BSR Real Estate Investment Trust (HOMUN) Earnings Call Transcript & Summary

Good morning, everyone. I'm Regina, and I'll be serving as your conference coordinator for today. Right now, I'd like to welcome all of you to the BSR REIT First Quarter 2026 Financial Results Conference Call. <<operator_script>> At this point, I'll hand the conference over to Spencer Andrews, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Thanks, and good morning to all of you. It's a pleasure to welcome you to the BSR REIT conference call, where we'll be going over the financial results we posted for the first quarter, which ended March 31, 2026. On the line with me today are Dan Oberste, our CEO; Tom Cirbus, our Chief Financial Officer; and Susie Rosenbaum, our Chief Operating Officer — all three of them will be on hand to take your questions once our prepared remarks are done. Before we get started, I'd like to remind everyone listening that some of the statements we make on this call regarding future events are forward-looking by their nature. All such information carries risks, uncertainties and assumptions that might lead actual results to come out materially different. We'll also be citing certain non-GAAP financial measures, which we consider to be helpful supplemental information regarding how our financial performance looks. For further details, please see the cautionary statements on forward-looking information and the description of our non-GAAP financial measures contained in our news release and MD&A dated May 13, 2026. Dan, the floor is yours.

Thanks, Spencer. We see the first quarter as the start of a stretch of considerable momentum for BSR REIT. Both our same-community NOI and our NOI margins improved on a sequential basis versus the fourth quarter of 2025, and we have made headway toward stabilizing our 2025 acquisition class, including additional lease-up at the Ownsby, the lease-up acquisition we made in August 2025. We are also continuing to build out our bulk Internet and valet trash programs, 2 important engines of organic growth. And on the external side, rental market conditions moved even more in our favor. Looking back at the first quarter, Same Community NOI rose 11% compared with Q4 last year, mainly because expenses normalized after having an outsized negative effect on Q4 of last year. Same Community weighted average occupancy finished the quarter at 94.3%, unchanged from the close of 2025. Same Community blended rates gained 30 basis points in Q1 versus Q4. I would also note that this pattern carried into April, with another 80 basis points of improvement relative to Q1 results. Our retention rate came in at 59.8% at quarter end, a 30 basis point increase over the end of 2025 and a substantial rise from 56.9% a year earlier. Physical occupancy at our August 2025 lease-up hit 73.1% at the end of March, climbing from 70.4% at the end of December.

And importantly, we started ramping up bulk Internet in earnest at 5 of our properties, and that's already producing positive results in our other income line item. What we reported last night mirrors precisely the momentum we described last quarter and highlights the fundamental shift we're seeing in our business. I'll remind everyone that our December investor presentation laid out our organic growth plans and gave transparency on them. Yesterday's results also show those returns are in the very early innings. There's still plenty of upside in each initiative we laid out, but I'm proud of the tangible progress we've achieved so far. Even more encouraging, fundamentals keep improving in our core markets. Trade-outs improved again year-over-year and have shown largely positive momentum. Frankly, May and June will tell us much more about the exact extent of the multifamily market's health. But as we sit here today, we're generally encouraged by the results so far. With 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're in an ideal position to drive growth on a per unit basis as market conditions steadily improve.

We'll continue doing what we've always done—concentrating on the things within our control and deploying capital prudently wherever it can be put to its best use, so that we generate the strongest returns we can. At this point I'll turn things over to Tom, who will walk us through the first quarter's financial results in greater detail. Tom?

