Good afternoon. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSR REIT Q1 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Oberste, you may begin your conference.

Thank you, Joelle, and good afternoon, everyone. Welcome to BSR REIT’s conference call to discuss our financial results for the first quarter ended March 31, 2023. Brandon Barger, our Chief Financial Officer, is not able to join us today. However, I’m joined on the call by Susie Rosenbaum Koehn, our Chief Operating Officer, and we’re available to answer your questions after our prepared remarks. I’ll begin the call with an overview of the quarter. Susie will then review the financials in detail, and I’ll conclude by discussing our business outlook. After that, we will be pleased to take your questions. To begin, 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, 2023, 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 non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Also, please note that all dollar amounts are denominated in U.S. currency. Our strong balance -- our strong business momentum from 2022 has carried us into 2023. We generated solid growth in all of our key performance metrics in the first quarter, driven by continued strong rent growth and high occupancy within our portfolio. The results were in line with our expectations and reflect the very strong fundamentals of our core Texas markets. FFO per unit and AFFO per unit improved by 9.5% and 10%, respectively, compared to Q1 last year. And we had strong double-digit growth in same-community revenue and NOI, which increased by 11.1% and 17.8%, respectively. Weighted average rent as of March 31, 2023, was $1,489 per apartment unit, an increase of 10.3% compared to a year earlier. On a sequential basis, weighted average rent increased 0.5% from the end of December 2022. During the quarter, rental rates for new leases, excluding short-term leases, increased 0.2% and renewals increased by 7.7% over the prior leases, resulted in a blended increase of 3.6%. We remain focused on building unitholder value. As previously disclosed, we repurchased approximately 1.08 million units last year under our NCIB and our automatic share purchase plan. Through May 9, 2023, we have repurchased approximately 1.2 million units at a price -- at an average price of $13.49 per unit. We will continue to take advantage of opportunities to repurchase units as part of our normal evaluation of capital deployment options. It’s obviously an attractive option when our unit price is trading at a significant discount to NAV as it is presently. On our last call, I discussed the online reputation score that we received from J Turner Research. We scored 81.1%, which was far ahead of the national average of 62.88%. The score is compiled based on resident reviews from websites like Google, Yelp, apartments.com and apartmentratings.com, making it at a very strong indicator of resident satisfaction. This demonstrates what an outstanding job our team is doing at the property level across our portfolio. We are maintaining strong financial guidance for 2023 that we previously provided in March and are well positioned to capitalize on attractive growth opportunities as they emerge. So our business outlook remains highly positive as we continue to benefit from owning a high quality portfolio in high-growth Texas MSAs. I’ll now invite Susie to review our first quarter financials in more detail. Susie?

