Camden Property Trust (CPT) — Q3 2021 Earnings Call Transcript

Good morning, and welcome to the Camden Property Trust Third Quarter 2021 Earnings Conference Call. I am 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. 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 Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We hope to complete our call within one hour, and we ask that you limit your questions to two, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes. At this time, I'll turn the call over to Ric Campo.

Thank you, 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, Camden residents, and the communities where we live and work. Our music today included a song by the late Bill Withers, which conveyed 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 encapsulate the spirit of all that our Camden associates do for others in need under our Camden Cares initiative. Camden's purpose is to improve the lives of our teammates, customers, and shareholders one experience at a time. At the beginning of the pandemic, we recognized that the disruption from COVID-19 would be significant, leading millions to need someone to lean on. We encouraged our teams to view the widespread chaos as an opportunity to enhance our commitment to improving lives one experience at a time. Unsurprisingly, Team Camden responded in remarkable ways, which we highlighted in a brief video. Camden's caring culture was recognized by People magazine this year on their 100 companies that care list, ranking Camden at number 7. I want to thank all our Camden team members for all they do to improve our communities every day. We are pleased to report another very strong quarter of results and an increase in our 2021 earnings guidance. We're seeing high levels of rent growth along with sustained occupancy rates over 97% for our portfolio, which looks promising for the remainder of the year. Camden consistently focuses on operating in markets with high employment, population growth, and strong migration patterns. This strategy is clearly effective, as shown by the ULI PwC report issued for 2021 real estate trends at the ULI Fall Conference in Chicago last week. Eight of Camden's markets ranked in the Top 10 for 2022 investor demand. We are fortunate to be in a strong apartment market and in the right locations. Now, I'll turn the call over 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% to 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, '21, 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 remains 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% to 16%. Occupancy has also been very strong at 97.3% for the third quarter of '21 and is still holding at 97.3% for October today. Net turnover remains low at 47% for the third quarter of '21 versus 49% in the third quarter of last year. Move out to home purchases moderated from 17.7% in the second quarter of '21 to 15% in the third quarter of '21, 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, and 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. And 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 $220 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 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 and better than anticipated results from a non-same store development and acquisition communities, and approximately $0.01 from the timing effort for 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% to 4.25%. And we have increased the midpoint of our full year same store NOI guidance from 3.75% to 4.50%. 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're 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 to $5.40 with the midpoint of $5.37 per share. This $0.10 per share increase results from our anticipated 75 basis point, 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 a non-same store development and acquisition communities, of which $0.025 already occurred in the third quarter, and 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, 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 to $1.52. The midpoint of $1.49 represents a $0.13 per share improvement from the third quarter, which is anticipated to result from an $0.11 per share or approximately 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 $0.065 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 and maintenance, unit turnover, and personnel expenses. A $0.03 per share increase in NOI from our development communities and 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 amount outstanding under a $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'll open the call up to questions.

Good morning, everyone. Great quarter. First question maybe higher level in terms of just secular tailwinds. What is, in your opinion, driving historically strong rent growth? I mean, are you continuing to see accelerating migration, corporate relocation? Is it a wage growth thing? Because supply is pretty consistent give or take over the last couple years and expect it to be next year maybe a little bit higher? But if you can just talk about what you think the main drivers are there because you're 97%, and you're pushing double digits. So any thoughts would be great.

When we consider our customer base, the average income is slightly over $100,000 a year. Despite low unemployment rates, a large portion of those currently unemployed are earning less than $50,000 annually. Thus, our customers are in a strong position financially; they are employed and have accumulated significant savings due to the pandemic. Many have temporarily moved in with parents or shared living spaces, which has now started to change. We're seeing nearly three years of pent-up demand emerge in a favorable job market. Additionally, wages and savings rates have increased, with government support likely remaining unspent by many customers. This has enabled individuals who were previously forced to share housing to allow them to seek their own homes. Overall, our customer base is in good financial health, which has driven demand for both apartments and single-family homes. There's a strong market for housing as we have been under-building for quite some time, and currently, many people have available funds and are eager to lease apartments.

