Good morning, and welcome to Camden Property Trust first quarter 2022 earnings conference call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Ric 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.
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 investors 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 Ric Campo.
Thanks, Kim. The theme for our music today was fools, as in April Fools. Since our IPO 29 years ago, April 1, 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 Fools 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 Teacher Retirement System of Texas partnership interest in 22 Camden communities with a gross valuation of $2.1 billion. Finally, April 1 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 Fools Day was extraordinary, and that's no joke. I wanna 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.
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've 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. Rarefied air indeed. Next up is Alex Jessett, Camden's Chief Financial Officer.
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 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 Sun Belt 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 from 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 4.4x .
Last night, we reported funds from operations for the first quarter of 2022 of $160.5 million or $1.50 per share, 3 cents above the midpoint of our prior guidance range of $1.45-$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 half a cent in higher property insurance expense, resulting from higher than expected levels of the 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-$5 million. Last night, we also increased the midpoint of our full year 2022 FFO guidance by 27 cents per share for a new midpoint of $6.51 per share.
This $0.27 per share increase resulted primarily from an approximate 18-cent 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 21-cent decrease in equity and income of joint ventures and property and asset management fees.
A 14-cent decrease due to the assumption of approximately $514 million in existing secured 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 $0.18 anticipated increase in FFO related to the fund acquisitions, we are also anticipating an approximate $0.11 increase from our revised same-store NOI guidance and a $0.01 increase from the first quarter unbudgeted earn-out received from the sale of our CHRP investment. This $0.30 cumulative increase in FFO per share is partially offset by $0.02 of higher overhead expenses related to our anticipated outperformance versus our original budget and $0.01 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-$1.64.
The midpoint of $1.62 represents a $0.12 per share increase from the $1.50 recorded in the first quarter. This increase is primarily the result of an approximate $0.09 increase related to our acquisition of the fund assets comprised of a $0.22 increase from consolidating the NOI from the two fund portfolios, a $0.03 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 secured 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 $0.01 sequential increase related to additional NOI from development communities in lease-up. A $0.01 decrease from unbudgeted earn-out received from the sale of our CHRP investment in the first quarter. A $0.005 decrease from the sale of Camden Largo at the end of the first quarter, and a $0.005 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.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Nick Joseph with Citi. 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?
Sure. We, you know, have ongoing conversations with our JV partner. We're 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. We had a four-year kind of window. It made sense, 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.
What we did is we 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.
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 IRR way above 20% on their capital was pretty positive transaction for the teachers of Texas. 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. It helps us with our suburban portfolio. Suburban continues to outperform urban generally, and we just think it was a great transaction for both parties.
Thanks. That's very helpful. Maybe just what are you seeing in the transaction markets today, just given the rise in interest rates?
Transaction market's still very buoyant. You know, clearly the ten-year going up 100+ basis points in three or four weeks has definitely got people, you know, kind of heads scratching, and thinking about, you know, what pricing ought to be. You know, I would say that the acquisition market for leverage buyers has definitely taken a pause. The value-add space, which, you know, we don't really play in, but that has definitely taken a pause.
When you think about, you know, sort of 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. 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. Inflation expectations, which we all know are going up. Ultimately interest rates. I think at the margin some leverage buyers are definitely having to rethink their underwriting.
Most institutional buyers like us are just kind of looking at it as a, you know. It hasn't really changed pricing in that from that perspective.
Thank you.
Mm-hmm.
Our next question will come from Eric Wolfe with Deutsche Bank. You may now go ahead.
Hi, everybody. Good morning, and thank you. Yeah, let's just stick on that in this rigid cap rate environment. You know, and I think you mentioned the tight versus historical levels on the cap rate spread to the 10-year Treasury. What's keeping you from accelerating dispos in perhaps D.C. or some other markets?
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. We have a methodical disposition and acquisition program, and we're gonna 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 four years, maybe with the exception of the fund, which was actually 12 years. We're gonna 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 you know, at the margins, we'll sell some assets and reallocate capital. As we talked about in the past, we will be you know, 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.
Okay. Thank you. Appreciate that. Then you guys have, I think, $390 million in unsecured debt maturities this year. You know, clearly you have one of the best balance sheets, you know, amidst all REITs. When it comes to refinancing, can you kind of speak to, you know, when you talk to your bankers, how the rate environment looks and, you know, what that might look like versus, you know, previous rates?
