Camden Property Trust (CPT) 2008 Q2 法說會逐字稿

Good day, and welcome to the Camden Property Trust second quarter 2008 earnings conference call. All participants will be in a 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 Kim Callahan, Vice President of Investor Relations. Ms. Callahan, you may begin.

Good morning and thank you for joining Camden's second quarter 2008 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 current expectations and beliefs. These statements are not guarantees of future performance and involve risk and uncertainties that could cause actual results to differ materially from expectations, Further information about these risks can be find with our filings with the SEC and we encourage you to review them. As a reminder ,Camden's complete second quarter 2008 earnings release is available in the Investor Relations section of our website at camdenliving.com and includes reconciliations to non-GAAP financial measures which may be discussed on this call. joining me are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, President and Dennis Steen, Chief Financial Officer. At this time, I will turn the call over to Rick Campo.

Good morning. Last quarter I talked about a tale of two markets. This quarter, the story continues. Strong market performance in Houston, Dallas, Austin, Atlanta, Charlotte, Raleigh and California posted 4.3% positive same store NOI growth over the prior year. Markets that continue to be challenged by weak job growth from the unwinding of the housing bust continue to post declines in that operating income of 2.9% for the quarter over the prior quarter last year. Overall, same property NOI growth was 0.8% for the quarter, pretty weak relative to our historical growth. Sequential NOI, on a positive note grew 1.7% over the last quarter. We believe the balance of year will be more of the same until job growth accelerates. We we don't think this is an inventory issue in the challenged markets, we really think it's a job growth issue. As a result, we have lowered same store property NOI growth to a mid-point of 1% for the year -- for the balance of the year. We also have lowered our FFO guidance for the year to $3.55 to $3.65 per share.

During the quarter and subsequent to the end of the quarter, we sold 1,307 apartments for roughly $110 million. The properties were an average of 24-years-old. The sale resulted in a 12.63% unleveraged internal rate of return over a 13.5 year holding period. We'll continue to recycle capital, selling older, slower growing properties and reinvest those funds into development, debt repayment and stock repurchases. All the of the sales were financed by Freddie Mac and Fannie Mae. The agencies continue to be a significant financing force for multi-family properties. The recent enactment of the housing bill will ensure that strong agency multi-family financing will continue unabated. As a matter of fact, we were really excited with the housing bill because it was a serious victory for multi-family companies. The congress really took a hard look at our industry's lobbying efforts to create a more balanced housing policy, and we think that bill really does that.

During the quarter, we made significant progress on our development pipeline. Costs are in line with budget, leasing continue to be on plan. We did have some challenges in some of our challenging markets, achieving pro forma rents. We stabilized yields, are still above 7%, but we reduced our yields overall by about 15 basis points. Future developments starts will be staged over the next several years and will be funded using our line of credit, disposition proceeds, joint ventures and our value-added fund. Our management teams are doing a great job under challenging conditions. We appreciate their commitment to providing living excellence to our customers. At this point, I'll turn the call over to Keith Oden

Thanks, Rick.

Overall, our operating results were in line with our expectations for the quarter with a small miss in revenues more than offset by expense savings. Year-to-date, we're slightly ahead of plan, but that will change through the second half of year. Our property levels reforecast for the balance of year indicates a sideways trend in NOI, so we expect to end the year roughly where we are today with a same store NOI growth of plus or minus 1%. Our original guidance was predicated on a much stronger outlook than we will see in the second half of the year. To put this in perspective, when we finalized our 2008 plans in the fourth quarter of last year, we were using a consensus estimated increase of 1.3 million jobs for the total US. Currently, we're using estimated 210,000 job loss or a 1.5 million negative swing in jobs. In Camden's 15 core markets, that translated to an original estimate of 406,000 in positive job growth in our markets to a now revised 81,000 job growth or a net swing of 325,000 fewer job As you know, we built our platform on the premise that job growth is the priority driver of multi-family performance over the long-term. When the economy is adding jobs, our portfolio will benefit disproportionately to the US averages. The reverse is also true, which is where we find ourselves today.

Rick mentioned the continuing bifurcation in our portfolio between the economically challenged markets in our portfolio and those who continue to have decent growth There has been a ton of discussion as to what the root cause for the challenges in our underperforming markets is. The consensus view is that the single-family housing debacle and resulting overhang in unsold inventories are the primary causes for the pain in our challenged markets. So let me give you our non-consensus view and that is this: we believe the declines in job growth, which have been more pronounced in our challenged markets, are the primary reasons for the weakness in those markets. The largest downward revisions to 2008 job growth in our portfolio occurred in Phoenix, Las Vegas, Tampa, Orlando and Los Angeles. It's much easier for me to connect those dots to our challenges than it is to connect the dots to single-family rental competition as the root cause. I know that you may think I'm making a distinction without a difference here but consider this: if the root cause is weak job growth, then a recovery in job growth from a modest recession could occur as early as 2009 and our portfolio would see the benefits relatively quickly. If the root cause is the single-family housing overhang, which may take two or more years to resolve, then our portfolio will be under pressure for a much longer period of time. Obviously, we feel strongly that it is all about the jobs and recovery may be nearer than the current consensus view.

Now turning to some specifics for the quarter, we continue to see good traffic at our communities. We were down less than 2% in traffic over the prior year, which was a really tough comp. Our closing rate was a solid 34% for the quarter, which allowed us to increase occupancy to average 94.6%, up 80 basis points over the prior quarter. We actually averaged slightly better than 95% for the month of June. Unfortunately, our average rental rates were basically flat year-over-year and up a two-tenths of a percent sequentially. The pickup in sequential revenue was primarily from the occupancy gain and other income from our Perfect Connection cable program and our Valet Waste initiative. Our resident turnover rate for the quarter was down 3% from last year to 65% and the percentage of move outs to home purchases was 14.2% or flat with the first quarter, but down from 20% in the year-ago quarter. We expect to see this trend continue as many residents continue to lack the courage or financing required to purchase a home in this environment. Our YieldStar revenue management system continues to perform as expected. In our challenged markets, we have seen downward price adjustments to achieve 95% occupancy. In our healthier markets, we're still getting decent rental increases. As the employment growth forecast began to deteriorate through the second quarter, we challenged our on site staff to look for ways to accelerate the expense reductions from our numerous technology initiatives. The response has been favorable and will continue to be a focus throughout 2008. After adjustments to our operating expenses for the cost component of our cable and trash initiatives, operating costs for the first half are down nine-tenths of a percent from the prior year, and making the comparable adjustment to revenues, that would decrease the year-to-date number to essentially flat from the reported 1.5% increase. We do expect increases to -- expenses to increase in the second half of the year due to seasonality, and a fourth quarter '08 comparison to the fourth quarter '07 expense number that had roughly $2.2 million worth of downward adjustments for benefits and property taxes There is ample evidence, anecdotal as it might be, that consumers are being pressured by rising costs and weaker job markets. We've yet to see this stress translated into higher bad debt expense or delinquencies at our community. Bad debt expense fell from the prior quarter from $6 per unit to $5 per unit, which is in line with our historically average.

