BSR REIT Announces Q3 2022 Financial Results

LITTLE ROCK, Ark. and TORONTO, Nov. 8, 2022 /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 nine months ended September 30, 2022 ("Q3 2022" and "YTD 2022", respectively). All comparisons in the following summary 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 Q3 2022 and YTD 2022 and the three months and nine months ended September 30, 2021 ("Q3 2021" and "YTD 2021", respectively), thus removing the impact of acquisitions, dispositions and non-stabilized properties. Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis as of and for the three and nine months ended September 30, 2022 are available on the REIT's website at www.bsrreit.com and at www.sedar.com.

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 diluted trust units of the REIT ("Units") and Class B Units of BSR Trust, LLC ("Class B Units").

"Positive economic trends in our core Texas markets continued to drive rental demand as we captured double-digit rental increases on both new and renewed leases during the third quarter," said Dan Oberste, the REIT's President and Chief Executive Officer. "Even with the rent increases achieved over the past year, our rent as a percentage of household income remains highly affordable compared to the national average, and we expect favorable leasing conditions to continue."

Q3 2022 Highlights

• NAV per Unit1 increased 25.6% to $22.32 as of September 30, 2022, compared to $17.77 as of September 30, 2021 and is consistent with NAV per Unit1 as of June 30, 2022;
• FFO per Unit1 for Q3 2022 of $0.21 increased 31.3% over Q3 2021;
• AFFO per Unit1 for Q3 2022 of $0.19 increased 26.7% over Q3 2021;
• Weighted average rent increased 14.5% to $1,460 per apartment unit as of September 30, 2022 compared to $1,275 as of September 30, 2021 and 3.4% sequentially from $1,412 as of June 30, 2022;
• During Q3 2022, rental rates for new leases, increased 12.3% and renewals increased 10.3% over the prior lease, resulting in a blended increase of 11.2%;
• Same Community1 revenues for Q3 2022 increased 10.7% over Q3 2021;
• Same Community1 Net Operating Income ("NOI")1 for Q3 2022 increased 9.7% over Q3 2021;
• During Q3 2022, the REIT's AFFO Payout Ratio1 was 67.2% compared to 82.7% during Q3 2021;
• As of September 30, 2022, weighted average occupancy was 94.7% compared to 96.5% as of September 30, 2021;
• Debt to Gross Book Value1 excluding Convertible Debentures (as defined below) as of September 30, 2022 was 34.1%;
• In July 2022, the REIT hedged an additional $280.0 million in variable rate debt. Following the commencement of the final swap on January 3, 2023, 100% of the REIT's debt will be fixed or economically hedged to fixed rates at a weighted average contractual interest rate of 3.4%;
• In July 2022, the REIT entered into an agreement to jointly develop phase II of Aura 36Hundred in the Austin, Texas metropolitan statistical area. The 238 apartment unit development is expected to be completed in 2024 with a projected total cost of $59.5 million;
• For the sixth consecutive year, BSR was named as one of the Best Places to Work in Arkansas by Arkansas Business and the Best Companies Group; and

Subsequent Highlights

• On October 3, 2022, the Toronto Stock Exchange accepted the REIT's notice of intention to make a normal course issuer bid for up to a maximum of approximately 3.3 million of its issued and outstanding Units. The REIT may purchase Units for a twelve-month period beginning on October 6, 2022 and the normal course issuer bid will terminate on October 5, 2023. The REIT purchased 199,650 Units under its normal course issuer bid and automatic securities purchase plan at an average price of $13.99 per Unit through November 7, 2022.

Q3 2022 Financial Summary

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

Total portfolio revenue of $40.5 million for Q3 2022 increased 27.9% compared to $31.7 million in Q3 2021. The increase was the result of contributions of $2.3 million from Same Community properties, as described below, and $9.3 million from property acquisitions, partially offset by property dispositions that reduced revenue by $2.9 million.

Revenue from Same Community properties of $24.0 million for Q3 2022 increased 10.7% from $21.7 million in Q3 2021, primarily due to a 13.0% increase in average rental rates from $1,199 per apartment unit as of September 30, 2021 to $1,354 per apartment unit as of September 30, 2022.

The decrease in net income and comprehensive income for Q3 2022 compared to Q3 2021 was primarily due to a change in the fair value adjustment to investment properties (loss) of $185.8 million, partially offset by the change in the fair value adjustment (gain) to derivatives and other financial liabilities of $95.4 million, over the prior period, and an increase in NOI, discussed below.

The 31.6% increase in total portfolio NOI for Q3 2022 to $21.7 million compared to $16.5 million in Q3 2021 was the result of contributions of $1.1 million from Same Community properties, described below, and $5.4 million from property acquisitions and non-stabilized properties, partially offset by the reduction in NOI due to property dispositions of $1.2 million.

The 9.7% increase in Same Community NOI to $12.5 million for Q3 2022 compared to $11.4 million in Q3 2021 was the result of the increase in revenue described above, partially offset by an increase in property operating expenses, of $1.2 million due to an increase in payroll, administrative and repair and maintenance expenses as well as an increase in the cost of real estate taxes and insurance over the prior period.

