Q2 2022 Camden Property Trust Earnings Call

Good morning, and welcome to Camden Property Trust second 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 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.

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.

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.

Formation 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 second quarter 2022 earnings release is available on 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.

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.

The theme for today's on hold music was together, which.

Which will resonate within Camden.

After two years of virtual meetings. This year, Canada was able to be together for most of our important cultural events.

In May we held our annual leadership conference, which brings together 400, plus Camden leaders for three days of learning reconnecting and funds a lot has changed in the world since May which serves as a good reminder, that real estate and financial markets, where ryzen fall, but companies with a great culture will thrive in all conditions.

The following highlight reel from our leadership conference as an inside baseball view of a culture that has earned a place on Fortune's 100 best companies list for 15 consecutive years.

[music] Cohen.

Jai.

[music].

These awful.

Good job.

Got it.

No.

Consolidated.

John .

[music].

Yes.

Okay.

Yes.

Okay.

Right.

Okay.

[music] Greg.

Sure.

[music].

Yes.

Yes.

Okay.

Sure.

Okay.

Okay.

Yes.

Okay.

[music].

Thanks, Keith in Camden, and the great culture that you've created and continue to build cabinet will always thrived.

The last year and a half has been the best NOI growth and <unk> growth that we've had in our almost 30 year history with NOI growing 19, 6% and <unk> growing a whopping 47%. These.

These gains are built into our run rate and are likely to remain in place driven by strong consumer demand for housing in our markets consumer strength is driven by strong employment growth large wage increases and highest shavings levels or apartments or affordable despite the double digit rental increases.

Our resident spend roughly 20% of their incomes over their rent.

Domestic migration has led to more than 700000 Americans moving to our markets in the last year. They are not moving back apartment supply has not caught up with demand.

We expect growth to moderate over the next couple of years, but believe that we will exceed our long term growth rate with a strong balance sheet a great team with an amazing culture, we are ready for more successes.

Next we have Keith.

Thanks, Rick.

Now for a few details on our second quarter 2022 operating results in July of 2022 trends St.

Same property revenue growth was 12, 1% for the quarter once again exceeding our expectations with 12 of our 14 markets posting double digit revenue growth.

Given this outperformance and an improved outlook for the remainder of the year. We have increased our 2022 full year revenue growth projection of <unk> scanner and a quarter percent to 11 in the quarter percent at the midpoint of our guidance range.

Rental rates for the second quarter had signed new leases up 16, 3% renewals up 14, 4% blend.

Blended rate of 15, 3%.

Our preliminary July results are trending at 13, 1% for a blended growth with new leases at 13, 5% and renewals at 12, 7%.

Occupancy averaged 96, 9% during the second quarter.

Which matched our performance during the second quarter, 2021, and compared to 97, 1% last quarter.

July 2022 occupancy is currently trending at 96, 7%.

Net turnover for the second quarter, 2022 was 46% versus 45% last year.

Move outs to purchase homes were 15, 1% for the quarter versus 17, 7% during the second quarter of 2021.

The year over year decline in move outs to purchase homes is not surprising.

<unk> since last year home mortgage rates have nearly doubled.

Median existing home sales price is now above $400000.

So despite the recent increases in rental rates, many would be homebuyers will likely remain renters.

Next up is Alex Jessop, Camden's Chief Financial Officer.

Thanks Keith.

Before I move on to our financial results and guidance a brief update on our recent real estate and finance activities.

During the second quarter of 2022, we completed construction on Camden Buckhead, a 366 unit $162 million New development in Atlanta, We began leasing at Camden <unk>, a 397 unit $115 million new development in Tempe, Arizona.

We began construction on Camden village District, a 369 unit $138 million new development in Raleigh.

When we acquired for future development 43 acres of land comprised of two undeveloped parcels in Charlotte and four acres of undeveloped land in Nashville.

As previously reported at the beginning of the second quarter, 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 included 22 multifamily communities with 7247 apartment homes with an average age of 12 years, primarily located in the sunbelt markets across Camden's portfolio.

In conjunction with this acquisition, we recognized a noncash non <unk> gain of $474 million, which represented a step up to fair value on our previously held 31, 3% equity interest in the funds.

Also as previously reported early in the quarter, we issued $2 9 million common shares and received $493 million of net proceeds.

As of today, we have approximately $80 million outstanding under our $900 million line of credit.

