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spk00: Good morning and welcome to Camden Property Trust's first quarter 2022 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. Today's event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks, and those slides will also be available on our website later today or by email upon request. If you are joining us by phone and need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward. And please note, this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements 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 first quarter 2022 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.
spk12: Thanks, Kim. The theme for our music today was Fools, as in April Fools. Since our IPO 29 years ago, April 1st 2022 was one of the most consequential days in Camden's history. The day began with Kim Callahan telling us that Camden was being included in the S&P 500. At first, we just assumed Kim was attempting one of the lamest April Fool's jokes in history, but Kim has never been a big jokester. Later that same day, we closed on our largest acquisition since the Summit merger in 2005 with the purchase of Texas Teachers Partnership Interest in 22 Camden Communities with a gross valuation of $2.1 billion. And finally, April 1st was the day that Camden completed the implementation of our Work Reimagined initiative, a comprehensive restructuring of how we staff, manage, and support our Camden communities. Alex will provide more details on this initiative in his comments. Any one of these events would have been a big deal for Camden. The fact that all three happened on April Fool's Day was extraordinary, and that's no joke. I want to give a big shout out to our teams in the field for continuing to outperform our competitors while improving the lives of our team members and our customers, one experience at a time. I'd also like to give a big shout out to our real estate investments, finance, legal, and asset management groups, along with our accounting group, for their amazing work in completion of the acquisition and the permanent financing for the Texas Teachers Transaction. Truly a team effort. Keith is up next. Thanks.
spk07: Thanks, Rick. Now a few details on our first quarter 2022 operating results and April trends. Same property revenue growth exceeded our expectations at 11.1%, the best quarterly growth in our company's history. Twelve of our 14 markets posted double-digit revenue growth in the quarter, with Tampa, Phoenix, and Southeast Florida showing the strongest results. Given this outperformance and an improved outlook for the remainder of the year, we have increased our 2022 full-year revenue growth projection from 8.75% to 10.25% at the midpoint of our guidance range. Rental rates for the first quarter had signed new leases up 15.8%, renewals up 13.2%, for a blended rate of 14.4%. Our preliminary April results are also trending at 14.4% for blended growth, with new leases at 14.7% and renewals at 14.1%. Renewal offers for May and June were sent out at an average increase of 14.4%. Occupancy averaged 97.1% during the first quarter of 2022, which matched our performance last quarter and compared to 95.9% in the first quarter of 2021. April 2022 occupancy is trending at 96.9% to date. Net turnover for the first quarter of 2022 was 36% versus 35% last year, and move-outs to purchase homes dropped to 14.1% for the quarter versus 15.8% last quarter, in line with normal seasonal patterns we typically see from 4Q to 1Q of each year. Move-outs to purchase homes remain well below normal for our portfolio. Finally, I want to acknowledge all of Team Camden for recently being named to Fortune's list of 100 best companies to work for. This year marks our 15th consecutive year on this prestigious list. Camden is one of only five companies included in the S&P 500 and also named to Fortune's list for the last 15 years. Rarified error indeed. Next up is Alex Jesset, Camden's Chief Financial Officer.
spk13: Thanks, Keith, and certainly rarefied air. Before I move on to our financial results and guidance, a brief update on our recent real estate and finance activities. During the first quarter of 2022, we stabilized Camden Lake Eola, a 360-unit, $125 million new development in Orlando. We disposed of a 245-unit community in Largo, Maryland for $72 million and and we acquired a 16-acre land parcel in Richmond, Texas for future development purposes. Subsequent to quarter end, we acquired for future development 43 acres of land comprised of two undeveloped parcels in Charlotte, and we purchased the remaining 68.7% ownership interest in our two joint venture funds for approximately $1.5 billion, inclusive of the assumption of debt. The assets involved in this fund transaction include 22 multifamily communities with 7,247 apartment homes with an average age of 12 years, primarily located in the Sunbelt markets across Camden's portfolio. We expect this acquisition will provide an initial FFO yield of approximately 4.4%. As a result of this transaction, as detailed on page 10 of the supplemental package, the expected net operating income Contribution from markets including Houston, Austin, Dallas, and Tampa will increase slightly, while the remainder of Camden's markets will reflect flat to slightly lower concentrations. This transaction allowed us to fully acquire a very attractive portfolio of assets with no execution or integration risks. We initially funded this transaction with cash on hand, which included $500 million drawn on our unsecured $900 million line of credit. We are also now consolidating approximately $514 million of existing secured mortgage debt of the funds. Subsequent to quarter end, we issued 2.9 million common shares and received $490.3 million of net proceeds, which we used to pay down our line of credit. As of today, we have approximately $70 million outstanding under our line. At quarter end, we had $182 million left to spend over the next three years under our existing development pipeline, and we have no scheduled debt maturities until September 30th of this year. Our balance sheet remains strong, with net debt to EBITDA for the second quarter of 2022 anticipated to be at 4.4 times. Last night, we reported funds from operations for the first quarter of 2022 of $160.5 million in or $1.50 per share, 3 cents above the midpoint of our prior guidance range of $1.45 to $1.49. The 3 cent per share variance to the midpoint of our prior quarterly FFO guidance resulted primarily from approximately 2.5 cents from higher occupancy, lower bad debt, and higher rental rates for our same store and non-same store portfolio, and 1 cent from an unbudgeted earn out received from the sale of our CHRP investment completed in 2021. This 3.5 cent cumulative outperformance was partially offset by a half a cent in higher property insurance expense, resulting from higher than expected levels of self-insured losses. Last night, based upon our year-to-date operating performance, our April 2022 new lease and renewal rates, and our expectations for the remainder of the year, we have increased the midpoint of our full-year revenue growth from 8.75% to 10.25%. Our revised revenue growth midpoint of 10.25% is based upon an anticipated 12% average increase in new leases and an 8% average increase in renewals. We are also anticipating that our occupancy for the remainder of the year will average 96.6%, up 20 basis points from our original budget for the same period. Additionally, we have increased the midpoint of our same-store expense growth from 3% to 4.2%. This increase results from the expectations of higher than anticipated insurance costs, property tax expenses resulting from higher initial valuations in Dallas and Austin, and bonus accruals related to our increased full-year revenue guidance. As a result, the midpoint of our 2022 same-store NOI guidance has been adjusted from 12% to 13.75%. At the end of the first quarter, we implemented our Work Reimagined initiative, which redesigned the way we conduct