Camden Property Trust (CPT) 2011 Q4 法說會逐字稿

Welcome to the Camden Property Trust fourth quarter 2011 earnings conference call. 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. Please go ahead.

Good morning and thank you for joining Camden's fourth 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 fourth 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. Our call today is scheduled for one hour and as a result we ask that you limit your questions to two with one 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 email after the call concludes. At this time I'll turn the call over to Ric Campo.

Thanks, Kim and good morning and afternoon to everyone on the call. Our pre conference music was chosen today to commemorate the 50 anniversary of the Beach Boys. I know we've received a number of emails about the Beach Boys being maybe a little too old for this crowd on the call but for some of us the good vibrations are definitely a continuing theme in the multifamily business. We are looking forward to catching the wave of continued strong operating performance in 2012. I want to thank our Camden teams that made our strong 2011 operating performance possible.

We ended 2011 strong with same property revenue increasing 6.7% over the fourth quarter of 2010, and 5.5% for the year, which leads the sector in revenue growth, so far. Same store net operating income increased 8% for the quarter, and 7.1% for the year. We expect 2012 to be a repeat of the strong growth that we had in 2011. Strong macro factors continue to favor our business. On the demand side, falling home prices and tougher mortgage underwriting has kept competition from single family home limited. Our customers have been doing very well in a slow job growth environment.

Nearly 60% of the jobs created in the last two years have gone to people 34 years old and younger. The average income of our residents has increased from $61,000 per year to nearly $67,000 in the last year, driving the ratio of rent paid to income down from 18.5% to 18%, in a rising rent environment. Historically, the rent to income ratio across our portfolio has been around 22%. While more young adults are working now, there are still 1.8 million living at home or in roommate situations, most of whom are waiting to move out into apartments. Multifamily supply is increasing from post World War II lows, but is not forecast to reach 200,000 units until late 2014. Multifamily demand should continue to exceed supply for at least the next several years, supporting strong multifamily operating fundamentals.

During 2011, and into January 2012, we took advantage of an attractive acquisition disposition and development environment. We acquired 6,076 apartments in our fund for $590 million, generating double digit cash returns for our partners. We continue to recycle capital through dispositions and sold 2,800 apartments for $251 million. Our real estate investment and construction teams started 2,800 apartments, adding $504 million to our development pipeline. After the end of the quarter, we acquired our partner's interest in 12 properties, 10 of which we developed. We financed the acquisition with 100% equity.

The acquisition and equity offering was accretive to earnings, and strengthened our balance sheet. Debt to EBITDA is now 6.3 times compared to 7.6 times during 2010. We will continue to maintain a strong balance sheet with a debt to EBITDA target of around six times. We continue to be active in the transactions market and will be active this year. Our 2012 guidance includes $250 million of on balance sheet acquisitions, and $250 million of dispositions. We expect to add another $350 million to $450 million to our development pipeline, bringing our development pipeline to nearly $1 billion. At this point I'll turn the call over to Keith Oden.

Thanks, Ric. Consistent with prior years I'm going to use my time on today's call to review the market conditions we expect to encounter in our core markets in 2012. I will address the markets in the order of strength by a assigning a letter grade to each one as well as our view as to whether we believe the market is likely to be improving, stable or declining in the year ahead. Following the market overview I'll provide additional details on fourth quarter operations and our 2012 same property guidance. Starting with an overview of Camden's markets we'll begin in Texas and North Carolina, whose markets received our top five spots this year and all ranked as an A or A minus.

Austin received an A rating with a stable outlook. The same rating as last year. As expected, Austin's same property revenue growth ranked number one in our portfolio in 2011, and we expect it to remain near the top in 2012. Approximately 15,000 new job are projected in 2012 which should easily absorb the 3,000 completions coming online this year.

