Q3 2021 Camden Property Trust Earnings Call
Good morning, and welcome to Camden Property Trust third quarter 2021 earnings Conference call I Am Kim Callahan Senior Vice President of Investor Relations.
Turning me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and Alex <unk> Chief Financial Officer.
If you haven't logged and yet you can do so now through the investors section of our website at Camden living Dot com.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions and please note. This event is being recorded.
Webcast will be available for replay this afternoon, and we are happy to share copies of our slides upon request.
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.
Other 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 third 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.
We hope to complete our call within one hour and we ask that you limit your questions to two then rejoin the queue. If you have additional items to discuss if we are unable to speak with everyone. In the queue today, we'd be happy to respond to additional questions by phone or email. After the call concludes at this time I'll turn the call over to Ric Campo.
Thanks, Tim the same for our pre call music today with <unk> for many years, our cabinet carrier's initiatives have provided assistance to people in need among canvas family our Camden residents as.
As well as the communities, where we live and work our mission today included a song by the late great.
Bill Withers with this great wisdom lean on me when Youre not strong all of your friends I'll help you carry on for it won't be long tail on gallon.
Somebody to lean on these words capture the spirit of all that our Camden associates do for others in need under our Camden curious banner Kemet why our purpose is.
Is to improve our lives from our teammates customers and our shareholders one experience at a time.
At the outset of the pandemic it was clear that the disruption from COVID-19.
What was going to be massive and leave millions meeting somewhat arena, we encourage our teams to view the widespread chaos as an opportunity to go big on our pledge to prove People's lives one experience at a time and not surprisingly team Camden responded and truly extraordinary ways that.
We captured in this brief video.
2020 brought us challenges, we've never faced before.
We use them as opportunities to serve our communities.
<unk> real lives real families.
Creating real change.
We delivered meals to Camden residents on the front lines of COVID-19, 1943 meals went to 161 health care hero residents and their teams.
We held the first annual Camden cares virtual Turkey, trucked benefit food banks nationwide over 350, Camden employees participated $50000 with donated to food banks in each of our markets additional community service projects included who drive holiday cards to seniors Salvation Army Angel.
New Hope House book drive and toy trial reached.
Served employees by adding $1 million to our long standing employee emergency relief fund grants of up to $3000 to our employees, whose family income had been impacted by COVID-19 over 440 employees were provided with total grants exceeding $1 $1 billion of bonus exclusively.
For our frontline employees of $2000 for each full time employee totaling approximately $3 million of learning stipend was added to ease the burden for parents and enable them to continue work Camden cares also went big and our efforts to serve our residents early spring brought us the resident relief Fund 10.4.
Million dollars was provided to approximately 8200 Camden residents wanting 20 compelled us to do more than we ever thought possible. We were not prepared for the things we would get.
Wow, what a blessing that has some type of assistance. During this time I am grateful to see that kimpton, that's looking for ways to assist their tenants I pray that this fund Camden team. We are so very grateful for the grant we were afforded to help alleviate some financial strain. During this time Youre health and paying a rent over the next months.
It's going to prove immensely useful to our lives and well being.
No you've read annoying social justice issues became front and center of last year and made us reflect on how we as a company could help inclusion has always been part of our DNA. When we acknowledge what was going on the communicated Camden commitment to being part of the solution team members responded with overwhelming support Wendell Lockhart leasing consultant in Dallas.
Shared with us that he had donated to an organization focused on progressing the African American community to true equality.
Good with other team members, we're feeling a need to respond quickly to do something tangible he challenged executives to follow. His example, which we did and then we created a program to match all team member donations. The program benefited five charities supporting underrepresented communities and promoting inclusion we raised just under 200.
$75000 for the organization and help team members take action to solve a problem. They care about people Camden cares is not about the recognition it's about doing the right thing.
It's not just what we do.
And who you want to be.
Thank you for making Camden.
Okay.
And then the caring culture was recognized by people magazine. This year on their 100 companies that carers ranking Camden at number seven I want to thank all of our Camden team members for all they do.
To make our communities better every single day, we are pleased to report another very strong quarter of results and another raise to our 2021 earnings guidance, we're seeing high level ultra rent growth along with sustained occupancy levels over 97% for our portfolio, which bodes well for the remainder of the year Camden.
We're always focused on operating in markets with high employment and population growth and strong migration patterns and this strategy is clearly paying off as.
And by the July Pwc report that was issued for 2021 real estate trade trends in your.
<unk> fall conference in Chicago last week.
Camden's markets eight of Camden's markets ranked in the top 10 for 2022 investor demand.
We're very fortunate today to begin had really strong apartment market and in the right markets. At this point I will go ahead and turn it over to call to Keith Oden.
Thanks, Rick now for a few details on our third quarter operating results same property revenue growth exceeded expectations, yet again at five 1% for the quarter and was positive in all markets both year over year and sequentially.
We posted double digit growth in Phoenix, and South Florida, both at 10, 1% followed by Tampa at nine 5% year.
Year to date same property revenue growth is two 9% and we expect strong performance in the fourth quarter across our portfolio, resulting in our revised 2021 guidance range of four to four 5% for full year revenue growth.
New lease and renewal gains are still strong with double digit growth posted in both categories.
For <unk> 'twenty, one signed new leases were 19, 8% and renewals were 12, 1% for a blended rate of 16% flat.
For leases, which were signed earlier and became effective during the third quarter, New lease growth was 16, 6% with renewals at eight 5% for a blended rate of 12, 2%.
October 22021 remained strong with signed new leases trending at 18, 3% renewals at 13, 8% and a blended rate of 16, 5%.
<unk> offers for November and December were sent out with an average increase of 15% to 16%.
Occupancy has also been very strong and was 97, 3% for the third quarter of 'twenty, one and is still holding at 97, 3% for October to date.
