Camden Property Trust (CPT) 2009 Q1 法說會逐字稿

Hello and welcome to the Camden Property Trust first quarter, 2009, earnings conference call. (Operator Instructions)

Now I would like to turn the conference over to Kim Callahan, VP of Investor Relations. Ms. Callahan.

Good morning and thank you for joining Camden's first quarter 2009 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 S.E.C. and we encourage you to review them. As a reminder, Camden's complete first quarter 2009 earnings release is available in the Investor Relations section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures which may be discussed on this call.

Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, President, and Dennis Steen, Chief Financial Officer. At this time I will turn the call over to Ric Campo.

I'm not taking any more calls but that's okay. Good morning. Hope you enjoyed the Grateful Dead music while you were waiting for the call to begin. We received a lot of e-mails about whether there was a subliminal message there, but really there wasn't. We just wanted to make sure the Deadheads in the room and on the call enjoyed the music. And I want to remind everyone that you can make your music requests any time to Kim Callahan anytime via e-mail.

Our first quarter results exceeded expectations primarily due to better core operating property results. In this difficult environment we're trying to find good news wherever we can. Since the beginning of the year we have completed our on balance sheet developments and have no additional capital to fund. Capital required for our development joint ventures is fully funded through construction financing that's in place. We made significant progress in our lease-ups of our new development. We have improved our liquidity through additional agency debt financing and also unsecured bond repurchases. Our Florida markets had sequential NOI growth over the fourth quarter. Our property operation outlook for the rest of the year remains unchanged from our previous guidance of a decline of NOI between 4.5 and 7.5%.

There continues to be a great debate over how apartment fundamentals will hold up during this 100-year economic flood. On the one hand, new supplies being shut down will likely post -- will likely be lowest since World War II. Demographics are the best that they've been in the last 20 years with echo boomers and new immigrants growing in numbers. The romance with single-family home ownership is clearly on the rocks. On the other hand these factors are offset by significant job losses that we've experienced in the last six or eight months. How these countervailing trends translate to apartment fundamentals by market will remain to be seen and unfold over the year.

Over the last few months there's been an interesting debate about which markets will perform better when the economy bottoms out and starts up again. Some have used the term FIFO, first in first out. We've developed a new term-- or a new acronym that we call WISO-- weakest in strongest out. Studying past economic cycles supports the premise that the deeper the decline the stronger the snap-back when growth returns. Witten Advisors has completed analysis of the weakest markets in 2008 where revenue was down 2.3% compared to the best markets in 2008 where revenue growth was up 2.8%. Witten projects 2011 revenue growth of 2.4% for the 2008 weakest markets compared to 1.7% revenue growth for the 2008 strongest markets. Kim would be happy to share this data with you off-line after the call.

The interesting analysis here is that the weakest markets are actually becoming more competitive from a business perspective as a result of their weakness. Affordability, cost affordability of being in those markets is down obvious with housing prices declined. They have a plentiful workforce by virtue of a lot of people that need jobs. They have pro-business and growth environments compared to some of the east coast/west coast environments where people continue to flow out of those markets as a result of the cost of doing business. They have great airport and transportation access, and they continue to enjoy good weather and all the things that drove people to these growth markets in the first place. With all that said, we will be talking about WISO a lot, and we'll give you some additional data on that in the future.

I want to take this opportunity to thank our over 1800 Camden team members for their hard work and commitment to providing living excellence to our residents. We ask our people to outperform their markets in spite of market conditions. We are outperforming all of our direct competitors in all of our markets. Keith and I just completed a 16-city tour where we held our annual Ace award meeting celebrating our people's achievements over the last year. We use this opportunity to reinforce our commitment to our people and to make sure they understand how we think about getting through these economic challenges.

We think it's critical that our teams have a game plan on what we call coping with the chaos. Here's what we told them. First, integrity first, last, and always. Second was turn off CNBC. The moderators know less than you do about way forward. They are entertainers, don't listen to them. Get in the best physical shape of your life. Enroll your spouse, significant other or partner. If you don't have one, get one. Communicate with your teams up, down, sideways, then do it again. Focus your time and energy on things you can control. Don't terriblize about things you can't control. Focus on what you actually can control. These basic ideas help ensure that our people are focused and getting more from their properties than the market has to give. At this point I will turn the call over to Keith Oden.

