Q1 2023 Camden Property Trust Earnings Call

Speaker 2: Good morning and welcome to Camden Property Trust's first quarter 2023 earnings conference call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and President, and Alex Jessett, Chief Financial Officer.

Speaker 2: or by email upon request. If you are joining us by phone and need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward. Please note this event is being recorded.

Speaker 2: 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 that could cause actual results to differ materially from expectations.

Speaker 2: 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.

Speaker 2: As a reminder, Camden's complete first quarter 2023 earnings release is available in 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 would like to respect everyone's time and complete our call within one hour. So please limit your...

Speaker 3: Good morning. Culture matters.

Speaker 3: This year we are celebrating Camden's 30th anniversary as a public company. And last week we wrapped up a 12-city celebration tour that included all 1,600 Camden team members. The tour is an annual Camden event, but we usually split up our executive team.

Speaker 3: to cover the events. This year Alex and Lori Baker joined Keith and me at all 12 stops to celebrate our team's 2022 accomplishments and Camden's 30th birthday. Each celebration featured our team's and vintage 1990s attire and demonstrating one of Camden's nine core values to have fun.

Speaker 3: I'm going to share an inside baseball look at Canva's unique culture set to a 1990s classic All Star.

Speaker 1: ?Somebody once told me the world is gonna roll me? ?I ain't the sharpest tool in the shed? ?Was looking kind of dumb with her finger and her thumb in the shape of an L on her forehead? ?Well, the years start coming and they don't stop coming, set to the rules and I'll handle them?

Speaker 1: Hey, hey now, you're a rock star, get the show on, get paid It's hard as winter to go Only human scars break the mold It's a cool place, and they say it gets colder You're bundled up now, wait till you get older But the media man begs to tip a Turkey by the hole in the satellite picture

Speaker 1: All that glitters is gold Only you got a break of mold

Speaker 3: we got word that for the 16th straight year, Camden was included on a Fortunes list of the 100 best companies to work for. We claim this honor on behalf of our Camden team and the entire REIT world. It is a testament to just how much progress we have made over the last three decades, and that culture really does matter.

Speaker 3: Operating fundamentals continue to be good. We are on track to meet or exceed our 2023 plan. Multifamily transactions have slowed dramatically. Activity for the first quarter was down 74% from last year as buyers and sellers try to recalibrate the increase in their cost of capital and what the future market dynamic will look like.

Speaker 3: beginning in the second quarter and throughout the next year or two. I'm betting the over on a 60% reduction in starts once monetary policy and the banking crisis make their way through the system. I want to thank and congratulate Team Camden for their hard work in staying true to our commitment.

Speaker 3: to improving the lives of our team members, our customers, and our stakeholders, one experience at a time. Next up, the ski zone.

Speaker 3: Thanks Rick. Now some details on our first quarter 2023 operating results and April trends.

Speaker 3: Same property revenue growth for the quarter was ahead of our expectations at 8%, and we've raised the midpoint of our 2023 revenue guidance as a result.

Speaker 3: Once again, we saw the highest growth rates in our three Florida markets, Tampa, Orlando, and Southeast Florida, with Nashville also posting strong results.

Speaker 3: First-quarter sign leases grew by a blended rate of 4%, with new leases up 1.8% and renewals up 6.7%.

Speaker 3: Our preliminary April results are trending at a similar level for blended rate growth, with slightly higher newly sprayed growth and moderating renewal rate growth.

Speaker 3: Renewal offers for May and June were sent out in the mid 6% range. While these growth rates were down from the record levels seen in the first four months of 2022, our 2023 year-to-date performance is actually stronger than what we would historically expect to achieve during the first four months of the year.

Speaker 3: Occupancy averaged 95.3% during the first quarter of 2023 and is trending on slide 8 in April .

Speaker 3: Net turnover for the first quarter of 2023 was 36%, in line with the first quarter of 2022, and move-outs to purchase homes dropped to 10.1% for the first quarter, one of the lowest levels on record in our 30-year history.

Speaker 3: I'll now turn the call over to Alex Jessett, Camden's Chief Financial Officer. Thanks Keith. Our new development lease-ups remain stronger than usual as we average approximately 45 leases per month at Camden Atlantic, a 269 unit, $101 million community in Plantation, Florida, which stabilized during the quarter.

