Camden Property Trust (CPT) 2016 Q3 法說會逐字稿

Good afternoon, good morning, and welcome to Camden's third quarter 2016 earnings conference call. All participants will be in a listen only mode.

(Operator Instructions)

After today's presentation there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time I would like to turn the conference call over to Ms. Kim Callahan, Senior Vice President of Investor Relations. Ma'am, please go ahead.

Good morning, and thank you for joining Camden's third 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 third quarter 2016 earnings release is available in the investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures which will be discussed on the call.

Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Alex Jessett, Chief Financial Officer. Since there are two more multi-family calls scheduled this afternoon, 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 any additional items to discuss. If we are unable to speak with everyone in the queue today, we would be happy to respond to additional questions by phone or email after the call concludes. At this time I will turn the call over to Rick Campo.

Thanks, Kim. Today's pre-call music by Maroon 5 was chosen with the help of Neil Malkin from RBC Capital. You may recall that Neil was the winner of a Camden trivia contest from one of our prior quarterly calls. The selection of Maroon 5 by Neil is a reminder that musical preferences are largely generational.

At Camden we have a large number of awesome Texas A&M graduates including Malcolm Stewart and Michael Gallagher, and they thought about this long and hard. The school colors of A&M happen to be maroon and white. When I told Malcolm and Michael that we were having Maroon 5 on today's call, they looked at me confused and asked, why would we want to have the Texas A&M basketball team on our conference call? You can't make this stuff up.

Our operating results for the third quarter and the year have been in line with our business plans. Our teams did very well managing operating expenses during the quarter, and we realized savings in several areas including property taxes, and Alex will give you more detail on that later in the call. We have completed our 2016 disposition program in September and have no properties in the market today.

Our capital recycling program has increased the quality of our properties and future revenue growth prospects through the sale of nearly $3 billion in properties that represent nearly 40% of our portfolio. These properties had an average age of 25 years old. This was accomplished with very little dilution as a result of the historically narrow cap rate spreads between older properties and newer acquisitions.

We have been a net seller for the last three years and we continue to believe that capital recycling has really transformed Camden's portfolio and positions us very well for the future. We made significant progress on our development pipeline during the quarter and have fully funded the remaining cost to complete as a result of our dispositions.

I want to thank our Camden teams at the properties and at our support offices for their great work this quarter, and for their commitment to improving the lives of our customers one experience at a time. I will turn the call over to Keith. Thanks.

Thanks, Rick. We are very pleased with our results for the quarter. Overall, conditions remain above trend and for the second straight quarter sequential revenue growth was 1.6% with all markets positive for the quarter.

From an operations perspective we are particularly pleased that all of the planned $1.2 billion in dispositions were completed by the end of the third quarter. Transaction volumes of that magnitude can be a big distraction to our on-site teams, but I'm very pleased with the outstanding job of our real estate investment and operating teams did in managing this effort.

A few highlights from our same-store results. Third quarter revenue growth was 3.7%. The top 11 of our 14 markets averaged 5.8% revenue growth, led by Orlando at 7.4%, Dallas 7.2%, and both Tampa and San Diego at 7.1% growth.

As expected, our three weakest markets combined, contributed just slightly positive revenue growth for the quarter of 0.2% with Houston down 1.1%, DC up 1% and Charlotte up 2.1%. All three markets are facing an increase in supply with only DC creating sufficient employment growth to absorb the new construction deliveries.

Camden's DC revenue growth improved for the quarter, but is still being impacted by construction at one of our Maryland communities, which comprises 9% of our same-store DC revenues. Excluding that community, DC revenue growth would have been 50 basis points higher at 1.5% growth for the quarter and 1% flat year to date. Charlotte revenues rose 1.7% sequentially despite continued pressure from new lease-ups.

Regarding Houston, revenue growth was negative again in the third quarter, down by 1.1%. We do expect further weakening in Houston in the fourth quarter. Last quarter we project Houston full-year revenues to be flat to down 1%, and based on our reforecast for the fourth quarter we believe revenues will be at the low end of that range.

The 0.1% decline in our same-store revenue guidance for the full year, from 4.1% to 4.0% is almost entirely attributable to a weaker outlook for Houston. The most recent data we have indicates a total of 23,000 apartments to be delivered this year with the majority of that coming in the third and fourth quarter.

With employment growth this year projected to be in the 10,000 to 20,000 range for the year, deliveries will add significant pressure on occupancy and rental rates. 99% of the 23,000 completions in 2016 are coming from merchant builders that have a very different capital structure and strategy as to how they respond to disruptive market conditions. Let's just say that patience is not among the virtues of merchant builders.

In recent weeks, many lease-up communities in Houston have moved from two months free rent to three months free rent as they compete for increasingly limited traffic. The behavior of merchant builders is somewhat akin to a herd of wildebeests. Things look pretty calm in the heard until one wildebeest gets spooked, which causes a massive stampede. It seems as though the heard got spooked at some point in the last 30 days, and as everyone knows, it is very hard to unspook the heard.

Fortunately, we've been to this movie a few times over the last 30 years and we have positioned ourselves well to minimize the damage. Longer lease terms and more aggressive renewal and retention efforts instituted last year have certainly helped. We believe 2017 is going to be another tough year for Houston as job growth remains weak and another 10,000 merchant built apartments are delivered. We are in the process of putting together a 2017 forecast, which we look forward to sharing with you on our next call.

