BSR REIT Is Facing A Concession Attenuation Slingshot (OTCMKTS:BSRTF)

The apartment REIT landscape has become distorted by the delivery timing of previously unbridled supply. Rising interest rates have put the yoke back on the ox of development, and those distortions will soon be undone. BSR Real Estate Investment Trust (BSRTF), with its portfolio concentrated in Texas, the epicenter of supply, is currently the most impacted by the distortions and is consequently positioned to benefit the most as they roll off.

We call this the concession attenuation slingshot.

We will discuss this in greater detail later, but let us first take a look at valuation, both relative and absolute.

Valuation

At first glance, BSR’s valuation appears normal. They are expected to earn $0.72 of AFFO in 2027 which would be a 15.63X multiple.

That is slightly below the apartment sector average, but one would also expect BSR to trade at a lower multiple due to higher leverage. In fact, on a leverage-neutral basis, BSR trades above anticipated valuation.

Despite this, I posit that BSR is substantially undervalued. Specifically, we are looking at asset value and cyclically adjusted earnings.

NAV per share as of 2Q26 was $16.56. At today’s price of $10.97 (intraday 9/8/26), BSR is trading at 66% of asset value. This number may seem incongruous with a 15.6X AFFO multiple. A relatively high-leverage REIT trading at 66% of NAV would usually have substantially higher AFFO generation.

How can the assets be that valuable if they are generating only a moderate amount of AFFO?

Well, these assets are currently at a trough NOI due to very specific environmental conditions. As these conditions alleviate, the NOI (and AFFO generation) of the portfolio should be much higher.

Concession Attenuation Slingshot

The zero interest rate environment of 2021 led to a truly massive development wave in 2021 and 2022. Those projects took varying amounts of time to actually put shovels in the ground and are still being delivered today.

2025 and the first half of 2026 had very heavy deliveries, which impact the market far more acutely than the actual number of units would on a stabilized basis. It also impacts BSR more directly than any other REIT because of their portfolio location.

Austin, Dallas, and Houston are some of the highest supply markets in the nation.

The supply is going there for 3 reasons:

1. Zoning is friendlier
2. Taxes are friendlier
3. High growth in population and jobs

The 3^rd factor ensures that the supply will eventually be absorbed in a healthy way. It is just a matter of timing.

These markets are not oversupplied. Occupancy is fine with BSR sitting at 94.5%. Demand is sufficient for the number of units; there is just a difference between a unit being delivered and a unit that already exists.

Deliveries hit leasing dynamics in a more acute way. The developer wants to get properties leased up as soon as possible and will often offer huge concessions to induce full occupancy.

This drags the rental rates of existing properties down with them.

Susan Rosenbaum Koehn, BSR’s CFO, describes the concessionary environment in BSR’s markets on the 2Q26 call:

“While we expected concessions to still be in the Celina 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 8 weeks free. And what we’re seeing is the equivalent of about 12 weeks free when you consider what people are throwing in, 10 weeks free and maybe a $1,500 gift card.”

Austin is slightly better but still fairly concessionary, as she describes:

“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 in Austin. While they still exist, overall, though, they’re coming down. What we’re 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 submarket, we still got 8 to 10 weeks free. And in Cedar Park, there’s 8 to 10 weeks free.”

BSR itself does not offer concessions all that much, having concessions on just a couple of properties. However, the existence of such heavy concessions pulls down rental rates across the entire submarkets.

Thus, whether they use concessions or not, it is impacting their NOI.

8-12 week concessions are enormous in a property type that has 12-month leases. A 12-week free rent period is functionally 23% less rent.

Due to the rapid deliveries in Texas and much of the Sunbelt, rental rates have not kept up with inflation. Apartment assets are materially underearning, but recovery is well within sight.

Most of today’s construction is just a hangover from the zero interest rates of years prior. New construction activity is plummeting, particularly in BSR’s markets.

Dan Oberste, BSR’s CEO details the construction curtailment on the 2Q26 call:

“Construction starts plummeted 50% to 80% from their high watermark, and they’re down 78% in Dallas — in Austin, they’re down 50% in Dallas and 68% in Houston.”

As deliveries subside, concessions will slow to a trickle, and market rents can restore equilibrium.

Simply removing a 12-week free period and keeping headline rent the same would increase rental revenues by 30%. We think this is likely to happen as deliveries fade.

When?

Previously we anticipated the development wave to end in early 2026, but some projects took longer than expected, which extended deliveries through most of 2026. There are starting to be some green shoots with concessions slightly moderating. 2027 will likely be stronger than 2026 and by the back half of 2027 we anticipate full recovery of these apartment markets.

As concessions are removed and rental rates rise 15-30% over the next few years (total, not each year), we think it will become abundantly apparent to the market that BSR’s assets are actually worth their NAV.

BSR pricing up to its $16.56 NAV represents a fully 50% upside in the stock. Multiples would not have to expand all that much to get there because 15% to 30% higher rent on a fairly high leverage asset base can do wonders for AFFO/share.

Risks to BSR investment

BSR currently has cheap debt at a weighted average cost of 4.1%, but its remaining term is down to an average of 3.9 years. Interest rates have moved up a fair bit since they took on the debt, so as these loans mature, they will likely have to renew at more expensive rates.

If BSR gets the strong rental growth we are anticipating, the revenue surge will easily cover any extra interest expense, but it could be a bit more challenging if the economy turns south and interest rates remain high.

Potential Sale Catalyst

M&A has been hot in real estate lately, and BSR is on our list of top candidates for a potential buyout. The company has multiple factors that make it an attractive target for M&A:

1. Strong growth submarkets
2. A concentrated geographic portfolio makes it a one-stop shop for buyers wanting to target specifically Texas markets.
3. A huge discount to NAV allows a buyer to get assets at a good price while still offering a large premium to BSR shareholders.

BSR has bought back a substantial portion of outstanding shares over the past few years at steep discounts to NAV. Each share bought back further increased NAV/share, making it an even better takeout target.

The Bottom Line

We hold a position in BSRTF, the foreign ordinary traded in U.S. dollars. The company is well aligned with shareholders, has a strong asset base, and is positioned to grow AFFO/share substantially over the next 3 years.

We believe it will price closer to NAV as developments subside, representing about 50% upside. A potential buyout would simply accelerate the return potential.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.