Camden Property Trust (CPT) — Q3 2025 Earnings Call Transcript

Good morning, and welcome to Camden Property Trust Third Quarter 2025 Earnings Conference Call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today for our prepared remarks are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, Executive Vice Chairman; and Alex Jessett, President and Chief Financial Officer. We also have Laurie Baker, Chief Operating Officer; and Stanley Jones, Senior Vice President of Real Estate Investments available for the Q&A portion of our call. Today's event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available shortly after the call ends. 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 third quarter 2025 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 would like to respect everyone's time and complete our call within 1 hour. So please limit your initial question to 1 then rejoin the queue if you have a follow-up question or additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Ric Campo.

Thanks, Kim. Our on-hold music theme today was moving. This week, we completed the move of Camden's Houston corporate headquarters from Greenway Plaza to the Williams Tower in the Galleria. This is a big deal. Camden has been at Greenway Plaza for over 40 years. We are excited about moving on and the new beginnings that it will bring for 2026 and beyond. As I was leaving my office for the last time, the thought that popped in my head was don't look back. And that reminded me of a song by the classic rock band Boston. The first verses of the song captured my sentiment as I was leaving the building. Don't look back, a new day is breaking. It's been too long since I felt this way, I don't mind where I get taken. The road is calling today is the day. Team Camden is not looking back. We look forward to welcoming you to our new offices, and we look forward to the continued success for the next 40 years. Strong apartment demand continued through the third quarter, making 2025 one of the best in the last 25 years for apartment absorption, helping to fill up the record number of recent deliveries. The summer peak leasing season was met with continuing new supply, slower job growth and economic uncertainties that led apartment operators to focus on occupancy instead of rental increases earlier in the season than usual. Apartment affordability improved during the quarter with 33 months of wage growth exceeding rent growth and increased affordability improves apartment residents' ability to absorb higher rents when new apartment deliveries are leased up in 2026 and beyond. Apartments and our shares are on sale, but not for much longer. Resident retention continues to be strong, in large part because of living excellence provided by our on-site teams. Great job, Team Camden. The case for investing in apartments is compelling. Demand is high, supply is falling to below 10-year pre-COVID averages, bringing balance back to the market. Rents are affordable, apartments provide flexibility and mobility to residents. Rent versus buy economics favor renting more than ever. And demographic and migration trends both support new demand going forward. We look forward to moving to a stronger growth profile after the excesses of post-COVID supply environments end. Camden is positioned well with one of the strongest balance sheets and no major dilutive refinances over the next couple of years. Private market sales of apartments have been robust with cap rates for high-quality properties landing in the 4.75% to 5% range. And there is a clear disconnect between private and public market values for apartments. In the quarter, we bought back $50 million of our shares at a significant discount to consensus net asset value. If market conditions remain at current levels, we will continue to buy the stock, and we have $400 million remaining in our authorization. This can be funded through dispositions of our slowest growing higher CapEx properties. I want to give a big shout out to Team Camden for their steadfast commitment to improving the lives of our teammates, our customers and our stakeholders, one experience at a time. Thank you. And next up is Keith Oden.

Thanks, Ric. Camden's third quarter 2025 operating results were in line with our expectations with same-store revenue growth of 0.8% for the quarter up 0.9% year-to-date and up 0.1% sequentially. Occupancy for the quarter averaged 95.5%, consistent with the third quarter of 2024, and down slightly from 95.6% last quarter. Year-to-date through September, occupancy has averaged 95.5% versus 95.3% last year. Rental rates for the third quarter had effective new leases down 2.5% and renewals up 3.5%. Our blended rate growth was 0.6%, declining 10 basis points from last quarter and 40 basis points compared to the third quarter of 2024. Our preliminary October results reflect typical seasonality and a moderation in both pricing and occupancy as we move into our slower leasing season during the fourth and first quarters. Renewal offers for December and January were sent out with an average increase of 3.3%. Turnover rates across our portfolio remain 20 to 30 basis points below last year's levels and move-outs attributed to home purchase were a record low of 9.1% this quarter. Moving into new office space is never easy, especially when it involves 5 floors and several hundred corporate team members. But the end result was definitely worth a significant amount of time and effort invested by our design and special projects team. Our new headquarters look amazing. A big shout out to Venmills, Chrissy Hopper, Luther Alanis, Kevin Neely, Amy Funk, Zev Malone, Teresa Watson, Blake Robinson, Pango, Derek, Aaron and the entire IT support team. And finally, we want to give a special thanks to Camden's team of executive assistants for a job incredibly well done. We can't wait for everyone to get a chance to visit. I'll now turn the call over to Alex Jessett, Camden's President and Chief Financial Officer.

Thanks, Keith, and good morning. I'll begin today with an update on our recent real estate activities, then move on to our third quarter results and our guidance for the remainder of the year. This quarter, we disposed of 3 older communities for a total of $114 million. Two of the 3 disposition communities were located in Houston and the third in Dallas. These disposition communities were on average 24 years old. These older, higher CapEx communities were sold at an average AFFO yield of approximately 5%. We used the proceeds in part to repurchase approximately $50 million of our shares at an average price of $107.33, which represents a 6.4% FFO yield and a 6.2% cap rate. During the quarter, we stabilized Camden Durham and completed construction on Camden Village District both located in the Raleigh-Durham market of North Carolina. Additionally, we continue to make leasing progress on Camden Long Meadow Farms, one of our two single-family rental communities located in suburban Houston. At the midpoint of our guidance range, we are now anticipating $425 million of acquisitions and $450 million of dispositions for the full year, reduced from our prior guidance of $750 million in both acquisitions and dispositions. This implies an additional $87 million in acquisitions and an additional $276 million in dispositions in the fourth quarter. Turning to financial results. Last night, we reported core funds from operations for the third quarter of $186.8 million or $1.70 per share, $0.01 ahead of the midpoint of our prior quarterly guidance, driven primarily by the combination of higher fee and asset management income and lower interest expense resulting from the timing of capital spend and lower floating rates. Property revenues were in line with expectations for the third quarter. We are pleased with how well our property revenues are performing considering the peak lease-up competition we are facing across many of our markets, illustrating the significant depth of demand in the Sunbelt, and we did adjust our full year 2025 outlook for same-store revenue growth from 1% to 75 basis points, and property expenses continue to outperform, particularly property taxes coming in well below our forecast once again. As a result, we are decreasing our full year same-store expense midpoint from 2.5% to 1.75%. And maintaining the midpoint of our full year same-store net operating income growth at 25 basis points. Property taxes represent approximately 1/3 of our operating expenses and are now expected to decline slightly versus our prior assumption of increasing approximately 2%. This is primarily driven by favorable settlements from prior year tax assessments and lower rates and values primarily from our Texas and Florida markets. For the fourth quarter, we are assuming occupancy will be in the range of 95.2% to 95.4%. Blended lease trade-out will be down approximately 1% and bad debt will be approximately 60 basis points or 10 basis points of our pre-COVID levels, almost entirely as a result of the decreased transactional activity anticipated in the fourth quarter combined with lower floating rate interest expenses, we are increasing the midpoint of our full year core FFO guidance by $0.04 per share from $6.81 to $6.85. This is our third consecutive increase to our 2025 core FFO guidance and represents an aggregate $0.10 per share increase from our original 2025 guidance. We also provided earnings guidance for the fourth quarter. We expect core FFO per share for the fourth quarter to be within the range of $1.71 to $1.75, representing a $0.03 per share sequential increase at the midpoint, primarily resulting from the typical seasonal decreases in property operating expenses, favorable final property tax valuations and rates and lower interest expense, partially offset by the impact of our anticipated fourth quarter net dispositions. Noncore FFO adjustments for 2025 are anticipated to be approximately $0.11 per share and are primarily legal expenses and expense transaction pursuit costs. Our balance sheet remains incredibly strong with net debt-to-EBITDA at 4.2x. We have no significant debt maturities until the fourth quarter of 2026 and no dilutive debt maturities until 2027. Additionally, our refinancing interest rate risk remains the lowest of the peer group, positioning us well for outsized growth. At this time, we will open the call up to questions.

I was just wondering if you could share any initial thoughts on 2026 regarding the foundations of earnings, particularly any insights on other income or anything else you can reveal about your perspective on 2026 at this point?

Yes. So certainly, we're not giving guidance for 2026 quite yet. What I will tell you is the earn-in for us is probably going to be pretty much flat, which is going to be consistent with the earn-in that we had for 2025. Everything else we will give you when we have our next earnings release. But I will tell you, if you look at just the broad environment and what's going to be happening in 2026, it certainly does shape up much better than we saw in '25 in terms of uncertainty that's out there. If you think about when we were going through 2025, obviously, there was a tremendous amount of uncertainty around tariffs, around taxes, et cetera; most of that should be worked out as we go through 2026. The other thing that we think about is a significant amount of multifamily supply that was absorbed in 2025 that we will not have to absorb in 2026. So as I said, we're not going to give any guidance, but if you're an optimistic person, there's certainly things to be optimistic about when we look at next year.

You talked about the public-private disconnect around apartment valuations. I was hoping to get your thoughts on the current broader appetite for investment in apartments from private investors, especially for groups that can write the really big checks, given the growing concerns on jobs, immigration, the government's focus on fixing the housing market? And are there any specific markets that stand out in terms of more interest, less interest or even from your end, more concerned or less concerned given the macro overlay.

The first thing I want to mention is that there is strong demand for multifamily properties. If you examine the available capital across different asset classes, multifamily stands out as the leader. Everyone is actively seeking assets, but the challenge is that there isn't much available. Stanley, would you like to share your thoughts on this?

Sure, Alex. Just a little bit of additional color on the current transaction environment. Like Alex said, the market is healthy. There's a ton of debt and equity capital available. There's really good bid depth and thus really strong liquidity in the market. So with respect to volumes, 2025 is trending about the same as 2024, so still well below pre-COVID levels, which is, to some extent being driven by lenders continuing to modify and extend loans. So no meaningful distress in the market. And from a pricing standpoint, cap rates have really stabilized over the last few quarters with cap rates for Class A assets in our markets in the 4.5% to 5% range and in the Class B space in the 5% to 5.5% range.

There has definitely been more sales on the coast compared to the Sunbelt. The coastal revenues are easier to predict for positive growth than those in the Sunbelt due to ongoing supply issues. Sellers in the Sunbelt see a market where supply and demand will eventually balance, but the timing is uncertain. Lenders are not pushing sellers to act, which raises the question of why one would sell in a market where forecasting future growth is more challenging. Consequently, transaction volume in the Sunbelt is lower. However, I anticipate a shift occurring around mid-2026, where lenders will begin to pressure sellers to take action. By that time, as mentioned earlier, the market environment should become more favorable, making it easier for people to project strong rental growth for 2027 and 2028 given the current supply dynamics.

Just wanted to ask about sort of how you see the fourth quarter shaping up relative to normal seasonality. I think one of your peers talked about a sort of a relatively normal 4Q, maybe even a little bit better than normal seasonality in the fourth quarter. I think that was a little bit of a surprise, just given some of the headlines and some of that is a little bit sensational out there. But just wondering, within your portfolio with absorption data that actually, I think, still looks pretty good for the Sunbelt and even nationally, how do you see the fourth quarter shaping up in terms of lease spreads relative to typical seasonality?

Yes. So the first thing I'll tell you is, if you think about our portfolio, and it's important before we talk about the fourth quarter to go back and look at the third quarter, if you look at the deceleration that we saw from 2Q '25 to 3Q '25 on a blended rate, it was only 10 basis points. I think that's the lowest deceleration in the space. And what that tells you is that we're starting to get some footing here in the Sunbelt markets. When we go into the fourth quarter, what we're anticipating and what I said in the prepared remarks is that we think our blend will be down about 1%. If you sort of think about that on a typical seasonality basis, this sort of is what you see in the fourth quarter. And this year, now we did sort of hit the slower leasing period 1 month earlier than we typically would, but the fourth quarter is shaping up like a traditional fourth quarter.

Building on the previous question, with the recent acceleration in lease rate growth, do you anticipate this trend to continue into early next year and the spring leasing season, especially in light of fourth quarter developments compared to the third quarter? Additionally, is occupancy the main factor contributing to the 25 basis point decrease in your 2025 same-store revenue growth guidance?

So Austin, thanks again for the '26 guidance question. We're not going to answer '26 guidance questions quite yet. But what I will tell you is the main driver that we saw in the reduction, which is a very minor reduction in top line revenue growth, was an occupancy driven. It was rate driven, and that is because we were making sure that we could get the occupancy to the level that we felt comfortable for going into the fourth quarter. And in order to do that, we did have to drop rental rates slightly.

I believe the main point to highlight for 2026, based on Alex's previous response, is that there should be less uncertainty. We know that tax reform is no longer a concern, inflation is decreasing, and the Federal Reserve is reducing interest rates. Additionally, a midterm election is approaching, which will likely prompt the administration to take steps to ensure a positive economic outlook by November 2026. The significant tariff discussions are also expected to be less contentious for various political reasons. Furthermore, we are seeing a 25% decrease in new deliveries in Camden's markets. Considering all of this, generally, midterm elections in this context usually foster a favorable environment for boosting demand and creating a more optimistic outlook for 2026. Of course, there are potential challenges that could alter this situation, but we will wait and see.

Ric, I guess going back to your question about the disconnect between public and private, I guess, how big are you willing to lean into that on the share buyback and do dispositions? There haven't been many very large buybacks in the REIT space. And typically, they haven't been overly successful, but I'm just curious, how much would you lean into this size-wise?

If we look back at history, before the bubble and the tech crash in 2000, we repurchased 16% of the company at that time. We were able to sell properties on Main Street for $0.75 or $1, while buying our stock for $0.75 on the dollar. Currently, with today's stock price, there's a 30% discount to the consensus net asset value. The cap rate is in the mid-6% range, while the market cap rate is between 4.5% and 5%. This creates a positive spread of 150 to 200 basis points when selling an asset and buying stock. We have always maintained that we would allocate capital this way if there was a significant discount, and I believe a 30% discount is quite significant. It’s important that this opportunity persists long enough for us to sell assets to fund the buybacks without increasing our leverage. This follows a typical capital allocation model. Over the past 7 to 8 years, we’ve had chances to repurchase stock, but they haven’t lasted long enough due to our buying constraints. The current opportunity seems promising, and we intend to take advantage of it.

Can you talk a little bit about the impact of direct supply? And if there's any way to quantify how that will improve, like, for example, are you able to provide how much of your portfolio is directly competing with supply now? How does that compare to last year? And if there's an anticipated figure for next year?

I didn't hear the first part of your question. You mentioned direct supply?

How much of your portfolio is directly competing with some new supply?

Yes. Every part of our portfolio is competing with new supply. Between last year and this year, going into 2026, we will see the highest level of supply across Camden's portfolio in the last 45 years. It's widespread. Some areas are better than others, but all are facing some degree of supply issues. The top two markets affected by supply are Austin and Nashville. To various extents, all our markets are experiencing oversupply. California is likely at the extreme end of the spectrum, but there are still supply challenges to navigate there. Every market has been impacted to some degree. The good news, as Ric mentioned, is that we expect a 25% decline in deliveries next year. If demand continues to be strong across our platforms, it should lead to improved absorption, which can positively influence our ability to raise rents and maintain occupancy levels.

When we look at specific assets that are younger, that are directly in submarkets where there is a tremendous amount of new supply we are seeing significant improvements on that. Last year when we first started talking about this number, we said that about 20% of all of our assets were directly competing with new supply; thanks to the record level of absorption that we've seen in '25. The good news is that number is down to 9% of our portfolio today. And that's just going to continue to improve as we go through '26 and into '27.

You need to consider the situation in places like Austin, which exemplifies the problem of excess supply. In Austin, even older suburban properties that are considered B-class in desirable locations are feeling pressure from the supply. It's not that these properties are overly competitive with the new developments; rather, consumers are constantly reading reports about declining apartment rents and are therefore looking for deals. This creates an issue with consumer sentiment in markets such as Austin and Nashville, where even though the competition among suburban B-properties is not that strong, consumers feel they must get a discount. This perception impacts the market, making it difficult to increase rents. Once the consumer mindset shifts, the situation can change significantly.

And I would just add, Ric, this is Laurie. That if you look at Austin, which does have quite a bit of supply, a great example of a story where the tides eventually will turn is Rainy Street, and it can turn quickly. And so we're going from the lowest occupied community in our portfolio mid-summer to now the highest occupied community. So it's starting to turn. And when it does, I think it will turn quickly.

Congrats on your move. I was hoping, can you provide some commentary on what your team is seeing in greater DC, given it's been such a strong performer this year and into the third quarter, but some of the years noted less activity. If you could just comment on that.

D.C. Metro continues to be our leading market. Throughout the first half of this year, it was an outstanding performer in terms of new leases and renewals, largely due to the return to office movement, especially among government workers. As the year has progressed, it seems most people have returned to the office and secured their apartments, shifting D.C. Metro from an extraordinary positive outlier to simply our best market. In the third quarter, it remains our highest revenue market sequentially and shows the most quarter-over-quarter revenue growth. This market is exceptionally robust. Regarding DOGE, we have not observed any direct impact on our consumers from it. Instead, we've noticed a shift in how our competitors are responding and their concerns about a potential effect from DOGE, but we haven't experienced any negative effects. The D.C. Metro market remains incredibly strong, especially in Northern Virginia, where most of our properties are located, followed by the district and then Maryland.

I understand there’s uncertainty regarding next year, and I believe there will always be a considerable amount of uncertainty in the coming years. However, I'm curious about the historical impact of supply on your operations, particularly regarding how quickly vacant assets or collections of assets come to market. Is the disruption typically an issue lasting over 18 months, which might delay significant growth for Camden until 2027? Or does it occur more rapidly? Additionally, could you share specific insights about your portfolio that might influence whether the process is faster or slower? I’m interested in understanding how supply might affect circumstances next year, even with the expected decrease in deliveries.

They are decreasing. In our portfolio, looking at the mix between Whitten and RealPage's figures, supply in Camden's markets is projected to drop from 190,000 in 2025 to about 150,000 in 2026. If you extend that to 2027, you're looking at around 110,000 completions across Camden's platform. The situation can be complex because when something is delivered, data providers usually refer to completed buildings; however, they may not specify when an apartment community actually has leasable units available. Typically, after the first apartments are delivered in a suburban, walk-up style, for a standard 300-unit community, the average lease-up is about 25 units per month. So, over a normal pace, it generally takes around 10 to 12 months to fully absorb those units from the time the apartments first become available. There are many uncertainties regarding when construction concludes and its impact; what truly matters is the number of leasable apartments ready for the developer to sign leases on. Considering the reduction from 190,000 to 110,000 apartments over two years is quite substantial. If demand remains stable at current levels, even without a significant improvement, we could see a notable positive effect in 2026. There’s no doubt that 2027 will show improvement, as the deliveries for that year are already determined.

I think we should focus more on demand than on supply since we have a clear understanding of supply. Looking at demand, 2025 was the strongest year for apartment absorption in over 20 years, despite the high supply entering the market. This trend is driven by long-standing factors such as migration and demographics, along with an interesting aspect of retention. We are retaining more residents than ever, which means we don't need as many new leases when current residents move out. This creates a unique situation where people are staying longer, leading to decreased mobility in the U.S., and this is benefitting the apartment market. When considering home purchases, we see that 9% of our residents are moving out to buy homes, and this trend is unlikely to change soon. The financial situation for homebuyers is telling; the current costs for mortgages have risen significantly due to home price appreciation—over 50% since 2019 in many markets—and increases in interest rates, taxes, and insurance. A typical monthly payment for a medium-priced home today is about $3,200 compared to $1,750 in 2019, with most of the increase attributed to home prices, taxes, and insurance rather than interest rates. It will take a long time before we see people moving out to buy houses at this rate. Additionally, the average age of a first-time homebuyer is now 40 years, up from 34 or 35 before COVID, indicating a significant demographic shift. As these factors continue to align, I believe the demand for apartments will be stronger than many anticipate. Therefore, we should emphasize demand just as much as supply.

Ric, considering your 40 years of experience, I recently examined a stock chart of Camden. I’m not singling out Camden, but REITs have faced challenges in the public market. The private market might not be significantly better, yet it appears that assets in the private sector are valued more favorably than in the public market. In the four decades since you and Keith took Camden public, what do you believe is lacking? Given the current scenario of declining home affordability and an increased tendency to rent, do you think this is the moment for REITs to finally perform as expected?

If you do take a look at the private values and public values, over a long period of time, they're pretty close. We have for 40 years or 33 years as a public company, there's times when the markets get dislocated like they are now. And generally speaking, it hasn't lasted very long because once the market decides that the assets are undervalued then smart investors come in and buy the stock, so they drive the prices back closer to NAV. And so for me, being in the public market, I think it's great. We have access to capital that none of our private competitors have. We don't have the same sort of business model, which is I got to sell my properties in order to create value for my shareholders or from my owners. So you're constantly buying and selling and buying and selling or building the selling. And that's a great business model for some, but for us, we buy and hold and create long-term cash flow and benefits for our shareholders. And I think it's a great space.

Yes. I view it as a playing field that has shifted over the 30-plus years we've been a public company. At times, it has favored us, and at other times, it has favored private companies, with changes occurring rapidly. During the post-COVID period, the playing field shifted quickly towards private firms due to the easy availability of cheap debt, which is more appealing to them than to public companies. Recently, I believe the advantage has swung back in our favor, particularly regarding debt and balance sheet strength, allowing us to finance projects that private competitors may struggle with over the last 18 months. I see this advantage continuing, and we plan to leverage it.

Let me add one last thing because people often ask me, especially when we're experiencing a discounted NAV like we are right now. They wonder why we remain public and don’t just go private or sell the company. There’s a clear disconnect, significant at about $3 billion. If someone were to purchase the company, they would expect a return on that investment, believing that prices will continue to rise, and thus, we would achieve a reasonable rate of return. If we are at a significant discount to NAV due to a lack of trust in management, it suggests we are seen as a value trap or poorly managed, which creates a gap that's hard to bridge. In this case, the market signals that we deserve to be a public company valued at least at what our assets could fetch in the private market. However, in a market dislocation like we have today—with slow or flat growth and uncertainty due to oversupply—there's concern about when these conditions will change. Historically, as we’ve seen over the last 30-plus years, the market will eventually recognize that these stocks are undervalued, driving the stock price up to or above its NAV. The real issue is understanding the cause of the disconnect and how to resolve it. Ultimately, the market will figure this out, though it may take varying amounts of time depending on the prevailing investor sentiment. We feel quite comfortable with our current position.

I just wanted to ask you about selling the assets that you're doing. Are you able to shield the taxable gains there? And then one separate tax question. I believe you mentioned there was a big accrual, the big rebate you got from a prior year. How much of a headwind will that be for next year?

Yes. So the first thing I'll tell you is if you look at the sales that we're doing, we are doing 1031 exchanges on those with the acquisitions. We're doing reverses. So we bought the real estate first. And then we're selling the real estate. So that's what we're going to do now. To piggyback to one of Ric's earlier comments about buying back shares, we do have the ability to sell or to absorb about $400 million of gains where we don't have to do 1031 exchanges if we want to use those proceeds to repurchase shares. When you think about property tax refunds, here's the best way to think about it. If you look at 2024, we had about $6.5 million of property tax refunds. If you look at 2025, that number dropped down to about $5.5 million. But we are consistently good in getting refunds. This is something we do. As we've talked about in the past, we contest almost every one of our valuations. If we go through a normal contesting process and we don't win and we don't feel comfortable with where we're settling, we will file lawsuits. And a lot of what you're seeing is the settlement of those lawsuits. We have no reason to anticipate that in '26 and '27 and '28 and going on forward that we won't continue to have the same level of success that we're seeing. And so I'm not anticipating any significant sort of headwinds associated with the refunds that we got in '25. In particular, as I said, because the refunds we got in '25 were actually less than the refunds we got in '24, and we're still showing a negative growth on the property tax side.

We covered a lot of topics this morning, but Camden has a philosophy of not using concessions. However, the surrounding market will use concessions and adjust based on the specific operators. When considering market rents for next year compared to the net effective market rents in '25, how do concessions affect this? I realize this is somewhat of a tricky question for '26, but I’d appreciate your insights.

Well, a little bit of a sneaky question. But I think what would be helpful for you is for Laurie to sort of give a rundown of what we're seeing in the market, not for Camden, but in the market on the concession side.

So in our highest supply markets, we continue to see elevated concessions as operators work through the excess inventory. But on average, these markets are offering right around 5 weeks of concessions, approximately 10%. So those key markets include Austin, Nashville, Denver, and Phoenix. And so where supply pressures remain most pronounced, that's what we're seeing. But despite these headwinds, we've been able to navigate these markets pretty well, and we're outperforming the market average, each with kind of limited pricing power. But again, those are embedded into our net prices. So beginning in July, we actually initiated incremental price reductions, so that we could prioritize our occupancy, and that strategy has really paid off. So while conditions remain challenging, we are taking a disciplined approach to really position ourselves to remain strong on the occupancy side as we head into next year.

So if you look at the concessionary impact in the market, then. So if you look at the highest supply markets, we just talked about Austin, Nashville, et cetera. So they're having 10% concessions or sort of think about effectively 6 weeks, that's what needs to burn off in 2026. Now the good news is, is that those concessions are not being prorated mostly, and so they're upfront, which means that the consumer is used to paying the appropriate rental rates. And so when they go to renewals, it shouldn't be a big shock to them. But that is what needs to roll off in those markets.

Despite the favorable supply outlook with deliveries going back to pre-COVID levels, you haven't started the development projects since the first quarter. And I'm wondering why projects had not leveled out for you at this time. Or do you plan to accelerate development starts as indicated on the last call?

Today, you can purchase real estate at a price lower than its replacement cost, which presents a more advantageous use of capital. Additionally, as mentioned earlier, we are allocating some of our capital towards share repurchases. However, I want to point out that this situation will evolve. We are already noticing a decrease in construction costs, which can range from 5% to 10% depending on the location. This will definitely benefit our financial calculations. Moreover, we excel in development, and we are actively seeking out new land sites, with some already under contract. Our decision to move forward with these projects is driven by our belief in our ability to generate value for our shareholders. With the reduction in construction costs, we are optimistic about the potential revenue growth in the years 2026, 2027, and 2028. This makes the numbers more favorable, and we expect to become more active in development. In 2025, combining the lower replacement costs with our strategies appears to be a wiser use of our capital.

Nice work with your 3Q blends being down only 10 bps quarter-over-quarter. With your 4Q blends expected to be down 1%. Is that all of the new leasing spread side, as it seems like the 4Q comparisons are a bit easier than 3Q. So just wondering if there are certain markets where you're seeing more softness or that somewhat reflects conservatism.

Yes. So the first thing I'll tell you is, I made the comment that as we were going through the end of the third quarter, we did make a push on the occupancy side. And when we made that push on the occupancy side, that was at the expense of some new lease growth. And so when you sign something in the third quarter, you're effectively seen in the fourth quarter. So yes, we are expecting new leases in the fourth quarter to be the primary driver of what we're seeing in terms of having a blended fourth quarter of just negative 1% approximately. So that's where we're seeing it. Markets that we're seeing additional softness, there's no one market that jumps out. I will tell you that we are starting to see some markets that are doing the inverse that are actually doing better than we had expected. And call out a couple of those markets because I think we focus too much on the ones that are a little softer, let's focus on some of the good ones. And so we absolutely saw second and third quarter improvements in Nashville, in Dallas and Charlotte and in Atlanta. And then Laurie can give some quick entail of what we're seeing on the ground there.

Yes, we are starting to see encouraging signs as demand rises in these markets. Total rent gains for renewals and new leases show that blended rents have turned positive in Dallas, Charlotte, and Nashville, with improvements also noted in Atlanta. Specifically, in Dallas, blended rent gains improved from a decrease of 1.2% to a gain of 0.6% quarter-over-quarter, and our average days vacant improved by 7 days, decreasing from 38 days in Q2 to 31 days in Q3. In Charlotte, blended gains moved from a decline of 0.2% to an increase of 0.5%, with 61 more move-ins reported in Q3 compared to Q2. In Nashville, blended gains improved from a decrease of 1.3% to a gain of 0.4%, and we experienced our highest renewals and transfers in August. In Atlanta, blended gains increased from a positive 0.3% to a 2.7% quarter-over-quarter gain, with 96 more move-ins in Q3 than in Q2. These positive improvements, particularly in blended rents and strong occupancy trends, indicate progress in navigating challenges in these supply-driven markets, positioning us for sustained recovery if conditions remain stable.

Yes. I just want to piggyback really quick because Nashville is an interesting market. Granted, we only have 2 assets in Nashville. But obviously, it's a market that we talk about supply quite a bit. And Laurie had talked really great about how fast Rainy Street in Austin turned. In Nashville, when you look at the actual lease rates on new leases, that went up $61 from the second quarter to the third quarter. $61 is pretty dramatic, and that tells you how fast things can turn.

I want to revisit the discussion about demand that was mentioned in a few questions. While I agree with everything that was said, I believe something was overlooked. If I were to consider a less optimistic viewpoint, looking at October, we saw the highest number of layoffs in a month since 2003, with manufacturing activity declining for eight consecutive months. Inflation is now at 3%, and the Federal Reserve is expected to cut rates. The recent ADP jobs report highlights that job growth is mainly in healthcare and education, with few additions elsewhere. So, why shouldn’t I be worried about demand in the coming months? I realize you’re not providing guidance for 2026, but would it really be surprising if same-store revenue didn’t significantly improve from this year? Would that be unexpected?