Thank you, Dan. Same-community revenue increased 11.1% in the first quarter to $39.6 million, compared to $35.6 million last year. The improvement primarily reflected in an 11% increase in average rental rates for the same-community properties from $1,335 per apartment unit as of March 31, 2022 to $1,482 as of March 31, 2023. Total portfolio revenue for Q1 2023 increased 10.8% to $41.6 million, compared to $37.5 million in Q1 last year. This reflected $4 million of organic same-community rental growth and $0.2 million from a non-stabilized property, partially offset by property dispositions that reduced revenue by $0.1 million. NOI for the same-community properties was $21.9 million, an increase of 17.8% from $18.6 million last year. The increase reflected higher same-community revenue and a $0.4 million decrease in real estate taxes, primarily due to the timing of property tax refunds during Q1 2023, partially offset by an increase in property operating expenses of $1 million due to higher payroll costs and repair and maintenance expenses, as well as an increase in the cost of insurance. NOI for the total portfolio increased 16.3% to $22.8 million from $19.6 million in Q1 last year. Same-community NOI growth boosted total NOI by $3.3 million. This was partially offset by a reduction in NOI of $0.1 million from property dispositions. FFO for Q1 2023 increased 17.7% to $13 million or $0.23 per unit, compared to $11.1 million or $0.21 per unit last year. The increase reflected the higher NOI, partially offset by an increase of $0.9 million in finance costs associated with increased interest rates. AFFO increased 18.8% to $12.5 million in Q1 2023 or $0.22 per unit from $10.5 million or $0.20 per unit last year. The increase was primarily due to the higher FFO, as well as a $0.1 million decrease in maintenance capital expenditures due to the timing of projects in Q1 2023. The REIT paid quarterly cash distributions of $0.129 per unit in Q1 this year and $0.128 per unit last year, representing an AFFO payout ratio of 59.1% in Q1 2023, compared with 63.3% in Q1 2022. All distributions were classified as a return of capital. Turning to our balance sheet. The REIT’s debt-to-gross book value as of March 31, 2023, was 38.4% or 36.3%, excluding the convertible debentures. Total liquidity was $174 million, including cash and cash equivalents of $4.3 million and $169.7 million available under our revolving credit facility. We also have the ability to obtain additional liquidity by adding properties to the current borrowing base of the facility. As of March 31st, we had total mortgage notes payable of $499 million, excluding the credit facility, with a weighted average contractual interest rate of 3.3% and a weighted average term to maturity of 4.9 years. Total loans and borrowings were $741 million with a weighted average contractual interest rate of 3.3%, excluding the debentures and 97% of our debt was fixed or economically hedged to fixed rates as of March 31, 2023. The high level of fixed rate debt is partially the result of the three interest rate swaps we entered into last year, which have materially reduced our interest rate expense. In May of this year, we entered into a new $50 million interest rate swap at a fixed rate of 2.25%. This swap takes effect on October 1, 2024 and matures on July 1, 2031, subject to the counterparty’s optional early termination date of February 1, 2027. Finally, our outstanding convertible debentures as of March 31st were valued at $42.6 million at a contractual rate -- interest rate of 5%, maturing on September 30, 2025, with a conversion price of $14.40 per unit. I will now turn it back over to Dan for some closing comments. Dan?

Thanks, Susie. When we hosted our last conference call less than two months ago, we noted the strong financial performance we generated in 2022 would continue in 2023. Our view hasn’t changed in the least. Our three core rental markets in the Texas triangle remain extremely strong, backed by stellar population and employment growth in the region. I mentioned earlier that our weighted average rent at the end of the first quarter increased by 10.3% compared to the end of Q1 last year. If you go back two years, that same gain is 31.3%. This is obviously exceptional growth. But if you look at our annual rent as a percentage of median household income in our core markets, the average is less than 25%. That compares to a national average of 35.3% and far higher figures in the major gateway markets. So our properties remain highly affordable. We are maintaining the financial and operating guidance for 2023 that we first provided in March. It calls for FFO per unit of $0.90 to $0.96, compared to $0.86 last year. AFFO per unit of $0.83 to $0.89, compared to $0.86 last year. Same-community revenue growth of 5% to 7%, same-community NOI growth of 6% to 8% and growth in property operating expenses of 4% to 6%, below the projected growth in revenue and NOI. These figures don’t assume any acquisitions or dispositions. With our strong balance sheet and liquidity position, we are well positioned to capitalize on growth opportunities as they emerge. While M&A activity in our core Sunbelt markets has obviously slowed in the last year, our corporate development team is constantly evaluating opportunities. As our track record demonstrates, we will remain patient and only invest when we see returns that enhance unitholder value. We are confident that by sticking to our strategy, we will continue to capitalize on highly positive conditions in our core rental markets and drive strong returns for our unitholders. That concludes our remarks this morning. Susie and I would now be pleased to answer any questions you may have. Joelle, please open the line for questions.

Thank you. [Operator Instructions] Your first question comes from David Chrystal with Echelon. Please go ahead.

Thanks. Good afternoon, guys. If you were to peg your current market rent versus in place, how -- where is that spread and can you maybe comment on the lifts that you’re seeing on new and renewal leasing so far in the second quarter?

Absolutely, David. So the mark-to-market right now is anywhere from 8% to 10%. Right now, what we’ve seen in April is pretty consistent with what we saw in Q1. However, there was a slight uptick in the increases on our new leases. However, the blended increase is still about 3.6%.

And if you look at incremental dollars invested are spent, where would you guys be allocating capital on your next dollar today?