Yes, I'd just add, as I've mentioned in migration and the continuation there, across Camden's platform on using Ron Whitman's numbers for 2021. He still estimates over 440,000 net migrations across Camden's 15 markets. So it is a minute's an important part of the story as well as the people that have been sort of liberated to live where they choose to live and not where they have to live, making choices and big numbers to continue the migration patterns that started a decade and a half ago. So that is an important part of this 440,000 folks are going to show up in Camden's markets this year just from immigration.

And Neil, I'd add to that if you look at move-ins from 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. So that's the manifestation of keys immigration numbers.

Okay, yes, thank you all for the color. Just interesting as some of your peers are making talking about people coming back into the coastal markets. So it's like, I'm not really sure where the people are coming from, but I think your absolute market rent speaks for themselves. The other one for me is can you just talk about capital allocation priorities how you're going to get pretty aggressive on the developments, that you only started one this year so far. Can you just talk about how your cost of equity, current market fundamentals, and potential supply chain issues weigh into your factors of focusing on ramping the development pipeline, versus focusing more on acquisition? Thanks.

Well, a lot of questions, kind of in that question. But fundamentally, we think that development is a very good spot to be in today with the constructive rent growth that we're seeing, in spite of supply chain issues, I would say just to, so next year, we'll probably start anywhere between $375 million and $450 million of developments, developments take a long time to put in place, so you can't just move on a dime to increase development pipeline. So 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 insight knowledge into this because part of my Camden Care is my personal Camden Care is part of my equation is, I'm the Chairman of the Port of Houston. And so it's an unpaid political job. But so I'm spending a fair amount of time understanding the supply chain issues and they're real. And it's not because the supply chain is broken, it's just the supply chain is jammed. And we have high end, very, very increased high demand for every kind of product because of the pandemic, 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 big problems. So what that means for us is our projects are taking 30 to 60 days longer to build. When you look at price inflation, because of supply chain issues, we're looking at 10% to 12% increases in labor and in construction costs. The good news is, 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 costs. Higher rental rates, obviously, just to give you a little tidbit on this too. So in California, we are re-leasing up our Hillcrest project and also needing replacement refrigerators, we had to go out. And we bought a couple of hundred refrigerators from Best Buy in a week. So we went to Best Buy after Best Buy after Best Buy loading up on refrigerators. So it's not going to change anytime soon. And that pressure is going to be there for a long time. As far as capital allocation to acquisitions, we obviously have bought a lot of acquisitions here with $633 million so far, and we had a budget of about $400 million. When you look at the cost of capital, our cost of capital has gone down as a result of just the overall interest rate environment and stock price. And so 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. And we will continue to do that given the construct of the market, and so it just makes a lot of sense for us to grow in this environment, even with low cap rates on a relative basis.

Thanks. Good morning. I was wondering what markets were leading and lagging on the 18% lease growth? Is it similar to the market performance and same store revenue? Or are there some markets with stronger momentum than the same store revenue results?

I think the best way to assess the situation is by examining the same store revenue results, John. The sequential revenue numbers show significant increases, with San Diego at over 7%, Orange County close to 7%, and Phoenix, Charlotte, and South Florida all around 4%. This indicates a lot of strength in these sequential numbers. However, across our entire platform, there are some markets where it's challenging to discuss underperformance given the current numbers. We've encountered regulatory headwinds in Washington DC, particularly in Maryland and DC proper, which limits our ability to increase rents. California also faces similar challenges, except for Hollywood, where regulations have lapsed. Nonetheless, we are not yet in a position to immediately make changes to our resident base due to the processes involved. Over time, this situation should improve as market fundamentals are stronger than the regulatory constraints we've faced in these two markets. The rest of the platform is functioning as usual, and the unregulated market clearing rents reflect what we are achieving with our new lease renewals.

