Single-Tenant Net Lease REIT Prepared March 2017 The
Single-Tenant Net Lease REIT Prepared March 2017 The REIT does not own the displayed properties. Disclaimer Offering is being made by means of Private Placement Memorandum only to qualified investors, who meet minimum requirements, as well as suitability standards. This is not an offer to sell securities. An offer to sell shares of non-voting common stock (the shares) may be made only pursuant to the TreyNet Realty Capital REIT, Inc. Confidential Private Placement Memorandum dated February 1, 2017, as supplement or amended (the Memorandum). The information contained herein is qualified in its entirety by the Memorandum. All potential investors must read the Memorandum in its entirety before investing, and no person may invest in the shares without acknowledging receipt and complete review of the Memorandum. Accredited investors only. The offering is being made by means of the Memorandum only to qualified investors who meet minimum requirements, as well as suitability standards as determined by a qualified financial advisor. Please read the Memorandum in its entirety before considering investment. 2 Key Risk Factors Qualified investors are encouraged to consider key risk factors before investing. No public markets exists for the shares. We do no intend to effectuate a liquidity event until sometime on or prior to the end of the 7th calendar year after the acquisition of the first Project (which date may be extended for an additional 2 years by the voting common stockholders). There are substantial restrictions upon the transfer of shares under federal and state securities laws. Control of our voting common stock is held by TreyNet Partners, LLC a Delaware limited liability company (the Advisor), an entity that is owned and controlled by our officers and directors.
We have the power to issue additional securities having rights, preferences and privileges that are superior to and dilutive of 20,000,000 shares (the Shares), including additional shares of non-voting common stock, $0.01 par value per share (Non-Voting common stock), preferred stock, warrants, and options. Our success will depend in large part on the Advisors ability to manage our company and our assets. We have no operating history and limited capital. We are a blind pool. investments. There are restrictions and limitations on our Share repurchase program and, if your are able Investors will not have the opportunity to evaluate potential 3 Key Risk Factors (Continued.) We have not established the offering price on an independent basis and it bears no relationship to the value of our assets. We will use leverage to acquire single-tenant, net leased properties which will increase your investment risk. We have not obtained any financing commitments for the acquisition of any single-tenant, net leased properties. If we fail to qualify as a REIT, it could have economic consequences.
Our charter permits us to pay distributions from any source, including offering proceeds and borrowings (which may constitute a return on capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment. Our senior officers are engaged in other activities and intend to continue to engage in such activities in the future, which could result in conflicts of interest in allocating their management time, services and functions. Our board members and officers are also principals of the Advisor, resulting in a conflict of interest in our supervision of the Advisor. 4 Vision Form a private Real Estate Investment Trust (REIT) focused on acquiring a diverse portfolio of single-tenant, net lease properties located in growth markets throughout United States. Create Diversified, Net Lease Real Estate Investment Trust Short-Term Goals Raise equity capital from 100 accredited investors by end of 2017. Secure credit facility between 50%65% leverage. Hire national brokerage network to continue fund raising. Acquire $100 million of investments by end of YR-1. Distribute 6% annual distributions, paid monthly.
Long-Term Goals Acquire $1.0 billion in total investments by end of YR-7. Continue to raise equity up to $500 million. Go public in 5 to 7 years by: (i) listing REIT, or, (ii) merging into public REIT. If cannot go public by end of Yr-7, then liquidate portfolio by selling portfolio. 5 What is a REIT? Real Estate Investment Trust (REIT) is a company that owns or finances incomeproducing real estate. REITs typically provide regular income, diversification and longterm appreciation. REIT Requirements Benefits of REITs To qualify as a REIT, the Company must: Per NAREIT data analysis, REITS offer: Invest at least 75% of its total assets in real estate. Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate.
Diversification: Over long-term, equity REIT returns have shown little correlation to returns of broader stock market. Dividends: Stock exchange-listed REITs have typically provided stable income stream to investors.* Liquidity: Stock exchange-listed REIT shares can be easily bought and sold. Performance: Over most long-term horizons, stock exchange-listed REIT returns outperformed S&P 500, Dow Jones Industrials and NASDAQ. Taxation: REITs do not typically pay taxes at a corporate level, investors are typically taxed at ordinary income rates. Pay at least 90% of its taxable income in form of shareholder dividends each year. Be an entity that is taxable as corporation in order to receive REIT tax provisions. Be managed by a board of directors or trustees. Have a minimum of 100 shareholders.
