Camden Property Trust (CPT) — Q3 2017 Earnings Call Transcript

Good morning and thank you for joining Camden's third quarter 2017 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 2017 earnings release is available in the Investor 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 be brief with our prepared remarks and try to 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 email after the call concludes. At this time, I'll turn the call over to Ric Campo.

Thanks, Kim. Between hurricanes Harvey and Irma, Camden communities in nine of our 15 markets sustained some damage. For four days of Harvey, we were riding out the storm in Texas and wondering who would stop the rain. Just when we could say, I made it through the rain, Irma came along to remind us that when it comes to mother nature, we are all just riders on the storm. I want to thank all of our Camden team members who helped our customers, coworkers and neighbors make it through the storms. Our commitment to improving the lives of our customers, team members and shareholders one experience at a time was on full display during and after the storm. Despite the vast destruction of homes in Houston, the storm brought our community together. Camden and other apartment operators had apartment homes ready for displaced people to move into. Many apartment owners followed our lead by freezing rents to pre-Harvey levels, waiving moving fees and other expenses. Occupancy levels at our Houston communities increased from 93.5% before the storm to 97.6% today. These occupancy levels should be maintained throughout the fourth quarter and into next year. Apartment fundamentals continued to be good across our markets. Demand is strong driven by job growth and favorable demographics in rental markets. Revenue continues to slow as supplies are absorbed. We expect supply to peak this year in most of our markets. During the quarter, we finished the lease up on Camden Victory Park in Dallas, completed construction on Camden Lincoln Station, and started construction in Camden RiNo, both in Denver. Our development pipeline continues to add significant long-term value to Camden. We took advantage of the strong market conditions and issued $445 million in equity during the quarter. The equity offering was all about growth. Last year we saw $1.2 billion of non-core properties sold at attractive prices, which improved the quality of our portfolio. We're going to use the equity to fund our developments and acquire properties while seeking to keep our balance sheet strong. At this point in the real estate cycle, we expect to see attractive acquisition opportunities as merchant builders move to sell their completed developments.

