Camden Property Trust

Good morning and welcome to Camden Property Trust's first quarter 2024 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 Oden, Executive Vice Chairman, and Alex Jesset, President and Chief Financial Officer. Today's event is being webcast through the investor 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 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 the 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 first quarter 2024 earnings release is available in the investor 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 questions 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.

Thanks, Kim. The theme for On Hold Music today was celebrations. We recently learned that we were included once again on the Fortune magazine's annual list of the 100 best companies to work for. This marks 17 consecutive years that Camden has been included on this prestigious list. We celebrate being on the list because it shows that Camden employees value and appreciate being part of a great workplace. Two-thirds of a company's score for inclusion on the Fortune list is based on an anonymous, third-party-administered employee survey. If a company's employees don't love what they do in their workplace, there's no chance that a company would ever make the list. The survey consists of 60 questions, and the most important is the final one, which asks employees if they agree with this statement. Taking everything into account, would you say this is a great place to work? 95% of Camden teammates agree with this statement. This is truly remarkable and certainly a cause for celebration. We believe that smiling, motivated, and committed Camden teammates serving our residents with purpose and commitment to living excellence leads to smiling customers, which always leads to smiling shareholders. I want to thank Team Camden for their continued support of improving the lives of our teammates, our customers, and our shareholders, one experience at a time. With the first quarter behind us, I will jump right into the issue that we spend most of our time talking about, apartment supply in our markets. Yes, we are at 30-year highs for apartment deliveries, and yes, that is limiting rent growth in most markets for now. The good news is that the market is adjusting quickly to the post-COVID low interest rate development frenzy. March apartment starts were the weakest since April of 2020 and are down 53% from peak volume and falling. Starts will likely fall to just over 200,000 apartments in 2025, primarily driven by low-income properties using tax credits and other government support. New deliveries should peak in 2024, falling by 31% in 2025 and 50% in 2026, which would be a 13-year supply low point. Apartment demand continues to be strong. During the first quarter, apartment absorption was over 100,000 apartments, the best first quarter demand in 20 years. The main drivers of apartment demand are population and employment growth. apartment affordability, and positive demographic trends. The most recent 2022-2023 census reported that the top 10 cities increased their populations by 710,000. Nine Camden markets are in the top 10. The bottom 10 cities reported a loss of 200,000 people. These were major cities on the west and east coasts where Camden has limited exposure. Employment growth has been robust in all of our markets except Los Angeles, which continues to struggle. Apartment affordability continues to improve as residents' wage growth has been above 5% for the last 17 months, while rents have been relatively flat. Consumers are spending less of their take-home pay for apartments. New Camden residents pay 18.8% of their income towards rents. Mortgage rates and rising home prices have kept move-out to buy homes at historic lows. 9.4% of our move-outs in the first quarter were attributed to residents buying a home, the lowest in our history. The monthly cost of owning a home today is 61% more than leasing an apartment. This is not going to change anytime soon. Demographic trends continue to be a tailwind, supporting demand from high propensity to rent groups, including young adults age 35 and under. Apartments should take a larger share of household formations given these demand drivers. 2024 demand should be sufficient in spite of supply concerns to set up accelerating rent growth for 2025 and 2026, assuming the overall economy continues on the current trajectory. Keith Oden is up next. Thanks.

