Q3 2024 Camden Property Trust Earnings Call
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Speaker Change: And welcome to Camden Property Trust third quarter 2024 earnings Conference call I Am Kim Callahan Senior Vice President of Investor Relations. Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman, and Alex Jessop, President and Chief Financial Officer.
Sure.
Speaker Change: Today's event is being webcast through the investors section of our website at Camden living Dot com and a replay will be available shortly after the call ends and please note. This event is being recorded.
Speaker Change: 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.
Speaker Change: <unk> are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: Further information about these risks can be found in our filings with the SEC and we encourage you to review them.
Speaker Change: 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 Change: As a reminder, camden's complete third quarter 2024 earnings release is available in the investors section of our website at Camden living Dot Com and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.
Speaker Change: We would like to respect everyones time and complete our call within one hour. So please limit. Your initial question to one then rejoin the queue. If you have a follow up question or additional items to discuss if we are unable to speak with everyone. In the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes at.
Speaker Change: This time I'll turn the call over to Ric Campo.
Thanks, Kim the same broad hold music today is coming together and getting along with our national elections, just four days away what looks like an even split among voters a message of unity seems appropriate.
To all of our Camden Associates, if you haven't already done. So please use the time off Camden allows for you to get out and vote and whether your preferred candidate wins or loses on Tuesday.
Speaker Change: Please remember Tim Mcgraw his advice.
When the dreams, you've been dreaming come to you when the work you put in is realized let yourself feel the pride, but always stay humble and kind.
We had a good third quarter with earnings ahead of expectations and the rest of the year is playing out as we had anticipated apartment absorption in our markets has been the best in 20 years. Excluding 2021 strong multifamily demand continues to be driven by strong job growth Camden markets are growing faster than the U S.
Speaker Change: In migration to Camden markets, and fewer consumers choosing homeownership and are renting.
Speaker Change: Well manage departments from Camden apartment rents continue to be more affordable than buying a home high prices for homes mortgage rates property taxes and insurance continue to support rental demand and this is not changing anytime soon a recent wall Street Journal article on October 27th titles. This year.
Speaker Change: Housing turnaround ended before it started reports that 2024 sales of existing homes is on track to be the worst year for housing since $19 95.
Speaker Change: New apartment supply is a all time high 50 year peak as we all know and.
And while absorption has been great showing these apartments is limited meaningful rent growth in most of our markets.
Speaker Change: The trailing 12 months starts are off 35% with monthly starts off 49% from the highs. This backdrop should put new multifamily starts in the mid 200000 range next year.
Speaker Change: Advisors project.
Speaker Change: Rents bottoming out in 2024 and through the first half of 'twenty five and then starting to accelerate through 'twenty six 'twenty seven.
Speaker Change: We look forward to sharing additional details on our strategic plan and future market concentration goals, along with our 2025 guidance. When we report fourth quarter and full results next year I don't want to give a big shout out to our Camden teams. Thank you for a great quarter and knowing that they are ready.
Speaker Change: <unk> for a strong finish to the year and thank you for improving the lives of our teammates our residents and our shareholders. One experience at a time Keith Oden is up next.
Keith Oden: Thanks, Rick our third quarter same property results had revenues in line with expectations with slightly lower than anticipated operating expenses, our top markets for same property revenue growth. This quarter were the same as last quarter and included Southern California, Washington D C Metro Southeast Florida.
Keith Oden: Denver, and Houston, all with revenue growth above the portfolio average of six tenths of a percent and ranging from up 1% to up 5% for the quarter.
Keith Oden: Rental rates for the third quarter showed signed new leases down two 8% renewals up three 6% for a blended rate of up 110th of a percent.
Keith Oden: With an average occupancy of 95, 5%.
Keith Oden: Preliminary results for October reflect moderation in both new lease and renewal pricing and an overall occupancy levels.
Keith Oden: Renewal offers for November and December were sent out with an average increase of three 5%.
Keith Oden: Resident retention remains high and turnover remains low with less than 10% of our third quarter move outs attributed to home purchases.
Net turnover for the third quarter of 2024 was 46% compared to 51% in the third quarter a 23.
Keith Oden: Year to date net turnover was 41% compared to 44% in 2023.
Speaker Change: I would also like to encourage all of our team Camden to do three things number one get out there and vote number to finish the year strong and number three always stay humble and CAD.
Speaker Change: I'll now turn the call over to Alex just at Camden's, President and Chief Financial Officer.
Alex: Thanks, Qi recently, the southeast United States experienced two hurricanes Helene and Milton.
Alex: And although our thoughts and prayers are with those affected we are very thankful that our team members and residents were safe and that we have only minor property damages reported.
Alex: We issued a press release shortly after hurricane Milton with a preliminary assessment, leading one of our analysts to ask if Camden communities are built like Fort Knox to.
Alex: To which we applied that we attribute our minimal damage to quality construction, great preparation and the healthy serving of luck.
Alex: Quality construction really does matter and we built over 60% of our southeast portfolio.
Alex: And great preparation matters, including making sure trees are appropriately trimmed drains are clear pools are drained and routes are strong.
Alex: Solid vendor and supplier relationships to ensure mitigation is pre positioned and great communication with our residents and staff to ensure the communities are storm ready.
So thank you Camden team members for doing such an amazing job to enable us to fare so well through the storms, allowing us to continue to provide quality housing in the incredibly high demand high growth southeast markets.
Alex: Moving on to our development activities in the second half of 2024, we commenced construction on approximately $320 million worth of new development.
Alex: We anticipate starting an additional $375 million of new developments in the early part of 2025, and we plan on starting our remaining owned land parcel, which is a $300 million development in either late 2025 or early 2026.
Alex: And finally, we have additional land parcels under contract, which may lead to future start in either 2025 or 2026.
Alex: Turning to our financial results for.
Alex: For the third quarter, we reported core <unk> of $1 71 per share <unk> <unk> ahead of the midpoint of our prior quarterly guidance.