I was going to ask you about DC because that seems like the one market that's underperformed your financial outlook for the year. And I know there are some regulatory concerns in DC itself, maybe not too much in suburban Maryland and Virginia. But I was wondering, do you think there's going to be a catch-up next year? And or are you thinking about decreasing your exposure to DC given it's by far your biggest market?

So I'll take that. It's interesting because the beginning of the year, we talked about how we were going to sell $450 million of assets and buy $450 million plus or minus and we're going to sell those properties in Houston and DC 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 better constructs from growth perspective, sort of longer-term. And we're doing that, I mean, we will close the Houston transactions, the DC transactions in the next month. That when you look at a DC, and I'll sort of throw Houston in this bucket too, because to your question of slower growth, okay, we have slower growth in Houston and in DC, DC is definitely related to the fact that we can't raise rents on renewals, because of regulatory constructs there. And so there's definitely pent-up, occupancies are high if we didn't have the government 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. So fundamentals underlying are great in DC, but it's just this government construct in the district in Maryland, where you can't raise rents. Houston, on the other hand, is probably our slowest growing market, even though we're getting really good rent increases on a relative basis, they're substantially lower than the rest of the country. And the reason there is, if you look at the sort of the four, three or four cities in America that haven't added back their jobs, from the pandemic, Houston would be one of those, Houston, LA, New York, and that's primarily driven by oil, and we lost 80,000 or 60,000 jobs in the oil business. And we've added back about 23,000 of those jobs. And so there's only we're pushing up towards 70% recovery of the jobs. But if you look at Dallas, Austin, Charlotte, Raleigh, they're all over 100% recovered from their job losses in the pandemic. So, the good news is that even with the kind of drag we're getting from that, we're still putting really good numbers up and I kind of look at it like this, that we have a geographically diverse portfolio, geographically diverse, and that product diverse, and the whole idea is you never know, which markets are going to give you the best growth in any one year just depends on their local economies and how the supply and demand dynamics work. And so I look at DC and Houston as sort of gas in the tank for next year because those markets are improving. And once we get the regulatory construct out of DC, which should happen by the end of the year, maybe early second, the first quarter, then we'll be able to experience the same kind of growth that the rest of the country is doing today. And then Houston continues to improve and, oils at $85 a barrel and there’s a lot of after the winter when people pay 30% more for their energy, I think you're going to get back to more investments in the fossil fuel area and Houston will do fine too.

Thanks. What's the loss to lease for the portfolio overall? And then I recognize that someone at the moving target and you've touched on some regulatory issues, but how long do you think it will take to capture and regain that loss to lease over the next few months, or over the next year?

So 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, is dynamic pricing. And so this loss to lease has some variability to it. And 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. And we're doing that in order to make sure that we can keep up our resident retention. So 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. And then 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?

Yes, we do experience seasonality in our portfolio, and if we exclude the two COVID years and look at the previous periods, our occupancy typically drops about 40 basis points from the third to the fourth quarter. This year, however, we actually increased by 40 basis points between the second and third quarters, and currently, we're at 97.3%. I expect some seasonality from this figure, but it may not reach the full 40 basis points we've seen in the past. Additionally, there is also seasonality in our new lease rentals, where we usually see a 2% to 3% decline from the third to fourth quarters. This year, we've actually seen an increase in numbers throughout October. So, I anticipate some seasonality, although perhaps not to the extent experienced in previous years, especially considering the historically high levels of occupancy and rents.

Thanks. Good morning. If you look at it 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 to either kind of in place insurance or tax increases? And then how do you think about controllable expense growth?

Yes, so 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've had a very, or 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. And if you think about the second largest line item, which is salaries and benefits we're certainly getting some very real efficiencies that hopefully, we'll start to see some incremental benefit from in 2022. But hang tight, and we'll get you some better information next quarter.

That's helpful. And I appreciate your caution until you give access. And then just want to follow up on your comments about it'd be 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 and are you planning to further lighten your exposure in any markets beyond the planned sale, we've talked about this year?

