BSR Real Estate Investment Trust (HOMUN) Earnings Call Transcript & Summary

Good morning. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the BSR REIT's Q1 2021 Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Bailey, you may begin your conference.

Well, thank you, Colin, and good morning, everyone. Welcome to BSR REIT's conference call to discuss our financial results for first quarter ended March 31, 2021. I'm joined today by Susie Koehn, our Chief Financial Officer; also with us are Dan Oberste, President and CIO, Chief Investment Officer; and Blake Brazeal, our Co-President and Chief Operating Officer, or COO, who will also be available to answer questions following our prepared remarks. I'll begin the call by providing an overview of the first quarter performance in other corporate developments. Susie will then review the financials, and I'll conclude by discussing our outlook and strategy. After that, we will hold a Q&A session. Before we begin, I 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 the actual results to differ materially. Please refer to the cautionary statements on forward-looking information in our news release and MD&A dated May 11, 2021, for more information. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures to 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 for reconciliations to the nearest IFRS measures. Also, please note that all dollar amounts are denominated in U.S. currency. Our Q1 2021 financial results were impacted by timing differences related to our capital recycling program. Our portfolio was smaller than it was in Q1 last year, so our total revenue and NOI were negatively impacted. As we continue to deploy our capital raised from the dispositions, you can expect to see a sharp upturn in these numbers. But Q1 also demonstrated the highly positive impact of the program. We ended the quarter with weighted average rent of $1,134 per apartment unit and increase of 18.6% compared to just $956 a year earlier. And we generated continued growth in same community revenue of 2.5% and NOI of 2.2%, despite the temporary related to COVID-19. Furthermore, the trends in April are strong. Physical occupancy of 95.4% and rental increases of 4.8% for new leases and 2.7% for renewals. Our capital recycling strategy has placed us in outstanding competitive position. We have reached a stage in our program where we have divested of all properties previously intensified as noncore. Going forward, we will review the portfolio opportunistically for potential dispositions. We have sold a remarkable 37 properties since starting our capital recycling program in 2019. We are now focused on growth in our target primary markets. At the end of the first quarter, we announced the acquisition of a portfolio of 3 properties in submarkets of Dallas and Houston for a total of $195 million. Vale Frisco Apartments, Adley at Gleannloch Apartments and Alleia Long Meadow Farms boost our portfolio by a combined 1,009 suites. Vale Frisco and Alleia are newly built and leased up and located adjacent to other BSR properties, while Adley was built 2 years ago. The new properties will add approximately $4.9 million or $0.09 per unit to AFFO on an annualized basis once stabilized by year-end. All 3 properties are at attractive locations and have the amenities that our residents desire. It was another busy quarter for asset sales as well. We sold Towne Park at Har-ber in Springdale, Arkansas for $31.7 million, and we've sold Capri Apartments in Blytheville, Arkansas for $3.1 million, which enabled us to exit that market. Subsequent to quarter end, on April 26, we announced the sale of Mountain Ranch apartments in Fayetteville, Arkansas for gross proceeds of $49.5 billion. This price represented a 27.2% premium to the property's asset value at the time of BSR's IPO in May 2018. And yet, our shares continue to trade at a significant discount to that. With this sale, we exited Northwest Arkansas market. While we do consider Northwest Arkansas to be an attractive primary market, we lack scale. Furthermore, it made sense to capitalize on the strong market condition to exit Northwest Arkansas and deploy our capital and the other primary markets where we are positioned, from which we currently derive 96% of our NOI. Finally, yesterday, we announced the sale of Regency Woods at Pascagoula, Mississippi for $8.3 million. This was our only property in Mississippi. Following the asset sales, we now have acquisition capacity of approximately $287 million. So we're in an ideal position to expand our portfolio on an accretive basis. We are looking to complete approximately $250 million of additional acquisitions this year. With the portfolio stabilizing by the end of the year, adding another approximate $6 million or $0.12 per unit in AFFO on an annual basis. Assuming similar economics to the portfolio acquisition in March. Combine that with the strong rent growth we are seeing in Austin, Dallas and Houston, we expect significant growth in NOI and AFFO in the second half of '21 and throughout 2022. The repositioning of the REIT portfolio in high-growth markets has already significantly increased net asset value. It was $13.21 per unit as of March 31, 2021 compared to $12.20 per unit a year earlier, an increase of 8.3%. I would now like to provide a brief update related to the COVID-19. Our primary priority is and has been to keep our residents and employees safe. That and -- and with vaccinations continuing to expand across the United States, we are optimistic that the worst of the pandemic is behind us. As we have previously disclosed, the Center for Disease Control issued an order to temporarily off certain residential evictions for nonpayment of rent if a declaration is provided to the landlord stating that the resident meets specific eligibility requirements. As of April 30, 2021, we have received 22, that's 22, declarations related to the order representing about $0.1 million of unpaid rents. So the impact is not material. Also, we collected 99% of expected monthly revenue in the first quarter and in the months of April and May, which is in line with the historical average. So both April and bank and the first quarter were reflecting 99%. So now I'll turn it over to Susie to review our first quarter financial results in more detail.

