Camden Property Trust (CPT) 2002 Q4 法說會逐字稿

Good morning. My name is Trapika (ph). I will be your conference facilitator. At this time I would like to welcome everyone to the Camden Property Trust fourth quarter 2002 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star and the number two on your telephone keypad. Thank you. Mr. Campo, you may begin your conference.

Thank you for joining our fourth quarter conference call. Good morning. Before we get started, I'd like to remind everyone that we'll be making forward-looking statements based on our current beliefs and expectations. These statements are not guarantees of future performance and involve risk and uncertainties that could cause actual results to differ materially from the expectations. Further information about the risks can be found in our filings with the SEC and we encourage you to review them.

Camden's customer focus living excellence brand promise continues to add value to the customer, employees and shareholders, even in the lousy market conditions that we're in today. Our team is motivated and morale is high. We are up to the challenges that 2003 will bring. As FFO for the quarter was 84 cents per share which was in line with the previous guidance. FFO for the year totaled $3.40 per share, again in line with previous guidance. Property declined 6.4 percent in the quarter, resulting in an NOI line decline for the of 6.4 percent during the quarter, resulting in an NOI decline for the year of 4.7 percent. Sequentially, quarter over quarter, NOI was down .2 percent. We continued to experience difficult market conditions, and have not seen any indication of improvements in most of our markets at this point. We continue to believe that 2003 will be a lackluster year with the same for NOI remaining flat to down, minus two percent. We have reiterated our guidance for 2003 in the press release at $3.15 to $3.35 per share.

For those of you that are optimistic or pessimistic, every change in -- every one percent change in NOI growth equates to five cents a share. Significant portion of our 2003 operating plan is centered around the leasing of our southern California development properties. The Southern California development pipeline includes 1748 apartment homes representing an investment of 285 million. The California development pipeline also represents over 80 percent of our development pipeline at this point with the balance being in Houston. We're fortunate that southern California represents one of the strongest markets in the country. During the fourth quarter, we continued our efforts to improve our portfolio quality in age and our geographic positioning through strategic acquisitions, developments and dispositions. Steve will cover these in more detail later in the discussion. We continue to enjoy a strong balance sheet and are positioned very well for the future. At this point, I'd like to turn the call over to Keith Oden.

Thanks, Rick. I'm going to spend you few mince and provide you with details of the fourth quarter operating results in the attempt to relate to the current environment for the game plan we have established for 2003. The last conference call, which I dubbed still fishing for a bottom, I indicated that despite that slight improvement in the operating metrics on a sequential basis, I believe that any sustainable improvement our same-store results was still several quarters away. We have not seen evidence in the last three months that would change the assessment.

Our occupancy rate decreased from 92.9 percent in the third quarter to 92 percent in the fourth. Our fourth quarter occupancy rate has historically declined .7 percent from the third quarter levels so a .9 percent decline is not unusual. However, the decline has typically been from a 94 to 95 percent occupied condition. The greater than normal decline in occupancy was accompanied by an increase in concessions of $700,000 to a total of $4.7 million for the quarter, which represents an annualized concession amount of roughly $460 per unit. The fact that we continue to struggle with occupancy rates tells me that any meaningful improvement in operating results is indeed still several quarters away.

Operating expenses increased 1.7 percent for the quarter and 1.1 percent for the year. Given the pressures that we have experienced in non-controllable cost, we are extremely pleased with our efforts to control operating costs. The credit goes entirely to our onsite personnel whose diligence and focus allowed us to reduce expenses and thereby hit the fourth quarter guidance. Thank you and keep up the good work. The resident turnover rate for the quarter dropped from 67 percent to 55 percent sequentially to an annualized rate of 59 percent, which is slightly above historical norms. The percentage of residents moving out to buy homes remain flat with the prior quarter at approximately 19.5 percent, leaving us that 20.3 percent for the year, well above our historical levels of roughly 16 to 17 percent.

On a sequential basis, revenue decreased in 12 of the 16 reporting markets, with Phoenix, Corpus Christi, Kansas City and Tampa posting revenue gains. Of the four largest mar markets, only Tampa showed a sequential increase and Houston posted the worth sequential loss of the four by 3.9 percent as it began to also succumb to the market conditions that we have experienced in the last year in most of the other markets. On a year to date basis, we experienced revenue gains in southern California, Houston, Corpus Christi and in Tampa. Attorney California continues to be a bright spot in the national multifamily picture and in our portfolio.

From an operations perspective, we remain focused on fighting for market share as achieving the 2003 forecast hinges on achieving higher occupancies as the year unfolds. Finding the correct balance among rental rate, concessions and occupancy levels remains the greatest challenge. As I said last quarter, it is unlikely we'll see improvement in the market conditions during 2003, however, we have several initiatives under way that should allow us to increase the occupancy rates back toward historical norms, which even with the higher planned concessions for the year, should allow an increase in the property revenues as the year progresses.

2002 was a very challenging year for the onsite professionals. Unfortunately, we cannot point to any near term catalyst likely to materially improve our operating environment. Bottom line -- 2003 will be just as challenging as last year. I know that many of our onsite personnel share the sentiment expressed to me recently by one of the community managers when she said, "never in my career have I worked so hard to feel so average." I simply reminded her of what my grandmother told me, sometimes in life the tide will be with you. Sometimes it will be against you. When the tide is against you, you can either curse the tide or you can paddle harder. Rest assured that at Camden, we're going to continue to paddle harder. At this time I will turn the call over to Steve Dawson, Camden's chief financial officer.

