Camden Property Trust (CPT) — Q2 2016 Earnings Call Transcript

Good morning and thank you for joining Camden's second 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 second 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 Rick 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 as there are other multi-family calls scheduled after us. 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'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 Rick Campo.

Thanks, Kim and good morning. Today's on-hold music was brought to you by the one and only Prince, unquestionably one of my generation's greatest musical talents. In addition to being a musical genius, we consider him to be a kindred spirit of sorts. In 1993, Prince changed his musical identity to the artist formerly known as Prince. That same year, in conjunction with our IPO, we changed our name to Camden, the company formerly known as Suntech, and the rest as they say is history. Camden's strategy of operating in high-growth markets, improving the quality of our portfolio through capital recycling, and maintaining a strong financial position continues to create value for shareholders. Apartment fundamentals remain strong with above-average growth expected for the next few years. Revenue growth has slowed from the high growth levels over the last few years but remains above the long-term average. 2016 results are in line with expectations and all our markets are performing exactly as we expect. We are maintaining our 2016 guidance ranges for both FFO and same-store growth. Our developments are creating significant long-term value for our shareholders. We currently have $850 million of properties under construction. Seventy-seven percent of the cost is funded, leaving a little less than $200 million left to fund. We expect to start one to two projects worth up to $200 million in the second half of 2016. As we have discussed, we are reducing the size of our development pipeline at this point in the cycle. I do want to give a shout out to our teams for another great quarter and to our real estate investment group for their adept management in executing nearly $1.2 billion in dispositions that we'll complete this year. We all know it is much harder to buy than it is to sell. At the outset of what we did at the beginning of the year in terms of our disposition activity, I'm really excited that our teams have done a great job.

