Q2 2023 Camden Property Trust Earnings Call
Good morning, and welcome to Camden Property Trust second quarter 2023 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 Jessop, 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 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.
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.
Participants will be in listen only mode. During the presentation with an opportunity to ask questions afterward, and please note. This event is being recorded.
Before we begin our prepared remarks, I would like to advise everyone that we will be making forward looking statements based on our current expectations and beliefs.
These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Further information about these risks can be found in our filings with the SEC and we encourage you to review them.
Any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events.
As a reminder, camden's complete second quarter 2023 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 would like to respect everyones time and complete our call within one hour. So please limit. Your initial question to one then rejoin the queue. If you have additional items to discuss if.
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 will turn the call over to Ric Campo.
Good morning.
<unk> hold music theme for today was happy birthday last week, Kevin Board and Executive management team Rang the closing Bell generic stock exchange to celebrate camden's 30th birthday as a public company. We were joined by the rest of the Camden 1700 team members from coast to coast to commemorate this special day.
Been a remarkable journey and we want to share a few memorable moments with you. So here. We go with 30 years in two minutes and 30 seconds.
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Our business is built to last and.
In 1993, we started with 6000 apartments with three Texas markets with an enterprise value of $200 million.
Today, we have 60000, sunbelt geographically and product diverse departments with a value of $15 5 billion.
Over the years, we have created a best in class operating and investment fund platform that focuses on constant improvement Camden exist to improve the lives of our team members our customers and our stakeholders.
Variance of the time, our business continues to be strong market conditions continue to moderate from the post COVID-19 unprecedented housing boom that we all knew would happen.
Transaction market is still quiet and with 70% decline from last year.
New permits are starting to fall given the difficult financing environment and increased cost of capital. This should bode well for our markets as supply is absorbed over the next 18 months move outs device single family homes continue to trend lower than past years and quarters.
And finally, I really want to give a big shout out to our Camden teams for their hard work and their commitment to providing living excellence to our residents and next up is Jim.
Thanks, Rick now for some details on our second quarter 2023 operating results in July of 2023 trends same property revenue growth for the quarter was in line with our expectations at six 1% and we have maintained the midpoint of our 2023 revenue guidance as a result, consistent with the past several.
Quarters, we saw the highest growth rates in our three Florida markets, Tampa, Orlando and southeast, Florida with very strong results in both Charlotte and Nashville as well.
Despite the understandable concerns about elevated levels of supply in Camden Sunbelt markets.
<unk> for high quality apartments in our markets remains strong.
Second quarter sign leases grew by a blended rate of four 1% with new leases up two 2% and renewals up five 9% or.
Our preliminary July results show moderating rates of growth with blended rates in the mid 3% range renewal offers for August and September were sent out in the high 5% range.
Occupancy averaged 95, 4% during the second quarter of 2023 and trended slightly higher in July at 95, 6%. Our portfolio is currently 95, 8% occupied positioning us well for the normal seasonal slowing we typically see in the fourth quarter.
Net turnover for the second quarter of 2023 was 44% and move outs to purchase homes were 11, 8% for the quarter and 11% year to date versus 15, 1% in the second quarter of 'twenty, two and 13, 8% for the full year of 2022.
I'll now turn the call over to Alex suggested Camden's Chief Financial Officer.
Thanks, Keith during the quarter, our lease ups remains stronger than usual as we completed construction and subsequent to quarter end stabilized well ahead of schedule Camden <unk>, a 397 unit $107 million community in Phoenix with a yield north of 7%.
In addition to stabilizing ahead of schedule Camden 70, twos rents are approximately 10% ahead of pro forma.
Also during the quarter, we continued leasing of Camden Noda, a 387 unit $108 million community in Charlotte, which is now over 60% leased averaging over 45 leases per month.
At the end of June we dispose of Camden C pumps, a 138 unit community in Costa Mesa, California for $61 1 million.
We sold this 33 year old community for a five 7% <unk> yield and a $4 two 5% tax adjusted cap rate generating an approximate 13% unlevered.
Over our 25 year hold period.
On May 31, we utilize our unsecured line of credit to retire approximately $185 $2 million of secured variable rate debt with a weighted average interest rate of seven 1%.