business in our property operations. The primary objective of this initiative is to deliver exceptional customer service, focus on leasing apartments, leverage the strengths of our teams, and create operational efficiencies. To do this, we shifted our operations model to expand from one community serving our prospects and residents to two or more communities being joined or nested together with shared leadership to support our customers. Additionally, we identified processes that could be automated or centralized and created a shared service division to streamline the execution of tasks. such as invoicing, delinquency management, and renewal initiation, to name a few. This allows Camden team members at each community to better support the leasing process, as well as to focus on the customer experience. We anticipate that this program, which was previously budgeted for, will save us approximately $1 million in 2022 on a net basis after accounting for severance payments, which were budgeted for and made in the first quarter. On a full-year stabilized basis, our savings should approximate $4 to $5 million. Last night, we also increased the midpoint of our full-year 2022 FFO guidance by $0.27 per share for a new midpoint of $6.51 per share. This $0.27 per share increase resulted primarily from an approximate $0.18 increase related to our acquisition of the fund assets comprised of the following components. A 67-cent increase from consolidating the NOI from the two fund portfolios. A 7-cent increase from the non-cash amortization of net below market leases assumed in the acquisition. Purchase price accounting requires us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term which is approximately seven months. If the leases were above market, the amortization would have resulted in an FFO reduction over the remaining lease term. A $0.21 decrease in equity and income of joint ventures and property and asset management fees. A $0.14 decrease due to the assumption of approximately $514 million in existing secure debt, which has a current average interest rate of 3.3%. 36% of this debt floats at LIBOR plus 185 basis points and the remaining 64% is fixed at 3.9%. A 14 cent decrease related to additional shares issued to fund the transaction and a 7 cent decrease from the removal of any future acquisitions from our 2022 guidance. Although our revised guidance does not include additional acquisitions this year, we will continue to look for opportunities to make accretive investments. Our revised guidance still includes another $200 million of dispositions by year-end. In addition to the 18-cent anticipated increase in FFO related to the fund acquisitions, we are also anticipating an approximate 11-cent increase from our revised same-store NOI guidance and a 1-cent increase from the first quarter unbudgeted earn-out received from the sale of our CHRP investment. This 30-cent cumulative increase in FFO per share is partially offset by 2 cents of higher overhead expenses related to our anticipated outperformance versus our original budget and 1 cent of additional interest expense due to higher projected interest rates on our variable rate debt. We also provided earnings guidance for the second quarter of 2022. We expect FFO per share for the second quarter to be within the range of $1.60 to $1.64. The midpoint of $1.62 represents a 12 cent per share increase from the $1.50 recorded in the first quarter. This increase is primarily the result of an approximate 9 cent increase related to our acquisition of the fund assets comprised of a 22 cent increase from consolidating the NOI from the two fund portfolios, a 3 cent increase from the non-cash amortization of net below market leases assumed in the acquisition, a $0.07 decrease in equity and income of joint ventures and property and asset management fees, a $0.04 decrease due to the assumption of approximately $514 million in existing secure debt, and a $0.05 decrease related to additional shares issued to fund the transaction. We are also now anticipating an approximate $0.04 sequential increase in same-store NOI resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of certain repair and maintenance expenses, expected increases from our May insurance renewal, and a sequential increase in property tax expense due to higher refunds received in the first quarter. A one-cent sequential increase related to additional NOI from development communities and lease-ups, a one-cent decrease from unbudgeted earn-out received from the sale of our CHRP investment in the first quarter, a half-cent decrease from the sale of Camden Largo at the end of the first quarter, and a half-cent decrease from higher second quarter G&A as a result of the timing of various public company fees. At this time, we'll open the call up to questions.
spk17: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your hands 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 will come from Nick Joseph with Citi.
spk16: You may now go ahead. Thank you. Can you walk through the conversations with your JV partner of how the deal came about and then also how valuation was calculated?
spk12: Sure. We have ongoing conversations with our JV partner and we were talking about valuations and ultimate disposition of the pool of assets. The actual sort of finalized date in the pool was to sell assets by 2026. So we had a four year kind of window. And it made sense, we thought, we think, to go ahead and buy that portfolio. We had a meeting of the minds. They wanted to exit over the next four years. We figured that it'd be a pretty interesting way to create value for us long term by doing that immediately. The valuation metric was we had just completed an appraisal of the portfolio in December. And then what we did is we took... took sort of values that were pretty evident in the market, kind of averaged them together, and then negotiated a fair price for both parties. So it was a very positive transaction for them. The fact that they put $300 million in and took out $1.5 billion worth of cash through the holding period and had an IR way above 20% on their capital was a pretty positive transaction for the teachers of Texas, and from our perspective, it allows us to be more efficient in our portfolio by acquiring those assets. The other part of the equation I think is really interesting about those assets is that they're primarily suburban, and so it helps us with our suburban portfolio. Suburban continues to outperform urban generally, and we just think it's a great transaction for both parties. Thanks.
spk16: That's very helpful. And then maybe just what are you seeing in the transaction markets today, just given the rise in interest rates?
spk12: Transaction markets still very, very buoyant. You know, clearly the 10-year going up 100-plus basis points in three or four weeks has definitely got people, you know, kind of head scratch and thinking about, you know, what pricing ought to be. You know, I would say that the – the acquisition market for leveraged buyers has definitely taken a pause. The value add space, which we don't really play in, but that has definitely taken a pause. But when you think about core assets or core plus assets in the multifamily space that are being acquired by long-term holders for cash, that part of the market hasn't changed at all. And there's definitely very aggressive bids continuing for that. So, you know, we'll see when you think about sort of any asset value, you know, it's driven by four things in this order, liquidity in the marketplace, which there's massive liquidity, supply and demand fundamentals, which, you know, you can't argue about that in the multifamily space today. And then inflation expectations, which we all know are going up. And then ultimately interest rates. So I think at the margin, some leveraged buyers are definitely having to rethink their underwriting. But most institutional buyers like us are just kind of looking at it as a, you know, it hasn't really changed pricing from that perspective.