In terms of lighting exposure, the positive aspect is that when we expand in smaller markets, it reduces our exposure on a percentage basis in the markets where we have more weight. Therefore, we will continue to divest assets. I'm considering reducing our exposure in Washington, D.C. and Houston. We can achieve this in two ways: one is to grow outside those areas, and the other is to relocate assets from those markets in exchange for other assets. We plan to implement some of this as well. Ultimately, this is more like a two to three-year program. Reflecting on what we accomplished starting in 2013, we made significant moves, including divesting from Las Vegas and increasing our presence in several other markets. We'll continue this strategy. Regarding our capital stack, it's straightforward. We've long stated our goal of maintaining our debt to EBITDA ratio in the range of four to five times. Currently, our debt to EBITDA stands at 4.4 times. If we hadn't issued equity under our ATM program and instead acquired assets solely with debt, we'd be at 5.2 times today. The current low cost of capital works in our favor. We recognize that equity is our most expensive form of capital, so we will keep balancing our capital structure to support positive growth. I haven't experienced a situation in my career where our AFFO yields have been lower than our acquisition costs. We are achieving accretive transactions by issuing stock and leveraging debt to buy assets, which encourages growth. Nevertheless, maintaining our debt to EBITDA ratio in the four to five times range is crucial. In current circumstances, we're working to reduce our debt to EBITDA to four times, allowing us significant capacity to increase leverage if more favorable opportunities arise in the future. We are uncertain how long the current market conditions will persist, but we recognize that favorable times are not everlasting, and rents do not consistently rise. Eventually, our strong balance sheet will yield substantial benefits, which is how we approach our capital structure and the growth opportunities available to us today.

Hey, thanks. Good morning, all. So the stock is up about 65%, 70% this year. And 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 maybe you could say 30%, 35%, 40% up in terms of property value. So there's a fair amount of enthusiasm driving the stock today, enthusiasm toward something that is arguably unsustainable. You mentioned 3x, the demand in one year. So I guess the question is, and maybe sort of answered in the last question, but how do you keep people from running from the stock next year, in the year after, because then they suddenly realize that 20% blended, or new lease rates is just not something that's going to happen probably next year either. So I'm just wondering what the bull case for Camden is in year '22 and beyond.

We don't manage based on the stock price, as stock prices fluctuate naturally. If we look at the beginning of this year, we started at $95 a share, and now we're around $162. That initial price was very low and significantly undervalued compared to NAV. Therefore, I would argue that from January to now, we've seen at least a 30% to 40% increase in our real estate value. The focus should not just be on the growth in stock price versus asset value, as we were starting from a low position and needed to return to a more accurate NAV. Comparing our NAVs to market estimates shows we are in line with where the stock price is today, with some variations. Looking ahead to next year, despite a strong current year, we have embedded revenue growth of 5% just by maintaining our current occupancy and leases. There is a possibility to capture more from any existing loss to lease, which could lead to one of the best years for multifamily top-line growth we’ve seen in a long time. While concerns about negative revenue trends exist, the current demand outpaces supply, and as long as the economy continues to perform as it has, 2022 looks promising. 2023 could also present interesting opportunities. Furthermore, the current 20% rent increases follow a period of minimal growth, meaning there is substantial pent-up demand. Thus, I believe that the case for Camden looks strong moving forward.

Okay, good stuff, and then second question is, you have a rock solid plan from a succession standpoint, I hate to bring this up, because I'd hate to see both any of you guys go. But obviously, it's important for you to do that, do you expect you'll be here many, many years to come or just any kind of comment on succession because obviously, you two guys and Alex and everyone are very important.

So let me take a quick shot at it. So 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. And so if one of us decides to leave tomorrow, or gets hit by a truck or whatever, or maybe by a foul ball, the Astros game on game seven, then you have the other one. And we have a very deep bench when it comes to our other team members. And when you think about Alex, I mean, Alex, you started here when you're in your 30s. Now you're still pretty young dude, even though you may have changed in the last 20 years, but so we have a great plan, we are all good from that perspective. Keith, you want to add to that?

