Q3 2022 Camden Property Trust Earnings Call
Okay.
Okay.
Good morning, and welcome to Camden Property Trust third 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.
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 third 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.
And 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.
Good morning.
The theme of our own and hold music today was thank you.
Earlier this year, our board of Trust managers wanted to send a message of thanks to Jim Camden for their unwavering commitment to our customers each other and our shareholders throughout the pandemic and beyond.
The idea resulted in this video that we shared with all Camden teammates during our annual 15 City Award ceremony tour.
Hi, Camden Happy Ace Award day.
Today, it's about cyber safety year for Camden.
And here lies in Houston, Texas at the candid corporate offices and not only is the Ace Award day today is another special day for the first time in two years, our board of Trust managers, our meeting in person, but the regular meetings not virtually in person.
In tandem.
And then have added another board member and Teekay is their first day on the job Ricky oddity in call and Theyre going to be joining us shortly but while we wait why don't we go into the boardroom and say Hello to our biggest fan cannot validly.
Hello, Camden team.
Want to congratulate the Camden, operator leadership team and district managers for EMACS named Camden, Let's say.
I'm absolutely certain that these changes if they improve life for both employees and our residents.
I am so proud of you keep dreaming keep improving and keep learning.
Okay.
Hello, I am kind of do you have any sort of a new kid on the block My first board meeting and I'm. So proud to be part of this company.
For the last 14 years, you have made it part of their fortunes list of best places to work so gravel for all of you.
Thanks.
Hello team Camden see Webster I've had the privilege of serving on the board since the company's inception.
In 1993 overall this time ive seen team Camden.
So many amazing things however, the team's performance during last year's Great, Texas phrase was truly remarkable.
Selfless care for so many residents without water and power for more than a week.
It was incredible well done.
Hello team here and I'm, Francis Audrey convenience of Casa and I've been with Camden for 11 years.
I'd like to command, our Denver team for the Amazing job Y'all did with a very scary fires on new year's Eve.
The personal sacrifices you made to ensure that all of our residents were safe and comfortable were incredible and we are very proud of you and thank you for all you do.
Hello, everyone our markets you're in a bit on the Camden Board for two years and is a great privilege to serve I want to give a special shout out to our investment and construction teams for the amazing value, they're created for our shareholders and residences with all those acquisitions and new builds.
Giving our ops team.
And the amazing homes offer a residence inn, even further exceed their expectations great job.
I think and then Howdy I'm, Heather Brunner and I have been proudly serving Camden for the last five years and it's been fantastic to see how Camden is leading our industry with technology innovations like curve and funnel it doesn't absolutely amazing keep leading the way.
Keep leading by example, Camden.
Okay.
Greetings cabinet Kelvin Westbrook here.
I'm the lead outside director I've had the pleasure of serving on the board for 14 years.
I am extremely proud of Kansas for having made the commitment to dedicate the resources necessary to put in place top tier diversity equity and inclusion program.
Camden is indeed, a great place to work. Thank you so much for all you do.
Bringing Camden team I'm starting in Europe .
I've been on the Campbell Board since band, Illinois, Mirv, almost 24 years ago, or 1998, I want to give a virtual high five to all of camden's maintenance teams.
Despite two years of working through the pandemic with short staffing and constantly changing rules and regulations.
I'll have managed to deliver.
Living excellence to our wonderful residents.
They love you and soda way.
Excuse me.
Oh, we can keep our underway.
Yes.
Yeah.
Okay.
He told me our board meeting was there'll be a teams call.
I thought it was also.
Whatever.
Alright.
Yeah.
Got it.
Okay.
Yes.
Operating fundamentals continue to be strong and above long term trends rents are following their normal seasonal slowdown as customers prepare for the holidays.
Even as seasonality comes into play new and renewal rents are much higher than historical pre pandemic levels setting us up for a strong start in 2023 demand continues to outstrip supply and given the rise in interest rates and home price appreciation apartment affordability.
Is that are all time high relative to home ownership in all of our markets. Our development pipeline continues to be a source of external growth as we discussed on our last earnings call, we will not be selling or buying properties for the balance of the year apartment transactions remain quiet as participants cost of capital continues to rise.
And price discovery continues.
Our balance sheet is one of the strongest in REIT land and positions us to take advantage of opportunities as they unfold I would like to thank all of our Camden teammates for all they do to improve the lives of our teammates our customers and our shareholders. One experience at a time next up on the call as Keith Oden.
Thanks, Rick now a few details on our third quarter 2022 operating results in October 2022 trends.
Same property revenue growth was 11, 7% for the quarter and 11, 6% year to date.
Our performance was in line with our expectations. So we've maintained our outlook for 2022 full year revenue growth of 11.25% at the midpoint of our guidance range.
Rental rates for the third quarter has had signed new leases up 11, 8% and renewals up 11, 5% for a blended rate of 11, 6% to date leases signed during October are trending at six 9% blended growth with new leases at five 2%.
And renewables at nine 4% for leases that became effective in October the blended rate was approximately 10%.
Occupancy averaged 96, 6% during the third quarter down slightly from 96, nine last quarter and 97, 2% in the third quarter of 'twenty one.
October 2022 occupancy is currently trending at 96, 1%.
Net turnover for the third quarter was 51% versus 47% last year and move outs to purchase homes dropped to 13, 2% versus 15, 1% last quarter, we would expect to see a continued decline in move outs to purchase homes through the remainder of the year given the recent increase in mortgage REIT.
Next up as Al suggested 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 third quarter of 2022, we stabilized both Camden Buckhead, a 366 unit $164 million, new development in Atlanta, and Camden, Hillcrest, a 132 unit $92 million new development in San Diego.
We began leasing at Camden Atlantic a 269 unit $100 million New development in plantation, Florida, and we began construction on Camden wouldn't Mill Creek, and Camden long Meadow farms to single family rental communities. Both in the Houston Metro area with a combined 377 units in a can.
