BSR REIT Moves Into Year 2 After IPO

John Bailey, CEO of BSR, at the company’s celebratory entry to the Toronto Stock Exchange last year in the wake of the real estate investment trust’s $135 million initial public offering.
John Bailey, CEO of BSR, at the company’s celebratory entry to the Toronto Stock Exchange last year in the wake of the real estate investment trust’s $135 million initial public offering.

When Little Rock’s BSR Real Estate Investment Trust joined the ranks of public companies last year, the venture was greeted with a rough ride that didn’t correlate with its operational performance.

Revenue totaled $91.8 million and net income totaled about $27 million since the company went public on May 18, 2018, through March 31.

That nearly 11-month performance compared favorably with full-year revenue of $86 million during 2017 and nearly $76 million in 2016.

Accompanying the growth in revenue is the addition of several newer apartment projects and sale of some of its older ones as total assets climbed above $1 billion during the first quarter.

“It was a little discouraging the stock price didn’t change much,” said John Bailey, CEO. “We’ve been executing, but we’re still trading at a discount.”

After opening at $10 per share nearly 15 months ago, BSR stock has ridden a down-and-up track. The closing price of shares fell to as low as $7.31 in December when much of the stock market took a dip. Of late, BSR has rebounded to a high of nearly $11 per share.

While the vagaries of the stock market bounced its shares around, the company continued on course to recycle older properties through sales and invest in newer ones primed for upgrading.

The current roster of BSR apartments includes 45 properties with 9,714 units. Total occupancy stood at nearly 95% as of March 31.

“When we went public, we wanted to grow our portfolio,” Bailey said.

The Toronto Stock Exchange was chosen as the launching pad for the initial public stock offering for the small REIT to garner more attention from investors and financiers. (TSX HOM.U).

Since the $135 million offering, BSR has bought four properties and sold six. Totaling more than $150 million, the acquisitions encompassed:

  • Brandon Place, a 200-unit project built in 2011 in Oklahoma City, purchased for $23.4 million on June 4, 2018.
  • Towne Park at Har-Ber, a 237-unit project built during 2016-17 in Springdale, purchased for $28.9 million on Oct. 25.
  • Riverhill, a 334-unit project built in 1995 in Grand Prairie, Texas, purchased for $45.2 million on Dec. 20.
  • Wimberly, a 372-unit project built in 1995 in Dallas, purchased for $53 million on March 27.

Rounding out its investment activity during the past 14 months, BSR announced on May 9 a $15.6 million, 156-unit expansion to its Wimbledon Green project in Little Rock. The 96-unit complex was built in 2005.

On April 30, BSR announced the sale of two Little Rock properties, the 280-unit Briarwood Apartments in Little Rock and the 245-unit Spring Valley Apartments; and two Shreveport properties, the 144-unit Fox Trail Apartments and 104-unit South Pointe Apartments.

Combined sales price for the four projects, all built during 1971-75: $31.7 million.

On June 19, BSR announced the sale of two west Little Rock properties for $21.1 million: the 256-unit Waterford project built in 1984 and the 80-unit Bowman Heights project built in 1980.

During the first-quarter financial results conference call with analysts on May 14, Bailey identified the company’s core markets for acquisitions as northwest Arkansas and Oklahoma City along with the Texas markets of Austin, Dallas-Fort Worth and Houston.

“We’re looking for properties that are 1990 and younger, and that are class B properties that we can take an opportunity to move it up the scale to a Class B+, maybe an A-,” he said.

No Salary

Bailey doesn’t draw a salary as the company’s chief executive officer, content for now to collect dividends along with fellow shareholders. For him, the zero salary stance was an important consideration as the company made the private to public transition.

“Why start with a salary that could appear to be self-serving and that hasn’t been a part of our past?” Bailey said. “Since 2002, I haven’t drawn a salary. It would be a poor optic to start doing that right away. When we were preparing to go public, we told the markets that I wouldn’t draw a salary for at least the first two to three years.”

2002 marked his buyout of family members in an Arkansas-dominated apartment portfolio of 18 projects containing 3,900 units.

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The Bailey family waded deeper into apartment investing during the bargain hunting days of the Resolution Trust Corp. Formed during the savings and loan crisis, the RTC supervised the liquidation of real estate and other assets owned by failed S&Ls during 1989-95.

“We had the platform to manage the assets,” Bailey said of his family’s ongoing real estate business and opportunity to expand. “As our family started investing, it was more in our nature to take a property and reposition it. Maybe Union Station was a catalyst for that.”

July 31 marked the 28th anniversary of acquiring Little Rock’s Union Station, home to BSR’s corporate headquarters.

The July 1991 purchase of the historic 1400 W. Markham St. property was accomplished through a $540,000 tax-deferred land exchange. Joseph Lombardi acquired the 97,457-SF Union Station and traded it to Bailey for a 300-acre farm near Dixon, Illinois.

The train station was sold by State First National Bank of Texarkana, trustee for bondholders who financed a $4.56 million redevelopment in 1979. The bank foreclosed on the property in June 1989 and recovered it at a court-ordered sale for $567,683 in August 1990.

On the back side of the swap, Bailey paid $281,368 in delinquent property taxes, interest and penalties to clear the messy slate left by Union Station’s past ownership.

Before moving back to Little Rock, Bailey was a member of the Chicago Mercantile Exchange where he traded his own account in Eurodollar futures. He also dabbled in buying, renovating and selling properties in the Chicago area.

Looking back on the 1991 move, Bailey had no inkling of how his background would meld with apartment investing that culminated in BSR.

“Not a clue,” he said. “We wanted to start a children’s museum and make Union Station become vibrant again.”

  Class A Shares Voting Class B Shares Non-Voting*
John Bailey and Patricia Bailey 3,364,908 11,613,865
Percent of Class 20.33% 50.1%
Value** $36.7 million $126.6 million
*Convertible on a 1:1 basis to Class A shares or cash payment based on Class A price per share.
*Based on recent stock price of $10.90 per share.