Thanks, Ric. We're really pleased with our third quarter results, despite all the disruption caused by the two storms. Our teams managed to get back to business as usual more quickly than we thought possible. They focused on helping each other, our residents, and our neighbors return to normal. Alex is going to walk you through the details of the financial impact of the hurricane on our results. It's fair to say that from our perspective when you adjust our results for the impact of the storms, we had a very solid third quarter, which should carry over into the fourth quarter. In terms of our same-store performance, revenue growth was 2.5% for the third quarter and 1.1% sequentially. Year-to-date, the third quarter was 2.8% and we expect full year 2017 to be around 2.9%, primarily due to the recent occupancy gains in Houston. Most of our markets had revenue growths in the 3% to 5% range in this quarter, led by Atlanta at 5.1%, Orange County at 4.8%, Denver at 4.7%, San Diego at 4.6% and Orlando at 4.5%. As expected, and as we discussed on our last conference call, we saw relatively weaker revenue growth this quarter in Austin at 2.1%, Charlotte at 2% even, and South Florida at 1.3%. Houston remained negative, with a 3.1% decline for the quarter, but we expect to see significant improvement in the fourth quarter in Houston, as occupancy has been trending over 97% for the month of October. During the third quarter, new leases were up 1.3% and renewals up 4.8% for a blending growth rate of 2.7. So far in October, it is trending three tenths of a percent up for new leases and up 4.6% on renewals, which is slightly better than what we achieved last October. November and December renewal offers were sent out at an average increase of 5%. Occupancy averaged 95.9% in the third quarter of '17, versus 95.8% in the third quarter of last year and 95.4% in the second quarter of this year. So far occupancy is trending at 96% versus 95% last October. Net turnover rates remain slightly below the levels that we saw last year with third quarter '17 net turnover rates of 55% versus 57% last year and year-to-date 49% versus 51% last year. Move-outs to home purchases were 14.6% in the third quarter versus 15.6% last quarter and 14.7% in the third quarter of '16. The top reason for residents moving out remains relocation, that is moving out of the city or state or across submarkets at 35%. Obviously, Houston has been on no one's radar screen this year, particularly after the impact of Hurricane Harvey. As mentioned earlier, we saw a significant increase in occupancy rates going from 93.5% pre-hurricane to over 97% now, and we expect occupancy to remain elevated during the fourth quarter and into 2018. New leases in Houston started the year at a negative 8% in the first quarter that improved to negative 4% to 5% during our peak leasing season. As Ric mentioned, we rose pricing for the month of September, but are now seeing leases signed in the negative down 1% to 2% range with renewals up in 1% to 2% range. We currently have a very limited inventory of apartments available to lease, and we're entering the traditionally slower time of the year for traffic, so the main driver of same-store revenue growth this quarter should be occupancy rather than rates. We will provide more color on our 2018 Houston outlook in conjunction with our fourth quarter 2017 earnings release and 2018 guidance release scheduled for early February. At this time, I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activities. During the third quarter, we reached stabilization at Camden Victory Park, an $85 million development in Dallas, completed construction at Camden Lincoln Station, a $56 million development, and started construction at Camden RiNo, a $75 million development both in Denver. Additionally, as a result of Hurricane Harvey, we extended the anticipated sales date for Camden Miramar, our only student housing community from October 1 to December 1. Closing of this sale is not guaranteed and is subject to, among other items, the satisfactory due diligence and financing by the purchaser. As I will discuss later, we have included the impact of this delayed sale in the midpoint of our revised earnings guidance. On the financing side, during the third quarter, we completed a public offering of 4.750 million shares at a net price of $93.18, generating net proceeds of $443 million and issued approximately $2 million of additional shares through our ATM program. We intend to use the net proceeds for general corporate purposes including financing for acquisitions and funding for development activities. Our current $660 million development pipeline has approximately $200 million remaining to be spent over the next two and a half years, and we are projecting another $125 million of development to begin construction before year end. We anticipate being more active on the acquisition front targeting recently developed, well-located assets in our existing markets. We ended the quarter with no balances outstanding on our unsecured line of credit, $350 million of cash on hand, and no debt maturing until October of 2018. Our current cash balance is approximately $300 million. As a result of our equity issuance, the midpoint of our current earnings guidance no longer assumes an unsecured bond transaction in the fourth quarter of 2017. Moving on to financial results, last night, we reported funds from operations for the third quarter of 2017 of $103 million or $1.11 per share. Included in these results were approximately $5 million or $5.5 of hurricane related expenses as a result of Hurricane Harvey and Irma. In August 2017, Hurricane Harvey impacted certain multifamily communities within our Texas portfolio. In September 2017, Hurricane Irma impacted our multifamily communities throughout the State of Florida and in the Atlanta, Georgia, and Charlotte, North Carolina areas. Our wholly-owned multifamily communities impacted by these hurricanes incurred approximately $3.9 million of expenses with no insurance recoveries anticipated. Accordingly, our operating results for the third quarter included a corresponding charge in property operating and maintenance expense to reflect these hurricane damages. These expenses have been excluded from our same-store results. We also incurred approximately $700,000 in other storm-related expenses related to these hurricanes, which are recorded in general administrative expenses. Additionally, we recognized our ownership interest in hurricane-related expenses incurred by the multifamily communities of consolidated joint ventures of approximately $400,000 which is recorded in equity and income in joint ventures. Excluding these non-recurring storm-related charges, our third quarter of 2017 FFO per share would have been $1.16 in line with the midpoint of our prior guidance range of $1.14 to $1.18 per share. Contained within the $1.16 per share of FFO, which excludes storm-related expenses, were $0.005 and higher than anticipated net operating income from our development and non-same-store communities resulting primarily from each of our development communities leasing ahead of schedule and $0.005 from a combination of lower than anticipated overhead costs due to the timing of certain corporate-related expenditures, higher interest income on investment cash balances, and lower interest expense due to the lower line of credit balances. This $0.01 improvement was entirely offset by the impact of a higher than anticipated share count as a result of our 4.750 million share equity offering which closed on September 14. Our same-store operating results were in line with expectations for the third quarter as the increased occupancy in Houston did not occur until late in the quarter. We've updated and revised our 2017 full-year same-store and FFO guidance based upon our year-to-date operating performance and our expectations for the fourth quarter. Entirely as a result of increased levels of occupancy throughout our Houston portfolio, we've increased the midpoint of our full-year revenue growth by 10 basis points from 2.8% to 2.9% and tightened the range from 2.8% to 3%. As Keith mentioned, we are currently over 97% occupied in Houston, up from 92.3% for the fourth quarter of last year. As a result of anticipated general expense savings for the fourth quarter, we have reduced the midpoint of our same-store expense guidance by 5 basis points from 4.1% to 4.05% and tightened the range to 3.95% to 4.15%. As a result of our revenue and expense guidance adjustments, we've increased our 2017 same-store NOI guidance by 25 basis points at the midpoint to 2.25% and tightened the range to 2.1% to 2.4%. Last night, we also adjusted and tightened the range for a full-year 2017 FFO per share. Our new range is $4.51 to $4.55 with a midpoint of $4.53. This new midpoint represents a $0.04 per share reduction from our prior midpoint of $4.57; this $0.04 per share reduction is the result of the $0.055 of hurricane-related expenses recognized in the third quarter and a $0.06 per share full-year impact from additional shares outstanding as a result of our recent equity offering. This $0.115 combined reduction is partially offset by a $0.015 per share increase from our 25 basis-point increase in same-store net operating income, a $0.02 per share increase from the previously mentioned delayed disposition of our Camden Miramar Student Housing Project in Corpus Christi, Texas, a $0.025 per share increase due to lower interest expense, primarily as a result of the removal of the planned $300 million bond transaction originally planned for late October, combined with lower line of credit balances as a result of the equity offering, a $0.01 per share increase primarily due to higher interest income earned on invested cash balances as a result of the equity offering and a $0.005 in higher net operating income from our development and non-same-store communities which we recognized in the third quarter. Last night, we also provided earnings guidance for the fourth quarter of 2017. We expect FFO per share for the fourth quarter to be within the range of $1.16 to $1.20. The midpoint of $1.18 represents a $0.07 per share increase from our $1.11 reported in the third quarter of 2017. This increase is primarily the result of a $0.055 share decrease in hurricane-related expenses, a $0.04 per share or approximately 3% expected sequential increase in same-store NOI, driven primarily by our 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. In the fourth quarter, we anticipate approximately $1 million of prior-year property tax refunds resulting from our successful property tax appeals, primarily in Houston, a $0.015 per share increase from our non-same-store and development communities, primarily driven by the normal third quarter to fourth quarter seasonal increase in revenue from our Camden Miramar Student Housing Community, partially offset by the planned December 1 disposition of this community and an approximately $0.01 per share increase from a combination of lower interest expense and higher interest income as a result of lower debt outstanding and higher cash balances. This $0.12 per share net increase in FFO will be partially offset by a sequential $0.05 fourth quarter impact from the 4.750 million shares issued late in the third quarter. Our fourth quarter guidance assumes no acquisitions are closed by year-end. At this time, we will open the call to questions.