Thanks, Rick. Our first quarter 2024 same property performance was better than expected primarily due to lower levels of bad debt and favorable trends for insurance and property taxes which Alex will discuss in detail. Overall operating conditions across our portfolio are playing out as we expected. In our market outlook on last quarter's call we projected our top five markets for revenue growth this year would be San Diego Inland Empire, Southeast Florida, Washington DC Metro, LA Orange County, and Houston. Not surprisingly, those were in fact the top five performers for the quarter with same property revenue growth ranging from 3.4 to 6.2% in those markets. And as anticipated, we are seeing the most challenging conditions in Nashville and Austin with those markets showing slightly negative revenue growth for the quarter. As we previously disclosed, we initiated a marketing strategy during February to boost occupancy going into our peak leasing season, allowing us to then increase pricing power. Rental rates for the first quarter had signed new leases down 4.1% and renewals up 3.4% for a blended rate of negative 0.9%, with average occupancy of 95%. Our preliminary April results show an improvement of 230 basis points for signed new leases to negative 1.8%, with renewal rates at 3.4%, resulting in a positive 0.6% blended rate. We believe our strategy was successful, with April occupancy averaging 95.2% and recently trending around 95.4%. Renewal offers for June and July were sent out with an average increase of 4.2%. And finally, turnover rates across our portfolio remain very low, driven by fewer residents moving out to buy homes. Net turnover for the first quarter of 24 was 34%, compared to 36% in the first quarter of 23. I'll now turn the call over to Alex Jessup, Camden's President and 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 first quarter of 2024, we stabilized Camden Noda, a 387-unit, $108 million community in Charlotte, which is now 99% occupied and generating an approximate 6.5% yield. We began leasing at Camden Longmeadow Farms and a 188-unit, $80 million single-family rental community located in Richmond, Texas, and we continued leasing at Camden-Durham, a 420-unit, $145 million new development in Durham, North Carolina, and Camden-Woodmill Creek, a 189-unit, $75 million single-family rental community located in the Woodlands, Texas. Additionally, on February 7, we sold Camden Vantage, a 592-unit, 14-year-old community in Atlanta, for $115 million. At the beginning of the quarter, we issued $400 million of 10-year senior unsecured notes with a fixed coupon of 4.9% and a yield of 4.94%, and subsequently prepaid our $300 million floating rate term loan. On January 16, we repaid at maturity a $250 million 4.4% senior unsecured note. In conjunction with the term loan prepayment, we recognize a non-core charge of approximately $900,000 associated with unamortized loan costs. During March and April, we repurchased approximately $50 million of our common shares at an average price of $96.88, and we have $450 million remaining under our existing share repurchase authorization. As of today, approximately 85% of our debt is fixed rate. We have no amounts outstanding on our $1.2 billion credit facility, less than $300 million in maturities over the next 24 months, and less than $100 million left to fund under our existing development pipeline. Our balance sheet remains incredibly strong with net debt to EBITDA at 3.9 times. Turning to our financial results, For the first quarter, we reported core FFO of $1.70 per share, three cents ahead of the midpoint of our prior quarterly guidance. Our first quarter outperformance was driven in large part by one and a half cents per share and lower than anticipated levels of bad debt. All the municipalities in which we operate have now lifted their restrictions on our ability to enforce rental contracts, and in particular, Fulton County in Georgia has enacted legislation encouraging renters to abide by their contracts. As a result, we experienced 80 basis points of bad debt in the quarter as compared to our budget of 120 basis points. Some delinquent renters did repay past due amounts, but more often we simply received the benefit of having our real estate back, the opportunity to commence a lease with a resident who abides by their rental contract, and lower bad debt from having a new resident who actually pays. The accelerated move outs to delinquent residents did put pressure on our physical occupancy, so we made a pricing strategy shift during the quarter, reducing rental rates at communities less than 95% occupied in order to maximize pricing power as we entered our peak leasing season. As a result of this shift, we experienced higher occupancy during the quarter, but that was entirely offset by lower rental rates. Our outperformance for the first quarter was also driven by 1.5 cents in lower operating expenses, resulting from lower core insurance claims and lower property taxes. Although we are pleased with our first quarter revenue outperformance, at this point we are maintaining the midpoint of our full year guidance at 1.5%. However, we are changing some of the underlying assumptions. Our original guidance assumed 1.2% of rent growth, comprised of our 50 basis point earn-in at the end of 2023, effectively flat loss to lease, and approximately 70 basis points of market rental rate growth recognized over the course of the year. We also assumed flat occupancy versus 2023 and a 30 basis point contribution from lower bad debt, bringing us to our 1.5% total budgeted revenue growth at the midpoint of our original guidance range. Our current revenue guidance reflects the same assumptions of a 50 basis point earn-in and flat loss to lease, but now with 25 basis points of market rental rate growth and 10 basis points of occupancy gains as a result of our first quarter marketing initiative. In addition, our revised estimates for bad debt will add 65 basis points of revenue growth, bringing us back to the 1.5% midpoint for our current revenue guidance. Last night, we lowered our full-year expense guidance from 4.5% to 3.25%, entirely driven by the assumption of lower than anticipated insurance and property taxes. Insurance represents 7.5% of our expenses and was originally anticipated to increase 18%. In addition to lower insurance claims from the first quarter, we just completed a very successful insurance renewal, and we are now anticipating insurance will be flat year-over-year. Property taxes, which represent approximately 36% of our total operating expenses, were originally projected to increase 3% in 2024. We have since received very favorable tax valuations, particularly in Houston, and we are now assuming a 1.5% year-over-year property tax increase. These positive expense variances are partially offset by increases in salaries, in part associated with increased performance incentives, and higher marketing costs associated with higher search engine optimization expenses. After taking into effect the decrease in expenses, we have increased the midpoint of our 2024 same-store NOI guidance from flat to positive 50 basis points. We are maintaining the midpoint of our full-year core FFO at $6.74, as the accretion associated with lower same-store operating expenses is entirely offset by higher-than-budgeted floating-rate interest expense, primarily as a result of fewer-than-anticipated Fed rate cuts. At the midpoint of our guidance range, we are still assuming $250 million of acquisitions, offset by an additional $250 million of dispositions, with no net accretion or dilution from these matching transactions, and up to $300 million of development starts in the second half of the year, with approximately $175 million of total 2024 development spend. We also provided earnings guidance for the second quarter of 2024. We expect core FFO per share for the second quarter to be within the range of $1.65 to $1.69, representing a 3 cent per share sequential decline at the midpoint, primarily resulting from an approximate 1 cent decrease in interest income due to lower cash balances, a 1 cent increase in overhead costs, due to the timing of various public company fees and a one-cent sequential decrease in same-store NOI, as higher expected revenues during our peak leasing periods are offset by the seasonality of certain repair and maintenance expenses and the timing of our annual merit increases. At this time, we'll open the call up to questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brad Heffern with RBC Capital Markets. Please go ahead.

