Q1 2022 Camden Property Trust Earnings Call
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Good morning, and welcome to Camden Property Trust first quarter 2022 earnings Conference call I Am Kim Callahan Senior Vice President of Investor Relations. Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and President and Alex <unk>.
Chief Financial Officer.
Today's event is being webcast through the investors section of our website at Camden living Dot com and a replay will be available. This afternoon. We.
We will have a slide presentation in conjunction with our prepared remarks and those slides will also be available on our website later today or by email. Upon request. If you are joining us by phone and need assistance during the call. Please signal a conference specialist by pressing the star key followed by zero.
All participants will be in listen only mode. During the presentation with an opportunity to ask questions afterward, and please note. This event is being recorded.
Before we begin our prepared remarks, I would like to advise everyone that we will be making forward looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Further information about these risks can be found in our filings with the SEC and we encourage you to review them any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events.
As a reminder, camden's complete first quarter 2022 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 Kim.
<unk> for our music today was pools as an April fools.
Since our IPO 29 years ago April one 2022 was one of the most consequential days in Camden's history. The day began with Kim Callahan, telling us that Camden was it being included in the S&P 500 at first would just assume Kim was attempting one of the latest April Fool's jokes in history, but Kim has never been a.
Big Jokester.
Later that same day, we closed on our largest acquisition since the summit merger in 2005 with the purchase of Texas teachers partnership interest in 'twenty, two cabinet communities with a gross valuation of $2 1 billion and finally April one was the day that Camden completed the implementation of our work re imagine Ines.
<unk> a comprehensive restructuring of how we staff manage and support our Camden communities, Alex will provide more details on this initiative in his comments.
Any one of these events would have been a big deal for Camden.
The fact that all three happened on April Fools, He was extraordinary and that's no joke.
I wanted to give a big shout out to our teams in the field, we're continuing to outperform our competitors, while improving the lives of our team members and our customers one experience at a time I'd also like to give a big shout out to our real estate investments finance legal and asset management groups, along with our accounting group for their.
Amazing work and completion of the acquisition and the permanent financing for the Texas teachers transaction truly a team effort Keith is up next.
Thanks, Rick now.
Now a few details on our first quarter 2022 operating results in April trends same property revenue growth exceeded our expectations at 11, 1% the best quarterly growth in our company's history.
<unk> of our 14 markets posted double digit revenue growth in the quarter with Tampa, Phoenix, and South East, Florida, showing the strongest results.
Given this outperformance and an improved outlook for the remainder of the year. We have increased our 2022 full year revenue growth projection from eight in three quarter percent to 10.25% at the midpoint of our guidance range.
Rental rates for the first quarter had signed new leases up 15, 8% renewals up 13, 2% for a blended rate of 14, 4%. Our preliminary April results are also trending at 14, 4% for blended growth with new leases at $14 seven and renewals at 14 one.
1%.
Renewal offers for May and June were sent out at an average increase of 14, 4%.
Occupancy averaged 97, 1% during the first quarter of 2022, which matched our performance last quarter and compared to 95, 9% in the first quarter of 2021 APRA.
April 2022 occupancy is trending at 96, 9% to date.
Net turnover for the first quarter of 2022 was 36% versus 35% last year and move outs to purchase homes dropped to 14, 1% for the quarter versus 15, 8% last quarter in line with normal seasonal patterns, we typically see from <unk> to <unk> <unk> of each year.
Move outs to purchase homes remain well below normal for our portfolio.
Finally, I want to acknowledge all of team Camden for recently being named to Fortune's list of 100 best companies to work for.
This year marks our 15th consecutive year on this prestigious list.
Camden is one of only five companies included in the S&P 500, and also named to Fortune's list for the last 15 years.
Rarefied Air Indeed next up is Alex Jessop, Camden's Chief Financial Officer.
Thanks, Keith and certainly rarefied air.
Before I move on to our financial results and guidance a brief update on our recent real estate and finance activities.
During the first quarter of 2022, we stabilized Camden Lake Yola, a 360 unit $125 million new development in Orlando.
We disposed of a 245 unit community in Largo, Maryland for $72 million.
And we acquired a 16 acre land parcel enrichment, Texas for future development purposes.
Subsequent to quarter end, we acquired for future development 43 acres of land comprised of two undeveloped parcels in Charlotte and we purchased the remaining 68, 7% ownership interest in our two joint venture funds for approximately $1 5 billion.
Inclusive of the assumption of debt.
The assets involved in this fund transaction include 22 multifamily communities with 7247 apartment homes with an average age of 12 years, primarily located in the sunbelt markets across Camden's portfolio.
We expect this acquisition will provide an initial <unk> yield of approximately four 4%.
As a result of this transaction as detailed on page 10 of the supplemental package. The expected net operating income contribution from markets, including Houston, Austin, Dallas, and Tampa will increase slightly while the remainder of camden's markets reflect flat to slightly lower concentrations.
This transaction allowed us to fully acquire a very attractive portfolio of assets with no execution or integration risks.
We initially funded this transaction with cash on hand, which included $500 million drawn on our unsecured $900 million line of credit.
We are also now consolidating approximately $514 million of existing secured mortgage debt of the funds.
Subsequent to quarter end, we issued $2 9 million common shares and received $493 million of net proceeds, which we used to pay down our line of credit.
As of today, we have approximately $70 million outstanding under our line.
At quarter end, we had $182 million left to spend over the next three years under our existing development pipeline and we have no scheduled debt maturities until September 30 of this year.
Our balance sheet remains strong with net debt to EBITDA for the second quarter of 2022 anticipated to be at four four times.
Last night, we reported funds from operations for the first quarter of 2022 of $165 million or $1 50 per share <unk> <unk> above the midpoint of our prior guidance range of $1 45 to $1 49.
The <unk> <unk> per share variance to the midpoint of our prior quarterly <unk> guidance resulted primarily from approximately two and a half cents from higher occupancy lower bad debt and higher rental rates for our same store and non same store portfolio and <unk> from an unbudgeable earn out received from the sale of our chirp investment.
Completed in 2021.
This $3.05 cumulative outperformance was partially offset by half a cent in higher property insurance expense, resulting from higher than expected levels of self insured losses.
