Camden Property Trust (CPT) 2018 Q2 法說會逐字稿

Good day, and welcome to the Camden Property Trust Second Quarter 2018 Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Kim Callahan, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining Camden's Second Quarter 2018 Earnings Conference Call.

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

As a reminder, Camden's complete second quarter 2018 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) If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes.

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

Thanks, Kim, and good morning. Today's on-hold music was selected by Austin Wurschmidt and his team at KeyBanc, who won our contest on last quarter's call. Austin picked up on the accelerated pace of M&A activity in the REIT industry in 2018, with 8 deals totaling $56 billion in equity valuation, either closed or pending. That's a lot of collaboration, which led to his theme of famous collaborations of musical variety. Now thank you, Austin and your team. And for this quarter's contest, be the first e-mail to Kim Callahan 4 artists and/or bands featured on today's on-hold music, and you will have the honor of selecting our music for our next earnings call.

Camden team members delivered solid earning results this quarter. We continue to create value through our development business, and we'll be at the high end of our 2018 starts guidance. The acquisition environment is challenging, with high demand driving higher prices and lower cap rates more than we anticipated at the beginning of the year. Rising interest rates and modest growth rates have not had any effect on buyer demand in the multifamily business. We've held our acquisition guidance at $500 million for the year but have moved $300 million into the fourth quarter. We still believe we'll hit our acquisition targets while maintaining our discipline by the end of the year.

I'll now turn the call over to Keith Oden.

Thanks, Ric. Today marks Camden's 100th quarterly earnings call, and Ric and I have had the privilege to be on every one of them. A lot has changed in the REIT world over the last 25 years, but one thing that has always been true is that good numbers make for good earnings calls. I'd like to acknowledge and thank our Camden team members for producing another quarter of good numbers for us to discuss on our call today.

We are indeed pleased with the results this quarter, which were better than our expectations for both the quarter and year-to-date. Overall conditions remain healthy across our entire portfolio. Sequential revenue growth was up 1.8%, led by Corpus Christi at 6.4%, and importantly, in second place was D.C. Metro, up 2.6%. Every other market posted a positive sequential result. This was a very routine quarter for Camden, and with this in mind and the fact that we're at the end of our earnings season, I'll keep my remarks brief to allow for more time to discuss what interest you all about the quarter.

Starting with same-store results. Revenue growth was 3.2% for the quarter and 3.3% year-to-date. Second quarter revenue growth was led by Corpus at 5.4%; Orlando, 5.2; Phoenix, 4.7%; Tampa at 4.5%; Raleigh at 4.3%; and Houston at 3.7%. As we expected, our 2 largest markets posted better revenue growth compared to the first quarter with Houston, up 3.7%; D.C. Metro, up 2.5%.

Rents on new leases and renewals continue to look encouraging versus our original guidance. In the second quarter, new leases were up 3.3%, and renewals were up 5.9%. That produced a blended growth rate of 4.5% versus 3.3% in the second quarter of '17 and 2.7% for last quarter.

July prelims were running at 4.8% for new leases, 5.6% for renewals for a blended rate of 5.2%. As we expected, new lease pricing has seen good improvement during our peak leasing season. August, September renewal offers are going out at about a 6.1% increase.

Our occupancy rate averaged 95.8% in the second quarter versus 95.4% in the first quarter and was above the 95.3% from the second quarter of last year. Our July occupancy rate actually reached 96%, slightly better than our 95.7% last July.

Our net turnover rate continues to see an all-time lows at 49% for the second quarter and 44% year-to-date. The lower turnover rate, in tandem with a historically low number of move-outs to purchased homes, continues to contribute to our strong and somewhat better-than-expected operating results.

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

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activities. During the second quarter of 2018, we began construction on Camden Lake Eola, a $120 million, 360-unit, 13-story building in the Lake Eola submarket of Orlando, Florida. During the second quarter, we also began leasing at our Camden McGowen Station development in Houston, our Camden North End development in Phoenix and our Camden Washingtonian development in Gaithersburg, Maryland.

