Good morning. And welcome to Camden Property Trust Fourth Quarter 2022 Earnings Conference Call. I am Kim Callahan, Senior Vice President of Investor Relations. Joining me today are Ric Campo, Camden’s Chairman and Chief Executive Officer; Keith Oden, Executive Vice Chairman and President; and Alex Jessett, Chief Financial Officer. Today’s event is being webcast through the Investors section of our website at camdenliving.com and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks and those slides will also be available on our website later today or by e-mail upon request. (Operator instructions: All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward.) And please note this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them. Any forward-looking statements made on today’s call represent management’s current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden’s complete fourth quarter 2022 earnings release is available in the Investors section of our website at camdenliving.com and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We hope to complete our call within one hour and we ask that you limit your questions to two, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we would be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I will turn the call over to Ric Campo.

Our theme for today’s on-hold music was waiting patiently, which is what we find ourselves doing these days. The bid-ask spread for multifamily assets is as wide as I can ever recall. Sellers seem to be hoping for valuations to return to last year’s peak. Some sellers acknowledge a decline in valuations of 10% to 15%, but buyers point to a dramatically different macro backdrop now versus last year and reckon value should be lower. The result is the current standoff that won’t be resolved until buyers and sellers adjust their views on valuation and meet somewhere in the middle. Until then, we wait patiently, which is a lot easier for Keith to do than me. This brief video sums up the hours that Keith and I have spent in recent months debating the merits of waiting patiently versus making something happen now. Video Presentation. By any measure, 2022 was the best operating environment Camden has had in our 30-year history. We exceeded the top end of our guidance and raised guidance every quarter. Operating conditions over the last two years have never been better, driven by being in the right markets with the best product and having the best teams. Apartment demand was driven by an acceleration of in-migration to our markets that opened sooner after the pandemic and continue to be more business-friendly driving outsized job opportunities. And a massive release of rental demand from people who were previously at home with their parents or doubled up as government stimulus added to their savings and subsequent buying power. As a result, apartment supply could not keep up with increased demand. 2023 will be a return to a more normal housing demand market. Consumers still have excess savings and the job market remains strong. Despite rising rents, apartments remain more affordable than purchasing homes for many consumers in our markets given the rise in home prices and interest rates. Most of us don’t like slowing revenue or negative second derivatives, but I think we need to put things into perspective. Apartments are and will continue to be a great business. Consumers will always need a place to live and will choose high quality, well-managed properties to live in. We are projecting 5.1% revenue growth for 2023; absent coming off last year’s 11.2% record-breaking growth, our 2023 projected revenue growth would be the sixth highest growth rate achieved over the last 20 years for Camden. At this point, I’d like to give a big shout out to our Camden teams across America for a job well done in 2022, and I want to thank them for improving their teammates' lives, customers' lives and stakeholders' lives, one experience at a time. And I will let Keith take over the call now. Thank you.

