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Cooling Real Estate Market Hits BSR Profit for Q4, Full Year

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Correction: A previous version of this story stated that BSR properties lost value in 2022. The properties gained value, but at a slower rate than the previous year.

BSR Real Estate Investment Trust of Little Rock on Wednesday reported a net loss of $16.4 million in the fourth quarter of 2022 as the cooling real estate market slowed the appreciation of its investment properties.

The properties saw a fair value adjustment decrease of $157.4 million in the period, partially offset by a fair value adjustment increase to derivatives and other financial liabilities of $59.8 million. For the full year, the properties saw a decrease in the fair value adjustment of $350.2 million.

The fourth-quarter loss comes after a $70.9 million profit in the same period the previous year. 

In a statement, BSR stressed that funds from operations, not net income, is the preferred measure of performance for real estate investment trusts. On a per-unit basis, FFO rose 21% in the quarter to $0.23. For the full year, FFO was up 43.3% to $0.86.

“The net income reported in 2022 and 2021 have been significantly skewed by non-cash unrealized property value gains that fluctuate period to period,” the statement says. “As such, the net income numbers we report as a company are not the best indicator of how BSR is performing and are also not comparable period to period.”

The company also reported gains in net operating income, another measure of performance used by real estate operating companies. It totaled $23.2 million in the fourth quarter, up 24% from $18.7 million in the same period a year ago. For the full year, net operating income rose 36% to $85.5 million. 

Meanwhile, fourth-quarter revenue increased 22.2% to $41.6 million on higher rental rates. Average rent per unit was $1,376, up more than 12%.

Annual revenue totaled $158.5 million, up 32.6%. 

BSR is publicly traded on the Toronto Stock Exchange (TSX HOM.U). It owns 31 multifamily residential properties consisting of 8,666 apartment units, with 85% located in Texas, 11% in Oklahoma and 4% in Arkansas.

BSR finished 2022 with liquidity of $166.7 million, consisting of cash and cash equivalents of $7.2 million and $159.5 million available under its revolving credit facility.

The company had total mortgage notes payable of $499.1 million, excluding the credit facility, with a weighted average contractual interest rate of 3.3% and a weighted average term to maturity of 5.1 years. Total loans and borrowings were $726.4 million with a weighted average contractual interest rate of 3.4%.

BSR projects revenue growth of about 6% in 2023 and net operating income growth of about 7%.

“BSR is uniquely positioned to generate outstanding operating and financial results as we continue to see job growth, positive migration and occupancy trends in our core Texas markets,” CEO Dan Oberste said in a statement.

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