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spk00: Good morning and welcome to Camden Property Trust's fourth 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 President, 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 filing 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 fourth 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.
spk18: Good morning. The opening ceremonies for the 2022 Winter Olympics are today. And as you could tell from our on hold music and slideshow, Team Camden has embraced the Olympic spirit. The Olympic theme sent me down memory lane and into Camden's archives for the video I'm going to show you today. During the 2012 Summer Olympics, the U.S. women's swim team made a video using a very popular song titled Call Me Maybe. At Camden, we are proud to be a friendly and welcoming workplace. One unique way we show this is by greeting teammates with a hug instead of a handshake. Camden employees probably give and receive more hugs per day than any other workplace in America. So if you combine our hugging culture with the Olympic spirit, a Call Me Maybe video becomes a Hug Me Maybe video. And following the 2012 Olympics, this happened at our corporate office.
spk13: I sent my resume in, got interviewed by Odin. I got the job, what a win. And now I'm here to stay. My first day full of zeal. I can't believe this is real. I didn't know I would feel it, but now I'm here to stay. Nine values for Odin. Key strategies are showing. Greenberg feathers blow. And up is where we're going, baby. Hey, I just started. And this is crazy. Life started off right for you, baby Cause we're all family, so hug me, maybe Hey, I just started, and this is crazy But come on over and hug me, maybe And all the other reeds, they tried and chased me Won't get my number, where can they, baby? Our teams work to be best. There is just no contest. Camden is not like the rest. And now I'm here to stay. Fall frenzy, what a success. Performance with finesse. Wait, is that Rick in a dress? Oh yeah, I'm here to stay. Happy, we're all smiling. Career where we are styling. Seventh best and up we're flying. Next year we'll be number one, baby. Hey, I just started. And this is crazy. Before I started at this place I was just so sad Hey, I just started and this is crazy, but come on Bye. Bye. Bye.
spk18: One of the many adjustments in Camden's world caused by social distancing during the pandemic was replacing actual hugs with virtual hugs. Since Camden is a fully vaccinated workplace, we have recently seen an uptick in breakthrough cases of actual hugging in our workplace. We all look forward to the day when all virtual hugs at Camden will become actual hugs. 2021 turned out to be a remarkable year, and we clearly exceeded our original guidance that we provided at this time last year. Our 2021 budget called for FFO of $5 per share, with same property revenues up slightly and net operating income down approximately 1%. As reported last night, we closed 2021 with FFO of $5.39 per share and same property growth of 4.3% and 4.8% for revenues and net operating income, respectively. We expect 2022 to be our best year on record for earnings and same property growth. The midpoint of our 2022 guidance calls for FFO per share of $6.24. with same property revenue growth of 8.75% and net operating income growth of 12%. Our geographically and product-diverse portfolio in the Sunbelt markets continue to outperform. I want to thank each of our Camden team members for their hard work and commitment to our values and for improving the lives of our team members and our customers, one experience at a time. 2021 was a great year, but the best is yet to come. Thank you, and I will now turn the call over to Keith Oden.
spk19: Thanks, Rick. We have a tradition of assigning letter grades to forecast conditions in our markets at the beginning of every year. I'll start with a review of the supply and demand conditions we expect to encounter in Camden's markets during 2022 and rank the markets in the order of best to worst. For the first time in 10 years, Camden's overall portfolio earned an A with a stable outlook, and no market received a grade below A-. In addition, we are now providing this report card to you as part of our earnings call slide deck, which is showing now and will be posted on our website after today's call. We anticipate overall same property revenue growth this year in the range of 7.75% to 9.75% for our entire portfolio, with most of our markets falling within that range. The outliers on the positive side would be Phoenix and our Florida markets, which should produce double-digit revenue growth, then Houston and D.C., which will likely lag the overall portfolio average but still show significant improvement versus 2021. Our outlook for supply and demand in 2022 is based on multiple third-party economic forecasts that generally reflect strong job growth in Camden's markets, coupled with a steady amount of new supply. Estimates range from 1 to 1.2 million new jobs created in our 15 major markets in 2022, along with 150,000 to 200,000 new completions. So our outlook reflects somewhere around the midpoint of both projections. It is likely no surprise that for 2022, our top ranking once again goes to Phoenix, which has averaged 7% revenue growth over the past three years and has an expected revenue growth well above 10% this year. We give this market an A-plus rating with a stable outlook. Supply and demand metrics for 2022 look well balanced with estimates calling for 80,000 new jobs in Phoenix and 18,000 new units coming online this year. Up next are our three Florida markets, Southeast Florida, Tampa, and Orlando. Each also earned A-plus ratings with stable outlooks. These three markets should achieve revenue growth of over 10% in 2022 and are projected to have strong job growth to offset new supply coming online. Current estimates for job growth are approximately 50,000 in both southeast Florida and Tampa and 60,000 in Orlando. Completions are expected to be 10,000, 6,000, and 9,000 units respectively. Our next eight markets all earned an A rating with a stable outlook and should produce revenue growth generally within our guidance range of 3.75 to 9.75 in 2022. Atlanta, Austin, and Raleigh should achieve revenue growth toward the high end of our guidance range in 2022. In Atlanta, job growth is expected to be 90,000 with around 10,000 new apartment completions. In Austin, projections call for 50,000 additional jobs with completions of roughly 18,000 units. And in Raleigh, the jobs-to-completions ratio should be five times, with 35,000 new jobs versus 7,000 new apartment completions. San Diego Inland Empire and Charlotte are next, falling around the middle of the pack in Camden's portfolio. For the San Diego Inland Empire market, we expect to see over 100,000 new jobs in 2022, with new supply around 8,000 units. Charlotte should also deliver 8,000 units, with 40,000 new jobs created, providing a good balance of supply and demand in that market. Nashville is Camden's newest market as we acquired two communities there last summer. While Nashville will not be included in our 2022 same property pool, we would rate the city as an A with a stable outlook. There has been a significant amount of construction in Nashville and that will continue in 2022 with approximately 10,000 new units expected to deliver this year. However, demand for apartment homes has remained strong in Nashville with positive in-migration trends and projections for over 40,000 new jobs. Dallas and Denver are both solid markets and we expect market conditions to be favorable again in 2022. Supply-demand ratios in Dallas and Denver remain steady, with 95,000 and 55,000 new jobs anticipated respectively during 2022, with supply at 15,000 and 10,000 new units respectively scheduled for delivery this year. LA Orange County and Houston are the last two markets earning an A rating, but both have improving outlooks. Our portfolio in LA County saw higher delinquencies and bad debt in 2021 than our other markets, but we are hopeful that conditions will improve in 2022 as COVID restrictions begin to ease and regulatory issues around evictions are reduced. LA Orange County faces healthy operating conditions with favorable supply and demand metrics. Job growth should