Good afternoon. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSR REIT Q3 2023 Financial Results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by two. Thank you. Mr. Oberste, you may begin your conference.
Thank you, Julie, and good afternoon, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the third quarter ended September 30, 2023. I'm joined on the call by Susie Rosenbaum, the REIT's Chief Operating Officer. Susie and I will be available to answer your questions following our prepared remarks. I'll begin the call with an overview of our performance in the quarter and other developments. Susie will then review the financials in detail, and I'll conclude by discussing our business outlook. After that, we will be pleased to take your questions. To begin, I want to remind listeners that certain statements about future events made on this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially.
Please refer to the cautionary statements on forward-looking information in our news release, and MD&A, dated November 8, 2023, for more information. During the call, we will reference certain non-GAAP financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are 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 reconciliations to the nearest IFRS measures. Also, please note that all dollar amounts are denominated in U.S. currency. Our track record of strong operating performance continued in the third quarter, just as we anticipated. The financial results were highlighted by growth in AFFO per unit of 10.5% and growth in same community NOI of 7%. The performance reflects the continued strength of our platform and our portfolio.
The Texas Triangle, in particular, continues to generate strong population growth as the stellar economic fundamentals of the region attract new residents and businesses on a daily basis. Weighted average rent at quarter end was $1,504 per apartment unit, a year-over-year increase of 3%. Over the last two years, weighted average rent increased 18%. During the quarter, rental rates for new leases declined 0.2%, while renewals increased by 5.6% over the prior leases, resulted in a blended increase of 2.7%. Weighted average occupancy increased to 95.2% as of September 30, 2023, compared to 94.7% a year earlier. One reason our Texas markets are attracting so many outsiders is the state's highly competitive taxation regime. There's been a very important tax development recently that positively impacts BSR.
You may recall that on our last conference call, I noted that the Texas Legislature passed Texas State Proposition 4 in order to lower real estate taxes, including for multifamily residential rental properties. We were waiting on the constitutional election results in early November to see if the reduction would come into effect. Well, the election happened two days ago and the tax cut has been ratified. We estimate that it will result in a decrease of real estate taxes for the REIT of $1.4 million, and it applies this year. We obviously welcome this news and are pleased to be operating in such a pro-business state. The tax reduction makes Texas even more attractive for anyone considering a relocation from outside the state. We continue to use our NCIB as a tool to build value for our unitholders.
Subsequent to the third quarter, we renewed it for another 12 months. The NCIB enables us to repurchase and cancel up to roughly 3.2 million units, or 10% of our public float. Under our prior NCIB and Automatic Securities Purchase Plan, which expired in October, we bought back nearly 1.5 million units at an average price of $13.25 per unit. We are constantly reviewing our capital allocation options. As long as our units are trading at a significant discount to NAV, buybacks remain an attractive option that we can capitalize on when opportunities arise. Conversely, if we see property acquisition opportunities at cap rates even approaching our implied trading cap, we will equally capitalize on the same.
Finally, I want to note that we have updated our 2023 earnings guidance, which now takes into account the Texas real estate tax cut, insurance... increased insurance costs, and higher interest expenses associated with an increase in interest rates and funds used for the NCIB, as opposed to paying down debt. I will cover this in more detail later in the call. Now, I will invite Susie to review our third quarter financial results in more detail. Susie?
Thank you, Dan. Same-community revenue increased 3.9% in Q3 2023 to $40 million, compared to $38.5 million in Q3 last year. The improvement primarily reflected a 3.1% increase in average rental rates for the same community properties from $1,452 per apartment unit as of September 30, 2022, to $1,497 as of September 30, 2023. Total portfolio revenue for the quarter increased 3.8% to $42.1 million, compared to $40.5 million in Q3 last year. This primarily reflected $1.5 million of organic same-community rental growth.