Dallas also earned an A with a stable outlook. Coming in just behind Austin at number two for 2011 revenue growth, favorable market conditions should place Dallas in the top five markets again in 2012. Job growth is forecasted at 50,000 this year, and the completion of 8,000 new apartments will be right in line with the 20 year historical average for completions in Dallas.

In Charlotte, we view that market as A with an improving outlook. We began seeing strength in this market during the second quarter of 2011, and by year end it was one of our top performers. Rents continue to accelerate at a rapid pace and with current occupancy at 96%, Charlotte should be one of the best markets in 2012. Job growth is expected to be 16,000 this year with only 1,000 new units being delivered. Next, is Raleigh with an A minus rating and a stable outlook. Raleigh was number three in our same property revenue growth rankings last year and should see above average performance again this year. 11,000 new jobs, a mere 1,100 completions will allow occupancy and rental rates to remain high in this market throughout 2012.

Houston is also an A minus but with an improving outlook. After lagging in the early part of 2011, this market recovered quickly and was one of our best performers by year end, with 4Q '11 revenues up 9.7% over the prior year, which bodes well for 2012. Houston is expected to be a leader in job creation in 2012 with a forecast of 66,000 new jobs. We'll see 7,000 new units delivered here this year which looks quite reasonable compared to the 11,000 units we averaged each year from 2000 to 2009. We rate Denver and South Florida as B plus markets with stable outlooks and expect the revenue and NOI growth to exceed the mid point of our same property guidance range. The outlook for job growth in Denver this year is favorable, with over 34,000 new jobs expected and completions of only 2,000 units in 2012.

In South Florida, completions are projected around 2,200 apartments with 25,000 new jobs expected. Once again, new supply should be easily absorbed given tight market conditions and ample job growth. Orlando scored a B rating this year with an proving outlook. Last year's performance was slightly below the average for our portfolio, we believe 2012 will be better. Job growth is expected at nearly 22,000 with less than 1,000 new completions provides a favorable backdrop for our operations there.

Our remaining eastern and southeastern markets, Washington, DC, Atlanta and Tampa all earned B ratings this year with stable outlooks. DC has clearly been one of the best markets in the country for the past several years, turning in top tier revenue growth in both 2009 and 2010 and remaining strong for most of 2011. Our rents in DC are currently 8% above the prior peak levels, which make its more challenging to aggressively raise rent. As such, growth has begun to moderate and we expect 4% to 5% revenue growth in the market during 2012. New supply starting to come online with 5,000 new units being delivered this year. Job growth is expected to be over 29,000 which will certainly help, but growth in DC will surely be less robust during 2012 than it has been in previous years. In Atlanta, there are over 30,000 new jobs projected with only 1,200 completions slated. Job growth in Tampa is expected to be closer to 16,000, with 1,600 completions allowing for decent performance in that market as well.

Moving west, we have Southern California and Phoenix, both rated B minus, but improving. Southern California has struggled for the past few years but economic indicators seem to be pointing in the right direction for 2012. Over 54,000 new jobs are expected this year which is good news given the region's high unemployment rates. Projected completions of less than 8,000 units in 2012 do not materially impact the market.

Phoenix is a definitely in recovery mode, making its way steadily up the ratings scale from an F in 2009 to a B minus today. Our rents fell almost 18% from peak to trough in Phoenix. We recovered half of that so far, most of it during 2011 as year-end rents were 8% higher than in 2010. We continue to see strength in Phoenix and expect it to be one of our top revenue growth markets during 2012. Job growth it will be strong, 49,000 new jobs with minimal supply, only 1,200 additional units to be delivered this year.

Coming in last this year is Las Vegas which rate as a C minus with an improving outlook. Las Vegas is still the most challenging market in our portfolio but we believe it's finally bottomed, and is showing signs of improvement going into 2012. While we do expect positive growth this year, the rate of growth will likely be below that of our other thirteen markets. 20,000 new jobs are projected for Vegas in 2012, which is a welcome relief. We expect only 1,100 completions, but the stubbornly high unemployment rate coupled with below average occupancy levels will make meaningful rent gains illusive this year.

