Mortar Capital PRIVATE & CONFIDENTIAL CORNERSTONE INVESTOR PRESENTATION
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Important Notice This document is issued by Pacific Capital Partners Limited (“PCP”) a member of the Pacific Investments group of companies which is authorised and regulated by the Financial Services Authority (“FSA”). PCP is registered under company number 2849777 with its registered office at 124 Sloane Street, London SW1X 9BW. The information contained herein does not constitute an offer to sell or the solicitation of any offer to buy or sell interests in any investment. The information contained in this document is for background purposes only and does not purport to be full or complete. Nor does this document constitute investment advice. Persons receiving or reviewing this document are expressly warned of the requirement to form their own assessment and take independent professional advice on the merits of an investment and the legal, regulatory, tax and investment consequences and risks of doing so. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by PCP or any of its or their partners, directors, officers, shareholders, associates or employees and no liability is accepted by such persons for the reliability, accuracy or completeness of any information or opinions. As such, no reliance can be placed on the information and opinions contained in this document. This presentation is only being directed to persons who are professional investors under the rules of the FSA and who are legally able to receive it in the jurisdiction in which they are situated. The information contained in this document, including any data, projections, guidelines, restrictions, limits and underlying assumptions, is based upon certain assumptions, management forecasts and analysis of information available as at the date hereof and reflects prevailing conditions and PCP’s views as of the date of this presentation, all of which are subject to change at any time without notice. This document is qualified in its entirety by reference to any legal documentation which may be entered into as a result of this presentation. The value of investments and any income generated may go down as well as up. Past performance is not necessarily a guide to future performance. Similarly, where projections, forecasts, targeted or illustrative returns or related statements or expressions of opinion are given (“Forward Looking Information”) they should not be regarded by any recipient of this document as a guarantee, prediction or definitive statement of fact or probability. A number of factors could cause actual results to differ materially from those in any Forward Looking Information. There can be no assurance that an investment strategy or objective will be met and investors may not get back the amount invested. This document contains information which is confidential. By attending the presentation to which this document relates or by accepting this document, you will be taken to have represented, warranted and undertaken that you will: (i) keep the contents of this document confidential and not to disclose them to any person, other than as required by law or regulation; (ii) treat and safeguard as strictly private and confidential all such information and take all reasonable steps to preserve such confidentiality; and (iii) not without the prior written consent of PCP disclose, distribute or reproduce any such information to any third party.
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1 Executive Summary Mortar Capital operates a platform which originates applications for JV equity investment in property development and investment schemes and matches them with investors. In return, Mortar Capital charges origination and service fees payable by the investor. Importantly, each applicant must contribute at least 10% of the equity requirement themselves, with Mortar Capital and the matched investor contributing the balance as a ratio of 10:90 respectively. Mortar Capital carries out all due diligence relating to each scheme as well as managing it through to exit. It now seeks a cornerstone investor to co-fund these applications alongside it so that it can convert a greater percentage of those it receives. The cornerstone investor will be offered up to 20% of the company in return for reaching cumulative deployed equity targets. In addition, it shall receive the right to ‘first look’ in relation to each application and ‘most favoured nation’ status in relation to the fees it is charged. Mortar Capital is well positioned to capitalise on the IP, leads and resources shared with Pacific Investments and Zorin Finance, sister companies with outstanding track records in property development and real estate finance. The company’s vision is to become the UK’s largest platform provider of property based equity funding.
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2 Example: Funding Split
Mortar Capital receives an application for £900k in order to complete the equity stack on a development of 6 new houses in London. The investment period is 18 months.
Funding Breakdown as Follows: • GDC (Gross Development Cost): £6m • Senior debt contribution: £5m x 10% p.a. • Equity required: £1m • Applicant equity contribution: £100k • Mortar Capital equity contribution: £90k • Cornerstone investor equity contribution: £810k • GDV (Gross Development Value): £7.5m
Applicant (1.66%) Mortar Capital (1.5%) Cornerstone Investor (13.5%) Senior Debt (83.34%)
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2 Example: Profit Share Mortar Capital typically offers the developer a 30% ‘promote’ after a 10% p.a. cost of equity has been paid to the parties, pro rata to their equity contribution.
