Camden Property Trust (CPT) 2008 Q3 法說會逐字稿

Welcome to the Camden Property Trust third quarter 2008 earnings conference call. (OPERATOR INSTRUCTION) Now, I would like to turn the conference over to Ms. Kim Callahan, Vice President of Investor Relations. Ms. Callahan, you may begin.

Good morning, and thank you for joining Camden's Third 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 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 Third Quarter 2008 Earnings Release in available in the Investor Relations section of our website at camdenliving.com and it includes reconciliations to non-GAAP financial measures, which may be discussed on this call. Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Dennis Steen, Chief Financial Officer. At this time, I'll turn the call over to Ric Campo.

Good morning and Happy Halloween. It's appropriate that our call is on Halloween relative to the tricks and treats that we are experiencing in our markets and the general state of the capital markets. Property operations for the quarter produced same-store revenue growth of 1.9% and expense growth of 5.6%, resulting in essentially flat same-store NOI over 2007. Revenue in our challenged markets grew at an anemic .4% compared to our strongest markets revenue growth of 3.2%. Given the challenging economy and job losses to date we are pleased with our third quarter property operations. Our on-site teams are doing a great job navigating these uncertain times and I thank them for their continued commitment to providing Living Excellence to our residents. We measure our on-site team's quarterly performance relative to NPF published market data. Our teams consistently outperformed the local market. For the quarter, we outperformed 13 of our 16 markets. Our charge to our on-site team continues to be that we ask them to outperform the markets in spite of market conditions.

We will not be providing 2009 guidance on this call. We will provide 2009 guidance on our fourth quarter conference call. We have spent a significant amount of time, however, analyzing various economic scenarios for 2009 and beyond and we've had a number of our advisors do analysis and what I'm going to do today is talk a little bit about Witten Advisors and a couple of economic scenarios that they have produced that basically projects NOI forward through 2009 to 2011. Assuming 4 million jobs are lost in this cycle, the Witten model projects national net operating income to decline 1.6%in 2009, flat in 2010, and an increase of 5.4% in 2011. Stressing the job losses further doesn't materially change these projections. As a matter of fact, in 1982 recession where you lost about 5.5 million jobs doesn't change these numbers materially.

You might be surprised by these numbers and to put them in perspective, during 2002 to 2004 recession, our net operating income declined from peak to trough about 11.5%. So, why would the NOI decline be less in this recession? Well first, our view is that we've been in recession in our challenge markets since first quarter, but there are essentially three economic drivers that are significantly different this time around. I worry about saying this time it's different, but there are a lot specific things that are different.

First, the supply of multifamily housing is 45% less going into this recession compared to the last recession. Supply was peaking at a time of significant demand declines in the last recession. Given what's happened in the credit markets, the fact that new development financing has essentially dried up, we expect future supply to fall to at least 20 year lows. And as a matter of fact, future supply probably will be offset substantially by demolition so it will have a net negative supply over the next two or three years in the multifamily business.

Second, the last recession led to the housing bubble. Low interest rates, zero down payments, no-doc loans drove many apartment renters into single family homes. Our move out rates to homes increased from 14% at the beginning of last recession to peaking at 24% during the recession, which is just mind-boggling in a recession you generally don't have people buying homes. In this last recession we had massive people buying home. Given the current tighter credit underwriting for home loans in the negative consumer sentiment, these dynamics will actually increase rental demands during this cycle rather than taking rental demand away from us as the last cycle.

The third major difference is demographics. The baby boom echo is producing more, many more 18 to 24-year-olds than the last cycle and they have the highest propensity to rent apartments. When job growth returns, there will be significant pin-up demand. We believe that there'll be a shortage of multifamily units beginning in late 2010 and through 2013.

We continue to make progress on completing our leasing of our development pipeline, and as we've discussed on our previous calls, we have slowed down our starts and we'll be valuating the timing and financing structures of our starts in the first quarter of 2009. We have a strong balance sheet. We'll only obtain the financial flexibility in order that to take advantage of emerging opportunities in the future, which we think are going to be there. At this point, I'll turn the call over to Keith.

Thank, Ric. First of all, those of you who attended our annual Analyst and Shareholder meeting in Austin last month were probably expecting to go hear some Eagles music in our conference prelude. But in consideration of the spooky capital markets that we're navigating and the fact that our call just happens to be on Halloween, we decided to change things up a bit.

Not to worry, the Eagles will make their appearance on our fourth quarter call. Our lawyers have advised us that because we are announcing the change of music on this call, that we will not be issuing an 8K announcing the change.

I want to spend a few minutes on the call discussing our third quarter operations and give you some insight into current conditions in Camden's markets. We had a slight miss of our NOI target for the quarter, which reflected a small miss in revenues and higher expenses due to more than expected turnover in the quarter. The third quarter is always our highest turn over quarter, but 78% for the quarter was higher than we had anticipated. We are still well below plan on expenses for the year. The 3.4% increase in expenses year-to-date adjusted for the impact of our cable and Valley Waste initiatives is slightly less than 1%. So we continue to see good expense controls on-site.

We expect to finish the year at the low end of our original expense guidance. However, our fourth quarter expenses will likely show a significant increase over the prior year due to the $1.6 million in property tax reductions that we had in the fourth quarter of 2007. We averaged 94.9% occupancy for the quarter as our revenue management systems maintained rents flat to the second quarter, in order to hold occupancy. The headwinds that we've been facing from the deteriorating job markets have increased since our last call. Since last quarter, the estimate for employment growth in Camden's markets for the full year 2008 has been revised from an aggregate gain of 70,000 jobs, to a loss of 53,000 jobs.

As you know, we believe that employment growth is the most important factor determining multifamily performance. The largest revisions among our markets occurred in Atlanta, which went from a projected 16,000 gain in the second quarter to what is now projected as a 3,000 job loss. Los Angeles was projected at 14,000 job losses, currently projected at 56,000 losses. Phoenix was revised from a loss estimate of 12,000 jobs to 39,000 jobs, and Tampa was revised from flat to down 13,000. This 123,000 downward revision to the employment outlook in our markets in the second half of this year will continue to create challenges.

Consistent with our expectations for slowing demand as jobs are lost, we experienced a 7% decline in traffic from the third quarter of 2007, and our closing percentage fell from from 34% in Q2 to 32% in this quarter. Since quarter end, our occupancy rate has come down to right at 94%, which is higher by 20 basis points than our historical seasonal decline from second to third quarter. Another indicator of the worsening economy and the stress it's placing on the consumer was the increase in bad debt expense for the third quarter from .5% to roughly 0.7 of a percent.

In the last recession, 2002, 2003, our bad debt expense peak at .9% and this is obviously something that we'll be watching carefully and making adjustments as required. On the positive side, the percentage of residents moving out to buy homes fell to 13.6% for the quarter and that's the lowest number that we've ever seen in our portfolio. Camden's definition of a recession is when we're losing jobs in our markets and by that definition, we've been in a recession since the beginning of 2008 when the first of the job loss, national job loss reported numbers began. The events of recent weeks will probably ensure that we'll lose more jobs and produce a challenging 2009.

