Camden Property Trust (CPT) 2004 Q2 法說會逐字稿

Please stand by for the realtime transcript. Good day ladies and gentlemen. Welcome to your quarter 2, 2004 Camden Property Trust earnings conference call. My name is Jean, I will be your conference coordinator. At this time, all lines are in a listen-only mode and towards the end of the conference call, we will be taking questions. If you need operator assistance, key star zero. At this time all lines are in a listen-only mode and towards the end of the conference call, we will be taking calls.

At this time, I will turn the call over to your host Richard Campo, Chief Executive Officer. Sir, over to you.

Thank you and good morning. Thanks for joining Camden's second quarter 2004 earnings call.

Before we begin I would like to remind 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 to you review them.

The second quarter operating performance came in as we expected. Our revenues were up slightly year-over-year and flat compared to last quarter. We see a continued firming in most of our markets, but increases in revenues through the reduction of concessions still seem to remain on the horizon.

Our 2004 making the right moves plan designed to drive earnings growth opportunities in four specific areas continues to be our operating focus. We have achieved our $400 million refinancing of higher cost capital with the completion of $100 million five-year unsecured bond transaction that we did in July.

Second tactical element of our plan was increasing occupancy, 200 basis points from 2003 levels. That's also been completed. Our occupancy levels at the end of July, hit the highest levels we have seen in a long time at 95.1%.

Reducing concessions is the third part of our plan, continues to be easier said than done in the current environment with continued job levels real reduction or continued job growth, I should say, going forward throughout the year, we should see some reduction in concessions in the quarters ahead.

We are obviously disappointed as the market was by the weak job number for July, and obviously the weak number for June as well, hopefully those will pick up, in the second half.

The fourth and the last part of our making the right moves plan is completing the leaseup of our development properties primarily located in Southern California. We made significant progress this quarter with the completion of leasing the Camden Sierra at Otay Ranch in San Diego, California and Oak Crest in Houston.

Our team at Camden at Harbor View picked up the leasing pace during the quarter leasing 96 apartments and moving in 97 new residents. We appreciate the great work from our on-site team at Harbor View and the development and the construction teams that have made this project a very successful project for Camden so far. And the teams assure me that Harbor View will be leased up by the end of the year.

During the quarter, we added three new development properties to our pipeline. Miramar 6 which is the sixth phase of a student housing project that we have at Texas A & M University out of Corpus Christi. We keep this project around to keep our Aggie construction team happy, supporting the Aggie experience for new students. It also provides pretty good yields for the firm.

We acquired two additional land parcels in Washington, D.C., and Northern Virginia area and plan on developing 747 new apartment homes starting late 2004 and early 2005. Given the current low cap rate environment for acquisitions we continue to believe that the risk/reward proposition for new developments makes sense on a selected basis.

These Washington, D.C. developments support our strategic geographic diversification plan which emphasizes increasing our NOI contribution from the West Coast, and the East Coast without diluting current earnings. And we have been doing this [INAUDIBLE] development for the last few years. Guided by our values we are committed to being the best multi-family company by providing living excellence to our residents.

This mission statement continues to guide all of us at Camden to provide living excellence to our residents and investing excellence to our shareholders. At this point, I will turn the call over to Keith Oden, our President and Chief Operating Officer.

Thanks, Rick.

My headline for last quarter's operating results was more of the same and that trend continued throughout the second quarter in line with our expectations. The same property second quarter revenues were a virtual carbon copy of the first quarter results with rental rates, average occupancy and total revenues all essentially flat compared to first quarter results.

Same property expenses were up 3% quarter over quarter leaving us with a 2.2%, NOI decline compared to the first quarter. During the second quarter our occupancy rate remained at a solid 94.3% and we have seen a slight improvement in occupancy since quarter end which has us well-positioned heading into the final five months of the year.

Last week our percentage leased hit its highest level since last October and the third quarter has historically produced our highest average occupancy rates for the year. Comparing year-to-date NOI with the prior year revenues are up 1.8%, expenses are up 2.7%, which produced a 1.2% NOI growth. Still at the upper end of our same-store guidance for the full year of plus two to minus 2%.

Since we still maintain a cautious outlook for net effective rental growth we expect to end the year near the middle of the plus two to minus 2% range, complying same store NOI growth for the year as flat to slightly positive.

