Good morning, and welcome to the Camden Property Trust First Quarter 2021 Earnings. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kim Callahan, Senior Vice President of Investor Relations.
Please go ahead.
Good morning and thank you for joining Camden's Q1 2021 earnings conference call. We hope you will enjoy our new, more interactive call format today, which includes a brief video presentation as well as slides detailing some of the remarks from our executive team. Today's webcast will be available for replay this afternoon, and we are happy to share copies of our slides upon request. If you haven't logged in yet, you can do so now through the Investors section of our website at camdenliving.com. 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 1st quarter 2021 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. Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer Keith Oden, Executive Vice Chairman and Alex Jessett, Chief Financial Officer.
We will attempt to complete our call within 1 hour As we know that another multifamily company is holding their call right after us. We ask that you limit your questions to 2, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e mail after the call concludes. At this time, I'll turn the call over to Rick Campo.
Thanks, Kim. The theme for our earnings call music was have fun. We've always believed that our Camden teammates do their best work when they're having fun. That's why 25 years ago, We chose have fun as one of our nine core values. Having fun is an essential ingredient of maintaining a great workplace.
When your team is having fun, they have smiles on their faces, which puts smiles on our residents' faces, which ultimately makes our shareholders smile. It's a formula that has allowed us to earn a place on Fortune Magazine's 100 Best Places to Work list for 14 consecutive years with 7 top ten finishes. Just recently, we are pleased to announce that Camden placed number 8 on this year's list. Creating a culture that encourages folks to have fun requires consistent intentional focus, especially during the pandemic. Over the years, we have created traditions that support having fun from skits And lip sync contests to fund videos that deliver important messages to our teams.
The pandemic allowed us to come up with new ways to maintain our culture in the new work environment. Kemin's culture is our superpower that allows us to consistently perform at the highest level. And as Peter Drucker famously said, culture eats strategy for breakfast. Our earnings call platform allows us to share videos and enhance our messaging. Here's an inside view of one of the many cultural messages that we shared with all of our Camden teammates this year and now with you.
Culture is really key to Camden. Culture is who we are. Culture is about How we treat each other, how we feel about each other. And without the culture, we would not have been able to do the great things we did in 2020 during the pandemic. And Hopefully that culture will take us forward through 2021 when we get past the pandemic and then throughout the next few years once we're done with the pandemic.
So there was one last culture video that's called Pass the Culture and I get called by Keith and he goes, you know, What we need to do is we need to make a big ending. And I happen to be in Lake Tahoe. It was 45 degrees out. And he said the big deal is at the end of the video, you got to jump in the lake and spike a football. And I was like, what?
Are you kidding
me? Why do
I always have to like jump in the lake or do something like that? And so I did it because it's all about culture. It's all about having fun and it's all about taking care of each other, providing peak experiences, making sure that we know that it's not just a job, we're taking care of each other, Every single day. So here's the pass the culture video and it was 45 degrees in the water. It was very cold.
Wow! Wasn't that an interesting video and nice spike right into the cold water. But it's all about culture. It's all about making sure we're having fun at the same time as we're doing what we need to do every single day, taking care of each other first, Take care of our customers and ultimately having fun while we do it. During the Q1, We saw operating strength building in most of our markets.
Clearly, the opening of the economy, driven by the Speed at which the COVID-nineteen vaccinations have been distributed has improved our results for the Q1 and our outlook for the rest of the year. This has led us to increase our net operating income and our FFO guidance. As tough and strange as the pandemic made last year, We have used the time to advance many initiatives that will drive revenues, lower expenses and improve performance in key areas. To list a few, our investments in Chirp, funnel and other AI opportunities will accelerate self guided tours, Virtual leasing, in apartment package deliveries and keyless communities, all driving better customer experiences, while increasing revenues and lowering expenses. Our investments in our cloud based ERP systems have made remote working seamless.
It streamlines data mining, moving us closer to the Internet of Things. It creates for a more robust ESG analysis and reporting on our ultimate carbon footprint reductions that we'll published later in the year. We will be publishing a more expanded ESG report in the fall. I began the call with a discussion and a video on culture. We continue to do the right thing at Camden, moving forward on the journey to a more diverse, equitable and inclusive workplace.
Last summer when there was great uncertainty, we advised our teams to focus on things they control, getting the best health of their lives, embrace their friends and family as true partners with masks, Proper social distancing and vaccinations, of course. We also asked our team members to take care of our residents and each other And not to listen to the noise around them. We told them that the pandemic would pass and the years after would be great for our teams, their families and our business. We see the light ahead And it's not a trend. I want to thank our team Camden, your families for helping us get from there to here.
Thank you. And I'll turn the call over to Keith.
So we're very proud of the fact at Camden that we have been included on Fortune Magazine's list of 100 Best Companies to Work For for 14 years. It's an incredible accomplishment that reflects the fact that each of you takes pride in the workplace And continues to work hard to make Camden a great place to work. So a lot of people think about the Fortune List and the Camden's culture and all the things that we do to support a great being a great workplace. And a lot of people look at that and they say, What they see is expense and cost and what we see is investment. We're investing in our brand.
We're investing in our people. We're investing in our culture. And ultimately, We think those things are more far more important than the small amount of impact that the expenses that we have around maintaining Camden as a great workplace actually matter. And one of the ways to look at that is, is that we track our Camden's 20 year investment return Against the S and P 500. And it's proof positive that creating a great workplace also creates great results for your shareholders.
Over the last 20 years, Camden Property Trust has produced an annual return for our shareholders of over 11% And the S and P 500 was about 7.5%. So almost 4% per year better than the S and P 500 For a 20 year period, that's pretty incredible. And we think it's directly attributable to the investment that we make in our culture, in our people And making Camden a great place to work. So thank you for all you do and thank you for being a part of this great company for all this period of time. Now a few details on our Q1 2021 operating results.