Thanks, Rick. We're pleased with our second quarter results. Aside from the elevated transaction volume in the quarter, this was a relatively routine quarter as operating results were right in line with expectations. Overall conditions remain above trend and sequential revenue growth was up 1.6% with all markets positive. This seasonal improvement was also in line with our expectations. With that in mind, I'll keep my prepared remarks brief today to allow more time for what's on your mind. A few highlights on our same-store results; second quarter revenue growth was 4.3%. Our top five markets all grew more than 8% again this quarter: Tampa up 9.6%, Orlando up 9.3%, Dallas up 8.6%, San Diego/Inland Empire up 8.1%, and Phoenix up right at 8%. As expected, our two weakest markets were Houston, down 1%, and DC down two-tenths of 1%. Houston's revenue decline of 1% was in line with our expectations, as well as our commentary from last quarter's call. We still expect full-year revenue in Houston to be flat to slightly negative for the full year of 2016. DC's revenue growth was slightly negative primarily as a result of a construction-related issue in one of our large Maryland communities. Excluding that community, DC's revenue growth would have been approximately 50 basis points higher year-to-date or right at seven-tenths growth. We're expecting better performance in the second half of the year and we still forecast full-year revenue growth in the DC metro area in the 1% to 2% range. Rents on new leases and renewals continue to support our outlook for the full-year results. Second quarter new leases were up 2.7% and renewals were up 5.9%. July new leases are running 3.1% up with renewals up 5.6%, and we're sending out our August and September renewal offers at an average increase of 6.3%. Additional operating steps for the quarter continue to support our full-year outlook. Same-store occupancy in the second quarter averaged 95.5% versus 95.4% in the first quarter and 96% in the second quarter last year. July occupancy ticked up to 95.7% versus 96% for the same quarter last year. The net turnover rate for the quarter was down slightly versus last year at 47% year-to-date. Move-outs to home purchases were 15.9% for the quarter with an as-expected seasonal increase from 14.3% in the first quarter. Overall, 2016 move-outs to purchase homes are running 1% above 2015 but still well below the long-term trend. Finally, our risk income for the quarter was 18%, consistent with the 17% to 18% levels we've seen post-recession. Overall, we continue to be pleased with our portfolio's performance. We operate a national platform in 15 markets, and while macroeconomic influences are strong, each market is subject to its own set of factors that can overshadow the big picture. These market-specific factors explain why our two weakest markets, Houston and DC, are underperforming our overall portfolio while five of our markets grew revenues better than 8% this quarter. This reminds us that our diversified national footprint has similarities to a balanced stock portfolio where diversification is the only free lunch. Now, I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith. Before I move on to our financial results, a brief update on our disposition activities. On last quarter's call, we discussed the sale of our Las Vegas portfolio for $630 million and the planned disposition of an additional $400 million to $600 million of operating assets during the third quarter. We have since completed $210 million of these additional dispositions and the midpoint of our third quarter and full-year earnings guidance assumes another $310 million of sales closing during the third quarter, bringing our total expected disposition volume to nearly $1.2 billion for 2016. To date, including Las Vegas, we have sold $840 million of assets at an average AFFO yield of 5% based on trailing 12-month NOI and actual CapEx equating to a nominal NOI cap rate which excludes management fees and CapEx of 6%. Most of these communities were 20 to 30 years old with lower rents and higher CapEx than the rest of our portfolio. However, our most recent sales did include two assets in suburban Maryland which were less than 10 years old. We elected to dispose of these relatively younger assets to both reduce our exposure to their respective sub-markets and to mitigate the additional DC metro NOI exposure that will result from the new development communities which begin leasing in 2017. The additional $310 million of dispositions expected in the third quarter consist of older assets, similar in types to the majority of properties we have sold over the past few years. Since our last call, we have refined our 2016 disposition pool and associated tax planning. We now anticipate a special dividend in the range of $4 to $4.50 per share compared to our prior guidance range of $4.25 to $5.25 per share, and we expect to pay the full dividend amount during the third quarter. Our balance sheet remains strong. We ended the quarter with no balances outstanding on our unsecured line of credit, $342 million of cash on hand, and no debt maturing until May of 2017. After completing the sale of our two Maryland assets earlier this month, our cash balances have grown to approximately $450 million. We do not anticipate prepaying any portion of our current debt. Instead, we plan to use our cash balances and future sale proceeds to fund our development pipeline and return capital to shareholders later this year through the previously mentioned special dividends. Our current development pipeline has approximately $200 million remaining to be spent over the next two years and we are projecting another $100 million to $200 million of developments to begin later this year. Moving on to operating results; for the second quarter, we reported FFO of $105.6 million or $1.15 per share, in line with the midpoint of our prior guidance range for the second quarter of $1.13 to $1.17 per share. Based upon our year-to-date operating performance, we have tightened the ranges for our 2016 full year FFO and same-store guidance leaving the midpoints of guidance unchanged. We currently anticipate 2016 full-year FFO to be between $4.50 and $4.60, same-store revenue growth between 3.85% and 4.35%; expense growth between 3.5% and 4% and NOI growth between 4% and 4.5%. Last night we also provided earnings guidance for the third quarter of 2016. We expect FFO per share for the third quarter to be within the range of $1.07 to $1.11. The midpoint of $1.09 represents a $0.06 decrease from the second quarter of 2016, which is primarily the result of an approximate $0.01 per share increase in same-store NOI due to an estimated 50 basis point increase in sequential NOI as revenue growth from higher rental and fee income during our peak leasing periods more than offsets our expected increase in property expenses due to normal seasonal summer increases in utilities and repair maintenance costs; an approximate $0.01 per share increase in NOI from our five communities in lease-up; and an approximate $0.02 per share increase in FFO from lower overhead costs. This $0.04 per share aggregate improvement in FFO is more than offset by an approximate $0.03 per share decrease in FFO resulting from the April 26 disposition of our Las Vegas portfolio; approximately $0.03 per share decrease in FFO from the $210 million of additional completed dispositions; approximately $0.03 per share decrease in FFO from the $310 million of anticipated additional third-quarter dispositions; and an approximate $0.01 per share decrease in FFO resulting from lower occupancy at our non-same-store student housing community in Corpus Christi, Texas, where occupancy declined significantly from May through August. At this time, we will open the call up to questions.

Thanks. I'm wondering if you can talk more about what you're seeing in Houston right now. You mentioned that's still in line with your expectations of generally flat same-store revenue growth. So what are you seeing there? And then also how do you see that trending going forward? And when do you think we'll actually reach a bottom up for Houston?

