Bluerock Residential Growth REIT Announces First Quarter 2019 Results
Total Revenues Grew 23% YoY
Same Store Revenues Grew 5.8% YoY
New York, NY (May 7, 2019) – Bluerock Residential Growth REIT, Inc. (NYSE American: BRG) (“the Company”), an owner of highly amenitized multifamily apartment communities, announced today its financial results for the quarter ended March 31, 2019.
First Quarter Highlights
- Total revenues grew 23% to $51.5 million for the quarter, from $41.9 million in the prior year period.
- Net loss attributable to common stockholders for the first quarter of 2019 was ($0.53) per share, as compared to ($0.40) per share in the prior year period. Net loss attributable to common stockholders includes non-cash items, including depreciation and amortization expense, of $0.74 per share in the first quarter of 2019 compared to $0.59 per share for the prior year period.
- Property Net Operating Income (“NOI”) grew 29% to $27.1 million, from $21.0 million in the prior year period.
- Same store revenue and NOI increased 5.8% and 9.0% respectively, as compared to the prior year period.
- Core funds from operations attributable to common shares and units (“CFFO”) increased 3% to $6.3 million, from $6.1 million in the prior year period. CFFO per share was $0.20 for the first quarter as compared to $0.20 in the prior year period.
- Paid quarterly common stock dividend of $0.1625, an 81% payout ratio on a CFFO basis.
- Consolidated real estate investments, at cost, were approximately $1.8 billion.
- Completed 273 value-add unit upgrades during the quarter achieving a 26.3% ROI.
- Invested $7.8 million to buy out the noncontrolling interest in one asset and invested $8.6 million in senior and mezzanine loans for a redevelopment property.
- Repurchased 505,797 shares of common stock during the first quarter at an average price of $10.01 per share, for a total cost of approximately $5.1 million.
“We are pleased to deliver another strong quarter of operating results, further validating our investment thesis of owning highly amenitized apartment communities in knowledge economy growth markets,” said Ramin Kamfar, Company Chairman and CEO. “Property NOI is up over 29% and same store NOI is up 9.0% over the prior year. These results demonstrate the continued success of our strategic initiatives and the ability to realize attractive returns on our value-add unit renovation investments. With a robust pipeline of opportunities, we remain committed to our investment strategy and are optimistic about our outlook.”
Net loss attributable to common stockholders for the first quarter of 2019 was $12.1 million, compared to $9.4 million in the prior year period. Net loss attributable to common stockholders included non-cash expenses of $17.2 million or $0.74 per share in the first quarter of 2019 compared to $14.2 million or $0.59 per share for the prior year period.
CFFO for the first quarter of 2019 was $6.3 million, or $0.20 per diluted share, compared to $6.1 million, or $0.20 per diluted share, in the prior year period. CFFO adds back non-cash, non-operating expenses such as accretion on the Company’s Series B preferred stock. CFFO was primarily driven by growth in property NOI of $6.1 million and interest income of $0.6 million arising from significant investment activity. This was primarily offset by a year-over-year increase in interest expense of $4.0 million, general and administrative expenses of $0.3 million, and preferred stock dividends of $2.1 million.
Total Portfolio Performance
For the first quarter of 2019, property revenues increased by 24.6% compared to the same prior year period primarily attributable to the increased size of the portfolio. Total portfolio NOI was $27.1 million, an increase of $6.1 million, or 28.9%, compared to the same period in the prior year. Property operating expenses were up primarily due to the increased size of the portfolio.
Property NOI margins expanded by 200 basis points to 59.3% of revenue for the quarter, compared to 57.3% of revenue in the prior year quarter.
Same Store Portfolio Performance
The Company’s same store portfolio for the quarter ended March 31, 2019 included 28 properties. For the first quarter of 2019, same store NOI was $22.9 million, an increase of $1.9 million, or 9.0%, compared to the same period in the prior year. Same store property revenues increased by 5.8% compared to the same prior year period, primarily attributable to a 5.3% increase in average rental rates, as well as average occupancy increasing 40 basis points to 93.9%. Same store expenses increased $0.23 million, primarily due to $0.11 million increase in trash, cable and landscaping, $0.06 million of additional real estate taxes due to higher valuations by municipalities, and $0.05 million increase in insurance.
The Company completed 273 value-add unit upgrades during the first quarter achieving a 26.3% rent premium.