Yeah, thanks. Good morning, everybody. Rick, you talked about the record absorption in the first quarter, but despite that, supply is obviously still having a very large impact in the sundial. What do you think would happen if maybe the market demand not necessarily went below normal, but returned to normal levels?

Well, I think if it went to no sort of normal levels, we'd just have more pressure probably a little bit. But at the end of the day, to me, the The real issue is so when you have population growth, you have migration growth, you have job growth in the markets we're in, you know, it's hard to imagine that that happens given the backdrop of what's going on. I guess you could have a fall off on, you know, instead of a soft landing, it could be a hard landing. And if it's a hard landing, then it's just going to be a tougher environment, obviously.

Okay. And then on the bad debt dynamics, obviously you've improved the guidance on that front, and things especially in April looked really strong. Can you just talk about sort of what's underlying that? I know you had gone to some more ID verification steps in Atlanta, say. Presumably you continue to get units back in L.A., but just, you know, the underlying progress of that.

Yeah, so it's primarily the fact that a lot of long-term non-paying renters are continuing to move out. I mean, the restrictions have been lifted pretty much everywhere where we operate, but it still takes time to work through the process. There's still a backlog, but we're working through the process. And every time we get to take someone away, And, you know, through the full cycle, we're going to get more of our apartments back. So I think that it's the one thing that did make a big difference and probably accelerated our progress was, believe it or not, in Fulton County, you know, miracles happened. Fulton County, which was one of our most problematic areas for how long it took to process an eviction and the amount of nonpaying residents we had there, they actually passed – an ordinance that basically said, If you don't pay your part, if you're in default of your rent and you don't pay your rent to the landlord in order to not be evicted, to avoid eviction, you have to pay your rent to the court. And then the court will, you know, it's your day of reckoning. The court will either pay the landlord or not or return the rent. That alone was a huge change. So the sentiment continues to move in a more positive direction around, you know, regulatory regimes around non-payment of rent. And I think that, you know, it's happening a little bit quicker than we anticipated. I do remember that on previous calls we've been asked, you know, Are you ever going to get back to 50 basis points bad debt expense, which is what we had for 30 years prior to the change from the COVID experience? And my answer to that was ever is a long time, you know, forever. And so it looks like we're making pretty good progress. 80 basis points of bad debt expense is more than halfway back to, you know, our long-term goal. 50 basis point experience for the last 30 years. So I'm more hopeful than I have been in the last two years of it that we could in fact get back close to that number.

