Camden Property Trust (CPT) 2017 Q1 法說會逐字稿

Good day, and welcome to The Camden Property Trust First Quarter 2017 Earnings Conference Call and Webcast. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Ms. Kim Callahan, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining Camden's First Quarter 2017 Earnings Conference Call. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events.

As a reminder, Camden's complete first quarter 2017 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Alex Jessett, Chief Financial Officer. We will be brief in our prepared remarks and try to complete the call within 1 hour. (Operator Instructions)

At this time, I'll turn the call over to Ric Campo.

Thanks, Kim, and good morning. Our music for today's call was recommended by Dan Smith from KeyBanc, who won our music trivia contest last quarter. Dan said he looked -- took a look at the calendar and immediately settled on a Cinco de Mayo theme. (foreign language) I'll keep my comments short since we are the last multifamily company to report, and I want to make sure that we have enough time to answer all of your questions about Houston. Our team produced first quarter operating metrics right on plan. I know that our team is ready for our peak leasing season and will continue to improve the lives of our customers, their teammates and our shareholders one experience at a time.

I'll turn the call over to Keith now.

Thanks, Ric. Our first quarter results were right in line with our expectations, with same-store revenue up 2.9% and up 0.3% sequentially. Most of our markets have revenue growth between 3% and 5%, just as we had forecast. The revenue growth for our top 5 markets was Denver at 7.4%; Atlanta, 5.1%; Dallas at 5% even; Phoenix at 4.8%; and Austin at 4.5%. As expected, our 2 weakest markets were Houston with a 3.3% revenue decline, and Charlotte with a 1.3% growth in the first quarter.

During the first quarter of '17, our new leases were down 0.4% and renewals were up 4.9% for a blended rental rate increase of 1.9%. In April, our new leases were up 0.3% and renewals up 4.9% for a blended increase of 2.1%. Our May and June renewal offers were sent out with an average of 5.6% increase.

Qualified traffic is strong in every market. And despite another year of above-trend rental rate increases in 2016, our occupancy rate remains high. We averaged 94.8% in the first quarter. And in April, it was 95.1% versus 95.2% last year, again all of this in line with our expectations. Most important reason for maintaining our occupancy rate is the low level of net turnover. In Q1, the net turnover in our portfolio was 40%, another record low for our overall portfolio.

The financial health of our resident base continued to -- continues to be strong as our average rent as a percentage of household income was 18.3% for the quarter. And this metric has been in the 17% to 18% range for the last few years. However, the financial health of our residents is still not translating to many -- more home buying as move-out to purchase a home in Q1 were 14.9% versus 15.3% for the full year of 2016. We do expect that eventually, this stat is going to drift higher, but there's still a long way to go before we get back to the historical rate of 18% move-outs to buy homes.

Finally, we recently learned that for the 10th consecutive year, Camden was included in Fortune Magazine's list of the 100 best places to work. This is a remarkable honor for our company and a positive reflection on how just far the REIT industry has come since its reinvention almost 25 years ago.

This time -- at this point, I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith. On the development front during the first quarter of 2017, we stabilized The Camden in Hollywood and began leasing the Camden NoMa Phase II in Washington, D.C. and Camden Shady Grove in Maryland. Subsequent to quarter end, we stabilized Camden Gallery in Charlotte and acquired an 8.2 acre land site in San Diego for future development. We have $660 million of developments currently under construction or in lease-up, with $200 million left to fund over the next 2 years. We still anticipate $100 million to $300 million of on-balance sheet development starts later in 2017.

Our balance sheet remains one of the best in REIT world, and we are 1 of only 6 U.S. equity REITs with a senior unsecured credit rating of A3 or better from Moody's, with net debt to EBITDA at 4.6x, a fixed charge expense coverage ratio at 5.3x, secured debt to gross real estate assets of 11%, 80% of our assets unencumbered and 93% of our debt at fixed rates.

Our current ATM, or at-the-market equity program, has $315 million in remaining availability and was filed under a shelf which will expire this year. As a matter of corporate practice, we intend to keep an active ATM program on file. Therefore, we plan to roll the current availability under the existing ATM to a new ATM, which we will file in the next few weeks in conjunction with the filing of a new shelf.

Turning to financial results. Last night, we reported funds from operations for the first quarter of 2017 of $100.4 million or $1.09 per share, exceeding the midpoint of our guidance range by $0.01 per share. Our $0.01 per share outperformance for the first quarter was primarily due to: $0.0075 in lower same-store operating expenses resulting primarily from lower employee benefit costs as we experienced lower-than-anticipated levels of health insurance and worker's compensation claims, although we are encouraged by this trend, if the past is any indication of the future, these results might be timing-related rather than permanent savings; and $0.0075 in higher net operating income from our higher development and nonsame-store communities resulting primarily from each of our development communities leasing ahead of schedule; better-than-expected results from our stabilized nonsame-store Camden NoMa Phase I community; and better-than-anticipated net operating income from Camden Miramar, our student housing community in Corpus Christi, Texas. These positives were partially offset by slightly higher net corporate overhead and higher-than-anticipated interest expense as a result of lower levels of capitalized interest. The lower levels of capitalized interest resulted primarily from accelerated construction of our Camden NoMa Phase II development, which we began leasing during the first quarter 2017, ahead of our original forecast for leasing to begin in the second quarter.

