Camden Property Trust (CPT) 2011 Q3 法說會逐字稿

Good afternoon, and welcome to the Camden Property Trust third quarter 2011 earnings conference call and webcast. All participants will be in 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. I would now like to turn the conference over to Kim Callahan, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining Camden's third 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 a reminder, Camden's complete third quarter 2011 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. We ask that you limit your questions to two and rejoin the queue if you have additional questions. If we are unable to speak with everyone in the queue today, we'll 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.

Thanks, Kim. Based on Camden's operating results in the third quarter for Houston, Dallas, Austin, and Charlotte, the South is definitely rocking again. The continued strength of our operating results has been driven by the same macro factors throughout the year as follows. Limited new supply pressure, which we think will continue through 2013, continued negative consumer sentiment towards home ownership, and continued employment growth in our markets.

Since the beginning of 2010, 2.7 million plus jobs have been created. More than two-thirds of these jobs have gone to people 34 and younger, which represent the sweet spot of our customer base. Camden's markets experienced more than double the national average in job growth over the last three months, and are projected to exceed double the national average over the next 12 months. If you look over a 20 year historical time frame, our markets have grown jobs at more than double the national average. We think that's going to continue. We expect the strong operating fundamentals to continue and accelerate if we get even better job growth.

All of our markets, with the exception of Las Vegas, did well in the quarter, in spite of the softness in Las Vegas, there are some positive signs on the horizon. Las Vegas posted the best year-over-year job growth in the last month since 2007. In addition, year-over-year numbers are all pointing upwards for Las Vegas. Air traffic is up 8.7%, convention attendance is up 19.6%, hotel occupancy is up 2.1%, average room rates are up 11.1%. With virtually no new supply on the horizon, all of these metrics point to a better market in the next few quarters and next year. While Las Vegas represents only 6.5% of our same-store net operating income, the under performance has been a drag on our overall same-store revenue and NOI growth rates.

Excluding Las Vegas from the third quarter revenues, our revenues would have increased to 6.8%, 50 basis points higher. NOI would have been 8.1%, or 70 basis points higher. I point this out because I think Las Vegas is a great opportunity for us next year to accelerate growth as the market improves. Our team in the field and the support teams and corporate teams at the regional offices -- the Corporate office are prepared to step up and end the year strong, I'm sure. And so with that, I'll turn the call over to Keith Oden.

Thanks, Rick. Before I address our operating metrics for the quarter, I want to spend a few minutes to address two themes that investors have been wrestling with some time regarding multi-family business. The first is what impact is the overhang of vacant single-family homes likely to have on the demand for multi-family rental housing? In other words, are we going to lose a ton of residents to single family rentals? And the second is, will the home ownership rate continue to fall, and how will this affect the multi-family sector? In other words, are a ton of our residents about to become single family homeowners?

Like all of our multi-family peers, we've addressed these themes numerous times in the past, though primarily with either portfolio-specific or anecdotal evidence; however, there's been some interesting research published recently that helps quantify the impact of the two trends are likely to have on our fundamentals.

Regarding the single-family overhang, we have argued for some time that single-family homes are a poor substitute for multi-family housing. To a large degree, our view was based on the observation that our typical resident, 40% of which are under 30 years old, do not have lifestyles or life circumstances which are compatible with living in a single-family home in the suburbs. By and large, our residents want to be near their jobs, friends, and fun. As evidenced, we noted that the percentage of our residents that selected moved out to rent a single-family home or condo has never exceeded 4.1%,and has been very stable between 3% and 4% throughout the housing crisis.

So how likely is this to change due to an increase in single-family rental inventory? We continue to believe that it won't change much. Consider the following. A recent Federal Reserve study found that 90% of single-family households that went into distressed and/or foreclosure ended up staying in some form of a single-family home. Also, the average family size in a single family home is 3 versus 2.1 in multi-family. Combine this with the fact that 95% of multi-family homes have fewer than three bedrooms, and that the average single-family home built since 1990 is 2,100 square feet, whereas the average apartment is only 900 square feet, and it's easy to understand why these two cohorts live where they live. We continue to believe that the single-family housing overhang has been, is, and will continue to have only a marginal impact on multi-family demand.

