US Residential Fund Appendix 4D Interim Financial Report for the Half-Year 30 June 2016 US Residential Fund (USR or the Group) comprises US Residential Trust (Trust) and its controlled entities and US Residential Limited (Company) and its controlled entities. USA Residential Funds Management Limited, a wholly owned subsidiary of US Residential Limited, is the Responsible Entity of US Residential Trust. This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual financial report for the year ended 31 December 2015 and any public announcements made by the USR during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.
US Residential Fund Interim Financial Report for the Half-Year 30 June 2016 Key Information 30 June 2016 $000 30 June 2015 $000 % Change Revenue from ordinary activities 1,812 2,167 (16%) Profit after tax from ordinary activities attributable to members 277 572 (52%) Net profit attributable to members 277 572 (52%) Distributions Paid and Proposed Quarter ending 31 March 2016 paid 24 June 2016 Quarter ending 30 June 2016 declared 22 June 2016 Amount per Stapled Security (cents) 1.5 1.5 Franked Amount per Security at 30% of Tax (cents) - - Record date for determining entitlements to the distribution for quarter ending 30 June 2016: 30 June 2016 Explanation of Key Information and Dividends An explanation of the above figures is contained in the Review of Operations included within the attached directors report. 30 June 2016 $/Stapled Security 30 June 2015 $/Stapled Security Net tangible assets per Stapled Security $1.01 $0.97 Distribution Details 30 June 2016 $000 Quarter ending 31 March 2016 paid 24 June 2016 201 Quarter ending 30 June 2016 payable 202 30 June 2015 $000 Six months ended 30 June 2015 307 Page 1
US Residential Fund Interim Financial Report for the Half-Year 30 June 2016 DIRECTORS REPORT The directors submit the financial report of the consolidated group for the half-year ended 30 June 2016. Directors The names of the directors in office at any time during, or since the end of, the half-year are: US Residential Ltd: Owen Lennie (Chair) Stuart Morton Andrew Meakin Ken Lawrence (appointed 28 April 2016) USA Residential Funds Management Limited as Responsible Entity of the US Residential Trust Owen Lennie (Chair) Julia Mason (resigned 1 April 2016) Andrew Meakin Craig Vivian Ken Lawrence (appointed 28 April 2016) Directors have been in office since the start of the period to the date of this report unless otherwise stated. Principal Activities The principal activities of the Group are investing in the US single family home residential property marked. Review of Operations The consolidated after-tax profit of the Group for the period amounted to $277,000 (2015: $572,000). Rental income and fair value gain from the portfolio of single family homes was the Fund s primary source of revenue in the period. Total comprehensive income of USR for the six months ended 30 June 2016 was $32,000 (2015: $746,000). Major contributions to this was the fair value gain on investment properties of $536,000 (2015: $1,153,000); income tax benefit of $43,000 (2015: 402,000 expense), and unrealised foreign exchange loss of $245,000 (2015: 174,000 gain), reflecting the appreciation of the Australian dollar against the US dollar during the period (US$0.743 / A$1.000 as at 30 June 2016 versus US$0.731 / A$1.000 as at 31 December 2015). During the period the Group terminated its property development joint venture arrangement and incurred a loss for the period of $52,000. Events Subsequent to the End of the Reporting Period On 27 July 2016 USR announced that it has entered into an agreement for the sale of up to 33 properties from the single family home portfolio for gross proceeds of US$1.93 million. US$1.0 million of the gross proceeds of the sale will be used to pay down debt. On 28 July 2016 USR completed a placement 1,666,667 stapled securities at $0.60 to raise AUD$1,000,000 (before costs). AUD$567,000 of these funds were used to reduce debt. On 31 July 2016 13,808,069 options exercisable at AUD$0.95 lapsed. On 4 August 2016 USR issued 333,641 at $0.60 each to raise AUD$200,184 (before costs) pursuant to an entitlement offer announced on 9 May 2016. No other matters or circumstances have arisen since the end of the period that significantly affect or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. Page 2
US Residential Fund Interim Financial Report for the Half-Year 30 June 2016 Rounding of Amounts The consolidated group has applied the relief available to it in ASIC Class Order 98/100 and accordingly certain amounts in the financial report and the directors report have been rounded off to the nearest $1,000. Auditor s Independence Declaration The lead auditor s independence declaration under s 307C of the Corporations Act 2001 is set out on page 4 for the half-year ended 30 June 2016. This directors report is signed in accordance with a resolution of the Board of Directors: Director. Owen Lennie, Chairman - US Residential Limited Dated this 31st day of August 2016 Director. Owen Lennie, Chairman - USA Residential Funds Management Limited Dated this 31st day of August 2016 Page 3
Auditor s Independence Declaration under Section 307C of the Corporations Act2001 to the directors of US Residential Limited and USA Residential Funds Management Limited I declare that, to the best of my knowledge and belief, during the half-year ended 30 June 2016 there have been: (i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review, and (ii) No contraventions of any applicable code of professional conduct in relation to the review. ShineWing Australia Chartered Accountants Rami Eltchelebi Partner Melbourne, 31 August 2016 ShineWing Australia ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. ShineWing Australia is an independent member of ShineWing International Limited members in principal cities throughout the world.
