Good morning, and welcome to the Camden Property Trust 4th Quarter 2018 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kim Callahan, Senior Vice President of Investor Relations.
Please go ahead.
Good morning, and thank you for joining Camden's 4th Quarter 2018 Earnings Conference Call. 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 Q4 2018 earnings release is available in the Investors section of our website atcamdenliving.com, and it includes reconciliations to non GAAP financial measures, which will be discussed on this call. Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer Keith Oden, President and Alex Jessett, Chief Financial Officer. We will be brief in our prepared remarks and try to complete the call within 1 hour. We ask that you limit your questions to 2, 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 e mail after the call concludes.
At this time, I'll turn the call over to Rick Campo.
Good morning. As our holding music artist Queen suggests, Our Camden team members surely are the champions of the world, well, maybe not the world, but at least their markets, by outperforming their competition and driving customer sentiment I'd like to give my entire Camden team a shout out for a great 2018. They in a major way supported Camden's purpose as a company, 2018 was another solid year for Camden. We ended the year above our original guidance that we gave at the beginning of the year. Revenues were slightly better than we projected, and we outperformed our expense Guidance primarily as a result of our attack the run rate initiative along with lower health care costs and an adept Property tax team that really worked hard in 2018.
2019 should be a lot like 2018 With slightly increasing revenue growth and increasing operating expenses a bit, ultimately keeping our net operating income growth at Similar letters or similar levels to 2018. We begin the year with the strongest balance sheet in the multifamily sector. Our development pipeline continues to provide increasing FFO and NAV contribution. New supply of apartments in our markets is relatively the same as 2018, while demand continues to be strong enough to absorb that supply While continuing to allow us to produce same store revenue growth, we'll continue to pursue our development and acquisition opportunities In a very competitive environment, we appreciate your continued support and I will now turn the call over to Keith Oden to give us an update on markets.
Thanks, Rick. Consistent with prior years, I'm going to use my time on today's call to review all the market conditions we expect to encounter in Camden's markets during 2019. I'll address the markets in the order of best to worst by assigning a letter grade to each one as well as our view on whether we believe that market is likely to be improving, stable or declining in the year ahead. Following the market overview, I'll provide Details on our Q4 operations and our 2019 same property guidance. We anticipate some property revenue growth Same property revenue growth will be between 2% 5% this year in each of our markets with a weighted average growth rate of 3.3% at the midpoint of our guidance range And all of our markets received a grade of B- or higher this year.
As Rick said, 2019 should look very similar to 2018 for Camden, That's reflected in how little movement we have in comparing our 2018 revenue growth to our projected 2019 revenue growth Among our 13 markets, only 2 markets moved more than 2 spots in the rankings this year. Orlando moved from number 1 to number 5 and Southern California moved from number 6 to number 3 and no market Moved from number 6 to number 3 and no market moved from top half to bottom half or vice versa. Further, 10 of our 13 markets are rated as stable for 2019. All this is pretty unusual for Camden's portfolio. So here we go.
Our top ranking for 2019 goes to Denver, which we rate an A with a stable outlook. Our Denver portfolio has been a strong performer, averaging 5% annual same property revenue growth over the last 3 years. Approximately 40,000 new jobs are expected during 2019 and supply remains steady with 13,000 new units scheduled for delivery this year. We expect our Denver assets will meet or exceed the 4.2% revenue growth that we achieved in 2018. Phoenix also earned an A rating with a stable outlook.
Supply and demand metrics for 2019 look strong with estimates calling for nearly 50,000 jobs With 9,000 new units coming online this year. We give Southern California an A- rating with an improving outlook. Our portfolio there spans from Hollywood down to San Diego. And in the aggregate, our California markets face healthy operating conditions With balanced supply and demand metrics, job growth should be around 120,000 over this region with completions of 24,000 units expected in 2019. Orlando and Raleigh each received an A- rating with stable outlooks again this year.
Orlando was our number one performer in 2018 with 4.9% same property revenue growth and it should be in our top 5 again this year. Another 40,000 new jobs are expected there in 2019 with only 6,000 completions. In Raleigh, new developments Up next is Atlanta, which we have ranked as a B plus with a stable outlook since 2016. Job growth has been strong in Atlanta and approximately 60,000 new jobs projected for 2019. Completions also remain steady with 9,000 new apartments scheduled delivery this year.
Houston keeps its rating of B and improving again this year. After negative same property results in 2016 2017, Our Houston portfolio rebounded in 2018 to achieve a 2.7% revenue growth. We expect to see slightly better results in 2019 as Projected completions remain around 7,000 and job growth estimates are roughly 10 times that with over 70,000 new jobs In Tampa and Washington, D. C, conditions are currently be with stable outlooks. Tampa's new supply should come down to slightly to around 4,000 units this year with 25,000 new jobs projected, Putting the jobs to completion ratio at a healthy level of 6 times.
We expect 2019 to look a lot like 20 18 with regards to same property growth in our DC portfolio. Last year, we achieved 2.8% revenue growth in DC Metro and our projections for 2019 reflect a slight improvement from there. Supply and demand metrics reflect estimated completions of 13,000 units With 40,000 new jobs projected this year. Conditions in Charlotte seem to have firmed up a bit and are currently we rate a B- with an improving outlook. New supply has been persistent in Charlotte and another 9,000 units are anticipated this year.
Job growth should remain slightly above 30,000 This year, and we expect our portfolio's revenue growth to improve from the sub-two percent level achieved in 2018. Our last three markets, Dallas, Southeast Florida and Austin, all earned a B- rating with stable outlook. In Dallas, job growth has been solid with over 70,000 jobs created last year and a similar amount expected during 2019. With over 20,000 completions last year and nearly 20,000 more units coming online this year, the Dallas apartment market will remain challenging in 2019. Southeast Florida has more new apartments coming online and faces additional competition from resale and rental condominiums.
