Camden Property Trust (CPT) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2004 Camden Property Trust earnings conference call. At this time, all participants are in listen-only mode mode. We will be facilitating a question and answer session towards the end of today's conference. If at any time during the call you require assistance, please press star followed by 0 and a coordinator will be happy to assist you.

I would now like to turn the presentation over to your host for today's call, Miss Kim Callahan, Camden's Vice President of Investor Relations and Strategic Planning. Please proceed.

Thank you. Good morning and thank you for joining Camden's fourth quarter 2004 earnings conference call.

Before we begin, I'd like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them. As a reminder, Camden's complete 2004 earnings release package is available in the investor relations section of our web site at www.camdenliving.com and includes reconciliations to non GAAP financial measures which may be discussed on this call.

On the call today are Rick Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President and Chief Operating Officer; and Dennis Steen, Chief Financial Officer. At this time, I would like to turn the call over to Rick Campo.

Thank you, Kim.

Camden completed 2004 consistent with our expectations. 2004 brought back earnings growth that had been declining since 2001. Our fourth quarter operating results highlighted improving market conditions in Las Vegas, Phoenix, Southern California, Tampa and Orlando, and continued weakness in Denver, Dallas and Houston. 70 percent of our markets had experienced increased sequential revenue growth over the last three quarters. We do expect market conditions to improve throughout the year going forward.

As 2004 was a year of renewed earnings growth and market stabilization, 2005 will be a year of transformation for Camden. Our merger with Summit will transform Camden's operating platform into one of the best in the industry. Market balance is one of our core strategies. We will increase our market exposure to Southern California, Washington, D.C. and southeast Florida to over 40 percent of net operating income while decreasing our exposure to over weighted markets of Houston, Dallas and Las Vegas to under 20 percent of net operating income as we build out our $1.1 billion development pipeline. We will continue to recycle capital through development and acquisitions, improving the quality of our properties. We're excited about expanding our development pipeline with our new Summit Development and Construction teams. The Summit Development and Construction teams are smart, focused, professionals that will add tremendous value to our shareholders in the coming years. Our transform platform of properties will be located in 16 of the top 20 U.S. growth markets and are positioned to outperform our competition as a recovery continues to build steam. Camden's pre-merger markets should add about 430 jobs next year representing a 2.6 percent growth rate compared to a 1.8 percent growth rate for jobs for the U.S. overall. Job growth projected for the Summit market should be around $229,000 or 3.1 percent increase over the prior year.

The merger integration is going well. We've found great people and great properties at Summit. Team members at Summit and Camden have been doing a great job staying focused and are making sure that when the merger closes at the end of this month, we will realize the benefits of a larger higher quality and more efficient operating platform. We have made good progress marketing the $550 million in properties designated for sale for inclusion in a to be formed joint venture of Camden assets from our over weighted market that has been announced in connection with the merger. I would like to thank all of Camden and Summit team members for their hard work and dedication during this important transformation period for Camden.

At this point, I'd like to turn the call over to Keith Oden.

Thanks, Rick.

I want to spend my time on the call today covering two topics. First I'll address Camden's view of the market conditions for 2005 and our largest markets. The format that I'll follow is the same as in previous years. I'll give you our view of current market conditions expressed as a letter grade A through F and also provide our view of the outlook for each market through year end 2005 as either improving, stable or declining. Second, I'll provide some additional details of same property NOI guidance for 2005.

Let's begin with the overview of Camden's markets. Starting out west in San Diego, we rate current conditions as an A with an improving outlook. Job growth has grown at a consistent pace for the past three years and we project 30,000 additional jobs for 2005. Housing prices remain high driving more renters to the multifamily market while construction permits are decreasing by 9 percent from 2004 levels, keeping demand ahead of the flow with new units to the market. In Orange County, we rate current conditions as a B plus, with a stable outlook. 30,000 new jobs will be adequate to absorb the remaining 2004 and projected 2005 completions.

Going forward, completions will remain at a very manageable level of 3,000 to 4,000 units per year. Firming occupancy levels have increased momentum allowing operators to reduce concessions which have crept into this market in the past two years. In Phoenix, we rate currents conditions a B with an improving outlook. Phoenix has been a positive surprise with continued job growth, increasing occupancy rates and an 11 percent rise in the renter base. These conditions should allow a continuation of solid same property NOI growth for Camden's Phoenix portfolio in 2005.

Next in Las Vegas, we rate current conditions as an A with a stable outlook. The Vegas economy continues to crank out new jobs with a projected 27,000 additional for 2005. New supply has been absorbed quickly by the end migration of renters. Concessions are beginning to disappear as demand outpaces supply. Vegas may prove to be a top performer again in 2005, with one of our highest projected NOI growth rates.

Denver, we rate current conditions as a C with a stable outlook. With modest job growth and another year of soft markets, it's hard to see a path to recovery in Denver. However, declining construction starts have had a positive influence on occupancy levels. Our same property results will struggle to remain flat with the prior year.

In Houston, we rate current conditions a C with an improving outlook. The market will continue to be under pressure during 2005 from record level single family home sales and persistently high multifamily completions. Camden maintained an occupancy rate of 93 percent in 2004 and rest of the market averaged about 90 percent. We'll have to outperform the market again in '05 to achieve year-over-year NOI growth. However, job growth is estimated to be 50,000 for 2005 which should be sufficient to prevent any further deterioration and set the stage for a continued recovery late in 2005 and continuing into 2006.

