Camden Property Trust (CPT) 2006 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Camden Property Trust second quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

It is now my pleasure to introduce your host, Ms. Kim Callahan, Vice-President of Investor Relations.

Thank you, Ms. Callahan, you may begin.

Good morning, and thank you for joining Camden's second quarter 2006 earnings conference call.

Before we begin, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them.

As a reminder, Camden's complete second quarter 2006 earnings release package is available in the Investor Relations section of our website at 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.

Good morning.

Camden's second quarter operating results exceeded our original expectations for the second straight quarter. The broad based recovery in the multi-family business continues to strengthen. Same property NOI grew at 8.7% over the second quarter of 2005. All of our markets produced increased revenue for the quarter and sequentially.

Camden's market balance strategy of focusing on geographically diverse markets that produce high growth in employment and population continues to produce strong NOI growth for Camden shareholders. Household formation has been strong, while new supply continues to be moderate. Consumers are worried about a single family housing bubble, along with rising home ownership costs which has led to an increase in demand for rentals.

During the last recession, we talked about the perfect storm for the apartment business. The current market feels like the perfect business environment, with high occupancy, increasing demand, less attractive home ownership, moderate new supply, and great demographics.

As a result of the strength in the market, we have increased our earnings guidance for the second time this year, based on our expectation that the market will continue to be strong going forward. Our on-site management teams have done a great job taking advantage of the opportunities in this market. Management does matter, and I want to thank each of our Camden shareholder management teams on-site for the great job that they have done and will continue to do.

During the quarter, we completed two development properties and added two new properties to the pipeline. We are making good progress on completing our developments properties at a very challenging cost environment.

Our construction and development teams have done a great job controlling costs and keeping our projects on time and within their original budgets. Leasing velocities and rates are on-track as well.

We continue to add new properties to our development pipeline and after the end of the quarter, we closed $144 million development joint venture with Onyx Real Estate Partners to develop 508 apartments in College Park, Maryland. We will continue to utilize joint venture structures to enhance our returns.

At this point, I would like to turn the call over to Keith Oden to give you a little color on operations.

Thanks, Rick.

Our comments today will focus on three areas. First, I'll provide some additional color on our operations for the quarter and year to date results. Second, I'll provide an update on our assessment of the Houston market, and finally, I'll provide an update on several new initiatives, which represent significant improvements to our residence leasing and living experience.

Overall, the second quarter continued the very positive trend established in the second half of 2005, with 16 of our 18 markets reporting positive NOI growth for the quarter and 17 out of 18 with positive NOI growth year to date. Revenue growth was a strong 7.5% for the quarter and while expenses were at the high end of our guidance for the year at 5.5%, we still expect full year expenses to be in the 4.5% to 5.5% range.

This resulted in a same-store NOI growth of 8.7% for the quarter, a slight decrease from our highest ever 10.2% first quarter growth. Underlying fundamentals continue to look very promising. We ended the quarter at 95.7% occupancy, with no single market below 94.5%.

Also, our lease percentage recently hit the highest level since March, which is a good indicator of continued strength. Another good sign is that sequential revenues were up in all 18 reporting markets.

Concessions for the quarter fell by $2.4 million from the first quarter to an average of 1.5 weeks. The remaining $3.9 million of concessions will burn off by year end, as no new concessions are being given in any market.

Historically, our second quarter sees the highest turnover rate and this year was no exception. Our net turnover rate for the quarter was 69%, which was up slightly from the 65% level in the second quarter of 2005.

Another positive sign of sustainable revenue growth is the increase in traffic at our communities, which was up 7% over the first quarter and up an amazing 28% over the second quarter of the prior year. Our high occupancy and lease percentage, coupled with the higher traffic levels, should allow us to continue pushing rental rates without sacrificing occupancy throughout the balance of the year.

We expect our percentage increases in revenue and NOI growth to be smaller in the third and fourth quarter, as we experience tougher year-over-year comparisons. In the last two quarters of 2005, the recovery in our markets was in full swing and we produced revenue gains of 5% and 7% in the third and fourth quarters respectively.

The strength and breadth of our markets remains impressive, with double-digit NOI growth year to date in Los Angeles, San Diego, Tampa, Southeast Florida, Charlotte, Orlando, Raleigh, and Phoenix. And despite an 8.8% NOI growth year to date, the market that we get the most questions about is our home town of Houston.

Undoubtedly, this is in part due to the uncertainty many investors feel about what has become known as the Katrina effect. A concern that is frequently voiced is that the influx of residents from New Orleans to Houston will reverse at some point and undo the initial positive impact. Although we've made the case repeatedly that we don't think this will happen, we thought that hearing it from a third party might help.

Our recent published analysis of the prospects for a sustainable recovery in Houston's multi-family sector by Reece included the following statement. "A recent survey by the office of Houston Mayor Bill White showed that roughly 50% of the Katrina evacuees, which used to remain in the city, 25% have indicated their intent to return to New Orleans and the remaining 25% are undecided. Oil company profits and expansion are creating new job opportunities. 74,000 in 2005, and 60,000 more anticipated for 2006."

"The apartment market, which experienced the sharpest improvement post-Katrina will continue to grow at a steady pace with another 30-basis point drop in--3-basis point drop in vacancy predicted in the same timeframe. While the influx of residents has certainly strained the city's infrastructure and service network, it appear's that Houston's multi-family and commercial real estate market will continue to enjoy the benefits of improved fundamentals for the foreseeable future. "

We agree wholeheartedly with this conclusion and our Houston portfolio is currently 96% occupied, despite solid rental increases. Next, I want to update you on several new initiatives that we are in the process of rolling out in our portfolio.