With projections of 35,000 new jobs, 10,000 new units in 2019. We expect pricing power and revenue growth to remain limited for our portfolio this year. In Austin, we expect to see limited revenue growth again this year. New supplies should start to decline in 2019, but remains at a very high level. Approximately 10,000 new units are anticipated this year with around 37,000 new jobs, leaving little room for pricing power in the Austin market.
Overall, our portfolio rating is a B plus again this year with most of our markets expected to see similar to slightly better results than in 2018. As I mentioned earlier, all of our markets should achieve between 2% 5% revenue growth, and we expect our 2019 total portfolio same property revenue growth to be 3.3% at the midpoint of our guidance range. This compares to same property revenue growth of 3.2% for 2018. Now a few details on our 2018 operating results. Same property revenue growth was 3% even for the 4th quarter and 3.2 percent for full year 2018.
Our top performers for the quarter were Denver at 5.4%, Phoenix at 4.3%, Orlando at 4.2 percent, D. C. Metro at an improved 4.1% and San Diego Inland Empire at 4. As expected, 4th quarter revenue growth was under 2% in some of our supply challenged markets, including Dallas, Charlotte and Southeast Florida And also in Houston, where we faced a 200 basis point negative comparison on occupancy this quarter versus our Q4 2017 Hurricane Harvey occupancy of 97%. With occupancy currently over 95% in Houston, we expect minimal impact from negative occupancy comps going forward in 2019.
Rental rate trends for the Q4 were as expected with new leases flat and Renewal is up 5% for a blended growth rate of roughly 2.4%. And our preliminary January results are in the similar range. February March renewal offers are being sent out in the 5% range. Occupancy averaged 95.8% during the 4th quarter Compared to 95.7% last year, January occupancy has averaged 95.8% compared to 95.4% in 2018, So we're off to a good start this year. Annual net turnover for 2018 was 200 basis points lower than 2017 At an all time low of 44% versus 46% last year.
Move outs to purchased homes were 15.5% in the Q4 of 2018, 14.8% for the full year and both of those are down 40 basis points from the 2017 full year levels. All in all, good execution in 2018 and it looks like we have a great game plan laid out with our teams to accomplish for At this point, I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.
Thanks, Keith. Before I move on to our financial results and guidance, A brief update on our recent real estate and financing activities. During the Q4, we reached stabilization at Camden NOMA Phase 2 in Washington, D. C. This $109,000,000 development is expected to deliver a stabilized yield of approximately 8.25%, creating over $80,000,000 of value for our shareholders.
Also during the quarter, we completed construction at Camden, Washingtonian, an $87,000,000 development in Gaithersburg, Maryland and Camden McGowan Station, a $91,000,000 development in Houston. In 2018, we completed $300,000,000 of acquisitions and started $280,000,000 of new development with no community dispositions for $580,000,000 of net real estate transactions. Turning to our 4th quarter financing activities. On October 1, we repaid at par $380,000,000 of secured debt consisting of $175,000,000 2.86 percent floating rate debt and $205,000,000 of 5.77 percent fixed rate debt For a blended average interest rate of approximately 4.4 percent. The repayment of this secured debt unencumbered 17 communities Valued at approximately $1,100,000,000 We repaid the secured debt using proceeds from a $400,000,000 10 year unsecured bond offering, which we completed on October 4.
The effective interest rate on this new unsecured issuance After taking into effect these transactions, at year end, 79% of our debt was unsecured And 89% of our assets were unencumbered. Our balance sheet is strong with net debt to EBITDA at 4.1 times and Total fixed charge coverage ratio of 5.5 times. We ended the quarter with no balances outstanding on our $645,000,000 of unsecured lines of credit. Our current line of credit balance after the January 2019 payment of our 4th quarter dividend, The payment of property taxes, which are disproportionately due in January, and the repayment today of $200,000,000 of secured debt With an interest rate of 5.2 percent is approximately $270,000,000 We have $239,000,000 of additional Secured debt due early in the second quarter with a weighted average interest rate of 5.2%. This debt can currently be repaid at par.
We have $613,000,000 of development currently under construction with $335,000,000 remaining to fund over the next 2 years. Moving on to financial results. Last night, we reported funds from operations for the Q4 of 2018 $119,400,000 or $1.23 per share, exceeding the midpoint of our prior guidance range by 0 point 0 $1 This $0.01 outperformance resulted almost entirely from lower same store operating expenses due to lower turnover costs, Lower amounts of self insured healthcare costs and continued cost control measures. Turning to 2019 earnings guidance. You can refer to Page 27 of our Q4 supplemental package for details on the key assumptions driving our 2019 financial outlook.
We expect our 2019 FFO per diluted share to be in the range of $4.97 to $5.17 With a midpoint of $5.07 representing a $0.30 per share or 6.3% increase from our 2018 results. The major assumptions and components of this $0.30 per share increase in FFO at the midpoint of our guidance range are as follows: An approximate $0.18 per share increase in FFO related to the performance of our 42,000 972 Unit Same Store Portfolio. We are expecting same store net operating income growth of 2.3% to 4.3%, driven by revenue growth of 2.8 percent to 3.8 percent and expense growth of 2.75 percent to 3.75 percent. Each 1% increase in same store NOI is approximately $0.055 per share in FFO. An approximate $0.19 per share increase in FFO related to net operating income from our non same store properties, resulting primarily from the incremental contribution from our development communities in lease up during 2018 2019, Our recently stabilized Camden Noma Phase 2 development and our 3 acquisitions completed in 2018.
