Camden Property Trust

good morning and welcome to camden property trust's fourth quarter 2023 earnings conference call i'm kim callahan senior vice president of investor relations joining me today are rick campo camden's chairman and chief executive officer keith odin executive vice chairman and president and alex jessett chief financial officer today's event is being webcast through the investors section of our website at camdenliving.com and a replay will be available this afternoon We will have a slide presentation in conjunction with our prepared remarks, and those slides will also be available on our website later today or by email upon request. If you are joining us by phone and need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. All participants will be in listen-only mode during this presentation with an opportunity to ask questions afterward. And please note, this event is being recorded. 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. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them. 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. As a reminder, Camden's complete fourth quarter 2023 earnings release is available in the investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We would like to respect everyone's time and complete our call within one hour, so please limit your initial question to one, then rejoin the queue if you have 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 this time, I'll turn the call over to Rick Campo.

The theme for our Unhold music today was friends and teammates helping each other. The verse from the theme song of the popular TV show Friends sums it up nicely. I'll be there for you when the rain starts to pour. I'll be there for you like I've been there before. I'll be there for you because you've been there for me too. One of Camden's nine core values is team players. We recognize our employees who live Camden's values through our annual ACE Awards program. Each year, Camden employees nominate their peers and co-workers for an ACE Award. And from our 1,700 employees, 14 are selected to be national ACE winners. Those 14 individuals are recognized and celebrated at our National Leadership Meeting. Being selected as a National ACE Award winner is the highest honor that a Camden Associates can achieve and represents the best of the best from Team Camden. I want to introduce you to one of our National ACE Award winners for 2023, Santos Castillo.

And I'm the groundskeeper at Camden Royal Oaks. I grew up in the small town of El Carmen, Salvador. I spent the majority of the time with my parents where I found my love for fishing. Though I had a very limited education, I had a very healthy youth. I moved to Houston 37 years ago where I met my wife 12 years later. Today my wife, Magdalena, and I have been married for 23 years. We don't have any children or pets, though having each other is enough. To relax, I like to watch soccer games. I love Barcelona. After the games, I head to the piano and relax. Prior to Camden, I worked as a cook for two years and cooked Chinese food. After that, I was a porter until I heard about Camden from the wife of a friend of mine. They told me about the opportunity, and the same day I came to the interview, I did my application and immediately started working. I have been happily working for Camden as a groundskeeper for 30 years and have been at Camden Royal Oaks for the last 11 years. I'm very proud to know that Camden recognizes their employees and their efforts. I put a lot of value into my work and you won't find one piece of trash anywhere in my community. I'm proud that Camden sees the work that I do. I enjoy being part of a team and seeing that everyone works together. I truly love my job and coming to work every day. Thank you.

It's folks like Santos who make it certain that no matter what's going on in the world, Camden will always honor our nine values to ensure that we improve the lives of our teammates, our residents, and our stakeholders one experience at a time. Our finance, accounting, legal, and real estate investment teams have had a busy year end and beginning of 2024, closing over $1.2 billion in refinancing the sales transactions. We begin 2024 with a strong balance sheet and are prepared for the growth opportunities as they may develop this year. Our operations and support teams finished the year strong and are positioned to outperform our local sub-market competitors again in 2024. 2024 should be a transition year from peak new apartment deliveries to a more constructive market after supply is absorbed. 2025 starts are projected to plummet to a low 2022. in the 200,000 range due to difficult market conditions. 2024 apartment absorption is projected to be a little over 400,000 units nationwide, with over 200,000 units absorbed in cabinets markets. 2024 apartment demand will be driven more by demographics and migration dynamics than traditional job growth. Apartments will take market share from the single-family market. Beginning in 2011 and through 2019, apartments had an average market share of 20% of household formations. Apartments are projected to double that market share to 40% between 2024 and 2026. This is because, first, home affordability is at 20-year low with rising home prices and current interest rates and no signs of the pressure easing anytime soon, even with rates continuing to fall. In-migration to Camden markets continues to grow. More young adults are in the workforce with solid job growth and wage growth. 30% of households choose to live alone, which is at an all-time high. Camden's markets continue to lead the nation in job growth. We look forward to what looks to be a very interesting year. I know that our Camden team is equipped and ready to excel in 2024 by being great friends and great teammates. Thank you, Team Camden, for all that you do for Camden and our residents. Keith Oden is up next.

