BSR Real Estate Investment Trust

Good morning. My name is Regina, and I will be your conference coordinator today. At this time, I would like to welcome everyone to the DSR REIT First Quarter 2026 Financial Results Conference Call. All lines have been placed on you to prevent any background noise. After management's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Spencer Andrews, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to BSR Reads Conference Call to discuss our financial results for the first quarter ending March 31, 2026. I'm joined on the call today by our CEO, Dan Oberspeed, our Chief Financial Officer, Tom Service, and our Chief Operating Officer, Susie Rosenbaum. who are all available to answer your questions after our prepared remarks. Before we begin, I want to remind listeners that certain statements made on this conference call about future events are forward-looking in nature. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially. In addition, we will reference certain non-GAAP financial measures that we believe are useful supplemental information about our financial performance. For more information, please refer to the cautionary statements on forward-looking information and a description of our non-GAAP financial measures in our news release and MD&A dated May 13, 2026. Dan, over to you. Thanks, Spencer.

We believe that the first quarter marks the beginning of a period of significant momentum for BSR REITs. Our same community NOI and NOI margins strengthened sequentially from the fourth quarter of 2025. And we've made progress in bringing our 2025 acquisition class to stabilization, including further lease up at the Ownsby, our August 2025 lease up acquisition. We also continue to ramp up our bulk internet and valet trash initiatives, two key drivers of organic growth. And externally, rental market dynamics shifted further in our favor. Recapping the first quarter, same community NOI increased 11% from Q4 last year due largely to the normalization of expenses, which had an outsized adverse impact on Q4 of last year. Same community weighted average occupancy ended the quarter at 94.3%, flat to the end of 2025. Same community blended rates improved 30 basis points in Q1 from Q4. And I would add that this trend continued in April. improving another 80 basis points versus Q1 results. Our retention rate was 59.8% at quarter end, a 30 basis point expansion from the end of 2025, and a significant increase from 56.9% a year earlier. Physical occupancy at our August 2025 lease up reached 73.1% at the end of March, up from 70.4% at the end of December. And importantly, We began the ramp up of bulk internet at five of our properties in earnest, which is already showing positive results in our other income line item. The results we posted last night reflect the exact momentum we spoke to last quarter and underlie the fundamental shift we see in our business. I will remind everyone that our December investor presentation laid out and provided transparency on our organic growth plans. Yesterday's results also reflect the very early innings of those returns. While there's still a lot of upside in each of the initiatives we laid out, I'm proud of the tangible progress we've made to date. Even more encouragingly, fundamentals continue to improve in our core markets. Tradeouts were once again improved year over year and have demonstrated largely positive momentum. Frankly, the months of May and June will tell us a lot more about the exact extent of the health of the multifamily market. But sitting here today, we're generally encouraged by the results to date. Given our hand-selected high-quality portfolio, our value-adding lease-up, and our operational enhancement initiatives, and a total absence of debt or swap maturities this year, we are in an ideal position to drive growth on a per-unit basis as market conditions steadily improve. As we always have, we'll keep focusing on what we can control and carefully allocate capital to its best use to deliver the strongest possible returns. I will now invite Tom to review our first quarter financial results in more detail. Tom?