Last night, we also provided earnings guidance for the second quarter of 2017. We expect FFO per share for the second quarter to be within the range of $1.11 to $1.15. The midpoint of $1.13 represents a $0.04 per share increase from $1.09 in the first quarter 2017. This increase is primarily the result of an approximate 2.5% or $0.035 per share, expect a sequential increase in same-store NOI as we move into our peak leasing period; an approximate $0.005 cent per share increase in NOI from communities in lease-up; an approximate $0.0075 per share increase in FFO resulting from a lower overhead cost due to timing of certain corporate events; an approximate $0.01 per share increase in FFO due to lower interest expense as the interest savings from repaying our maturing 5.83% $247 million unsecured bond debt at maturity on May 15 is partially offset by borrowings on our line of credit, higher rates on our secured floating rate debt and lower levels of capitalized interest.

We currently have approximately $180 million of available cash on hand, and we'll fund the remaining amounts necessary to repay the unsecured maturity, utilizing our line of credit with an assumed interest rate of 1.9%; an approximate $0.005 decrease in income tax expense due to an anticipated second quarter Texas margin tax refund resulting from a prior year reduction in rates; and an approximate $0.0025 increase in FFO due to the nonrecurrence of our first quarter loss on early retirement of debt resulting from the accelerated -- acceleration of unamortized loan costs on our $30 million tax-exempt bond we retired last quarter.

This $0.065 per share aggregate improvement in FFO is partially offset by an approximate $0.025 per share decrease in FFO resulting from lower occupancy at our nonsame-store student housing community in Corpus Christi, Texas. Occupancy declined significantly from May through August at this community.

As a result of our actual and forecasted development and nonsame-store results, we've increased the midpoint of our full year FFO guidance by $0.01. Our new full year 2017 FFO guidance is $4.49 to $4.65 per share with a midpoint of $4.57 as compared to our prior guidance of $4.46 to $4.66 per share with a midpoint of $4.56. As we have not yet begun our peak leasing season, we have left our 2017 same-store guidance intact.

At this time, we'll open the call up to questions.

(Operator Instructions) Our first question comes from Nick Joseph with Citigroup.

Just want to start on Houston. How's it trending relative to your expectations so far this year? Do you still expect same-store revenue growth for Houston to be down about 4%?

Yes, we do, Nick. And I would say it's really right on top of our expectations. And that would be true of all of our other markets as well. There's not a nickel's worth of difference between where we ended up the first quarter and what our original guidance was. We did give specific guidance on Houston that we thought 2017 would sort of be the low water mark. We still think that that's most likely to be true. And we gave specific guidance of down 4% on revenues. And again, based on everything that we see and that we have seen in the first 4 months of the year, we think that's still the right place to be for Houston for 2017.

And then just in terms of same store revenue growth more broadly. I know you maintained guidance and it's before the peak leasing season, but are you maintaining the components as well that you expect 50 basis points, I guess, lower occupancy this year and about 65 basis point benefit from the bulk internet rollout?

That's correct.

So if you think about trying to get to the midpoint of guidance, it sounds like you need to see that rent growth throughout the year at about 2.7% or so. I think in the first quarter, you came slightly below that. Just given the amount of supply you're seeing delivered this year, can you give us some comfort in terms of reaching that midpoint and maintaining the rent growth that you saw in the first quarter?

If we thought we weren't going to hit the midpoint, we would have changed the guidance.

So we're in pretty good shape. I mean we don't -- we do a full bottom-up reforecast market by market. So we're very detailed on how we approach this. We're fortunate to have a ton of people in these markets that have been doing this for our company for many, many years. And we get -- take great comfort from that. So if you think about just kind of big picture, the deceleration in Houston in our model is basically being offset by the -- or improvement in Washington, D.C. And if you kind of do the weighted average of the number of percentage concentration, D.C. versus Houston, the math for those 2 markets is basically a push with where we were last year. And then beyond that, you got a bunch of the other markets that we're still continuing to see really good growth in: Dallas and Denver and Tampa are growing extremely well and Atlanta. And you're -- we're still seeing pretty good strength across the platform. And I guess I would go back to the original guidance that we gave on my letter grades, and I wouldn't change a single one of them. We gave at the time -- we had 10 markets that we graded as stable. One as improving, which was Washington, D.C. And then the balance of them we had as declining. So I wouldn't change any of that. And with all that said, I think you -- we still feel like we're in good shape to get to the midpoint of our guidance range for same-store NOI.

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Just first want to touch on D.C. and it had a little bit of occupancy benefit this quarter. And was just wondering if we should view this quarter as revenue growth as a trend. Or would you expect that to moderate a bit given that occupancy benefit? And then just any additional color you could provide on pricing power in that market headed into the peak leasing season would be helpful.

Yes, we had a really good quarter, again in line with our plan. It's slightly better on NOI overall, but really in line with what we expected to see. The strength in occupancy has carried over, certainly carried over into April in D.C. We see great traffic. Our folks are more optimistic in their commentary about what's going on in their markets than they have been in 3 years in D.C. So that's all positive. 3.8% growth for the -- in revenue for the quarter is certainly a good start. And I think that that's -- you're likely to see that be part of the trend that carries out throughout 2017. Again, we had D.C. as our only market that I rated as improving. And it looks like that -- look like we're in good shape to achieve that.