...NOI of the same community properties was $21.7 million, an increase of 7% from $20.2 million in Q3 2022. The increase reflected a higher same-community revenue, as well as a $0.7 million decrease in real estate taxes, primarily due to revised assessments and the change in Texas tax legislation previously mentioned. This was partially offset by an increase in property operating expenses of $0.8 million due to higher repair and maintenance costs, payroll costs, and property insurance. NOI for the total portfolio increased 4.5% to $22.7 million, from $21.7 million in Q3 last year. Same community NOI growth boosted total NOI by $1.4 million, partially offset by a reduction of $0.4 million due to real estate tax refunds received during Q3 last year, which were related to properties sold in 2021.
FFO for Q3 2023 increased 8.3% to $13.1 million, or $0.23 per unit, compared to $12.1 million or $0.21 per unit last year. The increase reflected the higher NOI and a $0.3 million decrease in finance costs, net of finance income, partially offset by a $0.3 million increase in G&A expenses. We generated finance income in Q3 2023 of $3.4 million, primarily from interest rate swaps. That more than offset the impact of the higher interest rates this past quarter. FFO increased 6.5% to $11.9 million in Q3 2023, or $0.21 per unit, from $11.2 million or $0.19 per unit last year. The increase was primarily due to the higher FFO, partially offset by higher maintenance capital expenditures.
The REIT paid quarterly cash distributions of $0.129 per unit in Q3 this year and last year, representing an FFO payout ratio of 61.6% in Q3 2023 and 67.2% in Q3 2022. All distributions were classified as a return of capital. Turning to our balance sheet. The REIT's debt to gross book value as of September 30, 2023, was 41.3% or 39.2%, excluding the convertible debentures. Total liquidity was $200.1 million, including cash and cash equivalents of $3.9 million and $196.2 million available under our revolving credit facility. During the third quarter, we used excess cash from operations to pay down the credit facility by $9 million.
We have the ability to obtain additional liquidity by adding properties to the current borrowing base of the facility. As of September 30, we had total mortgage notes payable of $497.7 million, with a weighted average contractual interest rate of 3.3% and a weighted average term to maturity of 4.7 years. Those figures excluded the credit facility and the construction loan for an investment property under development. Total loans and borrowings at quarter end were $745.8 million, with a weighted average contractual interest rate of 3.2%, excluding the debenture, debentures and the construction loan, and 98% of our debt was fixed or economically hedged to fixed rates.
The outstanding convertible debentures were valued at $40.5 million as of September 30, at a contractual interest rate of 5%, maturing on September 30, 2025, with a conversion price of $14.40 per unit. During the third quarter in September, we extended $160 million of mortgage notes by one year to September 13, 2025. There were no other contractual changes as a result of this extension. On November 1, subsequent to Q3, we entered into a new $65 million interest rate swap at a fixed rate of 3.27%. The swap is effective July 1, 2024, and matures on January 31, 2031, subject to the counterparty's optional termination date of January 2, 2025. On November 3, we entered into a new $60 million interest rate swap at a fixed rate of 3.54%.
This swap is effective on January 2, 2024, and matures on January 2, 2031, subject to the counterparty's optional early termination date of January 1, 2025. Swaps have been a very effective tool for us to help navigate the current environment of elevated interest rates. Finally, as Dan mentioned, our new Normal Course Issuer Bid took effect on October 6. We also renewed our Automatic Security Purchase Plan in connection with it. The NCIB is in effect until October 5 of next year and enables us to repurchase nearly 3.2 million units. As of October 31, we have repurchased 44,800 units under the renewed NCIB and the ASPP at an average price of $10.73 per unit. I will now turn it back over to Dan for closing comments. Dan?
Thanks, Susie. BSR REIT remains in an incredibly and unsurprisingly strong competitive position. We are delivering solid financial and operating performance, and the outlook for rental demand in our core Texas Triangle markets remains robust. We continue to witness very strong job growth in the region, with a great deal of migration from the East and West Coasts of the United States. It's not a surprise. The cost of living remains very attractive compared to the major coastal cities, despite the substantial increase in rental rates we have seen over the last couple of years. Our market attractiveness and product affordability remain more critical assets today than ever, as homeownership remains increasingly unaffordable.
