Camden Property Trust (CPT) — Q1 2016 Earnings Call Transcript

Good morning and thank you for joining Camden’s first quarter 2016 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 first quarter 2016 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. 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 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. We began our call today with Faith Hill singing 'Let's Go to Las Vegas' and ended it with Sheryl Crow’s 'Leaving Las Vegas.' The 18 years covered by those two song titles represent our tenure in Las Vegas which came to a close this week. It’s been a great ride. Camden is driven to improve people’s lives. We improved the lives of our Camden team in Las Vegas by providing a great workplace where they could do their best work and have fun. We improved the lives of our residents by providing quality homes which were expertly maintained and managed by some of the industry’s finest professionals, and finally, we improved our investors' lives as our investment in Las Vegas produced an annual unlevered return of 10.7% over the 18-year holding period. The sale of our Las Vegas assets was the right decision for Camden as the communities no longer look like the balance of Camden’s portfolio. It was twice as old and had monthly revenue of roughly $500 per home less than the balance of our portfolio. The biggest negative of the sale is having to part ways with 100 Camden team members, many who have been with Camden for over 10 years. I want to acknowledge their loyalty, the professionalism that they all exhibited throughout the years together, which continued through the Tuesday closing. Thank you for all that you did to make our years in Las Vegas fun, meaningful, and rewarding. The Las Vegas sale and the planned dispositions this year is a continuation of our capital recycling program. By the end of the year we’ll approach $3 billion in property sales since 2011. We have consistently sold older, non-core properties and replaced them with more current and competitive properties. This effort has increased our revenue per apartment from $1042 per month to $1566 per month, improving the quality and strength of our resident base. We're not calling a top to the multi-family market with our sales, we're simply taking advantage of the market opportunity to improve the quality of our properties, reinvest in development on a significant cash-flow positive basis, pay down debt, and return capital to shareholders. Our increase in disposition guidance was driven primarily by a significant increase in institutional investor interest in our Las Vegas portfolio. We received numerous unsolicited offers for the portfolio at prices higher than we expected. We ran an auction process and were successful bringing the portfolio to market and closing it quickly. We did not include the sale in our original 2016 guidance because we thought doing so would reduce our negotiating position. The decision to exit Las Vegas was a balance between losing the market with above average NOI growth in the near term versus the long-term challenges that Las Vegas faces. Whitman Associates ranks Las Vegas into the bottom of their market rankings over the next five years. We believe that we were paid well and in advance for the loss of the near-term net operating income growth. Overall, multi-family fundamentals continue to be strong and above long-term trend among most of our markets with 10 of our 15 markets exceeding 5.5% revenue growth. Washington, DC and Houston performed as expected during the quarter. Houston feels a little worse than our last call. The jury’s still out on the market. The good news is construction lending for new development has come to a near stop in Houston. Our development properties are leasing up on schedule and at better lease rates than projected. As we discussed on our previous calls, we are slowing the growth in our development pipeline taking a more defensive position at this point in the cycle. I want to give a big shout out to all Camden team members for another great quarter by providing living-in-excellence to our customers. I’ll turn the call over to Keith Oden now.

Thanks, Ric. We're pleased with the way 2016 has started. With same-store revenue growth of 4.9% which was actually slightly higher than the first quarter of last year which came in at 4.6%. Our top five markets had revenue growth of better than 8%; Tampa at 10.1%; Dallas, 8.7%; Orlando, 8.3%; San Diego, 8.2%; and Phoenix at 8.1%. As expected our two weakest markets were Houston at 0.4% growth and DC Metro at 0.7% growth. We're well positioned to have another really good year in 2016. For the first quarter same-store average rents on new leases were up 0.6% and up 6.3% on renewals compared to the first quarter of last year which had new leases up 1.3% and renewals up at the same level of 6.3%. For April new leases were up 2% with renewals at 6%. May and June renewals have gone out with 6.7% average increases. Overall our same-store portfolio averaged 95.4% last quarter in occupancy compared to 95.5% for the first quarter of 2015. Occupancy in April averaged 95.4% versus 95.9% last April. Qualified traffic remains strong in all of Camden’s markets and despite another year of fairly aggressive renewal rate increases, our occupancy rates remain at the upper end of our historical range. In part this is due to the low net turnover rates which at 43% for the quarter tied to the lowest net turnover rate we’ve ever reported. 14.3% of our residents moved out to purchase homes in the quarter and that compares to 14.8% last quarter and 14.3% for the full year of 2015. Our residents' financial health remains strong as our average rent as a percentage of household income was 17.8% for the quarter. Finally since our last conference call we learned that we were once again included in Fortune Magazine's list of the 100 best places to work. In fact we moved up on the list from number 10 to number 9 this year. Nine straight years on the list, six years in the top 10 which is a rarity, and all the years Fortune has compiled the list only 9 companies have been in the top 10 six or more times. We claim this on our own behalf of our all real estate investment trust and we give credit to our Camden team which has allowed us to achieve our vision of creating a great workplace. I’ll turn the call over to Alex Jessett, Camden’s Chief Financial Officer.