Alex: This outperformance was driven in large part by $1.05 per share and lower than anticipated operating expenses, resulting primarily from continued lower core insurance claims. Additionally, during the third quarter. We had one five cents per share of favorability, resulting primarily from higher fee income.
Alex: Lower interest expense and lower income tax expense.
Alex: These favorable line items were driven by the combination of cost savings and additional fee income from our third party construction business.
Alex: Higher interest income from our cash balances.
Alex: Lower line of credit interest expense and lower franchise taxes, and Tennessee, resulting from recently enacted legislative changes to the applicable calculation.
Alex: Property revenues for the quarter were in line with our expectations.
Alex: Last night, we maintained the midpoint of our full year same store NOI guidance at 75%, but narrowed the ranges and slightly adjusted the components.
Alex: We now anticipate full year same store revenue growth will be within the range of one 1% to one 5% with a midpoint of one 3%.
Alex: And full year same store expense growth will be within the range of two 1% to two 5% with a midpoint of two 3%.
Our 20 basis point reduction in full year revenue guidance nearly by slightly lower blended lease trade out in line with typical seasonality.
Alex: We are assuming fourth quarter occupancy will be in the range of 95, 2% to 95, 4% blended lease outs will be slightly negative and bad debt will be within the range of 75 to 85 basis points in line with the full year.
Alex: Our 55 basis point reduction in full year expense guidance is driven primarily by the assumption of continued lower than anticipated insurance and property taxes.
Alex: We are increasing the midpoint of our full year core <unk> from $6 79 to.
Alex: To $6 81.
Alex: Which result entirely from the non property component of our third quarter outperformance.
Alex: We also provided earnings guidance for the fourth quarter of 2024, we expect core <unk> per share for the fourth quarter to be within the range of $1 68 to $1 72, representing a one cent per share sequential decline at the midpoint, primarily resulting from an approximate <unk> <unk> and higher property NOI.
Alex: Resulting from $2.05 and decreased revenue driven primarily by the typical seasonality of occupancy offset entirely by three and a half Simpson lower property expenses, resulting from typical seasonal decline.
Alex: This <unk> <unk> per share increase in sequential property NOI is entirely offset by a combined one five cent per share decrease in interest and other income as we are no longer in a net cash position and fee and asset management income due to the timing of our third party construction activity.
Alex: And an approximate half cent per share increase in net interest expense driven by an approximate <unk> <unk> per share impact of no longer capitalizing interest on development sites that we have decided to not move forward with at the present time offset by half a cent and lower interest rates on our floating rate debt.
Alex: As of today, approximately 80% of our debt is fixed rate, we have less than $200 million outstanding on our $1 $2 billion credit facility only $65 million of maturities over the next 24 months and less than $270 million left to fund under our existing development pipeline.
Alex: Our balance sheet remains incredibly strong with net debt to EBITDA at three nine times at this time, we will open the call up to questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: I'll ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: John Your question you May Press Star then two.
Speaker Change: We will pause momentarily to assemble IRA.
Speaker Change: Today's first question comes from Eric Wolfe with Citi. Please go ahead.
Eric Wolfe: Hey, Thanks, good morning.
Speaker Change: If you think about the four pre development projects.
Eric Wolfe: <unk> paused and how much would rents have needed to be up from current levels before those projects made sense and then more generally how much you think rents need to rise relative to construction cost of development.
Speaker Change: To be more economic.
Speaker Change: Well, let me let me just start out broadly first and then I'll answer the question about.
About what reps since Dave is clearly what's happening in the development market. Today is that is that construction costs have not have not come down at rents have come down and clearly the supply that is coming into the market has had.
Speaker Change: Muting effect on rents in all markets right and so we as part of our planning process for 2025, and 2026 capital deployment. We review all of our properties and decide what we're going to what we're going to start what we're not going to start.
Speaker Change: We've operated over the years with that and maybe this is the EPA and me and Keith and.
Speaker Change: That is that we employ conservative financial policies and when we will review those projects. The four projects that we wrote down.
Speaker Change: It was about making sure that we.
Speaker Change: Focused on proper capital allocation. These properties today do not meet our investment criteria and then more than that.
Speaker Change: When you think about or proper.
Speaker Change: Property specifically.
Speaker Change: It's sort of three categories, one is California.
Speaker Change: Reducing our exposure in California.
Speaker Change: California issues that we all talk about.
Speaker Change: The second issue would be Houston, and Houston, we talked for a long time about wanting to lower our exposure in Houston also wanting to have less urban and more suburban exposure in Houston and the two projects in Houston.
Speaker Change: Our both urban projects.
Speaker Change: And we would much rather deploy capital in the suburbs rather in the urban core and then the Atlanta project.
Speaker Change: We have two projects that we did we bought this land in the financial crisis.
Speaker Change: And the interesting thing is the land that we're holding on our books today.
Speaker Change: When you look at the total purchase price of the land.
Speaker Change: In the Atlanta as.
Speaker Change: As with substantially less what we have discipline around our balance sheet, which is pretty amazing and Atlanta, we just have a concentration issue in buckhead, we have 700 plus units.
Speaker Change: Were really high end units with the two high rises or three high rises in a mid rise.
Speaker Change: The construction built so we just have one more exposure in buckhead like that and the highest and best use could be condo or hotel or something which would actually benefit that neighborhood, including our properties as well. So it's really about capital allocation.
Speaker Change: And we are disciplined in our capital.
Speaker Change: Location, we think 2026, 5% to 26 is going to be a really interesting year couple of years, you have $650 billion worth of multifamily debt coming due.
Richard builders, who have who have.
Speaker Change: Who have prefs that are eating into their profit.
Speaker Change: Banks, who want.
Speaker Change: They are loans pay down and so there'll be I think a very robust transaction market between over the next couple of years.
Speaker Change: Take advantage of that to increase our market balanced ballots.
Speaker Change: Try to move the portfolio from a more from it would be less urban or more suburban.
