Camden Property Trust (CPT) 2007 Q4 法說會逐字稿

Hello and welcome to the Camden Property Trust fourth quarter earnings conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS). Please note this conference is being recorded. Now I would like to turn the conference over to Mrs. Kim Callahan, Vice President of Investor Relations.

Good morning and thank you for joining Camden's fourth-quarter 2007 earnings conference call. 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 fourth quarter 2007 earnings release is available in the Investor Relation's section of our Web site 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. At this time I'll turn the call over to Rick Campo.

Thanks, Kim. Good morning We started 2008 with an award-winning team, great platform, strong balance sheet, and complicated and uncertain markets. Here's how we see 2008 unfolding. On the one hand, the fundamentals of our business are regionally good. Demographics are strong with a growing echo boom population and continued positive immigration trends. New multifamily supply is manageable and based on my conversations with the largest US developers at the recent National Multi Housing Council Annual Meeting starts are predicted to fall 25% to 30% this year, setting 2008 up for the lowest year for multifamily starts in 10 or 15 years. Multifamily affordability is the best it has been since 2000. Single-family home purchases are down significantly with tighter credit standards and it will take time to change the negative sentiment towards homeownership. Homeownership rates have dropped 150 basis points since the peak, creating more than 1.5 million new renters. Some economists think the rate could drop another 200 basis points before it's over.

On the other hand, job growth continues to slow. In 2007, 509,000 jobs were created in our markets, with 2008 projected to decline about 50% to 265,000 jobs created. But the real wild card here is that the shadow supply of single-family homes and what effect they will have on multi-family demand, the answer to that question will unfold during 2008.

Our business plan for 2008 was based on same-store net operating income of 2.25% to 3.25%. We will be a net seller of assets this year. During the last seven months, we've acquired 4.3 million shares of Camden stock totaling $230 million. Our Board has authorized an additional $250 million of stock buybacks.

We believe there's a significant discount between the public and private value of multi-family assets and will continue to take advantage of the arbitrage opportunity as long as it lasts. We continue to create significant value in our development business with expected yields of 7% in the completed and under construction projects. 2008 will be the peak year in our development pipeline ramp-up following the Summit merger. The 2008 FFO includes $13 million to $15 million of development dilution, an increase of approximately $7 million over 2007. The tradeoff between the value creation from development and the negative effect of lower short-term FFO is a price worth paying in the long run for the value creation on the development side.

We filed an 8-K last night announcing the first closing of the Camden value-added fund. The fund will be our exclusive acquisition vehicle. We will also contribute select developments to the fund, as well. We expect the fund to ultimately acquire and/or develop $1 billion in properties. The fund is an excellent structure to expand our joint venture business which allows us to leverage our platform and earn higher returns on our invested equity. Camden will own 20% of the fund. I'll turn the call over to Keith Oden now for an update on our markets.

Thanks, Rick. As with past years, I'll give my annual preview of the market conditions for 2008 in our largest markets. Beginning with our top rated markets, I'll give you our view of current market conditions expressed as a letter grade and also provide our view of the outlook for each market through year-end 2008 as improving, stable or declining. Second, I'll provide some additional details of same property guidance for 2008.

Starting with the overview of Camden's market conditions, Denver has made a tremendous turnaround year-over-year, moving from the bottom of last year's list to ending 2007 as one of Camden's top performers. We rate current conditions as an A with a stable outlook. Job growth is expected to decline slightly, but a tight housing market will be a driver in this market throughout 2008. The premium of buying versus renting, absorption levels, and population growth will also improve performance. Occupancy levels are anticipated to remain at or above 95% for the full year which will keep this market as a top performer for rent growth.

In Austin we rate current conditions as an A with a stable outlook. As with the rest of the nation, employment growth is expected to slow, however, Austin still anticipates adding more than 23,000 new jobs in 2008. Population growth due to an expanding student base, domestic migration, and immigration will cause the demand for -- will increase the demand for housing. Forecasts show 2008 to be another year of rising home prices, therefore widening the spread between renting and buying. In addition, the lack of new supply will foster another solid year of rental rate increases and good NOI growth.

In Dallas we rate current conditions as an A-minus with an improving outlook. Dallas experienced an economic rebound in 2007 that is projected to hold over through 2008. Employment growth is forecasted to remain above the national average, adding an additional 37,000 new jobs to the market. Demand is expected to exceed deliveries, keeping occupancy levels high and rent growth strong. Camden anticipates Dallas to be a top performer in 2008, which will enhance our NOI growth.

We rate Houston's market conditions as an A-minus with a stable outlook. This market has experienced remarkable growth as a result of the booming energy sector. While $100-a-barrel oil is bad for the national economy, it is a very good thing for Houston. Continued employment and population gains will create sufficient demand to absorb new supply coming on line in 2008. While Camden has a number of new development communities in this market, most of them are inside the 610 loop, which is an area in high demand among young professionals who choose to live near work and entertainment. When occupancy reaches capacity inside the loop, another sought-after submarket is the West Chase or Energy Corridor, where Camden also has a large supply of apartment homes. These factors will sustain Houston as a strong market for same property NOI and rent growth in 2008.

In Raleigh, we rate current conditions as a B-plus with a stable outlook. Employment growth is expected to increase by 1% or roughly 8,000 jobs in 2008, with most of the growth coming from highly compensated sectors such as research technology. ING Research recently announced plans to quadruple its presence adding 1,100 jobs to the area. In addition to local job growth, net migration is forecasted to increase 14%, assisting with demand for rental housing. Absorption has been steady and it's forecasted to match new supply throughout 2008. Rising home prices, solid job growth, and a balanced supply versus demand fundamentals will lead to another solid year.