Thanks, Dan. Our operational performance in the first quarter met our expectations, and as Dan highlighted, demonstrated substantial improvement on a sequential quarterly basis. While the pace of this quarter over quarter improvement will obviously slow, we expect this positive momentum to continue as we keep moving ahead with the lease up and operational enhancements that we have discussed at length. Beginning with leasing. Effective rates on new leases declined by 5.4% in the quarter, while renewals increased by 2.3% in the quarter, resulting in a blended rate reduction of 1.0%. That represented an improvement of 30 basis points in the blended rate compared to the fourth quarter. To put that number in more perspective, on a year-over-year basis, blended rates improved by 220 basis points. Similarly, our April 2026 rates improved improved 80 basis points relative to our April 2025 results. This, along with several other operational indicators, gives us confidence that rates are generally moving in a positive direction, certainly compared to last year's operating environment. Daily community revenue ultimately decreased by 1.6% compared to Q1 last year, primarily driven by the lower average occupancy and the lower average monthly in-place leases that I just spoke to. Lower rental income was partially offset by an increase in other property income of $0.2 million, driven by higher utility reimbursements and the beginning of our rollout bulk internet. Same community NOI for Q126 was $14.1 million, a 4.7% decrease from last year, but an 11% sequential increase from Q4. The year-over-year decline was attributable to the lower revenue I just described, an increase in utility expenses of $0.2 million, and higher overhead and administrative costs of $0.3 million related to our strategic decision to retain overhead. These factors were partially offset by a decrease in property insurance expenses of $0.2 million. Importantly, the sequential improvement was driven primarily by a normalization of the expense load in the first quarter relative to the confluence of anomalies we faced in the fourth quarter on the expense side. More directly, real estate taxes improved as our typical levels of refunds returned, improvements in turn and repair and maintenance costs driven by a higher retention flow-through, and lower administrative and utility expenses. A quick side note before moving on, and appreciating the quarter-over-quarter movement in our taxes was historically challenging to decipher. On our financials, we've sought to increase transparency in our MD&A this year via breaking out refunds as a separate line item in the disclosure package. This change will hopefully allow all stakeholders to better appreciate and explain the quarterly changes in this key figure. Below NOI, G&A expense increased by $0.4 million year-over-year due primarily to higher legal and professional fees, as well as payroll expenses. Sequentially, G&A was essentially flat. Finally, net finance costs declined by $1.2 million year-over-year, primarily related to the 2025 strategic disposition of assets. Overall, FFO in Q126 was up 29% to 18 cents per unit compared to 14 cents per unit in the fourth quarter. I'm happy to report that the 2025 asset rotations continue to gain momentum and are now accretive relative to our dispositions made during the year, despite our August lease-up acquisitions sitting at essentially break-even at only 73% physically occupied. The contribution of our results from the 2025 acquisitions cohort should only improve throughout the balance of 2026. The year-over-year decrease in FFO per unit was primarily driven by three items, higher borrowing costs of $0.03 per unit, lower same community results of $0.01 per unit, and higher GMA of $0.01 per unit. Sequentially, same community improvements added $0.03 per unit, and non-same community added nearly $0.02, slightly offset by $0.01 related to headwinds in borrowing costs. AMFO was $0.17 per unit for the first quarter, 55% higher than the $0.11 per unit in Q4. To state the obvious, the sequential and quarterly improvements are highly encouraging and demonstrate our momentum in driving organic growth. Moving to the balance sheet, the reset to growth book value as of March 31, 26, was 52% compared to 51.2% at the end of 2025. This amounts to $738 million of debt outstanding with a weighted average interest rate of 4.1% and a weighted average term to maturity of 3.7 years. Total liquidity was $67.3 million at quarter end, including cash and cash equivalents of $7.4 million and $59.9 million available under our revolving credit facility. And as usual, we have the ability to obtain additional liquidity by adding unencumbered properties to the current borrowing base of the facility. On March 10, 2026, we refinanced a $28 million mortgage onto the REIT's credit facility, and as a result, the REIT has no remaining 2026 maturities. Importantly, subsequent to quarter end, we locked in the REIT's cost of credit for the balance of 2026 beyond $175 million swath, which amended two previously outstanding swaths at a rate of 2.98%. And finally, as you're likely aware, we are reiterating our original 2026 earnings and same community portfolio guidance that we provided in March. It calls for full-year FFO per unit of 75 to 79 cents or 77 cents per unit at the midpoint and full-year AFFO of 68 to 74 cents per unit or 71 cents per unit at the midpoint. This guidance assumes 50 to 150 basis points of same community revenue growth 100 to 200 basis points of same community property operating expense and real estate tax growth amounting to zero to 100 basis points of same community NOI growth. We continue to expect our core real estate business to be healthy as we continue building revenue from our lease-up activity along with marginal additional overhead costs. We will update this guidance as needed throughout the year. I will now turn it back to Dan for his closing remarks.