Thanks Keith. Last night we reported first quarter 2016 operating results, detailed the disposition of our 4918 unit Las Vegas portfolio, and the planned disposition of $400 million to $600 million of additional multifamily communities, and revised our full year 2016 guidance accordingly. Moving first to operating results, for the first quarter we reported FFO of $110.1 million or $1.20 per share exceeding the midpoint of our guidance range by $0.02. This $0.02 outperformance was primarily due to $0.01 in higher same-store net operating income resulting half from higher miscellaneous property level fee income and half from lower expenses resulting from the timing of certain repair and maintenance projects, lower employee benefit cost, and lower common area electrical cost. As a reminder on last quarter's call we anticipated certain insurance reimbursements to occur on the first quarter. Those reimbursements occurred as anticipated and accounted for the quarter-over-quarter and sequential decline in property insurance. $0.05 and higher net operating income from our development and non-same-store communities and a $0.05 from the unbudgeted gain on sale of 6.3 acres of undeveloped land adjacent to an operating community in Tampa. Last night we also detailed a disposition of our Las Vegas portfolio for $630 million. This portfolio of 4918 operating units was on average 23 years old, approximately twice the average age of our total portfolio. At average revenue of $1060 per door versus $1524 per door for our total portfolio, and at average CAPEX per door of almost $1500. The completion of this transaction significantly improved Camden’s portfolio. Using the actual CAPEX, this disposition was completed at an approximate 4.75% AFFO yield generating a 10.7% unleveraged IRR over an 18-year hold period. Based on a broker cap rate which assumes $350 per door in CAPEX and a 3% management fee on trailing 12 months NOI, the cap rate would be 5.4%. Last night we also announced the planned disposition of another $400 million to $600 million of operating assets. We are currently marketing approximately $500 million of individual assets and may add or subtract communities at the margin. Four assets are located in Florida, one in Maryland, one in Texas, and one in Southern California. These disposition candidates are on average 29 years old and have lower rents with higher CAPEX than the rest of our portfolio. The anticipated average AFFO yield on this group of assets is approximately 5% and we anticipate the sales to occur in the third quarter of 2016. If all of these dispositions occur as scheduled we are forecasting a special dividend of $4.25 to $5.25 per share with approximately 90% paid in the third quarter of 2016 and the remaining paid in early 2017 upon completion of our final year-end tax analysis. We had the ability to absorb approximately $250 million in tax gains in 2016 prior to the Las Vegas transaction which generated gains of approximately $375 million. Of the remaining 216 dispositions the tax gain is approximately 60% of the total proceeds. Our already strong capital position will be significantly improved upon completion of these transactions. Of the $1.1 billion at the midpoint in expected dispositions, approximately $425 million will be returned to shareholders in the form of a special dividend and the remaining $675 million will be used to retire debt and pre-fund in entirety the $245 million remaining to be spent on our current $916 million development pipeline. By year-end 2016 our anticipated net debt-to-EBITDA will be approximately 4.5 times. Moving on to revised 2016 earnings guidance, we now expect 2016 FFO per share to be in the range of $4.45 to $4.65 with a midpoint of $4.55 representing a $0.30 per share decrease over our prior 2016 guidance. The major assumptions and components of this $0.30 per share decrease in FFO at the midpoint of our guidance range are as follows: a $0.42 per share decrease in FFO related to lost NOI from our completed and planned 2016 dispositions, partially offset by an $0.08 per share increase in FFO due to a lower interest expense as we will use part of the proceeds to pay off all outstanding balances under our lines of credit which currently total $340 million, and we will no longer need to complete a previously forecasted mid-year $250 million bond transaction. And a $0.02 per share increase in FFO related to net operating income from our development communities which are leasing ahead of schedule and finally, a $0.02 per share increase from interest income earned on invested cash proceeds combined with slightly lower overhead costs and the unbudgeted first quarter gain on sale of land. Last night we also provided a revised full year 2016 same-store guidance. This guidance is based on the removal from same-store for the full year of 2016 of both the Las Vegas portfolio and the remaining 2016 dispositions. In the aggregate these disposition communities were forecasted to deliver same-store revenue growth of just under 8%, expense growth of 5.5%, and NOI growth of approximately 9%. The full year removal from same-store of the communities which have sold and the anticipated full year removal from same-store of the communities being marketed reduces our anticipated revenue growth by 40 basis points. The remaining 10 basis points in low revenue is the result of our typical quarterly reforecast of same-store expectations. Our revised 2016 full year same-store guidance is as follows: revenue of 3.6% and 4.6%; expenses of 3.25% to 4.25%; and NOI of 3.5% to 5%. The reduction in anticipated same-store expenses is driven primarily by successful insurance renewal, successful property tax appeals, and lower than anticipated common area electrical cost. Last night we also provided earnings guidance for the second quarter of 2016. We expect FFO per share for the second quarter to be within the range of $1.13 to $1.17. After excluding the first quarter gain on sale of land, the midpoint of $1.15 represents a $0.045 per share decrease in the first quarter of 2016 which is primarily the result of an approximate 1% or $0.02 per share of expected sequential increase in same-store NOI as revenue growth from the combination of higher rental and fee income as we move into our peak leasing periods more than offsets our expected increase in other property expenses due to normal seasonal summer increases in utility and repair maintenance costs and the first quarter of 2016 favorable property insurance refund. An approximate $0.01 per share increase in NOI from our six communities in lease up and approximate 1% per share increase in the FFO resulting from lower overhead costs, and an approximate $0.005 per share increase in FFO due to lower interest expenses. This $0.045 per share aggregate improvement in FFO is more than offset by an approximate $0.07 per share decrease in FFO resulting from the April 26 disposition of our Las Vegas portfolio and an approximate $0.02 per share decrease in FFO resulting from lower occupancy at our non-same store student housing community in Corpus Christi, Texas. Occupancy declined significantly from May through August in this community. At this time we will open the call up to questions.

