The Camden Property Trust's Third Quarter 2023 Earnings Conference Call is being held and will be webcasted. The participants will be in listen-only mode and there will be a Q&A session after the presentation. The conference call will include forward-looking statements and the company encourages listeners to review their filings with the SEC for more information.

Camden's complete third quarter 2023 earnings release is available on their website and includes reconciliations to non-GAAP financial measures. The call will be limited to one hour to respect everyone's time, and if there are additional questions, they can be addressed after the call. Ric Campo, the speaker, mentions the lack of hurricanes in their markets this year and references a Jimmy Buffett song about navigating through life's storms. He also acknowledges the current turmoil in the capital markets and encourages the team to stay strong. Despite the challenges, Camden's business remains strong, but there are still some abnormal customer behaviors due to the pandemic.

Seasonality is back and stronger than expected, causing a revision of fourth quarter guidance. Despite challenges, fundamentals for the business are good, with job growth and demographics supporting apartment demand. The supply side is also favorable, with a projected decrease in starts and an increase in in-migration to markets. Camden's team is praised for their efforts in improving the lives of stakeholders. Third quarter operating results were in line with expectations.

In the third quarter, 14 out of 15 markets saw positive year-over-year same property revenue growth, with all markets experiencing positive growth on a sequential and year-to-date basis. Occupancy averaged at 95.6% and is expected to slightly decrease for the rest of the year. Rent growth has also moderated as the company focuses on maintaining occupancy. Effective growth rates for new leases, renewals, and blended rates were positive, but are expected to trend down for the rest of the year. Gross turnover rates were up due to higher levels of skips and lease breaks, but net turnover was down due to high levels of resident retention. Move-outs to purchase homes accounted for 10% of total move-outs, which is a low level in the past 30 years. Supply will continue to be a factor in some markets, leading to competition for Camden's communities. 16% of their communities are impacted by new supply.

The article discusses the third quarter financial results of Camden, a real estate company. The company reported core FFO of $1.73 per share, in line with their previous guidance. However, they experienced lower-than-anticipated revenue due to an unexpected rise in bad debt. On the other hand, their operating expenses were lower than expected due to a tax reform bill in Texas. This resulted in a reduction of property taxes, leading to a savings of $0.025 per share. The company also expects a decrease in bad debt for the rest of the year.

In the third quarter, bad debt increased by 40 basis points, resulting in a $0.01 per share impact. This trend is expected to continue in the fourth quarter, with an additional $0.015 per share impact. The increase in bad debt is attributed to consumer behavior and not financial stress of residents. Occupancy levels were higher than expected in July and August but declined in September, leading to a lower average occupancy of 94.8% in the fourth quarter. This adjustment has a $0.02 per share impact. Lower occupancy also caused a reduction in signed rates, resulting in a 3.4% effective blended rate for the third quarter.

The company is anticipating a decline in new leases and a decrease in renewals for the fourth quarter, resulting in a negative impact on earnings per share. This, along with higher expenses and lower occupancy, has led to a decrease in the full year same-store NOI guidance. The company has also lowered its 2023 core FFO guidance due to these factors.

The company expects a decline in core FFO per share for the fourth quarter due to lower same-store NOI and decreased revenue, partially offset by lower property expenses. The balance sheet remains strong and there is still room for development. The speaker also mentions that in some markets, there are high concessions for merchant builder products, but in others, there is less competition from new supply.

The speaker discusses the current state of the rental market, noting that markets like Charlotte are offering incentives to attract renters. They also mention that consumer behavior has been affected by the new supply of apartments, but that the portfolio they have is not heavily impacted. The speaker expresses surprise that post-COVID consumer behavior has not returned to normal sooner, citing the fact that many renters are taking advantage of the system and not paying their rent for months before being forced to leave. They believe that this will change as the market becomes tighter and it becomes more difficult to find new renters.