Thanks, Tom. We are increasingly excited about our business outlook The asset rotations we completed last year, along with our subsequent stabilization efforts, have obviously caused volatility in our short-term financial performance. But they put us in an increasingly strong competitive position to benefit from positive rental market fundamentals. Obviously, the focus on the last couple of years has been on the increased multifamily apartment supply in the Texas Triangle. The absorption process persisted longer than we would have hoped, but here's what we're looking at now. After peeing in 2024, new apartment deliveries declined by 25% to 50% last year across Austin, Dallas, and Houston. In 2026, deliveries are projected to drop by a further 43% in Austin, nearly 30% in Dallas, and 7% in Houston. Another 40% decline is expected in Austin in 2027. There's minimal new product coming. and high development costs all but ensure that we won't get a surprising surge of new construction. Demand, meanwhile, continues to be very strong. Our three Texas markets have been among the leaders in supply absorption among all MSAs in the United States. Their economies are strong and housing is highly affordable, which has made them magnets for migrants from other states and other countries. Texas added more residents in 2025 than any other state. Population growth has been notably strong. in the age of the 20 to 34 cohort, which has the highest propensity to rent of any demographic. You'll recall that back in December, we laid out a plan to drive incremental organic growth in FFO per unit of approximately 13 cents to 22 cents from 2026 to 2028. That plan remains entirely on track. All of these initiatives are entirely independent of what happens in our broader rental markets. When you combine them with the anticipated turnaround in rental rates due to rapidly improving supply-demand fundamentals, we believe that we are in a position to drive very strong returns for unit holders. That concludes our prepared remarks this morning. Tom, Susie, and I would now be pleased to answer your questions. Please open the line for questions.

We will now begin the question and answer session. To ask a question, press star, then the number one on your telephone keypad. Please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question will come from the line of Jimmy Shan with RBC Capital Markets. Please go ahead.

Thanks. So just a question on the lease spreads. You know, the sequential improvement that you're seeing is Would you say that's more than the typical seasonal uptick that you'd see as you end the spring leasing season and actually seeing improvement in market rents? I guess that would be number one. And then two is sort of the retention rate. Did that sustain into April and move the expectation for the summer?

Yeah, hey, Jimmy. So first, let's talk about the tradeouts in April versus the end of Q1. You're right, the blended rate went up 80%. We think that is a true turn to seasonality. You can also, well, May thus far is holding up about the same. The second question that you had was about, what's your second question? Sorry. Okay. Oh, retention. Retention rate, yeah. By 60%, roughly, at the end of Q1, we're looking the same now, too. Why is that? It makes pretty less people are moving out to buy homes. The stats here are looking pretty good. It was about 11.6% at the end of Q1 compared to 12.1% in Q4, and it was 14% in Q1 of 2025. People, you know, if they can't afford to buy a home and either have to rent or want to continue to rent, right, they have several choices. They can incur the cost to move, or they can stay put if they like the services they're giving. I think that our teams, our operations teams, are really good at delivering excellent service, and people are choosing to stay with us.

Okay. Sorry, those stats that you just quoted, 11.6 versus 12.1, what was that again? That's the percentage of tenants moving out of buy homes?

Buy homes.

Okay. Got it. Okay. Thank you.

Our next question will come from the line of Brad Sturgis with Raymond James. Please go ahead.

Hey there. Just following on Jimmy's question there, it sounds like you're cautiously optimistic about sort of the demand trends you're seeing. Just how would things – how are things trending this year versus what you would have saw last year? And then, you know, just maybe a broader comment around which markets you're seeing kind of better demand trends in right now. It seems like it might be Dallas, given what you're doing on the rate side, but curious to hear your thoughts.