In Dallas, we rate current conditions as a C with a stable outlook. The outlook in this market is much the same as Houston. We believe the worst has passed in Dallas, where employment growth is regaining momentum and completions are decreasing year-over-year. In 2005, we'll bring the first decent job growth in four years. The addition of 40,000 jobs in Dallas will absorb the additional 5,000 units of new inventory in this area. But there's still too much vacant inventory overhang to see any improvement in revenues.

Austin, we rate current conditions as a C minus with a stable outlook. Projected 15,000 new jobs and fewer than 2,000 completions in 2005 will provide an outlook that mirrors that of 2004. Concession levels are on the decline but will continue to be a major barrier to growing at effective rents. If we execute well, same property NOI will remain flat in 2005.

Tampa, we rate current conditions as a B plus with a stable outlook. This market remains steady year-over-year. Occupancy rates and employment levels are on the rise from 2004 levels. Employment growth of 40,000 new jobs offsets 4,000 new completions leading to another year of solid NOI growth.

In Orlando, we rate current conditions as a B plus with a stable outlook. Camden's healthy market-wide occupancy rate of 96 percent gets a boost from 43,000 new jobs and a 4 percent annual expansion in the apartment renter base. Continued employment growth and the weakening of home-buying competition should help absorb the 6,000 new units entering the market.

In south Florida, we rate current conditions as a B plus with a stable outlook. Recent job gains have been fairly broad based with most major industries participating in the expansion. Employment growth is expected to be in the 30 to 40,000 new jobs range while multifamily completions are forecasted to be under 3,000 units for 2005. A major offset to the rental starts will be units removed through condominium conversions. The combination of these factors will keep south Florida a strong market in 2005 with solid same-property NOI growth.

North Carolina, we rate current conditions as B minus with a stable outlook. Traction is beginning to build from positive employment growth and declining new supply. These factors should allow for relatively stable market conditions throughout the year with same property NOI increasing moderately.

Atlanta, we rate current conditions as a B minus with an improving outlook. This economy is finally gaining momentum coming out of a shaky post-recession period. 40,000 new jobs will strengthen apartment absorption, accelerating apartment demand. Plus, the expecting relief of reduced starts should make Atlanta a more attractive market in 2005.

St. Louis, we rate current conditions as a C minus with a declining outlook. The unemployment rate has trended back up to 6 percent as job creation has not kept pace with national labor growth markets. There is no reason to expect much change in St. Louis as 15,000 new jobs is not nearly enough to move the needle from a market-wide occupancy rate of about 92 percent. Same-property NOI is expected to decline modestly in 2005.

Finally in Washington, D.C., the metro area, we rate the current conditions as an A with a stable outlook. This economy appears to be in a prolonged up cycle and is a very solid market. A local economy should remain among the nation's top job growth leaders with 65 to 75,000 new jobs added in the year of 2005. Multifamily permits will reach 7500 units in '05 but the increases in employment growth and home buying costs will keep this market one of the highest rent growth areas in the country.

If you calculate a weighted average for our letter grades and outlook, it indicates an overall current condition in Camden's markets of about a B to B minus with a stable outlook. This strikes me as about right and supports our same-property guidance for 2005 of 1 to 3 percent growth. During the fourth quarter, we were able to maintain our occupancy rates in the 94 percent range, which is more in-line with our historical performance.

For the quarter over quarter comparison, our occupancy decreased by 4/10s of a percent from 2003 as our competitors continued to seek market share through aggressive rental concessions. Concessions will continue to be our biggest challenge in moving net effective rents higher. Having stabilized our occupancy in the 95 percent range, managing concessions will continue to be the most significant challenge to our on-site teams. We did get some good news on the concession front in the fourth quarter. Sequentially, our same property concessions decreased by $90 per unit annualized or about $1 million quarter over quarter. This is the best evidence so far that we have passed an important inflection point on the path to improved fundamentals. As I shared with you several times throughout the past two years, the sequence of events to look for that precede revenue growth in our portfolio are number one, occupancies will recover and stabilize in the 94 to 95 percent range and number two, concessions will decrease sequentially. And only then will you begin to see opportunities to increase market rents. We hope to see a confirmation of this trend in the first quarter, which would give us a much clearer picture of the timing and the strength of the recovery that's under way in our property sector.

As Rick mentioned at the midpoint of our 2005 same property NOI guidance, we expect to see NOI increase by 2 percent over last year. Included in our forecast is an increase in our portfolio wide occupancy rate from 94.2 percent to about 94.6 percent in 2005. Our revenue forecast for same property is 1.5 to 3 percent. Our forecast for expenses is an increase of 2 to 3 percent, which includes increases of 3 percent for salaries, 5 percent utility costs and total non controllable costs including taxes and insurance are projected to rise by roughly 2 percent which is well below trend in both categories. We know that 2005 will again be a challenging year for our on-site personnel. On the other hand, with the addition of Summit's extraordinarily talented real estate professionals and 14,000 high-quality homes, we know that we will continue to outperform the competition to the benefit of our stake holders. Now, I'd like to turn the call over to our CFO, Mr. Dennis Steen.

Thanks, Keith. And good morning to all.

I will start this morning with additional color on our fourth quarter results. Camden reported FFO for the fourth quarter of 2004 of $38.2 million or $0.86 per diluted share, representing a $4.6 million or $0.10 per share improvement from the prior quarter and coming in at the midpoint at the guidance we provided last quarter. The $4.6 million improvement in FFO from the prior quarter was primarily the result of the following -- Total property revenues grew by just under $500,000 as positive gains in our non same property and lease up communities, more than offset a slight decline in same-property revenues as discussed by Keith. Total property expenses declined by $1.5 million due to the expected seasonal declines in repair maintenance and utility costs. Other revenues, which is primarily comprised of income related to our mezzanine financing program increased by $2 million due to a prepayment penalty recognized on the early payoff of a mezz loan on a multifamily community in Reno, Nevada.