Net turnover remains low at 47% for the third quarter of 'twenty, one versus 49% in the third quarter of last year and move outs to home purchases moderated from 17, 7% in the second quarter of 21% to 15% in the third quarter of 'twenty, one trending below our long term average of about 80.
18%.
It's worth noting that these strong results have continued into what has historically been a seasonally weaker period for our portfolio.
We want to acknowledge team Camden for continuing to produce outstanding and better than forecast results.
This marks our third straight quarter in which we increased our same property NOI and <unk> per share guidance. Our team is focused on finishing the year strong which will position us for another solid year in 2022.
I'll now turn the call over to Alex suggest that Camden's Chief Financial Officer.
Thanks Keith.
Before I move on to our financial results and guidance.
Brief update on our recent real estate activities.
During the third quarter of 2021, we purchased Camden Central a recently constructed 368 unit 15 storey community in St. Petersburg, Florida, and subsequent to quarter end, we purchased Camden Greenville, a recently constructed 558 unit mid rise community in Dallas.
The combined purchase price for these two acquisitions is approximately $342 million and those assets were purchased at just under a 4% yield.
Also during the quarter, we stabilized Camden downtown a 271 unit $132 million new development in Houston.
And subsequent to quarter end, we stabilized ahead of schedule Camden, North end to a 343 unit $79 million new development in Phoenix.
Additionally, during the quarter, we completed construction on Camden Lake Yola, a $125 million new development in Orlando.
Subsequent to quarter end, we purchased five acres of land in Denver for future development purposes.
On the financing side during the quarter, we issued approximately $222 million of shares under our existing ATM program.
We used the proceeds of the issuance to fund in part the previously discussed acquisitions.
Turning to financial results.
Last night, we reported funds from operations for the third quarter of 2021 of $142 $2 million or $1 36 per share exceeding the midpoint of our guidance range by <unk> <unk> per share, which resulted primarily from approximately one <unk> and higher same store NOI.
Resulting from two cents of higher revenue driven by higher rental rates higher occupancy and lower bad debt, partially offset by one set of higher operating expenses entirely driven by higher than anticipated amounts of self insured expenses.
Approximately one and a half cent and better than anticipated results from our non same store development and acquisition communities and approximately <unk> <unk> from the timing of our third quarter acquisition.
This three and a half cent aggregate outperformance was partially offset by a half cent impact from a higher share count, resulting from our recent ATM activity.
Last night based upon our year to date operating performance and our expectations for the remainder of the year. We also updated and revised our 2021 full year same store guidance.
Taking into consideration our continued significant improvement in new leases renewals and occupancy and a resulting expectations for the remainder of the year. We have increased the midpoint of our full year same store revenue guidance from 375% to 4% to 5%.
And we have increased the midpoint of our full year same store NOI guidance from 375% to four 5%.
We are maintaining the midpoint of our same store expense guidance at 375% as the higher than expected third quarter insurance expenses are anticipated to be entirely offset by lower than expected property tax expenses in the fourth quarter.
We are now anticipating that our full year property tax growth rate will be approximately one 6%.
Which includes $1 $8 million of property tax refunds anticipated in the fourth quarter.
Our 4% to 5% same store revenue growth assumption is based upon occupancy averaging approximately 97% for the remainder of the year with a blend of new lease and renewals averaging approximately 16%.
Last night, we also increased the midpoint of our full year 2021, <unk> guidance by <unk> 10 per share.
Our new 2021, <unk> guidance is $5 34.
The $5 40.
With the midpoint of $5.37 per share.
This 10 cent per share increase results from our anticipated 75 basis points or approximately five cent increase in 2021 same store operating results. One set of this increase already occurred in the third quarter.
An approximate <unk> increase from our non same store development and acquisition communities of which two and a half since already occurred in the third quarter and an approximate <unk> increase in <unk> from later and lower than anticipated fourth quarter disposition activities. We now anticipate approximately one <unk>.
Hundred $10 million of dispositions in early November and approximately $220 million of dispositions in early December as compared to our previous expectations of $450 million of dispositions.
All occurring in early November.
This 12% aggregate increase in <unk> is partially offset by an approximate <unk> <unk> impact from our third quarter ATM activity.
Last night, we also provided earnings guidance for the fourth quarter of 2021.
We expect <unk> per share for the fourth quarter to be within the range of $1 46 to $1 50 to.
The midpoint of $1 49 represents a 13 cent per share improvement from the third quarter, which is anticipated to result from them.
And 11 cents per share or approximate seven 5% expected sequential increase in same store NOI driven by both a two 5% or five and a half cent per share or a sequential increase in same store revenue, resulting primarily from higher rental rates and a six 5% decrease in sequential.
Same store expenses, driven primarily by a two and a half cent fourth quarter decrease in property taxes combined with a fourth quarter, one and a half cent decrease in property insurance expenses and a one and a half cent third to fourth quarter seasonal decrease in utility repair and maintenance unit turnover and personnel expense.
<unk>.
A <unk> <unk> per share increase in NOI from our development communities in lease up and our non same store communities and a <unk> <unk> per share increase in <unk>, resulting from the full quarter contribution of our recent acquisitions.
This aggregate 16th increase is partially offset by a one and a half cent decrease in NOI from our planned fourth quarter disposition activities and a one and a half cent per share incremental impact from our third quarter ATM activity.
Our balance sheet remains strong with net debt to EBITDA at four four times and a total fixed charge coverage ratio at five eight times as of today, we have approximately $1 $1 billion of liquidity comprised of approximately $200 million in cash and cash equivalents and no amounts out.
Standing under our 900 million dollar unsecured credit facility.
At quarter end, we had $242 million left to spend over the next three years under our existing development pipeline.
Our current excess cash is invested with various banks, earning approximately 20 basis points.
At this time, we will open the call up to questions.
We will now begin the question and answer session.
To ask a question press Star then one on a 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.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Neil Malkin with capital One Securities. Please go ahead.
