Camden Property Trust (CPT) Earnings Call Transcript & Summary

Good afternoon. Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Jana Galan, BofA's residential REIT analyst, and we're pleased to have with us Camden Property Trust's CEO, Alex Jessett, CFO, Ben Fraker; and SVP Investor Relations, Kim Callahan. I'll turn it over to Alex for opening remarks, and then we can jump into Q&A.

Thanks, Jana, and good afternoon, everybody. Thanks so much for joining us today. We've only got about 30 minutes, so I'll keep my opening short and leave as much time as I can for your questions. If you want more detail, our updated investor presentation is up on our website, and it covers a lot of what we're going to walk through today. For anybody who doesn't know Camden well, here's the quick version. We're a multifamily REIT with nearly 57,000 apartment homes in 13 major markets around the country. We are an S&P 500 company. Our total market cap is $15 billion, and we've been public for 33 years now. About 80% of the portfolio sits in the high-growth Sunbelt markets and the rest is in the Washington, D.C. area or the DMV or in Denver. Within those markets, 60% of our assets are in suburban submarkets and roughly 60% would be considered Class B rather than Class A on price point. And we've got 1 of the youngest portfolios in the business with an average age of 16 years. Our markets lead the country in job growth, population growth, in-migration and just overall demand for apartments and that has driven record absorption across our portfolio. New supply hit a 50-year peak in 2024, and deliveries have been coming down steadily ever since. In our markets, completions as a percentage of inventory in 27 and 28 are projected to run below the 20-year historical average of 2.3%. And buying home is still out of reach for a lot of people with mortgage rates around 7% and a big premium to own versus rent. Put all that together and it sets us up a really good operating environment with better revenue and NOI growth in 2027 and beyond. And now before anybody asks, we are not going to give any 2027 guidance today. So sorry, folks. Our markets are doing what we expected and third quarter trends so far are right in line with our most recent guidance. Based upon what we actually saw in July and August, plus where we think September lands, we expect to average 95.7% to 95.8% for occupancy in the third quarter with blended lease rate growth between 1% to 2%. That's consistent with what we talked about on our second quarter call back in July. Our peak leasing season usually runs from March to the end of August, and this year felt a lot more typical or more normal than last year when things slowed down by midyear on the July 4 holiday. Given the pickup we saw in July and August, we expect the third quarter '26 occupancy and lease rate growth to come in above both last quarter or the second quarter of '26 and last year or the third quarter of '25. That sets us up well heading into the fourth quarter. Retention is still high, turnover is still low and move out to buy a home has averaged 10% since 2023, which is a record low. We'll keep balancing occupancy against asking rents to maximize revenue now that we're in the slower stretch after Labor Day. So expect a slight moderation in sequential occupancy and rent growth in the fourth quarter. As most of you know, we closed the sale of our 19-year-old California portfolio in late July for $1.625 billion. We put approximately $700 million of the proceeds back into share buybacks and the rest is going towards acquisitions in our high-growth Sunbelt markets. So far, we've completed $750 million of acquisitions, adding newly built communities with an average age of 5 years across several of our markets, and we're working on a few more deals we'd like to close before year-end. We also added 3 new development sites to the pipeline, 1 in Raleigh and 2 in Tampa, and we expect to start the Raleigh project later this year. Camden has one of the best balance sheets and lowest leverage ratios in the multifamily space, and we are one of only of a handful of U.S. REITs with an A- or better credit rating from all 3 rating agencies. Liquidity is in great shape. We've got $1.2 billion available under our unsecured line of credit and commercial paper program, plus roughly $600 million in cash, cash equivalents and 1031 exchange related accounts. And we don't have much coming due in the near term. We've got $553 million of debt at an average interest rate of about 5%, maturing between now and year-end and we plan to refinance it accretively in the near term using our unsecured credit facilities. So to wrap it up, Camden has the right products in the right markets, high-growth Sunbelt markets that are set up to outperform as new supply keeps declining and demand for rental housing stays solid. Our balance sheet is strong, leverage is low, liquidity is ample, and we can refinance what's coming due accretively. We've got a proven track record of recycling capital to improve the portfolio and its growth profile and creating value for shareholders along the way. And over the past 30 years, we've delivered solid long-term total returns averaging 10.7% a year, which meets several NAREIT and broader market indices. With that, let's open up the question from the BofA team and our audience today.

Thanks so much, Alex. That was a fantastic update and summary. And maybe I'll just start big picture before diving into the details of those points you highlighted. So 2026 has been a pivotal year for CPT with new leadership and exiting California. And then it's also been a year of significant consolidation in the public apartment REIT sector. How are you thinking about markets and scale today?