At quarter end, we had $248 million left to spend over the next three years under our existing development pipeline.

Our balance sheet remains strong with net debt to EBITDA for the second quarter at four four times.

Last night, we reported funds from operations for the second quarter of $179 9 million or.

Or $1 64 per share <unk> <unk> above the midpoint of our prior guidance range of $1 60 to $1 64.

This <unk> <unk> per share variance resulted primarily from approximately <unk>, <unk> and lower bad debt and higher rental rates and occupancy for our same store and non same store portfolio, partially offset by <unk> and higher property tax expense resulted from higher initial valuations in Atlanta and higher than expected.

Final valuations after appeals in Austin and Houston.

Last night based upon our year to date operating performance, our July 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 10, 5% to 11, 5%.

Our revised revenue growth midpoint of 11, 5% is based upon an anticipated 12, 5% average increase and new leases at an eight 5% average increase in renewals for the remainder of the year.

We are anticipating that our occupancy for the remainder of the year <unk> averaged 96, 6%.

Additionally, we have increased the midpoint of our same store expense growth from four 2% to 5%.

This increase results from inflationary pressures on repair and maintenance costs and the previously mentioned higher than anticipated tax valuations in Houston, Austin, and Atlanta, partially offset by lower than anticipated insurance expense tied to our successful may policy renewal.

Property taxes make up approximately 35% of our total expenses.

And are now anticipated to increase by five 6% year over year at.

At approximate 200 basis point increase from our prior estimates.

Repair and maintenance makes up approximately 13% of our total expenses and is now anticipated to increase by 7% year over year and insurance makes up approximately 5% of our total expenses and is now anticipated to increased 13% year over year.

As a result of our revenue and expense adjustments the midpoint of our 2022 same store NOI guidance has been increased from 13, 75% to 14, 75%.

Last night, we also increased the midpoint of our full year 2022, <unk> guidance by <unk> <unk> per share for a new midpoint of $6 58 per share.

<unk> per share increase resulted primarily from an approximate 6% increase from our revised same store NOI guidance and.

<unk> increase from additional NOI from our non same store and development portfolio.

We also provided earnings guidance for the third quarter of 2022, we expect <unk> per share for the third quarter to be within the range of $1 68 to $1 72.

The mid point of $1 70 represents a <unk> <unk> per share increase from $1 64 recorded in the second quarter.

This increase was primarily the result of 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 utility expenses and lease incentives.

And a <unk> <unk> sequential increase related to additional NOI from our non same store and development portfolio.

These increases are partially offset by a combined <unk> <unk> decrease in <unk> related to higher variable rate interest expense and the incremental impact of the additional shares outstanding from our early second quarter equity offering.

At this time, we will open the call up to questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Austin <unk> with Keybanc. Please go ahead.

Hey, good morning, everybody I was curious if you could give us an up on the dispositions that you had previously.

That you had previously planned.

A year and just some general color on what Youre seeing in the transaction market.

While the transaction market has slowed down substantially.

With the increase in and the 10 year and just the sort of dislocation that the market's at.

Experience given given.

Everything is going on with the fed and so what we've decided to do with our dispositions rather than being the early price discovery folks.

We've basically taken them off the table and just sort of waiting for more market clarity.

When you when you think about.

Excuse me when you think about what's happened here in the cost of capital has gone up for pretty much everyone.

And the leverage buyers have.

We're using 60% to 80% leverage.

The game has changed and and their return on equities has gone down and so we think that values have probably gone down anywhere from 10% to 15% of it really depends on the market and also the product type probably the most most.

Impacted properties are the value add space.

10 to 20 year old that really needs a lot of work kind of thing.

And so.

With that said we.

We will continue to monitor the market and where we for a long time have been selling buying and selling at the margins to be able to improve the quality of our portfolio and improve the geographic diversity of that portfolio and we will continue to do that but right now we're sort of on a pause to see.

Kind of figure out where the market is.

We think that that after labor day, and there'll be a lot more clarity.

When you think about the wall of capital that's.

Phil This is there and ultimately I think buyers and sellers will come will come together.

Yeah, probably starting after labor day and through the end of the year.

And then second question you mentioned in your prepared remarks that you expect growth to slow in supply to catch up in sort of the years ahead, but growth should still exceed sort of that long term historical average. So I guess first could you kind of give us a sense of what that average is presumably 3% to 4%.

But if you could put a point on that and then I guess just what gives you the confidence that you can get it.

