HOM.UN BSR Real Estate Investment Trust

LITTLE ROCK, Ark. and TORONTO, Aug. 6, 2024 /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, 2024 ("Q2 2024" and "YTD 2024", respectively). All comparisons are to the corresponding periods in the prior year. Results are presented in U.S. dollars. References to "Same Community" correspond to stabilized properties the REIT has owned for equivalent periods throughout Q2 2024 and YTD 2024 and the three and six months ended June 30, 2023 ("Q2 2023" and "YTD 2023", respectively). With the exception of the investment property under development, all properties are considered Same Community as of June 30, 2024. Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis as of and for the three and six months ended June 30, 2024 are available on the REIT's website at www.bsrreit.com and at www.sedarplus.ca.

A reconciliation of Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") to net income and comprehensive income, as well as an expanded discussion of the components of FFO and AFFO, and a reconciliation of Net Asset Value ("NAV") to unitholders equity can be found under "Non-IFRS Measures" in this release. FFO per Unit, AFFO per Unit and NAV per Unit include trust units of the REIT ("Units"), Class B Units of BSR Trust, LLC ("Class B Units") and issued Deferred Units.

"The REIT's cash flow continues to improve as supply is absorbed in our Texas markets," said Dan Oberste, the REIT's President and Chief Executive Officer. "We are focused on delivering total unitholder return to our investors in line with the REIT's relative performance. As a result, BSR is increasing the distribution to $0.56 per Unit beginning in September 2024."

Q2 2024 Highlights

• Same Community¹ revenue for Q2 2024 increased 0.4% over Q2 2023 and 0.6% over Q1 2024;
• Weighted average occupancy was 95.3% as of June 30, 2024;
• Same Community¹ NOI for Q2 2024 increased 4.6% over Q2 2023;
• FFO per Unit¹ for Q2 2024 of $0.26 increased 13.0% over Q2 2023;
• AFFO per Unit¹ for Q2 2024 of $0.24 increased 20.0% over Q2 2023;
• During Q2 2024, the REIT's AFFO payout ratio was 54.5% compared to 63.9% during Q2 2023;
• Debt to Gross Book Value¹, excluding the convertible unsecured subordinated debentures (the "Convertible Debentures") outstanding, as of June 30, 2024 was 44.4%;
• During Q2 2024, excluding short term leases, rental rates for new leases and renewals changed -2.6% and 3.1%, respectively, resulting in a 0.3% blended increase over the prior leases;
• On May 15, 2024, the REIT amended its 3.54% $60 million interest rate swap by extending the maturity and counterparty optional termination dates by approximately one year (to July 1, 2032 and January 2, 2026, respectively) at a revised fixed rate of 3.48%;
• On June 14, 2024, the REIT entered into a 90-day $150 million swaption at a cash premium received of $98 thousand, exercisable by the counterparty on September 14, 2024. If exercised, the underlying swap would be effective as of July 1, 2025 at a rate of 2.75%, maturing on July 1, 2031;
• On June 18, 2024, the REIT amended its 3.27% $65 million and 3.178% $40 million interest rate swaps by blending them into a $105 million swap at an interest rate of 3.274% and extending the maturity and counterparty optional termination dates by approximately one year (to July 1, 2032 and January 2, 2026, respectively); and
• During Q2 2024, the REIT retired $9.5 million of its credit facility with cash flow generated from operations.

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Subsequent Highlights

• During July 2024, excluding short term leases, rental rates for new leases and renewals changed -1.5% and 2.4%, respectively, resulting in a 0.5% blended increase over the prior leases.
• In August 2024, the REIT's Board of Trustees approved a 7.7% increase to the cash distribution beginning with the August 2024 distribution to be paid on September 16, 2024.

Q2 2024 Financial Summary

In thousands of U.S. dollars, except per unit amounts

Same Community revenue of $42.2 million for Q2 2024 increased 0.4% compared to $42.0 million for Q2 2023, primarily due to a 0.4% increase in average rental rates from $1,501 per apartment unit as of June 30, 2023 to $1,507 per apartment unit as of June 30, 2024.