Speaker Change: And we just think that capital allocation makes sense, rather than starting development today.
Speaker Change: You could raise rents maybe.
Speaker Change: When you look at long term growth, we do underwriting if we look at it seven year on trended IRR.
Speaker Change: And most of the time, we use anywhere from.
Speaker Change: 335% compounded growth rates and are ready to make those numbers.
Speaker Change: Want to have to have to take that number up much more than than the long term average rent growth.
These four development work in today's market you probably have to have 100 basis points growth of growth wide of that and I guess, if you look at the.
Speaker Change: Our weighted average so call it four and a half maybe plus or minus.
Speaker Change: When you look at it.
Speaker Change: The projections out there I mean witness associates has markets like most of our markets growing at 4% to 6%.
Speaker Change: 2006, 2007, so theoretically if you had to build you could.
Speaker Change: Do a pro forma that showed outsized rent growth in the second third fourth fifth years that could get those iris work.
Challenge that we have is we just don't want to push the edge.
Speaker Change: Edge of the envelope that hard today, we don't have to build.
Speaker Change: We would rather deploy that capital in markets they want to grow in and.
Speaker Change: Existing properties at below replacement costs that don't have the lease up risk that doesn't mean, we're not going to be in the development business. Alex mentioned, we're going to start.
Speaker Change: Two properties in.
Speaker Change: <unk> 2025, and we still have additional development pipeline coming and I'll just put this big caveat on this.
Speaker Change: If you look at the last write down that we did we did we did a write down of multiple properties.
Speaker Change: Right after the financial crisis.
Speaker Change: Yes, nothing underwrote right after the financial crisis right.
Speaker Change: So interestingly enough, we never sold one of those land parcels and we developed all of them and today. If you take the written down value for land at the time plus the land.
The value we had on the books those properties are all probably 50% to 70% lower today than the cost plus the write offs that we did before it so at the end of the day.
Speaker Change: It's really just about capital allocation allocation in and we want to allocate capital to some of our smaller markets.
Speaker Change: <unk> net operating income from there.
Speaker Change: Thank you.
Speaker Change: Next question is from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey.
Alexander Goldfarb: Good morning down there.
Speaker Change: Rick maybe just keeping with that merchant developer theme.
Alexander Goldfarb: For the past number of years and the industry overall has been waiting to capitalize on developers that have to sell.
Alexander Goldfarb: Financial clock is ticking they need to pay back et cetera, and yet all these developers seem to get lifelines. The banks don't pressure them the rents come back or something happened. So do you have confidence or like what gives you confidence that.
Speaker Change: In the next few years Youll see more opportunity from these sort of forced sales ori or are your comments more just in general that hey, It's one area that we think that's going to provide opportunity rather than we think theres a huge opportunity from these merchant guys.
Speaker Change: Yes, I don't know I think the huge opportunities just said, it's going to be more transaction volume I don't think youre going to find.
Speaker Change: Distressed transactions I mean, you could find distressed transactions at the properties that we don't want I mean, a lot of indicators that that bought really really substandard properties. Our C&D properties are definitely having serious trouble as you can go by that the discount, but I wouldn't want to take you on a tour of those <unk>.
Speaker Change: We wouldn't want mature as well and so the merchant builder model when you think about it.
Speaker Change: Merchant builder right you build lease up yourself you build you lease up your selling it as a cycle and that's their profit motivation is to is to build and lease up himself and so in order to to reload their pipeline in the future and we know that with with development starts going below 200.
Speaker Change: That.
I think the reason multifamily.
<unk>.
Speaker Change: Desirable date on the private side of the Ledger is because people can look at 2020, maybe end of 'twenty five 'twenty six 'twenty seven and see above average rent growth and so they are willing to buy today. So the merchant builders aren't don't have a gun at their head to sell but when you. When you have an 8% prep eating into your profit.
Speaker Change: And every month.
Speaker Change: And you haven't sold and paid those investors back plus their prep the developer profit goes down so the developers or incentives to maximize.
Their profits and they can't do that.
Speaker Change: Banks on the other and if you look at 2023 and 2024, there was a lot of multifamily debt that came due.
Speaker Change: Banks kicked the can down the road. Thanks, let people if you had a maturing loan.
Speaker Change: A new loan and moved it into the future under the theory that the fed's going to cut rates and rates will come down and therefore, you won't have to put as much equity in the project. So.
Speaker Change: The $650 billion worth of debt, that's coming due a lot of that is from 23, and 24, where lenders move move.
Speaker Change: The maturities into 'twenty, five 'twenty six and so the.
Speaker Change: The market is just a natural market that needs to move now on the acquisition side.
People have been holding tons of dry power equipment holding their powder waiting for the signs right that the 50.
<unk> 50 year supply is going to start.
Speaker Change: Going down and there will be an inflection point where reps.
Speaker Change: Have a positive second derivative and start rising again and I.
Speaker Change: I guess in the first if you look at sales and multifamily assets in our markets. They are pretty much. The same at the same level. They were in 2022 Theres still below 2021, but.
Speaker Change: Market is starting to thaw and people are starting to come into the market. So I think theres a reason you're going to have youll have a.
Speaker Change: Real distressed scenario is there's just a massive wall of capital that needs to get deployed and it's going to deploying to multifamily.
Speaker Change: Thank you. Our next question comes from Austin, where Schmidt with Keybanc capital markets. Please go ahead.
Speaker Change: Hey, good morning, everybody.
Hasn't really come up for a while about Houston, So just kind of revisiting the comment about reducing exposure to this market I think surround 13% of NOI today, I guess, how much of a decrease makes sense to you today when you kind of revisit strategically.
Taking a look at the portfolio and could dispositions from this market be a source of funds to redeploy into some of the investment opportunities you just spoke about to the earlier questions.
Speaker Change: Absolutely we've talked about wanting to export lower exposure in DC, and Houston and Houston right now in DC or actually two of the best market and which is kind of good for four for us on the other hand, we have been painted with Houston when oil prices fall.
