Camden Property Trust (CPT) — Q1 2022 Earnings Call Transcript

Good morning and welcome to Camden Property Trust First Quarter 2022 Earnings Conference Call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, Executive Vice Chairman and President; and Alex Jessett, Chief Financial Officer. Today's event is being webcast through the Investors section of our website at camdenliving.com and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks and those slides will also be available on our website later today or by e-mail upon request. Please note this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden's complete first quarter 2022 earnings release is available in the Investors section of our website at camdenliving.com and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We hope to complete our call within one hour. At this time I'll turn the call over to Ric Campo.

Thanks Kim. The theme for our music today was fools, as in April Fools. Since our IPO 29 years ago, April 1st, 2022 was one of the most consequential days in Camden's history. The day began with Kim Callahan telling us that Camden was being included in the S&P 500. At first, we just assumed Kim was attempting one of the lamest April Fools jokes in history, but Kim has never been a big jokester. Later that same day, we closed on our largest acquisition since the Summit merger in 2005 with the purchase of Texas Teachers partnership interest in 22 Camden communities with a gross valuation of $2.1 billion. And finally, April 1st was the day that Camden completed the implementation of our Work Reimagined initiative, a comprehensive restructuring of how we staff, manage, and support our Camden communities. Alex will provide more details on this initiative in his comments. Any one of these events would have been a big deal for Camden. The fact that all three happened on April Fool's day was extraordinary and that's no joke. I want to give a big shout out to our teams in the field. We're continuing to outperform our competitors while improving the lives of our team members and our customers one experience at a time. I'd also like to give a big shout out to our real estate investments, finance, legal, and asset management groups along with our accounting group for their amazing work in completion of the acquisition and the permanent financing for the Texas Teachers' transaction. Truly a team effort. Keith is up next. Thanks.

