Camden Property Trust (CPT) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Camden Property Trust second 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, Kim Callahan, Vice President of Investor Relations. Thank you, you may begin.

Good morning and thank you for joining Camden's second quarter 2007 earnings conference call.

I am sure you noticed that we have once again boycotted the traditional elevator music played on these calls replacing it with something a little more upbeat. Today's selection included a medley of songs from the Beatles in tribute to the 40th anniversary of their Sergeant Pepper's Lonelyhearts Club Band album release. We thought their birthday song was a great way to wrap things up, considering our Chairman celebrated his birthday just yesterday.

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

As a reminder, Camden's complete second quarter 2007 earnings release is available in the Investor Relations section of our website at Camdenliving.com and it includes reconciliations to non-GAAP financial measures which may be discussed on this call. Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, President and Chief Operating Officer, and Dennis Steen, Chief Financial Officer. The logistics for today's call are a bit tricky as our three speakers happen to be in three different locations this morning. While that could pose a slight challenge for us during the Q & A session, we do not expect any disruptions to the normal flow of our call.

At this time, I will turn the call over to the birthday boy, Mr. Rick Campo.

Good morning.

The music selection was not my choice nor am I involved in that, so that was news to me, I appreciate that from everybody on the Camden team. I think we should have started our pre-call music selection with Crosby Stills Nash and Young's 1970s's hit, Deja Vu because the current market feels like the summer of 1998. Rob Stevenson of Morgan Stanley recently published a report along the same lines.

In 1998 it was Russia defaulting on bonds that caused all markets to reprice credit risks and sending share price down while apartment operating fundamentals were good. Today we have the subprime mortgage meltdown contagion sending shock waves to the credit and capital markets. We have positive operating conditions in our business but poor investment fundamentals once again.

Second quarter revenues grew 5.1% over 2006 with expenses increasing 4% resulting in a 5.8% net operating income increase. Sequential revenues increased 1.6% resulting in 2.1% net operating increase over the first quarter. We have tightened our 2007 property net operating income guidance to a range of 5.5% to 6.5% for the full year. The mid-point of our guidance reflects a 6% same-store net operating income increase for 2007, slightly lower than our beginning of the year guidance. After coming off an 8.6% NOI growth in 2006, we are pleased with 6% NOI growth for 2007.

While operating conditions are not as strong as last year, they still are solid by long-term historical metrics. Clearly our geographic property diversification along with the strong on-site management has led to solid operating performance. Last quarter, we announced a $250 million stock buyback program. To date, we have acquired nearly 750,000 shares of stock at an average price of $67.27 per share. By any measure, Camden is trading at a significant discount to net asset value, deja Vu all over again to quote the philosopher Yogi Berra.

During 1998 and 1999 we bought back nearly 20% of the outstanding shares at a significant discount to net asset value. The math is simple. We will sell $.001 of assets to Main Street and buy the stock back from Wall Street at a significant discount relative to the remaining net asset value. We have revised our 2007 guidance excluding any land sale gains for the year. Some of these sale gains will likely roll into 2008 and other land parcels may be developed as opposed to being sold.

I will now turn the call over to Keith Oden for a little more color on the markets.

Thanks, Rick.

My comments today will be brief, but I would like to provide some additional detail on the quarter's operations, as well as update you on two of our most important value add initiatives that are having a very positive impact on our ability to drive total property revenues. As Rick mentioned, our fundamentals continue to be quite positive. After our best year ever in 2006, we are still getting pretty strong revenue growth across our platform.

In the second quarter, same-store revenue and NOI growth was positive in every market. We experienced double-digit NOI growth in Austin, Houston, and Denver and, yes, I did say Denver.

Other markets with very strong NOI growth were Charlotte at 9.9%, Raleigh at 9%, Dallas, 8.8% and Phoenix with 7.3% growth. In addition, revenues were up sequentially in every market except South Florida which was basically flat and Phoenix which was down 1.7%. The same markets that outperformed for the quarter were also our best performers on a year-to-date comparison. Overall, occupancy for the second quarter was up 30 basis points over the first quarter, 94.9% versus 94.6%, and we ended the month of July right at the 95% occupancy level.

Bottom line, there is still a decent number of things to support our view of a healthy, yet moderating fundamental outlook. We continue to see very limited impact of the condominium woes in our markets. I still believe the only place where we've had a measurable impact is in Orlando and to a lesser degree in Tampa. We discussed this at length last quarter and our view has not really changed.

However in our quarterly update calls with our regional Vice Presidents, we did hear a fairly consistent cautionary stance with regard to the potential impact of single-family rentals as competition. I think it is fair to say that with regard to the subprime foreclosure apartment rental equation, we are dealing with--with a zero sum game. We are losing residents to rent single-family homes that have been foreclosed but the foreclosed homeowners are by and large renting apartments.

To ensure that we are maintaining our market share we have developed a specific marketing strategy with our regional Vice Presidents that targets foreclosed homeowners that have otherwise good credit histories and will make excellent Camden residents. What is not accounted for in this scenario and the zero sum scenario is the inventory of unsold builder homes. These are beginning to show up as rental competition in some markets such as Las Vegas, Orlando and Phoenix. If this trend worsens it will cause the addition of net rental units which could affect our ability to push rents in these markets. It is this caution from our RVPs that led to a 50 basis point reduction in our same-store NOI guidance for the year.

Fortunately, Camden's markets are continuing to create jobs at roughly twice the rate of the U.S. average, which should help with the absorption of any new rental inventory. For the quarter our move-outs to purchase homes was 19.7%, down slightly from the first quarter and year-ago numbers but not really enough of a drop to move the needle.

