Our Business Model
OUR BUSINESS MODEL
We intend to purchase commercial real estate leased to tenants under long-term net lease agreements, generally 10-20 years. The lease payments generated each month will be used to support predictable quarterly dividend payments to our unitholders.
What We Will Own
Our properties will generally be freestanding buildings (not attached to any other structure) in prime locations with good access and visibility.
Most of our intended commercial tenants operate retail stores providing non-discretionary goods and services at low price points. Examples of such industries include convenience stores, dollar stores and drug stores. An emphasis will be on attracting investment-grade tenants.
Net Lease Agreements
Most of our leases will be structured as triple-net leases, which means that besides paying rent every month, the tenant is responsible for the property’s operating expenses (taxes, maintenance and insurance). This lease structure will reduce our exposure to rising property operating expenses and preserves a predictable cash flow stream to pay the quarterly dividend.
Characteristics of our Business
Locations will be in significant markets or strategic locations critical to generating revenue for the business throughout the mid-west and select other locations.
Property valuations near replacement cost.
Rental or lease payments that approximate market rents.
We will seek to maintain a conservative capital structure with up to two-thirds equity and one-third long-term, fixed rate debt.
Funds to acquire new properties will generally come from cash on hand and mortgage debt.
Additional growth will come externally by acquiring new properties at a favorable risk-adjusted return.
Rent increases built into leases will generally provide rental revenue increases of approximately 2% every year.
How We Grow Our Earnings
The two primary ways we will increase our earnings (and resulting dividend payments) are:
Increasing the size of our real estate portfolio
We intend to generate increasing cash flow from new property acquisitions based on the “investment spread”, or difference, we achieve between the “cost of capital” we use to acquire the property and the return, or “lease yield”, we receive from the property we buy.
Lease Yield – Cost of Capital = Investment Spread
The “lease yield” is the return we receive based on rental payments relative to the price we paid for the property.
The “cost of capital” is the weighted-average cost of issuing a combination of units and debt based on our desired leverage ratios.
Regularly increasing rent on our existing leases
Fixed rent increases.
Variable rent increases (e.g. percentage rent based on a percentage of the tenants’ gross sales).
Hybrid fixed/variable rent increases (e.g. increases capped by CPI).