in October of 2014 with 74% of Class A capital

returned Enclave at Hometown – refinanced in November of 2014 with 112% of

Class A capital returned

www.trinitypeg.com 22 CONFIDENTIAL


Purchased 141 unit Class B apartments – Universal City TX for $6M in Q4 2010: $42k/door; entry cap rate of 8.25%

Funded $415k of improvements; mostly external improvements Goal was to improve NOI by 5% over 2 year period

Assumed CMBS loan of $4.9M – 2 years to refinance Refinancing risk was an issue

Initial expected 5 year IRR was 35% Cap rate compression was modeled

Investment structured with a 6% preferred return and a 60/40 profit split with an 18% IRR hurdle rate for the developer

Property sold in September 0f 2012 for $7.4M; exit cap rate of 6.5% (20 month holding period)

Pretax all in IRR to LP of 58%; cash on cash dollar return of 215%


In April 2012 we committed to develop 260 Class A MF units in North Richland Hills TX with our development partner

Total Construction Budget of $25.35M of which $19M was funded by a local bank and $6.35M was funded as a PE investment Goal was to build, lease and refinance the project within 30 months Key risks: cost of building risk; lease up risk; refinancing risk

The project was over budget by $1M due to cost increases and delays; funded with short term loan that was paid upon the refinance

Initial expected 5 year IRR was 25% Cap rate was modeled at 6% - which was market at the time of closing Actual rents outperformed model by 10%+

Property was successfully refinanced in 31 months to a 10 year fixed rate financing (below 4%) which resulted in a return of 112% of the project equity. Quarterly double digit current yield now being paid to investors.

Successful return of investment and preferred return; currently a long term strong cash flowing asset

For more information, please contact us

Tel: 817-310-2901

Fax: 817-310-2913

Email: [email protected]

www.TrinityPEG.com



The material contained in this presentation is confidential, furnished solely for the purpose of providing a general discussion of the subject matter, and is not to be used for any other purpose or made available to any other person without the express written consent of Trinity Private Equity Group. This is not an offer of securities, which will only be made in a full private placement memorandum.



Investor A

Investor B

Investor C

Investor D

TPEG Affiliate as

Manager

Investor capital channeled directly into

investment asset, under management of

co-investor LLC manager

Investment

Entity

WHAT IS THE STATE CONTRACT BETWEEN FINANCE … · Preferred habitat of PE investors; large funds...

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