A few observations on our operating stats for the quarter. In the third quarter, new leases were up 2.3% with renewals up 5.6%, for an average increase of 3.7%, roughly 100 basis points below third quarter 2015 results. October new leases are trending up basically flat, up 0.1%, renewals are up 4.8%. November and December renewal offers are being sent out at about a 5.5% increase. And our portfolio-wide occupancy rates have remained strong at 95.8% in the third quarter, up from 95.5% last quarter.

Net turnover rates for the third quarter were 57%, down 700 basis points from last year's 64%. Move-outs to purchase homes were actually down to 14.7% versus 15.9% last quarter, while the year-to-date rate was 15%, up slightly from 14.3% in 2015.

Finally, I want to acknowledge our on-site teams for their excellent performances through three quarters. We're on track to have another strong year of outperformance relative to our original budgets. Keep up the good work and let's finish strong in the fourth quarter. I will turn the call over to Alex Jessett, our Chief Financial Officer.

Thanks, Keith. Before I move to our financial results, I will provide a brief update on our real estate activities.

In the third quarter, we completed $484 million of property sales. Successfully completing our 2016 disposition activities. These final third quarter sales bring our total disposition volume for the year to nearly $1.2 billion. The average age of the full-year dispositions was 23 years, and they were disposed of at an average AFFO yield of 5.1% based on trailing 12-month NOI and actual CapEx, equating to a nominal NOI cap rate, which excludes management fees and CapEx of 6.1%.

The unleveraged internal rate of return for our 2016 dispositions was 11%, with an average hold period of 17 years. Approximately $200 million of our third quarter dispositions were completed later in the quarter than originally anticipated, contributing to our third quarter positive FFO variance, which I will discuss later. Additionally, in the third quarter, as a result of our disposition activities, we paid a special dividend of $4.25 per share.

On the development front, during the third quarter we stabilized Camden Glendale in southern California, completed construction at Camden Victory Park in Dallas and began construction on Camden Washingtonian in Gaithersburg Maryland. Additionally, we purchased 2.4 acres of land in Denver for future development. Our balance sheet remains very strong with debt to EBITDA of 4.2 times, a fixed charge expense coverage ratio of 5.3 times, secured debt to gross real estate assets at 12%, 74% of our assets unencumbered, and 92% of our debt at fixed rates.

We ended the quarter with no balances outstanding on our unsecured line of credit, $414 million of cash and short-term investments on hand and no debt maturing until May of 2017.

During the third quarter, the strength of our balance sheet was recognized by one of the ratings agencies as Fitch upgraded our senior unsecured debt rating to A-. We do not anticipate prepaying any portion of our current debt given the high penalties that would be incurred. Instead, we plan to use our cash balances and future sales proceeds, if any, to fund our development pipeline.

Our current $820 million development pipeline has approximately $213 million remaining to be spent over the next two years, and we are projecting another $100 million of development to begin construction later this year.

Finally, before I move on to our operating results, a brief update on property taxes. The majority of our assessments and rates are now in and we have settled the majority of our prior-year appeals. Almost uniformly, rates and assessments were positive to our forecasts and we had great success with our prior-year appeals. As a result, we now anticipate our full year 2016 property tax expense will be up 3% as compared to our original budget of 6%, for a savings of approximately $3 million.

Moving on to financial results. Last night we reported funds from operations for the third quarter of 2016 of $104 million or $1.13 per share. These results were $0.04 per share better than the $1.09 midpoint of our prior guidance range.

The components of this $0.04 per share outperformance are; approximately $0.01 per share resulting from previously mentioned later than anticipated sales dates on approximately $200 million of our third quarter dispositions, approximately $0.005 per share in lower same-store property tax expense resulting from a combination of lower rates and assessments and higher property tax refunds from prior years, approximately $0.005 per share in lower non-same-store property tax expense resulting from a prior-year property tax refund in Washington DC, approximately $0.01 per share in lower other property expenses driven primarily by lower personnel and unit turnover costs.

Net turnover for the third quarter of 2016 was 700 basis points below the same period last year, and approximately $0.01 per share from a combination of other miscellaneous income items. Our new Camden technology package with internet service is rolling out as scheduled, and for the third quarter, contributed approximately 95 basis points to our same-store revenue growth, 175 basis points to our expense growth, and 50 basis points to our NOI growth, in line with expectations.

Last night we also provided earnings guidance for the fourth quarter of 2016. We expect FFO per share for the fourth quarter to be within the range of $1.12 to $1.16. The midpoint of $1.14 represents a $0.01 per share increase from the third quarter of 2016.

This $0.01 per share increase is primarily the result of the following; a $0.025 per share increase in FFO due to growth in property net operating income comprised of a $0.04 per share increase resulting from an approximate 3% expected sequential increase in same-store NOI, driven primarily by our normal third to fourth quarter seasonal decline in utility, repair and maintenance, unit turnover and personnel expenses, and the timing of certain property tax refunds.