As I've noted before, annual rent as a percentage of income in our core markets is around 25%, compared to the national United States average of 35.3%, and it is significantly higher than that in major great gateway cities, which so many people are departing. The construction of the second phase of our Aura 36Hundred development in Austin is nearing completion, with a projected total cost of $59.5 million. This is both on time and on budget. We expect to begin lease up of this 238-unit community in February and finish this process by the year-end. We expect the financial impact to be neutral in 2024 and accretive to AFFO in 2025. Now, I'd like to review our guidance for the year.
As I mentioned earlier in the call, the real estate tax cut going into effect in taxes, in Texas, reduces our 2023 taxes by approximately $1.4 million. However, we're also facing higher insurance costs and additional interest expenses associated with the increase in interest rates and funds used for the NCIB, as opposed to paying down debt, neither of which were factored into our prior guidance. In our new guidance, which incorporates the pluses and minuses, we have narrowed the range for FFO and AFFO per unit, maintained our outlook for same community revenue and NOI growth, and slightly increased the expected growth in property operating expenses. We currently anticipate FFO per unit of $0.92-$0.94, compared to $0.86 last year. AFFO per unit of $0.85-$0.87, compared to $0.80 last year.
Same community revenue growth of 5%-7%, growth in property operating expenses of 5%-7%, and same community NOI growth of 6%-8%. As always, I want to note that the guidance also does not take into account any potential acquisitions. Cap rates have not adjusted in line with interest rates in our core markets. As investor demand for the kind of high-quality, well-located properties we like has remained high, but inflation is moderating, and we do expect to see a more active market in the months ahead. While I can't predict whether we'll close on any acquisitions in the near future, we have the scale, the experience, and the strong liquidity position to capitalize when we do identify opportunities that enable us to grow cash flow per unit.
Driven by our disciplined approach to capital allocation these past five years, our future remains bright. We have proven that we can generate strong performance no matter the obstacle, whether it is a pandemic or an environment of elevated inflation and interest rates. I'm confident that we will continue to deliver strong operating results for our unit holders going forward. That concludes our prepared remarks this morning. We're now going to move to the question period. We'd like to respect everyone's time and complete our call within one hour, while giving all of our analysts the opportunity to ask a question. With that in mind, please limit your initial questions to two, and then rejoin the queue if you have additional items to discuss.
If we don't have time to address all of your questions on this call, we are happy, as always, to respond to additional questions by phone or email afterwards. Susie and I will now be pleased to answer your questions. Julie, please open the line.
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Gaurav Mathur from Laurentian Bank Securities. Please go ahead.
Thank you, and, good morning, everyone. Firstly, our thoughts with Brandon and the entire BSR family. You know, first question here. You mentioned the rise in insurance costs across the portfolio. What's typically driving that, and do you see that plateau over 2024?
Insurance costs, yes, they are increasing, across the United States. We've had a lot of extreme weather. Fortunately, obviously, BSR hasn't been hurt as badly as some of our competitors have been, but a lot of it's guilt by association, too. Insurance rates have been outrageous over the last two years, and we would expect not nearly as an aggressive increase in 2024 as we saw over the last two years.
Great, and last question. In your prepared remarks, you have talked about the strong investor interest in multifamily. Just wondering what that buyer pool looks like and if that's changed in any way since the beginning of the year.
Yeah, sure, Gaurav, this is Dan. You know, the buyer pool, let's take Austin as a good example. The buyer pool year to date has nearly been all private groups. We've seen, let's say, isolating on the Class A product that we own in the suburban core area, 17 unique buyers, five bought multiple assets. So you, you're not seeing a lot of public interplay or in acquisitions right now, and you're not seeing... What you're seeing is small family offices buying on an all-cash basis-
Right.
and probably trading.
Great. Thank you for the color.
With that said, Gaurav, going into Austin, the average price per suite in closed deals is about $240,000 a suite. Average age of those deals, 2012. You know, I'll say any of the deals we've looked at for the quarter, we looked at about, I want to say, 29 potential acquisitions last quarter. That's totaling 10,540 units, give or take. Collective asset value of $2.4 billion. The average asking price of those properties was around $82 million, or around $227,000 a suite, and average year of construction was 2015. Now, obviously, we didn't buy any of those.
