Earnings Call: Q4 2020

Mar 10, 2021

Earnings release

My name is Annas, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSRE Q4 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, There will be a question and answer session. Re. Thank you. Mr. Bailey, you may begin your conference. All right. Well, thank you, Annas, and good morning, everyone. Welcome to BSR's REIT's conference call to discuss our financial results for the Q4 year ended December 31, 2020. I am joined today by Susie Kane, our Chief Financial Officer. Also with us are Dan Oberstee, President and Chief Investment Officer and Blake Brazil, Co President and Chief Operating Officer, who will be available to answer questions following our prepared remarks. I'll start this call by providing an overview of our annual and quarterly 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 and A session. Before we begin, I need 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 forward looking information and our news release and MD and A dated March 9, 2021 for more information. During the call, we will reference certain non IFRS 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 and A for further additional further information regarding our non IFRS financial measures, including 2020 was a challenging year on many different levels. However, BSR prevailed by delivering strong financial results, while dramatically upgrading our portfolio through the capital recycling and portfolio growth program. We collected Nearly all of our build, rent and operated without significant interruption in the midst of an ongoing pandemic. It is a tribute to our professional BSR team for performing so well under the unprecedented circumstances. Let me take you through a few quick financial highlights. At year end, weighted average rent was 10 $88 per apartment unit, an increase of 16% compared to year end 2019 of $9.37 per apartment unit. Same community revenue increased 2.1% in 2020 compared to 2019, while same community NOI was up 2.7% even with the impact of a pandemic. These numbers demonstrate the benefits of our growing exposure to primary Sunbelt markets with strong economic fundamentals. In short, our strategy is working. This is an excellent opportunity to take stock of our current portfolio. It bears little resemblance to the point we took public in May of 2018. During 2020 alone, we acquired 6 high quality apartment communities in primary markets for an additional $338,000,000 including 2 in the Q4. At the same time, we completed the development of Wimbledon Green Phase 2, adding 156 apartment units to the portfolio, and we sold 17 non core properties for proceeds of $346,000,000 12 of which were sold in Q4. After including the sale of Towne Park and Harbour Apartments, which we completed last month, we have acquired a total of 14 properties since the IPO while divesting 33 properties. We still consider Northwest Arkansas an attractive market. However, We have not achieved critical scale. Therefore, we determined our best course of action was to capitalize on strong property values in this market and deploy the capital where we do have scale. The result of this activity REIT is a highly is high graded portfolio in high growth primary markets in Texas. When BSR went public, we generated about 52% of our NOI from primary Sunbelt markets. Today, that number is 95%. And the weighted average age of our properties in our portfolio has declined dramatically from by 12 years since the IPO from 29 years to mid-twenty 18 to 17 years today. As I mentioned earlier, COVID-nineteen is not having a material impact on our rent collections. We collected 99% of total billed revenue in December 2020 and also in January February of 2021, which is in line with historic norms. Also, nothing matters more to us and having all necessary measures at our properties to maximize the health and safety of our residents and employees. RE. Finally, I want to talk about talk briefly about the impact of the severe weather, which struck the U. S. Sunbelt last month, including our markets in Texas, Oklahoma and Arkansas. First, we had no loss of life among our employees or residents. 2nd, we were fortunate not to have material damages to our business with no down apartment units. We have incurred about $100,000 of costs associated with the freeze damage, and we do not expect total expenses related to the storm damage to ultimately exceed $300,000 No insurance claim is being filed at this time. Our expert and capable team did an exceptional job with responding to the needs of the affected residents in the aftermath of the storm as we dealt with the utility service interruptions and other temporary issues. Now I'll turn it over to Susie to further review our Q4 and full year results in more detail. Susie? Thank you, John. Same community revenue increased 0.8% in the 4th quarter to $12,000,000 from $11,900,000 last year, reflecting an increase in same community average rental rates from $9.15 per apartment unit as of December 2019 to $9.24 per apartment unit as of December 2020. Total portfolio revenue for Q4 2020 increased 1.8 percent to $28,600,000 compared to $28,100,000 in Q4 2019. The increase was primarily the result of property acquisitions, which contributed $7,100,000 in revenue as well as higher rental rates across portfolio, partially offset by dispositions that reduced revenue of $6,700,000 In NOI, the same community