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BSR REIT Continues to Generate Strong Financial Results and Create Long Term Value Through Capital Recycling

LITTLE ROCK and TORONTO , March 10, 2020 /CNW/ - BSR Real Estate Investment Trust ("BSR", or the "REIT") (TSX:HOM.U and HOM.UN) today announced its financial results for the three months and year ended December 31, 2019 ("Q4 2019" and "2019", respectively). The REIT had no material operations from the date of inception, January 9, 2018 , to the completion of its IPO on May 18, 2018 . To provide investors with a more complete understanding of the REIT's comparative performance, the REIT has provided total revenue, NOI and Same Community metrics in this news release that encompass the entire twelve-month period ended December 31, 2018 ("2018") for the properties that were acquired by the REIT upon completion of the IPO. Results are presented in U.S. dollars. Audited Financial Statements and Management's Discussion and Analysis as of and for the year ended December 31, 2019 are available on the REIT's website at www.bsrreit.com and at www.SEDAR.com.

"We continue to execute on our aggressive capital rotation strategy," stated John Bailey , BSR's Chief Executive Officer. "BSR's capital recycling plan affords us the opportunity to take advantage of the historically low spread in capitalization rates in primary and secondary markets, as we crystalize the value created under our capital redevelopment program in secondary markets, and recycle the capital into our targeted primary markets that lead the country in projected population and employment growth. We are building a stronger BSR for the long term, and we plan to continue the process by exiting the previously announced markets of Beaumont , Blytheville , Pascagoula and Longview as well as certain assets in Little Rock and Houston that no longer meet the REIT's investment criteria. We will recycle the proceeds into BSR's primary markets with the objective of increasing unitholder value." 

Highlights

  • Total and Same Community1 revenues for Q4 2019 increased 7.1% and 3.3%, respectively, over the three months ended December 31, 2018 ("Q4 2018").
  • Total and Same Community1 revenues for 2019 increased 10.7% and 3.7%, respectively, over 2018.
  • Weighted average rent was $942 per apartment unit as of December 31, 2019 compared to $821 per apartment unit as of December 31, 2018 , an increase of 14.7%.
  • Same Community1 weighted average rent was $864 per apartment unit as of December 31, 2019 compared to $845 per apartment unit as of December 31, 2018 , an increase of 2.3%.
  • Total and Same Community1 Net Operating Income1 ("NOI") for Q4 2019 increased 7.7% and 7.3%, respectively, over Q4 2018.
  • Total and Same Community1 NOI for 2019 increased 12.5% and 6.0%, respectively, over 2018.
  • Debt to Gross Book Value1 as of December 31, 2019 was 48.3%.
  • During 2019, the REIT acquired five apartment communities, in its primary markets, for $250.3 million .
  • During 2019, BSR sold 15 noncore properties for $173.0 million as part of its capital recycling program, under which the REIT recycles the proceeds from asset sales, on a tax-deferred basis, into markets with high growth potential that meet its acquisition criteria.
  • Subsequent to December 31, 2019 , the REIT sold Westwood Village in Shreveport, Louisiana , for gross proceeds of $16.0 million . BSR has now exited the state of Louisiana .
  • For the third consecutive year, BSR was named as one of the best places to work in the state of Arkansas by Arkansas Business and the Best Companies Group.


Since the IPO, the strategy of pivoting to major high growth markets with more modern assets from secondary markets has resulted in the weighted average age of the REIT's portfolio declining by six years from 29  to 23 years old. This decrease is attributable to the impact of quality acquisitions meeting the REIT's investment criteria and the dispositions subsequent to the IPO. The REIT's eight acquisitions following the IPO total 2,213 apartment units with a weighted average year built of 2008 (11 years old) compared to the 16 dispositions to-date which total 2,782 apartment units with a weighted average year built of 1981 (38 years old). The effects of the ongoing capital recycling program have increased the percentage of NOI concentrated in BSR's primary markets of Austin , Dallas , Houston , Oklahoma City and Fayetteville / Northwest Arkansas to 72% compared to 52% as of the fourth quarter of 2018, calculated on a pro forma basis.

Financial Summary 

In thousands of U.S. dollars


Three months
ended
December 31,
2019


Three months
ended
December 31,
2018


Change


Change %

Revenue, Total Portfolio

$

28,122


$

26,262


$

1,860


7.1%

Revenue, Same Community1 Properties

$

20,013


$

19,377


$

636


3.3%

NOI 1, Total Portfolio

$

14,864


$

13,803


$

1,061


7.7%

NOI 1, Same Community 1 Properties

$

10,889


$

10,150


$

739


7.3%

FFO 1

$

6,698


$

7,657


$

-959


-12.5%

FFO per Unit 1

$

0.15


$

0.19


$

-0.04


-21.1%

Maintenance capital expenditures

$

1,196


$

1,382


$

-186


-13.5%

AFFO 1

$

6,273


$

6,216


$

57


0.9%

AFFO per Unit 1

$

0.14


$

0.16


$

-0.02


-12.5%

Weighted Average Unit Count


45,017,734



39,745,647



5,272,087


13.3%

 

The increase in total portfolio revenue for Q4 2019 compared to Q4 2018 was primarily the result of property acquisitions, which contributed $5.9 million in revenue, as well as higher rental rates across the portfolio, partially offset by dispositions reducing revenue by $4.7 million . The $0.6 million of income related to the rent guarantee on the Satori acquisition is not included in Revenue, NOI or FFO in Q4 2019; however, it is included as an adjustment to AFFO in Q4 2019.

