Camden Property Trust (CPT) 2010 Q1 法說會逐字稿

Good morning and welcome to the Camden Property Trust first quarter 2010 earnings conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Kim Callahan. Please go ahead.

Good morning and thank you for joining Camden's first quarter 2010 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 first quarter 2010 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 will 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. Our call today is scheduled for one hour, so we ask that you limit your questions to two, with one follow-up, and rejoin the queue if you have additional questions. If you are unable to speak with everyone in the queue today, we'll be happy to respond to additional questions, by phone or email, after the call concludes. At this time, I'll turn the call over to Ric Campo.

Good morning. We're going to keep our opening remarks brief today. We know that we're the last multi-family Company to report. So, we don't want to repeat what's already been said by the other companies. I'm happy to report that apartment fundamentals in our markets are improving earlier than we expected. Rent declines have moderated in all of our markets. New rents, compared to in-place rents, were lower by 2.2% in April, compared to 10.4% last year. Markets, including the mid-Atlantic, Denver and south Florida, have seen increases in new rents versus in-place rents ranging from 4.7% to 1.1%. In Phoenix, new rents are flat to existing rents, compared to a decline of over 13.6% a year ago. System wide, our new rents have increased 3.7% over the fourth quarter.

As we discussed on other calls, we have allowed our occupancy levels to fall in the third and fourth quarters of last year to position for the eventual recovery at higher rental rates, as opposed to having higher occupancy levels at lower rental rates. Our strategy, at least in the early stages of the recovery, is paying off. Rental rates are increasing, along with occupancy. Current occupancy increased 80 basis points to 93.9% over the first quarter average. We continue to expect that we will see negative net operating income comparisons throughout the year. We should see sequential revenue growth, however, in the second quarter.

The roll down of our existing rent roll is almost complete. Current in-place rents are 1% higher than new rents. In December, they were 5.4% higher. Our average renewal rates were up 0.3% over existing rents for the first time since the beginning of the downturn. All markets were positive, except California, Houston and Las Vegas. In preparation for the call, we have a conference call with all of our regional operating teams. This was the first quarter that I heard some real swagger and optimism about what's happening in the field. I want to thank all of our hard working Camden team members for their continuing dedication to provide living excellence to our residents. I'll turn the call over to Keith now.

Thanks, Ric. Relative to plan, we're off to a good start in 2010. As Ric mentioned, the main reason for our outperformance was stronger operating results. And Ric highlighted a number of positive trends, which point towards the first quarter of 2010 as a bottom for our overall portfolio. Overall occupancy ticked up slightly to 93.1% in the quarter and our most recent weekly report reflected 93.9% occupancy. And it's been several quarters since we've seen occupancy at that level. Our outperformance, relative to plan, continued in April, as we saw revenues above and expenses below budget. Included in the revenue beat for April was a $200,000 positive variance in the administrative fees, which indicates that we are concessing those fees at a much lower rate than anticipated. This is one of the most sensitive and timely indicators as to the state of the leasing environment in Camden's world and clearly, it points to better leasing ahead.

Traffic in the quarter was down 6% from the prior year but up by over 24% from the fourth quarter. Part of that is seasonality and certainly, part of that was just created a much better tone in our markets. An additional positive in the quarter was our resident turnover rate, which fell to 44%, compared to 50% in the prior year quarter. This represents one of the lowest quarterly turnover rates that we've ever seen and reflects the results of our aggressive resident renewal initiatives.

Our percentage of move outs to purchase homes dropped to 12.2%, from 15.6% in the fourth quarter, which we anticipated would happen with the expiration of the Home Buyer Tax Credit. Absent further policy initiatives, we believe this metric will remain at these historically low levels throughout 2010, which should provide further underpinning to a rebound in rents. We continue to believe that the large unsold housing inventory, which will continue to grow from foreclosures, has not been a major factor in multi-family rental rate declines. Despite low mortgage rates, fire sales, tax credits and record numbers of unsold homes, we are still near the lowest move outs to purchase homes levels that we've ever seen.

The financial health of our resident base appears to be stable and overall, somewhat better than we experienced in the 2002/2004 downturn. Our move outs due to financial reasons or job loss was 10.7%, which was unchanged from last quarter and roughly the same as all of 2009. Our bad debt expense for the quarter was just 0.6% of rental revenues during the quarter, which is well below our budget of 0.9% and below the 2009 average, also 0.9%. We've still yet to see bad debt expense reach the 1.1% level we hit at the peak of the 2002/2004 recession.

Throughout all of the statistics we reviewed for the quarter, there is clearly a positive bias. I would also tell you that the data are consistent with a less scientific but powerful leading indicator in Camden's world. During February and March, either Ric or I attended an annual awards ceremony in each of our 15 markets. During the Q&A with our community managers, following the meetings, we were struck by the number of questions we got from our managers who were fretting that our YieldStar pricing model may not be raising rents rapidly enough to keep up with improving market conditions.