We didn't offer a high enough price, but those are the trades we saw take place inside of Dallas, Houston, and Austin... sits at or, at or around a 5 cap, which is the NAV we reported for the quarter.
Okay, great. Thank you for the color. I'll turn it back to the operator.
Your next question comes from Jonathan Kelcher from TD Cowen. Please go ahead.
Thanks, Dan, or thanks. And Dan, you kind of answered, I think you kind of answered the question there, but in your prepared remarks, you talked about you guys would be happy to be active if you saw anything trading close to your implied cap rate, which sort of mid- to upper-sixes. Are you seeing any opportunities there at all?
Yeah, Jonathan, good question. And welcome to the team this quarter. We like to hear your voice. So the, we're not seeing anything that touches our implied cap rate. I don't think any of our competitors in the public U.S. markets are as well, which is why you're seeing a bit of elevated activity on BSRs and on share repurchases. You know, the simple fact is that there remains a wide bid-ask spread between sellers and buyers. Cost of capital on the buy side can be as low as 5%. Cost of debt as low as 5. Average agency rates are probably sitting at 6%-6.5%, fixed non-recourse.
And the sellers of the right product, the kind of product that we want to buy, they're not going to budge off of their estimate of values. And their estimate of values, I mean, Austin is a great example, $230,000 suites was traded, year to date from 17 different individual buyers, 5 are repeat. Dallas and Houston are no different. I mean, those cap rates for acquisitions sit between. I call it, we've seen as low as 4.61 in the quarter, as high as probably 5.25 in those three markets. They don't look, those cap rates don't look to budge, or really, we're not seeing any capitulation on the sell side ask rates, up to and including this past week.
Where we are seeing capitulation is in the implied trading cap of our company's shares. Now, it's, you know, it's I think it's our job and duty to run a real estate business, not necessarily to run a stock-picking business. It's ideally not an allocation of capital for us to repurchase shares, but this management team and this REIT is disciplined. So to us, it's pretty simple. We've said, and we've always said this, if we see a stabilized cap rate about 150 basis point on top of our cost of debt, we will pursue that. If we see a lease-up about 275 to 200 basis points on top of our cost of debt, we'll pursue that acquisition.
If we see a development sitting around 250 on top of our cost of debt, we will pursue that development. To date, and this year, and since our last acquisition in December 2021, we simply just have not seen those spreads on yield that generate... that drive returns for our investors. Where we are seeing them right now is in the implied trading cap of BSR's unit price versus our cost of capital. Now, our view on it is we like the lease-up. We like that 175-200 basis point spread on top of our cost of debt.
You can infer from our swaps that we executed last week, that we have an effective cost of debt, 100% hedged at 5%, and you have a very disciplined, yet aggressive team that allocates capital at 150-200 basis points on top of its cost of debt. So we got $200 million of dry powder, and we're, we're right there every day, so long as we look at a spread of 7-7.25 on a cap rate, implied cap rate of our stock against a 5% cost of capital, repurchasing our shares.
If we see that implied spread widen, make no mistake that this management team and this REIT will aggressively defend the value of our shareholders and the 31 assets that we own, that we've bought in the last 3 years.
Oh, okay. That's helpful. And then, second question. Just on the operations, the Austin blended rent growth was basically flat in the quarter. Can you maybe give us a little bit of color on that? Was that like one or two properties or the whole market? And what would you say the near-term outlook is for that heading into 2024?
Yeah, Jonathan. Right. So we have three properties in the Austin market right now that are being impacted by supply. And October, actually, it was new leases were signed at about, I guess it was a negative 7%. So those properties are being impacted. However, you have to remember that that's just a small percentage of our portfolio. We expect that the first half of next year to probably be similar to Q4, and then the latter half of next year is harder to guess because Dan is going to speak about a little bit about the supply and the absorption of it and what we expect to happen in the second half of the year, which is similar to some of our peers. They've also said that we expect better absorption.