In comparing our 2012 outlook to last year, all of our markets have a better rating this year except Washington, DC which we lowered from an A to a B. Overall our portfolio this year would rank as a B plus compared to an overall ranking of B in 2011, and every market is rated either stable or improving. Now, a few observations about our same property results. We closed out the fourth quarter with a sequential NOI increase of 4.2% which was primarily due to lower expenses. Although revenues were basically flat, this was primarily due to a seasonally anticipated drop in occupancy and lower fee income due to decline in leasing activities.

More importantly, our rental rates rose a solid 1.2% from the third quarter, with increases in every market except Las Vegas, which was down by a slight two-tenths of 1%. For the fourth quarter new lease rates were up only slightly and renewals were up 7.5%, roughly the same as in the fourth quarter of 2010. Renewal rates are trending up in the 7% to 8% for both January and February. Traffic was down 2% from the prior year quarter, but was up 4% for the full year and our turnover rate for the quarter was 52%. We continue to benefit from incredibly low moveouts to purchase homes, which was 11.2% for the fourth quarter. For the full year, moveouts to purchase homes was 10.9%, the lowest annual level that we've ever had.

Finally, I want to thank all of our Camden colleagues for making Camden a great place to work, a distinction recognized by Fortune magazine for the fifth year in a row, and our third straight top 10 finish. Placing seventh on the list of top 100 companies to work for, is an honor we claim on behalf of all Real Estate Investment Trusts. Now, I'll turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith. I begin today with a couple of comments on our fourth quarter results. Camden reported funds from operations for the fourth quarter of 2011 of $64.3 million or $0.84 per diluted share. $0.01 per share above the $0.83 midpoint of our prior guidance range of $0.81 to $0.85 per share. Results coming in $0.01 per share above the midpoint of our guidance range, resulted primarily from two items. Property revenues exceeding our forecast by $1.5 million, due to higher than anticipated revenue growth across our same store, non same store and lease-up communities. Driven primarily by rental rate increases, slightly higher realization rates on other property income, and better than anticipated leasing velocity at our two development communities in lease-up.

We finished 2011 with a 5.5% increase in same store revenues, towards the top end of our prior guidance range of 5.2% to 5.6%. Total property expenses continue to perform inline with our expectations for both the fourth quarter and year-to-date periods. Full year 2011, same store expenses grew 3% over 2010, equaling the midpoint of our original guidance range for 2011. The $1.5 million favorable variance in property revenues, was partially offset by higher than expected G&A and property management expenses of approximately $700,000. This unfavorable variance is the result of higher incentive compensation expense, as we adjusted full year accruals to reflect our actual 2011 performance. Although, the components of income and expense were generally inline with our expectations for the fourth quarter.

I would now, like to discuss our 2012 guidance. You can refer to page 27 of our fourth quarter supplemental package for details on the key assumptions driving our 2012 financial outlook. We expect 2012 projected FFO per diluted share, to be in the range of $3.30 to $3.50 per share, with a midpoint of $3.43 representing a $0.40 per share or 13% increase from our 2011 FFO per share of $3.03. Which excludes from 2011 results, the $22.2 million net impact of the following nonrecurring items -- a net gain of $3.3 million, related to the sale of a technology investment in the first quarter, a gain of $4.7 million related to the sales of properties and land in the second quarter, and a loss of $30.2 million related to the discontinuation of a hedging relationship and the write-off of unamortized loan costs, related to the payoff of our $500 million term loan in 2011.

The major assumptions and components of our $0.40 per share increase in FFO at the midpoint of our guidance range are as follows. A $0.35 per share or $27 million increase in FFO related to the performance of our 8,400 same store portfolio. We are expecting positive same store net operating income performance of 6% to 8%. A $0.07 per share or $5 million increase in FFO related to increased net operating income from our non same store properties and the incremental contribution from the development communities in lease-up. An $0.08 per share or $6 million increase in FFO related to reduced interest expenses, primarily as a result of reductions in our outstanding debt from our prior share issuances, the favorable refinancing of unsecured debt in 2011, and $4 million in additional capitalized interest related to our 2011 and 2012 development starts.

