Arkansas’ newest publicly traded company is probably not one that would immediately come to mind. However, Little Rock-based BSR Real Estate Investment Trust recently took the unusual step of conducting and completing a successful initial public offering (IPO) on the lesser known Toronto Stock Exchange (TSX).
The IPO raised cash proceeds of $135 million and turned a former mom-and-pop business started in the 1950s into an internationally public traded company.
Underwritten by a syndicate of top Canadian banks that includes the likes of CIBC Capital Markets, RBC Capital Markets, Scotiabank, TD Securities Inc. and Raymond James, on June 18, the state’s second publicly held REIT successfully priced 13,500,000 shares at $10 on the TSX and now trades under the stock symbol “HOM.U.”
BSR CEO John Bailey and other top company officials had the honor of ringing the TSX opening bell on July 29, joining the state’s exclusive list of publicly traded concerns like Walmart, Tyson Foods, J.B. Hunt Transport Services and Murphy Oil that give any investors from Wall Street to rural Arkansas the opportunity to purchase a stake in homegrown companies.
In an interview with Talk Business & Politics at the company’s historic downtown headquarters at Little Rock’s Union Station, Bailey credited the entrepreneurial spirit of his parents, Dr. Ted and the late Virginia Bailey, for growing a mom-and-pop real estate business founded in the 1950s into a regional property owner and apartment management firm that now has operations in four states.
Bailey said it was his mother who took the lead in growing the Bailey Properties real estate brand and reputation into one of central Arkansas’ premier real estate manager of upscale apartments, condos and shopping developments, with well-known local names like Riverbend, Foxcroft, St. Charles and Bowman Curve.
“That’s where it all started with my mother and dad,” Bailey said. “They got into real estate in 1956, so this company has a very strong heritage.”
BAILEY TO BSR
But it was not until the early 1990s when the younger Bailey returned to the Little Rock area from Chicago to join the family business did the direction of the local real estate firm begin to change. After working with his parents to build a wide-ranging portfolio of income-producing properties, the family decided to exit the commercial real estate business in 1996 to focus solely on “just apartments.”
“You know, you can be somewhat good at doing a number of things, but we felt like if we could focus our energies and talents at the that time with all of our team from our management company,” Bailey recalled. “It was the apartments that we felt we understood better than the other side. Commercial (real estate) just seemed to be disenfranchised and this was something we understood even better.”
Later in 2003, Bailey said his parents and other family members sold their holdings in the company and the Bailey management team began growing the company beyond its Little Rock roots over the next decade. In 2012, Bailey Properties LLC merged with Montgomery, Ala.-based Summit Housing Partners, creating a new $1 billion multifamily holding company known today as BSR Trust.
That combined company included nearly 19,000 units of affordable and market housing communities in 10 states across the Southeast U.S., plus Texas and Oklahoma. At the time, Bailey said Summit was also involved in a popular IRS affordable housing tax credit program that created a nationwide boom in lower-than-market rental properties by offering tax incentives to the real estate developers to build reasonably priced apartment communities.
“There was a huge demand and still is for affordable housing,” he said.
Shortly after the merger, however, BSR Trust developed a Memphis-based joint venture that split the company’s affordable- and market-housing multifamily apartment businesses. BSR and its shareholders still own a 49% stake in that company, which has more than 50,000 units across the Southeast U.S.
“That was exciting for us because we were able to monetize about $45 million out of that particular transaction to put back as a reinvestment into our 48 properties, which we believe is a sizable market portfolio of properties that are scattered around the Sun Belt states of Oklahoma, Texas, Louisiana and one in Mississippi,” he said.
Today, Bailey said BSR Trust purchases, manages and owns nearly 50 Class B apartments, which are typically five to 20 years old in communities that target a “large swath” of middle-class consumers and families across the fast-growing Southeast U.S. region.
“We look at this particular market segment when times are good … and even when times are bad. When you have a slower economy, those that are in (upscale) Class A kind of filter back down into our units,” Bailey said, noting the difficult post-recession years after 2008 and 2009.
Using that business model, the Little Rock-based REIT has grown into one of the leading owners and operators of garden-style, multifamily communities across the U.S., managing 48 properties with nearly 10,000 apartment units in five states.
That growth led the company’s board of directors to re-appraise the company’s operations and $890 million in assets at the end of 2017. Despite the healthy balance sheet and strong income-producing apartment portfolio, Bailey said BSR had limited access to new capital that matched the company’s growth strategy to continue rewarding shareholders with healthy returns.
With the company’s scalable business strategy to efficiently re-invest capital from shareholders and ongoing operations, Bailey said BSR’s executive team and board of directors decided that the best choice to find new capital and continue to grow the company was through the first IPO for in Arkansas company in the more than a decade.
“That’s what we decided to do. So, then you ask, ‘Why Canada?’” Bailey asked rhetorically before the question was even posed.
Noting the unusual step of an Arkansas and U.S.-based company conducting an IPO on the lesser known TSX, the BSR boss said the Little Rock REIT studied “four or five” other viable options for accessing new capital. Ultimately, BSR chose the Canadian route because the alternatives could lead to a complete takeover or loss of control if a large institutional investor or other Wall Street buyer wanted a majority stake in the Arkansas REIT.
“If someone else has control of the company and they want to do something different, then you have to sit back and say, ‘That’s not in the best interest of our shareholders,’ and they would come back and say, ‘I don’t care that’s what we want to do,'” he said.
“The great thing about going in a direction like this, it is not a one-and-done situation. You go public, and it is an opportunity to continue taking advantage of your growth opportunity,” Bailey continued. “So, the public option was something that was much better for (us).”
Ryan Thomas, TSX’s head of business development and diversified industries, said the Toronto exchange offers certain advantages to small- and mid-cap IPO issuers in the U.S. with less than $1 billion market capitalization, including a vibrant market for REITs.
“The TSX is a highly-visible and well-known marketplace with a strong ecosystem to support small and mid-cap issuers,” Thomas said, noting that the average market cap of its more than 1,200 companies is about $160 million.
For real estate companies like BSR to get a U.S. stock listing on the New York and Nasdaq stock exchanges, Thomas said, they would need a market cap of more than $1.5 billion to go public. The time to organize and market the IPO, plan a roadshow and then issue the stock is also a speedier process on the Canadian exchange, he said.
“As you see with the BSR deal, that company can be much smaller in terms of equity value than a billion dollars, it can get full sponsorship from the largest Canadian banks and a lot of those banks have significant present in the U.S.,” Thomas said. “And that provides them the liquidity to make more acquisitions, raise more capital, reward employees and even from a marketing perspective you can argue that being a public company is a bonus as well.”
Still, those Canadian ties and being the state’s newest publicly traded concern is just the latest chapter in the success of the Little Rock-based real estate group. BSR is now the state’s second publicly traded REIT, joining Uniti Group, which split off from the former Windstream Holding Inc. in early 2015 to trade on the Nasdaq stock exchange.
Coming out of that yearlong IPO process and the company’s so-called “quiet period” following the stock issuance, Bailey said BSR paid off debt and funded a $23.4 million acquisition of a 200-unit apartment community in Oklahoma City. But the BSR chief executive said the most important experience that has come out of the long “go public” process is that the 295-employee company still maintains a tight-knit, family culture that now has a renewed sense of sureness about the future.
“Everyone is excited. It was truly a team effort to have come through about a year’s process … to position the company to do what we are doing today,” Bailey said. “It gives all of our people the more confidence knowing that we’re here to stay and we’re here to grow.”