Camden Property Trust Q4 FY2025 earnings call

Key Points - Ric Campo: - Finished 2025 strong, exceeding core FFO guidance by $0.13 per share. - New supply has peaked and is falling in markets. - 2025 had one of the highest levels of apartment absorption in 20 years. - Sunbelt markets will continue to grow faster, prompting marketing of California properties for sale. - Residents are resilient with strong financial prospects. - Apartments are more affordable than owning a home. - New lease rates and net operating income will grow. - Strong balance sheet and top team. - ### Keith Oden: - 2025 same-property revenue growth beat guidance midpoint. - Reviewed supply forecasts and job growth estimates for 2026. - Supply deliveries in most markets peaked in 2024 and declined, with completions as a percentage of inventory expected to be less than 2% in 2026 and closer to 1.5% in 2027. - Job growth in 2026 expected to be in Sunbelt markets. - 2026 same-property revenue guidance midpoint 75 basis points, with markets graded, e.g., overall portfolio B with stable but improving outlook, Washington D.C. Metro A- with moderating outlook, Houston B+ with stable outlook, etc. - Fourth quarter '25 operating results: rental rates had new leases down 5.3%, renewals up 2.8%, blended rate negative 1.6%, renewal offers for first quarter expirations average increase 3%-3.5%, move-outs to purchase homes low. - ### Alex Jessett: - Fourth quarter '25 real estate and financial activities: disposed of 3 communities for $201 million, acquired 1 community in Orlando for $85 million, stabilized a build-to-rent community. Full year 2025 transaction activity: sold 7 communities for $375 million, acquired 4 assets for $423 million. Marketing California operating communities for sale, with preliminary value indications $1.5B-$2B, assuming sale closes midyear, 60% of proceeds reinvested via 1031 exchanges in Sunbelt, remainder for share repurchases. - 2026 financial outlook: core FFO per share range $6.60-$6.90, midpoint $6.75, impacted by fee and asset management income, general overhead, same-store net operating income. First quarter 2026 core FFO range $1.64-$1.68. Plan to launch new $400M-$500M bond transaction.

Camden's same-property revenue growth for 2025 came in at 76 basis points, representing a 1 basis point beat to the midpoint of their most recent guidance. Different markets have varying revenue growth rates: Washington, D.C. Metro had 3.5% revenue growth in 2025; Houston placed #4 for revenue growth in 2025; Southern California posted mid-3% revenue growth in 2025; Denver's revenue growth was expected to decline in 2026 due to lower utility rebilling; Nashville, Atlanta, Dallas, and Southeast Florida were expected to improve with 1%-2% revenue growth; Orlando, Raleigh, and Charlotte had 0%-1% growth; Tampa had relatively flat growth; Phoenix had limited pricing power; Austin was expected to improve but still had supply challenges. Rental rates for the fourth quarter had new leases down 5.3% and renewals up 2.8% for a blended rate of negative 1.6%, with renewal offers for first quarter expirations having an average increase of 3%-3.5%, and move-outs to purchase homes remaining extremely low at 9.6% for the fourth quarter and 9.8% for the full year of 2025.

2026 Guidance - Core FFO per share expected to be in the range of $6.60 to $6.90 with a midpoint of $6.75, a $0.13 per share decrease from 2025. - Decrease primarily from approximate $0.04 per share decrease in fee and asset management income, approximate $0.045 per share increase in general overhead, and approximate $0.045 per share decrease in same-store net operating income. - Same-store net operating income expected to be negative 50 basis points with revenue growth of 75 basis points and expense growth of 3%. - Same-store revenue growth midpoint 75 basis points assumes 55 basis points from rental income and 20 basis points from other income. - Market rent growth expected to be approximately 2% over the year, most in the second half. - First quarter 2026 core FFO expected to be within the range of $1.64 to $1.68. - Plan to launch a new $400 million to $500 million bond transaction later in the quarter.

• Regulatory changes: Denver's House Bill 25-1090 affecting utility rebilling, reducing other income by about $1.8 million, equivalent to 19 basis points of same-store NOI. - Legal expenses: Noncore adjustments include legal costs, which are a significant number but expected to resolve. - Capital redeployment risks: Potential challenges in redeploying proceeds from California asset sales within the 1031 window, though Camden is confident in its acquisition team. - Market uncertainties: Uncertainty in job growth, economic conditions, and timing of rent growth inflection point.

