I am pleased to provide the LYNK Capital Fund Year End 2017 Investor Report. In addition to the year end information, this report will cover the fourth quarter along with our life-to-date Fund results. As we begin 2018 the LYNK Fund will be in its fifth year of operations as a mortgage investment Fund. The Fund has achieved double digit profitability every year since inception, and I foresee the same or improved results over the next few years.
Overall, results in the Fund for 2017 supported our beginning of year forecasts and expectations. The non-institutional loan marketplace remains an important component for real estate investors, builders and contractors borrowing needs. Demand for renovation, construction, and bridge loans was steady throughout the year and this demand continues to create a solid investment opportunity for the LYNK Fund Investors. The Fund achieved growth in many areas of loan production, assets under management and equity for 2017. Total funded loan volume for the year was $44,884,539 and represented 122 new loan assets. Net assets under management (AUM) grew by $28,183,398 and ended the year at 65,067,198, or a 76% increase for the year. Demand from investors was strong as investors added $11,134,598 in Equity, taking the year end equity total to $34,600,357, or an increase of 47.4% for the year. The Fund received 61 loan payoffs totaling $17,511,979. Investor net returns for the year was 11.03%, a slight decrease from 2016. This decrease in yield to investors was mainly attributed to the single-family renovation loan or fix and flip loan product interest rate decreases. Market pressures on this loan product have pushed loan yields down significantly over the past few years. As a result, overall average note rate or top line interest rates in the Fund have fallen by over 90 basis points in the past 18 months. 2018 top line note rates should hold steady between 12.20% and 12.5%.
In 2017, the Fund added New Jersey to its lending marketplace. As of yearend, only one transaction was closed in New Jersey. Overall lending is diversified over the ten total states and four loan programs providing less concentration of risk in any one geography or loan program.
Q4 2017 HIGHLIGHTS
The Fund began the quarter with 108 assets totaling $61,838,532 and added 29 new loans for $15,077,799 and received 17 loan payoffs totaling $9,902,600 and also received $1,956, 533 in loan paydowns producing a net increase of $3,218,666 in assets ending the quarter with 120 assets under management. The increase in assets under management produced only an 5.2% increase for the quarter; ending the quarter with $65,057,198 in total assets. The Fund’s equity in the quarter grew by $2,065,928 taking the Fund’s total equity to $34,600,357 for an increase of 6.22%.
Q4 2017 BY THE NUMBERS
- Total number of transactions funded in quarter – 29
- Total number of transactions paid off in quarter – 17
- Total dollar amount funding in quarter - $15,077,799
- Total repayments in quarter - $9,902,600
- Growth in equity - $2,065,928
- Percent of loan delinquency 60+ days – 2.98%
- Investor return -11.03%
2017 BY THE NUMBERS
- Total number of transactions funded in 2017 – 122
- Total number of transactions paid off in 2017 – 61
- Total dollar amount funding in 2017 - $44,884,539
- Total repayments in 2017 - $17,511,979
- Growth in equity in 2017 - $11,134,598
- Investor return for 2017 - 11.03%
The charts below represent portfolio information as of 1/20/2018.
No significant changes to report in the Fund operations in 2017. One additional team member was added to loan servicing and construction management. In 2018, as assets under management continue to grow, several additional construction management resources will be hired. Construction loan management and overall asset management will remain a key area of focus for the LYNK Fund.
A new advisory board has been established for the Fund and we are pleased to announce the members of this advisory board. The advisory board will be made up of seven members to include three internal board members and four outside members. The internal members are Ben Lyons, Alex Fink, and Matt Brothers. The outside board members are Randy Williams, Mark Butler, CPA, Pat Svoboda, and Jay Dackman, ESQ. More background on these individuals can be viewed on the LYNK website.
Loan delinquency (loans that are 60-days or more late) have increased in the fourth quarter to 4, representing 2.98% of the portfolio. The Fund has funded a total of 244 transactions since 2013 and the total number of loans that have become 90 days or more and put into a foreclosure status, has been 3, representing 1.22% overall. As of this report, only 1 property has been fully foreclosed in almost 5 years of operations. The 30+ days loan default rates did increase in 2017, however the overall loan default rates have been below projections. Loan defaults currently do not represent any significant risk to the Fund’s investment returns.
The outlook for the Fund over the next few years looks promising with consistent new loan production expectations and investor returns to remain steady between 10% and 12%. The areas of focus and improvement for the Fund are: completion and sale of non-accruing real estate assets that were purchased several years ago for resale, replacement and increase of low cost debt, and additional resources to remain in control of asset growth. Investor capital preservation coupled with increases in investor returns will remain our primary focus with loan production and asset growth as a subordinate priority to risk management. As in previous reports, the elimination of the seven million in non-income producing assets coupled with low cost debt, investors should see returns increase above 12% with a target of 13% sometime in 2019.
The Fund will continue to diversify the loan portfolio from a geographic and loan product strategy in the entire ten state footprint. Four loan products will continue to be originated to include single-family renovation loans, single-family new construction loans, multi-property renovation and construction loans, and commercial bridge loans. While the Fund will continue to put its priority in originating single-family renovation loans, there is great demand and investment opportunity in new construction lending.
As most investors know, the economic climate has been accelerating and more lenders, both Institutional and non-institutional, have entered the lending marketplace to compete with the LYNK Fund. In addition to the number of lenders creating more competition for new loans, there has been an increased number of new investors looking to make money buying and flipping real estate. In the single-family fix and flip business, expectations are that interest rates will continue to compress downward, and more new investors will chase real estate purchases pushing prices higher. LYNK will not be interested in reducing loan pricing and increasing the risk profile therefore the fund could see a higher concentration of new construction loans in its portfolio and fewer fix and flip loans in 2018.
The market indicators that could have an impact on the Fund results will be closely monitored over the next few years. Housing starts, housing inventory, new home sales, existing home sales, household formation, employment, wages and wage inflation, commodity prices or commodity inflation, housing affordability, deregulation, and interest rates all will be watched in an effort to stay ahead of predictions on real estate value declines. Residential housing prices protect the investment capital in the Fund and the decline in housing is the single biggest risk to the LYNK Fund.
In closing, the LYNK management team continues to believe that a real estate secured investment remains one of the best investments, on a “risk-adjusted” measure, in the marketplace today. We remain optimistic that for the foreseeable future, loan demand and real estate valuations, will support the LYNK Capital Fund business model.
On behalf of the management team and staff at LYNK Capital Fund, we thank you for your continued confidence in our ability to manage your investment capital and we look forward to communicating a successful 2018 and beyond.
Lynk Capital, LLC
LYNK Capital, LLC is open to Accredited Investors only. In purchasing securities through a 506(c) Offering, the Company (“LYNK Capital, LLC”) is obligated to verify any participating investor’s status as an accredited investor in accordance with Rule 501 of Regulation D Investor Verification Standards and Protocols. Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. This and other information are contained in the Fund’s Private Placement Memorandum dated August 1, 2014, which may be obtained by contacting LYNK Capital, LLC. Please read the Private Placement Memorandum carefully before you invest. A word about risk: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements regarding future events and/or the future performance of the Fund are subject to certain risks and uncertainties that could cause actual events or the actual future results of LYNK Capital, LLC to differ materially from such forward-looking statements. Any historical performance data contained herein represents past performance and does not guarantee future results; current and future performance may be different than the performance data presented. LYNK Capital, LLC is not required to follow any standard methodology when presenting performance data and its performance may not be directly comparable to the performance of other similar funds.