BSR REIT Announces Strong Q2 2020 Financial Results
- Collections remain strong and portfolio repositioning continues -
LITTLE ROCK, Ark. and TORONTO, Aug. 12, 2020 /CNW/ - BSR Real Estate Investment Trust ("BSR", or the "REIT") ") (TSX: HOM.U) (TSX: HOM.UN) today announced its financial results for the three and six months ended June 30, 2020 ("Q2 2020" and "H1 2020", respectively). All comparisons in the following summary are to the corresponding periods in the prior year. Results are presented in U.S. dollars. References to "Same Community" correspond to properties the REIT has owned for equivalent periods throughout Q2 2020 and H1 2020 and the three and six months ended June 30, 2019 ("Q2 2019" and "H1 2019", respectively), thus removing the impact of acquisitions and dispositions. Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis as of and for the three months ended June 30, 2020 are available on the REIT's website at www.bsrreit.com and at www.SEDAR.com.
"The transformation of our portfolio of communities continues as we recycle capital to position BSR as a leader in our targeted sunbelt markets, despite the COVID-19 pandemic," stated John Bailey, BSR's Chief Executive Officer. "By taking advantage of the compression in cap rate spreads between primary and secondary markets, the NOI portfolio exposure to primary markets has increased to 81% compared to 52% at the time of our IPO in 2018 and our average rental rate has increased by 28%. Moreover, the weighted average age of our portfolio has declined by nine years from 29 to 20 years old. Though the more rapid pace of dispositions versus acquisitions is having a short term negative impact on NOI, we expect the accretive impact will be reflected in our financial results as we continue to re-deploy capital and execute upon our growth strategy."
Q2 2020 Highlights
- Same Community1 revenues for Q2 2020 increased 1.8% over Q2 2019;
- Weighted average rent was $996 per apartment unit as of June 30, 2020 compared to $858 per apartment unit as of June 30, 2019, a 16.1% improvement;
- Same Community1 weighted average rent was $901 per apartment unit as of June 30, 2020 compared to $887 per apartment unit as of June 30, 2019, a 1.6% improvement;
- Same Community1 Net Operating Income1 ("NOI") for Q2 2020 increased 2.8% over Q2 2019;
- Same Community1 NOI margin1 was 53.5% for Q2 2020 compared to 53.0% for Q2 2019;
- Debt to Gross Book Value1 as of June 30, 2020 was 48.5%;
- Weighted average occupancy was 94.8% as of June 30, 2020 compared to 95.0% as of June 30, 2019;
- The REIT acquired Retreat at Wolf Ranch Apartments, a 303 suite, garden style residential community in the Austin, Texas market, built in 2017, for $51.6 million or $170,297 per apartment unit;
- The REIT sold Summer Green I, Summer Green II, Summer Brook and Summer Lake located in Longview, Texas with an average age of 33 years for gross proceeds of $69.8 million or $78,959 per apartment unit;
- In the month of June, 2020, the REIT collected 98.0% of total monthly revenue compared to the historical average of 99.0%; and
- As of June 30, 2020, the REIT had 145 rent deferral agreements outstanding (representing 1.6% of the total units in the portfolio) with payments being made as scheduled.
Subsequent Highlights
- On July 30, 2020, the REIT acquired Broadstone Park West, a 370 apartment unit, garden style residential community in Houston, Texas, built in 2014, for a contractual purchase price of $51.0 million, or $137,838 per apartment unit. The REIT funded the transaction with approximately $40.0 million on the REIT's credit facility and an issuance to the seller, on a private placement basis, of approximately $10.4 million of REIT Units at $12.25 per REIT Unit, net of prorations. Debt to gross book value is 49.8% after the transaction.
- In the month of July, 2020, the REIT collected 98.0% of monthly revenue compared to the historical average of 99.0%.
- As of July 31, 2020, the REIT had 131 rent deferral agreements outstanding representing $46.0 thousand in deferred rent.
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COVID-19 Mitigation
The REIT's highest priority is the health and safety of its residents and team members. Given the fluid nature of the pandemic, we continue to monitor all locations in which BSR operates in order to adjust policies and procedures as necessary to provide a safe environment to live and work. A combination of the following measures has been implemented at each of our properties based on requirements from state and local governments and recommendations from the Center for Disease Control:
- Closure of non-essential common areas at all properties in higher risk areas;
- Closure of apartment offices to external traffic in higher risk areas;
- Rotation of teams with half employees reporting to work and half working from home where possible;
- Sanitization of regularly touched surfaces on a more frequent basis;
- Virtual or self-guided apartment tours; and
- Contactless doorstep delivery of packages.