Yeah. David, this is Dan. So I think we talked about it a bit in our prepared remarks and our earnings release, so long as our share price reflects such a spread over the market and the street value of assets. We see an incredible opportunity, like a once in my career opportunity to buy back stocks and our own or repurchase our own shares. Now we’re going to be mindful to our liquidity there and take advantage of the short-term opportunities in front of us for share repurchasing, while preserving a sufficient amount of liquidity to execute on our strategic growth. That’s option one and it continues to pay off for our unitholders. We have, in the last quarter, we’ve reviewed 27 potential acquisitions. The aggregate sweet count of those acquisitions is about 8,616 suites with a collective asset value of $1.9 billion, a $71.6 million average purchase price and an asking a year of construction of about 2012. So we’re surveilling the markets fairly deeply and our NAV reflects that market activity that we’ve seen in the first quarter. So if you look at our NAV and you see that return at an unlevered 4.50 against acquiring your own stock at 6.25, 6.5, it’s a no-brainer for capital deployment. However, we are retaining some cash for future liquidity and we’re mindful of our balance sheet in that respect. I think the second immediate use of capital, which again, to us, is a no-brainer, is suite redevelopment and particularly our smart home technology. Susie, do you want to jump in and provide some details on our suite renovation projects and our smart home initiatives right now?

Sure. Yeah. So the smart home technology is actually very popular and we’ve got a really good return on it. So we’re prepared to do another 900 -- approximately 950 units in Q2 of this year and that would leave us another 2,000 units to do in future years. Right now, our return after the smart home implementation has been completed and we’ve been able to turn the lease and then mark up the lease at the new rate for the smart home technology is around 46%. So we will continue doing this.

Yeah. And then I think the last thing is that we’re planning on installing another 459 washers and dryers in our apartment units throughout the course of 2023. We understand that it’s -- these are not above the fold exciting deployment of capital opportunities, but they generate returns that are incredible and their returns on our incumbent portfolio and our share repurchasing is a bet on the performance of our current portfolio and the fracture that exists between the street and the capital markets on unlevered returns. To us, when we look at the returns generated by what we’re doing, it’s just a no-brainer, David.

And given that mismatch, are there any asset dispositions either partial or whole in the near-term?

Yeah. We’re not considering any disposal in the near-term. We love what we got. Our portfolio is -- it’s the youngest portfolio in the relevant public REIT sector and our properties continue to be well capitalized and produce above-average returns. It’s -- you really don’t want to sell that. If you’re holding on to something, you don’t want to sell it.

Okay. Great. I will turn it back. Thanks.

Thanks, David.

Your next question comes from Sairam Srinivas with Cormark Securities. Please go ahead.

Thank you, everyone. Good morning, Dan and Susie. Just digging into the line of questioning, which David started. Just looking at -- Dan, you mentioned the transaction market and you know how the NAV reflects the current market out there. Are you seeing a lot of transactions come by and the cap rate expansion that happened this quarter, is that a reflection of a transactions or is it more of a conservative potion?

Oh! Yeah. Yeah. I wouldn’t say the word conservative side. I would say the word accurate. I mean the NAV that management reported yesterday in its earnings call is a reflection of our experiences, experts who transact in our markets and a read-through on pricing that we see of deals closing. So, admittedly, transaction volumes dropped about 75% in the first quarter of 2023 relative to the first quarter of 2022, I’d note that the first quarter of 2022 is probably the most active quarter of multifamily sales in recorded history. So the numbers we see in Q1 of 2023, they look somewhat similar to, I don’t know, 2017, 2018, 2019, similar time periods nationwide. It gives us a fairly good read-through on cap rates and price per suites of assets that are trading in our market right now. They continue -- the deals that are trading side are easily sub-caps in every one of our markets. They’re easily 4.25, 4.50, 4.75, and it’s reflected in management’s NAV that was presented last night. And I can appreciate that everyone on the call here is -- has their own version of a cap rate. The market of people who actually buy and sell properties just disagrees with you right now and has for about a year.