Delinquencies are in line with what we've seen the past two years when times were clearly better for the consumer. These trends are also in line with what our competitors are experiencing. One of the great ironies emerging from the single-family housing foreclosure mess is that apparently the multi-family industry did a better job of qualifying our residents for a 12 month lease than lenders did in qualifying buyers for a $250,000 mortgage. As you step back and scan the big picture for the quarter, if you're a glass is half full kind of person, you would see that sequential NOI was up 1.7%, was positive in 12 of our 15 markets. You would also look at our revised full-year guidance and conclude that we're not expecting any further deterioration between now and year-end. On the other hand, if you are a glass is half empty kind of person, you'll see that our challenged markets are still challenged and will remain so throughout 2008 and that we are, and will remain, near the bottom of our sector in NOI growth for the year. Whichever camp you fall into, it I can assure you that our entire team is doing everything possible to fill up the glass. I will turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith.

I will start this morning with a review of our second quarter results. Camden reported FFO for the second quarter of $54.9 million or $0.94 per diluted share, $0.05 above the midpoint of prior guidance range of $0.87 to $0.91 per share and $0.04 above the first call mean estimate for the second quarter. The $0.05 per share outperformance to the midpoint of our prior guidance was primarily due to property net operating income exceeding our forecast by $1.6 million and our recognition of a $2.3 million gain on the repurchase and retirement of $27.75 million of our unsecured bonds during the quarter. These two positives were partially offset by a $1.1 million unfavorable variance related to costs that were expensed on abandoned acquisition activities. Approximately $700,000 of this unfavorable variance is included in general and administrative expense and approximately $400,000 relates to one of our development joint ventures and is therefore include in equity and income of joint ventures. The $1 .6 million favorable variance in property NOI was the result of lower than anticipated property expenses which more than offset slower than anticipated growth in revenues from our stabilized operating communities as Keith just discussed. Property expenses were $2.6 million lower than anticipated for the second quarter, due primarily to a $1.3 million non-recurring decline in employee benefit costs due to lower claims related to our medical benefit plans and lower than anticipated utilities and repair and maintenance expenses for our stabilized operating communities.

During during the second quarter, we made significant procession in the execution of our 2008 disposition program. In the second quarter, we sold Oasis Sands in Las Vegas, Nevada and Camden Town Village in Dallas, Texas, recording a gain on sale of $14 .7 million. Subsequent to quarter-end, we sold for four additional communities. Camden Briar Oaks and Camden Woodview, both located in Austin, Camden Arbors in Denver and Camden Lakeview in Dallas. This brings our year-to-date disposition volume of operating real estate assets up to approximately 1,500 units which had an average age of 24 years, generating the $120 million in proceeds. The average cap rate on 2008 dispositions was 5.9%, using 2008 annualized NOI and CapEx per unit of $650. We're currently at various stages of marketing additional communities for sale and now expect 2008 total disposition volume in the range of $200 million to $350 million.

Our balance sheet metrics and liquidity position continues to be strong. We ended the quarter with over $320 million in available under our unsecured line of credit. After applying proceeds from asset dispositions completed in July and projected dispositions for the remainder of 2008, we're currently forecasting over $500 million in availability on our line of credit at year-end 2008. We do have just under $180 million in secured debt maturing in the second half of 2008. Our assumptions include the refinancing of these maturities with new agency secured debt. We're currently negotiating terms on the agency debt with indications of all end rates of just under 4% for floating rate debt and in the mid to upper 5% range for seven to ten year fixed-rate debt. Due to the disruption in the unsecured bond markets, we took the opportunity to repurchase $27.75 million of our unsecured notes the an average discount of over 9%, representing a 7.13% yield to maturity. This repurchase in retirement resulted in a gain of $2.3 million, which reported in FFO for the second quarter. We have not forecasted additional repurchases for the remainder of 2008.

Moving on to earnings guidance, we expect full-year 2008 FFO per diluted share to be between $3.55 and $3.65 per share with a midpoint of $3.60. This represents a decline from our original full year guidance of $0.10 per share at the midpoint. The decrease in our full year expectations is primarily the result of the following: as Keith discussed earlier, we have revised our full-year same property guidance and we now expect same property NOI growth of 0.5% to 1.5%, down from our original guidance of 2.25% to 3.25%. This 1.75% decline in expected same property NOI growth lowered our full year FFO guidance by approximately $0.09 per diluted share. Additionally, non-property income net, which includes fee and asset management income, net of expenses and interest in other income is now projected to be approximately $0.06 per share below our original 2008 full year guidance due to the delayed timing of new development joint venture starts originally planned for the second half of 2008. The above negative impacts are partially offset by the $2.3 million or $0.04 per diluted share gain of early retirement of unsecured bonds recorded in the quarter. For the third quarter of 2008, we expect FFO per diluted share within the range of $0.85 to $0.89 per diluted share with a midpoint of $0.87 per share, representing a $0.07 decline from the second quarter of 2008. is decline is the result of the following: a $0.03 per share decrease in same property NOI as projected growth in same property revenues is more than offset by our seasonal summer increases in utilities and repair and maintenance expenses; a $0.04 per share decrease in property NOI related to our property dispositions completed in the second quarter of 2008 and planned for the third quarter of 2008; and a $0.02 per share decrease related to the net positive impact in the second quarter of 2008 from non-recurring gains on the early retirement of unsecured bonds and costs associated with abandoned acquisition activities. These three decreases are partially offset by a $0.01 per share increase in property NOI related to the continued lease up of communities in our development pipeline and $0.01 per share projected net decrease in interest experience as proceeds from second and third property dispositions are used to pay down balances outstanding on our unsecured line of credit. Offset in part by a reduction in capitalized interest due to the completion of units in our development pipeline. At this time we will open the call up to questions.

