Camden reflects on apartment setbacks
Camden Property Trust’s annual earnings report reflected a number of setbacks the Houston apartment market has suffered in the past year.
Camden’s 2020 net income fell 43 percent to $124 million ($1.24 per diluted share) from $220 million ($2.22) the year before as a result of increased maintenance costs, taxes and a drop of income from deferred compensation plans and property sales. Adjusting the lease of a retail tenant who has not been able to pay rent will likely cost Camden $3.5 million in rent from a retailer, which was reflected in its released earnings. For the the quarter ended Dec. 31, the Houston-based multifamily real estate investment trust reported net income of $29.1 million (29 cents a share), down sharply from $95 million (95 cents) in the yearearlier period.
The Houston market saw some of Camden's biggest hardships in 2020, with net operating income falling 8.3 percent from the year before and the weighted average monthly rental rate falling 0.4 percent. The apartment developer
and operator blamed the energy slump and a high number of newly built units on the market's performance and said it planned to sell off Houston assets in the second half in the year.
“We had 20,000 apartments delivered last year, and we’re in the process of delivering another 20,000 apartments this year,” Keith Oden, executive vice chairman of Camden’s board, said in a Friday earnings call. The influx of apartments came as the oil industry was struggling with profitability. Then COVID hit.
Oden estimated 40,000 apartments would require a net increase of 200,000 Houston-area jobs to provide the population growth
needed to fill them.
“And that just hasn’t happened,” he said. “It’s just as simple as that. We’ve got way too much supply. It’s hand-to-hand combat on the stuff that’s either downtown or close-in assets, which makes up a decent part of Camden’s portfolio.”
Camden officials believe the economy will begin to recover in the second half of 2021 as the vaccine allows more workers to return to offices. At that point, it plans to begin selling off its older properties, including properties in the Houston and Washington, D.C., markets, and acquiring newer properties, which will require less maintenance.
“Our strategy this year is going to be very similar to what we did in the last cycle,” said Ric Campo, Camden’s chief executive. “Beginning
in the last cycle, we disposed of roughly $3 billion of property with an average age of over 20 years and acquired properties that were on average at the time 5 or 6 years old.”
Despite the challenges, Houston outshone the rest of Camden’s portfolio on one metric: rent collections.
Although the occupancy of Camden properties in the Houston area has fallen to 93.8 percent in 2020 (the lowest of any of its markets) and rents have fallen by 0.4
percent (the only market where they have contracted), nearly all of its Houston residents are paying their rents.
Only 0.4 percent of Camden residents in Houston have fallen behind on rent, compared to 6.4 percent in California.
Campo blamed the high delinquencies in its California properties on politics.
“Both the state and local governments have just put it into the brains of folks there that they just don’t have to pay,” he said. “And all of the various legislation and moratoriums and what have you, you just have a group of people that look at it like getting a free loan from Camden. Ultimately, they’ll have to pay or their credit will be destroyed, and it will be interesting to see how that all plays out and how the government responds to that moving forward.”
The call also engaged the idea that markets such as New York and California may be exporting not only residents to lower cost-ofliving markets but also their attendant incomes. That may eventually push up aspects of the cost of living in cities such as Austin and Houston when they arrive.
“Right now, the market is soft enough where you can’t push rents today no matter what people make,” Oden said. “But ultimately, as the market firms up, our resident base are higher income and can take rental increases once we have the pricing power to be able to do that.”