CEO UPDATE : THE END OF THE HIGH-RATE CYCLE, AND NEW BEGINNINGS FOR REAL ESTATE INVESTORS.

Inflation in the US has fallen to the lowest levels since 2021 touching the 2.9% level in August and at last, there is consensus that the Fed will begin cutting interest rates aggressively to prevent the economy from overcorrecting into recession. While we fix our debt for a 3 to 5-year period we have loans that have come to the end of term and renewal rates are sometimes double the original rate. Because the cost of debt has an immediate impact on profitability, any reduction in lending rates drops to the bottom line. The cost of operating our portfolio of buildings is now stabilizing after inflation ramped expenses unexpectedly over the past 3 years and put pressure on our nett operating income. This will result in the value of our portfolio recovering and again growing as cap rates follow interest rates down and buyers are willing to pay higher prices for good real estate.

We have been super busy executing on our goal to streamline our operations to remove costs and friction where possible, which in turn will improve our product offering, our service, and ultimately improved returns to our investors.

Tenants are our most important customers, and strategically we need to have a strong direct relationship with them. I am happy to announce that we have launched our internal property management division called Accretiv Management “AccMAN”. This new property management division will enable us to provide a full service, including the day-to-day management and leasing of buildings where we are the general partner. I am excited to say that we have already had noticeable results, particularly in leasing where we have already signed 7 leases totaling over 24,366 square feet since the division took control of 8 buildings.
We also have made significant changes at the Seychelles level where our subsidiary OrbVest SA (PTY) Ltd, has been approved as an Authorised Introducing Broker to the MERJ exchange and the impact of this will enable us to take over the direct broker function from PKF Capital. This dramatically streamlines our process and interactions with the exchange and will enable the KYC/AML process to improve. We remain very involved with PKF who will continue to provide corporate services to all our companies.

We celebrated the acquisition of the Forest Plaza building in Dallas on 2 May and our partners have already made an impact stabilizing the building with some quick leasing and renewals. With nail-biting perseverance, we also secured another Richmond Honan distressed building, Highpoint Towers in San Antonio, two 11-story tower blocks on 13 acres of land for an astounding $40 per sf. We thank our investors for the support in providing nearly $10,5M of equity for both of these high-value-added projects and hope to reward you with exceptional returns.

We have also made exceptional progress on our lower-risk diversified portfolio AccretivPLUS. The consolidation of our portfolio continues as we incorporate the next batch of buildings into AccretivPLUS this month taking the gross value just over $200 million. When we approached investors last year to choose whether to consolidate or not, which was almost unanimously approved, we aimed to increase occupancy from 91% to 95% over time. We have already surpassed 93% and the additional new leases will push this percentage even higher over the coming 2 quarters.
 

Also noteworthy is that AccretivPLUS had its first liquidity event where the company agreed to a $1m buyback of shares. The process was run completely online and will be a lot quicker the next year around. Most of the sellers have been paid out with the remaining 5 that will close out only after we have migrated back to MERJ at the end of the month.

Of course real estate is not a straight line so while we celebrate a significant amount of new leases, we also are challenged with funding the Tenant Installation costs and broker commissions and funding the free rent periods. We also continue to work on the buildings that are not performing and are at last able to refinance as interest rates drop off and there is already more liquidity in the market.

I am sure you will agree we have had an exceptional quarter and continue to improve our performance. It really opens up new opportunities for real estate investors as depressed values recover and run again. It is our job now to build value in our portfolio and bring value to our properties. Again, we thank you for your support and hope to share more good news as we move towards the end of the year.

Martin Freeman
OrbVest CEO