Also during the quarter, we sold two undeveloped land parcels, generating proceeds of $17 million and resulting in a gain of approximately $1.4 million. The first tract was a 2.5 acre tract adjacent to our Harbor View community in Long Beach and the second tract was a 2.6 acre tract adjacent to a predevelopment asset in Houston. Additionally, expenses associated with our preferred units declined $1.3 million from the prior quarter due to the payoff of $35 million in preferred units in the third quarter of 2004. These positive variances were offset by increases in property management and G&A expenses of $500,000 and $2.1 million respectively. The increase in property management expense was entirely related to higher incentive compensation expense while the increase in G&A expense was the result of increases in incentive compensation expense, costs associated with Sarbanes-Oxley compliance, the write-off of abandoned deal costs and slightly higher legal costs.

The only other item to note on the income statement relates to the accounting for discontinued operations. During the fourth quarter, we classified three of our communities as held for sale and thus moved their operating results to income from discontinued operation. The sale of one of the three communities, Camden Fountains in Orlando, closed in late December resulting in a gain on sale of approximately $8.4 million. Of the remaining two assets held for sale, Camden Greens in Las Vegas, Nevada, was sold in late January and we expect to complete the remaining sale of a Tampa, Florida community by early second quarter of 2005. Total proceeds from these three sales will be approximately $120 million.

Moving on to capital market activities, in December, we issued $250 million in five year unsecured notes at 90 basis points over the comparable treasury for a rate of 4.39 percent. We used the proceeds to pay down balances under our unsecured line of credit which ended the year with $56 million in outstandings compared to $334 million at September 30. As a result, our floating rate debt declined to 9.3 percent of total debt at year end. In January, we also completed the recast of our unsecured line of credit and also executed a $500 million bridge facility that will be used to finance the cash portion of the acquisition of Summit. The bridge facility has a term of 364 days from the funding -- from funding and an interest rate of LIBOR plus 80 basis points.

Our new unsecured credit facility now consists of total commitments of $600 million from 21 banks with an accordion feature up to $750 million and it matures in January of 2008. Pricing on the new facility is ten basis points below the expiring facility. Additionally in January of 2005, we redeemed the remaining $17.5 million and 8.25 percent series C perpetual preferred units and were charged to earnings in the first quarter 2005 the write-off of approximately $360,000 in original issuance costs associated with those units. As we approach the pending merger with Summit, our balance sheet remains strong and flexible with 89 percent of our assets at cost being unencumbered, 89 percent of our debt unsecured, a conservative level of floating rate debt, very manageable debt maturities over the next several years and significant capacity available under our unsecured credit facilities.

Moving on to 2005 guidance, we expect 2005 FFO to be in the range of $3.20 to $3.40 per diluted share, excluding any potential gains from land sales or technology investments. Our guidance range is based upon the following four assumptions -- Closing of the Summit Properties merger on February 28 of 2005, the sale of $400 to $500 million of Camden assets into a joint venture during the second quarter of 2005, same-property NOI growth of 1 to 3 percent derived from revenue growth of 1.5 to 3 percent, and expense growth of 2 to 3 percent. Also, $90 to $100 million of dispositions relating to the two properties held for sale at the end of the year, as I mentioned previously, additional acquisitions and dispositions of approximately $200 to $300 million in the second half of 2005. We expect 100 basis points negative spread on the cap rates between acquisitions and dispositions, but will try to manage the timing in order to minimize earnings dilution. We're also projecting new development starts of approximately $500 to $600 million, staggered throughout 2005. We have no equity offerings planned for 2005; however, we'll have a bond offering in late 2005. LIBOR is projected to be 3.5 percent by December of 2005, averaging approximately 3 percent during 2005. We expect fee income to increase by $5 to $6 million in 2005, primarily relating to the formation and ongoing management of the joint venture described earlier, as well as new potential joint ventures on a few new development projects. However, this increase will be partially offset by declining interest income of $2 million as several loans in our mezzanine portfolio are retired.

Moving to expenses, we anticipate that 2005 G&A and property supervision costs will increase approximately $3 million and $4 million respectively over the levels seen in 2004, mainly due to the Summit acquisition, a 3 percent growth rate on 2004 expenses and costs associated with the rollout of our one size property management system. Our FFO guidance for the first quarter of 2005 based on the above assumptions is estimated between $0.78 to $0.82 per diluted share. This represents the decline of $0.04 to $0.08 per share from the fourth quarter of 2004. The decline from the fourth quarter is primarily due to the fact that the fourth quarter included approximately $1.4 million in gains on land sales and higher interest cost in the first quarter of 2005 due to rising rates on our floating rate debt and the impact of our $250 million note offering in late December, whereby we locked in very attractive long-term rates at the expense of cheaper floating rate debt in the short term. With that, I'll open the call up for questions.

Ladies and gentlemen, if you wish to ask a question, please press star 1 on your Touch-Tone phone. If your question has been answered or you wish to withdraw your question, please press star 2. Again, to ask a question, the command is star 1 and we'll pause for a moment as questions queue up. And your first question comes from David Ronco of RBC Capital Markets. Please proceed, sir.