One encouraging sign so far this year has been the increase in traffic at our communities. Year-over-year traffic was up 14% in the first quarter and 9% in the second quarter. We are consistently closing approximately 40% of you are traffic, a real credit to our on-site marketing professionals. However, highly competitive market conditions continue to hamper our ability to achieve increases in net effective rents as our year-over-year occupancy gains are being offset by higher concessions.

Our concessions increased during the quarter by roughly 2% or $30 per unit annually and I would still characterize the majority of our markets as concessionary. Reducing concessions continues to be our greatest challenge to achieving higher property cash flows. Concessions have been the norm in our markets for the past two two and a half years. As a practical matter we have an entire generation of on-site sales professionals many of whom have never experienced anything but a concessionary environment. Our on-site teams and support staff are focused on providing the tools and training necessary to our sales professionals to lead the way out of this concessionary cycle.

Obviously we're going to have to get some help from our markets to make any meaningful dent in the current concession levels.

In the second quarter our traffic increased by 9% over the prior quarter and our closing ratio remained at 40%. Offsetting these two positive trends was an increase in our annualized turnover rate for the quarter, to 64%, versus 62% in the prior year quarter. The 2% increase resulted primarily from an increase in the percentage of moveoutsmove outs to purchase homes, which jumped to 22.8% in the quarter, of total moveoutsmove outs another all-time high for our portfolio.

For those you who are searching for evidence of an inflection point in Camden's fundamentals I would encourage to you follow our sequential same store revenues carefully. With our portfolio occupancy rate now stabilized revenue increases will come from concession reductions which serve as the leading indicator for improving market conditions. A quarter or two of sequential same store revenue growth would be the best evidence that we are passed the much anticipated inflection point.

At this point, would like to turn the call over to our Chief Financial Officer, Dennis Steen.

Thanks, Keith. Good morning to all and thanks for joining us.

My comments this morning will focus on our second quarter financial highlights, a review of our capital structure and I will close with comments on our financial outlook for the third quarter and the remainder of the year.

Starting with our second quarter results, we reported FFO of $35.1 million or 79 cents per share for the second quarter in line with average research analyst estimates and just above the midpoint of our previous guidance of 77 to 80 cents per share.

Our second quarter FFO performance represents an increase of $900,000 as compared to the first quarter excluding the impact of non-recurring gains of $2.6 million, recorded in the first quarter.

This quarter-over-quarter increase is primarily the result of, as Keith mentioned, relatively flat property revenues, a $500,000 increase in non-property revenues, attributable to third-party development and construction fees and additional interest income from our Mezzanine loan program. And a $1.9 million decline in interest expense.

These positive variances were partially offset by a $1.5 million increase in property operating expenses. Taking a little closer look at the interest expense and property expense variances, the $1.5 million or $3.6% increase in total property expense from the prior quarter was in line with our expectations and was the result of four factors. Those are: Seasonally higher repair and maintenance and utility expenses; higher employee benefit costs tied to our annual medical plan renewal; higher marketing costs relating to a national advertising campaign that we initiated in the second quarter; and a positive real estate tax accrual adjustment that we recorded in the first quarter.

Moving to interest expense, the $1.9 million decline in interest expense is the result of the $225 million in unsecured note maturities during the quarter at an average rate of $7.1%, which were paid off by increasing outstandings under our line of credit.

As I mentioned in prior quarter's call, we would use the second quarter maturities to increase our floating rate exposure back to approximately 20% of our total debt. As you can see in the debt analysis that we provided on page 16 of our supplement floating rate exposure was actually 26% of total debt at June 30th.

In early July, we issued $100 million and 4.7% five-year unsecured notes which reduced our floating rate exposure to just below 20% of total debt, and to just over 8% of our total capitalization. As you can see from the maturity table on page 16, we have no additional debt maturities for the remainder of 2004. However we do have 35.5 million in preferred units which are redeemable in the last half of 2004 which we plan to redeem and replace with unsecured debt.

Our coverage ratios continue to improve, EBITDA for the second quarter improved to 3.0 times interest expense. And total interest coverage ratio, which includes capitalized interest rose to 2.7 times.

Our dividend for the first six months has been safely covered by recurring cash flow with a dividend payout ratio of 77.9%. Subtracting total actual capital expenditures year-to-date of 28 cents per share or 12.2 million, Camden still has 8 cents per share of free cash flow.