Good morning, everyone.
Great quarter.
Our first question.
Maybe higher level in terms of just.
Secular tailwind what is in your opinion driving historically strong.
Rent growth I mean.
Is it are you continuing to see accelerating in migration corporate relocation is it is it a wage growth thing.
Because you know.
Supply is pretty.
Pretty consistent.
Give or take over the last couple of years.
We expect it to be next year, maybe a little bit higher but if you can just talk about.
What you think the main drivers there.
Or because you are at 97% and you're pushing double digits, so any thoughts would be great.
Sure. So when we think about what's going on it really.
Our customer base, our customer base, averaging well over $100000 a year and if you think about what's what's been going on in the economy.
Unemployment.
Unemployment rate is very low, but when you think about the jobs that haven't been are the people that are unemployed today, 75% of those folks are making under 50 Grand a year. So our customer base is really really in good shape number one their employee number two they have massive savings as a result of the pandemic.
And a lot of them that doubled up with parents homes or doubled up in apartments. During the pandemic. That's all that's all of expanding so you really have almost three years of demand hitting the market in 2021, and a very buoyant job market for our customers and then also.
Yep.
The financing scenario or you think about wages going up pretty dramatically plus savings rates going up pretty dramatically all the government support that that is that our customers got.
Probably.
They didn't spend it so what that has done is that's allowed a lot of folks that may be financially had double up prior to the pandemic who are in Dublin. So you now have just normal economic growth plus the unbundling of people that were either living at home or a bundled up in.
No and roommate scenarios, because we know that people generally are.
Have roommates not because they want them, but because they have to have them because of financial issues and so we just have a very our customers are really in good financial shape today, and I think that's what's sort of driven.
The demand not just for for apartments, but for single family homes anything that's home today is all and so we've been under building.
For a long long time, and I think it's just that we haven't unusual situation, where everybody has money in their pocket they are willing to.
Lease apartments.
Yes.
I would just add you mentioned in migration and the continuation there across camden's platform using Ron Witten numbers for 2021, he's still estimate over 440000 net migration across Camden's 15 markets. So it is a minutes.
And part of the story as well as the people that are that are had been sort of liberated to live where they choose to live and not where they.
Making choices in big numbers.
The migration patterns that started.
A decade and a half ago. So that is an important part of it is 440000 folks are going to show up in Camden's markets. This year, just from and migration.
And Neil I would add to that if you look at if you look at move ins from in our markets. We saw a 600 basis point improvement in people moving from non sunbelt markets to move into our communities in the Sun belt. So that's the the manifestation of Keith's immigration numbers.
Okay. Yeah. Thank you all for the color just interesting as some other of your peers are.
Talking about people coming back into the coastal markets. So it's like.
I'm not really sure where the people are coming from but I think your your absolute market rent speak for themselves. The other one for me can you just talk about capital allocation priorities.
I thought youre going to get pretty aggressive on the developments that you only started one this year so far.
Can you just talk about you know how.
How your cost of.
Cost of equity you know current.
Market fundamentals and potential.
Apply chain issues weigh into your factors of focusing on ramping the development pipeline versus focusing more on acquisitions. Thanks.
Although there are a lot of questions are kind of.
That question.
But fundamentally we think that we.
Development is a very good spot to begin today with the with the with the construct of rent growth that we're seeing in spite of supply chain issues I would say just to.
So next year, we'll probably start them anywhere between $375 million and $450 million.
Of developments developments take long time to two.
To put in place. So you can't just move on a dime to increase development pipeline.
So that's where it will be development wise in terms of supply chain and how that relates to development supply chain disruptions and I have a little bit of insider knowledge into this because part of my Camden cares My personal Kamran care as part of my equation is I'm, the chairman of the port of Houston, and so I'm, sorry, if unpaid political job but.
So I'm spending a fair amount of time understanding the supply chain issues and they were real and it's not because the supply chain is broken. It is just the supply chain is jammed.
High end very very increased high demand for every kind of product because of the pandemic and there's just too many products coming into the beginning of the supply chain and they're getting stuck at every every level and that's causing a big big problems.
So what that means for us is that our projects are taking 30 to 60 days longer to bill when.
When you look at price inflation because of supply chain issues, we're looking at 10% to 12% increases in.
Labor and construction costs. The good news is is that rental rates have gone up so much over the last six or eight months.
To offset that with higher rental costs higher rental rates, obviously just to give you a little tidbit on this to southern California, We are releasing up our hill Hillcrest project and also meeting replacement refrigerators, we had to go out and we bought a couple of hundred refrigerators from best buy and so we went to best buy after best buy after.
Best buy loading up on a refrigerator. So it's not going to change anytime soon and that pressure is going to be there for a long time as far as capital allocation to acquisitions. We obviously bought a lot of acquisitions. This year with $633 million, so far and we had a budget of about $400 million. When you look at cost of capital our cost of capital has gone.
Down as a result of just the overall interest rate environment and stock price and so that allows us to make a really good spread on both acquisitions and development and that's why we're.
Ramping up the acquisition side of the equation and we will continue to do that.
Given the construct of the market and so it just makes a lot of sense for us to grow in this environment, even with low cap rates on a relative basis.
Thank you for all the color.
Mhm.
Yeah.
The next question comes from John Kim with BMO capital markets. Please go ahead.
Thanks, Good morning.
I was wondering what markets, we're leading and lagging on the 18% new lease growth.
Is it similar to the market performance on same store revenue.
Or are there some markets with stronger momentum than the same store revenue results.
Okay.
I think the best had would just be looking at the same store revenue results John.
Look at the.
If you look at the sequential numbers on revenues.
The big ups were San Diego.
Over 7%.
L a orange county, and close to seven.
Phoenix at four.
Charlotte South Florida, both at four so.
A lot of strengths and sequential numbers like that.