We recognize the charges in conjunction with this early retirement of debt of approximately $2 5 million.
91% of our debt is now unsecured.
For the second quarter, we reported core <unk> of $1 70 per share <unk> <unk> ahead of the midpoint of our prior quarterly guidance.
This outperformance was driven by <unk> and higher non same store net operating income primarily driven by the previously mentioned accelerated leasing activity at our development communities.
<unk> associated with the timing of certain corporate overhead expenses and fee income.
Last night, we reaffirmed our same store revenue expense and NOI midpoint at $5, six 5%, 685% and 5% respectively.
Our revenue growth midpoint of 565% is based upon an anticipated one 5% average increase of new leases and a 5% average increase in renewals for the remainder of the year for a blend of approximately three 5%.
We are anticipating that our occupancy for the remainder of the year will average 95, 6%.
We continue to experience a higher than typical level of move outs by non pain residents. As a reminder, all of the municipalities in which we operate have now lifted the restrictions on our ability to enforce rental contracts.
And as a result, we now have twice the amount of early move outs of non payers year to date as compared to the first half of last year.
We reserve for effectively 100% of delinquent balances and therefore, there is no net negative revenue impact when nonpaying residents leave.
Rather we received the benefit of having a real estate back the opportunity to commence a lease with a resident who abides by their rental contract and lower bad debts, and having a new residents who pays however.
However, we have noted higher than normal repair and maintenance costs, which I will discuss shortly partially associated with the move outs of these delinquent payers.
Although we have maintained the midpoint of our expense growth at 685% we have updated some of the underlying assumptions.
Recently, the Texas State legislature passed the tax reform Bill subject to voter approval in November .
<unk> approval, which we believe is likely Senate Bill two will reduce independent school district tax rates by 10 seven.
For $100 of assessed value.
Average independent school district tax rates in our Texas markets are approximately 1% of assessed value or 45% of the total taxes tax rate. Therefore, excluding valuation increases and other tax rate increases this anticipated reduction equates to an approximate four 8%.
<unk> and Texas taxes.
We have assumed some rate rollbacks in Texas in our prior guidance. So this reduction is not dollar for dollar to the bottom line. We have also had greater than anticipated success with our Houston valuations, both current year and prior year settlements.
As a result of all of these tax adjustments, we now expect total property taxes to increase by four 5%.
Repair and maintenance make up 13% of our total expenses and are now anticipated to increase by eight 5% a 350 basis point increase from our prior expectations, resulting from higher unit turnover costs and other miscellaneous repair items, the remaining offset to the property tax favorability is primarily from continued.
<unk> increased levels of insurance expenses, resulting from smaller claims generally under $25000 per occurrence, which do not count towards our aggregate $3 million exposure.
Last night, we also increased the midpoint of our full year 2023 core <unk> guidance by <unk> <unk> per share for a new midpoint of $6 88 per share.
<unk> per share increase results, primarily from the <unk> <unk> per share second quarter outperformance of our development communities and <unk> and lower interest expense associated with the second quarter prepayment of secured debt.
We also provided earnings guidance for the third quarter 2023, we expect core <unk> per share for the third quarter to be within the range of $1 71 to $1 75.
The midpoint of $1 73 represents a <unk> <unk> per share increase from the $1 70 recorded in the second quarter. This.
This increase was primarily the result of an approximate one 5% 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 leasing incentives a three quarters of sequential increase related to additional NOI from our non same store.
And development portfolio.
A one set decline in net overhead expenses, primarily associated with the timing of certain public company costs and a half cent decline in interest expense associated with the second quarter debt prepayments.
This three and three quarter cent cumulative increase in core SSO as partially offset by three quarters of a cent of loss SSO from our Camden <unk> second quarter disposition.
Our balance sheet remains strong with net debt to EBITDA for the second quarter at four two times and at quarter end, we had $212 million left to spend over the next two years under our existing development pipeline at this time, we will open the call up to questions.
We will now begin the question and answer session.
To ask a question press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Eric Wolfe with Citi.
May now go ahead.
Hi, Good morning, it's actually Nick <unk> on for Eric This morning.
Wanted to ask what Youre all seeing in terms of recent competitive starts specifically, which markets are more or less insulated and then when you all kind of expect that supply to abate given the current in process pipeline.
