Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Same-community NOI increased by 4.6% year-over-year, reflecting higher revenue and reduced property operating expenses.
- FFO and AFFO per unit increased by 13% and 20%, respectively, indicating strong financial performance.
- The AFFO payout ratio significantly reduced to 54.5% from 63.9% in the previous year, showcasing improved financial efficiency.
- The company retired $9.5 million of debt on its credit facility, enhancing financial flexibility.
- BSR Real Estate Investment Trust (BSRTF, Financial) increased its monthly distribution by 7.7%, reflecting confidence in future cash flow growth.
Negative Points
- Blended rental rates only increased by 0.3%, indicating limited growth in rental income.
- Weighted average occupancy remained flat at 95.3%, showing no improvement in occupancy rates.
- New lease rates in Austin were negative, with a 6.2% decline in Q2, indicating challenges in that market.
- Operating expenses and real estate taxes are expected to remain lumpy and unpredictable, affecting financial stability.
- The company faces continued elevated supply in its markets, which could pressure rental rates and occupancy in the near term.
Q & A Highlights
Q: Can you give a little bit of color in terms of the absorption you're seeing in each of your markets as well as the expected supply and fundamentals in each of the markets?
A: Daniel Oberste, CEO: We are seeing strong absorption in our core Texas markets, particularly in Dallas, Houston, and Austin. Dallas absorbed more apartments in Q2 than many top U.S. markets do annually. We expect Austin to be challenging for a couple of quarters due to peak supply, but Houston and Dallas are expected to continue performing well due to strong population and job growth.
Q: Can you provide a run rate NOI margin going forward, excluding one-time property tax recoveries or other one-time items?
A: Susan Rosenbaum, COO and Interim CFO: We expect total real estate taxes for 2024 to be around $26.4 million. Margins were high in Q2 due to tax refunds, but we anticipate an overall NOI margin of around 55% for the entire year.
Q: How do the assets in the recent EQR and Blackstone transaction compare to what you own in DFW in terms of age and rents?
A: Daniel Oberste, CEO: The properties in that transaction are about eight years old and traded at $270,000 per suite, which is favorable compared to our implied value. This transaction, along with others, indicates a positive trend in the market, with valuations significantly higher than where BSR is currently trading.
Q: Do you expect blended rents to keep increasing and start accelerating as we get into 2025?
A: Susan Rosenbaum, COO and Interim CFO: Yes, we are seeing positive trends in blended rents. For August and September, renewals are going out at 3.1%, which is slightly ahead of July. We expect this trend to continue into 2025 and 2026 as supply is absorbed.
Q: How should we think about OpEx growth for 2025?
A: Daniel Oberste, CEO: It's too early to provide a precise estimate for 2025 OpEx growth. We will have a better understanding as we get closer to the end of the year and can provide more accurate guidance then.
Q: How do you think about your interest rate swap strategy going forward?
A: Daniel Oberste, CEO: We are focusing on hedging our interest rate exposure effectively. We executed a swaption at 2.75%, which could lower our interest carry if exercised. We aim to fix our credit costs in the 2.5% to 3% range and will continue to monitor the market for opportunities to optimize our interest rate exposure.
Q: Do you think there's any risk of demand having been pulled forward into the first half of the year?
A: Daniel Oberste, CEO: While we have seen strong absorption in the first half of the year, we are not seeing any signs of demand slowing down. The economic and population growth in our markets continues to drive strong demand.
Q: Have we seen the worst of the impact of new supply on rent spreads in Austin?
A: Susan Rosenbaum, COO and Interim CFO: While Austin remains challenging, we saw an improvement in new lease rates in July, moving from -6.2% in Q2 to -3.8%. We expect this trend to continue as the market absorbs the new supply.
Q: Should we expect the weighted average interest rate to move higher as swaps mature?
A: Daniel Oberste, CEO: The future interest rate environment will depend on central bank actions. We have a good cushion with our current hedges, and if short-term rates move down as expected, we will adjust our strategy accordingly to optimize our interest costs.
Q: When do you expect new leasing spreads in Austin and Dallas to turn flat?
A: Susan Rosenbaum, COO and Interim CFO: Continued absorption and income growth will drive improvements in new leasing spreads. We are already seeing improvements, with blended rates in Austin moving from -2.3% in Q2 to -1.7% in July, and in Dallas from -4.1% in Q2 to -3% in July.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
