Camden Property Trust (NYSE:CPT) Q4 2022 Earnings Call Transcript

Ric Campo: Well, I guess, on the one hand, there’s a mountain of capital, right? And multifamily is a great business and people understand that. And so I guess if you have — if the Fed can sort of thread the needle and doesn’t crash the economy and rates — forward rates look like they are going to be in the 3% to 3.5% range, I think, you could argue that cap rates might either affirm dramatically or come down some. I think that when you look at the negative leverage that people have to put on their properties today. If you look at Freddie and Fannie spreads relative to the 10-year you are at about — you are about 5%, 5.25% and if you are going to buy a 4% cap rate, you got 150 — 100-basis-point to 150-basis-point negative spread there and you got to figure out how do you get that negative leverage dealt with.

And if you want to fix a 6.5 to 7.5 unlevered IRR, you got to bet on some pretty strong growth or falling cap rates in the future to ever make those numbers work. So there is a scenario, for sure, but it’s — right now I wouldn’t bet on that scenario.

Haendel St. Juste: Thanks for the time and your thoughts.

Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb: Hey. Good morning down there.

Ric Campo: Good morning.

Alexander Goldfarb: So two questions — good morning. Two questions. First off, on California, just especially in light of what LA recently did, do you — has your view of that market changed, I mean, I have asked you the question over the years about California and there are a lot of good qualities about Southern California lifestyle, et cetera. But it seems like the conditions there for landlords get tougher, tougher every year, now uncertainty with the good cause and whether or not further rent infections whatever. Is that a market that you still believe in long-term or your view has changed in the past year where you are like, you know what, it’s not the market that we thought it would return to, you mentioned 500,000 people returning, I mean, sorry, leaving that — eventually that’s something that we have to strategically assess?

Keith Oden: Yeah. So, Alex, we — the last two years as — and all the trials and tribulations that have come with restrictions and the eviction moratorium, et cetera. Those have been — to me those have been a distraction from the bigger picture. California has had a challenge and has been a challenge to operate in for not just the last two years but for the last three decades or two and half decades anyway. And so there’s a — you have to kind of get your mind around the fact that it’s a different regulatory regime. Everything is going to be trickier. Everything is going to be a little bit stickier in terms of moving forward on new initiatives, et cetera. But that’s something that we have lived with for 20 years. And we know how to do it.