Great. And then just wanted to touch on Houston quickly. You guys outlined 25,000 to 30,000 jobs and 10,000 to 12,000 new units in that market. And you've compared it to a couple of years in the past, I think 2003 perhaps and 2010 maybe, where same-store revenue was down 4%. And I was just curious what the jobs to completions ratio looked like over those prior 2 periods that saw similar revenue growth decline, as what you're projecting in guidance?

Well, they were probably a lot worse. I don't have them in front of me but we had -- because in those 2 prior periods, we had really significant job losses in Houston. And so it was a much different scenario than what we're dealing with today. The other thing is, is that the economy in Houston during those 2 previous periods was fundamentally weaker than anything that we've seen in this downturn. This downturn was almost exclusively limited to, from the standpoint of jobs, to the oil business. It didn't really ever spread over into other parts of the Houston economy. And so what feels like -- if you happen to be -- own apartments in Houston, it doesn't feel like a very good place to be. But absent that, the oil patch is in the process of a pretty robust recovery in terms of price of oil and drilling activity across all of the major and mid -- major companies. So Houston, even though the apartment sector is weak, it's primarily a supply-induced weakness that once the market clears, and we expect that to happen sometime in -- early in 2018 where you get this glut of apartments that finds -- where residents find a home and market rents have to go through their adjustment to have that happen, which is already in the process of happening, the -- Houston is really well poised for a recovery in economics which will immediately spillover into better support for rental rates. So it's different. I would say each of those, in terms of supply, it was similar but the jobs were worse. And the economy felt like throughout that -- those 2 prior periods that we were in a recession. And I can tell you, it just doesn't feel like we're anything close to, and we're not in Houston in terms of an overall economic impact. But having said that, we got 2,200 apartments that we have to work our way through in terms of deliveries over the next 15 to 18 months.

Yes. Let me just add a couple of points to the Houston story a bit. So when you look at just the apartment side of the equation, obviously, and office probably is -- office is much worse than apartments because leased apartments have -- in apartments, we have great price elasticity. You lower the price and you can fill up your apartments because people need a place to live. And they don't need a place to work if you don't have a job -- if you don't have jobs to -- people to fill those jobs. But at the end of the day, Houston in the last 12 months added 63,000 new residents. 35,000 people came from abroad and 28,000 people came to Houston domestically. When you added that to the natural birth rate, it had a population increase in the last 12 months of 125,000 people. So you have this inertia of 6.8 million people living in this region. The starts -- or actually completions are down 50% from 2016 to 2017. They'll be down 50% again from 2017 to 2018. At the same time, in the last 12 months, job numbers are somewhere around 30,000 jobs. And when you look at -- they actually produced more jobs in the first quarter than anybody thought would happen. So -- but at the end, you still have to get through this supply issue. But the good news is, is that it's very manageable when you start looking forward.

So fair to say that the big difference is just the level of concessions from new supply?

Absolutely. If you're in a competitive market from a lease up perspective in the energy patch and in the urban core, it's 3 months free. And the worst thing that a merchant builder can do is be the last one to get to 3 months free, right? And so -- and that's pretty much a cap -- they generally don't tend to go much more than that. But when you think about 3 months free and what it does, it's taken a $2.80 rent down to about $2 or $2.10 or something like that, which increases the ability of the customer to pay. And so what happens is, is that it's a boom for people who wanted to live in highrises and really great urban locations. And that consumer is doing really well right now. They've got some options and the prices are great. That doesn't -- that 3 months free doesn't translate to the occupied market though. Because when you look at our down 4% in our projection, we're not 0 occupied like a merchant builder who just opens their doors and so they're willing to cut prices at that level. Also, a lot of the product was very high-end product, and that's where the biggest problem for rental is, is in that high end. Our suburban locations are doing much better than the urban locations. And that's kind of the A versus B or urban versus suburban kind of story, which is very typical in this kind of cycle.

Just to put some numbers around Ric's commentary on the -- so 3 months free is 25% off rental decline for merchant builders, which is where the market -- most of the market is right now. But again, they're trying to -- they have a very different task. They're trying to get from very little occupancy to something that's stabilized. So in our portfolio, if we end up at -- if we end up within our range, which we think we will at somewhere around 4% down revenues for the year, that's a mix of some 8s and 9s and some flats. We've got -- believe it or not, we still have assets that had positive revenue growth in the first quarter. They weren't big, but they were slight positive numbers. So it's -- they get down 25% on asking price from a number that was probably too high. We're down 9% on asking price on rents on a market clearing number. So I think that's kind of where it ends up. That's where it ended up in the last 2 down cycles. And we'll slug it out, and we think we can achieve what we've given guidance to in Houston and better days are ahead because Houston is a dynamic place, and it continues to attract people both domestically and internationally as well as the embedded growth of the population. So I think we just got to clear 22,000 apartments.

Our next question is from Jeff Pehl with Goldman Sachs.

I was just wondering if you can comment on the new versus renewal lease growth for 1Q in Houston, and then how it's trending in 2Q.

