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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. And welcome to Camden Property Trust Second Quarter 2022 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 President, and Alex Jessett, Chief Financial Officer.
Today’s event is being webcast through the Investor section of our website at camdenliving.com and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks and those slides will also be available on our website later today or by email upon request. [Operator Instructions]
All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward and please note this event is being recorded.
Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risk and uncertainties that could cause actual results to differ materially from expectations.
Further information about these risks can be found in our filings with the SEC and we encourage you to review them. Any forward-looking statements made on today’s call represent management’s current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events.
As a reminder, Camden’s complete second 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 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 would be happy to respond to additional questions by phone or email after the call concludes.
At this time, I will turn the call over to Ric Campo.
The theme for today’s on-hold music was Together, which will resonate with team Camden. After two years of virtual meetings, this year Camden was able to be together for most of our important cultural events.
In May, we held our Annual Leadership Conference, which brings together 400 plus Camden leaders for three days of learning, reconnecting and fun. A lot has changed in the world since May, which serves as a good reminder that real estate and financial markets will rise and fall, but companies with a great culture will thrive in all conditions.
The following highlight reel from our leadership conference is an inside baseball view of a culture that has earned a place in Fortunes 100 Best Companies list for 15 consecutive years.
[Video Presentation
Thanks to team Camden and the great culture that you have created and continue to build. Camden will always thrive. For last year and a half, has been the best NOI growth and FFO growth that we have had in our almost 30-year history, with NOI growing 19.6% and FFO growing a whopping 47%. These gains are built into our run rate and are likely to remain in place, driven by strong consumer demand for housing in our markets.
Consumer strength is driven by strong employment growth, large wage increases and high savings levels. Our apartments are affordable, despite the double-digit rental increases. Our residents spend roughly 20% of their incomes over their rent.
Domestic migration has led to more than 700,000 Americans moving to our markets in the last year, they are not moving back. Apartment supply is not cut up with demand. We expect growth to moderate over the next couple of years, but believe that we will exceed our long-term growth rate. With a strong balance sheet, a great team with an amazing culture, we are ready for more successes.
Up next is Keith Oden.
Thanks, Ric. Now for a few details on our second quarter 2022 operating results and July 2022 trends. Same property revenue growth was 12.1% for the quarter, once again exceeding our expectations with 12 of our 14 markets posting double-digit revenue growth.
Given this outperformance and an improved outlook for the remainder of the year, we have increased our 2022 full year revenue growth projection of 10.25% to 11.25% at the midpoint of our guidance range.
Rental rates with the second quarter had signed new leases up 16.3%, renewals up 14.4% for a blended rate of 15.3%. Our preliminary July results are trending at 13.1% for blended growth, with new leases at 13.5% and renewals at 12.7%.
Occupancy averaged 96.9% during the second quarter, which matched our performance during the second quarter 2021 and compared to 97.1% last quarter. July 2022 occupancy is currently trending at 96.7%.
Net turnover for the second quarter 2022 was 46% versus 45% last year and move-outs to purchase homes were 15.1% for the quarter versus 17.7% during the second quarter of 2021. The year-over-year decline in move-outs to purchase homes is not surprising.
Since last year, home mortgage rates have nearly doubled and the median existing home sales price is now above $400,000. So despite the recent increases in rental rates, many would be homebuyers will likely remain renters.
Next up is Alex Jessett, Camden’s Chief Financial Officer.
Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate and finance activities. During the second quarter of 2022, we completed construction on Camden Buckhead, a 366-unit, $162 million new development in Atlanta. We began leasing at Camden Tempe II, a 397 unit, $115 million new development in Tempe, Arizona. We began construction on Camden Village District, a 369 unit, $138 million new development in Raleigh. And we acquired for future development 43 acres of land comprised of two undeveloped parcels in Charlotte and 4 acres of undeveloped land in Nashville.
As previously reported, at the beginning of the second quarter, we purchased the remaining 68.7% ownership interest in our two joint venture funds for approximately $1.5 billion inclusive of the assumption of debt.
The assets involved in this fund transaction included 22 multifamily communities with 7,247 apartment homes, with an average age of 12 years, primarily located in the Sunbelt markets across Camden’s portfolio.
In conjunction with this acquisition, we recognize a non-cash non-FFO gain of $474 million, which represented a step-up to fair value on our previously held 31.3% equity interest in the funds.