We continue to exceed that long term average.

Given the level of projects that are on production today.

Pete you want to take yes.

Yes so.

If you look at the deliveries that are planned for 2023 relative to this year Ron Witten Scott.

Completion is going up about 130000 across camden's markets to about 190000, so it's meaningful but if you look at it as a percentage of the stock its not really out of line with where we've been for the last couple of years and then.

In years beyond that the start stayed fairly flat. So if you roll forward.

The easy part at this point is kind of thinking about 2023, and where we start out as we come out of this really really strong 2022, where we continue to get really.

Strong renewals as well as new leases will start somewhere in the 5% range on embedded growth in 2023, and long term average on NOI growth across camden's portfolio over the last 30 years is in the 333, 1% range. So you can just sort of a lay up to think about.

23 being.

Higher than normal and I think as long as we continue to have.

The affordability issues that.

Consumers are dealing with right now in terms of their alternative to renting is which is buying a home I think youre going to see it I think we're likely to see a pretty dramatic.

A decline in the number of single family home starts.

You're just going to continue to have.

A shortage in in housing of virtually all types.

Think that it will continue to benefit the multifamily space.

Thanks for the time.

The next question will come from Nicholas Joseph with Citi. Please go ahead.

Thanks, maybe following up on that but more focusing on the demand side, obviously the July numbers.

<unk> strong, but a more challenging comp there are you seeing any signs of consumer demand changing.

And as you look out 30, or 60 days or any kind of pushback on pricing.

No we're really not I mean, we continue to be almost 97, nearly 97% occupied for nice.

967, currently and as you look out on a pre lease numbers, we're still in really good shape 60, and 90 days out so.

Turnover continues to be low renewal rates and new lease rates are definitely going to come down and we've been we've been obviously trying to.

Talking about that for the last couple of quarters, but in our case it is.

Just because we're running into a period in time period of time, where last year. We were we were rolling out, 18%, 20% renewal and new lease increases across our most of our portfolio and so as you as you run into those comps.

Yeah.

Just not it's just not sustainable to stay at the levels that we've been at for the last couple of quarters. So we know what is going to come down, but it's still going to be.

If we maintain the kind of occupancy that we have the model will continue to push rents.

To the level of account and the market clearing price everybody.

Our markets and in our sub markets people were continuing to see great strength and continuing to increase rents as long as that happens I think we'll be fine, but the reality is is that those numbers are going to come down in the fourth quarter for sure.

I think it's important to think about our consumer and that is that our consumers are doing really well they all have jobs.

When you look at year over year increase in income for Camden residents gone up almost 10% so.

We worry I guess on Wall Street.

Actual folks worry about interest rates and inflation in all of the summit.

And I think consumers are worried about that too, but but they also are doing pretty darn. Good when it comes down to income growth in savings rates.

I think the folks that are probably going to be most impacted are at the lower end.

Our customers know on average make.

Victors and so they are not the low end of six years and those are ones that are not as pressured on the on the inflation side and especially when you think about 20% of their income going to rent it to the folks that are paying 30% to 50% of her income for rent that are getting sort of really pressured so.

Our residents are doing well they are stressed but we can feel that in the marketplace, but but theyre not financially stressed or more.

Worried about what's going to happen in the future than they are about making ends meet with their income.

Thanks, That's helpful. And then you touched on the broad strength really across all the markets, but the two that lag on a relative basis I guess, our DC and Houston are you thinking about those markets back half of this year and probably more importantly into 2023.

I think that.

To put it into perspective.

You said on a relative basis and Thats I think its important to think about that in our Houston and Washington DC in the second quarter were roughly 7% up on revenues and.

And if it werent for the fact that the rest of our portfolio was up.

13%, 14%.

Turn it back lips about those numbers in Houston, and DC, but obviously on a relative basis that has lagged.

<unk>.

The other 13 markets in our portfolio I think one of the things that one of the implications for that is is that as we can as we roll into these periods into the.

The renewals.

Stack for the previous year.

Where we had in these markets.

20% increases last year, obviously that gets much much more difficult to push rents.

So anything close to those levels.

This renewal and yet the comparable numbers for DC, and Houston would probably be in the 2% to 3% year over year comp so I.

I think we have probably going to have more opportunity to raise.

A little bit more aggressive in raising rents in DC and Houston, just because of what the what.

What happened to our consumers in those two markets last year and they didn't get outsized rental increases and theres, probably probably one coming in in 2023.

