HOM.UN BSR Real Estate Investment Trust

LITTLE ROCK, Ark. and TORONTO, March 12, 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 months and year ended December 31, 2023 ("Q4 2023" and "FY 2023", 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 Q4 2023 and FY 2023 and the three months and year ended December 31, 2022 ("Q4 2022" and "FY 2022", respectively), thus removing the impact of acquisitions, dispositions and non-stabilized properties. Audited Annual Consolidated Financial Statements and Management's Discussion and Analysis as of and for the three months and year ended December 31, 2023 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.

"As expected, 2023 was another healthy operational year with the REIT's performance meeting management's expectations and in line with our 2023 guidance," said Dan Oberste, the REIT's President and Chief Executive Officer. "Demand remains stable, despite new apartment supply, through continued positive migration trends into the REITs primary markets. Long term rent growth remains intact as new deliveries are expected to slow later in 2024."

Highlights

• Same Community¹ revenue for FY 2023 increased 5.9% over FY 2022 and the REIT ended the year with a stable weighted average occupancy of 95.3%;
• Same Community¹ NOI for FY 2023 increased 7.8% over FY 2022;
• FFO per Unit¹ for FY 2023 of $0.93 increased 8.1% over FY 2022;
• AFFO per Unit¹ for FY 2023 of $0.85 increased 6.2% over FY 2022;
• During FY 2023, the REIT's AFFO payout ratio was 60.7% compared to 65.2% during FY 2022;
• Debt to Gross Book Value¹, excluding the Convertible Debentures outstanding, as of December 31, 2023 was 42.3%;
• During Q4 2023, excluding short term leases, rental rates for new leases and renewals changed -4.1% and 4.1%, respectively, resulting in no change in the blended rental rate over the prior leases;
• During Q4 2023, the REIT purchased and cancelled 3,137,895 Units under its normal course issuer bid ("NCIB") and automatic securities purchase plan ("ASPP") at an average price of $10.65 per Unit. The REIT suspended its ASPP in Q4 2023;
• On November 1, 2023, the REIT entered into an interest rate swap on a notional value of $65 million at a fixed rate of 3.270%. The swap is effective beginning on July 1, 2024 and matures on January 31, 2031, subject to the counterparty's optional early termination date of January 2, 2025;
• On November 3, 2023, the REIT entered into an interest rate swap on a notional value of $60 million at a fixed rate of 3.537%. The swap is effective beginning on January 2, 2024 and matures on January 2, 2031, subject to the counterparty's optional early termination date of January 1, 2025; and
• On December 6, 2023, the REIT entered into an interest rate swap on a notional value of $40 million at a fixed rate of 3.178%. The swap is effective beginning on February 1, 2024 and matures on February 3, 2031, subject to the counterparty's optional early termination date of February 3, 2025.

Subsequent Highlights

• Inclusive of the swaps that became effective on January 2, 2024 and February 1, 2024 as well as loans and borrowings activity subsequent to December 31, 2023, 97% of the REIT's debt is comprised of fixed rate or economically hedged to fixed rate debt as of this report date, which mitigates the REIT's exposure to interest rate risk in a rising interest rate environment; and
• During January and February 2024, excluding short term leases, rental rates for new leases and renewals changed -5.1% and 3.5%, respectively, resulting in a slight decline of 0.7% in the blended rental rate over the prior leases.

Q4 2023 Financial Summary

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

Total portfolio revenue of $42.1 million for Q4 2023 increased 1.1% compared to $41.6 million in Q4 2022. Same Community properties contributed $0.4 million to the overall increase, as described below.

Revenue from Same Community properties of $40.0 million for Q4 2023 increased 1.0% from $39.6 million in Q4 2022, primarily due to a 1.3% increase in average rental rates from $1,475 per apartment unit as of December 31, 2022 to $1,495 per apartment unit as of December 31, 2023.

The net loss and comprehensive loss change between Q4 2023 and Q4 2022 is primarily due to adjustments to fair value of investment properties and derivatives and other financial liabilities from September 30, 2023 to December 31, 2023 and September 30, 2022 to December 31, 2022, respectively, and is not considered comparable period over period.

The 2.9% decrease in total portfolio NOI for Q4 2023 to $22.5 million compared to $23.2 million in Q4 2022 was the result of decreases of $0.7 million in NOI from Same Community properties, described below.

