Camden Property Trust (CPT) — Q4 2018 Earnings Call Transcript

Good morning, and thank you for joining Camden's Fourth Quarter 2018 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 fourth quarter 2018 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 be brief in our prepared remarks and try to complete the call within 1 hour. 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.

Good morning. Our Camden team has excelled in their markets by outperforming the competition and achieving high customer sentiment scores. I want to acknowledge the Camden team for a successful 2018. They significantly supported Camden's mission to enhance the lives of our employees, customers, and shareholders through positive experiences. 2018 was another strong year for Camden, surpassing our initial guidance from the start of the year. Revenues exceeded our expectations, and we managed expenses better than anticipated, mainly due to our initiative to improve operational efficiency along with reduced healthcare costs and a dedicated property management team. We expect 2019 to resemble 2018, with moderate revenue growth and a slight increase in operating expenses, maintaining our net operating income growth at similar levels. We start the year with the strongest balance sheet in the multifamily sector. Our development pipeline continues to enhance our funds from operations and asset value. The influx of new apartments in our markets has not changed much from 2018, yet demand remains robust enough to absorb this supply, allowing us to maintain same-store revenue growth. We will keep exploring development and acquisition opportunities in a competitive landscape. Thank you for your continued support, and I’ll now pass the call to Keith Oden for a market update.