Thanks, Dan. In Q1, our operations performed in line with what we had anticipated. And as Dan pointed out, they showed meaningful gains when measured against the prior quarter. Of course, that sequential rate of progress will naturally decelerate, but we believe this favorable trajectory will carry on as we continue executing the lease-up and operational upgrades we've covered in detail before. Starting with leasing. During the quarter, effective rates on new leases came in 5.4% lower, whereas renewals rose 2.3%, which netted out to a blended rate decrease of 1.0%. Versus the fourth quarter, that amounted to a 30-basis-point gain in the blended rate. For additional context, blended rates on a year-over-year basis were better by 220 basis points. In the same vein, our April 2026 rates came in 80 basis points higher than our April 2025 results. That factor, together with a number of other operational metrics, leaves us confident that rates are broadly trending favorably, particularly when set against last year's operating conditions. Same Community revenue ended up 1.6% lower than Q1 of last year, chiefly because of the reduced average occupancy and the reduced average monthly in-place leases I just mentioned. The decline in rental income was partly offset by a $0.2 million rise in other property income, which came from greater utility reimbursements and the start of our bulk internet rollout.

For Q1 '26, Same Community NOI came in at $14.1 million, which is down 4.7% versus last year but up 11% on a sequential basis from Q4. The drop compared with a year ago stemmed from the lower revenue I just walked through, plus a $0.2 million rise in utility expenses and $0.3 million more in overhead and administrative costs tied to our strategic choice to keep overhead in place. Those factors were partly offset by a $0.2 million reduction in property insurance expenses. Importantly, the sequential gain came mainly from expense levels normalizing in the first quarter after the confluence of anomalies we dealt with on the expense side in the fourth quarter. To put it more directly, real estate taxes got better as our typical refund levels came back, along with improvements in turn and repair and maintenance costs driven by higher retention flow through, as well as lower administrative and utility expenses. One quick side note before I move on: since quarter-over-quarter movement in our taxes has historically been hard to decipher, on our financials we've tried to boost transparency in our MD&A this year by breaking out refunds as a separate line item in the disclosure package. Hopefully this change lets all stakeholders better appreciate and explain the quarterly changes in this key figure.

Moving past NOI, G&A expense rose by $0.4 million compared with a year earlier, mainly from greater legal and professional fees along with payroll costs. On a sequential basis, G&A came in essentially flat. Lastly, net finance costs fell by $1.2 million versus the prior year, largely tied to the 2025 strategic disposition of assets. Taken as a whole, FFO for Q1 '26 climbed 29% to $0.18 per unit, versus $0.14 per unit during the fourth quarter. I'm pleased to say the 2025 asset rotations keep building momentum and now are accretive relative to the dispositions we made during the year; even though our August lease-up acquisition is sitting at essentially breakeven with only 73% physical occupancy, the contribution to our results from the 2025 acquisitions cohort should only strengthen through the remainder of 2026. The decline in FFO per unit versus a year ago came mainly from 3 items: borrowing costs that were $0.03 per unit higher, weaker Same Community results of $0.01 per unit, and G&A that was $0.01 per unit higher. Sequentially, Same Community gains contributed $0.03 per unit and non-Same Community contributed close to $0.02, partly offset by $0.01 tied to borrowing cost headwinds. AFFO came to $0.17 per unit in the first quarter, 55% above the $0.11 per unit recorded in Q4.

Obviously, the quarter-over-quarter gains are very encouraging and show the momentum we have in generating organic growth. Turning to the balance sheet: as of March 31, '26, the REIT's debt-to-gross book value stood at 52%, versus 51.2% at the close of 2025. That works out to $738 million in outstanding debt, carrying a weighted average interest rate of 4.1% and a weighted average term to maturity of 3.7 years. Liquidity totaled $67.3 million at quarter end, which includes $7.4 million in cash and cash equivalents plus $59.9 million available under our revolving credit facility. And as always, we can secure extra liquidity by adding unencumbered properties to the facility's current borrowing base. On March 10, 2026, we refinanced the $28 million mortgage onto the REIT's credit facility, and consequently the REIT has no 2026 maturities left. Importantly, after quarter end, we locked in the REIT's cost of credit for the remainder of 2026 through a $175 million swap, which amended 2 previously outstanding swaps at a rate of 2.98%. Lastly, as you probably know, we are reiterating the original 2026 earnings and same-community portfolio guidance we gave in March.

