Operator: Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSR REIT Second Quarter 26 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After management's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. And if you would like to withdraw your question, again, press star 1. I would now like to turn the conference over to Spencer Andrews, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Spencer Andrews: Thank you, Krista, and good day, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the second quarter ending June 30, 26. I am joined on the call today by our Chief Executive Officer, Daniel Oberste, our chief financial officer, Tom Cirbus, and our chief operating officer, Susan Rosenbaum Koehn, who are all available to answer your questions after our prepared remarks. Before we begin, I want to remind listeners that certain statements made on this conference call about future events are forward looking in nature. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially. In addition, we will reference certain non GAAP financial measures that we believe are useful supplemental information about our financial performance. For more information, please refer to the cautionary statements on forward looking information and a description of our non GAAP financial measures in our news release and MD&A dated 08/12/2026. Daniel, over to you.

Daniel Oberste: Thanks, Spencer. Our second quarter performance reflects the resilience of our portfolio and the continued momentum in our business. Total-portfolio revenue and NOI increased compared to Q2 last year. Sequentially, we generated growth in same community occupancy total occupancy, same community revenue, total property NOI, and FFO. Blended lease trade outs once again turned positive during the Q2 and moved higher in July. We made substantial progress in our organic growth initiatives, including a significant increase in occupancy at our August 2025 acquisition, compared to Q1 and continued progress on our resident amenities programs. To highlight a few selected numbers in the second quarter, same community occupancy increased to 94% from 94.3% in the first quarter. Same community revenue increased 35 basis points versus Q1 of this year. Trade-outs were 50 basis points positive for the quarter, with continued acceleration to a blended increase of 1% for the month of July. Our retention rate in Q2 was 60.1%, an increase of 30 basis points from the end of Q1. And 270 basis points from the end of Q2 last year. Physical occupancy at our August 2025 acquisition, increased to 91% at quarter end, up nearly 20 percentage points from March 2026. And we made further progress within our resident amenities programs, including bulk Internet and valet trash, which have received a highly positive reception from our residents and are now breakeven to FFO accretion in the second quarter. The economic fundamentals supporting our markets remain strong. Apartment deliveries and starts are certainly continuing their predictable decline from peaks exhibited previously in this decade. As a result, in the first half of 26, and particularly in the second quarter, we saw apartment demand outpaced deliveries. As I have noted before, this process has not been as rapid as we would hoped or expected. But you can see the tangible positive momentum in much of this quarter's results. Of course, we are not waiting for the rising tide of market demand to drive stronger financial performance on its own. We are driving growth using our strongest asset, our talented people, to source, underwrite, and execute upon platform initiatives. Including each of the initiatives we laid out in December of last year. To provide a brief update on each, first, the lease up of our 2025 acquisition class. With our August 2025 acquisition, approaching physical stabilization at the end of Q2, you can expect the back half of 26 to more fully reflect the concussed but occupied revenue potential of the 2025 class. Our focus now turns to the second bite of the apple. Within this cohort of assets. The opportunity here is best highlighted by looking at our non same community NOI margin. You will note our year to date non same community NOI margin sits at approximately 450 basis points behind our same community NOI margin. Therein lies the second bite opportunity. Between collecting rent on physically occupied assets for an entire quarter or a year versus just a portion thereof, burning off concessions, and normalizing the expense picture at each of these 5 assets. We believe that the non same community to same community NOI margin differential will naturally compress and presents the remaining opportunity in this category. Second, on our resident amenity programs. Currently highlighted by our bulk Internet and valet trash initiatives. Bulk Internet is running without any issues to speak of. We are live on 6 of our 26 properties. And ramping up ahead of schedule. In the ground on 7 additional properties, with the balance slated to begin in the back half of the year. As new properties come online in late Q3 and in earnest in Q4, we expect material benefits to our other income line item to begin its ramp. On valet trash, we are now live at 8 of our properties. And this resident amenity initiative is currently working to plan. Finally, platform efficiencies. We successfully implemented our assistant community manager centralization effort during the second quarter, which will generate an annualized expense savings for the REIT of 2 cents of FFO per unit while concurrently enhancing efficiency of operations. While these initiatives are still in the early stages, we are making excellent progress, and the results so far only reinforce our confidence in the broader value creation opportunities across our portfolio. We are confident that we will achieve our targeted incremental growth of 13 to 22¢ per unit by early 28 excluding the impacts of changes in market rents, expenses, interest rates, etcetera. All in all, our long term growth story is fully intact. We have an outstanding property portfolio in top tier markets that is performing at a high level. And we are adding further value through our platform induced growth initiatives. We fully expect our business momentum to continue to grow in the quarters ahead, as rental markets steadily improve, and we make further progress in our operational enhancements. We are increasingly confident that we are positioned to drive strong returns for our unitholders. I will now invite Tom to review our second quarter financial results in more detail. Tom?

