Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to BSR REIT Q1 2022 Financial Results Conference Call. Note that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Oberste, you may now begin your conference.

Thank you, Sylvie, and good morning, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the first quarter ended March 31, 2022. I am joined on the call by Susie Koehn, our Chief Financial Officer; Blake Brazeal, Co-President and Chief Operating Officer is also with us and who will be available to answer questions following our prepared remarks. I'll begin the call with an overview of our first quarter performance and other corporate development. Susie will then review the financial and I'll conclude by discussing our business outlook. After that we'll be please to take your questions. First, I want to remind listeners that certain statements about future events made on this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. Please refer to the cautionary statements on forward-looking information in our news release and MD&A dated May 10, 2022, for more information. During the call, we will reference certain non-GAAP financial measures. Although we believe these measures provide useful supplemental information about our financial performance they're not recognized measures and do not have standardized meetings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Also, please note that all dollar amounts are denominated in U.S. currency. Q1 was another period of outstanding financial performance for BSR REIT. We generated robust growth across all of our key financial measures supported by very strong rental market conditions in our core Texas markets. Let me take you through a few of our highlights same community revenue increased 11.2% compared to Q1 last year, same community NOI rose 16.3%. AFFO, and AFFO bring it nearly doubled and net asset value per unit increased 66.4% compared to Q1 last year, and 11% sequentially from the end of the fourth quarter. Our weighted average rent at quarter end was $1,349 per apartment unit represented a year-over-year increase of 19%. Rental rates for new leases, excluding properties undergoing initial lease up increased 17.4% and renewals increased 9%, for a blended increase at 12.5%. We carefully balanced the time in apartment unit as unrented as well as the cost determined apartment unit when determining whether a renewal lease to maximize net operating income. That gives you a sense of just how much the Austin Dallas and Houston rental markets are booming. It also highlights the strength and resilience of the BSR property portfolio, which was significantly upgraded through our capital recycling program. We continue to pursue attractive growth opportunities in our core markets. As you know, we recently completed $115 million equity offering. It strengthened our balance sheet and gives us considerable financial firepower to capitalize on potential acquisition or development opportunities. We didn't announce any new acquisitions in the first quarter, but there was still a very significant announcement for our unit holders. In February, our Board of Trustees approved a 4% increase to our monthly distribution, bringing it to $0.52 per unit on an annualized basis. This decision highlights the strength of our portfolio and our positive business outlook. I'm also proud to note that BSR was recently ranked second among all U.S. multifamily REITs and online reputation assessment scores for 2021 by J Turner research. For those who aren't familiar, J Turner ranks top properties and management companies in the United States based on reviews from websites like Google, Yelp, apartments.com, and apartmentratings.com. BSR ORA scores of 82.08 for 2021 is a strong indicator of resident satisfaction. By comparison, the national average ORA score is 62.62. Our team members work hard every day to be responsive to our residents and provide them with the best possible living experience in our communities. This ranking is a credit to our team, our culture, and our residents. I'll conclude by simply noting that we are thrilled to be generating such strong financial performance. And given the strength of our portfolio in our core Texas rental markets. We are confident there's more to come. I'll now invite Susie to review our first quarter financial results in more detail. Susie?