Thanks, I am wondering if you can talk about the flexibility in terms of the user proceeds from the asset sales. I know in the past you have talked about volatility of the stock over the last year. So what's your appetite in potential for share repurchases if there are actually attractive opportunities?

Well the share repurchases we have been consistent on that and the discount has to be persistent and the volatility again has been pretty amazing when you think about the change in stock prices over the last three months. We are consistent with that, if the market does allow us to buy stock and sell assets and then buy stock we will do that. The bottom line is the challenge you had is this volatility in the stock price and it does take a while to sell assets. We will not sell assets and/or buy stock and then sell assets. So it is just a timing issue. Clearly when you look at investments, the investment alternatives when the stock is trading you see getting discounts and you can acquire the stock and make an arbitrage between the private market and the public market, that’s a good thing to do. We just haven't been able to do it because of the timing of everything.

Thanks and then appreciate all the color on the guidance changes but once you get through the timing impact of the dispositions, what's the right quarterly run rate going forward in terms of FFO?

Well, you really have to sort of look out towards the fourth quarter of the year and once you do all that the math is going to get you somewhere around sort of the $1.10 plus or minus range.

Thanks and then just finally you mentioned the unsolicited inbound course for the portfolio, were any of those for the company overall?

They were not. No.

Good morning guys, can you talk a little bit about what you’re seeing in the DC market in terms of maybe some bifurcation between any of the sub-markets, anything sort of sticking out to you as better or worse in that market than you were expecting given some of the supply and operating dynamics there?

So when we went into this year and the letter grade that we gave DC was a C plus and improving. And that still seems about right. If anything maybe the C plus becomes a B minus. So in conversations with our folks on the ground there I think there is probably a little bit more optimism than when they put their original plan together. But I think that’s still in the right zone for what we’re seeing in DC this year. Obviously the first quarter at up 0.7% on revenue that was in line with what we expected it to be. But it does feel like there is a little bit more traction, our traffic has been good, our closing percentages have been in the range that we expect to see them. In terms of the markets overall it is more driven by what's going on in your neighborhood than it is suburban, our metro DC versus DC proper. If you happen to have a lease-up or two there in your market area then you are feeling much more of an impact than if you are not. So when you actually just bifurcate it between the DC proper and DC metro there is not enough change to make any difference. But if you bifurcate it between what's going on, do you have a competitive set that is in a lease-up then it matters. And so that’s more of the impact that we’re seeing. But I would say overall DC feels a little bit better than it probably did even four or five months ago.

Have you thought about liquidating some of the joint venture assets, breaking those to market, and pursuing that approach for the dispositions?

No we didn’t. The joint venture is with Texas Teachers and its one partner and Texas Teachers really likes your cash flow and the return that they’re getting on the cash flow, and the challenge you have with selling assets and bringing cash in is where do you invest it and when you think about the investment risk of having to reinvest in this market, it’s just more difficult. So they would much rather hold and harvest cash flow than take that reinvestment risk.

Hi, guys, it’s Austin Wurschmidt here with Jordan. I was just curious if you could comment on the impetus to increase the dispositions this year and then just give a little bit of color around the buyer pool, maybe for both the Las Vegas portfolio as well as these individual asset sales you're planning.

