Operator:

[Technical Difficulty]

Operator:

The next question comes from Haendel St. Juste with Mizuho.

Richard Campo:

Go ahead, Keith. Go ahead.

Alexander Jessett:

Yes, 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 2 quarters after that.

John Kim:

Can I just follow up on that? So your guidance now has 25 basis points of market rental growth, and that's down from the 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-store revenue guidance? Or do you think that's what you're going to achieve?

John Kim:

And is that the occupancy versus rate trade-off? Or are there some markets that are potentially underperforming your original expectations?

Operator:

The next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Alexander Jessett:

Yes. 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. And then you've got -- which is about 50 basis points. And then you've got the 25 basis points that you're getting from the market rent growth to that. So I guess it is 75 basis points. To that, you're going to add to 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%.

Alexander Jessett:

Yes. That's right.

Richard Campo:

Well, clearly, the -- when you think about how you set up for '26, '27, it would be on the development side of the equation, we have a decent pipeline that we can start. And -- and I guess the real question is, 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 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.

Operator:

The next questions is from Rich Anderson with Wedbush.

Richard Campo:

I think the difference is, is that pretty much everybody talks to their book, and that's part of it.

Richard Campo:

No. Well, sure, you're going to -- we're going to -- 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 what San Francisco is doing, even though San Francisco hasn't added back their jobs that they lost during COVID, yet -- if you look at -- 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 their numbers are sort of -- when you look at [indiscernible], for example, [indiscernible] around for a long time, showing accelerating rent growth in 2025 because of the excess of this demand that's coming from multifamily because of all the things we talked about at the beginning.

Steve Sakwa:

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

Alexander Goldfarb:

Ric, hopefully, you trademark [indiscernible] that sounds like it could be a good moneymaker. So going to the jobs and the strength of the Sunbelt, clearly, a lot of supply, but what's been going on across earnings season is everyone is talking about the strong jobs in the Sunbelt, but at the same time, general, the talking heads and economists and everyone is talking about potential for recession, hard landing, hey, the job -- 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 Sunbelt in your markets than what the talking heads would 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?

Eric Wolfe:

I think you said that you expect a 10 bps contribution from occupancy 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 occupancy will average?

Eric Wolfe:

Got you. 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?

James Feldman:

Great. So I'd like to go back to your thoughts on just capital allocation. I know you had mentioned buying the stock near 6 and cap rates near 5, but if you're thinking you get red spikes a couple of years out, 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, $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?

Operator:

The next question comes from Michael Goldsmith with UBS.

Alexander Jessett:

Well, so the first thing I would tell you is, 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 and making sure that we can enforce contracts. And so we think we are today is certainly sustainable, and that's why we have it running through the rest of the year. Getting below 50 basis points, which is the long-term average, I think we'll have to see.

Richard Campo:

And let me just. Go ahead, sorry.

Unknown Analyst:

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

Adam Kramer:

I wanted to ask about the cadence of supply, really the cadence of deliveries in the coming quarters and really into next year. I think the improvement so far year-to-date in new lease and 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 2, kind of how you view absorptions kind of in light again on this kind of accelerating delivery cadence?

Unknown Analyst:

Looking at your initial [indiscernible] from last call. Have any of the expectations changed amongst the markets and which ones are maybe better or worse versus your initial thoughts?

Operator:

Next question comes from [indiscernible] with Green Street.

Richard Campo:

We clearly will -- we do -- we would like to expand some of the markets like Keith pointed out, we have 2 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.

Austin Wurschmidt:

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 kind of drive new lease rate growth in a period usually has a little bit less traffic and less demand?

Richard Campo:

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 NAREIT, and thank you for being on the call. Thanks. Bye.

Ric Campo:

The theme for our on-hold 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 9 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 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 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 Castelo. [Video being played] It's folks like Santos who make it certain that no matter what's going on in the world, Camden will always honor our 9 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 began 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 submarket 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 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 Camden's 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 house hold 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 the 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.

Alex Jessett:

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 Wood Mill 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 3-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 16, we repaid at maturity a $250 million 4.4% senior unsecured note. In conjunction with the term loan prepayment, we will recognize a noncore charge of approximately $900,000 and 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 4x. 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, $0.01 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 and with the 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 7 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 at an average rate approximately [indiscernible] unsecured bond. We are not anticipating any additional unsecured bond offerings in 2024. A $0.035 per share increase in fee and asset management and interest and 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 $0.175 cumulative increase in anticipated core FFO per share is entirely offset by an approximate $0.155 per share decrease in core FFO from the $293 million of 2023 completed dispositions and an approximate $0.06 per share decrease from the disposition anticipated next week and an approximate $0.04 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% earning at the end of 2023 and at 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 represented 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 $0.06 per share decrease from the fourth quarter of 2023 which is primarily the result of an approximate $0.035 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 1 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 $0.005 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 $0.035 per share decrease attributable to our December 28, 2023, $232 million disposition of Camden Martinique, an approximate $0.01 per share decrease attributable to our planned $115 million disposition next week and an approximate $0.05 per share decrease resulting primarily from the timing of various other corporate accruals. This $0.085 per share cumulative decrease in quarterly sequential core FFO is partially offset by an approximate $0.015 per share decrease in interest expense resulting from the lower debt balances as a result of the disposition proceeds and an approximate $0.01 per share increase in core FFO, related to additional interest income earned on cash balances. Anticipated noncore adjustments for the first quarter include a combined $0.03 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.

Michael Goldsmith:

Can you just talk a little bit about the macro assumptions that you have built into your guidance today, we're seeing 353,000 jobs added. So how much elasticity is there in your guidance that could be influenced by the job market. And then along those lines also, are there continue -- can you provide an update a little bit on the migration trips to the Sunbelt as part of your response.

Alex Jessett:

Yes, 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 1 of the other things that we track is that we track Google searches from 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 to the -- 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.

Steve Sakwa:

But I guess I had a question on what you're 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?

Operator:

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

Alex Jessett:

Yes. 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, the 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.

Operator:

The next question will come from Austin Wurschmidt with KeyBanc Capital Markets.

Ric Campo:

It's very typical of what we've seen. The toughest markets like would be Austin, Texas and Nashville. And there -- the concessions are significant, anywhere from 2 to 3 months free. Generally, merchant builders don't go beyond 3 months free but you're seeing that in the most supply constraint or supply markets. When you get to more markets that aren't as pressured, then compared to those 2, you're anywhere from 1 month to 6 weeks to 2 months max. And that's kind of what we're seeing in some of the other markets.

Rich Anderson:

So I wonder if we could talk a little bit about the longer-term view. Your 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 in the wheelhouse of a possibility in that what we're seeing today in terms of your outlook which 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?

Operator:

Next question will come from Eric Wolfe with Citi.

Alex Jessett:

So first of all, we're actually not at a gain to lease. We have -- we're basically a flat -- no loss lease or gain to lease. When you think about renewals, we're anticipating the fourth -- excuse me, the first quarter that we're going to get at 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 signed a new lease for a renewal is really only about 1.5% differential. So it's not that significant and not something that we think is problematic.

Haendel St. Juste:

Good morning. Just hoping 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 IRR perspective in which markets we can see those in?

Haendel St. Juste:

Okay. And then maybe on the real estate tax guide. You also, I think you mentioned, Alex, 3.5%, I think it 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 selling into a new norm here or maybe you're perhaps benefiting from something else that's less obvious to us.

Operator:

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

Ric Campo:

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

Ric Campo:

No. Well, 670 is not what the absorption is going to be, Keith, you have those absorption numbers we discussed today.

Ric Campo:

Yes. And that 600 coming in the pipeline doesn't all get delivered in 2024. A part of that is into 2025 as well.

Unidentified Analyst:

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 if you look at your current occupancy versus your projected occupancy, it seems like an uptick. So do you think that 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 January was -- or January is kind of an anomaly and the numbers are just going to look better off the bat?

Unidentified Analyst:

And then you think it stays strong in 4Q or you think [indiscernible]

Operator:

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

Keith Oden:

So the primary thing that would have to happen on acquisitions is we have to see better going in yields, even though there's been a lot of transaction volumes are way down. There's still a huge bid-ask spread between buyers and sellers. They're just -- we just don't see -- we 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, there is with all of this new supply that's been built and primarily by the merchant build 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 development pipeline and holdings. So at some point, there's going to be a rationalization not just in the rental supply market between supply demand. But in the transaction market between a product that needs to find a permanent home, not in the merchant build 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 strategy for the acquisition market.

Operator:

The next question will come from John Kim with BMO Capital Markets.

Alex Jessett:

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.

John Kim:

Can I just follow up what was the CapEx consumption on the on Vantage?

Operator:

Next question will come from Rob Stevenson with Janney.

Keith Oden:

Yes. So our guidance assumes that we basically match dispositions and acquisitions. So we would look to be kind of net 0 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 -- newer assets that we want to add to the portfolio and we're always willing to improve the portfolio by selling a corresponding number of dollar amount of assets that to fund that. So our working assumption and what's reflected in the guidance is, is that we're willing to be pretty aggressive when we see value in acquisitions but not before then.

Ric Campo:

Actually, the numbers are the same. The current development pipeline, we have some in the sort of the low to mid-6s and some in the sort of low 5s. The new developments in Charlotte, we're still working on what the model looks like but we wouldn't start them if they were in that zone.

Ric Campo:

Not yet. We haven't seen a big -- any big drops in cost. 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, that's a little -- you don't have that part of the equation but there hasn't been a material shift in pricing. And that's 1 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, you just -- 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 a math doesn't really work well when rents are flat and construction costs haven't fallen.

Wes Golladay:

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?

Operator:

The next question will come from Anthony Paolone with JPMorgan.

Keith Oden:

Yes. We've -- it's something that we look at constantly in terms of the opportunity set for allocation of capital. And in the past, we 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 yes, it's something we've talked about. We've discussed and that we would pursue when the -- when we think the opportunity makes sense.

Omotayo Okusanya:

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

Omotayo Okusanya:

Fair enough.

Robin Lu:

Alex, just a question for you. There was a step up in CapEx budget for the year, particularly in nonrecurring CapEx. Can you provide more detail as to what's driving the high spend?

Robin Lu:

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

Operator:

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

Operator:

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

Kim Callahan:

Good morning and welcome to Camden Property Trust third quarter 2023 earnings conference call. I’m Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Ric Campo, Camden’s Chairman and Chief Executive Officer; Keith Oden, 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. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward. 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 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, as there are other multifamily companies hosting calls later today. 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 Ric Campo.

Keith Oden:

Thanks, Ric. Overall, our third quarter 2023 operating results were in line with expectations. Year-over-year same property revenue growth was positive for the quarter in 14 of our 15 markets and positive on both a sequential and year-to-date basis in all of our markets. Occupancy for the third quarter averaged 95.6% ending September at 95.3% as we shifted more to a defensive strategy entering our slower leasing season in the fourth and first quarters. October occupancy is currently trending at 94.9% and should continue to moderate slightly over the remainder of the year. Rents are also moderating given our focus on maintaining occupancy versus raising rental rates. During the third quarter, our effective growth rates were eight-tenths of a percent for new leases, 5.9% for renewals, and 3.4% for blended rate growth. Effective net – new lease growth for October is currently negative 2.5% and is expected to trend a bit further down a bit further between now and the end of the year. Effective renewal rate growth for October to date is 4.7% and should average around 4% for the full fourth quarter. Effective blended lease rates for October remain positive at 1.4%. Gross turnover rates for the third quarter were up 200 basis points compared to last year due to higher levels of skips and lease breaks, but our net turnover was down 200 basis points due to high levels of resident retention by our onsite teams. Move-outs to purchase homes accounted for just over 10% of our total move-outs during the quarter, which is near the lowest level we’ve seen in over the past 30 years. Supply will remain a factor in many of our markets for the next several quarters and as expected we are seeing elevated competition for our Camden communities, located in those submarkets where new deliveries exceed long-term historical averages. 16% of Camden’s communities are being impacted by new supply, but the vast majority are not. We are seeing some encouraging news regarding the future as the level of new starts has begun to fall, which bodes well for the supply environment in 2025 and 2026. I’ll now turn it over to Alex Jessett, Camden’s Chief Financial Officer.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Goldsmith with UBS. Please go ahead.

Ric Campo:

Let me take the first part and I’ll let Keith do the last part. So from a merchant builder perspective, there is an old joke in the merchant builder world that you don’t want to be the last one on the street to get to three months free. So depending on the market you’re in like if you’re in a market like Nashville, for example, there is three months free in the market with merchant builder product. There is no question about that. In other markets, though, that don’t have the – Nashville and Austin, Texas are the number one supply markets in America right now with maybe 6% new supply coming in. And so you definitely are seeing kind of peak merchant builder concessions there. And then when you look at – but if you look at other markets like Charlotte, for example, there’s a month, maybe six weeks free or something like that. And most merchant builders are going to in any market are going to have discounts or free rent to incent people to come in. And so I think that part of the equation is happening pretty normally. And so the markets that are going to be more to have a higher concentration we’re going to have closer to the three-month free number. And then in terms of consumer behavior, the – when we think about our – the way we looked at the fourth quarter, consumer behavior is – it’s affected by the new supply for sure. But because of the nature of our portfolio that Keith will talk about in a minute, it’s not a huge issue and supply isn’t like changing consumer behavior. The thing that surprised us and maybe we just – maybe we were just too optimistic on this. Was that – what post-COVID consumer behavior would return to more normal behavior sooner rather than it has. And let me describe what I mean by that. So I’m talking about when somebody moves into an apartment and they aren’t paying the rent. Today, consumers know that if you’re in Atlanta, for example, that you can stay in your apartment for seven or eight months before you actually have to leave. And so that consumer behavior, they know that, and you can just go online and say, how do I live in an apartment for free as long as I can and they’ll give you what you need to do. And so that – if you look at Atlanta, for example, our bad debts they’re like 3%. And normally, Atlanta would be 80 basis points. So that part of the consumer behavior is definitely – they understand the system, and they have – we haven’t been able to convince them that they ought to pay and if they don’t pay, they should move. And so I think that will change because what’s happening is every market is getting tighter in terms of the ability to move people out. Governments are backlog and now they’re starting to get better and over the next six or eight months. I think you’ll go back to a more normal situation from that perspective. Keith, why don’t you address the issue on supplying our portfolio and...

