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Bonus Episode – Investor Presentation and What’s New with Upside Avenue

Our Director of Investor Relations, Rosch Wadera, sat down with Casoro Group’s Chief Marketing Officer, Jessica Lee-Wen, to update everyone on what’s new with Upside Avenue and how the REIT has been performing this past quarter.

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[00:00] Jessica: Hello everyone and welcome to this episode of Upside Insights. We are excited to have Director of Investor Relations, Rosch Wadera, here with us today to update us on what’s new with Upside Avenue and how the REIT has been performing this past quarter. Hello Rosch, how’s it going? 

[00:34] Rosch: Yeah, very good. Just trying to stay cool in the Texas heat. 

Jessica: Yeah, these hundred degree summers are no joke, that’s for sure. Well, we’re really excited to get into how Upside Avenue, the REIT, has been performing this past quarter, but we also know that you’ve got some really, really exciting news to share as well. But let’s get through some of the usual things that we need to get through first. Past performance does not guarantee future results, and if you are considering investing in Upside Avenue’s REIT, we urge you to do your due diligence. Read our prospectus and subsequent filings, and consult with professionals to make sure that this is the right product for your portfolio. You can get a link to read that through contacting hello@upsideavenue.com or you can also check the SEC website as well. 

[01:38] Rosch: So yeah, that’s actually a great point Jessica, is that you can go use this link here that we have in our investor presentation to review all of our SEC filings and I think that’s something that a lot of folks often overlook is that we have audited financials on an annual basis since inception in late 2017 that are just publicly available for anyone to go and review. So definitely, anyone that’s interested in investing check out our link over there and review those filings and our prospectus. There’s a great deal of information, and as you guys see here, there’s my contact information on this slide so you can reach out to me directly as well with any questions regarding our information to help folks do their due diligence, and even for a copy of this investor presentation, happy to send it over. But yeah, great, great point. Thank you for bringing that up, Jessica. 

[02:35] Jessica: Yeah, absolutely. Just for anyone who’s not familiar with Upside Avenue, can you summarize what that is? 

Rosch: Yes, absolutely. So Upside Avenue is a non traded real estate investment trust. So a real estate investment trust is just the IRS classification for tax purposes, that it doesn’t pay any taxes because it flows through over 90% of its income to our shareholders and non-traded just means that it’s not traded on a national Stock Exchange. So to buy shares and to sell your shares you do it directly with us, the company, not through a broker or through a Stock Exchange, or other folks commonly refer to it as privately held. But it’s a REIT, so obviously it owns real estate. You know, what specific type of real estate do we own? And that’s a multifamily apartment homes, so we have here on this slide some of the key points that you know I’ll quickly run through for the folks to kind of give the, you know, within 5 minutes, all of the major points, what is Upside, and why is it a good investment. 

[03:46] Rosch: So first and foremost, as we mentioned, multifamily apartment homes. So this is a very quote unquote recession resistant asset class in the sense that it provides a need for society, affordable housing in specific. Most of our apartments are Class B, so in that affordability range for folks. So, many experts believe that in times of a recession, and it’s actually been shown historically, we have references here as well, that demand continues for multifamily assets as opposed to say, theme parks, or, you know, other discretionary spending, you know, fine dining, and whatnot. So, if you think of it as an investment, you want to think of it in terms of how does it operate through various market and economic cycles. And then we’re located in Texas, as we mentioned, so although it’s sweltering hot right now, it’s still an extremely attractive place to be. We have had consistent population growth, 6% per year since 2016, and we have some of the largest major metros in the country, San Antonio, DFW, Houston. These are all growing markets and so these are the areas where our assets are located and so the land values continue to be going up and up because of these favorable macroeconomic trends. Another key point about Upside Avenue is that we’re managed by the Casoro Group, so our employers for me and Jessica, and the Casoro Group is an experienced operator with a 20+ year track record of success in these Texas markets. They have been doing multifamily, value-add, and development in Texas for over 2 decades. And, in fact, as we had alluded to in the beginning, if you go and review our SEC filings in our prospectus, we actually go back 20 years and show every deal that Casoro has been invested in and what rate of returns and exit multiples they’ve got on those deals so that you can do that diligence on our deep history and track record yourself. Another key benefit is that by purchasing shares of our REIT, you’re immediately diversified across all of the assets that the owns, as opposed to, say, making a direct investment into just one asset that may be higher on the risk profile, whereas with Upside, similar in the return profile,but you might be de-risking by diversifying across the portfolio of assets that we’ve already amassed. We pursue both value-add and development, as I mentioned before. This is particularly attractive to diversify across market cycles and in some stages of the economic cycle, one strategy may be more attractive or appealing than the other,and so fortunately we’re capable and able to pursue both strategies, and we do pursue both strategies currently. We’re vertically integrated, Jessica, as you know, our subsidiaries over here, Clear Property Management, utility management conducted by Performance, general contracting by Ingenium, so it just means that there’s not so much, we don’t outsource all of our work, in particular the operations of our assets, which is a key differentiator when it comes to a real estate sponsor, is do they have the capabilities in House to manage their assets themselves so that they can be more disciplined with their approach. We have had no history of economic loss on our portfolio exits to date, so we’ll get into it later, but there have been three positions that the REIT has already exited within the last four years and in each of those cases, we did not lose any money, we made money, and in fact the highest one had an IRR of 36.11%. And lastly, you know, just a key point on inflation. We’re in an environment where there has been higher than normal inflation and many believe that that will continue. And so, real estate is an extremely attractive asset class from that standpoint. 