Speaker 3: Approximately 40 leases per month at Camden-Nota, a 387 unit, $108 million community in Charlotte, which began leasing during the quarter and is now over 35% leased, and approximately 30 units per month at Camden Tempe II, a 397 unit, $115 million community in Phoenix.

Speaker 3: which continued leasing during the quarter and is now over 70% leased.

Speaker 3: Turning to our financial results, over the years Camden has fully supported the NAIRIP definition for Funds From Operations or FFO, and we will continue to report that metric going forward. However, in an effort to improve comparability and alignment with the current reporting practices of our peers in the multifamily REIT sector, we have been able to improve our performance and our performance in the multifamily REIT sector. We have been able to improve our performance and our performance in the multifamily REIT

Speaker 3: We will now also report core FFO to adjust for items not considered to be part of our core business operations.

Speaker 3: We presented both metrics in our earnings release last night for actual performance in the first quarter and have included both metrics in our guidance for the second quarter 2023 and full year 2023.

Speaker 3: Any property level adjustments we make to drive core FFO, which primarily are unusual or large casualty events, severance charges in 2022 related to changes to our onsite staffing model, and the amortization, if any, of below or above market leases associated with acquisitions.

Speaker 3: will also be adjusted from our same store results.

Speaker 3: These property level adjustments will be located in the other section of our components of NOI in our supplement.

Speaker 3: For the first quarter, we reported both NAIRIT FFO and CORE FFO of $1.66 per share, one cent ahead of the midpoint of our prior quarterly guidance, resulting primarily from better results from our same-store communities.

Speaker 3: These results represent a 12% per share core increase from the first quarter of 2022.

Speaker 3: Our first quarter outperformance was primarily driven by two cents per share in lower than anticipated levels of bad debt, as we experienced a higher than anticipated level of move-outs by non-paying residents during the quarter. All the municipalities in which we operate have now lifted their restrictions and have now been

Speaker 3: and our ability to enforce rental contracts. And the resulting move-outs of non-paying residents happen earlier than we anticipated, with twice the amount of move-outs in the first quarter of this year as compared to the first quarter of last year.

Speaker 3: Although these early move outs of delinquent residents do put some pressure on physical occupancy, we reserve for effectively 100% of delinquent balances and therefore there is no net negative impact when nonpaying residents leave. Rather, we receive the benefit of having our real estate back.

Speaker 3: the opportunity to commence a lease with a resident who abides by their rental contract, and lower bad debt from having a new resident who actually pays.

Speaker 3: Our outperformance was also driven by half a cent in slightly higher than anticipated net market rents, and one cent in higher other property income, primarily driven by elevated levels of utility rebuilding, which was entirely offset by higher utility expenses.

Speaker 3: Our three and a half cents per share of positive same store revenue results was partially offset by two and a half cents of higher same store property expenses primarily driven by much higher than anticipated levels of property insurance claims resulting from an unusual spike in smaller claims.

Speaker 3: generally under $25,000 per occurrence, which did not count towards our aggregate $3 million exposure.

Speaker 3: To illustrate the spike, in the first quarter of this year we experienced the same number of claims that we experienced cumulatively in the first quarter of the prior three years.

Speaker 3: At this time, we believe the volume of claims is an anomaly, but we have made a resulting partial increase to our insurance forecast for the rest of the year, which I'll discuss later.

Speaker 3: Our original 2023 SAME store guidance called for revenue growth of 5.1%, expense growth of 5.5%, and NOI growth of 5%. Included within our 2022 results, which drove this original guidance, was approximately $900,000 of first quarter 2022 revenue.

Speaker 3: non-core and have been removed from our 2022 SAME store for 2023 comparison purposes.

Speaker 3: Additionally, our full year 2022 results included a net $1 million of non-core casualty losses primarily in the back half of 2022, which will also be removed from our 2022 same score results for 2023 comparison purposes.

Speaker 3: The effect solely from this adjustment would be to increase our original 2023 SAME-Store revenue guidance from 5.1% to 5.2% and increase our original SAME-Store expense guidance from 5.5% to 5.9%.

Speaker 3: Last night we further increased the midpoint of our four-year revenue growth to 5.65%. This additional increase is based upon our first quarter revenue outperformance, which primarily resulted from the previously mentioned acceleration and move-outs of non-paying residents.

Speaker 3: and our slightly higher net market rents and other property income. Additionally, we further increased the midpoint of our same store expense growth to 6.85%, almost entirely driven by actual and anticipated higher insurance costs.