<unk> cost of $155 million.
During the quarter, we increased our existing unsecured line of credit capacity from $900 million to $1 2 billion and extended the maturity to August 2026, with two further six month extension options.
We also added a $300 million delayed draw term loan with an August 2020 for maturity with a further one year extension option.
Currently we have approximately $30 million drawn under our line of credit and no amounts outstanding under our term loan we.
We will likely use our term loan and line of credit to pay off our $350 million three 2% unsecured bond, which matures on December 15th of this year.
Our board recently increased our share repurchase authorization from $269 million to $500 million, we did not repurchase any shares during or after quarter end.
Our balance sheet remains strong with net debt to EBITDA for the third quarter at four two times and at quarter end, we had $348 million left to spend over the next three years under our existing development pipeline.
Last night, we reported funds from operations for the third quarter of $187 $6 million or $1 70 per share included in our results are approximately $1 million or one cents per share of property expenses associated with hurricane here, which are excluded from our same store result, excluding the impact from it.
Our third quarter results would have been <unk> <unk> above the midpoint of our prior guidance range.
This one cents per share positive variance resulted primarily from the combination of slightly higher other property income and.
Slightly lower corporate overhead expenses.
During the quarter, we experienced higher than anticipated repair and maintenance and utility expenses resulted from inflationary pressures. However, these increased amounts were entirely offset by lower levels of employee health insurance expense due to lower claims amounts.
Last night, we reconfirm the midpoint of our previous full year same store growth guidance at 11, 5% of revenue 5% for expenses in 2014, 75% for net operating income.
Our 11, two 5% same store revenue growth assumption is based upon occupancy averaging 95, 8% for the remainder of the year with a blend of new lease and renewals averaging approximately eight 5%.
These expected increases compared to achieve blended increases of approximately 15, 5% in the fourth quarter of 2021.
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 59.
This one cent per share increase results, primarily from lower than previously anticipated corporate overhead costs.
We also provided earnings guidance for the fourth quarter of 2022, we expect <unk> per share for the fourth quarter to be within the range of $1 70 to $2 76.
The midpoint of $1 74 represents a four cent per share increase from $1 70 reported in the third quarter.
This increase is primarily the result of the previously mentioned one cent per share third quarter impact from hurricane Ian at approximate 6% sequential increase in same store NOI, resulting from three cents, an increase revenue driven by higher net market rents, partially offset by lower occupancy and three cents and lower property expenses.
<unk>, resulting from our typical seasonal decrease in utility repair and maintenance and unit turnover expenses combined with the timing of property tax refunds.
And an approximate three sequential increase in NOI from our development communities in lease up and our other non same store communities.
This tencent aggregate increase is partially offset by a <unk> <unk> decrease in the amortization of net below market leases related to our second quarter acquisition of the fund assets.
As we discussed on our first quarter earnings call purchase price accounting required us to identify either below or above market leases in place at the time of the acquisition and.
And amortize the differential over the average remaining lease term, which is approximately seven months.
Therefore in 2022, we will recognize seven cents of <unk> from the noncash amortization of net below market leases assumed in the acquisition, we recognized $3.05 of episode of the third quarter of 2022 from this amortization now we will recognize the final have said in the fourth quarter if leases were.
Above market the amortization would have resulted in an <unk> reduction over the remaining lease term.
A one five cent decrease in <unk> related to higher interest expense, primarily attributable to higher variable interest rates and one half cents and higher other corporate costs related to anticipated higher health insurance expenses and the timing of certain year end accruals at this time, we'll 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 Touchtone phone if you 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.
Okay.
Okay.
Okay.
And the first question will come from Jeff Spector with Bank of America. Please go ahead.
Great. Good morning. My first question is a follow up to Rick's comment on.
Demand continues to.
Outstrip supply and I know, there's there's the various supply forecast for next year.
Different forecast I should say.
I guess Rick.
That comment for for now or do you do you feel that that in 'twenty three.
That will continue how are you guys thinking about supply in 'twenty three in your markets.
Sure supply in 'twenty three.
It's definitely going to be out there I think we have a projected supply from Ron Whitman's number about 180000, new units coming into our markets.
And with with decent job growth and in migration to our markets that we think that's going to continue and and and so new supply should yes.
We should be able to continue to raise rents during that period.
Barring some big economic issue, obviously that.
It could be out there on the horizon, but we feel pretty good about about the number of units that we absorbed in 2022 and I think that.
That 2020, we should be a decent year, even with the supply coming on.
Thank you and then my second is on the development pipeline.
How are you thinking about that as we head into 'twenty three I mean, there does seem to be some clear signposts of.
The consumer pulling back weakening.
How are you thinking about that as we head into 'twenty three.
Clearly a development we're looking at each one of our developments and making decisions on when we start or if we start in these deals in 2020.
2020.
Three.
I think good news is we there's a fair number of them that are that are.
Our.
Middle of the year towards the end of the year and so we'll just have to see how the.
The market works out.
From that perspective, I think one of the things that we are starting to feel as is.
Is that construction pricing is flattening out which is good and so maybe it makes sense to wait to see a few more cards on costs and also how the market.
How the economy does next year.
Thank you.
Yeah.
The next question will come from Nicholas Joseph with Citi. Please go ahead.
Thank you I recognize you've been mostly out of the transaction market I was hoping you can provide some color on where cap rates.
Trended more recently across your markets also recognize that probably not a not a lot has traded but any kind of recent data points or thoughts around that would be appreciated.
Sure.
I think that's exactly right that the market is very quiet from a from a deal.
Deal perspective, and Oh, we have a little technical problem going here. So T cells is going to join me on this on my side here.
Yeah. So you know.
If.
If you think about the markets day people. If you don't have a reason to get into price discovery, then you're probably not going to do it in this market and so I think that's the key point is that Theres just a.