Thanks. You mentioned you'd be more active on acquisitions using the proceeds from the equity deal, so in which markets have you seen the most opportunities today, and how are cap rates trending?

Sure. We definitely are focused on acquisitions with the current strength of our balance sheet. Most of the markets that we operate in have pretty good opportunities; what we are really looking for are Merchant Builders products where we can buy at a discount to replacement cost. Cap rates are definitely very sticky on the low end; to give you an example, in June, we bought Camden Buckhead Square; it was a 12% discount to current replacement cost, and it was about a 4.5% cap rate in a sort of four to twelve-month period. We don't see cap rates moving at all, if not going down; you just see a significant amount of capital that still is trying to find a home in multifamily.

And if these deals start to materialize, are you expecting them to going forward?

Absolutely. I think that when you think about the Merchant Builder model, they have a meter on the equity, and in order to meet their internal return hurdles, they need to sell their assets. In addition, in order to reload their capacity to do new transactions, they need to sell those assets as well, so I think we will have a healthy Merchant Builder pipeline. We have seen some already this year, but I think next year is going to show a big increase in that pipeline.

Thank you. Do you want to use all of your own capital for that or would you consider partnering? The biggest question is how large is the pipeline, how big is this opportunity, how much is in the hopper today, and are you going to use all of your own capital, or if the opportunities are significant, do you plan to use joint venture capital to finance it?

Sure. We tend to avoid using our own capital. We do have a remaining balance from the fund with Texas Teachers, so the bottom line is we have a capacity to keep a moderate debt to EBITDA number of over a billion dollars to acquire, so we will not create any additional joint ventures other than our current relationship with Texas Teachers; we just think it makes more sense to own 100% of the assets or be in the joint venture that we already have, but not create any new joint ventures at all. We found during the last downturn that deep pocket joint venture partners don't always contribute during tough times, and so we want to keep our balance sheet clean and very simple to understand.

Nick, we're focused also on markets where there's an oversupply condition that is either ongoing right now or it's already coming into focus or we expect to see it in 2018. Obviously, those markets are Charlotte, and at some point Houston, Dallas, Austin, and Orlando, and so it's really a matter of looking at individual submarkets. To Ric's point about the capacity and the use of our own capital, obviously, some of those markets I just mentioned, Houston being a good example, we're at a point from Camden's overall exposure in the Houston market; long-term, we would want to add a little net exposure in Houston, so the opportunity would be finding really attractive assets that we could partner with on an 80/20 basis with Texas Teachers without increasing our exposure significantly, but taking advantage of the investment opportunities that we think are coming.

Thanks.