A year ago, they were fretting that the pricing model may not have been lowering prices rapidly enough. Two take aways from this. Number one, Camden's community managers are seriously competitive Type A's who will always be fretting about something. And number two, we may have reached an important inflection point. So, to all of our community managers, fret on and keep raising rents. We'll see you soon. Now, I'll turn the call over to Dennis Steen, Camden's CFO.

Thanks, Keith. I'll begin this morning with a few comments on our first quarter results. We reported funds from operations for the first quarter of 2010 of $47 million or $0.68 per diluted share, representing a $1.6 million or $0.02 per share improvement, from the $0.66 per share midpoint of our prior guidance range for the first quarter of $0.64 to $0.68 per share. The outperformance for the quarter was entirely due to the property operations, with property revenues exceeding our expectations by $1.3 million and property expenses coming in $300,000 lower than anticipated.

The $1.3 million positive variance in property revenues was a result of all of our operating regions performing better than their budget. This better than expected performance was primarily due to occupancy gains occurring sooner than budgeted. A trend which continues into the second quarter, as we are at 93.9% occupied today. And lower than expected bad debt expense. As Keith mentioned, bad debt expense was 0.6% of rental revenues in the first quarter, well below our budget of 0.9% and down from 0.9% a year ago.

On the expense side, the $300,000 favorable variance in property expenses for the quarter was primarily due to lower than anticipated utilities, employee benefits and miscellaneous property expenses, which more than offset unexpected storm costs. Our reported same-store expenses increased 2% over the first quarter of 2009. Excluding approximately $420,000 in costs related to our self insured damages and snow removal expenses, due to both the severe rain storms in California, Nevada and Arizona, and the winter storm that hit the East Coast in the first quarter, our same-store expenses would have increased only 1.3% over the first quarter of 2009. For the full year, we remain comfortable with our expected same-store expense growth range of 2% to 3.5%. All other income segment line items came in generally as anticipated.

I did want to remind everyone that, as we disclosed in our original guidance for 2010, interest and other income for the first quarter included a $2.6 million or $0.04 per share gain, related to the final resolution of a real estate tax contingency viability on previously sold assets. With respect to our capital position, during the first quarter, we continued to take steps to strengthen the Company's balance sheet metrics and to position the balance sheet for investment activity. We used available cash to repay $55.3 million of our 4.39% senior unsecured notes, which matured on January 15. Also, during the quarter, we raised $17.2 million from the sale of 403,500 shares, at a weighted average price of $43.64, under our at-the-market share offering program.

During April, we raised an additional $36.8 million from the sale of 825,000 shares, at a weighted average price of $45.27. With full availability on our $600 million unsecured line of credit, $28.5 million in cash balances at March 31, and the $36.8 million in share proceeds raised in April, we have adequate liquidity to meet our upcoming debt maturity and investment needs. Our $600 million line of credit matures in January of 2011. We are currently working with our lead banks on the structuring of our new unsecured line of credit, which we plan on having in place by early third quarter. Indications are that all-in drawn pricing for the new line of credit will be in the mid to high 200's over LIBOR.

Moving on to guidance for the second quarter of 2010. We expect projected FFO per diluted share within the range of $0.61 to $0.65 per diluted share. The midpoint of $0.63 per share represents a $0.05 per share decline from the first quarter of 2010. The primary drivers of this difference are; A $0.01 per share increase in FFO due to higher same property NOI, as the projected sequential increase in same property revenues more than offsets our expected seasonal increase in same property expenses. Resulting in an expected sequential increase in same property NOI of approximately 1%.

This positive is being offset by a $0.04 per share decrease in FFO related to the $2.6 million non-recurring gain recorded in other income in the first quarter, related to the final resolution of the real estate tax contingency, I mentioned earlier. A $0.01 per share decline in non same-store NOI, primarily due to the expected decline in occupancy that occurs annually, beginning in mid-May and lasting through August, at our student housing community in Corpus Christi. And a $0.01 decline in FFO per share due to the increase in our average shares outstanding, in the second quarter, as the result of the approximately 1.2 million common shares issued under our ATM program through April.

Proceeds from these issuances have resulted in higher cash balances, which will be used to retire maturing debt in the third quarter of 2010. We have left our annual FFO per share and same-store growth guidance ranges intact for now and we'll reassess in conjunction with the second quarter earnings release. At this time, I'd like to open the call up to questions.

(Operator Instructions) Our first question comes from James [Milam] at Sandler O'Neill.