Thomas Cirbus: Thanks, Daniel. Our financial performance in the second quarter was, as a whole, in line with internal expectations and continued to reflect improvement on a sequential quarterly basis. While the pace of this quarter over quarter improvement was at the low end of our target range in Q2, primarily driven by modestly slower than expected top line rental growth, the market fundamentals supporting our business recovery continue to strengthen. Beginning with leasing, effective rates on new leases declined by 2.4% in the quarter, while renewals increased by 2.9%, resulting in a 0.5% increase in blended rates. That returned to positive rate growth represented an improvement of 1.5% in the blended rate compared to the first quarter and underlies the improved supply demand picture in our core Texas markets. Further, in July, rates on new leases declined by 90 basis points, while renewals increased by 2.2%, resulting in a 1.0% increase in blended rates. We are encouraged by the continued momentum in trade outs over the summer as April, May, June, and July each got sequentially better on a blended basis. Same community revenue in Q2 was $26.4 million a decrease of 1% compared to last year. This was primarily due to a reduction of $300 thousand from lower average occupancy, which was 94.6% versus 95.6%. And $200 thousand from lower average monthly in place rent. The decrease was partially offset by an increase in other property income of $200 thousand which was driven by an increase in the utility reimbursements and resident amenity programs. Sequentially, same-community revenue of $26.4 million for Q2 26 increased 35 basis points compared to Q1 primarily due to higher average occupancy, which was 946% versus 94.3%, as well as higher average monthly in place rent. Total portfolio revenue of $34.2 million in Q2 increased 1.5% compared to last year, The increase was primarily the result of $4 million of revenue generated from our 2025 property acquisitions, partially offset by the loss of 3.2 million from our 2025 property dispositions and $300 thousand reduction from same community properties. Sequentially, total portfolio revenue of $34.2 million increased 1.1% from Q1, primarily due to the performance of the 2025 acquisitions. Same community NOI for Q2 26 of $13.9 million decreased 2.8% from last year, This was primarily attributable to, 1, the decrease in revenue I just described. 2, timing related to the real estate tax funds received in Q2 of last year, as Q2 last year received an outsized amount of refunds. And 3, an improvement in property insurance expense of $100 thousand after another fantastic year for our annual property insurance renewal, which went effective in April. Sequentially, same community NOI decreased 1.4% from Q1 of 2026, primarily attributable to the lower property tax refunds received of $200 thousand. Total portfolio NOI for Q2 of 2026 of $17.9 million increased 0.5% from last year. The increase was the result of a $2 million contribution from our property acquisitions offset by the 1.5 million lost due to our 2025 dispositions $400 thousand reduction from the same-community properties. Sequentially, total portfolio NOI for Q2 of 2026 of $17.9 million increased 1.9% from Q1 of 2026. The increase was primarily the result of the increase in total portfolio revenue, addition to a $200 thousand increase in prior-year property tax refunds received from the property dispositions, partially offset by the decrease in same community NOI. As Dan alluded to in his remarks, total portfolio NOI will continue to improve as we graduate from a focus on physical occupancy to a focus on full economic stabilization of our non same community properties as demonstrated by the non same community NOI margin opportunity. Below NOI, G&A expenses were essentially flat year over year and down 6.6% sequentially from Q1. As we communicated last quarter, legal and professional costs were elevated in Q1 and normalized in Q2. Finally, Q2 net finance costs were up 35% year over year and 3.7% sequentially. The year over year comparison is extremely noisy because recall second quarter last year was our primary transition quarter, and thus, the portfolio was not carrying full leverage for the quarter. Sequentially, net finance costs are up due entirely to interest rate resets, which occurred in our derivative portfolio. All in all, FFO in Q2 of 2026 was $7.1 million or $0.18 per unit compared to $9.2 million or $0.21 per unit last year. The decrease was primarily driven by 3 items. First, the change in same store NOI Second, increased finance costs. Which all was partially offset by third, the ramping momentum in our non same community portfolio. Sequentially, FFO in Q2 of 2026 was $7.1 million or 18¢ per unit compared to 6.9 million or 18¢ per unit in Q1 of 2026. Once again, the slight increase in FFO was driven primarily by momentum in our non same community portfolio offset by financing costs. On AFFO, the same drivers apply that I just mentioned on FFO. However, unique to AFFO, Q2 of this year saw an outsized spend in recurring CapEx driven by a delay in Q1 spending primarily related to the host of weather events that occurred in the first quarter and thereby delayed spending in this category. In addition, given the heavy concessionary environment we faced in the second half 25 for our lease up properties, our straight line rental revenue adjustment was positive this quarter, as those concessions have released over time. On the balance sheet, the REIT's debt to gross book value as of 06/30/2026 was 51.7% compared to 51.2% at the end of 25. This amounts to $732.2 million of debt outstanding with a weighted average interest rate of 4.1% a weighted average term to maturity of 3.9 years, and total liquidity of $39.7 million at quarter end. Finally, on guidance. You will note we updated our same community portfolio guidance to reflect the modestly slower pace of top line recovery relative to our expectations at the beginning of the year. We have also updated our expense guidance to reflect the significant savings we are experiencing in line items relative to expectations. Net, we do not expect any overall change in our initial same community NOI guidance. Secondly, and as we mentioned in the earnings release, while our August 2025 acquisition, continued to make significant leasing progress during the second quarter, reaching 91% physical occupancy at quarter end, stabilization is occurring slightly later than originally anticipated. As a result and given the compounding effect of being behind our initial expectations, we have revised our FFO per unit and AFFO per unit 2026 guidance ranges down slightly to reflect the operational reality at the that asset. At its core, our real estate business remains very healthy, and largely in line with expectations as we continue building revenue from our lease-up activity, and we begin experiencing the effects of the economic stabilization of our non same community assets albeit slightly later than originally anticipated at 1 asset. We will, of course, continue to update this guidance as needed throughout the balance of the year. We will now turn it back to Daniel for his closing remarks.

