Camden Property Trust (CPT) 2007 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Camden Property Trust first quarter 2007 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (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. Thank you. Miss Callahan, you may begin.

Good morning and thank you for joining Camden's first quarter 2007 earnings conference call. Before we begin, I'd like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings at the SEC and we encourage to you review them. As a reminder, Camden's complete first quarter 2007 earnings release package is available in the investor relations section of our website at www.camdenliving.com and includes reconciliations for 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.

Good morning. Thank you for joining us. The first quarter operating results were in line with our expectations. Strong but moderating growth compared to record earnings growth that we experienced last year. FFO for the first quart was $0.89 cents a share at the midpoint and was at the midpoint of our guidance range. Same-store revenues were up 5.1% and net operating income was up 5.5% over the last quarter. We're pleased with these results given the tough comparables from last year in the first quarter.

Market fundamentals continue to be strong in our markets. New jobs are projected to increase 2.3% in Camden markets compared to 1% nationally. Job growth has slowed from last year, definitely moderating as a result of the economic growth overall moderating in the country. Strong but moderating demand has more than offset any increase of supply from new development and also from condos and single family rental pressure in the market as well. We continue to believe that a geographically product diverse portfolio managed by a top performing team will produce quality core earnings growth with lower volatility.

During the quarter, we announced a $250 million stock buyback program. During the 1998 to 2000 time period, we bought back nearly 18% of our shares outstanding at the time at around $26 per share. This is a significant discount to earned net asset value at the time. We have not bought back any shares so far into this new program, but we will take an opportunistic approach to buying the stock. We will fund this activity through asset sales, thereby not increasing leverage to do that. We think that in the current environment with the stock price where it is, is a significant discount to our net asset value and we will be opportunistic in this approach. At this point, I'd like to turn the call over to Keith Oden.

Thanks, Rick. We're off to a deeper start in 2007. Over all, our operations were slightly better than planned for the quarter and the positive results were broad based. First quarter revenue and NOI growth were positive in all of our 15 markets. The strongest NOI results were in Dallas, 12.6%, Austin up 11.5%, Phoenix up 10.6, followed by Charlotte at 8.6, Atlanta at 8.3 and Houston at 8.2%.

Overall occupancy was up 30 basis points sequentially from the fourth quarter to an average of 94.4%, which is still well ahead of our historic al first quarter occupancy rate. In fact, our average occupancy rate in the first quarter over the last six years including last year's 96% has been 93.3%. The unusual number was the first quarter of '06 occupancy rate of 96%. So the occupancy drop from 96% to 94.4%, quarter-over-quarter is not surprising from a historical perspective. Our most recent weekly occupancy report showed an %94.7 average, which is in line with our expectations for this time of year. Despite the overall positive results and better than planned performance for the quarter, there always seems to be a few head scratchers in the quarter.

This quarter's head scratchers would be the sequential decline in revenues in Orange County and Orlando. In Orange County, the decline is solely attributable to an occupancy dip in our largest community, Camden Martinique, which averaged 91% for the quarter. There are two areas of concern for this community's first quarter performance. First, we have a relatively new community manager. And Although we have an experienced district manager, he was recently transferred to Southern California from Phoenix. And it always takes a few quarters to get a new management team fully up to speed. The second issue is that this community is located in Costa Mesa, which is home to several of the subprime lenders. Several have already announced sizable layoffs and it's anticipated that there may be more to come. We have some anecdotal, anecdotal evidence that this may be causing traffic and occupancy challenges in the entire submarket. In both cases, the issue in Orange County is specific to this one community.

In Orlando, the revenue decline is also an occupancy issue. Our concerns in Orlando were a combination of some Camden specific issues and a more general market challenge. Specific to Camden would be that we're in the process of performing exterior replacement work on Camden Lee Vista and Camden Hunters Creek. The work is disruptive and, while we do everything possible to minimize the pain to our residents, some have chosen to move out rather than to endure the inconvenience. The work at Lee Vista was substantially completed in the first quarter and the work at Hunter's Creek will be completed by the end of the second quarter this year.

We reviewed all of our other assets and found similar concerns on other community, Camden Bay in Tampa, and we're evaluating a fourth, which is Camden Renaissance in Orlando. The more general concern in Orlando is that market-wide occupancy levels have dropped below what we expected to see in the first quarter. Competition from single family home sales, along with an increase in multi-family completions and moderating employment growth numbers have created a more challenging market than anticipated. Orlando's also unique among our 15 markets and that a significant number of the condo conversions that were attempted were done on 10- to 15-year-old garden apartments that were not updated as part of the conversion process. To the extent that these do come back into the rental pool, they are much more competitive than newly constructed, for sale, or extensively renovated older conversions.

Despite these exceptions, overall, our portfolio performed better than planned for the quarter. Among our 15 markets, 12 exceeded budget, to hit their budgets right on and only market, Orlando, was below budget. One area of operations that we're watching very carefully this year is our net resident turnover rate. Last year, we experienced our highest ever turnover rate at 65%, which put a heck of a lot of pressure on our repair and maintenance expenses. For 2007, we budgeted for a reduction in the turnover rate to 60% which is still high relative to our historical numbers. In the first quarter, the turnover rate was 52% compared to the previous year quarter of 54%. The second and third quarter will tell the tale. If we see a turnover rate more in line with historical averages, we may see our R & M costs come in below plan.