Thanks, Keith. Good morning and thank you all for joining us. We closed the year with a flurry of activity as shown on page 14 of the supplement. We completed the purchase of Camden Tuscany, Camden Sierra at Oter (ph) Ranch and Camden Providence Lakes. All together, these three purchases totaled $104 million. We sold three assets averaging 22 years of age in Houston and Corpus Christi, plus we sold Camden Bluffs, exiting the Reno market and Camden Harbor in Las Vegas together with the land adjacent to both. We also completed the sale of two additional tracts from the (inaudible) Royal Oaks tract, leaving only one more sale before we have liquidated the non-apartment (ph) tracts and fully recovered our investment in the 70 acres.

The fourth quarter sales totals $126 million went for more than $6 million over their undepreciated costs and produced a $29 million gain. In addition to both transactions shown on page 14, we also acquired through three new development sites for a total of $39 million. Including Camden Norfolk, at Houston's Greenway Plaza, Westwind crossing in northern Virginia and University Commons in San Diego county. These land parcels should begin to appear on the development pipeline list later in the year, or in 2004. On top of all of those transactions in the fourth quarter, we completed another $200 million public note offering, made four new second lien loans, totaling $15 million, collected the remaining three third party development loans, totaling $49 million, assisted in arranging in $80 million acquisition loans for third parties and entered into long term property management contracts with the new loaners of Bluffs, Harbor and Creekside.

The net result of the transactions, while somewhat diluted initially is that we are continuing to improve Camden's portfolio quality, average age and geographic diversification. We disposed of older assets and/or assets in markets where the portfolio is over-concentrated. We acquire new assets in better markets where we want to increase the concentration. We liquidated development land in market where we decided not to build for our own account and retained the exclusive right to act as development adviser and construction manage he for the new owner on a fee basis. We took advantage of the favorable interest rate environment to eliminate excess floating rate risk over the next ten years on a $200 million of capital priced at five and seven eighths. We created a five year income stream through the management of assets and markets where we already have an efficient operating platform.

All of these are good things to do for the long term. As Keith noted, southern California continues to be a bright spot, yet other markets are experiencing lower occupancies. With most of our California development in Camden Ebor (ph) City still in the lease-up phase, coupled with the forth quarter asset sale, Camden's operating results from the next two quarters will be less than the previous quarters. With more fixed rate interest and more interest being expensed on development assets, coverage ratios have come down from the highs in 2001 and will continue to decline slightly for another couple of quarters. However, when the lease-ups are complete and the portfolio returns to normal occupancy, the coverage ratios will improve again. At 3.1 times EBITDA, the interest coverage is still quite healthy, well within the range of a mid triple D credit. Camden continues to easily satisfy all of it's debt covenants and expects to do so in the future.

Turning to the income statement, Keith has addressed property operations for the quarter and the year. Other income declined in the fourth quarter as third party development loans were collected in full. The second lien investments shown on the balance sheet as notes receivable only added $15 million of new invested capital, thus the other income line item will run less than future quarters than in 2002, until additional investments can be identified and closed. G&A expense increased $324,000 for the quarter, primarily due to legal fees and other expenditures related to the transactions which were abandoned during the quarter. You will note that we have broken out fee and asset management expense. These amounts which are associated with the production of development and management fee income had previously been netted against the income lines. We have modified the presentation for all periods reported to make them comparable.

You also note that we have broken out discontinued operations from continuing operations, and conformity with the new GAAP requirements. The discontinued operations line reflects only the three assets sold at the end of the year, Wallingford (ph), Waterford, and Chasewood. The Bluffs and Harbors are included in continuing operation due to our ongoing involvement with the properties and in the form of second lien investments and management fee income. We continue to -- we continue to compete our net asset value at $37 per share or approximately $70,000 per apartment home.

This assumes an average cap rate of 8.25 percent on stabilized NOI with a 10 percent premium over cost for the value of assets under development and a five multiple and fee income. Despite the soft apartment fundamentals, these seem to be serve tiff assumptions in spite of the cap rates seen in most markets. Based on that NAV (ph), the overall leverage stands at approximately 44 percent. Loading (ph) rate debt comprises only 12 percent of the total at an average rate of 2.6 percent.

The total borrowing rate increased to 6.4 percent following the issuance of the $200 million five and seven eighths ten year notes, but it extended the average years to maturity to 6.7 years. Over 82.5 of percent of the debt is unsecured and almost 84 percent of the assets at cost are fully unencumbered. We only have $63 million of debt maturing in '03 and only $230 million maturing in '04. All in all Camden is well positioned to ride out the current economic environment. Additionally, most of the debt maturing in the next four years are at rates higher than the rates currently available on new debt. Hopefully, this reduces our risk on -- rate risk on rollovers.

We stated in our last call with the refinancings and sales to be completed in the fourth quarter, we expected to see first quarter 2003 FFO to decline by eight to 10 percent -- eight to 10 cents. In keeping with that, we're predicting a range of 72 to 75 cents for the first quarter, with future quarters improving as new development stabilizes in southern California, Houston and Florida, and as the portfolio occupancy rates trend back toward historical norms.