I think the fact that we can pivot with technology the way we have through adapting to the sort of bad guys who come in and use identity theft to lease apartments and then go through the process. So the fact that we're able to pivot with new technology to be able to find out, to weed those people out before they get into our properties was a big part of the equation. And, you know, it's sort of like anything else when you have a – when the bad guys figure out that they can't get in the front door, they go to somebody else. And so I think I'm really excited about being able to, you know, to deploy technology as quickly as we did and adapt to that situation.

The next question comes from Handel St. Just with Mizuho. Please go ahead.

Hey there. Good morning. Rick, 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 been able to maintain 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 TD and ESL Cal? Thanks.

Sure.

Yeah, absolutely.

Go ahead, Keith. Go ahead. Yeah, Handel, 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, 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 six weeks, eight 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. So I think the opportunity that we're going to continue to have in the better markets that are less supply impacted, we'll be able to push rents and should be able to hit our revenue targets for the year. I'm certainly pleased to see the kind of you know, relative pricing power that we have in our D.C. metro and in Houston. You know, those two markets are really important for us. They're 25 percent of our same store pool, and those are both performing really quite well, and I think that there's a good chance that that will continue.

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 quarters. Thanks.

Yeah, 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 two quarters after that.

The next question comes from John Kim with BMO Capital Market. Please go ahead.

Thank you. Can I just follow up on that? So your guidance now has 25 basis points of market rental growth, and that's done from your original guidance. That's offset by higher occupancy and better bad debt. But I guess my question is, how realistic is that 25 basis points? Is that something that you just plug into – maintain your same-star revenue guidance, or do you think that's what you're going to achieve?

No, it's absolutely what we think we're going to achieve. Obviously, what we do is we look at the conditions on the ground, we look at our third-party data providers, and we take all that information. And just like we do our original budgets, we do re-forecasts from the community level on up, and so this is exactly what we expect to achieve.

And is that the occupancy versus rate tradeoff, or are there some markets that are potentially underperforming your original expectations?

Well, if you think about it on the occupancy side, all of our markets are doing better than we thought on occupancy, and then clearly we're bringing down the rental rate, so the rental rate bring down is generally across the board. The offset, once again, is the much lower bad debt rate.

Right. Okay.

The next question comes from Austin Wardschmidt with CBank Capital Markets. Please go ahead.

Yeah. Hi, Alex. Just wanted to clarify what the revised lease rate growth assumption is for this year versus the 1.2% you'd previously provided. And can you just share, I guess, you know, what the implied lease rate growth is than you need for the balance of the year.

Yeah, 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, which is about 50 basis points, and then you've got the 25 basis points that you're getting from the market rent growth. So that gets you to 75 basis points. To that, you're going to add the 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%.

Got it. Okay, so it seems like about 1.25% to 1.5% from here out on the blends is kind of the math I was getting to. Yeah, that's right. Rick, I guess... Okay, thank you for that, for clarifying. Rick, would the setup be highlighted in your prepared remarks around the strong absorption, you know, supplies poised to hit multi-year lows in the next couple of years? I guess, how do you further take advantage of that backdrop, you know, prior to, you know, development ramping back up and just, you know, opportunity, you know, other types of activity with, you know, others being in a better position from a cost of capital and financing market perspective?

Well, clearly, when you think about how you set up for 26-27, it would be on the development side of the equation. You know, we have a decent pipeline that we can start. And I guess the real question is, you know, 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 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. Clearly, right now, the best trade in the first quarter was selling assets and buying stock. And, you know, we're buying stock at a, you know, high six cap rate when the market's trading today at a, you know, low five cap rate. And so it's a very, you know, reasonable trade to make. And so ultimately we'll be able to pivot to a more, a more, you know, aggressive mode when we start seeing, seeing that, that, that, that, that the supply does get taken up between now and say, you know, middle of the summer. And we really need to see the, the, the peak leasing season and how that unfolds for us to get more aggressive at this point.