But it's across it's across our entire platform. The only markets that kind of I know, it's hard to even talk about underperformance. When there are when the numbers are at the levels that they are but we still have some regulatory headwinds in Washington D. C in Maryland and D. C proper we're still.
Some constraint on the ability to push rents same in California out most of the California.
Most of them except for Hollywood.
Laughs, but that doesn't mean that we're back in a position of the ability to.
Mike changes target resident base immediately there is a process you have to go through so that's stuff that will get better over time, because the market fundamentals are better than the regulatory environment has allowed us to take advantage of in those in those two markets, but the rest of the platform business as usual and you can see what the kind of.
Unregulated and unconstrained market clearing rents are and that's that's what we're that's what we're getting on our new lease and renewals.
I was going to ask you about D C. Because that seems like the one market. That's underperformed your initial outlook for the year.
And I know there are some regulatory regulatory concerns and in D. C itself, maybe not so much the suburban.
Maryland, and Virginia, but I was wondering do you think theres going to be a catch up.
Next year.
And or.
Are you thinking about decreasing your exposure to D C. Given its by far your biggest market.
So I'll take that one.
The same goes at beginning of the year, we talked about how we were going to sell $150 million of assets and by $450 million plus or minus in and we're going to sell those properties in Houston and D. C to lower our exposure in our two largest markets and then reallocate that capital into Nashville, and some of the other markets like Tampa.
That have.
Better construct from us from a growth perspective sort of longer term and we're doing that.
We'll close the Houston transactions of a D C transactions in the next month.
When you look at a D C.
Or throw Houston in this bucket too because to your question of.
Slower growth, Okay, we have slower growth in Houston and in D. C. D. C is definitely related to the fact that we can't raise rents on renewals because the regulatory construct there and so there is definitely pent up.
Occupancy is are high.
Didn't have the government control on not being able to raise rents through the end of the year, we would be pushing that pretty hard just like the rest of the country. So fundamentals underlying our great in D C. But it's just this government construct in the in the district in Maryland, where you can't raise rents Houston.
Houston on the other hand.
As probably our slowest growing market, even though we're getting really good rent increases on a relative basis are substantially lower than the rest of the country and the reason there is that if you look at the sort of the four three or four cities in America that haven't added back their jobs from the pandemic.
Houston would be one of those Houston L. A.
New York, and that's primarily driven by oil and we lost 80000 or 60000 jobs in the oil business and we've added back about 23000 of those jobs and so theres only we're pushing up towards 70% recovery of the jobs, but if you look at Dallas, Austin, Charlotte Raleigh, there all over 100% recovered.
From there there Phoenix there are 100% recovered from their job losses in.
The pandemic. So the good news is that even with the kind of drag we're getting from that we're still putting really good numbers up and I kind of look at it like this that we have a geographically diverse portfolio.
Graphically diverse in that product diverse and the whole idea is you never know which market is going to get.
<unk>.
First growth in any one year just depends on their local economies and how the supply and demand dynamics work and so I look at D C and Houston as sort of gas in the tank for next year, because those markets are improving and once we get the.
The regulatory construct out of D C, which should happen by the end of the year, maybe early second in the first quarter, then we'll be able to to theirs.
We also experienced the same kind of growth that the rest of the country is still.
Today in Houston continues to improve and oils 85 Bucks a barrel.
So a lot of after the winter when people pay 30% more for their energy I think youre going to get back to a more investments in the.
Fossil fuel Aragon, Nissan will do fine too.
Thank you.
Mhm.
Yes.
The next question comes from Nick Joseph with Citi. Please go ahead.
Thanks.
What is the loss to lease for the portfolio overall and then.
I recognize it's somewhat of a moving target and you've touched on some of the regulatory issues, but how long do you think it will take to capture and regain that loss to lease.
Over the next few months over the next year.
So you're right. It certainly is a moving target loss to lease today is right around 16%.
But now you'll have to remember that the way our pricing works, obviously is dynamic pricing and so this loss to lease has some variability to it and if youre trying to sort of think about the impact and how long will it take for us to recoup all of that you have to remember that we're generally not bringing our renewals up fully to market.
And we're doing that in order to make sure that we can keep up our our resident retention. So I wouldnt expect for us to make up that full 16% in 'twenty 'twenty. Two I think it's probably a a longer it's probably a longer lead time, probably getting you into 2023.
Thanks, that's helpful. And then just given where occupancy is today versus history, how are you thinking about seasonality and.
Kind of the push and pull of rent versus occupancy over the next few months.
Yes.
We do have seasonality and historically have in our portfolio and if you go back and look at it.
Two COVID-19 years and looked at the prior rate.
On average our occupancy between the third and fourth quarter drops about 40 basis points. So.
That's sort of typical wells in this year between second third we actually went up 40 basis points and as we sit here today, we're still at 97 three so I guess is there will be some seasonality from the 97 three that but maybe not the full 40 basis points that we've seen in the past and then if you look at.
From a rental perspective.
It's.
There is also seasonality on our new leases I mean, we typically see 2% to 3% decline.
From third to fourth quarter.
And.
As we sit here today, we've actually incur.
The increase that number so throughout the month of October.
I think we will see some seasonality, mainly maybe not to the extent we.
In the past but.
But youre talking about seasonal adjustments from.
Historically high.
Hi numbers, both on occupancy and rents.
Thank you.
The next question comes from Amanda Sweitzer with Baird. Please go ahead.
Thanks, Good morning, as you look out into 2022 can you just talk about how you're thinking about the expense outlook. Today is there a level of expense growth that is already known to either kind of in place insurance or tax increases and then how are you thinking about controllable expense growth.
Yeah. So obviously, we are in the midst of our budget process and so it's a little bit early to give that to give some really detailed information around expenses, what I will tell you.
Is that obviously, we've had a very or anticipate having a very good year in 2021, when it comes to property taxes, which is the largest component of our expenses.