While I can't say right now what I think is going to happen for the entire year, I can certainly say that things probably will be stable in Q1 and Q2 compared to where we are now.
Okay. That's it for me. Thanks.
Your next question comes from Sairam Srinivas from Cormark Securities. Please go ahead.
Thank you, operator. Good afternoon, everyone. Just picking on John's questions there, in terms of, you know, the leasing spreads you're seeing in your markets, Dan, can you comment on, you know, have you seen the spreads develop into 2024? Have you seen those evolving in each of those markets? About the relative values we see in Texas to the other gateway markets, Sai?
No, the leasing spreads, Dan, which have been kind of trending down a bit.
I'm sorry, you came through it, you kind of, you kind of cut out there as you were following up.
Oh, the leasing spreads that you're seeing in each of these markets, and how you see that developing in 2024.
Yeah, the leasing spreads and then the setup for 2024. Yes, Susie's probably a better one to answer that. Susie?
Yeah. Yeah. So, that's right. The leasing, so the trend of, well, I guess, leases, new leases coming in less than prior has continued actually in October. So for now, we're looking at probably new leases in October around -2.3%. However, our renewals were at 4.7% in October, so that gave us a blended increase of about 1.3% for the month. And we expect that probably to continue for the rest of the quarter as well. And that's like I just said, and I think we can say that that's probably going to be the same in Q1 and Q2 of next year as well.
All right. That's actually a good color. Thanks, Susie. And just generally speaking about, you know, the gains that you saw in terms of the reversal in the taxes, has some part of that gain already been captured, or do you expect that to be reflected in Q4?
Yeah, the real estate taxes, we captured a portion of it in Q3, and we would expect to capture another portion of it in Q4. We also have some outstanding appeals, and, you know, I think as our financials have depicted in the past five years, quarter-over-quarter, we don't really have the Texas operator truly doesn't have a see-through on the timing of appeal receipts. We are exceeding our expectations for the year, year-to-date. We would expect more to come in in the fourth quarter. So you know, those two potential tailwinds exist in Q4. I'd say we've taken about half of the benefit of the Texas tax reduction in Q3.
All right. Thanks, Dan. Thanks, Susie. I'll turn it back.
Your next question comes from Kyle Stanley, from Desjardins. Please go ahead.
Thanks. Afternoon, everyone. You know, I think we've kind of touched a little bit on supply here over a couple questions, but just, you know, I always like to get your take then on your thoughts on kind of the new supply completions in your markets. You know, it does seem like the consensus view is maybe completions peak in mid-2024, and then we have the associated, lease-up period. So just want to get your thoughts on, on maybe how that's progressing and, you know, when you maybe expect to get through, this elevated period of supply and, and, you know, obviously, we don't have the backfill of, new starts.
So just your overall view on what's going on on the supply side, and, you know, secondarily, as part of that, are you seeing more, you know, concessions from developers in the current environment? Is that weighing on things?
Yeah, sure, Kyle. So let's take the Texas markets, but and because Oklahoma City and Little Rock don't seem to have any oversupply or supply issues whatsoever. So let's start with just go by quarter. Houston delivery peaks look to take place in quarter one, and Austin in the second quarter, and then DFW in the third quarter. Now, let's talk about the demand function. Houston, it's important to note, since 2021, Houston has been undersupplied. So when we talk about supply peak in Houston, we're seeing and have seen some positive absorption, but for a couple of quarters in the second quarter, and I think the third quarter of 2022. And I think we were marked. You know, you kind of see the impact of that.
We were marked last quarter that, I want to say, Houston led the country in year-over-year rental growth over the summer, sitting around 5%-5.5% on new leases. You know, Houston is set up to continue to compete. I think one interesting outlier that we're looking at in Houston right now is you saw about 120,000 people move to this city in 2022, but we would normally expect to see, oh, about 25,000 units absorbed with that kind of population growth, and we saw some muted household formations, call it 10,000-15,000 absorption in Houston. So there's about 10,000 people out there that we're in our belief, are either staying with mom and dad, staying with friends, or looking for a place to live.