In the third quarter, we began construction on Camden Buckhead in Atlanta. This $160 million, 365-unit development will be the second phase of our existing Camden Paces community and will consist of one 8- and one 9-story concrete building. Previous cost estimates in our supplement for this development were based upon the construction of one 4-story wood frame wrap building. Due to this project's irreplaceable location in the heart of Buckhead and the success of our Camden -- of our Phase I Camden Paces high rise, we have made the decision to significantly enhance this development, including moving to 2 Type 1 concrete high rise structures.

Turning to financial results. Last night, we reported funds from operations for the second quarter of 2018 of $116.1 million or $1.19 per share, exceeding the midpoint of our guidance range by $0.01 per share. Our $0.01 per share outperformance for the second quarter resulted primarily from approximately $0.5 in higher same-store revenue and $0.05 in higher nonsame-store net operating income, which was primarily driven by better-than-expected results from both our recent acquisitions and our development of communities. In the aggregate, our same-store operating expenses were in line with expectations, although property taxes were $1 million higher than anticipated, entirely due to Atlanta property tax valuations. This negative tax variance was entirely offset by lower-than-anticipated expenses in almost all other categories, particularly lower repair and maintenance expense and lower levels of self-insured employee health care costs.

Turning to property taxes. Fulton County, Georgia, which includes Atlanta, significantly raised their valuations for residential assets. The valuation increase for our entire Atlanta Metro portfolio was approximately 28%, with a 41% increase for our Fulton County communities. This Atlanta valuation increase was not anticipated and will result in $2 million of additional property tax expense in 2018. As is our policy, we accrued 6 months of this increase or $1 million in the second quarter as a catch-up. The remaining $1 million will be booked over the rest of 2018.

We have already filed appeals on these valuation increases. However, due to the amount of property owners in Atlanta that will be contesting their valuations this year, it is unlikely we'll get any settlements before the end of 2018. If we are successful with our appeal, we will book the refunds as an offset to property tax expense at the time in which the refund is received. We are now anticipating full year property taxes for our same-store portfolio to increase approximately 6%. We believe that this unexpected property tax increase in Atlanta will be entirely offset by actual and future anticipated cost savings in our other operating expense categories and have therefore left the midpoint of our same-store expense guidance unchanged at 3.5%.

We've updated and revised our 2018 full year same-store revenue and FFO guidance based upon our year-to-date operating performance and our expectations for the remainder of the year. Our same-store revenue performance has been better-than-expected for the first 6 months of the year, driven primarily by higher levels of occupancy. Based upon our trends and our expectations for the remainder of the year, we are increasing the midpoint of our full year revenue growth from 3% to 3.15%. This increased revenue guidance and the maintenance of our expense guidance results in an increase to our 2018 same-store NOI guidance from 2.7% to 3%.

Last night, we also increased the midpoint of our full year 2018 FFO guidance by $0.02 from $4.72 to $4.74 per share. This $0.02 per share increase is the result of our anticipated 30 basis points or $0.015 increase in 2018 same-store operating results. $0.005 of this increase occurred in the second quarter, with the remainder anticipated over the third and fourth quarters. And $0.015 of additional nonsame-store outperformance. $0.005 of this increase also occurred in the second quarter, with the remainder anticipated over the third and fourth quarters. This $0.03 aggregate increase is partially offset by $0.01 from delayed acquisition timing. Our current guidance now assumes approximately $300 million of additional acquisitions all in the fourth quarter. If we do not complete any future acquisitions in 2018, the net result will be a further $0.01 per share reduction.

Last night, we also provided earnings guidance for the third quarter of 2018. We expect FFO per share for the third quarter to be within the range of $1.17 to $1.21. The midpoint of $1.19 is in line with our second quarter results. As expected, sequential increases in revenue are offset by the typical seasonality of our operating expenses.