As of May 2006, all of Camden's communities are offering an online leasing option. This means that our prospective residents can go online and select a community, complete an application, receive a real-time yield star generated quote for the apartment of their choice, be screened and approved for move-in, without touching a piece of paper or involving a Camden employee. All that is required is that they execute the lease when they arrive for move-in.

In June, the first month of availability of this service, 10% of all of our leases were executed online and we expect this number to grow significantly over the balance of the year. Next, we have just completed and online payment pilot on three communities.

In two of the pilot communities, after only two months, 14% of the residents took advantage of this option. We are proceeding with the rollout to all Camden communities, with a target date for completion of September 30th of this year.

We are constantly seeking new ways to serve our customers and deliver on our promise of living excellence. Online leasing and rental payment are the latest examples of this commitment.

Finally, I want to introduce you to our most recent resident service, which we have branded as the Perfect Connection. The goal of this program is to provide expanded basic cable TV service to our residents at a discount to the market rate available from the local cable provider. In addition, the Perfect Connection provides an always-on cable signal for our residents, which eliminates the hassles and expenses associated with cable installation.

Here's how it works. Camden purchases bulk service from the underlying cable provider and the resident pays for this additional service in addition to their monthly rent. At the majority of communities, the program also provides one complimentary HBO channel at no additional cost.

Our recent implementation of yield star or yield star revenue management system provides us with a tool to ensure that rent plus cable pricing will never devolve into cable-included pricing. Residents have the option to purchase upgrade services directly from the underlying provider at a prorated price.

All new and renewing residents are required to participate in the program. Existing residents are strongly encouraged, but not required to participate because existing leases don't include cable charges. Upon lease renewal, residents are required to participate.

As of July 14th of this year, the Perfect Connection is currently available at 46 Camden communities, including approximately 17,000 units. With approximately 8,000 residents already participating in this program.

The benefits to our residents include no installation fees or deposits, and in some cities this could cost up to $300 and reduced monthly costs, which provides in some cases, for up for $300 or more in annual savings from the current cable providers. And finally, no waiting on cable installations.

We have 41 communities that are scheduled to transition to the program in 2007 as existing cable agreements have or will expire in 2007. These communities will bring an additional 15,000 residences to the program, bringing the total to 32,000 residences.

The balance of our apartments will be added upon expiration of existing agreements, and we have estimated the profit from the initial 32,000 apartments in the program to be in the $6 million per year range once they are finally--once the transition is made and it's rolled out, or approximately $0.10 per share.

We're very excited about the prospects for this new program, not only the benefits that it provides our residents, but the financial benefit that it provides to Camden.

At this time, I'll turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith.

My comments this morning will include additional color on our second quarter results, 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.

Beginning the second quarter results, we reported FFO of $53.4 million, or $0.89 per diluted share for the second quarter, toward the upper end of our previous guidance of $0.85 to $0.90 per share and $0.01 above the first call mean estimate.

These results reflect better than anticipated performance from our operating communities, as Keith just discussed, an $810,000 gain on the sale of land adjacent to one of our predevelopment assets located in College Park, Maryland, and a positive variance of 2.3 million in other income, resulting from earnest money forfeited by potential purchasers of Camden Live Oaks in Tampa and a land parcel in Miami.

These positives were partially offset by higher than anticipated other expenses as follows. Property management expense exceeded our forecast by approximately $600,000, due to costs related to regional management personnel relocations and higher incentive compensation costs resulting from our improving performance.

$We expect our property management expense to be between $4.3 and $4.5 million per quarter for the remainder of 2006. Fee and asset management expense was $2 million higher than anticipated, due to cost overruns and warranty costs related to our third party construction activities, and G&A expense totaled just over $8 million and was $1.1 million higher than anticipated.

This unfavorable variance is primarily due to higher legal costs related to potential transactions, and miscellaneous human resource and insurance matters, higher incentive compensation accruals resulting from our improving performance, and slightly higher audit costs.

We anticipate our G&A expense will be between $7.2 and $7.5 million per quarter for the remainder of 2006. The only additional item of note in our second quarter results is that we recognized a gain of $23.7 million on the disposition of Camden Pass in Tucson, marking our exit from that market. Camden Trails in Dallas and Camden Wilshire in Houston.

For the first half of 2006, we have completed 90 million in dispositions of 20-plus-year-old assets at an average cap rate of 5.4%, assuming a 3% management fee and actual capital expenditures, resulting in an IRR on our investment of 11.2%.

For the second half of the year, we expect to close on between 100 and 300 million in additional dispositions. We expect proceeds of between $55 and $60 million on the three operating assets held for sale at June 30th. Camden Oaks in Dallas, which closed in July, and Camden Crossing in Windham in Houston, which are expected to close in the third quarter.

The remaining 40 to 240 million in potential dispositions will be focused on reducing our exposure in St. Louis, Louisville, Kansas City, and Greensboro. We continue to find the acquisition environment very challenging, and we're having difficulty finding assets at suitable yields.

No acquisitions were completed in the second quarter. However, in July, we completed the acquisition of Camden Stoneleigh, a 390-community home in Austin, Texas, at a cap rate just above 5%. For the last half of 2006, our acquisition volume should not exceed $100 million.