Thank you, Dan. Same community revenue increased 11.2% in the first quarter to 22.2 million compared to 20 million last year. The improvement primarily reflected a 9% percent increase in average rental rates for the same community property from $1,136 per apartment unit as of March 31, 2021, to $1,239 as of March 31, 2022, as well as 0.2 million increase in other income. Total portfolio revenue for Q1 2022 increased 45.7% to 37.5 million, compared to 25.8 million in Q1 last year. This reflected a 2.2 million of organic same community rental grades, as well as contributions from property acquisitions and non-stabilized properties, which added 13.5 million and 0.6 million of revenue respectively. Property dispositions reduced revenue by 4.6 million compared to Q1 2021. As a reminder, non-stabilized refers to properties that were undergoing lease up or significant renovation during at least part of the comparative periods. NOI for the same community properties was 12.1 million, an increase of 16.3% from 10.4 million last year, reflecting higher same community revenue. This was partially offset by an increase in real estate taxes of 0.4 million. NOI for the total portfolio increased 47.1% to 19.6 million from 13.4 million in Q1 2021. Same community NOI growth increased total NOI of 1.7 million, while property acquisitions and non-stabilized properties boosted it by 6.9 million, dispositions reduced NOI by 2.3 million FFO for Q1 2022 increased 90.6% to $11.1 million or $0.21 per unit compared to $5.8 million or $0.12 per unit last year. The increase reflects the higher NOI partially offset by increases of $0.2 million in G&A expenses and $0.6 million in finance costs. AFFO nearly doubled year-over-year in Q1, 2022, increasing 98.2% to $10.5 million or $0.20 per unit from $5.3 million or $0.11 per unit last year, increase primarily reflected the higher FFO. Net asset value increased 66.9% year-over-year to $1.15 billion from $688 million at the time of Q1 last year. NAV per unit was $21.98 at the end of Q1, 2022, an increase of 66.4% from $13.21, a year earlier. As Dan noted, NAV per unit also increased 11% sequentially from $19.81 per unit at the end of December, 2021. The repaid quarterly cash distributions of $0.128 per unit in Q1 this year and $0.125 last year, representing an AFFO payout ratio of 63.3% in Q1 2022, compared with 117.3% last year. All distributions were classified as return of capital. Turning to our balance sheet. The REIT's debt to gross book value as of March 31st, 2022 was 43.2% or 40.2%, excluding the convertible debentures. Following our equity offering in April, 2022, total liquidity increased to approximately $150 million and debt-to-GBV improved to 37.9% or 35.1% excluding the debentures. We also have the ability to obtain additional liquidity by adding properties to the current borrowing base. As of March 31st, we had total mortgage notes payable of $488.8 million, excluding the credit facility with a weighted average contractual interest rate of 2.9% and a weighted average term to maturity of 5.8 years. Total loans and borrowings were $831.6 million. Following the April follow-on offering, total loans and borrowings were $721.8 million excluding the debentures and 61% of the REIT's debt was fixed or economically hedged to fixed rates. We also had $42.4 million of convertible debentures outstanding at a contractual interest rate of 5% maturing on September 30th, 2025 with a conversion price of $14.03 per unit. Investment properties were valued at approximately $2 billion as of March 31st, 2022, compared to $1.9 billion at the 2021 year-end. We have recorded a fair value gain of $118.8 million for the quarter, driven primarily by cap rate compression and higher NOI. I briefly mentioned the Bought Deal equity offering we completed. I'd now like to provide a little more detail. We issued 5,888,000 units at a price of $19.55 per unit for gross proceeds of approximately $115.1 million and net proceeds of $109.8 million. The over allotment option granted to underwriters was fully exercised, underlining the strong demand from investors. Net proceeds were used to pay down the REIT's credit facility to fund future acquisitions and for general trust purposes. I'll now turn it back over to Dan for some closing comments. Dan?

Thanks, Susie. We are obviously very pleased with our current competitive position. We have a high quality of portfolio focused on three incredibly strong Texas rental markets. Given the robust fundamentals, underlying these markets including population and employment growth that far exceed the national average, we expect continued strong rental growth moving forward. Accordingly, we are maintaining the highly positive guidance for 2022 that we first provided in March. We anticipate FFO per unit of $0.86 to $0.90 compared to $0.60 in 2021 and AFFO per unit of $0.80 to $0.84, compared to $0.59 in 2021. In addition, on a same community basis, we expect revenue growth of 8% to 10% in 2020 and NOI growth of 11% to 13%. Property operating expenses are expected to increase 4.5% to 6.5% year-over-year well below the projected growth and revenue. These numbers are based on our current portfolio and did not take into account any acquisitions or dispositions. However, external growth remains an important priority to us. We are continuing to pursue accretive acquisition opportunities in our core markets as they arise. As always, we prioritize off market or limited betting situations. At the same time, we are highly disciplined and committed to maintaining a strong balance sheet. By focusing on our internal and external growth strategies, we're confident that we will continue to deliver strong results for our unit holders. That concludes our remarks this morning, Susie, Blake and I would now be pleased to answer any questions you may have. Operator, please open the line for questions.