Our balance sheet is strong, with net debt-to-EBITDA at 4x, a total fixed charge coverage ratio at 5.5x, secured debt to gross real estate assets at 10%, 81% of our assets unencumbered and 92% of our debt at fixed rates. We ended the quarter with no balances outstanding on our unsecured lines of credit and $64 million of cash on hand. We have $633 million of developments currently under construction, with $283 million remaining to fund over the next 2 years.

Later in 2018, we will repay at maturity $175 million of secured floating rate debt with a current interest rate of 2.9% and will repay at par $205 million of secured fixed rate debt with an interest rate of approximately 5.8%. We currently anticipate issuing $400 million of unsecured debt late in 2018 at a rate of approximately 3.8%. In anticipation of this offering, we have entered into $400 million a forward starting swap, effectively locking in a 10-year treasury at approximately 2.6%.

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

Yes, before we take our first question, we do have a winner in the contest. John Kim of BMO Capital Markets was the first to get 4 correct artists. We look forward to working with you John on next quarter's music. Now we'll open it up for questions. Thank you.

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

This is Michael Griffin in for Nick. First question, on Houston, for the merchant build product, are you still seeing concessions? Or has vacancy dissipated and the leasing environment meaningfully improved?

On the merchant build product, we have -- we continue to see concessions, and it's just very typical in this kind of environment. It's interesting because the market is very bifurcated from that perspective. So just to give you an example, on our Camden McGowan Station project, we are 30% leased after opening up in the first quarter. So our velocity is very good, but the concession environment is basically 2 months free in that product. The -- when you think about the operating portfolio overall, 9,000 apartments that we have, plus or minus, in Houston. Our operating portfolio is doing really well from a revenue growth perspective. But merchant builders are very typical, and when they start out with an empty building, they focus on pushing the occupancy as fast and as hard as they can. And their view is, is that free rent gets you there, and it's a very typical thing that is used in the marketplace. So it hasn't negatively impacted the overall market, just the development market. And once the projects are leased up, obviously, the concessions are hoped to burn off, given the supply situation, the fact that there's only 7,000 units being delivered this year and then less next year. We expect that the free rent will basically dissipate by the probably end of this year, maybe middle of next year in these development properties.

Great. And one other question. I see here that the estimated cost of the Buckhead deal, the development pipeline increased by $55 million. What's driving that? And how does it impact the expected stabilized yield? And when would you expect that to start?

So as I mentioned in my prepared remarks, the previous cost estimates for that development was based upon a 4-story wood frame wrap building. And due to its location, Buckhead, and the success of our adjacent Camden Paces high rise, we made the decision to significantly enhance that development, including moving to 2 Type 1 concrete high rise structures.

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

This is actually Shirley Wu on for Juan Sanabria. So I wanted to touch on Houston a little bit more. For the back half of 2018, what do you think will be the trajectory or the path for occupancy cost this year? And also, what's the range of your occupancy losses built into the guidance for the second half?

I didn't get the second part of that question, Shirley. So let me address the first part, first, which is the -- on Houston and sort of the trajectory. We will have some very difficult occupancy comps in Houston in the fourth quarter, as you -- some of you may recall. We actually at one point last year as a result of the aftermath of the Hurricane Harvey. We actually hit 99% occupied in the fourth quarter, and obviously, we'll be nowhere close to that. So we had -- while we continue to make good gains, our new leases have ticked up since the beginning of the year, and we're basically up about 1% in the second quarter. Our renewals were running 5% to 6% on renewals in Houston. We do expect to see that new lease rate continue to tick up throughout the end -- from now through the end of the year. But offsetting that will be the fact that we'll be nowhere near 99% occupied. I think we closed out July at about 95.5% occupied in Houston, which is -- that's a more typical occupancy rate. So we're likely to see something more akin to that as we roll out through the end of the year and then we'll continue to get better results on the new leases and renewals. And I didn't hear the -- I'm sorry, I didn't hear the second part of your question.

So I was just wondering, in terms of occupancy losses, is that built into your guidance? And is that mostly focused on 4Q like you were saying? Or is it like a bit in 3Q as well?