Absolutely. So well, I hit the first part, which is a new leadership. The great news is, is that what's been working for Camden for the past 33 years isn't changing. I've been at Camden for 27 years. Ben has been at Camden for 26 years. And Kim, we want to say how long she's been at Camden. So the good news is that everything that has been working for quite some time and has delivered outsized results is not changing. The second thing is -- so we'll talk about California and the California transaction. And I think that's really the best capital allocation story that we have seen in REIT world this year. if you can trade out of 19-year-old assets in California and California, by the way, is a market that we do not believe is going to grow as fast as the Sunbelt. If you look back over history, California has not grown as fast as the Sunbelt. And so we're able to trade 19-year-old assets in California for 5-year-old assets in our high core, high-growth Sunbelt markets, and we were able to do that on a net neutral basis. That is fantastic. And by the way, it's net neutral in year 1, it should become accretive in year 2 and go on from that point. So I think that is a really strong example of how to allocate capital in an efficient manner. And by the way, the way we are able to make that work is we bought back $700 million of Camden shares at a significant discount to NAV. And so we are absolutely prepared to do transactions like that, and we think this is a great story. You asked about the M&A transactions that have happened in REIT space. And yes, there certainly has been some M&A transactions, which we will let the investors decide whether or not they think those make sense. But here's what I will tell you on markets. The Sun Belt has outperformed for 30 straight years. If you go look at total shareholder return over 20 years, the top 2 companies at the top of that list are the sand companies. And that is because what drives our business is really simple. -- it is job growth and it is employment growth. And if you look to see where cuemeobgrowth and population growth. And if you look to see where the job growth and population growth has been and where it's consistently been, it has been in the Sunbelt.

I guess just on that point, is the Midwest, the new Sunbelt.

So I will tell you that we were in the Midwest at 1 point in time, and we exited the Midwest because what we found, although the Midwest had lower volatility it didn't really have outsized rent growth. And so it's interesting to see right now, you do have affordability that is causing some folks to start to move into more traditional Sunbelt markets. . But you have to remember that our business, it takes quite a long time to make major capital investments, right? Because you want scale wherever you go. So in any market you go, you want to make sure that you can go into in a meaningful fashion. -- and it takes more than a year or more than 2 years or more than 3 years of a trend before you start to say, yes, this is where we want to go. I will tell you that we do deep dives on markets all across the country constantly. The last deep dive that we did that worked was Nashville, and we entered Nashville probably about 6 years ago. But we've done deep dives on all sorts of other markets. At this point in time, no other market is screening well for us.

Interesting.

And maybe just following up on scale in terms of what's kind of sufficient in terms of -- I don't know if you think of it as unit count or AUM in a certain geography, how do you kind of scale your operations to be most efficient.

Yes. So we think that we need about 5 or 6 communities in a market for it to really work. The good news is, is that the only market that we have that is sort of below that level as Nashville -- the better news is that we bought 2 assets in Nashville this year and we started a new development. So we'll get to that point, and then we'll keep growing from there. But that's typically what you need.

And then on the updates you provided, you're proving out your expectation that third quarter blends will exceed second quarter blends. Curious how that kind of ties into this peak leasing season being a little bit more normal or traditional, I guess, like what is causing that break in the seasonality with the 3Q versus 2Q?

Yes. So I don't think it's really a breaking seasonality. I think what it is, is it's -- number one, it's a return to more typical seasonality. If you think about this conference last year, we were all telling you that come the fourth of July, all of a sudden, demand just dropped off, right? Well, this year, we got not only through the fourth of July, we got a whole another month, all of August. And so obviously, that's been incredibly helpful for us on that side. And then if you think about why are we able to have higher blends in the third quarter versus the second quarter, our markets have never had a demand problem. Demand has been incredibly strong in testers hat we've had is a supply challenge. And if you remember that peak supply or the supply peaked in about the second -- excuse me, the third or fourth quarters of 2024. So now we are continuing to work through all that supply, and we're at this point in time where there's much less supply to work through, and that's obviously given us additional pricing power. -- that is only going to improve from here.

Maybe if you could talk a little bit about kind of concession usage in your markets, how it's ranging between the -- still a little bit higher supply markets versus those where the absorption has been incredibly strong.