Thanks, Ric. As many of you know, we have a tradition of assigning letter grades to forecast conditions in our markets at the beginning of each year and ranking our markets in order of their expected performance during 2023. We currently grade our overall portfolio as an A- with a moderating outlook as compared to an A with a stable outlook last year. Our full report card is included as part of our earnings slide call slide deck, which is now showing on the screen and will be posted on our website after today’s call. At this time last year, we anticipated 2022 same-property revenue growth of 0.83% at the midpoint of our guidance range. As we announced last night, Camden’s overall portfolio achieved same-property revenue growth of 11.2% for 2022, well ahead of our original expectations and marking a record level of same-property revenue growth for our company. While conditions are expected to moderate during 2023, our outlook calls for same-property revenue growth of 5.1% at the midpoint of our guidance range, which would mark another year of above long-term average growth for our portfolio. We anticipate same-property revenue growth to be within the range of 4.1% to 6.1% this year for our portfolio, with most markets falling within that range. The outliers on the positive side should once again include our three Florida markets, Orlando, Southeast Florida and Tampa, with Houston and LA/Orange County falling likely below 4%. The macroeconomic environment today is uncertain and the magnitude of 2023 job growth or even job losses remains a wildcard, but we expect our Sunbelt focused market footprint will allow us to outperform the U.S. outlook. We expect to see continued demand for apartment homes in 2023, given high mortgage rates for single-family homes and a reluctance from would-be buyers to make the transition to homeownership amidst this uncertain economic environment. We reviewed several third-party forecasts for both supply and demand in our markets for 2023, and the outlook for recession scenarios and job growth or job losses varies dramatically. As such, I will spend my time today focusing more on the supply aspect and expected completions and deliveries in our 15 major markets this year. Those estimates also vary quite a bit, but our baseline projection assumes approximately 200,000 new completions across our markets during the course of 2023. Our three Florida markets, Orlando, Southeast Florida and Tampa once again earned A+ ratings but with moderating outlooks. These three markets had a weighted average revenue growth of 16.4% in 2022 and are budgeted to achieve between 6% to 8% this year. Overall, supply will likely increase in these markets and we expect completions of 12,000, 11,000 and 6,000 units, respectively. Charlotte, Raleigh and Nashville would rank next with an A rating and moderating outlooks for 2023 versus 2022. This will be our first year of reporting same-property statistics for Nashville, but we anticipate same property revenue growth of 5% to 6% for each of these three markets. New supply will continue to be a headwind this year, particularly in Nashville, but in-migration trends and overall levels of demand remain strong. Our estimates for new deliveries in these markets are 11,000, 9,000 and 10,000 units, respectively. Up next are Dallas and Phoenix, which received A- ratings with stable outlooks. Dallas should deliver around 20,000 units this year, but so far demand drivers remain strong and should allow for absorption of many new apartment homes. Phoenix is likely to see another 15,000 units completed this year, which will further temper revenue growth from double-digit levels to a more moderate rate of 5% or so. We expect Denver and Austin to fall around the middle of the pack for our portfolio with approximately 5% revenue growth and would rate them as an A- with moderating outlook; completions in Denver are projected to be around 15,000 apartments and in Austin is expected to see over 20,000 new apartments come online this year. Both of these markets have seen their fair share of supply in the past few years, but demand has been remarkably strong. Given recent announcements regarding layoffs in the technology sector, we will keep an eye on both of these markets for any future signs of slowing demand. Our next three markets, San Diego, Inland Empire, Washington, DC Metro and Atlanta earned a rating of B+ with a stable outlook. We expect completions of 10,000, 15,000 and 13,000 units, respectively, and revenue growth in the 4% to 4.5% range. San Diego/Inland Empire should face less supply pressure than some of our other markets this year, but the overall regulatory environment in Southern California puts us in a wait-and-see mode for now. Operations in Washington, DC Metro and Atlanta seem to be more of the same and should continue at a steady, stable pace throughout 2023. Houston and LA/Orange County are two last markets with grades of B and B-, respectively, and revenue growth projections of 3% to 4% this year. Our outlook for these two markets are a bit different as we see an improving outlook in Houston versus a stable outlook in LA/Orange County. Both markets should see manageable new deliveries with 15,000 and 20,000 units, respectively, but economic conditions in Houston may be a bit more resilient with energy companies making profits and performing well. LA County has clearly had higher delinquencies and bad debt compared to our other markets, and we remain a bit cautious on when restrictions and regulatory issues around evictions and non-payment of rents will actually begin to improve. Now a few details of our fourth quarter 2022 operating results and January 2023 trends. Same-property revenue growth was 9.9% for the fourth quarter and 11.2% for full year 2022. Nine of our markets had revenue growth exceeding 10% for the quarter and our top three performers were our Florida markets of Tampa, Southeast Florida and Orlando. Rental rates for the fourth quarter had signed new leases up 4% and renewals up 8.4% for a blended rate of 6.1%. Our preliminary January results indicate a return to more normal seasonal trends with a blended growth of 4.2% on our signed leases to date. February and March renewal offers were sent out with an average increase of 8%. Occupancy averaged 95.8% during the fourth quarter of 2022, compared to 96.6% last quarter and 97.1% in the fourth quarter of 2021. January 2023 occupancy has averaged 95.4%, compared to 97.1% in January 2022. Annual net turnover for 2022 was up slightly compared to 2021 at 43% versus 41%, and move-outs to purchase homes were 13% for the quarter and 13.8% for the full year of 2022, down from 16.4% for the full year of 2021. I will now turn the call over to Alex Jessett, Camden’s Chief Financial Officer.

