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spk14: Good morning, and welcome to Camden Property Trust's third quarter 2021 earnings conference call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, 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 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 third 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 this call. We hope to complete our call within one hour, and we ask that you limit your questions to two, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes. At this time, I'll turn the call over to Rick Campo.
spk19: Thanks, Kim. The theme for our pre-call music today was Camden Cares. For many years, our Camden Cares initiatives have provided assistance to people in need among Camden's family, our Camden residents, as well as the communities where we live and work. Our music today included a song by the late, great Bill Withers with this great wisdom. Lean on me when you're not strong. I'll be your friend, I'll help you carry on, for it won't be long until I'm going to need somebody to lean on. These words capture the spirit of all that our Camden associates do for others in need under our Camden Cares banner. Camden's why, our purpose, is to improve the lives of our teammates, customers, and our shareholders one experience at a time. At the outset of the pandemic, it was clear that the disruption from COVID-19 was going to be massive and leave millions needing someone to lean on. We encouraged our teams to view the widespread chaos as an opportunity to go big on our pledge to improve people's lives one experience at a time. And not surprisingly, Team Camden responded in truly extraordinary ways that we captured in this brief video.
spk01: 2020 brought us challenges we'd never faced before. We use them as opportunities to serve our communities, impacting real lives, real families, and creating real change. We delivered meals to Camden residents on the front lines of COVID-19. 1,943 meals went to 161 Healthcare Hero residents and their teams. We held the first annual Camden Cares Virtual Turkey Trot to benefit food banks nationwide. Over 350 Camden employees participated. $50,000 was donated to food banks in each of our markets. Additional community service projects included food drives, holiday cards to seniors, Salvation Army angel trees, New Hope House book drive, and toy drives. We served employees by adding $1 million to our longstanding Employee Emergency Relief Fund. grants of up to $3,000 to our employees whose family income had been impacted by COVID-19. Over 440 employees were provided with total grants exceeding $1.1 million. A bonus exclusively for our frontline employees of $2,000 for each full-time employee totaling approximately $3 million. A learning stipend was added to ease the burden for parents and enable them to continue working. camden cares also went big in our efforts to serve our residents early spring brought us the resident relief fund 10.4 million dollars was provided to approximately 8 200 camden residents 2020 compelled us to do more than we ever thought possible and we were not prepared for the thanks we would get wow what a blessing to have some type of assistance during this time i'm grateful to see that camden is looking for ways to assist their tenants
spk00: We are so very grateful for the grant we were afforded to help alleviate some financial strain during this time. Your help in paying our rent over the next months is going to prove immensely useful to our lives and well-being. I know you've read a million...
spk01: Social justice issues became front and center last year and made us reflect on how we as a company could help. Inclusion has always been part of our DNA. When we acknowledged what was going on and communicated Camden's commitment to being part of the solution, team members responded with overwhelming support. Wendell Lockhart, a leasing consultant in Dallas, shared with us that he had donated to an organization focused on progressing the African-American community to true equality. He echoed what other team members were feeling, a need to respond quickly, to do something tangible. He challenged executives to follow his example, which we did. And then we created a program to match all team member donations. The program benefited five charities supporting the underrepresented communities and promoting inclusion. We raised just under $275,000 for the organizations and helped team members take action to solve a problem they care about deeply. Camden Cares is not about the recognition. It's about doing the right thing. It's not just what we do. It's who we are and who we want to be. Thank you for making Camden, Camden.
spk19: Camden's caring culture was recognized by People Magazine this year on their 100 companies that care list, ranking Camden at number seven. I want to thank all of our Camden team members for all they do to make our communities better every single day. We are pleased to report another very strong quarter of results and another raise to our 2021 earnings guidance. We are seeing high levels of rent growth along with sustained occupancy levels over 97% for our portfolio, which bodes well for the remainder of the year. Kanban has always focused on operating in markets with high employment and population growth and strong migration patterns, and this strategy has clearly paid off. as evidenced by the ULI-PWC report that was issued for 2021 real estate trends at the ULI fall conference in Chicago last week. Camden's markets, eight of Camden's markets ranked in the top 10 for 2022 investor demand. We're very fortunate today to be in a really strong apartment market and in the right markets. At this point, I will go ahead and turn over the call to Keith Oden.
spk18: Thanks, Rick. Now for a few details on our third quarter operating results. Same property revenue growth exceeded expectations yet again at 5.1% for the quarter and was positive in all markets both year over year and sequentially. We posted double-digit growth in Phoenix and South Florida, both at 10.1%, followed by Tampa at 9.5%. Year-to-date, same property revenue growth is 2.9%, and we expect strong performance in the fourth quarter across our portfolio, resulting in our revised 2021 guidance range of 4% to 4.5% for full-year revenue growth. New lease and renewal gains are still strong with double-digit growth posted in both categories. For 3Q21, signed new leases were 19.8% and renewals were 12.1% for a blended rate of 16% flat. For leases which were signed earlier and became effective during the third quarter, new lease growth was 16.6%, with renewals at 8.5%, for a blended rate of 12.2%. October 2021 remained strong, with signed new leases trending at 18.3%, renewals at 13.8%, and a blended rate of 16.5%. Renewal offers for November and December were sent out with an average increase of 15% to 16%. Occupancy has also been very strong and was 97.3% for the third quarter of 2021 and is still holding at 97.3% for October to date. Net turnover remains low at 47% for the third quarter of 2021 versus 49% in the third quarter of last year. And move-outs to home purchases moderated from 17.7% in the second quarter of 21 to 15% in the third quarter of 21, trending below our long-term average of about 18%. It's worth noting that these strong results have continued into what has historically been a seasonally weaker period for our portfolio. We want to acknowledge Team Camden for continuing to produce outstanding and better-than-forecast results. This marks our third straight quarter in which we increased our same property NOI and FFO for Share Guidance. Our team is focused on finishing the year strong, which will position us for another solid year in 2022. I'll now turn the call over to Alex Jessett, Camden's Chief Financial Officer.