Good morning. Here with Jay Leupp. First, Keith, wondered if you could talk about Dallas and Houston and your current occupancy there and what changes you've seen thus far in 2005?

Yeah. On our -- in the supplemental, you noticed that their occupancy for the quarter there, which is really most of the cause of the decline for our quarter over quarter was about 91 in Dallas and about 90 in Houston. We've since rebounded from those levels. We're back in those two markets in the 92, 93 percent range. Our budget for both of those markets for the entire year is about 94 percent, a little bit less than that in Dallas but 94 percent in Houston. We do expect we will be able to recapture and then hold higher occupancy levels in those two markets going forward. The real balance point in both of those continues to be levels of concessions, both of which did increase quarter over quarter, notwithstanding the fact that our entire portfolio, we had the first decline in concessions in two and a half years. So we do expect to see the occupancy tick back up. Both of those markets for the year are projected to be basically flat on NOI growth year-over-year. We have a small amount of growth in the plan for Houston, but basically flat year-over-year. As we sit here today, those still look like they're doable.

Okay. Moving on to a stronger market, Las Vegas, where obviously you guys have got to be near an all-time high in occupancy there. What's been the trend in concessions in Las Vegas and how close are you guys to meaningfully moving effective rates there?

Well, we actually have been moving, made some progress in effective rents. The trend in concessions continues to be down even though we carry concessions. Right now our current level of concessions in Las Vegas is running about two weeks free. That's basically from the embedded concessions that were granted earlier in the year and leases that are already in place. It is virtually across the board in our portfolio now in current leases with an exception of look and lease $50 kind of special. We have seen concessions basically go away in our portfolio on a run rate basis. So they will continue to decline in Las Vegas as we burn off the embedded concessions but, yes, obviously at 97 percent average occupancy, it would be a hard explanation for any of our community managers to be defending a concession, granting concessions in the current marketplace.

The main factor in Las Vegas has been that in the last three to five months, most of our competitors have also come along. For a while there, we had virtually eliminated concessions but we still had the lowest common denominator, competitors who were still granting concessions. Most of those folks have at this point eliminated the c-word from their marketing presentations, so I think that Las Vegas is set up to have another really strong year for us. Obviously at 97 percent occupancy there's little or no room on the occupancy side and we do expect to see growth and net effective rents in that marketplace. The 97, too, from a historical perspective, I think we've hit as high as 97.5 but it would have also been in the fourth quarter or the fourth and first quarters which tend to be seasonally stronger in Las Vegas which is a little bit out of phase with most of the rest of our markets.

Thanks. I just wanted to clarify one thing, Dennis. When you talked about management fees, you said $5 to $6 million. Was that an increase over '04 or is that total?

Increase over '04.

Okay. Thanks.

Your next question comes from Jordan Sadler with Smith Barney. Please proceed.

Could you just give us the total concession number? I just realized. Good morning.

Total concessions, they declined about $90 per unit on an annualized basis. Total concessions in the portfolio were down about $1 million from about $12 million to $11 million.

Sequentially?

Yep.

Okay. And that's the first gross decline that you've seen sequentially in two years?

In the 2.5 years.

Okay.

And we had a couple of quarters there in '03 where we had the head fake where we were virtually flat, but this is the first decline that we've seen in gross concessions.

Okay. I just wanted to follow up on Dave's question on Houston and Dallas. Was there a change in philosophy there a little bit? Did you just stop concessioning for a little while because you thought there might be strength in a pocket where you could get away with the concession?

No, not at all. In fact, our concessions in both of those markets quarter over quarter, there wasn't any meaningful change from third to fourth quarter. The challenge is that again, with our competitors kind of scrambling around for market share there is almost no concession that's too large. And we try to maintain some sense of price discipline but the reality is if you're offering a month free and there's signs on your street that are offering two months free, it just makes for a very difficult marketing scenario.

So it's really not change in philosophy as much as it is we lost market share to competitors who very, very aggressively discounted. You've got some of our competitors that we have consistently outperformed in the marketplace from an occupancy standpoint. But the reality is when you're 94 percent and your competitors are 85, 86, they are going to be very aggressive on their concessioning. Not a change in philosophy, just a continued battle with underlying fundamentals.

Okay. And then the operating expenses were up 5.3 percent year-over-year. Last year in the fourth quarter was also, I think, a 5 percent number year-over-year. I was just curious what's going on there.

You're looking at quarter over quarter?

Yeah.

The primary reason for the NOI both in the quarter over quarter and sequentially is property taxes.

Okay.

There's a lot of movement around pluses and minus within those markets. I think a better way to look at it in terms of our thinking on operating expenses would be to look at the year-over-year number. We were at 3.2 percent year-over-year. Our guidance for the year was 3 to 4 for '04. So we came in at the low end of our guidance and then going forward, our guidance is 2 to 3.

Okay. And then just moving over to the Summit merger real quickly. Is there an update on the expected cap rate on a trailing 12-month basis?

No. There's really no update. The '04 numbers for Summit are consistent with our original underwriting of the property. So it's consistent with the disclosures made in the past which basically is the 5.9 plus or minus cap rate on trailing 12 months.

And that 5.9 is on the $1.6 billion of stabilized assets?

That is correct. It would be on the stabilized assets. As far as developments and under construction assets, we just valued those on an individual basis. Obviously a property that isn't completely stuffed can't be translated to a cap rate basis.

Sure. So the rest of the value, which is about $500 million, I guess, rank as a $2.1 billion total purchase price? Will that -- will amounts related to that $500 million totally be capitalized?