spk09: Thank you.
spk17: Our next question is, We'll go from Eric Johnson with Deutsche Bank. You may now go ahead.
spk14: Hi, everybody. Good morning, and thank you. Yeah, let's just stick on that and this rigid cap rate environment. And I think you mentioned the tight versus historical levels on the cap rate spread to the 10-year Treasury. So what's keeping you from accelerating dispos in perhaps D.C. or some other markets?
spk12: Well, nothing really. I mean, we have a budget this year of a couple hundred million dollars of sales. We usually do those at the end of the year, primarily because we like to keep the cash flow as long as we can in the current year. But we have a methodical disposition and acquisition program, and we're going to continue to execute that. If you think about the last 10 years, we have sold $3.4 billion of assets with an average age of 23 years, and we have acquired $3.5 billion with an average age of of four years, maybe with the exception of the fund, which was actually 12 years. So we're going to continue to be involved in the market, and it makes sense. If you think about all our dispositions we've done, I mean, all the low-hanging fruit from a disposition perspective from Camden has been done, and we love our markets. We like where they're operating, and And, you know, at the margins, we'll sell some assets and reallocate capital. As we talked about in the past, we will be continuing to lower our exposure in D.C. and Houston, primarily through organic growth, but also through some pruning of the portfolio in those markets as well.
spk14: Okay, thank you. Appreciate that. And then you guys have, I think, 390 million in unsecured debt maturities this year. Clearly, you have one of the best balance sheets amidst all REITs. But when it comes to refinancing, can you kind of speak to, when you talk to your bankers, how the rate environment looks and what that might look like versus previous rates?
spk13: Absolutely. So we've got about $350 million of debt that comes due December the 15th, and that debt is at 3.15%. The way in our model that we plan on paying for it is the couple hundred million dollars of dispositions at the end of the year that Rick mentioned. But if you think about overall rates for us, the indicatives that we have right now are right around $1. call it 4.1%. And to give you an idea, you know, probably about six, seven weeks ago, that number was sub 3%. So pretty, pretty aggressive acceleration on rates.
spk04: Thank you. That's very helpful. That's it for me.
spk17: Our next question will come from Neil Malkin with Capital One Securities. You may now go ahead.
spk02: Thanks, guys. Another great quarter. First one, you touched on it, I think, Alex, about the way that you're staffing and serving the communities. Can you just give some more color on that? It kind of seems like everyone are just, you know, your peers are, you know, shifting to like the next generation of sort of operations. You know, again, just if you could give some examples or sort of it sounds like you're potting your sort of clusters of assets to reduce, you know, your OpEx load. If you can just give some, you know, elaborate on that, you know, kind of how you see that going forward over the next 24 months, that would be great. Thanks.
spk07: Yeah, sure. I'll just give you a little bit of detail about the – we call it nesting – hummingbirds, right? So some people call it potting, but the geography of our portfolio is pretty unique in that respect. Our approach probably, you know, it's very unique to Camden because of our geography. So within our 170 plus or minus communities, after this reformation of reporting responsibilities and duties into NESS, we end up with about 46 communities that are still standalone, single community manager communities. And then we end up with about 76 that are nested in a pair of two. And we have 39 communities that are in groups of three. And that's really just based on geography and being able to staff those communities in a way that the on-site staff becomes interchangeable with regard to where the need is for whether it's maintenance personnel or leasing personnel. So that's kind of the geography of it. Again, driven a lot by the way our portfolio lays out and the ability to be close enough to a sister community to make that work. When we started out, and there are going to be all different permutations of this, everybody's going to end up with an approach that works kind of for their grouping of assets and their geography. But when we started out, We didn't have a stacking in mind. What we were trying to accomplish is really two things regarding our on-site teams. One is one of the biggest challenges that historically of the single asset community manager, assistant manager, leasing, and outside staff. is that you just don't have the the ability to you don't have the promotion ability and the growth opportunity for those folks because they're sort of in this single line stack that's that's one challenge is we're providing additional growth opportunities by having new new positions the sales uh leader position and then the operations analyst position that people can migrate to over time as their experience increases. So that was a driving influence for us is to come up with a better mousetrap to provide for growth opportunities. But the second thing was that you always have, if you have single community in this linear community manager, assistant manager, outside staff, inside staff, you end up with a situation where your skill sets are not properly aligned in many cases. You end up with people who are naturally inclined to sales positions as a leasing consultant, the next logical and really only move in most cases for them to advance was to become an assistant manager. And assistant manager has, in some cases, they have some sales duties, but in a lot of cases, it's very much an administrative support role. And honestly, our best salespeople are generally not our best administrative tasking people. And so that was just an inherent shortcoming of not being able to leverage people's strengths because of the structure that we were bound to by having this single community linear approach. So that was the second really driving influence for us is to get people matched up to where their natural strengths are and then provide more opportunities for growth within that hierarchy. So I hope that explains a little bit about our philosophy.
spk02: Yeah, no, that's great. Thank you. Other one for me is related to I guess, you know, renewals. Yeah, I think renewals are, I think, across the board, I think, stronger compared to, you know, what management teams and what we thought, you know, would kind of, you know, look like. Obviously, you know, the turnover is historically low. And, you know, because you don't push as hard on those versus new leases, you have quite a bit of loss to lease built up. And so I'm just wondering, you know, I would like you to discuss how you think about renewals, you know, through 22 and even into 23, just given the, you know, sort of low turnover environment, people willing to take these prices, you know, how do you think that's stacked up for, you know, pricing power over the next several quarters? Thanks.
