Q2 2020 Camden Property Trust Earnings Call
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Good morning, welcome took 'em properties second quarter 2020, <unk> earnings Conference call.
Just to put something in listen only mode shrinking [laughter] placed I know what conference specialist by pressing the star K followed by zero.
After today's presentation will be enough opportunities to ask questions. Please note that this event is being recorded I would now like to turn the conference over to Kim Colligan Senior VP of Investor Relations go ahead.
Good morning, and thank you for joining Camden second quarter 2020 earnings conference call before we begin our prepared remarks, I would like to advise everyone that we will be making forward looking statements based on our current expectations and beliefs.
These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results could differ materially from expectation.
Further information about these risks can be found in our filings with the FTC. When we encourage you to review them any forward looking statements made on today's call represent managements current opinions and the company assumes no obligation to update or supplement these statements because of subsequent event.
A reminder, cabins complete second quarter 2020 earnings release.
<unk> the Investor section of our website at Camden living Dotcom and it includes reconciliations to non-GAAP financial measure, which will be discussed on this call.
Joining me today, our Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and Alex Jessett Chief Financial Officer.
We will attempt to complete our call within one hour. So we ask that you limit your questions to two then rejoin the queue. If you have additional items to discuss if we are unable to speak with everyone. In the queue today, we'd be happy to respond to additional questions by phone or email. After the call conclude at this time I'll turn the call over direct Campo.
Thanks Kim.
And for on our on hold music today with strange days.
It's one of the most common ways I've heard people describe like during this pandemic strains days indeed, it's common for some to refer to the current state of affairs as unprecedented.
I've concluded that well almost all agree that these are a strange days, whether or not people believe these strange days are unprecedented is definitely age related.
Hunger people are more likely to you our current situation as unprecedented.
Well my age or older are far less likely to see these current strange days. This unprecedented 1967, when I was 13 years old and a rock band name. The doors released the song title Strange days.
Clearly I have a background from that a this is the first versus the full range days of found this strange days have tracked us down they're just they're going to destroy or casual enjoy we shall go on playing or find a new town.
The doors, we're way ahead of their time, both musically and culturally and indeed, the next few years after 1967 or bring an extended period of strange days and civil unrest that were that were orders of magnitude stranger them. We've seen thus far during the course Covance storm.
It's really optimistic and I promise you this too shall pass.
That's where all this together we will continue to encourage our Camden team to stay true to cabins y or purpose for being that is to improve the lives of our team members residents and shareholders one experience at a time.
The man to stronger markets than we expected given the nearly 40 million Americans that a file for unemployment benefits within a under fit with an official employment unemployment rate of 11.1% cabins geographic and product diversification has continued to lower the volatility of our rents and occupancy cabinets.
Sunbelt markets tough your job losses, and coastal markets on the go in the U.S. overall, our product mix that offers varying price points and urban and suburban locations continues to work for US Canada was prepared for the pandemic, we have a great culture and a flexible work workplace Adam amazing them.
Boy set of adapted very very well to the to the current work environment or investments in technology moving to the cloud to cloud based operating systems and our church access systems have allowed us to not Miss a beat when it comes to leasing or operating or our portfolio or making payroll and.
Basic things like that we have the best balance sheet in the sector and one of the best and reap land overall, we were prepared and continue to be prepared to do as as well as we can in this environment I think we'll do well long term I want to give a shout out to our amazing Camden team mates for all that they do for our resin.
Units and taking care of each other every single day I'll turn the call over to Keith Oden now for a couple of comments from here.
Yes.
Thanks, Rick Strange days, Indeed, my prepared remarks today will be a brief as we want to allow as much time as possible for Q and I want to make sure that we're providing you with the information that you find most useful to your ability to understand the current state of affairs in Camden's markets at the outset or the Cobot storm, we held an all cash.
I'm done conference call during which we told her Camden team that our highest priorities were number one taking care of our Camden family and to taking care of our residents.
During the second quarter, we made good on that promise.
We undertook various initiatives, including a frontline bonuses paid to our 1400 onsite team members and we provided grants to almost 400 Camden associates from our along the snap established Camden employee emergency relief fund.
We also established a Camden resident relief fund from which we were able to provide grants to 8200 residents at a time of maximum financial uncertainty in their lives. We were pleased to be able to provide this level of assistance to the people who are financially impacted during the early stages of the coded crisis.
On our first quarter conference call. We were asked when we thought we could reintroduced guidance and we said that when we felt like we had reasonable visibility into the next quarter, we would do so.
At that time based on the confidence level that we had from our operations and finance teams regarding our projected may and June results on a scale of one to 10. It was probably it too not good as we sit here today, while our confidence level is less than it would be a normal times, we do feel it is sufficiently high to.
For the third quarter and we've done so.
I want to acknowledge the amazing job the team Camden is done and continuing to ride to provide living excellence to our residents. Despite the radical changes we've made to our policies procedures and protocols. It's been incredible to behold keep up the great working with a little little good fortune four with we are long overdue, we'll see you soon I'll now turn the call over to out.
Alex Jessett Camden CFO, Thanks, Kate for the second quarter of 2020 effective new leases were down 2.1% and effective renewals were up 2.3% for a blended growth rate of 0.3%.
Our July effective lease results indicate a 2% decline for new leases at a 0.2% growth for renewals for a blended decrease of 0.9%.
Occupancy averaged 95.2% during the second quarter 2020, compared to 96.1% in the second quarter 2019 today, our occupancy has improved to 95.5%.
We continue to have great success, and conducting alternative methods property tours for prospective residents and retaining many of our existing residents with only a slight deceleration in total leasing activity year over year.
And the second quarter, we averaged 3855 sign leases monthly and our same property portfolio as compared to the second quarter 2019, when we averaged 4016 sign leases.
July 2020 total sign leasing activity is in line with July of 2019.
For the second quarter 2020, we collected 97.7% of our scheduled rents.
With 1.1% of our rents in the current deferred rent arrangement and 1.2% delinquent.
This compares to the second quarter of 2019, when we collected 98.6% of our scheduled rent.
But with a slightly higher 1.4% delinquency.
The third quarter is off to a strong start with 98.7% of our July 2020 scheduled rents collected ahead of our collections of 98.4% in July of 2019.