Assuming FFO for 2003 in the range of 3.15, and 3.35 per share and property cap ex of $22 million, we expect to end 2003 with between 4.5 million and 13 million of cash flow from operations in excess of the $2.54 per share dividend. At this time, regrettably, we are not asking the board to increase the dividend for 2003. However, we are pleased to say that we have the ability to remain committed -- have the ability and remain committed to funding our dividend from current operations without borrowing or selling assets to do so. In fact, even at the low end of the FFO range, Camden still has a full 10 cents per share cushion in the numbers should something unforeseen cause us to lower the estimates later in the year.

The prudent financial and operating policies of the past have made it possible to continue our strategy of diversification and portfolio quality improvements, even through these difficult economic times as evidenced by the activities in the fourth quarter. Our goal is, as it has always been to build value for our long term shareholders, employee, and fixed income investors. Rick and Keith have made many times that adversity always brings opportunity for those who are prepared. Our seasoned team of professionals in the field and the corporate office are excited about what the times will bring. We look forward to capitalizing on the opportunities that lay ahead. We wish to thank the property management group, construction, development, acquisitions, finance and support teams for the not just their efforts, but for their results in 2002. At this point, we will open the call for questions, and thank you.

At this time, I would like to remind everyone if you would like to ask a question press star and the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from Lee Schalop of Banc of America Securities.

That's a new one. I'm - Dan Oppenheim (ph) is here, too. Could you first talk about the normal occupancy concept. You know, given what's happened to home ownership and the fact that new construction continues, is it reasonable to say that we're going to return to occupancy levels of two or three years ago, or do we all have to think about an occupancy level going forward that is normal, but different than normal in the past?

Well, Lee, it really kind of depends on your mindset. I mean, our objective for our operating folks in the field has not only been to perform at the market but outperform the market. Clearly, that has been a significant challenge for us in 2002. But if you look at where our --if you take all of the occupancy rates in Camden's markets that we're currently operating in, and roll them up and look at it an average, we are still 91.5 percent to 92 percent. The occupancy rate right now is running at 92 percent, which is where it was for most of 2002. Our commitment with our onsite staff is to outperform that level by as much as two percent.

Now, we obviously have had to provide some significant tools, primarily in the form of additional rental concessions but in terms of additional marketing support to the onsite staff to achieve that. The concept of a, quote, normalized occupancy rate, you know, clearly, when you go through a period that we have gone through with the impact of home sales in the last -- in the last period of time, which seems so far to be unabated, yeah, certainly, you have to reassess what is realistic in your operating markets, but you know, we still think that it is realistic in our operating markets that we would get back to an occupancy condition roughly where we were at at the end of -- the third quarter of 2001 by making sure that our economic offerings to our residents in the customer service that we provide to our existing residents is tops in the marketplace. Yes, it is going to require some level of outperformance to achieve that, but that's the game plan for the year. We expect to achieve it.

Lee, we are not talking about going back to quote, unquote, normalized 94 percent and 95 percent occupancies. Clearly, the portfolio values have been priced via concessions and lowering rents to be more competitive in the marketplace. We think 100 basis points in the occupancy with the concessions and the repricing over a 12-month period is achievable.

Thanks. It's Dan Oppenheim with a quick question. Wondering of the expectations in 2003. In your guidance, you are showing zero in the way of disposition. Wondering if cap rates stay as low as they are, I wonder if you would think about selling some of those properties in the non-core markets?

I think the answer to that is yes, we would, but we would definitely balance dispositions with what we could use the capital to do, either buying stock back or potentially using it to fund additional development activities. The bottom line is with where we are with our dividend coverage, we're going to defend the dividend. We don't want to be in a position where we' not covering the dividend. It's really a balance between, you know, attractive disposition prices and then the ability to redeploy the capital in an efficient manner.

Thanks.

Your next question comes from Andrew Rosivach with Piper Jaffray.

Good morning. After the recent dispositions and acquisitions recorded Steve, what is your average portfolio age now?

It's probably slightly below the 11 years that we had -- it hasn't come down dramatically, but we're kind of moving in the right direction.

Since you are getting younger I know you quoted an NAV of 70,000. Have you looked at any replacement cost analysis and have any idea what it would take to rebuild your portfolio?

Probably in the 75 to $80,000 per unit range would be the reasonable estimate for replacement value.

Another way to look at it, too, if you look at the current cap rate environment, if you take real cap rates that are being paid on real estate today, we calculated that if changing the model to use -- to using existing cap rates adds $5 a share to the NAV. So, you sort of -- you are sort of using historical cap rates, and today we're in a -- in an unusual marketplace where we have low interest rates and real estate is in favor in spite of the fundamentals being bad. You have an unusual low cap rate situation. But if you apply that low cap rate to our overall portfolio, you are talking about another $5 a share in NAV. We are not calling the low cap rates a permanent change in the marketplace at this point, but it's definitely interesting to sort of play the what-if game.

It's -- to backtrack, your $37 number you think is on a more normalized cap rate, but heaven for bid if the cap rates we had now stuck, you think you could do even better?