Good morning. James Milam here. My first question on the occupancy, it sounds like you guys are having a pretty good second quarter. What are your expectations for getting that up to say the 95%, 96% range? And how do you see rents? It sounds like they're picking up, as well, following that trend. Looking for a sense of timing there.

Yes, we gave you the number that the current at -- the end of April number which is 93.9% occupied. I think, probably, a more interesting number for trending is the percentage leased and we were 92.5% leased on that same report. And the simple math in our portfolio is 60 days out, add 200 basis points to the leased percentage and you're not going to be wrong very often. So, that would imply, some time in the quarter that we'd get to the 94.5% occupied level. It would be very unusual, if you go back and look at our numbers, over a long period of time, very unusual to see an occupancy rate that would be in the high 95's to 96%. And a lot of that has to do with the calibration in our YieldStar model that we really -- we think we optimize the total revenue somewhere around 95%.

So, obviously, this last two years has been a pretty unusual period and we've been below that. And we've made some conscious decisions along the way to adjust the target, so that we weren't locking in some of these, what would have been really low rates to try to drive occupancy. So, now that we see that, I think, the signs are certainly in place that we're going to see some improvement this year, we'll start going in the other direction. And I think that the time frame that we're looking at it is sometime in the second quarter to get back in the 94% or 95% range.

Okay. Great. That's helpful. And then, the second question. Can you guys give us a little color on what you're seeing in the acquisition market? Are there interesting opportunities out there that you're bidding on and you're just getting outbid or are you not seeing deals that really fit your portfolio? Just whatever you can give us on that, please.

Well, clearly the acquisition market is very heated up right now. Up until a few months ago, there was really limited product coming out of the market. And we are definitely actively in the market bidding and trying to do off-market transactions as well. What we have seen, though, in the last couple of months, is an increase in the product that's being offered in the marketplace. And what I think is going to happen is, as the economy improves and as rental rate trajectories continue to increase, I think you're going to see more sellers in the marketplace. And therefore, more product.

And the real question is; Is there enough capital to take -- to deal with the $200 billion of multi-family product that has to be refinanced in the next two or three years? We have taken the position that we think it's going to get better, from an acquisition perspective, later in the year and haven't been the winner of any bids at this point. We do anticipate doing transactions this year, in accordance with our original guidance, somewhere in the $150 million to $200 million range, but probably back loaded.

Great. Thank you, guys.

The next question comes from Michelle Ko at Banc at America - Merrill Lynch.

Hi, good quarter. Just building on the last question, I was just wondering if you could talk a little bit about what you're seeing in terms of cap rates? And given you think that more product is coming on and that could increase as the year progresses, what's your view on where you think cap rates could move? Do you think they stay at these low levels or do you think they move higher?

Well, I think they clearly have compressed since the first of the year and actually in the last two months probably. It's kind of interesting because there's a lot of product in the marketplace that no one wants and that are really high cap rates. But they're bad locations and old properties and have a lot of issues. But if the market puts a quality, first class asset in a great location, it's going to be heavily bid and the cap rates have definitely fallen. In Texas, for example, in Austin, we've seen cap rates in the mid 4's for prime assets and then sort of the low 5's for less than prime. I think that for trophy properties, cap rates probably aren't going to move much this year.

What I think is going to happen, though, is I think there is going to be more differentiation between trophy and sort of less than trophy. And maybe that's the opportunity area. We have seen banks start to push product out. And last year, they weren't pushing any product out. So, I think that there will be more product. The question, ultimately, is how much capital is chasing these deals? And that could have an effect of keeping cap rates pretty low, for a pretty long time.

Okay. Thanks so much.

Our next question comes from Jay Habermann at Goldman Sachs.

Hi, guys. Just hoping to get some detail by market. Could you give us some color maybe on Texas? And that was the market that had been holding on better and then it seems to be slowing a little bit. But just contrast it with what you're seeing now in Florida, Southern California and maybe Phoenix, markets that got soft earlier in the cycle.

Jay, the big change in our portfolio and just kind of at the center things right now, is that the Texas markets are, clearly, feeling, primarily the result -- in Dallas and Houston, the result of a ton of new supply that got done and when Dallas and Houston were just about the only two markets in the country where people could get transactions done in the last part of the cycle. So, we're dealing with a lot of new supply in both of those markets. And unfortunately, some of it is directly competitive with a lot of our assets in Houston and in Dallas, as well. In my daily commute, I drive right by a relatively new community built here in Houston that's in lease-up and with a banner on the side of the building that says, "Three Months Free Rent."

