Camden Property Trust (CPT) 2016 Q1 法說會逐字稿

Good day and welcome to the Camden Property Trust first-quarter 2016 conference call.

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Kim Callahan, Senior Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining Camden's first-quarter 2016 earnings conference call. Before we begin our prepared remarks I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.

Further information about these risks can be found in our filings with the SEC and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions and the Company assumes no obligation to update or supplement these statements because of subsequent events.

As a reminder, Camden's complete first quarter 2016 earnings release is available in the 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 try to be brief in our prepared remarks and complete the call within one hour. We ask that you limit your questions to two then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes. At this time I'll turn the call over to Ric Campo.

Thank, Kim. We began our call today with Faith Hill singing Let's Go to Las Vegas and ended it with Sheryl Crow's Leaving Las Vegas. The 18 years covered by those two song titles represent our tenure in Las Vegas which came to a close this week. It's been a great ride.

Camden is driven to improve people's lives. We improved the lives of our Camden team in Las Vegas by providing a great workplace where they could do their best work and have fun. We improved the lives of our residents by providing quality homes which were expertly maintained and managed by some of the industry's finest professionals. And finally, we improved our investors' lives as our investment in Las Vegas produced an annual unlevered return of 10.7% over the 18-year holding period.

The sale of our Las Vegas assets was the right decision for Camden as the communities no longer look like the balance of Camden's portfolio. It was twice as old and had monthly revenue of roughly $500 per home less than the balance of our portfolio.

The biggest negative of the sale is having to part ways with 100 Camden team members, many of who have within with Camden for over 10 years. I want to acknowledge their loyalty, the professionalism that they all exhibited throughout the years together which continued through the Tuesday closing. Thank you for all that you did to make our years in Las Vegas fun, meaningful and rewarding.

The Las Vegas sale and the planned dispositions this year is a continuation of our capital recycling program. By the end of the year we'll approach $3 billion in property sales since 2011. We have consistently sold older, non-core properties and replaced them with more current and competitive properties.

This effort has increased our revenue per apartment from $1,042 per month to $1,566 per month, improving the quality and strength of our resident base. We're not calling a top to the multi-family market with our sales. We're simply taking advantage of the market opportunity to improve the quality of our properties, reinvest in development on a significant cash flow-positive basis, pay down debt and return capital to shareholders.

Our increase in disposition guidance was driven primarily by a significant increase in institutional investor interest in our Las Vegas portfolio. We received numerous unsolicited offers for the portfolio at prices higher than we expected. We ran an auction process and were successful brining the portfolio to market and closing it quickly. We did not include the sale in our original 2016 guidance because we thought doing so would reduce our negotiating position.

The decision to exit Las Vegas was a balance between losing a market with above-average NOI growth for the near term versus the long-term challenges that Las Vegas faces. Witten and Associates ranks Las Vegas near the bottom of their market rankings over the next five years. We believe we were paid well and in advance for the loss of the near-term net operating income growth.

Overall, multi-family fundamentals continue to be strong and above long-term trend in most of our markets, with 10 of our 15 markets exceeding 5.5% revenue growth. Washington, DC and Houston performed as expected during the quarter.

Houston feels a little worse than our last call, the jury's still out on the market. The good news is construction lending for new development has come to a near stop in Houston. Our development properties are leasing up on schedule and at better lease rates than projected.

As we discussed on our previous calls, we are slowing the growth in our development pipeline, taking a more defensive position at this point in the cycle. I want to give a big shout-out to all Camden team members for another great quarter by providing living excellence to our customers. I'll turn the call over to Keith Oden now.

Thanks, Ric. We're pleased with the way 2016 has started with same-store revenue growth of 4.9%, which was actually slightly higher than the first quarter of last year which came in at 4.6%. Our top five markets had revenue growth of better than 8%, Tampa at 10.1%; Dallas, 8.7%; Orlando, 8.3%; San Diego, 8.2% and Phoenix at 8.1%. As expected, our two weakest markets were Houston at 0.4% growth and DC Metro at 0.7% growth.

We're well positioned to have another really good year in 2016. For the first quarter same-store average rents on new leases were up 0.6% and up 6.3% on renewals, compared to first quarter of last year which had new leases up 1.3% and renewals up at the same level, 6.3%. For April, new leases were up 2% with renewals at 6%. May and June renewals have gone out with 6.7% average increases.