I was going to say that it's entirely internal.

Hey, good morning, guys. Thanks for taking my questions. As we look at sort of sub-market mix, how do you rank for infill versus suburbs versus outer ring from a pricing power perspective in the sort of near to medium term?

So 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. And so I think you would expect to see that at least in the near term continue that way.

Got it. Thank you. And then, apologies if you covered this already. But can you give us an update on the delinquent rent 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?

Yes, so 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 or was 410 basis points. So if you exclude California, we would have actually had a delinquency number of about 80 bps. We do not believe that we're going to see any extensions. And obviously, right now, we are looking at how we are going to handle the consumer debt. But we are certainly anticipating that 2022 is going to 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.

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?

Yes, so we expect in 2021, that we're going to have about 2,200 units that we will reposition that works out to be about $53 million worth. We think it's a fantastic business, we're going to keep doing it, as long as we have the opportunities, the downtime, we've gotten really, really efficient about it. And obviously, we go back and we sort of backtrack, all this and back check and what we're finding is reposition units are outperforming those units that have not been repositioned even in this environment. So 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. And then obviously, pricing continues to increase but what is five-acre land in Denver? Was there, is there something else on that? Is that a title for multifamily development, and how we sort of characterize the pool of entitled multifamily development land in the markets and sub-markets that you want to develop in today?

The property currently has some warehouses and is designated for multifamily use. We have had it under contract for an extended period and have successfully navigated the zoning process to ensure its eligibility for multifamily development. With the right entitlements secured, we are now poised to begin our construction drawings and demolish the existing buildings. We aim to commence construction either late this year or early next year on this project. As for land availability, there is still plenty of it out there despite the common belief that it's becoming scarcer. Many types of underutilized land exist, which means opportunities remain for purchase. However, the challenge lies in the rising land prices, which have increased alongside rents and other costs, making it harder to achieve the desired returns on projects. Fortunately, the uptick in rents is helping us meet our financial goals despite these challenges.

Hey, good morning, guys. Thanks for all the color so far. So I want to go back, I think it's been asked a few times, but I'm going to put a twist on it this sort of 3x demand normal demand. Figure that, Rick, I think you mentioned in the answer to one of the question. So as I think about that, I mean, you're not so much pulling forward future demand, you're sort of calling it back from an air pocket that existed during the depths of COVID. And so we might consider that the industry is sort of over earning currently on demand, and therefore, rents at the moment. And so as I think about what next year and beyond are going to look like, I mean, would you say that we are going to have a more sort of trend-like demand figure in 2022 and beyond? And what does that do to a pricing algorithm? 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? How do we figure out where the puck is going in that regard?

I believe we will see increased demand due to past circumstances where people were living with others, leading to more household formations and a preference for renting apartments instead of buying or living in single-family homes. The single-family market is currently saturated, both in rentals and sales, and construction isn't keeping up with demand. As long as the economy operates normally, we should maintain strong occupancy levels, provided we avoid any major disruptions like a recession or unexpected events. If normal demand continues through 2022 and 2023, driven by household formation, population growth, and job growth, we shouldn't experience a significant downturn. The only way to see a drop in demand would be economic instability that disrupts both existing and new demand. While there could be unforeseen scenarios that might create a gap in demand, higher occupancy rates would mitigate significant impacts. In that case, rental growth may slow and we could witness a decrease in the pace of new lease growth, but such a scenario would require a substantial economic shock.

