Camden Property Trust (CPT) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Apartment Demand: The first half of the year saw net apartment demand over 200,000 apartments, matching 2018 and 2019 levels, driven by household formation, employment growth, and apartment affordability.
• Positive Demographic Trends: The top 10 cities increased their population by 710,000, with nine Camden markets in the top 10, indicating strong demographic support for apartment demand.
• Improved Apartment Affordability: Resident wage growth over 5% and relatively flat rents have made apartments more affordable, with new Camden residents paying 19% of their income towards rent.
• Low Move-Outs to Buy Homes: The monthly cost of owning a home today is about 60% more than leasing an apartment, keeping move-outs to buy homes near historic lows at 10.3%.
• Development Starts: Camden is starting construction on Camden South Charlotte and Camden Blake Me, totaling 769 suburban apartment homes, to take advantage of the anticipated robust multifamily leasing environment beginning in 2025.

Pessimistic Highlights

• Supply Concerns: The company is at a 30-year high for apartment deliveries, limiting rent growth in most markets. However, new deliveries should peak in 2024 and fall significantly by 2026.
• Economic Uncertainties: While optimistic about the future, there's acknowledgment that a recession in 2025 could change the current positive outlook.

Company Outlook

• Accelerating Rent Growth in 2025 and 2026: Despite current supply concerns, strong demand drivers are expected to support accelerating rent growth in the coming years, assuming the economy continues its current trajectory.
• Financial Performance: For Q2 2024, Camden reported core FFO of $1.71 per share, $0.04 ahead of the midpoint of prior quarterly guidance, driven by lower-than-anticipated operating expenses and higher fee and asset management and interest and other income.
• Guidance Update: Full-year revenue guidance maintained at 1.5%, with full-year expense guidance lowered from 3.25% to 2.85%. The midpoint of full-year core FFO guidance increased from $6.74 to $6.79 per share.

Q & A Highlights

• Q: What contributed to the strong performance in July compared to peers? (Brad Heffern, RBC Capital Markets)

  A: Increased marketing support and strength in Washington, D.C. Metro and Houston markets were key factors. (Keith Oden)

• Q: How does employment growth slowdown impact household formation and pricing power? (Austin Wurschmidt, KeyBanc Capital Markets)

  A: A slower economy is seen as positive, allowing for interest rate cuts. Camden's markets are where jobs are, supporting demand. (Ric Campo)

• Q: Can you discuss the decision not to start more developments this year? (Jamie Feldman, Wells Fargo)

  A: The decision is based on current positioning and the potential to expand the pipeline by assisting developers unable to get financing. (Ric Campo)

• Q: What are the expectations for blended lease growth in the second half of the year? (John Kim, BMO Capital Markets)

  A: Blended lease growth is expected to be about 1.6% in Q3 and 1.3% in Q4, with renewals sent out at an average increase of 4.6%. (Alex Jessett)

• Q: How is bad debt trending, and what improvements are seen? (Connor Mitchell, Piper Sandler)

  A: Bad debt is under control, with significant improvements in California and Atlanta. Expected to normalize to about 50 basis points. (Alex Jessett)

• Q: What's the outlook for turnover rates? (Steven Su, Bank of America Merrill Lynch)

  A: Turnover rates are improving, with a 600 basis point improvement year-over-year in July. (Alex Jessett)

• Q: What are the expected stabilized yields on the development pipeline? (Rob Stevenson, Janney)

  A: Charlotte projects have going-in yields in the 6% range with IRRs in the low to high 8s. Costs are coming down slowly in some areas. (Ric Campo)

• Q: How do you view the current NAV estimate compared to the stock price? (Rich Anderson, Wedbush)

  A: The implied cap rate for Camden at $120 is about 5.7%, which is higher than recent transaction cap rates. (Ric Campo)

• Q: How do you expect D.C. and Houston to perform in the second half of the year? (Unidentified Analyst, Baird)

  A: Both markets are expected to continue strong performance, with D.C. potentially ending the year as one of the top markets. (Keith Oden)

• Q: What are the development spreads on recent Charlotte starts? (David Segall, Green Street)

  A: Going-in yields are in the mid- to high 5s on an un-trended basis, with long-term value creation expected from these developments. (Ric Campo)