Last night, we reported funds from operations for the second quarter of 2020 of $110.4 million or dollar nine per share representing a 26 cents per share of sequential decrease in FFO from the first quarter 2020.
As outlined in last nights release included in this 26 cents sequential quarterly decrease is 14.2 cents of direct Kobin 19 related charges included incurred during the quarter.
After excluding the impact of this aggregate 14.2 cents per share sequential AFFO decreased 12 cents in the second quarter, resulting primarily from.
Approximately five cents per share in lower same store net operating income, resulting from a two cents per share decrease in revenue from our 90 basis points sequential occupancy decline.
Hey, two and a half cent per share decrease in revenue, resulting from an increase in bad debt reserves from approximately 45 basis points in the first quarter, two approximately 180 basis points in the second quarter.
And an approximate half cent per share sequential increase in expenses.
Approximately two and a half sense and lower non same store development and retail analyzed also resulting from a combination of lower occupancy and higher bad debt reserves.
And approximately four cents per share in higher interest expense, resulting from our April Twentyth 750 million dollar bond issuance.
Turning to bad debt.
In accordance with gap certain uncollected rent is recognized by US as income in the current month.
We then evaluate this uncollected rent and establish what we believed to be an appropriate bad debt reserve.
Serves as a corresponding offset to property revenues in the same period.
As previously mentioned for same store.
Our bad debt as a percentage of rental income increased from approximately 45 basis points in the first quarter two approximately 180 basis points in the second quarter.
During the second quarter, we reserved effectively all of the 1.2% of delinquent rents as bad debt.
Also in the second quarter, we reserved effectively half of the 1.1% of deferred rent arrangements as bad debt.
When a resident moves out arena us money, we have already reserved 100% of the amounts owed as bad debt and there will be no future impact to the income statement.
We reevaluate our bad debt reserves monthly for Collectability.
And the second quarter for retail, which is not part of same store, we reserved 100% of all amounts uncollected and not deferred which totaled approximately $800000.
Last night based upon our recent trends.
We issued AFFO and same store guidance for the third quarter.
However, given the continued uncertainty surrounding the social and economic impacts from Cobot 19. At this time, we will not provide an update to our financial outlook for the full year.
For the third quarter 2020, as compared to the third quarter of 2019 at the midpoint. We expect same store revenues to decline by 1.6% driven primarily by lower occupancy higher bad debt and lower miscellaneous fee income.
We expect expenses to increase by 4.5% driven primarily by higher property insurance.
Higher property tax assessments and large property tax refunds received in Atlanta, and Houston in the third quarter of 2019.
As a result, we expect enter why at the midpoint to declined by 5%.
We expect FFO per share for the third quarter to be within the range of $1.14 to $1.20.
The midpoint of $1.17 is eight cents per share better than the dollar nine we reported in the second quarter.
However.
After adjusting our second quarter results for the previously discussed 14 cents of Kobin related charges.
Our dollar 17 midpoint for the third quarter is a six cents per share sequential decrease.
Results primarily from.
A four and a half cent per share sequential decline in same store NOI as a result of a half cent per share decrease in revenue, resulting primarily from lower net market rent.
And a four cents per share increase in sequential expenses.
Resulting primarily from the typical seasonality of our operating expenses.
The timing of certain aren't m. costs.
And the timing of certain property tax refunds and assessments.
And approximately half cent per share decline in non same store NOI, resulting primarily from the same reasons.
And then approximately half cent per share increase in sequential interest expense, resulting from our April twentyth bond issuance.
As of today, we have approximately $1.4 billion of liquidity comprised of just over $500 million in cash and cash equivalents and no amounts outstanding under 900 million dollar unsecured credit facility.
At quarter end, we had $185 million left to spend over the next two and a half years under our existing development pipeline and we have no scheduled debt maturities until 2022.
Our current excess cash is invested with various banks, earning approximately 30 basis points.
And finally, a quick update on technology.
As I discussed our onsite teams are having great success with virtual leasing and we just completed our second virtual quarterly close.
A task that would have been so much harder if not nearly impossible without or investment in a cloud based financial system.
As mentioned yesterday in the Wall Street Journal, we're continuing our pilot of CERP, our smart access solution with great success.
And we are finding even more ways to utilize the CERP technology.
At our pilot communities for self guided tours.
Our leasing teams can use the CERP access application to grant a prospect limited access to tour, both the community and specific available apartment homes in a completely touchless exchange.
There is no need for the prospect to pick up physical keys, or fobs or ever even enter the leasing office.
Our leasing teams create the prospect of CERP account.
Grant them access to the best apartments chosen per their unique wants and needs.
And then determine when the prospects access will expire.
Additionally, we can utilize CERP too quickly and automatically control the number of residents who have access to an amenity space such as a fitness center at any given time.
Amenity spaces deemed as reservation only will require residents to use the CERP access application to reserve a specific time slot.
Only those residents with confirmed reservations will have access to open the door of the amended the space for the allotted time.
When the reservation expires, so does access to the amenity.
Clearly in this coven 19 environment, our CERP initiative takes on even more importance.
At this time, we will open the call up to questions.
We will now begin the question answer session.
Yes. Good question you My Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up the handset before pressing that Keith to withdraw your question. Please press Star then too.
First question comes from Jeff's back.
From Bank of America go ahead.
Hey, good morning, Thank you.
Thanks for the initial comments I thought it might might be most helpful to talk about the markets in particular your Threeq you guidance, Alex I think youve talked about lower occupancy higher bad debt I guess can you talk a little bit more specifically on Houston, and maybe even Phoenix, we were surprised to see.
The 2% occupancy drop in Phoenix. Thank you.
Yes.
Jeff the.
Houston continues to be.
One of our weaker markets.
We have so you get two challenges headwinds and separate from the cobot in Houston The energy businesses. Obviously got still continues to be on are under pressure, but also we were scheduled and continue to be scheduled to deliver roughly 19000 apartments in 2020.
According to witness numbers. So those are in the process of rent being brought online.
The the place where we see that most of the most impact to that isn't the downtown Midtown area, where the a lot of the new deliveries or are coming online. So it's it's you know that would've been an issue irrespective of trying to absorb 20000 apartment 19000 apartments in an invoice.
Our unmet where the.
Job growth was already going to be a little bit under pressure from the energy business and you add on top of that the.