Profit Distribution as Follows: • Profit after senior debt & interest repaid: £750k • Cost of equity @ 10% p.a. x 18 months: £150k • Profit after cost of equity: £600k • Applicant profit: £15k (cost of equity) + £240k (ROI + promote) = £255k • Cornerstone investor profit: £121.5k (cost of equity) + £324k (ROI) = £445k. Less 25% service fee payable to Mortar Capital = £334k. IRR = 27% • Mortar Capital profit: £13.5k (cost of equity) + £36k (ROI) + £111k (service fee) = £161k
Applicant (34%) Mortar Capital (21%) Cornerstone Investor (45%)
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3 JV Equity Criteria Requirement
Condition
Purpose
Property development & investment
Location
London & S.E. focus + prime national
Applicant ‘hurt’ money
Minimum 10% of required equity
Term length
6 – 24 Months
Investment vehicle
Clean SPV
Track record
Past experience relevant to scheme
Credit history
Experian Fair + (No outstanding CCJs / bankrupts)
Age & nationality
Under 65 and British passport holders
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4 Target Returns Parameter
Target Return
Profit on cost
> 20%
Investor return on equity
20% – 30% (after fees)
Senior debt
Up to 75% LTV (inc. interest)
Applications sizes
£500k – £10m
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5 Rationale: Demand Housing Demand
Source: Department for Communities and Local Government
JV Equity Demand
Each year, Zorin Finance receives requests for over ÂŁ100m of JV equity funding, despite neither providing such funding nor actively seeking those requests.
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5 Rationale: Competition
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5 Rationale: Investor & Applicant Benefits Cornerstone Investor
Applicant
Excellent returns
Convert more deals
“Hurt� money Mortar / applicant
Increased cash-on-cash returns
Cross-propagation with Zorin
Advice & support from Mortar
Diversified deals
Better senior debt access
Equity stake in Mortar
Long term partnership potential
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5 Rationale: Security & Outlook
Source: Savills Residential Property Focus Q4 2014
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6 Why Mortar? Track Record
• 40yrs property development experience • Developed over 60m ft2 of real estate • Proven track record of entering and exiting real estate market at right time • Have managed US$20 billion on behalf of Institutional, HNW and retail investors
• Lending since 2011 • Originated over £1.2 billion of loan requests • Zero capital losses • Backed by highly reputable large UK Hedge Fund • Target valuation of 0.9 x origination (2015 origination target = £50m)
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6 Why Mortar? Management Team Piers Beckwith – CO-FOUNDER & CEO
Sir John Beckwith – GROUP CHAIRMAN, PACIFIC INVESTMENTS
Piers is currently a Director at Zorin finance and Pacific Investment’s Real Estate & Leisure division. Previously he was founder and Chief Executive of Media Run Group, an on-line advertising business which was subsequently sold to Adknowledge in 2008. While at Pacific, Piers has established Pacific and York which acquires residential blocks across the UK at significant discounts to OMV with a view to enhancing both income returns and capital growth through on-going asset management. More recently he has established Red River USA LP, a partnership designed to acquire, refurbish and tenant single family homes in Miami, Florida. In addition Piers cofounded Trinity River Developments a joint-venture fund which acquires greenfield sites in and around prime Dublin with a view to building and selling houses. Piers qualified as a Chartered Accountant with KPMG.
Sir John’s track record in asset management spans almost 40 years, during which time he and businesses founded by him have managed in excess of $20 billion and have developed more than 60 million square feet of real estate. His original company, London and Edinburgh Trust plc was listed on the London Stock Exchange in 1983 and sold for £510 million in 1990. Since then Sir John has established a number of highly successful fund management businesses across multiple asset classes including Thames River Capital and Nevsky Capital ($12.8bn), Liontrust Asset Management ($8.4bn), River & Mercantile ($2.7bn), Portfolio Holdings Limited ($242m), Europa Capital ($2.2bn) and Alpha Real Capital ($800m). Sir John founded the Youth Sports Trust in 1994, was made CBE in 1996 and was knighted in 2002 for services to youth sports. Sir John qualified as a Chartered Accountant and ATII with Arthur Andersen.
