Camden Property Trust (CPT) 2011 Q1 法說會逐字稿

Good afternoon and welcome to the Camden Property Trust First Quarter 2011 Earnings Conference Call and Webcast. All participants will be in a listen only mode.

(Operator Instructions).

After today's presentation there will be an opportunity to ask questions.

(Operator Instructions).

Please note, this event is being recorded, and 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 2011 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 reminder, Camden's complete first quarter 2011 earnings release is available in the investor relations section of our website, at www.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 as there is another multifamily company hosting a call at 1.00 PM Eastern. As a result, we ask that you limit your questions to 2, with 1 follow-up, and rejoin the queue if you have additional questions. If we are unable to speak with everyone in the queue today, we would be happy to respond to additional questions by phone or e-mail after the call concludes. At this time I'll turn the call over to Ric Campo.

Good afternoon on the East Coast, and good morning on the West Coast. There has definitely been a change of attitude in the Camden latitude, and it's about raising rents way more aggressively than we thought we could. First quarter same store revenue was up 3.7% over 2010, and was up 1.5% over the fourth quarter. Expenses were essentially flat for the quarter, resulting in same store net operating income growth of 6.2%. 14 of our 16 markets had strong revenue and net operating income growth; only Houston and Las Vegas, which represents 16.2% of our same-store, have revenue declines.

As Houston and Las Vegas recover, this will create significant upside for future growth. Houston had the second largest employment growth in the country through March, with 52,000 jobs added. Houston should see revenue growth in the very near future. Occupancy in our Houston portfolio is currently 93.8%. $100 oil may be challenging for the nation, but it's pretty good for the Houston economic outlook. Las Vegas continues to dig out of a very deep hole. Job growth turned positive, with 4000 new jobs being created through March. This is the first positive job growth we've seen since January of 2008. We expect Las Vegas to improve later this year, and produce positive revenue growth in 2012.

Apartment operating fundamentals continue to be the best we have seen a long time. Limited new supply and increased demand is a very good combination for our business. We've increased our full-year earnings guidance as a result of the strength of our core operations and our continuing strong outlook . We increased FFO $0.15 per share at the midpoint from previous guidance. Strong performance allowed us to increase our dividend in the first quarter from $1.80 to $1.96 per share, or a 9% increase. During the quarter, we acquired 3 properties for $123 million in our funds. We continue to be very active in a very competitive acquisition environment.

During the quarter, we sold our interest in 3 Houston joint ventures, in a continuing effort to simplify our balance sheet. We continue to ramp up our development pipeline with $336 million under construction, and more in the pipeline. I would like to give a big shout out to all of our Camden team members for a great quarter, and make sure they recognize they need to keep the pedal on the metal from a rental increase perspective.

I'll turn the call over now to Keith Oden. Thanks.

Thanks, Ric. Compared to expectations, we are off to a really good start in 2011. Virtually every operating metric we track is reflecting the positives for the sector that Ric talked about. While the jury is still out on weakest in, strongest out, or WISO; with a 6.2% same-store NOI growth, and a 1.5% sequential revenue growth, I think that we can at least agree that weakest in, never out, or WINO, is off the table. Just to put into perspective how far we've come in the last 12 months, first quarter of last year NOI was down 9.1%. And first quarter 2011, we're up 6.2%. That is more than a 1500 basis point swing in a year. This is by far the best-ever year-over-year improvement in our portfolio. For the first quarter, same store average rents on new leases were up 3%, and renewals were up 6.5%.

The rental rate increase trend had accelerated into April, with new leases up 6%, and renewal increases up 8%. At the end of the first quarter, we had roughly a 5.4% gap to previous peak rents, and the strong April results have further narrowed that gap. We're getting these rental increases while we are increasing occupancy, which rose to 93.9% for the quarter. Up from 93.5% last quarter. We currently stand at 94.8% occupied -- the highest occupancy level we have seen since the middle of 2008. Compared to a year ago, our traffic, as you might expect, has increased significantly. We're up about 9%, with better traffic across our entire platform. Despite the aggressive renewal increases, we continue to see a historically low turnover rate, which was only 42% in the first quarter. This compares to 44% a year ago, and 50% last quarter.

In addition, the percentage of residents moving out to purchase a home dropped again to 10.4%, which broke the all-time lows set in the third and fourth quarters of last year. The financial health of our residents continues to show signs of improvement. The percentage of our residents listing either moved out for financial reasons or job loss is 9.3%, versus 10.7% a year ago. Also our bad debt expense for the quarter was 0.65%, and that's well below our budgeted level of 0.77%.

As the resident skeptic around here, it's hard to find much to fret about in these numbers. It was a given, and probably the worst-kept secret in commercial real estate, that multifamily fundamentals were going to improve substantially in 2011. After all, we are on the record as saying that, absent event risk, 2011, 2012, and 2013 would likely be the best 3 years for the apartment industry in a generation. The surprise so far is that it appears to be unfolding at a faster pace than even the optimists anticipated. Fortunately, with our revenue management system as a tool in the hands of our onsite teams, we are being able to capture the improving market conditions in real time.

