Camden Property Trust (CPT) 2006 Q4 法說會逐字稿

Welcome to the Camden Property Trust Fourth Quarter 2006 Earnings Conference Call. At this time all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS] This conference is being recorded. 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 fourth quarter 2006 earnings conference call.

Before we begin, I'd like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guaranties 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 fourth quarter 2006 earnings release package is available in the investor relation 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'd like to turn the call over to Rick Campo.

We hope you enjoyed our more upbeat rock 'n' roll music to begin the call with. We had a rocking 2006. Our operating teams were definitely on a roll at the end of the year with sector-leading 2006 same property revenue growth of 7.4%, same property NOI increased 8.6% over 2005. Fourth quarter revenue growth increased 5.6% year-over-year inspite of tough comparables in the fourth quarter of 2005 of 6.7%.

Our market balance strategy continues to serve our shareholders well. Market fundamentals continue to be strong in our markets. We continue to believe that a diverse property portfolio located in markets that create above national average job growth managed by a top-performing team will produce quality core earnings growth with lower volatility.

2006 was a busy year. We increased earnings guidance three times beginning the year with $3.55 per share and ending the year with $3.88 a share. We completed $254 million of new developments that will lease up in 2007. We started $250 million of new developments during the year, bringing our development pipeline to $2.4 billion, including joint ventures. We expanded our joint venture business with the addition of a new partnership with [Raco] where [Raco] will source development projects and Camden will provide capital.

Our land sale gains were better than anticipated and we exited noncore markets in the Midwest and Tucson redeploying the capital into our developing pipeline. We continue our implementation of cutting edge technology that will lead to improved revenue growth and operational efficiency.

2007 will be another strong year for the apartment business. The midpoint of our 2007 guidance is $3.75 per share. The 2007 midpoint guidance is lower than our reported 2006 FFO and below the three estimates due to the following factors 6 million to 7 million of FFO dilution from our development lease ups.

Our development and construction teams have done a great job on holding the line on costs. The complexity of our urban developments require the delivery of leasing inventory in large blocks requiring the expensing of costs before revenues in place. This causes a drag on FFO during the lease up period. We have lower land gains forecasted in 2007. And last year we were net seller of real estate using the proceeds to fund development.

So far this year, our operations are within our expectations and we look forward to another solid performance year for Camden. At this point I'll turn the all over to Keith Oden.

Thanks, Rick. I want to spend my time on the call today covering three topics.

First I'll provide some additional details of our 2006 results. Second, I want to address the issue of condo mania as it relates to Camden's markets. And third, as with years in the past, I'll give my annual review of the market conditions for 2007 and our largest markets.

In 2006, we completed the first full year of the integrated Camden summit portfolio and proved the merits of yield star, our revenue management system, which allowed us to aggressively push rent growth in 2006. Across the entire Camden portfolio, rent growth increased by 7.4% year-over-year, our best year-over-year performance ever and the highest reported in the multifamily sector for 2006.

Also, if you combine the actual 2006 revenue growth for every company in our sector with the midpoint of their revenue guidance for 2007, Camden has the highest total revenue growth for the two years combined at 13.2%.

Our 2006 results finished on a positive note. Fourth quarter and year-to-date revenue growth was positive in all markets. Fourth quarter and year-to-date NOI growth was positive in all markets except San Diego, which was due to a property tax adjustment. Rental rates were up sequentially from third quarter '06 in every market and the decline in sequential revenues was due to a 0.9 occupancy decline, to 94% which is still slightly higher than our fourth quarter historical average occupancy.

Our occupancy rate is currently back up at 94.6% and we expect it to hit the 95% mark in the quarter. Our analyzed turnover rate for the quarter fell substantially from 79% to 57%. But this was still 6% higher than the prior year. We expect to see a reduction year-over-year of 5%. The percentage of moveouts to home purchases for the quarter was 19.3%, which was right at the average for the year.

Last year we implemented Cross Fire, Camden's online leasing tool through the Camden living dot com website which is directly linked with One Site our web based property management system. This online leasing program allows potential residents to look, lease, reserve a specific unit, and secure a unit with a deposit online. All the resident has to do is come into the office for the keys and sign a lease. This program was initiated in the third quarter of 2006. Since that time, over 10% of Camden's new leases have been captured through Cross Fire.

Online leasing is the wave of the future. We're still on track to deliver a $6 million run rate contribution from the Perfect Connection. Camden's cable TV initiative that began last year. This year we're slated to roll out One Site facilities to our maintenance staff. This tool will allow us to better serve our customers and continue improving efficiency.

In 2006, we identified 10 communities that were excellent candidates for repositioning. The total capital requirement is approximately 37 million, or roughly $11,000 per apartment. And the bulk of the work will be completed in 2007 as units turn. The scope of work includes new counter tops, cabinets, and upgraded fixers. The incremental return on investment for the $37 million will be approximately 10% and will allow these well-located repositioned communities to compete effectively with new construction.

Although the program is slightly dilutive to 2007 results, about $0.02 is the right decision for long-term value creation. With all the recent buzz among investors about the impact busted condo deals might have on our ability to grow revenues in certain markets, it's worth a few minutes to address the concern. We have said based on our anecdotal evidence provided by our operation experts and our condo mania markets that we have not yet seen a meaningful impact on our markets where condominium conversions have occurred. Nor do we expect to see a material impact in 2007.

Our views reflect the collective judgment of our on-site and regional leadership team whose bottom-up budgets for 2007 indicate in the another year of solid revenue growth in the condo mania markets. Anecdotal evidence only goes so far. So for all the analysts, let's analyze.

For this analysis we split our 15 core markets into subcategories. One group containing the markets most often cited as having condominium exposure, and the other group, those markets that rarely are never mentioned of being concerned.

The seven markets in the condo mania group are Las Vegas, South Florida, Washington, D.C., Orlando, Phoenix, Tampa, and San Diego. When we compare the projected revenue growth for the two groups based on our 2007 budgets on our noncondo markets, there is less than .001% of project revenue growth difference between the two groups. Hardly a statistically significant result. So as we analysis 2007 from a bottom-up perspective we don't see a reason to panic.