That’s a fair point, Dan. Maybe just changing gears to between new leasing and renewals this quarter. Looking at the historical trend, it seems like new leasing spreads have pretty much been muted this quarter. Would that be more of a seasonal trend or is it something more of a market trend as much?

Yeah. It’s ticked up slightly in April portfolio-wide to about 1% as opposed to the 0.2% we saw in Q1. So, I mean, while, yeah, there is a bit of seasonality to it. It’s still probably more muted than what we had seen in the past. But we’re putting our focus is also on the blended rate because we’re getting a lot of pickup still of our renewals.

Yes. We’re going to win with…

Okay.

We are going to win with the blend.

That makes sense, Dan. And just probably looking at the retention rate, it’s obviously come down a bit as well. Is that out of design or is it more of the result of how you’re seeing leasing market developing?

Yeah. The retention rate we’re seeing right now in the first quarter, I mean, to me, doesn’t look altogether that different from historic first quarters. Susie, would you have anything to add?

Yeah. Sure. So, the retention rate, yeah, it has come down and I think that has a lot to do with the fact that in the U.S., average turnover is 50% and we’re starting to look a lot more like we did precede, again, with people being more active and moving.

That makes sense, guys. Thank you. I will turn it back.

Hey. Thanks, Sai.

Your next question comes from Brad Sturges with Raymond James. Please go ahead.

Hi, there. I just wanted to touch on the NOI in the quarter. Just on -- I guess, specifically to the property tax refunds you received. I’m just curious to know what was the exact amount of the refunds? And then I guess if you were to back that out, what type of increase are you assuming within the guidance for property taxes in 2023?

Sure. So the -- it was a $400,000 refund in Q1 related to real estate taxes. And we’re projecting in the guidance a 6.7% increase over 2022 in total for real estate taxes. That’s about $29 million from opening purposes.

Okay. Are there any other appeals still outstanding that could -- you could receive later in the year or was that kind of the majority of appeals?

That’s not all of them, but the $29 million I just gave you, where the 6.7% includes what we believe we’ll get back.

Okay. And were the refunds related to last year assessments or is that going back a couple of years?

Yeah. Brad, this is Dan. So as we’ve discussed before, tax appeals in Texas is a contact sport. Right now, we have 20 active tax lawsuits in Texas for the years 2020 and 2021 and 18 lawsuits for the tax year of 2022. Refunds are anticipated every year. Historically, owners in Texas appeal all the way to a lawsuit, just about every assessment and it’s just a natural course of doing business. And I think to reiterate what, Susie said, the $400 that we experienced in the first quarter, those -- that budget number -- that was a budgeted number for us. We can’t -- we don’t get to pick whether that number falls in February or May. The tax assessors does not really concern themselves with our reporting cycle. But the appeals did come in really slightly positive to our expectations, but I think immaterially positive. We expected those funds…

Okay.

… to come in.

Right.

And they just came in a little bit earlier than they did last year and so that’s what’s creating probably maybe the quarter sequential distortion or the year-over-year distortion.

Yeah.

But to us business as usual.

Yeah. No. That’s quite helpful. I appreciate that. Just, I mean, you talked about the smart home technology rollout and I noticed that you’ve disclosed, I guess, the sub-metering, I guess, 65% of the units. Is there much more you can do on the sub-metering, like, where could you push that number to in the coming quarters?

So let me -- first let’s distinguish between the two. When we talk about smart home technology, that’s not necessary -- that’s not sub-metering. What we mean is installing, being able to adjust your utilities and turn off lights and enter your apartment using your fan. And that’s where we have -- where we got another 950 units to do this quarter with potentially 2,000 more in years after. Sub-metering relates to right, the ability to pass through utilities, and in those cases, it doesn’t really impact us whether we’re sub-metered or not, because either the resident is going to pay utilities themselves directly to the utility company or we pay it and then we turn around and build them back and then they reimburse us.

Okay. So it doesn’t have a real net impact on NOI.

Right.

Okay. That’s helpful. I would -- I guess last question for me, just to go back to the cap rate discussion. Obviously, you’re pretty confident in your numbers. So I’m just curious if there was more of a broad-based tweak to the portfolio or is it more specific to a particular market in terms of maybe your changes in valuation assumptions?