spk07: Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activities. During the third quarter of 2021, we purchased Camden Central, a recently constructed, 368-unit, 15-story community in St. Petersburg, Florida. And, subsequent to quarter end, we purchased Camden Greenville, a recently constructed, 558-unit mid-rise community in Dallas. The combined purchase price for these two acquisitions is approximately $342 million, and both assets were purchased at just under a 4% yield. Also, during the quarter, we stabilized Camden Downtown, a 271-unit, $132 million new development in Houston. And subsequent to quarter end, we stabilized ahead of schedule Camden North End II, a 343-unit, $79 million new development in Phoenix. Additionally, during the quarter, we completed construction on Camden Lake Eola, a $125 million new development in Orlando. Subsequent to quarter end, we purchased five acres of land in Denver for future development purposes. On the financing side, during the quarter we issued approximately $222 million of shares under our existing ATM program. We used the proceeds of the issuance to fund in part the previously discussed acquisitions. Turning to financial results, Last night, we reported funds from operations for the third quarter of 2021 of $142.2 million, or $1.36 per share, exceeding the midpoint of our guidance range by 3 cents per share, which resulted primarily from approximately 1 cent in higher same-store NOI, resulting from 2 cents of higher revenue driven by higher rental rates, higher occupancy, and lower bad debt, partially offset by one cent of higher operating expenses entirely driven by higher than anticipated amounts of self-insured expenses. Approximately one and a half cents in better than anticipated results from our non-same store development and acquisition communities and approximately one cent from the timing of our third quarter acquisition. This three and a half cent aggregate outperformance was partially offset by a half-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 our continued significant improvement 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 same-store revenue guidance from 3.75% to 4.25%. And we have increased the midpoint of our full-year same-store NOI guidance from 3.75% to 4.5%. We are maintaining the midpoint of our same-store expense guidance at 3.75% as the higher-than-expected third-quarter insurance expenses are anticipated to be entirely offset by lower than expected property tax expenses in the fourth quarter. We are now anticipating that our full-year property tax growth rate will be approximately 1.6%, which includes $1.8 million of property tax refunds anticipated in the fourth quarter. Our 4.25% same-store revenue growth assumption is based upon occupancy averaging approximately 97% for the remainder of the year, with a blend of new lease and renewals averaging approximately 16%. Last night, we also increased the midpoint of our full-year 2021 FFO guidance by $0.10 per share. Our new 2021 FFO guidance is $5.34 to $5.40, with a midpoint of $5.37 per share. This $0.10 per share increase results from Our anticipated 75 basis point, or approximately 5 cent increase in 2021 same store operating results, 1 cent of this increase already occurred in the third quarter. An approximate 5 cent increase from our non-same store development and acquisition communities, of which 2.5 cents already occurred in the third quarter. And an approximate 2 cent increase in FFO from later and lower than anticipated fourth quarter disposition activities. We now anticipate approximately $110 million of dispositions in early November and approximately $220 million of dispositions in early December as compared to our previous expectations of $450 million of dispositions all occurring in early November. This 12-cent aggregate increase in FFO is partially offset by an approximate 2-cent impact from our third quarter ATM activity. Last night, we also provided earnings guidance for the fourth quarter of 2021. We expect FFO per share for the fourth quarter to be within the range of $1.46 to $1.52. The midpoint of $1.49 represents a 13-cent per share improvement from the third quarter, which is anticipated to result from an 11-cent per share or approximate 7.5% expected sequential increase in same-store NOI, driven by both a 2.5% or 5.5 cent per share of sequential increase in same-store revenue, resulting primarily from higher rental rates, and a 6.5% decrease in sequential same-store expenses, driven primarily by a 2.5 cent fourth quarter decrease in property taxes, combined with a fourth quarter 1.5 cent decrease in property insurance expenses, and a one and a half cent third to fourth quarter seasonal decrease in utility, repair and maintenance, unit turnover, and personnel expenses. A three cent per share increase in NOI from our development communities in lease up and our non-same store communities, and a two cent per share increase in FFO resulting from the full quarter contribution of our recent acquisitions. This aggregate 16 cent increase is partially offset by a 1.5 cent decrease in NOI from our planned fourth quarter disposition activities and a 1.5 cent per share incremental impact from our third quarter ATM activity. Our balance sheet remains strong, with net debt to EBITDA at 4.4 times and a total fixed charge coverage ratio at 5.8 times. As of today, we have approximately $1.1 billion of liquidity comprised of approximately $200 million in cash and cash equivalents, and no amounts outstanding under a $900 million unsecured credit facility. At quarter end, we had $242 million left to spend over the next three years under our existing development pipeline. Our current excess cash is invested with various banks, earning approximately 20 basis points. At this time, we will open the call up to questions.
spk06: we will now begin the question and answer session. To ask a question, press star then one on a touch-tone 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. At this time, we will pause momentarily to assemble our roster. And the first question comes from Neil Malkin with Capital One Security. Please go ahead.
spk20: Good morning, everyone. Great quarter. First question, maybe higher level in terms of just secular tailwinds. What is, in your opinion, driving historically strong rent growth? I mean, you know, is it, are you continuing to see accelerating in-migration, corporate relocation? Is it a wage growth thing? Because, you know, supply is, you know, pretty consistent, you know, give or take over the last couple years. And I expect it to be next year, maybe a little bit higher. But if you can just talk about what you think the main, you know, drivers there are because, you know, you're at 97% and you're pushing double digits. So any thoughts would be great.