So, that's the kind of pressure that we're seeing on the supply side is this primarily merchant built product. They're in a race to get to the finish line, from a stabilization standpoint. And they're willing to do virtually anything on rates and concessions to get there. And it makes for a really sloppy execution on anything that's tangential to those submarkets. So, the Texas markets are definitely getting beaten up right now, primarily from supply. I think that the good news is that both Dallas and Houston created jobs in the quarter. Houston at a better rate than Dallas. So, I think there's still an opportunity for us to work our way out of the supply challenges in Houston and Dallas with better job growth.

In our other markets, in terms of the ones that are performing at the top of the stack versus the bottom. Washington DC and DC Metro is unquestionably our strongest market right now and it seems to be improving. Denver has been a good market for us and continues to be. At the bottom of the list, would still be Phoenix and Las Vegas that are clearly still struggling. And again, not really a supply issue there. It's just the massive job losses.

And until -- it looks like we got a better number today. Our plan for the year was predicated on a national job growth number in the 700,000 range, which was pretty much tracking Ron Witten's forecasting. And he has recently tweaked his numbers up to somewhere in the 1 million range for the year. And a couple more months like we had in this past month and that becomes something that you can see -- you can get better visibility on the job front. And that certainly is going to help. As those jobs come back, they'll come back disproportionately, we believe, in our markets and will help us as the year goes on. Obviously, we've included in our forecasting, this year, some improvement in underlying conditions based on the 700,000 jobs. And we certainly hope that we're on track to get at least that and then maybe some upside above that if the job growth increases.

Okay. And again, just following on that theme, by market, can you give us a sense of the development starts that you might anticipate, perhaps into late this year or even next year, as you think about capturing perhaps what could be a couple of pretty good years of NOI?

Sure. Development starts, we're definitely looking at development starts, given that the basic, I think, recovery has been pushed forward a quarter or two. We think that development starts are definitely going to be more attractive towards the end of this year and beginning of next year. And I think in our original guidance, we had $150 million or something like that, which would be three or four projects. And I think we're still on track for that.

And I think that development is going to be a very interesting part of the business in this part of the cycle, primarily because there's going to be very limited competition from the merchant builder market. Even though there are loans out there to be had for new development, the requirements today are 30% to 40% equity and the merchant builder model just doesn't work right now. Especially, with the guarantors and the capital structure of these merchant builder models. And the merchant builders will probably start some but they're not going to be as prolific as they were in the past. So we, as the public Company environment, may have the market to ourselves for a couple of years before the merchant builders figure out a new model.

Okay. Maybe lastly for Keith, in which quarter do you expect to see NOI actually turn positive? I know you mentioned turning sequentially positive into Q2 but when do you think you actually see positive NOI growth?

Positive year-over-year?

Yes.

Sequentially, we'll see growth in the second quarter and year-over-year, late fourth quarter, early first quarter of next year.

Okay. Thank you, guys.

The next question comes from Dave Bragg at ISI.

Hi, good morning. Just a follow-up on that -- one of those last answers on development. If we get the rent spike or elevated rents, as many people expect, what's your confidence on this window that the public REIT's might have in the development arena and before greater competition comes back? And how do you think about that as you plan for starts? Are you thinking about accelerating the number of deals that you can start here in the next six to 12 months?

Well, we definitely are more bullish on construction today and development today than we were three months ago, based on how the markets are starting to look and the improvement across the board in every market. So, as to how long is the window going to be open where the public companies really dominate the market? I think that's going to be at least a couple of years. Primarily, because if you think about the banks today, most of these merchant builders that have stranded properties, for example, that really can't be refinanced at the current level with Freddie and Fanny, they need a fairly significant amount of equity to come in and refi them.

And so, those merchant builders just don't have any capital. They may have equity but they can't get debt. And they don't have a capital structure today that a bank is going to allow them to guarantee a bunch of debt. So, I think it's going to take several years for that to work through the system. They're going to have to recapitalize their existing properties, finance them out with Freddie or Fanny or FHA or however they're going to finance them out or maybe sell them. And once the banks start getting paid off, then they're going to be more interested in making new loans to those guys.

But it's not going to happen very quickly because of the restructuring that really needs to happen. So, I think merchant builders aren't going to come back in any kind of mass for at least two or three years. And now, even if you have a big rent spike, it's still tough to make the numbers work, even with a big rent spike, in a lot of cases. So, I think it's going to be a pretty good window for the public companies to have the market to themselves. And to the extent that we can make deals work, we will participate in that.

Okay. That's interesting. Just back to your comments on acquisitions now, you mentioned the amount of capital chasing deals. Could you just talk about the interest that those buyers have in individual assets, as compared to portfolios? And then, also, what you're seeing in terms of the supply right now, individual assets versus portfolios?

Well, I think individual assets, clearly, are what's out there in the marketplace. There have been some portfolios that people have been talking about. I would think that the individual assets are getting the most view from investors today. Primarily because a lot of the individual investors out there are private country club-type investors. They're smaller. They can do a $50 million deal or a $30 million deal. But you put a $500 million deal out there and you thin the herd pretty fast. Because I think that complicated, large transactions are just not -- you might have five bidders instead of 50.