The second theme is what impact will the long-awaited economic recovery have on single-family home buying? Currently, the home ownership rate is 66.1% nationally, down from a peak of almost 70%, but still above the long-term average of 65%. This is another way of saying that fewer and fewer people are buying homes, whether the homes are newly constructed, foreclosed, or existing home resales. This is obviously a net positive for rental housing, both single-family and multi-family. It leads to the question of how long the trend will continue, and how will an eventual recovery impact the rent/buy decision?

From Camden's portfolio, consider this. Two markets which are experiencing something that looks a whole lot like a traditional recovery are Houston and Austin. Both cities are seeing robust economic growth, along with enough job creation to move the needle, 65,000 jobs projected in Houston this year, 17,000 new jobs projected in Austin. Single-family homes are both plentiful and affordable in these markets. All the conditions that would historically support strong single-family home sales are in place, yet single-family home demand is still weak.

In Houston, the home ownership rate fell a full percentage point between the first and second quarter of this year, a huge decline. In addition, the percentage of our residents who moved out to purchase a home in Houston was only 9.3%. In Austin, the stats are even more stark. The home ownership rate fell 1.7% between the first and second quarter of this year, and move outs to purchase a home were only 8.5%. In a normal recovery, these two cities would see move outs to home purchases in the 18% to 20% range. Clearly, there are other impediments to home purchases at work. As we previously argued, consumer attitudes regarding home ownership, and tighter lending standards are the two most likely culprits.

Our metrics in Houston and Austin suggest that home sales are likely to be anemic well into the much anticipated recovery in Camden's markets. So what does all this mean for multi-family investors? We believe that it's quite likely that the tailwinds we are experiencing from the declining home ownership rate will be with us for some time, with or without a strong economic recovery. What it means for Camden is that the third quarter was strong, and the outlook is consistent with our view that 2011 to 2013 will be the best years in the multi-family business in the generation.

Now back to our third quarter results. Our third quarter same-store results were solid, with 6.3% revenue growth, 7.4% NOI growth. Our best performing markets were Austin, Houston, Dallas, Phoenix, and Charlotte. In fact, every market but Las Vegas had 5.5% or better revenue growth in the quarter compared to a year ago. Our sequential revenue growth was 2.1%, which is the sixth highest growth rate in 38 quarters of reporting this metric. For the quarter, average renewal rents were up 8.5%. Average rents on new leases rose 3.9%. Our turnover in the third quarter was an annualized 73%, due to normal seasonality; however, our year-to-date turnover is 57% versus 56% last year. As I discussed earlier, the percentage of move outs to purchase homes remains near all-time lows across our portfolio at 10.5%.

Our traffic continues to be strong, up 4% from the prior year in Q3, which continues to support our ability to raise rents aggressively. Our average residents' financial condition continues to improve. Despite pushing rental rates, the rent-to-income ratio actually fell from 18.5% to 18.1%, due to an increase of 4.5% in average household income from the second quarter to the third. These solid results are made possible by our 2,000 professional associates who put smiles on the faces of our residents every day. To all of our associates, I encourage you to stay focused and finish the year strong. And don't forget, the outcome of Mr. Stewart's bet rests in your hands. I'll now turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith. My comments on the third quarter results will be limited today, as our operating results were generally in line with our expectations, and there were no unusual or non-recurring items in the quarter requiring further explanation. Our funds from operations for the third quarter of 2011 totaled $58.8 million, or $0.77 per diluted share, representing a $0.01 per share improvement from the mid-point of our prior guidance range of $0.74 to $0.78 per share. This $0.01 per share better- than-expected performance was entirely due to higher-than-anticipated revenue growth across our same-store, non-same-store, and lease-up communities, driven primarily by rental rate increases and slightly higher realization rates on other property income.

