Camden Property Trust (CPT) — Q2 2019 Earnings Call Transcript

Good morning, and thank you for joining Camden's Second Quarter 2019 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 2019 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, Executive Vice Chairman; and Alex Jessett, Chief Financial Officer. We will be brief in 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 it over to Ric Campo.

Thanks, Kim, and good morning. Our on-hold music today was courtesy of Dire Straits, and although our cost of capital has decreased over the years, we still don't get our money for nothing. However, our unique culture allows our associates to experience that ain't work, and that's the way you do it. Thanks to our Camden team members for improving the lives of our employees, our customers, and our stakeholders one experience at a time. Our multifamily business continues to be strong, market fundamentals remain good as supply gets absorbed in all of our markets. During the first half of 2019, we completed over $1 billion of debt and equity transactions designed to strengthen our balance sheet and give us maximum financial flexibility in this part of the real estate cycle. We accomplished these fundings and have been able to increase FFO guidance, in spite of having more cash earning lower rates than we originally anticipated. FFO growth per share for the quarter and the year increased by 7.6% and 6.8%, respectively. We added to our development pipeline and completed the acquisition of Camden Rainey Street in Austin in the quarter. We are on track to meet or exceed our original acquisition targets of $300 million for 2019, in spite of a very difficult acquisition environment. I'd like to take this opportunity to congratulate Malcolm Stewart on his promotion to President of Camden. Malcolm will continue in his role as Chief Operating Officer. Keith will continue his responsibilities as Executive Vice Chairman. These moves are part of our long-term succession planning initiative, which creates position space for other senior executives in the future. I will now turn the call over to our new Executive Vice President, Keith Oden.

Thanks, Ric. Regarding my new title, I'd like to address the biggest concern that's been expressed so far. Yes, I will continue to co-host Camden's annual Happy Hour at the summer NAREIT meeting. Now back to business. Our second quarter revenue results were in line with our increased guidance, which sets us up for continued strong results for the balance of the year. Overall, same-store revenues were up 3.4% for the quarter and up 1.5% sequentially. Second quarter growth in our top four markets were Phoenix at 5.7%, Denver 5.1%, LA-Orange County 4.8% up, and Atlanta at 4.6% up. As expected, our weakest markets for the quarter were South Florida, Charlotte, and Houston with revenue growth in the 1% to 2% range. Regarding rents on new leases and renewals, second quarter new leases were up 4.1% and renewals were up 5.6%, for a blended increase of 4.9%. The second quarter 2019 blended rate of 4.9% was a 30-basis point improvement from the second quarter last year of 4.6%. July preliminaries are at a 4.1% increase on new leases, 5.3% on renewals, for a blended growth rate of 4.7%. As expected, we've seen steady improvement in our new lease rates from January through June, and as is normal, the new lease pricing will begin to taper off as we approach the end of our spring-summer peak leasing season. Our August and September renewal offers continue to reflect a healthy rental environment and are being sent out at an average increase of 5.7%. Our qualified traffic remains strong and supportive of our above-trend occupancy levels across all of our markets. We averaged a strong 96.1% occupancy in the second quarter versus 95.8% occupancy in the first quarter of 2019, and 95.7% in the second quarter of last year. July occupancy is trending to 96.3% versus 96% last year. Our turnover rates continue to run at historically low rates with the net turnover in the second quarter at 46% versus 49% last year. During the quarter, our move-outs to home purchases remain low at 14.3% versus 14% in the first quarter, with both quarters well below the 14.8% for the full year of 2018. It appears that the rising price of starter homes will continue to put a damper on home ownership. At this point, I'll turn the call over to Alex Jessett.