Yes. So for the first quarter in Houston, renewals would have been flat, new leases down 7% plus or minus. That carried over into April. I think that's -- if you're projecting over the balance of the year, how do you get to something less than 4% down on revenues, it's probably going to be pretty close to that flat, trying to maintain flat on renewals. And overall leases come down maybe 6% or 7%, and we end up the year down 3.5%. So I think that's likely to be what we'll see for the next couple -- for the next quarter for sure. And then as we get to the back half of the year, that may get a little better because we run into a little easier comps. Some of the concessions that -- some of our -- taking rents down have already occurred in the third and fourth quarters of last year, so the comps get a little bit easier. But that's -- it's -- directionally, I think that's where we're headed.

And I was just wondering if you could also comment on the negative revenue growth in Houston for the quarter. If you can maybe break that down between your midtown assets versus the assets maybe near the energy corridor and the suburbs.

Yes, sure. So our midtown assets urban core would have been down 8%, 8% to 9% on new leases, roughly flat on renewals. As you go out into the other markets, your new leases are trending flat to up 1%. So big spread between suburban assets and urban core for sure, but it's -- we're in a part of the cycle right now where it's -- our strategy to be diversified between urban assets and suburban assets is actually helping us quite a bit.

Our next question is from Juan Sanabria with Bank of America.

Kind of use that segue on the urban versus suburban, can you just talk about the split between your portfolio as a whole and the same-store rent trends you're seeing between those 2, and how supply looks looking forward between those 2 different segments of your portfolio?

Yes, the supply, I'll start with that because it's pretty straightforward. We have -- I can't give you the number but I'm going to guess, order of magnitude of 3 to 4x as much supply coming in the urban core as we do in the suburban markets in the -- across our platform. So it's, by and large, a -- an urban core problem in terms of supply. This -- you get out of the suburbs of a city -- of a market like Houston, it's so large and spread out that unless somebody happens to be building right next door to you, you're just not going to have the kind of impact that you have when you have large aggregations that's being leased. In terms of the spread between suburban versus urban assets, suburban assets are outperforming by about 1.5% the urban assets. And that's across Camden's entire universe. So it's not just -- that's not just Houston. That's again the supply challenges where we got new construction going on in other markets has been predominantly in the urban core. So it shows up in the spread, which is -- by the way, it's been that way for the last 2 years in terms of that outperformance, 1.5% suburban versus urban. But if you go back 5 years, there were 3 straight years where the urban was outperforming the suburban. So it's just kind of where we are in the cycle.

And that 1.5% is same-store revenues?

Correct.

And then what's the overall split between urban, suburban, sorry, for the whole portfolio?

We'll get you the number. About 2/3, 1/3 suburban to urban, but we'll get you the exact number.

Okay. And then just on supply. How are you guys thinking about across portfolio '18 versus '17? And are you seeing any slippage on delivery time frames this year that could leak into '18?

The slippage on delivery times is in every market, in every sub market. There's not a single merchant builder that we talk to or other folks in the REIT world that have not all experienced some degree, and in some cases, pretty material delays. And we just don't have enough workers. We just don't have enough construction workers to get these jobs all done concurrently. So that is going to continue to be a challenge. I think that Ron -- I know Ron Witten is one of our 2 data providers. And he has actually tried to incorporate the -- a longer construction/lease-up period on his forecasting for multifamily completions. How well that's being captured, I think time will tell. But in our portfolio, if you look at the -- across all of Camden's markets for 2017, again using Ron Witten's numbers, he's got a completion number across all markets at about 146,000 for this year. And he's got that dropping to 128,000 for his 2018 forecast. So 10% to 12% decline in total completions. Job growth that he has estimated in those, again, across our entire portfolio, he's got job growth in '17 of 569,000 across Camden markets. And he's got that ticking up to 579,000 in 2018. That number is roughly in equilibrium on the 2018 completions versus jobs number. 2017, we still had too many completions for the jobs. But I mean you got a really strong job number this morning, and so maybe that's the beginning of a trend. And we know for a fact that Camden's markets attract higher than the national average percentage when we get job growth.

Our next question comes from Alexander Goldfarb with Sandler O'Neill.

Just continuing on that supply thing -- the topic. At a recent conference, I was talking to a few private developers. And they were saying that some of the big merchant guys are talking down 35% to 50% reduction in starts. But Keith, it sounded like in the supply numbers, if I heard you say correctly, it didn't sound like 2018 was too different than 2017. So can you just give an update on what you guys are hearing from the merchant developers, and how you think the supply, which we all expect to decline but hasn't, how we should think about that coming in the next few years?

Sure. The anecdotal information we get from the largest merchant builders are all talking the same thing, which is that they're lowering the number of starts. And they're lowering their number of starts for a couple of reasons, one of which is the challenge in just getting bank financing given the market. And that's part of the issue, not only the stress in the finance -- by getting construction loans, you get less of a construction loan and more expensive costs. So their total cost of capital has gone up, requires more equity or some mezz lending to bridge that gap. And so that's part of the issue. The other part of the issue is that because of the delays that they've had in finishing projects, they haven't been able to sell those projects. So you have a certain amount of -- sort of cap. They're capped because they need to sell proper -- projects to do new projects. So even though we haven't seen these numbers come down, it just feels like they've got to be coming down based on the discussions that we've been having with folks.

Alex, if you look at -- completions are one thing, but when you're having conversations about -- with the merchant builders about their future book of business, those guys are probably more likely thinking in terms of what they're going to be permitting. And if you look at the permits that are projected from 2017 to 2018, these are AXIOMetrics' numbers, it goes from 1 35 to 1 04. So was at 25%, almost 30% down in permits across Camden's entire platform, and that starts to get in the range of what you're hearing from the merchant builders that we talk to.

