Q4 2020 Camden Property Trust Earnings Call
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Good day and welcome to the Camden Property Trust fourth quarter, 2000, and 'twenty earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by person and the store key followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then one. Please note. This event is being recorded and now I'd like to turn the conference over to Kim Callahan Senior Vice President Investor Relations. Please go ahead.
Good morning, and thank you for joining camden's fourth quarter, 'twenty and 'twenty 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 to differ.
Materially from expectations further information about these risks can be found in our filings with the SEC and we encourage you to review them any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events as a reminder, camden's complete fourth.
'twenty and 'twenty earnings release is available and the investors section of our website at Camden living Dot Com and it includes reconciliations to non-GAAP financial measures, which will be discussed on the call.
Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and Alex Jessop, Chief Financial Officer.
We will attempt to complete our call within one hour seriously as we know that another multifamily company is holding their call right. After us 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 on the queue today, we'd be happy to respond to additional questions by phone or email.
After the call concludes at this time I'll turn the call over to Ric Campo.
Thanks, Kim and on good.
Morning, and thank you for joining our call today.
And the same for on hold music. This morning was change.
The Covid pandemic has brought with it sweeping changes and the lives of every American, including how they work where they work and whether they can even work.
Every business has had to change and adapt to this unprecedented pandemic and <unk>.
Thinking about the scope of these changes are recall that quote from Jack Welch and I heard years ago, which is change before you have to.
And with only five words, Jack perfectly captured what has separated many companies' abilities to successfully navigate through the past year.
Throughout our history, we have grown and maintained our cold and.
Culture that encourages and rewards efforts by team Camden to change before we have two.
Examples include migrating to cloud based financial systems over 18 months ago, making work from home and seamless for most of our employees, creating a technology package for Camden communities that provides discounted high speed internet, creating a more robust work from home experience for our residents implementing a <unk>.
Resident package delivery program requires packages to be delivered directly to each resident front door, creating the same flexibility and convenience enjoyed by most single family homeowners and developing chirp and mobile access solution, which we sold our real page last fall when fully rolled out in 2021.
And this product will enhance our on demand virtual leasing and self guided tours, well and abeline unassisted tours and leasing outside of our normal office hours residence will also be able to schedule package and grocery delivery directly to their apartments, when they're away from home.
We will continue to find ways to change before we have to and everything we do for the past year, we have utilized virtual meeting platforms like zoom and Microsoft Microsoft teams from Investor and analysts meetings and <unk>.
Industry conferences and.
Journal and internal Camden meetings, beginning next quarter, we hope to offer our quarterly earnings calls on a more interactive virtual platform as well so stay tuned.
As we start 2021, our outlook is optimistic our assumptions are based on the first half of the year enduring a continued battle against the Covid virus with with ongoing difficulties for many businesses and workers until the country's vaccination rates accelerate.
And we hope that the second half of the year will show improvement as more businesses reopened and more people ultimately get back to work.
Fortunately many of our sunbelt markets and which we operate have already reopened businesses and added back many of the jobs that were lost early in the pandemic setting the stage for recovery and the second half of 2021 and beyond I want to thank team Camden for a great 2020, while the operating environment. We face was one of the toughest ever.
You had made sure that we improve the lives of our teammates customers and stakeholders one experience at a time well done and thank you Keith and your chance for change.
Yeah, Thanks, Rick and on the idea of change before you have to I think Henry Ford was onto something when he said if I had asked my customers what they wanted they would've said faster horses, so consistent with prior years I'm going to use my time today on today's call to review the market conditions that we expect to encounter in Camden's markets.
During 2021.
I'll address the markets and the order of best to worst by assigning a letter grade to each one and as well as our view on whether we believe that market is likely to be improving stable or declining and the year ahead. Following the market overview I'll provide additional details on our fourth quarter operations and 2021 same property guidance.
We anticipate overall same property revenue growth this year and the range of of down 25 basis points to up one and three quarter percent for our portfolio with the majority of our markets falling within that range. The outliers on the positive side would be Phoenix, San Diego inland Empire, and Tampa, which should produce revenue growth and the 300.
And to 4% range at the low end of that range would be Houston, which is like lyft will likely remain and the down 2% range.
Expected same property revenue growth for 2021 is his points 75 basis points at the midpoint of our guidance range and all markets received a grade of C or higher with an average rating of B for the overall portfolio.
Look for supply and demand in 'twenty and 'twenty. One is based on multiple third party economic forecasts and in general most firms projected recovery and job growth in camden's markets, along with a steady amount of new supply. We typically mentioned and estimates provided by Whitney advisers on this call and they anticipate over 1 million new jobs for our 14 major markets in 2021.
Non along with roughly 150000, new completions and other economists are projected up to $1 9 million jobs and 175000 completions. So the outlook seems to be manageable, regardless of which estimates prove to be correct for 'twenty and 'twenty one our top ranking once again goes to Phoenix with an average of 5% revenue growth over the past.
Three years and expected revenue growth of 3% to 4%. This year, we'd give this market and a rating with a stable outlook supply and demand metrics for 2020 on look strong and Phoenix with estimates calling for over 90000, new jobs and roughly 9000, new units coming online this year and extra San Diego inland Empire and Tampa.
Both earning a minus ratings and improving outlooks with 2021 revenue growth also projected and a 3% to 4% range and both markets produced 1% to 2% revenue growth last year, but are budgeted to accelerate in 2021, given recent trends.
Similar to Phoenix, San Diego Inland Empire market project, nearly 100000, new jobs in 'twenty and 'twenty, one with new supply of only around 7000 apartments, Tampa should deliver around 7000, new units with a with roughly 50000, new jobs being created providing a good balance of supply and demand and both of those markets.
Atlanta, and route and Raleigh round out our top five with budgeted revenue growth of around 2% for 'twenty and 'twenty, one and ratings of AA minus and stable and Atlanta and job growth is expected to rebound to over 100000 with only 7000, new apartment completions and Raleigh projections call for 40000 additional jobs with.
<unk> and the four to 5000 unit range.