Yeah. I think it's $42 bucks then?

One last question on land sales. You guys pushed out some land in the last quarter. I know you don't keep land sale gains in your FFO, but just to be able to cross-compare to other companies that do, did you have any gains on those land tract sales?

The land sale gains were relatively small. The -- primarily because the end route tracks had a higher basis in them. You in essence allocate costs associated with the parcels that you are holding at what you think the market price is. There's a certain amount of sort of science to that so that we're not getting gains in the land portfolio, no.

What are you anticipating for 2003 starts, and does that include building in Northern Virginia - on the development side.

The starts in 2003 are likely -- you know, the definition of starts is really an important thing. We are started on all of the development that we have. We are in -- depending how you -- if you are starting about vertical construction or site preparation and so forth, all of the lapped that we own, we are actively developing. The question is when do the improvements actually come out of the ground.

We are working avidly on all of the development pipelines. The northern Virginia depending on the timing of the markets is an end of the year, beginning of next year type of vertical construction. The University Commons, which is one of the acquisitions that we did at year-end, which is north San Diego County property, is --we're beginning site work, you know, next week, and probably the vertical construction would start somewhere in the summer to the fall.

Got you. What do you think that's going to look like in terms of total expenditures.

For University Commons?

Just for, you know, the development activity during the year, including some of the predevelopment. What are the dollars out the door.

we are in the $150 million to $200 million range.

Great. Thanks a lot.

Your question comes from Brian Legg with Merrill Lynch.

Hi, Brian.

What was the share repurchase activity in the quarter? I assume most of it was done early in the quarter. How much authorization do you have left in the expectations for '03?

The share activity subsequent to September 30 was 990,800 shares. I guess in the third quarter press release, we announced that and we have not bought any additional shares beyond that.

What is the authorization at this point?

We have $5 million left on the authorization.

And do you expect to expand that authorization, or is that depending on the number of asset sales, and will any new share repurchases given that your stock price is still well below where you think your NAV is, will new share repurchases be on a leveraged neutral basis?

That's correct. We have always believed that acquiring our shares, when they're discounted, makes a lot of sense. You know, acquiring assets that we already known or acquiring a larger piece makes sense for us. We are definitely sensitive to the balance that is required in share repurchases. Balancing the different factors, including -- including making sure that you're not putting additional leverage on your balance sheet and that it makes sense from a capital allocation perspective. We obviously have not been shy about buying the stock and will not be shy about buying it in the future as well.

When does the debt, $68 million of debt that matures in '03, when does that mature?

End of the year. December of '03.

November.

November of '03.

You could sell some assets at the end of the year, and do leveraged neutral share repurchase?

Absolutely. What we tend to do is, the real trick or balance in dealing with dispositions and stock buy-backs acquisitions and what have you, is if you get ahead of it in disposition-wise and we start selling assets before we have a place for the capital, the risk is that we don't deploy the disposition capital effectively and we end up diluting earnings that we have a real problem with diluting earnings given the current coverage on the dividend and so -- in the just the general stress in the marketplace, that's causing our earnings to be low, so, bottom line is that we might -- we have in the past gotten sort of ahead of it, where we deploy the capital perhaps and then do dispositions afterwards.

We have enough financial flexibility in our balance sheet to do that, and we have indicated to our fixed income investors and rating agencies and so forth that we would in fact do transactions like that on a revenue or an a balance sheet neutral bay circumstance ultimately, but we may get out ahead of it. But we have enough financial flexibility to do that.

Looking at your concessions, Steve, you mentioned $460 per unit annually. What was it in the third quarter and the fourth quarter of last year, and do you expect the number to grow? And also if you have economic occupancy figure for the three periods would be helpful.

Yeah. The concessions per month, in the third quarter, it was $400. In the fourth, it was $460. In the prior year, it was about $220 per unit, prior year quarters. So, in dealing with the sequentials, looking at it from the beginning of the year, we were at just short of $300 in the first quarter, went to $350 in the second quarter, went to $400 in the fourth. We ended up the year at 470. So, we are -- we steadily have seen an increase in the concessions in order to try to get out in front of some of the occupancy challenges in our markets. You know, it's a very tricky part of the onsite calculus is determining the right balance between concessions that you offer to -- and how aggressively you offer the concessions to the next resident or potential resident who comes through the door, realizing that your embedded base or the current residents could easily take that as the effective notification that that level of free rent ought to be available to them on renewals.

When you look at the portfolio and you realize that on an average rental rate of $800 per unit, we are giving $470 in concessions, and that's over the entire portfolio, that tells you that we're slightly in excess of one month of occupancy cost on average on our concessions. And I mean, clearly that, is skewed heavily towards the new residents, and away from the embedded base for a whole -- a lot of reason, but not the least of which are just good, solid property management practices. So, yes, we have seen an increase. We budgeted it, if you look at our plan four 2003, relative to the -- plan for 2003 relative to 2002, the level of concessions in the plan is up roughly 50 percent over the 2002 level. Again, fundamental to our premise this year is that in some measure, we're going to be trading concessions for occupancy so that we can get back more to a normalized condition in our portfolio.

Do you track economic occupancy after backing out the concessions?

Yes, we do.

