Camden Property Trust

Good morning, and welcome to Camden Property Trust's third quarter 2025 earnings conference call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today for our prepared remarks are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman, and Alex Jesset, President and Chief Financial Officer. We also have Lori Baker, Chief Operating Officer, and Stanley Jones, Senior Vice President of Real Estate Investments, available for the Q&A portion of our call. Today's event is being webcast through the investor 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 third quarter 2025 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 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. Our on hold music theme today was moving. This week, we completed the move of Camden's Houston corporate headquarters from Greenway Plaza to the Williams Tower in the Galleria. This is a big deal. Camden has been Greenway Plaza for over 40 years. We are excited about moving on and the new beginnings that it will bring for 2026 and beyond. As I was leaving my office for the last time, the thought that popped in my head was, don't look back. And that reminded me of a song by the classic rock band Boston. The first verse of the song captured my sentiment as I was leaving the building. Don't look back. A new day is breaking. It's been too long since I felt this way. I don't mind where I get taken. The road is calling. Today is the day. Team Camden is not looking back. We look forward to welcoming you to our new offices, and we look forward to continued success for the next 40 years. Strong apartment demand continued through the third quarter, making 2025 one of the best in the last 25 years for apartment absorption. helping to fill up the record number of recent deliveries. The summer peak leasing season was met with continuing new supply, slower job growth, and economic uncertainties that led apartment operators to focus on occupancy instead of rental increases earlier in the season than usual. Apartment affordability improved during the quarter with 33 months of wage growth exceeding rent growth and increased affordability Improves apartment residents ability to absorb higher rents when new apartment deliveries are leased up in 2026 and beyond. Apartments and our shares are on sale, but not for much longer. Resident retention continues to be strong in large part because of living excellence provided by our onsite teams. Great job team Camden. The case for investing in apartments is compelling. Demand is high. Supply is falling to below 10-year pre-COVID averages, bringing balance back to the market. Rents are affordable. Apartments provide flexibility and mobility to residents. Rent versus buy economics favor renting more than ever. And demographic and migration trends both support new demand going forward. We look forward to moving to a stronger growth profile after the excesses of post-COVID supply environments end. Camden is positioned well with one of the strongest balance sheets and no major dilutive refinances over the next couple of years. Private market sales of apartments have been robust with cap rates for high-quality properties landing in the 4.75% to 5% range. And there is a clear disconnect between private and public market value values for apartments. In the quarter, we bought back $50 million of our shares at a significant discount to consensus net asset value. If market conditions remain at current levels, we will continue to buy the stock and we have $400 million remaining in our authorization. This can be funded through dispositions of our slowest growing higher CapEx properties. I want to give a big shout out to Team Camden for their steadfast commitment to improving the lives of our teammates, our customers, and our stakeholders, one experience at a time. Thank you. And next up is Keith Oden. Keith Oden. Thanks, Rick. Camden's third quarter 2025 operating results were in line with our expectations. with same-store revenue growth of eight-tenths of a percent for the quarter, up nine-tenths of a percent year-to-date, and up one-tenth of one percent sequentially. Occupancy for the quarter averaged 95.5 percent, consistent with third quarter of 2024, and down slightly from 95.6 percent last quarter. Year-to-date through September, occupancy has averaged 95.5 percent versus 95.3 percent last year. Rental rates for the third quarter had effective new leases down 2.5% and renewals up 3.5%. Our blended rate growth was 0.6%, declining 10 basis points from last quarter and 40 basis points compared to the third quarter of 2024. Our preliminary October results reflect typical seasonality and a moderation in both pricing and occupancy as we move into our slower leasing season during the fourth and first quarters. Renewal offers for December and January were sent out with an average increase of 3.3%. Turnover rates across our portfolio remain 20 to 30 basis points below last year's levels, and move outs attributed to home purchase were a record low of 9.1% this quarter. Moving into new office space is never easy, especially when it involves five floors and several hundred corporate team members. But the end result was definitely worth the significant amount of time and effort invested by our design and special projects team. Our new headquarters look amazing. A big shout out to Ben Mills, Chrissy Hopper, Luther Alaniz, Kevin Neely, Amy Funk, Zeb Maloney, Teresa Watson, Blake Robinson, Pango, Derek, Aaron, and the entire IT support team. And finally, we want to give a special thanks to Camden's team of executive assistants on a job incredibly well done. We can't wait for everyone to get a chance to visit. I'll now turn the call over to Alex Jesset, Camden's president and chief financial officer.