properties for $6,500,000 in line with Q4 of last year. The increase in revenue was offset by an anticipated increase and real estate taxes and insurance costs. NOI for the total portfolio increased by 1.6% to 15,100,000 compared to $14,900,000 in Q4 last year. The increase was primarily attributable to acquisitions contributing 3,900,000 partially offset by property dispositions reducing NOI by 3,600,000 FFO for the Q4 was $6,700,000 or $0.15 per unit, which was consistent with Q4 last year. The increase in NOI was offset RE, dollars 200,000 of severance and retention costs. I also want to note that we excluded from FFO a loss on extinguishment of debt of $10,000,000 primarily related to the non cash write off of net discounts premium REIT and prepayment embedded derivatives. Q4 2020 AFFO was $6,100,000 or $0.13 per unit compared to CAD 6,300,000 or CAD 0.14 per unit last year. The decrease in AFFO was primarily the result of CAD 500,000 less rent guarantees related to property acquisitions, partially offset by a decrease in maintenance capital expenditures of REIT of $400,000 The REIT paid quarterly cash distributions of $0.125 Re. 20 compared with 89.6% last year. The payout ratio will decline as we complete the disruptions caused by rotations of this magnitude. I'll now review our results for the year ended December 31, 2020. RE. Same community revenue increased 2.1 percent in 2020 to $47,700,000 from $46,700,000 in 20 19. The increase reflects higher rental rates as well as an increase in utility reimbursements of 300,000 partially offset by the absence of late rental fees of $200,000 related to COVID-nineteen. We resumed charging late Revenues in August 2020 as previously disclosed. Total revenue was $113,300,000 in 20 20, an increase of 1.5 percent from $111,700,000 in 2019. Property acquisitions contributed $25,800,000 of revenue, while Disposition reduced revenue by $25,200,000 Same community NOI increased 2.7% to $26,000,000 from $25,300,000 in 2019. The increase in revenue was partially offset by a 0 point $2,000,000 increase in property insurance expense. COVID-nineteen related expenses of $300,000 in 20.20 were offset by lower payroll expenses. Total NOI was $59,200,000 in 20.20 compared to 59,700,000 in 2019. Property dispositions reduced NOI by $13,900,000 while property acquisitions contributed $12,700,000 FFO for 2020 was $27,700,000 or $0.61 per unit compared to $29,300,000 or $0.71 per unit in 2019. The decrease in FFO in 2020 reflects The reduction in NOI and a $300,000 increase in G and A expenses related to share based compensation and employee benefits, partially offset by lower legal and professional fees and lower travel expenses. The amortization of deferred financing fees contributed 0 point $5,000,000 to the decrease in FFO, while severance and retention costs related to the capital recycling program contributed $200,000 to the decrease. A loss on extinguishment of debt of 11.6 and prepayment embedded derivatives. AFFO for 2020 was $25,400,000 or $0.56 per unit Re compared to $26,400,000 or $0.64 per unit in 2019. The reduction in AFFO reflects the Re. Decrease in FFO partially offset by a $600,000 decrease in maintenance capital expenditures due to emergency only maintenance conducted in the Q2 of 2020 as well as the rotation out of older properties into newer properties. The severance and retention costs I just mentioned are excluded from AFFO. The REIT paid cash distributions of $0.50 per unit Re. In both years with an AFFO payout ratio of 88.7% in 2020 and 78.6% in 2019. As previously discussed, the payout ratio will decline once the portfolio is stabilized. Turning to our balance sheet. On February 9, we completed a bought deal equity offering in which we issued approximately 6,300,000 units at a price REIT of $10.95 per unit, raising gross proceeds of approximately $69,000,000 We were pleased to see the overallotment option REIT. Underwriters was fully exercised, clearly reflecting strong demand from investors. In addition, as John noted earlier, We completed the sale of Town Park at Harbor property on February 16, which generated gross proceeds of $31,700,000 Accordingly, our total liquidity is now $170,000,000 and our debt to GBV ratio has declined to 40%. We are well positioned to pursue our growth strategy with our strong liquidity position. As of December 31, We had total mortgage notes payable of $355,000,000 excluding the credit facility and line of credit, with a weighted average contractual interest rate of 3.8% and a weighted average term to maturity of 7.6 years. Total loans and borrowings at year end were REIT. REIT. I will now turn it back over to John for some closing comments. John? All right. Thank you, Susie. The past year has been a challenging one, but our solid performance demonstrates the strength and resilience of high quality affordable multifamily housing Primary Suburban Sunbelt Markets. As we have said before, our market fundamentals are very robust. They include strong economic and population growth in our key markets over the long term as well as propensity to rent among millennials who make up more than half of our resident base. We continue to evaluate attractive acquisition opportunities in non core asset sales. The market for multifamily properties remains a very liquid and active one. Even during a difficult 2020, we completed a large number of deals. Our acquisitions team is Very busy evaluating opportunities, and we are confident we will build value with our external growth strategy. With our current liquidity position of approximately $170,000,000 and debt to gross book value of 40%, We are in an excellent competitive position and we are excited about the growth opportunities ahead of us. REIT. While the pandemic isn't over yet and economic uncertainty remains elevated, we are optimistic that 2021 will be another successful year for BSR. That concludes our remarks this morning. Re. Susie, Dan, Blake and I would now be pleased to answer any questions you may have. So operator, would you please open the line for questions? Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear our 3 tone prompt acknowledging your request and your questions will be Your first question comes from Lian Chen with IA Capital. Lian, please go ahead. Hi, good morning. Couple of questions for me. Just on the Wimbledon Green Phase 2 development, what was your yield on cost on the project and was it in line with your budget? And how did the expected yield on cost on your project evolve over the last year in light of increasing material costs? Good morning. This is Dan Oberstein. Our original yield on cost, I think we reported our cost there $16,500,000 and our yield look to be 6.75 to 7. We've that property's lease up And current stabilization has outperformed our expectations, so we're probably a little bit higher than those numbers. And as it relates to the construction costs, since we penciled in and fixed all of our construction costs prior to last year on that development, We were firmly insulated for many run ups in the prices of lumber or other construction materials. So as our investors have right now, They bought a 4.5 cap or a 7 cap. We're pretty happy with that and we hope our investors and stakeholders are as well. That's great. Thanks. And last one for me, just looking at the single home residential market across the U. S, particularly in Texas, Your pricing seems to remain very robust. Does this particular environment translate much stronger than that for rentals within Your markets, just curious as to what you're seeing on the ground today? This is John. And from the standpoint of single family homes, there has been a run up in pricing. And in our markets in particular, you have let's just go maybe to Austin, Texas, where you have about $400,000 for your average home price. And our cohort is a middle income cohort that has an income of a range of $60,000 to $70,000 and buying a home in Austin, Texas for $400,000 that equates to about $10,000 a year just for the simply for paying for property taxes. The cohort that we cater to primarily, this particular cohort is much more flexible mobile. They have their balance sheets are pretty well stretched They have their balance sheets are pretty well stretched out by having student loan debt. There's about $1,600,000,000,000 of student loan debt to this particular cohort. And we don't see this as being a direct competition even with the continued demand for housing in these markets. And we don't see the demand for the housing to go away in the next several years. I mean, it's Quite robust with the amount of population and economic growth that we've seen in these Texas markets, which is exactly why our strategy has been to be moving toward these markets. That's great. That's it for me. I'll turn it back. Thanks, everyone. Thank you. Thank you. Your next question comes from Brandon Abrams with Canaccord. Brandon, please go ahead. Hi, good morning, everyone. Maybe just on the capital recycling front, just wondering if you could remind us how much is left within the portfolio that you'd like to dispose of and maybe in terms of other units or dollar value. And then just on the acquisition fronts going forward, with about 80% of the NOI The 3 big markets in Texas, are there any other markets or geographies within the Sunbelt you're looking closely at right now to potentially add to the portfolio. Sure. This is Dan. First, as it relates to the rotations in the capital recycling, We may look to trim the edges of the portfolio a bit with some tactical gardening, but overall, the lion's share of the dispositions are complete. I think we've telegraphed our intentions with Northwest Arkansas. And yesterday, we sold Capri Apartments in Blytheville for what See as a foregone 4.1% cap. If that's not representative of the current disregard for cap rates in our markets, I don't know what is. So I guess in detail, we'll be opportunistic with our capital discipline. If we see sales prices far exceed what we can otherwise produce on a, call it, a fair value return on what we believe the market value of the property is, And sure, we'll be opportunistic. But I don't think you're going to see us selling, what do we sell, 34 properties in the last 2 years? I don't think we have the capacity to do that kind of rotation on a look forward. So smart sales Probably further entrenching our NOI in the 3 markets in Texas is probably what to look out for on a look forward. And as it relates to our markets for acquisitions, We're going to continue to focus on Dallas, Houston and Austin. This real estate investment strategy has proven to be a bull's eye in the past 36 months and we see no compelling reason whatsoever to throw a dart in another direction off the board. So we'll continue to look at those 3 markets. REIT. We