Thank you, John. Same community revenue increased 2.5% in the first quarter to $14.8 million from $14.5 million last year. The improvement reflects an increase in average rental rate from $1,011 per apartment unit as of March 31, 2020 to $1,025 per apartment unit as of March 31 this year as well as increases in fees associated with pet, late rental payments and the flexibility to rent on a month-to-month basis, plus an increase in utility reimbursement revenue. Total portfolio revenue for Q1 2021 was $25.8 million compared to $27.5 million in Q1 last year, a decline of 6.4%. This reflected the more rapid take of dispositions compared to acquisitions over the prior 12 months. Property dispositions reduced revenue by $10.7 million compared to Q1 2020. This impact was partially offset by acquisitions and non-stabilized properties, which added $7.4 million and $1.2 million of revenue, respectively, as well as higher rental rates across the portfolio. To clarify, non-stabilized refers to the properties that were undergoing lease up or renovations during at least part of the comparative period. NOI for the same community properties was $8 million, an increase of 2.2% from $7.8 million in Q1 last year. The increase reflects higher same community revenue partially offset by $0.2 million increase in the cost of utilities. Approximately 80% of the increase in the cost of utilities is expected to be reimbursed to the REIT from residents in the second quarter of 2021. NOI for the total portfolio was $13.4 million, a decline of 9% compared to $14.7 million in Q1 2020. Property dispositions reduced NOI by $5.9 million, while property acquisitions and non-stabilized properties increased NOI by $3.3 million and $1 million, respectively. FFO for Q1 2021 was $5.8 million or $0.12 per unit compared to $7 million or $0.15 per unit last year. This decrease reflects the lower NOI that I just discussed, partially offset by a reduction in interest expense of $0.3 million related to the timing of acquisitions, dispositions and the equity offering we completed in February. AFFO was $5.3 million in Q1 of 2021 or $0.11 per unit compared to $6.6 million or $0.15 per unit last year. The decrease in AFFO reflects the lower FFO as well as a $0.4 million escrow-defined guarantee that was realized in Q1 of last year. This was partially offset by a $0.3 million decline in maintenance capital expenditures in the first quarter of this year. As John noted, we expect AFFO and NOI will significantly benefit in the second half of 2021 and throughout 2022 from property acquisitions using our acquisition capacity. The REIT paid quarterly cash distributions of $0.1251 per unit in Q1 of both years, representing an AFFO payout ratio of 117% in Q1 of 2021 compared to 84.8% last year. All distributions were classified as a return of capital. The higher payout ratio this year reflected the more rapid rate of dispositions versus acquisitions. This will come down as we continue to deploy our acquisition capacity. During Q1, on February 9, we completed a bulk deal equity offering in which we issued approximately 6.3 million units at a price of $10.95 per unit raising gross proceeds of approximately $69 million, net proceeds of $66 million were used to repay amounts outstanding on the REIT credit facility. Turning to our balance sheet. Our debt to gross book value as of March 31, 2021, was 43.4%, and we had total liquidity of $44.3 million, including cash and cash equivalents of $5.8 million, $3.5 million available on our credit facility and $35 million available on the line of credit. Subsequent to quarter end, we completed the sale of Mountain Ranch and Regency Woods for a combined $57.8 million. Following these transactions, our debt to GBV is 44.3%, providing $287 million of acquisition capacity without the need for additional equity. As of March 31, we had total mortgage notes payable salable of $336 million, excluding the credit facility and the line of credit, with a weighted average contractual interest rate of 3.6% and a weighted average turn to maturity of 7 years. Total loans and borrowings were $503 million, excluding the debentures, and 85% of the REIT debt [indiscernible] or economically hedged the fixed rate. I will now turn it back over to John for some closing comments. John?