Just the job losses that are not related to the energy business at all yeah. I mean, it's a it's more of a challenging environment, we think that.
In terms of renewal leases or renewals that are going out in Houston that went out and in in July those are going out it basically flat.
It's one of the so so on our our renewal overall across our markets for the July renewals that went out is about 1.8%.
Across the platform is as high as 4% renewals in Austin and then at the low end to that would be Houston. It basically flat. So it certainly feels like it from a renewal standpoint more back to that getting.
Back closer to regular order.
In terms of in every market that we're operating in we are setting out renewals with increase with increases.
Specifically in Phoenix, that's we just as a seasonal.
Weakness that we always have in the in the middle of the summer a the 2% occupancy drop is a little bit more than what we would normally see but it's not unusual to have that kind of weakness, we still have pretty decent rental growth in Phoenix and it continues to be on a on a projection going forward. It continues to be one of our a bright spot markets for.
Yes, you know it's been it's been incredibly strong for the last two years.
We think that that that market is going to continue to perform well for us.
And thank Jeff and Jeff when we talk about lower occupancy on a higher bad debt. We're comparing the third quarter of 2019 to third quarter of 2020, we actually expect third quarter 2020 occupancy to be relatively flat to the second quarter 2020.
In the aggregate.
Okay. That's that's good to know thank you. My second question. If I can ask your peers talked about an exodus to single family rentals. This past quarter are you seeing the same thing in your markets.
So they are.
The single family market, our or move out to two advice single family homes went up slightly at the beginning of the quarter, but it flattened out and it's still the 14, 15% range.
Obviously with a low interest rates and and the marginal folks that were going to go buy houses are buying houses right now, but generally speaking when you look at our demographic profile with a lot of single folks that are living in our apartments.
Even even with low interest rates, they're just not buying houses.
So with that said, we haven't really seen any increase in moving out to run houses or buy houses.
Thank you I wish everyone well.
Yes.
Our next question is from Nick you look well from Scotia Bank go ahead.
Thank you.
First question is just on your new lease and renewal pricing.
It did actually get a little bit better it looks like in July versus the second quarter.
And I just wanted to be clear here on the renewals because it sounds like some of the renewals that you're doing now also.
Improving versus the second quarter. So just trying to just trying to understand how we should think about you know rental pricing dynamics and the third quarter on and the rest of the year America things getting better or worse you think.
Well the renewal side, there's no question, there getting better and.
Part of that though was if you will recall for the first 90 days after the the coated a storm hit and we went to shutdown mode. We actually from a policy perspective, just said, we're not going to we're not going to take any renewal increases.
For the next 60 to 90 days and then we as it turned out it was it was a little right at 90 days that we just did not.
Process, we renewed offered everybody a renewal at flat.
Now could could we have as it turns out in 2020 onsite could you have gotten one or 2% increases probably.
But from a from the standpoint of.
Two two thoughts on that one was we just had no idea how to measure the collapse in demand from.
30, or 40 million jobs evaporating. So there was a great concern on our part that you need to you need to keep every resident that you have in place that's that it's possible. So that was one part of it. The second part was really more of it was just more.
In terms of.
Residents, who had been kind of shut into their apartments, most of them working from home.
And at the time, we had been mandated in almost every case to close all amenity spaces. So you have people who are in the midst of a pandemic 40 million job losses.
And then and then they can't even use the amenities. It just it just seemed like a terrible idea to be pushing through rental increases to our residents at a time, where you could where they were they couldn't even get full value of the proposition that they they felt a bargain for so part of it was to protect just to protect the relationship that we have with our residents and.
Not create.
The kind of tension that would come from leasing consultant trying to get what what would amount to a 20 or $30 rental increase.
From from residents in that timeframe. So the net of all that is is that our renewals were probably under what could have been achieved in the first half of the year and obviously, that's a it's back to regular order now and where do we just in a really different place. We're in a different place. Our residents are in a different place for the most.
Part our amenity spaces are are all open some with restrictions with their open again, so I, yeah, well, we expect to but a much better results on renewals the new leases in July. We're just you know tiny bit better than a a tick up from a from where we were in the first half of the year I think more importantly for us is.
We were able to maintaining an above 95% occupancy rate with between the the new lease.
Activity in the renewable so to me that was more important to see the stability, there and and gives us something to grow on going forward.
Let me just add the okay.
Early on in the pandemic.
We along with the leadership of the National the NMHC Group, Doug Vivien. His team, we hosted an industry conference call and than we came up with as a team the best practices for the waving industry off to ought to face the pandemic and in the industry was.
All about even before.
Before late fees were banned by governments or evictions and things like that we came out with a set of principles.
We are designed to help residence in a very uncertain time and one of the principles was was flat renewals no late fees.
With that work with people in terms of.
Payment plans, you know things like that and I think the industry did a great job.
I'm showing the that that they really care about their customers and a and so you know to keys point.
Sure we could have renewed leases during the past during the first part of the pandemic it.
It's a decent rate, but we just chose not to now there are some folks in our industry that just.
Didnt do that and they did raise rents and you know I've just that's just not our culture and I think most of the industry.
Uh Huh, followed those principles of trying to help their customers in a very very uncertain uncomplicated time. It is the thing is really interesting about this is that we're four months into it right, which is like nothing compared to the financial crisis, and all that and so.
Still uncertain and I think that people are when you think about how you treat your customers is all about building your brand long term and making sure that customers understand is actually care about.
Okay. Thanks. Thanks, that's helpful. Just.
Second question would be.
You have any stats you can provide on the nature of your total portfolio in terms of which buildings you think or.
Hi rise product versus not I mean think you know you definitely have some in Hollywood, Washington, DC I think you had at least one in Houston, but.
You know and whether you're seeing as well any difference in a leasing demand for you know what would be more high rise concrete.
Steel type product versus lower rides stick and brick product. Thanks.
Well, yeah, absolutely the good news.
Good news or bad news, but we tend to have so we don't have as many high rises as we have mid mid and low rises.
We balanced portfolio pretty well to if you like let's just take Houston example, we have to high rises in Houston that are actually high rises 22 storey three story, we've seen really no no change in demand for high rises and some in the in those markets and saying the DC the disease.
Actually a standout market for us right now which is great.