And your first question will be from Sairam Srinivas at Cormark.

My questions currently around the supply chain crisis as well as the higher rate environment we're seeing around us today. Are you seeing that impact the supplier response in your markets? And so how does that impacts rent growth?

Hey Sai, it's Dan, I'll try to tackle that. The supply chain -- I will say, the supply chain disruptions are definitely slowing development in our markets. I mean, you've seen, I'll say, a disconnect in supply demand drivers. That is to say that absorption last year in our markets was roughly twice the pace of supply. And to dig into that, you got to think about what it takes to build an apartment project. Let's say it takes 10,000 different items to be purchased. Well, if three of those items can't be produced, then you can't lease a unit or an apartment or a residence to a resident. If a water heater can't be delivered from China or from another area, you can't lease an apartment. And so I think that's what we're seeing. It’s about -- let's say, about 80% to 90% of the supplies necessary to build an apartment are readily available, albeit at different costs, sometimes -- most of the time higher, there still remains that 15% to 20% that takes a little bit longer for those developers to obtain. That's going to stretch out deliveries, that has stretched out deliveries in the last year and it continues to do so. Our development partners continue to stretch out their construction timelines for new starts and an underwriting spur from it's pool. So we don't expect that to go away or the dynamics we've seen in the last six months generated by supply and demand dysfunction to go away anytime soon. And then, as it relates to runway of continued rent growth, right now, our markets are projecting elevated rent growth, rent growth through 2023. And again, that goes back to just more renters than available apartment units being delivered in our markets, it makes a lot of logical sense when you think about it.

It means, it's in line with other things that I'm reading around. Probably looking at this from the other side, has there been any policy response as such in your market in terms of like making, renting more affordable or generally dealing with the housing crisis?

Are you talking about affordability, discussions, rent caps, and the like?

Yes. Especially, from the local governments or the local municipalities?

We think about that, and I know, it's a general concern in housing in the United States and to a certain extent, in Canada. The way we look at it is our current rent even with the increases we've seen as a percentage of our average resident income is 21.4%. That's around the range that our rent income was when we went public. And that -- so long as it stays down at those levels, we feel, I would say, we feel more comfortable than the property owner who owns an apartment project where the rent and MSA -- where the rent to median income is 43%, or 45%. We see that our markets from just a economic standpoint are far behind, we'll say 50 to 75 other markets. We haven't seen a big push in affordability discussions outside of we'll call it, Boston, Minneapolis, parts of California and the upper Pacific Northwest at this time. So that's the economics of it. We think that it all named the BSR investment strategy. Now, down to the politics of it. Texas has historically been and continues to be a different political environment. So the concept of government regulated affordability and income -- and rent restrictions is not -- I wouldn't say it's foreign in Texas. I would say Texas, doesn't look to lead the charge in that political topic.

Probably my last question before I turn it back. On the acquisition pipeline. In terms of the product you're seeing in the market? Like, is that changing because of all the factors we've discussed until now? Do you see more deals coming through or has the pace slowed down?