Moving on to a couple of initiatives that are really helping us create value in our real estate. First, YieldStar continues to exceed our expectations. After living with this program for more than a year, our community managers cannot imagine operating without it. We still believe that the first-year pickup and top-line revenue growth by implementing YieldStar is in the 2% to 2.5% range. This is true for an acquisition or for a--one of our own new development properties.

The second initiative that we--that we discussed on our second quarter call last year is Camden's Perfect Connection. By way of reminder, this initiative provides cable service to our residents at a discount to the local cable provider's rate from whom Camden purchases cable at a bulk rate, the difference in the bulk rate and discounted market rate is the profit to Camden. Our original business plan for rolling the program out assumed that by the end of 2007, we would have 31,000 apartments on the program with an annualized profit contribution of approximately $6 million.

Due to the extraordinary efforts of our business services group and our on-site teams, I am pleased to tell you that it now appears that we will have 41,000 residents on the program by year end, with an annualized profit contribution in the $7 million to $8 million range. This program, when implemented adds approximately 2% to top line revenue growth.

When you combine--when you combine this with the 2% to 2.5% that we achieved from YieldStar, it means that Camden can add 4% to 4.5% revenue enhancement to any asset that we buy or develop. It is crucial in this low cap rate environment that as operators we are capable of adding value to the real estate the old fashioned way by growing cash flow.

I will now turn the call over to Dennis Steen, Camden's Chief Financial Officer.

Thanks, Keith, and good morning to all.

My comments this morning will begin with some additional color on our second quarter results. We reported FFO of $57.8 million or $0.92 per diluted share at the top of our prior guidance of $0.88 to $0.92 per share. These results reflect property net operating income coming in approximately $0.01 per share above our expectation primarily due to favorable variances in property operating expenses.

The favorable expense variance was the result of lower employee benefits costs due to favorable claims experience in our medical and workers compensation insurance programs, and lower utility expense due to favorable electricity costs. All components of non-property income in other expenses on our statement of operations for the second quarter were in line with our expectation.

The only item to note is that interest and other income which totaled $1.8 million for the second quarter included approximately $550,000 in non-recurring gains on the sale of technology investments. The only additional item of note in our second quarter operating results relates to discontinued operations.

During the second quarter, we sold our three remaining fully owned Midwest assets, Camden Downs in Kentucky and Camden Taravue and Trace in Missouri recognizing total proceeds of $49.9 million and a gain of approximately $31 million on these dispositions. Additionally during the quarter, we classified non-additional operating assets as held for sale and their operating results are now included in discontinued operations.

The communities we moved to held for sale include our only two communities in Greensboro, North Carolina, and seven additional 20-plus year old communities from our Charlotte, Dallas, Tampa, Austin, and Denver markets. We expect to close these dispositions by late fourth quarter resulting in total disposition volume for 2007 of approximately $200 million.

We continue to market our Southeast Florida and Dallas land parcels that are held for sale. One of the Southeast Florida parcels should be under contract shortly but none of the parcels are currently expected to close in 2007. We are reducing our full year 2007 FFO guidance by $5 million or $0.08 per share at the midpoint and $10 million or $0.16 per share at the top end of our guidance range, removing all land sale gains from our 2007 estimates.

We continue to transform our portfolio, exiting non-core markets and trimming our exposure to older, more capital-intensive assets in our core markets. Proceeds from our dispositions are being recycled into our active development pipeline as we have 16 projects in lease-up or under construction across our major markets. Please refer to pages 16 and 17 of our supplemental package for details on our pipeline.

Items of note for the quarter, Camden Clearbrook in Frederick, Maryland stabilized during the second quarter and is currently 96% occupied and has been removed from the pipeline report. Camden Westwind in Ashburn, Virginia and Camden Manor Park in Raleigh are both over 90% occupied and should stabilize in the third quarter.

We began leasing at Camden Monument Place in Fairfax, Virginia and at Camden City Center and Plaza in Houston, Texas. And we initiated construction at Camden Circle C in Austin, Texas. Our developments continue to be completed under budgeted cost and on average at yields in line with our original expectations. Development starts for the remainder of 2007 are estimated to be between $150 million to $250 million.

In the second quarter, our board approved a program to repurchase up to 250 million of our common shares. During the second quarter, we completed the repurchase of 459,000 shares at an average price of $67.76 for a total of $31.1 million. Subsequent to the end of the quarter and prior to our blackout period, we repurchased approximately 284,000 additional shares at an average price of $66.56 for a total of $18.9 million. We currently have 200 million remaining under the repurchase program.

Moving on to earnings guidance, we expect full year 2007 FFO per diluted share to be between $3.60 and $3.70 per share with a midpoint of $3.65. This represents a decline from our prior guidance of $0.10 per share at the midpoint and $0.20 per share at the top end of the range. The decline in our full year expectation is primarily the result of the removal of land sale gains from our 2007 forecast as I mentioned earlier which reduced our guidance $0.08 per share at the midpoint and $0.16 per share at the top end of the range.

As Keith discussed earlier we have revised our full year same property guidance and we now expect same property NOI growth of 5.5% to 6.5% down from our prior guidance of 5.5% to 7.5%. This revision lowers our FFO guidance by approximately $0.25 at the midpoint and $0.04 to $0.05 per share at the top of the range. For the third quarter of 2007 we expect projected FFO per diluted share within the range of $0.89 to $0.93 per share with a midpoint of $0.91 per share, a decline of $0.01 per share from the second quarter of 2007.