Okay, that's helpful. And then switching -- going out to the West Coast. You guys announced a San Diego land purchase. It's been sort of a while since you hear much about San Diego. So can you just sort of give an update on that market? And then two, was that purchase just more because of where the yields are relative to where they may be, let's say, in L.A.? Or is there something that you're seeing in San Diego that makes you want to put some money to work there?

Well, we of course are in both those markets, and our development folks have been scouring the markets trying to get -- figure out deals that work. And it's been a very difficult process. The projects that most of the merchant builders are doing out there, the yield starts with a 5, a very low 5. And that's a challenge for us. We just aren't going to go there. And so the San Diego deal was a unique opportunity to do an off market transaction with a seller of a property that was a little complicated structure. And so we were very happy to be able to do that. We think that those -- both the L.A. and San Diego markets are doing real well for us. And we've done great in our Camden Glendale projects leasing them up and creating a lot of value there. So we really like the San Diego market and we really like the site because it was off market. Didn't have to compete with other developers for it, which was really good.

And versus that low 5 yield, how does this yield look?

Well, we think it's a either a high 5 or a low 6.

Our next question comes from Rob Stevenson with Janney.

Can you talk a little bit about South Florida and what you're seeing in that market, and how different is your performance between the various submarkets down there right now?

So overall, South Florida is on plan with where we thought it was -- would be. We still have -- you still got challenges with a lot of highrise product that's being built. And fortunately for us, the stuff that is being built, the pro forma rents that it's being brought to market at are $3 plus per square foot. We got a couple of highrises there that we're in the midst of repositioning that we think ultimately will be very competitive with the new product. But the bulk of our stuff in South Florida is garden, low rise and mid-rise product. It's just at a totally different price point than where most of the new supply is. So that's helped us to a certain extent. We think that -- in my original guesstimates for the year, we had Miami as being stable. We had Fort Lauderdale as being stable. I still think that sounds right to me based on our first 4 months of operation. So I think we're reasonably well positioned to hit our plan this year in both those markets.

Okay. And then how about Atlanta? I mean is it -- continue to be a strength for the multifamily guys that have been there? What are you seeing there? And any material differentiation between the various submarkets for you guys?

Our portfolio is very spread out in Atlanta, not unlike our Houston portfolio, just smaller. Great first quarter in Atlanta. Again, we had -- it was -- I believe it was our second or third highest rated market for 2017. I had it as B+ and stable. Still think that's right. We're still over 95% occupied and had a great first quarter. So I think Atlanta is -- we did a little over 5% revenue growth in the quarter, and that's pretty on track with our plan. You've got -- you do have some supply that's going to be an issue in Atlanta later this year in the Buckhead area. There's just a lot of stuff that's being brought to market right now. And so we're probably going to have to deal with some of the supply challenges in the Buckhead submarket. But again, we have a very good mix of Buckhead and then other suburban markets that ought to serve us very well in Atlanta.

Our next question comes from Drew Babin with Robert W. Baird.

A quick portfolio management question. You talked in the past about the bottom, call it 5% to 10% in your portfolio, being candidates for pruning in a given year. Does the amount of cash you have on the balance sheet change your thinking with regard to whether you sell those assets or maybe thinking about putting some update capital into them?

No. We clearly have cash on the balance sheet and we have the best balance sheet in multifamily land right now. And we're happy about that given where we are in the cycle. But we're going to continue to manage our portfolio over time. You probably -- you won't -- you're not going to see $1.2 billion of sales like we did last year just because it's -- we think we kind of hit the market right at the perfect time to sell those older assets. But we will continue to play this trade, which is when you think about it, we -- between -- since 2011, we sold $2.1 billion of assets at roughly a little over a 5 AFFO yield. And when you think about that relative to what we've acquired and developed, we're -- the negative spread between our acquisitions and our dispositions, given that we sold 20-plus-year-old assets with high CapEx, we've had a negative spread of 27 basis points on those trades. And I will tell you that in my business career, I've not seen that spread as tight as it is today. And so if we can continue to do that, we will. So when you think about acquisitions, we've only done -- we did $2.1 billion of dispositions and only $643 million of acquisitions and none in the last 3 years. And the -- mostly we put our money in development because you can get a much better spread in the development side of the equation. And so you don't have a negative spread there, you actually have a positive spread of probably 160, 170 basis points on that trade. So we will continue to prune the portfolio. We've gotten most of our sort of low-hanging fruit finished. But one of the things that I think is -- that we've been sort of watching is these -- when you think about the supply side and the amount of merchant builder product that has been developed over the last 2 or 3 years and the rise in construction costs that you've seen, what's happening now, we think, and what I think is going to happen going forward, is that development spreads or the profit for the developer has narrowed pretty dramatically. And we're going to be able to acquire properties potentially going forward at below replacement cost. And these -- the merchant builders, in order to reload their portfolios, are going to have to sell some assets to do that. And we're already starting to see a little bit of that come to market. And I think that -- so the idea of selling older properties and buying newer properties at a very small sort of negative spread, if you will, on old versus new is something we're going to continue to do.

That's helpful. And maybe that next tier up on your portfolio assets that aren't necessarily sale candidates that you do want on the portfolio, might we see a directional pickup in ROI CapEx type projects?