At this time, I will turn the call over to Dennis Steen, Camden's Chief Financial Officer.

Thanks Keith. I will begin today with a few comments on our first quarter results. We reported funds from operations for the first quarter of 2011 of $54.1 million, or $0.72 per diluted share, representing a $4.1 million ,or $0.05 per share improvement from the $0.67 per share midpoint of our prior guidance range for the first quarter, of $0.65 to $0.69 per share. Included in these results were two un-budgeted, non-recurring items -- the first being a positive $3.3 million, or $0.04 per diluted share impact, related to a $4.3 million gain from the sale of an e-commerce investment which was recorded in other property income, which was partially offset by income taxes of $1 million associated with that gain as the investment was held in 1 of our taxable REIT subsidiaries. The second non-recurring item was a negative $2.1 million, or $0.03 per share, impact related to a one-time bonus, awarded to all non-executive employees, that has been recorded in G&A expense. Excluding these two nonrecurring items, our FFO for the first quarter would have been $52.9 million, or $0.71 per diluted share; up $2.9 million or $0.04 per share above the midpoint of our guidance range.

This better than expected performance for the first quarter primarily resulted from 3 favorable items. The first -- property net operating income exceeded our forecast by approximately $1.6 million; 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 the result of operating fundamentals improving across our portfolio, as Keith discussed, which resulted in better than anticipated growth in rental rates and occupancy, lower than anticipated bad debt expense, and higher realization rates on the major components of other property income. Property expenses came in $300,000 below our expectations for the first quarter, with no significant unusual or non-recurring items to report. For our same-store portfolio, property expenses were up only $105,000, or 0.2% over the first quarter of 2010; but we are up $2.6 million, or 4.7%, over the fourth quarter of 2010. I just wanted to remind everyone that the increase from the prior quarter is primarily due to large property tax adjustments we made in the fourth quarter of 2010, to adjust our full-year 2010 tax accruals to actual tax bills. Excluding property tax, the same property expenses for the first quarter of 2011 are up only 1.2% from the fourth quarter of 2010.

The second item -- equity and income of joint ventures exceeded our forecast by approximately $300,000, primarily due to higher than anticipated revenue growth across our 44 operating joint venture communities. And, lastly -- the third item, property management and G&A expenses, excluding the $2.1 million one-time bonus I mentioned earlier, were approximately $800,000 below our expected levels for the first quarter. This $800,000 positive variance was a result of slight variances in a number of expense items, including compensation, benefits, travel, and corporate legal expenses.

Turning to earnings guidance, for the second quarter of 2011, we expect projected FFO per diluted share within the range of $0.76 to $0.80 per diluted share. As noted in our earnings press release, under development activity, in April we sold to our fund the Camden's South Capital Development in Washington DC, and we were reimbursed for previously written-off third-party development costs. This will result in an FFO gain of $4.7 million, or $0.06 per diluted share, to be recorded in the second quarter, and thus was included in our guidance for the second quarter. Excluding this non-recurring item, we expect FFO per diluted share within the range of $0.70 to $0.74 per share for the second quarter of 2011. The midpoint of $0.72 per share represents a $0.01 per share increase from the first quarter of 2011; adjusted FFO per share of $0.71, which excludes the nonrecurring items previously discussed. This $0.01 per share increase is primarily result of the following -- a $0.02 per share increase in FFO, due to higher same-property NOI; as a 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 2%; and a $0.01 per share increase in FFO due to lower interest expense, resulting primarily from our payoff in the first quarter of 2011 of $88 million of maturing 7.69% unsecured debt using available cash.

These two positives are partially offset by a $0.01 per share decrease in FFO, related to 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 per share decrease in FFO related to higher property management and G&A expenses in the second quarter, as they are expected to be in line with our original budget, but up from the lower than expected levels of property management and G&A expenses incurred in the first quarter, as I mentioned earlier.

Moving on to full-year guidance -- we have raised our 2011 full year FFO guidance range to $2.90 to $3.10 per diluted share, with the midpoint of $3.00 representing the $0.15 per share increase from the midpoint of our original guidance range. The $0.15 per diluted share improvement at the midpoint is primarily result of the $0.05 per share outperformance we delivered in the first quarter 2011; the $0.06 per share gain related to our sale of South Capital in the second quarter I discussed earlier; and an expected $0.04 per share improvement in FFO, attributable to an increase in property revenues for the last 3 quarters of 2011, due to improving fundamentals across our portfolio. We now expect same-store revenue growth between 4% to 5%, up from our original guidance of 3.25% to 5%.

At this time I would like to open the call up to questions.

(Operator Instructions)

Our first question comes from Rob Stevenson at Macquarie.