Last night based upon our year to date operating performance, our April 2022, 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 875% to 10, 25%.
Our revised revenue growth midpoint of 10, 25% is based upon an anticipated 12% average increase in new leases and an 8% average increase in renewals.
We are also anticipating that our occupancy for the remainder of the year well averaged 96, 6% up 20 basis points from our original budget for the same period.
Additionally, we have increased the midpoint of our same store expense growth from 3% to four 2%.
This increase results from the expectations of higher than anticipated insurance costs.
Property tax expenses, resulting from higher initial valuations in Dallas, and Austin and bonus accruals related to our increased full year revenue guidance.
As a result, the midpoint of our 2022 same store NOI guidance has been adjusted from 12% to 13, 75%.
At the end of the first quarter, we implemented our work re imagine initiative, which redesign the way we conduct business in our property operations.
The primary objective of this initiative is to deliver exceptional customer service.
Focus on leasing apartments leverage the strengths of our teams and create operational efficiencies.
To do this we shifted our operations model to expand from one community, serving our prospects and residents to two or more communities being joined or nested together with shared leadership to support our customers.
Additionally, we identified processes that can be automated or centralized and created a shared service division to streamline the execution of tasks, such as invoicing delinquency management and renewal initiation to name a few.
This allows Camden team members at each community to better support the leasing process as well as the focus on the customer experience.
We anticipate that this program, which was previously budgeted for will save us approximately $1 million in 2022 on a net basis after accounting for severance payments, which were budgeted for and made in the first quarter on.
On a full year stabilized basis, our savings should approximate $4 million to $5 million.
Last night, we also increased the midpoint of our full year 2022, <unk> guidance by 27 per share for a new midpoint of $6 51 per share.
This 27 <unk> per share increase resulted primarily from an approximate 18 increase related to our acquisition of the fund assets comprised of the following components.
67% increase from consolidating the NOI from the two fund portfolios.
A <unk> <unk> increase from the noncash amortization of net below market leases assumed in the acquisition.
Purchase price accounting requires us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term, which is approximately seven months.
If the leases were above market. The amortization would have resulted in an <unk> reduction over the remaining lease term.
A 21 cent decrease in equity and income of joint ventures, and property and asset management fees a.
A 14th decreased due to the assumption of approximately $514 million in existing secured debt, which has a currency which has a current average interest rate of three 3%.
36% of this debt floats at LIBOR, plus 185 basis points and the remaining 64% is fixed at three 9%.
A 14th decrease related to additional shares issued to fund the transaction.
And a 7% decrease from the removal of any future acquisitions from our 2022 guidance.
Although our revised guidance does not include additional acquisitions. This year, we will continue to look for opportunities to make accretive investments.
Our revised guidance still includes another $200 million of dispositions by year end.
In addition to the 18th anticipated increase in <unk> related to the fund acquisitions. We are also anticipating an approximate <unk> <unk> increase from our revised same store NOI guidance and a <unk> increase from the first quarter on budgeted earn out received from the sale of our sharp investment.
This 30 cumulative increase in <unk> per share is partially offset by <unk> <unk> of higher overhead expenses related to our anticipated outperformance versus our original budget.
<unk> <unk> of additional interest expense due to higher projected interest rates on our variable rate debt.
We also provided earnings guidance for the second quarter of 2022.
We expect <unk> per share for the second quarter to be within the range of $1 60 to $1 64, the midpoint of $1 62 represents a 12 cent per share increase from the $1 50 recorded in the first quarter.
This increase is primarily the result of an approximate nine increase related to our acquisition of the fund assets comprised of a 22 increase from consolidated in the NOI from the two fund portfolios.
A <unk> <unk> increase from the noncash amortization of net below market leases assumed in the acquisition.
<unk> seven <unk> decrease in equity and income of joint ventures, and property and asset management fees, a <unk> <unk> decrease due to the assumption of approximately $514 million in existing secured debt.
And a <unk> <unk> decrease related to additional shares issued to fund the transaction.
We are also now anticipating an approximate <unk> <unk> sequential increase in same store NOI, resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of certain repair and maintenance expenses expected increases from our may insurance renewal and a sequential increase in property tax expense.
Due to higher refunds received in the first quarter.
A <unk> sequential increase related to additional NOI from development communities in lease up.
A <unk> <unk> decrease from Unbudgeable earn out received from the sale of our <unk> investment in the first quarter a half cent decrease from the sale of Camden Largo at the end of the first quarter and a half cent decrease from higher second quarter G&A as a result of the timing of various public company fees.
At this time, we will open the call up to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If we were using to speak home. Please comprehensive before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Nick Joseph with Citi.
Go ahead.
Thank you can you walk through the conversations with your JV partner of how the deal came about and then also how valuation.
Was calculated.
Sure.
<unk>.
Have ongoing conversations with our JV partner and.
We're talking about valuations and ultimate.
Disposition of the pool of assets the actual.
Sort of finalized date in the pool was to sell assets by 2026. So we had a four year kind of window and it made sense. We thought we think to go ahead and buy that portfolio, we had a meeting of the minds. They.
Wanted to exit over the next four years, we figured that it would be pretty interesting way to create value for us long term by doing that immediately.
Immediately valuation metric was we've just completed in our <unk>.
<unk> of the portfolio in December and then we what we did is we took.
Took sort of value values that were pretty evident in the market kind of average them together and then negotiated a fair price for both parties.
So it was a very positive transaction for them. The fact that they put $300 million in and took out $1 $5 billion worth of cash through the holding period and had an IRR.
Way above 20% on their capital was pretty a pretty positive transaction for the.
Teachers are Texas and from our perspective, it allows us to be more efficient in our portfolio by.
Hi.
Acquiring those assets the other part of the equation I think is really interesting about those assets is that is that they are primarily suburban.
And so it helps us with our suburban portfolio suburban continues to outperform urban generally in.
We're just seeing this great transaction for both parties.
Thanks, that's very helpful. And then maybe just what are you seeing in the transaction market today, just given the rise in interest rates.
Transaction market is still very very buoyant.
