Abundance of Houston apartments, winter storm hurt Camden profits
The impacts of February’s winter storm and Houston’s oversupply of apartments stood out in Camden Property Trust’s first quarter earnings report, driving up expenses in Texas markets and revenues down in Houston.
The apartment developer and manager saw its net income fall 28 percent to $31 million (31 cents per diluted share) at the end of the first quarter of 2021 from $43 million (43 cents) the year before, primarily because of a $18.5 million swing in deferred compensation plans. In the first quarter, Camden reported deferred compensation plans had wracked up $3.6 million in costs, compared to $14.9 million in benefits the year before.
All three of Camden’s Texas markets — Houston, Dallas and Austin — saw net operating income fall in the first quarter compared to the same properties in the same quarter a year before.
The real estate investment trust reported unaudited revenue from its properties of $268 million, up from $266 million in the year-earlier period.
The winter storm caused $900,000 in expenses, two thirds of which went to toward insurance, repair and maintenance,
said Alexander Jessett, the company’s chief financial officer. The remainder went toward relief efforts, such as meals for residents.
Camden said it expected property insurance, which makes up about 4 percent of the company’s total operating expenses, would increase by roughly 22 percent over the remainder of the year due to an unfavorable insurance market.
In Houston, where Camden is looking to sell properties, the average rent per apartment fell at the majority of its properties in the first quarter compared to all of 2020. At the worst-hit property, Camden Downtown, the average rent per apartment fell $226, or 9 percent, during that period.
“The big challenge we have in Houston is not employment related,” said Keith Oden, vice chairman of the board. “The issue in Houston is just supply… Last year, we dealt with 20,000 apartments delivered in Houston. This year, we’re dealing with another 20,000.”
Ric Campo, Camden’s chief executive, spoke in a call with analysts of the tight market for buying multifamily properties. Buyers are willing to pay more relative to the income an apartment complex will bring in than he said he’s ever seen. For example, an apartment building in Tampa, which would normally have been valued around $77 million (assuming a buyer would want to make back a little more than 4 percent of its investment a year) went for more than $90 million, driving down that return to 3.2 percent.
When asked by an analyst if he was concerned about the prices at which apartments were being purchased, Campo asked, “Where are you going to put your money?”
Investors are worried about inflation, he explained, and have few options for where to safely park their money. Apartments, which are able to incorporate inflation into their prices more quickly than office or retail buildings, which typically have longer leases, are in demand during times of inflationary fears.
“It’s a great inflation hedge if you’re worried about that, and when you think about private capital looking for a yield, multifamily is a pretty good place to be,” he said.