Q1 2021 Camden Property Trust Earnings Call
Good morning, and welcome to the Camden Property Trust first quarter 2021 earnings all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero after.
After todays presentation, there will be an opportunity to ask the question. Please note. This event is being recorded I would now like to turn the conference over to Kim Callahan Senior Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining Camden's first quarter 2021 earnings Conference call. We hope you will enjoy our new more interactive call format today, which includes the.
A brief video presentation as well as slides detailing some of the remarks from our executive team.
The webcast will be available for replay of this afternoon, and we are happy to share copies of Virtualized. Upon request. If you haven't logged and yet you can do so now via the investors section of our website at Camden living Dot com the.
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.
They 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.
The 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 the subsequent events.
As a reminder, camden's complete first quarter 2021 earnings release is available in 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 this call.
Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and Alex Jeff The Chief Financial Officer.
We will attempt to complete our call within one hour as we know that another multifamily company is holding their call right. After us we ask that you limit your questions to two and rejoin the queue. If you have additional items to the Scott.
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 concludes at this time I'll turn the call over to Ric Campo.
Thanks, Ken.
The theme for our earnings call music was have fun.
We've always believed that our Camden teammates do their best work when they're having fun. That's why 25 years ago. We chose half volume is one of our non core values.
Having financing essential ingredient.
Maintaining a great workplace.
And your team of Xiaomi Kwon, the smiles on their faces, which put smiles on our resident spaces, which ultimately makes our shareholders smile.
It's a formula that has allowed us to earn a place on Fortune magazine's 100 Best places to work list for 14 consecutive years with seven top 10 finishes.
Just recently, we are pleased to announce the Camden placed number eight on this year's list.
Creating a culture that encourages folks to have fun requires consistent intentional focus, especially during the pandemic.
Over the years, we of creative traditions dashboard, having fun from skips and lip sync contest despite of the videos that deliver important messages to our teams.
Pandemic allowed us to come up with new ways to maintain our culture and the new work environment.
<unk> culture is our superpower that allows us to consistently perform at the highest level.
As Peter Drucker famously said culture eats strategy for breakfast.
Our earnings call platform allows us to share of videos and enhance our messaging.
Here's an inside view of one of the many cultural messages that we share with all of our Camden teammates this year and now with you.
Culture is really key the Camden culture is who we are of culture is about how we treat each other how we feel about each other and without the culture. We would not have been able to do the great things. We did in 2020 during the pandemic and hopefully that culture will take us forward through.
2021, when we get past the pandemic and then and then then of through throughout the next few years. Once we're done with the pandemic. So there was one last culture.
Video of this call pass the culture and I get called by Keith and he goes you know what we need to do is we need to make it make a big Andy and I happened to be in Lake Tahoe. It was 45 degrees out he said the big deal is at the end of the video you've got a jump in the lake like football.
What are you Kidding me.
Why why do I always have to like jump in the lake or do something like that and so I.
I did it because it's all about culture, it's all about having fun and it's all about taking care of each other providing peak experiences making sure that we know that it's not just the job were taken care of each other our customers every single day. So here's the pass the pass the culture of video and it was 45.
The five degrees in the water.
Very cold.
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Our volume.
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Non-GAAP.
Non.
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Free cash.
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Well it wasn't that the interesting video and nice spike right into the cold water, but it's all about culture, it's all about making sure we're having fun at the same time as we're doing what we need to do every single day, taking care of each other first taking care of our customers and ultimately having fun, while we do.
Yeah.
During the first quarter, we saw operating strength building in most of our markets clearly the opening of the economy driven by the speed at which the COVID-19 vaccine vaccinations have been distributed has improved our results from the first quarter and our outlook for the rest of the year. This has led us to increase.
Our net operating income in our <unk> guidance.
As tough as strange as the pandemic may last year, we have used the time to advance many initiatives that will drive revenues lower expenses and improved performance in key areas.
So, let's if you are investing.
<unk> and Sherpa funnel and other AI opportunities will accelerate self guided tours virtual leasing and the apartment package deliveries and keyless communities.
All of driving better customer experiences, while increasing revenues and lowering expenses.
Our investments in our cloud based ERP systems have made may remote working seamless.
Streamlines data mining moving us closer to the internet of things.
Creates for a more robust ESG analysis and reporting on our ultimate carbon footprint reductions that we'll publish later in the year, we will be publishing a more expanded the ESG reported in the fall.
I began the call with the discussion and of video on culture. We continue to do the right thing at Camden moving forward on the journey to a more diverse equitable and inclusive workplace.
Last summer when there was great uncertainty, we advised our teams to focus on things they could control getting the best health of their lives embrace their friends and family as true partners with mass.
Proper social distancing distancing and vaccinations of course, we also asked our team members, who take care of our residents and each other.
And not to listen to the noise around them, we told them that the pandemic would pass.
And the years after would be great for our teams and their families and our business.
We see the light ahead, and it's not of training I want to thank our team Camden Your families. We're helping us get from there to here. Thank you and I'll turn the call over to Keith.
We're very proud of the fact that Camden that we have been included on Fortune magazine's list of 100 best companies to work for for 14 years. It is an incredible accomplishment that reflects the fact that each of you take pride in the workplace and continues to work hard to make Camden, a great place to work.
So a lot of people think about the fortune list in the Camden's culture and all the things that we do to support of great being a great workplace and a lot of people look at that and they say what they see is expenses.
In cost and what we see is investment we're investing in our brand we are investing our people we're investing in our culture and ultimately we think those things are more far more important than the small amount of impact that this the expenses that we have around maintaining camden.
Workplace actually matter and one of the ways to look at that is is that we track our Camden 20 year investment return against the S&P 500, and it's proof positive that creating a great workplace also create great results for your shareholders over the last 20 years Camden property Trust.
Just as produce day, an annual return for our shareholders of over 11% and the S&P 500 was about seven 5%, so almost 4% per year better than the S&P 504 of 20 year period, that's pretty incredible and we think it's directly attributable to the investment that we make.
In our culture, and our people and making Camden a great place to work. So thank you for all you do and thank you for being a part of this great company for all of this period of time.