With revenue growth rates falling, it is imperative that we get as much of that growth to the bottom line as possible. In this regard, this month we announced the first layoff in our Company's history. In total, 79 positions were eliminated, roughly two-thirds from corporate and regional staff and one-third from on-site positions. This represents a reduction in salary expense by roughly $4 million annually. These reductions have been made possible to a large degree by the substantial investments in technology that we've made over the last five years. The result is that we've been able to increase the productivity of one the most productive teams in the real estate industry.

Fourth quarter expenses will not be affected as severance costs incurred in the quarter will roughly offset the salary reductions. In addition, we will be carefully scrutinizing all corporate regional and on-site expenses to identify potential savings as part of our 2009 budget process. Now I'd like to turn the call over to Dennis Steen, Camden's Chief Financial Officer.

Thanks, Keith. I will begin my comments with the review of our third quarter results. Camden report FFO for the third quarter of 2008 of $52.3 million or $0.89 per diluted share. These quarterly results include gains on the early retirement of debt of $2.4 million, or $0.04 per share, and an insurance loss of $1.3 million, or $0.02 per share, related to hurricane Ike's impact on our Houston area communities.

Excluding these non-recurring items that were not included in our prior guidance, FFO for the third quarter would have been $51.2 million, or $0.87 per diluted share at the midpoint of our prior guidance range of $0.85 to $0.89 per share. Our FFO, excluding the non-recurring items, achieved the midpoint of our FFO guidance range for the third quarter of 2008 based on the following. Moderating same-store revenue growth and slightly higher than anticipated same-store operating expenses, as Keith just discussed, produced a $1.3 million, or 1.6 unfavorable variance to our same-store net operating income expectation for the third quarter.

This unfavorable variance was offset by a $400,000 favorable variance in net operating income from communities in our development pipeline as all communities under lease-up are progressing positively toward stabilization, and a $700,000 favorable variance in general and administrative expenses due to lower salary and benefits, incentive compensation and legal expense. During the third quarter, we continue to make significant progress towards the execution of our 2008 disposition program. During the quarter, we sold five operating assets to third parties, generating total proceeds of $115.6 million, and resulting in a gain on sale of $65.6 million.

This brings our year-to-date disposition volume of operating real estate assets up to approximately 2,400 units, which had an average age of 24 years, generating $140 million in proceeds. The average cap rate on our 2008 dispositions was 6% using 2008 annualized NOI and CapEx per unit of $650, and the unlevered IRR was approximately 12%. We are currently marketing for sales seven additional communities with an average age of over 20 years. Three of the communities are currently under contract, but we do not expect any to close in 2008.

Additionally in August, we sold Camden South Congress a 253-unit community in Austin to the Camden Multifamily Value Add Fund for $44.2 million, resulting in a gain of $1.8 million on the sale. Concurrent with the purchase, the Fund obtained a seven-year floating rate loan from Freddie Mac to finance 70% of the purchase price. Turning to the capital markets, we and the rest of corporate America continue to navigate through the current credit crisis. We made significant progress during the quarter and further strengthening our balance sheet and liquidity position. On September 24th, we closed on a new $380 million Fannie Mae credit facility.

The facility has a term of ten years and was comprised of a $205 million, 5.625% fixed rate loan and a $175 million variable rate loan currently priced at 4.2%. The proceeds were used for the repayment of all of our remaining debt maturities for 2008, and to pay down amounts outstanding on $600 million unsecured line of credit. As of September 30th, our liquidity position is sound with $29 million in cash on the balance sheet, no debt maturities for the remainder of 2008, and full availability on our $600 million unsecured line of credit, which after all extensions, matures in January of 2011.

Additionally our dividends continue to be adequately covered by operating cash flows and we have significant -- we have a significant unencumbered asset pool of approximately $4.3 billion, which continues to be available for potential financing. We also have the ability to replace a significant amount of unsecured debt with secured debt and still satisfy our financial covenants. Based upon our existing liquidity position, potential proceeds from asset sales, and our ability to incur additional secured debt, with Fannie and Freddie still very active in the multifamily space, we are very comfortable that we can meet our upcoming debt maturities.

Please see page 23 of our Supplemental Financial Package for additional details on quarterly debt maturities through the year 2010. 2009 debt maturities total only $198 million, or 7% of our outstanding debt. $50 million of the 209 maturities are secured notes, $46 million of which matures in the first quarter of 2009, but can be extended at our option to the first quarter of 2010. Based upon current interest rates, we plan on exercising this option.

Looking forward at our capital needs and liquidity position. Assuming our only development spin relates to the $40 million required to complete the communities in our current development pipeline, that all debt maturities are paid off with availability on our line, and the only proceeds from asset dispositions relate to the communities currently being marketed, results in our line of credit being fully available at the end of 2008, and have an approximately $400 million in availability at the end of 2009. We are committed to maintaining a strong balance sheet with sufficient liquidity to weather the current uncertainty in the credit markets.

Moving onto earnings guidance, we expect fourth quarter 2008 FFO of $0.85 to $0.89 per diluted share, resulted in full year 2008 FFO of $3.57 to $3.61 per diluted share. The midpoint of our fourth quarter guidance of $0.87 per share is in line with our third quarter core results after excluding the non-recurring impact of gains on the early retirement of debt and insurance cost related to hurricane Ike from third quarter results. Our fourth quarter guidance is reflective of the following. A $0.02 per share projected increase in non-same-store net operating income as the positive impact of the continued lease-up of seven communities in our development pipeline was only partially offset by NOI loss on third quarter dispositions.

A $.5 per share projected increase in same-store net operating income as our expected seasonal decline in operating expenses is slightly greater than our expected decline in property revenues due to the fourth quarter decline in average occupancy and lower levels of other property income in the fourth quarter due to a reduction in turnover and leasing activities. Full year 2008 same property NOI growth is now projected to be (0.2)% to (0.6)%. Revenue growth of 1.4% to 1.8%, an expense growth of 4.8% to 5.2%. These two positives, are being offset by a projected $0.02 per share increase in interest expense.

This projected increase is primarily due to the fact that the average rate on our new 10-year $380 million Fannie facility of approximately 5% is higher than the average interest rate incurred in the third quarter on line of credit balances and maturing mortgages paid off with the Fannie facility proceeds. We expect total property supervision, see an asset management in G&A expenses for the fourth quarter to be in line with third quarter amounts. At this time, I will open the call up to questions.

Thank you. (OPERATOR INSTRUCTION) Our first question comes from David Bragg with Merrill Lynch. Please go ahead. (OPERATOR INSTRUCTION) Our first question comes from David Bragg with Merrill Lynch. Please go ahead.

Hi, good morning.

Good morning, David.

Hi. Could you repeat the turnover figure that you gave for the quarter and compare that to last year's third quarter, and then please talk about what drove that figure up?

Yes. The turnover was 78% for the quarter, and then the year ago quarter it was 76%. And it's really not -- we had estimated in our plan for the third quarter that we would be down from the 78%. We've been running on trend about 2% to 3% below turnover each of the quarters and we kind of had that baked into the numbers for the third quarter and we just didn't see it.

Okay. And then just thinking about some specific markets into 2009, you've talk a lot about challenged markets versus non-challenged markets looking out into next year. Could you pick a market from each that, that has in your view, the best chance of moving into the other bucket?