The $0.01 per share decline in FFO is primarily the result of the following, a $0.06 share increase attributable to property revenues at same-store revenue growth and additional contributions from our development communities and lease-up and the two second quarter acquisitions more than offset revenues lost on our second quarter disposition. This positive is being offset by a $0.02 per share decrease in non-property income due to the absence of gains from technology--the absence of gains from sales of technology investments and slightly lower fee and asset management income in the third quarter, and a $0.05 per share decrease in FFO attributable to an increase in total operating expenses. This increase results primarily from our normal seasonal summer increases in utilities and repair and maintenance cost, the addition of operating expenses related to the development units completed in the second and third quarters, and the impact of net acquisition disposition activity.

At this point, we will now open the call up to questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS) One moment please while we poll for questions.

Our first question is from Jonathan Litt with Citigroup. Please state your question.

Craig Melcher here with John. Just wanted to touch on the disposition guidance for the full year, it's towards the low end of the range you gave last quarter. Is there any changes to the assets that you are looking to sell and maybe what assets are you not selling that you were considering selling before?

No, the--we were planning on selling the group that we have in the Q now. The group that we have now is on the list and it fundamentally really depends on--on where we are with stock buybacks, because we will add to that list going towards the year depending on where we are with that.

What are the cap rates on the sales you are currently looking to--?

Cap rates--we are selling our oldest properties and exiting some of our existing markets, small markets. Cap rates are generally in the 6 plus or minus, these are 20-year plus assets.

And question on the development pipeline in terms of the--the land that you own or control the options. Can you just break down the shadow pipeline, the amount you have--that you own outright on the land versus what you control of the options?

Sure. In terms of--of properties that we own--let's see, we have about--the pipeline is about a 1.5 billion, and of the 1.5 billion there are--let's see, it's about 6,100 units plus or minus, so there are six of those properties are under contract, the rest are land that we own. So the total value probably is--another quick thing here. About $370 million of a 1.5 billion that is under contract and option and the rest we own the land.

Thank you.

The next question is from Christeen Kim with Deutsche Bank. Please state your question.

Good morning. Can you speak a little about Florida. It seems like your markets held up a little bit better than some of your peers this quarter. Is there anything you think you are doing differently, is the function of YieldStar or anything else that might be going on?

Well I--Christine, the--I think the place that has been the most surprising to--to people outside of our company, because we get more--we have honestly gotten a lot more questions about South Florida and the potential impact there of the condominium--the bust. But the fact is is that our properties have actually held up better in South Florida than they have in Tampa and Orlando, and a lot of that has to do with the price point of the competition from those--those condominiums that are being built in South Florida that are predominantly very, very high end.

There were very few conversions done. Most of the condominium inventory was new build condominiums, at very expensive per door prices that frankly just don't compete even with our stuff even though our stuff on the rental side is very high end in South Florida. Our challenge has been more in Orlando and relative to our original expectations for the year on same-store NOI growth, we would have been targeting somewhere in the--in the 6% range for the year, and it looks like this year when it is all said and done, we are going to be probably more in the 2% range.

So we have had a pretty significant impact to our plan in Orlando. We have had some impact in Tampa, but frankly in--relative to our original plan, we are probably only 100 to 150 basis points off where we thought we would be, so I think that the impact that we have seen in Orlando is primarily from the two sources that we talked about on the last call. First of all, the--the outright conversion activity of multi-family properties that were rental parties that got converted or were in the process of being converted and never quite made the trip and have come back into the market as rental inventory and then secondly both in Tampa and Orlando, I think there is clearly some impact there, and we expect more as the year unfolds from the foreclosed single family and builder overhang market.

That's helpful. Thank you, and in terms of the land parcels that you mentioned that you were holding for development instead of selling out right? Could you talk about where those are?

I am sorry, the land parcels that we are building out?

Yes, that you decided to build out instead of sell.

Oh, yes. The--that would be--we haven't decided totally yet, but that would be Boca, Boca Raton, Florida. We have a project there that is very well located that is part of the Summit portfolio and we have plans and specs and permits and we have been continually trying to tweak the numbers to get the development to work.

Because of the slowdown in construction in South Florida, you have had some compression in construction cost and sub-contractor margins. So at the end of the day, our numbers are getting better from a construction cost perspective and the markets have continued to improve in spite of everybody's worries about Florida falling off the edge of the ocean there, NOIs have been going up there, and rental rates have been going up over the last 18 months.

So since we acquired Summit, the numbers have improved sort of every quarter and our development folks in Florida are trying to convince us that we ought to build it rather than sell it. We haven't made that decision yet, but we have made the decision to sort of really look hard at that analysis. So it would be just that one project.

Great, thank you.

Sure.

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

Good morning, guys. Rick, just to follow up on that, can you talk about what is happening with construction costs overall?

Sure. Construction costs have definitely moderated over the last--the last year. If you would have asked me a year ago we would be putting in probably 1% a month to 1.25% a month in terms of cost of inflation going forward. Today the market is more like 50--maybe it is 5% to 6% inflation going forward.

We have not seen the kind of pressure that we had over the last two or three years in a lot of markets on the construction cost side. I think it is evidenced by the fact that we haven't revised our construction cost numbers up dramatically in the last year or so, so costs have moderated. They haven't come down, but the rate of growth has definitely slowed, and we're--our people in the field are doing a really good job keeping their projects within the budget now.

What's the--what is sort of the key thing that is sort of out there for you guys on your development pipeline that will decide where things sort of move up to and what gets started versus others. Is it--when you are looking at that today, is it what is going on with the rent and supply in those markets?

Yes, absolutely. It is the basic analysis. You look at a project, and you have to sort of do a forecast going forward as what you think the rental--the rent is going to be. What you think the expenses are going to be relative to the construction cost, and is that yield that your developing, how safe is it, and is it a reasonable risk-reward relationship to begin a development, and if the spread on cost to--the spread on the return you are estimating to get is not significant enough relative to the market or relative to the market you think is going to be in the future, you don't development. If you think it is, then do you.