Thanks, Rick. For 2023, same property revenue grew by 5.1%, consistent with our original projections. Six of our markets achieved results within 50 basis points of their original budget, and another six outperformed their budgets. Of the remaining three, LA, Orange County, and Atlanta both underperformed, mainly for reasons related to bad debt, skips and evictions, and fraud. In Phoenix, the underperformance resulted from market conditions moderating more quickly than we anticipated over the course of 2023. For 2024, we anticipate same property revenue to be in the range of 1.5% to 2.5%, with the majority of our markets falling within that range. The outliers on the positive side are expected to be Southern California markets along with Southeast Florida, while Orlando, Nashville, and Austin will likely underperform given outsized competition from new supply this year. Our top six markets should achieve 2024 revenue growth between 2% and 4% and include San Diego Inland Empire, Southeast Florida, Washington, D.C. Metro, L.A. Orange County, Houston, and Charlotte. Our next five markets are budgeted for revenue growth between 1 and 2% and include Denver, Tampa, Atlanta, Raleigh, and Phoenix. Our remaining four markets of Dallas, Orlando, Nashville, and Austin are expected to have revenue growth of plus or minus 1%. As many of you know, we have a tradition of assigning letter grades to forecast conditions in our markets at the beginning of each year, and ranking our markets generally in order of their expected performance during 2024. We currently grade our overall portfolio as a B with a moderating outlook as compared to an A- with a moderating outlook last year. Our full report card is included as part of our earnings call slide deck, which is incorporated into this webcast and will be available on our website after today's call. While job growth is expected to moderate over the course of 2024, the overall economy remains healthy, and we expect our Sunbelt-focused market footprint will allow us to outperform the U.S. outlook. We expect to see continued in-migration into Camden's markets and strong demand for apartments and homes in 2024 given the relative unaffordability of buying a single-family home. We reviewed 2024 supply forecasts from several third-party data providers. and their projections range from 230,000 to 330,000 completions across our 15 markets over the course of the year. After analyzing the sub-market locations and price points for these new deliveries, we expect that roughly 20% of those deliveries, or between 50 and 70,000 new units, may be competitive to our existing portfolio. Our top three markets for 2024 were the same as our top three markets for revenue growth in the fourth quarter of 2023, and they remain strong entering 2024. Their growth rates are expected to slow from the 5% to 8% range they achieved in 2023 and thus have moderating outlooks. Therefore, We'd rank San Diego Inland Empire as an A, Southeast Florida as an A-, and Washington, D.C. Metro as a B+. L.A. Orange County, Houston, and Charlotte round out the top six, with L.A. Orange County receiving a B with Improving Outlook and the other two ranking as a B with Moderating Outlooks. We anticipate the improvement in LA Orange County will come primarily from a reduction in bad debt as we repopulate many of our vacant units with residents who actually pay their rent. LA Orange County will also see a manageable level of supply this year, which should also serve as a benefit. Our Houston portfolio had steady growth during 2023 and should continue to perform well in 2024. supply remains in check and the number of competitive deliveries in our sub markets should decline over the course of the year charlotte ranks as our number six projected market this year versus number five in 2023 so it is still an above average performer but with revenue growth likely closer to two percent than the almost seven percent we reported in 2023 the aggregate level of supply coming into the Charlotte MSA will be elevated this year, and we expect our main competition will fall in the Uptown South End Submarket, which is slated to receive 3,000 units this year. Similar to Houston and Charlotte, Denver and Tampa also earned B ratings with moderating outlooks. Denver's revenue growth has been above average in our portfolio for the past three years and should continue that trend in 2024. Deliveries will tick up slightly this year, primarily in one or two of our sub-markets, but should be met with solid demand. Tampa has been our number one market over the last three years, averaging over 11% annual revenue growth. The growth will slow to the low single-digit range this year. New supply looks to be manageable in most of our sub-markets there, but we are actively monitoring our two recently built high-rise assets in the St. Petersburg sub-market for competition with the new product being delivered there. In Atlanta, our current assessment of market conditions rates a B- with an improving outlook. Similar to LA Orange County, we expect to see a reduction in bad debt during 2024, which should boost our revenue growth from the less than 1% achieved in 2023. On the new supply front, the Atlanta MSA will continue to add new units in 2024, and we anticipate the most competition from deliveries in our midtown sub-market. Next up are Raleigh and Phoenix, both receiving grades of B-, but with stable outlooks. In the aggregate, these markets performed just under our portfolio average in 2023 for revenue growth, and they should remain in that area for 2024 with 1% to 2% growth. And once again, while both of these markets face elevated levels of supply versus historical averages, we expect that only a handful of assets in each market will face head-to-head competition from 2024 deliveries. Dallas would also rate as a B- with a stable outlook, but its revenue growth may fall just under the 1% mark this year. While Dallas still ranks as one of the nation's top metros for job growth and in-migration, the outsized level of supplies to deliver this year will keep pricing power and rent growth muted there. Orlando delivered outsized levels of revenue growth for the past few years, but it has dropped from above average to below average in recent quarters. thus earning a C-plus grade with a moderating outlook. The economy in Orlando remains strong, but above average completion slated for 2024 will likely result in minimal revenue growth for the market this year. Our last two markets, Nashville and Austin, consistently rank as top markets for multifamily construction and scheduled delivery of new apartments in recent quarters. Well, they also rank as two of the top U.S. markets for job growth and migration, quality of life, etc. The sheer amount of new supply coming in 2024 will likely result in flat to slightly negative revenue growth for both of those markets. And we believe 30 to 40% of the new supply in those markets may compete directly with Camden's assets. We assign both markets a stable outlook for the remainder of 2024 with ratings of C and C-, respectively, given current market conditions. Now a few more details on our 2023 operating results and January 2024 trends. Rental rates for the fourth quarter had signed new leases down 4.3% and renewals up 3.9% for a blended rate of negative 0.6%. Our preliminary January results indicate a slight improvement in signed new leases and moderation in renewals for a slightly better blended rate on our January signed leases to date. February and March renewal offers were sent out with an average increase of 4.1%. Occupancy averaged 94.9% during the fourth quarter of 23, and January 2024 occupancy is trending in the same range. And as expected, move outs to purchase homes remain very low at 10.4% for the fourth quarter of 23, 10.7% for the full year of 23. January move outs will likely remain in the same range. I'll now turn the call over to Alex Jesset, Camden's Chief Financial Officer.

