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spk00: good morning and welcome to camden property trust second quarter 2021 earnings conference call i'm kim callahan senior vice president of investor relations and joining me today are rick campo camden's chairman and chief executive officer keith odin executive vice chairman and alex jessett chief financial officer if you haven't logged in yet you can do so now through the investors section of our website at camdenliving.com All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. And please note, this event is being recorded. Today's webcast will be available for replay this afternoon, and we are happy to share copies of our slides upon request. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. 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 2021 earnings release is available in the investor section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on the call. We hope to complete our call within one hour, as we know that today is another very busy day for earnings calls and other multifamily companies are holding their calls right after us. We ask that you limit your questions to two, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes. At this time, I'll turn the call over to Rick Campo.
spk16: Good morning. The theme for our on hold music today was coping with the chaos. Last year when the pandemic began, we held a company-wide conference call to share some of the lessons learned from the great financial crisis. I started the call with the first line of the famous Roger Kipling poem, If. It goes like this. If you can keep your head when all about you are losing theirs and blaming it on you. We went on to lay out a list of suggestions to help cope with the chaos that we knew was headed our way. Among them, other ideas, a few suggestions were included in our on-hold music today. We knew that Queen and David Bowie and our teams were going to find themselves under pressure, and we knew when that happened, we told them just to take the advice from the Eagles and take it easy. We encouraged them to embrace innovation, fail fast, and as Boston reminded us, don't look back. We said we would rely on Camden's values and culture and do things our way because like Bon Jovi, we weren't born to follow. And finally, we encouraged them to get on board the REO Speedwagon and roll with the changes. At the end of the call, we showed a video that was produced by our Dallas, Texas operations group during the great financial crisis, but seemed just as appropriate for what we faced at the beginning of the pandemic. We thought you might find that interesting today. So go ahead and roll the video. Thank you. When we held our first quarter earnings call, we were beginning to see an acceleration in both occupancy and pricing power across our markets. The actual rate of acceleration that occurred since the call has far exceeded our estimates and resulted in the improved earnings guidance we released last night. Across the board, we are seeing very strong performance and continued improvements in our operating fundamentals. And in almost all cases, our current rental rates exceed their pandemic levels. The outlook from our third-party economists and data providers is also quite positive, and they expect the apartment business will continue to thrive as we move into the second half of 2021 and into 2022. Despite the ongoing levels of high supply in many markets, demand has been greater than anticipated, allowing positive absorption of newly delivered apartment homes. Our occupancy is currently 97 percent, leasing activity is strong, and turnover remains low So overall, I would say our outlook for Camden and the multifamily industry is very good. We are excited to have entered the national market with the acquisition of two high quality apartment properties. Our acquisition and development teams continue to work hard and smart to find opportunities in a very competitive environment. I want to give a shout out to our amazing Camden team members for doing a great job and taking advantage of this strong market. Great customer service and sales acumen is very important in a market like this. We must deliver great customer service and support the Camden value proposition when asking for and getting double-digit rental increases from our customers. Thank you, Team Camden, for everything you do every day to improve the lives of our teammates, our customers, and our stakeholders, one experience at a time. Next up is our co-founder, Keith Odom.
spk15: Thanks, Rick. Now for a few details on our second quarter operating results. Same property revenue growth was 4.1% for the quarter and was positive in all markets both year over year and sequentially. We had remarkable growth in Phoenix and Tampa both at 9.1%, Southeast Florida at 8.6%, Atlanta at 5.7%, and Raleigh at 4.6%. We thought the April new lease and renewal numbers we reported on last quarter's call were pretty good at nearly 5%. But as Rick mentioned, pricing power continues to accelerate. For the second quarter of 21, signed new leases were 9.3% and renewals were 6.7% for a blended rate of 8%. For leases which were signed earlier and became effective during the second quarter, New lease growth was 5.4%, with renewals at 4%, for a blended rate of 4.7%. July 2021 looks to be one of the best months we've ever had, with new signed new leases trending at 18.7%, renewals at 10.5%, and a blended rate of 14.6%. Renewal offers for August and September were sent out with an average increase of around 11%. Occupancy has also continued to improve, going from 96% in the first quarter this year to 96.9% in the second quarter and is currently at 97.1% for July. Net turnover ticked up slightly in the second quarter to 45% versus 41% last year due to the aggressive pricing increases we had instituted, but it remains well below long-term historical levels. Move-outs to home purchases also ticked up slightly from 16.9% in the first quarter this year to 17.7% in the second quarter, which reflects normal seasonal patterns in our markets. So despite the constant headlines regarding increased number of single-family home sales, it really has not had an effect on our portfolio performance as the move-outs to purchase homes are still slightly below our long-term average of about 18%. Rick mentioned Camden's why in his opening remarks. It's something we discuss internally often. Our purpose, or why, is to improve the lives of our teammates, customers, and shareholders one experience at a time. In our company-wide meeting at the beginning of the pandemic, we shared the Star Wars video, and we emphasized that the chaotic months ahead would provide an extraordinary number of opportunities to improve lives one experience at a time. We focused our efforts on improving our teammates' lives, who likewise focused their attention on improving our residents' lives. The results have been truly amazing, and we could not be more proud of how Team Camden has performed throughout the COVID months. Improving the lives of our team and customers has in turn improved the lives of shareholders, including the approximately 500 Camden employees who participated in the employee share purchase plan this year. I'll now turn the call over to Alex Jesset, Camden's Chief Financial Officer.