Based upon what we're hearing from our consultants, we think that there'll be a slight uptick but still within our normal range and property taxes and and if you think about the second the second largest line item, which is salaries and benefits.
We are we're certainly getting some very real efficiency that that hopefully will get we will start to see some incremental benefit from in 2022, but but hang tight and we'll get you some better information next quarter.
That's helpful and I appreciate your caution until you gave.
Got it and then just wanted to follow up on your comments about it being an attractive time to grow more aggressively externally can you talk about how your stack ranking your sources of capital and as you look out to 2020 to you and are you planning to further lighten your exposure in any markets beyond the planned sales we've talked about this year.
Well in terms of lightning exposure, we will continue to.
Good news is when you grow in smaller markets that lightens your exposure on a percentage basis.
And youre over weighted market. So we will continue to trade out assets.
When I think about about lowering exposure in D C and Houston, we can do it two ways one is to grow outside of there and the other is to is to move assets out of those markets and trade them for other assets in and we'll do some of that as well and it's really more of a two or three year program do you think about what we did in 2000 starting.
And the sort of 2013 kind of timeframe we.
Made a lot of moves.
Sold out of Vegas.
<unk> exposure and a lot of other markets and so we'll continue to do that when I think about our capital stack.
It's pretty simple we've talked about for a long time, how we're going to keep our debt to EBITDA and the 4% to 5% four to five times range and when you look at weighted average cost of capital our weighted average cost of capital has gone down as a result of everything that's going on in the market with the 10 year being where it is and with equity price.
Where they are and.
So we're sitting right at four four times debt to EBITDA today, how do we how do we.
Not issued equity under our ATM program, and just bought assets and funded them with that we'd be at five two times debt to EBITDA today instead of $4 four so the way I think about this the kind of times. We're in now is at a very low cost of capital and so we know that our equity cost is the highest cost of capital that we have and so we are.
You're going to continue to balance the.
The capital stack to make sure that we're that we're driving this growth in a very positive way today I haven't seen a time in my business career, where we've had <unk> yields lower than our acquisition. If you think about our <unk> yield on our stock relative to what we're buying we have we have accretive transactions.
When we're issuing stock and putting that that piece on it as well.
Buying assets. So that's a that's me a greenlight to grow but it's always about keeping that debt to EBITDA in that four to five times range. So today, what we're really doing when we when we when we have times like this we're in that debt to EBITDA down to the four times and that what that does is gives us tremendous capacity to led.
Her up if in fact, the market changes in the future and they are in there.
More attractive opportunities when when the world sort of changes in and the.
The question will be how long does this last and I don't think any of us know, but I do know that that good times don't last forever and that you know.
Redstone go up always and that at some point our strength in our balance sheet will pay us big dividends in the future and that's that's the way, we think about our capital stack and sort of the growth opportunities that we have today.
Thank you I appreciate the comment.
Sure.
The next question comes from Rich Anderson with F. N B C. Please go ahead.
Hey, Thanks, good morning, all.
So Lori hock as long as up.
About 65% to 70%.
This year.
And I don't think the value of your portfolio was up that much.
Back of the envelope, if I were to cut my cap rate by 100 basis points.
Maybe you could say 30, 30 35, 40% up in terms of property values. So theres, a fair amount of enthusiasm driving stock today.
Enthusiasm towards something that is arguably unsustainable.
You mentioned three X the demand in one year. So I guess the question is and maybe maybe sort of answered in the last question, but how do you how do you keep people from.
<unk>.
Running from the stock next year on year. After because then they suddenly realize that.
20% blended or new lease rates, it's just not something that's going to happen.
Probably next year either so.
I'm just wondering what's what's the bull case for Camden and years 'twenty two and beyond.
Well first of all we don't manage to the stock price, obviously and if stocks can go up and down and that's just what they do right. You guys are the ones, who who who figure out what theyre going to do that but to your point. If you just take the base right and.
In January of this year, when we started out at $95 a share and now we're up to 162 or something like that.
$95 a share was incredibly cheap it was definitely a significant discount to NAV, either so I would argue that.
From January to now we've had at least a 30 or 40% increase in in the real estate value, but we were undervalued to start with.
And so to me, it's not about 65% growth in the stock price versus 30 years to 40% growth in the asset value, where we started out at a low number and so you have to get back to an energy number and when you look at our Ltvs relative to to the street I mean, it's not that far off of where the stock prices today some.
People, having to hire some people have it lower in terms of why would somebody why.
All case for Cameron next year, I think it's pretty simple I mean, you're coming off a really big year. This year, but do you have embedded growth next year that we've never seen in our business history. When you look at it next year, we have embedded.
<unk> growth of 5% just if we do nothing next year and we just maintain our occupancy and our leases you know you have 5% top top top line revenue growth and if you think that the.
Loss to lease is some of that loss to lease was going to get captured youre going to have probably one of the best years that multifamily has seen in a very long time for top line growth and southern.
She will be how long does that last and I know people get very soon.
Stressed out about negative second derivatives on revenue, but but you have a unusual situation today, where there is just more demand than supply and for all the reasons that we've talked about before and then as long as the economy continues to chug.
Chug, along the way it's chugging along today then.
2022 is pretty darn good and then 2023 could be another interesting year two so.
When you think about how.
How high rents can go keep in mind that these 20% increases today.
We are on top of pretty much zero increase in 'twenty and 2021 limited increases in 'twenty, we had maybe a 3% growth in 2009 2019, and so you have a fair amount of pent up.
Growth that that was just catch up growth, but not like new growth and then the new growth is going to come in 2022 with the economy doing what it's what it's doing so I would make the argument that the vote.
Our case for example.
Okay, good stuff and then.
Second question is.
Do you have of it.
Lock solid plan from a succession standpoint, I hate to bring this up because I hate to see bolt any of you guys go but obviously it's important.
Important for you to do that do you expect.
You'd be here, many many years to come or just just any kind of comment on succession, because obviously, you two guys and Alex and everyone.