Thanks, Keith. Before I move on to our financial results and guidance, I’d like to provide a brief update on our recent real estate activities. In the second quarter of 2019, we acquired Camden Rainey Street for $120 million. This is a newly built, 326-unit, 8-story building in downtown Austin. We began construction on Camden Cypress Creek II, a 234-unit joint venture in Houston, Texas, and completed stabilization ahead of schedule for our Camden Washingtonian development in Gaithersburg, Maryland, which generated a 6.5% stabilized yield. Additionally, we purchased around four acres of land in the NoDa neighborhood of Charlotte for developing about 400 apartment homes, and around 12 acres in Tempe, Arizona, also for roughly 400 apartment homes. On the financing front, in mid-June, we successfully completed a $600 million 10-year senior unsecured bond offering with an effective average interest rate of about 3.67%, after accounting for in-place interest rate swaps and deducting underwriter's discounts and other estimated expenses. Due to these interest rate swaps, we'll recognize interest expense at 3.84% for the first seven years and at 3.28% after that. Now, regarding our financial results, we reported funds from operations for the second quarter of 2019 at $128.6 million, or $1.28 per share, surpassing the midpoint of our guidance range by $0.02. This outperformance was largely driven by about $0.01 from higher same-store net operating income due to reduced self-insured employee healthcare costs, lower property taxes, and decreased property expenses from cost-control measures. Additionally, we saw approximately $0.5 from better-than-expected results from our non-same-store and development communities, and about $0.5 from lower overhead expenses and increased fee and joint venture income. Based on our year-to-date performance and future expectations, we've also updated our full-year 2019 same-store guidance. Thanks to the better-than-expected second quarter expense performance and anticipated lower property taxes later in the year, we’ve reduced the midpoint of our full-year expense growth from 3.35% to 2.75%. These anticipated savings stem from favorable current year tax valuations and successful prior year appeals, mostly in Atlanta and Houston, leading us to expect full-year property taxes for our same-store portfolio to rise just under 3%, significantly below our initial budget. Consequently, the decreased expense guidance corresponds with a 35 basis point increase in the midpoint of our 2019 same-store NOI guidance, raising it from 3.4% to 3.75%. Additionally, we raised the midpoint of our full-year 2019 FFO guidance by $0.02 per share, from $5.07 to $5.09. This increase reflects a $0.02 rise in 2019 same-store operating results, including $0.01 from the second quarter and the rest expected in the latter half of the year, along with about $0.01 linked to our second quarter outperformance not tied to same-store results. The total $0.03 increase in FFO is somewhat offset by around $0.01 from our larger-than-expected June bond issuance and the timing of various real estate transactions. We also provided third quarter earnings guidance anticipating FFO per share to range from $1.26 to $1.30, with the midpoint aligning at $1.28, similar to our second quarter results. As anticipated, the increase in revenue is countered by the usual seasonality of operating expenses, and the added contribution from our development and acquisition communities is balanced by additional interest expenses from our June bond offering. Our balance sheet is strong, with net debt to EBITDA at 3.9 times and a total fixed charge coverage ratio at 6.4 times. We concluded the quarter with no outstanding balances on our $900 million unsecured line of credit and $150 million in cash. 98% of our debt is unsecured, and 99% of our assets are unencumbered. We have $577 million of on-balance sheet developments currently underway, with $311 million left to fund over the next 2.5 years. Now, we'll open the call up to questions.

Thanks. Just looking at your weighted average monthly revenue per occupied home, it looks like it's about 40 basis points below the rental rate growth. I'm wondering, what's the drag from other revenue that's causing that? And then how do you expect that to trend for the remainder of the year?

Yes, absolutely, because we have higher occupancy, and because we're having lower turnover, what we're starting to see is the incremental impact from damage and cleaning fees and bad debt is coming down on a year-over-year basis. That's the impact of what you get when people just aren't moving out.

Would you expect that, kind of that spread between the two to continue for the rest of the year? Are you expecting turnover to pick up?

At this point, we're anticipating that although we're having exceptionally low levels of turnover, we think generally it's going to stay fairly low for the rest of the year.

Thanks. And then just on the land purchases, you bought more in the quarter, what are you seeing in terms of pricing there? And maybe tie it to what you saw earlier in the cycle for land pricing.

Land prices have certainly risen, along with other costs. Although land prices have gone up, the increase in construction costs and land prices has led some projects to become less viable. As a result, sellers are adapting to ensure they can still sell at some level. I don't believe that land prices are continuing to rise as quickly as they were due to the challenges of underwriting in the current environment.