Well the good news is is that we have.
Definitely started seeing starts to decline in all the markets.
If you look at the real page headline that came out just recently.
The headline was starts finally start to decline.
Starts in May were down.
EMEA over June June over May were down 13, 5% in June from last year down 33%.
Clearly the the.
Tight financial markets and the difficulty of getting bank financing and equity financing along with increased cost of capital is having.
The feds desire.
Result, which is it slow and everything down.
In terms of absorption when you look at how we've been absorbing.
In most of our markets, it's been good as Alex pointed out in our in our <unk>.
Opening remarks, all of our developments are actually done better than we anticipated from a from a net absorption perspective. So we think it's going to be 12 months 18 months kind of timeframe to to absorb all this new supply and then.
Then when you when you think about what the market might look like in 'twenty two.
Towards the end of 2024 and into 2025, it's pretty pretty constructive for.
For the supply side of the equation so.
And as Alex pointed out we haven't seen.
The wall of supply that everybody is worried about.
Just not.
Not really negatively impacted our portfolio a lot of reasons for that but but.
One of which is that.
Substantial portion of our of our properties are just not affected by it because they are lower price points and they're not uncompetitive in the competitive through high end market. So our product diversity is really helping us from a supply perspective, there's no question about that.
Thanks, I appreciate the color and then I guess sort of follow up on that is with presumably less deliveries in 'twenty five 'twenty six what's camden to appetite for.
Ramping up your deliveries.
She can do so.
Well clearly if.
If things work out the way, we think they might.
There'll be plenty of opportunity to to acquire shovel ready deals that can't get financed in and we have history has shown that.
We'll be aggressive in that in that area for sure.
Thank you I appreciate the color.
Yes.
Our next question will come from Austin.
We're stood with Keybanc capital markets.
You May now go ahead great.
Thank you.
How do we reconcile the 95, 6% average occupancy assumption for the back half of the year with the economic impact from back filling non paying residents versus just normal course turnover.
Yes.
Normal course torque turnover is happening as we would normally expect it the big difference in our portfolio.
Over the last six months has been.
The incidence of.
Sort of what we call short term notices to vacate.
And primarily those are people, who have have not been paying rents they've been protected by statutory.
Moratoriums on getting our real estate back.
In all of our all of our markets that we operate in on those those.
Moratoriums have run their course, so as people sort of reached the end of the game, which is we can now proceed in normal order in and have them removed from our property for nonpayment of rent when that day of reckoning gets closed.
Typically resolved most of them resolve that by just moving out and those they end up being in our portfolio.
Refer to the skill so they're just people who disappear and as Alex said, it's not necessarily a bad thing because these are people, who haven't been paying rent, but they've been living in the apartment.
If you have people, who move out because they skipped as opposed to.
The ordinary course, where we would get 30 or 60 days notice and have an opportunity to backfill that apartment. It just creates a much tougher dynamic for our onsite teams and I think Alex mentioned the number we have roughly twice as many folks in that category, which is short term notice.
To move out as we would normally have or we had pre COVID-19. So you have that.
The double impact of the normal turnover cycle that you're on top of that you had this this cohort of people who are you sort of move out in the middle of the night.
It takes a different set of factors to react to that for our onsite teams and that shows up in the occupancy rate.
95, 6% projected through the balance of the year.
But if you were to put a number of units or how much shows the.
Occupancy that represents those those.
Skips and or vacant units related to long term delinquent tenants can you just put some numbers around that and then could you also share what just bad debt is today.
Yes, so there's a couple of things. The first one is if you actually look at our total turnover. Our total turnover is actually is down and it's because we have less folks moving out to purchase houses. So that's the offset of that and so based upon that that's why we actually think we're going to see occupancy continue to pick up from this.
Level, Keith said in his prepared remarks that we're at 95, 8%, we're actually going to be about 96% by next week and so that we continue to have strong occupancy because the turnover is maintaining is pretty low if you look at our bad debt.
We think our bad debt for the full year is going to average about 120 basis points.
And that is and we're thinking that probably in the fourth quarter. It should be around 90 basis points as compared to historical are about 50 in normal times.
Very helpful. Thank you.
And Austin just to put a number on that.
Alex's point about the move outs to purchase homes, we were about 11% from last quarter, but as.