In the renewal period, so I think those two markets have pretty.

Pretty decent upside on a relative basis in 2000, and 2023 and obviously, we will we'll be able to give you a lot clearer picture of that hopefully by the end of the next call, but I think there is really pretty good upside in those two markets just because of the concept.

Also when you think about the economy. So DC has D C and D. C proper was probably more like California in terms of <unk>.

Covid opening in and being able to evict people, who are just sort of not paying because he didn't want to.

And then in Houston, you have a whole different animal you had Houston didn't add the jobs factors fastest Dallas and Austin.

But when Exxon and Chevron make combined $30 billion like they just reported last week.

The job picture looks better in Houston, because of that and it's interesting because the energy complex.

People are complaining about about high gas prices.

And yet the companies are not expanding big time, because of just the nature ESG issues and investors are wanting dividends from them rather than putting that putting those dollars back into an exploration and ultimately.

If energy continues to do what it's doing now they need to add jobs, they're running very thin in last month's added I think 2000 jobs.

In the Houston region for energy related folks and so there is a tailwind I think.

On the Houston market because of that so, they're very different markets, and DC and Houston, but but.

Have a look at them.

Unintended, maybe or maybe intended with gas in the tank for 2023.

Thank you.

The next question will come from Derek Johnston with Deutsche Bank. Please go ahead.

Hi, everyone.

Can you provide an update on your portfolio loss to lease and thus the opportunities for further rent growth next year.

Yes.

Yeah, absolutely so loss to lease for US right now is about eight 5%.

Excellent.

Thank you.

Then on new development <unk>.

Supply seems benign and some of your markets.

And where rent growth has has actually really been strong.

Seemingly outpacing cost increases so how would you view development starts given this backdrop you own a construction company and what really do you need to see to to ramp new projects.

<unk>.

Both of you.

You.

So on our.

Our earnings release that we added land positions.

We are continuing this quarter and will continue to work on on development.

So do you have good news bad news right. The good news is is that developed the revenues were up in the <unk> costs are up but we think cost is starting to moderate we think that.

I don't think costs are going to go down, but I think that the increase in cost is starting to slow.

So ultimately development as it has been a great business for us and we'll continue to do that continue to build I think right now.

We're focusing on sort of the existing portfolio that has legacy land costs.

We'll be ramping that up.

Next year and I think that.

Once the market settles down.

In terms of so what is the cost to capital long term and not just sort.

Sort of up and down.

Leo that we've had for the last couple of months I think that we'll still be able to make reasonable spreads on our weighted average long term cost of capital in the development business.

And we will probably.

Sort of wheat.

When you see between now and sort of the middle of the fourth.

Fourth quarter to kind of where things settle out, but I think it's still a really good business. When you look at R.

Our pipeline I mean, we have average yields.

With big cost contingencies, and those construction numbers that are anywhere from low fives to sort of low sixes and that's still pretty good business even in this environment.

Thank you.

The next question will come from Neil Malkin with capital one. Please go ahead.

Paul.

Hey, everyone. Good morning.

Two.

Globally, just following on the development side.

<unk> talked about maybe I wanted to see if you are seeing delays. It seems like you guys probably won't.

Make the development start numbers you had initially forecasted.

Hoping you could talk about that and if it's a functional.

<unk>.

Cost or is it a function of regulatory delays et cetera can you maybe just talk about like where you see the starts kind of shaping up over the next several quarters.

That'd be great.

Sure I would say that.

That definitely regulatory issues are a big issue I mean.

Challenge you have is.

Sort of interesting you should think about this people worried about recession and job losses, yet cities and municipalities that issued permits an issue.

Spec buildings and things like that are absolutely under staff beyond belief and even markets that used to be very friendly to two permits and building like Houston.

Everyone is talking about how it just takes forever to get the stuff done and so we're experiencing that just like everybody else's. So a lot of the starts that we had several of the starts. This year ran a fold into next year next year should be a pretty pretty point start year, Alex you might want to go see those numbers yes.

Yeah, absolutely so Neil what I'd tell you is that we still think that we're going to make the low end of our of our total start number.

Starting.

So $400 million to $600 million with a range and we're anticipating starting wood Mill Creek Longmeadow farms, and Camden Nations, which is on page 18, we always put that in order if our starch. So we will anticipate starting those three this year and keep in mind that we just started.