Same property revenue growth was down 0.4 percent for the quarter And as expected, our top performers were located in our Sunbelt markets, with Phoenix at 5.8%, Tampa up 4.0%, Atlanta 2.2 percent, Raleigh 1.9 percent and Denver rounding out the top five list at 1.3% up. Rental rate trends for the Q1 were slightly ahead of plan with signed leases down 0.8 percent, renewals up 3.4% for a blended rate of 1.2%. For effective leases, which were generally signed in the Q4 or early in the Q1, the blended rate was 100 basis points lower at 0.2 percent. Our preliminary April results indicate improvements across the board for signed new leases, renewals and blended growth, averaging 4.5%, 4.7% and 4.6%, respectively. Future renewal offers are being sent out on average at over 5%.
So our blended rental rates moved up from 1.2% in the 1st quarter to 4.6% in the month of April. This 3 40 basis point improvement exceeded our budget and was the primary reason for raising our full year revenue guidance. It's worth noting that And we now expect Houston revenues to be only about 1.5% down from last year. Occupancy averaged 96% during the Q1 of 2021, which matched our performance in the Q1 of 'twenty and was the highest quarterly level achieved since the pandemic began. April 2021 occupancy has accelerated to 96.6 percent exceeding our original budget and expectation and setting us up well for our peak leasing season, which has begun and generally runs through early September.
Net turnover for the Q1 of 2021 was 200 basis points lower than 2020 at 35% versus 37% last year, marking yet another quarter of high resident retention and fewer residents choosing to move. Move outs to purchase homes dropped to 16.9% for the quarter versus 19% last quarter, which is in line with our seasonal patterns we usually see from the Q4 to the Q1 of each year. Next up is Alex Jessett, Camden's Chief Financial Officer.
Thanks, Keith. Before I move on to our financial results and guidance, A brief update on our recent real estate activities. During the Q1 of 2021, we commenced construction on Camden Durham, A 354 Unit, dollars 120,000,000 new development in Durham, North Carolina. And We began leasing at both Camden Lake Eola, a 3 60 Unit, dollars 125,000,000 new development in Orlando and Camden Bucket, A 366 Unit, dollars 160,000,000 new development in Atlanta. Subsequent to quarter end, We began leasing at Camden Hillcrest, a 132 Unit, dollars 95,000,000 new development in San Diego.
In the quarter, we collected 98.4 percent of our scheduled rents with only 1.6% delinquent. This compares favorably to the Q1 of 2020 when we collected 97.9% of our scheduled rents with a higher 2.1 percent delinquency. Turning to bad debt, in accordance with GAAP, Certain uncollected revenue is recognized by us as income in the current month. We then evaluate this uncollectible revenue and establish what we believe to be an appropriate reserve. This reserve serves as a corresponding offset to property revenues in the same period.
When a resident moves out O and S money, we typically have previously reserved all past due amounts and there will be no future impact to the income statement. We reevaluate our reserves monthly for collectability. For multifamily residents, we have currently reserved 9 point $2,000,000 as uncollectible revenue against a receivable of $10,200,000 For retail, We are fully reserved against our $2,300,000 receivable. In mid February, Texas experienced a significant winter storm, resulted in widespread power outages, which led to, among other issues, corresponding water damage from broken water pipes. Less than 5% of our Texas units experienced any type of damage with only a quarter of 1% requiring the resident to temporarily vacate their home.
Today, the vast majority of the damage has been fully repaired and operations have returned to normal. We are extremely proud of the efforts of Team Camden in responding to this unprecedented event. Last night, we reported funds from operations for the Q1 of 2021 of $125,800,000 or $1.24 per share, dollars 0.01 above the midpoint of our prior guidance range of $1.20 to $1.26 The $0.01 per share variance to the midpoint of our prior quarterly FFO guidance resulted primarily from both higher occupancy and higher rental rates at our same store and non same store portfolio, partially offset by the timing of certain property tax refunds in Washington, D. C. And Los Angeles, which we expected in the Q1 and will now likely not receive until the second half of the year.
Contained within our Q1 results is approximately $900,000 of expenses directly associated with the Texas winter storm. 2 thirds of this amount is property level insurance, overtime and repair and maintenance expense. The remainder is corporate level and tied to relief efforts, including meals provided to our residents. The additional property level expenses were entirely offset by greater than anticipated amounts of unrelated insurance subrogation proceeds. Last night, based upon our year to date operating performance, our April 2021 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 0.75% to 1.6%.
Additionally, we have increased the midpoint of our same store expense growth from 3.5% to 3.9%. This increase is entirely to account for additional property level Salary expenses now anticipated to result from our reforecasted full year revenue outperformance. As a result, we have increased the midpoint of our 2021 same store NOI guidance from negative 0.85 percent to positive 0.25 percent. Our 3.9% revised expense growth at the midpoint assumes insurance expense will increase by approximately 22% due to the continued unfavorable insurance market. Property insurance comprises approximately 4% of our total operating expenses.
Additionally, Our revised expense growth assumes that salaries and benefits will increase by 3.5% as a result of additional compensation tied directly to the now reforecasted revenue outperformance. The remainder of our property level expense categories are anticipated to grow at approximately 3% in the aggregate. Last night, we also increased the midpoint of our full year 2020 FFO guidance by $0.09 per share. $0.07 of this increase results from our revised same store NOI guidance with the remaining $0.02 per share increase expected to be generated by our non same store portfolio. Our new 2021 FFO guidance is $4.94 to $5.24 with a midpoint of $5.09 per share.
We also provided earnings guidance for the Q2 of 2021. We expect FFO per share for the 2nd quarter to be within the range of $1.22 to 1 point 2 $8 The midpoint of $1.25 represents a $0.01 per share increase from our $1.24 in the Q1 of 2021. This increase is primarily the result of an approximate $0.01 per share expected sequential increase and same store NOI resulting from higher expected revenues during our peak leasing period, partially offset by related compensation expenses, the seasonality of certain repair and maintenance expenses and increases from our May insurance renewal. As of today, we have just over $1,100,000,000 of liquidity comprised of approximately $260,000,000 in cash and cash equivalents and no amounts outstanding under our $900,000,000 unsecured credit facility. At quarter end, we had $358,000,000 left to spend over the next 3 years under our existing development pipeline And we have no scheduled debt maturities until 2022.