The 3.4% decrease in Same Community NOI to $21.2 million for Q4 2023 compared to $22.0 million in Q4 2022 was the result an increase in property operating expenses of $0.7 million due to higher payroll costs, additional repair and maintenance expenses, which includes an increase in smart home technology fees as the platform is expanded across the portfolio, and a higher cost of insurance, partially offset by the increase in revenue described above. Furthermore, real estate taxes increased $0.5 million over Q4 2022 as a result of the timing between quarters when adjustments are made for tax settlements and changes in tax assessments.

FFO was $13.3 million for Q4 2023 and Q4 2022, or $0.24 per Unit and $0.23 per Unit, respectively. The increase in FFO per Unit was primarily due to the REIT's repurchase and cancellation of 3.5 million Units under its NCIB and ASPP during the year ended December 31, 2023.

AFFO remained stable at $12.4 million, or $0.22 per Unit, for Q4 2023, compared to $12.5 million, or $0.22 per Unit, for Q4 2022.

Net Asset Value was $1.0 billion, or $17.71 per unit, as of December 31, 2023 compared to $1.2 billion, or $21.75 per unit, as of December 31, 2022. The decrease is primarily due to a decrease in fair value of investment property values driven primarily by capitalization rate expansion subsequent to December 31, 2022 (net of increases in NOI) related to higher interest rates during FY 2023.

FY 2023 Financial Summary

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

Total portfolio revenue of $167.8 million for the year ended December 31, 2023 increased 5.9% compared to $158.5 million for the year ended December 31, 2022. Same Community properties contributed $8.9 million, as described below, and the non-stabilized property contributed $0.3 million to the overall increase.

Revenue from Same Community properties of $159.6 million for FY 2023 increased 5.9% from $150.6 million in FY 2022, primarily due to sequential average rent increases contributing $7.9 million, an increase of $0.6 million due to average improved occupancy and an increase in termination and notice fees of $0.5 million for FY 2023.

The net (loss) income and comprehensive (loss) income change between the year ended December 31, 2023 and the year ended December 31, 2022 is primarily due to adjustments to fair value of investment properties and derivatives and other financial liabilities for the respective periods and is not considered comparable.

The 6.5% increase in total portfolio NOI for FY 2023 to $91.1 million compared to $85.5 million for FY 2022 was the result of increases of $6.3 million in NOI from Same Community properties, described below, partially offset by a reduction in NOI from Non-Same Community properties of $0.7 million due to real estate tax refunds received during Q4 2022.

The 7.8% increase in Same Community NOI to $86.8 million for FY 2023 compared to $80.5 million for FY 2022 was the result of the increase in revenue described above, as well as a $0.5 million decrease in real estate taxes, primarily due to revised 2023 tax assessments and tax refunds related to prior years, partially offset by higher property operating expenses of $3.2 million primarily due to a $1.4 million increase in the cost of insurance, $1.1 million in additional payroll costs and $0.5 million in additional repair and maintenance expenses.

FFO was $52.6 million, or $0.93 per Unit, for FY 2023 compared to $48.1 million, or $0.86 per Unit, for FY 2022. The increase was primarily the result of the higher NOI discussed above, partially offset by an increase of $0.8 million in finance costs (net of finance income and excluding loss on extinguishment of debt) associated with an increase in interest rates versus the comparative period as well as higher debt due to the repurchase of Units under the NCIB during FY 2023.

AFFO was $48.4 million, or $0.85 per Unit, for the year ended December 31, 2023 compared to $44.7 million, or $0.80 per Unit, for the year ended December 31, 2022. The improvement was primarily the result of the increase in FFO discussed above, partially offset by higher maintenance capital expenditures of $0.7 million. The increase in maintenance capital expenditures was primarily due to roof replacements and balcony restoration at Wimbledon Green and Westwood Park in the second quarter of 2023.

Highlights from Recent Four Quarters

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

Liquidity and Capital Structure

As of December 31, 2023, the REIT had liquidity of $123.4 million, consisting of cash and cash equivalents of $6.7 million and $116.7 million available on the Credit Facility (defined below). The REIT can obtain additional liquidity through adding properties to the borrowing base of the revolving credit facility.