Total property expenses continued to perform in line with our expectations for both the third quarter and the year-to-date periods. And as a result, we have not changed our original full-year 2011 same-store expense growth guidance. We still expect full-year 2011 same-store expense growth within the range of 2.75% to 3.25%.

Even though our expenses are in line with expectations, I thought I would just spend a little time going over some of the year-over-year changes in same-store expenses as detailed on page 15 of our supplemental package. Property taxes are trending a little better than our original expectations, due to lower tax rate increases in a number of our markets. Salaries and benefits are up 6.1%, with approximately 3.1% of the increase due to budgeted increases in payroll costs. The remaining 3% increase is the result of unusually high claims activity related to self-insured medical and Workers Compensation claims. Utilities are up 6.6%, with 2.9% of the increase due to the continued rollout of our cable TV and Valley Waste initiatives in our portfolio, and 3.2% of the increase is due to higher water expense across our Sun Belt markets experiencing drought conditions. It should be noted that over 80% of our water expense is billed to our residents, with the recovery included in other property income. Repair and maintenance expense is up 4.9%, primarily due to a slight uptick in unit turnover cost, growing off a 2010 base year which essentially had no growth in R&M expense over 2009. Property insurance expense is down 8.3%, due entirely to lower levels of self-insured property and general liability insurance claims. So in summary, favorable variance in property taxes and insurance are offsetting some non-recurring unfavorability in salaries and benefits and utility expense resulting in our full-year guidance remaining unchanged.

Before I leave expenses one additional stat that I thought was meaningful in illustrating our success in controlling costs over the past five years, if you exclude the utility expenses associated to the rollout of our cable TV and Valley Waste initiatives, same-store property expenses, as forecasted through the end of 2011, will have increased only 0.8% on average for the past five years. That compares to the peer group average increase of 1.5% per year.

On the balance sheet side, we continue to be focused on maintaining the strong and flexible balance sheet to ensure that we are positioned to weather volatility in the capital markets. To that end, during the third quarter, we completed an amendment to our existing $500 million unsecured credit facility, extending the maturity date from August of 2012 to September 2015, with an option to extend to September of 2016. And we reduced our all in drawn costs to LIBOR plus 127.5 basis points, down from LIBOR plus 250 basis points.

Our liquidity position is sound with $56 million in cash on hand, full availability under our $500 million line of credit, $243 million in equity issuance available under our ATM program, no scheduled debt maturities for the next three quarters, and a manageable $291 million in debt maturities in the second half of 2012. Also as a result of our strong operating performance and our focus on reducing debt levels, our credit metrics have improved significantly. We expect our 2011 full-year fixed charge coverage ratio to be 2.7 times and our net debt to EBITDA to be approximately 6.8 times.

Moving on to earnings guidance. We have raised our 2011 full-year FFO guidance range to $2.70 to $2.74 per diluted share, with a mid-point of $2.72, rather than a $0.02 per share increase from the mid-point of our prior guidance range. This $0.02 per share improvement is entirely due to better-than-expected revenue growth across our same-store, non-same-store, and lease-up communities, which contributed to the $0.01 per diluted share improvement in FFO for the third quarter and an expected $0.01 per share increase in the fourth quarter of 2011.

Accordingly, we have revised upward the mid-point of our full-year 2011 same-store revenue and NOI guidance. We now expect 2011 same-store revenue growth within the range of 5.2% to 5.6%, and same-store NOI growth between 6.75% to 7.25%. As previously mentioned, same-store expenses in total continue to perform as expected, and we left our guidance range for 2011 at growth of 2.75% to 3.25%. Our revised full-year 2011 guidance also assumes no additional shares issued under our ATM program, approximately $75 million in disposition volume related to four communities which are expected to close in December, and a total of $146 million in on balance sheet development starts, as disclosed in our press release.

Our FFO guidance for the fourth quarter of 2011 is $0.81to $0.85 per diluted share, with the mid-point of $0.83 per share representing a $0.06 per share increase from the $0.77 per share we reported for the third quarter of 2011. This expected $0.06 per share increase is primarily the result of the following. A $0.05 per share projected increase in FFO, due to higher property net operating income, primarily due to the expected seasonal decline in utility, repair and maintenance, unit turnover, and personnel expenses. We expect property revenues to be relatively flat from the third to fourth quarter, as continued improvements in rental rates will be offset by an expected slight seasonal decline in occupancy, and lower other property income due to lower levels of leasing activity in the fourth quarter.