Thanks, Ric. Relative to plan we got off to a pretty solid start in '09. As Ric mentioned, strong property operating results were the primary reason for the outperformance for the quarter. Viewed in absolute terms, however, there's much less reason to cheer. 13 of our 15 reporting markets posted quarter over quarter NOI decline with only Houston and Dallas in positive territory. Collectively we experienced a 3.8% same-store NOI decline from the prior year quarter. Sequentially, 12 of our 15 markets experienced NOI decline, with only our three Florida marks avoiding a quarter over quarter decline. Overall occupancy of 93.6% was basically flat from the prior year and the prior quarter as we have adjusted our pricing to avoid losing market share. Our latest occupancy report showed a portfolio wide occupancy rate of 94.2% so we appear to be holding our own with regard to occupancy rate. Weighted average rental rates are down 2.6% from the prior year and down 1.6% from the prior quarter. Overall traffic declined in the first quarter from last year by roughly 6% with the largest declines occurring in Austin, Denver, and our California markets. Our turnover rate for the quarter was just under 50%, which was down 3% from the first quarter of 2008. That's a trend that we are continuing to follow closely.

The turnover rate has been trending down, and we view that as a very positive development, and I will share with you the reason for that in just a moment. Despite a quarter where we outperformed our guidance, it's still tough sledding out there. Most of our operations outperformance came from higher than budgeted occupancy rates and excellent controllable cost containment by our on-site teams. Given the challenging employment outlook we are continuing our focus on lease renewals. We have a very focused and aggressive renewal program in place and it's getting good results. The importance of renewing existing leases cannot be overstated. In the first quarter our average lease renewal rate was 7% above our average new lease rate. The gap narrowed a bit from the fourth quarter as we lowered renewal rates to maintain our existing residents.

The first quarter average new lease rate was down 2.5% from the fourth quarter but our average renewal rate fell by 4.5% from last quarter. Our percentage of move-outs to purchase homes hit an all-time low of 10.9% for the quarter, down from 14% last year and from 25% at the peak of the subprime housing mania. Since this statistic is the best proxy we have for how much impact the over supplied single-family home market is having on apartment owners, it's something that we follow with great interest. Interestingly, the markets that have the greatest single-family inventory glut had the lowest percentage of move-outs to purchase homes. California had a -- at 6.3% had the lowest move outs to purchase homes followed by Las Vegas at 8.5% and Florida at 9%. So despite plummeting home prices, the lowest mortgage rates in 50 years, tax credits, foreclosure fire sales and the highest inventory of unsold homes on record, we are still setting records for the lowest number of our residents moving out to purchase homes. This reinforces our belief that the economy and employment rates are far bigger issues for apartment owners than home ownership.

We are closely monitoring the financial health of our resident base. We did experience an increase in our residents who indicated they moved out for financial reasons, from 8.1% in the fourth quarter to 10.5% this quarter. This increase, however, was roughly offset by a decline in the number of skips and evictions for the quarter. Our bad debt expense for the quarter was 0.9% which was up slightly from the 2008 level, but still below the 1.1% peak in the 2001-2002 downturn. For the quarter, our same-store NOI declined by 3.8%, revenues down 0.5% and expenses up 5.5%. Revenues were higher than planned and expenses came in well below plan.

The expense number for the quarter over quarter comparison looks high for two reasons. First, the comparable quarter in 2008 had several adjustments, and therefore our comparison was to a 1.6% increase in expenses in the first quarter of 2008. Secondly, our expense number includes costs associated with our valet waste and perfect connection programs. Adjusting these quarterly expenses for the comparison to our peers would indicate roughly a 3% expense growth for the quarter. In any case, we're very comfortable that our full year expense growth will be at or below our initial guidance levels. At this time I will turn the call over to Dennis Steen, our chief financial officer.

Thanks, Keith. I'll start my comments with a review of Camden's first quarter results. We reported funds from operation for the first quarter 2009 of $51.6 million or $0.88 per diluted share, representing a $3.6 million or $0.06 per diluted share improvement from the $0.82 midpoint of our prior guidance for the first quarter of $0.80 to $0.84 per share. The outperformance for the quarter was primarily the result of the following three items. Property revenues exceeded our expectations by $1.1 million, primarily due to the higher average occupancies for our stabilized communities as Keith mentioned earlier, and better than anticipated leasing velocity for our six completed development communities under lease-up which are now 80% leased on average.

Property expenses were $1.6 million lower than anticipated, the result of our communities' continued focus on reducing discretionary spend, lower utility costs due to lower than anticipated natural gas and electricity rates, and lower employee benefits costs due to a decline in medical and Workers' Compensation insurance claims, and third, property management and G&A expense which totaled approximately $13.2 million for the first quarter, or $600,000 below our plan. This favorable variance is primarily the result of our cost control measures reducing travel, entertainment, and other discretionary expenses, and lower legal, accounting, and miscellaneous professional fees. As a reminder, G&A expenses did include approximately $1 million in severance costs related to our reductions in headcount that we announced and completed in January of 2009. On the transaction front, there were no acquisitions or dispositions completed during the quarter. Camden West Oaks in Houston, Texas is the only operating community currently held for sale. It is currently under contract with approximately $2 million in hard earnest money and is expected to close in early June.