The net loss and comprehensive loss change between Q2 2024 and Q2 2023 is primarily due to non-cash adjustments to the fair value of investment properties and derivatives and other financial liabilities from March 31, 2024 to June 30, 2024 and March 31, 2023 to June 30, 2023, respectively, and is not considered comparable period over period.

The 4.6% increase in Same Community NOI for Q2 2024 to $24.1 million compared to $23.0 million in Q2 2023 was the result of the increase in revenue described above as well as a decrease in property operating expenses of $0.1 million due to lower professional fees of $0.2 million and a decline in the cost of property insurance of $0.2 million, partially offset by a $0.3 million increase in payroll and renting expenses. Additionally, real estate tax expense declined $0.7 million over the prior period, attributable to an increase in tax refunds of $0.5 million combined with $0.2 million in lower real estate tax assessments due to the change in Texas tax legislation in November 2023.

FFO was $14.1 million, or $0.26 per Unit, for Q2 2024 compared to $13.3 million, or $0.23 per Unit, for Q2 2023. The increase in FFO was primarily the result of the increase in Same Community NOI described above, partially offset by $0.3 million in higher interest costs. FFO per Unit further increased as a result of the REIT's repurchase and cancellation of 3.5 million Units under its normal course issuer bid ("NCIB") and automatic securities purchase plan ("ASPP") in 2023.

AFFO was $12.7 million, or $0.24 per Unit for Q2 2024 compared to $11.5 million, or $0.20 per Unit for Q2 2023. The improvement was primarily the result of the increase in FFO discussed above and a $0.4 million decrease in maintenance capital expenditures due to roof replacements and balcony restoration performed in Q2 2023.

NAV was $0.9 billion, or $16.87 per unit, as of June 30, 2024 compared to $1.2 billion, or $20.48 per unit, as of June 30, 2023. The year over year decrease is primarily due to the decline in the fair value of investment property values driven by capitalization rate expansion subsequent to June 30, 2023.

YTD 2024 Financial Summary

In thousands of U.S. dollars, except per unit amounts

Same Community revenue of $84.2 million for YTD 2024 increased $0.6 million, or 0.7%, compared to $83.6 million for YTD 2023, primarily due to a 0.4% increase in average rental rates from $1,501 per apartment unit as of June 30, 2023 to $1,507 per apartment unit as of June 30, 2024 as well as $0.3 million in additional other rental income.

The net loss and comprehensive loss change between YTD 2024 and YTD 2023 is primarily due to non-cash adjustments to the fair value of investment properties and derivatives and other financial liabilities from December 31, 2023 to June 30, 2024 and December 31, 2022 to June 30, 2023, respectively, and is not considered comparable period over period.

The 4.5% increase in Same Community NOI for YTD 2024 to $47.9 million compared to $45.9 million in YTD 2023 was the result of the increase in revenue described above as well as a decrease in real estate tax expense of $1.8 million, caused by an increase in tax refunds of $1.3 million combined with $0.5 million in lower real estate tax assessments, due to the change in Texas tax legislation in November 2023. Additionally, professional fees declined $0.2 million compared to the prior year. These increases in NOI for YTD 2024 were partially offset by increases in payroll expense of $0.2 million, renting expenses of $0.2 million and repair and maintenance expenses of $0.1 million.

FFO was $27.7 million, or $0.51 per Unit, for YTD 2024 compared to $26.3 million, or $0.46 per Unit, for YTD 2023. The increase in FFO was primarily the result of the increase in Same Community NOI described above as well as a decline in general and administrative expenses of $0.1 million, partially offset by $0.8 million in higher interest costs. FFO per Unit further increased as a result of the REIT's repurchase and cancellation of 3.5 million Units under its NCIB and ASPP in 2023.

AFFO was $25.6 million, or $0.48 per Unit, for YTD 2024 compared to $24.0 million, or $0.42 per Unit, for YTD 2023. The improvement was primarily the result of the increase in FFO discussed above as well as a $0.2 million decrease in maintenance capital expenditures due to roof replacements and balcony restoration performed in Q2 2023.