Our balance sheet remains strong, leverage stands at 42%, 85% of our assets at cost are unincumberedunencumbered and we have low levels of debt maturities over the next several years. Turning to our financial outlook, due to the fact that our same store performance for the first six months of 2004 was slightly better than the midpoint of our expectations we have increased the bottom end of our full year guidance by 5 cents per share.

Our full year FFO guidance is now $3.15 to $3.30 per diluted share. The midpoint of our revised guidance assumes a slight improvement in property revenues, the continued control of expenses, within budgeted levels and a two cents per share charge related to the write-off of original issuance costs associated with the redemption of preferred units.

Our third quarter guidance is 75 cents to 80 cents per diluted share and includes the two cents per share charge on the preferred units and the expected seasonal increase in property operating expenses.

At this point, we'll open the call up for questions.

Thank you, sir. Ladies and gentlemen if would you like to ask a question, please key star, one on your touchtone phone. If you would like to withdraw your question, you can key star, two. Your questions will be taken in the order they are received. Please hold for your first question. We'll take our first question of the day from Jon Litt of Smith & Barney. Please go ahead.

Hi it's Craig Belcher here with John. Can you talk about how concessions have trended so far in the fourth quarter?

No change.

We're still running right out on an annualized basis, about between $900 and $920 a unit annualized. But what has been encouraging though, so far in the third quarter is the fact that our occupancy rates have ticked up and as Rick mentioned, we hit over 95% in the last closeout report for the month of July. So that was encouraging.

Traffic continues to be adequate at our communities. The trend has been up year-to-date, up about 12% over the prior year and that's the good news.

The bad news is that it continues to be very competitive and concessions are going to be a part of our story for some time to come. Obviously we are anxiously awaiting the time when we see that come the other direction, but we certainly didn't see it in the second quarter and we are hopeful that based on our occupancy and the fact that we now have stabilized our occupancy in the 94 to 95% range, we can get some serious business done on the concessions but we haven't seen it yet.

What is the breakout between your up front concessions versus pro rated and how has that been trending in recent quarters?

Well, our objective is always and always has been from a strategy standpoint to take them as up front as much as possible but as you know that's more of a market driven condition. So our concessions have lengthened in terms of the proration period but it just depends. You have to go market by market. We have some markets where we can still get away with doing up front concessions. The general rule is if it's less than a month, we take it up front. If it's more than a month, we try to do it over as short a prorated period as possible but the reality is that in many of our markets, because of market driven conditions having to take those concessions over a longer prorated period and in some cases the entire term of the lease.

And on transaction activity wise, what type of acquisition or disposition activity should we expect in the second half?

We expect to have dispositions of $100 million range but not until the end of the year.

Our strategy has been to dispose of properties before we acquire properties to try to keep the dilutive effect of selling older assets and buying newer assets, you know, in check. We have definitely been very reluctant to dilute current earnings, to improve you know, to do dispositions and acquisitions at this point.

I would say that from an acquisition perspective, it is a very difficult market out there from a cap rate perspective and on the buy side. So we do expect to do $100 million of dispositions and then we would probably do the acquisition somewhat later in the first quarter or the second quarter of next year.

And what markets are you focusing in on the dispositions and the acquisitions?

Dispositions are focused in the center part of the country, if you will, you know, our whole geographic strategy is to lower the NOI concentration in the middle the part of the country and increase the concentration on both coasts. So our dispositions are likely to be in the middle part of the country and our acquisitions in Florida and perhaps Washington D.C. area.

Do you expect additional Mezzanine investments in the second half? It picked up. I think it was I believe 6 or 7 million 1Q to 2Q.

We do expect to do some additional Mezzanine financing in the quarters to come. The market is very competitive and we're very selective in what we do.

I think we have another $5 million Mez loan that is currently in process that looks like we'll get done in the next quarter or so. But, again, it is a very competitive business out there and we are very selective in terms of what properties we will do.

And what are the rates on these loans? The one that's under contract?

The average accrual rate on our Mezzanine portfolio is 12.8%. On the recent two new notes they are right at 11 or 12%.

Okay. Great. Thank you very much.

Sure.

We'll take your next question come from Lou Taylor, Deutsche Bank. Please go ahead.

Yeah, hi, thanks.

Rick, can you as you look into the fourth quarter, is there still hope for the high end of your guidance?