Speaker Change: People think they can.
Speaker Change: <unk> either by herself Camden based on Texas, and oil prices and that's been a challenge over the years and so.
Speaker Change: Clearly.
Speaker Change: We can grow in other markets and we have a very low levered balance sheet. So we don't necessarily have to sell a lot to grow.
Speaker Change: To lower the exposure, but we've continued to look to trim our portfolio in Houston over a period of time and we will continue to do that we will sell assets that are growing slower than the rest of the portfolio and I think when you think about market balance anywhere from six to eight 9%.
Speaker Change: Assets in certain market is probably the right place to be one of the things. We also do is wait.
Speaker Change: The weighting of.
Speaker Change: Where we want our markets our balance to be based on population inventory in that market. Because you don't want to be too over exposed to that market you can be given that it's an 800000 unit.
Speaker Change: Market and the fourth largest city in the country you can have a little bit over exposure relative to say, maybe a tampa, which is much smaller.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is from Brad Heffern with RBC capital markets. Please go ahead.
Brad Heffern: Yeah. Thanks, Good morning, everybody you maintain leasing spreads higher through September then your sunbelt peers, but then it seems like there was a significant falloff for the October both the effect of leases in the signed leases was there a strategy change there moving towards occupancy was that more of an impact from supplier what would you attribute that to.
Speaker Change: Yes, what you saw in the third quarter was absolutely a drive more towards occupancy and youre seeing that impact rollover into the fourth quarter.
Speaker Change: So thats exactly what it is.
Speaker Change: Thank you. The next question comes from Steve <unk> with Evercore ISI. Please go ahead.
Steve: Yes. Thanks, Good morning, I guess I wanted to go back on the development a couple of things I noticed that the projects that are currently in lease up.
Speaker Change: Didn't seem to have a huge movement in percent leased from kind of the mid July to mid October. So I was just wondering if you could comment on that.
Speaker Change: And then for the projects that it looks like Youre going to start in the near future. The cost went up quite a bit I realize the the Nashville project got more units, but I think the cost went up considerably versus the number of units. So can you maybe just talk about the cost creep and whether those yields are really still hit your return thresholds.
Speaker Change: Yeah, absolutely. So we'll talk about leasing first so we've got the three developments that we have in lease up.
Speaker Change: If you look at the two that are single family rental communities.
Speaker Change: And all along those generally lease up lower than a typical multifamily and somewhere in the range of call. It 10 to 15 units a month, whereas with a typical multi we'd see somewhere between 20% to 30 units a month.
Speaker Change: If you look at if you look at our at our Durham development that was actually leasing up 25 units a month. So that one is doing is doing in line with what with what we would expect if not even a little bit better so.
Speaker Change: So we feel we feel good with all of the leasing trends and as I said, they're really pretty much in line with what we had expected.
Speaker Change: When you think about the overall construction cost of our pipeline as Rick them very beginning we did we did a full analysis of all of our developments as we do on a periodic basis.
Speaker Change: Got the most up to date pricing that we've seen and that is what's represented on the development pipeline page I will tell you that at this point in time, we think that all of these yields work and Thats why we said that we anticipate starting.
Speaker Change: One of the national deals in the Denver deal in the first part of 'twenty, five and while we anticipate starting the remaining Nashville deal in either late 'twenty five early 26. So we think all of those returns still work for us.
Speaker Change: Thanks, Paul.
Speaker Change: Next question comes from Rich Anderson with Wedbush. Please go ahead.
Rich Anderson: Hey, Thanks, Good morning, So a question on cap rates and Rick you mentioned the opportunity set with.
Rich Anderson: Debt coming due in merchant developer developers being stretched.
Rich Anderson: In a few years.
Rich Anderson: If there's a sort of a lack of transaction activity, but when we do see something that is a five or lower perhaps.
Rich Anderson:
Rich Anderson: Is that just a function of the moment something does hit.
Rich Anderson: There is there is a wave of capital and I use. The example of senior housing, which the opportunity set in front of it right now is very positive, yes cap rates are 758%.
Rich Anderson: The opportunity set in front of multifamily and at least in your markets may get positive soon but for the time being is a bit.
Rich Anderson: A little bit of a question and cap rates are still in the fives. It's just is it just there's just so many people that want so few deals. If that's kind of question number one and then corollary to that is do cap rates need to adjust for you to be active on that opportunity set I described earlier or.
Rich Anderson: Are you willing to sort of take a little bit of a hit upfront to get a deal that will make sense for you two or three years later thanks.
Speaker Change: Sure. So I think you're I think that multifamily has has come to the forefront again of investor investment.
Rich Anderson: Choice for institutional investors.
Rich Anderson: Beginning of the year there are a lot of.
Rich Anderson: Sure.
Are there areas of what properties do you want to invest in multifamily was down on the list at the beginning of the year and people want at retail and you want an industrial more multifamily now if you take the third quarter, our numbers whether it be from.
Rich Anderson: Axiom metrics a lot of different groups that look at that.
Rich Anderson: Bester preference multifamily is now number one in terms of commercial real estate, if people want to buy multi.
Rich Anderson: Multifamily industrial retail and office is a distant.
Rich Anderson: Sure.
Rich Anderson: And what's happened is is that we've gotten closer to what people think is going to be an inflection point in the supply and demand equation.
Rich Anderson: And when you think about about we're at a 50 year high in terms of deliveries and yet when you look at our markets only two of our markets on a year to date basis have negative rent growth in that Austin, and Nashville, and a reason Austin and Nashville are definitely the two most overbuilt cities in America and <unk>.
Rich Anderson: The supply of all the rest of the markets and all the rest of our markets are either flat or up.
Rich Anderson: Even in spite of massive supply relative to historical norms right and so I think what's happened is investors are now.
Rich Anderson: Private investors are.
Rich Anderson: Pivoting towards multifamily and Youre exactly right.
Rich Anderson: The developers out there, who who still have.