Another area we're watching closely is the percentage of moveouts to purchased homes. The first quarter came in at 99 -- 19.9%, a small decline sequentially, but increase from last year's average rate of 19.2%. If our view of the second derivative effects of the subprime lending debacle is correct, we would expect to see this number come down in 2007. Traffic increased nicely from the fourth quarter, but was well below the extraordinary levels that we saw in the first quarter of last year.

And finally, a brief update on our repositioning program which started last year. We currently have 3,400 apartments undergoing repositioning. The average cost per unit is approximately $11,000. We completed 750 homes to date and expect to finish by the end, by -- them all by the end of the third quarter of next year. Our average increase on the renovated homes is approximately $100 per month, which is roughly a 10% return on the incremental investment. Obviously, we're very pleased with the results and we'll continue this approach on our existing assets where it makes sense. We committed to report the results of this initiative separately from our same property portfolio and, to that end, we have included an additional, an additional schedule on page 18 of our supplement. At this time, I will turn the call over to Dennis Steen, Camden's Chief Financial Officer.

Thanks, Keith. My comments this morning will begin with the review of our first quarter results. Camden reported FFO for the first quarter of $59.9 million or $0.89 cents per diluted share, representing a $1.2 million or $0.02 cents per share improvement from the prior quarter, and coming in at the midpoint of our guidance range of $0.87 to $0.91 cents per share. The $1.2 million improvement in FFO from the fourth quarter of 2006 is primarily due to growth and property net operating income of $2.3 million, resulting from the 2.6% growth in sequential NOI from our same property portfolio, as Keith just discussed, and the additional contribution from development communities, which stabilized or were under lease-up during the quarter.

This positive variance in property NOI was partially offset by a $1.2 million increase in interest expense, resulting primarily from the completion of units in our development pipelines for which capitalization of interest was discontinued as they were moved into operating status. As previously mentioned, comparing our first quarter FFO results to our prior guidance, we came in at the midpoint of our guidance as a slightly better than expected performance from our operating properties was offset by higher than expected asset management expense and income tax expense. The asset management expense was approximately $700,000, higher than anticipated, due to cost overruns and warranty costs related to our third-party construction activity.

You will note on the face of our statement of operations, on page 7 of our supplemental package, we've added new line items for income tax expense and income tax expense on the sale of depreciable operating property. Income tax expense for the first quarter of 2007 totaled $721,000, which included $362,000 related to the new 2007 state of Texas margin tax and taxes related to our taxable REIT subsidiaries. This portion of the tax is always included in our 2007 forecast and you can expect a similar amount in future quarters. The remaining $359,000 in income taxes is a nonrecurring book to tax adjustment for 2006 Kentucky state and local taxes on our operating partnerships operating activities in Kentucky. The tax was larger than originally estimated in 2006 due to state apportionment factors impacted by our property sales in 2006.

Additionally, we recorded a $1,184,000 book to tax adjustment for Kentucky taxes due on gains recognized on property sales in 2006, which makes up the entire balance in income tax expense on the sale of depreciable operating property. On the transaction front, we completed no acquisitions or dispositions during the quarter. Our remaining three midwest assets, which are held for sale, are all under contract and are expected to close by the third quarter of 2007, generating proceeds of approximately $50 million. We are currently evaluating additional disposition candidates. Any additional dispositions would not occur until late 2007.

We continue to market the 5.7 acres of land held for sale in southeast Florida and Dallas and we might sell additional acreage to existing development. Our guidance still assumes $5 million in land sale gains at the midpoint, all in the last half of this year. Adjustment to quarter end. We did acquire for $42.8 million a 235-unit apartment community built in 2001 and located in the very strong submarket of Austin, Texas, one mile south of the central business district. Our full year guidance for acquisitions still remains at $100 million dollars. Our development pipeline is continuing to progress nicely.

During the first quarter, Camden Fairfax Corner in Fairfax, Virginia stabilized and we completed construction at Camden Clear Brook in Frederick, Maryland and Camden Old Creek in San Marcos, California. Camden Fairfax and the five properties completed in under lease-up, as detailed on page 15 of our supplement package, in aggregate were completed under budget -- under budgeted costs and have a yield in line with our original expectations. Looking to the liability side of the balance sheet, the only item of note is that our total debt increased $136 million, as we funded our development activities with advances under our own secured line of credit.

Moving on to 2007 guidance, we are maintaining the full year FFO guidance we issued in late January, of $3.60 to $3.90 per diluted share with a midpoint of $3.75 per share. For the second quarter of 2007, we expect projected FFO per diluted share within the range of $0.88 cents to $0.92 cents. The midpoint of $0.90 cents per share represents a $0.01 per share improvement from the first quarter of 2007. This $0.01 cent per share improvement is expected to be primarily the result of the following.