Denver D C Metro and Austin, all received a b plus rating, but with but with declining outlooks. All of these markets have been strong performers for us over the past several years, averaging nearly 3% annual property revenue growth over the last three years and 2% last year, but we do expect market conditions to moderate over the course of 2021.
And steady levels of new supply and increasing competition for new renters supply demand ratios and Denver and D. C remained steady with 65090 thousand new jobs anticipated respectively. During 2021 with new supply coming in at roughly 8012 thousand new units, respectively scheduled for delivery this year.
And also the new supply has been on bid coming on line steadily for several years with over 15000, new units expected this year offset by a roughly 60000 new jobs.
And southeast, Florida market conditions, right, a b and improving outlook after rate ranking at a b minus C plus for the past two years, we're starting to see some improvement on the horizon and prospects for positive growth and 2021, new supply has remained steady over the past few years at roughly 10000, new units, but 20000.
2021 estimates call for 70000, new jobs and that market. This year competition from for sale and rental condominiums is still an issue and that market, but we expect slightly better operating conditions and 2021 and an improvement from from the down four tenths of a percent same property revenue growth achieved last year.
Our Orlando arms, a and B rating with a stable outlook.
Job growth has moderated and Orlando given their exposure to travel and hospitality industries and that trend should continue in 2021, new development activity remains strong so the level of supply should be steady this year with roughly eight to 10000 completions.
With versus $25 to 30000, new jobs, Charlotte and Dallas, both received B minus grade with a stable outlook, our 2020 performance and Charlotte was slightly better than average for our portfolio, but the ongoing high levels of supply, particularly in the downtown and in town and Submarkets will challenge our pricing power in 2021.
7500, new units are anticipated this year versus roughly 8000 and that came online last year and the city should add over 50000, new jobs conditions and Dallas are similar with 17000, new deliveries expected. This year, but job growth estimates are are much stronger with over 110000 new jobs.
<unk>.
A healthy economy, and 2021 should help Dallas absorbed the over 20000 units delivered and each of the past few years, but once again competition will be strong and pricing power and likely to be limited, we gave a L. A orange county, and <unk> plus rating with an improving outlook, our portfolio and L. A county saw higher delinquencies and bad debt and 2020 than most.
Our other markets, but we're hopeful that conditions will begin to improve particularly on the.
Back half of 2021, Orange County should perform slightly better, but it's still not as well as our southern California markets, including San Diego and inland Empire L. A.
Orange County faces healthy operating conditions with balance supply and demand metrics job growth should be around 130000, new jobs with completions of roughly 18000 apartments expected. This.
This year Houston received a C rating this year with a stable outlook as we expect to see negative rent growth again. This year estimates for new supply are once again over 20000 apartments coming online. This year. So we do expect Houston will continue to struggle with many new lease ups and getting high levels of concessions. However, Houston's job growth may post deal.
A decent recovery this year with nearly 100000, new jobs expected, which would certainly help absorb some of the inventory and our market.
Overall, our portfolio rating. This year is a b with most of our markets expected to moderate slightly and revenue growth for 2021 compared to 2020 as I mentioned earlier all of our markets should achieve between a minus 2% and a plus 4% revenue growth. This year and we expect our 2021 total portfolio.
Same property revenue growth to be three quarters of a percent at the midpoint of our guidance range now.
Now a few details of our 2020 operating results same property revenue growth was 110th of a percent for the fourth quarter and one 1% for the full year of <unk>.
2020, our top performers for the quarter were Phoenix at five 7% Tampa at two 9% Raleigh at 1.5, and Atlanta at one 3% growth rental rate trends for the fourth quarter were as expected with both signed and effective leases down around 4% renewals and the high to mid to high 2% range.
For a blended rate of roughly down 1% our preliminary January results indicate a slight improvement across the board for new leases renewals and blended growth.
February and March renewal offers offerings are being sent out on an average of roughly 3% increase occupancy averaged $95 five during the fourth quarter compared to $95 six last quarter and 96, 2% on the fourth quarter of 2019 January 2021 occupancy has averaged 95, 7% compared.
And 96, 2% last January and is slightly up from four <unk> 'twenty levels annual net turnover for 2020 was 200 basis points lower than 2019 at 41 versus <unk>, 43% and as expected move outs to purchase homes rose seasonally for the quarter to about 19%.
Scent, but we're still at about 15% for the full year of 2020, which compares to an average full year move out rate of about 15% over the last four years at this point I'll turn the call over to Alex just at Camden, <unk>, Chief Financial Officer, Thanks, Keith and before I move on to our financial results and guidance.
Brief update on our recent real estate activities.
During the fourth quarter of 2020, we completed construction on both Camden, Rhino and a 233 unit $79 million, New development, and Denver, and Camden Cypress Creek, II, a 234 unit $32 million joint venture New development and Houston.
Also during the quarter, we began leasing at Camden, North and phase two a 343 unit $90 million, New development and Phoenix, and we acquired four acres of land and downtown Durham, North Carolina for the future development of approximately 354 apartment homes.
And the quarter, we collected 98, 6% of our scheduled rents with only one 4% delinquent. Once again. This compares favorably to the fourth quarter of 2019, when we collected 97, 9% of our scheduled rent with and actually higher to 1%.
And see.
We do typically see a slight seasonal uptick and delinquency.
Turning to bad debt in accordance with GAAP certain uncollected rent is recognized by us as income and the current month.
We then evaluate this uncollected rent and establish what we believe to be and appropriate bad debt reserve, which serves as a corresponding offset to property revenues and the same period.
When a resident moves out O&M money, we typically have previously reserved 100% of the amounts owed as bad debt and there will be no future impact to the income statement.
And we reevaluate our bad debt reserves monthly for Collectability.
Last night, we reported funds from operations for the fourth quarter of 2020 of $122 4 million or $1 21 per share.
<unk> below the midpoint of our prior guidance range and $1 21 to $1 27.
This <unk> <unk> per share variance to the midpoint resulted entirely from an approximate three and a half cent or three and a half million dollars noncash adjustment to retail straight line rent receivables during the fourth quarter.
