BSR REIT (TSX:HOM) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
BSR REIT reported a 1.5% increase in total portfolio revenue to $34.2 million for Q2, driven by 2025 property acquisitions, despite a decline in same community revenue.
Same community NOI decreased by 2.8% year-over-year due to lower revenue and timing of real estate tax refunds, while total portfolio NOI saw a slight increase of 0.5%.
The company revised its FFO and AFFO per unit 2026 guidance downward due to slower than expected stabilization of a major acquisition and a competitive concessionary environment.
BSR REIT is experiencing positive trends in platform efficiency and centralization efforts, yielding operational cost savings, notably in payroll and insurance expenses.
Management remains optimistic about medium- to long-term growth, driven by lease-up activities, economic stabilization of non-same community assets, and improving supply-demand fundamentals.
Full Transcript
Tom, CFO
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 $0.3 million from lower average occupancy, which was 94.6% versus 95.6%, and $0.2 million from lower average monthly in-place rent.
The decrease was partially offset by an increase in other property income of $0.2 million, which was driven by an increase in utility reimbursements and resident amenity programs. Sequentially, same community revenue of $26.4 million for Q2 2026 increased 35 basis points compared to Q1 primarily due to higher average occupancy, which was 94.6% 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 a $0.3 million 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 2026 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 refunds 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 $0.1 million after another fantastic year for our annual property insurance renewal, which went effective in April. Sequentially, same community NOI decreased 1.4% from Q1 2026, primarily attributable to the lower property tax refunds of $0.2 million.
Total portfolio NOI for Q2 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 and a $0.4 million reduction from the same community properties. Sequentially, total portfolio NOI for Q2 2026 of $17.9 million increased from Q1 2026. The increase was primarily the result of the increase in total portfolio revenue in addition to a $0.2 million 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, the 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 ’26 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 three 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 ’26 was $7.1 million, or $0.18 per unit, compared to $6.9 million, or $0.18 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 finance 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 of 2025 for our lease-up properties, our straight-line rental revenue adjustment was positive this quarter and, as those concessions have released over time, on the balance sheet, the REIT’s debt to gross book value as of June 30, 2026 was 51.7% compared to 51.2% at the end of 2025. 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’ve also updated our expense guidance to reflect the significant savings we are experiencing in line items relative to expectations.
Net-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 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 begin experiencing the effects of the economic stabilization of our non-same community assets, albeit slightly later than originally anticipated at one asset. We will, of course, continue to update this guidance as needed throughout the balance of the year. I will now turn it back to Dan for his closing remarks.
Dan, CEO
Thanks, Tom. As we close out our prepared remarks, I’d like to emphasize the underlying message of Tom’s last point. While the pace of lease-up at one property—that is, our August 2025 acquisition—is running approximately a month or so behind our initial ’26 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 and personnel costs, Tom 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’ve ever been about the medium- to long-term outlook in our portfolio.
As we’ve said in the past, we can’t 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, Susie, and I would now be pleased to answer your questions. Operator, please open the line for questions.
OPERATOR
Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again press star one. Your first question comes from the line of Jonathan Kelcher with TD Cowen. Please go ahead.
Jonathan Kelcher, Analyst at TD Cowen
Thanks. Good morning. First question, just on the blended rents. If I look back, I think they were positive in Q3 of last year. How confident are you that we’re at the beginning of an upward trend here, or do you think we may still be sort of plus or minus zero percent for a couple of quarters?
Dan, CEO
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’re seeing right now in July, things are looking good.
Jonathan Kelcher, Analyst at TD Cowen
Okay, so it’s probably pretty close to plus or minus zero in Q3 and then hopefully trending up from there. Is that how I can interpret that?
Dan, CEO
I mean, if you look at it specifically at the BSR portfolio, yeah, we may choose to lower rates a little in Q3 to bring up occupancy, but overall, the net effect is more rental revenue. Right. And then, yeah, with a higher upswing in Q4.
Jonathan Kelcher, Analyst at TD Cowen
Okay, thanks for that. And then just secondly on the guidance, 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’s driving that?
Tom, CFO
Sure. So guidance-wise, the main driver is the AIMS B here. Right. When it comes to rental revenue, concessions are simply—well, we expected concessions to still be in the Solana market. They didn’t 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, eight weeks free, and what we’re seeing is the equivalent of about 12 weeks free when you consider what people are throwing in—ten weeks free and maybe a $1,500 gift card.
