Camden Property Trust (NYSE:CPT) Q3 2023 Earnings Call Transcript

Ric Campo: Go ahead, Keith.

Keith Oden: There’s no question and it’ll be a challenge. We certainly faced that this year as well. And we were more optimistic that it looks like than we should have been in terms of bad debts. But what will solve it is two things. One, making sure that we do everything possible to accelerate and to move forward the process of getting folks who are in our apartments that are not paying rent out. Now the good news is that in virtually every one of our markets and submarkets, the regulatory prohibition on being able to move forward to get someone out of your apartment, from a judicial perspective that’s not paying rent, those have all lapsed. So what we’re left with is municipalities who are just – there’s a huge backlog, they’re overwhelmed, some cities have done a whole lot better job than others at kind of getting their act together and moving things through the process.

But even the worst of the players have, for example, in Atlanta, in Montgomery County, up in the DC area, even those have improved. They just haven’t improved as much as most of the other cities. So part of it is just we got to get the bad actors out and there’s a pathway for that. It’s still taking longer than it did historically and in some places it’s still taking way too long for that to happen. And we’re doing everything possible, but it’s like pushing on a string when you’re trying to get municipalities to focus on something like this. So yes, I think that will work itself out and I think ultimately the skips and evictions, we have done some things internally. We’re – and we have – where we have the highest incidence of kind of people who are fraudsters and bad actors.

We’ve instituted things like income verification, which we – back in the old days and the dark ages, we did on every lease. And then we went to a purely online system in the interest of making it frictionless for our customers. Well, we’re going to have to probably go back in some more of these submarkets and municipalities and introduce some more friction that will be a burden to the good actors, but will also deter and catch the bad actors. We’ve done that in Atlanta. We’re testing it in a bunch of other submarkets. But obviously, there’s a balancing act between putting impediments to do business with good people, which income verification and these other things are versus letting bad actors get into your community and then having to go through five months to six months process to get them to move on.

So yes, it’s complex calculus, but our folks are really good at doing forecasting. I think one of the things that Rick said in his, that I personally think is quite remarkable is that when we started the year, based on our ops team’s original guidance that we shared with the Street, we said that we thought total revenues would be up 5.1% for the entire year. That was our original guidance. Then we increased the guidance in the first quarter because it looked like things were getting a little better and then again in the second quarter. But when it’s all said and done, if we make our fourth quarter numbers, which we fully expect to do, our ops team will have delivered 5% same-store NOI revenue growth. That’s 10 basis points off of our original guidance on a $1.6 billion number.

And given all of the cross currents and forecasting and assumption making and the execution that goes with that, I think that’s pretty remarkable.

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?

Keith Oden: Yes. So my guess is that, that number will move some. It may tick up a little bit next year, but I would be very surprised if it went above 18% or so of impacted communities because, honestly, where the stuff is under construction right now. It’s just a matter of – merchant builders tend to be heard, animals and they build in the same places and – so a lot of the product that’s going to be coming in 2024 is in the same submarkets as 2023. So, I think it may tick up a little bit. But I think that the – again, based on the analysis that we’ve done internally and it’s pretty detailed at the property level, we think that we’re probably – is probably most of it is in our run rate for a year similar in 2024 to what we had this year.

Eric Wolfe: Okay. Thank you. Appreciate it.

Operator: Our next question comes from Joshua Dennerlein with Bank of America. Please go ahead.