Good afternoon. My name is Ludie, and I will be your conference coordinator today. At this time, I would like to welcome everyone to the BSR REIT Q2 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Dan Oberste, President and Chief Executive Officer of BSR REIT. Please go ahead, sir.

Thank you, Ludie, and good day, everyone. Welcome to BSR REIT’s conference call to discuss our financial results for the second quarter ended June 30, 2024. I’m joined on the call by Susie Rosenbaum, the REIT COO and Interim Chief Financial Officer. I’ll begin the call with an overview of our Q2 performance and highlights. 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 August 6, 2024 for more information. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings 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. We had a solid financial and operating performance in the second quarter. We generated continued organic growth on a per unit basis, while taking measures to further enhance our financial flexibility. For the quarter, Same Community revenue increased 0.4% compared to Q2 last year. Same Community NOI rose 4.6%. And FFO and AFFO per unit increased by 13% and 20%, respectively. Blended rental rates in the quarter increased by 0.3% over the prior leases, excluding short-term leases. Our weighted average occupancy at quarter end was 95.3%, consistent with last year. The results reflect the high quality of our portfolio and the continued resilience of our core Texas rental markets, driven by continued incredible economic and population growth. We deliver this performance because our portfolio is uniquely positioned in the epicenter of U.S. population and job growth. Though we have seen new deliveries take place in our markets, the absorption of this supply has exceeded our expectations. Dallas, for example, absorbed more apartments in the second quarter than over 30 of the top 50 markets in the U.S. absorb annually. Meanwhile, we have continued to strengthen our balance sheet. We took further action on interest rate swaps during the quarter that Susie will describe shortly and we retired $9.5 million of debt on our credit facility with cash flow generated from operations. Our AFFO payout ratio for the quarter was 54.5%, a significant reduction from 63.9% in Q2 last year. That takes us to the good news we announced last night. As a result of our positive outlook, our continued cash flow growth, and our low AFFO payout ratio. Our Board of Trustees has made the decision to increase our monthly distribution by 7.7% to $4.67 per unit, representing $0.56 per unit on an annualized basis. This is the second time we have increased unitholder distributions, having first done so in 2022. It highlights our commitment to maximizing total returns for our unitholders. Our Board is always reviewing our level of distribution in the context of our growth requirements and financial position, and this decision really underscores their confidence in our business. I believe that confidence is well-founded and our track record supports it. Finally, I want to provide a quick update on resident satisfaction. You may recall that in April we announced that we ranked second in online reputation score amongst U.S. multi-family REITs for 2023. Our ORA ranking has been among the highest in our peer group year-after-year, reflecting positive feedback from our residents and online reviews of our properties. I am happy to report that in July of 2024, we saw the most positive reviews for a single month in the history of our company. We counted 233 positive online reviews, which is a 33% improvement from the next highest monthly level. 95% of our July property reviews were positive and our average Google score is now at 4.5 out of 5, compared to a multi-family industry average of 3.7. I would note, rather importantly, that we have never used a third-party agency to try to influence our online reviews. This highlights the tremendous job that our team is doing at the property level. They are extremely responsive to the needs of our residents and I want to publicly congratulate them. Positive online reviews are very important in our business. They help us maintain strong occupancy, increase leads and drive growth and rents. I will now invite Susie to review our second quarter financial results in more detail. Susie?