Clearly the 10 year going up a 100 plus basis points in three or four weeks has definitely got people.
Kind of a head scratch and thinking about what what pricing ought to be.
I would say that that the.
The acquisition market.
For leverage buyers has definitely taken a pause.
The value add space, which we don't really play in but that has definitely taken a pause, but when you think about that.
Core assets or core plus assets in the multifamily space.
Being acquired by long term holders for cash that that part of the market Hasnt changed at all and there is definitely very aggressive bids are continuing for that so we will see when you. When you think about sort of any asset value. It's driven by four things in this order liquidity in the marketplace, which there's massive liquidity supply and demand.
Fundamentals, which you could you can argue about that in the multifamily space today, and then inflation expectations, which we all know are going up and then ultimately interest rates. So I think at the margin some.
<unk> buyers are definitely having to rethink their underwriting, but most institutional buyers like us or just kind of looking at it as a.
It hasn't really changed our pricing in that from that perspective.
Thank you.
Mhm.
Our next question will come from Eric Johnson with Deutsche Bank, You May now go ahead.
Hi, everybody.
Good morning, and thank you.
Yeah, So, let's just stick on that in this Richard cap rate environment.
You mentioned that tight versus historical levels on the cap rate the 10 year treasury. So so what's keeping you from accelerating dispose and perhaps do you see or some other markets.
Well nothing really I mean, we have a budget. This year of a couple of hundred million dollars of sales, we usually do those at the end of the year, primarily because we like to keep the cash flow as long as long as we can in the current year.
But we have a methodical.
Disposition and acquisition program and we're going to continue to execute data. If you think about the last 10 years. We have we have sold $3 $4 billion of assets with an average age of 23 years, and we acquired $3 5 billion with an average age of.
Four years, maybe with the exception of the fund, which was actually 12 years. So we're going to continue to be involved in the market and.
And it makes sense, if you think about all our dispositions we've done I mean, all the low hanging fruit from a disposition perspective from Camden has been done and we love our markets, we like where they are operating in and at the margins, we will sell some assets and reallocate capital as we talked about in the past we will be.
<unk> going to lower our exposure in D C and Houston.
Primarily through organic growth, but also through some pruning of the portfolio in those markets as well.
Okay. Thank you I appreciate that and then you guys have I think $390 million in unsecured debt maturities. This year clearly you have one of the best balance sheets.
Amidst all rates, but when it comes to refinancing can you kind of speak to when you talk to your bankers, how how the rate environment looks and what that might look like versus.
Previous rates.
Yeah, absolutely. So we've got about $350 million of debt that comes due December 15th and and that debt is at 315% the way in our model that we plan on paying for it as the couple of hundred million dollars of dispositions at the end of the year that Rick mentioned, but if you think about overall rates for us.
The indicative that we have right now are right around call. It four 1% and to give you an idea.
Probably about six seven weeks ago that number was sub 3%, so pretty pretty aggressive acceleration on rates.
Thank you that's very helpful. That's it for me.
Our next question will come from Neil Malkin with capital One Securities you May now go ahead.
Thanks, guys another great quarter.
First one you touched on it I think Alex about the way that your staffing and serving the communities.
Can you just give some more color.
And that it kind of seems like everyone or just your peers are shipped until like the next generation of sort of operations.
Yeah.
Again, just just.
If you could give.
Give some examples or kind of sort of it sounds like youre, putting your sort.
Clusters of assets.
To reduce.
You know your Opex load if you can just give some.
To elaborate on that.
And then how you see that going forward over the next 24 months.
That'd be great. Thanks.
Yes.
Yeah sure.
Give you a little bit of detail about the we call it nesting.
Hummingbirds right. So some people call it, causing but the geography of our portfolio is pretty unique in that respect.
Our approach probably.
It's very unique to Camden because of our geography, so within our 170 plus or minus communities.
After the re re formation of reporting responsibilities and duties into nest. We ended up with about 46 communities that are still standalone single community manager.
Staff and then we ended up with about 76.
And a pair of two and we have 39 communities that are in groups of three so.
And that's really just based on geography, and being able to staff those communities in a way that.
The onsite staff becomes interchangeable with regard to where they need where the need is for whether it's maintenance.
Personnel or leasing personnel. So that's that's kind of the geography of it again, driven a lot by the way our portfolio lays out and the ability to be close enough to a sister community to make that work.
When we started out and theyre going to be all different permutations of this are going to end up with a with an approach that works for their grouping of assets in their geography, but when we started out.
We didn't have a stacking in mind, what we were trying to accomplish is really two things regarding our onsite teams. One is one of the biggest challenges that historically of the single asset community manager assistant manager of leasing and outside staff is that you just don't have.
The ability to have the promotion ability and the growth opportunity for those folks because they are sort of in the single line stack that's as one challenge.
Providing additional growth opportunities by having new new positions to sales.
Our position and then the operations analyst position that people can migrate to over time as they are experienced increases so that was a driving influence for us is to come up with a better mousetrap to provide for growth and growth opportunities with the second thing was that you always have if you're a single community in this linear.
The community manager assistant manager outside step inside staff.
You end up with a situation where your skill sets are not properly aligned in many cases.
You end up with people who are naturally.
Inclined to sale.
Leasing consultant the next logical and really only move in most cases for them to advances to become an assist was to become an assistant manager and assistant manager has in some cases. They have some sales that he has been a lot of cases, it's very much a administrative support Roland and honestly our best salespeople.
<unk> are generally not our best administrative.
Tasking people and so that that was just an inherent shortcoming.
Not being able to leverage people strength.
Because of the structure that we were bound to by having this single community linear approach. So that was the second really driving influence for us is to get people matched up to where they are natural strengths are and then provide more opportunities for growth within that within that Howard you saw.
<unk> is a little bit about our philosophy.
Yes, no that's great. Thank you other one for me is related to.
I guess you know renewals.
Yeah, I think I think renewals are I think across the board I think stronger compared to.
What management teams and what we thought.
What kind of you know look.
It looked like obviously.
Uh huh.
Turnover is historically low end.
Because you don't push as hard on those versus new leases you have quite a bit of.
Laughter lead built up.