You start increasing the size and having multiple financing issues and having a portfolio scenario, and you get down to a few players. And I think you're probably, primarily, into the public companies and maybe some large institutional capital that's out there. But, again, most of the individual deals are being won by the individual buyers who can do up to $50 million. After $50 million, it gets real tough. And then, you start thinning the herd pretty good.

Got it. I think that covers the demand side. But on the supply side there, are you seeing more or hearing more discussions about portfolio opportunities than you were three to four months ago or is it about the same?

I think the answer is, yes. What you have going on today is, with all of this positive news about inflection point in the market, sellers are becoming more motivated. And I think what's happening, too, is that underwriting criteria is changing. Rather than projecting a one-year same-store NOI decline of 4% or 5%, investors are now modeling lower cap rate with an increase in the NOI.

And so, prices have improved and to the extent that -- and sellers know that they have to refinance or recapitalize their portfolios via sale or some other method. And I think they're becoming more focused on the getting that done. So, product has increased, both on the individual asset side and on portfolio sides. But I would say the portfolios, there's not a ton of portfolios out there but we're hearing about it a whole lot more today $400 million or $500 million to $800 million deals that are being talked about now versus last quarter, when there was zero.

Great. Thank you.

The next question comes from Rich Anderson at BMO Capital Markets.

Hi, how is it going?

Good.

Hi, Ric, doesn't allowing your occupancy to drop in 2009 kind of defy conventional logic, in a tough environment? Wouldn't you have rather be highly occupied?

The problem that you have is when we look at in-place rents and new rents, if you have a gap, in some cases -- let me give you a good example of that. In, South Florida in April 2009, the gap between new rents and in-place rents was negative 13.89%. Now, what we could -- if we allowed occupancy to stay at 95%, we would have had to fall -- to mark-to-market all of those leases that were either renewing or getting new leases in at 13.9%. By having the occupancy fall, the trajectory of that number, in April 2009 it was 13.9%, in August it was 6.8%. In December it was 4.5% and in April it's now 2.2% positive. So, what we try to do, is we try to manage the occupancy levels to maintain the highest possible cash flow we can on an overall basis.

So, if you're marking your leases down that far, you have a couple of risks. One, is that the people you're putting in there can't afford a 14% or 15% increase in their rent, when you try to increase the rent. So, instead of just getting a moderate increase in the rent, you have to move the people out and get a new person in. And that costs money from a turnover perspective and it just -- you have to lower your -- you have to, in essence, lower occupancy to get higher rents in the future. We believe that the market was, in the turn of the first or second quarter, so we allowed the occupancy to go down and maintained an integrity of our rental rate structure. And so, it's easier for us now to increase revenue by increasing occupancy. And then, ultimately, putting the pedal to the metal on the rental rate side.

So you took a hit, right? Meaning, you didn't have the 13.9% decline but you had 100% decline if the unit went vacant?

Well, sure. But the problem you have is that, if you had to buy 300 basis points of occupancy at 13.9%, it's better to leave your in-place rents and have an integrity in your rent structure and build that occupancy back over a period of time. In the long run, you will have higher cash flow than -- we could have our portfolio -- than you would in the short-term. And so, in our view, we could always be at 95% but our cash flow would be lower. And especially, when you have an inflection rate in the market, If you put folks into a building that can't really pay the rent, then you've got a real problem. And we've seen it happen time and time again, when people went to a heads-in-beds strategy. And heads-in-beds strategy, you go into that mode if you believe that you're at the beginning of the downturn or you think the downturn is very long indeed. But if you go to heads-in-beds, it's going to be tough to get the wrong heads out of those beds when the occupancy levels get back up.

Okay.

I think cash flow will be greater over a reasonable period of time using the strategy that we employ.

And your strategy is more of a quick turnaround mentality. Meaning, that you think the market is going to turn fast, so you go that way?

I would say that's correct. And "fast" means two or three quarters.

Right. That's what I mean, yes.

Yes, absolutely.

And then, the second question is, has this whole WISO phenomena been kind of shelved for you guys?

No, absolutely not.

You still feel that way?

We do. And if you look at -- we're not doing projections on what rental rates are going to be at this point. But if you take Ron Witten's analysis, for example, he has broken down WISO markets for us. And the WISO markets outperform and then, basically WISO is sort of the weakest and strongest out. The WISO markets outperform the last-in kind of markets by 50 to 80 basis points over a 18 to 24 month period.

Okay. So, the "S" doesn't stand for same?

Pardon me?

The "S" doesn't stand for same, it's still strongest.