be around 150,000, with completions of 16,000 expected in 2022. In Houston, conditions began to improve in 2021 after the market had struggled with many new lease-ups giving high levels of concessions. New supply is expected to ease in 2022 to around 17,000 units, and job growth should remain strong with around 75,000 new jobs expected. Our final market is DC Metro, which we gave an A-, but with improving outlook. Supply remains steady with over 13,000 new units coming on this year. But job growth should be healthy as well, with 80,000 new jobs expected. Similar to LA, Orange County, Washington, D.C. has been a challenging market given the COVID environment and the many restrictions that were put in place as a result of the pandemic. While we are optimistic that 2022 will reflect an improved operating environment there, we have budgeted low to mid-single-digit revenue growth for D.C. Metro this year. Now a few details on our fourth quarter 21 operating results in January 2022 trends. Same property revenue growth was 8.5% for the fourth quarter and 4.3% for full year 2021. Our top performers for the fourth quarter all had over 10% revenue growth and included Tampa, Phoenix, Southern California, Raleigh, and Southeast Florida. Rental rates for the fourth quarter had signed new leases up 16.7%, renewals up 14.1%, for a blended rate of 15.5%. Our preliminary January results indicate similar trends, with blended growth of over 15% on signed leases. February and March renewal offers were sent out with an average increase in the mid-14% range. Occupancy averaged 97.1% during the fourth quarter and compared to 97.3% last quarter and 95.5% in the fourth quarter of 2020. January 2022 occupancy has averaged 97.2% compared to 95.7% in January of last year and is slightly up from our fourth quarter 21 levels. Annual net turnover for 2021 was in line with 2020 at 41%, and move-outs to home purchases were 15.8% for the quarter and 16.4% for the full year of 2021, relatively in line with our reported 15.8% for full year 2020. I'll now turn the call over to Alex Jessett, 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 fourth quarter of 2021, we purchased Camden Greenville, a recently constructed 558-unit mid-rise community in Dallas, and we purchased five acres of land in Denver and two acres of land in Nashville for future development purposes. For the full year of 2021, we have completed acquisitions of four communities with 1,684 apartment homes for a total cost of approximately $633 million, ahead of our original 2021 acquisition guidance of $450 million. And we acquired four undeveloped land parcels for a total cost of approximately $72 million. Additionally, during the quarter we disposed of two operating communities in Houston and one operating community in Laurel, Maryland for total proceeds of approximately $260 million. These three dispositions were on average 21 years old with average monthly rents of $1,350 per door and annual CapEx of approximately $2,300 per door. Using actual CapEx, these dispositions were completed at a 3.9% AFFO yield, generating a 10.5% unleveraged IRR over a 20-year hold period. Based on a broker cap rate, which assumes $350 per door in CapEx and a 3% management fee on trailing 12 months NOI, the cap rate would have been 4.3%. And finally, during the quarter we stabilized ahead of schedule Camden North End II, a 343-unit, $79 million new development in Phoenix, generating an approximate 8.75% yield, and we completed construction on Camden Hillcrest, an $89 million new development in San Diego. On the financing side, during the quarter we issued approximately $180 million of shares under our existing ATM program. Moving on to financial results. Last night, we reported funds from operations for the fourth quarter of 2021 of $160.2 million, or $1.51 per share, exceeding the midpoint of our prior guidance range by $0.02 per share. This outperformance resulted primarily from higher levels of occupancy and rental rates at our non-same-store acquisition and development communities and lower taxes and utilities at our same-store communities. For 2021, we delivered full-year same-store revenue growth of 4.3%, expense growth of 3.5%, and NOI growth of 4.8% as compared to our original 2021 same-store guidance of 0.75% for revenue, 3.5% for expenses, and negative 0.85% for NOI. You can refer to page 27 of our fourth quarter supplemental package for details on the key assumptions driving our 2022 financial outlook. We expect our 2022 FFO per share to be in the range of $6.09 to $6.39, with a midpoint of $6.24 representing an 85 cent per share increase from our 2021 results. This increase is anticipated to result primarily from... an approximate $0.79 per share increase in FFO related to the performance of our same-store portfolio. At the midpoint, we are expecting same-store net operating income growth of 12%, driven by revenue growth of 8.75% and expense growth of 3%. Each 1% increase in same store NOI is approximately $0.065 per share in FFO. An approximate $0.35 per share increase in FFO related to the growth in operating income from our non-same store, joint venture, and retail communities. resulting primarily from higher rental rates, lower bad debt, and the incremental contribution of our four acquisitions completed in 2021 and our nine development communities in lease-up during either 2021 and or 2022. and an approximate $0.07 per share increase in FFO due to an assumed $600 million of pro forma acquisitions spread throughout the year at an initial yield of 3.5%. This $1.21 cumulative increase in anticipated FFO per share is partially offset by an approximate $0.11 per share decrease in FFO from our completed 2021 dispositions, an approximate $0.04 per share decrease in FFO from an assumed $250 million of pro forma dispositions anticipated to primarily occur late 2022, an approximate $0.03 per share decrease in FFO, resulting primarily from the combination of lower interest income from lower cash balances, higher franchise and margin taxes, and higher corporate depreciation and amortization. Our combined general and administrative, property management, and fee and asset management expenses are anticipated to be effectively flat year over year. and an approximate $0.18 per share decrease in FFO due to the additional shares outstanding for full year 2022 following our 2021 ATM activity. Our revenue growth midpoint of 8.75% is based upon an anticipated 11% average increase in new leases and a 7% average increase in renewals. We are also anticipating that occupancy will moderate slightly to 96.5%. Page 27 of our supplemental package also details other assumptions for 2022, including the plan for $400 to $600 million of on-balance sheet development starts spread throughout the year with approximately $315 million of annual development spend. We expect FFO per share for the first quarter of 2022 to be within the range of $1.45 to $1.49. The midpoint of $1.47 represents a 4 cent per share decrease from the fourth quarter of 2021, which is primarily the result of an approximate 2 cent per share decrease in FFO resulting from our fourth quarter 2021 dispositions, An approximate $0.01 per share decrease in sequential same-store net operating income, resulting primarily from the reset of our annual property tax accrual on January 1st of each year, and other expense increases primarily attributable to typical seasonal trends, including the timing of on-site salary increases. And... An approximate $0.01 per share decrease in FFO due to the additional shares outstanding from our fourth quarter 2021 ATM activity. Our balance sheet remains strong, with net debt to EBITDA at 3.8 times and a total fixed charge coverage ratio at 6.4 times. As of today, we have approximately $1.4 billion of liquidity, comprised of approximately $500 million in cash and cash equivalents, and no amounts outstanding under our $900 million unsecured credit facility. At quarter end, we had $199 million left to spend over the next two years under our existing development pipeline, and we have no scheduled debt maturities until late 2022. Our current excess cash is invested with various banks, earning approximately 15 basis points. At this time, we'll open the call up to questions.
spk02: We will now begin the question and answer session.