spk17: Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activities. During the second quarter of 2021, as previously mentioned, we entered the Nashville market with a $186 million purchase of Camden Music Row, a recently constructed 430-unit, 18-story community, and the $105 million purchase of Camden Franklin Park, a recently constructed 328-unit, five-story community. Both assets were purchased at just under a 4% yield. Also, during the quarter we stabilized both Camden Rhino, a 233-unit, $79 million new development in Denver, generating an approximate 6% yield, and Camden Cypress Creek II, a 234-unit joint venture in Houston, Texas, generating an approximate 7.75% yield. Clearly, our development program continues to create significant value for our shareholders. Additionally, during the quarter we began leasing at Camden Hillcrest, a 132-unit, $95 million new development in San Diego. On the financing side, During the quarter, we issued approximately $360 million of shares under our existing ATM program. We used the proceeds of the issuance to fund our entrance into Nashville. Our existing ATM program is now fully utilized, and in line with best corporate practices, we will file a new ATM program next week. In the quarter, we collected 98.7% of our scheduled rents with only 1.3% delinquent. Turning to bad debt. In accordance with GAAP, certain uncollected revenue is recognized by us as income in the current month. We then evaluate this uncollected revenue and establish what we believe to be an appropriate reserve, which serves as a corresponding offset to property revenues in the same period. When a resident moves out owing us money, We typically have previously reserved all past due amounts, and there will be no future impact to the income statement. We reevaluate our reserves monthly for collectability. For multifamily residents, we have currently reserved $11 million as uncollectible revenue against a receivable of $12 million. Turning to financial results, what a difference a year or a quarter can make. Last night, we reported funds from operations for the second quarter of 2021 of $131.2 million, or $1.28 per share, exceeding the midpoint of our guidance range by $0.03 per share. This $0.03 per share outperformance for the second quarter resulted primarily from approximately $0.03 in higher same-store NOI resulting from $0.025 of higher revenue driven by higher rental rates, higher occupancy, and lower bad debt and a half a cent of lower operating expenses, driven by a combination of lower water expense and lower salaries due to open positions on site, and approximately two cents in better than anticipated results from our non-same store and development communities. This five cent aggregate outperformance was partially offset by one cent of higher overhead costs, primarily associated with our employee stock purchase plan, combined with a one cent impact from our higher share count resulting from our recent ATM activity. Last night, based upon our year-to-date operating performance and our expectations for the remainder of the year, we also updated and revised our 2021 full-year same-store guidance. Taking into consideration the previously mentioned significant improvements in new leases, renewals, and occupancy, and our resulting expectations for the remainder of the year, we have increased the midpoint of our full year revenue growth from 1.6% to 3.75%. Additionally, as a result of our slightly better than expected second quarter same store expense performance, and our anticipation of the trend continuing throughout the year, we decreased the midpoint of our full year expense growth from 3.9% to 3.75%. The result of both of these changes is a 350 basis point increase to the midpoint of our 2021 same store NOI guidance from 0.25% to 3.75%. Our 3.75% same store revenue growth assumptions are based upon occupancy averaging approximately 97% for the remainder of the year, with a blend of new lease and renewals averaging approximately 11%. Last night, we also increased the midpoint of our full year 2021 FFO guidance by 18 cents per share. Our new 2021 FFO guidance is $5.17 to $5.37, with a midpoint of $5.27 per share. This 18 cent per share increase results from our anticipated 350 basis point or 21 cent increase in 2021 same store operating results. Three cents of this increase occurred in the second quarter with the remainder anticipated over the third and fourth quarters and an approximate six cent increase from our non-same store and development communities. This 27 cent aggregate increase in FFO is partially offset by an approximate $0.09 impact from our second quarter ATM activity. We have made no changes to our full year guidance of $450 million of acquisitions and $450 million of dispositions. Last night, we also provided earnings guidance for the third quarter of 2021. We expect FFO per share for the third quarter to be within the range of $1.30 to $1.36. The midpoint of $1.33 represents a $0.05 per share improvement from the second quarter, which is anticipated to result from a $0.04 per share or approximate 2.5% expected sequential increase in same-store NOI driven primarily by higher rental rates partially offset by our normal second to third quarter seasonal increase in utility, repair and maintenance, unit turnover, and personnel expenses. a one and a half cent per share increase in NOI from our development communities in lease up, our other non-same store communities, and the incremental contributions from our joint venture communities, and a two cent per share increase in FFO resulting from the full quarter contributions of our recent acquisitions. This aggregate seven and a half cent increase is partially offset by a two and a half cent incremental impact from our second quarter ATM activity. our balance sheet remains strong, with net debt to EBITDA at 4.6 times and a total fixed charge coverage ratio at 5.4 times. As of today, we have approximately $1.2 billion of liquidity, comprised of approximately $300 million in cash and cash equivalents, and no amounts outstanding under our $900 million unsecured facility. At quarter end, we had a $302 million left to spend over the next three years under our existing development pipeline, and we have no scheduled debt maturities until 2022. Our current excess cash is invested with various banks, earning approximately 25 basis points. At this time, we'll open the call up to questions.
spk08: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question today comes from John Kim with BMO Capital Market.
spk05: Thank you. Rick and Keith, I know you mentioned that July is on track to be one of the best months you've ever seen. I thought it would have been clearly the best. But I'm wondering what period this is most comparable to, this to. what may concern you, whether it's affordability, rent-to-income ratios, or supply, or something else?
spk16: I would say that we've never seen this kind of demand released into the market in our business careers. I mean, you can go to the financial crisis, you can go you know, to the big bust in the 80s, you know, and we've never seen this kind of snap back in demand in the history of our business, I think. So it really is unprecedented. What I guess what could sort of slow it all down or stop it or whatever is what's going on with the pandemic today, you know, the uncertainty in the market today about how The massive fiscal and monetary stimulus that's going to unwind over time is probably the biggest thing that concerns me. You know, supply has always been the issue, right? People worry about and supply. The demand is so high today that supply, you know, we're not we're not building enough apartments today. If you can imagine that saying that that to, you know, take up this demand. So it's definitely unprecedented. We're going to enjoy it while it's here. And hopefully it looks like, you know, 2021 is going to be a really, really strong year. And when you sort of look at the backdrop, it looks like, you know, next year is going to be the same. Keith, you might want to add a little to that.
spk15: Yeah. So just the last question that John asked was the, you know, concerns and mentioned affordability. And in our portfolio, we're still running about 19% of, household income that goes to rent payments. So it's been in the 18% for the last couple of years. So maybe ticked up a little bit. But the reality is that our residents, the ones that were not impacted by directly from a job standpoint, COVID, their wages are increasing as everyone else's are. So yeah, the rents are going to go up. But my guess is that we're going to see some pretty significant increases in household income as well. And we start from a place of great affordability.