Thank you (OPERATOR INSTRUCTIONS) We will now pause to allow participants to enter the queue. Our first will come from Christine Kim from Deutsche Bank, please, go ahead.

Good morning. Just a question on the revenue growth guidance. You guys are at 1.5% for the first half and are expected a ramp up to 2% to 2.75%. I'm just not sure what is going into that assumption.

Christine, our revenue forecast going forward has a slight increase in the third quarter and a then a very slight increase again in the fourth over the run rate The difference is that in the fourth quarter of last year, which is when we really were getting hammered in the job loss markets, we had a reduction or a falloff of about $4.5 million in revenues from Q3 to Q4, and so when you run basically flat revenues through that model, you end up at 3% guidance. So we're pretty comfortable with that the back half of the year.

So is that going to come mostly from the rent side then, or from an occupancy pickup?

The occupancy pick up, we're assuming we maintain in the 94.5% to 95% range,that we really are not on a run rate basis forecasting any pick up from occupancy. And it's really not growing rental rates, either. It's just that if we stay flat from our guidance in our run rate in the second quarter, the comparable in the fourth quarter of '07 was $5 million less than the third quarter of '07. So it's basically a flat assumption on occupancy and some small pick up in in revenues, and that's coming primarily from the seven or eight markets where we really still have some degree of pricing power. But at the end of the day, it's not that we're projecting any ramp up or better conditions in Q3 and Q4, it's just that the comparatives drop off in the fourth quarter.

Okay, and speaking of pricing power, could you just comment a little bit on how sensitive people are now to rent increases, both on renewals and on new leases that you are signing

Well, in the five markets that we posted a 3% same store NOI loss, they are hypersensitive. We're fighting for market share in those markets. We have done a good job and the pricing model has done a good job of kind of fighting back to a 95% occupied condition, which was most of the pickup in the occupancy within those markets quarter-over-quarter. That's the good news. The bad news is, in order to get there, we've had to lower our net effective rents. We don't do concessions, because it's not the way our model prices revenue, but I can tell you that in every one of those markets, concessions are the rule and not the exception. In markets like Tampa, you see the crazies doing two months free and the like in the of the assets that we compete with. I would say very sensitive in those markets and not so much in the markets where we're still able to get some rental increases.

Okay, that's helpful, thank you.

You bet.

Our next question comes from Anthony Paolone from JPMorgan, please go ahead.

Thank you. Can you talk about expected development starts, dollar wise, over the next 12 months?

Sure. We are likely not to start any new developments before the end of the year, plus or minus. We may start one project in DC between now and the end of the year on our balance sheet. The next year -- I don't have any specific numbers that I can give you right now, but we're evaluating starts in the first quarter and second quarter, and the idea being is that we think starting projects in first quarter, second quarter '09 would have deliveries going out to -- into 2010, 2011, which we believe is going to be a pretty good time for the multi-family business, especially when you consider what we expect to be a sharp fall off into -- in developments starts over the next 12 t o18 months because of the credit crunch, just the negative situation that's being imposed upon the merchant builders of the world. We're going to be very prudent in those starts, we're not going to start the transactions without having them fully funded either through dispositions or through joint ventures or through the utilization of our value add fund.

kay, and then in that same light from an accounting and earnings point of view, In the past you've been able to quantify how much development dilution you thought was embedded in your FFO. Can you comment on that for this year? And then, what happens that, I guess, if the amount of development ongoing comes down, I guess that dilution gets lifted a little bit, but maybe on the flip side, do you have to start to bring in any capitalized overhead?

The first question, I think our guidance shows $14 million of development dilution this year, and clearly as you ramp up development and you start leasing up higher percentages of properties, that development dilution either goes up if you ramp up. If you're ramping down, that development dilution clearly reduces, and so next year, based on the current starts that we projected, which have been pretty much none this this year, you have a ramping down of that development dilution next year next year with the lease up of the existing properties that are being leased today. With respect to that, e defiantly have a --next year, we'll have less development dilution than we have this year when the assets start earning. So the second question about capitalized overhead, clearly in market where you have -- where we are not ramping our development up, but actually ramping it down some, we have had to expense more capitalized costs than we would have otherwise this year. And actually, two pieces of that, our value add fund, we have actually added overhead this year, that is being expensed relative to the value add fund and because of the nature of the market, this was a very interesting market as everyone well knows, while deals are getting done, as evidenced by our dispositions, the acquisition side of the business, we have been very patient on. So we have had actually less fee income anticipated from our value add fund.

At same time, we have had to expense additional personnel that we brought into the company to make sure we were fully covered on being able to acquire properties. We expect that the bid ask spread between the buyers and sellers will start to change towards the end of the year into next year. So we hopefully be able to match those revenues and expenses. As far as any additional capitalized overhead, if you look at our numbers today, we have about $12 million annually of that development spend, acquisition spend, if you will, and today we're expensing about $6 million. So we have a capitalization of about $6 million relative to those numbers. So we feel pretty good about -- our people are going to continue to be very focused on getting the development pipeline in place for 2009 and we expect that we will start through joint ventures in the fund a number of developments in the first and second quarter of next year. nd last question, on the projects that stabilized in the quarter, can you give us what the yields ended up being on those?

We don't talk about specific individual yields on projects, but all of our projections showed yields in excess of 7% on all the projects and we're still in that zone.

Thank you.

Sure.

Our next question comes from Michael Bilerman from Citigroup.

Hi everyone, this is [David Tody] here with Michael. A couple of questions, just sort of big picture. It seems that there is a lot of selling activity, largely because of the support of Fannie and Freddie on the buyers' side. In the absence of Fannie and Freddie at current volume, how you project that climate and relative to buyer interest and their ability to get financing and which entities will step in the absence of those agencies?

That's a good question. If you look at the CMBS market, in 2008 the CMBS market was crowding out Freddie and Fannie prior -- in the first half of 2007, Fannie and Freddie were less than probably 45% of the market. The balance was CMBS, life companies, what have you. And today, of course,CMBS is zero in 2008 and Fannie and Freddy are about 90% of financing markets. There are life companies that are continuing to finance properties, but Fannie and Freddie clearly are supportive of the multi-family business and when you think about their charge, Fanny and Freddie's charge is to provide liquidity and stability in the financing markets for housing. One-third of Americans live in rental housing, so the idea that Freddie and Fannie are not going to be there is clearly a big part of their charge. Prior to the housing bill that was passed last week -- this week, you had the implied guarantee of the government and now you have the actually full faith and credit of the government. They have expanded the ability of Fannie and Freddie to access the discount window as well, the fed window.

