BSR Real Estate Investment Trust (HOMUN) Earnings Call Transcript

Thanks, Jim, and hello everyone. I'd like to welcome all of you to the BSR REIT conference call where we'll be discussing the financial results for the third quarter that ended September 30th, 2026. Joining me today are our Chief Executive Officer, Dan Oberste, our Chief Financial Officer, Tom Cirbus, and our Chief Operating Officer, Susie Rosenbaum, and all three of them will be available to take your questions once our prepared remarks are finished. Before we get started, I'd like to remind listeners that some of the statements made during this conference call regarding future events are forward-looking in nature. Any such information carries risks, uncertainties, and assumptions that might cause actual results to differ materially. We will also be referencing certain non-GAAP financial measures, which we believe provide useful supplemental information regarding our financial performance. For further details, please see the cautionary statements on forward-looking information and the description of our non-GAAP financial measures in our news release and eight-K dated November 11th, 2026. Dan, I'll turn it over to you.

Appreciate that, Spencer. The third quarter was a thrilling one for BSR. What we posted financially shows ongoing movement toward the long-range objectives we laid out back in December of 2025. Every part of our business keeps running at full power, and we've now delivered concrete gains on all of our main initiatives. Our platform moved forward in the obvious next way — filing with the SEC and then getting listed on the New York Stock Exchange — and we finished by smoothing out how our shares trade, all aimed at positioning BSR as a more appealing investment for a wider set of individuals and institutions. Giving you some detail on a handful of our Q3 figures: occupancy wrapped up the period at a solid 94%. Occupancy at properties outside our same-community set rose to 93.6%, compared with 83.6% a year earlier, which shows the strides we're making toward stabilizing those assets. NOI at those properties was up 36.5%. In Q3 our retention rate reached a record 60.3% — 210 basis points above last year and 20 basis points better than Q2. FFO rose 3.5% versus Q2 2026, and blended lease trade-outs ended Q3 essentially flat at -0.2%, with renewals running higher in every market. Quarter over quarter, we delivered the FFO and AFFO growth we anticipated in both absolute dollars and per-unit terms; our organic growth efforts kept advancing steadily, encompassing the stabilization of new communities as well as our high-return resident amenities program. So with that, let me give you an update on the three initiatives we outlined back in December of last year. First is lease-up of the acquisition class we brought in during 2025. What we're reporting now reflects the revenue potential of those assets after concessions, but with occupancy in place. Down the road, results will reflect us maximizing NOI from that cohort. You got an early signal of what's ahead in our Q3 non-same community NOI margin — 49.2%, versus 44.7% a year ago. Measured to date, non-same community NOI margin runs roughly 400 basis points below where our same community level stands. That's low-hanging fruit we expect to harvest over the short to medium term. With a full year of rent collection from physically occupied properties, concessions burned off, and expenses normalized at each of those five assets, we anticipate the margin gap will narrow and produce durable NOI growth. Next, our resident amenity offerings, presently led by our bulk internet and valet trash programs. Bulk internet keeps growing throughout our portfolio. It is live at seven of our 26 properties and ramping faster than planned, with construction underway at five more sites, all of which we expect to be delivered and start ramping by year-end. The remaining properties will be put on faster timelines and ought to be live by Q1 of 2027. With additional properties steadily entering service, we anticipate meaningful gains flowing into our other income line. Now, the third item: efficiencies across the platform. On the last call, I noted that our centralization initiative launched during Q2, and I'm pleased to report that this program is achieving its target of generating annualized expense savings equal to $0.02 of FFO per unit, all while making our operations more efficient. We remain highly confident that these initiatives will get us to our goal of delivering incremental growth of $0.13-$0.22 per unit by early 2028. The narrative around our operational expansion remains the same. We possess a strong collection of properties in leading markets that performed at a high level during exceptionally challenging periods and is now positioned for fresh growth as market conditions evolve. Through high-return organic growth projects across the portfolio, we are generating added value. Accordingly, we retain strong confidence that the REIT will produce robust, lasting returns for unit holders. I'll now turn things over to Tom for a closer look at the third quarter financial results. Tom?