Moving on to the liability side of the balance sheet, the only item of note for the second quarter was our issuance of 3.6 billion common shares in June. The $255 million in proceeds from this issuance was used to reduce balances outstanding on our secured line of credit, will provide permanent capital to fund our current and future development activities, and strengthens our balance sheet and coverage ratios. Additionally, this issuance was accretive to our 2006 FFO, by $0.01 to $0.02 per share.

At June 30, 2006, our debt to market capitalization was 35.2%, only 14% of our debt was floating rate, and 83% of our real estate assets were unencumbered. We are currently not forecasting a debt issuance for the remainder of 2006, as availability under our line of credit and net disposition proceeds should be sufficient to fund our development activities and the 125 million in debt maturities for the last half of 2006.

As Rick mentioned earlier, we have raised our 2006 full-year FFO guidance to $3.60 to $3.75 per diluted share, increasing the midpoint of the range by $0.075 per share. This represents a $0.125 increase over the midpoint of our original 2006 FFO guidance that we issued in February. And is mostly attributable to better than expected performance from our operating properties.

Our revised full year guidance range is based upon the following key assumptions. Same property NOI growth of 7% to 8%, derived from revenue growth of 5.75% to 6.75%, and expense growth of 4.5% to 5.5%.

G&A and property management expenses of approximately $11.5 to $12 million per quarter for the remainder of 2006, new development starts of $150 to $200 million to be announced later this year, primarily in a joint venture structure.

Second half 2006 acquisition volume of $35 million to $100 million, and disposition volume of 100 to 300 million, with a 150 to 200 basis point negative spread between acquisitions and dispositions. And a $4 to $5 million per quarter amount of land sale gains expected in both quarters of the--both the third and fourth quarter.

This guidance is based upon potential sales where we have contracts in place and committed earnest money, and includes 2.1 acres in Long Beach, 4.5 acres in Dallas, and 1.7 acres in Fort Lauderdale.

Our FFO guidance for the third quarter of 2006 of $0.93 to $0.97 per diluted share is reflective of continued strength in property operations, offset by slightly higher seasonal expenses. The third quarter guidance range includes $0.06 to $0.08 per share of anticipated land sale gains.

I would now like to open the call up to questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question comes from the line of Mr. Ross Nussbaum with Banc of America. Please proceed with your question.

Hi, everyone. Good morning.

Good morning.

I just want to clarify, just to make sure I understand the guidance for the second half of the year on the same-store revenue line.

If I look at the 5.75% to 6.75% for the full year guidance and look at the first half performance of 7.9%, if my algebra is right, that's implying that the same-store revenue growth in your guidance slows to about 4.5%.

Is that-- is my math roughly right? Is just the tough comps that's going to cause that slowdown?

Are you reconciling to the middle of the range in your math?

Yeah.

Yeah, that's, that is correct for the guidance, and the real issue there, Russ, is that the--if you go back to the third quarter of last year, our revenue growth in the third quarter was about 5% and in the fourth quarter, it was up 7%.

So the third and fourth quarter of last year, I mean from--in our portfolio, the recovery really was in full steam in the last half of '05. So as you roll those numbers forward, for example, in the fourth quarter, you go back to 7 last year at the midpoint of the range that you're talking about, is in the 4% to 5% range, those two combined would put you at 12% over a two-year period. Then that's a pretty good day's work in this business.

Right, okay. Second question. On the cable program, I may have missed this, but I'm assuming it's profitable for Camden. What's the spread between what you're paying the cable company per unit and what the--what the tenants are paying you?

It depends on every one of them is negotiated separately. There's two pieces of it. It's the discount from the cable providers. Those are all negotiated separately.

And really don't want to give any details about what those are, but second--the second piece of it is what the market--what we deem as the market clearing price for a mandatory cable take program at each one of the communities, and just--the numbers, I think that would be easiest for you to work towards would be at the portfolio level, what is currently rolled out and what will be rolled out in 2007 represents about 32,000 apartments, and we've estimated that the net--the net contribution to Camden of the residence payment minus the underlying payment to the cable provider, plus all Camden G&A and overhead expenses associated with the program would be in the $6 million range, or about $0.10 a share.

And is this taxable?

Based upon the state, there is some tax considerations, that's correct.

Okay. So that's $0.10 pre-tax?

Yes.

Okay. Then final question, I think I heard you mention there were some legal costs in second quarter G&A associated, I think with, you said some acquisitions. Were those single property acquisitions that didn't go through or was there some corporate transactions that didn't go through?

It was more of development joint ventures and costs relating to those transactions.

And those are not necessarily they haven't gone through. They are just costs that have to be expensed periodically, so bottom line is we're still working on those--those joint ventures and will most likely close them.

Thank you.

Thank you. Our next question comes from Mr. Craig Leupold with Green Street Advisors. Please proceed with your question.

Good morning. Rick, can you comment on--I know Dennis was saying some of your--more of your starts this year will be JV starts. I'm kind of curious, why do development JVs, if as Keith said, these are perfect business conditions, I think it was Keith, maybe you said that, but just curious as to the decision to do JVs as opposed to go at your own on development.

Sure, I think there are two things.

One is that you're trying to enhance overall returns with the development, and development, when you put all the development on balance sheet, the dilution from development can be significant. So what we're trying to do is balance the dilution side of the equation.

We're trying to balance the debt on our balance sheet, and we're trying to enhance returns. The other thing we're also trying to do is we're trying to mitigate risks to a certain extent as well.

The College Park JV, for example, is 508 units, it's a long development cycle because of the type of property that's being developed. It's a $144 million project. So we just felt that it was better on that particular deal, for example, to use--to do a joint venture so that we could mitigate some of that sort of development risk that is stretched out over a 36-month timeframe.