A $0.38 per share or $29 million increase in FFO related to additional net operating income from both pro forma acquisitions anticipated in 2012, and the purchase of the remaining 80% ownership interest in the 12 joint venture communities we completed in January of 2012. A $0.05 per share or $3.6 million net increase in FFO related to our election to redeem our $100 million, 7% perpetual preferred units in the first quarter of 2012.

Included in the net $0.05 per share, is preferred payment savings for 10 months, partially offset by a $0.02 charge we will record in the first quarter related to the write-off of the unamortized discount on the preferred units. And a $0.03 per share or $2.7 million increase in FFO related to increased net fee, and asset management income, related primarily to fund acquisitions both completed in 2011 and anticipated in early 2012. These positives are partially offset by a $0.37 negative impact from previously completed share issuances in 2011, and early 2012, and a $0.17 per share or $12.5 million decrease in FFO related to lost NOI from both 2011 completed dispositions, and 2012 anticipated disposition activity.

On page 27 of our supplemental package, you can also see details on our expected ranges of acquisitions, dispositions and development activities. The midpoint of our 2012 FFO per share guidance range assumes the following. $250 million in on balance sheet dispositions spread throughout the year, $250 million in additional acquisitions spread throughout the year, which excludes the completed purchase of the 80% ownership interest in 12 unconsolidated joint venture assets previously disclosed. $125 million in acquisitions in our funds, spread throughout the first half of the year. As a reminder, our investment period ends in the second quarter of this year. $350 million of on balance sheet development starts. And $50 million of development starts through our funds.

Based upon our planned 2012 transaction activity, and the $190 million of unsecured debt maturities in the fourth quarter of '12, we anticipate needing approximately $300 million of new capital for the remainder of 2012, and anticipate accessing the capital markets opportunistically. The composition of that capital activity depends on the capital market conditions at the time we go to market, but will likely be a combination of unsecured debt and common shares.

For the first quarter of 2012, we expect projected FFO per diluted share to be in the range of $0.77 to $0.81. The midpoint of this range represents a $0.05 per share decline from the fourth quarter of 2011. This $0.05 per share decline is primarily a result of the following items. A $0.01 or $700,000 decline in same store NOI, resulting from a 4% increase in same property operating expenses, partially offset by 1% increase in same property revenues. A net $0.02 per share or $1.5 million increase in minority interest expense. Primarily resulting from a $2 million charge we will record in the first quarter related to the write-off of the unamortized discount on our preferred units upon redemption. A $0.01 per share or $1 million decrease in FFO related to fourth quarter of 2011 dispositions, and the sale of Camden Vista Valley in Phoenix, which was completed in January of this year. A $0.07 negative impact from previously completed share issuances in 2011 and early 2012.

The previously mentioned 4% increase in same property operating expenses primarily results from a $600,000 increase in property taxes as we expect full year same property real estate taxes to increase by 4.3% in 2012 over 2011. A $1.2 million increase in salaries and benefits related to annual salary increases implemented in February, and higher first quarter employment taxes. Slight increases in all other categories as we expect same property expenses to increase by 3% in 2012 over 2011 at the midpoint of our guidance.

The previously mentioned 1% increase in same property revenue primarily relates to higher rental rates and occupancy across our portfolio. These negatives are partially offset by a $0.06 per share or $5 million increase in FFO related to net operating -- additional net operating income from the purchase of the remaining 80% ownership interest in the 12 community joint ventures we completed in January of 2012.