Hello, guys. Can you talk a little bit about what you're seeing in terms of construction costs as you spool up the development pipeline, in terms of hard cost, labor, and what the impact that has on the returns?

Sure. The development cost is still down from its peak, for sure. Labor costs have not moved much at all. The number of starts are still very limited. So, people are still working for food, if you will. On the commodity side, obviously, commodity prices increasing and anything that has to get delivered, that uses a truck to deliver it, has gone up.

I would say that we're putting somewhere in the 3% to 5% inflation costs on commodity prices on jobs we haven't bought already. So, while construction costs are still down, there definitely is an upward pressure bias on commodity and material costs as a result of commodity prices. As far as yields go, definitely having a downward pressure on the existing yield. But on the other hand, rents are a lot stronger than I think most people thought they would be, as well. So, at this point, the developments that we have in our pipeline going forward still look pretty attractive, somewhere in the 6.5% to 8% cash-on-cash stabilized returns.

Okay, and then Ric, across your markets, what are you guys seeing in terms of construction starts from some of the private guys out there. You've got a few markets that historically have been where you start to see construction the fastest. What are you guys seeing on the ground these days?

We are seeing very limited starts relative to historical norms. You know, as you point out, some of these markets are easy to build in, like Houston, for example. There's just not a massive increase in starts. I think you have two things that are happening, in the private side. One is, that the private guys still have balance sheet issues, and still have not ramped up their staffing. Companies have really dismantled in the private sector, and they are going to take a while to rehire and to ramp-up. That's the first thing.

The second part is, that banks, while they are more constructive on lending today, are definitely looking harder at balance sheets, and they want real balance sheets. They don't want the kind of balance sheet they looked at in the past, or they maybe didn't even look at (inaudible) in the past. So even though construction financing is available, it's not available in the broad sense like it was at the peak of the market a few years ago. Just to give you a sense, there was a webcast last week where the ex-head of Trammel Crow, Charlie Brindell, was on the line, and their capacity, they said, has been cut by at least 50%. And in terms of their ability to build, if they have the capital, and if they have the development pipeline. So I think that is pretty typical of most merchant builders; their capacity is cut by at least 50% and probably more.

Okay. Then lastly, one quick one for Keith. Which market strength surprised you the most on a relative basis, versus expectations in the first quarter?

Raleigh and Charlotte. For sure. You know, at the beginning of the year, we rated Raleigh as a B plus and stable. And I think it is pretty clear right now, that if I were doing that again, that would probably move up to an A and improving. Raleigh had a great quarter. And then, Charlotte we rated as a B and improving. That's probably right, it's just improving at a rate that is much more pronounced or faster than we thought it would. I mean those are the ones that kind of jump off the page at me.

Thanks guys.

You bet.

The next question comes Gaurav Mehta at FBR.

Can you talk about your property taxes expectation in 2011?

Yes. Our expectation for 2011, that property taxes would be up somewhere between1.5% and 2% over the prior year.

I think on the last call you mentioned that you are expecting some pressure on the taxes. Has your view changed at all in the last couple of months, or are you still seeing the same trends?

I think we're seeing the same trends, and we still haven't gotten much information out of the municipalities yet. We will have more information on that as we get through the second and third quarters. We did see a little bit of higher property taxes at our Virginia communities, but nothing outside of that.

Real interesting issue on property taxes is, obviously, municipalities and local governments are struggling with revenue issues. But the other hand, you still have this backlash of governments not wanting to raise taxes. And so, here in Houston, for example, I think there was laid-off something like 7000 people in the municipal governments, between the county, the city, and the [HISPs] and the schools. And you have this situation where I think that they are very reluctant to raise taxes and raise no rates in this environment, given the tea party movement and backlash towards -- anti-tax increases. And that's been an interesting phenomenon that we didn't think would happen, but has.

And second question regarding your debt. You have some debt coming up. What are your plans to refinance that? Have you given any thought to that at all?

We thought it about it a time or two. We clearly have various plans in place to take care of our debt. We obviously have a very strong balance sheet. We will be approaching that debt over the next year to make sure that we get it appropriately refinanced. But it's definitely on our radar screen and we're trying to do it in the most efficient way possible.

Thanks. Last question -- on the West Coast markets. What is your outlook for the West Cost markets in 2011?

From our last call, when we were rating the markets, we had Southern California as a C plus stable, and it still sounds about right to me, based on our first quarter results. So, the Phoenix market, we had it as C improving. I think that's still sounds about right. And we had Las Vegas as a D, stable. I wouldn't revisit that one either. I think those are still about as we expected they would be at this juncture in the year.

Thanks. That's all I have.

Our next question comes from Jeffrey Donnelly at Wells Fargo.