spk20: To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Handel St. Just with Mizuho. Please go ahead.
spk09: Hey, good morning. I appreciate all the market color, all the detail. I had a question more so on the, I guess we're starting to see a bit of a divergence here in the new lease rates and renewals. The new lease rates continue to accelerate, renewals slowing a bit. How do we think about that relationship near term? I expect new lease rates to come under more pressure as we face tougher comps, but I guess I'm curious also, which markets are you seeing the best and weakest pricing power on renewals? What's causing the drag? Thanks.
spk06: Yeah, so, Handel, the gap between new leases and renewal rates is something that moves around quite a bit, primarily because of what we do on renewal rates. From time to time, depending on what's going on in a market or a submarket, we might put in place renewal caps, which is not something we would ever do on new lease rates, not in this environment. So, It's going to move around a little bit depending on kind of what it's literally our pricing team looking at the trends day-to-day and making recommendations. I think in the first quarter, we had a couple of markets that we had renewal caps in place. But, I mean, you're talking about renewal caps on what might have been as much as a 20-plus percent renewal rate being capped at 18%, and that would have been in some place like Tampa, St. Petersburg. But it's not unusual for that to move around. I would expect to see that over the course of the year, you probably will see a narrowing in that. But I think our guidance, as Alex pointed out, has new leases at 11 over the course of the year and renewals at 7, so not too far off of where we are right now. But that It's clear it's absolutely part of the art and science of revenue management, and it's just our revenue team looking at current trends and making recommendations.
spk09: Got it, got it. So no particular market of note on the renewal side that you're seeing a more meaningful difference in any form?
spk06: No, and I would say, you know, when we talk about less, I mean, I think that's the overriding message of this entire, of all the data set that we sent out last night. I mean, you're talking about pretty unprecedented levels of both new lease and renewal rates across all of our markets. And we had 12 of our 14 markets with double-digit NOI growth in the fourth quarter, and that trend has continued over in the first quarter. Somebody always has to be at the bottom, and right now Washington, D.C. is at the bottom, and some of that is the drag from the D.C. metro properties where we are really precluded from finding a market clearing rate for the communities, the apartments that we have there. But overall, I think the lowest grade that we gave was an A-, and that was Washington, D.C., and so this is the first time we've ever had that happen in our portfolio. Obviously a lot of strength out there.
spk09: Yes, yes, very well noted. Actually, your comments lead me to my second question, which is I guess your longer-term views on your Houston and D.C. portfolio exposures here. Both markets have exactly been the strongest of late, although they're improving, at least the outlook for this year. I guess I'm curious on your exposures here. You're two of the largest markets. You're increasing exposure to other smaller markets. sunbelt markets. You've sold a few assets in Houston in this past quarter. So I guess, how do we think about your exposure there the next few years? Do these markets become sources of funds for your expansion into some of these other smaller, higher growth sunbelt markets? Thanks.
spk18: Well, Handel, that's exactly what our strategy has been. We talked about it at the call last time, which was we were going to use this environment to sell down Houston and DC and then expand our portfolio into, you know, increase the exposure in some of the markets that we're underweighted in. You know, ultimately that's our strategy. It's going to take us a few years to get there, but it makes a lot of sense. I mean, clearly geographic diversification and primarily being in the Sun Belt has definitely helped us a lot. And I think ultimately, as we do that sort of portfolio redistribution over the next couple of years, it will help us be more geographically diverse. If you look at the last cycle in terms of how much we bought and sold, I mean, we really transformed the portfolio from 2010 through about, you know, to the pandemic. And we sold on average, you know, 26-year-old assets and redistributed that cash flow, sold out of Las Vegas. So we did a lot of portfolio management then. One of the numbers I thought was really interesting, if you look at how many sales we did relative to our total asset base in 2010, we redistributed 44% of our NOI around the country as a result of those transactions, where we sold assets, nearly $3 billion that we bought And then we also develop properties. And so we'll continue that. I think this environment gives us the opportunity to do it on a very, very low spread basis where we're not giving up a lot of cash flow, given the amazing market that people want to buy older properties. That's kind of the hottest spot on the market right now, even though all of it's very hot for sure.
spk09: Yeah, that's helpful. Is there any pricing difference or noticing any significant demand difference in selling, say, Houston assets versus D.C., given some of the challenges you noted earlier?
spk18: You know, early on, there was a sort of a pricing differential in Houston relative to other markets and in D.C. a bit. But that has vanished because of the wall of capital. When you look at what's happened, I mean, in 2021, there was roughly almost $350 billion in multifamily transactions. And just put it in perspective, gateway markets, the sales were up 8% from the prior year, and in non-gateway markets, they were up 96%. So all the non-gateway markets is where the capital went. So for us, when we started talking, I think last year when we talked about selling down Um, and redistributing these assets talked about perhaps having 100 to 125 basis point negative spread on the cap rates and that's narrow to under 50. That, uh, uh, you know, the, the massive bid for those properties, and there is no discount today in Houston or in, uh. You know, or in D. C. and I think the, uh, the other part of that equation is, you know, when you think about Houston. You know, Houston added 154,000 jobs this year. It's going to add 75,000 jobs next year. 2022 is the year where energy companies are actually hiring, and that has to do with $90 oil. Some people are thinking that oil is going to go to over 100, but So the bottom line is, is that while Houston has not added all of its jobs back from the pre-pandemic level and all of the other cities in Texas have, Houston has gas in its tank. And it is our lower, you know, Houston and DC, while they're the lower growth cities today, you know, they still have the ability to, they have gas in their tank because they haven't been able to, we haven't been able to push them as hard as other cities. And then DC, as Keith mentioned, You know, in our district, we in the district, we have some really significant assets that we cannot raise. We cannot raise renewal rates. So you just have to renew it at the original number. And, you know, so we're you have a lid on the market there. And that's what's driving sort of D.C. to be at the bottom of our growth. But even when you look at a Houston number, I mean, we're we're. In a normal year, I'd be cheering Houston, but the problem is you've got these markets like Tampa and Phoenix that are just out of control good. And so the slowness of Houston makes you feel like it's dragging because, I mean, it is on a fundamental basis, but it's still really good, well above trend for Houston. And I think we have the benefit of more growth there when other markets perhaps start slowing the future.
spk09: Great. That's fantastic, Connor. Appreciate the time and the insights. Thank you.
spk20: Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead.
spk04: Hi, everybody. Thank you. Can you touch on the 2022 expense environment kind of baked into guidance, really in regards to taxes and payroll pressures? It generally seems to be a favorable setup, but any additional color on possible tax rate increases or expectations given that the expenses seem to remain largely in check?