Yeah. Brad, I think, let me try to tackle that from a different direction and provide a little bit of our outlook to values. So the cap rates, as we’ve said in the past, are like everybody on the phone, think of a dog. We’re all thinking of different dogs. So when we think about cap rates and our NAV, what’s important to the REIT and management is to continue to methodically underwrite the same NOI process against the market cap rates that we see as adjusted by our NOI. That method hasn’t changed. So we think that gives the market and the public a better read-through of our assessment of values in the marketplace. Now as we look forward to the end of this year, something has got to give. The sellers have to agree to sell for less money or a higher cap, I guess, in this context or the buyers have to capitulate and buy a lower return. So I think what we’re probably going to see pick up over the summer and towards the end of the year and certainly take place in the early parts of next year, is we’re going to see some distorted caps that evidence perhaps a distressed seller. We’re also going to see distorted caps that evidence a very aggressive and desperate buyer needing to place funds on a fuse. What we’re going to do when we assess the value of trades in a market, is we’re going to read through and look at what was the cost per suite of the asset that was purchased. So in BSR’s case, we purchased in the right markets at the right time, and as we all can agree, our trading price doesn’t reflect that. But let’s take maybe the least expensive market in Texas to develop out of the three that we own right now in Houston and let’s just compare the current all-in cost for replacement of a comparative property, let’s say, a four-story surface parked, garden product, the reconstruction cost today is going to range between $210,000 to $250,000 a suite and that’s in the least expensive of the three large markets. Now how that’s reflected in the cap rate is everybody’s different ingredients that they put into chili. But the baseline cost has not changed. So what does that mean? It means that developers are going to have a hard time penciling in the resulting rent to compete at $250,000 a suite in Houston, Texas to build. It means we’re going to see development deliveries, forget about permits and hopes and dreams, but development deliveries start to mute and blend out over the course of probably two years. That’s a win for the landlord. That means that the concerns of oversupply may be somewhat overstated. It’s also -- I think with the current macro induced environment, not just the high interest rates, but the pace of high interest rates. That’s going to provide further chilling impact to new starts and new deliveries in our markets that would otherwise compete with our product two years from now. What we are seeing in the market is a creative buyer that’s trying to understand how to finance their credit risk in a market in order to buy a 4.5 cap, because those prices aren’t changing and that rent growth while decelerating continues to take place year-over-year compounded. So you saw we executed a swap last Friday at 2.25 plus our 145 borrowing rate enables us to lock in $300 -- $50 million of fixed rate debt financing at 3.7%. I think you’re probably -- I mean you’re probably going to see more buyers take advantage of different parts of the curve in fixing their interest in order to pay a lower cap rate on a purchase. That’s where my money is sitting, because these sellers in the near-term, they’re not budget.

From a transaction point of view, I guess, if we do see some distress from the merchant builders, would that entice you to maybe reconsider trading assets to buy an interesting opportunity on the stress from a builder or would you -- would, I guess, still the incremental capital allocation still be more towards buying back stock right now?

Well, I mean the answer is yes and yes, Brad. Yes. If we see the compelling spreads that we’re seeing out of what we consider to be top-tier developers that we work with. If we see opportunities there that are -- that generate returns in excess of what we can otherwise obtain by buying back or repurchasing our stock, we’ll certainly hit that. And I want to remind everybody that we never announced the deals that we don’t close and that we looked at 27 deals in the first quarter. We just didn’t love the price relative to our cost of capital and specifically our cost of debt. We would prefer to acquire assets. When we see that spread hit, we will acquire assets, especially if those assets are being constructed and delivered by some of the partners that we’ve worked with over the course of the last decade.

Yeah. Okay. I will turn it back. Thanks a lot.

Your next question comes from Gaurav Mathur with IA Capital Markets. Please go ahead.

Thank you, and good morning, everyone. Just on your comment about turnover rates increasing across your markets. Could you provide some color as to how we should think about maintenance CapEx for the year ahead?

Yeah. I think that -- so it was a little bit lower this quarter and that’s just based on timing. I think we’re projected to spend approximately $460 a unit on recurring CapEx for the entire year.