Thanks, Dan. Same Community revenue increased 0.4% in Q2 2024 to $42.2 million, compared to $42 million in Q2 last year. The improvement reflected a slight increase in average rental rates from $1,501 per apartment unit as of June 30, 2023 to $1,507 as of June 30, 2024. Same Community NOI increased 4.6% to $24.1 million, compared to $23 million in Q2 last year, reflecting the higher revenue, a reduction of $0.1 million in property operating expenses and a reduction of $0.7 million in real estate taxes. The lower real estate taxes were primarily due to an increase of $0.5 million in tax refunds received during the quarter and a $0.2 million reduction in real estate tax assessment related to the change in Texas tax legislation last year. FFO for Q2 2024 was $14.1 million or $0.26 per unit, an increase of 6.2%, compared to $13.3 million or $0.23 per unit last year. The increase reflected the higher NOI partially offset by a $0.3 million increase in interest costs. The repurchase of approximately 3.5 million units during 2023 also positively impacted FFO per unit this year. FFO for Q2 2024 increased 10.3% to $12.7 million or $0.24 per unit, compared to $11.5 million or $0.20 per unit in Q2 last year. The improvement was due to the higher FFO and a reduction of $0.4 million in maintenance capital expenditures due to roof replacements and balcony restoration performed in Q2 last year. The REIT paid quarterly cash distributions of $0.13 per unit in Q2 of both years representing an AFFO payout ratio of 54.5% in Q2 2024 and 63.9% in Q2 2023. All distributions were classified as a return of capital. Turning to our balance sheet, the REIT debt to gross book value as of June 30, 2024 was 46.7%, or 44.4% excluding the convertible debentures. Total liquidity was $113.7 million, including cash and cash equivalents of $12.4 million and $101.3 million available under our revolving credit facility. We have the ability to obtain additional liquidity by adding properties to the current borrowing base of the facility. As of June 30, we had total mortgage notes payable of $458.4 million with a weighted average contractual interest rate of 3.6% and a weighted average term to maturity of 3.9 years. Those figures exclude the credit facility and a construction loan for an investment property under development. In aggregate, the mortgage notes payable and revolving credit facility totaled $769.9 million at quarter ends with a weighted average contractual interest rate of 3.6%, excluding the debentures and the construction loan. And 100% of our debt was fixed or economically hedged to fixed rates at a weighted average contractual interest rate of 3.6%, again, excluding the construction loan. The outstanding convertible debentures were valued at $40.3 million as of June 30 at a contractual interest rate of 5%, maturing on September 30, 2025, with a conversion price of $1,440 per unit. I would like to provide a quick update on our unit repurchasing program. As of June 30, we have purchased and canceled more than 3.1 million units under our normal force issuer bid and automatic share purchase plan at an average price of $10.65 per unit. The number of units we have repurchased as of June 30th is close to the maximum allowable under the current NCIB. We see these repurchases as a highly attractive use of capital. I’ll now review our debt management activities during the quarter. As Dan noted, we took steps to expand our financial flexibility. On May 15th, we amended our 3.54% $60 million interest rate swap by extending the maturity and optional counterparty termination date by approximately one year each at a revised fixed rate of 3.48%. On June 18th, we blended two of our swaps into a new $105 million swap at an interest rate of 3.274% and also extended the maturity and optional counterparty termination date by approximately one year each. Finally, on June 14th, we entered into a swaption, essentially an option to purchase a swap. It’s a 90-day, $105 million swaption at a cash premium received of $98,000, exercisable by the counterparty on September 14, 2024. If exercised, the underlying swap would be effective as of July 1, 2025 at an interest rate of 2.75% and would mature on July 1, 2031. Overall, we’ve retired 9.5 million of debt on our credit facility during the quarter with cash flow generated from operations. We will continue to carefully manage our debt with a focus on maximizing our flexibility. I will now turn it back over to Dan for closing comments. Dan?

