Camden Property Trust (CPT) — Q3 2015 Earnings Call Transcript

Good morning and thank you for joining Camden’s third quarter 2015 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. 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 2015 earnings release is available in the Investor Relations section of our website at camdenliving.com and it includes reconciliations to non-GAAP financial measures, which will be discussed on the call. Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Alex Jessett, Chief Financial Officer. We will try to be brief in our prepared remarks and complete the call within one hour. We ask that you limit your questions to two then rejoin the queue if you have other items to discuss. If we are unable to speak with everyone in the queue today we'll be happy to respond to additional questions by phone or email after the call concludes. At this time I'll turn the call over to Ric Campo.

Thanks, Kim. And good morning. Let me begin by congratulating our onsite and support teams for delivering a package, a package of solid results directly to our shareholders and residents. For the third quarter, your hard work has supported an increase in our same-store property net operating income guidance. Our developments, redevelopment, and construction teams continue to create value for our company. A $1.1 billion development pipeline will add nearly $350 million of value to our shareholders when completed and leased. We will again be a net seller of properties in 2015 as we were in 2014. Pricing in the acquisition market remains robust, given the wall of capital that continues to bid for apartment properties in all of our markets. Since 2011, we have sold over $1.7 billion of 22-year-old properties that had lower revenue growth potential and increased capital expense requirements. This represents a 20% turnover of our portfolio in a very short timeframe, increasing the portfolio quality, revenue growth profile, and lowering capital expenditures. Our capital recycling program will continue in 2016 using sales proceeds to fund further development costs. The apartment market is slowing but continues to perform at our expectation for the year. Demand is holding well given the flat job picture. Apartment fundamentals are stronger, improving in all of our other markets and are likely to be above our long-term trend for 2016. At this point, I’ll turn the call over to Keith Oden.