Just no reason to transact in this uncertain environment, our cost of capital has gone up for everyone.
The buyers that were using debt, especially floating rate debt are having to rethink their models and and I think ultimately as we get.
As we get this is the high Tech version of when you fix computer issues.
Yeah, So I.
I think people are sort of waiting for the first quarter to see what happens you know the good news is cap rates definitely have risen.
Substantially and the <unk>.
Property values.
I think you talked to your down anywhere from 10% to 20% in.
The good news is you saw our numbers in all via our competitors' numbers, there, we're still driving driving NOI.
Way way way above.
What we normally get in and so that's kind of helping offset some of the cap rate rise and so I think ultimately there.
There will be transactions done there's still a wild wall of capital out there that wants to invest in multifamily in 2023 is going to be a really good year I think even in a.
A slowing.
Market, we're still gonna have have decent rent growth and I think we have a great embedded.
Start for the year that that.
So when you start thinking about cash flow growth in 2023, it's going to be better than that it's been it is on average, but but probably a lot slower than 2022, but that should have some benefit in terms of keeping values.
From from falling dramatically more than they have already.
Yeah.
Thanks that was very helpful.
You think about kind of uses of capital obviously, we've touched on development a bit.
The share repurchase program, how do you think about executing there.
Stocks in the mid to high 5% implied cap rate today at what point does that become a.
More attractive use of capital.
Well as you saw in our release that we increased our buyback program authorized by the board of $500 million.
Historically, we've been a big buyers of stock not recently, but.
Stock buybacks are are interesting on the one hand, because clearly are it's hard to tell what the values are today, but it's the sockets.
You think about <unk> yield and its implied cap rate, it's a pretty attractive attractive price. The issue you have.
In REIT land is is that.
It's hard to buy a lot of stock back.
And we definitely want to keep our balance sheet strong. So we're not going to go out and borrow money to buy stock.
But as we've done in the past when you can sell assets in the and the.
And the private market at 100 cents on the dollar and buy your stock at 75 cents on a dollar that's a pretty good investment we'll do it through sales.
And not through debt.
And we will take our time and we've always said that the stock price has to be.
25% ish of.
Of.
At a discount and has to be persistent. So we can we can get in the market on a on a moderate basis and that.
Continues to be our philosophy.
Thank you.
Okay.
The next question will come from Steve <unk> with Evercore. Please go ahead.
Good wine team is Florida always Steve from Evercore I, just have a follow up question about default with Ron So how much more conservative are you being on underwriting and how much have you changed.
Hurdles for new deals given the changing cost of capital. Thank you.
Well the development deals that we had under contract that we didn't have hard earnest money on we definitely are.
Have changed our hurdles are.
Our cost of capital has gone up substantially obviously like everyone else's and when you get down to it we're not going to do a development that isn't a positive spread of at least 100 150 basis points wide of our weighted average cost of capital on our weighted average cost of capital has gone from five and some change to seven and some change and so we definitely are.
Have implemented that new hurdle in the future development pipelines in and then each each one of our existing developments that we haven't started the day, we're putting that new hurdle on it the.
Good news is is that rental rates have gone up substantially as you've seen in our numbers. So we've been able to to to do better than we anticipated and a lot of that in terms of rents. We also think that usually we were putting a 1%.
Construction cost increase per month, so call it 12% a year when we think that number is going to slow or go negative when we start seeing the starts fall as most merchant builders are telling me today that there starts are going to be down substantially in 2023, and 2024, given cost of capital and the lack of bank financing so.
Yes. In fact, we have increased our hurdles and we are reviewing all of our projects to.
That fit into the new hurdle hurdle rate.
Okay. That's really helpful. My second question, there was a 7% contraction from the previous top end of guidance, so kind of indicating a more conservative outlook could you provide us some color on the operating trends you've seen so far and what may be limiting the upside.
Yes, there is a <unk> decline in the top end, but there was a 7% rise in the bottom in and really just reflects the fact that we're we're a month into the last quarter of the year.
There is a lot better visibility in our world when Youre looking out 60 days and when you are 120 days or a full year. So it's really more just narrowing the guidance because we think there is likely to be less variability the amount of the.
Amount of the width of the guidance that we took into the third quarter was primarily around the just the uncertainty on on collections.
And E wrap payments and so it's very hard to model those two items because they're there.
In this environment, particularly in California, and Washington D C. They're not things that we have direct control over so our guidance was was reflected that in the third quarter, and we got a little bit better visibility, which at the midpoint. The same actually raised the guidance one penny for the full year, but yes. It's just it's really just less less time.
Over the forecast period, and trying to give investors a little bit more clarity around where we think we're likely to end up at the mid point.
Okay. Thank you that's it for me.
You bet.
The next question will come from Austin, <unk> with Keybanc capital markets. Please go ahead.
Great. Thanks, and good morning, guys.
First do you guys still expect to commence that Camden nation deal. This year, and then secondly, going back to development last quarter. I think you had discussed yields on future starts ranging from the low fives to low sixes and Rick you just mentioned rents have gone up some.
Which has helped but how much the costs need to go down from here for you to achieve that new 7% hurdle rate.
Well to answer the first part we're not going to start nations. This year it'll be in next year start depending upon.
How the cards fall in the first and second quarter.
But in terms of.
In terms of construction costs going down we don't think they're going to go down substantially very soon usually it takes a really big economic.
Situations or bad situations drive drive costs down we have that in the financial crisis.
A big way, but but we're not really anticipating that.
Next year at this point unless unless you assume a financial crisis style.
<unk>.
But what will happen, though is as the pipelines do moderate there'll be fewer developments being done and then costs will just at least stay flat maybe down a little but we've already seen.
Some commodity prices like lumber were at pre pandemic prices for lumber and tripled during the pandemic. So I think there'll be some pressure some less pressure on cost which is.
I also think that we'll be able to shorten our development timeframe, which will take cost out of it out of the system with fewer development is getting done.