We indicated last quarter that we anticipated this would be the first negative revenue report in the second quarter, which aligns with our expectations for this period. In our stabilized portfolio, where occupancy rates have remained relatively stable, we are actively pursuing renewals. Last year, we implemented strategies to stabilize our embedded base, such as extending lease terms and being more proactive in renewals, which has proven beneficial. We've experienced less turnover and the extended lease terms have certainly contributed to a smoother rent roll-down. As we approach August, it appears that these trends are still on track. The stabilized portfolio constitutes one segment, while there is considerably more pressure in the merchant build sector, where efforts are focused on increasing occupancy from 0% to 90%, as opposed to maintaining the current rates of around 94% to 95%. Currently, in the merchant build market, it's common to encounter offers of 6 to 8 weeks of free rent. In the most affected areas, particularly outside the energy corridor, there has been significant supply and weak demand, leading us to observe anecdotal instances of up to three months of free rent, though 6 to 8 weeks is the standard. In our operations, we do not typically offer concessions; we work with net effective rents. As of now, we are performing as expected year-to-date, but we anticipate increasing pressure as more merchant-built properties enter the market. We won't have a clear understanding of when we might hit the bottom until we prepare our bottom-up budgets for 2015. However, as we near the end of the year and finalize budgets for our stabilized portfolio, we will provide additional insights.

I would like to add that supply has effectively ceased in Houston. If you don't currently have a development loan, completing the project is unlikely. The equity requirements and rising costs from lenders due to your capital structures, along with additional technical requirements from banks, mean that construction financing is scarce. If you're not contributing 60% to a deal, you won't secure construction financing. Looking at supply, this year 25,000 units are expected to enter Houston, but I can assure you it will be at least half or possibly less than that. From 2016 to 2018, there is no pipeline at all. If you believe in a recovery in the energy sector, or at least think it has stopped losing jobs, Houston has seen flat job growth. We have been able to create jobs in other sectors while the energy sector is declining. Therefore, 2017 appears to be a promising year in terms of job growth, with fewer energy layoffs, and 2018 will depend significantly on the national economy. The positive aspect is that there will be no supply coming in 2018. It could be that by mid to late 2017 or into 2018, the supply pressure will be alleviated.

Thanks. And then just on the difference between your weighted average monthly rental rate and your weighted average monthly revenue; it was about 100 bips this quarter. I wonder what is driving that if it's still bulk cable and Internet package, and how you expect that spread to trend for the remainder of the year?

Yes, absolutely. So the main driver is exactly right, it is our tech package. What you're seeing year-to-date for the incremental impact is in line with the guidance we gave at the beginning of the year and it's in line with what we expect for the full year, so approximately 100 basis points.

So you'd expect that 100 basis points to hold quarterly through the end of the year?

Correct.

Hi, it's Austin Wurschmidt for Jordan. I was just wondering if you could provide some operating stats for Houston into July, just how things are trending across quarter end.

Yes, so we'll have to grab that for you. I don't have those in front of me. I can tell you that it was pretty consistent as I recall from last quarter: we were down about 2% on new leases, renewals were flat to up 1%, and if you do that math, you end up about down one, which is where we were this quarter. I think that's still consistent with what we're seeing.

Thanks. And then what are you guys assuming in terms of occupancy guidance in the back half of the year? I mean it seems like occupancy is tracking a little bit ahead at this time. Do you kind of expect to hold that level for the rest of the year?

Yes, I think our rolled-up budget for the entire year was about 95.4%. It's about where we are right now. You can expect to see that we should still be in the mid-95%. We've never tried to operate our portfolio at 95.5% or above; it occasionally happens, but our long-term target is 95% to 95.5%, which is consistent with where we've been this year.

And then, so my math is correct, it seems like you'd have to do a little bit over 3.5% in the back half of the year to hit the midpoint in guidance. Is that fair?

Yes.

Thank you for taking the questions.

It has both supply issues and demand; we continue to see decent job growth in all of our markets, we're getting our share of that. Where the deceleration is happening, I do believe it is primarily where you've got assets that are directly competitive with new lease-ups and you've got merchant builders who are always a little bit more aggressive in their pricing than we are on our communities.

That's helpful. And secondly, the two assets you sold after quarter end in the metro DC area; what net impact do you believe that will have on your same-store pool in DC? The subtraction of those assets help or hurt same-store numbers in the near term?

So both of those assets were relatively in line with our DC portfolio, slightly more positive but relatively in line. So the removal of them is not going to have any incremental impact.

Okay, great. Thank you.

Looking at the camp in Chandler, it looks like leasing velocities slowed a bit. Is there anything special going on there?

Yes, it's just one of those relatively large unit accounts where you sort of run into yourself on the lease-up, where you have lease expirations that are happening while you're not yet stabilized. Overall, Phoenix was a great market for us year-to-date, and we think it will continue to be. We'll get there, but it's just one of those phenomena that happens when you sort of run yourself on the lease expirations.

