Good morning. My name is Veronica, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSR REIT Q1 2020 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by two. Thank you. Mr. Bailey, you may begin your conference.
Thank you, Veronica, and good morning, everyone. Welcome to BSR REIT's conference call to discuss our financial results for first quarter ended March 31st, 2020. I am joined by Susan Koehn, our Chief Financial Officer. Also with us are Blake Brazeal, President and Chief Operating Officer, and Dan Oberste, Executive Vice President and Chief Investment Officer, who will both be available to answer questions. I will start this call by providing an overview of our Q1 performance and other corporate developments, including our response to the coronavirus outbreak. Susan will then review the financials, and I will conclude with some comments on our outlook and strategy. After that, we will be pleased to answer any questions you may have. 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 in our news release and MD&A dated May 12th, 2020, 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&A for additional information regarding our non-IFRS financial measures, including four reconciliations to the nearest IFRS measures. Also, please note that all dollar amounts are denominated in U.S. currency. We delivered solid financial results in the first quarter as we continued to execute on our capital recycling strategy.
Weighted average rent at the end of the first quarter was $961 per apartment unit, a significant increase of 15% from $835 at the end of Q1 last year. That result highlights the benefits of recycling capital into primary U.S. Sunbelt markets with some of the country's strongest economies. Since our IPO in May 2018, we have completed nine property acquisitions in primary markets that have added 2,562 apartment units to the portfolio. At the same time, we have sold 20 properties in secondary markets comprising 3,666 apartment units. The apartments we acquired are an average of 11 years old, with the ones we sold are an average of 38 years old. As a result of this turnover, the weighted average of our portfolio has declined from 29 years at the time of the IPO to 22 years today, a reduction of seven years.
We now generate 79% of our NOI from our targeted primary markets, compared to 55% at the time of the IPO. Our portfolio quality has materially improved. During the first quarter, we acquired Ariza Plum Creek Apartments in Austin, Texas MSA for $55 million. This property was built just two years ago and comprises 349 apartment units. We now own 1,189 units in Austin, one of the most attractive markets in the country. We sold one non-core property in Q1 2020, and we sold another four subsequent to the quarter end, which includes the Summer Lake property in Longview, Texas, which we sold just last week. The gross proceeds from these five property sales was $85.8 million. Our capital recycling efforts are far from over.
We plan to sell our five remaining properties in Beaumont, Longview, Blytheville, and Pascagoula markets, as well as certain assets in Houston and Little Rock. As long as we continue to see opportunities to preserve and grow unitholder value, we will continue to rotate out of the secondary markets and expand our investments in our targeted primary markets on a tax-deferred basis. As you can tell from the numbers I just provided, we have been selling assets at a faster pace than we have been buying them. That temporary reduction in our asset base impacted our first quarter results, as Susie will outline shortly. Total revenue for Q1 2020 declined 0.7% compared to Q1 last year, while total NOI declined 3%. On a same-community basis, revenue increased 2.9%, while NOI was up 3.9%. Those results highlight our past investments in capital redevelopment continue to generate growth in rental rates.
Same-community weighted average rent was $889 per apartment unit, an increase of 2.7% from $866 a year ago. Obviously, the world has changed a great deal since mid-March, having two black swan events. The economic disruption from COVID-19 and the crashing of the oil prices have been an unprecedented event, and we are monitoring the impact on our business, our team members, and our residents very closely. To date, the financial impact has not been alarming. We have collected 97.3% of April rent and 93.4% of May rent through the 11th of the month. We have received a total of 142 requests for rent deferrals in April and 14 requests in May. This represents an aggregate less than 2% of our apartment units, and we are working to accommodate these requests on a case-by-case basis.
We are committed to helping all affected residents through this difficult time and have suspended all evictions and previously scheduled renewal rent increases until the crisis ends. In addition, we have made a number of common-sense changes in the way we operate to mitigate the spread of COVID-19. These include increased sanitization of frequently touched surfaces, a shift to emergency-only maintenance, allowing team members to work from home wherever possible, the closure of apartment offices to external traffic, virtual or self-guided apartment tours, and contactless doorstep delivery of packages. Our liquidity position today is approximately $77.1 million. We have a very strong financial position during this period of economic uncertainty. Now I'll turn it over to Susie to review our first quarter results in more detail. Susie?
Thank you, John. As John highlighted, our same community results in Q1 were strong. Same-community revenue increased 2.9% to $22 million, primarily reflecting a 2.7% increase in rental rate to $889 as of March 31st, 2020, from $866 a year earlier. Total revenue for the quarter declined by 0.7% to $27.5 million from $27.7 million in Q1 last year. This reflected the impact of property dispositions related to capital recycling, which reduced revenue by $6.1 million. This impact was partially offset by acquisitions during and subsequent to Q1 2019, which added $5.3 million of revenue, as well as higher rental rates across the portfolio. NOI for the same community properties totaled $12.2 million, compared to $11.7 million in Q1 last year. The 3.9% increase was due to the increase in rental rates. NOI for the full portfolio was $14.7 million, down 3% from $15.1 million in Q1 last year.
