Interview With BSR REIT (Strong Buy Reaffirmed)

Important Note

Before going into today's article, I wanted to let you know that we will soon conduct interviews with the management teams of the following REITs:

• Farmland Partners (FPI)

• Easterly Government Properties (DEA)

• VICI Properties (VICI)

• H&R REIT (HR.UN:CA)

• Safehold (SAFE)

• Cibus Nordic (CIBUS)

• Canadian Net REIT (NET.UN:CA)

Let me know if you have any questions for them and I will make sure to ask them for you. You can put your questions in the comment section below.

Thanks!

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Interview With BSR REIT (Strong Buy Reaffirmed)

BSR is today our largest apartment REIT investment and it represents 8% of our Core Portfolio. We invest so heavily in it because:

• It owns class B garden-style apartment communities in the famous Texan Triangle - Dallas, Austin, and Houston - which enjoys some of the fastest job and population growth in the nation. 

• Its rents are today still very affordable at just around $1,500 per month, representing just about 20% of its resident's income, which is nearly 2x lower than the average in gateway markets. BSR grew its same property NOI by 7% in 2023, and it it is expected to grow it by another 2% in 2024, even despite the current oversupply in its market. We expect its growth to accelerate in 2025 and 2026.

• The company has a good balance sheet with a 45% LTV, which we view as optimal for these assets to maximize long-term returns without putting the long-term solvency of the company at risk. Its debt maturities are relatively short, but it retains nearly 50% of its cash flow to deleverage and interest rates are expected to come down in the near term. 

• The company is also very well aligned with the management owning about 40% of the equity and insiders have kept buying more shares with their personal money and also funding significant share buy backs in recent years.

• The shares are currently priced at a 27% discount to their net asset value, which essentially means that you get to buy an equity interest in its assets at 73 cents on the dollar, and you then get the added benefits of diversification, professional management, economies of scale, liquidity, and limited liability on top of it. I would also note that their net asset value is based on real market transactions since they follow IFRS accounting rules.

• Based on their cash flow, they are priced at a 7.5% FFO yield. They pay out about half of that in dividends, resulting in a 4.3% dividend yield, and retain the rest for share buy backs and deleveraging. The company is doing so well that they just recently hiked their dividend by 7.7%. 

• The biggest near-term risk is oversupply. A lot of new development projects are currently underway in the Texan Triangle and it could lead to some bumpiness in the near term. However, it should be just temporary and growth should strongly accelerate in the coming years because most new development projects have now been put on halt, but the population growth remains very strong. 

Recently, I had the opportunity to speak with the company's CEO, Daniel M. Oberste, about their recent performance and their strategies for unlocking value for shareholders.

Below, I first share my main takeaways from the conversation and I then share the transcript of the interview as well.

My Takeaways From The Interview: