Morning. My name is Annette, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the BSR REIT Q2 2021 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'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw the question, please press the star followed by the two. Thank you. Mr. Bailey, you may begin your conference.
Thank you, Annette. Good morning, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the second quarter ended June 30th, 2021. I'm joined by Susan Koehn, our Chief Financial Officer. Also with us are Dan Oberste, President and Chief Investment Officer, and Blake Brazeal, Co-President and Chief Operating Officer, who will be available to answer questions following our prepared remarks. I'll begin the call by providing an overview of the second quarter performance and other corporate developments. Susie will then review the financials, and I'll conclude by discussing our outlook and strategy. After that, we will hold a Q&A session. Before we 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 the forward-looking information in our news release and MD&A dated August 10, 2021 for more information. During the call, we will reference certain non-International Financial Reporting Standards 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 meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS measures. Also, please note that all dollar amounts are denominated in US currency. Our strong second quarter financial results demonstrated the benefits of our strong management team and capital recycling strategy, which is substantially complete.
By reorienting our portfolio to high modernized quality properties in primary Texas markets, on a per unit basis, we generated 26.7% year-over-year growth in Adjusted Funds From Operations and 21.9% year-over-year growth in net asset value.
AFFO will continue to increase as we stabilize the portfolio using our $200 million in acquisition capacity. Our weighted average rent at the end of Q2 was $1,206, a 21.8% increase from $990 at the end of Q2 last year. This increase reflects the impact of the capital recycling program, which has been transformational. To put this point in perspective, at the time of our Initial Public Offering in 2018, primary markets represented 22% of our Net Operating Income. Following the Hangar 19 acquisition announced July 29th, that figure has increased to 97%, and the weighted average of our properties in our portfolio has decreased from 29 years to 13 years. At quarter end, weighted average occupancy was 96.2%, an improvement from 94.9% at the end of Q2 last year. This too is a significant accomplishment, and not just because it was achieved during the pandemic.
Our three core Texas markets, Dallas, Houston, and Austin, are among the best in the country, and we're generating simultaneous growth there at both average monthly rent and occupancy. This is the primary driver of our significant year-over-year and quarter-over-quarter growth in Net Asset Value, and we expect this strong NAV growth to continue. Susie will take you through the financials in more detail shortly. I will note for now that we generated same community revenue growth of 5.4% and same community NOI growth of 5.2%. We also generated positive growth in total revenue and NOI, even though we divested far more properties than we acquired over the past year. Those results highlight the underlying strength of the Austin, Dallas, and Houston Metropolitan Statistical Areas.
Subsequent to quarter end in July 21, we were excited to see our same community rental rates for new leases increase 16.3%. You'll understand our confidence in AFFO and NAV growth going forward. During the second quarter, we completed sales of non-core assets in our portfolio. We are now focused on deploying our acquisition capacity in our target primary markets, while also exploring accretive opportunities to more fully exploit the platform. As I indicated, subsequent to quarter end, we acquired Hangar 19 Apartments in the Dallas-Fort Worth market for $82.75 million. Hangar 19 is a newly constructed garden-style community with 351 high-quality apartment units. It is a new property that was constructed just last year and is equipped with many of the amenities that our residents like.
As you might have guessed, the name, it is located close to the Dallas-Fort Worth International Airport, as well as major highways. With Hangar 19 included, we now have 3,014 apartment units in Dallas-Fort Worth. We are excited to realize the benefits of this new scale in one of our core primary markets. Following the Hangar 19 transaction, we have Debt to Gross Book Value of 44.9% and approximately $200 million of acquisition capacity. We expect to complete, however, approximately $167 million of additional acquisitions before the year-end of 2021. We expect these transactions will increase AFFO by approximately $4 million, or $0.08 per unit on an annual basis, assuming similar economics to the Hangar 19 deal. At that point, our portfolio will be stabilized. Before I turn it over to Susie, I would like to provide a brief update related to COVID-19.
We collected 99% of expected monthly rent in the second quarter, and again in July 2021, which is in line with our historic norms. The pandemic is not impacting our collections. I also want to note that as of July 31, we have collected $0.6 million in rental assistance through the federal government's Emergency Rental Assistance Program, which assists households that are unable to pay rent and utilities due to COVID-19. The money was collected through eligible residents at our properties. We are continuing to monitor the spread of COVID-19 and its variants. We will take the necessary measures to help keep our residents and employees healthy and safe. I'll now invite Susie to review our second quarter financial results in more detail. Susie?