spk07: Yeah, so I think that when you think about renewals and new leases, I mean, we manage our rent roll. Our revenue management team is doing this daily, and we're looking at situations where it might be appropriate to put caps in place if you're trying to manage to a turnover or an occupancy amount, and we've done that in some cases. I think the The reality for our portfolio is that we started seeing really significant both new lease and renewal increases in the sort of May-June timeframe last year, and obviously we're lapping up on that. And so we're coming into a period where we were already aggressively pushing both new leases and renewals, and most of the rest of the market had not started to do that. And certainly a lot of our public company peers had not gotten to the point where they had that kind of pricing power. So we're going to run into that first. You've got to think about the move in rental rates, both new leases and renewals in these markets as just a complete reset of the market clearing price for multifamily. And we are going to reach that first because we started down the trail first in terms of a market clearing price for these assets. It's you know, there's a lot of conversation, a lot of questions around, you know, the 16 percent, 17, 20 percent headline increases. And that's true. We have seen that. But I think you for context, you almost have to think of it over a three year period. Because our residents who are getting these big kind of eye-popping increases right now. But for the two previous years, you go back two years ago, we were actually decreasing rents at the beginning of the pandemic. And then the second year, we had some very modest increases. So for the most part, our residents are the reset of the rents if it's 15%. Over a three-year period, it would be more like 5% per year for three years. But since it's all in one year, it's kind of the headline. But we will definitely reach that reset first in our portfolio. I think the two markets where we are not not going to reach the reset, probably not even by the end of this year, are Houston and D.C. proper and maybe L.A. County. And that's more in D.C. proper, Loudoun County, in the D.C. metro area, and L.A. County. That's a regulatory constraint. And then in Houston, we think that we don't have any regulatory constraints anymore. And Our growth rates have picked up pretty significantly, but those three of our markets probably will be the three that have not completely reset by the end of the year.
spk12: I'll just add to that. If you take our signed and renewal leases and you take out the two biggest markets, Houston and D.C., We had a 14% blended increase with all the markets included. If you take Houston and D.C. out, it's 16.6%. So to Keith's point, the markets that have not kind of reset to the level with the rest of the country have the ability to do that over the next couple of years. And Houston's issue is that energy – has not added back all the jobs they lost during the pandemic. And Houston overall as an economy has still not added back all the jobs that we lost during the pandemic. And so there's gas in the tank, if you will, for Camden going forward on renewals and new leases when our two largest markets start, you know, over the next couple of years, we're able to do that big reset on them. And don't get us wrong, Houston, we're getting, you know, 8% to 9% increases in new leases, but it's nothing like, you know, Tampa or Phoenix or some of these other really white-hot markets. Thank you.
spk17: Our next question will come from Rob Stevenson with Jamie. You may now go ahead.
spk10: Good morning, guys. Keith or Alex, what's the expected stabilized yield on the current five projects under development, and what are you expecting on projects that you'll start over the remainder of the year? And I guess the other related question here is, what are you seeing on pricing availability for materials and labor for new starts?
spk13: Yeah, absolutely. So if you look at our current pipeline, we're anticipating right around a 6% stabilized yield. If you look at the assets that we haven't started yet, that number is right around five and a quarter to five and a half percent. If you think about construction costs, probably the easiest way to think about it is to bifurcate it between high rises. And for high rises, we're seeing escalation right around half a percent a month. For wood frame construction, that number is right around 1% a month. I will tell you, though, we're starting to get some good news. Lumber is down to, I think it's about $1,000 per board foot, which is off of the $1,400 that we saw about three months ago, but is certainly well above the $400 that we were seeing in normal times. So we're still seeing some escalation. It's still fairly significant, but there are some signs that it might be slowing down a little bit.
spk12: The other part of that equation is general condition costs are up because it's taking longer to build. So pretty much every one of our developments has definitely been enhanced by higher rent growth and better yields than we originally anticipated. And the pipeline that we're starting right now, we start out with a fairly low expectation of rental growth over the next couple of years and then flatline at 3%. So there's definitely upside in the ones that we're starting this year in terms of our yields. But the thing that you get into this issue of how fast supply can get into the marketplace. And, you know, we're adding 60 to 120 days supply. uh of additional time frame on our construction projects anything we start this year and and that that's in addition to the 60 to 90 days that we added three years ago so it's it's it's really uh the supply chain issue is going to be a problem you know through 2023 2024 uh so that's sort of good news and bad news it takes you longer to build but on the uh so that's bad news the good news is is that all this new supply that's that is starting in response to the demand push that's happened in this industry, is going to take a lot longer than most people think to come to the market. So that should make us feel pretty good about 2022 through the end of the year and through 2023 and not having major supply pressure on the demand side.
spk10: Okay. Okay. And how are you guys thinking about the tradeoff in terms of redevelopment these days, given how you're able to get 15% rental rate increases, you know, versus taking the unit out for some period of time and spending money? And is there a bunch of units in the JV portfolio you just acquired that you expect to redevelop, or has that already been going on inside the JV over the last few years?
spk07: Yeah, we just approved another grouping for our redevelopment program in total of about $125 million. So we still, as the vintage works and the new construction works, pricing around our existing assets that are anywhere from 10 to 15 years old. As those rental rates continue to escalate, it makes the repositions look much more attractive. Obviously, the yield on that book of business has come down over time, but it's still the best play on the board for Camden with regard to capital allocation between either new development acquisitions or reposition. So we'll continue to do that as we can. There are a couple of assets that we acquired in the fund that are already under reposition. There are a couple more that will likely be added to the pool next year. But honestly, we had already done some repositions with our JV partners. They made sense. They were always extremely supportive. They understood the play well. And the return on invested capital was the best plan on the board for the joint venture. So we operated the fund as if they were Camden assets, obviously with the consent of our partner. So it's not like we were waiting or didn't have approval or didn't have capital or didn't have the buy-in to do repositions as they were appropriate within the fund. But there will be some assets that will be added just based on conditions on the ground and what's happening to rental rates in their sub-market.
spk10: Okay. Thanks, guys. Have a good weekend. You too. You too.
spk17: Our next question will come from Rich Anderson with SMBC. You may now go ahead.
spk11: Hey, thanks, team. Good morning. So I'm sure your bankers have done the count for you about the net new demand that you'll get from the inclusion, but I'm wondering if the equity offering post-inclusion is to what degree it was influenced by that? You know, was it made larger because of, you know, perhaps, you know, new indexers needing to own your stock? Any influence at all?