Daniel Oberste:

Thomas Cirbus: Thanks, Tom.

Daniel Oberste: As we close out our prepared remarks, I would like to emphasize the underlying message of Tom's last point. While the pace of lease up at 1 property, that is our August 2025 acquisition,, is running approximately a month or so behind our initial 2026 expectations. The remaining 96% of our portfolio remains largely on track with our initial expectations. Though rental revenue momentum is slightly behind our initial outlook for the year, there is significant momentum down the P&L. Our resident amenities programs are fueling expected growth in other income. Centralization efforts are saving operating personnel costs. Kyle mentioned the positive news related to insurance and taxes. Our platform efficiency initiatives are taking hold, just to name a few. So while the top line market improvement is obviously not yet at the level we all would like, We are as excited as we have ever been about the medium to long term outlook in our portfolio. As we have said in the past, we cannot control the rental market, but we can control our platform performance and the experience our residents have in our communities every day. And I can tell you that the BSR team is performing as our investors expect and we will efficiently and methodically drive the growth from this portfolio that our investors deserve. When you add this visible growth to the slowly budding turnaround in rental rates resulting from improving supply demand fundamentals, and the inherent economic stabilization we will experience in the coming quarters, we are well positioned to generate consistent superior returns for our unitholders. That concludes our prepared remarks today. Tom, Susan and I would now be pleased to answer your questions. Operator, please open the line for questions.

Operator: Thank you. You. Your first question comes from the line of Jonathan Kelcher with TD Cowen. Please go ahead.

Jonathan Kelcher: Thanks. Good morning. First question, just on the blended rents. If I look back, I think they were positive in Q3 of last year. Myke, how confident are you that at the beginning of an upward trend here? Or do you or do you think we may still be sort of plus or minus 0% for a couple of quarters?

Susan Rosenbaum Koehn: Hey, Jonathan. Yeah, Overall, at a high level, we think the market is healthy and that rents will continue to improve. You may see us in the third quarter pull back a little bit specifically to raise occupancy, which is the other lever we choose. But overall, I think that what we are seeing right now in July, things are looking good.

Jonathan Kelcher: Okay. So it is probably pretty close to plus or minus zero in Q3 and then hopefully trending up from there. Is that is that how I can interpret that?

Susan Rosenbaum Koehn: I mean, well, if you look at it specifically at the BSR, portfolio, yeah, we may we may choose to lower rates a little bit in Q3 to bring up occupancy. But overall, the net effect is more rental revenue. Right? And then, yeah, with a with a higher upswing in Q4.

Jonathan Kelcher: Okay. Thanks. for that. And then just secondly, on the guidance. And the expense growth came down the midpoint came down 250 basis points, which is quite a bit. Can you maybe give a little bit more color on what is driving that?

