Camden Property Trust Earnings Call Nuggets: Turnover, Housing Recovery

On Friday, Camden Property Trust (NYSE:CPT) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Alexander Goldfarb – Sandler O’Neill: Just first question is on the turnover. If you can just talk – give a little bit more color, your turnover was up, but yet you guys increased occupancy. So can you just give more color on the change of the demographic of the tenant base?

D. Keith Oden – President and Trust Manager: In terms of changing demographics of the tenant base, there’s really not, there’s nothing between the quarters that would make us believe that there’s any – we have no evidence that that is actually changing. The fact that the turnover rate was up roughly 6% on the year-over-year basis, does reflect partially that we pushed the heck out of rents. But the flipside of that was, we had sufficient traffic to be able to do it and we’ll continue to do that as we think the trade-off makes sense. We are within a range right now our annual turnover rate tends to run in the 47% to 50% range and we are very comfortable with that range over the course of year. So, the fact that we are (48%) for the quarter really doesn’t get on my radar screen very much in light of the fact that we were able to push rents and push occupancy. So, you are always going to have – when you’re doing those two things you’re always going to have a little bit more at the margin people move in and make another decisions. But as Rick mentioned on his – in the stats that we look at or the ability to pay relative to our customer base those metrics have improved materially in each of the last year. So, did I like it? No, no one like rental increases. Do we get tons of e-mails? Sure. But can they pay? The answer to that is that they are paying us the smaller percentage of their taking on – pay on household income basis than they were last year.

Richard J. Campo – Chairman and CEO: I think the other thing that you need to really think about on turnover is the last few years has been at historic lows and that’s been driven by a lousy economy where people are doubled up and they are not moving around and they are sort of stuck because the economy is not that good. If you think about Texas and you think about some of these really good economies adding 100,000 jobs what’s happening is that you are sort of releasing that pent-up demand by roommates breaking up and going to smaller units and having their own independent housing situation. So, we would expect in a more buoyant economy where all the jobs are being created to have a higher turnover rate because people are actually moving around and that’s a good thing.

Alexander Goldfarb – Sandler O’Neill: That’s more to the point what I was asking sort of how many of the people who came in when rents were low have now sort of left and been replaced by people who are more commensurate with the price point, that’s more where my question was going?

Dennis M. Steen – SVP, Finance and CFO: Well, I think, that’s exactly what’s happening. You’re definitely having people moving down market that can’t afford it, and you’re having people move into our apartments that have higher incomes that can afford it, and I think that that’s evidenced by the percentage of rent that they’re paying. The increase, obviously in America we haven’t had an 11% increase in earnings in a 12 month period, yet our customers have – their incomes have gone up 11%, so clearly we’re replacing sort of weaker customers with stronger customers, and it’s all a function of the job growth and the buoyancy of the economies that we operate in.

Alexander Goldfarb – Sandler O’Neill: And then second question is, Rick and Keith, you guys have been pretty active in the past in the corporate M&A world, as you speak around – what’s your sense for other CEOs, Boards, are people, with where the apartment valuations have gone, do you sense that people are starting to be more willing to contemplate M&A, or do you think it still comes down to whenever a CEO decides its time it’s time, and apart from that there is not much else that can be done?

Richard J. Campo – Chairman and CEO: I think, that the latter part of your question is correct. M&A is a total social situation. It tends to be driven by the CEO and the Board and the management team as to what they think about the world, and how they feel about their business, and I think, when you think about the multi-family business today, sure, prices have come back, and values have improved dramatically, but when you look out on the horizon you have to say, well, should I sell today, because prices are high and the question becomes, well, what is our outlook for the future, and right now, the outlook for the multi-family future is pretty darn good for the next 2, or 3, or 4 years because of all these macro factors, so I think, it’s hard for people to – unless you just believe in the economy is going to go down big time and Europe is going to blow up and stock market is going to get down 50%, you believe that, then maybe you’re going to run for the doors, but I don’t think from the fundamental perspective, people believe that our business is going to start getting bad or not as buoyant as it is today. So, when you put that backdrop with, gee, why would I want to sell when I think that the rental rates are going to go up and my cash flow is going to go up, that becomes – you have both situation sort of hurting M&A. On the one hand, if you’re rating a company and you think it’s a great time to be in this business, why would you want to sell unless you believe it’s at top, and I don’t think anybody in this business that I know thinks it’s the top.