Keith Oden, Camden's Chief Operating Officer, explains how the company addresses the issue of supply challenges in its portfolio. They stratify their portfolio into markets that are likely to be impacted by new lease-ups and those that are not, using age as a proxy for price point. About 16% of Camden's total apartment units are in markets with a supply challenge. However, the impact of new supply is one of the most reliable forecasts, as it is either under construction or not. In the second quarter of this year, the impacted communities had a lower new lease rate than the non-impacted communities by 260 basis points.

The speaker discusses the impact of supply on Camden's portfolio, stating that it is important but only makes up 16% of their portfolio. They mention that supply is a bigger challenge in the progression of results from the second to third quarter and estimate that it was responsible for a 15 basis point impact. They also mention that their operations team takes supply into consideration when making pricing decisions but that it is something they have been dealing with for nine months and will continue to do so. The speaker also addresses a question about Camden's policy of not offering concessions and its potential impact on their performance during this time of high supply.

Keith Oden states that the company does offer concessions on new lease-ups but does not plan on going back to offering a month of free rent. This is because it can be confusing for consumers and puts pressure on managing bad actors. The company will continue to offer concessions on new developments but not on established communities. Alex Jessett mentions that market rent growth may not occur next year due to factors such as a decrease in homeownership rates and a decrease in people buying homes.

The speaker discusses how the current housing market is affecting the demand for apartments. They mention that fewer people are buying homes, leading to a higher demand for rentals. This is especially true for older demographics who are more likely to rent. The speaker believes that occupancy levels will remain stable with some modest rent growth in the near future. They also mention that occupancy and rent are correlated and that they have chosen to maintain higher rents rather than artificially increasing occupancy.

The revenue team discusses their settings regularly and is comfortable with where they are. They would prefer higher rent and occupancy, but given the current environment, they are satisfied. The decision to let occupancy go to 94.9% was not intentional, as their occupancy guidance for the back half of the year was 95.6%. The team had expected to return to normal metrics for delinquency, skips, and lease breaks by 2023, but unexpected changes in the third quarter caused a reversal in progress. This resulted in a higher delinquency rate and more skips and lease breaks, which are difficult to predict.

The speaker discusses the challenges of dealing with tenants who break their leases and move out unexpectedly, causing delays in turning over units and potentially causing damage. This has compounded the issue of seasonality in the portfolio's occupancy rates. The loss to lease is currently under 1% and the embedded growth for 2024 is projected to be around 0.9%. The speaker is asked for an update on where the portfolio is experiencing the most difficulty in maintaining occupancy.

The company is facing challenges in certain markets due to supply and elevated lease breaks, but only 16% of their communities are impacted. They believe that the fourth quarter is as bad as it will get for lease rate growth and occupancy, and expect a similar seasonal pattern in the first quarter of 2024. The strength of the economy and consumer spending will play a role in the future performance of the company.

The speaker discusses three factors that will impact the leasing and occupancy levels in 2024: supply, bad debts, and skips and evictions. They believe that the supply will be similar to 2023, but they have already adapted to this challenge. They also expect bad debts to decrease as they work through the effects of COVID.

The speaker discusses the impact of COVID on the company's portfolio and predicts that the supply challenge will continue in 2024. They also mention that skips and evictions have doubled since COVID and may remain slightly elevated in 2024, but they expect the situation to improve. They discuss potential factors that could contribute to bad debt and the challenge of estimating it due to the current circumstances.

The speaker is discussing the issue of bad debts and how it can be solved. They mention that the regulatory prohibitions on evictions have lapsed, but there is still a backlog in some cities. The company is working on getting bad actors out and has implemented income verification to prevent fraud. They are optimistic that the situation will improve, but it is difficult to get municipalities to focus on the issue.

The company is planning to introduce more measures to deter bad actors in certain submarkets and municipalities, but they are aware that this may also affect good actors. The operations team has done a good job forecasting and delivering revenue growth, but there has been a shift in tone recently and they are trying to understand the cause and its potential impact on 2024.

The speaker discusses the impact of supply on the company's properties, stating that 16% of their properties are currently affected and this may increase slightly in 2024. However, supply will continue to be a factor through the end of 2024, but it is limited to a specific portion of the company's portfolio.