So we're -- we have been repositioning assets pretty aggressively for the last 4 years. We've got another pool of assets that we're starting to reposition this year. It's not anything at the levels that it was 2 or 3 years ago, but we will continue to look for opportunities to put capital back into assets that makes -- where it makes sense for us to view them as long term holds. I -- my guess is that in our portfolio, as Ric mentioned, all the stuff that we wanted to sell, we sold last year. We exited Las Vegas, and then we sold -- which was about $600 million. And then we sold another $600 million of assets across our entire platform. And they represented the assets that we did not see an upside -- sufficient upside to reposition. And because of their age and CapEx requirements, they just needed to become someone else's -- be in someone else's portfolio. So the stuff that we wanted to sell, we got real aggressive and sold it last year.

Our next question comes from Jim Sullivan with BTIG.

One question for me regarding Houston, and it's really your outlook for 2018. In the 4Q call, you characterized your kind of expectations for Houston for 2018 to be, perhaps, equilibrium, although there was, perhaps, some optimism that it could be stronger than that. In your comments here with 3 months on, I think your comment about job growth in Houston was it created more jobs than expected. And as we look at what's happening, everybody expected, of course, permits to collapse there but they've been very, very low here in the first quarter. So just to make sure we understand it correctly, are you incrementally more positive about that forecast you had for -- I wouldn't say forecast, but for your sense for where Houston would be in 2018? Are you, perhaps, a little more optimistic about achieving, perhaps, equilibrium or equilibrium plus?

I think that the numbers that have come in, in the first quarter were definitely better than we expected. And starts are definitely falling off the edge of the earth. And I was very surprised by the in-migration numbers. Because generally speaking, people don't move to a market unless they think they can get a job. And it's very widely known across America that Houston has its issues with the energy business, yet we still had this great in-migration. And so I guess the real question will be for me -- so yes, we are more positive about Houston because of the first quarter job numbers and in-migration numbers. But on the other hand, a quarter doesn't make the year and doesn't make the 22,000 units that need to be absorbed here, absorbed. So we're guardedly optimistic, probably a little bit more optimistic than we were going into the fourth quarter call. But we still have to see how it all plays out. Oil prices are down the last couple of days, even though most oil companies are adding jobs -- a little bit of jobs back, not dramatically but -- so I think that it could surprise people on the upside in '18. But on the other hand, we're going to wait and see, obviously.

I agree with that. I think the overall economy, as we -- as I mentioned earlier, it just doesn't feel like there's this big -- been this big dislocation in the economy in Houston. It's just -- it's really kind of been contained to the oil and gas sector. And then has bled over into people who own apartments and people who own office buildings. But the rest of the working public and people who -- men on the streets going about their daily routines in Houston, Texas seem to be -- restaurants are full and traffic everywhere and it feels like it's crazy times in Houston. Not boom times but still very robust and healthy from an overall economic standpoint. I think that Ric's point about the in-migration, I mean that's potentially a game changer. You've got 60,000 -- 63,000 people who showed up. Somehow or another, they're working their way into the economy, whether it's showing up in the stats aren't not. And they got to have a place to live. And then more than likely, they are going to -- a fair -- high percentage of them will end up renting something before they make a permanent decision to own anything in Houston. So I think that's probably the upside if we see that continue in -- throughout '17 and into '18. You've probably got enough people sloshing around that are going to find their way into employment, need an apartment that ultimately, we get through the 20,000 plus or minus units by the end of this year or into -- early in '18. And then I think there probably is some upside from there.

Our next question is from Tom Lesnick with Capital One.

So I -- I'll limit my Houston question to just one. But I guess as you think about the cadence of year-over-year comps for same-store trending through the year, when should we expect -- I mean I know you talked about 2017 being the bottom and potentially 2018 getting better. But as you look at it from a quarterly timing perspective, when should we expect the inflection point to occur per se? And I guess I say that in the context that you guys actually had a positive same-store NOI comp in Q4 of '16. So does that just set up an exceedingly hard comp optically for you guys this year?

Yes, I don't -- we're not -- I'm not picking inflection points in 2017 for Houston. But I saw -- we were 3.3% for the quarter. We think that we're still going to be able to keep it under or down for the quarter. I think we still feel pretty good about keeping it -- containing it at the 4% level. But giving readout on the -- how that progresses, we'll just have to see. It's -- there's a lot of volatility around what merchant builders are doing, where our direct comp set happens to be. When the merchant builders get close to a 90% number, 3 months free becomes 1 month free overnight. And it's -- and then it's just -- it's a different world. So as those people reach those -- get to closer to stabilization, their behavior changes pretty dramatically. And that's good for the embedded base of our portfolio. But as far as reading out -- I mean I think I wouldn't go any further than to say at this point, I still think down 4 in 2017 looks like the bottom to me.

One of the things I think is interesting is that you -- people use this sort of jobs to completion ratio as a guide. But if you use the job to ratio as a guide in 2015 and '16, Houston had about 16,000 jobs. And during those 2 years, we absorbed 30,000 units -- wait a minute, you had 15,000 jobs and we absorbed 30,000 units. The ratio didn't make any sense, obviously. And what was happening during that period is in 2014, Houston had over 100,000 jobs for the last 3 years straight in '12, '13, '14. So what's happening is you had this momentum in this large market that took up a lot of absorption in the marketplace. So the question on inflection is, is that -- will that continue to happen with this in migration and with better-than-expected job growth? And anybody's guess as to when that's going to happen. It just will happen. We just don't know when.