Thanks, Keith. Before I move on to our financial results and guidance, A brief update on our recent real estate and capital markets activity. During the fourth quarter of 2023, we completed construction on Camden Noda, a 387-unit, $108 million community in Charlotte, which is now approximately 90% leased. We began leasing at Camden Woodmill Creek. a 189-unit, $75 million single-family rental community located in the Woodlands, Texas, and we continued leasing at Camden, Durham, a 420-unit, $145 million new development in Durham, North Carolina. Additionally, at the end of the quarter, we sold Camden Martinique, a 714-unit, 38-year-old community in Costa Mesa, California, for $232 million. The community was sold at an approximate 5.5% yield after management fees and actual CapEx and generated a 10.6% unleveraged return over our almost 26-year hold period. Additionally, during the quarter, we issued $500 million of three-year senior unsecured notes with a fixed coupon of 5.85%. we subsequently swapped the entire amount of the offering to floating rate at SOFR plus 112 basis points. After quarter end, we issued $400 million of 10-year senior unsecured notes with a fixed coupon of 4.9% and a yield of 4.94%. Also, after quarter end, we prepaid our $300 million floating rate term loan. And on January the 16th, we repaid at maturity a $250 million, 4.4% senior unsecured note. In conjunction with the term loan prepayment, we will recognize a non-core charge of approximately $900,000 associated with unamortized loan costs. As of today, approximately 85% of our debt is fixed rate, We have almost full availability under our $1.2 billion credit facility, and we have less than $300 million of maturities over the next 24 months, with only $138 million left to fund under our existing development pipeline. Our balance sheet remains strong, with net debt to EBITDA at four times. Turning to financial results, last night we reported core funds from operations for the fourth quarter of 2023 of $190.5 million or $1.73 per share, one cent ahead of the midpoint of our prior quarterly guidance. This outperformance resulted almost entirely from lower than anticipated levels of bad debt. As previously reported, in September we experienced an unusual spike in bad debt, which we forecasted to extend through the fourth quarter. Fortunately, September appears to have been an anomaly, and bad debt for the fourth quarter averaged 1.1% as compared to our forecast of 1.5%. Additionally, we delivered same-store occupancy for the fourth quarter of 94.9%, 10 basis points ahead of our forecast. For 2023, we delivered same-store revenue growth of 5.1%, expense growth of 6.7%, and NOI growth of 4.3%. You can refer to page 24 of our fourth quarter supplemental package for details on the key assumptions driving our 2024 financial outlook. We expect our 2024 core FFO per share to be in the range of $6.59 to $6.89, with a midpoint of $6.74 representing an $0.08 per share decrease from our 2023 results. This decrease is anticipated to result primarily from an approximate $0.07 per share increase in core FFO related to the growth in operating income from our development, non-same-store, and retail communities, resulting primarily from the incremental contribution from our seven development communities in lease-up during either 2023 and or 2024. a $0.07 per share decrease in interest expense attributable to approximately $185 million of lower average anticipated debt balances outstanding in 2024 as compared to 2023, partially offset by lower levels of capitalized interest as we complete certain development communities. The lower debt balances result from the previously mentioned Camden-Martinique disposition and an additional $115 million disposition of an Atlanta community scheduled for next week. For 2024, we are anticipating $41 million on average outstanding under our line of credit with an average rate of approximately 5.5% and an average rate of approximately 5.8% on our $500 million floating rate unsecured bond. We are not anticipating any additional unsecured bond offerings in 2024. A 3.5 cent per share increase in fee and asset management and interest in other income resulting from increased third-party general contracting fees and interest earned on cash balances. We are assuming average cash balances of $60 million in 2024, earning approximately 4.6%. This 17.5 cent cumulative increase in anticipated core FFO per share is entirely offset by an approximate 15.5 cent per share decrease in core FFO from the $293 million of 2023 completed dispositions, an approximate 6 cent per share decrease from the disposition anticipated next week, and an approximate 4 cent per share decrease resulting primarily from the combination of higher general and administrative and property management expenses. At the midpoint, we are expecting flat same-store net operating income with revenue growth of 1.5% and expense growth of 4.5%. Each 1% increase in same-store NOI is approximately $0.085 per share in core FFO. Our 2024 same-store revenue growth midpoint of 1.5% is based upon an approximate 0.5% earn-in at the end of 2023 and an effectively flat loss to lease. We also expect a 1.4% increase in market rental rates from December 31, 2023 to December 31, 2024. Recognizing half of this annual market rental rate increase combined with our embedded growth results in a budgeted 1.2% increase in 2024 net market rents. We are assuming that bad debt continues to moderate through the year, reaching 1% by the fourth quarter and averaging 1.1% for the full year, a 30 basis point improvement over 2023. When combining our 1.2% increase in net market rents with our 30 basis point decline in bad debt, we are budgeting 2024 rental income growth of 1.5%. Rental income encompasses 89% of our total rental revenues. The remaining 11% of our property revenues is primarily comprised of utility rebilling and other fees and is anticipated to grow at a similar level to our rental income due to decreased pricing power and increased regulatory constraints. Our 2024 same-store expense growth midpoint of 4.5% results primarily from anticipated above-average insurance increases. Insurance represents 7.5% of our total operating expenses and is anticipated to increase by 18% as insurance providers continue to face large global losses and resulting financial pressures. Our remaining operating expenses are anticipated to grow at approximately 3.4% in the aggregate, including property taxes, which represent approximately 36% of our total operating expenses and are projected to increase approximately 3% in 2024. Excluding our planned disposition next week, the midpoint of our guidance range assumes $250 million of acquisitions, offset by an additional $250 million of dispositions with no net accretion or dilution from these matching transactions. Page 24 of our supplemental package also details other assumptions for 2024, including the plan for up to $300 million of development starts in the second half of the year and approximately $175 million of total 2024 development spend. We expect core FFO per share for the first quarter of 2024 to be within the range of $1.65 to $1.69. The midpoint of $1.67 represents a six cent per share decrease from the fourth quarter of 2023, which is primarily the result of an approximate three and a half cent per share sequential decline in same store NOI, driven by an approximate $0.04 per share increase in sequential same-store expenses resulting from the timing of quarterly tax refunds, the reset of our annual property tax accrual on January 1st of each year, and other expense increases primarily attributable to typical seasonal trends, including the timing of on-site salary increases. This is partially offset by a half-cent per share increase in sequential same-store revenue, primarily from higher levels of fee and other income. We are anticipating occupancy will remain effectively flat quarter-to-quarter. an approximate 3.5 cent per share decrease attributable to our December 28, 2023 $232 million disposition of Camden-Martinique, an approximate 1 cent per share decrease attributable to our planned $115 million disposition next week, and an approximate 0.5 cent per share decrease resulting primarily from the timing of various other corporate accruals. This 8.5 cent per share cumulative decrease in quarterly sequential core FFO is partially offset by an approximate 1.5 cent per share decrease in interest expense resulting from the lower debt balances as a result of the disposition proceeds and an approximate 1 cent per share increase in core FFO related to additional interest income earned on cash balances. Anticipated non-core adjustments for the first quarter include It combined three cents from freeze damage related to Winter Storm Jerry, the previously mentioned charge associated with unamortized loan costs from our term loan, and costs associated with litigation matters. At this time, we will open the call up to questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. And the first question will come from Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. Can you just talk a little bit about the macro assumptions that you have built into your guidance? You know, today we're seeing 353,000 jobs added. So, you know, how much elasticity is there in your guidance that could be influenced by the job market? And then along those lines also, you know, can you provide an update a little bit on the migration trips to the Sun Belt as part of your response? Thank you.