Well, I don't know. If you think 180 basis points -- or 100 basis points is the same.

It just seems like you de-emphasized that phenomena a little bit. That's all. But if it's still there, we'll watch for it. Thank you.

Well, we're in these markets because we believe they're long-term, good growth markets. And as I've said before, the thing that we get on our markets is we get the barrier, barrier, barrier, always being a barrier market. Well, guess what? In the next cycle, we are barrier markets. There's not going to be a lot of new developments built in these markets. So, there shouldn't be much differentiation between the barrier markets. And we should have better job growth, so the pop should be even more impressive.

And, Rich, the underlying condition and the condition precedent to our whole concept of WISO is job growth.

Right.

And as it turns out and it looks like in April, we had a pretty decent month for jobs. And you can certainly look at our April numbers and almost see the direct correlation to having a 300,000 uplift on jobs. And if that continues, we'll see -- we should continue to see relative strength. And so, we just need to let the recovery play out and let the jobs happen. We're in the markets where we think they're going to appear, which is disproportionately in Camden's markets. And then, we'll see what happens.

But some of those markets aren't going to -- Vegas isn't probably going work. Right?

That's right.

In aggregate, it will work but not in Vegas.

Well, if you look at the most recent Witten numbers, average growth rate of the top ten markets of growth from 2010 through 2012 and we're in seven of the top ten markets.

Okay.

Which represents about 50% of our portfolio. But I will say --.

But Las Vegas isn't one of them.

Las Vegas is not one of them.

And it's your largest market, right?

It is not our largest market. Our largest market is the mid-Atlantic, DC area at 17%.

Okay. All right. Thanks.

Las Vegas is number four.

I'm sorry, I haven't been following closely.

No problem.

Thank you.

We need you to go there, though, and fill up some hotel rooms.

Our next question comes from Eric Wolf at Citi.

Thanks, guys. Just following up on Rich's questions there. I think one of your peers, with a sunbelt focus, noted that they were seeing some job growth in their markets that didn't appear to be reflected in the jobs numbers. I'm just wondering if that's your experience, as well? And if attribute some of the improvement in fundamentals to that or if it's been more just the unbundling of households and greater consumer confidence in general?

I think there's some of that. The job growth number for March was revised upwards pretty dramatically. The other thing is that your point to the unbundling, depending on who you listen to, but Peter Linneman had a deal at ULI that had a slide that showed, 800,000 of doubled up or apartment dwellers living at home. And that there was going to be an 800,000 increase in household formation as a result of an improving economy. And that apartments will get the lion's share of that because that's primarily 20 something kids that are doubled up.

And these were actual consumers that have jobs but they're sort of stressed about the economy. Therefore, they doubled up and they're sleeping on somebody's couch or at home with their parents. And as the economy does improve, you do have job growth out there, that creates a better consumer sentiment. And we've seen consumer sentiment up. You're seen retail sales up. So the consumer is starting to feel better and that unbundles that 800,000 doubled up folks out there. And then, you start having more normal household formation and it should drive demand.

And then, when you sort of play that with single-family homes, people are moving out to buy single-family homes and the bloom is off that rows for awhile, the apartment business is improving in spite of not having significant job growth yet. If you think about it, we've had what, 300,000 jobs or 400,000 jobs. And yet, all of our metrics in every one of our markets is improving, including Las Vegas. So, it's interesting.

Right. And so, that's why your regional managers are feeling -- you said, fretting about not pushing rates quite as much.

Right.

Because they're seeing that dynamic occur?

They are.

And just one last question. Have you seen any noticeable changes between April and March, in terms of renewal rates or new lease rates? It seems like you're seeing the momentum in occupancy. And I'm just wondering if you're seeing the same trend on rates?

Absolutely, if you look at our in-lace rents in from December, compared to what they are today, they're up today 3.6%, the new rates. So, new rates that were being charged in December are now 3.6% higher than they were before. When you look at renewal rates, portfolio-wide, they went from a negative 1% for the first part of the quarter, to a positive 0.3%. And the gap between our in-place rents and our new rents has increased from about 10% at the -- down 10% in December to about 2.2% today -- I mean that 10.4% is actually April of last year compared to down 2.2% today. So, we've seen a significant increase in the gap between in-place rents and new rents.

Got you. Thank you.

The next question comes from Dustin Pizzo at UBS.

Hi, it's Ross Nussbaum, here with Dustin, guys. Ric, I've got a couple questions for you. First, when you see folks in markets like Austin buying assets at mid-4 cap rates, does that prompt you to sit back and say, "Wait a minute. If these folks are willing to buy at these levels and I'm not, should I be throwing some assets up for sale in those kinds of markets?"