Okay. Okay. Great. And just a quick question on the short-term leases, which you’ve discussed in the past, that will be converted to longer 12-month leases. Could you just provide some color on how that’s going?

Yeah. So right now, short-term leases, which is any lease that is nine months or less is about 5.5% of all our leases. So it’s smaller.

Okay. And just a last question for me. I know this has been discussed, Dan, but distressed asset sales maybe not happening just yet. But are you seeing some of that coming through the 1031 exchange transactions as well or that is not the case right now?

Yeah. Good question, Gaurav. We’re not seeing it through the 1031 pipeline right now. And just to expand on that, 1031 in the United States is a provision of the tax code that enables an owner of real estate to sell its properties or its ownership in real estate and defer its capital gains tax by rotating into a life time property. Normally, in times of run-up in prices, we will see some trades to that 1031 pipeline take place. Normally, we see a seller sell an asset for an incredible gain and then chase an acquisition cap rate down in order to defer the capital gains tax. You got to have sales to generate subsequent buys with transaction volume down 75% year-over-year in the first quarter, while it’s still healthy. I don’t think we see a lot of incumbent sellers’ itch in to sell their assets to generate a buying opportunity. And I think part of the reasons for that, Gaurav is the attractive nature of the incumbent debt that said seller is sitting on. Multifamily loans in the United States, particularly on the private side, have fixed-rate components and terms that range between five years and 40 years on their terms. So…

Right.

… in the non-resource market of CMBS, HUD, Freddie and Fannie. So, I mean, you got to put yourself into that seller’s shoes that’s sitting on a game. If they’re also…

Okay.

… sitting on a 3.5% fixed rate 15-year piece of debt, I don’t see the incentive of them wanting to walk away from that debt and refi into this environment that may look like 6% for the same style of debt. It’s also why you’re not seeing a lot of home sales take place in this environment.

Okay. Great. Thank you for the color, Dan and Susie. I’ll turn it back to the operator.

Your next question comes from Kyle Stanley with Desjardins. Please go ahead

Good morning. Can you hear me?

We can hear you, Kyle. Kyle?

Can you hear me now?

Yes. Yeah. We can hear you.

Oh! Sorry about that. I must have unmute. I’m just wondering, has there been any noticeable shifts in your leasing demand since we last spoke, specifically wondering if there’s been any changes in the income profile of your prospective tenants or the number of out-of-state prospects that you’re seeing? I think as we spoke about the strong uptick in leasing kind of through 2021 and 2022, you were seeing obviously a massive influx of out-of-state demand. Just wondering if there’s been any changes to that.

So, yeah, the average income of our residents is still pretty consistent at around $80,000 per year. This quarter or the first quarter, 19% of our move-ins came from out-of-state with the majority of that is coming from the state of California and then also to the State of Florida [ph]. And that’s up a little bit from what we saw in the fourth quarter where it was at 13%, but that could have been just based on some seasonality as well.

Okay. Fair enough. And then, I mean, Dan, your commentary about underwriting close to $2 billion of potential deals in the quarter suggest that there still obviously is a deal flow. Are you seeing the private REITs back looking at assets in the market? I mean, obviously, we see the headlines or they’re still dealing with redemptions, but are they back looking? What about other private buyers? Just wondering who might be showing up at the table to look at some of these assets?