The property dispositions reduced NOI by $3.3 million, which was partially offset by a $2.3 million contribution from acquisitions during and subsequent to Q1 2019 and higher same-community NOI. As John indicated earlier, our capital recycling strategy continues as we successfully rotate capital into targeted primary markets on a tax-deferred basis. Though the more rapid pace of dispositions versus acquisitions had a short-term negative impact on total Q1 2020 NOI. As we continue to recycle this capital into new acquisitions, we expect the accretive impact to be reflected in our financial results going forward. FFO for the first quarter was $5.3 million, or $0.12 per unit, compared to $8.1 million or $0.20 per unit last year. The decrease was primarily due to the lower NOI and an increase in finance costs related to a $1.6 million loss on extinguishment of debt.
G&A expenses also increased by $0.4 million due to an increase in share-based compensation and other payroll and benefit costs. AFFO was $6.6 million, or $0.15 per unit, compared with $7.5 million or $0.19 per unit in Q1 last year. The YoY decline was primarily due to the lower AFFO. This was partially offset by the exclusion of the debt extinguishment that I just mentioned and the inclusion of $0.4 million of income related to the rent guarantee on the acquisition of Satori last year. Maintenance capital expenditures increased by $0.2 million over the prior period due to the acceleration of spending during the second half of 2018, which lowered maintenance CapEx in Q1 2019. The REIT paid quarterly cash distributions of $0.125 per unit in Q1 of both years, representing an AFFO payout ratio of 84.8% in Q1 2020 compared with 66.5% last year.
The higher payout ratio obviously reflected the more rapid rate of dispositions versus acquisitions to date. The rate will come down as we continue to deploy funds in the future. Turning to our balance sheet. Our debt-to-book value ratio at March 31st, 2020 was 49.4%, below our long-term target of 50%-55%. Following the four property sales we completed subsequent to quarter end, debt to GBV has dropped to 47.1%. As John mentioned, our current total liquidity is $77.1 million. That includes cash and cash equivalents of $6.3 million, $35.8 million of borrowing capacity under our credit facility, and $35 million available under a revolving line of credit. As of March 31st, we had total mortgage notes payable of $405 million, excluding the credit facility, with a weighted average contractual interest rate of 3.9% and a weighted average term to maturity of 9.3 years.
Total loans and borrowings at quarter end were $559 million. 81% of the REIT's debt was fixed or economically hedged to fixed rates. I will now turn it back over to John for some closing comments. John?
All right. Well, thank you, Susie. As you can see, we plan to emerge from the current economic health crisis in a strong competitive position. The last couple of months have been a very difficult time in the U.S., but there have been some positive developments. More recently, we are encouraged to see that the states we operate in are beginning to reopen their economies. However, we will not attempt to predict how long the crisis will last or how impactful it will ultimately be to the REIT. We will continue to monitor the situation very carefully and respond as needed. In the longer term, the outlook for BSR REIT is highly positive. The multifamily real estate sector is an attractive asset class that has outperformed most other investments during this crisis.
Our primary markets have long-established strong trends of population and job growth that are well above the national average. Once this crisis ends, we believe these economies will resume a solid growth trajectory, and we will continue to increase our exposure to these primary markets through our capital recycling program in the months ahead in order to drive unit holder value. That concludes our remarks this morning. Susie, Dan, Blake, and I would be more than pleased to answer any questions you may have. Operator, please open the line for questions.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, should you have a question, please press star followed by one. If you would like to withdraw your question, please press star followed by two. Thank you. Your first question comes from Brad Sturges with IA Securities.
Hi there.
Hi, Brad.
Hi, Brad.
I guess just maybe starting out with what you're seeing in terms of market rents. Have you seen any impact so far in terms of change in market rents, and how would you compare the REIT's in-place rents on average to those market rents?
Brad, this is Blake. Good to talk to you. As of right now, as you know, we're on LRO in RealPage, which is a system that we use for revenue management. As of right now, if you compare since the virus, which I would say the 1st of April hit in to right now, we have not seen a big move at all. Basically, they're flat in every MSA that we're in. No, we have not seen a lot, and I feel good about where our in-place rents are and where we've been adjusting. We look at those every day, and I have not seen, and our team has not seen a big adjustment.
In terms of the gain to lease opportunity when you're moving your in-place rents to market on turn, I guess, was that in the sort of 3%-5% range, if I recall correctly?
For the new leases.
You're talking about new leases, or are you talking about?
New leases, yeah. Yeah, for new leases.
When we start increasing leases. Right now, we're not doing rental increases. Are you saying that when it opens up or what?
Yeah, on a vacancy or on a turnover, what type of gain to lease can you get in terms of the previous in-place rent versus where the market rent is?
Right now, we're not increasing leases.
New leases.
New leases right now.
Okay.
We've stopped that until the COVID we see more direction about where it's heading.
Okay. Makes sense. In terms of the capital recycling program, would you have assets on the market for sale right now, or are you waiting till later in the year?
I'm sorry, Brad, you cut out over here. Could you repeat that question?
In terms of identifying additional assets for sale, do you have assets on the market right now being marketed for sale or not at the moment?
As of today, I'd say that we've kind of shifted our position to not openly marketing assets. With that said, as we announced earlier in the year. This is Dan, by the way, Brad. Good to talk to you as well. As we announced earlier in the year, the company's strategic direction is to rotate out of some non-core markets. In those markets, we have potential transactions in various stages. I don't see a lot of open-market deals, and I think BSR is probably going to follow suit in, call it, March 15th, maybe the next month.