spk17: Yeah, absolutely. So we're anticipating that property taxes are going to be up about three point three percent in 2022. A large component of that is some significant property tax refunds that we've already settled the cases. And so it's just a matter of of receiving the checks to give you an idea. Our total property tax refunds in 2021 was about $2.2 million, and we're expecting about $3.1 million of refunds in 2022. So that's one of the primary drivers of the property tax number being reduced. You know, relatively mild at three point three percent. The other thing I'll point out is that rates in Texas, so both Houston, Austin and Dallas rates came in much lower than we had originally expected for twenty twenty one. And I think that bodes very, very well for twenty twenty two. If you think about the rest of our expense categories, we continue to do a really good job of controlling and being more efficient with our marketing spend. A lot of that is driven by the technological advancements that I've talked about in prior quarters. And we're seeing the same thing on the salary side. If you think about the technological advancements that we've talked about, including installation of Smart access for all entranceways, which not only improves the customer experience, it also provides efficiencies for our maintenance teams. And then most importantly, facilitate self-guided tours. And then we're also improving our sales process through our funnel implementation. uh, which is our sophisticated customer relationship management tool. And then also a marketing automation platform. When you put all of that in place, and then we're also working on AI, uh, that all helps to, uh, sort of counter some of the inflationary expense controls, uh, in 2022 and beyond. So, so that that's really the primary drivers. And that's why we feel pretty good about the 3% number.
spk04: No, that's, that's very helpful. Thank you. Um, So, yeah, in this quarter and last year, the land acquisitions certainly show a commitment to develop even amid rising construction and material labor costs. So are rising rents encouraging enough to further ramp development now? I mean, what yields would you expect on any new starts? Or what yields would you need to make a project to go? You know, especially when you look at apartment cap rates for acquisitions, especially the new stuff you like, you know, are so tight down in the mid to high threes. You know, what development yield kind of makes a project to go? And what's the minimum or what's the tipping point?
spk18: Rick, you're on mute.
spk08: You're on mute.
spk18: The development deals are what we look at as our unlevered IRR over a seven-year period. And when you look at it, so you can talk about it from that perspective. And clearly, you know, the good news is that rental rates have risen faster than construction costs, at least in this cycle, which is pretty amazing. Just to give you some data points, the 600 plus, if you take the 600 million we have under construction plus the 200 million that we've already finalized, We have cap rates, our initial yields on stabilization have actually gone up because of the rise in interest rates or the rise in rental rates to roughly 6%, you know, sort of going in yield. When we look at our pipeline that we have, which is roughly another, you know, billion dollar, billion two, something like that. Most of the sort of average that we're sort of looking at are going to be in the fives, low fives probably, and we haven't really updated the numbers on both cost or the rents in those pro formas. So when you look at cap rates in the low threes and existing yields in the fives, clearly a development is a preferred option when you think about risk reward and the returns that we're making. We have pressed our development people to try to, you know, expand the pipeline. And if you look this year, we're going to, you know, our midpoint is half a billion dollars to start, which will take our pipeline back up to a little over a billion dollars, or at least our construction progress up to a billion dollars.
spk00: It's a really good business right now.
spk18: And, you know, one of the challenges, obviously, is the forward-looking start numbers, and those are also peaking. So, you know, we're long-term holders, obviously, so we can work through those cycles. And, you know, I think it's hard, if you ask me, could we double our pipeline and go from a billion to two billion? Really hard to do. And just give what I mean and just what it takes to get a development done. But, you know, we usually do 300 million a year, and we'll do 500 million this year. And hopefully maybe something like that next year. So at the margins, we're comfortable in that billion, you know, billion, 2.3 range.
spk02: Thank you.
spk20: Our next question comes from Nick Joseph with Citi. Please go ahead.
spk15: Thanks. What's the current loss to lease for the portfolio and then for the 11% increase assumed on new leases? How does that look in the first half of the year versus your expectations in the back half of the year?
spk17: Yeah. So if you look at current loss to lease and there's, you know, as we've talked about in the past, because of dynamic pricing, there's lots of different ways you can sort of slice this number. If you look at all of the new leases that we signed in December and you compare those to the effective leases in place, that would put loss to lease sort of in the 10 to 11 percent range right now. Um, so, so that's sort of where we are. If you think about, um, the way we are anticipating 2022 to sort of roll out, uh, we're anticipating continual, very strong, uh, numbers in, in obviously in the first quarter and then, and then second quarter, third quarter, we get into sort of our peak periods, but we are expecting seasonality, uh, to start kicking in towards the latter part of the third quarter and the fourth quarter. So you'd start to see, uh, start to see a lot of that coming back down.
spk15: Thanks. And then just on rental assistance, I think you had $5.3 million in the third quarter. What was that number in the fourth quarter, and then what is assumed in 2022 guidance?
spk17: Yeah, absolutely. So the $5.3 million in the third quarter, that was total. On a same-store basis for the third quarter, it was $4.2 million. That did increase to $5.1 million in the fourth quarter of 2021. So that gave us, for a same-store basis, about $12.5 million for 2021. And what we've got in our assumptions today is that we're going to recognize about half of that amount in 2022. Thank you very much.
spk02: Mm-hmm.
spk20: Our next question comes from Brad Huffman with RBC. Please go ahead.
spk14: Hey, everyone. Alex, just as a follow-on to that last question about new lease growth, you know, you have the 15% plus number in January, and it seems like you can probably sustain, you know, double digits through the second quarter before the comps get really tough. But just to hit the averages that you talk about, it seems like it would be some sort of, you know, low-mid single-digit, in the second half of the year to hit the averages. So is that the right way to think about it? And is that kind of what we should think about as your expectation for market rent growth from where we are right now?
spk17: Yeah, absolutely. I think that's probably a pretty good way of thinking about it. If you sort of look at December of 2021 to December of 2022, and what do we think market rent growth is going to be over that period? You know, we think it's sort of in the, you know, call it the four to five percent range. And then you've obviously got the loss to lease that we're going to be able to recognize partially throughout the rest of the year.
spk14: Okay, got it. And then on the balance sheet, you know, obviously this quarter you ticked below the bottom end of, you know, your typical 4 to 5X range. I'm curious, for funding needs beyond the dispositions in 22, should we expect that those will come from debt, or do you have a desire to keep the balance sheet maybe cleaner than it would normally be just given the place in the cycle?
spk18: Well, we've always had this stated view that we should have our debt to EBITDA in the 4 to 5% range. We're obviously below that as a result of the equity issuance, but we also have a net acquisitions or a net investment when you take acquisitions minus dispositions plus development spend. So when we execute all that, we'll get that debt to you back into the middle part of the equation. But today it's an interesting time when you look at the ability to to put permanent capital in the books and then deploy that capital into what's a very, very frothy acquisition market. But I've never seen our FFO yield under 3% on our stock price generally before. in my business career. So I think we have a green light to use every source of capital and we will continue to be in that band. And when it's opportunistic for us to issue equity, we will. When it's opportunistic to issue debt, we will, but we'll stay in that band generally.
spk14: Great. Thank you.
spk20: Our next question comes from Neil Malkin with Capital One Securities. Please go ahead.