Rather than having to add time to the schedule, we might be able to take some time out of the schedule and compressed that to save money as well. So ultimately it will be about where rental levels are and the.
The good news is is that rents rents given where we are today or are likely to be strong in 2023 and that should help us those yields as well.
So looking at the backlog of future starts that you have today.
Based on some of those assumptions, maybe today's rents and sort of current cost.
How many projects and what sort of volume would that represent.
That meet the 7% hurdle.
Well right now we haven't really spent a much a bunch of time looking at each development in the pipeline and I'm wondering what it's going to be at this point because we're not at that at that point, yet, but we have around 3000 units or 3300 units in our pipeline and each one is going to be evaluated on an independent basis.
The new hurdle rate lens that we're going to put on it now the good news too is that when you think about what you think about the capital markets that we have today that prices you really don't want to go into the debt market. If you don't have to you really don't want to go from the equity market obviously.
And so.
What we will likely do as his views.
These dispositions to fund development in the future.
And that when you start looking at that then you start thinking about trading right you're trading an existing asset with a certain growth rate at a certain price with for a new development.
It has a different profile. So we'll look at what the incremental sort of accretion dilution is from that model and then then.
So I think that rather than just saying, okay I have to have a certain hurdle rate on the development. If we can sell assets and create a.
Limited dilution scenario by selling and funding development and buying other properties and we will do that and so that will change the dynamic a little bit on on the hurdle rate for new developments for next year and the bottom line is we will have to figure out the.
The market will have to show us whether there is an ability to to fund development and other activities, but stock buybacks and what have you through dispositions and we'll just have to see how that all plays out next year.
Understood. Thanks for the comments.
Mhm.
The next question will come from Neil Malkin with capital One Securities. Please go ahead.
Well thanks, everyone. Good morning.
The first question, yes it.
It seems like you've been raising guidance every.
Every quarter, obviously sunbelt very strong.
That's great.
But then.
The maintaining.
It looked like it had to do with.
Essentially D C L a.
Either either elevated dengue vacancies from long term delinquent move outs or some sort of bad debt issue as the California copies are running out of reimbursement funds.
I noticed the occupancy in October dipped 50 basis points.
To like 96 wanted previously I think Alex mentioned, you guys are assumed to it.
Average 96, six in the back half of this year so.
It seems like you took that down about 80 basis points.
So maybe can you just talk about what you're seeing and what's leading to that.
The drop and all the things I just mentioned.
Alex you want take that yeah, absolutely. So the first thing I would touch on is occupancy. So occupancy is certainly a little bit lower than we had expected but by the same token are our asking rents are in that market rents are higher than we thought so it was really sort of a trade between.
Between occupancy and rental rates.
Thing I will point out and you are correct, especially in California.
Did have less.
Proceeds from the second quarter to the third quarter and that was primarily the driver of what you saw in the.
And the growth differential on a sequential basis for San Diego and L. A to give you an idea.
San Diego.
Had about $225000 last E wrap received in the third quarter as compared to the second quarter. If you normalize both of those in our sequential revenue in San Diego would've been up to two 5%.
If you look at that L. A and in particular, the Camden in Hollywood, We had about 220000 less in E wrap in the third quarter as compared to the second quarter. So obviously that would have a significant impact and then and then in Phoenix. We also had a had.
Higher bad debt and less re letting income in the third quarter as compared to the second quarter. If you would normalize that that would have been up two 7%. So that really is sort of the drivers of what you what you saw.
Okay, and so but nothing just to be clear nothing about the.
Potentially elevated move outs for.
Long term long term delinquents, particularly in your California portfolio contributing to any of that it's more of a.
It's really essentially all you laid out there.
Well if you have so we have more skips and evictions than than normal and then we did in the second or third quarter second quarter, we have more in the third quarter than the second quarter and some of that is clearly driven by by people who are moving out one of the things Thats really interesting when you look at the numbers is that.
Is that in the second quarter, we had a higher collection rate I think Alex It was like 97 and some change.
And then the third quarter was <unk> 94, and some change and that was primarily driven by California, and you had a situation where.
Most residents thought they would have to pay their rent and then California extended the.
The <unk>.
Eviction moratorium until January of 2023, and so people when you give people runway and say Gee, you don't you're not going be able to be evicted and you don't have to pay your rent they take an opportunity.
To do that and so.
Hopefully.
Starting in January we have no eviction, moratoriums or or things driving bad consumer behavior and that that will hopefully improve in 2023.
Okay. Thank other one from me is.
Maybe in migration to talk about that a little bit it.
It seems like that continues to be very strong.
Certainly commentary we've heard from brokers across the sunbelt seems like job growth and attraction from employers continues to ramp, but there's been some conversation a potential reversal of that in some companies implement return to office.
I was hoping you could maybe give us some data points or or.
Bigger picture thoughts on.
In migration and your confidence in that and then any anecdotal early signs that there may be some sort of reversion.
The migration of our but it continues to be very strong one way.
Yes, so so Ron Witten numbers for migration net migration into Camden's markets for 2022, Alright, 153000 net to Camden. He's got on the based on the same numbers for 2023. He has net in migration of 179000.
Not only is it not reversing but in his work that he's done indicates that net in migration will actually increase in 2023, and then it stays elevated in 2024, and obviously do the forecast numbers and theyre subject to a lot of variability, but I think directionally.
In migration is going to continue to be a pretty significant positive to camden's overall geography.
And then I would add to that is in our particular markets to 21, 5% of our move ins in the third quarter.
It came from non sunbelt markets, and that's actually up 100 basis points sequentially and if you compare that to the third quarter of 2020, it's up 400 basis points. So we continue to see sequential increases in migration to our markets.
Okay. Thank you everyone.
Okay.
The next question will come from Rich Anderson with S. M. D. C. Please go ahead.
Thanks, Good morning, everybody.
So I wanted to add a sort of a big picture question.