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activity. During the fourth quarter of 2022, we completed construction on Camden Atlantic, a 269-unit, $100 million community in Plantation, Florida, which is now almost 90% leased, averaging over 50 leases per month, well ahead of expectations. Turning to financial results, last night we reported funds from operations for the fourth quarter of 2022 of $191.6 million or $1.74 per share, in line with the midpoint of our prior quarterly guidance. These results represent a 15% per share increase in FFO from the fourth quarter of 2021. Included within our fourth quarter 2022 results is approximately $0.01 per share of additional insurance expense associated with the recent winter freeze. Excluding these non-recurring insurance charges, our results would have exceeded the midpoint of our prior guidance range by $0.01 per share resulting from the faster-than-expected leasing velocity at Camden Atlantic, combined with lower employee health insurance claims and lower property tax rates in Texas. For 2022, we delivered record same-store revenue growth of 11.2%, expense growth of 5.1%, which included the additional insurance expense from the winter freeze and record NOI growth of 14.6%. You can refer to page 24 of our fourth quarter supplemental package for details on the key assumptions driving our 2023 financial outlook. We expect our 2023 FFO per share to be in the range of $6.70 to $7, with a midpoint of $6.85, representing a $0.26 per share increase from our 2022 results. This increase is anticipated to result primarily from an approximate $0.36 per share increase in FFO related to the performance of our same-store portfolio. At the midpoint, we are expecting same-store net operating income growth of 5%, driven by revenue growth of 5.1% and expense growth of 5.5%. Each 1% increase in same-store NOI is approximately $0.07 per share in FFO. An approximate $0.26 per share increase in FFO related to the additional NOI from our Fund acquisition we completed on April 1, 2022. This includes the additional three months of ownership in 2023 and an approximate 6% increase in NOI from the portfolio. And an approximate $0.16 per share increase in FFO related to the growth in operating income from our development, non-same-store and retail communities, resulting primarily from the incremental contribution from our nine development communities in lease-up during either 2022 and/or 2023. This $0.78 cumulative increase in anticipated FFO per share is partially offset by a $0.21 per share increase in interest expense, of which $0.08 per share is from the utilization of our unsecured credit facility to retire our $350 million, 3.2% unsecured bond that matured on December 15, 2022. We are anticipating an average 2023 interest rate on our credit facility of approximately 5.5% and $0.10 per share from the full year impact of the $515 million of secured debt we assumed as part of the Fund transaction, inclusive of the impact of higher interest rates on the $185 million of assumed variable rate debt. The remaining $0.03 per share in additional interest expense comes from additional borrowings in 2023 under our line of credit primarily to fund our anticipated development activities. Our forecast also assumes we will use our credit facility to repay our $250 million, 5.1% unsecured bond, which matures in June of 2023. An approximate $0.07 per share decrease in FFO related to our 2022 amortization of net below market leases related to our acquisition of the Fund Assets. As we discussed on prior earnings calls, purchase price accounting required us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term, which was approximately seven months. Therefore, in 2022, we recognized $0.07 of FFO from the non-cash amortization of net below market leases assumed in the acquisition. An approximate $0.07 per share decrease in FFO related to equity and income of joint ventures and management fees as we now own 100% of the Fund Assets; an approximate $0.06 per share decrease in FFO resulting primarily from the combination of higher general and administrative and property management expenses caused by continued wage pressure and inflation, higher franchise and margin taxes and higher corporate depreciation and amortization; an approximate $0.06 per share decrease in FFO due to the additional shares outstanding for full year 2023, resulting primarily from our 2022 equity activity; an approximate $0.04 per share decrease in fee and asset management and interest and other income, primarily related to the earn-out received in 2022 from the sale of our Chirp investment and lower cash balances expected in 2023; and an approximate $0.01 per share decrease in FFO from the disposition we completed in 2022. Our 2023 same-store revenue growth midpoint of 5.1% is based upon an approximate 4.5% earn-in at the end of 2022 and a current 1.5% loss to lease. We are assuming we capture a third of this loss to lease in 2023 due to the timing of lease expirations and leasing strategies. We also expect a 3% increase in market rental rates from December 31, 2022 to December 31, 2023. Recognizing half of this annual market rental rate increase, combined with our embedded growth and loss to lease capture results in a budgeted 6.5% increase in 2023 net market rents. As a result of increased supply, we are anticipating an 85-basis-point decline in physical occupancy, which results in 100-basis-point decline in economic occupancy after accounting for lower levels of rental assistance proceeds anticipated in 2023. When combining our 6.5% increase in net market rents with our 100-basis-point decline in economic occupancy, we are budgeting 2023 rental income growth of 5.5%. Rental income encompasses 89% of our total rental revenues. The remaining 11% of our property revenues is primarily comprised of utility rebilling and other fees closely correlated to occupancy and these items are expected to grow at approximately 1.5%. Our 2023 same-store expense growth midpoint of 5.5% is primarily driven by above average increases in property taxes and insurance. Property taxes represent approximately 37% of our total operating expenses and are projected to increase approximately 6.5% in 2023, primarily driven by larger valuation increases anticipated in Florida, Georgia and Colorado. Insurance represents 6% of our total operating expenses and is anticipated to increase by 12.5% as insurance providers continue to face large global losses. The remaining 57% of our operating expenses are anticipated to grow at approximately 4% as inflation and wage pressures combined with anticipated increases in marketing expenses as we face increased supply are partially offset by the positive impact of our 2022 on-site staff restructuring. We are expecting total salaries and benefits to increase at less than 2% in 2023. At the midpoint of our guidance range, we assume $250 million of acquisitions offset by $250 million of dispositions with no net accretion or dilution. Page 24 of our supplemental package also details other assumptions for 2023, including the plan for $250 million to $600 million of development starts spread throughout the year with approximately $290 million of annual development spend. We expect FFO per share for the first quarter of 2023 to be within the range of $1.63 to $1.67. The midpoint of $1.65 represents a $0.09 per share decrease from the fourth quarter of 2022, which is primarily the result of an approximate $0.05 per share sequential increase in NOI from our development and stabilized non-same-store communities, entirely offset by an approximate $0.035 per share increase in sequential same-store expenses resulting from the reset of our annual property tax accrual on January 1st of each year and other expense increases, primarily attributable to typical seasonal trends, including the timing of on-site salary increases and the lower levels of employee health insurance claims in the fourth quarter of 2022, which are not expected to reoccur in the first quarter of 2023; an approximate $0.015 per share decrease in sequential same-store revenue primarily driven by lower levels of anticipated rental assistance proceeds and sequential declines in occupancy; an approximate $0.02 per share increase in interest expense, resulting from the utilization of our unsecured credit facility to repay the December 15, 2022 maturity of our 3.2%, $350 million unsecured bond; an approximate $0.01 per share decrease in FFO, resulting primarily from the timing of our annual corporate salary increases and various other corporate accruals; an approximate $0.01 per share decrease in FFO related to our fourth quarter 2022 amortization of net below market leases related to our acquisition of the Fund Assets; and an approximate $0.05 decline in fee income related to the timing of our third-party construction activity. Our balance sheet remains strong, with net debt to EBITDA for the fourth quarter at 4.1 times, and at quarter end, we had $304 million left to spend over the next three years under our existing development pipeline. At this time, we will open the call up to questions.

Thank you. (Operator instructions) Our first question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Yeah. Thanks. Good morning. I don’t know if this is for Keith, Ric or Alex, but just as you think about kind of your blended spreads and kind of looking at the new versus renewal. Could you just provide a little bit more color on the 8% number that you talked about, and what sort of, I guess, concessions or discounts are you having to offer when you are sending a mandate, are people signing at that and then also the new 1% up looks kind of low, do you expect that to turn negative at all in the next, say, six months to nine months?