Thank you, John. Same community revenue increased 5.4% in the second quarter to $13.9 million from $13.2 million last year. The improvement reflects an increase in average rental rates for the same community property from $1,044 per apartment unit as of June 30th, 2020, to $1,079 per apartment unit as of June 30th this year. As well as increases in late rental payments, fees associated with moving in and out of a community, and utility reimbursement revenue. Total portfolio revenue for Q2 2021 increased 2.8% to $28 million compared to $27.3 million in Q2 last year. This reflected organic rental growth, as well as the contributions from property acquisitions and non-stabilized properties, which added $8.3 million and $0.8 million of revenue respectively. Property dispositions reduced revenue by $8.9 million compared to Q2 2020.
To clarify, non-stabilized refers to properties that were undergoing lease up or renovation during at least part of the comparative period. NOI for the same community properties was $7.4 million, an increase of $5.2 million from $7 million in Q2 last year. This increase was attributable to higher same community revenue reflecting the strong rental market dynamics that John referenced, and a decline in real estate taxes, partially offset by increased utility costs, higher costs associated with preparing apartment units for new residents, and higher property insurance costs. NOI for the total portfolio increased 1.1% to $14.4 million from $14.2 million in Q2 2020. FFO for Q2 2021 was $7 million, or $0.13 per unit, compared to $6.6 million, or $0.15 per unit last year. The increase in FFO reflects higher NOI plus reduction in finance costs, excluding the loss on extinguishment of debt.
The decline in FFO per unit reflects the temporary dilutive impact of the $69 million bond deal offering completed in February of this year. AFFO increased to $7.9 million in Q2 2021, or $0.15 per unit, from $6.2 million, or $0.14 per unit last year. The increase reflects the higher FFO, as well as a $1.5 million escrow rent guarantee that was realized in the quarter. This was partially offset by additional severance and retention costs related to the capital recycling program that were added back to AFFO in Q2 2020 and less straight-line rent. As John noted, we expect that AFFO will significantly benefit in the second half of 2021 and throughout 2022 from property acquisitions using our acquisition capacity. Net asset value increased 42.1% year-over-year to $769 million from $541 million in Q2 last year.
On a per unit basis, NAV rose 21.9% to $14.77 in Q2 2021 compared to $12.12 last year. The REIT paid quarterly cash distributions of $0.12 per unit in Q2 of both years, representing an AFFO payout ratio of 79.2% in Q2 2021 compared with 90% last year. All distributions were classified as a return of capital. We expect the AFFO payout ratio to continue to decline as we deploy our acquisition capacity. Turning to our balance sheet. Debt to Gross Book Value ratio as of June 30th, 2021 was 41.5%, and we had total liquidity of $96.9 million, including cash and cash equivalents of $8.2 million, $53.4 million available on our credit facility, and $35 million available on the line of credit.
Following the Hangar 19 acquisition, which was completed subsequent to quarter end, our Debt to GBV is 44.9%. Acquisition capacity is approximately $200 million without the need for additional equity. As of June 30th, we had total mortgage notes payable of $403 million, excluding the credit facility and the line of credit, with a weighted average contractual interest rate of 3.3% and a weighted average term to maturity of 6.1 years. Total lines of borrowing were $524 million, excluding the debentures, and 78% of the REIT debt was fixed or economically hedged to fixed rates. In July 2021, through the refinancing of debt, 84% of the REIT debt was fixed or economically hedged to fixed rates. In addition, as of June 30th, we had $42.5 million of convertible debentures outstanding at a contractual interest rate of 5%.
The debentures mature on September 30th, 2025, with a conversion price of $14.40 per unit. I will now turn it back over to John for some closing comments. John?
All right. Thank you, Susie. The upcoming weeks and months are going to be a very busy period for BSR team. We have set an ambitious goal of completing about $167 million of further accretive acquisitions by year-end. We are extremely confident in our ability to achieve this outcome. The multifamily real estate markets in Austin, TX, and Houston are highly liquid and quite robust. Our corporate investment team is always busy reviewing opportunities, but we will also be disciplined and are committed to maintaining our strong liquid position. It has served us very well throughout this pandemic. We also expect to continue achieving solid organic growth. The economic recoveries in our primary markets have been impressive since the start of the pandemic. That has supported strong growth in rental rates at our properties and continuing high levels of occupancy. We fully expect these trends to continue.
