Good morning, and welcome to Camden Property Trust Q2 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 Alexander 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 risk 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 Q2 2022 earnings release is available in the investor section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.
We hope to complete our call within one hour, and we ask that you limit your questions to two, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes. At this time, I'll turn the call over to Ric Campo.
The theme for today's on-hold music was together, which will resonate with Team Camden. After two years of virtual meetings, this year Camden was able to be together for most of our important cultural events. In May, we held our annual leadership conference, which brings together 400+ Camden leaders for three days of learning, reconnecting, and fun. A lot has changed in the world since May, which serves as a good reminder that real estate and financial markets will rise and fall, but companies with a great culture will thrive in all conditions. The following highlight reel from our leadership conference is an inside baseball view of a culture that has earned a place on Fortune's 100 best companies list for 15 consecutive years.
I'm clumsy and my head's a mess. 'Cause you got me growing taller every day. We're giants in a little man's world. My heart is pumping. I'm so big that it could burst. Been trying so hard not to let it show. You got me feeling like I'm stepping on buildings, cars, and boats. I swear I can touch the sky. Oh, I'm 10 feet tall. Oh, whoa, I'm 10 feet tall. I'll be careful, so don't be afraid. You're safe here. No, these walls won't let you break. I put up a sign in the cloud so they all know that we ain't ever coming down. Been trying so hard not to let it show. You got me feeling like I'm stepping on buildings, cars, and boats. I swear I can touch the sky. Oh, I'm 10 feet tall. Oh, whoa, I'm 10 feet tall.
You build me up, make me what I'm never was. You build me up from nothing into something. Yeah, something from the dust. Been trying so hard not to let it show. You got me feeling like I'm stepping on buildings, cars, and boats. I swear I can touch the sky. Oh, I'm 10 feet tall.
Thanks to Team Camden and the great culture that you've created and continue to build, Camden will always thrive. The last year and a half has been the best NOI growth and FFO growth that we have had in our almost 30-year history. With NOI growing 19.6% and FFO growing a whopping 47%. These gains are built into our run rate and are likely to remain in place, driven by strong consumer demand for housing in our markets. Consumer strength is driven by strong employment growth, large wage increases, and high savings levels. Our apartments are affordable despite the double-digit rental increases. Our residents spend roughly 20% of their incomes for their rent. Domestic migration has led to more than 700,000 Americans moving to our markets in the last year. They are not moving back.
Apartment supply has not caught up with demand. We expect growth to moderate over the next couple of years, but believe that we'll exceed our long-term growth rate. With a strong balance sheet, a great team, with an amazing culture, we are ready for more successes. Up next is Keith Oden.
Thanks, Rick. Now for a few details on our Q2 2022 operating results and July 2022 trends. Same-property revenue growth was 12.1% for the quarter. Once again, exceeding our expectations with 12 of our 14 markets posting double-digit revenue growth. Given this outperformance and an improved outlook for the remainder of the year, we have increased our 2022 full year revenue growth projection from ten and a quarter percent to 11.25% at the midpoint of our guidance range. Rental rates for the Q2 had signed new leases up 16.3%, renewals up 14.4%, for a blended rate of 15.3%. Our preliminary July results are trending at 13.1% for blended growth, with new leases at 13.5% and renewals at 12.7%.
Occupancy averaged 96.9% during the Q2, which matched our performance during the Q2 2021 and compared to 97.1% last quarter. July 2022 occupancy is currently trending at 96.7%. Net turnover for the Q2 2022 was 46% versus 45% last year, and move-outs to purchase homes were 15.1% for the quarter versus 17.7% during the Q2 of 2021. The year-over-year decline in move-outs to purchase homes is not surprising. Since last year, home mortgage rates have nearly doubled, and the median existing home sales price is now above $400,000. Despite the recent increases in rental rates, many would-be home buyers will likely remain renters. Next up is Alexander 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 finance activities. During the Q2 of 2022, we completed construction on Camden Buckhead, a 366-unit, $162 million new development in Atlanta. We began leasing at Camden Tempe II, a 397-unit, $115 million new development in Tempe, Arizona. We began construction on Camden Village District, a 369-unit, $138 million new development in Raleigh, and we acquired for future development 43 acres of land comprised of two undeveloped parcels in Charlotte and four acres of undeveloped land in Nashville.