Good afternoon, guys. First question on Houston, can you give us a sense of the composition of new leases signed after the hurricane? How many of those were short duration leases versus traditional year-long leases, and then, where do you see market rents today versus where your portfolio is positioned? Just so we sort of have an idea of what's left in the tank, so to speak.

Yeah, so we obviously had a pretty big component in the weeks and days immediately after the storm; we did accommodate short-term leases. The reality is that we just didn't have all that many apartments to lease because we were going into the storm at around 94% occupancy, so we did accommodate that although we were cautious and were trying to inform people that the magnitude of this storm, if you had flood damage in your home, three months is just not realistic. As it turns out, our advice was sound and well-reasoned because I think most people have had water damage in their homes and have had to go through the process of approvals and then ultimately finding a contractor and getting the work done. I think they are coming to the realization now that it's going to be more likely six to nine months before they can actually get everything put back together and get back in their home and have the work completed, so we did these short-term leases. It didn't have a huge impact on the overall length of our lease terms in Houston; we've accommodated the people who did the original short-term leases and have allowed them to extend if they want to on a three or six-month lease, but most new residents now that are coming in were not impacted by the storm; those people already found a permanent housing solution, so it really isn't a big issue within our portfolios, just a pretty small number.

That's great color. Thanks for that. My second question here since I've got two. I wanted to go back to Ric's prepared comments on supply peaking in 2017 in Camden's market. I think it depends on the source one consults for this sort of thing, but we sort of see it as an '18 event in many of the Sundown markets and I'm just curious if that commentary is on submarkets specifically or is there something else? Just different data sources in your view.

The different data sources we used - two different data sources for the multifamily completions. If you look at Witten's numbers, he has supply peaking in 2017 at about 139,000 apartments across Camden's footprint, and he has 2018 at about 137,000, so, yes, it's peaking, but on his metrics, there is still a lot of supply that is coming in 2018. The wild card there on the data providers is how much of that - we still have yet to determine how much of the '17 originally scheduled completions get rolled over into 2018 because some people are having trouble completing their jobs due to labor shortages. If you look at Axiometrics' numbers, they have a much clearer view of a peak in 2017. They have 162,000 apartments being delivered and if you roll that over into 2018, their numbers show 136,000, and if you go out to '19, their number falls under 100,000. Witten's number looks like it's a little smoother than Axiometrics'. I think the difference is probably in how they're handling the shifting of projected deliveries between '17 and '18.

Thanks for the color, Ric.

Hi, thanks for your time. Just following up on Richard's question on supply, could you give your views on maybe the top five or six markets you see, maybe not Houston; we know that LA, Atlanta, South Florida, Dallas, where you expect supply to be in '18 versus '17?

Sure. The Dallas '17 completions, we have at 22,000 apartments rolling over to 19,000 in 2018. Houston, we have at 15,000 apartments in '17 and that drops to about 6,000 apartments in '18. LA 14,000 apartments in '17, stays pretty flat in '18; and another 14,000 apartments between Miami and Fort Lauderdale, you add those together and what we call our Southeast Florida Market, that's 10,000 apartments this year and that rolls down to about 6,000 next year. By the way, I'm giving you Witten's numbers, not Axiometrics numbers, which is the data provider that we put a little bit more emphasis on in terms of the market. Washington DC has 9,000 apartments, which goes to about 10,000 apartments in 2018.

Maybe Atlanta?

Atlanta has 11,400 apartments, going to 11,200 in '18, so basically flat year-over-year.

Okay, and then just on maybe Dallas and Atlanta, both kind of higher supply markets, what are you seeing on the concession front? Any spike? One of your peers talked about particularly in Uptown Dallas with some higher concession levels recently. If you could just give me your sense of what you're experiencing in your specifics of markets.

I think when you think about concessions, merchant builders are very rational players; when they have empty buildings, they rush to the door to get as much free rent as they can to grab market share. The worst thing you can do as a merchant builder during a concessionary period is to be the last one to offer the biggest concession, and so in certain submarkets you are seeing one to two months of free rent; we haven't seen three months, but generally it's one to two months in some of the markets that are leasing up substantial numbers of units. In Dallas, we are fairly insulated with some of our properties because we have a fair amount of last-cycle, BB plus properties as opposed to direct competition with new developments. Yes, in Dallas, I can't speak for anybody else's results, but in Dallas and Atlanta, we certainly see a small amount of deceleration between the third quarter and fourth quarter, but you're talking 30 basis points plus or minus between those two markets. We're not seeing that kind of impact and it could be supply and could be submarket-driven, depending on where somebody else's assets are located, but we clearly have not seen that so far this year and we're not forecasting that in the fourth quarter.