Sure. So the job number today and the revision for December was definitely, I think the market's calling it a blowout, right? And it certainly is. And our OVERALL ECONOMIC BACKDROP FOR WHAT WE THINK DEMAND IS GOING TO BE IN OUR MARKETS IS DEFINITELY NOT BASED ON BLOWOUT NUMBERS. CLEARLY WE THOUGHT AND I THINK MOST OF THE MARKET BELIEVE THAT THE JOB GOES SLOW DRAMATICALLY IN 2024. obviously more job growth helps helps us uh you know when you look at where the job growth is it's in our markets uh you look at texas and florida have led the nation in job growth postcode and we'll continue to do that so it obviously is very good for us and it's not necessarily that kind of drop growth is definitely not baked into our into our numbers uh when you think about uh what what's really driving demand in 2024 and 2025 Well, we don't think it was increased job growth driving that demand. What's been happening is multifamily has been taking market share from single family. As I said in the beginning of the call, we've gone from a historic average of 20% multifamily demand in total household formations to 40%. And that's driven by everything we know, right? That single family market's really hard for somebody to buy a house today. I mean, we had, I think, a total of 10.7% of people moved out to buy houses at Camden in 2023. And so when you think about those dynamics, and there's other broader dynamics too, which is 30% of Americans today are living alone. And that benefits apartments, and that number is way up from the past timeframe. So The blowout job numbers obviously help our numbers, and if we continue at this level, it would be pretty interesting. As far as in-migration, Alex, you can talk about in-migration. When you look at the demand side, for example, We expect over 200,000 units of demand in 2024, and that's on a 220 unit supply, right? Plus or minus or completions. And so, you know, it's pretty balanced when you get down to it. But ultimately, when you look out, for example, their projection showing, you know, 380,000 total demand for the U.S., from 400,000 in 24, 380 in 25. So demand is being driven by different drivers today, not just the old adage of, you know, one apartment for every five jobs. That just doesn't work anymore because of the in-migration. The other thing also is not just in-migration from other cities. It's actually total immigration because immigration was way down during COVID, and now it's back to more normal, and those immigrants tend to, tend to, and this is legal immigration, I'm not opining on border or anything like that, but it's, so that's helped us too. So Alex, you might hit the end migration a bit.