Do you have those numbers? Your physical is 92 percent. I just want to see what is the economic occupancy, and if you can track that.

The economic -- the economic occupancy right now is running at about 85 percent.

What was it a year ago in the third quarter?

We'll have to calculate that number and get it back to you, Brian.

That's fine. Okay. Last couple of questions. The cap ex per unit, you say it's going to be total cap ex is going to be $22 million, which is using the apartment units and the supplemental, that's about $466 a unit. But if you look at - f you annualize what you capitalized in the fourth quarter, it comes out to be about $32 million or $680 per unit. How are you going to have --you're still going to have the same turnover, how can you cut the capitalized expend tours in '03?

Let me make sure that we are dealing with the same set of numbers, Brian. The cap ex for 2002, the budget that we came in right on target with for the entire year was $26.5 million for 2002.

Okay.

For property cap ex. We are projecting next year about $22 million in property cap ex.

I'm looking at supplemental. It says year to date, $27.5 million.

Yeah. I'm talking about property cap ex. That may have some software, computer costs or I'm talking about actual improvements to the communities.

Okay.

About $26.5 was the budget.

Okay.

We are projecting a $4 million, $4.5 million decrease in property level cap ex for the year, and it comes in two pieces. First, the dispositions that we sold. A couple of those were pretty cap ex intensive, historically, so we got pickup there. But primarily, it's simply that we tasked all of our professionals in our regional vice presidents and district managers and onsite staff this year that if it was -- if it was discretionary, if we could delay it without having any impact on asset quality or having any impact on the leaseability, of the units, then we wanted to delay it this year. Through some very intensive scrutiny and belt tightening, we ended up with net of the dispositions. We ended up with a $3 million decrease over the prior year, which is -- we think that's very consistent and prudent operating practice given the stress that we have on operations this year.

Okay. Last question, just on your development. The acquisitions that you made, including the two developments, your original yield on the developments were -- they're nine percent, and now you're buying at 7.8 percent. In southern California, the southern California assets, which you say is pretty healthy, what's -- the costs ran up on the developments more than you thought originally or -- or just things are not as ...

no, there was be a an embedded cost of 75 basis points that related to the third party development program. It's one of the reasons why we are not doing the third party development program. Because in essence what was happening was the -- actually, 75 sort of is in the original costs we thought it was going to be 75 basis points higher in terms of -- or cost off of total yields. But the real issue when rates started falling, the owners of those -- or the third parties that owned the assets could not get financing as attractive as Camden, and so the costs actually ran up -- ran up higher than the 75 basis points. So, if you took the original yields minus 75, then had you take off additional costs associated with higher interest rates, higher interest spreads compared to Camden, you end up with a -- you know, with more along the 7.8 percent cap rate number.

From a California acquisition perspective, however, when you look at what cap rates are there we are still getting 150 basis -- maybe 125 to 150 basis point pickup on the developments compared to what the cap rates are for California. We have seen six cap rates and sub-6 cap rate deals trading in southern California.

Right.

It's a pretty good number. It would have been higher had is not been a third party development and we had the costs associated with it.

Okay.

Let me close the loop on your previous question on economic occupancy.

Yes.

Third quarter was 86 percent, so we had a sequential drop of one percent from third to fourth. Fourth quarter '01 was 89 percent. We are down 4 percent from the year earlier, the fourth quarter '01 number.

Thank you, guys.

The next question is from Lou Taylor with Deutsche Bank.

Hi, thanks. Keith and Steve can, you talk about expenses in the quarter. They're down sequentially, which looks good. Looking at the year over year number, up about 1.7, but year over year to the third quarter was only up .5 percent. What is happening on the expense side in terms of either higher property tax accruals or seasonal expenses or et cetera?

You always have some seasonal help in the fourth quarter as we mentioned the turnover rate fell from quarter to quarter, which always helps us on the expenses. But I have to be honest with you it's -- the truth is that in the third and fourth quarter of this year, we knew that we were going to be under significant stress on the revenue side of the puzzle, even with our revised guidance. We literally asked the onsite professionals to make sure that if it didn't support a lease, and if it didn't support current occupancy goal, and if it was discretionary in any regard, then we wanted to defer that expense.

I mean, the fact is that a good part of the third and fourth quarter performance on expenses as it relates to controllables was strictly related to good discipline, good operating discipline by the onsite folks. If you look at where we ended up for the year, at 1.7 percent, I mean, that is in the face of control -- non-controllable costs, taxes and insurance are -- insurance number for the year was up almost 40 percent. Our taxes, we actually did better than planned. We ended up about 2.75 percent for the year. But that -- those are significant challenges to overcome to get to a 1.7 percent for the year. It's literally just good operating discipline.

Now, going forward next year in terms of expenses, we have the same challenges on non-controllables. We don't think we're going to see anything like the increase that we saw on insurance, property insurance next year. We have got about a 17 percent plan increase, which would be down significantly from the prior two years. With regard to taxes, again, our plan, we always start from a nominal number of 3 percent to 3.5 percent, which is what's in the plan next year. We certainly hope and anticipate that we will see that -- that we will see better than budget performance there as the valuations on -- reflect the operating performance of the assets in our markets.