Speaker 3: Insurance represents approximately 6% of our total operating expenses and, after taking into account the previously mentioned adjustments for 2022 non-core casualty events, was originally anticipated to increase by 18% in 2023.

Speaker 3: After taking into consideration the higher first quarter claims, we have increased our anticipated monthly losses in our forecast.

Speaker 3: We have also updated our May 1st anticipated premium increase from 15% to 20% as insurance providers continue to face large global losses.

Speaker 3: We now anticipate our total insurance expense will increase by approximately 35% in 2023.

Speaker 3: These insurance increases for the remainder of the year are partially offset by anticipated slightly lower salaries and property taxes.

Speaker 3: After taking into effect the increases in both revenue and expenses, and the adjustments for non-core property level events in 2022, the midpoint of our 2023 Samescor NOI guidance is 5%, and the midpoint of our full year 2023 CORE FFO is $6.86.

Speaker 3: At the midpoint of our guidance range, we are still assuming $250 million of acquisitions, offset by $250 million of dispositions, with no net accretion or dilution, and $250 to $600 million of development starts spread throughout the year, with approximately $290 million of annual development spend.

Speaker 3: We also provided earnings guidance for the second quarter of 2023. We expect Core FFO per share for the second quarter to be within the range of $1.66 to $1.70, representing a 2 cent per share sequential increase at the midpoint, primarily resulting from an approximate 3 cent sequential increase in same-store NOI.

Speaker 3: resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of certain repair and maintenance expenses, and the timing of our annual merit increases, and a half-cent sequential increase related to additional NOI from our development and non-same-story communities.

Speaker 3: This 3.5 cent cumulative increase in core FFO is partially offset by a half cent decrease from higher second quarter GNA resulting from the timing of various public company fees and a one cent decrease from higher floating rate interest expense.

Speaker 3: Our balance sheet remains strong, with net debt to EBITDA for the first quarter at 4.3 times, and at quarter end, we had $268 million left to spend over the next three years under our existing development pipeline. At this time, we will open the call to questions.

Speaker 4: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad.

Speaker 4: If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker 4: To withdraw your question, please press star then 2.

Speaker 4: And our first question will come from Jamie Feldman of Wells Fargo.

Speaker 5: Great, thank you and thanks for taking my question. I guess I was hoping to focus on rank growth in April versus the first quarter. It looks like it moderated down to 3.9% from four and a half on a blended basis. Can you just talk about if that seems to be a trend heading into spring leasing, if there's anything else to read into there and then maybe across the different markets what drove the decline?

Speaker 6: Yeah, so we did see a slight decrease but overall we think this is April , the March to April transition to us looks a lot like previous years to COVID. We do expect to see and have seasonality back in our leasing.

Speaker 6: activity. It's certainly, it's certainly a different field than what we had in the last trend, last two years of transition into the spring leasing season. So I don't see that, I think we'll have a normal seasonality. I think that we're on track to beat our original plan. I think at the end of the first quarter and every

Speaker 3: I think I'd focus more on the signed leases rather than the effective, because the signed is more an indication of the direction we're going. And signed leases went from 4% in the first quarter to 4.2% in April . So that actually increased.

Speaker 3: more on the signed leases rather than the effective because the signed is more an indication of the direction we're going and signed leases went from 4% in the first quarter to 4.2% in April so that's actually increased. Okay that's very helpful. Thank you.

The next question comes from Josh Denerlin of Bank of America. Please go ahead. Hey guys, maybe just one follow-up on your comment there. You said one market is underperforming your budget. What market is that?

challenges with an elevated level of fraud which you know pops up from time to time in several of our markets and it was just it was sort of Atlanta's turn for that to happen and we did see a fair amount of that in the quarter. Across the board other than Atlanta everyone every single market outperformed our original plan you know we had we had continued strength in the in the Tampa, Orlando, South Florida.

Deutsche Bank, please go ahead.

Hi everyone, thank you. You mentioned in your opening remarks a possible 60% drop in new development given the macro. But I'd ask, what are you seeing in input cost for development and given it takes a couple of years to complete.

The second half, 23, become interesting to Camden given the balance sheet from a starts perspective and the land bank so that you really have new product as deliveries decline as in the downtown.