Village District last quarter, So we should make the low end of our range.

Okay great.

The other question is on.

Houston I know that.

Several quarters here you talked about.

And in D C Metro being the two markets that you would.

Focus on trimming exposure just given the.

Elevated.

Contribution to your portfolio, it's actually gone up obviously with the JV take.

Take down and the two.

Yes.

<unk> that youre doing right now.

Question is theres been some speculation that the <unk>.

<unk> administration and diesel sort of climate executive order in his administration's endless installed on.

Energy fossil fuels.

Yes.

What is the likelihood.

Of these sorts of things, having an impact or is it already having an impact on Houston.

Because the idea that somehow these unknown green jobs are going to replace even close to the numbers of jobs that'll be loss I mean, it could be a loss.

Laughable. So maybe if you can that you guys are like the key with Houston. So if you could kind of give you.

30 foot view on that on that that'd be that'd be helpful.

Sure so.

I think you hit the nail on the head.

Is that.

We'll talk about green and replacing fossil fuels, but there's just no way that that happens anytime soon right.

Sure.

We need to move in that direction and ESG is important in climate change I think is critical for us to focus on and think about it but the challenge is it's not so much the energy companies that are being forced to do thing, it's really the federal government and their issues. Because if you think about what has to happen in an energy transition from fossil fuel.

<unk> clean energy you have to have major infrastructure investments made in the grid and in the in the in the system of how we provide energy due to the world.

Hey.

<unk> electric cars as an example, so.

Our ESG Committee, we had a robust debate a couple weeks ago about how many charging stations do we have in our in our apartments and then in our new development.

Wiring and making sure that we're positioned to have have evs in our in our garages and what have you, but but the challenges.

I wanted to give you just a small example, if we wanted to have an EV station for every one of our every car that we think might be in our garages in the future. We can't put that infrastructure and to date, we can't get the power companies agreed to give us more power.

To utilize.

Utilize them. So there's so many issues that have to be developed to to really get us to climate change and get us to.

To transition so Houston the interesting part of Houston, you've seen I think you have seen a negative effect in Houston and it is.

Really the job growth that we didn't have that we should have had.

And that was and thats been driven by really investors.

The ESG.

Push on energy companies, but also investors.

Not giving the industry capital unless you would give us cash flow back over the last 10 or 15 years.

A lot of investments in energy in the energy industry isn't giving back capital and so the market is pushing energy companies to be more to be less.

To invest less in infrastructure and lesson and exploration, which has driven up the cost of oil and limited supply. So I think long term Houston is going to be.

The clean energy capital of the World Ultimately you have you have.

Such a big projects there is a $100 billion project for example that Exxon is doing in Houston and it is it's going to be subsidized by the federal government.

And it is a carbon capture in Houston ship channel and so.

The energy companies know ultimately they have to transition I don't think its going to happen in one year two year five years can be more like 10% to 20 and I think there are smart enough to know that they have to be in a position, where they're not dinosaurs and they don't become in Houston doesn't become a Detroit and I don't think that I think that theres a long enough.

<unk> periods, where that pivot is being made.

We'll be making some useful do long do well long term.

But it's definitely up.

Complicated issue for sure.

Thank you.

Mhm.

The next question will come from John Kim with BMO. Please go ahead.

Thank you I was wondering if you could provide an update on your yields on the development pipeline overall and on the projects you started this quarter and rally.

Sure. So the pipeline that that is under construction or in lease up.

<unk> <unk> two we have some in Phoenix that are actually up almost a seven and a half cash on cash.

And those are those are classic development deals underwritten at very low.

A lot lower rates and you've had a 30% increase in rents there so our yields are better.

And by and large are our existing under construction and lease up yields are better than we originally.

Underwrote because of the rental increases.

And the pipeline behind that that hasn't started.

Anywhere from low fives.

2626.

Okay great.

And then you talked about on your answers are 5% earn in for next year eight 5% loss to lease.

I wanted to confirm that these are separate items, so you're starting off with the 5% same store revenue.

For next year, and then eight 5%, which can move based on market, but that's that.

It's all additive to the five.

Yes, so the way to think about it in the way we calculate earn in is we look at what we anticipate the rent roll is going to look like at the end of 2022, and if you just froze everything right then and so we froze everything right then for 2023 and that's how you get to the 5% number obviously there is a component.

That that is associated with lost lease right. Because you had some of those leases that are in place that you're freezing.