Man, sometimes I wish -- this is Dan again, sometimes I wish it would. I want to remind everybody that we don't talk about cap rates a lot, because my cap rate, your cap rate, they're all different. What we buy is a spread, an unlevered spread above our cost of capital. We like to buy around a 1% to 1.5% spread on top of where we see debt prices sit. So in the current environment, that puts -- even with underwritten growth that oftentimes puts BSR and other disciplined underwriters like us outside of the competitive stack. What we've seen in our markets is no impact to volume or pricing. And let me detail that a little bit. In March and April alone, our team assessed, underwrote, walked 31 potential acquisitions, aggregating about 10,355 suites with a collective asset value of $3.04 billion. The average asking price of those assets was $98.2 million, and the average year of construction was 2012. Every single one of those assets sold and BSR didn't buy one of them. What we are seeing in our markets, specifically in Dallas and Austin as well as Houston is those cap rates remain entrenched at 3% to 3.5%, that differs from the rising interest rate environment. So we are seeing a lot of buyers go in and lever at 4.50 or 4.75 and buy a 3.25 cap. They are buying that rent spread increase that's depicted in our markets. So there's a half dozen to a dozen other markets in the United States that exhibit the same fundamentals and that's rigid cap rate compression. And part of that's driven by that opportunity for lease increases as they are embedded over the first year of ownership. Where we are seeing some cracks are in markets not like ours, where we see rent compression. We don't see the same 20%, just these same outpaced rent increase numbers. We are seeing a developing bid-ask spread between a seller and a buyer. And these are not in our markets, these are other markets. That is to say that, the sellers not capitulating on its compressed cap rate ask, and the buyer simply can't afford to buy an asset with such high leverage. The seller is not capitulating, because even though they may not have 25% growth in their rent and revenue side, they are still experiencing a healthy 5%, 10%, 15% growth number. And that seller is very happy to sit on their existing debt and watch their cash flow position increase. It's a very favorable, and I'll say, very bullish trend that we are seeing in multifamily. And again, it makes a lot of logical sense. Multifamily and industrial seem to be very, very attractive asset classes with limited options outside of those two sectors.

Thank you. Next question will be from Brad Sturges at Raymond James. Please go ahead.

Hi, there. Just to follow on to that line of questioning, but more related to the elevated pace of rent growth that you are seeing. Can you just talk about, some of the leasing spreads you are seeing in Q2 to date and how you see that trending over the course of the year. I guess the last couple quarters you were in more -- on a blended basis, more in the low to mid teens, I'm just curious if that's still the level of spread that you are getting on new and renewal leasing together.

Hey, Brad. This is Blake. We are continuing to see that acceleration of the rent spreads. What we are noticing a little bit is our renewals are going up because some people are choosing to do shorter term lease -- leases right now. And we have capitalized on that, but in terms of the percentages that were quoted in our MD&A and what we are seeing going forward and what I see going into the rest of the year, I think we have kind of had a reset where if you look at our loss of lease, we are around to 15% to 16%. I think that's what I told you in the group last time. And I see the same thing developing through the rest of the year.

Okay. That's great. And I guess, do you think given some of the move in rents, would that have any impact you think on your retention rate with existing tenants, or do you think that will be fairly stable?

No, actually, I don’t. I see our retention rate improving as we've been seeing this over the last month or so. We've seen it flay up, we were at a 60-40, I believe we're -- now we're at a 52-48. So I really feel good about where we're heading in that regard, just because as I told the group over the last couple of quarters that the migration into Texas just continues and continues. We're looking at an 18% of our new leases are coming from out of state residents, 43 different states represented. And the housing supply in Texas, a good thing that I monitor, how many people -- we take surveys of people who leave us, and what I’ve known what dropped from Q4 to Q1 was the amount of people leaving for houses. So all these factors combined, are trending in a positive direction, which is helping us accelerate rents and also accelerate occupancy. And we feel like that's going to continue into the future. Also another thing that told you all in quarters passed, I think it's really important. Our median income on our residence has gone up to 83,000 -- 844,000, that's over 7% increase over last quarter again. So all of these factors combined, are playing into a good situation for us. And I feel like that's going to continue for the rest of the year.

Dan, in your opening remarks about, growth initiatives or opportunities that you did highlight, acquisition and development. I just wonder if that development piece, is that more related to what you've been doing recently in terms of buying new construction assets from developers or is there an expansion of that strategy to maybe considering doing maybe intensification of existing communities on balance sheet or even greenfield development?

