Camden Property Trust (CPT) 2017 Q3 法說會逐字稿

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Good afternoon and good morning, and welcome to the Camden Property Trust Third Quarter 2017 Earnings Conference Call. (Operator Instructions) Please also note that today's event is being recorded.

At this time, I'd like to turn the conference 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 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 third 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. Between Hurricanes Harvey and Irma, Camden communities in 9 of our 15 markets sustained some damage. For 4 days of Harvey, we were riding out the storm in Texas and wondering who will stop the rain. Just when we could say I made it through the rain, Irma came along to rock you like a hurricane, reminding us that when it comes to mother nature, we are all just riders on the storm. I want to thank all of our Camden team members who helped our customers, coworkers and neighbors make it through the storms. Our commitment to improving the lives of our customers, team members and shareholders one experience at a time was on full display during and after the storm.

Despite the vast destruction of homes in Houston, the storm brought our community together. Camden and other apartment operators had apartment homes ready for displaced people to move into. Many apartment owners followed our lead by freezing rents at pre-Harvey levels, waiving move-in fees and other expenses.

Occupancy levels at our Houston community has increased from 93.5% before the storm to 97.6% today. These occupancy levels should be maintained throughout the fourth quarter and into next year.

Apartment fundamentals continued to be good across our markets. Demand is strong driven by job growth and growing demographics that favor rental markets. Revenue continues to slow as supply is absorbed. We expect supply to peak this year in most of our markets.

During the quarter, we finished the lease-up on Camden Victory Park in Dallas. We completed construction on Camden Lincoln station and started construction in Camden RiNo, both in Denver. Our development pipeline continues to add significant long-term value to Camden.

We took advantage of the strong market conditions and issued $445 million equity during the quarter. The equity offering was all about growth.

Last year, we sold 1.2 billion of noncore properties at attractive prices, which improved the quality of our portfolio. We are going to use the equity to fund our developments and acquire properties while seeking to keep our balance sheet strong. At this point in the real estate cycle, we expect to see attractive acquisition opportunities as merchant builders move to sell their completed development.

I will turn the call over now to Keith Oden.

Thanks, Rick. We're really pleased with our third quarter results. Despite all the disruption caused by the 2 storms, our teams managed to get back to business as usual more quickly than we thought possible. They focused on helping each other, our residents and our neighbors return to normal. Alex is going to walk you through the details of the financial impact of the hurricane on our results. And suffice it to say that from our perspective, when you adjust our results for the impacts of the storms, we had a very solid third quarter, which should carry over into the fourth quarter.

In terms of our same-store performance, revenue growth was 2.5% for the third quarter and 1.1% sequentially. Year-to-date through the third quarter was 2.8% and we expect full year 2017 to be around 2.9%, primarily due to recent occupancy gains in Houston. Most of our markets had revenue growth in the 3% to 5% range this quarter, led by Atlanta at 5.1%, L.A./Orange County at 4.8%, Denver at 4.7%, San Diego/Inland Empire at 4.6%, and Orlando at 4.5%.

As expected, and as we discussed on our last conference call, we saw a relatively weaker revenue growth this quarter in Austin at 2.1% growth, Charlotte at 2% even, and South Florida at 1.3%. Houston remained negative with a 3.1% decline for the quarter, but we expect to see significant improvement in the fourth quarter in Houston as occupancy has been trending over 97% for the month of October.

During the third quarter, new leases were up 1.3% and renewals, up 4.8%, for a blended growth rate of 2.7%. And so far in October, it's trending at 0.3% up for new leases, and up 4.6% on renewals, which is slightly better than what we achieved last October. November and December renewal offers were sent out at an average increase of 5%.

Occupancy averaged 95.9% in the third quarter of '17 versus 95.8% in the third quarter of last year, and 95.4% in the second quarter of this year. So far, occupancy is trending at 96% versus 95% last October. Net turnover rates remained slightly below the levels that we saw last year, with third quarter '17 net turnover rates of 55% versus 57% last year and year-to-date, 49% versus 51% last year.

Move-outs to home purchase were 14.6% in the third quarter versus 15.6% last quarter and 14.7% in the third quarter of '16. The top reason for residents moving out remains relocation, then that is moving out of the city, state or across submarkets at 35%.

Obviously, Houston has been on everyone's radar screen this year, particularly after the impact of Hurricane Harvey. As mentioned earlier, we saw a significant increase in our occupancy rates going from 93.5% pre-hurricane to over 97% now, and we expect occupancy to remain elevated during the fourth quarter and into 2018.

New leases in Houston started the year at a negative 8% in the first quarter, then improved to negative 4% to 5% during our peak leasing season. And as Rick mentioned, we froze pricing for the month of September, but are now seeing leases signed in the negative, down 1.2 -- 1% to 2% range, with renewals up in the up 1% to 2% range.

We currently have a very limited inventory of apartments available to lease, and we're entering the traditionally slower time of the year for traffic, so the main driver of same-store revenue growth this quarter should be occupancy rather than rates. We'll provide more color on our 2018 Houston outlook in conjunction with our fourth quarter 2017 earnings release and 2018 guidance release scheduled for early February.

At this time, I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith. Before I move onto our financial results and guidance, a brief update on our recent real estate activities.

During the third quarter, we reached stabilization at Camden Victory Park, an $85 million development in Dallas; completed construction at Camden Lincoln Station, a $56 million development; and started construction at Camden RiNo, a $75 million development, both in Denver. Additionally, as a result of Hurricane Harvey, we extended the anticipated sales date for Camden Miramar, our only student housing community, from October 1 to December 1. Closing of this sale is not guaranteed and is subject to, among other items, the satisfactory due diligence and financing by the purchaser. As I will discuss later, we have included the impact of this delayed sale in the midpoint of our revised earnings guidance.