Yeah. Sure. I’m thinking about some of the read-throughs on stats we’ve seen in Dallas and Atlanta, Nashville, Tampa, Austin and Houston. That’s a good broad framework of the Sunbelt right now. The bidding spread is a mixture of -- there’s a handful of public REITs in there. There’s some announced deals where the fire was indirect passive pension to an operator or to an asset manager. And then the sellers, I wouldn’t say the BREITs are net sellers in this environment. I’d say they’re actively looking. They’re just return thresholds that they need to hit. And BREIT requires by arithmetic, high leverage in order to underwrite a compressed cap rate to acquire and kind of a leveraged buying method. And when you have such -- when you have a 30% increase in interest rates on a year-over-year basis and you’re using leverage only to buy, you’re probably going to still remain on the sidelines. So that logic has been playing out in the first quarter. We haven’t seen BREIT’s too active on the acquisition front. We’ve seen private individualized capital win a hand -- the majority of deals and we’ve seen REITs coming to the table on the bid similar to what BSR’s done, come to the table on the bid, but at a bit higher cost or a bit higher cap rate or lower cost to the winner and the reason for that makes sense for BSR and just about everybody else who’s trading their shares on a public exchange, the REITs will get to a point where it doesn’t make sense to buy a 4.5 cap in Atlanta, if their stock is traded at 6.5% and their liquidity position is 30% and their debt-to-EBITDAA is 4%, they’re going to buy back more stock. So that’s what we’ve seen. Neck and neck races until the cap rate gets chased down to a transactional value. And then you see the BREIT and the publicly traded REIT back away and redeploy capital elsewhere, whether it’s redemptions or stock buybacks and the private capital deployer generally wins the transactions that are taking place right now.

Okay. Fair enough. And then just the last one, any update on the Aura 36Hundred project?

Well, that’s a good question. It should also telegraph while we executed a $50 million swap starting in October of 2024 for 2.25% adding our 1.45% cost or spread on top of that enables us to lock in about $50 million of debt at effectively 3.7%. I think indirectly, it goes without saying that our construction project continues to be rebuilt on time, on schedule and to our expectations. And we believe that’s going to underwrite any remaining cost and then some of that development a year from now to be placed on our balance sheet and begin producing accretive AFFO per unit. We’re pretty excited about that.

Okay. Great. That’s it for me. I will turn it back. Thanks.

Your next question comes from Himanshu Gupta with Scotiabank. Please go ahead.

Thank you and good afternoon. So, Dan, when you say like when with the blend, do you expect like new leasing spreads to be flat for the full year or do you now even see negative new leasing spreads for your portfolio?

Yeah. Susie, do you want to address that?

Yeah. Hi, Himanshu. That -- so -- blended, no, we don’t see things going flat or negative. In April right now, blended, we’re still -- we’ve got a 3.6% increase, which is similar to what we had in Q1. Right now, in some of our markets, we’ve seen very small declines, not significant but small as you’ve seen in -- for some of our new leases and we’re seeing those become less or uptick slightly in April as well. So I think that what we can say is that, certain markets, like Austin, we’ll have a small decline because of supply, which Dan will address shortly, but we’ve still got a lot to mark-to-market there based on our renewals as well. So that’s where we win in Austin. And we also are still pretty -- we’re very -- we’re reaffirming our guidance as well. So our attitude hasn’t changed from the last time we spoke to you in March regarding our revenue increases.