In the fourth quarter, we anticipate approximately $2.5 million of prior-year property tax refunds resulting from our successful property tax appeals. A $0.01 per share increase resulted from the NOI contribution of our five developments in lease-up during the quarter, a $0.015 per share increase resulting from the normal third to fourth quarter seasonal increase in revenues from our Camden Miramar student housing community, and a $0.04 per share decrease due to the lossed NOI from our $484 million of dispositions completed in this third quarter.

This $0.025 per share net increase in FFO will be partially offset by $0.015 per share decrease in FFO as a result of lower fourth quarter non-property income and higher corporate overhead costs. Based on our year-to-date operating performance, we have revised and tightened our 2016 full year revenue, expense, and NOI guidance. We now anticipate full-year 2016 same-store revenue growth to be between 3.9% and 4.1%, expense growth to be between 2.3% and 2.5% and NOI growth to be between 4.8% and 5%.

The new midpoints represent a 10 basis point reduction for revenue, a 135 basis point improvement in expenses driven primarily by lower property taxes, unit turnover costs, salaries, and utilities, and a 65 basis point improvement in net operating income. We've also revised our full-year 2016 FFO per share outlook. We now anticipate 2016 FFO per share to be in the range of $4.61 to $4.65 versus our prior range of $4.50 to $4.60, representing an $0.08 per share increase to the midpoint. Our revised full-year 2016 FFO guidance assumes no acquisitions or dispositions in the fourth quarter.

At this time we will open the call up to questions.

Ladies and gentlemen, at this time we will begin the question-and-answer session.

(Operator Instructions)

Our first question today comes from Nick Joseph from Citigroup. Please go ahead with your question.

Thanks. I appreciate the color on Houston. For the merchant built product and lease up, what percentage of the units do you think have been leased? And then what do you see in the Houston transaction market in terms of any product coming to market and any movement in cap rates?

So on the merchant build, it's really difficult to pin down that number because some of them are still in lease up from the prior year. A lot of the deliveries for 2016 ended up getting delayed beyond what they originally projected.

If I had to pick a number I would say of the 23,000 apartments delivered this year, since a big percentage of those are being delivered in the third and fourth quarter, on an average you're probably 25% to 30% leased of that group. You do still have some that would have carried over from being late 2015 deliveries that are later in their lease ups.

It is kind of hard to get a handle on it because we don't really have great reporting about actual percentages on percentages leased. They are pretty secretive about that information. What we do have is I'm guessing it's 25% to 30% of that group.

On cap rates, there have not been a lot of trades. There been some and the cap rates have generally been around 5%, so we have not seen if the -- question is about have cap rates risen and what are the trade doing today. They really haven't risen per se, but there hasn't been a lot of transaction volume.

There's some value add that has happened that is pretty much in line with what the cap rates were in the past. I will tell you though that there are some new developments that are in the market that have finished leasing up or are trying to lease up. And the interesting thing about those cap rates is I think those cap rates have actually compressed.

And you might think that's counterintuitive for this part of the cycle, but what is happening is people are looking at real estate saying, what is the cap rate today and what is the cost associated with that real estate in a very tough environment when you are in a lease up environment? And so what's happening is people are looking more at, what is replacement cost, and what is the premium to replacement cost they are paying?

And we've seen some cap rates on deals that have just gone to contract in the very low 4%s. But when you look at them from a pure cost to replace perspective, people are going to start thinking more about that and they are about cap rates.

And then the question is, when you think about -- their underwriting is what has probably changed in that when they tried to get a 6% or 6.5% unlevered IRR, that the growth rate for the next couple of years is going to be either negative or low and then they expect recovery to try to get back to their unlevered IRR. But I think trade is going to be more based on replacement costs than they are going to be based on cap rates. That is generally what happens in end markets where you have dislocation in supply.

Thanks, and then I guess with the tech package, you mentioned the 95 basis points benefit to same-store revenue growth in the quarter. When that does that benefit dissipate, and is there any benefit to 2017 from that program?

The full year guidance that we gave for revenue from the tech package is 100 basis points. When you think about -- basically what we have been running each quarter this year, and so the fourth quarter should be no different. And then if you sort of continue to think about the ramp above it, we're just over about 35,000 units signed up today. We're getting about 5,000 units done at quarter, and we will get almost our entire portfolio signed up by the time it's over, so we should continue to have some incremental positive impact going into 2017.

Thanks, and then last question on the cable portion of the tech package, is there any risk to Camden or potential risk to Camden from people cord cutting? Can you guys guarantee a certain number of units will subscribe? Are there other corporate guarantees or risks to that program?

Not really, because we have the ability at various points to unbundle with our providers. So we have belt and suspenders around our contractual agreements with the underlying or with the cable providers. On the flip side of that is, the question is, what about people who, they intend to be cord cutters, they have bundled technology package with cable.

And the reality is that the value proposition for our residents for high-speed Internet at 100 megabits per second, which is stellar, that the value proposition for the high-speed Internet alone for most of our residents is enough for them to say, this is a good deal for me. Now, in addition to that they obviously get the cable, and it's always on, you don't have to deal with the installation and all the other things.

I can't tell you that out of 100,000 residents that we don't have a couple handfuls that when we roll the program out say, I cut the cord and I don't need or want high-speed Internet and the bundling bothers me. But I can tell you that the overwhelming majority, and I'm talking about 97% of our residents, look forward to and sign up in advance of their lease rolling over when it is offered at their community.