As previously reported, at the beginning of the Q2, 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 included 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. In conjunction with this acquisition, we recognized a non-cash, non-FFO gain of $474 million, which represented a step-up to fair value on our previously held 31.3% equity interest in the funds. Also, as previously reported, early in the quarter, we issued 2.9 million common shares and received $490.3 million of net proceeds.
As of today, we have approximately $80 million outstanding under our $900 million line of credit. At quarter end, we had $248 million left to spend over the next three years under our existing development pipeline. Our balance sheet remains strong, with net debt to EBITDA for the Q2 at 4.4x. Last night, we reported funds from operations for the Q2 of $179.9 million, or $1.64 per share, $0.02 above the midpoint of our prior guidance range of $1.60-1.64.
This $0.02 per share variance resulted primarily from approximately $0.03 in lower bad debt and higher rental rates and occupancy for our same-store and non-same store portfolio, partially offset by $0.01 in higher property tax expense, resulting from higher initial valuations in Atlanta and higher than expected final valuations after appeals in Austin and Houston. Last night, based upon our year-to-date operating performance, our July 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 10.25% to 11.25%. Our revised revenue growth midpoint of 11.25% is based upon an anticipated 12.5% average increase in new leases and an 8.5% average increase in renewals for the remainder of the year.
We are anticipating that our occupancy for the remainder of the year will average 96.6%. Additionally, we have increased the midpoint of our same-store expense growth from 4.2% to 5%. This increase results from inflationary pressures on repair and maintenance costs and the previously mentioned higher than anticipated tax valuations in Houston, Austin, and Atlanta, partially offset by lower than anticipated insurance expense tied to our successful May policy renewal. Property taxes make up approximately 35% of our total expenses and are now anticipated to increase by 5.6% year-over-year, an approximate 200 basis point increase from our prior estimates. Repair and maintenance makes up approximately 13% of our total expenses and is now anticipated to increase by 7% year-over-year.
Insurance makes up approximately 5% of our total expenses and is now anticipated to increase 13% year-over-year. As a result of our revenue and expense adjustments, the midpoint of our 2022 same-store NOI guidance has been increased from 13.75% to 14.75%. Last night, we also increased the midpoint of our full-year 2022 FFO guidance by $0.07 per share for a new midpoint of $6.58 per share. This $0.07 per share increase resulted primarily from an approximate $0.06 increase from our revised same-store NOI guidance and a $0.01 increase from additional NOI from our non-same store and development portfolio. We also provided earnings guidance for the Q3 of 2022.
We expect FFO per share for the Q3 to be within the range of $1.68-$1.72. The midpoint of $1.70 represents a $0.6 Per share increase from the $1.64 recorded in the Q2. This increase is primarily the result of an approximate $0.6 sequential increase in same-store NOI, resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of utility expenses and leasing incentives, and a $0.1 sequential increase related to additional NOI from our non-same store and development portfolio. These increases are partially offset by a combined $0.1 decrease in FFO related to higher variable rate interest expense and the incremental impact of the additional shares outstanding from our early Q2 equity offering. At this time, we'll open the call to questions.
one on your touch tone phone. 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'll pause momentarily to assemble our roster. The first question will come from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Hey, good morning, everybody. I was curious if you could give us an up on the dispositions that you had previously planned, half the year and just some general color on what you're seeing in the transaction market.
Well, the transaction market has slowed down substantially, obviously with the increase in the ten-year and just the sort of the dislocation that the markets have experienced given you know everything that's going on with the Fed. What we've decided to do with our dispositions rather than being the early price discovery of folks, we've basically taken them off the table and are just sort of waiting for more market clarity. When you think about what's happened here, the cost of capital has gone up for pretty much everyone.
The leverage buyers that were, you know, using 60%-80% leverage have, you know, the game has changed and their return on equities have gone down. We think that values have probably gone down anywhere from 10%-15%. It really depends on the market and also the product type. Probably the most, you know, impacted properties are the value-add space, you know, that are 10 to 20-year-old that really needs a lot of work kind of thing.
With that said, you know, we will continue to monitor the market and we for a long time have been selling, you know, buying and selling at the margins to be able to improve the quality of our portfolio and improve the geographic diversity of that portfolio, and we'll continue to do that. But right now we're
Sort of on a pause, to see, to kind of figure out where the market is. We think that after Labor Day, there'll be a lot more clarity. When you think about the wall of capital that still exists, it's there, and ultimately, I think buyers and sellers will come together, probably starting after Labor Day and through the end of the year.