Now a few details on our first quarter of 2021 operating results same property revenue growth was down four tenths of a percent for the quarter and as expected our top performers who are located in our sunbelt markets.
Phoenix at five 8% Tampa up 4.8% Atlanta, two 2%.
A one 9% in Denver rounding out the top five list at one 3% up.
Right trends for the first quarter were slightly ahead of plan with signed leases down eight tenths of the percent renewals up three 4% four of blended rate of one 2%.
For effective leases, which were generally signed in the fourth quarter or early in the first quarter. The blended rate was 100 basis points lower at two tenths of the percent.
Our preliminary April results indicate improvements across the board for signed the leases renewals and blended growth, averaging four 5% four 7% and 6% respectively fewer.
Future renewal offers are being sent out on average at over 5%.
So our blended rental rates moved up from one 2% in the first quarter two of four 6% from the month of April the three.
140 basis point improvement exceeded our budget and was the primary reason, we're raising our full year guidance revenue guidance is.
It's worth noting the Houston showed the fifth best improvement in revenue re forecast among all of Camden's markets and we now expect Houston revenues to the only about one 5% down from last year.
Occupancy averaged 96% during the first quarter of 2021, which matched our performance in the fourth quarter of 'twenty and was the highest quarterly of level achieved since the pandemic began April.
The April 2021 occupancy has accelerated to 96, 6% exceeding our original budget and expectation and setting us up well for our peak leasing season, which has begun and generally runs through early September net.
Net turnover for the first quarter of 2021 was 200 basis points lower than 2020 at 35% versus 37% last year, marking yet another quarter of high resident retention and of pure residents choosing to move.
Move outs to purchase loans dropped to 16, 9% for the quarter versus 19% last quarter, which is in line with our seasonal patterns, we usually see from the fourth quarter to the first quarter of each year.
Next up is Alex guests at Camden, Chief Financial Officer.
Thanks Keith.
Before I move on to our financial results and guidance a brief update on our recent real estate activities.
During the first quarter of 2021, we commenced construction on Camden Dura, a 354 unit $120 million New development in Durham, North Carolina.
And we began leasing at both Camden Lake Yola, a 360 unit $125 million, new development in Orlando and Camden, Buckhead, a 366 unit $160 million new development in Atlanta.
Subsequent to quarter end, we began leaching of Camden, Hillcrest, a 132 unit $95 million new development in San Diego.
In the quarter, we collected 98, 4% of our scheduled rents with all of them with only one 6% delinquent.
This compares favorably to the first quarter of 2020, when we collected 97, 9% of our scheduled rent with the higher two 1% delinquency.
Turning to bad debt in accordance with GAAP certain uncollected revenue is recognized by US as income in the current month.
We then evaluate this uncollectible revenue and establish what we believe to be an appropriate reserve.
This reserve serves as a corresponding offset the property revenues in the same period.
When a resident moves out earn us money, we typically have previously reserved all past due amount and there will be no future impact to the income statement.
We reevaluate our reserves monthly for Collectability.
For multifamily residents. We are currently reserved nine $2 million as uncollectible revenue against the receivable of $10 2 million.
For retail we are fully reserved against our $2 $3 million receivable.
In mid February Texas, the experienced a significant winter storm resulted in widespread power outages with the.
Led to among other issues corresponding water damage from broken water pipes less than 5% of our Texas units experienced any type of damage with only a quarter of 1% requiring the residents to temporarily vacate there.
Today, the vast majority of the damage has been fully repaired and operations have returned to normal.
Extremely proud of the efforts of the team Camden in responding to this unprecedented index.
Last night, we reported funds from operations for the fourth quarter of 2021 of $125 8 million.
$1 24 per share.
<unk> above the midpoint of our prior guidance range of $1 20 to $1 26.
The one <unk> per share of variance from the midpoint of our prior quarterly <unk> guidance resulted primarily from both higher occupancy and higher rental rates at our same store and non same store portfolio.
The offset by the timing of certain property tax refunds in Washington, D C and Los Angeles, which we expected in the first quarter and we will now likely not received until the second half of the year.
Contained within our first quarter results is approximately $900000 of expenses directly associated with the Texas Winter storm.
Two thirds of this amount is property level of insurance overtime and repair and maintenance expense. The remainder is corporate level and tied to relief efforts, including meals provided to our residents.
The additional property level expenses were entirely offset by greater than anticipated amount of unrelated in terms of subrogation proceeds.
Last night based upon our year to date operating performance, our April 2021, new lease and renewal rates and our expectations for the remainder of the year. We have increased the midpoint of our full year revenue growth from 75% to one 6%.
Additionally, we have increased the midpoint of our same store expense growth from three 5% to three 9%.
This increase is entirely to account for additional property level salary expenses now anticipated to result from our re forecasted full year revenue outperformance.
The result, we have increased the midpoint of our 2021 same store NOI guidance from negative eight 5% the positive two 5%.
Our three 9% revise the expense growth at the midpoint assumes insurance expense will increase by approximately 22% due to the continued unfavorable insurance market.
Property insurance comprises approximately 4% of our total operating expenses.
Additionally, our revised expense growth assumes that salaries and benefits will increase by 3.5% as the result of additional compensation tied directly to the now re forecasted revenue outperformance.
The remainder of our property level of expense categories are anticipated to grow at approximately 3% in the aggregate.
Last night, we also increased the midpoint of our full year 2021, <unk> guidance by nine cents per share.
Seven cents of this increase results from our revised same store NOI guidance with the remaining two cents per share increase expected to be generated by our non same store portfolio.
Our new 2021, the <unk> guidance is $4 94.
The $5 24.
With the midpoint of $5 <unk> per share.
We also provided earnings guidance for the second quarter of 2021.
We expect <unk> per share for the second quarter to be within the range of $1 22 to $1 28, the <unk>.
Midpoint of $1 25 represents a one cent per share increase from our $1 24 in the first quarter of 2021.
This increase is primarily the result of an approximate one <unk> per share of expected sequential increase in same store NOI, resulting from higher expected revenue during our peak leasing period.
Largely offset by related compensation expenses, the seasonality of certain repair and maintenance expenses and increases from our may insurance renewal.