Overall our same store portfolio averaged 95.4% last quarter in occupancy, compared to 95.5% for the first quarter of 2015. Occupancy in April averaged 95.4% versus 95.9% last April.

Qualified traffic remains strong in all of Camden's markets. Despite another year of fairly aggressive renewal rate increases, our occupancy rates remain at the upper end of our historical range. In part this is due to low net turnover rates which, at 43% for the quarter, tied the lowest net turnover rate we've ever reported. 14.3% of our residents moved out to purchase homes the quarter and that compares to 14.8% last quarter and 14.3% for the full year of 2015. Our residents' financial health remains strong, as our average rent as a percentage of household income was 17.8% for the quarter.

Finally, since our last conference call, we learned that we were once again included in Fortune Magazine's list of the 100 best places to work. In fact, we moved up on the list from number 10 to number 9 this year. Nine straight years on the list, six years in the top 10 which is a rarity. In all the years Fortune has compiled the list, only nine companies have been in the top 10 six or more times. We claim this honor on behalf of all real estate investment trusts and we give credit to our Camden team which has allowed us to achieve our vision of creating a great workplace. I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith. Last night we reported first-quarter 2016 operating results, detailed the disposition of our 4,918-unit Las Vegas portfolio and the planned disposition of $400 million to $600 million of additional multi-family communities and revised our full-year 2016 guidance accordingly.

Moving first to operating results. For the first quarter we reported FFO of $110.1 million or $1.20 per share, exceeding the midpoint of our guidance range by $0.02. This $0.02 out-performance was primarily due to $0.01 in higher same-store net operating income resulting half from higher miscellaneous property-level fee income, and half from lower expenses resulting from the timing of certain repair and maintenance projects, lower employee benefit costs, and lower common area electrical costs.

As a reminder, on last quarter's call we anticipated certain insurance reimbursements to occur in the first quarter. Those reimbursements occurred as anticipated and accounted for the quarter-over-quarter and sequential decline in property insurance, $0.005 in higher net operating income from our development and non-same store communities and $0.005 from the unbudgeted gain on sale of 6.3 acres of undeveloped land adjacent to an operating community in Tampa.

Last night we also detailed the disposition of our Las Vegas portfolio for $630 million. This portfolio of 4,918 operating units was on average 23 years old, approximately twice the average age of our total portfolio, had average revenue of $1,060 per door versus $1,524 per door for our total portfolio and had average CapEx per door of almost $1,500. The completion of this transaction significantly improved Camden's portfolio.

Using the actual CapEx, this disposition was completed at an approximate 4.75% AFFO yield, generating a 10.7% unleveraged IRR over an 18-year hold period. Based on a broker cap rate which assumes $350 per door in CapEx and 3% management fee on trailing 12-months NOI, the cap rate would be 5.4%.

Last night we also announced the planned disposition of another $400 million to $600 million of operating assets. We are currently marketing approximately $500 million of individual assets and may add or subtract communities at the margin. Four assets are located in Florida, one in Maryland, one in Texas, and one in Southern California. These disposition candidates are on average 29 years old and have lower rents with higher CapEx than the rest of our portfolio.

The anticipated average AFFO yield on this group of assets is approximately 5% and we anticipate the sales to occur in the third quarter of 2016. If all of these dispositions occur as scheduled, we are forecasting a special dividend of $4.25 to $5.25 per share with approximately 90% paid in the third quarter of 2016 and the remaining paid in early 2017 upon completion of our final year-end tax analysis.

We had the ability to absorb approximately $250 million in tax gains in 2016 prior to the Las Vegas transaction which generated gains of approximately $375 million. Of the remaining 2016 dispositions, the tax gain is approximately 60% of the total proceeds.

Our already strong capital position will be significantly improved upon completion of these transactions. Of the $1.1 billion at the midpoint in expected dispositions, approximately $425 million will be returned to shareholders in the form of a special dividend. And the remaining $675 million will be used to retire debt and pre-fund in entirety the $245 million remaining to be spent on our current $960 million development pipeline. By year end 2016, our anticipated net debt to EBITDA will be approximately 4.5 times.