The other way to look at the data is from a top down perspective. From this view, we get a similar picture. Using our market research data providers and looking at the 2007 data aggregated by Camden's condo noncondo markets steals following.

In Camden's seven condo mania markets, the total forecasted employment growth is 208,000 jobs verses 13,500 projected completions for a ratio of 15 to 1 of jobs to completions. We consider anything above a 5 to1 ratio to be positive. Reeses is forecasting an average rental rate growth of 4.7% for those seven markets in 2007.

By comparison, Camden's eight noncondo mania markets are projected to add 231,000 new jobs and 24,000 new apartments, a ratio of less than 10 to 1, still positive, but less so than the condo afflicted markets. Reeses is projecting an average rental growth in these markets of 3.1%, well below the 4.7% in the condo markets.

Whether you look at this issue from bottom up or top down, the facts don't seem to support the level of concern that investors seem to have on the issue.

Now don't get me wrong, we're not saying that busted condo deals don't ultimately add to total supply if they come back as rentals. And a rental unit is a rental unit. We're simply saying that even if you assume a very aggressive rate of recidivism among the convict condos, it is not going to materially affect the very healthy underlying fundamentals in our markets.

Now to the overview of Camden's market conditions. Beginning with our top performing markets, I'll give you our view of current market conditions expressed as a letter grade A through F and also provide our view of the outlook for each market through year-end 2007 as improving, stable, or declining.

In Phoenix, we rate current conditions as an A+ with a stable outlook. Phoenix recorded outstanding rent growth in 2006, making it Camden's top-performing market for revenue and NOI growth. For 2007, forecasts show the easing of employment growth from last year's 96,000 level, however the addition of 56,000 jobs will continue to be above the national average keeping occupancy and rental increase high. The continuation of these factors will sustain Phoenix as a strong market and as a top performer as same property NOI growth in 2007.

In the Washington, D.C. Metro Area, we rate the current conditions as an A with a stable outlook. A Washington, D.C. remains one of the fastest-growing large metro areas in the nation and was one of Camden's top performing markets in 2006. Significant gains in employment are forecasted again this year, estimates indicate the addition of 40,000 jobs to the Washington, D.C. Metro Area. The declining level of multi-family permits, the high cost of housing, and large population growth in D.C., indicate another solid year in 2007.

Next in Las Vegas, we rate current conditions as an A with a stable outlook. Vegas has outperformed the U.S. average for rental income growth for three years in a row. High occupancy levels and the growth in population over the last several years are the largest of influences of rent growth in this market. Employment growth is estimated to be 4.2% in 2007. The oversupply of rental housing units and competition from aggressive single family home sales will put some pressure on fundamentals but strong population trends will allow Vegas to be a solid performer this year.

In Orlando, we rate current conditions as an A with a stable outlook. This economy is poised for healthy growth and expansion across all sectors. Employment growth numbers are predicted to decline slightly over the levels seen in 2006, however the addition of approximately 24,000 new jobs is still above the U.S. average. High wage job growth, housing appreciation, and the ever increasing population will lead to another year of good NOI growth in Orlando.

We rate Austin's current conditions with an A with improving outlook. Employment growth is expected to accelerate producing strong gains across all sectors with 25,000 plus new jobs annually through 2009. Absorption levels were forecasted to be less than 0.5% below completions, which will keep vacancy rates low maintaining pricing power in this market.

In Orange County, we rate current conditions as an A- with stable outlook. Population in employment continues to grow at rates of 20,000 and 14,000 respectively, but housing and multi-family construction permits have not kept pace, keeping supply very tight. Single family home prices have seen a tremendous increase in the last couple years making home ownership hard to attain for the average resident of Orange County. Limited housing supply, rising employment across all sectors and high occupancy rates will allow for further rental increases in 2007.

In North Carolina, we rate current conditions as an A- was an improving outlook. Employment growth has been on the rise year-over-year with a 5% increase seen in 2006. With increases in job growth the city is relying on immigration to fill a lot of the available jobs. During 2007 this region is predicted to see the addition of 21,000 new jobs. Solid job growth and limited supply will allow this market to move up as a top performer over the next year.

The North Carolina district is projected to be one of Camden's highest same property NOI performers in 2007.

In San Diego we rate current conditions as a B+ with a stable outlook. This market has experienced good economic growth for several years. Job growth is expected to slow moderately from 16,000 additional jobs in 2006 to roughly 12,000 jobs in 2007. And San Diego has become the fifth most expensive market in which to purchase a home. The housing appreciation will be a big force pushing potential buyers back into the rental market allowing for the opportunity to push rents again this year, although at lower levels than in 2006.

In South Florida, current conditions are rated as a B+ with a stable outlook. Employment growth is expected to moderate, but still exceed the U.S. average in 2007. Forecasts show immigration expanding by 30,000, large declines in multi-family permits, and a housing market where prices have doubled. These factors will allow additional rent growth this year, albeit at lower levels in 2006.

We rate current conditions in Tampa as a B with a declining outlook. This market was a top producer for Camden last year and will continue to be a solid performer, but not near the double-digit NOI growth seen in 2006. Employment growth is anticipated at 18,000 new jobs, which is well below 2006 growth and domestic migration of roughly 50,000 additional people will be the key drivers for the market in 2007.

In Houston, we rate current conditions as a B+ with an improving outlook. This market is benefiting from energy exploration and production activity. Absorption should be above completions by 3.4% and the addition of 60,000 new jobs will aid rent and NOI growth in 2007. In Atlanta, we rate current conditions as a B+ with an improving outlook. It took a while, but finally this economy is growing at a decent pace.

Job growth has been steady with an unemployment forecasted to be almost 0.5% below the national average of 4.4% in 2007. 50,000 new jobs and 50,000 immigrants are predicted this year, largely due to the increases seen in office, retail, and hotel development. Completion attract absorption for several years allowing good, but not great rental growth. The combination of all these improving factors will assist us in pushing rents, maintain our forecasted market wide occupancy rate of 95%..