Well, I think that you're going to -- I think going from the non-challenged markets to the challenged markets, that the most likely suspects if we were to kind of re-cut the list today, which we did not just for purposes of comparison, would be in Atlanta where we had a pretty decent size downward revision to jobs. We are projecting 16,000 jobs at the end of the second quarter and that's now down to a projected loss of 2,600.

Clearly, the entire California market is one that would be, based on the job loss projections that we're seeing right now, is, I think it's very likely that that would get pushed into that category. You asked for one, but I'll give you the trifecta. The third one would probably be the Charlotte market.

Even though we've not really seen huge job loss revisions, we just think that that overall market is certainly at risk of the banking consolidation, so those would be the three that I would think would be most likely candidates to move based on projected job losses from one category to the other. Going from -- going the other direction, in our, well, the northern Virginia market, we think, has seen pretty decent stabilization. Our DC Metro has held up well. Maryland has held up well.

The big challenge has been northern Virginia, and I, I sort of have a view that no matter what happens next Tuesday, that the end result is a lot more spending, which is generally a good thing for the DC Metro area, so that's, of the ones that I see maybe going the other direction possibly in 2009, that would be my best, my best guess.

Okay, great. Just one last question. Could you update us on your, your acquisition plans for the Fund and how you might be adjusting your underwriting approach as you head into next year?

Sure. The acquisition environment is very complicated today, and there's a big, big spread between buyers and sellers. We are sort of on the sidelines for the Fund at this point just because we think the markets are going, are going to emerge from an acquisition perspective better next year. From an underwriting perspective, we are definitely tightening our underwriting up, lowering growth rates and actually putting recession scenarios, the numbers that I sort of went through on my prepared remarks, we're using those kind of, from an underwriting perspective for today.

So, on the one hand, we're really excited about having the capital in the Fund and being able to be patient and let the market come to us. On the other hand, we are in the market. Our people are looking at deals every day and making offers and working, but we don't expect to have any major acquisitions in the Fund to happen probably, at least into the first and second quarter of next year.

Okay. So just generally speaking, the NOI growth figures from Witten that you indicated seem appropriate for 2009, 10 and 11 as you look forward for acquisitions?

Yes, absolutely. I think that it's real interesting when you look at those numbers because most people in their initial reaction is, oh, there's no way. It has to be just as bad NOI decline as it was in the last cycle, and I think that having spent a lot of time analyzing the models and trying to understand how deep the economic drivers go, I think that these are pretty good numbers based on what we're seeing out there in the market. I mean, if you look at our challenged markets, they're not falling off the edge of the cliff, and that's the thing I think people worry about the most is that you're going to have a situation where all of a sudden you have 5%, 6%, 7% declines in NOI and I just don't see that in the current environment. So, when we underwrite for acquisitions, we're clearly going to underwrite more sedate growth and clearly, not be as aggressive as we would otherwise be if you didn't have this recessionary scenario going on.

Okay. Thanks a lot.

Sure.

Our next question will come from Dustin Pizzo from Banc of America Securities. Please go ahead.

Thanks. Good morning, everyone.

Good morning.

Just to follow up on one of David's questions, would it be fair to assume that you expect more markets to move into the challenged bucket next year than the other way around?

Yes.

Okay.

And the three that gave you, that's why I gave you the three going that direction versus the one coming back.

Yes.

If you utilize the scenario that Ric laid out, which was sort of the first version, which basically tried to mirror the '02, '03 downturn, somewhere around 3 to 4 million jobs. If you think about where we are so far nationally, we're at, since the beginning of this cycle and job losses, we're down about 700,000 jobs. Most people think that that trend continues and if you were to play out the, "we're going to lose 3 to 4 million like we did in '02, '03," then clearly that level of job loss -- there's no way that gets contained to, not only to Camden's challenged markets, but to Camden's markets, period.

And I think you saw and we saw and you will continue to see as these revisions come in on job growth that it's not just the quote "challenged markets" that have been beaten up with the worst of the housing overhang, where the job losses started first and it hit hardest. It's not just those markets and we saw revisions now where this quarter where in the Atlanta's of the world and, clearly, California continues to see downhill -- will probably continues to see downhill revisions. So, if you kind of go back to bedrock thesis for us, which is if you're losing jobs, you're probably struggling with your NOI, then I think you're going to find more markets get infected with the job loss scenario and yes, absolutely, they will move from one category to the other.

I think the other piece of the equation that we sort of look at, too, is the challenged markets are clearly challenged because they have the highest run up in housing prices, and then the unwinding of that job base that was related to the housing bubble, that's pretty much out of the system. There are no subprime lenders left, there are no -- all the housing starts have fallen to just lowest levels in 20 years, so you don't have a lot of jobs left to be wrung out of the system from that perspective.

What you have now, though, is a normal recession, or that basically starts taking service jobs and other jobs that weren't so much related to the housing bust. So I think that the markets that are going to slow down are definitely going to be, from a job growth perspective, are going to be, as Keith put it, infected, but I don't think that you're going to have big time job losses in the challenged markets because that, that, they've already gone through a big part of the re-adjustment for their economy since they've been in recession for a year already.

Okay. That's fair. And then, as you start running through some of those, those NOI projections, through some of the acquisition models that you were talking about, and you combine it with where the cost of debt is today. I mean, where in you're view then, using those assumptions, do cap rates need to go before they -- before acquisitions start to makes sense from a required IRR perspective?

Well, if you're -- you have to sort of be careful when you use these broad numbers because you obviously have, have core portfolios that are in pristine locations. They're going to trade at different levels, then sort of value adds or older B asset kind of scenarios, but --

Right. Just on more like core, core product.

Yes, core product. The interesting thing about core product, A, We're not looking at core product. And B, the core product is probably the most affected in terms of the bid/ask spread, because the owners of core product don't have to sell. They don't have a gun at their head. They're well financed, so they're just saying, well, why would I sell today if I really don't think the economy is going to be that bad. We look at some of these really horrible job projections and multifamily holds up incredibly well in this cycle as a result of these drivers that I talked about, so there's not a lot of pressure for core, a core seller to sell.

And so, when you look at -- if you just did the math, and you said, okay if the market is today a, for debt call it 6%, I mean, we did a fanny deal at 5.6%. Now, some folks are talking 6.25%, depending on where the treasury is, let's call it 6% to make the math easy. You need 100 to 150 basis points above the debt cost to have positive leverage.

And if you believe you're going to have a growth rate in over the next 3 to 5 years, even using these, these sort of Witten 4 million job loss scenarios, you should have 3% or 4% growth in NOI over the next 3 to 5 years. You're going to be slow to start with, then it's going to pick up, and then it's going to be big for 2011, 12, 13. So, in that scenario, you can make really decent sort of core returns. If the core return is defined as an 8%, 8% unleveraged return, you need cap rates in the 6% to 6.5% range for a core deal.

Okay. And then just one last question. Going back to the portfolio, have you, and I know it's more anecdotally than anything else, but have you seen any trends develop where people are trading down either from A's to B's or even to cheaper units within the same complex, or moving in with roommates, moving back home, etc.?