spk05: Okay. My second question is on developments. You quoted that the yields are trending higher on some of the projects completed. But I was wondering where the development yield stands today on your current $907 million pipeline and how much bigger you envision the developments going forward as far as overall pipelines.
spk16: Sure. In the $900 million pipeline, our yields are ranging from five to six and three quarters. And so it's pushing up on an average of roughly five and three quarters to six in total. And that's initial yields. All the IRRs are in the seven and a half to eight and a half percent range. And that's really instructive when you think about what's been going on in the capital markets. Our weighted average cost of capital, given everything that's going on, has been driven down to the mid fours. we're delivering development yields in the mid eights, right? So we're creating the spread between our weighted average cost of capital and our development today has been the whitest that I've ever seen it. And maybe after the financial crisis, we did some transactions right after the financial crisis, we're making 10, you know, and today, you know, what's happened in our weighted average cost of capital was obviously much higher in 2011 and 12. We have roughly $720 million in our pipeline today, and those yields, we're not projecting mid-sixes or high-sixes like we have now, but you never know given the current revenue line that we have going up high and to the right. So the other challenge to those yields will be just cost and getting the right revenue. We do have worker shortage and construction and supply chain disruptions that are still a big issue out there. So most of our developments in that $720 million pipeline are in the mid five to five and a half with IRs that are in the seven and a half to eight range. In terms of We also are adding to the pipeline. We would like to, you know, development is a great business right now, obviously, and margins have been widened dramatically by the low interest rates and low cost of capital. So we are trying to add to that pipeline as we speak as well.
spk06: Great. Thank you.
spk08: Our next question comes from Neil Malkin with Capital One Securities.
spk03: Hey, everyone. Good morning, and congratulations on the $150 share price. Unbelievable. First question, can you talk about, really, I think the thing that's driving some of this is in-migration trends. You know, clearly people are voting with their feet. Can you just discuss if you've seen any changes, acceleration, in terms of the percentage of new leases that are from out of state or from, you know, higher cost states, et cetera. You know, we heard this earnings season that you're seeing an uptick from already elevated levels to sort of, you know, new highs in terms of, you know, incremental demand from out of state. So any color would be great.
spk17: So if you look at a year ago, about 15.6% of our new leases came from folks moving to the Sunbelt from other areas. Today, that number is about 19%. So that's a 350 basis point increase in folks moving from non-Sunbelt markets to the Sunbelt markets and renting with Camden. So a really fairly dramatic increase on that side.
spk16: Yeah, the thing I would add too is when you look at, I'll take Houston as an example. Houston was our slowest market and our most difficult market because during the pandemic and after the pandemic, because of the oil and gas influence of Houston, when you look at the number of jobs that have been added back in Houston relative to Austin or Dallas or Atlanta or some of these other markets, it was at the bottom. And in spite of of those jobs or a lot of jobs not being added back at the same rate as other markets. The Houston market is bouncing back, not as strong as some of the other markets, but an amazing way. And part of it is this in-migration. People believe fundamentally that markets that have pro-business governments that have decent weather and job growth opportunities, that they're moving there. Even if the jobs aren't as buoyant today, they're still moving to those markets. And I think that's one of the things that's really pushed up all the demand side of the equation in all of our markets, including Houston.
spk03: Yeah, that's great. Maybe just talking about acquisitions or recycling, obviously cap rates are very low, sub four, but your AFFO cost equity is also in the mid to high threes. Your leverage is you know, lows in the industry. I'm just wondering, you know, given the expectations for outsized growth in Sunbelt markets, and I'm sure your conviction in that thesis as well, would you look to, you know, dive a little bit more into the acquisition market, you know, kind of using your currency, picking up some leverage, which you have clearly the capacity to do, and, you know, kind of, uh, increase your growth?
spk16: Uh, the answer is yes. Uh, and we sort of, uh, showed that in the, in the, uh, in the, uh, second quarter when we issued $360 million on the ATM and about $300 million of properties in Nashville, you know, it was sort of the best match funding we could see with, with, uh, you know, with the numbers that you just put out, uh, they used discussed when, when we look at it, we, we look at the incremental, um, sort of dilution rate if you issue equity or bring up debt towards acquisitions and development. But that's not the ultimate arbiter. You know, what we really do is we look at the most important measure from my perspective and our management team's perspective is our weighted average cost of capital relative to our terminal unlevered IRs. And those unlevered IRs today, when you look at our weighted average cost of capital, and it's been driven down, obviously, through rallying the stock price, the 10-year treasury being at 1.24% today, and bond yields being where they are. So when you look at a mid-fours weighted average cost of capital, and we can acquire properties like in Nashville, and even though they're lower going in cap rates, when you look at it on an unlevered IR over a $70 when you put in these kind of rent growths that we're having. And I would tell you that 150 basis points of positive spread on acquisitions is rare in REIT land. And so that shows, I think it's a green light for growth, both in the acquisition side and the development side, as long as we manage our balance sheet appropriately. And you've heard me and our management team, Keith and Alex, talk about this, but our Our targeted range from debt to EBITDA is five to four times. And during, you know, sort of during good times and strong capital markets, you drive your debt to EBITDA down and you get closer to the floor. During tougher times or bad times, recessions, pandemics, and capital market hiccups, it drives, it sort of naturally goes up when cash flows decline or interest rates rise and what have you. And that's where it's going to go mostly to five. So today we're in good times, obviously, strong capital markets, very, very strong operating fundamentals. And this is a strong spreads between our weighted average cost of capital and our unlevered IRs. So we're going to methodically grow our company in this way. And today we've already done 300 million acquisitions. We have more to come. And as I said earlier, our $720 million development, hopefully we can get get a lot of that started next year. And this is a time where it's a pretty good time. So we're going to make hay while the sun shines.
spk03: Yeah, that's great. Congrats on a good quarter and keep up the great work.
spk10: Thanks.
spk03: Thanks, Neil.
spk08: Our next question comes from Rich Anderson with SMBC.
