Executives at Houston-based REIT Camden Property Trust typically try to convey a message with the introductory music on their quarterly earnings calls, and their second-quarter meeting with analysts earlier this month was no different.
While waiting for the call to begin, listeners were treated to “The Waiting” by Tom Petty and the Heartbreakers.
“T“The general sentiment seems to be that everyone in the multifamily sector is waiting for something,” CEO Ric Campo said on the conference call. “Operating teams are waiting for the pace of multifamily completions to peak and begin to decline and for bad debts to return to pre-pandemic levels. CFOs are waiting for the long-awaited first rate cut from the Fed, as well as relief on property insurance and property tax costs.”
On the transaction side, Campo said, sellers are waiting for buyers to “throw in the towel and start buying.” On the other hand, buyers are waiting for “the towels to go on sale,” the CEO said.
“While we are certain the wait will eventually end, the timing is up for debate,” Campo said. “In the meantime, the late, great Tom Petty reminds us that the waiting is the hardest part.”
Here are three more insights from the REIT call and Results report.
The REIT survives the supply storm
Currently, housing supply is at a 30-year high, limiting rent growth in many Camden markets. However, 200,000 units were absorbed nationwide in the first half of the year, equivalent to 2018 and 2019, Campo said.
““Job growth was robust in all of our markets, with the exception of Los Angeles, which continues to struggle,” Campo said. “Ten of our markets saw job growth of over 10% compared to pre-pandemic levels.”
Overall, operating conditions in the second quarter developed as the REIT expected, Camden President Keith Oden said on the conference call. New lease rates fell 1.8% and renewal rates rose 3.7%, giving the company a blended rate growth of 0.8%. The company sent out renewal offers for August and September with an average increase of 4.6%.
“Turnover rates across our portfolio remain very low as fewer residents move away to purchase homes,” Oden said. “Net turnover for the second quarter of 2024 was 42% compared to 45% in the second quarter of 2023.”
San Diego, Washington, DC, Los Angeles, Southeast Florida, Houston, Denver and the Inland Empire, and Orange County in California reported sales growth above the portfolio average of 1.4%. At the other end of the spectrum, Austin and Nashville saw sales declines of about 2% and 4%, respectively.
Spending is falling
Like many of its REIT peers, Camden saw expenses decline in the second quarter, leading to an outperformance in funds from operations. The REIT lowered its full-year expense growth forecast to 2.85% from 3.25%, reflecting the assumption that insurance premiums and property taxes would continue to be lower than expected.
Property taxes, which account for about 36% of Camden’s total operating costs, are forecast to increase 1.5% year over year. “Due to lower property assessments in Texas and higher refunds, we now expect property taxes to increase approximately 1%,” CFO Alex Jessett said on the conference call.
IN NUMBERS
| category | questionnaire | Year-on-year change |
| Real estate income | 366.4 million US dollars | 1.4% |
| Operating result | 235.5 million US dollars | 2.5% |
| Operating costs | 130.9 million US dollars | 0.9% |
| Funds from operating activities | 1,71 € | 2.4% |
| Occupancy rate | 95.3% | -20 basis points |
SOURCE: Camden
Insurance costs, which make up 7.5% of Camden’s operating expenses, were expected to be flat year-over-year in the first quarter, but the company now expects insurance costs to decline 3%. Last year, the REIT saw a staggering 40% increase in insurance costs, and it forecast an 18% increase in 2024.
“Right now, it’s still a great business for the insurance providers,” Jessett said. “And every insurance provider we talked to at our last renewal was trying to figure out how to get more of that business. And the easiest way to get more of that business is to keep rates low.”
New projects coming in 2025
During the second quarter, Camden completed construction on the 189-unit Camden Woodmill Creek single-family community in The Woodlands, Texas, and began two new projects in Charlotte, North Carolina – the 420-unit Camden South Charlotte and the 349-unit Camden Blakeney.
“These are really shovel-ready, and we had delayed them, so we started with the two in Charlotte that we had announced,” Campo said.
Camden does not expect any more construction starts in 2024. However, the company has more projects planned for 2025 and beyond. “It’s just difficult to position ourselves and start the other properties we have between now and the end of the year,” Campo said. “They’ll probably start in 2025.”
Campo also sees the potential to add more projects. “I also think we can expand the pipeline by helping other developers who can’t get financing – who have ready-to-build land contracts that they want to get rid of,” he said. “If you look at our history in cycles like this, we’ve always been able to expand our development pipeline.”
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