BSR Real Estate Investment Trust

Good afternoon. My name is Ludi, and I will be your conference coordinator today. At this time, I would like to welcome everyone to the BSRV 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. If you would like to ask a question during this time, simply press a star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. Thank you. I would now like to turn the conference over to Dan Oversee, President and Chief Executive Officer of BSL REIT. Please go ahead, sir.

Thank you, Ludi, and good day, everyone. Welcome to BSL REIT's conference call to discuss our financial results for the second quarter ended June 30th, 2024. I'm joined on the call by Susie Rosenbaum, the REIT's COO and Interim Chief Financial Officer. I'll begin the call with an overview of our Q2 performance and highlights. Suzy 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, It could cause actual results to differ materially. Please refer to the cautionary statements on forward-looking information in our news release in 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 delivered this performance because our portfolio is uniquely positioned in the epicenter of the US 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 cents per unit, representing 56 cents per unit on an annualized basis. This is the second time we have increased unit holder distributions. having first done so in 2022. It highlights our commitment to maximizing total returns for our unit holders. 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. multifamily 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 multifamily 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 in rents. I will now invite Susie to review our second quarter financial results in more detail. Susie?

Thanks, Dan. Saints 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 30th, 2023 to $1,507 as of June 30th, 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 assessments related to the change in Texas tax legislation last year. FSO for Q2 2024 was 14.1 million or 26 cents per unit, an increase of 6.2% compared to 13.3 million or 23 cents 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 24 cents per unit compared to 11.5 million or 20 cents 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 ASFO 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 REITs debt to gross book value as of June 30th, 2024 was 46.7% or 44.4% excluding the convertible debentures. Total liquidity was 113.7 million, including cash and cash equivalent 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 30th, 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 end with a weighted average contractual interest rate of 3.6%, excluding the dementors and the construction loan. And 100% of our debt was fixed or economically hedged to fixed rate 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 30th at a contractual interest rate of 5%, maturing on September 30th, 2025, with a conversion price of $14.40 per unit. I would like to provide a quick update on our unit repurchasing program. As of June 30th, we have purchased and canceled more than 3.1 million units under our normal course 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 dates 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 14th, 2024. If exercised, the underlying swap would be effective as of July 1st, 2025, and an interest rate of 2.75% and would mature on July 1st, 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.