spk12: No, it was the equity offering was strictly to pay for the joint venture acquisition. I mean, we bought it for 1.5 billion. You take off the debt side, we needed 1.1 billion in cash. And we had 600 million on our balance sheet. So we drew down on the line 500 million and And it looked to us that given what had happened to interest rates in the bond market, that the equity offering made a lot of sense to sort of reload the balance sheet and get our debt to EBITDA back down to the 4.4 area. So, no, it was all driven by the acquisition.
spk11: Okay, fair enough. Second question, to what degree – You hear management teams, your peers say, well, we're heading into the heavy leasing season. Even MAA said that in the Sun Belt. I'm curious to what degree seasonality really plays a major role for you guys. I would think even like in a market like Phoenix, it's 150 degrees in July. Maybe it's a better time to lease in November. And, you know, there's a lot of markets like that. So do you have kind of a muted seasonality factor or, you know, when you talk about second and third quarter, or do you feel like it's just as prevalent for you guys as it might be for an EQR or somebody like that up north?
spk07: Yeah, you're always going to have some degree of seasonality, Rich. As you mentioned, Phoenix has a reverse seasonality to the rest of our portfolio for the reason that you mentioned. But from these levels of occupancy and the low level of turnover that we've seen and continue to see, the leasing season – the volumes are just not going to be there as they have been in the past. You get incredibly low turnover, and we're starting from a very high occupancy. But it's just a fact. I mean, people in our markets tend to move around more in the summer. There's an impetus to get something done before kids go back to school, or for whatever reason, they're relocating. It's conducive to doing so and always has been. So I don't think So seasonality will be there. I just don't think you're going to see it in the leasing numbers. If you start comparing year over year how many leases that we executed in the next six months, call it between now and go back to pre-pandemic. I just don't think you're going to see anything like that. But it's not because seasonality is not out there. It's just a different set of facts. Yeah, fair enough. That's all I got. Thanks.
spk17: Thanks. Our next question will come from Joshua Dennerlein with Bank of America. You may now go ahead.
spk15: Yeah. Hey, everyone. I hope everyone's doing well. I'm sorry if I missed it, but did you guys discuss your earn-in for 2023, given everything that's already in place?
spk12: We did not. And it's probably, uh, it's a number that we talk about, but, but it's such a speculative number that, that, uh, that, uh, we're really not, not, uh, going to talk about that. It's just, it's hard to, hard to predict ultimately. Maybe second, third quarter is a better time to ask it.
spk15: Okay. I'll keep it in my question bank for QQ. Um, yeah. I, and then, um, One of your peers announced a new structured investment program this quarter, and I know some other REITs have it as well. Is that something you've looked at, like whether you would set up a similar program where you could provide MES or preferred equity to third-party developers in your markets?
spk12: We've actually done that before, and you can, at the margin, make decent money on those types of transactions, and I know our competitors do it. but we would rather keep our balance sheet clean and focus 100% of our attention on our existing portfolio. And at this point, we have no joint ventures on our portfolio. We have the most simple and cleanest balance sheet in the sector, and we're going to keep it that way.
spk09: Got it. Sounds good. Thank you.
spk17: Our next question will come from Hendel St. Joost with Mizoho. You may now go ahead.
spk04: Thank you, operator. That was actually a very good pronunciation. Hey, guys. I want to ask you about SFR development here. It looks like you started two projects in Houston. I guess I'm curious. You've alluded to it in the past. Perhaps, you know, you were looking at this. But I guess I'm curious, you know, why now? The approach you're taking here, the type of product, it looks like you're partnering with a local builder here.
spk12: maybe talk about the returns you're targeting and your appetite for maybe doing more thanks sure so you're talking about the two properties that that we have acquired in houston and those are both uh purpose-built single-family uh for rent properties and the way we look at them is they're just horizontal apartments right and the fact that they're all in one one subdivision and they're uh and both projects are decent scale 180 you know plus um units We just think it's an interesting thing to the single-family rental market to sort of dip our toe into. If you look at our history, we got involved in student housing, we got involved in senior housing, and those two areas for us were too kind of far-flung for our taste. The single-family rental market's a different animal, and if you can have a subdivision and have some scale within that subdivision, then you sort of run it just like an apartment and maybe with less staff. and what have you. But I think it's just an interesting and potentially expansion ability for us in the markets we're already in. So we're going to, like I said, put our toe in the water. And the yields are pretty much the same on those properties as they are in the multifamily space. The challenge with purpose-built single-family rentals is that The size of the of the of the project is is not ideal. You know, most of our new developments today are over 100 million and most are like 150 million. So it's a little inefficient for our senior development people to work on smaller deals like that. But but it's I think an area for us and also the the The municipalities oftentimes don't understand single-family rental, so it takes longer sometimes to entitle. But ultimately, I think it's an interesting area for us to look at and to ultimately maybe get some benefits from how they're operated and have that translate into more efficient operations in our pharma projects.
spk04: Got it, got it. That's interesting. Certainly sounds like there is perhaps a mindset to do more, but you're using these two projects as maybe a case study. Yep. Second question, maybe for Alex, maybe a bit more color on the expense guidance, the $120,000 increase. Not a small amount, given that you gave out guidance 60 days ago. I guess I'm curious how you could talk a bit more about what's happened in the last 60 days. You touched on some of the pressures, maybe insurance and property taxes, but I guess I'm curious if you could get into some of the detail on each of those pieces, and do you think that the new guide kind of captures what you're seeing out there or the risk of a further increase in the same-store guide over the course of the year? Thanks.
