INVESTMENT PHILOSOPHY

Equity Investment Strategy

Every equity selection is vigorously researched and evaluated.  We have found that the largest hindrance to long-term, above-average performance is the propensity of investors to change their approach because of the market environment.  We seek to avoid the waves of irrational behavior that are periodically seen in all investment asset classes.  Cash flow is a much more solid representation of the strength of an investment.  Furthermore, capital appreciation is most directly related to the return the venture earns on its shareholders’ invested capital.  We have a long term time horizon of over 5 years for our holdings which allows us to avoid two major disadvantages that substantially diminish results: transaction costs and taxes.  We also believe that an investor is not likely to obtain superior results by buying a broad sample of the overall market.  The more diversification, the more results are likely to be average.  We believe our funds should be concentrated in five to ten of the most desirable opportunities.

The definition of an investment operation is "one which on a thorough analysis of the facts promises safety of principal and a satisfactory return; anything else is speculation." – Benjamin Graham

“The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price”
– Warren Buffet

Real Estate Investment Strategy

Triviumís investment approach focuses on a bottom-up real estate analysis but considers factors such as the macroeconomic environment, the direction of the business cycle and local real estate market conditions. We push to thoroughly understand local market forces that drive demand for each real estate asset class. We analyze the amount and timing of new supply, the needs of the ultimate user of the real estate and the vagaries of the capital markets to understand the underlying value of the real estate investment. Trivium captures value by proactively managing each asset to ensure that its investment strategy is implemented effectively. We are actively involved in the management of our properties in order to maximize revenue and control operating and capital expenses throughout the investments' holding period. Furthermore, we are more concerned with optimizing long-term growth than maximizing short-term profits.

Real Estate Investment Sample


Annualized Return on Invested Capital: 39%

Property Description: 122-Unit Mid-rise Apartment Complex - Houston, Texas Building Type: 140,980 Sq. ft. 7-story concrete and framed apartment building.

Historical Information: Building construction began in 1983, however due to the severe recession in Houston, which halted construction, the building was eventually completed in 1990. The ownership of the building traded hands three times in the subsequent 9 years and finally landed in the hands of a bank after a foreclosure in 1999. Each owner was unable to operate the property at a profit due to the lack of commitment to the day-to-day management of the property. The bank that held the property, after its foreclosure in 1999, subsequently marketed it for sale.

Research and Acquisition: The property attributes and risks were thoroughly researched. Based on the apartment market occupancy in this subsection of Houston, which was in the upper eighties percentile range, and our expected cost structure, the sale price for the building, based on our projected net operating income, was 25% less than our conservative valuation. Based on our estimated valuation, we were successful in convincing a lender (which is not an easy task when a property has been recently foreclosed on) to provide us with a non-recourse, 80% loan-to-value, fixed-rate loan to purchase the property.

Operations: Numerous changes were made in operations immediately after purchase to enhance the service to our residents, reduce operating costs, and improve the overall reputation of the property. A 4 person staff, which we carefully selected, was brought in to manage the day-to-day operations of the property. The existing tenant base was thoroughly examined for residents that were not following community policies. Backgrounds for incoming residents were thoroughly reviewed and had to meet new stricter criteria. The property was more accurately marketed to our desired resident base. After these and other substantial management systems were implemented, the property generated positive cash flow each and every month over our holding period. The propertyís occupancy, which in our property valuation we had estimated to remain in the high eighties, averaged 95% over our holding period, well above the average occupancy for the area. The annual operating cash flow over our holding period resulted in a yield in excess of 20% on our invested capital.

Disposition: Due to the resulting higher net operating income, which was direct result from the operational changes that were implemented, the value of the property had increased substantially. We marketed the property for sale in 2005 (Trivium is a licensed Texas real estate brokerage firm) and within a short period of time, the property was sold.

Return on Invested Capital:
Our before tax annualized return on invested capital for this investment was 39%. About 40% of the overall return was a result of the cash flow derived from operations and the rest of the ROI can be attributed to the proceeds from the sale of the property.

TRIVIUM INVESTMENT MANAGEMENT CO.
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