spk13: Hey, good morning. So I guess 15% increase in rents is improving lives of people, but I am curious, is that market or is that Camden plus market because of all the bells and whistles that you can offer people that your, your competition can't, I just wondering, you know, and I'm referring to the July renewal activity or releasing activity.
spk15: That's total revenue. So that includes our, our, technology package and, and, and all the other amenities that we provide our residents. So, yeah, it's, uh, it's all in revenue and it's, you're sort of looking back to, um, the beginning of the year and then looking at, you know, asking rents currently. Um, so, and, and as to whether it's improving their lives or not, uh, we have a, it's a three, three-legged stool. We, we are going to improve the lives of our residents, our, uh, our shareholders and our employees. And so clearly we're improving the lives of our shareholders. We've done so much over the last two years to improve the lives of our residents with our resident relief program and all the other things that we did. Obviously, some of that growth reflects the fact that early on in the pandemic, we were the first company to across the board freeze rents on renewals and new leases. And so obviously there's some take back of what kind of could have occurred had we not made that conscious decision to allow our residents some slack in the midst of the early days of the pandemic. So yeah, it's real numbers and it's strong. And if you look out, as you look out at Yieldstar, all these, recommendations are being driven by our revenue management systems. And Yieldstar is forward looking out to 90 to 120 days. So I think that this trend is likely to continue.
spk16: You know, I would just add, you know, you make the comment about improving their lives. I mean, we are. There is a candidate advantage, no questions. And you don't get people to increase their rents that substantially and smile at the same time without providing a value proposition to that customer. You have to have clean grounds. You have to have well-maintained properties. You have to be well-located. All those value propositions support driving rents the way we're driving them today because our customers understand that we're a business and we need to improve our bottom, our top line and our bottom line. And for them, to create value for themselves. If you look at the apartment industry and, you know, go down the scale of, you know, sort of more affordable housing where you have, I say more affordable, meaning less cost, but the quality of the housing, as you go down with owners that don't understand that you should reinvest in your properties and you should make sure that they're clean and they're safe and all those things, that does really improve the lives of those customers. And, you know, the good news is our customers are all doing really, really well. When you think about the, you know, our average income is about a hundred grand, but the challenge with that number is we don't update it when somebody renews their leases. And when you think about the wages for people that are growing over a hundred grand are actually growing pretty substantially. And those folks all got stimulus money. So they all have money in their pockets and they understand that the price of things go up. And as long as the value of proposition is there and you took care of them during the pandemic and you can take care of them on an ongoing basis and you do well with that, they're willing to pay a higher price. It's like anything else. The brand proposition is about, is this price worth this brand? And you can always buy something cheaper. You can go to a lower quality apartment and get a less rent, but you don't get the Camden experience. I didn't mean to put you on the defense.
spk13: That's okay. That's not defensive. That's just selling the brand. Of the 14.6, how much of that is rent? And the reason why I ask is when Alex mentioned 11% blended expected for the rest of this year, is that also fully baked in with fees and everything else, or is that just pure rent? I'm just trying to get a direction off of that 14.6 that you started with in July.
spk17: Yeah, so 11%, that is pure rent, and the 14.6 blended rate that we're talking about, that is on a rental rate basis. We do pick up other fees, and those other fees are growing, you know, slightly north of 3%. Okay, thanks very much.
spk10: Sure.
spk08: Our next question comes from Rob Stevenson with GANI.
spk12: Good morning, guys. Keith, I mean, you know, it's hard to have underperformers when you're up 15% in July. But when you take a look at the markets, if you're forced to rank order them, what are the markets that are sort of towards the bottom on a relative basis performance-wise, and what differentiates them from the guys that are sort of a step up from them these days?
spk15: Well, if you ranked on the – just looking at the 14.6 blended rate and you go down and scan down to the bottom, Houston is probably still at the bottom, but you're talking about instead of where it was in the first quarter or fourth quarter of last year, it was still basically flat to down maybe 2% from the beginning of 2020. Houston now has a substantial positive, and you're somewhere around seven or 8% up in Houston. So it's, if it weren't for the fact that the rest of the portfolio is producing as high as 20% trade out, everybody would be applauding the fact, or we would be applauding the fact that Houston is at seven or eight. So yeah, if you force it to be relative, there's always going to be somebody at the bottom, but these are extraordinary growth rates in every single market that we're in.
spk16: Yeah, I guess I would say that the worst market though is D.C. or D.C. proper where there's a ban on any rental increase. Okay.
spk12: And then, I mean, in terms of that, when you look at it, I mean, how much of the big jumps here are the removal of concessions versus so on its effective rate versus at the end of the day pushing rental rate? Like where are the markets that you're pushing the market rate the most and it's not, you know, part of it's the removal of concessions and or the jump in occupancy that's driving the market performance?
spk15: Rob, we don't use concessions, and the only time that we ever use any concessions is on new developments, and that's part of it. It's just part of the marketing process and the expectation of residents. But outside of our development pipeline, we don't have any concessions across Cameron's portfolio. So it is pure rental increases.
spk12: Okay. And then, Alex – Did you push a bunch of operating costs into the first half of the year? Curious as to how you go from 5.8, same store expense growth in the first half, to sort of the 3.75 implied at the midpoint of guidance, how the back half sort of folds out for you.
spk17: Yeah, absolutely. It's entirely based upon tax refunds. So to give you the numbers, in 2020, we had about $2.3 million of tax refunds. They entirely came in the first half of 2020. In 2021, we are anticipating the exact same number, 2.3 million of tax refunds, entirely coming in the second half of the year. So it is just a timing issue around tax refunds.
spk12: Okay. Thanks, guys. Appreciate the time. You bet. Sure.
spk08: Our next question comes from Nick Joseph with Citi.
spk21: Thanks. Curious on the acquisition pipeline, how large do you expect Nashville to be in the near term?
spk16: We'd like to get Nashville up to 3% or 4% in the near term. When you start looking at economies of scale and efficiencies, we really need to have 1,500, 2,000 apartments to actually get to that efficiency level. And so we definitely are going to be aggressive in Nashville and continue to push there.