spk19: Sure. So when we think about what's going on, it really you think about our customer base, right? Our customer base average income is a little over one hundred thousand dollars a year. And if you think about what's what's been going on in the in the economy, you know, the unemployment, the unemployment rate is is very low. But but we think about the jobs that haven't been or the people that aren't aren't employed today. Seventy five percent of those folks are making under 50 grand a year. So our customer base is really, really in good shape. Number one, they're employed. Number two, they have massive savings as a result of the pandemic. And a lot of them that doubled up at parents' homes or doubled up in apartments during the pandemic, that's all expanding. So you really have almost three years of demand hitting the market in 2021. in a very buoyant job market for our customers. And then also you just have the financing scenario, or you think about wages going up pretty dramatically, plus savings rates going up pretty dramatically, all the government support that our customers got, and probably they didn't spend it. And so what that has done is that's allowed a lot of folks that maybe financially had to double up prior to the pandemic, who are undoubling. So you now have just normal economic growth plus the unbundling of people that were either living at home or bundled up in roommate scenarios. Because we know that people generally have roommates not because they want them, but because they have to have them because of financial issues. And so we just have a very our customers are really in good financial shape today. And I think that's what's sort of driven the, you know, the demand, not just for apartments, but for single family homes. Anything that's home today is old. And so we've been under building for a long, long time. And I think it's just that we have this unusual situation where everybody has, you know, money in their pocket and they're willing to, you know, go out and lease apartments.
spk18: Yeah, Neil, I would just add that you mentioned the in-migration and the continuation there. Across Camden's platform, using Ron Whitten's numbers for 2021, he still estimates over 440,000 net migration across Camden's 15 markets. So it is an important part of the story as well, is that people that have been sort of liberated to live where they choose to live and not where they have to live, making choices in big numbers to continue the migration patterns that started a decade and a half ago. So it is an important part of it is 440,000 folks are going to show up in Camden's markets this year just from in-migration.
spk08: And Neil, I'd add to that, if you look at move-ins in our markets, we saw a 600 basis point improvement in people moving from non-Sunbelt markets to moving to our communities in the Sunbelt. So that's the manifestation of Keith's immigration numbers.
spk20: Okay, yeah, thank you all for the call. It's just interesting because some of your peers are talking about people coming back into the coastal market. So it's like I'm not really sure where the people are coming from, but I think your absolute market rents speak for themselves. The other one for me is, can you just talk about capital allocation priorities? I thought you were going to get pretty aggressive on the developments. I think you only started one this year so far. Can you just talk about how your cost of equity, current market fundamentals, and potential supply chain issues weigh into your factors of focusing on ramping the development pipeline versus focusing more on acquisitions? Thanks.
spk19: Well, there are a lot of questions, uh, kind of in that question. Um, but fundamentally, you know, we think that, uh, we, development is a very good spot to be in today with the, with the, with the construct of rent growth that we're seeing in spite of, uh, supply chain issues. Um, I would say just to, so next year we'll probably start anywhere between 375 million and $450 million of, uh, of developments. Developments take a long time to put in place, so you can't just move on a dime to increase development pipeline. So that's where we'll be development-wise. In terms of supply chain and how that relates to development, supply chain disruptions, and I have a little bit of insider knowledge into this because part of my personal Camden Cares part of my equation is I'm the chairman of the Port of Houston. And so it's an unpaid political job. But so I'm spending a fair amount of time understanding these supply chain issues. And they're real. And it's not because the supply chain is broken. It's just the supply chain is jammed. We have very, very increased high demand for every kind of product because of the pandemic, and there's just too many products coming into the beginning of the supply chain, and they're getting stuck at every level, and that's causing big, big problems. So what that means for us is our projects are taking 30 to 60 days longer to build. When you look at price inflation because of supply chain issues, we're looking at 10% to 12% increases in supply uh labor and in uh construction costs the good news is is that rental rates have gone up so much over the last six or eight months that we're able to offset that uh with higher rental cost higher rental rates obviously uh just to give you a little tidbit on this too so in california when we were releasing up our hill hillcrest project and also needing replacement refrigerators we had to go out and we bought a couple hundred refrigerators from best buy and so we went to best buy after best buy after best buy loading up on our refrigerator so it's not going to change anytime soon and that pressure is going to be there for a long time As far as capital allocation to acquisitions, we obviously have bought a lot of acquisitions this year with 633 million so far, and we had a budget of about 400 million. When you look at cost of capital, our cost of capital has gone down as a result of just the overall interest rate environment and stock price. And so that allows us to make a really good spread on both acquisitions and development. And that's why we're ramping up the acquisition side of the equation. And we will continue to do that, you know, given the construct of the market. And so it just makes a lot of sense for us to grow in this environment, even with low cap rates on a relative basis.
spk02: Thank you for all the color.
spk06: The next question comes from John Kinn with BMO Capital Markets. Please go ahead. Thanks.
spk04: Good morning. I was wondering what markets were leading and lagging on the 18% new lease growth. Is it similar to the market performance on same-star revenue, or are there some markets with stronger momentum than the same-star revenue results?
spk18: I think the best guy would just be looking at the same store revenue results, John. I mean, if you look at the sequential numbers on revenues, you know, the big ups were San Diego at over 7%. You've got L.A. Orange County at close to 7%. Phoenix at 4%. Charlotte, South Florida, both at four. So there's a lot of strength in in sequential numbers like that. But it's across it's across our entire platform. The only the markets that it kind of it's hard to even talk about underperformance when they're when the numbers are at the levels that they are. But. We still have some regulatory headwinds in Washington, D.C., and so Maryland and D.C. proper, we still have some constraints on the ability to push rents. Same in California. Most of the California... Most of them, except for Hollywood, have lapsed, but that doesn't mean that we're back in a position of the ability to make changes to our resident base immediately. There's a process you have to go through. So that stuff, that'll get better over time because the market fundamentals are better than the regulatory environment has allowed us to take advantage of in those two markets. But the rest of the platform is, Business as usual, and you can see what the kind of unregulated and unconstrained market clearing rents are, and that's where we're getting on our new lease and renewals.