spk12: Hey, thanks. Good morning, everyone. First question, a little bit bigger picture. So, you know, you guys have a unique insight into sort of the divergence between Sunbelt and coastal to some extent. You know, you have the D.C. and then obviously Southern California. And I'm wondering, you know, I've heard kind of mixed things between some people who have elevated coastal exposure kind of, you know, being, you know, incrementally positive and you know, seeing people return to the office or whenever that happens, maybe in 2025, and, you know, expecting solid growth and sort of almost like a return to, you know, normal in a California market, you know, kind of like a pre-COVID type of thing. But at the same time, you're seeing amazing historic levels of in-migration to your Sunbelt markets and just very strong growth as evidenced, you know, by where you are relative to pre-COVID rent levels. So I'm just wondering if you can kind of give your view on over the next, call it three years, you know, what you see, you know, in terms of job growth, population growth, migration, you know, in the Sunbelt versus, you know, kind of what you're seeing in California. And if you just think, you know, California may be, you know, a little bit impaired, just given the significant outflow of businesses and people. Thanks.
spk06: Yeah. So, you know, we do have a little bit of a unique perspective because we've operated in and the Sunbelt markets for many years now. And I think, I mean, our general view has been that the patterns of migration from coastal markets, in particular California, the Northeast, into the Sunbelt markets that was already in place pre-COVID clearly accelerated during COVID. But our view is that when it all settles back down to a more normal pattern, you're still going to be left with the pre-COVID trends of migration to the Sun Belt for reasons that really don't have anything to do with COVID and the experience, although that clearly was an accelerator. But interestingly enough, in California for 2022, based on our game plan, California is really not going to be a drag on the portfolio in 2022. So there, you know, the job growth that's happening in LA County versus the number of new starts there, you know, puts that particular market in a really good place. Clearly the difference in, and you still have, we still have some, you know, kind of fighting the regulatory construct in California. But we do anticipate that that will improve in 2022. So I think we are going to get some relief. In D.C., our issue in D.C., relative to the balance of the portfolio, as Rick mentioned, is more a D.C. proper experience for us. The metro, there are a couple of outliers in the D.C. metro suburban markets where, you know, there's still some regulatory constructs in place. But they're they're minor in the overall scheme of things. So I think that both of those markets, post-COVID, post-regulatory constructs, are still going to be going through the reset in rent that the rest of America has already, a lot of America is already in the midst of. I don't think they're going to get passed over in the sense of that we're going to come out of this and look back two years from now and there was a reset that didn't include the last 10% up in both California and D.C. in the D.C. metro market. It's just going to come at a different timing. And as Rick mentioned, I mean, it kind of bodes well for us as we roll through 2022 to have two of our larger markets. And then I'd throw Houston in that basket as well because we clearly haven't gotten – we're not going to get the reset all at the same time as we got in our other markets in Houston. So, yes. three of our largest markets that are kind of going through the reset at a different phase than the others. But our view fundamentally hadn't changed about the investment thesis for why we're in California and where we are in California, which is exclusively Southern California. And the D.C. metro market, you know, I think is due for a nice recovery post-COVID.
spk12: But I appreciate the color. And then maybe just, again, on, you know, just thinking about the acquisition side. I mean, obviously putting a lot of capital to work. And, you know, it's great. You know, I'm just curious to see if your underwriting standards have changed, your unlevered IRR targets, you know, have changed. I understand that your cost of capital is at historic levels. Um, but you know, it's just buying at a three cap and, you know, you're kind of uncertain about what the terminal or exit cap rate would be. And, you know, I, so just when you're having those internal discussions, I mean, has anything, you know, changed or have you gotten more bullish on your like sort of a year one through three rent growth assumptions that, that make you comfortable, uh, you know, you know, going in at a, you know, low to mid three cap. Um, and, uh, Yeah, so if you could just maybe expound upon that and if you'd use debt more so to get an even higher positive leverage this year. Thanks.
spk18: Well, I think clearly our cost of capital has gone down, and we do adjust our hurdle rates based on our cost of capital. And it's just a simple model, right? It's your equity cost plus your debt cost and the weighted average cost of capital divided And you compare that to your unlevered IR. So to a couple of points, one being the exit cap rate, and that's always a very tricky number, right? Which is what do you use? And that can be all over the map. We generally try to move that up from our initial acquisition, a number by, you know, 25, 50, something like that. But, you know, that's obviously a crapshoot, you know, what are cap rates and prices going to be in 20, you know, in seven years, right? So, which is our model period. In terms of going in yields, though, when we, underwriting today, I mean, if you go in and we buy a property today, In Phoenix, for example, or only using an example where we actually bought one like in Nashville. So in our original Nashville underwriting, the two properties we bought last year, you know, we had moderate growth and we bought those in May. Right. So we didn't have this big, big wave that sort of happened and we knew it was good markets and we knew that. rents were starting to move up, but we didn't realize they're going to move up as hard and fast as they did. So all of our acquisitions last year are outperforming by a substantial margin of what we thought that they'd be doing. We put in moderate growth through 2021 and forward. And today, our underwriting is a little different because it just depends on where the rent roll is. But we definitely are increasing rents at a faster pace in the first 12 months of of the acquisition today. And then we, then we start backing off of that in 2023. And so we still, we probably, we have better than average growth in 2022 for obvious reasons, better average growth in 2023. And then we start moderating it to long-term historical numbers. And we use, you know, somewhere around three or three and a half percent, depending on where it is. And after that, the numbers generally still work pretty well even when you're going at these low numbers because of low cap rates because of the outsized growth you're going to get in 2022 and 2023. So we're comfortable that we're making good spreads over our long-term weighted average cost of capital and not underwriting so much that we have to have prices go up or cash flows go up dramatically to make those numbers work.
spk12: Okay, great. Thank you, guys. Nice quarter. Thanks.
spk20: Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
spk08: Hey, good morning down there. So a few questions here. First, looking at this year and the rent growth, how much of the rent growth are you getting this year from the burn-off of pre-rent from last year? I'm guessing probably very few of your markets really had material free rent, but maybe D.C. or Southern Cal. Just sort of curious how much of this year's rent growth is coming from just the expiration of free rent in last year's numbers.
spk17: So we don't offer concessions, and so that's not a factor for us.
spk08: Okay. Okay. So then I think it was to Handel's question or Nick's question. The 4% to 5% market rent growth that you're expecting, that's on top of the mark-to-market. So basically, it's all face value on face value rent. Correct. Okay, cool. Second question is on markets. You guys just entered Nashville. The two other markets that would seem to jump out and be nationals would be Salt Lake and San Antonio. So as you guys look on recycling capital from Houston and from D.C., what's the appetite for entering additional new markets?