Thank you.

Hi, good morning, thanks for taking the question. Just wanted to touch on supply a little bit again, and when you look at some of these markets that are a little bit flatter in terms of supply, any of that you think could be at risk of turning negative in 2018?

No. I think that when you think about the markets that have supplies, they are also the markets that have the jobs, and if the supply in most of these markets is constrained, Dallas is just performing exceptionally well in terms of job growth, Atlanta the same thing. Are you saying you think you’re going to have negative revenue growth in '18 in these markets?

Any specific markets, like in Austin or Dallas?

No. We don't think so, but we're obviously not prepared to give guidance at this point.

So we are not specific enough; we haven't gotten there yet. But I can tell you based on Ron Witten's work for the 2018 forecast across Camden's platform, he's actually got revenues reaccelerating into 2018 relative to 2017. I'm glancing over the numbers; I don't see anything below a 2.5% revenue number on Witten's numbers and that's not our numbers, but that's just a data point for you. He actually sees a big turnaround in Houston from a negative number in '17 to what would probably be a solid positive number in 2018, so we don’t see it and certainly Ron Witten does not see it in the work that he does.

Yeah, that's helpful. Thanks for the color, Keith, and then my second question was hoping that you could just give us your thinking on getting more offensive on the investment side at this point in the cycle. Maybe a little bit more color as to the number of units that you're underwriting today, are they mostly one-offs or are you sensing some portfolio opportunities out there?

So, the reason that we're getting more constructive about buying today is because the type of property that's out there in the marketplace is merchant-builder very high-quality property, which hasn't been available in terms of being able to buy. If you look at the investor appetite today, value-add properties have the highest bid; 20-plus bidders on every property. As we start getting into merchant-builder product, that is definitely being impacted by supply, with free rent embedded in the portfolios, there are just fewer buyers for those, and so we like to play in that space. There's no question about that. We have a long list of pipeline. I mean, you're always looking at properties even when we're not majorly on the offensive acquisition-wise. We always have several billion dollars worth of property that we are underwriting. In terms of portfolios, there are few portfolios out there and we look at those as well; the challenge there is generally a portfolio may have kind of cats and dogs, and we are more oriented in taking specific rifle shots for submarkets that we really like. If there's a portfolio that has more of what we like and less of what we don't like, then we'll definitely take a look at that. We clearly have done portfolios in the past and they've worked out pretty well, but I think there's a combination of one-offs and portfolios out there, and there's no shortage of product.

So just to follow-up, is it fair to assume that given the quality of product in some of these newer developments or even lease-up deals, the initial accretion could be limited out of the gate?

Yeah, absolutely. I think if you look at what we did at Camden Buckhead Square, you know the 12-month forward cap rate we think is 4.5, but that means you start out probably slightly less than that, and you have to then move it up with concessions baked in, but when you think about being able to buy at replacement cost in all high-quality markets with embedded concessions, you're starting out at a lower number than you would otherwise like. But that's part of the underwriting mechanism you need to do. Now, over time, your unleveraged IR is really good, but you do have to suffer through a lower cash flow return initially.

Thank you.

Good morning down there. Two questions. First, I think it was something like 46,000 vacant apartments or something of that sort before the storm. Can you just give us an update on where the broader Houston market stands right now; you guys spoke about your occupancy, but as far as the competitive set, can you just give us some color there?

Sure, so the market, just to put in perspective for folks, is 638,000 apartments in Houston. It's a very, very big market and the region, by the way, is 1,700 square miles, so it's not like ones are across the street from another, right? There were about 16,000 units plus or minus that were actually taken out of the inventory, so that increased the occupancy rate a little bit, and the overall market occupancy rate, if you take the entire market, was somewhere in the high 80s percent and it went up to the low 90s, maybe a 150 to 200 basis points up. But I think we have to be very careful with these broad numbers because when you take sort of the A, B, C, D level properties, if the A properties that are under construction probably have the most vacancy, and then there's a lot of older properties that probably have pretty low occupancies as well. If you go to the pockets where there was disruption for the single-family homes, there are about five or six areas where the homes were really affected, and in those areas, the occupancy has gone from low 90s to high 90s. There's really no inventory in those markets, and where you see the vacancy, it tends to be in the urban core interestingly enough. The downtown area, River Oaks, West University did not flood as much from a residential perspective. This flood was a residential flood; it wasn't a commercial flood. All the businesses got back into business really quickly and those residents went to places that were merely close to their home and their work, and not necessarily towards say new downtown properties. Even though they all got a lift, the Westside, Eastside, Northside got a bigger lift than the areas that didn't flood.