Additionally, we expect a $0.01 per share projected increase in FFO, due to a combination of slightly lower interest expense resulting from higher capitalized interest related to the increase in our development activities and lower amortization of deferred financing costs, due to lower line of credit facility fees resulting from the amendment to our line of credit in the third quarter. That concludes our remarks, and we'll be glad to answer any questions at this time.

(Operator Instructions). Our first question comes from Eric Wolfe at Citi.

Hi, guys. I'm almost a little scared to ask, but what's Mr. Stewart's bet, if you can tell me?

Yes, I can't reveal the details until I find out whether he won or lost, so stay tuned.

Okay, we'll look forward to that for the next call.

It has to do with pure performance measures.

Okay, that's helpful. For the $40 million land parcel you bought in Atlanta, could you just tell us when you plan to start the first phase, how much the project might cost, and what's your underwriting is on the development?

You bet. You talking about the Buckhead site that we closed on in the quarter. We'll start the first phase of that project in the middle of 2012. It's zoned for 900 apartments. We have a game plan right now to do it in two phases, the total of about 700 apartments. We paid $40 million for the site. It's an extraordinary piece of real estate right in the center of Buckhead. We've got two parcels that we'll -- outparcels we'll be selling. And when we're done with that, our total basis in the project and the land will be about $29 million. And on the number of units that it's zoned for works out to about $31,000 a door.

The land on the total purchase price net of the two outparcels that we paid about $30 a square foot. And there are very few, there are no land comps available for a track of that size in Buckhead, but the ones that are available are in the two to three acre range. And the cost per square foot on those would be more likely in the $70 to $75 a square foot. So we're extremely pleased with that parcel, and we think it's going to be a real anchor for our Atlanta portfolio.

The untrend on Phase one, untrended return should be in the 6.5% to 7% range after we do an allocation of land to Phase one. So we'll kickoff Phase one some time in the middle of 2012, and then depending on the progress we make on Phase one, we will make a determination on Phase two.

Great, and second question is just a quick one. Could you tell us what your lost lease is right now versus say just three months or six months ago? Just trying to understand how much you've eaten through that loss to lease over the last couple months.

Because we have repriced our portfolio, every online continuously, we really don't even look at the loss to lease as an important metric for us. What we try to give people is guidance regarding what's going on on renewals and new leases. So we continue to be able to push rents in our portfolio, and obviously, with our increase in guidance for the fourth quarter, we think we're going to be able to continue that in the fourth quarter.

Okay, I'll jump back in the queue, thank you.

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

Hi, good morning.

Hi, Alex.

And like the [skinner] there, that was good stuff. On the summer leasing, and yesterday we heard from one of your peers that talked about a summer pause that caused a temporary slowdown in August and September. Just curious, across your portfolio, did you guys pick up on any slowdown in any either in any market or any submarket or perhaps by price point?

We really didn't, Alex, and there is a lot of conversation about what we were doing in the DC-Metro area. And we did consciously make a decision there because of the structure of our lease expirations that we had coming up. We made a conscience decision there to make sure that we had maintained our occupancy. And despite all the trauma that that comment caused, at the end of the day, our portfolio in Washington DC-Metro was at the top of the peer group again for the third quarter on both quarter-over-quarter, sequential, and year-over-year.

So, but as far as any broader trend or any other adjustments, we did not make any. And again, you've heard comments from some other companies about maybe traffic being below what it was in prior years, which would have led to a slightly different take or strategy on what they were doing on their rental rates. But our traffic quarter-over-quarter over last year was up 4% across the portfolio, so that just other than the normal ebbs and flows in seasonality around expiration dates, we just didn't see it. And we don't see it right now. And again, based on that, we've raised our guidance again for the quarter.