Q: Just on the Southern California portfolio sale. Can you talk about why now is the right time to do that?

A: Richard Campo says it's because they think there's a pivot point in the Sunbelt growth story, want to be in front of it. Also, California has a vibrant transaction environment, and they can redeploy capital to Sunbelt and buy shares at a discount to net asset value.

Q: Great. Thank you. I guess just going back to some of your guidance and the thoughts on the pickup in the second half. Can you just walk us through your thoughts on new and renewal rents and blends as you go throughout the year?

A: Unknown executive says slight improvements expected in first quarter versus fourth quarter 2025, more visibility in peak leasing season, and no big concerns as markets are improving.

Q: A question on the guidance, and thank you for covering some of this in your prepared remarks, but can you clarify how to think about the timing of the 1031 exchange acquisitions?

A: Unknown executive says the $1.1 billion redeployment from California sale is expected to happen in summer months, effectively neutral to 2026 guidance, and share repurchases will be done as soon as possible.

Q: You guys are obviously penciling in some development starts this year. Could you maybe just talk about your expectations for stabilized returns. What are you seeing on costs? And how are you underwriting rents today in those development projects?

A: Alexander Jessett says costs are coming down 5%-8%, developments are still challenging, rental rates are looked at untrended, expecting 5%-5.5% untrended, which can get to 6% trended.

Q: Can we just get a bit more color on the $14 million of legal expenses. And I know that you guys switched to core from a NAREIT, but still across the industry, these legal expenses, settlement political advocacy, whatever, in aggregate, is all becoming more a regular part of the business. So if you could just talk; one on the $14 million and two, how you guys are thinking about legal, political advocacy and stuff on a go-forward basis?

A: Alexander Jessett says $14 million is noncore adjustments including legal and acquisition costs, legal costs are significant but will resolve, and political action activity in California was 92% of spend, which will be 0 once California portfolio is sold.

Q: What gives you confidence that you can redeploy the capital received from the asset sales within the 1031 window given some of the increased competition that we've been seeing and pretty low cap rates across the Sunbelt. And then if you can't redeploy it, what's the potential impact to earnings? Is there a tax implication here that you would have to pay?

A: Alexander Jessett says Camden is a desired buyer, sellers want to sell to them, so no issue redeploying capital, and if unable, likely a special dividend would be paid.

Q: Just going back to the acquisition opportunities. Just wondering the types of deals that you're looking at? Are these development deals that are in lease-up, are they mostly stabilized transactions? And then could you just also talk about some of the specific markets you're evaluating and whether there's any new markets included in that?

A: Stanley Jones says they are evaluating stabilized opportunities across all markets, already making headway, and not anticipating new markets.

Q: Another one on the SoCal portfolio trade. I guess, a bit of a 2-parter. First, it looks like those assets are still in the same-store pool, and that taking them out would be about a 15 basis point drag to annualized same-store revenue forecast. So first of all, is that fair? And then secondly, if you're able to actually achieve closer to the upper end of the range that you outlined, closer to the $2 billion. I'm curious how you think about the incremental capital deployment of that if they would also be earmarked for acquisitions or any tax limitations there?

A: Unknown executive says the impact of California coming out of same store is about 25 basis points on revenue, and if the portfolio sells for $2 billion, it would increase the 1031 exchange pie and likely increase buyback.

Q: Yes, [everybody], demand question. There've obviously been a lot of issues with the job market for college graduates. I'm wondering if you've seen a noticeable impact on your business from that. And is that something that's a potential upside lever if that proves to be just a 2025 phenomenon?

A: Richard Campo says job prospects for college graduates were tough in 2025, but could be a tailwind if job growth improves in 2026, with potential stimulative effects from the economy.

Q: Alex, you gave the impact on same-store revenue from California in '26. I'm wondering if you could provide that same figure for '25, just to get an apples-to-apples where same-store revenue is going for your remaining portfolio? And then going forward, how do you think that impacts same-store expenses? Just to get in California really helps mitigate property taxes? What's the going-forward impact on same-store expense growth?

A: Alexander Jessett says the impact on revenue in 2025 was the same 25 basis points, and California doesn't have a significant impact on expense numbers going forward, as property tax impacts vary across markets.

