BSR REIT Q4 2018 Impressive Financial Results Reflect Continued NOI Growth Above Forecast

LITTLE ROCK and TORONTO, March 7, 2019 /CNW/ - BSR Real Estate Investment Trust ("BSR", or the "REIT") (TSX: HOM.U) today announced its financial results for the three months ended December 31, 2018 ("Q4 2018") and the period from May 18, 2018 to December 31, 2018 ("FY 2018"). The FY 2018 period reflects the REIT's operations commencing after completion of its Initial Public Offering (the "IPO") on May 18, 2018. The REIT had no operations prior to May 18, 2018. Results are presented in U.S. dollars. Due to the short duration of the FY 2018 period, the REIT's results may not be indicative of annualized results. The results for all periods presented are compared to the financial forecast (the "Forecast") contained in BSR's IPO prospectus dated May 11, 2018. To provide investors with a more complete understanding of the REIT's performance, the REIT has also provided total revenue and NOI metrics in this news release that include the entire nine months ended December 31, 2018 for the properties that were acquired by the REIT upon closing of the IPO. Full Financial Statements and Management's Discussion and Analysis are available on the REIT's website at www.bsrreit.com and at www.SEDAR.com.

Q4 2018 Highlights

FY 2018 Highlights (May 18, 2018 to December 31, 2018)

________________________________

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.

Acquisitions

As highlighted above, during the fourth quarter of 2018, the REIT made two accretive acquisitions. Riverhill Apartments is centrally located in the Dallas-Fort Worth MSA, one of the fastest growing populations in the United States, just south of DFW International Airport and the headquarters of American Airlines. The region has above average household income, below average unemployment and is home to 22 Fortune 500 companies, one of the highest concentrations in the country. Towne Park at Har-Ber Apartments is located in Northwest Arkansas, the fastest growing region in the state of Arkansas and the 14th fastest growing MSA in the United States. Median household income in Northwest Arkansas rose 8.1% in the past 12 months and average lease prices have increased 18% over the past four years. The property is located less than 15 miles from the headquarters of three Fortune 500 companies, including Walmart. Both acquisitions are consistent with BSR's clustering strategy to maximize operating efficiencies and have opportunities for rent growth.

"We continue to execute our growth strategy, creating value for our stakeholders through strategic acquisitions and our capital redevelopment program," stated John Bailey, BSR's Chief Executive Officer. "We generated impressive fourth quarter financial results, and we maintain confidence in meeting our pro-rated AFFO Forecast for the 12 months ending March 31, 2019. We also continue to review the portfolio with the goal of recycling capital in order to maximize total unitholder returns. Looking ahead, we believe our business outlook is very positive. We have the right strategy to generate continued accretive growth while providing an excellent work environment for our employees and an exceptional living experience for our residents at a community they are proud to call home."

Financial Summary - Q4 2018


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


Q4 2018
(Actual)

Q4 2018
(Forecast)

Change

Change %

Revenue, Total Portfolio

$

26,262

$

25,300

$

962

3.8%

Revenue, Same Community1 Properties

$

25,588

$

25,300

$

288

1.1%

NOI 1, Total Portfolio

$

13,803

$

13,310

$

493

3.7%

NOI 1, Same Community 1 Properties

$

13,319

$

13,310

$

9

0.1%

NOI Margin 1, Total Portfolio

52.6%

52.6%

- bps

- %

NOI Margin 1, Same Community 1 Properties

52.1%

52.6%

-50bps

-1.0%

FFO 1

$

7,657

$

7,685

$

(28)

-0.4%

FFO per Unit

$

0.193

$

0.193

$

-

- %

Maintenance Capital Expenditures

$

1,382

$

990

$

392

39.6%

AFFO 1

$

6,216

$

6,670

$

(454)

-6.8%

AFFO per Unit

$

0.156

$

0.168

$

(0.012)

-7.1%

AFFO Payout Ratio

79.9%

74.4%

550bps

7.4%

For the three months ended December 31, 2018, revenues totalled $26.3 million, a 3.8% increase over the $25.3 million Forecast. The increase over the Forecast is the result of the recent property acquisitions described above, Towne Park and Riverhill, as well as higher than expected occupancy and rental rate increases for the entire portfolio, both of which were attributable to BSR's capital redevelopment program. Same Community total revenue was $25.6 million, a 1.1% increase over the Forecast. As of December 31, 2018, weighted average occupancy was 93.3% and average monthly in-place leases were $821 per apartment unit.