All right. Thank you, Susie. This has been and it is an exciting time for BSR REIT. We are sitting on significant [indiscernible] capacity for acquisition capacity and we're eager to deploy it productively in our primary markets. The market for multifamily properties in the U.S. Sun Belt remains highly liquid. Even during the pandemic, there has been no shortage of opportunities for us to evaluate. I am confident we will identify the purchase -- and purchase more highly -- high-quality properties this year and will upgrade our portfolio quality and drive growth in NOI and AFFO. As always, we will prioritize off-market or limited bidding situations, and we will not compromise our solid liquidity position. We also expect to continue generating strong organic rent growth from our existing portfolio. The rent increases we generated in the past year were highly impressive, and they underscore the strong fundamentals of our target markets. As I noted earlier, thus far, rent growth has exceeded our expectations for 2021. Now we are starting to see the pandemic dissipate. The impact of COVID-19 will not go away overnight, but we're turning the corner where life can't begin returning to normal. Given the pent-up consumer demand that has been building over the past year, many economists believe the economic activity could begin to strengthen materially. That should be highly positive for rental rates in our core markets. We are grateful to investors for patience as we reoriented our portfolio towards primary markets with some of the strongest economic fundamentals in the country. And we look forward to delivering significantly improved financial performance in the quarters ahead. With our strong property pipeline and acquisition capacity, we fully expect to capitalize on opportunities in primary markets that will drive value for unitholders. That concludes our remarks this morning. Susie, Dan, Blake and I would now be pleased to answer any questions you may have. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from Dean Wilkinson from CIBC.

John, maybe just a higher-level question from me. And I mean, there's been a lot of consternation in the paper, I think you know where I'm going with this, on Biden putting the 1031 exchange program in his cross hairs. You're kind of through your disposition program. So it probably would have been more meaningful if this would have happened, say, 1 year, 1.5 years ago. But as you look forward, would this change how you're looking at the asset dispositions? And maybe for Susie, when you look at the $500,000 limit that they had put on there, would you have been able to do a lot of this program even if that limit was in place?

Well, thank you for your question, Dean. This is John. And in terms of 1031 what we would expect is that given this company has -- we've successfully rotated about 85% of all of our properties that we went into the REIT with and of course, we were able to sell those properties at about a 10% premium and what we had put them into the [indiscernible] and we did rotate them into the primary markets that you're referring. And in regard to the 1031 strategy, think about it this way, our properties that we purchased recently in recent years, would have a much lower impact on anyone's taxes if there were a reason to rotate. But from a standpoint of the overall 1031, that could impact the total volume in our markets, of course. And we do believe that if it impacted the volumes to drive it lower, than, of course, it would also impact the amount of the rent that we would have in terms of driving rents higher. Especially in a market where you're seeing the renter migration coming in, it was such a strong renter migration in the growth of Houston, Austin and Dallas, Fort Worth. And last, I'd like to just add that in terms of our portfolio when we went public in May of 2018, our average age at that point in time was 29 years. Today, after doing all the rotations that we have announced that we would do, of course, we're going to be opportunistic still, especially while the 1031 is still available to the market, which has been available since the early 1900s in the United States. But as long as it's still available, we're going to be opportunistic on any other opportunities we may rotate and extract the value like we did, if you saw the one up at Mountain Ranch, that was a tremendous opportunity for us to rotate that capital, leave that market. It become more efficient for our platform, and we do believe that our investors will benefit greatly from now adding scale into the markets where we're already existing.

Dean, about the $500,000. Of course, the answer is it depends, right? Because of how long you have held the property and how large our potential capital gain would be. But the good news here is that BSR has done with our program for the most part, so that's not something we need to worry about either.

Yes. Well, I guess, the base has been reset for a lot of those. So conceptually -- maybe Dan and Blake can chime in on this, and when you look at markets, say, up in Canada, where we don't have this kind of exchange program, the transaction volume is arguably at a scarcity, where there's a premium to that. Could something like this actually cause a further compression in cap rates in that you now bid up for transactions that were otherwise, maybe a little more available and you have less churn, which -- if it's simple supply and demand, maybe pricing does go up?