The next question comes from Rich Anderson with Redbush. Please go ahead.

Good morning, and I'm going to keep to the one-question rule here. So, yeah, just observational stuff. It's pretty easy. So what do you think explains the difference in perspective between you guys saying, you know, accelerating rent growth in 2025 and 26 and Equity Residential and Avalon Bay, which, you know, 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? Or does it concern you when you hear them say that? Because they're not dummies either, you know? So, like, I'm just curious what you think the difference is.

I think the difference is that pretty much everybody talks their book, right? And that's part of it. Is that what you're doing? Yeah. No, but well, sure, if we didn't believe what we're saying, we wouldn't say it. And I'm sure they believe what they say. But the issue is they're not operating in these markets. So I'm not going to opine about that. about what San Francisco is doing, even though San Francisco hasn't added back their jobs, you know, that they lost during COVID. Yet, if you look at, you know, so we look at our markets and I use a fair, we use a fair number of data providers. And when you look at some of those data providers, they show pretty good demand and the numbers are are sort of when you look at Ron Witten, for example, I use him a lot. And Ron's been around for a long time. He's showing accelerating rent growth in 2025 because of the excess, this demand that's coming from multifamily because of all the things we talked about, you know, at the beginning. Excuse me. So So I think there's a certain amount of bias that everybody has about their own markets, and we operate in these markets. We're seeing what's happening every day. Pretty hard for me, if I had two properties or three properties in New York City, does that give me a sense of what's going on in New York City? And the answer would be no. You know, you have to have a broad sense of these markets. We've operated in our markets for over 30 years. We understand how the dynamics work. And some of the numbers are just incredibly compelling. Like, for example, let's take L.A. and San Francisco. Both have L.A. still has 43,000 jobs lost since 2019. San Francisco, 52,000 jobs lost. Dallas added 418,000 jobs from 19. Houston, 233,000. Austin, 205,000. Phoenix, 223,000. So the bottom line is that What's been driving the markets in the Sun Belt continues to drive those markets. And the fact that our West Coast and East Coast brethren are doing better than us from a revenue growth perspective is because their hole was so deep that they're just crawling out of a deep hole. And, yeah, that's a good way to play stocks now and then. But I don't understand the 100 basis point gap between the implied cap rate for Mid-America and Camden versus equity in Avalon Bay. And so because ultimately what's going to happen is that is when the markets write themselves from a supply perspective, the same thing that drove outperformance of revenue growth in the past, which is job growth and household formation and all the positive things that are going on in these markets is going to continue. So unless you bet that we're going back to the sexy six cities that get all the growth, I don't think that's going to happen. I think there's a fundamental change in the dynamics between growth in these markets and growth in the East Coast, West Coast markets. And we can all agree to disagree, but that's what you guys do is you buy stocks based on that, right? So we'll see who's right.

Thanks very much. Sure.

The next question comes from Steve Sakwa with Evercore. Please go ahead.

Great. Thanks. Good morning. Rick, I guess I wanted to piggyback on your comment about the possibility of starting some new development. And I'm just curious, you know, which markets are kind of higher up on your list? And, you know, if you looked at the economics today, you know, where do those deals pencil or how far away are they from actually penciling where you think the development needs to be?

Well, development needs, it would be, if you look at our development page on 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, you know, Charlotte's absorbing, you know, 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, you know, really quickly and at decent rates. And so, you know, I would say it would be, you know, go down that list and you'll see where it is. But the economic issues, you know, some properties clearly, depending on where you are, We have two developments in Nashville, for example, and Nashville does have a bigger supply issue than most cities. Between Austin and Nashville, they have the biggest supply, you know, the new supply coming online. So we're going to take a hard look at those numbers. But, you know, when you look at current cap rates today, I know it hurts people's head to think that they're in the low fives, but we have trades that are going on. today in the high fours. And even though they have negative leverage, they're basically buying based on the pound. They're buying at 40, 50% of replacement costs. And their bet is that when supply is absorbed, that there's going to be rent spikes that happen in 2026, 27, 28 that are going to be similar to 12, 13, 14. And so if you If we do a pro forma like that, then, you know, most of our developments are going to be in the sixes. And so I think that makes sense. But the question is, you know, we still need to see this, the leasing season this year and have more confidence that, you know, before we commit a lot of capital to development, we need to see more cards. And, you know, so to me it's, you know, just look in the supplement and you'll see where our starts are.