Good morning guys. Just a question, because of your reference to higher oil and energy prices benefiting the Houston market. I'm curious what your experience is, and how that manifests itself, in practice. Do you typically see a direct benefit from incremental hiring and demand in that market in the short run, or is it really a greater feeling of wealth in town, because when you look at the near-term results for you guys in Houston it doesn't necessarily show up.

The most direct impact and the thing that is most clearly correlated with performance in our business is just employment. And if you look at -- the latest revisions to the job growth forecast in Houston for 2011, are in the 72,000 total range. That's a big number. And it's enough to move the needle. I can tell you that just looking at where we were in Houston as we ended 2010, and then looking at where we are today, our occupancy is back up almost to 94%. We got really good traction on renewal increases, as well as new leases, and this is all a very recent phenomenon for us.

I think when we had the Houston at the beginning of the year in our rating, I had it as a C plus stable. And there's no way that I think that -- that's clearly one that I would revisit the rating on. I think that by the end of this year, Houston will be in the solid B category. My guess is that we will see in Q2, we will see revenue growth in Houston, versus the slight decline we saw the first quarter. So I'm pretty bullish on Houston right now, and it primarily has to do with the creation of jobs; a lot of which is, in fact, driven by the oil -- the services side of the business, not necessarily the offshore drilling, which is still not been a good contributor because of the effective moratorium on offshore drilling. So if that kicks in, I think we'll see another round of employment growth in Houston. It's just jobs, and I think Houston is poised on our radar screen to be the number one job growth market in 2011.

So if you averaged 91.5% in the first quarter, should we expect pretty strong sequential growth, it sounds like?

Yes, because as we sit here today, we are roughly right at 94% occupied in Houston, and if you look at the renewal increases, the new rent increases that we are getting to go with that, that's almost not hard to imagine a scenario where we don't have pretty decent sequential growth in Q2 in Houston.

I think the real issue in Houston was not so much the economy is much as it was the supply-side, because if you go back to the last cycle when all of the merchant builders were building at full tilt, Texas had nearly 40% of all the construction starts, pre-great recession. And we were working through a supply issue in Houston at the same time that we had the economic downturn, even though Houston's downturn was nothing like the rest of the country. It was very modest. We didn't have the big run-up in housing prices, or anything like that. So, the Houston economy -- our portfolio is really responding more to a supply issue coming to an end, as opposed to a market that hasn't been resilient from a job growth perspective.

Can update us on Phoenix and Las Vegas, and what your outlook there is?

Yes, I think Phoenix is a market where you can begin to see the beginnings of a decent recovery, and again it all gets back to the employment outlook. Phoenix, right now in 2011, we are projecting to see about 46,000 new jobs created, which again in that market is sufficient to move the needle. And Las Vegas is projected to have positive job growth, but it's not nearly that robust. Structural problems are tougher in Las Vegas with regard to housing, and with regard to the employment drivers. Even though we are not really seeing new layoffs in the casino industry, the big change in the last six months has been not new layoffs, but cutting hours. That has the same impact with regard to affordability, and what you can do from a pass-through of cost standpoint in housing. Las Vegas is definitely more challenged than Phoenix, although I do believe that, as Ric mentioned, we will see positive revenue growth by the end of the year in Las Vegas; and I think if job growth continues to happen there in 2012, we've certainly got room for overall improvement in our portfolio that would be centered in Las Vegas.

And just one last question -- is there any opportunity to be opportunistic on the acquisition side in Phoenix, then?

When you think about the acquisition side, there is no shortage of data about how great the apartment fundamentals are. And there's a wall of capital trying to invest in apartments. So, I think the idea of opportunistic investments in buying things really cheap is very difficult. The acquisitions we are doing today, we are buying a lot of them below replacement costs, and the people that are selling them to us are losing money. But, on the other hand, when you look at it on a cap rate basis, or on a relative value basis, while we are buying by the pound at a decent price, your cash-on-cash returns are very low, because people are underwriting significant rent in these markets. So, on a one-off basis you may get an opportunistic deal, but generally speaking, those transactions are very difficult.

Thanks guys.

Our next question comes from Eric Wolfe at Citigroup.

Hello. Thanks. We've heard pretty consistent commentary about most markets this week, except when it comes to Southern California. I was wondering, as you look through your portfolio and think about where rental rate growth will likely be the strongest over the next couple of years, where Southern California shakes out in that comparison.

You know, on our rating chart at the beginning of the year, out of 15 markets we have Southern California as number eleven. So I think it's lower third with regards to rental increases. But we are going to get rental increases, and we are getting rental increases, but you're just not going to get that kind of rental increases that we're experiencing in DC Metro and Tampa and Dallas and Charlotte, and in Raleigh, and in Denver. I still think it is probably bottom third. We rated Southern California, and that in our world encompasses LA County, Orange County, and San Diego we rated it as a C plus stable and that still feels about right to me.

And you don't think that changes anytime soon? Obviously, some of your weakest markets have been turned into some of the best fairly quickly. I'm just wondering if you can see a catalyst forming there for that to happen, because obviously there seems to be a lot of sort of optimism going into 2012. I am just wondering if you share that optimism?