On the financing side, during the third quarter, we completed a public offering of 4,750,000 shares at a net price of $93.18, generating net proceeds of $443 million, and issued approximately $2 million of additional shares through our ATM program. We intend to use the net proceeds for general corporate purposes, including financing for acquisitions and funding for development activities.

Our current $660 million development pipeline has approximately $200 million remaining to be spent over the next 2.5 years, and we are projecting another $125 million of development to begin construction before year-end. We anticipate being more active on the acquisition front, targeting recently developed, well-located assets in our existing markets.

We ended the quarter with no balances outstanding on our unsecured line of credit, $350 million of cash on hand and no debt maturing until October of 2018. Our current cash balance is approximately $300 million. As a result of our equity issuance, the midpoint of our current earnings guidance no longer assumes an unsecured bond transaction in the fourth quarter of 2017.

Moving on to financial results. Last night, we reported funds from operations for the third quarter of 2017 of $103 million or $1.11 per share. Included in these results were approximately $5 million or $0.055 of hurricane-related expenses as a result of Hurricanes Harvey and Irma. In August 2017, Hurricane Harvey impacted certain multifamily communities within our Texas portfolio. In September 2017, Hurricane Irma impacted our multifamily communities throughout the state of Florida and in the Atlanta, Georgia and Charlotte, North Carolina areas. Our wholly owned multifamily communities impacted by these hurricanes incurred approximately $3.9 million of expenses, with no insurance recoveries anticipated.

Accordingly, our operating results for the third quarter include a corresponding charge in property operating and maintenance expense to reflect these hurricane damages. These expenses have been excluded from our same-store results. We also incurred approximately $700,000 in other storm-related expenses related to these hurricanes, which are recorded in general and administrative expenses. Additionally, we recognized our ownership interest of hurricane-related expenses incurred by the multifamily communities of our unconsolidated joint ventures of approximately $400,000, which is recorded in equity and income in joint ventures. Excluding these nonrecurring storm-related charges, our third quarter 2017 FFO per share would have been $1.16, in line with the midpoint of our prior guidance range of $1.14 to $1.18 per share. Contained within the $1.16 per share of FFO, which excludes storm-related expenses, were $0.005% in higher-than-anticipated net offering income from our development and non-same-store communities, resulting primarily from each of our development communities leasing ahead of schedule, and $0.005 from a combination of lower-than-anticipated overhead cost due to timing of certain corporate-related expenditures, higher interest income on invested cash balances and lower interest expense due to lower line of credit balances. This $0.01 improvement was entirely offset by the impact of a higher-than-anticipated share count as a result of our 4,750,000 share equity offering, which closed on September 14. Our same-store operating results were in line with expectations for the third quarter as the increased occupancy in Houston did not occur until late in the quarter. We have updated and revised our 2017 full year same-store and FFO guidance based upon our year-to-date operating performance and our expectations for the fourth quarter.

Entirely as a result of our increased levels of occupancy throughout our Houston portfolio, we've increased the midpoint of our full year revenue growth by 10 basis points from 2.8% to 2.9% and tightened the range to 2.8% to 3%. As Keith mentioned, we are currently over 97% occupied in Houston, up from 92.3% for the fourth quarter of last year.

As a result of anticipated general expense savings for the fourth quarter, we have reduced the midpoint of our same-store expense guidance by 5 basis points from 4.1% to 4.05%, and tightened the range to 3.95% to 4.15%. As a result of our revenue and expense guidance adjustments, we've increased our 2017 same-store NOI guidance by 25 basis points at the midpoint to 2.25% and tightened the range to 2.1% to 2.4%.

Last night, we also adjusted and tightened the range for our full year 2017 FFO per share. Our new range is $4.51 to $4.55, with a midpoint of $4.53. This new midpoint represents a $0.04 per share reduction from our prior midpoint of $4.57. This $0.04 per share reduction is the result of the $0.055 of hurricane-related expenses recognized in the third quarter, and a $0.06 per share full year impact from additional shares outstanding as a result of our recent equity offering. This $0.115 combined reduction is partially offset by a $0.015 per share increase from our 25 basis point increase in same-store net operating income, a $0.02 per share increase from the previously mentioned delayed disposition of our Camden Miramar student housing project in Corpus Christi, Texas, a $0.025 per share increase due to lower interest expense, primarily as a result of the removal of the planned $300 million bond transaction originally planned for late October, combined with lower line of credit balances as a result of the equity offering, a $0.01 per share increase primarily due to higher interest income earned on invested cash balances as a result of the equity offering, and the $0.005 in higher net operating income from our development in same-store communities, which we recognized in the third quarter.

Last night, we also provided earnings guidance for the fourth quarter of 2017. We expect FFO per share for the fourth quarter to be within the range of $1.16 to $1.20. The midpoint of $1.18 represents a $0.07 per share increase from our $1.11 reported in the third quarter 2017. This increase is primarily the result of a $0.055 per share decrease in hurricane-related expenses, a $0.04 per share or approximately $0.03 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 $1 million of prior year property tax refunds resulting from our successful property tax appeals, primarily in Houston. A $0.015 per share increase from our nonsame-store and development communities, primarily driven by the normal third to fourth quarter seasonal increase in revenue from our Camden Miramar Student Housing community, partially offset by the planned December 1 disposition of this community, and an approximate $0.01 per share increase from the combination of lower interest expense and higher interest income as a result of lower debt outstanding and higher cash balances. This $0.12 per share net increase in FFO will be partially offset by sequential $0.05 fourth quarter impact from the 4,750,000 shares issued late in the third quarter. Our fourth quarter guidance assumes no acquisitions are closed by year-end.

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

(Operator Instructions) Our first question today comes from Nick Joseph from Citi.

You mentioned being more active on acquisitions using the proceeds from the equity deal. So in what markets are you seeing the most opportunity to use today and how are cap rates trending?