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

Hey, good morning down there. And Rick, hopefully you trademark sexy sex. That sounds like it could be a good moneymaker. There you go. So going to the jobs and the strength of the Sunbelt, you have clearly a lot of supply, but you know, what's been going on across earnings season is everyone's talking about the strong jobs in the Sun Belt, you know, but at the same time, you know, general, you know, the talking heads and economists and everyone's talking about, you know, potential for recession, hard landing, you know, hey, the job, you know, the economy is not great. And yet, All the apartments are talking about really good demand, and it's hard to believe that it's only because move-outs to homes are low and your typical renter can't afford a home. So it does seem like the economy is stronger across the Sun Belt in your markets than what the talking heads say. Would you agree with that, or is there something else that's explaining the disconnect between the broader economic concerns versus the absorption and the demand that you're seeing in your markets?

Well, I think the idea that you have, you know, the risk of recession and hard landing or soft landing, that's out there for sure. There's no question about that. And I think that's what people are about, right? I mean, if you look at the first quarter and then the print, the job print that just happened, 175,000 jobs that was published today, you know, I think that job number, the consensus was three jobs, and we did 175. And, of course, the market rallies, the tenures, you know, rallying big time, because that's a Goldilocks kind of scenario, right, where it's not too hot. And so I think that The question is, I think there's still this concern about what the Fed does and do they ease or do we have a soft landing. If we have a hard landing, then all bets are off, right? I mean, what drives multifamily demand and any demand for any product ultimately is the economy. The economy today is good. The jobs have been plentiful and they've been primarily in the sunbelt. And I think as long as we have the same kind of economic construct or a soft landing scenario, then demand to take up the supply and our numbers will be what our numbers are. But on the other hand, if you have a hard landing and we lose two or three million jobs, then revise our numbers. Okay. Thank you.

The next question comes from Eric Wolf with Citibank. Please go ahead.

Hey, thanks. I think you said that you expect a 10-bit contribution from Occumency Now. So just trying to go through the math, I think that means that you're expecting like 95.4% through the year, which would mean they call it like 95.5% through the remainder of the year, just based on what you've done so far. Is that the right way to think about sort of what you think Occumency will average?

That's exactly right. So we're assuming that we're going to be at about 95.4 for the second quarter, 95.5 for the third quarter, and 95.4 for the fourth quarter. So exactly in line with your math.

Gotcha. And then you touched on this briefly, but you said that the sort of forward indicators of occupancy were telling you that there could be some improvement. I was just wondering if you could maybe go through like the lease rate, the percentage of tenants renewing, just sort of anything that you're seeing that sort of gives you confidence that occupancy should continue to rise.

Yeah, so what I was referring to, Eric, is the – when we think about making adjustments to strategy, Obviously, we use Yieldstar, and Yieldstar is forward-looking. It's always looking at least six to eight weeks out for trends. It projects kind of what future occupancy is going to be based on where our portfolio is at the time, lease renewals that are upcoming, et cetera. So, When we're making strategy changes, it's in conjunction with our revenue management team who are using the tool that we have, which is Yieldstar, to inform us about not like what's on the ground today. That's obvious. We know what that is. The question is, what is it going to be if we continue on this path? and either don't make a strategy change or we do make a strategy change, where does that project our occupancy to be eight weeks out? So when we look at, you know, as we look at it today, we're encouraged that, to the point where the tool and the algorithm that is Yieldstar is going to say you have the opportunity to increase rents across certain markets, and we'll take advantage of that. But that's all I was referring to is that the model is forward-looking. We use the model, and obviously with a lot of history and experience and judgment applied to it, to help us make decisions about strategies.

Thank you. That was helpful. You bet.

The next question comes from Janie Felden with Wells Fargo. Please go ahead.

