First quarter down for LR-based realty investing trust BSR

Revenue and income slipped in the first quarter for BSR Real Estate Investment Trust, which is battling the coronavirus pandemic and crashing oil prices in its Texas markets.

Revenue dipped to $27.5 million from $27.7 million. Net operating income dropped 3% to $14.7 million from $15.1 million in the same quarter in 2019. Net operating income, which is revenue minus operating expenses, measures the profitability of income-generating real estate investments.

Adjusted funds from operations, which is comparable to earnings per share, declined 21% in the quarter, falling to 15 cents per unit from 19 cents in the same quarter in 2019. The Little Rock company trades on the Toronto Stock Exchange. Shares fell 38 cents to close Wednesday at $9.55.

“We delivered solid financial results as we continue to execute on our capital recycling strategy,” Chief Executive Officer John Bailey told analysts on a conference call Wednesday. “Our portfolio quality has materially improved.”

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Capital recycling allows BSR to sell older properties in declining markets in exchange for newer apartments in growth markets in the Sun Belt region.

BSR owns and manages 36 multifamily residential properties in Arkansas, Texas, Oklahoma and Mississippi, though the company said it plans to exit the Mississippi market by selling its apartment complex in Pascagoula.

Since 2018, BSR has acquired nine properties with more than 2,500 apartments and sold 20 properties with more than 3,600 units. The average age of the purchased properties is 11 years old while the average age of the apartments that were sold is 38 years old.

“We have been selling assets at a faster pace than we have been buying them,” Bailey said, adding that the company’s initiative to swap out older properties for newer ones is “far from over.”

The company intends to continue selling older properties, including the Capri Apartments in Blytheville, at 205 W. Moultrie Drive.

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Even so, BSR is not aggressively pushing to discard properties in the current pandemic economy.

Dan Oberste, the chief investment officer, told the analysts that BSR is “not openly marketing assets” now. “We have potential transactions in various stages,” he said.

As it sheds older properties, BSR will use proceeds from the sales to pursue acquisitions in high-growth areas such as Northwest Arkansas, Austin, Dallas, Houston and Oklahoma City.

BSR has suspended plans for rent increases because of the coronavirus pandemic though the company has not suffered significant economic harm from the health crisis, Bailey said, noting that 98% of rents were current in April and May. Only 2% of its units may require rental assistance, he said.

The company is challenged on two fronts: the coronavirus pandemic and falling oil prices, which have wracked the Houston economy. Global oil demand has plummeted and barrels of crude had been selling in the negative range. Houston is BSR’s largest market with 1,662 apartment units and generates 18.3% of its net operating income.

However, Bailey said the company continues to produce solid results. “To date, the financial impact has not been alarming,” he added.

He said BSR should be in good shape as the economy lifts in the aftermath of the virus. “We plan to emerge from the current health crisis in a strong competitive position,” Bailey added, declining to predict just when the crisis would end.

BSR reported that average monthly rents on same properties increased to $889 per apartment unit in the first quarter, up from $866 per unit a year ago.

Business on 05/14/2020

Print Headline: First quarter down for LR-based realty investing trust BSR

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