Highlights from Recent Four Quarters

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

Liquidity and Capital Structure

As of June 30, 2024, the REIT had liquidity of $113.7 million, consisting of cash and cash equivalents of $12.4 million and $101.3 million available under its senior secured revolving credit facility ("Credit Facility"). The REIT also has the flexibility to obtain additional liquidity through adding properties to the borrowing base of the Credit Facility.

As of June 30, 2024, the REIT had total mortgage notes payable of $458.4 million, excluding the revolving credit facility and construction loan for the investment property under development, with a weighted average contractual interest rate of 3.6% and a weighted average term to maturity of 3.9 years. In aggregate, mortgage notes payable and the revolving credit facility totaled $769.9 million as of June 30, 2024, with a weighted average contractual interest rate of 3.6%, excluding the Convertible Debentures and the construction loan for the investment property under development. Debt to Gross Book Value excluding the Convertible Debentures as of June 30, 2024 was 44.4%. Excluding the construction loan for the investment property under development as of June 30, 2024, 100% of the REIT's debt was fixed or economically hedged to fixed rates at a weighted average contractual interest rate of 3.6%.

As of June 30, 2024, the REIT had outstanding Convertible Debentures valued at $40.3 million at a contractual interest rate of 5.0%, maturing on September 30, 2025, with a conversion price of $14.40 per Unit.

On October 3, 2022, the Toronto Stock Exchange ("TSX") accepted the REIT's notice of intention to make an NCIB which commenced on October 6, 2022 for up to a maximum of 3,322,107 of its issued and outstanding Units. The NCIB expired on October 5, 2023. On October 4, 2023, the TSX accepted the REIT's notice of intention to renew its NCIB which commenced on October 6, 2023 for up to a maximum of 3,186,336 of its issued and outstanding Units. The REIT concurrently renewed its ASPP in connection with the renewed NCIB. The REIT can purchase Units for a 12-month period ending on October 5, 2024. As of June 30, 2024, the REIT purchased and cancelled 3,137,895 Units under its NCIB and ASPP at an average price of $10.65 per Unit. The REIT suspended the ASPP in December 2023, but the NCIB remains in effect.

Distributions and Units Outstanding

Cash distributions declared to holders of Units and holders of Class B Units totalled $6.9 million for Q2 2024, representing an AFFO Payout Ratio of 54.5%. 100% of the REIT's cash distributions were classified as return of capital. As of June 30, 2024, the total number of Units outstanding was 33,381,737. There were also 20,133,381 Class B Units, which are redeemable for Units on a one-for-one basis, and 273,315 Deferred Units outstanding as of June 30, 2024, leaving a total non-weighted unit count of 53,788,433. These are weighted for the purpose of calculating FFO per Unit, AFFO per Unit and NAV per Unit as defined above.

2024 Earnings and Same Community Portfolio Guidance

The REIT's 2024 guidance is outlined below for FFO per Unit and AFFO per Unit, along with its expectations for growth in Same Community Properties' revenue, operating expenses and NOI. The guidance does not include potential acquisitions or dispositions.

The REIT has revised it's 2024 guidance to lower the total midpoint for Same Community total revenue growth to 1.0% from 1.5% and to lower Same Community property operating expenses and real estate taxes to a reduction of 1% from an increase of 1%, due to additional real estate tax refunds, resulting in no change to the midpoint for Same Community NOI growth compared to the previous guidance. The midpoints for FFO per Unit and AFFO per Unit has been increased to $0.96 from $0.94 and $0.88 from $0.87, respectively, due to a reduction in finance costs, partially offset by a decline in NOI related to the delay in the completion of the property under development. 

Non-IFRS measures are presented to illustrate alternative relevant measures to assess the REIT's performance. See "Non-IFRS Measures" in this news release. See also "Forward-Looking Information", as the figures presented above are considered "financial outlook" for purposes of applicable Canadian securities laws and may not be appropriate for purposes other than to understand management's current expectations relating to the future growth of the REIT. Although the REIT believes that its anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information. The REIT reviews its key assumptions regularly and may change its outlook on a going-forward basis if necessary.