Yeah, absolutely. So we continue to have really strong in-migration to our apartment. So if you look at those who have moved from non-Sunbelt to Sunbelt for us, in the fourth quarter, it was about 17.5% of our total move-ins. By the way, that's fairly consistent with what we've seen over the past couple of years. So that remains really strong. And one of the other things that we track is that we track google searches for people in new york or people in california looking for apartments to rent in our markets and just to give you a really this is interesting to me new york searches for texas apartments were up 72% in the fourth quarter of 23 as compared to the fourth quarter of 22. California searches for Texas apartments were up 52% in the fourth quarter of 23 as compared to the fourth quarter of 22. So still very strong demand for folks coming out of New York, out of California to our markets.

Thank you very much.

The next question will come from Steve Sackwell with Evercore ISI. Please go ahead.

Yeah, thanks. Good morning. Thanks for all the detail. But I guess I had a question on what your implicit blended new and renewal kind of leasing spreads were and maybe how that tied into your occupancy assumptions. I guess what I'm really asking is, are you guys really solving more for occupancy here and will give up on the new rate side, or are you willing to let occupancy drift lower and sort of keep pricing firmer?

Yes. So we're assuming that occupancy is going to be flat in 2024 as compared to 2023. And that number is 95.3%. And we are driving towards that number. When we look at new lease and renewals and the trade out for the full year, what we're anticipating is new leases to be down 0.6%, renewals up 3.6% for blended increase of 1.2%. And that is going to sort of follow what you would think be typical seasonal patterns.

Thanks. That's it.

Thanks. The next question will come from Brad Heffern with RBC Capital Markets.

Hi, everyone. Thanks. Can you just talk about how your assumptions for rent growth in 24 compared to how you would guide in a normal year without all these supply headwinds? I think you said 1.4% market rent growth, so where would you normally start the year, and I guess why is that the right differential to that given the supply backdrop?

Yeah, we would typically, I mean, obviously every year is different and every year has its own unique parameters around supply and demand. In our business, a typical year is 3%, and you can see that we're at 1.4%, and that's obviously driven by the supply factors are there. As we've talked about on the prepared remarks, we think demand is still incredibly strong, but we are cognitive of the supply issues, and that's why you're coming up with a 1.4% for the full year.

So, Brad, to put it in context on the issue of demand and the job number that came out today, we used two primary data providers. They had very different views about employment growth for employers. 2024. And we basically ended up taking the midpoint of the two of them because they both had their own story that they could tell around it. But the midpoint of our two data providers forecast for total employment growth across Camden's markets for 2024 was about 300,000. And we just got that in the month of January. So I think we've we tried to build in some realism around the numbers and the forecast, but clearly our forecast did not anticipate anything like, you know, having the entire job growth projected for the year in the first month. Okay.

Thank you.

The next question will come from Austin Warshman with KeyBank Capital Markets. Please go ahead.

Yeah, thanks. I was just wondering, I know you guys don't offer concessions across the stabilized portfolio, but just wondering what kind of has changed just on concessions as far as what you're seeing across those markets that are, you know, most exposed to some of the new supply.

Thanks. Yeah, it's very typical of what we've seen. You know, the toughest markets like would be Austin, Texas, and Nashville. And the concessions are significant, anywhere from two to three months free. Generally, merchant builders don't go beyond three months free, but you're seeing that in the most supply markets. When you get to more markets that aren't as pressured than compared to those two, you're anywhere from... one month to six weeks to two months max. And that's kind of what we're seeing in some of the other markets.

The next question will come from Rich Anderson with Wedbush. Please go ahead.

Hey, good morning, folks. So I wonder if we could talk a little bit about the longer-term view. You're Avalon and EQR said, well, peak supply in 24 means peak revenue declines in 2025, or in theory, no one knows for sure. Do you feel like that is at least, you know, in the wheelhouse of a possibility and that what we're seeing today in terms of your outlook, which, you know, I think most people think looks better than expectations going in, could actually sort of see a downdraft next year as the full lot of the supply is absorbed into your portfolio.

Based on some of the providers we use, they show an uptick in 25, and our market's not a downtick. And if you think about the supply discussion that I had a minute ago, the supply we know about, demand is the real issue, right? So when you look at the demand projections for this year, there are nationwide over 400,000 units. And then the projection for the following year, even with a very low job growth mark, is something like 380,000 units of demand. So the demand drivers, interestingly enough, are just not usual demand drivers in multifamily. It's always been about job growth, right? And today it's about taking market share from single families, single family market, because It's so upside down on a cost to rent perspective and lack of inventory in the resale market. And what's happened, what's really interesting is that if you want to buy a new house in America today, you pretty much have to buy, or if you want to buy a house, you pretty much have to buy a new house. And when you look at that, usually when interest rates go up this high, the single family home builders all crash and lay people off. Well, You know, they had about a five or six month hiatus and then went went back to hardcore building houses because there was no inventory to be for single family buyers to buy. And that's continuing. So I think that these demand drivers that are actually that are driving this really positive outlook for demand in 2024 are going to be in place in 2025 as well. And especially if you have a backdrop of of job growth that looks like it's I'm not sure you can say January is going to be a print every month in this year, but clearly the job market is a lot stronger than people thought it might be. And that could help with the absorption in 2025 as well. So I haven't seen very many projections that show 2025 where rents are going down. Most of the numbers that we see from folks are bottoming in 2024, and then they start an uptick in 2025 because you've absorbed so many units in 2024. Okay.