Thanks Ric. Now, a few details on our first quarter 2022 operating results and April trends. Same-property revenue growth exceeded our expectations at 11.1%, the best quarterly growth in our company's history. Twelve of our fourteen markets posted double-digit revenue growth in the quarter, with Tampa, Phoenix, and Southeast Florida showing the strongest results. Given this outperformance and an improved outlook for the remainder of the year, we've increased our 2022 full year revenue growth projection from 8.75% to 10.25% at the midpoint of our guidance range. Rental rates for the first quarter had signed new leases up 15.8% and renewals up 13.2%, for a blended rate of 14.4%. Our preliminary April results are also trending at 14.4% for blended growth, with new leases at 14.7% and renewals at 14.1%. Renewal offers for May and June were sent out at an average increase of 14.4%. Occupancy averaged 97.1% during the first quarter of 2022, which matched our performance last quarter and compared to 95.9% in the first quarter of 2021. April 2022 occupancy is trending at 96.9% to date. Net turnover for the first quarter of 2022 was 36% versus 35% last year, and move-outs to purchase homes dropped to 14.1% for the quarter versus 15.8% last quarter, in line with normal seasonal patterns we typically see from 4Q to 1Q of each year. Move-outs to purchase homes remain well below normal for our portfolio. Finally, I want to acknowledge all of team Camden for recently being named to Fortune's list of 100 Best Companies to Work For. This year marks our 15th consecutive year on this prestigious list. Camden is one of only five companies included in the S&P 500 and also named to Fortune's list for the last 15 years. Rarified air indeed. Next up is Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith, and certainly rarified air. Before I move on to our financial results and guidance, a brief update on our recent real estate and finance activities. During the first quarter of 2022, we stabilized Camden Lake Eola, a 360-unit, $125 million new development in Orlando. We disposed of a 245-unit community in Largo, Maryland for $72 million and we acquired a 16-acre land parcel in Richmond, Texas for future development purposes. Subsequent to the quarter end, we acquired for future development 43 acres of land comprised of two undeveloped parcels in Charlotte and we purchased the remaining 68.7% ownership interest in our two joint venture funds for approximately $1.5 billion, inclusive of the assumption of debt. The assets involved in this fund transaction include 22 multifamily communities with 7,247 apartment homes with an average age of 12 years, primarily located in the Sunbelt markets across Camden's portfolio. We expect this acquisition will provide an initial FFO yield of approximately 4.4%. As a result of this transaction, as detailed on page 10 of the supplemental package, the expected net operating income contribution from markets including Houston, Austin, Dallas, and Tampa will increase slightly, while the remainder of Camden's markets will reflect flat-to-slightly lower concentrations. This transaction allowed us to fully acquire a very attractive portfolio of assets with no execution or integration risks. We initially funded this transaction with cash on hand, which included $500 million drawn on our unsecured $900 million line of credit. We are also now consolidating approximately $514 million of existing secured mortgage debt of the funds. Subsequent to the quarter end, we issued 2.9 million common shares and received $490.3 million of net proceeds, which we used to pay down our line of credit. As of today, we have approximately $70 million outstanding under our line. At quarter end, we had $182 million left to spend over the next three years under our existing development pipeline, and we have no scheduled debt maturities until September 30 of this year. Our balance sheet remains strong with net debt to EBITDA for the second quarter of 2022 anticipated to be at 4.4 times. Last night, we reported funds from operations for the first quarter of 2022 of $160.5 million or $1.50 per share, $0.03 above the midpoint of our prior guidance range of $1.45 to $1.49. The $0.03 per share variance to the midpoint of our prior quarterly FFO guidance resulted primarily from approximately $0.025 from higher occupancy, lower bad debt, and higher rental rates for our same-store and non-same-store portfolio, and $0.01 from an unbudgeted earn-out received from the sale of our Chirp investment completed in 2021. This $0.035 cumulative outperformance was partially offset by $0.005 in higher property insurance expense resulting from higher-than-expected levels of the self-insured losses. Last night, based upon our year-to-date operating performance, our April 2022 new lease and renewal rates and our expectations for the remainder of the year, we have increased the midpoint of our full-year revenue growth from 8.75% to 10.25%. Our revised revenue growth midpoint of 10.25% is based upon an anticipated 12% average increase in new leases and an 8% average increase in renewals. We are also anticipating that our occupancy for the remainder of the year will average 96.6%, up 20 basis points from our original budget for the same period. Additionally, we have increased the midpoint of our same-store expense growth from 3% to 4.2%. This increase results from the expectations of higher-than-anticipated insurance costs, property tax expenses resulting from higher initial valuations in Dallas and Austin, and bonus accruals related to our increased full-year revenue guidance. As a result, the midpoint of our 2022 same-store NOI guidance has been adjusted from 12% to 13.75%. At the end of the first quarter, we implemented our work re-imagine initiative, which redesigned the way we conduct business in our property operations. The primary objective of this initiative is to deliver exceptional customer service, focus on leasing apartments, leverage the strengths of our teams, and create operational efficiencies. To do this, we shifted our operations model to expand from one community serving our prospects and residents to two or more communities being joined or nested together with shared leadership to support our customers. Additionally, we identified processes that could be automated or centralized and created a shared service division to streamline the execution of tasks, such as invoicing, delinquency management, and renewal initiation, to name a few. This allows Camden team members at each community to better support the leasing process, as well as focus on the customer experience. We anticipate that this program, which was previously budgeted for, will save us approximately $1 million in 2022 on a net basis, after accounting for severance payments which were budgeted for and made in the first quarter. On a full-year stabilized basis, our savings should approximate $4 million to $5 million. Last night, we also increased the midpoint of our full-year 2022 FFO guidance by $0.27 per share for a new midpoint of $6.51 per share. This $0.27 per share increase resulted primarily from an approximate $0.18 increase related to our acquisition of the fund assets, comprised of the following components: a $0.67 increase from consolidating the NOI from the two fund portfolios, a $0.07 increase from the non-cash amortization of net below-market leases assumed in the acquisition. Purchase price accounting requires us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term, which is approximately seven months. If the leases were above market, the amortization would have resulted in an FFO reduction over the remaining lease term. A $0.21 decrease in equity and income of joint ventures and property and asset management fees. A $0.14 decrease due to the assumption of approximately $514 million in existing secured debt, which has a current average interest rate of 3.3%. Thirty-six percent of this debt floats at LIBOR plus 185 basis points, and the remaining 64% is fixed at 3.9%. A $0.14 decrease related to additional shares issued to fund the transaction, and a $0.07 decrease from the removal of any future acquisitions from our 2022 guidance. Although our revised guidance does not include additional acquisitions this year, we will continue to look for opportunities to make accretive investments. Our revised guidance still includes another $200 million of dispositions by year-end. In addition to the $0.18 anticipated increase in FFO related to the fund acquisitions, we are also anticipating an approximate $0.11 increase from our revised same-store NOI guidance and a $0.01 increase from the first quarter unbudgeted earn-out received from the sale of our Chirp investment. This $0.30 cumulative increase in FFO per share is partially offset by $0.02 of higher overhead expenses related to our anticipated outperformance versus our original budget and $0.01 of additional interest expense due to higher projected interest rates on our variable rate debt. We also provided earnings guidance for the second quarter of 2022. We expect FFO per share for the second quarter to be within the range of $1.60 to $1.64. The midpoint of $1.62 represents a $0.12 per share increase from the $1.50 recorded in the first quarter. This increase is primarily the result of an approximate $0.09 increase related to our acquisition of the fund assets, comprised of a $0.22 increase from consolidating the NOI from the two fund portfolios, a $0.03 increase from the non-cash amortization of net below-market leases assumed in the acquisition, a $0.07 decrease in equity and income of joint ventures and property and asset management fees, a $0.04 decrease due to the assumption of approximately $514 million in existing secured debt, and a $0.05 decrease related to additional shares issued to fund the transaction. We are also now anticipating an approximate $0.04 sequential increase in same-store NOI resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of certain repair and maintenance expenses, expected increases from our May insurance renewal, and a sequential increase in property tax expense due to higher refunds received in the first quarter. A $0.01 sequential increase related to additional NOI from development communities and lease-up, a $0.01 decrease from an unbudgeted earn-out received from the sale of our Chirp investment in the first quarter, a $0.005 decrease from the sale of Camden Largo at the end of the first quarter, and a $0.005 decrease from higher second quarter G&A as a result of the timing of various public company fees. At this time, we will open the call up to questions.