In Dallas, we rate current conditions as a C+ with an improving outlook. This market is finally illustrating signs of stabilization with rental revenue returning to levels last seen in 2001.

Last but not least in Denver, we rate current conditions as a C with stable outlook. This market saw a positive push to recovery in the latter part of 2006, but forecasts show the possibility of more sideways movement ahead in 2007. Employment will remain steady with 22,000 new jobs and immigration levels are forecasted to stay positive this year. Camden's market wide occupancy levels are expected to remain flat, again in 2007. And even though the market conditions are forecast to be challenging, we do see modest year-over-year increases in same property rents and NOI in 2007.

The 14 markets we just covered which constitute of 97% of Camden's NOI, 10 had unchanged ratings compared to last year, one improved and one declined. None of this is surprising when viewed at a macro level. Given the employment growth projected in CPT's markets for 2006. Nationally, job growth is projected at 1%, whereas Camden's markets are projected to see a 2.4% growth rate and our results in 2006 and 2007 forecast for '07 provide great evidence of the positive correlation between employment growth and rental revenue growth.

We've always believed that job growth is the primary driver of results in the multifamily sector. If you calculate a weighted average from our letter grades it indicates that the overall condition in Camden's markets is between a B+ and an A- with a stable outlook. This strikes us as about right and supports our same property NOI guidance in 2006 of a 5.5% to 7.5% growth rate. Finally to all our Camden associates, congratulations on your contributions to our extraordinary performance in 2006, let's do it again in 2007.

Now I'd like to introduce Dennis Steen our Chief Financial Officer.

Thanks, Keith. I'll begin this morning were the review of our fourth quarter results. Camden reported FFO for the fourth quarter of 2006 of $54.7 million or $0.87 per diluted share.

At the upper end of our previous guidance of $0.81 to $0.87 per share and $0.02 above the First Call mean estimate. These results reflect property net operating income coming in approximately $0.01 per share below our expectations, primarily due to the impact of slightly higher vacancy rates on property revenues. Property expenses were in line with our expectations and were down 3.8% from the prior quarter on a same store basis primarily due to the normal seasonality to our utility and repair and maintenance expenses.

Fee and asset management income totalled $3 million for the fourth quarter, approximately $0.01 per share higher than expected due to fees earned on existing third party construction and development projects. This is down from $5.4 million recorded in the third quarter due primarily due to the absence of the formation of new joint ventures. The third quarter of 2006 included $2.3 million in fees related to the formation of our development joint venture in College Park, Maryland and our Midwest operating joint venture.

Interest in other income for the fourth quarter totalled approximately $3.7 million, which was $1.8 million or $0.03 per share higher than our expectations due to the favorable settlement of the last remaining litigation we inherited in the summit acquisition. All other income statement line items for the quarter came in generally in line with expectations. The only additional item to note is G&A expense for the fourth quarter included a $4.2 million or $0.07 per share nonrecurring charge related to the vesting of previously granted senior officer share awards as we discussed in the prior quarter.

During the fourth quarter, we sold two of the five operating properties held for sale. Camden Crossing and Camden Wyndham both 20 plus year old assets in Houston were sold for $32.5 million, resulting in a gain of $18.9 million. This results in us being a net seller of operate real estate assets to a tune of approximately $315 million in 2006 as we completed the sale of 20 operating communities reducing our exposure of 20 plus year old assets primarily in our Houston, Dallas, and Midwest markets and at 5.5% cap rate using actual CapEx of approximately $875 per door.

These proceeds have been fully recycled into our active development pipeline as we currently have 18 projects in lease up or under construction across our major markets from metro D.C. to Southern California as detailed on page 16 and 17 of our supplemental package. Also note that we've added additional disclosure on our future development pipeline on page 18 of our package. The three remaining operating assets held for sale are Camden's Downs, Taravue, and Trace in Missouri and Kentucky.

And we expect these assets to be under contract in the first quarter of 2007 with a closing in the second quarter of 2007. Moving on to 2007 guidance, we expect 2007 projected FFO per diluted share to be in the range of $3.60 to $3.90 as compared to $3.88 for the full year 2006.

Our 2006 FFO per diluted share of $3.88 included approximately $0.42 related to the favorable impact of gains on the sale of technology investments, escrow deposits forfeited, gains on the sale of land, partially offset by the expense of accelerated vesting of senior officer share awards. Adjusting for these nonroutine items, 2006 FFO would have been $3.46 per diluted share resulting in expected 2007 FFO per share growth rate of 8.4% at the midpoint of our 2007 guidance range. Excluding gains on sale of land from 2007, which totalled $5 million at the midpoint of our range, our expected 2007 FFO per share growth will be 6.1% at the midpoint. Please refer to page 24 of our fourth quarter supplemental package for details on the key assumptions driving our 2007 financial outlook.

For our over 44,000 same property communities, we are expecting revenue growth of 5 to 6.5%, expense growth of 4 to 5%, and net operating income growth of 5.5 to 7.5%. We've also provided details on the assumptions relating to our 3500 units in our repositioning portfolio. You can see that we are forecasting to be a net seller of our operating assets again in 2007, recycling older assets to fund our $350 to $500 million development starts for 2007.

Nonproperty income net, which includes fee and asset management income, net of expenses and interest in other income is expected to be between $13 and $16 million in 2007, in line with the 2006 total of 14.4 million. Nonproperty income should be weighted 40% in the first half of 2007 and 60% for the second half of 2007 due to the expected transactions in the second half of the year. We continue to market the 5.7 acres of land held for sale in Southeast Florida and Dallas and might sell additional acreage adjacent to existing developments.

Our guidance assumes $5 million in land sale gains at the midpoint with the gain split between the third and fourth quarters of 2007. General and administrative and property management expense is expected to be between $49 and $53 million in 2007, down from $56.1 million in 2006, primarily due to a decline in senior officer share award expense and litigation costs, partially offset by growth in core expenses of 3 to 4%.