US RESIDENTIAL FUND CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 30 JUNE 2016 ended 30 June 2016 Group ended 30 June 2015 ended 30 June 2016 Trust ended 30 June 2015 $000 $000 $000 $000 Revenue Rent from investment properties 1,232 911 1,232 911 Management fees - 40 - - Fair value gain on investment properties 536 1,153 536 1,153 Interest income 2 6-5 Other income 42 57 42 57 Total revenue and other income 1,812 2,167 1,810 2,126 Expenses Property expenses and outgoings 679 551 679 551 Management costs 224 122 99 16 Administration costs 171 142 122 64 Finance costs 397 306 399 299 Other expenses 55 60 15 36 Share of net losses of associates and joint ventures 52 12 - - 1,578 1,193 1,314 966 Profit before income tax 234 974 496 1,160 Income tax expense / (benefit) (43) 402 67 492 Profit for the half-year 277 572 429 668 Other comprehensive income Net foreign exchange translation adjustments (245) 174 (220) 175 Total ther comprehensive income (245) 174 (220) 175 Total comprehensive income for the half-year 32 746 209 843 Earnings per stapled security Basic earnings per stapled security (cents) 2.07 7.14 Diluted earnings per stapled security (cents) 2.07 7.14 The accompanying notes form part of these financial statements. Page 5
US RESIDENTIAL FUND CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Group Trust Note 30 June 2016 31 December 2015 30 June 2016 31 December 2015 $000 $000 $000 $000 Current Assets Cash and cash equivalents 828 1,361 671 1,200 Trade and other receivables 207 145 46 46 Prepayments 116 51 69 36 Non-current assets held for sale 4 2,771-2,771 - Total Current Assets 3,922 1,557 3,557 1,282 Non Current Assets Investment property 5 20,737 22,131 20,737 22,131 Investments accounted for using the equity method - 711 - - Deferred tax assets 617 404 431 316 Total Non Current Assets 21,354 23,246 21,168 22,447 Total Assets 25,276 24,803 24,725 23,729 Current Liabilities Trade and other payables 807 887 503 685 Borrowings 525 412 1,093 634 Income tax payable (6) - - - Distribution payable 201 402 201 402 Security deposits 245 240 245 240 Total Current Liabilities 1,772 1,941 2,042 1,961 Non Current Liabilities Deferred tax liability 1,128 968 1,128 957 Borrowings 9,314 8,402 9,314 8,402 Total Non Current Liabilities 10,442 9,370 10,442 9,359 Total Liabilities 12,214 11,311 12,484 11,320 Net Assets 13,062 13,492 12,241 12,409 Equity Contributed Equity 12,585 12,644 11,333 11,307 Reserves 607 852 620 840 Retained Earnings (130) (4) 288 262 Total Equity 13,062 13,492 12,241 12,409 The accompanying notes form part of these financial statements. Page 6
Group US RESIDENTIAL FUND CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 30 JUNE 2016 Contributed Retained Reserves Total Equty Earnings $000 $000 $000 $000 Balance at 1 January 2016 12,644 852 (4) 13,492 Issued Capital for the period 29 - - 29 Capital raising costs for the period (88) - - (88) Profit for the period - - 277 277 Other comprehensive income for the period - (245) - (245) Distribution for period - - (403) (403) Balance at 30 June 2016 12,585 607 (130) 13,062 Balance at 1 January 2015 120 - (153) (33) Issued Capital for the period 13,249 - - 13,249 Capital raising costs for the period (736) - - (736) Profit for the period - - 572 572 Other comprehensive income for the period - 174-174 Distribution for period - - (307) (307) Balance at 30 June 2015 12,633 174 112 12,919 Trust Contributed Retained Reserves Total Equty Earnings $000 $000 $000 $000 Balance at 1 January 2016 11,307 840 262 12,409 Issued Capital for the period 26 - - 26 Capital raising costs for the period - - - - Profit for the period - - 429 429 Other comprehensive income for the period - (220) - (220) Distribution for period - - (403) (403) Balance at 30 June 2016 11,333 620 288 12,241 Balance at 1 January 2015 108 - (107) 1 Issued Capital for the period 11,924 - - 11,924 Capital raising costs for the period (736) - - (736) Profit for the period - - 668 668 Other comprehensive income for the period - 175-175 Distribution for period - - (307) (307) Balance at 30 June 2015 11,296 175 254 11,725 The accompanying notes form part of these financial statements. Page 7