In Charlotte, we rate current conditions as a B with a stable outlook. The fundamentals of this market remain solid, healthy employment growth across all sectors, increasing home prices, and sizable population increases have added an average of $20,000-- 20,000 people per year to Charlotte's metro area. However, pressure will be put on occupancy levels as a large amount of new supply is anticipated to come on line in 2008. Occupancy should hold steady at 95%, but with less rent growth than in prior years.

We rate Atlanta's current conditions as a B with a stable outlook. Even with softening economic conditions, this market remains healthy and projections show that overall employment levels are strong, with growth expected in nearly all sectors throughout 2008. Invesco recently announced that it will relocate its headquarters from London to Atlanta. High occupancy rates and the limited number of completions compared to demand will allow rental rate increases across this market and keep Atlanta as one of Camden's top performers in 2008 for NOI growth.

In the Washington, DC, metro area, we rate the current conditions as a B with a stable outlook. Historically, election years have been positive for the housing industry in Washington, DC. While employment growth is anticipated to drop from 2007 levels, conditions still look favorable with approximately 30,000 new jobs being created this year. In addition, the opening of National Harbor, a mixed use project that includes five new hotels, will generate thousands of jobs. High housing costs and restrictive single-family lending practices will benefit multi-family operators in 2008. Completions will track absorption for 2008 and the combination of all these factors will assist Camden achieving modest rent growth and a forecasted marketwide occupancy rate of 95%.

Next, in Orange County we rate current conditions as a B-minus with a stable outlook. The subprime fallout certainly impacted this market last year and forecasts show employment will actually shrink by approximately 7,000 jobs in 2008. Single-family housing affordability and uncertainty in the housing market will push some potential buyers to remain renters during 2008. Population levels will also help the rental market as 1 in 100 Americans now call Orange County home. These dynamics will allow for moderate growth in rents and NOI.

In San Diego, we rate current conditions as a B-minus with a stable outlook. While conditions have deteriorated slightly in this market, continued job growth, high housing costs, and little new supply will prove positive in '08. Most of the employment growth will come in the leisure and hospitality sectors, aiding renter demand. Occupancy levels have remained steady in this market, and our San Diego communities are forecasting a 1% increase in occupancy during 2008.

In Las Vegas we rate current conditions as a B-minus with a declining outlook. For the first time in seven years, Vegas may experience negative employment growth in 2008. This market has been a shining star for many years, but we'll feel the effects of fewer new jobs and a glut of single-family rentals. Beyond 2008, continued population growth, growth in new supply, and increased tourism traffic will allow for resumption in strong performance. The leisure and hospitality sector will be the saving grace for Las Vegas as casinos and new hotels come on line in late 2008 and 2009. The usual hotel staff-to-room ratio is 3 to 1 and typically these individuals have a high propensity to rent. NOI should remain slightly positive in 2008.

We rate south Florida's current conditions as a B-minus with a stable outlook. This market had the largest excess supply of condominiums in 2007, and the effects are forecast to linger throughout 2008. However, the lack of new apartments coming on line will alleviate some of the excess supply. Employment growth is expected to be about the same as 2007. The lack of affordable housing will keep many residents in the area renters which will bode well for Camden's NOI growth and allow for moderate rental increases.

In Phoenix, we rate current conditions as a B with a -- B-minus with a declining outlook. Submarket conditions in Phoenix were very diverse last year, and submarkets that were top performers in '06 ended the year at the bottom of the pack in 2007. Conditions are predicted to be volatile again, making this market a little uncertain for the first half of 2008. However, job growth is forecasted to decline by 2% or approximately 30,000 jobs. Multifamily properties will be challenged by the housing correction that is occurring in the market due to a record number of foreclosures, excess inventory of single-family homes and condos. A decline in multi-family completions with continued employment -- population in employment growth will allow for very moderate NOI growth in 2008.

Tampa we rate current conditions as a C with a stable outlook. Tourism is expected to boost job growth in the leisure and hospitality sectors in '08, adding almost 15,000 new jobs for the year. Companies with communities centrally located such as Camden will fare better than the suburban areas this year. Occupancy levels are expected to increase, which will be the main driver behind a very modest NOI growth.

Lastly, in Orlando, we rate current conditions as a C with a stable outlook while job growth is projected to add approximately 22,000 new jobs. The excess supply of single family and condominium inventory will keep rent growth to a minimum in this market. Population growth from domestic migration will be the largest demand driver to the region. Given these obstacles during 2008, Camden expects NOI growth in Orlando to be flat.

In comparing our 2008 outlook to our 2007 outlook, the following statistics are worth noting. If you compare market by market to 2007, 11 markets have lower ratings than they did in 2007. Three are higher and one was flat. And if you take the weighted average letter grade for the portfolio for 2008 versus 2007, it moved down roughly one full letter grade from the A-minus B-plus range into the B to B-minus range. The outlook condition for the portfolio moved from slightly improving in 2007 to a stable outlook in 2008. These changes are consistent with our NOI growth forecast for 2008 of 2.75% versus last year's original guidance of 6.5% growth.

A few brief comments on 2007 fourth-quarter results. With 11 of our 15 markets receiving lower ratings than in 2007, it's not surprising that our fourth-quarter sequential revenues were down in most of our markets. In every market except San Diego, our average occupancy fell from the third quarter, while overall rental rates were relatively flat. For the fourth quarter, our portfolio averaged 93.6% occupied, which is 30 basis points less than our 10-year average for fourth-quarter occupancy of 93.9%. The decline from third-quarter occupancy of 90 basis points is 35 basis points more than the 10-year average decline between the quarters of 55 basis points due to seasonality.