Also as previously reported, early in the quarter, we issued 2.9 million common shares and received $490.3 million of net proceeds. As of today, we have approximately $80 million outstanding under our $900 million line of credit. At quarter end, we had 248 million left to spend over the next three years under our existing development pipeline. Our balance sheet remain strong with net debt to EBITDA for the second quarter at 4.4 times.
Last night, we reported funds from operations for the second quarter of $179.9 million or $1.64 per share, $0.02 above the midpoint of our prior guidance range of $1.60 to $1.64. This $0.02 per share variance resulted primarily from approximately $0.03 in lower bad debt and higher rental rates and occupancy for our same-store and non-same-store portfolio, partially offset by $0.01 in higher property tax expense, resulting from higher initial valuations in Atlanta and higher than expected final valuations after appeals in Austin and Houston.
Last night, based upon our year-to-date operating performance, our July 22 new lease and renewal rates and our expectations for the remainder of the year, we have increased the midpoint of our full year revenue growth from 10.25% to 11.25%.
Our revised revenue growth midpoint of 11.25% is based upon an anticipated 12.5% average increase in new leases and an 8.5% average increase in renewals for the remainder of the year. We are anticipating that our occupancy for the remainder of the year will average 96.6%.
Additionally, we have increased the midpoint of our same-store expense growth from 4.2% to 5%. This increase results from inflationary pressures on repair and maintenance costs and the previously mentioned higher than anticipated tax valuations in Houston, Austin and Atlanta, partially offset by lower-than-anticipated insurance expense tied to our successful May policy renewal.
Property taxes make up approximately 35% of our total expenses and are now anticipated to increase by 5.6% year-over-year, an approximate 200 basis point increase from our prior estimates.
Repair and maintenance makes up approximately 13% of our total expenses and is now anticipated to increase by 7% year-over-year and insurance makes up approximately 5% of our total expenses and is now anticipated to increase 13% year-over-year. As a result of our revenue and expense adjustments, the midpoint of our 2022 same-store NOI guidance has been increased from 13.75% to 14.75%.
Last night, we also increased the midpoint of our full year 2022 FFO guidance by $0.07 per share for a new midpoint of $6.58 per share. This $0.07 per share increase resulted primarily from an approximate $0.06 increase from our revised same-store NOI guidance and $0.01 increase from additional NOI from our non-same-store and development portfolio.
We also provided earnings guidance for the third quarter of 2022. We expect FFO per share for the third quarter to be within the range of $1.68 to $1.72. The midpoint of $1.70 represents a $0.06 per share increase from the $64 recorded in the second quarter.
This increase is primarily the result of an approximate $0.06 sequential increase in same-store NOI, resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of utility expenses and lease incentives, and $0.01 sequential increase related to additional NOI from our non-same-store and development portfolio.
These increases are partially offset by a combined $0.01 decrease in FFO related to higher variable rate interest expense and the incremental impact of the additional shares outstanding from our early second quarter equity offering.
At this time, we will open the call up to questions.
[Operator Instructions] And the first question will come from Austin Wurschmidt with KeyBanc. Please go ahead.
Hey. Good morning, everybody. I was curious if you could give us an update on the disposition that you had previously planned half the year and just some general color on what you are seeing in the transaction market?
Well, the transaction market has slowed down substantially, obviously, with an increase in the ten year and just the sort of dislocation that the markets have experienced, given everything that’s going on with the Fed.
So what we have decided to do with our dispositions rather than being the early price discovery folks, we basically taken them off the table and are just sort of waiting for more market clarity. When you think about, excuse me, when you think about what’s happened here, the cost of capital has gone up for pretty much everyone and the leverage buyers have -- that were using 60% to 80% leverage have -- that the game has changed and their return on equities have gone down and so we think that values have probably gone down anywhere from 10% to 15%.
It really depends on the market and also the product type, probably the most impacted properties are the value-add space that 10-year-old to 20-year-old that really needs a lot of work kind of thing.
And so with that said, we will continue to monitor the market and where we for a long time have been selling -- buying and selling at the margins to be able to improve the quality of our portfolio and improve the geographic diversity of that portfolio and we will continue to do that, but right now we are sort of on a pause to see -- to kind of figure out where the market is.
We think that that after Labor Day, there will be a lot more clarity, when you think about the wall of capital that still exist, it is there, and ultimately, I think, buyers and sellers were come -- will come together probably starting after Labor Day and through the end of the year.
