Commercial Real Estate

Evaluation of Holding, Refinancing orSale/Investment in APFC Managed Funds

July 30, 2020

Questions Addressed

• Should the Trust sell the Commercial Real Estate assets and reinvest in financial assets managed by the APFC?

• If the assets are held, is the current financing optimal, or are there alternatives that can improve cash flow for Trust benefit?

• Are there legislative, legal or financial risks that outweigh the benefits of the financing options?

Overview of Properties’ Value, Financing and Leasing Status$MM

Cordova (2011) Commercial (2013) Rulon (2013) Israel (2014)(TLO) (Cummins) (IRS) (WA)

Current Value: $4.100 Current Value: $2.870 Current Value: $20.100 Current Value: $18.860Debt: $0 Debt: $1.010 Debt: $6.556 Debt: $6.809

Rate: 3.94% Rate: 4.20% Rate: 4.35%Prepay Penalty: None Prepay Penalty: None Prepay Penalty: $0.506

Ridgepoint (2015) San Pedro (2015) Amber Glen (2016)(Promontory Point, TX-DOT) (North Park, Marriott) (Amber Oaks, Xerox)Current Value: $15.500 Current Value: $13.500 Current Value: $27.644Debt: $9.408 Debt: $6.628 Debt: $11.592Rate: 4.69% Rate: 5.20% Rate: 4.25%Prepay Penalty: $1.158 Prepay Penalty: $0.197 Prepay Penalty: $1.573

100% occupied, includes TLO 100% occupied with anticipated lease renewal

100% occupied with long-term, strong-credit, single-tenant lease

WA purchase option at 98% of appraisal. Current lease negotiations expected to set a reference rate for 2023 renewal

100% occupied. DOT backfilling upcoming vacancy

Active leasing showings to fill vacancies, including potential October vacancy

Active leasing showings to fill vacancies.

CRE assets have generated a 7% average annual unrealized gain since purchase

FY20 Value: $102.6MMDebt: $42.0MMTrust Equity: $60.6MM

Rulon, Amberglen, Commercial and Israel show strength. San Pedro and Ridgepointare expected to strengthen with new leases.

$MM

%Annualized

$5.0 $6.9

$5.8 $6.8

$0.9

$9.4

$4.4

$(0.88) $(0.07)

$0.29

$5.26

$0.92

$6.69

$9.14

-5%

0%

5%

10%

15%

20%

$(2.0)

$-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

Cordova'11

San Pedro'15

Ridgepoint'15

Israel'14

Commercial'13

AmberGlen '16

Rulon'13

Initial Equity Unrealized Gain(Loss) Lifetime Annual % Gain(Loss)

Since 2016, CRE’s Performance for the Trust:$1.6MM average annual distribution12% average realized and unrealized gains2016-2020Average Distribution of $1.6MM is below $2.6MM purchase predictionStrong average year-over-year returns 3% Average Realized Return 9% Average Unrealized Return 12% Total

Forecast

$1,309

$1,803

$1,270

$2,034

$1,640

$680

$2,348

$3,363

$2,482

$3,371

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2016 2017 2018 2019 2020 2021F 2022F 2023F 2024F 2025F

Commercial Real Estate PortfolioActual & Forecast Trust Distribution

FY16-FY20 and 5-Year Forecast$000

Note: Status Quo forecast excluding scheduled balloon payments

Since inception, CRE and APFC average returns are comparable, with CRE slightly outpacing APFCFY20 CRE returns are anticipated to outperform both APFC total fund and real estate’s anticipated returns.TLO’s 5-year forecast anticipates more aggressive performance than APFC.

Commercial Real Estate Portfolio and APFC PerformanceAnnual Average Return Since CRE Inception, FY 2020 Estimate and Forecast

Source: FY20 estimate: APFC 5/31/20 1-year returns; CRE: 6/30/20 reports. Forecast source: APFC –Callan FY20 10-year forecast; CRE – TLO 5-year forecast

2012-2019 Average

FY 2020 Estimate

Average 5-yr Forecast

Operating Return 1.8% 1.7% 6.2%Unrealized Gain (Loss) 7.0% 5.8% 3.0%Total CRE Return 8.8% 7.5% 9.2%

APFCFund Total 7.80% 0.0% 7.0%Real Estate 7.79% 0.8%

CRE Portfolio

Refinancing OptionsDecisions are driven by holding strategy,

cash need, and required return

Evaluation using four scenarios

Scenarios• Status Quo

• Six existing amortizing mortgages

• Interest-Only Portfolio Refinancing

• Finance portfolio of seven CRE assets

• Partial Interest-Only Refinancing• Three assets refinanced, three

maintain amortizing mortgages

• Sale of CRE assets, APFC investment management of proceeds

Assumptions• Loans

• 3.7% refinance interest rate• New financing must generate 3% or more

over status quo in present value

• Sale/Invest• Assets sell at 6/20 valuation• 7% long-term APFC return

• Evaluation: 17 years• Transactions: January 2021

Option 1: Status Quo

CRE need estimated cash infusion of $3.93MM in FY22 and $5.96MM in FY26Mortgage balloon payments:

FY22 $ 6.3MM San PedroFY26 $ 8.4MM Ridgepoint

Israel worst case cash support needed: $1.7MM for FY22 and FY23

$0.55

$(3.93)

$3.57

$2.48

$3.54

$(5.96)

$3.58

$4.79 $4.45

$5.18

$4.27

$5.77 $6.20

$6.99 $7.17 $7.30 $8.22

$(12)

$(10)

$(8)

$(6)

$(4)

$(2)