The current economic situation is causing problems for the company, with a combination of factors such as supply issues, consumer behavior, and bad debt. Supply will continue to be a challenge in 2024, but the company is implementing measures to reduce the impact of skips and breaks in leases and bad debt. The backlog in courts is starting to improve, but certain markets, such as California and Atlanta, are still experiencing high bad debt rates. However, as the backlog clears, the situation is expected to improve.

The speaker discusses the impact of skips and lease breaks on the company's vacancy and bad debt rates. They also mention their plans for floating rate debt exposure, which they believe is manageable due to their low overall debt. They do not plan on making any changes to their current strategy.

Ric Campo discusses how the current low interest rates will benefit the company's FFO and how it would be a mistake to fix long-term rates now. He also mentions the company's consistent approach to stock buybacks and the current market conditions for acquisitions and dispositions.

The speaker discusses how the company's stock has decreased by 60-70%, but they have been aggressive buyers during this time. A question is asked about the sustainability of new lease growth rates and renewals, and the speaker clarifies that the company's target occupancy rate is 95.6% and they are not satisfied with the current rate of 94.9%. However, they will not make unreasonable decisions in order to reach their target.

Alex Jessett and John Kim discuss the sustainability of new leases and renewals in the fourth quarter, with Jessett mentioning that the rates for the quarter are confident and historically wide. Rich Anderson asks if the current market conditions could present an opportunity for the company to acquire properties from less prepared competitors, to which Ric Campo responds that capital allocation is an interesting aspect to consider.

The speaker discusses their investment strategy and the current state of the market, mentioning a lack of distress and a narrowing gap between buyer and seller prices. They also mention a large amount of capital waiting for more clarity on the market. They then address the issue of skip and evict situations and how it relates to their supply impacted portfolio.

The skip and evict issue is most prevalent in markets with strict COVID regulations, such as California, DC Proper, Montgomery County, and Atlanta. In California alone, bad debts related to skip and evict make up 30 basis points. However, the supply issue is widespread in all markets, as there is high demand for apartments. Interestingly, fraudsters tend to target high-end and new properties, as seen in downtown Houston and Buckhead in Atlanta. In LA County and San Diego, bad debts are at 5.3% and 3.2%, respectively.

The difference in payment priorities between San Diego and LA County is due to the more open and less militant atmosphere in San Diego. The government's actions during COVID have caused apartment rent to be lower on the list of priorities for many people. The company plans to push for apartment rent to be given the same priority as cell phone bills. The company's current development pipeline is doing well, but they have pushed back on new starts and acquisitions due to the current environment and increased cost of capital.

The author believes that as stability increases in the market, there will be opportunities to obtain better pricing on properties in the future due to decreased construction costs and inflation. They plan to take a long-term approach and potentially start developing and acquiring properties in 2026 and 2027, which may be a countercyclical move compared to their competitors. In the past, they have successfully sold older properties and reinvested in newer, higher growth properties.

The speaker discusses the opportunity to do portfolio management next year with capital being as it is today. They mention that it makes sense to maintain a strong balance sheet and wait to see where capital can be deployed in the future for the best returns. The speaker also mentions that the recovery for tenants who can pay but won't pay is low, but they still pursue them. They also mention that the delta for new leases in the fraud markets is artificially low right now and there is potential for a lift in the future.

The speaker discusses the company's ability to bounce back from fraud and return to a normal run rate. They then address a question about growth in the current environment, stating that they have access to capital markets and alternative sources of financing, so they are not concerned about their ability to afford growth.

The speaker discusses the company's strong financial position and its ability to fund future opportunities. They also mention their cost of capital advantage over private companies. In terms of development, they are offering four to six weeks of free rent to attract tenants, but do not anticipate needing to offer excessive concessions. They are confident in their ability to compete with other properties in the market.

The speaker discusses the success of the company's leasing in Phoenix and expects similar success in Raleigh and Charlotte. They also mention the upcoming NAREIT conference.

This summary was generated with AI and may contain some inaccuracies.