I think the high end of the guidance is really a function of, you know, how and when we can we can lower concessions. I think there's also transaction volume that we generally do that could get us to the high end of the range as well.

So, you know, sort of a two-pronged situation. If job growth accelerates and we can keep our occupancy levels at these rates, at these levels that we have today, reduce concessions to get some top line support, and then we do have a number of transactions that we're working on that would, you know, bulk the income and our additional interest income. And that could in fact take us to the top end.

Okay.

And then for Keith, have you had success moving rents anywhere in the portfolio, whether it's type of units or any particular markets or submarkets throughout the country?

Lou, we're constantly at a community level, moving rents around, as between unit types and that's primarily based on availability for those unit types. But I think it would be fair to say that the net/net of those as we might increase the pricing of a one bedroom unit, because of availability, in that same community or within that same submarket, it's very likely that we are adding concessions to a two-bedroom unit.

It is a constant -- we are trying to fine the right mix but overall in our portfolio, clearly in the last six months we have not had any pricing power to be moving rents. Our battle right now is primarily on reducing the concessions. But, you know, net/net/net portfolio wide there just has not been that much opportunity for raising reps, obviously within certain. You know there's a couple of markets that continue to be reasonably supportive on rental rates, Southern California being the most obvious example of that and in the last quarter we actually had some increase in the opportunities for increases in the Las Vegas portfolio. Again, primarily because the occupancy rate in both of those markets continues to run in the 95, 96% range, which is always a trigger for us to start looking for opportunities to raise rents.

Okay. Thank you.

You bet.

We'll take your next question come from Andrew Rosivach from CSFB.

Hi Guys. Dennis, I keep getting this wrong. Are there any other one-time events either positive or negative, besides the preferred charge that we should have baked into the numbers?

No.

Okay. And what's the source of proceeds for the preferred redemption?

There's going to be actually be funded with a balance underline but we will have to have a debt issuance probably in the fourth quarter.

Okay. And -- okay. And then I wanted to -- one more for you, Dennis. In terms of your development pipeline with Harbor View off is kind of small and I apologize, someone might have discussed this earlier in the call. What have you right now is a big land bank, but not that much under construction.

What pace do you need to sustain in order to not have to deal with issues of expensing capitalized overhead?

I mean right now what we have under development will be sufficient to cover all the costs that we are currently capping into our development pipeline.

Mm-hmm

I mean is that -- yeah. Right.

We actually have land and development in progress. They are in predevelopment stages and our capitalized costs are actually now currently being added to that, because they are still in predevelopment stage. They just have not been announced at this point. So we don't see any challenges with, you know, having to cover a run rate of expenses that are currently being capped if that is your question.

You can look at the land that is being held. There are in that the new projects we bought from -- in Washington, D.C. are included in there which would add the total dollars up for those, and that's another roughly $30 million that we put in.

We also have four additional developments that would include a couple of Houston, Southern California, the that totals probably another 60 or 70 million. That will start sometime in land that will start sometime in 2005.

Okay. So this is list on page 13 is about to get a lot bigger?

Yes. Absolutely. Absolutely. We think you know when we're looking at going forward, development pipeline wise and these are really '05 starts, we will start probably six or seven transactions in '05, and bring that land bank number down substantially when those units are started.

Okay. And then last, on that $141 million of land I know some guys have been selling it off because they can get a pretty nice gain on it. Do you think you might sell any of that land in the future?

We have some of the land that we will sell, which includes some of the tracts at Long Beach that are currently under contract.

We have a condo site that's under contract for $12 million that is included in that land number. We also have some additional tracts at the airport, or Royal Oaks area that will probably be sold as well.

The site that we bought in Houston, adjacent to the old Compaq center right by our office on Southwest Freeway here, we will be selling the front half of that off as well.

So there are a number of sites that are either residual sites that we have that we are not going to develop on, where we are able to sell them for a profit and then take those gains, we will do that as well.

Okay. And I'm sorry, just to go back to my first question that sounds like you are going to have some land sale gains in your FFO and is that in the guidance?

It's not in the guidance, no.

Okay so that will be additive if it happened?

Right.

Okay. Thank you.

We'll take your next question from David Rogers of Key Bank Capital.

Hey guys, Keith I have a question for you in terms of A, versus some of the B in your portfolio and I know the portfolio is diverse, and varies market by market.

Are you seeing any trends between the quality of that's in terms of performance or worse?

