URF - US Masters Residential Property Fund

[Telamelo]

Funny stock: i made a discretionary entry and flopped months ago, then was picked up by my systems with much better outcome so far?

Well done mate.. URF pre-market looking strong with 3.24M buy side vs only 670K sell side

 

[Dona Ferentes]

one annoyed investor, the Global Value Fund:

It is disappointing that the most noteworthy development in the portfolio this month was a significant setback at US Masters Residential Property Fund (URF). Over the past few years, GVF has invested in multiple securities issued by this fund. This includes successful investments in the fund’s ASX-listed debt instruments, which we acquired at large discounts to par value, despite them being well covered by the fund’s New York and New Jersey residential property portfolio. These discounts, combined with a high rate of interest, provided GVF with a compelling return relative to the risk.

Following the repayment of those debt instruments, which both reduced gearing and simplified the fund’s capital structure, GVF made a small investment into the convertible preference units (CPUs) and a small investment into the ordinary units. The basis for these investments was:

• a deep discount to asset backing;
• substantial evidence of one-by-one asset sales at or around book values over the past few years;
• a shareholder base that wanted a permanent solution to the discount; and
• multiple statements from the Responsible Entity (RE) that it was exploring ‘capital market opportunities.’

On 28 March, URF announced it had conditionally entered into an agreement to sell almost the entire portfolio to a joint venture between two US real estate firms. Disappointingly, the sale price reflected a large discount of almost 20% to the gross appraisal values of these properties. This transaction would result in the fund’s CPU holders being repaid at par, but its ordinary unitholders receiving just AUD 0.22 per share. Unsurprisingly, URF shares fell 45% on the day of the announcement while CPUs rallied by 9.3%. GVF’s unrealised losses on URF ordinary units were therefore partly offset by gains in the CPUs.

The deal remains subject to several conditions, most notably the approval of ordinary unitholders. Based on the feedback we have received so far, and given that it represents such a large discount to an asset-by-asset sale, we struggle to see the transaction being approved. Interestingly, the market is now also pricing the stock as though the transaction will not go ahead. At the time of writing, URF shares are up 21% month-to-date, and trading at an 18% premium to the stated value of the deal for unitholders. We have been actively engaged with other shareholders on the register and will be sure to keep investors updated on our activities when appropriate to do so.

 

[Dona Ferentes]

Another 3% today to close at 30, still a massive gap to NTA.

no point in having a NTA if no-one wants to pay that (or anywhere near it)

URF had entered into a conditional Purchase and Sale Agreement for the sale of substantially all of URF’s 1-4 Family property portfolio. .... This Purchase and Sale Agreement was executed on 25 March 2022 and was followed by a 60-day Examination Period ending 25 May 2022 (US time).

The Buyer has determined not to proceed with the Transaction, and as such the agreement will be terminated. The Fund has been advised that this termination was due to a perceived deterioration in market conditions by the Buyer, notably a markedly increased interest rate environment and broader economic uncertainty, and the Buyer was unwilling to proceed on the agreed terms.

 

[Dona Ferentes]

from a fund manager
.... several core GVF holdings.... helped to unlock a significant amount of value during the month. One of the more notable of these was our holding in US Masters Residential Property Fund (URF), with the ordinary units up 22.6% over the month. Two pieces of good news underpinned the URF price move in August.
First, the fund announced progress in its discussions with potential external managers – an initiative that would likely lead to further cost savings, especially as the portfolio shrinks in size. Further details of this were provided at the end of the month, with Brooksville and Pinnacle identified as the potential managers. While we await the full terms, we were encouraged by comments that remuneration will be geared towards maximising value as promptly as possible – providing a much-needed alignment of interests.
Second, the fund announced a positive six-monthly revaluation of its underlying properties, with values of its 1-4 family properties up 3% on average, as extremely high rental growth more than offset the impact of higher interest rates on valuations. ....