Well, actually the price is really $1.9 billion and that was set when we fixed the exchange ratio and the cash portion, but any excess dollars over the stabilized portfolio is either land or property under development or other assets like receivables and things like that. But yes, that would be capitalized in the sense of, on the balance sheet now. Some of the properties, for example, like properties that are in development that are in lease up, and maybe 75 or percent leased will obviously have ramp-ups into the earnings stream over the lease up period.

And just to clarify on the total price. The $1.9 is the new price including fees after the exchange was set that's different from the original proxy?

No, the original numbers were always $1.9. Also, I think that $2.1 million had in it some assets that Summit still were going to sell in that $2.1 million number which have then been sold.

Okay. I'll touch base with you on it offline, if I can.

Okay. Absolutely. We can reconcile that for you. There when are a number of sales at year end totaling several hundred million dollars on the Summit side that we always anticipated Summit selling.

Okay. Two other quick ones. Just a cap rate on the $120 million of dispositions?

The cap rate is -- we had three sort of different kinds of assets. Two of which -- the Florida asset was roughly a 6.79 cap rate on the Florida asset. The Las Vegas asset is just a tad over 6 percent and both had free and clear unleveraged IRs of between 12 and 13 percent plus or minus. The third asset that is currently under contract is being sold to a condo converter and the cap rates are really interesting. It'll be a sub-4 cap rate.

And the IR on that I would imagine would be in the teens?

Yes. High teens. Or low 20s.

Okay. And where was that one?

Pardon me?

Where was that one? That asset?

That is in Tampa.

Okay. And then lastly, just an update on the JV, the $405 million of asset sales into the JV?

We are currently in the process of negotiating that transaction and that's about all I'm going to say about it at this point. It's progressing well in accordance with our expectations.

And the cap rate that you originally quoted on that was, I think, 5.75, is that right?

I don't think I had a specific cap rate other than I thought it would be in the zone of the same cap rate that we did the overall Summit transaction on.

Okay. Thank you.

Absolutely.

And your next question comes from Steve Swett with Wachovia Securities. Please proceed.

Dennis, could I ask a little more information on the pursuit costs that you guys wrote off?

Sure.

In the quarter?

Yes. It was actually approximately $300,000 in abandoned deal costs that we recorded in the fourth quarter

Was that related to the land sales?

No, it was not. It was related to an abandoned Florida and an abandoned California transaction.

Do you guys typically reserve for those or do you just take them as they come?

We take them as we abandon the activity. We would continue to cap as long as it appears to be probable we would go forward with the transaction. As soon as it's likely that we would not be going forward, we write them off at that time.

Okay. In the guidance you set for 2005, is there a meaningful change in the -- or what's the assumption in the floating rate portion of your debt?

The floating rate portion, I mean, forecast -- the floating rate portion averages the year right about 15 percent.

Okay. Then just a clarification. You said acquisitions in the second half of '05, acquisitions and dispositions of $200 to $300. Is that $200 to $300 each?

Yes.

Okay. Then Rick, just a final question on the Summit merger. Could you provide a little more information in terms of how the integration is progressing, where you stand in terms of your property management structure and your development team structure?

Sure. The integration is going very well. We have been very proactive in the integration process so that when we close on February 28, we won't miss a step from bringing the two companies together. That's very critical. The -- all of the, I think management structures are many place. I'll let Keith talk about the property management side.

From a development perspective, we have a very robust team that will be coming over from the Summit side and being integrated into our existing development operation. You know, Summit of course has a $650 million development pipeline. When you add it to ours without any new properties being put into the pipeline which is highly unlikely since we're working on lots of deals, we'd have roughly a $1.1 billion pipeline of which $800 million of that pipeline is in Southern California, D.C. and southeast Florida. So we're real excited about the development side and the construction side. Summit has some very, very good seasoned long-term players that are coming across that will really add value to the Camden Development portfolio.

I'll let Keith talk about the property management integration issues.

Steve, it's going extraordinarily well. The -- we still expect that at the date of merge at the end of this month somewhere in the range of 90 to 95 percent of all operating practices will have been resolved and that's what we will be training to the new -- some of the associates. We're already a much better company from what we've learned from our Summit associates that we'll be incorporating into our practices as part of Camden. We've made incredible progress, and a lot of it has to do with the really outstanding level of cooperation that we've gotten from all levels of the Summit organization to the point where I think it's notable that we're having our annual leadership meeting here next week, and the seven Summit -- new Summit vice presidents that will be joining Camden in the merger are actually going to be attending our planning session and be a part of our planning session for the year. So you just don't normally get that level of integration prior to the curtain dropping. So I think we're well along the trail from an integration standpoint. I would say we would characterize it as expected. I think probably really we've made more progress than we would have anticipated. Part of that is that we got a little bit of reprieve on the timing due to working our way through the SEC process, but we're well down the trail. It's gone extraordinarily well. We expect to hit the ground running with 400 of the best trained and best motivated additions to Camden that we've ever seen.

Okay, thanks.

And your next question comes from Asad Kazim with [R. Refunds]. Please proceed.

Hey, guys. A couple quick questions. First, for Keith. If you could just give more color on Atlanta and why you give it a grade of B when permitting activity went up probably 50 percent year-over-year basis and still haven't seen signs of things turning around. And then two, the sequential number or the year-over-year number in the fourth quarter was a 4 percent decline in NOI and the expectation is positive 2 percent in 2005? So what's driving the roughly 600 basis point change?