Good morning.
Okay.
So let me take a quick shot at it. So yes, we have a long term succession plan and.
It's a good one because you really have two Ceos here right. Keith for me, we were co founders of the company and so if one of US decides to leave tomorrow or gets hit by a truck or whatever or maybe by.
Sal ball at the Astro game on game seven.
And then.
You have the other one.
And we have a very deep bench when it comes to.
Our other team members.
When you think about Alex.
Starting to hear when you're in your thirties. Now you are you still pretty young Dude, even though you may have.
Right.
Paris in the last 20 years, but so we haven't.
From that perspective.
Add to that I was just going to say is it.
Entirely internal.
Yes, absolutely okay.
Okay.
Completely confident that our succession plan is internal.
Yes, okay great.
Thank you.
Mhm.
The next question comes from Daniel Santos with Piper Sandler. Please go ahead.
Yes.
Hey, good morning, guys. Thanks for taking my questions.
As you look at sort of sub market mix, how do you sort of infill versus suburb versus outer ring from a pricing power perspective, and that sort of near to medium term.
So what I would tell you is that our class b and suburban communities continued to outperform and that is primarily driven by where the supply is and so I think you would expect to see that at least in the in the near term continue that way.
Got it. Thank you and then apologies if you covered this already.
Okay.
Apologies if you covered this already but.
Can you give us an update on the delinquent rent in southern California, and Whats your view on when you might be able to start evicting tenants or is your view that internally that the eviction moratorium would be sort of extended kind of indefinitely.
Okay.
Yeah. So if you think about delinquency for us it was 120 basis points for the quarter.
By the way, California was that was 410 basis points of that or it was 410 basis points. So if you exclude California, we would have actually had a delinquency number of about 80 bps.
We do not believe that we're going to see any extensions.
And obviously right now we are looking at how we are going to handle the consumer debt.
But we are certainly anticipating that 2022 is going to be a more normal year in terms of California and people.
Being required to be current on current rents obviously, the past rent as you know turns to consumer debt and we'll have to we'll have to look at our various avenues to collect those amounts.
Got it Thats it from me thanks, guys.
Thanks. Thanks.
The next question comes from Rob Stevenson with Janney. Please go ahead.
Good morning, guys. How much redevelopment are you doing these days and how are you thinking about that business over the next several quarters given the downtime for unit to the strong demand for those units and that your overall high occupancy.
Yes.
Yes, so we expect in 2021 that we're going to have about <unk>.
<unk> 200 units that will reposition that works out to be about $53 million worth.
We think it's a fantastic business, we're going to keep doing it as long as we have the opportunities downtime, we've gotten really really efficient about it and and you know obviously, we go back and we sort of backtrack all this and back check and what we're finding is a reposition units are are outperforming those units that have not been repositioned even in this environment.
So I think it's a great. That's a great book of business, we're getting very strong return on invested capital and it's something that we'll keep doing.
Okay, and then obviously pricing continues to increase but.
What's the five acre land in Denver was or is there something else on that is that entitled for multifamily development and how would you sort of characterize the pool of entitled multifamily development land in the markets and Submarkets that you want to develop in today.
Yeah.
Yes.
The Denver property does have some warehouses on it right now in his own multifamily and we've had it under contract for quite a while and we went through the zoning process to make sure that it was developed last multifamily so the closing.
What's required once we got the right entitlements that we wanted and that will now start our our construction drawings and knock the buildings down and hopefully will be.
The construction.
Late this year early next year on that project.
In terms of land availability land availability is still out there.
People talk about Oh, Gee, they're not making any more land, but what's happening is there's been a lot of a lot of product types that.
Just underutilized land that you're that are.
That are out there.
I think that that land availability is still fine youre still able to buy at the big issue is land prices are have accelerated along with rents and other costs. So it just makes it more difficult to make numbers work on projects and Thats the challenge.
We have we want to make a certain rate of return IRR and going in yield and Thats. The challenge in this in this environment now the good news is rents are helping us make those numbers obviously with the.
The significant increases that people are having today.
Rent increases that is.
Okay. Thanks, guys appreciate it.
The next question comes from Rich Hightower with Evercore. Please go ahead.
Hey, good morning, guys. Thanks.
Thanks for all the color so far so.
I wanted to go back I think it's been asked a few times, but I'm going to put a twist on it.
Three X demand normal demand.
Figure that Rick I think you mentioned in the answer to one of the first blush. So.
As I think about that I mean, youre not youre not so much pulling forward future demand, you're sort of clawing it back from <unk> and.
An air pocket that existed during the depths of Covid and so we might consider that the industry is sort of over earning currently on on demand and therefore rents at the moment and so as I think about.
What next year and beyond are going to look like I mean would you say that we are going to have.
A more sort of trend like.
Demand figure in 2022 and beyond and what is what is that due to a pricing algorithm.
If you are comparing sort of year over year and you do see what looks like an air pocket as measured against what's happening in 2021.
How do we figure out where the puck is going in that regard.
Yeah, So I think it.
When you think about it that way I don't disagree with that we'd have more demand because people were doubled up in the past and they are just more.
Household formation and people are choosing more apartments part of it is that is that people are choosing to rent rather than to buy or live in a single family home too and when you look at single family single family market, It's full and full from a rental perspective, but it's also full from a sales perspective, I mean, you can't build houses fast enough today and so.
I think that that.
The claw back if you want to call. It is going to stay in place right. So that means that occupancy levels, assuming that you have normal economic activity right, meaning that we don't go into recession or there's some black Swan event that happens, but that makes a mistake.
That's down the economy or COVID-19 or whatever.
If you start out with us with pretty amazingly strong occupancy and those people stay in place that came out of the market and what you have is normal demand in a very tight rental market and so if you're a normal demand that is just household formation and population growth and job growth through 2022 and <unk>.