Yeah. On renewals that are being sent out, we really don’t do concessions in our portfolio. The only time we ever use concessions is on new lease-up properties where it’s expected and it’s just sort of written into the pro forma and underwritten that way. But we don’t really do concessions. We sign our leases within and typically sign them within 50 basis points to 75 basis points of what the renewals are sent out at. So there is some give, but it’s not a whole lot. Regarding new leases, at 1% up, we do expect that to increase slightly over the course of 2023. Seasonally it looks like we do have a return to actual seasonality and did in the certainly at the end of the fourth quarter and that will likely continue until we get closer to our peak leasing season. But, overall, we are looking for another strong year of 5.5% plus or minus rent growth, which as Ric pointed out, in standalone and without kind of juxtaposition to what we did in 2022 over 11%, that would be a really strong year for our portfolio historically. So we are looking forward to that.

To your second question, Steve, we don’t expect our new leases to go negative at all over the next six months to nine months. Now if we have — depending upon what happens, what unfolds throughout the year, whether we — our feel and the way we built our guidance was that we would have either a very reasonable soft landing or a mild recession and so we combine that and that’s why we took our occupancy numbers down and our vacancy numbers up. But as far as new leases going negative, generally, if you look at historical timing of seasonality, they tended to go negative in the November, December, January period and then start a positive rise after that. This year, we didn’t have them go negative during that period. Now we clearly had a significant negative second derivative on growth, but we never went negative. So assuming if you have a recession next year and we have more reasonable or more normal market seasonality, then they may go negative in December. That’s just new lease growth.

Great. Thanks.

Our next question comes from Nick Joseph with Citi. Please go ahead.

Thanks. I appreciate you walking through all the different market outlooks. But if we kind of drill into Houston, LA and Orange County, three of the ones, I think, you are expecting to underperform a bit in the same markets that have underperformed at least for the past few years. So what do you need to see from those markets maybe structurally kind of going forward that would change the outlook and get them more towards the top end of the grade?

Well, the challenge you have with Southern California is that, if you look at projected migration from either legal immigration or domestic migration, Southern California over the next three years has almost 0.5 million people leaving. On the other hand, if you look at Texas, including Houston, the projections show around 350,000 of new migrations. So that’s one of the big things: you just have this drag on people moving out of those markets and moving into our markets. What could help Houston fundamentally is continued energy transition jobs that are happening here and continued strength in the oil and gas market. The oil and gas folks laid off about 80,000 people in the pandemic period and have only added back about 50,000. So what’s happened is as they become more efficient, even though they are printing money right now if you look at their earnings, they haven’t really stepped up to hire people and they become a whole lot more efficient. I think Southern California has some upside, because ultimately, when you get past the COVID measures — I mean, that’s been the biggest challenge there — you have a huge gap between economic occupancy and physical occupancy, almost 1,300 basis points. Part of that — and I think it’s all driven by the fact that in California, you don’t have to pay your rent, and so, ultimately, when that clears, which hopefully they extended it to the end of March, once that ends, you will have a positive situation where you will be able to kind of run your business like a business. Today, we can’t get our real estate back and people smile as they live free and drive their BMWs and Teslas and feel pretty good about the world.

Well, the interesting part is we have differing third-party forecasts and some of the job forecasts for Houston range quite widely. If energy continues to perform and job growth is stronger than some forecasts indicate, Houston could see a much better outcome. There’s also a lot of federal program spending in the near term that could support job creation in Houston, including projects tied to hydrogen, carbon capture, port expansion and other infrastructure work stemming from the Infrastructure Bill and the Inflation Reduction Act. So there are tailwinds that could help Houston, but as Ric said, migration and regulatory issues in other markets are a headwind for those markets.

What I would add is that LA County has had higher delinquencies and bad debt and restrictions that have made it hard to operate. When those restrictions ease and the legal process normalizes, that could be an inflection for those markets. For Houston, continued resilience in the energy sector and new federal-funded projects could push it toward better performance.

Thanks. I appreciate that. And then just on your opening comments on the transaction market, you mentioned the wide bid-ask spread and kind of having some patience. Where would you buy today, I guess, from a cap rate or an unlevered IRR basis, what would you be comfortable underwriting and transact and if the seller was willing to do it there?

The cap rate side is kind of hard to peg because the question will be what we think the upside of the property is. A lot of times in value-add properties they are pretty poorly managed, using revenue management wrong, and we can create a lot of value from that. So we find properties that are stressed — you may be buying by the pound, not the cap rate — and then we will be able to drive the cap rate up. In terms of unlevered IRRs, we have increased our unlevered IRR hurdles by at least 100 basis points given our cost of capital rise. So we would be looking at acquisitions in the mid-single-digit unlevered IRR plus range on a levered IRR basis.

Thank you very much.

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Hey. Good morning, everybody. Alex, I believe you referenced a $1.5 negative impact to fourth quarter FFO from lower rental assistance and I was wondering if you expect any additional impact going forward and just what you are assuming for net bad debt for this year in your guidance?

Yeah. Absolutely. So net bad debt for us for 2023 should be right around 1.4%. When you think about rental assistance, so in 2022, on a same-store basis, we got about $11.5 million of rental assistance, and in 2023, we are assuming some but really negligible amounts. So the best way to sort of think about it is that, on a net basis, there’s not much of a change in terms of bad debt from 2022 to 2023. But if you sort of back out the positive benefits of rental assistance that we got in 2022, then we are showing some improvement in 2023.