There is probably some at the margin we missed, but the 97% that sign up and love the program, the rest of it is just background noise.

Thanks.

You bet.

Our next question comes from Jordan Sadler from KeyBanc. Please go ahead with your question.

Hi, it is Austin Wurschmidt here along with Jordan. Just sticking on the tech package piece, you mentioned that you will continue to have the benefit into 2017 as you continue to roll that out, but I was curious if there's any additional upside from, call it a round two of increases on the initial that have already been rolled out?

So we have the ability to increase rates at a market level within our contract. We are not tied to any particular rate with the underlying providers, so our strategy on that will probably be to mirror the increases of the underlying cable providers.

Fortunately in our case we signed, we got fixed rate agreements in some cases five and some cases seven years, so we don't have much risk on the underlying cost increasing. But as the retail value of the package increases, and we are already at a pretty significant discount to their retail value of the package, we obviously have the ability to continue to move cable rates up.

Thanks for that, and then you guys have previously talked about the land bank winding down around 2018. Any additional markets you are looking at to add land backfill for future development starts?

We have enough land to take us through 2018 and then in our plan we have land being acquired to be able to continue the development pipeline at the $200 million to $300 million a year range, assuming the market conditions allow for that. We will be looking for new land to be able to put in the pipeline over the next year or so. We still love the markets we are in.

I would say we probably err towards -- we have some pipeline in Florida and California and ultimately, we just acquired a project in Denver. We look at all our markets, we take a hard look at what the macro and the midterm short view is, and are looking in all the markets we are active in today.

And as you think about continuing to pre-fund new development starts, what do you view as your most attractive source of capital? Could we continue to see you guys opportunistically sell assets?

Absolutely. When you look at the spread, our average AFFO -- the spread between our AFFO rate on dispositions and acquisitions is about 27 basis points on this last book of business, and when you look at spread between older asset and the new development, it's a much, much wider gap obviously.

The challenge we have, however, is that we are limited by the amount of sales we could do because we've maxed out our taxable income issue with respect to paying future special dividends. So there is a limit on the ability to sell assets and fund development, but fundamentally we think it's a great trade.

Obviously got short-term solution when you do it, because you put cash on the balance sheet in and giving up the cash flow. But when you look at the massive spread that you get between the old versus the new and the ability to create more value in your portfolio from an ongoing growth perspective it makes a lot of sense to do.

Great. Thanks for taking the questions.

Our next question comes from one Juan [Sinaveira] from CPT. Please go ahead with your question.

I just wanted to ask about your comments on Houston in the 23,000 units you need to supply this year, 10,000 next year. With what you are seeing in the job market today, what demand does that translate into units of absorption? So kind of think about versus that supply pipeline you talked to.

So we're currently using about a 10,000 to 20,000 job gain this year. And the math we have always used is, five new incremental jobs that get created, creates one net market rate, multifamily demand. So with 20,000 jobs at the top end of the range you can absorb 4,000 apartments and we have got 23,000.

Therein lies the problem, and the problem is, as I mentioned in my prepared remarks, is primarily a merchant build problem because when they began a lease up, they begin at 0% occupied. We are just in a very different situation vis-a-vis the competition because we start at 95% occupied and have to play defense. We have been playing defense for the better part of the last year and a half.

It is baked in, the 2,000 -- unless something dramatic happens to 2016, we're going to have way too many apartments and not enough jobs to absorb them. If you look down into 2017, again, most estimates have job growth next year of, we are using an average of the three providers and it gets about 35,000 jobs. On that math you should be able to absorb 7,000 apartments.

The problem is we have got another 10,000 coming next year and that's pretty much baked in the cake as well. You're going to have an overhang of apartments this year from 2016, you're going to make it a little bit worse and 2017 but getting closer to an equilibrium. So the disruption the has to happen is finding the market clearing price for probably what ends up being 18,000 apartments that we don't have natural demand for in job growth.

You do have some natural demand that's coming from the urbanization of Houston where you have properties that has been built that did not exist before, high-rises, larger units in some of the prime locations including downtown and the Galleria. There is a fair amount of baby boomers moving from the burbs into the urban core and that densification that's going on, but there is clearly not enough to fill that gap that Keith described.

The interesting part of that, the good news is we know pricing has already come down with two months to three months free in some of the toughest markets. What that does and the great thing about apartments is price and elasticity is great. The lower the price, the higher the demand for the product. What is going to happen is you will have some acceleration of the urbanization that's going on, especially in the downtown area. You have these 40 story brand-new buildings with infinity pools on the 40th floor offering three months free today; and what that allows is, when you start getting pricing down to more affordable levels for the millennials, they are going to move into those properties.

They couldn't afford them to start with when they originally had pro forma, say $2.75 to $3 square foot rent. So on the one hand that demand will be increased by virtue of the price elasticity for apartments, and ultimately as they fill up after -- we should see a significant drop in the completion in 2018 and 2019. And if energy prices hold at $50 or higher, the energy companies are basically done laying people off and could actually start to ramp up in 2017 and 2018 and 2019.

But 2017 is definitely not going to be a year that is going to be a stellar year for Houston. It's going to definitely be much more difficult than 2016. But I look forward to 2018, 2019, and creating some serious value then.