So if you look at that, there’s a four-week gap that we have to account for now that we’re dealing with our competitors in the Solana market, which caused the majority of the write-down related to the FFO for the second half of the year. The other piece is much smaller, related to the same store portfolio. We still have pressure in those markets too. There are still concessions, and they also didn’t come down quite as much as we expected—though let me reiterate here, they are coming down—and that’s like maybe a $14 gap when we look at net effective rent per unit for the rest of the year.
Dan, CEO
And Jonathan, this is Dan. If we, as I mentioned earlier, if we move further down the P&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's worth probably a penny in the back half of the year and it's 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's about a dozen or two other positive variances that we're seeing. Namely, bad debt is sitting right around 0.5% of collected revenue. Now traditionally in this asset class we would underwrite 0.8. That would be for Class A suburban multifamily. I've seen it go as high as 1.75 in Class C or B minus assets in a recessionary environment. But I haven't really ever seen it go down to 0.5. That's a, I think that's a trend that caught a lot of apartment operators by surprise this year.
It's a good positive surprise that our residents are paying. And I think the macro, there's been a bunch of macro data in the last month, you know, more or less saying residents or individuals are choosing which notes to pay their debts on and leaving the rest for consumer spending kind of decreases. So there's probably 12 or 13 positive variances that we're watching. Payroll, bad debt, insurance and taxes are probably leading those positive variances in opex for us and, you know, instill the confidence that we can provide in lowering the expense guidance for the year.
Jonathan Kelcher, Analyst at TD Cowen
Okay, that's helpful. And just on payroll, are you guys fully staffed on the operations right now?
Dan, CEO
We are. And as Susie mentioned last quarter, with the portfolio centralization efforts, the plotting, this is something you're 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're enjoying some expense savings from that, much like our competitors.
Susie talked about last quarter, how we were initiating that project in the second quarter. That's now complete. I don't think the second quarter, you know, evidences the annualized expense savings, but the remainder of the year will. That's right.
Jonathan Kelcher, Analyst at TD Cowen
Okay, thanks. I'll turn it back.
OPERATOR
Your next question comes from the line of Kyle Stanley with Desjardins. Please go ahead.
Kyle Stanley, Analyst at Desjardins
Thanks. Morning, everyone. Just looking at some of your leasing spread disclosure and the answer you may have already given here, but in Dallas, the new leasing spreads were actually below Austin this quarter. Just looking for a bit of color there. It does seem like there's obviously some decent strength in Austin. So maybe a bit of an update there and then maybe what's driving that difference? Is it really kind of the ones we've, as you've already talked about, is it submarket specific, just looking for what's going on in those two markets?
Dan, CEO
Yeah, sure. So Austin, things are looking great in Austin. As you've seen each quarter, the rates for new leases continue to go up and we're excited about that. Concessions are coming down and often, while they still exist, overall though, they're coming down. What we're seeing right now is six to eight weeks free. In Round Rock, where it used to be 10 to 12 weeks, we have two properties there. In the Buda/Kyle submarket, we've still got eight to 10 weeks free.
And in Cedar Park, there's eight to 10 weeks free. So all good things to say about the trends we're seeing in Austin. Now, Dallas, as I just spoke about, we do have additional supply primarily in the northern Dallas submarkets, the Frisco, McKinney, Prosper and Salina. We've got three properties there. And specifically the one we've talked about there, the concessions have lasted a little bit longer and still remain at about 12 weeks when you consider the other operators are throwing in.
Kyle Stanley, Analyst at Desjardins
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 into the second half and then into the, maybe the spring leasing season next year, how quickly do you expect to be able to roll off the incentives? I know obviously it's incredibly difficult to forecast, but if you're at between eight and 12 weeks, depending on market today, how quickly can we see that roll off in your view?
Dan, CEO
Yeah. Okay. Well, specifically with our August acquisition, that one, because the larger concessions have remained intact, that one's going to take probably another year to 14 months because we haven't started the process of burning off the concessions like we'd hoped to at this point, with the remainder maybe a little bit shorter. Those are running right on track as we projected.
Kyle Stanley, Analyst at Desjardins
Okay. Okay, that's it for me. I'll turn it back. Thanks.
OPERATOR
Your next question comes from the line of Brad Sturges with Raymond James. Please go ahead.