Thanks, Ric. At the beginning of this year we found ourselves in familiar territory as we began rolling out a solution to a challenge facing the multifamily industry. It’s just the latest example of Camden leading the way in our industry. In 1998 we were the first multifamily company to implement a water usage initiative, which promoted water conservation. Other communities have followed our lead since then. In 2005, we were among the first companies to roll out a system-wide revenue management solution. In 2006, we implemented our bulk cable option which continues to provide significant savings to our residents compared to their one-off retail subscription offerings. We are in the process of rolling out bulk high-speed internet with additional savings to come for our residents. Earlier this year, we communicated with the largest package carriers that we wanted to begin offering our residents the same service that single-family homes receive for package delivery. Based on local and national media coverage of our approach to package delivery, it’s clear that there are misconceptions that need to be cleared out. First, the number of onsite packages delivered to our communities has grown from a handful eight or ten years ago to an average of 150 per community per week. We had a total of one million packages in 2014 and that number is growing by 30% to 50% per year with no slowdown in sight. A few years ago we began receiving requests from our onsite teams for new package tracking software, package locker systems, and additional staff to handle packages. While we evaluated these requests, our onsite teams were merely working harder and longer to improve the package dilemma for our residents but we were losing the battle. Before starting to implement any of these new ad-hoc solutions to the package handling, we decided to ensure that whatever policy we adopted would meet three key objectives: first, it would provide the best customer service to the greatest number of our residents; second, it would have to free up our onsite staff's time from package management so they could get back to property management; and third, it had to be a solution that was scalable, able to withstand a five times increase in volume or, in our case, up to 5 million packages per year, which is very likely where we are headed over the next five to ten years. After studying the package problem for six months, we concluded that there were three classes of customer service solutions that the apartment communities could adopt that didn’t have a 24/7 concierge service option. Camden has 11 high-rise communities with 24/7 concierge service and they were not included in this rollout. We identified our first-class solution as the delivery of a resident’s package directly to their doorstep by the best package delivery companies available, using state-of-the-art tracking software with complete transparency regarding the date and time of delivery. This is a service that I enjoy at my house, and I suspect that many of you also enjoy this first-class solution in your homes. We also identified a second-class solution. This occurs when carriers deliver packages to an intermediary, in our case a management company, which takes possession and then engages their personnel in completing the delivery through a variety of means. While not as good as first-class service, residents still had better access to retrieve packages at times of their choice. Finally, we identified a third-class solution. Our management company takes possession of the package and holds it until the resident can pick it up during office hours. For many residents, this was not a satisfactory solution. Unfortunately, this was Camden's previous model, which is why our internal efforts to solve this dilemma became known as 'package gate.' Not only were our customers limited to office hours to pick up their packages, but we compounded the problem by having our staff spending more and more time managing packages instead of attending to our residents' needs. As we studied the second-class options, we realized that regardless of the option we adopted, we could never achieve the original three objectives we set out for a package policy change. The solution that we ultimately adopted was a hybrid of first-class and second-class solutions. We worked with the carriers to allow direct access for package delivery to our residents' doorsteps and provided those who, for whatever reason, prefer not to have doorstep delivery with information on how to direct their package delivery to the carriers' closest distribution centers. We ran a pilot program with 11 communities, received excellent results, and then rolled it out to an entire district, then a region, and ultimately throughout the entire company. The rollout was completed this summer. So far, we estimate that over half of our residents now enjoy first-class service, and we think that this figure will grow as neighbors see and hear the excellent results others are enjoying by having packages delivered directly to their doorsteps. The most common reason for reluctance to opt for doorstep delivery is concern that packages might be lost or stolen. Our results to date show this fear is largely unfounded. Since adopting this hybrid approach, an estimated 500,000 packages have been delivered to residents’ doorsteps and we have not seen an increase in reports of packages being lost or stolen. The response from our residents has been indicative of our pilot and initial rollouts: the majority of residents are fine with the new approach. This isn’t surprising since we are transitioning them from third-class service to first-class or second-class service. However, not everybody was pleased, and there was a small but vocal minority of residents who preferred the old approach; change always creates anxiety. Even after several months, some residents remain unhappy. Last week, a few of them had the opportunity to share their opinions with local and national news outlets. I’m not sure why the media found our package handling change so interesting, but they did. Finally, with over 100,000 residents, we are not aware of more than a handful of communications from our onsite staff stating that residents would not be renewing their leases due to our change in package handling. All of our onsite policies are designed to provide living excellence to the greatest possible percentage of current and future residents. Our experience in the past year with our package delivery policy indicates that we are achieving that objective. We will continue to seek improvements in our customer service, and if a better solution for package handling becomes available, we will adjust our policy accordingly. In the meantime, we will support the carriers providing first-class delivery service to the majority of our residents and will continue to look for better ways to provide second-class service to our residents who do not use the doorstep delivery option. We are past worrying about how many of our residents might leave because of our improved package policy; we are focused on how many residents are more likely to stay or sign new leases with us due to the first-class experience of having their packages delivered directly to their front door. Meanwhile, conditions across our portfolio remained strong as we posted the best quarterly revenue growth in nine quarters. Same-store revenue growth for the third quarter was 5.5%, with all markets except Houston and DC exceeding 5%. Our top 5 markets exceeded 8% growth: Denver at 9.3%, Phoenix at 8.5%, Atlanta at 8.4%, Santiago Inland Empire at 8.3%, and Dallas at 8.2%. DC and Houston performed as anticipated for the quarter with approximately 1% and 3% revenue growth, respectively. All markets performed well sequentially with 2.1% revenue growth over the previous quarter. New leases for the second quarter were up 3.5% and renewals were up 6.9%, both 20 basis points better than at this time last year. In October, new leases and renewals are running at 1.1% and 6%, and this November, December, renewal new offers are going out at about 7.3%. For the third quarter, occupancy averaged 96% versus 95.5% last quarter and 95.9% in the third quarter of last year. Year-to-date, our net turnover was 3% below last year at 53% versus 56%, and move-outs to purchase new homes fell in line with seasonal trends at 14.2% versus 14.8% last quarter, remaining basically flat with a year ago. Our onsite teams continue to outperform their competitors as well as their budgets. Keep it up, finish strong. We’ll see you soon. I'll turn the call over to Alex Jessett, Chief Financial Officer.