Sure. So we definitely are focused on acquisitions with the current strength of our balance sheet, for sure. Most of the markets that we operate in have pretty good opportunities. What we're really looking for are merchant builder products where we can buy at a discount to replacement cost. Cap rates are definitely very sticky on the low end. To give you an example, in June, we bought Camden Buckhead Square. It was a 12% discount for current replacement cost. It was about a 9 -- about a 4.5% cap rate in the sort of forward 12 month period. We don't see cap rates moving at all, if not, they're going down, not up. You just have a significant amount of capital that's still is trying to be -- find a home in multifamily.

And if these deals started to materialize, are you expecting them to going forward?

Absolutely. I think that when you think about the merchant builder model, they have a meter on their equity. And in order to hit internal rate of return hurdles, they need to sell their assets. In addition, in order to reload their capacity to do new transactions, they need to sell those assets as well. So I think we'll have a healthy merchant builder pipeline. We've seen some already this year, but I think next year is going to be a big increase in that pipeline.

Do you want to use all your own capital for that? Or would you partner -- and I guess the question is how big is the pipeline? How big is this opportunity? How much is in the Hopper today? And are you going to use all of your own capital? Or if the opportunities are so significant, will you use joint venture capital to do it?

Sure. So we tend to want to use our own capital. We do have a remaining balance in the fund with Texas Teachers. So bottom line is, we have a capacity, if you keep a moderate debt-to-EBITDA number of over $1 billion to acquire. So we will not do any additional joint ventures other than our current relationship with Texas Teachers. We just think it makes more sense to own 100% of the assets or in the joint venture that we have already, but not create any new joint ventures at all. We found, during the last downturn, that deep-pocket joint venture partners don't always dip into their pocket during tough times, and so we want to keep our balance sheet clean and very simple to understand. So with that said, our capital in Texas Teachers.

Nick, we're focused also on markets where there's been -- where we know we have an oversupply condition that's either ongoing right now, it's already coming into focus or we expect to see it in 2018 and, obviously, those markets are the Charlottes and, at some point, Houston, Dallas, Austin and Orlando. And so it's really a matter of looking at individual submarkets. And to Rick's point about the capacity and the use of our own capital, obviously, in some of those markets I just mentioned, Houston being a good example, we're at a point from Camden's overall exposure in the Houston market that we wouldn't want to add a bunch of -- long term, wouldn't want to add a bunch of net exposure in Houston. So the opportunity would be finding really attractive assets that we could partner with on an 80-20 basis within -- with Texas Teachers, not increasing our exposure a bunch, but taking advantage of the investment opportunities that we think are coming.

Our next question comes from Rich Hightower from Evercore.

First question, on Houston. Can you give us a sense of the composition of new leases signed after the hurricane? How many of those were short-duration leases versus sort of a traditional year-long lease? And then, where do you see market rents today versus where your portfolio is positioned, just so we sort of have an idea of what's left in the tank, so to speak?

Yes, so we obviously had a pretty big component in the weeks and days immediately after the storm. We did accommodate short-term leases. The reality is, we just didn't have all that many apartments to lease because we went into the -- we were going into the storm in the 94%-occupied range. So we did accommodate that, although we were cautious and we were warning people and trying to get them to understand that the magnitude of this storm, if you had flood damage in your home, that 3 months is just not realistic. And as it turns out, our advice was sound and well-reasoned because I think most people, that have had water damage in their homes, they're having to go through the process of approvals and then, ultimately, finding a contractor and getting the work done, I think they're coming to the realization now that it's going to be more likely 6 to 9 months before they can actually get everything put back together and get back in their home and have it -- have the work be completed. So that's -- we did this in short-term leases. It didn't have a huge impact on our overall -- the length of our lease term in Houston. We've accommodated the people who did the original short-term leases and we've allowed them to re-extend if they want to want on a 3- or 6-month lease. But most people now have -- that are coming in are not -- were not impacted by the storm. Those people have already found a permanent housing solution. So it's just really not a big issue within our portfolio, it's a pretty small number. So the second part of your question, which is where are we on market rents. And as Rick mentioned, we froze rents at pre-Harvey prices, and we did that throughout the month of September and we are gradually getting back to what we would think of as regular order. The only thing that we're doing right now is that we do have a cap on renewal increases in Houston of 5%. We expect to move that cap to 10% on renewal increases by November 15. And just a point of reference, 10% on a renewal cap is what we use in all of our other markets, that's just sort of our standard operating procedure. So we will get back to regular order here pretty quickly. We do have the ability, and it seems like it'd be a simple thing to do to turn off revenue management, but as it turns out, it's really not. So what we ended up doing is sort of running parallel with our revenue management system and then doing manual pricing for the apartments that were leased in the period where we had frozen rental rates. We think that if you kind of look at where our market averages are, our market comps relative to our rental rates, we're still below market rental comps and that number is somewhere in the 2% range, we think, across our platform. So we do think there's additional -- there will be additional rental increases as we go back to regular order. One of the things that will certainly happen as we roll into 2018 and we are fully back on our revenue pricing model and pricing according to just normal supply-and-demand dynamics is that the model will work really hard to get the occupancy back down to 95% to 96%, and the only leverage point that you have to do that is through adjusting price. So over some period of time, I would expect to see a trade-off between a lower occupancy rate. The 97.7% is pretty close to being -- minus frictional move-in, move-out, that's pretty close to being 100% occupied and the model doesn't like that condition. So the only way to remedy that is to do it with pricing. So I would expect that over some period of time in 2018, you're going to see our occupancy rate trend back down, but the offset to that will be higher rental rates.

