Good morning, and welcome to Camden Property Trust's third quarter 2021 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 Alex Jessett, Chief Financial Officer. If you haven't logged in yet, you can do so now through the investors section of our website at camdenliving.com. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Today's webcast will be available for replay this afternoon, and we are happy to share copies of our slides upon request.
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 third quarter 2021 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.
Thanks, Kim. The theme for our pre-call music today was Camden Cares. For many years, our Camden Cares initiatives have provided assistance to people in need among Camden's family, our Camden residents, as well as the communities where we live and work. Our music today included a song by the late great Bill Withers with this great wisdom. "Lean on me when you're not strong. I'll be your friend. I'll help you carry on. For it won't be long till I'm gonna need somebody to lean on." These words capture the spirit of all that our Camden associates do for others in need under our Camden Cares banner. Camden's why, our purpose, is to improve the lives of our teammates, customers, and our shareholders one experience at a time.
At the outset of the pandemic, it was clear that the disruption from COVID-19 was going to be massive and leave millions needing someone to lean on. We encouraged our teams to view the widespread chaos as an opportunity to go big on our pledge to improve people's lives one experience at a time. Not surprisingly, Team Camden responded in truly extraordinary ways that we captured in this brief video.
2020 brought us challenges we'd never faced before. We used them as opportunities to serve our communities, impacting real lives, real families, and creating real change. We delivered meals to Camden residents on the front lines of COVID-19. 1,943 meals went to 161 healthcare hero residents and their teams. We held the first annual Camden Cares Virtual Turkey Trot to benefit food banks nationwide. Over 350 Camden employees participated. $50,000 was donated to food banks in each of our markets. Additional community service projects included food drives, holiday cards to seniors, Salvation Army Angel Trees, New Hope Housing book drive, and toy drives. We served employees by adding $1 million to our longstanding Employee Emergency Relief Fund, grants of up to $3,000 to our employees whose family income had been impacted by COVID-19.
Over 440 employees were provided with total grants exceeding $1.1 million. A bonus exclusively for our frontline employees of $2,000 for each full-time employee, totaling approximately $3 million. A learning stipend was added to ease the burden for parents and enable them to continue working. Camden Cares also went big in our efforts to serve our residents. Early spring brought us the Resident Relief Fund. $10.4 million was provided to approximately 8,200 Camden residents. 2020 compelled us to do more than we ever thought possible, and we were not prepared for the thanks we would get.
Wow, what a blessing to have some type of assistance during this time. I'm grateful to see that Camden is looking for ways to assist their tenants. I pray that this fund will-
Camden team, we are so very grateful for the grant we were afforded to help alleviate some financial strain during this time. Your help in paying our rent over the next months is going to prove immensely useful to our lives and wellbeing. I know you've read a million-
Social justice issues became front and center last year and made us reflect on how we as a company could help. Inclusion has always been part of our DNA. When we acknowledged what was going on and communicated Camden's commitment to being part of the solution, team members responded with overwhelming support. Wendell Lockhart, a Leasing Consultant in Dallas, shared with us that he had donated to an organization focused on progressing the African American community to true equality. He echoed what other team members were feeling: a need to respond quickly, to do something tangible. He challenged executives to follow his example, which we did, and then we created a program to match all team member donations. The program benefited five charities supporting the underrepresented communities and promoting inclusion.
We raised just under $275,000 for the organizations and helped team members take action to solve a problem they care about deeply. Camden Cares is not about the recognition. It's about doing the right thing. It's not just what we do, it's who we are and who we want to be. Thank you for making Camden.
Camden's caring culture was recognized by People Magazine this year on their 100 companies that care list, ranking Camden at number seven. I wanna thank all of our Camden team members for all they do to make our communities better every single day. We are pleased to report another very strong quarter of results and another raise to our 2021 earnings guidance. We're seeing high levels of rent growth along with sustained occupancy levels over 97% for our portfolio, which bodes well for the remainder of the year. Camden has always focused on operating in markets with high employment and population growth and strong migration patterns, and this strategy has clearly paid off. As evidenced by the ULI PwC report that was issued for 2021 real estate trends at the ULI fall conference in Chicago last week.
Camden's markets. Eight of Camden's markets ranked in the top 10 for 2022 investor demand. We're very fortunate today to be in a really strong apartment market and in the right markets. At this point, I will go ahead and turn over the call to Keith Oden.
Thanks, Ric. Now for a few details on our third quarter operating results. Same-property revenue growth exceeded expectations yet again at 5.1% for the quarter, and was positive in all markets, both year-over-year and sequentially. We posted double-digit growth in Phoenix and South Florida, both at 10.1%, followed by Tampa at 9.5%. Year-to-date, same-property revenue growth is 2.9%, and we expect strong performance in the fourth quarter across our portfolio, resulting in our revised 2021 guidance range of 4%-4.5% for full-year revenue growth. New lease and renewal gains are still strong with double-digit growth posted in both categories.
For Q3 2021, signed new leases were 19.8% and renewals were 12.1% for a blended rate of 16% flat. For leases which were signed earlier and became effective during the third quarter, new lease growth was 16.6%, with renewals at 8.5% for a blended rate of 12.2%. October 2021 remained strong, with signed new leases trending at 18.3%, renewals at 13.8%, and a blended rate of 16.5%. Renewal offers for November and December were sent out with an average increase of 15%-16%. Occupancy has also been very strong and was 97.3% for the third quarter of 2021, and is still holding at 97.3% for October to date.
Net turnover remains low at 47% for the third quarter of 2021 versus 49% in the third quarter of last year. Move outs to home purchases moderated from 17.7% in the second quarter of 2021 to 15% in the third quarter of 2021, trending below our long-term average of about 18%. It's worth noting that these strong results have continued into what has historically been a seasonally weaker period for our portfolio. We want to acknowledge Team Camden for continuing to produce outstanding and better than forecast results. This marks our third straight quarter in which we increased our same property NOI and FFO per share guidance. Our team is focused on finishing the year strong, which will position us for another solid year in 2022.