Brad Sturges, Analyst at Raymond James
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 revenue coming online in the back half of the year and into 27 as new properties get added to your valet trash and bulk internet programs.
Tom, CFO
Yeah, Brad, it's Tom. So I think about it this way, just to give you an example. And as a reminder on that initiative, six of our six of 26 assets are live today. Five of them we installed last year. One was a test asset that's been live for a while. So let's say five 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 the pace at which that's happening. And as a reminder, it's a function of the rent roll turning. Right. We don't push this amenity to every resident day one. We let the tenant turn or the rent roll turn for them to renew. So it just takes, it's a function of time. That's the general pace at which you're seeing. So we've leased up a third of the portfolio over the course of the last, call it four to five months, right, on a blended basis. I'd 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's to our great benefit to get it online as fast as possible. So that's how I would think about the pace of it.
Brad Sturges, Analyst at Raymond James
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 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?
Tom, CFO
Yeah, so the best thing to look at there is, we have a sub event in the press release. We did a swap 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're continuing to evaluate the best alternative there for the back half of the year swaps as well.
OPERATOR
Thank you. Your next question comes from the line of Himanashu Gupta with Scotiabank. Please go ahead.
Himanashu Gupta, Analyst at Scotiabank
Thank you and good afternoon. Dan, 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 JV or any update in that regard?
Tom, CFO
Oh, Hemansh, I'll take that. The platform growth continues. We're 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're seeing success already rolled out on the platform side is the centralization initiative Susie and Dan talked about earlier. I think that we expect that to do on an annualized basis $0.02 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 don't have the headline thing that you might have anticipated there. We're achieving it through different means. As we mentioned originally, we could achieve that. So I think we've delivered on a lot of that, albeit not having realized the full annualized impact quite yet.
Himanashu Gupta, Analyst at Scotiabank
Got it, thank you. And I mean just to be clear, so if you hit that $0.75 in 2026, so we are talking like incremental 30% FFO in the next two years to get to the midpoint of this incremental.
Tom, CFO
I'm sorry, what? You broke up for a second?
Himanashu Gupta, Analyst at Scotiabank
Yeah. So I think what I'm saying is the midpoint of that is 17 and a half cents which is almost 30% higher than your 2026 ending FFO. So we will see that level of growth in the next two years.
Tom, CFO
Yeah, we feel great about everything we guided to in December. We're more confident today than we were in December that we're going to deliver on all prong of those. So I've given updates on two of the three. Why don't I just round it out with a third? On the third we said that we had about a four and a half million dollar revenue opportunity to put people in beds, to just occupy units. This is what we did to date. We've 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's realized on an annual basis. If you compare our September month-end results to our June month-end results, that does not mean it's reflected obviously in our full quarter results. That's ramped over time. So the midpoint of the guidance we feel really good about in all three categories. The annualization effect will obviously take time. It's not going to happen between now and next quarter.
It's going to 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 one caveat being all that excluded the impacts of market rents and interest rates and blah blah blah blah blah blah blah. But on those three prongs alone we feel great about those drivers driving that amount of growth, you know, by early-ish 2028.
Himanashu Gupta, Analyst at Scotiabank
Thank you, great update and really good progress in all those initiatives. Thank you so much and I'll turn back.
Tom, CFO
Thanks, Manchu.
OPERATOR
Your next question comes from the line of Jimmy Shan with RBC Capital Markets. Please go ahead.
Jimmy Shan, Analyst at RBC Capital Markets
Thanks. Just a follow up on the swap question. It is pretty material. So if I look at the early 2027, there's a whole bunch with early termination. So I think what you said was using the current 3.15% that would be a good way to—that's the rate reset from that time. That's what we should be modeling, assuming everything else stays the same.
Tom, CFO
That's right, Jimmy. So there's three swaps that have a cancellation option in early 2027. There's a hundred and—it's about $197 million that will come due between January and February of 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, Analyst at RBC Capital Markets
Okay, got it. Thank you. And in terms of the rent concessions, I'm sure there's math that I could do. But would you be able to quantify the amount of concessions that's currently embedded in the current revenue?
Dan, CEO
Yeah, sure, Jimmy. So the place obviously that we're still giving concessions would be our August 2025 acquisition. And they're on certain one- and two-bedroom, four floor plans. Excuse me, we're offering eight weeks free and four weeks free on three-bedroom. The other asset would be the one located in McKinney where we're offering $1,000.