spk04: I was going to ask you about D.C. because that seems like the one market that's underperformed your initial outlook for the year. And I know there's some regulatory concerns in D.C. itself, maybe not so much in suburban Maryland and Virginia. But I was wondering, do you think there's going to be a catch-up next year? And or are you thinking about decreasing your exposure to D.C. given it's by far your biggest market?
spk19: So I'll take that. You know, it's interesting because at the beginning of the year, we talked about how we were going to sell $450 million of assets and buy $450 million plus or minus. And we're going to sell those properties in Houston and D.C. to lower our exposure in our two largest markets and then reallocate that capital into Nashville and some of the other markets like Tampa that have better constructs from a growth perspective. sort of longer term. And we're doing that. I mean, we'll close the Houston transactions, the D.C. transactions, you know, in the next month. But when you look at a D.C. and I'll sort of throw Houston in this bucket, too, because to your question of, you know, slower growth. OK, we have slower growth in Houston and in D.C. D.C. is definitely related to the fact that we can't raise rents on renewals because of regulatory constructs there. And so there's definitely pent up that, you know, occupancies are high. You know, if we didn't have the government, you know, control on not being able to raise rents through the end of the year, we would be pushing it pretty hard, just like the rest of the country. So fundamentals underlying are great in D.C., but it's just this government construct in the district in Maryland where you can't raise rents. Houston, on the other hand, is probably our slowest growing market. even though we're getting, you know, really good rent increases on a relative basis, they're substantially lower than the rest of the country. And the reason there is if you look at the sort of the four, three or four cities in America that haven't added back their jobs from the pandemic, Houston would be one of those, Houston, LA, New York. And that's primarily driven by oil. We lost 60,000 jobs in the oil business, and we've added back about 23,000 of those jobs. And so we're pushing up towards 70% recovery of the jobs. But if you look at Dallas, Austin, Charlotte, Raleigh, they're all over 100%. recovered from their job losses in the pandemic. So the good news is that even with the kind of drag we're getting from that, we're still putting really good numbers up. And I kind of look at it like this, that we have a geographically diverse portfolio. geographically diverse and then product diverse. And the whole idea is you never know which market's going to give you the best growth in any one year. It just depends on their local economies and how the supply and demand dynamics work. And so I look at D.C. and Houston as sort of gas in the tank for next year because those markets are improving. And once we get the regulatory construct out of D.C., which should happen by the end of the year, maybe early second or first quarter, then we'll be able to They'll experience the same kind of growth that the rest of the country is doing today. And then Houston continues to improve, and, you know, oil is $85 a barrel. And, you know, there's a lot of – after the winter when people pay 30% more for their energy, I think you're going to get back to more investments in the fossil fuel area, and Houston will do fine too. Thank you. Mm-hmm.
spk06: The next question comes from Nick Joseph with Citi. Please go ahead. Thanks.
spk16: What's the loss to lease for the portfolio overall? And then I recognize it's somewhat of a moving target, and you've touched on some regulatory issues, but how long do you think it will take to capture and regain that loss to lease over the next few months or over the next year?
spk08: So you're right. It certainly is a moving target. Lost to lease today is right around 16%. But now you'll have to remember that the way our pricing works, obviously, is dynamic pricing. And so this lost to lease has some variability to it. And if you're trying to sort of think about the impact and how long will it take for us to recoup all of that, you have to remember that we're generally not bringing our renewals up fully to market. And we're doing that in order to make sure that we can keep up our resident retention. So I wouldn't expect for us to make up that full 16% in 2022. I think it's probably a longer lead time, probably getting you into 2023.
spk16: Thanks. That's helpful. And then just given where the occupancy is today versus history, how are you thinking about seasonality and kind of the push and pull of rent versus occupancy over the next few months?
spk18: Yeah, so, you know, we do have seasonality and historically have in our portfolio. And if you go back and look at it, you know, throw out the two COVID years and look at the prior decade, on average, our occupancy between the third and fourth quarter drops about 40 basis points. So it's, you know, that's sort of typical. In this year, between second and third, we actually went up 40 basis points. And as we sit here today, we're still at 97.3. So my guess is there will be some seasonality from the 97.3, but maybe not the full 40 basis points that we've seen in the past. And then if you look at from a rental perspective here, You know, there's also seasonality on our new leases. I mean, we typically see 2% to 3% decline from third to fourth quarter. And as we sit here today, we've actually increased that number throughout the month of October. I think we will see some seasonality, maybe not to the extent that we have in the past, but you're talking about seasonal adjustments from historically high numbers, both on occupancy and rents.
spk02: Thank you.
spk06: The next question comes from Amanda Schweitzer with Baird. Please go ahead.
spk10: Thanks. Good morning. If you look at it as 2022, can you just talk about how you're thinking about the expense outlook today? Is there a level of expense growth that is already known through either kind of in-place insurance or tax increases? And then how are you thinking about controllable expense growth?
spk08: yeah so obviously we are in the midst of our budget process and so it's a little bit early to give uh to give some really uh detailed information around expenses what i will tell you um is that obviously we've had a very or anticipate having a very good year in 2021 when it comes to property taxes which is the largest component of our expenses Based upon what we're hearing from our consultants, we think that there will be a slight uptick, but still within a normal range in property taxes. And if you think about the second largest line item, which is salaries and benefits, we're certainly getting some very real efficiencies that hopefully we'll start to see some incremental benefit from in 2022. But But hang tight, and we'll get you some better information next quarter.
spk10: That's helpful, and I appreciate your caution until you give actual guidance. And then just wanted to follow up on your comments about it being an attractive time to grow more aggressively externally. Can you talk about how you're stack ranking your sources of capital as you look out to 2022, and are you planning to further lighten your exposure in any markets beyond the planned sales we've talked about this year?