Thanks, Ric. Consistent with prior years, I'm going to use my time on today's call to review all the market conditions we expect to encounter in Camden's markets during 2019. I'll address the markets in the order of best to worst by assigning a letter grade to each one as well as our view on whether we believe that market is likely to be improving, stable or declining in the year ahead. Following the market overview, I'll provide additional details on our fourth quarter operations and our 2019 same property guidance. We anticipate that same property revenue growth will be between 2% and 5% this year in each of our markets, with a weighted average growth rate of 3.3% at the midpoint of our guidance range. All of our markets received a grade of B- or higher this year. As Ric said, 2019 should look very similar to 2018 for Camden, and that's reflected in how little movement we have in comparing our 2018 revenue growth to our projected 2019 revenue growth among our 13 markets. Only 2 markets moved more than 2 spots in the rankings this year. Orlando moved from #1 to #5 and Southern California moved from #6 to #3. And no market moved from the top half to the bottom half or vice versa. Further, 10 of our 13 markets are rated as stable for 2019. All of this is pretty unusual for Camden's portfolio. Our top ranking for 2019 goes to Denver, which we rate an A with a stable outlook. Our Denver portfolio has been a strong performer, averaging 5% annual same property revenue growth over the last 3 years. Approximately 40,000 new jobs are expected during 2019, and supply remains steady with 13,000 new units scheduled for delivery this year. We expect our Denver assets will meet or exceed the 4.2% revenue growth that we achieved in 2018. Phoenix also earned an A rating with a stable outlook. Supply and demand metrics for 2019 look strong with estimates calling for nearly 50,000 jobs with 9,000 new units coming online this year. We give Southern California an A- rating with an improving outlook. Our portfolio there spans from Hollywood down to San Diego. And in the aggregate, our California markets face healthy operating conditions with balanced supply and demand metrics. Job growth should be around 120,000 over this region with completions of 24,000 units expected in 2019. Orlando and Raleigh each received an A- rating with stable outlooks again this year. Orlando was our #1 performer in 2019. 2018 was 4.9% same property revenue growth, and it should be in our top 5 again this year. Another 40,000 new jobs are expected during 2019 with only 6,000 completions. In Raleigh, new developments have been coming online steadily with 6,000 new units delivered last year and 5,000 more expected this year. Job growth has also been stable and over 20,000 new jobs are projected for 2019, in line with employment growth levels in 2017 and 2018. Up next is Atlanta, which we've ranked as a B+ with a stable outlook since 2016. Job growth has been strong in Atlanta with approximately 60,000 new jobs projected for 2019. Completions also remained steady with 9,000 new apartments scheduled for delivery this year. Houston keeps its rating of B and improving again this year after negative same property results in 2016 and '17. Our Houston portfolio rebounded in 2018 to achieve a 2.7% revenue growth. We expect to see slightly better results in 2019 as projected completions remain around 7,000 and job growth estimates are roughly 10 times that with over 70,000 new jobs anticipated in Houston this year. In Tampa and Washington, D.C., conditions are currently B with stable outlooks. Tampa's new supply should come down slightly to around 4,000 new units this year, with 25,000 new jobs projected, taking the jobs-to-completion ratio at a healthy level of 6x. We expect 2019 to look a lot like 2018 with regards to same property growth in our D.C. portfolio. Last year, we achieved 2.8% revenue growth in the D.C. Metro, and our projections for 2019 reflect a slight improvement from there. Supply and demand metrics reflect estimated completions of 13,000 units, with 40,000 new jobs projected this year. Conditions in Charlotte seem to have firmed up a bit and we currently rate it a B- with an improving outlook. New supply has been persistent in Charlotte, and another 9,000 units are anticipated this year. Job growth should remain slightly above 30,000 this year, and we expect our portfolio's revenue growth to improve from the sub-2% level achieved in 2018. Our last three markets, Dallas, Southeast Florida and Austin, all earned a B- rating with a stable outlook. In Dallas, job growth has been solid with over 70,000 jobs created last year and a similar amount expected during 2019. However, with over 20,000 completions last year and nearly 20,000 more units coming online this year, the Dallas apartment market will remain challenging in 2019. Southeast Florida has more new apartments coming online and faces competition from resale and rental condominiums. With projections of 35,000 new jobs and 10,000 new units in 2019, we expect pricing power and revenue growth to remain limited for our portfolio this year. In Austin, we expect to see limited revenue growth again this year. New supply should start to decline in 2019, but remains at a very high level. Approximately 10,000 new units are anticipated this year with around 37,000 new jobs, leaving little room for pricing power in the Austin market. Overall, our portfolio rating is a B+ again this year with most of our markets expected to see similar to slightly better results than in 2018. And as I mentioned earlier, all of our markets should achieve between 2% and 5% revenue growth. We expect our 2019 total portfolio same property revenue growth to be 3.3% at the midpoint of our guidance range. This compares to same property revenue growth of 3.2% for 2018. Now a few details on our 2018 operating results. Same property revenue growth was 3% even for the fourth quarter and 3.2% for the full year 2018. Our top performers for the quarter were Denver at 5.4%, Phoenix at 4.3%, Orlando at 4.2%, D.C. Metro at an improved 4.1% and San Diego/Inland Empire at 4%. As expected, fourth quarter revenue growth was under 2% in some of our supply-challenged markets, including Dallas, Charlotte, Southeast Florida and in Houston where we faced a 200 basis point negative comparison on occupancy this quarter versus our fourth quarter '17 post-Hurricane Harvey occupancy of 97%. With occupancy currently over 95% in Houston, we expect minimal impact from negative occupancy comps going forward in 2019. Rental rate trends for the fourth quarter were as expected with new leases flat and renewals up 5% for a blended growth rate of roughly 2.4%. Our preliminary January results are in a similar range. February and March renewal offers are being sent out in the 5% range. Occupancy averaged 95.8% during the fourth quarter compared to 95.7% last year. January occupancy has averaged 95.8% compared to 95.4% in 2018, so we're off to a good start this year. Annual net turnover for 2018 was 200 basis points lower than 2017, at an all-time low of 44% versus 46% last year. Move-outs to purchased homes were 15.5% in the fourth quarter of 2018, 14.8% for the full year and both of those are down 40 basis points from the 2017 full year levels. All in all, good execution in 2018, and it looks like we have a great game plan laid out with our teams to accomplish for 2019. At this point, 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 and financing activities. During the fourth quarter, we reached stabilization at Camden NoMa Phase 2 in Washington, D.C. This $109 million development is expected to deliver a stabilized yield of approximately 8.25%, creating over $80 