Q: I think since Keith brought up 2027 as it relates to Austin specifically in the prepared comments. I'm going to assume '27 is in play for this call. So maybe as we think about a lot of your core markets going forward, just give us a sense of kind of what that deepness of the recovery curve, that exit velocity, whichever metaphor you want to use, where do the market stack up in your current forecasting as we think about the end of '26 and then into 27?

A: D. Keith Oden says Camden's rents for properties built in last 5 years are back to 2021 levels, unprecedented flat rent growth, and when the market turns, it will turn hard, with Austin and Nashville slower to recover but others positioned for supply and demand to work in their favor.

Q: And just file this one away for 2027 on hold music Austin Powers theme song, just throwing it out there. So my question is on new lease rate growth. Alex, you mentioned you'll give an update as you get closer to the spring leasing season. But what I see from fourth quarter '24, it was negative 4.7%, fourth quarter '25 is negative 5.3%. I get it. It takes some time for these things to happen even though that was post-peak deliveries as you described it, Keith. So I'm wondering if you were to -- I think it's an important metric to get that above the kind of the 0% threshold eventually for multifamily to work again, particularly in the Sunbelt. Do you think how probable possible or maybe even unlikely is it to see new lease rate growth this year somehow get above that 0% threshold. I know you perhaps want to be careful about setting expectations at this point, but probable, possible, unlikely, what do you think?

A: Unknown executive says the inflection point is important, and it's probable that new lease rate growth could get above 0% this year, with it being a matter of when.

Q: Forgive me if I missed, I joined the call late, but I wanted to talk a little bit about the change in the Denver regulation around utility rebilling and reimbursements and then any other income. So maybe if you could talk about for a minute, the specific legislation. And is there any other concerning draft legislation in other states or markets you're in that might drive downward pressure on your ancillary income, just given how proactive you've been over the years and with bundling services and there's a lot of -- there's a lot of non-rental income for each unit. So I'm concerned about longer-term risk to your other income streams.

A: Unknown executive says House Bill 25-1090 in Colorado affects utility rebilling, a significant issue, and they monitor regulations, not worried about other markets similar to Denver but paying attention.

Q: Do you talk about if you're seeing any difference in performance or rent growth between your urban and suburban assets and kind of your expectations through the balance of the year as well?

A: Unknown executive says urban assets are doing better and expected to continue, having gapped out in fourth quarter '25 revenue, a turnaround from previous years.

Q: I think you mentioned you're expecting market rent growth of around 2% in markets this year. I think on the third quarter call, that was in the sort of 3% to 3.5% range, maybe 2 quarters ago, I think third parties were maybe talking more over 4%. I guess what has changed the most in that outlook to sort of drive that revision downwards? And then as we think about that 2% expectation for this year, what does that assume in terms of job growth? And sort of how do you think of maybe sort of the down case scenarios to that?

A: Unknown executive says uncertainty and slower absorption of excess supply, along with weaker job growth in 2025, have driven the revision, and 2% growth assumes 257,000 jobs across Camden's markets, with down case scenarios depending on job growth and supply absorption.

Q: Just want to go back to the comments on lack of rent growth. Certainly, in the past number of years, everything else has gone up, Uber rides, groceries, everyone has streaming services, et cetera. So Ric, do you think the traditional sort of 20% rent to income still holds? Or do you think because of inflationary pressure on people's lives, plus all their other activities and subscriptions that maybe that number is no longer 20%, maybe it's something lower than that?

A: Richard Campo says the 20% rent to income is still good, as residents' earnings are up 4%-5% real over 3-5 years, and the psychological issue of housing prices makes consumers feel everything is more expensive even though finances are good.

Q: Looks like your revenue enhancing and repositioning CapEx guide is down from last year. Can you talk about why this has guided lower and what initiatives you are working on in this category?

A: Unknown executive says repositioning CapEx is down slightly as 70%-80% of the portfolio has been repositioned, but it's a good use of capital and will continue, with the repositioning team doing good work.

Q: I want to go back to the development economics question. So the four properties that you have in the pipeline today on current market rents, could you give me an estimate on like where these would be yielding today? Or is it in that low -- that 5% to 5.5% range? Alex, you quoted on the shadow development pipeline. I'm just wondering how these four assets are kind of trending given the malaise in market rent growth in the last few years.

A: Alexander Jessett says development returns on current projects are mid-5% untrended, with some projects like Baker in Denver and Gulch in Nashville challenging due to market conditions, waiting for clarity before starting, and buyouts coming down 5%-8% but waiting for better economics.