This adjustment represents retail revenue, which under straight line accounting, we had previously recognized but not yet received and whose ultimate collectability is now uncertain.
Over 95% of this amount is from one retail tenants, we had been and negotiations with since the summer.
As of fourth quarter progressed, it became apparent that significant lease restructuring might be necessary and we made the appropriate accounting adjustments.
Same store net operating income was in line with expectations for the fourth quarter as a slight outperformance and occupancy was offset by the timing of repair and maintenance expenses higher property tax rates and Houston.
And the timing of certain property tax refunds and Washington D C.
For 2020, we delivered full year same store revenue growth of one 1% expense growth of three 8% and and NOI decline of 4%.
The midpoint of our 'twenty 'twenty, one and <unk> and same store guidance is predicated upon a return to a more normal operating environment by mid 2021.
You can refer to page 28 of our fourth quarter supplemental package for details on the key assumptions driving our financial outlook.
We expect our 2021 <unk> per diluted share to be and the range of $4 80.
To $5 20.
And with a midpoint of $5, representing a 10 cent per share increase from our 'twenty and 'twenty results.
After adjusting for the fourth quarter 2023, and a half cent right off of retail straight line rent receivables and then 2020 full year 15 to COVID-19 related impact, which included approximately nine and half cents of resident relief funds and <unk>.
<unk>, a frontline bonuses and two cents of other directly related COVID-19 expenses, the midpoint of our 2021 guidance represents an eight cent per share core year over year, <unk> decrease which results primarily from an approximate eight <unk> per share decrease and the <unk>.
Due to higher net interest expense, which results primarily from the full year impact of our April 2020, bond offering and actual and projected 2000, and 'twenty and 'twenty 'twenty, one net acquisition and development activity.
And approximate <unk> <unk> per share decrease and <unk>, resulting primarily from the combination of higher general and administrative property management and fee and asset management expenses combined with lower interest income, resulting from lower cash balances and rates.
And approximate five and half cent per share decrease and <unk> related to the performance of our same store portfolio.
At the midpoint, we are expecting a same store net operating income decline of eight 5% driven by revenue growth of seven 5% and expense growth of three and 5%.
Each 1% change and same store NOI is approximately <unk> <unk> per share and <unk>.
And approximate <unk> <unk> per share decrease in <unk> from and assumed $450 million of pro forma dispositions towards the end of 'twenty 'twenty one.
And approximate <unk> <unk> per share decrease and <unk> from our retail portfolio.
And approximate one and a half cent decrease and <unk> due to the non recurrence of our third quarter 2020 gain on sale of our chirp technology investment and.
And and approximate <unk> <unk> per share decrease and <unk> from lower fee and asset management income.
This 28 cumulative decrease and and anticipated <unk> per share is partially offset by an approximate <unk> <unk> per share net increase and <unk> related to operating income from our non same store properties, resulting primarily from the incremental contribution of our six developers.
And communities and lease up during either 'twenty and 'twenty <unk> 2021.
And finally, and approximate nine cent per share increase and <unk> due to and assumed $450 million of pro forma acquisitions mid year.
Our 3.5% budgeted expense growth at the midpoint assumes insurance expense will increase by approximately 30% due to the continued unfavorable insurance market.
Property insurance comprises approximately 40 excuse me, 4% of our total operating expenses.
The remainder of our property level expense categories are anticipated to grow at approximately two 5% in the aggregate.
Page 28 of our supplemental package also details other assumptions, including the plan for $120 million to $320 million of on balance sheet development starts spread throughout the year.
We expect <unk> per share for the first quarter of 2021 to be within the range of $1 20 to $1 26. After excluding the three and a half cents per share fourth quarter 2020, right off of retail straight line receivables. The mid point of $1 23 for the first quarter reps.
Resents, a one and a half cent per share decrease from the fourth quarter of 2020.
Which is primarily the result of a combination of lower fee and asset management income and higher overhead expenses attributable in part to the timing of our annual salary increases.
We anticipate sequential quarterly same store NOI growth will be flat as the reset of our annual property tax accrual on January the first of each year and the typical seasonal trends of other expenses, including the timing of onsite salary increases will be offset by anticipated property tax refunds and wash.
And in D C and Atlanta.
As of today, we have just over $1 $2 billion of liquidity comprised of approximately $320 million and cash and cash equivalents and no amounts outstanding on our $900 million unsecured credit facility.
At quarter, and we had $325 million left to spend over the next three 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 as I have discussed on prior calls in 2019, and 2020, we set and play important technological advancement.
2021 will be the transition there that will lead to realize efficiencies in 2022 2023 and beyond.
From cloud based financial systems to virtual leasing to mobile access.
And two AI technologies that allow us to meet residents on their schedule and we are poised very well for the recovery.
At this time, we will open the call up to questions.
And we will now begin the question and answer session.
Ask your question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
And our first question today will come from Oscar Beck with Bank of America. Please go ahead.
Hi, everyone and thank you for taking my questions. Today. So I just wanted to start off quickly talking about your guidance for acquisitions and dispositions for this year.
So I was just wondering what are the chance and that you are actually able to get to that acquisition amount and kind of what markets are you guys looking at and.
There's a lot of activity on <unk>, and I guess on little bit more about pricing.
Sure. So the acquisition and disposition program is balanced right. So we have a midpoint of $450 million of acquisitions and and $450 million of dispositions, we feel pretty confident we'll be able to execute on those transactions of the private market is very buoyant in spite of.
New protocol for how you underwrite properties today, given the Covid environment.
But the where were the strategy. This year is going to be very similar to what we did did in the last cycle. As you think about the last cycle, we disposed of roughly $3 billion from properties that were average age of over 20 years and we acquired properties that were on average at the time five or six years.
Old.
And the thing that was really interesting about that that those transactions is that the negative spread on old properties versus new properties was like 21 basis points in terms of <unk> and so we think the same thing is going on is going on right now will be able to sell older non core properties with higher capex.