But when you think about.
Our portfolio in Houston, We then go to mid rise, where you might have a.
A aged rebuilding or six states rebuilding and then we go down as low as.
Two storey water resource rewalk ups to how should we have some older brother that we built older properties, we built the.
20 years ago that are two story, so we tend to be more suburban more lower density, but we really haven't seen a lot of a lot of Jeff as you know differentiation between high rise or low rise given that we don't have any high rises and then I think the other part of that equation is sort of the geographic.
Mix and product mix that we have.
Generally speaking our.
We're sort of a skew towards suburban and more be than today.
But.
Right now, we don't really see a lot of variation in collections or and demand for any of that product.
Paul about same.
Thanks appreciate it.
Our next question is from Austin Wurschmidt from Keybanc go ahead.
Hi, good morning, everybody.
Relates to the bad Guy I was curious how much of an impact that had on your same store revenue growth in the second quarter and then what did you assume for bad Daddys Recuse same for revenue guidance because from the July collection data. It looks like they were actually better than boasts the first quarter and twoq year last year.
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Yeah, absolutely so as I said, our bad debt went from approximately 45 basis points in the first quarter two approximately 180 basis points in the second quarter. So you can look at that hundred 40 basis points and that's a direct reduction in revenue on a sequential same store basis. So you can do the math.
On that.
When we look at at what we've got in our model on a go forward basis, we are anticipating that the third quarter of bad debt.
Drops down to somewhere right around 125 basis points. It goes from 180 to 125.
And so hopefully we'll get a decade, we'll get some pickup on that now that pickup is going to be offset by slightly lower net market rents and will also be offset by slightly lower re letting a income we did get a fair amount of re letting the income in the second quarter as we did have folks a break their leases.
I understood and then as it relates to chair just curious whats kind of the timeline for rolling that out across the portfolio and then can you remind us how we should think about the return there you guys are measuring that.
Yeah, absolutely. So you have to think about sharpen two components. The first one is the gateway and that's the chart that controls the access gates also controls the amenities space et cetera.
We've rolled out right around 12000 units.
And we expect to have gateway rolled out across our entire portfolio really by the end of the year. The second component is where we call that shoe curved account solution, which is true includes gateway, but also goes to.
Goes to the individual locks of the units and we've rolled out about 1500.
Doors with that solution and we expect that probably by about this point next year. We will have total access so think gateway plus locks rolled out across our entire portfolio you know, it's really interesting because.
When we originally looked at what the value proposition was for this.
We looked at a lot of things around not having to Ricci locks time that are on folks.
People spend letting them vendors et cetera, and and then we also knew that there was some embedded value proposition to a resident to be able to push a button and let the let the pizza delivery guy in the gate and go straight to their front door, rather than having to get out of their jammies.
And walk down to the front gate and open it up we never would have thought of covert 19, and all of the additional benefits that we've now gotten from this and so we're still at the point of trying to quantify all of the benefits, but I will tell you when we look at.
Ordinances that we see that say Jim's must be at 25% capacity or 50% capacity. This is nearly impossible for a typical apartment operator to enforce.
However, with our CERP access application, we can do that and we can do it very easily when we think about virtually sandwiches undoubtedly.
The future of our industry you can't have virtual leasing unless you have an access application that opens gates plus doors. So there are a lot of additional benefits that were still in the process of quantifying, but but ultimately we think this is a huge differentiator for Camden.
And ultimately will be a huge differentiator for the industry.
Yes, Sir you accompanying the measure at all what you think the returns are is it just an additional offering across the entire portfolio that you think world.
Generate value just over time.
From a from a demand perspective, and just you know right resident satisfaction perspective.
Thats exactly right I think ultimately a resident of Camden, who has chart when they go look at an additional or at a other community and they realize that they will have to.
Take time off of work to let their dog Walker into their apartment when they realize that they will have to meet all of their guests that the front gate I think they will ultimately pay us to have the flexibility and to have the convenience of the CERP application that will provide.
I think the other issues cost savings because when you think about about the number of keys, we haven't lost keys and motion that goes on with having to having to help people opened their doors and things like that it's it ought to be a.
Relieve us of cost and allow our or a onsite people too in fact, serving customer better.
Got it okay. Thanks, guys.
Our next question is from Alexander Girl spot from Piper Sandler go ahead.
Hey, good morning down there. Thank you.
The CERP feature some sounds pretty interesting odd just given I'm guessing a all the different uses the secondary.
So I just two questions here. The first is in California, and maybe I missed that what percent of your residents are basically preloading are in there not paying rent and others that aren't paying rent. How many do you think will not pay rent versus archer saving the money and once the eviction more too.
Go over they'll pay you the background along with them hopefully there's interest that accrues, but I'm not sure.
So when you look at July delinquency.
California has improved tremendously, it's still our highest delinquent market.
But it's at about 3.6% today.
Obviously time will tell as we are able to start enforcing contracts what percentage of those folks actually pay but as I said it is a significant improvement.
From where it was four months ago.
And where we're with it.
No I kind of stuff because the theres no late fees are banned by the government I think it's really instructive, though when you look at Houston for example, or Houston numbers or or not even not not even single digits. There in the point you know three or 4% range in California is three point.
Three and 3% change it shows you sort of them in totality.
And it gets to the whole sort of government issue I mean, if you're a resident and in California, and you listen to the mirror L.A. in the governor there. They're they're messaging is don't worry you don't have to pay.
And and that the limitation of late fees and limitation of of being able to fix somebody creates what we are what we call dosing, which is they just don't show up and they don't have the ability there. They know they don't have any any negative recourse you're not.
Charging them interest or late fees and they know they can't be convicted and so you. Just have you have this goes team scenario that happens out there and it's a it is it is a I think a serious moral hazard issue and it's just a.
In most of our Sunbelt markets people just think they should pay their rent on time, if they have the money and in California is just a little different animal.
Rick Your view is that both of these will pay when they have to or are these all the people. Alex that you said you wrote off as delinquent. So you wrote them all off and you're not expecting any.
We're not we're writing them off based on our policy, but I think that that folks that that care about their credit and care about about.
If you care about your credit you're going to pay and a lot of the people that aren't paying today actually have the ability to pay they're just not pain. So were we have we have clearly modified our our bad debt policy and increase the the bad the accrual for bad debts, but we might be be surprised that people actually do pay.