spk19: Well, in terms of lightening exposure, we will continue to – the good news is when you grow in smaller markets, that lightens your exposure on a percentage basis in your overweighted markets. So we'll continue to trade out assets. You know, we – When I think about lowering exposure in D.C. and Houston, we can do it two ways. One is to grow outside of there, and the other is to move assets out of those markets and trade them for other assets. And we'll do some of that as well. And it's really more of a two- or three-year program. If you think about what we did in 20, starting in the, you know, sort of, 2013 kind of timeframe, we made a lot of moves. We sold out of Vegas and increased exposure in a lot of other markets. And so we'll continue to do that. When I think about our capital stack, it's pretty simple. We've talked about for a long time how we're going to keep our debt to EBITDA in the four to five percent, four to five times range. And when you look at weighted average cost of capital, Our weighted average cost of capital has gone down as a result of everything that's going on in the market with the 10-year being where it is and with equity prices where they are. And so we're sitting right at 4.4 times debt to EBITDA today. not issued equity under our ATM program and just bought assets and funded them with debt, we'd be at 5.2 times debt to EPIDOT today instead of 4.4. So the way I think about this, the kind of times we're in now is that we have very low cost of capital. And so we know that our equity cost is the highest cost of capital that we have. And so we are going to continue to balance the capital stack to make sure that we're that we're driving this growth in a very positive way. Today, I haven't seen a time in my business career where we've had AFFO yields lower than our acquisition. If you think about our AFFO yield on our stock relative to what we're buying, we have accretive transactions when we're issuing stock and putting that debt piece on it as well and then buying assets. So that's, for me, a green light to grow. But it's always about keeping that debt to EBITDA in that four to five times range. So today what we're really doing when we have times like this is we're getting that debt to EBITDA down to the four times. And what that does is gives us tremendous capacity to lever up if, in fact, The market changes in the future, and there are more attractive opportunities when the world sort of changes. And the question will be, how long does this last? And I don't think any of us know, but I do know that good times don't last forever and that rents don't go up always and that at some point, our strength and our balance sheet will pay us big dividends in the future. And that's the way we think about our capital stack and sort of the growth opportunities that we have today.
spk10: Thank you. Appreciate the comments.
spk19: Sure.
spk06: The next question comes from Rich Anderson with SMBC. Please go ahead.
spk17: Hey, thanks. Good morning, all. So the stock is up about 65%, 70% this year. And I don't think the value of your portfolio is up that much. Back of the envelope, if I were to cut my cap rate by 100 basis points, maybe you could say 30%, 30%, 35%, 40% up in terms of property value. So there's a fair amount of enthusiasm driving the stock. today, enthusiasm towards something that is arguably unsustainable. You mentioned 3X the demand in one year. So I guess the question is, and maybe you sort of answered in the last question, but how do you keep people from running from the stock next year and the year after because then they suddenly realize that 20% blended or new lease rates is just not something that's going to happen forever? probably next year either. So I'm just wondering, what's the bull case for Camden in years 22 and beyond?
spk19: Well, first of all, we don't manage the stock price, obviously, and stocks can go up and down, and that's just what they do, right? You guys are the ones who who figure out what they're going to do. But to your point, if you just take the base, right? In January of this year, when we started out at $95 a share, and now we're up to, what, $162 or something like that, $95 a share was incredibly cheap. It was definitely a significant discount to NAV there. So I would argue that from January to now, we've had at least a 30% or 40% increase in in the real estate value, but we were undervalued to start with, right? And so to me, it's not about 65% growth in the stock price versus 30% or 40% growth in the asset value. We started out at a low number, and so you had to get back to an NAV number. And when you look at our NAVs, relative to the streets. I mean, it's not that far off of where the stock price is today. Some people have it higher, some people have it lower. In terms of what's the bull case for Camden next year, I think it's pretty simple. I mean, you're coming off a really big year this year, but you have embedded growth next year that we've never seen in our business history. When you look at And next year, we have embedded revenue growth of 5%. Just if we do nothing next year and we just maintain our occupancy and our leases, you know, you have 5% top line revenue growth. And then if you think that the loss to lease, some of that loss to lease is going to get captured, you're going to have probably one of the best years that multifamily has seen in a very long time for top line growth. And so the question will be, How long does that last? And I know people get very stressed out about negative second derivatives on revenue. But you have an unusual situation today where there's just more demand than supply. And for all the reasons that we talked about before. And then as long as the economy continues to sort of chug along the way it's chugging along today, then. you know, 2022 looks pretty darn good. And then 2023 could be, you know, another interesting year or two. So, you know, when you think about how high rents can go, keep in mind that these 20% increases today are on top of pretty much zero increase in 2021, limited increases in 20, we had maybe a 3% growth in 2019. And so you have a fair amount of pent up growth that was just catch-up growth, but not like new growth. And then the new growth is going to come in 2022 with the economy doing what it's doing. So I would make the argument that's the bull case for Canada.
spk17: Okay, good stuff. And then the second question is, do you have a lock-solid plan from a succession standpoint? I hate to bring this up because I'd hate to see any of you guys go, but obviously... It's important for you to do that. Do you expect you to be here many, many years to come? Or, you know, just any kind of comment on succession because obviously you two guys and Alex and everyone are very important to the story.
spk19: So let me take a quick shot at it. So, yes, we have a long term succession plan. And it's a good one because you really have two CEOs here, right? Keith and me, we were co-founders of the company. And so if one of us decides to leave tomorrow or gets hit by a truck or whatever, or maybe by a foul ball at the Astro game on game seven, then you have the other one. And we have a very deep bench when it comes to our other team members. And, you know, when you think about Alex, I mean, Alex, you started here when you're in your 30s. Now you're, you know, you're still a pretty young dude, even though you may have been in the last 20 years. So we have a great plan from that perspective. Heath, you want to add to that?
spk17: I was just going to say that it's entirely internal. Yes, absolutely.