And kind of looking back at history to see if we could have some clues about what might happen from all this because.
The changes that we're seeing some of it our normal seasonal patterns as you describe Rick but then we have a recession.
Potentially coming.
And I'm wondering if this is chapter one of a of a pretty meaningful deceleration beyond what would be called normal seasonal patterns and you know if.
If you look back at last time multifamily left several times multifamily fell into a negative same store growth scenario.
What is it about the current fundamental setup today that you think protects against an outcome like that is there.
Or maybe maybe that could happen in your mind and you know you leave you leave that option or that that that scenario open to potentially happening, but I'm. Just curious what confidence you have that the firm and the industry will avoid something really draconian call. It a year from now.
Yes, So I think first of all if you if you have a financial crisis like we had in 2008 and nine as sort of a different world right.
Yes, that's right.
Sure.
A normal recession, or a hard landing recession or soft landing or whatever you want to call. It.
The multifamily business is going to do well so and the reason is is the number one youre starting out from high numbers right occupancy is at a high level across the country. That's number one number two of the.
Consumer are consumers, who are doing really well our average income as is.
<unk> hundred $18000 for our new people they are paying less than 20% of the rent.
And in.
Percentage of their income in rent.
Have a lot of cash in the bank still they are well employed so our consumers who are doing great and when you have this in migration coming in.
We have supply coming but you know we've had supply come into these markets for the last 30 years as we've been a public company and supply is never kill the Golden Goose, it might slow growth a little bit but.
In some cases, but because of the diversified portfolio, we have it really doesn't impact the business that much. So when you think about and let's take the single family home.
Move outs, we were at 15 in the summer were 13, now and I think the trending numbers through October are down or to 12, and we think that number is going to go to single digits. When you start thinking about interest rates being tripled for single family home folks and the pricing.
Pricing model today for multifamily is as good as it's ever been in our history relative to people moving out to buy houses.
Serve on the board of the largest privately held homebuilder in America are our sales are down 50% from June forward and Theyre not going up and it's so that I think of all that all those backdrops. This should be a multifamily should be a really good place to be.
In an economic slowdown.
So rich I would just add to that that if you start the year and I think we've given guidance to 2023 with sort of embedded rent growth and we start the year at four 5% to 5%.
On on rents and.
Our rental revenue.
It would take as long as the as long as this is a sort of a <unk>.
Normal type recession, even if even if Atlanta is a little bit on the hard side as long as it is it doesn't persist into far into 2024, I think multifamily is it really is going to be a really protected place.
Rick mentioned earlier, our residents are in really good shape and as long as our residents don't lose their job now that's a different obviously different scenario is the great financial crisis as long as they still have their job, they're going to live where they live theyre going to continue to live out their lease term and implies that we will be up 5% on rental growth.
So I think there's just a lot of mitigating factors to where we sit today that doesn't mean that.
At the margins of course, it affects things if we lose two or 3 million jobs in the economy, but it's just not a direct impact to our portfolio over the over the near term call. It in the end of 2023.
Just as a just a quick aside to that you mentioned rent to income of 20%.
What how bad is it gotten in history for you guys.
And how does 20% compare to what it was at its worst at its highest.
We actually have stayed in that zone, we've never had and I think it just has to do with our markets. We are we're in high growth low cost markets right. So the rents arent.
Rents anywhere in our markets so.
I think we've probably been at 'twenty, two maybe over the years and driven by West Coast and East Coast. If you look at California is probably higher than that in the 'twenty four 'twenty five but bottom line is is that is that one of the reasons that the sunbelt has done so well is because it's affordable and people.
And that's why I think you don't have a lot of a lot of the move back.
Once you move to Charlotte and see that you can get a really cool apartment for half the price of New York City apartment you.
People liked it and they say and so I think that the.
Market, we've never had pressure on our residents' income to rent ratios.
Really in the last for last.
Three years really.
Okay, great. Thanks very much.
Sure.
The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, good morning down there.
So two questions.
Hey, two questions here.
Going back to the analysts who asked about.
Southern Cal in D C and obviously right now is not the time to be doing any large transactions just given the capital markets, but if you look at your portfolio and especially comparing it to your to your peer mid America. It would seem like having D C and having southern Cal are not helping the overall portfolio mix.
I mean, especially D C is.
Outsized waiting so when the markets return it would seem like these are markets to you know to down weight and exit or severely sell down and fund elsewhere, just sort of curious because the sunbelt has definitely proven a lot more resilient economic diversification and ability.
Pushed through supply, whereas D C seems to be on a decade, plus supply issue in southern Cal while better than the than the other parts of northern Cal right now still has the California cost of living in and taxes et cetera. So just curious your thoughts as you look at your portfolio over the next two to three years.
Yeah. So.
The way the way I look at it Alex is that our California portfolio and.
Big chunks of our DC Metro portfolio has still not experienced the rent rental rate reset that all of our other markets have and I just think that the economics are pervasive.
Ultimately the water, we will seek the proper level I think ultimately rents are going up in California, probably.
At some point will will exceed the average of our portfolio and the same.
D C metro so.
Your underlying question of.
Long term is.
Is D C at 17% the right number I mean, we've said consistently that we'd like to shrink that overtime, California at 12%.
Maybe but the reality is is that until there is two things going on right. Now you have a really a huge disconnect in valuations to kind of what you think the underlying asset at a trade at and then more importantly long term you've got this this opportunity to get the rental reset in those three markets, which by the way.
Between just between those two markets, all California and D. C. Metro is almost 30% of our portfolio. So I'm more interested in.
Let's get through this period of kind of turmoil and uncertainty in pricing and then let's let's reap what we know what I believe to be the underperformance and level setting that needs to happen in those two markets and then we will look at it at that point and that doesn't mean that around the edges, we still won't do something as Rick talked about.
Opportunistically the support of our development program or even possibly share buyback program with the math works.