Yeah, absolutely. We've got about $350 million of debt that comes due December the fifteenth, and that debt is at 3.15%. The way in our model that we plan on paying for it is a couple hundred million dollars of dispositions at the end of the year that Rick mentioned. If you think about overall rates for us, the indicatives that we have right now are right around, call it 4.1%. To give you an idea, you know, probably about six, seven weeks ago, that number was sub-3%, so pretty aggressive acceleration on rates.
Thank you, Alex. Very helpful. That's it for me.
Our next question will come from Neil Malkin with Capital One Securities. You may now go ahead.
Thanks, guys. Another great quarter. First one 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 or 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 kinda, sort of it sounds like you're podding your sort of clusters of assets to reduce, you know, your OpEx load. If you can just give some, you know, elaborate on that, just, you know, kind of how you see that going forward over the next 24 months, that'd be great. Thanks.
Yeah, sure. I'll just give you a little bit of detail about what we call nesting, hummingbirds, right? Some people call it podding. The geography of our portfolio is pretty unique in that respect, and our approach probably, you know, it's very unique to Camden because of our geography. Within our 170 plus or minus communities, after this reformation of reporting responsibilities and duties into nests, we end up with about 46 communities that are still standalone, single community manager staffed, 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. That.
That's really just based on geography and being able to staff those communities in a way that the onsite 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 gonna be all different permutations of this, everybody's gonna end up with an approach that works kind of for their grouping of assets and their geography. When we started out, we didn't have a stacking in mind. What we were trying to accomplish is really two things regarding our onsite 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 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 one challenge. We're providing additional growth opportunities by having new positions, the sales 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.
The second thing was that you always have, if you have single community in this linear, a community manager, assistant manager, outside staff, inside staff, you just 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 as a leasing consultant. The next logical and really only move in most cases for them to advance is to become an assistant manager. An 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. Honestly, our best salespeople are generally not our best administrative tasking people.
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. 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. I hope that explains a little bit about our philosophy.
Yeah, no, that's great. Thank you. Other one for me is related to, I guess, you know, renewals. Yeah, I think renewals are stronger across the board compared to, you know, what management teams, and what we thought, you know, would kind of 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.
I'm just wondering, you know, or I would like you to discuss how you think about renewals, you know, through 2022 and even into 2023, just given the, you know, sort of low turnover environment, people willing to take these prices, you know, how do you think that stacks up for, you know, pricing power over the next several quarters? Thanks.
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 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.
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. We're gonna run into that first. You gotta 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. You know, we are gonna 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 and a lot of questions around, you know, this 16%, 17%, 20% 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. Our residents, they're getting these big, you know, kind of eye-popping increases right now. For the two previous years, you go back two years ago, we were actually decreasing rents at the beginning of the pandemic. The second year, we had some very modest increases. The reset of the rents, if it's 15% over a three-year period, it would be, you know, more like 5% per year for three years. It's.
Since it's all in one year, it's kind of the headline. We will definitely reach that reset first in our portfolio. I think the two markets where we are not gonna reach the reset, probably not even by the end of this year, are Houston and D.C. proper, and maybe L.A. County. That's more in D.C. proper, Loudoun County in the D.C. metro area and L.A. County. That's a regulatory constraint. In Houston, you know, we think that we don't have any regulatory constraints anymore, and our growth rates have picked up pretty significantly. Those three of our markets probably will be the three that have not completely reset by the end of the year.
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%. To Keith's point, the markets that have not kind of reset to the level with the rest of the country, you know, have the ability to do that over the next couple of years. You know, Houston's issue is that energy has not added back all the jobs they lost during the pandemic. Houston overall as an economy has still not added back all the jobs that we lost during the pandemic.
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. Don't get us wrong. In Houston, we're getting, you know, 8%-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.
Mm-hmm.
Our next question will come from Rob Stevenson with Janney. You may now go ahead.
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? I guess the other related question here is, what are you seeing on pricing availability for materials and labor for new starts?
Yeah, absolutely. If you look at our current pipeline, we're anticipating it right around 6%, stabilized yield. If you look at the assets that we haven't started yet, that number is right around 5.25%-5.5%. If you think about construction costs, probably the easiest way to think about it is to bifurcate it between high rises. For high rises, we're seeing escalation right around 0.5% 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. 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.