Thank you. Can you walk through the conversations with your JV partner of how the deal came about? And then also how valuation was calculated?

Sure. We have ongoing conversations with our JV partner. And we're talking about valuations and the ultimate disposition of the pool of assets. The actual finalized date in the pool was to sell assets by 2026, so we had a four-year kind of window. And it made sense, we think, to go ahead and buy that portfolio. We had a meeting of the minds. They wanted to exit over the next four years. We figured that it'd be a pretty interesting way to create value for us long-term by doing that immediately. The valuation metric was we had just completed an appraisal of the portfolio in December. And then we took sort of values that were pretty evident in the market, kind of averaged them together, and then negotiated a fair price for both parties. So it was a very positive transaction for them. The fact that they put $300 million in and took out $1.5 billion worth of cash through the holding period and had an IRR way above 20% on their capital was a pretty positive transaction for the Teachers of Texas. And from our perspective, it allows us to be more efficient in our portfolio by acquiring those assets. The other part of the equation, I think is really interesting about those assets is that they're primarily suburban and so it helps us with our suburban portfolio. Suburban continues to outperform urban generally, and we're just seeing this great transaction for both parties.

Thanks. That's very helpful. And then maybe just what are you seeing in the transaction markets today, just given the rise in interest rates?

The transaction market remains quite strong. The recent increase of over 100 basis points in just a few weeks has certainly caused some confusion regarding pricing. The acquisition market for leveraged buyers has noticeably slowed down, and the value-add segment, which we don't focus on, has also hit a pause. However, when considering core or core-plus assets in the multifamily sector that long-term investors are acquiring for cash, that segment remains unchanged, with aggressive bids still active. Asset values are influenced by four key factors in this order: the vast liquidity in the marketplace, the undeniable supply and demand fundamentals in the multifamily sector, increasing inflation expectations, and finally interest rates. Some leveraged buyers may need to reassess their underwriting approach, but most institutional buyers like us view the pricing dynamics as largely unchanged.

