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 Q4 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 a star followed by the number 2. Thank you. I would now like to turn the conference over to Dan Obersty, President and Chief Executive Officer of BSR REIT. Please go ahead, sir.

Thank you, Ludi, and good day, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the fourth quarter and year-ended December 31st, 2024. I'm joined on the call by Susie Rosenbaum, the REIT COO and Interim Chief Financial Officer. Susie has been doing double duty for a while now, so I'm very pleased to report the appointment of Tom Service as the REIT's new chief financial officer, effective next week. Tom joins us after 10 years at Wells Fargo, where he most recently served as an executive director in real estate, gaming, lodging, and leisure investment banking, and also worked in equity capital markets. Prior to his time at Wells Fargo, he worked at KPMG Corporate Finance as an investment banking analyst in healthcare and technology mergers and acquisitions. We welcome Tom and his family to our BSR team and look forward to working with him as we enter another exciting chapter of BSR's growth and evolution. I'll begin the call with an overview of our Q4 performance and highlights. Susie will then review the financials in detail and I'll conclude by discussing our business outlook. After that, we'll 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 March 5, 2025 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're not recognized measures and do not have standardized meaning 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. The fourth quarter featured challenging market dynamics that were consistent with the latter stages of the absorption of an unprecedented supply of new multifamily housing. Given this external environment, our financial and operating performance was in line with our expectations. While lease rates were down as expected, we maintained strong occupancy of 95.6% and retired another $4.5 million of long-term debt, bringing the total amount retired in 24 to $8.8 million. For the quarter, same community revenue was essentially flat compared to Q4 last year. Same community NOI decreased 2.6%, which was almost entirely attributable to an increase in property tax due to timing and treatment of tax refunds received during the back half of last year. And FFO and AFFO each declined by 2 cents per unit, reflecting this tax issue as well as the timing of the recognition of health insurance expenses. Given the external operating environment in Q4 that I described, these results were gratifying and attributable to the resilient BSR platform and the strong performance of our team. In addition, our results for the full year were in line with the guidance that we provided in November, with FFO and AFFO per unit right in the midpoint of their guidance ranges. Looking at the latest national supply numbers underlines the challenging conditions that were emerging from and the opportunities ahead. After two years in which new starts substantially outnumbered completions, the number of completions over the last 12 months has outnumbered starts by 262,000. As we get closer and closer to the full absorption of the 2022 and 2023 starts, conditions for rental increases are excellent. And according to national data from Colliers, Austin, Dallas, and Houston are ranked first, second, and fourth respectively in forecast declines in new apartment completions in 25 versus 24. At the same time, while new supply is drying up in our core Texas rental markets, robust economic growth and continued population migration in these MSAs continues unabated. So, as we come off the bottom of the new supply cycle in these markets, it's going to be an excellent time to be in acquisition mode. And as I indicated in our call last week, the pending sale of nine stabilized properties to Avalon Bay positions us to potentially complete approximately $200 million in acquisitions while still maintaining a debt-to-gross book value ratio of about 45%. That represents a lot of potential AFFO when the new assets are stabilized. I'm not going to dwell on these property sales today as we discussed them in detail just last week. I'll simply note that we believe the transaction will be highly beneficial for unit holders and position us to create a very significant value moving forward. If investors have any questions about them that we haven't addressed, I encourage you to reach out to our team. In December of 2024, construction was completed on Aura 3550, our new 238-unit apartment community in the Austin MSA. Despite the challenges in the Austin market, lease-up is proceeding well, and we expect the property to be stabilized in contributing to AFFO by early 26. And for the third year in a row, BSR was named one of the best places to work in multifamily and best places to work in multifamily for women at the Multifamily Innovation Awards held in December of 2024. We're proud of this achievement and recognize that a great workplace is fundamental to generating great results. In January, subsequent to the end of the quarter, we acquired the venue of Craig Ranch Apartments in McKinney, one of Dallas-Fort Worth's rapidly growing submarkets. It's a Class A property with 277 apartment units, and we see opportunities to enhance operating income from it. The purchase price was $61 million. As you know, this was our first notable acquisition in a long time. and it is evident that the market for transactions on high-quality properties in the Texas Triangle markets is ripening. Finally, we have continued to strengthen our balance sheet. During Q4, we took further action to mitigate interest costs through a $42 million interest rate swap and also extended $160 million of mortgage notes. And as I highlighted, we retired an additional $4.5 million in Q4 2024 with cash flow generated from operations. I will now invite Suzy to review our fourth quarter financial results in more detail. Suzy?