Okay, so, and then just going to the - you said that all of the home repair people, the people who were flooded out of their homes, that traffic all came and now the tenants that you're seeing are more regular tenants. But you're saying that the portfolio should do well or Ron Witten is saying the portfolio should do well next year, so is the demand for apartments now being driven by people coming to Houston to help rebuild? Why is the overall market suddenly going to do better if the immediate demand for displaced people has already been satisfied?

So, Alex, if you look at Witten's work, he has total job growth in 2018 in Houston at about 79,000 jobs, and then he has deliveries of new apartments in Houston at about 7,000. So that's a better than 10:1 ratio of jobs to new apartments. Now he has a lower number for 2017 job growth than what we've been using, so there may again be these different data sources giving you different results. But directionally, he's got a much bigger job growth number than what the Greater Houston partnership is carrying. Some of it is just a mismatch between '17 and '18 growth, but even if you put the two together, we are looking at pretty decent job growth next year for Houston, a real rebound. And in terms of new deliveries, it's going to be pretty limited; we've pretty much run the course on those apartments. What happened in the flood event is that you pulled forward a ton of demands that probably would have naturally occurred over 2018 into the third and fourth quarters of 2017, and I think the other thing is that people who were here or in apartments because they were affected by the flood, it's going to take longer than they imagined. So you're probably going to get a continued effect of the carryover of the flood victims, but you're also going to get a fair amount of new job growth in Houston next year.

I think the key is to make sure when you think about the flood folks that thought initially they'd be able to get their houses fixed in three months; it's more likely to be six or nine months. But those are folks that have means; those are folks that have insurance. And 80% of the people that were flooded didn't have insurance. When you look at the overall impact of a storm like Harvey, it's going to last not just nine months or six months, but really two or three years of pressure on housing because of all the complicated pieces of the equation, how much government funds come in and what they do to deal with some of the flood mitigation issues. Most people think it's going to boost job growth above what normally would have been by at least 5,000 to 10,000 jobs just because of the fixing of the infrastructure and the homes over the next couple of years. So you really did pull the demand forward, but you also added demand to what was already thought to be a recovery market in 2018.

Okay. Thank you.

Hi, just turning to DC. Just have a question on same-store revenue growth if you can comment on that by submarket.

We can get you our submarket stats, and we will send them to you offline.

Is there any submarket that you're still kind of worried about supply for '18?

We are worried about supply generally in DC because we've got probably another 10,000 apartments that are going to be delivered next year, which is roughly what we got this year. So it's not like we're going to get a big relief on the supply side of things. But we do forecast next year job growth at about what it was this year. It was somewhere around 50,000 to 60,000 jobs, so as long as those numbers are okay, if 10,000 apartments get 50,000 jobs, that's pretty close to equilibrium. The real question for operators is where that supply is being delivered, and so far, the footprint of our portfolio has fared better than most, and as we talked about last call, we've thought that has to do with our geography within the DC Metro. Northern Virginia has held up really well, and Maryland's held up really well. We are just about to complete a lease up in the DC Metro area, if not in the district, and it's gone extremely well for us. So first and second quarter in DC were actually better than our original expectations. We think that for the year we end up somewhere around 3% revenue growth in DC, and if you go back to what our guidance was, we had DC rated B-rated market and it’s improving, and that's kind of what we've seen this year. I think it can roll forward into 2018; it looks a lot like 2017; if we get the job growth as projected and we absorb another 10,000 apartments. The pressure really comes from where those 10,000 apartments are being delivered.

Thanks, and just my second question, on Houston, your Camden downtown project, what conditions do you need to start construction there, and when could that potentially happen?

What was interesting about that project is we announced it before Harvey and we were going down the trial trying to start it by the end of the year. We think it's going to be great timing in terms of being able to deliver product into a market that doesn't have a lot of supply.

Great, thanks.

Thanks for taking my question; a quick question circling back to DC. I may be phrasing it a little differently; I was curious what the gap is between what Camden's rents are and the effective rents on the supplies being delivered, and what that gap looks like.

Well, it depends. When you think of new products being delivered, it's all the way from suburban Walkup Garden apartments to high rises in the district. The spread on that would be anywhere between, so at the low end of that range, the surface part apartments in the Methalton area, you’re probably in the $65 to $70 range for high-rise products in the district. You note that $3 is quite a bit affordable. To answer that question I'll have to kind of know what area counter we're talking about and then what advantage of product. But in Camden, we are all at the high end of that; about $3 plus would be our new lease-up in the district. Our normal product in the average method is roughly $27,000 a door and average to that would be our entire portfolio, across the districts about $19,000 ramp. So again, unit mix matters a lot depending on how large the units are, but broadly speaking, $3 plus in the district, call it $60 or $70 in the suburbs would be the lowest end of the rentals.

