Camden Property Trust (CPT) 2006 Q3 法說會逐字稿

Greetings ladies and gentlemen, welcome to the Camden Property Trust third-quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder this conference is being recorded.

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

Good morning and thank you for joining Camden's third-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 belief. 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. As reminder Camden's complete third 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. Before we get started I want to make sure that everyone on the call understands that management did not pick the preconference music. We would much rather have the Rolling Stones or Led Zeppelin, but we will try to do better next quarter.

We had a very busy quarter. A strong core portfolio, operating performance reflected the continued strength of the apartment markets that we operate in. Same property NOI grew 8.1% over the third quarter of 2005. Same-property revenues and expenses were up 7.6% and 7% respectively for the quarter. The combination of strong market conditions and the great execution by our on-site management teams produced an industry-leading 9.4% same-store net operating income growth year to date with 8% revenue growth.

Our strategy of market balance and the use of cutting-edge operations technology has been clearly -- supported these strong operating results. We believe that a diversified property portfolio located in markets that experienced strong job growth will produce quality earnings growth with less volatility over time. We believe that projecting which markets are going to perform the best over the long -- over the long haul is a lot like predicting interest rates or the stock market. Investing in high growth markets over the long term is important. Equally important is making sure that your operations team is executing at peak performance and capturing all the revenues that the market has to give. We have that top performing management team at Camden.

During the quarter we completed a number of significant transactions that continue to improve our operating platform. We completed a joint venture that essentially eliminates our exposure to the Midwest, we completed land sales for significant gains where we could not make apartment developments work. Finally, we closed our College Park, Maryland development joint venture with Onyx. The combination of these transaction provides capital that will be used to fund our development pipeline going forward.

On the development front, we continue to add to our Shadow pipeline bringing our total pipeline to over 2.2 billion. Costs and initial yields on our 1.1 billion of developments and lease up or under construction are within our budget. The development pipeline will provide significant earnings and value creation from these projects as they are completed over the next several years. We have raised our earnings guidance for the third time this year as a result of the strength of our operating portfolio and the transactions that we completed during the quarter. At this point, I will turn the call over to Keith Oden.

Thanks, Rick. My comments today will provide some details of our operating results for the quarter and year-to-date, and then I will update you on several new initiatives that we announced last quarter. The third quarter continued our string of positive operating fundamentals dating back to the beginning of 2005. Revenues for the third quarter grew by 7.6% over the prior year despite a drop in occupancy of 1.2% in our same-store portfolio from 96.1% to 94.9%. The occupancy rate decline was consistent with our expectations as 95% is the occupancy rate that is targeted by Yield Star, our revenue management system. We expect that the portfolio wide occupancy rate will fluctuate at a fairly narrow band around 95% as the model seeks to optimize total revenue by balancing rental rate increases and occupancy rates.

One of the reasons that we have been able to push rents as hard as we have and still maintain 95% occupancy has been the increase in traffic across the entire portfolio. Comparing the first nine months of 2006 to 2005, our traffic was up 30%. Compared to the prior year third quarter, traffic was up 18%. A significant portion of the increase is contributable to the commitment of our on-site staff that they have to outreach marketing. We also got a little boost this quarter from a decline in the percentage of move outs to purchased homes which fell from 20% in the second quarter to 18% in the third. Concessions continue to decline, dropping an additional $1.7 million during the quarter. And our portfolio-wide concessions are down to approximately $10 per unit per month. Virtually all remaining concessions will be burned off in the fourth quarter. All indicators continue to support our view of a positive operating environment, continuing through 2007 and should allow us to end the year with a revenue growth in the 7 to 7.75% range for the year.

Turning to expenses, we've narrowed our guidance range to 5% to 5.5% increase over the prior year. This is slightly above our original guidance of a 4 to 5% increase. The 7% increase in third-quarter expenses sequentially and the 7% increase over the prior year quarter primarily result from positive tax adjustments in the third quarter of 2005. The year-to-date increase of 5.7% in expenses normalizes a good chunk of this increase.

The reasons for our expense guidance increase are as follows--First, the increase in cable expense resulting from our ramp-up of our Perfect Connection cable initiative. The revenues from the residents' cable payments are included in other income, and the additional expense hits utility expense. Second, the increase we experienced this year in water expenses. Although we rebill approximately 80% of our total water cost, we do not offset the income and expense. The water and cable expense items combined comprise an increase of about $800,000 in utility expenses above plan. If you make these two adjustments alone, it would bring us back into our original guidance range.

And finally, our repair and maintenance costs are $1.8 million above plan, and that increase can be attributed almost exclusively to our increase -- to the increase in our turnover rate, which rose from 59% in the first three quarters of 2005 to 67% over the same period this year. The increased turnover rate reflects our very aggressive rental increases which have yielded a $15 million increase in rental revenue relative to plan, a trade-off that we are happy to accept. We do expect to see our turnover rate to remain high during the fourth quarter of this year as the final one fourth of our residents experience significant rental rate increases being generated by Yield Star. The net result of the revenue outperformance and higher-than-budgeted expense will leave us with 8.25 to 9.25% NOI growth for the full year.

Next, a brief update on several initiatives that we discussed last quarter. We completed the rollout of our online payment option for residents throughout our portfolio in September, and received almost $3 million in ACH payments for the month of October. One of our pilot communities collected 18% of all rental payments via ACH in the month of October. We are very optimistic that this initiative will continue to make our lives and our residents' lives easier in the coming months. Last quarter we introduced you to Camden's Perfect Connection, our bulk cable program. The program is exceeding our expectations in every respect. We are now estimating that by year end, we will have the program rolled out in 60 communities, representing 21,000 apartments and have approximately 15,000 subscribers. Consumer acceptance of the program has been extremely positive with very few objections. Even in communities which had very low cable tape rates, in some cases as low as 20%, we are having great success as our residents view this as a value-added offering.