And so I'm, just wondering or I would like you to discuss how you think about renewals through 'twenty, two and even into 'twenty three just given the sort of.
Low turnover environment people willing to take these prices you know how.
How do you think that stacks up for.
Pricing power over the next several quarters.
Yeah, So I think that the.
When you think about renewals and new leases I mean, we manage our rent roll our revenue management team is doing this daily and we're looking at situations, where it might be appropriate to put caps in place.
Sure.
If youre trying to manage to a turnover our occupancy them out and we've done that in some cases I think the the reality for our portfolio is is that we started seeing really significant both new lease and renewal increases and that sort of May June timeframe last year, and obviously, we're lapping up on that.
So where we're coming into a period, where we were already.
Resolutely pushing both new leases and renewals in most of the rest of the market had not started to do that and certainly a lot of our public company peers had not gotten to the point, where they have that kind of pricing power. So we're going to run into that first.
You got to think about the move in rental rates, both new leases and renewals in these markets is just a complete reset of the market clearing price for multifamily and now we are going to reach that first because we started down the trail first in terms of the market clearing price for these assets.
There's a lot of conversation a lot of questions around.
16% 17, 20% headline increases and that's true we have seen that but I think.
Contact you almost have to think of it over a three year period, because our residents who are either getting these big kind of eye popping increases right now but for the two previous years.
You go back two years ago, we were actually decreasing rents at the beginning of the pandemic and then the second year, we had some very modest increases so for the for the most part our residents are the reset of the rent if it's 15% over a three year period.
It would be more like 5% per year for three years, but since it's all on one year, it's kind of it's kind of the headline but.
We will definitely reach that reset first in our portfolio I think the two markets, where we are not.
Not going to reach the reset probably not even by the end of this year.
Our Houston and DC proper and maybe La County, and that's that's more in D. C proper Loudoun County, and the D C Metro area and L. A county, that's a regulatory constraint and then in Houston.
We don't have any regulatory constraints anymore.
Our growth rates have picked up pretty significantly, but those those three of our markets.
Probably will be the three that have not completely reset by the end of the year.
I'll just add to that if you take our signed and renewal leases and you take out the two biggest markets Houston and DC, we had a 14% blended increase with all of the markets included SEC Houston DC outage 16, 6% so to Keith's point the markets that have that have have not kind of reset to the level.
<unk> with the rest of the country.
Have the ability to do that over the next couple of years.
Houston's issue is that energy has been has not added back all the jobs. It lost during the pandemic and Houston Overhauls and economy has still not bad.
Added back all the jobs that we lost during the pandemic and so there is gas in the tank. If you will for Camden going forward on renewals and new leases when our two largest markets start.
Over the next couple of years.
We're able to able to do that big reset on them and don't get this wrong.
Ron.
Eight 8% to 9% increases in and new leases, but it's nothing like Tampa or Phoenix or some of these other really white hot markets.
Thank you.
Okay.
Our next question will come from Rob Stevenson with Janney.
Go ahead.
Good morning, guys Hi.
Hi, Keith or Alex what's the expected stabilized yield on the current five projects under development and what are you expecting on projects that you'll start over the remainder of the year and I guess the other related question. Here is what are you seeing on pricing and availability for materials and labor for new starts.
Yeah, absolutely. So if you look at our current pipeline, we are anticipating that right around a 6% stabilized yield if you look at the assets that we haven't started yet that number is right around five and a quarter to five 5%.
If you think about construction cost probably the easiest way to think about it is to is to bifurcate. It between high rises and for high rises we're seeing escalation right around half a percent of months.
For wood frame construction that number is right around 1% a month I will tell you, though we're starting to get some good news lumber is down to I think it's about $1000 for for board foot, which is which is off of the <unk> hundred that we saw about three months ago, but it is certainly well above the 400 that.
We were seeing in normal times. So we're still seeing some escalation, it's still fairly significant but but there are some signs that it might be slowing down a little bit.
The other part of that equation is.
Condition costs are up because it's taken longer to build so pretty much every one of our developments has definitely been enhanced by higher rent growth and better yields than we originally anticipated.
And the pipeline that we're starting right now we start out with a fairly low expectation of rental growth over the next couple of years and then flatlined at 3%. So there is definitely upside in the ones that we're starting this year in terms of our yields but the thing that you get into this issue of of how fast supply can get into the marketplace and we're adding 60 to 100.
20 days.
Additional timeframe on our construction projects anything we start this year and Thats. In addition to the 60 to 90 days that we added three years ago. So it's.
It's really.
The supply chain issue is going to be a problem through 2023 2024.
That's sort of good news and bad news it takes you longer to build but on the so that's bad news. The good news is is it all this new supply that is starting.
In response to the demand.
Pushed this happened in this industry is going to take a lot longer than most people think to come into the market so that should.
Mike.
It makes us feel pretty good about about 2022 through the end of the year and through 2023 and not having major supply.
<unk>.
Sure.
On the demand side.
Okay, and how are you guys thinking about the trade off in terms of redevelopment. These days given how you were able to get 15% rental rate increases versus taking the unit out for some period of time and spending money and is there a bunch of units in the JP JV portfolio. You just acquired that you expect to redevelop.
Or has that already been going on inside the JV over the last few years.
Yeah, we just approved another grouping of for our redevelopment.
Program.
Total of about $125 million, so we still as the vintage works in.
<unk>.
New construction pricing around our existing assets that are anywhere from 10 to 15 years old as those rental rates continue to escalate. It makes three positions look much more attractive obviously the yield on that book of business has come down over time, but it's still the best play on the board for Camden with re.
Regarding capital allocation between.
Either new development acquisitions or reposition so we will continue to do that as we can there are a couple of assets that we acquired in the funds that are already under reposition there are a couple of more that it'll likely be added to the pool.
Next year, but.
Honestly, we had already done some repositions with our JV partner as they made sense. They were always extremely supportive they understand they understood the play.
The return on invested capital was the was the best play on the board for the joint venture. So we operated the fund as if they were Camden assets, obviously with the consent of our partner, but so theres not its not like we were waiting or didn't have approval or didn't have capital or didn't have the the buy end to do repositions.