And then second question is just with all the recent capital markets' volatility, and every day there's -- the Greeks seem to be doing one thing or the other. And if it's not there, it's the US Presidential election. As you guys think about capital outlays and restarting the development pipeline, and then also maybe for Dennis on the unsecured debt side, have you been more -- do you find yourselves being more, I guess more itchy finger on the trigger as far as slowing down? Or maybe either issuing unsecured now that that window seems to open? Or maybe a little more conscientious about maybe slowing down the development pipeline, just in case things start to get even more volatile? Just thinking back to 2008 when the market started to get nervous, there were signs there. And then it obviously, Lehman happened, and everything stopped, at which point it was too late. Just curious how the recent volatility has impacted your capital outlay decisions.

Definitely, it is -- you think about capital when you have wide swings in the stock prices and unsecured bond spreads, and what have you. The way we look at it is we have a basically a three-year rolling strategic plan that we present to our Board and that we use as a model. And we stress that model a number of different ways, and have multiple outcomes based on capital allocations and development pipelines. And so, when we stress the model, we look at it on a quarterly basis and decide what development spend we want and what acquisition disposition program we want. And it just depends on what's going on in that quarter. And if something dramatic happens, we can clearly pull the reigns back on development or other activities to make sure that we don't get overleveraged or that we're not in a position, if you have a repeat of the 2008 scenario, where we get in a position where we're uncomfortable with our leverage.

And if you, when you go back to what we did in the bond market in June, where we took out a $500 million maturity in 2012, that was a real strategic move at the time, because we had $750 million of on balance sheet debt that was maturing in 2012. That was a very fortuitous transaction. If we went into the bond market today, even though its opened up some, it would still be more expensive than when we did it in June. So we are watching the capital markets, and we definitely have a strategy with respect to maintaining our balance sheet integrity and making very, very specific moves on development, so we won't get too much development going on without having it funded. Dennis, do you want to add?

Yes, I'll just give you a little update on pricing. As Ric mentioned, if you remember we did issue back in June, $500 million of a split between 10 and 12 years. And the 10-year piece at that time was priced to yield right at 4.7%. And we got updated pricing as of yesterday post the BXP's execution. And it looks like if we went back into the market today, we would probably be issuing somewhere in the 4.9% to 5% range, so it's pretty good to get that behind us before the volatility in the credit markets of blew up on us over the last couple months. So just an update on pricing.

Okay, thank you.

The next question comes from Jay Habermann at Goldman Sachs.

Good morning, everyone. Question on DC and the recent start the Camden NoMa. Can you guys give us your thoughts and expectations for rent growth in the market in near term? Because for the quarter, it was slightly below average, but still pretty strong NOI growth. But obviously sequentially, picked up above the portfolio average trend, so I guess just outlook for DC going forward?

Sure. I think DC is going to be a solid performance. It's not going to be at the top of the pack, because we have -- it's moving around. And if you notice our portfolio, DC led the pack into this latest cycle, and now we're having some replacements of that of Dallas and Austin and others, but I think overall DC is going to have a reasonable rent growth going forward, maybe not as strong as some other markets.

We're looking very -- when we started that project in NoMa, we're looking real hard at the start numbers. And I know there's been a fair amount of chatter about development in Washington DC, but when you look at the number of starts that are out there today and the future starts, by 2014, we think we might get back to maybe 75% to 80% of peak deliveries. So I'm not too worried about the supply scenario just yet. Now if that ramps up dramatically in 2012, 2013, 2014, then I would start getting worried, but between now and really 2013, there's not a lot of deliveries that worry us too much in the DC market.

Okay, and I guess as you look out to 2012 what rent growth do you think you could achieve in the market, just based on where existing rents are today?

Well we're not talking about 2012 or at this point, if you look at Whitten and MPF, and some of the other ones that are out there, I've seen some numbers as high as three or four or five, but it just depends on who you listen to at this point.

