Kim Callahan welcomes listeners to the Camden Property Trust Second Quarter 2024 Earnings Conference Call. She introduces the speakers and mentions that the event is being recorded and webcasted. She also reminds listeners that the call may contain forward-looking statements and encourages them to review Camden's filings with the SEC. The complete earnings release and reconciliations to non-GAAP financial measures can be found on Camden's website. The call is expected to last 1 hour, and listeners are asked to limit their initial question to 1 before rejoining the queue for additional questions.

In this paragraph, Ric Campo discusses the theme of waiting in the multifamily industry and how different teams are waiting for various things to happen. He also mentions that the second quarter has played out as expected, with high apartment deliveries limiting rent growth. However, the market is adjusting to the post-pandemic development frenzy and demand for apartments remains strong. It is projected to continue in the 400,000 range due to household formation, population and employment growth, apartment affordability, and positive demographic trends.

The 2022-2023 census data shows that the top 10 cities, mostly in Camden markets, have seen an increase in population, while the bottom 10 cities have reported a loss. Employment growth has been strong in most markets, with apartment affordability improving as well. Demographic trends support demand for renting, and it is expected that rent growth will accelerate in the future. Construction on new apartment homes in Charlotte has begun, and the Camden team is praised for their dedication to providing excellent living experiences for residents. Keith Oden is up next.

The operating conditions for our portfolio are in line with our expectations, with second quarter same-property performance exceeding our forecast. Our top markets for revenue growth were San Diego, Inland Empire, Washington D.C. Metro, L.A., Orange County, Southeast Florida, Houston, and Denver. However, Austin and Nashville continue to be challenging markets. Rental rates showed a blended rate of positive 0.8% and occupancy remains high. Our recent real estate activity includes completing construction on one property and beginning construction on two others. Our financial results for the second quarter are discussed by our President and Chief Financial Officer, including updates on our real estate activity and guidance for the future.

In the second quarter, the company reported higher-than-expected core FFO due to lower operating expenses, particularly in insurance and property taxes. This was partly due to timing of property tax refunds and increased fee and interest income. The company maintained its revenue guidance for the year, but lowered its expense guidance due to continued lower insurance and property taxes. They anticipate a 3% decrease in insurance expenses and a 1% increase in property taxes, resulting in a favorable impact of $0.01 per share.

The company has increased their 2024 same-store NOI growth guidance and full year core FFO, with $0.05 per share increase. This is due to decreases in expenses, such as lower insurance costs, anticipated lower taxes, and higher fee and asset management income in the second quarter. They are still expecting $250 million in acquisitions and $250 million in dispositions with no net accretion or dilution. Development starts for the year totaled $317 million, with approximately $55 million remaining for 2024. They provided earnings guidance for the third quarter of 2024, with a sequential decline in core FFO per share due to increased operating expenses and decreased fee and asset management income.

In the paragraph, the speaker discusses the recent financial performance of the company, highlighting a decrease in core FFO per share and an increase in same-store revenue. They also mention the strength of the company's balance sheet and attribute their success in July to increased marketing efforts and strong performance in the Washington, D.C. Metro and Houston markets.

Ric Campo discusses the impact of seasonality and consumer spending on the third and fourth quarter of the prior year. He also mentions that this year, the COVID money is gone and people are not just moving out because of it. He also talks about strong job growth and how it is driving household formation and demand for apartments. He believes that the team did a great job building occupancy and this gave them more pricing power. In response to a question about the recent slowdown in employment growth, Campo notes that it may impact rent growth, but he remains optimistic due to strong demand for apartments.

The speaker believes that the current economic slowdown is a positive thing for their business because it allows for moderate job growth and room for interest rates to be lowered. They also mention that they will not be starting any new developments for the rest of the year, but plan to do so in 2025. They believe that this timing will be beneficial for their business.

The company has started two new projects in Charlotte and has a decent pipeline for future projects, but it is difficult to start them due to current market conditions. They plan to expand their pipeline by helping other developers who are struggling to get financing. The company expects to see a robust transaction market in the fall and early next year. They are sending out renewals at 4.6% and expect to sign them at just above 4%. New lease rates are expected to be in line with the average of 4.6%.

In the third quarter, the company is expecting a blended growth rate of 1.6% and 1.3% for the fourth quarter, which is consistent with their previous expectations. During a conference call, an analyst asks about the improvement in bad debt seen in the second quarter and the company's expectations for the rest of the year. The company's representative notes that bad debt is getting under control and they expect it to be at 75 basis points for the rest of the year, with the biggest improvements seen in problematic markets such as California and Atlanta. Another analyst asks about the increase in turnover from the second quarter to July, and the representative explains that this is a normal trend for the third quarter.