Just generally speaking, from a valuation perspective, I know we're in early days here, but have you seen much of a change in terms of asking price in the market from a cap rate or a price per door perspective?
We've seen a little bit of a pullback on asking prices. Really, it's a mixed bag. When we look at acquisitions in the markets we're looking at, we're seeing buyers either underwriting perhaps a little bit lower economics on collections with similar cap rates as pre-COVID, or in the alternative, buyers underwriting more aggressively for year one and year two and year three rent growth. Underwriting at the same cap rates. I think that you can depict that when you look at the hold period of any multifamily transaction. The impact of a two to six-month slowdown, perhaps, in collections or some wackiness in margin underwriting is de minimis relative to a seven and 10-year hold. With that said, we really haven't seen much movement in the economics or cap rates on the bid asks.
Got it. Okay, great. I'll turn it back. Thank you.
Thank you very much. Your next question comes from Matt Logan with RBC Capital Markets.
Thank you, and good morning.
Hey, good morning, Matt.
Morning, Matt.
Just following up on some of Brad's questions, could you give us any color on the leasing velocity in April and May? Maybe just sort of the quantum of move-ins versus move-outs and how you're adapting to contactless leasing.
Sure. When you look at from April to May, it would probably be better to look at from March to April, but I'll give you an idea. In April, we had 828 leases, and 323 new and 505 of those were renewals. Compared to looking at March, we had 685 leases, and 337 of those were new, and 347 renewals. We had a really good uptick in our leases from March to April, and May is starting out looking very good too, also. The velocity of the leases, when you look at our move-in, move-out ratio, I think we stated in our press release that we had a plus of 15 for April if you take out the lease-ups.
If you really look at that, what that equates to is looking at last April, we had a -28%, and in 2018, we had a -9% in April. We've gained occupancy every month this year. It's the longest streak we've had since we went public, and our average increase on lease-ups is 17.5% per month. What we're seeing is our new prospect leads YoY are up 11%. All of these metrics that we're looking at are very positive, and we continue to see a pent-up, what I think now that things are opening up, we're seeing a pent-up demand for leases. All these numbers added together, when you look at the number of move-ins we had, which we had 311 move-ins in April all tied together is pretty positive news for us.
Anecdotally, would you attribute any of that demand from tenants shifting from Class A properties to Class B properties?
I don't know. I don't have enough of a sample size to be able to tell you that right now. We're looking at these numbers daily and really try to see if there's any trends or anything that we're looking at. At this point, there probably is some of that, but I'm not willing to say that totally right now. One thing, in finishing the answer to your question, we have learned is we had the technology in place to begin with to do virtual tours and self-guided tours. Some interesting stats that really have kind of opened my eyes is that in April, we conducted 680 virtual tours, and we had a closing ratio on those tours of 34.9%. 33%-35% is really good in the industry. We conducted 401 self-guided tours, and we had a closing ratio on those of 48.6%.
We're starting out May along the same lines. One, we were in place. We could hit the ground running with the technology side because we feel like we're trying to stay ahead of the curve on that. Also, it has helped our closing ratio. Interesting. It opened our eyes, and we'll see if it continues. I do think it's something that's going to be looked at internally on our side going forward.
Hey, Matt, I'd like to add on to something in regard to your original question in regard to the drop-down. You may have seen some of the Class A REITs that have lost some of their occupancy, and BSR, we're primarily just have been very steady with our occupancy. From what I would just depict from some of that is, absolutely, that's really one of the things that we hold dear about our workforce housing, the B-plus type of apartment units, is that we do believe that this is in a sweet spot and a very affordable rental units that we have available. I'm not going to say that is what's happened, as Blake said, but I think if you just put two and two together, it's what I would probably assess.
Thanks, John. Appreciate that commentary. Maybe just looking at the margin profile going forward, do you expect any of the decline in potential turnover may offset higher operating costs from things like cleaning or other operationally intensive activities?
Well, Matt, yeah. This is Susie. Yeah. You would see some small declines in expenses related to turnover, right? As far as margins go, you also have to remember that we're not charging late fees now. We think we will see some pressure on our margins if this continues into the third and fourth quarter, where we're not charging late fees with a smaller decline in turnover costs.
That's good.
Matt, we monitor closely the amount of work orders that we have out. What I'm looking at now is the difference in now we're doing emergency work orders. That's all that we're doing at the current time. We've been comparing the actual work orders that are called in against what are completed. That's been shrinking. We've been completing more and more, which tells us that we're not having as many emergency work orders, which in turn is not going to shrink our R&M or some of our turnover costs quite as much as on a go-forward basis each month, which I'm happy with because that means that we're not going to have a lot of, once this opens up, and we have a little more turnover, we're not going to have a lot of deferred things that we need to do.
Any sense on the quantum for potential increases in costs over the next couple of months?
No. Right now, like I said, we would expect more of a decline in operational costs if we have less turnover, which we've seen. Again, our concern more is on the revenue side and being able to continue to charge late fees, which we're not right now.
Got you. Maybe one last question from me, and I'll turn it back. If there's any commentary that you can provide on your high-level expectations by market, whether that's Dallas, Houston, or Austin, would be great.