million of value for our shareholders. Also during the quarter, we completed construction at Camden Washingtonian, an $87 million development in Gaithersburg, Maryland; and Camden McGowen Station, a $91 million development in Houston. In 2018, we completed $300 million of acquisitions and started $280 million of new development, with no community dispositions for $580 million of net real estate transactions. Turning to our fourth quarter financing activities. On October 1, we repaid at par $380 million of secured debt, consisting of $175 million of 2.86% floating rate debt and $205 million of 5.77% fixed rate debt for a blended average interest rate of approximately 4.4%. The repayment of this secured debt unencumbered 17 communities valued at approximately $1.1 billion. We repaid the secured debt using proceeds from a $400 million 10-year unsecured bond offering, which we completed on October 4. The effective interest rate on this new unsecured issuance is approximately 3.74% after giving effect to the settlement of in-place interest rate swaps and deducting underwriter discounts and other estimated expenses of the offering. After taking into account these transactions, at year-end, 79% of our debt was unsecured and 89% of our assets were unencumbered. Our balance sheet is strong with net debt-to-EBITDA at 4.1x and a total fixed charge coverage ratio of 5.5x. We ended the quarter with no balances outstanding on our $645 million of unsecured lines of credit. Our current line of credit balance after the January 2019 payment of our fourth quarter dividend, the payment of property taxes, which are disproportionately due in January, and the repayment today of $200 million of secured debt with an interest rate of 5.2% is approximately $270 million. We have $239 million of additional secured debt due early in the second quarter with a weighted average interest rate of 5.2%. This debt can currently be repaid at par. We have $613 million of development currently under construction, with $335 million remaining to fund over the next 2 years. Moving on to financial results. Last night, we reported funds from operations for the fourth quarter of 2018 of $119.4 million or $1.23 per share, exceeding the midpoint of our prior guidance range by $0.01. This $0.01 outperformance resulted almost entirely from lower same-store operating expenses due to lower turnover costs, lower amounts of self-insured healthcare costs and continued cost control measures. Turning to 2019 earnings guidance. You can refer to Page 27 of our fourth quarter supplemental package for details on the key assumptions driving our 2019 financial outlook. We expect our 2019 FFO per diluted share to be in the range of $4.97 to $5.17, with a midpoint of $5.07, representing a $0.30 per share or 6.3% increase from our 2018 results. The major assumptions and components of this $0.30 per share increase in FFO at the midpoint of our guidance range are as follows: An approximate $0.18 per share increase in FFO related to the performance of our 42,972 unit same-store portfolio. We are expecting same-store net operating income growth of 2.3% to 4.3% driven by revenue growth of 2.8% to 3.8% and expense growth of 2.75% to 3.75%. Each 1% increase in same-store NOI is approximately $0.055 per share in FFO. An approximate $0.19 per share increase in FFO related to net operating income from our non-same store properties resulting primarily from the incremental contribution from our development communities in lease-up during 2018 and 2019; our recently stabilized Camden NoMa Phase 2 development and our 3 acquisitions completed in 2018; and finally, an approximate $0.06 per share increase in FFO due to an assumed $300 million of pro forma acquisitions spread throughout the year and an assumed year 1 yield of 4.1%. This $0.43 cumulative increase in FFO per share is partially offset by: an approximate $0.02 per share decrease in FFO due to an assumed $100 million of pro forma dispositions in the latter part of the year; an approximate $0.05 per share decrease in FFO resulting from the combination of lower interest income from lower cash balances; an approximate 2% increase in combined corporate general and administrative and property management expenses; and higher corporate depreciation and amortization due to the implementation of a new cloud-based accounting and human resources system; and an approximate $0.06 per share decrease in FFO due to higher net interest expense, resulting primarily from actual and projected 2018 and 2019 net acquisition and development activity, partially offset by the accretive refinancing of maturing secured debt. We currently anticipate borrowing approximately $700 million of new unsecured debt in 2019 spread between early and midyear at an all-in rate of approximately 4%. These proceeds will be used to refinance maturing secured debt and fund both net acquisition and development activities. In addition, we anticipate recasting and upsizing our existing unsecured line of credit in the early part of 2019. Our same-store expense growth range of 2.75% to 3.75% for 2019 is primarily due to expected increases in salaries and benefits and property taxes. Salaries and benefits represent just over 20% of our total operating expenses and are anticipated to increase by 5%. As discussed on prior calls, in 2018, we were responsive to the effects of general labor tightening and made market-driven wage adjustments where appropriate. Despite these salary increases, in 2018, we experienced unusually low amounts of self-insured healthcare expenses, resulting in our 2018 increase in salaries and benefits to be approximately 3%, well below our original 6.5% estimate. We are not anticipating that these low amounts of healthcare expenses will be repeated in 2019. Property taxes represent one third of our total operating expenses and are projected to increase approximately 4% in 2019, primarily driven by Charlotte and Denver. Charlotte only revalues for property tax purposes every 8 years, and 2019 is the year. 2019 is an every other revaluation year for Denver. Our 2019 property tax assumptions are based upon us successfully protesting and litigating, if necessary, the 2018 previously discussed outsized property tax valuations in Atlanta. Excluding salaries and benefits and taxes, the remainder of our property-level expenses are anticipated to increase at less than 2% in the aggregate. Page 27 of our supplemental package also details other assumptions I've not previously mentioned, including the plan for $200 million to $300 million of on-balance sheet development starts spread throughout the year. Last night, we also provided earnings guidance for the first quarter of 2019. We expect FFO per share for the first quarter to be within the range of $1.18 to $1.22. The midpoint of $1.20 represents a $0.03 per share decrease from the fourth quarter of 2018, which is primarily the result of an approximate $0.02 decrease in sequential same-store net operating income. Of this amount, $0.015 is due to sequential increases in property taxes resulting from the reset of our annual property tax accrual on January 1 of each year. The remaining $0.005 of the sequential decrease in same-store NOI is due to other expense increases, primarily attributable to typical seasonal trends, including the timing of on-site salary increases, partially offset by a slight increase in same-store operating revenues; and an approximately $0.01 per share decrease in FFO due to a combination of lower interest income, resulting from lower cash balances and higher overhead expenses due to timing of salary increases and certain other corporate expenditures. At this time, we'll open the call up to questions.