Michael Goldsmith:

Thank you very much for the thorough answer. Good luck in the fourth quarter.

Operator:

Our next question comes from Brad Heffern with RBC Capital Markets. Please go ahead.

Keith Oden:

Yes. We’re not – we do offer concessions on our new lease-ups because that’s traditional and it’s kind of expected by the consumer. But we find that our consumers are much – just be transparent, telling what the rent is. And that’s the way the algorithm and YieldStar works. So I can’t see us – we have no intention of going back to "a month free rent" and then prorating that month over the balance of the lease term. It’s – to me, it’s confusing to consumers. And it’s also – it just makes it – it puts a little bit more pressure on managing the bad actor move in, pay your rent, the expectation that we’ve had forever in this business. So we’ll continue to do it on our new development lease-ups because that’s – it’s just part of what we baked into the cake when we think about our pro forma, but not on established communities.

Alex Jessett:

Well, when you look at we use Ron Witten and Witten Advisors information a lot, and it’s interesting because development falls off pretty dramatically, or at least starts to in 2024, and you start absorbing that real estate. You have countervailing factors like homeownership rate going down or in terms of people moving out to buy homes at down at 10%, and the prospect for people buying homes next year looks pretty dismal relative to the current environment. And so you have – you do have cross currents that where you don’t need as much job growth for demand – that to create demand for apartments, because you have fewer people moving out to buy homes, you have more people that are, I’ve quoted a number of the percentage of people of adults that live alone in the U.S. And when you get close to a third of the people that are living alone, they don’t go out and buy houses, they rent apartments. And so that older demographic becomes a higher propensity to rent apartments, and that stabilizes the system as well. So Ron thinks that you’re going to have occupancy levels that stay kind of where they are now and that you’re going to have some modest rent growth in markets and that’s why I think or the rent – we had a 5% rent growth in 2023. Are we going to have the same in 2024? The answer is probably no. But is it sort of a slower year? Yes, but is – I think that there is definitely a construct and a model that would argue that you should have reasonable occupancy and some rent growth in 2024.

Operator:

Our next question comes from Haendel St. Juste with Mizuho. Please go ahead.

Alex Jessett:

Well, remember, occupancy and rent are correlated, right? I mean, we could be at 95 – 97% occupancy if we wanted to go out and buy occupancy by lowering rents dramatically. And so we just think it’s a better fit. Our revenue team, we debate where we ought to have our settings on an ongoing basis, and we feel really comfortable with where we are. I would rather have higher rent and higher occupancy, but in this environment, with seasonality and with the consumer doing what they’re doing, we feel comfortable with where we are, and we think we’re going to set up for a reasonable start to 2024.

Haendel St. Juste:

Got it. Got it. Certainly understand the complexity involved and appreciate the thinking, the thought process here. Maybe can you give us an update on where the portfolio lost lease is overall today and where it’s highest and lowest? And I think last quarter you mentioned the earn in for full year 2024 was around 1.8%. If you were to hit your budget for rest of you, obviously the numbers come in a bit, so perhaps you can give us an update on where you feel that that earn in for next year is. Thanks.

Ric Campo:

Yes. So on the challenge – where do you have the most challenge on maintaining occupancy? It’s in the markets where we knew that we were going to have a challenge in the fourth quarter with our supply impacted markets. So it’s Atlanta. It’s Austin. It’s Charlotte. Those would be the big three in terms of kind of a compounding of both supply that we did anticipate and then kind of continued elevated lease breaks, which we did not anticipate.

Ric Campo:

Sure.

Austin Wurschmidt:

Good morning. Thank you. You guys referenced a couple of times that only 16% of the communities are being impacted by new supply, but clearly new lease rate growth has dropped dramatically, occupancy has fallen as well. I guess, is it your belief that 4Q is as bad as lease rate growth and occupancy could get and that we actually see both rate growth and occupancy reaccelerate into 2024? Just given some of the items you highlighted around the impact from seasonality skips and evics, et cetera, and I guess, what would change that view?

Alex Jessett:

So Austin, I would say that, of the three things that we’ve highlighted and talked about supply, bad debts and skips and evictions. On supply, there’s – we’re going to have the challenge in 2024 that’s similar to what we’ve had in 2023. The number of deliveries that are coming is going to be about the same in Camden’s market. But from our perspective, we have already lived in that environment now for almost a year or nine months or so. And it’s in our run rate. I mean, if you stratify our portfolio between impacted and non-impacted, the differential is in the second and third quarter was somewhere around 300 basis points between those two groupings of assets impacted and not impacted. The ones that are impacted now are probably going to continue to be impacted in 2024. So I think the good news is, from the standpoint of as an operator, that’s in our run rate probably going to stay there at least through 2024. In terms of bad debts and skips and evictions, I mean, we still have a very clear expectation that this is a process of kind of cleansing the COVID and the bad behavior that came as a result of all the regulatory construct during COVID. But there’s no reason to me that we would expect bad debts to continue to be as elevated as they are right now or expect to be in the fourth quarter. I mean, if you just go back to the 27 or 28 years of this portfolio prior to COVID, our bad debt averaged 50 basis points a year forever. And then all of a sudden in COVID, it peaks at 200 and then we start making progress. We think that we’re on a glide path to get to 90 basis points by the end of the year, and lo and behold, we’re not. But I still have every expectation that this is a process of unwinding a lot of bad behavior and a lot of bad actors. And I do think, we obviously thought a lot more of that would happen in 2023. But I think that’s a continuing process that probably gets wrapped up in 2024, the same on skips and evictions. Skips and evictions are double the level that they were in our portfolio prior to COVID. And again, we’re probably going to have some bad behavior. We’ve talked some renters, some really bad habits over the last two and a half years. Maybe it stays a little bit elevated from what it was, but I can’t see it being double what it was pre-COVID throughout 2024. So I think that those two will work their way out in 2024, but the supply challenge is going to be with us in 2024. But I think we’ve captured that already, most of that in our run rate.

Operator:

Our next question comes from Eric Wolfe with Citi. Please go ahead.

Ric Campo:

Go ahead, Keith.

Eric Wolfe:

Yes. No, that makes sense. And I agree. I guess what’s concerning for me sort of the shift maybe in tone and trying to understand what’s driving it at this moment, right? Because it did seem like things are pretty good up until maybe August or September, and then there’s some kind of shift that happened and people trying to figure out whether it’s supply or shifted the consumer. And so just trying to understand how that’s going to then impact in 2024. But then I guess along those lines, we got 16% of your properties that are directly impacted by supply. Just curious how that number will sort of look throughout next year as that goes down? And then if you sort of have a view when the impact of supply will peak next year?

Eric Wolfe:

Okay. Thank you. Appreciate it.

Joshua Dennerlein:

Yes, hey guys. I just wanted to explore a comment, I thought I heard from you earlier about just like – I think it was like supply, you’ll have to deal with through the end of 2024. Was that implying that the softness we’re seeing in the new lease rate growth will continue through the end of 2024? Or is it just like a general comment on supply? Just trying to think through like kind of what we could be in 2024 [ph]?

Joshua Dennerlein:

Okay. Appreciate that color. And then I don’t think we touched on it yet, but just any plans for the floating rate debt exposure if you guys are just going to keep it as is or there’s something you guys want to do at this point with it?

Joshua Dennerlein:

Okay. Thanks, Ric. Appreciate it.

Steve Sakwa:

Yes, thanks. Just my one question. I know with capital deployment is probably not really high on the list right now. I think we’ve got the stock probably trading north of a 7.5% implied cap rate. So I guess, how are you thinking maybe about share repurchases and marrying that up if there is a disposition market? I know there’s a lot of institutional capital looking for high quality apartments. So sort of any thoughts on shrinking the company a bit and buying back stock?

Steve Sakwa:

Great. Thanks. That’s it for me.

John Kim:

Thank you. I just wanted to clarify two items mentioned on this call in my one question. Alex, I think you mentioned that you’re expecting new lease growth rates at minus 4.5%, but renewals at positive four. And I’m just wondering how sustainable that is, especially when you have lost lease at around 1%. And then for Ric and Keith in your response to Haendel’s question on occupancy, I just wanted to clarify that you are okay operating at or below 95% of the time being, there’s no immediate focus to get it above 95%.

Keith Oden:

Yes, I’ll do – I’ll take the occupancy first and then give it back to Alex. The – yes, and so in light of the fact that we our guidance for the fourth quarter included, occupancy of our prior guidance before we just issued revised guidance had an occupancy rate being flat at about 95.6%, 95.7%, that was our expectation. We’re at 94.9% as we closed out October. So no, we’re not good with operating at 94.9%. The target that we set was 95.6%, and we’d like to get back to that as quickly as possible, but we’re not. So we’re not going to make silly decisions on our either new leases or our renewal rates in order to achieve that. It just doesn’t make sense. But yes, within the limits of the levers that we can pull and still get back to 90 – mid-95s, that would be our preference.

John Kim:

My question was more on the spread between the renewal and new lease 850 basis points.

John Kim:

Okay. Thank you.

Rich Anderson:

Hey, thanks. Good morning. So I wonder if all of this noise in the system could create an opportunity for you. I imagine you guys are managing the skip and evic [ph] process a lot better than your neighboring peers and you’re managing supply better. Ric, you said something about, well, maybe consumer behavior settles down within the next six months, not that there’s distress, but you’re obviously a premier operator in your markets, particularly relative to your private competition. Do you think that there could be an opportunity to step in where people are perhaps a little bit less prepared or ill prepared to handle these stresses and that, despite what Steve said about you’re probably not going to buy anything, maybe you start buying stuff in a little bit more aggressive fashion as we get into the latter part of next year?

Rich Anderson:

Okay. And then the 16% supply impacted portfolio, how do you marry that with where you’re seeing this skip and evict situation? Is there any meaningful like shared markets or is the skip and evict issue sort of more of an overall portfolio phenomenon for the sort of located anywhere in particular?

Rich Anderson:

[indiscernible]

Alex Jessett:

The interesting thing about the fraudsters is they tend to go to the highest end properties and they tend to go to new properties. For example, our downtown Houston building, which is a 22 story building in downtown has the most fraud of any building in Houston, also the highest rents of any building we have in Houston. And if you go to Atlanta Buckhead, I think we have 35 lease breaks there and they were all fraudulent people. And so it’s interesting because the fraud folks tend to be the higher end going to the higher end property, more sophisticated. And then to Keith’s point in California, our bad debts in LA County are 5.3%, and in San Diego they’re 3.2%. And the difference between those two numbers is that San Diego is just more open and less sort of militant, if you want to say that, than LA County. And so it’s definitely driven by the regulatory construct that has trained people to know that they don’t really have to pay. In the past you paid your phone bill first, then you paid your apartment rent. And now because of the government doing what they did during COVID apartment rent is down the list for more people than it should be. But we’re going to – we’re going to push it so that it goes to be right next to cell phone scan.

Alex Jessett:

Sure.

Connor Mitchell:

Hey, thanks for taking my question. So I’ll just keep it to the one as we’re at the top of the hour. With the updated guidance and the updated outlook for the current environment, can you just talk about how this impacts and affects the investment appetite development timing, deliveries for you guys and then the underwriting process and some assumptions that are going into that?

Connor Mitchell:

Thanks. I appreciate all the color. That’s it for me.

Operator:

Our next question comes from Wes Golladay with Baird. Please go ahead.

Keith Oden:

So the recovery on can pay but won’t pay? Obviously, we turn people over to collection agencies. We pursue them. My guess is that before those folks actually go face the eviction music, in some cases they will try to have a conversation about, if I pay this, would you not pursue me? Those conversations go on all the time with to varying degrees of success. The can pay, won’t pays are an interesting subgroup that won’t pay, can’t pay, the recovery is actually quite low, but we do pursue them. I’m sorry. I didn’t catch the first part of your question, Wes?

Alex Jessett:

Absolutely it is. I mean, if you think about – to give you an idea, in Atlanta, our new lease effective trade out for October was down 7.1%. So that’s a pretty good indication of a market where we’ve got an ability, once we get that fraud sorted out, to get that back to a far more normal run rate. So absolutely.

Operator:

Our next question comes from James Feldman with Wells Fargo. Please go ahead.

Ric Campo:

I’m sorry. You kind of broke up. We have $180 million roughly left to spend on the development that we have in place now. And what was the other part of your question? Because you broke up.

Ric Campo:

Yes.

Ric Campo:

Alex, you want to take that?

Ric Campo:

Yes, I would just add to that that the revolver is not the constraint at all. And obviously, we’re not thrilled about a 10-year costing us 6%, but that is still a lot cheaper than what it would cost a private person to go out and borrow money. And so if the opportunities are really there and if we can do something accretively to the debt in 2024, that’s what we’ll absolutely do. And for once, we actually do have a cost of capital advantage over the private guys.

Alex Jessett:

Sure.

Robin Lu:

Hi, good morning. Just one from me. I just want to touch on development. You did well in completing Tempe lease-up without much concessions or outside concessions. How are you thinking about the lease-up strategy for the new Raleigh in Houston properties? Now that those properties are entering the market at a time with more competition, do you expect to provide more incentives to increase occupancy quicker?

Robin Lu:

All right. Thank you. Appreciate your time.

Operator:

This concludes our question-and-answer session. Would like to turn the conference back over to Ric Campo for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Ric Campo:

Good morning. Our on-hold music theme for today was happy birthday. Last week, Camden’s Board and Executive management team rang the closing bell of the New York Stock Exchange to celebrate Camden’s 30th birthday as a public company. We were joined by the rest of Camden’s 1,700 team members from coast to coast to commemorate this special day. It’s been a remarkable journey, and we want to share a few memorable moments with you. So here we go with 30 years in two minutes and 30 seconds. [Video Presentation] Our business was built to last. In 1993, we started with 6,000 apartments in three Texas markets with an enterprise value of $200 million. Today, we have 60,000 some built geographically and product diverse apartments with a value of $15.5 billion. Over the years, we have created a best-in-class operating and investment team platform that focuses on constant improvement. Camden exists to improve the lives of our team members, our customers and our stakeholders, one experience at a time. Our business continues to be strong. Market conditions continue to moderate from the post-COVID unprecedented housing boom that we all knew would happen. The transaction market is still quiet and with 70% decline from last year. New permits are starting to fall given the difficult financing environment and increased cost of capital. This should bode well for our markets as supply is absorbed over the next 18 months. Move-outs devising family homes to continue to trend lower than past years and quarters. And finally, I really want to give a big shout out to our Camden teams for their hard work and their commitment to providing living excellence to our residents. And next up is Keith Oden.