And ultimately, our long-term bad debt is about 0.5%. The challenge we have today is net bad debt is elevated, and given the outlook for a potential recession, we are hoping that 1.4% will start going down throughout the year and then, ultimately, go back to the 50-basis-point number in 2024. So there’s some positive growth that can come from people actually starting to pay their rent.

Got it. Understood. And then it seemed like Houston had started to see some momentum last year sort of bucking maybe the trend of some of your other markets, given it didn’t have as difficult comps, but it is remaining at the lower end of your revenue growth expectations and market outlook. And I guess I am just curious what’s really holding back Houston from stacking up better versus other markets and is there a potential for a surprise to the upside as you move through the year?

We have used 15,000 completions in Houston for 2023, which in a normal year would be manageable given the size of the Houston market. Interestingly, third-party job forecasts vary: some show flat employment while others show substantially more. The Greater Houston Partnership indicated the potential for 60,000 to 70,000 new jobs in 2023, which would be a very different scenario than zero job growth. So we think it’s quite possible that the job outlook in Houston is understated by some forecasts. If the energy business continues to earn strong profits and hire, Houston could see a more robust job growth situation and a corresponding improvement in apartment demand.

I think the other thing that could help Houston a lot is federal government spending. We have a tremendous amount of federal projects coming to Houston — hydrogen, carbon capture, port expansion — that should create employment over the next 12 to 36 months from the Infrastructure Bill and the Inflation Reduction Act. That should benefit Houston significantly.

That’s helpful. Thanks for all the detail.

Our next question comes from Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question.

Sure.

Our turnover was down 100 basis points in January and blended lease growth increased to 2%. Is that indicative of an upturn in trend? Maybe asked another way, is there any indication that demand has bottomed and how did top-of-funnel demand and conversion in January compared to December or prior months?

The decline we saw between November and December was outsized compared to normal history. We normally see a decline in occupancy and rental rates from November to December somewhere around 20 to 30 basis points, and this year it was wider than that by 40 to 50 basis points on both metrics. So there was clearly an unusual decline in the total number of people seeking to lease apartments between November and December. Internally it felt like many prospective renters went away for the holidays and a fair number stayed home. Our trends improved in January. Our traffic is sufficient to backfill and to maintain occupancy and over time increase it a little bit. We did decrease our overall occupancy forecast for 2023 from last year, but last year we were at historically elevated levels and we have modeled 95.7% occupancy for 2023, which is still quite strong by historical standards.

One of the things I will hit broadly: these data points are hot off the press over the last week or two. As Keith pointed out, we felt definitely a more seasonal situation during the fourth quarter, but it was also sort of like people just went away in December. When you look at stimulus and post-pandemic demand these numbers are pretty striking. In 2021, the industry absorbed 600,000 net new units in multifamily, and that was when we had massive stimulus, lots of people had money and they moved out. If you look at the average between roughly 2014 and 2020, there are about 150,000 people on average that make between $25,000 and $75,000 a year. In 2021, that number grew to 450,000. Similarly, other income cohorts increased relative to historical averages because of the stimulus and supplemental unemployment benefits. What happened was the whole market moved up in terms of people that had money because of the stimulus, and those people moved into apartments. In 2022, we had net absorption of about 50,000 units for the year — really anemic compared to 2021. A couple of other numbers that I think are fascinating: in the fourth quarter of 2008, we had a national negative absorption in multifamily of 115,000 units. In the fourth quarter of 2022, we had a net loss of 181,000 apartments. The 181,000 was so big relative to history that I couldn’t find a time, at least in our experience, where the number was that large. What happened obviously is those people that moved up income-wise spent their money and moved back; they stayed home for Christmas instead of coming back and renewing their leases, and that’s why when you start thinking about next year, I think it’s going to be a good year excluding a severe recession. You can’t continue to have 14% to 15% NOI growth with double-digit revenue growth when the market is returning to more normal conditions. We are just getting off the sugar-high of everybody having excess cash and leasing apartments.

That’s a very helpful commentary. And then in your guidance, there’s a wide range for development starts. So maybe what macro conditions would you look for that would drive you to the top end of the range versus maybe the bottom end of the range? Thanks.

There are a couple of key points. The biggest change in the market from a product perspective is that banks have really tightened construction lending. With the uncertainty around interest rates, rents now are not rising fast enough to offset the construction cost increases we’ve seen. Many merchant builders will cut starts substantially, and some projections show starts declining by 40% to 50%. If starts continue to fall, it takes 24 to 36 months to build a property; we have legacy land and can position to deliver when supply is constrained in 2025 and 2026. We’re also beginning to see construction cost pressure moderate; after large increases over the last few years, construction costs have flattened and in some cases started to come down. So if costs reduce and starts decline, that creates an opportunity for well-capitalized builders like Camden to lean into development and benefit in later cycles. That’s the scenario that would push us toward the top end of our development range. Conversely, if there is a deep recession, starts could drop even more, costs could fall further, and well-capitalized companies could still execute selectively to create attractive returns. That’s how we are thinking about it.

Thank you very much. Good luck this year.

Our next question comes from Haendel St. Juste with Mizuho. Please go ahead.