Finally a note to all our Camden employees listening in, as a result of your efforts we are three quarters through our best year yet as a public company. Let's finish the year strong and head into 2007 with the same level of momentum that we had today. We appreciate all that you do for our company and our shareholders and we will see you soon. Now turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith. I will start my comments this morning with additional color on our third-quarter results. We reported FFO for the third quarter of $77.8 million or $1.24 per diluted share, which is $0.29-per-share higher than the mid point of our prior guidance, the outperformance for the quarter was primarily due to gains on sale of land exceeding expectations, property operations continuing to perform better than expected as Keith just discussed, offset partially by higher-than-anticipated fee and asset management expenses and general and administrative expenses.

Taking a closer look at our third-quarter activity, gains on sales of lands totaled $25.2 million. Net of taxes of only $210,000. Well above our forecast as transactions originally anticipated to close in the fourth quarter of 2006 or the first quarter of 2007 were accelerated into the third quarter. See page 19 of our supplemental package for details of the 8.7 acres of undeveloped land sold and the 10.6 acres of land contributed to our development joint venture in College Park, Maryland. The gains on these sales are included in both gains on sales of properties in continuing operations and gain on sale of discontinued operations.

During the quarter, we also sold 11 operating communities Camden Oaks in Dallas, Texas was sold for $19.2 million, resulting in a gain of $8.8 million, which is included in gain on sale of discontinued operations. Summit Hollow in Charlotte, North Carolina, which is held in one of our joint ventures was sold for $15.5 million, our pro rata share on the gain of the sale was $1.1 million which is included in equity and income of joint ventures. We also sold nine of the 12 communities in our Missouri and Kentucky markets during the quarter to a newly formed joint venture in which Camden retained a 15% ownership interest and for which we continued to serve as the property manager. We recorded a gain of $91.6 million on this transaction which included in gain on sale of properties in continuing operations due to our continuing involvement with these communities.

Additionally during the third quarter, we initiated the marketing of the remaining three communities in Missouri and Kentucky and thus have classified them as held for sale. You will notice as you review our supplemental package that St. Louis and Louisville are no longer listed as separate markets as the current NOI contribution from these markets is bless than 2% and thus they had been moved into the "other" category. We also now include Corpus Christi in the "other" category.

Year to date we have sold 18 operating communities, 15 wholly-owned and three joint venture communities which had an average age of 20 years at an average 5.4% cap rate, and we have sold 27.6 acres of undeveloped land which generated combined proceeds of over $390 million. These proceeds have been used to fund our active development pipeline and to pay down outstandings under our unsecured line of credit. At September 30, only $14 million was outstanding on our $600 million unsecured line of credit.

Turning back to operating results. Fee and asset management income totaled $5.4 million, in line with expectations but up $2.3 million from the prior quarter, primarily due to development, financing, and management fees related to the formation and management of our new development joint venture in College Park, Maryland, and our new Midwest operating joint venture. As forecasted, we recorded a gain of 1.6 million on technology investments as we received the final installment of the rent.com proceeds. Fee and asset management expense totaled 3.7 million for the third quarter of 2006, 2.5 million higher than anticipated due to cost overruns and warranty costs related to third-party construction activities. We anticipate that fee and asset management expense will return to a normalized level of 1.1 to $1.3 million in the fourth quarter of 2006.

General and administrative expense totaled $9.8 million for the third quarter, approximately $2.3 million higher than previously forecast. This unfavorable variance is primarily due to a year-to-date adjustment to incentive compensation costs resulting from our improving operating performance and land sale gains, the write-off of abandoned development costs, and higher legal costs related to potential transactions and miscellaneous Human Resources and insurance matters.

Taking a quick look at our capital structure, as we transformed our multifamily portfolio over the last several years, we, at the same time, strengthened our balance sheet. As of September 30, debt-to-market capitalization was 32%. 96% of our debt was fixed. 80% of our assets were unencumbered. And we have significant capacity available under our $600 million credit facility.

Moving on to earnings guidance, we expect fourth-quarter FFO of $0.81 to $0.87 per diluted share. Resulting in full-year 2006 FFO of $3.82 to $3.88 per diluted share. Our guidance range is based upon the following assumptions--Full-year same property NOI growth of 8.25 to 9.25% derived from revenue growth of 7 to 7.75% and expense growth of 5% to 5.5%. We anticipate no acquisitions or new development starts for the fourth quarter and of the five operating properties and 5.7 acres of land currently held for sale, we expect none to close in 2006.

We also do not anticipate any debt offerings in the fourth quarter as the 12.5 million of fourth-quarter, up slightly from the high end of our higher guidance, primarily due to increases in incentive compensation costs resulting from improving performance. The fourth quarter will also include a nonrecurring charge of $4 .2 million or $0.07 per diluted share relating to the vesting of previously granted senior officer share rewards as a result of the Company significantly succeeding its 2006 performance and transaction goals. Excluding this charge, our fourth-quarter guidance would have been $0.88 to $0.94 per share. We will provide 2007 guidance in early 2007 in conjunction with our fourth-quarter earnings release and conference call. I would now like to open the call to questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Ross Nussbaum with Banc of America.

Good morning, it's actually [Dustin Peezer] here with Ross. Keith, going back to your revised revenue growth outlook, were there any markets where you are surprised by the level of rent growth you have been able to achieve through the fall?

Well, when you look at our total rent growth throughout the forecast, we think we will end up in the 7, 7.75 range on the top end. Across all the markets, Ross, we expect to see great rental fundamentals. If you look at our sequential numbers on revenues even though our third quarter had some screwy expense numbers in it, primarily from prior year -- prior year comparisons, but if you look the revenue on sequential basis, once again we were positive in every single market with the exception of our "other" category. So I think that kind of bodes real well for where we are positioned and the ability to push rent.

Okay. And then, I guess related to that, we have been hearing some comments from a number of your peers on some of their calls that Florida, Las Vegas, Phoenix, maybe starting to deteriorate some and experiencing increasing competition from condos and single-family homes going back to the market. Can you comment at all on what you are seeing occur in those markets and perhaps your outlook for the next 12 months?