[07:57] Jessica: So right now it seems like we’re looking at a chart of the current holdings. I see a chart of seven different investments held by the REIT. Can you tell us what’s going on there? 

[08:13] Rosch: Yeah. So, you’re exactly right. Seven investments, or rather 7 positions, that the REIT currently holds. So if you’re investing in Upside or if you’re already an investor in the Upside Avenue multifamily REIT, this is what you own right here. This is what you’re investing in. It’s all multifamily and it’s all Texas, with the exception of Capital on 28th, that’s over in Oklahoma City as you see on the chart over here, and also note over here Sunset Canyon Land, that’s the development project that we referred to earlier. That’s one, Jessica, that I’m particularly excited about, you know, as that’ll add a Class A multifamily project into our portfolio, which generally, but not always,you know, development can generate higher returns. So we’re getting both development and value-add. Another thing you see over here is our largest investment was $2,000,000 and that’s currently invested in the Quinn. It’s an asset over in Houston. It’s a preferred note, so it’s lower on the risk spectrum because it’s ahead of common equity during liquidation. And then, the rest of our assets are structured as common equity, so we have well over $5,000,000 that we have invested across four more major cities, and as new investors purchase new shares of this REIT, we intend to use those funds to continue investing into similar assets following, kind of, these similar investment strategies in these locations and and markets that we have local expertise. 

[09:49] Jessica: It’s great. Now you’re showing us historical financial performance, and I see a line graph of our stock price and it was looks like $10.00 for a couple years and then in Q1 of 2022 it looks like it jumped up to $11.47, what happened there?  

[10:12] Rosch: Yeah, so basically on January 1st of this year, 2022, our manager revalued the portfolio using their internal estimates of the selling cap rates. In other words, what they believe they can sell our assets for, and that resulted in a 15% gain in our share price, which is largely a function of the increase in operating income at the asset level for each of the complexes that we own. So, for example, we’ve been getting higher rental rates on all of our apartment complexes after we’ve done the rehab and and upgrading work on those units to to make them better living spaces, and then there’s also that general appreciation and real estate values that many of us saw first hand in the housing market post COVID, and all of those things contributed to our manager revaluing the portfolio from $10 a share to $11.47. 

[11:10] Jessica: Interesting, interesting. But how often can we expect the change in stock price and can the stock price go down? 