Moving on to capital activities and our liquidity position, we continue to be highly focused on navigating through the prolonged credit crisis, and we have made significant progress over the past several quarters in further strengthening our balance sheet and liquidity position. On April 17th, we closed on a new $420 million Fannie Mae secured credit facility. The facility has a 10-year term, is interest-only, and has a fixed rate of 5.12%. We have used the proceeds of this new facility and the $380 million Fannie Mae facility completed in September of 2008 to fund secured and unsecured debt maturities which matured over the past two quarters to pay down all balances outstanding on our $600 million unsecured line of credit, and to repurchase and retire approximately $325 million of unsecured notes originally scheduled to mature in 2009 through 2012. Please refer to page 21 of our supplemental package for our debt maturity analysis as of today which incorporates the $420 million Fannie Mae facility and the $180 million in debt repurchases completed in April.

As you can see, we currently have no balances outstanding on our $600 million unsecured line of credit which after all extensions matures in January of 2011, and our scheduled maturities over the next three years are very manageable with $82 million in unsecured senior notes maturing in the remainder of 2009, and $186 million in total maturities for 2010 comprised of $48 million in maturing secured notes and $138 million of maturing unsecured notes. Our liquidity position is sound, as we have full availability on our $600 million unsecured line of credit. We have no significant funding requirements for development activities as our 100% owned development projects have all completed construction and current joint venture development activities will be funded with existing construction loans. And we still have the ability to add between 400 to $700 million in new secured debt based upon the terms and use of proceeds of the new debt. The higher end of this range is dependent upon using the potential secured debt proceeds to repurchase outstanding unsecured notes, thus reducing unsecured interest expense and creating more capacity under our debt covenants.

Moving on to 2009 guidance, due to our slightly better than expected performance in the first quarter of 2009, and $0.02 per share in gains related to the repurchase of our debt completed through April, we have increased the lower end of our full year guidance range by $0.05 per diluted share and now expect full year 2009 FFO to be between $3.20 and $3.45 per share. For the second quarter of 2009 we expect projected FFO per diluted share within the range of $0.82 to $0.86 per diluted share. The midpoint of $0.84 per share represents a $0.04 per share decline from first quarter of 2009 resulting primarily from the following -- a $0.04 per share decline in FFO due to lower property NOI, as a projected 0.5% sequential increase in same property revenues and additional revenues related to the lease up of our completed communities and our development pipelines will be more than offset by our expected seasonal increase in property expenses that we experienced in the second and third quarters of each year. A $0.03 per share decrease in FFO related to an increase in interest expense as interest expense on our $420 million 5.12% secured 10-year facility which we closed on on April 17th is greater than the interest savings resulting from the use of proceeds which was the paydown in balances outstanding on our unsecured line of credit and the repurchase of 180 million of our senior unsecured notes completed in April.

The above two negative variances will be partially offset by a $0.01 per share increase in FFO due to lower G&A expenses primarily due to the $1 million severance charge recorded in the first quarter of 2009 related to our headcount reductions, and lastly, a $0.02 per share increase in FFO due to net gains on the early retirement of $180 million of our senior unsecured notes that we completed in April. Our guidance does not include any potential gains on future repurchases of debt. At this point we will open the call up to questions.

(Operator Instructions) Our first question comes from Rob Stevenson at Fox-Pitt Kelton.

Good morning, guys. Question, Keith. What was the trend during the January to April period in terms of occupancy and the use of concessions? Did it accelerate each month, or did you reach a point during those four months where it sort of leveled out for you?

Well, Rob, we don't -- the occupancy has stayed really in a tight band for us. We ended the quarter at roughly 93.7%, and we've kind of bounced around that percentage on average throughout the quarter, so there wasn't any big change there. Post the end of the quarter, we went above 94% for the first time in probably 12 weeks, which that's some good news on picking up on occupancy.

In terms of the trend on concessions, we used a revenue management system, Yield Star, that really doesn't deal with concession pricing, but I would say that from our competitor's standpoint, the folks that are in our markets that still do use concessions to get to their net effective rents, there's no question that the trend of the use of concessions increased in the first quarter. So we're -- our pricing ultimately reflects to some extent what our competitors are doing. It's a factor in the equation for our pricing model. It's not the main factor. But obviously it does get into the mix at some point, and there's no question that our competitors' use of concessions has trended up.

Okay. But from a price -- then from a pricing standpoint, rather than a concessionary period, it wasn't like it was a step function down each successive month for you?

No. It out of the fourth quarter last year, and a little bit kind of depends on market to market, but overall I would say the trend from the fourth quarter has been heavier use of concessions, but I don't get the sense that at the end of the first quarter we had a material difference than what we were dealing with in January.