Thanks, Dan. Same community revenue decreased marginally in Q4 2024 to $42 million compared to $42.1 million in Q4 last year. The decline was primarily due to a decrease in the average rent per unit from $1,503 last year to $1,488 in Q4 2024. partially offset by a $0.2 million increase in other property income related to resident credit building services and utility reimbursements. Same community NOI decreased 2.6% to $21.9 million compared to $22.5 million in Q4 2023. This was primarily attributable to an increase in property tax expenses of $0.5 million due to higher refunds received in the same period last year, as well as slightly lower revenue. FFO in Q4 was $11.9 million, or $0.22 per unit, compared to $13.3 million, or $0.24 per unit, last year. The decrease reflected lower NMI and an increase of $0.5 million in G&A expenses due to the timing of recognition of health insurance expense. and a $0.1 million increase in finance costs. On a per-unit basis, FSO benefited from the repurchase and cancellation of approximately 3.5 million REIT units in 2023 under our NCIB programs. FSO in Q4 was $10.9 million, or 20 cents per unit, compared to $12.4 million, or 22 cents per unit, last year. The decrease reflected the lower FFO and a $0.1 million increase in maintenance capital expenditures. FFO per unit benefited from the buyback of units I referenced a moment ago. The REIT declared quarterly cash distributions of $0.14 per unit in Q4 compared with $0.13 last year, representing an FFO payout ratio of 68.9% in Q4 2024, and 58.3% in Q4, 2023. All distributions were classified as a return of capital. I'll now review our results for the 12 months in the December 31st, 2024. Same community revenue increased 0.4% in 2024 to 168.5 million compared to 167.8 million in 2023. The slight increase was primarily due to an increase of $0.6 million in other property income related to resident credit building services and utility reimbursements. Bank Community NOI increased 1.3% to $92.3 million from $91.1 million last year. This was attributable to the higher revenue as well as a decrease in real estate tax expense of $0.7 million due to higher refunds and a $0.1 million reduction in property insurance expenses. These factors were partially offset by higher renting expenses of $0.4 million associated with the cost of new services to generate additional income. These include items such as smart home technology and the resident credit building program. FFO in 2024 was $51.7 million, or $0.96 per unit. compared to $52.6 million, or $0.93 per unit, last year. The dollar value reduction compared to 2023 was primarily due to a $2 million increase in finance costs, partially offset by higher NOI. The increased finance costs reflected a higher average interest rate and an increase in total loans and borrowings due to draws in 2023 to fund the REITs unit buybacks, These repurchases resulted in a higher FFO per unit in 2024. AFFO in 2024 was $47.6 million, or $0.88 per unit, compared to $48.4 million, or $0.85 per unit, last year. The dollar value decrease reflected the lower FFO partially offset by a $0.2 million decrease in maintenance capital expenditures. ASFO per unit increased year over year due to our unit buybacks. The REIT declared quarterly cash distributions of 53.7 cents per unit in 2024 compared with 52 cents last year, representing an ASFO payout ratio of 60.3% in 2024 and 60.7% in 2023. All distributions were classified as a return of capital. Turning to our balance sheet. The REIT's debt to gross book value as of December 31, 2024, was 46.5%. Total liquidity was $136 million, including cash and cash equivalents of $8.7 million and $127.2 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 December 31st, we had total mortgage notes payable of $496 million, excluding the revolving credit facility, with a weighted average contractual interest rate of 3.5% and a weighted average term to maturity of 3.7 years. In aggregate, the mortgage notes payable and revolving credit facility totaled $787.5 million at year end, with a weighted average contractual interest rate of 3.8%. excluding the convertibles to ventures that were then outstanding, and 100% of our debt was fixed or economically hedged to fixed rates. As Dan highlighted, during the fourth quarter, on November 1st, we entered into a new interest rate swap of $42 million at a fixed interest rate of 3.13%, effective February 2nd, 2025, and maturing on February 1st, 2030, subject to the counterparty's optional early termination dates of February 2nd, 2026. These swaps have been a very useful tool to help us mitigate interest rate risk. Back in September, we extended 160 million of mortgage notes by one year to September 13th, 2025, with no other contractual changes. In December, we further extended these notes to December 11th, 2026, with no related contractual changes. As of December 31st, Our availability under the credit facility is sufficient to refinance the $48 million of mortgage debt maturing over the next 12 months. We are also considering other refinance options, including new mortgages. Subsequent to year-end, in early January, we redeemed all the issued and outstanding convertible debentures in the aggregate principal amount of $41.5 million, plus accrued and unpaid interest of $0.5 million. This will result in interest savings for the REIT. We funded the redemption withdrawals from the credit facility. Overall, as Dan highlighted, we retired $4.5 million in debt in the fourth quarter and $8.8 million in the full year 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?