Okay, and now looking at the DC market, it looks like Pentagon City, Crystal City, and then Downtown Logan Circle, the actual metro state is starting to trend higher, and you also have some pretty good employment data on a relative basis coming out of the city. Are you getting more constructive about pushing new lease rates in the second half or maybe early next year?

Yes, you can see our progress in the state and our outlook for DC. We remain confident in our guidance, expecting revenue growth between 1% and 2% for the year. As we reach the end of the second quarter, it suggests we need to achieve significant traction in both new leases and renewals, and we believe we can do that. The fourth quarter looks promising for us, and we still expect to end up within the 1% to 2% range. Initially, we rated the DC market, including Houston, both as C-rated, with DC having a C-plus rating but with a positive outlook. As we approach August, we still maintain this perspective.

And then lastly on Houston, we think we're getting a little bit of bottoming out in the rig count. Are any of your contacts on the E&P executive side becoming more constructive or is it just more of a bottoming out process going on?

Definitely, the CEOs are more constructive about the bottoming happening. It's one of the big suppliers; after they've announced their earnings, they talked about the bottoming. At the same time, we also said they were laying off another 5,000 people worldwide. What is happening is that the energy complex is feeling better about the world with oil prices up from their bottom at the beginning of the year. Part of the equation is that they don't want to do what they generally do during big downturns like this, which is cut so far to the bone that it really takes them a long time to get back. I had a conversation a few weeks ago with the CEO of Shell and he expressed that sort of fear to me, which is that they don't want to overdo it like they always do, and all of a sudden oil gets back to $60, $70 a barrel and they don't have any employees to get the job done. I think there is a certain amount of expectation that oil has bottomed. People are cautiously optimistic, and you have seen the rig count go up. The question of what happens long term to oil is really the key, but at least these folks are a little more constructive today.

Great, thanks for taking the question.

Thank you. Can you share the individual nominal cap rates on the Tampa and two suburban Maryland dispositions?

Sure. The FFO cap rate on the Tampa asset was just slightly north of six and it was the same for the two Maryland assets, slightly less but in that range. That's on an FFO basis; if you go to an AFFO, the Tampa deal was right at five, and the other two Maryland deals, obviously our newer assets with slightly lower CapEx, so their AFFO yields were sort of in the 5.5 range.

Great, thanks. And that's on in-place for forward NOI?

That's trailing.

That's trailing.

That also doesn't include management fees or property tax increases or those kinds of things. Generally, you will take off about 75 basis points from these numbers.

Great. And then how do these cap rates and the cap rates on your incremental $300 million in dispositions compare to your initial expectations?

They are right in line. We've had some ups and downs, but not much, and it was all marginally right in line with what we expected.

Okay, last one for me. Do you anticipate purchasing any more land in 2016?

We do have a land site in Denver in the Rhino neighborhood that we will likely acquire between now and the end of the year. When you look at our development pipeline, if you assume about $200 million start per year, we're out of land in 2018. If we are going to keep the development pipeline at least in a position where we can start projects in the future, we will have to start looking at new land. One of the things I think will be really interesting is with all the pressure on merchant builders from a financing perspective and construction cost perspective, we think there may be some interesting opportunities to pick up land transactions that developers have either already done plans on and aren't able to finance. We may end up picking up some bargains in that area in the future. That's an area that could be really interesting.

Okay, thank you.

Thanks, good morning everyone. So Rick or Keith or anyone; one of you can kind of maybe wax poetic a little bit about M&A or privatizations in this environment. It seems to me with kind of the latter in the real estate cycle, decelerating growth, capital available or debt being cheap to financially worthy entities, and still exceptionally low cap rates and high property values attributed not just to your space but to a lot of spaces. Is this not like a perfect time to see more, an acceleration of reprivatization as sellers, whoever that may be, feel like they're getting full value?

Let me start by addressing M&A. In my opinion, M&A is more of a social issue than a financial one. Companies typically consider selling for personal reasons, such as wanting to retire or feeling they can't create long-term value, which is something most management teams believe they can do. While there are fewer targets available due to many recent acquisitions, the topic of going private is a classic discussion point. Our goal is to maximize returns for our shareholders over the long term, and we will always invest in real estate. If we ever felt we were unable to provide strong returns, going private might be an option, but we prefer to maximize value for our shareholders, including our management team. I recall during the downturn, speaking with big banks about their underwater construction loans. When I proposed purchasing a billion dollars’ worth, they questioned the returns I aimed for, and I explained I was targeting a mid-teens return if foreclosure was necessary. They replied they could still achieve a 15% return without selling to me. Nowadays, private investors also have to meet return requirements for their shareholders. So why would we give them potential upside when we can create that value over time ourselves? Just because selling at a high price is possible doesn’t guarantee long-term value creation.