Jimmy Shan, Analyst at RBC Capital Markets
Okay. If you were to take... Okay, so it's 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?
Dan, CEO
Yes. So the concessions are embedded in the trade-out data too. Let me point that out. When we're looking at rental rates and... Yeah, so I can't give you a specific dollar amount. I don't have that in front of me right now. But I think you can look at the trade-outs and take that into account when you're seeing the increases we're getting, or the declining decreases, that the concessions are baked in there.
Jimmy Shan, Analyst at RBC Capital Markets
Okay. And the current rent that you report, again, that's net of the concession, right? Okay. Okay, that's it for me. Thanks.
OPERATOR
Your next question comes from the line of Mateo CIPAC with ATB. Please go ahead.
Mateo CIPAC, Analyst at ATB Capital Markets
Hey, good afternoon. I'm just asking one on behalf of Tsai. With the AvalonBay and EQR merger, have you seen any impact on the broader transaction market? AVB/EQR? Yeah, the AVB/EQR one.
Dan, CEO
With which merger? I'm sorry? Oh, broader impact on the... No, I don't think we've seen any impact on the broader market related to AVB/EQR. I do think we've seen some interesting information out of Camden, most recently with their rotation out of the coast and into the Sun Belt where the returns are sunnier. And I think they've done a pretty good job of communicating kind of their exit economics and their entry points, but not necessarily from AVB/EQR.
Mateo CIPAC, Analyst at ATB Capital Markets
Okay, great. That was all for me. I'll turn it back.
OPERATOR
Again, if you would like to ask a question, please press Star one on your telephone keypad. Your next question comes from the line of Matt Kornack with National Bank of Canada. Please go ahead.
Matt Kornack, Analyst at National Bank of Canada
Hey guys, maybe Dan, if you could expand upon the last question just with regards to the types of cap rates you're seeing in the market at this point and maybe the types of buyers as well.
Dan, CEO
Sure, Matt. Narrow interest rates and cap rates continue to persist in our markets. I think in strong economic times that's indicative of aggression in the marketplace. You know, buyers are going to be willing to accept lower yields up front on the promise of improving fundamentals. I don't think we're seeing anything different here. I think that's precisely what's happening in the apartment sector. Cap rate spreads are at record lows and transaction volumes have been pretty strong.
That's particularly the case in the stronger growth markets. The nature of the buyer has probably changed. I don't think we've seen the, like the... I don't think we've seen public REITs increase or decrease kind of their net acquisition targets. I think there's been a lot of communication and really transparency from the public REITs of, you know, weighing development yields and going and stabilized cap rate spreads against weighted average cost of capital.
And I'll lean heavily on, I think, that effective communication because that's really how we diagnose whether it's a good time to buy or not. I do think you're seeing some strong individual, high-net-worth, family support stronger than usual. And that makes sense. Somebody's got a 1031, they're going to rotate, they're going to buy the lower cap and they're going to expect improving fundamentals to create a look-back cap that's within their underwriting thresholds.
As we've said in the past, we're 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'd obviously like to see that wider before we would want to significantly increase our acquisition appetite.
Matt Kornack, Analyst at National Bank of Canada
Is there a rule of thumb there? I can understand why current spreads would give you a little indigestion, but what is a good spread?
Dan, CEO
What's a good spread for cap rate relative to debt?
Matt Kornack, Analyst at National Bank of Canada
Yeah, for you guys, in terms of what your kind of ideal would be.
Dan, CEO
Yeah, I think for stabilized assets what we want to see is about a 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 want to see is an opportunity—whether it's because of organic growth through rate improvement or, as we've depicted in the past in '19 and '20 through value-add initiatives—to grow that spread by another 100 basis points on a two-year or three-year look-back.
That would denote a clear path to what I would say is three-year sequential 5% compound annual NOI growth. That's 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's appropriate. That's the capital allocation we've applied to every acquisition that we've done as a public REIT and prior to; it's worked out fairly well. And when cap rate margins relative to debt costs get tight, we pay attention.
Sometimes it's the fundamental macro, but sometimes we could be wrong, Matt. I mean, a 60-basis-point cap rate spread to us doesn't look that appetizing on the acquisition side. Maybe we could be missing 20% revenue growth in '27 and maybe we're underwriting to lower revenue growth. So the current cap rate environment, you know, helps us understand how we're underwriting and how we're seeing things—where we're right and where we could be wrong. Challenging some assumptions—that's fair enough.