And also, Nick, just to add to that, the Phoenix site that we bought is something that we've been working on for the last several years. So that's reflective of pricing that was two or three years ago. And the site in Charlotte is an emerging market for sure, and we have had great success in kind of getting ahead of where the growth is coming. So, we felt like we got a really attractive price for that site as well.

Thank you. Can you remind us what percentage of your same-store revenue comes from multifamily rents versus fees, retail rents and other income items?

I would say it's probably pretty close to about 95%, but we'll have to get back to you on that.

Okay. And Alex, and the answer to the prior question, so the lower other income, is that all turnover-related fees or was there, was there an impact on like technology?

Yes, the largest component of it, as I said, is turnover-related. So it's, if you think about damage fees, cleaning fees, and bad debt. Now there is a slight component that's associated with the tech package because obviously we finished rolling out the tech package last year, and so we're not really getting that much of an incremental impact in 2019. But that's a slight component of it.

And you don't expect turnover to go up with new lease growth being so strong?

I would tell you if you would have asked us this question last year, we expected turnover to go up, and it continues to stay at record low levels.

Part of it is this whole idea that when you think about in-migration to different markets and about the way people move around in the country today. They just don't move as much. And that's been a trend for the last two or three years, and a lot of it has to do with the unemployment rate being so low everywhere. So people sort of think they don't have to move to another hot city to get a better job because their job, the jobs in the cities they're in are doing well, given the low unemployment rates. So you started to see migration rates slow and a lot of different markets, and that just keeps people kind of in their apartments longer because they're not moving around.

Hey guys, good morning and thanks for taking the question. So could you guys talk about some of the markets that you've seen outperformance or markets that have lagged your initial expectations? And any extra color on what's driving that outperformance versus underperformance would be great.

Leigh, if we compare our results at the halfway point of the year with the initial grades we assigned at the beginning, I would say there isn't a single one I would change, other than perhaps a minor adjustment in a couple of areas. Overall, we are performing as we anticipated across our entire platform. In the second quarter, we obviously reforecast from our original regional guidance and do this every quarter. For our projected $250 million in revenue for the second quarter, we were only off by $100,000. There are some minor fluctuations, but nothing significant to mention in response to your question. The markets we expected to perform well are doing so, while the weaker markets, such as Houston, Charlotte, and South Florida, are being most affected by new supply in relation to job growth, which was anticipated.

Great, so could you guys maybe talk about maybe the Houston market a little bit more? And also your development in lease-up, your McGowen Station, how that's been doing versus initial expectations.

Yes. At the beginning of the year, we anticipated that Houston would be one of our weaker markets primarily due to the geography of the competitive landscape. The units delivered in 2018 are still being absorbed. Numerous apartments were completed in the midtown and downtown areas, causing both new developments and existing properties to struggle due to competition from merchant builders striving to finalize their projects. The challenge has been that many of these builders are not reaching completion as expected. They believed their downtown and midtown properties would stabilize by the end of 2018, but that hasn't occurred. Despite Houston potentially adding around 80,000 jobs this year, the nature of these jobs does not align well with the high-end apartments developed in those areas. Most of the new jobs are in sectors like hospitality and retail, with some in construction, while the energy sector, which is largely represented by major oil companies in the downtown area, is not expanding its workforce. These companies are hesitant to hire again after downsizing over three years ago, leading to a reluctance to grow headcounts. Consequently, although job growth appears promising in aggregate numbers, the types of jobs being created do not support the rental rates required to live in midtown and downtown.

Hi, good morning. I just wanted to go back to revenue. So the operational update you provided earlier this quarter at NAREIT that was showing a blended rate growth of 4.7% through May, and there some overtures that it could accelerate further in June based on historical trends, which would possibly lead to raising same-store guidance. So it sounded like it had picked up. So how much thought did you give to raising same-store revenue guidance, given where first half came in?