FFO was $12.1 million, or $0.21 per Unit, for Q3 2022 compared to $8.2 million, or $0.16 per Unit, for Q3 2021. The increase was primarily the result of the higher NOI discussed above, partially offset by an increase of $1.2 million in finance costs associated with additional debt related to additional investment properties over the prior period and an increase in interest rates. As discussed below, during Q3 2022 the REIT entered into three Swaps to hedge an additional $280.0 million in variable rate debt. The first two Swaps became effective on September 1, 2022. Losses on extinguishment of debt are excluded from the calculation of FFO.

AFFO was $11.2 million, or $0.19 per Unit, for Q3 2022, compared to $7.8 million, or $0.15 per Unit, for Q3 2021. The improvement was primarily the result of the increase in FFO discussed above, partially offset by an escrowed rent guaranty realized in the prior year of $0.7 million. Losses on extinguishment of debt and severance/retention costs on dispositions are excluded from the calculation of AFFO.

YTD 2022 Financial Summary

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

The 36.7% increase in total portfolio revenue for YTD 2022 to $116.9 million compared to $85.5 million in YTD 2021 was the result of contributions of $6.9 million from Same Community properties, $34.2 million from property acquisitions and $0.9 million from non-stabilized properties, partially offset by property dispositions that reduced revenue by $10.7 million.

Revenue from Same Community properties for YTD 2022 increased 11.1% to $69.4 million compared to $62.5 million in YTD 2021, primarily due to a 13.0% increase in average rental rates from $1,199 per apartment unit as of September 30, 2021 to $1,354 per apartment unit as of September 30, 2022.

The increase in net income and comprehensive income for YTD 2022 compared to YTD 2021 was primarily due to an increase in the fair value adjustment (gain) to derivatives and other financial liabilities of $203.5 million over the prior period and the increase in NOI, discussed below, partially offset by the change in the fair value adjustment (loss) to investment properties of $192.9 million.

The 41.0% increase in total portfolio NOI for YTD 2022 to $62.4 million compared to $44.2 million in YTD 2021 was the result of contributions of $4.6 million from Same Community properties, discussed below, and $18.6 million from property acquisitions and non-stabilized properties, partially offset by property dispositions which reduced NOI by $4.9 million. Severance/retention costs on dispositions are excluded from NOI.

The 14.1% increase in Same Community NOI for YTD 2022 to $37.3 million compared to $32.7 million in YTD 2021 was the result of the increase in revenue described above, offset by an increase in property operating expenses, of $2.3 million due to higher payroll expenses, administrative expenses, cost of utilities, real estate taxes and property insurance expense compared to the prior period.

FFO was $34.8 million, or $0.63 per Unit, for YTD 2022 compared to $21.0 million, or $0.41 per Unit, for YTD 2021. The FFO per Unit increase of 53.7% was primarily the result of higher NOI discussed above, partially offset by increases of $0.6 million in general and administrative expenses primarily related to payroll expenses and $3.7 million in finance costs related to additional debt associated with additional investment properties over the prior period and an increase in interest rates. As discussed above, during Q3 2022 the REIT entered into three Swaps to hedge an additional $280.0 million in variable rate debt. The first two Swaps became effective on September 1, 2022. Losses on extinguishment of debt are excluded from the calculation of FFO.

AFFO was $32.2 million, or $0.58 per Unit, for YTD 2022, compared to $21.0 million, or $0.41 per Unit, for YTD 2021. The AFFO per Unit improvement of 41.5% was primarily the result of the increase in FFO, discussed above, partially offset by a lower escrow rent guaranty realized of $2.1 million and an increase in maintenance capital expenditures of $0.7 million largely related to the painting of metal railings and replacing of gutters in Q2 2022. Losses on extinguishment of debt and severance/retention costs on dispositions are excluded from the calculation of AFFO.

Highlights from Recent Four Quarters

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

Liquidity and Capital Structure

As of September 30, 2022, the REIT had liquidity of $176.7 million, consisting of cash and cash equivalents of $9.4 million and $167.3 million available under its revolving credit facility. The REIT also has the ability to obtain additional liquidity by adding properties to the current borrowing base of the revolving credit facility.

As of September 30, 2022, the REIT had total mortgage notes payable of $499.5 million, excluding the credit facility, with a weighted average contractual interest rate of 3.4% and a weighted average term to maturity of 5.4 years. Total loans and borrowings of the REIT as of September 30, 2022 were $718.5 million with a weighted average contractual interest rate of 3.4%, excluding the convertible unsecured subordinated debentures (the "Convertible Debentures"). Debt to Gross Book Value excluding the convertible debentures as of September 30, 2022 was 34.1%. As of September 30, 2022, 92% of the REIT's debt was fixed or economically hedged to fixed rates. In July of 2022, the REIT entered into three interest rate swaps (the "Swaps"). Two of the Swaps, which have notional values of $150 million and $65 million at fixed rates of 2.163% and 2.178%, respectively, began on September 1, 2022 and mature on August 31, 2029. The third Swap, which has a notional value of $65 million at a fixed rate of 2.087%, will begin on January 3, 2023 and matures on July 27, 2029. Following the commencement of the final swap, 100% of the REIT's debt will be fixed or economically hedged to fixed rates at a weighted average contractual interest rate of 3.4%.