Okay. That's helpful, and then just lastly, can you comment a bit, I think Keith made some comments with regard to seasonality in the fourth quarter, but you talked about the low move outs to single-family homes. Can you give us some sense of what you anticipate for this fourth quarter in terms of seasonality? Is this an atypical type quarter?

For move-outs to home purchases?

Just in terms of demand overall.

I think that we're, what we see right now is still a continuation of the trends that have been in place pretty much all year, Jay. Obviously, the fourth quarter has its own seasonality trends to it, and one of which is in our portfolio, we always eight out of the last 10 years, our occupancy rate has gone down between third quarter and fourth quarter, so we got to anticipate there will be some of that.

Second thing is that from the standpoint of lease renewals, we're still renewing at significant increases, but in the fourth quarter, we just have fewer opportunities to renew those leases. The total transaction volume third to fourth quarter, the fourth quarter is roughly 50% of the transaction volume that we see in the third quarter. So you just got fewer opportunities to raise rents in that environment, and we know that seasonally, we always have a little bit of down in occupancy. But those are typical, expected, and despite those factors, we still think the fourth quarter is going to be strong. And based on that, we raised our guidance.

People just don't move around during the holidays. You want to move, change apartments or move to a new home before Christmas or during the holidays, people just don't want to do that. And so that's why the transaction volume goes down, and its gone down every single year since I've ever been in this business.

Great. Thanks, guys.

Thanks, Jay.

(Operator Instructions). Our next question comes from Dave Bragg at Zelman & Associates.

Good morning to you. Just following up on the opening comments from Keith. What signs of pent-up demand for that single-family lifestyle might you be starting to see in your communities, perhaps in terms of an increase in the percentage of existing residents who are married or have children?

I don't think we see, we haven't seen any major increase in the demographic in our portfolio. The demographic tends to be 34 and younger. And when you look at married with children, that demographic nationally is something like 22% or something. And we just don't have a lot of married with children in our properties. And I think that goes to the point Keith was making earlier in his comments, which was that when you look at data out there, and I've seen in some of your reports, where something like 90% of foreclosed homes, people don't go into apartments again with the rental housing. That's why we think that demographic just doesn't go to a 950 square foot apartment, when they can rent a 2,000 square foot house in the same neighborhood that they were in when they got foreclosed. So with that said, when you look at the people are getting married later, they're having children later in life, and that shouldn't push people to buy homes any quicker with the current environment.

I think the other thing that's important is that given that the government is Freddie, Fannie, and the FHA are providing something like 90% plus of all conforming mortgages, and that's a real impediment for people to buy houses today, because if you don't have every box checked properly or the proper credit score, you're just not getting a loan because there's no banks holding that paper. So they aren't willing to make an exception or make a rational decision on a borrower just because they don't have a certain box checked, if the government won't buy it from them because of that. So I think that's going to take some time to go through the system. So the home ownership move-out rate I don't expect to change very dramatically until we have a significant change in the housing market.

Well, but just I think the way we'd think about it is if you think back about your long-term average move-out to buy home rate being 17%, you're saying that the move out to rent single family home rate is effectively unchanged versus the long-term average. Therefore, far less people are moving out of your communities into single- family homes, despite what you said was a lifestyle decision that ultimately would come. So I was looking for signs of that demand starting to build within your community as less people move out from your apartments into single-family homes. At some point, I would expect that one of those two metrics would have to tic up just based on that.

No, I agree totally with you, because I fundamentally believe that as the housing market improves, the lifestyle that people choose will be as they age to buy houses. And I don't think that we're in a secular change of no one's ever going to buy a house again moving out of an apartment, they will. The question will be to me how fast does that manifest itself? When do housing prices stop going down? When do the consumers sentiment about, I don't want to own because I don't want to be in a situation where A) the price is going down, or even if I did want to own, I can't get a mortgage. So with that said, I think we're a ways off from that switch being flipped, and we haven't seen any evidence in our portfolio via consumer sentiment or changes in how they're thinking or demographics that indicate that's going to happen next week.

Okay, and the other topic, could you talk about recent trends in a number of your markets in which you have both urban and suburban assets? Are you seeing a divergence in demand trends across those two types of asset classes?