Rental rate increases will be very modest in the first half of 2008 as we move our occupancy rate back into the 95% range. Overall, our traffic for 2007 was down 8% from the prior year, and the fourth quarter was down 3% versus the prior year. The largest decline in traffic year-over-year occurred in Phoenix down 18%, Orlando down 16%, Las Vegas down 15%, and Tampa down 12%. It's no coincidence that these markets have been the hardest hit by the fallout from the subprime meltdown, and clearly a significant percentage of our multi-family prospects are finding housing alternatives, most likely in single-family rentals. Consistent with our expectations, the percentage of moveouts to purchase homes fell to 15% for the quarter, down from 17% in the third quarter, and one of the lowest numbers we've ever recorded.

Turning to our NOI guidance for 2008, we have provided you with revenue and expense estimates two ways. One includes the other income from our cable TV, trash collection, and utility billing amounts in both revenue and expenses, as we are required to report them in our financial statements. Based on this methodology, our revenues should increase by 3.5% to 4.5%. Expenses would be up 5.5% to 6.75%. For comparability to our peers we've also provided revenue and expense growth excluding those other income items. Using this methodology we expect revenue growth to be 2% to 3%, expenses will grow 2.5% to 3.75%. In either case, our projected same property NOI growth for 2008 is 2.25% to 3.25% or 2.75% at the mid-point.

The long-term average annual same-store NOI growth rate in the multi-family sector is 3% to 4%. We closed out 2007 with same-store NOI growth of just over 5%. So from a historical perspective, that would normally be a really good year. But it sure didn't feel like it as we missed our original guidance of a 6.5% increase. Our 2008 forecast of 2.75% same-store growth is below the long-term trend by roughly 1%. But, again, because of an uncertain outlook for the broad housing markets, feels worse than that. Our markets should continue to outperform the national picture in population and employment growth even though the jobs picture will likely be much softer than last year. Combined with favorable demographics and reduction in new housing completions for both single and multifamily in 2008, the elements for above-trend performance beyond 2008 look promising.

Finally, in a year where good news was hard to come by at Camden, we recently received two extraordinarily -- extraordinary pieces of good news. First, for the third straight year, Camden Property Trust was named as one of the best places to work in Texas with our highest ranking yet at number seven. Second, Camden was named to "Fortune" magazine's list of the 100 Best Companies to Work For with a ranking of number 50. This recognition is the gold standard of company awards for employee satisfaction and maintaining a great workplace. The award was made possible by our 1,800 employees who passionately share our commitment to making Camden a great place to work. We strongly feel that Camden's inclusion on the list has much broader implications. We are the first REIT ever to make the list and just as there once was a first REIT to be included in the S&P 500, there undoubtedly will be others from among the excellent companies in the REIT sector.

We believe this recognition is the next important step in the direction of investors viewing our Company and other REITs as great franchises, not just collections of great assets. This distinction is all too often overlooked by a myopic focus on the net asset value of REITs. We offer a special thank you to Camden's employees who made this next step possible. Now I'll turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith. I'll start my comments this morning with a review of our fourth-quarter results. Camden reported FFO for the fourth quarter of $57.1 million, or $0.94 per diluted share, slightly higher than the mid-point of our guidance range of $0.91 to $0.96 per share and $0.01 above the FirstCall mean estimate. The slightly better than expected performance is primarily due to property net operating income exceeding our forecasts by $1.7 million and unforecasted land sale gains of approximately $700,000. These two were partially offset by a $1.4 million impairment loss on land. The $1.7 million favorable variance in property NOI is the result of our favorable variance of $3.2 million in property expenses in the fourth quarter due to a $1.6 million decline in real estate tax expense from the prior quarter primarily due to lower than expected 2007 tax rates in our Florida and Texas markets. With the remaining $1.6 million favorable variance in property expenses primarily due to lower than anticipated property and casualty losses, employee benefit costs, and incentive compensation. The favorable variances and property expenses were partially offset by a $1.5 million shortfall in property revenues due to the slightly lower than anticipated occupancy rates in our stabilized portfolio. Total nonproperty income and total other expenses were generally in line with our expectations for the quarter.

On the transaction front, during the fourth quarter we sold seven of the nine operating assets held for sale, resulting in a gain on the sale of discontinued operations of $75.3 million during the quarter. This brings our year-to-date disposition volume to approximately 3,000 units, generating $170 million in proceeds. We have exited our midwest and Greensboro markets and continue to reduce our portfolio of 20-plus year-old assets.

The average cap rate on our 2007 dispositions was 6.1%, using 2007 annualized NOI and actual CapEx per unit of $630. Of the two remaining assets held-for-sale, Camden Ridgeview in Austin, Texas, is currently under contract and expected to close in the first quarter of 2008, and Camden Pinnacle in Denver, Colorado, is still being marketed with an expected sale in the second quarter of 2008. Additionally, during the quarter, we sold undeveloped land in the Brickell area of downtown Miami, generating proceeds of $6.1 million, resulting in a gain of approximately $700,000 on the sale.

Our development pipeline is continuing to progress nicely. In the fourth quarter, we completed construction at Camden Monument Place in Fairfax, Virginia, and Camden City Center in Houston, Texas, which are 72% and 58% leased respectively. Additionally, during the fourth quarter, we began construction in Camden Amber Oaks, a 348-unit, $40 million development in Austin, Texas. For the four completed communities in leaseup and the seven communities under construction, as detailed on page 16 of our supplemental package, total projected costs are slightly below budgeted amounts, and in aggregate they have a combined yield in line with our original expectations.

One item I would like to note regarding our future development pipeline. During the fourth quarter, we decided not to go forward with a development of a third phase at our farmers market development in downtown Dallas. In conjunction with our decision, we recorded an impairment charge of $1.4 million to write down previously recorded carrying costs related to the development of a third phase.