As of today, we have just over $1 $1 billion of liquidity comprised of approximately $260 million from cash and cash equivalents and no amounts outstanding under our $900 million unsecured credit facility.
At quarter end, we had $358 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 investing with various banks, earning approximately 25 basis points.
And finally as I have discussed on prior calls in 2019 and 2020, we set in play important technological advancements.
2021 will be the transition year that will lead to realize the efficiencies in 2022 2023 and beyond from cloud based financial system. The virtualization the mobile access to AI technologies that allow us to meet residents on their schedule.
We are poised very well very well for the future.
At this time, we will open the call up the questions.
We will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Our first question today will come from Lula of scar back with Bank of America. Please go ahead.
Hi, everyone congratulations on a great quarter.
I just wanted to start off of a little bit big picture kind of asking more about the transaction in the market. I know you guys are guiding to about 400 to 500 million. So how are you guys thinking about that now that we are about four or five months into the year and what opportunities are you seeing out there of the market.
Well definitely we are seeing opportunities. The challenge. However is the pricing is way way up.
And what we expected.
The good news is we have a balanced disposition and acquisition program.
We expect to get higher prices for our properties are going to sell in.
We're going to try to make that trade if you go back to.
Two of our last Big acquisition disposition program from the last cycle, we sold a lot of property spot a lot of properties.
We were able to upgrade the quality and the quality of the portfolio over time, but.
But I will tell you I've never seen cap rates this low in my business career.
I'll give you an example of real time.
The property that we were working on last week of Tampa or this we can tap I just got the email yesterday so.
So the original price talk for the reasonable property in Tampa, It's the middle of the road redevelopment of decent property, we'll call it an a minus.
Price talk at the beginning of the of the.
The process was $77 million plus or minus.
Which would then in the low four cap rate kind of right at four ish.
The price the.
Property was.
Was awarded.
At a little over $90 million.
Which is a going in cap rate of three 2% and in what you with the 3% growth in revenue over a seven year period. The only way you get to of six IRR is to is to have 375 exit cap rate now that's what property.
Share trading for in every major market in America today, So I think we'll be able to sell properties and buy properties, but the spread I think between older and newer is definitely going to be really tight and it's a good trade for us and we'll continue to do that but the pure acquisitions are pretty tough if you don't have a disposition.
Behind it.
To try to capture that that newer of property and capture the lower capex part of the equation Thats why we would be doing it in the first place.
Got it. Thank you and then I think you guys commented a lot on how you wanted to enter in Nashville.
So what are you guys being there in terms of cap rates on the transaction market.
Same the.
Cap rates are pretty tired of national too.
Nashville is an interesting market because when you look at it if supply side the past.
The second most supply coming out of the market and so I think that.
That.
Any other city.
In the country. So we're still we're looking really hard in Nashville, and the where actually our teams are going to be out there next week and we're actually going out to all of your property next week as well.
We think we'll be able to.
To move into Nashville, This year and again, it's just you can.
<unk> acquired properties and we can acquire property she would have to pay.
Pay up today.
As again as long as we're selling properties at really high prices of buying properties at really high prices I'm, okay with that and I think we'll be able to execute in Nashville.
Okay, great. Thank you good luck with that.
Okay.
Thanks.
Our next question comes from Neil Malkin with capital one securities.
Okay.
Hello, everyone.
The first question.
Can you just talk about what youre seeing in terms of in migration.
Some of your of your market share you know kind of larger.
Sunbelt markets, obviously, COVID-19 has kind of been the great accelerator for that I'm. Just wondering if your people on the ground are telling you that day continuing to see that in earnest. If it's accelerating of its kind of steady any any commentary on kind of like where that's coming from the with markets of the biggest beneficiaries.
Yes.
We continue to see elevated levels of across our platform, but it's not new I mean, we've had we've had in migration going on.
Yes.
Theres been exiting the northeast and in parts of California, mainly northern California for the last decade, but clearly it's accelerated and I would say of the markets that we have.
It's the most impact and most visible right currently are in Atlanta.
Everywhere in Florida, and again, that's mostly of northeastern phenomenon.
And Austin, Texas, I would say, that's the place where.
The anecdotal evidence of out of state license plates in particular, California is pretty pretty incredible the.
Trends in some of our markets around home prices that I think are the exhibit characteristics of kind of people coming in and being willing to pay up.
In Austin, Texas as an example, the.
It has the highest spread between the asking price for a single family home and selling price. So in the last 12 months the average price sales price in Austin, Texas for a single family home is 7% above what the asking price was so it's just the kind of crazy numbers historically.
Toric Lee that we that we have.
Never seen before but I think it is indicative continues to be indicative of people finding incredible housing value in our markets relative to the markets of the directional.
I think it's just a continuation of what's been going onto the early it's accelerated.
Don't see.
A lot of people I think are some people think that this is strictly of COVID-19 related increase I'm not so sure of that that's true. So I think the trend that's been in place for a long time from the continue in probably the element probably at elevated levels.
Now if you look at the census numbers that came out Texas gained congressional seats, California lost one New York Las One you go up into the end of the rust belt and a lot of lot of those states the loss of Florida gained.
I think we have seen an uptick in Phoenix and in Florida for sure, but I think this is just a continuation of I agree with you totally that the.
The pandemic is of the great accelerator and I think what we're really be interesting will be once the states are open right because California, you know talks about being opened but it's really not opened yet and what I mean, it fully right. So when the when we get to a <unk>.
Real pandemic is in the rearview mirror than the question will be how how what happens over the next couple of years when people actually do have the ability to work from home and just user their laptop or office right. So.
We're in a good position and we've always wanted to be in these markets because of their pro growth markets and great weather and low housing prices that <unk>.
Drive.
<unk>.
Yeah, So I would add to that if you look at most of our new residents come from Sunbelt markets, but if you think about non sunbelt markets. New York is our number one non sunbelt provider of new Camden residents.
Okay.
Thanks for that.
Other ones from me, the maybe bigger picture.
You know talked about cap rates coming down I mean, we've talked of brokers pretty much in all of your markets and.
The sub for us like the name of the game.
And when you think about your portfolio, it's a great aggregated diversified portfolio.
Ridiculously low leverage compared to anything private.
And a lot of growth avenues there.