Thanks, Dan. During Q3, the numbers we posted were in line with our own internal expectations, and they continued to largely mirror the strides we're making toward stabilizing the property group we acquired in 2025, given that revenue from communities outside the same-community pool climbed 23.9% versus a year earlier and 4.4% over Q2 on a sequential basis. As Dan noted, we anticipate that margins across this portfolio will climb steadily and in time exceed the margins in our same-community portfolio. Turning to leasing, effective rates on new leases dropped 4.4% in the quarter, whereas renewals gained 2.6%, yielding a blended rate decrease of 0.2%. The trade-out figures reveal an intentional effort by management during Q3 to maximize revenue by leaning into rate while keeping occupancy steady. For the quarter's opening two months, we succeeded in raising pricing on newly signed leases while largely holding our occupancy levels steady. Then September arrived, bringing with it the usual seasonal cooling that occurs every year, and the market sent us a clear message that we had reached the ceiling on pricing — so we pivoted toward prioritizing occupancy instead. I bring all this up to underscore two important takeaways. First, the fact that we could set pricing on our own terms during Q3 speaks volumes about the broader health of the market. Second, we'll continue to optimize earnings by nimbly shifting between our two main revenue levers — occupancy and rate — in response to whatever conditions the market presents. For the third quarter, same-community revenue came in at $26.4 million, a modest dip from a year ago and basically level with Q2. The drop compared with last year was driven primarily by lower average occupancy — 94.1% this year against 94.3% last year — along with a lower average monthly in-place rent of $1,434 versus $1,449 a year earlier. Partly offsetting those revenue decreases was growth in other property income, largely due to the ongoing ramp of our bulk internet initiative. Portfolio-wide revenue reached $34.5 million, up 4.3% year over year and 90 basis points higher than Q2. The gains were driven largely by the continued lease-up of our 2025 acquisitions class, which had been well telegraphed, as occupancy across the non-same community portfolio increased 10 percentage points compared with a year earlier; that momentum will continue into the fourth quarter. Same community NOI for Q3 2026 totaled $13.7 million, down 4.5% from the prior year. That decrease stemmed from the timing of real estate tax refunds, the same community revenue slowdown I just mentioned, and greater overhead and administrative costs. On a sequential basis, same community NOI declined 1.5%, owing to elevated repair and maintenance expenses, mainly because of timing and seasonality. More significant for the broader business trend, total portfolio NOI reached $17.7 million in Q3, up 2.4% versus last year. Similar to revenue, the increase was mainly attributable to the lease-up of our non-same community portfolio. Like Dan mentioned earlier, total portfolio NOI is going to keep getting better, since we've moved past concentrating on physical occupancy and now are focused on achieving full economic stabilization across our non-same community properties, which shows up in the chance to meaningfully boost the NOI margin for those non-same communities. Underneath NOI, G&A came in 20 basis points lower once you back out the one-time costs tied to our U.S. listing, while net finance costs rose 8.3% versus a year ago, pushed by rate resets within the REIT derivative portfolio along with somewhat higher relative leverage. Taking everything together, FFO for Q3 came to $0.19 per unit, unchanged from $0.19 per unit a year earlier, and it has been building steadily from $0.18 per unit in the second quarter. The savings in G&A accounted for the quarter-over-quarter FFO gain. AFFO for Q3 was $0.16 per unit, versus $0.17 per unit a year ago and $0.15 per unit in Q2. Those AFFO movements mostly came from modest notional changes in absolute FFO plus timing tied to CapEx spending and straight-line rental adjustments. Turning to the balance sheet, the REIT's debt to gross book value stood at 52.2% as of September 30. The average interest rate on our debt is 4.1%, with a weighted average term to maturity of 3.2 years. Liquidity totaled $59.9 million when the quarter ended. Last, you'll see that guidance has not changed from the revised level we gave in Q2. We have confidence in that range and expect to report our full-year results in March. Now I'll hand things back to Dan for his closing comments.

Thanks, Tom. Between 2022 and 2024, our core markets saw an extraordinary influx of new housing supply. Even now, two years after those units were delivered, the market has not yet completely worked through that inventory. Absorption has been slower than in earlier cycles, and the volume requiring absorption this time around was far greater. Going forward, we are fully confident that the Texas economy's unmatched growth fundamentals, combined with supply and demand coming back into balance, will produce a return to superior rental rate growth. In the interim, we are already delivering consistent growth, reflecting substantial momentum throughout the P&L. Things are settling down well at our properties outside same-community. The amenity programs for residents are driving the other income growth we expected, and centralizing operations is cutting both operating and personnel expenses. The efficiency work across our platform is gaining traction. Before any top-line gains even materialize, our position is at least as strong as anyone in the peer set. And once market forces improve, the operating leverage we carry is significant — we demonstrated that during 2021 and 2022. So we continue to be very well placed to deliver consistent, superior returns for unit holders. That wraps up our prepared comments. Tom, Susie, and I would be glad to take your questions now. Please open the line.

Thanks. Morning, everyone. Going back to your guidance and the fact that you kept it unchanged, I believe you mentioned this near the end of your comments, Tom, that you're holding the 0%-1% growth, and yet year to date, same property NOI is in negative territory. So I'm just curious: what are you seeing in the fourth quarter that lets you stay firm on the outlook, and might there be any adjustment to the same property pool that could help a bit as well?