So guidance calls for you to be a net acquirer, which makes sense with your low leverage. But can you talk about the deal flow that you've seen and maybe talk about the pricing and buyer pool competition for the assets and how you expect to find attractive deals?

Sure. So we just got back from the National Multi Housing Council meeting in San Diego. They had a record attendance of, I believe, over 7,000 people which indicates the sort of popularity of multifamily with investors today. So it remains a very competitive environment, there's no question about that. And I think what's happening sort of right now is that there's sort of a standoff between buyers and sellers. Buyers understand that you have normal revenue growth as opposed to white-hot revenue growth. So you have this kind of spread between bid and ask at this point. And there really hasn't been a lot of transactions in the last month or two in '18. There haven't been enough data points to really understand what's going on out there now. What we think is going to happen, though, is that there will be a movement sort of towards the center of that bid-ask spread gap today because sellers need to sell and buyers will need to buy. I think it's going to continue to be competitive. If you look at the last 3 or 4 properties that we bought, we're looking for below replacement cost transactions that are in the mid-4s to low 4s cap rate, where we believe we can, through improved operations, move that cap rate up pretty quickly over a couple of years to 5, 5 plus or minus. So we think there will be opportunities. The guidance of $200 million to $400 million is today pretty much everything. It's $100 million or more. So you end up with 3 or 4 transactions perhaps. We think that, given the backdrop for sellers coming towards the buyers, this is actually going to happen. The key for us, though, is finding that kind of needle in the haystack where we think it's very under-managed and where we can come in and move the NOI up, not by hoping the market goes up, but by knowing that we can operate the properties better.