Forward into July it actually dropped to single digits at nine 8%, we haven't seen single digit move outs to purchase homes since you'd have to go back to the great financial crisis, We had a couple of quarters in there where we were a single digits on that metric and we hit that again in July so that trend continues for sure.
Our next question will come from Steve <unk> with Evercore ISI.
You May now go ahead.
Yes, thanks, good morning.
I was wondering if you could provide a little bit more color on the kind of monthly trends on new lease rates and kind of on the signings just to give us a sense for the trend April may June and into July and I guess with deliveries set to ramp over the next four quarters.
I'm just wondering do you expect new leases at all to go negative in say the next four quarters.
Sure.
Yeah. So if you look at the trend obviously for the second half of the year. We sold you new leases would be up one 5% renewals up five for a blend of three in quarter.
At this point in time, we're heading into our peak leasing periods and so it's going to follow some normal seasonality.
Over the next couple of months, and then obviously coming back down into the into the fourth quarter.
In terms of rents going negative if you're if you're just looking at sequential month over month.
You do typically see some negative typically in November and December and Thats, what we are anticipating so that being a decline going from October to November to December and as I said, that's just typical seasonal patterns.
Thanks.
Our next question will come from and.
Just with Mizuho.
You May now go ahead.
Hey, there thanks for taking my question.
Couple here first what's the portfolio of loss to lease overall, and where it's whereas at highest and lowest amongst your core markets.
Yes, so our overall loss to leases in the sort of 2% to 3% range.
The the lowest loss to lease is is Phoenix, which is which is.
Petering right on the edge of flat loss to lease to a slight gain to lease.
And in our highest would actually be.
San Diego Inland Empire.
Followed by.
Followed by Denver and Nashville.
And.
Most of your larger markets Houston.
D C where does that lie.
Yeah, So Houston is right around a 1%.
Atlanta is Atlanta is right around call it half a percent and then D C.
Is that dish is actually pretty high it's right around sort of mid fours.
Okay, and so when I think about the philosophy and then you mentioned the three in a quarter blended right expectation in the back half of the year ballpark what is that imply too.
2020 for earning.
Yeah right around one 8%. So if we if we hit our numbers for the rest of the year.
Getting to December of 'twenty, three that should be one 8% earnings.
Thank you.
Mhm.
Our next question will come from John Kim with BMO capital markets.
You May now go ahead.
Thanks, and happy birthday, everyone.
A question on your same store revenue guidance.
I mean, it seems revenue guidance that you've maintained.
It sounds like the bad debt is coming in better than expected with your guidance for the year of 20 basis points lower than prior.
But when you isolate leases signed in June it looks like it decelerated from four 8% and made about three four and I was wondering if that deceleration had come in steeper than you thought.
No I mean right now we are progressing exactly as we had anticipated remember also that we did increase guidance are in the first quarter, but so as compared to what we thought when we last increased guidance everything is progressing as we expected.
Okay, and then Alex you mentioned you already anticipated some of the Texas reduction in taxes, I think a NAREIT you discussed, Texas and Florida as potential states and just an update on Florida is that was already factored into your guidance for the year.
Yes, so Florida for US we are anticipating.
And also do it by market Tampa is up 10% Orlando is up 10%.
And South Florida was up 7%. So obviously some of our higher growth markets in terms of taxes, but.
That compares to Texas.
Which we think our total tax number is going to be up one 4%.
So the reduction in nearly 20 or not.
Great.
In Florida.
Now, we do have some reductions and millage rates. So this is the total so if I look at tax rates, we're anticipating.
About 1% down in Tampa, 1.5% down in Orlando, and one 5% down in South Florida on village.
It's all driven by value.
The values are continue to be higher in most markets.
Right.
Okay, great. Thank you.
Thanks.
Our next question will come from Alexander Goldfarb with Piper Sandler.
You May now go ahead.
Thank you and yes happy 30, although you guys don't look a day over 20, so happy birthday.
No.
Two questions here. The first question is on the skips and evictions I get that for markets like maybe L. A or Atlanta, but your occupancies were down across the portfolio, which almost says that you guys were focusing more on driving rate. This this this quarter.
So maybe just broadly if you can put a little bit more Colorado evictions.