We think the setup for Houston looks, I would say, unchanged, in that it's an undersupplied market of nine million people, that continues to see triple-digit population and growth, that's really driven by job growth, with, I guess you could call it a peak in Q1, but the peak is still well below the 10-year average, you know, deliveries. So we love Houston. Second is Austin. We think peak deliveries occur right now in the second quarter. You know, Austin has done a remarkable job of creating jobs, of continuing to attract, population growth. It attracted me last weekend when I was there walking our properties in the market. And I would say, the average Austonian doesn't really see a real problem with peak supply.
They think or with supply issues, they think that that supply is needed to support their population growth and their infrastructure growth. But with that said, you know, delivery is probably Q2 of next year, and the absorption up until Q2 of next year, probably going to look to be around 75% of peak deliveries. DFW, we call it... look, DFW continues to remain just an absorption blob. It produces 20, it absorbs 20. It produces 15, it absorbs 14.9.... The DFW market looks to peak, I would say, in supply in the third quarter. Now, what's remarkable about each of these peaks is not the supply. It's the fact that there's a remarkable drop-off between peak supply and subsequent supply. Think about Wile E. Coyote running off of a cliff, Kyle.
As soon as we see those peak deliveries take place, we see subsequent deliveries really trailing off fairly precipitously. I think until that time, what we're seeing and what developers are seeing is, call it about 15-20 leases per month per property, and that's about the average lease-up schedule. That means that from the day that you open your first apartment, it takes you about a year to lease up your last apartment. That one-year lease-up period, I would say, for as long as I've been in the business, but for 2021 and the beginning of 2022, is about the traditional lease-up period.
So, outside of the capital markets and the newspapers, each of these three markets is behaving, I guess, how they would behave for as long as I've been in the business, outside of two years in the early twenties. You know, I think the setup right now, as Susie mentioned earlier, Kyle, it's just such a positive potential and optimistic outcome for the tail end of 2024 and into 2025 and 2026. You're walking into what I think are undersupplied markets with just more bodies than homes available. Now, as it relates to the developer, yeah, we're seeing about, I'll say, a month to two months concession on developers. I just want to remind everybody that developers in these markets are about 5% of the total apartments available in these markets. So...
That no stabilized operators like BSR or any of our competitors use really the type of concessions that you would think about. So let's call it 1-2 months in North Austin, in particular, and then probably in Dallas, lighter concessions, Houston, lighter concessions than that. And we expect those to burn off traditionally within a year of issuance.
Okay. Thank you for all the color. My one question had several parts, so I will turn it back. Thanks.
Your next question comes from Mike Markidis from BMO Capital Markets. Please go ahead.
Thanks, operator. Dan, Susie, nice to speak with you. One question for me is just, you know, there's been a lot of focus on your leasing spreads, but you guys are a revenue maximization business, and your revenue seems to have plateaued here in the short term, and appreciate your comments, specifically with the backdrop and the good set up for late 2024 and into 2025. But if we think about the next several quarters, do you think holding the line is sort of the base case scenario you're thinking about here on total revenue, excluding the lease for development you have, or do you think that we could see a little bit of backup in the near term?
Yeah, Mike, good question. So let's build the base. So subsequent to rotations, we created what I believe is the youngest portfolio in the public multifamily space. So it's... Our properties are new, they're highly amenitized, they're a superior product to a lot of our competition that was built around the same time. That's step one. Step two is anything that's been delivered since we bought costs about 20%-30% more to build than what we bought. So the rent demanded by that landlord to lease up its property creates a spread of, I don't know, and if our $1,500 a month in rent is any indication, let's call it $500-$600 a month for them to break even on similar economics.