Our balance sheet metrics continue to be strong. During the quarter, we used proceeds from asset sales and our $500 million, five-year unsecured term loan to reduce balances outstanding under our unsecured line of credit, and to fund our share repurchase activity. At year end, we had approximately $470 million available under our $600 million line of credit.

We have very manageable debt maturities over the next several years with approximately $200 million in scheduled payments in both 2008 and 2009. Our 2008 maturities consist entirely of maturing mortgage debt with $176 million of the maturities occurring in the fourth quarter. With ample liquidity we do not currently forecast tapping the capital markets in 2008. Our coverage ratios also remain strong. Our full-year 2007 interest expense coverage ratio and total fixed charge ratio of 3.0 times and 2.2 times EBITDA respectively are well in line for our investment-grade rating.

Moving on to 2008 guidance. We expect 2008 projected FFO per diluted share to be in the range of $3.60 to $3.80. Please refer to page 25 of our fourth-quarter supplemental package for details on the key assumptions driving our 2008 financial outlook. Keith has previously walked you through the growth rate assumptions for the 43,000 units in our same-store portfolio. For the 3,500 units in our repositioning portfolio, redevelopment activities will be substantially complete by the second quarter of 2008, and we are projecting 2008 NOI growth of 8.5% to 9% for this portfolio of assets. We are projecting between $175 million and $380 million of operating asset dispositions as we continue to recycle older assets to fund our development pipeline and share repurchase activities.

Nonproperty income net, which includes fee and asset management income net of expenses, and interest and other income is expected to be between $10 million and $14 million in 2008, in line with the 2007 total of $12.5 million, as higher fee income related to joint venture activities is being offset by lower interest income on our mezzanine loan portfolio.

Although we are anticipating sales of land on parcels currently held-for-sale we have not included any potential gains in our 2008 guidance. G&A and property management expenses are expected to total between $50 million and $54 million, which at the mid-point represents a 2% growth rate over 2007 actuals.

For the first quarter of 2008, we expect projected FFO per diluted share within the range of $0.87 to $0.91, with a mid-point of $0.89 per share representing a $0.05 per share decline from the fourth quarter of 2007. This $0.05 per share decline is primarily the result of the following items. First, lower first-quarter same-store net operating income of approximately $1 million or $0.02 per share. The decline in same-store NOI results from a modest increase in sequential revenues, which are more than offset by higher operating expenses resulting primarily from the fourth-quarter favorable variances in real estate taxes, property and casualty losses, and employee benefit costs, which I mentioned earlier. Secondly, we will incur additional dilution in the first quarter of 2008 from our development pipeline of $1.6 million or $0.03 per share. This is due to the significant number of units completed during the fourth quarter and units to be completed in the first quarter of 2008 at communities under leaseup in both our on balance sheet and joint venture pipelines. As a reminder, we begin to expense all operating and interest costs related to completed units regardless of lease status. Please refer to pages 16 and 17 of our supplemental package for the construction and leaseup status for properties in our pipelines.

Also of note, in reconciling FFO per share from the fourth quarter of 2007 to the first quarter of 2008, the reduced share count benefit for shares we repurchased during the fourth quarter and thus far in 2008 equates to approximately $0.04 per share in FFO. This benefit is entirely offset by increased interest expense and loss NOI from operating asset sales as we funded our repurchases with asset sales in incremental borrowings. At this time I'd like to open the call up to questions.

(OPERATOR INSTRUCTIONS) . Our first question comes from Mark Biffert at Goldman Sachs.

Hi, guys. Question for you on the fund. When you look at your acquisition volume that you've projected for -- for '08 as well as the development, will all $800 million if you take the top part of the range, a part of that joint venture or that fund that you set up?

Our -- if you look at page 25, I believe it shows what we have on balance sheet. And joint venture. You can see from a acquisition perspective we have zero budgeted for 100% owned or on balance sheet. So the $200 million to $400 million is in the joint venture category, and then on development, we show between I think $100 million $500 million in total. And we -- we are likely to have a couple developments on balance sheet but not many. Fundamentally, the -- the fund and our joint ventures are set up to leverage our return on capital, and today it makes a lot more sense we think to buy stock as opposed to invest directly into acquisitions or development.

Okay. Then looking at your -- your dispositions for the year, I mean, you have a $1 billion investment cap on the fund. I mean, would you move any existing assets that you own into that, as well?

No, not likely. Our -- typically what we're projecting to do is just sell assets, improve the quality of the portfolio over the long-term, as opposed to -- to doing joint ventures at this point.

Okay. And then looking at the assets that you sold during the quarter, what of the cap rate on those assets specifically?

I mentioned on the -- in the quarter or year to date?

On the quarter? You gave the year-to-date one I think 6.1. I was curious because these were sold sort of after the credit issues. I'm wondering how much they may have moved up since the prior-year ones or earlier in the year ones.

I don't have the specific number. It actually moved down just briefly. If you would like to after the call we can provide you the breakout between the three assets that we had prior to this last portfolio sale. Generally speaking, though, we got pretty much what we expected. And I don't think there were significantly negatively impacted by the -- by the credit markets really. We found that when you looked at -- when you looked at the cap rates overall were in the -- the sort of nominal cap rates were probably somewhere in the 5.9 up to maybe 7 and some change, perhaps. Then when you looked on a -- on an after 650 in CapEx, and this was on 2007 annualized numbers. So sort of backward looking cap rates, they were all below 6.

Okay. That's great. Ging to operations, looking at the occupancy dip in the quarter. I mean, looking at yield starts, typically you said it was going to be focused more on that 95% occupancy. Did you guys just decide to come off it to maintain -- maintain rents where they were, or what of the reasoning behind the occupancy dip?