I'll now turn the call over to Alex Jessett, Camden's Chief Financial Officer.
Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activities. During the third quarter of 2021, we purchased Camden Central, a recently constructed 368-unit, 15-story community in St. Petersburg, Florida. Subsequent to quarter end, we purchased Camden Greenville, a recently constructed 558-unit mid-rise community in Dallas. The combined purchase price for these two acquisitions is approximately $342 million, and both assets were purchased at just under a 4% yield. Also, during the quarter, we stabilized Camden Downtown, a 271-unit, $132 million new development in Houston. Subsequent to quarter end, we stabilized ahead of schedule Camden North End II, a 343-unit, $79 million new development in Phoenix.
Additionally, during the quarter, we completed construction on Camden Lake Eola, a $125 million new development in Orlando. Subsequent to quarter end, we purchased five acres of land in Denver for future development purposes. On the financing side, during the quarter, we issued approximately $222 million of shares under our existing ATM program. We used the proceeds of the issuance to fund, in part, the previously discussed acquisitions.
Turning to financial results, last night we reported funds from operations for the third quarter of 2021 of $142.2 million or $1.36 per share, exceeding the midpoint of our guidance range by $0.03 per share, which resulted primarily from approximately $0.01 in higher same-store NOI, resulting from $0.02 of higher revenue, driven by higher rental rates, higher occupancy, and lower bad debt, partially offset by $0.01 of higher operating expenses, entirely driven by higher than anticipated amounts of self-insured expenses. Approximately $0.015 in better than anticipated results from our non-same-store, development, and acquisition communities, and approximately $0.01 from the timing of our third quarter acquisition. This $0.035 aggregate outperformance was partially offset by a $0.005 impact from our higher share count, resulting from our recent ATM activity.
Last night, based upon our year-to-date operating performance and our expectations for the remainder of the year, we also updated and revised our 2021 full year same-store guidance. Taking into consideration our continued significant improvement in new leases, renewals, and occupancy, and our resulting expectations for the remainder of the year, we have increased the midpoint of our full year same-store revenue guidance from 3.75% - 4.25%. We have increased the midpoint of our full year same-store NOI guidance from 3.75%- 4.5%. We are maintaining the midpoint of our same store expense guidance at 3.75%, as the higher than expected third quarter insurance expenses are anticipated to be entirely offset by lower than expected property tax expenses in the fourth quarter.
We are now anticipating that our full year property tax growth rate will be approximately 1.6%, which includes $1.8 million of property tax refunds anticipated in the fourth quarter. Our 4.25% same-store revenue growth assumption is based upon occupancy averaging approximately 97% for the remainder of the year, with the blend of new lease and renewals averaging approximately 16%. Last night, we also increased the midpoint of our full year 2021 FFO guidance by $0.10 per share. Our new 2021 FFO guidance is $5.34-$5.40, with a midpoint of $5.37 per share. This $0.10 per share increase results from our anticipated 75 basis points, or approximately $0.05 increase in 2021 same-store operating results.
$0.01 of this increase already occurred in the third quarter. An approximate $0.05 increase from our non-same store, development, and acquisition communities, of which $0.025 already occurred in the third quarter. An approximate $0.02 increase in FFO from later and lower than anticipated fourth quarter disposition activities. We now anticipate approximately $110 million of dispositions in early November, and approximately $220 million of dispositions in early December, as compared to our previous expectations of $450 million of dispositions all occurring in early November. This $0.12 aggregate increase in FFO is partially offset by an approximate $0.02 impact from our third quarter ATM activity. Last night, we also provided earnings guidance for the fourth quarter of 2021.
We expect FFO per share for the fourth quarter to be within the range of $1.46-$1.52.
The midpoint of $1.49 represents a $0.13 per share improvement from the third quarter, which is anticipated to result from a $0.11 per share or approximate 7.5% expected sequential increase in same-store NOI, driven by both a 2.5% or $0.055 per share sequential increase in same-store revenue, resulting primarily from higher rental rates, and a 6.5% decrease in sequential same-store expenses, driven primarily by a $0.025 fourth quarter decrease in property taxes, combined with a fourth quarter $0.015 decrease in property insurance expenses and a $0.015 third to fourth quarter seasonal decrease in utility, repair & maintenance, unit turnover, and personnel expenses.
A $0.03 per share increase in NOI from our development communities in lease-up and our non-same store communities, and a $0.02 Per share increase in FFO resulting from the full quarter contribution of our recent acquisitions. This aggregate $0.16 increase is partially offset by a $0.015 decrease in NOI from our planned fourth quarter disposition activities and a $0.015 per share incremental impact from our third quarter ATM activity. Our balance sheet remains strong, with net debt to EBITDA at 4.4x and a total fixed charge coverage ratio at 5.8x . As of today, we have approximately $1.1 billion of liquidity, comprised of approximately $200 million in cash and cash equivalents, and no amounts outstanding under our $900 million unsecured credit facility.
At quarter end, we had $242 million left to spend over the next three years under our existing development pipeline. Our current excess cash is invested with various banks, earning approximately 20 basis points. At this time, we will open the call up to questions.
We will now begin the question and answer session. To ask a question, press star then one on a touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Neil Malkin with Capital One Securities. Please go ahead.
Good morning, everyone. Great quarter. First question. Maybe higher level in terms of just, you know, secular tailwinds. What is, in your opinion, driving historically strong, rent growth? I mean, you know, are you continuing to see accelerating in-migration, corporate relocation? Is it a wage growth thing? Because, you know, supply is, you know, pretty consistent, you know, give or take over the last couple of years and expected to be next year, maybe a little bit higher. If you can just talk about, what you think the main, you know, drivers there, are, because, you know, you're at 97% and you're pushing double digits. So any thoughts would be great.