US RESIDENTIAL FUND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 30 JUNE 2016 ended 30 June 2016 Group ended 30 June 2015 ended 30 June 2016 Trust ended 30 June 2015 Note $000 $000 $000 $000 Cash flows from operating activites Receipts from customers 1,146 956 1,236 937 Payments to suppliers (1,397) (551) (1,117) (429) Finance costs (325) (247) (307) (241) Interest received 2 6 0 5 Income tax (paid) / refund received (3) - - - Net cash generated by operating activities (577) 164 (187) 272 Cash flows from investing activities Payments for investment properties (1,193) (881) (1,193) (881) Equity investment 643 (651) - - Payment for subsidiaries - (2,296) - (2,108) Cash acquired upon acquisition of subsidiaries - 803-803 Net cash used in investing activities (550) (3,025) (1,193) (2,186) Cash flows from financing activities Proceeds from issue of share capital - 3,299-1,974 Distributions paid (574) - (574) - Proceeds from borrowings 1,237 326 1,494 687 Repayment of borrowings (69) (31) (69) (31) Net cash generated by financing activities 594 3,594 851 2,630 Net increase / (decrease) in cash and cash equivalents (533) 733 (529) 716 Cash and cash equivalents at the start of the period 1,361 153 1,200 1 Cash and cash equivalents at the end of the period 828 886 671 717 The accompanying notes form part of these financial statements. Page 8
US RESIDENTIAL FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 30 JUNE 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation These general purpose interim financial statements for half-year reporting period ended 30 June 2016 have been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standard AASB 134: Interim Financial Reporting. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. This interim financial report is for US Residential Limited and controlled entities and US Residential Trust and controlled entities (the Group ) and US Residential Trust and controlled entities (the Trust ). This interim financial report is intended to provide users with an update on the latest annual financial statements of US Residential Fund entities (referred to as the Group ). As such, it does not contain information that represents relatively insignificant changes occurring during the half-year within the Group. It is therefore recommended that this financial report be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2015, together with any public announcements made during the following half-year. These interim financial statements were authorised for issue on 31 August 2016. New Accounting Standards for Application in Future Periods The Group has considered the implications of new or amended Accounting Standards, but determined that their application to the financial statements is either not relevant or not material. NOTE 2: DISTRIBUTIONS 30 June 2016 Group 30 June 2015 $000 $000 Distributions paid or provided for: 403 307 NOTE 3: OPERATING SEGMENTS The Group operates in the US single family home residential property market. Given the singleindustry focus of the operations, the Group operates as a single operating segment. NOTE 4: NON-CURRENT ASSETS HELD FOR SALE 30 June 2016 Group 31 December 2015 30 June 2016 Trust 31 December 2015 $000 $000 $000 $000 Investment Portfolio 2,771-2,771 - On 27 July 2016 USR announced that it has entered into an agreement for the sale of up to 33 properties from the single family home portfolio for gross proceeds of US$1.93 million. US$1.0 million of the gross proceeds of the sale will be used to pay down debt. Page 9
US RESIDENTIAL FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 30 JUNE 2016 NOTE 5: INVESTMENT PROPERTIES Group Trust 30 June 2016 31 December 2015 30 June 2016 31 December 2015 $000 $000 $000 $000 At fair value Opening balance 22,131-22,131 - Acquisitions 1,193 20,399 1,193 20,399 Transfer to available for sale (2,771) (2,292) (2,771) (2,292) Fair value adjustments 536 2,287 536 2,287 Net exchange differences (352) 1,737 (352) 1,737 Closing balance 20,737 22,131 20,737 22,131 NOTE 7: CONTINGENT LIABILITIES AND COMMITMENTS The Group has undertaken to invest US$6.2 million in the Patriots Pointe multifamily apartment complex. The transaction is expected to close in October 2016. Should USR be unable to fully fund this investment it will forfeit a US$50,000 deposit. At the USR annual general meeting held on 9 June 2016, stapled security holders approved the following transactions: Internalisation of management rights, and acquisition of assets and intellectual property of Nimble Asset Management (Aust) Pty Ltd for AUD$1.5 million; and Acquisition of syndication assets and capabilities from Nimble Asset Management Limited and Nimble Asset Management (Aust) Pty Ltd for up to 5 million performance securities. Both transactions require USR to raise AUD$10 million in equity. Page 10