spk13: Yeah, absolutely. So the first thing I'll talk about is taxes. So you have to remember that taxes – is about 35% of our total expenses. And initially, we thought taxes were going to be up 3.3%. We now think they're going to be up 3.8%. The big driver there is Austin and Dallas. We got our initial valuations in. They were in the 30% up range. Obviously, we will contest those as we typically do. And we obviously anticipate that there's going to be some rollback in rates to account for the increase in valuations. But that's one component of it. The second component of it is insurance. You know, originally we thought that insurance was going to be up Call it around 11%. We now have it up around 22%. 70% of our insurance costs is associated with rates. We think our rates are going to be up right around 30%. This just continues to be a really tough insurance market. We are actually in the market right now trying to do our renewal. We're going to know a little bit more, obviously, probably in the next three or four weeks. But we feel that what we have here is a pretty good number. And then the other side of it is salaries. And as we typically have done, whenever we have outperformance on the revenue side, we do increase our bonus accruals. As you know, we do. we do reward our on-site teams for their efforts. And so you've got a component that's directly tied to what we're anticipating for outperformance on the revenue side for the rest of the year.
spk09: That's great, Keller. Thank you.
spk17: Our next question will come from Brad Heffern with RBC Capital Markets. You may now go ahead.
spk05: Hey, everyone. Can you give any updated stats on move-ins from outside the Sun Belt or move-outs to areas outside?
spk13: Yeah, absolutely. So if you think about in the first quarter of this year, about 19.3% of our move-ins came from non-Sun Belt markets. If you look at that on a year-over-year basis, that's up 160 basis points from the first quarter of 21. And if you compare it to the first quarter of 20, right, you know, right before before COVID got started, that number is actually up about 330 basis points. So continue to see really, really robust demand from folks moving from outside the Sunbelt into our Sunbelt markets and continuing to see acceleration on that front.
spk05: OK, got it. And then any update on where rent income stands currently?
spk12: Sure. Right now, rent to income is around 20%. If you look at our new leases, our average household income is about $116,000. And their lease to rent to income ratio is slightly less than 20. But overall, it's just right at 20. And the challenge with that number is we don't ask our residents to update their income number. So what's been happening is when we renew somebody, their rent goes up. but their income stays the same because we don't ask them to update their income. And so I think those numbers at 20 and a little less than 20 are probably overstated, and it's probably in the teens if you upgraded everybody's income. Okay, thank you.
spk17: Our next question will come from Steve Sokwa, Evercore ISI. You may now go ahead.
spk03: Thanks. Good morning. I guess first question just on bad debt. Maybe I missed it. Could you just maybe talk about the bad debt trends that you saw in 1Q, kind of what you're budgeting within the revenue growth for the full year?
spk13: Yeah, absolutely. So collections for us in the first quarter were right around 98.8%. If you think about bad debt and you sort of go back to the trend, so pre-COVID for us, bad debt was right around 50 basis points. In 2020, that number was around 120 basis points, and that stayed that way through all of 2021 as well. What we're anticipating in 2022 is a slight improvement in that number, and we're thinking that we'll get down to right around maybe call it about 100 basis points. Okay, Alex, I guess.
spk03: Yeah, go ahead. Sorry, if you just think about 23, do you think that reverts down towards the 50 basis points next year?
spk13: You know, we certainly anticipate that as we move through 22, we're going to get back to a more normal trend. I mean, really, if you ignore California in our portfolio, our delinquency is right around 50 basis points, which is right in line with historical averages. So as long as we get to the point in California where we can enforce contracts, which we certainly hope by the time we get to 23, we're going to be in that scenario, then we should assume that 23 is going to be a more typical year. And by the way, the 50 basis points that I told you in 2019, that's what we experienced since we went public. So that's very much a normal year.
spk03: Got it. Thanks. And then just second question, I guess maybe for, you know, for Rick or Keith, just, you know, big picture, we're seeing more discussion about rent control outside of the New York and California markets and some of the Florida markets, just given how much rents have gone up. I'm just curious kind of what your thoughts are. Excuse me, what kind of discussions you're maybe having with folks in Washington and some of the states about that?
spk12: We're definitely on it, no question. When you think about the states like Florida and Texas, they may talk a good game in the cities at the local level, but at the state level, it seems very counterintuitive to think that deep red states with Republican governors are going to go anywhere near repealing sort of statewide bans on local municipalities doing rent control. And so I think we're in good shape in most of our markets where we're not really too concerned about rent control. National Multihousing Council, we're very involved in that. And Lori Baker serves, you know, on their leadership group. And we're talking on an ongoing basis to lawmakers about rent control. You know, nationally, it really won't be a national thing. It's really a state-by-state thing. We just had a conference call last week, for example, or this week with the California Apartment Association. And the industry, you know, expects to have a – you know, another fight in California coming up on repealing the statewide rent control scenarios. But generally speaking, in our markets, I think we're pretty good with the exception of, you know, California on rent control issues. Great. That's it for me. Thanks.
spk17: Okay. Our next question will come from Connor Mitchell with Piper Sandler. You may now go ahead.
spk06: Hi, thank you for taking the question. So I just have a couple items to circle back to. First, regarding the single family rentals, can you remind us if these are standalone products or would it be more of attached to townhomes?
spk12: These are standalone products with two car garages, a front yard and a backyard. We probably, you know, when you think about whether they're townhouses or not, I think that, you know, we're starting out with detached. And I think ultimately townhouses make sense too. We develop townhouses as part of our development program in certain places. For example, in Atlanta at our Camden Buckhead property, we have townhouses and they're three bedroom townhouses and they get the highest average rent and they're absolutely full all the time. So I don't think it's negative that townhouses are negative. The two that we're building right now just happen to be detached.
spk06: Great, thank you. And then the second question was, can you just remind us again of the, if there's been any acceleration of move out to home purchases given the rising mortgage rates or decline?
spk07: Yeah, so we actually declined from last year. We were in the high 15s so far this year. We're back down to 14%. Long-term average for our portfolio over, you know, there are 20 plus years is about 19, 18 to 19%. So we're, we're still well below what the longterm average is. And, you know, with the recent spike in, in the tenure and the corresponding move in mortgage rates, um, you know, I just, I can't, it's hard to see that number getting much traction on the upside anytime soon. I mean, I suppose it's possible that you could sort of have the panic by, you know, like I have to buy now before it gets worse, uh, effect in this quarter, but mortgage rates above 5% versus where they were even six or seven months ago in the threes is a game changer for most people. And I think that lenders are probably placing a lot more scrutiny around borrower requirements just because it's thinner to underwrite them. And so I think it's pretty likely that we'll stay much you know, three or 400 basis points below our long-term average on move-outs to buy homes. It just gets tougher and tougher. So not only do you have, in many of our markets, single family home prices have doubled in the last five years, and now you have a 5% mortgage rate. And the combination of those two things is just a killer for affordability for most first-time home buyers.