As a reminder, our Board will evaluate our dividend payout for 2012 at its next meeting and we'll announce the 2012 dividend rate in mid March. Our stated dividend policy continues to be, to increase our dividend at approximately 50% of the growth rate in FFO per share. That concludes our remarks. I'll be glad to answer any questions at this time.

(Operator Instructions)

Our first question comes from Jana Galan at Bank of America Merrill Lynch.

I was curious if you could talk a little bit about the acquisition environment. You've already been very active starting off the year. If you could talk about the cap rates on those transactions and maybe what you're anticipating the spread between acquisitions and dispositions could be, going forward?

Sure. The acquisition market, we think, is going to be pretty good this year. Towards the end of the year people started pulling assets from the market, and at least from what we hear from the broker community, there's a fair number of broker opinions of value that are coming out and there's a fair number of owners that are being pushed by their banks and other lenders where we have debt maturing this year. So we think it's going to be a pretty good acquisition environment. As far as cap rates go, the good news is there's going to be more assets out there. The bad news is cap rates are low.

So cap rates on acquisitions are going to be anywhere from -- depending on core portfolios of 4.75 to 5, outside core markets somewhere in the 5 to 5.5 range. In terms of acquisitions versus dispositions, and the spread between acquisitions and dispositions -- last year we were sort of right on top of each other in terms of ability to sell dispositions at pretty much the same price we were buying acquisitions at. This year, we're budgeting somewhere between 150 and 250 basis points of negative spread between acquisitions and dispositions. But if the market remains buoyant, we'll probably do better than that.

Thank you very much.

The next question comes from Eric Wolfe at Citigroup.

Looking at the multifamily starts numbers, they've obviously been trending up off a pretty low bottom. But, looking at the composition, a much higher percent are rentals now versus condos in the mid-2000s. So, I just wanted to get your thoughts on whether this trend is something to be concerned about. Even though the fact that total starts remain depressed, the actual number of apartments delivering -- is it going to be pretty close to where it was in the mid-2000s?

Eric, this is something that we have been tracking for a long time and we watch very carefully. When we're talking about starts in multifamily we include both components, both the for sale and the for rent. Even in this environment, that proportion has moved up slightly, but it's the bigger issue is the total number of starts, not what's moving around within the category of multifamily. Just to put that in perspective, because I know there's a lot of -- there's a lot of concern, and clearly starts have moved up from the bottom, at the bottom we were at a run rate of something around 75,000 annual starts and right now, depending on whose numbers you're using, we're probably in the 150,000 to 160,000 annualized. One of the data providers that we use because he has done historically a great deal of work in this particular area, is Ron Whitten.

Ron just recently brought his forecast down for total multifamily starts to be below the 200,000 level throughout 2014, and his previous forecast had starts moving up closer to 250,000 in the 2014-15 time frame. There's a lot of analysis that goes behind that. But the bottom line is, recently the trend has been towards a more moderate view of the total starts. Just to put it in perspective as it relates to Camden's portfolio, one of the things that we have used historically -- and this goes back 20 years -- it's a pretty decent rule of thumb in our business. It's not perfect, but it's like any rule of thumb -- there's a reason that people have used it over the years -- is, if you think about in any given market, roughly five jobs created creates a net demand for one multifamily unit.

So if you've got five jobs you're going to get one additional net demand. So one of the things we look at is the ratio of the jobs being created to what the completions or deliveries are likely to be. If you look at our portfolio for 2012, and you take the jobs number divided by the completions number, so anything above 5 to 1 ratio means that things are getting tighter and better around the margin. Anything less than 5 to 1 would indicate that supply is getting the edge. Out of the 17 markets that we operate in, there's not a single market that currently has less than a 5 to 1 ratio. If you take the aggregate ratio for all Camden's markets, the ratio right now is 10 to 1.