The second quarter of 2021 was an important period for us, and it demonstrates how the reorientation of our portfolio to high-growth primary markets generates stronger financial performance and expansion of our NAV. This is what we have been talking about since we initiated the capital recycling program in 2019. We expect our financial results to continue strengthening in the months ahead as we deploy our acquisition capacity in our target markets and continue benefiting from our exposure to these high-growth regions. Obviously, COVID-19 remains an issue. While the pandemic could create additional challenges for us in the months ahead, we have proven over the last one and a half that we can operate successfully through even the most difficult conditions. We have learned a great deal about how to operate during a pandemic, and we will apply those lessons learned as needed going forward.
Please allow me to take this opportunity to thank all of our BSR team members for their commitment and hard work. Also announced yesterday, effective December 31st this year, I will assume the role of Executive Vice Chairman of the Board of Trustees, and Dan Oberste will transition to the role of Chief Executive Officer. In this new role, I will assist the team as the need arises. Dan's leadership qualities are a perfect fit for taking BSR to the next level, and I am blessed to work with such a fine and professional team. That concludes our remarks this morning. Susie, Dan, Blake, and I would now be pleased to answer any questions you may have. Operator, please open the lines for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have any questions, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your question will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Kyle Stanley with Desjardins. Please go ahead.
Thanks. Morning, everyone.
Morning, Kyle.
Hey, good morning, Kyle.
Just wanted to quickly say congratulations to both John and Dan on the upcoming changes. I think things are looking fantastic there.
Thank you, Kyle. We're excited.
Just taking a look at the healthy leasing velocity and spreads achieved in June and July, I'm just looking for general market commentary. Is this activity being experienced portfolio-wide or maybe more specific to certain sub-markets? In your opinion, what is the primary driver of this market rent growth?
Kyle, this is Blake Brazeal. Hello to everybody out there. I want to start out by saying that, as many of you know, I'm a Texan. Probably can tell by listening to me. I've grown up in the Dallas area. I was a banker for 20 years. I'm going to rehash this because I think it's really important. I've been on this side of the desk for another 20 years, and I've seen different dynamics and different cycles in the real estate market in Dallas, Houston, and Austin through my years. Although this is not unprecedented, this is one of the best stretches, and when it comes to occupancy growth and rental growth, that I've seen in my time. I expect this to continue. The question that you brought up, I'm going to answer it in a couple different ways. You ask what's causing it.
We've been talking over the last two quarters, and I think the numbers now are bearing this out about the migration into Texas. You can look it up. There's articles everywhere. It's probably not as well known or the gravity of it in Canada as it is in the U.S. People are moving into these markets at unprecedented rates. I think it would be interesting for everybody to look at the companies that have moved into Texas over the last two to three years. Why are they doing that and continue to do that? As I've stated before, Dan stated before, it's a business-friendly state. There's no personal income taxes. It has tremendous public schools.
Add all that up, it's a pretty good place to move to when you look at some of the bigger cities on the coast and what they've gone through during this pandemic. Well, that has all helped us with the strategy that we laid out to you three years ago. Our strategy really has three main components to it. It's the product that we buy, the quality of it. It's the location, location, in this particular instance. It's our people. We talk about our people all the time, but it's really important to go over again the fact that our turnover rate with our people is half the national average and continues to be that way. That is driving all of these things that have contributed to the numbers that you're looking at.
I think it's real important to put that in perspective and for everybody to realize what is happening in these locations and continues to happen, and I see it happening well into 2022, if not further. To answer your question, Kyle, as far as is there a region or something that's carrying this? No. All of our main MSAs are in double digits in new leases. Just to give you an idea, Oklahoma City, which is our smaller MSA, it had a 12.3% increase in new leases for July. For the quarter, year-over-year, it's NOI growth of 7.4%. I know we've had some of our competitors trumpeting their Oklahoma City growth, and I think you can check and look at our growth in all of our MSAs, and we've done better than they have.