Is there I mean do you think that there should be a re rating or is it fair to say that.
Cap rates.
On the public side need to come down or are they are justified being lower.
The lower and if nothing else the spread between coastal and sunbelt.
It should be compressed at least over the next.
Several years of not the cycle.
Well if you if you've calculated the Camden NAV based on the current.
Cap rate environment, I mean, we have a spreadsheet that shows sort of various cap rates and what are what we think our NAV of <unk>.
And if you use the Tampa number we don't have that number on a spreadsheet.
Okay. We go to like three and a half the cap rates when we stop and so so.
Clearly.
The question will ultimately be who's right right as of the private Mark Thats right of the public markets right and we've had this debate forever that that.
The public markets.
Sometimes act as.
As real estate, sometimes act of stocks and right and so when the stocks get hammered it's not because somebody is thinking about their relationship to the private market, they're just selling the stock because they have an ability to buy some other stock that's kind of go up faster rider or whatever they are the reason for that trade is I think we're trading more like stocks.
Day for sure and less like real estate.
When you think about why somebody's paying of low recap rate in Tampa I think it's pretty basic number one the tenure is at a very very low rate, but you still have positive leverage when you finance.
Using the tenure of say two and a half hour of 10 year mortgage of two and a half of two inch and change and the compared with three of the quarter cap rate of 100 plus basis, maybe 90 to 100 basis points of positive leverage on that on that trade and then you think about the the worry that people have with the current <unk>.
Sort of trajectory of of trillion dollar here of trillion dollar, they're fed and government.
Stimulus and everything else is going on out there and that you hear the word of inflation and you hear the word Oh Gee, what happens long term inflation wise, well multifamily, we price our property or our leases every single night and our leases rollover, we're the fastest roller of release of lease.
Type of other than hotels and $8 <unk>.
Eight plus percent of our leases rollover of every month right. So it's a great inflation hedge if you're worried about that and when you think about private capital looking for yield multifamily is a pretty good place to be in the supply and demand side of the equation is pretty much balanced.
Yep, great job growth going on in most of these markets and once the markets are opened up I think the coastal markets will do fine of just take more time for them the than them to get better than that it does the.
The markets that have opened up so I think thats why cap rates really low and I wouldn't say that the private side is is as crazy right now in the clearly the GAAP between real cap rates from the private sector versus the public sector is depth theres, a bigger biggest spread I probably ever seen of mine.
Business growth at this point.
So the humorous.
Yeah, well I, just think could you just humor us and what is the three and a half GAAP translate to do.
Oh, well I mean, you can do you can look at the at just the.
The NAV from.
The consensus right now, it's like a 119 bucks a share and it's like a <unk>.
For the three quarter cap rate or something like that for every every 10 basis points in cap rate is like two bucks a share. So you do the math.
I'm not going to put a number out there, but I will check that but it's about that two bucks a share for every 10 basis points.
Okay.
Our next question from Alexander Goldfarb with Piper Sandler.
Hey.
Good morning, good morning down there and keep the nice job D. J. This morning on the tunes.
The true.
Two questions first.
Ben you know obviously there are a lot of articles about the impact of the unemployment the extended and enhanced unemployment benefits we're talking to.
Yeah, the Guy who does business across a lot of different states.
And yes, there's feedback that people won't.
Take a job because they're getting paid board of sit at home.
In your portfolio and I don't know how much of that was the driver of your need to increase the property level.
Payroll.
But are you seeing across your markets that sort of the economy is being held back because people arent, taking jobs or we should read into it that the four 5% rent increases that you guys got in April is an indication that its two different groups and the the impact of the extended unemployment.
The benefits has really no real impact on your guys ability to perform basically what I'm asking is as these benefits expire would we see an acceleration of your portfolio or the two are not related.
I think the tour of our related but not directly because if you think about the people that are unemployed today that are that are.
Receiving benefits.
The government benefits those are of people, making.
I think the vast majority of them make under $50000 a year and those are folks that are working in hospitality areas and things like that and theyre, making 30% more by stay at home than they are they are going back to work.
Restaurants for example.
Driving the out yesterday afternoon, I saw a restaurant that that had helped needed in every position $500 signing bonus of you come in.
And so that that is holding back some of the economy from that perspective, but our average income is over $100000. So most of our folks are working they are continuing to work and doing well the biggest issue holding us back from the from a higher revenue growth or restrictions on an.
The rent certain markets like in California, and in Washington, D C and so our top line number would be higher by at least 50 basis points of we didn't have those restrictions in place in my opinion. So I think that once the economy opens more in these other markets and we get past this CDC restriction and of the cap on renewals and things like that in the <unk>.
Multifamily business should be really good index of six 810 months once we get rid of the just past that piece.
Terms of equal or.
The increase in costs for salaries today or not so much driven by but we can't find the employees, but it's by outperforming the original budget. So we have increased our bonus accruals for them.
We definitely like hearing about bonus accruals going up so that's the good thing.
The second thing is.
On the on the development side, obviously, you guys have paired back of your program tremendously over the years.
But as you look at new markets like Nashville, or just try to deal with rising construction costs are you guys seeing more opportunity to put Camden capital to work like funding other developers third party and then do it as the takeout does that sort of mitigate risk or allow you to broaden your net or your view is that you really want to do the.
Of relevant on your own because from start to finish you feel that holistically, it's a better risk proposition.
I think that that doing anything that isn't the 100% Camden owned with Camden control adds more risk not less risks to the to the to the process and you can't really move the needle on and at least in our opinion is you can't move the needle on driving revenue and driving driving.
New development deals.
Really by doing the Jv's are doing.
Equity programs or what are you going to call them and we.
We still have the thing from a $3 billion joint venture program. During 2008 of nine where our partners wanted us to default on that so what you buy the debt back cheaper and that was.
When we did those joint ventures.
The $3 billion didn't really move the needle for Camden, but what it did is it.
Created more risk when the market turned down and we had challenges with dealing with our partners.
Even though they're all deep pocketed they didn't want to bring any cash out of the pocket. So we're going to keep our balance sheet pristine, we're not going to do deals like that.
Other companies have different views of that I get it but that's not Camden.