Susan Rosenbaum Koehn: Sure. So guidance wise, the main driver is the AMC here, right, when it comes to rental revenue. Concessions are simply well, we expected to still be in the Solana market. They did not come down at the pace we were initially anticipating when we issued our guidance for 2026. So what we expected, was probably around, you know, 8 weeks free. And what we are seeing is the equivalent of about 12 weeks free when you consider what people are throwing in. 10 weeks free and maybe a $1.5 thousand gift card. So if you look at that, there is a 4-week gap that we have to account for now that we are dealing with our competitors in the Solana market, which, the majority of the write down related to the OMC for the second half of the year. The other piece is much smaller and is related to the same score portfolio. We still have pressure in those markets too. They are still concessions, and they also did not come down quite as much as we expected. Though let me let me reiterate here, they are coming down, and that is like, maybe a $14 gap when we look at net effective rent per unit. For the rest of the year.

Daniel Oberste: And, Jonathan, this is Daniel. As I mentioned earlier, if we move further down the P and L and speaking specifically to OpEx, the main drivers of our OpEx reductions were real estate tax decreases and a positive insurance renewal. We are seeing some green shoots related to platform centralization that we spoke about last quarter. We think that is worth probably a penny in the back half of the year, and it is going to continue to drive OpEx compression which makes us feel comfortable lowering that guidance at the midpoint as you mentioned. And then I would say there is about a dozen or 2 other positive variances that we are seeing, namely bad debt, is sitting right around point 5% of collected revenue. Now traditionally, in this asset class, we would underwrite point 8. That would be for class a suburban multifamily. I have seen it go as high as 1.75 in a class c or b minus assets in a recessionary environment. But I have not really ever seen it go down to point 5. that is a I think that is a trend that caught a lot of apartment operators by surprise this year. it is a good positive surprise that our residents are paying. And I think the macro there is been a bunch of macro data in the last month, you know, more or less saying residents or individuals are choosing to which moats to pay their debts on. And leaving the rest for cons consumer spending kinda decreases. So there is probably 12 or 13 positive variances that we are watching, payroll, bad debt. Insurance, and taxes are probably leading those positive variances in OpEx for us. And instills the confidence that we can provide in lowering the expense guidance for the year.

Jonathan Kelcher: Okay. that is that is helpful. And just on just on payroll, are you are you guys fully staffed on the operations right now?

Daniel Oberste: We are. And as Susan mentioned last quarter, with portfolio centralization efforts, the potting This is something you are seeing kind of throughout the apartment operators The ability to use a little bit of technology and some superior leasing efforts to kind of make your property sites a little bit more efficient on the inside meaning your property leasing personnel. So we are enjoying some expense savings from that much like our competitors. Susan, talked about last quarter how we were initiating that project in the second quarter. it is now complete. I do not think the second quarter, you know, evidences the annualized expense savings, but the remainder of the year will.

Susan Rosenbaum Koehn: that is right.

Jonathan Kelcher: Okay. Thanks. I will turn it back.

Operator: Your next question comes from the line of Kyle Stanley with Desjardins. Please go ahead.

Kyle Stanley: Thanks. Good morning, everyone. Just looking at some of your leasing spread disclosure, and I the answer you may have already given here. But in Dallas, you know, the new leasing spreads were actually below Austin this quarter. Just looking for a bit of color there. Does seem like there is obviously some decent strength in Austin, so maybe a bit of an update there. And then maybe what is driving that difference? Is it really kind of the OMB that you have already talked about? Is it submarket specific? Just looking for, you know, what is going on in those 2 markets.

Susan Rosenbaum Koehn: Yeah. Sure. So Austin things looking great in Austin. As you have seen each quarter, the rates for new leases continue to go up, and we are excited about that. Concessions are coming down in Austin. While they still exist, overall, though, they are coming down. What we are seeing right now is 6 to 8 weeks free, in Round Rock, where it used to be 10 to 12 weeks. We have 2 properties there. In the Buda/Kyle submarket, we still got 8 to 10 weeks free. And in Cedar Park, there is 8 to 10 weeks free. So all good things to say about the trends we are seeing in Austin. Now Dallas, as I just spoke about, we do have additional supply primarily in the Northern Dallas submarkets. that is Frisco, McKinney, Prosper, and Zalina. We have got 3 properties there. And specifically the OMB that we have talked about. There, the concessions have lasted a little bit longer and still remain at about 12 weeks. You consider everything the other operators are throwing in.