Well, I think that some of our turnover rates for the quarter at 78% would have had to reflect some of that. We probably have had -- we always do a fair number of transfers among Camden communities, and there's not any, I haven't, certainly don't have any reconnaissance that people are transferring, going from two's to one's for economic reasons. But I think you always in a, as you get into an uncertain economic environment, people start thinking and saying, well, you know maybe I'll double up. I think you're going to see some of that. I don't think there's any question about it, but in terms of any kind of a wholesale trend, I don't that we've seen that yet. But clearly, the turnover rate in the third quarter would indicate that there are more people going somewhere else and doing something else and it's certainly not to buy homes.

Okay. Thank you.

You bet.

Our next question comes from Lou Taylor from Deutsche Bank. Please go ahead.

Thanks. Good morning, guys.

Good morning.

Keith, can you talk a little bit about the pricing model and how it's holding up under these kind of different conditions, and what's that kind of resulting in, I guess, the actual rents, the residents, are they getting concessions? is it just a lower beginning rate? Just how's the model holding up and what are the components of leases these days?

Well, Lou, we think the model is doing really exactly what it's supposed to be doing and what we would expect it to be doing. We went, we basically were flat on, on rents from second to third quarter, but we were able to maintain 94.9% occupied. The model is -- we calibrate it to try to maintain a 95% occupied or 95.5% occupied condition.

So, that's very consistent with exactly what you would expect if the model is look out 120 days on the horizon, which it is, not really kind of judge current conditions, but trying to anticipate future conditions, you would expect that there would be rent -- we wouldn't be pushing rents, we would be lowering effective rents where we had to to maintain our occupancy, so that part of it is -- we think it is actually doing what it's supposed to be doing. We, in our model we use a net effective pricing, so there's really, the concept of concessions really doesn't get into our modelling or into our marketing approach, so it's, that's really not been an issue for us.

But I think, I think at this point of the cycle, the model is telling us exactly what we all kind of know, which is, there's continued -- some more weakness coming in terms of the, if we, if these job growth protections are correct, we're going to see more weakness and the model is certainly trying to anticipate that. I think the better way -- when I kind of think about how's the model doing, how are we doing on pricing, is probably to go back to the stats that Ric gave you in his intro, which is something that we track pretty closely against NPFs entire universe of multifamily on a market by market basis, and on that, by that measure for the quarter, and this is pretty consistent with what we see, we outperformed on revenue growth, we out performed in 13 of our 16 markets.

So, by that measure, I'd say the model is not only doing what we said, thought it and expected it to do, but it's producing results that are in almost all cases better than the market.

Okay. And how about development leasing? How's the pace going, and what are you having to do there from a pricing standpoint to maintain the leasing pace?

You know, depends on where you are. The pace is going reasonably well. We have seen some degradation in lease rates by virtue of having to provide a little more concession than we do concessions in, in the development side of the house versus the stabilized operating side of the house that uses revenue management, but we are doing well in terms of getting the projects leased up. I think on our last call I talked about, about probably a degradation of 25 bips, at least from, from just slower and rent side of the equation in the original yields

And then how about, just in terms of what markets or projects are the concessions running a little heavier than, than say some other regions?

Well, I would say Orlando in our lease-up in Orlando, clearly it's a downtown urban project, and Orlando obviously being one the most challenged markets around. The concessions are higher there. The absorption is slower than, say, our Potomac Yard in Washington, DC, that is a mile from the Pentagon, clearly. And compared to also in Houston, you've got lease-ups in Houston that are doing really well that we aren't concessing on at all. So again, it's a real market-driven deal and you can sort of put the developments that are, that are slower and are less, less rental rate wise are definitely in the challenged markets and the ones that are doing better, are not.

Great. Thank you.

Our next question comes from Jay Habermann from Goldman Sachs. Please go ahead. Our next question comes from Jay Haberman from Goldman Sachs. Please go ahead.

Hey, guys. Good morning. Jay Haberman here with Sloan as well.

Hello, Jay.

Hi, Jay.

How you doing? Quick question on single family. I know, Keith, you've talked about possibly seeing a bottom sort of mid next year. I mean, currently your move out at an all time low is a good sign. Can you just give us an update there on what you're seeing, I guess in terms of projections on single family and, I guess, the impacts expected across your markets?

Well, Jay, I think the good news is is that the, the starts continue to plummet. The second piece of is, is that we -- in some of these markets you have seen real spikes in, in new home sales. I saw the other day that in California for the, for the recording period for one month, now one month is not a trend, but year-over-year the sales were actually up almost 100% from the same period a year ago. The bad news is, is that the price was off about 35% from the prior year. So, I think as that continues, we will continue to see the overhang and the inventory worked off in some fashion.

And I think the markets where the overhang was the worst, we've got, we've got further to go on, but I think that Ric mentioned in his comments, and I think this is really, it will be interesting to see how this plays out, but I think a big chunk of the job losses that would likely occur, would likely occur in this cycle -- in our challenged markets, we've gotten a pretty good head-start on what probably ultimately is going to, to jobs that are going to be lost. So it will be interesting to see as '09 plays out and if we get back to a, if you get sort of a deep and fairly brief recessionary scenario, as these markets start to return, as aggregate job growth comes back, we know that Camden's markets will benefit disproportionately just like we have been beaten up disproportionately as jobs go away.

So I think that, I think that, as you look out into 2009, and into a more of a recovery scenario, and whether you think that's '09 or '10 or whatever your thought process is, but as you look out to a recovery scenario -- I think given that we've already taken a lot of the medicine in some of these markets and those markets are the ones who are most likely to grow jobs in the recovery, that, if we led the the way into this NOI decline, maybe we lead the way out of it.

Let me just attack it a little bit differently. If you look at the model that I talked about with that, with very modest NOI growth or NOI loss next year and then a flattened 2010 and 11, assume, and then big growth in 11, assumes another 20% drop in housing prices and then it is assumes that the housing market sort of bottoms in the middle of 2010 and then gets better in 2011. When you look at the excess housing supply today, there's about 2 million excess housing units. That's primarily condos, there's only 300,000 condos in the balance or, or single family homes. When you look at overall demand, national demand in a normal market is about a 1.8 million units.

We're building 500,000 houses and 125,000 apartments plus or minus, so call it 650,000, or maybe call it 700,000 new units being built annually. If you take 1.8 million, subtract 700,000 off of that demand, you've got 1.1 million of pent-up demand somewhere. What are those people doing and why aren't they buying houses?

They're not buying houses because of the psychology over, I don't want to catch a falling knife, or they can't get a loan right now or what have you. Once you get the economy back into a normal, more normal situation, the housing over supply for single family homes is really not that big relative to the demand, which should be there in a normalized situation with proper consumer sentiment and reasonable financing. Now, obviously the gazillion dollar question is when does that balance happen and when does it come back?

The other thing I think is interesting in this model that we went through was that the rental versus buy scenario is just getting back to equilibrium, meaning that there's no advantage for somebody to rent or to buy a house versus rent. And you have a situation where we don't think that changes that much over the next two or three years with interest rates and with what prices of houses are going to be even with a 20% decline. So I don't think, we're not worried that, that when the housing market comes back, everybody runs become out of apartments into single family homes.

Okay. No, that's helpful. And then you mentioned, obviously the cost controls and the $4 million reduction in G&A projected for 2009, could you just speak to perhaps any other sort of cost measures you might be forced to take sort of in the outlook you provided where you can, you can source other cost reductions?