Actually the trend that's been the most interesting in the A/B split in the last nine months in our portfolio has been the increase in the number of home move outs to home purchases among the B assets.

For a long time in our portfolio we tracked that and that was primarily a preponderantly an A asset phenomenon. But that's changed in the last 9 to 12 months and we certainly are being impacted in our B portfolio. But in terms of the - it's really more market-to-market, Dave, than it is as between the A's and B's in any individual market. We've had compression of net effective rents across the spectrum in our portfolio.

You get pressure open the A units and it rolls down hill, for sure.

If you look at just Houston and Dallas as an interesting analysis of A and B, A's definitely have done better than B's in both Houston and Dallas. And I think that it's a function of we do have job growth in both Houston and Dallas, for example and I think we do have job growth across the country, its just not enough to put us in a position of pricing power. But when you do have a positive economic situation going on, albeit muted, or slow, the A properties do tend to do a little bit better and then picking up on what Keith had to say, we are getting more pressure on the B folks moving out to buy houses than we do on the A's at this point.

So it's sort of an interesting situation. I think as a recovery picks up more steam, then the B's will, in fact, sort of move up do better, but right now, the A's do seem to be doing a little bit better than the B's.

I guess not belabor the point do you see a significant occupancy between the two?

No there's really no big occupancy difference. The big issue is really just really concessions and because when you look at occupancy, when your portfolio is 95% occupied you don't have any real occupancy problems. So the bottom line is, it's really not an occupancy issue but more of a concession issue and when you have more people moving out in the B's, you have to increase the concessions to continue to attract residents.

Sure. Talking more about rent growth now, across the entire spectrum, testing or pushing rents in the second half of the year, what type of net availability are you looking for the way you measure it. And where are you on that?

When you say net availability, Dave what are you --

I guess maybe a 60 day net available number that might allow you to begin pushing rents, particularly in context of the fact that you said concessions have pretty much trended the same with the second quarter here in the early part of the third quarter.

Yeah, I tell you one of the things that is encouraging in our numbers right now, and I referred to but I didn't give our number but our percentage leased is at on the last week we report was at 91.6% and that takes out all move out notices and we use a 60-day window for that throughout the portfolio.

So the 91.6% leased is the best lease percentage that we have had since last October. That percentage actually we use more to drive our pricing decisions than the percentage occupied.

It is a better leading indicator but based on the 91%, 1.6% leased, you know it could very well be that we'll get an opportunity in the second half to start whittling away at some of these concessions. But the reality is when you've got a month free rent embedded in your rent roll, it -- it's just -- it's just not -- except on a unit-by-unit basis market, you know property-by-property, it's not going to make -- make it possible to be looking at rental increases, you know sort of on a portfolio wide level until we get these concessions back down to a more manageable number.

It is a better leading indicator but based on the 91%, 1.6% leased, you know it could very well be that we'll get an opportunity in the second half to start whittling away at some of these concessions. But the reality is when you've got a month free rent embedded in your rent roll, it's just not except on a unit-by-unit basis market, you know property-by-property. It's not going to make it possible to be looking at rental increases, you know sort of on a portfolio wide level until we get these concessions back down to a more manageable number.

Thanks.

We'll take your next question from Rich Anderson of Maxcore Financial.

Thanks. On the land, just back to the land for a second. Do you capitalize interest on any of that yet before it starts going into development?

Right now, the land bank that we have are in predevelopment. There's no significant piece that's not in that predevelopment stage. So most of our interest capital on this piece is going to be on those in development stage.

Okay.

So the answer is yes, we do capitalize the land to the interest and carry on the land during the predevelopment period.

Okay.

Okay?

You last quarter mentioned the debt offering that you expected to happen in the second quarter and it ended up happening in the third quarter. Did that help second quarter results at all?

Sure. I mean we obviously had a higher percentage of floating rate debt during the second quarter than we originally planned on, and therefore, had some interest savings.

We originally planned for the offering to be done in June, like the beginning of June. It was done at the beginning of July. So we had about a month of excess, you know, a positive spread against our budget for about a month on $100 million.

Okay. Your development in Corpus Christi, despite except for the support of Texas A & M, I guess, its 1.5% of your total revenue that market is. So my question is why would you develop in that market? I mean, I guess the bigger question is do you expect to exit these sort of small markets over time in any sort of near term time frame?