For the full year, we're looking at FFO per unit between $0.75 and $0.79, which is $0.77 per unit at the midpoint, and AFFO per unit of $0.68 to $0.74, or $0.71 per unit at the midpoint. This outlook assumes Same Community revenue growth of 50 to 150 basis points, Same Community property operating expense and real estate tax growth of 100 to 200 basis points, which works out to Same Community NOI growth of 0 to 100 basis points. Our expectation remains that the core real estate business will stay healthy, as we keep growing revenue through lease-up activity, along with some modest added overhead costs. We'll revise this guidance as necessary over the course of the year. At this point, I'll hand it back to Dan for his closing remarks.

Thanks, Tom. Our outlook on the business is getting more and more encouraging. The asset rotations we finished in the prior year, plus the stabilization work that followed, clearly introduced volatility into our near-term financial results, yet they leave us in a competitive position that keeps getting stronger, so we can capitalize on favorable rental market fundamentals. As is clear, over the past 2 years the emphasis has been on the added multifamily apartment supply within the Texas Triangle. Absorption took longer than we had hoped, but here is where things stand today. New apartment deliveries, after peaking in 2024, fell by 25% to 50% of last year in Austin, Dallas and Houston. Deliveries are forecast to fall in 2026 by another 43% in Austin, close to 30% in Dallas and 7% in Houston. In Austin, a further 40% decline is anticipated in 2027. Very little new product is on the way, and development costs are high, which almost guarantees we will not see a surprising wave of new construction. Demand, at the same time, remains very robust. Among all MSAs in the United States, our 3 Texas markets have ranked among the leaders in absorbing supply. Their economies are strong and housing is highly affordable, and that has turned them into magnets for migrants from other states and other countries.

During 2025, no state gained more new inhabitants than Texas. We've seen especially robust population increases among people aged 20 to 34, and that group rents at a higher rate than any other demographic. As you may remember, in December we introduced a strategy aimed at generating additional organic growth in FFO per unit of roughly $0.13 to $0.22 between 2026 and 2028. That strategy is fully on schedule. Every one of these efforts stands completely apart from developments in our wider rental markets. Pairing them with the expected recovery in rental rates, driven by supply-demand fundamentals that are improving quickly, we think we're positioned to deliver quite powerful returns for unitholders. That wraps up our prepared comments this morning. Tom, Susie and I would be glad to take your questions now. Please open the line for questions.

<<operator_script>> The initial question is going to be asked by Jimmy Shan from RBC Capital Markets.

Let me ask about the lease spreads. Regarding that sequential improvement you're seeing, would you characterize it as exceeding the usual seasonal bump that comes as you head into the spring leasing season, and are you actually witnessing gains in market rents? That's my first question. Then second is the retention rate. Did it hold up through April, and what are your expectations looking toward the summer?

Yeah. Jimmy, so first, let’s discuss the trade-outs for April compared with the close of Q1. You’re right, the blended rate rose 80%. We believe that’s a genuine return to seasonality. You can also — well, May so far is holding up at roughly the same level. Your second question was about — what was your second question, sorry? Oh, retention.

On the retention rate — yes, that's right.

About 60%, right around the close of Q1. What we see today is pretty much the same. So what's driving that? Essentially, fewer residents are leaving to purchase houses. The figures on this front look fairly strong. At the close of Q1 it stood at roughly 11.6%, versus 12.1% in Q4, and 14% during Q1 of 2025. If folks can't manage a home purchase and either must rent or prefer to keep renting — right — they've got a few options. They can bear the expense of relocating, or remain where they are provided they're happy with the services being delivered. I believe our teams, our operations groups, are genuinely skilled at providing outstanding service, so residents are picking to remain with us.

Okay, sorry — those figures you mentioned a moment ago, 11.6% compared with 12.1%, could you go over that again? That's the share of tenants who leave in order to purchase a home.