Yes, Jay. The $4 million is salaries only. As part of that process, obviously we went through and looked on things that we could have an impact on immediately, and we identified roughly another $1.5 million of G&A support-type expenses that have already been committed to as far as reductions in 2009.

We're just starting our on-site budget process, and we'll be tackling our corporate budgets here in the next 45 days, and we, we are taking a very different approach this year to our budgeting process that I'll, I'll share with you maybe the results of on our next conference call, but it's, it's, we're going to take a very aggressive look at, which I think is prudent, and given the environment that we are operating in today and expect to wrestle through in 2009.

I think the interesting part of today is that, is that you don't have to go on-site and tell people, you need to really be efficient, you need to spend less money. You need to really focus on -- the dollars that you spend need to be related to revenue production, people get it. I mean, they read the papers. They hear the political candidates talk about how horrible the world is and they understand what they need to do, so if we don't have to have spend a lot of time jumping up and down and beating on people about reducing expenses.

Right. And then, I guess, just for next year on the ancillary income, it's clearly been a benefit this year. How much more do you think is left, I mean, in terms of contribution next year?

We are about 80%, 85% through the roll-out on Perfect Connection. We've got still a decent amount of ramp to go. On Valet Waste, I think we've probably got about a 30 to 40% of our apartments that, that would be '09 candidates for the roll-out. So, it's not materially different, but, but there will be an incremental benefit above and beyond the '09 -- '08 run rate.

Plus, we have the full run rate in '09 versus the ramp-up in '08. So, clearly we will have some benefit from the ramp-up.

Okay. Great. Just last question, you mentioned seven additional assets for sale. Is that something you look to expand upon or do you feel comfortable with the asset sales and obviously, the liquidity measures that Dennis spoke to?

Well, I would say that we are, we are going to evaluate our 2009 strategy and depending on pricing, we may put more assets out for sale. It really just depends on how it plays out. We are absolutely committed to make sure we, that we maintain our liquidity and we don't have any liquidity issues with respect to our maturing debt and what have you, and if, and if we, if that means that we continue to, to recycle assets by selling the properties and delevering if the markets don't improve, then we will absolutely do that.

Great. Thank you.

Our next question comes from Michelle Ko from UBS. Please go ahead.

Hi, good morning.

Good morning.

One of your competitors said that they saw some deterioration in revenue growth for Austin and Dallas starting in August, due to some job losses. Have you see any deterioration in Texas yet and do you expect to see a decline in '09?

We have not seen any in Dallas. We saw a little bit of weakness relative -- I mean, Austin's been an incredibly strong market for us for the last two years. But I would say that we did see a little bit of weakness in our numbers in Austin, but again, you're talking about from a level that is, that has been, been really strong for us. The interesting thing is, is that on the job growth revisions that I was mentioning earlier and I was giving you the ones where there were negative job revisions, but there were also positive job revisions from the second quarter, and those occurred, the biggest ones occurred in Dallas, went from a projected 20,000 to a projected now 37,000.

Houston went from a projected 37,000 to a projected 41,000. And Austin actually came down from a projected 16,000 to a projected 11,400, still a decent number, but less than the projection even in the second quarter, so that seems fairly consistent to me of seeing a little bit, little bit less strength in Austin then we are still seeing in Dallas and Houston, so I wouldn't disagree with that observation that our competitor made, even though you did have sequential growth from the second quarter to the first -- second quarter to third quarter in revenues in all those markets. So they may be slowing but they're still pretty good.

Okay. And also, in terms of your revised same-store revenue guidance for 2008, are you anticipating that the fourth quarter NOI growth is going to deteriorate from the third quarter?

It's actually slightly positive because our reduction in expenses is, is a little bit greater than the expected reduction in, in revenues from third to fourth. So we actually have a slight positive increase in same-store NOI in the fourth quarter.

And, I'm sorry. What did you say about the revenue side for the fourth quarter?

It actually is going to decline slightly because of decrease in occupancy and decrease in other income due to lower turnover and the fees relating to that turnover.

Okay, great. Thank you very much.

Yes.

Our next question will come from Michael Bilerman from Citigroup. Please go ahead.

Good morning. It's David here with Michael. A couple of questions. Can you just comment a little bit on your traffic in October?

Yes, our traffic is actually held up pretty well. We have, in the month of October on a trend basis, I'm going to say that it was flat with September. This is for Camden only. Our Camden 100% owned portfolio.

In the first week in October, we were at 1,600 pieces of traffic, then 1,700, then 1,800 and if you go back to the, to the prior four weeks in, in the month of September, it was 1,600, 1,700, 1,700, and 1670, so really, really pretty flat with what we saw at the end of the, at the end of the third quarter.

Okay. And but --

But again, over in my initial comments, traffic in the third quarter year-over-year was down 7%.

Right. Also, could you provide a little bit of color with regard to discussions the board had relative to buying back that and your appetite for more going forward?

Sure. The discussions at the board levels, we talk about all aspects of our business activity, including buying back debt, and when you look at some of the debt that we bought back, especially the short-dated debt, we're planning on paying that debt off when it matures and it makes a lot of sense to, to buy it at a discount early, as opposed to just waiting to pay it off when you have to pay it off anyway.

So the discussion is all about managing the balance sheet prudently and managing liquidity and maturities in a reasonable, reasonable way. And when we think that, that we have an opportunity to create value for shareholders by buying debt, we're going to payback at a discount while maintaining our balance sheet strength and flexibility and not, not causing a problem with our maturity schedules, then we're going to do it.

Okay. And then, did I miss your comment on your expectations for the timing and the proceeds related to the land sales?

The acquisition, or the dispositions that we're selling now?

Yes.

There's a shot that some will close by the end of the year, but it's likely to fall into next year.

Any rough idea of proceeds or amounts?

About $10 million. If it happens, it will be about $10 million on our land.

Just land or our total acquisition -- total dispositions?

Just the land.

Just the land. Yes, $10 million.

Okay. And then lastly, Ric can you give us a little bit of a view of your take on the capital markets recovery, how that would play out and how you guys are underwriting interest rates going forward?

Well, that's a good one. I wish I knew.

That's the Halloween question.

Yes, it is. It's definitely a trick question. We spent a fair amount of time going through scenarios of what if this? What if that? And what happens if the capital markets don't open, the unsecured bond markets don't open and we matched those scenarios with our maturities to make sure that we have adequate liquidity, and I, I guess my fundamental belief is that, is that over time we will get back to a more normalized capital markets where the unsecured bond markets will -- spreads will tighten in pretty dramatically from where they are today and that will happen at some point. The question is, when?

Interest rates, we think, are going to stay in a band, given the feds lowering of rates and the, and the issues in the economy today, we don't interest rates are going up dramatically over the next year or so. After that, I don't really have a great view of the world. What we're trying to do is simply make sure, in the, in the near term, and when I say near term, that would be through the end of 2010, that we don't have any major issues with liquidity of refinancing our debt, or making sure that we can fund our business in a reasonable way. And so we are planning for the worst and hoping for the best, and we have a very good plan from a liquidity perspective.

The markets still are very liquid from a disposition perspective at reasonable prices. When you look at the, at the folks that bought the last $140 million of our assets, they're still out there, and we think that, that going into the next year, we'll be able to sell sell assets or refinance, refinance our maturities with Freddie and Fannie. So with all that said, I do think the capital markets will come back to some semblance of order once the election is decided and once we sort of see forward into '09 and 2010 what the economic carnage is with what's happened in the last 3 or 4 months.