Okay. And then in terms of the underwriting standards that you guys are using today have there been any sort of material tweaks to that, especially in some of your weaker markets?

When you say underwriting standards, you're talking about underwriting for acquisitions?

No, sorry, for residents, in terms of stuff that previously would have disqualified somebody or a score which you previously wouldn't be willing to take, but now, given the foot traffic, et cetera, that qualifies as a better quality of rent or somebody who you are willing to roll the dice on?

Absolutely not. We haven't changed our underwriting criteria. It's really important to talk through that a bit because fundamentally we could fill our properties up to 100% occupancy if we took everybody who came in the door. The problem, however, is your bad debt would skyrocket and you'd end up with a situation where your revenues are probably lower than at 94% occupancy. So the old trick of trying to lower your credit quality and credit standards to buy occupancy or to sort of try to combat a weak environment is a fool's game.

Okay. And then, Ric, have you guys been seeing any -- I know you're not going to start any developments in the near term, but have you guys been out there and seeing any real deals from banks, rather sellers for land for something that you may be willing to start in the back end of 2010 or 2011?

Not really. The land market today is basically shut down. While you see anecdotally land being sold by home builders that are forced to sell, you see that, but we haven't seen any precipitous drop in land or any incredible deals that are going to make us want to go out and jump on those transactions. I still think there's a fairly large bid/ask spread on every kind of transaction, and land tends to be the more difficult one to sell today.

And then one quick one for Dennis. Dennis, you said you have 400 to $700 million of secured debt capacity. I'm assuming that's before you trip any covenants.

Yes, that's definitely before we trip any covenants and still stay in compliance with our current rating with our agencies.

So you have about that much capacity before you would be at real risk for a ratings agency downgrade?

Yes.

Okay, thank you.

You bet.

The next question comes from Michael Bilerman at Citigroup.

This is [Eric Wolf] here with Michael. I guess just going off this WISO theory that you put out there, you mentioned that your sequential growth numbers were showing some signs of potentially bottoming, your hardest hit markets-- NOI grew in Orlando and Tampa, it was flat in southeast Florida. What are you seeing there? What kind of visible signs are you seeing of the bottom?

Eric, I got about half of that question. Could you get closer?

Sorry about that.

That's much better.

Okay. I was saying that your sequential numbers seem to show some signs of firming, especially in some of your hardest hit markets. What signs are you seeing of a bottom there?

I think the Florida numbers which all three of those markets had sequentially looked a little bit better, I think when you dig into it, the bulk of it was an occupancy pickup. A little bit of -- very small amount of rent growth. I think it's way too early to be declaring victory in the Florida markets. I think that we've done a good job of getting our occupancy back to levels that we're more comfortable with long term. We didn't have to -- the good news is we didn't have to discount rents as heavily as we have in some other markets to get that occupancy, but Florida is still going to be a challenge for us throughout '09 and into early '010. So the quarter is a little bit too soon and not enough of a run on that kind of metric for me to get a lot more constructive on the overall market in Florida.

Okay. And so I guess in your other markets, excluding the Florida markets, some of the weaker ones, does the fact that the affordability gap has closed a bit sort of temper any enthusiasm you have for recovery in these markets, or-- like you said before was the fact that the historical move-outs to purchase homes are so low that government stimulus isn't taking effect? What are you seeing there? Is there any marginal interest from first-time home buyers?

I think the answer to that is clearly the home buyer, even the first-time home buyer, is hesitant to get into the market, given the uncertainty in the economy and the uncertainty from a pricing perspective. I think Phoenix hit the magic 50% down on the -- in terms of home prices in the last month. So that's keeping people on the sidelines big time, and the whole idea of these countervailing trends, from a supply perspective, the demographics and the single-family home purchasing being very muted I think have helped keep the multifamily fundamentals, even in the weakest markets, actually pretty good relative to how bad the markets are from an economic perspective.

And so on the one hand, if we actually had people moving out in droves like in the last cycle to buy homes, these numbers would look a lot worse, and we would definitely be in a much, much more difficult situation from an operating perspective. I think, however, you do need to look at and think through what -- how the multi-family market really works over the cycles. And we are a lagging business in the sense of what happened six months ago is reflected in our numbers today. So these job losses that happened in the fourth quarter and the first quarter really affect the summer, and so the real question will be whether or not these positive forces, people not buying homes, not a lot of new construction out there, supply down, whether that has a dampening effect on the negative job growth that the last six months has produced.

That's why I think -- I don't think will you find anybody in the industry that is putting too many rose colored glasses on and saying, gee, there's a bottom at this point. That's why we hadn't changed our NOI guidance down. But it really will be interesting to see how it all plays, but I don't think that the single-family home market is going to negatively affect us in the short term because people just don't have confidence to go buy homes, and, in fact, you have to put up real money to buy a home today.