I'm going to -- we'll talk about Atlanta first, and then I'm going to have to come back to your second question. In Atlanta, the primary difference is our view on job growth in 2005. We are projecting almost twice the level of job growth that occurred in 2004. Yes, the permanent activity has continued to click along, but it is at much reduced levels from where it was two years ago. Our -- my rating, by the way, was a B minus, not a B. So that's a half a click from being a C plus and we only had -- if Denver is a C minus it's easy for me to get on my grading scale from where Denver is to where Atlanta is at a B minus. 40,000 new jobs next year, I think, sets a pretty decent backdrop given the level of new construction that still has to be absorbed. Yes. We still have slack in the system. There's no question about that. From the standpoint of an overall market-wide occupancy, we're still running in the 90, 91 percent range. That's a little bit skewed because the -- our Atlanta portfolio or the Summit portfolio is operating at a higher occupancy level than that is and they have maintained that higher occupancy level throughout '04. So we're pretty encouraged that the worst is probably behind us in Atlanta. Atlanta is certainly further down the trail to a recovery in decent growth than a Houston, Dallas or Denver scenario. And I think that, you know, 40,000 jobs if that's the right number and it comes to pass, we're going to take up a fair amount of slack in the system and be able to head towards recovery in Atlanta. I'm going to punt to Rick on the --

Yes. On the second question, the 600 basis point differential between the fourth quarter, same-store NOI decline of 4 percent and our target for the year of 2 percent positive growth. First of all, you really can't take the fourth quarter because there's a lot of noise in the fourth quarter and you look at the fourth quarter operating expenses were up 5.3 percent. If you flip to the year-over-year comparison on page 13 of the supplement, you'll see that actually revenue growth for the year, year-over-year from '04 over '03 was up nearly 1 percent at 0.9 percent. Expenses were at 3.2 percent up, so we had a .7 percent decline overall. So what we're talking about really is not a 600 basis point improvement but a 270 basis point improvement from the 0.7 percent to a 2 percent. When you look at our expectation this year, we're talking about revenue going from 0.9 percent up to between 1.5 and 3 percent for the year and expenses from 2 percent to 3 percent. So if we hit, sort of midpoint of the revenue and hit the high end of the expenses, that puts you right at 2 percent same-store NOI growth for the year, 2005 over 2004. That's how we get there. So we don't think it's a big stretch to get there when you look at it on an overall annualized basis.

Great. That makes perfect sense. And then a quick question for Dennis. One, are you guys -- since the JV fund isn't done, are you assuming, is the $500 million bridge then fully taken down in the first quarter and then kind of reversed going forward in the second quarter? And then second question is, what was the dollar amount of the prepayment penalty that you guys received in the mezz portion?

Okay. Yeah, the bridge facility we plan on taking down as we close the merger for about $400 million. That amount will be refunded upon the closing of the joint venture which is expected to close some time in the early part of the second quarter. As it relates to the mezz prepayment penalty, it was a $1.9 million number.

Perfect. Thanks so much, guys.

You bet.

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

Good morning. Keith, I'm assuming that your same-store guidance is just for the Camden portfolio and excludes the Summit portfolio?

No, it includes both.

It includes both?

Yes, it does.

Okay. If you broke it out roughly, what would be the same unit NOI for Summit?

We're just not going to go down that trail right now, Craig. I mean, our guidance does include that. Obviously, the budgets that were prepared were prepared under their system with their people with their model, and we were not involved in that process. Obviously we've had opportunities to do our due diligence. We've done that and we have taken -- we have comfort that their budgets and their game plans are achievable and we've included them in our game plan and then put a range around that. As far as breaking out the differential for the two at this point, it's really -- we just don't think it would be appropriate to go down that trail.

I will say, Craig, that we have consistently said that we think that Summit markets are going to grow revenues and NOI at about 10 percent faster than the Camden portfolio and that's consistent with our thinking going forward in these numbers as well.

Okay. Great. Dennis, you mentioned that you expect fee income to be up about $5 to $6 billion. What about the expense side? I'm sorry. Is the fee income, is that revenues or is that the net?

That is revenue. A good base of what we have in that fee generation is already embedded costs of our regional support staff. We don't see a significant increase in our regional support staff going up as they support these joint venture assets.

Okay. Then on the two abandoned projects, do you guys own the land?

No. These were just pursuit costs.

Okay. And then two last questions. One on rent.com gain, what might be your expected use of the proceeds? I know it's not in your guidance at this point but I was wondering what are the things are you thinking about if anything special in terms of the use of those proceeds?

The first thing we will do is pay down debt. Clearly, when you get revenue in like that, you just pay down debt. I'm not sure I follow other use.

I didn't know if you would look to do something different with those proceeds.

No, we will just pay down debt and put it into the normal operating category.

Okay. And then you guys are currently carrying on a book value basis about $138 million of land. Do you have any estimate of what the market value of that might be versus the book value?

You know, that's a good question but I really don't. I know that most of our land that we've owned for a long time is -- has appreciated but we don't do a mark to market or appraisal analysis on that land. You know, when you look at the -- maybe just anecdotally, you can see in Long Beach we sold a parcel and made $1 million plus on it, and every land project that we have, residual or adjacent land parcel we sold we always sold at a significant gain but I don't have a real sense for what the value would be if we liquidated it all.

Do you expect most of that to be developed as apartments as opposed to sold?

Most of it, yes.

Thank you.

Thanks, Craig.

And your next question comes from Andrew Rosivach with Credit Suisse First Boston. Please proceed.