Absolutely. When you think about what's going on, the only deals that are getting done now are legacy deals that either have debt and equity already committed to. Any new development or second and third tier developers are not getting their deals done. There will be a significant decline in, we believe, in definitely aspects of laws will be

a long time to bring to the market. So given our strength and our balance sheet and our pipeline, we definitely will look at delivering, starting new projects when other people can't and delivering into what could be a really good market in 2025, 2026.

I think the input costs, the good news is that they are flat. We haven't started to see major decreases in cost. Lumber is at a very low level today and that's good news. So rather than in our performance we would usually put a...

1% per month inflation. Let's say if we were doing it last year at this time and now we're at least flat and potentially once the I think the Subcontractors start working through the inventory they have today and they start looking out on the horizon They're going to have to squeeze their margins to be able to get new business because there's going to be more competition I think for

you know less projects getting built therefore more competitive set with the subcontractors and which should constrain their margins and perhaps have costs go down more from here. The big input that hasn't gone down yet are salaries and at the end of the day you know you just haven't had a lot of pressure on construction workers.

or folks that are in this in that side of the business but that could happen depending upon you know we know starts are going to come down. The question is how fast will the margins compress for the subcontractors and that's where the largest part of the you know input cost on construction is.

Thank you. The next question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.

Hey, good morning, morning down there. So Rick and Keith, I have to ask you, you guys have been a standout in in nary discipline on FFO and pretty up front in in taking all your lumps positive or negative over the years.

Sort of curious why you guys chose to to move when core FFO is not an official metric. There's no standardized definition So everyone sort of dines on a carton, you know I mean we just did a study of it and most of the items that people back out are actually recurring in business legal expense

Storms debt prepay. I mean all these are normal parts of the business, so I'm just sort of curious why you guys chose to go down this route.

Yeah, we chose this because our competitors are doing it and the challenge you have, we've been sort of coached by other investors and shareholders that they were getting confused about numbers and I'll give you exact example of that.

When we produced our initial guidance for 2023, probably half or two-thirds of analysts missed the mark-to-market on rents from our acquisition of the Texas teachers portfolio. We just wanted to codify it in a way where people could actually see it.

people scour through the financial statements and try to understand where the variations are is complicated and we're trying to make it make it more simple for people. We still have NAHREED FFOA definition obviously and then we just give folks more information about about adjustments to NAHREED so they could so they don't it makes it easier for people I think.

comparability only because you guys may have certain items you pick out, other companies have others, so it arguably makes it more confusing, not easier, but appreciate your feedback. Based on the conversations that we have with people after they miss this really big item in 2022 relative to 2023.

you know now all you have to do is go in and look at the reconciliation between nareat and core and you can see all the items there and you don't have to go digging through financial statements and unfortunately i know you guys are pretty um you know analysts are pretty uh uh pretty uh uh you know overworked if you want to call it that in terms of being able to find stuff and it may be the job of a lot of folks but we just want to make it easier for those who

you know, don't have the time to go through and read every footnote.

Thank you. And the good news, Alex, is that for people who want to use the original NAIRI definition, it's...

it's there for anybody to use. So, I think more information is generally better. So, thanks.

The next question comes from Handel St. Just of Mizzoujo. Please go ahead.

Hey guys, I want to go back to the commentary on getting some of the long-term delinquents out of the portfolio. I think we assume you're primarily referring to SoCal. I guess can you remind us what's in the full year 23 SAMHSA revenue guide from a net bad debt impact perspective and what's your updated expectation? Thanks. Good night, everyone.

Yeah, absolutely. So originally we anticipated about 140 basis points for the full year and today we've got it about 120 basis points. So, let me just give you a little cover too on on skips and eviction. So, skips and evictions are basically double in the 1st quarter what they normally are.

80% of those skips and evictions were people that owed us significant amounts of money. So the good news is while our occupancy is is not as high as it was and our skips and evictions have doubled we're getting people out that aren't paying rent so from an economic occupancy perspective it's a really good thing to have that that happen and we're hoping that it accelerates in markets like Southern California.

as soon as we can get our real estate back to, you know, with paying customers, the better for us. As a data point reminder, for 27 plus years, our bad debt ran roughly 50 basis points.