Conference Call

Dan Oberste, President and Chief Executive Officer, and Susan Rosenbaum, Interim Chief Financial Officer and Chief Operating Officer, will host a conference call for analysts and investors on Wednesday, August 7^th, 2024 at 12:00 pm (ET). Participants can register and enter their phone number at: https://emportal.ink/45OmE4R to receive an instant automated call back. Alternatively, they can dial 416-764-8688 or 1-888-390-0546 to reach a live operator who will join them into the call. In addition, the call will be webcast live at: https://app.webinar.net/qyr1VbeLd8a

A replay of the call will be available until Wednesday, August 14th, 2024. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 828699#). 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 markets in the Sunbelt region of the United States.

Non-IFRS Measures

Same Community, NOI, NOI Margin, FFO, FFO per Unit, AFFO, AFFO per Unit, AFFO Payout Ratio, Debt to Gross Book Value, NAV and NAV per Unit 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, FFO per Unit, AFFO, AFFO per Unit, AFFO Payout Ratio, Debt to Gross Book Value, NAV and NAV per Unit as calculated by the REIT may not be comparable to similar measures presented by other issuers. For complete definitions of these measures, as well as an explanation of their composition and how the measures provide useful information to investors, please refer to the section titled "Non-IFRS Measures" in the REIT's Management's Discussion and Analysis for the three months and year ended March 31, 2024, which section is incorporated herein by reference.

Forward-Looking Statements

This news release contains forward-looking information within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements"). Forward-looking statements in this news release include, but are not limited to, statements which reflect management's expectations regarding objectives, plans, goals, strategies, future growth (including 2024 guidance for FFO, AFFO, and Same Community metrics Revenue, Property Expenses and NOI growth), results of operations, performance, business prospects, and opportunities for the REIT. The words "expects", "expectation", "anticipates", "anticipated", "believes", "will" or variations of such words and phrases identify forward-looking statements herein. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. 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, include assumptions relating to the REIT's future growth potential, results of operations, demographic and industry trends, no changes in legislative or regulatory matters, the tax laws as currently in effect, a gradual recovery and growth of the general economy over 2024, the impact of COVID-19, lease renewals and rental increases, the ability to re-lease or find new tenants, the timing and ability of the REIT to sell certain properties, project costs and timing, a continuing trend toward land use intensification at reasonable costs and development yields, including residential development in urban markets, access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable refinancing of debts as they mature, the availability of investment opportunities for growth in the REIT's target markets, the valuations to be realized on property sales relative to current IFRS values, and the market price of the Units. When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties. The risks and uncertainties that may impact such forward-looking information include, but are not limited to, the REIT's ability to execute its growth strategies, the impact of changing conditions in the U.S. multifamily housing market, increasing competition in the U.S. multifamily housing market, the effect of fluctuations and cycles in the U.S. real estate market, the marketability and value of the REIT's portfolio, changes in the attitudes, financial condition and demand of the REIT's demographic market, fluctuation in interest rates and volatility in financial markets, developments and changes in applicable laws and regulations, the impact of climate change, the impact of COVID-19 on the operations, business and financial results of the REIT and the factors discussed under "Risks and Uncertainties" in the REIT's Management's Discussion and Analysis for the three months and year ended March 31, 2024 and in the REIT's Annual Information Form dated March 12, 2024, both of which are available on SEDAR+ (www.sedarplus.ca). If any risks or uncertainties with respect to the above materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. 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.

Certain statements included in this news release, including with respect to 2024 FFO, AFFO and Same Community portfolio guidance, are considered financial outlook for purposes of applicable Canadian securities laws, and as such, the financial outlook may not be appropriate for purposes other than to understand management's current expectations relating to the future growth of the REIT, as disclosed in this news release. These forward-looking statements have been approved by management to be made as at the date of this news release. Certain material factors, estimates or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in this news release and actual results could differ materially from such conclusions, forecasts or projections. There can be no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. The forward-looking statements contained in this document are expressly qualified in their entirety by this cautionary statement.

SOURCE BSR Real Estate Investment Trust