Our current excess cash is invested with various banks Earning approximately 25 basis points. And finally, as I have discussed on prior calls, In 2019 2020, we set in play important technological advancements. 2021 will be the transition year that will lead to realized efficiencies in 2022, 2023 and beyond. From cloud based financial systems to virtual leasing to mobile access to AI technologies that allow us to meet residents on their schedule, we are poised very well for the future. At this time, we will open the call up to questions.
We will now begin the question and answer session. Our first question today will come from Aluah Azkarbeck with Bank of America. Please go ahead.
Hi, everyone. Congratulations on a great quarter. So I just wanted to start off a little bit big picture, asking more about the transaction in the market. I know you guys were guiding to about $400,000,000 to $500,000,000 So how are you guys thinking about that now that we are about 4 or 5 months into the year and what opportunities are you seeing out there in the market?
Well, definitely, we are seeing opportunities. Challenge, however, is the pricing is way, way beyond what we expected. The good news is since we have a balanced Disposition and acquisition program, we expect to get higher prices for our properties we're going to sell. And So we're going to try to make that trade.
If you go
back to our last big acquisition disposition programs in the last cycle, We sold a lot of properties, bought a lot of properties and we were able to upgrade the quality and the quality of the portfolio over time. But I will tell you I've never seen cap rates this low in my business career. I'll give you an example of real time The property that we were working on last week in Tampa or this week in Tampa, I just got the email yesterday. So the original price talk for this Reasonable property in Tampa. It's a middle of the road, new development, decent property, we'll call it an A-.
Price talk at the beginning of the process was $77,000,000 plus or minus, which Would have been in the low 4 cap rate, kind of right at 4 ish. The price the property was awarded at little over $90,000,000 which is a going in cap rate of 3.2%. And what you with a 3 percent growth in revenue over a 7 year period. The only way you get to a 6 IRR is to have a 3.75 exit cap rate. Now that's what properties are trading for in every major market in America today.
So I think we'll be able to sell properties and buy properties, but the spread I think between older and newer is definitely Going to be really tight and it's a good trade for us and we'll continue to do that. But pure acquisitions are pretty tough if you don't have a disposition behind it To try to capture that newer property and capture the lower CapEx part of the equation, that's why We would be doing it in the 1st place.
Got it. Thank you. And then I think you guys commented a lot on how you wanted to enter Nashville. So what are you guys seeing there in terms of cap rates on the transaction market?
Same. The cap rates are pretty tight in Nashville Nashville is an interesting market because when you look at its supply side, it has probably the 2nd most supply coming into the market. And so I think that of any other city in the country. So we're still we're looking really hard in Nashville and we're actually our Teams are going to be out there next week and we're actually going out to look at a few properties next week as well. We think we'll be able to move into Nashville this year.
And again, it's you just you can acquire properties and we can acquire properties. You just have Pay up today. It's again, as long as we're selling properties at really high prices and buying properties at really high prices, I'm okay with that and I think we'll be able to execute in Nashville.
Our next question comes from Neil Molchan with Capital One Securities.
Hello, everyone. First question, Can you just talk about what you're seeing in terms of in migration in some of your markets, your kind of larger Sunbelt markets? Obviously, COVID has kind of been the great accelerator for that. I'm just wondering if your people on the ground are telling you that they Continue to see that in earnest, if it's accelerating, if it's kind of steady, any commentary on kind of like where that's coming from and what markets are the biggest beneficiaries?
Yes. So, Neal, we continue to see elevated levels across our Platform, but it's not new. I mean, we've had in migration going on and that has been exiting the Northeast And parts of California, mainly Northern California for the last decade. But clearly, it's accelerated. And I would say the markets that we have It's the most impact and most visible right currently are in Atlanta, everywhere in Florida.
And again, that's mostly a Northeastern phenomenon. In Austin, Texas, I would say that's the place where anecdotal evidence of out of state license plates, In particular, California is pretty incredible. The trends in some of our markets around Home prices that I think are that exhibit characteristics of kind of people coming in and being willing to pay up. In Austin, Texas, as an example, The it has the highest spread between asking price for a single family home and selling price. So in the last 12 months, The average price sales price in Austin, Texas for a single family home is 7% above what the asking price was.
So let's just these are kind of crazy numbers historically that we've never seen before. But I think it is indicative continues to be indicative of people Finding incredible housing value in our markets relative to the markets that they're exiting. So I think it's just a continuation of what's been going on. Clearly, it's accelerated. And I don't See, I'm not a lot of people I think or some people think that this is strictly a COVID related increase.
I'm not so sure that that's True. So I think the trend that's been in place a long time is going to continue and probably at elevated levels.
Now you look at the census numbers that came out, Texas gained 2 congressional seats, California lost 1, New York lost 1. You go up Into the Rust Belt and a lot of those states lost and Florida gained. So it's a I think we have seen an uptick in Phoenix and And in Florida for sure, but I think this is just a continuation. I agree with you totally that the pandemic is the great accelerator. And I think what will really be interesting Will be once these states are open, right, because California talks about being open, but it's really not open yet.
And when I mean fully, right? So When the when we get to a real pandemic is in the rearview mirror, then the question will be How what happens over the next couple of years when people actually do have the ability to work from home and just use their laptop as their office, right? So I think We're in a good position and we've always wanted to be in these markets because there are pro growth markets and great weather and low housing prices that It drives migration.
So I would add to that. If you look at Most of our new residents come from Sunbelt Markets. But if you think about non Sunbelt Markets, New York is our number one Non Sunbelt provider of New Camden residents.
Okay. Thanks for that. Other one for me is maybe bigger picture. You talked about cap rates Coming down, we talked to brokers pretty much in all of your markets and sub-four is like the name of the game.
Yes.