Sure. When we think about what's going on. When you think about our customer base, right? Our customer base average income is a little over $100,000 a year. And if you think about what's been going on in the economy, you know, the unemployment rate is very low, but when you think about the jobs that haven't been or the people that aren't employed today, 75% of those folks are making under $50,000 a year. Our customer base is really in good shape. Number one, they're employed. Number two, they have massive savings as a result of the pandemic.
A lot of them that doubled up with at parents' homes or doubled up in apartments during the pandemic, that's all expanding. You really have almost three years of demand hitting the market in 2021 in a very buoyant job market for our customers. You just have the financing scenario or the. You know, you think about wages going up pretty dramatically, plus savings rates going up pretty dramatically. All the government support that our customers got and probably they didn't spend it. What that has done is that's allowed a lot of folks that maybe financially had to double up prior to the pandemic who are undoubling.
You now have just normal economic growth plus the unbundling of people that were either living at home or bundled up in you know in roommate scenarios. Because we know that people generally have roommates, not because they want them, but because they have to have them because of financial issues. We just have a very our customers are really in good financial shape today, and I think that's what's sort of driven the you know the demand, not just for apartments, but for single-family homes. Anything that's home today is full. We've been under-building for a long time.
I think it's just that we have this unusual situation where everybody has, you know, money in their pocket, and they're willing to, you know, go out and lease apartments.
Yeah. Neil, I would just.
That makes sense.
I would just add that you mentioned the in-migration and the continuation there. Across Camden's platform, on using Ron Witten's numbers for 2021, he still estimates over 440,000 net migration across Camden's 15 markets. It is, I mean, it's an important part of the story as well, is that people that have been sort of liberated to live where they choose to live and not where they have to live, making choices in big numbers to continue the migration patterns that started, you know, a decade and a half ago. That, it is an important part of it, is 440,000 folks are gonna show up in Camden's markets this year just from in-migration.
Neil, I would add to that.
Yeah.
If you look at move-ins in our markets, we saw a 600 basis point improvement in people moving from non-Sun Belt markets to move into our communities in the Sun Belt. That's the manifestation of Keith's immigration numbers.
Okay. Yeah. Thank you all for the color. Just interesting because some other of your peers are making, you know, talking about people coming back into the coastal market. It's like, I'm not really sure where the people are coming from, but, you know, I think your absolute market rents speak for themselves. Other one for me is, you know, can you just talk about, you know, capital allocation priorities? You know, I thought you were gonna get pretty aggressive on developments. I think you only started one this year so far.
Can you just talk about, you know, how your cost of equity, you know, current market fundamentals and, you know, potential supply chain issues weigh into your factors of focusing on ramping the development pipeline versus focusing more on acquisitions? Thanks.
Well, there are a lot of questions kind of in that question. Fundamentally, you know, we think that development is a very good spot to be in today with the construct of rent growth that we're seeing in spite of supply chain issues. I would say next year we'll probably start anywhere between $375 million and $450 million of developments. You know, developments take a long time to put in place. You can't just move on a dime to increase development pipeline. That's where we'll be development-wise.
In terms of supply chain and how that relates to development. Supply chain disruptions, and I have a little bit of insider knowledge into this because part of my Camden Cares, my personal Camden Cares part of my equation is I'm the chairman of the Port of Houston. It's an unpaid political job, but I'm spending a fair amount of time understanding these supply chain issues, and they're real. It's not because the supply chain's broken. It's just the supply chain is jammed. We have very high demand for every kind of product because of the COVID-19 pandemic, and there's just too many products coming into the beginning of the supply chain, and they're getting stuck at every level, and that's causing, you know, big problems.
What that means for us is that our projects are taking 30-60 days longer to build. When you look at price inflation because of supply chain issues, we're looking at 10%-12% increases in labor and in construction costs. The good news is that rental rates have gone up so much over the last six or eight months that we're able to offset that with higher rental rates, obviously. Just to give you a little tidbit on this too. In California, when we were leasing up our Hillcrest project and also needing replacement refrigerators, we had to go out, and we bought 200 refrigerators from Best Buy. We went to Best Buy after Best Buy after Best Buy, loading up on our refrigerators.
It's not gonna change anytime soon, and that pressure is gonna be there for a long time. As far as capital allocation to acquisitions, we obviously have bought a lot of acquisitions this year with $633 million so far, and we had a budget of about $400 million. When you look at cost of capital, our cost of capital has gone down as a result of just the overall interest rate environment and stock price. That allows us to make a really good spread on both acquisitions and development, and that's why we're ramping up the acquisition side of the equation. We will continue to do that, you know, given the construct of the market.
It just makes a lot of sense for us to grow in this environment, even with low cap rates on a relative basis.
Thank you for all the color.
The next question comes from John Kim with BMO Capital Markets. Please go ahead.
Thanks. Good morning. I was wondering what markets were leading and lagging on the 18% new lease growth. Is it similar to the market performance on same-store revenue, or are there some markets with stronger momentum than the same-store revenue results?
I think the best guide would just be looking at the same-store revenue results, John. I mean, if you look at the sequential numbers on revenues, you know, the big ups were San Diego at over 7%. You got L.A., Orange County at close to 7%. Phoenix at 4%. Charlotte, South Florida, both at 4%. So, I mean, that is just. There's a lot of strength in sequential numbers like that. But it's across our entire platform, and the only. The markets that it, you know, kind of on a. It's hard to even talk about underperformance when the numbers are at the levels that they are.