Moving on to revised 2016 earnings guidance. We now expect 2016 FFO per share to be in the range of $4.45 to $4.65, with a midpoint of $4.55 representing a $0.30 per share decrease over our prior 2016 guidance.

The major assumptions and components of this $0.30 per share decrease in FFO at the midpoint of our guidance range are as follows: a $0.42 per share decrease in FFO related to lost NOI from our completed and planned 2016 dispositions, partially offset by an $0.08 per share increase in FFO due to lower interest expense as we will use part of the proceeds to pay off all outstanding balances under our lines of credit which currently total $340 million and we will no longer need to complete a previously forecasted mid-year $250 million bond transaction; and a $0.02 per share increase in FFO related to net operating income from our development communities which are leasing ahead of schedule; and finally a $0.02 per share increase from interest income earned on invested cash proceeds, combined with slightly lower overhead costs and the unbudgeted first-quarter gain on sale of land.

Last night we also provided a revised full-year 2016 same-store guidance. This guidance is based on the removal from same store for the full year of 2016 of both the Las Vegas portfolio and the remaining 2016 dispositions. In the aggregate, these disposition communities were forecasted to deliver same-store revenue growth of just under 8%, expense growth of 5.5% and NOI growth of approximately 9%.

The full-year removal from same-store of the communities which have sold and the anticipated full-year removal from same-store of the communities being marketed reduces our anticipated revenue growth by 40 basis points. The remaining 10 basis points in lower revenue is the result of our typical quarterly re-forecast of same-store expectations.

Our revised 2016 full-year same-store guidance is as follows: revenue of 3.6% to 4.6%; expenses of 3.25% to 4.25%; and NOI of 3.5% to 5%. The reduction in anticipated same-store expenses is driven primarily by successful insurance renewal, successful property tax appeals, and lower-than-anticipated common area electrical costs.

Last night we also provided earnings guidance for the second quarter of 2016. We expect FFO per share for the second quarter to be within the range of $1.13 to $1.17. After excluding the first quarter gain on sale of land, the mid-point of $1.15 represents a $0.045 per share decrease from the first quarter of 2016 which is primarily the result of an approximate 1% or $0.02 per share expected sequential increase in same store NOI, as revenue growth from the combination of higher rental and fee income as we move into our peak leasing periods more than offsets our expected increase in other property expenses due to normal seasonal summer increases in utility and repair and maintenance costs and the first quarter of 2016 favorable property insurance refund, an approximate $0.01 per share increase in NOI from our six communities in lease-up, an approximate $0.01 per share increase in FFO resulting from lower overhead costs and an approximate $0.005 per share increase in FFO due to lower interest expenses.

This $0.045 per share aggregate improvement in FFO is more than offset by an approximate $0.07 per share decrease in FFO resulting from the April 26 disposition of our Las Vegas portfolio and an approximate $0.02 per share decrease in FFO resulting from lower occupancy at our non-same-store student housing community in Corpus Christi, Texas. Occupancy declined significantly from May through August in this community. At this time we will open the call up to questions.

(Operator Instructions).

Nick Joseph, Citigroup.

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

The share repurchases we've been consistent on that and the discount has to be persistent and the volatility, again, has been pretty amazing when you think about the change in stock prices over the last three months. If the market -- we are consistent with that. If the market does allow us to buy stock and sell assets and then buy stock, we will do that.

The bottom line is, the challenge you've had is this volatility in the stock price and it does take a while to sell assets. We will not sell assets or buy stock and then sell assets. So it's just a timing issue. Clearly, when you look at investments, the investment alternatives when the stock is trading at a significant discount and you can acquire the stock and make an arbitrage between the private market and the public market, that's a good thing to do. We just haven't been able to do it because of the timing of everything.

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

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

Thanks. And then finally, you mentioned the unsolicited inbound inquiries for the portfolio. Were any of those for the Company overall?

They were not, no.

Thanks.

Rob Stevenson, Janney.

Good morning, guys. Can you talk a little about what you're seeing in the DC market in terms of some bifurcation between any of the sub-markets? Anything speaking out to you as better or worse in that market than you were expecting given some of the supply and operating dynamics there?