spk18: Well, we clearly like the markets we're in, otherwise we'd be there. You know, I think today entering a new market, when we entered Nashville, we did it in a pretty big way and we did it early on a relative basis to the big run-up in pricing and run-up in rents, and that was good. You know, those markets are interesting markets long-term. San Antonio has always been kind of an unusual market. We're close to it. It's in Texas. We see it, and we generally have kind of not gone to San Antonio because of the depth of the employment market there. AT&T moved there. It's headquarters. They have a couple other really good things going on, but we we just kind of stayed out of San Antonio because we didn't like the pace of the job market there on an ongoing basis. Salt Lake, we've looked at, we've looked at other markets, smaller markets like Boise and Charleston. And we just think that our markets today are, you know, we've got enough to say grace over and we have enough underrepresented markets where we don't really need to get into other markets. That being said, you know, we did enter Nashville and, you know, there's, There's clearly a – we follow these markets and try to decide whether we're going to allocate capital there, but we have enough places to allocate capital without going to new markets right now.
spk02: Okay. Thank you.
spk20: Our next question comes from John Kim with BMO Capital Markets. Please go ahead. Good morning.
spk10: Good morning. I wanted to follow up on your update of loss to lease, which Alex mentioned is 10 to 11 percent now versus 16 percent just a few months ago. But if only 20 to 25 percent of your leases rolled in the fourth quarter and all of those went directly to market, which I think those are pretty aggressive assumptions, shouldn't that figure be at least 12 percent, maybe as high as 12.8 percent versus the 10 to 11?
spk17: Yeah, and that's why I was trying to make a differentiation between if you think about the dynamic pricing, right? So our pricing is changing every single day. And if you take a sort of a snapshot at the end of the quarter, right, and you say this is our asking price as compared to our effective rents, then you're going to come up with a different number. What I was telling you is that if you actually look at the leases that we've signed during the month of December and you compare those to the effective rents, that's where you're going to come up with sort of this 10% to 11% level. So it's two different ways of looking at it. If you just look at it based upon the pure asking rents, yeah, that's going to be about a 13% number. Right. But but as we know, with dynamic pricing, that there is a typical or there is a tendency, whereas pricing is sort of ticking along and then it'll drop. And then we sign a good amount of our leases at that little drop and then I'll go back up. And so really two different ways to look at loss to lease. I think that the that the sort of 10 to 11 percent is probably a. probably a better way to look at it in an environment like this. In a typical environment where you're sort of talking about, you know, three to four percent loss to lease is not as dramatic, but clearly when we're here with unprecedented new lease and renewal increases, I think it's important that you look at it both ways.
spk10: Okay, I get that, but at the same time, the market rents four-year markets probably didn't see that much seasonality, I'm guessing. So I would have thought that would have been a further support for that number being higher.
spk17: You know, we certainly did see some seasonality, and you can see that if you look at the effective versus the sign. So we did see some seasonality, particularly in the month of December. But, yeah, so that's the math, and that's how our numbers are working out.
spk18: You know, the seasonality we had this year was interesting because we you know, usually you're dropping rents pretty dramatically from the third quarter, second quarter, third quarter, fourth quarter. What happened here is we had a slight decrease in the slight negative second derivative, but still a very robust number that, that you, you know, if you go back probably 10 years, you wouldn't see the number, the, the, The amount of rental increases they were getting in that fourth quarter, you just wouldn't see it like that. So the seasonality this year was very, it was like a really slow and not dramatic at all in any major market, which is usually not the case. What's happened is you just had more people coming into the market and more demand in the market, which kept occupancies high. and where we didn't have to drop rents or lower renewals during this period dramatically to keep market share and to keep occupancy up. And that's just the equation where you just have a whole lot more demand for multifamily than you have supply. And it just created a very, very, very slight seasonality, but generally not like we normally have.
spk10: Right. Okay. And Rick, you mentioned what development expectations are in IRRs on development starts. You had one development at eight and three-quarter stabilized yields coming in this period. What should we be modeling for the existing pipeline, just given how much rents have come up in the last 12 months?
spk18: Well, the existing pipeline, without remodeling it, was sort of in the mid-fives. It's probably going to be better than that. It's just one of those things where we haven't really remodeled all of our pipeline development deals at this point with new rents. but also we haven't remodeled them with new costs either. So, you know, we'll do, I think the development yields will be higher than we originally projected, but it's hard to tell right now. And especially when you're talking about initial occupancies, I'm looking at my pipeline report right now and our initial occupancies on our pipeline are into second quarter, you know, first quarter through the third quarter of 2024. So for us to kind of try to model that today is, We're just not going to do that yet. But the bottom line is that it looks like this development pipeline will be a pretty robust and good pipeline.
spk17: And that's the pipeline of communities that we haven't started. If you think about the ones that we have started, we're looking at yields north of 6% there on average.
spk10: So that $8.75, that was truly a one-off, or could there be others north of 7%?
spk18: We have another one that hit over 7% in Phoenix, but most of them are in the sixes, mid-sixes to high fives. Some of the ones, for example, when you think about real urban properties or California properties, those generally tend to be in the, when we underwrote them originally, they were in the low fives, five-ish, and definitely we're going to be better than that on those, but And getting the outliers like the eights and the sevens, hard to do that in this environment. But, you know, given where cap rates are, you know, if you think about it, you're producing a 6% or a six and a half and you have a three and a quarter cap rate. I mean, you talk about some creation of value there. It's pretty amazing. The development margins are, probably at the highest level I've ever seen them. And I said that probably in 2010 and 11, but these are higher today because cap rates have compressed so much.
spk02: Thank you.
spk20: Our next question comes from Austin Warsh with KeyBank. Please go ahead.
spk05: Hey, guys. Thank you for the time here. Just curious what the rates are on your renewal leases that are going out into February and March. Mid-14s. Mid-14s? Great. Thank you. And then you talked about some of the technological advancements and the savings that you're getting in your operating expenses. Can you give us a sense what the total amount
spk17: breakdown of that is um that that you have left to capture um over the next few years yeah i would tell you that we're really on the forefront of this um and and ultimately we expect the efficiencies to continue through 2022 and really really take hold in 2023 and beyond it's um Obviously, the trend that we're all moving towards is self-guided tours. And as I said, when we rolled out our Smart Access solution, which is what you must have in order to effectively do self-guided tours, I think I think that's going to be a big driver as we go forward, especially if we can start adding wayfinding, which is going to be the sort of the next thing that we're all working towards. And then I think our virtual leasing agent, which we're in the process of building out right now, I think is going to create some real significant efficiencies as we go forward. So really excited about where we are today, but even more excited about where we're going to be, as I said, the latter part of 2022 into 2023 and beyond.
spk05: Could you quantify how big that savings potential is or NOI creation, however you guys are looking at it, to give us a sense of how that could play out in years to come?
spk17: Stay tuned, and we will continue to, as we flesh this out, give you guys better information around the actual dollar amounts. But I will tell you, I think we're all very well aware that we are operating in a very inflationary timeframe right now, and we're coming out with expense growth at 3%. So you can start to see that we're already capturing quite a bit.
