US REIT - Half Year Update and Strategic Announcements
US MASTERS RESIDENTIAL PROPERTY FUND (URF) Share Update September 2024 Monday 9th
US REIT Announces Significant Property Sales and Strategic Updates
US REIT has released its half-year update, highlighting substantial property sales, strategic capital management, and internalization efforts. The announcement includes key financial figures and future plans aimed at maximizing shareholder value.
Instant Summary:
- 31 property sales totaling US$54.32 million in the first half of 2024.
- Sales pipeline of US$118.27 million, with US$64.43 million under contract or accepted offer.
- Repayment of US$32.96 million of the Global Atlantic Term Loan.
- Internalization of Responsible Entity completed with a new board of three independent directors.
- Target of US$150 million in property sales for the 2024 calendar year.
Half Year Update
US REIT has announced the sale of 31 properties over the first six months of 2024, generating a total of US$54.32 million. The sales pipeline as of 30 June 2024 stands at US$118.27 million, with US$64.43 million of this under contract or with an accepted offer.
The Group has focused on capital management, directing excess cash towards opportunities such as repaying US$32.96 million of the Global Atlantic Term Loan. This strategic move aims to strengthen the company's financial position and reduce debt.
Internalization and Board Changes
The internalization of the Responsible Entity for URF was finalized at the end of the half-year, resulting in a new board comprised of three independent directors: Stuart Nisbett, Peter Shear, and Jack Lowenstein. This change is expected to enhance governance and align management with unitholder interests.
Units in URF and URF II were stapled on a one-for-one basis, forming a stapled group. Effective 26 June 2024, trading is now in URF stapled securities (URF Stapled Securities). The Board continues to execute the asset sales program to realize value and return capital to unitholders efficiently.
Asset Sales Program
The Group closed on US$27.8 million in property sales for the quarter, bringing the half-year total to US$54.3 million. The sales included premium assets in Jersey City and Brooklyn, areas that have shown resilience to higher interest rates.
As of the end of the half-year, the Group has US$64.4 million of properties under contract or with accepted offers, US$15.5 million on the market, and US$38.3 million in the short-term pipeline for sale. The Group aims to reach US$150 million in property sales during the 2024 calendar year by closing on existing contracts and entering new ones.
Capital Management
Due to property sales, the Group's total debt was reduced by US$17.4 million in Q2 2024. The buyback program saw the purchase of 15.9 million URF Ordinary Units and 0.4 million URF Stapled Securities for an aggregate consideration of A$4.52 million.
Management is finalizing a review of the most tax-effective manner to repatriate proceeds from the US to Australia. Once complete, the Group expects to increase repatriations, creating capital returns to unitholders. In the meantime, the Group is reviewing interest rates on cash funds to maximize returns.
Financial Performance
The Fund's trailing 1-4 family Net Operating Income (NOI) to 30 June 2024 was US$13.0 million. General and administrative expenses for the first half of 2024 totaled A$6.7 million. Excluding disposal costs and non-recurring items, the Funds from Operations (FFO) loss for the half-year ended 30 June 2024 was A$3.3 million.
The announcement of significant property sales and strategic capital management is likely to positively impact US REIT's stock. The reduction in debt and the focus on efficient capital repatriation should bolster investor confidence. However, the FFO loss and ongoing reviews may temper immediate market reactions.
Investor Reaction:
Analysts are expected to react positively to the substantial property sales and debt reduction. The strategic focus on capital management and internalization efforts align with investor interests. However, the FFO loss may raise some concerns about operational efficiency.
Conclusion:
Investors should monitor the progress of the sales pipeline and the outcomes of the ongoing tax structure review. US REIT's strategic initiatives are aimed at maximizing shareholder value, making it a stock to watch in the coming months.