Release Date: March 06, 2025
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) maintained a strong occupancy rate of 95.6% despite challenging market conditions.
- The company retired $4.5 million of long-term debt in Q4, totaling $8.8 million for the year, strengthening its balance sheet.
- BSRTF completed construction on a new 238-unit apartment community in Austin, with lease-up proceeding well.
- The REIT was named one of the best places to work in multi-family and for women, highlighting a strong workplace culture.
- BSRTF has substantial liquidity with $136 million available, positioning it well for future acquisitions.
Negative Points
- Same community NOI decreased by 2.6% due to increased property tax expenses and lower revenue.
- FFO and AFFO per unit declined by $0.02, impacted by tax issues and health insurance expense timing.
- Lease rates were down, reflecting the challenging external environment and increased supply.
- Real estate taxes are expected to grow by 6% in 2025, impacting operating expenses.
- The company did not provide financial guidance for 2025 due to short-term variability and ongoing property sales.
Q & A Highlights
Q: Has the focus on occupancy continued into the first quarter, and how does it compare to the 95.6% occupancy level at year-end?
A: Daniel Oberste, CEO, explained that there is a seasonality component to Q4, which is typically a low leasing period. The strategy was to increase occupancy during this time to better position for higher leasing months from May through August. This approach allows BSR to attack rates from a position of strength.
Q: How were the assets chosen for the recent transaction announced last week?
A: Daniel Oberste, CEO, stated that a process was conducted to review several assets before both parties identified the portfolio. A material change report will be filed to provide a detailed description of the process.
Q: What are the expected cap rates for the $200 million in acquisitions planned?
A: Daniel Oberste, CEO, mentioned that going-in cap rates are expected to be in the range of 5% to 6%, likely closer to 5%. BSR's internal management structure provides a competitive advantage, potentially enhancing shareholder returns.
Q: How should we think about leasing rent spreads and their recovery into the spring and summer?
A: Susan R. Koehn, COO and interim CFO, indicated that Q1 is similar to Q4, with a focus on occupancy to leverage the upcoming leasing season. Significant rate increases are not expected until the latter half of the year, possibly starting in October.
Q: Will 2025 look similar to 2024 in terms of rental spreads and same-store revenue growth?
A: Susan R. Koehn, COO and interim CFO, expects 2025 to remain flat for most of the year due to ongoing supply absorption. However, positive blended spreads are anticipated in the latter half of the year, with stronger growth expected in 2026.
Q: Are you seeing a cap rate differential between repositioning assets and newer Class A assets?
A: Daniel Oberste, CEO, noted that there is less appetite for older value-add assets due to high interest rates and low liquidity. However, there is an opportunity to acquire newer assets below replacement cost, particularly from developers looking to offload partially leased properties.
Q: What is the outlook for expense growth, particularly with inflation and real estate taxes?
A: Susan R. Koehn, COO and interim CFO, expects operating expenses to grow by 2% to 3%, excluding real estate taxes, which are projected to increase by 6% due to fewer refunds in 2025.
Q: How much dry powder does BSR have for acquisitions, and what is the strategy for deploying it?
A: Daniel Oberste, CEO, explained that BSR plans to use proceeds from dispositions to retire debt and then leverage debt for acquisitions. The focus is on making measured acquisitions in the range of $155 million to $200 million by the end of May.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