One thing that I do think is very interesting in looking at this is that, how do I think or what am I basing some of this that it's going to continue on? Well, when I look at our leads, which I bring up to you guys every quarter, but it's important. Our leads sequentially, first quarter, second quarter, are up 21%. That's really important to look at. That's the people that are on the internet, or they're coming into our properties. Where are they coming from? Well, it ties back into migration comments that I discussed earlier. I always bring up to you guys the virtual tours, the self-guided tours, and the in-person tours. This is really important because this is another stat that is showing that there's no let-up in sight.
Those are up 25% sequentially, and our closing rate on those went to 40% from 31% in the first quarter. I can go over a lot of these things. I'm sure I will later on lease-ups and things, but to answer your question, I hope I did, because there's a lot going into this, and the numbers are starting to reflect that. I hope that answered everything, Kyle.
Yeah. Very helpful. Maybe just one last one for me. OpEx inflation looks to be a bit of an issue across your U.S. Sunbelt peer group. Could you just talk about a few of the factors that are contributing to that, and maybe thoughts on how that trends in the second half of the year?
Yeah. I'd be happy to. When you look at our numbers, I think it's really important to, as most of you know, the age of our portfolio has decreased dramatically over the last year to year and a half. Which you look at the last six to seven purchases, which Dan's made and his group, and look at the age of the properties. This has contributed to the fact that we're not as susceptible to cost and to cost inflation. Is there some cost inflation? Yes. When you look at our numbers year-to-date, we're sitting at total expenses about 2.8% year-over-year, and our renting expenses and turnover expenses are very minimal compared to the uptick in rents that we're receiving. Another thing that I think is important that goes into that figure that's not discussed a lot is the employee wages.
That's something that I had concerns about going in because Texas is such a dynamic state. It's very competitive and there's a lot of construction going on, competitive for employees. Year to date, if you look at our employee cost, we're down 0.55. We've done a really good job of controlling that. I would say that a lot of that has to do with the fact of our scalability and the ability to move people from locations where we have divested ourselves. That has helped us not have to go out and hire in some bigger cost salary categories, new people. We've kept that in control. To answer the question for the end of the year, I do not think that that's going to affect our numbers on a scale that would be anywhere near the rent increases that we're seeing.
Okay, great. That's it for me. I'll turn it back. Thanks.
Thank you, Kyle Stanley.
Thank you. Your next question comes from Brad Sturges with Raymond James. Please go ahead.
Hi, good morning.
Morning, Brad.
Morning, Brad.
Maybe just to follow up on Kyle's question there on cost inflation, but maybe zero in on property taxes. Can you just walk through the accounting treatment so far in terms of the accruals, and then what would be I think the final bills come in near the end of the year? What would be your expectation for property taxes, given the recent changes in valuation that's happening in markets like Texas?
First of all, for the accounting, it is a little bit confusing if you look at the base of our income statement. You're going to see a credit sitting in real estate taxes, and that's because we recognize tax expense under IFRS when the tax is actually assessed. The credit relates to refunds we've received during the year and then true up based on assessments as well. You have to combine that with the IFRIC 21 adjustment that's also on the income statement to get a true accrual basis accounting look at what our real estate tax liability would be as of June 30th. Right now, we're on track with our real estate taxes as we budgeted, maybe even a little bit better based on some of the refunds that we've received.
At this point, we underwrite when we buy new properties for increases in real estate taxes. We don't expect to be surprised.
What are you underwriting in terms of increase in taxes for this year? The average increase, I guess.
Hey, this is Dan. I think on average, we see our taxes increase about 4% year-over-year. I want to remind the group that I believe Texas passed a statute capping property ad valorem tax increases in any commercial asset, I think at 3.5% a couple of years ago. That created some tailwinds for those of us that underwrite taxes into NOI cash flow. It helped us become a little bit more aggressive in our future tax expectations and took some beta out of ownership in the state of Texas.
All right. That's helpful. In terms of Hangar 19, the guidance on accretion of $0.04 a unit, what type of rent growth would you be baking into that assumption?