Yes, I am certainly not as optimistic about a bounce or strong recovery in Southern California as I think some of the other commentary has been, and again, it gets back in our world to looking at jobs. If you look at the jobs that we are expecting to be created across that platform, yes, it's just not enough to move the needle. You're talking about Orange County for 2011, 20,000 jobs. San Diego is in the 22,000 job range. That is interesting, and those are helpful. But in a market that size, it's just not enough to move the needle. We're probably a little bit more cautious. I think it still feels like it's probably in the bottom third of our portfolio. But, at the end of the day, we are going to get decent growth there. It's just going to pale in comparison to what we are seeing in some of these other markets.

Got you. Second question. If you look at the data over the last couple of days in pending and existing home sales, it seems like there's a little bit of a pop in the south. Obviously, it's coming off a low base. I know you mentioned that you're turnover for home purchases was at an all time low right now. Just wondering if you can see anything going a little bit forward that makes you a bit nervous -- people hearing anecdotally that people are shopping around? Something that can change that turnover picture?

The interesting thing is that the last three quarters across our entire portfolio have been 10.6% move outs to purchase homes, the next was 10.5%. And this first quarter was 10.4%. Those are the three lowest data points on that series that we've ever seen, going back to you know the early 1990s. And so, it's not -- the things that have changed both in terms of the financial impediments but also the psychological impediments I don't think get unwound just because you get a pickup here or a blip there. I think there has been a real and probably prolonged shift in the investment thesis.

It will eventually change; everything always does. But I don't think we are talking quarters. I think we are talking years, in terms of that psychology changing. The issue with regard to, can the average resident in one of our apartments buy a home -- the financial side of that is more about the impediment being proper underwriting in today's environment; versus where it was three or four years ago, where you had no doc, low doc, liar loans and all that. Requiring a 10% real live down payment is still a huge impediment to most of our residents' ability to buy a home. You couple that with the psychological impact of, everybody in their world, or if it's not them, they know someone on a first name basis who has kind of gotten blown up on their last foray into the housing market.

I think it's a longer-term issue -- could I see, by the end of the year could it have been picked up to 12%, 14%? Sure, I think that's very possible. But keep in mind the long-term average in our portfolio going back over 15 years on this metric is about 18.5%. We saw the all-time high was about 24% at the very peak of the madness. We're back to the long-term average, call it 18.5%, and we're at 10%. We operated this portfolio really effectively and got some great rental growth while we were in the high teens from a move-out perspective. I'm sure we're kind of bumping along the bottom. It's hard for me to see it going below 10%, but it's hard for me to see it going back to 18% anytime soon.

That's helpful, thank you.

You bet.

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

Yes. Hello. Good morning.

Hello, Alex.

Just two questions. The first one is on the occupancy. Clearly, landlords are benefiting, there's a lack of supply; you just talked about how housing isn't really attractive option. As we think about the balance of the year, clearly you're getting some traction pushing rents. What should we expect as far as sequential buildup in occupancy? Where do you think we will be, in third quarter and fourth quarter, and end up for the year?

Yes, we are at 94.8% right now, Alex, and this was on our last report we just pulled. Our plan that we laid out at the beginning of the year, I think it had the peak occupancy in the portfolio with 95% and change. I think we will see that; we're likely to see that in Q2. But again, if you ever see us with a 96.5% print on occupancy in our portfolio, then we made a mistake. That's not where we want to be. We want to be in the 94.5% to 95% range, which is where we are right now. The lever on that, is obviously pricing. And so, we will keep pushing rents to maintain the occupancy around that 95% range, which we consider to be the spot where we maximize our revenue; and right now, the good news is that we're getting not only strong rental increases, but we are able to move the occupancy needle up during the quarter, and then that really kind of accelerated in April.

To do this, are you letting YieldStar do its thing, or are you overriding YieldStar, and you are just manually doing inputs to achieve these results?

You know Alex, we always -- YieldStar is a tool. So we have a great discipline in our operations around the use of YieldStar as the baseline metric. But we also have flexibility where it warrants, to tweak those by acclamation in terms of our operating levels. When YieldStar was pushing rents down, it was probably pushing them harder down than we would have liked to have seen, or we thought was appropriate. We made adjustments, and the same thing on the way up.

Okay second question. The Midwestern, the JV sale. Can you just give us an update, especially with all of the money that's floating around there. Just curious what's going on, if it's a pricing thing, or if it's just having something to do with the capital once you get it; so maybe you don't want to sell it until you have a place to redeploy it. I just want to get an update.

You know we are not -- right now neither sale is imminent. They're still working on them. Our joint venture partner is really driving that train. As you know, we only have a 15% interest in those two portfolios. Probably a little bit of lofty expectations of pricing going in. You had an expectation that was set that the market was probably not going to get to. But we are still working on it.