Sure. The market is very, very buoyant from a pricing perspective, and when we looked at the Las Vegas asset sale and we're going to be put in a position of doing a special dividend anyway, we looked at it and said it makes sense for us in this part of the market to continue to create value by selling our older, less productive assets. And I think part of the thing that’s missed here is we all look at NOI growth and we're giving up high NOI growth properties. We're also giving up high CAPEX properties, properties that are actually growing on a return on invested capital basis at a slower rate than the overall portfolio. So it really allows us to kind of step that up in a very positive market environment. In terms of the Las Vegas competition we had sort of the—you can— count the list together of names that were involved. There was an article in a realty review I think it was that listed some of the potential buyers and so they were—it was very widely marketed to a great investor group that sort of, I think, validates that we're not at the top of the multi-family market because they, I don’t think, would be buyers if we were. So with that said we're not going to comment specifically on who bought it but there is some press out there that will give you a lot better detail on that.

Thanks and then just kind of your comments on CAPEX leads into my next question here. When you look at the residual portfolio, what type of numbers should we be thinking about for CAPEX going forward?

Yes, I think if you look at the—if you look at where we are today and you strip out everything we saw, it’s going to bring our total CAPEX to somewhere around $39 per door.

Thanks for that. And then just last one from me, Ric, you mentioned in your opening remarks about Houston feeling a little bit worse. I was wondering if you could provide a little bit more detail around that and then just give us some operating trends subsequent to quarter end.

Well, the feeling of being a little worse is when you look at the job numbers that happened in the first quarter, they’re a little less than we had thought they would be. And even though energy prices have—are at higher levels than they were, there's just still a lot of property coming online and we just—you just sort of feel like there's—that it’s just not as plain as it was. And quite frankly we were all sort of shocked that it was as good as it was last year and I think part of that is simply the inertia that a city this big, 6.6 million people that have been adding—that’s been adding in the last 10 years, Houston added 1.3 million people to the economy herein. So there's a lot of that inertia that just sort of kept going and now that inertia is slowing a bit. I’ll let Keith kind of fill into that as well.

I want to provide some perspective on how we're feeling about the situation, which seems to be worsening. As you may remember, during our review of the markets in the first quarter, we assigned Houston a C grade, indicating a decline. This suggests that we expected to feel worse each quarter due to the downward trend. Starting from a C is quite tough for our portfolio, so we were cautious about what we anticipated for Houston this year. To put this into context, as Alex mentioned, when we revisited our forecasts, Houston actually exceeded its budget for the first quarter, so we weren't surprised by the outcomes. The revision for Houston's numbers is about $400,000 from a $110 million revenue target. At the beginning of the year, we projected that Houston's revenues would remain flat, and we still believe that to be true. Even with this revision, it still rounds to flat. We approached the year without any unrealistic expectations for what we might face in Houston, and things are unfolding as we anticipated. We believe we've effectively managed the competitive landscape and the lease-ups we need to handle, along with the new inventory coming online. Additionally, job growth projections have been significantly revised downwards; our two data providers estimate around 12,000 to 15,000 jobs added this year, which is quite minor relative to Houston's size. With 22,000 new apartments entering the market, we expect to see a slight decline in the third quarter compared to our current state, as we operate within a declining market.

That’s fair, thanks for the comments.

You bet.

Hey, thanks. Good morning. So I guess maybe to you Keith, how much do you think a parallel can be made between your experience in DC and what you are going through now in Houston, obviously different inputs as to why things have weakened but do you think you can expect a similar timeline in terms of it pivoting to a recovery that you’re experiencing in DC?

In Washington DC, the situation developed slowly, feeling like there were always too many apartments relative to job growth. In contrast, Houston's decline has been much more abrupt. Last year in Houston, we managed to maintain mid-single-digit revenue growth, but now we’re seeing flat performance, which feels more jarring compared to the gradual changes in DC. The reason for our cautious outlook is that conditions need to stabilize before we can expect improvement, and we are still experiencing significant job losses in the energy sector. While there has been some recent hope due to rising crude oil prices, at $45 a barrel, we aren't likely to see much increase in activity, and companies like Chevron and Exxon are still reducing their workforce. Thankfully, most layoffs have occurred outside Houston. However, even if the layoffs are happening elsewhere, the major employers influence the local economy and employee behavior differently. This situation in Houston feels distinct from that of DC, and we will monitor how it unfolds throughout 2016.

I think the other big difference between Houston and DC is that we shutdown supply and DC didn’t shutdown supply. That was one of the big issues. You continue to build new properties in DC and supply just kept chugging along. Here if you can get a construction loan you are one lucky developer in Houston, Texas today. And maybe it’s a 40% construction loan and 60% equity with the pristine developers getting that kind of deals but other than that it is done. You are not building a project in Houston, Texas today unlike in DC where we have been delivering 10,000 units a year in a slow growth environment. So the good news here is that once the market bottoms, you don’t have the supply pressure that DC has. So it could be a pretty robust recovery when we fill up these units that are coming online now.