Same Community Properties revenue outperformed the Q4 2018 period by $0.6 million due to an increase in rental rates from $845 per apartment unit as of December 2018 to $864 per apartment unit as of December 2019 .

The increase in total portfolio NOI for Q4 2019 compared to Q4 2018 was primarily the result of property acquisitions contributing $2.7 million in NOI, partially offset by dispositions reducing NOI by $2.4 million , combined with the increase in NOI from the Same Community Properties described below.

NOI from Same Community Properties outperformed the Q4 2018 period by $0.7 million , predominantly due to the increase in revenue, described above, as well as a decline in real estate taxes and other associated costs related to the timing of the receipt of assessments and refunds.  

FFO was $6.7 million for Q4 2019, or $0.15 per Unit, compared to $7.7 million , or $0.19 per Unit, in Q4 2018. The decrease of $1.0 million in FFO is mainly the result of the increase of $1.1 million in NOI described above, offset by an increase in finance costs of $1.1 million resulting from the timing of property acquisitions and dispositions. Further contributing to the increase in finance costs, all property sales included in the same exchange must close, and cash accumulated, before proceeds can be recycled on a tax deferred basis creating a delay in the repayment of debt. The amortization of the net discount and deferred loan costs contributed $0.2 million to the increase in finance costs. G&A contributed $0.5 million to the decrease in FFO over the prior year predominately associated with a purchase price allocation adjustment in Q4 of 2018 related to the REIT's purchase of BSR at the IPO. Additionally, the REIT completed a follow-on offering and private placement of 5,213,300 Units in September of 2019, thereby increasing the unit count over Q4 2018 and decreasing FFO per Unit by $0.02 over the prior year.

AFFO was $6.3 million , or $0.14 per Unit, for Q4 2019, compared to $6.2 million or $0.16 per Unit, in Q4 2018. The increase of $0.1 million is primarily the result of the change in FFO, described above, offset by a decrease in maintenance capital expenditures of $0.2 million , the inclusion of the income related to the rent guarantee on the Satori acquisition of $0.6 million, discussed above, and the exclusion of  severance costs related to the capital recycling program of $0.2 million .

The following comparison of the year ended December 31, 2019 compared to the year ended December 31 , 2018  encompasses the twelve-months ended December 31, 2018 for the properties acquired by the REIT upon completion of the IPO to provide investors with a more complete understanding of the REIT's comparative performance to the prior year.

In thousands of U.S. dollars


Year ended
December 31,
2019


Year ended
December 31,
2018


Change


Change %

Revenue, Total Portfolio

$

111,664


$

100,842


$

10,822


10.7%

Revenue, Same Community1 Properties

$

79,209


$

76,417


$

2,792


3.7%

NOI 1, Total Portfolio

$

59,699


$

53,071


$

6,628


12.5%

NOI 1, Same Community 1 Properties

$

42,821


$

40,387


$

2,434


6.0%

 

The increase in revenue for 2019 as compared to 2018 was primarily the result of property acquisitions, which contributed $14.9 million in revenue as well as higher rental rates across the portfolio, partially offset by dispositions reducing revenue by $8.0 million .

The increase in revenue for Same Community Properties for 2019 compared to 2018 of $2.8 million , or 3.7%, was primarily due to  increased rental rates of $2.3 million and an increase in utility reimbursements of $0.4 million .

The increase in NOI for 2019 as compared to 2018 was primarily the result of property acquisitions contributing $7.9 million in NOI, partially offset by dispositions reducing NOI by $3.7 million and the higher Same Community NOI described below.

The increase in Same Community NOI for 2019 as compared to 2018 of $2.4 million , or 6.0%, was mainly due to the increase in Same Community Properties revenue described above of $2.8 million , offset by an increase in the cost of insurance of $0.2 million and a combined increase in other expense categories of $0.2 million .

Total Highlights from Recent Four Quarters

The following table highlights certain financial performance of the REIT reported for the most recent four quarters of the REIT.