Any out of your high-level expectations for Houston and Austin?
In terms of performance in rent collections, what do you?
I guess maybe just bottom line, the combination of rent collections and potential increases in vacancy.
Well, obviously it's hard to predict those things, depending on how this COVID-19 goes. I will say this, I think it's pretty obvious when you look at I live in Dallas, as most of you know. That along with the Texas cities that really opened up in terms of leading the way in restaurants, employment, everything that's going to be taking place. I feel good about that. Based on where our collections are right now and what we're seeing early in May and all of these factors rolled together, I feel like that at this point right now, we should stay fairly stable. With the caveat that we all know that with this COVID-19 situation, that could change. Right now, all of our indicators have been positive.
Well, I appreciate the commentary. That is all from me. I will turn it back. Thank you.
Thank you very much. Your next question comes from Yash Sankpal. Please start by stating which company you are with.
Hi, Laurentian Bank. Good morning.
Hey, Yash.
Hello, Yash.
Just want to think in terms of how you think about your payout ratio and leverage going up as you recycle your portfolio, and at what point you think, "Okay, now this is how far we want to go, and from here on, we will try to just focus on internal growth instead of capital recycling.''
Hello, Yash, this is John. We have mentioned and have said that we had approximately $350 million worth of properties that we thought that we would be selling this year. The COVID situation has impacted the whole market, as Dan was saying before. Things have pretty much grinded to a halt except for those deals that had been under contract, that may have gone out of contract, that may still be looking for some type of a solution for the near term. However, Dan mentioned, too, that we're still in the working with our sales that we've been going through. I can't really talk too much about where we are in the process of those sales, but they are in different phases and stages within the process of selling.
We had, as Dan has discussed with all of us, is that we've selected buyers who have performed on all of the sales that we had contracted for in 2020. We've had five properties that have come through, and Dan had, and his team, selected the type of buyer that we felt was strong, and that would follow through with their contract. They did, even in this most difficult time and environment. In terms of the stages of where we are, we're going to continue to look to recycle and cycle our capital back into the primary markets as we go this year as planned, unless things start worsening.
Okay.
Dan, you want to add?
Yeah, this is Dan. I'll add to that a little bit. I think in the past, we've kind of discussed where we see our ideal leverage to fall at anywhere between 50% and 55%. Looking at where our leverage sits today at 46%, 47%, we think we've got a little bit of room to run, call it $100 million in fair acquisition powder and AFFO generation on acquisitions levered at 50% rates to generate that gap in AFFO that's been created by the dispositions and the acquisitions, the kind of the dispositions outpacing acquisitions in the past year and a half. You can apply that at some percentage of that $100 million at some percentage of AFFO return, that's where we see the opportunity, that's where we're going to look for opportunities looking forward.
Okay, thank you. In terms of occupancy, given what you know at this point and your gut feeling about your business, do you think your year-end occupancy would be higher or lower than where it is right now?
As I said earlier on that's a really tough question. As we look at it right now, I discussed earlier, we have been netting up in the last four months, obviously, I'm looking at a lot post-COVID, which really starts in April for me. We ended up and had a really good April, we had April compared to the last two years was actually higher on a same-store basis. I feel at this moment, I feel good about where we are on an occupancy basis. Now, in terms of netting up, I think that's going to be totally, or netting now, that's going to be a function somewhat of the next phases of the COVID if the states we're in continue at the pace that they're at right now in terms of opening up.
Which, as I said before, is ahead of any other states in the U.S., aside from Georgia, then I would feel good about our occupancy staying the way it is or netting up somewhat. If we have a turn for the worst on that, then that could be different. Right now, all our signs are pointing toward stability.
Okay, that's good. One more question for Susie. Your Q1 NOI margins, I thought last quarter you were saying that you will be shifting some of your G&A cost into your property operating line. Is that still true, or you guys have decided to?
Yeah.
Not do that?
Hey, Yash. Yeah, we've always included a portion of our G&A in property operating expenses. Yeah, those expenses continue to increase property operating expenses as we sell more properties than we're buying. Of course, it's going to flip the other way when we're a net acquirer of assets, and at that point, then the G&A starts to go down drastically.
Okay.
Yash. Yash, this is Dan Oberste talking. I want to hit on the question that Blake answered previously, because right now, it is very early to be able to determine whether BSR will experience higher occupancy in December than it experiences in March or April. When we look at our markets, and we look at the consumer behaviors right now, it's evident that the consumers are moving more to an online review, an online lease audit or lease walk, and online applications. I think it's important to note that BSR is currently ranked, I think the fifth highest online reputation assessment score of the public REITs that operate in the U.S. That's one key, I think, tailwind for BSR.
If you dig into just supply and demand functions in our markets, if we're talking about the three core markets in Texas, Austin, Houston, and Dallas, each of those three has experienced positive absorption in the past. On a look forward, while we were somewhat concerned about the supply metrics in those markets, as can be assumed, anytime you have some event like the COVID crisis, the new developments tend to fall off by, I would say 50%-60%. That's not uncommon to what we've seen in the past. That's not uncommon to what we're seeing in the future.