Hey. Good morning out there. My first question is going back to the same-store revenue guide. Can you clarify for us the building blocks and how the math works? I am looking at your current midpoint of 5%, 5.1%, but also considering the earn-in, which I think was around 4.5% at the end of 2022 and the market rent growth assumption that you have in your supplemental of 3%. So assuming half of that gets us into the mid-6%s. So can you spend a moment clarifying the buildup to same-store revenue and what are the swing factors to get to the upper and lower end? Thanks.

Yeah. Absolutely. So, first of all, you are right: the earn-in plus the loss to lease that we think we can capture is about 5% and then we have market rent growth from December 31 of 2022 to December 31 of 2023 of about 3%. So, obviously, you can only get half of that. So to the 5%, you add the 1.5% (half of the market rent growth) and that gets you to 6.5% and that’s what we call net market rent. Then the driver is the dilutive impact to that is economic occupancy. So we are making the assumption that occupancy comes down about 100 basis points. So you take the 6.5% and you back off the 100 basis points and that gets you to a 5.5% rental income growth. Now remember that rental income is only about 89% of our total property revenues. So if you take that 5.5% rental income growth and you multiply it by 89%, you get to about 4.9% and then the other 11% of our rental revenues comes from other income and think about water rebilling, trash rebilling, admin fees, application fees, those type of items and they are closely correlated to occupancy and some are statutorily mandated to the amount that you can charge, so we are expecting that 11% to grow at about 1.5%. So if you multiply those two out, you get about 0.2% contribution, you add that to the 4.9% and you get to 5.1%.

Got it. That’s helpful. Second question is on the $250 million of acquisitions and dispositions you outlined in your guide. I guess I am curious on how we should broadly be thinking about the timing in light of the sales transaction markets you outlined? Are you willing to wait for better cap rates or are you expecting better cap rates, getting calls from merchant builders or sensing an opportunity there and then any markets that you are outlining that you are adding more to or calling from? Thanks.

So I will answer the timing and then let Ric and Keith answer the second part of it. But the timing of what we have in our model is we have it towards the end of the year and we have got them offsetting one another. So there’s no net accretion or dilution from acquisitions or dispositions in our 2023 guidance.

We just got back from the NMHC conference and it was interesting; there were 8,500 registered people — a record for NMHC — and that doesn’t include a couple thousand that don’t want to pay the fee, they just hang around trying to have meetings with people to understand the market. It was interesting because you had sort of three camps. You have the camp with capital like us and other portfolio managers who are kind of waiting to see what’s going to happen. Then you had merchant builders who still are kidding themselves they're going to start as many properties as they thought they were going to start this year. And there are some that are realistic and are actually betting on a lower number than projected. And then you have the brokers who are all very excited about getting back to work. When you look at some of the numbers we heard for January, one national brokerage group said they did about $1 billion of sales in January of 2022 and this year they have done $80 million. So there is definitely a freeze to some extent because you have this bid-ask spread and I think as the market develops, capital will look to get reasonable rates of return. Like I said earlier, I think you might be buying by the pound and knowing that ultimately you will be able to make a reasonable rate of return, but maybe not initially in terms of the cap rate you would expect. I do think there is a wait-and-see attitude and that will continue probably until there’s more clarity. The question is who will blink first, and I think it may be the sellers that have to blink first.

I agree with that. I was at the NMHC conference too and I did speak to a handful of people who thought that maybe a better spring selling season and lower interest rates in the back half of the year could result in lower cap rates. Is that a scenario that you can envision, and how do you think about that outcome?

There’s a mountain of capital and multifamily is a great business so you could argue that if the Fed threads the needle and doesn’t crash the economy and forward rates look like they’ll be in the 3% to 3.5% range, cap rates might compress. But today, if you look at negative leverage some buyers would face, with spreads on agency debt relative to the 10-year at roughly 5% to 5.25%, buying at a low cap rate implies quite a bit of negative leverage, meaning you have to bet on strong rent growth or falling cap rates in the future to make the returns work. So there is a scenario where cap rates come down, but I wouldn’t bet on that scenario today.

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

Hey. Good morning down there. So two questions. First off, on California, especially in light of what LA recently did, has your view of that market changed? There are a lot of good qualities about Southern California lifestyle, etc., but conditions for landlords seem to get tougher every year. Is that a market you still believe in long-term or has your view changed in the past year where you are like, you know what, it’s not the market we thought it would be and you need to reassess?

Alex, our take is that the last two years and the related restrictions and eviction moratoria have been a distraction from the bigger picture. California has been challenging to operate in for a long time due to its regulatory environment; everything is a bit trickier and stickier. But we have lived with that for 20 years and have a seasoned team in California that knows how to navigate the regulatory environment. The last two years have been an exception, but we believe the end of the eviction moratorium and a return to the normal legal process will allow us to get our real estate back and manage our assets like a business again. California will remain a different regulatory regime, but it also benefits from supply constraints because it’s very difficult to build there. So long-term there’s a positive case if we can get past the recent extraordinary period.

Okay. Second question: regarding regulatory policy, does the White House’s stance make agency debt less attractive if borrowers think the government is going to use them to effect change? And with CFPB and FTC having broader regulatory powers, do you fear overreach or do you think local regulations already make apartments tough enough that it’s hard to up the ante much further?