Yes, the -- we -- we certainly hear those kind of comments, too, Ross, and we -- Russ. We talk to our folks and get firsthand -- their firsthand impressions constantly. We are in the process of doing our preliminary budget reviews for '07 as well. So we got a lot of really current information, and the bottom line is that while there is a lot of discussion going on about the possibility that you might have competition from busted condo deals that come back as rentals and honestly getting your hands around what percentage of those may come back, and then if they do come back, are they truly competitive is a -- I think it is a little bit of guessing game at this point. So I would -- just a couple of things I would just share with you.

With regard to -- if you think about where that would show up in our portfolio, if it were a current issue as opposed to one for planning for '07, you would expect to see that show up our sequential revenue or rental rate -- rental rate quarter over quarter and also our occupancy. If you look at those markets that you mention, in particular Las Vegas and Southeast Florida, we are still running above 95% occupancy even though we are slightly below 95 on average throughout the whole portfolio. Those two are still above 95 and on a sequential basis, we had really good rental rate growth, so it's certainly not showing up in our third-quarter numbers, and I am not hearing a lot of noise from our folks in those two markets or Phoenix with regard to the competition.

The one area that I think we -- we clearly have seen an impact, it hasn't really cut into our numbers in terms of our occupancy or growth rate, and it's primarily product type, but the one area we have seen some is in Las Vegas, and interestingly enough, it is really not from condos, it is from single-family home sales where builders are in sort of in a fire sell mode in many of our -- many of those developments out there. And where that -- where that impacts us is primarily in our three-bedroom inventory. Fortunately in our portfolio in Las Vegas that's a little less than 5% of our total units.

But I will tell you, in our conversation with our management team in Las Vegas, they have seen an impact, and it is from -- primarily from single-family home sales that are -- where the builders are kind of giving the farm away to reduce their inventory. But at this date, we haven't seen it. I don't hear anecdotal evidence from our folks. As we put together our 2007 operating plans that's something that we will be looking at closely.

That's helpful. Then just switching gears quickly, looking at the new joint venture, I may have missed it but can you walk us through some of the other economics as far as any acquisition fees, property management fees, et cetera?

In the joint venture there were no acquisition fees since we own the properties. We do get a property management fee of 3% to run the portfolio, and we do have a back-end incentive fee.

Great. Thank you.

The next question is from Jonathan Litt with Citigroup.

Hey, Craig Melcher here with John. I think you mentioned -- did you say $2 billion development pipeline?

2.2 billion actually.

If I add up the pieces on the supplemental I seem to be getting to a number smaller than that. Is there a--?

What you don't have in there is Shadow development pipeline that we have been talking about and that Shadow development pipeline at this point is about 750 million. And the way we define a Shadow development pipeline are properties we either have under contract or in due diligence that are not owned -- owned properties. The future development pipeline which is about $400 million is our properties that we actually own the land for. So if you are adding the numbers up, you have 1.1 billion in the current lease-up and under construction and you have $400 million in the future development pipeline, and you have $750 million in the Shadow development pipeline. So if you add those up that is like 2.25 billion.

And the sequential revenue growth. I was trying to figure out what impact the cable business had in there. Because if sequential revenues were up 2.2%, the rates were up 2.3% and occupancy was down 80, I am just trying to figure out what -- bridging the gap between the occupancy and the rates versus what the revenues were?

Is your question on the -- what the impact of quarter over quarter on the cable--?

The sequential.

Yes, the sequential increase would be about 150,000, $140,000 for the -- for the quarter over the second quarter for cable revenue. That is cable net income, which is -- now you have to take the sequential increase in revenue, which is the number that you are talking about is about a $400,000 increase. We have a sequential increase in expenses associated with the cable program of about 300,000, plus or minus to get you to the net number that I gave you, but the revenue impact, quarter over quarter of the cable ramp-up is about 400,000.

Okay. Last one is just on your sequential expectations for the fourth quarter. Do you -- do you expect expenses to come down pretty significantly from 3Q to 4Q after the third-quarter increase?

We do expect them to come down significantly from the third quarter, somewhere in the 3 to 4% range would be a good -- a good run rate or a good target for the fourth-quarter expenses which if you do the math on our year-to-date expenses that should put us somewhere around the 5 to 5.5% level for the year.

Thank you.

You bet.

The next question from Rob Stevenson with Morgan Stanley. Please state your question.

Good morning, guys. Dennis, is the $0.07 for the management comp program the only nonrecurring item in the fourth quarter that you are expecting?

That is the only nonrecurring item, yes.

And then with respect to the land sales in Boca, Dallas as well as the assets that are held for sale, you guys are expecting -- is that looking like a first-quarter close for all of that right now?

Right now, I don't think we have anything closing in the current year. It is some time after probably January or February.

Okay.

I think that's--.

The real issue on these land sales, and one of the reasons that we sort of exceeded our original budget was we put probabilities on the land fills based on our pricing expectations and we were surprised by -- quite frankly surprised by some of the demand that was out there for the land in the sense of -- of wanting to close very quickly. The other land parcels we have there are great sites. And as development costs sort of have flattened out we continue to try to run our numbers and make our developments work.

So on the one hand, if the market improves both rental rate growth-wise and construction cost-wise, we may in fact build those, but at this point, they aren't under contract, and we will be -- it will be an '07 item, I would think. Unless something dramatically different changed which did happen in the third quarter and could happen in the fourth quarter but I would say it's generally first, second quarter next year.

How big have been the moves that you have seen in construction costs both in terms of labor and materials over the past couple of months now?

Well, I think the move has been more flattening than down. Commodity prices have moved down some, but labor prices are pretty sticky. The -- the big challenge that we've had in the change that we've made in our underwriting is rather than increasing costs on sort of type 1 construction at 1%, to 1.5% per month over the three-year period, we are down to maybe half -- 50 basis points a month so we have lowered the growth rate on construction cost rather than lowering construction costs overall. You sort of start with today's base and then you don't increase the base as much as you did in the past so your construction numbers do work better looking forward with -- with lower increases.