And finally, an approximate $0.06 per share increase in FFO due to an assumed $300,000,000 of pro form a acquisitions Spread throughout the year and assume year 1 yield of 4.5 percent. This $0.43 cumulative increase in FFO per share is partially Set by an approximate $0.02 per share decrease in FFO due to an assumed $100,000,000 of pro form a dispositions in the latter part of the year, An approximate $0.05 per share decrease in FFO resulting from the combination of lower interest income from lower cash balances, An approximate 2% increase in combined corporate, general and administrative and property management expenses And higher corporate depreciation and amortization due to the implementation of a new cloud based accounting and human resources system And an approximate $0.06 per share decrease in FFO due to higher net interest expense resulting primarily from actual and projected 2018 2019 net acquisition and development activity, partially offset by the accretive refinancing of maturing secured debt. We currently anticipate borrowing approximately $700,000,000 of new unsecured debt in 2019 Spread between early and mid year at an all in rate of approximately 4%. These proceeds will be used to refinance maturing secured debt and fund both net acquisition and development activities.
In addition, we anticipate recasting and upsizing our existing unsecured line of credit in the early part of 2019. Our same store expense growth range of 2.75% to 3.75% For 2019, it's primarily due to expected increases in salaries and benefits and property taxes. Salaries and benefits represent just over 20% of our total operating expenses and are anticipated to increase by 5%. As discussed on prior calls, in 2018, we were responsive to the effects of general labor tightening and made market driven wage adjustments where appropriate. Despite these salary increases, in 2018, we experienced unusually low amounts of self insured healthcare expenses, Resulting in our 2018 increase in salaries and benefits to be approximately 3%, well below our original 6.5% estimate.
We are not anticipating that these low amounts of healthcare expenses will be repeated in 2019. Property taxes represent a third of our total operating expenses and are projected to increase approximately 4% in 2019, primarily driven by Charlotte and Denver. Charlotte only revalves for property tax purposes every 8 years and 2019 is the year. And 2019 is in every other revaluation year for Denver. Our 2019 property tax assumptions are based Upon successfully protesting and litigating, if necessary, the 2018 previously discussed outsized property tax valuations in Atlanta.
Excluding salaries and benefits and taxes, the remainder of our property level expenses are anticipated to increase at less than 2% in the aggregate. Page 27 of our supplemental package also details other assumptions I have not previously mentioned, including the plan for 200 The $300,000,000 of on balance sheet development starts spread throughout the year. Last night, we also provided earnings guidance For the Q1 of 2019, we expect FFO per share for the Q1 to be within the range of $1.18 to 1 $0.22 The midpoint of $1.20 represents a $0.03 per share decrease from the Q4 of 2018, which is primarily the result of An approximate $0.02 decrease in sequential same store net operating income. Of this amount, Sequential increases in property taxes resulting from the reset of our annual property tax accrual on January 1 each year. The remaining $0.005 of the sequential decrease in same store NOI is due to other expense increases primarily attributable to typical seasonal trends, Including the timing of on-site salary increases, partially offset by a slight increase in same store operating revenues And an approximate $0.01 per share decrease in FFO due to a combination of lower interest income resulting from lower cash balances and higher overhead expenses due to timing of salary increases and certain other corporate expenditures.
At this time, we'll open the call up to questions.
We will now begin the question and answer session. Our first question comes from Trent Trujillo of Scotiabank. Please go ahead.
Hi, good morning and thanks for taking the questions. Good Q4 and great 2018. So guidance calls for you to be a net acquirer, which makes With your low leverage, but can you talk about the deal flow that you've seen and maybe talk about the pricing and buyer pool competition for the assets How you expect to find attractive deals?
Sure. So, we just got back from National Multi Housing Council Meeting in San Diego, they had a record attendance of, I believe, over 7,000 people And which sort of I think indicates the sort of popularity of multifamily with investors today. So it remains a very competitive environment. There's no question about that. And I think so what's happening sort of right now is that Kind of a normal revenue growth as opposed to white hot revenue growth.
So you have this Kind of spread between bid and ask at this point. And so there really hasn't been a lot of transactions between sort of the Last part last half or last month or 2 in 2018 and then clearly there hasn't been enough data points to really understand what's going on out there now. What we think is going to happen though is that there will be a movement sort of towards the center of that bid ask spread gap today Because sellers need to sell and buyers will need to buy. I think it's going to continue to be competitive. If you look at the last 3 or 4 properties that we bought, we're looking for below replacement cost transactions that are in the sort Mid-4s to low-4s cap rate that where we believe we can through improved operations and Sort of Camdenizing the property, we can move that cap rate up Pretty quickly over a couple of years to 5 plus or minus.
So we think there will be opportunities. The guidance obviously of $200,000,000 to $400,000,000 is today pretty much everything is $100,000,000 or more. So you end up with So we're talking about 3 or 4 transactions perhaps and we think that given the backdrop For sellers coming towards the buyers are actually going to happen. The key for us though is finding that kind of needle in the haystack where we think it's Very under managed and where we can come in and move the NOI up, not by Hoping the market goes up, but by knowing that we can operate the properties better.
Great. And just a follow-up, can you perhaps talk about the concessionary environment in some of your largest markets that are facing high Supply, I mean, we've looked at Atlanta and Dallas, and you touched on those markets in your prepared remarks. But are you seeing supply pressures easing there and pricing Our coming back in 2019, but basically what's the concessionary environment? Thank you.