Thanks, Susie. We’re as confident as ever that our business outlook is highly positive. Every statistic we see points to strong population growth in our core Texas Triangle markets. For instance, the recent U.S. Census Bureau figures showed that Dallas and Houston ranked first and second in population growth from July of 2022 to July of 2023 among all U.S. Metro areas. The total growth exceeded 150,000 people in the Dallas-Fort Worth-Arlington area and was nearly 140,000 people in the Houston-Pasadena-Woodlands area. That was more than double any other MSA. And the three U.S. counties with the fastest population growth in the country were Harris, Collin, and Montgomery, each of which are in the Dallas or Houston metro areas. Not to be outshined, Austin, Texas job growth since the COVID pandemic exceeds 18% or nearly 3 times the national average. People flock to Texas due to its strong job creation and economic growth. The business-friendly environment continues to attract major corporate relocation. Just last week, for example, Chevron Corporation, the California-based oil business born there 145 years ago, announced that its relocating its headquarters from San Ramon, California, to Houston. As a result of this ecosystem supporting continuous population and job growth, the new apartment supply that started coming on stream continues to be absorbed. While we expect continued elevated supply through year-end, we see new deliveries dropping off by over 40% through 2026. As a result, our suburban Class A communities stand to outperform in the coming years. In the meantime, our business model has proved to be resilient, even in the more challenging near-term environment. This resilience speaks to the strength of our property portfolio and the BSR team. We are equipped to outperform regardless of the external market conditions. The decision by our trustees to increase distributions reflects their confidence in our performance and in the strong outlook for our business. I would now like to review our guidance for 2024, which we updated yesterday. We have made a slight reduction to the midpoint of our revenue growth forecast, while also lowering our outlook for property operating expenses and real estate taxes. We now anticipate a decline in these costs due to additional real estate tax refunds. Accordingly, there is no change to our outlook for Same Community NOI growth and our forecasts for FFO and AFFO per unit have increased due to the reduction in finance costs, partially offset by a decline in NOI related to a delay in the completion of property and development. We currently expect growth in Same Community revenue of up to 2%, growth in Same Community NOI of 1% to 3%, a reduction of property operating expenses and real estate taxes of up to 2%, FFO per unit of $0.93 to $0.99, compared to $0.93 in 2023, and AFFO per unit of $0.85 to $0.91, compared to $0.85 in 2023. We continue to carefully surveil our markets for growth opportunities. As you know, we simply weren’t seeing attractive pricing for a couple of years in the elevated interest rate environment, but we have seen some positive movement in the acquisition spreads this year, and with the rate tightening cycle now seemingly over, we are optimistic that we’ll identify attractive external growth opportunities in the coming months. As always, we are only interested in opportunities that are accretive on a per unit basis. With our strong liquidity, conservative payout ratio and 100% of our interest rate exposure effectively hedged, we are well positioned to continue pursuing growth opportunities while paying stable distributions. That concludes our prepared remarks this morning. Susie and I would now be pleased to answer your questions. We’d like to respect everyone’s time and complete our call within an hour while giving all of our analysts the opportunity to ask a question. So please limit your initial questions to one and then rejoin the queue if you have additional items to discuss. If we don’t have time to address everything, we can respond to additional questions by phone or email afterwards. Ludie, please open the line.

Thank you. [Operator Instructions] Your first question comes from the line of Sairam Srinivas with Cormark Securities. Please go ahead.

Thank you, Operator. Good afternoon, Dan and Susie. Looking at your comments from the past couple of calls on absorption in each of your markets, as well as, Dan, your comments read a couple of minutes ago, can you give a bit of color in terms of the absorption you’re seeing in each of your markets, as well as, the expected supply and essentially the ground level fundamentals in each of your markets? Thank you.