We still have some regulatory headwinds in Washington, D.C., and so Maryland and D.C. proper, we still have some constraints on the ability to push rents. Same in California. Most of California, most of them except for Hollywood, have lapsed, but that doesn't mean that we're back in a position to make changes to our resident base immediately. There's a process you have to go through. That stuff, that'll get better over time because the market fundamentals are better than the regulatory environment has allowed us to take advantage of in those two markets.
The rest of the platform, business as usual, and you can see what the kind of unregulated and unconstrained market clearing rents are, and that's what we're getting on our new lease and renewals.
I was gonna ask you about D.C. because that seems like the one market that's underperformed your initial outlook for the year. I know there's some regulatory concerns in D.C. itself, maybe not so much in the suburban Maryland and Virginia. I was wondering, do you think there's gonna be a catch-up next year and/or, are you thinking about decreasing your exposure to D.C., given it's by far your biggest market?
I'll take that. You know, it's interesting because at the beginning of the year, we talked about how we were going to sell $450 million of assets and buy $450 million± , and we're gonna sell those properties in Houston and D.C. to lower our exposure in our two largest markets, and then reallocate that capital into Nashville and some of the other markets, like Tampa, that have you know, better constructs from a growth perspective, sort of longer term. We're doing that. I mean, we'll close the Houston transactions and the D.C. transactions you know, in the next month.
When you look at a D.C., and I'll sort of throw Houston in this bucket too because to your question of, you know, slower growth, okay, we have slower growth in Houston and in D.C. D.C. is definitely related to the fact that we can't raise rents on renewals because of regulatory constructs there. There's definitely pent-up that, you know, occupancies are high. You know, if we didn't have the government, you know, control on not being able to raise rents through the end of the year, we would be pushing it pretty hard just like the rest of the country. Fundamentals underlying are great in D.C., but it's just this government construct in the District and in Maryland where you can't raise rents.
Houston, on the other hand, is probably our slowest growing market even though we're getting, you know, really good rent increases on a relative basis, they're substantially lower than the rest of the country. The reason is if you look at the sort of the three or four cities in America that haven't added back their jobs from the pandemic, Houston would be one of those. Houston, L.A., New York, and that's primarily driven by oil. You know, we lost 60,000 jobs in the oil business, and we've added back about 23,000 of those jobs. We're pushing up towards 70% recovery of the jobs. If you look at Dallas, Austin, Charlotte, Raleigh, Phoenix, they're all over 100% recovered from their.
They're 100% recovered from their job losses in, you know, the pandemic. The good news is that even with the kind of drag we're getting from that, we're still putting really good numbers up. I kind of look at it like this, that you know we have a geographically diverse portfolio. Geographically diverse and then product diverse. The whole idea is you never know which market's gonna give you know, the best growth in any one year. It just depends on their local economies and how the supply and demand dynamics work. I look at D.C. and Houston as sort of gas in the tank for next year because those markets are improving.
Once we get the regulatory construct out of D.C., which should happen by the end of the year, maybe early second or first quarter, then we'll be able to. They'll experience the same kind of growth that the rest of the country is doing today. Then Houston continues to improve and, you know, oil's $85 a barrel and, you know, there's a you know a lot of after the winter, when people pay 30% more for their energy, I think you're gonna get back to more investments in the fossil fuel area, and Houston will do fine too.
Thank you.
Mm-hmm.
The next question comes from Nick Joseph with Citi. Please go ahead.
Thanks. What's the loss to lease for the portfolio overall? Then, I recognize it's somewhat of a moving target, and you've touched on some of the regulatory issues, but how long do you think it will take to capture and regain that lost to lease over the next few months or over the next year?
You're right. It certainly is a moving target. Loss to lease today is right around 16%. But now you'll have to remember that the way our pricing works, obviously, it's dynamic pricing, and so this loss to lease has some variability to it. If you're trying to sort of think about the impact and how long will it take for us to recoup all of that, you have to remember that we're generally not bringing our renewals up fully to market. We're doing that in order to make sure that we can keep up our resident retention. I wouldn't expect for us to make up that full 16% in 2022. I think it's probably a longer lead time, probably getting you into 2023.
Thanks. That's helpful. Just given where the occupancy is today versus history, how are you thinking about seasonality and kind of the push and pull of rent versus occupancy over the next few months?
We do have seasonality and historically have in our portfolio. If you go back and look at it, you know, throw out the two COVID years and look at the prior trend, on average, our occupancy between the third and fourth quarter drops about 40 basis points. You know, that's sort of typical. Well, in this year, between second and third, we actually went up 40 basis points, and as we sit here today, we're still at 97.3. My guess is there will be some seasonality from the 97.3, but maybe not the full 40 basis points that we've seen in the past. If you look from a rental perspective, you know, there's also seasonality on our new leases.
I mean, we typically see 2%-3% decline from third to fourth quarter. As we sit here today, we've actually increased that number throughout the month of October. I think we will see some seasonality, maybe not to the extent that we have in the past. You're talking about seasonal adjustments from historically high numbers both on occupancy and rents.
Thank you.
The next question comes from Amanda Sweitzer with Baird. Please go ahead.
Thanks. Good morning. As you look out into 2022, can you just talk about how you're thinking about the expense outlook today? Is there a level of expense growth that is already known through either kind of in-place insurance or tax increases? How are you thinking about controllable expense growth?
Yeah. Obviously, we are in the midst of our budget process, and so it's a little bit early to give some really detailed information around expenses. What I will tell you is that obviously we anticipate having a very good year in 2021 when it comes to property taxes, which is the largest component of our expenses. Based upon what we're hearing from our consultants, we think that there will be a slight uptick, but still within a normal range in property taxes. If you think about the second largest line item, which is salaries and benefits, you know, we're certainly getting some very real efficiencies that hopefully we'll start to see some incremental benefit from in 2022.
Hang tight and we'll get you some better information next quarter.