So we're projecting across Camden's markets about 440,000 -- call it jobs -- and about 44,000 completions. That's an extraordinary number. Like I said, we've been tracking this for 20 years. I've never seen a scenario like that. There's been times when completions were lower, but it was normally in a market where you were hemorrhaging jobs. So the fact that we don't have any single market at less than 5 to 1 and the average across our portfolio is 10 to 1, just tells me that there's a -- we've got a long way to go if starts stay below 200,000 to get anywhere close to a level of concern where the supply is going to be driving the overall results in multifamily.

Obviously, it matters. All supply matters. It's like throwing rocks in the pond. There's some tangential effect. If we continue with the kind of -- what we're forecasting for 2012 is kind of a middle of the road, moderate result on jobs growth, and if today's number is any indication, we may do significantly better than that, which would only help improve those stats that I just gave you. So that's a long way of saying it's not something that we're really concerned about at this point, and if Whitten's forecasts are right we think we've got until 2015 before it becomes an issue.

A real quick one on the CapEx numbers -- I guess the forecast. It looks like you're predicting about $1,000 per unit in terms of CapEx this year. If I think about that $1,000 number, it's up from $800 in 2010. Is that deferred CapEx that's going in? Or is there a change in the composition of portfolio? What's accounting for the increase?

I would not call it deferred. Deferred implies that you were sort of -- it implies something different than what happened. I would call it, where we had choices to make -- for example, a paint job that's on a community that's at the margins, can you live with it another year? We absolutely made those decisions in 2010 -- in 2009 and 2010. So we knew that there was going to be a catch-up component primarily around things like big ticket items like paint jobs. We've got far more paint jobs that we pursued last year and budgeting again in 2012 than we did in '09 and '10. And that's primarily the difference, Eric.

Thank you.

The next question comes from Rob Stevenson of Macquarie.

Ric, you talked earlier about getting the development pipeline up to $1 billion. Is this just a temporary increase, or do you feel comfortable running at that level longer term, which is close to 15% of your enterprise value? And I guess how are you thinking about also using joint ventures or funds to offset some of that risk to you guys?

Well, we're not comfortable with having $1 billion in any one year, because what happens in this pipeline scenario is that you start one, you finish one, you start one, you finish one. So we're comfortable in the $400 million, $500 million range annually, as we're completing our properties -- but as we're completing developments and adding new ones. But we definitely are not going to get to the level that we were at the peak in the last cycle. And the big difference in this cycle is that we're funding the development with equity as we go. Our balance sheet is a lot stronger than it was in the last cycle. Generally, we will not do joint ventures, per se, to offload the risk.

We will do some in our fund, but actually found that joint ventures in the past didn't necessarily offset the risk when you had to deal with your joint venture partner with respect to bringing the capital to the table sometimes. So, oftentimes joint ventures really don't reduce your risk much. With that said, we're definitely going to keep an eye on the total number of on balance sheet exposure that we have relative to the size of the Company and the strength of the balance sheet.

Okay. And then Keith, did I miss it or did you talk about the rent growth on the January, February, March renewals yet?

Yes, we gave the January and February numbers in the range of 7% to 8% on the renewals.

Okay. And then quickly -- Dennis, you said you already owned 20% of the little over 4,000 JV units you just bought out your partner's interest in. These assets will be in the same store pool for 2012?

They will not. They're going to be in non-same store for 2012, and they won't actually come into the same store pool -- maybe not until 2014. Because they'll be out for part of this month. So they're not going to be in same store.

Even though you already owned a portion of them?

Yes, because we actually consolidated them on January 20-something, and we will not be reporting in the same store pool.

Thanks, guys.

Next question comes from Alex Goldfarb at Sandler O'Neill.

Just the California investment -- it was definitely eye-opening, given that you guys haven't done anything in California for quite some time. Just want to get a little bit more color -- what finally prompted you guys to go out there, and does this reflect the start of more investments? Do the numbers now pencil that make it worthwhile to allocate capital to California, or was this more just a one off?