Okay. And then -- thinking about the $2.2 billion pipeline including the Shadow, what is your comfort level in growing that. If we are sit hearing a year from now, is that likely to be $3 billion if you can find the properties? Or is, given the size of the Company, 2 billion, 2.5 somewhere in that sort of range, sort of maxing out your comfort level.

I don't think it maxes out our comfort level because keep in mind they are in various stages of completion. Some properties that are in lease-up. Some that are under construction. Some that are just making it into the construction pipeline. At any one point in time you are not building $2 billion on your balance sheet. So going forward, we are trying to add to that pipeline on an ongoing basis. In the quarter we added three new projects into the Shadow pipeline and they will take their time going through. We have been working on projects on the East Coast and the West Coast for two or three years in some cases and by the time you get some of these hard-to-entitle markets under construction it is 3 to 5 years. So our pipeline should increase, not decrease.

We've got some very talented development folks in all of our major markets that are in the market on an ongoing basis. And we expect those folks to be able to find and underwrite transactions on an ongoing basis. And with construction costs sort of moderating and rental rates growing faster than most people believe, we have -- I think we have the opportunity to find more transactions that do pencil as opposed to the last sort of year or so.

Do you expect any change in the percentage of developments that you are doing in joint venture versus wholly-owned going forward?

No, I think we will probably stay in the zone that we are in now, Rob. Generally we use development joint ventures when we have very large projects, when we want to sort of spread the risk on very large projects. But generally we are comfortable with our level at this point, and we are not going to expand that.

Okay, thanks.

The next question comes from Lou Taylor with Deutsche Bank. Please state your question.

Thanks, good morning, guys.

Good morning.

Dennis, can you talk a little bit about the G&A in terms of the incentive comp. Was it tied to operating metrics? Or stock performance? Or both.

It was just part of our annual incentive plan. Based upon our improving results and our metrics we have that are reviewed on an annual basis by our comp community requires us to increase our incentive accruals because we have exceeded our thresholds.

Lou, the stock component, we have basically a 6 or 7-point performance evaluation for the Company overall and then the individuals within the operations, development, transaction folks all have individual goals. And we monitor those goals. Stock price is one of those measures, but it is not a -- if the stock price is X you get Y. It is more weighting the goals which include stock price, which includes operating budget performance, transaction performance, and those types of items and once you evaluate every item, you look at the overall weight of what the -- what the incentive comp will be, and including transactions and the land sale gains sort of -- sort of created a very big outperformance to plan. And we had to accrue for additional incentive comp associated with that plus the outperformance of the overall portfolio.

Dennis, of the 2.3 million, how much of it is -- would you say is going to recur and how much of it is catch-up from the prior quarter ?

In the current quarter I would say that you probably have -- the total incentive comp catch-up is about 1.5 million and about a third of that relates to the current quarter and the other two-thirds relates to the first two quarters.

Okay. Great. Now what triggered the $0.07 vesting charge for Q4?

What triggered it was again in the outperformance of both operating but primarily the transactions, the comp committee came together and believed that it was a fairly cheap way for the Company to incent senior executives by investing restricted shares. The restricted shares had already been issued in previous years. It was really just a timing difference between letting those shares vest over three or four years as opposed to early vesting them. And we have in the past the comp committee has taken the position that they like to have the discretion to vest those shares when the Company outperforms. They have used this mechanism in the past. As opposed to having sort of specific triggers built in. The comp committee uses discretion as to when to vest if you have outperformance.

In the third quarter -- after the third quarter, the comp committee met, and elected to early vest those shares which relates to the $4.2 million charge or $0.07 a share. Those -- just to make sure everybody understands, those shares were already issued. They are actually sitting in deferred compensation programs, and they would have vested over a three or four-year period. So they were -- they were vested as a result of outperformance. Primarily because of the land transaction.

Okay, great. And then last question. Dennis, maybe I missed it, but what were some of the items in the property revenue category for this quarter.

Can you repeat that question, you broke up there.

What were the other items -- what were some of the larger items in the other property revenue category this quarter.

Other nonproperty?

Other property revenue.

Other property revenue. I mean our normal administrative fees, cable income.

Lou, also we show -- about $800,000 that relates to two areas, one in the cable revenue. It was not in our original plan. And secondly, water reimbursements. About $800,000 of those two items alone, and, again, it is just a matter of presentation. We show those as increases in revenues, and then they end up hitting our same store expenses below. We have this conversation every quarter, and my preference would be to net them, and Dennis tells me they won't let us do that. It causes noise really on the expense side of the equation and the reality is in both of those cases, that expense is directly attributed to the revenue that we recover. Those would be the two big items that would cause a difference in the sequential.

Great, thanks, guys.

You bet.

The next question is from Alex Goldfarb with UBS.

Good morning. First, just want to follow-up on the land. Realizing that you have a few parcels that are going to sell in the first half of next year. Can we use the margins of the recent transactions or are there some nuances?

That's a good question. I think the margins for the existing transactions were pretty substantial and pretty great. Rather than -- I think that is a hard question to answer because you know we just don't -- we have a sense, but we would be sort of providing guidance into that, and we are not going to provide guidance at this point. So it's -- that's a tough one. On the '07 call, when we do '07 guidance, we'll provide guidance because we will be closer to knowing where we will be on those. Sorry about that.

No worries, but on the -- if we just look at the Q3 sales if that's sort of the high end of sort of margins we can pick something obviously a bit lower then. Going on to development and utilizing your TRS. You guys obviously have a good development team. Have done a variety of projects. Given your exposure in Florida and your knowledge of the market, I just want to know if there is an opportunity for you guys to, within the TRS take advantage of busted condos in terms of taking them down when they do come back on the market and flipping them and generating a nice little TRS business there.

