Camden Property Trust [CPT] Conference call transcript for 2023 q1
2023-04-28 14:26:10
Fiscal: 2023 q1
Kimberly Callahan: Good morning, and welcome to Camden Property Trust's First 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 e-mail upon request. [Operator Instructions] And please note, this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden's complete first quarter 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. So 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 would be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Ric Campo.
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: to have fun. I'm going to share an inside baseball look at Camden's unique culture set to a 1990s classic, All Star. [Audio/Video Presentation] While we are on tour, we got word that for the 16th straight year, Camden was included on Fortune's list of the 100 Best Companies to Work For. We claim this honor on behalf of our Camden team and the entire REIT world. It is a testament to just how much progress we have made over the last three decades, and that culture really does matter. Operating fundamentals continue to be good. We are on track to meet or exceed our 2023 plan. Multifamily transactions have slowed dramatically. Activity for the first quarter was down 74% from last year as buyers and sellers try to recalibrate the increase in their cost of capital and what the future market dynamics may look like. New starts continue to be elevated with only legacy projects with committed capital starting. We expect the lag in Federal Reserve policy will start to have its desired effect with a significant reduction in new starts beginning in the second quarter and throughout the next year or two. I'm betting the over, on a 60% reduction in starts once monetary policy and the banking crisis make their way through the system. I want to thank and congratulate Team Camden for their hard work and staying true to our commitment to improving the lives of our team members, our customers and our stakeholders, one experience at a time. Next up is Keith Oden.
Keith Oden : Thanks, Ric. Now some details on our first quarter 2023 operating results and April trends. Same-property revenue growth for the quarter was ahead of our expectations at 8%, and we've raised the midpoint of our 2023 revenue guidance as a result. Once again, we saw the highest growth rates in our three Florida markets: Tampa, Orlando and Southeast Florida, with Nashville also posting strong results. First quarter signed leases grew by a blended rate of 4% with new leases up 1.8% and renewals up 6.7%. Our preliminary April results are trending at a similar level for blended rate growth with slightly higher new lease rate growth and moderating renewal rate growth. Renewal offers from May and June were sent out in the mid-6% range. While these growth rates were down from the record levels seen in the first four months of 2022, our 2023 year-to-date performance is actually stronger than what we would historically expect to achieve during the first four months of the year. Occupancy averaged 95.3% during the first quarter of 2023 and is trending slightly better to date in April. Net turnover for the first quarter of 2023 was 36%, in line with the first quarter of 2022. And move-outs to purchase homes dropped to 10.1% for the first quarter, one of the lowest levels on record in our 30-year history. I'll now turn the call over to Alex Jessett, Camden's Chief Financial Officer.
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.
Operator: [Operator Instructions] And our first question will come from Jamie Feldman of Wells Fargo.
Operator: The next question comes from Josh Dennerlein of Bank of America.
Operator: The next question comes from Derek Johnston of Deutsche Bank.
Operator: The next question comes from Alexander Goldfarb of Piper Sandler.
Operator: The next question comes from Haendel St. Juste of Mizuho.
Operator: The next question comes from Eric Wolfe of Citi.
Operator: The next question comes from Ami Probandt of UBS.
Operator: The next question comes from John Kim of BMO Capital Markets.
Operator: The next question comes from Chandni Luthra of Goldman Sachs.
Operator: The next question comes from Robyn Luu of Green Street.
Operator: The next question comes from Austin Wurschmidt of KeyBanc Capital Markets.
Operator: The next question is a follow-up from Alexander Goldfarb of Piper Sandler.
Operator: The next question is a follow-up from Eric Wolfe of Citi.
Operator: The next question is a follow-up from Jamie Feldman of Wells Fargo.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ric Campo for any closing remarks.
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.
Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