Rich Anderson: They don't have a gun at there had to sell and so they believe also that that as the supply picture continues to improve and continue and when you get that first sort of positive second derivative on revenues, if theres going to be a flood of buyers in the market and the thing is really into.
Rich Anderson: St Jude's or less 60 days cap rates were in the fives and they went into the floor as the last few deals that we've looked at you had multiple buyers and the cap rates are mid fours today.
Five or five and a half and the reason for that is there is more buyers and sellers and ultimately the only way that you make a 7% unlevered IRR, which is that people are trying to get I think generally as.
You have to have outsized growth two three years four years out which most people are pretty comfortable in an underwriting now the last 30 days has been a different animal right. You've had you've got the 10 year go up 50 basis points or more in the last 30 days and that's kind of changed that changes the calculus a little.
And so the question will be will be.
Rich Anderson: In order to get your because youre back to negative leverage when you start with 10 year. The way. It is today. So the question will be will the 10 year Treasury.
Rich Anderson: Treasury stabilize and then how will people underwriting will that drive cap rates back to five.
Rich Anderson: From our perspective is as long as we can buy below replacement cost in that four five to five zone and we believe that the.
Rich Anderson: That we can improve operations, we believe that we can.
We can catch that.
Above average long term rental rate growth in 'twenty six 'twenty 728 will transaction in that environment, and we will also sell properties to fund it.
And continue to teaser about try to rebalance our portfolio, where we want it and we will spend a lot of time on that in the first quarter call will be as right now lay out kind of where we want our markets to be but we havent done that yet exactly so we'll give that that's yellow in the first quarter.
Speaker Change: Thank you. The next question comes from Handel St Juste with Mizuho. Please go ahead.
Speaker Change: Mr. Thank this is your line muted.
Speaker Change: Yes.
Speaker Change: Maybe come back to him.
Thanks.
The next question comes from Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman: Great. Thanks for taking my question, so maybe one for Alex as.
As you think about I think you and several of your peers. The course of this year has been reducing your topline outlook, but getting nice cost savings to keep your NOI outlook.
Jamie Feldman: So I guess two questions here number one can you talk about where you probably where most conservative to start the year and where you got the benefit throughout the year.
Then secondly, as we think about 2025.
Jamie Feldman: Do you think theres still enough juice in expense savings to have a similar outcome. Given there is so much uncertainty along around topline revenue.
Jamie Feldman: Where you could start the year on a conservative basis and get some upside.
Yes, so clearly where we were the most conservative although I didn't think we were at the time was ensuring some taxes those have been the two.
Jamie Feldman: Really bright spot for us.
Jamie Feldman: Taxes for us for the full year 'twenty four going to be basically flat and keep in mind that taxes make up about 36% of our total expenses.
Jamie Feldman: And when we started the year I thought they were going to be up 3%. So obviously that was an.
And incredibly a pleasant surprise and then on the insurance side.
Jamie Feldman: Keep in mind insurance last year was up something like 40% and this year, it's going to be down something like 10%.
Jamie Feldman: You really have a couple of factors that drove that number one we had a flat renewal, which was which was fantastic. But then number two is we were very very proactive in addressing.
So the root causes of some of our insurance claims and making sure that we were putting the appropriate R&M and capex in to make sure that we can minimize those risks on a go forward basis, and we're absolutely getting the getting the sort of the.
Jamie Feldman: Positive results from from those those actions.
Jamie Feldman: Our insurance numbers today, if you're looking at 2025.
Jamie Feldman: It's a little early we are still in our budgeting process.
Jamie Feldman: What I would tell you is.
Jamie Feldman: Getting another year of property taxes flat, probably unlikely over a long period of time property taxes are generally up about 3% now. The good news is is that if you go back and you look at real values today, and you compare them to two to three years ago. There is no doubt the real values are down and so hopefully we still have.
Jamie Feldman: A little more juice that we can squeeze out of that and we will fight as best we can against the taxing authority and then when it comes to insurance our policy renews.
Jamie Feldman: Beginning of May and so we'll have to see what the rest of the rest of this year and the early part of next year does in terms of global insurance claims because this is a global market and if we have light claims than we may have another another productive year on the insurance side when I think about the rest of our expenses the rest of our expenses.
Jamie Feldman: It's a 3% business and I think that's what you'd expect to see.
Speaker Change: Thank you. The next question comes from Handel St Juste with Mizuho. Please go ahead.
Speaker Change: [laughter].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Well. The next question comes from John Kim with BMO capital markets. Please go ahead.
I'm afraid to talk.
Speaker Change: Maybe it's the Halloween hangover.
Speaker Change: Yes.
Speaker Change: Very scary.
John Kim: I wanted to follow up on Austin's question on Houston.
John Kim: If you look on on your presentation page six the migration trends for Houston, It seems like it's going to accelerate quite a bit over the next couple of years I'm wondering what's driving that.
John Kim: And also I mean, we do have a chance that we'll have another Trump presidency. He has been very supportive of the oil and gas industry can you remind us.
John Kim: If that's a positive for the Houston economy, and if either of those.
John Kim: Those items coming to fruition.
John Kim: Acceleration of migration or troubling.
John Kim: Evidently will that impact your decision to reduce your exposure to the market.
Speaker Change: Yes so.
Speaker Change: Houston is continues to be very much impacted by what goes on in the oil and gas industry.
Speaker Change: Higher oil prices historically has been great for Houston, and lower oil prices have not been great.
Speaker Change: So.
Speaker Change: Anything that is good for the oil and gas business ends up being good for Houston and ends up being good for Houston real estate, so without without prognosticating on outcomes of elections, our strategy to lower our exposure in Houston three dated Trump's first election, so it's been out there.
Speaker Change: For a long time.
Speaker Change: We've made some progress obviously, we had a fairly sizable acquisition.
Speaker Change: <unk> increased our.
Speaker Change: Closure of Houston, but we're still committed to getting it.
Speaker Change: More in line with our other markets.