That's helpful. I appreciate your caution till you give actual guidance. Just wanted to follow up on your comments about it being an attractive time to grow more aggressively externally. Can you talk about how you're stack ranking your sources of capital, as you look out to 2022? Are you planning to further lighten your exposure in any markets beyond the planned sales you've talked about this year?
Well, in terms of lightening exposure, we will continue to. The good news is when you grow in smaller markets, that lightens your exposure on a percentage basis in your overweighted markets. We'll continue to trade out assets. You know, when I think about lowering exposure in D.C. and Houston, we can do it two ways. One is to grow outside of there, and the other is to move assets out of those markets and trade them for other assets. It's really more of a like two- or three-year program.
If you think about what we did in 2020, starting in the you know sort of 2013 kind of timeframe, we made a lot of moves. You know, we sold out of Vegas and you know increased exposure in a lot of other markets. We'll continue to do that. When I think about our capital stack, you know, it's pretty simple. We've talked about for a long time how we're gonna keep our debt to EBITDA in the 4x-5 x range.
When you look at weighted average cost of capital, our weighted average cost of capital has gone down as a result of everything that's going on in the market with the ten-year being where it is and with equity prices where they are. We're sitting right at 4.4x debt to EBITDA today. Had we not issued equity under our ATM program and just bought assets and funded them with debt, we'd be at 5.2x debt to EBITDA today instead of 4.4. The way I think about this, the kind of times we're in now is that we have very low cost of capital, and we know that our equity cost is the highest cost of capital that we have.
We're going to continue to balance the capital stack to make sure that we're driving this growth in a very positive way. Today, I haven't seen a time in my business career where we've had AFFO yields lower than our acquisition. If you think about our AFFO yield on our stock relative to what we're buying, we have accretive transactions when we're issuing stock and putting that debt piece on it as well, and then buying assets. That's, for me, a green light to grow. It's always about keeping that debt to EBITDA in that 4x-5 x range. Today, what we're really doing when we have times like this is we're getting that debt to EBITDA down to the 4x tim.
That, what that does is gives us tremendous capacity to lever up if, in fact, the market changes in the future, and there are more attractive opportunities when the world sort of changes. The question will be, how long does this last? I don't think any of us know. I do know that good times don't last forever and that, you know, rents don't go up always, and that at some point, our strength and our balance sheet will pay us big dividends in the future. That's the way we think about our capital stack and sort of the growth opportunities that we have today.
Thank you. I appreciate the comment.
Sure.
The next question comes from Richard Anderson with SMBC. Please go ahead.
Hey, thanks. Good morning, all.
Good morning.
So, um, the stock-
Good morning.
Stock is up about 65%-70% this year. I don't think the value of your portfolio is up that much. Back of the envelope, if I were to cut my cap rate by 100 basis points, you know, maybe you could say 30%, 35%, 40% up in terms of property value. There's a fair amount of enthusiasm driving the stock today, enthusiasm towards something that is arguably unsustainable. You mentioned, you know, 3x the demand in one year.
I guess the question is, and maybe you sort of answered in the last question, but how do you keep people from, you know, running from the stock next year and the year after because then they suddenly realize that, you know, 20% blended or, you know, new lease rates is just not something that's gonna happen probably next year either. I'm just wondering what's the bull case for Camden in years 2022 and beyond?
Well, first of all, we don't manage to the stock price, obviously, and stocks can go up and down, and that's just what they do, right? You guys are the ones who figure out what they're gonna do. To your point, if you just take the base, right? In January of this year when we started out at $95 a share and now we're up to, what, $162 or something like that. $95 a share was incredibly cheap. It was definitely a significant discount to NAV there. I would argue that from January to now, we've had at least a 30% or 40% increase in the real estate value, but we were undervalued to start with, right?
To me, it's not about 65% growth in the stock price versus 30% or 40% growth in the asset value. We started out at a low number, and so you had to get back to an NAV number. When you look at our NAVs relative to the streets, I mean, it's not that far off of where the stock price is today. Some people have it higher, some people have it lower. In terms of why would somebody? What's the bull case for Camden next year? I think it's pretty simple. I mean, you're coming off a really big year this year, but you have embedded growth next year that we've never seen in our business history. You know, when you look at next year, we have embedded, you know, revenue growth of 5%.
Just if we do nothing next year, and we just maintain our occupancy and our leases, you know, you have 5% top-line revenue growth. Then if you think that the loss to lease, some of that loss to lease is gonna get captured, you're gonna have probably one of the best years that multifamily has seen in a very long time for top-line growth. The question will be, how long does that last? I know people get very, you know, stressed out about negative second derivatives on revenue. But you have an unusual situation today where there's just more demand than supply, and for all the reasons that we talked about before.
As long as the economy continues to sort of chug along the way it's chugging along today, then, you know, 2022 looks pretty darn good. 2023 could be, you know, another interesting year too. You know, when you think about how high rents can go, keep in mind that these 20% increases today are on top of pretty much zero increase in 2021, limited increases in 2020. We had maybe a 3% growth in 2019. You have a fair amount of pent-up, you know, growth that was just catch-up growth but not like new growth. The new growth is gonna come in 2022 with the economy doing what it's doing.
I would make the argument that that's the bull case for Camden.
Okay, good stuff. Second question is, do you guys have a solid plan from a succession standpoint? I hate to bring this up because I'd hate to see both, any of you guys go. Obviously
Right
It's important for you to do that. Do you expect you'll be here many years to come? Or, you know, just any kind of comment on succession, because obviously you two guys and Alex and everyone are a very important story.