That was going to be my next question. If it could bounce back as fast as it bounced down and I guess you are kind of saying that if things kind of fall into place. And then maybe just one broad question. You identified that Las Vegas is older and higher CAPEX and all that, is there any other markets in your portfolio that exhibit similar type of drags on those measures relative to the rest of your portfolio?

No, there really aren’t. The delta between the average run rate in Las Vegas and our average portfolio of $500 a door doesn’t—there's—we don’t have any other market that comes close to that.

Good morning, down there. Just a few quick questions; first, on the common dividend going forward, Alex, the $1.10 a quarter you mentioned that would seem enough to sustain the $3 dividend but obviously the coverage would be a little tighter than it’s been over the past several years. Your intention is to maintain the dividend or should people expect a resizing?

No, no, we feel comfortable with the coverage where we have today and then obviously we anticipate that we're going to have organic growth in 2017 from developments and so we feel very comfortable with where we are right now.

Okay. And then on the $425 million to $525 million special, is that—the range is more tax planning based or ultimate disposition amount based?

So if you think about the midpoint of that range, that’s based upon what we currently expect for our tax planning assuming another $500 million is sold. Obviously, the ups and downs in that can account for a couple of things, number one, whether or not any—we have any changes in our tax planning and number two, whether we add or subtract assets at the margin, which we might do.

Okay. And then finally, Ric, you mentioned construction lending. Given all the increased talk with Basel III and I guess they’re called high volatility loans and whatever, the regulators are terming, resi construction loans, is your view that construction lending overall is materially getting a lot harder for everyone or is this really just for the smaller players, in which case, the bigger players are probably unaffected but suffice to say we may see a change in the price of land going forward?

I think it’s getting—the construction loans are getting more difficult for everyone, not just pristine borrowers. It’s because you have the classic situation of—the banks have to put a higher capital reserve involved in the—because of the Basel III. And I've heard we were at ULI the last couple of weeks ago and that was one of the big discussion points was that the best developers are having more trouble getting construction loans today because of those Basel III issues and risk capital issues. So I don’t think it’s just the small guys, I think it’s across the board. And if you look at sort of some of the industry analysts like Ron Witten who is projecting that the multi-family construction is peaking in 2016 and then going to be lower in 2017 and going forward and part of that is just the pressure on construction loans, one of the pressure points besides land and cost, the availability of workers and the like. So I think it’s a broad-broad issue around the country.

Thank you.

Good morning. Ric, I read in the press of your increased concerns, the U.S. economy may be heading towards recession which may explain the disposition guidance. Can you just elaborate on this and are you concerned more about slowing job growth or assets that are being mispriced today?

I’m more concerned about just the length of the recovery that we've been in. So in my 40 years in this business we've had six major recessions through that period of time, through my business career. And the longest recovery we had was 1993 through 2001, eight years. And now we're six years into this recovery and so when you think about the cycle, maybe the—lots of folks who think the cycle is going to be longer because it took so long to get out of the recovery. On the other hand, who knows. So we're clearly not in the first part of a recovery and of a cycle. So we're not, I'm not sure whether we're at the top or on the way down but bottom line is when you get this long into the cycle, you have to start being—we fundamentally believe you have to start being a little more defensive, you have to have less capital with capital committed that isn’t pre-funded. And you have to keep your debt at levels that if you are—that could allow you to be opportunistic if in fact the cycle does come. We know that the business cycle is alive and well and will happen and unfortunately none of us know when and so at this point we are definitely more defensive than we would be otherwise.

It seems like outside of DC and Houston many of your markets will be having accelerating job growth over the next years at least some predictions. Do you not share that view?

I do share that view, absolutely. If you look at the supply and demand dynamics at Houston and DC it’s a great market. We have millennials, we have empty nesters moving into the urban core, single-family homes are still hard to buy and to get loans for. So the background for multifamily is really good and we are not disputing that. The issue to me is that we are six years into the cycle and it is something outside of the U.S. going to change people's view of the world. I think negative interest rates around the globe, commodity prices, you name it terrorism, whatever. At the end of the day if we are wrong we are going to be conservative and our cash flow does not grow as much because of that because we are selling assets. But at the end of the day it is just for us the time is right to be a little more defensive.

And John I will just add to that its always at this point in the cycle it comes down to a race between the growth in NOI and the potential change in cap rates. And while we have seen these kinds of NOI growth rates many times before, probably four or five times before as a public company. We have never seen cap rates like this. So the question is, you got to look at both ways. Yes, cash flows are continuing to grow, how much longer and how much higher that’s a question mark. And then the flip side of that is what happens to cap rates. It doesn’t take much change in cap rates to blow up another 5% NOI growth.

Right, okay. Thank you.

Thanks. Can you just walk us through the process of selling Vegas, when did the process start and what were your initial expectations for pricing?