spk02: Thanks. Are there any other new markets that you may be entering over the next year or two?
spk16: Right now we like our markets, and the entrance to Nashville has been good so far, so we're pretty good with where we are today. So, no. Thanks.
spk08: Our next question comes from Amanda Schweitzer with Baird.
spk09: Thanks. Good morning. Can you provide a bit more of an update on your disposition timing and where you've seen buyer interest in pricing in a market like Houston relative to your prior expectations?
spk16: Alex, go ahead and talk about timing.
spk17: Yeah, absolutely. So in our model, we are assuming that dispositions happen on November the 1st. Um, we, we have two assets in Houston that just hit the market. We've got another two assets in PG County, uh, which are going to hit the market next week. So it's a little bit, uh, a little bit early to sort of give any updates on pricing. Although, uh, we certainly expect that we're going to do much better, uh, than the original strike prices we had when we first went out.
spk15: And our conversations with the brokerage community around specifically around Houston in the last, uh, 60 to 90 days, I think it's clear that the word is out that Houston rents are really, really accelerating hard. And so I think what they're telling us is there's a whole lot more interest just generally in Houston. As Alex said, we'll have to wait and see how it all plays out. But clearly, the improvement in Houston overall is going to be a real positive for selling assets.
spk09: No, that's helpful. And then apologies if I missed it, but where do you stand in terms of receiving payments under the rent relief programs? Do you expect any payments? And how meaningful could potential evictions be in California for you once you're finally able to process them at this point?
spk17: So I'll sort of hit ERAP, which is just the payments that we're receiving. Grand total for us is we're right around $4.1 million year to date. And obviously, most of that came in the second quarter. So we're starting to get some traction. We're finally starting to get some reasonable traction in California. although California is making up about 20% of our ERAP payments and is about 70% of our delinquency. So we certainly have a ways to go there. And then the number two market for us, which is interesting because it has one of the lowest delinquency levels is Houston, which is also right around 20% of our collections. So We don't have any significant assumptions for ERAP payments coming in throughout the rest of the year. But as we talked about, we've got sort of an $11 million receivable. So obviously, we're going to keep working the process and hope to get some additional payments in.
spk16: And of course, that $11 million receivable, I think we have reserved like $10 million of the $11 million, right, Alex? That's correct. Yeah, so if we get payments, it'll be upside, not downside. To your question about evictions in California, you know, the thing that's really interesting to me about the whole debate over evictions, and, you know, I was watching CNBC or CNN or someone last night talking about 12 million residents in America are going to get evicted when the CDC moratorium comes off. And I think that there is a risk of massive evictions, but the risk is not in Camden's portfolio or any of the public companies' portfolios. If you look at our 70% of our receivables in California, those receivables are rampant. that you don't get – there is no penalty for not paying Camden or anybody else their rent. And zero penalty. There's no late fees. There's no interest. There's nothing. And I also saw Gavin Newsom on the news last night as well making the statement that if you haven't paid your rent for 12 months and you have a quote-unquote COVID reason, the state of California is going to pay your rent. And so when people hear that, there's this confusion that if you owe rent for more than 12 months in California, the government's going to pay it. But the bottom line is that the $45 billion of U.S. government allocation of money for renters has restrictions on it. It has means testing. It has a lot of restrictions. And those restrictions, by the way, or why that only about 10% or a little less than 10% of that money has ever reached a resident yet in America. So our people driving Teslas, leasing $4,000 a month apartments in Hollywood who have, you know, $100,000 in cash in their bank account aren't going to get ERAP money. And the question will be ultimately what happens to them, right? We've reserved against it and, Ultimately, those people are going to destroy their credit. And when they figure that out, maybe they'll take some of that money out of their bank account that they have and pay their rent. It'll be interesting to see. But at least for us, it's not going to move the needle one way or another. Maybe, you know, all of a sudden everybody in California pays a rent. You know, we'll have a five million, six million or seven million dollar benefit. But but it's not enough to move the needle. And we don't think ERAP is going to be a big thing for for us overall because our residents don't need the money. The money needs to go to people making $50,000 or less and needs to go to people that are paying $500 to $900 a month in apartments, not $1,500 to $4,000. So that's my little soapbox for government support at this point.
spk15: Amanda, I would just add to that because I think it's an interesting, always put these numbers in perspective. We get probably more agitated than we should. Probably it's a moral agitation, not a financial agitation. Certainly, I'm speaking for myself. But in our portfolio, we have out of our total 70,000 plus or minus apartments, we have 600 high delinquency residents. And our definition of that is they're three or more months behind on their rent. So it's 1%, a little bit less than 1% of our total resident base. So it's not a huge, in terms of numbers, it's kind of big in terms of irritation. And as Rick said, of that 600 high delinquency or high balance delinquencies, we've written it all off anyway. So anyway, we're going to keep working the process. And for the residents in our portfolio who are eligible, we're going to make sure that they get taken care of.
spk09: Thanks. That perspective was helpful. Appreciate all the commentary.
spk08: Our next question comes from Rich Hightower with Evercore.
spk11: Hey, good morning out there, guys.
spk15: Good morning.
spk11: I wanted to get your take on the fact that a lot of your competitors are starting to expand into markets that are new for them, not so new for Camden. And, you know, what are the methods that you can employ to sort of maintain Camden's edge in owning and operating or even developing in those markets?
spk16: Well, the good news is these are vast markets, right? They're big markets, multi-billion dollar markets. So You know, I would just say for years and years and years, we had to go to conferences and talk about how we thought the flyover parts of America were really good places to be and that the coasts were not necessarily our cup of tea. And I will tell you our experience in Southern California, which is the best part of California when it comes to pro-business and what have you, shows that during tough pandemic times, it was the right move from our perspective to stay in the flyover states. With that said, the market's a big market and we love competition. We'll be able to then show just how good Camden's operating edge is against our other public company peers when they start reporting numbers in our markets. We welcome them to the markets. It's great friendly competition and And come on down.