You know, counter veiling that, and the wind blowing in the other direction is that obviously there's tremendous pressure on municipalities these days to figure out a -- municipalities to figure out a way to fund the revenue shortfalls. As we always have, we will do the good, hard battle with the local taxing authorities and hope to do better than that. We are focused, and we are going to continue to have to be disciplined on our expenses in order to make our guidance for next year.

Okay. The second question is, you know we have talked about effective rents and the like and concessions and the like. What would you estimate your mark to market to be for the leases currently in the portfolio?

In terms of gain or loss to lease?

Well, our gain or loss it lease right -- year over year from 2002 to 2003, we actually are projecting about a $3 million to $4 million decrease in the loss of lease. That's primarily the result of the fact that we have not put --other than in southern California and a little bit in Houston last year, we have not had rental increases in the markets for almost -- going on almost 15 months now. In terms of your question on effective rent, the adjustments to rent, we gave the number to Brian on economic occupancy, but if you want to think about it in terms of rental per unit number, the gross effective rent in the portfolio runs about $790 per unit. Our net effective rent after the all of the adjustments for vacancy loss, et cetera, right now is running about $670 per unit. That differential would be the adjustments that we talk about.

The next question comes from Jordan Sadler with Salomon Smith Barney.

Good morning.

Good morning.

Following up op Brian's economic occupancy question and bridging your expectations for next year's physical occupancy. Are you expecting sort of the flat line from this quarter, 85 percent 86 percent economic occupancy for '03.

The economic occupancy for '03, according to our plan, is -- should go up about one percent, between now and the end of the year. If you look at the components of that, it's basically about a two percent pickup in physical occupancy that's being offset by additional concessions. But net-net yes, we do expect some improvement throughout the year with regard to economic occupancy primarily coming from a pickup in the -- in our occupancy rate in the portfolio. We have not -- we're getting virtually no pickup portfolio portfolio-wide in rental rate increases. Again, with the loan exception being California market. The balance of the portfolio is basically flat year over year on rental rates with some pickup in occupancy back to about the 84 percent level, being substantially offset by additional concessions.

Okay. Just looking back at this quarter from a sequential sequential perspective, I was a little surprised to see the decline in same store NOI in southern California. Is that just a result of the occupancy erosion there or is something else going on?

Well, for the quarter, we had about a three percent -- 2.7 percent increase in expenses on a sequential basis. And roughly a one percent decline in revenues on a sequential basis primarily because we had lower occupancies in the fourth quarter than we did in the third quarter. But again, lower -- lower from a barely -- from a very high level in the prior quarters. But we don't -- you know, in terms of where we spend a lot of time worrying about the operating performance for the next couple of quarters out through next year, southern California is one that I think that is in reasonably good shape. Yes, there are some concessions in the marketplace. Yes, there is limited new development, but you're talking about really fractions of levels of concern about what we see in the other markets.

And how about in Houston and Tampa? Houston was negative 3.5 percent over the third quarter of '2, and Tampa on -- '02. And Tampa had an increase. There was a revenue increase there. What was the expense decline in Tampa related to? Seasonal or ...

We'll have to look and get you the details on that it's up (inaudible) up quarter over quarter.

Right.

We'll get you the details on that.

In terms of the San Diego, the little Italy development, Tuscany, I see that you guys pushed the construction completion date out two quarters.

Right.

And the -- I guess the initial occupancy date out a quarter as well. What was that associated with?

The San Diego market is --the downtown market, there's a lot of construction going on. A lot of condominium development being built with -- in the labor pool is very thin there. We're having -- we're just having trouble getting our units completed. It's really a labor issue. Trying to get the right number of people that are qualified to finish the units out. So, we have moved some of our people from the Oter (ph) ranch project and brought other people in from other projects to help push that along, but that's really the real issue is getting the labor supply to punch the units out. But major structure is complete. They're just doing the interior, the final interior punch-out. That's put us behind a quarter or so.

Then one other question on your revenue management implementation. I think it's Fieldstar (ph). What's the progress on that, if you have a quick update?

We actually -- we are currently in the process of working with Realpage in terms of developing a Camden --specific to Camden version of their web-based property management system. We are working side by side with them as partners. We expect to be in a position sometime later this year to begin deploying that new property management system. Phase two of that will be actually integrating the revenue management system that we --that we have helped co-design with -- again with Realpage as a module to the base property management system. So, I can't give you a time frame on that, but phase one would be getting the property management system rolled out and then coming behind that would be the integration, full integration of the revenue management piece into the property management system.

Okay. Thank you, guys.

Just to close the loop again on the question on Tampa, expenses for the quarter, it was in three areas. Repair and maintenance, utility, and the big piece was in taxes where we got the fourth quarter tax adjustments caused about 14.7 percent decline from the third quarter accrual levels that we had. In the three areas, obviously, the R & M is related to the lower turnover rate in the quarter and the utilities were -- we had a $27,000 difference in utilities.

Your next question comes from Craig Leupold with Green Street Advisors.

Good morning. Keith, can you help me understand what your expectations are in terms of revenue and NOI growth sequentially looking forward? Primarily, I'm trying to bridge the gap between the FFO in the fourth quarter and a 10 cent to 12 cent reduction in the first quarter. I'm trying to understand how much of that stems from a revenue or NOI decline looking forward.