Okay, that's great color. My second question here, since I've got 2. I wanted to go back to Rick's prepared comments on supply peaking in 2017 in Camden's markets. I think it depends on the source one consults for this sort of thing. But we sort of see it as an '18 event in many of the Sunbelt markets. And I'm just curious, is this -- is that a commentary on submarket specifically, or is there something else there, just different data sources in your view?

So the different data sources depend -- we use 2 -- 2 different data sources for the multifamily completions. And if you look at Witten's numbers, he has the supply peaking in 2017 at about 139,000 apartments or 140,000 apartments over Camden's footprint. And he has 2018 at about 137,000. So yes, it's peaking, but there's -- on his metrics, there's still a lot of supply that's coming in 2018. And I think the wild card there on the data providers is how much of that -- are we still -- do we still -- have determined yet how much of the '17 originally scheduled completions get rolled over into 2018 because people are just having trouble getting their jobs completed with all the labor shortages. So there's a question there. If you look at AXIOMetrics' numbers, they have a much clearer view of a peak, which in 2017, they have 162,000 apartments being delivered in 2017. And then if you roll that over into 2018, their number is 136,000. And if you go out to '19, their number falls under 100,000. So Wittten's number looks like it's a little more smooth than AXIOMetrics'. I think the difference is probably in how they're handling the shifting of projected deliveries in -- between '17 and '18.

Our next question comes from Juan Sanabria from Bank of America Merrill Lynch.

Just following up Richard's question on supply. I'm hoping you can give kind of your views on maybe the top 5 or 6 markets. Do you see -- maybe not Houston, we know that one, L.A., Atlanta, South Florida, Dallas, where you expect supply to be '18 versus '17?

Sure. On the Dallas '17 completions, we have it 22,000 apartments rolling over to 24,000 -- excuse me, 19,000 in 2018. Houston, we have it 15,000 apartments in '17, and that drops to about 6,000 apartments in '18. L.A., 14,000 apartments in '17, stays pretty flat in '18, and another 14,000 apartments. Between Miami and Fort Lauderdale, if you add those together, in what we call our Southeast Florida markets, that's 10,000 apartments this year, and that rolls down to about 6,000 next year. By the way, I'm giving you Wittens' numbers, not AXIOMetrics' numbers, which is the one -- the data provider that we've put a little bit more emphasis on. What other market -- Washington, D.C., 9,000 apartments, goes to about 10,000 apartments in 2018.

Maybe Atlanta?

And Atlanta, 11,000 apartments going to 11,000 -- 11,400 going to 11,200 in '18. So basically flat year-over-year.

Okay. And then just on maybe Dallas and Atlanta, both kind of higher supply markets. What are you seeing on the concession front, any spike? One of your peers talked about, particularly in uptown Dallas, some higher concession levels recently. If you could just give us your sense of what you're experiencing in your specific submarkets?

I think when you think about concessions, merchant builders are very rational players. When they have empty buildings, they rush to the door to get as much free rent as they can to grab market share. The worst thing about -- the worst thing you can do as merchant builder during a concessionary period is be the last one to get to the biggest concession. And so in certain submarkets, you're seeing a month to 2 months free. We haven't seen 3, but generally, it's 1 month to 2 months in some of the markets that are leasing up a substantial number of units. In Dallas, we are fairly insulated with some of our properties because we have a fair number, fair amount of -- a sort of a last-cycle BB+ properties as opposed to direction competition with new development.

So in Dallas -- and I don't speak to anybody else's results, but in Dallas and Atlanta, we are -- we certainly see a small amount of deceleration between third quarter and fourth quarter, but it's -- you're talking 3 -- 30 basis points, plus or minus, among -- between those 2 markets. So I don't -- we're not seeing that kind of impact and it could be supply and it could be submarket-driven as to where somebody else's assets are located. But we clearly have not seen that so far this year, and we're not forecasting that in the fourth quarter.

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

I just wanted to touch on the supply a little bit again. And when you look at some of these markets that are a little bit flatter in terms of supply, any that you think that could be of risk of turning negative in 2018?

No. I think that when you think about the markets that have the supply, they're also the markets that have the jobs. And the supply in most of these markets or in Dallas is just knocking the ball out of the park in terms of job growth. Atlanta, the same thing. Are you saying that you think you're going to have negative revenue growth in '18 in these markets?

In any specific markets, like in Austin or in Dallas?

No, we don't think so. But we are obviously not prepared to give guidance at this point.

So we're not. We're a bottom-up shop, and we hadn't got there yet. But I can tell you what, based on Ron Witten's work for the 2018 forecast across Camden's platform, he's actually got revenues reaccelerating into 2018 relative to 2017. And I can -- I'm just glancing over the numbers, I don't see anything below a 2.5% revenue number on Wittens' numbers and that's not -- those aren't our numbers, but that's just a data point for you is that he actually has -- taking into consideration a big chunk of that is -- in our portfolio is the turnaround in Houston from a negative number in '17 to probably what will be a solid positive number in 2018. So I don't -- not in -- we don't see it and certainly, Ron Witten doesn't see it in the work that he does.

That's helpful. And then, second question. Just was hoping you could just give us your thinking on getting more offensive on the offensive front on the investment side at this point in the cycle. And then maybe a little bit more color as to maybe the number of units that you're underwriting today, are they mostly one-offs? Or are you seeing some portfolio opportunities out there.

So the reason that we're getting more constructive about buying today is because the type of properties that's out there in the marketplace is merchant builder, very high-quality property. It really hasn't been around much in terms of being able to buy those properties. If you look at the investor appetite today, value-add properties have the highest bid, 20-plus bidders on every property. And when you start getting into the merchant builder product, that is definitely being impacted by supply, free rent embedded in the portfolios. There's just fewer buyers for those. And so we like to play in that space, there's no question about that. In terms of -- what was the second part of your question?

I was just curious if you can us give sense of the units you're underwriting, and then the portfolio versus one-offs?

Pipeline.