Yeah. Sure, Sai. Thanks for the question. And it -- I love that we’re pivoting off of supply and moving into the absorption part of the equation. So let’s take a bit -- let’s take just a broader look on supply and absorption from a past, present and future standpoint. In the past, you know, beginning in the second quarter of 2021 or the second quarter of 2022, I know that there was a concern about overall market supply and deliveries. And BSR’s focus on defense and cash flow management since 2022 is well depicted in the Q2 earnings that we dropped last night. And our investors were able to enjoy an investment situated in the epicenter of population growth with, I would say, the numbers speak for themselves, a 4% year-over-year NOI growth, 13% FFO per unit growth, 20% cash flow growth. And that’s how I think BSR addressed historical supply and deliveries from 2022 to probably to the beginning of 2024. That’s what I would characterize as proper balance sheet management, the execution of effective hedging devices. And our view on the hedging devices at that time, Sai, was, you can’t keep trouble from visiting, but you don’t have to give it a chair. So we fixed 100% of our balance sheet and it enabled us to retain a significant amount of our -- of the rents we were collecting in our -- and expand our NOI margin and just operate our properties while we saw the supply come in. And again, the numbers speak for themselves. So let’s go to the -- kind of to the present situation of supply. I think overall we are emerging as a country and as in the Sunbelt from a peak delivery scenario where we are seeing peak deliveries in the first quarter and second quarter of 2024 in Dallas and Houston and Austin, respectively. And really moving into the present on demand drivers, nothing’s really changed as far as demand drivers. Population growth continued to outpace historical averages in Dallas, Austin and Houston since 2022, and that’s enabled us to -- those three markets to absorb probably more than their fair share of deliveries. And that absorption in the present continues to, I would say, impress the market. ‘ And if you dig into that and you listen to some of the prepared remarks, I think what’s critical there is that, Dallas absorbed more properties or more units in the second quarter than 30 or 34 of the top MSAs in the country absorb in a year. That if you had guessed in those absorption numbers that the 257,000 units absorbed nationally year-to-date in 2024, that the Sunbelt would lead the nation in those absorption during that period, you’d be correct. The region garnered about 60% of U.S. apartment demand in the first half in the last 12 months of the year. So I think the present bodes well, and our markets continue to kind of outhit their absorption coverage relative to the nation. Kind of makes a lot of sense. A lot of people are moving into our cities, and a lot of apartments and housing needs to be built. Now if we look out to the future, you know, I think Austin will be a challenging market for us for the next, oh, couple quarters as we continue to see the peak supply in the second quarter be absorbed by the market. We’re fortunate in that our portfolio situation in Dallas, I think the two or three markets that we have exposed to some acute deliveries in Austin are Cedar Park, Buda, and Round Rock. Now those three submarkets, Round Rock and Georgetown for that, and Buda, are three and four of the fastest growing cities in the United States. So we like the demand equation balancing out the elevated deliveries in Austin in particular. Probably sooner than people expect, but with that said, the next two quarters are still going to be challenging as we continue to play defense. What we are excited about in the near- and long-term future is Houston particularly, but Houston and Dallas, the demand drivers in those two markets are almost unfathomable. You really break down some of the Houston numbers on a look forward. Houston is expected to deliver about 1.5% of its inventory annually through 2029, Sai, and that’s about half the pace that Houston has delivered as a percentage of its stock since I’d say 2000, in the last 20 years. So not only did they slowdown in the 2020 to 2024 cycle of deliveries relative to what they’re used to, but they continue to slow down. And we’re seeing expected deliveries in Houston kind of just fall off of a cliff, and the cliff wasn’t that high to begin with, 49% drop in deliveries next year. I think what’s interesting in Houston to compare the deliveries to the demand function is that Houston is forecasted to average about one apartment unit completed for every 13 new residents of population growth that it experiences over the next four or five years. So fundamentally, Houston is a fantastic market to be invested in, and I think our investors are going to be happy that 25% of their NOI is generated out of Houston. When we look over at Dallas, the demand part of the equation is apparent. I mean, three of the nation’s fastest growing counties are in the DFW Metro. That’s Collin, Denton and Tarrant. We have properties in each of those counties. Dallas, again, leads the nation in population growth. And Dallas has added more jobs since February of 2020 than any other metro in the United States, according to the U.S. Bureau of Labor Statistics and RealPage. Houston ranks number two and Austin number four, by the way. So when we look at the future of this portfolio concentration, the future is bright. It’s driven by BSR just getting in the way of population growth and acquiring some of the nicest Class A suburban situated properties in these submarkets of population growth. We managed effectively in the past. The absorption is going to continue. We probably expect some seasonality to occur through the end of the year. Austin looks to be challenging for a couple of quarters. But Austin’s a Formula One car. It’s going to be challenging until it goes back and regains its positioning as the best department market in the country from 2025 to 2027 and that’s just apparent to us right now. Houston and Dallas are going to continue to hit a solid double and triple every quarter. I look forward from here on out.

That’s amazing, Dan. I’ll jump back. Thank you.

And your next question comes from the line of David Chrystal with Ventum Capital Markets. Please go ahead.

Thanks. Good afternoon, guys. Just quickly on the NOI margin, there were a few, obviously some recurring expense savings, but some one-time items, and Dan, I think you alluded that there may be more to come. But can you give a run rate NOI margin going forward, excluding one-time property tax recoveries or any other one-time items that might be in there?

Hi, David. Yeah. Sure. So, just to be clear, we get property tax refunds every single year. This year, however, we got more than we had originally anticipated. So it’s always going to be lumpy. It’s not something you can model to be straight line quarter-over-quarter. However, I would say total real estate taxes for 2024, we’re predicting that to end at about $26.4 million. So take what we’ve already reported and plug the difference when it comes to what’s included in our guidance for 2024. Margins, so, yeah, margins were pretty high in the second quarter. Again, that’s primarily related to the lumpiness of some of the tax refunds. I would say it would be around 55% for the entire year.

Okay. Perfect. That’s helpful. Thanks.

Sure.

And your next question comes from the Dean Wilkinson with CIBC. Please go ahead.