You know, the Texas A&M Rick, was jokingly referring to it as keeping our Aggie folks happy. It's a unique relationship there with regard to our single student housing project. And it's an on-campus facility and there is no competing, literally on the campus is on an island and there's no competing housing.

So we are the sole source of student housing on campus for Texas A & M Corpus Christi. So it's a very unique opportunity for us and we've had over the years the ability to sort of add to it, as it made sense with the growth of that university. That university is growing at one of the fastest rates of any university in the state.

It's getting a lot of state funding and a lot of attention because of the historical under representation in south Texas of higher education dollars. So it's just a very unique circumstance for us that not notwithstanding Corpus Christi being a secondary or a smaller market, it's one that produces on an NOI basis, a fairly attractive yield for us. And we have a very long term arrangement with the university that- basically provides us with the ability to continue to be the sole provider of student on-campus housing. So it's a very unique situation and you've got to take that one as almost as its own set of circumstances with regard to our portfolio strategy.

The other benefit it gives us is we do a lot of third-party construction design builds for Texas A & M uUniversity on their central campus and other A & M universities areas so it's not just this sort of one island deal. We are earning a lot of other fee income and other relationships with A & M.

As far as the small market question, you know, we ultimately will deal with small market, you know, assets in the future. We have not done anything with that at this point. Primarily because we have the fundamental premise of not diluting shareholders, when the market is diluting our shareholders by having cash flows go down in concessionary environments. So as the market improves and when we can count on strong same store NOI growth in the 3% plus range going forward for the entire portfolio, you will see us start to prune small markets that don't have unique situations or where we don't really have a particular reason to be there.

And we will then redeploy capital into, you know, the larger markets on the East Coast, West Coast and so forth.

But we aren't going to do that when we haven't seen strong growth going forward in the future. I will lower my future growth rate, but I will not pile on to shareholder dilution in a down market. Just to get you know to get portfolio distribution the way we want it ultimately.

Okay. Does the sequential decline in same store NOIs surprise you considering the stronger leasing season?

Well, when you look at the number it was .2%, and it was $190,000, so it's such a small number on the over portfolio. I would rather have been 0.1% up, so I wouldn't have to think about it going down but it didn't surprise us.

Okay. Last question, if you were to pick one of these three, Harbor View now ahead, in line or behind schedule based on the activity during the second quarter.

I guess it depends on which schedule.

Your schedule. Your previous schedule.

Well, the original schedule, it's behind.

Okay. How about the schedule that you sort of outlined during last conference call?

We are -- we are pretty much on our budgeted schedule for the year. But it -- we were behind in the first quarter. We made it up in the second quarter. And now the third and the fourth quarter is important to basically net about 26 leases per month.

And the challenge you have in order to be on our original schedule for the year. Now, they have been doing better than 26 units a month net in the last quarter, obviously. And, you know, the challenge you have in a large project like Harbor View is that you have normal turnover, and so that means that they have to lease a substantial -- they have to back fill all of their moveouts and have net leases of 26 apartments in order to achieve their budget. If the first quarter is any indication of how the third and the fourth quarter are going to be, we'll hit those targets.

Okay how did you do in July? Do you know yet.

July is fine. We had a good first, I think July was a big month.

The last report I saw, we had 24 leases in a week. So the momentum has continued through the third quarter, and the team is doing a great job at closing, you know, leases.

The biggest challenge we have at Harbor View is that we still have a substantial number of people that come in, thinking it's a condo that they can buy, and so we have our leasing staff there has to sort of, you know triage people to find out rather than spending time with people who want to buy condos. We sort of -- it is difficult because people want to see the building and don't necessarily tell the leasing people the truth about what their intentions are because they assume it will go condo some day.

So they you have a challenge of making sure that we are taking care of the residents and the potential people that want to live there from a lease perspective, but we're encouraged with the second quarter and the third quarter we continue to see good numbers there.

So, you know at this point, unless something dramatically different happens over the next five months, you know we should be done by the end of the year.

Sounds good. Thanks.

Thanks.

We'll take your next question come from David Rocco of RBC Capital Markets

Good morning, here with Jay Leupp. Just a couple of follow-ups on Harbor View there. I know we've talked a lot about velocity here. I wondered, Rick if you could touch on what you've had to do in terms of rents and maybe concessions in order to keep that velocity up.