When when the government tells them they should pay I think one of the things that is really interesting.
And this is I think I think.
Sort of system wide, but it's probably more important in California is that.
The kelcy the apartment associations are trying to educate people because when when the when the governor governors and mares say that they're being well be no objections.
Folks think that means that to get free rent right and like okay, we're not going to Victor foreclose on anybody and they think that during that period, it's free and we're educating people, saying well number one it's not free number two.
If you do run up a debt and you don't pay the debt then you're going to ruin your credit in the next apartment you're going to try to lease is going to have a real problem with with union I've been able to leasing apartment or or or get credit and so I think that education process is really important for the industry.
Yeah because.
People don't get it that actually it as a debt and you do you have to pad.
Okay and then the second question is.
You guys I mean to your comment sounds like everything has stabilized and while you're expecting lower occupancy that's a year over year. So basically you are flat from the second quarter and the impact in third quarter is really from Japan continued bad debt and you know some lower fees. So I guess why did you guys think that your markets. If your portfolio is.
Holding up better than the coastal urban guys, who are continuing to unfortunately experiencing celebrating weakness I mean, you guys have had increased cobot recently, but that doesn't seem to a beta factors. So what do you think is it is it just less social unrest lack of the protests or what is going out of your market for you.
I seem to stabilize where in the coastal areas. It seems to be accelerating I think it's exactly that I think number one as I said in my earlier comments there have been fewer job losses. When you. When you look at job losses, I mean, they're significantly higher and Acos and ER and the sunbelt markets that have not lost as many jobs.
And when you look at the at social unrest as an issue too there are some markets, where you can get your properties because of the of the urban nature in the sort of takeover of blocks in certain insurance cities. So.
I think it's all about the things that we're driving our markets before when you. When you think about recoveries sunbelt recovers quicker and has more jobs.
Generally and so I think it's really a jobs issue more than anything.
Okay. Thanks.
Our next question is from Nick Joseph from Citi. Please go ahead.
Thanks, You mentioned, we're only four months into this and given the continued nacco macroeconomic uncertainty and elevated unemployment do you currently expect any more tenant or employee relief for frontline bonuses to occur.
Yeah, we don't have any plans currently Nick to do anything along the lines, what we did in the second quarter the the.
The impetus for that was.
I've laid out some of the rationale earlier in my comments, but in addition to that it was just the timeliness of it you know this this it was such a such a jolt so many people.
In the way it happened unlike in previous downturns, where there was sort of this rolling a lay off scenario people had had time to adjust and and make preparations. This was a you know you think you were good on a Friday and on Monday Your job is gone and and so people were there was a there was an urgency to.
Getting some.
Financial relief to both residents and arm Camden employees, who got affected.
The of the impact of that was really always to get to bridge. The gap in time to get to a scenario, where there was a more permanent relief available to both residents and <unk> and Canada employees and that's happened and it happened through the stimulus that happened through the plus up unemployment benefits now there's you know theres a lot of.
Wrangling now about <unk> are they going to extend that and to what extent, but yeah and even in the scenarios, where they talk about not including the plus up.
The the provision the most.
The conservative provision that I've seen is 70% of your previous income and unemployment payments and for honestly for most Camden residents, where we have a an average household income of about $105000. Our average rental payment is about 18% of that so.
If you're paying 18% of your ret, you're getting 70% an unemployment most people can figure out a way to back that work.
So I know there that's a long answer to sand, we don't anticipate it.
No that's helpful and I recognize it's only been probably.
Two or three months backs, but have you seen any differences in terms of delinquency or turnover, but those residential real received a relief.
No we haven't although the I think the thing that's very encouraging for US is the collections number that we that we've seen a year to date or month to date in July 98, plus percent and we actually collected have collections higher in the month of July at this point in the month than we had in.
In 2019, which is.
Barely remarkable.
And my guess is is that there's some component of that that.
That people have no there's some associated goodwill, but it's it's hard to know what People's motivations are.
Thank you.
You bet.
Our next question is from Neil Malkin from capital One go ahead.
Hi, everyone. Good morning.
Question is are you seeing.
An increase in in migration into your.
Beautiful sunbelt markets.
From the the coast, which like ours is alluding to you are getting pretty dicey.
A more dangerous. So just curious if that trend is exacerbated or any comments you are hearing anecdotally underground from your managers.
Sure. So so clearly the in migration out of coastal markets as has a.
Continued its been going on for a long time, and and I think and we start looking at at the at the U haul.
Rates.
Keep to leap is you know it's cheap to go to California end to end to Seattle, but it's very expensive from a to move out of it you know it's like I think it's like four or five times more expensive to read into a to lease one of those you all to go out of California, Texas or the Arizona that is to go into Kelly.
For me, because there's too many of them coming out I'm not going in.
The other thing that we've been watching is is postal.
Forwarding, where you forward your mail and Theres been a tick up in May opening forward, it's hard to tell whether people are just or just a shells rain place out of of their their markets, but but I think it's just a continuation of really long term trend. If you look at it take.
Immigration out of the equation.
There's been now migration of California, New York and.
For the last 10 years. It the only thing that has increased that gets it to be positive as immigration. So I think thats going to continue on.
I don't think that I guess, if you if the issue is to do all the coastal markets do they rebound this New York City rebound.
I think we have to think about like like after 911, you know after 911 downtown New York was like people talked about how it never come back right will did like that Americans have short memories.
When it comes back when it comes down to you know how do I feel about where I am I think the fundamental challenges in highly regulated very expensive markets where people are paying.
40% to 50% of their income for Red or housing that just is unsustainable and that's why I think the left the migration has happened you know for the last.
For a long time and I don't think that's going to change that will people put up with it and and the deal with it in the future. Yeah. I don't think big cities are going to empty out, but I. Just think it's just the pressure on on people to to want to have a decent place to live without having to pay after income is going to cut.
Thank you to drive out migration into these more affordable markets and I think that's going to continue.
Okay great.
That I agree.
The second one is in terms of the development. It seems like on the acquisition side, it's going to be lack a fruitful just given the.
Available in low cost.
Debt right now so it seems that down a development deals land deals are probably going to be your past that particularly with your balance sheet. So I'm. Just wondering if you can talk about.