Matt Kornack, Analyst at National Bank of Canada
And then, and maybe just quickly on the cost of debt, I think we can impute it from the swap numbers you're talking about. But what is that on an all-in basis including the spread plus the swap?
Dan, CEO
Yeah, I call that about a 4.75%, one-and-a-half-year, two-year fixed rate. We would probably move in and around that depending on our credit profile and leverage metrics, debt to EBITDA. So that would be a REIT cost of capital. I think the read-through on the agencies right now—and in the United States, the agencies are a significant support vehicle for financing private capital, private multifamily acquisitions—agency rates tend to hover between 5.2% and 5.6%, depending 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 I think also depending on where in the country you're buying assets, if it has an affordability component, you know, if you're willing to agree with the lender to accept some rent caps, things of that nature. But agency debt, private buyer looking at 80% leverage, 65% leverage, 5.2% to 5.75% right now.
Matt Kornack, Analyst at National Bank of Canada
That's very helpful. Appreciate that color on both fronts. Last one for me is a little bit more technical and I always get it wrong. But the tax refunds, they've been pretty equal between the first two 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 this $650,000 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?
Dan, CEO
We think, I mean, we think that's embedded in our expense guidance. But, Matt, I think that's a fair number to underwrite for the remainder of the year, probably straddled between quarters. We're not going to... If we see a good appeal that's executable, we're not paying attention to whether it's September 30th or October 1st. We're running the business. So as we've done in the past, if we've got an outstanding appeal that's not booked in a quarter, we'll 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's been a positive year year-to-date, and we're sailing with tailwinds right now for the remainder.
Matt Kornack, Analyst at National Bank of Canada
So the first two quarters, I mean, they were fairly similar. Like, that's a relatively good run rate for property tax net of the refund.
Dan, CEO
That's correct.
Matt Kornack, Analyst at National Bank of Canada
Thanks, Dan. Appreciate it.
OPERATOR
Your next question comes from the line of Dean Wilkinson with CIBC. Please go ahead.
Dean Wilkinson, Analyst at CIBC Capital Markets
Thanks. Afternoon, everyone. Dan, maybe a theoretical supply side question. Obviously probably doesn't make a lot of sense to put a shovel in the ground today, but 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? Could a strong 2027 have that come back or do you think it's a little longer than that?
Dan, CEO
Oh, you know, I've seen this in 2009. I've 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 answer. But we saw in 2009 and 2015—I think this cycle is a little bit elevated—there's some undisciplined supply coming in in '23 and '22 and '24. You know, when we think about the markets, supply's exceeded demand on a trailing twelve-month basis for ten to fifteen quarters until recently.
Right. I think the first half of the year we saw absorption in excess of supply. But if you look at that second quarter in most of these growth markets—I'll 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's what happens when supply falls off a cliff.
You know, we've seen deliveries fall... I don't. I mean, you're seeing it right now. Construction starts plummeted 50% to 80% from their high-water mark, and they're down 78% in Dallas or in Austin. They're 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've kind of built one on the water with you and you got to see it. We announced it in August '21, started leasing up in Austin in January of last year, and it took about 12 months to get it to 94% occupancy.
And now Susie and her team are burning off the concessions. I think you start taking 78% and 50% and 68% away from those starts like we've seen in '23, '24, '25, now '26. And you can expect, in the back pocket part of this decade, there not to 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'll pick on Austin a little bit. You know, it's 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's the kind of phenomenon that you're going to get out of multifamily. You saw some bad returns in '23–'24, you could predict them as an investor, you could see them coming years out. On the other hand, you can also predict the low levels of delivery in '27, the back half of '26, '28, '29.
And so long as the underlying fundamentals of macro job growth and affordability driving population growth remain, then it's—you know, I can't speak for the nation, but I would say relatively speaking, these growth markets are going to continue to produce outsized returns and just likely get tighter, and then it'll come back.
OPERATOR
And that does conclude our question and answer session. I would now like to turn the conference back over to Dan Oberst for closing comments.
Dan, CEO
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'll repeat my invite from last quarter: at any time, please feel free to communicate to management. We're happy to take you on an investor tour of our properties. We've 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'll 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.
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