So, Rich, to build on Whitman's numbers for 2022 in Camden's markets, he has employment growth of $1.2 million and completions across Camden's markets at 160,000, which is flat compared to 2021. This suggests there will be excess demand in 2022 and likely in 2023 as well, since he projects a slight increase in completions for 2023, though not significantly. The current excess demand raises the question of response; people will indeed build more, but this process takes two to three years. It's not as simple as going to the grocery store to buy cornflakes. These projects require a long lead time, are complex, and costly, so any supply response won't materialize until 2020. If a project isn't already under construction, it won't have an impact until the end of 2023. Based on the numbers, it seems we did experience some pent-up demand that increased threefold. However, looking ahead, we are likely to return to a more typical situation, though in that normal state, demand will continue to exceed supply.

Right, my kids can confirm it's hard to get cornflakes too at the moment. Would you say that implies that if I think about occupancy, I mean 98 becomes the new 97, is 97 has become the new 96? I mean, is that possible next year?

Is that also regarding the movement of people? There are still people moving in and out, and this ongoing movement will restrict our ability to achieve occupancy rates in the 98 or 99 percent range. Rich, you might observe a slight increase, but it's challenging to maintain those levels since people continue to relocate. Even though our turnover rate has decreased, we are still at 47 percent.

Hi, thank you for taking my questions. Most of the questions have been answered. So I'll just ask one on cap rates. So what direction do you see CapEx go from here? I mean, obviously, there has been a lot of compression already. But how do you see this continue into 2022? Or do you think that 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?

I have consistently underestimated cap rate compression for the past decade. The challenge with predicting future cap rates is largely due to the significant amount of capital looking for yield. It was already concerning when cap rates reached the high threes, and now seeing them in the low threes is troubling. However, considering a 20% growth in embedded rent over a year makes sense to me. Until we start seeing alternative investments that can generate similar cash flow growth as multifamily does and offer an inflation hedge, I believe cap rates will remain low, possibly declining further until the situation changes. A notable negative shift, rising rates, or the availability of other investment options that can provide necessary cash flow returns could lead to an increase in cap rates. The primary factor driving asset value increases and lower cap rates is market liquidity, which has reached unprecedented levels in my career. Following that, supply and demand dynamics play a critical role, and currently, they are favorable. Interest rates and inflation expectations are also influential. Unless any of these four factors change, I expect cap rates to stay low or possibly decrease further.

Makes sense and then my second question, so you just on the last one gave some color on supply and talked about how people are building, but that's a two to three year process. So it's not going to be a factor until the end of 2022. But as we think about sort of all the capital that is finding its way into the Sun Belt markets, is there a risk of crowding out? I mean just overcrowding at some point. And then near term looking into 2022, how do you think about these two opposing forces that on the one hand all that sort of air pocket that got created in construction last year, perhaps, finally gets to be finished? But on the other hand, we've had construction delays, and you I think yourself talk about 30 to 60 days, delays there. So how do you sort of square those two often, where do you think 2022 will ultimately shake out to be from a supply standpoint?

The supplies are mostly accounted for in 2022 now, and the construction delays are significant. Therefore, the supply we expect to arrive in 2022 is likely being pushed to 2023 due to these issues. Regarding overcrowding, I'm not entirely sure I understand your question. Are you asking if there isn't enough space to build or if there are other concerns?

Well, I guess just oversupply.

I believe that the oversupply issues are influenced by fluctuating markets and demand dynamics. Currently, we have more demand than supply, and the supply is taking longer to reach the market. Thus, it seems unlikely that we will experience oversupply in 2022. Looking ahead to 2023, it's challenging to predict when any oversupply might occur. Market conditions vary, and some markets may indeed face excess supply and diminished demand, which is why we maintain a diverse portfolio across various regions. For example, in Houston, while we are seeing 8% to 10% red trade out, it is significantly less than the 30% we are observing in Tampa due to differing supply and demand driven by job growth. We anticipate an imbalance of excess supply through 2022 and into mid-2023. After that, the future largely depends on economic conditions, particularly job growth. If we continue to see 1.02 million jobs added annually in our markets for the next few years, we should be fine for a while longer. However, there is still uncertainty regarding demand in mid-2023 through 2025, which makes it difficult to predict outcomes.