like the demographic trends. We like the fact that every quarter and every year, one of those three markets leads the nation in Absorption, Employment Creation, Demographic Trends, Net Migration, Population Growth, These are the main ingredients in, the, I would say, AFFO growth and value growth. So as long as we continue to see those 3 consistently hit the top mark or the top five mark in every one of those categories year over year and decade over decade since as far back as we can look, 1960. We're going to continue to hit the ball into those markets. And this is John. I'd like to add on to that too. As you know, the REIT owns the management company in our platform. And what we want to do as part of our overall strategy and we have it backed off. As a matter of fact, we see more and more opportunity to continue to build scale and opportunity with this team's, I would say, expert capabilities and their abilities to continue to find product at more favorable prices than what I would think any other competitor out there would be able to do with our relationship purchasing and capability. So I'll just go with our platform's efficiency going forward is where we're targeting To continue to grow our scale in these markets for every bit of what we talked about our platform scalability. Okay. That's helpful. That's good color. And then just last question for me before I turn it over. Just in terms of occupancy, it's hovered around the just under the 94% mark. Just wondering if you consider that kind of a stabilized figure for your portfolio and within your markets or Is there a potential for that number to increase as you've acquired properties and you deploy some of your active property management techniques on those assets. This is Blake. 94% is pretty much what we're forecast for this year and that We do consider that to be a stabilized, but I must add that with some of our newer properties that are During that time, because it's probably a pretty good time to remind everybody that our Same store and non same store is about fifty-fifty right now and that ratio is going to keep going up on the non same Re. So we've got a lot of new product that is performing Really, really well right now and we're hopeful that we can move the needle on that 94%. Okay. That's great. I'll turn it over. Thank you. Thank you. We have a following question from Brad Sturges with Raymond James. Brad, please go ahead. Hey, Brad, we can't hear you. Hello, Brad. Hi, can you hear me now? Thank you. Can you hear me? Yes, we can hear you now. Sorry about that. I Had to take myself off mute. Just on those minor questionings, I guess, rent growth year over year has been trending around the 1% range and with hopefully a successful rollout on the vaccine front, do you see that being a level that can start to accelerate Like rent growth year over year start to accelerate from here over the next few quarters and where would you think that could normalize out to? Hello, Brett. This is Blake. Looking at what we're for 2021, we're expecting a 2% rent growth. That's what we're expecting internally. And hopefully, in our markets, as we continue, we We've discussed this in past calls, but we spent so much time on revenue management and looking at our markets and looking at our competitors. And as we continue to get further along as the original pandemic outbreak. We are hopeful that 2021 We'll create a different scene for us and really looking forward to 2022. And with that thought process, where would you Currently expect your margins to trend for the year? Hey, Brad. It's Susie. I would say about 50 4% is what we're predicting for our margins, therefore. Okay. And maybe just one last one for me. In terms of The outlook for acquisitions, can you give a little bit more of a context or commentary in terms of your REIT. Expectations for capital deployment and when you think the REIT could reach more stabilized level in terms of debt metrics. Sure. And Brad, let's start out with cap rates because that's a fun conversation to have. If I'm looking back to Q3 of 2020, U. S. Multifamily cap rates compressed 20 basis points, And that's just for Q3. So we're looking at the average of 5.09% is the average U. S. Cap Great. Now there's 2 items of note here. First, let's take Dallas. DFW was by no means average. Last year, it was the top U. S. Metro for Multifamily Investment in the United States. And second, now I haven't seen accurate numbers For Q4 cap rates yet, but since October and through yesterday, I'll tell you right now, cap rates in our markets have compressed substantially. I haven't seen a cap rate above 3.75% in Austin since last October. And I'm seeing comps to our recent DFW and Houston acquisitions Trading at 20% 25% premium since the date we acquired those. I'll tell you right now, Houston is probably a solid 4% to 4.5% cap market at this time. Now those are the headwinds. That means that the way I see it, what we bought is worth a lot more than what we paid for, But it does make it somewhat competitive on a look forward. I don't think our investors would be happy with us buying a 3.5 cap And we won't do that, right? But I want to remind the group that we got about $400,000,000 of acquisitions that we're looking to close on between now and the end of July, June or July. We're pretty confident in that number. Obviously, we hadn't disclosed any acquisitions yet. That's just the nature of