Luke Townsend – CO-FOUNDER & COO Luke founded Zorin Finance in 2011 with a vision to create the UK’s leading property-based lending platform. Luke’s career began in corporate media, working for several industry giants, including: Clear Channel, Dow Jones, GCap Media and latterly AOL Time Warner, where he was a member of the senior executive team. Having received numerous industry accolades, Luke went on to establish and back a number of online focused start-ups whilst simultaneously developing prime residential property in London. It was his great success in development but frustration with the lack of debt being made available by established banks that led him to set up Zorin Finance.
Mark Johnson – GROUP CEO, PACIFIC INVESTMENTS Mark Johnson co-founded Pacific with Sir John Beckwith. Mark qualified as a lawyer before working in corporate finance at Barclays Merchant Bank and Barclays de Zoete Wedd. He was CEO of the Riverside Group, one of the UK’s leading leisure companies, under the chairmanship of Sir John, and oversaw its successful sale. Mark is a founding partner, shareholder and director of Pacific’s investment portfolio and private equity companies. Mark has worked with Sir John for over 20 years.
Stuart Roberts – GROUP FINANCE DIRECTOR, PACIFIC INVESTMENTS Stuart Roberts is the Group Finance Director of Pacific, overseeing multi–jurisdictional reporting and tax compliance across all group companies and partnerships. In addition, he is responsible for corporate structuring and tax planning for all group transactions to ensure that returns are maximised to Pacific and the management teams. Stuart joined Pacific in 2003, prior to which he worked at Zurich Financial Services in their London insurance office reporting to the US and to Switzerland. Stuart qualified as a Chartered Accountant at Deloitte & Touche where he worked in their Financial Institutions and Corporate Recovery departments.
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7 Funding Mechanism • New SPV created to hold the property asset • Each party to provide the required equity by way of loan (without guarantee) to the SPV • Shares in SPV allocated pro rata to each party’s equity contribution • SHA governs terms between the parties • Separate service agreement governs terms between Mortar Capital and cornerstone investor • Mortar Capital’s 1% origination fee rolled-up into development costs and paid out day 1 • Principle loan amounts (equity) paid back to the parties pari passu upon sale / refinance of asset (after all sums owing to the senior debt provider have been repaid) • Balance of profits distributed in accordance with agreement between the parties • The cornerstone investor is not obliged to fund any applications originated by Mortar Capital. However, should it fail to fund 3 deals (in a rolling 12 months period) that meet the pre-agreed criteria, it will lose its ‘first look’ rights in relation to applications originated by Mortar Capital
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8 Equity Stake & Fees Cumulative Capital Deployed
Cumulative Equity Stake in Mortar
£10m
4%
£20m
8%
£40m
12%
£60m
16%
£100m
20%
Cumulative Capital Deployed
Service Fee
£0 – £100m
25%
Cumulative Capital Deployed
Origination Fee
£0 – £100m
1%
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Appendices
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1a Pipeline – Case Study 1 Wellington Street, Woolwich • Asset: New build construction of 34 apartments • Net sales proceeds: £14.65m • Site acquisition: £4.25m • Development costs: £6.95m • Total costs: £11.81m • Profit (after sales and financing costs): £2.84m • Financed by: • Debt: £8.41m • Equity: £3.40m • Profit on cost: 25% • Return on equity: 84% • Timeframe: 24 months • IRR: 42%