When you look at those markets and their projected, I'll say, end-user migration, each of those three markets is, I would say, in the top I would say Dallas and Houston, for sure, is projected to have the number one and number two fastest-growing populations between 2020 and 2028. Houston, I think it's the fourth largest MSA. It had the second highest population growth, or it's projected to have the second highest population growth between 2020 and 2029 at 1.2 million people. We're continuing to see people flood into our markets. Those markets are currently open, as Blake mentioned, and supply is dropping off. Those markets already had a gap of net absorption in the past three years of In Houston, it would be 30,000 units. In Austin and Dallas, very similar numbers.
While it's too early to think about BSR and where our small town of people that go to bed with us each night, how many of those units and suites are going to be occupied in December, I think from an overall health standpoint, our three focused markets in Texas look fantastic right now, relatively speaking. We see tailwinds relative to other property operators in other MSAs.
Okay. Thank you.
Your next question comes from Sairam Srinivas. Please start by saying what company you are with.
Hey, this is Sairam from BMO Capital Markets. Hey, guys. Thanks for taking the call this morning. My question was around the Satori leasing. Can you give any color on how the leasing is going on and how it compares to your underwriting assumptions?
Satori. Underwriting how
Oh, sure. Blake, do you want to answer this, or would you like me to?
Sure.
We can both take it. When we acquired the property, it was roughly at 37% occupancy.
Lease up on Satori.
Yeah, lease up. Yeah. That's the one I'm talking.
Yeah.
When we acquired the properties, it was roughly 37% occupancy. This enabled us to really kind of attack it. What we did was we went to a philosophy of some higher rent rates. This helped us in terms of getting the higher rates. It did not do the leasing velocity that we wanted. In January, we kind of changed our course and began to see a higher velocity by sacrificing rates a little bit. This really took off. The impact is now showing up more of a traditional lease up with much higher leasing velocity that we've got going right now. At this point, we're leased at 79.66%. It's performing as we expect.
We expected as of April that it was at a breakeven, and we feel like that we've hit the sweet spot and actually have been able to increase the rents back on some of the floor plans in the last couple of weeks. Overall, we're pleased with the asset. Our leads and our move-in, move-outs have really continued to just shoot up. We've got 37 pre-reach now. It was a matter of, we made a business decision on the rates going in, and we changed that in January, and it changes the trajectory, and now we're on a really good pace.
Yeah, this is Dan, that's really precisely the purpose of the rent escrow. It allows us to attack rates and confirm those higher rates, and then treat the property as a traditional lease-up that offers standard concessions. As Blake pointed out, our occupancy right now is ahead, I would say, ahead of our original expectations on lease-up velocity and stabilization. As a result, we were probably originally anticipating a stabilized occupancy and a kind of a claw up and burn off of concessions in October of 2020. Now, I think we're prepared to push that back to more of an August date. We like what we see.
Thanks, Blake, and Dan. That was good color. Probably related to leasing. I had another question on something which I think Blake clarified earlier on the call, and this is on the new leases. Blake, I know you mentioned that they signed about 300 new leases in April. Blake, were you saying that there's no rent left on the new leases? Were they in line with the previous rent?
Yeah. Right now, on new leases, we are not doing rent increases right now.
Okay. I just thought I wanted to clarify that. My final question was it's more of an operational question, I guess, and that's to the late fee. I know you guys mentioned that there's no late fee right now during the pandemic. Generally, when it comes to, let's say, if a tenant goes ahead and has not paid the lease on date, how long would you consider the tenant to be on late? How long would you consider a tenant to be late versus a total default on rent? What is that period generally?
You're asking how long they have to pay their rent before they're assessed a late fee?
I'm basically wondering as to how long would you consider the tenant to be late versus to a point where you would say, "You know what? This tenant is in default?''
Yeah. Rent is due on the third of the month, correct?
Right.
Any payments made after the third of the month, we would assess a late fee normally, but we're not doing that right now.
Right. Let's say, would it be like, let's say, 15 days after that you would consider that this guy is in default? Would you still consider that to be late?
No, it's in default when they don't make the payment on the third day. It's in default. This is probably a good time to say this, we are under, in all the areas we're in, we're under eviction moratorium, so we can't evict residents at the current time. That throws another little occurrence into it. At this current time, that only affects 24 of our units across the portfolio. As far as being late, but I think we answered your question. I mean, is that correct? I mean, did that answer it?
It did. Thanks, Blake, and thanks, Susie, for the color as well. I'll turn it back.
Okay. Thanks.
Thank you very much. Your next question comes from Kyle Stanley with Desjardins. Please go ahead.
Thanks. Morning, everyone.
Hey. Morning, Kyle.
Hello, Kyle.
Just going back to turnover, can you speak to how that's been trending over the last little while? I assume it's coming down a bit, but just curious to see how it is now versus kind of historical.
Hey, Kyle. It's Blake. It has, if you look at our preliminary April numbers, it is going down. It's the lowest it's been for us, obviously, in the last since we've been keeping track. It is going down, which is not unexpected. In terms of where it is compared to what it has been running annually or in the past, I would say, Kyle, it's probably about a 15%-16% decrease in what we have been running from a historical standpoint. That's through April. That's very preliminary. Obviously, if you think about what I said to begin with in comparing April to March, we signed 505 renewals in April compared to 347 renewals in March. Our occupancy is staying right on top of March, April, and May is heading in the same direction.