Rich, I would add that having been in this industry for a long time, you are well aware that in our 23 years as a public company, we have experienced four different cycles where sometimes public companies thrive and other times private companies do. For the past five to six years, the advantage has leaned heavily towards private companies with their access to inexpensive debt and high leverage. Eventually, this dynamic will shift, and we believe we might be seeing the initial signs of that change. The next phase of the cycle is likely to favor public companies. From a broader perspective, now might not be the best time to switch. If we're considering performance over the next five years and how this cycle evolves, public companies are likely to have the upper hand compared to private companies. The exact trigger for this shift is uncertain, but currently, everyone recognizes the change in capital access for private versus public players, influenced by regulatory requirements or restrictions on construction lending in the private sector, where their competition is limited to developmental projects. If conditions change and financing becomes more expensive and challenging, private companies will find themselves at a disadvantage once again. This shift will occur; it's just a matter of when and what will instigate it.

So related to that, Rick, at the very beginning you said that you think you'll have above-average growth for at least the next few years, I think that's what you said. What gives you comfort that you're not kind of trending more quickly to a kind of CPI-based growth rate given all the moving parts? And second, what's the time horizon for you to belong to the publicly traded model? If you saw that math being more like a year or if this was it, would you be more inclined to be a seller today?

I think that when you think about our above-average growth, we're talking about above-average growth, and average growth will be defined as 3% NOI growth over a long period. That's how multifamily generally is delivered over a 20-year period, obviously with peaks in values. The reason I think we're going to be above growth, above trend growth, top line and bottom line for the next couple of years is all the macro things that are going on in multifamily are all good. You have the baby boom echo, that's still big, that are big renters; you've got the single-family homes that have yet to take off and really do well relative to historic measures. It's still hard to get a loan for first-time homebuyers, the homeownership rate continues to be very low and is falling. Multifamily is still in the sweet spot. The pressure you have on slowing rents today I think is generally supply-driven in all the markets. We have built enough to take the white-hot growth off of the market; now it's just above-average growth. It's not as strong as it was, but I think it's going to be higher than average because of all these other factors. Then we can start bringing in the more restrictive financing situation for builders and construction costs increasing, you'll see a flattening or decline of starts. With that said, I think we have a few years prior to a U.S. recession or something that could change the dynamics. We're going to have a very constructive multifamily market over the next couple years. In terms of if we thought that the world was coming to an end and we had perfect knowledge of a financial crisis or something like that, maybe we could sell, but I don't have that kind of knowledge. I just know we have a lot of Camden employees who are out there trying to create a lot of value for their shareholders and we're in a constructive multifamily environment, so I don't feel we need to even think about that. I will tell you if you go back in history in our 23-year history back in the mid-90s to late-90s, when everybody was buying tech stocks and multifamily was all the rich were thrown to the wayside, we ended up buying 16% of the company back through stock buybacks; I remember having the conversation then saying, look, if you remodeled is broken, I'm always going to trade at 20% to my net asset value. I'm going to buy the company back and go private or sell it to somebody who will pay me a premium to get that NAV. Over time, you do have points in time where you have disconnect, but generally speaking, it doesn't last forever, and you get back to more rational positions.

The bottom line is that you have to think about M&A and privatization more generally than the hype that often comes out of it. Manage your business through cycles with a focus on long-term performance and value creation. And while there are definitely periods when private operations can seem more attractive, valuations must always matter and good operators will work to thrive in public markets as well. In times of uncertainty, the strongest companies typically have the best inherited long-term legacies.

Good stuff, Thanks.

Thank you for taking my questions. First, I've noticed that your year-over-year occupancy comparisons seem to show a higher number of slightly negative results than in previous quarters. I'm curious if this indicates that you might be pushing rent a bit more than what the market can bear. As you look ahead to the next few years, how do you see the interplay between occupancy and rent in your portfolio?