Thanks, Keith, and good morning. I'll begin today with an update on our recent real estate activities, then move on to our third quarter results and our guidance for the remainder of the year. This quarter, we disposed of three older communities for a total of $114 million. Two of the three disposition communities were located in Houston and the third in Dallas. These disposition communities were on average 24 years old. These older, higher capex communities were sold at an average AFFO yield of approximately 5%. We used the proceeds in part to repurchase approximately $50 million of our shares at an average price of $107.33, which represents a 6.4% FFO yield and a 6.2% cap rate. During the quarter, we stabilized Camden-Durham and completed construction on Camden Village District, both located in the Raleigh-Durham Market of North Carolina. Additionally, we continue to make leasing progress on Camden Longmeadow Farms, one of our two single-family rental communities located in suburban Houston. At the midpoint of our guidance range, we are now anticipating $425 million of acquisitions and $450 million of dispositions for the full year, reduced from our prior guidance of $750 million in both acquisitions and dispositions. This implies an additional $87 million in acquisitions and an additional $276 million in dispositions in the fourth quarter. Turning to financial results, last night we reported core funds from operations for the third quarter of $186.8 million, or $1.70 per share. one cent ahead of the midpoint of our prior quarterly guidance, driven primarily by the combination of higher fee and asset management income and lower interest expense resulting from the timing of capital spend and lower floating rates. Property revenues were in line with expectations for the third quarter. We are pleased with how well our property revenues are performing, considering the peak lease up competition we are facing across many of our markets, illustrating the significant depth of demand in the Sun Belt. And we did adjust our full year 2025 outlook for same store revenue growth from 1% to 75 basis points. And property expenses continue to outperform, particularly property taxes, coming in well below our forecast once again. As a result, we are decreasing our full year same store expense midpoint from 2.5% to 1.75% and maintaining the midpoint of our full year same store net operating income growth at 25 basis points. Property taxes represent approximately one-third of our operating expenses and are now expected to decline slightly versus our prior assumption of increasing approximately 2%. This is primarily driven by favorable settlements from prior year tax assessments and lower rates and values primarily from our Texas and Florida markets. For the fourth quarter, we are assuming occupancy will be in the range of 95.2% to 95.4%. Blended lease trade-out will be down approximately 1%. and bad debt will be approximately 60 basis points within 10 basis points of our pre-COVID levels. Almost entirely as a result of the decreased transactional activity anticipated in the fourth quarter, combined with lower floating rate interest expenses, we are increasing the midpoint of our full-year core FFO guidance by $0.04 per share from $6.81 to $6.85. This is our third consecutive increase to our 2025 core FFO guidance and represents an aggregate 10 cent per share increase from our original 2025 guidance. We also provided earnings guidance for the fourth quarter. we expect core FFO per share for the fourth quarter to be within the range of $1.71 to $1.75, representing a 3 cent per share sequential increase at the midpoint, primarily resulting from the typical seasonal decreases in property operating expenses favorable final property tax valuations and rates, and lower interest expense, partially offset by the impact of our anticipated fourth quarter net dispositions. Non-core FFO adjustments for 2025 are anticipated to be approximately 11 cents per share and are primarily legal expenses and expense transaction pursuit costs. Our balance sheet remains incredibly strong with net debt to EBITDA at 4.2 times. We have no significant debt maturities until the fourth quarter of 2026 and no dilutive debt maturities until 2027. Additionally, our refinancing interest rate risk remains the lowest of the peer group, positioning us well for outsized growth. At this time, we'll open the call up to questions.