And has anything moved around in the last quarter or so, sort of stuff that is either moving up or moving down in terms of the sort of priority to get built?

Well, I would say that the last quarter has been kind of an interesting quarter obviously with the dislocation of the debt markets and sort of the worry out there that cap rates are getting ready to move up some, and I would say that we are definitely being a little less aggressive on our underwriting criteria, and we are being more--so we are--we will be more conservative going forward just with this--the certain--the uncertainty in the market right now.

On the other hand, we are constantly evaluating projects and if we have a decent margin and you worry about--if we are building to at least 100 to a 200 basis point positive spread over the current acquisition market and you can absorb 50 basis, 75 basis point increase in cap rates, so I would say we are definitely being a little more conservative in our underwriting, but we haven't changed it dramatically other than that.

And there's no--there's not any particular market where that is really coming into play right now? In terms of starting to worry about saying we are going to put this one off, put it in our pocket for another three months before we make a decision on it?

No, we do that certain--not really.

Okay, and then last question, Keith, what was going on this quarter in terms of foot traffic versus year ago.

Actually we were versus a year ago we were down about 7% in total traffic, but if you'll recall from last year, virtually every metric that we track, including foot traffic was at all-time highs. I'm really--even though it is off over the prior year, that has really not been an issue for us. We still have sufficient traffic, our move outs--our turnover rate internally in the portfolio has come down 300 basis points from where we were last year. So that's--that's helped, and while traffic is down, it is not to me a sign of anything problematic at this point.

Thanks, guys.

You bet.

The next question is from Alexander Goldfarb with UBS. Please go ahead with your question.

Good morning.

Good morning.

And also happy birthday.

Thank you.

Just getting back to the share buybacks. From your opening comments, it sounds like you may consider selling more assets than buying more stock. I just want to get a little more clarity on what the potential 1031 issues may be and how much of the gains can be absorbed by the common dividend and then also if you would curtail your development program to buy more stock, and, also, if you had a discussion with the rating agencies on the current program and any intention to expand the program?

Okay. I guess first, we have plenty of capacity from a 1031 exchange perspective. You know the way the REIT rules work, you can borrow from future years--gains from future years and we have been fairly adept at doing that. We don't think we have a problem generating enough cash for that.

On the development side the real issue becomes, what--when you start looking at--at making capital decisions, it's what makes the--the highest total return for your shareholders, what--when you compare alternatives, that is the key. So would we curtail development or slow development down?

As long as we thought we were getting a good return on development, we--we might do more joint ventures or--in the development area and use partners capital as opposed to Camden's capital to create additional capital for share buybacks. But at the end of the day, it is about looking at what the best return on your--on your incremental cash investment is, and with the stock at this level, we think it is pretty--pretty compelling.

As far as the rating agencies go, we are going to manage our company like we have always in the past, which is we are going to keep our balance sheets strong, we are not going to erode our--our most critical credit metrics which tend to be--we don't really look at debt-to-market cap or things like that, we look at fixed charge cover ratios and to the extent that we sell assets and buy stock, we will make sure those ratios stay within the zone that we and the rating agencies and debt investors are comfortable with.

Okay. The next question is, in your opening comments you spoke about going after the default business homeowners. Just want a better sense what your experience is with this group of people. One could imagine that if you defaulted on your home you probably defaulted on your credit cards and car as well. Is that the case or are most of these people just simply--they got excited during the home buying period and bought something they couldn't afford.

Alex, I think the latter is--is more typically the case. You have two things going on, and it was--there was a lot of evidence--most of it anecdotal evidence at the time when this was going on, and I will just share with you that when we were going around doing our budget tours in 2005, I cannot tell you how many times I sat with our community managers and they were all struggling to keep their back door closed because we were experiencing all-time high move outs to purchase homes, and I can't tell you how many of them were just kind of puzzled looks that they couldn't understand how residents who from time to time struggled to pay their $850 or $900 a month rent timely were buying a $350,000 home and the answer to that turned out to be two things.

One, teaser rates on adjustable loans where they were qualifying at a rate that was not--was not a true market clearing rate for the mortgage at that time. That was certainly an issue that many people were having, but also people were willing to stretch and do that because in their mind, everything they read and everything they heard was the best investment you can make is to buy a single-family home, which in the year's '03, '04, '05 that seemed to be pretty good guidance. I think as things have unfolded it has turned out to be a little bit different story.

But here's--so you've got someone who is long term has been a renter, is a qualified renter, paid their bills on time and all of a sudden they are upside down on a mortgage that they can't pay timely, it is not because they lost their job, they haven't become a bad credit risk, they were a bad credit risk for the mortgage lender, but they are not a bad credit risk for a landlord. And so obviously if people have other credit issues that would speak to ordinary course, money management and the ability to manage your affairs in such a way that you can pay your monthly obligation, then they are not going to qualify for a Camden apartment anyway under our credit scoring mechanism, but the credit scoring mechanism alone, the thing that we wanted to make sure of is that the incident of a foreclosure absent any other credit history that would disqualify you would not disqualify you from renting a Camden apartment and it will not.

Just a final question, it's just going back to your JV on the non-developments. Would you consider joint venture developments under the $100 million threshold?

Yes, absolutely. We already have.

Okay.

We have done that consistently and not just the $100 million. We have projects right now in Houston that are joint ventures that are $40 million, $50 million deals.

Okay. Thank you.

Yes.

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

Hey, guys. Rick when you look at your markets and you see the moderating growth, is there any markets that you are looking at that you would want to maybe curtail your exposure to given fear is that it could be a longer term effect with the housing market?