Since inception within the existing portfolio, the Company has completed 1,939 value-add unit upgrades at an average cost of $4,902 per unit and achieved an average monthly rental rate increase of $108 per unit, equating to a 26.3% ROI on all unit upgrades leased as of March 31, 2019. The Company has identified approximately 4,550 remaining units within the existing portfolio for value-add upgrades with similar projected economics to the completed renovations. The Company expects to complete between 900 and 1,200 unit renovations in 2019.
On January 23, 2019, the Company provided a $7.8 million senior loan and a $0.8 million mezzanine loan for a multifamily property undergoing redevelopment.
On January 29, 2019, the Company invested approximately $7.8 million to increase its ownership interest from 85% to 100% in its ARIUM Pine Lakes property.
During the first quarter, the Company raised gross proceeds of approximately $44.0 million through the issuance of 43,955 shares of Series B preferred stock with associated warrants at $1,000 per unit.
As of March 31, 2019, the Company had $24.3 million of unrestricted cash on its balance sheet, approximately $54.4 million available among its revolving and term credit facilities, and $1.3 billion of debt outstanding.
The Board of Directors authorized, and the Company declared, a quarterly dividend for the first quarter of 2019 equal to a quarterly rate of $0.1625 per share on its Class A common stock, payable to the stockholders of record as of March 25, 2019, which was paid in cash on April 5, 2019. A portion of each dividend may constitute a return of capital for tax purposes.
The Board of Directors authorized, and the Company declared a quarterly cash dividend on its 8.250% Series A Cumulative Redeemable Preferred Stock for the first quarter of 2019, in the amount of $0.515625 per share. In addition, the Company declared a quarterly cash dividend on its 7.625% Series C Cumulative Redeemable Preferred Stock for the first quarter of 2019, in the amount of $0.4765625 per share. Further, the Company declared a quarterly cash dividend on its 7.125% Series D Cumulative Preferred Stock for the first quarter of 2019, in the amount of $0.4453125 per share. The dividends were payable to the stockholders of record on March 25, 2019, and were paid on April 5, 2019.
On April 12, 2019, the Board of Directors authorized, and the Company declared, a monthly dividend of $5.00 per share of Series B preferred stock, payable to the stockholders of record as of April 25, 2019, which was paid in cash on May 3, 2019, and as of May 24, 2019 and June 25, 2019 which will be paid in cash on June 5, 2019, and July 5, 2019, respectively.
The Company is reaffirming its prior guidance. Based on the Company’s current outlook and market conditions, the Company anticipates 2019 CFFO in the range of $0.80 to $0.84 per share. For additional guidance details underlying earnings guidance, please see page 30 of Company’s First Quarter 2019 Earnings Supplement available under Investor Relations on the Company’s website (www.bluerockresidential.com).
All interested parties can listen to the live conference call at 11:00 AM ET on Tuesday, May 7, 2019 by dialing +1 (866) 843-0890 within the U.S., or +1 (412) 317-6597, and requesting the “Bluerock Residential Conference.”
For those who are not available to listen to the live call, the conference call will be available for replay on the Company’s website two hours after the call concludes, and will remain available until July 7, 2019 at http://services.choruscall.com/links/brg190507.html, as well as by dialing +1 (877) 344-7529 in the U.S., or +1 (412) 317-0088 internationally, and requesting conference number 10130647.
The full text of this Earnings Release and additional Supplemental Information is available in the Investor Relations section on the Company’s website at https://www.bluerockresidential.com.
About Bluerock Residential Growth REIT, Inc.
Bluerock Residential Growth REIT, Inc. (NYSE American: BRG) is a real estate investment trust that focuses on developing and acquiring a diversified portfolio of institutional-quality highly amenitized live/work/play apartment communities in demographically attractive knowledge economy growth markets to appeal to the renter by choice. The Company’s objective is to generate value through off-market/relationship-based transactions and, at the asset level, through value add improvements to properties and operations. The Company is included in the Russell 2000 and Russell 3000 Indexes. BRG has elected to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes.
For more information, please visit the Company’s website at bluerockresidential.com.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are based upon the Company’s present expectations, but these statements are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance upon forward-looking statements. For further discussion of the factors that could affect outcomes, please refer to the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2019, and subsequent filings by the Company with the SEC. We claim the safe harbor protection for forward looking statements contained in the Private Securities Litigation Reform Act of 1995.
The following is a summary of our operating real estate and mezzanine/preferred investments as of March 31, 2019:
(1) Represents date of last significant renovation or year built if there were no renovations.
(2) Represents the average effective monthly rent per occupied unit for the three months ended March 31, 2019.
