Why Reliant 

Video Transcript

Hi, it's Kris Benson from Reliant Real Estate. You've made it to video number 8. The last in our real estate investing educational series. So this one is going to be easy for me to talk about because I'm talking about ourselves. This video is going to give you a quick overview on Reliant Real Estate and Reliant Investments, the investment arm of our business.

We'll try to give you a little bit of history on the company, our track record, a little bit more about our firm and then will we'll cap it off by walking through some of the properties we've most recently sold so you can get a sense of what the self-storage marketplace looks like right now. So, as you can see on the slide behind me, Reliant Real Estate Management - we are a commercial self-storage operator. We're vertically integrated, which means we're buying and managing the properties that we own. So, right now we have 47 properties that we own across 7 states, primarily in the southeast. We're trying to take advantage of some of the population migration that's happening, you know, people leaving the northeast to the south and the tax efficiency that exists in a state like Florida where there is no state income tax.

So, we have 47 properties, as I had said. That works itself out to be just over 3.8 million net rentable square feet and about 30,000 self-storage units. So it's a pretty sizable portfolio. That puts us at the 27th largest self-storage operator in the United States.

There's a survey that goes out every year and we're the 27th largest as of 2018. We've also sold another 21 properties and we'll walk you through what that track record looks like. And, I think that gives you a good sense of the company itself.

Some of the key team members that are in the organization, the managing principals. Todd Allen and Lew Pollock founded Reliant Real Estate back in 2005. Both have a deep experience level in storage. Lew bought his first self-storage facility back in the 80s. Todd has a significant experience in the operations and underwriting side of self-storage with his multiple roles in, most recently before Reliant, one of the largest private self-storage REITs in the country. So, they came together.

Actually, Lew met Todd when Todd was trying to buy one of Lew's facilities and so eventually that partnership culminated in them creating a management company for the properties Lew still owned and then ultimately morphed into what became Reliant, where they started to buy their own properties. They bought their first property back in 2007. So, as I had mentioned in previous videos, I'm the Chief Investment Officer at Reliant. So, my role really is to work with our acquisitions team and sit on the investment committee to understand what types of properties we're buying and why. And then also I manage the investor relations arm of our business where I'm working with investors to raise the equity to purchase the property as we continue to grow our self-storage portfolio.

So, a little bit more about the firm and the slide behind me gives you a few statistics. As I mentioned, we have 47 properties, just over 30,000 units. Our valuation of the portfolio is just over $300 million and that fluctuates a little bit here and there, depending on the day. And then we have, somewhere in the neighborhood to 150 - 160 employees.

The majority of them are out in the field. So, at those 47 properties, we have employees at each. And then, at our corporate office, which is in Roswell, Georgia, about 25 miles north of Atlanta, we probably have about 15 people supporting our field staff. So, our executive team is there: marketing, accounting, some of our construction services and that arm of the business really supports what's happening out in the field on the operational side of things. So, this is the one that everybody wants to talk about is our track record for returns and understandably so. So, we've had a pretty incredible track record, as I had mentioned.

We've sold 21 properties. And so the returns you're seeing here are the project level returns. So this doesn't necessarily mean this is what ended up in investor's pocket. The structure was different in each of these, but we've had a good run. And, to be candid, part of it has been because we've been part of the greatest real estate market, at least of my generation, since the last downturn in 2009 through 2018, we've had an incredible run and a rising tide floats all boats.

So, although our average annual return on investment is 66%, we're not underwriting deals to that rate of return now. I think we've been the beneficiary of a cap rate compression. For those of you who watched previous videos, you'll know what that means. So, the demand for storage has grown and in turn, that's driven up the value of our properties and both us and our investors have benefited from that growth.

So, just a couple of things to hit on here. The average exit cap rate - so, how we're valuing the properties that we've sold, is just under 6% - 5.8. I would say that most properties we're underwriting now are between a 6.5 and 7. So, we're trying to build in some downturn in the marketplace for the next 5 years because I think these numbers are reflective of a best case scenario. And as a good operator, and for our investor's sake, we're trying to make sure we're hedging of what's coming for the future. One other thing just to note here on this slide before I move forward is, the average hold time of just over 3 years. And you'll see, in most of our investment opportunities, our average hold time is somewhere in that 5 - our projected hold time is 5 to 7.

But we're opportunistic so if we have someone who wants to come in and purchase an asset and we can deliver investor returns in year 3, that we projected in year 6, then we're probably going to take advantage of that. But, as we've mentioned in previous videos, you want to make sure that the money you're looking to invest in these types of things is money that you don't need and you're comfortable holding for that 5 to 7 year window. So, this slide we'll leave up and if you're interested, we could have this sent out to you. Click on the link below to learn more about Reliant and we'd be happy to send you the investor presentation.

