| INVESTOR NEWSLETTER | APRIL 2019 › ... · 2208 29th Street Suite 100, Sacramento, CA 95817 | (855) 889-7626 | socotracapital.com | UPCOMING EVENTS 2019 SACRAMENTO INVESTOR FORUM

2208 29th Street Suite 100, Sacramento, CA 95817 | (855) 889-7626 | socotracapital.com

| INVESTOR NEWSLETTER | APRIL 2019

EXECUTIVE SUMMARY

Thank you for your continued investment in the Socotra Fund and the Opportunity Fund. This newsletter is intended to keep you informed regarding recent Fund performance, as well as provide updates to the overall investment outlook. This letter is not intended to be used for risk management or serve as an investor prospectus.

As of the end of Q1 2019, the trailing twelve month (TTM) return for both funds continues to be 8%-9%.

SOCOTRA FUND

The Socotra Fund’s trailing twelve month (TTM)average yield for income investors is 7.9%. Forthose investors who opt to reinvest the monthlydistributions, the TTM yield is 8.2%. The SocotraFund continues to target low LTV opportunitiesin the amount of $1M-$5M.

The Opportunity Fund’s trailing twelve month(TTM) average yield for income investors is 8.9%.For those investors who opt to reinvest monthlydistributions, the TTM is 9.3%. The OpportunityFund continues to seek transactions withsignificant long term upside potential.

OPPORTUNITY FUND


| SOCOTRA FUND

CASH FLOWS

COLLECTIONS:In Q1 2019, the Socotra Fund collected $16.8M in interest payments and loan payoffs. The amount of payoffs in Q1 2019 was in line with our expectations relative to the total capital in the fund. Our borrowers' regular monthly interest payments continue to perform as expected.

DISTRIBUTIONS & DISBURSEMENTS:The fund made $1.9M in distributions, ~$960K was reinvested and the other $970K was disbursed to income investors.

FUNDINGS, ADDITIONS, & WITHDRAWALS:The fund closed on $21M in new loans during Q1 2019. The fund added $4.2M in new investor capital and processed ~$430K in member withdrawals.

# of Loans: 173 First Lien

Average Loan Size: $570,000

Delinquent Loans 30+ days: 2

Loan Loss Reserve Balance: $1.3M

98.9%

LOANS CURRENT

48.6%

8.2%

LOAN-TO-VALUE

TRAILING 12 MONTHREINVESTMENT

7.9%TRAILING 12 MONTH

INCOME

Average Annual Yield for Income Investors

Average Annual Yield for Reinvestment Investors

SOCOTRA FUND - INVESTOR YIELD THROUGH MARCH 2019PERFORMANCE 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION

7.9%

8.2%

8.1%

8.4%

8.5%

8.9%

8.9%

9.3%

The Socotra Fund presently holds a cash and loan portfolio of ~$102M. Q1 2019 started the year with a slightly lower yield, due in large part to some periods of idle cash. This idle cash period stems from large loans paying off and then redirecting them toward other new loans. The portfolio is exceptionally healthy with ~99% loans current and an aggregate Loan to Value (LTV) of 48.6%. The portfolio is presently allocated ~73% to commercial properties while the remaining 27% is invested in residential loans. The fund’s largest loan is ~3.3% of total capital, indicating no key concentrations exist. The Socotra Fund continues to look for loan opportunities between $1M-$5M at ~50-55% LTV. Looking ahead to the rest of 2019, we expect our yields to increase and continue adding to the loan loss reserve, which will result in a stronger fund that is able to withstand any market headwinds while increasing investor yields.

*As of Mar 31, 2019


| OPPORTUNITY FUND

CASH FLOWS

COLLECTIONS:The Opportunity Fund collected ~$1.2M in interest payments, loan payoffs, and fees during Q1 2019.

DISTRIBUTIONS & DISBURSEMENTS:The Opportunity Fund made ~$234K in distributions during Q1 2019, with ~$105K being disbursed as income and ~$130K being reinvested.

FUNDINGS, ADDITIONS, & WITHDRAWALS:The Opportunity Fund closed on $3.4M in new loans during Q1 2019. The Opportunity Fund added $1.9M in new investor capital and had $175K withdrawn in Q1 2019.

# of Loans: 41 First Lien, 1 Second Lien

Average Loan Size: $290,000

Delinquent Loans 30+ days: 3

Loan Loss Reserve Balance: $145K

94.4%LOANS CURRENT

50.0%

9.3%

LOAN-TO-VALUE

8.9%

Average Annual Yield for Income Investors

Average Annual Yield for Reinvestment Investors

OPPORTUNITY FUND - INVESTOR YIELD THROUGH MARCH 2019

PERFORMANCE 1 YEAR 3 YEAR SINCE INCEPTION

8.9%

9.3%

9.1%

9.5%

9.2%

9.6%

The Opportunity Fund presently holds a cash and loan portfolio of ~$12.3M. The Opportunity Fund finally exited out of the distressed notes that were purchased in mid 2017, which proved to be a success as our loan was paid off on the courthouse steps. The loan portfolio is now comprised of ~47% residential loans and 52% commercial. The Opportunity Fund continues to look for loans with significant equity that can potentially yield long term income, whether it is capital gain or interest income. As the real estate market cools off, we expect to find opportunities to purchase distressed notes or purchase real estate on the courthouse steps. Once we reach a point where a material portion of the Fund's assets are in these types of positions, we will announce a final capital call and close the Fund.