Our below market.

And so the loss to leases what the effective rent growth.

You can achieve this next year.

The market rents numbers.

Yeah, assuming assuming you could take everybody up to market and as you know, we don't necessarily take a renewals up to market, but if you took everybody up to market you'd have an 8% increase right there.

Eight 5%.

Great. Thank you.

Okay.

The next question will come from Rich Anderson with NBC. Please go ahead.

Let me turn off my on hold music here.

So now by all means.

Okay.

So no I.

I can't do that.

So when you talk about the earn in.

And looking at the July signed versus July effective.

Which is a difference of about 200 basis points.

Is it fair to assume that when you think of this roll forward.

Situation and to your point, Alex freezing at the end of 2022 that the inflection point is assumed to be.

Now start of August July end of July or or is it possible that.

Your leasing season could still extend and hence the earn in would get bigger as we go.

Well so the earn in will get bigger.

So what we're assuming is that the earn in of five.

5% plus.

Based upon at the end of 2022, so that takes into consideration everything that we expect from now till then okay.

If you're looking at inflection points I mean, I think the really important thing.

Look at is if you go back to last year.

In Q2, our blended lease growth was four 7% in Q3. It was 12, 3% and in Q4. It was 15, 7%. So we really are starting to have some really tough comps.

In the third and fourth quarter of this year as compared to what we saw last year.

Fair enough and so then the second related question is how much of those tough comps. This is a weird year because you have these.

Strange year over year comps because of how things moved last year.

Normally not the case, but when you think about absolute rents so I get it that youre going to have lower percentage increases in the back half of the year, but what happens to the actual rent from let's say today I asked this question on someone else's call Sadia today's rent to make it easy is a thousand bucks.

As the rent something below 1000 Bucks in in the end of the year or is it is the rent just growing at a slower pace, but may be at or above 1000 box by the end of the year.

No I was going to be above $1000 I mean, so when we look at our math.

We continue to have asking rents that are going to be increasing throughout the rest of the year. It's just the comps that you are looking at you're looking at a much tougher comp period in the fourth quarter of this year because rents escalated so quickly in the latter part of 2021.

It's interesting you will have a positive a positive rent growth, but but a negative second revenue right got it yeah. So that's interesting because youre, saying positive rent growth, but your peers in gateway markets are saying the opposite that rent growth is actually in absolute terms negative would you.

Hazard, a guess why that would be the case why would it be different end markets.

That's why youre not in gateway markets.

Alright, Thanks, I don't understand that given the strength of this market right now, though I don't understand how.

Anywhere in America, you could have.

Absolute rents be left at the end of the year than they are today.

That's what I understood, but maybe I'll have to revisit that.

I can't I don't I've got an asset and work in my head, even in New York or San Francisco.

I'd be shocked if that were true.

That's.

Hard to imagine a set of conditions right now that would have absolute rents falling.

But.

Those markets have a different cadence to them as well.

Okay.

Alright, I'll check my notes on that thanks very much.

You bet.

The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey, good morning.

Good morning down there.

Two questions.

For me the <unk>.

First is you guys, obviously talked about the slowdown in the mortgage market transaction market.

It sounds like Youre developments here youre going to start fewer youre not sending as many acquisitions dispositions for based on whats happening is there anything thats on the merchant development side like are you guys seeing any merchant deals that got started that suddenly or in a pickle.

Maybe that's an opportunity for you guys to acquire on that front just curious.

I would say that theres not a lot of they are definitely not a lot of stress in the market today, I mean merchant builders were making three X, but on their equity and now with price adjustments today, maybe it's two X.

1.5 X, which is still really good.

But there really is no distress.

I will say there are we have seen opportunities.

And I think the example would be.

It would be our Nashville Nations project.

It was a property that that was zoned and ready to go but the developer configure the cost out and they have a little bit more complicated.

Building design and what happened was there a land value.

Was was almost equal to or their profit and the land, which was enough to incent them to not to build it and to sell it to us and so I think there are definitely opportunities like that where the merchant builder their cost of capital has gone up for their equity partners, a little nervous or and they have profits as our land. So they are willing to.

We'll sell the shovel ready deal.

At a profit to them.

Sort of market value to us I think that's the kind of transaction that's out there for sure.

Do think that there is probably a fair amount of mezzanine type of business that's out there the strike.

People are working on.

That's not a space that we traded an iPad number of calls with people, who want us to kind of help recap them and stuff like that but that's not not what where.