the public disclosure of acquisitions. We're pretty confident that we We'll have that number to date. We're excited to roll out our pipeline as we close. I don't think that we are really going to participate in the low cap rate environment that we saw coming through in December January. The majority of our acquisitions that we source are off market and from repeat sellers. The REIT's ability to close in a short period of time and to quickly underwrite and do exactly what we tell people we're going to do. That helps our credibility in these markets. I think the second thing that helps right now is the cash on hand that we have to deploy into acquisition. What that enables the REIT to do is trade a little What that enables the REIT to do is trade a little cap rate for some volume. What I mean by that is that it opens up the door for portfolio dispositions from a developer standpoint or from a seller standpoint, allows a little bit more elasticity in cap rates, so that we can go ahead and acquire cap rates that we think are a little bit higher than where we're REIT. And then turnaround and hedging our debt behind that so we can preserve the economics for our investors. Now One other component of what we're seeing in the current cap rate environment is the majority of the buy and the sell side and the lending side for that matter. They're underwriting to some pretty substantial 2022 organic growth numbers. Some of the numbers that I'm seeing that are commonly dropped on The Street are a 9% 10% organic growth number for Austin, 6% for Dallas, 5%, 4% for Houston. And they're embedding some of that organic growth into the current cap rates that they're trading properties at in the market. So When you look at how that investment looks over a 3 year period, you're seeing cap rate look back expansion that's sometimes double what we're historically used to. And I think that's a for that and a little bit of the leverage and the lower rates we saw in December through February is enabling A buyer to probably lever up a little bit, fix the rates and sacrifice a little bit lower cap for Kind of the year 2 year 3 growth expectations simply out of just organic rent growth on the margin of 56, On the AFFO margin of 50%, you can turn that into year over year cash flow growth pretty quick. And with that, I'll drop the mic. That's quite helpful. So Just to maybe clarify, it seems like the maybe the off market opportunities are more with the developers at the stage where you can Take advantage of liquidity and maybe a little bit of lease up risk just to get a little bit better stabilized yield. That's fair to say. It does help us out with economics and having solid trading partners. And I think we came into the IPO in 11 Our 13 prior acquisitions were off market from repeat sellers. That number those statistics really haven't changed since IPO. A lot about acquiring and selling in our markets is knowing everybody at the table who builds and buys and rehabs and brokers and lends and keeping up good relationships with them. And that turns into really the ability to confidently project $400,000,000 in acquisitions by the end of the second quarter. Okay, great. Thank you. Thank you. Your next question comes from Kyle Stanley with Desjardins. Kyle, please go ahead. Thanks. Good morning, everyone. So it sounds like the acquisition pipeline is fairly deep and you just gave a pretty good rundown of What you're seeing out there, are you seeing any portfolios available for sale, maybe you get that capital deployed even quicker? Yes. I'm seeing this is Dan. I'm seeing portfolios. I'm seeing one offs. It's a great time to shop for properties When I look at last year's volume, you got $10,500,000,000 of multifamily trading in Dallas, you got $3,500,000 in Austin and 3 point And Houston, that I see no signs of that slowing down. As a matter of fact, I see that's probably going to accelerate into 2021. So we're seeing everything from a fractured condo deal to 17 Property Portfolios. Okay, great. That makes sense. And then maybe just given your commentary about not Participating in the low cap rate environment. I mean, you mentioned maybe targeting some developer owned property with some lease up risk. But would that also indicate maybe you're looking at some assets with a bit more value add than maybe what you've done in your most recent deals. Probably not. Our view of value add right now is it's a good time to be a seller of value add properties. It's very I think it's Very easy to I think it's relatively easy to underwrite the increased economics for value add, and it's much tougher to execute upon those increased economics. So if I'm looking at hedge debt of, call it, 2.5% And walking into the back of a 3 to 5 year increase in interest rates, it's going to potentially drive cap rates. REIT. I really want to run the quality all day long, which so with that said, if you look at the last, call it, 6 or 7 acquisitions we've done, they've all been new assets and And then just looking at one of the more recent acquisitions, Vail, just how is the leasing program going there? Blake? Hey, Kyle, this is Blake. Going really well, we're leased at 75 REIT. As of today, our budget call to be 55%. We are reaching The pro form a lease rates, we're actually a little ahead of that right now. Our traffic is great and Really, really, really doing well. Okay. Great to hear. And then just a last one