I would say, Brad, it's a little bit of an expansion. The developers that we work with are some of the best in the country and the most prolific in the country. And, we also hold the belief here that you're good at what you do a lot of, and BSR does a lot of managing properties, and a lot of acquiring and underwriting of stabilized assets. These developers are really good at developing. I think when we look at the assets that we bought and our experience with those assets, and the availability of phase IIs for those assets, as well as the availability of other developments developed by these developers in sub markets that we are very well familiar with, we see an opportunity. We've talked in the past about how we see the development spread to stabilization to be about 100 to 150 basis points north, where we see stabilized cap rates for acquisitions right now, that's a compelling growth sleeve for BSR. And I think it's a win, win, win, in all respects. Our partnership with a developer on a phase II who delivered the phase I that we obviously loved, and we -- and we're obviously enjoying and our unit holders are enjoying the ownership of, a partnership there is just going to help our operating margins. We've already betted the sub market, we've already -- we've betted the developer, we've betted the product, and we have a pretty clear understanding on how to lease up the product. It makes a lot of logical sense in this environment to kind of expand upon, I think what the REIT has done a little bit of in the past few years.

And when you say partnership, is that like an equity partnership? Or would it also include potentially providing development loans with a ROFO in return to buy the asset on stabilization?

I think that the beauty of working with a pretty prolific developer is it's kind of like looking at the menu on the Cheesecake Factory, they can slice it and dice it however you want to look at it. I think the REIT managers and the executive officers here will make the best decision for our unit holders on a development by development case. But each option is attractive depending on where we see the REIT currently, and where we see it headed over the near-term, I'll call it six months. And then the strategic term, the board management focus on which is more of a three year plan. So all are on the table right now and BSR’s method is to take the most disciplined approach for our shareholders.

Next question will be from Jenny Ma at BMO Capital Markets.

I wanted to ask about how you're thinking about acquisitions over the near-term, because you talked a lot about your desire to remain disciplined and cap rates remaining fairly low. But after the equity offering, your leverage is sitting quite nicely well below 40%. And I think in the past, you mentioned wanting leverage to hover around the 50% level. So how should we think about where you think your leverage might settle out in the next 6 to 12 months against the opportunities in the market?

When our team looks at leverage on a look forward, we feel very comfortable with the leverage range between 40% and 45% debt to GBV, and we'll say, a guidance or a target over the long-term on sustained single digit debt to EBITDA coverage ratio. That's a little bit different from the profile that we've spoken about in the past, which is 50% to 55% range. But that's where we feel comfortable with in the current environment, 40% to 45%. As to your question on the current environment for immediate deployment of capital and destabilized acquisition markets -- stabilized acquisitions in our markets. I think about it like a baseball player coming up to the play. You can't -- BSR, right now doesn't have anything under contract. Because the deals that we're seeing in our markets, they're just not our pitches. They're fantastic properties. But we see -- we talked about it, we like to buy a spread above our cost of capital. And we start to feel a little uncomfortable when that spread gets to 50 to 100 basis points. And right now, if I'm looking at rates that the private buyer’s financing at, they're buying -- they're financing at 4.23 to 4.75 on an interest rate, and they're going to pay 3.25 on a cap rate. We're -- we wish them well. And we know that there is a good investment thesis that they have behind that. But that's not the BSR's pitch. We're not going to swing at that ball. We don't think that's a permanent environment for multifamily properties in our markets. We see, I think a very stable and disciplined opportunity to hit a single or a double in a kind of a property intensification Phase 2 co-development. That opportunity is certainly in front of us. And we continue to servile these markets. And I would remind everybody that, we are not the biggest REIT in the world. We have proven time and time again, that we can deploy capital accretive to our unit holders on an AFFO per unit basis and on a NAV basis. We will just continue to do that. We don't feel much urgency to put something under contract for the sake of deploying our shareholders' capital. We like to buy the best property in the market that we look at. And we are comfortable being disciplined, and if that market hits us in a month, we will hit it hard. If it hits us in three months, we'll hit it hard. With all that being said, right now, with interest rates, as volatile as they are from a day-by-day and a month-by-month basis, it takes a month, month and a half to buy a property from soup to nuts. We feel like this market benefits the cash buyer, the cash buyer. A finance contingent purchase price in this market creates a lot of uncertainty. Our recent equity offering enables us to compete as a cash buyer at just about our levels for single and double property acquisitions in our markets and that's exactly what we wanted, that's exactly how well we are positioned on a look forward.