The other part of that equation.
Okay
General condition costs are up because it's taking longer to build. Pretty much every one of our developments has definitely been enhanced by, you know, higher rent growth, and better yields than we originally anticipated. 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%. There's definitely upside in the ones that we're starting this year in terms of our yields. The thing that you get into, this issue of how fast supply can get into the marketplace, and, you know, we're adding 60-120 days of additional timeframe on our construction projects, anything we start this year.
That's in addition to the 60-90 days that we added three years ago. It's really the supply chain issue is gonna be a problem, you know, through 2023, 2024. That's sort of good news and bad news. It takes you longer to build, but that's bad news. The good news is that all this new supply that is starting, you know, in response to the demand, you know, push that's happened in this industry is gonna take a lot longer than most people think to come to the market.
That should, you know, make us feel pretty good about, you know, 2022 through the end of the year and through 2023 and not having, you know, major supply, you know, pressure on the demand side.
Okay. How are you guys thinking about the trade-off 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? 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?
Yeah. We've just approved another grouping for our redevelopment program in total of about $125 million. We still, as the vintage works and the new construction pricing around our existing assets that are anywhere from, you know, 10-15 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 repositions. 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'll likely be added to the pool next year.
Honestly, we had already done some repositions with our JV partner as they made sense. They were always extremely supportive. They understood the play, and the return on invested capital was the best play on the board for the joint venture. We operated the fund as if they were Camden assets, obviously with the consent of our partner, but there's not. 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. There'll be some assets that will be added just on based on conditions on the ground and what's happening to rental rates in their sub-market.
Okay. Thanks, guys. Have a good weekend.
You bet.
You too.
You too.
Our next question will come from Rich Anderson with SMBC. You may now go ahead.
Hey, thanks, team. Good morning. I'm sure your bankers have done the calc for you about the net new demand that you'll get from the inclusion. I'm wondering if the equity offering post-inclusion 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?
No. 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 the line $500 million and it looked to us that, given what had happened to interest rates within the bond market, that the equity offering made a lot of sense to, you know, sort of reload the balance sheet and get our debt to EBITDA back down to the 4.4 area. No, it was all driven by the, you know, the acquisition.
Okay. Fair enough. Second question. To what degree, you know, you hear management teams, your peers say, well, we're heading into the heavy leasing season, even MAA said that in the Sun Belt. You know, 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, you know, maybe it's a better time than leasing 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 up north?
Yeah, you're always gonna have some degree of seasonality, Rich. Now, as you mentioned, you know, Phoenix has a reverse seasonality to the rest of our portfolio for the reason that you mentioned. From these levels of occupancy and the low level of turnover that we've seen and continue to see, you know, the leasing season, the volumes are just not gonna be there as they have been in the past. You got incredibly low turnover, and we're starting from a very high occupancy. 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 they, you know, for whatever reason, they're relocating. It just, it's conducive to doing so and always has been. I don't think seasonality will be there. I just don't think you're gonna see it in the leasing numbers if you're 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 gonna see anything like that. 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.
Okay.
Our next question will come from Joshua Dennerlein with Bank of America. You may now go ahead.
Yeah. Hey, everyone. Hope everyone's doing well. Sorry if I missed it, but did you guys discuss your earnings for 2023, given everything that's already in place?
We did not, and it's probably it's a number that we talk about, but it's such a speculative number that we're really not gonna talk about that. It's just it's hard to predict, ultimately. Maybe second, third quarter is a better time to ask it.
Okay. I'll keep it in my question bank for Q2.
Okay, good.
Yeah. 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 mezz or preferred equity to third-party developers in your markets or-
We've actually done that before. You know, 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. 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 gonna keep it that way.
Got it. Sounds good. Thank you.
Mm-hmm.
Our next question will come from Haendel St. Juste with Mizuho. You may now go ahead.
Thank you, operator. That's actually a very good pronunciation. Hey, guys. I want to ask you about SFR development here. Looks like you started two projects in Houston. I guess I'm curious. You've alluded to 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. Looks like you're partnering with a local builder. Maybe talk about the returns you're targeting and your appetite for maybe doing more. Thanks.