NOI1 for the three months ended December 31, 2018 totalled $13.8 million, compared to the Forecast of $13.3 million. The 3.7% increase over the Forecast was primarily the result of the property acquisitions described above. Same Community NOI1 totalled $13.3 million and was in line with the Forecast.

FFO1 of $7.7 million for the three months ended December 31, 2018 was in line with the Forecast. The increase in fourth quarter NOI1 over Forecast was primarily offset by higher finance costs due to interest expense associated with the financing of the fourth quarter property acquisitions described above and higher than expected amortization of discounts on loans and borrowings related to the fair valuation of debt at the time of the IPO.

AFFO1 was $6.2 million, or $0.156 per Unit, for the three months ended December 31, 2018, compared to the Forecast of $6.7 million. AFFO1 was impacted by the acceleration of maintenance capital expenditures projects, that were previously planned for the first quarter of 2019, to take advantage of milder weather and to avoid the potential impact of federal tariffs combined with the previously announced increase in planned maintenance capital expenditures from $400 to $437 per apartment unit. The increase in planned spending is for the repair of staircases, landings and a retaining wall as well as additional upgrades on acquisitions related to carpet, landscaping and fitness center improvements. The REIT expects to incur lower than Forecast maintenance capital expenditures in the first quarter of 2019 with the expectation of ending the forecast period at $437 per apartment unit.

Financial Summary -FY 2018 (May 18, 2018 to December 31, 2018)


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


FY 2018
(Actual)

FY 2018 (Pro-
Rated
Forecast)

Change

Change %

Revenue, Total Portfolio

$

64,073

$

62,335

$

1,738

2.8%

Revenue, Same Community 1 Properties

$

63,399

$

62,335

$

1,064

1.7%

NOI 1, Total Portfolio

$

33,918

$

32,352

$

1,566

4.8%

NOI 1, Same Community 1 Properties

$

33,434

$

32,352

$

1,082

3.3%

NOI Margin 1, Total Portfolio

52.9%

51.9%

100bps

1.9%

NOI Margin 1, Same Community 1 Properties

52.7%

51.9%

80bps

1.5%

FFO 1

$

18,940

$

18,481

$

459

2.5%

FFO per Unit

$

0.477

$

0.465

$

0.012

2.6%

Maintenance Capital Expenditures

$

3,098

$

2,459

$

639

26.0%

AFFO 1

$

15,638

$

15,847

$

(209)

-1.3%

AFFO per Unit

$

0.394

$

0.399

$

(0.005)

-1.3%

AFFO Payout Ratio

78.5%

77.8%

70bps

0.9%

For the FY 2018 period, revenues totalled $64.1 million, compared to the Forecast of $62.3 million. The 2.8% increase over Forecast was primarily the result of higher than expected occupancy and rental rate increases for the entire portfolio, both of which were attributable to BSR's capital redevelopment program. The property acquisitions in the fourth quarter of 2018 contributed revenues of $0.7 million. Same Community revenue was $63.4 million, a 1.7% increase over the Forecast.

NOI1 for the FY Period totalled $33.9 million, compared to the Forecast of $32.4 million. The 4.8% increase over Forecast was primarily the result of the increase in revenue, discussed above, offset by incremental property operating expenses from the property acquisitions in the fourth quarter of 2018. Same Community NOI1 totalled $33.4 million, a 3.3% increase over the Forecast.

FFO1 was $18.9 million for the FY Period, compared to the Forecast of $18.5 million. The 2.5% outperformance resulted from increased NOI, partially offset by higher finance costs due to higher amortization of discounts on loans and borrowings and interest expense associated with the financing of property acquisitions in the fourth quarter of 2018, both discussed above, and higher general and administrative costs due to the timing of non-cash compensation recorded in the second quarter of 2018.

AFFO1 was $15.6 million for the FY Period, or $0.394 per Unit, compared to the Forecast of $15.8 million. FY 2018 higher FFO1 was offset by the acceleration of maintenance capital expenditures projects and the previously announced increase in planned spending from $400 to $437 per apartment unit discussed above. Maintenance capital expenditures in the first quarter of 2019 are expected to be below Forecast amounts with the expectation of ending the Forecast period at $437 per apartment unit.

Highlights from Nine Months Ended December 31, 2018

The following nine months ended December 31, 2018 metrics include the combined full nine months ended December 31, 2018 for the properties that were acquired by the REIT upon closing of the IPO .