spk18: Okay, good. Completely confident that our succession plan is internal. Yes. Okay, great. Thank you.
spk06: The next question comes from Daniel Santos with Piper Sandler.
spk03: Please go ahead. Hey, good morning, guys. Thanks for taking my questions. As you look at sort of sub-market mix, how do you rank sort of infill versus suburb versus outer ring from a pricing tower perspective in the sort of near to medium term?
spk08: So what I would tell you is that Class B and suburban communities continue to outperform, and that is primarily driven by where the supply is. And so I think you would expect to see that at least in the near term continue that way.
spk02: Got it. Thank you. And then apologies if you covered this already.
spk03: Apologies if you covered this already, but can you give us an update on the delinquent rents in Southern California, and what's your view on when you might be able to start evicting tenants, or is your view that internally that the eviction moratorium will be sort of extended kind of indefinitely?
spk08: Yeah, so if you think about delinquency for us, it was 120 basis points for the quarter. By the way, California was 410 basis points of that. or it was 410 basis points. So if you exclude California, we would have actually had a delinquency number of about 80 bps. We do not believe that we're going to see any extensions. And obviously, right now, we are looking at how we are going to handle the consumer debt. But we are certainly anticipating that 2022 is going to be a more normal year in terms of California and people being required to be current on current rent. Obviously, the past rent, as you know, turns to consumer debt, and then we'll have to look at our various avenues to collect those amounts.
spk03: Got it. That's it for me.
spk02: Thanks, guys.
spk08: Thanks.
spk02: Thanks.
spk06: The next question comes from Rob Stevenson with Jenny. Please go ahead.
spk13: Good morning, guys. How much redevelopment are you doing these days, and how are you thinking about that business over the next several quarters, given the downtime for units and the strong demand for those units and the overall high occupancy?
spk08: Yeah, so we expect in 2021 that we're going to have about 2,200 units that we'll reposition that works out to be about $53 million worth. We think it's a fantastic business. We're going to keep doing it as long as we have the opportunities. The downtime, we've gotten really, really efficient about it. And, you know, obviously we go back and we sort of backtrack all this and back check. And what we're finding is that reposition units are are outperforming those units that have not been repositioned even in this environment. So I think it's a great book of business. We're getting very strong return on invested capital, and it's something that we'll keep doing.
spk13: Obviously, pricing continues to increase, but what's the five-acre land in Denver? Is there something else on that? Is that entitled for multifamily development? And how would you sort of characterize the pool of entitled multifamily development land in the markets and submarkets that you want to develop in today?
spk19: The Denver property does have some warehouses on it right now and is zoned multifamily. And we've had it under contract for quite a while. And we went through the zoning process to make sure that it was developable as multifamily. So the closing was required once we got our you know, the right entitlements that we wanted. And then we'll now start, you know, our construction drawings and knock the buildings down. And hopefully we'll be under construction, you know, late this year, early next year on that project. In terms of land availability, land availability is still out there. You know, people talk about, oh, gee, you know, they're not making any more land. But you know, what's happening is there's been a lot of, you know, product types that, you know, just underutilized lands that are that are out there. So I think that land availability is still fine. You're still able to buy it. The big issue is land prices have accelerated along with rents and other costs. So it just makes it more difficult to make numbers work on projects. And that's the challenge. We want to make a certain rate of return IRR and going in yield and and that's the challenge in this environment. Now, the good news is rents are helping us make those numbers, obviously, with, you know, the significant increases that people are having today, or rent increases, that is.
spk13: Okay. Thanks, guys. Appreciate it.
spk06: The next question comes from Rich Hightower with Evercore. Please go ahead.
spk21: Hey, good morning, guys. Thanks for all the questions so far. So I want to go back. I think it's been asked a few times, but I'm going to put a twist on it. This sort of 3x demand, you know, normal demand figure that, Rick, I think you mentioned in the answer to one of the first questions. So, you know, as I think about that, I mean, you're not so much pulling forward future demand. You're sort of clawing it back from, you know, an air pocket that existed during the the depths of COVID. And so, you know, we might consider that the industry is sort of over-earning currently on demand and therefore rents at the moment. And so as I think about, you know, what next year and beyond are going to look like, I mean, would you say that we are going to have a more sort of, you know, trend-like demand figure in 2022 and beyond? And what does that do to a pricing algorithm if you're comparing sort of year over year and you do see what looks like an air pocket as measured against what's happened in 2021, how do we figure out where the puck is going in that regard?
spk19: Yeah, so I think when you think about it that way, I don't disagree with that. We have more demand because people were doubled up in the past, and there's just more household formation, and people are choosing more apartments. Part of it is that people are choosing to rent rather than to buy or live in a single-family home, too. And when you look at the single-family market, it's full housing. and full from a rental perspective, but it's also full from a sales perspective. I mean, you can't build houses fast enough today. And so I think that the clawback, if you want to call it, is going to stay in place, right? So that means that occupancy levels, assuming that you have normal economic activity, right? Meaning that we don't go into recession or there's some black swan event that happens that makes a mistake and shuts down the economy or COVID or whatever. then and if you have you so if you start out with us with with pretty amazingly strong occupancy and those people stay in place that came out of the market then what you have is normal demand in a very tight rental market and so if you have normal demand that is just household formation and population growth and job growth uh through 2022 and 2023 that you shouldn't have an air pocket uh an air pocket The only way that that would happen is if there was some economic dislocation. Right. And then that demand that that was there goes away or the new demand that that normally happens during a normal year doesn't happen. And so, you know, you can always come up with scenarios that that that. that we don't know about today, or like I just said, the Fed makes a mistake or something like that, and you have an air pocket. And then what happens is if you do lose the demand, then at least our occupancies are higher. And so maybe the rental growth slows some. And with our dynamic pricing model, you would definitely see a slowdown in the rate of growth of new leases. But you need to have a real economic shock to make that air pocket happen, I think. Okay.