When you have big projects like that, the dilution is significant because you have a 508-unit project, if tou're leasing 30 units a month, which is a very good clip, by the time you get through the first year, you're going to start having turnover in the existing leases that you already did and so it just takes a lot longer and more costs associated with that that you have to sort of write off.

So I think the balance between keeping the development for ourselves versus enhancing the returns by getting a promote in earning fees, mitigating the risks and mitigating the dilution makes sense. Now, we aren't doing it--we're not going to do that--do joint ventures on everything, but we will do joint ventures on some.

All right. Keith, maybe could you comment on--clearly Phoenix, Orlando, Tampa have been very strong markets for you. A lot of that, I guess, stemming from the amount of supply that's been taken out of the market through condo conversions and maybe Vegas to a lesser extent.

How do you expect those markets to play out? I mean what's your outlook for those over the next 12, 24 months, and given the slowdown that we're seeing in the condo market?

Craig, I just think that with the exception of possibly South Florida, the inventory that's been taken out due to the condominium conversions is--I just don't see that that's been a big part of the story because if you look at the results across all of our markets, even when there's been little or no condo activity and you look at them on a year-over-year basis, there's enough going on just on the job growth side of these markets and the relatively constrained supply, certainly by historical standards, that I just think we're in for a period here, irrespective of what plays out on the condo side of things that we are going to continue to see very strong performance across these markets.

I think the thing that is probably of all the things that we look at and track very carefully, the level of traffic in our portfolio across the board is significantly up over where it was this time last year, and you're talking about a portfolio that right now is in the--we're still running, bumping up against 96% occupied coming off of the strongest period of rental increases that our company's ever seen, and there's just no--there's no weakness that we've experienced yet.

And I just think that it's very likely to continue, maybe not certainly at the 7%, 8%, 9% revenue growth rate, but by historical standards, I look at the next 18 to 24 months as being very constructive.

Okay, and then just kind of two more detailed questions for Dennis. You mentioned that the sales cap rate was 5.4%. You said after actual CapEx of 3% management fee.

Correct.

What is the actual CapEx, either on a per unit basis or however you could quote it?

For the 90 million that we sold, the actual CapEx was right around $750 a unit.

Okay, and then on the cable, is any of that--was any of that in place during the second quarter and is it by the end of '07 that you expect to have kind of this $6 million annually hitting the bottom line?

There was some contribution in the second quarter, Craig. It's not a huge number yet.

On a run rate basis, it was probably in the June month, it was probably in the $150,000 for that month, but the second part of your question, which is the rollout and stabilization, it depends on when the cable contracts expire in '07, but we're able to, we're able to turn pretty quickly from--from the current provider and our experience has been even though we cannot require existing residents to take it, that a very large percentage of existing residents are taking it, because they are converting because they are paying more to the underlying cable provider for the current service.

The question is, it's kind of like the folks who are not--do not have cable currently and do not feel a reason or a need to convert because the economics aren't there. We have to wait until their lease rolls and then we'll do it on renewal. But I think that in terms of the rollout of the stabilized income of the $6 million, we'll be at a run rate of $6 million by the end of '07.

Great. Thank you.

You bet.

Thank you. Our next question comes from the line of Mr. William Acheson from Merrill Lynch. Please proceed with your question.

Thanks. On the perspective land sales, did you say you had contracts on those parcels?

That is correct.

Okay, and it's 2.1 million Long Beach--2.1 acres Long Beach, 4.5 in Dallas, and 1.7 in Southeast Florida?

That is correct.

Okay. So that would be midpoint of the expectation, a little over 4 million in profit over book value that would be required on 8.3 acres. That would be something like a profit of a 500,000 per acre over your book value. That's pretty substantial.

Yeah, the biggest piece of that's going to be related to our Long Beach land.

Okay.

Which is 2.1 acres and has a substantial cost per acre in it.

All right. What was the end of period occupancy as compared to the average? We have the average.

We were at 95.7 at the end of the period. The reporting period for the quarter?

Yeah.

We were 95.7.

So it was the same as the average for the quarter?

The average for the quarter would have been slightly less than that.

Okay. Regarding condos coming back as rentals, Southeast Florida, Vegas, DC, Phoenix, what do you have in terms of intelligence there?

You mean condos that have been sold to investors coming back at rentals?

Yeah.

Again, it happens and we know that there's anecdotal evidence that those, some percentage of those do come back as rentals from investors, but we just haven't seen any negative impact in any of those markets from that phenomenon.

In Las Vegas, for example, there have been--you sort of have two categories. Ones that people have converted to bought projects, and they haven't sold any units at this point and they have sort of moved people out, getting units ready to be sold, and some of those properties have started leasing again, and then you have the categories of sort of half sold, half unsold, where some of the investors are trying to sell.

In the case of--we've seen properties just in those two categories come back into the market, but I think as Keith points out, the markets are just strong enough to absorb that inventory. I think the other piece of the equation is that a condo converter, or an investor that owns a number of units are very ill equipped to compete in the marketplace. They don't have the kind of infrastructure from a leasing perspective. They don't have the rental structure and so forth.

So they are not incredibly competitive, especially the fractured condo deals, but at the end of the day, I don't think there's--there's so many sort of busted condo deals, if you will, in any of these major markets where it's going to add tremendous inventory and create some big downturn. I think the big issue is going to be what does job growth do and how does the economy fare?

