US Masters Residential Property Fund : URF executes Purchase and Sale agreement

For personal use only

28 March 2022

US Masters Residential Property Fund (Fund)

ASX Code: URF

Offer to acquire URF's 1-4 Family property portfolio in a bulk transaction, with Fund wind-up to follow.

Summary

• • Following a robust capital markets process, with over 80 potential investors being contacted and 21 Confidentiality Agreements being executed to facilitate detailed due diligence and discussions, E&P Investments Limited as responsible entity of URF ("Responsible Entity") has entered into a conditional Purchase and Sale agreement ("Agreement") with a joint venture between Brooksville Company, LLC and/or one or more of its affiliates ("Brooksville") and Rockpoint Group LLC and/or one or more of its affiliates ("Rockpoint", and collectively with Brooksville, the "Buyer") for the sale of URF's 1-4 Family property portfolio (the "Transaction").

• • The Transaction encompasses substantially all of URF's 1-4 Family property assets, but does not include the Fund's investments in large scale apartment complexes held with Urban American.

• • The purchase price is US$507 million, which represents a 3% premium to the combined equity market capitalisation based on the 3 month volume weighted average price (VWAP) of URF Convertible Preference Units (ASX: URFPA) and URF ordinary units (ASX: URF) and a 5% discount to the combined market cap based on the last traded prices of URFPA $81.00 and URF $0.345 as at 25 March 2022. The 52 week price range of the URF Convertible Preference Units is $48.05 to $84.50 and the 52 week price range of the URF ordinary units is $0.195 to $0.39.

• • On an unencumbered, post-tax basis the purchase price represents an 11% discount to the 31 December 2021 book value.1

• • The Transaction is subject to and conditional upon:

  • • consent to the Buyer assuming the Fund's existing loan by the lender, Global Atlantic Financial Group ("Global Atlantic");

  • • a 60-day examination period which expires on 25 May (US-time) 2022 ("Examination Period"). During the Examination Period, the Buyer at its sole discretion may terminate the Agreement. During this period customary due diligence will be conducted and approval of the loan assignment will be sought from Global Atlantic; and

  • • The approval of URF ordinary unitholders by ordinary resolution.

• • Proceeds of the Transaction are expected to be used firstly to retire URF Convertible Preference Units ("URFPA") at their $100 face value, in line with the terms of these securities as outlined in the Fund's Constitution. This represents a 23% premium to the last traded price as at 25 March 2022 and a 36% premium to the 3 month VWAP of URFPA units2.

• • Remaining proceeds will be distributed to URF ordinary unitholders, implying a realisable value of approximately $0.22 per URF ordinary unit at an AUD:USD exchange rate of 0.75. This represents

• 1 The unencumbered, post-tax basis accounts for tax $28m and debt yield maintenance $27m expenses.

• 2 Based on last traded price of URFPA being $81.00 per security as at 25 March 2022 and 3 month VWAP as at 25

March 2022 of $73.50.

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a 38% discount to the last traded price as at 25 March 2022 and a 35% discount to the 3 month VWAP of URF ordinary units3.

• • Subject to successful completion of the Examination Period and receipt of an Independent Expert Report concluding that the Transaction is fair and reasonable (or not fair but reasonable) and in the best interests of unitholders (a "Positive Opinion"), the Responsible Entity intends to:

  • 1. Recommend the Transaction to investors. Directors of the Responsible Entity who hold ordinary units in URF intend to vote in favour of the Transaction if permitted to do so under the Corporations Act;

  • 2. Convene a meeting of ordinary unitholders to vote on the Transaction (see the indicative timetable included on page 5); and

  • 3. Provide investors with detailed transaction documentation including an Explanatory Memorandum containing the Independent Expert's Report.

Overview

Following the change in URF management in late 2019, a number of goals were set to maximise the financial performance of the Fund's portfolio. These included;

• 1. Stabilising the portfolio's cash flows via asset sales, reducing the portfolio's debt levels, reducing overhead costs and improving property-level operations;

• 2. Repaying the URF Notes debt tranches and refinancing the maturing debt facility with Wells Fargo (refinance completed in November 2020); and

• 3. Exploring capital market opportunities.

As outlined in investor communications since 2019, over this time the Fund has successfully sold US$200 million in 1-4 Family property assets4, realised its investment in the large scale New Jersey apartment joint venture with Urban American (US$60 million gross value), reduced debt by A$2455 million, reduced General & Administrative expenses by 41%, and positioned itself to have a positive Funds From Operations (FFO) run rate within the 2022 calendar year, which would represent a 100% improvement on 2019's full year result6. These initiatives have made fundamental improvements to the underlying business and successfully returned A$265 million of capital to URF Notes II and URF Notes III holders.

