Camden PropertyTrust recently soldits 15 communities in Las Vegas for $630 million, given long-term challenges facingthat market and as part of the company's broader effort to improve the quality ofits portfolio, executives said during an earnings call.
"The decision to exit Las Vegas was a balance between losinga market with above-average NOI growth for the near term versus the long-term challengesthat Las Vegas faces," Chairman and CEO Richard Campo said during the call,adding that he believes the company was "paid well and in advance for the lossof the near-term net operating income growth."
Campo said the Las Vegas sale was "the right decision"for the company, as the properties were already twice as old as, and yielded roughly$500 per home less in monthly revenue than, the rest of its portfolio.
Over a period of 18 years, the Las Vegas investment yielded anannual unlevered return of 10.7% for Camden, the executive said. He noted that,owing in large part to increased investor interest in the portfolio, the companyboosted its aggregate disposition guidance for the full year to a range of $1.0billion to $1.2 billion, as provided in an earnings release.
The Houston-based multifamily REIT is also planning additionaldispositions later in 2016 as part of Camden's ongoing capital recycling effortto unload "older, non-core properties" and replace them with "morecurrent and competitive" assets, Campo said. With these planned divestments,the company, by year-end, is on track to reach $3 billion in asset sales since 2011,Campo added.
"We're not calling a top to the multifamily market withour sales. We're simply taking advantage of the market opportunity to improve thequality of our properties, reinvest in development on a significant cash flow-positivebasis, pay down debt and return capital to shareholders," the executive stressed.
The company, in particular, is targeting sales of $400 millionto $600 million of operating properties, CFO Alexander Jessett said. About $500million worth of individual properties in Florida, Maryland, Texas and SouthernCalifornia are currently on the market for sale. The assets are 29 years old onaverage and have lower rents with higher CapEx than other assets in Camden's portfolio,Jessett said.
In most of Camden's markets, Campo said, multifamily fundamentalsare generally "strong and above long-term trend," which he said is demonstratedby more than 5.5% revenue growth in 10 of the company's 15 markets. The executive,however, sounded alarm over Houston, saying that the market will likely before it gets better.
When asked about whether the disposition guidance was relatedto Campo's reported concern about a possible U.S. economic downturn, the executiveresponded that he is more concerned about the lengthy recovery that the countryhas been in.
"The bottom line is, when you get this long into the cycle,you have to start — we fundamentally believe you have to start being a little moredefensive," he said.