Then let's compare us to build to rent, our other competitor. You know, we've got build to rent all over Houston and Austin and Texas. The problem is, build to rent right now costs twice as much per unit to build, and the rents, on average, compared to our $1,500 a month, can be 2x-2.5x higher per month. And we're talking about the same square footage and no amenities. So from a product standpoint, we like our B plus, A minus suburban walk-up garden style. We think it's a superior product. Now, let's go and operate that product. What you're able to do when you're using revenue maximization is you're able to feel comfortable at 95% occupancy.
You know, we're not necessarily needing to buy occupancy because our product is superior and our price points make sense. Now, the market will tell us what rates look like for our product, and since we don't have to buy occupancy, the rates that we've produced and the rates that we'll look to produce in the coming quarters are really, to us, I think rates devoid of having to buy occupancy one way or the other. We like that 95% rate or that 95% occupancy, and the Q3 numbers, Q4 expectations in our guidance are fairly representative of true A minus, B plus product in the suburbs of these three, three markets.
Okay. So I think triangulating your comments, which were very great, thank you. You expect to hold the line or continue to increase marginally over the next couple of quarters?
I think that's fair to say.
Perfect. Thanks so much.
Your next question comes from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you and good afternoon. So just on Dallas market, new lease rents, so have you already seen negative rent growth in September and October?
... for the new leasing?
Yep. Hi, I'm on to you. Yeah, so in October, we did have new leases were around... It was negative 1.7% for Dallas. And then renewals were at 4.4%, so the blended increase in Dallas for October was 1.4%.
Okay. I'm assuming that they were negative in September as well in Dallas.
That, that's right. And I think that trend is going to continue through the end of the year and the beginning of next year. Keeping in mind, though, because we still have renewals. We've got right now, a mark-to-market in place of about 6%. Now, granted, the mark-to-market is, is a point in time, right? And that can change. So 6% today could turn into something different tomorrow based on what leasing rates do. But you can still see in October, with the 4.7% pickup on renewals, we're gaining ground on that.
Okay. And then, your peak supply in Dallas is going to be Q3 of next year, what I understand. So this negative 1.7 will get worse before it get better. Is it fair to say that?
Oh, Himanshu, Himanshu, there's so much negativity in your question. So now, look, peak supply comment on DFW, I wouldn't infer that it's going to get worse before it gets better. You know, there's some seasonality in leasing, and based on our early look, I would say I wouldn't anticipate it to get any worse. I think that you kind of have sustained supply, and like I said, Wile E. Coyote falling off a cliff from supply in Q3. I think Dallas looks to deliver 10 units and absorb 9.8 units. That transitions, you know, month to month into some months looking better than others. I don't really see it get much, you know. Right now, I don't see it getting much more negative.
I actually think the operating numbers kind of support a blended continuation of what we saw in Q3.
Okay. Okay, fair enough. And, let's talk something positive here. The swaps, you know, $60 million-$65 million. That's like 3%-3.5%. Is that all-in cost, or is there like a spread to something underlying rate?
Yeah, so you can underwrite about a 140-150 spread on top of that for a credit spread, and that would be our all-in rate. So let's say it's 4.75%-5% fixed, all in.
Fixed, all in. Okay. Okay, fantastic. Yeah. Thank you so much, and I think two questions. I'll turn back.
Your next question comes from Jimmy Shan, from RBC Capital Markets. Please go ahead.
Thanks. I'm also not trying to be negative, but I'm also not understanding, I guess, how the blended spreads of 1.3 in October, how does that stays constant? Because presumably the renewal rates would naturally slow from the higher base, and, and then I would imagine, or is it that you call the new leases, the market rates have bottomed, and so we're not going to see the new, new lease rates now get more negative.
Yeah, sure. You know, you're kind of using the renewals that we have in November of this year are coming from last year. I think Susie's got some color on this that can help.
Maybe I wasn't clear earlier. What I meant when I said that the first half of next year will look like the fourth quarter, I meant, revenue speaking, would be within range of what we have now. That's not saying that will continue, that new leases will get more negative on top of the negative we have now, if that makes sense, and that the renewals would remain the same. I'm saying that I think it would be more constant.
Absolute revenue level would be more constant to what we're seeing now, but not necessarily comparable to the prior year.