And and then by newer properties with lower Capex and better growth growth growth scenarios.
We will be we will be buying and markets where underwriting. So if you look at at some of the markets that that we have and underweight in and it would be Tampa, Raleigh, potentially Dallas as well of Denver.
The dispositions will come from our more concentrated markets.
And those would be it would be Washington, D C and Houston.
Got it great. Thank you and then just a quick question on collections or Fork, you spoke what where collections like and L. A and Orange County, this past quarter and then just any other markets that we're at the top range from a collection.
Sure, So obviously la County, and California in General had a.
And it had higher silver and amounts of delinquency, but if you look and the fourth quarter.
So.
Orange County was seven 2% delinquent San Diego was five 4% delinquent that got us to a six 4% delinquency for California on.
On the other side of that equation Houston was <unk>, 4% delinquent Denver at 5% delinquent Orlando 0.6, Phoenix five and.
And Tampa <unk> for you.
And I would just add to that that California is just a classic example of people can pay just won't.
And it's not a function of of of the California markets were more negatively impacted it's just a function of.
The government both the.
State and.
Local governments have just kind of put this put and the brains of of folks that they just don't have to pay and <unk> and all the.
Various.
And legislation and moratoriums and what have you just have a have a group of people that look at it like getting a free loan from Camden and ultimately they will have to pay for their credit will be destroyed and that'll be interesting to see how that all plays out and how the government response to that going forward.
Got it thank you.
And our next question will come from Neil Malkin with capital one. Please go ahead.
Hey, everyone. Good morning.
Yeah first question.
And.
Can you just talk about.
What you've seen or the sort of progression or change kind of the.
Soft here.
Your music.
With regard to in migration from coastal markets.
MAA talked about sort of the Hyatt I think and history on new leases from people out of state.
And just curious what kind of.
Uh huh.
What kind of action Youre seeing there.
That'd be great. Thanks.
Yeah, absolutely. So as you know migratory patterns and have long since favor the sunbelt and we're certainly seeing an acceleration of that trend and this current environment. There are a couple of things that we look at so for instance, our market score very well when we look at one way you haul data, which is certainly an indicator of which markets.
We're attracting and retaining and retaining residents and fax six out of the top 10 states for one way you haul traffic or where we operate while traditional maybe you should call them outflow States like New York, New Jersey, and Massachusetts are ranked and towards the bottom so along those lines, although most of our new residents and.
In fact to move within the Sunbelt markets, New York is actually our number one non sunbelt provider of new Camden residents.
And then finally, when we look at Google search patterns. There is a clear uptick in New York residents looking to move south into certain of our markets. For instance from February of 2020 through December of 2020, there was an approximate 60% uptick in New York residents searching for Atlanta apartments.
And the search volume of New York residents looking from Miami apartments, almost doubled over that same period. So we certainly are seeing some very favorable trends.
Now keep in mind as I said and very beginning this these migratory patterns or the direct funnel out of the East Coast West Coast, and Middle America and to the Sunbelt has been going on for quite some time, but it certainly does look weighted it is accelerating even more currently and if you look at it.
Announcements for example of moods of major companies not only as Austin picking up a ton, including a $10 billion of Samsung chip plant that that just got announced recently, but 85% of all the office space and Austin is being leased by the fangs, which is pretty amazing.
And when you think about that so there's a.
Especially when you start thinking about west coast migration to Austin.
And even Houston got a big number as well.
Hewlett Packard enterprises, they're there.
Their software and and Enterprise group.
Group, just moved and and also moved to Houston as well so.
But like Alex says, it's been it's been going on for a long time, but it's definitely accelerating now.
Yeah, it's weird and I thought the tech guys, only live and California getting on anymore.
Not anymore, one yeah, right lots and one.
And going back to the first day of line of questioning.
It's surprising that acquisitions are you know in your guidance just given the sort of sub four cap environment I know that last cycle your balance sheet wasn't as good a position as you wanted you to be aggressive.
And I guess is that kind of going into the calculus of.
Why are you being I guess aggressive here and.
I guess could you talk about just went up on both standpoint, what kind of.
EBITDA yields do you think youre going to be selling not not EBITDA yields and then versus what you think you can buy it.
Well, we think that and as I've said before the negative spread on the on the last cycle was 21 basis points on on just what we look we just look at real cash flow that I'm trading from one property to another challenge with <unk> and even <unk>.
<unk> is a better way to look at it but generally speaking the the probably the widest spread and we had and the last cycle was 60 to 70 basis points and even though our.
Our budgets are conservative and the and that Theyre, showing probably the higher end of that negative spread.
But but ultimately what what what I think is happening out there is that is that when we start selling older properties are the biggest bid in the and the market today is for value add and for older properties and so as opposed to newer development.
Recently leased up and so we think that that the spread is going to be similar in terms of negative spread.
But the bottom line is if you look at what we did last time, we had $3 billion of dispositions 2 billion of acquisitions, and then and then over $1 billion of development and when you met when you sort of bring the development alongside.
The disposition and acquisition program, you end up with a positive <unk>.
<unk> contribution and <unk> contribution and in spite of the negative spread so it's sort of on the way I kind of look at the at the acquisition disposition market today is.
Pricing is definitely very very robust theres, a huge private private capital bid and as long as we're taking advantage of that that huge bid on our older properties and then we're fine being a top bidder on the newer properties as well, so it's sort of like youre selling and selling.
Low cap rate and older properties and buy and low cap rate higher properties are.
Newer properties and that's exactly what we did and the last cycle and to the extent, we can keep that spread pretty narrow on the negative spread between the cash flow that we are selling versus we're buying.
We're going to we're going to do as much of that as we can to improve the quality of our portfolio of long term and.
And keep in mind, there is a timing differential and our model. So once again, we're assuming the acquisitions will be mid year with the dispositions towards the latter part of the year.
Thank you guys.
Hmm.
And our next question will come from Derek Johnston with Deutsche Bank. Please go ahead.
Hi, everyone. Good morning.