A $0.02 cents per share increase in property net operating income, as revenue growth from our same-store portfolio and communities under lease-up, more than offsets our seasonal increase in property expenses which we normally experience in the second and third quarters of each year. A $0.01 to $0.02 cent improvement in nonproperty income net, which includes fee and asset management income net of expense. This improvement is due to the unfavorable variance in the first quarter of 2007 related to third-party construction, warranty costs and cost overrun. These two positives are partially offset by a $0.03 per share increase in interest expense, resulting primarily from borrowing incurred to fund our Austin acquisitions, and additional interest expense on units completed in our development pipeline during the first and second quarters, as we discontinue interest capitalization upon completion. At this time, I would now like to open the call up to questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question is from Jonathan Litt with Citigroup. Please state your questions.

Hi. It's Craig Melcher here with John. I just want to touch on your '07 revenue growth guidance. The first quarter number was a little light versus the full year or towards the low end. Is that primarily a function of the tough comps in the first quarter or is there anything else going on there?

Craig it's really just the comps in the first quarter. I mean, we -- starting from the first quarter last year, we were at 96% occupancy, so you're, you're -- we came back to a more historical traditional number for the first quarter of 94.5%. So it's, it's really just the comps. As I mentioned, we outperformed plan for the quarter and obviously that leaves us -- would leave us on track at this point to the midpoint of our guidance that we issued in the last quarter. So yeah, it's really just the first quarter, primarily the occupancy comp.

And if you look at the actual quarter last year, the revenues were up 8.6% Q first Q '06 over '05. And NOI was up over 10%, so being able to come back and have a five -- five and some change on revenue and a 5.5 on NOI after you have a 10% comp in the previous quarter is pretty good.

How did the cable program perform in the first quarter?

The cable program is going as expected. We're still on track with the number of rollouts that we gave guidance to in the first quarter. We may actually do a little bit better than that. We're a little further along in negotiations with a couple of the other national players than we thought we would be at this point in time. So we're on, we're on track to deliver the revenue that we guided to in the first quarter.

Just on stock buybacks, how do you look at those today? Is it relative to your internal NAV investment or relative where you issued stock in the past?

Well, the math on internal, our internal estimates -- I mean, if you look at the sort of street estimates, I think the highest one I've seen is like 84. You know, they bunch between, you know, high 70s, 80 to 84. Our numbers are somewhere in that zone, in the high end of that zone, as well. So when you look at the stock price at its current level relative to what the NAV is, there's a pretty significant discount. When you then sort of juxtapose that with -- we issued stock last year in June or July at roughly 72 bucks plus or minus, obviously, there's a lot of things that have happened in a year. The development pipeline has gotten bigger. We definitely brought in developments on time and so I think our NAV has clearly grown from last year at this time or last year since we've issued the shares.

You know, the bottom line on stock buybacks is it's just pretty intuitive to me, as we're going out and acquiring properties and we're having to pay market value for that property, if we can buy our own properties back at a, at a less than a dollar and we can then sell assets in the marketplace at a dollar, it makes a lot of sense for us to do that. And the key issue is, there is a balance between funding our development pipeline going forward and making sure that our balance sheet remains strong, so we will fund any stock buybacks from asset sales.

But the end of the day, it's pretty simple math. When you get down to what you think the NAV is relative to what people are selling the stock at today. We're at the biggest discount to NAV that we've been, since probably the 98, '99 kind of time frame.

Thank you.

Yeah.

The next question is from Ross Nussbaum with Banc of America. Please state your question.

Hey, thanks. Good morning, guys. It's actually Dustin Pizzo here with Ross. I guess, geez, it looks like most of the condo markets are holding up well, maybe with the exception of Orlando. So I guess I have two questions. First, have you seen any increase in those markets in the percentage of moveouts to condos or single family homes, relative to the number you gave for the portfolio? And then I guess second, are you seeing any acceleration in the condos returning to the rental pool in those markets or any of your other markets? And if so, I know you talked about it anecdotally in the past, but can you quantify the number of units?

Yeah, it's really -- there are a lot of people doing a lot of interpolating to try to get their hands around the number of either single family or condominium units that either have or may return as rental units. The problem is, is that there is very sketchy aggregated data and most people end up using a broad brush estimate of 10% more than what the historical norm was in terms of conversions. In our case, we continue to be concerned really only in the case of competitive rental product that comes back as an entire community.

And that is, that really is the case in, in, in a couple of areas in Orlando, where you had older 10-, 15-year-old product, got put in the pipeline for conversion and got hung out to dry. And that entire community has been converted back to a rental. That's clearly head's up rental supply. It competed with us before, it'll compete with us again. There's no confusion once they go through that process about whether this is a rental product or a for sale product. When you have condominium projects that kind of got halfway out the pier before the music stopped and they're -- they've got 50% ownership and 50% that didn't get sold -- yeah, they can, they can put those units back into the rental pool, but it's a much more difficult marketing proposition.

Our -- we include -- have our folks include, as they do their comparables -- we actually have them go and shop condominiums that have rental inventory that is, that is being brought back into the market, to get an understanding of just how user-friendly that process is. And in almost every case, they end up concluding that, yes, they have rental product and yes, undoubtedly they will rent some units, but by and large, they do not compete with our professionally managed product. It's just not, not conducive to the consumer to go through that process.