Let me take a quick shot at it. Yes, we have a long-term succession plan, and it's a good one because you really have two CEOs here, right? Keith and me, we were co-founders of the company. If one of us decides to leave tomorrow or gets hit by a truck or whatever, or maybe by a foul ball at the Astros game, you know, on Game 7 , then you have the other one. We have a very deep bench when it comes to our other team members. You know, when you think about Alex, I mean, Alex, you started here when you were in your thirties.
Now you're, you know, you're still a pretty young dude, even though you may have many peers in the last 20 years. We have a great plan. We're all good from that perspective. Keith, you want to add to that?
I was just gonna say, is it entirely internal?
Yes, absolutely.
Okay.
Completely confident that our succession plan is internal.
Yes.
Okay, great. Thank you.
Mm-hmm.
The next question comes from Daniel Santos with Piper Sandler. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions. As you look at sort of sub-market mix, how do you rank sort of infill versus suburbs versus outer ring from a pricing power perspective in the sort of near to medium term?
What I would tell you is that Class B and suburban communities continue to outperform, and that is primarily driven by where the supply is. I think you would expect to see that at least in the near term continue that way.
Got it. Thank you. Apologies if you covered this already, but can you give us an update on the delinquent rents in Southern California, and what's your view on when you might be able to start evicting tenants? Or is your view that internally that the eviction moratorium will be sort of extended kind of indefinitely?
If you think about delinquency for us, it was 120 basis points for the quarter. By the way, California was 410 basis points of that. If you exclude California, we would have actually had a delinquency number of about 80 basis points. We do not believe that we're gonna see any extensions. Obviously right now we are looking at how we are going to handle the consumer debt. We are certainly anticipating that 2022 is gonna be a more normal year in terms of California and people being required to be current on current rent.
Obviously, the past rent, as you know, turns to consumer debt, and then we'll have to look at our various avenues to collect those amounts.
Got it. That's it for me. Thanks, guys.
Thanks.
Thanks.
The next question comes from Rob Stevenson with Janney. Please go ahead.
Good morning, guys. How much redevelopment are you doing these days, and how are you thinking about that business over the next several quarters, given the downtime for units and the strong demand for those units and your overall high occupancy?
We expect in 2021 that we're gonna have about 2,200 units that we'll reposition. That works out to be about $53 million worth. We think it's a fantastic business. We're gonna keep doing it as long as we have the opportunities. The downtime, we've gotten really efficient about it. You know, obviously we go back and we sort of backtrack all this and backcheck. What we're finding is our reposition units are outperforming those units that have not been repositioned even in this environment. I think it's a great book of business. We're getting very strong return on invested capital, and it's something that we'll keep doing.
Okay. Obviously pricing continues to increase, but what was the five-acre land in Denver? Is there something else on that? Is that entitled for multi-family development? How would you sort of characterize the pool of entitled multi-family development land in the markets and submarkets that you wanna develop in today?
The Denver property does have some warehouses on it right now and is zoned multi-family and we've had it under contract for quite a while, and we went through the zoning process to make sure that it was developable as multi-family. The closing was required once we got our, you know, the right entitlements that we wanted. And then we will now start, you know, our construction drawings and knock the buildings down, and hopefully we'll be under construction, you know, late this year, early next year on that project. In terms of land availability, land availability is still out there. You know, people talk about, oh, gee, you know, they're not making any more land.
you know, what's happening is there's been a lot of product types that just underutilized lands that are out there. I think that the land availability is still fine. You're still able to buy it. The big issue is land prices have accelerated along with rents and other costs, so it just makes it more difficult to make numbers work on projects, and that's the challenge. You know, we wanna make a certain rate of return IRR and going in yield and that's the challenge in this environment.
Now, the good news is rents are helping us make those numbers obviously with, you know, the significant increases that people are having today, or rent increases, that is.
Okay. Thanks, guys. Appreciate it.
The next question comes from Richard Hightower with Evercore. Please go ahead.
Hey, good morning, guys. Thanks for all the color so far. I wanna go back. I think it's been asked a few times, but I'm gonna put a twist on it. This sort of 3x demand, you know, normal demand figure that Ric, I think you mentioned in the answer to one of the first questions. You know, as I think about that, I mean, you're not so much pulling forward future demand, you're sort of clawing it back from, you know, an air pocket that existed during the depths of COVID. You know, we might consider that the industry is sort of overearning currently on demand and therefore rents at the moment.
As I think about, you know, what next year and beyond are gonna look like, I mean, would you say that we are going to have a more sort of, you know, trend-like demand figure in 2022 and beyond? What does that do to a pricing algorithm, you know, if you're comparing sort of year-over-year and you do see what looks like an air pocket as measured against what's happened in 2021? You know, how do we figure out where the puck is going in that regard?
When you think about it that way, I don't disagree with that. We have more demand because people were doubled up in the past, and there's just more, you know, household formation, and people are choosing more apartments. Part of it is that people are choosing to rent rather than to buy or live in a single-family home too. When you look at the single-family market, it's full from a rental perspective, but it's also full from a sales perspective. I mean, you can't build houses fast enough today. I think that the clawback, if you wanna call it, is gonna stay in place, right? That means that occupancy levels, assuming that you have normal economic activity, right?
Meaning that we don't go into recession or there's some black swan event that happens, the Fed makes a mistake and you know, shuts down the economy or COVID or whatever, then. If you start out with amazingly strong occupancy, and those people stay in place that came out of the market, then what you have is normal demand in a very tight rental market. If you have normal demand that is just household formation and population growth and job growth through 2022 and 2023, that you shouldn't have an air pocket, the only way that would happen is if there was some economic dislocation, right?
Then that demand that was there goes away, or the new demand that normally happens during a normal year doesn't happen. You know, you could always come up with scenarios that we don't know about today, or like I just said, the Fed makes a mistake or something like that, and you have an air pocket. What happens is if you do lose the demand, then at least our occupancies are higher, and maybe the rental growth slows some. With our dynamic pricing model, you would have, you know, you would definitely see a slowdown in the rate of growth of new leases. But you'd need to have a real economic shock to make that air pocket happen, I think.