Housing Recovery

David Bragg – Zelman & Associates: I don’t think you mentioned this. What’s current occupancy?

D. Keith Oden – President and Trust Manager: Our last report was 94.9 occupancy.

David Bragg – Zelman & Associates: Rick, could you just talk about your view on the housing recovery occurring in many of your markets, maybe provide some commentary beyond the increase in move-out by home rate?

Richard J. Campo – Chairman and CEO: The housing market in a lot of our markets is improving. I mean I’m talking about not just multi-family but single-family. The markets that didn’t have the bust, markets like Houston, all of the Texas really didn’t have a bust, I mean we have situations in all of those markets where the single-family home business is actually doing really well. You do have probably submarket issues. So, in Houston for example, in the inner loop, the houses are on the market for two weeks to three weeks. Bids are exceeding listing price now which kind of hurts my head. My 30-year-old daughter just bought a house by our office and had to pay $10,000 above listing price to be able to get the house. So, the markets that are – the housing markets that are – that haven’t been affected by the bust are actually doing pretty well, and a lot better than the ones that were affected by the bust. There are some interesting things going on in markets like Las Vegas, where you have sort of the regulatory environment that has created an unusual situation there. In Las Vegas, if you really want to buy a house, you do have to pay list price or higher. There are bidding wars going on in Las Vegas and there are some strange things happening as a result of some laws that were passed in October 2011. AB284 was passed by the legislature in Nevada, which basically is a fairly simple law that basically said a lender, before they could send out a default notice which was the first step in a foreclosure process, had to prove through an affidavit that they actually have the mortgage and own the loan. Just to give you a sense of the default notices that went out in September of 2011, this law came into effect in October of ’11. So in September, first three or four weeks of September, they had about 2,000 default notices go out. In October, they had 58. So, part of the challenge in Las Vegas is that the inventory is stuck, and so it’s creating kind of an interesting situation where there’s very limited inventory and housing prices are rising as a result of that. I think, the Case-Shiller numbers for March and April are going to be surprising to everyone in Las Vegas. But generally, I think, we feel like the single-family market is improving in all of our markets and it’s all driven by job growth and prices getting mark-to-market and consumers are buying homes which is good and I fundamentally think that you have to have a positive single-family market for the multi-family market to be good long-term because it’s such a big driver of our economy.

David Bragg – Zelman & Associates: Then when you think about the higher quality tenants coming in through the front door today as compared to those that are leaving and this recovery occurring in the single-family market. To what degree do you become more concerned about that move out to buy rate accelerating from the current level?

Richard J. Campo – Chairman and CEO: We always will look at those numbers for sure but in a reasonable economy and let’s just take the 90s as an example where you started out in 93 with 1993 with homeownership rate about 64% by the end of the decade it was like 66% or 67% and that it almost hit 70% in the next decade. During that period about 12% to 14% of the people in our apartments moved out to buy homes, what really turned out to be very, very good multi-family environment during that timeframe. What was happening was you had the situation where you had a very vibrant economy, you had 20 plus million jobs created so there was lot of households created and we got our fair share of demand from the economy. I think as long as single family homes are not going to take share from multifamily until you have a buoyant economy. As long as we have a buoyant economy and we are creating jobs and we have reasonable household formation like in past history the people moving out, the back door to buy homes will be filled with people moving in the front door from the demographics and just the buoyant economy, so I think that while single family people worry about people moving out to buy homes. They have always moved out to buy homes in our business. The problem in the 2003 through 2008 timeframe was that we had really good renters, who became really bad homeowners, because they put no down payment and they didn’t have the wherewithal to make a mortgage payment. I think that is – that could be or that would be a threat to multi-family if we had that situation happen again. I doubt given the bust and given the underwriting criteria and everything going on in the single family mortgage market that that will happen any time soon, so if we just have a normal environment where 12%, 14% of our people moving out to buy houses, but they’re being replaced by new baby boom echo kids and immigrants and others that are traditional renters, we should be fine.

Dennis M. Steen – SVP, Finance and CFO: Dave, just to clarify our current occupancy rate is 95.3%.

David Bragg – Zelman & Associates: Okay. That sounds closer to a level that you spoke about a month ago. Thank you.