Great, that's very helpful. And just a follow-up, can you perhaps talk about the concessionary environment in some of your largest markets that are facing high supply? We've looked at Atlanta and Dallas, and you touched on those markets in your prepared remarks. But are you seeing supply pressures easing there and pricing power coming back in 2019? What's the concessionary environment?

So in the development business, the concessionary environment varies depending on submarket and market. So you can't just say, okay, it's 2 months free or 1 month free or 3 months free. It really varies by submarkets and developers who are leasing projects up. When you have a vacant building that just opens, free rent doesn't really matter to them because they're just trying to get to a stabilized occupancy. In the more aggressive markets, you see three months free; in more moderate markets, 1 to 2. Just for an example, in Houston, prior to the Harvey event about a year and a half ago, there was three months free in downtown. Today, it's more like 2 to 1.5. The market is starting to turn over. If you have a 350-unit apartment and you're at 75%, 80% occupied and it's taking you a year or so to get there, you now start having renewals, and the question will be whether those concessions are having to be given to renewals. Markets like that, Dallas, are at 2 to 3 months free, especially in the uptown area. Charlotte was pretty concessionary, but I think we've seen some concessions moderate as properties are leasing up. The good news for us is that when you have a 95% occupied property that is stabilized and you think about the number of leases you need to capture to keep that stabilized 95%, it's pretty small actually. The fact that a new property is giving significant concessions doesn't mean that existing properties have to. That supports our same-store revenue growth because we have a very stabilized portfolio and you just don't have to give those kinds of concessions to capture market share in the stabilized properties. On one hand, you have concessions in the development side of the equation; on the other hand, you don't have concessions in the operating portfolio, and what you have is just the moderate ability to increase revenues 2% to 3% or 4% depending on the market.

On Houston, does the 70,000 job growth assumption contemplate oil prices at their current level? Do you need to see job growth in the energy sector? Or do you think you can get enough job growth in medical and petrochemical sectors that will drive enough demand?

Yes. So the 70,000 job growth in Houston does not contemplate any large contribution from the oil companies. The recency effect is pretty strong among the Houston oil companies from 3 years ago when they were still kind of downsizing and laying people off. When you come from that as your backdrop, there's a great deal of reluctance to add staff even in an environment where volumes are increasing, which they clearly are. So $55 to $54 a barrel is probably a steady-state in terms of total activity. Activity has increased pretty significantly in the field from where it was 2 years ago. But most of what goes on here is the back office and support operations, and the oil companies are still pretty reluctant to be adding staff. But there'll come a point where they've stretched to the limit and they will continue to start to add jobs, but that's not a 2019 event. The 70,000 jobs are primarily in areas in the medical center and distributed across Harris County. The most important part of the Houston picture is the 7,000 completions that we're going to get in 2019. That's almost a 10:1 ratio, and that's very healthy for where we are in Houston right now.

And then on the Phoenix and San Diego future development projects, what's driving the estimated cost increases? Is it a change in scope or market construction cost pressures?

No, it's both. But the San Diego project, we have reconfigured it and made it more efficient to maximize the views from that elevated site. Generally, we had to have scope changes in both of those projects, but costs continue to be an issue in every market.

Keith, on your market outlook for the year, I think that's based primarily on same-store revenue. But if you were to look at it on same-store NOI, would there be any markets that differ in your outlook?

You'll see fluctuations in the NOI mainly due to factors like property taxes and unique situations, such as the upcoming 8-year revaluation in Charlotte. When I analyze these results, I focus on the year-over-year same-store revenue growth and review a 3-year trend as well. Another crucial aspect is examining the jobs-to-completions ratio for each market. For Camden's platform in 2019, estimates suggest around 642,000 jobs and about 135,000 new apartments, resulting in a 4.7x ratio. We usually consider a 5.0 ratio as the equilibrium. However, it's important to look closely at the data. For instance, Denver sits at 3.0 while D.C. is at 3.1. Conversely, Houston exceeds 10, and Atlanta sits at 7. These metrics are significant indicators of market direction. Nevertheless, considering our overall portfolio ratings, where 10 of our 13 markets are classified as stable, we don't anticipate significant fluctuations in our portfolio.