Yes. As I mentioned, we did the reforecast for our second quarter and ended up almost exactly on target. Based on that, we feel we have strong visibility for the third and fourth quarters, and we've completed the reforecast for those periods. We remain very comfortable with our reiterated guidance. We raised our revenue guidance last quarter and have maintained it for this quarter. Therefore, we are confident about where we anticipate the year will conclude, projecting a total revenue increase of 3.4%.

Okay, that's helpful. And then shifting, I guess going back to acquisitions. You've alluded to achieving or even exceeding the high end of your range. Could you give some indication as to what's in your pipeline and the confidence that you can put to work all the capital that you have raised so far?

Sure. The last chart I looked at indicated that we had around 14 properties valued at over $1 billion in various stages of due diligence, as we considered whether we would pursue them. The interesting aspect of acquisition guidance is that you can always meet your guidance simply by being the highest bidder. We strive to maintain discipline in this highly competitive acquisition landscape. I believe we have increased confidence that the properties we are currently evaluating are several that align well with our objectives. We're specifically looking for newer properties that have not yet stabilized or that face management challenges, and we believe there will be opportunities for us to at least meet our guidance, if not surpass it.

Okay, sorry. I have a quick follow-up regarding recurring CapEx. You have spent about $31 million year-to-date, and I understand that this spending can be variable. Are you still comfortable with the original guidance of $68 to $72 million for the year?

Yes, we're still comfortable with that.

Hey, good morning. Thanks for taking my questions. Just two quick ones from me. The first one is on the management shuffle, should we expect any G&A impacts from any internal promotions? And then other than maybe who is going to host NAREIT Happy Hour, are there any changes in role responsibilities?

The answer is no to both.

Unfortunately, the answer is no, especially NAREIT.

Fair enough, fair enough. And then second, are there any sub-markets where you're starting to get maybe a little nervous about supply that's coming down the pike, that's making you maybe reconsider your exposure in the future?

No. What's been particularly interesting and encouraging about this real estate cycle is that all markets have successfully absorbed their supply, even at peak levels. We expect to see some moderation next year in certain markets. Fortunately, we've experienced sufficient job growth and stability within our existing customer base, which means lower turnover and less need to find new residents. This, combined with a healthy job growth market and favorable conditions in each city, has allowed us to absorb supply without significant negative effects. For instance, markets like Charlotte and Southeast Florida, particularly Charlotte, have seen substantial supply alongside strong job growth. Although this growth has moderated, it's limited big rent increases for current properties, leading to a modest increase of around 1% or 2%. Given the amount of incoming supply, this is a positive situation. Ultimately, the key long-term question for us is our position in the cycle. If we look further out, we have to consider the implications of a low unemployment rate in the threes and how to find enough people to fill available jobs. The economy is performing well, but there are concerns about slowing job growth due to challenges in finding suitable candidates. Over the past year, we’ve seen people re-entering the workforce to fill these roles. Overall, supply has been strong and well-absorbed.

Awesome, that's it for me. Thank you.

Hi, good morning. Thanks for the time. So I want to go back to last quarter's call. As we were discussing new lease rates and the expectation that new lease rates wouldn't push much higher than the 2.8% you achieved in April, but in fact you did see significant improvement in May, and June also seemed strong. So I guess I'm also curious what may have offset the benefit from the higher new lease rates, as it seems like renewals are pretty much in line with expectation, and that you're tracking above the 3% to 3.5% blended lease rates that I believe you assumed in your initial outlook.

Our guidance projects total revenue growth of 3.4%, a drop from the 3.7% we achieved in the first quarter. The situation reflects the impact of new apartment deliveries in several markets, particularly Houston, Charlotte, parts of South Florida, and now Austin. The influx of new supply in these competitive areas is starting to have an effect. We anticipate this trend will persist throughout the remainder of 2019. On the positive side, some markets are still experiencing blended growth rates above 5%, which will provide support. However, factoring in a first-quarter growth of 3.7% while maintaining guidance at 3.4% indicates we should expect some slowdown in blended average rental rates and total revenues during the third and fourth quarters. We foresee this deceleration being moderate. If we finish the year with a total revenue growth of 3.4%, following the previous years, it would be a commendable outcome.