Well, it's not occupancy losses, but occupancy relative to our same-store results last year. It's obviously going to be much less, probably about 350 basis points, plus or minus less than what our occupancy was at this time or in the fourth quarter of last year. But we're not projecting occupancy losses from where we are today throughout the end of the year. It's just that we're going to have a really tough comp in the fourth quarter -- late third into the fourth quarter of 2018.

Got it. One more question. For new renewals, can I get the 2Q numbers for your portfolio across your different markets?

So for second quarter, new leases, 3.3%; renewals, 5.9%. And the blended rate is 4.5%.

Can I have a market break-out?

Yes, but we operate in 15 markets. If you would -- we'll give you that off-line. But going through those would take me -- I don't need -- we don't need to get into that level of detail on the call. But you -- they're available, and you can get them off-line.

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

I was just curious if you could give a sense on how 29 (sic) [2019] supply outlook is shaping up as one of your peers had indicated supply growth will be down in the high teens next year and was curious if you were seeing a similar decline.

So our 2 data providers are Wheaton and RealPage that we have -- we look at completions for 2018, 2019. And honestly, there's not $0.05 worth of difference in their forecast between '18 and '19. Wheaton is basically at 138,000 deliveries, and I'm talking only in Camden's markets, not nationally but only in Camden's markets. And he's got that dropping to 136,000 in 2019. RealPage number is a little bit less than that at 142,000 in '18 and drops to 140,000. So you're less than 1% difference between the 2 data providers that we have on what we think completions will be between 2018 and 2019. So I think that both of them, at least in our conversations with them, they have attempted to capture the -- what has been a phenomenon that's been going on for 2 years now, which is the delay in getting completions to the finish line. But they think they've made their best guess at things that may shift between projected 2018 completions that roll over into 2019. So we'll see how good they were able to forecast that, but it's certainly been a trend for the last 2 years. My guess is it's going to continue, and they tell us that they've made their best guess at factoring in delays of '18 and '19. But I think for our purposes, from a standpoint of our planning, we're assuming 2018 and 2019 are roughly equivalent across our platform.

With the exception of Houston, obviously. That's just a different animal given the nature of Houston when supply is just falling off the edge of the earth in '18 and '19.

Yes. They're basically that we've got Wheaton and -- has got 2018 at 7,000 apartments and that drops to about 6,000 in '19 for Houston. So historically, those are crazy low numbers for Houston.

Yes. I appreciate the detail there. And then separately, you talked about the competitiveness in the acquisition, in the transaction market. But it sounds like you're pretty comfortable with your acquisition guidance. So was just curious, what gives you that level of confidence? And do you have anything under contract today?

Well, what gives us the confidence is that we are working on lots of transactions. And while we don't really talk about what we have under contract, or not, at this point, level in the game. We feel that we'll be able to hit that target by the end of the year. It is -- it was somewhat surprising to us that with the 10-year hitting 3% and markets -- prices being where they are that there wasn't a little less sort of a frothiness in the market. But like I said in my comments, that hasn't been the case. And people are either lowering their terminal IRR numbers to get to where they're going. But our specific -- the box that we're looking for is newer construction with below replacement costs with some embedded concessions so that we can grow those cash flows going forward. And it's just harder to find. There's still a massive bid for value-add. And good news for us is that we're not really looking at value-add. We're looking for sort of a different product. But there's still a huge bid out there for any multifamily. And I think part of it stems from the whole issue of the 10-years at 3% or 3.5% because we have great growth going on in the country and you have inflation sort of ticking up some -- the idea the multifamily reprices pretty much every day their product and the leases roll over on average of 8% to 10% of the whole portfolio rolls every month. Some investors are banking on higher inflation, and therefore, cash flow is growing faster than cap rates rising. If you do that longer term, interest rates rise. So that's just getting them over the hump on multifamily. Besides hotels, it's the best inflation hedge. As long as you're growing the economy and not having sort of stagflation, which doesn't look like that's on the horizon.