So again, in the A development business, the concessionary environment varies dependent on submarket and markets. You can't just say, okay, it's 2 months free or 1 month free or 3 months free. So it really definitely varies by submarket and Developers who are leasing projects up, when you have a vacant building that just opens, So free rent doesn't really matter to them because they're just trying to get to a stabilized occupancy. And so the more aggressive the market, you 3 months free and generally you don't go over that and the more moderate markets are 2 to 1 to 2. Just for an example, in Houston, Prior to the sort of the Harvey event a year and a half ago ish, there was 3 months free in downtown.
Today, It's more like 2 to 1.5 and yet the market is starting to sort of Turnover in the sense if you have a 3 50 unit apartment and you're at 75%, 80% occupied And it's taken you a year or so to get there. You now start having renewals and the question will be whether those concessions Are having to be given to the renewals, but generally speaking, markets like that are very, very competitive In Dallas are 2 to 3 months free, which would be in the sort of the Uptown area. Charlotte was pretty concessionary, but I think we've seen Some of the concessions sort of moderate as properties are leasing up, but the good news is for us Is that when you have a 95% occupied property that is stabilized and you think about the number of leases you need We capture in order to keep that stabilized 95,000,000. It's pretty small actually. So the fact that a new property is giving Significant concessions doesn't mean that existing properties have to.
And so that sort of supports our Same store revenue growth because we have a very stabilized portfolio and you just don't have to give those kinds of concessions to Capture market share in the stabilized property. So on the one hand, you have concessions in the development side of the equation and on the other hand, You don't have concessions in the operating portfolio. What you have is just the moderate ability to increase Your revenues 2% to 3% or 4% depending on the market.
Great. Thank you very much. Appreciate the time.
Absolutely.
Our next question comes from Nick Joseph of Citi. Please go ahead.
Thanks. On Houston, does the 70,000 job growth assumption contemplate oil prices at their current level? And do you need to see job growth in the energy sector? Or do you think you can
does not contemplate any large contribution from the oil companies. They're Still, the recency effect is pretty strong among the Houston Oil Companies from 3 years ago when they were still kind of downsizing and laying people off. So when you come from that as your backdrop, there's a great deal of reluctance to add staff even in an environment where volumes are increasing, which they clearly are. So $55 $54 to $55 a barrel is probably a steady state In terms of total activity, activity has increased pretty significantly in the field from where it was 2 years ago. But most of what goes on here is the back office and support operations and the oil companies are still pretty reluctant to be adding But there will come a point where they've stretched to the limit and they will continue to start to add jobs, but that's not a 2019 event.
The 70,000 jobs So primarily in areas in the medical center and just distributed across Harris County. So I think it's I think the 70,000 It's probably very doable for 2019. The most important part of the Houston picture is the 7,000 Completions that we're going to get in 2019, that's almost a 10:one ratio and that's very healthy for where we are in Houston right now.
Thanks. And then on the Phoenix and San Diego future development projects, what's driving the estimated cost increases? And is it a change in scope or market Construction cost pressures?
No, it's both. But the San Diego project, we have reconfigured it and made it more And trying to maximize the views of that we have from that elevated site. And so generally, it's We have had scope changes in both of those projects, but also cost continues to be an issue in every market.
Thanks.
Our next question comes from John Kim of BMO Capital Markets. Please go ahead.
Thank you. Keith, on your market outlook for the year, I think that's based primarily on same store revenue.
But if you
were to look at it on same store NOI, would there be any markets that differ in your grading or outlook?
Well, you get swings in the NOI primarily based on things like property tax kind of one offs like the situation that Alex We're going to have in Charlotte this year where you have an 8 year revaluation event going on. So when I look at these results, I tend to focus Primarily on same store revenue growth year over year, but I also look back over a 3 year trend. And then the second piece of that that's really critical is looking at the jobs to completions ratio market by market because it's Even though if you look at it in total across Camden's platform for 2019, we're going to get On estimates, we're going to we should get about 135,000 jobs and that is or excuse me, 642,000 jobs. We're going to get about 100 35,000 new apartments and that's a 4.7 times ratio. We've always talked about 5 ratio, 5.0 being equilibrium.
And that's interesting, but if you look if you got to dig into that data because at the low end of that ratio range, you have a Denver That's a 3.0 and then you have the DC at 3.1 and at the high end of that range, you have Houston at over 10 and you've got Atlanta at a 7. Those are the biggest indicators to me about the directionality of the market. But again, you get back to Our overall portfolio rankings, we've got 13 10 of our 13 markets rated as stable. So there's not a lot of swings that we're anticipating in the portfolio.
Okay. And then also external growth is a component of your FFO guidance that might be a little bit unique In the sector, earlier today, your stock hit a 5 year high. If you hit your acquisition target for the year, what is your appetite to raise common equity again Versus utilizing perhaps your ATM or dispositions or maybe raising your leverage level?
Well, clearly, we have the luxury of having the best balance sheet in the sector, so we have capacity on the debt And when we look at raising capital via either debt or common stock or Physicians or other mechanisms kind of in between. It's always a balance about keeping a strong balance sheet, but understanding That if you're growing externally, you have to have capital and we just sort of look at each of those Capital levers, if you will, and decide what is the most appropriate and efficient at the time. So we're Excited about our stock hitting all time high, but on the other hand, debt levels are low and interest rates are low as well. And So it's just a balance between trying to figure out what the best fit is for the capital. But was there anything with
the last rate that you did as far as Not deploying the capital as quickly as you anticipated, that you would think of it differently this time around?
I think you take all facts into consideration whenever you're thinking about capital transactions and try to balance them together. We did when we did the equity in 2017, we did think that 2018 was going to be a Where the buyers are going to have more leverage than the sellers and that there would be more opportunity and there just wasn't. I mean, we had 2018's sales for multifamily increased over what 2017 was. The good news for us though, even though we only we didn't hit our acquisition Guidance last year, we did increase development. So on the one hand, you can't Deploy all your capital when you start a development because it takes 18 months to 24 months to actually get that capital out.