Have no more than 50% of its shares This REIT is not publically traded REIT. Some of the information provided is applicable to publically traded REITs and results may not be held byafive or fewer individuals. the same. 6 Management Team Donald R. Draughon, 58, Chairman of the Board of Directors & CEO Real estate experience over 30 years: o Bought or sold over 600 convenience stores as broker or owner. o Bought and sold 10 NNN lease properties (3 C-stores, 5 Jiffy Lubes, 2 Dollar Generals.) o Development team Robert Trent Jones Golf Club clubhouse at Manassas, VA. o Worked on development team for 250,000 SF Erwin Square office tower at Durham, NC. o Developed $23MM charter school, Voyager Academy, for grades K-12 in Durham, NC. Previous experience includes: o Founder, CEO of Fuel USA, LLC that owned 65 convenience stores (Jan 2015 Mar 2016) o Founder, President and CEO of KeySource Commercial Bank (Jun 2006 Dec 2014) o Managing Director at Anderson & Strudwick, Inc. (Jan 2002 May 2006) o Founder, Chairman and CEO of Convenience USA, Inc. (Feb 1998 Dec 2001) o Managing Director at Baxter Fentriss (Oct 1993 Jan 1998) o Senior Financial Analyst for Montrose Capital (Sep 1989 Sep 1993) o AVP Wachovia Bank (May 1984 Aug 1989) o Board Member of The Pantry, Inc. Education and industry credentials: o Brigham Young University (received BA in 1982) o Wake Forest University (received MBA in 1984) 7
Management Team J.D. Dykstra, 53, President & Chief Investment Officer Real estate and convenience store (C&G) industry experience over 25 years: o Involved in +$3 billion of transactions in real estate and C&G as investor, lender, advisor. o Placed $150 million of debt and equity investments in JV with Silver Point Capital. o Participated in origination of $293 million of debt/equity investments at Lehman Brothers. o Originated $665 million of debt and equity investments at Credit Suisse First Boston. o Coordinated new business efforts for L.A. office of Lennar Partners in acquisition of billions of dollars of non-performing real estate loans. o Key involvement in $1.6 billion recapitalization of Maguire Thomas Partners. Companies formed to make investments in convenience store industry: o Co-founder and President of Fuel USA, LLC, formed in 2015 o Founder of CNG Capital, LLC, an investment firm formed in September 2011 o Founder of StarNet Capital, LLC, formed in 2005 with $5 billion hedge fund. o Co-founder of Credit Suisse First Boston Specialty Finance making loans to midsized C&G and franchise restaurant operators from 1996 to 2000. Previous real estate experience: o VP at Lehman Brothers investing through securitized lending, sale-leaseback (2000-2001). o VP of acquisitions at Lennar Partners (partnership Morgan Stanley RE Fund) (1995-1996). o Associate at Maguire Partners a real estate development company (1990-1994). Education and industry credentials: 8 Management Team Craig A. Coss, 58, Controller Real estate experience over 30 years: o Accounting setup and monthly closings for several real estate firms including a publicly held office REIT. o Proficient with YARDI Accounting Software, JD Edwards and MRI o Experienced in Real Estate Valuation Software: Argus, Realm, Dyna
Previous experience includes: o Plant Controller at Sapheon/Covidien/Medtronic (2013 2016) o CFO/Controller at Coldwell Banker Commercial TradeMark Properties (2007 2011) o Director of Accounting/Regional Controller at Highwoods Properties, Inc. Office building REIT (1996 2007) Education: o Towson University (received BS in Business Administration with Concentration in Accounting) 9 Board of Directors Mack Pridgen, 67, Director Legal, Tax, and Accounting experience in REIT industry over 27 years: o Serving currently on Board of Directors of Independence Realty Trust, Inc., since 2015, an apartment REIT listed on NYSE, after Trade Street Residential merged into IRT. o Served on Board of Directors of Trade Street Residential, Inc. from 2012 to 2015, an apartment REIT listed on NYSE; served as Chairman and chairman of Audit Committee. o Served on Board of Directors of AMREIT from 2007 to 2015, a shopping center REIT listed on NYSE; served as chairman of Audit Committee. Previous experience includes: o Served as General Counsel, Vice President and Secretary of Highwoods Properties, Inc., a $4.5 billion NYSE REIT which primarily owned suburban office properties. Responsibilities included transactional planning, tax planning, corporate governance and SOX compliance, risk management, securities matters, executive compensation and managing litigation. o Served as Partner with the law firm of Smith, Helms, Mulliss and Moore, LLP, practicing in tax and corporate matters, primarily REIT formation and REIT transactions, o Served as Tax Partner with Arthur Andersen and Company. Education and industry credentials: o Certified Public Accountant o UCLA School of Law (received JD in 1974) o University of North Carolina at Chapel Hill (received B.S. in Business