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

Just 2 questions. First, Ric or Keith, on California, just given it's about 8% of your portfolio. Do you have any sense in your markets there, the municipalities, what their sense is for if Costa Hawkins is repealed, if you think that any of your markets will face rent control measures? Or you feel pretty good with where your communities are right now in understanding the issues, especially as it revolves around vacancy de-control.

Yes. So Alex, we -- 2 things, 2 comments. One would be there's sort of the state-level initiative that there's a lot of attention on right now, and we certainly are participating in the -- fighting the good fight on the repeal effort at the state level. I'm sort of -- if you put a gun at my head, I'd probably be thinking that the state-level initiative may actually get through. But that's not really where the game is won or lost on this issue. It's going to be at the municipal level, which you're correct to point out. Obviously, you've got different dynamic in San Diego, Orange County, Inland Empire than you do in Northern California and in L.A. County. So there was a piece done by one of the good analyst firms, and I'm not going to mention their name. But it's pretty well done, and it stratifies all of the REIT holdings in California by municipality and sort of assigns a high risk to low risk value to those. And in our portfolio, only about 10% of Camden's assets fell into what would be called the high risk bucket for municipal level adoption of some kind of rent-control measure. So now you're -- 10% of our -- 11% of our NOI and roughly 10% of that is in the high risk bucket. So I think our specific exposure is pretty limited to the Costa Hawkins thing. But obviously, it's a huge thing. There's a lot of attention. We're participating with all the other REITs and NAREIT and NMHC. But there's a lot of energy on both sides of this issue in California, and it will be interesting to see how it plays out.

Okay, okay. I guess, it makes you happy that you're Texas-based. And then the second question is Denver. Suddenly, it's become everyone's popular market. You guys have been there a long time. You never left. But recently, I haven't seen as much on the investment side there. So what are your thoughts on Denver? And then overall, I think your footprint is much broader than just Denver property you guys extend out. So are you thinking about the market any differently in how you invest there, meaning maybe concentrate it more infill? Or you like the market as a broad market to invest in?

We like the market as a broad market to invest in. If you look at what we've been doing with our developments, our developments have been transit-oriented development. We currently have -- have a development underway in RiNo, which is the River North area, which is right adjacent to downtown. The challenge that we've seen in the -- in trying to get more urban in Denver is that it sort of hurts my head paying sub-4 cap rates for a new development there, and that's what they're trading at today. So we like where we are in Denver and our properties since we have a nice balance between new transit-oriented development, some urban and then suburban. So that when you do have a correction in the Denver market someday, we have a balance between A and B properties and suburban and urban properties. But generally, Denver is definitely on everybody's list of getting into, and this is why it took us a long time for lots of reasons, and it continues to be a good market.

Our next question comes from Rob Stevenson of Janney.

Beyond the Buckhead development, how many of the other pipeline communities are you planning to start in the second half of this year? And where are -- at this point do you think stabilized returns are for the current pipeline and then on stuff that you would start?

So the starts that we have, that we've announced including the Buckhead is we might start one more. But it would be right at the end of the year, maybe beginning of next year. And so our pipeline, with the ones we have announced, we're at $280 million plus or minus, and it's just really close to our $300 million guidance. In terms of yields, clearly, development yields have come down from some pretty lofty levels that they were at. And our yields today, instead of sort of 7 and some change, they're 6 and some change. And so construction costs continue to rise up 4% to 8%, maybe 10% in some markets, and rents are going up 3%. So that definitely has compressed those yields.

On the other hand, we have a still 150 to 200 basis point positive spread between our going-in yields versus what we can buy going-in yields from an acquisition perspective. So we still have a nice spread for taking the development risk.

Okay. And then Alex, give me your comments about property taxes, can you talk about how successful Camden has been over the last 3 years or so in terms of winning property tax appeals? I mean, do you guys contest everything? And so therefore, your appeal win rate is low? Are you guys making just sort of conscious efforts to appeal the egregious ones? And sort of when you do appeal, what's your sort of winning percentage there?

Yes, absolutely. So we don't appeal every single thing, but we do appeal a lot. And actually, in getting some form of reduction, we're technically about 70% effective. So it's a pretty good winning rate.