Second question. You mentioned in your prepared remarks that, you know, you expect, you know, growth to slow and supply to catch up in sort of the years ahead, but growth should still exceed sort of that long-term historical average. I guess first, could you kind of give us a sense of what that average is? You know, presumably 3%-4%, but if you could put a point on that. I guess, just what gives you the confidence that you can continue to exceed that long-term average, given the level of, you know, projects that are under construction today?
Keith, you wanna take that?
If you look at the deliveries that they're planned for 2023 relative to this year, Ron Witten's got completions going up from about 130,000 across Camden's markets to about 190,000. You know, it's meaningful, but if you look at it as a percentage of the stock, it's not really out of line with where we've been for the last couple of years. In years beyond that, the starts stay fairly flat. If you roll forward.
I mean, the easy part at this point is kind of thinking about 2023 and where we start out as we come out of this really strong 2022 where we continue to get really strong renewals as well as new leases. I mean, we'll start somewhere in the 5% range on embedded growth in 2023. Long-term average on NOI growth across Camden's portfolio over the last 30 years is in the 3.1% range. You kind of, you know, sort of a layup to think about 2023 being higher than normal.
You know, I think as long as we continue to have the affordability issues that consumers are dealing with right now in terms of their alternative to renting, which is buying a home, I think you're gonna see a. I think we're likely to see a pretty dramatic decline in the number of single-family home starts. You know, you're just gonna continue to have a shortage in housing of virtually all types, and I think that it will continue to benefit the multifamily space.
Mm-hmm. Thanks for that.
The next question will come from Nicholas Joseph with Citi. Please go ahead.
Thanks. Maybe following up on that, but more focusing on the demand side. Obviously, the July numbers remained strong, but a more challenging comp there. Are you seeing any signs of consumer demand changing, you know, as you look out 30 or 60 days, or any kind of pushback on pricing?
No, we're really not. I mean, we continue to be almost 97%, nearly 97% occupied. I think we're 96% or 96.7% currently. As you look out on our pre-lease numbers, we're still in really good shape 60 and 90 days out. You know, turnover continues to be low. Renewal rates and new lease rates are definitely gonna come down, and we've been, you know, we've been obviously talking about that for the last couple of quarters. In our case, it's just because we're running into a period of time where last year we were rolling out 18%-20% renewal and new lease increases across most of our portfolio.
As you run into those comps, you know, you're just not, it's just not sustainable to stay at the levels that we've been at for the last couple of quarters. We know it's gonna come down, but it's still gonna be, if we maintain the kind of occupancy that we have, the model will continue to push rents, you know, up to the level of kind of the market clearing price. Everybody's in our markets and in our sub-markets, people are continuing to, you know, see great strength and continuing to increase rents. As long as that happens, I think we'll be fine, but the reality is that those numbers are gonna come down in the Q4 for sure.
You know, one of the things I think is important.
Thanks. Glenn
To think about our consumer, that is that our consumers are doing really well. They all have jobs. When you look at year-over-year increase in income for Camden residents, it's gone up almost 10%. You know, we worry, you know, I guess on Wall Street and, you know, the financial folks worry about interest rates and inflation and all this stuff, but that's important, and I think the consumers are worried about that too, but they also are doing pretty darn good when it comes down to income growth and savings rates. I think that folks that are probably going to be the most impacted are at the lower end.
Our customers, you know, on average make, you know, six figures, and so they're not the low end of six figures, and those are ones that are not as pressured on the inflation side. Especially when you think about, you know, 20% of their income going to rent. It's the folks that are paying 30%-50% of their income for rent that are getting sort of really pressured. Our residents are doing well. They're stressed, but we can feel that in the marketplace, but they're not financially stressed. They're more, you know, worried about what's gonna happen in the future than they are about making, you know, ends meet with their incomes.
Thanks. That's helpful. You touched on the broad strength really across all the markets, but the two that lag on a relative basis, I guess, are D.C. and Houston. How are you thinking about those markets back half of this year and probably more importantly into 2023?
I think that, you know, just to put into perspective, you said on a relative basis, and that's, I think it's important to think about that. You know, Houston and Washington, D.C. in the Q2 were roughly 7% up on revenues. If it weren't for the fact that the rest of our portfolio was up, you know, 13%-14%, that you'd be turning backflips about those numbers in Houston and D.C. Obviously on a relative basis, that has lagged the other 13 markets in our portfolio. I think one of the things that
One of the implications for that is that as we roll into these periods and to the renewal stack for the previous year, where we had, in these markets where we had 20% increases last year, obviously that gets much more difficult to push rents, you know, to anything close to those levels on this renewal. Yet the comparable numbers for D.C. and Houston would probably be in the 2%-3% at year-over-year comp. I think we have probably gonna have more opportunity to raise, be a little bit more aggressive in raising rents in D.C. and Houston just because of what happened to our consumers in those two markets last year, and they didn't get outsized rental increases.