Thanks, Keith. Last night we reported funds from operations for the third quarter of 2015 of $104.4 million or $1.14 per share. These results are in line with the midpoint of our prior guidance range for the third quarter of $1.12 to $1.16 per share. For the third quarter, total property revenue exceeded our forecast by approximately $900,000 or $0.01 per share, with half of the variance coming from our same-store communities and half from our non-same-store and development communities. Fee income continues to be favorable to plan, driven primarily by higher occupancy and additional pricing power, which enabled us to collect higher net fees. This positive variance was entirely offset by higher than anticipated property-level expenses related to higher employee benefits and healthcare charges and the timing of property tax refunds we now anticipate in the fourth quarter. All other line items for the quarter were in line with expectations. Our new Camden technology package with bundled cable and internet service is rolling out as scheduled and for the third quarter contributed approximately 30 basis points to our NOI growth. For the year, this initiative has added 50 basis points to our same store revenue growth, 100 basis points to our expense growth, and 20 basis points to our NOI growth. We now have approximately 20,000 units signed up for our technology package and the program is performing in line with expectations. Based on our year-to-date operating performance, we revised upwards and tightened our 2015 full-year revenue, expense, and NOI guidance. We now anticipate full-year 2015 same-store growth to be between 5.1% and 5.3% for revenue, expenses, and NOI. The new midpoint of 5.2% for both revenue and NOI represents a 20 basis point improvement. We are increasing our expenses midpoint by 20 basis points as a result of the previously mentioned higher than anticipated levels of employee benefit and healthcare charges we recognized in the third quarter. We’ve also revised our full-year 2015 FFO per share outlook. We now anticipate 2015 FFO per share to be in the range of $4.51 to $4.55 versus our prior range of $4.47 to $4.57, representing a $0.01 per share increase in the midpoint, mainly from higher same store NOI growth expected in the fourth quarter. Our revised full-year 2015 FFO guidance assumes no additional real estate transactions in the fourth quarter. Last night, we also provided earnings guidance for the fourth quarter of 2015. We expect FFO per share for the fourth quarter to be within the range of $1.17 to $1.21. The midpoint of $1.19 represents a $0.05 per share increase from the third quarter of 2015. This $0.05 per share increase is primarily due to: a $0.065 per share increase in FFO due to growth in property and net operating income, comprised of a $0.03 per share increase resulting from an approximate 2% expected sequential increase in same-store NOI, driven primarily by a normal third-to-fourth quarter seasonal decline in utility, repair and maintenance, unit turnover, and personnel expenses and the timing of certain property tax refunds; a $0.02 per share increase from the NOI contributions of our five developments in lease-up; a $0.02 per share increase from the normal third-to-fourth quarter seasonal increase in revenue from our Camden Miramar student housing community; and a $0.05 per share decrease due to the loss of NOI from our recently completed $33 million disposition. This $0.065 per share increase in FFO will be partially offset by a $0.015 per share decrease in FFO due to the planned fourth quarter bond transaction. Turning to the capital markets, during the third quarter we completed the refinancing of our existing line of credit, increasing our borrowing capacity by $100 million to $600 million in total, extending the maturity date by four years and decreasing our borrowing costs by 20 basis points. Although our current plan for the fourth quarter contemplates a new $250 million 10-year bond transaction, we are flexible on the timing and issuance and are monitoring bond market conditions closely. We may complete this issuance this year or early next year. Currently, we estimate that all-in 10-year bond pricing for Camden will be in the high 3% range. Our balance sheet remains strong with debt to EBITDA at 5.4 times, a fixed charge expense coverage ratio of 5.3 times, secured debt to gross real estate assets at 11%, 78% of our assets unencumbered, and 84% of our debt at fixed rates. At this time, we'll open the call up to questions.

Hey, it’s Michael Bilerman here for Nick. Ric, you talked a lot about the private market and acquisition pricing being robust. We have clearly seen some M&A deals through larger portfolio transactions. I guess how aggressive are you going to be to try to now just tap between your stock and your NAV. How much of the company would you sell, would you entertain a sale of the company? I’m just curious how you are going to take advantage of it?

Well, we clearly have taken advantage of upgrading the quality of our portfolio by selling a substantial amount of assets into this market and redeploying the capital into either development or acquisitions while lowering our debt profile significantly over that period. So, it does make a lot of sense to take advantage of acquisition opportunities given the high bid prices that are out there, and we'll continue to do that. As far as selling the company, discussing that kind of action is really a function of determining the value proposition between the NAV of the company today and the current stock price. If there is a permanent disconnect between the two due to fundamental issues like a lack of trust in management or external factors, it can create a challenge. However, we generally find that these situations are temporary and that the market discrepancies will narrow over time if we continue allocating capital properly and executing above and beyond what the private market is achieving in terms of net operating income. We constantly tell our teams in the field that we want them to exceed market conditions and outperform their competitors. As long as we do that, the gap between our stock price and our NAV will narrow over time. If we didn't believe that would happen and thought it was a permanent disconnection, we would clearly need to ensure that we harvest that value for our shareholders.

Thanks. And this is Nick here. You mentioned that almost all your markets are stronger. You expect to see growth above long-term trends in 2016, except for Houston obviously. So, what is your expectation for Houston's revenue growth both to finish 2015 and looking ahead to next year?