I mean they are still going down the trail; we are still having conversations with prospective buyers. But as we sit here today, I think that if I'm handicapping it, the chance of a Midwest, a St. Louis sale by the end of the year is very low, percentage-wise. The chance of the sale in the Louisville portfolio -- call it 30% or 40%. By the way, both those portfolios have been under contract and worked through due diligence with a couple different groups, and ultimately fell out of contract. 3 months ago, I would have handicapped that as, sort of 70% St. Louis, and 90% Louisville, and that is not where we are at today.

Okay thank you.

You bet.

Next question comes from Karin Ford at KeyBanc.

Hello. Question for Keith. Can you talk about where your May and June renewal notices went out?

I don't have that in front of me. I can tell you that we have already renewed 55% of all of our April expirations. We renewed about 26% of all the May explorations. I gave you the number for April on increase in renewal rents. And it was up about 6%. It's kind of hard to look at the trajectory of where we are right now and not believe that it's going to be least in the 6% range up, on renewals. Excuse me, on new leases; and on renewals, we were closer to 8%. So those were strong numbers for April, and it's hard to kind of see a rapid reversal of that, given the other underlying strength that we see in our markets.

Thanks. Second question is on development. Have you changed your expectations that you initially laid out for starts for this year? Have you increased that at all? And it didn't look like you had added any land parcels during the quarter, but are you actively try to backfill the pipeline and increase it from here?

We have not changed our expectations in terms of starts this year. We are trying to accelerate some of the existing land parcels that we do have. And we are looking at new land tracts; we have quite a few sites that are still in the pipeline that would be late 2011 and early 2012 starts. So our first focus has been to deal with the land that we have in our existing pipeline. And then to add to that pipeline, but we are definitely looking at and working on new pipeline land transactions.

Great thank you.

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

I'll just stick on the land topic there for a second. Is there any thoughts to selling some of the parcels, given the demand we're seeing for land for development sites; and also just curious to get your thoughts on redevelopment at this point?

On land sales, the only reason we would sell land is if we didn't like the location or we couldn't make the development work from a return perspective. And at this point, we still like the land we have, and we still think that we wouldn't have bought it if we didn't like the location; and we think that it makes a lot of sense to continue to develop the parcels. If we get to a point where we still can't make the numbers work, and somebody else can make the numbers work, and wants to take that piece of land off our hands at a price, then we will sell it. Your second question was about redevelopment?

Yes, it was redevelopment strategy.

Redevelopment -- we are working on redevelopment projects. We have a number of properties that are in various stages of redevelopment, and we're looking at returns of 7% to 12% on the redevelopment pipeline. We have a sheet in our book somewhere with notes. Clearly we would rather redevelop than do anything else, because we get great returns on existing assets when we're improving those assets.

The second one is, in light of the California -- you were talking about California being a slower recovery. Just curious as to what the California strategy is. We haven't seen a lot of acquisition activity from Camden in recent years, and there's nothing really in the development pipeline at this point.

California is the core market for Camden. I think our percentage of same-store NOI in there is about 10%. And we have been an active developer in California over the years. We clearly haven't done anything in a while there. I think we were fortunate in the last cycle by killing a lot of potential California development deals that were all pro forma, had 5% with rent growth, total returns. We did a good job by not building when could have. And I think that longer-term, we plan on being an active participant in the Southern California market, and the California market in general. While it's isn't growing as fast as some of our existing markets, California is not going away. It is going to be great market long term, and we're going to be a participant.

Thank you.

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

Thanks very much. Just one question. Can you talk a little bit about the process behind your decision to sell the DC land parcel to the fund.

Sure. The DC market is our largest market. Something like 17% of our net operating comes from DC market. The two particular properties, we have, South Capitol, which is obviously south of the capitol and across the street from the ballpark. We have two sites north of the capitol in NoMa, and we are starting the NoMa property, which is a $120 million or $130 million property, in probably the third quarter. And with the South Capitol property, we would've had $200 million of transactions, a little over $200 million within a fairly close proximity to each other; so we decided to diversify our risk by putting the NoMa project on our balance sheet at 100%, and putting the South Capital transaction into the fund.

Thanks very much.

The next question comes from Andrew McCulloch at Green Street Advisors.

Good morning. You guys seem pretty optimistic about Houston. What was the thought behind selling the 3 assets there? Was that driven more by your JV partner?

No it wasn't driven by JV partner, it was driven by us. You know we are fundamentally trying to simplify our balance sheet. And so what we have done over the last 2 years, we have lowered our number of joint ventures and really just sort of cleaning up a joint venture relationship that wasn't going to be expanded. So it made sense for us to do that, and we did it at a reasonable price. It's not just to do with Houston, it's more of a strategic view of having a more simplified balance sheet.

Got you, and then on the acquisition market, has anything changed in your view with respect to potential portfolio acquisitions?