Alex Jessett:

Thanks, Keith. During the quarter, our lease-ups remained stronger than usual as we completed construction and subsequent to quarter-end, stabilized well ahead of schedule, Camden Tempe II, a 397-unit, $107 million community in Phoenix with a yield north of 7%. In addition to stabilizing ahead of schedule, Camden Tempe II’s rents are approximately 10% ahead of pro forma. Also during the quarter, we continued leasing at Camden NoDa, a 387-unit, $108 million community in Charlotte which is now over 60% leased, averaging over 45 leases per month. At the end of June, we disposed of Camden Sea Palms, a 138-unit community in Costa Mesa, California for $61.1 million. We sold this 33-year-old community for a 5.7% FFO yield and a 4.25% tax-adjusted cap rate generating an approximate 13% unleveraged IRR over our 25-year hold period. On May 31, we utilized our unsecured line of credit to retire approximately $185.2 million of secured variable rate debt with a weighted average interest rate of 7.1%. We recognize the charges in conjunction with this early retirement of debt of approximately $2.5 million. 91% of our debt is now unsecured. For the second quarter, we reported core FFO of $1.70 per share $0.02 ahead of the midpoint of our prior quarterly guidance. This outperformance was driven by $0.01 in higher non-same-store net operating income, primarily driven by the previously mentioned accelerated leasing activity at our development communities and $0.01 associated with the timing of certain corporate overhead expenses and fee income. Last night, we reaffirmed our same-store revenue, expense and NOI midpoints at 5.65%, 6.85% and 5%, respectively. Our revenue growth midpoint of 5.65% is based upon an anticipated 1.5% average increase in new leases and a 5% average increase in renewables for the remainder of the year for a blend of approximately 3.25%. We are anticipating that our occupancy for the remainder of the year will average 95.6%. We continue to experience a higher than typical level of move-outs by nonpaying residents. As a reminder, all of the municipalities in which we operate have now lifted the restrictions on our ability to enforce rental contracts. And as a result, we now have twice the amount of early move-outs of non-payers year-to-date as compared to the first half of last year. We reserve for effectively 100% of delinquent balances and therefore, there is no net negative revenue impact when nonpaying residents leave. Rather, we receive 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 pays. However, we have noticed higher-than-normal repair and maintenance costs, which I will discuss shortly, partially associated with the move-outs of these delinquent payers. Although, we have maintained the midpoint of our expense growth at 6.85%, we have updated some of the underlying assumptions. Recently, the Texas State legislature passed the tax reform bill subject to voter approval in November. Upon approval, which we believe is likely, Senate Bill 2 will reduce independent school district tax rates by $0.107 per $100 of assessed value. Average independent school district tax rates in our Texas markets are approximately 1% of assess value or 45% of the total Texas tax rate. Therefore, excluding valuation increases and other tax rate increases, this anticipated reduction equates to an approximate 4.8% reduction in Texas taxes. We have assumed some rate rollbacks in Texas in our prior guidance, so this reduction is not dollar for dollar to the bottom line. We have also had greater-than-anticipated success with our Houston valuations, both current year and prior year settlements. As a result of all of these tax adjustments, we now expect total property taxes to increase by 4.5%. Repair and maintenance make up 13% of our total expenses and are now anticipated to increase by 8.5%, a 350 basis point increase from our prior expectations, resulting from higher unit turnover costs and other miscellaneous repair items. The remaining offset to the property tax favorability is primarily from continued increased levels of insurance expenses resulting from smaller claims generally under $25,000 per occurrence which do not count towards our aggregate $3 million exposure. Last night, we also increased the midpoint of our full year 2023 core FFO guidance by $0.02 per share for a new midpoint of $6.88 per share. This $0.02 per share increase results primarily from the $0.01 per share second quarter outperformance of our development communities and $0.01 in lower interest expense associated with the second quarter prepayment of secure debt. We also provided earnings guidance for the third quarter 2023. We expect core FFO per share for the third quarter to be within the range of a $1.71 to $1.75. The mid-point of $1.73 represents $0.03 per share increase from the $1.70 recorded in the second quarter. This increases primarily the result of an approximate $0.015 sequential increase in same-store NOI resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of utility expenses and leasing incentives, a three quarters of $0.01 sequential increase related to additional NOI from our non-same-store and development portfolio, $0.01 decline in net overhead expenses primarily associated with the timing of certain public company costs and a half cent decline in interest expense associated with the second quarter debt prepayment. This $0.03 and $0.0325 cumulative increase in core FFO is partially offset by $0.0325 of lost FFO from our Camden CPAM second quarter disposition. Our balance sheet remains strong with net debt to EBITDA for the second quarter at 4.2 times and at quarter end, we had $212 million left to spend over the next two years under our existing development pipeline. At this time, we’ll open the call up to questions.

Nick Kerr:

Hi, good morning. It’s actually Nick Kerr on for Eric this morning. I just wanted to ask what you’re all seeing in terms of recent competitive starts, specifically, which markets are more or less insulated, and then when you all kind of expect that supply to abate given the current and process pipeline?

Nick Kerr:

Thanks. I appreciate the color. And then I guess sort of a follow-up on that is with presumably less deliveries in I guess, 2025, 2026, what’s Camden’s appetite for ramping up your deliveries and you have the balance sheet to do so.

Nick Kerr:

Thank you. Appreciate the color.

Austin Wurschmidt:

Great. Thank you. How do we reconcile the 95.6% average occupancy assumption for the back half of the year with the economic impact from backfilling non-paying residents versus just normal course turnover?

. :

And as Alex said, that’s not necessarily a bad thing because these are people who haven’t been paying rent, but they’ve been living in the apartment. So if you have people who move out because they skipped, as opposed to the ordinary course where we would get 30 or 60 days notice and have an opportunity to backfill that apartment, it just creates a much tougher dynamic for our onsite teams. And as I think Alex mentioned the number, we have roughly twice as many folks in that category, which is short-term notice to move out as we would normally have or we had pre-COVID. So you have the – it’s the double impact of the normal turnover cycle, but you – on top of that, you have this cohort of people who sort of move out in the middle of the night and it takes a different set of factors to react to that for our onsite teams. And that shows up in the occupancy or rate in the 95.6% that we’re projecting through the balance of the year.

Alex Jessett:

Yes. So there’s a couple things. The first one is if you actually look at our total turnover, our total turnover is actually is down. And it’s because we have less folks moving out to purchase houses. So that’s the offset of that. And so based upon that, that’s why we actually think we’re going to see occupancy continue to pick up from this level. Keith said in his prepared remarks that we’re at 95.8%, we’re actually going to be about 96% by next week. And so that’s we continue to have strong occupancy because the turnover is maintaining is pretty low. If you look at our bad debt, we think our bad debt for the full year is going to average about 120 basis points. And that is – and we’re thinking that probably in the fourth quarter it should be around 90 basis points that’s compared to historical of about 50 in normal times.

Ric Campo:

Yes. And Austin, just to put a number on the Alex’s point about the move outs to purchase homes, we were about 11% for the last quarter, but as we roll that, that number forward into July, it actually dropped to single digits at 9.8%. We haven’t seen single-digit move outs to purchase homes since you’d have to go back to the great financial crisis. We had a couple of quarters in there where we were a single digits on that metric. And we hit that again in July. So that trend continues for sure.

Steve Sakwa:

Yes. Thanks. Good morning. I just was wondering if you could provide a little bit more color on the kind of monthly trends on the new lease rates and kind of on the signings, just to give us a sense for the trend, April, May, June and into July. And I guess with delivery set to ramp over the next four quarters, I’m just wondering, do you expect new leases at all to go negative in say, the next four quarters?

Steve Sakwa:

Thanks.

Haendel St. Juste:

Hey there, thanks for taking the question. A couple here. First, what’s the portfolio loss to lease overall and where is it highest and lowest amongst your core markets?

Ric Campo:

Yes. So Houston is right around a 1%. Atlanta is right around call it 0.5%. And then D.C. is actually pretty high, it’s right around sort of mid-4s.

Ric Campo:

Yes, right around 1.8%. So if we hit our numbers for the rest of the year getting to December of 2023 that should be 1.8% RNN.

Operator:

Our next question will come from John Kim with BMO Capital Markets. You may now go ahead.

Alex Jessett:

No. I mean, right now we are progressing exactly as we had anticipated. Remember also that we did increase guidance in the first quarter. But so as compared to what we thought when we last increased guidance everything is progressing as we expected.

Alex Jessett:

Yes. So Florida for us, we are anticipating I’ll just sort of do it by market. Tampa is up 10%, Orlando is up 10%, and South Florida is up 7%. So obviously some of our higher growth markets in terms of taxes, but that compares to Texas, which we think our total tax number is going to be up 1.4%.

Alex Jessett:

No. We do have some reductions in millage rates. This is the total. So if I look at tax rates, we’re anticipating about 1% down in Tampa, 1.5% down in Orlando, and 1.5% down in South Florida on millage.

John Kim:

Right. Okay. Great. Thank you.

Operator:

Our next question will come from Alexander Goldfarb with Piper Sandler. You may now go ahead.

Ric Campo:

Very good.

Ric Campo:

Yes. Let’s start with a supply question first, and then we’ll come back to the skips and evictions. So one of the things that, that we’ve always done is we – when we think about our operating plan for the year, it’s a – it is very much a bottom up process, and we have to do that because the one big variable in our markets is typically are you going to be impacted by lease ups in your submarket? And so to the extent we have communities that are going to be impacted by competitors and new supply, they need to take that into consideration when they’re thinking about their game plan. So we do a bottom up analysis, and when you do that, and you start with sub – at the submarket level, and if you just we use our own kind of gathering of assets to define a submarket, but if you want to use RealPage, it’s a pretty good proxy for that. So if you’ve got lease ups that are going to be going on in a submarket that we have existing communities in, that’s the first level that that clearly is going to that community will be impacted. And then the second thing you look at is what’s the age of Camden’s asset relative to the new development and our – and we use a filter of 10-year old assets or older, we define them as that’s a different price point and they’re probably not going to be competing with brand new development. So when you take the supply that, that everybody is understandably focused on and concerned about, but if you run it through those two filters, is it in – is it – is a asset that’s being built in a sub-market that affects a Camden asset and is it – is a Camden asset less than or more than 10 years old. When you run all of the supply in all of Camden’s markets through those two filters, what comes out of that is about 15% of the total supply market by market is impact – is impacting a Camden community. So it’s the scary headline numbers of 400,000 apartments being delivered over Camden’s 16 markets in a six quarter period. When you go through the analysis from bottom up and look at is this really likely to impact the Camden community, it turns out that it’s about 15% of the supply is in that, that category. So that’s a big part of the reason why even though you see, sometimes you see these numbers that look kind of crazy in a market like Austin, where over the 2023, 2024 timeframe, you’ve got – in 2023 and 2024, roughly 40,000 apartments being delivered. That’s a scary hell I number for sure. But when you do the bottom up analysis, you discover that really only about 20% of that supply, that’s – it’s even impacting any of Camden’s community. So I think our – so far we’ve been able to handle whatever supply is impacting Camden communities and with the end migration and strong job growth in these markets. And I – we expect that that some version of that is likely to continue throughout 2023 and 2024.

Alex Jessett:

Yes. So clearly Atlanta and California are the outliers, but I will tell you that we are seeing upticks in some of our other markets. That by the way is a good thing. All of the courts have opened up, but all the courts are delayed. And so you’re starting to see some acceleration on the court side, which is really getting folks that have not been abiding by the rental contracts for quite some time, and you’re starting to get them out much quicker now, which is obviously, as I said is a good thing, and you should expect to see these numbers start tailing off pretty good as we move through the year, because once again, the systems are open and things are starting to flow a lot better.

Ric Campo:

We’re not going to comment on class action litigation on this call. Thanks.

Operator:

Our next question will come from Josh Dennerlein with Bank of America. You may now go ahead.

Ric Campo:

No.

Ric Campo:

That is correct, yes.

Ric Campo:

Thanks.

Brad Heffern:

Hey, thanks. Good morning, everybody. I just wanted to dig into the occupancy commentary a little bit more. Have you had a shift in pricing strategy to more of an occupancy focus and that’s what’s driving the recent uptick to 96%? Or is there something else that’s driving it?

Brad Heffern:

Okay. Got it. And then on the development side, can you talk about where construction costs have trended and if the math on a new start today is pinpoint out better than it has over the past couple quarters?

Brad Heffern:

Thank you.

Jamie Feldman:

All right. Great. Thank you. Maybe shifting gears a little bit to the balance sheet. Can you talk – I know you put some refinancings on the credit line during the quarter. Can you just talk about the impact that had on your guidance? And then just as you’re thinking about, I assume turning it out into some unsecured at some point, what could – what – how do you think about the variability to your numbers if you can’t get that done in a reasonable time or at a reasonable price? And then as you look ahead to your 2024 expirations, how do you factor that into potential unsecured needs?

Ric Campo:

Yes. The variable rate that we have today is embedded in our run rate and won’t change our numbers. In any kind of capital markets transaction the bond market would be accretive to our numbers this year and next year. The interesting thing when you think about floating rate debt today is that historically floating rate debt has been cheaper than long-term debt. Obviously, with the Fed doing what they’re doing and short-term debt is now actually more expensive than long-term debt. And we expect that to change in the future because over the long-term people [indiscernible] been always cheaper and you have the optionality without having to fixed rates, long-term and all that. But ultimately, with a 4.2x debt to EBITDA, we have one of the strongest balance sheets in the sector. We will take an opportunity to put some of that accretion into our earnings when the market is right for that.