Yes, pipeline, yes. So we have a long list of pipeline. You were always looking, even when we're not major on offense, acquisition wise, we always have a list of several billion dollars' worth of properties that we're underwriting. In terms of portfolios, there are a few portfolios out there, and that -- we look at those as well. The challenge there is, generally, a portfolio may have kind of cats and dogs and we're more oriented in taking specific rifle shots for submarkets that we really like. Now if there's a portfolio that has more of what we like and less of what we don't like, then we'll definitely take a look at that. And we clearly have done portfolios in the past, and they've worked out pretty well. But I think there's a combination of one-offs and portfolios out there, and there's no shortage of product.

So just following up. So it's fair to assume that given the quality of product and some these newer development or even lease-up deals, that the initial accretion could be limited out of the gate?

Yes, absolutely. I think if you look at what we did at Camden Buckhead Square, the 12-month forward cap rate we think is 4.5%, but that means you start out probably slightly less than that, and you have to then move it up by bringing concessions off. But when you think about being able to buy at below replacement cost today, in high-quality markets with embedded concessions, you're starting out at a lower number than you would otherwise like, but that's part of the underwriting mechanism you need to do. Now over time, you're unleveraged IRR is really good, but you do have to sort of suffer through a lower cash flow return initially.

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

Two questions. First, I think there was something like 46,000 vacant apartments or something of that sort before the storm. Can you just give us an update sort of where the broader Houston market stands right now? You guys spoke where your occupancy is. But as far as the competitive set, can you just give us some color there?

Sure. So the market, just to put it in perspective for folks. The 638,000 apartments in Houston is a very, very big market. And the region -- by the way, 1,700 square miles, okay? So it's not like one is across the street from another, right? There was about 16,000 units, plus or minus, that were actually taking out of the inventory, so that increased the occupancy rate a little bit. And the occupancy rate, if you take the entire market, it was somewhere in the high 80s percent, and it went up to the low 90s, maybe 100 -- 150 to 200 basis points up. But I think you have to be very careful with these broad numbers because when you take sort of the A, B, C, D level of properties. The A properties that are under construction probably had the most vacancy, and then there's a lot of older properties that probably have pretty low occupancies as well. If you go to the pockets where there -- where there was disruption for the single-family homes, there's about 5 or 6 areas where the homes were really affected. And in those areas, the occupancies are -- have gone from low-90s to high-90s, and there's really no inventory in those markets. And where you see the vacancy, it tends to be in the urban core, interestingly enough, the downtown area River Oaks, West University did not flood as much from a residential perspective. This flood was a residential flood, it wasn't a commercial flood. And so all the businesses got back to business really quickly and the dislocation of those residents, they went to places that were close to their home and close to their work and not necessarily towards, say, new downtown properties. And even though they all got a lift, the West side, East side, North side got a bigger lift than areas that didn't flood.

Okay. So -- and then just going to the -- you said that all of the home repair people, the people who were flooded out of their homes, that traffic all came, and now the tenants that you're seeing are more regular tenants. But you're saying that the portfolio should do well, or Ron Witten is saying the portfolio should do well next year. So is the demand for apartments now being driven by people coming to Houston to help rebuild? Or why is the overall market suddenly going to do better if the immediate demand for displaced people has already been satisfied?

So Alex, if you look at Witten's work, he has total job growth in 2018 in Houston at about 79,000 jobs. And then he has deliveries of new apartments in Houston at about 7,000, so that's better than 10:1 ratio of jobs. Now he's got a -- he has a lower number for 2017 job growth than what we've been using, so there may be, again, these different data sources give you different results. But directionally, he's got a much, much bigger job growth number than what the greater Houston partnership is carrying, and I think some of it is just sort of a mismatch between '17 and '18 growth. But even if you put the 2 together, he's looking at -- we're looking at pretty decent job growth next year for Houston, a real rebound and there's, in terms of new deliveries, it's going to be pretty limited. And I think we just -- we've about run the course on these apartments. So what happened in the flood event is that you pulled forward a ton of demand that probably would've naturally occurred over 2018. You pulled it forward into the third and fourth quarters of 2017. And I think it's -- the people who are here are in apartments because they were affected by the flood. It's going to be longer rather than they imagined. And so, you're probably going to get a continued effect of the carryover of the flood, the flood victims, but you're also going to get a fair amount of new job growth in Houston next year.

I think the key is to make sure when you think about the flood folks that think -- they thought, initially, they'd be able to get their house fixed in 3 months, it's more likely to be 6 or 9. But those are folks that have means. Those are folks that have insurance. 80% of the people that are flooded didn't have insurance. And so when you look at the overall impact of a storm like Harvey is going to last not 9 months, 6 months, but really, 2 years, 3 years of pressure on housing because of all the complicated pieces of the equation, how much government funds come in and what they do to deal with some of the flood mitigation issues. And that -- I think most people think is going to boost job growth above what it normally would have been by at least 5,000 or 10,000 jobs just because of the fixing of the infrastructure and the homes over the next couple of years. So you really did pull demand forward, but you also added demand to what was already thought to be a recovering market in 2018.

Our next question comes from Jeff Pehl from Goldman Sachs.

Just turning to D.C. I just have a question on same-store revenue growth, if you can comment on that by submarket?

We can get you our submarket stats, and we'll send them to you offline.

Is there any submarkets where you're kind of still worried about supply into '18?