We have looked at that business. And actually if you go way back to the formation of Camden, that is what we started doing when we started Camden was busted condo deals. We have a lot of knowledge about that. We know about it. I really don't think there is really a market there right now. You have a lot of -- in order to have a real good busted condo market where you really mark-to-market -- mark the properties down substantially, you have to have measured capitulation of the capital stack. Today the equity people are probably really worried about their position. But you have substantial mezzanine positions that are not really worried yet or don't really understand what's going on. So until you have measured capitulation by those two capital sources, I am not so sure there is a big busted condo market to play in.

The other thing that I think is important is that you really don't have busted condo sort of market -- markets unless you have big economic dislocations as well. They may at the edges lose a few dollars in equity and maybe the top tier of the mez, but it is not so big that you have such a dislocation of the market as a result of bad economic conditions to create a lot of value. So until something sort of changes economically or you have capitulation in the capital stack, I don't think there is a huge market for playing in the condo -- busted condo business. Now you can sort of buy properties that were originally bought at sort of three cap rates and buy them at 4.5 or 5 today, but that's not really playing in the busted condo business. You are just buying apartments that are trading at apartment cap rates as opposed to condo cap rates.

Okay. Then moving on to Onyx. Obviously you guys have a very good relationship there that goes way back. I just want to know how you guys decide to do deals with them versus other partners. And also, are you cultivating any other sort of long-term joint venture partners similar to Onyx.

Well, for my Onyx friends on the call, we would never do another deal except for Onyx, but generally speaking, we have multiple partners. We have partners with -- that we do -- we probably have four major partners that we do business with, and oftentimes, we will quietly talk to each of our partners about what transactions they are interested in.

So we keep a fairly honest competition going from all of our partners, and for example, the Midwest joint venture was done with an existing partner and we discussed the Midwest joint venture with other partners in addition to the one that ultimately did the transaction.

So we are -- we think that it is a very positive relationship between the sort of major partners that we have today and we like the idea of keeping the number of joint venture partners down to a very manageable number which is the group that we have today and they provide a spirited competition when we need to do transaction

Okay. Just finally, are you guys thinking of doing another core fund type transaction similar to Midwest?

Are you asking about whether our core fund out of Camden's portfolio?

Not necessarily out of the existing but maybe go out and buy something and throw it in a core fund, lever it up, get the fees, high ROE?

Well, I think the -- when look at our joint venture business, we have over $1 billion worth of sort of management business or joint venture, real estate-owned business, and we like that business. We like that business and to the extent we can use that structure or a similar structure to leverage our management talent and our development/acquisition talent, we will. I think you can expect to see sort of more transactions like that in the future.

Great, thanks a lot.

The next question is from Brian Legg with Millennium Partners, please state your question.

Keith, just going back to your point earlier where you are not seeing -- your people on the ground do not really see operations diminishing in the markets where housing is clearly busting. It doesn't really look -- appear that way when you look at the occupancy both on a sequential or year over year basis.

The markets that have the biggest deterioration in occupancy are those very same markets, Phoenix, Las Vegas, and the Florida markets. Are you concerned with occupancy going down in those markets, particularly going into the weaker seasonal period?

It's interesting because the -- you noticed that because what we are doing is driving occupancy down by increasing rents. And so -- our optimal rental -- our optimal occupancy is in the 95% zone, and our yield management system pushes rents very hard to generate that optimal occupancy. And when you look at various markets, Las Vegas specifically and Phoenix, we are not going into their slow season.

We are going into their high season. The high season in Florida as well to a certain extent you have snowbirds that come down. Florida isn't as high a season as Las Vegas and Phoenix, but the slow season there is the summer when it gets 115 degrees and the best season is in the winter when you have the snowbirds come in and so forth.

But, you know, I think the issue about are you going to see a collapse in rental prices as a result of housing and condos and that sort of thing. I think they definitely -- that the margins are going to have an impact, the question is how big an impact and when you look at the kind of performance that we have had and other companies have had over this year, the question is, are you going to repeat 2006 in 2007. I think that is hard to do generally because of the significant growth.

When you look at the year to date, the year-to-date, same-store NOI growth in Phoenix, it is 17%. Rental growth up 12.7% through the third quarter. Well, it's hard to get that kind of rent increase in each -- in year after year after year, and the same thing goes for some of these other markets. So our rental rate -- is rental rate growth going to moderate in 2007? I wouldn't budget 12.7% growth in Phoenix.

Now if you want to say, well, the reason you don't get 12.7% growth in Phoenix next year is because of condos and home price -- home prices being discounted. Well, you can say that, but at the end of the day, I think that it is prudent to assume that you are going to have a more moderate growth as opposed to this sort of white-hot growth that we have right now.

That's fair. And can you just talk about Yield Star or back testing it. Clearly the -- the reason you want Yield Star is to be able to pick up inflection points. What is Yield Star looking at to determine, okay, well, this market is weakening, maybe we need to back off on pricing here to rebuild occupancy.

Yield Star is actually -- the forecasting horizon for Yield Star is 84 days. It is not -- it's a tool that looks at conditions on the ground right now, it looks at the individual circumstances at the community level and then attempts to say what do I need to do with my price today to ensure that I can maintain 95% occupied and get the most rent that you can.

It is not -- it really tells you nothing about what -- what lies beyond the 84th -- the 84-day time frame. That is left to -- still left to the humans who are in charge of forecasting rental growth to these markets. One of the things it does put a great premium on though is it puts a premium on people who can accurately forecast market conditions. Because at the end of the day the objective of any revenue management system is to provide the best possible fit between market conditions and pricing experience. And we know that, and we historically have been pretty good at guessing pricing -- or guessing market conditions.

Clearly this year, not only did the market outperform our expectations, but we know by looking at the -- by looking backwards at the numbers and seeing the kinds of rental rate increases that we got and where and the timing of those. We also know that somewhere between 1 and 2% of that growth is attributable strictly to the implementation of the yield management system. Which when we put together our plans beginning of last year we told people that we were expecting some very modest pickup, and we would -- and we didn't really put a big increase for Yield Star implementation in our revenue line items when we did our last-year forecast. The fact is, is that we ended up getting probably, when it is all said and done, close to the 2% we expected. Markets were a little bit better than we thought. That's how you end up with a revenue growth in the 7 to 7.75% for the year.