How you see that what are the opportunities in front of you are you seeing like land deals coming are falling through are coming to market and also if you. If you take a look at a ever doing opera Burger Meds.
Ending with some sort of equity at the end participation. Thanks.
So we we have started to see some shovel ready development deals that have that that where the merchant builder couldn't get their financing or the equity pulled out or or they are underway. It's hard to underwrite anything today right given given the uncertainty about where the market is going to be and.
Two years.
So even though longer term you know I think people feel like it like like development is definitely going to be a good option. We've already started to see some price.
You know price softness in the construction market, which is good. So we were seeing 3% to 5% increases now we're seeing flat to 2% to 3% down which is really good.
So we are starting to see some of those are some of those.
Opportunities.
It's a little early still because of it the market just hasn't we haven't had a shakeout yet I think we're going to that'll take maybe through the end.
Got it happened.
In terms of getting involved in.
Excuse me in mezz or or Presales and things like that.
We have have stayed out of those kinds of products over the years.
With me are primarily if you think about it in the financial crisis, we had about $3 billion, where the joint ventures and other types of structures.
And.
And we thought it lowered our risk and what it really did increase our risk because our partners and having to work through the issues that the financial crisis created took our took a lot of time and effort and so we decided after that but we would not do things that wouldn't move the needle for Camden I assure you could go do.
You know about.
Half a billion dollars, where the mezz and move the needle a little but the end of the day what moves our business long term as our cash flow that would grow from our properties and so we we want to have the clean this balance sheet, the simplest structure and not have any distractions having to deal with small.
Positions or or Mezz positions, and then have to go deal with people.
That's just not or in or 14, we we might do you know presale or something like that but but we're definitely not going to do mezz or anything like that it just doesn't move the needle enough and it's too much of a distraction for our teams to but we want to focusing on the big picture, where shareholders have 100% of the exposure.
Sure.
In the property.
Alright, Thanks, a lot of sent thank you guys for the time thanks.
Our next question is from John.
Oh ski from Green Street Advisors go ahead.
Hey, Thanks, very much curious as some of the sunbelt economies have had they kind of walk back reopening plans in recent weeks and months since you've noticed in July any meaningful inflection point in terms of leasing velocity or notices and move out.
In any of your larger market, maybe excluding Houston.
Yeah, you couldn't I would even include Houston, and say that we have not seen any any meaningful pulled back I mean, it's the.
If you think about what we went through in terms of converting our approach to be basically 100% virtual leasing for a period of time.
So we we.
Got that trade craft down to the two an art and and so.
Prior to the kind of most recent.
Spiking in cases in Texas in particular, but also in Florida. We had we had gone back to a sort of a hybrid model, where we would allow access to our leasing offices for someone that wanted to do a on in person tour as long as a both our folks and the you.
Prospect or maskin socially distance. So we did that and then and then with the spiking are we at the feedback we got from our folks as they just were not as comfortable with that approach. So we went back to basically a an appointment only virtual tour and and the so most of what you see in July activity.
Which is which is really good for US was was activity of that Oh that variety I think it was in the first my first week in July we went back to a.
Kind of a virtual only model and that in and we're fine with that and our folks are sufficient added they're comfortable with it the prospects a interestingly enough.
When we ask our prospects what they what their preference is about 30% to 40% of our prospects tell us that they would prefer this permanently as a as a way to to lease apartment. So I think it's going to be a part of the mix for the for for the future and we're really good at it. So I think were good.
Okay, but on the move outside any interesting shifts across markets and are you are 60 day exposure coming up here.
No. We're in good shape, our preleased pretty these numbers are really healthy.
That's which is why we got the comfort level that we got to give guidance for the third quarter. We're you know july's basically over so you're looking at August September we have pretty good visibility into the prelease numbers traffic is good are closing percentages are where they need to be and like I said earlier, John the key for.
For us was being able to maintain a 95 plus percent occupancy while we re initiated a renewal increases and we're getting back to something closer to flat on on new leases.
Okay last one from me in some of your harder hit economies like in Orlando or Houston, if you're a buyer.
In those markets today on the stabilized deal what kind of what kind of discount on an asset value basis would you be looking for versus kind of pre coded levels.
It's a complicated question because there's just no trades going on in the trades that are going on you know I think people are people are buying by the pound and not by the cap rate.
For the discount.
So often times.
Well I think fundamentally pricing hasn't changed in the private market and cap rates have declined in compressed in the market. Because people are if you look at the cash flows people thinking there.
The writing them going down over the next.
Call it six months or eight months or however, long the pet pandemic glass and then and then they look at witness numbers that theres, a pretty big snapped back.
2022, sorta into 2021 2020 to 23, so if you're underwriting a project in Houston or anywhere else. Today. There is no discount and you have you have to take a lower cap rate.
And then I think that you believe that as that is that the cash flow will grow faster than than than before the pandemic and you'll get back to you know a total return that that as a rational total return without increasing cash flow. So the real question is going to be going to be.
To me.
Is how how fast will investors.
Get to that level, and then and then.
Because there's just a wall of capital out there and with the Treasury it.
<unk> 0.5 something percent.
You know financing.
On existing assets is incredibly cheap and when you when you when you look at leveraged buyers are going up.
We're going to look at their equity returns with incredibly low cost of debt.
I think they're going to others can be a lotta activity and interest in multifamily. The question will be how long does it take to get that those investors.
To a point, where they where they can feel like they can do some underwriting for in the next couple of years.
Development side. This is a more complicated because.
Structure lows are really hard to get today and lenders have lots of other issues and real estate be at retail and office and others and so it's both increasing exposure for them to the construction side in multifamily hard for them to do today, and I think thats, where the opportunity might be a from.
From a.
From a from a acquisition perspective, but we'll just have to see.
Okay. Thanks, so much for the thoughts.
Our next question is from Rich Anderson from F. M. B C go ahead.
Hey, Thanks, and good morning, everyone well rich.
So I guess sharp because tweak mistaken.
[laughter] Oh, you know, it's an homage to our too I mean bird.
[laughter] okay.
To anybody and feel here.
How would you characterize the amount of.
Well, you called coasting or people, taking advantage of regulation and seems like California, how how much did that surprise you in terms of a number of people wasn't less or more than you thought and the reason why ask is do you think that there's a longer term impact from your underwriting criteria in terms of you know.