There are a number of portfolio acquisitions that are in the market, and we hear of more coming. I think that the word on the street is that there are a number of portfolios positioning over the next 6 or 8 months, and towards the end of year, we think we are going to see more of that. There have been a few that have been around; some of them have been pretty low quality and didn't get a lot of bids. But I think there are going to be more opportunities out there. I think you have, on the one hand, sellers, owners that look at the market and say, gee, why would I sell today when I have all of this robust rent growth. And on the other hand, they have debt maturities coming up in the next year or two, and they worry about Freddie and Fannie going away; they worry about interest rates rising, and maybe they take money off the table a day. I think there's sort of a combination of those kind of folks thinking out there. And I do think there will be more portfolio transactions occurring in the next year and couple of years.

Great, thank you.

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

Good morning everybody.

Good morning.

My question is, usually in a good fundamental multifamily environment, new lease rent growth is greater than renewals. And while the numbers are fantastic, of course, why do you think that that hasn't flipped yet, and that you haven't seen new leases growing at a faster clip than renewals?

Well Rich, I think we are headed there. In our portfolio, just to put it in perspective, in November, the gap between renewals and new leases was, call it 5.2%. At the end of April, that gap had shrunk to about 2%. So, I think it's headed that direction. You know, at the rate of change that we are at right now, I think you can project forward and see that probably happening sometime in 2011. And your premise is correct. I think the timing is, you're probably about 2 quarters ahead of the game.

If you look specific markets, for example, we call these markets the Cheeseburger in Paradise markets.

Right, yes.

We see your e-mails. With that said, Charlotte, for example -- new leases were up 12.6%. This is the month of April. And renewals were up 8.3%. Houston also had higher new lease gain/loss versus renewals, and so did Orlando. Of the other markets, as Keith pointed out, are starting to make that gain, and we were just talking about this issue before the call. You got to bridge the gap to start with, and then the objective is to get our new leases higher than the renewal leases.

The second question is, what are you guys doing, if you can point out one or two things today, that represent something that you learned from the past -- you know, when we were heading into a downturn. Is there anything that you're preparing for now, in terms of either development or whatever, for the eventual return of supply, and the eventual situation where it starts to push back on all of this rent growth? Are you doing anything to think a couple years ahead at this point, or is everything just so great you've kind of got the blinders on?

Obviously, clearly in the great times what you have to do is, you have to prepare for the bad times. This is the cyclical business; we know that. It's tied to the economy, and if the economy goes south again, so will rents. You know, one of the big things we've done over the last couple of years is strengthen the balance sheet dramatically. So you'll see us continuing to strengthen our balance sheet, getting our debt-to-EBITDA down in the 6 times range. We will clearly never use debt to market cap as a metric, ever. We will be in a position also where our development pipeline will be clearly a lot more manageable than it was at the last peak. We are definitely very focused on maintaining a strong balance sheet and not getting too committed without having the capital to fund those operations.

Okay thanks.

(Operator Instructions).

Our next question comes from Steve Sakwa at ISI Group.

Good afternoon. Could you, or Keith, maybe just talk a little bit about underwriting that you are seeing in the marketplace. Where do you think unlevered IRRs are today, and if you think they vary by market? Any color or commentary would be great there. And, how are you guys adjusting or thinking about underwriting, as you look at those acquisitions and dispositions?

Unlevered IRRs are probably in the 7% or 8% range. I think that those are fairly uniform within the markets. I don't think that people are doing much; there's not much variation between, say Houston and DC, when it comes to unlevered IRR. In terms of underwriting, clearly people are underwriting more aggressive rent increases to start with, because of the obvious evidence out there that you can get them. And so, cap rates probably for core and every market including -- I don't think there's much differentiation in any market, other than maybe Midwest, or some of the markets that Detroit and places like that. But cap rates for core are anywhere from 4% to 5%.

Cap rates for B, or maybe outside the core a little, are somewhere between 4.75% and 5.5%. And there's not a lot of differentiation between the markets. Once you get out into the really off the radar screen in terms of what most buyers are buying, you can get into some really big cap rate numbers, where people are wanting 7%, 8%, 9% for really bad stuff. With that said, I think that the acquisition market is going to be -- especially when you get out of non-core -- it's very sensitive to interest rates, clearly. And there's a fair bit out there with interest rates where they are today in those zones.

I guess if you were to look at 4% to 5% going in cap rates, and assuming some kind of reasonable exit cap rate, don't you need NOI growth over the 10-year period that is better than what you've gotten over that last 10-year period? And is that a reasonable assumption to make?