Thanks. Good afternoon, Dan and Susie. Dan, you’re probably familiar with the transaction that got announced between EQR and Blackstone, quite sizable. Good chunk of that is in Dallas. If my math’s right, and I like to think it is, that transaction happened at about $100,000 an apartment over the implied value where you’re trading now. Are you familiar with those assets? How would they compare to what you own in DFW, just in terms of age, rents, that sort of thing? Just trying to get a sense of the delta between what’s going on in the private market and what we’re seeing in the discounted capital markets?

Sure, Dean. Those properties on average were about eight years old. I don’t really have a read through of the specifics of the deal. I think it was announced this morning. So, it’s at about $270,000 a suite, which is quite favorable to our implied value of a suite right now. The read through on cap rate, I think, that equity will have to talk about that. My guess would be as good as yours right now. It’s nothing but a positive sign on top of LNR, Quartera [ph] portfolio, the Starwood transaction. Even going back to Tricon and AIMCO, you really have $10 billion to $20 billion with a B of apartment transactions that have taken place in the last six months at, gosh, two commas higher per unit, or a comma higher per unit than BSR is being valued at right now. Those comps are apparent. They’re taking place every day. The portfolios are being written about, but the one-offs correspond. I’d say it’s not uncommon for us to see $225,000 to $263,000 a suite trade in our markets. That’s, again, quite favorable to the $150,000 per unit to $165,000 per unit that you’re seeing BSR trade at right now.

Yeah. Absolutely. Great. I appreciate the call. Thanks, Dan.

Your next question comes from the line of Jonathan Kelcher with TD Cowen. Please go ahead.

Thanks. Good afternoon. Just on the blended rents, it was nice to see them turn positive in the quarter and increase a little further in July. I guess I want to tie this into the distribution bump. Would it be fair to say that you expect the blended rents to keep increasing and start accelerating as we get into 2025?

Yeah. Jonathan, I will say, I can certainly tell you what I’m seeing right now in August and September. For our renewals, they’ve been going out at 3.1% for August and September, where about half of them have already been accepted for August, and I think a little over 30% for September. So that looks good. We’re headed in the right direction with a slight uptick because that’s, again, slightly ahead of what we even reported for July. The idea is that, as Dan spoke about, as the supply is absorbed, then rates will continue to drift up and we expect to start seeing that in 2025, and of course, 2026.

Okay. And then what about effective new leases, effective new lease rates?

Right. So, those have continued to be negative, but as you can see, that gap is closing even more as where July looked better than what we had in Q2.

Okay. And then the trend is favorable on that as well? Are you expecting to be in August, September?

We could have some seasonality, right? I mean, this is the -- this is -- leasing is always stronger in the summer, but we expect the overall blended rate to continue to be positive as it has been for July…

Okay.

…Q2, July, and what we’re seeing in August.

Okay. Thanks. I’ll turn it back.

Thank you. And your next question comes from the line of Mike Markidis with BMO Capital Markets. Please go ahead.

Hi. Thank you. Good afternoon. Just thinking about, you’ve had a lot of good fortune and probably good work from your tax assistance people that you have working for you on the OpEx side this year. As we normalize in 2025, what would you think about as being a decent range for OpEx growth to think about next year?

So, for OpEx growth for 2025, okay, well, first of all, we have to talk about insurance. That is -- that -- we actually had a very favorable renewal, and so that piece, which was blended into our guidance last quarter, certainly brought our operating expenses down a bit. Overall, though, I would expect, with that insurance decrease already blended in, for them to be slightly higher just due to timing in the second half of the year at about $25.4 million overall, excluding real estate taxes.

So -- excuse me, are you talking about the second half of this year or are we talking about next year?

I’m talking about this year.

Okay. And as we go into 2025, like, how should we be thinking about OpEx growth just overall holistically?

Mike, this is Dan. So, we don’t have any read-through on our taxing authority’s estimate of their tax values for our properties next year and we probably won’t have any accurate intel until we take a look at our budgets and get closer to guidance for the year. We -- as we kind of sharpen our pencil on next year’s OpEx growth or tax growth or declines or insurance growth declines, we’ll be sure and let the market know about that, but it’s probably too soon to tell on 2025 OpEx growth assumptions.

Okay. Thank you very much.

And your next question comes from the line of…

Good bye.

