US Masters Residential Property Group has restructured its US operations from a REIT to a C-Corp to enhance tax efficiency, aiming to reduce deferred tax liabilities and accelerate capital returns with a $200–225 million sales target for 2025.
- Transition from US REIT to taxable C-Corp effective January 1, 2025
- Plan of liquidation set to complete by December 31, 2028
- Significant reduction in net deferred tax liability expected from US$30.3 million to under US$5 million
- 2025 sales target between US$200 million and US$225 million
- Future repatriations classified as liquidating dividends, avoiding withholding tax
Strategic Tax Restructuring
US Masters Residential Property Group (ASX: URF) has announced a pivotal change in its US operational structure, transitioning from a Real Estate Investment Trust (REIT) to a taxable Corporate (C-Corp) entity effective from January 1, 2025. This move is designed to optimise the tax treatment of proceeds repatriated from the US portfolio sales, a critical step as the Group accelerates its asset sell-down program.
Under the previous REIT structure, the Group benefited from exemption from US corporate taxes but faced a 15% withholding tax on gains repatriated to Australia. In addition, historical losses could not be leveraged to reduce this withholding tax, resulting in a sizeable deferred tax liability of US$30.3 million as of June 30, 2024.
Benefits of the C-Corp Structure
The shift to a C-Corp structure subjects the Group’s US operations to an effective corporate tax rate of approximately 32%, encompassing both federal and state taxes. However, this structure allows the Group to utilise historical losses to offset taxable income generated during the portfolio sell-down, potentially reducing overall tax expenses.
Importantly, repatriations made during the planned liquidation period, set to conclude by December 31, 2028, will be treated as liquidating dividends, exempting them from withholding tax. This contrasts with the previous REIT framework and is expected to significantly improve the efficiency of capital returns to Australian investors.
Implications for Deferred Tax and Asset Sales
The Group anticipates that the net deferred tax liability will be substantially reduced to less than US$5 million, assuming all assets are sold within the liquidation timeframe. This reduction reflects the tax benefits unlocked by the new structure and the application of historical losses against taxable gains.
US Masters has reaffirmed its commitment to the asset sales program, targeting sales between US$200 million and US$225 million for the 2025 calendar year. While this target is not a forecast, it signals the Group’s strategic focus on efficiently returning capital to investors amid evolving market conditions.
Looking Ahead
The structural change does not affect the ongoing operations of the Australian entities or the Group as a whole but marks a significant milestone in the Group’s capital management strategy. Investors will be watching closely to see how the tax efficiencies translate into improved financial outcomes as the sell-down progresses.
Bottom Line?
US Masters’ tax restructuring sets the stage for leaner capital returns and sharper investor focus through 2028.
Questions in the middle?
- How will market conditions affect the timing and pricing of the planned asset sales?
- What impact will the C-Corp tax regime have on the Group’s overall profitability and distributions?
- Could any residual assets remain post-liquidation, and how might they affect future tax liabilities?