And then, second question, you mentioned in your prepared remarks that you expect growth to slow and supply to catch up in sort of the years ahead, but growth should still exceed sort of that long-term historical average. So, I guess, first, could you kind of give us a sense of what that average is presumably 3% to 4%, but you could put a point on that? And then, I guess, just what gives you the confidence that you can continue to exceed that long-term average given the level of projects that are on production today?
Keith, you want to take that.
Yeah. So if you look at the deliveries that are planned for 2023 relative to this year. Ron Witten has got completions going up from about 130,000 across Camden’s markets to about 190,000. So it’s meaningful, but if you look at it as a percentage of the stock, it’s not really out of line with where we have been for the last couple of years and then in years beyond that, the start stay fairly flat.
So if you roll forward, I mean, the easy part at this point is kind of thinking about 2023 and where we start out as we come out of this really, really strong 2022, where we continue to get really strong renewals, as well as new leases. I mean, will start somewhere in the 5% range on embedded growth in 2023 and long-term average on NOI growth across Camden portfolio over the last 30 years is in the 3.1% range.
So, you kind of sort of a layup to think about 2023 being higher than normal and I think as long as we continue to have the affordability issues that consumers are dealing with right now in terms of their alternative to renting as which is buying home, I think you are going to see it -- I think we are likely to see a pretty dramatic decline in the number of single-family home starts. So you are just going to continue to have a shortage in housing of virtually all types and I think that it will continue to benefit the multifamily space.
Thanks for that.
The next question will come from Nicholas Joseph with Citi. Please go ahead.
Thanks. Maybe, following up on that, but more focusing on the demand side, obviously, the July numbers remain strong, but a more challenging comp there. Are you seeing any signs of consumer demand changing, as you look out 30 days or 60 days or any kind of push back on pricing?
No. We are really not. I mean we continue to be almost 97% -- nearly 97% occupied, we are 96%, 97%, currently and as you look out on our pre-lease numbers, we are still on really good shape, 60 days to 90 days out so.
Turnover continues to be low, renewal rates and new lease rates are definitely going to come down and we have been obviously trying to or been talking about that for the last couple of quarters.
But in our case, it’s just because we are running into a period of time where last year we were rolling out 18%, 20% renewal and new lease increases across our most of our portfolio. And so as you run into those comps, you are just not -- it’s just not sustainable to stay at the levels that we have been out for the last couple of quarters.
So we know, it’s going to come down, but it’s still going to be if we maintain the kind of occupancy that we have, the model will continue to push rents up to the level of kind of the market clearing price.
Everybody in our markets, in our submarkets, people were continuing to see great strength and continuing to increase rents as long as that happens, I think we will be fine. But the reality is that that those numbers are going to come down in the fourth quarter, for sure.
One of the things I think…
Okay.
… is important to think about, our consumer and that is that our consumers are doing really well. They all have jobs. When you look at year-over-year increase in income for Camden residents, it’s gone up almost 10%.
So we worry, I guess, on Wall Street and the financial folks worry about interest rates and inflation and all the stuff. And that’s important and I think the consumers are worried about that too but they also are doing pretty darn good when it comes down to income growth and savings rates.
And I think that folks that are probably going to be most impacted are at the lower end and our customers on average make six figures and so they are not the low end of six figures and those are ones that are not as pressured on the inflation side and especially when you think about 20% of their income going to rent. It’s the folks that are paying 30% to 50% of their income for rent and they are getting sort of really pressured.
So our residents are doing well. They are stressed. But and we can feel that in the marketplace. But they are not financially stressed, they are more worried about what’s going to happen in the future than they are about making ends meet with their incomes.
Thanks. That’s helpful. And then you touched on the broad strength really across all the markets, but the two that lag on a relative basis, I guess, are DC and Houston. How are you thinking about those markets back half of this year and probably more importantly into 2023?
So I think that and just to put into perspective on a -- you said on a relative basis and that’s, I think, it’s important to think about that and Houston and Washington, DC, in the second quarter were roughly 7% up on revenues and if it weren’t for the fact that the rest of our portfolio was up 13%, 14% that you would be turning back flips about those numbers in Houston and DC, but obviously on a relative basis that has lagged the other 13 markets in our portfolio.
I think one of the things that one of the implications for that is that, as we continue -- as we roll into these periods and into the renewal stack for the previous year, where we have -- in these markets where we had 20% increases last year, obviously, that gets much, much more difficult to push rents to anything close to those levels on this renewal and yet, the comparable numbers for DC and Houston would probably be in the 2% to 3% at a year-over-year comp.