Okay, great. This question's probably for Susie. Would you be able to speak a bit about your bad debt expense, maybe kind of how it's trended over the past few years and any changes you've seen early on in this new COVID-19 environment?
Sure. Yeah. That's something we're usually very proud to talk about, and still are. Normally about 1% of revenue. We don't think that's changed as part of the COVID-19 environment right now. We set up people on deferred rent plans. I think it was 142 in April and then 14 more in May. They're on a payment plan, and they're making payments as scheduled, so we have no reason to believe we would have to write that rent off. Yes, 1% of revenue is still a great number for us.
Yeah. To tag on to that, I've been watching and keeping trying to be focused on how many people are really out there that haven't paid us. What Susie's saying is exactly right. I think we're on top of that, and our bad debt should not be any more than that right now is what it shows. One thing I would like to add that we talked about earlier, but we collected 93.4%, but if you look at what we collected in April, as of the 11th, we collected 91.5%. We've collected 2% more on the same-store portfolio if you just look at April to May, which is a good sign, which kind of ties into Susie's comments about the bad debt. I think another thing that really is sticking out is that right now we've collected 2% more money through the 11th.
Also, if you look at the amount of deferrals that we've been asked, that 14 is quite a bit less than what we had at this time last month. Those two factors together really play into our thinking about the bad debt picture.
Okay. Yeah, the deferral requests seem to be pretty minimal so far. Are you seeing any markets or assets that are more impacted by a deferral request?
No, that's the interesting thing. We really monitor that hard on a daily basis, actually, break it down by MSA, by property. There is none. Frankly, if I think back to the deferrals that we had, there's not any property that is alarming or that sticks out at all. Really, that's one of the first things I would've thought, but it hasn't been up to this point.
Okay, great. Just one last one from me. Are there any early indications on how municipalities, I guess, in particular in Texas, will be treating property tax assessments kind of in light of COVID-19?
Sure. This is Dan. I think a lot of our colleagues have made similar comments. Real estate tax assessments are made somewhat in arrears. Our estimate for 2020 tax assessments shouldn't change. We really have no intention of changing it at this time. Where we do see the tailwinds in tax assessments in Texas would come in 2021, when those assessing bodies look at the impact more deeply to individual properties resulting from COVID, and then reappraise and reassess. With that said, I'll remind the group that Texas passed their statute last year capping real estate tax increases in any municipality at around, call it 3%-3.5%. What we did see is some areas of Texas, particular counties, try to get ahead of the effective date of that law, which was 2020, which was this year.
If I'm speaking specifically to Harris County in Houston, we saw, as far as the market is concerned, out of the, I'll say the $20.5 billion of garden-style apartments, that's one to three story A, B, and C apartments, we saw a 17.2% increase in that field in 2019 from assessments. When we look at the assets that we sold in Longview, in Gregg County, Texas, we saw a 59% increase or 57% increase in the assessed value of those assets. Had we held onto those assets, I'd say we'd have a much higher hill to climb in our appeals of any of those assessments. With that all said, we think our estimate now is pretty sound. We don't expect much movement in 2020, positive or negative from the impact of COVID oil well.
Now in 2021, we would expect to play a little offense on tax appeals and assessments.
Okay, great. Thanks for the color. That's it for me. I'll turn it back.
Thank you very much. Just a reminder, if you are using a speakerphone, please try to keep the noises around you a bit more quiet so we can hear you very clearly. Your next question comes from Brendon Abrams from Canaccord Genuity.
Hi, good morning.
Hi, Brendon.
Hi. Maybe just sticking with new leases. Over the past, call it eight weeks or so, have you noticed any differences in the quality of the tenant applications, let's say in terms of income or credit scores that you're typically used to? Just on that point, have you had to adjust your application or credit criteria just to factor that many people are out of work right now, at least on a temporary basis, and is that factoring into your approval process?
Good question. No, we have not adjusted our credit criteria. We just have not, and it hasn't affected, as of this time, our ability to process applications. From the standpoint of what we're seeing, the general, and I'm going to stop short a little bit on this because you're asking a question that I'm trying to get my hands around. We're not completely closed out in April, but I have asked this internally with our group and our VPs of operation, and they're saying they are seeing somewhat of an uptick in applications and the people that are filling those out. Having said that, I'll have a better handle on that once we get April closed out and obviously into May and June, because I'm curious myself to see if the early returns are going to continue.
Yeah. Okay. That's good to know, and maybe I'll follow up in a few weeks with you. Just a quick question before I turn it over. Just to clarify, the four properties disposed of after the quarter, have those actually closed?
Yes.
Yes, those are closed.
Great. Thank you very much.
Thank you, Brendon.
Thank you very much. Your next question comes from Matt Kornack with National Bank. Please go ahead.
Hi, guys.
Hi.
Hey, Matt.
With regards to the stimulus checks from the government, to what extent do you think that has kind of cushioned the blow for some of your tenant base? Obviously, I think there's a new proposal out to further stimulate, with checks potentially going to families across the country. How do you see government intervention at this point as being kind of a stabilizing impact?