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

Hey there. My question relates to the balance sheet and the interest rate swaps you have in place. Obviously, you’ve been starting to pursue kind of blend and extend and even enter into swaption. How do you think about that strategy going forward as you look at some of the other interest rate swaps in place that might have counterparty cancellation options? Would you expect to continue to be active in being proactive on that front? And I guess the second part of the question is, if so, how would that potentially impact your financing costs run rate going forward?

Yeah. Sure. That’s a good question, Brad. And I think you saw the REIT execute a bit of its future strategy through the quarter and subsequent -- and the subsequent highlights. We were called out of a swap in late June, and we rolled right into a new swap the following day in July of 2024. Those -- that execution was assumed in our original guidance, and in that case, we would have executed that forward swap about a year ago or so. The next thing you saw us do through the quarter is execute a swaption at 2.75%. But if called into that swap, we would roll out of a handful of swaps and right into that 2.75% swap, which would actually effectively lower our interest carry on that notional amount of debt. So really what we’re doing now is continuing to work on 2025 and 2026 interest rate hedges. And we start with, is the swap amount reasonable versus expectations of short-term rates? Our view of reasonableness on short-term rates is around 2.5% to 3%. If we’re able to fix our credit costs in that range, we’ll try to execute that. If we don’t see that availability, then we’ll probably kind of -- we do have the luxury with an incredible amount of debt hedged, we’ll probably allow the market to come to us, whether it’s short-term floating or opportunities of fixed hedging. But we feel pretty comfortable with our 3.6% effective rate right now and we don’t think that that rate will be too disruptive to our business plans over the course of the next two years.

Perfect. Thanks. I’ll turn it back.

And your next question comes from the line of Kyle Stanley with Desjardins. Please go ahead.

Thanks. Good afternoon, guys. Dan, you gave a lot of good color on the outlook for the market. I’m just wondering, you highlighted yourself demand has been exceptionally strong year-to-date. Do you think there’s any risk of, some of the demand having been pulled forward into the first half of the year, just maybe with a softer economic outlook starting to take hold or do you -- would you say that, over the next kind of six months to 12 months, shorter investment horizon, you’d expect household formation to be consistent with the trends we’ve seen?

Yeah. So, I mean, I’ll start out with a little bit of the macro, Kyle, and Susie can talk about what we’re -- what our operators are seeing on the ground in the short-term. So I think, it’s possible that, I mean, we have seen a return to seasonality, it’s possible that this year’s absorption is front-end loaded. But just, we aren’t seeing any less demand currently. I mean, and I’m sure that Twitter and Chevron relocating to our markets last week shouldn’t really hurt absorption or anything, but do quite the opposite. So, you saw incredible absorption in the first half of the year. We’re not really seeing anything that causes that, causes us to think it’s going to slow down as we move into the second half of the year and next year, but it’s possible. Susie?

Yeah. I mean, our trade-offs are looking good. So, at this point, I mean, I think the idea is for the remainder of this year is to continue to be able to hold on to the rates that we have, maybe upticking slightly as we’ve seen, with occupancy remaining around 95%.

Okay. That sounds pretty compelling. I will turn it back. Thank you.

And your next question comes from the line of Jimmy Shan with RBC Capital Markets. Please go ahead.

Thanks. Just to follow up on the lease spreads in Austin in particular. Do you think -- Dan, do you think we’ve seen the worst impact of the new supply on the rent spreads in Austin? And I was just curious as to maybe what does the new lease spread look like in July in Austin?

So I can start with that, Susie, if you like, or would you like to take that?

Yeah. Go ahead. You -- yeah. No. Go ahead and I’ll get the list.

No. I think that’s a fantastic question. I think we’ll probably benefit on a heretofore look forward on the denominator. So, the foregone lease kind of already receiving some of the pain in Austin of kind of contracted rates. So I think that will mute any lease-over-lease variance from a percentage standpoint that we’ve probably depicted in the last 12 months. But with that said, I think generally -- we generally think the Austin market is going to continue to be challenging. The denominator might be fixed a bit and might be helpful for us in successive quarters beginning in 2025. But there’s still a lot of apartments that need to be absorbed in Austin, Jimmy. And I don’t think we’re -- I think we’re probably still in a plateau position in Austin, similar to what we experienced in Dallas last year. And Susie can probably speak in more detail.

Yeah.

We’re seeing on the street right now.