No, I don't think so. When you get down to it, the markets that we're, as Keith mentioned in his comments, are twice--they have twice the national average job growth. We are in these specific markets because we choose to be because they have high demand--high job growth, high household formation and high demand therefore for housing single-family and multi-family, and so at the end of the day these are great long-term markets.

We have exited a number of markets. We exited the Midwest last year, we finalized that this year with the last three assets that we sold. We exited Tucson, we're exiting Greensboro, and we are--the markets that we are in are great long-term markets for multi-family and housing demand in general because of job growth and just their proximity in--for immigrants and all those good things that create long-term multi-family demand.

Okay, and following on to that, when you look at the Camden Jamboree project that you have in L.A., in Irvine, and that area, where a lot of that supply is coming on for unsold homes. How do you expect the lease-up of that property? I think you have scheduled for the first quarter--is it first quarter '08 for stabilization?

I think that's right. We think it is going to be great. I think the issue in California is that you have got a lot of unsold home inventory, but the price of that inventory, even if you assume a 10% or 20% decline, it is still much higher than--than a renter can afford. So we have a--a very relatively small project on--at the--in essence the corner of Main And main in Irvine. It's an awesome location an awesome property and a great site and we think it's going to lease up really quickly.

So what do you think happens to those unsold homes given the gap between renting and owning the Southern California market? Are they just going to sit there and the builders are going to sell them at major discounts?

They are already doing that. I think they are already selling them at discounts. I am sure one of our Vice Presidents of Development who lives in Southern California was telling me about when he first moved there and had to stand in line at 6:00 in the morning to--to be given the right to buy his home in the subdivision in Southern California. And then today he was talking about buying a bigger house to accommodate his family and he was going to get a 20% or 25% discount and they were begging him to come buy it.

So I think at the end of the day, housing in some of these markets like in Southern California and elsewhere is still very high priced, and the--ultimately the inventory will move, I don't think it is going to be discounted to the--so low that you will allow renters to move into those houses, it is still going to be a very difficult market to purchase homes in even at a discounted price.

Okay, and my last question is related to one of your peers has been buying a lot busted condo deals at fairly attractive prices. Are you guys seeing a lot those deals or any of the deals that you have in your pipeline from that type of situation?

We are seeing some of those deals, and I think the complexity of those deals when you get down to it, I think the competitors that are buying those busted condo deals all have sort of condo sales programs and they're hoping to at some point liquidate the unsold units that are rental units. We have looked at a few deals, but I don't think there is--there is not a wholesale list of busted condo deals out there that--that are trading at $0.80 or $0.70 on the $1.00 at this point. There are some here and there but not a huge amount.

Are any part of those that you would you have like a mez lending opportunity, or is that market pretty much died?

You know it had died up until this latest credit dislocation, and I am not so sure that it won't be an opportunity, coming--going forward depending on how credit markets shake out because definitely, lenders both on the CMBS side and life companies, Fannie and Freddie are all looking at lower loan to values on debt, they don't want to have 80% to 90% debt out there. So buyers are going to need a mezzanine piece to complete the capital sack unless they want to put equity in it. I think that in order to make equity returns you're going to need mezzanine piece, so it might be an interesting business proposition going forward, but in the past before this sort of credit crunch started, the spreads were so tight that you really weren't getting paid, in our opinion, a proper rate of return for the risk that you were taking in the capital sack.

But would you be interested in that?

Absolutely.

That's it, thanks.

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

Hi, good morning, everybody.

Good morning.

So I figured now that you guys are known to be in three different places I thought I would take a guess to see where you are. Rick, you are in Denver, Keith, you are in Rochester and Dennis you are in Chicago. Am I close?

0 for 3.

First question is sort of a tongue in cheek type of question but I have this opinion that 80% of America is stupid, and that's sort of explains the whole thing with the--what's going on with the housing market and the teaser loans and all that sort of stuff, and tat leads to the question, are people pushing back--they have gotten burned in the housing market, and they are coming back as renters. In the case of that, are they pushing back because they want to get the best deal for themselves and are becoming smarter renters than they were in the past?

I think in the transition from going from a home ownership rate that for years and years was in the low to mid 60% up to the 69% level, and now we have come off of that peak to somewhere around 68%. I think what it tells me is we still have about 3% to 4% unwinding to do, and it will happen in various forms, but I truly believe, and this is based on the--a whole lot of anecdotal evidence that we got as the wave was going the other direction in '03, '04, and '05 about the kind of people that were making these decisions on these teaser loans.

I think that there is a--probably a long-term renter percentage that we are going to retreat back to, and it will be somewhere around the 63% to 64%, and when those people come back as renters, my view of that, Rich, is that they--these people are better suited to be renters, and it's not just because of the teaser loan and the mortgage, it is all of the other costs of home ownership that they probably either didn't know, didn't understand, even though they should have, of the costs associated with the long term--with ownership versus rental.

I mean it is just--I think that is part of the equation that gets missed. Yes, they got--they got hung out on teaser rates that adjusted to market and all that, but they also incurred an extraordinary ramp-up in their monthly operating cost for things that are included when you rent a Camden Apartment.

Okay. Do you think development, or moderating development costs and let's say some day they decline, do you think that is good or bad for you?

I think it's--I think it's on the one hand good because it allows us to develop more, on the other hand it could be bad because it allows everybody to develop more as well.

Exactly. If the REITs develop, 10% or 15%, I don't even know how much, the REITs, the public REITs build of the entire institutional quality--

Yes, it's about 15%.

So if 85% of it is done by the private market my guess is that would just add to your problems even though it might on the surface sound like a good thing.

Rich, I think it depends what happens on the rental side of the equation.

Okay.

If rents continue to escalate like they have in the last couple of years along with cost escalations, then I think you kind of stay where you are. If costs escalate, rents lag, then the A, deals are going to get harder to get started and make the numbers work, and B., the deals that are in play are going to have some initial yield compression.

Remember that even the 85% that are being built by merchant builders are being funded by investors that have return expectations, and we have seen markets get out of whack from a supply perspective, and then get immediately, once the investors believe they're not going to make their total returns that they thought they were going to make they shut the pipeline down immediately.

We saw it in Houston in '99, 2000, 2001 where we had 20,000 starts at the beginning of that period and 5,000 at the end and Houston ended up going into the recession with very limited construction. So I think the market because of the transparency that you have today with the public REITs and institutional investors access to information, you're not going to have the big dislocations in supply even if cost goes down and it becomes more attractive to develop, because if you over supply, the money will shut down and it takes a year or two to get that to happen but it happens pretty quickly today.

Rich, the other thing and this is just kind of something that's been very interesting over the last couple of years, because there is always this kind of overarching concern in multi-family that at the first sign of good news or better news that the multi-family developers will pursue the developers' creed which is "anything that is worth doing is worth doing to excess", but the interesting thing is is that you have had about as good a conditions in the multi-family space in the last three years as we have seen in our lifetime in terms of cap rate compression and liquidity and available capital to do deals, and yet total starts have been really consistent around 300,000 annual total units.

Now the percentage between for rent and for sale has moved around a little bit, but the total unit starts have been consistent in that 300,000 to 320,000 plus range, and that's a little bit counterintuitive to the old argument if you could build it, they will come. You would almost expect it, or could have argued that by now at this point in the cycle with the combination of cap rate compression, merchant building profitability and liquidity that we would be looking at 500,000 annualized starts. It hasn't happened.

Just to that point, the ratio of for sale multi-family development and rental multi-family development got out of whack in the past years and now it probably gets back to a more typical ratio I would think, right? And that would, again, be an incremental change that would impact '07 and '08.

It will, but the shifting around within that component--I am not so sure that at the end of the day that was that huge of a part of the story because some of that product that was "designated as for sale" did come back on as rental, some of it ultimately will come on as rental, so--but that is a fair point.

Okay. Then last question is, your internal view of NAV. You mentioned--I think you mentioned--I don't know if I am speaking for other management teams, but I think you must have mentioned that you are not seeing any change in cap rates, but everyone sort of has that disclaimer tone to their voice that it probably is going to happen.

I think we can all make that assumption with the CMBS market and everything else pulling back--that it is going to pressure cap rates up at some point down the road, I think it is a reasonable conclusion. In light of that, do you have a change to your internal NAV calculation and maybe speak as it relates to your buyback appetite, what you think you are worth, and what you-- the spread between that and your stock price.

Well, the--I think we all expect cap rates to edge up over time, and we do that fundamentally because you have--you have people paying below the tenure for property today, and the reason they're doing that is because they have an expectation that growth rates are going to be good over the next two or three years.

People are not buying four cap rates or three cap rates in New York City because they like three cap rates, they are buying them because they think that the rental rate growth is going to get them to a point where they will have positive leverage to their debt at some point in the future. So I think cap rates are really a function of--of the liquidity in the market today which--which obviously with the credit situation has got people nervous that liquidity is going to be lower and ultimately the expectation for growth rates.

As far as the way we look at our NAV, we look at it, and we sort of look at the top end when you--when you look at the market, and I like to take various analysts' estimates and then compare it to ours, and we are in the zone, I mean if you take cap rates and compare them to historical cap rates, that people have used to value our portfolio that we use to value our portfolio and we have obviously better information on a property specific basis than anybody else. We do it on a property specific basis and we are--depending on how aggressive you are, you're in the 80s on a cap rate basis plus valuing the development portfolio.

We also stretched that NAV using sort of incremental cap rate changes up 25, up 50, up 100 and see where we are and then we relate that to what we--what our current stock price is. We do an analysis that says if you buy the stock at this level and the ultimate NAV is at a different level, what's the return and then we make a decision whether we buy the stock.

So, I think that there is a lot of caution in the market about will cap rates rise, I think that they--if the tenure continues to rise and spreads continue to expand on the debt side, then cap rates will rise. The question is how fast will income rise.

This year we are going--we believe we are going to have a 6% same-store NOI increase. So over the next two or three years what do you think that is going to be and how does that relate to ultimately what the cap rate market is. Cap rates can go up, but values can still go up if earnings are going up.

If you used 100%--sorry, 100 basis point increase in your sort of internal cap rate, does your stock price still trade at a discount to that NAV?

Yes.

Okay, thank you.

The next question is from Brian Legg with Millennium Partners. Please go ahead with your question.

Thank you. Rick, can you just talk about where borrowing costs are today on a fixed rate basis from the agencies relative to where they were, say, six months ago before the dislocation of the credit markets?

Sure, the agencies are somewhere between 150 to 170 spread over and depending on the LTV and depending on the quality of the property and probably at the beginning of the year they were more like--more like 110. So it's probably 40 to 50 basis points of expansion in the credit spread given the current environment. With that, of course, the treasury has come in, it's at 4.76 now. So maybe it was at 5.25 so maybe your--you are up 20 to 25 to 30 bips which spreads coming in and spreads widening out.

And what type of loan values when you talk about the 150 to 170 basis points. What type of loan to value would that mean?

I think they are like 70 plus or minus.

70 plus or minus, and can you still get a 80% LTV from them?

I don't know that you can get it from the--that is a good question. The LTVs definitely are coming down, and the higher LTVs generally are from the CMBS market, and the CMBS market as everyone knows is in pretty much in disarray right now, so hard to tell what is going on there and what is being quoted now, but the spreads have definitely widened out. I couldn't tell what you the LTVs are right now.