We're leaving that to some of our competitors.

Okay and then the second question is on you know obviously the sunbelt has been.

Garnering headlines past few years for the influx of of.

Folks coming from.

Coats or other areas moving down South as you guys look in your portfolio how much of a benefit have you know.

I'll say out of out of region or if you will in Camden versus to the market overall and asked the same question on mid America called they said they went from 9%, yes outside of the Sun belt to now 15% out of Sun belt, but they opined that with more people coming into the market buying homes et cetera.

Given youre a bit higher income a little bit more upscale curious if youre seeing similar dynamics or if you.

Youll see a much bigger impact.

Add a way people come in desktop.

Well you know it's interesting because when you think about it.

The migration from from <unk>.

Coastal south or whatever however, you want to call it.

It has been going on for a long time I mean, it's not new what happened during the pandemic was.

The nuance of being able to work from anywhere.

And the difficulty that people have living in the on the coast given COVID-19 and the restrictions you have.

Have you accelerated what's been going on for a long time and in that acceleration has definitely helped us from Alex I have some numbers on that go ahead.

Yeah, absolutely. So if you look at the second quarter, 23% of all of our move ins to our Sunbelt markets came from non Sunbelt markets. That's 100 basis points sequential increase and if you compare this to the second quarter of 2020 is up 440 basis points. So we are absolutely.

<unk> the net beneficiary of folks moving out of New York, Illinois, Pennsylvania, and New Jersey et cetera down to our markets.

Thanks, Alex just to put some numbers.

Numbers around that Witten data had has total domestic in migration nested camden's markets of about 140000, this year and that number goes to 130000 in 2023.

To Rick's point, we got this turbocharged effect as a result of all the complications from Covid, but the trend has been in place for a long time and it looks like it's.

You're going to continue at a very elevated level in 2023 as well.

Sounds like it plays into Richard Rich Anderson point on why you guys are looking at positive rent growth in the back half of this year versus perhaps slowdown elsewhere youre getting this continued inward migration.

Yes.

Clearly part of the story.

Okay. Thank you.

Okay.

The next question will come from Joshua dinner line with Bank of America. Please go ahead.

Yes, everyone a good.

Can you maybe talk about the differences across market Sunday July great job great.

Great growth front.

Kind of where are you seeing the strongest and then we just lease growth I think you kind of alluded to D C and new service maybe came at the other markets would be pretty interesting federal.

So just looking at our same properties second quarter.

Comparisons.

<unk> over over the prior year, you had we've already discussed D C Metro and Houston those are.

Basically in the 7% range.

And beyond that <unk> got Phoenix is still at almost 18% you got southeast, Florida at 16, 5%.

You've got Orlando at 16% Tampa at 18, I mean these are.

12 of our 14 markets are in double digits. So those are pretty for this for this business. So it's a pretty crazy numbers.

And one more for me on the tax side, you bumped up.

Expenses part of that was I think driven by the same store property taxes going up.

Are there any specific markets, where you're seeing kind of a higher than expected tax success.

Or is it across the board and then is it driven by just valuations are municipalities increasing rate.

Yeah, absolutely and so the three markets that I called out the first one is Atlanta.

<unk> in the aggregate is actually not that much of an increase.

But we originally had actually expected for Atlanta taxes to be down in 2022 based upon some excessive.

Festival.

Protest that we had in 2021 and so we got some initial values there that were different than we had expected and we will go in and contest those the other two markets I pointed out were Houston and Austin.

And we're looking at Austin, having close to a 20% increase in property taxes.

We got initial valuations in that we're in that vicinity. We challenge almost every valuation we're usually incredibly successful and we had absolutely no success.

In Austin this year on valuation so that's sort of got us to this 20% number.

And then we had sort of in Houston was a similar story not not quite to the same level, but we had expected houston to be sort of in the 2% to 3% range and ended up being in the 5% range. Once we got through once we got through all of our our final.

Yes.

All of our final.

Protests, so that's sort of where we're seeing it I will tell you will also add to that that the south East, Florida, Orlando and Tampa.

In general I continue to give us some pressure sort of in the 8% to 9% ranges.

Got it thank you.

Okay.

The next question will come from Barry womb with Mizuho. Please go ahead.

Thanks, I'm very I'm on the line for Hendel St. Just I was wondering if you could discuss the expense pressures that are facing in more detail maybe first off if you could discuss the drivers and key pieces on the 80% 80 bps a quarter.

