US Residental Fund Announces Transformative Year with Board Changes & New Strategy

US Residential Fund (ASX: USR) is pleased to announce that the company had a transformative year ending 31 December 2016. During the year, several Board level and operational changes were made to better position the Fund for greater efficiency and future growth. The Company and current Board agreed to pursue USR’s previously announced strategy to focus on US-based multifamily apartment complex asses while commencing an orderly divestment of the single-family houses.

KEY TAKEAWAYS:

• Portfolio sales and USD2.8 million in debt paid off: Sale of properties that were completed in 2016:
  • –          Sale of 19 single family houses in Cleveland, Ohio, and one house in Atlanta, Georgia for proceeds of USD1.2 million, of which USD0.6 million was used to pay down debt.
  • –          Sale of 28 single family houses in Atlanta, Georgia for proceeds of USD3.9 million, of which USD2.2 million was used to pay down debt.
• Management Restructuring Completed:
  • Internalisation of management rights has been completed in January 2017 for a cash payment of $750,000, and the syndications business of the former manager has been acquired in January 2017 for a consideration met by the future issue of stapled securities to the value of $250,000, once certain performance hurdles are met; and
  • Board reduced to four members (previously five), being: James Hyndes (Chairman); Andrew Meakin (Executive Director); Ken Lawrence (Non-Executive Director based in the US); and Tim Staermose (Non-Executive Director).
• Settlement of Patriot’s Pointe Multifamily Property
  • Following the end of the financial year, on 28 January 2017, the Fund completed its investment in Patriot’s Pointe, a USD22 million multifamily apartment complex in North Carolina.
• Internalisation of Management Complete
  • Consistent with the company’s ASX announcement on 9 November 2016, USR has internalised the management of the Fund such that USR going forward will operate internally managed entity. The Fund believes that this will facilitate a much greater alignment between investors and management of the Fund, and substantially reduce cash leakage, due to the absence of external management fees going forward.
• Rights Issue successfully completed
  • A fully underwritten one for one rights issue was under way at the year end and applications closed 17 January 2017, raising $7,994,999 at 45 cents per stapled security. This equity was used to fund the Group’s share in the Patriot’s Pointe multifamily property.
• Placement Completed
  • In addition to the rights issue, a placement was made to interests associated with James Hyndes, Tim Staermose, and a high net wealth individual on 15 November 2016, which separately raised $1,042,845 for the Fund.
• Tim Staermose added to the Board
  • With the capital raising fully underwritten Stan Staermose was invited to join the USR Board on 10 January 2017. Tim has 21 years’ experience in equity capital markets, and equity research. He has worked at international sell-side equity brokerage firms in South Korea, and Hong Kong, including Banque Indosuez, in the late 1990s and, Lehman Brothers in 2001-2002. He also serves as Chief Investment Strategist for a leading online subscription-based publication with over 150,000 readers in more than 100 counties.

The Company’s Strategy Going Forward

Going forward, the Directors of USR intend to:

• Continue the orderly sale of the existing single family houses, which we expect will be completed during 2017;
• Re-focus on multifamily assets- especially those in the markets viewed as having what the Fund considers the best potential upside;
• Continue making regular distributions to shareholders;
• Narrow the current NTA discount by presenting investors with an entity where investors and Directors interests are more closely aligned;
• Purchase additional multifamily assets to give USR more scale, reducing the proportion of fixed overhead and management costs as a percent of total revenue; and
• Actively market the USR story with brokers, fund managers, and high net worth investors.

The last twelve months has been very active for hr Fund as the company has sought to simplify its operational structures and invest in the multifamily apartment market. The US economy and, more importantly, the demand for residential rental accommodation, remains strong and interest rate settings are accommodating.

The Directors remain positive on the U.S. property market, which is benefiting from a strengthening U.S. economy, with the company believing it continues to provide profitable residential market investment opportunities.

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