Update Letter to Investors (Samples / Advice Requested)

[Brandt Hollander]

I am preparing to send the first of what I intend to be a series of quarterly updates to the limited partners of a small syndicate of which I am a general partner.  I am looking for advice on structure of the update and pertinent information to include.  The partnership owns a single multifamily asset which is being held for cashflow with an intent to redevelop in the next cycle.  Bonus points for anyone willing to share a template / sample letter that they have sent or received in the past.  Thanks in advance.

[John Jacobus]

@Brandt Hollander  I have read hundreds of investor letters and general status updates to capital partners. I've found that a majority of the effective investor update letters include some or all of the following:

• Detail on key accomplishments or events that have occurred during the quarter
• Information and status updates on major in-flight activities that span multiple quarters
• Detail on issues and risks that have emerged since the last update
• Financial update: actual results relative to plan with commentary on major variances from plan
• Relevant information affecting your market, asset type, macro-level detail
• Administrative detail affecting LP's/Members (i.e., tax matters, upcoming distributions, capital calls, etc.)

Here are a few things to keep in mind when deciding how to move forward with architecting the format of your periodic updates to investors:

• Tailor the level of detail to your investors. Analytical types will want more detail, in which case I recommend that you provide links to supplemental materials that they can review (T12 financials, current rent roll, bank statements). Others who are more passive and may not have the background or interest in the detail will just want key highlights. You will need to strike a balance based on the personality and professional background of your investors. My personal preference is to provide high level bullet points with links to supporting materials for those who want to dig into the detail.
• There are a variety of options with respect to the medium that you employ. My personal preference is email + recorded conference call/webcast. Consider one or a few of the following:
  • Email
  • Recorded conference call/webcast
  • YouTube video
  • Narrated webcast
  • PDF/Word document (formal letter)
• Focus only on what's relevant and important. My personal pet peeve is when investment managers provide long narratives on the economy, the geopolitical landscape, provide reckless forecasts, and opine on other macro topics in their quarterly updates. This is usually irrelevant and, most importantly, deters your investors from absorbing the relevant information affecting your asset. Your primary goal as a sponsor is to ensure that your investors hear and absorb the key events, issues, and risks affecting your asset that have come up in the latest period. With this in mind:
  • Don't overwhelm your investors with detail.
  • Be transparent by disclosing the key information that you would want to know if you were in your investors' shoes. Don't go overboard with detail.
  • Encourage your investors to reach out to you separately if they have questions or need additional detail.

Below is a sample template that mirrors some of the advice above. I recommend using email while also providing a link to a recorded webcast where you cover the details of the period and perhaps run through Q&A with another partner, property manager, or other member of your team.

Medium: Email + link to recorded webcast

Frequency: Quarterly

Example:

Subject: Q1 2017 Partner Update - Wobegon Plaza

It's been quite a quarter at Wobegon Plaza, out here on the prairie. We continue to execute better than expected despite the fact that our property is in a town that time forgot and decades cannot improve. While the key highlights of the quarter are summarized below, consider viewing our recent webcast <hyperlink> where I cover the details of the quarter and answer several questions that I have received in the past few months. Additionally, please do not hesitate to contact me at XYZ ZYX with additional questions. Thank you, as always, for your partnership. It’s an honor to be a steward of your wealth.

Key Accomplishments:

• February marked our successful transition to a new property manager, Lakeshore Partners. We are thrilled to have the most experienced small multifamily operator in the market as our partner and have already seen tangible positive results stemming from their new operating plan. Join us on our webcast <link> where we interview Gary Keylor, Operations Manager at Wobegon Plaza, and cover our short-term plans for enhancing resident engagement, driving rent growth, and addressing recent crime at Wobegon Plaza.
• We continue to make progress with implementing a RUBS program throughout the property. As of March 31, 75% of our units are enrolled in the RUBS program, up from 35% last quarter. We expect to complete the roll-out by Q2 2017 and are projecting $40,000 - 50,000 annually in incremental operating income.
• In our last update, we announced our plan to upgrade half of our units to "Premium Units" with the goal of boosting rents by 30% and attracting higher quality tenants. In Q1 2017, we completed upgrades of 4 units, all of which have been leased at rates 27%-32% above prior leases. We will continue to upgrade units as leases expire until we hit our goal. At this point, we anticipate all planned units will be upgraded and leased by the end of Q4 2017.

Financial Update:

• The property is currently operating at 94% occupancy, consistent with the past two quarters. <Link to Rent Roll>
• We are trending above plan for our trailing 12 month NOI as a result of rapid enrollment in the RUBS program. Detailed financials with actuals relative to plan can be found here . I provide highlights on key variances to plan in our webcast
• New units are leasing at rates $25-$30 above expectations last quarter. We will continue to be aggressive in driving growth in rents as we expect to benefit from the thriving business ecosystem of the greater Lake Wobegon area.

Capital Improvements:

• As mentioned above, we completed upgrades of 4 units to "Premium Units". I recently toured an upgraded unit and have included pictures <link to pictures>. Our new and existing residents really like the glass tile and stainless appliances, and they're willing to pay ~30% more than current levels for these amenities. We have received significant interest in our upgrade program from existing residents and now have a waitlist for completed “Premium Units”. We are encouraged by this recent success and are confident about executing the upgrades for the remaining units by the end of Q4 2017. We've included our pro-forma reflecting the anticipated timing of the upgrades and resulting rent increases for the upgrade program <link to pro-forma>.
• Our dog park is complete. The final expenditures were $2,000 less than projected due to the favorable weather in March. I’ve included pictures from our opening day <link>

Issues and Risks:

• We suffered damages to our roof during last month's hail storm. Repairs are in progress and it will cost $10,000 to restore the roof to normal working condition.
• Several burglaries have been reported in the past 6 weeks. Gary at Lakeshore Partners is working closely with the local police to determine an action plan. Join our webcast to learn more about what is being done and considered to address this issue.

Lake Wobegon Market Update:

• Lake Wobegon has long been a magnet for business due to it's reputation as the town where all the women are strong, all the men good looking, and all the children above average. It seems Google and Amazon have taken notice with their recent announcements (link 1, link2) to open new data centers in the northwest industrial district. 5,000 new jobs are anticipated as a result of these announcements. We believe we can attract a portion of the new employees to Wobegon Plaza with our “Premium Units” and our proximity to the new job sites.

Partnership Matters:

• All partners should have received their form K-1 in February. Please contact me for assistance.