Dean, this is Dan talking. I would say -- let's not think of it as a compression of cap rates. Our view is that capital is always going to get its return. And if you think about what John was saying earlier, that if indeed, the 1031 is eliminated, and if indeed, capital gains, tax rates in the United States are increased, that capital is going to get its return. Now it might show up in a higher price, and probably will show up in a higher price for our assets and appreciation of our assets and the other assets in our market. But I don't think it's reflected in the cap rate because that capital is going to get its return. So what that means to me is that the rents -- for apartment rents are going to increase at a rapid pace if you eliminate that 1031. And without getting into opinions here, that's expanding on one of the problems in the United States, which is housing scarcity and affordability of rent costs. If you're a believer that capital is going to get its return, and the cap rates as a result of elimination of 1031, the cap rates aren't going to change, what you're saying is your rent is going to go up at a rapid pace outpacing inflation, right? I mean that bodes very well as a catalyst for just a small little REIT that's managed to sell everything it owned and buy brand-new a $1 billion of bricks and sticks in the last 2.5 years.

Yes. It's an interesting dynamic. They ought to look north and see what's happened to our rental markets in the absence of [indiscernible] but that's way above my pay grade.

Your next question comes from Kyle Stanley from Desjardins.

So thanks for the new disclosure you provided this quarter. Just looking at kind of the AFFO guidance on transactions already announced or to be announced through the balance to the year, I'm just wondering, can you talk a little bit about what assumptions go into this forecast, whether it be margin or just a little more detail there would be helpful.

Sure, sure, Kyle. So the margin for that, the 3 tax acquisitions that we've already announced, plus the additional $250 million, we think we do -- by year-end is around 53%.

53%.

Yes.

Okay. And then you mentioned expecting the portfolio to be stabilized by year-end. I just wanted to confirm, this includes the potential $250 million of acquisitions to be completed as well?

It does.

Okay. And then just on the leasing spread disclosure you gave for April. That's really helpful. And just curious if you can comment on maybe what the spreads were during the quarter, how that is compared to historical and thoughts on where that trends going forward? Yes. Help there would be good.

Kyle, this is Blake. I'll start out and give a little background. When you really look at our portfolio, starting in February, all the metrics that I look at, from leads to tours to occupancy to rental increases, I started seeing an uptick. And it has continued during the first quarter and into April and into May. And when you look at the -- this is kind of in the rental increases and the occupancy. And when you look at Q1, for the blended rate, we were at 2.8% for the total portfolio. That is basically driven by every one of the main submarket we are in. Austin had a new 4.7%. Austin bounced back quicker than any submarket that we have looked at in Americas for lease rates, and Dallas was up 2.1% and Houston was up 2.6% in the -- now contrast that to April. And Austin is up 4.1% again in new, Dallas is up 5.7% in our portfolio in there, and Houston is up 3.6%. So when you're looking at the blended rates in Texas, we were at 4% in April. That's continuing into May. And when you look at Q1, we were at 2.8% for the entire portfolio. So what I see is a really, really well-positioned portfolio in the right areas with teams that are laser-focused on the top of all these assets, as we have exited many of these noncore entities that were -- frankly, when you've got an asset in Pascagoula or you've got an asset in Blytheville, Arkansas, you've got one in there, you have to service it. Well, we don't have those anymore. Now we've got people that are on top of all these assets. And the rental increases are showing that. They're continuing into May. And the occupancy rates on all of these submarkets are increasing. So -- and also, our lease-up properties would get in there as well, to our lease-up properties are performing ahead of our projections also.

Kyle, this is Dan. And I just -- Blake and I look at it from a look back and a look forward, we -- and I want to talk just a little bit about a look forward. When we began the year, I think everyone in our sector was searching for a catalyst. And I think a lot of our competitors were forecasting kind of a flat growth and trying to push everyone out a year, 2 years from now and talk about all the great growth in the future. Let's start and just talk about a catalyst. And I just want to speak to -- there's a Vice President of Market Research named John Affleck for CoStar Group that -- him and his team came out with an article this week and some analysis. National dormant rents -- in their analysis, they said the national dormant rents aren't just recovering, they're growing at a pace that would equate to the strongest apartment rent gains this century if they maintain it throughout the year. Now to quote from John Affleck, "if this current rate of performance that we've seen so far year-to-date continues, then rents should rise by 9% in 2021 nationally, and that's easily the strongest gains this century." So if anyone in our industry is looking for a catalyst, my thoughts or John Affleck's thoughts from CoStar would be that catalyst occurred in the first quarter. And things are looking up for BSR, and things are looking up for our industry in '21, not in '22.