Hi, everybody. Good morning and thank you. Yes let's just stick on that in this rigid cap rate environment. And I think you mentioned the tight versus historical levels on the cap rate spread to the 10-year treasury. So what's keeping you from accelerating dispose and perhaps D.C. or some other markets?

We have a budget this year of a couple of hundred million dollars in sales, which we typically manage at the end of the year to maintain cash flow for as long as possible. Our approach includes a systematic disposition and acquisition strategy that we will continue to pursue. Over the past ten years, we have sold $3.4 billion worth of assets, averaging 23 years in age, and acquired $3.5 billion worth, with an average age of four years, except for one fund at 12 years. We plan to remain active in the market, as our previous disposals have addressed the easier opportunities, and we are confident in our current markets. While we will continue to sell some assets and reallocate capital, as previously discussed, we aim to reduce our exposure in D.C. and Houston mainly through organic growth and some adjustments in those portfolios.

Thank you. I appreciate that. You have about $390 million in unsecured debt maturities this year. You clearly have one of the strongest balance sheets among all REITs. Regarding refinancing, could you discuss how the rate environment appears when you communicate with your bankers and how it compares to previous rates?

Yes, absolutely. So we've got about $350 million of debt that comes due December 15, and that debt is at 3.15%. The way in our model that we plan on paying for it is the couple of hundred million dollars of dispositions at the end of the year that Ric mentioned. But if you think about overall rates for us, the indicatives that we have right now are right around call it 4.1%. And to give you an idea, probably about six or seven weeks ago that number was sub-3%. So pretty aggressive acceleration on rates.

Thanks, guys. Another great quarter. First, one you touched on it I think Alex about the way that you're staffing and serving the communities. Can you just give some more color on that? It kind of seems like everyone or just your peers are shifting to like the next generation of sort of operations. Again, just if you could give some examples or sort of it sounds like you're potting your sort of clusters of assets to reduce your OpEx load. If you can just give elaborate on that kind of how you see that going forward over the next 24 months, that would be great. Thanks.

Yes. Sure. I'll just give you a little bit of detail about the – we call it nesting hummingbirds, right? So some people call it coding. But the geography of our portfolio is pretty unique in that respect. And our approach probably it's very unique to Camden because of our geography. So within our 170 plus or minus communities, after this reformation of reporting responsibilities and duties into Nest, we end up with about 46 communities that are still standalone single community manager staff. And then we end up with about 76 that are nested in a pair of two, and we have 39 communities that are in groups of three. And that's really just based on geography and being able to staff those communities in a way that the on-site staff becomes interchangeable with regard to where the need is for whether it's maintenance personnel or leasing personnel. So that's kind of the geography of it again, driven a lot by the way our portfolio lays out and the ability to be close enough to a sister community to make that work. When we started out and there were going to be all different permutations of this, everybody is going to end up with an approach that works kind of for their grouping of assets in their geography. But when we started out, we didn't have a stacking in mind. What we were trying to accomplish is really two things regarding our on-site teams. One is one of the biggest challenges that historically of the single asset community manager, assistant manager, leasing, and outside staff is that you just don't have the ability to have the promotion ability and the growth opportunity for those folks because they're sort of in the single line stack. That's one challenge. We're providing additional growth opportunities by having new positions, the sales leader position and the operations analyst position that people can migrate to over time as their experience increases. So that was a driving influence for us is to come up with a better mousetrap to provide for growth opportunities. But the second thing was that you always have – you have a single community in this linear community manager, assistant manager, outside staff, inside staff, you just – you end up with a situation where your skill sets are not properly aligned in many cases. You end up with people who are naturally inclined to sales as a leasing consultant. The next logical and really only move in most cases for them to advance is to become an assistant manager. And in some cases they have some sales duties and, in a lot of cases, it's very much an administrative support role. And honestly, our best salespeople are generally not our best administrative tasking people. And so that was just an inherent shortcoming of not being able to leverage people's strengths because of the structure that we were bound to by having the single community linear approach. So that was the second really driving influence for us is to get people matched up to where their natural strengths are and then provide more opportunities for growth within that hierarchy. So I hope that explains a little bit about our philosophy.

