Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BSR Real Estate Investment Trust (BSRTF, Financial) increased its blended lease rate and maintained strong occupancy during Q3 2024.
- The company retired approximately $12 million of long-term debt, strengthening its balance sheet.
- BSRTF executed a $150 million swap to mitigate interest costs, with further interest savings expected from a $42 million forward swap.
- The board of trustees increased monthly distributions by 7.7%, reflecting cash flow growth and commitment to maximizing returns for unit holders.
- The Texas rental markets, where BSRTF operates, continue to show resilience with robust economic growth and population migration.
Negative Points
- Same community NOI decreased slightly due to increased property tax expenses and lower tax refunds.
- Weighted average occupancy was slightly below recent levels at 94.7%, indicating potential challenges in maintaining occupancy rates.
- FFO and AFFO per unit remained unchanged from last year, indicating limited growth in these financial metrics.
- The company did not acquire any new assets in Q3 2024, despite seeing increased opportunities, suggesting potential challenges in finding suitable investments.
- The Austin market remains challenging due to new supply, impacting rental rate growth and absorption rates.
Q & A Highlights
Q: Can you provide insights on the absorption of new supply in your markets and expectations for new lease growth?
A: Dan Oberste, CEO: Nationally, supply is peaking now, with absorption expected to outpace deliveries by early next year. In Texas, Houston peaked in Q1, Dallas in Q3, and Austin is peaking now. We expect Austin to recover by Q1 2025, with significant absorption and rate growth resuming in the latter half of 2025 and beyond.
Q: Regarding the Ora development, should we expect a cash flow drag during the lease-up phase?
A: Dan Oberste, CEO: There might be a slight cash flow drag in the short term as we consolidate the property. However, with 15% leased and 11% occupied, we anticipate it will start generating positive cash flow by mid-next year.
Q: What are the economic conditions for new developments to start again, and what is the average time to completion?
A: Dan Oberste, CEO: New developments require rents to be 25-30% higher than current levels due to high interest rates and extended completion times, now averaging 36 months. This has led to a significant reduction in new construction pipelines across our markets.
Q: What constitutes the right acquisition opportunity for BSR?
A: Dan Oberste, CEO: We are targeting new construction lease-ups, particularly suburban Class A properties with 50-80% occupancy. These offer cap rate expansion of 75-150 basis points from year one to year three, providing strong returns for our investors.
Q: Could lifting the SALT deduction cap impact the own versus rent decision in Texas?
A: Dan Oberste, CEO: This is likely a concern for the top 1% of earners and not a significant issue for the broader market. The high property taxes in Texas are more of a 1% problem.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