I appreciate your insights. That brings me to my next question. You provided some information about the 2020 supply and how the years 2018 and 2019 turned out. As we stand here today, I am curious about how 2019 has progressed compared to your expectations. Are you assuming that what wasn't delivered in the first half will be delivered in the second half? Additionally, how did Ron Witten's forecast for 2018 compare to the initial projections, and what was the final outcome for that year?

We primarily relied on Witten for our delivery figures across the platform. In 2018, there were about 137,000 deliveries, which was slightly lower than his original estimate of approximately 145,000. This difference of about 8,000 has carried over into 2019. Currently, his projection for 2019 matches the 2018 total at 137,000 deliveries. While there is some fluctuation within our platform, the overall deliveries from 2018 to 2019 are nearly identical. For the past two years, we anticipated that 2019 would be the peak year for national deliveries, and we expected this trend to reflect in Camden's portfolio as well. However, according to Witten’s revised numbers for 2020, he has projected an increase to 151,000 deliveries, indicating that some of the shortfall from 2019 has been pushed into 2020. It appears that 2020 will be the peak year for deliveries, with a slight decline expected in 2021, but not significantly. It seems likely that the shortfall from 2018 to 2019 has continued into 2019, and I hope to see peak deliveries around 150,000 completions in 2020.

And what percent of the 137,000 in 2019 is expected to be delivered in the second half of the year or absolute numbers?

Yes, I don't have that information available, but I would be surprised if it weren't relatively similar across our platform, since there isn't much seasonality in our construction activities, except for Denver.

I wanted to follow-up on an earlier question. Can you actually talk a little bit about the timing of the development starts for the new land purchases in Charlotte in Tempe, and what type of yield ballpark are you currently projecting there?

The starts for those units will be toward the end of this year and the beginning of next year, mostly in 2020. Regarding development yields, our yields in the pipeline are approximately 5% for high-rise urban projects and about 6.5% for suburban projects. There has been considerable discussion about yields and yield compression due to costs rising faster than rental rates. In our last analysis, the yield ranges were between 5% and 7.5%, and now they are around 5% to 6.5%.

That's helpful. Could you provide some insight into the stabilized yield you're safeguarding? Specifically, I’d like to know more about your projected rent and expense increases related to that.

Yes, you're referring to rent increases in the development. It varies by market, but typically we are not increasing our rents by more than 2% or 3%, considering the current market conditions. We generally analyze this using two methods: one looks at untrended returns, and the other considers our expected returns, which I just shared with you. As I mentioned, rent increases are usually capped at 2% to 3%, and we are also raising operating costs at a similar rate of about 2% to 3%.

Okay. I'm curious about the Charlotte development in particular. Given the relative revenue weakness and the supply commentary you mentioned earlier on that market, I guess I'm curious what about that project specifically gives you the confidence to start that in light of your earlier commentary?

As Keith mentioned earlier, the project is Charlotte NoDa, located on the rail line just north of downtown Charlotte. We plan to begin construction on this project in January 2020, and it is not expected to be completed until the end of 2021 or the middle of 2021, extending into 2022. Although the Charlotte market is currently experiencing some challenges with absorption, it remains one of our strongest markets. We believe that this project, due to its location and proximity to the rail line, will absorb into the market similarly to other projects that are currently performing well, resulting in a positive yield and another valuable asset for us in Charlotte.

That's helpful, thanks. And one last one if I may. I don't know if I missed it earlier, but maybe you could share some color on the initial yield for the Austin acquisition and maybe some of the longer-term operating upside, if there is any there? Thanks.

We are focused on acquiring properties that haven’t been fully stabilized yet, particularly the asset in Austin. Our goal is to purchase these properties at a price that is 10% to 20% below replacement cost. We believe that with our management team and technology solutions, we can enhance cash flows. Typically, we look to acquire properties with existing cap rates in the low fours, around four-and-a-quarter. We anticipate that within a few years, we can improve this to a five cap rate by implementing our Camden revenue management systems and other technology. This is essentially our approach, and it's applicable to the Austin asset.