That's great color. Thank you. You mentioned the 4.25 to 4.75 on the mortgage rate. And I know you guys aren't out in the market for renewals per say. But would that be an indication of where it might come in for BSR if you were looking in this after market?

No. It wouldn't be. That's the fun part about competing, it's knowing your strengths and your weaknesses as well as your competitor's strengths and their weaknesses. So I'm using what a private buyer would approach, Fannie Mae or Freddie Mac, and expect to receive on a rate spread at a leverage ratio between 60% and 80%. Based on a term of between -- the agencies are going to offer you 7, 10 and 12 year terms. So those are Fannie Mae quotes from 7 to 12. Freddie Mac is inside and out depending on the term and the tenor, the interest only request so on and so forth. But a fair range right now that a private buyer is financing at on the spot today is that, 4.25 to 4.75 number. BSR obviously, we haven't engaged the agencies for lenders or for lending on projects since last August when we refinanced a facility, I think for 7 years at 2.6% fixed interest only. I think there is a time and a place for a partnership there with the agencies. Right now, our syndicate relationships and our private bank relationships seem to be very, very favorable and provide, we think a competitive advantage on our overall capital cost relative to our peers. With that said, even though we have a lower cost of capital, we remain disciplined. We haven't changed our underwriting standards and we will continue to wait for our pitches.

Okay, great. And then lastly for me, your variable rate exposure is relatively high. I think, just under half on your total debt. Any plans to take that exposure down, or are you comfortable sort of writing out what we are seeing in the market over the short-term?

Yeah. Sure. So, when we think about interest rate management, we look at -- we are looking at that every week and we have. It's a very popular topic right now. I think BSR would look to hedge if it's opportunistic for BSR to hedge. Right now, we see a market pricing hedging at well between we'll say, 250 and 350 for hedging costs. And that sits well above the market expectation for the increase in LIBOR and SOFR over the course of the next 12 to 24 months. Our thought is when you're buying insurance you don't want to pay too much for your insurance. With that said, we remain pretty -- I think, pretty comfortable with our guidance for 2022 that we kind of maintained this quarter, given our current leverage profile.

You just answered the question that I had. Thank you very much. I will turn it back.

And your next question will be from Matt Kornack at National Bank Financials.

I know property taxes in Texas is a bloodsport, but should we think of the figure this quarter as a good run rate for the remaining quarters assuming no change in the portfolio in terms of acquisitions? And yeah, or are we expecting some appeals to come in that may bring that figure down?

Hey, Matt, yeah, I think what you saw in the first quarter is a good run rate for the rest of the year assuming no, again, dispositions or acquisitions. And the reason for that is, is because you have to understand, right? When you buy new properties or when your properties just increase in value, naturally that means your real estate taxes are going to go up. And we've included that assumption in our guidance.

And then just around growth going forward, you had talked about potentially leveraging the platform through partnerships on that front? Is that still something A, that you think there are partners out there that are willing to do and something that would make sense in the context of your capital structure?

Yeah, I think there's two questions -- and our answers is to both, or it depends. And, I think the market environment for strategic partner when you're printing the type of top line numbers that Blake and the team are bringing in, the number of available partners is limitless. Now, with that said, the rising interest rate environment is certainly going to preclude a highly levered partner from wanting to partner with BSR. That's okay. That environment will change and those partners will become more compelling. So the way we think about it is, in times of low interest rates and massive revenue updates, there's a half a dozen partners that are very much willing to work with the BSR platform. And in environments like this, there's a half a dozen, there just a different half a dozen. So BSR is going to continue to look to I'll say, lever our platform to grow a bit. I think it needs to be under the right circumstances. And how we would define the right circumstances is, we don't want to overcomplicate our balance sheet or our P&L. That's step number one. Number two, has to be the correct partner that rows the boat in the same direction that we're rowing as well. And I think those two things, when you can get past those two, there's again, a half a dozen partners out there that make a whole lot of sense that can help BSR grow outside of our organic growth and our acquisition growth.