That's very helpful. Thank you.

Our next question will come from Rob Stevenson from Fox-Pitt Kelton. Please go ahead.

Good morning, guys. Just to follow up on that last question. I mean, what are the thoughts about, with the stock at a five-year low about accelerating the disposition program and buying back stock?

Well, it's been on the agenda. We're talking, we've talked about it with the board, we've analyzed it, and stock, we haven't been shy about buying stock back in the past, obviously. It really is a function of liquidity and how we feel about the liquidity in the market and maintaining a strong balance sheet. And to the extent that, that there is a spread between the Main Street value of our real estate and our stock price, we'll take advantage of those opportunities, and said at the same time, we obviously are not going to stress the balance sheet by borrowing, borrowing funds, short-term funds to buy stock to take advantage of that, and then hope that we can sell.

We'll sell before we buy, and we'll make sure that we balance it, pay down debt, and buy stock if, in fact, we chose to do that to keep the, the leverage neutral or actually even delever as a part of that.

Okay. And then, lastly, given the sort of political environment, and given the way that you guys think from a macro perspective, if somehow some way the homebuilders and all the other housing people out there are able to get a lame duck section of Congress to pass through a $20,000 or $25,000 home buyer tax credit and something that winds up lowering mortgage costs out there. I mean, what does that do over the next 12 months to apartments operating fundamentals? I would imagine that it's got to be a big issue from an outflow of people.

I don't think it is. I think the issue is, is that a lot of the people that were in apartments that moved out during the last recession, whether they got a tax credit or they, they got a no-doc loan, I mean, the problem is, is a lot of people can't, can't be underwritten and they don't have the income to do that, whether you give them a $20,000 tax credit or not. So at the end of the day, I think we have permanent renters that are going to be renters for a long time that, that are not reasonable home buyers and I will say, I don't think that the 20, that this tax credit is a foregone conclusion.

Let me just sort of back up a little. When the Fannie Mae housing bill was done so that Paulson could have his bazooka in the summer, National Multi Housing Council did a great job, which I'm currently chairman of National Multi Housing Council, so I, along with David Nethercutt and other leaders in the industry have pounded the table The Hill. We have a very well-organized group that has consistently said that, that these, these kinds of initiatives exasperate the problem of homeownership, exasperate the problem of an unbalanced housing policy. If you go back to that bill that was done, we originally had a $15,000 credit with no strings attached in the bill. They cut it to $7,500 and said it had to be paid back over a period of time, and so that was a big win for National Multi Housing Council. If you go back to that bill, the homebuilders were really upset about it because they got nothing out of the bill.

They actually wanted to expand the ability of homebuilders to go back two years, take their losses -- operating losses back more than two years, which would have been basically just the treasury writing the homebuilders a check, and we were effective in lobbying and negotiating that away, and it was a big win for apartments and a loss for homebuilders. But I think that Congress gets the fact that, that this whole giving people free money and moving them into houses that are unprepared for the, for the rigors of the idea of having to pay it back and make a monthly payment, they get that now that that's bad policy and we've been able to make sure that they don't do stupid things like that. But I do think that even if they did something like that, that you wouldn't have a raft of move outs from apartments to homes.

Okay. Thanks, guys.

Good.

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

Thanks, and good morning over there.

Good morning.

This is Rich here with the Grim Reaper. Actually, I was thinking your Michael Jackson song was good, Thriller, but you might have chose another song from him, Bad. I don't know, it was jut a thought.

Bad?

Another song he wrote.

That's a good one. He did write that.

Just a couple quick questions. I know we're running long here. When you talk about the spread between the bid and ask, everyone sort of says that, but can you quantify it? Like, is it 200 basis points or 100 basis points? Like what's the spread in numbers, do you know?

I think it's more like, I don't think it's 200 basis points. I think it's more like 75, but I also think that even the buyers don't know what they ought to be asking for. Okay. Because, like, when we sit in Investment Committee here and people -- our guys will bring in deals and say, here's a deal, and they underwrite it and all that, and we debate, well what should our bid be? And what is a great deal in this market? And I think the last 30 days when you've had this, just incredible tsunami in the stock market and capital issues, people don't know what the bid should be. And so while there is, I think a clear bid/ask spread, especially on deals like we're selling and others, it's not huge.

If somebody wants maybe a 3% to a 5% or 8% discount from what the seller's willing to sell it for, but I think the bigger issue, again, is, is that the big money that's on the sidelines, and I know, I can have, I know 7 or 8 people that have a combined capacity of $10 billion of ready money to go do deals today, and they're all going, I'm not sure what I should buy real estate for today given the markets, the debate of, gee, when Camden stock price is $26 a few days ago, that implied a 9% plus cap rate, or 9.5% cap rate on Camden's numbers.

If you sold Camden's real estate at 9.5% of true cash on cash unleveraged cap rate and you financed it with Fannie Mae debt at 6.25%, you would have a, nearly a 17% or 18% cash on cash return on your equity. Now, if that was available in the market today, I would be going and buying a bunch of 9.5% cap rate deals, but you can't. They don't exist. So, I think the answer is at the margins it's 50, 75 bips, but the bigger issue is that all that money, that $10 billion that I know of, of which we have about $1.5 billion of that, we, we don't know what to bid right now because of the uncertainty in the market.

Okay. The next question was going to be, you sold at 6% cap rates this quarter, and I was going to ask if you would be a buyer for good assets at 6%?

No.

Okay. Then, just a quick one, could you foresee anything in your future where you guys would have to reconsider your dividend policy, and cut the dividend noticing your not getting paid for almost a 10% yield and conserving capital that way?

I think you have to look at all alternatives and all scenarios. We have a lot of people that are, that are dependent on the dividend. They bought the stock for the dividend. The fact that the market, because of this incredible volatility and uncertainty in the world, is marking the stock down to a level where the dividend yield is really high relative to other yields. If that is persistent and lasts for a long time, then you've got to look at it and say, gee, what would the reasonable man say the dividend should be if, in fact, the stock prices at these levels stay at these levels forever, and if you had, if the capital markets don't open up in the future and if you have all of the, the probably the worst case scenario dominos and you have the Great Depression, sure you've got to look at that.

But I don't think we're anywhere near that kind of scenario today and we have a strong liquidity position. We're covering our dividend. We don't think cash flows are falling off the edge of the cliff. We're maintaining strong liquidity. I don't think we need to do it now, but I will, I will say we are pragmatic people that understand how to run a public company and understand the issues and would definitely look at that issue the way we would any other issue.

Okay. Great. Thank you.

Our next question will come from Alexander Goldfarb from a private investor. Please go ahead.

Yes, hi. Good morning.

Hi, Alex.

Just a question on the unsecured bond market. You guys have been active this year and just want to understand how deep the market is, how willing existing bond holders are willing to sell at, given where the bonds are trading, what your experience is?