spk15: Yeah, I would add to that that the public companies where we compete with them, we all make the market better. I mean, they all use revenue management. They are all smart. They raise rents when they should. The lowest common denominator in our business is still third-party managed assets that, frankly, probably aren't managed very well. So the more... high-quality competition we have in a marketplace, the better we tend to do. And the evidence of that has been in the D.C. metro area where we've had – we have significant presence among – and with a lot of competition. And the other is in California. So it's, you know, steel sharpens steel. And bring it on.
spk11: All right. Thanks for the thoughts.
spk08: Our next question comes from Brad Heffern with RBC Capital Markets.
spk18: Hey, everyone. The $450 million in dispositions, can you just talk through the use of proceeds there, just given obviously the national acquisitions were already funded with the ATM?
spk17: Yeah, absolutely. So we'll use those proceeds for additional acquisitions because, you know, if you think about the midpoint of our acquisitions is $450 million. and we've done $296 million plus or minus. Additionally, we'll use those for our development pipeline. So, you know, at this point in time, we're spending a couple hundred million dollars a year to fund developments, as well as repositions, which we're funding, you know, another couple of 50 million bucks a year. So we've got plenty of really sort of accretive uses of the capital.
spk18: Okay, got it. And then just thinking about these, you know, 14, 15% rent increases in, in July. Like, what do you think that looks like in, in, uh, 2022? Like, um, you know, next year, if we still see the same supply demand imbalance, are we going to see, you know, still significantly higher than normal, um, rent increases or are people going to go, you just raised my rent 15% last year. I can't do it again. Kind of thing.
spk16: Well, if you, we're not going to get into 2022 guidance, obviously, but, uh, If you look at some of our data providers like Ron Whitten, he shows very strong 2022 as well. Just the backdrop of reopening and continuing demand in the multifamily sector. So, you know, trees don't grow to the sky, obviously. And if you look at the long-term history of multifamily, usually when you come out of a big downturn, either a recession or pandemic, you know, you have multi-year, you know, up legs. I think in 2010, what we told the market was that we would have the best, the next three years would be the best revenue growth and operating fundamentals that we've had in our business history. And that came true. That was true. 11, 12, and 13 were the best operating fundamentals that we'd ever seen in our business career because it was It was a snapback from, but not as big a snapback as the pandemic has been, but it was definitely a snapback. So, you know, I would expect based on, you know, that history and unless something dramatic happens, we have a black swan and Delta virus, you know, Delta variant or something like that, that 2022 is going to be a pretty good year. And, you know, as Keith said earlier, our residents are not, you know, rent poor. They're paying 19% of their income for rent. So, you know, on average, you know, if you go back to pre-financial prices, they were paying in the 20s. And so, you know, we're in affordable markets still. And if you look at our average rent, it's $1,500. And so for $1,500, $1,600. So with that said, there's, you know, a 15% increase sounds a lot, like a lot, and it is. But on a relative basis to the income growth that we're seeing, And as long as you're giving the value proposition to the resident, they accept it.
spk10: Okay. Thank you.
spk07: Our next question comes from Alexander Goldfarb with Piper Sandler.
spk01: Oh, hey. Good morning. So two questions. Hey, morning. Morning down there. So two questions. First, If we hear you correctly, you didn't really have any concessions in the portfolio, so it's not like you're copping rents off of a really low base of last year. Yes, there's more population moving in down to the Sun Belt or to the free states, whichever terminology that people want to use, but that continues. But still, the mid-teens rent spreads that you guys are getting and the acceleration, is that – And just trying to understand that better, is that just something that there's a ton of jobs or suddenly everyone who doubled up last year just wants to be back? It just seems like everything is great, but at the same time, the magnitude of that demand just seems incredible. So I'm just trying to understand because, again, it's not coming off of a really weak comp. It's like you guys were going, you know, 80 miles an hour, and now you bugged up to 120 miles an hour. and which is a pretty strong increase for a rate that was already going at a good rate down the highway.
spk16: Yeah, the way I look at it is this, and we've had this debate in-house and talked to data providers like Ron and others, and what we kind of settle in on is this, is that if you think about what happened pre-pandemic, we were having the best quarter that we had in a long time. We had positive second derivatives in most of our markets except Houston, in terms of revenue growth. And we were looking at 2020 as being a, you know, kind of a step up in growth year from a sort of, you know, also ran years in 18, 19. So with that said, that demand just shut down, right? And it was really good demand coming in the door, then that shut down. And during that period too, if you look at some of the demographic numbers, we still had a million people that were missing, that should have been in the rental market that were not in the rental market. You know, when you look at the millennials that are either doubled up or living at home or whatever, that was in the beginning of 2020. So all that demand shut down. And then if you think about demand in 2020, any new demand that would have come like, you know, in migration or even even people graduating from college or or just coming into the marketplace in 2020 didn't happen. And then all of a sudden you look in 2021, you have vaccines come into play. The, you know, the masking, you know, goes away and these places open up. So you now have 2019 demand coming to the market, 2020 demand coming into the market and 2021 demand coming into the market all at the same time when the light switch went off at the beginning of, or maybe the middle to the end of May. And so with that, you've got, you just have people who were, probably potted up with people they didn't necessarily want to be with. And they have plenty of money in their pocket through stimulus and job increases and all that. And they're all hitting the entrance at the same time, causing occupancies to spike and that therefore rents the spike as well.
spk15: I don't know, Keith, do you have any? So Alex, the only thing I would add to it is I think you're, I wouldn't think of it as trying to explain 16% and how that works in the first six months of 2021. Because if you think about it in 2020, we were on track when COVID hit, we were going to blow our budgets away and we were budgeting up five or 6% on top line revenue growth and we're going to kill those. And then COVID hits and it goes to zero. We froze rents, we froze renewals. So we missed an entire year of rental increases and so did our residents. And so I think we probably would have ended up 6% or 7% in 2020 ex-COVID. So some of the 16 is just a clawback of the rental increases that we didn't achieve in 2020, specifically because of COVID. And if you lift that away, now you're trying to explain 9%, 10%, which is still a crazy number, but we've seen that before. We've seen 9%, 10% top-line rental growth coming out of the great financial crisis and and going back to the tech rack. So that level is not unprecedented in our world, but I think it's probably a better way to look at it.