There's probably one coming in 2023 in the renewal period. I think those two markets have a pretty decent upside on a relative basis in 2023. Obviously we'll be able to give you a lot clearer picture of that hopefully by the end of the next call. I think there's really pretty good upside in those two markets just because of the comp set.
When you think about the economy, D.C. and D.C. proper was probably more like California in terms of COVID opening and being able to evict people who were just, you know, sort of not paying because they didn't want to. In Houston you have a whole different animal. Houston didn't add the jobs back as fast as Dallas and Austin. When Exxon and Chevron make combined $30 billion, like they just reported last week, the job picture looks better in Houston because of that. It's interesting because the energy complex, you know, people are complaining about high gas prices.
Yet the companies are not expanding big time because of just the nature, ESG issues and investors are wanting, you know, dividends from them rather than, you know, putting the those dollars back into exploration. Ultimately, if energy continues to do what it's doing now, they need to add jobs. They're running very thin and last month they added, I think, 2,000 jobs in the Houston region and for energy related folks. There is a tailwind, I think, on the Houston market because that. They're very different markets in D.C. and Houston, but I kind of look at them as, no pun intended maybe, or maybe intended, with gas in the tank for 2023.
Thank you.
The next question will come from Derek Johnston with Deutsche Bank. Please go ahead.
Hi, everyone. Can you provide an update on your portfolio loss to lease and thus the opportunities for further rent growth next year?
Yeah, absolutely. Loss to lease for us right now is about 8.5%.
Excellent. Thank you. On new development, you know, supply seems benign in some of your markets and where rent growth has actually really been strong, seemingly outpacing cost increases. How would you view development starts, you know, given this backdrop, you own a construction company, and what really do you need to see to ramp new projects? Thanks.
Well, if you saw in our, you know, in our earnings release that we added land positions, and we are continuing this quarter and we're continuing to work on development. You have good news, bad news, right? The good news is that the revenues are up and the bad news is costs are up, but we think costs are starting to moderate. We think that I don't think costs are gonna go down, but I think that the increase in cost is starting to slow. Ultimately, development is. It has been a great business for us, and we'll continue to do that, continue to build.
I think right now, we're focusing on sort of the existing portfolio that has legacy land costs, and we'll be ramping that up, you know, next year. I think that, once the market settles down, in terms of so what is the cost of capital long term and not just this sort of, sort of, up and down, you know, scenario that we've had for the last couple of months, I think that we'll still be able to make reasonable spreads on our weighted average long-term cost of capital in the development business. We will probably, you know, sort of, wait, you know, and see, you know, between now and sort of the middle of the Q4 to kind of where things settle out.
I think it's still a really good business. If you look at our pipeline, I mean, we have average yields, you know, with big cost contingencies in those construction numbers that are anywhere from low 5s to, you know, sort of low 6s and, you know, that's still pretty good business even in this environment. Thank you.
Mm-hmm.
The next question will come from Neil Malkin with Capital One. Please go ahead.
Hey everyone. Good morning. Excuse me. I guess maybe just following on the development side, you talked about maybe. Well, I wanted to see if you're seeing delays. It seems like you guys probably won't make the development start numbers you initially forecasted. We were hoping you could talk about that and if it's a function of you know, cost or is it a function of regulatory delays, et cetera. Can you maybe just talk about, like, where you see the starts kind of shaping up over the next several quarters. That'd be great.
Sure. I would say that definitely regulatory issues are a big issue. I mean, you know, the challenge you have is, it's sort of interesting. You think about this, people are worried about recession and job losses, yet cities and municipalities that issue permits and inspect buildings and things like that are absolutely understaffed beyond belief. Even markets that used to be very friendly to permits and building, like Houston, I mean, everyone is talking about how it just takes forever to get this stuff done. We're experiencing that just like everybody else is. A lot of the starts that we had or several of the starts this year are gonna fold into next year. Next year should be a pretty buoyant start year.
Alex, you might want to go through those numbers.
Yeah, absolutely. Neal, what I'll tell you is that we still think that we're gonna make the low end of our total start number. We're anticipating starting.