I think just to add a footnote to that I think the biggest single impediment that our resident base has is the ability to come up with the new required, actual downpayments. I think from a-- if there's an investment psychology that's changed, that Ric talked about, but there's also a real serious barrier to our average resident in being able to buy a home and come up with the requisite down payment. I still believe that even though 10.9% move-outs to home purchases, the lowest we've seen in 20 years, I still believe that could go lower and in the next quarter we may actually see a single-digit number.

Great. Thank you for the info.

Next question comes from Jay Habermann at Goldman Sachs.

Hi guys. Good morning. Question again on sort of WISO. The thought that some of these job losses, housing, retail manufacturing, do you think that changes at all the recovery in the job growth as we emerge from this downturn?

I don't think it does. I've pressed our economists and the people that look at these numbers for us. When you get down to it, the reason these markets are growth markets over the long term is because they have pro business environments, they have affordability, they have all the things that made them growth markets in the past are going to make them growth markets in the future. The key is getting the economy back on track, and that's really the fundamental key. I don't think you're having a sort of a secular change in how these marks have been -- have fared over the years. When you look at immigration, you look at population trends, you look at the rust belt isn't adding jobs, and the rust belt continues to have lower population growth and what have you. Young people, when you look at demographic aspects of the echo boomers-- the echo boom generation, you have a situation where those young people go to these markets that have jobs that are interesting markets that have decent weather and all the kinds of things that have driven those markets over the last 20 years, I think stay intact minus this economic debacle we're in.

So you think a Florida or a Phoenix would recover sooner than say a California?

Absolutely.

Okay. And just switching to D.C., obviously you guys showed some pretty remarkable progress on the leasing front and the developments. Can you give some comments in terms of what you are seeing? Are you adjusting pricing or is it really the strength of the market?

I think it's a combination. We clearly have adjusted pricing. I think everybody in the market place has adjusted pricing based on more concessions in the market, but it's also the strength of the market. Washington, DC is definitely a bright spot fundamentally in the country for all the reasons that we all know, and -- so it's a combination of those two things. During the fall and the winter leasing season was particularly tough, and we've definitely seen a pickup in traffic and a pickup in the number of leases we've been able to make in that market.

And where are yields today for those developments for those projects, or where do you expect stabilized yields to end up?

They haven't changed since our comments on the fourth quarter. One of the biggest problems you have today is sort of saying what is stabilized, and when is stabilized. We pushed our stabilization dates back and generally -- if you assume that your concessions that you have sort of never burn off and that's the new base rate then our numbers are down about 100 basis points from our previous numbers where we were talking about six to seven and we were sort of in the mid point and now we're 100 basis off of that in the 5.5 to 5.75 zone. That's assuming that your concessions never burn off and you don't have any up tick.

And where do you think returns on new developments might be, or where do you think you get excited in terms of putting new capital to work?

We wouldn't start a new development under 8.

And just last question. In terms of active sales, you mentioned one property that's underway, could close by June. Any further thoughts there?

We are looking at the market, and it's likely that we'll have additional asset sales that will feather in towards the end of the year.

In terms of dollar amounts are we talking 100 to $150 million or less than that?

It depends on the market. With the agency debt today at the pricing that it is, even though there's not enough sales to actually make this a trend, but I can rattle off a bunch of one off deals in the 20 to $50 million that I know of, that are selling in the 6.5% cap rate-- 7% cap rate zone with good agency down on it and I think what's happening is you do have capital out there that needs to find a home, and they are buying multi-family properties, so to the extent we can execute in that zone we will execute, and the number can be anywhere from $100 million to $300 million. Alright thank you.

The next question comes from Alex Goldfarb at Sandler O'Neill.

Good morning.

Hey, Alex.

I just want to go back to your comments on rent and such. Do you think in this cycle there's been a much sharper drop in rent such that we're going to get continual revenue declines as the old rents burn off, but maybe the incremental step-down for rents moderates or do you think that we're in for another roller coaster ride over the summer of sharp rent declines?

Well, I guess that's the question of the quarter-- or question of the next quarter. In terms of-- from an historical reference standpoint, the gap that we see right now from new leases to what we're renewing leases at is as large a gap as I've ever seen. Some of that is the fact that we're in a period coming out of the first quarter, always our lowest and slowest leasing period, so you're always going to have a tendency to have a little bit less pricing, be a little more aggressive in bringing those new leases in. The second thing is, is that we, in our industry, the lowest common denominator of operational prowess is still pretty low.

And part of that comes from absentee ownership, third-party management, et cetera. But if you get outside the public companies and a handful of well run private companies there's still a lot of less than stellar operators out there. And one of the things that always happens when you-- when the economy hits one of these pockets is the first thing that happens is vacancies tick up. The knee jerk response by the unwashed masses is that they pile on concessions, those get into-- at some level get into the marketplace and influence our rents. When that occupancy rate ticks back up, all that reverses and it can reverse pretty quickly. Our expectation is the amount of pressure that we saw in the first quarter of this year, we saw a pretty decent leg down or step down, as you called it.

