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Camden Property Trust: Too Much Optimism Is Priced In

Apr. 02, 2022 3:07 AM ETCamden Property Trust (CPT)VNQ20 Comments

Summary

  • CPT is the cream of the crop in the multifamily REIT space, with an extraordinarily well-positioned portfolio across the Sunbelt.
  • Though I would like to own more of CPT, the price is too rich right now.
  • This year, CPT should enjoy FFO per share growth of 15-19%.
  • However, it isn't the 2010s anymore. Persistent underbuilding of housing has given way to a feverish drive to build. Housing starts are soaring.
  • The golden age of double-digit rent growth won't last forever, although CPT's portfolio should continue to produce above-average growth.
  • This idea was discussed in more depth with members of my private investing community, High Yield Landlord. Learn More »
Housing development townhouse apartment complex neighborhood aerial view, Austin Texas

dszc/iStock via Getty Images

Thesis: Peak Rent Growth Has Likely Been Reached

Sunbelt-focused multifamily real estate investment trust, Camden Property Trust (NYSE:CPT), is enjoying some well-deserved time in the sun. The stock price is up some 40% from its pre-pandemic level of February 2020 and nearly

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This article was written by

Austin Rogers profile picture
16.73K Followers

Austin Rogers is a REIT specialist with a professional background in commercial real estate. He writes about high-quality dividend growth stocks with the goal of generating the safest growing passive income stream possible. Since his ideal holding period is "lifelong," his focus is on portfolio income growth rather than total returns.

Austin is a contributing author for the investing group High Yield Landlord, one of the largest real estate investment communities on Seeking Alpha, with thousands of members. It offers exclusive research on the global REIT sector, multiple real money portfolios, an active chat room, and direct access to the analysts. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CPT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

500MPH profile picture
Great timing on your article, I should have listened and sold in April!
D
Hi Austin, your article was written in April and at a price of 171 USD. Would you buy now at 128 USD ?
Austin Rogers profile picture
@Deimos1960 Yes! Many residential REITs have become attractively valued, including CPT.
B
As a point of reference, $CPT's share price in first quarter of 2000 ranged from $25 to $30. Further, the company paid $2.25 per share in dividends (with a resulting yield of 7.5% to 9.0%). Today, the company pays $3.76 per share (no share splits during interim period) resulting in a dividend yield of below 3.0%. Second, $CPT owned around the same apartment units in 2000 as it does today. Third, in the first quarter of 2000 the equity value traded between 1.0x to 1.5x book value whereas today it trades at nearly 4.0x. I remember reading that Warren Buffett bought a few REITs in early 2000 after concluding that REITs were trading at a good value--we're a long ways from there today with interest rates rising fast. Notably, $CPT really hasn't fundamentally changed as a company since the turn of the century--but the market's valuation sure has.
Austin Rogers profile picture
@Brandon3586 I can tell you one thing that has changed: rent growth, which is now the highest in the company's history and some of the highest in our nation's history.
B
@Austin Rogers Rent growth, schment growth. Where are the dividend's? Apparently, expenses have also increased rapidly.
Austin Rogers profile picture
@Brandon3586 Well, CPT recently raised their dividend by 13.3%, well above their historical average dividend growth rate. I'd say that's a pretty good sign. Expenses have increased but not as much as revenue, hence the double-digit same-store NOI growth.
Steve Rasher profile picture
@Austin Rogers Thanks for the article. Without a doubt $CPT is one of the highest quality apartment REITs. That is why I bought it a little over a year ago at around $98/share. But then when it rose to the $170 range in less than a year, I, too, felt all of the good news was being priced. Because I had some very attractive alternative opportunities, I sold and reinvested the funds in other high quality companies at much higher yields, e.g., $O and $RILY. Steve
Austin Rogers profile picture
@Steve Rasher Fair enough. I've held onto my CPT shares, and every once and a while I look at the company again trying to find a reason to pay the high price for more shares, but as stated in the article I just think too much optimism is priced in.
Steve Rasher profile picture
@Austin Rogers Just to be clear, as I believe you know from our prior exchanges, I am by far a buy and hold guy as long as the investment thesis is intact. But in this case I could sell the $CPT, which provided me about $2200 in dividends annually, and maintain the quality of my holdings and get $3200 in dividends annually and still have have almost 25% of my proceeds from the sale. It was just an opportunity that made too much sense to pass up. Steve
Austin Rogers profile picture
@Steve Rasher I can't argue with that! Sounds like a good trade.
S
@Austin Rogers Do you prefer AMH?
Austin Rogers profile picture
@SilverBandit I own a little bit of INVH but no AMH. I actually like AMH's mix of markets better than INVH's but the latter was cheaper at the time I purchased. As a long-term investment, I don't think you could go wrong with INVH, AMH, or TCN (Tricon Residential).
R. Paul Drake profile picture
Thanks for your take, @Austin Rogers. Camden is one of my favorite REITs. But I agree that CPT soared too high too quickly and am out for now. That said, I'm more optimistic than you are that some of their markets will stay hot for a few years. I really love their earnings calls. In particular, I would direct potential investors to their Q4 earnings calls. They always review and grade all of their markets individually. One often see surprises compared to what one might guess from national statistics.
Paul
Austin Rogers profile picture
@R. Paul Drake Great points on some of the markets staying hot for a while and the helpfulness of the conference calls. I believe they also report AFFO, which is helpful.
c
@R. Paul Drake I agree with you that CPT’s growth in 2023 and beyond is likely higher than the author’s expectations. So I am too am more optimistic but can’t argue with a hold rating. It is probably a market performer for awhile. But the long term outlook for its markets remain quite strong. So I am staying in. A great asset in an inflationary environment too.
Austin Rogers profile picture
@ccking3 To be clear, as stated in the article I believe CPT's markets will be above-average performers as far as multifamily assets go. But I argue for a hold because (1) builders are building a lot of new housing, and (2) the well-deserved optimism for CPT's markets appears to be fully priced in.
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