And then also, external growth is a component of your FFO guidance that might be a little bit unique in the sector. Earlier today, your stock hit a 5-year high. If you hit your acquisition target for the year, what is your appetite to raise common equity again versus utilizing perhaps your ATM or dispositions or maybe raising your leverage level?

Clearly, we have the luxury of having the best balance sheet in the sector. We have capacity on the debt side, and when we look at raising capital via either debt or common stock or dispositions, it's always a balance about keeping a strong balance sheet, but understanding that if you're growing externally, you have to have capital. We just sort of look at each of those capital levers and decide what is the most appropriate and efficient at the time. We're excited about our stock hitting an all-time high. On the other hand, debt levels are low and interest rates are low as well. It’s just a balance trying to figure out what the best fit is for the capital.

But was there anything with the last raise that you did as far as not deploying the capital as quickly as you anticipated that you would think of it differently this time around?

I believe all factors should be considered when evaluating capital transactions. When we raised equity in 2017, we anticipated that in 2018, buyers would have more leverage than sellers, leading to more opportunities, but that didn’t happen. Sales for multifamily properties in 2018 actually increased compared to 2017. The positive aspect for us is that, despite not meeting our acquisition targets last year, we were able to increase our development efforts. It’s important to note that not all capital can be deployed immediately in development, as it typically takes 18 to 24 months to utilize that capital. Our perspective on the equity raise was that it could fund both acquisitions and development. When we consider both acquisitions and development, we surpassed our development goals but fell short on acquisitions. So, while it may appear that we didn’t deploy capital, we did; it simply takes time to deploy funds into development projects.

Just curious if the peak deliveries in Houston from 2017 have been absorbed at this point. And then could you just provide what your supply outlook for Houston is for 2020?

Yes. The deliveries in '17, I think the ones that started at the beginning of the year have probably all been absorbed. Those that started at the end of '17 are probably still in the process, depending on the size of the project. Substantially, the '17 stuff has been absorbed. But we had huge deliveries in 2018 that are still an overhang on the market. The submarkets that got most of the activity were downtown, midtown, and the Galleria. They still have, since those locations attracted the most capital and most new deals, they're still fighting it out. As Ric mentioned earlier, we're still in the 1.5 to 2-month concession range in those submarkets. If you move beyond those areas, it's a totally different picture. Our footprint in Houston has some exposure in those impacted markets, but we have a lot of exposure that's not impacted by new supply. That's why we've been able to produce the results we did last year in Houston and why it forms the basis for our optimism for 2019. We mentioned earlier we have about 7,000 apartments this year with deliveries in 2020 up to 13,000. That's not a troubling number for Houston as long as we get what we normally get in terms of job growth.

And then you guys have referenced a few times having the best balance sheet in the sector. I guess, what's your appetite to increase leverage from current levels?

We have talked about keeping our debt-to-EBITDA in the 4x to 5x range. Right now, we're at the low end of that range.

At year-end, we'll be somewhere around 4.4x.

So currently, you're guiding to 2.8% to 3.8% in terms of revenue growth. What do you think it will take in order to get to the high or low end of that range?

A lot better than expected job growth or a lot worse than expected job growth, I think that's the single biggest variable when we look out at performance. The supply is pretty easy to predict because what's coming in 2019 is known and knowable. The wildcard is jobs. You've got to like the trend this morning at over 300,000 new jobs. I think our estimates for projected national job growth in 2019 is right at 1.9 million. You're not going to get a bunch of 300s, but it doesn't take much. We have about 300,000 of the estimates in our numbers.

Got it. And on development, a lot of your competitors have noted that there have been delays due to tight labor markets. I noticed that your Camden North End I is actually delivering a quarter early. What do you think you're doing differently? Do you anticipate labor to affect your future deliveries?