But as far as looking out to next year, we have to do it the old-fashioned way. We have to look at all the conditions in each of these markets, look at where our portfolios position and come up with the best possible fit for our guess at market conditions, and then Yield Star will find its own way with regard to conditions on the ground.

Okay, great, thanks, Keith.

You bet

The next question is from Jim Cowen with Morgan Stanley. Please state your question.

I am sorry if I missed this but did you guys give any indication of the cap rate on the Midwest sale?

It is 5.5%.

The overall cap rate for all the sales was in that zone, yes.

Okay, thanks.

The next question is from Rich Anderson with BMO Capital Markets. Please state your question.

Thanks and good morning. I guess I want to get back to land sales and the relation to comp. I know you guys are good people, but from the outside observer, some might look at that and wonder about selling assets and getting -- sort of quickly vested shares in its wake. So what would you -- how would you comment -- what would your response to maybe, how would you comment over your response to maybe somebody who doesn't know you well who might look at that and wonder about conflicts?

Rich, the -- our compensation program -- and Rick alluded to it earlier, it is seven very specific components, and within the compensation program that our compensation committee administers, there are really three levels of performance. And these are specified at the beginning of the year and for the levels of performance, there is a compensation expectation attached to those.

One is below expectations, one is range for meets expectations and there's a range of compensation for exceeds expectations. And based on the land sales that happened in the third quarter and the impact that that had on our FFO, there is no tie per se to a land sale but there's an absolute tie to which of those three categories we expect to end up in for the year as a whole. It is clear that based on those three categories that with the land sales and our operating outperformance through the third quarter that we are going to be in the exceeds expectation category.

So it -- from that perspective, it is really just saying we are accruing for and sort of truing up, anticipating what we know to be the case, which is an outperformance relative to our compensation plan that was set out at the beginning of the year. It's really nothing more than that.

I think the other piece of the equation, Rich, you have to look at overall and if you look at our compensation programs over the years, they have been conservative relative to our competitors. We have never been criticized for out -- for being very aggressive on comp for any of our people, including Keith and I. That the vesting of shares, that related to existing shares that were out there. So the expense was sitting there getting ready to be -- incurred as time passed so the issue there is so is there an opportunity cost lost in the Company if the people leave earlier than anticipated.

We don't anticipate anybody leaving, so we are not issuing new shares. We are not giving people new money. We are just accelerating the vesting which makes them feel better and doesn't cost the Company a dime. So at the end of the day, when you look at the overall compensation programs being conservative over a long period of time, no new money -- now I can see people getting into a -- being sort of upset if you said, well, by the way, instead of just vesting existing compensation that was out there already to a tune of 4.2 million, we were going to write a check of 4.2 million to the senior executives for land sales and I would say, -- I would have a problem with that and I suspect a lot of people would have a problem with that as well, and when you put everything together, it is a reasonable way to manage compensation that is overall very conservative.

Okay. And on a go-forward basis, will land -- will you look at land sales as sort of a repeat business for you?

Well, that's an interesting question, because if you look historically, it has been a repeat business. We have been selling land since we bought the Long Beach track and the Andrew airport track. I would rather it not be an ongoing business because I would rather develop the land as apartments that we bought it for originally. It seems to have been ongoing business.

The problem you have with it or the challenge you have with it is it is lumpy. Having to -- and I think the end of the day is what we argue about, gee, your FFO this year has increased by $25 million by land sales and are you going to be able to achieve 25 million or more next year and you are sort of angst about that. At the end of the day guess what I have 25 million in cash for the Company that we didn't have to start with. I will take lumpiness as long as I get the cash.

Is it an ongoing business?

I hope not because I want to build the stuff, but I think it probably will be.

You mentioned moderating or flattening out of development costs. Let's assume development costs start to come down, would you think that's good or bad?

I would think that -- good or bad. Good for a large portfolio like ours. And it could be probably bad if everybody in the world starts developing and you have excess supply. I don't think that is going to happen. I have not seen in my 30-plus years in development business I haven't seen development costs come down. I have seen them moderate and maybe flatten but generally you don't see it really drop dramatically unless you have some really wild things going on and I don't think we are seeing wild things.

I don't think that it is flattening to the point and rental rates are increasing in -- fast enough to cause a massive over building condition, and you still have to sharpen your pencil pretty will to be able to get deals to work, but on the other hand, you are going to have moderate development, and I think that's good.

Okay. And switching gears. Why is the television program -- I mean TV rollout initiative become more expensive than you thought? What are the factors that are making it more expensive?

Why is it more expensive? I don't think it is more expensive. I think it is rolling out. And it is not more expensive at all. In our original budget at the beginning of the year, we didn't budget the rollout as fast as we were experiencing primarily because of the contractual relationships of -- between the -- with the cable providers that we have, and we were surprised that we were able to negotiate some of the deals that we did and in a timing that we did, and then we -- once we were able to do that because -- able to secure the contractual relationships, we rolled it out quicker than we thought.

We originally were pretty -- sort of conservative in what we thought -- and how we were going to roll it out primarily because we didn't really have a good sense of what the market demand would be. Once we saw that the the market demand was really good and we had very little push-back, we accelerated the rollout. So our costs are more, but our revenues are more as well. So we didn't have a cost overrun or a cost increase. It was more by design. We want more costs in our run rate as possible so that we can have more revenue.

Okay. That's fair. Last question. Just do the math of guidance. Guidance went up midpoint $0.175. You had more land sales, you had better same store and then you had higher G&A. Would you be able to give this cents per share of that math? Maybe that's for Dennis.

I am trying to break it out between what was operations and what was--.

Guidance went up $0.175. Land sales was what $0.20 better than expected?

Yes, about $0.25 better than expected. Operations was $0.06 better than expected and then that would be an offset by asset management and G&A expenses that you can probably break out another $0.07 to $0.08 for that as a negative.