And then in COVID, we went up to about 150 basis points. And it's clearly, we peaked and we're coming back down that curve. And is it a new world order where we don't ever get back to 50? I hope not, but I certainly don't have any reason to sit here and believe that we don't get back to 50 basis points of that debt. Yet what was now found is in light of the points of that debt, that's how?" No, mem September ... 12 March, F K K K K New Year November fit July 24, 2016

once all of the bad actors that have been cycled through. And certainly, it's our hope and expectation that we will get a lot closer to 50 basis points of bad debt expense from where we are today at 120. No, that's helpful. A question, follow up if I could. I guess the plan to go after the 80% who skipped, what's your...

expectation or plan there and then with the turnover picking up from these up to getting people out I'm assuming capex turnover some of the opex costs are going up to curious that's already embedded in your expectations well thanks so the offset on the turnover is that we've had very low move outs to purchase homes so that's been the benefit on on that side so we're not really seeing a significant

uptick on CapEx or repair and maintenance costs associated with returns. And then the folks who move out with balances, obviously we're going to do what we can legally to try and make them pay what they owe us.

Thank you guys. The next question comes from Eric Wolf of Citi. Please go ahead.

Thanks and good morning. It sounds like a piece of the SAMHSA revenue increase was due to higher rate growth and one Q and expected. Can you just talk about sort of how much higher it came in than what you were thinking, which markets showed the improvement and whether you still expect overall market rate growth to be 3% this year?

Yeah, so we think overall market rent is going to be just a hair north of 3%. That's what we've got, that we've got baked into our numbers. What I will tell you is that we did see slightly higher market rent really across the board in every one of our markets.

So that's a good trend and obviously one quarter makes us a little optimistic, but we'll see how it continues as we go through our peak leasing periods.

Okay, thank you.

The next question comes from Amy Probant of UBS. Please go ahead. Hi everyone. I was just hoping to touch on Houston. It's been a bit of an underperforming market and I was wondering if you thought that that was more due to a muted level of demand or if you're seeing good demand but in terms of the\.

What's interesting is that when you compare Houston to say Dallas or Austin, Houston was slower to add back jobs primarily because of energy. The energy companies have not added back all the jobs that were cut during COVID. They've figured out how to be much more efficient. But when you start looking at

at other metrics like for example the current census data that came out just recently for 2021 versus 2022 ending June 30 of 2022. Houston was the fifth or the second largest growth in population of roughly 125,000 people moved to Houston during that one year period.

The only other city that was hired in that was Dallas at 170,000 units and to give you kind of a sense of the This migration issue helps Houston helps Dallas, but because of the oil oil Energy or the energy jobs that weren't replaced and also supply

We haven't seen the same kind of pop like we did in Dallas or Austin. So it's more of a steady steadiness in Houston than a big increase like we saw in a lot of other markets versus Houston. I think Houston continues to be steady growth and with the supply side getting ready to shut down.

Pretty pretty dramatically over the next year or two. It should be positioned really well to grow, you know when you think about the Population growth the top 20 cities in America 10 of which were in Camden's market And our markets gained roughly 780 that were five hundred and seventy eighty thousand job or eighty thousand people

So while it's not white hot here obviously like it is in Tampa Orlando, South Florida, it's still pretty respectable.

Okay, so would you say then it's more of a supply impact?

I would say that yeah I think it's more of a supply impact than it is a

Yeah, I mean because if you don't have the, we didn't have the white hot job growth like Dallas and Austin did because of energy and so it's been more of a go along, get along. So it's a little less jobs and supply combining that to take the sort of the sizzle out of the market if you want to call it that.

So just to put some numbers around, just to kind of put some context around that in Houston in the first quarter, our actual the average monthly rental rate grew by 6.4%.

So if our, you know, the overall portfolio of course grew at much higher than that, but if this were, you know, if you were comparing trends and today in Houston versus looking backwards over the last 30 years, you'd say, oh my gosh, that was a really good quarter for run-and-re growth. And we had a little slip in occupancy that we think corrects itself in the second quarter.

It's related again to some kind of one-off challenges around skips and addictions and a few cases of fraud that we have to, it seemed to be more prevalent in today's world than they were at pre-COVID days, but we're working through that. So overall, I think Houston's gonna be fine and is well ahead of plan from what we thought it would be at this time of the year. So I think we're gonna be fine. file cost

The next question comes from John Kim of BMO Capital Markets. Please go ahead. 1.

Thank you. Robin Hanel here, sitting in for John . One of your peers acquired a lease up in Atlanta at a 6.6% cap rate, 5.7% tax adjusted. Do you think you'll see more deals in lease up transact at these levels?

I do. I think that as the market continues to evolve, cap rates have obviously moved up given the very low volume in acquisitions. I think there will be a point in time where merchant builders need to sell to be able to pay their debts off.