So when we went into this year, the letter grade that we gave DC was a C plus and improving. And that still seems about right. If anything, maybe the C plus becomes a B minus. In conversations with our folks on the ground there, I think there's probably a little bit more optimism than when they put their original plan together. But I think it's still in the right zone for what we're seeing in DC this year.

Obviously, the first quarter at up 0.7% on revenues, that was in line with what we expected it to be but it does feel like there's a little bit more traction. Our traffic has been good. Our closing percentages have been in the range that we expect to see them.

In terms of the markets overall, it's more driven by what's going on in your neighborhood than it is suburban or Metro DC versus DC proper. If you happen to have a lease-up or two that are in your market area, then you are feeling much more of an impact than if you're not.

So when you actually bifurcate it between the DC proper and DC Metro, there's not enough change to make any difference. But if you bifurcate it between what's going on, do you have a competitive set that's in a lease-up, then it matters. That's more the impact that we're seeing. I would say overall, DC feels a little bit better than it probably did even four or five months ago.

Okay. And then second question, have you guys thought about -- you guys have 22 assets in joint ventures today. Did you guys think about liquidating some of the joint venture assets, bringing those to market and going that way with the dispositions as well?

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

Okay, thanks, guys.

Jordan Sadler, KeyBanc Capital Markets.

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

Sure. The market is very, very buoyant from a pricing perspective. When we looked at the Las Vegas asset sale and we're going to be put in a position of doing a special dividend anyway, we looked at it and said, you know, it makes sense for us in this part of the market, to continue to create value by selling our older, less productive assets.

I think part of the thing that's missed here is we all look at NOI growth and we're giving up high-NOI growth properties. But we're also giving up high-CapEx properties, properties that are actually growing on a return on invested capital basis at a slower rate than the overall portfolio. So it really allows us to step that up in a very positive market environment.

In terms of the Las Vegas competition, we had -- you could I'm sure put the list together of names that were involved. There was an article in a realty review, I think it was, that listed some of the potential buyers. It was very widely marketed to a great investor group that, I think, validates that we're not at the top of the multi-family market because I don't think we'd buyers if we were. With that said, we aren't going to comment specifically on who bought it but there is some press out there that will give you a lot better detail on that.

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

I think if you look at where we are today and you strip out everything we sell, it's going to bring our total CapEx to somewhere around $1,300 per door.

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

Well, the feeling of being a little worse is when you look at the job numbers that happened in the first quarter, they were a little less than we thought they would be. Even though energy prices are at higher levels than they were, there's still a lot of property coming online. You just feel like there's -- that it's not as buoyant as it was.

Quite frankly, we were all shocked that it was as good as it was last year. I think part of that is simply the inertia that a city this big, 6.6 million people, that's been adding -- in the last 10 years Houston added 1.3 million people to the economy here. There's a lot of that inertia that kept it going and now that inertia is slowing a bit. I'll let Keith fill in to that as well.

Just to put a little perspective around, quote, the feeling and it feeling worse. If you recall, when we did our walk through the markets in the first quarter, we gave Houston a C and declining. So the inference from that is that you would feel worse every quarter because it's a declining market. And starting from a C, that's a pretty harsh grade for our portfolio. So it's not like we were not really cautious about what we were likely to see in Houston this year.

To put it in perspective, we did, as Alex mentioned when we went back through our re-forecast as we do every quarter, the revision to Houston -- by the way, Houston actually outperformed their budget for the first quarter. It's not like we were surprised by anything in the first quarter. They actually did a little bit better. The revision for Houston in those numbers is roughly $400,000 and you're talking about on a $110 million revenue number.

So what we said at the beginning of the year in the guidance we gave was that we thought that Houston's revenues overall would be flat, and that's still what we expect to see. In fact, even with this revision in my book it still rounds to flat. But it's not like we had any rose-colored glasses on about what we were going to encounter in Houston this year. It's playing out pretty well in accordance with how we thought it would.

We think we've got a fence around the competitive set and the lease-ups that we're going to have to deal with and the inventory that's coming online. Obviously everyone has dramatically revised their job growth projections. Our two data providers for Houston this year, if you average the two that we use, it's somewhere around 12,000 to 15,000 jobs for the year which is a rounding error in Houston, and we've still got 22,000 apartments to deal with in terms of new supply.