Ric Campo:

Well, we definitely have room in our leverage. We’ve always talked that our leverage is going to remain between 4x and 5x. And so we have dry powder to be able to increase the leverage if we choose to with the right opportunities. Today there really isn’t a lot of great opportunities just given the bid ask spread between the buyers and sellers. And given the horizon on construction costs perhaps coming down in 2025 and 2025, 2026 being a lean year for development, it might – it seems to us that that might be something we’d lean into before acquisitions. The comment on joint ventures, no, we will not do joint ventures. We have the most pristine and simple balance sheet in REIT land with zero joint ventures and zero complicated things on our balance sheet. And we’re going to keep it that way. We would rather invest 100% of our shareholders’ dollars into fewer transactions rather than dilute our management’s focus on whose investment we are the stewards of and we just think it complicates our balance sheet and it complicates our world. And we just aren’t going to do that.

Ric Campo:

What are you referring to?

Keith Oden:

Yes. So both of those markets are in the mid-94s, which is down from where they were last year. For a long period of time, we considered sort of 95% to be the number in terms of where we wanted to operate our portfolio that’s gotten – that’s come up over time for a whole lot of reasons, primarily around the ability to turn units more quickly and some efficiencies and just getting the real estate prepared to release. So you got two separate issues. You have in Austin, you do have a ton of units that are coming to market. So market wide, my guess is that you’re still going to see pressure broadly in Austin as they kind of work our way through close to 40,000 apartments in 2023 and 2024, they’re being delivered. I mean, the point I would make and I made earlier is only about 20% of that supply we think is relevant to Camden’s world, but obviously the other 80% is relevant to somebody else’s world. And so my guess is we’re going to stay under pressure. The entire market will stay under pressure. But I don’t – I think Camden’s going to be okay in terms of being able to handle the supply that’s coming. So Atlanta is a little bit different case. They have much fewer units that are coming. They do have supply that’s coming in 2023 and 2024, obviously. But there’s – Atlanta’s been a little bit of a microcosm of fraud and just bad acts that have nothing to do with COVID, most of this came about post-COVID, but it was actually pretty widespread. And it’s one of those things that once it gets into the network of the fraudsters, until you react and put in countermeasures, which we have done and most of our competitors have done, once they get in the door it’s in the environment we’re in, it’s kind of hard to – it still takes six to seven months to go through the process, even though you can technically evict in for non-payment in Atlanta. The reality on the ground is, is that it’s a process. It’s crowded. There are a lot of people trying to get through the process, so it’s slow. So there was a – there’s an issue in Atlanta that’s separate and apart from any of the supply issues. It’s just we’ve got people that are – we’ve got folks in our apartments that we’re working through to get out. My guess is most of our competitors do as well. But again, that’ll run its course over the next four to six months. And I think Atlanta will be fine.

Jamie Feldman:

Yes, it’s crazy. All right. Well, thank you very much for the color and I appreciate you letting me squeeze in that last question.

Operator:

Our next question will come from Michael Goldsmith with UBS. You may now go ahead.

Ric Campo:

Well, I think as Keith pointed out earlier our portfolio, we diversify our portfolio geographically and through product. And the way we do it product-wise is we buy in sub-markets, maybe buy properties that have different price points. And so new development oftentimes is it has to be because of the cost structure in building new properties, you have to be generally at the top of the market. When you think about housing in America and including rental housing, not just single-family for sale, we have a shortage of affordable apartments in America, a big shortage. And so the challenge with that shortage is that the numbers don’t work to build to that middle market. The numbers have to be – when you bring new development, and it has to be at the top end of the market and so – or to the middle top end of the market. And so when you have a portfolio like Camden’s that has a lot of middle market properties that where you think that where the rents are 30%, 40% less than what it costs to do a new development. People are not going to lower their rents unless they have to, which today they don’t have to, you don’t have any major oversupply anywhere, including the Sunbelt. You’re in a situation where those folks that are in those middle market properties are not going to move up into the A properties or the top of the market properties because they just can’t afford them. And so that’s – so our portfolio is built for the long haul. We have – we’re going to have some of our properties, as Keith pointed out, that do have competition from new development, which is the top end of our properties. But a lot of our properties are middle market and they’re not going to be negatively affected. And so – and the idea that Sunbelt supply is always a problem, well, we’ve operated in the Sunbelt for 30 years and we’ve continued to do well in up and down markets and oversupply and undersupply. The good news today is that the market is really efficient. And once a market overshoots supply, guess what? People stop building. And we’ve seen it in all of our markets. And you’re going to be seeing significant declines in starts and in over the next 18 months. And then we’re going to be in a situation where people are going to say, when do you think supply’s going to start in the Sunbelt again after we have really good rent growth towards the end of 2024 and 2025. So the reason the Sunbelt builds is because we need the supply, because that’s where the job growth is, that’s where the end migration is. That’s where the folks are moving and it’s not that you build just to build, you build to make a reasonable rate of return on your investment. And people in the Sunbelt have done a great job in making a return on their investment, but when they can’t, they stop. And so we’re going to see that stop coming very soon. And then we’ll go back to the cycle where we’ve overshoot on the building didn’t happen. So rents will rise and occupancies will rise faster than normal in 2025 and 2026 as a result of that cycle. And then they’ll catch up with supply in 2027, 2028 and rents will – in occupancies will go down probably some a little, but the bottom line is, is that’s just the normal cycle. And the good news is, is that cycle has happened over the last – multiple times over the last 30 years. And we continue to do really well long-term in this business.

Ric Campo:

So we have a development pipeline today and the projects we’re starting all have roughly 6% sort of cash flows with an IRR that’s 7.75% to 8%, 8.5% something like that.

Operator:

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

Operator:

The conference has now concluded. Thank you for attending today’s presentation. You may not disconnect.

Richard Campo :

Good morning. Culture matters. This year, we are celebrating Camden's 30th anniversary as a public company. And last week, we wrapped up a 12-city celebration tour that included all 1,600 Camden team members. The tour is an annual Camden event, but we usually split up our executive team to cover the events. This year, Alex and Laurie Baker joined Keith and me at all 12 stops to celebrate our team's 2022 accomplishments and Camden's 30th birthday. Each celebration featured our teams in vintage 1990s attire and demonstrating one of Camden's nine core values

Alexander Jessett:

Thanks, Keith. Our new development lease-ups remain stronger than usual as we average approximately 45 leases per month at Camden Atlantic, a 269-unit, $101 million community in Plantation, Florida, which stabilized during the quarter; approximately 40 leases per month at Camden NoDa, a 387-unit, $108 million community in Charlotte, which began leasing during the quarter and is now over 35% leased; and approximately 30 units per month at Camden Tempe II, a 397-unit, $115 million community in Phoenix, which continued leasing during the quarter and is now over 70% leased. Turning to our financial results. Over the years, Camden has fully supported the NAREIT definition for funds from operations or FFO, and we will continue to report that metric going forward. However, in an effort to improve comparability and alignment with the current reporting practices of our peers in the multifamily REIT sector, we will now also report core FFO to adjust for items not considered to be part of our core business operations. We presented both metrics in our earnings release last night for our actual performance during the first quarter and have included both metrics in our guidance for the second quarter 2023 and full year 2023. Any property level adjustments we make to drive core FFO, which primarily are unusual or large casualty events, severance charges in 2022 related to changes to our on-site staffing model and the amortization, if any, of below or above market leases associated with acquisitions will also be adjusted from our same-store results. These property level adjustments will be located in the other section of our components of NOI in our supplement. For the first quarter, we reported both NAREIT FFO and core FFO of $1.66 per share, $0.01 ahead of the midpoint of our prior quarterly guidance, resulting primarily from better results from our same-store communities. These results represent a 12% per share core increase from the first quarter of 2022. Our first quarter outperformance was primarily driven by $0.02 per share and lower-than-anticipated levels of bad debt as we experienced a higher-than-anticipated level of move-outs by non-paying residents during the quarter. All the municipalities in which we operate have now lifted their restrictions and our ability to enforce rental contracts. And the resulting move-outs of non-paying residents happen earlier than we anticipated with twice the amount of move-outs in the first quarter of this year as compared to the first quarter of last year. Although these early move-outs of delinquent residents do put some pressure on physical occupancy, we reserve for effectively 100% of delinquent balances. And therefore, there is no net negative impact when non-paying residents leave. Rather, we receive 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. Our outperformance was also driven by $0.005 in slightly higher-than-anticipated net market rents and $0.01 in higher other property income primarily driven by elevated levels of utility rebilling, which was entirely offset by higher utility expenses. Our $0.035 per share of positive same-store revenue results was partially offset by $0.025 of higher same-store property expenses primarily driven by much higher-than-anticipated levels of property insurance claims resulting from an unusual spike in smaller claims, generally under $25,000 per occurrence, which did not count towards our aggregate $3 million exposure. To illustrate the spike, in the first quarter of this year, we experienced the same number of claims that we experienced cumulatively in the first quarter of the prior three years. At this time, we believe the volume of claims is an anomaly, but we have made a resulting partial increase to our insurance forecast for the rest of the year, which I'll discuss later. Our original 2023 same-store guidance called for revenue growth of 5.1%, expense growth of 5.5% and NOI growth of 5%. Included within our 2022 results which drove this original guidance was approximately $900,000 of first quarter 2022 revenue associated with the amortization of below-market leases from previously acquired communities and approximately $900,000 of first quarter 2022 severance costs associated with changes to our on-site staffing model. These offsetting amounts are now considered noncore and have been removed from our 2022 same-store for 2023 comparison purposes. Additionally, our full year 2022 results included a net $1 million of noncore casualty losses primarily in the back half of 2022, which will also be removed from our 2022 same-store results for 2023 comparison purposes. The effect solely from these adjustments would be to increase our original 2023 same-store revenue guidance from 5.1% to 5.2% and increase our original same-store expense guidance from 5.5% to 5.9%. Last night, we further increased the midpoint of our full year revenue growth to 5.65%. This additional increase is based upon our first quarter revenue outperformance, which primarily resulted from the previously mentioned acceleration in move-outs of non-paying residents and our slightly higher net market rents and other property income. Additionally, we further increased the midpoint of our same-store expense growth to 6.85%, almost entirely driven by actual and anticipated higher insurance costs. Insurance represents approximately 6% of our total operating expenses. And after taking into account the previously mentioned adjustments for 2022 noncore casualty events, was originally anticipated to increase by 18% in 2023. After taking into consideration the higher first quarter claims, we have increased our anticipated monthly losses in our forecast. We have also updated our May 1 anticipated premium increase from 15% to 20% as insurance providers continue to face large global losses. We now anticipate our total insurance expense will increase by approximately 35% in 2023. These insurance increases for the remainder of the year are partially offset by anticipated slightly lower salaries and property taxes. After taking into effect the increases in both revenue and expenses and the adjustments for noncore property level events in 2022, the midpoint of our 2023 same-store NOI guidance is 5%, and the midpoint of our full year 2023 core FFO is $6.86. At the midpoint of our guidance range, we are still assuming $250 million of acquisitions, offset by $250 million of dispositions with no net accretion or dilution and $250 million to $600 million of development starts spread throughout the year with approximately $290 million of annual development spend. We also provided earnings guidance for the second quarter of 2023. We expect core FFO per share for the second quarter to be within the range of $1.66 to $1.70, representing a $0.02 per share sequential increase at the midpoint primarily resulting from an approximate $0.03 sequential increase in same-store NOI resulting from higher expected revenues during our peak leasing periods, partially offset by the seasonality of certain repair and maintenance expenses and the timing of our annual merit increases and a $0.005 sequential increase related to additional NOI from our development and non-same-store communities. This $0.035 cumulative increase in core FFO is partially offset by a $0.005 decrease from higher second quarter G&A resulting from the timing of various public company fees and a $0.01 decrease from higher floating rate interest expense. Our balance sheet remains strong with net debt to EBITDA for the first quarter at 4.3x. And at quarter end, we had $268 million left to spend over the next three years under our existing development pipeline. At this time, we will open the call up to questions.

Jamie Feldman :

Great. I guess I was hoping to focus on rent growth in April versus the first quarter. It looks like it moderated down to 3.9% from 4.5% on a blended basis. Can you just talk about if that seems to be a trend heading into spring leasing, if there's anything else to read into there? And then maybe across the different markets, what drove the decline?

Alexander Jessett :

And Jamie, I think I'd focus more on the signed leases rather than the effective because the signed is more an indication of the direction we're going. And signed leases went from 4% in the first quarter to 4.2% in April. So it actually increased.

Joshua Dennerlein :

Maybe just one follow-up on your comment there. You said one market is underperforming your budget. What market is that and on the flipside, what markets are performing the best?

Operator:

The next question comes from Derek Johnston of Deutsche Bank.

Richard Campo :

Absolutely. When you think about what's going on, the only deals that are getting done, are our legacy deals that either -- that have debt and equity already sort of committed to. Any new development or sort of second- and third-tier developers are not getting their deals done. And so there will be a significant decline in, we believe, in starts beginning in the second quarter and probably all the way through into the first part, maybe second half of 2024, which definitely sets up a pretty interesting environment in '25 and '26 because obviously, as you point out, that development takes a long time to bring to the market. So given our strength in our balance sheet and our pipeline, we definitely -- definitely we'll look at delivering -- starting new projects when other people can't and delivering into what could be a really good market in 2025, 2026. I think the input costs, the good news is, is that they are flat. We haven't started to see major decreases in cost. Lumber is at a very low level today. And that's good news. So rather than in our pro formas, we would usually put a 1% per month inflation, let's say, if we were doing it last year at this time, and now we're at least flat. And potentially, once the, I think, the subcontractors start working through the inventory they have today and they start looking out on the horizon, they're going to have to squeeze their margins to be able to get new business because there's going to be more competition, I think, for less projects getting built. Therefore, more competitive set with the subcontractors and which should constrain their margins and perhaps have costs down more from here. The big input that hasn't gone down yet are salaries. And at the end of the day, you just haven't had a lot of pressure on construction workers or folks that are in that side of the business. But that could happen depending upon -- we know starts are going to come down. The question is how fast will the merchants compress for the subcontractors, and that's where the largest part of the input cost on construction is.

Alexander Goldfarb :

So Ric and Keith, I have to ask you, you guys have been a standout in NAREIT discipline on FFO and pretty upfront in taking all of your lumps positive or negative over the years. Sort of curious why you guys chose to move when core FFO is not an official metric, there's no standardized definition. So everyone sort of dines a la carte. And I mean, we just did a study of it. And most of the items that people back out are actually recurring business

Alexander Goldfarb :

Yes. But I mean for 30 years, it worked. And it's our job as analysts to go through the financial statements, right? So I mean, that's -- it doesn't create comparability only because you guys may have certain items. You -- other companies have others. So it arguably makes it more confusing, not easier, but appreciate the feedback.