Great. Thank you, and good morning. So I'd like to go back to your thoughts on just capital allocation. You know, I know you had mentioned, you know, buying a stock NARA 6 and cap rates NARA 5. But if you're thinking, you know, you get red spikes a couple years out, you know, I know you had mentioned $450 million or so left on the repurchase plan, but just how do you think about the next $100 million, you know, $200 million as you think about what's going on in the markets and if this is the window to actually buy or do any kind of, I know you don't love JVs, but any kind of investment across the capital stack versus buying back shares?

Well, you're right. We don't like JV, so we won't be doing that. We have the most pristine balance sheet from an ownership perspective. We own 100% of everything we own. We don't have any partners, so we do what we want when we want to do it. The issue of capital allocation, you know, it's one of those interesting discussions. We've always said that if there's a big disconnect, between our stock price. Our stock price is 20 plus percent below what we think the value of the underlying assets are and that it's persistent over time and we can sell assets and buy stock. That is something we do. And we obviously did that in the first quarter and we'll be considering that again as we go forward into the rest of the year. And then ultimately, when we decide to move to offense, in terms of starting new developments and potentially acquisitions as well. I think this market is an interesting market. If you look at just maybe the rally in the 10-year today is going to improve people's outlets on transaction volumes because it sort of people came in the beginning of the quarter when the 10-year was doing pretty well at the beginning of the quarter, and then all of a sudden, you know, had the big run-up, it sort of quashed the energy that people had in the transaction market. Because if you look back, we're at transaction levels that haven't been seen since 2014. So there's just not a lot of deals going on. There should be some interesting opportunities to buy and sell, where we sell some of our properties, buy other properties, you know, just to move the tech chairs around on our on our portfolio to improve the quality and ultimately the growth rate going forward, maybe market concentration. So we'll look at all those things. But like I said before, in order for us to go on offense, we really have to have the peak leasing season come through the way we think it will.

The next question comes from Michael Goldsmith with UBS.

Please go ahead. Hi, this is Amy. I'm with Michael. I was just wondering, it sounds like you've made a lot of progress on the bad debt, so that's good. Is this pace of bad debt reduction sustainable, and is there potentially room for you to improve bad debt below the historical average with the enhanced screening processes?

Well, so the first thing I would tell you is, yeah, we think bad debt as it is today is absolutely sustainable. Keith talked about it quite a bit. If you think about Atlanta was one of our problem markets, and obviously we have legislation there that's really helpful for us today in making sure that we can enforce contracts. And so we think where we are today is certainly sustainable, and that's why we have it running through the rest of the year. So getting below 50 basis points, which is the long-term average, I think we'll have to see. What we're trying to figure out today is whether or not consumer behavior has changed for the worse. And if it has, then I think it's going to be probably a constant battle through the use of technology to offset consumer behavior. But at this point, we're optimistic that we can at least get back to 50 basis points, but certainly not put any bets on getting better than 50.

Yeah, and let me just add that.

Go ahead, sorry.

Oh, sorry, go ahead.

I was just thinking.

The next question comes from Daniel Tricarico with Social Bank.

Please go ahead. Thanks, guys. Alex, I just wanted to clarify the second half, negative 1% new lease rate growth you mentioned earlier. Does that assume new leases get to flat or positive in the third quarter before normal seasonality kind of takes over in the fourth quarter? Or is there like a different rent dynamic assumed given the supply backdrop?

Yeah, I know. So if you think about it, right, the negative 1% is fairly consistent from the third quarter and the fourth quarter. But the offset to that is obviously renewals. And so we're assuming that renewals are going to be close to 4%. for the third and fourth quarter. So that's the offset, and that's how you get to the blend that we're talking about. And just once again, the blend that we're assuming in the third quarter is 1.6 and 1.2 in the fourth quarter. So whether or not there comes a point in time where new leases are flat, we do not have that running through our model today. Great. Thank you.

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

Hey, thanks for the question. Appreciate it. I wanted to ask about the cadence of supply, really the cadence of deliveries in the coming quarters and really into next year. Look, I think the improvements so far, your new date and new lease, and, you know, what you'd be able to do with occupancy at the same time, I think are impressive in the face of kind of this unprecedented supply. I really just want to know, as deliveries presumably accelerate over the coming months and quarter or two, you know, kind of how you view absorptions kind of in light, again, of this kind of accelerating delivery cadence.