Sure, Matt, this is Dan Oberste. Let's take Texas as a good example, and Oklahoma and Arkansas and the other states are similar. When combining the unemployment benefits with the recently announced federal unemployment benefits that were a part of the CARES Act, renters across a wide range from C to A actually are better positioned to cover monthly rent as well as daily essentials. I think what's interesting about it is an individual earning $58,000 or less who is recently unemployed and filing for unemployment in the state of Texas would receive more in unemployment benefits from the combination of the federal and state unemployment benefits than they would be earning in income prior to their employment termination.
The existing bill for federal aid, which accounts for $600 a month of that, call it $4,858 a month at that $56,000 level, is set to expire on July 31st. As you did mention, I believe the United States House of Representatives came out with a plan yesterday to extend those federal benefits through December 31st. I would say generally from a market standpoint, it's again too early to tell whether we've moved to somewhat of a subsidy. It certainly doesn't hurt when your resident profile at, call it $900 - $1,200 a month rent level, is better positioned to pay rent and essentials being unemployed in the month of March or April than they were previously.
Yeah. No, that makes sense. Discretionary spending's down as well, so it makes sense.
I'll add onto that, too, is that what I was and Dan and me talked about this quite a bit, and we all do internally. I was thinking that April, obviously, it could help once the stimulus checks hit in, but after the stimulus checks were in, I was thinking, okay, where will we be in May after that? The early returns, as I've told you guys, is that our collections are ahead where we were in April, and we've had less deferrals, and the stimulus checks have run through. I think they've run through some. Your question is one that is, I guess the early returns for me say that from our standpoint, we're not able to know how many people are unemployed in our properties.
The early returns would indicate that we are in the right spot in America right now to withstand this.
Right. No, that makes sense. Also, the supply destruction that you hinted at earlier. Presumably, that's going to take a while to come back. Is it COVID related at this point, or is it lending, or what's driving the ultimate reduction in supply? If that starts, obviously completions will happen, but maybe on a delayed basis.
Yeah, I think it's a little bit of both, Matt. The COVID-related pullback in supply is certainly expected. I think you had somewhat of a frozen credit and equity market for a period of time. If you didn't have your equity and your debt lined up prior to March 11th or 12th, I'll say, look, it's just a matter of deployment of capital. It's impossible to move forward with your planned development if it's scheduled to have a completion by the end of 2020. We're seeing a lot of early-stage developments pull back, and that certainly was related to COVID. I think a little bit might have been related to oil concerns as well.
I think the one positive thing we see about just the general development environment is we were experiencing, I would say, a two or three-year sustained period of labor cost increases in the range of 6% and 8% a year. On a look-forward, there could be some opportunities, I'll say, to enjoy increases that aren't at 6%-8% in the next, call it, 12-24 months, which certainly benefits our redevelopment platform on any of our suite improvements and our use of NOI-generating CapEx.
Okay. No, that makes sense. With regards to, I guess this is for Susan, on the lending side, and I apologize if this has already been answered. The availability of mortgage debt, LTVs, you guys are in an enviable position given the duration of your mortgage debt. How is that evolving in the U.S. at this point, and spreads generally? I know the underlying has come down, but what would all-in costs be?
Yeah. I can let Susie speak a little bit to how we view debt internally and our viewpoints of our termed-out facility, or how we want to treat our existing facilities. I'll generally talk about the agencies and life insurance companies. When we think about the two sides of the coin, let's call it pre-COVID and post-COVID. Pre March 12th, March 11th, we were looking at agency spreads of 195 to 225 over benchmarks of the, call it, the five, seven, 10-year Treasury. In a post-COVID environment, those agencies are pricing out at, call it, 295 to 305. A little bit higher in some cases. That turns into an all-in rate increase of anywhere between 25 basis points - 125 basis points. Credit spreads have certainly widened out. Some unique aspects of those agency debts that have changed.
Number one, in a post-COVID environment, those agencies are going to put a floor on your benchmark. Let's say a floor on a 10-year of 75 basis points, 90 basis points. That will certainly impact your all-in effective rate, more so than the spread increase. The next, I think, unique change that we've seen in agency debts is their requirement of reserves. In a pre-COVID environment, we saw much heavier use of full-term IO fixed-rate debt and, I'll say, a smaller requirement for reserves related to taxes, insurance, and replacement reserves. In a post-COVID environment, we're seeing quotes for six to nine months of principal interest and taxes and insurance reserves. We're seeing six to 18 months of P&I. We're seeing six to 12 months of random reserves related to collections or rent deferment.
I think the one key differential that we're seeing today versus a pre-COVID environment is, in a pre-COVID environment, in order to lock in your constant on your debt against your cap rate on your asset, you'd execute some form of an early rate lock, taking volatility of interest rates off the table. In a post-COVID environment, we're not seeing the agencies rate lock very far, really at all, other than the day of close. You're really dealing, if you're using agency debt, with volatility up through and to the day of closing on a transaction. As it relates to life companies, we're seeing a different treatment on a loan-to-value, but the life companies are looking more towards a debt yield closer to an 8% floor as opposed to a 7.5% floor in a pre-COVID environment.
That, I'd say, moves closer to probably a 60% loan-to-value, so a borrower's not able to maximize their proceeds on their capital stack. The next thing we're seeing is just across the board, fixed rate pricing floors between 3.75% and 4.25% fixed for the duration. Now, as it relates to the commercial banking environment, I know that you all are well-versed on the corporate paper and the commercial banking environment, but we're seeing a little bit of a pullback in conservative loan-to-value ranges, similar to the life insurance companies, so 55%-65%, pricing ranges between 4% and 4.5%. Susie, do you want to talk a little bit about how we want to treat our current debt facility?