Hey.
As they were appropriate within the fund, but there'll be some assets that will be added just on based on conditions on the ground and what's happening to rental rates.
And the sub market.
Okay. Thanks, guys have a good weekend.
You bet.
Our next question will come from Rich Anderson with NBC you May now go ahead.
Thanks, Tim Good morning.
So I am sure Youre bankers have done the calc for you about the net new demand that you'll get from the inclusion.
But I'm wondering if the the equity offering post inclusion.
To what degree was influenced by that.
It was it was it made larger because of perhaps new indexers needing to own your stock any influence at all.
Now it was the equity offering was strictly to pay for the joint venture acquisition I mean, we bought it.
$1 $5 billion you take off the.
<unk> side, we needed $1 1 billion in cash and we had $600 million on our balance sheet. So we.
We drew down on the line 500 million in.
And what.
To us that.
Given what has happened to interest rates with the bond market that the equity offering made a lot of sense.
We're a reload the balance sheet and get our debt to EBITDA.
Down to the $4 four.
Area. So no it was all driven by the <unk>.
Got you.
The acquisition, Okay fair enough.
Second question.
To what degree.
You hear management teams your peers say, what we had heading into the heavy leasing season.
Even MAA said that in the Sun belt.
I'm curious to what degree seasonality really plays a major role for you guys I would think even like in a market like Phoenix. It's 150 degrees in July you know, maybe a better time to lease in November .
And there's a lot of markets like that so do you have kind of a muted seasonality factor or.
When you talk about the second and third quarter or do you feel like it's just as prevalent for you guys is it might be for any QR or somebody like that up north.
Yes.
Always going to have some degree of seasonality rich as you mentioned Phoenix is the reverse has reversed seasonality to our entire <unk>.
Rest of our portfolio for the reason that you mentioned, but.
<unk>.
From these levels of occupancy and the level of the low level of turnover that we've seen and continue to see you.
Through the leasing season.
The volumes are just not going to be there as they have been in the past incredibly low turnover, we're starting from a very high occupancy so but more people at it.
It's just a fact I mean people and in our markets tend to move around more in the summer. There is a there is an emphasis to get something done before you have to go back to school or are they for whatever reason.
Theyre relocating it just it's conducive to doing so and always has been so I don't think seasonality will be there I just don't think you're going to see it in the leasing numbers, if youre comparing start comparing year over year, how many leases that we executed in the next six months call. It between now and go back to pre pandemic.
Thank you Miss anything like that but it's not because seasonality is not out there.
A different set of facts.
Fair enough, that's all I got it thanks.
Okay.
Our next question will come from Joshua that online with Bank of America. You May now go ahead.
Yeah, Hey, everyone.
Doing well.
Okay, I am sorry, if I missed it but did you guys discuss your earn in for 2023 any given everything that's already in place.
We did not and it's probably it's.
The number that we've talked about but but it's such a speculative number that that.
That.
We're really not not.
Talk about that it's just it's hard to hard to predict ultimately.
Maybe second quarter is a better ask it.
Okay.
I'll keep it at my question Bank for two Q Okay.
And then one of your peers announced a new structured investment program this quarter and I know some other Reits habit as well is that something you've looked at like whether you would set up a similar program, where you could supply mezz or preferred equity to third party developers in your markets.
We have we've actually done that before and.
You can at the margin make decent money for money on those types of transactions and I know our competitors do it.
We would rather keep our balance sheet clean and focused 100% of our attention on our existing portfolio and at this point, we have no joint ventures on our portfolio. We have the most simple and cleanest balance sheet in the sector and we're going to keep it that way.
Got it sounds good thank you.
Yes.
<unk>.
Our next question will come from Hendel St Joost.
You May now go ahead.
Thank you operator that was actually very good presentation.
Hey, guys.
I want to ask you about that.
So far development here it looks like you started two projects in Houston, and I guess I'm curious you've alluded to in the past, perhaps you were looking at this but I guess I'm curious why now.
Approach you are taking here the type of product it looks like you're partnering with a local builder maybe talk about the returns you're targeting and your appetite for maybe doing more thanks.
I'm curious so you were talking about the two properties that we've acquired in Houston and those are both.
Purpose built single family for rent properties in the way, we look at them as Theyre, just horizontal apartments, right and the fact that Theyre all in one one subdivision in there.
Both projects are decent scale 180, plus units, we just think it's an interesting.
Thing two single family rental market to sort of dip our toe into if you look at our history. We got involved in students student housing and we got involved in senior housing.
And those those two areas for us to kind of far flung for our taste. The single family rental markets are different animal and if you can if you can have a subdivision and have some scale within that that subdivision then as you sort of run it just like an apartment and.
And maybe with less staff and and what have you, but I think it's just.
And interesting and potentially.
Spansion ability for us.
In the markets we're already in so we are at.
Like I said for our toe in the water and the yields are pretty much the same on those.
Properties as they are in the multifamily space. The challenge with purpose built single family rentals is that the size.
The project is is not ideal you know most of our new developments today are over $100 million emotional like $150 million. So it's a little inefficient for our senior development people to work on smaller deals like that.
But it's I think.
An area for us and also the.
The municipalities Oftentimes don't understand single family rental so it takes longer sometimes to entitle.
But ultimately I think its a interesting area for us and to ultimately maybe get.
Some benefits from how they are operated and have that translate into more efficient operations in our apartment projects.
Got it got it that's interesting so it sounds like there is perhaps a mindset to do more but you're using how these two projects that may be a case study.
Yep.
Second question, maybe for Alex maybe a bit more color on the expense.
Guidance are the 120 basis point increase.
Not a small amount given that you gave out that in 60 days. So I guess I'm curious if you could talk a bit more more about what's happened in the last 60 days touched on some of the pressures maybe it would be insurance and property taxes, but I guess I'm curious maybe get into some of the detail on each of those pieces and do you think that the new guide kind of captures what youre seeing out there or the risk of a further.
The increase in AR.
The same store guide over the course of the year.
Yeah, absolutely. So the first thing I'll talk about is taxes should you have to remember that taxes.