And the last one for me, I think when you originally put your guidance out, it contemplated that almost half of the mark-to-market opportunity would be captured throughout this year. Should we still think kind of that renewal spreads should trend kind of from the 17% range that they're at now just sort of something in and around the high single digits by the end of the year, or have market rents outstripped expectations at this point, increasing growth into the next year?

Yeah. Right now, again, we'll point back to our guidance. We feel very comfortable inside that range of growth for same store rental, and NOI growth is on a percentage basis and in the AFFO and the FFO per unit range. We just want to -- we want to hit that, again, those comments from last quarter, we continue to see in our markets and we've reflected in our guidance that we produced in March.

Next question will be from Jimmy Chen at RBC Capital Markets.

So just a follow-up on the guidance. I mean this quarter since the NOI was quite high 16%. And so that would imply in the second half that we should see that decelerate to maybe high single digit? Is that a fair way to think about it? And is that kind of how we should think about 2023 as well, given what you're seeing in the marketplace?

It's the same as last quarter where I said, as we continue to true up our leases to market, right, you're going to see a decline in the revenue over the prior year, right? Because we're not going to get 20% increases on top of 20% increases year-over-year. So as we shift towards the latter half of the year, that is certainly going to come down. But that also is embedded in our guidance.

And the guidance, also in terms of -- I might have misheard, the interest rate hedging, it does not assume any interest rate hedging in 2022?

So, actually, the guidance includes an increase in rates, right and that --

Sorry, it does assume an increase in interest rate. To what amount? To what level?

So we embedded at 75 basis point increase incrementally over 12 months, but we also have had some shrinking in our spreads as well.

And so what are you paying right now on the credit facility? What rate are you paying right now?

Right now, I think based on the terms of the credit facility, we're paying about 2.25%. Now, obviously, that's going to -- since you asked, obviously, the credit facility is going to -- our credit facilities are going to be based off LIBOR, and LIBOR contract rates set each month. LIBOR is going to move around the U.S. Central Bank Fed movements. So right now, what we're paying on our rates are really in line with our guidance through April, through May. Any additional movements in the Fed kind of on a look forward, they -- depending on -- as Susie said, depending on when those movements take place, they may have a positive or a negative impact on our guidance for the year. But at this time, we feel very comfortable with where we have guided to.

Okay. Sounds good. And then maybe just lastly, you provided some color on your -- on the investment market. I was just curious. So on the assets that you have underwritten, I believe you said, it was something like $3 billion. When you look back and at what the pricing ended up being, and again given your comment about where Fannie and Freddie debt cost levered buyers are? Like, what type of levered IR you think these people are getting buying into current environment? And presumably, they are underwriting higher rents, and is it your view that the rents are just not reasonable or just too aggressive? And how do you -- when you look back at your underwriting, what sort of conclusion do you come with?

Yeah, sure. There is a little bit to unpack there. So if I don't answer part of your question, it's not intentional, feel free to follow-up. So first things first. So we look at some of those, I mentioned $3 billion and that's just in March and April. We wanted to provide color on March and April, because it's our view that this interest rate, these rapid escalation in interest rates kind of began as a combination of rate and credit spreads in the middle of March, really post Russia and Ukraine. So most of those deals are going to close at -- I'm going to give you a range of 3% to 3.5% on a cap rate. And yes, you are correct, what those buyers are looking at is, they are embedding some of the rent growth that we are depicting currently and then the mark-to-market leases that Blake talked about that are remaining in a repo. And they're going to underwrite a call it, a going-in cap rate of 3.25%. But their assumption is that, their year two going-in annualized cap rate might be a 5%. So call that 175 basis point expansion between their year one and year two numbers. Now, it's not that we don't believe that, it's that we think it's at $90 million a pop for an acquisition, which was the average price we talked about, that represents maybe an elevated risk to us. Now in the past, we have underwritten spread expansions. We feel comfortable and we have talked about it on a stabilized asset to underwrite to 75 basis point cap rate expansion over a 3 year period, that's our criteria. On a lease up, we want to feel comfortable with a little bit more year one, year two spread. We just don't feel comfortable with an increase in interest rates and a compression of cap rates underwriting twice the spread for a lease up that we would otherwise underwrite too. And then number two, you think about the spread on stabilized assets. We like that 75 basis points, while the market's underwriting 175 right now, that's just not our pitch. We’ll wait, and that we believe very strongly that those numbers will come back down to normal, whether it's with a reset of prices and an expansion of cap rate or a continuation of outsized rate increases, driving the volume and rate as they have driven in the last year in our markets. Now, is there anything that I missed Jimmy?

