Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Camden Property Trust was recognized as one of the Fortune Magazine's 100 Best Companies to Work For, marking 17 consecutive years on this prestigious list, indicating strong internal company culture and employee satisfaction.
- Apartment demand remains robust with the first quarter seeing the best first quarter demand in 20 years, driven by strong population and employment growth in Camden markets.
- Financial stability is highlighted by a strong balance sheet with net debt-to-EBITDA at 3.9x, and significant liquidity with no amounts outstanding on their $1.2 billion credit facility.
- Camden Property Trust's strategic marketing initiatives have successfully boosted occupancy rates, allowing for increased pricing power going into the peak leasing season.
- The company has effectively managed operating expenses, leading to outperformance in the first quarter, driven by lower levels of bad debt and favorable trends in insurance and property taxes.
Negative Points
- The high supply of apartments, at 30-year highs, is currently limiting rent growth across most markets, posing challenges to revenue growth.
- New lease signings in the first quarter were down by 4.1%, indicating potential difficulties in attracting new tenants at higher rents.
- The company faces ongoing challenges in markets like Nashville and Austin, where conditions have been more challenging than expected, showing slightly negative revenue growth for the quarter.
- Despite a strong balance sheet, Camden Property Trust recognized a non-core charge of approximately $900,000 associated with unamortized loan costs due to the prepayment of a term loan.
- The company's revenue guidance assumes relatively flat occupancy and modest market rental rate growth, reflecting cautious optimism about market conditions.
Q & A Highlights
Q: Ric or maybe Keith, can you talk a bit about what the operating strategy here for the portfolio going into peak leasing? You talked about pulling back a bit on rate to get occupancy to 95%. It seems like you've maintained that in April. So I'm curious, is the plan to continue to push rate here? Are you willing to trade some occupancy, and maybe which markets do you expect to be able to push rent a bit more near term beyond?
A: (D. Keith Oden - Camden Property Trust - Executive Vice Chairman of the Board) We're back basically where we want to be from an occupancy standpoint. We were 95.2% at the end of the quarter, and we've actually trended up a little bit since then in the month of April, where we got to 95.4% occupied. And again, we're not looking for making the decisions on pricing. We're not looking at necessarily what in-place occupancy is. We're looking at 6 weeks, 8 weeks out on projections. And as we look at what we see right now, we've got -- regained the occupancy in real time that we wanted to. And the next step is you push rents.
Q: I appreciate that. If I could ask about new lease rates. You mentioned that you had tweaked some of the underlying assumptions within your same-store revenue, but can you talk about what your expectation on the new lease rate side is here? Maybe give us a sense of where you expect that to be broadly for the year and maybe over the next couple of quarters?
A: (Alexander J. K. Jessett - Camden Property Trust - President & CFO) Yes, absolutely. So when we're looking at new leases, we're assuming that we're going to be probably right around a negative 2% for the second quarter and then negative 1% for the next 2 quarters after that.
Q: Alex, just wanted to clarify what the revised lease rate growth assumption is for this year versus the 1.2% you had previously provided. And can you just share, I guess, what the implied lease rate growth is that you need for the balance of the year?
A: (Alexander J. K. Jessett - Camden Property Trust - President & CFO) Yes. I mean here's probably the best way to think about it. We're assuming a 75% blend new lease and renewals for the full year, 75 basis point positive. And so you've got a component of that, that is picking up the earn-in. And then you've got -- which is about 50 basis points. And then you've got the 25 basis points that you're getting from the market rent growth to that. So I guess it is 75 basis points. To that, you're going to add to 10 basis points of higher occupancy '24 versus '23, that gets you to 85 basis points. And then we're assuming that our bad debt is going to be 75 basis points for the full year. That compares to 140 basis points last year. So that's a 65 basis point pickup, and that's how you get to the 1.5%.
Q: Ric, I guess. Ric, with the set-up you highlighted in your prepared remarks around the strong absorption, supply is poised to hit multiyear lows in the next couple of years. I guess how do you further take advantage of that backdrop prior to development ramping back up and just -- other types of activity with others being in a better position from a cost of capital and financing market perspective?
A: (Richard J. Campo - Camden Property Trust - Chairman of the Board of Trust Managers & CEO) Well, clearly, the -- when you think about how you set up for '26, '27, it would be on the development side of the equation, we have a decent pipeline that we can start. And -- and I guess the real question is, when do you pivot? And I think as we see more cards in terms of how the absorption and the demand continues, if it continues the way we think it could and should continue given everything that we talked about earlier, then you will see us pivot and get more aggressive on the development side towards the end of the year and beginning of next year.
Q: And I'm trying to keep to the one-question rule here. So yes, it's just observational stuff. It's pretty easy. So what do you think explains the difference in perspective between you guys saying accelerating rent growth in 2025 and '26 and Equity Residential and AvalonBay, which essentially think that you're not going to get any rent growth until 2026. Is there an interpretation issue? Is it just you have more information, so you have more sort of knowledge is a concern when you hear them say that because they're not dummies either. So like I'm just curious what you think the difference is?
A: (Richard J. Campo - Camden Property Trust - Chairman of the Board of Trust Managers & CEO) I think the difference is, is that pretty much everybody talks to their book, and that's part of it.
Q: Great. Ric, I guess I wanted to piggy-back on your comment about the possibility of starting some new development. And I'm just curious which markets are kind of higher up on your list? And if you looked at the economics today, where do those deals pencil? Or how far away are they from actually penciling where you think the development needs to be?
A: (Richard J. Campo - Camden Property Trust - Chairman of the Board of Trust Managers & CEO) Well, development needs, it would be -- if you look at our development page in our supplement, you'll see where we have development and where they're positioned. And we have developments. I would say that the closer ones would start would be Charlotte. And Charlotte is absorbing, you think about the supply push, and Charlotte has a big supply push, but we're leasing over 40 units. We're leasing 40 units a month at our new developments there. And it's just really quickly and at a decent rates and -- and so I would say it would be -- go down that list, and you'll see where it is. But the economic issues, some properties, clearly, depending on where you are, we have 2 developments in Nashville, for example, and Nashville does have a bigger supply issue than most cities between Austin and Nashville have the biggest supply -- the new supply coming online. So we're going to take a hard look at those numbers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
