Camden Property Trust (CPT)
Q3 2009 Earnings Call
October 30, 2009 12:00 pm ET
Kim Callahan – Vice President, Investor Relations
Rick Campo – Chairman and Chief Executive Officer
Keith Oden – President and Trust Manager
Dennis Steen – Chief Financial Officer and Vice President of Finance
David Bragg – ISI Group
Robert Stevenson – Fox-Pitt Kelton
Jonathan Habermann – Goldman Sachs
Alexander Goldfarb – Sandler O'Neill and Partners
David Toti – Citigroup
Rich Anderson – BMO Capital Markets
Michelle Ko – UBS
Michael Salinsky – RBC Capital Markets
Previous Statements by CPT
» Camden Property Trust, Q4 2008 Earnings Call Transcript
» Camden Property Trust Q3 2008 Earnings Call Transcript
» Camden Property Trust Q2 2008 Earnings Call Transcript
Good morning and thank you for joining Camden's Third Quarter 2009 Earnings conference call. 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.
As a reminder, Camden's complete Third Quarter 2009 Earnings Release is available in the Investor Relations section of our Web site at Camdenliving.com and it includes reconciliations to non-GAAP financial measures, which may be discussed on this call.
Joining me today are Rick Campo, Camden's chairman and chief executive officer, Keith Oden president, and Dennis Steen, chief financial officer.
Because there are several earnings calls being hosted today, including another multi-family company at 1:00 pm Eastern, we will limit the time for this call to one hour. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions offline after the call concludes. At this time, I'll turn the call over to Rick Campo.
Thanks, Kim, and good morning. As Billy Joel points out on our conference music, if that's moving up, then I'm moving out. Well clearly, he was talking about the housing bust based on failed government policies at moving the national home ownership rate up.
Over two million people have taken his advice and moved out of home ownership and into apartments, taking the home ownership rate down from 69% to 67.4%.
Our operating results for the quarter were in line with our expectations, with same property net operating income declining 7% for the third quarter over last year. Year-to-date, same property net operating income declined 6.2% over last year.
If someone had told me that we would have lost nearly eight million jobs and had an unemployment rate pushing 10% and that our properties and our industry in general would have performed as well as it has, I would have thought they were crazy.
Clearly, multi-family demand has been reduced by the employment losses but there are three countervailing trends that helped our industry. First, the reduction of the home ownership rate by 1.8 percentage points has created two million new renters.
Some believe that the home ownership rate will fall to pre-government programs, to around 64% to 65%, potentially creating another 3.1 million renters. In the last cycle, we had people moving out to buy homes who really couldn't afford their apartment rents. That number peaked at 24%. Now we're about 13%, 14%.
The second biggest difference in this cycle versus the last one is that multi-family supply peaked at the beginning of the downturn. In this cycle, multi-family supply was moderate going into the downturn. Multi-family developers were crowded out by home builders who could pay more for land. Construction costs increased faster than rental rates, so getting development yields to work was very difficult.
New supply will likely hit World War II levels or post World War II levels, in term of low supply as a result of lack of equity and debt in the market and I'll talk about a little bit more in a minute. Eighty five percent of the new apartment starts historically has been produced by merchant builders. That model is dead for the foreseeable future.
The third biggest difference in this cycle is that demographics are better. They're on our side. The baby boom echo is in full swing. The 18 to 24-year-old age cohort grows annually for the next six years, peaking at more than 60 million people. Eighty five percent of these folks rent.
These major influences on our business will set up a strong recovery in rents and occupancy when job growth resumes, the key is when does job growth resume, obviously.
Let us talk a little bit about WISO, since it's a big topic these days. For those of you who haven't got into the WISO discussion yet, WISO is weakest in, strongest out. The idea of WISO is about job growth, which markets get job growth first.
Our portfolio has been built on the premise that apartment demand is driven by job growth. The growth markets, before this recession, will be the job generators post-recession. Job growth markets will grow again because they are pro-business. They have a low cost of doing business. They have young, educated workforces.
They have affordable housing. Clearly the housing bust has given them even a more competitive advantage in that regard at this point and they have good weather. One of the things that we've have always enjoyed debating is this concept between barrier and non-barrier markets. Some of our analysts call these supply constrained versus non-constrained markets.