<unk>, if it's beyond you know Atlanta and L. A and then too you know for all the talk that we hear about supply in the in the Sunbelt you guys are pretty good at driving rents up you know, 7% or so of revenues up 7%. So maybe just a bit more color on what youre seeing operationally. So we can understand the difference between how much of.
The portfolio was impacted by the elevated skips and evictions versus.
Lie versus just normal pricing policy that you guys use in the peak leasing season.
Yes, let's start with the supply question first and then we'll come back to the skips and evictions.
One of the things that.
We've always done is we when we think about our operating plan for the year.
It's very much a bottom up process and we have to do that because the the one big variable in our markets is typically are you going to be impacted by lease ups in your sub market and so to the extent we have communities that are going to be.
Competitors in new supply they need to take that into consideration when I'm thinking about their game plans. So we do a bottom up analysis and when you when you do that and you start with something.
A sub market level and if you just.
Use we.
We use our own kind.
Kind of gathering of assets to define a sub market, but if you want to use real pages, it's a pretty good proxy for that so if you've got lease ups that are going to be going on in a submarket that.
We have existing communities and that's the first level that clearly is going to the community will be impacted and then the second thing you look at is what's the age of Camden's asset relative to the new development and our and we use a filter of 10 year old assets or.
Our older we.
Our find them and that's a different price point, and they're probably not going to be competing with brand new development. So when you. When you take the supply that is that everybody is understandably focused on and concerned about but if you run it through those two filters is it in is it asset.
Asset that's being built in a submarket that effects of Camden asset and is it is a camera asset lesson.
Our more than 10 years old when you run all of the supply in all of Camden's markets through those two filters.
What comes out of that as about 15% of the.
Total supply market by market.
His impact is impacting a camden community. So the scary headline numbers of 400000 apartments being delivered over camden's.
616 markets and a six quarter period when you when you when you go through the analysis from bottom up and look at is it really likely to impact a Camden community. It turns out that it's about 15% of the supplies and that that category. So.
That's a big part of the reason why even though you see sometimes you see these numbers it looked kind of crazy in a market like Austin, where over the $23 24 timeframe you've got you know.
In 'twenty three 'twenty four roughly 40000 apartment apartments being delivered as a serious headline number for sure but when you do the bottom up analysis.
Using government really only about 20%.
Of that supply that is even impacting any of camden's communities. So I think so far we've been able to handle whatever supply is impacting Campbell.
<unk>.
And with the with the end migration and strong job growth in these markets.
We expected that.
Some version of that is likely to continue throughout 'twenty three 'twenty four.
Okay, and then and then is it fair to say, it's just the evictions and skips are really just Atlanta and L. A right or is it other markets as well that are being impacted.
Yes, so clearly Atlanta, and California are the outliers, but I will tell you that we are seeing upticks in some of our other markets that by the way is a good thing all of the courts have opened up but all the courts are delayed until youre starting to see some acceleration on the court side, which is really getting folks.
That had not been abiding by the rental contracts for quite some time and youre starting to get them out much quicker now which is obviously as I said is a good thing and you should expect to see these numbers start tailing off pretty good as we move through the year because once again the systems are open and things are starting to flow a lot better.
Okay second question is Avalon.
As you guys saw was released from the real page I don't know what you guys can add from from your standpoint, but do you see that you guys may also be released from this.
You know this class action litigation.
We're not going to comment on class action litigation on this call. Thanks.
Okay. Thank you.
Mhm.
Our next question will come from Josh dinner dinner lined with bank of America.
You May now go ahead.
Yeah, Hey, guys.
Thanks for the time just wanted to clarify I think.
Comp went up your Austin's question on new lease growth in the second half of the year. I think you said month over month seasonality things may turn negative, but what about on a year over year basis for new lease growth.
<unk>.
No.
So assuming positive.
That is correct, yes, okay alright perfect.
Yes.
Thanks.
Our next question will come from Brad Heffern with RBC you May now go ahead.
Hey, Thanks, Good morning, everybody I, just wanted to dig into the occupancy commentary a little bit more have you had a shift in pricing strategy to more of an occupancy focused and that's what's driving the recent uptick to 96% or is there something else thats driving it.
So yes, when we had.
The situation that I described earlier, which is you have this.
Elevated level.