At the individual parts of your up here your tenants before signing a lease.
Yeah. So in terms of in terms of the impact in our California portfolio. So so if you break it out between.
Where we are total collections and La Orange County, which is our lowest collection for for the second quarter of 20, we have collected 92.6% of ours are scheduled rents and that's the lowest in our portfolio and it's not it's really not even close beyond that everything else in our portfolio is.
Southeast, Florida is 94, and then everything else is above 95, and most are in the 98 range. So it's it's clearly an outlier, but if you take the 92.6 collected and you break it out between deferred payment plan and delinquent truly delinquent.
2.3% is deferred payment and 5.1% is delinquent. So the 2.3% we have had conversations with the people have said we have financial distress. We have we need to we need a path forward. We have then that means we have a written agreement with them on how they're going to get hole.
On the rent from a from the standpoint of their delinquency. So the 5.1%. They it. It's if we don't you know for the most part it's done they don't communicate.
Maybe they can't pay and just choose not to communicate but our our guess is is that they're pretty large percentage of those folks.
I have just gone dark because they think they can not pay their rent for some period of time and get away with it and the challenge with so so the challenge is is that the policy prescriptions of no evictions no late fees and by the way sort of a weaken a nod among among.
Bill leaders that we can't give you direct <unk> direct rent relief, but we're creating conditions on the ground that that prevent you from being a victim from your apartment and in some way that's rent relief, which it's truly not from the liability standpoint, but from the standpoint of do I have to pay it does create that.
So I think this is this is a unique circumstance relative to this pandemic and <unk>. It's hard for me to imagine I'm, even in a great financial crisis, we didnt have policy prescriptions of that variety anywhere, including in California, now maybe the politics of change that much and.
The last 10 years, but.
But I think it's probably ultimately ends up being pretty unique to this this particular, a pandemic and not some greater.
Incidence of policy prescriptions around you can't Vic people, who don't pay their ramp.
That's just my that's my personal view.
All right.
And then.
[laughter] question is Rick you mentioned.
I think there might be some permanency to this sort of moved to the suburbs and be the first as a and so on.
But.
I don't I'm not sure I agree with it being a permanent condition and maybe I'm, putting words in your mouth, but nonetheless.
What degree.
This altering your strategy I know you're kind of already.
Since your wheelhouse a bit already but just if you believe and some systemic change to that conversation.
Do you see a systemic change how you are going to pursue the business longer term.
Well I think that I didnt.
If you if you heard that I thought there was a permanent shift from urban to suburban or high rise or major cities to smaller cities I don't believe that I really don't okay that like I said earlier, we have we have.
People have short term memories and at the end of the day once the pandemic is over everybody gets back to work and they're focusing on their lives.
There there they're going to do what they want to do and I think people do love urban environments. They live restaurants, they live going going to the ballpark they.
Okay and when that comes back that will they will engage that again I do think that there will be some but I do think that continued out migration from coastal markets. The sunbelt markets is going to continue and but I don't know that it's it's not going to those markets are still going to be fine markets long term.
They're just going to have have the issues that they have today that are pre pandemic. So from our from our perspective, when we start thinking about about where we want to be.
It continues to be the same drivers longer term, which is high job growth low low.
On a pro business governments, good weather young people, you know great workforce that kind of stuff I think from a from a.
Hey.
Sort of a product mix perspective.
We definitely are going to going to continued investment urban and suburban properties.
I think that did from a development perspective, we are thinking really hard about our spaces and how we utilize the space inside the inside the the common areas and are thinking a lot about okay. Maybe the work from home is going to be up a bigger piece of the equation because I do think that.
That the work from home is going to be massively more than it was pre pandemic and primarily because if you think about cabin.
We have 450 people plus or minus working from home and and they're doing really well and so the people that had our commutes, one way or going Wow I got to date two hours of my life back plus I don't have where in term my car and all those expenses. So we can get people their time back and raises in essence.
By letting them work from home so from our perspective, we're going to spend a lot more time looking at our properties and creating a more.
User friendly work from home environment.
Prior to what's the pandemic hit one other things we did as amp up the bandwidth in all of our properties because.
Yes, low bandwidth I mean, we were just getting people going nuts, because they couldn't do soon calls and things like that so we amped or bandwidth up and I think we're going to so when we think about modifying our existing buildings and then building new buildings you have to think about that working work from home component I think thats going to be a big big shift.
Alright, great extra color appreciate it.
Our next question is from Rick Hi power from Evercore.
Uh huh.
Hey, good now good afternoon everybody.
I'll be I'll be quick I, just want to make sure I understand something here as far as the collections rate into Q, where did the resident relief funds fit into that would do is that part of that calculation or or separate it how do we understand that relationship.
Yeah It was separated.
Okay. So it's not included in the 97 plus percent collected in Twoq you that is correct. Okay. Thanks for that Alex and then just to I guess, just a pile on to the sort of anti California sentiment you know how do you think about the the southern California.
The footprint longer term I mean, do you know, it's a tough market to build and it has a checked a lot of the boxes that Rick I think you described about the nature of the workforce and people want to be there and this and that but how do you think about political risk and the impact to cap rates and values over the long term how do you think about that.
So I think that I think California will always be a market that people want to be in you know, it's what are the biggest economies in the world who was if it was on its own.
Country.
As always going to have challenges that that just like New York City has challenges, but people love to live in New York City, and and I think they love, California, and the California will continue to struggle with its with its issues, but but I think that longer term long term.
He is a good market and.
And I don't think that what out when we start talking about our portfolio and you think about our sunbelt mix, California, right now is dragging or our performance down and and had we had we not have California. Then we would definitely have better same store numbers and better everything better collect.
Conns and and all that.
So, but but ultimately when you think will the way I think about our portfolios are geographically diverse and product mix diverse portfolio and over a long period of time.
The volatility balances out and we lower volatility.
Prior to the pandemic Southern California was one of our better markets, we're growing three and ample 4% in there which was good and it was offsetting our slower growth in Houston So.
To me.
I know that there's a lot of people piling on to California, New York in Seattle, and some of these other markets.