spk12: When you look at our numbers from 2021, it was interesting to watch, to see in March, of 2021, our move out to buy houses was around 16%. And in April, through the end of the month, so far, it was 17% in March and April of 2021. And if you go back to this March, we were at 16%, which is pretty much the same as it was in the prior March. And then, but April fell to, as Keith pointed out, 14%. So we had a 300 basis point decline from April of 21 to 22. and a 200 basis point decline from March to April. And April is sort of thought as the spring home buying season. People rush into the market before the summer. And so having those numbers decline year over year and month over month tells me that single family home move out to buy homes is not going to be a problem for us. And there is some tension and stress in the market where people can't afford the high price or the high interest rate at this point.
spk06: Great. Thank you for the call around that. Thanks. That's it for me. Okay.
spk17: Our next question will come from Shandri Luthra of Goldman Sachs. You may now go ahead.
spk01: Hi. Thank you for taking my question. I believe it hasn't come up and I apologize. Could you remind us where lost relief stands in your portfolio right now and how much of it do you expect to capture in 2022?
spk13: Sure. So loss to lease for us is right around 11%. And obviously, as we work through 2022, we should capture a large percentage of that. Now, obviously, you have to remember that for renewals, we're not generally bringing renewals all the way up to market for a variety of reasons. So you'll never really capture that full amount, but we should get quite a bit of it for the rest of the year.
spk01: Great. And before the end of the hour, if you could give us an update on your thoughts around how you're thinking about supply in 2023 in your markets. I mean, obviously, it's no surprise to anybody. It's not news that permitting activity, construction activity has kind of been really up there. But then at the same time, we've continue to see compounding supply chain issues as well, and higher interest costs and construction costs. So how are you thinking about supply in your backyard next year? Go ahead.
spk07: Ron Whitten has got completions across Camden's portfolio at about 160,000 apartments this year. And then in 2023, based on his estimates, that goes to 212,000. So about 50,000 increase across our entire portfolio. all of our 15 markets. And I do believe that Ron has updated his completions numbers to try to capture the impact that Rick talked about earlier, which is it just takes longer to get these jobs built. So everybody that's been doing completions work for years and years, and they've been using the same kind of estimates and metrics around start date, how long to first unit turned and how long to deliver completed product. They've all been badly wrong in the last two years. And I think they're finally, you know, made some progress on understanding just what the effects are of this elongated construction period that everyone's dealing with. I think he believes his numbers have captured the slippage that is happening above historical rates, and he thinks we're going to be up 50,000 completions across Camden's markets next year, which if you look at it market by market, none of them look terribly troubling at this point as long as we continue to get decent job growth.
spk12: And Ron also shows above average or above long-term trend revenue growth in 2023 in spite of the new supply coming in.
spk17: Our next question will come from John Kim with BMO Capital Markets.
spk04: You may now go ahead. Thank you. Good morning. Alex, in your remarks, you mentioned that your same-star revenue guidance includes the assumption of 8% on renewals. And I just wanted to clarify, is that 8% for the remainder of the year, or is that the full year, including 14% in the first quarter?
spk13: Yeah, I think the best way to probably look at that is we're getting towards a blended 10%, and so the blended 10% includes the full year.
spk04: Okay, so not to focus too much on renewals, but you did mention it's lower than your new lease growth rate. I'm just wondering why that's the case, the new lease growth rate at 12%.
spk13: Yeah, you know, obviously, we've had over the past, call it year and a half, we've had a situation where new leases have been higher than renewals. Now, at some point in time, that will converge, right? And that's what you typically see. But for our assumptions right now, we are assuming that they are not converging just yet. And if you think about why renewals are less than new leases, it's what I sort of mentioned earlier. Obviously, when you've got a resident in place, you know, there are certain frictional costs associated with that resident leaving. And that's typically why, at least in the past year and a half, we've had lower rates on renewals.
spk04: Okay. My second question is on your 11% loss to lease. Mm-hmm. Is there any way to break down what that lost lease is on your leases that were signed in the second and third quarter of last year? I'm assuming that what you just signed in the first quarter is a minimal lost lease that would be higher than 11% on your older venture leases.
spk13: Yeah, I mean, so when we talk about an 11% loss to lease, what we're doing is we're looking at the signed leases that occurred in March as compared to the in-place leases. You are right that if you have an upward trajectory of rate increases in 2021, then you start to build off of either lower or higher numbers depending upon how you flow throughout the year. And theoretically, I mean, that's why the loss to lease starts to minimize as you move forward. Great.
spk09: Thank you.
spk17: Our next question will come from Austin Werschmidt with KeyBank. You may now go ahead.
spk03: Yeah, thanks, everybody. I just wanted to go back to the new lease rate trends a bit, which, you know, recognize they've moderated a bit here from the peak, and just wondering how much you think is really seasonality-related versus the tougher comps and just normalizing, you know, steadily normalizing operating conditions, because up until this point, you know, to what you just said, really, turnovers remain very low and and occupancy really held up quite well in 1Q. So I guess what's holding you back from trying to drive new leases, you know, even higher to the extent that you're still getting traffic and sort of, you know, keeping occupancy, you know, fairly elevated relative to historic levels.