Hi, thank you for taking the question. Can you talk a little bit about the dynamics in St. Petersburg? There have been a lot of high profile office relocations. And Camden obviously been doing well, has it - can you just talk about the dynamics there and the reason for the acquisition?

Yes, St. Petersburg has some of the strongest market fundamentals in our entire portfolio. This is largely due to the re-envisioning of the area, which has led to significant growth in commercial assets and retail support. Consequently, we have seen a surge in high-end apartment developments, and our rent rates in St. Petersburg are among the highest in our portfolio, including for our new acquisition there. The rental rates are exceptionally high. We have a strong enthusiasm for St. Petersburg, appreciate the market dynamics, and are optimistic about its future trajectory, aiming for more exposure in the area. However, it's a smaller market with limited trading options. As a sub-market, it is experiencing explosive growth right now.

Great, thank you. And is there any data behind move out to single-family rentals in the portfolio? Appreciate the color on move out supply there.

We monitor that separately, and it has increased from 1% five years ago to about 2% today. However, it's still not a significant figure within our portfolio, and I anticipate it may continue to rise gradually. This is likely due to the growth in purpose-built single-family rental communities, which may serve as a more appealing option for apartment renters seeking more space in the suburbs without the desire to own a home. Over time, this type of development might slightly elevate that percentage, but I don't expect it to become a major competitor to our portfolio. Our current resident demographic is generally more inclined to move towards homeownership. As for our figures from the last quarter, they were around 15%, still below our long-term trend of about 18% for that category.

Great, thank you. Sorry, if I missed this, but I was curious. Did you guys collect any rental assistance in the third quarter, most notably from California? And can you provide what your outstanding receivable balance is today?

Yes, absolutely. So outstanding receivable balance today is about $12.5 million, of which we have reserved about $12 million. So 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. And so that gets us to a year-to-date number, same store of about $7.5 million in total about $9.4 million.

And are you assuming any collections into the fourth quarter in the guidance?

Yes, we are assuming some additional collections going into the fourth quarter.

And then separately, second question, curious if you could provide an update on how deep the acquisition pipeline is today. And maybe how that compares versus six months ago or so?

There is a significant acquisition pipeline, and the number of properties available for acquisition is quite substantial.

Just property you guys are underwriting, yes, underwriting that kind of meet your acquisition criteria, and just how that scaled up given your higher propensity to be acquirers.

Sure, it's scaled up quite a bit. I mean, there are a lot of properties out there on the market. But what we're looking for there's, might 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. And those are harder to find than just sort of run-of-the-mill merchant-builder deals in the suburbs, or in urban core. So there is a buoyant aqua market. There are a lot of people that are trying to create value and sell today and there. 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 bantered about and all that. And I think that 2022 is going to be another banner year, we're at record sales for multifamily at this point. And 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, but we'll get our fair share. It's just, but it's a very competitive environment no question.

Yes. 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 the new lease rate from the date sign just coming off peak levels in Q3, everything else seemed to be moving out. So just trying to get a sense of where it might be heading in the month ahead.

Yes, earlier I mentioned that our lease rates typically fluctuate, especially in the third and fourth quarters. Over a long period, these rates are down to 2% to 3%. There is seasonality that has historically been present in our portfolio. The recent slight decline in new lease rates at the end of October is not concerning. It indicates less seasonality than we usually experience. Furthermore, looking at other metrics, like the turnover rate at 97.3% occupancy, suggests we have more strength and likely less seasonality than usual, which indicates that our position remains strong overall.

Okay, all right. Do these renewals follow that typical leg down as well? Or do you think that can kind of keep rising from here?

Yes. My guess is that I didn't look at it that way. But because new lease 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. But my guess is that it would be similar. Maybe less seasonality slightly on the renewals than new leases.

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. So take care and thank you. Go Astros.

Go Astros. Take care.

I think if the Braves win, if the Braves win, we're happy about that too, because we do have more. We do have a lot of properties in Atlanta, and we love our Atlanta teams as well. So thanks. Take care.