Yes, so we actually started this process in October of 2015. And by that I mean getting data together and betting who we were going to use as the intermediary. So that’s when we started the process. When we set out to put the portfolio together and go down the marketing trail we were in the 610 to 620 sort of what we thought the strike price would be. And then as we refined our numbers the market seemed like it got stronger. Over the course of our marketing period, our team in Las Vegas continued to put up increasing cash flow numbers. We did Las Vegas for the first quarter was over 7% revenue growth and so all that factored in, we ended up really on the high end of what we thought the trading range would be at the 630 million.

Okay and then lastly how did you arrive at the 60% 40% split between debt pay down, development pre-funding, and special dividend and why is that the appropriate mix?

Special dividend is a function of required dividend based on taxes and then the balance of it was a function of knowing. It is sort of just the math, right. You know what your special dividend is. You take the total cash minus the special dividend and then you know where you are funding for development is and this plug was pay debt.

Okay, understood. Thank you.

You bet.

Thank you. Just a quick follow up on your comments regarding the transaction market. Does pricing suggest a portfolio premium or discount and then for the assets that you are marketing now are you packaging them or are they all one-off?

The market does I think there is a premium for portfolios today definitely. If the portfolio is a cohesive portfolio that makes sense. And so with said we do believe we got a premium for the Las Vegas portfolio. In terms of the other assets, some are being packaged. We have some buyers that are talking about putting various properties together within the same sub-markets. But as Alex went through the properties are from coast to coast and those tend to not be real constructive for a portfolio of sale. Some people might like Florida, some don’t, some like California, some don’t. So it’s more likely to be more one-off or clusters of properties.

Thank you. And then maybe just on Tampa and Orlando which were very impressive and it doesn’t look like those markets will see supply meaningfully increase. Do you think that they can continue at these high-single-digit levels for the year?

We have very aggressive budgets on both Tampa and Orlando, and our original—in our original guidance we had Orlando as an A minus and improving. We had Tampa as also as an A minus and improving. So if that rolls out through the year then A minus improving turns into an A and that’s pretty high. It’s pretty high grading in our world.

Thank you.

You bet.

Hey, good afternoon, everyone. Quick question about the move out for home purchase rate, I think it was 14.3% per the prepared comments and it’s a little bit lower than a year ago. We have seen mortgage rates come down pretty meaningfully since the beginning of the year. Do you see that as becoming an increasing risk in certain markets as time goes on here with rates a little bit lower?

What I'm surprised about is that we're still below 15% in our portfolio. If somebody had told me four years ago that we would be four years down the road in a recovery and we still wouldn’t be back to 15% move outs to purchase homes, I would say, 'You’re nuts.' Now we had always believed that the home ownership rate was going to fall and fall meaningfully and we originally were one of the first ones to kind of put out numbers like 63.5%, we thought we would get to, well, we got to that. And we're sort of rocking around right now between 63.5% and 63.7% home ownership rate. But that compares to the peak and in 2007 of roughly 68%—68.5%. So we are well-well off of the levels that we saw in at the end of the last cycle. So what's surprising to me is that with the low mortgage rates, also with the increases that we've seen in rents in terms of overall affordability of homes that we don’t see a higher home ownership rate. Now, there are obviously other factors that get into that. There’s the recent effect of all of the carnage and the single-family housing market that many of the people who are at their prime home buying age right now, kind of saw and lived through. Clearly there's a preference that’s being played out by a lot of our prime age renters for the flexibility that goes with renting versus home ownership. And then on top of that and finally to that you have a locational preference of people want to live closer to where they work and play, and in most cases that means near the urban core and in most cases that means renting is the preferred option. So that means all of that stuff but regardless of which one, kind of how you push and pull it, 14.3% move outs to home ownership rate still strikes me as a shocking number for our portfolio.

I would argue that if we got to 18% that we would have a reacceleration of growth across our markets and our cash flow would grow. So 14% tells me that the market is not building enough houses, the economy is not doing as well as it could do if you're building a million single-family houses every year, and so to me, getting to 18% and a more constructive single-family housing market is better for apartments, better for Camden, and will create another leg up in the apartment rental cycle.

That’s an interesting perspective. Thanks for that. And then just one quick follow up on Houston. I think the question was asked earlier about new and renewals that you are seeing today. I didn’t quite catch the answer but if you could provide that info and then maybe on top of that ballpark if and when you think the market goes negative in terms of same-store revenues overall?

Yes, regarding same-store revenues, we experienced an increase of 6 or 0.4% for the quarter. I would be surprised if we don’t see either a light second quarter or a mid-to-light second quarter, which could result in a negative number. Year-to-date, we have seen approximately a 6% decrease in new leases but a 3% increase in renewals. This translates to a 60% renewal rate in Houston and a 40% move-out rate. Therefore, we are likely heading toward a negative same-store revenue figure.

Alright, thanks for the info there.

You bet.