So anecdotally, we still see where you have large aggregations of units in kind of nonbusted condo deals that come back absolutely. The distinction, also, that I made, and I think it's clear in some of the numbers and conversations that we had with our on the ground folks in Orlando, is that the kind of product that got -- the kind of condominium product that's coming back as rentals makes a huge difference as well. If it was newly built, very high-end condominiums which is more the case that you would see in a Washington D.C. and South Florida and, in some cases, in Las Vegas -- when that stuff comes back in the rental market, even if it does come back in some wholesale fashion, it's just not particularly competitive with our rental products.

So -- there's a lot, there's a lot of gnashing going around and a lot of quantitative analysis being done trying to, people trying get their hands around what the potential impact may be. And I guess what our, our -- what we have seen to date has been that, with the exception of Orlando, we still just do not see much of that being directly competitive with our product or affecting us.

To answer your first question, there really isn't a material difference between moveouts in Orlando or any of the other markets. The averages are pretty much across the board the same. One other piece of data, I think, is very interesting and telling, that the existing home sales for existing homes was released a few days ago, and the single family homes existing inventory, not new homes, actually hit a low -- the lowest amount of homes being sold since 1989. Now, that's a pretty interesting number.

Now, when you dissect those numbers and you look at condos, interestingly enough, condo sales were flat. Existing condo sales were flat and existing condo prices were up. So single families were way down. Single family prices were way down and condos were flat and prices were up. So at the end of the day, we have to remember that the condo market has not collapsed like the single family market. The reason it hasn't is because the demographic push of people wanting smaller living space, the whole aging of the baby boomers and all, that are creating demand for condos. And condos are actually doing very well relative to single family houses, both sale-wise of existing inventory and new inventory. So I think that's something we all have to recognize when we talk about this condo bogeyman out there, that is going to tank these markets. We just don't see it.

That's helpful. I believe Ross has a follow-up as well.

Yeah, good morning, guys. Just one quick question. Rick, in order to get to the high end of your same-store NOI growth guidance, which I think is about 7.5% --

Right.

It would seem to me that that is predicated on your same-store expense growth coming in meaningfully lower than 4.5%, which it was in the first quarter.

I think it's a combination, you know, we do expect, because the comps get easier, to be able to have higher rent growth than we had in the first quarter from a quarter-over-quarter basis. But also, clearly, the high end of the range is everything working perfectly on the revenue side and expenses coming in at the low end of our range, for sure.

And we do have some -- there is some potential upside in our expense numbers if we can see a meaningful decline in the turnover rate. Now, we budgeted for some of it, but even at the level that we budgeted, which was a 5% reduction over the prior year, if things go back to where they were before that, we could see a 10% reduction in the turnover rate. If that happens, it's a pretty meaningful number on expense side of our business. So I think, that would get into the mix, as well, in order for to us get to the high end of the range.

The last thing that I'll note is we just completed our insurance renewal for the year and we're actually going to have a 10% decrease in premiums. So, that will take a little pressure off of our budget from an insurance perspective.

Thank you.

You bet.

The next question is from Alex of Goldfarb of UBS. Please state your question.

Good morning.

Good morning.

Did you say how much -- if share buybacks are included in your guidance or does your guidance assume no share buybacks?

There are no share buybacks in our guidance.

Okay. And continuing down that path, you guys have obviously spoken a lot about the disconnect between the stock's price and what the company is worth in the private market.

Right.

Let's say you do the share buyback program and that doesn't seem to close that gap. What have some other ways that you guys consider closing the discount?

Well, that's a complicated question. I think at the end of the day, what we have to do as a management team is simply delivering operating results and communicate to the market what we see in the marketplace and, at the end of the day, it's about what the people buying the stock think. It's sort of like -- the days of, when the market is really investor-based and the stock market's doing really well and everybody's -- it's very frothy. Sometimes it gets overshot. Sometimes you undershoot.

We can't control what people think the stock is or what people think the stock is worth on a daily basis, but we can control the operations and the communications and, really, that's the only way we can see doing that now. Obviously, if there is a huge disconnect between the NAV that we believe, and the stock price it's trading at, we will buy stock back. That's something that we -- if you look back at the last cycle that we had, it was a no-brainer to buy the stock at $26 when the NAV was $35, $36 bucks a share. And clearly, we hit the market right then, after the market sort of figured out that the tech bubble hit and people wanted real assets, stock prices took off.

So we will continue to do everything we can to drive earnings and to communicate the story to the market. And we will buy the stock, if it makes sense to buy it on a ongoing basis. But that's pretty much what you can do, I think.

Alex, sometimes you just have to let the differing opinions play out and get reflected in the facts on the ground. There are obviously huge cross currents right now in the investment community about the ultimate winners and losers in the shift in the housing market that's going on, whether it's the cause of the subprime causing foreclosures and how that impacts it, that spills over into the affordability issue. We look -- spent a lot of time looking at the gap of rent-to-buy analysis and, even though it's closed a little bit with home prices backing up, it's still at very high levels from a historical standpoint favoring rental property.

So, our view is that when the cross currents all work their way through, and there's a little bit more visibility on which way it's going to go in the second and third quarter, we still believe it's a net positive for the rental business. And I think, I think when the consensus -- if and when a consensus forms around that particular thesis, all of our sector will benefit and Camden in particular, because people will get back to thinking about what is the -- what drives this business long term. And obviously our bet and our thesis has and will remain that employment growth matters. And we are in the markets where the preponderance of the employment growth is going to happen, as Rick mentioned in his call -- his comments, even though employment growth is moderating.

If you take the Camden markets as a whole, the employment growth rate for 2007 is 2.3%, which is almost 2 1/2 times the national average. So, we think we're in the right place and when some of these other distractions and cross currents work their way through the process, we think that we'll be well positioned to benefit.

Okay. And just keeping on that same line, so the strengthening Houston -- Texas markets essentially, how long do you think you'll be the beneficiary of that before the rest of the developers come on board or job growth starts to decelerate?

Well, job growth has decelerated in Houston. We've gone from 110,000 jobs to 87,000 jobs. And so, you are seeing some moderation. The Texas markets, I know, have the reputation for overbuilding, but at the end of the day, we think that Texas is -- will look good through 2009. We think that even though with moderate -- moderating job growth with energy driving the market and Dallas market improving as a result of airline business doing better, telecom business doing better, we think we have at least a couple of year run in these marks before there's any kind of stress, either delivered by supply or by moderating job growth.

Okay. And my final question just goes back -- previously you guys have spoken about maybe doing a fund to target B properties or else maybe taking a look at some of the failed condo deals. If you could just give us an update on these fronts.

Well, we have clearly been in the joint venture business for a long time. We have about a $1 billion worth of activity that we do in that business and we'll continue to be involved in that business and continue to do additional projects within that format. We think it makes a lot of sense to be -- to be in that business. We're able to leverage our own equity in a challenging time when cap rates are low and you have situations where fully owned assets don't necessarily make a lot of sense on our own balance sheet. We can enhance our yields by bringing other partners in and we'll continue to do that business. We will expand that going forward.

Thank you.

The next question is from Lou Taylor with Deutsche Banc. Please state your question.

Thanks. Good morning, guys. Keith, you had mentioned the turnover was up. What's driving it and where are people going?

Lou, what was driving it last year was rental increases that were extraordinary and, in some cases probably, rental increases put people in a situation where they were stretched from affordability standpoint. Some did that. Some people, just as a matter of principle, when they get $150 rental increase, they will move out even if they have to pay $175 next door. So it's clearly being driven by really, really aggressive rental increases as well. The rental increases were being made possible because the underlying conditions were supportive of that.

I mean, we use a revenue management model, Yield Star. And it looks at -- pretty dispassionately looks at what the facts on the ground are and prices accordingly. So I -- the turnover rate last year was clearly a result of pushing prices, and we -- if you lay our plan this year and look at what we're expecting in terms of rental increases historically, they're still pretty strong, but they're not anything like they were in 2007. So -- which is why we do expect moderation in the turnover rate.

The other thing is, is that in many cases, our competitors, which kind of on, a lag basis, since they're not using a realtime pricing model, it takes them about two quarters to figure out what market's doing, in terms of how we're pricing our assets based on the demand in those individual markets. So, in some cases they've caught up, in some cases they haven't. And where they've caught up, it certainly makes it easier for us to continue moving rents without affecting our turnover rate.

Second question, you just potentially mentioned the change in occupancy in Orlando and Orange County. How about Raleigh? Is the year-over-year decline there within your expectations?

Yeah. The interesting thing in Raleigh was that, again, it's the anomaly is the first quarter '06 number at 97%. We were at 97% occupied, Lou, and had a 3.6% drop to the 93.4%. We're back up in the 94.5%, 95% range in Raleigh.

Okay.

And when you can have revenue grow at 5.6% in spite of a 3.6% drop in occupancy, you do that every day.

Right. How about in terms of expenses? You had some big increases in Tampa, Southeast Florida and in Raleigh, as well. Was that expected? Is it just timing within the year?

The biggest piece of it was the way that we allocated insurance expense to our properties in Florida. Beginning with April of last year, we began allocating our insurance expense based upon where the risk was, so all of our Florida markets had a larger allocation. So that's why you see that delta. Then we did have some property tax adjustments in a couple of those markets.

And last question either for Dennis or for Rick. In terms of development yields, just where do you see them averaging and where do you see them coming in for what's completed in lease-up now versus what's under construction?

Our development yields are consistent with what we've talked about in the past, overall in the 7% plus or minus range, for completed developments and under construction right now.

Okay, great. Thank you.

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

Good morning, guys. Keith, you were talking before about the opportunity on turnover to really make a dent on the expenses. What's an average hard cost for unit turnover these days for you dies?

What's the total turn cost?

When's an average unit cost you to turn? I mean, obviously, there's going to be varying degrees of stuff you need to do, whether or not carpeting needs to be replaced or not, but what's a rough guesstimate there in terms, on a per unit basis, of what it's costing you guys these days?

If you include all direct costs and then obviously the salary allocations associated with those turns costs, you're somewhere in the 600 to $700 per unit on average. But there's a wide variation in that depending on unit types, whether you're doing carpet and a whole lot of other things. But that's in the relevant range.

Okay. And then typically, you're looking at somewhere in the neighborhood of two weeks or something vacant?

Our expectation is a unit turn in a normal case unless there's something unusual, we expect to turn the unit in three days, and then in many cases we have them -- we're able to prelease units, because we have the notices in hand that the resident's leaving. So it's -- that would be at the high end of an estimate of the vacancy period due to turn.

Okay. And then, what are you guys seeing these days in terms of the market for both development land and finished assets, given what's been going on in the housing market and what's been going on in the real estate market overall? Has there been any sort of decline in land and/or apartment pricing?

No. There hasn't been a real decline in land or pricing. The -- on the land side, we have seen more land that we, in the past, weren't able to compete on, because either single family competition or condo competition, but land owners are still pretty proud of their land and we haven't seen any decline in land. We've just see more availability of land for rental. The challenge, however, is getting the numbers to work with increasing construction costs, land prices still being very high, getting numbers to pencil on a reasonable return, risk/reward relationship on development still is very challenging.

As far as finished assets go, in terms of new development or assets that are 5, 6 years old or new development, there has been no movement in cap rates at all. There continues to be a very large bid in the private side for high quality new development assets. Cap rates ranging anywhere from, depending on -- if you're on the coast, 4.5% or less to maybe 5% and -- We actually have seen sub-five cap rates in Houston as well. So the cap rates have not -- they're very sticky at these levels.

And then, a minute ago you were talking about construction costs. When's sort of been the trend over the last sort of 90 days or so on that?

Construction costs seems to have moderated in terms of the growth rate. We were using, you know, 12%, 15% increases depending on the market and the product type. Today, we're using maybe 5% or 6% increase. It hasn't gone down. Construction costs have not gone down, but it's definitely moderated in its growth rate.

Lumber costs are getting a lot better.

And concrete and steel, if you want to do mid-rise?

I think all costs are moderating but they're not going down.

Okay. Thanks, guys.

You bet.

The next question is from [Craig Leopold] with Greenstreet Advisors. Please state your question.

Hey, Keith, maybe I can reask Rob's question a little differently. You indicated that you're really watching turnover rate to see if you could bring your expenses down. What does, say, a 1% or 5% change in the turnover rate or 100 basis point or 500 basis point change in a turnover rate mean, in terms of overall expense growth? Is there some way to think -- trying to understand, as we watch turnovers drop over the year, what the impact will be?

Yeah, if the total portfolio's 70,000 apartments. If you ended up with a change of 5% below what our current plan is, 3500 apartments at an average cost of $500 apiece.

Okay.

That's kind of the -- that would kind of be the math. It may be a little less than that on a per unit cost because it's not -- there's not a -- you can't avoid all of the fixed components on the turn.

Okay. And then, just kind of getting back to the Orlando, which somewhat of a surprise, I think. Last quarter you didn't seem very concerned about the single family housing market and the condo reversion activity in that market. Is the surprise maybe in Orlando cause you to do anything different from an operating standpoint or change your view at all on, say, Phoenix, Vegas, San Diego or DC, four other markets that have had pretty vibrant condo markets and/or single family markets?

Not really, Craig. The reason for it is, is that you have to look at the underlying nature of the condominiums that were converted. The stuff that got converted in Orlando is, in many cases, you had to scratch your head and say how is it possible that they're attempting a conversion on that product, because literally -- we had a couple of deals that we went down the trail on and ultimately didn't sell, but we were -- we retained part earnest money on one of them. That's how far down the trail the condominium converter was.

And, this was a -- you're talking about a 15- to 16-year-old asset and their game plan for the conversion was, literally, just to buy the asset, put a, put a new sign package up and call them condominiums and start selling them. And that -- some of those products got down in Orlando. But if you look around the rest of the markets, a couple in Tampa got done that way, several in Las Vegas got done that way, but most of the other condominium supply markets, it was either newly constructed as condominiums and you have a completely different price structure involved or, some cases, newer product but heavily renovated newer product to kind of bring them up to current condominium standards.

So I -- you know, again, it's just not something, when we kind of dig into the numbers and do this with every one of our regional vice presidents and district managers, it's just not something that's impacting their current operations. I think as you think about 2007 relative to 2006, in the game plan that we laid out with rental growth et cetera, you could explain virtually all of where we are today, the delta of where we are today, from a rental growth standpoint, you can explain it almost exclusively with the drop in the rate of growth of jobs in those markets.

And that's a key point, because if you look at Phoenix, just to give you a sense. In Phoenix, there were 97,000 jobs produced in 2006, 100,000 jobs in 2005 and Orlando was 41,000 in '06, 57,000 in '05. We're projecting 57,000 jobs in '07 with 25,000 jobs in Orlando. So Orlando has not had the same kind of strength in the economy nor -- and when you look at going from sort of 57 to 28, that's a lot different than going from 96 to 55, because you still have 55,000 jobs is a whole lot of jobs in Phoenix relative to Orlando. You just have more demand in Phoenix. More demand in Vegas than you do in Orlando. And so that's what's happening. That's why you have a higher vacancy rate in those markets. It's primarily demand driven and not so much supply driven.

One last question. Dennis, you had mentioned in aggregate the three recently completed construction projects came in on budget and at underwritten yield. I'm just curious, what is the starting point of those budgets? Is it once something's under construction or when you first put it into the pipeline and you purchase the land?

Really, we actually get the budget finalized when we go through our level preapproval, which is right prior to commencing construction. And that's what we use as the basis for our operating budget. Those could have been increased from our level one and two approvals. But until we put a stake in the ground and get final construction costs, do we actually then communicate a budget and those are the yields that we would have communicated to you guys over the last couple of years.

Okay, great. Thank you.

The next question is from Mark Biffert with Goldman Sachs. Please state your question.

Hey, guys. Related to Lou's question on development yields, when you look at specific projects that are in your preconstruction pipeline, where do you expect those yields to be as you start to price them, for instance, the Camden Nomo, which is a fairly large project in DC?

Right. The -- in our pipeline, the yields range from 6% to 7.5%, something like that, depending upon the location of the project. Or actually, we have actually some in the 8 range, which is kind of scary today in this market. But generally speaking, the coastal properties and the D.C. type properties are going to be 6%, 6.5% kind of yields. And then the more middle of the country, Florida are going to be 7%, 7.5%.

Okay.

And by the way, I will note that in our last supplement, the Noma project went from, I believe, $150 million to $342 million, and that's primarily because of a second phase that's included in the project. In our last supplement, we only had phase one which is 300 and something units. Now we have a phase two that goes with it. So it's not one project. We probably ought to break that out and show it as Camden Noma One and Camden Noma Two. It's not one project, the $342 million, it's actually two projects, one at 150 and one at 180 or something like that.

Any expectations on start time for that project?

We hope to start the fist phase in the next 12 months. The second phase would obviously follow the first, depending on the market conditions. But we do own the land for both phases now.

Then related to the Las Vegas and Phoenix markets, where you had -- it's been mentioned in the past that single family homes are starting to compete with rental apartments. What are you seeing in terms of single family homes versus apartments?

It's been more of an issue in Las Vegas than it has in Phoenix. Again, we have a slice of our portfolio in Las Vegas, about 5% are the three-bedroom units, and there's no question that the single family rental stuff competes -- head's up with that product. But on a wholesale basis, it's really, it's really -- we've continued to see enough job growth in both of those markets to handle, not only the delivery of new units, but any conversions from for sale to rental.

There is some concern nationally, when you look at rental housing or single families primarily because the vacancy rate of single family usually is 1.5%. It's right now it's about 3%. So obviously, it's sort of the same song second verse about people being concerned about condos coming back on the market, because rental competition can be generated both from single family and from condos and we -- this rental -- the single family housing slump helps us, in the sense that fewer people are moving out to buy houses.

The subprime helps us in the sense that, people are now much more difficult to qualify for a loan for people in a lot of markets as a result of the tightening of the subprime market -- subprime mortgage market. But then on the flip side of that, you do have inventory from single family that is sitting out there empty and some of it's going to be rented. So we think that the pressure from the supply side is being offset substantially by the tightening and the fact that people just aren't running out to buy homes right now as evidenced by the significant drop in home sales and home prices around the country. But on balance, it's still leans in favor of multi-family demand.

It leans in favor of markets where job growth continues to be strong.

Right.

As you look around the country, all of those issues that Rick just went through, those are in place and in evidence in every metropolitan area in the country. The ones that have decent job growth will be able to find a way for that supply to work its way out.

Okay. And my last question is related to the Austin market. I noticed that there is a dip in occupancy during the quarter sequentially of 120 basis points, that your rents went up significantly. Was that strictly to raising rents or pushing rents that caused that dip or is there something else that's causing --

Actually, we had, we had -- one community in Austin, Gains Ranch, we had a pretty sizable chunk of corporate units that all moved out at one time. That is the bulk of that. Austin is a strong market for us, and its occupancy now is back up over 95%.

Okay. Thanks.

You bet.

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

Good morning. Wanted to ask you about your LA/Orange County portfolio. Over the years, you've had more than your fair share of issues there, personnel-related and otherwise. And given the strong demand for assets in that market, has it caused you to rethink your exposure in Southern California?

We'd love to have more exposure in Southern California. The issue in Orange County is truly specific to the one asset. We think it's getting the attention it deserves.

Final question, Keith, I think it's for you. Wanted to reconcile what you said today, which is that the portfolio during the quarter either met or exceeded your expectations. But from an occupancy perspective, I think you said last quarter, you expected occupancy to be 95% this quarter and, given Yield Star's target occupancy of 95%, can you just sort of talk about where your expectations ended up being with respect to occupancy and if that statement still stands.

Yeah, I think when we were talking about occupancy last year or last quarter, I was giving you an annual number that we budgeted to, which is 95%. And again, we ended the -- right now on our most recent weekly report, we ended at 94.7% occupied, and we were about 92.5% leased. And that -- the leading indicator of the lease percentages, normally add about 2.5% to it and that's where you'll be in two weeks out. So, I think we're trending back towards a 95% condition.

We're averaged 94.4% for the quarter, which is about in line with our expectation, if you think -- historically, that would be a really, really good number for the first quarter. Our first -- last six years average in the first quarter, we were below 94%. So it's not unusual for us to be in the 93% to 94% range in the fist quarter. That always trends up over the course of the year, second and third quarter tend to be our much stronger leasing periods, and over the course of the year, we still think we'll be right in that 95% range.

Did occupancy trend up each month during the quarter?

It did.

It did. Okay. Thank you.

Thank you.

The next question is from [Brian Legg] with Millennium Partners. Please state your question.

Thank you. Rick, how aggressive can you be in blowing through your $250 million share buyback program, given the big disconnect between your valuation and values underlying assets?

Depends on how low the stock goes. I mean, at the end of the day, it's about being opportunistic and not just going out and buying stock at -- we want to be opportunistic. We want to sort of pick our points and, you know, if the market continues to discount the stock significantly and, -- the last cycle, I mean, we were very aggressive, and we just have to sort of see how it plays out over the next couple of quarters.

Just along those lines, when you say, it depends where the market is, you're talking about a 15%, 16% discount now. That's not sufficient to be aggressive?

Well, I think the -- I'm not going to sort of peg where we buy the stock, but we didn't have a stock buyback program in place. The stock was -- the low point of the stock, I think, was $67 and some change. And it's $70 and some change now. We look at it. We're -- we look at it and we're going to be opportunistic buying it, but I'm not going to talk about exactly where I'm going to buy it or what discount I'm going to buy it at.

How about on the asset sales? Could you accelerate your guidance for is for $175 to $400 million of asset sales. Could you accelerate that asset sale program to buy back more stock above and beyond the $250 million?

Absolutely. I mean, at the end of the day, we have a $250 million authorization from our board. And in the scheme of the world today, asset sales, it's easy to sell assets. There's a bid, a big bid for assets out there in the marketplace and, to the extent that that -- it made sense for us to do that, we could easily sell more assets. But we do have one constraint or there is a constraint on the tax side, where if we get too aggressive on our asset sales, then we might be forced to make a special dividend.

But beyond that, up to sort of the point where you can't observe any more gains, because most of the assets that we'd be selling we'd have these huge gains on, so we do have to have some balancing that we have to do with that. That's probably the only constraint is the ability to absorb gain and then the requirement to either pay tax on that or to do a special dividend. But that's really the only constraint.

Do you have any idea how large that could be? Is it above $400 million that would get into that or could you go higher than $400 million?

It really just depends on the asset and the timing, but we wouldn't have put a $400 million number out there, had we not been able to absorb it.

Okay. Just last question. At a conference early this year, you talked about the big discounts and that if these discounts persist that going private is certainly a possibility. How patient -- if we're talking that there's a huge discount between your assets and where the stock is trading, how patient are you going to be with the company?

Well, the question of going private, I mean, at the end of the day, what we do is a management team and as large shareholders as well, we look at what we expect the earnings to be of the company going forward over the next few years. What we expect stock prices to be given multiples and sort of cross currents in the world, And so it's about what is the present value of that relative to other alternatives? And you have to look at that and today we believe that the stock price, and when you start talking about going private transactions, the question is, can you make -- is it better for shareholders to do that today or is it better to go forward and increase the value of the company through the continued operations, continued development pipeline and all that? And you just have to look at ultimately the net present value of that.

And today, we believe that it makes a lot of sense to continue on our business plan and not to go private. But that doesn't mean that that won't change in the future. What, what we're about is maximizing long-term shareholder value for all of our shareholders out there, including the shareholders sitting in this room today. And we thought that there was no way that we could create value going forward, and this was the time, then you know you'd be probably seeing something like that happen. But we don't believe that today.

Thank you very much.

Okay.

The next question is from Anthony Paolone with JPMorgan Securities. Please state your question.

Thanks. Washington D.C. yesterday was noted on the Avalon Bay call as being an area they thought was worrisome about, with respect to condos and housing. What are your thoughts on that, given that you have a large amount of your developments and preconstruction assets in that area?

We love Washington D.C. long term, you know. I think it's like any other market. You worry about -- we worry about every market on a supply and demand basis. And sometimes you feel good. Sometimes you feel a little less. But you have to look at the supply and demand over the long term. You have to look at the job growth that is going to be produced. I don't think that the government is going to shut down any time soon. I think that Washington D.C. is a great long-term market.

If you look at our development pipeline there, we have a lot of development in the district, which is really hard to get into and to do it takes years of planning and years to get into the district. We have some really great projects that are in the district there. So we think, even if there's some near-term weakness in D.C., that long-term it's an awesome market to be in and we're going to develop in there.

Have you revised just underwriting rent in that market, just how those compare to what you started these projects at?

No. And keep in mind, we don't underwrite huge increases in our underwriting either. We keep a moderate view on rental growth, and we are in a constant debate with our development folks, who see same-store performance that is far in excess of what they get to use in their development models. So, we have not modified our growth rates and we're fairly conservative.

Okay. Just other question. The three developments that you did bring in, in the quarter were stabilized. Now that you have visibility, what do you think year one yield on cost is going to be on this?

On the ones that are completed?

Yes.

Let's see here. Overall, our yields are -- with completed and under construction around 7%. We have some that are 6%, some that are 8%. So it's, on average, around 7%. I don't want to get into specific yields on specific projects.

Okay. Thank you.

At this time, there are no further questions in queue. I'd like to turn the call back over to management for closing comments.

Great. Well, we appreciate your time and consideration on the call today. And we look forward to seeing you next quarter. Thank you very much.

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