And when you think about your portfolio, it's a great aggregated diversified portfolio, ridiculously low leverage Compared to anything private, a lot of growth avenues there. Is there I mean, do you think there should be a rerating? Or is it fair to say that Cap rates on the public side need to come down or they're justified being lower. And if nothing else, the Between Coastal and Sunbelt should be compressed at least over the next several years and not to cycle?
Well, if you calculated the Camden's NAV based on the current cap rate environment, I mean, we have a spreadsheet that shows sort of various cap rates and what our what we think our NAV is. And if you use the Tampa number, we don't have that number on our spreadsheet, okay. I mean, we go to like 3.5 cap rates and we stop. And so clearly, the question will ultimately be who's right, right? Is it the private market that's right or the public markets are right?
We've had this debate forever that the public markets sometimes act As real estate and sometimes active stocks, right? And so when the stocks get hammered, it's not because somebody is thinking about Their NAV relationship to the private market, they're just selling the stock because they have an ability to buy some other stock that's going to go up faster, right, or have Whatever their reason for that trade is. I think we're trading more like stocks today for sure and less like real estate. When you think about why somebody is paying a low 3 cap rate in Tampa, I think it's pretty basic. Number 1, the tenure is at a very, very low rate.
You still have positive leverage when you finance using a 10 year, say, 2.5 or a 10 year mortgage at 2.5 or 2 and some change And compared to a 3.25 percent cap rate, you have 100 plus basis, maybe 90 to 100 basis points of positive leverage on that trade. And then You think about the worry that people have with the current sort of trajectory of $1,000,000,000,000 here, dollars 1,000,000,000,000 there, fed and government stimulus and everything else that's going on out there. And you hear the word inflation and you hear the word, oh, gee, what happens long term inflation wise? Well, multifamily, we price our property our leases Every single night and our leases roll over, we're the fastest roller of a lease type other than hotels And 8 plus percent of our leases rollover every month, right? So it's a great inflation hedge if you're worried about that.
And And when you think about private capital looking for a yield, multifamily is a pretty good place to be and the supply and demand side of the equation is pretty much balanced. Yes, great job growth going on in most of these markets. And once the markets are opened up, I think the coastal markets will do fine. It'll just take more time for them to get better than it does the markets that have opened up. So I think that's why cap rates are really low.
And I wouldn't say that the private side is crazy right now. And but clearly, the gap between Real cap rates in the private sector versus the public sector is definitely there's a biggest spread I've probably ever seen in my business career at this point. So who's right?
Could you just humor us in that? Yes. Well, I would say, could you just humor us and what is the 3.5% cap translate into?
Well, I mean, you can look at just the NAV from Yes. The consensus NAV right now is like $119 a share and it's like a 4.75 cap rate or something like that. For every ten basis points in cap rate, it's like $2 a share. So you do the math. I'm not going to put a number out there, but I'll tell you that but it's about that, dollars 2 a share for every 10 basis points.
We have another question. Our next
question comes from Alexander Goldfarb with Piper Sandler.
Hey, good morning. Good morning down there. And Keith, nice job DJing this morning on the tombs. So two questions. First, obviously, there are a lot of articles about the impact of the unemployment, The extended enhanced unemployment benefits we've talked to, a guy that's business across a lot of different states.
And there's feedback that people won't take a job because they're getting paid more to sit at home. In your portfolio, and I don't know how much of that was a driver of your need to increase the property level Payroll. But are you seeing across your markets that sort of the economy is being held back Because people aren't taking jobs or we should read into it that the 4.5% rent increases that you guys got in April is an indication that It's 2 different groups and the impact of the extended unemployment benefits has really no real impact On your guys' ability to perform, basically what I'm asking is, as these benefits expire, would we see an acceleration Of your portfolio or the 2 are not related?
I think the 2 are related, but not directly. Because if you think about the people that are unemployed today that are receiving benefits, government benefits, Those are people making I think a vast majority of make under $50,000 a year and those are folks that are working in hospitality areas and things like that. And they're making 30% more by staying home than they are going back to work. Restaurants, for example, I was Driving out yesterday afternoon, I saw a restaurant that had help needed in every position, dollars 500 signing bonus if you come in, Right. And so that is holding back some of the economy from that perspective, but our average income is over $100,000 So Most of our folks are working.
They're continuing to work and doing well. The biggest issue holding us back From a higher revenue growth are restrictions on increasing rent in certain markets like in California and in Washington, D. C. And so our top line number would be higher by at least 50 basis points if we didn't have those restrictions in place in my opinion. So I think that once The economy opens more in these other markets and we get past this CDC restriction and a cap on renewals and things like that, then The multifamily business should be really good in the next 6, 8, 10 months once we get rid of those get past that piece.
In terms of people, our increase in cost for salaries today are not so much driven We can't find employees, but it's by outperforming their original budget, so we have to increase our bonus accruals for them.
We definitely like hearing about bonus accruals going up, so that's a good thing. The second thing is On the development side, obviously, you guys have pared back your program tremendously over the years. But as you look at new markets like Nashville or just try to deal with rising construction costs, are you guys Seeing more opportunity to put Camden Capital to work like funding other developers, 3rd party and then do it as a takeout, Does that sort of mitigate risk or allow you to broaden your net or your view is that you really want to do development on your own because from start to finish you feel That holistically is a better risk proposition.
I think that doing anything that isn't 100% Camden owned with Camden control Adds more risk, not less risk to the process. And you can't really move the needle on And Lisa, my our opinion is you can't move the needle on driving revenue and driving new development deals Really by doing JVs or doing equity programs or whatever you want to call them. And we still have the Staying from a $3,000,000,000 joint venture program during 2,008 and 2009 where our partners wanted us to default on debt, so we could buy the debt back cheaper. And that was when we did those joint ventures, the $3,000,000,000 didn't really move the needle for Camden. But what it did is It created more risk when the market turned down and we had challenges with dealing with our partners.
Even though they were all deep pocketed, they didn't want to bring any cash out of their pocket. So We're going to keep our balance sheet pristine. We're not going to do deals like that. Other companies have different views of that, I get it, but that's not Camden.