And just on your response to the increase in concessions to three months from developers, what you guys doing for your interest in product to keep that occupancy? (multiple speakers)

We've have to get more aggressive obviously on our new rental rates. You've got to do two things. You have to close the back door. That means focus like crazy on retention and renewals, which we have done, and by the way, we started that process in the middle of last year.

This has been known and knowable for us anyway for at least 18 months. First of all you have to play great defense and we've done that. We've been very aggressive on lengthening lease terms so that we can get them beyond what we think the maximum period of stress is and then we've worked on retention.

But for the people that are new and the people that are shopping, you're going to have to adjust your pricing, which we have already done that. In the last two months our new lease rates we have signed on average in Houston are down 5% to 6%. If you roll that forward into the fourth quarter, we are probably looking something closer down 7% to 8%.

That equates to one month free. Now we don't do free rent, because it's all yield star pricing. It is just net effective rent pricing, but on an apples to apples basis, the new developers by and large are in the two month to three month range. And stabilized operators like Camden have adjusted their pricing to basically down one month from what it was a year ago.

You don't have to meet their pricing because they have a very different task ahead of them that we have. They have got to get from 0% occupied to 95% occupied, and we just have to hold serve at 95%. If you think about the math in a Camden community and the reason our pricing doesn't adjust and doesn't have to adjust to what the merchant builders are doing, so take a typical 300 home community in Houston.

We are going to renew about 60% of those residents, and we know that from history and what we have been doing for the last year. That is 180 of them, so that means you're going to have to sign 120 new leases over the next 12 months. That is 10 leases per month.

What we talk to our on-site staff about is, quit worrying about all noise about two and three months and go find -- you have a month every month to find 10 people who want to live in an awesome location with the best management team in the city of Houston. You just have to find 10 of them. That is what their mission is every month.

It is very different than what the merchant builder guys are facing and that is what we're focused on.

Thank you very much.

Our next question comes from Rich Hightower from Evercore ISI. Please go ahead with your question.

Good afternoon, everyone.

Hey, Rich.

I appreciate all the good color on Houston with respect to supply and everything else. My question here is, could you kind of walk us through the cadence of supply deliveries? Not only in Houston, but maybe for the top three or four markets in your portfolio next year?

So on Houston, we know we've got 23,000 that are going to be delivered this year. It is going to be back-end weighted. My guess is that 15,000 of those are coming in the second half of the year, we probably have 8,000-plus or -minus in the first half of the year.

So, the lease ups will roll over into next year, but in terms of new completions next year, we should get 10,00-plus or -minus. My guess is that if the delivery, say that are slated for the first and second quarter, we still have lots of issues with labor and getting units turned, so they're probably going to slip. You're probably going to have a little bit of a back end bias to the 10,000 apartments next year as well

Again, we have given you the employment growth numbers, so that is part of the challenge that you have here. If you flip over to our largest market in Washington DC, a very different picture there. Certainly on the supply side it is more manageable than Houston, but more importantly, in terms of job growth in 2016 it looks like the DC market is going to deliver about 70,000 jobs this year, total deliveries we expect to be about 9,000 apartments.

Roll forward to 2017, it looks like an average of our data providers about 65,000 new jobs and again, roughly 9,000 in new apartments delivered in 2017. Those are pretty good numbers because it is in the pipeline and knowable as far as 2017 deliveries. Really, DC looks very encouraging from the standpoint of supply and demand.

You've got sufficient in both years job growth at the 70,000 and 65,000 to more than absorb the 9,000 each year that we think is coming. So the third market that is certainly on our radar screen, it screened as one of our bottom three, is Charlotte. And again, Charlotte's issue is pretty decent job growth, but probably too many apartments that need to be delivered.

Let me give you the comparable numbers for 2016. Job growth in Charlotte was roughly 25,000, looks like were going to get another 25,000 next year plus or minus. So that would imply 5,000 apartments that could be absorbed; and we are going to get roughly 7,000 apartments in 2016 and it looks like we get another 6,000 apartments. A slight amount of excess supply.

The challenge in Charlotte will be the location of where that supply is coming. As with all these markets it tends to be a little bit skewed toward the urban products. If you've got stuff more in the urban areas of Charlotte, you're probably going to have a little bit bigger impact.

Overall you got 7,000 apartments, we've got natural demand for 5,000, that looks to me pretty manageable in Charlotte. Of those three markets, Charlotte, Houston, and Washington DC, the only one where you really have a real gap from what we can see or believe is coming in absorption is Houston.

Okay. That's helpful, Rick, and one quick second question here. You guys have had a lot of success on the property tax front this year. Do you expect the year-over-year comps for 2017 to be a bit of a headwind in that respect?

One of the challenges that you always face when you get a lot of prior-year appeal refunds in is that it certainly does make your comp set a little bit harder the next year. And we've had obviously considerable success this year on the appeals side. But additionally, and I mentioned in my prepared remarks, we have across the board seen rates and valuations come down.

The good news about that is hopefully that's indicative of a mind shift in terms of assessment offices and hopefully that translates to more of a normal base number for next year. Historically, taxes for us have increased on average less than 3%.

So I think if you think about the base number, I think we're back to that 3% range, and then we will have a small amount of headwind, depending upon how it all shakes out, associated with prior-year refunds that we got this year. This clearly has been an outsized year for us.

Great. Thanks.