Labor is definitely an issue, and that's what's caused most delays in construction. In the case of Camden North End, we just have a great team there that executed amazingly well. And all of our development teams, I applaud because they're definitely doing what they can to beat their competitors to market and to be very efficient. We anticipated the delays in our construction budgets. We usually err on the side, knowing we're going to have issues, and when the team executes well, we end up bringing it in faster than we thought and at a lower cost. Because if you're bringing it faster, your general conditions and other costs associated with time go down. We were very fortunate in Arizona, and we're trying to achieve that in other projects too.

I wanted to talk about D.C. a little bit. Obviously, your price point is more on the value-oriented side of the spectrum there. How do you feel about where you're positioned there relative to where new supply is pricing, where you are geographically around D.C. Metro? Are you hearing anything from your properties about waived late fees or anything like that with regard to the government shutdown?

For 2019, we've got D.C. ranked at a B stable, which is exactly what we had it rated last year. We still feel that's right. 40,000 new jobs in the D.C. Metro area, roughly 13,000 completions, so that's putting pressure on rents; that's right. The difference is it depends on the geography of your footprint. The most impacted markets have been D.C. proper and then the Crystal City area. We have a different footprint than a lot of our competitors. So our Northern Virginia and Southern Maryland assets have continued to perform really well. Our forecast for D.C. has total revenue growing at about 3%, up from 2.8% last year. In terms of the impact from the shutdown, we literally have had a handful of folks indicate they needed relief. We communicated to everyone impacted that we would work with them on late fees and the like. The good news is that, by today, most people would have received their back pay. If they've made it this long without being under financial duress, they're probably okay until the next shutdown.

I think it's interesting when you think about the shutdown and how it affected people; given that we have had all kinds of situations over the years from hurricanes to snowstorms that caused residents to be dislocated and not able to pay. In this situation, when the shutdown started, our teams put together a program for anyone that was government-related. It wasn't just government employees; contractors were also furloughed and needed assistance. Our teams were proactive and sent out information. It's not just D.C.; it's all over the country. We were prepared to deal with these issues. We haven't missed a step in helping our customers.

Great, that's helpful. And then quickly transitioning to Southern California. I think it's a similar dynamic where your positioning and price point may differ from some of your peers. Can you talk about your broad Southern California exposure where there might be pockets of supply you're exposed to, but also just who's adding jobs in the Inland Empire, Orange County, San Diego and then kind of your main focused markets there?

Our portfolio is a very different footprint. When we're aggregating these numbers, we're giving you results that go all the way from San Diego up to Hollywood. There are not any places other than those directly adjacent to Irvine where I would say that there is a supply concern. I mean, it's just so difficult and takes so long for planning and delivery of apartments. We're looking at 23,000 deliveries over that entire footprint, 118,000 new jobs projected for that Southern California footprint. That's a 5.0 ratio. As long as you don't have 2 or 3 deals trying to get leased up at the same time, that's a pretty healthy situation for our operators. Our footprint's a little different than some folks, but Southern California feels like a place that's set up to have the next couple of years be really strong. We've got it rated as an A- but improving. Last year, we had it as an A and stable. There isn’t a single one of our assets that I have any particular concern about regarding exposure to new supply.

Just first question is on Houston. There were some recent comments speaking to folks down there that suggested that late in the year there was softness in the market and that jobs expectations had been revised down. But from your comments, it doesn't sound like anything unusual is going on in Houston. Was there some tough year-over-year comps? Or was there, in fact, some momentary pause in the market that caused a little concern?

I can give you my hypothesis. So, let's answer the numbers question first. We didn't see that, other than the normal seasonal factors. The fourth quarter is always a little weaker in Houston than the other 3 quarters. But if you put that aside, we didn't see anything in our numbers that would indicate any cause for concern or resetting of the ability to raise rents or get renewals. My hypothesis on the noise, and obviously, we heard that too, is that if you come to Houston and go on a guided tour to the areas that got the most impacted, and if you're having a conversation with someone who happens to be a merchant builder, -99.2% of all the product in Houston being built is by merchant builders; Camden's the only public company with exposure to new construction in Houston. Talk to a merchant builder in either downtown or midtown. They're probably under stress because they're in the second or third year of 2 months plus free rent, and they feel like they're getting their brains beat in. That sounds concerning but overall the market is fine.