Question on maintenance CapEx, it ran a little high relative to our estimates, kind of on a per-unit basis in the second quarter, and I guess it's a sign of trends. The same factors influencing development costs, influencing CapEx, and maybe there is kind of a per-unit number that you think is kind of budgeted for this year, if you could remind us what that is?

Yes. So what I would tell you is it's entirely timing based. So, if you looked at our original guidance, it was $68 million of $72 million, and we anticipate being right in that range. So, what you saw in the second quarter, as compared to your model, is probably just a little bit of a timing issue.

Okay, that's helpful. I have a question about Southeast Florida. It seems that job growth in that market may not be as strong as in the rest of the Sun Belt, and there is some supply available. Can you discuss who is contributing to job growth there and what factors might stimulate that market again? Could currency fluctuations potentially increase activity? Based on your experience in the market, I would appreciate any insights you could provide.

Yes. If you look at the projected job growth numbers for Fort Lauderdale, there are 27,000 jobs expected by the end of this year, but that number is expected to decrease slightly in 2020. For Miami, the job numbers for 2019 stand at 20,000, which will drop to 14,000 in 2020. The influx of new supply in both Miami and Fort Lauderdale is significant, not only in rental apartments, which are our direct competitors, but also in the number of for-sale condos in these areas. This situation may not be reflected in employment growth statistics when compared to completions, but it certainly impacts both markets. Hospitality job growth remains strong in the construction sector due to ongoing construction activities, including both residential and commercial projects. However, the concern isn't about the nature of jobs in Miami and Fort Lauderdale; it's about the overwhelming supply of both for-sale and rental properties that we are trying to manage in those markets.

To your point of currency valuation changes and what have you, I think there is definitely an impact on Southeast Florida, given it's sort of the capital of South America, if you want to call it that, or Central America. And you have seen when there are times of volatile currency issues, there has been flight capital and folks that have come into the market. And a lot of the condos that Keith is talking about that are competing with apartments are actually people generating hard currency that are South American owners that are just trying lease a very expensive apartment or condo cheap, in order just get some hard currency. So it's an interesting market. Long term, it's a great market, but it just has a few headwinds right now.

Okay. That's all helpful. And just one last quick question on Southern California, obviously your performance in that market looks better than peers, kind of as a product of what you own and where you own it. The last couple of quarters, it seems like the revenue growth has been more occupancy gains and decent rental rate growth and maybe not performing rental rate growth, but still kind of in the upper two's. I guess, have you seen anything so far in the third quarter that would indicate any kind of marginal softening in Orange County, or near San Diego, or have trends, kind of the trends in the first part of the year continued? So you still expect to do pretty well in those markets?

I believe that in the LA-Orange County area and our San Diego platform, we have a somewhat different geography compared to most of our competitors. The strength we've experienced over the last two quarters has aligned with our projections, and it appears that this trend will continue in our reforecast. We have seen occupancy gains in both markets, which is a trend that spans our entire platform. In the prepared remarks, I mentioned that we are trending towards 96% occupancy in July, which is typically quite unusual for our portfolio. Historically, we have operated in the 95% to 95.5% range for many years, so being at 96% or even 96.3% feels somewhat uncommon. However, this increase in occupancy is not limited to Southern California; it reflects a broader trend across our platform.

So I take that to mean rental growth trends, as far as leasing activity, so far into the third quarter are pretty much on target with budget?

They are.

Thanks. On the acquisition front, would the Pure multifamily portfolio have met your quality criteria?

It would not have met our existing quality criteria at this point. The portfolio was certainly interesting both in terms of its characteristics and pricing. We evaluated it, but the challenge was that it didn't align with the kind of opportunities we are currently pursuing. Additionally, it was heavily concentrated in Dallas, though there were some suburban properties we found quite appealing. There were also several other concerns, and we would not have been as aggressive with the pricing as it ultimately ended up trading at.

And then just a broader question on portfolio acquisitions, what is the appetite? I know pricing matters and markets matter. What is the appetite to do just larger portfolio deals right now?