Well, I think the issue is, we definitely have looked at that. And I think that the reason -- some of these deals -- I think you have to keep in mind that they are -- it's not -- you don't have $500 million in Austin selling at that level. You have $30 million. And so, even though those are interesting numbers, I don't think that that says that every asset in Austin sells at a 4.5 cap. I understand why they're doing it and why the people are buying it, because they're buying it by the pound below replacement cost. And believe that Austin is going to have significant rent growth in the future. So, if we believe that Austin is going to have significant rent growth in the future and we have core portfolio in Austin that we want to keep, then we wouldn't be a seller. If we think that assets are going to be lower growth there and we want to pare our portfolio, we would rather probably sell older assets than newer and trophy assets.

Okay. Second question, with respect to some of your comments on Houston, what impact do you think the almost inevitable layoffs that are going to be coming out of Continental are going to have on the market over the next 24 months? And again, relative to the sales thought, do you think of saying, "All right, do I want to get a little ahead of that and get out of Houston before it lags for the next year or two?"

No, I think that Continental, while it's a large employer in Houston, it's still going to be the largest hub in the system. And there's not any duplication at all of United coming from the hub. So, you're talking about, there will be some job losses in the executive ranks. But we don't think it's going to be a significant hit to the Houston economy. The Houston economy is driven by lots of other things. And I think that overall, once you get through the consolidation, it's probably a good thing for Houston because you have airlines that, I think, between the three of them they've been bankrupt five times.

And maybe the largeness of them will -- or the size and the scale will help both of them become a better airline. But I don't think it's going to be a major blow to Houston in any way. The bigger issue is probably what's happening in the Gulf. On the one hand, you have all of the folks that are mobilizing to clean up the oil spill and all of the issues that are going on around trying to cap the well and all of that. I think short-term, you're going to have some push back of drilling in the Gulf and that's not good for Houston. I think that's clearly a bigger risk than the Continental Airlines.

Okay. And then, final question, I want to see if we can tackle the ghost that's in the room. And that's the chatter that you might be evaluating an acquisition of Post Properties. Can we nip this in the bud and just get you on the record to comment on whether or not Camden is evaluating or engaged in any discussions with Post?

As you know, we will not discuss any kind of rumor or discussion in this regard at all. It's just something we can't do.

Thank you.

Our next question comes from Paula Poskon at Robert W. Baird.

Thanks very much. So, given the low cap rate environment, are you considering, at all, ramping up dispositions anywhere?

We are definitely evaluating our portfolio. We have a -- we're in the process of doing a three-year strategic plan that will identify dispositions and where we're going to be moving assets around in markets and taking a hard look at that. So, I don't think the cap rate changes have created any more impetus to enter that market. It's more just the ability to move assets around and capital allocate.

Okay. Thanks. And then, just a big picture question for you. It's fair to say that you guys have lived through several of these cycles. Do you think that the pricing power that's on the horizon could be the best that you've ever seen?

I think that the -- and we've told our folks, internally, that with the combination of the complete collapse on the supply side of things, which is unprecedented. You go back to any of the cycles, we've never seen anything like the collapse on the supply side of things. And even under best case scenarios, these are two and three year lead time processes to bring new supply online. So, I think that piece of it is clearly different.

The second part, which is the pent up demand, if and when we get a really strong jobs recovery, it's hard to believe that the combination of those two things will not produce one of the best NOI environments in two generations. Because you could go back to World War II on multi-family housing starts and you can't find anything like where we are right now. If you have a robust job recovery, people are going to be talking about multi-family housing shortages in the next two years. And I can tell you, throughout the other cycles and when things have turned and turned hard, we still did not have the kind of -- the combination of the fundamentals that we think we're going to see in, call it, late 2011, 2012 and 2013. So, I think it's very likely that when this is all said and done, statistically, the recovery in rents will likely be one of the best that we've seen.

I will add to that that you look at the last cycle, last recession we had, we had about the same sort of destruction of apartment demand, even though there were only 3 million jobs lost, compared to 8 million this time. And in the last snap back, markets like -- let's call this 2005 to 2007 growth, and this is revenue growth, the markets, Arizona was up 24.4%, Florida up 21.7%, North Carolina, Charlotte and Raleigh were up 21%, Las Vegas 19%, DC Metro 17%.

And that was in a market where we had sort of a jobless recovery and we were fighting the home -- everyone moving out to buy homes. We peaked at 24%. The people moving out to buy homes, now we're down to 12%. So put in another sort of a different spin, we have the same decline. I think we're going to have the same decline that we had in the last recession, even though more jobs were lost, supply being cut off and not very many people moving out to buy homes. So that should drive the revenue growth harder than the last cycle. And we do believe this is going to be the best cycle, in terms of revenue growth that we've seen in our business careers.