I think that as we get into May, June, and much better leasing and traffic seasons for us, we should see that gap begin to close some from renewals to new leases, and I think that's how we get through. In our case -- we came into this year with 93.7% occupied, we have a plan that we laid out that has a slight increase in occupancy over the year. I still think on the last report we got over 94%. I still think there's an opportunity for us to pick up a little bit of revenue relative to plan, and frankly, relative to the peer group in occupancy. It's going to be very interesting to see how all of this plays out throughout the summer. So stay tuned.

Okay, and then just switching to the line of credit for a moment. I think it matures in January of '11-- what are the discussions like with your bankers? Is it still looking to be unsecured or are they suggesting that it could possibly be secured?

No, we've had no discussions of it moving into a secured line of credit. The pricing will probably change pretty dramatically, and the amount of the line might get pared back maybe 10 to 20%. But other than that we still are envisioning an unsecured line of credit.

Okay and then just final on the capital side. Pricing on the unsecured markets had tightened nicely. There was a nice deal from Starwood and obviously Ventas came out, as well. Inside of where Simon's deal was and also equity prices have rallied. What are your thoughts on the unsecured and on the equity markets?

Our thoughts generally on all of the markets is we evaluate the best use of capital or the best source of capital that we can put on our balance sheet long term and we're evaluating all the various sources of capital and how they affect our long-term position, and we'll look at every aspect. We're very happy about the unsecured market. Clearly with the Starwood deal at below investment grade with an 8.75% rate, that's pretty encouraging. But it also is still very wide of a 5.12% rate that we secured on our $420 million agency financing. So, that gap does need to narrow and your multi-family does have the significant benefit of having the agencies and being able to feather in secured debt. That's just one of the capital sources that we look at, and when you look over the long term you just have to be able to use all the capital sources to your advantage.

Okay, so is your view, then, I mean, if the gap remains wider than would you like, would you ultimately find yourself just going secured, or at some point you would pay up to issue the unsecured?

No, we'll always be an unsecured borrower. At the end of the day when you look at the -- in periods of time there has been a smaller gap between secured and unsecured the long term, the unsecured market is a deep and liquid market and it would be very short sighted for companies who have investment grade ratings to abandon the unsecured market.

Thank you.

The next question comes from Michael Salinsky, RBC Capital Markets.

Good morning. Real quick, I believe it was Rob's question. He talked about the occupancy change from month to month. Have you seen any rate of change necessarily in the gap between new leases and where they are being reset at-- has that gap widened from the beginning of the year or has it held pretty much steady?

No, we're about where we started the year at, Michael. Again, the gap is wider than -- is at one of the widest points that I've ever seen, but from January through March, and then trending over into April, it's about where it was. Now, I think I still believe over time that gap will narrow, and I think that the fact that we saw our renewal rates come down a little further in the quarter than our new lease rates is an indication that that's happening.

Okay, that's helpful. Second question, probably more for you, Keith, when you look at a market like Phoenix and you look at Florida, this goes along the lines of the LIFO or WISO comment. Do we need a necessary stabilization and clearing of single family inventory before multi-family fundamentals return or could multi-family pick up concurrently with single family returning?

To come back to a position we've held for almost two years now since we were first into the single family mess in Phoenix and the Florida markets, I still believe that it is far more important to our business, what's going on in the overall economy specifically with regard to employment than it is what's going on in the single-family home market. And I think probably the best indicator of that is that in Las Vegas, where by any set of criteria you want to use for the single-family home market, it is either one of, if not the worst, set of data on the single-family home mess, it's certainly in the top or bottom three. And yet in the quarter, we only saw 8.5% of our residents move out to buy, and only about 2% moved out to rent a single-family home.

Now, when I compare that to where we were in Las Vegas three years ago, four years ago at the peak of the run-up in home prices, where we were seeing 24, 25% of our residents moving out to purchase a home, and then I look at it and say, you went from 25 to 8.5, which, by the way, is about 50% of our long-term average for move-outs to purchase homes in Las Vegas, I look at that, and I say, relative to where we were four or five years ago, we actually have a net benefit of the current housing mess.

Now, and I would say further, if we woke up three or six months from now and caught lightning in a bottle and all of a sudden you saw employment tick up in Las Vegas with the kickoff of some of the -- and staffing of some of the new projects, I would tell you that, yes, we could get -- you could get a very constructive result in the multi-family rental market occasioned by an increase in employment rates and still have the single-family home market in Vegas be a train wreck. So I think those are -- I mean, they're related, and I'm not -- and we've never suggested that housing inventory doesn't matter. It matters around the edges, but what really matters to our portfolio, because of where it's positioned, is employment.