A level of.
Short noticed move out.
Absolutely.
It's more than double what it should be historically, and we saw that beginning to impact our occupancy numbers and so several of our markets.
In the sort of the May June time frame and we adjusted our marketing spend and then we also adjusted pricing to make sure that we maintained our occupancy through this period of time, where it's elevated.
I think the good news is is that we are probably pretty far along with the exception of <unk>.
<unk> said, maybe in California.
Possibly a little bit in Atlanta, we're probably pretty far along in the process of getting rid of that.
That cohort of people, who have been living with is not paying rent facing an eviction and then just leaving all of their own volition.
As a finite number of them.
They moved in they many of them have been not paying rent for a couple of years the gig is up.
<unk>.
The clock is running and eventually they will either be evicted or they will.
Move out just prior to that so there's a finite group.
It's an elevated concern right now.
It's probably we've probably got another quarter or so of kind of grinding through that process at.
At the end of which things should return to normal in terms of the cadence of getting note proper notices being able to backfill pre lease etcetera. So I think we're getting closer to the end of that and we're just not there yet.
Okay got it.
And then on the development side can you talk about where construction costs have trended and if the math on.
New start today is penciling out better than it has over the past couple of quarters.
So construction costs has definitely flattened, but it is not.
Gone down and so.
So in terms of and when you look at land cost.
Landholders are probably if youre really motivated land costs are down.
30%, probably but theres not a lot.
A lot of motivated land sellers in a 30% decline in land cost with a construction cost that is that has stayed flat, but not gone up still is very very hard to pencil. When you think about about rental rates and sort of occupancy rates.
Some wide are not going up as much as they were so you still have a very very difficult time penciling development yields today, hence the significant drop in.
It starts in.
In the June number relative to the June number last year almost a third.
We think that that fundamentally because of this dynamic.
Not just the lack of availability of funds because if you if.
Developers could show that it can make us a seven plus.
Cash on cash return on our new development.
Lenders would probably fund it but the problem is is that is that.
If youre, if youre dealing with the current environment, especially with with interest rate costs going up as much as they have that's a pretty big part of the construction overall project costs.
It just doesn't pencil and so we have not seen any kind of.
Relief in the in the construction costs and I really don't think you will I mean, you have a.
When you think about.
About.
Just see even though construction is going down in the multifamily space you still have a lot of contractors that are that are building out what's under construction and that takes 12 to 18 months and those folks are really busy now now.
We will be really interesting to see is that if this continues the way. We think it may continue you should see some pretty interesting.
Cost numbers in 2025, 26, because when contractors start looking out into the future and they don't see pipeline.
You have to be more competitive in and start tightening their margins and thinking about how they how they have to compete to get the next job in 2025 2026.
So we could see some.
Cost reductions next year towards the end of the year, but right now the pipeline is full and.
And contractors are still printing money.
Thank you.
Hmm.
Again, if you have a question or a follow up please press Star then one.
Our next question will come from Jamie Feldman with Wells Fargo.
Go ahead.
Great. Thank you, maybe shifting gears, a little bit to the balance sheet.
Can you talk I know you you put some refinancings on the credit line during the quarter.
Can you just talk about the impact that had on your guidance.
And then just as you're thinking about I assume turning terming it out and do some unsecured at some point.
Okay.
Think about the variability to your numbers.
Unreasonable kind of at a reasonable price.
And then as you look ahead to your 24 expirations, how do you factor that into potential unsecured needs.
Yeah, absolutely. So if you look at the debt that we prepaid.
The rate on that debt was about 100 basis points north of our line of credit rate. So it was actually accretive to prepay that debt and that is the penny.
One sign of the <unk> increase that we had in our guidance for our full year numbers is coming from lower than anticipated interest expense entirely associated with that.
Early prepayment.
I will tell you that in our full year numbers, we are not assuming any bond transactions.
Today, we could we could do a 10 year that would be.
At least 75 basis points inside of what we're borrowing underneath our line of credit and so if we do a bond transaction.
Sometime this year assuming that rates.
<unk> hold or improve it is going to be accretive to our numbers.
Yes.
Bill rate debt.
Is embedded in our run rate and we will change our numbers and any kind of capital markets transaction in the bond market.
It would be accretive to our numbers.