So I think we have -- probably going to have more opportunity to raise, be a little bit more aggressive in raising rents in DC and Houston, just because of what the -- what we have -- what happened to our consumers in those two markets last year and they didn’t get outsized rental increases and there’s probably one coming in the -- in 2023 in the renewal period.
So I think those two markets have pretty decent upside on a relative basis in 2023, and obviously, we will be able to give you a lot clearer picture that hopefully by this -- at the end of the next call. But, I think, there is really pretty good upside in those two markets just because of the comp set.
Also that when you think about the economy, so DC has -- DC -- and DC proper was probably more like California in terms of COVID opening and being able to evict people who were just sort of not paying, because they didn’t want to.
And then in Houston, you have a whole different animal, you had -- Houston’s didn’t add the jobs back as fast as Dallas and Austin, but when Exxon and Chevron make combined $30 billion like they just reported in the last week, the job picture looks better in Houston, because of that and it’s interesting, because the energy complex, people were complaining about high gas prices and yet the companies are not expanding big time, because of the -- just the nature ESG issues and investors are wanting dividends from them rather than putting those dollars back into exploration.
And if -- the ultimately if energy continues to do what it is doing now, they need to add jobs. They are running very thin. And last month they added, I think, 2,000 jobs in the Houston region and for energy related folks. And so there is a tailwind, I think on the Houston market because of that. So they are very different markets in DC and Houston. But I kind of look at them as no pun intended maybe or maybe intended with gas in the tank for 2023.
Thank you.
The next question will come from Derek Johnston with Deutsche Bank. Please go ahead.
Hi, everyone. Can you provide an update on your portfolio loss to lease and thus the opportunities for further rent growth next year?
Yeah. Absolutely. So loss to lease for us right now is about 8.5%.
Excellent. Thank you. And then on new development, supply seems benign in some of your markets and where rent growth has actually really been strong, seemingly outpacing cost increases. So how would you view development starts given this backdrop beyond a construction company and what really you need to see to ramp new progress? Thanks.
Well, if you saw in our earnings release, we added land positions and we are continuing this quarter and we are continuing to work on development. The -- so you have good news, bad news, right?
The good news is that development revenues were up and the bad news is costs are up. But we think costs are starting to moderate. We think that -- I don’t think costs are going to go down, but I think that the increase in costs is starting to slow. So ultimately development has been a great business for us and we will continue to do that, continue to build.
I think right now, we are focusing on sort of the existing portfolio that has legacy land cost, and we will be ramping that up next year and I think that get -- once the market settles down in terms of, so what is the cost of capital long term and not just as sort of up and down scenario that we have had for the last couple of months.
I think that we will still be able to make reasonable spreads on our weighted average long-term cost of capital in the development business, and we will probably sort of wait and see between now and sort of the middle of the fourth quarter to kind of where things settle out.
But I think, it’s still a really good business. If you look at our pipeline, I mean we have average yields with big cost contingencies in those construction numbers that are anywhere from low 5s to sort of low 6s and that’s still pretty good business even in this environment.
Thank you.
The next question will come from Neil Malkin with Capital One. Please go ahead.
Hi, everyone. Good morning. I guess maybe just following on the development side. You talked about maybe, well, I wanted to see if, you are seeing delays, it seems like you guys probably won’t make the development numbers you initially forecasted. We are hoping you could talk about that and if it’s a function of costs or is it a function of regulatory delays, et cetera? Can you maybe just talk about like where you see the starts kind of shaping up over the next several quarters and that would be great?
Sure. I would say that definitely regulatory issues are big issue. I mean the challenge you have is sort of interesting, you can think about this, people worried about recession and job losses yet cities and municipalities that issue permits and issue and inspect buildings and things like that are absolutely under staff beyond belief.
And even markets that used to be very friendly to permits and building like Houston, I mean, everyone is talking about how it just takes forever to get this stuff done and so we are experiencing that just like everybody else is.
So a lot of the starts that we had or several of the starts this year are going to fold into next year. Next year should be a pretty buoyant start year, Alex, you might want to go through those numbers.