Good afternoon. Referring to your comments about the macro economy and also obviously with a lot of capital coming in with asset sales, how should we think about your 'shadow' development pipeline opportunities and whether should we read that less of those will maybe started in the near term, is there any way we should kind of change our thinking there?

We’ve put it in our guidance zero to $200 million this year and we still think that moderate development makes sense and to the extent that we do have a shadow pipeline that we can bring online. We are likely not to change these numbers this year, but next year depending upon what happens we can do another $200 million to $250 million of development without any trouble. We are not accelerating the development pipeline but it definitely is waning.

That’s helpful, thank you, and I am also curious to get your thoughts given that you do have a number of CDD assets but majority of your portfolio is in suburban markets whether there is anything kind of magical about the urban versus suburban relationship vis-à-vis new supply job growth and other benefits to market?

Early in the cycle our urban property there are more urban developments in suburban but now in the cycle the suburban markets have caught up and you have plenty of development in the suburban markets as well. We have always believed that you should have a balanced portfolio both geographically and market balance from urban to suburban A to B. That way you lower the volatility of the cash flow over time and its working very well for us. It doesn’t seem to be a dramatic difference between I guess within each market there is probably some dynamics that are different but generally speaking we are not seeing a big difference between A’s and B’s right now.

Great, thank you very much.

Hello everyone, when you talk to energy executives you have obviously had a nice rebound in the price of oil, do you think this will make them more comfortable maybe not to the point where they hire re-pass the mass layoff at this point.

Clearly there has been a lot of layoffs so far and the question when you talk to energy executives is so where are you in the cycle? And they are guardedly optimistic but at the end of the day I don’t think we are out of the layoff cycle. It might be less this year than it was last year. But it is going to continue until you have more stability in that oil price. I mean sort of like the volatility you looked at over the last three months it’s been pretty volatile.

And I would just add to that when I talk to the folks in the energy business they don’t whether the price of oil is at 35 or 45 is really not a big difference making in their way they process it. And the thing that they look at and then we have always looked at most carefully is the rig count. And if you look at the rig count we’re at a 30-year low on rig count and it has not stopped falling. I mean it is not falling precipitously but every week you get another five rigs taken out of the mix and we’re down from 1800 working rigs down to somewhere around the 700 level. I think these are dramatic changes and so until you start to see a stop in the fall of the rig count and recovery there that all the rest of its just sort of background noise.

Okay, that’s a great point and then when you look at some of your energy workers that live in your communities, is there typically lag effect from when they get their layoff notice imagine they have a severance package, you probably want to maintain their credit way to the lease expiration are you noticing an uptick in move outs and the typical lag period from the layoff?

You know we have seen some of that but not a dramatic exodus because the layoffs from energy and part of it is that when you think of layoff they tend to layoff the older people first because they are the highest paid and they keep their young kind of best and brightest. And so the millennial that lives at Camden in Houston is a little more insulated from the layoff than the 45 to 55 year old getting laid off and that 45 to 55 year old is in house in West Houston on the west side and with their severance and with all the help that the energy companies are doing for their laid off employees, these people are just staying in their homes and looking for new jobs. So we haven’t had a mass exodus or major sort of blip in our move outs because of layoffs. We had some for sure but not dramatically.

Okay, thank you.

Hey everyone. Just want to go back to the dispositions again. So with the Vegas portfolio it sounds like you got some reverse inquiries, some accelerating interest in that market. Just curious on the subsequent portfolio that’s being put up for sale, I mean are you just seeing an overall acceleration in demand for some of the more secondary markets and maybe some of the older assets that are out there or was that more specific to Vegas?

Well, it’s pretty much a consistent demand and I would say that the demand for older properties with sort of higher cash flow is definitely in vogue. I mean the challenge you have with the top-of-the-market properties in every single market is that you're talking four – high threes and low four cap rates, and those are a little harder for buyers. You have to be very institutional in order to buy a sub-three cap rate or a sub-four cap rate in Austin, Texas for example or in Downtown Tampa. But when you buy a 29-year old asset you can get a five and some change cap rate. And then the other thing that these buyers do is they grossly underestimate CAPEX and they kid themselves and think that even though they’re buying a $1,500 to $1,600 per door CAPEX, they use a $350 or $500 in their underwriting criteria. And then those cash flows look really good when you don’t include the entire CAPEX. So there’s still a major bid out there for leveraged real estate or multi-family transactions at the age that we're selling them. So it hasn’t really increased, it’s just been a constant wave of capital that has been in the market for a long time.

The response to the second group of assets that we're in the market with right now has been really very strong.