Sure. You're talking about the two properties that we have acquired in Houston, and those are both purpose-built single family for rent properties. The way we look at them is they're just horizontal apartments, right? The fact that they're all in one subdivision and both projects are a decent scale, 180, you know, plus units. We just think it's an interesting thing to the single family rental market to sort of dip our toe into. You know, if you look at our history, we got involved in student housing, and 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 it's you sort of run it just like an apartment and maybe with less staff and what have you. I think it's just an interesting and potentially expansion ability for us, you know, in the markets we're already in. We're gonna, you know, 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 project is not ideal.
You know, most of our new developments today are over $100 million, and most are like $150 million. It's a little inefficient for our senior development people to work on smaller deals like that. It's, I think, an area for us and also the municipalities oftentimes don't understand single family rental. It takes longer sometimes to entitle and but it, you know, 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 apartment projects.
Got it. That's interesting. Certainly sounds like there is perhaps the mindset to do more, but you're using these two projects as maybe a case study.
Yep.
Second question maybe for Alex. So maybe a bit more color on the expense guidance, the 120 basis point increase. Not a small amount, given that you know gave out guidance 60 days ago. I guess I'm curious maybe you could talk a bit about more about what's happened in the last 60 days. You touched on some of the pressures, maybe insurance, and property taxes. I guess I'm curious, maybe if you could get into some of the detail on each of those pieces. Do you think that the new guide kind of captures what you're seeing out there or, you know, the risk of a further increase in the same sort of guide over the course of the year? Thanks.
Absolutely. The first thing I'll talk about is taxes. You have to remember that taxes is about 35% of our total expenses. Initially, we thought taxes were gonna be up 3.3%. We now think they're gonna 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 gonna be some rollback in rates to account for the increase in valuations. That's one component of it. The second component of it is insurance. You know, originally, we thought that insurance was gonna be up, call it around 11%. We now have it up around 22%.
70% of our insurance cost is associated with rates. We think our rates are gonna be up right around 30%, which just continues to be a really tough insurance market. We are actually in the market right now trying to do our renewal. We're gonna 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. The other side of it is salaries. As we typically have done, whenever we have outperformance on the revenue side, we do increase our bonus accruals. As you know, we do reward our on-site teams for their efforts.
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.
That's great color. Thank you.
Yeah.
Our next question will come from Brad Heffern with RBC Capital Markets. You may now go ahead.
Hey, everyone. Can you give any updated stats on move-ins from outside the Sun Belt or move-outs to areas outside?
Yeah, absolutely. 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 2021. If you compare it to the first quarter of 2020, right, you know, right before COVID got started, that number is actually up about 330 basis points. Continue to see really robust demand from folks moving from outside the Sun Belt into our Sun Belt markets and continuing to see acceleration on that front.
Okay. Got it. Any update on where rent income stands currently?
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 our rent-to-income ratio is slightly less than 20%, but overall, it's just right at 20%. The challenge with that number is we don't ask our residents to update their income number. 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. I think those numbers at 20% and a little less than 20% are probably overstated, and it's probably in the teens if you updated everybody's income.
Yep. Okay. Thank you.
Mm-hmm.
Our next question will come from Steve Sakwa with Evercore ISI. You may now go ahead.
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?
Yeah, absolutely. 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, 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, can I get-
Yeah. Yeah, go ahead.
Sorry. If you just think about 2023, do you think that reverts down towards the 50 basis points next year?
You know, we certainly anticipate that as we move through 2022, we're gonna 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. 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 2023 we're gonna be in that scenario, we should assume that 2023 is gonna be a more typical year. By the way, the 50 basis points that I told you in 2019, that's what we've experienced since we went public. That's very much a normal year.
Got it. Thanks. Just second question, I guess maybe for, you know, for Ric 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 and, excuse me, what kind of discussions you're maybe having with folks in Washington and some of the states about that.
We're definitely on it, no question. When you think about the states like Florida and Texas, you know, 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 municipalities doing rent control. I think we're in good shape in most of our markets, where you know, we're not really too concerned about rent control. National Multifamily Housing Council, we're very involved in that, and Laurie Baker serves on their leadership group.
You know, 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 another fight in California coming up on repealing the statewide rent control scenarios. Generally speaking, in our markets, I think we're pretty good with the exception of California on rent control issues.
Great. That's it for me. Thanks.
Mm-hmm. Okay.