Okay, that helps. And then the question in Miami, we are seeing quite a bit of deceleration in the quarter. Was there any top line impact from Irma? Did that impact the numbers or not?

Yeah, so the easy part of that question is, there was really no impact from Irma. We had relatively minor damage in our portfolio. We had one of our high-rises that got some water from the storm surge, but honestly, we had all units available, all working units that were available to be leased within three days after that, so we were back online very quickly. I specifically called out Austin, Charlotte and Southeast Florida as places where supply in our competition is really starting to be a challenge in those three markets. So we are seeing deceleration in Southeast Florida, and it’s likely to continue into the fourth quarter. You know you've got different things going on in Southeast Florida. One of which is an incredible glut of new condominium projects, many of which are struggling to meet their sales numbers, and ultimately, as we all know, at some point, the condominium permanent home ownership becomes a rental scenario. And there is no question that our two biggest contributors which will be impacted will be those markets.

I think the wild card for Florida in general—this would include Orlando and Southeast Florida—and this is not Irma but Maria. If you look, there have been about 75,000 Puerto Ricans that have recently moved to Florida. And given the concentration of Puerto Ricans in Florida, Orlando is actually the largest market for them. There seems to be an increase in demand from what's going on in Puerto Rico, and I think that given the scale of the disruption there and the time it's taking to bring that back online, Florida could see an increase in demand that we don't expect but that we haven’t expected as a result of Puerto Ricans trying to find a place to live with electricity.

That's very helpful, thank you.

Hi, thank you. My first question is on your new strength. I realize there are some governor's in place, but I might have expected the rent squares to be a little higher already. I was wondering if you could put some numbers around market rents there. Do you think next year it could go up 10% or more than that or less than that? If it's helpful, what is the management sort of the revenue management sort will tell you to do today, is that kind of nonsensical in an environment like this?

Sure. If you look at the revenue management system, if it were, if it wouldn't permit this, the direct recommendations it would be looking at our costs; and we think there's probably about a 2% to 2.5% gap that resulted from us not being able to freeze pricing prior on that. Again, we are back, by November 15, performing new releases and renewals, and we'll be completely back to regular order; and whatever the pricing is, the pricing is. At some point, we have to find a market clearing price for these rents, which we will do. As you think about looking forward into 2018, just be mindful – we're not anywhere close to the point where we are prepared to talk about individual markets or individual rent levels. But I think it's instructive to look again at what our data providers are telling us. If you look where Ron Witten's numbers were for rents, the delta between rents in 2018 from the pre-Harvey and post-Harvey is saying there is about a 5% higher in what he was forecasting pre-Harvey, so I think those are constructive numbers in the sense of the magnitude. Now just keep in mind, that they’re always forecasts for effective run rates, and that doesn’t account for revenue growth. Our portfolio rolls over on average 8% of it per month over the course of the year, so even if the rents spike at the beginning of the year, you've got leases in place that are not going to be affected until that lease comes up. You have to be careful about using the difference between rental rates and revenue growth. Regardless, 2018 is going to be substantially different than it would have been without Harvey. Now, I can't give you the exact forecasts around that, but we will certainly provide that to you as part of our guidance for 2018.

And just to give you a chance, you wouldn't have suspected us to be the number one market for growth in America next year?

They are trending in accordance with what our budgets are. When you think about deceleration, I mean, our markets and I think generally across the country have been decelerating for the last two or three years. It’s a function of having plenty of demand and job growth issues tied to the supply. That’s why we point out that supply appears to be peaking and there's no relief in sight for next year. So, it's really that the pressure the market is experiencing due to that new supply hitting the marketplace. The markets are performing exactly the way we thought they would.

Oh thanks. Just one question, I think last quarter you talked about some new initiatives you are looking at for ancillary revenue growth since the tech package is rolling off. Any update on these initiatives and what type of same-store revenue benefit you might be able to get next year from those since the tech package is rolling off?

Yeah, I'm not sure I have anything to share with you right now that would be materially meaningful to achieve 2018 results. We are looking at all kinds of things around the home of the future; Amazon is doing interesting things. But from a revenue impact standpoint, in 2018, there's nothing specific.

Okay, and the tech package fully rolls off this year, what's the benefit?

Yeah, this is the year where you'll see really the last incremental major impact.

Got it, thanks.

Thanks. Our question on pricing barriers seems that in existing panels, outside Houston, there is low growth accelerating in any market in the third quarter, or is it currently accelerating early in the fourth quarter? From the first of the year is okay.