So the way we looked At that equity raise was we could do acquisitions and or development. And when you add the acquisitions and development, we actually Our development projections, but underachieved our acquisition. So even though people think that We didn't deploy, we actually did. It just takes time to deploy the development.
Our next question comes from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.
Hi, good morning. Just curious if the peak deliveries in Houston from 2017 have been absorbed at this point? And then could you just provide what your supply outlook for Houston is
Yes. The deliveries in 'seventeen, I think The ones that started at the beginning of the year have probably all been absorbed. Those that started at the delivered at the end of 'seventeen are probably still in the process, depends on how many What the size of the project was, the deliveries in so I would say substantially the 2017 stuff has been absorbed, but the We had huge deliveries in 2018 that are still an overhang on the market and the markets, The submarkets that got most of the activity, which were downtown, midtown and the uptown area, and Galleria, they still have Since that was the those were the locations that attracted the most capital and most new deals, they're still in the fighting and plugging it out, Hand to hand combat, and as Rick mentioned earlier, we're still in the 1.5 to 2 month pre concession range In those submarkets, if you when you move beyond those three areas that got most of the new supply in 2018, it's a totally different picture. And our footprint in Houston has some exposure in Those impacted markets, but we have a lot of exposure that's not impacted by new supply and that's why we've been able to produce the results that we did last year in Houston and why That forms the basis for our optimism for 2019.
In terms of deliveries for so in Houston for I think we mentioned earlier, we get about 7,000 apartments this year. Whitton has deliveries in 2020 Up to 13,000. So from a supply standpoint, that's not still not a terribly troubling number for Houston as long as we get What we normally get in terms of job growth. So the progression would be 7,000 in 19 and call it 13,000 in 2020.
Great. Thanks for that. And then you guys have referenced a few times having the best balance sheet in the sector. I guess what's your appetite to increase leverage from We have talked about keeping our debt to EBITDA in the 4 to 5 Times range and right now we're at the low end of that range. Where do you expect to end the year in 2019?
At year end, we'll be somewhere around 4.4 times. Thanks, guys.
Our next question comes from Shirley Wu of Bank of America Merrill Lynch. Please go ahead.
So currently you're guiding to 2.8% to 2.38% in terms of revenue growth. What should you think it will take in order to get to the high or low end of that range.
A lot better than expected job growth or a lot worse than expected job growth. That's the single biggest variable when we look out on when we look out at performance. The supply is pretty easy to predict because it's Whatever is coming in 2019 is known and knowable. The wildcard is jobs. You got to like the print this morning at over 300,000 new jobs.
I think our Witten's numbers for projected job growth for National 2019 is right at $1,900,000 and obviously you're not going to get a bunch of you may not get a bunch of $300,000,000 but it doesn't take. So we got $300,000,000 of the $1,900,000 in our estimate. So I like our odds of getting over the $1,900,000 total that we're using In our forecast.
Got it. And so on developments, a lot of your competitors have noted that There have been delays due to tight labor markets, but I noticed that your Camden North End 1 is actually delivering a quarter early. What do you think you're doing differently? And
Labor is definitely an issue and that's what's caused most delays in construction. And I think in Camden in the case of Camden North End, we just have a great team out there that executed amazingly. And all of our development teams, I applaud because they are definitely doing what they can to beat their competitors market and to be very efficient. I think if you think about the delays, we've been talking about delays for the last 3 years. And so one of the things that I think we did as a team is try to really anticipate The delay is in our construction budgets.
And so you have a little kind of erring on the side when you think of your schedule Okay. We know we're going to have issues. Let's kind of stretch it out. And so when the team executes amazingly well, You end up bringing it in faster than you thought and at a lower cost than you thought because if you bring it in faster, your general And your other costs that are associated with time go down. And so we were very fortunate In Arizona, we're trying to achieve that in other projects too.
Our next question comes from Drew Babin of Baird. Please go ahead.
Hey, good morning.
Good morning. Good morning.
Wanted to talk about PC a little bit. Obviously, your price point is more on kind of the value oriented side of Spectrum there. And I guess how do you feel about where you're positioned there relative to where new supply is pricing? Where you are geographically around DC Metro? And also kind of are you hearing anything about from your properties about waive late fees or anything like that with regard to the government shutdown?
Yes. So for 2019, we've got DC at a B stable, which is exactly what we had it rated last year For 2018, that still feels about right. 40,000 new jobs, it looks in the D. C. Metro area, Roughly 13,000 completions, so that's you would think of that as adding to pressure.
And I think that's right. The difference is it just depends on the geography of your footprint. The most supply impacted markets have been DC proper and then the Crystal City area. We have a very different footprint than a lot of our competitors do. And so our Northern Virginia, Southern Maryland assets have continued to really put up really good results.
So I think it really just depends. I think we our forecast for DC has revenue, Total revenue growing at about 3%. That's up from 2.8% last year. So that seems about right to me. In terms of the impact from the shutdown, we literally have had a handful of folks that have Indicated that they needed relief and we've indicated to all of our folks that are impacted that we would work with them on late fees And the like.
And so the good news is that, I guess, by today, most people would have gotten their back pay and if they made it this long without being under Financial duress, they're probably okay until the next shutdown.
Yes. And I think it's interesting when you think about the shutdown and how it affected people, Given that we have had all kinds of different things over the years from hurricanes to snowstorms to all kinds of different things They cause residents to be dislocated and not be able to pay. In this situation, when the Shutdown started. Our teams put together a program for anyone that was government related and not just government employees because What happens is a lot of contractors get laid off or not laid off, but furloughed as well. So it's private companies That are working on government projects.