Okay, so it's really just localized oversupply, not anything market-wide?

Absolutely.

Just a couple of clarifying questions. On the development yields, you mentioned 6% to 6.5%. What would that number be if it was unlevered cash flow, so including some allocation for property management expense and ongoing maintenance CapEx?

Generally, those are 50 basis points plus or minus in terms of costs if you included those numbers.

Got it, got it. Just one more. On the labor delays you mentioned, if you had to split those up by market, which markets are seeing more labor delays versus others? As you think about your starts and look at your predevelopment pipeline, are you factoring that in to which developments you'd choose to start?

We are considering what we believe to be the actual development timeline when preparing our pro forma. If you look back about four years when we didn’t face these challenges, our development times for stick-built projects would likely have been extended by about four to six months. For high-rise projects, we might see those timelines extended by around twelve months due to labor issues. Most markets are currently facing ongoing delays, and the intensity of these delays varies depending on where we are in the peak cycles, leading to more severe situations in some areas.

So Ric, I guess I'm curious, how much pressure are you seeing specifically in your Texas and South Florida markets from homebuying? We've heard from homebuilders that homebuying trends seem to be fairly strong in those regions, especially amongst the entry-level price points.

Overall, move-outs to buy homes have been 15% of our portfolio, and in Texas and South Florida, I don't think it's higher or lower than it has been. The challenge is that affordable homes are 45 minutes to 1.5 hours out of the central city. Buying a home is not just a financial decision; it's a demographic decision. Our millennials are getting married and having kids later in life. A lot of the millennials want optionality. They want to move around and not be burdened by a specific location or a mortgage.

In the fourth quarter of '18 in Houston, we had about 17% of our move-outs who indicated it was to purchase a home. That's probably a 1 or 2 percentage point increase compared to the last 5 years on average. So we had a great year for new home sales in Houston, which set a record. Despite that, the multifamily market in Houston remains robust with occupancy rates at 94% to 95%. Southeast Florida is a different story. There were only 8.5% of our residents that moved out to purchase homes in the fourth quarter of '18, which is 1 or 2 percentage points below the long-term trend. So that's not a big part of the story in either market, and part of it in Houston is that we got 120,000 jobs in the trailing 12 months.

That’s helpful. Could you quantify what percentage of your Houston rents come from the three markets with heavier supply and what the rent growth differential between those areas are versus your other Houston submarkets?

I don't have the exact numbers for those three submarkets, but I can provide broader insights as we look between urban and suburban in all markets. All three of those submarkets would fall into the urban category for Houston. The differential for last year was clearly in favor of suburban products, about a 1.2% revenue growth differential. It's a meaningful number compared to urban areas.

Great. And lastly, what was the blended rent in January? And how does that compare to January of last year?

It's about 2.4% this year, and I don't think we gave the blended number from last year. But I can get that to you later. It's roughly flat on new leases and up 5% on renewals. If you do the math, that's about 2.4%.

I was also at the NMHC and heard the bid-ask spread comments there. I wanted to ask your thoughts on where maybe those bid-ask spreads are widening out, A) assets; B) suburban, urban. Just trying to understand where you think the opportunities are going to be for you on the acquisition side.

The most overbid properties are in the value-add sector, and that’s really crowded. We're looking for the sweet spot in that bid-ask spread now between merchant builders who've owned their property for some time and it's stabilized. They may be able to sell above their original cost, but haven't made their original returns. We want to buy below replacement costs and we think that spread will compress, with buyers moving toward sellers. Because there are many properties that have to trade, sellers will move to the buyers. Our focus will be on buying before construction starts.

Thanks, everybody, for being on the call. I'm sure we're going to see a lot of you over the next month or two in the various conferences. Take care, and we'll talk to you when we see you. Thank you.