Speaker Change: For a long time, when we had we were in.
Speaker Change: At the end markets, we talked about having a market balance that would be low double digits in any single market and I think youll see.
Speaker Change: That's the direction that we're headed markets that we have that are double digit concentration, it's Houston, and Washington, Washington D. C Metro and will be those obviously will be part of the rebalancing effort that we do.
Speaker Change: The next question is from Michael Goldsmith with UBS. Please go ahead.
Hi, this is <unk>.
Speaker Change: Michael.
Speaker Change: Just curious was there anything that pulls on the demand side that led to blended spreads in the third quarter and fourth quarter clean really well below your prior expectations in the mid 1% range and how should we be thinking about the supply demand balances they have under 25.
Speaker Change: Yes, I don't know if theres anything significantly different.
Speaker Change: Certainly we made a decision and we talked about it last quarter. The third quarter, we made a decision to push occupancy.
Speaker Change: At the expensive rate.
Speaker Change: As we've said several times, we don't really tell our teams.
Speaker Change: This is the rates you must get or this was the occupancy months, yet we're really trying to maximize revenue and so we feel really good about what we did in terms of maximizing revenue in the third quarter, which is why our third quarter revenue results were inline with expectations. When you look at what we're going to see in the fourth quarter clearly when you do push occupancy.
Speaker Change: The rates are going to come down a little bit and thats, what youre seeing rolling through the fourth quarter numbers, but keep in mind.
Speaker Change: We started the year thinking that at the midpoint that revenue was going to be up one 5% and we're within 20 basis points of our of our initial guidance.
Speaker Change: Record levels of supply that we feel very good about about the way that we've worked through this year.
Speaker Change: And Amy to your question on 2025, if you look at witness numbers.
For employment growth.
Speaker Change: <unk> Camden's markets in 2024, he's got us at about 460000 Im not sure what he model for.
Speaker Change: The most recent report, but it probably wasn't 10 grand but in any case.
Speaker Change: <unk> got that number at about 440000 in job growth across camden's markets in 2025.
Speaker Change: On the supply side 25 is going to look a lot like 'twenty four for a whole host of <unk>.
Speaker Change: In terms of new new delivery so.
Speaker Change: Supply demand dynamics in 2025, we're going to look fairly similar to what they've been in 2024.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is from Handelsbanken joked with Mizuho. Please go ahead.
Speaker Change: Hey, guys, sorry about that.
Speaker Change: Difficulties.
Speaker Change: Hey, So I wanted to ask I know, you're not giving guidance at this point, but was hoping you could perhaps get.
Speaker Change: Some color on some of the building blocks like the estimated earn in for next year like some of your peers have provided and maybe some thoughts on where you think you can get bad debt to overall by the end of next year and maybe some thoughts on Atlanta and L. A specifically thanks.
Speaker Change: Yeah, absolutely. So if our plan works out for the next two months of the year our earn in for 2025 should be call it flat to slightly positive.
Speaker Change: If you think about bad debt.
Speaker Change: I think it's very reasonable to anticipate that bad debt is going to be back down to about 50 basis points by the end of 2025, if you think about our portfolio.
Speaker Change: In the whole once you strip out Atlanta, and you strip out California.
Speaker Change: Pretty much where we are we're pretty much back to that 50 basis points and the good news is is that we can work through and we are working through Atlanta and.
Speaker Change: La La County in particular, because that's where most of the issues in California are we've completely shut the shutdown the front door. So we know that we're not getting any.
Speaker Change: The bad actors in.
Speaker Change: Currently and so we've got some folks that came in from fraud in the past, we're working them through the system and we feel pretty good that we're going to get this problem solved by the end of 2025.
Speaker Change: If you want to take Atlanta and L. A.
Speaker Change: Yes so.
So la is.
Speaker Change: You've got to kind of.
Speaker Change: Put it into the three communities that we have there in La County.
Speaker Change: And they all have their challenges.
Speaker Change: It started somewhat started back in COVID-19 and some of them continue today, but the biggest challenge that we continue to have in la is this the time component between when somebody.
First becomes delinquent and when you can get it processed or for them to move on and it's still way too long.
Speaker Change: And so we.
Speaker Change: We do and we have seen improvement and we hope to continue to see improvement both in la.
Speaker Change: In Atlanta, and Atlanta same story, it's really a processing.
Speaker Change: Issue with regard to the.
Speaker Change: How long it takes to get someone from delinquency through two are new.
New home address.
Speaker Change: Again, both of them have made progress there is room to go I think Alex that right too.
Speaker Change: 2025, we will work through that.
Speaker Change: Law.
Speaker Change: Atlanta will be able to get back to more of a normal cadence or.
Speaker Change: Processing evictions and so on.
Speaker Change: Certainly hopeful that we can make good progress and as Al mentioned most of our other markets are back to regular order with regard to processing delinquencies.
I think the issue.
Speaker Change: L. A from a revenue perspective is as L. A has a demand problem not a supply problem and when you look at just to just to put a couple of points in this Houston since February.
Speaker Change: February 2020, Houston added 268000 jobs.
L. A is down 16000 jobs from that point in time, Dallas added 460460, 7000 jobs, San Francisco has lost nearly 50000 jobs and so.
Speaker Change: Even though you have low supply in those markets and their revenues are growing a bit better than the supply market.
Speaker Change: Basically just growing because they went down so much to start with right.
Speaker Change: They had a bigger hole to climb out of and the demand is the real issue there and long term.
Speaker Change: I don't see that changing dramatically.
Yeah.
Speaker Change: The next question comes from Julian <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Alright. Thank you. Thank you for the question.
Just wanted to ask what do you expect for trajectory of new lease rates into November and December relative to the negative four 8% you saw in October.
Speaker Change: Does seem like comps year over year seemed to get a bit easier in November and December.
Speaker Change: And then on the renewal side I guess, you said you sent out offers and sort of the mid threes for November and December where do you think that actually shakes out like could it be like a 100 basis points lower any sort of guidance you can give us on that side.