Yeah. Right. So, yeah, we so the Austin, the effective new lease rate growth was a negative 6.2% for the second quarter. But in July, it got considerably better at negative 3.8%. So some of that that gap is shrinking and we can see that continuing again with our slight uptick in blended rates in August as well. So I think Dan just said it the correct way. They’re still negative. It’s still tough there. But it’s getting easier day-by-day.

Great. Thank you.

Your next question comes from the line of Matt Kornack with National Bank Financial. Please go ahead.

Hey, guys. Sorry to be boring here. But just to go back to Brad’s question on the swap swaptions. If I look at the income statement disclosure, like it looks like your kind of interest rates ex the swaps would be about 5.5%. But you’re getting down to 3.6% with the swaps. Like, should we gravitate to that 5.5% over time or given where interest rates have gone recently? Is that now a lower number? I’m just trying to understand kind of how as these swaps mature, the way that average interest rate will move over a period of time?

Well, Matt, I think, that’s all fundamentally based on the movement of SOFR and short-term Central Bank movement activities. Now, when we think about interest carry and future interest assumptions, whether we should hedge or not, one of the many tools that we use is the Fed dot plot and the expectation of short term rates moving into 2025, 2026 and 2027. I think our existing swaps give us a good 18-month a cushion of hedge debt. And beyond that, I would just point to the Fed expectation and what the short-term rates and corresponding SOFR would be, call it, in the fourth quarter of 2025, moving all the way into the third quarter of 2026. I wish that I knew what to tell you on how to reset the interest carry. But I would say, given the math and the expectations that the market’s pricing in and then the Fed governors are voting on on future short term rates, the common held belief is a 2.5% to 3% real rate of interest for short-term that we’re a little bit tight right now at 5.25%. BSR has played good defense, fixing its hedge, its interest costs at about 3.6% in that environment. As we move down, if the market does indeed move short-term rates down as expected, then you should expect BSR to naturally capital allocate to eliminate some of its hedge rate exposure and enjoy oftentimes a lower rate than a than a swapped rate as we roll out of these swaps. The current curve would suggest that and it’s nothing but positive for a two-year and three-year underwriting on our models.

And maybe just quickly on a follow up, the 2.75% that you got, what would be the spread on top of that to get to kind of the all in interest cost?

Yeah. Sure. I think it depends on how we would or where we would place it. But you can average 1.25% to 1.60% on that spread.

Okay. That’s helpful. Thanks, guys.

And our next question comes from the line of Himanshu Gupta with Scotiabank. Please go ahead.

Thank you and good afternoon. So my question is also on new leasing spreads. Obviously, it has improved in July compared to Q2. Do you have a sense when new leasing spreads for Austin and Dallas can turn flat? Or you put it this way, what needs to happen for them to -- move into kind of flat territory?

For the new leasing spreads, I think, and Susie’s a lot smarter at this than I am, but I think from a very high level, continued absorption is going to drive the -- just the number of units that residents have the ability to lease. Continued payroll increases and median income increases are going to drive the ability and affordability in the market, allowing us to play offense in our markets. And then, as I mentioned a second ago, Himanshu, the denominator is, as far as the foregone lease expiration, having already experienced a bit of that plateauing that we’ve seen in the last two years in those markets, should assist us on a look forward from a percentage increase to kind of get those rates positive. Susie, am I misstating anything or would you like to add any more color there?

That’s right. And it just goes along with what I was saying earlier in Austin. Like for Q2, the blended rate was a negative 2.3%, and in July, it moved to a negative 1.7% blended overall.

That’s right. Yeah. And was that for Austin or what about for Dallas? Like what was the new leasing spread in July for Dallas?

Dallas? Got it. Okay. Yeah. So, in Dallas, let’s see, we were -- the effective new leases were a negative 4.1%, as we’ve reported for Q2, and they moved to a negative 3% in July. We also, though, have our renewal spread starting to shrink again as well. And so renewals in Dallas, of course, were 3.1% in the second quarter and they moved to 0.6% in July. Therefore, overall in July, we were at a negative 1.1% for Dallas blended overall.

All right. Thank you. Very helpful. I will turn back.

Thank you. And there are no further questions at this time. I’d like to turn it back to Dan Oberste for closing remarks.

Thanks, Ludie. That concludes our call today. Thank you all for joining us. We look forward to speaking with you again in the fall when we report our third quarter results and we hope you enjoy the rest of the summer. Thanks, all.

Thank you, presenters. And ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect.