Camden Property Trust CPT is well-poised to gain from the healthy renter demand amid favorable demographic trends. The company’s diversification efforts in urban and suburban markets are likely to drive stable revenues. Its focus on leveraging technology to drive margin expansion is encouraging. A strong development pipeline, backed by a healthy balance sheet position, augurs well for long-term growth.

However, the elevated supply of rental units in certain markets is likely to fuel competition, impeding the rent growth momentum to some extent. High interest rates add to its woes.

What’s Supporting CPT Stock?

Camden targets high-growth markets with high-quality resident profiles that enable the company to generate steady rental revenues. The markets are characterized by growing employment in high-wage sectors of the economy with in-migration trends. Moreover, higher homeownership costs are making the transition from renter to homeowner difficult in its markets, and renting apartment units is a viable option.

Camden has a diverse portfolio with a superior product mix of A/B quality properties in urban and suburban markets. The company’s portfolio comprises properties throughout the United States, with a mix of 42% urban and 58% suburban communities. Maintaining a diversified portfolio across urban and suburban markets and price points limits volatility and helps generate steady rental revenues.

Camden is leveraging technology, scale and organizational capabilities to drive margin expansion in its portfolio. Moreover, in the next few years, the developments underway are expected to deliver meaningful incremental NOI upon completion and stabilization and fuel FFO and NAV growth.

Camden has a healthy balance sheet with ample liquidity, placing it well to capitalize on long-term growth opportunities. As of Sept. 30, 2024, the company had $1.1 billion in liquidity. CPT has a well-laddered debt maturity schedule with a weighted average year-to-maturity of 6.5 years. In addition, in the third quarter of 2024, its annualized net debt to annualized adjusted EBITDAre was 3.9 times and unencumbered assets to NOI was 93.3%, providing scope for tapping the additional secured debt capital if required.

Over the past six months, shares of this Zacks Rank #4 (Sell) company have risen 2.2% against the industry's downside of 2.9%.

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What’s Hurting CPT Stock?

The struggle to lure renters will persist, as supply volume is expected to remain elevated in some markets where the company operates. Also, Camden faces competition from other housing alternatives, such as rental apartments, condominiums and single-family homes. Such a competitive landscape limits the company’s ability to increase rent and occupancy, restricting its growth momentum to some extent.

Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Camden. Elevated rates imply a higher borrowing cost for the company, which would affect its ability to purchase or develop real estate.

Stocks to Consider

Some better-ranked stocks from the residential REIT sector are UMH Properties UMH and Veris Residential VRE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for UMH Properties’ 2024 FFO per share is pegged at 93 cents, suggesting growth of 8.1% year over year.

The Zacks Consensus Estimate for Veris Residential’s 2024 FFO per share is pegged at 61 cents, indicating growth of 15.1% year over year.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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