We saw the job report this morning was lower than expected. We have in our models a slowing down of job growth for '07, but not a stopping of job growth or negative job growth or anything like that. So I think really the state of the economy is really the big issue with respect to the strength in the markets and the future as opposed to condo conversion inventory coming back.

Okay. Did you guys mention the development yields on the current pipeline? Was there a change from the first quarter?

We didn't mention it, but I will. There hasn't been a change from the first quarter. Our development pipeline is on average 7% to 7.5% yields, and some of our yields have gone up as a result of increasing rental rates and positive market conditions.

The predevelopment pipeline is closer to 7 than 7.5. But that--that's a function of construction costs, pressure and so forth. But right now we feel real good about our development pipeline and while it's very challenging cost wise our guys have just done a great job battling back the cost increases.

Okay, and it looks like you didn't source any new development deals on balance sheet. I guess that gets back to what you're talking about, trying to spread out the risk and the dilution associated with that. That's correct, right?

Well, we started two new developments that are on balance sheet, and what you don't see there, Bill, is that the predevelopment pipeline is not on balance sheet and we have contracts on land in various markets and we're working on various transactions and from a predevelopment pipeline perspective, we're adding properties on an ongoing basis.

We have very active development process in most of our major markets. So we're on an ongoing basis, adding to that pipeline, but it's not necessarily on balance sheet yet.

Yeah, I guess maybe I wasn't clear there. The amount of money in the predevelopment pipeline went down by the exact amount that went into the in-construction pipeline, so--

We haven't closed any new land, but we do have predevelopment development transactions under contract, or in option positions where we--and we've added some of those in the last quarter or two.

So I guess we should call that shadow predevelopment.

Yes, shadow predevelopment, right.

Then just a couple of--just book keeping here. Other property revenue was up 1.1 million sequentially. Anything unusual in there?

No, it's nothing unusual, just normal activity, high summer month activity of new leasing. So it normally spikes in the second and third quarter.

Okay, and then last question, the expense of deferred compensation, I guess that goes back to the performance you've been getting. Is that a good run rate, though, for the quarter?

What you have to realize is on our income statement, we have two line items. One in the income section and one in the expense section.

Yeah.

And that represents the earnings on our deferred comp plan. The income is recorded on our books because of the plans are open to our creditors, and the expense will always match it and that is really the compensation expense that is then attributed to the participants in the plan.

So it's perfectly hedged, but the SEC came out and said because of the fact that it's open to creditors, you have to show both the income and expense relating to the deferred comp plans.

Okay. I got it.

It's not a cost to the Company.

Okay. Thank you.

Bill, just one follow-up to your question on other property income, because it's important for people to track going forward, is we--that would have included some of the impact of the cable program in the second quarter.

It's probably a couple hundred thousand dollars for the quarter, but as that grows, it will become much more meaningful and visible and that's where it will show up, is in other property income.

Okay. Got it. Thank you, gentlemen.

You bet.

Thank you. Our next question comes from the line of Mr. Mark [Bifford] with Goldman Sachs. Please proceed with your question.

Hi, guys. Great quarter. Couple quick questions on, first, the supply you see coming into DC.

I was just wondering if you're noticing an increase in supply due to a lot of the condo guys leaving the market, if you're seeing more income buyers come in and then also to the construction costs in that market, are you seeing any weakness in the construction costs?

I would say that in terms of new buyers coming in, there really--there hasn't been any major movement in new buyers coming in. Now, there's a lot of buyers in the market.

There's still lots of capital, and even though the condo bid is interesting because there are still condo bids out there, but they are far and few between compared to what they were, and the condo bid, I think was sort of an aberration, being able to sell at 3 cap rates.

You do have a lot of competition at sub-5 cap rates by financial institutions, pension funds, and that type of folk, but bottom line is there isn't a slowdown of that capital at all. So the sub-5 cap rates, 4s and some change are still very, very active out there. You're probably not going to see the 2s and the 3s, but you're definitely in the 4s with the type of buyers.

As far as construction costs go we haven't seen any weakness per se, but we have felt more of a stabilization, and it's hard to imagine having--when you think about construction costs in the last four or five years have gone up in DC probably 70%, and that--that's the biggest cost increase and spike than we've seen in a long time in those markets.

But we're sort of feeling like the markets are stabilizing and perhaps are going to, in terms of construction costs, and perhaps they are going to go up sort of at a more nominal inflation basis as opposed to the 7% to 10%, 12% spikes we've been seeing.

Okay, and related to the joint venture, decision to do joint ventures, is that because of the markets that you're choosing to do these joint ventures in? I saw you did one in Maryland. Are you looking at Northern California, New York, any of those markets to do joint ventures in?

Well, the joint ventures that we're doing in this case are joint ventures--properties that we're developing and since we're not developing in Northern California yet, or New York, we probably aren't going to be doing joint ventures there. To the extent--at some point we may enter in those--enter those markets through joint ventures and it's clearly a way to mitigate risk.

If you go back to our entry into Washington DC, the first project we did was a joint venture to sort of get our feet wet, if you will, into that market. But right now we don't have any concrete deals or anything like that for those markets that you described.

Okay, and lastly, in regards to redevelopment, are you planning on expanding--you had mentioned on the last quarter that you had 15 properties you were looking at doing redevelopment on. Is that going well, and then do you plan on expanding to some of your other assets that are older assets?

We are--we've actually narrowed that list down to about 12 communities. Total dollar commitment is about the same, about $37 million. I think we talked about 35 million in the first quarter.