And so I was really excited and happy that our teams We're way in front of that and send out information. It's not just D. C, it's all over the country, right? So we were prepared to deal with the issues and As good corporate citizens, understanding our customers are having trouble making their rent when they don't get paid by the government, Our teams were way in advance of that, and we didn't miss a step on helping our customers.
Great. That's helpful. And then quickly transitioning to Southern California, I think there's a similar dynamic where kind of your positioning, your price point may differ from some of your peers. And like D. C, the supply is kind of coming in pockets where you're either sort of affected by it or not.
I guess, can you talk about your broad Southern California exposure, Where there might be pockets of supply you're exposed to, but also just who's adding jobs in the Inland Empire, Orange County, San Diego and then kind of your main focus markets there?
Yes, sure. Our portfolio is a very different footprint. I mean, when we're aggregating these numbers, we're giving you results Go all the way from San Diego up to Hollywood. There is I would say there is not any place other than directly Adjacent to or near Irvine, where there where I would say that there is a we have a supply concern. We just don't.
I mean, it's just So difficult, takes so long and the planning and delivery process for apartments is just really difficult all over Southern California. So You're looking at 23,000 deliveries over that entire footprint, 118,000 new jobs projected for that Southern California Brent, that's a 5.0. So as long as you don't have immediately in your market Impact area, as long as you don't have 2 or 3 deals trying to get leased up at the same time, that's just a very healthy situation for our operators. And so again, footprint is a little bit different than some folks, but Southern California Sure feels like a place that's going to have that's set up to have the next couple of years be really strong. We've got it rated as an A- but improving.
Last year, we had it as an A in stable. So I think we're really well positioned in Southern California. There's not a single one of our assets that I have Any particular concern about as it relates to exposure to new supply.
Great. That's all for me. Thank you.
Our next question comes from Alexander Goldfarb of Sandler O'Neill. Please go ahead.
Thanks. Good morning down there. Just first question is on Houston. Just there was some recent commentary just speaking to folks down there That suggested that late in the year, there was softness in the market that the jobs expectations had been revised down. But from your comments, Doesn't sound like anything unusual going on in Houston.
So was there just some maybe it was just tough year over year comps? Or Was there in fact some momentary pause in the market that caused a little bit of concern for some folks?
I can give you my hypothesis So let's answer the numbers question first. We didn't see that. And other than the normal seasonal, 4th quarter is always a little bit weaker in Houston In the other three quarters, it's just that's just the way it is. But other but if you put that aside, we didn't see anything in our numbers that would indicate that there was any cause for or resetting of the ability to raise rents or get renewals. So that's just what our experience is.
My hypothesis on the Noise and obviously we heard that too because we get some of the same phone calls that you get, is that if you come to Houston And you have if you go on a sort of guided tour and you go to the areas That I've already described as being the most impacted with new supply that would be downtown, midtown and the Galleria area. And if you're having a conversation with someone who happens to be a merchant builder, which by the way 99.2% of all the product in Houston that's Being built right now is merchant builders because Camden is the only public company that has any exposure to new construction in Houston. So that's preponderance of all of the assets that are being leased up right now. If you talk to a merchant builder who currently is in a lease up Either downtown, midtown or the Galleria area, I promise you, they feel like they are getting their brains beat in because they're in the 2nd or 3rd year of mode. 2 months plus free rent.
And so that's certainly not what they anticipated. They're probably way off on their pro form a numbers. They're under stress because they wanted would have ideally already had an exit at a better Rent roll than they currently have. So there's just a lot of doom and gloom if you talk to those guys. But if you go anywhere other than in the Houston metropolitan area, Those the three areas I just described, you'll hear people like more that have a more of tone of what you would hear from us, which is, Yes.
There's some of our projects, our communities that are impacted by supply. We've been dealing with that for a while. We'll get through it. We always do. But by and large, our portfolio is really performing and outperforming most of our competitors.
I just think it's sort of a selection bias on who you're talking to, but And then that becomes the report, right? And so the report sounds like to the if that's the 3 areas you visited, it sounds like there's a lot of weakness and maybe something that was unanticipated that You're about to have another slip back, but we don't see that.
Okay. So it truly is just localized over supply, not anything market wide?
Absolutely.
Okay. And then the second question is, on the expense control, especially on wages, Alex mentioned that last year came in really low on the self insurance. Don't expect that to repeat. But can you just talk a bit about what you're seeing for payroll? And just given how low unemployment has been and how strong the labor market has been rising minimum wage, It does seem like this is a pressure point.
So just sort of curious your thoughts or whether this is a blessing if in fact it means that your residents are getting Higher income, so if you have to pay your leasing folks and maintenance people more, your residents are having more income, so the rent increase offsets that. If you could provide some color?
Sure. I think it's interesting when you think about wage pressure, right? Because when people consider The company that they work for, wages are not the number one reason why they stay at a company. It has to do with culture and it has to I feel a belonging and a feel of trust and their job is important and it's more than a job. So on the one hand, We, as Alex mentioned, we did make some adjustments for folks that were clearly under market because of Wage pressure and low unemployment and all that, but we don't have people just leaving because of wages.
I think part of the equation Making sure that our wages and what we pay our employees are fair and in the market. And I'll give you an I know a lot of our competitors, for example, their lowest paid employees would be sort of groundskeepers and folks like that. And they're paying maybe minimum wage, but maybe slightly higher than minimum wage. Our base pay For the lowest common denominator person, it would be $13.50 an hour. And so we have always sort of pushed that up, That cost or that wage up, so they the folks were not at the sort of bare minimum, minimum wage kind of thing.