And I guess, for the [indiscernible], we did 2.5% year-over-year in the first quarter. And you just heard the stats for the April and into May. And you heard Q1 also. So yes, I think we are looking for our income to grow more than we told you on the last call. As long as everything that we -- our leads are up 33% year-over-year. And it's gone up each month of the quarter. And that's a really important stat that we look at. And our visual of online hits and our -- which is another thing I stress to you guys every quarter, but it's a big thing we found is our self-guided tours continue to increase. And all this is playing in together and Dan's comment is well-said because at this point right now, we've got a lot of positives that we're looking at.

Your next question comes from Brad Sturges from Raymond James.

Just a quick follow-up on the AFFO guidance and disclosure that you provided, it seems like you have some degree of confidence that for that $250 million of acquisition, you could still be in that sort of 4% to 5% range for going in yields. Is that fair to say?

Yes, that's fair to say.

Okay. And what would you be assuming from a long-term debt cost or financing percentage on that $250 million of acquisitions?

This is Dan. We would assume something similar to what we're enjoying today on our current BMO-led syndicate facility. That's -- you can call that LIBOR spreads at around 200 on short-term debt, 185 to 200. Long-term debt rates right now range, agency, life insurance and private bank range from anywhere to 275 to 340 loan-to-value dependent. By long term, I'm talking about 10 year fixed.

Okay. I guess, maybe take a different view on valuation. If you were to look at the replacement cost in your core markets right now, what would that kind of look like today on a price per door? And then what would your expectations be for replacement cost growth, let's say, in the next 12 months?

On a replacement cost basis. Are you speaking in reference to total insured value from an insurance standpoint or how much would it cost to replicate the portfolio?

Yes. And from like a construction cost perspective to replicate the portfolio.

Oh, sure. Now it's no surprise -- this is Dan again, I'm sorry. It's no surprise that construction costs are going up, the labor is going up, materials are going up. That's -- I think that's every news article we see right now. I think it wouldn't be unreasonable to see replacement costs for our assets, have a 2 on the front end of the numbers. So 195 to 230 a unit for new construction in these locations, probably 230 creeping up. I'm probably conservative on that 230 number. That's not counting the dirt.

And how much would land be?

Well, land in Texas ranges anywhere between 15% and 20% of total asset value. But you're talking about a fun -- it is a fun discussion topic. I mean, whatever lumber prices gone? They were at $200 this time last year, and now they're at $1,600. I mean, there's a -- I want to remind everyone that we own about $1 billion in lumber and about $300 million in dirt. So God, if we could only translate those lumber gains that -- what is that? That's at 800% lumber price or construction cost increase for all the lumber we own. I'm not being serious, but could you imagine what would happen if we just deconstructed our apartments and sold the lumber?

Yes. I'll jump in here since I live in Dallas and have been around Dallas for a good 40 years. The assets that we are buying, and I stress this on every call, but I think it's really important. When you just say Dallas, Houston, Austin. You can't really look at it from that perspective. You've got to look at the submarket. In the areas where we're buying, one of the reasons that you're seeing this rent growth, you're seeing our income of our tenants going up is because we're in some really, really good areas. So when you asked that question about dirt, the dirt that we own currently and the dirt that you would have -- the cost that you would have to pay to procure dirt in these areas is really, really high. And because everybody is [indiscernible] to America. I mean, we're seeing in our portfolio, just a real uptick in Californians and New Yorkers moving in and so you have got a real, real dirt -- people wanting the and it used to be in Texas of North, especially in the Dallas area, for instance. So yes, well, there's a lot of land out there. Well, and you start looking at Frisco and some of the areas that we are in right now, Frisco has 8 high schools. So that dirt is shrinking. And we're right in the middle of all of this, the tollway and 121 in the Dallas area, and 380 where we are, it's the hottest area really if you look at -- from a real estate value standpoint in America.