And I think about what we what we've done in trading assets in the last like 10 years, we sold a bill.
So $3 billion and developed <unk> 3 billion and <unk>.
Ultimately, we have moved the market concentration around pretty substantially in the last 10 years and so over a long period of time, you'll see us do some of that.
Okay and then second question is just going back to supply.
Again, some belt traditionally has actually done pretty well with managing supply.
Apart from like a Houston, but.
As you look at your markets over the next 12 months are there any markets or any submarkets, where you're saying Hey, maybe you know next year.
To be exciting.
This submarket or that sub market that could have.
Supply.
A supply issue or as you look at all of your properties across all the portfolio. Your view is that there's not any area where supply is an outside concentration of risk.
Okay.
So Alex I would I would tell you that the answer to that.
Rest and tell me what the job growth is in these cities because if I look at if I look at 2022 completions in a market like Austin, where we had almost 17000 apartments and yet Austin has continued to outperform our overall portfolio. It just tells me that there's there continues to be real strength in to play.
Mrs and employment growth, but also in migration same thing in Charlotte, if you roll that forward to 2023, the supply market actually increases and almost and almost all of Camden's markets I think witnessed got.
<unk> that about 130 this year moving to about 180000 completions next year across Kansas portfolio.
Yeah.
That's a meaningful but it's not necessarily concerning to us and in light of what's happened on job growth and in migration. So.
I think the good news in all of Witten data for.
But we look at is if you roll forward into 2023 is data indicate that that starts across camden's markets go from 210000 down to less than 150, and then they fall further to about 115 in 2024 now.
That's probably a lot of good news for the multifamily world in 'twenty five 'twenty six and now we're way out on the horizon, but the reality is starts are coming way down completions, we're going to have to slug through for the next year and a half or so because we're going to continue to be elevated by historical norms, but it's.
Our view that we will continue to have be able to backfill that.
Our with our geography between.
New job growth and in migration.
Thank you.
The next question will come from Janney <unk> with Goldman Sachs. Please go ahead.
Hi, Thank you for taking my question.
Wanted to talk about Hurricane Ian are you guys seeing any increase in short term leases or any impact on rates in the aftermath.
In the aftermath of the hurricane.
Yes.
No we're not.
Fortunately for US we had.
Very little damage we.
We had note.
Residents.
In order to have any.
Curiously in fact, so we got lucky.
Path of that storm, maybe where it was originally forecast.
Tampa Bay.
Would be having a different conversation with you, but notices there's been very little disruption, we had minimal amount of damage.
Estimate that we gave was a little less than a $1 billion.
I think given the size of the magnitude of that storm and the fact that it went right over the top of.
Orlando as a as a category one storm as we were very pleased with how it turned out and we have not we've either seeing benefit from people moving from really badly affected areas into our market.
Those are not.
That wouldn't be a normal place where that those people would kind of see.
Short term.
Sculptor, while they try to rebuild their homes.
Both those Florida thought.
Overall, it's been a.
Not not a big issue for us either economic either either physically on our assets or.
Great.
Got it and as a follow up any preliminary thoughts on expenses next year, how should we think about fair to state taxes insurance.
All the other line items that go into that bucket. Thank you so much.
Yeah, absolutely so real estate taxes I'll address that one first obviously, that's our largest expense line item in 2023 is going to be an interesting year. Because if you think about what assessors look at they typically look at the preceding years.
NOI growth and obviously 2022 has been a fantastic growth year, but then there are also supposed to look at real values and clearly real values have come down and so I think we're going to have a lot of protests and probably a lot of lawsuits are working through the through this process in 2023, but.
I think if I was obviously, we're still working through our budgets, but.
At this point in time I would believe that our property tax expenses are probably going to be towards the high end of our typical range.
If you think about the rest of the expense categories.
Clearly R&M and utilities are going to be driven by inflationary pressures. So defensive about what inflation is doing at that point in time on the salary side as I talked about in our last earnings call. We rolled out this year I'll work re imaging program.
Ah is a benefit to us on site in 2022 by about $1 million, but it should be a benefit to us on site in 2023 about $4 million to $5 million. So obviously, that's a positive that should offset a lot of these expense pressures that are potentially out there and then on the insurance side. Although we did have a large farm in flu.
This has been a pretty light year in terms of sort of global.
Global events. So my hope is is that insurance starts to normalize.
Thank you for that detail.
Absolutely.
The next question will come from Rob Stevenson with Janney. Please go ahead.
Good morning, guys, what's the current expected stabilized yield on the $758 million development pipeline and what's the current market that youre seeing for land has pricing come off there and are you seeing transactions or is that on hold just like actual property transactions.
Yes.
Yield is in the.
Properties are five five to six and a half so it's.
Call it call it right.
Right.
Six ish.
In terms of land, we have seen some.
Land owners.
Yes.
That we were negotiating with.
Lower their price.
But the challenge we have today is it's really hard to kind of peg what the price ought to be so there is definitely some sort of.
Moving on land sellers in terms of.
What should the price be in the future I think again, it's hard to underwrite today and even with.
Land prices going down some.
We havent executed while we have been doing though our land positions that we that we already are that we're already have that are under contract and hard earnest money, we are having pushing those out and so people are agreeing to push them out understanding.
That if we had to make a decision today that we likely likely would either ask for a haircut or or not close and so I think thats. The land land tends to be stickier. During the early part of a of a re pricing scenario.
But once they start seeing contracts dropped because I know ill.
Most of my merchant builder friends, if theyre not hard on a contract and have significant investments they've dropped their contracts and they know their those land sellers are all getting dropped across the country in and it'll be.
Interesting to see what happens in the first quarter.
Okay and then the second question given the strong rent growth, what's the earn in today heading into 2023.
Yeah, absolutely so the earn in for US right now it's about 5%.
Okay.
Alright, Thanks, guys appreciate the time and have a good weekend.
Okay.