Good morning, guys. Dennis, I just wanted to do a couple follow-ups on those tags that Asad gave. In your guidance, are you anticipating like the $320 to $340, does that take in kind of a bridge period where you're going to have above average leverage for a couple of months that we should have in our model that you'll end up trending down?

That is exactly what you would expect to see. A month to two months at the most.

Okay. Then on the mezz, kind of if you can chart out what the quarterly trends would be? Where's it going to be first quarter versus the fourth if you can give an idea of where that number's going to go?

From a balance perspective?

From an income statement perspective.

I think over the year we're expecting about a $2 million decrease on interest on mezz excluding prepayment penalties.

Okay.

And I would just probably take it down radically over the four quarters.

Okay. Then last for Rick, you mentioned in your guidance you have about $500 million of development starts and since it's a big number, what markets do you anticipate that those would be in and is there any kind of megaproject baked in there like a Harbor View?

Primarily the starts will be in Southern California, D.C. and southeast Florida. When you look at the $1.1 billion, 80 percent of it is in those three markets. We do have some -- a couple of projects in Houston that we're likely to start towards the end of the year, beginning of next year that are urban in fill developments that we assembled land for over a period of years. The -- as far as megaprojects, we have -- when you develop in southeast Florida sort of normal projects become larger than normal and also in California given just the cost of development there and the land costs and so forth. We do have a couple of projects that are in that pipeline that are nosing up to $100 to a little over $100 million. Two or three probably in that range, but nothing beyond the $100, $110 million zone.

Okay. Great. Thanks, guys.

Sure.

You bet.

Your next question comes from Lou Taylor with Deutsche Banc. Please proceed.

Thanks. Yes. Good morning, guys. Just a couple follow-ups. Rick, in terms of joint venture and assets sales associated with it, has there been any change in the mix of assets that are going to go into the fund?

No. No. It's still comprised of a set of assets from Houston, Dallas, Las Vegas, Phoenix and Tampa and one in California.

Okay. And then secondly, Keith, I think in your remarks, you'd mentioned that you're -- the occupant gain year-over-year would be 140 basis points if I heard that right. How much of that increase is due to the sale of maybe some of the Dallas and Houston assets?

The increase was 40 basis points. So it's a relatively small amount, and it's really not -- since we're the sale of the assets that we currently have in the joint venture, we would still be a partner in those assets. We would still be reporting those from an Oxley standpoint. So it's not related to the mix of any of our dispose. It's just due to the fact that we do expect to get a little bit of an uptick in occupancy next year as we improve underlying conditions.

Okay. And the last question just for either of you guys or any of you guys, is the rent.com gain, as eBay slides you backwards here, what do you think that gain would be now at the current eBay price?

You know, we don't have enough information about exactly what the math is on that at this point, Lou, but we don't think it's significant from the numbers that we've already put out.

Okay. Thank you.

And your next question comes from Rich Anderson with Maxcor Financial. Please proceed.

Thank you. Good morning.

Good morning.

Is it conceivable to sort of look at the company after the merger as a bigger, lower risk portfolio but with lesser growth potential versus what I think you're indicating, a bigger lower-risk portfolio with greater growth potential. It seems like the best of both worlds. How do you get there?

Absolutely. We think it's a lower risk but higher growth portfolio. If you look at when's happening in the way the merger is structured, we have 45 percent of the merger consideration in cash, 55 percent in stock and we are funding the 45 percent stock portion in essence by trading Houston, Dallas, Las Vegas, Phoenix, Tampa for D.C., southeast Florida, Atlanta, Charlotte. And so when you look at -- sort of the -- just take Camden's average job growth in the markets that we're in now. It's going to average about 2.6 percent this year. Summit's average job growth should be 3.1 percent. So when we look at sort of the ability to trade the middle of the country, if you will, for the east coast, we should have a much higher growth rate on those assets than we would have otherwise had in a low position.

Then when you look from a low -- so earnings should grow faster than they would if we just stayed tied in our current markets. When you think about a risk perspective it should be a lower volatility portfolio as well because we're lowering our concentration in the markets that we're over weighted in. Right now, Houston, Dallas and Las Vegas are somewhere between 12 to 13 percent, 14 percent in each market. And post merger on March 1, those markets go down to 8 percent plus or minus 8.5 percent each in each of those markets. As we continue to develop the development pipeline out, continue our capital recycling program, those markets are going to go down to 6, 7 percent.

So bottom line is we are going to have a less volatile portfolio because our market concentration to any one market is going to be lower than it is currently. So the portfolio ought to grow and the markets that we're increasing our exposure in at the expense of lowering our exposure in the markets we're over exposed in right now should have a higher growth rate. So we have more geographic diversification. The diversification is coming in faster growing markets with higher quality assets ultimately because the Summit portfolio average age is about 6 years. Camden's average age is about 11. We're going to average down to 9. So we end up with a newer, higher quality portfolio, diversified in many markets and expanded into higher growth markets. So I think we get the best of all worlds which is lower risk and volatility and higher growth.

Whenever I hear best of both worlds I get nervous and I start to wonder. But I guess that sounds very obnoxious - obnoxious! Optimistic!

It wasn't intended to be obnoxious.

Sorry, poor choice of words. But the question is with those optimistic feelings, why then is your sort of NOI forecast for this year which assumes the completion of Summit what I would call fairly average at mid 0.2 percent versus some of your peers are saying somewhat higher than that? Why wouldn't you describe it as 16 of the top 20 job growth markets in the country and all that -- why wouldn't that translate into a higher NOI growth rate for 2005?