So you have a situation where -- I know there is a lot of concern about Fannie and Freddie and their ability to fund, but they are in a better position, vis-a-vis liquidity today than they have been, ever. When you think about the politics of Fannie and Freddie, the Bush administration and conservative republicans have been trying to break them up or control them or make them smaller for the last eight years, and they have been unsuccessful. Now you have a situation where Fannie and Freddie are the white knights to bail out of the single-family housing market and the government has taken a very, a more aggressive policy position by putting the full faith of the government behind Fannie and Freddie. So when you take the idea of Fannie and Freddy's liquidity -- and if you ask me what their shareholders should be worried about, that's a whole different story. But we think that Fannie and Freddie are going to continue to be major players in this market. They are taking advantage of entrenching their market share. CMBS markets will come back in the future, but Fannie and Freddie are positioning themselves to have a larger share of market when that, in fact, does comes back.

The other thing I think is real instructive on Fannie and Freddie is that when you look at their multi-family business, the multi-family loans are the most profitable loans that Fannie Mae has and Freddie. They also have very, very low default rates. Less than 1% default rates in the multi-factor sector. So when you look at loans as a in percentage of their total book, multi-family is a small piece of it, and so they were actually expanding their business as opposed to contracting it. No if Fannie and Freddie went away and just said gee, multi-family is really not housing and really didn't want you to lend to multi-families, then you would be -- multi-family would probably be in the same boat that commercial real estate is, office buildings and hotels and retail where they are having a real tough time refinancing. Even with Freddie and Fannie, refinancing the sales volume are down 70% in 2008 over 2007. But I don't see Fannie and Freddie being a real issue. I think they are going to continue to be in the market in a major way and take advantage of the opportunities they have.

Great, thank you for the color. Along those lines, did you need to provide any seller financing and were you approached for financing by any of your buyers?

No, not at all. I think that when you look at this whole idea of the transaction volumes being down significantly this year versus last year, big deals have trouble. If you have anything over $100 million plus, you start having issues, but small, bite-sized deals, $20 million, $30 million, those kind of deals are being done everyday, and I think what has happened there is that you have got sort of these small, medium-sized regional players that can aggregate equity capital, get a Fannie/Freddie loan and get deals done, and that is where you are seeing, I think, a fair number of these smaller deals. I think the total -- if you look at our sales, I mean, I think we have one over $20 million and the rest were all smaller, bite-sized deals and I think that is where the sweet spot of the transaction market is going to be going forward, at least until the big spread and larger transactions narrows.

This is Michael Bilerman speaking. Going back to the sequential moderation, sequential increase in NOI and thinking about the revenue line of you talking about holding occupancy and really not -- really have flattish rents. It sounds like that is predicated on there being an uptick on jobs overall in the US and I'm just wondering in tying that to what happened in the second quarter, where it sounds like YieldStar really pushed occupancy a little bit at the expense of rent, that if you sort of trend -- if things get a little more murky and a little bit worse in the back half of the year, that you're going to see -- you may hold occupancy, but rents will trail down in which case you may fall a little bit lighter on your forecast.

Michael, in our planning we are using the latest reforecasting of Whitton's numbers that shows roughly 200,000 job decline overall for the year. I think that is consistent and I have seen number as low as 100 and as high as 300, but I think that is in the range of what most people's expectation is today. So our reforecasting contemplates that that is where we end up. We got another -- a number today that was slightly better than consensus on the number of job losses, but I think that we're -- I know that we have anticipated that level of job loss. If it ends up that we get a further revision of the unemployment rate, we end up with a total job loss of something materially higher than the 200,000 for the year, then obviously, that is a different situation.

But I think it's important to note in our numbers, if you look at the revenue progression, second quarter, third quarter, fourth quarter, there is really very modest increase in the top line revenue number that the change in the pickup relative to the first half of the year on a run-rate basis is really the fact that fourth quarter last year kind of fell off the chart. There's two things that happened. Fourth quarter defiantly came off significantly in the fourth quarter in '07 and the second thing that happened is that, which hurts our same store NOI guidance, is the -- we have a very bad comparable in the fourth quarter expenses to the '07 number. We had roughly $2.2 million in adjustments in fourth quarter '07 that we're not going to have this year in our expenses. So we're going to see higher than trend expenses in the fourth quarter, but relative to fourth quarter '07actuals, if we just kind of maintain where we are right now with a very modest increase, that is how you get to the 3% number. So we're fairly comfortable with that and again, this is based on a property level ground up reforecast of all -- every community in our same-store pool.

Thank you.

You bet.

Our next question comes from Alex Goldfarb from UBS. Please, go ahead.

Good morning. Just quickly, you mentioned it in the opening comments, I believe, but I didn't quite catch it. Your revenue outlook for the quarter and then in your guidance, with and without the cable and trash, could you just break that out again?

Revenue - well, year-to-date, the revenue actuals would have been, without the cable and trash income, would be down 0.009%.

And what about for the quarter?

For the quarter, would have been down 0.002 of a percent.

And then for the full-year, what is the revenue without the cable and trash?

The revenue without is roughly, you take 300 basis points off of our same-store NOI -- off the expense numbers and we are in the 4.25 to 5.25 range. So take 300 basis points off of that and it puts roughly around 1.5% to 2% for the year.

Then going quickly on -- just back to the comments on Fannie and Freddie. I mean, just in speaking to people, there is some buzz that maybe Fannie and Freddie would be told to focus more on affordable apartments and less so on the market rate deals, products more typical that REITs have. Sounded, from your comments that you don't believe that to be the case. Could you just expand a little?

Sure, the interesting thing about affordable, people think of affordable and they get confused. Affordable can be a lot of things to a lot of different people. But affordable doesn't mean Section 8, and doesn't mean 50% of median income. Fannie Mae's definition of "affordable," is basically -- between 100% and 80% of median income. As evidenced by -- if you go back to the Archstone transaction last year, Fannie and Freddy provided $12 billion worth of financing and most of those properties were "affordable". And when you think about it, the whole idea of apartments is that apartments, because of their nature, are affordable relative to the median incomes, even in markets like the district in DC. So you have a situation where Freddie and Fannie, I guess the biggest risk in Freddie and Fannie today is that they are going to have a new regulator. There's a new sheriff in town and that regulator is going to be set up, not going to be in place until probably the first or probably second quarter of 2009 is what we're hearing about. So FAO is going to continue to run them at least the next eight or nine or ten months, and then the new regulator is going to come in and figure out what they want them to do. But when you get down to it, one of the prime issues that Freddie and Fannie has is that they focus on affordable housing.