Thanks, guys

The next question from Craig Leupold with Green Street Advisors.

Hi, it's [Mark Barry] sitting in for Craig. I wanted to ask you about yields, I guess, revenues from the licensing of Yield Star. Is that a meaningful number today or could it be over the next several years?

Mark, we don't receive licensing fees per se from Yeld Star. Yield Star is owned by Real Page. When we developed Yield Star, we sold Yield Star to Real Page, and we have sort of a -- we have an equity interest in Real Page and also a pricing deal with them that does -- that does improve from the Company's perspective with usage of Yield Star and usage of one site which we helped Real Page develop but there are no royalty fees per se.

Okay. The other question would be where would Camden stand today on share repurchase versus acquisition or development as a use of capital?

That's an interesting question because we look at that all the time. When you are making investment decisions it's where should you put your capital, and we do not have a share repurchase program in place at this point, we have been big repurchasers of the stock at various points in time, and at this point we don't have a share repurchase plan, but we have definitely looked at it and we continue to look at it as an investment alternative over time.

Thanks.

Next question is from [Mark Bifford] with Goldman Sachs. Please state your question.

Hey, guys. Related to the increase in turnover, how does Yield Star work with the turnovers. Is there an optimal level that it works to get to or -- just looking at also the increase in turnover costs that are associated with it, does that take that into account?

Mark, here is the way that Yield Star factors turnover is in the forecast, it is always forecasting the percentage based on the recent experience -- the percentage of the lease renewals. So as the turnover rate increases, meaning the percentage of lease renewals comes down in your forecast period, which is kind of looking out three months to figure out -- from a pricing standpoint, it takes that into consideration when it thinks about what -- how many net pieces of traffic have to be closed at that rental rate to maintain 95% occupied. So in the near term, within the forecast period of three months, it does factor in the -- it takes into consideration that -- the turnover rate.

But, again, it's not -- it's not a forecasting tool. It doesn't really look out beyond the 90 days. It's -- you say is it -- is it causing the turnover? Well, it is causing the rental rate increases which is causing the turnover. And that's okay because as I mentioned earlier, we are up -- we know we have higher turn costs, higher than what we originally budgeted. That number is probably in the $2.5 million range, plus or minus above plan between R&M and overtime for salaries but if you look at the offset to that it is over $15 million in rental revenues. We are fine with that and, yes, the answer is it does consider the turnover rate, but only in the forecast period.

Okay. And related to the land sale gain. What were the buyers of the land using it for?

The buyer in the Long Beach land was a -- was a condominium developer. And the Florida land, the buyer was an office building developer.

Okay. The last one is Royal Oaks, I saw you had -- I think it was 36% lease-up, how is that trending versus your standard multifamily lease-up?

Two things. It is trending -- we forecast fewer leases because of the nature of the tenancy and the residents there. It's a much longer sales cycle, but even with that we are below where our original forecast was in terms of velocity for the leases. We are comfortable that we are going to get back on track and make that up. Consumer acceptance has been terrific for the product, it is just the sales cycle associated with the 55 and over crowd is very -- is very different and is longer than we anticipated.

Okay. Great, thanks, guys.

You bet.

The next question is from William Acheson with Merrill Lynch.

Good morning. Thank you, guys.

Good morning, Bill.

Working backwards off of your full-year revenue guidance come up with something like 6% same-store revenue growth for the fourth quarter, given that you have -- in the fourth quarter, you will have cycled through the whole tenant base, so to speak with the rent rate increases related to Yield Star and that you are at the 95% target and you sort of met the market here, is 6% going to be the relative peak for now?

When you say the peak -- our peak for this year probably ends up being second or third quarter of this year on a sequential basis, but your math is correct in the sense that -- our guidance implies 6% growth next year -- I mean for the fourth quarter, and we'll -- we'll let you know and give you a lot better look at what we think '07 is going to do once we have completed all of our individual budget reviews and put together our plan and our guidance for '07.

Also, Bill, keep in mind that really the -- going forward, it really depends on market conditions, because if markets -- if the markets stay as tight as they are right now through next year, we have new sets of rental increases will happen, and it just really depends on the strength of the market. If you look at the job growth numbers today, they were sort of less than anticipated. They are definitely off of 165,000 job run rate that we had in '05. So job growth is definitely moderated.

The question is whether all the dynamics in the market will allow to push rents hard next year compared -- the way we did this year. So I don't think that the fact that we went through the cycle already with rental increases affects whether you can rent increase more. It just really depends on how strong the market is going forward, because the market -- the Yield Star System doesn't care what it did six months ago. It cares what it is doing right now.

I was just trying to put 6% in context with an economy that appears to be slowing and perhaps job growth. So that's all I was trying--.

Absolutely. I got you.

Looking at the individual expenses in the individual markets sequential quarter, it looks like all of your Florida locales had some outsize bumps. I was wondering if that was insurance?

It's really two things, Bill. It is insurance but it is also prior year tax adjustments in Florida that happened in the third quarter. We had some really significant adjustments in the third quarter for all of our Florida markets and for this year.

They had a disproportionate increase in insurance costs because we allocated costs this year and pushed them down to the communities in the -- at the rate that we think the underlying insurance provider is assessing the risk for those markets. Florida markets did get disproportionately tagged by our insurance increase, but the big change that drove those numbers up in Tampa, Orlando, and South Florida were tax adjustments in the prior year.

And the interesting thing was prior year -- prior year got credits because we did really well tax-wise. And then the current year had increases so you had sort of a double whammy.

Right, I got you.

Having a low base and then having to adjust to a higher base.

Okay. I hope you can help me out on this one. Same store market rent rates after concessions, long-term lease were up 7% according to a supplemental. Occupancy was down 120 basis point but same-store revenues are up 7.6%. Does that work out to an increase in effective rents of call it 8.8%?