We're pleased with--we're pleased with where we are right now, and we are going to--we're going to sort of do these and prove up the rental increases, and we do that primarily by doing on the scope of work that we anticipate doing, we actually go out and convert a couple of the units and then test the rental increases when we are in the process of doing that on those 12 communities as we speak.

We'll see how this goes and then obviously these are the communities that we felt had the best potential for this kind of redevelopment.

Okay. Thanks.

Thank you. Our next question comes from the line of Mr. Lou Taylor from Deutsche Bank. Please proceed with your question.

Hi, good morning. Congrats on the quarter.

Keith, can you talk a little bit about the traffic in terms of where is it coming from? Is it the same people looking at units or is it more people, and what do you think is driving it?

There's two things. One is there is just better underlying demand fundamentals in our business the folks who maybe a year ago were only considering a home purchase are now considering rental as an option. I think that helps.

The demographic trend is clearly coming our way and will be for the next four to five years as the echo boomers come online. But I really want to also acknowledge the fact that we have a very, very aggressive outreach marketing program that we started about four years ago, and it is just part of our culture.

We--our community managers, district managers, work their tails off on generating traffic that historically was just not the case in this business, and so we are very engaged in that. It's a--it's something that we monitor very carefully and I would just--I do believe that we are seeing the fruits of several years of focus on outreach marketing in our communities.

Okay. With regards to single-family home moveouts, how did that trend during the quarter?

We ended up the quarter at about 20%, basically flat with where we were last year, or last quarter. We were at a little over 19%. I still think, though, that, Lou, our all-time high on that stat was about 23%.

We've been as low as 14%, 15%, and I just think that with all of the things that Rick mentioned earlier in his comments and the head winds and the single-family business, that we are going to see that trend back towards 16%, 17% in our portfolio. It wouldn't surprise me to see that happen over the course of the next 12 months.

Okay, and then for Rick in terms of the land sales, why are you selling the land?

Well, land sales are a function of a situation where we have not been able to make the numbers work from a development perspective, because clearly when we buy land like in Long Beach, we bought 10 acres and we developed the first major project on that 10 acres and then we sold one of the tracts. Now we're selling the others.

Our guys would much rather build a development on that land than sell it, but same thing goes for the Southeast Florida site, but when you look at construction costs and you look at rental rates and you do the math you can get some solid 3.5% to 4.5% cash on cash going in returns on really high rents. And so just the risk-reward relationship of building those projects just doesn't make sense.

Then when you look at it and you say, okay, I've got a basis in the land that allows us to take a big profit and we don't think that the construction costs, or the rental rates are going to get to the point where we can make those numbers work in the next two to three year sort of timeframe, then you decide to sell the land.

Okay. Then last question, Dennis in terms of your land sale gains, I missed it when you went over that. What is the expected second half contribution?

Total land sales will be somewhere between $8.5 and $10 million.

Great. Thank you.

Thank you. Our next question comes from Mr. Jonathan Litt of Citigroup. Please proceed with your question.

Hi, it's Craig Melcher here with John. I just had to follow up on the land sales.

Is it safe to assume that these are condo developers buying this land, if you couldn't make it work as apartments, or are there apartment buyers also looking at this land?

They are either condo developers in the case of Long Beach, and in Southeast Florida, it's an office developer actually.

And then in Dallas?

In Dallas, the Dallas is likely to be town home developers or condos, not high rise, but sort of low rise town house developments.

Okay, and all three of those, are those expected to close in the third quarter?

Either the third or the fourth.

Okay. Where does the cable income show up? You went through what line it showed up in, but does that show up in the same-store revenue results?

Yes, it will.

Okay, and just a question on the revenue growth you saw this quarter, maybe--what was the impact, did you say, from yield star on the overall revenue growth?

In the first quarter, we gave kind of our guidance for what we thought the full year would be as a 1% to 2% contribution. I think it's still in that range.

Okay. Thank you.

You bet.

Thank you. Our next question is from the line of Mr. Richard Paoli with ABP Investment.

Hello?

Hello, Rich.

Hey, guys, how's it going?

Good.

Couple questions. I hate to spend so much time on a small part of the business, but on the cable, couple questions. One, are you going to be taking any possession of the hardware I guess the cable boxes? That's question one.

No.

Okay. So the cable company will be delivering those or something and they will be responsible for those?

Yeah, the only way--the only cable box that would be required would be where a resident wants to have an upgraded service, have the full range of--

DVR, all that?

Yeah, and all that. In that case, they contract separately with the cable provider and that business is theirs, not ours.

Great.

We are only in the bulk--we pay for the bulk signal. We collect from our residents the cost of a monthly basic package, plus we throw in one HBO channel for free. But, no, we are not in the cable business in any shape, form or fashion.

Right. Okay.

And then secondarily, where is this, the pricing of this, or at least where do you contemplate pricing versus those ugly satellite dishes that are kind of popping up in all the apartment communities?

Well, the pricing versus satellites, is that the question, Rich?

Yeah.

Well, it's all over the board on the pricing because it depends on what deal you get. But if you strip out all of the give-aways and the one-time sign-up issues, most satellite providers are still going to be, for basic service, are still going to be in the $60 to $70, $50 to $60 per month range once you strip out all the freebes.

On basic cable service, you are still just south of that. You're in most markets, you're at--in the low 50s for, high 40s, low 50s for basic service and we are--one of our advantages is we are going to sell at a discount to that.

How big the discount is depends on really the--our view of what the market clearing price for a 95% occupied condition for rent plus cable is per community and that varies by every community.