Off the top of your head, do you happen to know what the best annual rental rate increase you've ever had? And if not, we can take it offline.

Better -- I just have the last cycle. I don't have -- but I think the last cycle was pretty good.

Yes, on NOI, I think it was in the 13% range. You would have to go back into the -- I think it was in the late 1990's when that occurred or maybe just coming out of the 1997 to 1998.

Okay. Thanks very much. I appreciate the perspective.

Our next question comes from Michael Salinsky at RBC Capital Markets.

Close enough. Just staying on the transaction topic here, just looking at the buy versus build. What spread do you need to look to a new development in a market versus acquisition, at this point, to justify the added risk?

I think you need 150 basis points positive spread to total returns, unleveraged IR's between development and acquisitions.

Okay. Any of the projects you've written off either in the fourth quarter of last year or the prior quarter there, that you're starting to look at again the May pencil?

We are.

Conversely, just given the strong demand we're seeing for assets as well as land right now, are you looking to move any of the land that maybe you're not -- that doesn't look like it ever makes sense at this point?

Well, I think, number one, we are looking at land that we wrote down and put on hold to start. So, we're definitely looking at those assets in an area in our portfolio. And the fact that we wrote them down, we wrote them down because we -- our accounting policy basically says that if you don't see, in the foreseeable future, defined as four or five quarters or six quarters, that you're going to start them, then you put them on hold and mark them to market. And that's what we've been doing. So, we did some of those things. That first markdown was two years ago and the other one was -- or maybe not two but a 1.5 year ago. But we are definitely looking at those assets as viable developments at some point.

As far as selling land, the development land, interestingly enough, there hasn't been a great market for development land. Number one, because the merchant builders aren't in the marketplace, we don't think that there is a great bid for the land now. And we think it's going to be -- given what we think is going to happen over the next couple years, that the land values will improve dramatically from where they are today. And why sell into this market if we don't need to? So the answer is, we probably aren't going to sell much land until we think the market is -- either we can develop it ourselves or just sell it at what we think is a fair price in the future.

And my final question is going back to David's question about portfolio versus single asset. It seemed to be that -- your commentary suggested there's better opportunities on the portfolio side and you gave a pretty robust acquisition outlook for the year there. Is it safe to say that you're looking more to portfolio opportunities than individual assets, at this point, on the acquisition side?

Well, we're looking at both. But like I said, the larger the portfolio, the fewer the bidders. And I would rather bid with five people than 50. And it's hard to add value when you're the highest bidder in a 50-bid process. So, we would rather work on larger, more complicated, less competitive transactions than just one-offs. But on the other hand, we are still working with on one-offs as well. And you just never know, if you don't -- if you're not in the market, you don't know whether you can see something other people don't see in an asset or in a transaction.

That does it for me, guys. Thanks.

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

Hi, good morning. I just wanted a clarification . Ric, did you say, at the beginning of the call, that current market rents are 1% higher than in-place rents

No, current rents, in-place, they are 1% -- in-place rents are 1% higher than current rent -- than asking rents today.

Got it. Okay. Thanks.

It's the the opposite.

The opposite, got it. The second question just relates to DC. I know you said it's your best market. It seems to be doing really great. It did see a 60 -basis point occupancy decline in the quarter. Was that just -- was there anything going on there?

Other than snow?

Just snow, okay.

Yes.

The current occupancy in DC right now is like 95.5%.

It's our most highly occupied market on the last report. DC Metro is a really -- is a robust market right now. It's a good place to be.

Got it. And final question, what markets would you like to add portfolio exposure to today?

Of our existing markets?

Or new, either one.

I would say, we're very happy with our existing markets. We would like to add exposure in Phoenix or Austin for sure. Those markets both have -- Phoenix, we s only 2.5% of our NOI's from those markets and we think it's going to be one of the best growth markets in America for the next few years. I would say there and DC Metro.

Great. Thank you.

Our next question comes from Michelle Ko at Bank of America - Merrill Lynch.

Hi, guys, one quick follow-up. I was just wondering, in terms of acquisitions, which markets are you seeing the best opportunities in? Which markets would you like to increase or decrease your exposure to?

Well, the best opportunities -- it's interesting. I would say that the cap rates have compressed everywhere and I don't know that there's a market that isn't competitive. We would like to increase our exposure in the Phoenix area and in Austin. Markets that we have primarily 2.5% to 2.6% sort of exposure to, primarily, ultimately Southern California we can add to. It just really depends on the opportunity and availability of products at the right price.

Okay. Great. Thank you.

That concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks.

Well, thanks for joining the call. I'm sure you're all happy that earnings season is over with us. We'll see you next quarter. Thanks.

The conference is now concluded. Thank you for attending today's event. You may now disconnect.