Administration in 1971) 10 Management Team Mark MacDonald, 47, Director Real estate experience over 25 years: o Advised institutional owners in over $5 billion of real estate investment transactions. o Assisted in raising $850 million of equity in four land Investment funds. o Led origination, negotiation and closing of five complex institutional joint ventures with a total value of over $1 billion. o Leased over 750,000 square feet of Class A commercial office space and co-brokered Richmonds largest office lease transaction of the year in 1994. o Agent and consultant for banks and several charter schools. Previous experience includes: o Founder and CEO of Arcadia Real Estate Advisors (Mar 2012 - 2017) o Managing Director of Investments for Stratford Land Fund (Dec 2005 - Mar 2012) o Managing Director of Investments for Highwoods Properties (June 1997- Dec 2005) o Summer Intern for Mercer Investment Consulting (May 1996 Aug 1996) o Marketing Representative for Robinson & Wetmore (now CBRE) (May 1990 - Aug 1995) o Summer Intern for Heilig-Meyers as an Internal Auditor (May 1989 Aug 1989) Education and industry credentials: o James Madison University (received BA with major in Economics in May 1991) o Duke University (received MBA with concentration in Finance in May 1997). 11 Board of Directors Nick C. Fugh, 49, Director Real estate experience over 9 years: o Participated in raising $500 million of equity in two urban mixed-use development funds. o Led origination/negotiation of 2 complex overseas M&A deals worth over $1.5 billion. o Participated Yuzhou Properties (HKSE:01628) IPO/bonds at Hong Kong Stock Exchange o Originated and facilitated international acquisition of two Hong Kong listed companies. o Led design/planning of 5.16 million SF of residential and mixed-use projects in China.
Previous experience includes: o Founder and President of Silver Harbor Group, LLC (2014 - 2017) o Chief Investment Officer of TIMU Group (2014 2016) o Vice General Manager of Liying Capital (2011 - 2013) o Assistant to Chairman and GM of Design Center for Yuzhou Properties (2009 - 2011) Education and industry credentials: o Tongji University (received BE with major in Urban Planning in 1989) o North Carolina State University (received MS with major in Computer Engineering in 2001 and Masters of Architecture in 1999) o Duke University (received MBA in 2007). 12 Acquisition Profile Purchase commercial real estate leased to tenants under long-term, net lease agreements, generally 10-20 years, freestanding, single-purpose buildings in prime locations. Based upon management teams industry knowledge and contacts, Company will focus on: o Retail Energy convenience & gas stores, gas stations and truck stops o Auto Care Aftermarket auto parts, quick lubes, tire centers, tunnel car washes & service stations o Quick Service Restaurants - fast food, fast casual, coffee shops o General Merchandise dollar stores, convenience stores without gas Investment strategy will emphasize: o Freestanding, single-purpose buildings o
Triple-net leases (tenant pays for operating expenses, taxes, maintenance and insurance) o Long-term leases (targeting +10 years remaining; minimum of 5 years remaining) o Rent bumps (1-3% increases per year) o Smaller format retail boxes (2,500 to 15,000 square feet) o Prime corner lots or highly visible/accessible properties. o Consumer, experience-driven businesses that are less likely to be replaced by internet o Investment-grade-rated tenants (targeting 25%-30% of total annualized rental revenue) 13 Why invest in REITs? REITs are total return investments, typically providing high dividends, plus the potential for moderate, long-term capital appreciation (per NAREIT). Equity REIT Index Div Yield 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1.3% 13.4% 1.4% 5.7% 1.2% 6.1% 9.2% According to NAREIT, REITS provide the following benefits: Low beta, less market correlation. Consistent distributions. Moderate, long-term appreciation. Portfolio diversification. Inflation hedge. Credit security backed by real estate. This REIT is not a publically traded REIT. Some of the information provided is applicable to publically traded REITs, and results may not be the same. Source: NAREIT analysis of data from Equity REIT Index, Dow Jones Industrial, S&P 500, and NASDAQ Composite. 14 Public Net Lease Companies Leading public, single-tenant net lease REITs are as follows: Realty Income National Retail Store Capital
Ticker Symbol O NNN STOR Stock Price Beta Per Share Coefficient $ 55.62 0.11 $ 41.64 0.20 $ 23.66 N/A PE Ratio 50.38 32.92 29.50 Earnings / Share $ 1.10 $ 1.20 $ 0.80 Dividend Yield 4.47% 4.31% 4.87% Market Cap $14.4 B $6.1 B $3.7 B Debt / Equity 74% 59% 150%