for me, maybe a little Higher Level. Just curious on your thoughts on the 1031 exchange program under the new administration. Any chance that we see any changes there or just your general thoughts? Hey, Kyle. Before Dan answers that question. I would want to add too also the Satori, which was one of our first properties that we took on a lease up, is at 97% Okay, Kyle. So this is John. And I'll take the 1031 question and just we noted that there was discussion about that during or the presidential election period. And this President, he Biden has put all kinds of different priorities out in front of him, including just raising overall taxes much less than getting into the weeds on how they would raise taxes or do away with certain components of the real estate side. I will say this, RE. The 1031 has been around since 1921 in some form or fashion. And since 1987, it's been the way that we're looking at it today. And it's provided a great lift to the whole economic component of the U. S. Economy. So to me, I think that it's REIT. Pretty far down the weeds to say that this is going to go away or it's going to have a meaningful change. But we don't control that. And as far as we're concerned, We're going to continue conducting our business and utilizing 1031 as long as it's available, but we don't believe that it's going to be It's something that's going to morph or go away due to one administration's discussion about It was some good wording around good fodder for talk speak, if you will, and hope it's to be elected. Okay, great. Thanks for all the color. I'll turn it back. Thank you. Your next question comes from Joanne Chen with BMO. Joanne, please go ahead. Hey, good morning, everyone. Re. Maybe just a quick follow-up on the acquisition side. With respect to the $400,000,000 acquisition, in terms of Given how competitive the pricing environment is, would you say that the kind of cap rate that you'd be looking at on those acquisitions is probably in the low Yes. Joanne, this is Dan. I think it's fair at this time to give a range. Let me give you a 100 REIT. J. Rice:] The range between 4% 5%, the way that we look at cap rates, which might be different than the way that the rest of the market views. Okay. No, that's helpful. But maybe just switching gears a little bit, I guess, on the Maintenance CapEx side of things. How should we think about that to trend, I guess, in 2021, 2022, just given the significant shift in the portfolio Re. I'm sorry, you faded out for a second, Julian. Did you ask about maintenance CapEx? Yes. How should we think about that trend in 2021 2022 given the significant shift in the portfolio this year? Right. Yes. So generally, we each project around 4 $30 a door ish. That's going down a little bit, maybe closer to, I would say, dollars 3.75 based on the age of this portfolio. Okay. And I guess just this quarter, there was the weighted average Cap rate on the portfolio compressed quite a bit to 4.9%. Can you talk to maybe some of the drivers of that 30 beats Quarter over quarter, was that mostly from acquisitions of some of the newer properties? Yes, right. So you've asked for everybody's notice, the weighted average cap rate of our portfolio has been trending down. And that's there There's two reasons, right? We are buying properties with lower cap rates, yes, but we're also selling a lot of properties that had higher cap rates. So it's a combination REIT. Okay. Thanks for that clarification and I'll pass it back. Thanks everyone. Re. Thank you, Joanne. Thank you. We have a following question from Matt Logan with RBC. Matt, please go ahead. Thank you, and good morning. Good morning. Hey, Matt. Just wanted to touch on your disposition of Towne Park. When we think about the remaining assets in Northwest Arkansas, would those be something that you would consider selling? Any color there would be appreciated. Matt, this is John. And Northwest Arkansas is certainly one of our target markets to grow in. But I will say this, the market As they paid an outrageous price from our perspective for Town Park and that it was also some out of market debt that was with it. And when you look at the look back cap rate that we received on the property, It was compelling to the point that we wanted to rotate that capital and put it back into where we do have scale and where this where our platform could take advantage of the opportunities as Dan had discussed before. And we've seen the same thing As Dan had discussed before, and we've seen the same thing for the remaining property in Mountain Ranch. I mean, we look at the pricing REIT. Being in that particular market, so just I wouldn't be surprised if you ever saw us move out or you know our strategy is a clustering strategy. And if we aren't growing, then most likely we're going to take advantage of an opportunity to move our capital and put it where we can grow with scale. Yes. And this is Dan. I'm going to echo some of John's comments and generally say let's take that Town Park acquisition or that disposition, I think it was 31 point REIT, give or take. Now I want to note there, and I think we hit on it in some of the disclosure materials, the buyer in that transaction assumed a 10 year fixed rate 4.5 percent interest rate loan that carried with it at closing about a $5,000,000 I think it's $5,000,000 or $6,000,000 prepay. So if you're looking at what that acquisition cap rate would look like