And they're looking for a little more granular update on private markets and how has your team seeing elevated levels of distressed asset deals we were surprised not to see any opportunistic asset acquisitions and <unk> outside of the land parcel. So so I guess the question is this environment one way.
These potential opportunistic deals are still too risky and total labor market stabilizes or do you believe private markets still need to adjust lower.
Well when you look at that at the public markets cap rates relative to private market cap rates. There is a massive disconnect and I guess, if you believe that that the private markets are right and the public markets are wrong, then and then there'll be an adjustment and the private market right, but when you look at whats.
And on and the private markets with the with the tenure at 1% with a with a reasonable spread when you think about negative fundamentally negative interest rates and the ability for people to finance.
And what what is going to be a growing cash flow going forward and even if you're if you're worried about inflation. You know this is a great asset class to own and so I think at the end of the day. There are no distressed assets out there and you know when you talk about distress. For example, we did pick up a development we.
Knew there was going to be shovel ready developments and we can pick up and we did one of those the Durham project is a good example of that and we have some some decent land purchases and we've been able to do but as far as distressed multifamily assets and America. They don't exist.
If you think about the last cycle.
And most of the merchant builders most of the of anybody who's buying properties from the private side or I have ton of equity and their and their capital stacks and so there's not a lot of high leverage.
The complicated structural deals out there that you can get maybe now and then but but nothing of any significance.
Okay. Thank you that's very helpful.
Switching gears, so how impactful has the new administration's energy policy, so you've been on market fundamentals and Houston, which historically is well absorbed excess supply and that's especially if you're best in class Houston portfolio and given the migration trends you highlighted.
Our current energy policies, creating a possibly more longer term headwind and the Houston market.
Which is especially surprising and get crude given that crude is and the high fifties right now.
Yeah.
Yeah, So I spend a fair amount of time with my energy friends debating this issue and most of them believe that the bite and administration and short term short term.
And.
Executive orders and view is going to drive energy prices up not down and improve their businesses sooner rather than later and part of it as and when you think about the like the ban on new leases for drilling and.
Texas for example, I think our we have less and 10% of the entire drilling.
Community is on federal land you go to new Mexico, It's a different animal. So what people think is going to are going to happen is and new Mexico.
50%, I believe or maybe even higher and that and so and the shale goes into new Mexico from the Permian basin. So what what people are thinking and Texas is that is that people are going to abandon and federal land and new Mexico and move over to Texas and so.
The bite and when you think about bite and administration and its climate change issues.
It's definitely going to have a positive effect on the price of oil, which will have a positive effect on Houston recovery. The other thing I think that as that is happening is that the energy transition. The idea that these energy companies are are they.
And they know they have to transition to to clean energy at some point and we also know that you're not going to get rid of fossil fuels for the next 20 years, because there's just no way you can flip a switch and get electrification of the entire highway system and all of that that's going to take that.
Cadence to get done or maybe a decade or two and so biden and administration actually as a positive not a headwind for the core of Houston and energy recovery and my view.
Thank you.
And our next question will come from Nick <unk> with Scotiabank. Please go ahead.
Hi, Good morning, this is sumit here and for Nick and.
And Oh I'll keep a question does this one because we're running up against the iron and I want it and everyone asked questions before and ethics.
So.
And really I mean, if you could walk us through what drove the sequential decline in rents and occupancy Q over Q.
Particularly in Houston and D. C. I mean trying to understand whether the competition is offering more concessions and you do.
Or is there something more seasonal about the decline and it doesn't seem to be reflected when you compare to last year. So inquisitive about that and then when we think about the dispositions that are focused on Houston or do you see at least.
And you mentioned a couple of questions laid out earlier and at the start of the call is that improvement contemplated in your on excess rent growth range and.
For the year.
Okay.
So technically that's two questions.
And so so on on the decline.
<unk> declined sequentially and in Houston.
There.
We had 20000 apartments delivered last year, where and the process of delivering another 20000 apartments this year and that's in and into and already pretty weak environment, given what's going on and and.
And even though I think Rick is right and I agree with the fact that the incrementally what's going on right now is probably going to be a positive for Houston. The damage was already done and the last two years with the decline and the rig count from almost 900 rigs working to about 200, working so the job losses that were associated with.
That falloff have already kind of work their way through the system, but the bottom line is is that 40000 apartments being delivered and Houston.
And at a normal any kind of a normal absorption rate would require 200000 jobs to be able to do.
And to take up that slack and it's just you know obviously it hasnt happened and now it looks like it looks like on our data providers. They are expecting a much better result, this year and maybe as much as 100000 jobs, which would be which would be great and that would take up to 20000 apartments that are being delivered this year, but we still have.
And stuff, that's kind of working its way through the system from the completions in 2020 that that we've got to work through so I think it's just as simple as that but we have a you've got way too much supply.
It's a it's hand to hand to hand combat on on the stuff, that's either downtown or inside close and assets, which makes up a decent.
Decent part of Camden's portfolios, there's just a lot of a lot of competition and we got to work through and.
And the only other thing I'd add to that is although typically we do see a sequential decrease from the third and fourth quarter 2019 was unusual because we actually had higher occupancy than typical but a lot of this is also seasonality what was the second part of your question.
I guess.
And you mentioned that your dispositions would be focused on Houston and D. C. Its and related so it's not a second question I'm just saying.
Is that is there any improvement in and your assets.
Statistics contemplated in your range.
Perhaps the the more optimistic side from the dispositions are no.
Yes, yes. So we are we believe.
And believe that both D C and Houston, we better and the second half of the year and that's why we're going to be selling and the second half and not on the first half and it.
It's clearly.
Our strategy is based on that thought and.
And then if you look at what's actually in our model, we're assuming 150 basis point and negative spread and we absolutely anticipate that we're going to be able to do better than that right.
Okay great.
Thank you.
Hmm.
And our next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Good morning, good morning down there.
Hey, so the first question is.
And just going on.
On the on the capital.
And I'm not going to use the word capital allocations and standard overused, but.
Do you guys underwrite new deals and developments just speaking to every private guide next to industrial Sunbelt apartments from like the hottest asset class and.