But just to give you an idea, the range in our portfolio right now, the 16,000 units that we have rolled out on the high end, it's $45 a month. On the low end, it's $30 a month.

Okay.

And we make really good money at either one of those numbers.

Got you. And one other question on the cable and then I'll move on to something else. But at least in the Tri-state New York area, lot of the cable companies are rolling out with what's called the triple play, which is cable modem, cable television, and then the telephone, cable telephone.

Is there an opportunity for you guys to capture more share of that with some type of product like this?

It's not part of our current arrangement, but obviously if those come available and our underlying provider wants to make that available, it's something we would look at. The problem right now is that we just don't have the high speed access available in enough of our communities to make that work.

That's because the cable provider's not providing it?

That's correct.

Got you.

But if it does become an option, then it's certainly something that we would look at. The cable providers have been very reluctant to--the cable signal itself was getting them over a pretty major hurdle. The other things have been a little bit even more reluctant to talk about.

But the problem that we face and everyone else faces, with regard to--and the reason that led us in this direction, one of the reasons was cable companies on renewals are less and less likely to do any kind of a meaningful revenue share, and revenue share had gotten to be a pretty significant piece of our other property income, as it has with a lot of other people.

And as these cable providers, as the contracts expire, I think, I think unless companies come up with a different approach, and this is certainly a different approach, they are going to see that number continue to be whittled away by the cable providers.

Got you. Okay. On another--I hope I'm not dominating, but a couple quick other questions.

What is the sequential revenue and NOI growth expected to be going to third and fourth quarter? Because you're talking year on year decelerating, but that sort of comps. Are you expecting any deceleration from the pace of the first half?

Sequential revenue for the next two quarters. I think it would probably be easier to talk to you about, I think somebody went through the math earlier on the guidance and what that implies for the same-store results and revenue results for the balance of the year.

And I think that that math is correct and how that would work through on the sequential, I can get that and get it back to you separately, Rich. I just don't have that in front of me.

Sequentially the revenues should increase because the market is continuing to do well. Occupancy is high and we're driving rent. So you would expect that sequential revenue should increase.

Now, do they decelerate--clearly deceleration of same-store results when you compare them to previous years will decelerate because you have such strong quarters in the third and fourth quarter of last year, but I'm not sure that sequentially it should decelerate much because we're going into a real strong leasing season in the third quarter and with high occupancy, and maybe generally you usually have a slow down in the fourth quarter seasonally, but we didn't have it last year and we'll see what happens this year.

No, Rich, I'm sorry. I misunderstood your question. I thought you were talking about sequential--the year-over-year sequential progression, like we did on the same-store on the revenues.

Right.

Absolute numbers, third quarter will be better than the second quarter and fourth quarter is historically flat or slightly below third.

Right. Okay. That's basically where I was.

Absolutely. I'm sorry.

-- going with that. Then one other quickie.

How long did the assets that you sold, the $90 million worth, how long did Camden own those and did you develop those, or acquire, maybe a little bit of both?

Let's see here.

Of the 90 million, the average--I mean the average age, the average year built was 1980.

Right.

And we would have acquired them in the early '90s.

They were all acquired.

Yeah, they were all acquired and when you look at some of them like Wilshire Trails, Pass and View, Trails was part of Paragon, Wilshire was acquired in the pre-IPO days, if you can imagine that.

Mm-hmm.

Pass and View were in Highlands--I think Highlands and Trails were Paragon assets, and View, Pass and Wilshire were original IPO assets that we bought in, like, 1991 or '90, or something like that. When you look at the IRR's that we discussed, the 11.2%, that's--that IRR over a 14-year timeframe is incredible.

Right.

Great. If you did a leveraged IRR, it would be in the 20s.

Thank you.

Sure.

Thank you. Our next question comes from Mr. Rich Anderson of BMO Capital Markets. Please proceed with your question.

Thanks, and good morning, sort of. Aren't you guys talking about the fact that you have already peaked in terms of revenue growth?

No.

You're beyond peak in revenue growth?

No.

If you're saying you're over your comparison's it's going to come down in the second half, I mean aren't you beyond peak levels of growth, then?

No, because when you--on an absolute basis, the revenues will increase for the third quarter. The difference is if you are looking at it quarter-over-quarter over the prior year, we had a 7% revenue growth in the fourth quarter of last year.

Right. So you're going to do less than that on a go-forward basis?

I mean I'm just saying peak levels of year-over-year growth, not absolute numbers. I'm talking about peak levels of absolute--of growth, year-over-year growth has occurred now with Camden.

Yeah, I think you have to look at--it depends on what base you're growing that off of.

Okay. All right.

Anyway, with regard to the development JV's, just remind me, how are they structured? Do you have like a 20% equity interest or how do they work?

We have a 30% equity interest. The developments are capitalized with 10% or 12% equity, which we have 30% of, and then we provide a 15% mezzanine financing on top of that equity and then there's a construction loan under that.

Okay. With regard to--let me just make sure I understood. The land, the 810,000 of land sales, that wasn't in your expectation, nor was the earnest money that you earned in the second quarter, is that correct?

That is correct.

And it was offset by the management expense being higher and fee expenses being higher, and G&A being higher?

You have that correct also.

Okay. Just wanted to make sure I understood that.

Yes.

But other than that land sale gain, you are on-track with what you expected for land sales for your original guidance for '06, is that correct?

We are.

You're not expecting any more than you thought except for that 810?

At this point, we're not forecasting any more than our original guidance.