Keith Oden :

And the good news, Alex, is that for the -- for people who want to use the original NAREIT definition, it's there for anybody to use. So it just -- I think more information is generally better. So thanks.

Haendel St. Juste :

I wanted to go back to the commentary on getting some of the long-term delinquents of the portfolio. I think we assume you're primarily referring to SoCal. I guess can you remind us what's in the full year '23 same-store revenue guide from a net bad debt impact perspective? And what's your updated expectation?

Richard Campo :

So let me just give you a little color too on skips and evictions. So skips and evictions are basically double in the first quarter what they normally are. And 80% of those skips and evictions were people that owed us significant amounts of money. So the good news is, while our occupancy is not as high as it was and our skips and evictions have doubled, we're getting people out that aren't paying rent. So from an economic occupancy perspective, it's a really good thing to have that happen. And we're hoping that it accelerates in markets like Southern California. As soon as we can get our real estate back to -- with paying customers, the better for us.

Haendel St. Juste :

No, that's helpful. Question -- follow up if I could. I guess the plan to go after the 80% who skipped, what's your expectation or plan there? And then with the turnover picking up from these getting people, I'm assuming CapEx turnover, some of the OpEx costs are going up. Just curious if that's already embedded in your expectation as well.

Operator:

The next question comes from Eric Wolfe of Citi.

Alexander Jessett :

Yes. So we think overall market rent is going to be just a hair north of 3%. That's what we've got baked into our numbers. What I will tell you is that we did see slightly higher market rent really across the board in every one of our markets. So that's a good trend. And obviously, 1 quarter is -- makes us a little optimistic, but we'll see how it continues as we go through our peak leasing periods.

Ami Probandt:

I was just hoping to touch on Houston. It's been a bit of an underperforming market. I was wondering if you thought that, that was more due to a muted level of demand? Or if you're seeing good demand but supply is just making the conditions challenging? And what are your expectations for Houston going forward?

Ami Probandt :

Okay. So would you say that then it's more of a supply impact?

Keith Oden :

So just to put some numbers around -- just to kind of put some context around that in Houston in the first quarter, our actual -- the average monthly rental rate grew by 6.4%. So if our -- the overall portfolio, of course, grew at much higher than that. But if this were -- if you were comparing trends today in Houston versus looking backwards over the last 30 years, you'd say, oh my gosh, that was a really good quarter for run rate growth. And we had a little slip in occupancy that we think corrects itself in the second quarter. It's related again to some kind of one-off challenges around skips and evictions and a few cases of fraud that we have to -- it seemed to be more prevalent in today's world than they were at pre-COVID days, but we're working through that. So overall, I think Houston is going to be fine and is well ahead of plan from what we thought it would be at this time of the year. So I think we're going to be fine.

Robin Haneland:

Robin Haneland here filling in for John. One of your peers acquired a lease-up in Atlanta, a 6.6% cap rate, 5.7 tax adjusted. Do you think you'll see more deals in lease transact at these levels?

Robin Haneland:

Got it. How opportunistic would you like to be there?

Operator:

The next question comes from Chandni Luthra of Goldman Sachs.

Keith Oden :

We don't use concessions. The only except in the case of where we're doing a new lease-up because it's always just sort of been the consumer's expectations. So where we have lease-ups going on, fortunately, the lease-up rates have been pretty phenomenal on our new lease-ups. So we're actually using much less concessions than we normally would. We are having at our Atlantic product in South Florida averaged almost 45 leases per month through the entire lease-up, which is kind of insane. And so we're -- and again, we're having great success at our other lease-ups as well. And our broad portfolio, our stabilized assets, we just -- we -- with revenue management, we use a net pricing model, and we don't really -- make it easier for the consumers so they don't have to do the math. And we don't really use concessions although I would tell you that in certain submarkets, our competitors, you see that it comes and goes. Primarily, they tend to be very reactionary. They see some softness, and then they offer concessions. And if it continues soft, then they double the concession. But we just -- that's just not part of our pricing discipline.

Keith Oden:

Sure. Without running through all 15 markets, I mean, just kind of give you some macro look, and we can go into the details after the call if you like market by market. But -- so if you go up to Camden's markets combined, the completions that we had across Camden's platform in 2022 were about 127,000 apartments. We expect that to -- and these are Ron Witten's numbers. We do expect that to jump this year to about 188,000, so about a 50% increase in completions across Camden’s markets in 2023. And again, based on Ron's Witten's numbers, that number jumps to about 228,000 in 2024, and that would be the peak at least using his numbers for this cycle. So we're going to have -- we are going to continue to have supply pressure at our portfolio over the next two years, for sure. But when you -- completions and new supply is very location-dependent. So just because you have X number of -- X thousand apartments being delivered in Houston or in Austin or city, there are large metropolitan areas. And you have to really drill down and say, okay, what of this supply that's being built and delivered is going to actually be competitive where Camden's portfolio is located. And if you go through that, across our portfolio, all 15 markets of the total supply that's coming in 2023 and 2024, there's only about 40% of that product that is locationally competitive with Camden's existing portfolio. And if you go one step further and say on a price point basis, if our assets in those submarkets are average 15 years old, and you're delivering new construction, there's just a different price point that's -- that makes some of this non-competitive as well. And if you screen it for both location and price point, there's only about 20% of the new assets that are being delivered across Camden's portfolio that we are probably going to experience direct competition with. And when you look at it in that regard, it becomes much less dawning. I would say that based on our first quarter results and kind of what we're looking at for the next -- for the balance of this year, even in light of the increased completions that we know are coming across our platform, if we were going to see a lot of impact, if a lot of the stuff was truly competitive with Camden's products, we'd be seeing it right now. But the reality is only about 20% of it turns out to be truly competitive. I think we're in pretty good shape at a macro level for Camden's markets.

Robyn Luu:

Can you provide more color on the lower property tax expectations? Is this a result of more successful appeals? And how many more appeals do you expect to finalize in the coming quarters?

Operator:

The next question comes from Austin Wurschmidt of KeyBanc Capital Markets.

Alexander Jessett :

So I'll address the first item, which is exactly right, is move-outs to purchase homes have come down pretty significantly, but we have doubled our early move-outs that are related with non-paying residents. So that's sort of the trade-off on that side. And then when we look at where -- or the reasons for move-out, we really haven't seen -- other than those two, we haven't seen any changes. The #1 reason why people typically move out is a relocation, and it's usually associated with where they're finding jobs. So it's moving within the market and moving outside of the market.

Austin Wurschmidt :

Got it. And then just a clarification. You mentioned you're sending on renewals for May and June in the mid-6% range. And the renewals you signed in April were closer to that high 5% range. So just curious if that's the difference between the take rate versus asking or did something give you the confidence to kind of bump up renewals again a little bit higher as you get into the peak leasing season?

Operator:

The next question is a follow-up from Alexander Goldfarb of Piper Sandler.

Alexander Jessett :

Yes. So Alex, you're right on the first part. So that's exactly what it is. So we've got -- our premium is higher than we anticipated, and we're actually going to bind that on Monday. But the offset to that is just -- or excuse me, the addition to that is just a much higher amount of claims.

Alexander Jessett :

Yes. And we are hearing of further new developments in Florida that are not able to start in part because of very large insurance increases. So obviously, that's a net positive for us.

Eric Wolfe:

Just wanted to follow up on your comment around expecting a 60% reduction in starts. Obviously, it's a bold prediction. I think you said that you expect to start seeing it in the second quarter, which is now. So I'm assuming -- maybe you could just help us sort of understand why we haven't seen a bigger drop off so far? And what's going to sort of happen over the next sort of 3 to 6 months to sort of result in that large drop that you're expecting?

Eric Wolfe:

Got it. Yes. I mean, I guess that was going to be my follow-up is why to point that now versus, say, five, six months ago because we’ve just been in a very volatile capital markets environment for a while. Rates have been high for a while, moved up in north of 4 last year. So it's just interesting to see to point that now. It sounds like your thought is really that it's a response to what happened with Silicon Valley Bank and some of the regional banking issues that more recent has created the sort of tighter lending environment. And that's what's going to potentially drive some lower starts going forward.

Operator:

The next question is a follow-up from Jamie Feldman of Wells Fargo.

Richard Campo :

Yes. So I think that we have a decent pipeline. We -- when you look at our -- I think our pipeline is now 1.3 billion or 1.4 billion that we're having, started. So we have a decent pipeline to start. We have generally been -- we're from 300 million to 500 million of annual starts. And again, the question will be how do we feel about the market and how do we feel about construction costs? And then how do the numbers work, right? And when you get down to -- those are the ultimate questions. In terms of markets, you look at our portfolio and we have some really nice sites in Nashville and nice sites in the Carolinas and in Florida. And so those are all really good viable markets. When you look at all the dynamics that go into those markets from a -- in migration, population growth, job growth, all that are all positive in those markets. So the negative would be in Nashville, for example, is either the top market under construction or the second top may be followed by Austin. And so that's -- those are the dynamics that we'll look at. And if we don't think that the numbers work, we won't build a project. We'll just wait and see what happens.

Alexander Jessett :

Yes. I mean, we've got tremendous capacity under our balance sheet. And it ultimately all comes down to if you think about acquisitions, we could basically put about $1 billion on our balance sheet and still keep our rates where they are. If you look at developments, obviously, they don't contribute EBITDA at the beginning, but our rating agencies would understand that they will over time. And so I think you could have -- if you really wanted to, you could have sort of a swell of starts with a corresponding increase in leverage that could then come back down. So we've got plenty of capacity.

Richard Campo :

Great. Well, we appreciate you being on the call today and look forward to seeing you either in the next month or in NAREIT in June. So thank you very much. Take care.

Ric Campo:

Our theme for today’s on-hold music was waiting patiently, which is what we find ourselves doing these days. The bid ask spread for multifamily assets is as wide as I can ever recall. Sellers seem to be hoping for valuations to return to last year’s peak. Some sellers acknowledge a decline in valuations of 10% to 15%, but buyers point to a dramatically different macro backdrop now versus last year and reckon value should be lower. The result is the current standoff that won’t be resolved until buyers and sellers adjust their views on valuation and meet somewhere in the middle. Until then, we wait patiently, which is a lot easier for Keith to do than me. This brief video sums up the hours that Keith and I have spent in recent months debating the merits of waiting patiently versus making something happen now. [Video Presentation] By any measure, 2022 was the best operating environment Camden has had in our 30-year history. We exceeded the top end of our guidance and raised guidance every quarter. Operating conditions over the last two years have never been better, driven by being in the right markets with the best product and having the best teams. Apartment demand was driven by an acceleration of in-migration to our markets that open sooner after the pandemic and continue to be more business-friendly driving outsized job opportunities. And a massive release of rental demand from people who were previously at home with their parents or doubled up as government stimulus added to their savings and subsequent buying power, as a result, apartment supply could not keep up with increased demand. 2023 will be a return to a more normal housing demand market. Consumers still have excess savings and the job market remains strong. Despite rising rents, apartments remain more affordable than purchasing homes for many consumers in our markets given the rise in home prices and interest rates. Most of us don’t like slowing revenue or negative second derivatives, but I think we need to put things into perspective. Apartments are and will continue to be a great business. Consumers will always need a place to live and will choose high quality, well-managed properties to live in. We are projecting 5.1% revenue growth for 2023, absent coming off last year’s 11.2% record breaking growth, our 2023 projected revenue growth would be the sixth highest growth rate achieved over the last 20 years for Camden. At this point, I’d like to give a big shout out to our Camden teams across America for a job well done in 2022, and I want to thank them for improving their teammates lives, customer’s lives and stakeholder’s lives, one experience at a time. And I will let Keith take over the call now. Thank you.

Alex Jessett:

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activity. During the fourth quarter of 2022, we completed construction on Camden Atlantic, a 269 unit, $100 million community in Plantation, Florida, which is now almost 90% leased, averaging over 50 leases per month, well ahead of expectations. Turning to financial results, last night we reported funds from operations for the fourth quarter of 2022 of $191.6 million or $1.74 per share, in line with the midpoint of our prior quarterly guidance. These results represent a 15% per share increase in FFO from the fourth quarter of 2021. Included within our fourth quarter 2022 results is approximately $0.01 per share of additional insurance expense associated with the recent winter freeze. Excluding these non-recurring insurance charges, our results would have exceeded the midpoint of our prior guidance range by $0.01 per share resulting from the faster than expected leasing velocity at Camden Atlantic, combined with lower employee health insurance claims and lower property tax rates in Texas. For 2022, we delivered record same-store revenue growth of 11.2%, expense growth of 5.1%, which included the additional insurance expense from the winter freeze and record NOI growth of 14.6%. You can refer to page 24 of our fourth quarter supplemental package for details on the key assumptions driving our 2023 financial outlook. We expect our 2023 FFO per share to be in the range of $6.70 to $7, with a midpoint of $6.85, representing a $0.26 per share increase from our 2022 results. This increase is anticipated to result primarily from an approximate $0.36 per share increase in FFO related to the performance of our same-store portfolio. At the midpoint, we are expecting same-store net operating income growth of 5%, driven by revenue growth of 5.1% and expense growth of 5.5%. Each 1% increase in same-store NOI is approximately $0.07 per share in FFO. An approximate $0.26 per share increase in FFO related to the additional NOI from our Fund acquisition we completed on April 1, 2022. This includes the additional three months of ownership in 2023 and an approximate 6% increase in NOI from the portfolio. And an approximate $0.16 per share increase in 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 nine development communities in lease-up during either 2022 and/or 2023. This $0.78 cumulative increase in anticipated FFO per share is partially offset by a $0.21 per share increase in interest expense, of which $0.08 per share is from the utilization of our unsecured credit facility to retire our $350 million, 3.2% unsecured bond that matured on December 15, 2022. We are anticipating an average 2023 interest rate on our credit facility of approximately 5.5% and $0.10 per share from the full year impact of the $515 million of secured debt we assumed as part of the Fund transaction, inclusive of the impact of higher interest rates on the $185 million of assumed variable rate debt. The remaining $0.03 per share in additional interest expense comes from additional borrowings in 2023 under our line of credit primarily to fund are anticipated development activities. Our forecast also assumes we will use our credit facility to repay our $250 million, 5.1% unsecured bond, which matures in June of 2023. An approximate $0.07 per share decrease in FFO related to our 2022 amortization of net below market leases related to our acquisition of the Fund Assets. As we discussed on prior earnings calls, purchase price accounting required us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term, which was approximately seven months. Therefore, in 2022, we recognized $0.07 of FFO from the non-cash amortization of net below market leases assumed in the acquisition. An approximate $0.07 per share decrease in FFO related to equity and income of joint ventures and management fees as we now own 100% of the Fund Assets; an approximate $0.06 per share decrease in FFO resulting primarily from the combination of higher general and administrative and property management expenses caused by continued wage pressure and inflation, higher franchise and margin taxes and higher corporate depreciation and amortization; an approximate $0.06 per share decrease in FFO due to the additional shares outstanding for full year 2023, resulting primarily from our 2022 equity activity; an approximate $0.04 per share decrease in fee and asset management and interest and other income, primarily related to the earn-out received in 2022 from the sale of our Chirp investment and lower cash balances expected in 2023; and an approximate $0.01 per share decrease in FFO from the disposition we completed in 2022. Our 2023 same-store revenue growth midpoint of 5.1% is based upon an approximate 4.5% earning at the end of 2022 and a current 1.5% loss to lease. We are assuming we capture a third of this loss lease in 2023 due to the timing of lease expirations and leasing strategies. We also expect a 3% increase in market rental rates from December 31, 2022 to December 31, 2023. Recognizing half of this annual market rental rate increase, combined with our embedded growth and loss to lease capture results in a budgeted 6.5% increase in 2023 net market rents. As a result of increased supply, we are anticipating an 85-basis-point decline in physical occupancy, which results in 100-basis-point decline in economic occupancy after accounting for lower levels of rental assistance proceeds anticipated in 2023. When combining our 6.5% increase in net market rents with our 100-basis-point decline in economic occupancy, we are budgeting 2023 rental income growth of 5.5%. 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 closely correlated to occupancy and these items are expected to grow at approximately 1.5%. Our 2023 same-store expense growth midpoint of 5.5% is primarily driven by above average increases in property taxes and insurance. Property taxes represent approximately 37% of our total operating expenses and are projected to increase approximately 6.5% in 2023, primarily driven by larger valuation increases anticipated in Florida, Georgia and Colorado. Insurance represents 6% of our total operating expenses and is anticipated to increase by 12.5% as insurance providers continue to face large global losses. The remaining 57% of our operating expenses are anticipated to grow at approximately 4% as inflation and wage pressures combined with anticipated increases in marketing expenses as we face increased supply are partially offset by the positive impact of our 2022 on-site staff restructuring. We are expecting total salaries and benefits to increase at less than 2% in 2023. At the midpoint of our guidance range, we assume $250 million of acquisitions offset by $250 million of dispositions with no net accretion or dilution. Page 24 of our supplemental package also details other assumptions for 2023, including the plan for $250 million to $600 million of development starts spread throughout the year with approximately $290 million of annual development spend. We expect FFO per share for the first quarter of 2023 to be within the range of $1.63 to $1.67. The midpoint of $1.65 represents a $0.09 per share decrease from the fourth quarter of 2022, which is primarily the result of an approximate $0.05 per share sequential increase in NOI from our development and stabilized non-same-store communities, entirely offset by an approximate $3.5 per share increase in sequential same-store expenses resulting from 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 and the lower levels of employee health insurance claims in the fourth quarter of 2022, which are not expected to reoccur in the first quarter of 2023; an approximate $1.5 per share decrease in sequential same-store revenue primarily driven by lower levels of anticipated rental assistance proceeds and sequential declines in occupancy; an approximate $0.02 per share increase in interest expense, resulting from the utilization of our unsecured credit facility to repay the December 15, 2022 maturity of our 3.2%, $350 million unsecured bond; an approximate $0.01 per share decrease in FFO, resulting primarily from the timing of our annual corporate salary increases and various other corporate accruals; an approximate $0.01 per share decrease in FFO related to our fourth quarter 2022 amortization of net below market leases related to our acquisition of the Fund Assets; and an approximate $0.05 decline in fee income related to the timing of our third-party construction activity. Our balance sheet remains strong, with net debt to EBITDA for the fourth quarter at 4.1 times, and at quarter end, we had $304 million left to spend over the next three years under our existing development pipeline. At this time, we will open the call up to questions.

Steve Sakwa:

Yeah. Thanks. Good morning. I don’t know if this is for Keith, Ric or Alex, but just as you think about kind of your blended spreads and kind of looking at the new versus renewal. Could you just provide a little bit more color on the 8% number that you talked about, and what sort of, I guess, concessions or discounts are you having to offer when you are sending a mandate, are people signing at that and then also the new 1% up looks kind of low, do you expect that to turn negative at all in the next, say, six months to nine months?

Ric Campo:

To your second question, Steve.

Ric Campo:

To your second question, we don’t expect our new leases to go negative at all over the next six months to nine months. Now if we have -- depending upon what happens, what unfolds throughout the year, whether we -- our feel and the way we built our guidance was that we would have either a very -- reasonable soft landing or a mile recession and so we combine that and that’s why we took our occupancy numbers down and our vacancy numbers up. But as far as new leases going negative, generally, if you look at historical sort of timing of seasonality, they tended to go negative in the -- in sort of November, December, January and then start a positive rise after that. This year, we didn’t have them go negative during that period. Now we clearly had a significant negative second derivative on growth, but we never went negative. So assuming if you have a recession next year and we have more reasonable or more normal market seasonality, then they may go negative in December. That’s just new lease growth.

Operator:

Our next question comes from Nick Joseph with Citi. Please go ahead.

Ric Campo:

Well, the challenge you have with…

Ric Campo:

… Southern California is that, if you look at projected popular -- projected migration from either immigration, legal immigration or domestic migration, Southern California over the next three years has almost $0.5 million -- 0.5 million people leaving. And on the other hand, if you look at Texas, including Houston, we have about -- the projections show around 350,000 of new migrations. So that’s one of the big things is you just have this drag on people moving out of those markets and moving into our markets. What could help Houston fundamentally is continued energy transition jobs that are happening here and continued strength in the oil and gas market. The oil and gas folks just to give you some numbers laid off about 80,000 people in the pandemic period and have only added back about 50. So what’s happened is as they become more efficient, even though they are printing money right now, if you look at their earnings, but they haven’t really stepped up to hire people and they become a whole lot more efficient. I think Southern California has some upside, because ultimately, when you get past the COVID measures. I mean, that’s been the biggest challenge there is you have a huge gap between economic occupancy and physical occupancy almost 1,300 basis points. And part of that -- and I think it’s all driven by the fact that in California, you don’t have to pay your rent, and so, ultimately, when that clears then which hopefully they extended it to the end of May or end of March in terms of restrictions. But, hopefully, once that ends, you will have a positive situation where you will be able to kind of run your business like a business. Today, we can’t get our real estate back and people smile as they live free and drive their BMWs and Teslas and feel pretty good about the world.

Ric Campo:

Yeah. The cap rate side is kind of hard to peg, because the question will be whether -- what we think the upside of the property is, a lot of times in five properties they are pretty poorly managed using revenue management wrong in a long-headed way, and we can create a lot of value from that. So we find properties that are stressed, you may be buying by the pound, not the cap rate and then we will be able to drive the cap rate up. In terms of unlevered IRRs, we have increased our unlevered IRR hurdles by at least 100 basis points, so given our cost of capital rise. So we would be looking at for acquisitions in the $0.07 kind of plus range on levered IRR basis.

Operator:

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Alex Jessett:

Yeah. Absolutely. So net bad debt for us for 2023 should be right around 1.4%. When you think about rental assistance, so in 2022, on a same-store basis, we got about $11.5 million of rental assistance, and in 2023, we are assuming some but really negligible amounts. So the best way to sort of think about it is that, on a net basis, there’s not much of a change in terms of bad debt from 2022 to 2023. But if you sort of back out the positive benefits of rental assistance that we got in 2023 then we are showing, excuse me, in 2022, then we are showing some improvement in 2023.

Austin Wurschmidt:

Okay. That’s helpful.

Austin Wurschmidt:

Yeah. Got it. Understood. And then it seemed like Houston had started to see some momentum last year sort of bucking maybe the trend of some of your other markets, given it didn’t have as difficult comps, but it is remaining at the lower end of your revenue growth expectations and market outlook. And I guess I am just curious what’s really holding back Houston from stacking up better versus other markets and is there a potential for a surprise to the upside as you move through the year?

Ric Campo:

Yeah. I think the other thing that could help Houston a lot is the, when you think about the federal government spending, even though we have lots of supply coming on the supply is getting shut off. We know that’s happening right now given the current financial environment. And we have a tremendous amount of -- in Houston of federal money that’s coming here, be it via hydrogen, carbon capture, expansion of the port and just a lot of big government projects that are going to create a lot of employment over the next 12 months to 36 months with the massive amounts of spending from the Infrastructure Bill and The Inflation Reduction Act and that Houston should benefit big time from both of those.

Operator:

Our next question comes from Michael Goldsmith with UBS. Please go ahead.

Ric Campo:

Sure.

Keith Oden:

So the question of kind of where we see demand, I think that the decline that we saw between November and December was far -- it was outsized compared to normal history. We normally see a decline in occupancy and rental rates from November to December, at somewhere around the 20 basis points or 30 basis points and this year it was wide of that by 40 basis points or 50 basis points on both metrics. So there’s clearly -- there’s something changed in the total amount of people seeking apart -- seeking to lease apartments between November and December that was a little bit higher than what we would have normally expected. There’s no doubt about that. I mean we have sort of kind of made the comment internally that it felt like people a lot of our runners went home toward Christmas holidays and a fair number of them stayed at home. So but look our trends have gotten better in January. Our traffic is sufficient to backfill and to maintain the occupancy and over time increase it a little bit. We did decrease our overall occupancy for the year of 2023 from where it was last year, but last year, we at historically elevated levels and we have modeled 95.7% in occupancy for 2023, which, again, by historical standards is really still quite strong for us.

Michael Goldsmith:

That’s a very helpful commentary. And then in your guidance, there’s a wide range for development starts. So maybe what macro conditions would you look for that would drive you to the top end of the range versus maybe the bottom end of the range? Thanks.

Michael Goldsmith:

Thank you very much. Good luck this year.

Operator:

Our next question comes from Haendel St. Juste with Mizuho. Please go ahead.

Alex Jessett:

Yeah. Absolutely. So, first of all, you are right, the earn-in and we will call it the earn-in plus sort of the loss to lease that we think we can capture is about 5% and then we have market rent growth from December 31 of 2022 to December 31 of 2023 of about 3%. So, obviously, you can only get half of that. So to the 5%, you add the 1.5% and that gets you to 6.5% and that’s what we call net market rent. Then the driver is sort of the dilutive impact to that is economic occupancy. So we are making the assumption that occupancy comes down about 100 basis points. So you take the 6.5% and you back off the 100 basis points and that gets you to a 5.5% rental income growth. Now remember that rental income is only about 89% of our total property revenues. So if you take that 5.5% rental income growth and you multiply it by 89%, you get to about 4.9% and then the other 11% of our rental revenues comes from other income and think about water rebilling, trash rebilling, admin fees, application fees, those type of items and they are so closely correlated to occupancy. And they are also -- some of them are statutorily mandated to the amount that you can actually charge and so we are expecting that 11% to grow at about 1.5%. So if you multiply those two out, you get 0.2, you add the 0.2 you are 4.9 and you get exactly to 5.1%.

Alex Jessett:

So I will answer the timing and then let Ric and Keith answer the second part of it. But the timing of what we have in our model is we have got it towards the end of the year and we have got them offsetting one another. So there’s no net accretion or dilution from acquisitions or dispositions in our 2023 guidance.

Haendel St. Juste:

I agree with that. Yeah. No. I agree too. I agree with your comments. I was at [inaudible] housing too and I did speak to a handful of people in the minority who thought that, well, maybe a better spring selling season and lower interest rates in the back half of the year could result in lower cap rates. Is that a scenario that you can envision, I mean, how do you think about potentially that outcome?

Haendel St. Juste:

Thanks for the time and your thoughts.

Alexander Goldfarb:

Hey. Good morning down there.

Alexander Goldfarb:

So two questions -- good morning. Two questions. First off, on California, just especially in light of what LA recently did, do you -- has your view of that market changed, I mean, I have asked you the question over the years about California and there are a lot of good qualities about Southern California lifestyle, et cetera. But it seems like the conditions there for landlords get tougher, tougher every year, now uncertainty with the good cause and whether or not further rent infections whatever. Is that a market that you still believe in long-term or your view has changed in the past year where you are like, you know what, it’s not the market that we thought it would return to, you mentioned 500,000 people returning, I mean, sorry, leaving that -- eventually that’s something that we have to strategically assess?

Alexander Goldfarb:

Okay. Second question is and Ric, you guys are always sort of the speaker on regulatory policy, obviously, we all know what the White House put out. In your view, does this make Fannie, Freddie debt less attractive if borrowers think that the government is going to use them to effect change? And second, the CFPB and FTC obviously have broader regulatory powers to go after all apartments do you fear that this is going to be some sort of overreach or your view is there are local regulations that already regulated apartments are already so tough that it’s really hard to really sort of up the ante, if you will?

Alexander Goldfarb:

Thank you.

Chandni Luthra:

Hi. Thank you for taking my question.

Chandni Luthra:

The first one is on TRS acquisition, so with the benefit of hindsight, as you think about the different moving pieces, especially around higher interest expense now versus at the time of the transaction. How would you qualitatively think about this deal now and the net accretion from it, especially when you consider the dynamic that has also increased your exposure to markets like Houston and DC that, as you mentioned, are your B-ish, B- kind of ratings in sort of the whole deck?

Chandni Luthra:

Very helpful. Thank you for that. And as a follow-up, as we think about occupancy in 2023 and the dip that you guys talked about, how much of it is emanating from higher supply versus you guys perhaps prioritizing pricing over occupancy? And then as we think about California in this mix down the line, as you said, a couple of mixed months down the line, you would be perhaps thinking about looking to get back your real estate from tenants who are not paying currently, how would you put that in this mix of how occupancy might develop?

