ROMSPEN REVEST HOMES LP Reliable Rental Income Plus Significant Capital Appreciation
Overview US recession and mortgage crisis drove house prices in SE Florida down 70% from peak Low prices plus strong rental market provide opportunity to build rental portfolio Over the next 3-5 years, housing prices in SE Florida will rise by 50%-100% Romspen & Revest have formed a fund to take advantage of those opportunities 2
Our Business Model BUY 3 RENOVATE RENT OUT HOLD SELL
Fund Investment Objectives Use fund capital to build a portfolio of safe, secure rental properties Provide strong annual return from reliable rental income Create significant portfolio appreciation over next 3-5 years Generate potential investor returns of 15%-20% per year 4
Outline of Presentation Opportunity Execution Sample Property Potential Investment Return Fund Terms What To Do Next 5
US Mortgage Crisis 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000-2000 2002 2004 Existing Bank Inventory Delinquent Mortgages 6 2006 2008 Foreclosures 2010 2012
Impact of Crisis on Housing Prices 300 250 200 150 Southern Florida (-50%) Las Vegas (-41%) Phoenix (-48%) Source: S/P Case-Shiller Housing Price Index 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 National (-30%) National Trendline 7 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 50 1987 100
2014 Update: Steady Improvement 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000-2007 2008 2009 2010 Existing Bank Inventory Delinquent Mortgages 8 2011 2012 Foreclosures 2013 2014
2014 Update: Steady Improvement 300 250 200 150 100 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 National (-30%) Southern Florida (-50%) Las Vegas (-41%) Phoenix (-48%) National Trendline 9 Source: S/P Case-Shiller Housing Price Index
SE Florida Showing Strong Improvement Palm Beach County Housing Prices $250,000 $208,800 $200,000 $150,000 $91,400 $100,000 $94,900 $62,200 $50,000 $2002 10 2006 2011 2014 2020E
Outline of Presentation Opportunity Execution Sample Property Potential Investment Return Fund Terms What To Do Next 11
Focus on Three Key Factors Depth of Distress Orlando Strength of Rental Market (Orange County) South East Florida (Palm Beach, Broward & Martin Counties) Long Term Cap Appreciation 12
Focus On Gated HOA Communities Gated Home Owner Association (HOA) communities located in SE Florida Our target communities: A- and B+ quality in good neighbourhoods Built 1995-2007 250-500 units Traditionally owner-occupied Monthly HOA fees of $200-$400/month HOA responsible for all structural maintenance (roofs, exterior walls, windows & foundations), as well as insurance, maintenance, security and landscaping Peak prices of $250,000-$450,000 Currently selling for $80,000-$150,000 13 Metropolitan Area (County) Homeowner Associations (HOAs) Total HOA Housing Units (estimated) Palm Beach 5,336 426,880 Orlando 2,681 214,480 Broward 5,505 440,400 Miami Dade 6,083 486,640
Sample Community: Links at Emerald Dunes 14
Sample Community: Jonathans Cove 15
Sample Community: Boynton Landings 16
Revest: Boots on the Ground Corporate Overview Revest operational headquarters located in Delray Beach, Florida Full time team of 16 manages all aspects of acquisition, renovation, tenanting and management Brokerage Renovations Property Management 17
Outline of Presentation Opportunity Execution Sample Property Potential Investment Return Fund Terms What To Do Next 18
Jonathan s Cove, West Palm Beach 19
Jonathan s Cove, West Palm Beach 20
Jonathan s Cove, West Palm Beach Attributes: Built 2002 264 units 1,200 square feet (2/2) 1,400 square feet (3/2) A- quality in traditional owner community in decent neighbourhood Gated, with swimming pool, community centre & other amenities 21
Jonathan's Cove, West Palm Beach Jonathan's Cove Estimated Peak Price Purchase Price Closing Costs and Renovations Total Cost of Property Discount from Peak 22 $260,000 $108,000 $15,138 $123,138 63%
Jonathan's Cove, West Palm Beach Jonathan's Cove Estimated Peak Price Purchase Price Closing Costs and Renovations Total Cost of Property Discount from Peak Gross Annual Rent ($1,425 per month) Operating Expenses Net Operating Income Annual Portfolio Yield 22 $260,000 $108,000 $15,138 $123,138 63% $17,100 $8,695 $8,405 6.63%
Plan of the Fund Use fund capital to build portfolio of single family homes in gated communities in SE Florida Provide strong annual return from reliable rental income Create significant portfolio appreciation over next 3-5 years Generate potential investor returns of 15%-20% per year 23
Outline of Presentation Opportunity Execution Sample Property Potential Investment Return Fund Terms What To Do Next 24
Annual Return: Rental Market is Strong Portfolio takes 12 months to stabilize (buy, renovate & rent out) After that, portfolio will generate 7%-8% annual return to investors Approximately half paid out in quarterly distributions; other half goes to pay down mortgage principal 26
Housing Prices Will Rise in SE Florida Over the next 3-5 years, five key factors will drive housing prices up significantly in SE Florida: General Economic Recovery in SE Florida End of Foreclosure Sales Shortage of New Housing Recovery of HOA Communities Mortgage Financing & Inverted Cost to Rent vs Cost to Own Ratio 26