And you know unfortunately construction costs seem to be on abated, so labor and materials all of that funds stops just seem to me to go up so as you guys think about trying to invest and.
And where people are paying recaps or developed where lumber is through the roof comp.
A constant part of your prior.
On investment attempts have been like just inability to find deals that pencil. So do you anticipate anything changing this time, whereas previously where you had commented that like southern Cal was a discount to the sunbelt. Hence why you were hesitant to sell southern Cal is that now changing where maybe you know there is a positive.
Barb there to sell southern Cal and maybe that's one of the booths that will help you make some of the numbers work just trying to think about how you're viewing the investment world because it definitely seems to just get harder and harder.
Well I think you're exactly right it gets harder and harder, but I don't think there is a.
A.
On our between southern California, and any other market I think there is still a very robust bid for southern California in terms of pricing.
So there's not I can't sell a southern California for a higher.
Cap rate and then by and by somewhere else.
It's more you know from.
From our perspective it is hard.
And our people have done a really great job, our development team and manufacturing transactions to work, but again, it's you know a 150 million to $300 million and starts it and that's pretty much all we have been able to figure out at this point in terms of the when we start talking about the the buy and the sell that's a whole lot easier because and as.
Long as we're selling and what we think is.
Really good cap rates, we can always buy and you just have to be the highest bidder right.
So Rick if youre, saying the southern Cal as a good bad and does that mean, you finally start to put in there and recycle out of the drudgery of dealing with southern Cal.
So we're and the best parts of California.
You know maybe ex.
L a but but.
And when you look at at our recovery scenario I think those markets are going to do pretty pretty darn well. So when we start thinking about longer term, what we how we want to sort of position ourselves from a from a geographic diversification and I'm still good with California recovering and the next two or three years.
<unk> and of longer term.
Do you want to put up with the with the the people, who and who don't think they have to pay their rent and the government issues. That's a longer debate, but you know every time, we went on when I'm looking at future cash flow growth I think southern California, especially where we are is gonna be.
And it's going to recover and do really well.
And then.
The dispositions are going on.
<unk> mentioned earlier, we're looking for the dispositions to come from Houston, and Washington D C and that's based on.
Our dear and every one of our markets, including Houston.
But we're overweight and both of those markets. So it's at the margin that's where the dispositions are going to come from them.
Okay and that's that.
The second question is.
Alex and your comments you mentioned that the guidance is predicated on sort of a return to normalcy by mid year and sort of looking at the economic data and the Sunbelt you guys have a much better situation to start from the us and the coast. So how much change are you really expecting I mean, I assume that you know Atlanta Houston.
And are not like San Francisco, and New York.
Everyone's still at home. So can you just give us a sense of relative weakness what you mean by returned to normal versus what we're experiencing here on the coast.
Yeah, absolutely and and a lot of it and circles around bad debt and and so our belief is that bad debt will start to occur.
Curtail and this in the latter part of 2021 to be more in line with what we see and a typical year and.
And sort of using 2019 as our guide so so that's one item and and the second item is our ability to really sort of push new leases.
If you think about it renewals we've started pushing those again, but we have not been pushing new leases and our book and our hope is and what's in our models is that we're gonna be able to start really sort of pushing there and the latter part of the year, obviously not to not to a huge numbers, but that's that's the perspective.
Okay. Thank you.
Mhm.
Yeah.
And our next question will come from Austin <unk> with Keybanc. Please go ahead.
Yeah. Thanks, guys, just a little more on the investment side and I'm curious if the assets in Houston and D. C that you're targeting to sale is it more of an age focus or are you considering selling any more of your infill assets that may be exposed to new supply.
What's sort of the thinking around the product type that youre looking to dispose of and those markets you mentioned that you're already overweight.
It definitely it's more age driven and it's capped.
We do as we force rank all of our portfolio.
Every year and we look at it every quarter and we look at total return on invested capital and what the growth rate on that and best that return on invested capital will be for.
For the for the next two or three years and try to try to pick and properties that are high capex with slower growth profiles and if you have to put in capex. It doesn't give you and give you a return than that obviously lowers that return on invested capital and the future and so bottom line is is it generally speaking prop.
And <unk> that that are older with higher capex fall into that category and when you think about recovery even in Houston.
Generally speaking the when you have a recovery the the higher and urban assets recover at a much faster rate from a from that perspective. So.
We don't look at it as Gee theres going to be a lot of pressure on lease ups and what have you and the urban core so let's sell those assets and keep our are sort of older higher capex assets. So it's more about about what the what we believe the next three years, it's sort of the trajectory of of return on invested capital is.
And after Capex.
And it makes sense and.
And then on the flip side I guess are there any smaller secondary markets you're not in the day that that have good demand trends from some of these and migration trends from the Sun belt, where maybe you could be more competitive from a pricing standpoint or earn a premium yield and even tuck it into the portfolio without much added overhead and have you considered that at all.
Yeah. So the the one market that we've talked about in the past.
Sunbelt market that we have spent.
A lot of time in trying.
Trying to make sure that we just understand the lay of the land we've done and all the due diligence that we need to do that kind of to know where things trade and have the right relationships and the Nashville.
And it has I mean, it's it's right down the fairway of Camden's markets high growth.
Really educated part.
Population.
There's been there's been a ton of new construction, and Nashville, and but so far that hasnt really shown up and pricing.
And as expensive as most of our other cities are so the one that that market would be one that is going to get a lot of attention as we kind of look for what is there an opportunity to expand and do we want to make a.
And to make a bet and Nashville are two and the next and as part of this is part of this rollout so but other than that we're really happy with our footprint as you might as well.
Well no from the geography, and and how it's performed through this as part of the pandemic. So we'd love to add some assets and Nashville overtime and and make that on one of <unk> core markets because it's got all the other characteristics that we look for.
And then just a quick follow up I mean, its development as well as acquisitions on the table or are you thinking sort of one offs and building over time or maybe something more on a portfolio or more <unk>.
Scaling up a little quicker.
Yeah.