Okay and Alex just on your point about the size of the development pipeline. If you take what's in lease up currently plus what's under construction.
We are close to $1 2 billion of new developments, So we think where we've.
We've been very opportunistic about taking advantage of these delivering these yields into the declining cap rate environment, that's going to create a ton of value. So I think $1 2 billion is about equivalent to our all time high in terms of development pipeline. So.
We definitely see opportunities.
Everything that we're working on right now based on kind of cap rates that are in play for the acquisition assets look like theyre going to the <unk>.
Really accretive.
Okay. Thank you.
Our next question comes from Nick Joseph with Citi.
Thanks, maybe just sticking with the construction what are you seeing on the cost side both for the in place of the development pipeline is also as you price out future starts.
So prices are up big time, if you look at.
So let's take two periods of time.
Take.
April of this year April of 2019 versus April 2020.
Costs were up two or 3% maybe in some markets actually flat in the last 12 months since April of 2020 versus 2021 of multifamily costs in total are up about 12, 5%.
And.
Primarily driven by well there's three big drivers one is just commodity prices, you'll get soft lumber prices in the last 12 months of soft lumber is up 83% plywood is up 53% OSP OSP board is up 65%.
Even fuel when you think about gas gas.
Diesel gasoline is up 50, 50%, 60% labor issues of their supply delays or our supply chain backups are making products more difficult to get and so the.
The speed of which you can develop.
Is slower so it's a tough environment out there when it comes to cost and the good news for US is we did lock in lumber lumber packages on of several jobs that we had so we don't have a lot of exposure on lumber at this point.
We did lock in about 70% of the package I really give kudos to our construction sites in our commodity.
Sort of consultants for helping us navigate that that the tough water here. So we don't have we don't have Camden doesn't have a big exposure to this big price increase but it does affect the way, we underwrite new transactions, obviously and as it becomes more and more difficult, but I guess on the one hand with cap rates.
Pressing as much as they are the spread on what you can buy an asset versus what you can build it for today, even with the cost increase is still pretty wide and so thats why youre going to continue to see new developments continue even though the going in yields youre going to be down the spread between where you can sell and buy for its still pretty robust.
Thanks, that's very helpful. And then just on the rental assistance plans, how do you think that impacts Los Angeles, and Orange County specific to you.
Well.
It does it so far it hasnt affected us.
And of positive way at all and part of it is the.
All of the the various.
Qualifying elements that you have to go through them.
The <unk> has been in our resident base does not qualify our has not qualified for any meaningful amount of rental assistance and in particular in California.
It's a little bit different market to market, we do have some markets where we've gotten.
Couple of hundred thousand dollars in rental assistance.
But overall this entire you take the effect of delinquency the effect of.
Not being able to to get people moved out who are not paying the rent overall of the whole event has been a pretty significant net negative for us.
At the around the margins and by that I mean.
We're now at about $99 million in receivables.
Yes.
That's about $8 million and then what we would normally carry in our in our receivables. So we hope that over time of couple of different things will happen, we hope that that as the if the CDC mandate is not extended which is currently at the June 30, and I guess, it's anybody's guess as to whether it will be or not but if that is is not extended then we should be in a position of <unk>.
<unk> getting back control of of our of our real estate and we think thats going to be very helpful and kind of whittling whittling away at the $9 billion in receivables, but overall in our portfolio of the ear App does not has not been particularly helpful because of the the.
Income of.
Average income of our rest of the base. So we'll see if and this next tranche.
There is.
More of a fewer restrictions on how that gets how that gets used but im not terribly optimistic about the.
One of the challenges that you have in all of this is in.
Is that.
Federal government.
Puts us money out.
In the last two stimulus the one in December and the one and the one.
That happened in February $46 billion was allocated to rent assistance, which is a huge number obviously and to date. There has been a just a my new fraction of that money going out and part of it is is that the.
The government requirements the check the box.
We're having a meeting with our California folks I think the last number I heard Keith was that we've had the send out 10000 pages of documents to our residents.
In California and its like.
Mike.
What.
And so it's all of this massive.
The government requirements to say you got this right. This right. This rate this right and here's what you can do in the when you start talking about 10000 documents. What do you think those people are doing in those apartments are picking that dock and document up looking at it for the first paragraph and thrown in the garbage and so challenge you have is the government requirements are tough.
In Houston for example.
We're involved in designing the first set of stimulus of set of.
Programs for apartment rent relief here and and we streamlined that we gave out $70 million of money in Houston, Texas and.
And did it really fast and at the end, we ended up with $10 million more by the end of the year. We Couldnt, we couldnt give the 10 million out. So we had the give it to the food bank otherwise the based on government relations. The government regulations you'd have to give it back to the federal government of even spend so the the challenge you have with all of this stimulus and these things as it is.
It's really hard to get the money out the people and the people that are hurting or not the 100000 dollar of household the people that are hurting or the 30000 40000 50000 of our players that are in C&D properties that arent back to work or or or.
We're not getting the.
Getting the stimulus money or what have you and those of the ones that are the hardest to get.
Check the box on once they get once the once they go through a website and you don't have all the information they just leave and they don't the.
So youre, losing them so it's a the challenge in those items.
The items I think our industry has done a great job of trying to help the most vulnerable people in the multifamily space, but they just don't live at Camden and they don't live it most of the public companies apartments.
Thank you.
Yes.
Our next question comes from John Kim with BMO capital markets.
Thank you you guys look great on video.
I had a question on the occupancy pickup you had.
And the question that asked me to pick up you had in April to $96. Six were there any particular markets that drove that figure higher and do you expect it to remain at this level for the remainder of the year of or do you expect that the trend back down to 96%, which is where you operated back in 2019.
Yeah, So so I think that.
If you look at our pre lease numbers and go out 30 to 60 days.
The indications of pretty good that we will stay above 96% for the next couple of months, obviously, we're coming into the best part of our leasing season. The strength was across the board. So just the discipline.
Put some perspective around that we did of we obviously did a complete re forecast to support or our change in increase in guidance and of our 14 markets. If you look across our portfolio. The bottom of re forecast revenues went revenue projections went up in force and 12 of the 14.
So the only two markets where revenue did not increase with San Diego.
