Camden Property Trust

Good morning and welcome to Camden Property Trust's 4th 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 and Alex Jessett, President and 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 shortly after the call ends. 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 2024 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 a follow-up question or 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. Good morning. The theme of our on hold music this quarter is it's time to move on. The late great Tom Petty captured the current sentiment of Team Camden in this verse. It's time to move on. It's time to get going. What lies ahead? I have no way of knowing. But under my feet, baby, grass is growing. It's time to move on. It's time to get going. After a few years of waiting somewhat impatiently for better investment opportunities in our markets, we believe 2025 is the year for Camden to move on. In 2024, we saw multifamily deliveries reach a peak level not seen in over 40 years. We expect new supply pressure to lessen throughout 2025, setting the stage for a return to improve revenue and net operating income growth. As the headwinds in recent years turn into tailwinds in 2025 and beyond, there are attractive opportunities for us to continue development starts and to pursue acquisitions. The positive market backdrop positions Camden to begin executing our 2025 strategic plan. The plan follows a similar playbook that we executed after the Great Financial Crisis, where we acquired $2.7 billion in apartments with an average age of four years, developed $4.2 billion of apartments, and sold 3.8 billion of apartments with an average age of 24 years. Recycling capital in this way keeps our portfolio competitive, lowers capital expenses, and accelerates our return on invested capital, driving long-term core FFO growth. It's time to move on. It's time to get going. I want to give a big shout out to Team Camden for their outstanding performance in 2024, exceeding our operating budgets by a wide margin despite record supply. Team Camden works smart, implementing new technologies that continue to improve customer experiences and reduce costs. Occupancy and rents in most Sunbelt markets have likely bottomed. Resident retention and customer sentiment remains high. The premium to own versus rent continues to be at historic levels, making apartment homes a more affordable and attractive option for consumers. Wage growth has outpaced rent growth for the past couple years, strengthening our residents' financial prospects and improving rent-to-income ratios. Population growth to our Sunbelt markets continues to outpace the nation. Texas and Florida added over a million new residents in 2024, which was nearly one-third of the nation's population growth. Each new family needed a place to call home. Texas and Florida are projected again to lead the nation's population growth over the next five years. The states in which Camden operates capture 58.3% of the U.S. population growth. This long-term megatrend continues to produce outsized housing demand in our markets. We know it's time to get going, but we will not move on from Camden's why, which as many of you know is... to improve the lives of our teammates, our customers, and our stakeholders one experience at a time. Keith Oden is up next.

Thanks, Rick. Camden's same property revenue growth was 1.3% in 2024, with most of our markets achieving results within 100 basis points of their original budgets. San Diego Inland Empire and Washington, D.C. Metro both outperformed our expectations, while Austin and Nashville came in slightly below budget. For 2025, we anticipate same property revenue growth of 1% within the majority of our markets, falling between 0% and 2%. Our top five markets should see revenue growth in the range of 2% to 2.5%, and these markets account for over 40% of our budgeted revenue. Several of these markets were top performers last year, including Southern California, Washington, D.C. Metro, and Houston, and we expect Tampa to join them as one of our top markets this year. Our next eight markets are budgeted for revenue growth between 0 and 1%, and they comprise over half of our 2025 budgeted revenue. These markets include Denver, Atlanta, Phoenix, Raleigh, Orlando, Southeast Florida, Dallas, and Charlotte. In our last two markets, Nashville and Austin, which represent 6% of Camden's revenues, these markets were down roughly 3% on revenues last year and are expected to remain challenged this year given the continued levels of new supply coming online. We expect them to decline another 0% to 3% this year, but we're cautiously optimistic that they will end 2025 at a better position than where they started. 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 in order of their expected performance during 2025. We currently grade our overall portfolio as a B with a stable outlook, slightly better than our B rating 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 available on our website. 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 our markets and strong demand for apartment homes given the relative unaffordability of buying a single-family home. We reviewed supply forecasts from several third-party data providers, and their projections range from 160,000 to 230,000 completions across our 15 markets over the course of 2025, compared with 230,000 to 280,000 apartments delivered in 2024. Despite the wide range of estimates, the unanimous conclusion from each firm was that supply in our markets peaked during 2024 and will be declining as we move through 2025, setting up 2026 to be a below-average year for new supply. As a reminder, these supply estimates are totals for each of the MSAs and not all of this new product will be competitive with our existing portfolio given various sub-market locations and price points. As I mentioned earlier, we expect revenue growth in the range of 2 to 2.5% for our top five markets. Four of Camden's markets received a grade of A- with varying outlooks of improving stable or moderating. Tampa earns an A- with an improving outlook and it should be one of our best performers this year given strong occupancy levels, manageable supply, and a boost in demand that we saw during the fourth quarter of 24. Our Southern California markets would be next with both LA Orange County and San Diego Inland Empire expected to finish in the top three again as they did in 2024. Their growth rates are expected to slow a bit during 2025, given slightly higher levels of supply and less of a tailwind from bad debt declining. Thus, they received stable to moderating outlooks. Washington, D.C. Metro would also rank as an A- with a moderating outlook. Supply remains in check, particularly in our submarkets in Northern Virginia and Maryland, and we expect revenue growth to be slightly below the 3.7% achieved last year. Houston rounds out the top five with a B-plus rating and a stable outlook. Houston ranked number five for revenue growth in 2024, and this year should see more of the same with limited supply and healthy demand. Most of our eight markets received a B grade with one B-plus and two B-minus ratings, and we're budgeting revenue growth of 0% to 1% in all eight. We rate Denver as a B plus with a moderating outlook and expect their revenue growth to be closer to 1% this year versus 1.6% last year given moderating supply coupled with moderating job growth. Atlanta ranks as a B performer with an improving outlook mainly due to the progress we've made in reducing bad debt and fraudulent activity. Phoenix and Raleigh are next, integrated B with stable outlooks, followed by Orlando and southeast Florida with B's but moderating outlooks. Phoenix, Raleigh, and Orlando should all see slight declines in supply over the course of 2025, but pricing power in those markets will likely be limited for most of this year. Southeast Florida was one of our top performers in 2024, and we expect to see moderation this year from the above average occupancy levels we achieved there last year. Dallas earns a B- with a stable outlook again this year, with minimal revenue growth expected in 2025. While Dallas still ranks as one of the nation's top metros for job growth in migration and quality of life, the market is still working through much of the new supply that was delivered over the past year. And Charlotte is rated B- with a moderating outlook. The aggregate level of new supply coming online in the Charlotte MSA is still elevated this year and we expect our main competition will continue to fall in the uptown South End Submarket. And finally, Nashville and Austin received the same grades as last year with C and C- respectively. Both markets posted negative revenue growth in 2024 and will likely repeat that in 2025 as new supply continues to pose a challenge. Our outlook for Nashville is improving, particularly outside of the downtown CBD area, while Austin's outlook is stable. Now a few details on our fourth quarter 2024 operating results. Rental rates for the fourth quarter had signed new leases down 4.7%, and renewals up 3.2% for a blended rate of negative 1.2%. Renewal offers for February through April were sent out at an average increase of 4%. And as expected, move outs to purchase homes remained very low at 9.6% for both the fourth quarter 24 and the full year of 2024. I'll now turn the call over to Alex Jesset, Camden's President and Chief Financial Officer.