Yes. I mean, so concessions seem to be fairly stable in our markets right now. Now there are certainly pockets where we are seeing concessions just absolutely go away. And we're seeing pockets where they're sticking around. But here's the more fascinating thing to me. The fascinating thing is that when you turn off concessions you immediately see really outsized revenue growth in that particular submarket or market. And I'm going to give you an example. So the example I'm going to give you is Austin, Texas. The first thing you need to know is I am so incredibly bullish on Austin, Texas. It has nothing to do with the fact that I'm a Longhorn and then we just beat Ohio State. But I'm incredibly bullish on Austin, Texas, because every 25- to 34-year-old in America seems to want to live in Austin. The challenge that Austin has is that if you think about the percentage of stock that should typically be delivered in any 1 year, that should be around 3% of the stock. Austin delivered 10% of the stock every year for the past 3 years. What that effectively means is that if you drive around 25% of everything you see in Austin is brand new. The good news is, is because demand has been so incredibly strong, Austin has been absorbing all of that supply. And here's a great example of what can happen as soon as the supply gets absorbed. So we have an asset in Austin called Camden Rainey Street and Camden Rainey Street, for those of you who are familiar with Austin is just south of downtown. It is a cool hip area where people like me are generally not invited, but I think my kids are invited. But we had really one of the first apartments on Camden on Rainey Street, once again named Camden Rainey Street, -- after we bought that, we all of a sudden had a lot of new development all around us. Basically, Camden -- Rainey Street became a high-rise development Meka, and there were massive concessions offered and Camden Rainey Street last year had occupancy of 88% that it was our lowest occupancy system-wide. On Friday, I was in Austin visiting with our teams, and I talked to our community manager at Camden Rainey Street, and I said, what's your occupancy right now. She said, we're over 99% occupied. I'm going to tell you that is the highest occupancy that we have system-wide. It also tells me we should raise rents. But if you look at what's happening in terms of new leases, we have actually had periods of time now recently at Camden Rainey Street, where we are having low double-digit increases in new leases. That is unheard of. But the reason is, is because all of the direct supply right around it leased up and turned off concessions. And as soon as the concessions turned off, Lisa started popping. Now by the way, that is absolutely an anomaly in Austin. I'm not going to tell you, anybody else is doing that. It does not happen anywhere else in Austin, but it is indicative of how fast new lease rates can increase as soon as you get new supply absorbed, and that's exactly what we saw.

Great. Maybe shifting a little bit to the expense side of things, guidance improved at second quarter earnings. Curious what you're seeing from insurance, property taxes and then your controllable expenses heading into the back half?

Yes, sure. So our expenses have been mostly as we anticipated other than really our outsized better-than-anticipated insurance renewal we had are -- our policy year went from May 1 through April 30, we had a 20% decline in our property insurance premiums, which is leading to more favorability in our expenses for this year. The reason that happens is we have more participants in the reinsurance market. And so we've seen insurance go up quite a bit, but this allowed it to ratchet back down. And for the back half of the year, the only thing that would be outstanding is tax rates that we anticipate to come in, but we don't anticipate any great surprises there.

Great. And then on the transaction side, you've been very active recycling capital this year, selling $1.7 billion and buying close to $800 million of apartment communities. Can you talk to us a little bit about the cap rates as well as the depth and breadth of buyers.

Yes. So if you look at our sales, so our sale once again was a 19-year-old portfolio in California. We sold that at an AFFO yield of 5.2% -- there's a Prop 13 adjustment that the buyer would have to take. That's worth about 30 basis points. So effectively, that means the buyer paid about a 4.9% cap rate with real CapEx for a 19-year-old portfolio. Now whether or not that is representative of what it would be everywhere else, it's hard to say. When we go out and we buy brand-new assets, right, so the average age of the assets we bought is 5 years old, it's just under 5% in terms of cap rates. So it is still a really robust market in terms of cap rates. Now the reason why cap rates on new real estate or as low as they are, is twofold. It is, number one, there's a lot of money that has been raised to go make acquisition transactions, and you can buy real estate at a discount to replacement cost, which is really attractive to a lot of investors, and then the second thing is, is there's not that much new multifamily assets on the market. So you've got this little imbalance between supply and demand. And that's obviously what's keeping cap rates fairly low for right now. And of course, because we were able to sell at such a good cap rate, that's why we can buy at low cap rates and still make everything work on a net neutral year 1 basis.

And not disputing that this is an excellent cap rate, but just curious whether you think that there is a kind of portfolio discount or premium out there.