No. It -- Yeild Star is calibrated to get to 95%. But it also -- there's a tradeoff between what you have to do on current rents in order to get the occupancy. It puts the premium on -- certainly there's a heavy cost that it puts on the vacancy. But it also looks at what you would have to do on your existing rents. But if -- again, historically, if you -- if you look at our portfolio over the last 10 years, we're -- we ended fourth quarter '07 within 30 basis point of what our 10-year average is on occupancy. We do have seasonality in our portfolio. Probably more so than most our peers do. But from a historical perspective, it wasn't a big change in looking at the change quarter to quarter, third to fourth, we -- we were down 90 basis point, but again, the historical seasonality would have implied 55 basis points down. So we're 35% basis points worth -- worse quarter to quarter than our 10-year average. Clearly that is a result of weakening market conditions in our markets where we've got the biggest supply issues from single-family housing.

So where were you able to get the cost savings on your expense side? You saw significant decreases across your entire portfolio. Previously, Rick, you had talked about that there were some program you were running that you let your staff run. But thought that, you would ultimately cut back if markets got worse. Is that what happened?

Ultimately as I mentioned earlier, the actual decreases in costs for the fourth quarter were primarily due final adjustments of tax rates in Florida and in Texas and some reserve adjustments for insurance, both property, casualty, and employee benefit. Which declined from third to fourth.

All right. Great. Thanks.

Our next question comes from Steve Kim at Credit Suisse .

Hi, this is Stephen Kim. I just had a question regarding your markets. How divergent are the operations in terms of your -- your A markets and your B markets?

I'm sorry, repeat the question. It was -- -- go breaking up.

What's the diversion in like rental growth between your A markets and your B markets?

The -- if you're asking in temperatures of the spread on projection for rental growth next year?

Right. That's right.

Yes. The -- the high end of the rental growth in our -- in our models would be in the 4% range. The low end would be flat. So you've got -- you've got pretty good distribution between four at the top end and debt flat in Orlando.

Got you. And in terms of your development pipeline, how have the -- have you been kind of meeting the pro forma projections?

We -- we have. As a matter of fact, the last sort of four or five that have come in that we closed out last year, we actually came in better than original pro forma. Both on cost and on total returns. The -- the portfolio that has just been completed and is in leaseup and -- and that is under construction with the sort of softening of the construction market overall and -- and the construction costs increases slowing, we feel pretty good about our cost side of our equation on all those projects. The ones in leaseup now are -- are doing fine from a leaseup perspective. We have seen a little bit of slowness in -- in terms of -- in terms of velocity of leasing. But it hasn't been significant enough to make us worry about not hitting our targets.

Sort of -- so leasing in the Oak Creek and Royal Oaks is not that significant?

Royal Oaks is -- is an age-restricted property. And we talked about that a couple of times on the calls. And the -- the -- even though we are in good shape on our total returns, it has been a slower leaseup because the age restricted customer is a very -- the sales cycle or closing cycle is -- is a lot longer than your typical apartment project. So while we believe that our returns are going to be really good there, it's just taking longer to lease it up. Oak Creek, you had some significant sort of challenges there. We were one canyon away from the big big fire in southern California. We had to evacuate the project a number of times during this past year because of though issues. And so that clearly had an impact on leasing up. When you can't let -- when people can't even stay there and your office can't be opened, it's hard to lease it. So we had a little bit of slowness as a result of that.

All right. Thanks. And congratulations.

Pardon me?

Congratulations on the orders that you got.

Thanks.

Thank you.

Absolutely.

Our next question comes from Christine O'Connor at Morgan Stanley.

Hi. Good morning. Do you guys have any way of quantifying the amount of competition you're seeing from single-family homes? Are you tracking the number of people that move out to rentals? Is there any way of just getting an idea of how much supply is out there that's competing directly with your apartments?

Yes. I'm going to give you two answers. The -- the first is on your second question on moveouts to rentals. We do track that. And we did have an increase over the prior quarter. And third quarter, we were at about 1%. And that jumped up to about 2% in fourth quarter. Yes, we do track it. Roughly 1% of that we can attribute. Now there -- it's not clear that we're still capturing when someone says I'm leaving, why are you leaving, I'm going to a house. It's just not clear to me that we've got a great way of determining is that to rent the house or to own, even though our folks are now asking that question directly. But yes, we had some impact from that. The other impact, the only by extrapolation. I think you can get a little bit of a sense in the markets where we know we have a significant issue with homes that are unsold and trying to find some kind of a -- a place in the -- in the occupied housing market, it's going to be rentals to a large extent, and the five market that we have most impact we also saw the biggest decrease in traffic year over year. So by extrapolation to if people are looking at rental homes as an option before they show up at one of our communities, then that's going to show up in decreased traffic. So I think that by extrapolation, you can say that the markets that I mentioned where we had decreased traffic, that is by and large probably attributable to more competition from single-family homes. But I got to tell you, there's the data on single-family homes, the aggregated data is very hard to come by. And we have anecdotal evidence, we have a lot of conversations with our regional and on-site staffs. But at the end of the day, best we can do is sort of extrapolate that we are seeing an impact because those are the markets where we are having the biggest decline in traffic year over year.

There are numbers that talk about a million excess housing units, 750,000 homes and 250,000 condos. And a lot of people think about the condos are the problem, and it's really not the condos because 250,000 excess condos in America is very small supply. And the demographics really support people downsizing and baby-boomers getting older and that kind of thing for condos. So the -- ultimately if you sort of look at that number at a million excess units and they're going to be located clearly in the markets that everybody talks about, the interesting thing about that is one of the bigger issues I think is when do people start buying homes and when do you start working down the supply. The two components of new supply coming to the markets is definitely falling dramatically with home builders slashing production dramatically. The second part is going to be when people start buying. And until you have sort of a homeowner psychology that -- that -- whether weather there's a tipping point where they think that it's a time to buy and home prices aren't going to fall anymore, that's when you start seeing some of the effects of supply go out. When you -- when you look at the total numbers in the global scheme of America, they're not that huge, and they can -- they can be worked off over probably a 12 to 18-month timeframe without that much trouble. The question is when do you start working them off. That's a psychological issue that I think has to be dealt with in the next year or so.