We're worried about supply, generally, in D.C. because we've got probably another 10,000 apartments that are going to be delivered next year, which is roughly what we got this year. So it's not like we're going to get a big relief on the supply side of things. But we do forecast next year job growth being about what it was this year at somewhere around 50,000 to 60,000 jobs. So as long as -- which are -- those numbers are okay. You get 10,000 new apartments you get 50,000 jobs, that's pretty close to equilibrium. The real question for operators is where is that supply being delivered? And so far, the footprint of our portfolio has fared better than most, and then as we talked about on our last call, we think that has to do with our geography within D.C. Metro. Northern Virginia has held up really well. Maryland has held up really well. We got -- we're just about to complete a lease-up in the D.C. Metro area that's not in the district, and it's gone extremely well for us. So it's -- we have the first and second quarter in D.C. were actually better than our original expectations. We think that, for the year, we end up somewhere around 3% revenue growth in D.C. And if that's -- if you'd go back to what our original guidance was, we had D.C. rated as a B rated market and improving, and that's kind of what we've gotten this year. So I think that as you kind of roll forward to 2018, it looks a lot like 2017. If we get the job growth that's projected and we absorb another 10,000 apartments and then again, where the pressure comes is where those 10,000 apartments are being delivered.

And then just my second question on Houston. Your Camden downtown project, what conditions do you need to start construction there? And when can that potentially happen?

Well, what's interesting about that project is we announced it before Harvey, and we are going down the trail, trying to start it by the end of the year. And we think it's going to be a great, great timing in terms of being able to deliver product into a market that doesn't have a lot of supply.

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

Quick question, circling back to D.C., and maybe phrasing it a little differently. I was curious what the gap is between what Camden's rents are and the effective rents on the new supply that's being delivered and what that gap looks like.

When you say new product being delivered, it's all the way from suburban, walk-up garden apartments to high rises in the district, and the spread on that would be anywhere between -- so at the low end of that range, suburban surface park apartments in the metropolitan area. You're probably in the $1.65 to $1.70 range. For high-rise product in the district, you're north of $3 a square foot. So to answer that question, I'd have to kind of know what comp set you're -- what area of town are we talking about, and then what vintage of product? But in Camden's world, at the high end of that $3-plus would be our new lease-up in the district at our NoMa product, and the average rent there is roughly $2,700 a door and the average throughout the entire -- our entire portfolio across the district is about $1,900 rent. So again, unit mix matters a lot depending on how large the units are. But broadly speaking, $3-plus in the district, call it, $1.60, $1.70 in the suburbs, it would be the lowest end of the rental spectrum.

Okay, that helps. And then a question on Miami, or Southeast Florida, I should say. Quite a bit of deceleration in the quarter. Was there any top line noise from Irma that impacted the numbers, or not? And then, I guess, my question is, just kind of the supply timing issue for the most part, and when might that alleviate?

Yes. So the easy part of that question is the noise from Irma. And as it turns out, there's really no noise from -- in our portfolio. We had relatively minor damage in the scheme of things. We had one of our high-rises that got some water from the storm surge. But honestly, we had all units available -- all vacant units that were available to be leased within 3 days of the event were back available to be leased. So there's really no impact to that. Southeast Florida was one of the 3 markets that we talked about on our last call that I specifically kind of called out. Austin, Charlotte and Southeast Florida as places where the supply in the competitive set is really -- we're really starting to feel it in those 3 markets. And so, yes, deceleration in Southeast Florida is likely to continue into the fourth quarter. You've got some different things that are going on in Southeast Florida. One of which is just this incredible glut and avalanche of new condominium projects, many of which are struggling to do -- to hit their sales numbers and, ultimately, as we all know, at some point, the condominium permanent homeownership dream becomes a rental scenario. And there's no question that our 2 biggest NOI contributors, which are Brickell and Las Olas, are going to be impacted by that.

I think the wild card for Florida, in general, and this will include Orlando and Southeast Florida, are -- and this is not Irma, but Maria. If you look, there's been about 75,000 Puerto Ricans that have been -- have come to Florida already, and they've arrived in Miami. When you look at the concentration of Puerto Ricans where they live in Florida, Orlando is actually the largest market for Puerto Ricans. We've seen some increase in demand from what's going on in Puerto Rico, and I think that given the scale of the disruption there and the time it's been -- that it's taken to get that back online, Florida could have an increase in demand that we don't expect -- that we haven't expected as a result of sort of the Puerto Ricans trying to find a place with electricity.

Our next question comes from Michael Lewis from SunTrust.

My first question is on Houston. I guess, I realized there's some governors in place, but I might have expected the rent spreads to be a little higher already. And I was wondering if you could put some numbers around market rent there. Do you think, next year, it could go up 10%, or more than that or less than that? And if it's helpful, what is the management soft -- the revenue management software tell you to do today? And is that kind of nonsensical in an environment like this.

So if you -- the revenue management system, if it were -- if we had implemented their recommendations initially, and if you look -- kind of look at our comp set, we think that there's probably about a 2% -- 2% to 2.5% gap that resulted from us kind of saying we're not -- we're going to freeze pricing pre-Irma. Again, we're back -- by November 15, both on new leases and renewals, we'll be completely back to regular order and whatever the pricing is, the pricing is. At some point, we have to find a market clearing price for these rents, which we will do. And so I think as you kind of think about -- as we think about and look forward into 2018 and try to guesstimate the impact, again, I'm not -- we're not anywhere close to the point where we're prepared to talk about individual markets or individual rent levels, but I think it's instructive to look again at what our data providers are telling us. And if you look at where Ron Witten's numbers were for rents, the delta between rents in 2018 from the pre-Harvey and post-Harvey, what his analysis is saying is there's about a 5% -- rents will be 5% higher than what he was forecasting pre-Harvey. So I just think that's -- those -- that's instructive in the sense of the magnitude. Now keep in mind that he's -- what he forecasts are net effective rent rates, and that doesn't -- you've got to separate that from revenue growth because our portfolio rolls over, on average, 8% of it per month over the course of the year. So even if rents spike at the beginning of the year, you have leases in place that aren't going to -- that won't be affected until that lease comes up. So you just have to be careful with using the difference between rental rates and revenue growth. But I think regardless of how you parse it, 2018 is going to be substantial -- look substantially different than what it would have without Harvey. Now I will -- I can't give you exact -- or our forecast around that, but we'll certainly provide that to you as part of our guidance for 2018.