We're committed to California. Clearly, the challenge has been in the past that the cap rates have been difficult to make the numbers work. But, bottom line is we think the California market's a great market long term. The particular acquisition of the Glendale track just was a very opportunistic kind of transaction, where we are buying the land at substantially less than it was offered for and worth in the past, and we're able to generate a very attractive development yield on that project. We still have our Hollywood and Vine or Selma and Vine project that we're working on in California, and we'll continue to be active in California.

Can you give a sense of what the expected returns are there on the Glendale deal, and how much below market on a per door price what you paid for the land?

Well, the land was under contract before we acquired it at the peak of the market, at around $32 million, $31 million, plus or minus. We bought the land for $23 million.

Not the Hollywood. The Glendale.

That's Glendale.

Okay.

That is Glendale. We're projecting a unlevered or a non-trended return around 5.5, 6; with a trended in the 6 to 7, 6.5 to 7. And we think that's a pretty attractive transaction.

Okay. And second question is on construction lending. It seems that it's still quite strict, the banks are still pretty tough in giving construction loans out. In your sense, just speaking to all of your merchant friends, is it a sense that this is coming from the regulators that's keeping the banks from lending, or is this more that it's internal to the banks; they just do not want to take any construction risk and therefore they're being very careful in where they actually do construction loans.

I think it's both. I think on the one hand, the regulators are pushing them to get merchant builders that have stranded loans that haven't been able to either sell those assets yet to pay off, so you're getting some pressure from regulators. We're hearing that from our banks. And then, also, it's just the banks asking questions today that they didn't ask in the past which is questions like -- what are your contingent liabilities, and what ratio of capital do you have in your entity to contingent liabilities? Meaning that they're just not willing to take a merchant builder's guarantee without any capital behind the guarantee. Some of these merchant builders were 50 to 1 leveraged to their capital.

I remember asking some of my merchant builder friends who will not be named here, what was your ratio of actual tangible capital, and not your real estate value but really real liquid capital, to your debt? And the bottom line is that they said that it was infinite. They couldn't calculate the number because they really had no liquid capital. It was all just their joint -- the equity was reflected on their balance sheet was their joint venture interest in their promoted interest, if you will. We actually talked to a banker that said that their bonuses were going to be eliminated because of down grades because of credit ratings on those kind of loans. With that said, it is a very difficult environment today and it hasn't -- you're not back to the sort of heady days in 2005 and 2006 where any merchant builder could get a loan without much trouble.

It's a very difficult time. And I think the other interesting piece of that is, it's not just the debt that's the governor on multifamily development. It's the equity. You have a number of equity people that are out there who have said, well, I'm going to do two deals in Houston. I'm going to do two deals in Washington, DC. And the merchant builders are fighting for that equity so it's both the equity side of the equation and the debt side of the equation that's the governor in the market; and that's why Whitten's taken those numbers down and others have taken their construction starts down. It was almost and it really started happening in August, September of last year but you haven't seen really any major improvement in the credit market since then.

The point is that despite the pretty solid story for apartments in terms of limited supply and people choosing to rent rather than own, just you don't see any cracks in the construction lending, it sounds like it's going to be pretty strict for a while.

I think so.

Thank you.

Next question comes from Karin Ford at KeyBanc Capital.

Keith, I wanted to follow up with you on your rating for Washington, DC, this year. I know you took it down from an A to a B, but after hearing your commentary about the challenges there, I was surprised that you rated it stable. What gives you confidence that, that market shouldn't be labeled deteriorating, given many things which seem like are going to be issues later on in the year there?

Well, I think there's a lot of hand-wringing about the potential for issues later in the year, but if you look at where most people are on forecasting job growth in DC, we're still in the 30,000 to 40,000 job range for DC; and while, yes, there's some supply coming online, even that market is still, with jobs and projected supply, is still above a 5 to 1 ratio for 2012. And if you look at our -- so in terms of thinking about our numbers going forward in DC, we're still projecting roughly 4.5% revenue growth in DC. And that's -- in most years in this business, that would be considered to be a really strong number, but relative to some of our other markets where we're getting double digit revenue growth, it doesn't look as strong.