Speaker Change: Yes, I think the fourth quarter is going to look.
Speaker Change: Probably pretty similar to what you see effectively for October right.
Speaker Change: If you look at October the effective new lease rates is down four 4% that feels about right effective renewal rates up three 4%. Once again, I think thats going to be right. The difference and thats going to be a slight difference is that when you get to November and December.
You start to have more renewals than new leases and so the blend changes a little bit and so if you look at what we had for October of effective blended lease rates are down 8% I think it is going to get a little bit better than that for November and December just because as I said.
Speaker Change: The weighting changes with more renewals versus leases.
Speaker Change: Yeah.
Speaker Change: Okay great.
The next question is from Michael Lewis with <unk> Securities. Please go ahead.
Michael Lewis: Great. Thank you.
Speaker Change: Rick you mentioned, keeping some land parcels that you had written down in past downturns and those eventually recovered in value.
Michael Lewis: The development viability came back the parcels that Youre, writing down now do you intend to sell those and then.
Michael Lewis: Also related to land I think Alex mentioned that you have some additional parcels under contract. So maybe where are you looking to buy land.
Michael Lewis: Okay.
If we if and development numbers don't work don't pencil.
Speaker Change: Before we sell land, we will sell land.
Michael Lewis: The.
Michael Lewis: It's not a great time to sell land today and so when you think about the transaction environment, we don't have to sell and so we don't need to sell land and so we will just hold them on our books until we think that it's the right time to sell it and then we will look at.
Michael Lewis: Analysis, again, and decide whether whether we should build it or sell it and and Thats.
There is no pressure on us to sell them.
Michael Lewis: When you think about that.
Michael Lewis: Merchant builder market today.
Michael Lewis: Starts are going to be down significantly and part of that is deals that you don't pencil and two they are stuck in deals that they already have in them and sold them yet. So they don't have the capital to be able to put in new deals. So that youre selling land today, it's probably not a great land sale market and that could create opportunities for us to buy shelf already deals.
Michael Lewis: We've definitely brought a lot of shovel ready deals over the years.
Michael Lewis: The transactions, we have under contract right now or in Tampa, and we have a large land parcel that's a suburban.
Michael Lewis: Three storey four story stick construction projects and we will continue.
Michael Lewis: To see us move more from more from urban mid rise to more suburban civil construction.
Michael Lewis: That's just a.
Michael Lewis: Direction that we have been moving and that's why the four.
Michael Lewis: Projects that we that we have identified those were all urban projects and if they were suburban walk ups, we probably wouldn't have written the downward probably started up by now.
Speaker Change: Thank you. The next question is from Adam Kramer with Morgan Stanley. Please go ahead.
Adam Kramer: Hey, thanks for the time.
Adam Kramer: Wondering obviously with the development kind of shift.
Adam Kramer: Wondering kind of where you would rank acquisitions versus development versus maybe other uses of capital. If you were to kind of rank the different capital allocation possibilities here I noticed you guys Havent bought anything in some time.
Adam Kramer: Also just kind of categorize the state of the acquisitions market and maybe early expectations for for kind of deal flow and in the coming quarter or two.
But we think theres going to be big deal flow in 2025 from an acquisition perspective for all the reasons that I've already gone through and.
Adam Kramer: It gets down to when you think about capital allocation.
Adam Kramer: All about driving cash flow growth.
Adam Kramer: When we look at our weighted average cost of capital.
Adam Kramer: We're going to invest in new transactions that will give us reason.
Adam Kramer: A reasonable spread over our weighted average cost of capital development makes sense and that's why we started.
Adam Kramer: 300, plus million this year, we'll start greater than $75 million next year, but the balance between how much development how much acquisitions, you'll do will really be just a function of.
Adam Kramer: What the market allows.
Adam Kramer: So far this year, we just didn't see.
Great amount of opportunity.
Adam Kramer: On the acquisition side, and that's where we didn't really do anything.
Adam Kramer: But you can expect us to be more active and $25 26 for sure.
Speaker Change: And I guess, one is that when you think about capital allocation.
Speaker Change: We.
Speaker Change: Stock prices get to the point, where they were when we bought 50 million shares at 97 Bucks.
Speaker Change: Today's stock prices pushing up on a fixed cap rate.
Speaker Change: It's hard for me to find us going into <unk>.
Speaker Change: That's existing today or.
Speaker Change: Or a development going into six.
Speaker Change: No.
The.
Speaker Change: Public markets don't believe the private markets that cap rates are four five when we can buy our stock at six you can expect more of that.
Speaker Change: Thank you. The next question comes from Wes Golladay with Baird. Please go ahead.
Hi, everyone I just want to go back to that comment about the construction costs increasing.
Wes Golladay: Market specific labor thing was that pretty broad based and then can you comment on how land prices versus the peak.
Wes Golladay:
Speaker Change: Uh huh.
Speaker Change: I'm sorry, the first question was.
Speaker Change: Go ahead Alex.
Speaker Change: No I was just trying to make sure I heard the first question construction costs going up, but they're really not going out and flatten out and then we went up.
Speaker Change: Looking at the Camden Baker, and the Camden <unk> the cost.
Speaker Change: The active constructive with the shadow pipeline, the Baker and the <unk> went up I didn't know if that was market specific labor that went up were just construction costs overall and then the follow up question was how is land pricing versus the peak.
Speaker Change: Okay absolutely.
Speaker Change: You look at what's in our in our pipeline.
Speaker Change: We have gone through and substantially redesigned.
Speaker Change: Those sites and we've come up with most of what Youre seeing on cost changes is really.
Speaker Change: Call it enhancement.
Speaker Change: Building, a much better product than what we originally had laid out and so that's what you're really seeing there.
Speaker Change: Land prices today, Rick I'll now if you want to hit that one.
Rick: Land prices today are lower than they were at the peak, probably 15%, 20%, maybe more but landholders or just like.