Key Driver #1: Economic Recovery Projected Florida Population 1960-2040 Florida GDP, Actual & Projected ($billions) 1,000 25,000,000 800 20,000,000 600 15,000,000 400 10,000,000 5,000,000 1960 1970 1980 1990 2000 2010 2020 2030 2040 27 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 200
Key Driver #2: End of Foreclosures 28
Key Driver #3: Shortage of New Housing Housing Demand vs Housing Supply 2,500,000 2,000,000 1,500,000 1,000,000 0 29 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 500,000 Needed Per Year Built Per Year
Key Driver #4: HOA Recovery When owners default on their mortgages, they stop paying their HOA fees HOA declines as it cannot pay for maintenance & repairs, security, landscaping, pool services, etc. When foreclosures are completed, outstanding HOA fees get paid from proceeds of foreclosure As outstanding dues are paid, HOA regains financial health, completes maintenance and repairs, security, landscaping, etc Values in HOA can pop by 20-30% when this happens 30
Key Driver #5: Mortgage Financing US Mortgage Originations 2000-2014 Credit Score Trends 45% 4,500 40% 4,000 35% 3,500 30% 3,000 25% 2,500 20% 15% 2,000 10% 1,500 5% 1,000 0% 500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-31 Worsened Improved
Key Driver #5: Inverted Rent vs Own Ratio Healthy real estate market: cost to own is higher than cost to rent Unhealthy real estate market: cost to rent is higher than cost to own Community Fund Total Cost Monthly Cost to Rent Monthly Cost to Own FMV if Cost to Own = Cost to Rent Embedded Capital Appreciation % Embedded Capital Appreciation Sandalwood $124,500 $1,350 $935 $230,570 $106,070 85% Cove at Briar Bay $95,000 $1,150 $798 $184,002 $89,002 94% Chateau Wood $161,000 $1,650 $1,121 $296,447 $135,447 84% 32
Exit Strategy Option 1: list portfolio on MLS & sell to owner/occupiers (12-18 months) Option 2: sell portfolio to larger aggregator (6 months) Option 3: roll portfolio into public REIT (6-9 months) Predicted life of investment: 3-5 years 33
Aggregate Return Over 5 years ($100,000) 2% Annual Appreciation (5 years) 5% Annual Appreciation (5 years) 10% Annual Appreciation (5 years) Annual Distributions $16,000 $16,000 $16,000 Mortgage Principal Payments $16,440 $16,440 $16,440 Investor Share of Profits (70%) $21,857 $58,019 $128,207 Total Investor Payments $54,297 $90,459 $160,647 54% (11% per year) 90% (18% per year) 160% (32% per year) % Return 34
Outline of Presentation Opportunity Execution Sample Property Potential Investment Return Fund Terms What To Do Next 35
Proposed Investment Terms Romspen/Revest raise $25 million over next 9 months Minimum investment US$100,000 (must pay in US$) Closings: April 30, June 30, Sep 30 & Dec 15 (or until sold out) Management contributing US$2.5 million to first closing Accredited investors only Five year investment term with two one year extensions Limited redemption rights during investment period 36
Proposed Investment Terms 7% annual priority return to investors 2% annual management fee (on equity) 100% of profits paid to investors until capital repaid Thereafter, 70% to investors and 30% to management 37
Why invest? Experienced professional management team with significant equity investment Investing in a hard asset at less than replacement cost Positive annual cash flow secured by reliable rental income Potential 50%-100% gain through housing price appreciation 38
What to do next Review presentation, term sheet & subscription agreement Contact Greg Coleman or Dianna Price for questions about the investment Contact Lisa Calandra or Victoria Moayedi for questions about how to complete your subscription Next closing date is June 30 39
Final Word: What Would Warren Do? If I had a way of buying singlefamily homes I would load up on them it's a very attractive asset class now. I could buy them at distressed prices and find renters and [take a] mortgage, it s a leveraged way of owning a very cheap asset and I think that s as attractive of an investment as you can make. Warren Buffett on CNBC's Squawk Box, Monday, February 27, 2012 40
Appendix A: Where are we in the cycle? Market metrics confirm ongoing opportunity: SE Florida housing price index still off 36% from peak (179 vs 279) Housing starts still down 60% from peak (800,000 vs 2,000,000) Acquisition cost still 20% below replacement cost ($76 psf vs $95 psf) Household formation still down 33% from long term average (0.91% vs 1.36%) Houses still 67% more affordable than at peak (affordability index: 167 vs 101) Mortgage originations still down 62% from peak ($8.8 billion vs. $23.1 billion) National foreclosure rates still more than double long term average (43,000 per month vs 21,000 per month) 41 Sources: Case Schiller HPI, National Builders Association, HUD, Mortgage Bankers Association, CoreLogic 01/15 Foreclosure Report
Appendix B: Cdn/US Exchange Rates Q4/2014 (actual) Q1/2015 (actual) Q4/2015 (forecast) Q4/2016 (forecast) Scotia Bank $0.86 $0.79 $0.75 $0.77 Bank of Montreal $0.86 $0.79 $0.79 $0.83 Royal Bank $0.86 $0.79 $0.75 $0.78 CIBC $0.86 $0.79 $0.77 $0.81 Toronto Dominion $0.86 $0.79 $0.77 $0.85 Morgan Stanley $0.86 $0.79 $0.71 $0.74 Average $0.86 $0.79 $0.76 $0.80 42