Yeah, Brad, that's a great question. That sub-market in south of the airport in DFW is looking at about an 8%-8.5% organic rent growth from the date of acquisition. Now, I wish being a landlord was as easy as charging 8%-10% rent growth and collecting 100% of that revenue over a 12-month period. It's not. We'll probably blend that year one number. We'll probably offset that 8.5% rent growth by about 5% in lost lease as we, I would say, otherwise stabilize the year-one pro forma.
Okay. That's quite helpful. I'll turn it back. Thank you.
Thank you. Your next question comes from Matt Logan with RBC Capital Markets. Please go ahead.
Thank you, and good morning.
Morning, Matt.
Morning, Matt.
Susie, in terms of the fair value gains this quarter, can you tell us how much was driven by higher NOI versus cap rate compression?
Yeah. Hey, Matt, sure. Also you want to take out the dispositions we've had as well, because that can skew it. The answer is that the gap is exactly half and half. 50% of the growth comes from increases in NOI, and the other half is compression in cap rates.
It'd be about 15 and 15 basis points if we kind of saplit it evenly?
[audio distortion].
Perfect. In terms of what you're seeing for the real-time transaction market, things that perhaps aren't factored into the appraisal rent rolls, would that indicate to you that there could be further cap rate compression in the back half of the year?
Hey, Matt, this is Dan-o. Yeah. We're seeing July bids. I want to remind everybody this is Q2 end reporting, and I know everybody knows the date today. Just to evidence the velocity that we're seeing in trade-outs in this market, we're seeing July bids for properties at 10%-20% outside of the money relative to valuations we're seeing trade at today. A lot of that cap rate compression is built into what Susie just talked about, which is NOI increases. Anytime an acquirer can underwrite to 10%-20% organic rent growth on a go-in pro forma, it's going to increase that purchase price and lower that go-in cap just a little bit. That's a healthy cap rate reduction. You know you're going to collect that revenue. You're going to collect the NOI that drives the cap rate reduction.
I would contrast that with a market where you're seeing pancake growth opportunities and low interest rates. That's just a straight line go-in cap with not a lot of hope of expansion. The market that we're looking at looks to produce some tailwinds through the end of 2022 and perhaps ongoing. That helps us, I'll say, underwrite to a lower day one cap rate and NOI expansion over a period of two to three years in the horizon. Unfortunately, it helps our competitors underwrite to those low cap rates as well, and kind of use leverage to push property prices up a little bit further. That's a little bit of what we've seen go on in the months of June and July and August, is probably some higher leveraged offers taking advantage of more debt on the trade and driving cap rates down.
With all that to be said, anytime you can underwrite to higher rent growth, it's a healthy cap rate compression environment.
In terms of your acquisition cap rate for Hangar 19, can you give us a sense for where that would be, just in the general ballpark?
Yeah, sure. A 50 basis point spread, we could say between 3.75% and 4.25%, somewhere around there in a cap rate. Everybody on the phone think about a dog, and we're all thinking about different dogs. Cap rates are no different. Economic, nominal, before CapEx, these are all things that all of us use to establish a cap rate. I think a 50 basis point spread between 3.75% and 4.25% is a good evidence of where the market sits for a property like Hangar 19 right now.
Last one from me. In terms of the NOI margin for 2022, Susie, how should we be thinking about that on a stabilized basis after the repositioning program is complete?
Obviously, it's going to increase. Everybody knows that right now, we have properties in lease-up, and we're not including the rent guarantees in NOI, so that's producing some lower overall margin. Going forward, we're looking at 54%-56%.
Excellent. Appreciate the commentary, everyone. I will turn the call back. Thank you.
Thank you. Your next question comes from Frank Liu with BMO Capital Markets. Please go ahead.
Hi. Good morning, everyone. My first question coming as we witness that people moving back to your core markets, and you also mentioned that earlier, and we continue to see the homeownership cost to rise. I wonder, do you think that's going to further drive people back to the rental markets, and is that part of the driver of the demand in your core markets?
This is Dan. Absolutely, we do. We live in a time of uncertainty calls for flexibility to maintain balance. I think that in this environment, multifamily products in the markets that we have, in the right markets, they allow our residents to better adapt to the rising home prices. To your point, you take Dallas, for example. It's a great market. Average home price there is $341,000. You take your mortgage and you take your payment, your mortgage interest and principal is about $1,350 a month on a 30-year note. That's before having to pay real estate tax and insurance. That value for the medium home price in Dallas has gone up 26% from May of 2020 to May of 2021. That, as a result, has driven home closings down by about 7% in the month of June, month-over-month sequentially.