They're they're not going away there will be good long term markets and hopefully the make maybe the hopefully the pandemic moves through fast and we'll get back to good growth. They will continue to have the pressure you know from government trying to cap rents through rent control and.
Other issues, but.
Generally speaking, even if you put a rent control all in a generally.
Is better for the incumbents and and harder to build means that you don't have competition and so the offset to the maybe the tough government announced migration is you're not going over build those markets very often and the they'll suitably good.
Alright, thanks for the comments HM.
Our next question is from John Kim from B.M. <unk> capital markets go ahead.
Good morning, you guys are two pocket I for one hour call.
Had a couple of questions on guidance, you mentioned are lower occupancy, which it's clear on the year over year basis.
But I was wondering how you see a trending during the quarter because they already had a 30 basis 30 basis point sequential increase in July.
And the second part is on your same store expense guidance the corn at percent how much of that was already contemplated when you provided your original guidance of 3% for the year I know that Congress has been pulled but just wanted to see how much of that was new versus already done.
Yeah, I mean, so if you think about it our second quarter 20 guidance excuse me second quarter 20 occupancy was 95 to and for July. It is 95, three I told you that it was a 95 five this morning. So obviously, we're getting some uptick but effectively in our guidance we are assuming.
The occupancy is flat in the third quarter as compared to the second quarter.
When you look at expenses almost all of that was known.
Really the largest driver that we typically have in expenses as a timing.
Property tax refunds and it's just the way the timing works that that the third quarter was going to have a higher sequential property tax number and in fact, if you looked at it on a third quarter 20, the third quarter 19 as I'd. So as I've mentioned in my prepared remarks, you also had the same impact where we got some very.
Favorable refunds in Atlanta, and in Houston in third quarter of 19, So that's really the driver the drug the drivers are.
By and large property tax driven.
Okay. That's helpful and you guys talked about some of your changes and potential long term strategy, but.
I had a question on shortage from strategy again, it seems like a lot of people up here in the northeast are contemplating becoming snowbirds this winter.
I'm wondering if you anticipate that happening if you see potentially higher demand and if you are willing to potentially provide some shorter term leases to meet that demand.
Well, we definitely will provide short term leases to to up to meet that demand data at a premium rate for sure.
And that we're open to all comers when it if that happens and and we're ready even though our occupancy levels are really high right now we still have room, new those occupancy levels up.
Great. Thank you.
Our next question in some spot silver Buck from Mizuho glad.
Hey, Thanks for taking my question. My first one is just some of your peers sort of spoke about migration of college students from city to city. Just curious if you guys see any potential headwinds as universities are more reluctant to open international students hasn't been to travel and are there any sort of markets that are.
Disproportionally impacted by this trend.
Yeah, we haven't seen any impact of that nature I think there's still so much conversation around who's going to open and how and when that until we we probably get into actually the month of September to see.
We're all of that shook out at the college level, we're just not going to no. We don't really have you know Austin would be.
Probably a market, where it's always been been a big.
You know University town, but within the context of how long how much Austin has grown over the years, that's become less and less important but.
Outside of that.
I think you just remains to be seen on.
How many of the students actually they're going to get called back to the University to its going in person experience and you know around the margins I guess, it could matter, but not our portfolio doesn't tend to have a lot of student participation.
Just anecdotally are one of our board members as the Chancellor and the and the President of the University Houston. Her name is renewed couture and renew a in our left on our board meeting and went on Wednesday told us that their enrollment is actually up at University of Houston and that and.
That I'm the only.
The only.
Part of the equation that they are having trouble with his international students because of travel issues.
But she was surprised that that a their enrollment was actually up and they're going to do a combination of in person and and.
Virtual.
But but I was I think that people are continuing to enroll in college at pretty record numbers. So.
Got it so that's helpful and just a follow on here I understand that a few transactions on the market close lately, most for likely done or negotiate a pre coated but curious if you're seeing anything in the shadow market and what buyers maybe underwriting right now and what I ours theres sort of targeting.
So there have been some transactions done some were definitely under contract and heard and this money that that that closed.
Free kind of co that time frames, but there are there have been a few transactions that have happened in this environment.
And as I said before the cap rate cap rates have compressed.
As you know we're hearing numbers like that.
The cap rates are in the threes in Dallas, and and Houston, and and I think that underwriter that people are sort of.
Most investors are.
Have a wait and see attitude.
In terms of of what what they think underwritings going to be like when you think about the tenure treasury being where it is today and sort of interest rates lower for longer even more now than it than before the pandemic.
I would think that that underwriting I ours have to come down some and.
I think thats, probably going to happen.
Got you I appreciate all the color guys.
Our next question is some Alex Calmat's, some zelman and associates go ahead.
Hi, Thank you for taking my question I'm looking to southeast Florida performance.
Outside of expected pressure and all I.
It didn't pull like the rest of your portfolio on some key metrics, but just curious if you give us some more color on what causes challenging we can involvement there.
Yes. So so there's two challenges in southeast, Florida, right now on and one is just traffic in general.
It's there's less of a less of a propensity for people to want to engage in a virtual scenario in the in southeast, Florida. So we just have we have a little bit less traffic there than what we would normally expect this time of year. The second part is a is is on the operation side just color.
Actions, we are called southeast, Florida for for the second quarter of 20, our collections were 94% and that would make it the second.
Most challenged market behind.
La Orange County, so those are the those dual challenges or or.
Definitely something that we're dealing with and south southeast Florida.
Got it thank you.
I'm curious about the non Churkin April properties, how is the leasing dynamic there and.
Are you guys approaching both those just typical.
In person showings or or are you still using virtual to your advantage. Thank you.
Yeah, we're still using virtual but it's really if you think about it it's a little bit old school and involves the lock box.
With a key where you can pick up the key and you can pick up the Bob and then you'd have a map.
It is certainly as an effective way of doing it but.
But clearly nowhere near as effective as using and a an application that has a definitive start and a definitive and that can also open not just the access gates, but the door units and I think I think thats the big.
The big benefit that we're getting from sharp from the communities that have sharp rolled out.
Sounds good thank you.
<unk>.
This concludes that question and answer.
I would now like to turn the conference back over to compensate for closing remarks. Thank you. We have we appreciate you a part of span the conference today, and we will look forward to speaking to you and future. So thanks, a lot and take care have great rest of this summer.
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