Hey, Brad. This is Dan. You know, I've seen a few of these leasing seasons and cycles in Texas in particular, and I would say the last two years were somewhat anomalies. So two years ago, everyone recalls, we had a massive spring leasing season throughout the sector, and we saw a significant amount of absorption, and it really gave everyone in the industry some real positive feelings about lease-ups. Now you move forward to last year. You had another strange thing happen, and you had really a buildup in January and February that looked to be a very promising leasing season. And I guess you can time it on the watch with the tariff day, whatever it's called in the U.S., but really just right after that, what's the name of it? Liberation Day. Liberation Day, I think is what they called it on Fox News. Right after that Liberation Day occurred, I think what we all saw throughout the sector was really a massive chilling effect on the leasing season, right? And we all saw what happened last year. I think the last two years were abnormal. We haven't seen leasing seasons like the last two years on different levels of the extreme. And I think you're right to characterize this as cautiously optimistic because what we're seeing right now, looks like a traditional leasing season. It looks like the leasing velocity, the asking rents, the effective rents, very predictable. You know, the 17.5% or so of our apartments that either renew or lease throughout this Q2, we see traditional and positive momentum there. So we don't see evidence of either extreme as of today. That's leaving us fairly cautiously optimistic about, I think, the path of our same-store portfolio, and I look forward to the rest of the year.

That's great. And I guess my other question would be, I really appreciate the breakdown on the real estate tax and, you know, the breakout of the refunds. Just as a reminder, when you put out the guidance ranges, how do you account for refunds within your guidance? Is that included, or would that, depending on how the refunds come in, that would be incremental changes? to the guidance?

Yeah, no, it's included, Brad. This is Tom. It's included in the guidance. Again, as we say often, real estate taxes in Texas are hand-to-hand combat every single year. When we're budgeting and thinking about our guidance at the beginning of the year, we really lean on our third-party experts, our consultants that help us litigate taxes and work on the refunds. and their assessment of where we think we're going to land, and then we use our 30 years of operating history to make a judgment call on what we believe is a realistic outcome and that is actionable, and we budget and guide accordingly. So the guidance reflects all of that.

Okay. Appreciate that. I'll turn it back.

Our next question comes from the line of Jonathan Kelcher with TD Cowan. Please go ahead.

Thank you. On the 13 to 22 cents that you guys expect to get over the next three years, how much of it or any of that was in Q1? And can you remind us what you expect for 2026 and 2027?

First, let's start with the non-same-store portfolio. It looks like we leased between 70 and 80 more units after Q4 and Q1, which gave us about $100,000 in additional revenue. Now, you've got to remember, that's not the fully loaded amount. Why? Because we're leasing over the quarter. So that should contribute a little over $300,000 for those additional units in Q2 and then in Q4. We also have to remember that we're going to continue leasing as we move forward throughout the year. The other piece of it is our August acquisition, which is in Lisa. We ended... the quarter at 73% physical occupancy, we expect that one at the latest by July to be physically stabilized. That's physically there. We still then will continue to burn off concessions, which is the second bite of the apple, so to speak. So that would be over the next year as well before that one gets to true stabilization. Also, bulk Internet. There you go. So we brought online the first five that we started in 2025. As I've said before, Q1, there's not a contribution really to revenue there because we're in the ramp-up period. However, by the end of the year, we would expect to have a net $400,000 in additional revenue in 2026 related to the bulk Internet projects. Now, as I also said during our last call, however, we're going to recognize a 70% of total realization for those who are bringing online this year, too, which is the remainder of the portfolio, in 2027, and then the tail of it in the first quarter of 2028. Okay.

Okay.

So it sounds like not a ton yet, and it's going to continue to build with the bigger portion, the biggest portion, I guess, coming on next year. Is that fair? Right. Okay. And then secondly, Dan, probably for you, just on capital recycling, are you seeing right now any opportunities to sell assets and redeploy into new opportunities?