And then, in that 70%, I mean, what's the magnitude? I mean, is it just getting a little bit? I mean, is it a lot? I mean, how significant does it -- is that negotiation? Or is that sort of movement between what you get assessed at and what you wind up paying on an annual basis?

Yes. So we set target rates for every single community that we own. And when we say 70%, we're shooting to get to that target rate. Obviously, it's never perfect, but we get pretty close to it.

Our next question comes from John Kim of BMO Capital Markets.

I'm still riding the emotional high winning your contest. Thank you so much.

You'll get over it.

It's made my week, for sure. The 4.5% blended rate you got in the second quarter is trending higher in July. Do you think that 5.2% is something that you can achieve the rest of the quarter? And what are you assuming as far as blended lease growth to achieve the mid-point of your same-store revenue guidance?

Yes. So the July numbers are -- probably end up being the high watermark for the year because you got markets like Dallas, Austin and South Florida that are trailing away as we go through the year. And then you got Houston, which is going to be a real interesting comp into the third and the fourth quarter. So my guess is the 5.2% in July probably ends up being the high watermark. Our guidance right now for the year is 3.15% on revenues. So we're -- we think the implication of that is, is that we're about 3% plus or minus in the back half of the year. And that, well, seems about right to me.

Okay. And then Alex mentioned the $400 million of unsecured debt that you expect to raise. It sounds like part of that is to repay the debt maturing next year. But as far as the remaining $644 million expiring, how do you expect to refinance that?

Yes, absolutely. So we've got a lot of options to how we're going to do that. Obviously, we're looking at the unsecured market and looking at various 10-years. And then we always have the ability to do dispositions. It was appropriate as well. So we're still working through our strategy on exactly how we intend to refinance the rest of that debt.

Could you give pricing levels on secured debts versus the unsecured?

Yes. So unsecured versus secured, so the easiest way to think about it is on a -- if you don't walk in your rate, which we already have, the spread for us on a 10-year unsecured is somewhere right around 110 basis points. And if you went to Fannie Mae, for instance, Fannie Mae is going to be sort of in the 200 basis point spread. LifeCos today are actually your very best option out there. LifeCos are trying to build business, and you can probably get a LifeCo deal done about 120 over.

One thing I will mention, though, is we -- even though you can get some secured debt, we are an unsecured borrower. And generally, we will -- unless there's something really wacky going on in the unsecured market, we're going to stay an unsecured borrower. And one of the things that happens with this refinance is that we get rid of a lot of secured debt that we've put in place during the financial crisis. And if you remember how we did that secured debt, we went out and borrowed money from Fannie and Freddie and bought our unsecured bonds back at a discount. And now where we are in the cycle, we're going to recycle that capital with new unsecured debt that will take our credit metrics even better by getting rid of a lot of unsecured debt that we have on our -- secured debt that we have on our balance sheet at this point.

Our next question comes from Drew Babin of Baird.

I wanted to touch on Southern California briefly. It looks like while revenue growth is still strong there, it looked like it decelerated a bit sequentially in both the L.A., Orange County, San Diego, Inland Empire markets. And I was just curious, is that the result of pockets of supply? Is it a result of sort of a tangential effect of more urban supply. What are the dynamics driving that?

Yes. So in L.A., for example, and I'll give you L.A. and Orange County. In L.A., the -- it looks like 2018, we're going to end up getting around 60,000 jobs this year, and that's against about the 14,000 new apartments. So that's relatively in line, a little bit of pressure implied. If you go out into 2019 in L.A., the jobs are forecasted to drop to about 40,000. But unfortunately, the supply maintains pretty constant at about 14,000 additional apartments. So it's just the ramp of supply that's finally getting to the marketplace in L.A. A similar story in Orange County in 2018. It looks like we'll get about 30,000 jobs, and we will have to absorb about 7,000 apartments in '18. And the math is pretty similar in '19. So from my perspective, our portfolio is actually doing pretty well, and we're pleased with the performance. It's actually outperforming what our original plan was. And some of that has to do with our location, just not nearly as impacted by the high levels of deliveries that are going on across the Southern California platform.