Rick: Merchant builder holders. If you don't have to sell why would you sell into a weak market and most people don't have to sell so there hasnt been a lot of a lot of.
Rick: Major land transactions get done in it.
Rick: Just wait.
Wait kind of scenarios. So it's hard to kind of put a pin in it down 15, 20, or what because there really hasn't been a lot of land transactions out there.
Speaker Change: Thank you. The next question is from Linda Tsai with Jefferies. Please go ahead.
Speaker Change: Thanks for taking my question.
Linda Tsai: Given your comments about the quality of your construction building, a better product and lock, helping you avoid the worst of some of the recent hurricane impacts. The average age of your portfolio is also lower is there any way to quantify the resiliency of your portfolio versus the surrounding multifamily buildings in the regions and whats your portfolio operates.
Speaker Change: I think it's very hard to.
Speaker Change: Quantify other than to say that clearly when we were.
Speaker Change: Milton went through and our teams were out on our sites assessing.
Speaker Change: They would report back is that our neighbors certainly looks a lot different than we do and a lot of that is as we talked about the quality of the real estate, but there's also the upkeep right.
Speaker Change: Very important that you put the money in and you make sure.
Speaker Change: The trees are appropriately trim that you do the things to make sure that youre drains are clear.
Speaker Change: We go through and we will train all of our pools to make sure that we don't have overflow from that Theres just a lot of factors that we do because quite frankly, we look after our real estate and I will tell you that.
Speaker Change: When you drive around and you look at the other look at the neighborhood, it's not always the same.
Speaker Change: I'll just go ahead can you talk about Harvey.
Speaker Change: Portfolio here, how we.
Speaker Change: Fair enough.
Speaker Change: Just to follow up on Alex's comment.
Speaker Change: Our home talent as Houston, Texas, We've had a lot of experience with Dodge and Hurricanes.
And making sure that we're prepared and then.
Speaker Change: In the aftermath of the Hurricanes, making sure that our residents are taken care of and Harvey which is the flood of record.
Speaker Change: Harris County.
Speaker Change: Probably by most People's estimations of 500 year flood, we had one building.
Speaker Change: One community that actually had.
Flood water damage and it was only two two buildings within that community and all of our and were spread all over Harris County So.
Speaker Change: First of all it starts with having you're making.
Speaker Change: Making sure that you're back to communities that are out of the floodplain and out of the floodplain by some measure.
Speaker Change: And so that when the storm does happen.
Speaker Change: The things that that we have to deal with most of the time are things that deal with the quality of the asset.
Bill and Thats windstorm damage, but it doesn't make any difference what kind of quality you Bill if you have rising water damage to your community and Theres, just no way to mitigate that and either before or during a storm event. So starts with knowing.
Speaker Change: Where to own real estate in the markets that we're in and then it runs all the way through the things that Alex talked about as bright preparation in the event that you are going to have a windstorm event.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is from David Siegel with Green Street. Please go ahead.
David Siegel: Hi, I was curious what kind of difference in performance do you see between your urban and suburban assets in Submarkets.
David Siegel: Driven by rent growth is there an element of capex differences.
I was also curious if youre, if youre thinking on the urban suburban dividers.
David Siegel: And across markets or are there any exception.
Speaker Change: Yes, I mean, what I will tell you is.
Speaker Change: Suburban continues to outperform and when we look at when we look at revenue growth our suburban assets in the aggregate are doing about 80 basis points better than our urban asset.
Speaker Change: And by the way that.
Speaker Change: That's across our entire portfolio.
Speaker Change: I think when you look at demographics, two thirds two thirds of.
Speaker Change: <unk>.
Speaker Change: Our sort of demographic target.
Speaker Change: Or more like 75% of the demographic target that mid thirties.
Speaker Change: <unk> 21 to 32 year old.
Speaker Change: Resident live in suburbs.
Speaker Change: Yeah.
Speaker Change: Plus where the customers are that's why suburbs tend to be better than urban and if you think about the development mindset over the last 10 years, everybody wanted to do urban and urban and it was driven by institutional investor appetite and and so urban markets had more supply put in them, which created more.
Speaker Change: Downward pressure on rents from the urban core versus suburban and Thats change some but because the last slug of supply there is definitely more in the suburbs and.
Speaker Change: But there's still plenty of urban so I think suburban is going to continue to outperform urban over a long period of time.
Speaker Change: Thank you today's last question comes from Alex Kim with Zelman and Associates. Please go ahead.
Hey, Thanks for taking my question I wanted to.
Alex Kim: Ask about turnover quickly, which was down 4% year over year in the third quarter.
Alex Kim: Could you talk about some of the drivers there and your expectations moving forward. Thanks.
Speaker Change #101: Yes, so one of the one of the biggest changes in the turnover rate go straight back to move outs to purchase homes.
Alex Kim: <unk>.
Alex Kim: We were in the 9% range and have been for the entire year, which is historic for us.
Alex Kim: It normally averaged somewhere between 15% to 20% move outs to home purchases, depending on where you are in the cycle. So a 9% rate over an extended period of time makes a huge difference.
That's 5% to 8% differential in and residents that are.
Alex Kim: Historically would have purchased a home who are not doing so because of the conditions in the housing market is a difference maker. So.
We've seen.
Alex Kim: Results on retention.
Alex Kim: That's been really for the last couple of years and we certainly expect that that will continue into 2025, because as Rick said Theres really no short term solution or.
Alex Kim: Change that's coming in the single family home market, that's going to change that dynamic.
Yeah.
Speaker Change #102: Thank you. This concludes our question and answer session.
I would like to turn the call back over to Ric Campo for any closing remarks.
Ric Campo: Well. Thank you I appreciate your.
Ric Campo: On the call today, and we will see you in NAREIT in Las Vegas.
Ric Campo: Here in a couple of weeks thanks.
Ric Campo: Take care.
Speaker Change #104: The conference has now concluded. Thank you for your participation you may now disconnect your lines.