But ultimately, what this is, is a summary of the 21 properties we've sold with some specific statistics on each one of those properties so you can see some of the details that make up the averages of the returns that we have here.

This is an interesting one I always like to look at. It's the reason we do real estate. We've talked about this in previous videos. But if you look at our average rate of return on our projects, it's, as we said, 66%. If you look at the S&P 500 over the time period that we've sold our 21 properties, it's just under 6%. So, I'm not saying that you should take all your money and put it into self-storage, but I think it should be something you're looking at outside your traditional stocks and bonds just because the opportunity for upside has been so strong historically.

Aright, so this is an interesting slide that - I know there's a lot of numbers on here, but I'm going to try to walk you through it the best we can. A question we get from investors all the time is: Kris, why don't we just invest in some of the REITS, the publicly traded real estate investment trusts that do self-storage? And you absolutely can. I think a storage REIT is seeking something different and buying a different asset than we are.

You know, we're typically operating in these secondary and tertiary markets and trying to create value through value-adds. And for those of you who watched our videos on our net operating income and the growth of net operating income, you can see on the slide here in 2017 our same-store net operating income growth from 2017 to 2018 was just over 19 percent. And at the REIT level, their same-store up net operating income growth was just over 3%. And part of it is because we're a good operator, but part of it is because we're taking a little bit more risk than the REITs are. The properties we're buying - our sweet spot is typically that value-add type property where we're forcing the appreciation and growing net operating income. And so with that we get large jumps in NOI, which in turn, grows the value of the property.

And that's why we've been able to deliver such returns is, we're basically a middleman for the REIT. They don't want to take the construction risk, so we'll take the construction risk, do the value-add, because we have a deep understanding of that. And then, the exit strategy may be to sell these to some of the publicly traded companies or institutional type investors who are looking for a stabilized asset.

So, the top part of the table here just gives you same-store net operating growth. Down below is same-store revenue growth. And if you look at us versus the REITs, we've done a pretty substantial job in that revenue growth, primarily because of the type of asset that we have in our portfolio versus the REITs. We're really doing that forced depreciation value-add model, which we think gives us a little bit of protection as we are late in the real estate cycle. So, the last things that I just wanted to give you some insight.

You saw our historical track record. I like to give investors a snapshot of the last 5 properties that we've sold - or our last 5 sale transactions. And to give you a sense of where the market is. Because if I'm showing you properties we sold in 2012, that doesn't necessarily give you a good indication of where we are today. So I'm going to show you this first slide here, and I know there's a lot on there. If you need this deck again, let us know, we can send it out to you.

But this is a property that - a 2 property portfolio we sold in Florida just in April of 2019. So, just a few weeks back. And, a couple of things I want to point out. It was a value-add type of deal. The disposition was in, just about year 5 to a publicly traded REIT. I'm sorry - we held it for about just over 3.5 years and and then we sold it to a publicly traded REIT and the returns were very strong. You know, we had a total ROI of just over 112% at the project level and then a 31% per year return at the project level as well when you take into account how long we held it. But there's something I want to bring up on this deal that I think stands out besides the returns and that's the exit cap rate.

So, on this particular deal, we saw an exit cap rate of sub 5% on our T12 net operating income. And that's a very aggressive cap rate. If you remember, back to our original average of the 21 properties we sold, it was about 5.8. And so, what that means is the demand for storage and its market specific is definitely increasing. And if the demand, the exit cap continues to compress, our values are going up. And just to give you some perspective, we sold this at a 4 sub 5% cap rate.

Our most recent fund that we're offering as an investment opportunity, we're projecting a 6.8% exit cap rate. So, almost 200 basis points above what we just sold our two most recent projects to account for the fact that, things are probably not going to be as good as they've been. They're probably going to get worse. And so, we're trying to project that in our future investment opportunities.

So, I'm not going to spend a lot of time. This is another interesting project we sold in April of 2018. It was a ground-up development deal. So literally we bought a piece of land and developed a institutional class, climate controlled self-storage facility in Naples, Florida.

This one was a huge home run. There's obviously a lot more risk in our development deals. But just to give you a sense, this is at the investor level now. Based on an 8% preferred return and a 70/30 split, the investor's ROI was 203%, which means, based on how long we held it, which was just under 2 years. Their average annual return on investment was just over 100% a year. So, if you invested $100,000 into this project, we returned just over $300,000 to you in just about 2 years. So, this was a huge home run for us and for our investors.

Most of our underwriting won't project we're going to do these types of returns, but these development deals have a lot more risk attached to them, but certainly a lot more reward when they work. And then, look, I'd like to leave this with you.

You know, when you look at the companies and we've talked about this in previous videos. When you look at the types of companies you want to invest with, you want to find a team that you're aligned with in your goals, but then also, who are working in your best interests.