Thanks.
The next question will come from Wes Golladay with Baird. Please go ahead.
Hey, everyone I just have one.
Question on the supply if we look at the midyear last year.
And for about 165000 forecast for 2022 supply and now it's looking like it's about 130000 do you think the same thing will play out next year with 180 to 180000 forecast now.
Yeah, I think the difference is just the slippage and timeframes.
For the deliveries on the completions and we've seen it in all of our construction projects and I assume everyone else is.
Experiencing either that are worse, because there's lots of folks that don't have near the reach and the experience and relationships that we do to get these things brought to the finish line and it's still it's still a battle. So I know that the whitten and real page both have tried to capture some of the delay.
Because this persistent issue of saying, we think completions of the accident.
For three straight years, it's turned out that there were 80% of X. So I know they've tried to adjust their forecasting my guess is they still have it captured it in the in the 2023 numbers. It wouldn't surprise me to see some of that 180 shift into 2024, I don't really I think the right way to look at the at the completions number.
Is over is over maybe a two to three year period, just add them all up because if it started its going to complete in the question.
Sort of not it's a rounding error if it completes in 2020 through your first quarter of 2024. So I think it would be more useful for most folks to look at it and say.
You mean, three years' worth of numbers in and over that period of time I'll give you my forecast and we'll see how that matches up versus trying to trying to handicap any individual year.
But my guess is probably still have it captured.
It's likely to be less than the 180.
Okay, and then I'd like to talk about Houston I believe the plan was to reduce exposure, but then you bought a JV you JV that had high use exposure and then you have to start with the Houston, So I'm detecting a little bit more bullish view and then maybe zooming out maybe for a few years in the <unk>.
Pat you had mentioned that Houston was more than energy city in yet at some point side of the chemical industry and medical but right now we have a big energy differential between the us and everyone else around the world the same yes.
One of your industry contacts have indicated that they may have plans for bigger expansions in the area. If this differential would persist.
Sure so.
We had a unique opportunity with the acquisition of the fund.
With Texas teachers to acquire properties that had zero zero execution risk right and so we knew we needed to do something with that with the fund over the next two years or three years because of the finite life of it. So it just made sense for us to do that yet kind of went against the cleanup we want to reduce our exposure in <unk>.
And over time.
The and the other part of it as we started two development deals which were our single family rental.
Our rent properties and so.
On that side that that's an opportunity for us to really understand the market learned the market because I think it is.
Compatible business with with the regular multifamily business long term.
Think about where Houston is right now Houston has not had the same reset of rents that that Dallas, Austin, or Florida or other our other major markets and the reason being because energy and.
Energy in 2020, and got hammered right one when the when.
Oil prices were negative.
And Wall Street has.
<unk> taken the energy companies to the woodshed multiple times and has required more dividends and stock buybacks and so rather than drill baby drill theyre not doing that when youre doing this year.
Methodical in their capital allocation and making sure they have dividends to pay their shareholders. So that is new to the job.
Growth in Houston compared to these other markets for example, Austin and Dallas recoup their pre pandemic employment and substantially higher than pre Pat panned academic employment.
About eight or nine months before Houston did we hit our pre pandemic employment. This summer now we're still doing well in Houston, but on a relative basis, it's not as not as not as robust as the other markets and so I think Houston I've said it in a couple of calls you CNS gas in the tank.
Really does because when you think about energy cycles, they tend to be anywhere from five to 10 year cycles and.
Most folks think we're in a super cycle right now because of the lack of drilling because of the domestically because of the.
The government doesn't really want a lot of domestic oil and gas drilling there is a lot of a lot of pushback from the Biding administration you have the saudis cutting.
Cutting production 2 million barrels you got the Russia, Ukraine situation and so we know we have to have energy in the world has to have energy and it's not going to go into renewables as fast as people think so I think Houston is really well positioned over the next few years and then when you when you add in the.
The energy transition, which is ultimately we know we have to transition, but Houston is going to be.
The likely the energy transition capital of the of the world as well and primarily because when you think about the <unk>.
Inflation reduction act theres about $100 billion of cash.
Capital that we think is going to come to Houston.
Be it carbon capture that.
If you'd like and what Exxon and some of these other big companies have done they have gone out in the Gulf and started leasing leasing shallow water wells that are spent.
So that they can store carbon.
In those in those in those fields that are that are all depleted and so when you think about the about the fact that Houston is the number one exporter of energy in the country and in some categories in the world.
And there's a lot of production with chemicals, and when you start thinking decarbonising that industrial complex.
The carbon capture that green hydrogen.
Ammonia and all those things that are that are going on.
Propel us forward into the energy transition is happening here in the headquarter companies are here. So I think it's going to be Houston is going to be a great market over the long term and it's going to it.
You'll have more gas in its tanked and the rest of the markets in a recession because of that now ultimately we fundamentally want to lower our exposure in.
In markets, where really concentrated in because it may be great over the next two or three years, but the way that our portfolio has been has really been been constructed is to be diversified geographically and when you have D C Houston, and California, being our three largest markets.
One a diversified ultimately so we will do some trading in this environment, but like I said before we've done over $3 billion of moving moving assets around in the markets and we will continue to do that and hopefully we can do it in the last year or two we've been able to do it on a non dilutive basis and hopefully that will continue wherever the prices are.
A reset I don't think theres going to be a massive differential between cap rates and <unk>.
Houston or in D C or California versus the rest of the Sunbelt and if we can sell assets and fund development or by newer higher growth assets.
And the other markets, where we're under weighted we will lean into that.
Great. Thanks for that answer and have a good weekend everyone.
Sure.
The next question will come from John Pawlowski with Green Street. Please go ahead.
Hey, Thanks for keeping the call going Alex you mentioned bad debt and Phoenix is picking up.
What is bad debt as a percent of revenues in that market and are there any other markets seeing upward pressure right now outside of just timing impacts in regulated regulated markets.