And Alex, just on your point about the size of the development pipeline, if you take what's in lease up currently plus what's under construction, We're close to $1,200,000,000 in new development. So we think we've been very opportunistic about taking advantage of these delivering these yields into a Declining cap rate environment is going
to create a ton
of value. So I think $1,200,000,000 is about equivalent to our all time high in terms of a development pipeline. So we definitely see opportunities. Everything that we're working on right now based on Kind of cap rates that are in play for acquisition assets look like they're going to be really accretive.
Okay. Thank you.
Our next question comes from Nick Joseph with Citi.
Thanks. Maybe just sticking with Construction, what are you seeing on the cost side, both for the in place development pipeline and also as you priced out future starts?
So prices are up big time. If you look at so let's take 2 periods of time. Take April of right this year, April of 2019 versus April 2020, costs were up 2% or 3% maybe in some markets actually flat. In the last 12 months since April of 2020 versus 2021, multifamily costs in total are up about 12.5%. And it's all primarily driven by well, there's 3 big drivers.
1 is just commodity prices. If you look at soft lumber prices in the last 12 months, soft lumber is up 83 Plywood is up 53%, OSB Board is up 65%. Even fuel, when you think about gas, Gas fuel, diesel, gasoline is up 50%, 60%. Labor issues are there, supply delays are Our supply chain backups are making products more difficult to get. And so the speed at which you can develop is slower.
So it's a tough environment out there when it comes to cost. And good news for us is We did lock in lumber packages on several jobs that we had. So we don't have a lot of exposure on lumber At this point, we did lock in about 70% of the package. I really give kudos to our construction folks and our commodity Sure, consultants for helping us navigate that this tough water here. So we don't have Camden doesn't have a big exposure to this big Closure to this big price increase, but it does affect the way we underwrite new transactions, obviously, and it becomes more and more difficult.
But I guess on the one hand, With cap rates compressing as much as they are, the spread on what you can buy an asset for versus what you can build it for a day even with a cost increase It's still pretty wide. And so that's why you're going to continue to see new developments continue even though the going in yields are going to be down, the Between what you can sell and buy for is still pretty robust.
Thanks. That's very helpful. And then just on the rental assistance plans. How do you think that impacts Los Angeles and Orange County specific to you?
Well, It doesn't so far it hasn't affected us in a positive way at all. And part of it is that the all of the various Qualifying elements that you have to go through and so far has been that our resident base does not Qualify or has not qualified for any meaningful amount of rental assistance in particular in California, but that's It's a little bit different market to market. We do have some markets where we've gotten a couple of $100,000 in rental assistance. But overall, this entire if you take the effect of delinquency, the effect of Not being able to get people moved out who are not paying their rent. Overall, the whole event has been a pretty significant net negative for us Around the margins and by that I mean, we're now at about $9,000,000 in receivables and That's about $8,000,000 than what we would normally carry in our receivables.
So we hope that over time a couple of different things will happen. We hope That as the if the CDC mandate is not extended, which it's currently out to June 30, and I guess it's anybody's guess as to whether it will be or not, but if that is not extended, then we should be in a position to start getting back control of our real estate. And we think that's going to be very And kind of whittling away at that $9,000,000 in receivables. But overall in our portfolio, the ERAP It has not been particularly helpful because of the income of average income of our resident base. So we'll see if in this next tranche, There's more fewer restrictions on how that gets used, but I'm not terribly optimistic about that.
One of the challenges that you have with all this is that federal government puts this money out. There's In the last two stimulus, the one in December and the one that happened in February, dollars 46,000,000,000 was allocated to rent assistance, Which is a huge number obviously. And to date, there's been a just a minute fraction of that money going out. And part of it Is that the government requirements to check the box. We were having a meeting with our California folks.
And I think the last number I heard, Keith, was That we've had to send out 10,000 pages of documents to our residents in California. And it's
Like what?
And so it's all this massive just government right requirements to say, You got this right, this right, this right, this right and here's what you can do. And when you start talking about 10,000 documents, what do you think those people are doing in those apartments or Taking that document up, looking at it for the first paragraph and throwing it in the garbage. And so the challenge you have is that government requirements are tough. In Houston, for example, we were involved in designing the first set of programs for Apartment rent relief here and we streamlined it. We gave out $70,000,000 of money in Houston, Texas and did it really fast.
At the end, we ended up with $10,000,000 more by the end of the year. We couldn't give the $10,000,000 out, so we had to give it to the Food Bank. Otherwise, Based on government relations, you'd have to give it back to the federal government if you didn't spend it. So the challenge you have with all this Stimulus and these things is that it's really hard to get the money out to people. And the people that are hurting are not the $100,000 households.
The people that are hurting are the $30,000 $40,000 $50,000 players that are in C and D properties that aren't Back to work and or not getting stimulus money and what have you. And those are the ones that are the hardest to get Check the box on once they get once they go through a website and you don't have all their information, they just leave and they don't so you're losing them. So it's It's a challenge. And those items, I think our industry has done a great job of trying to help the most vulnerable people in the multifamily space, but they just don't live at Camden and they don't live at most of the public companies' apartments.
Our next question comes from John Kim with BMO Capital Markets.
Thank you. You guys look great on video.
I had a question on the occupancy pickup you had in April to 96 Point 6. Were there any particular markets that drove that figure higher? And do you expect it to remain at this level for the remainder of the year? Or do you expect it to trend Back down to 96%, which is where you operated back in 2019.
Yes. So I think that if you look at our pre lease numbers and go out 30, 60 days, the indications are pretty good that we'll stay above 96 for the next couple of months. Obviously, we're coming into the best part of our leasing season. The strength was across the board. So just to Put some perspective around it.
We did a we obviously did a complete reforecast to support our change in increasing guidance. And of our 14 markets, if you look across our portfolio, the bottom up reforecast revenues Revenue projections went up in 12 of the 14. So the only two markets where revenue did not Increase was San Diego and Orange County, LA. And the reason for that was has nothing to do with underlying strength of the market, which are both really good right now, it has to do with bad debt. So we continue to Have a challenge in California with regard to elevated levels of bad debt because we can't because of the CC eviction mandate and all the rent strikers that we have in our portfolio in Southern California.