I think as the year unfolds, I think we have it properly surrounded. My guess is we'll feel slightly worse in the third quarter than we do today because we're in a declining market.

That's fair. Thanks for the comments.

You bet.

Rich Anderson, Mizuho Securities.

Hey, thanks. Good morning.

Good morning.

So to you, Keith, how much do you think a parallel can be made between your experience in DC and what you're going through you now in Houston? Obviously different inputs as to why things have weakened, but do you think you can expect a similar time line in terms of it pivoting to a recovery that you're experiencing in DC?

In DC it was a slow-motion grind-down. It was a combination of -- you always felt like you had 1,000 or 1,500 too many apartments for the job growth that was being generated. Houston is more -- if you look at the decline and the glide slope in DC and then the modest recovery that we're seeing and we're getting some traction there, that feels like a four-year or five-year unfolding of a scenario.

Look back at Houston. Last year we were still -- throughout the year we held up pretty well. We had mid single-digits revenue growth and here we are flat. So that feels a lot more sudden and jolting than what we saw in Washington, DC.

The reason for the caution that you hear from us and heard in our guidance is that it needs to stop getting worse before it can get better. We're still seeing pretty substantial job losses in the energy sector. Obviously the recovery in crude oil prices in the last 45 days have given people a little hope for that maybe the worst is over.

But the reality is at $45 a barrel you're not going to see much difference in activity. You still have the Chevrons and Exxons of the world who are still down-sizing. Now fortunately for Houston, most of that has been in their footprint around the globe and not a lot of it in Houston.

But in that environment, where major employers in your city, whether the layoffs are hitting Houston or not, they act differently. And their employee base acts differently. So this feels different than DC to me. And we'll see how it plays out through 2016.

I think the other big difference between Houston and DC is that we've shut down supply and DC didn't shut down supply. That was one of the big issues is that you continue to build new properties in DC and supply just kept chugging along. Here, if you can get a construction loan, you are one lucky developer in Houston, Texas today.

Maybe it's a 40% construction loan and 60% equity with the pristine developers getting that kind of deal. But other than that, it's done, you are not building a project in Houston, Texas today. Unlike in DC where we've been delivering 10,000 units a year in a slow-growth environment. The good news here is that once the market bottoms, you don't have the supply pressure that DC has. So it could be a pretty robust recovery when we fill up these units that are coming online now.

That was going to be my next question, if it could bounce back as fast as it bounced down. I guess you're saying that as things fall into place.

One broad question. You identified Las Vegas as older and higher CapEx and all that. Is there any other markets in your portfolio that exhibit similar type of drags on those measures relative to the rest of your portfolio?

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

Okay, great. Thank you.

You bet.

Alex Goldfarb, Sandler O'Neill.

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

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

Okay. And then on the $4.25 to $5.25 special, is that the range is more tax planning-based or ultimate disposition amount-based?

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

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

I think construction loans are getting more difficult for everyone, not just pristine borrowers. It's because you have the classic situation of the banks have to put a higher capital reserve involved because of the Basel III. And I've heard -- we were at ULI a couple weeks ago and that was one of the big discussion points that the best developers are having more trouble getting construction loans today because of those Basel III issues and risk capital issues. So I don't think it's just the small guys, I think it's across the board.

If you look at sort of some of the industry analysts like Ron Witten who is projecting that the multi-family construction is peaking in 2016 and going to be lower in 2017 and going forward. And part of that is the pressure on construction loans, one of the pressure points besides land and cost, the availability of workers and the like. So I think it's a broad issue around the country.

Thank you.

John Kim, BMO Capital Markets.

Good morning. Ric, I read in the press of your increased concern the US economy may be heading toward a recession which may explain the disposition guidance. Can you elaborate on this? Are you concerned more about slowing job growth or assets that are being mispriced today?

I'm more concerned about the length of the recovery that we've been in. So my 40 years in this business, we've had six major recessions through that period of time, through my business career. And the longest recovery we had was 1993 through 2001, eight years. And now we're six years into this recovery. So when you think about the cycle, maybe a lot of folks think the cycle is going to be longer because it took so long to get out of the recovery. On the other hand, who knows.