US RESIDENTIAL FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 30 JUNE 2016 NOTE 8: EVENTS AFTER THE REPORTING PERIOD On 27 July 2016 USR announced that it has entered into an agreement for the sale of up to 33 properties from the single family home portfolio for gross proceeds of US$1.93 million. US$1.0 million of the gross proceeds of the sale will be used to pay down debt. On 28 July 2016 USR completed a placement 1,666,667 stapled securities at $0.60 to raise $1,000,000 (before costs). On 31 July 2016 13,808,069 options exercisable at $0.95 lapsed. On 4 August 2016 USR issued 333,641 at $0.60 each to raise $200,184 (before costs) pursuant to an entitlement offer announced on 9 May 2016. The directors are not aware of any other significant events since the end of the reporting period. Page 11
DIRECTORS DECLARATION In accordance with a resolution of the directors of US Residential Limited, the directors of the company declare that: 1. The financial statements and notes, as set out on pages 5 to 11, are in accordance with the Corporations Act 2001 including: a. complying with Accounting Standard AASB 134: Interim Financial Reporting; and b. giving a true and fair view of the consolidated entity s financial position as at 30 June 2016 and of its performance for the half-year ended on that date. 2. In the directors opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Director Dated this 31st day of August 2016 Owen Lennie DIRECTORS DECLARATION In accordance with a resolution of the directors of USA Residential Funds Management Limited, the directors of the company declare that: 1. The financial statements and notes, as set out on pages 5 to 11, are in accordance with the Corporations Act 2001 including: a. complying with Accounting Standard AASB 134: Interim Financial Reporting; and b. giving a true and fair view of the consolidated entity s financial position as at 30 June 2016 and of its performance for the half-year ended on that date. 2. In the directors opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Director Dated this 31st day of August 2016 Owen Lennie Page 12
INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF US RESIDENTIAL FUND Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report for US Residential Limited and controlled entities and US Residential Trust and controlled entities ( Group ) and US Residential Trust and controlled entities ( Trust ) which comprises the consolidated statement of financial position as at 30 June 2016, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the half-year ended on that date, the accounting policies, other selected explanatory notes, and the director s declaration. Directors Responsibility for the Half-Year Financial Report The directors of US Residential Limited and USA Residential Funds Management Limited are responsible for the preparation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001, and for such control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Australian Auditing Standards on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, anything has come to our attention that causes us to believe that the financial report is not presented fairly, in all material respects, in accordance with the Corporations Act 2001. As the auditor, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and account matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. ShineWing Australia ABN 39 533 589 331. Liability limited by a scheme approved under Professional Standards Legislation. ShineWing Australia is an independent member of ShineWing International Limited members in principal cities throughout the world.
Conclusion Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the half-year financial report of US Residential Limited and controlled entities and US Residential Trust and controlled entities is not in accordance with the Corporations Act 2001 including: (i) giving a true and fair view of the consolidated entitys financial position as at 30 June 2016 and of its performance for the half-year ended on that date; and (ii) complying with AASB 134: Interim Financial Reporting and the Corporations Regulations 2001. ShineWing Australia Chartered Accountants Rami Eltchelebi Partner Melbourne, 31 August 2016