Nick, we still think we will finish in the 3% range for Houston this year, and regarding next year, we're currently in the process of doing our Roundup budgets and we'll have a clearer understanding once we get numbers from the field. Our operations are decentralized, and our operators in the field have the best intelligence to create a realistic budget. We'll see what comes out of that process in the next month or so, then we can finalize our plan for 2016 based on that input.

Houston, clearly its not going to be better than in 2016 compared to 2015, but I will tell you that a lot of people are surprised by the demand side of the equation given the incoming supply and the flat job growth. There are interesting dynamics at play in this market that many do not understand. One factor is that Houston has had a housing shortage for an extended period, and we are just beginning to fill that shortfall with new incoming supply. Additionally, much of the high-end product that has been built is new to the market, with urban developments leasing for between $2.50 and $3 per square foot. This is creating its own new demand, with individuals willing to move into urban areas to avoid heavy traffic and seeking larger, more luxurious spaces.

Just a follow-up on that supply; what percentage of that new construction in Houston has been done by merchant builders?

About 80% to 95%. To clarify, there is only one development being built right now in Houston by a public company, which is Camden; all other constructions are merchant builders, so it’s actually close to 99%.

And, what is your expectation regarding the type of concessions that they will use to lease up?

Merchant builders are typically quite aggressive, and so are we. With new developments, offering free rent for zero-occupied properties is common since there’s no revenue coming in. Currently, free rent ranges from none for the hottest properties to one or two months for some of the merchant builder properties that have come online. There is a shift occurring between Class A and Class B properties. This is typical in cycles like this; suburban properties in Houston lack competition compared to urban cores, so suburban Class A properties face more pressure than Class B properties.

Thanks.

Thank you. Following up on new types of supply delivered, you've had great results in Denver and Atlanta, but those markets are seeing a lot of mid and high-rise products being built. Can you comment on how your portfolio compares in price points?

In both Denver and Atlanta, our portfolio is less exposed to where most of the construction has been taking place. It typically tends to be in population and job growth centers outside of the central business districts. We do have a couple of assets in those markets, but generally speaking, we are less affected. In both of these markets, the supply-demand situation for 2016 looks strong. Denver's forecast for 2016 is around 30,000 jobs with approximately 7,000 new apartments projected, which is relatively balanced. In Atlanta, the forecast indicates 65,000 new jobs against about 11,000 new apartments, adding to market tightness rather than loosening it. Of course, if you’re located in a submarket where two or three new communities are trying to lease up, there might be some pressure from that competition. Overall, we believe we are well-positioned in both markets, at both the submarket and macro levels, as market conditions should remain good for us next year.

There's also an interesting point to consider regarding these markets with strong job growth: there are still around 1 million to 1.5 million millennials currently living at home, compared to pre-2007 levels. The trend of young adults 'unbundling' from their family households is likely to ramp up as these jobs grow, but many millennials are also delaying home purchases, such as demonstrated by the latest new home sales numbers falling across the country. With home purchases slowing amidst delayed marriage and job changes, this adds to the multifamily demand scenario, thereby requiring less new job growth to fill existing properties.

Thank you for the update on move-outs; the trend seems relatively flat. Do you have an update on affordability in your markets?

Our affordability has been hovering around the 17.1% to 17.2% marks for some time now. We did see a slight uptick in the quarter to about 17.5%. However, that remains well below our long-term average of approximately 19% over the past 20 years. So, we still believe we have a fair amount of room for affordability adjustments. Quarter-to-quarter fluctuations can be hard to gauge, but the uptick to 17.5% is significant.

Thank you.

Good morning. Referring to Bilerman’s question, I may have missed it, but did you address or discuss a section of the portfolio—not a full company section—that could be considered for sale, since clearly if demand is strong, it seems like a good time to sell less competitive assets that may not fit longer term. How do you feel about this?

We have demonstrated our willingness to sell assets; we've sold $1.7 billion worth and we continuously analyze our portfolio for opportunities to reposition it. However, the right moves must occur at the right time and at the right price. We acknowledge that there is a disconnect in the market currently and we intend to maximize shareholder value through all available strategies, including portfolio analyzation for sales.

Okay. And switching to Houston, if you think about what may occur there, and if it resembles the prolonged softness experienced in Washington DC, have you learned any lessons in operating DC that might help you perform better in Houston during this challenging time?