Fair enough. Thank you.

The next question will come from Eric Wolf with Citi. Please go ahead.

Hey, thanks. So correct me if this is wrong, but I assume that you're at a gain to least today. So it's just wondering based on your history, if there's a certain gain to least level where you're no longer able to pass through like three and a half to 4% type renewal increases. And then for that 4.1% renewals you sent out for February and March was wondering what the rate sort of achieve rate to think about would be on that. Thanks.

So first of all, we're actually not at a gain to lease. We're basically a flat, no loss to lease or gain to lease. When you think about renewals, we're anticipating the first quarter that we're going to get right around 3.9%. So fairly close to what we're sending out. And then the other question, which I think is sort of really around the differential between new leases and renewals. When we look at our math, the differential for the full year, actual percentage-wise between somebody with a sign of new lease for and a renewal is really only about 1.5% differential. So it's not that significant and not something that we think is problematic.

Thank you.

The next question will come from Hendal St. Just with Mizzouho. Please go ahead.

Hey, guys. Good morning. Hope you could talk about development for a moment here. I see you have up to 300 million of new starts, including the guide. So curious when we could see those start, how they're penciling today from a yield or IR perspective, and which markets we could see those in.

The developments that we have in that model or in the model are in Charlotte and they're suburban three-story walk-up type product. And we would start those depending on how the year unfolds in the back half of the year so that we could deliver into 26 and 27. And the yields are anywhere from in the mid fives to low sixes. in terms of stabilized yields. And when you look at IRRs, it's really kind of complicated to figure an IRR today, given what are you going to expect cap rates to be. But ultimately, we think there's going to be a pretty constructive market in 26 and 27 when these properties deliver. We have another number of them in the pipeline as well in other markets. But these two, because they're pretty simple and they come in at a price point that's very affordable relative to urban high-rise in the same markets, it's pretty attractive.

Okay. And then maybe on the real estate tax guide, I think you mentioned, Alex, 3.5%, I think, was embedded in your same-store expense guide there. A little bit lower than I think a lot of us were thinking, and certainly given what we've seen recently. I'm curious if we're kind of past the peak headwinds there for real estate taxes and settling into a new norm here, or maybe you're perhaps benefiting from something else that's less obvious to us. Thanks.

Yeah, absolutely. So the property tax number that we have in our guidance is 3%. And if you think about it, it's really the same number that we experienced in 2023. And so it seems that we are reverting back to the long-term mean, which is in that sort of 3% to 3.5% range. Really, the big driver that you have is Texas, and as we discussed in prior earnings calls, Texas is very favorable when it comes to property taxes, especially with a new bill that was passed last year. And so we're receiving the benefit of that for a second year in a row, and we actually think that our total property taxes in Texas are going to be up about – about 2.2%, which is really a pretty low number, and that makes up about 40% of all of our property taxes. So that's the primary driver there. Thanks.

The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey, good morning down there. Just want to go back. I think, Rick or Keith, I think at the beginning of the call, you mentioned an expectation for nationally 400,000 unit absorption this year, 200,000 of which would be in the Camden markets. But I think they're like close to 700,000 or 650,000 units expected to be delivered this year. So just wanted to better understand the comments around absorption. And then also as part of that, are you, you know, we all understand what's going on with the supply, but Are you suggesting that the share of housing going to apartments versus single family will obviously continue to sustain and, therefore, Versus historically where jobs would be more the factor, it's really more the household formation that's really the factor now into next year.

Sounds like you answered the question. Yeah, that's what's going on. I mean, without amazing job growth, we're still able to – to produce a lot of demand, and it's all a function of different demand drivers and jobs, right? And today, if you look at the share that apartments are taking from the household formations, you look at historically, it's double what it has been for a long time. and so that's uh it's almost the same as what's happening in the single family for sale market is is their market share has doubled at least and maybe even tripled from the norm because the lack of inventory of single-family homes to buy because of the lock-in effect so you know you have a interesting situation here where we we are continuing to benefit from uh from the high cost of home ownership and and continuing to benefit from in migration both international, you know, immigration and migration from other cities. So, yeah, there's a lot of units under construction. We know that. But the demand, it seems to be, if these demand numbers are any close to being right, is going to create, if you will, a soft landing for the supply. And that's kind of the model that we put forth there.

And Alex, just to clarify. Rick, are you detecting that? Yeah, the 400 versus the 670.

Yeah, well, 670 is not what the absorption is going to be. Keith, you have those absorption numbers.

In Camden's market, I just want to clarify, the completions that we're modeling are 230,000 apartments across Camden's platform in 2024. And that number drops to about 200 in 2025. So just make sure we're talking apples and apples versus national numbers. It's 230 in Camden's markets.

Yeah, and that 600 coming in the pipeline doesn't all get delivered in 2024. Part of that is into 2025 as well.

The next question will come from Jamie Feldman with Wells Fargo. Please go ahead.