Yeah, Kyle, sure, I'll take that one. Let me remind everyone about the anomaly that was the fourth quarter of 2025, which we went through in detail at the time and in the months after. To put it plainly, if same community NOI were flat between Q3 and Q4, that alone is already, call it, nine-ish percent growth year over year. So the bulk of it is mostly tied to the anomaly that was 2025 Q4; so the real question is the sequential improvement our guidance assumes, and here's what I'd say about that. The guidance assumes revenue keeps climbing as expected through a combination of both rate and occupancy. We're confident in the early reports of what we're seeing in October and November, especially on occupancy, as I'm sure Susie will cover; we also clearly have our bulk internet initiative ramping and it will keep taking outsize share and growth on the other income line. So we feel good about total revenue. Then as you move down the P&L, there are a number of green shoots we're seeing. My prepared remarks addressed the timing in Q2 around R&M expenses. There will be some normalization of that in the fourth quarter. Payroll, taxes, turn costs all have various green shoots that, when we looked at guidance in totality, gave us confidence to keep it flat across the board. As for the same property pool, look, we evaluate how the same property pool performs on a comparable basis and stick to our policies. There's no immediate initiative to change the same property pool, though we're very close on a couple of properties coming into the same property pool, if not in the fourth quarter, then certainly looking into next year.

All right, that's clear, thanks. If we turn to the non-same property pool for a moment, clearly there's been strong year-over-year improvement. In the prior quarter it was still fairly flat, and I believe you mentioned then that stabilization at Ownsby in particular was taking longer than anticipated. Could you update us on how that stabilization effort has played out, and is it on track now?

Yes. Hi, Kyle. Absorption remains somewhat difficult in the North Dallas submarket. Actually, two submarkets are dealing with absorption problems: Northwest Houston and North Dallas. Through the end of August we kept trying to raise rents in those markets and in others, which I believe speaks to how healthy our markets are. Then September came and we shifted course, focusing on occupancy rather than rental rates. At this point rental rates came down as we emphasized occupancy, and that trend carried into October. Still, I'm glad to say that as of today occupancy has risen across all of our markets, putting us at 96.1% in Austin, 94.9% in Dallas, and 94.6% in Houston. Since occupancy is now back at a level I'm comfortable with, we'll begin raising rates once more. I'd also point out that Austin, which likewise includes a non-same community property, appears to be past its difficulties now. Trade-outs there improved quarter-over-quarter, and we expect that to continue going forward.

All right, thanks for that. And just on the last item, as it ties to the run rate G&A. Clearly, you pointed to some of the efficiencies you've achieved, that $0.02 of FFO. Moving over to the New York Stock Exchange does carry a cost. What kind of incremental run rate are you anticipating for your G&A?

Yes, Kyle, I'd say run rate G&A should come in fairly close to where we sit now, and that's for a whole host of reasons. The New York Stock Exchange on its own will add, let's call it, $0.01-$0.03, depending on how everything ultimately shakes out in 2027. There are a bunch of other initiatives Dan mentioned, the centralization initiatives, and a whole host of others besides. Obviously we aren't rolling out 2027 guidance today, and in that context I'd expect it to maybe not be fully impacted, but the G&A tied to the stock exchange alone is probably, let's call it, a $0.01-$0.03 headwind in 2027.

All right. Appreciate it. I'll hand it back over.

Thank you. Morning, everyone. Returning to the blended rent growth figure and the cadence we should expect there, it seems you pulled back a bit in Q3, and from what you're saying that was largely tied to September. How should we be thinking about that for Q4 and on into 2027?

Yeah, Jonathan, that's tough to call at this point. During September and October we put more emphasis on occupancy, and with occupancy now where I'm comfortable with it, we'll begin leaning into rates once more. Still, it's difficult for me to predict how far we can push things over the rest of the quarter and on into 2027.

All right, that makes sense. Then, one thing you mentioned as a lever was incentives burning off in the non-stabilized portfolio. How would the incentives in the non-stabilized portfolio compare with those in the stabilized portfolio or the same property portfolio?

Concessions were basically flat for us from Q2 to Q3, so my view is they didn't play much of a role in what drove the differences quarter over quarter. What I do notice, however, is that across our properties, the nearer we get to stabilization, the less we rely on them. By November, they were essentially gone.

Is that true for both same-property and non-same-property cases?

Yes. Right now, at this point today, they're sparse on the same property and on the non-same property too.

All right, that helps. I'll hand it back over. Thank you.

Hi. I suppose you pointed out the margin difference that exists between same store and non-same store. I believe there's still a gap of 400 basis points. At this point, what's the timeline for narrowing that gap further? Should we expect it to close completely at some point during 2027, or what's the right way to think about it?