In order to explore capital market opportunities, in 2021 the Responsible Entity formally engaged Ackman-Ziff, a US based real estate capital advisory firm, to review these capital market options. After considering the various options available for the Fund, it was concluded that a portfolio sale that met the price range that its advisors were anticipating would present a more attractive outcome to unitholders than either continuing to manage the portfolio indefinitely or undertaking a lengthy asset-by-asset divestment program. Ackman Ziff were therefore mandated by the Responsible Entity to obtain the highest available offer that would provide investors with an immediate liquidity option and maximise the realisable value of the Fund across both URFPA and URF ordinary units.

The marketing of the portfolio has been a robust and lengthy process, with over 80 potential investors being contacted and 21 Confidentiality Agreements being executed to facilitate detailed due diligence and

3 Based on last traded price of URF ordinary units (ASX: URF) being $0.345 per unit as at 25 March 2022 and 3 month VWAP of $0.3295. Assumes AUD:USD exchange rate of 0.75, sale of residual assets at 31 December 2021 valuations, and based on anticipated tax, transaction, and wind-up costs.

• 4 Closed sales to 28 February 2022.

• 5 As at 31 December 2021 - refer to CEO Report in FY21 Financial Accounts.

• 6 Comparing a cash flow neutral FFO run rate to 2019's full calendar year FFO loss (excluding disposal costs and one-off items) of A$32.8 million.

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Estimated sources of Funds (USD)	US$'m
Transaction - gross sale price	$506.6
Deduction for Buyer's assumption of Global Atlantic loan	($348.0)
Transaction costs of bulk sale, real estate taxes & URF winding
up costs	($13.0)
Cash on URF balance sheet	$46.0
Release of Global Atlantic loan-related cash reserves	$5.6
Sale of remaining three 1-4 Family assets	$11.3
Transaction costs of direct sales	($0.7)
Sale of NY multi-family investments7	$10.8
7 At 31 December 2021 fair value.

discussions. In early 2022 the Responsible Entity on behalf of the Fund entered into a period of exclusive, confidential negotiations with the Buyer, and following these negotiations the Responsible Entity has executed a Purchase and Sale Agreement to formally document the proposed Transaction. As noted above, the Transaction is subject to several key conditions, including:

• • a 60 day Examination Period for the Buyer, during which the Buyer could terminate the Sale Agreement at their discretion;

• • Global Atlantic agreeing to the assignment of the Fund's outstanding loan to the Buyer; and

• • URF ordinary unitholders approving of the Transaction via a single ordinary resolution.

Should all pre-conditions be met, including investors voting in favour of this Transaction, it is expected that the Responsible Entity will terminate the Fund, all the assets of URF will be divested, and all proceeds of realisation (net of transaction costs, US taxes and Fund wind-up costs) will be returned to investors. URF will be de-listed from the ASX and wound up as part of this process. On wind-up, distributions are payable in the first instance to URFPA holders at the issue price of A$100 per URFPA unit (in accordance with the URFPA terms), with the residual amount then payable to URF ordinary unitholders.

Break fee

A break fee of actual costs incurred up to a maximum of US$600,000 is payable from the Fund to the Buyer if investors do not vote in favour of the Transaction or if the independent expert determines the Transaction to be not fair and not reasonable. Up until the unitholder vote, the Responsible Entity is free to evaluate any higher, competing bids that may be received. A break fee of US$5 million (less any expense reimbursement already paid) is payable out of the Fund to the Buyer if an alternative bulk offer is accepted within 12 months of the Agreement, or if the Board of the Responsible Entity recommends against the Transaction (unless an independent expert concludes that the Transaction is not fair and not reasonable).

Expected cash proceeds and uses via proposed Transaction and resulting Fund wind-up

Subject to completion of the Transaction, URFPA holders are expected to be repaid in full at the security Face Value of A$100 per URFPA, plus any accrued interest that is outstanding for the half year.

Following this, all remaining capital will be distributed to URF ordinary unitholders. Total distributions to URF ordinary units are anticipated to be approximately A$0.22 per unit. This is likely to be distributed across at least two payments, with approximately A$0.17 distributed following settlement of the Transaction and approximately A$0.05 distributed following settlement of the remaining asset divestments during the Fund wind-up process.