We're clearly not in the first part of a recovery and of a cycle, so we're not sure whether we're at the top or on the way down. But the bottom line is when you get this long into the cycle, we fundamentally believe you have to start being a little more defensive. You have to have less capital committed that isn't pre-funded. You have to keep your debt at levels that could allow you to be opportunistic if, in fact, the cycle does come.

We know that the business cycle is alive and well and will happen and unfortunately none of us know when. So at this point we are definitely more defensive than we would be otherwise.

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

I do share that view, absolutely. If you look at the supply and demand dynamics, ex Houston and DC, it's a great market. We have millennials. We have empty-nesters moving into the urban core, single family homes are still hard to buy, or to get loans for. So the background for multi-family is really good. And we're not disputing that.

The issue to me is that we're six years into the cycle and is something outside of the US going to change people's view of the world. I think negative interest rates around the globe, commodity prices, you name it, terrorism, whatever, at the end of the day, if we're wrong, we're going to be conservative and our cash flow is not going to grow as much because of that, because we're selling assets. At the end of the day, it's just for us the time is right to be a little more defensive.

John, I'd add to that. It's always at this point in the cycle it comes down to a race between the growth in NOI and the potential change in cap rates. And while we've seen these kinds of NOI growth rates many times before, probably four or five times before as a public Company, we've never seen cap rates like this.

So the question is you've got to look at it both ways. Yes, cash flows are continuing to grow. How much longer and how much higher, that's a question mark. Then the flip side of that is what happens to cap rates. It doesn't take much change in cap rates to blow up another 5% NOI growth.

Okay, thank you.

John Pawlowski, Green Street Advisors.

Thanks. Could you walk us through the process of selling Vegas? When did the process start and what were your initial expectations for pricing?

So we actually started this process in October of 2015. By that I mean getting data together and vetting who we were going to use as the intermediary. So that's when we started the process.

When we set out to put the portfolio together and go down the marketing trail, we were in the $610 million to $620 million what we thought the strike price would be. And then as we refined our numbers, the market seemed like it got stronger. Over the course of our marketing period, our team in Las Vegas continued to put up increasing cash flow numbers. We did -- Las Vegas for the first quarter was over 7% revenue growth. And so all that factored in, we ended up really on the high end of what we thought the trading range would be at the $630 million.

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

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

Okay, understood. Thank you.

You bet.

Jana Galan, Bank of America.

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

The market does -- I think there is premium for portfolios today, definitely. If the portfolio is a cohesive portfolio that makes sense. And so with that said, we do believe we got a premium for the Las Vegas portfolio.

In terms of the other assets, some are being packaged. We have some buyers that are talking about putting various properties together within the same sub-markets. But as Alex went through, the properties are from coast to coast and those tend to not be real constructive for a portfolio sale. Some people might like Florida, some don't. Some like California, some don't. So it's more likely to be more one-off or clusters of properties.

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

We have very aggressive budgets on both Tampa and Orlando. In our original guidance we had Orlando as an A minus and improving. We had Tampa also as an A minus and improving. If that rolls out through the year, A minus improving turns into an A, that's pretty high-grading in our world.

Thank you.

You bet.

Rich Hightower, Evercore ISI.

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

What I'm surprised about is that we're still below 15% in our portfolio. If somebody had told me four years ago that we would be four years down the road in a recovery and we still wouldn't be back to 15% move-outs to purchase homes, I would have said you're nuts.

We had always believed that the home ownership rate was going to fall and fall meaningfully. We originally were one of the first ones to put out numbers like 63.5% we thought we would get to. Well, we got to that and we're rocking around right now between 63.5% and 63.7% home ownership rate. But that compares to the peak in 2007 of roughly 68%, 68.5%. So we are well, well off of the levels that we saw at the end of the last cycle.

What's surprising to me is that with the low mortgage rates, also with the increases that we've seen in rents in terms of overall affordability of homes, that we don't see a higher home ownership rate. Now, there obviously are other factors that get into that. There's the recency effect of all of the carnage in the single-family housing market that many of the people who are of the prime home buying age right now saw and lived through.