Yeah, right now, Jonathan, we don't have anything in our guidance related to dispositions or acquisitions. I think my sense of the market is that, you know, we're seeing some transaction volume in our markets, you know, several billion dollars. But in speaking with the buyers and sellers, capital feels threatened. And lower transaction velocity makes sense. We kind of see this as transitory. and prefer to transact specifically on the sell side in markets where capital doesn't feel threatened and where transaction volume is heightened. So there's some read-throughs on some low caps, but the buyer pool is generally smaller, not institutional grade, and I think I'm going to blame this entirely on the volatility in credit spreads. If the buyer pool is leading, if the private buyer pool is leading on that acquisition front right now in our markets, Jonathan, then they're going to be more highly reliant on the interest rate curve. And I think we've seen it in all like 16 different shapes in the last two months. So what we've seen is we've seen a lot of evidence of transactions being placed on our properties, being placed on the contract and promising values. And then those – those transactions being thrown back by the market for one or more reasons, but they all lead to credit rates, credit spreads. So, you know, we've bought and sold in several different types of markets. When interest rate volatility is doing what it does in a market like this, it becomes a real popular excuse for a buyer to throw back a deal. And you see a lot more buyers enter the market that are more promoter-oriented, where they try to put property under contract, and then go raise capital behind it. And we found in our experience that a non-reliable buyer like that creates an uncertain transaction, and we just can't run our business in that environment, you know, for dispositions. Does that answer your question?

Yeah. I guess we need a calmer credit environment before volumes pick up. More or less. Right. Okay, thanks. I'll turn it back.

Our next question will come from the line of Dean Wilkinson with CIBC. Please go ahead.

Thank you. I just want to follow on Jonathan's question there. Dan, do you think that that reticence from the buyer is coming more from the equity side of things, or do you think that credit is starting to clamp down on them a little bit and maybe these were potentially, you know, sort of higher levered acquirers that just are not getting that access to credit, and, you know, you look at the 30-year, now piercing through 5, 10 is probably heading there, that it's more of a debt issue than an equity one?

Yeah, I think the debt begets the equity, Dean. I mean, if debt's pricing in at 530 and 540, and some of these markets for the leverage that the private buyer is trying to take out, I think you've got to be very convicted on the revenue growth to underwrite an acquisition at a negative leverage. So your equity can afford to be patient, but your credit partner is going to have a hard time levering at 80% advance rates on those acquisitions. And that's speaking specifically to just our observations of the private market and how it's acting right now. I think the other thing you're seeing is the mindset of the seller. Fortunately for our investors, we picked up our acquisitions and lease-ups in our 25 acquisition class. The mindset of those sellers right now is they understand there's a clear, distinctive line in value between a lease-up value and an occupied value. So we're seeing a lot of those developers pivot to, I think, completing their lease-ups before they're really actively and sincerely engaged in disposing. Now, naturally, we see the greatest benefit in buying a lease-up asset, but we see sellers that aren't necessarily interested. They want to hold on to that value as long as they can. So it's an interesting game of chicken you're seeing in the market for inciting a seller who might have the highest value. The buyer wants to generate income increases by buying lease-ups. The seller wants to hold on to the lease-up because they believe that the occupied asset is going to trade at a higher value. The seller probably walked into that deal higher levered to begin with and is just trying to recoup some of their capital that they placed on the deal from the outset. All that, to me, leads to sellers hanging on to lease sets a little bit longer and, I would say, potentially a less reliable private buyer pool than in Calmer Waters.

But not necessarily indicative of, say, a stressed seller, right?

No, not at this time. I mean, there's always a handful of stress sellers in just about any environment. Yeah. But I don't see, I mean, in our discussions with operators, I see them very patient and developers very patient. I'm sure there's probably a little bit of acrimony related to partnership behaviors, but nothing on the level of people picking up pitchforks and partnerships blowing up.

Not yet, anyway. All right. Thanks, Dan. Appreciate it.

Our next question comes from the line of Kyle Stanley with Dijardin. Please go ahead.

Thanks. Hi, everyone. Just going to your leasing spreads for the first quarter, obviously Austin looked like there was a pretty good improvement, but Dallas did look a little bit softer than the fourth quarter. Just curious if you can talk about the difference in dynamics between the two markets and what maybe drove that in Dallas.