That's an interesting question. I think that it, I think it's pretty deep. I think that, that especially the short dated to maturities. You have people that want to generate cash. I think the bond market is experiencing the same kinds of things that the stock market is, in that, in that they're getting redemptions and corporate bonds. When you look at the spreads on corporate bonds relative to treasuries, they're massive. And so people have been taking money out of corporate bond funds and some of the corporate bond funds are leveraged and they're having the same kinds of issues of having to generate cash, so I think there's a fairly deep demand for, for cash, and then that would imply that, that they're willing to take a discount to convert their bonds to cash today to meet their margin calls or their redemptions.

And as you look out into the market, would you consider taking other paper and other REITs that's trading at a discount where you could feel comfortable owning it?

No.

Okay. Thank you.

Our next question will come from Karin Ford from KeyBanc Capital Markets. Please go ahead.

Just a couple of quick ones. The $4 million cost savings, is that two-third, one-third split good as far as splitting it between the G&A and the operating expense line items?

No. No. Because the positions that were corporate would have been a higher average than salary than the on-site.

Got it. So more heavily weighted toward G&A?

Yes, that's correct. That's correct.

Okay. Just finally, you've mentioned several times that you're feeling good about the agency's availability and continued willingness to lend going forward in the future. Can you just give us any additional color about your latest discussions with them and the new leadership there and/or new regulator coming in and, and if you're expecting any changes in their posture going forward?

Well, we don't think that there's going to be any posture or change in posture in the near term. We are, we are talking with the agencies every week. As a matter of fact, we have a task force that's been put together that is joint National Multi Housing Council and the Harvard Study for Housing. As a matter of fact, on next Wednesday we have an Industry session in Boston with Industry leaders to go through discussions of a white paper that we're writing on, what you should do with Fannie and Freddie for the long haul.

We have a very stellar list of folks from Industry and from Macademia that are meeting at Harvard next week to do that and I'm on that task force. And National Multi Housing's number one priority this year is to address the Freddie/ Fannie situation as an industry, and not just read about in the paper. So we are actively involved with the administration, and once the new administration comes in, we'll have a better sense. Obviously, McCain has said he wants to break them up and sell the parts. Obama is a lot different than McCain on lots of issues, obviously, and especially Freddie and Fannie, as well.

So, we are, as an industry, working real hard to make sure that, that liquidity stays in our industry, and when you talk to people on The Hill, including Barney Frank and others who are, who are clearly going to be in the leadership position still, they are very supportive of Fannie and Freddie long-term and understand that it's hard to dramatically change this situation and very quickly. But the deal that was made by treasury to put Fannie and Freddie on better financial ground. It was actually sort of beat on big time by the democrats, saying that, that Paulson and Bush were trying to reach into the next administration by requiring Fannie to shrink their balance sheet beginning in 2010, and that document can be rewritten and changed by any, by the new administration or Congress or what have you.

We think that there's not going to be any change through 2009, and then the question is, it will just be debated and then ultimately implemented starting in '10 or '11.

That's helpful. Thanks very much.

Okay.

Our next question will come from Michael Salinsky from RBC Capital Markets. Please go ahead.

Good afternoon. Looking at your operating performance by market, it looks like Florida seemed to actually show some improvement just from a, from a quarter to quarter basis. Now was that a function of just using your comps or anything you switched gears doing down there or what are you seeing basically in that market?

I don't, I don't think that there -- no, it's not, I would say in Florida, the operating conditions in Florida have not improved. So it's, whatever, it could be expense, year-over-year comparisons on expenses. But when we look at our metrics on revenue and occupancy in those three markets, south Florida has never been as, has not yet seen anything like Tampa or Orlando with regard to degradation and, and pricing power, but south Florida continues to be a weaker market, but certainly not anything like Tampa and Orlando. And I would say that as we sit here today, you could -- it's pretty easy to see through the end of the year that you're not going to get much relief in the Florida market.

I was referring more towards Tampa and Orlando where it just seemed that the rate of negative growth in both of those markets seemed to actually decelerate essentially from the --

Yes.

The first quarter.

In Tampa and Orlando, part of it is an easier comp because if you go back to where we got hammered last year, it was third quarter last year coming out of the housing bust, and it was in Tampa, Orlando, Las Vegas and Phoenix, and really in south Florida we didn't really even see any material weakness until second quarter this year.

Okay. You talked about turnover. Has your ability to push for instant renewals decelerated materially from last quarter or --

Our ability to push rents, whether it's renewals or new leases, is roughly about the same as where it was last quarter. We think that going forward into Q4, we think we're going to still see probably a little bit of, of deceleration in the ability to push rents. But really on the renewals versus, versus new leases, in our revenue management world, you get a very slight discount for being a renewing resident, but it is what it is. We're pricing at the market.

Okay. Just given the Witten scenarios that you've laid out, when do you expect to begin developing on balance sheet again and where are hurdle rates right now for new development?

Well the, the -- when we decide to do development will be a function of two things. One is the, what, the -- how the markets unfold from, from an NOI growth perspective and how we see that going, which is part of a Witten analysis in our analysis that we'll do by market. And then the second part is the financing markets and making sure that the financing of these developments is done in a way that doesn't put undue strain on the balance sheet and create liquidity issues for us going forward.

And then, from a development yield perspective, I think we have a -- our original development yields, we're in the 6% range on the coast and 6.5% in sort of the, the middle of the country. Those rates have gone up. We haven't really settled in on what the ultimate target for a development is today. Sort of the same discussion about what we would buy at today, so we are working through our developments and making decisions likely in the first and second quarter of next year in terms of what our target rates will be and when our starts will be done and how they'll be financed.

Okay. And finally, a question for you, Keith. Just given your, given your guidance here, on the, as far as the Eagles, can you specify which song will be on the next conference call?

No. But I can -- before the call, I can get you a set list.

Probably In The Long Run or something.

In The Long Run?

Not Hotel California. [ LAUGHING ]

Thanks.

Maybe Witchy Woman.

Thank you.

Thank you.

Our next question will come from Paula Poskon from Robert W. Baird. Please go ahead.

Thanks. No fair, I was still laughing from the last one. [ LAUGHING ] I did enjoy the Thriller, although I had to explain to all the young people in my office who Vincent Price was. [ LAUGHING ]

That's a little bit of a generational thing.

Yes, no kidding. If I may, I'd like to spend just a couple minutes on the DC Metro market, specifically. First, do you see, how much of an opportunity do you see in the obvious transiency that's going to come with whatever the change in administration is? Do you think that's an opportunity there, or is it just not enough to move the needle?

Yes, I think that the -- we sort of, as we sit around and talk about the, the scenarios and we talk to our RBP up in DC, I think if you, if either, regardless of who wins next Tuesday, if you kind of take them at their word of what they're, of what they're going to immediately try to tackle, and this is, this is almost, you can go back and track this, but it's regardless of what change in administration happens, it results in a spurt of economic activity in the DC Metro area. I think, clearly, if you take them at their face, and you say, who's going to spend what?

If, in an Obama presidency, if, if the economy holds together, clearly he has a lot broader agenda on growth and programs and spending. But on the other hand, look at what's happened in the last eight years under a republican administration. We've had the biggest increase in spending since the New Deal. So I just kind of, I'm very skeptical and I kind of come out on the end of no matter who it is, they'll probably spend more.