spk18: So, Rick, just to add to that, on Witten's numbers for 2022 in Camden's markets, he's got employment growth at 1.2 million, and he's got completions across Camden's markets at 160,000, flat with 2021. So, I mean, that math tells me Yeah, we're going to have excess demand in 2022 and probably in 2023 as well because he's got completions ticking up a little bit in 2023, but not much. There's not, you know, the fact that you see this excess demand right now, you say, well, what's the response to that? Well, the response to it is people will build more. But it's a two- to three-year process. I mean, it's not like going to the grocery store and getting cornflakes. I mean, these projects are long lead time. They're complex. They're expensive. And so it's just the supply response will happen, but it's not going to happen until 2020. If it's not under construction already, it's not going to be a factor until the end of 2023. So I think it's just by the numbers, it still looks like, that we did, you know, pull that we had some pent-up demand that got into the 3X. But going forward, I think you're going to get back to more of a normal situation. But a normal situation, demand is going to continue to outstrip supply.
spk21: Right. Well, my kids can confirm it's hard to get cornflakes, too, at the moment. Would you say that that implies that, you know, If I think about occupancy, I mean, 98 becomes the new 97 as 97 has become the new 96. I mean, is that possible next year?
spk19: There's a lot of friction. People still move in and move out, and that move in and move out is going to limit the ability to get occupancy into the 98, 99 kind of range. You might see it tick up a bit, but it's really hard to maintain that because people are still moving around. Even though we had a drop in our turnover rate, it was still 47%, right?
spk21: Yep. Okay, great. Thanks, guys.
spk09: Mm-hmm.
spk06: The next question comes from Chandri Luthra with Goldman Sachs. Please go ahead.
spk11: Hi. Thank you for taking my question. Most of the questions have been answered, so I'll just, you know, ask one on cap rates. So what direction do you see cap rates go from here? I mean, obviously there has been a lot of compression already. But how do you see this continue into 2022? Or do you think that we are finally at a point where in the second derivative here slows? Just trying to understand that dynamic, if you could throw some light on that.
spk19: Yeah, I've bet against cap rates compressing sort of every quarter for the last, you know, 10 years. So, you know, I think that the challenge you have in predicting what cap rates are going to do is it's really, you know, driven clearly by the massive amount of capital out there that's trying to find a yield. And, you know, I sort of hurt my head when cap rates had a three on it. And a high three, now it hurts my head that cap rates have a low three. But then when you put a 20% growth in embedded rent over a 12-month period, I get that, right? So, you know, until we start seeing alternative investments that produce the kind of cash flow growth that multifamily does and also has an inflation hedge, then I think cap rates are going to stay Low and maybe go lower until that dynamic changes. So if you have a significant, you know, negative second derivative and there's other and rates rise where there are other alternatives for investors to get, you know, you know, cash flow returns that they need, then that's probably when when cap rates rise. But. When you think about how do assets price, the number one reason an asset is going up in value or cap rates are going down is liquidity in the market. And we have the most amazing liquidity that we've had ever in my business career. And then the second reason they go up and down is because of supply and demand dynamics. And we have great supply and demand dynamics, right? And then the third thing is interest rates. And then the fourth thing is inflation. I'm sorry to say inflation expectations, then interest rates. So, you know, until the dynamics of those four things change, cap rates are going to continue to be really low and maybe go lower until that changes.
spk11: Makes sense. And then my second question, so, you know, you just, on the last one, gave some color on supply and talked about how people are building, but that's a two- to three-year process, so it's not going to be a factor until the end of 2022. But as we think about sort of all the capital that is finding its way into the Sunbelt markets, Is there a risk of crowding out, I mean, you know, just overcrowding at some point? And then, you know, near term, looking into 2022, how do you think about these two opposing forces that on the one hand, you know, all that sort of air pocket that got created in construction last year perhaps finally gets to be finished, but on the other hand, you know, we've had construction delays, and you, I think, yourself talked about 30 to 60 days, delays there. So how do you sort of square those two off, and where do you think 2022 will ultimately shake out to be from a supply standpoint?
spk19: Well, I think the supply is pretty much baked in for 2022 now, and those delays are real, and so that will probably supply we think is going to come in 2022 is probably not coming until 2023 because of those issues. As far as overcrowding out, I guess I'm not sure I understand that part of the equation, your question. Are you saying there's not enough room to build or there's... Well, I guess just, you know, oversupply. Oh, yeah. So, you know, I think the issue on oversupply, you know, Markets go up and down demand perspective. And right now we have an excess demand versus supply and the supply is taking longer to put into the market. So I think an oversupply condition in 2022 is very unlikely. And then you have to start looking out to 2023. And when in 2023 do you have That happens. So I think it's really hard to go, OK, I think there's going to be a supply problem in 2024. But, you know, each market is dynamic and unique in its own way. And and you will have some markets that have excess supply and less demand. And that that's why we have a geographically diverse portfolio right now. Houston, even though we're getting the we're getting eight to 10 percent, you know, rent trade out. We're not getting 30 like we're in and like we're getting in Tampa because of supply and the and the and the the supply. But related to the demand with job growth. And so. You know, I think we're pretty clear on on on imbalance of excess supply through 2022 and in the middle of 2023. And after that, it's tell me what the economy does. Do we get a million two jobs each year for the next two or three years in our markets? If we do, you're probably good, you know, for another two or three years. But that's the that's the uncertainty. We know supply is coming. I know it's taking longer, but we just don't know what the demand is. in middle of 2023 to 2024 or 5. That's the crapshoot, I think.
spk11: Thank you for that answer. Very helpful.
spk06: The next question comes from Alex Kalmas with Zellman and Associates. Please go ahead. Hi.
spk12: Thank you for taking the question. Can you talk a little bit about the dynamics in St. Petersburg? There's been a lot of high-profile office relocations, and Tampa's obviously been doing well. Can you talk about the dynamics there and the reason for the acquisition?
