Apartment operator BSR dips in 2Q, but CEO upbeat

Net income and revenue dipped slightly for BSR Real Estate Investment Trust in the second quarter as the Little Rock company continued to shed older properties and acquire newer ones in growing markets.

The company reported net operating income of $14.2 million, down 6.2% from a year ago for the quarter that ended June 30. Total revenue slipped 2.5% to $27.3 million. Adjusted funds from operations, the equivalent to earnings per share, were 14 cents, down nearly 11%.

“We are continuing to operate very effectively despite the disruptions caused by the covid-19 pandemic,” chief executive John Bailey told analysts on a conference call Thursday morning.

Indeed, Bailey noted that the company has continued an aggressive capital recycling strategy where it sells older properties in mostly rural areas while buying newer apartment complexes in growing suburban areas in Austin, Dallas, Houston, Oklahoma City and Northwest Arkansas.

“Transactions have continued on a solid pace during the pandemic,” Bailey said, noting that revenue and income were down primarily because the company sold more properties than it bought in the quarter.

In the second quarter, BSR sold four properties in Longview, Texas, and purchased one in the Austin metro area. Since the end of the quarter, BSR also purchased a property in Houston on July 30.

“The transformation of our portfolio of communities continues as we recycle capital to position BSR as a leader in our targeted Sunbelt markets, despite the covid-19 pandemic,” Bailey said.

The properties in Longview had weighted average monthly rent of $713, according to BSR. The two purchased properties both have weighted average rent of more than $1,100 per month. The transactions also have helped reduce the average age of the company’s real estate portfolio from 29 years to 20 years.

Overall, weighted average rent in the quarter was $966, up 16% compared with an average of $858 per apartment unit last year in the second quarter.

About 81% of the company’s portfolio is in the target markets in Arkansas, Texas and Oklahoma, compared with about 52% two years ago. “We are well-positioned to navigate these unique times and execute on our strategy,” Bailey told the analysts.

The company does appear to be weathering the pandemic, reporting that net income from the same properties increased 2.8% to $10.6 million in the quarter.

In addition, the company collected 98% of its rents in June and July, similar to its historic average of a 99% collection rate. BSR has only 145 rent-deferral agreements, totaling just $46,000, Bailey said.

“To date, the covid-19 pandemic has not impacted our financial performance,” he said.

The company, which trades on the Toronto Stock Exchange, announced earnings after the market closed on Wednesday and held its conference call with analysts Thursday morning.

Looking forward, the company said it plans to sell five properties in Beaumont, Texas; Blytheville, Ark.; Longview, Texas; and Pascagoula, Miss., later this year while continuing to scout for newer properties in the core markets.

“We expect our financial performance to strengthen as we continue to deploy capital in our targeted Sunbelt markets,” Bailey said.

The company’s stock closed up just over 1% on Thursday at $10.43. BSR owns and manages 39 apartment buildings with 9,405 units.

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