About 35% of our total expenses and initially we thought taxes were going to be up three 3%. We now think they're going to be up three 8%. The big driver there is Austin and Dallas, We got our initial valuations in.
They were in the 30% up range. Obviously, we will we will contest those as we typically do and we obviously anticipate that there's going to be some rollback in rates to account for the increase in valuations but.
But that's one component of it.
The second component of it is insurance.
Originally we thought that the insurance was going to be up call. It around 11% and we now have it up around 22%.
70% of our insurance cost is associated with rights. We think our rates are going to be up right around 30%. This is continues to be a really tough.
Insurance market that we are actually in the market right now trying to do a renewal.
We're going to know a little bit more.
Obviously, probably in the next three or four weeks, but that but we feel that what we have here is a is a pretty good number and then the other side of it is salaries and as we typically have done.
Whenever we have outperformance on the revenue side, we do increase our bonus accruals as you know we do we do reward our onsite teams for for their efforts and so you've got a component that are directly tied to what we're anticipating for outperformance on the revenue side for the rest of the year.
That's great color. Thank you.
Our next question will come from Brad Heffern with RBC capital markets. You May now go ahead.
Hi, everyone can.
Can you give any updated stats on move ins from outside the sunbelt or move outs to areas outside.
Yeah, absolutely. So if you think about in the in the first quarter of this year.
About 19.3% of our move ins came from non Sunbelt markets. If you look at that on a year over year basis, that's up 160 basis points from the first quarter of 'twenty, one and if you compare it to the first quarter of 'twenty right right before before Covid got started.
That number is actually up about 330 basis points. So continue to see really really robust demand from folks move.
Moving from outside the Sun belt into our sunbelt markets and continuing to see acceleration on that front.
Okay got it.
And then any update on where rent income stands currently.
Sure right now at rent to income is around 20%. If you look at our new leases.
Our average household income is about 116000 and our.
Or are.
Their lease to rent to income ratio of slightly less than 20 overall, it's just right at 20 and that challenged with that number is so we don't ask our residents to update their income number. So it's been happening is when we renew somebody the rent goes up but your income stays the same because we don't ask them to update their income and and so.
I think those numbers at 20, <unk> and a little less in 'twenty.
Probably overstated and it's probably in the teens, if you're if you upgraded everybody's.
Income yes.
Okay. Thank you.
Hum.
Our next question will come from Steve <unk> Evercore ISI.
You May now go ahead.
Thanks. Good morning, I guess first question just on bad debt, maybe I missed it could you just maybe talk about the bad debt trends that you saw in <unk> kind of what you're budgeting within the revenue growth for the full year.
Yeah, absolutely so collections for us in the first quarter, we're right around 98, 8%.
If you think about bad debt and you sort of go back to the trend so pre COVID-19 for us bad debt was right around 50 basis points.
In 2020 that number was around 120 basis points and that stayed that way through all of 2021 as well what we're anticipating in 2022 is a slight improvement in that number and we're thinking that.
We'll get down to right around right around maybe call it call it about 100 basis points.
Okay Alex.
Yeah, Yeah. Good alright, if you just think about 2003 does it do you think that reverts down towards the 50 basis points next year.
We certainly anticipate that as we move through 'twenty, two we're going to get back to a more normal trend I mean really if.
If you ignore California in our portfolio are our delinquency is right around 50 basis points, which is right in line with historical averages. So as long as we get to the point in California, where we can enforce contracts.
Which we certainly hope by the time, we get to 'twenty three we're gonna be in that scenario. Then we should assume that the 23 is going to be.
A more typical year and by the way the 50 basis points that I told you in 2019, that's what we experienced since we went public so that's very much a normal year.
Got it Thanks, and then just second question I guess maybe for.
So ric or Keith just big picture, we're seeing more discussion about rent control outside of New York, and California markets and some of the Florida markets just given how much rents have gone up I'm, just curious kind of what your thoughts are in.
Excuse me what kind of discussions.
You may be having with folks in Washington, and some of the states about that.
We are definitely on it no question.
When you think about.
The states like Florida and Texas.
They may talk a good game.
In the cities at the local level, but at the state level. It seems very counter intuitive to think that deep Red states with Republican governors are going to go anywhere near repealing service statewide bands on local municipalities.
You mean rent control and so I think we're in good shape in most of our markets.
Sure.
We're not really too concerned about rent control national multi housing council.
Very involved in that and Laurie Becker servers on their leadership group and when we're talking on ongoing basis to two lawmakers about rent control nationally.
It really won't be a national thing, it's really a state by state thing.
Had a conference call last week for example, this week with the California apartment Association and industries.
<unk> to half half.
<unk>.
Another five in California, coming up on on repealing the statewide rent control.
In areas, but generally speaking in our markets I think we're pretty good with the exception of California on rent control issues.
Great that's it for me thanks.
Okay.
Our next question will come from Connor Mitchell with Piper Sandler you May now go ahead.
Hi, Thank you for taking the question.
Sure a couple of items to circle back to first regarding the single family rentals can you just remind us.
Standalone products or would it be more of attached townhome.
These are standalone products with with.
With two car garages in front you are in our backyard.
We.
When you think about whether they're townhouses or not.
I think that.
We were starting out with detached.
And I think ultimately townhouses makes sense do we develop townhouses as part of our development program as certain places for example in Atlanta at our our Camden Buckhead property, we have townhouses and there are three bedroom townhouses and they get the highest average rent.
They are absolutely full all the time so.
I don't think it's negative townhouses or negative the two that we're building right now just happened to be attached.
Great. Thank you and then the <unk>.
Second.
Question was could you just remind us again of the.
If theres been any acceleration of move outs to home purchases, given the rising mortgage rates or decline.
Yes.
Actually declined from last year, we were in the high <unk>. So far this year, we're back down to 14% long term average for our portfolio over.
Our 20 plus years.
That night to 18% to 19% so we're still well below what the long term average is and with the recent spike in the tenure and the corresponding move in mortgage rates.
I just I can't it's hard to see that number getting much traction on the <unk>.
Outside anytime soon.
I suppose it's possible that you could sort of have the panic buy you know like I have to buy now before it gets worse.