Great. Thanks for taking the question. I just wanted to get your thoughts on timing of fundamentals. So just thinking about your guidance for new leases, slightly negative, but they were much worse in January on both effective and signed. And then, you know, if you look at your current occupancy versus your projected occupancy, it seems like an uptick. So do you think that – You know, when you think about the first half versus the back half, do you think it gets better into the back half and that's where the pickup is? Or do you think that, you know, that January is kind of an anomaly and the numbers are just going to look better off the bat?

So the first thing I would tell you is if you look, our signed new leases in January, excuse me, our signed blended leases in January are better than our effective, which is a leading indicator of improvements. What we are anticipating that we're going to have blended tradeouts in the first quarter of about 0.2%, so a slight uptick from where we are today, but we are anticipating the occupancy is going to remain flat in the first quarter at 95%. And then the improvement comes throughout the year as, number one, we have better comps, which are very helpful for us. And then we also sort of hit our seasonal strong periods as we move from the second quarter into the third quarter.

And then you think it stays strong in 4Q? No.

Yeah, we've got a 4Q blended tradeout of 1.6% and occupancy of about 95.2%. So I think that sort of follows the normal seasonal patterns that you would see.

Okay. All right. Thank you.

The next question will come from Adam Kramer with Morgan Stanley. Please go ahead.

Hey, guys. I just wanted to ask about external growth and acquisition specifically. Given where the balance sheet is to EBITDA at four times a quarter end, I mean, what would kind of be needed to happen for there to be upside to the acquisition number and you kind of step into that under lever balance sheet?

So the primary thing that would have to happen on acquisitions is we'd have to see better going in yields. You know, even though there's been a lot of, you know, Transaction volumes are way down. There's still a huge bid-ask spread between buyers and sellers. We just don't see value right now in the acquisition market versus other uses of capital. Now, that's not to say that at some point that doesn't change. I mean, obviously, with all of this new supply that's been built, and primarily by the merchant bill community, At some point, they need to move past the current crop of their development pipeline and kind of recharge their organizations. They are in the business of building apartments. And so they're all, I think they all have way too much, way more than they would normally care to have in terms of their, you know, development pipeline and holding. So at some point, there's going to be a rationalization, not just in the rental supply market between supply and demand, but in the transaction market between product that needs to find a permanent home, not in the merchant bill community, and people that are willing to provide that and have the capital to do it. So we are in the latter group. We just don't think we're there yet. And we just think being patient right now is the right is the right strategy for the acquisition market.

You know, NMHC just completed this week, and we had, of course, our huge team out there, and this is kind of the start of the sort of acquisition disposition dance. And people were, compared to last year, last year I would categorize as deer in the headlights. And this year is a little less deer in the headlights and more cautious optimism because rates have come down some. And that's keeping some of the pressure off of people having to sell. But there is still just a massive bid-ask spread between people who want to buy versus people who want to sell. And so the question will be, how do the operating fundamentals look going forward? And, you know, how do people feel about the world? What happens to rates? And I think people are more optimistic now that they can enter the acquisition market because last year was, I don't want to make a mistake. What if the Fed does, you know, all these things? Now we're on a trajectory, it looks like, to lower rates someday. And therefore, it's easier to sort of create a model that works financially today with a falling rate scenario in the next two or three years. But we're not there yet, for sure, in terms of that inflection point.

Great. Thanks.

The next question will come from John Kinn with BMO Capital Markets. Please go ahead.

Thank you. I wanted to ask about dispositions. I guess this month you're going to be selling Camden Vantage in Atlanta. Why this particular asset? It's not old. It's in one of your core Sunbelt markets. We calculated the cap rate north of 7%, so it didn't seem like pricing was that great. But going forward, where else do you see this position activity? Will it be in California or, you know, focused on more of your older products?

So I'll take the cap rate question first, and then I think maybe Keith can opine on the disposition choice. But for Camden Vantage, we are showing this at using actual CapEx and a management fee at a 5.75% cap rate, tax-adjusted 5.65% cap rate, and an AFFO yield before management fees of 6.09%. So... definitely a lower yield than you're calculating.

Yeah, and on the dispo side, I mean, we keep a list of and have ongoing conversations with our operating groups about If there were to be a sale out of one of your markets or submarkets, which assets would be in that conversation? And Vantage almost always came up as one that would be on the list of management's list of assets that they would rather someone else take care of. So I'll just leave it at that.

Can I just follow up? What was the CapEx assumption on Vantage?

Yeah, the CapEx on that one, I think it's probably around $1,800 a door, but I'll have to get back to you with the exact.

Okay. Great. Thank you.

The next question will come from Rob Stevenson with Jannie. Please go ahead.

Good morning, guys. Just on the dispositions, given how low your leverage is, the sizable free cash flow and the minimal development spending remaining, how aggressive are you willing to be and sell more assets without corresponding acquisitions? Because it seems like, given Keith's acquisition market commentary, that acquisitions at best would be back half-end loaded and may not come at all if the rest doesn't come.

Yeah, so our guidance assumes that we basically match dispositions and acquisitions. So we would look to be kind of net zero on the year. And the answer on the acquisitions really – dispositions kind of gets back to when we find value and we believe that there's a real opportunity on acquisitions, then we would – those clearly would be assets that we wanted to, you know, newer assets that we want to add to the portfolio. And we're always willing to improve the portfolio by selling, you know, a corresponding number and dollar amount of assets to fund that. So our working assumption and what's reflected in the guidance is that we're willing to be pretty aggressive when we see value in acquisitions, but not before then.