Yes. No, that's great. Thank you. Other one for me is related to, I guess, renewals. I think renewals are I think across the board I think stronger compared to what management teams and what we thought would kind of look like. Obviously, the turnover is historically low. And because you don't push as hard on those versus new leases, you have quite a bit of loss to lease built up. And so I'm just wondering, I would like you to discuss how you think about renewals through 2022 and even into 2023 just given the sort of low turnover environment people willing to take these prices. How do you think that stacks up for pricing power over the next several quarters? Thanks.

Yes. When considering renewals and new leases, our revenue management team actively manages our rent roll on a daily basis. We're assessing situations where it may be appropriate to implement caps to manage turnover or occupancy levels, which we've done in certain instances. For our portfolio, we began experiencing significant increases in both new leases and renewals around May and June of last year. As a result, we are now comparing ourselves to that period. We aggressively pursued new leases and renewals ahead of much of the market, with many of our public company peers still not in a position to exert that level of pricing power. Consequently, we will likely reach this pricing reset first because we started ahead in establishing a market clearing price for these assets. There has been considerable discussion regarding the headline increases of 16%, 17%, and 20%. While those figures are accurate, it's important to view them over a three-year span. Our residents are currently facing these significant increases, but prior to this, we were actually reducing rents during the pandemic's early stages, followed by modest increases in the second year. Therefore, if we consider a 15% increase over three years, it averages out to around 5% per year. But since it's all happening in one year, it seems more dramatic. We will definitely observe this reset in our portfolio first. However, in markets like Houston, D.C. proper, and possibly L.A. County, we may not see a complete reset by the end of this year. In D.C. proper and Loudoun County, the constraints are more regulatory in nature. While we believe there are no longer regulatory constraints in Houston, our growth rates have improved significantly. Nonetheless, these three markets are likely to remain the ones that have not fully reset by year-end.

I want to add that when we look at our signed and renewed leases, excluding the two largest markets, Houston and D.C., we experienced a 14% blended increase across all markets. If we remove Houston and D.C., the increase rises to 16.6%. This supports Keith's observation that markets which haven't yet adjusted to the national levels are poised for recovery in the next couple of years. Houston's challenge is that the energy sector has not fully recouped the jobs lost during the pandemic, and the overall economy in Houston has yet to regain all the jobs that were lost. This indicates that Camden has potential for growth in renewals and new leases moving forward. One of our largest markets is set for a major adjustment in the next couple of years. While we are seeing increases of 8% to 9% in new leases, it's still not on par with the exceptional growth rates seen in markets like Tampa and Phoenix.

Good morning, guys. Keith or Alex, what's the expected stabilized yield on the current five projects under development? And what are you expecting on projects that you'll start over the remainder of the year? And I guess the other related question here is what are you seeing on pricing availability for materials and labor for new starts?

Yeah, absolutely. So if you look at our current pipeline, we're anticipating right around a 6% stabilized yield. If you look at the assets that we haven't started yet, that number is right around 5.25% to 5.5%. If you think about construction costs, probably the easiest way to think about it is to bifurcate it between high rises, and for high rises we're seeing escalation right around 0.5% a month. For wood frame construction, that number is right around 1% a month. I will tell you though we're starting to get some good news. Lumber is down to I think it's about $1,000 per board foot, which is off of the $1,400 that we saw about three months ago, but it's certainly well above the $400 that we were seeing in normal time. So we're still seeing some escalation. It's still fairly significant, but there are some signs that it might be slowing down a little bit.