Effect in this quarter, but mortgage rates above 5% versus where they were even six or seven months ago in the threes.
As a game changer for most people in.
And I think that the.
Lenders are.
It will probably put in place and a lot more scrutiny.
Around borrower requirements, just because there is it's better to underwrite them and so I think.
I think it's pretty likely that that will stay much.
Three or 400 basis points below our long term average on the move.
Move outs to buy homes, just because it just gets tougher and tougher not so not only do you have in many of our markets single family home prices have doubled in the last five years and now you have a 5% mortgage rate and a combination of those two things.
Killer for affordability for most most first time homebuyers.
When you look at our numbers from 2021, it was interesting to watch to see in March of 2021, our move out to buy houses was around 16% and in April through the end of the month. So far it was 17% in March and April of 2021, and if you go back to this March we were at 16%.
<unk>, which is pretty much the same as it was in the prior March and then April fell to as Keith pointed out 14%. So we had a 300 basis point decline from April of 'twenty, one to 'twenty, two and a 200 basis point decline from March to April and April is sort of thought as the spring.
Home buying season people rush into the market before the summer and so having those numbers declined year over year and month over month tells me that that that debt.
Single family home move out to buy homes is not going to be a problem for us and there is some tension and stress in the market where people can afford the high price or the high interest rate at this point.
Great. Thank you for the color on that.
Thanks Thats it for me.
Okay.
Our next question will come from Shannon tree Nuestra with Goldman Sachs. You May now go ahead.
Thank you for taking my question I believe it hasnt come up in past apologize could.
Could you remind us where loss to lease.
For you right now.
How much of that do you expect to capture in 2022.
Sure. So last release for us is right around 11%.
And obviously as we are.
As we work through 2022, we should capture a large percentage of that now obviously you have to remember that for renewables, we're not generally bringing renewals all the way up.
All the way up to market for a variety of reasons. So you'll you'll never really capture that full amount, but that but we should get quite a bit of it for the rest of the year.
Great and before the end of the or if you could give us an update on your thoughts around how you're thinking about.
Apply in 2023.
I mean, obviously its no surprise to anybody.
You bet.
Permitting activity construction activity.
Ill really up there.
At the same time.
Continue to see compounding supply chain issues as well, so and higher interest costs and can I just get your construction cost so how youre thinking about supply.
Backyard here.
Yes, so it's Mike.
Go ahead.
Ron Witten has got completions in our across Camden's portfolio at about 160000 apartments. This year and then.
In 2023 based on his estimates that goes to 212000, so about 50000 increase across our entire.
All of our 15 markets and I do believe that.
This is Ron is updated as completions numbers to try to capture the impact that Rick talked about earlier, which is it just takes longer to get these jobs bill. So everybody that's been doing completions work for years and years.
And they've been using the same kind of.
Estimates and metrics around start day, how long does first unit turned into how long to deliver completed product.
They've all been badly wrong in the last two years and I think I think they are finally.
Mike made some progress on understanding just what the effects are of elongated construction periods that everyone's dealing with so I think as I think as he believes his numbers have captured the slippage that that is happening above historical rates and he thinks we're going to be up 50000.
Completions across Germany.
Markets next year, which if you look at it market by market, there's not none of them look.
<unk> troubling at this point as long as we continue to get decent job growth.
Great.
It also shows.
It also shows.
Above average or above long term trend revenue growth in 2023 in spite of.
The new supply coming in.
Okay.
Our next question will come from John Kim with BMO capital markets you.
You May now go ahead.
Thank you good morning, Alex in your prepared remarks, you mentioned.
That your same store revenue guidance includes the assumption of 8% on renewals and I just wanted to clarify is that 8% for the remainder of the year or is that the full year, including 14% in the first quarter.
Yeah, I think the best way to probably look at that as we're getting towards a blended 10% and so the blended 10% includes the full year.
Yeah.
Okay. So not just focus too much on renewals, but you Didnt mentioned it is lower than your new lease growth rate I'm just wondering.
Why that's the case with the new lease growth rate of 12%.
Yeah, you know obviously, we've had over the past call it year and a half we've had a situation where new leases had been higher than renewals.
Now at some point in time that will converge right and that's what you'd typically see but for our assumptions right. Now we are assuming that they are not converging just yet and if you think about why renewals are less than new leases, it's what I sort of mentioned earlier, obviously when you've got a resident in place.
There are certain there frictional costs associated with that resident, leaving and that's typically why at.
At least in the past year and a half we've had lower lower rates on renewals.
Yeah.
Okay. My second question is on your 11% loss to lease.
Is there any way to breakdown what that last leases on your leases that were signed in the second and third quarter of last year Im.
I'm, assuming that you're just not in the first quarter is minimal lost lease that would be higher than 11% on your older vintage leases.
Yes.
Yeah, I mean, so when we when we talk about 11% loss to lease what we're doing is we're looking at the signed leases that occurred.
That occurred in March as compared to the in place leases.
You are you are right that if you have an upward trajectory of.
Rate increases in 2021, then you start to build off of either lower higher numbers, depending upon how you flow throughout the year.
And theoretically I mean, that's why the loss to lease starts to starts to minimize is as you move forward.
Great. Thank you.
Hum.
Our next question will come from Austin, where Schmidt with Keybanc you May now go ahead.
Yeah. Thanks, everybody I just wanted to go back to the new lease rate trends, a bit which you know recognize they've moderated a bit here from the peak and just wondering how much you think is really seasonality related versus the tougher comps and just normalizing steadily normalizing operating conditions because you open at this point.
To what you just said really turnovers remained very low and in occupancy really held up quite well in <unk>. So I guess, what's what's holding you back from trying to drive.
New leases, even higher to the extent that youre still getting traffic and sort of keeping occupancy.
Fairly elevated relative to historic levels.
But I think you I think you have to start with the.
Places, where we are constrained from getting market rate increases and that would be DC proper still certain parts of California.
Those are meaningful meaningful numbers in Washington D C. Washington D C, which includes the DC proper assets, allowing county, where we are we still are not able to push through what the market rate increases are you get our total rep rents and in Washington.
<unk> for the quarter were five 3% against the portfolio wide average of something north of 11, So, it's 17% plus or minus of our NOI. So it's.