As of December 31, 2023, the REIT had total mortgage notes payable of $459.3 million, excluding the revolving credit facility and construction loan for the investment property under development, with a weighted average contractual interest rate of 3.5% and a weighted average term to maturity of 4.4 years. In aggregate, mortgage notes payable and the revolving credit facility total $763.3 million as of December 31, 2023 with a weighted average contractual interest rate of 3.7%, which excludes the convertible unsecured subordinated debentures outstanding (the "Convertible Debentures") and the construction loan for the investment property under development. Debt to Gross Book Value excluding the Convertible Debentures as of December 31, 2023 was 42.2%. As of December 31, 2023, 88% of the REIT's debt was fixed or economically hedged to fixed rates. Following the commencement of the two swaps effective on January 2, 2024 and February 1, 2024, 97% of the REIT's debt became fixed or economically hedged to fixed rates at a weighted average contractual interest rate of 3.7%.

As of December 31, 2023, the REIT had outstanding Convertible Debentures valued at $39.7 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 a NCIB commencing 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 commencing 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 may purchase Units for a 12-month period ending on October 5, 2024. The REIT suspended the ASPP in December 2023, but the NCIB remains in effect.

During FY 2023, the REIT purchased and cancelled 3,540,072 Units under the NCIBs and ASPPs at an average price of $10.86. The REIT purchased and cancelled 1,079,507 Units under the NCIB and ASPP at an average price of $13.55 during FY 2022.

Distributions and Units Outstanding

Cash distributions declared to holders of Units and holders of Class B Units totalled $7.3 million for Q4 2023, representing an AFFO Payout Ratio¹ of 58.3%. 100% of the REIT's cash distributions were classified as return of capital. As of December 31, 2023, the total number of Units outstanding was 33,141,180. There were also 20,278,928 Class B Units, which are redeemable for Units on a one-for-one basis, and 408,483 Deferred Units outstanding as of December 31, 2023, leaving a total non-weighted unit count of 53,828,591 for the purpose of calculating FFO per Unit, AFFO per Unit and NAV per Unit as defined above.

Senior Management Structure

On November 8, 2023, the REIT announced that Brandon Barger, the REIT's Chief Financial Officer, was taking a leave of absence for health-related reasons. Mr. Barger resigned from the REIT effective February 23, 2024. Susan Rosenbaum, the REIT's Chief Operating Officer and former Chief Financial Officer was appointed as Interim Chief Financial Officer by the Board and remains in such position. Mr. Steven Etchison, the REIT's Vice President of Accounting, was appointed by the Board as the Chief Accounting Officer of the REIT effective February 23, 2024, consistent with the REIT's succession plan.

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, dispositions or future growth from the impact of properties currently under development.

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 March 13^th, 2024 at 12:00 pm (ET). Participants can register and enter their phone number at: https://emportal.ink/47KMhDj 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/lD4QA90Nd7B. 

A replay of the call will be available until Wednesday, March 20^th, 2024. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 718349#). A transcript of the call will be archived on the REIT's website.

Annual General Meeting

The REIT is pleased to announce that its upcoming annual general meeting ("AGM") of unitholders is scheduled to be held on Thursday, May 9, 2024 at 2:00 p.m. (ET) at the offices of Goodmans LLP at Bay Adelaide Centre – West Tower, 333 Bay Street, Suite 3400, Toronto, Ontario, M5H 2S7. At the AGM, unitholders of record as of March 20, 2024 will consider the election of members of the board of trustees of the REIT (the "Board"), appointment of the auditors of the REIT, and the transaction of such other business as may properly come before the AGM. Particulars will be detailed in a management information circular and notice-and-access package mailed to unitholders on or around April 5, 2024.

The REIT also announces today that Mr. Neil Labatte, Chair of the Board, has informed the REIT of his plans to retire to spend more time with his family and to pursue personal interests. Accordingly, Mr. Labatte will not be standing for re-election at the AGM. Mr. Labatte has been Chair of the Board since the REIT's initial public offering in May of 2018 and has been instrumental in helping guide the REIT over the past six years. The Board has an internal succession plan in place to determine an appropriate successor Chair to appoint from among the current trustees following the AGM, assuming all other current trustees are re-elected at the AGM. In making such appointment, the Board will consider the right mix of skillsets to best support the future direction of the REIT. The REIT sincerely thanks Mr. Labatte for his contributions and leadership.

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 December 31, 2023, 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 December 31, 2023 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