2015 – 2016                     Year in Review

If there’s anything that characterizes what management of the C.D. Stimson Company has been focused on this past year it is that we have been planning for the future. This has taken many forms, though unquestionably prime among them has been the effort to find a path forward for a building in Ballard and construct a retail pad building in Silverdale. Timing is everything in real estate and, for us, it’s hard to see clearly ahead to a time when benign forces align and we find the ideal tenant or tenants for either project.  But we are moving ever closer on all fronts. There is a vision and a strategy and it’s that the Company should continue to maximize the value of its properties for the benefit of the shareholders and for the new generation coming on. 

Meantime, Salmon Bay Center, Stimson Marina and our Silverdale properties thrive, each with a robust and increasing cash flow. Put succinctly, while we anticipate a future with five handsome new 100,000 square foot buildings lined up along Shilshole and the new pad building up and running across from the Kitsap Mall, the present is actually quite good and the future bids to be more promising. In Silverdale we have things happening that we could not have dreamt about just a couple of years ago. AMC historically has been seriously uninterested in anything but short-term leases coupled with punishing cancellation rights, i.e., they could easily have gone dark which is a retail curse and a landlord’s nightmare. Yet they have an ear to the ground and realized we were talking with big-box tenants about a new, larger building. They did an about-face, proposed a serious renovation, and now they’ve invested upwards of $4,250,000 ($2,000,000 of that was a loan from us which is now being repaid with interest) in the building. It’s has been very successful for us both, with substantially increased rent coupled with monthly installments on the loan. The Regal theatre next door has closed and the threat of a brand new theatre at a development up the road from us failed to materialize. AMC got a home run. We did too. Then Toys R Us had some welcome staff turnover which gave us a more sympathetic ear on the formerly totally taboo subject of putting a pad site in our parking lot. It was a long negotiation primarily dealing with their fears of losing visibility and loss of parking, neither of which were ever at risk. Even in this time of ecommerce, brick-and-mortar retail requires a visible presence.  Our new 4200 square foot building will, as was the case in Everett, prove to be a valuable asset for the property. Against daunting odds, we prevailed and construction will start this month.  We are working on leases with Jimmy John’s and T-Mobile and expect to have something to sign with both in the coming weeks. The rents we’re achieving are considerably higher than our early projections. 

The challenge at Salmon Bay Center remains how to manage and maintain the existing buildings as we work to finalize design and permitting for a new building or buildings. We have considered and analyzed countless iterations on how to proceed from various forms of partnering on a speculative building to going it alone and none of them have been deemed suitable for us, especially given the increasingly healthy cash flow we are currently getting from the property. We have looked at going the ground lease route and that remains of real interest, especially if it reflects both what we believe to be the value of the Lot R and has the kind of escalations and periodic adjustments to market that would protect future generations. We remain somewhat leery of substantial risk and doing a speculative building on our own – a stretch though possible – is a tough sell. We continue to talk with investors and developers who are interested either in a ground lease or some other creative form of partnering.  We learn more as we go along this path. Clearly, there are many ways to fashion a ground lease and/or a partnership. The key thing is the valuation of the land. Absent that – and it has been absent with everyone we’ve spoken with – we will sit tight and wait for an opportunity that we can’t refuse. Meantime, we applied to our previous insurer to be compensated for the environmental cleanup we need to do and they have, albeit most reluctantly, agreed to pay all invoices related to the contamination. This could be millions of dollars.

  With recent investment changes we’ve made over the past couple of years and upcoming capital investments, we expect gross profits to increase on average 5% annually, per the chart above. Meantime we have continued the longstanding policy of assuring shareholders of a steady and increasing dividend, balancing the need for funds to upgrade our properties with our obligation to pay dividends. This is a critical part of our strategy since a privately-held company that doesn’t grow will lack the means to accommodate the needs of the next – and larger - generation. Our investments with Talon have been quite successful, especially the 9th Ave. N. property which they designed and permitted – then Paul Allen’s Vulcan bought it for $35 million. They had just moved into the Allen Institute for the Brain kitty corner to the Talon site and needed that whole block to expand.  We tripled our investment. The other Talon properties are performing essentially as initially proposed. They have been good investments for us since they are larger than something we could or would do alone and Talon gets a better borrowing rate than we can achieve.    What is perhaps the most telling thing that has happened this past year is a pronounced interest in both our Silverdale and Ballard properties. With the improvements to the office building, the upgraded AMC and soon the pad building, we have received an offer for the multiplex, prospective tenants have been eager to tie up space in the pad building and there has been new interest in leasing office space. While we have no immediate motive to sell, the market is telling us that we have created real value at the property. There continues to be interest in our planned new building in Ballard, however we have slowed down the building permit process in order to stretch it out until we have a proposal for the building that we want to move forward with. Despite the fact that Ballard is deemed “not an office market,” we are engaging with a steady stream of would-be development partners. At some point there will be a tenant and a suitor and the pieces will come together.     It helps that Seattle is an active, if not overactive, market and that Ballard is thriving as never before.  However, we are doing well not just from riding along with the cresting wave. We are benefiting from strong, hands-on management and a policy of retaining tenants and intolerance of empty spaces. Stimson Marina is fuller longer than at any time in the past half century and it’s full because it’s well managed and maintained – and because we have ample parking, more and more a rarity these days. In sum, shareholder equity is well protected and growing, and opportunities are opening up for us as never before.

With recent investment changes we’ve made over the past couple of years and upcoming capital investments, we expect gross profits to increase on average 5% annually, per the chart above. Meantime we have continued the longstanding policy of assuring shareholders of a steady and increasing dividend, balancing the need for funds to upgrade our properties with our obligation to pay dividends. This is a critical part of our strategy since a privately-held company that doesn’t grow will lack the means to accommodate the needs of the next – and larger - generation. Our investments with Talon have been quite successful, especially the 9th Ave. N. property which they designed and permitted – then Paul Allen’s Vulcan bought it for $35 million. They had just moved into the Allen Institute for the Brain kitty corner to the Talon site and needed that whole block to expand.  We tripled our investment. The other Talon properties are performing essentially as initially proposed. They have been good investments for us since they are larger than something we could or would do alone and Talon gets a better borrowing rate than we can achieve.

What is perhaps the most telling thing that has happened this past year is a pronounced interest in both our Silverdale and Ballard properties. With the improvements to the office building, the upgraded AMC and soon the pad building, we have received an offer for the multiplex, prospective tenants have been eager to tie up space in the pad building and there has been new interest in leasing office space. While we have no immediate motive to sell, the market is telling us that we have created real value at the property. There continues to be interest in our planned new building in Ballard, however we have slowed down the building permit process in order to stretch it out until we have a proposal for the building that we want to move forward with. Despite the fact that Ballard is deemed “not an office market,” we are engaging with a steady stream of would-be development partners. At some point there will be a tenant and a suitor and the pieces will come together. 

It helps that Seattle is an active, if not overactive, market and that Ballard is thriving as never before.  However, we are doing well not just from riding along with the cresting wave. We are benefiting from strong, hands-on management and a policy of retaining tenants and intolerance of empty spaces. Stimson Marina is fuller longer than at any time in the past half century and it’s full because it’s well managed and maintained – and because we have ample parking, more and more a rarity these days. In sum, shareholder equity is well protected and growing, and opportunities are opening up for us as never before.