Really, actually, it's not really been a pricing issue with Harbor View.

We've had a -- when you are leasing out of those two high rise towers you have an available -- you know you have a delivery issue with regard to the product but it is not really a pricing issue. What we have had to do even though we stayed on our total pro forma rents for the building, we have had to internally market them a little bit differently and change pricing.

We have been able to actually pretty substantially increase the rental rates on the one bedrooms which right now there's a lot more demand for. And we have kept our pricing in the aggregate the same by making offsetting reductions on the two bedrooms but we're on track as far as pro forma rents are concerned. And the only concessions that we have given there have been concessions that are normally associated with the construction lease-up.

So the pricing really has not been an issue for us. And I think from the standpoint of the velocity that we saw in the second quarter, it's clear that -- I think it's clear that we are on track to get that project leased up and stabilized by the end of the year, which is our current objective.

Great. And then that leads to my follow-up which is in terms of inventory and what you guys have left there, can you talk about what units are left, whether they are they are in the towers and what type of units they are in terms of number of bedrooms.

The low rise portion, which is four-story product on top of the two-story parking garage is 91% leased and, therefore, the bulk of the inventory are in the towers. The first tower is the first tower that we got, which has been opened for a while, has been -- I think it's in the 70s leased.

Tower 1 is 72% leased, which was first tower we got. The second tower, we call it tower 6 because it's just the way we numbered the building, but it is the billing to the west of the tower 1, that building just opened June 1st, and it's about 11% leased at this point.

And what the management team on site has been trying to do is they have been trying to sort of hold off high floors in tower 6 to try to maximize the rents for the premium views at the top of the building, where you have great views of the ocean and the Palisades and so forth.

So I think the interesting part about both the four-story product and the towers, the towers, are, of course, condominium quality finishes, brand new granite counter tops and stainless steel appliances, hard wood floors, you know everything you would have in a high-end condo. The four-story product is more apartment grade, where you have nice finishes but no granite, and no stainless and no hardwoods.

Yet we have been able to, you know, have high leasing percentages in the four-story and leaving our sort of premium product for the final lease-up which is great. So as far as ones and twos, I really don't have that breakdown right now.

Okay. Well, that's helpful. Thanks, Rick.

Sure.

And again, star, one on your touch-tone phone if you would like to ask a question. We'll take our next question come from Chris Pike of UBS.

Good afternoon, gentlemen.

A quick question back to Harbor View, I remember in Q1 the leasing issue was relative to a management bump, if you will. And since that time you've replaced management, correct?

We have.

We have a great manager and we have a full staff and clearly, we did have a management issue in the first quarter and it was evidenced by the slowing of the lease-up. It had nothing to do with the market.

Have you guys had any similar type problems in any of your other lease-up communities at this point?

No.

Okay. And --

We have in the past. I mean obviously the biggest issue you have whenever you have a property that's not performing, generally, the first thing you look at is management. Are the managers happy? And are the people focused, and do they understand the Camden program? And the most important thing that we can do is as managers and executives in the company is keep smiles on the faces of people in the field. Because if you don't have smiles on those folks faces, how can your customers smile?

And that's really where I was leading.

You know in terms of some of your, I would consider a more difficult markets in the South, employee turnover at the community manager level, you guys have been able to keep a relatively good following on that front, or have you seen a little more turnover recently.

Our turnover rates in our entire portfolio for onsightonsite personnel are about 37% which is extraordinary in this industry. And if you apply that down to community manager level, annually it runs 10 to 15%, and a fair percentage of those are job transfers, etc.

But in the South, you know down in like the Dallas area, things of that nature -- the attrition -- is it still on, let's say the leasing consultant side, versus the community manager side?

The tenure among our community managers in all of our markets is extraordinary.

Okay.

And, you know, the turnover -- that 37% number comes primarily from leasing staff and from outside maintenance staff.

Okay. And I just want to follow back up to -- I guess it is a series of questions from earlier in the call. I guess Keith in the past you have discussed that to the extent you continue to push occupancy that's really going to help you burn off concessions but, you know over the last several quarters have you been able to maintain and push occupancy modestly but concessions remain sticky.

Do you think it's part and parcel from the tactic that you guys have had to deal with over the last 12 to 8 months moving from an up front concession environment, then moving that to a pro rata, and then coming back, you know to trying to push things up front and now at this point have you baked it in and it's just very, very difficult to get them back out?