Okay.
Rich, just
Ric, that-
... to add to that, on Witten's numbers for 2022 in Camden's markets, he's got employment growth at 1.2 million, and he's got completions across Camden's markets at 160,000, flat with 2021. I mean, that math tells me, you know, we're gonna have excess-
Yeah
Demand in 2022, and probably in 2023 as well, because he's got completions ticking up a little bit in 2023, but not much. You know, the fact that you see this excess demand right now, and you say, "Well, what's the response to that?" Well, the response to it is people will build more, but it's a two-three-year process. I mean, it's not like going to the grocery store and getting cornflakes. I mean, these projects are long lead time. They're complex, they're expensive, and so it's just the supply response will happen, but it just it's not gonna happen until 2020. If it's not under construction already, it's not gonna be a factor until the end of 2023.
I think it's just by the numbers, it still looks like that we did, you know, pull that we had some pent-up demand that got into the 3X. I think you're gonna get back to more of a normal situation. A normal situation where demand is gonna continue to outstrip supply.
Right. Well, my kids can confirm it's hard to get cornflakes too at the moment.
Yeah.
Would you say that implies that, you know? If I think about occupancy, I mean, 98 becomes the new 97, as 97 has become the new 96. I mean, is that possible next year? Is that optimal?
There's a lot of friction. You know, people still move in and move out, and that move in, move out is gonna limit the ability to get, like, occupancy into the 98%-99% kind of range. You might see it tick up a bit, but it's really hard to maintain that because, you know, people are still moving around. You know, you look at our even though we had, you know, a drop in our turnover rate, it was still 47%, right?
Yep. Okay. Great. Thanks, guys.
Mm-hmm.
The next question comes from Chandni Luthra with Goldman Sachs. Please go ahead.
Hi. Thank you for taking my question. Most of the questions have been answered, so I'll just, you know, ask one on cap rates. What direction do you see cap rates go from here? I mean, obviously, there has been a lot of compression already, but how do you see this, you know, continue into 2022? Or do you think that, you know, we are finally at a point wherein the second derivative here slows? Just trying to understand that dynamic, if you could throw some light on that.
Yeah. I've bet against cap rates compressing sort of every quarter for the last, you know, 10 years. You know, I think that the challenge you have in predicting what cap rates are gonna do is, it's really, you know, driven clearly by the massive amount of capital out there that's trying to find a yield. You know, I sort of hurt my head when cap rates had a three on it, and a high three. Now it hurts my head that cap rates have a low three. When you put a 20% growth in embedded rent over a 12-month period, I get that, right?
You know, until we start seeing alternative investments that produce the kind of cash flow growth that multifamily does, and it also has an inflation hedge, then I think cap rates are gonna stay low and maybe go lower until that dynamic changes. If you have a significant, you know, negative second derivative, and rates rise where there are other alternatives for investors to get, you know, cash flow returns that they need, then that's probably when cap rates rise. When you think about what, you know, how assets price, the number one reason an asset is going up in value or cap rates are going down is liquidity in the market.
We have the most amazing liquidity that we've had, you know, ever in my business career. The second reason they go up and down is because of supply and demand dynamics, and we have great supply and demand dynamics, right? The third thing is interest rates, and the fourth thing is inflation—I'm sorry, it's inflation expectations, then interest rates. You know, until the dynamics of those four things change, cap rates are gonna continue to be really low and maybe go lower, until that changes.
Makes sense. My second question, you know, you just on the last one gave some color on supply and talked about how people are building, but that's a two-three-year process, so it's not gonna be a factor until end of 2022. As we think about sort of all the capital that is finding its way into the Sunbelt markets, is there a risk of crowding out? I mean, you know, just overcrowding at some point.
Then, you know, near term, looking into 2022, how do you think about these two opposing forces that on the one hand, you know, all that sort of air pocket that got created in construction last year perhaps finally gets to be finished, but on the other hand, you know, we've had construction delays, and you, I think yourself, talked about 30-60 days of delays there. How do you sort of, you know, square those two off, and where do you think 2022 will ultimately shake out to be from a supply standpoint?
Well, I think the supply is pretty much baked in for 2022 now, and those construction delays are real, so the supply we think is gonna come in in 2022 is probably not coming until 2023 because of those issues. As far as crowding out, I guess I'm not sure I understand that part of the equation, your question. Are you saying there's not enough room to build or there's wait-
Well, I guess just, you know, oversupply.
Oh, yeah.
Sort of.
You know, I think the issue on oversupply, you know, Sunbelt markets go up and down from a demand perspective. Right now we have an excess demand versus supply, and the supply is taking longer to put into the market. I think an oversupply condition in 2022 is very unlikely. Then
Mm-hmm
Then you have to start looking out to 2023, and when in 2023 do you have that happen? You know, I think it's really hard to go, "Okay, I think there's gonna be a supply problem in 2024." But you know, each market is dynamic and unique in its own way, and you will have some markets that have excess supply and less demand, and that's why we have a geographically diverse portfolio. You know, right now, Houston, even though we're getting 8%-10%, you know, rent growth, we're not getting 30% like we're getting in Tampa because of the supply but related to the demand with job growth.
You know, I think we're pretty clear on an imbalance of excess supply through 2022 and into middle of 2023, and after that it's, you know, tell me what the economy does. Do we get 1.2 million jobs, you know, each year for the next two or three years in our markets? If we do, you're probably good, you know, for another two or three years. That's the uncertainty. We know supply's coming.
Sure.
We know it's taking longer, but we just don't know what the demand is in middle of 2023 to 2024 or 2025. That's the crapshoot, I think.
Thank you for that answer. Very helpful.