Yeah. Absolutely. So, Neil, what I’d tell you is that we still think that we are going to make the low end of our total start number. We are anticipating…
Okay. What…
So $400 million to $600 million was our range and we are anticipating starting with Mill Creek, Long Meadow Farms and Camden Nations, which is on page 18. We always put that in order of our starts. So we will anticipate starting those three this year. And keep in mind that we just started Village District last quarter. So we should make the low end of our range.
Okay. Great. Other question is on your Houston, I know that several quarters ago, you talked about Houston and DC Metro being the two markets that you would focus on trimming exposure, just given the elevated contribution to your portfolio. It’s actually gone up, obviously, with the JV take down and the two SFR that you are doing right now. Question is, there is this speculation that the Biden administration in its recent sort of climate executive order and the -- his administration’s analyst assault on energy, fossil fuel, what is the likelihood of these sorts of things having an impact or is it already having an impact on Houston, because the idea that somehow like these unknown green jobs are going to replace even close to the numbers of jobs that would be lost, I mean, there could be a loss, it’s laughable. So maybe if you can, you guys are like the Kings of Houston. So if you could kind of give your 30-foot view on that, that would be helpful.
Sure. So I think you hit the nail on the head, which is that people talk about green and kind of replacing fossil fuels. But there’s just no way that happens any time soon, right? I mean, sure. We need to move in that direction and ESG is important and climate change, I think, is critical for us to focus on and think about it.
But the challenge is it’s not so much the energy companies that are being forced to do things, it’s really the federal government and their issues, because if you think about what has to happen in an energy transition from fossil fuels to clean energy. You have to have major infrastructure investments made in the grid and in the system of how we provide energy to the world and just take electric cars as an example.
So in our ESG Committee, we had a robust debate a couple of weeks ago about how many charging stations do we have in our car -- in our apartments, none in our new developments, we are wiring and making sure that we are positioned to have EVs in our garages and what have you.
But the challenge is it if I wanted to -- I will give you just a small example. If we wanted to have an EV station for every one of our -- every car that we think might be in our garages in the future, we can’t put that infrastructure in today. We can’t get the power companies to agree to give us more power to utilize those.
So there is so many issues that have to be developed and to really get us to climate change and get us to transition. So, Houston, the interesting part of Houston, and you have seen, I think you have seen a negative effect in Houston and it’s really the job growth that we didn’t have that we should have had.
And that was -- and that’s been driven by really investors, the ESG push on energy companies but also investors that say, we are not giving the industry capital unless you give us cash flow back over the last 10 years or 15 years, there been a lot of investments in energy and the energy industry hasn’t giving back capital. And so the market is pushing energy companies to be more -- to be less -- to invest less in infrastructure and less in exploration, which has driven up the cost of oil and limited supply.
So I think, long-term, Houston is going to be the clean energy capital of the world. Ultimately, you have a bunch of big projects, there is $100 billion project for example that Exxon is doing in Houston and it is going to be subsidized by the federal government and it is a carbon capture in Houston Ship Channel.
And so, I think, the energy companies know, ultimately, they have to transition. I don’t think, it’s going to happen in one year, two year or five years, maybe like 10 years to 20 years. And I think, they are smart enough to know that they have to be in a position where they are not dinosaurs and they don’t become and Houston doesn’t become a Detroit.
And I don’t think that -- I think that there is a long-enough transition period, where that pivot is being made and will be made and so Houston will do long -- do well long-term, but it’s a -- definitely a complicated issue, for sure.
Thank you.
The next question will come from John Kim with BMO. Please go ahead.
Thank you. I am wondering if you could provide an update on your yields on the development pipeline overall and on the projects you started this quarter in Raleigh?
Sure. So the pipeline that is under construction or in lease-up is low 5s to we have some in Phoenix that are actually up almost a 7.5 cash on cash and those are classic development deals underwritten at very low -- at lot lower rates and you have 30% increase in rents there. So our yields are better.
And by and large, our existing under construction and lease-up yields are better than we originally underwrote because of the rental increases. And then the pipeline behind that that hasn’t started is anywhere from low 5s to 6 -- to low 6.
Okay. Great. And then you talked about on your answers, a 5% earn-in for next year, 8.5% loss to lease. I just wanted to confirm that these are separate items there you are starting up with the 5% same-store revenue for next year and then 8.5% which can move based on market rents, but that’s all additive to the 5%?
Yeah. So the way to think about it and the way we calculate earn-in is we look at what we anticipate the rent roll is going to look like at the end of 2022 and if you just froze everything right then.
And so, I mean, froze everything right then for 2023 and that’s how you get to the 5% number. Obviously, there is a component of that that is associated with loss to lease, right? Because you have some of those leases that are in place that you are freezing that are below market.
And so the loss to lease is what the effective rent growth you could achieve as next year assuming the market rent numbers?
Yeah. Assuming you could take everybody up to market and as you know, we don’t necessarily take our renewals up to market. But if you took everybody up to market, you would have an 8% increase right there, 8.5%.
Yeah. Great. Thank you.
The next question will come from Rich Anderson with SMBC. Please go ahead.
Let me turn off my on-hold music here. So…
We have on
Okay.
Go ahead.
So, no, I can’t do that. So when you talk about the earn-in and looking at the July signed versus July effective, which is a difference of about 200 basis points. Is it fair to assume that when you think of this roll forward situation and to your point, Alex, freezing at the end of 2022, that the inflection point is assumed to be now start of August, July -- end of July or is it possible that your leasing season could still extend and hence the earn-in would get bigger as we go?
Well, so the earn-in will get bigger. Well, no, so what we are assuming is that the earn-in of 5% plus is based upon at the end of 2022. So that takes into consideration everything that we expect from now till then.
Okay.
If you are looking at inflection points, and I think the real important thing to look at is if you go back to last year in Q2 our blended lease growth was 4.7%, in Q3 it was 12.3% and in Q4 it was 15.7%. So we really are starting to have some really tough comps in the third quarter and fourth quarter of this year as compared to what we saw last year.
Fair enough. And so then the second related question is, how much of those tough comps, this is a weird year, because you have these strange year-over-year comps that, because of the how things moved last year, normally not the case. But when you think about absolute rents, so I get it that you are going to have lower percentage increases in the back half of the year. But what happens to the actual rent from, let’s say, today and I asked this question on someone else’s call. Say to today’s rent to make it easier $1,000. Is the rent something below $1,000 in the end of the year or is it -- is the rent just growing at a slower pace, but maybe at or above the $1000 by the end of the year?
No. It’s going to be above the $1,000. I mean, so when we look at our math, we continue to have asking rents that are going to be increasing throughout the rest of the year. It’s just the comp that you are looking at. You are looking at a much tougher comp period in the fourth quarter of this year, because rents escalated so quickly in the latter part of 2021.
You still have a positive rent growth but a negative second derivative, right?\.
Got it. Yeah. So that’s interesting because you are saying positive rent growth, but your peers and gateway markets are saying the opposite that rent growth is actually -- in absolute terms negative, would you hazard a guess why that would be paid…
Well, we are not paying it.
…why different.
You are right.
Why you are not.
Yeah.
All right. Thank you very much.
I don’t want to understand given that strength of this market right now though, I don’t understand how anywhere in America, you could have absolute rents be less at the end of the year than they are today.
That’s what I understood. But maybe I have to revisit that.
I can’t -- I don’t want to -- that math doesn’t work in my head even in New York or San Francisco.
That’s -- I’d be shocked if that were true. But, I mean, that’s hard to imagine of set of conditions right now that would have absolute ramps falling, but those markets have a different cadence to them as well.
Okay. I will check my notes on that. Thanks very much.
You bet.
Thank you.
The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey. Good morning down there. Two questions for me, the first is, you guys obviously talked about the slowdown in the mortgage market, transaction market. It sounds like your developments here -- you are going to start fewer, you are not signing as many acquisitions, dispositions for based on what’s happening. Is there anything that’s on the merchant development side, like are you guys seeing any merchant deals that got started that suddenly are in a pickle and maybe that’s an opportunity for you guys to acquire on that front, just curious?
I would say that there is not a lot of -- there definitely not a lot of stress in the market today. I mean merchant builders were making 3x on their equity and now with price adjustments today maybe it’s 2x or 1.5x, which is still really good but there really is no distress.
No, I will say there are, we have seen opportunities. I think the example would be our Nashville Nations project. It was a property that was zoned and ready to go. But the developer couldn’t figure the cost out and they had a little bit more complicated building design and what happened was there -- the land value was almost equal to or their profit in the land is -- was enough to incent them to not to build it and to sell it to us.
And so I think there are definitely opportunities like that, where the merchant builder, their cost of capital is gone up or their equity partner is little nervous or and they have province in their land, so they are willing to sell the shovel ready deal at a profit to them and at a sort of market value to us. I think that’s the kind of transaction that’s out there for sure.
I do think that there is probably a fair amount of mezzanine type of business that’s out there that’s probably -- that people are working on. That’s not a space that we trade in. But I have had number of calls with people who want us to kind of help recap and then stuff like that, but that’s not what we are leaving that to some of our competitors.
Okay. And then the second question is, on obviously the Sunbelt has been garnering headline past few years for the influx of folks coming from Coast or other areas moving down South. As you guys look in your portfolio, how much of a benefit have, I will say, out of region, or if you will, into Camden versus to the market overall. And ask the same question on Mid-American’s call, they have been, they went from 9% outside of Sunbelt to now 15% out of Sunbelt, but they opined that was more people coming into the market buying homes, et cetera. Given you are a bit higher income, a little bit more upscale, curious if you are seeing similar dynamics or if you seeing much bigger impact from add away people coming down South?
Well, it’s interesting Alex, because when you think about it, the migration from sort of in the North or Coast to South or whatever -- however you want to call it, it’s been going on for a long time. I mean, it’s not new.
What happened during the pandemic was the nuance of being able to work from anywhere and the difficulty that people have living in the -- on the Coast given COVID and the restrictions, you had -- you accelerated what’s been going on for a long time and that acceleration has definitely helped us some. Alex has some numbers on that. Go ahead Alex.
Yeah. Absolutely. So if you look at the second quarter, 20.3% of all of our move-ins to our Sunbelt markets came from non-Sunbelt markets. That’s 100-basis-point sequential increase and if you compare this to the second quarter of 2020, it’s up 440 basis points. So we are absolutely the net beneficiary folks moving out of New York, Illinois, Pennsylvania, New Jersey, et cetera down to our markets.
And Alex, just take that number…
Thanks.
Some aggregate numbers around that.
Yeah.
Witten data had -- has total domestic in-migration net to Camden’s markets of about 140,000 this year and that number goes to 130,000 in 2023. So it’s -- to Ric’s point, we got this turbocharged effect as a result of all the complications from COVID. But this little trend has been in place for a long time and it looks like it’s -- you got to continue at a very elevated level in 2023 as well.
Which then sounds like it plays into Rich’s -- Rich Anderson’s point on why you guys are looking at positive rent growth in the back half of this year versus perhaps slowdown elsewhere, you are getting the continue inward migration?
Yeah. I think that’s clearly part of the story.
Okay. Thank you.
The next question will come from Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hi, everyone. Could you maybe talk about the differences across markets on the July rate growth front, kind of where you are seeing the strongest and then maybe just lease growth. I think you kind of alluded to DC and Houston Area, so just maybe into the other markets would be pretty interesting overall?
So just looking at our same property second quarter comparisons over the prior year, you had -- we have already discussed DC Metro and Houston. Those are basically in the 7% range. And then beyond that, you have got Phoenix that still at almost 18%. You have got Southeast Florida at 16.5%. You got Orlando at 16%. Tampa at 18%. I mean these are with 14 -- 12 of our 14 markets are in double-digits. So those are pretty -- for this business those are pretty crazy numbers.
And one more for me, on the tax side, you felt that the expenses part of that was, I think, driven by the same-store property taxes going up. Are there any specific markets where you are seeing kind of the higher than expected tax assessments or is it across the Board and then it is driven by just valuation or municipalities increasing rate?
Yeah. Absolutely. In sort of the three markets that I called out, the first one is Atlanta. Atlanta in the aggregate is actually not that much of an increase, but we originally had actually expected for Atlanta taxes to be down in 2022 based upon some excess -- some successful protest that we had in 2021 and so we got some initial values there that were different than we had expected and will go and can test those.
The other two markets, I pointed out, were Houston and Austin, and we are looking at Austin having close to a 20% increase in property taxes. We got initial valuations in that were in that vicinity. We challenge almost every valuation, we are usually incredibly successful and we had absolutely no success in Austin this year on valuation. So that sort of got us to this 20% number.
And then we had sort of and Houston was a similar story not quite to the same level, but we had expected Houston to be sort of in the 2% to 3% range and ended up being in the 5% range once we got through all of our final protests. So that’s sort of where we are seeing it. I will tell you also add to that that Southeast Florida, Orlando and Tampa just in general continue to give us some pressure sort of in the 8% to 9% ranges.
Got it. Thank you.
The next question will come from Barry Wo [ph] with Mizuho. Please go ahead.
Thanks. I am Barry. I am on the line for Haendel St. Juste. I was wondering if you could discuss the expense pressures you are facing in more detail. Maybe first off, if you could discuss the drivers and key pieces on the 80% or 80 bps upward revision in your expense guidance? Thanks.
Yeah. Absolutely. And so that the major driver that you are really seeing there once again is property taxes, so if you think about it, we are up to 5.6% of what we are anticipating for property taxes and that’s about a 200 basis point movement and property taxes represent 35% of our total expenses. So 200 basis points on 35% gets you 70 basis points, which is almost the entire delta between the 4.2 that we originally had for total expenses and the 5% we have now. So it’s almost entirely driven by property taxes.
Now we do have a couple of other ins and outs. We are seeing some inflationary pressures on R&M and that’s causing us to have some increases on the earn over what we originally had anticipated to the tune of about 300 basis points.
But the offset to that is we actually had a really good insurance renewal, and we originally thought that our total insurance for the year was going to be up about 22% and now it looks like it’s up 3%. So we have got a 900 basis point positive there. That sort of offsets the R&M inflationary issues and so that leads you really just the property taxes to be in the main driver.
Okay. Thanks. So it sounds like it was mostly non-controllable. So what about on the, looking at your supplemental, the 33% G&A increase, can you talk little bit about that?
Yeah. Absolutely. So as I talked about last year, excuse me, last quarter, we rolled out our work reimagined initiative and if you recall, this is where we took a look at all of our on-site positions and we effectively came up with Nest, where up to three communities are managed together.
As part of that, we took our existing Assistant Manager position and we centralize that into a shared service. So the shared service is now part of property G&A and then you have the offset in fact more than an offset in lower salaries as we remove the system manager position.
Thank you.
The next question will come from Robyn Luu with Green Street. Please go ahead.
Good morning all. Let me start off with a question on with, Keith, so have you seen any notable pickup in concession from developers in heavier supply markets?
So, yeah, absolutely, in markets where we have seen the kind of strength that we have for the last year, concessions have been less and we always include roughly one month of free rent to our concession for lease-ups. We don’t do concessions in any of our stabilized portfolio, but that’s the game with that’s played in among developers is -- has always include some provision for concessions.
But in our world, they have been for the most part less than what we would have expected them to be. There just don’t -- the same strength for demand in new construction across our markets is typical that and just like we have in our stabilized portfolio. So probably less overall in last year in terms of concessions, but it’s still a part of the overall pricing structure for all new developments.
So this is, I guess, my question was around what you see your peers or competitors doing not just your own book?
Yeah. They have less concession as well. So in an environment where market rents are going up 16%, 17%, from whatever their pro forma was they are all far exceeding what they scheduled rents were. So there would be no real incentive to push rents -- continue to push topline rents and then concess back down to where they -- to the point where their pro forma was. So, yeah, they are all up.
My guess is they are all doing better on total rent or total scheduled rents, and they would -- but that doesn’t mean that they would have eliminated concessions. It just means they probably are sticking to the one month free rent that was in their pro forma. And then adjusting market rents to whatever the clearing price is for non-concessed rent structure.
Got it. And so my second question is, sorry, if I look at the DC market. Obviously, you have done really well second quarter and July still holding pretty -- staying what 7%. Can you expect any supply pressure impacting your pricing power for the second half of the year?
This -- the supply pressure in DC has really not been a huge issue for us. We have our -- most of our assets are in DC Metro Area and the total delivered units this year are in the 13,000 range, which is not a huge number for that entire metropolitan area. If you roll forward to 2023, Witten has total scheduled deliveries in the DC Metro Area of about 12,000 apartments. So I don’t expect it to change much next year.
The difference is Ric pointed out, a lot of our challenges have been were in markets where there were governmental restrictions on what you could do with either just flat out rent controlled or the inability to collect or to main -- to get your real estate back to the eviction process.
And those were, it’s still not completely over in the district, but in DC Metro almost all of those restrictions have been lifted. So I think 2023 is probably going to look more normal and just with regard to how we manage and the ability to push through market clearing rents, which we really couldn’t and in a lot of DC last year.
Thank you.
You bet.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Ric Campo for any closing remarks. Please go ahead.
Great. Thanks. Thanks for being with us today and we will see you at beginning of the conference season after Labor Day. So take care and have a great summer. Thanks a lot.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.