 In thousands of U.S. dollars (except per unit amounts)


December 31,

2019

September 30,

2019

June 30,

2019

March 31,

2019

Operational Information





Number of real estate investment properties


40


44


45


51

Total apartment units


9,359


9,758


9,714


10,823

Average monthly rent on in-place leases

$

942

$

900

$

858

$

835

Average monthly rent on in-place leases,









Same Community 1 Properties

$

864

$

858

$

846

$

843

Weighted average occupancy rate


93.6%


94.9%


95.0%


94.9%

Retention rate


53.7%


54.0%


55.0%


53.4%

Debt to Gross Book Value 1


48.3%


46.2%


47.8%


51.2%







Three months
ended
December 31,
2019

Three months
ended
September 30,
2019

Three months
ended June 30,
2019

Three months
ended March
31, 2019

Operating Results





Revenue, Total Portfolio

$

28,122

$

27,840

$

27,993

$

27,709

Revenue, Same Community1 Properties

$

20,013

$

19,962

$

19,752

$

19,482

NOI 1, Total Portfolio

$

14,864

$

14,533

$

15,168

$

15,134

NOI 1, Same Community 1 Properties

$

10,889

$

10,562

$

10,679

$

10,691

NOI Margin 1, Total Portfolio

52.9%


52.2%


54.2%


54.6%

NOI Margin 1, Same Community 1 Properties

54.4%


52.9%


54.1%


54.9%

FFO 1

$

6,698

$

7,123

$

7,379

$

8,061

FFO per Unit

$

0.15

$

0.18

$

0.19

$

0.20

Maintenance capital expenditures

$

1,196

$

722

$

1,354

$

586

AFFO 1

$

6,273

$

6,455

$

6,188

$

7,474

AFFO per Unit

$

0.14

$

0.16

$

0.16

$

0.19

AFFO Payout Ratio


89.6%


80.3%


80.3%


66.4%

Weighted Average Unit Count


45,017,734


40,535,441


39,786,187


39,768,861

 

FFO declined $0.4 million in Q4 2019 compared to Q3 2019, primarily due to the disposition of three properties in Q3 of 2019 and six properties in Q4 of 2019, offset by the acquisition of two properties in Q3 of 2019 and two properties in Q4 of 2019 discussed above. AFFO decreased $0.2 million in Q4 2019 compared to Q3 2019 due to the change in FFO mentioned above, as well as the increase in maintenance capital expenditures of $0.5 million quarter over quarter, offset by the inclusion of the income related to the rent guarantee on the Satori acquisition of $0.6 million in Q4 2019.

Liquidity and Capital Structure

As of December 31 , 2019, the REIT had cash and cash equivalents of $37.0 million , a $175.0 million revolving credit facility and a $35.0 million line of credit. $141.4 million was drawn from the credit facility and no balance was drawn on the line of credit, leaving total liquidity of $105.6 million . As of December 31, 2019 , the REIT had total mortgage notes payable of $408.5 million , excluding the credit facility, with a weighted average contractual interest rate of 3.9% and a weighted average term to maturity of 9.6 years. Total loans and borrowings of the REIT as of December 31, 2019 were $542.3 million . Debt to Gross Book Value1 was 48.3%. As of December 31, 2019 , 83% of the REIT's debt was fixed or economically hedged to fixed rates. Subsequent to December 31, 2019 , the REIT repaid $32.4 million on the credit facility.

Distributions and Units Outstanding

Cash distributions declared to REIT unitholders and Class B unitholders totalled $5.6 million for the fourth quarter of 2019, representing an AFFO payout ratio of 89.6%. 100% of the REIT's cash distributions were a return of capital. As of December 31, 2019 , the total number of REIT Units outstanding was 22,311,997. There were also 22,601,042 Class B Units outstanding, which are exchangeable into REIT Units on a one-for-one basis.

Conference Call

John Bailey , Chief Executive Officer, and Susan Koehn , Chief Financial Officer, will host a conference call for analysts and investors on Wednesday, March 11th, 2020 at 11:00 am (ET) . The dial-in numbers for participants are 416-764-8609 or 888-390-0605. In addition, the call will be webcast live at: https://event.on24.com/wcc/r/2186660/177A299EEFDC48737E42BF44EE14C3C3

A replay of the call will be available until Wednesday, March 18th, 2020 . To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 478599 #). A transcript of the call will be archived on the REIT's website.

About BSR Real Estate Investment Trust

BSR Real Estate Investment Trust is an internally managed, unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario . The REIT owns a portfolio of multifamily garden-style residential properties located in attractive primary and secondary markets in the Sunbelt region of the United States .

Non-IFRS Financial Measures

Same Community, NOI, NOI Margin, FFO, AFFO and Debt to Gross Book Value are key measures of performance commonly used by real estate operating companies and real estate investment trusts. They are not measures recognized under International Financial Reporting Standards ("IFRS") and do not have standardized meanings prescribed by IFRS. Same Community, NOI, NOI Margin, FFO, AFFO and Debt to Gross Book Value as calculated by the REIT may not be comparable to similar measures presented by other issuers. Please refer to the REIT's Management's Discussion and Analysis for the three months and year ended December 31, 2019 for a reconciliation of Same Community, NOI, NOI Margin, FFO, AFFO and Debt to Gross Book Value to standardized IFRS measures.

Forward-Looking Statements

This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events and in some cases can be identified by such terms as "will" and "expected". Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under "Risks and Uncertainties" in the REIT's MD&A for the year ended December 31, 2019 and in the REIT's annual information form dated March 10, 2020 , both of which are available on SEDAR (www.sedar.com). The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.









1 

Same Community, NOI, NOI margin, FFO, AFFO and Debt to GBV are non-IFRS financial measures. See "Non-IFRS Financial Measures" in this news release.

 

SOURCE BSR Real Estate Investment Trust


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