Clearly there's a preference that's being played out by a lot of our prime age rent renters for the flexibility that goes with renting versus home ownership. Then on top of that, and finally to that, you have a locational preference of people want to live closer to where they work and play. In most cases that means near the urban core and in most cases that means renting is the preferred option.

So it's all of that stuff. But regardless of which one, how you push and pull it, 14.3% move-outs to home ownership rate still strikes me as a shocking number for our portfolio.

I would argue if we got to 18% that we would have reacceleration of growth across our markets and our cash flow would grow. So 14% tells me that the market's not building enough houses, the economy is not doing as well as it could do if you're building 1 million single-family houses every year. To me, getting to 18% and a more constructive single-family housing market is better for apartments, better for Camden and will create another leg up in the apartment rental cycle.

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

On the same-store revenues, we're plus 0.4% for the quarter. I would be surprised if it wasn't either late second quarter or mid to late second quarter that we probably see a negative number.

In terms of where we are year-to-date, we were at about minus 6% on new leases but plus 3% on renewals. So you do the math on that, we've got about 60% renewal rate in Houston, about a 40% move-out rate. You do the math on that and we're heading towards a negative same-store revenue number for sure.

All right, thanks for the info there.

You bet.

Drew Babin, Robert W. Baird.

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

We've put in our guidance zero to $200 million this year and we still think that development, that moderate development makes sense. And to the extent that we do have a shadow pipeline that we can bring online, we're likely not to change those numbers this year.

But next year depending upon what happens, we could do another $200 million, $250 million of development without any trouble. We're not accelerating the development pipeline but it definitely is waning.

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

Early in the cycle urban properties, there were more urban developments than were suburbans. But now in the cycle the suburban markets have caught up and you have plenty of development in the suburban markets as well.

We have always believed that you should have a balanced portfolio, both geographically and market balanced from urban to suburban, A to B. That way you lower the volatility of the cash flow over time and it's worked very well for us. There doesn't seem to be a dramatic difference between -- within each market there's probably some dynamics that are different but generally speaking, we're not seeing a big difference between As and Bs right now.

Great, thank you very much.

Wes Golladay, RBC.

Hello, everyone. When you talk to the energy executives, we've obviously had a nice rebound in the price of oil. Do you think this will make them more comfortable, maybe not to the point where they hire, but are we past the mass layoffs at this point?

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

I would just add to that, when I talk to the folks that are in the energy business, they don't -- whether it's the price of oil is at $35 or $45 is really not a big difference maker in the way they process it. The thing that they look at and that we have always looked at most carefully is rig count.

And if you look at the rig count, we're at a 30-year low on rig count and it has not stopped falling. It's not falling precipitously but every week you get another five rigs taken out of the mix. We're down from 1,800 working rigs down to somewhere around the 700 level. These are dramatic changes. And so until you start seeing a -- see a stop in the fall in the rig count and a recovery there, all the rest of it's just background noise.

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

We have seen some of that but not a dramatic exodus because of layoffs from energy. Part of it is that when you think about layoffs, they tend to lay off the older people first because they're the highest paid and they keep their young best and brightest. And so the millennial that lives at Camden in Houston is a little more insulated from the layoff than the 45- to 55-year-old getting laid off.

That 45- to 55-year-old is in a house in west Houston on the west side and with their severance and with all the help that the energy companies are doing for their laid-off employees, these people are just staying in their homes and looking for new jobs. So we haven't had a mass exodus or major blip in our move-outs because of layoffs. We had some for sure, but not dramatically.

Okay, thank you.

Vincent Chao, Deutsche Bank.

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

It's pretty much a consistent demand and I would say that the demand for older properties with higher cash flow is definitely in vogue. The challenge you have with the top-of-the-market properties in every single market is that you're talking high 3%s and low 4% cap rates and those are a little harder for buyers. You have to be very institutionally oriented to buy a sub-3% cap rate or a sub-4% cap rate in Austin, Texas, for example, or in downtown Tampa.

But when you buy a 29-year-old asset you can get a 5% and some change cap rate. The other thing that these buyers do is they grossly underestimate CapEx and they kid themselves and think that even though they're buying a $1,500 to $1,600 per door CapEx, they use a $350 or $500 in their underwriting criteria and then those cash flows look really good when you don't include the entire CapEx.