And So I would think that companies that are that haven't been proactive in trying to take care of their employees and create great culture and make sure their salary levels Competitive in the marketplace, probably have more wage pressure than we do. So we have it sort of built into our run rate already. And I do agree that higher wages, generally speaking, are better for our customers. And if you look at our customers have changed pretty dramatically over the last 5 or 6 years. We went from at the beginning of the Sort of the uptick in the market, we went from 60,000 and change medium household income an hour like 90.
So We have changed that doesn't mean that people used to make 60, now they make 90, but a lot of them a lot of people have moved into these properties That have higher wages and higher incomes.
Okay. But it does sound like higher wages are something that's going to be consistent with us For at least the foreseeable future?
Absolutely. No question about
it. Okay.
Okay. Thank you. Yes.
Our next question comes from Rob Stevenson of Janney. Please go ahead.
Hi, good morning guys. What's the expected stabilized yield on the 6 developments currently under construction? And how does that compare with expectations for the 200,000,000 to 300,000,000 Did you expect to start this year?
So our yields are in the 6% to 6.5% range For the developments that we have right now, the challenge of the future portfolio is They probably come in on the lower end of that range just because of cost pressure, costs have gone up faster than rents. And so, but when you think about the current market today for an acquisition is 4.25 plus or minus kind of across America. So we're still getting a nice 250 to 200 basis point positive spread to our A development pipeline, even though as properties that we built 2 or 3 years ago, we're getting 7, 7.5 And now we're 6%, 6.5%.
Okay. And then in the guidance, you guys provide some detailed guidance for both The revenue enhancing CapEx and repositions as well as wholesale redevelopments, how many units are roughly in each And what are the expected stabilized returns of each?
Yes. So for repositions, You've got approximately 2,000 units, and we're sort of looking at still right around a 10% return. When you go to redevelopment, you've got 3 projects that are in there. So you're Talking about approximately 900 to 1000 units and those yields are closer to development type yields.
Okay. And then in terms of that, I mean, what's the opportunity set for you guys over the next couple of years? And Are you sort of limited in terms of the amount of internal Camden people and availability of external Camden people to be able to do this? I mean, if you had additional capacity, would you do more on an annual basis? Or is this basically what needs to be done This year in the portfolio and there really wouldn't be a lot of extra units to do even if you had capacity.
Yes. We have capacity to do more substantially more than we're doing right now. I think at the peak, we were doing close to 6000, 7000 Units annually when we first started the process. The governor and the limitation on it is assets that are in a condition Both from an age standpoint and the submarket that they serve, such that we can underwrite them To get an incremental increase on our dollars of somewhere in the 8% to 10% range. So that's kind of our that's kind of the bucket that we're looking for.
The best case scenario are deals that are still in great submarkets, maybe even submarkets where there's New development that's occurring, but they're 12 to 15 years old. Externally, they're cared for in a way and architecturally Truly, they present themselves that to the uninitiated consumer, once you do a reposition and you've done the completely redone the interiors up to what Today's market apartments delivered new construction look like. The average consumer can't tell the difference between our asset and our competitors' asset that happens be brand new. So maybe you're not going to get the full 100 percent rental rate on the new construction, but you'll get something pretty close to it. So if you can underwrite those types of assets and on incremental investments somewhere in the 8% to 10% range, that's the opportunity set.
And So we go through a process that starts pretty organically at the district level and we look at recommendations and the teams make their case And then we vet the numbers. And if it passes muster with everybody around here, then we go forward. But yes, we don't I wish we had Another 5,000 in reposition right now because it's still the best bet on the table from Camden's perspective.
Okay. Thanks. Have a good weekend, guys. You too.
Our next question comes from Wes Golladay of RBC Capital Markets. Please go ahead.
Hi, everyone. Looking at wage growth, I'm just wondering when does wage growth become a bigger part of the equation for rent growth? Is this something we have to wait for supply to slow?
Yes, I think so. We're absorbing enough in every market to absorb the Supply that's coming online, but that supply does have an impact on being able to raise existing rents In existing portfolios, if you didn't have the supply, obviously, you'd have more and you have the same demand, you could raise your rents a whole lot more. And When you look at sort of the progression of revenue growth from, say, 2010 to 2016, It was kind of straight up and to the right and primarily because you didn't have a lot of supply. And now the supply has been pretty stable for the last couple of years and the demand has still been there, but that supply just takes your ability to raise rents beyond 2% or 3% or 4% off the table.
And how is rent to income trending maybe Year end 2018 versus year end 2017, is it materially improved?
We're still about 18 times rent to income, which that We've been in that range for the last 2 or 3 years, which tells me that our on average, our residents are getting wage increases as a group that Have mirrored pretty much what our rental increases have been, and that's been we've been running 4% or 5% now for almost 6 years. So the good news is that our resident population is managing to keep up from an income standpoint with what the underlying rental 18% of disposable income, I don't even think we would see any impact until that number got closer to 20%.
Okay. That's all for me. Thanks for taking the questions.
Our next question comes from John Guinee of Stifel. Please go ahead. John, your line is open on our end. Do you have it muted on yours? Our next question comes from Hardik Goel of Zelman and Associates.
Please go ahead.
Hey, guys. Thanks for taking my question. Just a couple of clarifying questions on the development yield. You mentioned 6 to 6.5. What would that number be if it was unlevered cash flows, including some allocation for property management expense and ongoing maintenance CapEx?
Generally, those are 50 basis points, plus or minus, In terms of costs, if you are inputting those numbers.
Got it. Just one more on the labor delays you mentioned. So if you had to split those up by market, which markets are seeing more labor delays versus others? And as you think about your starts and you look at your predevelopment Are you factoring that into which developments you choose to start since you have I think 600 in predevelopment and roughly 200,000,000 to 300,000,000 of starts on guidance?