Orange County, La and the reason for that has nothing to do with the the underlying strength of the market, which are both really good right now it has to do with bad debt. So we continue to have a challenge in California with with regard to.
Elevated levels of bad debt, because we can't.
The because of the CDC eviction mandate and all of the rest of trackers that we have in our portfolio and our portfolio of southern California. So.
Those two which which by the way, we're very only slightly negative on re forecast because of bad debt.
Without the bad debt in California would have been up on all 14 markets and I don't think of in my career ever seen a re forecast done. We're all 14 markets had a positive revenue impact.
Impact.
<unk>, So I think it's the strength across the board.
And if you kind of.
If you go to the top level of revenues in the new re forecast. We now have out of 14 markets. We have 13 that have positive.
The revenue growth for the year of the exception to that as we mentioned called out of the opening comments is Houston and Houston is down two of half a percent negative.
Total revenues for the year and I can tell you that our Houston folks are working their tails off to get off that list because they're the only one that has a negative.
A negative number for the the revenue forecast all of the other 13 markets are really well positioned for for our peak leasing season.
So John we've got the seasonality in there, but our re forecast assumes that we're going to have 96% occupancy for the full year, obviously, its higher occupancy in the second quarter and third quarter coming back down in the fourth quarter, but to compare that to our original budget that's of 70 basis point improvement.
Okay.
That's helpful. Thank you and then.
On the cap rate discussion.
We thought some of the cap rate compression was offsetting income.
It sounds like Thats not the case.
But on that exit cap rate the credit that you quoted an example in Tampa between the three quarters.
Is the view of that cap rates remain low because of rising construction costs or is it the potential of that the rental growth assumption that.
That you quoted of 3% was a bit conservative.
Well I think cap rates are a function not of construction costs going up that that.
That project by the way at the price that I state of the 90 million price of 18% above replacement cost. So replacement cost is not a bogie today.
That investors are looking at what Theyre looking at is what kind of cash on cash return of am I going to get from this real estate and of three two cap rate.
Is the competitive market today and so.
Weather when.
When you think about how you.
Do an IRR right and an Unlevered IRR has three components, what you buy and at what your cash flow growth at and what your exit at.
And so for years. The question of what is your exit cap rate seven years out.
Is better.
The like the argument about what's real Capex right.
The new development you put in $2 50, and you know, it's not that long term, but that's what people use and so ultimately the.
What will drive the exit cap rate will be the environment at the time and we know what drives price of any asset is first liquidity how much liquidity in the us in the market and we know today that theres massive liquidity in the market beyond belief liquidity the second.
Second thing that drives cap rates and prices.
And these are the most important order is supply and demand what's the business looked like what is is it excess supply long term, how you feel about about supply.
Demand dynamics relative to.
The weighted.
Relative to being able to drive net operating income or cash flow growth in the market today supply and demand is pretty much in balance you look at imbalance from from a just from a from that perspective.
In most markets and so.
When you look of supply and demand is good and the <unk> inflation.
And people have the inflation you are worried that that could have inflation and then the last driver is of interest rates, but a lot of.
The people think of as rates as the number one driver, but it's actually liquidity client demand inflation and interest rates so with that backdrop.
Cap rates are where they are because of the really the first two issues I think and then maybe a little bit of of an inflation issue, but so.
Who knows whether of three and three quarter cap rate.
Is the right number in the seven years, but I guarantee of actually only way if you want a 6% IRR unlevered IRR in seven years as the only way of the math works.
So Rick are you concern that people are underwriting to me in three quarters or it sounds like you think it's rational at this point.
No I think people then.
If you want to compete in the market today, you have capital to place multifamily at the coveted asset class for lots of reasons, we've talked about before and so.
If you have capital that has to go out and you go Where's the alternative investments if I can't if I don't like a three two in Tampa with the growth growth profile and everything that we talked about and what are you going to put your money.
We're earning 25 basis points on 300 million Bucks right now and cash.
The government is penalizing us because of the fed and everything else going on penalize anybody with cash and so when you think about our cash flow stream.
That can grow can be inflation protected.
It's I'd say it's a.
Cash flow stream that people.
It's hard to disrupt right because everyone needs the place to live you can't live on the Internet or you can discern mediated by technology or whatever you can improve it improve as production with technology, but everybody has to put their head down and go to sleep at night in some place they may not need the kitchen, but they definitely in the bathroom and so with all of that said.
It's just.
It's the whole argument about why our asset prices, where they are.
And whether the out what's your alternative from an investment perspective, and right now of multifamily looks good and people are willing to phase III to GAAP.
And as long as your weighted average cost of capital long term.
Is good and you're making a positive spread on your weighted average cost of capital long term then.
That's why people are doing it.
The only guess wrong I just think of it is.
Yes.
Interesting stuff. Thank you.
Uh huh.
Our next question comes from Amanda Sweitzer with Baird.
Thanks, Good morning line up on guidance can you provide an update on the blended lease rates and bad debt assumptions that underlie your increased range yes.
Yeah, absolutely. So I think probably the best way to think about it is if you compared to what we originally thought for blended rates.
When we did our original budget, we are increasing that by 50 basis points, so sort of the math sort of works like this our occupancy was up 70 basis points. Our blended rental rates were up 50 basis points. So that gets you to about 120 basis points. The offset to that is we are assuming that we're going to have slightly higher bad debt that's into.
Highly driven by California, and the fact that when we did our original budget. We thought AB 30, 88 was going to expire in the beginning of March now it looks like Thats. The beginning of July at the earliest and so you've got sort of an offset from that and so we think that our our bad debt is going to be about about 160 basis points.
For 2021, which by the way is in line with what we had in 2020, but if you compare it to 2019, which was a normal year that number would have been about 50 basis points.
That's really helpful. And then on disposition are you still targeting sales in Houston today, and given some of your cap rate comment have you changed the assumed cap rate spread between acquisitions and dispositions in your guidance at all I think youre of previously feeling about the 150 negative basis point spread.
Right, we are still <unk>.
Targeting those two markets, yes in terms of dispositions and I think we'll probably.
In our guidance, we're continuing to use that same spread and hopefully we'll do better than that based on what we're seeing and hearing today, where you're likely will do better than that spread but we kept at 100 basis points negative spread in the model Alex I'm pretty sure we did.