This year and next year.
The interesting thing when you think about floating rate debt today is at historically floating rate debt has been cheaper than long term debt.
Obviously with the fed doing what Theyre doing short term debt is now actually more expensive long term debt and we expect that to change in the future because over the long term.
People.
It always cheaper and you have the optionality without having to fixed rate long term and all of that but ultimately we will.
Four two.
<unk> debt to EBITDA.
The strongest balance sheets in the sector.
We will take an opportunity to put some of that accretion into our earnings when the market is right.
For that.
Okay great.
Very helpful. And then you make a great born in our leverage I mean, how are you thinking about capital. If you were to find some really interesting opportunity.
On the acquisition side would.
Could you just increase leverage or JV or just what are your latest thoughts.
Well, we definitely have room in our leverage we've always talked that our leverage is going to remain between four and five times and so we have dry powder to be able to.
To increase the leverage if we choose to with the right opportunities today today there.
There really isn't a lot of great opportunities just given given the bid ask spread between.
Between.
Buyers and sellers.
And given the the horizon.
On the construction cost, perhaps coming down in 2025.
25, 2016, a lean year for development.
It seems to us that that might be something we'd lean into.
Before acquisitions.
The.
Comment on joint ventures.
We will not do joint ventures, we have the most pristine and simple balance sheet in REIT land with zero joint ventures, and zero complicated things on our balance sheet, and we're going to keep it that way.
We would rather invest 100% of our shareholders.
Your transactions, rather than and dilute our managements focus on who's Who's who whose investment we are we are.
The stewards of and we just think it complicates our balance sheet and complicates our world.
We just have to do that.
Okay. That's very helpful. If you don't mind me just squeezing in one market one of your investors that emailed me. This question.
Can you talk about occupancy stabilization potential in Atlanta and Austin.
Okay.
What are you referring to.
Yes.
Why do you think market occupancy can stabilize there. It seems like those are two of the outliers versus the portfolio average.
Yes, well so you've got to go ahead.
So both of those markets are in the mid <unk> mid 90 fours, which is down from where they were last year.
90, it for a long period of time, we considered sort of 95 to be the number in terms of where we want to operate our portfolio.
That's gotten that's <unk>.
Come up over time for a whole lot of reasons, primarily around the ability to.
Turn units more quickly in some efficiencies.
Getting it the real estate compared to release that.
So you've got you've got two separate issues you have in Austin you do have.
Tunnel units there coming to market so market Y and my guess is is that you are still going to see pressure group broadly in Austin.
Kind of work our way through close to 40000 apartments in 'twenty, three and 'twenty four there were being deliberate.
The point I would make.
Made earlier is only about 20% of that that supply. We think is relevant to camden's world, but but obviously the other 80% is relevant to somebody elses world and so my guess is we're going to stay under pressure the entire market will stay under pressure, but I don't I think Camden is going to be okay and.
In terms of being able to handle the supply that's coming.
Atlanta is the law.
Little bit different case.
Have much fewer units they are coming they do have supply that's coming in 'twenty three 'twenty four obviously, but there is.
Atlanta has been a little bit of a microcosm of.
Fraud, and just you know.
<unk> acts that have nothing to do with Covid at all most of this came about post COVID-19, but it was actually pretty widespread and it's one of those things that once it gets into the network of the <unk>.
Fraudsters.
Until you react and put in countermeasures, which we have done in most of our competitors have done once they get in the door.
It's in the environment, we're in it's kind of hard to it.
It takes six to seven months to go through the process, even though you can technically evict and for.
For nonpayment in Atlanta, the reality on the ground is is that it's a process it's crowded.
There are a lot of people trying to get get through the process. So it's slow. So there was an issue in Atlanta, that's separate and apart from any of the supply issues. It's just we've got people that are.
We've got folks in our apartments that were working through to get out and my guess is most of our competitors do as well, but again that will run its course over the next four to six months and I think Atlanta will be fine.
I'll give you a personal example of this issue.
No.
Last year I rented an apartment in Chicago.
I opened a bank account at bank of America that has thousands of dollars flowing through of it through it I opened a bank of America credit card, which I immediately ran up to the limit and then defaulted on and by the way I've never lived in Chicago I never released an apartment or open a bank account or head of bank of America credit card that I defaulted on my credit score.