Comparable to the. Yes, right.
Okay. Okay, and then, are you seeing, what are you seeing in terms of turnover rate trends? Isn't that market more competitive or seeing tenants shopping around? Are you seeing an increase in turnover rate?
Yeah, I think our turnover stayed pretty stable.
Okay. Okay, that's it for me.
Okay.
Operator, do we have any more questions?
Yes. Your next question comes from Brad Sturges, from Raymond James. Please go ahead.
Hey, good afternoon. Just to go back to your commentary on the acquisition and the deals you've been underwriting, and just trying to think about the $200 million of dry powder you have today. I think you generally talked about in the past about having a preference of doing deals with existing relationships on the developer side. I'm just curious if there's any opportunity that you're seeing right now within your relationship network, where you could see some acquisitions coming from that pipeline.
Yeah, Brad, we see plenty of opportunities from our development partners and relationships. I think, you know, I would characterize that we're not seeing those sellers capitulate on their values. Candidly, we don't disagree with their values. We're just in the business of buying a yield spread, and we don't think it's a disciplined investment to buy at a cap rate that is lower than our cost of debt. So, you know, I think our partners appreciate that. We believe in the value of their assets, but the market credit functions, the debt functions, the U.S. Treasury yields, and the current multiple-via environment in the capital markets simply doesn't support a bid anywhere near what these sellers believe their assets are worth.
Now, these sellers and development partners are really well capitalized, and they are patient, and they're holding out a hope and a belief that short-term interest rate market will become more favorable to them in the near term. In the event that it doesn't, as you said, we have $200 million of dry powder, which we believe can afford roughly $400 million-$500 million of property acquisitions. You know, we're sitting here with a loaded gun ready to acquire, but we're just not gonna bust our discipline at this time.
I guess thinking about potential for distress in the market, let's say there's opportunity, assets that come about that are, you know, fit your quality and location preferences, but maybe have a capital structure issue. Is that something you would expect to see that you could execute on or not so much, you're not seeing that opportunity right now?
No, we're not really seeing that opportunity right now. We certainly do see, I'll say, clouds in the sky, on the sell side. You know, they are the seller is concerned about a permanent fracture in their capital stack. The new developers can't get new developments off the ground. Credit is becoming a real factor, and that the availability of credit and certainly the pricing. So yeah, we do see some seller concern. We just haven't seen capitulation. And, you know, it's probably my view, like I said, in the prepared remarks, I think the market is extremely volatile, and the psychology of the seller and the buyer are playing a...
I guess, Jerome, everybody's thoughts on what Jerome Powell is gonna do are playing what I would say an outsized impact on the acquisition market. So you have a buyer that really wants to afford something, but they just can't... They're not gonna pay for the right to lose money. And you have a seller that's extremely proud, that feels like they may be in the worst of the hurricane, and that things may get better. And then you have a, I'll say, a credit set up of a higher for longer environment. Now, with that said, here's the reality beyond the psychology: We see $600 billion of loans maturing in the next two years.
40% of those, of that debt was originated at the peak of 2020 and 2021 prices. Within that $600 billion, there's going to be some fractured deals, and there's going to be some opportunities for BSR. I think there will also be, I think out of that $600 billion, there will also be a tremendous opportunity for, we'll say, value add, older assets and tertiary markets. We don't necessarily... That's not necessarily the fish that we want to fish for. We think, you know, we'll see tertiary value add, older asset cap rates blow out, and we think we'll... If history rhymes, we think we'll see prime Class A assets kind of sit in and around our NAV or in and around kind of a tight spread between the cost of credit.
That's what we're hunting for because we believe the TUR in that newer asset situated around this Texas Triangle is maximized relative to anywhere else in the country.
That's helpful. I'll turn it back. Thanks, Dan.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. There are no further questions at this time. I will turn the call back over to Mr. Oberste for closing remarks.
Thanks, Julie. That concludes our call today, and thank you for joining us. We look forward to speaking with you again after we report our 2023 fourth quarter results next year. Thanks, everyone.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.