Transitioning now toward purchasing residences.

The next question is going to come from Brad Sturges at Raymond James.

To build on what Jimmy asked, you sound cautiously optimistic regarding the demand trends you're seeing. How are things trending in this year compared with what you would have seen last year? And then perhaps a broader remark about which markets are showing somewhat better demand trends at present. Given what you're doing on the rate side, it seems like it might be Dallas, but I'm curious to hear your thoughts.

Brad, it's Dan here. I've witnessed quite a few of these leasing seasons and cycles, especially in Texas. And honestly, I'd characterize the previous 2 years as somewhat anomalous. So 2 years back, as everybody remembers, we experienced an enormous spring leasing season across the whole sector, and we observed a substantial volume of absorption. That genuinely left everyone in the industry feeling quite optimistic regarding lease-ups. Then when you get to last year, a different odd thing took place — you had quite a surge during January and February, and it appeared to be an extremely encouraging leasing season. And then, I suppose you could set your watch by the tariff day, or whatever the label is here in the U.S. But truly, immediately afterward — what is it called? Liberation Day, I believe that's the term they used on FOX News — right after that Liberation Day hit, I think what all of us witnessed across the sector amounted to a huge chilling impact on the leasing season, correct? And we all observed what unfolded last year. My view is that those last 2 years were not normal. We have never encountered leasing seasons resembling the last 2 years, each extreme in its own distinct way.

You're right to call it cautiously optimistic, I think, since what we see at the moment resembles a typical leasing season. The velocity of leasing, asking rents, effective rents — all of it appears very predictable. For the roughly 17.5% of our apartments that either renew or lease during this Q2, we're observing conventional and favorable momentum. So as of today, we see no signs of either extreme. That leaves us feeling fairly cautiously optimistic, I'd say, about how our same-store portfolio will perform as we look ahead over the remainder of the year.

That's great. And I suppose my second question is this: I really appreciate the detail on the real estate tax and the way the refunds were broken out. Just to remind you, when you issue the guidance ranges, how are refunds factored into that guidance? Are they included, or would it be — depending on how those refunds arrive, would that be incremental to the guidance?

Yes. No, Brad, it's in there — this is Tom. That's part of the guidance. As we often mention, property taxes in Texas amount to close-quarters combat annually. During budgeting and while formulating our guidance at the start of the year, we rely heavily on outside specialists — the consultants who assist us in litigating taxes, pursuing refunds, and their estimate of where we expect to end up — and then we draw on our 30 years of operational experience to make a judgment call regarding what we consider a realistic and actionable outcome, and we budget and guide on that basis. So all of that is reflected in the guidance.

The next person to ask something is Jonathan Kelcher from TD Cowen.

Regarding that $0.13 to $0.22 you're expecting across the coming 3 years, how much of it — or any portion at all — showed up in Q1? Also, could you remind us of your expectations for 2026 and '27?

Absolutely. Let's begin with the non-same-store portfolio. It appears we leased an additional 70 to 80 units in Q1 following Q4, and that produced roughly $100,000 in extra revenue. Keep in mind, that isn't the fully loaded figure — why? Since leasing happens across the quarter. So those added units ought to bring in a bit more than $300,000 during Q2 and in subsequent quarters. You also need to keep in mind that we'll keep leasing as the year progresses. Another element is our August acquisition, which is currently in lease-up. We closed the quarter at 73% physical occupancy. We anticipate that property will be physically stabilized by July at the latest. That's physical stabilization, though. After that we'll still be burning off concessions — the second bite of the apple, so to speak. So that will take place over the coming year as well before that asset reaches true stabilization. And then there's bulk internet. There you have it. We brought online the first 5 that we launched in 2025. As I've mentioned previously, in Q1 there's essentially no revenue contribution there since we're in the ramp-up phase. Still, by year-end, we'd anticipate a net $400,000 of additional revenue in 2026 tied to the bulk internet project.