Yes, that's right, and this is Dan again. I mean -- and all jokes aside, I'm not advocating that the management team all get claw hammers and rip nails out of wood, and so the lumber. I think what I'm really getting at here is the cost to construct competitors of ours in our locations is going up. And those competitors are going to get their returns in the form of higher rents. They're going to have to underwrite that new construction into higher rents. And fortunately, we are right in the middle of 3 of the 4 highest growing MSAs in the country right now, and they have been for the last decade. So that spigot of net migrations and both internationally and domestically into Dallas, Houston and Austin is not going to stop. Those people are going to continue to move to those markets at a clip as high in Austin as 3% a year, compounded. So with that supply continuing, the developers have no -- I mean, they will continue to build housing for those new residents and new employees. And with construction costs increasing, it's just a math game. It's arithmetic. The rents that are going to be needed to service those new constructions are going to have to be higher, which only bodes well for just a little REIT with 96% of its NOI generated out of 3 of the 4 fastest-growing markets in the country right now.

And I want to add -- I'll [indiscernible] because I'm really passionate about this, Dan is too, when you look at our assets. If you look at the income growth that we had and I just told you, we're expecting that to increase. And based on what I'm seeing in our numbers, and I look out 2 months in advance. But when we put together our projections or -- Dan and me are sitting side-by-side, when we go through these things about 3 times at the end of the year when we're putting them together. And Dan is using CoStar, and he's using 2 or 3 different publications to help us look at rent growth. And we really look at that closely. And to be frank with you right now, what's happening is we're just flat beating those CoStar or other projections in these areas. And I don't see it letting up. It sure isn't right now not based on all of our leads. So I think that's really, really important. And I think we've done a good job and Dan's done a fantastic job and his team, of picking areas in the right growth pockets, with the right schools, which I stress for you guys for years. Schools are important and in Texas, they are very important. So just a little color from me, Dan, but I think it's important to understand all these different elements that are in playing.

Your next question comes from Matt Logan from RBC.

When we think about your capital deployment, there's certainly a lot of supply coming online in your submarkets. Can you talk a little bit about, a, how that could impact the rent growth in the near term and b, if that also provides some opportunity to acquire assets that are coming online this year?

Sure, Matt. This is Dan. When we think about new supply from an opportunity point of view, it's always a tale of 2 cities. It's not necessarily the supply that we're looking at. It's the demand net of supply or the absorption. And I mean, Austin, Dallas and Houston lead the country, I think the -- I think they lead the country in absorption, and they have from a quarterly and annual standpoint, for as long as we've been public. So that demand, net of supply, that net absorption number, it definitely props up operating numbers, right? It helps us deliver returns operationally, they're in excess of peers that own properties in other markets. Now from an acquisition standpoint, it makes acquiring in these markets a highly competitive endeavor because just economically, when you're leasing up properties in half the time it takes to lease them up in another market, then your cap rates are driving down lower than you're seeing in other markets. So it's a mixed bag. It's -- I want to highlight here, BSR is an operating company. So we would prefer to own properties in markets like we own, where you have demand, net of supply year-over-year that drives operating metrics. We happen to have been rotating in the last 2 years. But at our core, our platform is an operating platform. And so from that -- I've heard someone say to me once, the world is filled with difficult decisions, and if you got to make one, you make the one you can live with. And in this case, we can live with demand net of supply in all of our markets. I would rather have our teams going out and really conducting hand-to-hand combat to find the best assets in the best locations in these markets than the alternative, having supply net of demand and having a very easy acquisition market.

Absolutely. I agree, Dan.

Well, it certainly seems like you're outperforming your competitive set when we dive a little bit deeper into the submarkets, which is good to see. But when we look at the revenue growth outlook that you talked about last quarter at 1% to 2%, certainly, with the trend being at the upper end of that range and trending higher into April. Do you have any sense for where that top line figure might end up for 2021?

Yes. I would say that I believe we're 2.5% right now. So if I was -- this is a real tough one as I told you all last month because it's quarter -- we look quarter-to-quarter, but it will be higher than the 2% that I told you last quarter. And you heard me go over and I can do it again off-line or anything with any of you guys, you heard me go over the rent growth numbers in our areas. So where will it end up at the end of the year, I hesitate to give you a number. I just know it's going to be higher than the 2% to 2.5% -- 2.5% that we're doing right now.