Starting what?
$400 million-$600 million was our range. We're anticipating starting Camden Woodmill Creek, Camden Long Meadow Farms and Camden Nations, which is on page 18. We always put that in order of our starts. We'll anticipate starting those three this year. Keep in mind that we just started Camden Village District last quarter, so we should make the low end of our range.
Okay, great. Other question is on, you know, Houston. I know several quarters where you talked about, you know, Houston and D.C. Metro being the two markets that you would, you know, focus on trimming exposure, just given the, you know, elevated contribution to your portfolio. It's actually gone up obviously with the JV takedown and the two SFRs that you're doing right now. Question is, you know, there's been some speculation that, you know, the Biden administration is gonna do some sort of climate executive order and then his administration's endless assault on energy, fossil fuels.
What is the likelihood of these sorts of things having an impact, or is it already having an impact on Houston? You know, because the idea that somehow like these unknown green jobs are going to replace even close to the numbers of jobs that'll be lost. I mean, or could be lost, it's laughable. Maybe if you can, you know, you guys are like the kings of Houston. If you could kind of give your 30,000-foot view on that'd be helpful.
Sure. I think you hit the nail on the head, you know, which is that, you know, people talk about green and replacing, you know, fossil fuels, but there's just no way that happens anytime soon, right? I mean, sure, we need to move in that direction, and ESG is important, and climate change, I think is critical for us to focus on and think about it, but the challenge is it's not so much the energy companies that are being forced to do things, it's really the federal government and their issues.
Because if you think about what has to happen in an energy transition from fossil fuels to clean energy, you have to have major infrastructure investments made in the grid and in the system of how we provide energy to the world. You know, just take electric cars as an example. In our ESG committee, we had a robust debate a couple of weeks ago about how many charging stations do we have in our apartments. In our new developments, we're wiring and making sure that we're positioned to have EVs in our garages and what have you. The challenge is that if I wanted to. I'll give you just a small example.
If we wanted to have an EV station for every car that we think might be in our garages in the future, we can't put that infrastructure in today. We can't get the power companies to agree to give us more power to utilize those. There's so many issues that have to be developed and to really get us to climate change and get us to, you know, transition. Houston, the interesting part of Houston, and you've seen a negative effect in Houston, and it's really the job growth that we didn't have, that we should have had. That was...
That's been driven by really investors, the ESG push on energy companies, but also investors that say, "We're not giving the industry capital unless you give us cash flow back." Over the last 10 or 15 years, there have been a lot of investments in energy, and the energy industry hasn't given back capital. The market is pushing energy companies to be more, to be less, to invest less in infrastructure and less in exploration, which has driven up the cost of oil and limited supply. I think long term, Houston is going to be the clean energy capital of the world. Ultimately, you have a bunch of big projects.
There's a $100 billion project, for example, that Exxon is doing in Houston, and it's gonna be subsidized by the federal government. It is a carbon capture in the Houston Ship Channel. I think the energy companies know ultimately they have to transition. I don't think it's gonna happen in one year, two year, or five years. It's gonna be more like 10-20. I think they're smart enough to know that they have to be in a position where they're not dinosaurs and they don't become and Houston doesn't become a Detroit. I think that there's a long enough transition period where that pivot is being made, and will be made, so Houston will do well long term.
It's definitely a complicated issue for sure.
Thank you.
Mm-hmm.
The next question will come from John Kim with BMO. Please go ahead.
Thank you. I was wondering if you could provide an update on your yields on the development pipeline overall and on the projects you started this quarter in Raleigh?
Sure. The pipeline that is under construction or in lease-up is low 5s to. We have some in Phoenix that are actually almost a 7.5 cash-on-cash. And those are, you know, classic development deals underwritten at very low, a lot lower rates, and you've had, you know, 30% increase in rents there, so our yields are better. And by and large our existing and under construction and in lease-up yields are better than we originally underwrote because of the rental increases. And then in the pipeline behind that that hasn't started is anywhere from, you know, low 5s to six to low 6.
Okay. Great. You talked about in your answers a 5% earn-in for next year, 8.5% loss to lease. I just wanted to confirm that these are separate items. You're starting off with the 5% same-store revenue for next year, and then 8.5% which can move based on market rents, but that's all additive to the 5.