Okay. Then last question is on the topic of College Park, which Maryland is my alma mater, so fear the turtle.

Go turps.

I was wondering if you were considering any student housing bent to this transaction.

We think that we'll have some students there clearly, but the project is not a "student housing". Clearly the proximity to College Park and the proximity to the university is part of the demand driver that pushes those markets, but it's not--it wouldn't be a student housing style deal where you would rent bedrooms instead of apartments.

Okay. So it's conventional, but you probably have a few students?

Conventional, probably have a few students.

Okay. Will you be targeting university areas?

You mean for future development?

Yes.

I think that when we do developments, we target the macro sort of economic part of the market and if it happens to be universities in the area, that's fine.

But we--the student housing business is a different business and we don't necessarily--we're definitely not going into university towns and building student housing in the traditional sense.

But clearly we have projects, for example, like in Austin, Texas that, are in close proximity to the University of Texas and you get a fair number of students in those properties. But that's more just a general market drivers within the submarket that we're targeting.

Okay. Thanks, guys.

Sure.

Thank you. Our next question comes from the line of Mr. Jim Cowan with Morgan Stanley. Please proceed with your question.

My questions have been answered. Thanks.

Thank you. Our next question comes from Mr. Alex Goldfarb of UBS. Please proceed with your question.

Good morning. I realize it's a long call, so I'll be really--I'll try to be as quick as I can. Are you guys considering any future large land track purchases, is that something that we should expect?

We--that's a good question. I've challenged our development people to do large land transactions. They are very, very--usually if you buy them properly, it's a great business.

The challenge is that it's been a very competitive--I think the good news is, with the condo sort of bloom off the rose and single-family home building slowing, it allows us to be more competitive.

I mean there were tracks that we couldn't, couldn't even get a bid in because the condo guys were so much higher than us and they are slowing down at this point. So we would like to do more large land transactions and our guys are out there scouring the woods, trying to find them.

So you think we may see something you guys take down the next 12 months, or it will longer than that?

It's hard to say. Deals like that are hard to find and we are looking, but it's hard to predict.

I would like to be able to say, I have a big deal I'm going to do tomorrow, but it could happen, but it's one of those situations where it's hard to say.

Okay, and then further continuing on the land sales, this year obviously you're generating a fair amount of land sales up to, sounds like up to 10 million.

If we look at the street's estimates for next year, it implies a certain amount of that continuing on. How comfortable are you guys with your ability to deliver on this amount of land sales year in and year out?

We're not commenting on future guidance for sure, but if you generally look at historically, we have generated outside income, either through joint ventures or through land sales over the last five or six years and have not had a significant problem in generating that kind of income.

And so at the end of the day, you never know what's going to happen in the future. But we understand the expectations of the market and we try to make sure that we generate income.

Okay, and then the final question, just goes back to the--touching on entering new markets. You guys have spoken about entering Northern California. So I just want to see how that's going, if you are finding anything that's attractive?

Then you mentioned New York. I wasn't sure if that was a passing comment or if you were actively considering the New York market.

We have looked at, over the years, trying to enter a couple of markets like New York and Northern California. Fortunately, we abandoned an effort to enter Northern California right around 2002 and 2001, which is pretty fortuitous, right at the peak of the market there when the tech bust, so we haven't been able to get the right entry point into that market.

If we're able to find the right entry point, we might be in those markets. But I would say our key focus right now is building out a multibillion dollar development pipeline and to the extent we can find a good entry point, we might be there.

Thank you.

Mm-hmm.

Thank you. We now have a question from the line of Mr. Craig Leupold with Green Street advisors. Please proceed with your question.

One last question, Keith, on the cable contracts. How long are your bulk contracts for? What's the duration of those?

It depends with the underlying providers, but we have arrangements that go out far enough to where we are comfortable with our with our ability to deliver that service.

Every one of them's negotiated differently, Craig. They are generally three to five years.

Okay, great. Just from an accounting standpoint, in the other revenue line, that's the net impact, or the net after-tax profit of this business?

That is the net effect, yes.

Thank you.

You bet.

Thank you. Our next question is from William Acheson with Merrill Lynch. Please proceed with your question.

Thank you. My question was answered.

Thank you. Our final question comes from Mr. Richard Paoli with ABP Investments. Please proceed with your questions.

Hey, guys, I'm back again. Just a little bit of a redirect on the question about rent growth peaking.

Maybe you can help explain how much in the fourth quarter of last year was just to recapture of concessions and then the occupancy growth as opposed to what I interpret as this year, as real true rent growth with flat occupancy?

Yeah, Rich, I don't have the breakout. I know, though, that in terms of the--

More in general, maybe.

There was a big occupancy pickup in the fourth quarter, third and fourth quarter last year.

We can--in the third quarter of--yeah, we had about an 8/10s pickup in the--occupancy pickup from second to third quarter of '05 and then another 2/10s in the fourth quarter. So some it was in occupancy pickup.

But during that timeframe, we were absolutely burning off a lot of concessions because our--most of our markets, not all of them, but most of them had really entered a period of time in the third quarter when we were pushing rent.

So when you're pushing rent, you're absolutely not granting additional concessions so that would be a big part of the story there.

Great. Thanks.

You bet.

Thank you. Ladies and gentlemen, there are no further questions. I would like to turn it back to Mr. Campo.

Thanks for joining us on the call. We appreciate your time and attention and we will see you at our Las Vegas property tour coming up in the fall. Thank you very much, and good-bye.

Thank you, ladies and gentlemen. This concludes today's conference. You may disconnect your lines at this time.