And I think that there's going to be a fair amount of that going on if we continue to keep rates Especially short rates as high as they are now, which I don't see any any any You know any any light at that end of that tunnel anytime soon given the feds position then It's putting pressure on those merchant builders, and and I think there's going to be likely more transactions once they get

would you like to be there? Well we're positioned really well with a strong balance sheet and I guess the real question will be you know when do we get to that that sort of tipping point where where cap rates really look attractive and well you can buy a property for

lower than replacement costs today at a cash on cash return in the mid fives to six that's a pretty attractive attractive opportunity depending on the market I think you are going to have some some softness going forward in certain markets given the supply side of the equation and that should

should position buyers including Camden to take advantage of that. Okay, thank you.

You know position buyers including Camden to take advantage of that Okay, thank you

The next question comes from Shaundry Luthra of Goldman Sachs. Please go ahead. Hi. Good morning. Thank you for taking my question. Could you talk about how concessions are tracking across your market and perhaps where are the markets where the use of concessions has...

Lease ups going on, the lease up rates have been pretty phenomenal on our new lease up. So we're actually using much less concessions than we normally would. We are having, our Atlantic product in South Florida averaged almost 45 leases per month for the entire lease up, which is kind of insane.

And so we're gonna again we're having great great to success at our other lease ups as well. And our broad portfolio, our stabilized assets, we just we have with revenue management you we use a net pricing model and we don't really make it easier for the consumers so they don't have to do the math and we don't really use concessions.

Although I would tell you that in certain submarkets, our competitors, you see that, it comes and goes primarily. They tend to be very reactionary.

some softness and then they offer concessions and if it continues soft and they double the concession but we just that's just not part of our pricing discipline.

Great. And in the past, you've talked about new supply in some markets being more pronounced than others. Perhaps you could just give us a refresher there. What are the markets where you're seeing more supply pressure and what are you seeing on the ground from that standpoint? Thank you. Thank you very much.

Sure, without running through all 15 markets, let me just kind of give you some macro, a macro look and we can go into the details after the call if you like market by market. So if you go up to Camden's markets combined, the completions that we had across Camden's platform in 2020.

And again, based on Ron's numbers, that number jumped to about 228,000 in 2024, and that would be the peak, at least using his numbers for this cycle. So we are going to continue to have supply pressure across our portfolio.

you know, there are large metropolitan areas and you have to really drill down and say, okay, which one of this supply that's being built and delivered is going to actually be competitive where Camden's portfolio is located. And if you go through that across our portfolio, all 15 markets of the total supply that's coming in 2023 and 2024.

There's only about 40% of that product that is locationally competitive with Camden's existing portfolio. And if you go one step further and say on a price point basis, if our assets in those sub-markets are average 15 years old and you're delivering new construction, there's just a different price point that's...

that makes some of this non-competitive as well. And if you screen it for both location and price point, there's only about 20% of the new assets that are being delivered across Canva's portfolio that we are probably going to experience direct competition with. And when you look at it in that regard, it becomes much less daunting.

I would say that based on our first quarter results and kind of what we're looking at for the for the next for the balance of this year even in light of the increased completions that we know are coming across our platform if we were going to see a lot of impact if a lot of this stuff was truly competitive with Camden's products we'd be seeing it right now but the reality is

The next question comes from Robin Lou of Green Street. Please go ahead.

Hi, can you provide more colour on the lower property tax expectations? Is this a result of more successful appeals and how many more appeals do you expect to find online in the coming quarters?

Yeah, absolutely. So, originally we thought we were going to be up 6.5%. Now we think we're going to be up 6.2%. The primary driver of that is that we've gotten some preliminary valuations that came in a little bit lower than we expected.

Keep in mind that we contest basically everything. And so we anticipate that we will contest almost all of these valuations. We'll work through that as we go through the rest of the year. A lot of the values that we're gonna contest this year we actually won't get the benefit of until 2024.

but that certainly is our process. If you think about what we're anticipating in terms of refunds, we're actually anticipating a pretty significant amount of refunds in 2023. Most of those, once again, are driven by 2022 actions. So that's where we are. Our tax refunds in 2023 are estimated to be $4.8 million. That's up $600,000 on a year-over-year basis.

So really the main ticket that's out there and that we have to wait for is rates and we'll get most of our rates in really starting in August of this year running through October .