The way to think about it and the way we calculate earn-in is we look at what we anticipate the rent roll is gonna look like at the end of 2022, and if you just froze everything right then. If you froze everything right then for 2023, that's how you get to the 5% number. Obviously, there is a component of that that is associated with loss to lease, right? Because you have some of those leases that are in place that you're freezing that are below market.
The loss to lease is what the effect of rent growth you could achieve is next year, assuming the market rents don't move.
Yeah. Assuming you could take everybody up to market, and as you know, we don't necessarily take our renewals up to market, but if you took everybody up to market, you would have an 8% increase right there. 8.5%.
Okay.
Yep.
Great. Thank you.
Mm-hmm.
The next question will come from Rich Anderson with SMBC. Please go ahead.
Oh, let me turn off my on-hold music here.
By all means, leave it on.
Okay.
Go ahead.
No, I can't do that. When you talk about the earn-in, you know, and looking at the July signed versus July effective, which is a difference of about 200 basis points, is it fair to assume that, you know, when you think of this roll forward situation and to your point, Alex, freezing at the end of 2022, that the
Mm-hmm
inflection point is assumed to be now, start of August, July, end of July? Or is it possible that, you know, your leasing season can still extend and hence the earn-in would get bigger as we go?
Well, the earn-in will get bigger. Well, no. What we're assuming is that the earn-in of 5 and, you know, 5% plus is based upon at the end of 2022. That takes into consideration everything that we expect from now till then.
Okay.
If you're looking at inflection points, I mean, I think the real important thing to look at is if you go back to last year, in Q2, our blended lease growth was 4.7%. In Q3, it was 12.3%, and in Q4, it was 15.7%. We really are starting to have some really tough comps in the third and Q4 of this year as compared to what we saw last year.
Fair enough. The second related question is how much of those tough comps, you know. This is a weird year because you have these strange year-over-year comps that because of how things moved last year, normally not the case. When you think about absolute rents, I get it that you're gonna have lower percentage increases in the back half of the year, but what happens to the actual rent from, so let's say today, and I asked this question on someone else's call, say today's rent, to make it easy, is $1,000. Is the rent something below $1,000 in the end of the year?
Is the rent just growing at a slower pace, but maybe at or above $1,000 by the end of the year?
No, it's gonna be above $1,000. I mean, so when we look at our math, we continue to have asking rents that are gonna be increasing throughout the rest of the year. It's just the comp that you're looking at. You're looking at a much tougher comp period in the Q4 of this year because rents escalated so quickly in the latter part of 2021.
You still have a positive rent growth, but a negative second derivative, right?
Yep, got it. Yeah. That's interesting because you're saying positive rent growth, but your peers in gateway markets are saying the opposite, that net rent growth is actually in absolute terms, negative. Would you hazard a guess why that would be the case?
Why we're not gateway markets.
Why it would be different?
That's right.
Why you're not in gateway markets.
Yeah.
All right.
I don't understand that, given the strength of this market right now, though. I don't understand how anywhere in America you could have absolute rents be less at the end of the year than they are today.
That's what I understood, but maybe I'll have to revisit that.
I can't.
Um-
That math doesn't work in my head, even in New York or San Francisco.
I'd be shocked if that were true, but, I mean, you know. It's hard to imagine a set of conditions right now that would have absolute rents falling. You know, those markets have a different cadence to them as well.
Okay. All right, I'll check my notes on that. Thank you very much.
You bet.
Sure.
The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, morning down there. Two questions from me. The first is, you guys obviously talked about the slowdown in the mortgage market, transaction market. You know, it sounds like, you know, your developments, you're gonna start fewer. You're not planning as many acquisitions, dispositions or based on what's happening. Is there anything that's on the merchant development side? Like, are you guys seeing any merchant deals that got started that suddenly are in a pickle, and maybe that's an opportunity for you guys to acquire on that front? Just curious.
I would say that there's not a lot of stress in the market today. There's definitely not a lot of stress in the market today. I mean, merchant builders, you know, were making, you know, 3x on their equity, and now with price adjustments today, maybe it's 2x, you know, or 1.5x, which is still really good. There really is no distress. Now I will say we have seen opportunities, and I think the example would be our Camden Nations project. It was a property that was zoned and ready to go, but the developer couldn't figure the cost out, and they had a little bit more complicated building design, and what happened was their
The land value was almost equal to, or their profit in the land was enough to incent them to not to build it and to sell it to us. I think there are definitely opportunities like that where the merchant builder their cost of capital has gone up or their equity partner is a little nervous and they have profits in their land, so they're willing to, you know, sell a shovel-ready deal at a profit to them and at a, you know, sort of market value, you know, to us. I do think that there's probably a fair amount of mezzanine type of business that's out there that's probably, you know, that people are working on.