That's helpful. Thank you.

The next question comes from Jonathan Litt at Citigroup.

Hi, it's Craig Melcher with John. The 2.4% revenue same-store revenue growth, does that include the cable in there?

That does not include the cable. That's a net number. If you include the cable numbers it ends up in the 4% range.

Okay.

Craig, that's -- by the way, that's not just cable, that's cable plus valet waste, plus the pick-up and billing of our utility or water rebilling. It's all three done that we're netting out when we give you the two sets of guidance.

Okay. So with the 2-4, that compares to the guidance of the 2% to 3% revenue growth Ex the cable and the other items you just mentioned. So -- so basically assuming things do not get -- we can just say we see now things stay similar as we go into '08. But it seems like the gap of the market spreads, is that going to -- do you expect it to narrow? Do you expect the Florida to not get -- be quite as bad as some of the stronger markets, the growth to come down in terms of the divergence in markets this year verse us in '07?

Well, the divergence is pretty marked. When you break it down into the markets that are kind of on everybody's radar convenient and certainly ours from the impact of single-family homes. If you stratify our portfolio and you take -- I'm going to take the five markets that everybody is most concerned about, and that we have concerns about from the single-family home perspective, it would be Las Vegas, Phoenix, Orlando, southeast Florida, and Tampa. It -- that just to put that in perspective, Craig, that represents about 36% of our NOI from those five markets. If you take our projected net effective rent growth in those markets, that math works out to about 1%. So you have 36%, projecting a 1%, and then the balance of the portfolio kind of distributed above that up to a top of Denver, roughly four, but the divergence is pretty -- is pretty clear in terms of our projection for '08 versus those markets that we know got -- have the bigger issues with single-family supply.

I think the other thing you have to look at, too, is that we are projecting these markets to be worse in 2008 than they were in 2007. And -- just take an example of Tampa, in 2007, we had 2.6% rent growth, 1.5% expense growth for a total of 3.4 same-store NOI growth. And what's going to happen this year is we're basically projecting it flat. So what that means is that it's definitely not as good as '08 -- or as '07, and there is a divergence from the markets like Houston and Dallas and Austin and markets that have the same kind of problems.

Yes. And on repurchase activity for this year, do you assume any additional activity in your guidance ranges?

We do not. The -- the fundamental question of -- of asset sales and -- and buy-back activity, hard to project. The key is going to be if we -- depending on what the stock does and what we can sell assets for, it will either be flat, accretive, or dilutive. And I think most likely it will be flat to accretive. But -- but it's hard to project that kind of -- kind of situation. I don't -- and we thought it was imprudent to try to include guidance or related to things that we don't really have a lot of control over. If the stock goes up dramatically, we won't have the opportunity to make the arbitrage, and it's hard to pick that.

But if you hit the mid-point of your disposition guidance and based on your development spending, would you have any capital to do buybacks? I know you mentioned you weren't going to go back to the capital markets.

Yes. Absolutely.

Okay. Thank you.

Uh-huh.

Our next question comes from Alex Goldfarb at UBS.

Good morning.

Good morning, Alex.

I just want to follow up on the -- on the buying back of stock. I realize that it's not in your guidance, but is there any sense that while there's still a spread between where your stock's trading and what the assets are worth and while there's still capital for people to finance apartments that -- it may be inclined to get more aggressive, sell more earlier, buy back stock more earlier as long as that arbitrage exists today? Or are you comfortable sort of going over the year with your regular game plan?

I think the -- the answer to your first question is yes. If -- we're going to continue to be aggressive acquires of the stock, as we sell assets. That's why we have a broad range of asset sales in the guidance. And if we exceed that, if the market continues to be favorable, both from an asset sales perspective and a weak stock price where we can play the arbitrage, we will continue to do that aggressively.

And what are the implications, how much asset -- how many assets can you sell before having to deal with tax gains and then also dealing with the rating agency concerns and then as far as will you keep the balance sheet neutral or will you look to increase leverage?

We've always said in our buyback strategy that we would do it leverage neutral and coverage neutral. And we think it's important to do it that way as opposed to leverage up the company and put us in a position where we'd have to go raise capital or something. So for sure, it's a leverage-neutral type of transaction. The answer to the question of how much do you have -- can we sell from a gain perspective, that number is around 300 million plus or minus. It depends on the ashes sets that are sold and the gains related to those assets and what have you. But we don't look at that as a cap. We would clearly look at if the arbitrage made sense, we would clearly look at special dividends to expand that program.

Okay. And that's 300 million agrees or 300 million of gains?

Gross.

Okay. Next question is on the guidance. First of all, have you factored in -- maybe you said in the MD&A and maybe I missed it. Have you factored into a recession into your guidance range. And if you can go over the stepup from the first quarter to the rest of the year for FFO, and whether or not there's any impairments for any like mezza loans and how the tax insurance trueups that you mentioned in the fourth quarter, how those work out.