I don’t have that stat in front of me, John, and I’d be glad to send it to you offline.

Yeah, that's fine. And one last one on the acquisition opportunity: hypothetically if you were to buy $1 billion in product next year, and you can opine on how realistic that could be, if you held today’s market pricing personal resources of funds how would you find that $1 billion in acquisitions?

So we would, when you think about that, we would use part of our fund which is about $400 million plus or minus. And then we would use the equity offering obviously; the cash from that and given where our debt to EBITDA ratio, having a combination of borrowing and then probably somewhere in the $100 million dispositions to fund that as well. We also have roughly $350 million in cash on our balance sheet so that would obviously be part of that. In addition to that, we have to fund our development pipeline, which is a couple of hundred million next year.

Okay thanks.

Hello everyone, we are looking at the competitive pressure in the market. How do you see that progressing into 2018 while still remaining in Charlotte in Southeast Florida and what about the other markets?

I think the supply pressure will continue to be with us in Charlotte and Houston. If you just look at job growth versus projected deliveries in both of those markets, it's hard to say that things are going to get much better from the supply standpoint. I think that you are likely to see just going based on projected job growth in the number of deliveries, supply pressure is probably already affecting parts of Dallas. That makes it likely widespread and in 2018, you will probably start to see a little more pronounced supply pressure in Denver. Those would be the markets that will continue to have supply pressure. All the rest of our markets, you know, are roughly equilibrium based on the supply and projected job growth next year—some better than others—but those would be the worry spots for 2018.

Okay. And then looking at job growth irrespective, a lot of people want to hire, but it's really hard to find the correct labor or skill match. Are you taking more conservative underwriting when you look at job growth in markets when you're buying?

When you look at, I think that's definitely a big concern, right? How can the economy grow if you can't fill the jobs that are available? If you look at the projection, most economists are showing job growth falling pretty substantially in '19 and '20. So we definitely look at those metrics when we are deciding which submarkets and markets we want to buy into.

Just to put some numbers around that, again, Witten's forecast indicates that the total employment growth in our across Camden's platform comes down from 2.1% this year to 1.9% next year, and down to 1.5% in 2019. The Ric's point, we're not forecasting a recession as such, but that's his view of the constraints we are going to be up against. Fortunately, Camden's markets produce jobs and population growth at higher rates than the national average, so we don't see as big an impact from that slowdown compared to the overall economic trends which have averaged around 610,000 jobs in 2017. He has that actually going up to 641,000 in 2018, then coming back down to 560,000 in 2019.

Okay, thank you.

Hey, I know you talked Houston a lot here on the call, but I was just curious. Obviously, you put some freeze on immediately following the hurricane; I don't want to be perceived to be gauging the market, I'm just curious as we think about 2018, do you think that the optics will come into play at all? If we get to a certain level of rentals, would you just cap and say that the renewals would be capped at 10%? How do you take it to the market average for the rest of the country? Is there any other thought on how you'll manage the optics of rent growth?

Yeah, I think that we have gone above and beyond to be good neighbors and we will continue to do that. I guess we are sort of taking this in three steps to get back to market rate pricing, but ultimately, it doesn't serve anybody's interests to be aggressively pricing housing. We need to be back to regular order, and we will do that. Also, you have to keep this in context: the entire Houston market experienced oversupply in the oil sector. We experienced declining rents for two and a half years due to Harvey. So the focus we are paying rents at market rates is somewhere in the 7% to 8% down on top line rents going into Harvey so we already got 8% rent growth on day one; we are back to rents that people were paying two and a half to three years ago. So we don’t think there will be an optical question, which does not involve charging market rate rents for the apartments that you rent. I think just to put it in context, we were at 3.1% down on top line revenues in Houston in the third quarter. Therefore, to get to a robust recovery, we would expect higher rents at around 2.4% in the fourth quarter. That’s the kind of magnitude of the shift. Once your income comes along, we will be back to the market rate pricing, relative to our comp set, and will probably rent will be around 5% plus/minus from where they were in the second quarter. My guess is that extends into 2018, and in our case, it has to because we need to get our occupancy back down to 95% to 96%. A 97.7% occupancy rate is not sustainable for rental operations.

Right, okay, thanks for your perspective, and just another question on DC. I want to make sure how the numbers ride; I think you said expectations for 2017 are about 3%, which seems to suggest another deceleration in the fourth quarter. Is that the way to be thinking about that particular market?

Yeah, I think that's right. I think that's right. Again, we’ve performed better than we expected earlier in the year. My guess is that the supply shifts around when you're delivering assets. That’s going to impact us a little more in the third and fourth quarter, and we are forecasting around 3% growth this year.