That's a big part of the story is that as as other places.
Quote moderate from 20% to 16, you still have Washington.
And then parts of California, where we're getting no rental increases or CPI type of rental increases so.
I mean, I think that's the biggest part of the story in terms of we certainly believe that if we were unconstrained in Washington D C.
And we know just mathematically if you we haven't had anything close to a reset of room rates in D. C proper in Loudoun County, because we haven't been able to raise rents. So I think it will happen.
It's likely to happen.
Hope that we get out of the constraints of.
Regulatory.
Regimes that don't allow rental increases.
Just by sort of Fiat or local order by the end of this year and we certainly expect to and I do believe that.
The way things are trending right now.
We will be coming out of the constraints even though.
When you come out of the constraints there is still going to be a period of time, where we have to work through the process of actually getting control of our real estate on the folks that are still not paying or choose not to pay so but I think it's I think we feel like we're in a really good position given given the.
The untapped rental increases that we're going to get to at some point and I just I certainly hope it's by the end of the year.
No I appreciate that perspective, and so how much of the loss to lease bucket is from markets, where you are constrained and then I'm also curious how much across the portfolio market rents have increased year to date.
Yeah. So if you think about market rents and sort of increasing on a year to date basis on a full year for 2022, we think it's going to be up right around 4% and so.
So you can probably extrapolate that back to what we're seeing in the first quarter.
On loss to lease.
I think the way that Keith sort of laid it out is probably the best way to think about it which is you've got you've got D. C.
In California, which which makeup.
Which make up 23% plus or minus.
Our total portfolio in that amount.
Is going to have a much larger loss to lease.
Calculation and you can probably take that loss to lease.
You know, it's it's almost sort of hard to understand exactly what it is right because because you don't understand what the true market rate is because there's so much to discover so I think as as we sort of move through the legislative challenges that we have and then we were able to establish.
Got real market is we're gonna have a much better idea of what the true loss to leases.
Right and presumably market.
Wages have moved much more than probably market rents over that three year period that you were talking about earlier in the call.
Alex absolutely.
Yeah with respect to guidance and more specifically the assumptions underlying same store revenue growth are you guys targeting lower occupancy and the revenue management systems to get you back to that back at or below the 96, six I think youre assuming for the full year.
And then I'm.
I'm also curious what you are implying for for lease rates in the back half of the year.
Yeah. So so we shut our shut ins I mean, it's really interesting because.
The higher you set your occupancy setting the the higher Ed drives the rental rates right and you're trying to get to that sort of sweet point, where the occupancy setting is high enough that that you ultimately maxed out on your rental rates and what we've seen is that no matter how high we set we continue to have just really tremendous demand.
And that's why you're seeing the type of the type of new lease and renewal increases that you are having so so it is not a matter that we're sitting here and saying we want to be at 96, 6%.
We do believe that.
And we do have.
Perhaps some conservatism.
Built into our numbers that that the occupancy levels that we've experienced over the past really four or five quarters can't continue.
And so so that's what you've got baked in.
And then if you sort of think about what are we assuming in terms of in terms of blended rental rates on a go forward basis as I told you, we're assuming that we're averaging 10% for the full year. So if you look at the first quarter, that's right around 15%. If you look at the second quarter, we're at call it 14.5% already so.
That would imply that we're assuming that we get down to sort of a 7% number for the third quarter and maybe a 4% number for the fourth quarter.
I missed that 10% number so thank you for that and then what is the is the 30 to 60 day availability. When you look out is that elevated versus prior periods or tracking similarly.
Kind of known move outs plus you know.
Current vacancy.
Yes, we can.
We continue to have very low turnover.
Okay, great. Thanks for the time.
Hmm.
Our next question will come from John Pawlowski with Green Street, you May now go ahead.
Thanks for keeping the call going Rick just one question on the Texas teachers trade you mentioned the valuation was done at the end of the year and December was there any impact or any repricing of the portfolio due to higher interest rates.
Well we did.
We did have the appraisal of formal appraisal well, where we mark to market at the end of the year, but then in.
Yes.
The first quarter. We also then adjusted that for what we thought the current market was and thats that at that point.
<unk>.
Where we are.
Sort of came to struck the price. So there was an adjustment from the appraised number in December .
And we ended up with.
Not having a big discussion about what those prices worse since we had sort of two to sort of a basis that we use the original December one and then another valuation kind of metric.
Probably at the end of February early March.
There was no adjustment to purchase price right now there is no adjustments on interest rate so no.
It was talked about before to you the meaningful move in interest rates.
Okay, I guess, the I don't think that the cap rate on our view.
By the way.
Go ahead.
Yes, sorry, I cut you off that I guess, the cap rate above 4% kind of surprised us on the high side because <unk> can you just talk about how many other bidders were in the 10 and.
How broadly marketed.
I'm talking about the Texas features transaction.
Yes, there are no other bidders in the channel it was a direct negotiation between.
Between the partners of the JV, which was Camden, and Texas teachers and so.
When you look at the cap rates on it.
At the end of the day.
It just became evident.
Evident to Texas teachers at least from their perspective that they wanted to trade based on valuations and the value that we like the value calculation that we did after after the original appraisal values.
In December were substantially higher than the price values in December so I think they just thought it was when they looked at everything overall the efficiency of the transaction from their perspective, and our perspective was really really good because had we gone out embedded into the market clearly we wouldn't have been able to do the transaction from start to finish.
Asia was a four week transaction and if you want to try to bid a 7200 unit portfolio 22 properties in multiple markets.
120 day gig and.
So I think teachers was very interested in getting the deal done as soon as possible as we were and it was sort of we both looked at it as a moment in time.
And we got to what we felt was fair value even though.
You never know what values will be clearly when you bid.
And we were happy about not having to bid it.
Okay. Thank you for that color.
Sure.
This concludes our question and answer session I would like to turn the conference back over to CEO , Rick Campo for any closing remarks.
Great well, thanks for being with US today, and we'll see you guys and NAREIT in a couple of them in a few weeks right.
First in person NAREIT in.
In June so thanks, a lot and take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Yeah.