They get tremendous credit for making multi-family loans and equity investments for that matter, in multi-family, because the multi-family property by definition, because of the 80 to 100% of median income test is affordable. They have requirements to participate in affordable housing and multi-family is what they call affordable housing rich for their achievement of those goals. I think we have to really be careful about what affordable housing is. Affordable housing, often times is confused with this low-income aspect and it's really isn't the low-income, it's about people that make 80% to100% of the median income.

Okay. And then on your debt, how much more secured debt can you issue and still stay within your current investment grade rating?

About 9% secured debt and the bottom line is that you could easily double that without any trouble.

Without any trouble to your existing investment grade rating?

Right. Fundamentally, we are an unsecured borrower and it's just the right thing to do for a public company long-term, but right now, you have a dislocation of the markets and you can do a Fannie Mae loan in the mid 5s. If we went out into the unsecured bond market, it would probably be in the 7 plus, so you have got this 150 to 250 basis point negative spread on unsecured versus secured. We are a long-term, unsecured borrower, but in this time of dislocation, when you have spreads that are gapped out beyond what they have been in the last ten years, you have got to look at secured debt and that is what a lot of companies are doing, and we're doing the same thing. At the end of the day, I think the markets will come back to some semblance of reasonableness from a spread perspective on the unsecured side, and we'll be back in that market. But we're definitely not going to risk our unsecured ratings. We have a lot of bond holders that have confidence that we won't do that ,and we won't. But we will take advantage within the context of being able to take advantage of the spread differential at this point without sort of getting in trouble with our unsecured bond holders.

Thank you.

Our next question comes from Dustin Pizzo from Banc of America. Please, go ahead.

Thanks, good morning guys. Just to focus on Fannie and Freddie for another minute here. On the upcoming agency refinancing that you are thinking about doing, it sounds like the spread you are anticipating on that ten year portion is about 50 basis points lower than where your largest peers announced a deal yesterday. Could you just provide a bit more color and the types of conversations you are having with them?

We're having specific conversations with Freddie and Fannie on an ongoing basis. We've had -- the numbers we put out are repeat quotes we got in the last week. So I think you have to be careful with -- I know that with comparing the rates at various times, because obviously, there is spread differential and also rate differential and the rates have been bouncing around pretty good as of late. Generally, they -- there is competition between Freddie and Fannie, they both want to do the deals with the best borrowers and the sort of -- key top borrowers are the ones who are going to get the best spreads, and public reach, including Camden, are some of the number one borrowers that Freddie and Fannie want to lend to. I can't talk specifically about the last deal, but I can say the numbers that we threw out today in the mid to high 5s are actual quotes from both agencies over the last ten days.

And those quotes are based upon a leverage of about 55%, which might be different from the other quotes that have been -- or other transactions that have been completed recently.

Okay. And then, on your guidance, are you guys still factoring in the $200 million to $400 million of JV acquisitions? Did you touch on that?

We're lowering those really, I sort of mentioned that when I talked about being patient and having a -- we have a gap between our fee income and I think Dennis talked about the lower fee income in his comments. You might want to reiterate that, Dennis. But we could -- we really believe that the acquisition market for our fund and our joint ventures is going to improve by the end of year an early next year, and we just are being prudent and not pulling the trigger too fast at that at this point. So that led to our projections for fee income to be lower this year than we had originally anticipated. Dennis, you might want to --

In our guidance, as I mentioned earlier, there was a $0.06 impact due to the delay of any development joint venture starts from the last half of this year until the first part of next year. But we don't have any projected fee income from development joint ventures in the last half in our current forecast.

Okay. And is that purely new development JVs, or could we see also potentially contribute some of your recently completed or soon to be completed developments into the fund?

We would not contribute recently completed developments to the fund, no. The fund is a value add fund, and that would be a core holding, and that's really not the strategy of the fund. So we would not be doing that, no.

Okay. Lastly, what was the original coupon and maturity on the bonds that you purchased?

Maturity was 2017 with a coupon of 5.7%.

Great. Thanks.

Thank you. Our next question comes from Jay Habermann from Goldman Sachs. Please, go ahead.

Hey guys, good morning. Rick, your comments about this being a tale of two markets and you provide the difference in NOI growth between the better markets versus the weaker markets. I'm just curious, given Keith's comments about this being a jobs-related impact; your expectations for some of your better markets as you look out the next 6 to12 months, do you expect to see more deterioration in some of the better markets or really more weakness in some of your sun-belt supply affected housing markets?

We think the stronger markets are going to continue to be strong. When you look at Houston, for example. Houston and Dallas are the top-two job markets in the country right now, and you have -- we think they are going to be continue to be strong. Austin, we're getting nearly 10% same store NOI growth there. So the key is really jobs, because those markets, even in a slower job growth scenario, still have very reasonable job growth.

Okay, and just again, in the event of a more prolonged downturn, do you have expectations in terms of further asset sales? I guess and also, could you also talk about expense controls as you look out in the second half of the year and even beyond?

Sure. If we can continue to sell 24 year-old assets and achieve IRRs that we're achieving and Dennis threw out the $650 reserve cap rate at 5.9, the actual reserves -- the actual real spend on those deals were over $1,100 per door. So when you look at effective cap rate with real CapEx, it's like 5.5. So we'll continue to sell assets like that, be able to fund our development and buy back stock and bonds and other things to create value for shareholders long-term. So as long as there is a Freddie and Fannie financing bid out there, and we have these regional players who are willing to buy these older assets and make assumptions that they are going to be able to rehab them or something that we haven't been able to do to date, we'll continue to do that. Keith, you might comment on the --

Jay, on the expense control, when you in this kind of an environment, and we started to have all of these conversations with our site-level folks at the end of the first quarter, as we started seeing the job growth estimates come down, you have to -- it's a nickels and dimes business, and you have to focus on expense controls. I think that the -- when you take our numbers and make the proper adjustments for the cable and Valet Waste component, we're likely to end the year up in roughly a 2% total expense increase, and that includes the effect of the bad -- or the real weak fourth quarter comparison from '07 on expenses. If you are normalize that, we're closer to 1% year-over-year total expense growth. And that is in light of the fact that we have had to take our property tax estimates up from the original -- our original forecast, and obviously we are -- we have the same cost pressures that everybody else does down the line with regard to payroll, et cetera. But if we can -- and I'm not saying that we can maintain that, but that is the kind of focus that we're going to have to have, if we start putting together a game plan and '09 has similar characteristics revenue growth that '08 does. So it's a constant focus for us.