$-

$2

$4

$6

$8

$10

FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36 FY37

Commercial Real Estate PortfolioStatus Quo Forecast: Operating Cash & Debt Service

FY21-FY37

Operating Cash Flow Debt Service Cash Flow After Debt Service$MM

Option 1: Status Quo Requires Action

Alternatives• Draw from existing cash• Obtain new cash

Considerations• Need for Trust Budget Reserves for beneficiary

benefit• Asset values in uncertain commercial real estate

market• Allowable use of proceeds

Option 2: Interest Only Portfolio Refinance

Roll assets into Special Purpose Vehicle (SPV), financing $45.05MM portfolioEstimated interest

payments: $1.7MM per year$45.05MM principal to be

repaid ultimately

$1.61

$4.11

$5.11

$4.01

$5.08

$3.32

$4.48

$5.69 $5.35 $5.25

$4.26

$5.76 $6.19 $6.32 $6.44 $6.57 $6.71

$(12)

$(10)

$(8)

$(6)

$(4)

$(2)

$-

$2

$4

$6

$8

$10

FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36 FY37

Commercial Real Estate PortfolioPortfolio Interest Only Forecast: Operating Cash & Debt Service

FY21-FY37

Operating Cash Flow Debt Service Cash Flow After Debt Service$MM

Note: FY21 includes ½ year of Status Quo debt service

Option 2: I/O Portfolio Refinance is Favorable to Status QuoAlternatives• Long-term holding• Medium to long-term holding with

asset sales and reinvestment in Trust funds managed by APFC

Considerations• Potential to reduce loan prepayment

penalties and secure lower interest rate• Financing terms with substitution or

liquidation rights• Long term benefit of hold v sell/investPros• LLC liability protections are retained in

SPV• Ability of new financing to generate 3%

or more long-term cash benefit over status quo

• Flexible cash flow management at Trust level, not asset level

Option 3: Partial Interest Only RefinanceRefinance three properties as

cash needs occur within individual LLC structuresProjected interest payments

decline from 3.7MM in FY21 to $1.1MM in FY37 Ultimately $21.49MM principal

to be repaidNote: FY21 includes ½ year of Status Quo debt service

$0.37

$2.78

$3.98

$2.89

$3.95

$2.48

$3.64

$4.85 $4.51 $4.41

$3.42

$4.92

$6.02 $6.20 $6.32 $6.46 $7.37

$(12)

$(10)

$(8)

$(6)

$(4)

$(2)

$-

$2

$4

$6

$8

$10

FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36 FY37

Commercial Real Estate PortfolioPartial Interest Only Forecast: Operating Cash & Debt Service

FY21-FY37

Operating Cash Flow Debt Service Cash Flow After Debt Service$MM

Option 3: Partial Interest Only Refinance is Favorable to Status QuoAlternatives• Long-term holding• Asset sales at maturity and

investment of net proceeds

Considerations• Cash management at Asset or

Trust level• Long term benefit of hold v

sell/investPros• Avoidance of $2.9MM prepayment

fees with portfolio refinance• Ability of new financings to

generate 3% or more long-term cash benefit over status quo

Option 4: Asset Sale and Investment in APFC Managed FundSell assets at market values,

netting est. $57.5MM Invest in APFC managed

fund, earning forecast average 7%Draw 4.25% of rolling prior 4

year average $-

$20

$40

$60

$80

$100

$120

$-

$2

$4

$6

$8

$10

FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36 FY37

Commercial Real Estate PortfolioAsset Sale & Investment with APFC: Forecast Principal and Payout

FY21-FY37

Principal Balance Payout

$MM $MM

Option 4: Sale and Investment in APFC Managed FundAlternatives• Sell all assets in near term and

invest• Strategically time asset sales and

investment

Considerations• Ability to forecast both near and

long-term with uncertainty in investment assets

Cash flow after debt service of options have large differences near-term

• Medium-term, CRE cash to Trust begins to converge under hold strategies• Longer term, cash from Status Quo and Partial ReFi exceed Interest Only

Commercial Real Estate Portfolio Forecast Distributions Year 1 Year 2 Year 3 Year 4 Year 5 Year 6Fiscal Year FY21 FY22 FY23 FY24 FY25 FY26

Operational Baseline: Cash Flow Before Debt Service 4,350,983$ 5,776,309$ 6,776,730$ 5,680,093$ 6,744,960$ 4,983,548$

Income Generated Under Alternate Financing Scenarios:Option 1: Maintain Status Quo (No Refinancing) $679,743 ($3,953,378) $3,362,798 $2,482,206 $3,370,617 ($5,859,791)Option 2: Refinance Assets as a Portfolio $1,899,309 $4,239,564 $5,138,342 $4,305,621 $5,189,841 $3,724,430Option 3: Refinancing As Needed $930,598 $2,958,143 $4,012,158 $3,179,437 $4,063,657 $2,872,898Option 4: Sale & APFC Investment $378,320 $632,219 $1,301,818 $2,004,290 $2,734,464 $2,854,297

AMPS requires valuation based on today’s value of future cash flowsEstimated Present Value Cash Flow generated over 17-year horizon:

Status Quo $28.4MMRange: $5.5MM to $36.8MM

Interest Only Portfolio $46.2MMRange: $23.5MM to $54.6MM

Partial Interest Only $38.1MMRange: $15.5MM to $46.5MM

Sale/Invest in APFC $24.3MMRange: $24.2MM to $24.3MM

Considerations• Expected market rates: APFC returns,

financing and CRE returns• Near term cash generation• Current and long-term beneficiary

benefit• Impact of strategic asset

sales and APFC investmenton overall returns

• Specific financing requirements’pros and cons

Discussion