Yes. Hi, Brad; Dan here. I'd point you back to the strategic deck on operating strategy from 2025. Apart from probably a year or two in 2020 and 2021, our experience has consistently been that stabilizing a lease-up takes anywhere from 18 to 36 months. What we're seeing in the current market is likely somewhere in the middle of that range. As Tom mentioned and as I mentioned earlier, we'd anticipate that NOI margin starting to compress between non-same store and same store. Quarter-over-quarter sequentially, we've watched it compress; it will account for more of our FFO growth in the fourth quarter, and we'll simply keep seeing it stabilize into that 54% range we like to see over the course of 2027, finishing 2027 and entering 2028 at probably the traditional margin we observe on stabilized assets.

That's great. On the occupancy side, you mentioned it as a green shoot. Where do you see that going over the coming quarter or two for same store occupancy? Clearly, there's still some additional upside on the non-same store side.

Yes. As I said a moment ago, at present our same store occupancy sits at roughly 94.7%, while the total portfolio, the non-same store, stands at 94.1%, so that's also higher than where we finished the third quarter. I'm comfortable with that level, and once we begin raising rates, we'll need to monitor it to ensure it doesn't fall too much further, or we'll ease off there. As I've mentioned on prior calls, though, I believe physical occupancy anywhere from 94% to 96% is fine.

Yeah. Let me shift topics a bit for the other questions. We've been seeing volatility in interest rates, and borrowing costs have risen. From what you're observing among other participants in the direct property market, is there any pressure showing up on valuations, whether through cap rates or price per door, and are there any indications of distress right now from developers or other owners who might be over-levered?

Yes. During Q3, Brad, we didn't really see many notable trades. A few outliers existed at the low and high ends of the cap rate range, and when we dug into them, they had some value-add elements. Some lender workouts were involved. Unique circumstances likely drove those outliers. Since then, in the third quarter, or I suppose the fourth quarter, what we've observed particularly in October is, well, all of us have witnessed a huge run-up in treasury yields and borrowing costs. Anecdotally, that's probably reflected in a 5% decrease in bid-ask spread, which favors the bidder rather than the seller; we haven't yet seen many of those transactions close. We've seen a very public attempt by a buyer to retrade on value, and to the seller's chagrin, I'm referring to one of our public competitors, the seller declined to negotiate, and the buyer walked away from three or four of those purchases in the Sunbelt. Should that pricing hold, we would then expect cap rates to tick up slightly in the back half of the year. But as of November 12th, we don't see any evidence of that in closings.

Okay, appreciate the background — handing it back now. Thank you.

Good morning, and thanks. On Houston: we figured it would be the most stable of the Texas triangle. So does that extra weakness in new leasing spreads there surprise you at all?

Not really, Himanshu. As we've said, during the supply wave of 2022 to 2024, Houston performed better for us than any other market. Worth noting it produced our best Q2 blends at +1.5% with occupancy at 94.7. That's the point we were making when we said it probably bounces back first, before Dallas and Austin. I believe that's exactly what happened. Our perspective on Houston was that it would not absorb as severe a blow from the supply influx in 2022, 2024, 2025, and then the early part of 2026, compared with what Dallas and Austin would experience, and that is precisely what has played out. Now, as we come out of this period, to use CoStar's words, Houston's anticipated revenue growth rate across the coming two years is likely in the range of 0.5% to 1%. That figure would appear somewhat weaker when set against our other two portfolios in Dallas and Austin, which are projected to see effective rate growth of 2.6% next year and 2.2% in Dallas, respectively. Houston performed just as we anticipated and expected—its effective rates didn't fall nearly as sharply as they did in a market like Austin, correct? That's simply down to supply and demand. Because Houston didn't absorb a major supply influx during 2022 through 2024 and 2025, its rate didn't decline much. Even so, there was still some supply there, and that inventory keeps getting taken up, right? Contrast that with Austin, where a substantial amount of supply came online in 2024 and 2025, and rates plunged quickly. Himanshu Gupta, if we think back to last year—I haven't checked the transcripts—I'm fairly confident we spent a good deal of time discussing our worries about Austin. In terms of rental performance, it was likely the weakest market we had in 2025. Now, as we turn to 2026, new supply has dropped dramatically. It comes down to supply and demand. So what's happened in Austin? The pace of rent declines there has slowed substantially, and we're beginning to notice the effects. Our occupancy in Austin is the highest we have, and we held onto that throughout the downturn. It appears that come next year, Austin's situation will flip relative to the rest. Our outlook for Austin is quite positive, and we anticipate Houston will keep performing as it has historically—generating revenue growth that runs somewhat under what Dallas and Austin deliver.

That's extremely thorough, and many thanks, Dan Oberste, for all that detail. I'll turn it back.

Hi, everyone. I just wanted to briefly return to Kyle Stanley's question about G&A and check something: when you mention the run rate being comparable to Q3, does that figure exclude the $1.1 million one-time charge, or is it just, yeah, is it net?

No, it isn't net.