spk01: And so what you were saying earlier about this spilling into next year just means that with basically three years' worth of demand this year, it's going to take into next year to at least satisfy that.
spk16: I think that's what our data providers are saying, yeah. And historically that's what happens. It's not a one-time shot. Usually it's a methodical, you know, process.
spk01: Okay. Second question is, obviously a lot of new competition, a lot of new entrants coming down to the Sunbelt to your markets. But I was sort of curious, you said that development spreads are at the widest they've been. Yeah, we do hear that in industrial, but apartments, I'm a little surprised, just given land costs, shortage of labor, materials, you know, appliances, all the fun stuff. So do you believe that going forward you're still going to maintain that really wide spread to development and the five and three-quarters yields on new stuff, or those comments were more on existing projects, but on a go-forward basis, those yields are likely to temper maybe to five or something like that?
spk16: Well, I think our – I said on our $720 million that we have in our pipeline – that our development yields are in the low to mid fives. And I think we're going to maintain those. And we might even do better because of revenue, because revenue growth is so strong in these markets that our revenue projections will probably more than offset cost increases. In terms of spreads, the reason the development spread is so high today is not that the yields have gone up, it's that the weighted average cost of capital has gone down and cap rates have gone down, right? So if you're a merchant builder and you're budgeting a 150 basis point positive spread on your development, which is a normal spread on development, then you look at it today and you're selling, let's say, a five and a half at a three and a half cap rate or a three and a quarter cap rate, you've increased your spread. And it's primarily been driven down by the compression of cap rates. And when I talk about our spread, being wide, it's because partially we are doing better on some of our developments from a yield perspective, but mostly it's being driven down by our lower weighted average cost of capital. And so that's where the spread has been going down. I think that it is still difficult to buy land today and to make the numbers work. But when you look at the supply numbers, I mean, there's at least 400,000 units or 350 to 400,000 units that are getting, you know, sort of permanent every year that are making their numbers work.
spk01: Okay. Okay. Listen, thank you. Thank you, Rick. Sure.
spk08: Our next question comes from Austin Worshmith with KeyBank Capital Markets.
spk20: Great. Thanks, guys. You've historically talked about jobs to completions as a barometer of strength and fundamentals, so I'm curious what your revised outlook for this year is, and certainly it sounds like jobs alone isn't really enough to explain some of the strength, but can you give us that figure and then also what ratio kind of the third-party forecasts are projecting for next year?
spk15: Yeah, so in terms of total supply deliveries in Camden's markets over the next, in 2021, it's going to be about 160,000 apartments over the entire footprint. That's roughly in line with what it was last year. And then if you look at Ron Whitten's work in 2022, we still end up with something around the $165,000 unit range in terms of deliveries. Job growth is, you know, if you look at the numbers this year, it makes complete sense in terms of the ratio. In fact, it looks pretty bullish. You get numbers like 7 to 1 on the 165 deliveries. But the thing that I think it doesn't make a lot of sense to think of it that way, just for 2021, you almost have to go back and look at MASH 2020. 2020, where the job losses occurred, and then add to it the recovery. We're still, in many of our markets, we're still not back to the employment levels that we were going into the pandemic. And yet, here we are, you know, with the kind of demand that we've seen. And I think it's all the reasons that Rick talked about earlier in terms of just releasing a lot of pent-up demand. But if you look at traditional numbers, you would look at 2021 and 2022 and say, You know, these numbers look really bullish overall. I think you got to temper that by the losses in 2020.
spk20: That's helpful. And then, you know, with everything that you guys are talking about on the development side and the spreads and attractive cost of capital, I mean, it seems like developers might be licking their lips a bit. So really, where are you seeing the most activity from a permitting perspective or shovels in the ground that could move that supply and demand forward? more towards equilibrium as you look maybe two or three years out?
spk16: You know, I guess it's complicated looking two or three years out because, you know, for the last five years, we've looked out a year or two and said, well, supply is peaking and because of either cost pressure or banking pressure or whatever, and it's never peaked, right? It continues to make its way up. So I think that the last numbers I saw from Ron shows it starts coming down in 2023, 2024. And I think that this is a time in the world where it's really hard to figure out what's going to happen a year from now or two years from now. I know that how is the ultimate tapering and the great experiment of massive fiscal and monetary policy when that turns around, what's going to happen and how is that going to affect everything? And I don't think any of us know. That's why we want to be conservative in our business, you know, going forward. But, you know, at least from now, I don't, every market is at peak supply and it doesn't seem to matter from a occupancy or a revenue growth, you know, perspective. It will matter at some point when, if we go into another job slowdown or, or another recession. Obviously, that's when things change, and we'll just have to see. But right now, at least the next 18 months to 24 months, it looks like that supply is not going to abate. It's going to continue to be pretty much high in every market. You do have some markets that are higher than others, like Nashville and Austin, but then you look at the rent trade-out in Austin and Nashville today, and it's some of the highest rent trade-outs we have in the market. So I don't know the answer ultimately, but we'll obviously have to wait and see.
spk15: Yeah, Austin, RealPage is our provider for permit data. The permit data is the most, I would say the least precise or reliable just because you're sort of forecasting behavior into the future. But on their numbers, they've got permitting activity of 170,000 apartments in higher markets this year. and 169,000 next year. So, you know, again, elevated activity, but I don't think these numbers reflect the most recent compression in cap rates, and they probably don't reflect the, you know, real updated cost numbers. So we're still in a race between cap rate compression and cost to build.
spk02: Got it. Appreciate the thoughts, guys. Thank you.
spk08: Our next question comes from John Pulaski with Green Street.
spk04: Hey, thank you for keeping the call going. Just one quick question for me. A few months ago, obviously, your cost of capital was a little bit different. So just curious how you thought through issuing equity versus selling a building or two.