Okay, and if you are to do a large portfolio with Fannie or Freddie, how long would that take.

How long?

Yes, from start to end, the process?

Oh, I don't think the process is very long, it's probably 60 days.

60 days? Okay, great.

And last question. Going back to the clear disconnect between Main Street and Wall Street, how quickly could you buy back going back to '98 you bought back 20% of your shares. How realistic is it to assume that you could do that again by--by selling assets?

Well I--that we can buy 20% of the Company back?

Yes.

Well, 20% of it now is only $600 million.

So if we stay at these levels, the stock price, REITs are getting hit again today. Could you envision the Company and over the next 12 months buying back that much of the Company? Sure. And just further down that point. Why not if this disconnect continues to widen or stays here a while, why not--why not explore the sale of the Company?

Well, the real issue you get into is the question of--when you think about a sale of the Company, I think about--about can we, with the current environment today and the management team, the development pipeline and all the sort of value creation that our management team is doing, can we ultimately in a better market get to a stock price, and a total return for shareholders that would be better than selling for cash today and having those shareholders go reinvest that money somewhere else.

And so it is really that simple of analysis. I don't think we have a situation where our company is broken in anyway, we are--we have a strong management team with good upside potential, and the question today is we have bad investment fundamentals, so I have been in bad investment fundamentals over the last 15 years as a public company, and the best thing to do in my opinion is to eliminate the middle man.

Why sell to someone at a discount to what the NAV would be, let them harvest the value of the Company as opposed to letting the shareholders do it by selling assets, your worst assets and buying your stock back at a discount. To me it is really about what is the best total return, the best return on the shareholders' money in the future. I don't think this market is going to stay like this forever.

Real estate has been, I think, repriced fundamentally in the marketplace over the last few years because it has become a more mainstream product. Today we have a dislocation in the credit markets, you have--you are coming off a seven year highs of--seven years straight of great returns for real estate, we are having sector rotations out of the stocks, and people are getting redemption so they are pounding the stock prices down.

That isn't a reason to sell your company. That is a reason to--you need to make investment decisions, but ultimately if we thought we couldn't create more value as a company in a better investment environment, we would sell the Company.

Do you think now it's--it would be really tough--I mean it looks--say you made that decision to sell the Company. Would it be difficult in the current environment?

No.

No.

No, because people worry about REIT LBOs being like Chrysler's LBO or Alliance Auto Parts, and these other--real estate has a bid. We have real assets that people can put loans on, that you can analyze, that you can do a projection in the future with respect to fundamentals. Most people think fundamentals are going to be good for the real estate or for the multi-family space over the next three or four years. I dont think--I think that there is a dislocation in the Capital Markets today, but I do think that real estate has a bid, and I think that you could do a leveraged cash buyout of a REIT today.

Would that be going through the agencies? Fannie or Freddie. Is that how you would have to finance it because obviously--it seems like the CMBS markets are shut down?

That's true. I think that is a very good point, Brian, because the difference between the multi-family business and the office building business, retail or whatever, is that we have Freddie and Fannie, and Freddie and Fannie these government agencies are in essence required to make multi-family loans because that's how they get their affordable housing--housing credits, if you will, or their requirement to fund affordable housing in America.

So we have them always as a backstop and Freddie and Fannie have a voracious appetite, and they're loving this market right now because they are getting premium spreads and instead of the CMBS and insurance companies beating them out, they are sort of the lender of choice right now and to me, it makes--that creates a lot more liquidity long-term in the multi-family business than you have in other parts of real estate. That's why I think you ultimately could get a Freddie/Fannie style deal done if you really wanted to.

Okay, great, thank you for the call. That's very helpful

Your next question is from Craig Leupold with Green Street Advisors. Please go ahead with your question.

Rick, just to clarify--follow up on Brian's point. I know you guys aren't that active on the secured side, how good do you feel about that 150 to 170 basis point spread that you threw out, that seems a little higher than what I have been hearing.

I have been sort of getting reconnaissance, you think it is too high for Freddie and Fannie?

I've just heard that sort of all in borrowing costs are around 6% and 150 to 170 would put you well above that at least on a ten-year financing.

Right, I have been getting different e=,ails over the last few days from various sources and there's a range, the 170 is the high end of the range and I have heard 120 as well.

Okay

The problem you have right now I think, Craig, is that it is a very chaotic market. People are trying to sort of pick people off, if you will, and so if a lender--depending on where the property is and what stage it is in from a financing perspective and whether the buyer is--is hard on earnest money and the lenders think they can get the upper hand, they'll try to do that today, and so that's why the zone of the spreads are really wide.

Okay, Keith, on the Perfect Connection, you gave us obviously a revised outlook by the end of the year. Where were you guys in the second quarter both in terms of revenues and profits on Perfect Connection?

During the second quarter?

Yes.

Let's see.

Just trying to think about the incremental pickup there.

We are going to end up for the total year on our forecast, Craig, we are going to end up at about--for the entire year, we should be at around a $5 million number, but on a run rate basis, we are going to actually exceed what we thought we would do by the end of '07. But the number in the second quarter--Dennis, do you all have that there in front of you?

I can follow up after if that's too detailed.

They may have that in front on there in Houston, Craig.

Yes, I think we have it but we don't have it with us, we will provide it to him right after the call.

Okay, thanks, and then two last questions I guess. Just looking at your numbers on a sequential basis, obviously overall look quite strong, but there are some markets that are showing a--when I say "weakness," weakness relative to others, Vegas, Phoenix and Southeast Florida, those are also all sort of desert and seasonal markets. Do you attribute the sequential decline to seasonality, or are you--are you really seeing those markets start to turn, again, to the negative relative to performance of other markets?

Craig, relative to our original--our original plan for the year, Vegas is going to be better than planned. Phoenix is going to be basically flat to plan, maybe slightly below plan, and by that I mean like 50 basis points below plan, and then Southeast Florida will be slightly below plan. So, weakness on a sequential basis there is a lot of different things that move around particularly on the expense side of numbers, but overall, those three markets, if you take them and add them together, they are going to be fairly close to what our original plan was. So I don't think there's anything unique seasonally going on in those three markets.

Okay, and then on the land sales, any change to your estimate of what the gains would be if you were to sell those assets, those three land parcels?

No.

Is it just a timing issue or do you think the market has changed in terms of demand for that land?

No, it is a timing issue.

Okay.

And one of the tracks is getting ready to be under contract, but they have to go through and change the zoning from a condo to a hotel, and so we have some--some time issues that are involved with those, but pricing is pretty much where we expected.

Okay, and then one last question. On Jamboree and Main Asset, I know you guys have a note receivable there, obviously that project has been delayed significantly. I understand that is on the developer's $0.05, but do you have any concerns about the note receivable there as a result of increased carrying cost?

No, the note receivable is--is going to be fine. The project overall has been delayed, but we think the value is--is still far in excess of the total cost on the project, including , paying the receivable with its accrual.

Right, thanks.

Great.

The next question is from Dave Roberts with RBC Capital Markets. Please state your question.

Hey, guys, Rick, a follow-up to one of your earlier questions is what type of spread versus your own third-party mez lending that you're doing today could you get on an external deal if you were to write one today?

I don't know the answer to that because the markets are complicated. We are--in our traditional joint venture development deals, we are writing a 14% interest rate on the mez and then in some of the--we have a couple other joint ventures where we're working off a 300 basis point spread to LIBOR. The real question will be, as these markets settle down, and if loan-to-values go down from a lot of lending sources, then will the spreads widen for mez and allow us to get back in the mez business.

Just to play devil's advocate to the earlier question and again, just devil's advocate, but give that you guys are property owners and operators and probably have a better insight on today and future cap rates for properties versus implied cap rates for the stock. Would you prefer just to be more aggressive staying more involved in the property market versus getting more active in the equity market when you think about it longer term?

Well, I think it just depends on the value proposition because if you were saying--would you rather be doing your normal business which is--which is real estate activity versus buying stock, I think it gets down to what the best return is, and when you have the dislocation in the equity markets as big as it is right now, unless there's going to be a major change in private real estate values, it is pretty compelling to play in the equity business.

Okay, thanks.

But that doesn't mean we're not going to continue to be in the real estate business because we are. We are in the real estate business, we're doing lots of joint ventures and we can leverage our capital through the joint venture business and continue to take advantage of low stock price in acquiring the stock.

Just one of the things I am always concerned about, is we've seen it in the past the Company sells assets, downsize the Company but the core components of the Company G&A get better or continue to remain roughly the same and so we get that deleveraging effect and not that you would get that on the buyback initially but continued asset sales over time could cause that and I guess just staying more invested in properties if you have a positive outlook for fundamentals and where cap rates are headed that is just more of the generation of my question.

Right, and I think the issue there is, we are selling sort of the bottom tier assets even though we've really sold a lot of assets over the year and so we have a really solid portfolio, even the ones we are selling are good, but I think that's a good point. The key from our perspective is that if we have limited capital to invest, we will then--then use some of that capital to form joint ventures and leverage our capital into staying involved in the real estate market and that will do that via joint ventures in development, joint ventures with acquisitions, and using sort of leveraged capital to do that.

Dave, also the issue of selling assets to fund the buyback program and the effect that that has on the ultimate profitability because of the G&A burn rate, if we weren't investing $600 million to $700 million a year in the development pipeline, that would be more of a concern to me at sort of looking at G&A as a percentage of total assets, but we are adding significant--significantly more in assets through the development pipeline that what we would be selling to fund the buyback.

A fair point. Thanks, guys.

You bet.

The next question is from Dustin Pizzo with Banc of America Securities. Please state your question.

Hey, good afternoon, guys. Given the significant amount of development you have underway in D.C. and in the shadow, longer term, how large a percentage of the overall portfolio are you guys comfortable with that market representing?

First of all, I think you have to look at where the properties are in D.C. You can slice into a number of markets sort of like Southern California.

Sure.

So, number one, we--we like D.C. long term in the global market. Given inside the Beltway, outside the Beltway, and so ultimately, we are going to continue our sort of geographic diversification program which may mean in the future we will do either more joint ventures there or we'll sell off an asset or two here and there, but we are very comfortable with D.C. and the surrounding areas and we will probably start breaking it up so it doesn't look like--that it is in excess of what we want to be exposed there so we can start bifurcating where the assets are and an asset in Northern Virginia or Maryland doesn't necessarily act the same as an asset inside the Beltway. So we are concerned about too much concentration, but at least it is in a great market long term.

That's fair enough and then I know you gave the--on turnover, that it was 300 basis points below last year but did you give the actual number? I may have missed it.

The actual turnover--net turnover rate?

Yes. The actual turnover rate for the first six months--

For the second quarter, the net turnover was 67.9% for the quarter.

Okay.

And that compared to about 69% in the second quarter of last year, it was up sequentially from 52% in the first quarter. We still think we are going to be about 5 percentage points below on a net basis where we were in 2006 at the end of the year.

Right around the 60% level?

Probably 62%.

All right, perfect. Thank you.

You bet.

At this time, there are no further questions in queue. I would like to turn the call back to management for closing remarks.

Thank you for joining us on the call today. We look forward to seeing you in September at Camden's investor and analyst tour in Washington D.C. where we can talk about that market in more detail. So thanks a lot and we'll talk to you next quarter and see you in September

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.