Realty Income Company (NYSE-O) Public REIT investing in a variety of single tenant net lease property types. Current public market valuation based on an implied 4.47% capitalization rate. Only acquire properties that are company operated and leased to larger operators. National Retail Properties (NYSE-NNN): Public REIT investing in a variety of single-tenant net lease retail property types with +26% concentration in Convenience Store and Gas properties. Current public market valuation based on an implied 4.31% capitalization rate Store Capital Corporation (NYSE -STOR) One of largest and fastest-growing net-lease REITs with well-diversified portfolio (1,576 assets) Current public market valuation of $3.7 billion, based on an implied 4.9% capitalization rate. This REIT is not a publicallychildhood traded REIT. Some of the information provided ishealth applicable clubs, to publically tradedfurniture REITs, and theare resultstop may Restaurants, education, theaters, and not be the same. industries. 15 Portfolio Diversification Company will seek portfolio diversification across three areas: (i) industry, (ii) tenant, and (iii) geography. 1. Industry:
Company has initially identified 4 target industries (Retail Energy, Auto Care Aftermarket, Quick Service Restaurants, and General Merchandise) based upon managements operating experience and expertise as well as industry contacts. 2. Tenant: Company will target 25%-30% of annualized rental revenue to be investment-grade or implied investment grade tenants. Investment grade tenants are defined as tenants with credit rating of Baa3/BBB- or higher from one of the three major rating agencies (Moodys, S&P, Fitch). Target that no one tenant will represent more than 10% of portfolio. 3. Geography: Company will diversify across U.S. with preference for larger, growing metro areas. Company will seek out secondary/tertiary markets with favorable demographics. 16 Tenant Sectors & Markets Company will seek diversification across target industries and geographies. Tenant Sectors o o o Convenience & Gas Stores Gas Stations Truck Stops o o o o Automotive Parts Tunnel Car Washes Quick Lubes
Tire Centers o o o Coffee/Donut Shop Fast Casual Dining Quick Service Restaurants o o o Dollar Stores Drug Stores Convenience Store w/o Gas Growth Markets These are only target markets. No actual investments have been made. 17 Investment Process Management team will use its experience and contacts to create value for investors. At every step of investment process, management possesses skills and experience to deliver. 1 Sourcing Identify tenants, contact directly, supplement multi channel approach. 2 Analyzing Disciplined underwriting of the real estate, tenant and industry risks. 3 Buying
Negotiate strong, competitive terms appropriate for market and tenant. 4 Managing Actively manage portfolio maintaining quality, selling assets as fit. 5 Reporting Maintain consistent, ongoing dialogue with investors quarterlybasis. Grow Shareholder Dividends 18 Dollar General (Illustrative Example #1) Dollar General is attractive net lease investment because: (i) only dollar store with investment-grade, (ii) absolute NNN leases; and (iii) active corporate expansion strategy. New Construction from Master Builder: Purchase Price: $1,195,543 Cap Rate: 7.0% Net Operating Income: Price / Square Foot: $83,688 Building Size: 9,100 sf Rent / Square Foot: $9.20 / sf Lot Size:
1.0 acre Lease Term: Escalations: Credit Rating: The REIT does not own the displayed property. $131 / sf 15 years; 5 x 5-yr options 10% each option period BBB (S&P) Baa2 (Moodys) The REIT does not own the displayed property. All figures are for illustrative purposes. Financing Assumptions: Leverage: 50% Debt: $ 597,772 Interest Rate: 3.75% Amortization: N/A Mgmt Fees: 1.00% Free Cash Flow Estimate: Rent Income: $ 83,688 Debt Payment: $ 22,416 Mgmt Fees: $ 11,955 Free Cash Flow: $ 49,316 Cash-on-Cash: 8.2% * Assuming 5-year interest only loan. 19 Wendys Restaurant
(Illustrative Example #2) Wendys Restaurant is attractive net lease investment because: (i) heavy advertising campaign to rebrand image, (ii) currently signing new lease extensions; and (iii) third largest fast food chain. Multi-Unit Franchisee / Operator: Purchase Price: $1,559,550 Cap Rate: 8.0% Net Operating Income: Price / Square Foot: $124,764 Building Size: 3,000 sf Rent / Square Foot: $41.59 / sf Lot Size: 0.85 +/- acres Lease Term: Escalations: Credit Rating: The REIT does not own the displayed property. $520 / sf 15 years with 4 x 5-yr options 10% every 5 years N/A; multi-unit franchisee; All figures are for illustrative purposes. Financing Assumptions: Leverage:
50% Debt: $ 779,775 Interest Rate: 4.25% Amortization: 20 Mgmt Fees: 1.00% Free Cash Flow Estimate: Rent Income: $ 124,764 Debt Payment: $ 57,944 Mgmt Fees: $ 15,596 Free Cash Flow: $ 51,225 Cash-on-Cash: 6.6% * Assuming 10-year fixed rate loan. 20 Convenience Store w/Gas (Illustrative Example #3) Goddard School properties are attractive net lease investments because: (i) located typically on strong corners, (ii) annual rent escalations, and (iii) independent operators. Multi-Unit Franchisee / Operator: Purchase Price: $1,500,000 Cap Rate: 9.5% Net Operating Income: Price / Square Foot: $142,500 Building Size:
3,000 sf Rent / Square Foot: $47.50 / sf Lot Size: 1.0 +/- acres Lease Term: The REIT does not own the displayed property. $ 500/ sf Escalations: 20 years; 3 x 5-yr options 1.5% annually Credit Rating: N/A; multi-unit franchisee; The REIT does not own the displayed property. All figures are for illustrative purposes. Leverage: Debt: Interes Rate: Amortization: Mgmt Fees: 50% Rental Income: $ 750,000 Debt Payment: 4.25% Mgmt Fees: 20 Free Cash Flow: 1.0% Cash-on-Cash: $ 142,500 $ 59,193 $ 15,000 $ 68,307 9.1% 21
Investment Terms Following summary is intended to provide selected limited information regarding offering. It is qualified in its entirety by detailed information appearing in Offering Memorandum. Size: $200 million maximum; $2 million minimum, to break escrow; Offering: Up to 20 million shares of non-voting common stock, $0.01 par value per share, in the Company at a purchase price of $10.00 per share. Structure: Minimum: Corporation that intends to qualify as real estate investment trust, or REIT. Company will utilize an umbrella partnership real estate investment trust (UPREIT). $50,000 (5,000 shares at $10.00 per share). Suitability: Accredited investors only; subject to third-party accredited investor verification. Term: Company anticipates commencing an orderly wind-down and sale of its assets, if not listed on national stock exchange, on or prior to end of 7th calendar year. 22 Distributions Waterfall The Company intends to make monthly distributions to its shareholders from the distributions it receives from the Operating Partnership, as described below: Cash from Operations: 1. First, 100% to the Company until the Company has been distributed an amount equal to a 6% cumulative, but not compounded annual return; and 2. Thereafter, 80% to the Company and 20% to the Advisor. Cash from Sale or Refinancing: 1. First, 100% to the Company until the Company has been distributed an amount equal to a 6% cumulative but not compounded annual return; 2. Second, 100% to the Company until the Companys net capital contributions is reduced to zero; and 3. Thereafter, 80% to the Company and 20% to the Advisor. 23 Compensation to Advisor
Advisor will be entitled to receive fees, compensation and distributions as follows: 1. Asset Management Fee. The Advisor will receive an annual asset management fee, paid on a monthly basis, equal to 1.0% of the gross asset value of the Company as determined by the Board in accordance with the Advisory Agreement. 2. Acquisition Fee. The Advisor will receive an acquisition fee for each Project acquired by the Company equal to 1.0% of the gross purchase price of the Project, which will be paid at the closing of the acquisition. 3. Financing Fee. The Advisor will receive a financing fee equal to 0.5% of the principal amount of any financing or refinancing, which will be paid at the closing of any such financing or refinancing. 4. Disposition Fee. The Advisor will receive a disposition fee equal to 1.5% of the contract sales price of the Project in connection with a sale, exchange or other disposition of a Project, which will be paid at the closing of such disposition. The fee will be in addition to any third-party brokerage, legal and accounting fees incurred in connection with such disposition. 5. Distributions from Operating Partnership. The Advisor will receive (i) 20% of cash from operations after the Company receives a 6% cumulative but not compounded annual return and (ii) 20% of cash from sale or refinancing after the Company receives a 6% cumulative but not compounded annual return plus a return of capital. 24 Next Steps Before investing, prospective investors are encouraged to carefully consider all information made available by the Company, including Private Placement Memorandum and Operating Agreement. 1. Read Private Placement Memorandum and Operating Agreement completely. 2. Fill out Accredited Investor Questionnaire. 3. Complete Subscription Agreement. 4. Make out check to TreyNet Realty Capital REIT, Inc. 5. Mail Accredited Investor Questionnaire, Subscription Agreement, and check to: TreyNet Realty Capital REIT, Inc. 3600 N. Duke Street, Suite 109 Durham, North Carolina 27704 Should you have any questions, please call Don Draughon at (919) 608-0790. 25
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