No. That makes sense in terms of what you just said. I would just also, in terms of levered IRR that people are trying to get -- what they are trying to solve to. What would that number look like if you're going in stabilized five? So you are still looking at a high single digit, low double digit type of levered IRR, is that for the type of assets that you would typically underwrite?

That's a good question. So levered, historically that's ranged between 11% and 15%. You know, I think the underwritten levered IRR has remained the same, 11% to 15%. I think what's embedded in that levered IRR, it's interesting. It's probably less about the reversion cap right now and it's more about that year one to early year two rent growth driving yield. Those both -- those -- both of those will choose an IRR. We've talked about in the past, BSR does -- when we underwrite to a very similar 10 to 15, 11 to 17 IRR on our modified internal rates of return, we really place -- we've always placed less emphasis on reversion cap rates than I think our competitors now, all of our competitors are or will say, all the other competitors in our markets. They can -- I think we all agree, nobody's putting a whole lot of emphasis on that reversion cap rate. Where we differ is perhaps some of the victors in these $3 million in transactions that traded in the last -- that we saw, that qualified for it to be a BSR property to trade the last two months, those victors have probably underwritten a bit more collected revenue increases throughout the course of the next year, year and a half than we do. The second thing is we might underwrite those rents to come in. And we certainly expect those rents to come in and those mark to markets to come in in our markets, in the properties we own. We just might expect them to come in over a traditional time period of 18 months or 24 months. And our competitors in order to place that capital maybe underwriting that rent to come in in three months or nine months, which really elevates that year one cap rate. That's a pitch. We're not going to swing it.

Next question will be from Chris Koutsikaloudis at Canaccord.

My question is on the quarter-over-quarter decline in occupancy. Should we think about that as being part of the strategy to drive rent growth and more of a temporary thing? Or was there some other factor that drove that?

No, this is Blake. Talked to the group last quarter that there was going to be -- that was part of our internal strategy. And frankly, we ran on top of our expectations in that regard. And in doing that, we also were able to increase the sequential income by dropping the occupancy. It's really made up of about six properties. And if you really look at it, what's happened, those sequential gains and income run anywhere from 1% to 3% on all six of those, and what we're seeing into the second quarter is an acceleration of the rent plus an acceleration of the occupancy. So you're right, it was on purpose and we've seen it come to fruition and it continues to.

Next question will be from .

I'm seeing your own implied cap rate close to 4.7% with the stock at $17 a share now and I'm wondering, do you agree with that math? And if so, why not buy back your own stock at a huge discount to private market prices?

I'll say, we won't -- we don't want to speak to whether we agree or disagree with that math. I believe the company produced IFRS NAV with a blended underwritten cap rate of 3.8. That's a cap rate that's reflective of a process, and we feel comfortable with that cap rate. To your question on stock buybacks, that's not a topic that we're really prepared to discuss about in an earnings call at this time.

So you're not open to share buybacks?

I didn't say that. As my comment was BSR is not prepared to have a discussion about stock buybacks on a -- on this earnings call.

Can you share whether you have the ability to buy back stock or a plan in place?

I don't believe we've filed a plan. Not a current plan, I think we have in the past.

Thank you. This concludes the question and answer period for today. Please proceed with closing remarks.

Thanks. That concludes our call today and thank you for your interest in BSR REIT. We look forward to speaking with you again after we report our 2022 Second Quarter results in the summer.

Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time we do ask that you please disconnect your lines.