BSR provided $0.3 million of additional benefits to employees such as paid time off, onsite bonuses and medical reimbursements and chose to forgo $0.2 million in late fee income during Q2 2020 related to the COVID-19 pandemic. Furthermore, the REIT has received no government subsidies related to the pandemic.
Q2 2020 Financial Summary
In thousands of U.S. dollars
Three months | Three months | Change | Change % | ||||
Revenue, Total Portfolio | $ | 27,288 | $ | 27,993 | $ | -705 | -2.5% |
Revenue, Same Community1 Properties | $ | 19,745 | $ | 19,393 | $ | 352 | 1.8% |
NOI1, Total Portfolio | $ | 14,222 | $ | 15,168 | $ | -946 | -6.2% |
NOI1, Same Community1 Properties | $ | 10,566 | $ | 10,282 | $ | 284 | 2.8% |
FFO1 | $ | 6,635 | $ | 7,379 | $ | -744 | -10.1% |
FFO per Unit1 | $ | 0.15 | $ | 0.19 | $ | -0.04 | -19.9% |
Maintenance capital expenditures | $ | -678 | $ | -1,354 | $ | 676 | -49.9% |
Severance/retention costs on dispositions | $ | 155 | $ | 140 | $ | 15 | 10.7% |
Straight line rental revenue differences | $ | 80 | $ | 23 | $ | 57 | 247.8% |
AFFO1 | $ | 6,192 | $ | 6,188 | $ | 4 | 0.1% |
AFFO per Unit1 | $ | 0.14 | $ | 0.16 | $ | -0.02 | -10.9% |
Weighted Average Unit Count | 44,663,118 | 39,786,187 | 4,876,931 | 12.3% | |||
The decrease in total portfolio revenue for Q2 2020 compared to Q2 2019 was primarily the result of property dispositions which reduced revenue by $7.0 million, partially offset by acquisitions after March 31, 2019 which contributed $5.8 million in revenue, as well as higher rental rates across the portfolio.
Same Community properties revenue outperformed Q2 2019 by $0.4 million due to an increase in average rental rates from $887 per apartment unit as of June 2019 to $901 per apartment unit as of June 2020, partially offset by the absence of late rental fees of $0.2 million no longer being charged due to the COVID-19 pandemic.
The decrease in total portfolio NOI for Q2 2020 compared to Q2 2019 was primarily the result of property dispositions reducing NOI by $4.2 million, partially offset by acquisitions after March 31, 2019 contributing $2.8 million in NOI as well as the increase in NOI from Same Community properties.
NOI from Same Community properties outperformed the Q2 2019 period by $0.3 million, predominantly due to the increase in revenue, described above. Increases in real estate taxes and insurance as well as the additional expenses incurred as a result of the pandemic, as discussed above, were offset by a decline in payroll expenses.
FFO was $6.6 million for Q2 2020, or $0.15 per Unit, compared to $7.4 million, or $0.19 per Unit, in Q2 2019. The decrease of $0.7 million in FFO is mainly the result of the decrease of $0.9 million in NOI related to the impact of dispositions, offset by a $0.1 million decrease in finance costs due to the timing of acquisitions and dispositions during the respective quarters and a $0.1 million decrease in general and administrative expenses, related to a reduction in professional fees and travel expenses. The REIT incurred severance/retention costs, related to the capital recycling program, of $0.2 million and $0.1 million during Q2 2020 and Q2 2019, respectively. These costs are not adjusted from FFO.
AFFO was flat at $6.2 million, or $0.14 per Unit, for Q2 2020, compared to $6.2 million, or $0.16 per Unit, in Q2 2019. The decrease of $0.7 million in FFO discussed above was offset by the decrease in maintenance capital expenditures of $0.7 million versus the comparative period due to emergency only maintenance during Q2 2020. As described above, the REIT incurred severance/retention costs, related to the capital recycling program, of $0.2 million and $0.1 million during Q2 2020 and Q2 2019, respectively. These costs are adjusted from AFFO.