Yeah, sure. So, look, supply in Dallas, particularly the northern sub-market, Frisco, McKinney, Prosper, and Salina, is still pretty tough. There is a lot of supply that still needs to be absorbed, and it will be because we still have a lot of people moving into these markets as well. But you've got lease-ups there that are still offering up to 10 free weeks concessions. with gift cards anywhere from $500 to $1,500. Now we continue to lease up our August acquisition, right? And we're offering maybe eight weeks free on only certain one and two bedroom floor plans. And we offer four weeks free on some of our three bedroom floor plans. With that, we're balancing rate, right? against physical occupancy as we continue to lease. We're excited about the momentum that we got at the end of the first quarter, and we continue to see happening right now, which is why I believe it will be physically stabilized by July. But we're also looking at the rates as well. We're comfortable with the physical occupancy between 94% and 96%, as we've said, and we tweaked the rates to fall within that range.

Okay, thank you for that. That was very helpful. As you look at the non-same property portfolio, excluding the owns B, it does look like you've had great success there and it's near stabilization. Something you've talked about in the past is the ability to see margin enhancement as that part of the portfolio becomes more stabilized. Where would the margins be today versus where could they end up as you start to turn over leases and get your second or third pick of the can on these?

Right. So, all right. So, if you take out the August acquisition, we're probably average physically occupied at about 94%. Once we burned off all concessions, we would figure the margins on those new properties would be around 60%.

Okay. Okay. Perfect. That's it for me. I will turn it back. Thank you very much.

Again, for any questions, press star 1. And our next question will come from the line of Suram Srinivas with ATB, Cormorant Capital Markets. Please go ahead.

Thank you, Rebecca. Good afternoon, guys, and thank you for the question. I did miss the initial part of the call, so my apologies. This has already been discussed. But just so you can look at occupancy in these markets and you see the ramp up. Obviously, you know, you best focus on occupancy through the winter quarters. But there's still, you know, a year-over-year gap in terms of where Saver's occupancy was and where it is right now. As you see the next couple of quarters play out, are you still comfortable in seeing that supply cliff drop off coming towards the end of this year and probably into 2020?

Yes. This is Dan. I think we're really comfortable. I mean, you know, we engaged an advisor, and I think you might have been there when we spoke to it in December. who, for example, walked through Austin and looked at the supply numbers in Austin and then physically walked through every asset that was listed as a delivery or in place or a construction start in the city of Austin. And their numbers, I'd say, more or less supported what you would see on CoStar. I think it was like 60 or 70 units off. So if that's step one, step two is you can kind of understand – I'll say down to the month, how long it takes to deliver a product from shovels in the ground to delivery. So we feel like we have a pretty good picture of construction and process on the supply side of the equation and when those units are going to be delivered, or in this particular case, when they have been delivered from 22 through 25. And then I think the other end is the demand equation. you know, the numbers on net employment growth continue to support, you know, our thesis. I know that we all underwrote probably a little bit less employment and population growth in Texas through 2030. Those numbers are fairly accurate. Those numbers have been out for 10 years, and they tend to be fairly accurate as well. And what we're seeing on the ground is that continuous flow of population, but it's in line with our expectations. So when you balance out the projects in place against the population growth, particularly in the 18 or the 20 to 24 category. It's like it really doesn't have to be that much more complicated. There's people coming in, households form. A percentage of those households are going to rent. A percentage of those renters are going to be new renters. There's a certain number of available units in the market and a certain number of expected residents that are going to be seeking new apartments in that market. and then you just kind of do some little addition and subtraction over a period of time, and you can extrapolate some absorption numbers. You know, I think we would all be hopeful that the rates would turn sooner, but the absorption picture has been pretty clear and rigid for the last two years. I haven't seen many surprises there.

That is a great call, Dan. Thank you. I'll be back.

This concludes that question and answer session. I'll hand the call back over to Dan for any closing comments.

Thank you, Regina. Thank you all. We look forward to seeing you in Nareit in early June for our investor presentations. And between now and then, if any of our investors would like a tour of our markets, please, you know where to find us. Please reach out to us. We're happy to tour you through our properties. Thank you, everyone, and have a good night.

This concludes our call today. Thank you again for joining. You may now disconnect.