General condition costs are rising because construction is taking longer. Almost all of our developments have benefited from higher rent growth and better yields than we initially expected. For the projects we are starting now, we have low expectations of rental growth over the next few years, then stabilizing at 3%. There is definitely potential for improved yields in the projects starting this year. However, we are facing challenges with how quickly supplies can enter the market. We are adding 60 to 120 additional days to our construction timelines for anything we start this year, which adds to the 60 to 90 days we increased three years ago. The supply chain issue will continue to be a challenge through 2023 and 2024. This presents both good and bad news. The downside is the delay in construction, but the upside is that the new supply responding to the demand in this industry will take longer to reach the market than people anticipate. This should alleviate concerns about major supply pressures on the demand side through the end of 2022 and into 2023.

Okay. And how are you guys thinking about the trade-off in terms of redevelopment these days, given how you're able to get 15% rental rate increases versus taking the unit out for some period of time and spending money? And is there a bunch of units in the JV portfolio you just acquired that you expect to redevelop, or has that already been going on inside the JV over the last few years?

We have just approved an additional group for our redevelopment program totaling approximately $125 million. As rental rates for our existing properties, which are 10 to 15 years old, continue to rise, the attractiveness of our REIT positions has increased. Although the yield on that segment has decreased over time, it remains the most advantageous option for Camden regarding capital allocation between new developments, acquisitions, or repositioning. We will keep pursuing these opportunities as they arise. We have already repositioned a few assets acquired in the fund, and more will likely be added next year. We have also completed some repositioning with our joint venture partner whenever it made sense, and they have always been very supportive. They recognized that maximizing return on invested capital was the best strategy for the joint venture. We managed the fund as though these were Camden assets, with our partner's consent. There was no delay in approval or capital for repositioning when it was appropriate. However, we plan to add some assets based on the conditions in the market and the impact on rental rates in the submarket.

Okay. Thanks guys. Have a good weekend.

You bet.

You too.

You too.

Hey. Thanks, team. Good morning. So I'm sure your bankers have done the count for you about the net new demand you'll get from the inclusion. But I'm wondering if the equity offering post inclusion to what degree it was influenced by that? Was it made larger because of perhaps new indexers needing to own your stock? Any influence at all?

No, the equity offering was solely for the purpose of funding the joint venture acquisition. We purchased it for $1.5 billion. After accounting for the debt, we needed $1.1 billion in cash and had $600 million available on our balance sheet. We then drew down $500 million from our line of credit. Given the changes in interest rates in the bond market, we believed the equity offering was a sensible move to strengthen our balance sheet and reduce our debt-to-EBITDA ratio back to the 4.4 range. Thus, it was entirely driven by the acquisition.

Okay. Fair enough. Second question to what degree you hear management teams your peers say, well we're heading into the heavy leasing season even M&A you said that in the Sunbelt. I'm curious to what degree seasonality really plays a major role for you guys. I would think even like in a market like Phoenix, it's 150 degrees in July maybe better time to at least in November. And there's a lot of markets like that. So do you have kind of a muted seasonality factor when you talk about the second and third quarter, or do you feel like it's just as prevalent for you guys as it might be for an EQR or somebody like that up north?

There will always be some level of seasonality. As you pointed out, Phoenix has a different seasonality compared to the rest of our portfolio for the reasons you've mentioned. However, given our current occupancy levels and the extremely low turnover we've experienced and continue to see, we are not expecting the leasing volumes we have seen in previous years. The turnover is remarkably low, and we are starting from a very high occupancy rate. That said, people in our markets typically tend to move more during the summer. There is a motivation to finalize arrangements before the school year begins or due to other relocation reasons. This trend has always been conducive to moving in the summer months. Therefore, while I don’t foresee the typical seasonality impacting our leasing numbers, especially when we compare year-over-year data on executed leases in the next six months to pre-pandemic levels, it’s not due to an absence of seasonality but rather a different set of circumstances.

Thank you. Good morning. Alex, in your prepared remarks you mentioned that your same-store revenue guidance includes the assumption of 8% on renewals. And I just wanted to clarify is that 8% for the remainder of the year, or is that the full year including 14% in the first quarter?