Right. Oh, we're leaving it blank. Yeah, we're fine. Given the current credit environment, yeah, we're fine.
Presumably
Go ahead.
I was just going to say, presumably though, this may pose some problems for private guys that were running at higher leverage that could result in a buying opportunity for you guys at some point, given your relative leverage.
Oh, yes, certainly. Any perceived pullback in pricing in our markets, whether it's real or not, if you have fixed high-term, high-levered debt in a pre-COVID environment, it's that much more opportunistic in a post-COVID environment. I would point out now, because we've danced around cap rates and constants on debt. When we think about a cap rate as just a risk over an index like a 10-year, I think we're looking at a risk premium right now of about 450 basis points -477 basis points. That's twice the average of history since maybe the 1980s when this industry started to really develop and take place. I think when an investor is looking at an unlevered cap rate against a benchmark comparative return and seeing that 450 basis points -500 basis point spread on cap rates, I think there is more of an appetite for a lower leverage deal.
I think that's probably why you're not seeing too dramatic of a pullback in cap rates for multifamily.
Interesting. Last question from me on a different topic with regards to the Satori. How should we think of the rent guarantee and how it would shift between sort of operating performance and the guarantee? I can't remember what the term is on that guarantee as well, or at least how much you have in escrow.
Yeah. Matt, we've used it now. It was $1.1 million, and it's been fully recognized at this point as we're adjusting for it in our AFFO. At this point now, I believe Blake had mentioned earlier, we're looking to have the property stabilized by August.
Okay, perfect. Thanks, guys. Stay safe.
Okay. Thanks, Matt.
Thank you, Matt.
Thank you very much. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by one. If you'd like to withdraw your question, please press star followed by two. Your next question comes from Dean Wilkinson with CIBC.
Thanks. Hi, everyone.
Hi, Dean.
I'll make this quick. The four properties that closed post the quarter, Susie, can you clarify the gross proceeds received and how much debt was on those assets?
Gross proceeds for the four that closed, $85 million.
$85 million. Okay. The debt that was against those?
This is Dan. We'll have to get back to you on that. Off the top of my head, I'd say the debt was probably pegged at.
I was like-
Yeah.
We're blanking out.
We're both blanking out. We've got number crunch on our heads right now, but we'll get back to you with that answer.
No problem. Would there have been any defeasance charges or anything related with the debt, or would that have just really assumed by the purchase?
That's a perfect question. When we look at the properties we sold in Longview, we didn't see any defeasance on the retirement of that debt. But specific to Westwood Village, that property carried a, I want to say, a 10-year Freddie Mac loan fixed at 458. That's the property in Shreveport that we sold on January 30th. The buyer in that transaction assumed that debt, and at the time of close, that debt would've been out of the money somewhat significantly, rather than compared to what the buyer could have gotten. As a result, we pegged the prepay anywhere between $2.6 million and $3.5 million. BSR took a discount to purchase price to an all-cash deal. That was, I would say, a percentage of that prepay, enabling the buyer to buy that property at a lower value than their original all-cash amount.
I would say saving BSR a little bit of money to advertise a higher sales price in January and a lower net proceeds number. It was a good trade for BSR.
Yeah, no, that makes sense. It doesn't flow through the income statement. Then in terms of the recycling of the $100 million capacity that Dan talked about, I guess it's fair to say that in the near term, you're probably more a net seller than you are an acquirer. Should we be thinking about that $100 million theoretical acquisition capacity being sort of a Q4 or perhaps into early 2021 as a utilization on that?
I'm weighing my words carefully. Depending on the markets, is it an early 2020 deployment of capital sitting in May of 2020? I'd say we're moving into the middle of 2020.
Early 2021.
Yeah.
Should we be thinking that pushes out into 2021?
I would say that we see no signal, and that the pipeline for acquisitions for the properties that we like are gone. We see a very deep market. I would say in the last month and a half, if I'm looking at the stats internally, our team's reviewed 21 potential transactions totaling 7,000 suites with a collective asset value of $1.4 billion. That's an average asking price of about $67 million a deal. Not saying all 21 of those pencil out, but given our percentage closing rate that we talked about in the past, perhaps one to two.
One or two.
I would say we see those opportunities in our markets, but we're just going to proceed with caution.
No, that sounds fair. That's it for me. I hand it back. Thanks, everyone.
One more thing to that, Dean. I know you finished up, we're seeing deals on acquisitions. It's a balancing act for us because we like to defer any gains associated with our sales through the use of the United States Tax Code Section 1031. As of right now, with the sale of Longview, we see a little bit of uncovered gain. Historically, we've deferred every gain that we've been able to realize or look at from a disposition. I'll let that speak for itself.
Thank you very much. Mr. Bailey, there are no further questions at this time. Please proceed.
All right. Thank you very much, everyone. That concludes our call this morning, and thank you for your interest in BSR REIT, and we look forward to speaking to you again this summer following Q2 financial reporting. In the meantime, remain safe, and we wish you all very good health. 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. Thank you.