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[e-mail] T 1300 027 055 F 1300 883 159 | ARSN 150 256 161

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Allowance for OPEX until dissolution	($0.9)
Allowance for URFPA accrued interest	($3.8)
Indicative total (USD)	$214.1
Indicative total (AUD at 0.75:USD)	$285.4
Anticipated total investor distributions (AUD)	A$'m total
URFPA - full redemption at $100/URFPA security	$199.1
Total indicative capital return to URF ordinary unitholders	$86.3
A$ per unit
Anticipated investor distributions (per unit, AUD)
URFPA8	$100
URF ordinary units9	$0.22
The figures in this document are based on the following assumptions:

• - an AUD:USD exchange rate of 0.75 as at market close Sydney time on 25 March 2022;

• - The remaining three assets, as well as the Fund's New York multifamily investments with Urban American being sold at 31 December 2021 valuations, and currently anticipated amounts for tax, transaction and wind-up costs.

These assumptions, in particular the exchange rate, may change materially between the date of this announcement and implementation of the Transaction.

Unitholder approval and other conditions under the Agreement

The Transaction is subject to approval by ordinary unitholders for disposal of the URF's main undertaking pursuant to ASX Listing Rule 11.2. Ordinary unitholders will have an opportunity to vote on the Transaction at a meeting of members of that main class. If ordinary unitholders do not approve the Transaction at the meeting, URF has the right to immediately terminate the Agreement.

See Annexure A for further information on the key terms of (and conditions precedent to) the Transaction required to be disclosed to unitholders under ASX Listing Rule 11. Additional details regarding the Transaction will be provided to unitholders in the Notice of Meeting and Explanatory Memorandum, which are expected to be sent to unitholders in June 2022.

Next steps

Subject to successful completion of the Examination Period and an Independent Expert providing a Positive Opinion of the transaction, the Responsible Entity intends to provide ordinary unitholders with a notice of meeting and meeting materials, including detailed transaction documentation (including the Independent Expert's Report) and a formal recommendation from the Board of the Responsible Entity. All such materials will also be made available on the ASX announcements portal.

Following dispatch of unitholder documentation, a meeting of ordinary unitholders will be held to vote on the proposed Transaction. All URF ordinary unitholders are entitled to vote at this meeting, and the Responsible Entity encourages all to do so. Instructions on how to vote will be provided in coming months.

• 8 At time of this announcement, there were 1,990,707 URFPA units on issue.

• 9 At time of this announcement, there were 400,959,690 URF ordinary units on issue.

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[e-mail] T 1300 027 055 F 1300 883 159 | ARSN 150 256 161

Anticipated Timetable

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Event	Date
ASX announcement regarding Proposal	28 March 2022
Expected despatch of Notice of Meeting & Explanatory Memorandum	June 2022
Expected meeting of members of the Fund	July 2022
If successful, anticipated settlement of the transaction	July 2022
Expected first distribution to unitholders	July 2022
Expected delisting of URF from ASX	July 2022
Expected final distribution to URF ordinary unitholders	Early 2023

All dates are indicative only and are subject to change. There may be more than two distributions to ordinary unitholders.

About Brooksville

Brooksville is a vertically integrated real estate investment and management firm with a long term successful track record. The firm invests in and manages large, complex multifamily properties across the country with a focus on the New York City tristate area. Brooksville seeks to positively impact communities through substantial capital investments in property infrastructure and technology, identification and implementation of operational efficiencies to better serve residents, and direct engagement with community and tenant leaders. Brooksville has asset management, property management and construction management capabilities which allows Brooksville the ability to act as owner, manager and construction manager for improved coordination and accountability. In addition, Brooksville has deep expertise in the New York City regulatory environment and a proven track record of engaging positively with community and tenant leaders.

Brooksville currently owns and operates approximately 7,000 units of multifamily representing over $2.5 billion of value, and through its property management arm manages over 10,000 multifamily units in NYC. The Brooksville team has transacted and advised on over $11 billion of multifamily assets in New York City and has extensive expertise in the management and structuring of large, complex multifamily transactions

About Rockpoint Group

Rockpoint Group, L.L.C. ("Rockpoint") is a real estate private equity firm headquartered in Boston with additional domestic offices in San Francisco and Dallas. Rockpoint employs a fundamental value approach to investing and targets select product types located in major markets in the United States. Rockpoint utilizes a consistent strategy across distinct return profiles through its opportunistic and growth and income investment programs. Rockpoint targets assets with intrinsic long-term value, at attractive prices relative to stabilized cash flows, and with particular emphasis on value creation opportunities and complex situations. Since 1994, Rockpoint's co-founders with others have sponsored

Level 15, 100 Pacific Highway, North Sydney NSW 2060

usmastersresidential.com.au

[e-mail] T 1300 027 055 F 1300 883 159 | ARSN 150 256 161