And just to give you a sense too, Witten has Houston as the #1 market for growth in America next year.

That's helpful. My second question, the same-store guidance is up, but if I look outside of Houston and Florida, which were most affected by hurricanes, every market except Atlanta saw same-store revenue growth decelerate in 3Q. So my question is, when you isolate for the storms, are those non-Houston and Florida markets trending at or behind of what your previous expectations were?

They're trending right in accordance with what our budgets are. When you think about deceleration, I mean, our markets -- and I think, generally, the markets across the country have been decelerating for the last 2 or 3 years. And it's a function of -- you have plenty of demand. We have the same job growth this year as we had last year. The issue is the supply. That's why we point out that supply appears to be peaking this year and next year. And so it's really the pressure that the market is getting because of the new supply that's in the marketplace. So the markets are performing exactly the way we thought they would.

Our next question comes from Nick Yulico from UBS.

Just one question. I think last quarter, you talked about some new initiatives you were looking at for ancillary revenue growth since the tech package is rolling off. Any update on these initiatives. And what type of same-store revenue benefit you might be able to get next year from those since the tech package is rolling off?

Yes, I'm not -- having trouble coming up with what we talked about last quarter, but I can tell you, there's not anything that we can share with you right now that would be meaningful or material to our 2018 results. We're looking at all kinds of things around the home of the future, and there's -- Amazon is doing all kinds of interesting things. But from a revenue impact standpoint in 2018, nothing specific.

Okay. And the tech package fully rolls off this year? That benefit?

This is the year where you'll see, really, the last incremental major impact.

Our next question comes from John Pawlowski from Green Street Advisors.

A question on the pricing power you're seeing with existing tenants. Outside Houston, did renewal growth accelerate in any market in the third quarter? Or is it currently accelerating early fourth quarter versus the year-ago period?

Yes. We don't -- I don't have that stat in front of me, John. I'll be glad to get -- send it to you offline. We do parse that by markets, I just don't have it in front of me.

Okay, that's fine. And one last one on the acquisition opportunity. Hypothetically, if you were to buy $1 billion in product next year and you can opine on that number, how realistic it could be. If you held today's market pricing constant on the source of the funds, how would you fund that $1 billion in acquisitions in terms of dispositions, equity and debt?

So we would -- when you think about that, we'd use part of our fund, which is about $400 million, plus or minus. And then we would use the equity offering, obviously, the cash from that. And given where our debt-to-EBITDA is, we would have a combination of borrowing, and then probably somewhere in the $100 million disposition to fund that as well.

And we also have roughly $350 million in cash on our balance sheet today. So that would obviously be part of that. In addition to that, we have to fund our development pipeline -- the spend on

our development pipeline, which is a couple hundred million next year.

Our next question comes from Wes Golladay from RBC Capital Markets.

Looking at the supply pressure in the competitive set, how do you see that progressing into 2018? Will it still remain Austin, Charlotte and the Southeast Florida? Or will it move to the other markets?

I think the supply pressure in -- will continue to be with us in Charlotte and Austin, if you just look at job growth versus projected deliveries in both of those markets. It's hard to see that things are going to get much better from a supply standpoint. I think that you're likely to see, just again, based on projected job growth and the number of deliveries that have to run through the system, probably, the spreads, some of the supply issues are probably already affecting parts of Dallas. I think it probably becomes more widespread in 2018. You probably have -- you're starting to see the early stages of supply pressure in Denver and, again, based on 2018 numbers, that probably gets a little bit more pronounced in 2018. Those would be the markets that will continue to be on our radar screen for supply pressure all the rest of our markets -- roughly, in equilibrium based on new supply and projected job growth next year, some better than others, but those would be the worry spots for 2018.

Okay. And then looking at job growth, are you -- I mean, it looks like everyone -- a lot of people want to hire, but it's really hard to find the correct laborer and skill match. Are you taking a more conservative underwriting when you look at job growth in markets when you're buying?

When you look at -- I think that's definitely a big concern, right? How can the economy grow if you -- and create jobs if you can't find people to fill those jobs. And when you look at -- if you go out -- I don't think that affects '18 much. But when you start going out into '19 and '20, you do start getting into where you see most economists are showing job growth falling pretty substantially in '19 and '20. And so we definitely look at those metrics when we're deciding which submarkets and which markets we want to buy in.

And just to put some numbers around that. Again, Witten's forecast, and this is something he's been talking about for some time, which is just the constraint in the labor market that you were at 4.2% unemployment now, and that's likely to go -- drift a little bit lower. So yes, 2018 total employment growth coming down from 2.1% -- excuse me, 2.1% this year in '17, drops to 1.9% the following year, and he has it dropping to 1.5% in 2019, to Rick's point. So -- and he's not forecasting a recession in that, he's just saying that's his view of the constraint that we're going to be up against. Fortunately, since Camden's markets produce jobs at a higher -- and a population growth with a higher markets than the national average, we don't see as much -- as big of an impact from the fall off. He's got total jobs in our -- across Camden's platform in 2017 at 610,000. He has that, actually, going up the 641,000 in 2018. And then he's got it coming back down to about 560,000 in 2019. So yes, that is real -- we think it's a real thing, and our data providers are giving us their input that it's a real thing.

Our next question comes from Vincent Chao from Deutsche Bank.

I know we've talked about Houston a lot here on the call. But I was just curious, I mean, so obviously, you put some freezes in place immediately following the hurricane. I don't want to be perceived to be gouging the market. But I was just curious, as we think about 2018, do you think that the optics will into play at all if we get to a certain level of rent growth? Would you just cap -- I know you said the renewals will be capped at 10%? Would that just take you to the market average for the rest of the country? But is there any other thought on sort of how you'd manage the optics of rent growth?