2023 that you shouldn't have an air pocket an air pocket.
The only way that that would happen is if there was some economic dislocation right and then that demand that that was there goes away or the new demand that that normally happens during a normal year doesn't happen.
So.
You can always come up with scenarios that that debt.
We don't know about today or you just said that that makes a mistake or something like that and you have an air pocket and then what happens is if you do lose the demand then and at least our occupancies are higher and so maybe the rental growth slows.
And with our dynamic dynamic pricing model you would have.
You definitely see a slowdown in the rate of growth of new leases.
But that is you need to have.
Real economic shock to make that air pocket happen I think.
Okay.
Just to.
To add to that on Witten numbers for 2022 in Camden's markets. He's got employment growth at $1 2 million and he's got completions across camden's markets with 160000 flat with 2021.
That math tells me, we're going to have excess demand in 2022, and probably in 2023 as well because you've got completions picking up a little bit in 2023, but not much.
The fact that you see this excess demand right now you'd say well, what's the response to that will the response to it is people will build more.
It's a two to three year process.
One of the grocery store and getting corn flakes and this is these projects are long lead times are complex.
Thanks, Susan and so its just its the supply response will happen, but it just it's not going to happen until 2020 or whatever spot.
One under construction already it's not going to be a factor in until the end of 2023, So I think it's.
Just by the numbers it still looks like.
We did pull that we had some pent up demand that got into the three X, but going forward I think you're going to get back to more of a normal situation, but a normal city won't duration.
Demand is going to continue to outstrip supply.
Right now my kids can confirm it's hard to get corn flakes too at the moment.
Did you say that that implies that you know if I think about occupancy I mean 98 becomes the new 97 is 97 has become the new 96, I mean is that possible next year.
Is that optimal there's a lot of people still move in and move out and that move in move out is going to limit the ability to get like occupancy ended at 90 899 kind of range that you might see it tick up a bit but it's really hard to maintain that because people people are still moving around you'll get our even though.
We had.
A drop in our turnover rate is still 47% right.
Okay, great. Thanks, guys.
Mhm.
Okay.
The next question comes from John Decree Luther out with Goldman Sachs. Please go ahead.
Hi, Thank you for taking my question.
Most of my questions have been answered so I'll just.
Ask one on cap rates.
What direction do you see cap rates go from here I mean, obviously there has been a lot of compression already but how do you see this is as you know.
Into 2022 or do you think that you know we're finally at a point where in the second derivative here snows just trying to understand that dynamic if you could throw some light on that.
Yes.
Against cap rates compressing sort of every quarter for the last.
10 years.
Uh huh.
I think the challenge you havent predicting what cap rates are going to do is it's really.
Driven clearly by the massive amount of capital out there that's trying to find the yield.
And.
That's sort of hurt my head when cap rates had a three on it and in the high three now it hurts my head that cap rates have a low three but then when you put a 20% growth in an embedded rent over a 12 month period I get that right. So.
Kilda until we start.
Alternative investments that produce the kind of cash flow growth that multifamily does.
And it also has an inflation.
Inflation hedge than I think cap rates are going to stay.
Low and maybe go lower until that dynamic changes. So if you have a significant negative second derivative and there's other than rates rise where there are other alternatives for investors to get.
Cash flow returns that they need and that's probably when when cap rates rise but.
When you think about what.
How to how to asset price the number one reason.
And that asset is going up in value of cap rates are going down is liquidity in the market and we have the most amazing liquidity that we've had ever in my business career and then the second reason they go up and down is because of a supply and demand dynamics and we have great supply and demand dynamics right and then the third thing is interest rates.
And then the fourth thing is inflation I'm sorry.
<unk> expectations and interest rates, so you know.
Until the dynamics of those four things change cap rates you are going to continue to be really low and maybe go lower until that changes.
Makes sense and then my second question. So you know you just on the last one gave some color on supply you talked about how people are building, but that's the two to three year process. So it's not going to be affected until the end of 2022, but as we think about sort of all the capital that is finding its way into the sunbelt markets.
Is there a risk of crowding out.
Just overcrowding at some point and then you know near term looking into 2022, how do you think about these two opposing forces that on the one hand.
All of that set of air pocket that got created in construction last year, perhaps finally gets to be finished but on the other hand, we've had construction delays and you're waiting curious I was talking about 30 to 60 days.
Delays there so how do you sort of square those two often where do you think 2022 will ultimately shake out to be from a supply standpoint.
Well I think the supply is pretty much baked in for 2022 now and those construct those delays are.
Our are real and so that will probably.
Supply, we think is going to come into 2022 is probably not coming until 2023, because some of those issues as far as overcrowded crowding out I guess I'm not sure I understand that part of the equation. Your question are you, saying, there's not enough room to build or are there as well I guess just cannot expect or overseas.
<unk> okay.
Okay.
Yeah. So.
The issue on oversupply.
Markets go up and down and demand perspective.
<unk> right now we have an excess demand versus supply and the supply is taking longer to put into the market. So I think an oversupply condition. In 2022 is very unlikely and then you have to start looking out to 2023 and when in 2023 and do you have that happened. So I think it's really hard to go Okay. I think there is.
Going to be a supply problem in 2024.
Each market is dynamic and unique in its own way in and that you will have some markets that have excess supply and less demand and that's why we have a geographically diverse portfolio right now Houston, even though we're getting we're getting 8% to 10% rent trade out.
We're not getting 30 like we are in like we're getting in Tampa because.
Supply and <unk>.
Yes.
Supply, but related to the demand with job growth and so.
I think we're pretty clear on them.
In balance of excess supply through 2022 and in the middle of 2023 and after that it's tell me what the economy does do we get them to jobs.
Each year for the next two or three years in our markets, we do youre probably good.
For another two or three years, but that's the that's the uncertainty we know supply is coming.
Any longer but we just don't know what the demand is in middle of 2023 to 2024 of five that's the crap shoot I think.
