BSR Real Estate Investment Trust reported solid growth in the fourth quarter of 2019, with revenue and income both up 7% because of property acquisitions that are increasing the value of the company's portfolio.
BSR of Little Rock reported revenue of $28.1 million for the quarter that ended Dec. 31. That was up nearly $1.9 million, or 7.1%, from the same quarter in 2018.
Net operating income was nearly $14.9 million, a 7.7% increase from the $13.8 million reported a year before.
"We are very pleased with BSR's competitive position," Chief Executive Officer John Bailey told analysts on a conference call Wednesday. "We are continuing to execute on our internal and external growth strategies and see multiple opportunities to continue to enhance our portfolio."
Last year, BSR acquired five apartment communities for $250 million while selling 15 non-core properties for about $175 million. "We are not finished yet," Chief Financial Officer Susan Koehn said on Wednesday's call.
Adjusted funds from operations -- which for real estate investment trusts is similar to earnings per share -- was 14 cents for the fourth quarter, down from 16 cents in 2018. The decline was attributed to more apartment units being sold than those being purchased, according to Koehn. "We expect to be stabilized by the end of 2020," she said in a statement.
For the full year, revenue reached $111.7 million, a 10.7% increase from $100.8 million in 2018. Net operating income was up 12.5% to $59.7 million in 2019; net operating income was $53 million in 2018.
Revenue from organic growth -- a comparison of same-community properties -- was up 3.3%, to $20 million, in the quarter, compared with the same period in 2018. Rental rates for those units increased to an average of $864 per month from $845 per month, fueling a net operating income increase of 7.3%, to $10.9 million, in 2019.
The company continued to sell properties located in ancillary markets, generating revenue it then invests to purchase apartments in five core markets: Austin, Dallas and Houston in Texas; Northwest Arkansas; and Oklahoma City. In the fourth quarter, 72% of the company's $14.9 million in net operating income was generated in the five target markets; that was up from 52% in 2018.
Company officials said BSR has examined 40 properties for potential purchase while working to sell properties in Blytheville; Beaumont and Longview, Texas; and Pascagoula, Miss.
BSR will use the proceeds to "modernize our portfolio while investing in quality properties in our primary, targeted markets," Bailey said. "Our strategy is working, and we plan to stick with it."
The pivot from older properties in secondary markets to newer apartments in high-growth suburban areas is a "capital rotation strategy" that allows BSR to add assets in areas projected to see high employment and population growth over the next five years. The average age of the real-estate portfolio dropped from 29 years to 23 years in 2019.
Despite recent plummets in oil prices, which could affect the Houston area in particular, BSR officials are not concerned about continuing to invest in the Texas market.
The company has operated in Houston for two decades and has a deep understanding of the area, and the executive team is confident that growth will continue there. "We want to be in Houston for the next 20 years," said Dan Oberste, chief investment officer at BSR. "It's a solid bet."
Austin, Dallas and Houston will remain priority areas to buy more properties and grow BSR, Bailey said, noting that the company has low exposure in the suburban markets surrounding the cities. "We have room to grow and double the size of this company," he added.
Business on 03/12/2020