all cash, you're looking at a 4% cap flat for Town Park, Right. And you have a buyer that assumed a lower levered loan, at a way out of market interest rate. And that's what drove down So that sales price on Towne Park. Now even with Towne Park sales price of $31.7 that's Call that a mid-5s exit cap. And when you're stacking the prepay on top of that 31.7, You're looking at a yes, you're looking at a 4. And when we decided to get in and anchor Northwest Arkansas as a core market for us, we saw the basic demographic trends, the net population growth, the AMR growth, the supply and demand mismatch. But if we're going to see assets trade at a 4 cap, in Northwest Arkansas, then I think it's Basic capital discipline that we would revisit our whole strategy there. Makes total sense to me. Any thoughts on Oklahoma City at the moment? No, this is Dan. No real I mean, we've got tons of thoughts on them, but no real thoughts that are going to turn into tactics or strategies. We think the Oklahoma City NOI is what I would call pure. Our assets are pretty well capitalized there. We've acquired some of them post IPO. And then I think if you really look at Oklahoma City performance during COVID, a big pillar of that economy has been since 2,005. And the Oklahoma market performed well in the last year and a half, though hospitality was one of the hardest hit factors of our economy in 2020. So we like the way the market the way the REIT. I guess performed against some of those negative global macroeconomic trends. On a look forward, We hadn't seen much of any development in 2019 2020 in Oklahoma City. And I think some of our organic expectations this year and next make it Kind of a quite pleasing market for us to have to hold on to. With that said, we'll continue to be opportunistic. So I guess focus of the acquisitions is really Texas given positive dynamics, Oklahoma is moving along well. In terms of the NOI outlook, I guess we've got 1% -ish rent growth, stable occupancy and a 54% margin. Correct me if I'm wrong, but with a 52% margin in 2020 and 53% in 2019, That should translate into some pretty healthy NOI growth here in the next year. Yes, we think so. I mean, this is Dan. We spent the last year beating up on our competitors every quarter. We think we'll continue to do that in the next quarter, we hope. And REIT. I think the motto of BSR is we want to be able to control what we can control. And we are real estate managers and real estate investors. So we're going to keep our heads down and we're going to continue to be excellent landlords and provide a great service and great properties and great locations for our residents and our employees. And I see no additional ingredients to apply. And I kind of see the fruits in the pudding on a look back and I would And Matt, this is John. I'll add on to that and that this just speaks volume To our strategy and why we've been growing primarily in just Austin, Houston and Dallas. RE. The trend for population and economic growth is forecast by REITs, CoStar, all the different Outlets that are forecasting this type of growth going forward is way, way outpacing the other markets where we had existed and we're going to continue taking advantage of any type of opportunity to have rotated and we're extremely pleased that we have rotated with the lower FX spread compression between our secondary and our primary markets. Absolutely. And maybe just one quick question for me before I turn it back. Could you give us a sense for what you're seeing for indicative interest rates these days? Yes, sure. This is Dan again. So this is a topic to shorten. Majority of the run up in rates that we've seen carries between years 3 10 on the curve. So the premium to finance will generally sit in those areas. The premiums for hedging against the curve right now is virtually non existent between years 1 3, which generally follows current Fed thinking on short term rates. I think for BSR, we'll likely look to hedge our future debt obligations through the usage of caps, and We'll just say a 25 basis point cap purchase in lieu of swaps. This will enable the REIT to enjoy current short, low term LIBOR rates, while protecting our investors from the potential of rising rates beyond 23. Right now, if I'm going to look at spot money, 5 year money probably looks like Great commentary. Appreciate it. I will turn the call back. Thank you. Thank you, Ben. Your next question comes from Yash with Laurentian Bank. Yash, please go ahead. Good morning. Hey, good morning. Hey, Yash. Are Are you guys modeling any specific number for your same property NOI growth and FFO per unit growth given what you know, what is happening in your markets. I believe you were asking what are we modeling for same property NOI growth? What your model is spitting out based on your margin assumptions and rent growth, you said about 2%. Yes, we're looking currently at 1% to 2%. We always which is quite a bit more than our competitors And a lot of areas down in the Sunbelt. And but we're always looking to beat that mark. But at the current time, that's what we're modeling. Right. Okay. And On your SFO per unit growth, how do you guys think about The FFO per unit growth of this new portfolio that you have put together and given The rent growth you are seeing, what kind of FFO per unit growth do you think you can achieve over the next, say, 5 years? Well, 5 years this is Dan. 5 years