TRAILING 12 MONTH INCOME

TRAILING 12 MONTH REINVEST

*As of Mar 31, 2019


| LOAN OF THE QUARTER

TRANSACTION SUMMARY

A woman, her husband, and her brother were looking to purchase an investment property and came across a 6-plex in Davis, CA. The property is comprised of three 1 bedroom units, a studio unit, a 2 bedroom unit, and a 5 bedroom unit. The property is 100% leased and generated just under $10,000 per month. The three partners were able to get the property into contract for $1.7M even though the property was not listed, also called an "off-market transaction".

Both the income approach and sales comparison approach were used to determine value of the building, which arrived at a final estimate of $1.7M. The borrowers have both strong credit and more than $700K available to invest in the transaction. The buyers intend to slowly renovate the property, gradually increasing rents over time and refinancing conventionally before their term is up.

Nichole joined Socotra Capital in 2016 and has her Bachelor's degree in business administration. She is very

active in originating loans in Southern California & the Central Valley. Nichole also holds a culinary degree and has a

passion for cooking.

UNIVERSITY AVE

PURCHASE OF A MULTIFAMILY PROPERTYPurchase of a 6 unit 3,750 square foot multi family property located in Davis, CA.

Loan Size Range: $1,020,000

Interest Rate: 9.99%

60% Loan to Value

36 Month Term

Multi Family

NICHOLE POMATTO(916) 277 - 9360 | (707) 206-8159

CA BRE# 02027099NMLS# 266090

CFL# 52860 | #43817 | #76907

LOAN STATS


| MARKET DYNAMICS

ouching upon the same topic we discussed in our last newsletter, interest rates continue to be a hot topic of discussion. We saw another instance of an "inverted" yield curve, meaning short term treasuries (which conventional loans are based on) have a higher interest rate than than longer term maturities. Typically longer term maturities have higher interest rates because they reflect a general market sentiment that there will be long term economic growth. When investors fear an economic downturn, they begin to act more

defensively, resulting in an increase in the short term costs to borrow capital and a decreasing longer term cost to borrow due to lower growth expectations. In short, the debt markets appear to be bracing for a slowdown.

As a result of this sentiment, the rates The Socotra Fund charges borrowers has been steadily increasing since April of 2018. We expect that as more recent loans comprise the majority of the note portfolio, investor yields will rise, assuming we remain efficient.

Examining commercial real estate markets, the industrial asset class continues to have significant demand as consumer buying habits shift towards a delivery model. Conventional retail assets continue to shift more towards "experiential" retail which includes dining, gyms, and entertainment. In California, both industrial and retail assets have been significantly impacted by the legal cannabis industry, absorbing significant amounts of square footage and creating a significant amount of additional demand. Multifamily continues to be a highly sought after asset class, but there are expectations from some of the leading brokers that this year could potentially be the first time there is oversupply through new construction. Conventional office continues to undergo a transformation where there is a desire for co-working spaces, flexible configurations, and a general trend toward higher density sites. Additionally, we continue to see consolidation in the banking world which translates into regional (or national) banks acquiring community banks, which leaves the small balance commercial real estate investor underserved.

Residential real estate markets continue to show significant headwinds as median price points across the West Coast are beginning to decline. While valuations are still at or near their all-time peaks, affordability is starting to take a toll on home prices. As demand softens, sellers will continue to cut prices which should result in an increase in "fix and flip" opportunities. Ultimately, this should provide Fund investors a slightly higher yield as the traditional "fix and flip" borrower can tolerate higher rates because the loans are typically shorter in term.

T


| UPCOMING EVENTS

2019 SACRAMENTO INVESTOR FORUM

We will be hosting our annual Sacramento investor forum this week at Del Paso Country Club on Thursday April 25th, 2019. If you have not yet confirmed your attendance, please contact us. For those of you planning on attending, you are welcome to bring guests.

We will be hosting our Bay Area investor forum on July 11th at the Olympic Club. We will also host an online version of our investor forum on August 22nd. Lastly, the Lake Tahoe forum will be held on September 12th at the Marriot Grand Residence.

If you have questions or feedback, please contact us at 916-617-2221 or email us at [email protected].

DATE:Thursday April 25, 2019

TIME:6:00 PM — 8:00 PM

LOCATIONDel Paso Country Club3333 Marconi AveSacramento, CA 95821

Documents

| INVESTOR NEWSLETTER | APRIL 2019 › ... · 2208 29th Street Suite 100, Sacramento, CA 95817 | (855) 889-7626 | socotracapital.com | UPCOMING EVENTS 2019 SACRAMENTO INVESTOR FORUM