Kyle Stanley: Okay. That makes sense. And, I mean, I think it goes to what you said in your prepared remarks about closing the margin gap between the non same store and the same store. But as you look, you know, into the second half and then into the, you know, maybe the spring leasing season next year, how quickly do you expect to be able to roll off the incentive? I know, obviously, it is incredibly difficult to forecast, but, you know, if you are at between 8 and 12 weeks depending on market today, how quickly can we see that roll off in your view?

Susan Rosenbaum Koehn: Yeah. Okay. Well, in specifically, with our August acquisition, that 1, because the larger concessions have remained intact, that 1's going to take probably another 12 to 14 months. Because we have not started the process of burning off the concessions like we would hoped to at this point. With the remainder, maybe a little bit shorter, those are running right on track as we projected.

Kyle Stanley: Okay. Okay. that is it for me. I will turn it back. Thanks.

Operator: Your next question comes from the line of Bradley Sturges with Raymond James. Please go ahead.

Bradley Sturges: Hey there. Just to touch on the ancillary revenue opportunity and just wanted to, I guess, understand a bit more about how to think about the ramp up or the cadence on ancillary revenue coming online in the back half of the year and into 2027 as new properties get added to your Valley trash and bulk Internet programs?

Thomas Cirbus: Yeah, Bradley. it is Tom.

Daniel Oberste: So I think about it this way. Just to give you an example and a reminder on that initiative, 6 of our 6 of 26 assets are live today. 5 of them we installed last year. 1 was a test, asset that is been live for a while. So let's say 5 went live. They went live somewhere between late November and March of this year as a blended group that portfolio of assets is now 37%, penetrated. And probably ramping a little ahead of schedule. We like what the pace at which that is happening. And as a reminder, it is a function of the rent roll turning. Right? We do not push this amenity to every resident day 1. We let the tenant turn or the rent roll turn. For them to renew. It just takes it is a function of time that is the general pace at which you are seeing. So we have leased up a third of the portfolio over the course of the last call it, 4 to 5 months, right, on a blended basis. I would I would expect that to continue to happen As an update on the balance of the portfolio, 16 or so properties will come live between the end of the third quarter here and the end of the year, and those will all continue to ramp going into 2027, likely on the same pace hopefully, if not faster, Some of the assets we hope to get online sooner rather than later, obviously, it is to our great bet benefit to get it online as fast as possible. So that is how I would think about the pace of it.

Bradley Sturges: Okay. I appreciate that. My other question would be just on, just looking at your interest rate swap schedule in terms of just thinking about the counterparty options that where you could get called out. Just where would if you did get called out of swaps, where would be market rates today if you had to enter into new swaps?

Thomas Cirbus: Yeah. So that is the best thing to look at there is we have a sub-event in the press release. We did a late last week, actually, in early August here. The replacement rate, we expect to get called out of a couple in January. The replacement rate was 3.1495, so 3.15%. So we took a substantial amount of the expected cancellation, if you will, risk off the table earlier this month. If we wanted to do the same thing on the back half, the rate is very similar. And we are continuing to evaluate the best alternative there for the back half of the year swaps as well.

Bradley Sturges: Perfect. Thank you.

Operator: Your next question comes from the line of Himanshu Gupta with Scotiabank. Please go ahead.

Himanshu Gupta: Thank you, and good afternoon. Then you mentioned no change to 13 to 22 cents of incremental FFO? You know, what you mentioned in December. So that included 3 to 4 cents on the platform growth. So just wondering, are you still thinking of doing a JV or any update in that regard?

Thomas Cirbus: Oh, Himanshu, I will I will take that. The platform growth continues We are confident in that. When we talked in December, we talked about JVs and a whole bunch of other things that we could do absolutely as it related to the platform. Where we are seeing success already rolled out on the platform side is the centralization initiative. Susan and Daniel talked about and earlier. I think that it is we expect that to do, on an annualized basis 2 cents of, FFO savings. We also are currently negotiating, in the final steps of negotiating for technology enhancements here in house, which will yield an additional similar amount of savings, 0.1 to 0.2 cents of savings. So on the platform growth side, though, we do not have the headline thing that you might have all or anticipated there. Achieving it through different means. As we mentioned originally, we could achieve that. So we I think we have delivered on a lot of that, albeit not having realized the full annualized impact quite yet.

Himanshu Gupta: Got it. Thank you. And, I mean, just to be clear, so if you hit that 75¢ in 2026. So we are talking, like, incremental 30% FFO in the next 2 years to get to the midpoint of this. Incremental. I am sorry. What? You broke up for a second. Yeah. So I think what I am saying is the midpoint of that is 17.5¢. Which is almost 30% higher than your 2026 ending FFO. So we will see that level of growth in the next 2 years.