H1 2020 Financial Summary
In thousands of U.S. dollars
Six months | Six months | Change | Change % | ||||
Revenue, Total Portfolio | $ | 54,810 | $ | 55,702 | $ | -892 | -1.6% |
Revenue, Same Community1 Properties | $ | 39,454 | $ | 38,556 | $ | 898 | 2.3% |
NOI1, Total Portfolio | $ | 28,905 | $ | 30,302 | $ | -1,397 | -4.6% |
NOI1, Same Community1 Properties | $ | 21,383 | $ | 20,693 | $ | 690 | 3.3% |
FFO1 | $ | 11,957 | $ | 15,440 | $ | -3,483 | -22.6% |
FFO per Unit1 | $ | 0.27 | $ | 0.39 | $ | -0.04 | -31.3% |
Maintenance capital expenditures | $ | -1,491 | $ | -1,940 | $ | 449 | -23.1% |
Escrowed rent guaranty realized (Satori) | $ | 437 | $ | – | $ | 437 | n/a |
Severance/retention costs on dispositions | $ | 186 | $ | 140 | $ | 46 | 32.9% |
Loss on extinguishment of debt | $ | 1,648 | $ | – | $ | 1,648 | n/a |
Straight line rental revenue differences | $ | 62 | $ | 22 | $ | 40 | 181.8% |
AFFO1 | $ | 12,799 | $ | 13,662 | $ | -863 | -6.3% |
AFFO per Unit1 | $ | 0.29 | $ | 0.34 | $ | -0.06 | -16.9% |
Weighted Average Unit Count | 44,829,109 | 39,775,884 | 5,053,225 | 12.7% | |||
The decrease in total portfolio revenue for H1 2020 compared to H1 2019 was primarily the result of property dispositions which reduced revenue by $13.0 million, partially offset by acquisitions after December 31, 2018 which contributed $11.2 million in revenue, as well as higher rental rates across the portfolio. The $0.4 million of income related to the rent guarantee on the Satori acquisition is not included in revenue, NOI or FFO for the six months ended June 30, 2020; however, it is included as an adjustment to AFFO.
Same Community properties revenue outperformed H1 2019 by $0.9 million due to an increase in rental rates, as discussed above. Late rental fee income declined $0.2 million due to the cancellation of this fee in response to the COVID-19 pandemic; however, the decline was offset by an increase in utility reimbursement income.
The decrease in total portfolio NOI for H1 2020 compared to H1 2019 was primarily the result of property dispositions reducing NOI by $7.4 million, partially offset by acquisitions contributing $5.2 million in NOI as well as the increase in NOI from Same Community properties.
NOI from Same Community properties outperformed the comparative period by $0.7 million, predominantly due to the increase in revenue, described above.
H1 2020 FFO was $12.0 million, or $0.27 per Unit, compared to $15.4 million, or $0.39 per Unit, in H1 2019. The decrease of $3.5 million in FFO is mainly the result of a decrease of $1.4 million in NOI related to the timing of dispositions, as well as an increase in finance costs of $1.7 million primarily resulting from a $1.6 million loss on extinguishment of debt, which includes the non-cash write-off of a $1.4 million prepayment embedded derivative upon the refinancing of mortgage debt. General and administrative expenses (G&A) contributed $0.3 million to the decrease in FFO over the prior period, primarily related to an increase in share based compensation and other payroll and benefits, offset by lower travel expenses. The REIT incurred severance/retention costs, related to the capital recycling program, of $0.2 million and $0.1 million during H1 2020 and 2019, respectively. These costs are not adjusted from FFO.
H1 2020 AFFO was $12.8 million, or $0.29 per Unit, compared to $13.7 million, or $0.34 per Unit, for H1 2019. The decrease of $0.9 million was primarily the result of the change in FFO described above, offset by the exclusion of loss on extinguishment of debt of $1.6 million and the inclusion of income related to the rent guaranty on the Satori acquisition of $0.4 million. Further, maintenance capital expenditures decreased $0.4 million over the prior year due to emergency only maintenance during Q2 2020. The severance/retention costs, discussed above, were adjusted from AFFO.
Total Highlights from Recent Four Quarters
The following table highlights certain financial performance of the REIT reported for the most recent four quarters.