Chandni Luthra:

Thank you for all that detail.

Rich Anderson:

Hey. Good morning our there. Thanks for hanging with us.

Rich Anderson:

So you are driving around the country, I am curious to know how is the market clearing that gets you to where you are at with revenue growth at 5.1% versus last year, obviously, we are all expecting deceleration. But is these landlords like yourself and others kind of sort of slow playing it, because of the uncertainty that lies ahead or are you seeing some sort of behavioral shifts with residents that’s causing the market to clear -- where it’s clearing and it kind of all comes down to market rental rate growth, what you are assuming for this year at 3%. Is there a chance that we do have this soft landing or no recession or whatever you want to call it, if that market rent growth number could be something much higher than 3%?

Rich Anderson:

So I guess the question is, is this proactive from you or are you seeing behavioral shifts from your residents that are landing you where you are at now? MAA said they are not seeing any behavioral shifts with the residents that they are really more focused on the macro and that’s what’s driving where there is landing right now, is that a consistent theme for you guys?

Keith Oden:

And Rich on the consumer behavior…

Keith Oden:

… side, one of the stats that we gave in our prepared remarks was people moved out to purchase homes, which was about 13.8% for all of last year. Just to give you a refresh on that number in the month of January, that number dropped 10% -- just over 10% move outs to purchase homes. And my guess is it falls below -- falls into single digits by next quarter and we have only seen single digits on that staff for maybe two consecutive quarters during the middle of the great financial crisis. And so, I mean, we are getting to some pretty uncharted territory in terms of housing affordability and the willingness and ability of people to move out of apartments to buy homes and I don’t think that’s -- I think we are at the beginning of that cycle.

Rich Anderson:

Okay.

Rich Anderson:

Yeah. I am sorry. I mean…

Rich Anderson:

I anxious to get through the call here. One real quick question for Alex, if I am doing the numbers right, you are variable rate debt exposure went from 6% last quarter to 15%. I know that you had the deal, the $550 million of secured debt. Is that a number 15% that we should be expecting for the full year or do you expect something to maybe right-size your rate debt exposure in the coming months and quarters? Thanks.

Rich Anderson:

Okay. Fair enough. Thanks. Thanks, everyone.

Operator:

Our next question comes from Wes Golladay with Baird. Please go ahead.

Alex Jessett:

Yeah. And I will tell you, I mean, spreads came in this week alone about 30 basis points, and so if you would have asked me on Monday, I would have told you number was 48, 45 this morning, and so obviously, that’s heading in the right direction. But we want to see -- we want to see where rates continue and whether or not we can get any better on that. On the floating rate debt that’s associated with the Fund transaction that we assume there is a 1% penalty. Obviously, 1% is really not that much, and certainly, that can go into the math pretty easily. When we look at what’s on our line and what’s on our term loan, there is no penalty. So that really does give us tremendous flexibility and if this -- if the unsecured market continues to improve, there is some potential upside there.

Keith Oden:

So actually most of the stuff that is being built in Houston right now is not directly comparable with our portfolio. Some of it is obviously the Downtown assets and Midtown assets, there’s been a reasonable amount of construction in both of those submarkets. But our portfolio in Houston suburban and there really just hasn’t been that much new supply built in the suburban markets in Houston. It just gotten started maybe a year and a half ago and now it’s slowed considerably in terms of new starts. So I think we are -- as with most of these markets, when you see a scary headline number, on completions. A good example would be Austin, there’s 20,000 apartments that are set to be completed in Austin this year and kind of headline number just it’s sort of you got to take a double take when you see at 20,000 starts in a market like Austin. But when you really go through the geography of where our portfolio is, such a big amount of that is in or around the Downtown area and we literally have one community that is impacted by all of that. So if -- and if our portfolio were heavily oriented to Downtown either in Houston or Austin, it would be a much greater concern than what -- than what I think it’s actually going to be. Obviously, all supply in the market matters, but it’s like throwing rocks in a pond at the margins, if it’s not near you, it raises the water level a little bit, but it’s not a huge issue unless it happens to be in the particular submarket where your assets are located.

Keith Oden:

So…

Keith Oden:

Yeah. On -- for Houston starts, or excuse me, completions next year, we have it at 19,000 apartments completions and that’s sound about…

Keith Oden:

…right.

Ric Campo:

Sure.

Joshua Dennerlein:

Yeah. Thanks everyone. Just wanted to touch base on -- I appreciate the build from 2022 to 2023 FFO guidance at the midpoint. I just wanted to touch on that amortization of net below market leases from the Fund acquisition. Is that like something we have to factor into in 2023 or is it fully out now that we have kind of lapped 2022? Just trying to get a sense of how we should be modeling this going forward?

Joshua Dennerlein:

Okay. Okay. Appreciate that, Alex. And then maybe touching base on the markets, Phoenix seems like it’s kind of some of my screens, it looks like maybe it’s a market that’s weakening. It was interesting to see your occupancy went up sequentially. Could you kind of just provide more color around what you are seeing on the ground and how many of your portfolio is positioned versus maybe some new supply and kind of how...

Joshua Dennerlein:

Okay. Appreciate the time.

John Kim:

Thank you. On your same-store revenue guidance this year, I appreciate the breakdown. But one component that seems to be missing is the renewal rate growth, especially since debt renewal versus new lease rate spread widened in the fourth quarter, and again, even more so in January. So I guess my question is what’s the good run rate for that renewal versus new lease spread and how is that factored into your guidance this year?

John Kim:

So when you say market rental growth of 3%, that’s not reflective of the 2% release growth rate? How do those two tie in together?

John Kim:

Okay. Appreciate it. Thank you.

Operator:

Our next question comes from Robyn Luu with Green Street. Please go ahead.

Alex Jessett:

Yeah. So when you see that, a lot of that is due to the timing of property tax refunds and sort of how that flows through the system and so, no, I would not expect that to be a sort of run rate type item.

Alex Jessett:

No. And if you think about the states that I specifically called out for having higher property taxes, you do have Florida, but Texas was not one of them. So you have got Florida, you have got Georgia and you have got Colorado. And those are the markets that we are anticipating having higher property tax expense and so that’s where, if we are averaging 5.5% and property taxes make up a third of our total expenses, those markets that are going to have the higher growth in property taxes are going to have the higher expense growth. So, yeah, I would expect that once again in Florida and then Georgia and Colorado.

Keith Oden:

We certainly have seen some out migration from DC, particularly the DC proper as opposed to DC Metro. It’s not anything like we have seen from New York or California, but I would say at the margin, yeah, we do get -- in terms of folks that show up in Atlanta for relocation purposes, it’s certainly in the top three or four from destinations. So, I think, again, more DC proper than the suburban areas and a lot of that is just driven by employers and where you happen to be your office is located in DC proper, people have been very reluctant to return to their offices, because they have been allowed us to basically work from anywhere. And if you can work from anywhere in DC proper is probably not in your top 10 places to work from if you have complete flexibility. So, yeah, I think, it’s -- we have three assets in DC proper and we certainly have seen more of that from those two assets than what we had seen prior to COVID, for sure.

Operator:

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

Operator:

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Ric Campo:

Good morning. The theme of our on-hold music today was Thank You. Earlier this year our Board of Trust managers wanted to send a message of thanks to Team Camden for their unwavering commitment to our customers, each other, and our shareholders throughout the pandemic and beyond. The idea resulted in this video that was shared with all Camden teammates during our annual 15 City Award Ceremony Tour. [Presentation]

Keith Oden:

Thanks, Ric. Now a few details on our third quarter 2022 operating results and October 2022 trends. Same-property revenue growth was 11.7% for the quarter and 11.6% year-to-date. Our performance was in line with our expectations, so we've maintained our outlook for 2022 full year revenue growth of 11.25% at the midpoint of our guidance range. Rental rates for the third quarter has had signed new leases up 11.8% and renewals up 11.5% for a blended rate of 11.6%. To-date leases signed during October are trending at 6.9% blended growth with new leases at 5.2% and renewals at 9.4%. For leases that became effective in October, the blended rate was approximately 10%. Occupancy averaged 96.6% during the third quarter, down slightly from 96.9% last quarter and 97.2% in the third quarter of 2021. October 2022 occupancy is currently trending at 96.1%. Net turnover for the third quarter was 51% versus 47% last year and move-outs to purchase homes dropped to 13.2% versus 15.1% last quarter. We would expect to see a continued decline in move-outs to purchase homes through the remainder of the year, given the recent increase in mortgage rates. Next up is Alex Jessett, Camden's Chief Financial Officer.

Operator:

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Jeff Spector with Bank of America. Please go ahead.

Ric Campo:

Sure, supply in '23 is definitely going to be out there. I think, we have a projected supply from Ron Witten's number about 180,000 new units coming into our markets. And with decent job growth and migration to our markets, we think that's going to continue. And so new supply should -- we should be able to continue to raise rents during that period barring some big economic issue obviously that could be out there on the horizon. But we feel pretty good about the number of units that we observed in 2022 and think that 2023 should be a decent year even with the supply coming in.

Ric Campo:

Clearly, development we're looking at each one of our developments and making decisions on when we start or if we start in these deals in 2023. And I think good news is we -- there's a fair number of them that are middle of the year towards the end of the year. And so, we'll just have to see how the market works out from that perspective. I think one of the things that we are starting to feel is that, construction pricing is flattening out which is good. And so, maybe it makes sense to wait to see few more cards on cost and also how the market -- how the economy does next year.

Operator:

The next question will come from Nicholas Joseph with Citi. Please go ahead.

Ric Campo:

Sure. I think that's exactly right that the market is very quiet from a deal perspective. And we have a little technical problem going here. So Keith's going to join me on this -- on my side here. But, yes, so if you think about the market's today people -- if you don't have a reason to get into price discovery, then you're probably not going to do it in this market. And so I think that's the -- the key point is that there's just a just no reason to transact in this uncertain environment. Cost of capital has gone up for everyone. The buyers that were using debt, especially floating rate debt, are having to rethink their models. And I think ultimately as we get -- this is the high-tech version of when you fix computer keys. So, yes, I think it's -- people are sort of waiting for the first quarter to see what happens. The good news is cap rates definitely have risen substantially and the property value. So it depends on who you talk to you're down anywhere from 10% to 20%. And the good news is you saw our numbers and all our competitors' numbers. We're still driving NOI in a way, way, way above what we normally get. And so that's kind of helping offset some of the cap rate rise. And so I think ultimately there will be transactions done. There's still a wall of capital out there that wants to invest in multifamily. And 2023 is going to be a really good year. I think, even in a slowing market we're still going to have decent rent growth. And I think we have a great embedded start for the year that -- so when you start thinking about cash flow growth in 2023, it's going to be better than it is on average, but probably a lot slower than 2022, but that should have some benefit in terms of keeping values from falling dramatically more than they have already.

Ric Campo:

Well, as you saw in our release that we increased our buyback program authorized by the Board of $500 million. Historically, we've been a big buyer of the stock, not recently, but the stock buybacks are interesting on the one hand, because clearly our -- it's hard to tell what values are today, but it's -- the stock is -- when you think about FFO yield and its implied cap rate, it's a pretty attractive price. The issue you have in REIT land is that, it's hard to buy a lot of stock back. And we definitely want to keep our balance sheet strong. So we're not going to go out and borrow money to buy stock. But as we've done in the past, when you can sell assets in the private market at 100 cents on the dollar and buy your stock at 75 cents on the dollar that's a pretty good investment. We'll do it through sales and not through debt. And we'll take our time. And we've always said, the stock price has to be 25%-ish of -- at a discount and has to be persistent, so we can get in the market on a moderate basis and we'll -- that continues to be our philosophy.

Operator:

The next question will come from Steve Sakwa with Evercore. Please, go ahead.

Ric Campo:

Well, the development deals that we had under contract that we didn't have hard earnest money on. We definitely have changed our hurdles. Our cost of capital has gone up substantially obviously, like everyone else's. And when you get down to it, we're not going to do a development that isn't a positive spread of at least 100 to 150 basis points wide of our weighted average cost of capital. And our weighted average cost of capital has gone from five and some change to seven and some change. And so, we definitely have implemented that new hurdle into future development pipelines. And then, each one of our existing developments that we haven't started today, we're putting that new hurdle on it. The good news is that, rental rates have gone up substantially, as you've seen in our numbers. So we've been able to do better than we had anticipated, in a lot of -- in terms of rents. We also think that usually, we were putting a 1% construction cost increased per month, so call it 12% a year. And we think that number is going to slow or go negative when we start seeing starts fall, because most merchant builders are telling me today, that their starts are going to be down substantially in 2023 and 2024 given cost of capital and the lack of bank financing. So yes, in fact, we have increased our hurdles and we are reviewing all of our projects that fit into the new hurdle rate.

Keith Oden:

Yes, there's a $0.07 decline in the top end, but there was a $0.07 rise in the bottom end and really just reflects the fact, that we're a month into the last quarter of the year. And there's a lot better visibility in our world, when you're looking at 60 days, than when you are 120 days or a full year. So it's really more just narrowing the guidance, because we think there is likely to be less variability. The amount of the width of the guidance that we took into the third quarter was primarily around just the uncertainty on collections. I mean and ERAP payments. And so it's just it's very hard to model those two items, because they're in this environment particularly, in California and Washington DC, they're not things that we have direct control over. So our guidance was reflected that in the third quarter, and we've got a little bit better visibility. We kept the midpoint the same. Actually, raised the guidance $0.01 for the full year. But yes, it's just -- it's really just less time, over the forecast period and trying to give investors a little bit more clarity around where we think, we're likely to end up at the midpoint.

Operator:

The next question will come from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Ric Campo:

To answer the first part, we're not going to start Nations this year. It will be in next year's start depending upon, how the cards fall in the first and second quarter. But in terms of, construction costs going down, we don't think they're going to go down substantially very soon. Usually, it takes a really big economic situation -- to a bad situation to drive cost down. We have that in the financial crisis, in a big way but we're not really anticipating that next year, at this point unless you assume financial crises style problem. But what will happen though, is as the pipelines do moderate, there will be fewer developments being done and then costs will just at least stay flat, maybe down a little. But we've already seen some commodity prices like lumber. We're at pre-pandemic prices for lumber and tripled during the pandemic. So I think there will be some less pressure on cost, which is -- and I also think that we'll be able to shorten our development time frame, which will take cost out of it -- out of the system with fewer developments getting done rather, than having to add time to the scheduling might be able to take some time out of the schedule, and compress that to save money as well. So ultimately, it will be about where rental levels are. And the good news is, is that rents given where we are today are likely to be strong in 2023 and that should help those yields as well.