Well, some of it, clearly when you pro rate concessions it gets embedded and they have to burn off over time. But if you look at our concessions, about 75% of our concessions that are currently embedded in our portfolio happen in the if you look at it on a 12-month rolling basis are going to occur over the next five months.

Mm-hmm.

And the balance of the 25% kind of spread out over the last 7 months of that 12-month period.

Now, I think that my guess is that for other people who have maintained their street rates and provided concessions, you would probably find there's been a lot more prorating going on in their portfolios than there has in ours. I don't ever like to see any concessions that go on that are embedded after a five-month time frame, because at that point you have lost the advantages that we have worked hard to gain by keeping our street rents intact and keep the integrity of that.

So yes to a certain extent, they are embedded, they're going to have to burn off over time but we will continue to try to push to get those concessions more front end loaded so that all of our residents at a point in time in their lease term are paying the stated rate on their lease contract.

Okay. I think I missed this earlier in the call. I think someone asked whether or not you had seen a trend towards offering more, or tenants being accepting up front concessions. You know one of your peers has moved that tactic to from a net effect position to offering up front concessions, and I was guess surprised that you have not seen more up front concessions being accepted by prospects.

I would say that the trend is heading in the right direction with regard to up front concessions. By that I mean, that the amount of embedded concessions is moving closer to the front end of our 12-month rolling lease term. But any time you've got the level, the aggregate level of concessions, in a portfolio like ours that is embedded and have you 25% of it that's in the out 7 months and a 12-month rolling, that tells me that we still have a lot of work to do with regard to getting our residents to accept an up front concession scenario.

The other thing is that the reality of having -- where you've got concessions that go beyond a full month, which we do, we do in many of our markets and in our communities. It is more and more difficult to try to bring that concession to the front end because of the gap it creates in the rent the resident has to pay in the out months of the lease.

So it is -- you know, it's a balancing act. I would say that recently we have made some progress but we've got a lot -- we have a long way to go to get back to a point where all of our concessions are, A., less than a month and, B., up front.

Great.

I think the other issue too that I would like to chime in on here, is number one, we talk a lot about whether it's pro rated or up front. But at the end of the day a concession, is a concession, is a concession, whether you pro rate it or it is upfront. Someone is getting a discount and the consumer has this mentality that they get a discount whether you spread it or give it up front, it's just a financing mechanism, if you will, for letting the resident manage their cash flow better.

So I think it's instructive to look back at the last recession. You know if you look back in the early '90s, we had the same situation going on. Concessionary markets, dropping occupancies and cash flows dropping and so forth and then we came out of that recession, it was a spotty recovery too. It wasn't just a gang busters job growth and life was just perfect after the bottom of the recession was called. But what you saw then was sort of spotty discounting, the markets started to firm, occupancy levels led the way, once managers in the field feel like they can lower the discount and not have their occupancy be eroded they will start lowering the discount and then the residents will go, well, wait a minute I'm supposed to get a discount and the manager holds firm.

They go to the property across the street. They can't get a discount there or they get a minor discount, a lower discount than ours they decide to stay and you end up in a situation where the cycle now moves to lower and lower and lower discounts. Now the difference between the recession, if you look at the recession, in the early '90s and then the recovery we had 23 million jobs formed or created in the last recession cycle and recovery cycle to today.

So we've only had, what, 1 million jobs or 1.1 million jobs in this latest "muted" recovery which looks just like it did in the '90s. The question is are we going to have sustained job growth over a reasonable period of time. And if you add 20 million jobs over the next five years this is going to be an awesome business and we're going to lower our discounts. And we're positioned well to grow our cash flows just like we were in the mid-90s and we just have to see decent demand drivers and the demand drivers are going to be based on job growth.

You know, I found interesting what you said over a reasonable amount of time. That's where the rubber really meets the road.

Absolutely.

Over a reasonable amount of time how many quarters are we out of the trough and we're still talking about this stuff, where I think back in the timeframe that you were just alluding to I think you had you more of a V than a hockey stick which we're experiencing now.

Definitely more of a V. I agree with that.

Listen, thanks for your time, gentlemen.

You bet.

That's all the calls. With do appreciate your support, and we will talk to you again next quarter. Thank you very much.

Ladies and gentlemen, thank you for joining us on the call. You may now disconnect your lines.