Moving to the first quarter, for the first quarter of 2007, we expect projected FFO per diluted share within the range of $0.87 to $0.91, with a midpoint of $0.89 per share. Representing a $0.02 per share improvement from the fourth quarter of 2006. This $0.02 per share improvement is the result of the following. A $0.02 per share increase in property revenues as same store growth and additional contribution from our development communities in lease up more than offset revenues lost on our fourth quarter disposition.

A $0.06 per share decrease in property supervision and G&A expenses primarily due in the $4.2 million charge in the fourth quarter of 2006 related to the vesting of senior officer share awards. These two positives are partially offset by the following, interest and other income declining $0.03 per share entirely due tot the litigation settlements recorded in the fourth quarter of 2006. Fee and asset management income declining $0.01 per share due to a decline in third party construction and development fees. Property operating expenses increasing $0.01 per share due to the same store growth and expenses related to delivery of new units from our development communities in lease up and a $0.01 per share increase in interest expense resulting primarily from the expensing of interest on units completed in our development pipeline.

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

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Jonathan Litt with CitiGroup.

This is Craig Melcher with Jon. Can you talk a bit more about your acquisition and disposition assumptions in terms of the spread between those and the markets that we should expect the dispositions to be in?

Sure, Craig, you're talking about the spread that we expect to sell at and buy at?

Correct.

Well, you can take the '06 transactions and the guide. We are selling our older less -- less growing assets in markets that we're in that we want to recycle that capital then out to our development pipeline. The spread generally has been between 100 and 200 basis points. On an FFO basis, one of the complications I think people need to understand, Dennis, I think indicated in the dispositions that we had a 5.5% cap rate plus or minus, but we're using real CapEx on those numbers. The FFO yield is higher than the 5.5% cap rate. Generally it's 100 to 200 basis points because we're selling older, slower growing assets and buying newer. In terms of redeployment. We have an acquisition total from 0 to 100 million. But bottom line, if you look last in '06, we did acquire a couple of properties, and they were 5 to 7-year-old assets with much higher rents. And bought those in Austin, Texas, actually.

And second question is, just Dennis, with you that sequential FFO change from do you have your same store revenue expenses or NOI should look on a sequential basis in the first quarter?

Right now if you look at the net growth in same store on an absolute dollar perspective, revenues would be up on a same store basis probable about $1.2 million and expenses would probably be a good 40% of that when that number given our margin.

Okay. Thank you.

Our next question is from Christeen Kim from Deutsche Bank, please state your question.

Hi, good morning, guys. Definitely appreciate the more upbeat music. Are you guys going to start taking requests?

Exactly. Just e-mail.

Thanks. Can you just comment on how the single-family home market is affecting your business? I know there's a lot of discounting going on and how that's affecting your markets.

Christine, the place that we have seen in just kind of the feedback that I've gotten from our operating folks is where it has been an issue is primarily in Las Vegas. And that is really specific to about 5% of our portfolio in Las Vegas where we have three bedroom units, it's actually a bit unusual. We don't have that many throughout the portfolio, but in Las Vegas it's a meaningful number. And that is really where the issue arises with regard to competition from single family homes. Obviously the in some of the markets where the builders are seriously up side down on their current inventory, they've been aggressively doing concessions and all of the things you would expect them to do. But if you, you've got to put that in the context of in the case of the Las Vegas. Up until the point where prices started to get soft and moderate, Las Vegas saw literally a doubling of the new home prices that were being delivered at about an 18-month time frame. So the fact that somebody is now discounting 10% and doing give always and giving cruises and all the crazy things that they're doing, the effective price from where we were two to three years ago is still up 35 to 40%. So that, with that in mind, we saw the same level of move outs to home purchases in the fourth quarter that we did as an average throughout the year. Now that number jumped around a little bit, it was as high as 20% and low as 17, overall it's about 19, which is really about the midpoint of what our historical range has been. At the peak we were at, we hit a number in one year that was about 23 and change. And at the bottom we were in the 15 to16% range. So it's not -- we're not seeing anything unusual in that regard. And primarily because there was such a huge run up in the prices before the discounting occurred.

Great. That's helpful. I appreciate the commentary on the condo filled markets verses the noncondo markets. In terms of your revenue growth assumptions, have you assumed some condos coming back into the supply pool?

We have. We have. In fact both of our underlying data providers as part of their modeling process and we do our budgets bottom up and then try to square those up with kind of top down data providers, but both of the data providers have indicated to us that they have -- depending on their view, they've put a fair slug of condos coming back or a moderate number. The view that we've heard from them, most I depressive is 30% comeback and the one less aggressive in the 15 to 20% range. They, absolutely that is part of their forecasting model when they think about total rental supply that's going to be coming into the market.

The thing that's interesting to put in perspective is that even when you go through that analysis and even if you take the most aggressive view of 30% somehow or another find their way back into the rental pool and you do the thumbnail math that has been really consistent for us over the years, which is kind of looking at for every -- for every new -- for every job that has grown for every five jobs that you add, you need one natural rental unit to support that or the 5 to 1 ratio jobs to new supply. And even if you do that and you'll apply that math across our portfolio, you still end up with an equation that is slightly demand driven for 2007. So even if people want to take the more pessimistic view and aggressive view, I think yes it matters. Would growth rates be higher possibly if there were not an issue on supply side from condominiums? Sure. But if you look at where we think we'll end up, '07's going to be a really solid year for us.

Great. Thank you.

You bet.

Thank you, the next question is from Mark Biffert with Goldman, please state your question. Please state your question.

Hi, guys. Question on Dallas and D.C. I guess we saw occupancy in D.C. sequentially dropped 200 basis points. Just wondering what was behind that considering rent growth was pretty modest?

We had a couple of markets in the fourth quarter on a sequential basis that had some, looked like 190 to 200 basis point drops in occupancy. And if you look at historically and you go back and you what were these, kind of stabilized and normalized fourth quarter occupancy rates, they're really not that far off.

The difference when you look at it year-over-year is that in -- fourth quarter 2005, we had the highest occupancy rate that we've ever had in a fourth quarter. Our historical and I went back five years prior to the '05 result and if you average the five years prior to that, our average occupancy in the fourth quarter was about 93.5%. So the fact that we were over 96% in the fourth quarter of '05 was just was an anomaly. A lot of people had the same kind of experience. And who knows really what drove that, but the fact is that the number that looks strange in the progression is really not the fourth quarter '06 number, it's the fourth quarter '05 number.