And it'll be acquisitions first and then and now and obviously, if we could find the multiple asset small portfolio that would that would be the ideal situation, but those are and those are likes like chase and the Unicorn These days and and markets like Nashville.
Yeah.
Understood. Thank you.
And our next question will come from Nick Joseph with Citi. Please go ahead.
Thanks, I appreciate the comments on migration trends and I'm wondering for the new residents that you've seen move from New York, or California, or any of the other kind of higher tax states.
Number one are they working remotely or are they typically relocating per job and then number two are you seeing any differences and income levels and I ask if there's just an opportunity that ultimately you may be able to get higher rent.
If there's a kind of a difference on the income side.
Yeah, absolutely. So so we do not pull that data specific to where they're from and their income what I do know.
And from all of my friends and in New York City that every single time, they come to our markets and realize what they can rent.
And the price of it.
And my gut is that they are probably used to pay and a whole lot more on rent and that gives them the capacity to lease with us and it also gives them the capacity to absorb rental rate increases over time.
There is some anecdotal evidence that people are more mobile and working from home and and our R. R.
And our.
Renting departments here, and having and not coming for jobs per se, but already have jobs and other markets and there and theyre just continuing to work.
Work on at those jobs.
And I'll add to that you know we have a banker of ours, who has relocated permanently from New York to Houston, and then and when I spoke with him and went through his daily expenses as he put it he has no expenses and Houston as compared to what he was what was causing him in New York City. It is a dramatic.
On uptick and a quality of life and and that's the reason why people have been attracted to the sunbelt markets for so long.
Yes, I think the issue of whether people are making more money and they pay more rent I think the answer is yes, but right now the idea that the market is soft enough where you can't push.
Push rents today, no matter, what people make right and so ultimately as the markets firm up then the resident basis are higher income and can then take a rental increases once we have pricing power and be able to do that right. Now we just don't given the pandemic and supply and all that kind of stuff.
One banker doesn't make a trend.
A trend of everybody and there's still a lot of us here that Love New York City for all of the things that provides.
Yeah look I think generally and he is going to be fine long term I, just think it's going to take longer to get back and same with San Francisco, but you can never write off those urban markets because people want to they want what what's the urban markets given and I think the urban markets. You know one of the things I think it's really fascinating is the urban urban and the sunbelt compared to urban and.
And San Francisco, New York and L. A for example, we leased 20 units and our downtown project property last month, and and and that was the.
The highest we've leased and a long time and you, even though theres only 16% of the workers that are working and downtown Houston people are leased and apartments in downtown Houston. So.
And I Wouldnt write and New York off for San Francisco for sure.
Thank you.
And our next question will come from Richard <unk> with.
With Evercore.
Please go ahead, and hey, guys.
And if memory is doing well.
I'll try and keep it quick just and I know that there was some new lease up pressure on rents and the fourth quarter you know.
And as we roll forward to 'twenty. One here can you give us a sense of whether the supply pressure is free.
First half weighted back half weighted as far as you can sort of peg those.
Precisely.
Yeah, I don't I don't think it will have any meaningful distinction and and I say that because whatever has been forecast or put and people's models as far as the actual month of delivery.
And they've been wrong for the last three years and that's going to continue there it takes longer it.
There's still a lot of pressure on skilled labor.
The the process of going through inspections, and getting the city officials to sign off is Ah is slower so that everything that can go against our schedule is going against the schedule right. Now. So my guess is is that even if you had had a month by month roll I wouldn't put much stock in it as far.
As a as far as accuracy is concerned and when you get and a market like Houston, where you're going to get 20000 apartments.
It does.
Does it matter if it you know if 2000 and I will move from February to November the answer is no.
Right. Okay. Thank you you bet.
And our next question will come from handle through Juiced with Mizuho. Please go ahead.
Hey, guys quick.
Quick one from me here, what's the thinking on Dallas year to number four and marquee it's been fairly soft the last couple of years and it sounds like more of the same this year and maybe can you pair that with some comments on Atlanta with just leapfrogged Houston is your number two market are you going to continue to add more there and be pretty happy with your exposure.
Well, we are we like Dallas long term and and we definitely can move some of our exposure up there. We also like the when you look at their at their growth profile looks really good over the next over the next two or three years and so we think that Dallas is going to be a top quartile revenue growth.
Market here and the next few years as far as Atlanta goes Yeah, Atlanta is a large market for us right now.
Ben Ben we haven't acquired property share, but we've been more of a developer and Atlanta and will probably stay that way for a bit and.
And on our acquisitions and if you look at our markets like Austin, we have $3 three.
And three 3% to 4% of our portfolio, there and and Tampa, It's like four four and 5% and Raleigh. It's five so those are the markets, we're going to try to try to spend and spend more time and from an acquisition perspective. So we can get that balance a little bit more and when you start looking at the growth profiles of Tampa and Orlando.
And do our Tampa and Raleigh, and Austin, even those are all really good strong growth markets long term.
Yeah.
Got it thanks, and forgive me if I missed this but where the 320 moving development starts you got line for this year and what type of yields are you underwriting.
So those are those are the new starts this year or so.
If you look at our supplemental package, we actually under the development pipeline.
We always put them in order. So the first one we have which is Canada and durum, which is the site that we just purchased and the fourth quarter and it was shovel ready that's that's $120 million and then.
Proceeding that is is are falling and that is the arts district.
Or Cameron village, so some subset of that but Durham is the one that we expect to get started.
And pretty soon okay, and and Durham is classic.
It's a it's an urban project, but it's but it's more urban and Durham is not urban and L. A and and those yields are going to be in California, and the <unk>.
Low fives and the.
And the.
And the sort of middle of the countries are going to push on six.
Got it thank you.
Mhm.
And our next question will come from John Kim with BMO capital markets. Please go ahead.
Thank you on the 30% increase and insurance costs do you expect can you provide any more color on why such a big increase and if theres any particular market and.
Pack and more.
So what I will tell you is just a couple of facts before we start that discussion and 'twenty and 'twenty.
<unk> set a record for $20 billion plus natural disasters galore.
