US Masters Residential Property Group (ASX:URF): 2026 will be the year of winding down

For most REIT investors, it has been slow and steady bleeding over the 2020s, but investors in US Masters Residential Property Group (ASX:URF), endured a 30% share price plunge yesterday. And it was all because the company announced it was winding down.

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

Recap of US Masters Residential Property Group (ASX:URF)

It has been a few years since we last wrote about it, it was – 2022 to be exact. You’d imply from its name that URF is focused on the US and that is true, but it is specifically focused on the New York metropolitan area. In other respects it was essentially the same as other REITs in owning a property of portfolios, making revenue from rent and capital growth. Over the 2010s when rates were low, it built up a $1bn+ portfolio.

Little surprise given New York is expensive, especially the market for ‘freestanding properties’ (i.e. properties not attached to anything so excluding apartments and terraces).

These terraces wouldn’t be in URF’s portfolio (Source: Envato Stock Image)

It listed at the right time, just at the end of the 2006-11 bear market for property and it reaped the benefits. It started buying distressed homes in New Jersey, but shifted to premium properties in 2014. From thereon, it relied on strategic asset sales and capital transactions to manage its balance sheet rather than growing rental income and yield. Tough for investors to understand.

But at least funding was cheap so things could keep going. Until funding was no longer cheap.

Rate hikes wreaked havoc (among other things)

As global central banks raised rates from 2022 onward, financing residential properties in New York became more expensive and more complex.

URF’s rental yield from operations was modest relative to its asset base and debt costs even before the sharp rise in interest rates. Residential real estate generally produces lower yields than most commercial property sectors, and the operational performance of URF’s portfolio—measured by net operating income—was never sufficient in absolute terms to produce strong dividend-like distributions while covering corporate costs.

The focus throughout the 2020s increasingly shifted to selling assets rather than growing an income stream, and those sales were leveraged to reduce debt. By 2024 and 2025 the entity was selling off large amounts of property to meet targeted sales volumes, applying proceeds to pay down its senior loan facility and repatriating capital.

Because disposals generate transaction gains or losses rather than ongoing rents, FFO remained negative or weak as a performance indicator, and the income attribute that typically attracts many REIT investors was diminished.

Don’t take our word for it

In the post-COVID period and particularly through 2023–2025, this manifested clearly in the numbers. URF’s funds from operations (FFO) were consistently negative, reflecting that cash generated from rents and property operations was insufficient even before considering portfolio sales and holding costs. For example, in the half-year to 30 June 2025 URF reported an FFO loss of about A$19.7m, and even excluding disposal costs an adjusted FFO loss of roughly A$4.6m, as properties held for sale generated little income while still incurring expenses. Earlier reporting over 9 months to 30 September 2024 showed an unadjusted FFO loss of A$17.0m, with normalised loss around A$4.8mas well.

Dividend and distribution history also reflects the weak income profile. URF’s distributions fell sharply from steady ~5 c per unit annually in its early years to largely ~1 c per unit in recent years, with one higher distribution of A$0.10 in mid-2025 possibly reflecting return of capital rather than sustainable operational earnings; the implied yield on current ordinary distributions is ~3.4% at recent prices but is low for a property trust and partly reflects capital return mechanics rather than pure rental return

Interest rate rises compounded these structural weaknesses: where debt was previously serviceable through modest rental cash flow plus valuations upside, higher financing costs (the term loan interest rate was amended to ~6% from January 2026) widened the gap between income and expense, reducing distributable profits and pressuring cash flow; this dynamic helped shift the strategy from income focus to an orderly portfolio sale and capital return process.

Winding down

In January 2025, it was reclassified from a tax-advantaged REIT to a taxable C-corporation, accompanied by a formal plan to liquidate the portfolio by the end of 2028.

This did not represent a routine restructuring but a strategic pivot: instead of aiming indefinitely for incomes and capital appreciation, the board decided to realise the portfolio in an orderly fashion and return proceeds to security holders in a tax-efficient way, recognising that the original yield-plus-growth thesis was no longer compelling under the new interest-rate regime and breadth of market opportunities.

And earlier this week, URF told investors it aimed to sell all remaining properties during the 2026 calendar year. Once done, URF would effectively wind up, and accordingly would have its CY25 results prepared on a ‘non-going concern basis’. In other words, it would assume it would wind up.

What lessons investors should learn

The broader lesson for REIT investors from the URF experience is multifaceted. First, sector and asset class matters: residential property historically yields less rental income than many commercial or industrial real estate subclasses, and in a rising rate environment where bonds and alternative investments offer attractive yields without the operational complexity of property, weak yield structures are exposed.

Second, leverage interacts sensitively with interest rates; a strategy that works at low rates with cheap financing can become untenable or unattractive as debt servicing costs rise, effectively reducing net returns and leading to strategic reconsiderations like that URF has undertaken.

Third, thorough due diligence on FFO and the sustainability of distributions—or lack thereof—is crucial; companies that rely on asset sales for cash flow rather than organic operating earnings carry a different risk profile and valuation dynamic. Finally, cross-border real estate adds currency, tax and regulatory complexity that can amplify risks and diminish the expected benefits of diversification if not properly hedged or understood.

For REIT investors generally, URF’s journey underscores that not all listed property trusts are created equal and that macroeconomic factors like interest rates and financing conditions can erode the economic fundamentals that underlie yield strategies, forcing structural transitions that may not align with original investor expectations. An investor in REITs should therefore balance yield expectations with assessments of operating cash flow sustainability, leverage risk and the broader economic conditions that can quickly turn a seemingly niche opportunity into a capital return exercise rather than an income-producing investment.