[11:21] Rosch: So, the manager, Casoro Group, can update the stock price as frequently as every quarter, but it may choose to hold the same price for multiple quarters until substantial changes have occurred to justify a change in the share price. And you’re absolutely right, Jessica, these stock prices can go down. In fact, as of August 1st this year, our shares are being offered for sale at $11.29 a share. But the decline in the stock price isn’t necessarily a bad thing, it usually follows the liquidation of one of our properties. So, for example, we had invested $600,000 in what we refer to as the Chronos Portfolio, so it was a minority interest in a collection of apartment complexes and that interest grew in value based upon our internal estimates to well over $900,000, and we actually sold it at that price. So we had over 50% gain and our estimates were in line and so we sold it appropriately and that was in the less than two year period. But going back to what I was saying about the change in the stock price and that it can go up and down and if it goes down, it’s not necessarily a bad thing. See, when we had it at the $11.47 a share, it’s because there was that $300,000 increase in our interest in the Chronos Portfolio, so these unrealized gains, not in just the Chronos Portfolio, but also in all the other assets that we own. When we sell, however, we pay out all of those gains to our shareholders, so there was close to $300,000, as I mentioned, that was then paid out to our shareholders after we have liquidated that portion. The original $600,000 was reinvested. So, naturally, that $300,000 of gain that we had got in that asset is no longer held by the portfolio because we paid it out to our shareholders. And then in that case, the portfolio will be revalued. So it’s not uncommon for our share price to potentially go down again in the future, but it would generally be accompanied by a larger payment as you see here on this graph towards the end that annualized dividend payment of 12.9%, which more than compensates for the decline. For that net, we have been generating positive returns for our shareholders. And actually just let me repeat that last part, Jessica. We have over 300 investors currently and not one of our investors has lost any of their money in Upside Avenue not only our current investors, but any of the other folks that had already exited and liquidated their position in Upside Avenue We have not lost money for any one of our investors in the history since since we’ve been around for over the last four years. 

[14:13] Jessica: OK, Rosch, that sounds wonderful and all, but what about rising interest rates? How does that affect our stock price? 

[14:24] Rosch: Right, so I’m very glad you brought up that question, Jessica. This is something that we have been very transparent about and we need every single investor to be aware of because they’re not just our investors, we view them as co-owners in the business, and so this is an industry wide issue that we’re all facing. As interest rates rise generally, but not necessarily, the selling price for our assets may decline for the obvious reason that the buyers of our properties cannot borrow funds as cheaply as they could in a low interest rate environment. So we may then shift and transition into a longer term hold strategy of our assets as opposed to a short term sale like we did with Cronos, where we captured a large gain in a short amount of time generating a higher RR. Instead, we may shift or transition to a longer term hold because in the meantime rental revenues have increased for all of our assets. We have a slide on that that we can check out later. So operating income has gone up thanks to our folks in our in-house property management by Clear Property Management and the demand for our housing units has not slowed down, so there are these industry wide factors that are going on. In particular, the rising interest rates, but operationally, we’ve been seeing levels go up and in terms of demand, that has not slowed down. 

[15:53] Jessica: OK, so that’s interesting. So rising interests are an industry wide phenomenon affecting everyone. Let’s go back to the specifics of Upside then, walk me through these last two investments Upside Avenue made and the manager’s rationale. 

[16:13] Rosch: Yeah, definitely. So going back to the specifics of Upside Avenue because I think that’s what folks, and our shareholders in specific, want to know what’s going on, right, what’s going on operationally at the ground level. So these are our last two investments that you have here on the slide. So it totals just over $1,000,000 between the last two investments that we made. So that’s over a million of our shareholders’ capital that we quickly put to work. And of that million, and some change, it’s almost evenly split between the Jax and CG Sunset Land. These two investments are similar in that they’re both in San Antonio, but one is the development play, meaning new construction of Class A multifamily that we had mentioned earlier, and the other is our actually adding more money into an asset that we’ve already invested in. So the Jax we already had an interest in, we just put another half million to buy out other financial partners and further increase our investment in that asset. 

[17:18] Jessica: OK, and these two are both in San Antonio. Why San Antonio? 

[17:25] Rosch: Jessica, have you been to San Antonio? I know you have. 

[17:30] Jessica: Not in a while, but yes, I have been to San Antonio. 

[17:33] Rosch: OK, OK, so. You know, if you ask me, it’s because of the Riverwalk, it’s because it’s a lovely place to live and it’s just, it’s a beautiful place and it’s growing. But the official answer is, look at the data over here. I mean, the graphs really speak for themselves, right? So wages and San Antonio have grown by 22% since 2017, so the population is experiencing higher income and if they’re experiencing higher income, then they’re able to pay more for upgraded housing options and solutions, which is what Upside provides and the population has consistently been increasing year after year, so it’s an area where we can find assets at better prices than you would find in overheated markets like New York City or San Francisco, for example. But San Antonio is no small town, although it has that nice Riverwalk small town charm, it’s really a growth market when you look at the population, the employment, and the income dynamics. 

[18:37] Jessica: Yeah, definitely a fan of San Antonio then. But at the same time, I appreciate that we still have heavy concentrations in other cities, so we’re well diversified across multiple cities. 