Yeah, so the Witten, we use, again, Ron Witten's numbers primarily because I think he does a little bit better work, more detailed work around the pace of deliveries. And across Camden's portfolio for this year, Witten projects about 230,000 completions. Now, if you get into the granularity of how that occurs here, You know, there's probably a slight deceleration to that because Whitten's got deliveries in 2025 at about 200,000, so a decline overall of about 30,000 year-over-year between 2024 and 2025. The question, you know, of that deliveries that are going to happen in 2025, I don't think there's any question that that's going to be front-end loaded because if you go back and look at the starts data, the starts data was kind of falling pretty dramatically earlier. if you kind of go reverse engineer it 18 months backwards. So my guess is that that's pretty front-end loaded in 2025. And obviously, you know, supply is supply, and we'll have to deal with it. But I certainly don't see 2025 being a worse scenario for us than 2024 in terms of just the total number. And so far, because of all the factors Rick mentioned, our absorption rates have been really strong. And if you look at what's projected, you know, under the sort of the status quo scenario for employment growth and then continued in migration to the Sun Belt, 2025 looks, if all things are equal and no hard landing, 2025 looks like another really, really good year for absorption of apartments. So front-end loaded supply, continued really good demand in 2025 sounds to me like a pretty constructive environment.

The next question comes from Mason Gould with Baird. Please go ahead.

Hey, good morning, everyone. Looking at your initial markets from last call, have any of the expectations changed amongst the markets? Which ones are maybe better or worse versus your initial thoughts?

Yeah, I don't. I always look at that prior to the call, and there's nothing that jumped out at me. If I were rating the portfolio again today, I can't tell you that I would have changed any of the letter grades. I suppose maybe I would have been a little bit harsher on Austin and Nashville than I was a quarter ago, because those are our two worst performing markets in terms of new lease rates. But we have two assets in Nashville, and and then we have our Austin exposure. But those are the only two that kind of jump at me and say, eh, probably a little worse than I thought it was going to be, just a quarter out. But the rest of them, I would leave them the same. Great. Thank you.

The next question comes from Ann Chen with Green Street.

Please go ahead. Hey, good morning. Thanks for your time. Just wondering, do you expect to enter any new markets or exit any existing markets over the next few years?

We like markets. We clearly would like to expand some of our records. Like Keith pointed out, we have two properties in Nashville. We definitely need to have more exposure there. And we've talked over a long period of time about lowering our exposure in Houston and lowering our exposure in D.C. and increasing our exposure in some of the other markets where we have 3% or 4% of our NOI in. And we will continue to monitor and manage our portfolio over the next few years in that regard.

Thank you.

our question and answer session. I would like to turn the conference. It looks like we have a follow-up today from Austin Werschman from KeyBank. Please go ahead.

Great. Thanks. Appreciate you sneaking this in. Just on the new lease rate growth assumption now, the minus 1%, I guess, what periods historically have you seen that improve sort of in the back half of the year when you typically see seasonality take hold? Is it a something to do with comps or getting the long-term delinquent units back that gives you the confidence that you can, you know, kind of drive new lease rate growth, you know, in a period usually has a little bit less traffic and less demand. Thanks.

Yeah, absolutely. So first of all, the third quarter is a high demand quarter for us in our markets. So that's one point. The second thing that I will tell you is that with all the pricing initiatives that we ran through the first quarter, that gave us the ability to have stronger pricing as we hit peak leasing. And so that's why we think that's going to be very sort of helpful for us as we move throughout the rest of the year. And then the fourth thing is exactly right, is the comp become much easier as we go through the rest of the year. Great. Thank you. Absolutely.

This concludes our question and answer session. I would like to turn the conference back over to Rick Campo for any closing remarks.

Well, we appreciate your time today, and we did get it done under one hour, which is a record, even though we are the last, but not the least, in terms of reporting. So we'll look forward to seeing you in NARIT, and thanks. And let's thank you for being on the call. Thanks. Bye.

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