What I think happened if you think back, the recovery in this business started sort of in the middle half of '05 and people were sort of worried that it was not going to continue. And I think that people were not as aggressive pushing rents during that period so they were really focussed on occupancy levels in the third quarter and going into the fourth. This time around, however, in the in '06, we pushed like all of our competitors very, very aggressively on rate and then drove occupancies down and didn't focus as much on occupancy. And we would much rather have the occupancy levels we have today with the rates we have as opposed to higher occupancy and lower rates.

Okay, and as far as, it appears that a lot of your competitors and even income builders are urgent builders are bringing a lot of supply into that market. How much of that do you think is going to be absorbed? and do you think that has anything to do with the decline keeping occupancy where it's at?

Well, the interesting thing about supply, the you look at it on a national basis and an individual market basis, there's not a huge amount of supply relative to what's been going on. In the past, you had that lot of condos, obviously that were being built, and now the apartments are sort of taking the condos' place. Based on the market analysis that we've done, we don't see a supply problem creeping up on any major market right now. The real interesting part of this equation is that you have a the situation with construction costs increases have been very dramatic and I know a lot of merchant builders and REITS have had significant problems with construction costs and timing the projects and getting the right subs in to get their projects built on time. It's not an easy, it's not an easy business right now.

So if rental rates have gone up a lot, but they haven't gone up in a lot of markets to justify massive amounts of new construction and the market is very disciplined today. There may be a lot of capital slashing around there in the capital markets, but at the end of the day it still needs to get a reasonable rate of return there's a lot of projects. So we don't really feel like there's a big risk in the supply side, at least in '07. Maybe if '07 continues to ramp-up and people are willing to take lower yields. You might have something happen middle of '08 and '09, perhaps, but not '07 to middle of '08 at this point.

Okay. And lastly, on your shadow pipeline, how much of that do you plan on doing on your own balance sheet verses JV part?

Well, we have in our -- in our guidance on page 24, we plan on doing 2 to 300 million on in joint ventures and that's sort of a number we feel comfortable with at the end of the day. One of the challenges being the development company is that you have this tradeoff between your balance sheet leverage and also the FFO dilution you're willing to take to get the increase in NAV. If you're look at this year, we have an incremental increase of $6 to $7 million of dilution from developments. We're taking a $0.10 a share hit in order to generate the positive NAV that we're going to be generating from that development from an earnings perspective. So it's a balance and some of the projects, for example, when you see on our development pipeline are big projects. So we generally have done joint ventures on projects over $100 to $150 million and we probably will continue to do that.

And what percentage of that 200 to 300 million will be your portion of that? What equity stake will you have in that joint venture?

Our joint venture structure generally is within 20 and 30%.

Okay.

Depending on the structure and generally we have a mezzanine financing in that as well.

Thanks.

The next question is from William Acheson with Merrill Lynch. Please state your question.

Thank you, good morning, gentlemen.

Morning, Bill.

To what extent was Yield Star holding the rent high in the fourth quarter, maybe holding in anticipation of the stronger second quarter leasing season?

Well, the yield star, the underlying metrics for it, Bill are always trying to drive to a 95% average occupied condition. And in that -- you can set that at whatever you want it to, but ours has been set at 95%. If the model sees that you're going to have good relatively low turnover rates looking out on the 60-day horizon and sees decent traffic historically, then it will allow rental rates to stay in place or stay a little bit stickier for knowing that you have a forecast that's going to be constructive in the 60-day planning horizon. So honestly, when you look at and you drill down and you look at these individual markets and you say where were we occupancy wise in the fourth quarter? What was causing it? Yield Star is doing exactly what it's supposed to do. One of the things that is, there's a slight effect in our fourth quarter numbers that we have not, we have not isolated, but it's certainly a factor is the fact that our repositioning program is kicked off. And we have units that are taken offline for repositioning and that's running through our same store portfolio. We have given guidance for '07 and we told all y'all we'll break out the results of that repositioning program so that you can isolate the capital cost of that and then the return. But there's no question that there's some of those communities that are in the repositioning program where we kind of have a head start on it have had longer turn times on the unit. So when you put all that together and then you kind of look at it historically over what our typically seasonally low occupancy rate is in the fourth quarter. It's just not something that we're concerned about.

Okay. I just had to ask that. On the future development pipeline, the predevelopment, the Shadow whatever you want to call it. The properties 10 through 16 listed as under contract, what's the probability of those actually getting done? Are those places where you just own the dirt?

Yes, absolutely.

Okay.

In some, just Camden Noma, for example, Washington, D.C. asset. We actually closed on that land this in January, I believe. Most of these projects are under contract. And you can see below -- below the subtotal there on 10 through 16. We spent $6.2 million working on those deals.

Okay.

If they're on the list, they are well down the trail from a development perspective. And we think that we're creating value either by processing the land or through an ultimate development that will get done.

It's either owned or under option?

Exactly. They're owned or under option. Correct.

Going back up to the top of the page. If I am reading, the increased disclosure from the third quarter helps, but I'm looking at the two D.C. properties South Capital and Summer Field, what it looks like happened here is that the combined costs on those deals went up by a little bit over $20 million or effectively $46,000 per unit. Can you give us an idea what was going on there?

That's one of the challenges when you have these predevelopment and you try to get good disclosure out there because we're in the process of working on these deals and Camden Summer Field, for example, too is a sort of an estimate. We don't have plans for the project yet. We have -- it's in preconstruction. And so when you, when you, we had all these sort of lumped together to start with. And we just put sort of what our best guess at the time was. And when you get down into some of these -- some of the projects where you're just starting to work on them, you have basic schematics perhaps and maybe a site plan you don't necessarily have exactly all the information you need and the numbers will move around quite a bit.

Okay.