Well, I think the bottom line is it could and hopefully it will, but as far as our guidance goes, we just think that the market is -- it's improving methodically and the trajectory of that line of how fast it improves whether it's 2 percent same-store NOI or 3 percent or more is going to be a direct function of how the economy continues to improve. You know, I don't think that -- I mean, our view is that 2005 is going to be better than 2004 but it's not going to be an out of the park homerun job growth year. So we think it's better to err on the side of being conservative in how the markets grow as opposed to just trying to say, well, gee, we think '05 is going to be a banner year. I think 2005 is going to be a good year, an improving year and we're going to get momentum into '06. At this point, I don't think there's a lot of upside to be overtly optimistic.

Also, Rick it's the reality of what we're looking at versus other companies. We're in the middle of a) a merger and b) an integration of an entirely new property management system, both of which are going to be extraordinarily positive long term for this company. I can almost -- I think you can rest assured by saying that if the end of the year comes and our competitors have reported actuals of 4.5 percent, then we'll be right there with them, if not higher based on our historical track record.

Okay, thanks.

Again, as a reminder, if you do wish to ask a question, the command is star 1 and your next question comes from David Rodgers with Key McDonald. Please proceed.

Hey, guys. I guess the question for Rick on the development side. I didn't hear you talk about the development yields at all. You probably said them on the last call. Could you update us on the developmental yields for the three or the one completed and two under construction assets?

In terms of the ones that are in our current pipeline in our supplement?

Yes.

Sure. The development pipeline is -- the one currently completed would be Harbor View which we did finish. Congratulations for the team out there for getting to 95 percent occupancy on Harbor View. The yield on that is about plus or minus a 7 yield. The yield on Farmers Market and Lago Vista are in the 8 percent range plus or minus.

What's your outlook for development yields in this pipeline? You talked about 1 billion 1 of pipeline assets. What's the yield going to be there? How much land do you still have to buy given the fact the markets you highlighted are the most expensive land markets at this point in time as well?

Well, we don't have to buy much land. I think we either own all the land that we have right now in terms of the pipeline that we're going to develop next year. I believe Summit also has acquired all of the land they need for their pipeline as well. We're not going to be acquiring any new land for the $1.1 billion pipeline. We will be working on future projects, obviously, and we think that we ought to be able to generate $2 or 300 million at least annually of new development activity from the team that we have. As far as yields go, there's challenge in yields today because of the rise in construction costs and our yields are going to be anywhere in the, depending on where you are. If you are in California or D.C. probably in the, pushing 7 percent zone plus or minus. Other markets like in Houston and elsewhere in the 8.5 percent. So we'll be anywhere from 7 to 8.5 on the development yields depending on where we are and when we bought the land and when we bid the project and stuff like that.

Any thoughts of additional condos or any additional thoughts on condos at Long Beach?

We think about it pretty much every day. You know, the real challenge, and it's an interesting discussion because we have with the development pipeline, our development pipeline is being built to condo standards, bottom line, so that we can take advantage of that in the future. The debate on whether we sell Long Beach at Harbor View to a condo converter on the one hand, it's very attractive profit, obviously, but on the other hand we started -- we bought the land for Long Beach in 1999 and we now have our first full-year in 2005. So it's taken us six years to get that development to the point it is today. And it's a very positive, very great asset that's irreplaceable in Southern California and we'll have great, I think long-term same-store NOI growth. So the question is, do you take a quick profit today or continue to grow your asset base in markets that are very hard to get deals done in? We debate that on an ongoing basis. You can take that short-term view and cash in a bunch of profits. The bottom line is we, I think rather have the cash flow than the profit.

But as you continue to build out the pipeline, it's likely that you still wouldn't consider -- maybe on a one-off basis but it wouldn't be a broad consideration even as you build up the pipeline to fill that space back in?

No, I don't think so. I think it really is a function of -- to me if we could -- we'd do it on a one-off basis when it really made a lot of sense and we could replace the asset if we had a big pipeline there. But generally speaking, I don't think it's not a core business that we want to focus on.

Last question. Dennis made a reference in his comments that there could be some additional, I guess, fee income from JV development. Would those be in new markets or in existing markets when you take the whole Summit Camden portfolio together?

No, they'd be in our existing markets.

Is that more a function of just capital than it is projects? Or is it these larger projects that you would take some of the risk off?

It's really a function of -- joint ventures are a function of the potential dilution that we take when we put all of the development on our balance sheet. When you are leasing up a project, for example, take Harbor View as an example. Harbor View has been a dilutive transaction for Camden for the last two years. So our operating portfolio NOI or FFO contribution has been diluted by the lease up of Harbor View. When you start, if you look at our pipeline right now, we have roughly -- what do we have? $60, $70 million of developments on our balance sheet right now. When we ramp up $5, 600 million and approach $1 billion, the out year dilution during lease ups can be significant and in order to sort of try to dampen that or lower that potential dilution, we would do joint ventures in some assets. That's really the issue there. It's not so much capital because we can recycle capital to fund development. It's more about the on balance sheet dilution that you take when you are leasing up properties.

In terms of a percentage of the pipeline or thoughts of a number of assets, what are you thinking generally?

We're thinking, you know, $2 or $300 million maybe at most.

Okay. Fair enough. Thanks, guys.

Thanks, Dave.

Thanks.

And you have no further questions at this time. I'd like to turn the presentation back to Mr. Rich Campo for closing remarks.

Great. We appreciate everybody's participation in the call today. We'll talk to you next quarter. Thanks.

Thank you for your participation on today's conference. This does conclude the presentation. You may now disconnect. Have a great day.