Our next question comes from Wes Golladay from RBC Capital Markets. Please go ahead with your question.

Hello, everyone. Just going back to Houston since you are all out there, how does the overall business environment feel?

It looks like looking at the employment data, Houston had a nice uptick in September. It's only one data point and does it make a trend, but almost 14,500 jobs added in the month. Are you feeling any better out there?

The market feels pretty decent. The good news is if you think about Houston, the oil dislocation was, if you measure just in terms of price and in terms of dislocation to the energy sector, it was worse than the energy decline in the 1980s. And the difference, however, in the 1980s, Houston lost about 250,000 to 300,000 jobs during that bust.

During this situation we've not lost any jobs, we actually have added incrementally small numbers of jobs, but that's on top of we're coming off of some really good years. When you think about the last big year in 2013 and 2014, we were generating 125,000 jobs. So it is almost like a car going 70 miles an hour down the freeway, and all of a sudden we've got 20,000 jobs and we are going 20 miles an hour instead of 70.

So that is what it sort of feels like that kind of speed change. I think the stabilization of oil prices and the increase from the lows in February to today definitely has put a zip in the step of energy folks. And you've seen the rig count bottom out and now it is up 25% from the 400 level.

And every new rig that gets put on is 200 employees; that goes to that rig, they are not necessarily based in Houston, but it is 200 employees going to a rig. Most of the energy people that we have talked to are pretty much done laying off. They have cut as much as they can and they are now sort of holding their own and waiting for the recovery.

The challenge you have in the job market is the 80,000 jobs that were lost in the energy business, and we've offset those with jobs in medical center, jobs in the petrol/chemical construction business, and in retail. Those jobs are not as high paying as the energy jobs, so there has been a loss of wages, and you've seen a decline in new vehicle sales, a decline in sales tax for the region, and things like that.

Generally people feel like the worst is over and they are going to drag along the bottom for a while, and if oil prices stay at these levels, then they will start ramping up. I think there was an energy conference here this week, and folks were talking about their budgets for 2017. They cut their budget 55% from the peak last year and this year, and they're talking about a 25% increase in capital expense budgets from the energy companies as a result of $50 oil. So that will be positive.

That doesn't necessarily translate to big-time hiring, because usually it takes a while after you have been shell-shocked and laid off a bunch of people. You don't really add them back immediately. We feel decent about it.

We're not as worried about the job prospects for Houston, because we know that's coming and it will happen. And the big issue in Houston is just taking up the supply that Keith went through.

I want to bring that back to a multifamily, because we talked a lot about Houston this morning, and I know there's just -- there's a lot of questions and will continue to be questions about what does 2017 look like? While we are not really prepared to give any numbers on that, I think it is useful to use history as a guide. So in 2010, which was kind of the last time we had a real dislocation in the Houston apartment market, the conditions in 2010 -- so in 2009 Houston lost 110,000 jobs as part of the great recession.

2009 was a bad year for jobs in Houston as it was in other places in the country. At the same time we delivered 15,000 apartments in 2009, which is less than what we are delivering now, but you were delivering into a job market that was far weaker than we have right now. What it all that mean for our portfolio in Houston?

In 2010, you rolled the 110,000 job losses forward. We were basically flat on jobs in 2010. We got another 6,000 apartments delivered in 2010.

So between 2009 and 2010 we had 21,000 apartments delivered in a much worse job environment, and our revenues in 2010 were down 3.7%. We're going to be down 1% this year, -- if you're trying to think about framing the overall situation in Houston, to me it doesn't feel anything -- that doesn't feel as bad to me as 2010 was so, it feels worse than 1% down which was where we were in 2016, but it doesn't feel like 2010. That's framing the argument about where we think it's going to be and obviously we will get detailed budgets and go through our forecasting processing, and we will get back to you in the first part of next year with how we think is going to shake out.

I appreciate that and I know [Martin] has one question for you.

Hello, guys. Thanks. You guys talked about wanting to get into Northern California.

I just wonder, given that there's a lot of supply coming down the pike and growth slowing, I don't know on asset prices, land values are getting anywhere close to potential for you guys to make your foray into the Northern California area. Thanks.

Well, we like Northern California long-term and ultimately we would like to have some exposure in some other of those markets including the Pacific Northwest. When you look at where we sit today with one of the strongest balance sheets, maybe the strongest balance sheet in the sector, and with a big bunch of cash on our balance sheet with no debt maturing, it definitely positions us to take advantage of the cycle. And right now we are in the part of the cycle that is uncertain.

You have declining revenues everywhere, and we will see what happens for job growth in the rest of the economy. We clearly are positioned to take advantage of these cycle from a capital perspective when it presents opportunities to us, we plan to do that. When that happens is hard to say.

I don't think it has happened yet. And as I discussed with Houston, the Houston market, you can't buy -- there are no deals here. And so I doubt there are any deals in America today because of the capital flows and because of the significant equity positions that most merchant builders and other owners of apartments have.

So we have no stress here and I can't imagine that there's any stress on the West Coast at all. Even though you've had some slowdown in growth and supply issues in markets that people never thought could ever have a supply issue and was sort of an interesting situation even though -- so with that said, I don't think there's a lot of opportunity yet to do anything.

Okay. Thanks.

Our next question comes from Nick Yulico from UBS. Please go ahead with your question.