So that was one of the sort of debates we had about -- we're all for more disclosure, but at the end of the day, you got to remember that these are, these are works in progress and they're going to be a lot more volatile from a numbers, number of units, estimated budgets, are all going to be very volatile based on as we process and go forward. You have, for example, the number 13 down there. Selman Vine in Hollywood. That's a project we've been working on for over two years now. And we're in zoning processes and city planning and all, we change the number of units, it involves a whole foods store or 65,000 square foot WholeFoods on the bottom. There's a lot of moving parts. So you really have to be careful on worrying about how those numbers move around.

Okay. And turning to the lease up, generally the lease up from October 29th to February 1st, looks like two, three, four, leases per week at most of the properties. But WestWind looks like it's having a little bit slower going. Under two leases a week. Is that a difficult market? I know it's way out there. Is that a tougher market to be trying to lease new property up in?

No, the problem with WestWind is they had unit availability issues there. And we had some staffing issues they had to rectify, but we think the market's fine there, it's definitely leasing out slower, a little slower than we anticipated, but not at, actually the rents are higher than we anticipated. So I'd much rather have that lease as fast FairFax Corner it's closer in. But we're okay with it.

Okay. Then a couple of numerical things here. If you could have a break out between G&A and property management for your guidance?

Yeah, if you look at the guidance, we gave you 49 to $53 million for the full year. You can split that into 19 million for property supervision and 32 million for G&A.

Okay. And let's see here, how about absolute dollars that you're going to put into development spending?

We'll have to get you that number offline. We don't have that.

Okay. Let's see -- okay, that's it. Thank you.

Thank you.

Thank you. The next question comes from Rich Anderson with BMO Capital Markets. Please state your question.

Thanks and good morning.

Morning.

Morning.

Guess the first question is land gains in '06, was that about 20 million?

You broke up, Rich --

Can you hear me?

You said the land gains were 20 million?

Is that right?

No land gains were 26 and some change in '06. 26.2 million.

26.2. Okay. And obviously it seems that you've added fair amount to your land bank. Is that going to be a new strategy that sort of builds the land holdings either through option or out right owning the land?

I don't think it's a new strategy. We've been doing it over the years. We just happen to be able to add more land. The fundamental issue is not so much adding land as it is adding to the development pipeline and we're doing it through options and acquiring. Now in the past I think we sort of lumped those numbers into a big general category called Shadow Pipeline and now we're, we're expanding that disclosure. And I think it may look like we're having a lot more than we used to have. That's primarily because we are being more detailed and putting it out there. For example, I mentioned that Selman Vine project in Hollywood, that's been in the paper in Hollywood in L.A., people have know about it it's been lumped into a big category in our disclosure. I think it's more maybe you're seeing more details of it now.

Okay. Fair enough. On the revenue growth just so I understand it a little bit better, it's 5.6 for the fourth quarter, rents were up 6.4, occupancy was down 2.3. What's the delta that gets you the 5.6? What else is in revenue growth besides rent and occupancy?

Rich, the other income.

Like TV stuff?

For example, Camden Perfect Connection gets into the revenues. We also have -- we show gross numbers of our water rebilling. So there are a lot of things that roll through that number that kind of if you netted the two together, you wouldn't have as big of impact, but we have always show the revenue impact and the expense impact, as well.

Okay. Apologies in advance to owning the Phoenix or North Carolina associates on the line right now. Considering the improvement in those markets, would they be candidates for asset sales getting them sort of at the top of the market, markets that tend to have some supply issues?

We long-term, Rich, we're more interested in picking markets that we believe are going to benefit from outperformance and employment growth. And we still believe that those two markets they clearly meet that criteria. And we are, when we sell assets, it's more likely to be selling assets because of the age of those assets or the physical challenges and CapEx challenges or because we happen to be in markets where we're over represented from an NOI perspective for our long-term target. And neither of those markets fall into those categories. The issue, the concept of trying to time entry and exit points on your core assets in markets like that is just not something that we have ever wanted to engage in. We prefer to pick-- have a set of markets that we believe in long-term because the job growth is going to drive performance and own a great set of assets and then manage the heck out of them.

Okay. And last question is on the condominium discussion and the fact that you're not seeing any sort of supply impact according to your market intelligence. But I guess this is an unprecedented thing that's happening, this whole reconversion potential -- the initial heating up process. And now the possibility that they could come back as rental hasn't really happened in the past. Is it possible that your market intelligence isn't maybe appropriately factoring in something like this? They don't really have any historical precedence of?

Well, Rich there has been historical precedence.

Not to this degree, though.

Actually it was much worse. If you go back into the 80s in Florida.

Who cares about the 80s?

I remember in the 80s in Florida when you couldn't sell a condo and they were being foreclosed by all of the banks. The banks are putting them on the market leasing them for what they good get. The unprecedented nature is that -- the difference between now and the 80s, I think is that the condos, you don't have zero condo sales being made right now. The condo sales have slowed down and their still selling condo's.. At the end of the day it's not that every condo in these markets has gone vacant and never will be occupied by owner occupant, you've had -- you don't have that situation.

The other thing you don't have is you don't have condo developers who are being forced by the market to lease their condos. At this point the condo market continues to be, while it's slower and it's not as buoyant as it was. It's not dead. And the demographics for condos are good, the baby boom echo, the baby boomers themselves are still buying condos. I'm a classic example. I bought a condo in Houston, Texas, and moved from my single-family house after 20-years in the single-family and I live in a condo now. And that is going on across America, notwithstanding the fact that it's slowing down because there were too many of them and too much hype with investors. There's still a condo market out there. Unless there's some huge economic debacle where there's a zero sales in condos, then you have a different story. Then, equity owners get foreclosed out, the Mezz guys get wiped out, the big banks that have the mortgages on those properties. They throw them into the market at any price that's when you have a condo melt down or condo debacle. Today you just have a soft condo market with a good economy backdrop with good demographics behind that, as well. So I don't think you have, that's why we don't see the sort of melt down that people are worried about.

Okay. Fair enough, thank you very much.

You bet.

Thank you. The next question comes from Alex Goldfar with UBS. Please state your question.

Good morning.

Morning.

Morning.