Just in terms of the guidance, we have not -- not tried to include a recession scenario in here. We included our -- our numbers are predicated on a 265,000 job growth in our markets, which is substantially less than last year. It's about half of what '07 was, and it's about 1/3 of what '06 was. So it's clearly very weak growth in those markets. But not a recession scenario. There's been a fair amount of discussion about what a recession would look like now. And would it be worse than the last recession, the 2001 recession, or the early 90's recession. And I think it will be interesting to sort of talk about three different major factors that are different in -- in terms of where we were in 2000 and 2001 versus where we are now. First from a supply perspective, pure multi-family supply, we are about 25% less coming into the market than we were 2000 -- leading into that recession. Second, housing affordibility leading -- multifamily affordability leading into the 2001 recession is at the lowest level than seven or eight years. Today we're at the highest affordability level in the last seven or eight years. And then second, the -- obviously -- third the obvious issue in the last recession was we lost a lot of people to homes. I don't think that's going to happen this time around. Other than maybe rental homes. But not clear -- clearly not buying homes. So I think a fair number of people in the industry think that even in a scenario it's not a very difficult time for multifamily because rental alternatives make a lot of sense in a recession scenario this time around. Dennis, you want to go through the --

I think I had a couple of your questions. On impairment charges, no, we do not anticipate any impairment charges for the balance of the year. As it relates to your progression across the quarters, I think what you'll see is an increasing revenue scenario from the first to the second and third. And then as always, kind of moderating in the fourth. And on the expense side, you'll just see slight increases in expenses first to second and second to third as we normally have increases in operating expenses during the two quarters. Then trailing off in the -- in the fourth quarter as we normally do. Also, as far as development delusion, the development delusion we have we are forecasting in the first quarter is the highest quarter of the year. It will be tailing off toward the end of the year as we start the leaseup at a number of our large communities. I hope that answered your questions. If you have a few more specific that you'd like me to address I will.

No. That's fine. Thank you.

Our next question comes from Lou Taylor at Deutsche Bank.

Thanks. Rick, sorry to come back on the share repurchase program but maybe a little differently. In terms of your dispositions this year, how much do you need to set aside to repay debt versus -- versus buying back stock? Or fund development?

It terms of -- to do it on a leverage-neutral basis, basically you sell $2 worth of real estate, pay down $1 worth of debt, and buy book $1 worth of stock. And so -- buy back $1 worth of stock. And so when you -- in this scenario here, we probably have -- when you take out development fundings which is about $150 million to $200 million, we would have probably $100 million plus or minus -- if we hit the high end of our guidance here in terms of dispositions to expand that we would have to include -- increase dispositions.

Okay. And if you were to theoretically expand dispositions, how far could you go before you would get into special dividend constraints?

Well, we have a total of $300 million we could do this year, okay. So you would -- if we -- based on that math, if we had $100 million after the 350, we would be -- we would have to do a special dividend after, say, the $300 million of disposition. So that would sort of give us $100 million to buy stock, plus or minus. Then we would have to do a special dividend of some sort.

Okay. Okay. And then for -- in terms of the development leasing, I know you mentioned earlier it was going generally okay. Maybe to get specific on -- on the Camden Royal Oaks in Houston. The project's been done for a while. Yet, the leasing is still sub 80%. Is that on pace, is there anything unusual about the pace?

Yes. It's definitely slower than what a typical -- what one of our typical garden apartments is. And the 55 and older community, Lou, the experience of trying to close that particular demographic is kind of interesting. It turns into many times five, six property tours with children, and parents and brothers and sisters, and just a very long sales cycle. At the end of the day, we're getting rents that are better than what we had originally forecast. The leaseup has taken longer. On an all-end yield basis, we're in great shape.

Thank you.

You bet.

Our next question comes from Mitch Anderson at BMO capital market.

Good morning, everybody, good afternoon, good morning. Keith, do you ever -- have you ever rated a market D or F?

Ever is a long time. I think I actually had a D three years ago. I don't think I've ever had an F.

We exit F market. That's why we don't have them.

I'm not sure what an -- an F market would probably be down 15% NOI forecast for the year. And I -- fortunately, we've never had to -- to deal with that. I suspect that in other property types you might get into an F from time to time. But multifamily it's tough to do that. In a year when we had a total portfolio decline of -- of 5% NOI which is kind of as bad a year as we've seen in the last 20, there probably would have been two or three D markets in that crowd.

Okay. Clearly, you guys are a great organization and congratulations on the -- on the ranking again this year. But I -- I do have sort of a cynical question about that. Is there -- is there any sort of, you know, benefit that you have from getting in there one year and then sort of having an advantage of getting ranked second, third, subsequent years. Sore of like if you win the gold glove in baseball, you sort of almost certainly get it the next year unless you really screw up.

First of all, Rich, you don't have to apologize for cynical questions or you'd have to get out of the business. But the answer is there is because 2/3 of the score is based on a random survey of 400 of your employees that go out and get sent directly to the organization that does all of the scoring. Once you get to a point where your internal surveys qualify you which is you're in pretty rare find air up there with the -- rarefied air up there with the Microsofts and Googles, once you get up to where your surveys are that high relative to all the other competitors that gets back to as long as you continue to do what you did in the first place in terms of taking care of your people and your workplace, there is certainly an expectation that our surveys in '08 will look a lot like surveys in '07 did. The wild card which is the 1/3 of the score that comes from all other components, benefits, diversity, and a host of other interesting qualitative factors that they look at, once you have achieved a score on those that combined with your survey get you in, there's an expectation that unless something dramatic changes within your workplace you'd be in next year. We -- this is our second year that we applied. It's a very detailed kind of process that you have to go through. In the first year that we applied, we did not get in. But you don't know where you finish. They don't tell you. You only find out if you made the list. And we went from off the list to number 50 this year. Primarily on the strength of our survey results. Our survey results were extraordinary compared to the other 100 companies that won this year.

I thought this was your third year. I guess I got that mixed up.

It was third in Texas. We were in the top 50 in Texas for three years, but it's the first year for "Fortune" magazine on a national basis.

Okay. Well congratulations on that. And then the -- the last question is you mentioned -- you missed your same-store number, your guidance at the beginning of 2007. You started off at 6.5, and you got 5, what is it you think about this year that that same type of miss won't happen this time around? Why do you feel like that you've got that covered?