In thousands of U.S. dollars (except per unit amounts)
June 30, | March 31, | December 31, | September 30, | |||||
Operational Information | ||||||||
Number of real estate investment properties | 38 | 40 | 40 | 44 | ||||
Total apartment units | 9,035 | 9,460 | 9,359 | 9,758 | ||||
Average monthly rent on in-place leases | $ | 996 | $ | 961 | $ | 942 | $ | 900 |
Average monthly rent on in-place leases, | $ | 901 | $ | 904 | $ | 902 | $ | 900 |
Weighted average occupancy rate | 94.8% | 94.2% | 93.6% | 94.9% | ||||
Retention rate | 53.5% | 52.8% | 53.7% | 54.0% | ||||
Debt to Gross Book Value1 | 48.5% | 49.4% | 48.3% | 46.2% | ||||
Three months | Three months | Three months | Three months | |||||
Operating Results | ||||||||
Revenue, Total Portfolio | $ | 27,288 | $ | 27,522 | $ | 28,122 | $ | 27,840 |
Revenue, Same Community1 Properties | $ | 19,745 | $ | 19,709 | $ | 19,773 | $ | 19,663 |
NOI1, Total Portfolio | $ | 14,222 | $ | 14,683 | $ | 14,864 | $ | 14,533 |
NOI1, Same Community1 Properties | $ | 10,566 | $ | 10,817 | $ | 10,550 | $ | 10,148 |
NOI Margin1, Total Portfolio | 52.1% | 53.4% | 52.9% | 52.2% | ||||
NOI Margin1, Same Community1 Properties | 53.5% | 54.9% | 53.4% | 51.6% | ||||
FFO1 | $ | 6,635 | $ | 5,322 | $ | 6,698 | $ | 7,123 |
FFO per Unit | $ | 0.15 | $ | 0.12 | $ | 0.15 | $ | 0.18 |
Escrowed rent guaranty realized (Satori) | $ | – | $ | 437 | $ | 660 | $ | – |
Loss on extinguishment of debt | $ | – | $ | 1,648 | $ | – | $ | – |
Maintenance capital expenditures | $ | 678 | $ | 813 | $ | 1,196 | $ | 722 |
AFFO1 | $ | 6,192 | $ | 6,607 | $ | 6,273 | $ | 6,455 |
AFFO per Unit1 | $ | 0.14 | $ | 0.15 | $ | 0.14 | $ | 0.16 |
AFFO Payout Ratio | 90.0% | 84.8% | 89.6% | 80.3% | ||||
Weighted Average Unit Count | 44,663,118 | 44,995,099 | 45,017,734 | 40,535,441 | ||||
Liquidity and Capital Structure
As of June 30, 2020, the REIT had liquidity of $59.7 million consisting of cash and cash equivalents of $7.6 million, $17.1 million available borrowing capacity under a $175.0 million revolving credit facility and no balance drawn on a $35.0 million line of credit. In concurrence with the acquisition of Broadstone, the revolving credit facility limit was increased to $205.0 million. Liquidity, adjusted for the purchase of Broadstone Park West is $54.5 million.
As of June 30, 2020, the REIT had total mortgage notes payable of $397.4 million, excluding the credit facility, with a weighted average contractual interest rate of 3.9% and a weighted average term to maturity of 9.3 years. Total loans and borrowings of the REIT as of June 30, 2020 were $543.1 million. As of June 30, 2020, 84% of the REIT's debt was fixed or economically hedged to fixed rates. Debt to gross book value is 49.8% after the purchase of Broadstone Park West.
Distributions and Units Outstanding
Cash distributions declared to REIT unitholders and Class B unitholders of BSR Trust, LLC totalled $5.6 million for the second quarter of 2020, representing an AFFO payout ratio of 90.0%. 100% of the REIT's cash distributions were a return of capital. As of June 30, 2020, the total number of REIT Units outstanding was 22,870,884. There were also 21,665,156 Class B Units of BSR Trust, LLC outstanding, which are redeemable for 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 Thursday, August 13th, 2020 at 11:00 am (ET). The dial-in numbers for participants are 416-764-8688 or 888-390-0546. In addition, the call will be webcast live at: https://produceredition.webcasts.com/starthere.jsp?ei=1342506&tp_key=ae9533750f
A replay of the call will be available until Thursday, August 20th, 2020. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 287029 #). 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 ended June 30, 2020 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, including the accretive impact of the REIT's capital recycling efforts on future financial results and the potential impact of COVID-19, 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. The REIT's estimates, beliefs and assumptions, which may prove to be incorrect, including those relating to the REIT's ability to finance and complete future acquisitions, as well as that COVID-19 will not have a material impact on the REIT's business. The risks and uncertainties that may impact such forward-looking information include, but are not limited to, the impact of COVID-19 on the REIT's operations, business and financial results and the factors discussed under "Risks and Uncertainties" in the REIT's Management's Discussion and Analysis for the three months ended June 30, 2020 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.
SOURCE BSR Real Estate Investment Trust
Susan Koehn, Chief Financial Officer, BSR Real Estate Investment Trust, Tel: 501.371.6335, Fax: 501.374.3383
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