Just wanted to go back to some of your market commentary, specifically on Florida. This quarter we saw one of the REIT one of the REIT essentially exit the market, another REIT bulked up down there. You guys obviously have a strong presence down there. Just with all of the talk of condos, insurance rates, can you just give us your view of what you see happening in Florida over the next two years?

Well, the, Alex, if you take our '07 numbers and you kind of strip them down to the Florida markets and you take Tampa, Orlando, and South Florida together and you look at what kind of what we're forecasting for NOI growth, it's about on par with the average of our whole portfolio for revenue growth next year. That's -- coming on the heels of those three markets being three of the top four, three of the top five performers for 2006. So you had an extraordinary run up in rental rates in the Tampa, Orlando, and South Florida markets. And if somebody -- if I had never heard of the potential for a condo impact and you see the kinds of revenue growth that we achieved in '06, without knowing anything else, we would see a moderation of that in 2007. And here's, here's the reason behind that.

With the revenue management model in Yield Star, we are absolutely pricing at the then current market conditions. And for the -- for all of 2006, we were able to create a pretty big GAAP between what we were doing and not so skilled competitors were doing. I'm not talking about the public companies because they are honestly not the bulk of our competition. I'm talking about all the other third party management operators. You can push rent to a certain degree and you can create a gap. But if the other folks are not watching the -- don't have the right tools in place to also push their rent, eventually you create such a gap between where you are, where your competitors are, even though underlying market conditions are still pretty good, the reality is there's a, you got to play -- they got to play a little catchup to you. We know that's going to happen because part of our, the rental pricing model incorporates what the competitors doing. It's not the major factor, but it is a significant factor. And so, without knowing anything else, I would expect to see a moderation of growth in 2007, which we are going to see. But as far as long-term in the markets, if you look at the employment growth and population growth projections for South Florida, for Tampa and Orlando. They still-- depending on whose numbers you use they still bounce around in the top 10 to top 15 for employment growth over the next 10 years. And so, we're not trying to pick and time a single point in 2007 or 2008 when it may under or outperform our total portfolio. But over the long-term, we -- we're comfortable that we want to be committed to those markets.

The other thing you have to look at too. In South Florida, if you look at our development pipeline, we have not one deal down there, and the reason being is that it's so hard to find deals that make sense. And so you have a situation where there's no supply pressure from multi-family at all on Southeast Florida. The only supply pressure is this condo boogy man that everyone's worried about.

Okay. And then, actually following up on that point then. Are you seeing any -- any land that a developer may have locked up? Are you seeing any of that in any of your markets starting to come back or the developers feeling pretty comfortable at this point that they think they may have hit bottom and that the deals will start working again.

Generally speaking, we have seen more availability of land around and markets that we were frozen out of in the past because of condo development. But the problem that you have is that the landowner hasn't made the capitulation to the fact that a condo developer. There's a gap between the purchase price that we can pay or a developer can pay for an apartment developer and a condo. Some of the home builders clearly are mark-to-market, it hasn't been dramatic enough to create a lot of new apartment construction just yet. Maybe it'll improve in the future. We'll be able to get sites down there.

My second question is can you just tell us where the common dividend stands relative to taxable income.

Taxable. It's actually going to be 100% taxable with about 9% of it going to be ordinary and the rest capital gains. We put a press release out on that earlier this month.

I know but where your payout is?

For next year, the payout ratio will be around 72 to 73%.

But payout ratio taxable income?

Oh, to taxable? That was the FFO, I don't know if I have the taxable income. We'll have to get back --

Perfect. Thanks a lot.

Thank you. Our next question comes from Richard Paoli with ABP Investments. Please state your question.

Morning, guys. Appreciate the detail on the call. I just have a couple questions. And I guess, Rick, I found your comments interesting regarding the NAV creation. There appears to be at least this earnings cycle an incredible amount of focus on earnings, growth and not really NAV growth. Could you just give us an idea on what on an aggregate basis for the projects that are going to be leasing up in 2007, hitting stabilization, what you estimate that stabilized yield to be?

Sure. That are stabilizing in 2007?

Yes, as a group. I'm not necessarily asset by asset, but all of these projects that have a stabilized ops, what's that run rate coming out of the from the first year stabilized?

Sure. Let me get -- the -- and this is an interesting number because when you look at as developments bought out early in the cycle that are being completed now of course have the lower construction cost, lower land prices and good rent, very good rent growth. I would say that if you take our in lease-ups now, the range is probably 7.5 to 7.75.

Okay 7.5 --

7.5 to 7.75 plus or minus.

Okay.

Then down to under construction it's around 7 and some change.

Okay.

And then if you take the -- if you go into the pipeline, you're probably 6.5 to 7.

Okay.

And that's because you're dealing with more expensive construction, higher land prices, and one of the things we do trend all of our costs and all of our expenses in addition to our rents. But we won't trend more than 4% rent growth in the market.

Right.

Hopefully we have some up side on the rent growth given that our rent growth is projected to be higher than that at '07.

Okay. In part, if I listen to your comments. It seems that you're using some asset sales proceeds to fund the development.

That is correct.

So where are you selling at today? These older more capital intensive assets even-- I think that 7.5, is that a pre CapEx or is that a post CapEx?

That would be a post CapEx.

Okay. So an apples-to-apples. On a post real CapEx basis, where are you selling at on average?

On a post CapEx basis -- total CapEx somewhere around 5.5.

5.5, so you're still making even on the stuff 150 basis point spread even on the stuff, more like 200 on the stuff this year coming out.

Yes. I think part of the GAAP in that analysis might be that the CapEx on the 5.5 is probably 850 a door and the CapEx on the development is probably 150 or something like that. So you do have a gap there. It's 250, it's more like, it's probably thinner than that if you're trying to translate selling older assets and redeploying those into lease-up portfolios. Probably more like your FFO yield is more like 6.5.

Got it.

Six and some change because of the higher CapEx on the 5.5. Okay? On a positive spread.