On the agency side, I don’t think it will affect Fannie and Freddie debt that much because much of the guidance is targeting lower-income housing and trying to provide relief there. One thing people may not realize is that large eviction and nonpayment issues are often concentrated in public housing or other government-administered programs rather than market-rate portfolios like Camden’s. In a normal year, out of 60,000 apartment homes we may evict about 600 people — many of those evictions are for non-monetary reasons. Politically it’s easy to point fingers when rents rise rapidly, but the economic reality is that supply and demand drive rents. We do need to be vigilant because rent control is often politically expedient, but history shows rent control tends to stifle supply. Fortunately, Camden is in markets where we are not the primary regulatory target and many state-level responses have pushed back against local rent control initiatives. So while we need to stay vigilant, I don’t think we are at risk of massive federal overreach that would fundamentally change our business.

Our next question comes from Chandni Luthra with Goldman Sachs. Please go ahead.

Hi. Thank you for taking my question. First one is on the Fund acquisition. With the benefit of hindsight, as you think about the different moving pieces, especially around higher interest expense now versus at the time of the transaction, how would you qualitatively think about this deal now and the net accretion from it, especially when you consider the dynamic that has also increased your exposure to markets like Houston and DC that are B-ish in your market deck?

I think the acquisition was still a very good transaction. At the time we financed it largely with equity and we executed a large equity transaction to pay for it. The portfolio consisted largely of properties we built or managed, so there was minimal transition risk. From an accretion/dilution perspective it was accretive in 2022 and is accretive in 2023. The broader rise in interest rates was a drag on FFO but that was related to maturities and the market-wide increase in rates, not the acquisition itself. The Fund assets were high-quality and low-transition risk, so that made the acquisition attractive. In terms of exposure, the Fund transaction did increase our exposure to Houston and DC somewhat; we’re willing to manage that exposure through future dispositions and acquisitions to become more geographically diversified and reduce volatility in cash flow over time. From 2014 through 2020 we sold over $3 billion of properties to reshape our footprint and we will continue to do that when the market provides an opportunity.

Very helpful. Thank you. As a follow-up, as we think about occupancy in 2023 and the dip you discussed, how much of it is emanating from higher supply versus you prioritizing pricing over occupancy? And then as we think about California, as you said, once restrictions lift and you can get back real estate from tenants who are not paying, how would that factor into occupancy development?

We are modeling occupancy around 95.4% for 2023 which is in the mid-95s by historical standards. The drivers include increased supply in many markets and a normalization from the elevated demand stimulus environment of 2021 and part of 2022. We are a strict revenue management shop; we use YieldStar to set pricing to maintain occupancy in the mid- to upper-95% range when possible. The levers we pull are pricing, concessions (rarely used in stabilized communities), and leasing strategies. Regarding California, even after moratoria are lifted, there is a time lag to get real estate back due to the legal eviction process in many jurisdictions which can take 30 to 90 days or longer. We are prepared to pursue evictions when appropriate, but it will take some time to work through the backlog and get units back to market. The flip side is some non-paying tenants may choose to move out voluntarily once the protections end, which could reduce the time and resources required to restore occupancy.

Thank you for all that detail.

Our next question comes from Rich Anderson with SMBC. Please go ahead.

Hey. Good morning out there. Thanks for hanging with us. So you are driving around the country, I am curious to know how is the market clearing that gets you to where you are at with revenue growth at 5.1% versus last year. Obviously, we are all expecting deceleration. But are landlords like yourself and others kind of slow-playing it because of the uncertainty that lies ahead or are you seeing some sort of behavioral shifts with residents that’s causing the market to clear? It kind of all comes down to market rental rate growth, what you are assuming for this year at 3%. Is there a chance that we do have this soft landing or no recession and that market rent growth could be much higher than 3%?

That’s why we have a range in our guidance. The upside could come from stronger-than-assumed occupancy or stronger market rent growth if the Fed threads the needle and keeps employment healthy. The 3% market rent assumption is a consensus-like assumption; occupancy is another place we could beat the plan if consumer demand proves more resilient than we modeled. There are two main upside levers: rate and occupancy.

So is this proactive from you or are you seeing behavioral shifts from your residents that are leading you to the 5.1% guide? MAA said they are not seeing behavioral shifts and are more focused on the macro and that’s what’s driving the landing. Is that consistent for you?

Based on the numbers I mentioned earlier, like the 181,000 unit loss in the fourth quarter, that is consumer behavior. People stayed home for the holidays, went back to living with parents or doubled up, and some moved back because they spent savings accumulated during the pandemic. That consumer behavior contributed to the moderation we are projecting. Our view is that absent a severe recession, 2023 should be a good but more normal year.

To add a data point, move-outs to purchase homes were about 13.8% for 2022. In January, that move-out rate dropped to just over 10% and I’d expect it to fall into single digits by next quarter. We’ve only seen single-digit purchase move-outs for a couple of consecutive quarters back during the great financial crisis. Housing affordability is clearly driving that dynamic.

Okay. One quick question for Alex: it looks like variable rate debt exposure went from about 6% last quarter to roughly 15% now. Is 15% a number we should expect for the full year or do you expect to right-size variable rate exposure in the coming months and quarters?

In our guidance we are not assuming capital transactions. We are watching the market closely. Spreads tightened this week until this morning, so we are watching to see where rates go. If we have the opportunity to fix some of the floating rate debt at attractive levels, we will. But our thesis baked into the model is that interest rates will come down through the year and given that, it probably makes sense to push out fixing rates as long as we can. We will be opportunistic and if an attractive option appears, we’ll take it.