(3) Percent occupied is calculated as (i) the number of units occupied as of March 31, 2019, divided by (ii) total number of units, expressed as a percentage.
* The development is in the planning phase; project specifications are in process.
Consolidated Statement of Operations
For the Three Months Ended March 31, 2019 and 2018
(Unaudited and dollars in thousands except for share and per share data)
Consolidated Balance Sheets
First Quarter 2019
(Unaudited and dollars in thousands except for share and per share amounts)
Non-GAAP Financial Measures
The foregoing supplemental financial data includes certain non-GAAP financial measures that we believe are helpful in understanding our business and performance, as further described below. Our definition and calculation of these non-GAAP financial measures may differ from those of other REITs, and may, therefore, not be comparable.
Funds from Operations and Core Funds from Operations
We believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and core funds from operations (“CFFO) are important non-GAAP supplemental measures of operating performance for a REIT.
FFO attributable to common shares and units is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. We define FFO, consistent with the NAREIT definition, as net income, computed in accordance with GAAP, excluding gains or losses on sales of depreciable real estate property, plus depreciation and amortization of real estate assets, plus impairment write-downs of depreciable real estate, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.
CFFO makes certain adjustments to FFO, removing the effect of items that do not reflect ongoing property operations such as stock compensation expense, acquisition expenses, unrealized gains and losses on derivatives, losses on extinguishment of debt and debt modification costs (includes prepayment penalties incurred and the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt), non-cash interest, one-time weather-related costs, gain or losses on sales of non-depreciable real estate property, and preferred stock accretion. We believe that CFFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core recurring property operations. As a result, we believe that CFFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential.
Our calculation of CFFO differs from the methodology used for calculating CFFO by certain other REITs and, accordingly, our CFFO may not be comparable to CFFO reported by other REITs. Our management utilizes FFO and CFFO as measures of our operating performance after adjustment for certain non-cash items, such as depreciation and amortization expenses, and acquisition and pursuit costs that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO and CFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and CFFO may provide us and our stockholders with an additional useful measure to compare our financial performance to certain other REITs.
Neither FFO nor CFFO is equivalent to net income, including net income attributable to common stockholders, or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should be considered as an alternative to net income, including net income attributable to common stockholders, as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
We have acquired four operating properties and four properties held through preferred equity or mezzanine loan investments subsequent to March 31, 2018. Therefore, the results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance.
The table below reconciles our calculations of FFO and CFFO to net loss, the most directly comparable GAAP financial measure, for the three months ended March 31, 2019 and 2018 (in thousands, except per share amounts):
(1) The real estate depreciation and amortization amount includes our share of consolidated real estate-related depreciation and amortization of intangibles, less amounts attributable to noncontrolling interests – partially owned properties, and our similar estimated share of unconsolidated depreciation and amortization, which is included in earnings of our unconsolidated real estate joint venture investments.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”)
NAREIT defines earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) (September 2017 White Paper) as net income (loss), computed in accordance with GAAP, before interest expense, income taxes, depreciation and amortization expense, and further adjusted for gains and losses from sales of depreciated operating properties, and impairment write-downs of depreciated operating properties.
We consider EBITDAre to be an appropriate supplemental measure of our performance because it eliminates depreciation, income taxes, interest and non-recurring items, which permits investors to view income from operations unobscured by non-cash items such as depreciation, amortization, the cost of debt or non-recurring items.
Adjusted EBITDAre represents EBITDAre further adjusted for non-comparable items and it is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as income tax payments, debt service requirements, capital expenditures and other fixed charges.
EBITDAre and Adjusted EBITDAre are not recognized measurements under GAAP. Because not all companies use identical calculations, our presentation of EBITDAre and Adjusted EBITDAre may not be comparable to similarly titled measures of other companies.
Below is a reconciliation of net loss attributable to common stockholders to EBITDAre (unaudited and dollars in thousands).
Same Store Properties
Same store properties are conventional multifamily residential apartments which were owned and operational for the entire periods presented, including each comparative period.
Property Net Operating Income (“Property NOI”)
We believe that net operating income, or NOI, is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our performance on a same store and non-same store basis; NOI measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as a supplemental measure of our financial performance.
The following table reflects net loss attributable to common stockholders together with a reconciliation to NOI and to same store and non-same store contributions to consolidated NOI, as computed in accordance with GAAP for the periods presented (unaudited and amounts in thousands):
(1) Same store portfolio for the three months ended March 31, 2019 consists of 28 properties, which represent 9,608 units.