Camden Property Trust (CPT) 2022 Q2 法說會逐字稿

Good morning, and welcome to Camden Property Trust Second 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. (Operator Instructions) 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 risks and uncertainties and 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 on 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 1 hour. (Operator Instructions)

At this time, I'll turn the call over to Ric Campo.

The theme for today's on-hold music was together, which will resonate with Team Camden. After 2 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 3 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 on Fortune's 100 Best Companies list for 15 consecutive years.

(presentation)

Thanks to Team Camden and the great culture that you've created and continue to build, Camden will always thrive. The last 1.5 years 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 for 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 caught up with demand. We expect growth to moderate over the next couple of years, but believe that we'll 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 from 10.25% to 11.25% at the midpoint of our guidance range.

Rental rates for the second quarter had signed new leases up 16.3%, renewals up 14.4%, for 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 of 2021 when compared to 97.1% last quarter.

July 2022 occupancy is currently trending at 96.7%. Net turnover for the second quarter of 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 2 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 2 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 recognized a noncash, 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 3 years under our existing development pipeline. Our balance sheet remains strong with net debt to EBITDA for the second quarter at 4.4x.

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 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 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 a $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 $1.64 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 to our peak leasing periods, partially offset by the seasonality of utility expenses and leasing incentives and a $0.01 sequential increase related to additional NOI from our nonsame-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'll open the call to questions.

(Operator Instructions) And the first question will come from Austin Wurschmidt with KeyBanc.

I was curious if you could give us an update on the dispositions that you had previously planned half of the year? And just some general color on what you're seeing in the transaction market?

Well, the transaction market has slowed down substantially, obviously, with an increase in the tenure and just the sort of dislocation that the markets have experienced given everything that's going on with the Fed. And so what we've decided to do with our dispositions rather than being the early price discovery folks, we've basically taken them off the table and are just sort of waiting for more market clarity. 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 we're using 60% to 80% leverage of -- 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- 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 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'll continue to do that.

But right now, we're sort of on a pause to see -- to kind of figure out where the market is. We think that after Labor Day, there'll be a lot more clarity when you think about the wall of capital that still exists is there. And ultimately, I think buyers and sellers will come together probably starting after Labor Day and through the end of the year.

And the second question, you mentioned in your prepared remarks that you expect growth to slow in 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 if 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 under construction today.

Keith, do you want to take that?

Yes. So if you look at the deliveries that are planned for 2023 relative to this year, Ron Witten's got completion is 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've been for the last couple of years.

And then in years beyond that, the starts 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 we'll start somewhere in the 5% range on embedded growth in 2023. And long-term average on NOI growth across Camden's portfolio over the last 30 years is in the 3.1% range.

So you kind of sort of a lay up 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 is which is buying a home, I think you're going to see -- I think we're likely to see a pretty dramatic decline in the number of single-family home starts. So you're 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.

The next question will come from Nicholas Joseph with Citi.

Maybe following up on that, but more focused 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 or 60 days or any kind of pushback on pricing?

No, we're really not. I mean we continue to be almost 97 -- nearly 97% occupied -- I think we're 96%, 97% currently. And as you look out on our prelease numbers, we're still in really good shape, 60 and 90 days out. So turnover continues to be low, renewal rates and new lease rates are definitely going to come down, and we've been obviously trying to -- been talking about that for the last couple of quarters. But in our case, it's just because we're 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're -- it's just not sustainable to stay at the levels that we've been at 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 and in our submarkets, people are continuing to see great strength and continuing to increase rents as long as that happens, I think we'll be fine. But the reality is that those numbers are going to come down in the fourth quarter for sure.

One of the things I think 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 the most impacted are at the lower end.

And our customers on average make 6 figures. And so they're not the low end of 6 figures and those are the 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, they're getting sort of really pressured. So our residents are doing well. They're stressed, but and we can feel that in the marketplace. But they're not financially stressed. They're more worried about what's going to happen in the future than they are about making ends meet with their incomes.

That's helpful. And then you touched on the broad strength really across all the markets, but the 2 that lag on a relative basis, I guess, are D.C. 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 it into perspective on -- you said on a relative basis, and that's -- I think it's important to think about that. And Houston and Washington, D.C. in the second quarter were roughly 7% up in revenues. And if it weren't for the fact that the rest of our portfolio was up 13%, 14% that you'll be turning lips about those numbers in Houston and D.C. But obviously, on a royalty 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 roll into these periods into the renewal stack for the previous year, where we -- in these markets where we had 20% increases last year, obviously, that gets much more difficult to push rents to anything close to those levels on this renewal. And yet the comparable numbers for D.C. 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 D.C. and Houston just because of what we -- what happened to our consumers in those 2 markets last year, and they didn't get outsized rental increases. And there's probably one coming in 2023 in the renewal period. So I think those 2 markets have pretty decent upside on a relative basis in 2023.

And obviously, we'll be able to give you a lot clearer picture of that hopefully, by this -- the end of the next call. But I think there's really pretty good upside in those 2 markets just because of the comp set.

Also, the -- when you think about the economy, so D.C. and D.C. proper was probably more like California in terms of COVID opening and being able to evict people who are just sort of not paying because they didn't want to. And then in Houston, you have a whole different animal. You have Houston, didn't add the jobs back as fast as Dallas and Austin. But when Exxon and Chevron make combine $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 are 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 in exploration. And ultimately, if energy continues to do what it's doing now, they need to add jobs.

They're running very thin and last month, they added, I think, 2,000 jobs in the Houston region for energy-related folks. And so there is a tailwind, I think, on the Houston market because of that. So they're very different markets in D.C. and Houston, but I kind of look at them as no pun intended maybe or maybe intended with gas in the tank for 2023.

The next question will come from Derek Johnston with Deutsche Bank.

Can you provide an update on your portfolio loss to lease and thus the opportunities for further rent growth next year?

Yes, absolutely. So loss to lease for us right now is about 8.5%.

Excellent. 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, you own a construction company. And what really do you need to see to ramp new projects?

Well, if you saw in our earnings release that we added the land positions and we're continuing -- this quarter. And we're continuing to work on development. So you have good news, bad news, right? The good news is that development -- the revenues are 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 cost is starting to slow.

So ultimately, development has been a great business for us, and we'll continue to do that, continue to build. I think right now, we're focusing on sort of the existing portfolio that has legacy land cost, and we'll be ramping that up next year. And I think that 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've had for the last couple of months, I think that we'll 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.

The next question will come from Neil Malkin with Capital One.

I guess maybe just following on the development side. You talked about maybe -- well, I wanted to see if you're seeing delays. It seems like you guys probably won't make the development start numbers you initially forecasted. We were hoping you could talk about that. And if it's a function of cost 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 a big issue. I mean the challenge you have is -- it's sort of interesting, you think about this -- people are worried about recession and job losses, yet cities and municipalities that issue permits and issue and inspect buildings and things like that are absolutely understaffed 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're experiencing that just like everybody else's. 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.

Yes, absolutely. So Neil, what I'd tell you is that we still think that we're going to make the low end of our total start number. We're anticipating starting...

With what?

So $400 million to $600 million was our range. And we're anticipating starting Woodmill 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 3 this year and keep in mind that we just started Village District last quarter. So we should make the low end of our range (inaudible).

Okay. Great. Other question is on Houston. I know that several quarters ago, you talked about Houston and D.C. Metro being the 2 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 takedown and the 2 SFRs that you're doing right now?

Question is, there's been some speculation that the Biden administration is going to do some sort of climate executive order and his administration's endless assault on energy, fossil fuels. 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 will be lost. I mean -- it could be lost, 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 replacing fossil fuels, but there's just no way that, that happens anytime 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 apartments. And then in our new developments we're wiring and making sure that we're positioned to have EVs in our garages and what have you.

But the challenge is, is that if I wanted to -- I'll 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 are so many issues that have to be developed to really get us to climate change and get us to transition.

So Houston, the interesting part to Houston. And you've 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're not giving the industry capital unless you give us cash flow back over the last 10 or 15 years. There've been a lot of investments in energy and the energy industry hasn't given 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 -- you have a bunch of big projects. There's a $100 billion project, for example, that Exxon is doing in Houston, and it's going to be subsidized by the federal government, and it is a carbon capture in the Houston Ship Channel. And so I think the energy companies will ultimately -- they have to transition. I don't think it's going to happen in 1 year, 2 years or 5 years.

I mean, we're like 10 to 20. And I think they're smart enough to know that they have to be in a position where they're not dinosaurs, and they don't become -- and Houston doesn't become a Detroit. And I don't think that -- I think that there's a long enough transition period where that pivot is being made and will be made and so Houston will do well long term. But it's definitely a complicated issue for sure.

The next question will come from John Kim with BMO.

I was wondering if you could provide an update on your yields on the development pipeline overall and on the project 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 almost a 7.5 cash on cash. And those are classic development deals underwritten at very low -- a lot lower rates and you've had a 30% increase in rents there. So our yields are better. And by and large, our existing and 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 6s.

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. So you're 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%?

Yes. 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 -- 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're freezing that are below market.

And so the lost to leases what the effective rent growth you could achieve is next year assuming the market rents don't move.

Yes. 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%.

The next question will come from Rich Anderson with SMBC.

So when you talk about the earn-in and looking at the July sign 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 can 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're 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 until then.

If you're looking at inflection points, I mean, 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 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 how things moved last year, normally not the case. But when you think about absolute rents, so I get it that you're 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, I asked this question on someone else's call, say, today's rent, to make it easy, is $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 $1,000 by the end of the year?

No, it's going to be above $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're looking at. You're 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 positive rent growth but a negative second derivative, right?

Got it. Yes. So that's interesting because you're saying positive rent growth, but your peers in gateway markets are saying the opposite that rent growth is actually -- in absolute terms negative. Would you hazard a guess why that would be the case, what that would be different...

I don't understand given the 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 don't have to revisit that.

I can't -- that math does not work in my head even in New York or San Francisco.

That's -- I'd be shocked if that were true, but that's hard to imagine a set of conditions right now that would have absolute rents falling, but those markets have a different cadence to them as well.

Okay. right. I'll check my notes on that.

The next question will come from Alexander Goldfarb with Piper Sandler.

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, you're going to start fewer. You're not signing as many acquisitions, dispositions 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's not a lot of -- there's 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 now. I will say there are -- we have seen opportunities, and 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 the land value was almost equal to -- or their profit in the land 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 has gone up or their equity partners a little nervous and they have profits in their land, so they're 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's 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've had a number of calls with people who want us to kind of help recap them and stuff like that, but that's not what -- we're leaving that to some of our competitors.

Okay. And then the second question is on -- obviously, the Sunbelt has been garnering headlines in the 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'll say, out of regions, if you will, into Camden versus to the market overall.

And I asked the same question on Mid-America's call, they said they it went from 9% outside of Sunbelt to now 15% out of Sunbelt but they opine that was more people coming into the market buying homes, et cetera, given you're a bit higher income, a little bit more upscale, curious if you're seeing similar dynamics or if you see a much bigger impact from a way people coming down south?

Well, it's interesting, Alex, because when you think about it, the migration from sort of north -- or coast to south or however you want to call it, has been going out 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 -- 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. Alex has some numbers on that COVID. Alex?

Yes, absolutely. So if you look at the second quarter, 23% of all of our move-ins to our Sunbelt markets came from non-Sunbelt markets. That's a 100 basis point sequential increase. And if you compare this to the second quarter, it's up 440 basis points. So we are absolutely the net beneficiary of folks moving out of New York, Illinois, Pennsylvania, New Jersey, et cetera, down to our markets.

And Alex, just to get some aggregate numbers around that. Witten's data 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 to Ric's point, we got this turbocharged effect as a result of all the complications from COVID, but this trend has been in place for a long time, and it looks like it's going to continue at a very elevated level in 2023 as well.

Which then sounds like it plays into Rich Anderson's point on why you guys are looking at positive rent growth in the back half of this year versus perhaps slow down elsewhere you're getting this continued inward migration.

I think that's clearly part of the story.

Next question will come from Joshua Dennerlein with Bank of America.

Could you maybe talk about the differences across markets on the July rate growth front. Kind of where are you seeing the strongest and then weakest lease growth? I think you kind of alluded to DC (inaudible) maybe the other markets would be pretty interesting...

So just looking at our same property second quarter comparisons over the prior year, you had -- we've already discussed D.C. Metro and Houston. Those are basically in the 7% range. And then beyond that, you've got Phoenix that's still at almost 18%; you've got Southeast Florida at 16.5%; you've got Orlando at 16; Tampa at 18. I mean these are -- we have 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 pumped up the expensive part of that was, I think, driven by the same-store property taxes going up. Are there any specific markets where you're seeing kind of a higher-than-expected tax assessments? Or is it across the board? And then is it driven by just valuation or municipalities increasing rate?

Yes, absolutely. And so the 3 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 successful protests that we had in 2021. And so we got some initial values there that were different than we had expected, and we'll go and contest those.

The other 2 markets I pointed out were Houston and Austin, and we're 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're 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 -- all of our final protests. So that's sort of where we're seeing it. I will tell you -- I'll 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.

The next question will come from Barry Wu with Mizuho.

I'm Barry, I'm on the line for Haendel St. Juste. I was wondering if you could discuss the expense pressures you're facing in more detail. Maybe first off, if you could discuss the drivers and key pieces on the 80% -- 80 bps upward revision in your expense guidance?

Yes, absolutely. And so the major driver that you're really seeing there once again is property taxes. So if you think about it, we're up to 5.6% of what we're 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 [R] 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. 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 13%. So we've got a 900 basis point positive there that sort of offsets the R&M inflationary issues. And so that leads you really to the property taxes to being the main driver.

Okay. So it sounds like it's mostly noncontrollable. So what about on the -- looking at your supplemental, so the 33% G&A increase? Can you talk a little bit about that?

Yes, 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 3 communities are managed together.

As part of that, we took our existing assistant manager position and we centralized 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.

The next question will come from Robin Lu with Green Street.

I just start off with a question on -- with Keith. So have you been seeing a notable pickup in concessions from developers in heavier supply market?

So yes, absolutely. In markets where we've seen the kind of strength that we've had for the last year, concessions have been less. We always include roughly one month of free rent or concession for lease-ups. We don't do concessions in any of our stabilized portfolio, but that's the game that's played among developers has always included some provision for concessions.

But in our world, they've been, for the most part, less than what we would have expected them to be. There's just the same strength for demand and new construction across our markets is typical that just like we have in our stabilized portfolio. So probably less overall in the last year in terms of concessions, but it's still a part of the overall pricing structure for all new developments.

This is -- I guess the question was around what you're seeing your peers or competitors doing not just your own book?

Yes, they have less concessions as well. So in an environment where market rents are going up 16%, 17%, from whatever their pro forma was, they're all far exceeding what the scheduled rents were. So there would be no real incentive to push rents -- continue to push top line rents and then concess back down to where they -- to the point where they're pro forma is.

So yes, they're all -- my guess is they're 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 1 month free rent that was in their pro forma and then adjusting market rents to whatever the clearing price is for non-concession rent structure.

Got it. And so my second question is, so when looking to the DC market, obviously, you've done really well in the second quarter and July still holds pretty stable at [7%]. Do you expect any supply pressure impacting your pricing power for the second half of the year?

The supply pressure in D.C. has really not been a huge issue for us. We have -- most of our assets are in D.C. Metro area, I mean total delivered units this year 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 D.C. Metro area of about 12,000 apartments. So I don't expect it to change much next year.

The difference, as Ric pointed out, a lot of our challenges have been -- or in markets where there are governmental restrictions on what you could do with either just flat out rent control or the inability to collect or to get your real estate back through the eviction process. And those were -- it's still not completely over in the district, but in D.C. 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 in a lot of DC last year.

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 for being with us today, and we will see you at the beginning of the conference season after Labor Day. So take care, and have a great summer. Thanks a lot.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.