Company Info

OVERVIEW
In the sometimes-choppy waters of real estate, Pelorus Equity Group provides financing to keep property owners on course for their investment objectives, when traditional providers are unable or unwilling to help.

We are experts in the rapidly growing cannabis build-out sub-sector, where demand for financing capital far outstrips supply, and many traditional lenders are unable to act efficiently, or lend the required amounts necessary to complete tenant improvements.

Through our real estate loans, we are able to provide income to our investors through the Pelorus Fund, our tax-advantaged Real Estate Investment Trust (REIT).

Investment Highlights

Fractional Investing & Digital Assets

USA REIT provides a tech-enabled solution to make investing in high quality, commercial real estate (CRE) more affordable and liquid through fractional investment and digital CRE tokens.

Our clients capitalize on the security, efficiency and liquidity of real estate markets by offering an investor management portal enabling simple, cost-efficient, and globally syndicated transactions

We are a private real estate fund for investors seeking to invest in highly attractive niche sectors of the commercial real estate industry. The Fund is optimized for long-term capital appreciation and a 10% annual yield.

Fund Strategy

USA REIT seeks to provide investors access to the Commercial Real Estate sector through a diversified portfolio of assets that primarily consist of high-quality properties.

The Fund focuses on properties with the potential to deliver high-quality total returns based on a combination of current income and capital appreciation.

This includes assets that the investment manager believes can:

generate consistent income growth with long-term stable leases and
possess substantial capital appreciation through longterm gains and low portfolio turnover

Diversified Income Fund

USA REIT is launching a diversified income real estate fund, that combines a seasoned investment team, proprietary technology and a diversified portfolio of CRE assets to generate a competitive edge for investors.

The fund seeks to offer an attractive combination of stable cash flow and price appreciation with downside protection by investing in a diversified portfolio of CRE assets and ancillary investments, with a goal of generating value-add returns of 10% on a net basis:

Investment Focus
Diversified U.S. income fund, focused on opportunistic CRE investments

Investment Returns
10%+ estimated returns with regular dividends to investors, earned from the fund’s CRE investments.

Target Fund Size
Target fund size is $50 million, currently fund raising.

Investment Period
Two-year investment period from final investor close - expected 12 - 18 months following launch.

Liquidity
In-house strategic partner platform to facilitate secondary market trading of real estate shares and digital tokens.

Experienced Team
Experienced team with 30 years average experience and more than $500M raised in the U.S.

Exit Strategy
Upon exit from investments, capital will be reinvested into additional real estate investments.

Financial Snapshot

Financial Highlights

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Secondary Market

Growth of REAL ESTATE Secondaries

While real estate is largely illiquid and intended to serve as a long-term investment, private funds typically have lives of 7-10 years. This timing mismatch can create opportunities in the secondary market.

Transaction volume in real estate secondaries has experienced tremendous growth as both limited partners (LPs) and GPs look for flexibility and liquidity in managing their private market investments (see Figure 1).

Assets under management for real estate secondary funds almost tripled between December 2016 and June 2020, from $9.3 billion to $27 billion.3 Today, real estate represents approximately 5% of the overall secondary market, which continues to be dominated by private equity assets (see Figure 2).

Transaction Volume Has Grown Significantly for Real Estate Secondaries

Source: Greenhill, Evercore, June 2020

The Rise of GP-Led Recapitalizations

LP-led deals are the more traditional type of secondary transaction. They involve the sale of a fund interest from an LP that wants to liquidate prior to the fund’s termination. Traditional secondaries provide those LPs with liquidity (for example, to meet capital constraints), allow them to lock in gains early and/or give them a way to reduce their over-allocation to an asset class.

Investors that purchase those secondary interests, on the other hand, can potentially gain access to high-quality assets at attractive valuations, J-curve mitigation, higher current income, shorter payback periods and greater diversification. Exposure to secondaries can also broadly augment a defensive, risk-adjusted approach to investing in real estate.

GP-led transactions are a more recent phenomenon. GP-led is a broad category that encompasses a number of ways in which a GP can generate liquidity for itself or its investor base, including recapitalizations, tender offers and spinouts.

For GPs, engaging in a secondary transaction can confer several benefits:

Accelerate liquidity and lock-in gains for their LPs
Add strategic and/or long-term investors to their investor base
Retain many of their best assets while realizing additional upside
Obtain fresh capital for new or follow-on investments
Deliver more customized solutions to their LPs

GP-led transactions can also provide several benefits to both primary and secondary LPs, such as opportunities to:

Reset the fund’s economics to better align the GP’s interests with those of the LPs
Realize returns earlier in their investment or lock-in gains
Generate liquidity
Manage or re-balance their portfolios
Target high-quality assets that are difficult to buy directly
Roll-over into the GP-led recapitalization

As a result of these benefits, GP-led transactions have become a more prominent share of the overall secondary market in recent years. GP-led recapitalizations are estimated to represent 50% of the overall secondary market in 2020, up from 32% in 2019—a trend we expect to continue (see Figures 4 and 5).

Hypothetical GP-Led Recapitalization

A GP is managing a diversified fund portfolio of commercial real estate assets.

The portfolio is considered high-quality for several reasons:

The assets are more than 90% occupied, with an approximate five-year weighted-average lease term
The expected average cash-on-cash yield is in the high single digits
The tenants are high-quality and operate in strong industries
Cash flows are stable with mark-to-market upside in rents
The assets are in a city with strong rent growth, low vacancy rates and other attractive characteristics.