The speaker discusses the company's turnover numbers and notes a 600 basis point improvement year-over-year. They also mention the expected stabilized yield on their development pipeline and the slow decrease in material labor costs. They anticipate subcontractor margins to compress as construction starts fall.

The author discusses how commodity prices are driven by the global market and may not come down due to government spending on infrastructure. However, as the labor market tightens, labor prices and margins may come down. The author also mentions that land prices are not decreasing as quickly as expected, but there may be opportunities to purchase land from developers who are unable to secure financing for their projects.

Ric Campo, the speaker, is answering questions from Steve Sakwa about the two development starts. They look at both un-trended and trended yields, and are generally conservative in their projections. The un-trended yields are in the mid- to high-5s, while the trended yields are in the 6s. They mainly focus on IRRs and are looking for long-term accretion and positive spread for their weighted average long-term cost of capital. The IRRs for the two developments are in the high- to mid-8s. Campo believes there is substantial upside in the yields due to the expected market growth in 2026 and 2027. The next question from Eric Wolfe is about sending renewals out today.

The speaker, Keith Oden, discusses the current occupancy level and future projections for the company. He mentions that the occupancy rate is currently at 95.5% and is expected to remain flat or slightly decrease in the fourth quarter. He also mentions that maintaining occupancy at or above 95% is crucial for pricing power. The company is currently in a loss lease position, with a 1% loss to lease across the portfolio. Oden also mentions that some markets, such as D.C. and San Diego, have a larger loss to lease, while others like Nashville and Austin have gains to lease. One question from a Morgan Stanley representative asks about the loss to lease position across the portfolio and specific markets. Another question from a UBS representative asks about the higher supply markets, such as Phoenix, and whether they are reaching a bottom.

Keith Oden, CEO of Camden Property Trust, believes that the markets of Nashville and Austin are still facing an oversupply of rental units and it may take until mid-2025 to reach a balance. Despite this, there has been a historic level of absorption in these markets due to strong employment growth and domestic migration. Oden does not believe the markets have reached the bottom yet, but they may be close. Rich Anderson from Wedbush asks about the company's stock buyback in the quarter, which was done at a lower price than the current stock price of $119. The consensus NAV for the company is around $120.

The speaker is asked about the potential of raising equity to fund acquisitions that would improve the quality of their portfolio. They mention that the current stock price is $119 and that the transaction market is expected to be robust in the next 18 months, providing opportunities for acquisitions. The speaker also comments on the current implied cap rate for Camden and compares it to recent transactions, suggesting that the public market cap rates may be slower to adjust.

The speaker discusses the performance of the D.C. and Houston markets in the second half of the year. They predict that both markets will continue to be strong, with D.C. potentially ending the year as one of the top performers in their portfolio. They also mention positive developments in the Houston market, such as Chevron moving their headquarters there, and express confidence in its continued growth.

Ric Campo and Keith Oden discuss the positive performance and potential of the Houston and Charlotte markets. Campo also mentions the energy transition happening in Houston and how it will benefit the city in the long term. They also address the development spread and long-term cost of capital for recent Charlotte starts, emphasizing the importance of where a project finishes rather than where it starts in terms of yields.

Camden's long-term value creation through development has resulted in billions of dollars of value. The company's strong balance sheet allows for $1.3 billion in investments, including $300 million in development and potential acquisitions. The current low expense growth is partly due to one-time benefits such as lower property taxes and tax refunds in Texas. Going forward, the company expects a return to a more normal level of 3% expense growth.

The company's insurance rates have fluctuated significantly in the past year, with a 40% increase followed by an expected 18% decrease. However, the current rate is expected to decrease by 3%. Salaries, utilities, and repair and maintenance costs are expected to follow typical inflation trends. Marketing expenses may vary depending on the company's desired level of traffic. The company's current FFO is at 2.85%, which is close to the long-term average of 3%. Hurricane impact is factored in as a noncore expense and is expected to have a $0.02 impact on FFO.

The speaker discusses the net expense line and insurance proceeds that will be capitalized. They then answer a question about planned lease assumptions for the second half of the year, mentioning an improvement in the effective rate and a good renewal number. The speaker also mentions that they do not have the June number but will follow up on it. The speaker concludes by thanking everyone for being on the call and mentioning the support for the U.S. with red, white, and blue shirts.

The speaker gives a shout out to Simone Biles, a Houston native who made history as the most decorated gymnast in history. They wish everyone a good day and end the call.

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