That's correct absolutely correct I think the real variation in the model between the buy and the sell will be timing right and that'll be an interesting. So there may be some timing differences, given where things are but but hopefully we'll do better than that negative spread right now it looks like we will but that's what we use in the model.
Thanks, I appreciate the time.
Sure.
Our next question comes from Brad Heffern with RBC capital markets.
Hey, everyone.
We're at the top of the hour. So I'll just keep it to one I was wondering if you could just talk through sort of Houston.
It was a little surprised to see the sequential rent growth down almost 4% I know, obviously COVID-19 didn't necessarily break that market and COVID-19, leaving isn't going to fix it but is there anything that youre seeing there that gives you optimism as we go forward whether it's the.
Energy recovery or supplier or anything else. Thanks.
Yes, so the big the.
The Big Challenge that we have in Houston right now is not.
It's not employment related jobs of come back.
The most people thought the energy business is definitely getting better it takes a while if theres a pretty big lag between.
The improvement in price of crude versus improvement in employment.
Prospects in Houston in the energy business, but the the issue in Houston is just supply and we've talked about last year, we dealt with about 20000, new apartments that got delivered in Houston. This year, we're going to get another 20000 apartments delivered and unfortunately, a lot of those are in the theyre not.
Got distributed geographically very well so they ended up everybody all of the merchant builders sort of built in the same places and we definitely are catching a fair amount of.
Shrapnel from the lease ups of the merchant builders in the downtown area as well.
Uptown in Midtown so that it's more of a supply issue for Houston, We do get some relief next year of thankfully in terms of new supply and an overall I would tell you that the the general Vive of.
The recovery in Houston is I mean, Houston the open people.
Restaurants are busier than I've ever seen them. So it's pretty it's pretty robust the feeling right now in Houston is pretty robust. So I think we will we will do well as the will do better as the year Enthuse I think I shared with you. There are re forecast for revenue growth in Houston is only down 5% from last year and if you.
The told me.
I certainly wouldn't have made the six months ago, and we didn't when we were putting together the guidance, but that to me sounds extremely encouraging for our Houston portfolio relative to original expectations.
I think also just to add onto the Houston story.
The winter storm.
<unk> had a bigger effect on Houston than it did on the rest of the state and primarily because of of what it did the petrochemicals and the plants in and around the ship channel.
There are plants that are still.
The primary chemical plants that are still offline that are just getting geared up from the winter storm. So the winter storm definitely helped Houston back it could have been a whole lot better in Houston, I think without the winter storm in.
And we're just start like I said, we're just starting to get that back I think the other thing that's really interesting about Houston is.
The.
The discussion of of <unk>.
Energy transition and what's going to happen with the energy and how big of energy is going to make the transition from old school energy to more of renewables and we've seen of major acceleration of of discussions by by the.
Large energy companies and part of that is driven by Investor activism. If you look at Exxonmobil as an example.
One of Exxon's stock, so I see all of their.
Sure.
The proposals at these actavis had put on the.
Their votes, and what have you and and finally the U S. Majors are made making a major move into.
This energy transition of the Exxon for example, just announced a $100 billion.
Carbon capture program that could go in and around the ship channel and it's $100 to build it.
It needs to be part of the government, maybe it's part of the government stimulus or infrastructure or whatever the addition.
To Exxon.
Putting putting their capital in but but the I think there's going to be there's going to be continued huge investments in these alternatives and wind and solar and carbon capture and Houston is going to lead that so.
We're going to be in a position, where we're it's not old school NRG that drives this market.
Its transition of energy, Texas already has the largest wind power source of electricity than the of any state in the country.
We're investing massive amounts of solar you saw Tesla has a big.
Battery plant the battery program that Theyre joined the south of Houston.
So it's going to be a really interesting thing so to me the winter storms held us back, but but once we get through the supply.
This should be move up to the the top quartile of our revenue growth from 2000 middle of to the end of 2022 and into 2023 and 2024 of my view.
And also point out I think look if sequentially sequential occupancy increase the largest sequential occupancy increase we had was Houston the fourth quarter of the first quarter increased 110 basis points.
Yeah fair enough okay. Thank you.
Okay.
Our next question comes from Austin, where Schmidt with Keybanc.
Great. Thank you just sticking with the theme there on Houston.
Was curious if the positive guidance revision there was more just around that sequential uptick that you just alluded to in occupancy or are you also seeing a little bit better traction on lease rates as well and then.
Maybe Rick to your comment on when you think Houston starts to get better is it probably mid 'twenty two by the time we've absorbed.
Some of this peak supply.
I think thats the peak supply side, plus you'll you'll start getting.
Better job growth and a more normalized environment, because what happened in Houston as you have the normal COVID-19. Unfortunately call it normal COVID-19 of.
Job losses, right, but but what's happened.
Also had the the oil and gas.
Pounding right last year at this time, I think oil and gas was within a few of few weeks of where it went negative right and so that's that was the huge issue here and I think that.
Over obviously in the.
<unk>.
Once we get a more normal environment in Houston at a more normal business environment, where people are actually traveling for business in Houston will will improve when you look at at visitors to Houston and conventions and things like that it's more of a business destination that it is of tourism destination and so.
I had lunch with the head of the convention group that market's Houston's convention business last week and they said he said that starting in June the 18th citywide events you have the World Petroleum conference coming in December which as of <unk>.
International event that was supposed to be last December, but it's going to be in the December 2021, and so once we get more momentum from the the.
The business side and the business travel side.
We will.
Houston.
The move quicker to that recovery, but I don't think that's I think that's a mid at the end of 2020 and 22 of <unk> because of the supply.
Yeah.
If you look at blended rates for signed leases.
The first quarter of 'twenty, one to April of 'twenty, one Houston improved by 420 basis points.
So.
Phil not a not an incredibly strong number but an incredibly strong improvement.
Yeah, that's really helpful. And then Alex just to clarify on the 50 basis points increase in lease rates.
Lease rate assumption in your same store revenue guidance does that reflect simply leases signed at this point or does it also assume higher lease rates kind of through the balance of the year.