For the right product in the right portfolio, we are open to doing a large transaction. The challenge with large transactions, as seen with Pure, is that there are typically only a few properties in a portfolio that we would want to acquire. However, if the pricing were favorable, we might adjust our acquisition strategy and criteria if we believed there was value to be found. The inherent issue with portfolios is that they often contain assets that are less desirable, which means we have to accept those to obtain what we want. The question then becomes how much of the portfolio consists of assets we are interested in and what our plans are for the unwanted assets that come along with it. Often, we evaluate portfolios and consider that if we wanted to acquire $1 billion or $1.2 billion worth of properties like Pure, we would simply become the highest bidder on several $100 million projects that appeal to us. Therefore, unless there is a strategic reason or exceptionally good pricing, we have refrained from making large transactions recently. Current pricing is strong across the board, and sellers of large portfolios are likely to receive a premium today.

Okay. Is the pricing getting irrational or too irrational in any market where you'd consider ramping dispositions right now?

I don't think it's irrational. When you look at the map on Pure or at the data from other properties, people are just adjusting their return expectations to some degree, and multifamily fundamentals remain solid, even in markets with oversupply or low rent growth. I haven't come across any real surprises regarding dispositions. We've sold many properties in this cycle, swapping out over 20-year-old assets for newer ones that are four to five years old, using the proceeds from those sales to fund development. Right now, we don't have many assets we're eager to sell. Therefore, I don't believe the market is pricing assets so irrationally that we need to sell into it. When you consider selling, the key question is whether you think prices will drop or if you’ll be able to redeploy that capital effectively. Given the current interest rate environment, the length of the recovery, and the fundamentals of the business, it’s difficult to argue that apartment cash flow and cap rates will change significantly at this time. So, the answer is no.

I wanted to ask about the management transition. Should we be expecting more management changes near-term as part of the succession planning? And Ric, how should we be thinking about your tenure?

So I don't think you should expect anything next quarter or the quarter after that. We've been in succession planning mode for quite a while. I do have my 65th birthday next week, and I'm glad we didn't schedule the conference call on that day. But Keith and I are both engaged in this process, and Keith is younger than me, by the way.

And always will be.

So he will be. I know Malcolm might not appreciate me saying this, but he is actually slightly older than me. When it comes to succession planning, we aim to develop our next tier of management from within Camden, and they are all currently here. Keith and I have maintained a long-standing succession plan with our board. Some callers have inquired specifically about this, and we have addressed it. Each year, at the start of the year, we commit to a three-year term through a letter to the Board stating that Keith and I will remain for three years. If for any reason one of us cannot fulfill this commitment, perhaps due to health reasons, the one who doesn't complete the term will ensure the other stays for at least two years for a smooth transition. Both of us are in good health, we enjoy Camden, we value our structure, and we plan to be here for a while. The idea of creating space in the organization allows our senior team to gain more experience in areas where they may lack it, ultimately positioning us for transition. That transition will happen in the future, though I can't specify if it will be next year, the year after, or beyond. It's a thoughtfully developed program, and we firmly believe our future leadership is already within Camden, and we want to ensure they remain here. This is part of why we're opening up space in the titles.

Okay. That sounds good. And then my second question is at NAREIT you called out Washington D.C. as performing better than planned. It ended up decelerating 90 basis points in the second quarter and now you're saying everybody is in line with plan. So has D.C. fallen off at all? And are you starting to see any demand impact there from HQ2 yet?

For the second quarter, D.C. experienced a revenue growth of 3.8%, ranking it as the fifth-highest in our portfolio. I highlighted the top four markets, and D.C. Metro falls next in line. Out of 15 markets, this marks the first time in a long while that D.C. Metro has been in the top five. While I'm unsure about the NAREIT comparison, achieving 3.8% in D.C. Metro for the quarter is quite impressive. Additionally, the feedback from our D.C. Metro operations team during our quarterly call regarding market conditions has been the most positive and constructive I've heard in the past three to four years. This gives me hope for continued strong performance in our D.C. Metro portfolio, which has outperformed most of our peers over the last two to three years, partly due to our geographic advantages in the area.

