BSR REIT's financial results continue to exceed IPO forecast in Q3 2018
LITTLE ROCK, AR and TORONTO, Nov. 7, 2018 /CNW/ - BSR Real Estate Investment Trust ("BSR", or the "REIT") (TSX: HOM.U) today announced its financial results for the three months ended September 30, 2018 ("Q3 2018") and the period from May 18, 2018 to September 30, 2018 ("YTD 2018"). The YTD 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 YTD 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 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 six months ended September 30, 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.
Q3 2018 Highlights
- Weighted average occupancy as of September 30, 2018 was 93.6% compared to 92.7% as of December 31, 2017.
- Weighted average rent was $806 per apartment unit as of September 30, 2018 compared to $777 per apartment unit as of December 31, 2017.
- Total revenue was $25.6 million, 1.7% higher than the forecast.
- Net Operating Income1 ("NOI") of $13.5 million was 3.6% higher than the forecast.
- NOI margin was 52.6%, which exceeded the forecast by 100 basis points.
- Funds from Operations1 ("FFO") of $7.6 million was 2.7% above the forecast.
- Adjusted Funds from Operations1 ("AFFO") of $6.3 million, or $0.159 per unit, was in line with the forecast.
- Debt to Gross Book Value1 as of September 30, 2018 was 44.5%.
YTD 2018 Highlights (May 18, 2018 to September 30, 2018)
- On May 18, 2018, the REIT completed its IPO, raising gross proceeds of $135 million; in addition $30 million in debt was converted to 3 million REIT units increasing the total equity proceeds to $165 million.
- Total revenue was $37.8 million, 2.1% higher than the pro-rated forecast.
- Net Operating Income1 ("NOI") of $20.1 million was 5.6% higher than the pro-rated forecast.
- NOI margin was 53.2% which exceeded the pro-rated forecast by 180 basis points.
- Funds from Operations1 ("FFO") of $11.3 million was 4.5% above the pro-rated forecast.
- Adjusted Funds from Operations1 ("AFFO") of $9.4 million, or $0.237 per unit, was 2.7% above the pro-rated forecast.
- The REIT's AFFO payout ratio was 77.6% compared with the pro-rated forecast of 80.2%.
- On June 1, 2018, the REIT completed the acquisition of Brandon Place, a 200-unit, garden-style residential community in Oklahoma City, Oklahoma for $23.4 million.
- For the second straight year, BSR has been named as one of the best places to work in the state of Arkansas by Arkansas Business and Best Companies Group.
_______________________________
1 NOI, FFO, AFFO, and Debt to GBV are non-IFRS financial measures. See "Non-IFRS Financial Measures" in this news release.
Acquisition of Towne Park
Subsequent to quarter-end, on October 25, 2018, the REIT completed the accretive acquisition of Towne Park, a 237-unit, garden style residential community in Springdale, Arkansas for $28.9 million. Northwest Arkansas is the fastest growing region in the state of Arkansas and the 14th fastest growing metropolitan statistical area in the United States. Towne Park, which was constructed in two phases in 2016 and 2017, is BSR's second purchase in this region in two years, following the acquisition of Mountain Ranch Apartments, a 360 unit garden-style complex less than 10 miles away. The transaction was funded using the REIT's revolving credit facility.
"I continue to be very pleased with our operating results as the benefits of our capital redevelopment program come to fruition," stated John Bailey, BSR's Chief Executive Officer. "I am also excited about our latest acquisition in Northwest Arkansas which is consistent with our clustering strategy to maximize efficiencies as well as allows us to take advantage of our strong management platform to increase NOI. We will continue to pursue acquisition opportunities in our target markets that meet our acquisition criteria and build unitholder value through our capital redevelopment program and asset rotation. Furthermore, we continue to be confident in meeting our AFFO forecast."