Thomas Cirbus: Yeah. We feel great about everything we guided to in December. We are more confident today than we were in December that we are going to deliver on all prongs of those So I have given updates on 2 of the 3. Why do not I just round it out the third? On the third, we said that we had about a $4.5 million revenue opportunity to put people in beds. To just occupy units. This is what we did To date, we have realized, call it, just south of $3 million of that revenue opportunity, 2.9. So about 6 to 8 cents of that has already been realized and is in the bag Now, again, it is realized on an annual basis if you compare our September month of end results to our June month end results. That does not mean it is reflected obviously in our full quarter results that is ramped over time. So the midpoint of the guidance, we feel really good about in all 3 categories. The annualization effect will obviously take time. it is not gonna happen now and next quarter. it is gonna take a year or so, which is why we had to give the horizon of guidance that we did. But we feel really good about it. Now, again, the 1 caveat being all of that excluded the impacts of market rents and interest rates and blah. But on those 3 prongs alone, we feel great about those drivers driving that amount of growth you know, by early ish 28.

Himanshu Gupta: Okay. Do not know. A great update and really good progress. All those initiatives. Thank you so much, and I will turn back. Thanks, Himanshu.

Operator: Your next question comes from the line of Jimmy Shan with RBC Capital Markets. Please go ahead.

Jimmy Shan: Thanks. Just a follow-up on the swap question. It is pretty material. So, like, if I look at the early 27, there is a whole bunch with early termination So I think what you said was you know, using the current 3.15%, that would be a good way to like, that is the rate reset on that time. that is what we should be modeling assuming everything else stays the same.

Thomas Cirbus: that is right, Jimmy. So there is 3 swaps that have a cancellation option in early, 27. A 100 and it is about 200 and or sorry. A $197 million that will come due between January and February 2027. We expect to cancel on all of those. So you should, from a modeling perspective, cancel those swaps at that time, like, they go away, and they are replaced at that point with the 3.1495 swap.

Jimmy Shan: Yeah. Got it. Thank you. And in terms of the rent concessions, I am sure there is math that I could do, but would you be able to quantify how know, the amount of concessions that is currently embedded in the current revenue?

Susan Rosenbaum Koehn: Yeah. Sure, Jimmy. So the place is the place, obviously, that we are still giving concessions would be our August 2025 acquisition,. And they are on certain 1 and 2 bedroom floor plans. Excuse me. We are offering 8 weeks free and 4 weeks free on 3 bedrooms. The other asset would be the 1 located in McKinney where we are offering $1 thousand.

Jimmy Shan: Okay. If you were to take okay. So it is really only on the newer assets? I guess, if I were to just look at the current revenue, what percentage of that revenue would you say? You know, that the concessions would be?

Susan Rosenbaum Koehn: Yeah. So the concessions are embedded in the trade out data. Tom. Let me let me point that out, when we are looking at rental rates. And I yeah. So I cannot give you a specific dollar amount do not have that in front of me right now. I think you can look at the trade outs and take that into account when you are seeing the increases we are getting or the declining decreases that the concessions are baked in there.

Jimmy Shan: Okay. And the current rent that you report again, that is net of the concession. Right?

Susan Rosenbaum Koehn: Correct.

Jimmy Shan: Okay. Okay. that is it for me. Thanks.

Operator: Your next question comes from the line of Sairam Srinivas with ATB. Please go ahead.

Sairam Srinivas: Hey, good afternoon. I am just asking 1 on behalf of Sairam. With the AvalonBay and EQR merger, have you seen any impact on the broader transaction market?

Daniel Oberste: With which merger?

Sairam Srinivas: I am sorry. AVB/EQR.

Daniel Oberste: Yeah. The AVB/EQR 1. Oh, broader impact on the no. I do not think we have seen any impact on the on the broader market related to AVB/EQR. I do think we have seen some interesting information, out of Camden most with their rotation out of the out of the out of the coast and into the Sunbelt. Where the returns are sunnier. And I think they have done a pretty good job of communicating kind of their exit economics and their entry points but not necessarily from ABB if you are. No.

Sairam Srinivas: Okay. Great. That was all for me. I will turn it back.

Operator: Again, if you would like to ask a question, please press Your next question comes from the line of Matt Kornack with National Bank of Canada. Please go ahead.