Globally, there were 69 billion natural disasters and 2020.
That is causing a global insurance challenge and so to give you an idea our property insurance now we do our renewals and May have made the first but.
But we are being told that property insurance for us will be up on the premium side about 40%.
And that G. L will be up almost 100%. This is not a camden specific issue. This is 100% and issue of the global insurance market. So therein lies the challenge it's interesting because I talked to I talked to all of my peers. We all have the same problems as I said, it's not.
And not a Camden issue and in fact, what I will tell you is that Camden is going to do better than most because number one we actually develop the vast majority of our real estate. So on the property side, we know exactly what's behind the walls and that's very helpful. If you were trying to ensure and then on the GL side, we have fans.
Tastic loss claims.
So that's going to be very helpful for us too, but that's that's the real issue and that's that's what we're all facing.
But is it fair to same Miami, Houston, and California. Those are the markets that are impacted more than some of the from the others.
No. So so yeah you have to remember once again I said this is a global issue and when when they underwrite as we do not go out and get property specific insurance, they're looking at our entire book of business and.
And by the way for habitation, all which is one of the least favorite for insurance providers, we score very very well because of the quality of our real estate and the fact that we've had very limited losses, and we've survived natural disasters exceptionally well. So so we score very well. So this is not market specific issues.
And this is across the board habitation will in addition to all people who are seeking either property or our general liability insurance.
Okay and my second question is on your ability to push renewal rates, you mentioned, pushing new rates and second half of this year, and we think normalize but whats your ability to push.
Kris renewal rates given you typically don't provide concessions.
Yeah. So we're running about from 2% to 3% right now on on renewals and we've got we've got renewals that have gone out for February and through February and March and where we think we're going to realize somewhere and the 3% range up on renewals. So and that's that's that's been true we've been on.
And that range now for since we reinstated our raising rates on renewals.
So I think that I think we've proven that that's kind of what what the market will allow right now in terms of renewal rates without giving up occupancy and.
And we still have our retention rates are still at historic.
In terms of the ability to maintain a resin and so it's clear that we're not.
We're not forced and any vacancy by where we are on renewal rates right now, which is going to be on the 2% to 3% range.
And if you if you look at what's in our budget for the full year, we are anticipating renewals to increase by 3% and.
And new leases to be down about 2%. So this all comes back to the original question that our guidance is predicated upon a recovery and the second part of the year. So if we get a strong recovery. Then obviously, we can push those rents further pushes renewals further but the key point what we're currently doing is 3%.
Great. Thank you.
And on our next question will come from John Pawlowski with Green Street. Please go ahead.
Fee revenue hitting same store revenue parking and late fees common areas and when you put it all together, what's the kind of year over year lift or a drag on same store revenue versus 2020.
Yes.
Yeah, and I, absolutely. So so here's how I would sort of break out the difference between 'twenty and 'twenty and 'twenty 'twenty, one and when it comes to revenue.
On the.
The first thing is is that we are anticipating lower bad debt in 2021 and that was the other component of.
That our guidance is predicated upon a recovery. So we think we will pick up about.
About $2 million for lower bad debt, we think will pick up about another $2 million for lower fee concessions and then what we think is higher utility income should be about a million and a half to us.
Sharp on the revenue side should be about $1 2 million for us and then renters insurance and we've got a new renters insurance program that we're rolling out should be about a half a million bucks and and that pretty much makes up the delta between our 2020 actual revenue and our 2021 budgeted revenue.
Alright, great. Thanks, so much.
Okay.
And our next question will come from Rob Stevenson with Janney. Please go ahead.
Pardon me your line may be muted.
Yeah.
Yeah.
Okay.
And our next question will be Alex Columbus, with Zelman and Associates. Please go ahead.
Alright, Thank you for taking the question.
So given that were.
Shifting and from the late stage of last cycle into this recovery.
Have you given thought about the balance sheet and.
And potentially expanding the the leverage profile to expand on those.
Quality markets, especially given.
On the wall of capital supporting multifamily and the transaction market. These days.
The answer is no.
And we have well the answer is yes, we think about our balance sheet. All the time, but the answer to are we going to increase our leverage profile beyond what beyond the sort of the metrics that we that we have been talking about for a long time, which is keeping our debt to EBITDA between four and 5% or four and five times, that's where we're going to stay and we think that the.
And given the we are at the at the start up and these cycle I think but on the other hand.
I remember and I was at my last conference in March 1st week of March of 2020, and that question came up multiple times people sort of maybe criticize us for our low debt profile, and then and and they kept asking me well, what what's going to be the problem. What do you think it's going.
On a half why do you need to have a strong balance sheet and then two weeks later, we of the pandemic and then all of a sudden stock price goes to 62 Bucks from $120, the financials and the capital markets shut down dramatically, including the unsecured debt market and all of a sudden.
People started talking about Camden amazing strong balance sheet, best and the sector and Gee theyre going to be defensive and you know.
Who's got too much debt and so we were going to continue to keep it one of the strongest balance sheets and the sector and just because there is the potential of a recovery, which I think is going to happen, but but we're going to keep our strong balance sheet with us for a long time that that's our fundamental Camden thing you can take to the bank.
Inc.
For sure and Yeah, I guess it was predicated on limited with stress, we're seeing them and.
Yeah.
Maybe it was more some more room, but understood very prudent.
And then this could be a yes or no question.
And given how late we are but just looking at the land.
Purchases from last year.
And the year.
Sort of the same margin Raleigh Durham.
But the land price tag was a little higher and in November is that.
It's something that is.
And throughout the market or is it because the deal was more urban and ground radar.
You mentioned earlier.
Yes. So if you look at our land acquisition and the fourth quarter and this was a shovel ready sites. So we are effectively.
Bought permits we bought plans we bought all of these other things that go along with getting them ready a deal ready to go so it's really is and Apple and orange.
Got it thank you very much.
And.
Okay. We have a I don't think we have any other questions. So we appreciate your time today and we will visit with you on our new inner active.
Virtual platform next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines and stuff.
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