Yeah. The same store piece of that --of the progression that we see in the quarter to quarter over the first quarter, the second quarter, is roughly 4.5 cents in same-store revenues. Obviously, we have some development revenue pickup as well that adds to that to get us to our -- what we think our second quarter and then the progression from there forward will be. In terms of how we get there. In our model, if you look at --if you look at the revenues on a sequential basis, or the net effective revenues, we expect to see by the beginning of the fourth quarter, we expect to see a return to somewhere close to the 94 percent occupancy rate, even though from a concession standpoint, we have modeled in substantially more concessions in the first quarter than we even did in the fourth quarter of 2002.

That two percent pickup in occupancy is worth roughly $5 million or $4 million in the portfolio. Excuse me, on an annualized basis, it's worth about $8 million or $2 million a quarter. The $2 million a quarter gets you to five cents a share that we expect to see growth in same-store NOI from the first quarter to the second quarter. So, that -- that and then the coming on line and the contribution from our new development communities is basically what bridges the gap between our first quarter guidance and our full year range.

Actually, I appreciate all of that color. I'm trying to kind of bridge the gap from fourth quarter actual to first quarter. I mean, you did 84 cents in the quarter. You are talking about 72 to 75 cents in the first quarter. How much of that is same-store?

if you take our same-store --if you look at our -- look at the sequential. You are asking sequential.

Yeah. It seems like you must be expecting a fairly significant drop-off in revenues and NOI.

A lot of it, Craig, though, you is the sale of assets and higher interests costs because we did the $200 million bond deal. You will have a significant increase in interest expense for the quarter than the fourth quarter. That number is nearly -- that's a big number.

400 basis points. 300 basis points.

You had maybe 350 basis points on $200 million of increased expense just from interest expense. Then the -- we can get the actual dilution numbers from a -- from the sales. Keep in mind we sold existing assets and cash flowing assets and bought development assets that are not cash flowing yet.

Right. But how much is just same-store?

We don't have the same-store numbers. We'll have do that offline. We'll be happy to get you a reconciliation.

A follow-up to an earlier question on share repurchases, Rick. I know we have had this discussion a little bit in the past. You know, you say that you think your NAV is $37, could be as high as $42 if you used low cap rates and your actions are suggesting that you think or your comments indicate you think that that's not a secular change but maybe just a cyclical issue. Why do any acquisitions? You did $200 million of acquisitions in the year. A few of those assets were in Florida and Arizona. I understand maybe your desire from a strategic standpoint to increase your exposure to southern California. But you bought four assets in Florida and Arizona this year. Why make any acquisitions as opposed to repurchasing your stock given that significant discount, especially if you think it's maybe fleeting?

Well, I think that the first -- you have to look at what the acquisitions were. They were development deals, three of the or four of the acquisitions that we did, we only did two quote, unquote, new acquisitions. We did one in Phoenix and one in Florida. The others were the completion of the third party development program. We always wanted to have more exposure in the southern California markets, so clearly, we're doing that at a 7.8 cap rate, which is far better than the six or sub-six cap rates from an acquisition perspective that you have to buy that. We're continuing to do that. I think that the issue on -- so, I sort of look at the -- the two Florida third-party assets and the two third-party assets that we bought in southern California as sort of already Camden assets to a certain extent, even though we had to negotiate purchase prices and so forth.

Since we developed them, we knew everything about the assets. They were sort of on deck, if you will. The other assets were sort of replacements. They have definitely fallen into the geographic diversification aspect aspects. We thought they were good buys. It's a balance. We're trying to balance sort of the business. When you look at the dispositions and trying to lower the exposure in the middle of the country and increase the exposure on the costs of Florida and California. We're trying to balance all of those sort of competing issues. You don't see us making big, new third-party acquisitions other than those two assets we have talked about. -- assets that we talked about. Part of the ultimately the strategy is to be geographic diverse so you have to do it, and it's just on a sort of --sort of a -- you know, an ongoing basis. You have to be in the market, I think. To be able to understand what's going on. We'll just balance -- we're going to balance stock purchases with sales and acquisitions, if we think that the prices make sense and those assets. It doesn't mean that we're going to be --

Couldn't you do geographic diversification by selling in Texas and just buying your own stock in

Absolutely, you can do that, and we have done that. If we had bought a bunch of acquisitions that were assets that we hadn't developed and done the development work and understood those asset, it would be a different story, but the other two assets in my view are sort the at the margins.

Okay. Thank you.

Okay.

Your next question comes from Kevin O'Shea (ph) with UBS Warburg.

Good morning. The first question relates to covenants. Why don't you get a sense of where you stand or where you project that you will be with respect to covenant on gross asset value, accrual to total unsecured debt. I notice for example that's declined from 195 percent to 185 percent. You need to keep it above 180.

Right. Yes. That does call for to us stay above 180. We're at 185 right now. Part of the reason that number is low currently is because of development that is in the lease-up stage. It's not reflected in development, so you don't get full value under the bank test. So, as of -- as lease ups continue, we'll see that number improve. Then the other issue is the -- the bank uses a very conservative cap rate, and cap ex number which, you know, they just have to stick to a standard but we do expect that they may be looking -- reviewing that in light of where things have changed in the market today. But the biggest piece of it is just that we're not getting full value for a lot of the development that's under way.