Okay. Fair enough. Thanks everyone.

Our next question comes from Wes Golladay with Baird. Please go ahead.

Hey, everyone. Thanks for taking the time. I just want to follow up on that last question, if I understand it correctly. So it looks like you can borrow today around 4.5% and have a 1% interest savings on that floating rate debt. Would you have a penalty to pay that off, and I guess, that would just be upside to guidance if you were to take it out today, but it sounds like you just want to be a little bit more aggressive at this point, and I think, you get a little bit lower than the 4.5% I just cited?

Spreads came in this week about 30 basis points, so the market has been moving in the right direction. On the floating rate debt associated with the Fund transaction, there is a 1% prepayment penalty. That’s not a large penalty and could be considered in the math. For other items on our line and term loan, there is no penalty, which gives us flexibility. If unsecured spreads continue to improve, there is potential upside to our model.

Okay. And then going back to Houston, you cited 15,000 completions. Is a lot of that supply directly impacting your portfolio and then if you look out to next year, would you expect supply to be comparable?

Most of the supply in Houston is not directly comparable to our suburban portfolio. Much of the completions are Downtown or Midtown projects; our portfolio is largely suburban where there hasn’t been that much new supply until recently. So while headline completion numbers may look large for the market, the geographic distribution matters. If our portfolio were heavily Downtown, it would be a much greater concern. For completions next year in Houston we have it at around 19,000 apartments.

Got it. Thanks for the time everyone.

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

Yeah. Thanks everyone. Just wanted to touch base — I appreciate the build from 2022 to 2023 FFO guidance at the midpoint. I just wanted to touch on that amortization of net below market leases from the Fund acquisition. Is that something we have to factor into 2023 or is it fully out now that we have lapped 2022? Just trying to get a sense of how we should be modeling this going forward?

It is fully out. There is nothing in 2023 related to that amortization; the $0.07 recognized in 2022 does not recur in 2023.

Okay. Appreciate that, Alex. And then maybe touching base on the markets, Phoenix seems like it’s a market that’s weakening on some screens. It was interesting to see your occupancy went up sequentially. Could you provide more color around what you are seeing on the ground and how many of your portfolio is positioned versus some of the new supply?

For Phoenix we have completions at about 15,000 apartments in 2023 and employment growth forecasted at about 26,000 jobs. That’s a mix that will temper some of the rapid growth we saw previously but should still allow for decent absorption. We’ve listed Phoenix as an A- with a stable outlook, and much of the new supply is geographically concentrated, so the impact on our portfolio depends on submarket exposure.

Okay. Appreciate the time.

Our next question comes from John Kim with BMO Capital Markets. Please go ahead.

Thank you. On your same-store revenue guidance, I appreciate the breakdown. But one component that seems to be missing is the renewal rate growth, especially since the spread between new versus renewal widened in the fourth quarter and even more so in January. So what’s the good run rate for that renewal versus new lease spread and how is that factored into your guidance this year?

For the full year, we have renewals up about 4.9% and new leases up about 2%. When you blend that out it’s about 3.5%, and that 3.5% picks up the market rent plus about one-third of the loss-to-lease we expect to capture. The renewal component is embedded in the loss-to-lease capture assumption and our YieldStar-driven leasing strategies.

So when you say market rental growth of 3%, that’s not reflective of the 2% release growth rate? How do those two tie together?

Market rental rate growth is the change in market rents from December 31, 2022 to December 31, 2023. Renewals coming to market are captured in the loss-to-lease capture, and backfilling units that have turned will also reflect the market rent movement based on timing and the one-third capture assumption we noted.

Our next question comes from Robyn Luu with Green Street. Please go ahead.

Good morning. Alex, I noticed Texas and Florida markets trended double-digit expense growth this quarter. Are you expecting similar expense growth throughout 2023 for these markets?

When you see spikes quarter-to-quarter, a lot of that can be due to timing of property tax refunds and how that flows through the system. I would not expect the double-digit quarterly prints to be a run rate. Our 2023 assumption is same-store expense growth of about 5.5% driven by property taxes and insurance increases concentrated in specific states.

Property taxes are expected to be fairly high and you pointed to about 6.5% for those markets. I know you called out Florida, Georgia and Colorado. Texas wasn’t one of them, correct? So should we expect Florida and Georgia to print higher expense growth, maybe high single digits?

Correct. The specific states with higher property tax growth in our view are Florida, Georgia and Colorado. Those mark areas where property tax increases will drive higher expense growth. Texas was not specifically called out as having the higher property tax increases in our guidance assumptions.

That’s clear. And then I want to talk about the DC market: how is front-door traffic trending in DC relative to the portfolio average? Are you seeing signs of people starting to migrate to the suburbs or even out of state?

We have seen some out-migration from DC proper more than the suburbs. It’s not as pronounced as out-migration from New York or California, but at the margin we do get relocating renters choosing other cities like Atlanta. The willingness to return to office in DC proper has influenced where people want to live; if your employer allows work-from-anywhere, DC proper might not be a top choice. We have three assets in DC proper and those have seen more of the out-migration effects than our suburban assets.

This concludes our question-and-answer session. I would like to turn the conference back over to Ric Campo for any closing remarks.

Thanks. We appreciate you all being on the call today and if you have any other questions, we will be around. So just give us a call and we would be happy to give you more detail. Thanks.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.