is a long time. And if I was ever accurate on a 5 year look back, then I should get more than a trophy. Right. I mean, if we're really looking, I would say now more than ever, capital discipline and discipline in underwriting is So important, right? So if I look at last year, the team looked at 107 acquisitions and any one of those 7 acquisitions would have been a great asset to the REIT. That's about 35,000 suites. It's a collective asset value of REIT. $6,500,000,000 and the average asking price of what we looked at was about $59,000,000 Average age of construction was about 20 And you saw we bought 5 or we bought 6. That penetration rate of about 5% to 6% is what we like to see every single year. We can only coach to that. We look at that number and it's a good bellwether number for us to know whether we're reaching on acquisitions or not. Now if we look back again and dig through our discipline a little bit more, we'd like to see 75 basis point cap rate expansion on a 3 year look back. I don't see any reason why we can't continue that trend of call it a 3 year look back turning into NOI and this FFO growth of a 75 basis point expansion. Now with that said, there could be a couple of curveballs in our market. We've said in the last year of some flat to declining rent AMR numbers, right? Now Our markets continue to lead the nation in population growth, job growth, right, and in some cases, Brent Grove. So when I'm looking at and modeling some Austin acquisitions, I'm looking at potentially a 9% to an 11 and organic growth from new constructions in AMR in the year 2022. Now that's not going to chase my bi cap down, but it may afford to read the opportunity to meet and exceed that 75 basis point look back cap rate number that we generally model to. As we go out 5 years, and as I said earlier, I think there's a lot of premium built into years 35 on that on the borrowing spreads. So there it creates a little bit more uncertainty. So I think if we continue to focus on what we can control and buy these assets in the right submarkets in the right markets. The other aspects of real estate investment will take care of themselves. Dan Something that I feel like I talk about every call, but I think it's really, really important Looking at the overall rental growth rates of the occupancy rates, it's really important to look at the submarkets. I mean Houston, I mean we've owned properties that are 60 miles apart in Houston. And these submarkets And Dan does a fabulous job of this. And it's something that Dan and me look at when we're putting together our projections every We go through and we literally look at the projections by 3 different forecasters of what the rates are going to look like for the coming year. And you can't just I Stress this again, you can't just look at the overall city. You've got to look at the submarkets. And I think that's been one of our biggest strengths is buying in the right areas Blake brings up a good point. This is Dan. I mean, let's take Austin as a snapshot as of December 2020. On a look back, I'm seeing for the entire MSA, I'm seeing a negative 3.2% average rent performance for 2020, Right. And I'm seeing occupancy reduced year over year by 4.2% in that market. A lot of that's driven by REIT. There's 17,000 to 18,000 units in lease up and the 21,000 units under construction. So there's some supply chain issues there. REIT. Now with that said, let's take a snapshot of where BSR owns in Austin, right. In South Austin, that's Cielo, and that's our we have 2 assets in South Austin, in Hays County. Now Hays County was the highest performing submarket in 2020 in Austin. It demonstrated rent growth of 3%. Now I want to point out here that only 5 of the 23 submarkets REIT. In Austin last year had positive rent growth. Hays County was one of them. BSR has 2 properties there and we told you exactly what was going to happen when we bought them. Now the second And 3rd and 4th assets we own in Austin are in North Austin. That's up in Williamson County. Now Williamson County was the only submarket out of all 23 of those submarkets that witnessed not only positive rent, but also occupancy growth in the 4th quarter, and that's 2% 4%, respectively. But for the year as well, where we saw rent growth of 2% and 6% occupancy growth. So I think you can derive 2 things. Number 1, We like to be in the right submarkets. But number 2, that's kind of indicative of that suburban growth in urban slack that we saw last year where you saw some of the migration out to more affordable apartments with better amenities in the we'll call it the donuts around an urban MSA. And going back to what I said probably in my first question, and I think to tackle on that, what we're seeing On these non same store assets is the performance is in each instance, either right on top of what we were thinking or and you just heard me reference Vale. We were pro form a at 55%. As it is time, we're at 75% now. So we feel really, really good Over the next year about where these assets are going to take the portfolio. Okay. That's great color. Thank you. Thank you. There are no further questions at this time. Please proceed. All right. Well, that concludes our call this morning. And Thank you for your interest in BSR REIT. And we look forward to speaking with you again as we report our Q1 2021 results. God bless everyone. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.