Well, the -- the interesting thing is, Mitch, is that the myths, if you think about -- if you go back last year to this conference call we had, and there was about a three-month period where the only thing that -- not the only, but the primary thing people were focused on as a risk to our numbers was condo mania. We talked about that at length and we thought that we had factored in -- that what impact that was going to be. But at the same time, we always said that we thought that was going to be a very minor part of the story in '07 from the standpoint of -- of performance and not only our portfolio but everybody else's. We just never believed that that would be a headline number come in the year 2007. But clearly, the subprime meltdown which didn't happen, even begin happening or get onto anybody's radar screen until May-June of '07 ended up being hugely more impactful to our portfolio than the condominium issue ever was. And I don't think that's any different in '08. I just don't know south Florida, there's still a lot of -- probably discussion about condos because there's so much being built there. But the nature of the product and the price point is such that I still don't see it being a big issue in our portfolio, but the single-family -- the single-family component and the difficulty of getting your arms around what that competition is, where it comes from, and when it goes away, I think that's a risk to anyone's forecast that operates in the markets that have significant exposure. What gives me, a little bit better feel being our numbers going forward, primarily is that we have very modest rental income growth in those markets. Across those five markets. Our -- our net effective rent growth for '08 and in our plan is about 1%. And I -- it could be worse than that, I suppose it can. But it -- but it also may be a little better than that.

I think it's kind of a coin toss in those five markets to see whether it's better or worse than the 1%. The rest of our -- the rest of our markets, I think they will -- they'll perform in line with what everybody else is seeing. And with our peer, where they had exposure there. And I think what gives me a little bit more comfort is that we've had -- we've had two months of dealing -- two quarters of really straight up dealing with this single-family overhang. And I think that the current trend is that it will get -- if job growth stays in place, is that the problem will get less bad as '08 goes on. And I it's possible that we're past the worst of it. We've been dealing with it for two quarters in these markets. We've got a better handle. That's way too long of an answer to that question. That's my view now.

Good. Thank you.

You bet.

Our next question comes from Paula Postkin from Robert bared.

Good afternoon. Can you comment a little bit on the trends that you might be seeing for reasons for moveout other than the homeownership. Things like, are you seeing any changes for job less or job transfer?

We -- in the fourth quarter, our moveout rate was -- was dead flat with the fourth quarter of -- of '06. So year-over-year, we saw no change at all in the turnover rate. For -- I mean quarter-over-quarter. So I think we're back to kind of a more normal situation on our turn rate, '07 turnover was clearly higher than '06. And other than home purchases there wasn't anything that would stood out that would be meaningful. It was just the difference in home purchases, and clearly we're seeing a complete reversal of that trend. It will be interesting to see how that plays out over '08. I think I mentioned in my comments we were at 15% moveouts to home purchases in the quarter. And that's a historically low number for us.

Thanks. And just one last question. What's happening at Potomac Yard? Are you seeing a lot of traffic there? What's the response for the people coming in?

The response has been good. The initial sort of startup of the project was a little difficult because we had all of our amenity on the top floor. Our -- our pool, our club houses, and -- clubhouse and gym. And we -- because of the way the building was completed, we couldn't get access to that early. And then we sort of had some issues with signage, where the -- the neighborhood and the city didn't want us to -- to put a foreign lease, be kind of big sign on the building. We got that dealt with, and it had -- it had good traffic since we finished the amenity components, and -- and got a little bit better signage.

Thank you very much.

Sure.

Our last question comes from Michael Civilian ski -- Salinsky from RBC capital markets.

A quick question (inaudible) to 2008 as it relates to the fund. Can you kind of provide a -- a description of how that plays out during the -- on a quarterly basis.

I'm sorry, I missed the first part of the question.

In terms of the -- your fee income that you're assuming in 2008. Can you provide us a detail of how that plays out on a quarterly basis, just because of the timing the fund there.

Yes, I think our fee income relating to joint venture activities this year will be about $4 million. And it's going to be probably -- pretty evenly weighted between all four quarters. We'll have some in each of the quarters, and it should average about $1 million.

So there's no financing fee or anything that comes in at one time during any of the quarters?

There are some fees that are lumpy but they average out to about $1 million a quarter.

Okay. And can you touch on the January markets of concern, you mentioned Phoenix, Tampa, Orlando, and Las Vegas.

The January results were better, slightly better than our plan across the board. But a big part of that of the -- it looked like we had a better month on expenses than we forecast. Nothing so far that would be alarming. But the forecast late is -- on the last report was 90 in the last, a move up. We're headed in the right direction and are on track with the plan we laid out.

Great. Thanks, guys.

You bet.

Our last question comes from Haendel [St. Juste] from Green Street Advisors.

Good morning, guys. Most of my questions have been asked and answered. But his two small ones here. The land that you had held-for-sale on your balance sheet, what do you estimate the market value is for that?

We have not included gains on sales in our guidance on those. We do expect that -- that the market value is probably $4 million to $5 million higher than that.

Okay. And the -- the two assets, the one in Denver, in Austin?

The two assets that we have held-for-sale?

Yes.

I'll bring -- operating assets. Go ahead, Dennis.

The two assets we have are Ridgeview and Pinnacle. Now as you see on page 25, the disposition volume is between $25 million $30 million.

And that would be what we expect to get from the proceeds on the sales.

Just one quick followup to that. You mentioned I guess, Keith, in your outlook for the year that Austin and Denver are at the top of your expected performance list. Why sell all those assets in those markets?

A great time to be selling the assets. The markets have a great story. And they're both -- the average age of those two assets is 22 years. So it's perfect timing.

Got you. Okay. Thank you.

Thank you. Great. We appreciate your time and we will talk to you on the next call. Thanks.

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