So Absent those 2, which by the way, we're very only slightly negative on reforecast because of bad debt, We would have without the bad debt in California, we would have been up on all 14 markets. And I don't think I've in my career ever seen a reforecast done where all Team markets had a positive revenue impact in a reforecast. So I think it's just strength across the board. And if you kind of if you go to the top level of revenues in the new reforecast, we now have Out of 14 markets, we have 13 that have positive revenue growth for the year. The exception to that is we mentioned called out in the opening comments is Houston.
And Houston is down to 0.5 percent negative total revenues for the year. And I can tell you that our Houston folks Working their tails off to get off that list because they're the only one that has a negative number for the revenue reforecast. All the other 13 markets are really well positioned for our peak leasing season.
So John, we've got seasonality in there, but our reforecast assumes that we're going to have 96% occupancy for the full year. Obviously, it's higher occupancy in the 2nd quarter and third quarter coming back down in the 4th quarter. But to compare that To our original budget, that's a 70 basis point improvement.
That's helpful. Thank you. And then
On the cap rate discussion, we saw some of that cap rate compression was offsetting income, but it sounds like that's not the case. But on that exit cap rate that you quoted, on example in Tampa, 3.75%, is the view that Cap rates are going to remain low because of rising construction costs or is it the potential that the rental growth assumption that you quoted at 3% was a bit conservative?
Well, I think cap rates are a function not of construction costs going up because that project by the way At the price that I stated, the $90,000,000 price, it's 18% above replacement cost. So replacement cost is not a bogey today That investors are looking at. What they're looking at is what kind of cash on cash return am I going to get from this real estate and a 3.2% cap rate is the competitive market today. And so whether when you think about how you Due an IRR, right? An unlevered IRR has 3 components: what you buy in at, what your cash flow grows at and what you exit at.
And so for years, the question of what is your exit cap rate 7 years out, it's been a that's the That's like the argument about what's real CapEx, right? In a new development, you put in 250,000,000 and you know it's not that Long term, but that's what people use. And so ultimately, what will drive the exit cap rate Will be the environment at the time. And we know what drives price of any asset is first liquidity, How much liquidity is in the market? And we know today that there's massive liquidity in the market beyond belief liquidity.
The second thing that drives cap rates and prices Is and these are in the most important order, is supply and demand. What's the business look like? What is Is it excess supply, long term, how you feel about supply and demand dynamics relative to Relative to being able to drive net operating income or cash flow growth in the market today, supply and demand is pretty much imbalanced. You look at and balance from a just from that perspective, we in most markets. And When you look at supply and demand, it's good.
Then the next is inflation. And people have this inflation view or worry That you could have inflation. And then the last driver is interest rates. A lot of people think interest rates is the number one driver, but it's actually liquidity, Supply and demand inflation and then interest rates. So with that backdrop, cap rates are where they are because of the really the first two issues, I think, and then maybe A little bit of an inflation issue, but so who knows whether a 3.75% cap rate It's the right number in 7 years, but I guarantee you that's the only way if you want a 6% IRR, unlevered IRR in 7 years, That's the only way the math works.
So Rick, are you concerned that People are underwriting 3.75 or it sounds like you think it's rational at this point?
No, I think people have been if you want to compete in the market today You have capital to place. Multifamily is a coveted asset class for lots of reasons we've talked about before. And If you have capital that has to go out and you go where's the alternative investment? If I can't if I don't like a 3.2 in Tampa With the growth profile and everything that we talked about, then where are you going to put your money? You're going to go in we're earning 25 basis points on $300,000,000 right now in cash.
The government is penalizing us because of the Fed and everything else going on penalize anybody with cash. And so when you think about a cash flow stream that can grow, can be inflation protected, where it's up, It's a cash flow stream that people it's hard to disrupt, right, because everyone needs a place to live. You Can't live on the Internet or you can't disorient and mediate it by technology or whatever. You can improve it and improve its production with technology, but everybody has to put their head down And go to sleep at night in some place. They may not need a kitchen, but they definitely need a bathroom.
And so with all that said, it's just It's the whole argument about why are asset prices where they are and whether that what's your alternative from an investment perspective. And Right now, multifamily looks good and people are willing to pay 3.2 cap. And as long as your weighted average cost of capital long term is good And you're making a positive spread on your weighted average cap cost of capital long term, then go up. That's why people are doing it. So I don't think it's wrong.
I just think it is.
Interesting stuff. Thank you.
Our next question comes from Amanda Switzer with Baird.
Thanks. Good morning. Line up on guidance, can you provide an update on the blended lease rates and bad debt assumptions that underlie your increased ranges?
Yes, absolutely. So I think probably the best way to think about it is if you compare to what we originally thought for blended rates When we did our original budget, we are increasing that by 50 basis points. So the math sort of works like this. Our occupancy is up 70 basis points. Our blended rental rates were up 50 basis points.
That gets you to about 120 basis points. The offset to that is we are assuming that we're going to have slightly higher bad debt. That's entirely driven by California and the fact that When we did our original budget, we thought AB3088 was going to expire in the beginning of March. Now it looks like that's the beginning of July at the earliest. And so you've got sort of an offset from that.
And so we think that our bad debt is going to be about 160 basis points for 2021, Which by the way is in line with what we had in 2020. But if you compare it to 2019, which was a normal year, That number would have been about 50 basis points.
That's really helpful. And then on dispositions, are you Targeting sales in Houston and D. C. Today and given some of your cap rate comments, have you changed the assumed cap rate spread Between acquisitions and dispositions in your guidance at all, I think you're previously assuming about 150 negative basis point spread?
Right. We are still targeting those 2 markets, yes, in terms of dispositions. And I think we'll probably in our guidance, we're continuing to use That same spread. And hopefully, we'll do better than that based on what we're seeing and hearing today, we likely will do better than that spread, but we kept that 100 basis points Negative spread in the model, Alex. I'm pretty sure we did.