And in your expense guidance.

Yeah, absolutely and so the major driver that you're really seeing there once again is property taxes.

So if you think about it we're up to five 6% of what we're anticipating for property taxes, and that's about a 200 basis point movement and property taxes represent 35% of our total expenses. So 200 basis points on 35% gets you to 70 basis points, which is almost the entire delta between the four point.

The four two that we originally had for total expenses in the 5%. We have now so it is almost entirely driven by.

By property taxes now we do have a couple of other ins and outs, we are seeing some inflationary pressures on R&M.

And thats, causing us to have some increases and they aren't over what we originally had anticipated to the tune of about 300 basis points.

But the offset to that is we actually had a really good insurance renewal.

We originally thought that our total insurance for the year was going to be up about 22% and now it looks like it's up 13%. So we've got a 900 basis point positive there that sort of offsets the R&M inflationary issues and so that leads you really just the property taxes being the main driver.

Okay. Thanks.

So it sounds like mostly non controllable so what about on the looking at your supplemental was 33% G&A increase can you talk a little bit about that.

Yeah, absolutely so as I talked about last year excuse me last quarter, we rolled out our work re imagined initiative.

And if you'll recall. This is this is where we took.

Took a look at all of our onsite positions and we effectively came up with Nash we're.

Up to three communities are managed together.

As part of that we took our existing assistant manager position and we centralize that into a shared service. So the shared service is now part of property G&A.

And then you have the offset in fact more than an offset in lower salaries as we remove the assistant manager position.

Thank you.

Mhm.

The next question will come from Robin Lu with Green Street. Please go ahead.

Good morning, all.

I just thought I'll squeeze.

And on with key search has the team seen a notable pickup in concessions from developers and have you had supply market.

So.

Yes, absolutely and in markets where.

Where we've seen the kind of strength that we have for the last year.

Concessions have been less we always incur.

<unk>.

Roughly one month of free rent our concessions for lease up.

Don't do concessions in any of our stabilized portfolio, but thats. The game was displayed in among developers.

Has always included some provision for concessions, but in our world they've been for the most part less than what we would've expected them to be.

Just the same strengths for demand in new construction across our markets.

<unk>.

As typical that.

Just like we have in our stabilized portfolio. So.

Probably less overall in the last year in terms of concessions, but it's still a part of the the overall pricing structure for all new developments.

So this is I guess my question was around what your key peers or competitors doing not just hope.

Yes.

They have less concessions as well so in an environment, where market rents are going up 16, and 17% from whatever their pro forma was there. They are all far exceeding what the scheduled rents were so there would be no no real incentive to push rents continue to push topline.

And then can SaaS back down to where they.

To the point, where they are pro formula So, yes, they're all up.

My guess is theyre all doing better.

Total rent.

Our total scheduled rents and they would.

But that doesn't mean that they would have eliminated concessions. It just means they probably are sticking to the one month free rent that was in their pro forma.

And then adjusting markets market rents to whatever the clearing prices for non consent non consents rent structure.

Got it.

And then my second question sorry.

Sorry, if I didn't take the D C market and obviously, you've done really well in second quarter.

July is still pending.

Stay what 7% can you any supply pressure impacting your pricing power for the second half of the gate.

Yes.

The supply pressure in D. C is really not been a huge issue for us we have.

Most of our assets are in D C Metro area.

On a total delivered units this year and the 13000 range, which is not not a huge number for that entire metropolitan area. If you roll forward to 2023 Witten has.

Total scheduled deliveries in the D C Metro area of about 12000 apartments. So I don't expect it to change much next year.

Difference as Rick pointed out a lot of our challenges have been we're in markets, where there are governmental restrictions on what you can do with either were just flat out rent control or the inability to collect our two two.

To get your real estate back to the eviction process and those were still not completely over in <unk>.

In the district, but in D. C Metro almost all of those restrictions have been lifted.

2023 is probably going to look more normal and just with regard to how we manage and the ability to push through market clearing rents, which we really couldnt and a lot of D. C last year.

Thank you.

You bet.

This concludes our question and answer session I would like to turn the conference back over to Mr. Rick Campo for any closing remarks. Please go ahead.

Great. Thanks, Thanks for being with us today, and we will.

See you at the beginning of the conference.

Season, after labor day, so take care and have a great summer. Thanks a lot.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].