Financial Summary – Q3 2018 |
||||||||||
In thousands of U.S. dollars (except per unit amounts) |
||||||||||
Q3 2018 |
Q3 2018 |
Variance |
Variance % |
|||||||
Total revenue |
$ |
25,597 |
$ |
25,177 |
$ |
420 |
1.7% |
|||
NOI 1 |
$ |
13,465 |
$ |
13,002 |
$ |
463 |
3.6% |
|||
NOI Margin 1 |
52.6% |
51.6% |
100bps |
1.9% |
||||||
FFO 1 |
$ |
7,593 |
$ |
7,390 |
$ |
203 |
2.7% |
|||
Maintenance capital expenditures |
$ |
1,147 |
$ |
990 |
$ |
157 |
15.9% |
|||
AFFO 1 |
$ |
6,334 |
$ |
6,318 |
$ |
16 |
0.3% |
|||
AFFO per Unit |
$ |
0.159 |
$ |
0.159 |
$ |
– |
– % |
|||
AFFO payout ratio |
78.4% |
78.6% |
-20bps |
-0.3% |
For the three months ended September 30, 2018, revenues totalled $25.6 million, compared to the forecast of $25.2 million. The 1.7% increase over forecast was primarily the result of higher than expected occupancy for the entire portfolio as well as rental rate increases, both of which were attributable to BSR's capital redevelopment program, which is impacting revenue more quickly than forecasted. As of September 30, 2018, weighted average occupancy was 93.6% and average monthly in-place leases were $806 per apartment unit.
NOI1 for the three months ended September 30, 2018 totalled $13.5 million, compared to the forecast of $13.0 million. The 3.6% increase over forecast was primarily the result of the increase in total revenue, mentioned above.
FFO1 was $7.6 million for the three months ended September 30, 2018, compared to the forecast of $7.4 million. The 2.7% outperformance resulted from increased NOI, partially offset by higher interest expense primarily due to higher than forecasted amortization of discounts on loans and borrowings related to the fair valuation of debt that occurred upon the REITs acquisition of BSR at the time of the IPO.
AFFO1 was in line with the forecast of $6.3 million, or $0.159 per Unit, for the three months ended September 30, 2018. AFFO was impacted by higher than forecasted maintenance capital expenditures, which were due to seasonality (higher maintenance capital expenditures were incurred during the summer months whereas the forecast assumed an even weighting throughout the year), as well as an increase in planned spending on maintenance capital expenditures from $400 to $437 per apartment unit during the forecast period. The increase in spending is for the repair of staircases, landings and a retaining wall; and additional upgrades on acquisitions related to carpet, landscaping and fitness center improvements.
As of September 30, 2018, the REIT had total mortgage notes payable of $348.5 million with a weighted average contractual interest rate of 3.8% and a weighted average term to maturity of 11.0 years. Total loans and borrowings of the REIT as of September 30, 2018 were $393.2 million. Debt to Gross Book Value1 was 44.5%.
The total number of REIT Units outstanding as of September 30, 2018 was 16,596,517. There were also 23,158,236 Class B Units outstanding, which are exchangeable into REIT Units on a one-for-one basis.
Financial Summary –YTD 2018 (May 18, 2018 to September 30, 2018) |
||||||||||
In thousands of U.S. dollars (except per unit amounts) |
||||||||||
YTD 2018 (actual) |
YTD 2018 (pro-rated |
Variance |
Variance % |
|||||||
Total revenue |
$ |
37,811 |
$ |
37,035 |
$ |
776 |
2.1% |
|||
NOI 1 |
$ |
20,115 |
$ |
19,042 |
$ |
1,073 |
5.6% |
|||
NOI Margin 1 |
53.2% |
51.4% |
180bps |
3.5% |
||||||
FFO 1 |
$ |
11,283 |
$ |
10,796 |
$ |
487 |
4.5% |
|||
Maintenance capital expenditures |
$ |
1,716 |
$ |
1,469 |
$ |
247 |
16.8% |
|||
AFFO 1 |
$ |
9,422 |
$ |
9,177 |
$ |
245 |
2.7% |
|||
AFFO per Unit |
$ |
0.237 |
$ |
0.231 |
$ |
0.006 |
2.6% |
|||
AFFO payout ratio |
77.6% |
80.2% |
-260bps |
-3.2% |
For the YTD 2018 period, revenues totalled $37.8 million, compared to the forecast of $37.0 million. The 2.1% increase over forecast was primarily the result of higher than expected occupancy for the entire portfolio as well as rental rate increases, both of which were attributable to BSR's capital redevelopment program, which impacted revenue more quickly than forecasted.