The main ticket that's out there and that we have to wait for is rates, and we'll get most of our rates in really starting in August of this year and running through October . Great call out, thank you.

The next question comes from Austin Werschmit of KeyBank Capital Markets. Please go ahead.

Hey good morning. I'm just curious so turnover and increase in the first quarter but you've talked about how move outs to purchase a home are down pretty significantly which makes some sense given I'm just curious kind of where you think residents are going you know do you think people are trading down in price due to several years of outsized rent increases is it you know in the single-family rentals or you know people potentially bundling up just just kind of curious what your take is.

on the move out piece. So I'll address the first item, which is exactly right, is move outs to purchase homes have come down pretty significantly, but we have doubled our early move outs that are related with nonpaying residents. So that's sort of the trade off on that side. And then when we look at,

or the reasons for move out, we really haven't seen, other than those two, we haven't seen any changes. The number one reason why people typically move out is a relocation and it's usually associated with where they're finding jobs. So it's moving within the market and moving outside of the market. Yeah, it's skips and evictions. I mean, that's the bottom line, is that we had almost double skips and evictions in the first quarter of this year that we had in the last couple of years.

in the first quarter so that you know the 10% is that's a And we're we got to get that we're near an all-time low for move outs to purchase homes in our portfolio My guess is is that probably trends back up and in the second quarter There's a little bit of seasonality of that number. But yeah, the fact that we're flat year over year over year on On turnover is almost exclusively an increase in skips and infections

Just a clarification, you mentioned you're sending out renewals for May and June in the mid 6% range. The renewals you signed in April were closer to that high 5% range. Just curious if that's the difference between the take rate versus asking or did something give you the confidence to bump up renewals again.

a little bit higher as you get into the peak leasing season? No, you're correct. That's the difference between the take rate and the asking. There's always some flexibility around the renewal process. If a community is off their target, then the way that we can...

you know, make sure that we're maintaining our occupancy target is to make sure that we don't, we keep the back door closed, so that's the difference. Understood. Thank you.

The next question is a follow-up from Alexander Goldfarb of Piper Sandler. Please go ahead.

Hey, thank you. Just circling back on the insurance, a two-parter. Alex, you mentioned 20% increase in your expectation for premiums, but you also mentioned 35% overall. So I'm guessing the latter includes your claims in addition to the premiums. The second part is Rick and Keith.

Do you anticipate that potentially competitors like in a Florida or Texas would be unable to get insurance and therefore those properties would sort of have to close and that would Put you know more demand on your properties of just sort of curious what happens with You know properties that can't fill their insurance book

this year just given everything that's going on in Florida and Texas. Yes, so Alex you're right on the first part. So that's exactly what it is. So we've got our premium is higher than we anticipated and we're actually going to bind that on Monday. But the addition to that is just a little bit different.

ensure you know a very large portfolio our insurance cost is going to be lower than a standalone insurance policy that somebody can get Florida so I don't think it's I don't think you're gonna see properties closed down but what I do think you're gonna see is that that will put more pressure on people to sell and and the pricing

will be reflective of, you know, what the cost is from an insurance perspective. Yeah, and we are hearing of further new developments in Florida that are not able to start in part because of very large insurance increases. So obviously that's net positive for us. Thank you.

The next question is a follow-up from Eric Wolf of Citi. Please go ahead. Thanks. Just wanted to follow up on your comment around expecting a 60% reduction starts. Obviously, it's a bold prediction. I think you said...

that you expect to start seeing it in the second quarter, which is now. So I'm assuming, maybe you could just help us sort of understand why we haven't seen a bigger drop-off so far, and what's going to sort of happen over the next sort of three to six months in the data to sort of result in that large drop that you're expecting.

Sure. So first of all, the starts that are happening today are starts that are legacy starts or maybe in the first quarter when legacy starts meaning that the deals were teed up. They were fully funded with equity. They had a bank loan and they're looking at the same thing we're looking at. If you deliver in 26.

It probably is going to be a really, really constructive market given the current environment. I think the difference between the first, so legacy deals are already funded. What's happening today, however, which is being exasperated by the banking crisis is that banks are pulling loans. I mean, I'll give you an anecdotal example. A developer in Florida called me and said that they had a...

fully funded deal with 35% equity or 40% equity, 60% debt and the lender pulled the debt after the Silicon Valley Bank situation and they walked their earnest money and lost significant amount of money because they couldn't bank pulled the debt. And when I talk to my friends at regional banks, I mean, they're not funding deals that they thought they would fund in the future. So I think not only has the.