The good news is that we're coming into a time where many of the technology enhancements that we made on site, as well as here at the corporate office, we are beginning to see some real tangible benefits from that. One of the things that has been a significant assistance this year in our year-over-year expenses is the fact that -- just on one example, last year we made the decision strategically to kind of get out of the housekeeping business and we lowered our on site headcount by about 163 housekeeper positions and outsourced all that on a contract basis and the year-over-year savings on direct cost is in the $2 million-range, and never mind all the ancillary costs that go with that head count. It's just something that's the nature of this business, and it's something that is even more critical in times when your revenue growth is meager, and that is certainly where we are in '08 and we'll take a hard look at 2009 as we get a better handle on -- hopefully a better handle on when the job growth situation turns around. But yes, it's a constant focus for us.

Great and Rick or Keith, you mentioned the revised disposition target. Can you give us a sense of the non-core pool of assets that you're looking at for further sales and again, this is over, say, the next 12-18 months, just how large that could be?

Well, generally, I would say that we have at least another couple hundred million, $250 million of assets that we would like to sell over time, and you are going to add to that every year. Because the whole objective of managing a portfolio is to try to pick the properties that are going to be the better growth properties when you look at total return on invested capital, including CapEx. And we're always going to be a seller of sort of the bottom 5% of the portfolio on an ongoing basis. But I would say that our existing held for sale, and we probably have another $200 to $250 million behind that. It just depends on what the cap rates are, and how the market ends up. The challenge you have is that while -- when we sell a 24 year-old asset, harvest very good return on a that asset over very long period of time and then reinvest that capital into another activities from FFO perspective, you generally have a dilutive effect. So you have this sort of balance between improving your NAV and your asset quality versus FFO growth.

If you look at the capital recycling we have done over the last few years, if we we hadn't done that capital recycling, we'd have FFO that would be probably -- I think the differential between sales last year versus this year was like $0.32 a share. So you have to strike a decent balance between selling a lot and having your FFO being diluted. On the other hand, you obviously have to create a long-term, young, faster-growing portfolio. So there is just a balance between those.

And quickly for Dennis, any share repurchase built into the balance of the year?

None.

Okay, thank you.

That doesn't mean we won't buy any, though.

Thanks.

Thank you, our next question does come from Michael Salinsky with RBC Capital Markets. Please go ahead.

Good morning. Rick, some of your peers have mentioned that June trends in particular had dropped off significantly, but the July picked up. Did you see significant similar trends in your portfolio?

Not really. I think June was fine and July came in had according to our plan and Keith, you might want to comment on that more.

Are you talking about total revenues?

Yes, they saw traffic across the properties was down a little bit, there is also some softening in mid growth. Just June was a lot softer than anticipated.

June was really -- from June to July, we were slightly up and dead-on with our reforecast. So we think we have got, certainly on the near term, we have pretty decent visibility and July was dead-on with our reforecast.

Okay. Secondly ,Atlanta and Charlotte have held up a lot better for you guys and some of your peers. Can you comment on what do you think is driving that? Also,northern Virginia has been a little softer, can you comment on that one as well?

Atlanta and Charlotte, when you look across the -- when we lay them out relative to original plan, both of those markets are right on track with what we originally anticipated. So it's hard to know what anybody had in their planning, but those markets have unfolded the way we expected. Charlotte was a little bit softer than what we thought in the first quarter, but we had a pretty good recovery in the second. The real question on Charlotte that has got everybody a little bit on edge there is what happens going forward with bank consolidation, but I think to date, that has been more something of kind of getting people to sit on their hands in nervousness than actual job losses, and I think that the -- so I think we're going to end up okay in Charlotte.

Northern Virginia has definitely been a weak spot for us. e report our numbers as DC metro, but the reality is that our issue in DC metro has been northern Virginia. Our district assets have held up nicely as have our Maryland assets. If you average those together, they are probably in the 1.5%, 2% range on growth and that has been offset by the negative in northern Virginia. We actually had a pretty descent recovery in the June/July timeframe in northern Virginia. Probably not going to get back on plan by at the end of the year, but certainly, it was encouraging to see an uptick in the northern Virginia markets. n a comp set basis, we have actually trailed the comp set in northern Virginia. Part of that is that northern Virginia is, you've got to almost bifurcate that between assets in Arlington that sort of act like they are part of the district. We have a couple in that category and then assets in Loudon County which really march to their own drummer, and unfortunately, that has been a pretty negative beat in the last nine months.

Finally, Rick, a question for you. You mentioned on the last call and on this call that you think 2010 and it 2011 are going to be great years for the multi-family sector based upon supply trends at this point. Just curious, what your thoughts are preliminary on 2009 at this point.

It depends on job growth, obviously. I think that most of the consensus jobs number has 2009 picking up. I don't think anybody on a consensus basis has a deep recession planned. So I think that 2009 is better than 2008, but I don't think it's a barn-burner type of recovery, like we had in the last cycle. Because what you have going on right now is, you don't have a true recession. Even though we talk about our challenged markets, and they were down 2.9% from an NOI perspective, that's not a recession. If you go into the recession, you're down 5%, 6%, 7%, in a deep recession. When you star looking -- it just depends on job growth, obviously. Ultimately, if we have sort of a go along, get along, and we stop losing jobs and start adding a few, then 2009 is better than 2008, and you should have an acceleration of job growth into 2010 and 2011. That's why we think that those could be really good years for multi-family.

When you look at multi-family permits, they haven't dropped off the edge of the earth yet, because you have a lot of deals that have been funded prior to the really teeth of the credit crunch coming, especially from a construction perspective. So you have, I think over the next six months, we're going to see starts fall off dramatically, so you'll have a great supply scenario along with decent job growth that should make 2009 better than 2008, and then 2010 and '11 really doing well. Even -- we actually had a -- have done some analysis on a recession scenario, a early '90's style recession, and it's interesting that even in a recession scenario, you don't have the same kind of declines in NOIs across the board the way you did either in the '90's or in the 2000 recession. Primarily because supply. Supply has not peaked, supply has been going down over the last few years. We're probably 30 less supplied than we had in 2006. When we think about what has happened multi-family, you have supply that is lower. You have the home builder -- home building mentality is over.