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1b Pipeline – Case Study 2 Muswell Hill • Asset: Construction of 6 houses • Net sales proceeds: £7.8m • Site acquisition: £3.99m • Development costs: £2.21m • Total costs: £6.65m • Profit (after sales and financing costs): £1.15m • Financed by: • Debt: £4.85m • Equity: £1.80m • Profit on cost: 19% • Return on equity: 64% • Timeframe: 15 months • IRR: 48%
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1c Pipeline – Case Study 3 Cambridge • Asset: Construction of 16 apartments • Net sales proceeds: £10.01m • Site acquisition: £3.94m • Development costs: £3.76m • Total costs: £7.97m • Profit (after sales and financing costs): £2.04m • Financed by: • Debt: £4.98m • Equity: £2.99m • Profit on cost: 26% • Return on equity: 68% • Timeframe: 36 months • IRR: 21%
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1d Pipeline – Case Study 4 Coombe Hill • Asset: Demolition and construction of 4 town houses • Net sales proceeds: £11.4m • Site acquisition: £3.20m • Development costs: £4.75m • Total costs: £8.80m • Profit (after sales and financing costs): £2.60m • Financed by: • Debt: £6.60m • Equity: £2.20m • Profit on cost: 33% • Return on equity: 118% • Timeframe: 24 months • IRR: 46%
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1e Pipeline – Case Study 5 Hampton Hill • Asset: Construction of 4 mews houses and 10 apartments • Net sales proceeds: £8.7m • Site acquisition: £4.05m • Development costs: £2.60m • Total costs: £6.95m • Profit (after sales and financing costs): £1.75m • Financed by: • Debt: £5.55m • Equity: £1.40m • Profit on cost: 26% • Return on equity: 125% • Timeframe: 24 months • IRR: 52%
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2a Track Record (Unrealised) The Strand • Asset: Construction of 4 apartments in Grade 2 listed building • Net sales proceeds: £15.86m • Site acquisition: £4.91m • Development costs: £3.96m • Total costs: £9.71m • Profit (after sales and financing costs): £6.15m • Financed by: • Debt: £6.40m • Equity: £3.31m • Profit on cost: 69% • Return on equity: 186% • Timeframe: 30 months • IRR: 62%
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2b Track Record (Unrealised) Lennox Gardens • Asset: 4 flat conversion to triple lateral 5,000 sq ft apartment • Net sales proceeds: £22m • Site acquisition: £11.4m • Development costs: £3.70m • Total costs: £16.54m • Profit (after sales and financing costs): £5.37m • Financed by: • Debt: £9.42m • Equity: £7.12m • Profit on cost: 36% • Return on equity: 75% • Timeframe: 2 years • IRR: 18%
N.B Assuming 57% leverage
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2c Track Record (Exchanged) Glebe Street, Chiswick • Asset: Refurbishment of semi-detached 4 bedroom house • Net sales proceeds: £1.56m • Site acquisition: £980k • Development costs: £313k • Total costs: £1.29m • Profit (after sales and financing costs): £248k • Financed by: • Debt: £650k • Equity: £650k • Profit on cost: 19% • Return on equity: 38% • Timeframe: 15 months • IRR: 28%
N.B Assuming 50% leverage
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2d Track Record (Realised) Killiney / Carrickmines, Dublin • Asset: Acquisition of 2 sites totalling 4 acres to build 60 residential houses • Net sales proceeds: €13.77m • Site acquisition: €5.5m • Development costs: €3.13m • Total costs: €8.67m • Profit (after sales and financing costs): €5.09m • Financed by: • Debt: €3.50m • Equity: €5.17m • Profit on cost: 59% • Return on equity: 98% • Timeframe: 17 months • IRR: 68%
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2e Other Track Record (Realised & Unrealised) Pacific Investments Asia Limited 50,000m2 and 60,000m2 warehouses in Thailand built and let to Unilever.
Pacific and York Limited 83 Apartments in Portsmouth and Leeds let on AST’s
Red River USA LP 30 single family homes in Miami, Florida acquired through foreclosure auctions, refurbished and tenanted
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Contact 124 Sloane Street London SW1X 9BW Piers Beckwith T: 020 7591 1646 E: spb@beckwithlondon.com
Luke Townsend T: 020 7591 1608 E: luke@zorinfinance.co.uk