Got it. And then regarding the expense side of the equation, obviously, you guys had some expense pressure both sequentially and year-over-year in your comps. And it did appear just limited to one market. I mean there were several markets that were kind of trending at above long-term levels. Could you maybe talk a little bit more about property tax, utilities, property insurance, and how you guys see that trending cadence-wise through the year?

Yes, absolutely. So on the property tax side, we think the full year is going to end up for us up 5.5%. That's what we thought a quarter ago. We still think that to be true today. Obviously, this was, on a sequential basis, was a very tough comp because we got quite a bit of property tax refunds in the fourth quarter of last year, particularly in Houston. When you look at the insurance side, and we talked about this on the last call, in the first quarter of 2016, we got in refunds of approximately $1.5 million. And so -- and by the way, that insurance refunds were allocated across our entire portfolio. So that certainly negatively impacts the comparison on a quarter-over-quarter basis. Utilities for the most part are any increases there are being driven by the rollout of our tech package. And where we are today on our tech package, if you think about our 42,000 same-store units, we've got about 37,000 of them that have been rolled out. So you should start seeing the impact on the expense side declining as we go throughout the year.

Got it, that's very helpful. And then my last question, and I know this is a very small portion of the portfolio. For Corpus Christi, could you just remind us what's going on there? I think you said it's your -- you have a low student housing asset. Kind of what was the genesis of that investment? And how do you see that asset long term in your portfolio?

Are you just asking specifically about the student housing asset? It doesn't -- first of all, it doesn't show up in our same-store pool.

Oh, it doesn't? Okay.

No, it doesn't. We have 2 assets in our same store -- 3 assets -- 2 assets in same-store pool, 3 wholly-owned assets in -- separate from Miramar, the student housing product. So student housing product is doing great, we're better than planned so far this year. So that's not any part of what's showing up in these numbers. The decline in Corpus Christi is primarily because of the hits in the oil patch that were definitely affected in the South Texas markets. And then in particular to an asset that we have there, Camden Breakers, we're in the process of doing a pretty major exterior renovation, and it's just messy. And it's just hard to drive the right kind of traffic and close at the percentages that we need. So small piece, but gets the attention it deserves. And I think it's a -- some of it’s a market condition, but some of it right now is particular to that one asset. And when you have 2 assets in the same-store pool, it's going to be pretty volatile around quarter to quarter.

Our next question is from Wes Golladay with RBC Capital Markets.

Just can you give us your view on development costs inflation over the next few years? We're already hearing about lumber tariffs potentially happening. And if an infrastructure bill is implemented, what will that do for labor cost?

Yes, we're very concerned about labor cost and timber cost and lumber cost. The challenge you have is that when you think about any kind of infrastructure bill the government is talking about doing, and you look at, today, the print was a 4.4 unemployment rate, it's a tough deal. And we are not seeing any benefit from -- and one of the things when you think about Houston, construction cost hasn't come down in Houston even though construction is falling for multifamily because it's being offset by public sector spending and hospital spending and petrochemical spending. And so I think there's going to be continued pressure -- big pressure on labor shortages and on product shortages, especially if the government gets an infrastructure bill this year.

Okay. And then I want to go back to that comment about the Houston merchant builders getting to 90% lease-up and then backing off the concessions. Is there any particular development company or any particular -- or project that is really compressing the market as a price setter. And once they get leased up, we might see a little relief?

I don't think so. I think it's across the board. Like I -- like my tongue-in-cheek comment earlier that the worst thing for a merchant builder is to be the last guy to get to 3 months free. So they all immediately go there fast. And then the same thing happens once the market stabilizes. The -- there's not one particular owner. It's a very dispersed group of merchant builders. You might have the (inaudible) of the world that have a lot of projects but they don't control the market, and there's not one group that really does that. It's a pretty broad competitive set.

And it's really submarket specific. If you've got 2 new lease-ups that are within the 1-mile radius of the property that you're trying to get leased up, then you're just going to be competitive until they get stabilized. But they do -- they will run really hard for the exit and they'll kind of smash through the door at the same time. But the good news is, is that they run really hard for the exit.

And I think the other really good news is, is that price elasticity is great. The consumer in Houston, Texas is having a field day in lease ups. And a lot of the product that was built and we're talking highrises that never existed in a lot of submarkets here, and those highrises are as good or better than any for sale condo or product that you can see. So it's not that they're -- that they open and all of a sudden, there are crickets. No one is walking in the door. There's tons of people walking in the door and they're leasing these up and the consumers are getting great deals on them. One of the only concerns I have is if you move in at 25% discount, how fast can they move that up for those customers, and whether those customers have to be moved out and new ones in to be able to get to those high levels? On the one hand, as an investor in Houston and as someone who understands the market, I kind of like that potential problem for those people because we could easily buy and upgrade some of our portfolio buying some of these assets of below replacement costs. And even with -- because cost has gone up, and will continue to go up, the developer can actually sell their asset and get their money out, maybe with a slight profit, and still be able to acquire properties at below replacement cost, below what we could build on our existing sites. And that's an opportunity I think is really good.