spk06: All right. Thanks, Alex.
spk02: We'll get more clarity on that in the next quarter call. Our next question comes from Joshua Dennerling with Bank of America.
spk20: Please go ahead.
spk07: Yeah. Hey, guys. I guess I was, I mean, could you walk us through the assumptions that get us to the low end of your guidance? I guess I was particularly focused on kind of the rate assumptions you're assuming to get there.
spk17: Yeah, here's what I would tell you. It's probably a little bit different. If I think about the factors that could cause us to be below the midpoint, one of the big ones is bad debt and is ERAP, right? We talked about that we had $12 million debt. or $12.5 million of ERAP in 2021, and then we're anticipating about half of that in 2022. Obviously, that's a very variable item, right? And that's something that we're very focused on. The other thing I'll tell you is that, you know, we took our occupancy down to 96.5% from 96.9% in 2021. And so, you know, we'll watch that very closely. And then really the third factor is, is how does the third and fourth quarter shake out? I mean, there are certainly, you know, obviously we feel very, very, very good about our business, but, but there are things out there that we're all watching, which are more on the macro side. And we'll have to see how that affects the third and fourth quarters.
spk02: Okay. That makes sense. Yeah.
spk06: I would add one to that, which is we still do have these regulatory impediments in California and then D.C. proper and a little bit in, you know, suburban D.C. markets where we've made some reasonable estimates of when things return to normal, and by that means You know, can you evict people who haven't paid rent for two and a half years? Are there rental controls in place or renewal caps in place? And we do believe that we're heading towards improvements and some of these things that are going to be taken off the table as far as impediments to running our business. But, you know, it doesn't take, you know, what does it take in today's environment for policymakers who have been kind of behind the the curve on adapting to the pandemic is an endemic versus, you know, you get the first hint of the new variant and it just seems like all bets are off and they retreat to the lowest common denominator of, you know, start talking about lockdowns again. So, I would just add that to Alex's list of, you know, kind of what's out there that could be different and, you know, create headwinds for where we are in our portfolio.
spk07: Got it. One follow-up to that on the occupancy, that moderation you're factoring in, what's driving that? Is that just conservatism and what you kind of normally see when occupancy is this high, or is there something more specific that you're seeing?
spk17: Well, we don't normally see occupancy this high, so I'll point that out in the first place. We're on record levels of occupancy, and obviously that's one of the things that we're watching closely, and we are looking at our yield management software to make sure that as occupancy gets to these type of levels that we are pushing rents, and the natural effect of that is that you would expect to see occupancy sort of curtail a little bit.
spk06: We've been doing this for 40 years, and 96 and a half doesn't feel conservative to me.
spk07: Yeah, begs the question, where do all these people come from?
spk18: It's an interesting thing, because when you think about the demand, it has come, people came out of the woodwork, right? And I think what they did is, when you think about this, is that in the pandemic, there were like a million millennials that were missing from the market. And a lot of those folks were still living at home or their roommate scenarios and formed households. But then if you think about what happened then with the pandemic, so everybody potted up, you had more people that were potted up during the, during the, during the pandemic. And then once it started releasing, those folks had jobs, number one, number two, they, they probably got raises because of the, of the issues with, with, you know, with that, that are facing employers today. And they got, Checks from the government, massive stimulus checks. So when you think about it, you had, by the end of last year, I think there were $2.7 trillion of excess savings. Now we have about $2 trillion of excess savings. So if you were potted up and you have weariness from COVID and being around the people that you've been around for so long, you go out and form a household and rent an apartment because you got plenty of money in your pocket, you got a job and life is good. And all of a sudden this massive demand came out as a result of opening up, and especially in our markets now, you didn't have that happen in California or New York as fast as it did in Texas and Florida. But I think you just had a lot of people who didn't have the funds pre-COVID, but have them now because of the tightness of the labor force and the massive government stimulus.
spk02: Got it. Thank you. Sure.
spk20: Our next question comes from John Polosky with Green Street. Please go ahead.
spk16: Hey, thanks for keeping the call going. Keith, can you give me a few details on how the team sets the boundaries of the bands for the letter grades and the outlook? There's pretty big disparities between job and completion ratios. You take a look at Atlanta at nine jobs per unit delivered. You take a look at Austin, sub three, yet they're the same.
spk06: grade and the same outlook so any additional commentary would be great yeah the primary driver john is first of all we're only looking at one year out we're looking for the forecast year and if i were given three year or you know letter grades they would probably move around somewhat but the uh the primary driver is just looking at revenue growth that's uh that's in our forecast model and so if you if you you either have to grade on a curve which i don't do, and I didn't do as a 22-year-old graduate assistant teaching cost accounting at the University of Texas. So I'm not going to change now. I don't grade with a curve. And when the lowest revenue growth in your entire portfolio for the year forecast is DC at 4 and change, which in any year, in any given year, you would say that's clearly an A, because it's a B plus at worst, but an A minus certainly. And then you go up from there to Houston at a six and a half, and while it sort of pales in comparison to our portfolio wide average, again, six and a half for Houston, that's a solid A in my book and always will be. So it's not, you're right, the disparity on the, there's quite a bit of disparity on the ratio for the year, but honestly, that tends to not, that ratio tends to not swing things around in the forecast period because all that stuff gets delivered over, you know, 12 months and there's sub-market, you know, where is it being built and all those things. And our bottom-up budget process assumes that, you know, we know exactly what's going to be delivered in our sub-markets. We take that into consideration as we do our revenue growth forecast. So I still look at them and say, you know, every student in this class is an A student this year.
spk16: Okay, that helps. One final one for me. D.C., around 4% revenue growth. Could you give us a sense of what it would have been had regulation curbs been gone on January 1? I'm just trying to understand the kind of structural earning power of D.C.
spk02: right now.
spk06: So if you look at – I'm going to use the forward-looking – construct as a model of what the past year was. In the past year, we think in D.C., it affected our overall results portfolio-wide at about 40 basis points. It's not a huge thing. Going forward, we do expect that we will see some relief in 2022 in D.C. proper and probably in the suburban markets as well. We've got that our thinking process is maybe somewhere around mid-year you get the beginnings of a return to normal. But that's, again, like I said, that's crystal balling to a certain extent, and there's always the possibility that you get some new stealth variant that people get freaked out about and retreat to the old habits. But Yeah, it's not a huge deal on our portfolio. It wasn't last year, and it wouldn't be in a reasonable scenario in 2022. Okay. Thank you for your time.
spk02: Yeah.
spk20: Our next question comes from Chandlee Luthery with Goldman Sachs. Please go ahead.
spk03: Hi. Good afternoon. and thank you for keeping this call going. So most of my questions have been answered, but your peer yesterday talked about seeing or expecting to see more opportunity for acquiring stabilized properties potentially later in this year. What are your thoughts around that? Are you seeing similar situations developing, and how will you approach, will you be aggressive if the opportunity presents, just trying to how would you approach that?