spk16: Sure. So as I said earlier, the cost of capital has come down. And when we think about our capital structure, we think about our debt to EBITDA being between five times and four times. And it seemed opportune. We're going to issue equity when it's at all-time high prices, and it was at the time that we issued. And the challenge with issuing equity oftentimes is that, and when you decide to do it, relates to blackout periods and those kinds of things because we don't have the flexibility that most regular investors do in terms of buying and selling because of those blackouts. And so we're blacked out 42% of the time in order to execute transactions like that. We will continue to recycle capital. So to me, it's not a one choice. You either issue stock or you issue debt or you sell assets. It's a combination of those three things that produce capital. And and ultimately, over the long term, you have to layer in all three of those activities. We all know we have one hundred million dollars roughly of free cash flow. And on a 16 billion dollar company, it's hard to grow the company with one hundred million dollars a year. So the only way you can grow the asset base is either your equity or debt issuance. And on balance, the the the The question of whether we sell assets or issue equity relates to what is the what is the weighted average cost of capital and what does that look like on a long term basis? And when your weighted average cost of capital is, you know, mid fours and you can put acquisitions on your on your. books at six or better, you should do that. We are going to continue to recycle capital through sales of properties and acquiring other properties. But when the capital markets are conducive to putting long-term accretive transactions on the books like we have done in Nashville, that's the time that we issue equities.
spk04: I understand putting assets on a book and developing given the cost of capital, but for the better part of last year, the transaction market color you've been sharing is signaling a pretty sizable NAV discount, not today, but several months ago. So it just felt like selling assets were a cheaper source of funds than your common stock.
spk16: Yeah, you know, I think with cap rate compression, the way it is. And that's why we're selling assets. We put a $450 million budget together at the beginning of the year to sell and a $450 million to acquire. And that's when our stock price was $95 a share at the beginning of the year. And the way average cost of capital was north of five. So things changed in the world. Capital markets changed between the first of the year and now. And we made the decision to issue equity along with that existing program. So You know, I mean, it's always, you know, hindsight's always perfect, right? And I would have, so last year when the stock was 62, if we could have executed a massive sale of assets at a low cap rate and bought the stock, that would have been opportune. But unfortunately, it didn't stay there that long. And this complication of not being able to execute 100% of the time makes it more difficult to do both those kinds of transactions, both on the buy and sell.
spk10: Okay, understood. Thank you. Sure.
spk08: Our next question comes from Joshua Dinnerlean with Bank of America.
spk19: Hey, guys. Hope everyone's doing well. Just kind of curious on how you're thinking about the kind of leasing season as we head into the fall. It just seems like it's going to go on for longer than expected and whether or not that influences your decision to kind of push rate a lot harder than you normally would at this time of year.
spk15: I think that if you think about our revenue management system, Yieldstar is a forward-looking tool, and it's really basing most of its calculations on using the levers, which is primarily price, and looking out 90 to 120 days. The pricing that is being recommended by Yieldstar, both on renewals and new leases, and we're You know, we're very disciplined around our revenue management system. 95% of the recommendations we take, and it's rare that we have an exception to the recommended yield star rate. So, you know, what that tells me is yield star thinks the market clearing price that will maintain our occupancy rate north of 96% is 16% increases looking out 120 days. So that's, you know, Yieldstar will continue to push as long as the conditions on the ground permit it.
spk19: Okay. And just curious, are there kind of any tweaks you have to make for next year, just given just the change in seasonality or just the revenue management system just kind of automatically adjust for that?
spk15: No, the revenue management system is the tweaks that we make are around sustainable occupancy levels. You know, occasionally we tweak it up or down and then and then you'll start just the price to make that happen over a period of time. Very small adjustments, but over over looking out 120 days. So, yeah. The good thing about Yieldstar is you don't have to be able to do that calculus or have your property managers do any calculus around what's the market clearing price 120 days out. That's what Yieldstar does. Got it. Thanks, guys.
spk08: Our next question comes from Handel St. Josh with Mizuho.
spk06: Hey, thank you for taking my question. I know it's been a very long call. Just to follow up on the last question, I wanted to better understand the lease expiration schedule, I guess, the next couple quarters, how that's been impacted by all the leasing that's been done and the COVID disruption and how that's playing into thinking about the sustained strength of revenue growth near term.
spk15: Yeah, there's always seasonality in our rent roll, but it's not dramatic. So fourth quarter and first quarter are always – we have fewer – fewer occupancy vacancies come available just because there's less traffic in most of our markets. But it's not dramatic. It's a couple of percent flip-flop between first and fourth and second and third quarters. And that's, again, that's within the Yieldstar model that it calculates that and maintains those exposure levels at optimized rates.
spk06: No, I understand that. But just want to better understand if there's anything – about the number of units coming available that was uniquely different in the next couple of quarters than, say, prior years during the same period.
spk15: Yeah, I don't think so.
spk06: Okay, thank you. And then the other question I had was, I guess, you know, you've been pushing rates, incurring a bit more turnover. Curious to your sensitivity there on incurring a bit more turnover, how much would you be willing or, I guess, comfortable to incur? And you're also pushing renewals more and more aggressively, wondering how much more you think you can push renewals here in any municipalities or regions like, say, D.C., California, where there's a bit more sensitivity to pushing as aggressively in other parts of your portfolio.
spk15: Well, in D.C. proper, we can't increase rent. So we were effectively frozen for rental increases in D.C. proper. In California, there's some recent legislation around rent control, but when you dig into it, it's CPI plus 6%, plus or minus, and in most cases out there, we're not impacted by that. Again, all of the math around recommended rental increases, it's not like we sit around and you know, do what we think we feel like we should be doing for rental increases. It's all driven by the metrics within Yieldstar, and we take those recommendations.
spk10: Okay, fair enough. Thank you. Appreciate the time.
spk07: This concludes our question and answer session.
spk08: I'd like to turn the call back over to Rick Campo for any closing remarks.
spk16: Okay, great. Well, we appreciate you being on the call today, those of you who are left. Sorry it went so long, but we try to answer all questions. If we didn't get to something on your list, we're available, so please give us a call or email Kim or call Kim and we'll get back to you. Thank you very much, and we'll talk to you next quarter or when the conference season starts after Labor Day. So take care and thanks. Take care. Bye.
spk08: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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