Great. That helps. And then one more -- maybe more conceptual question on the concept of replacement cost. I think, a bull would say replacement -- you're buying assets at a discounts to replacement cost. Replacement cost is probably only going to trend up with tariffs and just more inflation in materials, labor costs, things like that. A bear might say that replacement cost is sort of artificially elevated right now, kind of fluctuates over time, maybe even more volatile than rents over a long period of time. And I guess I'm -- if you could kind of give both sides of the argument and kind of why you look at that with regard to acquisition opportunities as a benchmark since it is a bit of a moving target.

I agree with what you just said, for sure. But the way we sort of look at it in this prism, and that is if we -- since we have a robust development business, if I can build it and build it today at a cost that is higher than what I can buy it at today, so we'll look it at that way saying, "Okay, we know what it will cost us to build. And if I can buy it at a lower price than what it can cost me to build, then that makes a lot of sense to me." On the flip side, if you buy it at above replacement cost, and I look at that and say, "Gee, in Atlanta, I know exactly what it's costing us to build our second phase of Buckhead. Why would I buy a property across the street from the one I can build when I can build it at a cheaper price per door and per square foot than the one I'm -- than the one people are buying across the street?" So to me, it's more about our ability to develop and understand those costs. And I get why, at some point, the argument on the bull or the bear side will rule the day. But from our perspective, if we're going to commit capital, I want to commit capital, I'd rather develop my own properties than buy properties that are more costly than ones that I can develop.

Our next question comes from Rich Anderson of Mizuho Securities.

So -- but one thing I do remember way back when-- there was -- a signal of a healthy multifamily market was when new rents exceed -- new rent growth exceeded renewal rent growth. That hasn't really happened in a while. And I'm wondering if there is a systemic reason why it won't happen again. Or do you think that there's a chance that you could see your new rent growth cross with your renewals at some point in the next couple of years?

Rich, I think it's certainly possible. Some of it has to do with when you look at new and renewal rents, the question, a big part of it is, is what happened at the last 12 months ago when that person signed a lease. And if you're in an increasing market that's constantly increasing upwardly in rents, then it doesn't surprise me greatly that you would continue to see renewals -- renewal rents above new leases. The weird part, the odd part about where we have been for the last 7 or 8 years is you've been in a constantly increasing rent market, although the second derivative has moved around a little bit on the rate of growth. But the fact is rents have been growing for 8 straight -- 8 or 9 straight years, which is unusual. So when you have -- you think about what the experience that we had in Houston with the downturn in the oil markets and rents actually going negative, there's no question that we were renewing rents in many cases at below what we were offering new rents at. And part of that had to do with, at some point, you're just trying to maintain occupancy. So it depends a little bit on where you are in the cycle. But I would expect that as things continue to get -- as this cycle unfolds and moves into the next cycle, yes, my guess is you'll see that happen again.

But I am remembering correctly, right? That is a fair way to look at it?

Yes, it is.

Okay. And then secondly, on the topic of Denver, I heard what you said, Ric. But it's interesting that suddenly, many of your peers are suddenly very optimistic about a market that's not currently maybe great today. Is there something incremental that -- is that a common knit to all of these views that are coming from people like EQR and AvalonBay taking a look at Denver? Or is it just the basic fundamental stuff that you described?

Well, I can't really get inside their investment thesis other than the broad one, where companies have been pounding the table forever, that the coastal is where everything is, right? And rents never go down in San Francisco and New York. And we've always argued that we want to be in high growth markets, both population and job growth. And that, over the long term, will allow rents to grow and the market to grow. And what happens is a byproduct of that growth is that they allow -- the municipalities allow development. And then the argument is the markets overshoot from a development perspective and the supply-constrained markets don't, right? Well, we know that just isn't true anymore, or at least it's more evidenced today that it's not as true as it has been. And so I think if I were a company that had those kind of market dynamics, I'd look for growth, and I'd look for markets that have really good, long-term dynamics. And I think Denver has that. I mean, it's a real -- when you think about cities that are classified as really high propensity for millennials to go there with -- and Denver has a lot of those really high-value propositions. It's got recreation and the mountains. There's a lot of good things going on in Denver that's not -- and those things are not going to change given the sort of dynamic of our renter base. So it doesn't surprise me to look at that market and say, "If I'm going to buy a non-coastal market, it might be Denver, it might be South Florida." And it sort of holds to their -- you don't have to totally abandon the coastal low supply thesis with those -- with a couple of markets.