That's correct. Absolutely correct.
I think the real variation in the model between the buy and the sell will be Timing, right. And that'll be an interesting so there may be some timing differences, given where things are. But and hopefully, we'll do better than that negative Brett, right now, it looks like we will, but that's what we used in the model.
Thanks. Appreciate the time.
Sure.
Our next question comes from Brad Heffern with RBC Capital Markets.
Hey, everyone. I know we're at the top of the hour, so I'll just keep it to 1. I was wondering if you could just talk through Houston, It's a little surprised to see the sequential rent growth down almost 4%. I know obviously COVID Didn't necessarily break that market and COVID leaving isn't going
to fix it, but is there anything
that you're seeing there that gives you optimism as we go forward, whether it's the Energy recovery or supplier, anything else? Thanks.
Yes. So the big challenge that we have in Houston right now It's not employment related. Jobs have come back quicker than most people thought. The energy business is definitely getting better. It Takes a while, but there's a pretty big lag between improvement in price of crude versus improvement in employment Prospects in Houston in the energy business, but the issue in Houston is just supply.
We've talked about last year we dealt with about 20,000 new apartments Got delivered in Houston. This year, we're going to get another 20,000 apartments delivered. And unfortunately, a lot of those are in they're not Distributed geographically very well. So they end up everybody, all the merchant builders sort of built in the same places and we definitely Are catching a fair amount of shrapnel from the lease ups of the merchant builders in the downtown area as well as uptown and midtown. So That is more of a supply issue for Houston.
We do get some relief next year, thankfully, in terms of new supply. And overall, I would tell you that The general vibe of the recovery in Houston is, I mean Houston is open, people are out, Restaurants are busier than I've ever seen them. So it's pretty it's pretty robust. The feeling right now in Houston is pretty robust. So I think We'll do well as the we'll do better as the year ensues.
I think I shared with you our brief forecast for revenue growth in Houston is only down 0.5 from last year. And if you'd have told me, I certainly wouldn't have made that bet 6 months ago, and we didn't when we were putting together guidance. But that to me Sounds extremely encouraging for our Houston portfolio relative to original expectations.
I think also just to add on to the Houston story, The winter storm, we had a bigger effect on Houston than it did on the rest of the state and primarily because Of what it did to petrochemicals and the plants in and around the ship channel. I mean, there are plants that are still primary chemical Plants that are still offline that are just getting geared up from the winter storm. So the winter storm definitely held Houston back. It could have been A whole lot better in Houston, I think, without the winter storm. And we're just starting like I said, we're just starting to get that back.
I think the other thing that's really interesting about Houston is the discussion of energy transition and what's going to happen with big energy and how big energy is going to Make the transition from old school energy to more renewables. And we've seen a major acceleration of discussions by the large energy companies and part of that is driven by investor activism. If you look at ExxonMobil as an example, I mean, I own Exxon stock. So I see all their The proposals that these activists have put on their in their votes and what have you. And finally, the U.
S. Majors are making a major move into this energy transition. Exxon, for example, just announced a $100,000,000,000 Carbon capture program that could go in and around the ship channel and it's $100,000,000,000 to build it. It needs to be part of the government, maybe it's part of the government stimulus or infrastructure or whatever in addition to Exxon Putting their capital in, but I think there's going to be continued huge investments in these alternatives And wind and solar and carbon capture and Houston is going to lead that. So we're going to be in a position Where it's not old school energy that drives this market, it's transition energy.
Texas already has the largest wind power Source of electricity than of any state in the country and we're investing in massive amounts of solar. You saw Tesla has a big Battery plant that a battery program that they're doing just south of Houston. So it's going to be a really interesting thing. So to me, The winter storm held us back, but once we get through the supply, Houston should be move up The top quartile of our revenue growth in 20 middle of to the end of 2022 and into 2023 and 2024, in my view.
And I'll also point out, if you look at sequential occupancy increase, the largest sequential occupancy increase we had was Houston. From Q4 to Q1, it increased 110 basis points.
Yes, fair enough. Okay, thank you.
Our next question comes from Austin Wurschmidt with KeyBanc.
Great. Thank you. Just sticking with the theme there on Houston, I was curious if Positive guidance provision there was more just around that sequential uptick that you just alluded to in occupancy or are you also seeing a Little bit better traction on lease rates as well. And then maybe Rick to your comment on when you think Houston starts to get better, is it probably mid-twenty 2 by the
I think that's the peak supply side, plus you'll start getting Better job growth in a more normalized environment because what happened in Houston is you had the normal COVID unfortunately, you call it normal COVID job losses, right? But what's happened is you also have the oil and gas pounding, right? Last year at this time, I think oil and gas was We're within a few weeks of where it went negative, right? And so that's a that was a huge issue here. And I think that that's Over obviously and that once we get a more normal environment in Houston and a more normal business environment where people are actually traveling for business And Houston will improve.
When you look at visitors to Houston and conventions and things like that, It's more of a business destination than it is a tourism destination. And so I had lunch with the head of the Convention Group that markets Houston's convention business last week. And they said he said that starting in June, there are 18 citywide events. Yes, the World Petroleum Conference coming in December, which is an international event that was supposed to be last December, but It's going to be in December 2021. And so once we get more momentum from The business side and the business travel side, we will Houston will move, I mean, quicker to that recovery, but I don't think that's I think that's a mid to end of 2022 event because of the supply.
Yes. If you look at blended rates for signed leases from the Q1 of 2021 to April of 2021, Houston improved by 4 20 basis points. So still not a not an incredibly strong number, but an incredibly strong improvement.
Yes. That's really helpful. And then Alex, just to clarify on the 50 basis points increase in lease rates, Lease rate assumption and your same store revenue guidance, is that reflect simply leases signed at this point or does it also assume higher lease rates kind of through the balance of the year?
Yes, it does. So it looks at what's effective for the Q1, signed today and signed today is obviously going to take you through The 2nd quarter and a component of the 3rd quarter and then our expectations for the rest of the year.