NOI1 for the YTD Period totalled $20.1 million, compared to the forecast of $19.0 million. The 5.6% increase over forecast was primarily the result of the increase in total revenue, mentioned above, and lower than expected property operating expenses, which were primarily the result of lower than forecasted repairs and maintenance expense and other administrative costs.
FFO1 was $11.3 million for the YTD Period, compared to the forecast of $10.8 million. The 4.5% outperformance resulted from increased NOI, partially offset by higher interest expense due to higher amortization of discounts on loans and borrowings, as mentioned above, and higher general and administrative costs due to the timing of non-cash compensation recorded in the second quarter of 2018. AFFO1 was $9.4 million for the YTD Period, or $0.237 per Unit. The 2.7% higher AFFO compared to the forecast resulted from increased FFO1, offset by higher than forecasted maintenance capital expenditures as discussed above.
Highlights from Six Months Ended September 30, 2018
The following six months ended September 30, 2018 metrics include the combined three months ended September 30, 2018 and the full three-months ended June 30, 2018 for the properties that were acquired by the REIT upon closing of the IPO.
In thousands of U.S. dollars |
||||||||||
Six months |
Forecast |
Variance |
Variance % |
|||||||
Total revenue |
$ |
50,523 |
$ |
49,701 |
$ |
822 |
1.7% |
|||
NOI 1 |
$ |
27,008 |
$ |
25,493 |
$ |
1,515 |
5.9% |
For the six months ended September 30, 2018, total revenues were $50.5 million, compared to the forecast of $49.7 million. The higher revenue is primarily the result of stronger than forecasted occupancy for the entire portfolio as well as rental rate increases that occurred more quickly than forecasted, and were attributable to BSR's capital redevelopment program.
NOI1 for the six months ended September 30, 2018 totalled $27.0 million, compared to the forecast of $25.5 million. The higher NOI is the result of the increase in total revenue of $0.8 million, mentioned above and a decrease in property operating expenses of $0.7 million, which is mainly the result of lower than forecasted repairs and maintenance expense, employee wages and benefits expense and utility costs.
Conference Call
John Bailey, Chief Executive Officer, and Susan Koehn, Chief Financial Officer, will host a conference call for analysts and investors on Thursday, November 8th, 2018 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/1853971/6163569AAC76912CA7046093C9695B47
A replay of the call will be available until Thursday, November 15th, 2018. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 114275 #). 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 49 multifamily garden-style residential properties consisting of 10,116 apartment units located across five bordering states in the Sunbelt region of the United States.
Non-IFRS Financial Measures
NOI, 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. NOI, 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 September 30, 2018 for a reconciliation of NOI, FFO and AFFO to standardized IFRS measures.
A reconciliation of NOI for the period ended September 30, 2018 is stated below to the IFRS measures presented in our condensed consolidated interim financial statements:
In thousands of U.S. dollars |
||||||||
Period from May |
Period from April 1, 2018 to |
Six months ended |
||||||
Total revenue |
$ |
37,811 |
$ |
12,712 |
$ |
50,523 |
||
Property operating expenses |
(14,337) |
(4,674) |
(19,011) |
|||||
Real estate taxes |
— |
— |
— |
|||||
23,474 |
8,038 |
31,512 |
||||||
Property tax liability adjustment (IFRIC 21) |
(3,359) |
(1,145) |
(4,504) |
|||||
NOI 1 |
$ |
20,115 |
$ |
6,893 |
$ |
27,008 |
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
Susan Koehn, Chief Financial Officer, BSR Real Estate Investment Trust, Tel: 501.371.6335, Fax: 501.374.3383
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