Well, I think that if you're buying at 4% cap rate, you need definitely major aggressive rent growth to be able to get to an 8% unlevered. When you look at historical growth, when you are at the bottom of the cycle moving into the upper part of the cycle, we have seen growth rates of 20% to 40% on NOI. You can make those numbers work, if you assume you're going to get those kind of growth rates. I think that clearly the real question ultimately is, will your growth rate be maintained over a long period of time, because you obviously have cycles to deal with. You may have 30% or 40% run-up in your NOI growth during the first part of the cycle for the next cycle, and then you have a decline in your NOI; and the question is, how do you make it through that cycle to get to get your total overall return. It's clearly riskier to buy a 4 and hope for growth, than it is to buy a 5.5 and hope to lower growth.

If I've missed this comment on DC, I apologize. Did you just make any general comments about DC, and government spending, and how you're thinking about DC as the marketplace?

Yes, I'm holding my breath. You know waiting to see the first sign of actual reductions in government spending, so we'll see. We have not seen any impact. Our revenues grew in DC Metro 7.5% for the quarter. As you kind of look out, and you look at the opportunity that we think exists there throughout the balance of this year, we think you're going to be somewhere in that range. You look at what we are doing right now on renewals and new leases in DC Metro, and it continues to be incredibly strong. The renewal forecast right now in DC Metro on expiring leases is in the 10% range, and on new leases it's in the 7% range. So, no discernible impact so far. Clearly, if there is some grand bargain, and it involves a dramatic cut in federal spending, then ground zero for federal spending is DC Metro. So, we will see.

I think clearly, there's a reasonable correlation between job growth in DC and government spending. We clearly are looking at it over the long term. I don't think anything, as Steve pointed out, is going to happen in the short term . It is definitely a consideration you have to look at over some period of time.

Steve, just to put it a little bit in perspective on that, the issue with DC Metro and spending is what happens more on the discretionary spending, which is as it turns out a fairly small piece of the overall puzzle. If there were a grand bargain that moved back the eligibility age for Social Security and dramatically constrained the growth in Medicare spending, there's just no reason to believe that that disproportionately impacts Washington DC. Where are the beneficiaries? Where are those transfer payments getting made. Somebody has to make the transfer payment whether it is $100 or $90. You know at the end of the day, yes, there is impact, but I think it's more around the piece of the discretionary spending that they are kind of playing football with right now.

Okay thanks very much.

You bet.

Our next question comes from Bill Acheson at Ladenburg Thalmann

I realize we are running out of time. Can you hear me okay?

You bet.

Your occupancy rate average was the lowest by 150 basis points. I know it got better by the end of the quarter, but frankly, I'm looking at what is the current -- your revenue seems to -- revenue increases 1.5% first quarter to fourth quarter. The highest in the group. What is your current thinking?

Our current occupancy rate is 94.8%.

Right.

Our thinking is, as Keith pointed out earlier, is that we are not occupancy-focused. We are revenue focused, and we are driving revenues both on the rent line and the occupancy line, and ultimately our occupancy will be in the 95%, 95.5% range. It gets down to, if we wanted to be 96% or 97%, so that everybody would be hunky dory, we could; but we think we would get less revenue overall by being 96%, 97%. And keep in mind, in a lot of our markets, like in California, for example, and DC, our (inaudible) are very high and that's normal for those markets. It's not normal in Tampa, Orlando, South Florida, or Houston or Dallas to have 96% or 97% occupancy. Part of it is our choice, and our belief that we can maximize revenues by managing our occupancy at the margins; and second, it has to do with our markets as well.

Second question, the biggest question I'm getting from investors is, when does the inflection point in Washington DC happen? With the decrease in government spending, decrease in government employment, are you seeing anything like that happening?

You know, that's the question for sure for DC, but when you think about where the government is today, will it happen, and when it happens, whether the ultimate effect, as Keith pointed out a minute ago, the biggest part of the budget problem is entitlements, and not necessarily discretionary government spending. When you get down to it, it's going to be quite a while before you see any massive layoffs in DC, because the government got their stuff together and were able to figure out how to come up with a compromise.

Okay, and just one follow-up here. Is there any discernible benefit from the oil services activity, because we've got a higher oil price?

Absolutely. There is. Especially when you think about a higher oil price, what that does, is it makes other oil or other energy sources more attractive. One of the benefits of high oil for Houston is that it makes drilling more profitable, it makes service companies more profitable, and one of the byproducts that people don't really realize is, you hear a lot about this natural gas fracking. There is a major, major natural gas boom going on across the country, and in Texas, where they figured out how to use this fracking mechanism to get gas out of the ground, if you go over to San Antonio and West Texas, you can't get hotel rooms. They have housing shortages in the cities, where all of these workers are basically staying in trailers or in tents now, because of all of the jobs associated with the fracking. Eagle Ford, out of San Antonio, the Austin Chalk, even Midland Odessa is doing really well because of this natural gas fracking.

Okay, outstanding guys. Best of luck to you.

Take care.

Okay so we are going to conclude the call now. We appreciate all the comments and questions, and we will look forward to seeing everyone in June. So thank you very much.

This does conclude today's conference. Thank you for attending.