Some people think the percentage of home ownership, which the Bush administration was trying to get to 70%, got to 69%-ish. Some people think the home ownership percentage is going to go to the low 60s. When you have this mentality where your customers are not running out to buy houses, and even if they want to buy a house, they have to put a real down payment down now, and they have much stringent underwriting criteria, given the housing bust. So you have a pretty decent outlook, even in a recessionary scenario for multi-family. And so I think we feel confident that borrowing, even in a major recession that even multi-family is going to be in a pretty good position middle half of 2009 and into 2010 and '11.

Thanks, guys. That is very helpful.

Our next question will come from Rich Anderson from BMO Capital Markets. Please, go ahead.

Thanks and good morning to you guys.

Good morning, Rich.

Two or two or three questions here. First, is there anything about this experience that you are getting sort of disproportionate share of the downside, at least currently, as you said because of jobs, that might cause you to tweak your geographic footprint over the longer term?

No, and the reason being is that, this is an unprecedented time. Who could have predicted that you would have the massive dislocation that we have had in the home business and at the same time, had a situation where the business is not that bad, right? You think about it and while we talk about yes, we have challenged markets and we have all of these headwinds and is Fannie and Freddie going to be around and all that? At the end of the day, we have 1% same store NOI growth. Well it's not 5, but it's also not negative 6.

And you have a situation where clearly, the metrics aren't as good and they've been falling, but it's not as bad as a home builder market or some of the financial institutions that have taken their hit. So from that perspective, I think we have to be careful that we aren't in group speak about how horrible it is, because it really isn't that bad and the fundamentals of this business are poised to do a lot better over the next three to four year. The other thing I think is really interesting is when you think about capital and everybody wants to know how we're going fund our development pipeline, and gee, do they need capital and all of that? I think those are great and important concerns, but when you think about competition for capital, the public companies are well-positioned now. We're sitting on $1.3 billion of dry powder with our value add fund, plenty of dry powder in our own lines of credit and credit capacities, yet people are worried about capital?

So it's going to be interesting is, that private guys are desperate for capital, and don't have any alternatives for raising a lot of capital today. So I think what is going to happen, you're going to have a major shift in the strength of the public vis-a-vis the private guys and competition for deals is going to be a lot less, which should, in fact, improve our ability to complete transactions in 2009 and 2010.

Okay, fair enough. Another question on jobs that are related to the jobs. Again, you mentioned, and I said this in the past, that's all about the jobs and not about the shadow supplier, whatever. But if it is about the jobs, then why wouldn't have bad debt gone up? If it's about jobs, then you would have thought that that number might have deteriorated and it didn't. So could you sort of reconcile that for me?

Well, Rich, if you think about where we are in the big picture, even though the job situation has clearly been deteriorating and I think the numbers came out today and we were at 5.7% unemployment rate nationally, 5 - in the old days, 5.5, 5 used to be considered frictional and structural unemployment. So we're not that far removed from that. Even though it's been deteriorating and jobs have been going away for sure, it's clear that most of the folks in our communities have been able to replace their jobs with another job. It may not be the one that they had, it may not be paying them what it was paying them, but most of them have been able to replace their jobs. Those who haven't moved out and double up and do all the other things that happen during job losses or recessionary times. But counterbalancing all of that is the fact that -- just in our portfolio alone, last year we were losing 20% of our residents to buy homes and today that is 14%.

That 6% swing in that one component is a huge difference in terms of the -- what our net exposure is, if you will, to move out and have to be replaced. It's interesting, the bad debt, even on our delinquencies, if you look at delinquencies, we haven't really deteriorated, so I think there's something to be said for -- people pay their cell phone bill and they pay their rent and rest of it, they try to make ends meet. And I don't think that -- this is unique to us, and if you look across our markets, where kind of look at a Las Vegas bad debt/delinquency rates year-over-year versus a market like Houston, where you wouldn't expect to see any change, we really just don't see any difference across these challenged markets. So I don't -- I think a lot of it has to do with the shifting nature where our move outs are going and what the underlying component of that is.

It's also about credit quality. We'll maintain our credit quality and when you get down to, do you want to turbo your occupancy and try to push rents, you lower your credit standards and get a bunch of people in there that won't pay. That is something that the multi-family industry has grown-up knowing is that -- and the professional managed ones, the public companies understand that in you drop your credit standards, you are going to have higher bad debts and I think the industry has done a good job of making sure that they drop -- they didn't have a gut-wrench reaction and said oh my God, I better get a warm body in there, whether that warm body is going to pay me or not.

Okay. The last question is on the Freddie and Fannie angle. I hear you, it's a profitable business for Fannie and Freddie and on that basis, there should be no reason for them to curtail their lending practices. But on the sort of negative, sort of skeptical side of that, doesn't it put the multi-family industry in a bit of a competitive disadvantage? Fannie and Freddie know how critical of a role that they are playing in your business right now, if it's not the only game in town, it's certainly one of the only games in town from a capital-raising standpoint. How does that play in the role of them potentially getting more aggressive with you -- not just you, but everybody. Do they have you by the, well, I guess, "baseballs," I guess?

(laughter) It's interesting, because it's sort of like they don't want to kill the golden goose, right? If they are making all this money on multi-family, they have to be careful that they don't widen their spreads to a point where they chill the market. So you have a situation where the spreads actually have tightened because they did get he little ahead of themselves in the first quarter and you saw a drop in originations. I think the good news is that because Freddie and Fannie are both big institutions, they compete against each other, so you have a situation where there is a competitive response to the market, given that they both want to do the deals. Right? Now if we only have one, then you might have an interesting situation, but if you get down to the ultimate market condition, you have two competitors that are definitely dominating the market and what they are doing is they are trying to entrench themselves, so that when the CMBS market does come back, and we know it will at some point, then they will have an upper hand and be able to continue to sort of protect their market shares.

So I think there is a balance between how much they can charge and how much a borrower can afford and they are playing that balancing game between -- they know they are the only date at the dance, and they are using that power to get the best borrowers. So marginal borrowers are at the end of the line and are going to be the ones that are going to get the widest spreads in the more difficult underwriting. So I don't see them getting to the point that they are monopoly saying, okay, guys, here it is, take it or leave it.

And Rich, they have changed the game, too. f you look what they've done on underwriting standards and loan to value in the last 12 months, it's a totally different game. On a risk adjusted basis, whatever spread they are getting today is a heck of a lot richer than it was12 months ago.