All of the Witten numbers that we have looked at on sort of the WISO scenario include the impact of the single-family market both from an affordability perspective and an excess inventory perspective and a shadow supply perspective. So even when you put those metrics in the econometric models that we're using to sort of project revenue growth in the turn, those weaker markets still come out on top of the ones that sort of went into the cycle last.

That's very helpful. And finally, Rick, any update you could provide on what's going on, lobbying efforts on Capitol Hill and what you're hearing most specifically as it relates to the NMHC multi-family that would be helpful.

Sure. We are spending a great deal of time talking to the new administration. As a matter of fact, I had dinner with the housing secretary last Thursday in Atlanta, and with several of the industry leaders in the -- and the president of the multi-family housing, Doug Bibby, so we're staying very close to the administration. And, I will tell you. Based on the dinner that I had with Shaun Donovan last week, I was very encouraged by that dinner, because I started hearing things like balanced housing policy, and, he specifically said that based on the past, and he wasn't blaming anybody, he just said that multi-family and the rental business had definitely been sort of shoved aside and the single-family home business had been pushed to the forefront, and that in his administration and his view is that we need a more balanced housing policy where we aren't pushing consumers one way or the other, they can make their own decision. So I was very encouraged by that.

We had some discussions also. We've had numerous discussions, including the housing secretary, about Freddie and Fannie and their status, and when we had those discussions, it was kind of an interesting sort of feedback from him. He basically said, well, what do you think we just did? We increased their funding. They're an incredibly important part of stabilizing housing overall, and they have a mandate to provide liquidity and stability to housing and multi-family to the housing; it's housing, and we want a balanced housing policy. So I felt very good about that conversation, and we're continuing to have additional conversations with the various folks on the hill.

That's encouraging. Thank you.

You bet.

Our next question comes from Karin Ford at KeyBanc Capital Markets.

Hi, good afternoon. Just one more question on this WISO theory. If WISO turns out to be true can you give us your sense of what would be Camden's top two or three markets under that scenario and its bottom two or three markets under that scenario?

The top markets, interestingly enough, when you look at the Witten Advisors information, include -- his top -- I'll just kind of rattle them off for you. The top 2011 revenue growth would be Phoenix, that's number one, Orlando is number two, Denver is number three, San Jose is number four, Raleigh is number five, Atlanta is number six, Dallas is number seven, Sacramento is number eight, and Portland number nine, Washington, DC number 10, and Houston number 11. And the range of revenue growth goes from the top in Phoenix, 7.3% revenue growth, to the low in Houston of 3.6% revenue growth.

And so the median is probably somewhere in the 5.5, plus or minus. And it's interesting, if you look at the fourth quarter revenue growth, there's only one or two markets on the top revenue growth in the fourth quarter that make it to the top revenue growth in 2011 -- I'm sorry, there's three. That would be San Jose, Portland, and Denver. San Francisco drops off the list, Seattle, Salt Lake City, Oakland, Cincinnati, San Diego and Columbus, Ohio.

that's interesting. Just switching over to cap rates, what's the cap rate on the West Oak sale?

Cap rate on the West Oak sale is a little over 7.

And are cap rates at all at a point where you guys are thinking about being active in the investment fund?

We're looking at a lot of transactions in the investment fund. The cap rates are interesting. The real question ultimately is how do you underwrite the rest of 2009 and into 2010 from an NOI growth perspective, or a decline perspective. And so we're being very cautious and sort of waiting for more price discovery this summer and a little more clarity on the economy.

Makes sense. Just last question, just on leverage and kind of the new world. Looks like you guys, on a debt to EBITDA basis are a little over 8 this quarter. Can you just talk about how you guys think about leverage in the new environment, even given sort of Fannie and Freddie being available for you guys?

I think in the new environment, companies maybe have less leverage. And I think over time, the over the next few years, we are going to be de-levering like most of the industry, and it's a -- definitely we're going to de-lever, hopefully through growth in 2011 and 2012, and also asset sales, but I think fundamentally leverage does need to come down.

Do you think issuing equity would be part of that plan as well?

Issuing equity at some point clearly lowers leverage. It's as -- I said earlier, the capital source you have to look at, and the key is making sure that you are using whatever capital source is out there at the best possible time for the long-term view of the shareholders.

Great, thank you very much.

You bet.

Our next question comes from Richard Anderson at BMO Capital Market.

Thanks, Good morning to you guys.

Good morning, Richard.

the bad debt number of 0.9%, and you said you peaked at 1.1 five or seven or eight years ago, how likely is that to just blow past that peak? It seems like it's so close to the already, and we still haven't begun to think about the implications of all the job loss that we had up to this point. Is it real -- is it reasonable to think that that could go 1.5, 2% even?