We definitely are factoring in what we think the real development timeframe is And when we do a pro form a, so our if you compare it to say maybe 4 years ago when we didn't have this kind of issue, Our developments on sort of stick built would have been we probably extended those times by 4 to 6 months and then on high rise probably Anywhere from maybe a 12 month period where we extended that construction period because of labor. Labor is pretty I think most markets are pretty much the same. There's some maybe That Charlotte was a tough market when we don't have anything really under construction there at this point, just because they had so much at the same time. So the labor Pool there was more difficult, but I think generally speaking, it's a there's not like one market that doesn't have a labor shortage, they all sort of do. And depending upon where they are at peak in their cycle is when you have the most sort of acute situation.
It depends also on the size of the market, but we are definitely including what we think real achievable Construction periods and lease up periods are in all of our new developments and that has And part of what's caused the sort of the decline in projected yields.
Got it. Thanks. That's all for me.
Our next question comes from Haendel St. Juste of Mizuho. Please go ahead.
Hey, good morning down there.
Good morning.
Good morning. So, Rick, I guess I'm curious how much pressure are you seeing specifically in your Texas and South Florida markets from home buying? We've heard from the homebuilders that homebuying presence seem to be fairly strong in those regions, especially amongst the entry level price points.
Well, overall,
the Moving out to buy homes has been a 15% of our portfolio. And in specific markets Like Houston and South Florida, I don't think it's any higher or lower than it has been. And when you think about the challenge with the whole idea where People can afford a home in Houston because the median price is so much lower than other places. But if you get in if you go into urban core in Houston, The average home is the same price as San Diego, right? So and the challenge is that affordable home is 45 minutes to And then the other thing that I think that you need to that people need to understand is that When you buy a home, home buying a home is not a financial decision.
It's a demographic decision, Right. So we know that our millennials are getting married later in life, having kids later in life and making those kind of demographic things That drives them to want an ownership situation. A lot of the millennials want optionality. They want to be able To move around and not be burdened by a specific location or a mortgage. And so I think that's one of the things that's kind of driving The fact that that homeownership rate hasn't spiked up in spite of low interest rates and what have you.
Yes. Just a note on that. In the Q4 of 2018 in Houston, we had about 17% of our Move outs indicated it was to purchase a home. That's probably 1 or 2 percentage points higher than it's been in the last 5 years on average. So Houston had a great year for new home sales.
It set a record in terms of total units. So despite that, Multifamily market in Houston and our relevant set stayed in the 94%, 95% occupied and we never dropped below 95%. So It's pretty robust. You're right. What you're hearing from the builders is correct.
They're selling a lot of homes in Houston, Purchased homes in the Q4 of 2018 and that again is probably 1 or 2 percentage points below the long term trend. So Probably not a big part of the story in either market and part of it in Houston is we got 120,000 jobs trailing 12 months and Probably 25, 30 in South Florida.
Thank you. That's helpful. Would you say actually, could you quantify what percentage of your Houston rents come from the 3 markets with heavier supply and maybe what the rent growth differential between those areas
So we're I don't have the exact of those 3 submarkets, but I can give it to you broadly We look at it between urban and suburban in all of our markets. So all three of those submarkets would identify And our urban category bucket for Houston and the differential for the last year was clearly in favor of suburban products The differential was about 1.2% on revenue growth. So it's not nothing. It's a meaningful number in terms of If you're in the urban area, that would be those 3 submarkets that are impacted versus suburban.
Great. Thanks. And then lastly, I'm not sure if I missed it or not, but what was the blended rent in January and how does that compare to January of last year?
It's about 2.4% this year, and I don't think we gave the blended from last year, but I can get that to you if you call me later. So it's roughly flat on new leases and about 5% on renewals. And if you do the math, that's about 2.4%.
Got it. Okay. I'll follow-up. Thank you.
Our next question comes from Daniel Bernstein of Capital One. Please go ahead.
Hi, good morning. I was also at NMHC and heard the bid ask spread comments there and just wanted To ask you your thoughts on
where maybe those bid ask spreads are widening out A asset, B suburban, urban, just trying to understand where you think the
Sure. So, the most overbid properties are value add. That's a really crowded space. And so I think that the value add space is definitely a space We're not involved we're not interested in it much because what we wanted what we are trying to get, we think the sweet spot Is the bid ask spread differential between merchant builders who have owned their property now for a year or 2, it's stabilized, They're not making their original returns, but they're definitely able to sell above what the original cost was. And so given from their profit on their promote.
So what we're looking for and I think the bid ask spread in that type of product Because it's less traveled, if you will, because you're buying newer properties and there's So you don't have a great story on the new properties. Gee, I'm going to take this older property value add, I'm going to buy it for a really low cap rate, but I put 10,000 to 20,000 in it and then all of a sudden I can convince myself perhaps that there's a story on being able to get a better yield there. And that's like I said, we're not in that space, but we want to buy and below replacement cost at and From specific merchant builders that don't manage their own properties and are managed by 3rd party property managers, which Tend to be sort of managing to the middle as opposed to trying to maximize the Utility of what their property really is because they just have so many. So I think that spread will compress And the buyers will come towards the sellers a bit, but I think that the sellers, because there's so many properties that have to trade, We're going to have to come to the buyers a little bit closer as opposed to sort of meeting in the middle, if you will.
Okay. No, that's helpful color. That's all I had.
This concludes our question and answer session. I would like to turn the conference Back over to Rick Campo for any closing remarks.
Well, thanks everybody for being on the call and I'm sure we're going to see a lot of you over the next
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.