The balance that we try to maintain is at 95% to 95.5%. It doesn't mean that we're always in that band. Last year we were above that band, which is a little unusual for us. I think what's happened is that there are two things that have happened to the portfolio-wide occupancy rate. One is, Houston has had additional softness and as we expected, I think we're worried about being at 93% occupied in Houston while the overall portfolio is still above 95%. That's 12% of our NOI coming from Houston; 2% matters around the edges. The other thing is that in DC, we've continued to try to trade off between rental rates and occupancy rates. Last year we were much higher than our normal trend on occupancy rates. We're back closer to what we view as more of a normal occupancy rate for DC in our overall portfolio, but it's never been our objective to try to say let's operate at the highest possible occupancy that we can. Obviously, you can do that; the lever is pricing. We use a yield star; we have a group in Houston with five people that manage that process full-time, and we have great visibility into the push and pull of rental rates versus occupancy rates. We do a lot of toggling; we do a lot of tweaking. It's not autopilot; there is a ton of judgment and experience that goes into pulling those levers, and we think we're about where we need to be. Other than Houston and DC, I don't see anything in our occupancy rates across our portfolio that gives me any pause whatsoever that we're not maximizing pricing and occupancy.

That's very helpful. And then just a couple quick ones; can you talk at all about the single-family rental market in Houston? How much competition is that relative to some of your other markets? I get a sense that the rents are cohort since you say that is generally younger, in those first two or four years out of college as opposed to maybe late 20s or early 30s relative to some of your other markets. Just wondering if you have any contacts or color you can shed on that?

Sure. You made a great point regarding demographics. From a rental standpoint, single-family rentals aren't significant competition for us; we have a small number of people relocating to rental homes, which is quite minor in the grand scheme. This is partly because the single-family rental market is primarily in the suburbs where the homes are considerably larger in terms of square footage compared to apartments. They also offer fewer amenities, and the decision to either purchase or rent a home often depends on demographic factors like age, household size, and children. I believe the greater competition actually comes from people moving out to purchase homes. On average, I think Keith has those numbers.

Yes, we're about 16% of our total move-outs in Houston were to purchase homes, which is a little bit higher than our portfolio average, but that number two years ago in Houston would have probably been 17%, 18%. It is, as Rick said, we do lose more people at 16%. If you look at the percentages that give us as a reason they moved out to rent a home, that number is in the 2% to 3% range versus purchasing a home at 16%. It is out there; it shows up on our reasons to move out in every market that we're in, but nowhere is it more than 2% or 3%.

I think I've said this bunch of times and people kind of look at me funny when I say this. I think that if single-family home move-out rates, right now it's around 14%; for the year I think it was 15% and some change for the quarter. If it goes back to its normal average over a long period of time, which is 18%, I think we have another leg up in the multifamily business because what's happening right now is that there are not enough single-family homes being built. The start of the market is pretty abysmal out there. If you had starts in the millions, you would have better job growth, better GDP growth and would then be in a position where we could have more people moving in the front door than moving out the back door to buy a house. The whole housing issue is interesting, and ultimately, the housing market is still trying to recover from the debacle in 2008 and 2009.

That's really interesting, I appreciate that insight. Just one final one for me, and I'm serious on this; both from the perspective of jobs and from the perspective of the renter psyche; which is more influential right now in Houston, the raw oil price or oil volatility?

I don't think either one is key. Think about Houston; it's 6.5 million people; it's the fourth largest city in the country, and there are 3 million jobs that exist there today. If you go back to 2014, there were 120,000 jobs; 2015 there were 20,000, and in 2016 it's going to be flat or maybe 2,000 or 3,000. So there are 3 million people working, 6.5 million people living there, and there is a certain amount of inertia that happens in that economy. The bad news about oil and energy laps, nobody gets. The 3 million people that are working are still working to get paychecks, paying rent, and doing what they do. I think as oil prices stabilize, it’s the psyche of senior executives that are going to hire people more so than the day-to-day spot price of a barrel of crude oil.

If you are not directly in the oil business, it's sort of background noise. If you are directly in the oil business, it's more likely that you determine your psyche based on the activity level rather than the price of oil. The question of the rig count is really what's critical because there is substantial evidence that about two months ago we hit the low point on active rigs. In the last four weeks, there have been small additions to the rig count. Now four weeks is not a trend, but I think that most people view that as a signal that the worst may be in the past for activity levels in Houston.

All right guys, really appreciate it.

Absolutely.

Thank you. We appreciate your time today, and we'll see you in the fall. Thank you.