I believe there's a cautious perspective to consider. While the situation has its positives, it's important to recognize that there are also concerns. We have reasons to be optimistic, yet we should also be mindful of potential challenges, many of which you have already highlighted. For us, the advantage is that we don't require as much demand since there is less supply coming in, and our retention rates are at historic highs. This means we have fewer people leaving, so we don't need as many newcomers to balance that out. Your points are well acknowledged, and we appreciate your insights. However, none of us can accurately predict what the economy will be like in the future. By 2026, we believe that fewer jobs than usual will be necessary to maintain a stable apartment market due to the various factors we've discussed.

I have a follow-up, Michael, regarding the statistics you provided about layoffs. Our portfolio serves as a strong indicator because we can immediately tell when individuals begin to lose their jobs as they tend to move out quickly. Typically, when someone loses their job, there is a period of stress, perhaps lasting a month, but it’s generally a rapid transition for us to observe. However, we are not seeing any significant increase in move-outs attributed to job losses. While it’s true that there are always individuals losing employment in the economy, we have not detected any indication that our residents in Camden's markets are experiencing job losses. Historically, this has been a concern, but our current demographic and the growth within our markets—along with the concentration of jobs being generated in Camden—suggest that we have been quite resilient in the past, and I believe we will continue to be in the future.

Just curious, portfolio-wise if you seen any really big differences in performance in regards to your Class A versus your Class B or your urban versus suburban assets?

Yes, I believe the differences in performance are primarily driven by supply. Our Class A assets are performing slightly better than our Class B assets. In the third quarter, our urban assets actually outperformed our suburban assets, which makes sense because this trend follows where the supply is located. The initial wave of supply was largely urban-focused, while the subsequent wave concentrated more on suburban areas. As a result, we're now observing supply tilted towards the suburban markets.

Alex, on the second quarter earnings call, you mentioned fourth quarter blends would look a lot like the second quarter, but it sounds like guidance now for the fourth quarter is about 150 bps below the second quarter. I guess when you sort of think of all the things you mentioned earlier, slower job growth, supply economic uncertainties. What has changed the most in the last 90 days to drive that? Or is it just the posture of landlords moving more aggressively than anticipated to prioritizing occupancy over rate?

You really captured it. That's precisely the situation. It's particularly noteworthy when considering D.C., which I've mentioned previously as being very robust. The decline we observed in the third quarter and the expected further decrease in the fourth quarter can be attributed to the discussions around these changes leading to reactive measures from competitors. Given the uncertainties we've discussed regarding 2025, many competitors, facing their slow season in the fourth and first quarters, attempted to increase occupancy by lowering rates. Even though demand remains high, with significant supply and competing businesses reducing their rates, we had to follow suit, which is exactly what occurred.

Congrats on the move to the new office here. You're down the street from one of my pocket picks, Kenny and Ziggy's now. I want to dive a little into marketing costs here a little bit. This expense bucket has been elevated the past couple of years with double-digit year-over-year growth. And I was wondering if this is somewhat reflective of weaker front-end demand that's required more advertising to maintain leasing traffic and occupancy or something else entirely?

Yes. I'll explain. There are two main factors. First, we are focused on search engine optimization, or SEO, and investing in placements when people search for apartments. With the current supply levels, many people are competing for the same traffic. We have noticed that SEO costs have risen significantly. As more companies strive to secure top visibility, additional costs are to be expected. We are indeed experiencing this. The second point that relates to your question is that while demand is at a record high, supply is also substantial. We are all competing for the same potential customers. Because of this, we are working hard to generate as much traffic as possible. This is the situation we are witnessing now. I anticipate that once we manage to absorb this supply, SEO costs will decrease considerably.

I just wanted to go back to something you mentioned last quarter's earnings call, which was that Witten Advisors was telling you that 2026, you could see over 4% market rent growth across your markets. I'm just curious, are they still telling you there's a path to that kind of market rent growth in 2026 despite the fact that the second half is maybe playing out a little bit weaker than we had hoped.

The numbers have come down a bit, but they still have 3% or 3.5% in 2026 and over 4% in 2027, so they have moderated their numbers slightly, but it's not dramatic. And it's likely to be more second half is what they've showed in their model.

We appreciate you being on the call today, and we will see some of you in Dallas in December for NAREIT. So thanks a lot. We'll see you then.