Shares of UC Asset LP (OTCQX: UCASU) jumped 7% last week. The jump comes after the company announced that as part of its “united community” initiative to stop racism and foster solidarity among communities, it is donating up to $50,000 to nonprofits working to eradicate the backlash against Asian Americans and stop anti-Asian violence. The move furthers its commitment to being a partner to the communities where they invest.
The jump to $2.20 is also a product of the company raising $8.6 million this year, including $300,000 from a private placement deal last year. Also bullish, Zacks Small-Cap Research updated its research report on UCASU in March 2021 and set a target price of $4.50 per unit, noting that UCASU stock is trading at a 29% premium to its 2019 per unit NAV. They also see the possibility for accelerated growth and greater corporate visibility to widen the NAV multiple.
It’s current performance is strong as well. Between 2016 and 2019, net equity in the company surged to 39%, pushed by a compounding growth rate of 8.58% during that period. The company also dramatically improved its balance sheet, taking proactive measures to strengthen its portfolio and boost cash reserves ahead of the COVID-19 pandemic. Those transactions made in late 2020 led to selling $2.5 million in properties that generated roughly $1 million in gross profit.
A report of its 2020 business performance is expected soon. Those results could be bullish for the stock.
Building Capital For 2021 Expansion
Investors are expecting 2020 financial results to be impressive. A Q4 2020 update showed a profitable sale of property outside Dallas for $1.3 million and the sale of some of its Atlanta residential portfolio for its asking price of $1.35 million. Those transactions are helping to build a sizable balance for future acquisitions. It could also set up for a robust 2021.
In fact, UCASU has already said that by mid-year, it expects to accrue between $4-7 million in cash that it plans to use to purchase new assets in the post-pandemic economy. The business model is changing as well, with plans to shift away from purely residential investment and enhance its holdings in commercial and mixed-use development properties. That move could prove wise.
Businesses learned during the pandemic that Zoom meetings and other online meeting platforms can replace the need for large office space. While that’s potentially bad news for current professional-property landlords, it could bode well for UCASU, which is targeting a niche opportunity through mixed-use property purchases.
Innovation Meets Intelligence
This is where innovation meets with intelligence. By building its capital reserves, UCASU expects to maximize opportunities in a commercial real-estate market that may experience weakness post-pandemic. More specifically, they see opportunities coming due to the extension of rent-relief and eviction moratoriums provided within pandemic relief packages. Thus, with many landlords across the country not getting paid rent by their tenants, and with aid from the government sometimes non-existent, these forbearance’s are expected to soon become front-page headlines as real-estate prices are pressured lower. Keep in mind, investors are not currently buying property where rental income is uncertain. The most recent COVID-19 relief package extends eviction and rent moratoriums for at least three more months.
Thus, UC Asset made some timely moves by diversifying out of residential investments and into opportunities to provide mortgage support to commercial property owners whose cash flow has been disrupted by the pandemic. That strategy was the start of its new focus.
And it could prove wise. A Zacks report suggests that approximately $430 billion in commercial real estate debt comes due in 2021, which may cause property owners to seek new investors or liquidate their properties. For UCASU, those events create opportunities. In fact, UCASU could benefit from two investment strategies.
Strategic Initiatives Target Distinct Markets
The first is through exposure to providing commercial real estate mortgage support. An example of how it works came in June when UCASU purchased its first commercial property support investment in a rental property with a market value of $850k. In that deal, the current owner earned a profit from the property before the pandemic but had not collected rent for five months. The owner still held a remaining mortgage balance of over $400k that was difficult to manage. In a win-win deal, UCASU provided a cash payment to compensate for the property’s equity and assumed the mortgage. At the end of the term, UCASU is entitled to purchase the property for $1 upon satisfying the outstanding mortgage. Although each deal’s duration varies, the current market conditions make both UCASU and commercial property owners eager to make a deal. Thus, UCASU could benefit from a market that is full of attractive investment opportunities.
A second strategy has UCASU helping to revitalize neighborhoods through its SHOC (shared home office concept) program. That initiative includes a commitment to invest in underserved communities around Atlanta. In September, UCASU announced plans to revitalize clusters of distressed residential properties in neighborhoods close to major airports, renovate them into cost-efficient home offices, and market them as shared accommodations on platforms such as Airbnb (ABNB). The goal is to target business travelers who prefer renting a shared home-office compared to staying at a conventional hotel.
By December, UC Asset committed $1 million to pilot its SHOC strategy and said it plans to develop a $10 million portfolio of shared home office properties in 2021. Returns from those properties are expected to be substantial, and UCASU believes that demand, especially from people not yet comfortable in large group settings, may eclipse that of traditional office space.
On A Mission In 2021
So far, UCASU is on track to deliver on its mission. Already, the company has invested in individual residential properties near Atlanta’s main airport, putting the SHOC investment strategy in play. Notably, while making money, these SHOC locations are revitalizing neighborhoods and at the same time offering a place to work. That achievement could lead community stakeholders and local boards to embrace future projects. Thus, the UCASU business model could be a perfect fit into a post-pandemic business landscape.
And if so, US Asset LLP, communities, and renters will all be winners.
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