If you can do the simple math, with a 10% rent increase or a 15% rent increase in a market where your competitors are charging a 26% cost increase, I'd say apartments are more affordable in the month of July in Dallas than they were relative to home purchasing than they were in the month of July of 2020. That's great tailwinds for our sector. Blake hit on another issue that we can elaborate on. We've got a great supply problem in our markets. Austin, Dallas, and to a certain extent, Houston are unable to keep up with the net migration trends and the move-ins that are coming in from other states. You've got a supply and demand issue. The natural result over the last year has been about a 25%-30% increase in medium home values.
Rents haven't picked up 25%-30%, they're doing a healthy 10%-20%. The developers, for COVID and other reasons, call it inflationary pressures for construction costs or call it COVID related lack of employee retention in order to build out a house. They simply can't deliver the single family or multifamily product to absorb the number of individual residents and households that are moving into our markets. You're seeing it on a look back. You're seeing some of the highest net absorption numbers coming in our markets, in the United States, but more importantly in our markets that you've seen since the mid-1990s. It's resulting in a vacancy reduction up to about a U.S. average of about 4%, which is where our markets kind of sit right now. We don't see any reason that that trend's going to turn around.
Part of the reason for that is we saw starts drop in our markets by 20%-50% on a year-over-year basis. There's simply just not the product to deliver from a single family home size or a multi-family size, that will support the number of housing moving into those three markets.
Okay, thanks. That's a great color. I just want to follow up on that. I've seen strong demand for units and also total supply. We have seen great plan on rental growth. I just want to ask, from your perspective, how stabilized is rental growth moving forward, let's say in 2022 and 2023? Because we're currently living in unprecedented situation, like you said, that never happened in the history, never seen in the history. How stabilized is rental growth moving forward, like in 2022 or 2023?
Yeah, sure. Moving on, if we knew what rental prices were going to be in 2023, we'd be sitting under a shade tree right now. The future's uncertain, but as far as I'd want to rely on our data providers and what they're projecting, the Coldwell Banker Richard Ellis and the CoStars and the Real Capital Analytics and the Ron Wittens of the world. These individuals are talking about a continued sustained tailwind of rent and occupancy growth right now through the end of the fourth quarter of 2022. Those are positive tailwinds. Those are numbers that we look at for, call it the next 18 months. They all look positive to us.
Okay. All right. That's great color . Thank you very much. That's all my questions. I'll turn it back.
Thank you. Your next question comes from Matt Kornack with National Bank. Please go ahead.
Hey, guys. Just a few quick technical ones on my side. With regards to the rental guarantee, would that be the equivalent to the rent that you would've received at stabilization for the assets? Just if I take that and add that to revenue, would that be an appropriate approach on that front?
Yes.
Okay.
That's correct.
Then second to that, you spoke to the OpEx impact as a result of the newer asset age, but also with regards to your CapEx reserve and just ongoing maintenance CapEx. Can you speak to how that will trend or if it's already incorporated in your view on maintenance CapEx at this point? Thanks, guys.
I'm not sure. Can you clarify that question just real quick again? Are you asking for ongoing or where it is right now?
Well, yeah. I guess I didn't look at the figure in a lot of detail that was used for the maintenance CapEx this quarter. Maybe if you could give a sense as to the trajectory of maintenance CapEx, because I'd assume given the newer age of the assets that you're buying and the selling of some of the older ones, that the maintenance CapEx profile for this portfolio would've come down.
Yes. That's absolutely right. I think that goes without saying due to the fact of what the age, and you pretty much answered the question. We're looking at anywhere from $250-$300 per unit. That is what we're anticipating going forward.
Okay, perfect. No, that's helpful.
Does that answer?
That's great. That's exactly what I needed. I appreciate it.
Okay.
Congrats on a very strong quarter. I've got to deal with a toddler that's home with me right now. I'll talk to you guys later.
All right.
Thanks Matt.
Sure. Thank you.
Thank you. Your next question comes from David Chrystal with Echelon Wealth Partners. Please go ahead.