We have seen very little difference in growth rates or demand rates in suburbs versus urban. And when we separate our -- a lot of people call this B versus A. And in our B versus A, the growth rate, the revenue growth rate is just identical to the A. And so it's an interesting dynamic, because while we did have an increase in our move-out rate primarily because in turnover rate primarily because we're pushing rent so hard, it was very similar in the A versus the B. So you have the same dynamics going on in the suburban projects that you do in the urban. So urban is definitely not outperforming suburban, and I think part of the issue with that is that our suburbans tend to be really good suburbans, and not me-too suburbans out in the middle of nowhere. And I would think maybe some less quality and location suburbans maybe aren't experiencing the same growth from a revenue perspective as the A, urban, but based on our portfolio, we've seen no diversion at all.

That's helpful, thank you.

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

Is it just me or does Dave Bragg sound like Clint Eastwood? I don't know.

Good one.

Think about his voice, and you'll come to the same conclusion.

I guess I don't think of him as having a.357 magnum pointed at me.

Listen here, punks. So early on in the call you talked, Ric, about Las Vegas. And I'm curious as to what it is that's driving you, besides you think that you're at a downswing, and maybe a bottoming of that market. What else is attractive to you about Las Vegas, if not for the fact that you have this entry point, would you still be interested the market if you didn't feel like you were getting a special deal?

I think Las Vegas, if you go look historically, has just been a great market. It's an apartment market, and it has a lure to people who move there out of California, and its been a great apartment market minus the bust. And if you look at the market today, it's got all the dynamics of being able to make a bottom and come back reasonably strong, given the overall metrics of Las Vegas going up. When you look at other statistics that are out there like the number of employees per hotel room, it is amazing how they've cut the costs dramatically in these hotels. And if they just got back to half of the number, half the losses in terms of workers in the casinos, it would be about 70,000 or 80,000 jobs. So the dynamic can really turn pretty strong there, and we are there, and we've always liked Las Vegas. And we continue to think it's a good market.

Rich, there have been in the last, call it, 15 years, there have been two different periods where on a conference call, we could have been saying Las Vegas is awesome, and if it weren't for Houston, the rate would have been this or that. So there have been points in time in our portfolio where Las Vegas was the primary driver of growth, and that happened for runs of two or three years in a row. So the way that I think is useful to think about it is, is Las Vegas is a high growth, high beta market. And if that's the only market you're in, that's problematic. If it's one of 15, it's part of both a portfolio that makes sense.

What are the -- how would you characterize the type of assets you might be interested in? Would they be busted condos? I assume a portion, or is there something else that's there that is appealing to you?

You mean talking about acquiring in Las Vegas?

Yes.

Well, the interesting thing is that there's just nothing trading in Las Vegas. If we wanted to double down so to speak, we really couldn't. Because there's -- I was there about a month ago, and met with all of the major players that are doing transactions. And last year, there were 14 transactions in Las Vegas, and the largest one was like a $20,000 per-door deal. This year, only one, there's only been one institutional quality trade, and it was Colonial bought it, and it had to do with an adjacent property to one they already owned, plus some land they owned. Beyond that, there has been zero even solid B assets in Las Vegas traded. And it's the psychology of, why would you sell now in Las Vegas after you've had the bottom fall out of the market and cash flows dropped dramatically? It would be a fairly silly time to sell now, so most of the owners in Las Vegas are not interested selling. So you really can't, if you wanted to buy a big portfolio there, they don't exist.

Okay, great. Thanks, guys.

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

Thanks, good afternoon, everyone. Could you characterize a little bit of what you're seeing in terms of any change, if any, in the credit profile of your tenants coming in verses your existing tenant base. And are you seeing uptick in rejections of applicants due to credit issues?