Yes. I think that we have been going above and beyond being good neighbors, and we continue to do that. I guess that we're sort of taking this in 3 steps to get back to market rate pricing. But ultimately, it doesn't serve anybody's interest to not have market clearing pricing on rental housing. And so we need to get -- we do need to get back to regular order, and we will do that. You also have to put this in context that if you take the entire Houston market because of the oversupply and the oil bust that we've experienced for the last 3 years, we've had negative -- our rents have declined for 2.5 years, going into the Harvey event. So rent -- the folks who are paying rent at market rates, somewhere around - accumulative about 7% or 8% down on top line rents, going into Harvey. So if we've got 8% rent growth day 1, we're back to rents that people were paying 2.5 years, 3 years ago. So I don't -- we don't think that there's going to be an optical question because you're not -- you're charging market rate rents for the apartments that you're renting. I think, just to put it into context. So we were at 3%, 3.1% down on top line revenues in Houston in the third quarter. And in order to get to the -- and a lot of the pickup that we're going to see, we are going to see higher going from 2.8% for 3 quarters in the portfolio to 2.9%. So someone has to be positive, pretty positive in that, and the plug is really Houston. And so we think we're going to see, in our portfolio alone, a shift from a negative 3.1% in the third quarter to a positive 2.4% up in the fourth quarter, and that's the sort of magnitude of the shift. So I think by the time that year-end comes along, we will be back to market rate pricing relative to our comp set, and we'll probably be -- rents will be up 5%, plus or minus, from where they were in the second quarter. And my guess is that extends into 2018. And in our case, it has to, because we've got a -- we have to get a market clearing price to get equilibrium back in our inventory, and running at 97.7% occupied is no way to run an airline.

Okay. And then just another question on D.C. I want to make sure I heard the numbers right. I think you said expectations for 2017 were about 3%, which seems to suggest another deceleration in the fourth quarter. Is that the right way to be thinking about that particular market.

Yes, I think that's right. I think that's right. And again, we outperformed pretty handily all of our comp set in the first and second quarter. My guess is that as supply shifts around where the deliveries are coming, that, that's going to impact us a little bit more in the third quarters and fourth quarters. And when it all shakes out, 3% is about the right number for the year. And again, if you had asked me in December of last year, based on all of our bottom-up analysis, I would've said 3% top line sounds about right for D.C.

Okay. But it sounds like just the specific timing of submarket delivery that's driving the outperformance earlier versus the back half.

Yes. But you also -- I mean, third quarter -- third to fourth quarter, seasonally, is always lower. I mean, in 9 out of 10 years, it's lower third to fourth quarter in growth. So that's -- you'll probably get 50 basis points in our entire portfolio, historically, between third and fourth quarter growth rates.

Our next question comes from Hardik Goel from Zelman & Associates.

Just to -- on Houston, real quick. [Temperating] your assets out into what are inside the loop and what's outside the loop, it seems like you guys gained more occupancy on the assets that were inside the loop and less, comparatively, on those outside the loop. Did you see -- how did that work? Was there an intention to kind of freeze rents in one place, and kind of boost occupancy, or were rents frozen across-the-board in every asset that you have in Houston. So if you could just talk about how the dynamic, how it worked?

Yes. Occupancy went up across the board. To your question about freezing rents, we froze rents everywhere. So we didn't make any distinction in inside and outside, high-rise, low-rise. They were frozen for the same period of time and at the same pre-Harvey rates across our entire platform. So if you think about where the weakness was prior, and the greatest weakness that we had in our portfolio would've been our downtown and midtown inside the loop apartments, where new rents were down 8% to 10% across our -- across those assets. So it would make sense that -- not necessarily the occupancy, because we always had pretty high occupancy in those units, but we had adjusted our pricing to maintain that. So it makes sense to me that the recovery in the rent -- in the top line rents would happen disproportionately inside the loop, and that's what's happened. But we had assets that, through the third quarter, in some of our suburban assets that still were 1% negative, 1.5% negative year-to-date. But we also had assets that were 8% to 9% negative. And so, in those assets, it makes sense to me that we would see more recovery, and that's what happened.

That makes sense. Just one more question, real quick, on your equity issuance. Was there -- did the overall allotment get fully exercised? I didn't catch that, I didn't see it in the supplement? Also, you guys capped your ATM. Can we expect more equities issuance going forward? I'm just a little -- I'm trying to figure out how you guys view your different sources of capital today because your debt is pretty much at an all-time low levels if you look at net debt-to-EBITDA, and yet you're choosing to issue equity. How would you think about that?

Sure. So we issued 4,750,000 shares, that was the full issuance of the equity. Prior to that, we did a very small amount on the ATM. And what you can expect, going forward, the reason we did that many and we raised roughly $445 million was we didn't want to be in the market all the time. And the challenge you have with an ATM program is that you're subject to blackout and you're subject to sort of dribbling it out over a long period of time. And so we chose to take advantage of the market conditions, strengthen our balance sheet so we could go on the offensive from an acquisition perspective. So you won't see us, until we get to the point where we spend this cash on our balance sheet, you won't see us very active in the equity markets.

On your question regarding the shoe the underwriters elected not to take up their option under the greenshoe.

Got it. And just the last follow-up for me. Is there anything in particular that you guys have in the pipeline in terms of acquisitions that this capital could be deployed towards? Or is it, as you said, just an opportunistic issuance because you know there's going to be things you want to do with it?

As I said earlier, we're constantly looking at properties and we don't have anything specific to discuss today about that.

Ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Rick Campo for any closing remarks.

Great. Thanks for your time today, and we will see a lot of you in Dallas in the next couple of weeks. So thank you.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.