You know, that's not a space that we trade in, but I've had a number of calls with people who want us to kind of help recap them and stuff like that, but that's not what we're. We're leaving that to some of our competitors.
Okay. The second question is on, you know, obviously the Sun Belt has been, you know, garnering headlines the past few years for the influx of folks coming from, you know.
Mm-hmm
The coast or other areas moving down south. As you guys look in your portfolio, how much of a benefit have, you know, I'll say out of regioners, if you will, been to Camden versus to the market overall and, you know, asked the same question on Mid-America's call, and they said they went from 9%, you know, outside of Sun Belt to now 15% out of Sun Belt.
Mm-hmm.
They opined that it was more, you know, people coming into the market, buying homes, et cetera. Given you're a bit higher income, a little bit more upscale, curious if you're seeing similar dynamics or if you know, see a much bigger impact from people coming down south.
Well, you know, it's interesting, Alex, because when you think about it, the migration from, you know, from, you know, sort of north or coast to south or whatever, however you wanna call it, has been going on for a long time. I mean, it's not new. What happened during the pandemic was the nuance of being able to work from anywhere and the difficulty that people have living on the coast, given COVID and the restrictions, you accelerated what's been going on for a long time. That acceleration has definitely helped us. Alex has some numbers on that. Go ahead, Alex.
Yeah, absolutely. If you look at the Q2, 20.3% of all of our move-ins to our Sun Belt markets came from non-Sun Belt markets. That's a 100 basis point sequential increase. If you compare this to the Q2 of 2020, it's up 440 basis points. We are absolutely the net beneficiary of folks moving out of New York, Illinois, Pennsylvania, New Jersey, et cetera, down to our markets.
Alex, just to put some aggregate numbers around that.
Yeah.
Witten's data has total domestic in-migration net to Camden's markets of about 140,000 this year, and that number goes to 130,000 in 2023. It's, you know, to Rick's point, we got this turbocharged effect as a result of all the complications from COVID, but this trend has been in place for a long time, and it looks like it's gonna continue at a very elevated level in 2023 as well.
Which then sounds like it plays into Richard Anderson's point on why you guys are looking at positive rent growth in the back half of this year versus perhaps slowdown elsewhere. You're getting this continued inward migration.
Yeah.
I think that's clearly part of the story.
Okay. Thank you.
Mm-hmm.
Mm-hmm.
The next question will come from Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hey, everyone. Could you maybe talk about the differences across markets on the July rate growth front? Kind of where are you seeing the strongest and then weakest lease growth? I think you kind of alluded to D.C. and you saw already, so maybe the other markets would be pretty interesting to hear about.
Just looking at our same property Q2 comparisons over the prior year. We've already discussed DC Metro and Houston. Those are basically in the 7% range. Beyond that, you've got Phoenix that's still at almost 18%. You've got Southeast Florida at 16.5%. You've got Orlando at 16%, Tampa at 18%. I mean, these are, you know, we have twelve of our fourteen markets are in double digits, so those are pretty crazy numbers for this business.
One more from me. On the tax side, you bumped up the expenses. Part of that was, I think, driven by the same store property taxes going up. Are there any specific markets where you're seeing kind of the higher than expected tax assessments or is it across the board? Is it driven by just valuations or municipalities increasing rates?
Yeah, absolutely. The three markets that I called out, the first one is Atlanta. Atlanta in the aggregate is actually not that much of an increase, but we originally had actually expected for Atlanta taxes to be down in 2022 based upon some successful protests that we had in 2021. We got some initial values there that were different than we had expected, and we'll go and contest those. The other two markets I pointed out were Houston and Austin, and we're looking at Austin having close to a 20% increase in property taxes. You know, we got initial valuations in that were in that vicinity. We challenge almost every valuation.
We're usually incredibly successful, and we had absolutely no success in Austin this year on valuation. That sort of got us to this 20% number. Then we had sort of in Houston a similar story, not quite to the same level, but we had expected Houston to be sort of in the 2%-3% range and ended up being in the 5% range once we got through all of our final protests. That's sort of where we're seeing it. I will tell you, I'll also add to that, Southeast Florida, Orlando and Tampa just in general continue to give us some pressure sort of in the 8%-9% ranges.
Got it. Thank you.
Mm-hmm.