Well, some of that include other income increases that Keith mentioned, cable revenue and -- and water rebillings and that sort of thing, so I think part of it is -- part of it is better rent and then the other part is other income.

Okay, okay. And then lastly, you mentioned competition in Las Vegas from single family homes. What about Dallas? Due to the affordability situation there and a lot of developers haven't really given up the ghosts so to speak there. Do you see that becoming a similar situation? Not directly similar but.

Bill, you meanings from single family home?

Yes.

Not really. We -- you know we just haven't -- that certainly hasn't -- wasn't something that we discussed in our planning -- in our budget meetings as being a problem in Dallas. The real question on Dallas is, what happens on job growth in '07. And we are still looking for -- and in our projections we are looking for Dallas job growth to being pretty strong in '07 which ought to be fairly constructive for our portfolio up there.

Okay, thank you.

You bet.

Next question is from Richard Paoli with APB Investments.

Hey, guys. I appreciate all the detail on the call. Just a couple of follow-ups. On the share vesting, is the 4.2 million what's recognized between what the exercise price is and what -- at the time of calculation share price was?

Yes, that's correct.

Will that fluctuate.

No, I am sorry--.

These are share rewards so this is the full value of the reward on the grant date that is now vesting and then being run through operations as an expense.

Okay, these are not options, these are actual shares?

I thought you meant are they the original price that the stock was granted at and that's correct.

Okay. So--.

Natural restricted stock.

Right. So the amount recognized is the difference?

No, it's the actual amount of the grants at the date of the grant.

I got you. Okay. And then just on the -- on the cable and the water utility, Keith, I feel your pain in wanting more disclosure. I know -- I don't want to supplement you guys to death, but maybe there is a way to put more detail in the supplemental, away from the exact income statement so that we can see how that nets out and really what the profitability of that is because it seems like it's successful, but obviously it gets a little convoluted and it is more difficult for us on the outside to see that obviously.

Rich, if I can only have a video camera and what Miss Callahan is doing to me right now.

We talked about what goes on on the other side of the table.

She is giving me the look.

Maybe we can take something out. We'll -- quid pro quo.

Rich, I think it is a fair point and in all -- honestly in fairness, something that we probably need to look at. And the reason is -- is that there are other folks in our industry who shall remain nameless, but one of them this quarter in their conference call or their prepared remarks used the fact that they do net water, income and expense as a reason why their revenues weren't up more than they were. There is some uncomparability among the reported results, and I just think that the -- I think the preponderance of people are probably netting water -- not netting water and income and expense. So that's probably fairly in line with other folks.

So the challenge we have on water expense is no different than anyone else, but cable is a -- and the fact that we are the -- really the -- as far as I know the only people doing it and the size and scale of this program that we are talking about, where on a run rate basis by the end of '07, we are likely to have $6 million net, you gross those two up, and you are talking about a -- maybe a 8 or $10 million number on the revenue line and a corresponding 4 to $5 million revenue increase on the expense line. And we are going to be having conversations with people about what happened with same-store expenses from the standpoint of '07 results. So it is something that is a fair point and something that we will look at and Kim has stopped looking -- giving me the look now.

Okay, great.

We can move on.

One last -- one last question, and I guess it goes to Bill's, I guess, question about -- I guess the pace of revenue growth. What is the delta between your in place weighted average rent today and the portfolio, and where Yield Star is signing new leases today I guess with the mix of -- new residents and then renewals?

Well, the delta, I don't think I can get that number off the top of my head, Rich, but there's two different pieces of what you are asking. One is on the leases that are outstanding that have not yet been repriced according to Yield Star, which is somewhere in the 20% to 25% of our portfolio because we began the -- Yield Star was rolled out in our whole portfolio in the last quarter of last year, first quarter of '07 -- '06 there's still about 20% of our portfolio that is going to get repriced with Yield Star and a lot of those leases is still pretty substantial because a lot of those leases were done with concessions or burn off, et cetera.

That is a pretty big chunk. On the leases that are renewing with the Yield Star, having already gone through a Yield Star pricing, it just depends on what is happening in that market place at that point in time when Yield Star reprices. Those are more a market rate adjustment depending on what's happened in that individual community. We still do have, coming through our portfolio the differential from the prior year leases that haven't been repriced.

I guess at some point the Yield Star repricing, once you've been through a full cycle converges towards the 6% fourth-quarter growth rate that you guys were referencing before?

Rich, I think what it converges toward is whatever the market -- market conditions will allow for rental increases. We always knew there would be -- there is an initial sort of trueing up and repricing at the highest level of efficiency that happens one time as you go through the portfolio. That is clearly going to be mostly behind us in 2006 and then what we will get going forward will be really the guidance that we will be giving and the fit that we will be trying to provide you between Yield Star pricing and what the market conditions are.

The 6% that Bill was talking about was NOI. Not revenue. When you look at our lost to lease the difference between what we are collecting and what the gross rent that we are showing is about 9%. There is still room between what we are collecting and what we have sort of as our gross potential rent at this point. But Yield Star will push it as hard as it can.

I think it is really hard to look at a number at a point in time and say, well, Yield Star will only go 6%, or 5%, or 10%. It will go whatever the market will give you and maintain within the metrics that Yield Star is using, which is -- which includes 6 or 7 different components.

I appreciate the color. Thank you.

The next question is from Karin Ford with KeyBanc Capital Markets. Please state your question.

Just one quick one. Back on the JV, how would you compare the terms for the Midwest JV to the previous JV that you did with the Las Vegas properties. Would you say they were equally attractive, more, or less attractive overall?

I would say they are equally attractive.

Following up are there any other -- I know you said you like your sort of balanced market profile today. Do you have plans on substantially reducing your exposure to any other markets beyond the Midwest ones?

Substantially reducing, no, certainly not in the 2007 time frame.

Thanks very much.

At this time, no further questions in queue. Would like to turn it over to Rick for closing comments.

We appreciate everyone on the call today and we'll talk to you next quarter and at NAREIT next week. Thanks

This concludes today's teleconference. Thank you for your participation.