spk07: So, I think you, I think you have to start with the, uh, places where we are constrained from getting market rate. Increases, and that would be DC proper still certain parts of California. Uh, and, you know, those are meaningful, meaningful numbers and, you know, Washington DC. Washington, D.C., which includes the D.C. proper assets allowed in county where we are, you know, we still are not able to push through what the market rate increases are. You know, you've got our total rents in Washington, D.C. for the quarter were 5.3% against a portfolio-wide average of something north of 11%. And it's 17% plus or minus of our NOI. So that's a big part of the story is that as other places kind of, quote, moderate from 20% to 16%, you still have Washington and then parts of California where we're getting no rental increases or, you know, CPI type rental increases. So it's, I mean, I think that's the biggest part of the story in terms of, you know, we certainly believe that if we were unconstrained in Washington, D.C., and we know just mathematically, if you, we haven't had anything close to a reset of rental rates in D.C. proper in Loudoun County because we haven't been able to raise rent. So I think it'll happen. And I think it's likely to happen I mean, I hope that we get out of the constraints of regulatory regimes that don't allow rental increases, you know, just by sort of fiat or local order by the end of this year. And we certainly expect to. And I do believe that it just... the way things are trending right now that we will be coming out of the constraints, even though, you know, quote, quote, when you come out of the constraints, there's still going to be a period of time where we have to work through the process of, of actually getting control of our real estate on this folks that are still not paying or choose not to pay. So, but I think it's, I think we feel like we're in a really good position given, given the the untapped rental increases that, we're going to get to at some point. I just, I certainly hope it's by the end of the year.
spk03: Got it. No, I appreciate that perspective. And so how much of the loss to lease bucket is from markets where you're constrained? And then I'm also curious how much across the portfolio market rents have increased year to date.
spk13: Yeah, so if you think about market rents and sort of increasing on a year-to-date basis, on a full year for 2022, we think it's going to be up right around 4%. And so you can probably sort of extrapolate that back to what we're seeing in the first quarter. On loss to lease, I think the way that Keith sort of laid it out is probably the best way to think about it, which is you've got D.C., in California, which make up 23% plus or minus of our total portfolio. And that amount is going to have a much larger loss to lease calculation. And you can probably take that loss to lease You know, it's almost sort of hard to understand exactly what it is, right, because you don't understand what the true market rate is because there's so much to discover. So I think as we sort of move through the legislative challenges that we have and then we're able to establish what real market is, we're going to have a much better idea of what the true loss to lease is.
spk03: Right, so presumably wages have moved much more than probably market rents over that three-year period that you were talking about earlier in the call. Alex, with respect to guidance and more specifically the assumptions underlying same-store revenue growth, are you guys targeting lower occupancy in the revenue management systems to get you back to that, you know, back at or below the 96.6, I think you're assuming, for the full year period? And then, you know, I'm also curious what you're implying for lease rates in the back half the year.
spk13: Yeah, so we set our settings. I mean, it's really interesting because the higher you set your occupancy settings, the higher it drives the rental rates, right? And you're trying to get to that sort of sweet point where the occupancy setting is high enough that you ultimately max out on your rental rates. And what we've seen is that no matter how high we set, we continue to have just really tremendous demand. And that's why you're seeing the type of new lease and renewal increases that you're having. So it's not a matter that we're sitting here and saying we want to be at 96.6%. We do believe that and we do have, you know, perhaps some conservatism built into our numbers, that the occupancy levels that we've experienced over the past really four or five quarters can't continue. And so that's what you've got baked in. And then if you sort of think about what are we assuming in terms of blended rental rates on a go-forward basis, as I told you, we're assuming that we're averaging 10% for the full year. So if you look at the first quarter, that's right around 15%. If you look at the second quarter, we're at, you know, call it 14 and a half percent already. So that would imply that we're assuming that we get down to sort of a 7 percent number for the third quarter and maybe a 4 percent number for the fourth quarter.
spk03: Yeah, I missed that 10 percent number. So thank you for that. And then what is the 30 to 60 day availability when you look out? Is that elevated versus prior periods or tracking similarly? kind of known move outs plus, you know, current vacancy.
spk13: Yeah, you know, we continue to have very low turnover.
spk03: Okay, great. Thanks for the time.
spk17: Our next question will come from John Polowski with Green Street. You may now go ahead.
spk18: Thanks for keeping the call going. Rick, just one question on the Texas teachers trade. You mentioned the valuation was done at the end of the year in December. Was there any impact or any repricing of the portfolio due to higher interest rates?
spk12: Well, we did have the appraisal, formal appraisal, where we marked to market at the end of the year. But then in the first quarter, we also then adjusted that for what we thought the current market was. And at that point is where we sort of came to the struck the price. So there was an adjustment from the appraised number in December. And we ended up with not having a big you know, discussion about what those prices were since we had sort of two sort of bases that we used, the original December one and then another valuation kind of metric probably at the end of February, early March.
spk07: There was no adjustment to purchase price.
spk12: No, there's no adjustments on interest rates, no.
spk07: No, it was struck before any of the meaningful move in interest rates. Right.
spk18: Okay. I don't think the cap rate, by the way.
spk12: Go ahead. Sorry.
spk18: Okay. Yeah, no, sorry to cut you off. I guess the cap rate above 4% kind of surprised us on the high side. Could you just talk about how many other bidders were in the tent and how broadly this was marketed?
spk12: You're talking about the Texas Teachers transaction? Yeah. There were no other bidders in the tent. It was a direct negotiation between the partners of the JV, which was Camden and Texas Teachers. And so when you look at the cap rates on it, at the end of the day, I think it just became evident to Texas teachers, at least from their perspective, that they wanted to trade based on valuations. And the value calculation that we did after the original appraisal values in December were substantially higher than the price values in December. So I think they just thought it was, when they looked at everything overall, the efficiency of the transaction from their perspective and our perspective was really, really good. Because had we gone out and bid it into the market, clearly we wouldn't have been able to do the transaction. And from start to finish, it was a four-week transaction. And if you want to try to bid a 7,200 unit, you know, portfolio, 22 properties in multiple markets, that's a, that's 120 day gig. And so I think teachers was very interested in, in getting the deal done as soon as possible as we were. And, and it was sort of a, we both looked at it as a moment in time and, and we, we got to what we thought was fair value even though, you know, you never know what values will be clearly when you bid. and we were happy about not having to bid it. Okay. Thank you for the call. Sure.
spk17: This concludes our question and answer session. I'd like to turn the conference back over to CEO Rick Campo for any closing remarks.
spk12: Great. Well, thanks for being with us today, and we'll see you guys in NARID in a few weeks, right, at the first in-person NARID in June. So thanks a lot, and take care. Bye.
spk17: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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