Matt Kornack: Hey guys. Maybe, Daniel,, if you could expand upon, the last question just with regards to the types of cap rates you are seeing in the market at this point. And maybe the types of buyers as well?

Daniel Oberste: Sure, Matt. Narrow interest rates and cap rates continue to persist in our markets. I think in strong economic times, that is indicative of aggression in the marketplace. You know, buyers are gonna be willing to accept lower yields upfront on the promise of improving fundamentals. I do not think we are seeing anything different here. I think that is precisely what is happening in the apartment sector. Cap rate spreads are record lows, and transaction volumes have been pretty strong. that is particularly the case in the stronger growth markets. The nature of the buyer has probably changed. I do not think we have seen the like, the I do not think we have seen public REITs increase or decrease kind of their net acquisition targets. I think there is been a lot of communication and really transparency from the public REITs of, you know, weighing development yields and going and stabilize cap rates spreads against weighted average cost of capital.

Thomas Cirbus: And I will lean heavily on, I think, that effective communication because that is really how we diagnose whether it is a good time to buy or not. I do think you are seeing some strong individual high net worth family support. Stronger than usual and that makes sense. Somebody's got a 31. They are gonna rotate. They are gonna buy the lower cap, and they are gonna expect improving fundamentals to create a look-back cap that is within their underwriting thresholds. As we said in the past, we are pretty disciplined about our cap rate spreads. what we want to see on acquisition, and what we want to see from a look-back cap rate expansion. You know, right now, I think acquisition cap rates in our markets relative to our cost of capital, our cost of debt probably about 60 basis points We would like obviously, like to see that wider before we would want to significantly increase our acquisition appetite.

Matt Kornack: Is there a rule of thumb there? I can why current spreads would give you a little indigestion. But what is a good spread??

Daniel Oberste: what is a good spread for cap rate relative to debt? Yeah. For you guys in terms of what your kind of ideal would be. Yeah. I think for stabilized assets, what we wanna see is about 125 basis point spread between our going in unlevered yield or our cap rate. And our cost of debt. For us to determine that an environment is ripe for stabilized acquisitions, for example, Matt, The second thing we wanna see is an opportunity, whether it is because of organic growth or rate improvement or as we have depicted in the past in 1 or 2,000 value-add initiatives, to grow that spread by another 100 basis points on a 2 year or 3 year look back. That would denote a clear path to what I would say is 3 year sequential 5% compound annual NOI growth. that is the kind of number we like. I think for development yields, that spread needs to be a little bit wider for us to be interested. I would say given our balance sheet, that is appropriate. that is the capital allocation we have applied to every acquisition that we have done. As a public REIT and prior to. it is worked out fairly well. And when cap rate margins relative to debt costs get tight, we pay attention. Sometimes it is the fundamental macro But sometimes, we could be wrong, Matt. A 60 basis point cap rate does not look, to pass a spread to us, does not look that appetizing on the acquisition side. Maybe we could be missing 20% revenue growth in 27. and maybe we are underwriting to lower revenue growth. So the current cap rate environment, you know, helps us understand how we are underwriting and how we are seeing things, where we are right, and where we could be wrong.

Matt Kornack: Challenging some assumptions. that is fair enough. And then and maybe just quickly on the cost of debt, I think it would be we can impute it from the swap numbers you are talking about. But what is that on an all in basis, including spread plus the swap?

Thomas Cirbus: Yeah. I call that about a 4 point 5 percent 1.5-year, 2 year fixed rate. We I would we would probably move in and around that. Depending on our credit profile and leverage metrics, debt to EBITDA. So that would be a recost of capital.

Daniel Oberste: I think the read through on the agencies right now in The United States, the agencies are a significant support vehicle for financing private capital. Private multifamily acquisitions. Agency rates tend to hover between 5.25%-5.6%. Depending on whether on your leverage. You know? An 80% leverage or a 60% leverage. Depending on your term and tenor. 7 year, 5 year, 15 year, 20 year, all the way up to 40 year with HUD. 35 and 40 year for HUD. And then think also depending on where in the country you are buying assets, if it has an affordability component, you know, you are willing to agree with the lender to accept some rent cap things of that nature. But agency debt, private buyer, looking at 80% leverage, 65% leverage, 5.2 to 5.75 right now.

Matt Kornack: that is very helpful. Appreciate that. That color on both fronts. Last 1 for me is a little bit more technical, and I always get it wrong, but, the tax refunds they have been pretty equal between the first 2 quarters of the year. But last year, you had some pretty sizable ones in the first half of the year. And then they trailed off towards the end. Any color or guidance in terms of like is $650 thousand a good kind of number to use for the rest of the year? Or are you expecting some big ones to come in? At some point?