Okay, that's helpful. And then just a point of clarity, the mid-fives to low-sixes that you guys talked about on development yields on a stabilized basis, was that for the two Charlotte ones that you might start this year, or was that the stabilized yields on the four properties in the current development pipeline?

Actually, the numbers are the same. You know, the current development pipeline, we have some in the, you know, sort of the low to mid sixes and some in the, you know, sort of low fives. The new developments in Charlotte, we're still working on, you know, what the model looks like, but we wouldn't start them if they were in that zone.

Okay. And are you seeing any real relief on materials or labor? on the development side, given this sort of pullback in other areas of development, or is it still competitively priced versus the last couple of years?

Yeah, not yet. We haven't seen any big drops in costs. What's happened is the costs haven't been going up as much. I mean, if you go back a couple of years, we were having like 1% to 1.5% inflation every single month. And so today, you don't have that part of the equation, but there has been a material shift in pricing. And that's one of the challenges you have, every merchant builder and Camden has, is that If costs aren't coming down but rents are flat and it's a very competitive market, it's really hard to justify new construction. That's why the starts are projected to fall to low 200,000s in 2025. It's just that the math doesn't really work well when rents are flat and construction costs haven't fallen.

Okay. That's helpful. Thanks, guys. Appreciate the time. Sure.

The next question will come from Wes Galladay with Beard. Please go ahead.

Hi, everyone. I have a question on the development delivery forecast. Do you think this year is going to be more at risk to delays versus prior years? And are you seeing any of the developers going bust yet?

We haven't seen anybody going bust yet. And I think that banks are definitely, we hear a lot of anecdotal information about banks working very well with their borrowers today. The banks are much more, they're well capitalized and it's pretty common knowledge that that, you know, in the next couple of years, the economic backdrop of operating fundamentals and lower interest rates are all going to help. It's going to help get some of these deals, you know, through that system. So in terms of that perspective, I don't think that you can have any, there's not going to be any major bankruptcies or major defaults with Merchant builders, they might be stressed to sell, but that doesn't mean I think there's still equity in their deals, most of them anyway. In terms of delays, it's still hard to get a project to be delivered when you expect it to because so many people left the labor force. We don't have excess labor supply, and so there's still a fair amount of risk in deliveries and when the delivery is going to come. And so that could actually be beneficial to the backdrop of our supply and demand equation. If starts do plummet, or I think they will, but when you actually start seeing more and more of that, if we delay some of the 24 supply into 25 and some of the 25 into 26, that could be a lot smoother, softer landing for those markets given the demand side. Thanks for the time.

The next question will come from Anthony Pallone with J.P. Morgan. Please go ahead.

Yeah, thanks. So it sounds like the stress in the system just isn't there to create a lot of opportunities right now. So wondering what it might take for you to use some capacity to buy back stock.

Yeah, it's something that we look at constantly in terms of the opportunity set for allocation of capital. And in the past, we've haven't been bashful about buying back stock when it made sense to do so. It's always a little bit of a challenge because of the rules and the trappings around buying stock in size and doing it in the windows that are available. But, yeah, it's something we've talked about, we've discussed, and that we would pursue when we think the opportunity makes sense.

Okay, thanks.

The next question will come from Ometeo Okasanya with Deutsche Bank. Please go ahead.

Yes, good morning. Thanks for taking the call. Just thoughts on bad debt expense. The forecast was 24, 1.1% of total revenues. It doesn't really change that much from where you were at 4Q. So just wondering why we're not seeing incremental improvements kind of post all the moratoriums and improvements on the fraud management side.

So I think we're sort of in unprecedented times right now where we're trying to figure out what is the new normal. And so at this point, what we're assuming is that the first and second quarter look a lot like the fourth quarter. And then we have some slight improvements as we go into the latter part of the year. Clearly, if we return to 50 basis points, which is what our historic norm had been before all of this, then we've got some potential upside sort of running through the math. But at this point, we're just being patient and seeing how it plays out. Fair enough. Thank you.

The next question will come from Robin Liu with Green Street. Please go ahead.

Hi, good morning. Alex, just a question for you. There was a decent step up in CapEx budgeted for the year, particularly in non-recurring CapEx. Can you provide more details as to what's driving the high spend?

Yeah, absolutely. So we've got a couple of things that are running through the non-recurring side. And they're mainly focused around a couple of communities we have that have some large exterior projects and foundational projects that we need to do. So that's what you've got going through the math.

Do you expect that to extend to other properties in like 25 or 26 as well?

No, I don't think so. You know, we go through and we look at all of our communities, really do a deep dive every year, as you would expect. And so these were a couple of communities that had been identified, as I said, that did have the foundational and exterior challenges that we knew we needed to fix. And so our intention is to get it done in 2024. And I wouldn't expect to see a number like this in 25.

Right. Thank you.

Absolutely.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Rick Campo for any closing remarks. Please go ahead, sir.

Great. Well, thank you for being on the call today. We appreciate the opportunity to go through what 2024 looks like to be an interesting year. So we'll see you in the conference circle and circuit here in the next month or two. So take care and thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.