Hey, good morning, guys. I just want to build on Kyle's question from earlier, and I apologize, I got disconnected. You may have already given an answer to this. Leasing lifts accelerated throughout Q2 and into July. Do you have a sense of how lifts on new leases have trended so far in August?
Yes, I do. Obviously, I'm limited. Suzy looks at me every time a question like that is asked, and I've learned over three years to be careful because it isn't in our MD&A. I do have a sense of that, and it looks very good compared to the July numbers, and I'll leave it at that. Very good.
Okay.
The trends are just positive across the board in all three categories.
Okay. If I look at the renewal spreads, obviously they're much lower. Could you push harder on the renewals, or is there a strategic reason that you're holding off a little?
Well, obviously, we could always push more, and we will. I'll answer this in couples of ways. As everyone knows, we use Lease Rent Optimizer, and it guides us on rental rates. In most cases in my career through the years, rental rates follow the new rates. In our case, and I think in most people's cases of our competitors, if you look, there is a pretty big, at this point, gap in new to renewal. That will continue to shrink as we are able to push rates on renewals. That is something that we're going to do. We've discussed it internally. I'm going to say this to answer probably a question coming later, is there is a balance on pushing renewals and pushing new rates, and you're balancing that against occupancy, too.
That's something that I probably spend, and our group spends as much time on discussing as anything because, as I addressed earlier in my conversation, that these are some pretty lofty new rates that we're seeing compared to history. We're wanting to make real sure that we balance our occupancy with our pushing the renewals also. Our blended rate is 8.4%, so that's a pretty good thing to look at right now. I think, going forward, to answer the question, we will be seeing a shrinkage, but there's a lot that goes into that.
Okay, fair. I think Matt asked this question, but it cut out. If I look at the rent guarantee, how should we look at that burning off in Q3 and Q4?
Yeah. Right. We still have plenty of rent guarantee left, but we also have with the properties are leasing up way faster than we anticipated at a higher rate. We expect to have stabilized NOI for those properties, whether it comes through the rent guarantee or through just actual lease ups through the end of the year.
Okay. Given the mid-quarter acquisition of Alleia, was the guarantee contribution from that asset only for the period it was owned?
Yes.
Okay. Perfect. On the acquisition front, you're still very confident on executing another $170 million by year-end. How have the economics evolved? Are you still confident in the kind of unlocking economics, as in any cap rate compression is going to be offset by NOI growth expectations?
Yeah, David, this is Dan. I'd say we're very confident, but we're careful not to become overly confident in this market. What I mean by that is we want to know for sure that any particular investment or acquisition will do more good than harm. That keeps us disciplined. Now, let me give you a perfect example. These cap rate compressed markets have not just shown up. They've been around for a while. In the second quarter, we've assessed, call it 41 potential acquisitions. That's about 17,000 suites. Value on that's about $3.85 billion. That's an average purchase price of about $93.75 million. Now, out of those 41 we looked at, we offered on four, we bought one, in Hangar 19. Those sound like they're pretty astounding numbers. 10% of your underwritten properties you offer on, and out of those, 25% you close.
That's about our average closing ratio for reviewed properties over the course of the last 5- 10 years. We continue to see depth in these markets. With that said, on the $167 million on the look for, we're looking at the playing field and not the scoreboard. What I mean by that is we're going to score ourselves on how well we can acquire, not whether we can hit acquisition volume or timing benchmarks. There's going to be another $8 million of apartments to trade in our markets between now and Thanksgiving, and we'll look at about half those. If any one of those properties hit our benchmarks and hit our underwriting and criteria and our disciplines, and we think it's a good fit for this portfolio, we will acquire that property. We feel very confident in that.
The market is not for lack of depth. The market is not for lack of good fundamentals. So long as we can continue to see, call it a 200- 250 basis point spread above our cost of capital, we're going to continue to acquire. We see green lights in every discipline that I just referenced right now. Yeah, we're pretty confident we can drop another $160 million-$200 million in the market on acquisitions between now and year-end. We're not going to just buy for buying's sake. We're going to buy good properties on the right side of the road at good values.
Okay, perfect. That's it for me. I'll turn it back. Thank you.
Thank you. There are no further questions at this time. You may proceed.
Okay. That concludes our remarks for today, and we will be speaking with you again at the end of Q3. Thank you, everyone. God bless.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.