Yeah. And Himanshu, this is Dan. I think the -- there’s a couple of other points that from kind of a different perspective to drop under this topic. I think the first one is, when I look at BSR’s compound annual growth rate weighted by market in our portfolio and I look at it year-over-year on a look forward, 2023, 2024, 2025, 2026. To me, it sits around, I don’t know, 3.5% to 4% compounded on the organic revenue growth side. That’s organic revenue growth that we have yet to capture and that’s in addition to the mark-to-market that Susie’s referenced earlier in this call. That growth is going to continue to come and compound and I have a tough time finding just about anybody else with higher compound annual growth in BSR right now throughout the sector of habitual real estate, beyond multifamily, beyond manufactured housing and beyond SFR. So we’re pretty bullish on the future growth. Now as it relates to supply, we’ve been landlords a long time and we’ve been playing in these markets since back -- since before I was born. So we’re used to supply elevated areas and levels of supply. And I think what’s key, let’s isolate on Dallas and Houston for a second. When we look at some near-term supply, DFW projected supply as a percentage of the total suites in the market is sitting at about 3.4% this year. That’s what we’re seeing being delivered. Now the average supply in DFW since -- as a percentage of total inventory since 2015 is 3.5%. So DFW, while the number may be big, remember, we said last quarter, DFW grows by the population of Regina every year. While that number of unit deployment may be big, the percentage of total inventory is lower than the average, I think, in the last eight years. Houston’s annual supply is projected to be about -- our delivery is projected to be about 2.4% and that’s against a 3.2% average of deliveries in the market in Houston since 2015. Now let’s go over to Austin. Austin’s near-term annual supply as a percentage of total suites is expected to be a bit elevated this year and perhaps even next year at around 6% to 8% versus a 5% average since 2015. Now that supply is moving to Austin because everybody else in the country is moving to Austin. So the developers don’t build product under the expectation that it’s going to be empty. They don’t build it because it’s just there. They build it because people are moving there. When I look at population growth expectations for the next five years, Dallas and Austin are on the top of the list by number and percentage. And when I look at the two fastest-growing submarkets in the United States, Round Rock and Georgetown, that’s North Austin, are the two fastest-growing cities of north of 100,000 people in the United States of America. So it makes sense that we see some elevated supply, particularly up in North Austin and Round Rock in Georgetown. Now that new supply in Austin, the average asking rent or the average effective rent of that new supply delivered over the last 12 months is about $2,100 a month and that’s about, I’ll call it, $2.20 a square foot. Now when I compare that to BSR’s portfolio, the average rent per square foot of our Austin portfolio is about $1.81 a square foot a month. So that’s about 20% to 25% defense ability against new supply. The new supply has to generate high rents, much higher than BSR’s existing effective rents in our market. Now we’re not going to be immune to supply issues, but we feel like we’re pretty well set up to defend and smooth out any near-term slack that’s generated by deliveries in Austin over the course of 2023.

Thank you. Thank you for the color on the new supply. Maybe just a follow-up, and again, it’s a bigger picture, would you say like Austin was leading the charge on the upswing in terms of rent growth and now leading the charge on deceleration as well? I mean the outsized rent growth in Austin started like a few months before Dallas. So is it fair to say that Dallas will eventually catch up with Austin in terms of deceleration mode?

Yeah. Not necessarily. I think that Austin is a city of 2 million people and Houston is 9 million and Dallas is 9 million and Nashville is 2 million. And when you have smaller markets that are affordable that generate jobs and population growth in droves, it’s going to push rents faster, right? It didn’t -- I don’t really see any canary in the form of Austin on the deceleration side. And we didn’t really look at it as Austin was the precursor to a rent growth market. I think it just has to do with a smaller denominator in Austin relative to Dallas or Houston and relative to Miami. The same conditions are existing in Nashville. People continue -- supply and net migration and absorption continue to remarkably keep pace in Austin and Nashville, and a handful of cities of around 2 million to 2.5 million people. But the delivery of 20,000 units in those markets certainly does create, I would say, a larger impact [Technical Difficulty] people.

Right.

Thank you. Very good color there and I’ll turn it back.

[Operator Instructions] Your next question comes from Jimmy Shan with RBC Capital Markets. Please go ahead.

Hey. Thanks. Just a quick follow-up on Austin. Are we at a point where you’re starting to see concessions being offered? What are your thoughts there in terms of how that evolves over the next few months?

Sure. I want to remind everybody that we don’t use concessions and neither does any operator of stabilized departments of any note in the United States. We use a revenue management system. Susie gives a great -- I mean, she calls it, it’s like buying an airline ticket. The price changes every day based on supply and demand. The only people that are going to use concessions are going to be developers that are not operators that are trying to conduct quick lease ups. Now with that said, if I’m looking at RealPage’s numbers. So in other words, concessions have not been a material part of the operations of multifamily in our Texas markets for about really for the last five years or six years. And I started seeing them bleed away about 10 years ago in Houston, which was a heavy concession market. With all that said, if I’m looking at RealPage’s numbers right now in the first quarter, let’s take Austin. The average concession value was $62 against an effective rent of $1,600 a month. So the concession as a percentage of asking rent at 3.9%, you call that a week to two weeks if there are concessions in the market on average.

Yeah. Got it.

Now, Jimmy, we have seen that concession number bleed up in March just a little bit, but it’s still something that’s not material to our operations.

All right. That’s it for me. Thank you.

There are no further questions at this time. Please proceed.

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 2023 second quarter results in the summer. Thank you, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.