Yes, the desk so it looks of what's the effective for the first quarter signed today in China. Today is obviously going to take you through the second quarter and in component of the third quarter and then our expectations for the rest of the year.
Net debt the lease rates in the back half of the year on both renewals and new leases are also higher than your original expectation.
Correct.
Okay. Thank you.
Okay.
Our next question comes from John Pawlowski with Green Street.
Thanks, a lot for keeping the call going.
Hoping to better understand how the internal dialog around share repurchases has evolved call. It <unk>.
Half of point of <unk> earlier this year.
Enter the downturn, when they're really well positioned balance sheet and suddenly all of the the only real dislocation comes it's throwing your share price and of the private market has remained rock solid you still believe you're trading out of a substantial discount to NAV and you've got a bit better clarity or at least since the summer on operating fundamental also just.
Curious why you haven't taken advantage of the well positioned balance sheet heading into the downturn on the share repurchase side.
Well the the challenge that we have with share repurchases is that is that the windows that you can that we can buy or buy back shares is that they.
They are fairly narrow and and what happens all of oftentimes like when you think about the we bottomed at like $62 a share of something like that of course, we started talking about okay, let's let's back up the truck right, but on the other hand, then all of a sudden the.
The share start moving up and when you think about when I think about share buybacks. It's like okay, I want to be able to buy a lot of shares I don't want to just go particularly around the edges and do $5 million $10 million $20 million of something like that and so to me. It has to be persistent down and we have to have the ability to acquire.
Sure enough to make a difference because fundamentally when you think about REIT balance sheets, and how we manage our balance sheet. We're a leaky bucket right in the sense that all of our cash flow of not all of it but most of it has to be paid out from dividends and so when you are buying stock back in.
Unless you can make and get a big enough chunk to make a difference I think it's just the.
Kind of a waste of time and so if you look back at every time that we've gone to a point, where we looked at the numbers of said Hmm.
This looks like a really good price it has gone up dramatically in the low.
And away from us and the Windows that we can acquire the stock so its not that we don't.
Think about it a lot we do but on the other hand.
The constraints on doing it is just.
Our oftentimes just not worth the effort of my view.
If it's the investors we buy the stock back and people go. They think it's cheap then that's one thing but.
But you can make your own decision, where you think it's cheaper non buy or sell it.
To me it's the.
Real capital allocation issue do you think about when we did buy back stock Big It was when we had long term periods and big open windows and the.
One point I think we bought 16% of the stock back at the peak and that was when when the.
The stock was low for months and even years and today, just not have that opportunity.
I just mean more from the relative decision right. So you put a dollar into the kitchen and bath or a dollar into the stock its just the relative decision.
The more talk out of the second half of 2020 I mean, if you believe you are any of the whatever 130 or above and you had that visibility of the private market side and there was a good six seven months, where you could be selling assets and repurchasing share. So it's just more of that the dollar is fungible.
There's an opportunity cost of non acting I guess the final question.
Yes, you can always do that but I just think at the end of the day.
We're long term multifamily long term owners of multifamily properties and so there's a lot of of friction that goes in between selling assets.
Wave, a magic wand and sell assets immediately.
And then.
Have no risk of the execution, and then and then buy stock and make of spreads yeah, but the world doesn't work that way.
A lot of execution risk involved in it and.
It's something that that when we talk of when we started talking about doing it then I don't want to borrow money.
The current strength of the balance sheet, and then to buy stock and then and then go sell assets. After it. So I hear you, though it's an it's an asset allocation issue and we think investing in our existing assets creating.
The returns that we think are pretty attractive that's what we've been doing.
Okay. Thank you for that.
Sure.
Our next question comes from Alex <unk> with Zelman and associates.
Alright, Thank you for taking the question.
Over the pandemic, we've seen the renewal and new lease spreads.
Pretty wide in your April signings the seem to reach some parity there.
Can you talk about the dynamics on the leasing side.
And how you're approaching that obviously the occupancy of fall through so it's been a good decision.
Yes, so we use our revenue management system Youll start to price, both new leases and renewals.
So the inputs to the model are similar on both sides, obviously, they've got a little bit of a timing issue in our portfolio, because we actually voluntarily froze renewal increases.
Early on in the pandemic and we kept the.
Frozen through mid summer so some of the natural renewal increases that would've happened are going to happen.
Maybe in a little bit more robust way as we work our way through mid summer but.
I think it just on both sides of it tells you that the model is.
We're seeing in foreshadowing a lot of strength on both.
New lease side and the renewal side throughout the balance of our re forecast period.
Got it thank you and just touching on the supply side for <unk>.
We've talked about Houston.
The some updates on some of the other markets and how thats progressing the <unk>.
Sort of the Euro has been pretty strong on the activity from so has that changed how youre thinking about certain markets.
No.
If you take witten numbers for totaled total deliveries.
2020.
We were about 100 across Camden's platform, we were about 154000 delivered of apartments and his forecast for this year is about 151000 and so there is some movement around some shifting among our markets, but in the kind of at 10000 feet. The supply picture for this year is not going to be much different than it was last year and with the excess.
Option of Houston, which obviously took the brunt of the 20000 apartments last year, and then backed up with another 20000. This year most of our markets arent really pretty good shape fundamentally and if you just kind of go back to again witten numbers. He's got job growth this year at $1 2 million.
He has got new supply being delivered of about 150000 of departments and again at 10000 feet. That's eight times.
Employment growth to two delivered supply five times as soon as the long term equilibrium. So in the in the aggregate those out of the really supported four and it looks like they are going to be supported for raising rents and renewals throughout the year.
Great. Thank you very much.
This concludes our question and answer session I would like to turn the call back over to Ric Campo for any closing remarks.
Great well thanks for.
For being with US today I understand that that the have fun video with little choppy for the the group in the replay youll be able to share without being choppy and let US know how you like this new format I think it's kind of interesting and makes it a little more interactive and.
Sort of helps flow through when youre going through a slug of numbers like we are of kind of helps you.
You sort of follow that so we look forward to hearing from you on on this format and then we will see and talk to I think most of you in virtual form at NAREIT, So coming up in the next couple of months So take care of thank you.
Take care.
Sure.
Bye The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Sure.
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