The insights we draw from our history in various markets provide critical experience, but specific insights from DC aren’t especially relevant to Houston's current scenario. What we apply are lessons learned from many years in this business. As we analyze potential weaknesses in the market, we initiate strategic adjustments like lease term adjustments—we’ve already started that process in Houston. Typically, we favor 12-month leases for value resets. With forecasts indicating a potential decline in rent growth, we've shifted to longer lease terms which are more favorable for landlords.

Understood, thank you.

Hi everyone. This is Chris for Ian. Great quarter on revenue growth, but same-store operating expenses are up 5.7%. You talked about that in previous calls. Can you elaborate on the driving factors behind the 12.8% increase in Houston and the overall 9.2% increase in property taxes?

Yes, absolutely. In Houston, the 12.8% increase is primarily driven by property taxes. On a tax basis, Houston will see a 20% increase for the year. In one quarter, the year-over-year comparative shows last year's quarter was at 24%. This is what’s pushing the operating expenses higher in Houston. For our overall operating expenses, property taxes account for a third of our total expenses, leading to a 2.1% increase in operating expenses without considering other factors. The rollout of our technology package also adds about 100 basis points to our full-year expense number. When stripping these outliers away, our remaining operating expenses align with expectations.

Great. Can you explain further about the large property tax refunds you received last year versus this year?

The large property tax refunds I mentioned in Houston relate to timing issues around assessments we contested with the appraisal district. Quite a few of these cases end up in litigation, making the final resolution resolutions unpredictable. The refund rates fluctuate based on settlement timings.

Got it. Moving to the Camden Washington acquisition that you finalized earlier this month, can you share any details regarding the capital budget for the project? How do you underwrite it in terms of stabilized deals and where would it fit into your upcoming pipeline in terms of expected starts?

Sure. The Washingtonian's underwritten yield is in the mid 6% range, and we expect to begin construction in 2016. In general, the new project starts will shrink as the capital market environment dictates. We are excited about this project, as it is a great yield and we plan to evaluate the start closer to 2016.

Thank you very much.

Hi, guys. This is Austin Wurschmidt here with Jordan. Could you provide your thoughts on the elevated multifamily permit levels and the implications of homebuilders entering the multifamily space?

The rise in multifamily supply stems from a demand that has been unmet for five years, resulting in increased occupancy rates and rental rate growth over an extended period. We are introducing projects to the market that can be absorbed efficiently. Given the current market situation, the capacity for multifamily production to increase is limited even with homebuilders entering the space. However, many projects, including ours, face delays of several months due to shortages in construction labor. Thus, it is unlikely that the market saturation will occur any time soon.

Thank you for the detailed explanation. Could you also comment on the performance of your properties in DC versus those in the suburbs, and which group are you more optimistic about heading into 2016?

Historically, our DC proper communities have outperformed our suburban assets. However, during the past four years there hasn't been a significant distinction due to overall competitive pricing. Our DC properties saw great success during their leasing phases, and we've identified favorable timing for our newest additions to hit the market. In the long-term, we tend to see a premium pricing dynamic for DC properties compared to suburban ones, though both asset classes could experience recovery. You’re welcome.

Thank you. Good morning. Revisiting capital allocation, despite unfavorable capital costs, Camden is still a net grower this year when we consider development. Given the stock’s underperformance this year and over the long term, it raises questions about this strategy. It's great to hear you are considering a more aggressive approach to asset sales. My question relates to development focus amid the cost of capital. How do you assess the risk-adjusted returns of development versus your stock's valuation?

We've had numerous discussions regarding stock buybacks, and the challenge has been volatility and the associated blackout periods. When you observe the disconnect between stock price and NAV, historically, we've been significant buyers of our stock, purchasing a considerable amount at a 20% discount to NAV. If we're consistently facing that level of persistent and significant disconnect, we will be in the market for stock repurchases.

Thanks for that Ric. Given the potential that the stock price may take back closer to a 20% discount—especially as it has been trading at a discount within the group for a year—might we see further opportunities arise?

Yes, we have consistently indicated that a significant and persistent discount should drive our strategy to sell assets while buying back stock, maintaining a leverage-neutral basis.

Thanks.

Hello everyone. Going back to your earlier discussion on pent-up demand in Houston: where were these individuals residing before? Were they doubled up, or are they outside the Beltway? And will some of your properties be affected if those individuals move downtown?

Individuals moving into the city are generally transitioning from homes rather than apartments. The new supply in the urban core is drawing in individuals who prefer larger, more luxurious living spaces. While we have some residents doubling up, most of our new demand is stemming from homeowners transitioning to rental units in the city, as there tends to be less competition in suburban class A properties.