Yes. I think the best way to probably look at that is we're getting towards a blended 10%, and so the blended 10% includes the full year.

Okay. So not to focus too much on renewals but you did mention it's lower than your new lease growth rate. I'm just wondering why that's the case. The new lease growth rate at 12%.

Yes. Obviously, we've had over the past call it 1.5 years we've had a situation where new leases have been higher than renewals. Now at some point in time that will converge right? And that's what you typically see. But for our assumptions right now we are assuming that they are not converging just yet. And if you think about why renewals are less than new leases, it's what I sort of mentioned earlier. Obviously, when you've got a resident in place there are certain – there are frictional costs associated with that resident leaving. And that's typically why at least in the past 1.5 years we've had lower rates on renewals.

Yes. Hi, everyone. Hope everybody’s doing well. Sorry if I missed it, but did you guys discuss your earn-in for 2023, given everything that's already in place?

We did not discuss that. It's a number we consider, but it’s quite speculative, so we won’t be addressing it. Ultimately, it’s difficult to predict. Perhaps the second or third quarter is a better time to bring it up.

Hi. Thank you for taking the question. So I just have a couple items to circle back to first regarding the single-family rentals. Can you just remind us, if these are stand-alone products, or would it be more of attached townhomes?

These are standalone products, with two car garages at front yard and the backyard. We probably, when you think about whether they're townhouses or not, I think that we're starting out with detached. And I think ultimately townhouses make sense too. We developed townhouses as part of our development program in certain places. For example, in Atlanta at our Camden Buckhead property, we have townhouses, and they're three-bedroom townhouses, and they get the highest average rent, and they're absolutely full all the time. So I think – I don't think it's negative that townhouses are negative. The two that we're building right now just happen to be detached.

Great. Thank you. Can you remind us if there's been any acceleration or decline in move-outs to home purchases due to rising mortgage rates?

We have seen a decline from last year, where we were in the high 15s, down to 14% this year. Our long-term average over the past 20 years is around 18% to 19%, so we remain significantly below that average. With the recent increase in the tenure and the associated rise in mortgage rates, it's difficult to see that figure improving in the near future. There might be a sense of urgency among buyers fearing further increases, but with mortgage rates exceeding 5% compared to the 3% range just six or seven months ago, this is a significant change for most individuals. Lenders are likely applying more scrutiny to borrower qualifications as it is safer to underwrite them now. Therefore, it's probable that we will continue to be 300 to 400 basis points below our long-term average concerning move-outs to home purchases. The situation is increasingly challenging, as many of our markets have seen single-family home prices double in the last five years, compounded by the impact of a 5% mortgage rate. This combination severely affects affordability, particularly for first-time homebuyers.

When reviewing our numbers from 2021, it was noteworthy to see that in March 2021, the move-out rate for purchasing houses was around 16%, and by the end of April, it was about 17%. Fast forward to this March, we again saw a rate of 16%, similar to the previous year's March. However, in April, as Keith highlighted, the rate dropped to 14%. This represents a decline of 300 basis points from April 2021 to 2022 and a 200 basis point decline from March to April. April is typically known as the spring home buying season, where buyers rush into the market before summer. The decrease in these numbers year-over-year and month-over-month indicates to me that the trend of single-family home move-outs to buy homes should not be a concern for us. Nonetheless, there is tension and stress in the market as many individuals are struggling with the high prices and interest rates currently in effect.

Hi. Thank you for taking my question. I believe it hasn't come up and if it has, I apologize. Could you remind us where last year, lease stands in your portfolio right now? And how much of it do you expect to capture in 2022?

Sure. Our loss to lease is approximately 11%. As we progress through 2022, we expect to capture a significant portion of that. It's important to note that for renewals, we generally do not raise them all the way to market levels for various reasons. As a result, we may not capture the full amount, but we anticipate recovering a substantial part of it for the remainder of the year.

Thank you for joining us today. We look forward to seeing you at NAREIT in a few weeks. This will be the first in-person NAREIT in June. Thanks again and take care. Goodbye.