Thanks, just going back to this Internet rebilling benefit that you got [for] same-store revenue this year. I'm sorry, did you say at what point that ends next year and what might be the benefit, if there's any to your same-store revenue growth next year?

I didn't give any guidance for next year. What I did say though is that we've got about 35,000 units currently rolled out under the program.

That number is increasing about 5,000 units a quarter, and when this thing is complete, we will have all of -- for the most part, all of our units that we own under the program. I think you can do some extrapolation based on that.

Some of the units, some of the homes are still under contracts and we have to wait until the contracts expire. It will eventually get there, but it may not be at the same pace that we've been at for the last year and a half. But eventually if you look out long enough on the horizon, we expect to have every home on our portfolio with high-speed Internet.

As Keith pointed out earlier, we don't have a fixed price with our residents, so as the package becomes more dynamic and Internet prices continue to escalate, we will be able to raise those prices as well.

Okay, and so I guess the way to think about it is from a modeling standpoint that the, when you give on page 12 of the supplemental, the weighted average multi monthly rental rate growth, going forward, that is going to be the more important number than the weighted average monthly revenue per occupied home number, which I guess includes the cable package?

Correct. The weighted average monthly revenue is what it sounds like. It is total revenue and so is total gross income, all of our other income categories et cetera, per occupied unit. That does compared to the rental rate which is also on page 12, and that is exactly what it sounds like, the asking rents and in place rents for each unit.

Okay, got it. Thanks. Just one of the question from me.

You talked about supply and some of your markets. I was curious for a couple of other ones like Atlanta, Florida, Dallas, how are you thinking about supply and whether it might be more impactful next year versus this year in those markets? Thanks.

So if you roll the employment growth versus deliveries out to 2017, the markets that you mentioned, Dallas probably drops below the 5 to 1 ratio on total employment to deliveries in 2017. Atlanta is probably still at the 5 to 1. Austin has actually been below the 5 to 1 historical standard that we have always used for the last two years and Austin has still been one of our best-performing markets.

I'm actually -- and have had a conversation with folks about whether or not the 5 to 1 mix is still valid in today's world in markets like Austin where people show up and whether they have a job or not, and they find a job. It is just an interesting dynamic that we may have to go back and rethink whether 5 to 1 is the right long-term ratio of jobs to new supply. But in our world, the three markets -- so the two markets that fall below currently the 5 to 1 that I have concerns about absorption rates out into 2017 are Houston and Charlotte.

Thanks, everyone.

Our next question comes from Daniel Santos from Sandler O'Neill. Please go ahead with your question.

Hey, good afternoon, everyone. Just a quick question on expenses. I know it's been a long call. Just thinking about expenses, how sustainable are these savings going forward and how should we be thinking about expenses in 2017?

Once again, we're not at the point to give guidance for 2017. What I will tell you is this year we've been incredibly successful on property taxes. Once again, we will be at 3% for the full year, 3% is the average in our portfolio, but one of the factors that is driving the 3% are property tax refunds this year. And obviously that is uncertain whether or not that replicates itself next year.

If you think about the other line items, we have had success in salaries, we've had success in unit turn cost. A lot of that is driven by the fact that turnover has been down, retention has been up this year. Obviously we'll continue to focus on that in 2017. And then one of the outsized increases that's been offsetting the positives on the expense side is utilities and that has been driven by the new Internet program.

Obviously as the ramp-up of that continues into 2017 and then ultimately plateaus, the expense side of that will as well.

Thanks.

Your next question comes from Tom Lesnick from Capital One. Please go ahead with your question.

Hello, guys. Thanks for taking my question. I will keep it short is the call is going long.

Two quick ones. It sounds like from a lot of other commentary from other apartment REITs this quarter that DC is finally starting to turn the bend, if you will. And I know you guys just recently commenced construction on Camden Washingtonian out in Gaithersburg. I was wondering if you could comment at all on your general prognosis for DC and then what you're seeing inside and outside the Beltway.

Yes, actually we're very constructive on DC. I think it's clear that the bottom has been in, and things are moving in a very positive direction. You've got, in terms of our portfolio for DC, new leases were basically flat in the third quarter, but renewals were up about 5%, and looking forward into October new leases still basically flat in October and renewals up 3.5%.

Our numbers have been dinged a little bit by our Maryland project that we have got some construction issues that we are trying to get wrapped up hopefully by the first quarter of next year. And if you roll forward to 2017 and 65,000 jobs projected, 9,000 deliveries, those are very healthy numbers, and I would expect our portfolio would reflect that.

Thanks for that. Just one last one. You just mentioned the renewal and new lease of release comps for DC, but for your other major metros, I think you mentioned an overall number in the prepared remarks but for markets like Dallas, Atlanta, LA, and Houston, where do those comps stand?

Tell you what, let's do that offline rather than having to go through all those in our last three minutes on the call, but we would be happy to give them to you.

Sure. Thank you.

You bet.

Our next question comes from John Pawlowski from Green Street Advisors. Please go ahead with your question.

Thanks. Alex, which markets are you winning the bulk of these appeals in? Property tax wise?

Primarily it is Houston. If you think about Houston in the last two years, or two to three years, they had really incredibly outsized increases. I think two years ago they were 34% with the initial increases, and obviously that gives us tremendous grounds to contest those. And we have contested them and we contested them very aggressively, as you can see from the results, but that is primarily where we are seeing it.