Got it. Okay, I guess what I'm trying to understand is the demand has been consistent. I think I heard with the Vegas transaction happening you’re already going to pay a special dividend, so it may sound like, hey, this is an opportunity to accelerate the quality improvement and sell some more assets. Was that really the only driver then? I mean if demand spiked up and you saw an opportunity that might make some sense but is it just…

Well, its—that is the driver but it’s also the place we are in cycle. I mean we are six years into the recovery and we've got supply and demand doing really well in all these markets. But we are peaking in multi-family supplies around the country. Every major market has had an increase in supply. So with that said even though we're – so we've harvested lots of cash flow growth in these properties and we think it’s time to take a more defensive position and that’s why we are increasing sales as well.

Yes, and the respond -– I mean the truth is that this response that we got from our Vegas portfolio, this group of 29-year old assets in Las Vegas that are sort of the screen at the bottom of our -– bottom tier of our portfolio was very encouraging and that has carried over for that genre of assets. And the pool that we're in the market with right now looks a whole lot like the Las Vegas assets writ large. I mean they’re obviously, they are older assets, they have higher CapEx needs that we have to address in a different way than a new buyer would, and if you kind of think about the -– Alex gave you the cap rate on the Las Vegas portfolio, the AFFO cap rate that we use, I think that’s the best way to look at it, was 4.75 and the cap rate on this second wave is about 5%. These are unprecedented cap rates for this vintage of assets in my career.

And of course it’s all being driven by incredibly low interest rates. I mean most of the buyers are using floating rate debt and there's—and that floating rate debt is plentiful out there, it’s not being impacted by the banks because the banks aren’t the ones providing. It’s Freddie and Fannie and insurance and others. And so what's driving pricing is the wall of capital and the unprecedented low interest rates.

Okay. Thanks for that color. And just maybe one other question on different topic, just we talked about the strength of the Tampa market in Orlando, you did sell some land in Tampa so just curious if there is something about that land that just didn’t work?

The land was a part of a transaction. It was adjacent to a development that we built and it was always non-core land and you couldn’t built multifamily on it so we sold it to another developer.

Got it, thank you.

Hey everyone, it's Ross Nussbaum here with Nick. How are you viewing your portfolio's NOI contributions after the recent asset sales? I'm particularly curious if your exposures in Houston and DC are increasing. Are you considering reducing those exposures over time, or are you comfortable maintaining a higher concentration in your top markets?

They do tick up slightly. It is not a huge difference on DC and Houston. Actually one of the dispo assets is a DC metro asset so once you net that out it’s not a big change. Ultimately and we said this before we would like our exposure in DC metro to trend downward. We are comfortable with where we are right now but I would expect that over the next three to five years by just our normal process of selling assets that need to find a new home our DC metro exposure probably will come down. Houston probably will also come down again if you just think about what we have in our pipeline here. We only have one asset that’s under construction in the Houston market. We have two other parcels of land. They are kind of on hold right now, so it is not like we have a large backlog of projects in Houston. The likelihood that we would be doing on balance sheet acquisitions in Houston in the near term is not very high. We would obviously like to sell into a better environment than what we have right now in Houston. But I think over time you would expect to see both of those concentrations come down some.

Okay appreciate it, I think we all have to go over to Amco call but I am curious what you think of Will Fuller being a receiver now?

We are absolutely full of optimism. Jackson was my guy but Fuller he is a horse so I am happy with it.

Speed is cool and great.

Hey guys, I know we are getting towards the end of the call so I’ll be brief but just wanted to hone in on some of the components of same-store. First on the expense side, I know you talked about the revision being attributable to tax appeals, insurance, and utility cost, could you break that down a little bit more and kind of provide some context as to the ratable contribution of each?

Absolutely, so approximately half of it is from insurance. We just completed our annual renewal and we are very, very successful on that side. Of the remaining half about half of that comes from taxes and the rest comes from miscellaneous things which includes lower common area electrical costs.

Got it and then Denver in particular stood out on a negative same-store expense line this quarter, anything in particular driving that?

Absolutely, so it was due to some large property tax refunds that we got in the first quarter of this year.

Got it and then on the overall NOI, I know you said about 10 basis points was due to a reforecast of expectations. As you kind of think about the first quarter and the trajectory of effective rent growth through the first few months of the year, how are you guys viewing seasonality right now as opposed to last year and could you provide any kind of month-by-month commentary, like was January and February strong and then it kind of fell off in March or vice versa anything along those lines.

No, it is just very normal seasonal patterns. There really is no anomaly to this or seasonal pattern going from fourth quarter into the first and into the second at this point.

Alright, thanks guys. Appreciate it.

You bet.

Hi, have you earmarked any particular debt issues that you are going to pay with this cash inflow from Las Vegas?

So, what we are going to first of all is we are going to repay the line of credit and so we will do that and it currently has about 340 million outstanding. And then we have got the next debt that we have coming due is May of 2017 and so effectively we will be holding cash to repay that at maturity. At this point we don’t intend on prepaying early any of our fixed-rate debt.

Alright, thank you.

Thank you.

We appreciate your time today. I know there is another call so thank you and we will see you at NAREIT.