Our next question will come from Connor Mitchell with Piper Sandler. You may now go ahead.
Hi. Thank you for taking the question. I just have a couple items to circle back to. First, regarding the single-family rentals. Can you just remind us if these are standalone products or would it be more of attached townhomes?
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. 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. I think I don't think it's negative that townhouses are negative. The two that we're building right now just happen to be detached.
Great. Thank you. The second question was, can you just remind us again of the, if there's been any acceleration of move-outs to home purchases given the rising mortgage rates or a decline?
Yeah. 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, the 20+ years is about 18%-19%. We're still well below what the long-term average is. You know, with the recent spike in the ten-year and the corresponding move in mortgage rates, you know, I just 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 buy, you know, like I have to buy now before it gets worse, effect in this quarter.
Mortgage rates above 5% versus where they were even six or seven months ago in the threes is a game changer for most people. I think that the lenders are, you know, probably placing a lot more scrutiny around borrower requirements just 'cause they're, it's thinner to underwrite them. I think it's pretty likely that we'll stay much, you know, 300 or 400 basis points below our long-term average on move-outs to buy homes. It just gets tougher and tougher. 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.
The combination of those two things is just a killer for affordability for most first-time home buyers.
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%. In April, through the end of the month, so far it was 17% in March and April of 2021. If you go back to this March, we were at 16%, which is pretty much the same as it was in the prior March. April fell to, as Keith pointed out, 14%. We had a 300 basis point decline from April of 2021 to 2022, and a 200 basis point decline from March to April. April is sort of thought of as the spring, you know, home buying season. People rush into the market, you know, before the summer.
Having those numbers decline year-over-year and month-over-month tells me that single family home move-out to buy homes is not gonna be a problem for us. 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.
Great. Thank you for the color on that. Thanks. That's it for me.
Okay.
Our next question will come from Chandni Luthra with Goldman Sachs. You may now go ahead.
Hi. Thank you for taking my question. I believe it hasn't come up, and if it has, apologize. Could you remind us where loss to lease stands in your portfolio right now, and how much of it do you expect to capture in 2022?
Sure. Loss to lease for us is right around 11%. 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. You'll never really capture that full amount, but we should get quite a bit of it for the rest of the year.
Great. 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, you know, permitting activity, construction activity has kind of been, you know, really up there. At the same time, we've continued to see compounding supply chain issues as well, and higher interest costs and kind of, you know, construction costs. How are you thinking about supply, in your backyard next year?
Yeah.
Go ahead.
Yeah. Ron Witten has got completions across Camden's portfolio at about 160,000 apartments this year. Then he in 2023, based on his estimates, that goes to 212,000. About 50,000 increase across all of our 15 markets. I do believe that this is. 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.
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 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 gonna be at 50,000 completions across Camden's markets next year. Which if you look at it market by market, there's not.
None of them look, you know, terribly troubling at this point, as long as we continue to get decent job growth.
Great. Thanks, all. Have a great weekend.
He also shows, you know, above average or above the long-term trend revenue growth in 2023, in spite of, you know, development of new supply coming in.
Our next question will come from John Kim with BMO Capital Markets. You may now go ahead.
Thank you. Good morning.
Good morning.
Alex, in your prepared remarks, you mentioned that your same-store revenue guidance includes the assumption of 8% on renewals.
Mm-hmm.
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?
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.
Okay. Not to focus too much on renewals, but you did mention it's lower than your new lease growth rate. I'm just wondering.
Mm-hmm
why that's the case. The new lease growth rate is 12%.
Yeah. You know, obviously we've had over the past, call it year and a half, a situation where new leases have been higher than renewals. Now, at some point in time, that will converge, right? That's what you typically see. For our assumptions right now, we are assuming that they are not converging just yet. 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 frictional costs associated with that resident leaving. That's typically why, at least in the past year and a half, we've had lower rates on renewals.
Okay. My second question is on your 11% loss to lease.
Mm-hmm.
Is there any way to break down what that loss to 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 loss to lease, so it would be higher than 11% on your older leases.
Yeah. I mean, 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. Theoretically, I mean, that's why the loss to lease starts to minimize as you move forward.
Great. Thank you.
Mm-hmm.
Our next question will come from Austin Wurschmidt with KeyBanc. You may now go ahead.