Fair enough. And with the developments on the Dulles Metro, which now, at long last, looks like it's going to go ahead and what I'm hearing here on the ground is that they expect to start construction in March. And one of the things that we're hearing is that there's just simply not enough skilled labor to do all of the this work and we're going to have to import from neighboring states and those people all have to live somewhere. Are you guys hearing anything along those lines as you're projecting out your demand in this region?

We've definitely been hearing that, hearing the same thing. That's one of the reasons we like the Dulles corridor and that's why we have been developing Dulles Station and have land positions around there.

And we currently have availability at Dulles Station, so send them our way.

And just on this quarter in particular, it looks like expenses were up at a higher rate than usual in the Metro area. Is that attributable to something specific?

Yes, they were up across the board and it's primarily turnover rates in R&M spending. And a little bit of it is, if you look at year t-o-date in the, in total expenses, we're still only up in the 3.4% range across all the markets. Third quarter is always our highest turnover month. You're always going to see a sequential, a big sequential increase, but when it's all said and done at the end of the year, we think that those expenses are likely to be closer to trend.

One thing we did have in Metro DC numbers last year is we had a huge tax credit that came through in the fourth quarter related to one of our historical housing deals in the district, so you're probably going, we will see a higher than trend expense number for the year in DC, but it's really because of the tax adjustment in the prior year.

That's very helpful. Thanks. And then, lastly, just switching to Houston, it looks like pricing power is still healthy there -- excuse me, is that Hurricane Ike related or just the general regional economy down there.

We had an upward revision in projected job growth in Houston from the second quarter. The revision went up another 13,000 jobs, so I think it's just an economy that continues to primarily -- obviously, the big driver is the oil patch and you saw what Exxon Mobil reported and Chevron reported and these are huge drivers in this economy, and I guess the question that, that at some point people start fretting about is, is how different is the world in Texas at $60 or $70 oil than it was at $120.

Our take on that is, is that it's really not all that different because the, at the, at the margins, $70, $65, $70 oil, if we can stabilize in that range, still is very attractive for the gulf operations, the on-shore operations, in terms of finding new, doing exploration and development. And obviously the refining piece of it, which is a huge component of the oil and gas industry in the Houston Metro area, I suppose at $2 gas is better, than at $4 gas for them.

All right. That's very helpful. Thanks very much.

You bet.

Our next question will come from Haendel St. Juste from Green Street Advisors. Please go ahead.

Thanks. Keith, you actually took my question. I was going to ask you, at what level do you begin to worry about jobs in Houston and Dallas with how oil is traded lately?

Well, we have -- one of our board members is, owns and is chairman of several drilling companies and is very active in the oil patch and very knowledgeable, and he has always informed us and schooled us that it's really not so much about the absolute price unless the absolute price falls below the marginal cost of extraction. He thinks -- the last conversation we had, he still thinks that's in the $45 to $50 range. But what is an issue, and you may start seeing some impact of this, is that the volatility, if it was $140 three months ago and it's $60 today, could it be $40 in six months? Well, I mean, you can't rule that out because of the volatility that we've seen in the last four, so that piece of the equation, the prospect of it falling below the marginal extraction cost is a little bit -- it just puts people in a real defensive posture. But at -- if we can stabilize somewhere in the $60 range, I just -- Steve doesn't, doesn't believe that we'll see much impact on the Houston economy.

Yes. Okay. Looking at those markets, the Dallas, the Houston, the Austin markets, how would you grade those markets to a near term outlook using your grading system?

Oh, Houston's an A, Dallas is an A, and Austin's probably an A minus.

Switching gears for a moment. Looking, I guess going back to your earlier comment on Witten's analysis, assuming his numbers, 1.5ish negative decline for '09. How wide of a variance could you we see, as you look ahead into '09, how wide do you think the variance between your best and worst performing markets could be?

That's an interesting question. The, I think the variance could be pretty good. The worst markets are probably going to be, I guess just looking at the schedules, by market. Go ahead.

Haendel, the range on our challenge, non-challenged markets have, if you look at a big picture roll-up of our, of our full year for '08 is going to be 2.8%, let's call it 2.8% up in the goods and 2.5% down in the bad, and basically with the weighting puts you at our flat guidance for the year. I think that under almost any set of, of numbers that you want to run through the model, I would expect to see that that range actually narrows in 2009. And again, I think that it's just my view that we're a little further down the road on some of these job, job loss issues in the challenged markets than we are in the non-challenged markets. So it wouldn't surprise me to see that range come in '09.

Yes. Okay. One last question. Dennis, as you look at the line maturity upcoming, can you walk us through the requirement for the line extension? Is it simply as long as you're meeting your covenants, pay the fees, then it's essentially discressionless extension? What are the requirements there?

Yes, we actually had our legal counsel look at it just this past week to make sure we were comfortable with our process to extend, and as long as we're in compliance and we pay a 15 basis points fee, we can actually extend the line.

Simple as that?

Simple as that.

Okay, guys. Thank you.

Thank you, Haendel.

Our next question will come from Ee Lin See from Credit Suisse. Please go ahead.

Hi, thank you. What was the NOI decline in your weakest market in the last recession? And second question, regarding your balance sheet structure, are you planning to move toward a higher percentage of secured debt, as a percentage of your total dealt and if credit market did you do [ INAUDIBLE ] would you move back to lowering the secured debt?

I didn't hear anything past the NOI decline in the weakest markets in the last recession.

Oh. My other question was regarding the balance sheet structure, are you planning to move towards a higher percent of secured debt if the credit markets continue to be challenged? And then, conversely if credit markets improve, would you then move towards lowering the percent of secured debt?

The answer is no on going to short-term debt as evidenced by the $380 million transaction that we did with Freddie and Fannie, with the Fannie Mae, which was a ten year financing, so no we're not going to rely on short-term debt. Everything we're going to do is going to be long-term.

Sorry, sorry. I didn't say short-term secured debt. Would you move towards a higher percentage of secured debt if the credit markets continue to be challenged and then if credit market improve, would you then move towards lowering the amount of secured debt?.

Yes, I mean, currently with our covenant compliance on our unsecured bonds, we have the ability probably to put on another $350 million to $400 million of secured debt and not impact our compliance.

So, that's about what we could do going forward in moving move are more to secured debt.

When credit markets improve would you move become towards lowering the percent of secured debt?

Sure. It's all going to be based upon the differential and the actual spreads on those two products, but we would look on that based on current market conditions.

Yes. Thank you.

To answer your first question?

Yes?

The worst market in the recession on, on a one-year basis was Austin, Texas.

Yes.

And it was down, NOI was down 16.3%. And Austin is really a good example, because what was happening in Austin in 2001, as you recall, it was the hotbed of the tech industry in Houston or in Texas. They call Austin the Silicone Valley of Texas basically. You had all kinds, you had Dell Computer there, you had Intel building a plant. So what happened in Austin, the supply peaked right at 2001, and then all of a sudden the tech bust hit and you had massive job losses because of tech, and you had peaking of supply and then a big drop off of NOI during that period. So Austin was the worst market in -- in the peak one-year decline was Austin at 16%.

Do you think that any of your current markets could experience that big of a decline?

No.

Okay. Okay. Thank you, very much.

Thank you.

Certainly.

Okay. Great. That was the last call. So, we appreciate the lengthy call and all the questions and support. We will talk to you next quarter and see you there. Thanks.

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