So there's still a major bid out there for leveraged real estate or multi-family transactions at the age that we're selling them. So it hasn't really increased, it's just been a constant wave of capital that has been in the market for a long time.

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

Got it, okay. What I'm trying to understand is if demand has been consistent. I think I heard with the Vegas transaction happening, you're already going to pay a special dividend. It felt like, hey, this is an opportunity to accelerate the quality improvement and sell some more assets. Was that really the only driver then? If demand spiked up and you saw an opportunity that might make some sense but is it just --

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

Yes. The truth is, the response that we got from our Vegas portfolio, this group of 29-year-old assets in Las Vegas that screen at the bottom tier of our portfolio, was very encouraging. And that has carried over for that genre of assets.

The pool that we're in the market with right now looks a whole lot like the Las Vegas assets writ large. They're obviously older assets. They have higher CapEx needs that we have to address in a different way than a new buyer would. If you think about the -- Alex gave you the cap rate on the Las Vegas portfolio, the AFFO cap rate that we use, I think that's the best way to look at it, was 4.75&. The cap rate on this second wave is about 5%. These are unprecedented cap rates for that vintage of assets in my career.

Of course it's all being driven by incredibly low interest rates. Most of the buyers are using floating rate debt. That floating rate debt is plentiful out there. It's not being impacted by the banks because the banks aren't the ones providing. It's Freddie and Fannie and insurance companies and others. So what's driving pricing is the wall of capital and the unprecedented low interest rates.

Okay, thanks for that color. And one other question, different topic. You talked about the strength of the Tampa market and Orlando. You did sell some land in Tampa. Just curious if there's something about that land that just didn't work.

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

Got it, thank you.

Nick Yulico, UBS.

Hey, guys, it's Ross Nussbaum here with Nick. How are you thinking about your portfolio NOI contributions following all of these asset sales in particular? I'm imagining your Houston and DC exposures tick up a bit. How do you think about -- do you think about taking those back down over time? Or are you comfortable with higher concentrations to your top markets?

So they do tick up slightly. It's not a huge difference on DC and Houston. Actually, one of the dispo assets is a DC Metro asset. Once you net that out, it's not a big change.

Ultimately, and we've said this before, we would like our exposure in DC Metro to trend downward. We're comfortable with where we are right now. I would expect over the next three to five years, by just our normal process of selling assets that need to find a new home, that our DC Metro exposure probably will come down.

Houston probably will also come down. Again, if you just think about what we have in our pipeline here, we only have one asset that's under construction in the Houston market. We have two other parcels of land that are on hold right now. So it's not like we have a large backlog of projects in Houston. The likelihood that we would be doing on balance sheet acquisitions in Houston in the near term is not very high. We would obviously like to sell into a better environment than what we have right now in Houston. But yes, I think over time you would expect to see both of those concentrations come down some.

Okay, appreciate it. I think we've all got to go over to the AMCO call, but I'm curious what you think of Will Fuller being at wide receiver now opposite (multiple speakers)

We are absolutely full of optimism. (laughter)

Dotson was my guy, but Fuller, he's the hoss, so I'm happy with it.

Well, you can't do much worse than last season, so good luck.

Speed is cool and great.

Tom Lesnick, Capital One Securities.

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

Absolutely. So approximately half of it is from insurance. We just completed our annual renewal and we were very, very successful on that side. Of the remaining half, you can -- about 500 -- half of that comes from taxes and the rest comes from miscellaneous things which includes lower common area electrical costs.

Got it. And then Denver in particular stood out on a negative same-store expense line this quarter. Anything in particular driving that?

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

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

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

All right, thanks, guys. Appreciate it.

Gil Marchand, Knights of Columbus.

Hi. Have you earmarked any particular debt issues that you're going to pay with this cash in-flow from Las Vegas?

So what we're going to do first of all is we're going to repay the line of credit. We'll do that and that currently has about $340 million outstanding. And then we've got -- the next debt that we have coming due is May of 2017 and so effectively we'll be holding cash to repay that at maturity. At this point we don't intend on pre-paying early any of our fixed-rate debt.

All right, thank you.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

We appreciate your time today. I know there's another call so thank you and we'll see you at NAREIT.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.