[18:52] Rosch: Yeah, exactly, and I think the other key point here on this slide is that the CG Sunset Land investment that we made now diversifies our investment capital into a development level returns in addition to our bread and butter value-add, which I feel is something that a lot of people overlook. So if we have over half a million invested in this 16.6 acre parcel of land, but it’s not producing any cash, not yet, and it won’t for another three years or so until the complex has been fully constructed and leased out so it doesn’t factor into our dividends today, it doesn’t necessarily factor into our share price today, in terms of the cost basis is reflected in our share price, but any appreciation in the land hasn’t been reflected. And so that’s why I refer to it as hidden value that’s within the Upside Avenue portfolio in my opinion because, you know, you have this project that we know or at least has the potential not guaranteed to generate high level returns when the project is completed, but not necessarily impacting or adding to our dividends today. So something we’re all very excited about over at Upside Avenue and the Casoro Group. 

[20:10] Jessica: OK. So, we’re looking at the Upside Avenue track record now and I see here all the positions Upside has completed and exited to date, which is 3 in total. It looks like Chronos really knocked it out of the park with a 36% IRR. 

[20:31] Rosch: Yeah, that was crazy. A 50% gain, so we turned the dollar into a dollar and 50 in less than two years.  

[20:31] Jessica: Yeah, and then you have Highland Cross Notes and the Water Ridge Preferred Note, which had a 14% and 8% IRR respectively. 

[20:48] Rosch: Yeah, and that’s typical, you know, because one is a debt investment, the Highland Cross Notes, and the other was a Preferred Note, Water Ridge. So you would expect a lower rate of return on a debt or preferred notes than you would in growth equity investments like Chronos, for example. But keep in mind that it’s also that generally more stable and so that the Highland Cross Notes and the Water Ridge preferred equity are lower risk investments on the capital stack. 

[21:18] Jessica: Gotcha, gotcha. As much as I like the 36% IRR from Chronos, I really do appreciate that the manager is also balancing that out with more conservative investments to properly mitigate, but by no means eliminate, the risks inherent in every investment. 

[21:40] Rosch: Yeah, exactly, exactly, so definitely, you know, hoping folks feel free to reach out to any one of us. We would love to share the presentation.Our information is made publicly available and it’s it’s been a great chat with you, Jessica, let’s do it again in a couple months and give everyone an update on the investments and how we’ve been doing at that point in time, but lastly, also don’t want to miss you know, congratulations to you, Jessica, our Chief Marketing Officer over at the Casoro Group for being awarded the Women of Influence Award by Globe St. You know, kind of which is the industry standard for news and networking. So congrats once again and we hope to keep making money for our shareholders. 

[22:30] Jessica: Thank you Rosch, thank you for that. And before we let everyone go, I just wanted to ask you, what’s the big, exciting news for Upside Avenue right now? 

[22:42] Rosch: Oh, how could I forget?! So, we are live, meaning we have been qualified, gone through the extensive exemption process to get to the point where folks can buy our shares directly from our website at upsideavenue.com and you can create your own account there. Our minimum investment is only $2,000 and yeah, our website is open 24/7. At any point in time, anyone that wants to to join the party and get access to multifamily, Texas real estate with a very low minimum to get started or anyone that just wants to diversify their current portfolio, upsideavenue.com would be a great place to start.  

[23:29] Jessica: Great. Is this just for accredited investors, Rosch? 

[23:34] Rosch, Good question. And no, it’s not. Whether you’re accredited or not, you can invest with us, which has been a very big barrier in the real estate industry. Most of the real estate sponsorship opportunities or investment programs that I’ve looked into, at least you have to be accredited and generally the minimum is $50,000, neither of which is the case with Upside Avenue. It’s pretty much open and available to anyone and everybody. 

[24:04] Jessica: Fantastic, and I believe the minimum investment is only $2,000, so we’re definitely trying to open it up for everyone to reap the benefits of dividends and appreciation and all the good things that come with real estate investments. 

[24:19] Rosch: Exactly. 

[24:19] Jessica: Thank you, Rosch, for taking the time for updating us on what’s been happening with Upside Avenue and the performance and as well, thank you everyone for joining us for this episode of Upside Insights.If you have questions about the REIT, please contact Rosch at hello@upsideavenue.com and we hope that you’ll follow us by hitting that subscribe button or that like button so you can stay up to date with the latest news at Upside Avenue.  Thanks Rosch, and we’ll talk to everyone another time, stay safe.  

[24:56] Rosch: Thank you. 

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