US RESIDENTIAL PROPERTY: DREAM OR NIGHTMARE?
Dixon Advisory’s US property fund seeking extra $100 million ahead of ASX listing
Dixon Advisory’s US Masters Residential Property Fund, the only listed Australian property trust with a primary strategy of investing in US residential property, is seeking to double in size ahead of its July listing on the Australian Stock Exchange.
The fund has to date bought over 130 rental properties in New Jersey and raised over $100 million from local investors.
It is now seeking to raise a further US$50 million ($50.6 million) from Australian investor with the right to receive oversubscriptions for a further US$50 million.
The new offer closes on June 12 ahead of a proposed July 20 ASX float.
The fund is currently listed on the small-cap National Stock Exchange (NSX) under the code URF with a last traded share price of $1.60 giving it a market capitalisation of $99.8 million.
The current share price is trading at a premium to its May 11 unaudited net asset value of $1.56 per unit, but below its listing price of $1.70 per unit.
Fund investment manager Alan Dixon says investment opportunities in the US market are “highly attractive,… especially at a time when property prices are at cyclical lows, rental demand remains strong and rents are increasing.
“This is particularly the case in the New York metropolitan area, where the fund is initially targeting with a specific focus in Hudson County, New Jersey.”
Earlier in the month, the fund announced it was investing in a joint venture with Urban American, a US real estate investment firm specialising in multi-family properties in the New York metropolitan area, to acquire a portfolio of 13 specific multi-dwelling apartment complexes with 398 residential units in Hudson County, New Jersey, with the funding contributing US$10.2 million of the acquisition cost of US$38 million.
Since launching, the fund has targeting the New York metropolitan region and has bought 132 properties in Hudson County, New Jersey worth $27.5 million with yields ranging from 5.7% to 10.3%.
It has conditional acceptances on a further 99 properties worth a combined $23 million.
Combining this joint venture with conditional and unconditional acceptances on detached houses in Hudson County takes its total acquisition costs to US$76.1 million.
The fund has bought free-standing houses for an average of US$219,000 and units for an average of US$95,000.
The properties are all located in Hudson County within close proximity to public transportation networks providing easy access to Manhattan and various public amenities.
In its presentation to shareholders said valuations remained very depressed “but improving”, the mortgage market remained broken “but healing slowly” and rental demand was “robust” with “growing rents, low vacancy, quality applicants”.
Housing affordability is at record highs but applicants can’t get mortgages, the fund says.
The fund expects to pay semi-annual distributions to unit holders and of a minimum 10¢ per unit for the calendar year ending December 31, 2012.