The fund is about midway through its term—the business plan is partially executed but the fund is low on dry powder. The investment still has significant unrealized growth, but the LPs are seeking liquidity. Meanwhile, the GP sees potential for additional upside and wants to obtain follow-on capital to further develop the assets. So the GP then turns to the secondary market.

After negotiating financing and other terms, the GP enters into an exclusivity agreement with a strategic long-term investor. Through the agreement, the investor will acquire up to 95% of the portfolio from existing LPs while the GP commits 5% to the continuation fund. The GP’s incentives are also reset based on current net asset value and the current return profile of the investment.

Going forward, the GP will be able to continue to manage the assets, receiving the capital it needs to realize additional upside, while adding a strategic long-term investor to its investor base. The secondary investor, meanwhile, is able to gain exposure to these high-quality assets with a strong alignment of interest with the GP.

A Path to Value Creation

Documents

Project Title	Document Title	Action
USA REIT Diversified Income Fund	PPM	View
USA REIT Diversified Income Fund	Executive Summary	View

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Terms

Growth of REAL ESTATE Secondaries

While real estate is largely illiquid and intended to serve as a long-term investment, private funds typically have lives of 7-10 years. This timing mismatch can create opportunities in the secondary market.

Transaction volume in real estate secondaries has experienced tremendous growth as both limited partners (LPs) and GPs look for flexibility and liquidity in managing their private market investments (see Figure 1).

Assets under management for real estate secondary funds almost tripled between December 2016 and June 2020, from $9.3 billion to $27 billion.3 Today, real estate represents approximately 5% of the overall secondary market, which continues to be dominated by private equity assets (see Figure 2).

Source: Greenhill, Evercore, June 2020

The Rise of GP-Led Recapitalizations

LP-led deals are the more traditional type of secondary transaction. They involve the sale of a fund interest from an LP that wants to liquidate prior to the fund’s termination. Traditional secondaries provide those LPs with liquidity (for example, to meet capital constraints), allow them to lock in gains early and/or give them a way to reduce their over-allocation to an asset class.

Investors that purchase those secondary interests, on the other hand, can potentially gain access to high-quality assets at attractive valuations, J-curve mitigation, higher current income, shorter payback periods and greater diversification. Exposure to secondaries can also broadly augment a defensive, risk-adjusted approach to investing in real estate.

GP-led transactions are a more recent phenomenon. GP-led is a broad category that encompasses a number of ways in which a GP can generate liquidity for itself or its investor base, including recapitalizations, tender offers and spinouts.

For GPs, engaging in a secondary transaction can confer several benefits:

Accelerate liquidity and lock-in gains for their LPs
Add strategic and/or long-term investors to their investor base
Retain many of their best assets while realizing additional upside
Obtain fresh capital for new or follow-on investments
Deliver more customized solutions to their LPs

GP-led transactions can also provide several benefits to both primary and secondary LPs, such as opportunities to:

Reset the fund’s economics to better align the GP’s interests with those of the LPs
Realize returns earlier in their investment or lock-in gains
Generate liquidity
Manage or re-balance their portfolios
Target high-quality assets that are difficult to buy directly
Roll-over into the GP-led recapitalization

As a result of these benefits, GP-led transactions have become a more prominent share of the overall secondary market in recent years. GP-led recapitalizations are estimated to represent 50% of the overall secondary market in 2020, up from 32% in 2019—a trend we expect to continue (see Figures 4 and 5).

Hypothetical GP-Led Recapitalization

A GP is managing a diversified fund portfolio of commercial real estate assets.

The portfolio is considered high-quality for several reasons:

The assets are more than 90% occupied, with an approximate five-year weighted-average lease term
The expected average cash-on-cash yield is in the high single digits
The tenants are high-quality and operate in strong industries
Cash flows are stable with mark-to-market upside in rents
The assets are in a city with strong rent growth, low vacancy rates and other attractive characteristics.

The fund is about midway through its term—the business plan is partially executed but the fund is low on dry powder. The investment still has significant unrealized growth, but the LPs are seeking liquidity. Meanwhile, the GP sees potential for additional upside and wants to obtain follow-on capital to further develop the assets. So the GP then turns to the secondary market.

After negotiating financing and other terms, the GP enters into an exclusivity agreement with a strategic long-term investor. Through the agreement, the investor will acquire up to 95% of the portfolio from existing LPs while the GP commits 5% to the continuation fund. The GP’s incentives are also reset based on current net asset value and the current return profile of the investment.

Going forward, the GP will be able to continue to manage the assets, receiving the capital it needs to realize additional upside, while adding a strategic long-term investor to its investor base. The secondary investor, meanwhile, is able to gain exposure to these high-quality assets with a strong alignment of interest with the GP.

A Path to Value Creation

USA REIT Diversified Income Fund

Overview of USA REIT

Opportunities in Commercial Real Estate

Traditional real estate investing historically is problematic…

USA REIT solves accessibility & liquidity problem

Surging Demand for Alternative Investments, Particularly Real Estate Related Investments

What USA REIT offers:

Company Info

Investment Highlights

Fractional Investing & Digital Assets

Fund Strategy

Diversified Income Fund

Financial Snapshot