02/03/23 07:15 AM EST

CPT 4Q22 RESULTS | OUTRIGHT MISS ON THE QUARTER AND FY23 GUIDE | 2.3.23 (CPT)

Rob Simone, CFA

Takeaway: No need to "lean" one way or another on this one, it was a disappointing quarter

Hedgeye Cartoon of the Day: Lit Fuse

It is 2.3.23, and Active Short MPW is overvalued by approximately... whatever the current share price is. Believe us yet?

Ticker: CPT

Company Name: Active Short Camden Property Trust

Subsectors: Multifamily / Apartments

Headline: Just no way to come away from this positive - decelerating faster and incremental capital drags

Active Short CPT reported a disappointing quarter, consisting of both a miss relative to expectations on the Q but more importantly a weaker-than-anticipated FY23 guide. The SSNOI guide will likely disappoint ( - ), overhead is higher than we expected ( - ) and increased capital costs will drag on earnings ( - ). On the positive ( + ) side and unlike MAA, we like the curtailing of new acquisition activity relative to recent years as the RoC slows and the stocks do not have as attractive costs of capital in the market. CPT also looks to be working off in-place development projects before putting more shovels in the ground.
On the quarter:

Reported 4Q22 Core FFO of $1.74/share, -$0.06/share (-3.3%) below Hedgeye and -$0.02/share (-1.2%) below FactSet, in-line with the midpoint of CPT's 4Q guide.

Same store portfolio: -$0.01/share driven by the top line / additional occupancy loss
Non-same store portfolio: -$0.02/share
G&A: -$0.01/share
Interest Expense: -$0.01/share
Property Mgmt. + Taxes: -$0.01/share
Similar to MAA, reported a ~800-900bp sequential deceleration on 4Q22 signed and effective new lease spreads, w/ new leases inflecting below renewal spreads for first time since 1Q21 ( - )
For January, signed new lease rates down another -200bp vs. 4Q to +2% and renewal rates down -110bps vs. 4Q to +7.3%. Blended signed leased rates were up +4.2% for the month. We are not buyers of any seasonality talk - this is a RoC deceleration similar to MAA.

On the FY23 guide, clear miss ( - ) versus Hedgeye and the Street and likely to be viewed as a disappointment, especially after MAA a day ago guided its SSNOI growth range +130bps higher at the midpoint (despite our issues with that guide).

FY23 Core FFO in the range of $6.70 to $7.00 ($6.85 at the midpoint) well-below Hedgeye at $7.10 and FactSet at $7.15 coming into the print.
As an aside, and being fair to MAA, CPT also set its SSNOI range too narrow in our view. If CPT was to hit the lower-end of FY23 SSRev and the upper-end of SSExp growth, SSNOI would be +2.9% or -60bps below the low-end of the presented range. We just think it would be prudent to set the ranges appropriately wide to capture the extremes, as it would lower the probability of cutting guidance at a later date should the operating environment move against them. Just something the think about as we move through the year and in handicapping future quarters.
The SSRev guide with +5.1% at the midpoint makes sense to us.
The FY23 building blocks:

SSNOI +3.5% to +6.5%, or +5% at the midpoint, slightly above Hedgeye at +4.5%. We just don't think its enough to get people excited and represents a nearly -1,000bps y/y deceleration, and we suspect consensus was likely incorporating the upper-end of that range.
Increased interest expense of -$0.21/share y/y which we had not modeled ( - ), that is a big drag for sure.
Non-cash amortization of below market leases burns off but is still a -$0.07/share drag y/y.
Higher overhead of -$0.06/share y/y ( - ) vs. our ~$0.03/share.
Another -$0.06/share from a higher share count ( - ), which we did not model.

We are surprised by the incremental capital cost drag (both interest expense and share issuance) given that (1) in-place development spending requirements went down with a delivery of one property, (2) acquisition activity is decelerating y/y on an absolute dollar basis consistent with our model and, at least theoretically, looks to be match-funded by planned dispositions, and (3) nearly ~85% of CPT's debt is fixed-rate in nature and we modeled higher rates on the variable portion. Normally that would translate into a relatively stable capital cost impacting earnings, so we want to hear more on the call to better understand it. It's possible that some portion of the ~$1.35bn development pipeline could be started later in the year, but we shall see.