spk18: Yeah, St. Petersburg has some of the best market fundamentals of anything across our entire portfolio, and A lot of it has to do with just the re-envisioning and re-imagining of what St. Petersburg is. And there have been tremendous growth in terms of commercial assets, retail support. And, of course, that's brought with it some very high-end apartment development. But our rent tradeout right now in St. Petersburg is among the highest in our entire portfolio. Even on the brand-new acquisition we have there, The rent trade-out is crazy. So we love St. Petersburg. We love the market dynamics. We love where it's headed, and ultimately we'd like to have some additional exposure there. But it's not a real big market, and there's not a lot of stuff to trade. As a sub-market for us, it is just on fire right now for sure.
spk12: Great. Thank you. And is there any data behind – move out to single-family rentals in the portfolio. I appreciate the color on the move out supply there.
spk18: Yeah, I mean, we track that separately, and it's, you know, it's trended up from 1% five years ago to about 2% today. It's still just not a meaningful number at this point. in our portfolio that my guess is, is that probably will tick up over time, but just because there are more purpose built single family kind of for rental communities that are, that are being built and they're, you know, that, that ultimately is probably a better solution for someone that's an apartment renter that doesn't want to have, doesn't want to own a home, but needs more space in the suburbs. So that asset class, you know, purpose built single family property, Rental-only developments over time probably at the margins will make that number tick up. But I don't ever see it being a huge number or a big competitor to our portfolio. I think it's our resident base is just more suited to their next move being purchasing a home. And, Ryan, like I said, our numbers right now for the last quarter were about 15%, which is still way below our long-term trend of about 18% for that category.
spk12: Got it. Thank you very much.
spk06: The next question comes from Austin Werschmitt with KeyBank. Please go ahead.
spk05: Great. Thank you. Sorry if I missed this, but I was curious, did you guys collect any rental assistance in the third quarter, you know, most notably from California? And can you provide what your outstanding receivable balance is today?
spk08: Yeah, absolutely. So outstanding receivable balance today is about twelve and a half million dollars, of which we have reserved about twelve million. So we're almost fully reserved on that front. If you think about in the in the third quarter for same store, we collected about four point two million dollars. Total portfolio is about five point three million. And so that gets us to a year-to-date number, same store, of about $7.5 million in total of about $9.4 million. And are you assuming any collections into the fourth quarter?
spk05: We are.
spk08: Yeah, yeah. We are assuming some additional collections going into the fourth quarter.
spk05: And then separately, second question, curious if you could provide kind of an update on how deep the acquisition pipeline is today and, you know, maybe how that compares versus, you know, six months ago or so.
spk19: Well, there's a lot. The acquisition pipeline, you mean the properties available to acquire is pretty deep.
spk05: It's just properties you guys are underwriting. Right. Yeah, underwriting that kind of meet your acquisition criteria and just how that's scaled up given your higher propensity to be acquirers.
spk19: Sure, it's scaled up quite a bit. I mean, there's a lot of property out there on the market. But what we're looking for, you know, there's, like I said, tons of properties, but what we're looking for is a real specific product type, one where we can add value, one where we can move the rents pretty hard because of either management or some issues that the properties have. And those are harder to find than properties. than just sort of run-of-the-mill merchant builder deal in the suburbs or in urban cores. So there is a buoyant market. There's a lot of people that are trying to create value and sell today. And it was sort of interesting because there's a lot of – year-end madness kind of going on, right, where people are trying to lock in capital gains rates with all the tax changes that have been bannered about and all that. And I think that 2022 is going to be another, you know, banner year. We're at record sales for multifamily at this point. And, you know, we have had a number of transactions that we really wanted to acquire that we didn't get to the finish line on because we are disciplined on price. and we just didn't see the value proposition to go to the next, you know, level on those bids. But, you know, we'll get our fair share. It's just a – but it is a very competitive environment, no question.
spk06: Thank you. The next question comes from Joshua Dennerle with Bank of America. Please go ahead.
spk22: Yeah. Hey, everyone. Hope you're all doing well. The operating stat update for October was great. I just wanted to see if there was any color or thoughts on maybe how we should think about the new lease rate or the date sign just coming off peak levels in 3Q. Everything else seemed to be moving up. So just trying to get a sense of where it might be heading in the months ahead.
spk18: Yeah, earlier I think I mentioned that our quality on new lease rates on third to fourth quarter, and this is over a long period of time, is 2% to 3% down from third to fourth. So there is seasonality, and it historically has been in our portfolio. So the fact that you saw the wiggle, like, oh, that's just really a wiggle down in new lease rates at the end of October is is not of any concern, and it's less seasonality than what we would normally see. And all the other metrics that we look at, in particular turnover rate and 97.3% occupancy, lead me to believe that we're more strength and probably less seasonality than what we would typically see. So I think it still looks pretty strong.
spk02: Okay. All right.
spk22: Does renewals follow that? typical leg down as well, or do you think that can kind of keep rising from here?
spk18: My guess is that I didn't look at it that way because new leases is really the market clearing price because a lot of times we don't take renewals all the way up to the market clearing price for a lot of different reasons. But my guess is that it would be similar, maybe less seasonality slightly on renewals than new leases. Okay.
spk02: That's it for me. Thanks.
spk06: Unfortunately, we are out of time for questions, so this concludes our question and answer session. I'll turn it back over to Rick Campo for any closing remarks.
spk19: Well, thank you. I appreciate your time on the call today, and we will, I'm sure, be talking to a lot of you at NAREIT coming up, so I look forward to doing that. So take care and thank you. Go Astros. Go Astros. Take care. If the Braves win, we're happy about that, too, because we do have a lot of properties in Atlanta, and we love our Atlanta teams as well. So thanks. Take care. The conference is now concluded. Thank you for attending today's presentation.
spk06: You may now disconnect.
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