Yeah, absolutely. So if you look at collection, so our collections right now.
For the quarter were right around 98, 6% and that compares to the last quarter. When it was when it was.
Right around 99, 2% so.
If you look at Phoenix, our collections there were 99, 2%.
But to a point that Rick made earlier, if you look at California, our collections in the second quarter in California, where 97, 3% that dropped off the 94, 2% in the third quarter 'twenty two that's the real collection story.
Okay, and then Keith.
Are your locals local teams scene.
A slowdown in traffic in any markets outside of the normal seasonality right now.
No the only traffic we still continue to have.
But there's a lot of the technology that we've put in place in particular funnel.
The complaint that I hear most common Lee.
That we have more traffic than we can reasonably handle given the or that we can effectively handle because of the very low vacancies.
Across the entire portfolio, but we're generating plenty of traffic.
Still tons of people that want to live in Camden apartments across all 15 cities.
These are even though our <unk>.
Occupancy rate did fall from the second quarter.
Youre still north of 96% in the fourth quarter and those are crazy good numbers from a historical perspective for Gander.
Okay, and just one follow up there again don't want to be pedantic, but I thought it was assumed that occupancy would slip into the high 90 fives as over the balance of this year, but you're still seeing occupancy above 96% today.
Okay.
So we're gonna yes go.
Go ahead Alex.
Yes, So we will average 95, 8% for the full year and that is where our averages.
Obviously that assumes that occupancy will fall.
Follow a seasonal pattern as we get towards the end of the year.
Alright, thanks have a good weekend.
You too.
Thank you. The next question will come from Barry Lau with Mizuho. Please go ahead.
Hey, thanks.
For taking my question I just wanted to quickly ask you guys disclosed the loss to lease.
Yes, so actually for us is about five 5%.
Okay and is there any chance you see that loss lease go negative during this year.
No.
Yeah.
No.
Okay. Thank you Amcor, just secondly on expenses do you think.
Any can you talk about like tax efficiencies in terms of mitigating labor pressures.
And sorry, what's your question.
Just any tax efficiencies on mitigating like labor pressures for next year.
And tech initiatives.
Okay.
Yeah. So absolutely. So if you recall, we talked about our work re imagine program, which is.
Which is to not happen without our tech initiatives that we have in place, mainly sharp and funnel and so because of those factors, we should be able to pick up about a net $4 million to $5 million benefit on the salary side in 2023, so absolutely.
Okay. Thank you.
Okay.
The next question will come from Dennis Mcgill with Zelman and Associates. Please go ahead.
Hi, Thank you.
Just to start I wanted to clarify the occupancy comment I thought in the prepared remarks, you said 95 eight for the rest of the year, meaning the fourth quarter for guidance and I think just a minute ago. You said 95 eight in a different way. So can you just clarify that first.
95, 8% in the fourth quarter.
Okay, that's what I thought.
And then just just generally as we think about that number in that 80 basis points deceleration from the third quarter, recognizing there healthy levels.
Pretty stark change relative to what you've seen in the past seasonally.
And at the same time, you are talking to still good traffic income growth and strong income metrics you talked about in migration being favorable you've got for sale affordability is going against the consumer so the narrative as theyre staying in apartments longer I guess all of that collectively would suggest that you wouldn't have to make the trade off of occupancy in.
Right right now so what are the what are some of the offsets you think better.
Filtering through that that's causing that sequential deceleration.
Well I think you've got a couple of factors number one we are pushing rents and as we follow normal seasonal patterns. If you push rent you should see occupancy come down number two as we've talked about our turnover has picked up a little bit and that is driven by.
People are finally that have been long term non payers.
Starting to move out and as we have the ability to enforce contracts.
Should expect to see that number tick up a little bit that by the way is a is a good thing because those are folks who are not pain and if we can move them out although our physical occupancy will come down it doesn't actually have any net impact on our financial occupancy and those are couple of factors that are driving that.
Okay and then when you think about that I guess is now that that's come down a bit at 95, eight valid point between physical and economic but do you start to think about pricing power getting back to pre pandemic levels. Here then pretty soon since that's a bit below occupancy where you were in the fourth COVID-19. So is that the transition that we're seeing as you move into <unk>.
The first part of next year.
I think we continue to have a lot of.
Very strong things going in our favor in terms of migratory patterns that we've talked about job creation in our markets I think.
And then when we have to see is what is the long term job creation in 2023.
But I think we are going to remain in a pretty good strong position in terms of.
Our ability to to push rents and then once we keep pushing rents and we should be able to push them occupancy a little bit further, but as I said it depends upon what do we see in the economy in 'twenty three.
We could have 96% occupancy all the time, if we wanted to remember we are a dynamic revenue pricing system and we've made a choice and that choice is based on keeping our R. R.
Keeping rental rates going up and if you think about Alex mentioned that our average rental rate. It was eight and some change or average revenue growths can be eight and some change in the leases three at the end of the end of the year and.
And that's a really good number if you look at at historic will go back to pre pandemic levels.
Usually negative to zero in the in the.
The last two months of the year on revenue in terms of new leases renewals and new leases and so we're going to be six or 800 basis points above pre pandemic levels going into 2023, and we just think it's the right right fit and to Alex's point earlier.
We want people to move out and are paying us and so that and we're trying to help them understand that.
We've had discussions about about paying people to move out right I mean, because it's just.
And it's primarily a DC in California, but but.
So I don't look at that 80 basis points as a as a flaw in the system I look at it as keeping pressure on the rent and making sure you're starting 2023.
At a really good place with an earn in a loss to lease that is that is pretty substantial.
Alright, I appreciate the color. Thank you guys.
Thanks.
Okay.
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 well, we appreciate your time today on the call and we will see some of you at NAREIT in San Francisco. So we'll have a lot of new stuff to talk about them probably since it will be about it.
So take care and have a great weekend and go Astros.
Bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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