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Monthly Dividend Stock In Focus: BSR Real Estate Investment Trust


Published on October 1st, 2024 by Felix Martinez

BSR Real Estate Investment Trust (BSRTF) has three appealing investment characteristics:

#1: It is a REIT so it has a favorable tax structure and pays out the majority of its earnings as dividends.
Related:  List of publicly traded REITs

#2: It is offering an above average dividend yield of 4.0%.
#3: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks

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BSR Real Estate Investment Trust’s trifecta of favorable tax status as a REIT, an above-average yield, and a monthly dividend make it appealing to individual investors.

But there’s more to the company than just these factors. Keep reading this article to learn more about BSR Real Estate Investment Trust.

Business Overview

BSR Real Estate Investment Trust is an internally managed, open-ended real estate investment trust that owns a portfolio of 32 multifamily garden-style residential properties located in attractive primary and secondary markets in the Sunbelt region of the U.S. Its residential properties have 8,904 units in total. The REIT was founded in 1956 and became focused on multifamily housing in 1991.

Source: Investor Presentation

Sunbelt markets have enjoyed superior population growth and economic growth for decades and are likely to continue growing much faster than the rest of the country. As a result, BSR REIT is ideally positioned to enjoy above average rent growth in the upcoming years.

BSR REIT has high-quality residential properties that are affordable and thus it enjoys strong demand for its properties throughout all the phases of the economic cycle. In addition, its properties require lower maintenance expenses than typical urban properties.

Moreover, multifamily REITs have outperformed most other categories of REITs over the last two decades.

Source: Investor Presentation

As shown in the above chart, multifamily REITs have outperformed retail REITs and office REITs by an impressive margin over the last 20 years. The outperformance has resulted primarily from much less competition in this business as well as strong demand for multifamily housing.

BSR REIT enjoys strong business momentum right now. The company reported its financial results for the second quarter (Q2) and year-to-date (YTD) period ending June 30, 2024. Same Community revenue for Q2 increased by 0.4% compared to Q2 2023, reaching $42.2 million. The REIT’s weighted average occupancy was 95.3%, and net operating income (NOI) grew by 4.6% to $24.1 million. Funds from Operations (FFO) per unit increased by 13%, reaching $0.26, and Adjusted Funds from Operations (AFFO) per unit rose by 20%, reaching $0.24.

The REIT continues to benefit from market absorption in Texas, with improvements in cash flow leading to a 7.7% increase in distributions, beginning in September 2024. During Q2 2024, the REIT took strategic steps to manage debt, including extending interest rate swap agreements and retiring $9.5 million in credit facility debt. Rental rates for new leases and renewals resulted in a 0.3% blended increase over prior leases, despite some downward pressure on new lease rates.

The REIT’s Net Asset Value (NAV) per unit declined by 17.6%, primarily due to the fair value adjustments in investment properties. Despite this, the REIT saw improvements in key financial metrics, with AFFO increasing by 10.3% compared to Q2 2023. The REIT’s management remains focused on delivering value to unitholders, with a focus on operational efficiency and strategic capital management.

Growth Prospects

Millennials have exhibited a greater propensity to rent, as they pursue a more flexible lifestyle. As millennials comprise about 25% of the population in the core markets of BSR REIT, the REIT enjoys strong demand for its properties and has ample room for future growth.

BSR REIT also greatly benefits from the superior population growth and economic growth experienced in Sunbelt markets.

Source: Investor Presentation

Thanks to this characteristic of its core markets, the REIT has been able to enjoy strong rent growth year after year.

It is also worth noting that BSR REIT divested 39 non-core properties during 2019-2021 for total proceeds of $760.5 million. The company thus reduced the average age of its properties from 29 years to 11 years and hence it drastically reduced its capital expenses.

During the last three years, BSR REIT has exhibited a somewhat volatile business performance, primarily due to the pandemic. Nevertheless, it has grown its adjusted FFO per unit by 7.7% per year on average over this period. Thanks to the promising growth prospects of BSR REIT, we expect 5.0% average annual growth of FFO per unit over the next five years.

Dividend & Valuation Analysis

In contrast to many REITs, which cut their dividends in 2020-2021 due to the coronavirus crisis, BSR REIT proved resilient to that downturn thanks to its robust business model. The REIT incurred just a 12.5% decrease in its FFO per unit in 2020 while it kept its dividend flat. Even better, it has now fully recovered from the pandemic.

BSR REIT has a short dividend record, as it initiated a dividend only in 2018. The stock is currently offering a 4.0% dividend yield. Thanks to its solid business model, its healthy payout ratio of 60% and its interest coverage of 3.7, the trust is not likely to cut its dividend.

In reference to the valuation, BSR REIT is currently trading for 16.0 times its adjusted FFO per unit in the last 12 months. Given the somewhat volatile and relatively short performance record of the trust, we assume a fair price-to-FFO ratio of 14.0 for the stock. Therefore, the current FFO multiple is higher than our assumed fair price-to-FFO ratio. If the stock trades at its fair valuation level in five years, it will incur a -3.7% annualized drag in its returns.

Taking into account the 5% annual FFO-per-share growth, the 4.0% dividend and a -3.7% annualized contraction of valuation level, BSR REIT could offer just a 5.3% average annual total return over the next five years. This is a lackluster expected return and hence investors should wait for a more opportune entry point.

Final Thoughts

BSR REIT has the advantage of owning multifamily properties in Sunbelt markets, which are characterized by superior economic growth and strong demand for this type of properties. The REIT also proved fairly resilient throughout the coronavirus crisis, defending its dividend, in sharp contrast to many other REITs. As the stock is also offering a 4.0% dividend yield with a healthy payout ratio of 60%, it is an attractive candidate for the portfolios of income-oriented investors.

On the other hand, investors should be aware that BSR REIT is not a high-growth REIT and hence it is prudent to try to have a wide margin of safety in reference to the valuation of the stock. BSR REIT appears almost fairly valued right now. Therefore, investors should wait for a meaningful correction of the stock before purchasing the stock.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

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