Rumblings of Recovery Emerging in Camden’s Sun Belt Apartment Markets

Article originally posted on CoStar on May 3, 2021

Camden is optimistic about overall apartment revenue bouncing back this year. Pictured is the Cypress Creek community in a Houston suburb. (CoStar)

Rumblings of a recovery from the pandemic are emerging in the apartment market, giving one national apartment real estate investment trust enough confidence to improve its financial forecast for the year.

While certain apartment markets are still struggling, Camden Property Trust is seeing more leasing activity and a gradual rise in rents at its 167 properties containing 56,851 units. In April, new leases and renewals rose 4.6% overall year over year and rental rates rose 2.4%, according to the company’s earnings report.

“During the first quarter we saw operating strength building in most of our markets. Clearly the opening of the economy driven by the speed at which COVID-19 vaccinations have been distributed has improved our results throughout the first quarter and our outlook for the rest of the year,” CEO Ric Campo said during a Friday earnings call with investors.

As a result, Camden slightly adjusted upward its revenue projections for the year, with the midpoint of its revenue growth expected to be 1.6%, compared to 0.75% previously. The midpoint of its earnings per share was revised up to 99 cents from 91 cents.

The optimistic tone echoes that of other large apartment landlords and comes after apartment demand is continuing to outpace typical seasonal trends nationally as social-distancing restrictions relax and the coronavirus vaccine rollout continues. In the first quarter, all but two of the country’s biggest cities posted positive net absorption in the first quarter, a sign that more tenants are moving into apartments than moving out of them, according to CoStar analysts.

The greater Sun Belt region where Camden’s portfolio is concentrated continues to top every list for housing demand with the usual suspects of the Dallas-Fort Worth area and Houston in Texas; Atlanta, Georgia; and Phoenix, Arizona, leading the pack once again, analysts said.

For Camden, the strongest performing markets for revenue growth have been Phoenix; Atlanta; Tampa, Florida; Raleigh, North Carolina; and Denver, Colorado. Camden expects to see revenue growth this year in 13 of the 14 markets where it owns properties, said Keith Oden, executive vice chairman, on the earnings call.

Houston, where Camden is based, has not performed as strongly because of a huge supply wave of new apartments hitting the market last year and this year, which is putting downward pressure on rent prices, Oden said.

“It’s more of a supply issue in Houston. We do get some relief next year thankfully in terms of new supply,” Oden said. Overall, there is a “general vibe of recovery in Houston. People are out and restaurants are busier than I’ve ever seen them. Our forecast for revenue growth in Houston is only down 0.5% from last year. I certainly wouldn’t have made that bet six months ago when we were putting together our guidance.”

San Diego and Los Angeles also continue to face challenges for Camden because of bad debt related to being unable to evict people because of the federal eviction moratorium, executives said. In both California and Washington, D.C., revenues are also restricted by rent caps, preventing landlords from raising rents over certain thresholds above inflation, they noted. Those caps, plus some tenants not paying rent in California markets, are putting a drag on Camden’s overall revenue.

“Our topline [revenue] number would be higher by at least 50 basis points if we didn’t have those restrictions in play. In my opinion, once the economy opens more in those markets … then multifamily business should be really good in the next six to eight to 10 months,” said Campo.

Although landlords were planning ahead for the end of the eviction moratorium, in reality, because most of Camden’s tenants are in households that make above $100,000, the REIT has not had to deal with a significant number of evictions.

Camden continued to see gains in tenants’ ability to pay rent, with virtually no tenants deferring rent payments in the first quarter compared to at the start of the pandemic, when about 2.5% of tenants deferred rent in April 2020. Camden collected 98% of its expected rent in April, up from 94% in April 2020.

Only 2% of Camden’s tenants were delinquent on rent in April, compared to 3.2% in April last year.

Even though more tenants are paying rent, Camden still only saw a modest gain in property revenue, which was up slightly to $267 million. Same-property revenue was almost flat and didn’t compensate for rising expenses in the first quarter from property operating and maintenance costs and higher taxes.

As a result, Camden’s profits plummeted 27.5% in the first quarter to $31.25 million compared to $43 million the same time last year. Despite the year-over-year drop, first-quarter profits saw a sequential gain of roughly 7% compared to the fourth quarter.

New leases jumped 13% year over year in the first quarter as more new tenants relocated to Camden properties, but that was offset by a 9% drop in lease renewals. Overall in the first quarter, total leases signed rose 2.5%.

Most of Camden’s new tenants are migrating within the Sun Belt, but among those moving from outside the region, New York is the No. 1 supplier, executives said.

On the development end, Camden broke ground in the first quarter on Camden Durham, a 354-unit apartment complex in the greater Raleigh area at 441 Dillard St.

The project is part of the $910 million worth of new construction Camden has ongoing, with eight projects in Arizona, Florida, California and Georgia. Its continuing to lease up new communities in the Houston area, and its new Denver apartment project is almost fully occupied.

Camden is seeking to sell some older properties in Houston and is continuing to look for properties to buy in Nashville as part of the company’s entry to the Tennessee capital, executives said.

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