Assuming that you don't get pull pickup from the developments in until later in '03. Does the bank test the quarterly number, ant is it a question of whether you revisit that with your bank group or do you play refinancing some of the outstandings on the line?

It is a quarterly number. It is a quarterly number. We will -- we have already had conversations with them and continue to. We don't expect that we will need to make a change in that number or in that covenant in order to pass it. But the banks have recognized that their 9 percent cap rate is an extremely conservative number, and really does not reflect what the true gross asset value is.

Okay. With respect to your guidance in the second -- I'm sorry, at the end of the third quarter. You indicated the same range that you have today, but before you indicated an NOI decline of zero percent to two percent. Is that still your expectation?

Yes.

Okay. And then touching on your developments, again a little bit for what is stabilizing this year, what kind of yields do you anticipate and how does that compare with your prior experience?

The yields are on the California properties are in the 8 to 8.5 percent range. The sort of recessionary environment, delays on deals and so forth has probably taken 50 basis points out of the original expected yields, but that's pretty much it. We haven't -- unfortunately, we are not developing, we don't have lease ups going on except for Houston. We are finishing the lease up in Ebor (ph) City in Tampa, which is sort of a complicated transaction because of the fire that ensued there, and insurance proceeds and if you add insurance proceeds in, we're probably 100 basis points below where we thought we would be on Ebor (ph) city.

We have not taken any of the revenue associated from lost rents in Ebor (ph) city into income. We have kept that out as a receivable from the insurance companies, and it will ultimately be a reduction in cost. So, that -- that's probably 50 basis r 60 basis-point differential there. The developments have come in below expectation for obvious reasons but not significantly and not in -- not to a point where there isn't significant value being created because even if you develop an eight cap rate in California and sell it for a six, that's still a 200 basis points positive spread.

Okay. Are those yields net of concessions?

Those are stabilized yields. There are some concessions that are automatically built into the stabilized yields. Some of the products like Harbor View and Long Beach is not going to stabilize until 2006. Plus or minus. We're just starting the lease up there next week, or February 17 is the soft opening. They -- you know, the 53 units will take a year-and-a-half, plus or minus, to get leased up and stabilized.

Okay. Last question on Houston and Dallas again, and Houston there was a 2.1 percent sequential occupancy decline and negative 1.2 percent in Dallas. How do those statistics compare with prior fourth quarter experience in those markets portfolios?

Our fourth quarter in both of those markets and really across the entire portfolio typically declines about .7 percent. That would be the expected level. So, obviously much worse than expected in Houston, but again, declining from levels that were well above the balance of our portfolio. Dallas is slightly worse than what historically you would expect to see. Again, just reflecting the continued weakness in the market.

Okay. As between the two, do you have a sense as to which one is experiencing more weakness than expected right now?

Well, it depends on what sort of -- whose expectations. Let me just don't try to do it on a relative basis and tell you in absolute terms. I would say that Dallas is significantly weaker than Houston, but in terms of the Delta in the direction of change I'm more concerned about Houston right now than Dallas.

That's probably because you could just get used to getting beat up so bad in Dallas like we have in the last year, and we haven't in Houston, so we feel worse about Dallas than Houston. But there's is weaker than Houston.

Thank you. That's it.

At this time we have time for one more question. The final question comes from Tom Loston (ph) with Wachovia Securities.

I know you have had a long call. I'll try to make this quick. As far as the gross asset value of the accrual to debt. As far as Ebor (ph) city and the vineyards being given full credit for that, has that already been given as far as your bank line calculations are concerned? Are you saying once that gets to stabilized in the second quarter '03, that goes into that calculation.

They have not received full value yet. The way the calculation works, you look at trailing earnings and apply the capital expenditure deduction and then the cap rate. And so, it will take until probably third or fourth quarter looking backwards for us to get full credit for those. Okay. We don't anticipate having a problem in between.

And Steve, on your NOI guidance for the year, I think you mentioned even on the low end, you expected to have a 10 percent cushion in the payout ratio.

Ten cents.

That was to FFO, right?

That's on FFO, right.

Okay. And final question ...

Well -- no, no no,. That's FAB.

It's actually either way.

Okay.

On the FFO basis, or you subtract the cap ex, either way, there's -- divide the remaining cash flow. If we only have $4.5 million of free cash flow divided by 42.5 million share, you have over 10 cents.

it's after cap ex.

That's what I was getting to.

It's the free cash flow.

FFO could go as low as 305 where we get down to where it's close.

Final question. As far as the -- what does it look like for the distribution of your lease expirations in 2003 -- 2003 and can you sort of talk with about that regular tiff to which markets you are --relative to which markets you are feeling the most pressure as far as concessions?

Let me just give you the generic look at our lease expiration profile. We have few fewer lease expirations in the fourth and first quarters and they tend to peak at the end of the second quarter and going into the third quarter. But as far as market by market, we can certainly provide you with that. It might be better and more efficient to do that offline.

Great, guys. Thank you.

You bet.

At this time there are no further questions. Mr. Campo, do you have any closing remarks?

Sure. Thank you for attending the call. We look forward to talking to you again next quarter. Thanks a lot.

This concludes today's conference.