How much are you arguing that property value in Houston has declined?

We are not arguing that at all. The basis of our arguments is generally associated with what is called equal and uniform, and it is based upon making sure that the valuations subscribed to our asset is equal in uniform to the valuations subscribed to neighboring and like kind assets in the market.

Understood. Thank you.

You bet.

Our next question comes from John Kim from BMO Capital Markets. Please go ahead with your questions.

Thank you. On the new lease rate you will be offering in Houston, how quickly do you think the renewal rates adjust to the new lease rates?

Our renewal rates have consistently been, for all of 2016, have been running 4% to 5% above our new lease rates. So I don't really see any reason that, that gap would close much in 2017.

Depending on what happens to new lease rate in 2017 which we know they are clipping along right now at 5% to 6% down over the prior year, renewals are basically flat. I think that looks like kind of what the 2017 certainly in the first part of the year is going to look like.

Okay. And then you mentioned in your prepared remarks you had been a net seller over the last three years, and it sounds like from your commentary that the capital markets are still pretty healthy. But do you envision being a net seller again next year?

We could definitely be a net seller next year. The consideration would be we have about $100 million of sales we could do without having to do a special dividend or having to do a 1031 exchange and do an acquisition. So we have more limitations on that as a result of the sales that we've done this year and in prior years.

So we obviously looked at the market this year and said that we had historic pricing for the oldest and slowest growing assets in our portfolio and therefore, we made the decision to sell the $1.2 billion and bank the cash and pay a special dividend to shareholders. We have not completed our 2017 plans, but clearly, if we believe that was the case when we did our 2016 plan or 2016 planning in 2015, it is clearly on the table We just have to go through the cycle analysis and the pricing analysis of where we're going to be and then make those decisions.

Thank you.

Our final question today comes from Dennis McGill from Zelman Associates. Please go ahead with your question.

Hi. Thanks for taking one more. Keith, I think you made this comment earlier, and I wanted you to clarify, hope I heard it right. When you were talking about the lease ups in Houston and the merchant builders being aggressive, you made a comment I think that they were priced at a level that the renter couldn't afford to begin with. I wanted to go back to the to make sure I heard it correctly.

What you are thinking about is a comment that I made about price elasticity. So merchant builder starts with zero leased and needs to lease up to a rational number. So what happens is that's where they get into these very big discounts.

It is just endemic to the merchant builder mindset. It is, if I have zero revenue, I'm okay dropping my price to the point where I start getting some revenue, whatever that is. That creates an opportunity for people who couldn't otherwise afford.

If you are at a $3 square foot budget, and you can't lease at $3 a foot because you have a lot of competition, and you start lowering its 8.3% for every one month you give, then if you are getting three months free, that is a significant discount. What it does is it opens the market for a broader demand pool of people who can afford those properties at those levels.

So it's not so much that the people can't afford it, because they can. We're getting $2.50 to $3 square foot rents in a lot of buildings in Houston today. The challenge is, you have too many buildings.

So the buildings are their dropping rates to try to create that excess demand or to steal demand from somebody else. And what that has, the effect of that is, it makes those properties more affordable to a broader cast of residents.

And I think that is actually very, very healthy because what happens then is somebody who, say, a baby boomer who lives in Sugarland who is thinking about their kids just went to Texas A&M or maybe University of Texas. They look at the market and go, wow, I can go into downtown Houston or the Galleria and lease a 2,000 square foot squared apartment that used to be $6,000 a month for $4,000 a month, and I'm going to go do that.

So they sell their house in the suburbs and move into the urban core. You have now created demand that didn't have to be created by jobs. That is what I was sort of leaning towards.

It is not that the people can't afford it, because they can. It is that we have too much delivery at the same time and ultimately they will fill them up and then the rents will rise.

If you look at what happened in 2010 we were leasing out Camden Plaza for example. Our pro forma rents were about $1.50 plus or minus a square foot. We ended up leasing it up at $1.20, and today the leases are at $2 a foot.

We had a tough lease up because it was in a tough time. Once the properties lease up and you have stabilization of the market, the rents will ratchet up.

If you take Houston, Texas, for example, from a revenue growth from Camden's perspective, Houston, if you take from 2011 through 2016, it is still the best market in America for Camden on a revenue and NOI growth. That is in spite of being flat for 2016.

That's very helpful. Thank you for clarifying. Are there any markets across the country as you see the product being developed at elevated price points that you are a little bit fearful of affordability, or is this representative of the story elsewhere?

Not in our markets. In our markets we don't have caps on affordability, especially when you look at our average. Our average rent to income is about 17.5%, 18% plus or minus, and historically it is in the 20%s.

So we still have an ability to push rents pretty substantially in our portfolio and still get to those averages. We don't really see it in our markets. I know that there's some challenges in the markets like San Francisco and New York and elsewhere, but not in Camden's markets.

Perfect. Okay. Thanks again, guys. Good luck.

Thanks. We appreciate your time today. I know you have a lot of calls to handle. We will talk to you in NAREIT. Thanks, bye.

Ladies and gentlemen, that concludes today's conference call. We thank you for attending the presentation. You may now disconnect your lines.