That would -- you'd have to get a lot more bearish than I am right now, and I'm somewhat bearish to envision a 2%. The reason I say that, Rich, is that we have -- you think about where we are today. The job loss scenario, somebody loses their job, if they can't -- that becomes almost an immediate issue in terms of bad debt, so you see that impact pretty quickly. There's really not a lag there. If you think about where we are so far in this cycle, we've lost some where in the range of 5.5 million jobs.

Clearly a fair amount of those have come out of markets that we're represented in, and yet through all of -- by the way, in our case, much of that was happening going back to really third quarter '07, almost throughout '08, in our most affected markets, and yet our bad debt for last year, for the year, was about 0.8%. It really has more to do with how you go about your qualifying process. I suspect that some of our less discerning competitors and brethren will lower their credit criteria to maintain occupancy, and they will get beaten up in bad debt, because it will always come back around to get them.

If you maintain your credit quality then your risk is that your residents lose their job, can't double up with someone, can't find a new job, then ultimately that gets into your bad debt equation. So that kind of gets back to your macro view. If we think that the -- if you see another five or six months in job losses like we just saw the last three, then that's going to put -- continue to put pressure on our resident base. But we don't think that's going to happen, and so we think that maybe we've turned the corner on the worst of it. And if you kind of filter through another two or three million job losses, which I think that's probably takes you around the consensus view of the peak in unemployment, given what we've already lost to date and the impact on bad debt, I'd be reasonably hopeful that we could keep it somewhere around the 1, 1.25%.

Do you have any idea what percentage of your tenants are unemployed?

Where the residents are employed?

No, how many are unemployed. Can you monitor that?

I don't think so.

I would say it's a fairly small number, because unemployed turns into a skip or an eviction within 30 days.

we have this fundamental premise in our industry, if you don't have a job, you can't pay the rent.

Some people have money left over.

That gets back to that capital formation, and how much cash our average resident has sitting in their bank account they can get to, which I think is -- I think that's probably the biggest issue on home purchases, so my guess is that they're not well situated to ride out six months of unemployment.

Would you say -- this is probably an obvious question, but would you say, given that you've got nothing going on on balance sheet with development right now, new development, would you be first to start acquiring assets in the fund or develop the next project? What will happen first?

I would think that from a fund perspective that we'd be acquiring before we develop. I do believe that development, because of the lack of new supply that's going to be in the marketplace in 2011 and 12, will be a very attractive place to be sometime at some point. The question will be where is the inflection point and where do you see the opportunity. I mean, when you look forward, if you assume that when we get through this 2009 and 2010 employment bottoms, and you start having growth back in 2011 and 2012, 2012 looks like it could be one of the most aggressive rent growth and double-digit NOI growth kind of time frames that we've seen in the last 15 or 20 years in our business.

And so if you can deliver into 2012 or 2013 into the strongest markets, you could be the only one in town there. And given that the merchant builders are basically out of business today, and have shed their development teams, it's going to take some time for them to build back, and it's going to take a lot longer for them to recapitalize their companies to be in a position to deliver. So it will be interesting to see how that plays. But I would say today acquisitions definitely are where the -- where the focus is going to be, and then once you feel better about the inflection point on the economy, then development will come into play.

Okay, great, thanks. Let me get back to CNBC now.

There you go.

We have time for one more question, and that is from Paula Poskon at Robert W. Baird.

Thanks very much. Good afternoon. I might have missed this in your prepared remarks but do you have any changes that you would make to your market report card from the last call?

You know what, I was probably overly pessimistic on south Florida. South Florida was a D, and it was grouped with Atlanta, Tampa, and Charlotte, and based on first quarter results, it doesn't deserve to be with those three, and those three don't deserve to be an F, so I would have moved south Florida up. I'm still sticking with my F in Phoenix though.

Fair enough. Thanks.

You bet, thank you.

Just to follow up on Mike's question on the single family, do you have any -- can you provide any color on any change that you're seeing in the rental competition from shadow supply? Anything different?

we track move-outs to purchase and move-outs to rent, and move-outs to rent was 2.7% in the quarter, and that's up from about 2.3% last quarter. So, yes, not enough to move the needle, but I think that's probably going to be something that we'll want to watch.

Thanks. And then just one last housekeeping question. Can you provide your updated guidance for your expectations on total expensed interest and total capitalized interest for the year?

Updated guidance on a quarterly basis?

No, no, I just mean with all the financing activity that you had, in initial guidance, you had laid out your expectations for expense guidance and -- expense interest and capitalized interest.

Why don't I just give you a call right after this to get that information?

Thanks.

Thanks for joining the call this quarter, we'll take to you next quarter and see you at NAREIT in June.

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