Hey, guys, thanks for taking my question. I just wanted to kind of wrap together a bunch of different questions, I guess, that were already asked and just talk about capital allocation and how you guys kind of think through it. You guys have talked about the acquisition environment being really aggressive and hard to stay disciplined if you want to win deals. You were also filling in your pre-development pipeline. Is the option here to build more? What is your starts outlook like longer term, but specifically in 2020? And how do you think about the incremental dollar invested today and what to do with it?

If we had the ability to expand our development pipeline effortlessly, we would prioritize development over acquisitions. Next year, and from late this year, we anticipate investing $210 million in the Phoenix and Charlotte projects. Additionally, we have two late starts this year, one in Florida and one in California, totaling $180 million. When combining these, we have $370 million that could begin or is expected to begin between the end of 2019 and throughout 2020. We are definitely more focused on development than on acquisitions, though we face the challenge of ensuring that projects do not get canceled. Therefore, we plan to employ a mix of both strategies, identifying valuable opportunities that can significantly enhance our earnings growth over the next few years to elevate them into the fives.

Thanks so much for that detailed response. Just a quick follow-up, when do you think about development in the markets, is it very case-by-case and project-specific? Or are there a few markets where construction costs are less of a burden or they're increasing less? We hear from your peers that construction is really difficult in some markets, where that can be easier in others. Which are the markets that you're kind of focused on today?

I believe that all markets are similar regarding construction costs and timelines, but building takes longer now due to a shortage of construction workers. Each market is unique, and we're identifying projects in the areas we operate where we can make the numbers work. I don't see any market as particularly easy or impossible, although it is likely more challenging in California due to various issues there. The California project I mentioned is set to start at the end of this year or early next year, and we've been working on it for several years. Overall, it is indeed difficult to build everywhere. We would expand our pipeline if we could achieve reasonable yields; our main constraint is maintaining discipline in our investments to ensure they meet our core return guidelines.

I believe that when our peers discuss the difficulties of building, they are likely referring to the entitlement process rather than cost pressures. Cost pressures are significant in relation to the achievable underwritten yield. Building in Houston, Texas, can be challenging, as is the case in Southern California. However, the regulatory framework and entitlement process are quite different in California compared to Houston. You would need to compare them on a scale from hard to easy, starting with California and likely ending with some of our Texas markets, with other locations falling in between. Nonetheless, cost pressures are substantial and genuine across all 15 markets in which we are operating.

Thank you for taking my question. Reading Keith's bio, I must say you all remain impressively energetic after all this time, and I commend you for that. I'm curious about your long-term plans as you think about your career succession, the possibility of going private, or any other combination of strategies. It seems like succession might be the direction you're leaning towards, which is positive. However, I wonder about options like increasing leverage, going private, or engaging in a reverse merger, especially since that would require you to be a buyer in a public-to-public scenario. Would these alternatives still be on the table for Camden, or are they completely off the table? I'd appreciate any comments you might have on that.

I think they are totally unrelated to succession, right?

Yes, that's fair.

Yes, the issue of how we manage Camden—whether as an entity or its assets, how we drive total shareholder return, and how we compete in the marketplace—is one distinct matter. I would not associate a succession issue with a financial transaction that is perceived as good, bad, or neutral for Camden shareholders. When I consider Camden in my role as CEO-Chairman and a large shareholder, my focus is on maximizing the Company's ability to compete effectively in the marketplace, aiming for the top quartile of returns. If a private, public, or any kind of transaction could help achieve that goal, we would pursue it. Each transaction has its own set of challenges and risks, but they are not connected to Keith's and my tenure or succession plans. Ultimately, I believe this is a strong long-term business. We have been in operation for nearly 27 years, achieving great returns and creating significant value for shareholders over time, a trend I expect to continue. However, the question of our actions is unrelated to Camden's operations or our company in that context.

Great. Well, I appreciate the time today, and the consideration. Have a great rest of your summer and we'll see you on the circuit in September. So take care, thanks.