So not rolling the dice on HQ2, you're saying?

I don't think you're rolling the dice. HQ2 is a wildcard, and I don't think anybody's rolling the dice on that.

Our next question comes from John Guinee of Stifel.

Great. Just a curiosity question. Camden Buckhead, you have -- the total development cost last quarter as a wrap product did about $277,000 a unit. And then going with Type 1 vertical, you're up to about $438,000 a unit. Is there really a $160,000 a unit increase when you go from a wrap to concrete?

Well, there's 2 pieces. And so the answer is, yes, there's a big differential between a wrap and a concrete. No question about it. And then second, when you do go to a concrete product and a high rise product, you start -- you improve the interior quality of the property and the amenity space as well. So if you're trying to get a premium rent, you're going to have to put in premium finishes more than you would do in a wrap product. So part of it is just the differential between wrap and high rise. Then the amenity packages and the finishes. And then third, between both of those, that was sort of a -- the wrap product was a placeholder. And since the -- so it's probably not a great comp because construction costs have continued to rise. And our -- we have not tried to tweak our sort of future development numbers very much. So that number that was put in for the wrap product was put in a couple of years ago. And you've definitely had some construction price creep in that number, so that base number was probably low to start.

And then second, do you control land via auctions, et cetera? And can you give people a sense for what you might have that doesn't show up on the supplemental?

We tried to control land for a long period of time, but it's very hard to do in this current environment. And at this point, we are working on transactions, but what you see is what you get in our supplemental information right now.

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

Can we go back to the Fulton County tax increase? Were you entering this year well below your target rate? Do they overshoot? Or is it just a case where a municipality is trying to plug their budget using commercial real estate?

Wes, there's actually a lot of really interesting articles online where you can read about this. But effectively, what happened is the State of Georgia has sued Fulton County, alleging that their valuations are under market. And so this is Fulton County's way of responding to it. I will tell you, this is not a Camden-unique issue. In fact, at last count, there are over 40,000 appeals of property tax valuations in Fulton County. That's over 8% of all property owners. And in fact, there's actually an 8% threshold, where if you go over 8% of appeals, the county actually ask to get the courts to certify their tax register. So this is a sort of across-the-board Fulton County issue. I will tell you they've clearly, we believe they've clearly overshot. We filed all of our appeals. But once again, if you have 40,000 appeals that they have to work through, I think it's going be highly unlikely that we're going to get any resolution until 2019.

Okay. And then looking at the acquisition guidance being pushed to the fourth quarter, is that just a function of developments taking longer to build, maybe getting a little bit of a delivery delay, pushing the timing of a lease-up acquisition later? Or is it just trying to figure out which one you want to buy?

It's more trying to figure out which one we want to buy. They're too many -- we're going through more and more transactions trying to find the right one, and it's not so much a delay in deliveries.

Okay. And real quick, a follow-up to that. How many people do you run into for competition when you're trying to buy a lease? I would say I get that, value-add. And core may have a lot of competition. But when you look at the lease sub, is it just a bid-ask spread? Or is it just a lot of people chasing these?

I think it's both. You have -- you clearly have -- so on a value-add, you may have 20, 30 bidders in a sort of core below placement cost type of asset, we might have 10 or 12, 10 or 15. But you still have -- trust me, there's still a lot of competition. It's just less competition in that space, and there's some value-add.

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

We appreciate your time today, and have a great rest of your summer, and we'll speak to you in the fall. Thank you.

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