Our next question is from Rich Anderson with Mizuho Securities.

Sorry to keep it going, and you kind of just stole my question -- one of my questions there, Ric, about what happens in Phase 2 of these 3 months -- the concession situations and that same customer stays for the 25% rent increase. Maybe you can speak in terms of history. Is there going to be an uptick in turnover in the short term in Houston next year if all things kind of go as planned? Or how much does that delay the ultimate recovery in your estimation?

Well, I think it's all a function of what the economy's doing and what -- and whether the job growth is there and this in-migration stays right? Because when you look at that in migration for example, 35,000 of the 63,000 people that moved to Houston the last 12 months are from abroad. And we find that the foreign folks are much more used to a, renting and b, are moving into a lot of these highrises as well. And so if that continues, the good news is there's -- in a market that is as big as Houston, 22,000 units or 30,000 units is not a huge amount of inventory. So it really remains to be seen what happens with that. Clearly, if you had a recession that happened at the same time over the next couple of years, that wouldn't be good for a recovery in Houston. But if you just have a go along get along like we're doing now, it probably does fine. I do think that the psyche of that merchant builder today and the investors that have invested in these new projects here are -- has definitely changed. And their view is that they're hoping, and with reasonable hope, to get their capital out with a small profit. And we've had people approach us, for example, to buy a lease ups here. And I'm -- and their discussion is well, I'm not prepared to buy a lease-up here today. But the idea that the merchant builders are being more realistic in terms of what their pricing might be in the future, I think, is going to be a good thing for sure.

Okay. And then the second question is, and if this is a dumb one, blame it on the tequila. But if you look back at what you've done in Washington, D.C. and you've had some success with NoMa II, do you look back and say, gosh, I wish we had been maybe a bit more aggressive developing sooner to deliver into a better market? And if that is the case, how does that affect your strategy for development in Houston? Or is it because it's a supply-driven weight right now that maybe you'd be less inclined to add development projects early to deliver in a better market in Houston later?

I think that's a -- that's definitely a calculus that we are looking at. The question is if you hold land, it gets more expensive every day. And if you think construction costs are not going down but going up, and you think that you might be able to deliver into a strong market in the future that doesn't have a lot of competition, that's a different -- that's an analysis that we have to make. And it's one where that's -- we're looking at that for sure. The question ultimately is can you get the math to work and then what's your -- you have to have a view of the market obviously. And we've done well in D.C. And we -- a lot of people pulled back from there or some of our competitors did, and we're glad we didn't.

Our next question is from Rich Hightower with Evercore.

I'll keep it short with just one here. Just curious in the context of a very low levered balance sheet, shares trading certainly below our estimate of NAV to a significant extent, just curious where share repurchases fit into the corporate finance matrix at this point for you guys.

Well, share repurchases have always been in our forte. We, during multiple cycles, have purchased shares. The real issue becomes the issue of volatility and can you get any kind of scale. I don't fundamentally believe, I don't think our team believes that nibbling at shares, let's just say, we think is below our NAV makes a lot of sense. If we can get size and we can sell assets for $1 on Main Street and buy the stock back at a discount on Wall Street. It's a rational trade to do, but it doesn't really do you any good unless you're going to do it in size. And the challenge that we've had over the years is that the stock has been very volatile. And we get to the point where we think it's really good value. All of a sudden, so does the market and they drive the stock price up and we can't buy it. So it's one of those kind of interesting academic questions. We -- it makes perfect sense to do it. The question is, how do you execute it? And can you execute it where it really makes a difference?

Our next question is from John Pawlowski with Green Street Advisors.

Can you share the average stabilized yield on the 8 projects you have either in lease-up or under development right now?

Sure. Our stabilized yields on average, around 7%.

And that's on today's rents?

Yes.

Keith, you mentioned you reset your underwriting after each quarter passes. Can you share the occupancy, new lease and renewal growth expectations for the last 3 quarters of the year that get you to the 2.8% midpoint of revenue growth guidance?

So no, because that -- so we go through a bottom-up reforecast of every community. And then we take those numbers. And we look at them and say, what is the progression? We can give you the progression on new leases and renewals that we've already done, which we have provided for you today. But as far as going out into quarter-by-quarter progressions, that's not something that we've ever done or prepared to do. But we're comfortable that we're going to get to the midpoint of our guidance on same-store.

Okay. With the comments on deliveries slipping to the back half of the year, is there any concern you're on track through the first 5 months of the year because deliveries have been light and they'll be back weighted?

No, I don't think so because we're -- most of the stuff that is forecast to be delivered in 2017 is already -- I mentioned earlier that Witten is -- put some pretty good effort around trying to time -- to account for the delay in these projects. Most of the inventory that we know here in Houston you -- we have very good data on where they are from a construction completion standpoint and also lease ups. It's important that we, for all the reasons that Ric mentioned earlier, it's important that we know exactly what's going on, on all of this inventory that's out there, that at some point, needs to find a new home because it's -- 99.9% of it is merchant builder product. And ultimately, they're not prepared nor are they positioned to own these assets long term. So it's -- we track them very closely. And I'm confident that the numbers that we're using for supply are good numbers.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ric Campo, Chairman and Chief Executive Officer, for any closing remarks.

Well, I appreciate your time today and we will see you at the upcoming NAREIT meeting. So thanks. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.