Daniel Oberste: We think I mean, we think that is embedded in our expense guidance. But Matt, I think that is a fair number to underwrite for the remainder of the year, probably straddled between quarters, maybe, you know, we are not going to-- we are not going to if we see a good appeal that is executable, we are not paying attention to whether September 30 or October 1. We are running the business. So as we have done in the past, if we have got an outstanding appeal that is not booked in a quarter, we will make sure and communicate that to our investors so that they know what to expect for the following quarter. But as it stands right now, it is a positive year to date. And we are sailing with tailwinds right now. For the remainder.

Matt Kornack: So the first 2 quarters, I mean, they were fairly sounded like that. So it is a relatively good run rate for property tax net of the refunds. that is correct. Thanks, man. Appreciate it.

Operator: Your next question comes from the line of Dean Mark Wilkinson with CIBC. Please go ahead.

Dean Wilkinson: Thanks. Good afternoon, everyone. Daniel, maybe a theoretical supply side question. Obviously, probably does not make a lot of sense to put a shovel in the ground today. But you know, people are still moving there, and everyone wants to be in Texas, myself included. How much runway do you think there is before there might be a speculative supply response? Like, could a strong 2027 have that come back, or do you think it is a little longer than that?

Daniel Oberste: Oh, you know, I have seen this in 2009. I have seen it in 2015. I think everyone else on the phone, Dean, is rolling their eyes at your philosophical question. I know how much everyone loves hearing my philosophical answers. But the I we saw in 2009 and 2015.

Susan Rosenbaum Koehn: I think this cycle is a little bit elevated through some undisciplined supply coming in 2023 and 2022 and 2024. You know, when we when we think about the markets, supplies exceeded demand on a trailing 12 month basis. For 10 to 15 quarters until recently. Right? I think, yeah, the first half of the year, we saw absorption and excess of supply. But if you look at that second quarter in most of these growth markets, I will highlight Dallas, Austin and Houston, but you can see the same phenomenon in Nashville and Raleigh and a handful of other markets The absorption in Q2 was essentially 60% to 70% of the absorption on a trailing 12 month basis. Right, including Q2 last year. So I think that is what happens when supply falls off a cliff You know? We have seen deliveries fall I do not-- I mean, you are seeing it right now.

Daniel Oberste: Construction starts plummeted 50 to 80% from their high watermark, and they are down 78% in Dallas. Or in Austin. They are down 50 in Dallas and 68% in Houston. It takes 26 months to 30 months to build an asset, start leasing it up. You know, we have kind of built 1 on the water with you, and you got to see it. We announced it in August 21. Started leasing up in Austin, and January of last year. And it took about 12 months to get it to 94% occupancy. And now Susan and her team are burning off concessions. I think you start taking 78%, 50%, 68% away from those starts like we have seen in 2023, 2024, 2025, now 2026. And you can expect the back pocket part of this decade, there to not be much supply to speak of. Much deliveries to speak of. I think Q2 is a good example when you saw that rate acceleration in Austin because we will pick on Austin a little bit. You know, it is been in the doghouse for a couple of years on account of oversupply. I mean, sequential new leases in Austin increased by 4.14%. Average rate improvement in the country improved in Q2 better than any quarter since 2015, COVID notwithstanding, of course. I think that is the kind of phenomenon that you are gonna get out of multifamily. You saw some bad returns in 2023, 2024. You could predict them. You know, as an investor, you could see them coming years out. On the other hand, you can you can also predict the low levels of delivery in 2027, 2028 at the back half of 2.63 thousand 2029, And as long as the underlying fundamentals of macro job growth affordability driving population growth, remain, then it is you know, I cannot speak for the nation. I would say relatively speaking, these growth markets are gonna continue to produce outsized returns. And just likely get tighter, and then it will come back. So it makes sense. That answers the question. Thanks, Daniel.

Operator: And that does conclude our question-and-answer session. I would now like to turn the conference back over to Daniel Oberste for closing comments.

Daniel Oberste: That concludes our call today, everyone. Thank you all for joining us. We look forward to speaking with you again following the release of our Q3 results in November. And for our investors on the line, I will repeat my invite from last quarter. At any time, please feel free and communicate to management. We are happy to take you on an investor tour of our properties. We have seen several take ups since the last time we communicated to some great success. And I think some pleased investors. So everyone have a good rest of the week, and we will see you again in November.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.