Yes. My next question is more mundane one. On the mezzanine investments that you guys have outstanding, is there anything that has an expected maturity? I know these things could pay off previously than expected, but as far as scheduled maturity is concerned, do you have anything, could you give us some more color on that and what the income is---

We don't have the actual maturity of the schedule, but we can definite provide that to you offline, Rich, we'll give you a call later and give you the actual details of the maturity metrics for the Mezz..

Great. Okay. Thanks.

Thank you. The next question comes from Craig Leupold with GreenStreet Advisors. Please proceed with your question.

Good morning. Dennis, thank you very much for the concise and detailed reconciliation of FFO. It sure makes the call a little more interesting. I did have a couple of questions. First off, on your development pipeline that you show, Rick. It looks like if you kind of from a cost basis standpoint that on a per unit for what you own, you're roughly in the low $30,000 unit range depending upon you're including the predevelopment costs or not. I'm curious if you have any estimate as to what the market value of that land might be today on a per unit basis?

The market value of our current--- of our land holdings.

Of your pipeline communities, the stuff that's preconstruction predevelopment, totals just under 2500 units, cost of date or so.

Right.

Which gets you to 31 or 34,000 a unit. And I'm just curious if you had any guess as to what the value that land might be today?

Well, that's a tough question to answer on a call like this. I know it's more, but I don't have a good guess of that number right off the top of my head.

Okay. And in terms of the projects that are under contract, what's typically the structure of those contracts? Are they fixed price contracts?

Yes, they're all fixed price.

Contingent upon you getting through an entitlement process?

Some are. And some are just where we're in due diligence and we haven't finished our due diligence on the project. But they're all fixed price contracts. Some do have kickouts for entitlements and some don't.

Okay.

And the ones that don't are ones where we're already entitled.

Okay. And Keith, just a question. When you concluded your grading of the markets, I think one of your, final comments was something to the effect you expect kind of rent growth to be positive. But I'm curious the difference in your guidance for revenue growth of call it 5 to 6.5%. The make up of that between sort of marking the market leases that are currently in place verses actual market rent growth. If I'm not being clear, I'm trying to think what your assumption is for market rent growth verses capturing growth on turnover that's existing in your portfolio today.

Yes. The market, if you take the market rent growth for all across the -- all the markets, Craig, it would be in the range of about 3.5 to 4% market rent growth. And you're trying -- are you asking the embedded growth that comes from leases signed this year that's already kind of baked into the current run rate?

Yes, exactly. I'm trying to, one, think about the embedded growth and then also as I think about kind of market rent growth as it starts to set up for the second half of '07 and the first half of '08, just trying to think about what your expectations are. That's why I phrase the question that way trying to break that out.

Yes. I think the, at the fourth quarter, if you, we don't, because of Yield Star we don't really spend a lot of time tracking anymore, but if you do that comparison, we're still probably in the range and I think this is the number you're asking for embedded rental increases that are still coming that have not yet come through our financials is in the range of $52 a unit per month.

Okay. Great. And then one last question, the way you guys have laid out your guidance, the repositioning assets, they are taken out of the same store pool?

Yes, they are.

And when do you expect to put them back in once they have rereached stabilization?

When we've turned all substantially all the units, Craig, they'll come back in. And most the cases, we should be able to get through the bulk of the unit turns in '07. We've got a couple of large assets that may roll over into'08. For the most part we should be able to get through on unit turns in '07.

Thank you.

You bet.

Thank you. [OPERATOR INSTRUCTIONS] The next question comes from Anthony Paolone of JPMorgan Securities. Please state your question.

Thank you. Dennis, can you just walk through maybe the mechanics of getting to the $0.10 of incremental dilution on development?

Okay. Sure, if you look at the development pipeline. I'll take an example and it might be Potomic. It's $110 million development. And it will have completed construction in the third quarter of '07 and at that point in time it will not be fully lease up and will be expensing all interest, taxes, and other recurring expenses. So from that time that it actually completes construction through the end of the year, you will actually have interest expense that exceeds your NOI. So for the full-year of 2007, Potomic, by itself would have a negative FFO impact of about $2.7 million as our NOI is about 600,000 and interest expense, which is now being incurred on the entire balance plus the other core expenses will be about $3.3 million. So, Potomic by itself would have approximately a $0.4.3 dilutive impact in '07.

So once these projects are completed and I guess get, all capitalization ceases?

That's correct. As soon as the units are substantially complete, all capitalization of interest taxes and any other operating expenses ceases.

Yes, and the real issue becomes when you have urban projects like 12-story building about a mile from the pentagon, you don't deliver -- if you're building say a low-rise 3-story 10-building project, you can time those buildings such that you deliver 25 units at the beginning of the month and you lease those 25 units up, you don't have any dilution, but if deliver a 12-story building or these really compact 50, 60 to 100 units to the acre types of development, you're delivering your product very lumpy fashion. Meaning 70 units all at once. And then you have to lease those 70 units up and you don't have revenues for the 7 units, [inaudible] but you have all of the expenses of those 70 units.

So then as you go out in the next couple years to extend your completions pickup, could that number, would seemingly get bigger?

Either. Well depends on as completions go. It actually, we do 3-year models, 5-year models and it sort of bumps around. But as your -- if your pipeline stays stable, then it should -- it should sort of be embedded in your run rate. If your pipeline grows, then that number will grow and it also depends on the configuration of the project. If we're building more high-rise, more urban infill, then that number could grow even with a slowing development pipeline. It just depends on the configuration of the development.

Okay. And then just the other question is do you have the net income from cable in 2006?

For the total all Camden units, is that the net contribution -- net contribution is in the $2.2 million range.

And do you have a number that's implied for your guidance in '07?

The number that would be implied by the--- I'll have to get that to you separately. But the simpler, at the end of 2007 in December, we expect to be at a run rate that would be at a $6 million analyzed number. So we will be somewhere around the half million dollar contribution in the, in the December number of '07.

Okay. Thanks.

Okay.

I'm showing no further questions in queue. I'd like to turn it back to management for closing comments.

We appreciate you joining the call and anyone who has request for the music next time. Just e-mail us. Thank you.

Thank you, this concludes today's teleconference. Thank you for your participation.