As of September 30, 2022, the REIT had outstanding Convertible Debentures valued at $44.3 million at a contractual interest rate of 5%, maturing on September 30, 2025 with a conversion price of $14.40 per Unit.

On December 8, 2021, the REIT announced that it has established an at-the-market equity program (the "ATM Program") that allows the REIT to issue up to $150 million of Units from treasury to the public from time to time, at the REIT's discretion. The ATM Program is effective until the earlier of (i) the issuance and sale of all of the Units through the agents on the terms and conditions set forth in the equity distribution agreement, (ii) the Shelf Prospectus ceasing to be effective on January 1, 2024, and (iii) the termination of the equity distribution agreement as permitted therein. As of September 30, 2022, no Units have been issued under the ATM Program.

On April 29, 2022, the REIT completed the April 2022 equity offering for gross proceeds of $115.1 million, after the full exercise of the underwriters' overallotment option.

On October 3, 2022, the Toronto Stock Exchange accepted the REIT's notice of intention to make a normal course issuer bid for up to a maximum of approximately 3.3 million of its issued and outstanding Units. The REIT may purchase Units for a twelve-month period beginning on October 6, 2022 and the normal course issuer bid will terminate on October 5, 2023.

Distributions and Units Outstanding

Cash distributions declared to holders of Units and holders of Class B Units totalled $7.5 million for Q3 2022, representing an AFFO Payout Ratio1 of 67.2%. 100% of the REIT's cash distributions were classified as return of capital. As of September 30, 2022, the total number of Units outstanding was 37,388,788. There were also 20,554,586 Class B Units outstanding, which are redeemable for Units on a one-for-one basis.

Change in Senior Management Structure

The REIT also announced today the retirement of Blake Brazeal, the REIT's Co-President and Chief Operating Officer, effective on December 31, 2022. Susan Koehn, the REIT's current Chief Financial Officer and Corporate Secretary will assume the role of Chief Operating Officer and Brandon Barger, the REIT's current Chief Accounting Officer, will assume the role of Chief Financial Officer and Corporate Secretary consistent with the REIT's succession plan effective on January 1, 2023. Mr. Brazeal has served as the Chief Operating Officer of the REIT and its predecessor since 2004. "I have enjoyed being part of a best-in-class team at BSR that successfully repositioned the REIT and I am confident Dan, Susie and Brandon represent the right team to continue the tradition of excellence going forward," said Mr. Brazeal. "After my retirement, I will be available to assist the team as necessary on a consulting basis. I know BSR has the right leadership in place to continue to outperform in the future."

"Blake epitomizes loyalty and common-sense leadership. While his presence in our business day-to-day will transition, Blake remains an advocate for BSR in the shareholder capacity and my friend and confidante," said Mr. Oberste. "He and I have discussed the REIT's succession plan at length for some years, and we have confidence in Susie and Brandon's leadership and expertise. We both eagerly look forward to the future of BSR."

Ms. Koehn served as the Chief Financial Officer of the REIT and it's predecessor since 2016 and served as the Chief Accounting Officer from 2014 to 2016. Mr. Barger joined the REIT's predecessor in 2014 as the Director of Financial Reporting and assumed the role of Chief Accounting Officer in 2017.

2022 Earnings and Same Community Portfolio Guidance

The REIT provided initial 2022 guidance for FFO per Unit1 and AFFO per Unit1, along with its expectations for growth of the Same Community1 properties revenue, property operating expense and NOI1 in 2022. As of September 30, 2022, the REIT is lowering its expectations for FFO per Unit1 and AFFO per Unit1 due to the impact of unprecedented increases in the federal funds rate prior to the commencement of the Swaps discussed above. Following the commencement of the final swap on January 3, 2023, 100% of the REIT's debt will be fixed or economically hedged to fixed rates. The REIT decreased its full year 2022 FFO per Unit1 midpoint to $0.86 or 2.3% compared to $0.88 as of June 30, 2022. The REIT decreased its full year 2022 AFFO per Unit1 midpoint to $0.80 or 2.4% compared to $0.82 as of June 30, 2022. The guidance for Same Community1 properties revenue, property operating expenses and NOI remains unchanged.

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 Koehn, Chief Financial Officer, will host a conference call for analysts and investors on Thursday, November 10th, 2022 at 11:00 am (ET). The dial-in numbers for participants are 416-764-8688 or 888-390-0546. In addition, the call will be webcast live at:

https://app.webinar.net/prRvyVvye2d
A replay of the call will be available until Thursday, November 17th, 2022. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 877414#). 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 and secondary 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 and nine months ended September 30, 2022, which section is hereby 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 2022 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 2022, 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, relatively historically low interest costs, 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 and nine months ended September 30, 2022 and in the REIT's Annual Information Form dated March 8, 2022, both of which are available on SEDAR (www.sedar.com). 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 2022 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

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