I just think that developers are crafty enough to keep their legacy deals in place and that's why you haven't seen a dramatic fall off in starts but it's starting to happen especially since the banking crisis has created in essence almost another 25 or 50 basis point rate increase as a result of those banks just pulling out of the market.

altogether. Got it. Yeah. And then I guess that was going to be my follow-up is why, you know, why they're pulling debt now versus say, you know, five, six months ago, because we've just been in a very volatile capital markets environment for a while. Rates have been high for a while, moved up in North of four last year. So it's just interesting to see some pulling debt now.

your thought is really that it's a response to what happened with Silicon Valley Bank and some of the regional banking issues that more recently has created a sort of tighter lending environment and that's what's going to potentially drive some lower starts going forward.

Yeah, I think it's twofold, right? First of all, the banking crisis is in fact tightening lending. There's no question about that. And there's lots of anecdotal information out there on that. And the other part of the equation is that developers are a very optimistic group. You know, and they'll project into 2026, but they also have, you know, a math problem.

I mean you have cost of capital has gone up, you know by 30% for most people and when you when you then try to try to figure out okay I have a I have my input cost Versus what I think the cash flow is going to be and then you put you know Right higher interest rates and higher cost of capital and the equity

and the math just doesn't work. And so, until unless there's a big shift in thinking, where you start seeing major declines in starts, which you think is going to happen, you will, and then people think, okay, I'm going to go ahead and bet on 2026. The challenge is you've got to bet.

bet on you know massive rent increases to cover your your cost of capital increase and your your your your debt increases assuming that construction costs stay sort of flat and I think it's just a pretty simple math problem and and While developers will always build if they have capital right now both the equity and the debt markets are saying whoa

let's try to figure out what happens in the future and you know because you know starts or I'll emphasize this again developers build because they can and When they can't they don't and that's what's going on right now

to figure out what happens in the future. And, you know, because, you know, Starzor, I'll emphasize this again, developers build because they can. And when they can't, they don't. And that's what's going on right now. Understood. Thanks for the detail.

The next question is a follow-up from Jamie Feldman of Wells Fargo. Please go ahead. Great, thank you. So along those same lines, you made the comment before about maybe ramping up starts to deliver into a good market in 25 and 26. What's the magnitude that you would even consider and when do you have to make a go or no go?

when you look at our, I think it's our pipeline's now a billion three or a billion four that we haven't started. So we have a decent pipeline to start. We have generally been anywhere from 300 million to 500 million of annual starts. And again, the question will be, how do we feel about the market and how do we feel about construction costs and then how do the numbers work, right? And when you get down to,

those are the ultimate questions. In terms of markets, you know, you look at our portfolio and we have some really nice sites in Nashville and nice sites in the Carolinas and in Florida, and so those are all really, you know, good viable markets. When you look at all the dynamics that go into those markets from, you know, in-migration population growth, job growth, all that are all positive in those markets. So the negative would be in Nashville, for example, is...

you know, either the top market under construction or the second top may be followed by Austin. And so, you know, that's those are the dynamics that we'll look at and if we don't think that the numbers work we won't we won't build build a project. You know, we'll just wait and see what happens. Okay, but I guess in terms of the balance sheet, you know, how much...

How much more than your typical average annual starts do you think you could do or would be willing to do? Yeah, I mean, we've got tremendous capacity under our balance sheet. And it ultimately all comes down to if you think about acquisitions, we could basically put about a billion dollars on our balance sheet and still...

and still keep our rates where they are. If you look at developments, obviously they don't contribute EBITDA at the beginning, but our rate agencies would understand that they will over time. So I think you could have, if you really wanted to, you could have sort of a swell of starts with corresponding increase in leverage that could then come back down. So we've got plenty of capacity. Okay, alright great. Thanks so much for the call.

our rates where they are. If you look at developments obviously they don't contribute EBITDA at the beginning but our rate agencies would understand that they will over time and so I think you could have if you really wanted to you could have sort of a swell of starts with you know corresponding increase in leverage that could then come back down. So we've got plenty of capacity. Okay all right great thanks so much for the color.

This concludes our question and answer session. I would like to turn the conference back over to Rick Campo for any closing remarks.

Great, well we appreciate you being on the call today and look forward to seeing you either in the next month or in May, June . So thank you very much. Take care.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.