Yes. And Matt, this is Dan. I mean, moving out of BSR, if we're just looking at what the market experts are seeing in Dallas, Austin and Houston right now, annualized rent growth expectations in Austin are 5.7%; and Dallas, Fort Worth are 4.3%. And in Houston, they're 1.9%, but let's break that down -- Houston has 43 submarkets. And in the 2 submarkets we're in, in Houston and quarter-over-quarter sequential rent growth right now looks to be at about 11.2% in that Katy Cinco Ranch, that's the Satori, Richmond and the Alleia product. And then quarter-over-quarter, 4.6% of Conroe, that's just North Houston. So as we said all along, we like to be positioned in the right submarkets in a market. We understand that Houston is highly competitive. And in that last few sentences that I've said, Houston is definitely running up the caboose at 1.9% relative to Dallas' 4.3% and Austin's 5.7% for the year. But in our 2 submarkets, we're in the top quartile of those Houston's 43 submarkets. That's right where you want to be. And I think that's just a product of having our team live where we own, and having been in the Houston market for 21 years now, I think our team is pretty effective at picking the right locations in the right submarkets, in the right side of the street to maximize forward-looking rent growth.

And Matt, just to give you a little better guide what -- more like what we'll be looking at, just to refresh everybody, in Q1, Austin blended in our was 3.1% and in April, it was 4.0%, which is in line with what Dan said, Dallas was blended 2.5%. And in April, it was 4.4%. So Houston, which you heard him talk about 1.9%, which is what we were kind of looking at. And if you look at our same-store Houston properties, just some color, they hit our expectations. We were expecting a flat year-over-year NOI curve on the ones that we had, but they beat those actually. So when you look at Houston from a rent standpoint, blended was 2.8% in Q1, April, it was 3.3%. So All of those, when you look at April, then we're looking at a 4.0%, 4.4% and 3.3%.

Great color. And maybe just turning to the margin. Should we still be thinking about something in that 54% range?

Matt, it's Susie. So yes, our same store has been consistently forming at about 54% margin. However, we have bought a lot, and we're buying a lot. And like I said earlier, it looks like the margins on acquisitions for 2021 are looking more like 53%. So I'm guessing in 2022, margins will be closer to 53% than the 54%, given the volume of acquisitions that we plan to make this year.

Makes sense to me. And maybe one last one there before I turn it back. In terms of the cap rate compression, Susie, this quarter, could you give us a sense for how much of that was driven by mix shift in the new or better-quality assets? And how much of that was driven by just cap rate compression in your markets?

Yes, sure. So comparing NAV from March 31, 2020, until March 31, 2021, of about 66%. So the lion's share of the increases come from cap rate compression, when we're comparing the same set of properties we had last year to this year.

[Operator Instructions] Your next question comes from Matt Kornack from National Bank.

Just a quick follow-up on Matt's comments there. I'm wondering if -- in terms of the NOI that you're capping in those figures, if it reflects kind of the more positive bias you seem to be having post quarter and what seems to be market moves as well.

Yes. It does. I mean, we -- as Susie stated in her opening remarks, we're running ahead of our NOI projections. And assuming that we don't have an expense issue to this, and we continue with the income that I've been talking about things like all -- for the hour, we are expecting a continued uptick in our NOI.

Okay. And sorry, so for your fair value, that is or isn't captured in the NOI that you're using for your fair value assumptions?

Yes. So we are excluding the increases we've currently seen in NOI as well as the lower cap rate trades in our markets. However, that will continue to go up. That means the fair value will go up as we proceed throughout the year, and NOI continues to increase.

Right. Okay. No, that makes sense. And I mean, I got a slight sense that you're looking at where you're trading relative to the value of the assets on the book, but also relative to peers, and I think you'd see the current trading price as a pretty deep discount and a bargain.

We do, Matt. This is John. We see it as a deep discount, especially compared to the U.S. market, where most of the REITs are trading at a large premium to their NAV. So it's a tremendous opportunity as you look at relative values between U.S. REITs located in the part that's where we are compared to where we're located compared to where our price is traded against our NAV on the TSX.