That the lease rates in the back half of the year on both renewals and new leases are also higher than your original expectation? Correct. Okay. Thank you.
Our next question comes from John Pawlowski with Green Street.
Thanks a lot for keeping the call going. I was just hoping to better understand how the internal dialogue around share This has evolved, call it, second half of twenty twenty and even early this year. You enter the downturn with a really well positioned balance sheet, And suddenly all the the only real dislocation comes, it's going to your share price in the private market has remained rock solid. You still believe you're trading at a substantial discount to NAV and you've got a bit better clarity really since the summer on operating fundamentals. So Just curious why you haven't taken advantage of the well positioned balance sheet heading into the downturn on the share repurchase side?
Well, the challenge you have that we have with share repurchases is that the windows that you can that we can buy or buyback shares is that they're fairly narrow. And what happens oftentimes like When you think about the we bottomed at like $62 a share or something like that. And of course, we started talking about, okay, let's back up the truck, right? But on the other hand, then all of a sudden the shares start moving up. And when you think about When I think about share buybacks, it's like, okay, I want to be able to buy a lot of shares.
I don't want to just go tickle around the edges and do $5,000,000 $10,000,000 $20,000,000 or something like that. And so to me, it has to be persistent down and we have to have the ability to acquire Enough to make a difference. Because fundamentally, when you think about REIT balance sheets and how we manage our balance sheet, we're a leaky bucket, right, In the sense that all of our cash flow or not all of it, but most of it has to be paid out from dividends. And so when you're buying stock back in, it's Unless you can make and get a big enough chunk to make a difference, I think it's just kind of a waste of time. And so if you look back at Every time that we've gotten to a point where we looked at the numbers and said, this looks like a really good price, it's gone up dramatically in the last and Away from us in the windows that we can acquire the stock.
So it's not that we don't think about it a lot, we do. But on the other hand, you just the constraints on doing it is just are oftentimes just not worth the effort in my view. If it's that investors, If we buy the stock back and people go, oh, they think it's cheap, then that's one thing. But you can make your own decision whether you think it's cheap or not and buy or sell it. And to me, it's a real capital allocation issue.
If you think about when we did buy back stock big, it was when we had long term periods And big open windows in the and at one point, I think we bought 16% of the stock back at the peak and that was when the Stock was low for months and even years. And today, it's just not have that opportunity.
I just mean more from the relative decision, right? So you put a dollar into a kitchen and bath or a dollar into your stock, it's Just a relative decision. I mean, more talking about the second half of twenty twenty. I mean, if you believe your NAVs, Whatever, 130 or above and you had that visibility on the private market side, I mean there is a good 6, 7 months where Yes, you could be selling assets and repurchasing shares. So it's just more that the dollar is fungible and it's an opportunity cost to not acting, I guess, the final question.
Yes. You can always do that, but I just think at the end of the day, we're Long term owners of multifamily properties. And so there's a lot of friction that goes in between selling assets. And If you wave a magic wand and sell assets immediately and then have no risk of the execution And then buy stock and make a spread, yes, but the world doesn't work that way. There's a lot of execution risk involved in it.
And it's just it's something that when we talk when we start talking about doing it, then I don't want to borrow money Or use the current strength of the balance sheet and then to buy stock and then go sell assets after it. So I hear you though. It's an asset allocation issue and we think investing in our existing assets creating Returns that we think are pretty attractive. That's what we've been doing.
Okay. Thank you, guys.
Sure.
Our next question comes from Alex Kalmus with Zelman and Associates.
Hi, thank you for taking the question. Over the pandemic, we've seen The renewal and new lease spreads pretty wide. And in your April signings, they seem to reach some parity there. Can you talk about the dynamics on the leasing side and how you're approaching that? Obviously, the occupancy has fallen through, so it's been a good decision.
Yes. So we use our revenue management system, YieldStar, to price both new leases and renewals. So the inputs to the model are similar on both sides. Obviously, we got a little bit of a timing issue In our portfolio because we actually voluntarily froze renewal increases early on in the pandemic and we kept them Frozen through mid summer. So some of the natural renewal increases that would have happened Are going to happen maybe in a little bit more robust way as we work our way through mid summer.
But I think it just On both sides, it tells you that the model is foreseeing and foreshadowing a lot of strength on both The new lease side and the renewal side throughout the balance of our reforecast period.
Got it. Thank you. And just touching on the supply side for a sec, we talked about Houston. Do you have some updates on some of your other markets and how that's progressing? The start of the year has been Pretty strong on the activity front.
So has that changed how you're thinking about certain markets? No.
If you take Witten's numbers for total deliveries in 2020, We were about 100 across Camden's platform, we were about 154,000 delivered apartments and his forecast for this year is about 151,000. So there's some movement around, some shifting among our markets, but in the kind of at 10,000 feet, the supply picture for this year is not going to be much And with the exception of Houston, which obviously took the brunt of the 20,000 apartments last year and then backed up with another 20,000 this year, Most of our markets are in really pretty good shape fundamentally. And if you just kind of go back to again Witten's numbers, He's got job growth this year at $1,200,000 He's got new supply being delivered of about 150,000 apartments. And again, at 10,000 feet, that's 8 times new employment growth to delivered supply, Five times is a long term equilibrium. So in the aggregate, those ought to be really supportive for and look like they are going to be For raising rents and renewals throughout the year.
Great. Thank you very much.
This concludes our question and answer session. I'd like to turn the call back over to Rick Campo for any closing remarks.
Great. Well, thanks for being with us today. I understand that the Have Fun video was a little choppy for The group in the replay, you'll be able to see it without being choppy. And let us know how you like this new format. I think it's kind of Interesting and makes it a little more interactive and sort of helps go through when you're going through a Slugging numbers like we are, it kind of helps you sort of follow that.
So we look forward to hearing from you on this format. And then we'll See and talk to, I think, most of you in virtual form at NAREIT. So coming up in the next couple of months. So take care and thank you.
Yes. Take care. Take care. Bye.
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