The next question comes from Alex Kalmus with Zelman & Associates. Please go ahead.
Hi, thank you for taking the question.
Mm-hmm.
Can you talk a little bit about the dynamics in St. Petersburg? There's been a lot of, you know, high-profile office relocations, and Tampa's obviously been doing well. Can you talk about the dynamics there and the reason for the acquisition?
Yeah, St. Petersburg has some of the best market fundamentals of anything across our entire portfolio, and a lot of it has to do with just the re-envisioning and reimagining of what St. Petersburg is, and there've been tremendous growth in terms of commercial assets, retail support, and of course, that's brought with it some very high-end apartment development. But our rent growth right now in St. Petersburg is among the highest in our entire portfolio. Even on the brand-new acquisition we have there, the rent growth is crazy. We love St. Petersburg. We love the market dynamics.
We love where it's headed, and ultimately we'd like to have some additional exposure there, but it's not a real big market, and there's not a lot of stuff that trades. As a sub-market for us, it is just on fire right now, for sure.
Great. Thank you. Is there any data behind move-outs to single family rentals in the portfolio? I appreciate the color on the move-out supply there.
Yeah, I mean, we track that separately, and it's, you know, it's trended up from 1% five years ago to about 2% today. It's still just not a meaningful number yet in our portfolio. My guess is that probably will tick up over time, but just because there are more purpose-built single family kind of for rental communities that are being built. You know, that ultimately is probably a better solution for someone that's an apartment renter that doesn't wanna own a home but needs more space in the suburbs. That asset class, you know, purpose-built, single family, rental-only developments over time probably you know at the margins will make that number tick up. But it
I don't ever see it being a huge number or a big competitor to our portfolio. I think it's our resident base is just more suited to their next move being purchasing a home and like I said, our numbers right now for the last quarter were about 15%, which is still way below our long-term trend of about 18% for that category.
Got it. Thank you very much.
The next question comes from Austin Wurschmidt with KeyBanc. Please go ahead.
Great. Thank you. Sorry if I missed this, but I was curious, did you guys collect any rental assistance in the third quarter, you know, most notably from California? Could you provide what your outstanding receivable balance is today?
Yeah, absolutely. Outstanding receivable balance today is about $12.5 million, of which we have reserved about $12 million. We're almost fully reserved on that front. If you think about in the third quarter for same store, we collected about $4.2 million. Total portfolio was about $5.3 million. That gets us to a year-to-date number, same store of about $7.5 million and total of about $9.4 million.
Are you assuming any collections into the fourth quarter?
We are.
In the guide.
Yeah. We are assuming some additional collections going into the fourth quarter.
Separately, second question, curious if you could provide kind of an update on how deep the acquisition pipeline is today and, you know, maybe how that compares versus, you know, six months ago or so?
Well, there's a lot. The acquisition pipeline, you mean the properties available to acquire is pretty deep, you know.
Just property you guys are underwriting. Yeah, underwriting that kind of meet your you know acquisition criteria and just how that's.
Yeah.
scaled up given, you know, your higher propensity to be acquirers.
Sure. It's scaled up quite a bit. I mean, there's a lot of property out there on the market, but what we're looking for. You know, there's, like I said, tons of properties, but what we're looking for is a real specific product type, one where we can add value, one where we can move the rents pretty hard because of either management or some issues that the properties have. Those are harder to find than just your, you know, sort of run-of-the-mill merchant builder deal in the suburbs or in urban cores. There is a buoyant active market. You know, there's a lot of people that, you know, that are trying to, you know, create value and sell today.
It was sort of interesting because there's a lot of year-end madness kind of going on, right? Where people are trying to lock in capital gains rates with all the tax changes that have been bandied about and all that. I think that 2022 is gonna be another banner year. We're at record sales for multifamily at this point. We have had a number of transactions that we really wanted to acquire that we didn't get to the finish line on because we are disciplined on price, and we just didn't see the value proposition to go to the next level on those bids. You know, we'll get our fair share. It's just a
It is a very competitive environment, no question.
Thank you.
Mm-hmm.
The next question comes from Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hey, everyone. Hope you're all doing well. The operating stat update for October was great. I just wanted to see if there was any color or thoughts on or maybe how we should think about just the new lease rate or the date signed just coming off peak levels in 3Q. Everything else seemed to be moving up. Just, you know, maybe trying to get a sense of where it might be heading in the months ahead.
Yeah. Earlier, I think, I mentioned that our quality on new lease rates on third, fourth quarter, and this is over a long period of time, is 2%-3% down from third to fourth. There is seasonality and historically has been in our portfolio. The fact that you saw the wiggle, like, it's just really a wiggle down in new lease rates in October at the end of October is not of any concern, and it just. It's less seasonality than what we would normally see. All the other metrics that we look at, in particular turnover rate and 97.3% occupancy, you know, lead me to believe that we're more strength and probably less seasonality than what we would typically see.
I think it's still looks pretty strong.
Okay. All right. Does renewals follow that typical leg down as well, or do you think that can kind of keep rising from here?
My guess is that I didn't look at it that way, but because new leases is really the market clearing price, because a lot of times we don't take renewals all the way up to the market clearing price for a lot of different reasons. My guess is that it would be similar, maybe less seasonality slightly on renewals than new leases.
Okay. That's it for me. Thanks.
Unfortunately, we are out of time for questions, so this concludes our question and answer session. I'll turn it back over to Ric Campo for any closing remarks.
Well, thank you. I appreciate your time on the call today, and we will, I'm sure, be talking to a lot of you at Nareit coming up, so look forward to doing that. Take care and thank you. Go Astros.
Go Astros. Take care.
The good news is that if the Braves win, we're happy about that too, because we do have a lot of properties in Atlanta, and we love our Atlanta teams as well. Thanks. Take care.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.