Okay. And, how does your tenant health development fare currently? Are you seeing an increase in bad debt expense in your Houston properties?

No, not at all. We regularly meet and check in with our managers, and we have limited information indicating concerns regarding energy job losses impacting our specific properties. For instance, during Enron's collapse, we saw a property shift from 95% occupancy to 75% almost overnight, but we haven't experienced anything of that magnitude in Houston today.

Okay. You offered up preliminary job forecasts for some of the markets; do you have one for Houston, or are you still working on it?

We have a forecast for Houston around 30,000 to 31,000 jobs projected for 2016, with a somewhat stable number retained ear for 2015. Typically, Houston generates a lot of its annual job growth in the fourth quarter, so let’s see how that shakes out.

Thank you for all the insights, I appreciate it.

You bet.

Thank you. Considering your remarks about the development pipeline shrinking, how much do you estimate your project starts will decline in ’16 and ’17 compared to ’15?

In ’15, we commenced two projects, and I don't anticipate starting more than two projects in 2016 or 2017 due to prevailing market conditions. While we have a sizable pipeline, the scale of our upcoming projects will likely be smaller due to these factors.

Understood. Regarding asset sales, given strong interest levels, what type of funding are you seeing at this point?

Currently, the asset sale process is very dynamic. There's considerable demand for properties and sales can be executed favorably. That said, we are limited in the amount of assets we can sell without incurring a special dividend due to tax implications under the REIT structure. We estimate we can sell around $300 million in assets without triggering those obligations.

Thank you.

Hi, good afternoon everyone. To revisit the job growth point: I think you mentioned in your opening comments an expectation for most markets to see continued above-trend job growth. Does this assume job growth picks up from the pace we’ve observed recently? There have been signs of a slowdown.

Yes, the numbers we provided today come from Ron Whitman, with national job growth anticipated at around 2.5 million for 2016, which is slightly lower compared to 2015 where we saw approximately 2.9 million jobs created. This trend drives our individual city forecasts, suggesting the job market may cool slightly in 2016 compared to 2015.

Okay, and it seems Houston may even see an increase. Are there any markets you expect to fall, perhaps on the West Coast where growth has been remarkably strong?

Our markets generally create more jobs than the national average, which is by design for our operations. I can provide a market-by-market breakdown for you if needed.

Thanks, I'll follow up with you later. Regarding expenses, previously discussed key drivers aside, have you had to revisit your marketing expenses to adjust for current conditions or to drive demand?

In terms of our total marketing spend, we have been reducing it over the past few years, primarily due to improved targeting through our search engine strategies. We now rotate dollars more deliberately between markets and submarkets, focusing on specific communities that require support rather than distributing funds equally across the board.

Understood. Thanks for the insights.

Hey, guys. It seems like most of your properties currently under construction and leased have shown sequential lease-up improvements, except for Camden Flatirons, which has only improved a couple of percentage points. Can you provide any insight into what might be driving that? What is your current outlook for supply in Denver?

So on Camden Flatirons, that's a 424-unit community, and we are aware that there's a phase in the leasing process where we end up competing with ourselves. As we’ve averaged over the course of leasing, we are typically leasing about 25 to 30 apartments per month. Once we reach about 80% occupancy, we begin to excerpt some lease-up challenges as new residents are essentially competing with those who moved in during the initial lease-up phases. This is a known scenario, but we’re confident in the recovery as the project moves to stabilize. Overall, Denver remains a healthy leasing market, albeit with some new supply coming online. But our early project entries have performed well, achieving higher-than-projected rents.

Thanks Ric, for all the detail there. And Alex, could you comment on the plan to issue an unsecured bond this quarter? Another company feels the term loan market may be more favorable versus unsecured right now due to volatility—what are your thoughts?

Although the unsecured bond market has had fluctuations, it remains historically low. Securing term loans brings other challenges, as they tend to skew towards short-term tenures. Our objective remains to secure long-term fixed rate financing that allows us to manage risks effectively.

Understood, thank you.

Thanks. I appreciate it. Did you receive my previous questions?

Yes, as a matter of fact, they were delivered directly to my doorstep because I demand first-class service.

So, what are your answers?

The answers are no.

If you look at how our properties in Dallas, Austin, Charlotte, and Denver have performed, we typically focus on the relative position of each—Houston and DC have been our weakest markets, but those four are seeing resilience and strength.

So, at this point, we have not downgraded our perspective on those markets as they have maintained momentum, though we are cognizant of increasing supply dynamics.

Thank you very much.