Yes. No, it's a fair point, and I think we've recognized that as well. But the trends that you're seeing, I think, were even more encouraging than what we were expecting. So the last one for me, just on homeownership. The markets you're in have seen some pretty tourette increases in terms of house prices as well. Is that starting to send people back towards the rental market? Is that an aspect of this increased demand?

Well, this is Dan. The problem that we actually have in our markets is supply. There's not a lot of net supply of single-family homes in our market. And if you're a home developer, you're in a tough spot. Your prices for labor and materials have skyrocketed this year, and you're in 3 markets that don't have enough supply to meet the demand of just simple homeownership. So I mean, you're really in a tough spot for single-family home development in our 3 markets. Austin, I think we spoke about it in the last quarterly call, where we talked about how the inventory in Austin is about 9 days right now. That's just an unheard of lack of supply of single-family homes. But number 2, I want to highlight that the -- our average resident makes about $60,000 a year. And Austin is a good example but so is Dallas and Houston, the average single-family home there costs about $400,000 to $450,000. Now in the U.S., it's exceedingly difficult to make $60,000 to $120,000 a year from -- depending on whether you're calling it median or household income, and afford a $400,000 to $450,000 home. So you have 2 things competing. Number 1, it is just precipitously more affordable to rent one of our apartments right now than it is to pay a mortgage and taxes and insurance, not to even speak of the down payment you have to pay to buy that $400,000 to $450,000 house. And number 2, if the house was available, there's no houses in our markets that are available right now. And if they want to build them, it's going to cost more to build them than it did last year and really than it did last month.

Yes. And just to highlight that, I can give you an example, a real-life example, Cielo and Austin. When you look at the first quarter, 62 leases that I've highlighted. The median income on those leases, for the individuals, it is in the $90,000 range. Now that tells you exactly the type of resident we're getting, but also what's happening in these markets. So I think that kind of pounds on to Dan's point that the home prices in these areas and that asset that you're talking about right there is in the Lake Travis School District in Austin, which -- if I look it up and it is similar to the assets we have in this portfolio. You're talking about people that want to be there, but they can't afford a house as the guys that they are even at that income level.

That's right. This is John, Matt. And that's exactly -- you do have to track the competition about how much houses cost in the -- but it's really about the affordability factor. And the wonderful thing that we've been talking about in our market is that we are viewing our rents or maintaining about 20% of the median income of our cohort. And when you think about affordability, many of our cohorts, half of them are millennials, and they have debt on their own balance sheet, makes it extremely difficult to come up with the cash that Dan was talking about to afford these higher cost homes in all the markets. So it's -- we don't see the competition as being single-family housing at this point in nature, especially with the demand and higher costs. And right now we are sitting in a very good spot for where we are located for all the right reasons.

And then John and Blake are right on. So we -- this is Dan. So we come back to the themes of today. We talked about catalysts. The catalyst of multifamily are not unlike, I don't know, the catalyst of the candy bar industry. It's just -- it's supply and demand. And if you drive in nationally, right, and look at the catalyst for multifamily as a sector of real estate, the top line growth is right now out of potential to outpace any annual number we've seen in 21 years of this century. And if you zoom in and you look at the epicenter of that growth, it's sitting in -- I mean, the majority of it is sitting in 3 or more -- 4 markets. It's sitting in Austin, it's sitting in Dallas, and it's sitting in packets of Houston, right? Phoenix is another fantastic market for growth. That's that fourth one that we're talking about. But it's a simple formula, supply and demand. And now with the commodity prices increasing to what they are and the housing supply available in our markets, it's just -- in our mind, the sky is the limit, exponentially growing that catalyst for BSR.

And Dan said this a couple of times in this call, but I think it needs to be brought up again. Just look at the migration rate into Austin, Dallas. It is -- blow you away. How many people are looking into those cities daily?

Yes. Blake is right on. You take Dallas, and just -- we can just use the census numbers. So based on the recent census figures that came out for Dallas, Dallas, in the last decade, grew by the population of Wyoming and Vermont in the aggregate, the states of Wyoming and Vermont, one of these markets. It's about 1.7 million people, if I'm doing my math right.

There are no further questions at this time. I'll turn it back to John.

Well, thank you, Colin. That concludes our call this morning, and thank you for your interest in BSR REIT. We look forward to speaking with you again after we report our second quarter 2021 results during the summer. So God bless, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.