Okay, great. Thanks, guys.

Our next question from Haendel St. Juste from Green Tree Advisors, please go ahead.

Thank you. Good morning, guys.

Hey, Handle. A couple of questions (inaudible). Actually, could you share with me the disposition cap rates for the (inaudible) second quarter?

Sure, Dennis, you have those?

Yes, it was a 59 cap rate based upon 650 a door and 2008 annualized NOI.

Just for the assets sold during the second quarter.

Oh, during the second quarter quarter only?

Well, those are the ones that were subsequent --

That was the year-to-date number I just gave you, if you --

I must be looking for more, the assets that were sold --

Second quarter?

No, the ones that were sold after the quarter closed.

It's very similar. I don't have it broken out. I have got the four Lakeview, Arbor, Briar Oaks and Woodview, and it was just right at 6%. At 650 a door.

And how does that --

The actually CapEx, Haendel, was $1,168 per door, which would give you a -- if you wanted the real CapEx, which includes real CapEx with the cash flows Dennis described, it's roughly 5.8.

Okay, and how does the pricing compare to your expectations and with that, can you share any thoughts on that decline in pricing from peak values?

Sure, the interesting thing is that we don't think there has been a significant decline in value from the peak values, because these kind of assets were always sort of in the 5.5% to 6% range. Because of the high CapEx aspect of them, and the age and sort of locational issues, so I don't think that they've gone -- that the prices have changed that much. You might have had some lunatic who would have paid a 4 cap rate in the past, but I don't think that really is the case for these kind of assets. During the negotiation process, we did a sort of mid, or sort of a low to high and where we thought the pricing would come in and there was definitely some renegotiations that went on with these assets, but generally speaking, the renegotiations were 1% to 2% max. And on an asset like a $25 million deal in Austin, Briar Oaks, we might have given up $100,000, $200,000 to get the deal down because at the end of the day, the market was -- market just believed it needed to retrade, whether it was $100,000 on $25 million deal or $400,00, it didn't really matter that much. So we didn't have any significant retrades that caused us to have to go back to the players. The other thing we had, we had a good group of buyers. There were 10 to 12 regional buyers on every asset and we had a good process in being able to sell these assets.

That is helpful. Thanks. Next question, considering your recent asset sales and your relatively strong liquidity, what are your current thoughts on capital allocation today in terms of buying back more bonds, the opportunity there versus stock buy backs and other opportunities?

The key there is, we have always said, if we can see assets like this and buy our stock back, it makes a lot of sense, and we bought $230 million of stock back. We have authorization to buy another $270 million of stock plus or minus. And we're going to be opportunistic with acquiring the stocks and bonds, balancing that with doing it on a leverage-neutral basis. We wanted to see how these dispositions went. We have another group of dispositions in the pipeline that are going to be sold in the next quarter or so. The key is being patient and being opportunistic in both acquiring stock and bonds. It doesn't make a lot of sense to us to go out and sell assets and buy other assets when we can buy our stock on an effective basis at a pretty attractive, relative to what we can buy originally existing assets. We will continue to buy assets and do development in our fund and in joint ventures because the rate of return we get on our equity is obviously far higher and get better leverage that from that perspective.

Okay. Lastly, you gave color on year-to-date -- or actually -- difference in your strong markets versus weak markets. Do you expect the relative gap to close over the next six months between your strongest and weakest markets? Widen? Any color you'd like to share or perspective thoughts on those two groups of assets -- or markets relative to each other?

In our reforecast Haendel, we expect it will end up about where we are right now by rolling our reforecast through -- on top of our first half results. I just don't see -- the dynamics that are in place right now, not going to change in the challenged markets. We're still in pretty good shape in the markets that are not being challenged. A big chunk of that comes from our Texas exposure and those may actually get better over the next six months than the first half.developments.

Alright, that's helpful guys, thanks a lot.

Our next question comes from Karen Ford from Keybanc Capital, please go ahead.

Hi, good morning. Just one more quick question on Fannie and Freddie, because I know Rick, you're very knowledgeable on this particular topic. Is it your view that the government -- you mentioned that their liquidity position is the best today than it's been in a long time. Is it your view that the government liquidy and OFEO and/or the fed, that liquidity that they're providing there, is for more than just to stem what are expected to be losses coming on the single family side, that they'll actually Fannie and Freddie to use government liquidity to then lend onto the apartments?

Absolutely.

Okay.

I think the -- they're worried about the losses, but Freddie and Fannie hold so much of America's mortgage market, that without Freddie and Fannie today, there would be no home lending. They're 90% of the entire single family mortgage market today because of the meltdown in the mortgage market, the private mortgage that is going on. It's not about subsidising multi-family or subsidising single family, it's about creating the mortgage market and keeping the mortgage market going. If the government didn't give the expressed backing of Fannie and Freddie's bonds, you would have a meltdown that is hard to imagine, what happens if they did fail. I think the government, that's why the government has basically thrown the towel in and said, alright, we can't constrain their growth, we'll put in a stronger regulator and that regulator over time will makes sure they don't do speculative investments.

The complaint that the Bush administration had about Fannie and Freddie over the last -- since the entire term of the administration was that they were getting this implied government guarantee in going out and doing, making aggressive investments and all of the problems they had with financial accounting issues and executive comp and all of that stuff, you had -- the government still couldn't get control of them during that time frame, and now, they have just thrown the towel in. Because if they hadn't thrown the towel in, you would have a huge meltdown in the financial markets. So I don't see that as a threat to the multi-family business, because if you think about the losses in homes, they have got to make money somewhere, and multi-family is their most profitable, least risky loan.

So you don't see the risks -- that the government would say that you need to preserve capital on the multi-family side to try to stem some of the losses on the single-family side?

I don't see that at all. The risk that the regulator comes in -- I think the biggest risk is the regulator -- the new regulator comes in the middle of '09 and says alright, your risk-based capital needs to be higher than it is today. Now, FAO has already come in and said, both on Freddie and Fannie, that they're they are adequately capitalized today. So the ultimate risk, obviously, is if you do have a regulator come in and say gee, we want you to have more capital, then either have to raise capital or lower their ability to make loans, but I don't think anybody sees that right now.

That's helpful, thank you.

Thank you. That does conclude today's question and answer session. I would like to turn the conference back over to Mr. Campo for closing remarks.

Great. Thanks a lot for your participation, and we will see most of you, I hope, next month in Austin at our investor meeting. So thanks a lot, and we will talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.