In thousands of U.S. dollars


Nine months
ended
December 31,
2018

Forecast

Change

Change %

Revenue, Total Portfolio

$

76,785

$

75,001

$

1,784

2.4%

Revenue, Same Community Properties

$

76,111

$

75,001

$

1,110

1.5%

NOI 1, Total Portfolio

$

40,811

$

38,803

$

2,008

5.2%

NOI 1, Same Community Properties

$

40,327

$

38,803

$

1,524

3.9%

For the nine months ended December 31, 2018, total revenues were $76.8 million, compared to the Forecast of $75.0 million. The higher revenue is primarily the result of stronger than expected occupancy for the entire portfolio as well as rental rate increases that occurred more quickly than expected, and were attributable to BSR's capital redevelopment program. The recent property acquisitions in the fourth quarter generated revenues of $0.7 million. Same Community total revenue was $76.1 million, a 1.5% increase over the Forecast.

NOI1 for the nine months ended December 31, 2018 totalled $40.8 million, compared to the Forecast of $38.8 million. The higher NOI is the result of the increase in total revenue of $1.8 million, mentioned above, and a decrease in property operating expenses of $0.2 million, which is mainly the result of lower than expected repairs and maintenance expense, employee wages and benefits expense and utility costs.

Liquidity and Capital Structure

As of December 31, 2018, the REIT had cash and cash equivalents of $7.6 million and a $110.0 million revolving credit facility. $104.8 million has been drawn from this facility, which includes draws on the revolving credit facility during the fourth quarter to partially finance the REIT's acquisitions of Towne Park and Riverhill. As of December 31, 2018, the REIT had total mortgage notes payable of $373.5 million with a weighted average contractual interest rate of 3.9% and a weighted average term to maturity of 10.7 years. Total loans and borrowings of the REIT as of December 31, 2018 were $471.0 million. Debt to Gross Book Value1 was 48.6%.

Distributions and Units Outstanding

Cash distributions declared to REIT unitholders and Class B unitholders totalled $5.0 million for the fourth quarter and $12.3 million for FY 2018, representing an AFFO payout ratio of 79.9% and 78.5% , respectively, compared to the Forecast of 74.4% and 77.8%, respectively. 100% of the REIT's cash distributions for the fourth quarter and FY 2018 were return of capital.

As of December 31, 2018, the total number of REIT Units outstanding was 16,550,000. There were also 23,158,226 Class B Units outstanding, which are exchangeable into REIT Units on a one-for-one basis. BSR intends to make a normal course issuer bid for a portion of its REIT Units as appropriate opportunities arise in 2019. The BSR board of trustees believes that purchases of REIT Units at prices below BSR's view of it's intrinsic value are in the best interest of BSR and a desirable use of the REIT's capital.

Conference Call

John Bailey, Chief Executive Officer, and Susan Koehn, Chief Financial Officer, will host a conference call for analysts and investors on Friday, March 8th, 2019 at 10:00 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/1936966/416B9F2DE27940889662BF5095BA37CC

A replay of the call will be available until Friday, March 15th, 2019. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 433659 #). 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 50 multifamily garden-style residential properties consisting of 10,451 apartment units located across five bordering states in the Sunbelt region of the United States.

Non-IFRS Financial Measures

Same Community, NOI, NOI Margin, FFO and AFFO 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 and AFFO 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 period ended December 31, 2018 for a reconciliation of Same Community, NOI, NOI Margin, FFO and AFFO to standardized IFRS measures.

A reconciliation of NOI for the nine months ended December 31, 2018 is stated below to the IFRS measures presented in our consolidated financial statements:

In thousands of U.S. dollars


Period from

May 18, 2018 to
December 31, 2018


Period from

April 1, 2018 to

May 17, 2018


Nine months ended
December 31, 2018

Total revenue

$

64,073


$

12,712


$

76,785

Property operating expenses

(24,350)


(4,674)


(29,024)

Real estate taxes

(1,205)


-


(1,205)


38,518


8,038


46,556

Property tax liability adjustment (IFRIC 21)

(4,600)


(1,145)


(5,745)

NOI 1

$

33,918


$

6,893


$

40,811

Forward-Looking Statements

This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the REIT. Forward-looking statements are identified by words such as "believe", "anticipate", "project", "expect", "intend", "plan", "will", "may", "estimate" and other similar expressions. These statements, which include statements regarding the REIT's anticipated AFFO for the year ended March 31, 2019 and ability to achieve organic and acquisition-based growth, are based on the REIT's expectations, estimates, forecasts and projections. The forward-looking statements in this news release are based on certain assumptions, including the assumptions described under the heading "Financial Forecast" in the REIT's prospectus dated May 11, 2018 (the "Prospectus"), which is available at www.sedar.com. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under the heading "Risk Factors" in the Prospectus. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

SOURCE BSR Real Estate Investment Trust