The next question will come from Barry Wu with Mizuho. Please go ahead.
Thanks. I'm Barry. I'm on the line for Haendel St. Juste. I was wondering if you could discuss the expense pressures you're facing in more detail. Maybe first off, if you could discuss the drivers and key pieces on the 80% or 80 bps upward revision in your expense guidance. Thanks.
Yeah, absolutely. The major driver that you're really seeing there once again is property taxes. If you think about it, we're up to 5.6% of what we're anticipating for property taxes, and that's about a 200 basis point movement. Property taxes represent 35% of our total expenses. 200 basis points on 35% gets you 70 basis points, which is almost the entire delta between the 4.2 that we originally had for total expenses and the 5% we have now. It's almost entirely driven by property taxes. Now, we do have a couple of other ins and outs.
We are seeing some inflationary pressures on R&M, and that's causing us to have some increases on the R over what we originally had anticipated to the tune of about 300 basis points. The offset to that is we actually had a really good insurance renewal. We originally thought that our total insurance for the year was gonna be up about 22%, and now it looks like it's up 13%. We've got a 900 basis point positive there that sort of offsets the R&M inflationary issues. That leads you really to the property taxes being the main driver.
Okay, thanks. It sounds like it was mostly non-controllable. What about looking at your supplemental, the 33% G&A increase, can you talk a little bit about that?
Yeah, absolutely. As I talked about last year, excuse me, last quarter, we rolled out our Work Reimagined initiative. If you'll recall, this is where we took a look at all of our on-site positions, and we effectively came up with nests where you know up to three communities are managed together. As part of that, we took our existing assistant manager position, and we centralized that into a shared service. The shared service is now part of property G&A. You have the offset, in fact, more than an offset, in lower salaries as we remove the assistant manager position.
Thank you.
Mm-hmm.
The next question will come from Robin Lu with Green Street. Please go ahead.
Morning, all. I'll just start off with a question with Keith. Has your team seen a notable tick-up in concessions from developers in heavier supply markets?
Yeah, absolutely. In markets where we've seen the kind of strength that we've had for the last year, concessions have been less. We always include roughly one month of free rent or concession for lease-ups. We don't do concessions in any of our stabilized portfolio, but that's the game that's played among developers has always included some provision for concessions. In our world, they've been, for the most part, less than what we would've expected them to be. You know, the same strength for demand and new construction across our markets is, you know, typical just like we have in our stabilized portfolio.
Probably less overall in the last year in terms of concessions, but it's still a part of the overall pricing structure for all new developments.
Mm-hmm.
I guess the question was around what you're seeing your peers or competitors doing, not just your own book.
Yeah. They're. They have less concessions as well. In an environment where market rents are going up 16%-17% from whatever their pro forma was, they're all far exceeding what the scheduled rents were. There would be no real incentive to push rents, you know, continue to push top-line rents and then concessions back down to the point where their pro forma was. Yeah, they're all. You know, my guess is they're all doing better on total rent, or, you know, total scheduled rents, and they would. But that doesn't mean that they would've eliminated concessions. It just means they probably are sticking to the one-month free rent that was in their pro forma.
Adjusting market rents to whatever the clearing price is for, you know, non-concession rent structure.
Got it. My second question is, so by looking at the D.C. markets, obviously, you've done really well in the Q2, and July is still holding pretty stable at 7%. Do you expect any supply pressure impacting your pricing power for the H2 of the year?
You know, supply pressure in D.C. has really not been a huge issue for us. We have, you know, most of our assets are in D.C. metro area. I think total delivered units this year are in the 13,000 range, which is not a huge number for that entire metropolitan area. If you roll forward to 2023, Witten has total scheduled deliveries in the D.C. metro area of about 12,000 apartments. So I don't expect it to change much next year. The difference, as Ric pointed out, a lot of our challenges have been we're in markets where there are governmental restrictions on what you could do with either re...
Just flat-out rent control or the inability to collect or to you know to get your real estate back through the eviction process. Those were. You know, it's still not completely over in the district, but in D.C. Metro, almost all of those restrictions have been lifted. I think 2023 is probably gonna look more normal and just with regard to how we manage and the ability to push through market clearing rents, which we really couldn't in a lot of D.C. last year.
Thank you.
You bet.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Ric Campo for any closing remarks. Please go ahead.
Great. Thanks for being with us today, and we will see you at the beginning of the conference season after Labor Day. Take care and have a great summer. Thanks a lot.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.