spk18: Sure. Well, I don't think that based on what we've been through, at least if a year progresses the way we think it will, I don't think they'll be, I think you're going to have a competitive acquisition market. I don't think that's going to change. I guess it sort of depends on what the Fed does, right? If the Fed gets ahead of itself and all of a sudden people are starting to forecast an economic slowdown because they are moving too fast and And people worry about recession and rates go up really fast. And you start worrying about that underlying economic activity. Maybe you'll have some softness in acquisitions. But right now, if they moderate interest rates and interest rates start going up, there's still a wall of capital and there's still great supply and demand dynamics and You know, when you think about pricing of real estate or any sort of asset, it's really about liquidity. And there's massive liquidity still in the market. And the Fed's not going to just remove the liquidity day one. And then the second biggest issue is supply and demand when you think about pricing. And so liquidity is not going away and supply and demand is great. And so, you know, then you start thinking about inflation issues and then ultimately inflation. you know, interest rates. And so I think I don't see an opportunity for, you know, for rising cap rates or better pricing for multifamily assets, you know, this year. We will get our fair share, you know, when there's a $300 billion of transactions, you know, we can eke out a few in our little, you know, corner of the world. So I think that we'll still be able to buy properties, but I think it's going to be, You know, a slugfest for sure.
spk03: Understood. And, you know, migration has sort of been a tremendous deal for the Sunbelt, obviously through 2020 and then 2021 was perhaps just as robust. As we think about 2022, do you see any signs of reversal yet? I mean, I understand that, you know, two years is a long time and lives and habits form and things become permanent from temporary. But any signs that, you know, as we are in the endemic stages of this virus, perhaps those who moved from the coastal regions are now maybe thinking about, you know, moving back?
spk18: You know, it's interesting. If you look at from 2017 to 2020, Florida, the two largest markets that had in-migration domestically were Florida and Texas. And in one, Florida had 100,000 more people go to Florida versus the average for 17 through 20. Same thing in Texas. We had a little less, 75,000 people came in from domestic migration. And the two states that lost the most were New York and California. So this out-migration of those high-cost, highly regulated markets has been going on for, as Keith mentioned earlier, and what happened during the pandemic is people moved because the other markets were open, right? I mean, you could go to a restaurant, you know, in Texas or in Florida and And so that when you think about that part of the equation, I don't think you're going to have a, most economists don't think you're going to have, okay, we're going to run back to California or New York because we, you know, moved because they're sitting down, you know, buying houses and leasing apartments and, And they don't really need to be in a specific place to do their job yet because of the office situation. So I think we probably don't have the big peak or the big spike if we are out of the pandemic. But it just will continue in its normal pattern, which is people want to be in a place with less regulation and lower housing prices and good weather and And that's just, that's what's been driving the Sunbelt, you know, for the last 20 years. And, and, and clearly the, I agree with Keith when he made the comment that California and New York are not going away. I mean, there's still big, large economies and people love to live there and they'll still live there, but at the margins, you're going to have the cost forces people out and the businesses, you know, move. And, and, and so that's going to, I think that's going to keep happening, but, that doesn't mean that they're not going to do well long-term because they have plenty of other, you know, in-migration from immigrants and just natural births that are actually losing population generally.
spk17: In our portfolio in the fourth quarter of 21, 20.4% of all of our new leases in our Sunbelt were from people outside of the Sunbelt. And that is a 430 basis point increase year over year. So to Rick's point, we're clearly seeing it in our portfolio and we're seeing it continue to accelerate.
spk03: Oh, that's remarkable. Thank you for that color.
spk20: Our next question comes from Anthony Powell with Barclays. Please go ahead.
spk01: Hi, good afternoon. It's a question on, I guess, housing affordability in your markets. How do you see the rise in rates impacting the rent versus buying, I guess, calculation in your markets? And we're seeing a lot of capital flow into rent-to-own, I guess, startups and schemes in a lot of your markets. How do you expect that development to maybe impact that decision over the long run?
spk18: Affordability still remains really good in our portfolio. Even with rents going up as much as they are, you have to look at it on a relative basis. If you average it over a three-year period, since we didn't raise rents in 2020, and rents only went up 4%-ish in 2021 for the whole year, you're talking about a 4.5%, 5% rental increase over a three-year period with these big rent increases. It's not like people are going up from... That is just higher and higher and higher, and they're having problems paying. Plus, wages have gone up. So our markets still are very affordable when you look at actual rents relative to incomes. The other piece of the piece of the equation on single family rentals. So single family rentals are, I think it's a really interesting market. And clearly the public companies have proven that that single family rental is a real thing. And they figured out how to run it, which is really good. You think about what somebody goes, when someone moves to a single family rental, the average square footage is 2000 square feet compared to a 950 square foot average apartment that Camden has. They tend to be more suburban rather than urban. They tend to be. So most people, when you think about buying a house or leasing a house, they're doing it for not capital money reasons. They're doing it for social reasons. They need more space. They they have kids or they have. You know, they just need more space. And so with that said, we've never had a, you know, where you say, well, it's a house in the Houston suburbs and it is in the urban core, which it is. I mean, if you are leasing in downtown Houston or midtown, you can go out 30 miles out of downtown and buy a house and have an occupancy cost that's lower than your rent substantially. And, but people don't do that because they want to be in the urban core and they're not married. They have average, don't have kids. And, uh, and so you have this, it's really not, uh, uh, because I can go rent a house or buy a house. That's not the diamond and the money side of it, whether it's affordable or not, it's really not what drives the people to go do that. What drives them is their social position. They're older, they have kids, they need more space, that kind of thing. So, uh, That really hasn't hurt our market, obviously, because we still have more demand than we have supply, and our occupancies are 97%. In Houston, they're 96% and some change, yet you can go out and buy a house in the suburbs for a lot less than you pay for rent in the urban core.
spk01: Got it. So it sounds like, you know, you're not looking to get into the adjacent space as far yourself over the time you're pretty content with, you know, focusing on multifamily.
spk18: I think it's an interesting space and we've looked at it, you know, a lot. And it is a to me, there's it's just another niche. Right. And the question of. whether we would get into a big, you know, we, we tested things like, for example, we tested independent living and we decided once we, you know, did a couple of independent living deals that, that the, the cycle and the market was very different than our normal than, than just a market rate apartment project. So we decided that we, we wouldn't expand that and we're going to dabble in single family and see how we, how we like it. We think it's an interesting model because, It's really just another segment. And as long as we can operate it efficiently the way we operate our apartments, then it might be a nice growth area, you know, over some period of time. Got it. Great. Thank you. Sure.
spk02: I think we're – any other questions in the queue?
spk18: I think we are – that was the last one. Great. Well, we appreciate your time and we'll see some of you in South Florida. And so take care and we'll talk to you next time. Thanks.
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