Ric Campo:

Well, right now we haven't really spent a bunch of time looking at each development in the pipeline and wondering what it's going to be at this point because we're not at that point yet. But we have around 3,000 units or 3,300 units in our pipeline. And each one is going to be evaluated on an independent basis with the new hurdle rate lens that we're going to put on it. Now, the good news too is that when you think about the capital markets that we have today debt prices, you really don't want to go into the net market, if you don't have to you really don't want to go into the equity market obviously. And so -- what we will likely do is use dispositions to fund development in the future. And that -- when you start looking at that -- then you start thinking about trading right? You're trading in existing asset with a certain growth rate at a certain price with -- for a new development that has a different profile. So, we will look at what the incremental sort of accretion dilution is from that model and then -- I think that rather than just saying okay I have to have a certain hurdle rate on the development, if we can sell assets and create a limited dilution scenario by selling and funding development and buying other properties and we'll do that. And so that will change the dynamic a little bit on the hurdle rate for new developments for next year. And the bottom-line is we'll have to figure out -- or the market will have to show us whether there's an ability to fund development and other activities with stock buybacks and what have you through dispositions. And we'll just have to see how that all plays out next year.

Operator:

The next question will come from Neil Malkin with Capital One Securities. Please go ahead.

Ric Campo:

Alex do you want to take that?

Neil Malkin:

Okay. And so nothing -- just to be clear, nothing about the potentially elevated move-outs for long-term delinquents, particularly in your California portfolio contributing to any of that? It's more of -- it's really potentially all will be laid out there.

Neil Malkin:

Okay. Thanks. Other one for me is maybe in-migration you talk about that a little bit. It seems like that continues to be very strong. Certainly, commentary we've heard from brokers across the Sunbelt seems like job, growth and attraction from employers continues to ramp. But there's been some conversation of potential reversal of that as some companies implement return to office. So I was hoping you could maybe give us some data points or bigger picture thoughts on, in-migration your confidence in that? And then, any anecdotal or early signs that there may be some sort of reversion of the in-migration or to be very strong in one way?

Alex Jessett:

And then, I'd add to that, in our particular market, so 21.5% of our move-ins in the third quarter came from non-Sunbelt markets and that's actually up 100 basis points sequentially. And if you compare that to the third quarter of 2020, it's up 400 basis points. So we continue to see sequential increases in migration to our markets.

Operator:

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

Ric Campo:

Yeah. So I think first of all if you have a financial crisis right, like we had in 2008 and '09 is sort of a different world.

Ric Campo:

A normal recession or a hard landing recession or soft landing whatever you want to call it the multifamily business is going to do well. So -- and the reason is number one you're starting out from high numbers, right? Occupancy is at a high level across the country. That's number one. Number two the consumer -- our consumers are doing really well. Our average income is $117,000, $118,000 for our new people. They're paying less than 20% of the rent in percentage of their income in rent. They have a lot of cash in the bank still. They're well employed. So it's -- our consumers are doing great. And when you have this in-migration coming in, yes, we have supply coming. But we've had supply coming to these markets for the last 30 years as we've been a public company and supply has never killed the golden goose. It might slow growth a little bit but in some cases, but because of the diversified portfolio we have it really doesn't impact the business that much. So when you think about the single-family home move-outs, we were at 15% in the summer we were at 13% now. And I think the trending numbers through October are down -- are to 12% and we think that number is going to go to single-digits when you start thinking about interest rates being tripled for single-family home folks and the pricing. The pricing model today for multi-family is as good as it's ever been in our history relative to people moving out to buy houses. I serve on the Board of the largest privately held homebuilder in America. And our sales are down 50% from June forward and they're not going up. And it's -- so I think with all that all those backdrops this should be a – multi-family should be a really good place to be in any economic slowdown.

Rich Anderson :

Just a quick side to that you mentioned rent to income of 20%. What -- how bad has it gotten in history for you guys? And how does 20% compare to when it was at its worst at its highest?

Rich Anderson :

Okay. Great. Thanks very much.

Operator:

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

Ric Campo:

Hi.

Keith Oden:

Yeah. So the way I look at it Alex is that our California portfolio and big chunks of our D.C. Metro portfolio have still not experienced the rental rate reset that all of our other markets have. And I just think that the economics are pervasive. Ultimately, the water will seek the proper level. I think ultimately rents are going up in California. Probably at some point, we'll exceed the average of our portfolio in the same in D.C. Metro. So your underlying question of long-term is D.C. at 17% the right number? I mean, we've said consistently that we'd like to shrink that over time. California at 12%? Maybe. But the reality is that until -- there's two things going on right now you have a really a huge disconnect in valuations to kind of what you think the underlying asset ought to trade at. And then more importantly long-term, you've got this opportunity to get the rental reset in those three markets, which by the way just between those two markets that all of California and D.C. Metro is almost 30% of our portfolio. So I'm more interested in let's get through this period of kind of turmoil and uncertainty in pricing. And then let's reap the -- what we know what I believe to be the underperformance and level setting that needs to happen in those two markets and then we'll look at it at that point. It doesn't mean that around the edges we still won't do something as Ric talked about opportunistically to support our development program or even possibly a share buyback program if the math works.

Alexander Goldfarb:

Okay. And then second question is just going back to supply. Again, Sunbelt traditionally has actually done pretty well with managing supply apart from like Houston. But -- as you look at your markets over the next 12 months, are there any markets or any submarkets where you're saying, hey maybe next year you guys could be citing this submarket or that submarket that could have a supply issue, or as you look at all of your properties across all the portfolio your view is that there's not any area where supply is an outside concentration or risk?

Alexander Goldfarb:

Thank you.

Chandni Luthra:

Hi. Thank you for taking my question. So I wanted to talk about Hurricane Ian. Are you guys seeing any increase in short-term leases or any impact on rates in the aftermath of the hurricane?

Keith Oden:

Fortunately for us we had very little damage. We had no quite residents, nor did we have any seriously impact. So – we got lucky a different path of that storm maybe where it was originally forecast over the top of Tampa Bay, would be having a different conversation with you. But no it's – we had been very little disruption. We had minimal amount of damage. The estimate that we gave was a little less than $1 million, which given the size and magnitude of that storm and the fact that it went right over the top of Orlando as a Category, one storm is we were very pleased with how it turned out. We have not – we've either seen benefit from people moving from the really badly affected areas into our market. Those are not – that wouldn't be a normal place where that those people would kind of see short-term shelter while they try to rebuild their homes on the at the gulf coast of Florida. So overall, it's been not a big issue for us either physically on our assets or…

Alex Jessett:

Yes absolutely. So real estate taxes I'll address that one first. Obviously, that's our largest expense line item. And 2023 is going to be an interesting year because if you think about what assessors look at, they typically look at the preceding years sort of NOI growth and obviously 2022 has been a fantastic growth year. But then they're also supposed to look at real values and clearly real values have come down. And so I think we're going to have a lot of protests and probably a lot of lawsuits working through this process in 2023. But I think if I was – obviously, we're still working through our budgets. But at this point in time I would believe that our property tax expenses are probably going to be towards the high end of our typical range. If you think about the rest of the expense categories, Clearly R&M and utilities are going to be driven by the inflationary pressure. So it depends upon what inflation is doing at that point in time. On the salary side, as I talked about in our last earnings call we rolled out this year our work reimagine program, which is a benefit to us on site in 2022 by about $1 million but it should be a benefit to us on site in 2023 about $4 million to $5 million. So obviously, that's a positive that should offset a lot of these expense pressures that are potentially out there. And then on the insurance side, although we did have a large storm in Florida, this has been a pretty light year in terms of sort of global – global events. So my hope is that insurance starts to normalize.

Alex Jessett:

Absolutely.

Rob Stevenson:

Good morning, guys. What's the current expected stabilized yield on the $758 million development pipeline? And what's the current market that you're seeing for land? Is pricing come off there? And are you seeing transactions, or is that on hold just like actual property transactions?

Rob Stevenson:

Okay. And then the second question given the strong rent growth what's the earn-in today heading into 2023?

Rob Stevenson:

All right. thanks guys. Appreciate the time, have a good weekend.

Operator:

The next question will come from Wes Golladay with Baird. Please go ahead.

Keith Oden:

Yes. I think the difference is just the slippage in time frames for the deliveries on the completions and we've seen it on all of our construction projects. And I assume that everyone else is experiencing either that or worse because there's lots of folks that don't have near the reach and the experience and relationships that we do to get these things brought to the finish line and it's still a battle. So I know that the Witten and RealPage both have tried to capture some of the delay and -- because we had this persistent issue of saying, we think completions will be x for three straight years it's turned out that they were 80% of x. So, I know they've tried to adjust their forecasting. My guess is, they still haven't captured it in the 2023 numbers. It wouldn't surprise me to see some of that 180,000 shift into 2024. I don't really -- I think the right way to look at the completions number is over maybe a 2 to 3-year period just add them all up because if it started it's going to complete. And the question is sort of not -- it's a rounding there if it completes in 2023 or first quarter of 2024. So I would -- I think it would be more useful for most folks to look at it and say, give me three years' worth of numbers and over that period of time, I'll give you my employment forecast and we'll see how that matches up versus trying to handicap any individual year. But my guess is they probably still haven't captured all and it's likely to be less than the 180,000.

Ric Campo:

Sure. So we had a unique opportunity with the acquisition of the fund with Texas Teachers to acquire properties that have zero execution risk right? And so, we knew we had to do something with the fund over the next two or three years because of the finite life of it. So, it just made sense for us to do that. Yes, it kind of went against [indiscernible] we want to reduce our exposure in Houston over time. The -- and the other part of it is we started two development deals which were single-family rental for rent properties and so on that side that's an opportunity for us to really understand the market and learn the market because I think it's very compatible business with the regular multifamily business. Long term, if you think about where Houston is right now Houston has not had the same reset of rents that Dallas, Austin or Florida or other major markets and the reason being was because energy in 2020 got hammered right, when the oil prices were negative and Wall Street has taken the energy companies to -- would shed multiple times and it has required more dividends and stock buybacks and so rather than drill, baby, drill they're not doing that. What they're doing is they're being very methodical in their capital allocation and making sure they have dividends to pay their shareholders. So that is new the job growth in Houston compared to these other markets. For example, Austin and Dallas recruit their pre-pandemic employment and went substantially higher than pre-pandemic employment about eight or nine months before Houston did. Now we hit our pre-pandemic employment this summer. Now, we're still doing well in Houston, but on a relative basis it's not as robust as the other markets. And so I think Houston, I've said in a couple of calls that Houston has gas in the tank and it really does, because when you think about energy cycles, they tend to be anywhere from five to 10-year cycles. And most folks think we're in a super cycle right now because of the lack of drilling, because of the -- domestically because of the government doesn't really want a lot of domestic oil and gas drilling. There's a lot of pushback from the Biden Administration. You have a savage cutting production two million barrels. You got the Russia and Ukraine situation. And so we know we have to have energy and the world has to have energy and it's not going to renewables as fast as people think. So I think Houston is really well-positioned over the next few years. And then when you add in the energy transition, which is ultimately we know we have to transition, but Houston is going to be likely the energy transition capital of the world as well, and primarily because when you think about the Inflation Reduction Act there's about $100 billion of capital that we think is going to come to Houston be it carbon capture that we -- and if you look at what Exxon and some of these other big companies have done, they've gone out in the Gulf and started leasing shallow water wells that are spent, so that they can store a carbon in those fields that are all depleted. And so when you think about the fact that Houston is the number one exporter of energy in the country and it’s been in the categories in the world, and there's a lot of production with chemicals and we start thinking about decarbonizing industrial complex, the carbon capture, the green hydrogen and ammonia and all those things that are going to propel us forward into -- energy transition is happening here and the headquarter companies are here. So I think it's going to be -- Houston is going to be a great market over the long-term and it's going to -- it'll have more gas in its tank than the rest of the markets in a recession because of that. Now, ultimately we fundamentally want to lower our exposure in markets we're really concentrated in because it may be great over the next two or three years, but the way that our portfolio has been -- has really been constructed is to be diversified geographically. And when you have DC, Houston and California being our three largest markets, we want to diversify ultimately. So we will do some trading in this environment. Like I said before we've been over $3 billion of moving assets around in the markets. And we'll continue to do that. And hopefully we can do it -- in the last year or two, we've been able to do it on a non-dilutive basis and hopefully that will continue. Whatever the prices are when they reset, I don't think there's going to be a massive differential between cap rates in Houston or in DC, or California versus the rest of the Sunbelt. And if we can sell assets and fund development or buy newer higher growth assets in the other markets where we're underweighted, we will lean into that.

Ric Campo:

Sure. You too.

Operator:

The next question will come from John Pawlowski with Green Street. Please go ahead.

Alex Jessett:

Yeah, absolutely. So if you look at collections, so our collections right now for the quarter were right around 98.6% and that compares to the last quarter when it was right around 99.2%. So if you look at Phoenix, our collections there we're 99.2%. But to a point that Ric made earlier, if you look at California our collections in the second quarter in California were 97.3% that dropped off to 94.2% in the third quarter of 2022. That's the real collection story.

Keith Oden:

No. I mean traffic, we still continue to have -- by a lot of the technology that we put in place, in particular funnel, the complaint that I hear most commonly is that we have more traffic than we can reasonably handle given the -- or that we can effectively handle because of the very low vacancies across the entire portfolio. But -- we're generating plenty of traffic. There's still tons of people that want to live in Camden apartments across all 15 cities. And these are -- even though our occupancy rate did fall from the second quarter, you're still north of 96% in the fourth quarter and those are crazy good numbers from a historical perspective for Camden.

Keith Oden:

So we're going to -- go ahead, Alex.

John Pawlowski:

All right. Thanks. Happy weekend, guys.

Alex Jessett:

You too.