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. Just wondering how much you think is really seasonality related versus the tougher comps and just normalizing, you know, steadily normalizing operating conditions. Because, you know, up until this point, you know, to what you just said, really, turnovers remain very low and occupancy really held up quite well in 1Q. 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?
I think you have to start with the places where we are constrained from getting market rate increases, and that would be D.C. proper, still certain parts of California. You know, those are meaningful numbers. You know, Washington, D.C., which includes the D.C. proper assets, Loudoun County, where we are, you know, we still are not able to push through what the market rate increases are. You know, you got our total rev rents in Washington, D.C. for the quarter were 5.3% against a portfolio-wide average of something north of 11. It's, you know, 17% plus or minus of our NOI.
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. I mean, I think that's the biggest part of the story. You know, we certainly believe that if we were unconstrained in Washington, D.C., and we know just mathematically, we haven't had anything close to a reset of room rates in D.C. proper and Loudoun County because we haven't been able to raise rent. 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. 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, "When you come out of the constraints, there's still gonna be a period of time where we have to work through the process of actually getting control of our real estate on those folks that are still not paying or choose not to pay." But I think we feel like we're in a really good position given the untapped rental increases that we're gonna get to at some point, and I just.
I certainly hope it's by the end of the year.
Got it. No, I appreciate that perspective. How much of the loss to lease bucket is from markets where you're constrained? I'm also curious how much across the portfolio market rents have increased year to date?
Yeah. 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 gonna be up right around 4%. 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. and California, which make up you know 23% plus or minus of our total portfolio. That amount is gonna have a much larger loss to lease calculation.
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. 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 gonna have a much better idea of what the true loss to lease is.
Right. Presumably market wages have moved much more than probably market rents over that three-year period that you were talking about earlier in the call.
Absolutely.
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? You know, I'm also curious what you're implying for lease rates in the back half of the year.
Yeah. 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? 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. What we've seen is that no matter how high we set, we continue to have just really tremendous demand. That's why you're seeing the type of new lease and renewal increases that you're having. 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 4 or 5 quarters can't continue. That's what you've got baked in. If you sort of think about what we are 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. 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 14.5% already. That would imply that we're assuming that we get down to sort of a 7% number for the third quarter and maybe a 4% number for the fourth quarter.
Got it. I missed that 10% number, so thank you for that. Then-
Yeah
What is the 30- to 60-day availability when you look out, is that elevated versus prior periods or tracking, you know, similarly? Out of known move-outs plus, you know, current vacancy.
Yeah , You know, we continue to have very low turnover.
Okay, great. Thanks for the time.
Mm-hmm.
Our next question will come from John Pawlowski with Green Street. You may now go ahead.
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?
Well, we did have the formal appraisal where we marked to market at the end of the year. In the first quarter, we also then adjusted that for what we thought the current market was, and at that point is where we you know, sort of came to the struck the price. There was an adjustment from the appraised number in December. We ended up with you know 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 in the at and probably at the end of February, early March.
There was no adjustment to purchase price for interest rates?
No, there was no adjustments on interest rates, no. No, it was struck before.
Okay
any of the meaningful move in interest rates. Right.
Okay. I guess I don't think it will change our position and value, by the way.
Yeah.
Go ahead. Sorry.
Okay. Yeah, no, sorry to cut you off. I guess the cap rate above 4% kind of surprised us on the high side.
Mm-hmm.
Could you just talk about how many other bidders were in the tent and, you know, how broadly this was all marketed?
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. 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. The value that we, like the value calculation that we did after the original appraisal values in December, were substantially higher than the appraised values in December. 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. From start to finish, it was a 4-week transaction, and if you want try to bid a 7,200-unit, you know, portfolio, 22 properties in multiple markets, that's a 120-day gig. I think Teachers was very interested in getting the deal done as soon as possible as we were. It was sort of a we both looked at it as a moment in time and we got to what we thought was fair value, even though, you know, you never know what values will be clearly when you bid. We were happy about not having to bid it.
Okay. Thank you for the color.
Sure.
This concludes our question and answer session. I'd like to turn the conference back over to CEO, Ric Campo, for any closing remarks.
Great. Well, thanks for being with us today, and we'll see you guys in Nareit in a few weeks, right? At the first in-person Nareit in June. Thanks a lot and take care. Bye.