Somebody asked me that question today and I said if there's a portfolio discount, we certainly didn't see it in California, but perhaps there is. We're not out looking at portfolios in general, right? My issue with portfolios has always been, you have a $1 billion portfolio and you look at the real estate and maybe you like half of the real estate, you don't like all of it. We can go out and we just proved it because we did it this year, you go out and buy $1 billion of exactly the real estate you want and exactly the submarkets you want with exactly the amenities you want and you don't have to settle for anything, right? So I generally try to stay away from portfolios unless there is a really compelling financial reason for it. I'd rather go out and just pick and put together the portfolio that really serves us and serves our investors the best.

And you've also acquired land and have $632 million of developments underway. Kind of curious if you could share a little bit of how you're underwriting this what kind of premium over acquisition cap rates do you require to start a new development? And then just comment on what's going on with construction costs.

Yes. So the good news is that construction costs are coming down. we think they're down about 5% to 8%. Now they're not down in commodities, they're not down in labor. They are entirely down in profit margin for subcontractors. That's where it is. The problem with that is you really can't squeeze it much more because at some point in time, subcontractors, they have to be able to pay their folks, right? And so I think we're probably at the point where construction costs are the lowest that they're going to go. When it comes to making a decision between an acquisition and a new development, about 5 years ago, we made the decision. We used to have acquisition personnel, and we used to have development personnel. And about 5 years ago, I was put over that department, and I said we're going to stop all of that. We're going to have real estate investment professionals. And the reason why I wanted real estate investment professionals is I didn't want somebody to come and talk their own book, right? I wanted somebody to come and say to me, the best investment option for Camden and its shareholders is x whether that's a development or whether that's an acquisition. So here's how the conversation typically works when our folks bring us a new development. The first question I asked them, I say is, can you buy it for less? And if you can buy it for less, then the answer is just go buy it, don't build it, right? And then the conversation then moves on from that point in time. So we did buy 3 new land parcels this year. But I will tell you, we probably looked at 100 million in order to get to the 3 that actually makes some sense because we are trying to make sure that we are as disciplined as we possibly can. Camden is a prolific developer. We are really good at doing this. We've created billions of dollars of value for our shareholders by development. But we are absolutely not 1 of those people that says we're a developer. Therefore, we must always develop. We will only develop if it makes sense and it makes sense for our shareholders. Now by the way, if we can develop something and it's going to be a stabilized 6 and I compare that to Camden's share price, which is right now like a 64 or 65 but Camden's share price represents a 16-year-old asset because that's the average age of our portfolio, a brand-new asset is obviously 0 years old. If I can look at that and say, yes, I think that a 6 on a brand-new asset is going to grow faster than a 6.4, 6.5 on a 6-year-old asset, then that can make some sense. But we've got to really make sure that that's the right opportunity for our shareholders. And as I said, it's not something that we're just running out and saying we will always develop. That's just not our mentality.

Great. maybe on the balance sheet, obviously, in excellent shape with the A- credit rating from S&P and a positive refi, that's very unique coming up. Should you be leveraging the balance sheet more? And should you be buying back more stuff?

So I've publicly said on the last earnings call that we are open to levering up a little bit to buy more shares. We bought over $700 million already. Obviously, that was funded from dispositions. But I will tell you, I believe Camden is a screaming buy. And when I sit here and I look at Camden trading at a 6.4, 6.5 and I realize that our debt-to-EBITDA then what's our debt to EBITDA right now. .

4.5x.

4.5 x. That tells me that we've got some capacity to do accretive transactions, whatever that might be.

Maybe we could dive a little bit into some of your markets and curious kind of your outlook on the greater DC portfolio? .

Yes. So the DMV for us, if you go to 2025 was our best-performing market. It was also the market that I talked about the most because everybody wanted to talk about dose -- and by the way, for our particular portfolio, dose ended up being pretty much a nonevent. If you look at where we are in the DMV, our largest concentration is Northern Virginia. And Northern Virginia has outperformed Maryland and the District almost consistently since we first moved into the market 20-some-odd years ago. So Northern Virginia is absolutely always been strong for us. It also has lower levels of supply. Then it goes to Maryland and then it goes to the district. The district for us has been an underperformer. And I do think a component of that, although a smaller component is dose. I always told everybody last year that I was one of those folks that had no idea that federal workers weren't actually going into the office. I assume federal workers went at the office. And then all of a sudden, they were called back and I realized that they're all like flyfishing in Boise. And so they all came back and I think the offset of the incremental demand from them moving into the district that offset the job losses that were associated with those, and that's why the district ended up doing pretty well for us last year. But as I look at it on an ongoing basis, we will narrow or sort of shrink our exposure to the DMV over time. And that's just because it's over 10% of our NOI, and I don't want any 1 market to be over 10% of our NOI. And as we bring back our exposure to the DMV likely that will happen in the district.