<unk> went to 500 510.
And.
Just recently I tried to rent an apartment at a competitor in Charlotte and the competitor happened to be happy to know my name because they're there.
We're pretty well known and they sent the center and.
Information to a regional vice president that by the way as Ric Campo really trying to lease an apartment in Charlotte and the answer was no. He isn't and so this fraud is really interesting and it's sort of a cottage industry on the Internet where people go on the Internet and say how do you live in an apartment for free for six.
Or for three months or for nine months and then they.
Slide four through the.
The system and figure out how to do it.
Six months to get my credit score back to where it should be and get all of the fraud off of my my personal credit report, but having been personally.
Identity was stolen and try to rent apartments with our competitors has been a real eye opener and it's something that.
That unfortunately is happening in our industry.
Yeah, It's crazy.
Alright, well. Thank you very much for your color and I. Appreciate you letting me squeeze in a last question.
Sure.
Our next question will come from Michael Goldsmith with UBS.
You May now go ahead.
Hi, This is Amy Proband.
I'm thinking about the long term outlook for the portfolio and how supply impacts it.
You think that you can avoid a large chunk of potential future supply by being selective in the submarkets that you acquire or develop in or it's just really not available in the sunbelt.
Well I think as Keith pointed out earlier, our portfolio, we we diversify our portfolio geographically and through product and the way we do it product wise as we bind submarkets, maybe buy properties that have different.
Different price points, and so new development oftentimes is it has to be because of the cost structure and building new properties you have to be generally at the top of the market. When you think about about housing in America, and including rental housing not just the single family for sale, we have a shortage of Av.
Of affordable apartments in America, a big shortage and so the challenge with that shortage is that.
The numbers don't work to build to that middle market.
Numbers have to be.
You bring new development and it has to be at the top end of the market and so or to the middle top end of the market and so when you have a portfolio like camden's that that that.
<unk> has a lot of middle market properties that that that.
We think that where the rents are.
30%, 40% less than what it cost to do a new development.
People are not going to lower their rents unless they have to.
Which which today that they don't have to you don't have any major oversupply anywhere including the sunbelt.
You're in a situation where those folks that are in those middle market properties are not going to move up into the a properties or the top of the market properties, because they just can't afford them and so.
Our portfolio is built for the long haul we have we're going to have some of our properties as Keith pointed out.
Competition from New development, which is the top end of our properties.
Lot of our properties are in middle market, and theyre not going to be negatively affected.
The idea that sunbelt sunbelt supply is always a problem well.
<unk> operated in the Sunbelt for 30 years, and we've continued to do well in up and down markets and oversupply and under supplied the the good news today is that the market is really efficient and once a market overshoots supply I guess, what people stop building and we've seen it in all of our markets and you're going to be seen.
Declines in starts and.
And over the next 18 months and then we're going to be in a situation where people are going to say when do you think supply is going to start in the sunbelt again after we have really good rent growth.
Towards the end of 2024 and 2025. So the reason the Sun belt build is because we need the supply because that's where the job growth is that's where the in migration is that's where the folks are moving in and it's not that you build just to build your build to make a reasonable rate of return on your investment in.
And people in the Sun belt have done a great job in making their return on their investment, but when they can't they stop and so we're going to see that stopped coming very soon and then we'll go back to the cycle, where we're we've overshoot on the on the on the <unk>.
On the on the building didn't happen, so rental wise and Occupancies will rise faster than normal.
125 in 2026 as a result of that cycle and then they'll.
Catch up with supply in 27, 28 and rental rents and.
And Occupancies will will stay.
We will go down probably some a little but the bottom line is that that's just the normal cycle and the good news is is that cycles happened over multiple times over the last 30 years and we continue to do really well long term in this business.
Okay and then just.
Just a quick one if you were to start a development project today, what would be the yield that you target.
So we have a development pipeline today and.
<unk> projects were starting all have have roughly 6%.
Silver cash flows with a with a with an IRR. That's that's seven and three quarters to 88, and a half something like that.
Okay.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Ric Campo for any closing remarks.
We appreciate you being on the call today and supporting Camden for now over 30 years.
We'll look forward to that.
The start of the fall conference season, and we'll see you soon thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.