Thank you for that answer very helpful.
Okay.
The next question comes from Alex Kalmus, with Zelman and Associates. Please go ahead.
Alright. Thank you for taking the question can you talk a little bit about the dynamics in St. Petersburg.
There's been a lot of high profile office relocations, and Tampa has obviously been doing well.
Can you talk about the dynamics there.
The reason for the acquisition.
St. Petersburg is.
It has some of the best market fundamentals of anything across our entire portfolio.
A lot of it has to do with just the re re envisioning and re imagining of what St. Petersburg is.
There have been tremendous growth in terms of commercial assets retail support and of course, that's brought with it some some very high end apartment development in.
But but our rent trade out right now in St. Petersburg is among the highest in our entire portfolio.
Even on the brand new acquisitions, we have there.
The rent trade out.
<unk>.
So.
We love Saint Petersburg, we love the market dynamics, we love, where that where it's headed and ultimately we'd like to have some additional exposure there, but it does not it's not a real big market and there's not a lot of stuff right.
As a sub market for us.
On fire right now for sure.
Great. Thank you and is there any data behind move outs to single family rentals in the portfolio I appreciate the color on the move outs to buy there.
Yes.
We track that separately.
It's trended up from 1% five years ago to about 2% today is still just not a meaningful number.
In our portfolio that my guess is is that probably will tick up over time, but.
Just because they're more purpose built single family rental communities that are there.
Being built in there.
That ultimately is probably better.
Lucian for someone that's an apartment renter that doesn't want to have just doesn't want to own a home that needs more space in the suburbs. So that asset class purpose built single family rental only development overtime probably.
If the margins.
We will make that number tick up but I don't ever see it being a huge number of big competitor to our portfolio I think it's our resident base is just more suited to their next move being purchasing a home and and Ray August our numbers right now.
Last quarter were about 15%, which is still way below our long term long term trend of about 18 for that category.
Got it thank you very much.
Yeah.
Yeah.
Yeah.
The next question comes from Austin, where Schmidt with Keybanc. Please go ahead.
Great. Thank you I'm, sorry, if I missed this but I was curious you guys collect any rental assistance in the third quarter, most notably from from California.
And could you provide what your outstanding receivable balances today.
Yeah, absolutely so our outstanding receivable balance today is about $12 $5 million of which we have reserved about $12 million. So we're almost fully reserved on that front.
If you think about in the in.
In the third quarter.
For same store, we collected about $4 $2 million total portfolio was about $5 3 million and so that gets us to a year to date number.
Same store of about $7 $5 million in total of about $9 4 million.
And are you assuming any collections into the fourth quarter.
Sure.
Yeah. Yeah. We are we are assuming some some additional collections going into the fourth quarter.
Yes.
And then separately second question curious if you could provide kind of an update on how deep the acquisition pipeline is today and maybe how that compares versus six months ago or so.
Well Theres a lot of the acquisition pipeline you mean, the properties available for it to acquire is pretty just property you guys youre underwriting underwriting that kind of meet your acquisition criteria and just how that scale up given your higher propensity to be acquirers.
Sure, it's scaled up quite a bit I mean, we there's a lot of property out there on the market, but what we're looking for.
Mike said tons on properties that we're looking for is a real specific product type one where we can add value and where we can move that rents pretty hard because of either management or some issues that the properties have and those are harder to find than and just.
Sort of running run of the mill merchant builder deal in the suburbs or an urban core so.
There is a buoyant.
Market Theres a lot of people that are trying to create value and sell today in there.
Interesting because theres a lot of the.
Year end madness kind of going on right, where people are trying to lock in capital gains rates with all the tax changes that have been bantered about and all that.
The 2022 is going to be another banner year were at record sales for multifamily at this point and we have had a number of transactions that we really wanted to.
To acquire that.
We didn't get to the finish line on because we are disciplined on price.
And we just didn't see the value proposition to go to the next level on those bids, but yes, we'll get our fair share. It's just but is a very competitive environment no question.
Thank you.
Mhm.
The next question comes from Joshua <unk> with Bank of America. Please go ahead.
Yes, Hey, everyone hope, you're all doing well.
The operating stats update for October it was great.
Just wanted to see if there was any color or thoughts on maybe how we should think about the new lease rate for the <unk> side, just coming off peak levels in <unk> everything else seemed to be moving out so just.
I'm trying to get a sense of where it might be heading in the months ahead.
Yes earlier, I think I mentioned that are.
On new lease rates on third fourth third and fourth quarter. This is over a long period of time is 2% to 3%.
Down from from third four so there is there is seasonality historically has been in our portfolio.
Fact that you saw the legal guidance really a wiggle down in new lease rates.
At the end of October.
Is not of any concern and it just it's less seasonality than what we would normally see in all the other metrics that we look at in particular turnover rate and 97, 3% occupancy.
Lead me to believe that were more strength and probably less seasonality than what we would typically see so I think it still looks pretty strong.
Okay Alright.
Renewals followed that.
Typical leg down as well or do you think that can kind of keep rising from here.
Yeah.
Yeah.
My guess is I didn't look at it that way, but because new lease new leases is really the market clearing price because a lot of times, we don't think renewals all the way up to the market clearing price for a lot of different reasons, but.
My guess is that it would be similar.
Maybe maybe less seasonality slightly on the renewals or new leases.
Okay.
That's it for me thanks.
Yeah.
Unfortunately, we are out of time for questions. So this concludes our question and answer session I'll turn it back over to Ric Campo for any closing remarks.
Well. Thank you I appreciate your time on the call today, and we will I'm.
I'm sure be talking to a lot of you at NAREIT coming up so we look forward to doing that so take care. Thank you.
Go Astros go Astros, Thank you Eric.
Is it if the brands when we're happy about that too because.
We do have we do have.
A lot of properties in Atlanta, and we love, our Atlanta team as well so thanks take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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