Yes, our overall credit profile of our applicants is improving. Probably the best stat and way to think of that is looking at household income. And between second and third quarter, and this is very interesting, the average household income went up about 4.5% in our portfolio. So $62,000 and change to about $65,000 and change in household income, which so on average, the rent to income stat actually dropped from 18.5% to 18.1%. And some of that is being driven by the fact that when rents decline, as they did in the downturn, specifically in markets like Las Vegas and Phoenix where you had 18% to 20% declines in top-line rents, people move around. And people from B-minus product have the opportunity to move up to A product, and they do so. And as that turns around, and you are aggressively raising rent, then naturally you'll be replacing some of those residents who may not have the capacity to take the rental increase. But the net-net result of that is is that we end up with a more qualified resident, as indicated by the household income, and really a better ability to pay even in the face of raising rental rates.

Thanks, guys, that's all I had.

You bet.

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

Good morning, guys. You had the Atlanta land purchase during the quarter. Are you guys actively looking for additional land parcels? And as we look ahead to 2012, you've been very active in the last couple years ramping up development. Should we expect a fairly similar number of starts in 2012?

We are definitely looking for additional land sites. We're working through our legacy land obviously first,but we do have, we are looking for additional land. You can expect $350 million to $400 million starts next year, if, in terms of total dollar amounts, assuming that we feel good about the world. And as we move through the year, we'll make decisions on how we ramp that up and how our capital allocation works for that.

In terms of when you look forward, and we're looking forward in our strategic plan into 2012, 2013, 2014. If we had a program of $250 million to $300 million a year of development above and beyond what we have already slated for 2012, then we would be out of land by the middle of 2013. In terms of the ability to add to the pipeline by the middle of 2013, we would have to put new land on the books today to be able to have land starts in 2013 and 2014, or in the last half of 2013 and into 2014.

So it's your intention to develop the remaining land parcels. You aren't looking to sell any of those?

Yes, that's right. Well some land parcels we may sell because numbers don't pencil, or we just for whatever reason don't want to be in that land. Ultimately, the analysis is a pretty simple one. You look at what we can develop on the land that we own, and if we don't like the yield or we don't like the market or for whatever reason we sell the land, there are some land tracks that we have on our books right now that will be sold. And some of them are being reworked based on the new environment and the new metric. Like for example, our Hollywood site, where we're going through the process of redesigning that site and making it a smaller project and less capital-intensive project. And if it works financially, we'll build it, and if it doesn't, we'll sell the land.

Okay, and just given the rent growth year-to-date, the yields are trending at?

I'm sorry?

The yields on your development starts you're trending at?

Yes, the yields on new developments are anywhere from on an untrended basis in the 6.5% zone, and on a trended basis, they're higher than that, obviously in somewhere in the 7% to 8%.

That's helpful, and then my final follow-up question is on Southeast Florida, you guys had a sequential revenue decline. Is that market softening, occupancy losses, what seems, what was the driver of that?

No, you aren't going to see that in anybody else's numbers. We had some staff turnover in two of our largest communities in South Florida, and it's just one of those things that happens when you have staff turnover, so not a market issue. That's our issue, and that's been addressed and resolved.

Good to hear. Thank you.

You bet.

The next question comes from Eric Wolf at Citi.

Thanks. You mentioned that you don't look at lost lease, but just wondering how you think about the embedded growth in your portfolio right now? And also I don't know if I missed it, but could you quantify the significant renewal increases that you referred to earlier?

Yes, the renewal increases that are already in place for November and December, and they're in the 7% to 8% range. And we've renewed about 40% of the December rents and about 20% into January, so that trend is just going to continue. In terms of how we think about what's in the embedded base, you just -- I think it's more useful to look at what are you doing in terms of your renewals that you're actually signing over the existing lease rates. You can then look forward and see what's the trend on your expiring leases, and what's the gap expected to be. But to look at it on any given snapshot and take when you're using revenue management to reprice your inventory every day, to say what was your loss to lease that day or that moment in time, I'm not sure. I'm just not sure what they get you.

Understood, thank you.

You bet.

Do we have anymore questions?

We have no further questions at this time. I would like to turn the conference back over to Ric Campo for any closing remarks.

Great. Well I appreciate your time on the call today, and we will talk to you on the next call. Thank you, and see you at NAREIT.

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