So, given what's happened in the last two years in terms of rent growth and the fact that we're 8% above the peak rent in DC relative to most of our other markets where we're still below the peak, it's time, certainly, for a little bit more cautionary note. But 4.5% revenue growth in any of our markets in any given year, I'll take that any day. I think most of the -- it's not that there's not a different scenario out there that you could kind of get in your brain and terribleize about. I can think of half a dozen of those. I think the most likely outcome for 2012 is still a year where we get 30,000 to 40,000 jobs, we bring on 5,000, 6,000 new apartments, and we still get the 4.5% rent growth.

So it sounds like the job outlook is really the thing we should watch for, whether or not we need to change the scenario or terribleize it later in the year?

Absolutely. Because the supply side of things is already baked.

Right.

It is what it is. That's the kind of deliveries we're going to get. I think the variable that we'll all be watching is job growth.

Okay. Second question -- you said your purchases, move-outs for home purchases was stable across the portfolio in the fourth quarter. Were there certain markets where the number was up more than the portfolio as a whole? I think one of your competitors said they saw some -- an increase in Phoenix. Did you see any markets where you saw a tick-up in that number?

If you look at it across the board, you've got -- in our portfolio, the range is pretty broad, so it's kind of hard to say with any broad brush what's going on. All the way from a high in Denver, it was almost 17% for the fourth quarter. You had --Atlanta was in that range, 17%. But at the other end of the range you've got California's still at 5.9%; Las Vegas -- or Austin -- is at 7.4%; most of the Houston markets are in the 10%, 11% range. It's not that we don't have markets that are higher. It's just that even the markets that are higher are below the average rate that we've seen in our portfolio for the last 20 years, which is somewhere around the 18%, 18.5% range for a long term average. So even an outlier market where you see 16%, 17%, relative to '12 or '11 that seems like a lot, but relative to historical averages it's still extraordinarily low.

Thank you for the color.

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

So Ric, your comments about construction financing being hard to come by, that kind of surprises me. I guess I've been hearing that banks are lending for multifamily construction more these days. Is this a new phenomenon?

I think they are lending more than they were.

Right.

But they're not at full tilt the way they were pre-bust and pre-financial crisis.

It's trending up, is it not?

Clearly, it's trending up. Starts have gone from 70,000 units or 75,000 units to 150,000; so obviously those are -- when you look at the pure increase, you could say construction lending has doubled, and it clearly has. The question, though, is -- can the merchant builders ramp up as fast as they could in the last cycle? And part of the issue is that the structure of their businesses has fundamentally changed. Where in the past the banks would make them construction loans without regard to the capital that they had behind their companies to pay those loans back, and that's a different animal today.

I guess I meant when I said trending up, but trending up substantially, that was my thinking.

They are.

Just so we're clear.

When you start at a post-World War II low, and you have a historical number of 300,000; you go from 75,000 to 150,000, that's substantial for sure.

I just wanted to clarify that statement.

Rich, let me give you the progression.

You're eating up my question time here, but go ahead.

The progression is in the US starts. And again, these are Whitten's numbers -- the '11 actuals would have been 150,000; the '12 projected is 186,000; and the 2013 projected is 177,000. If you go back to 2009 in that progression and you get to Ric's number, which was 75,000 apartments. Don't misunderstand our message. Starts have increased, and based on these numbers they're likely to increase again in 2012 and then moderate to roughly 175,000 in 2013. That's not really -- to me, that's not the question. Because what that level of starts translates to in our markets, at the Camden level, where we're looking at starts and completions, that translates into roughly 43,000 apartments; and we're projecting 438,000 jobs in 2012, that's a 10 to 1 ratio.

It's not zero. 43,000 -- that's a decent size number of completions across Camden's markets. It's just, it's dwarfed by the historical relationship of jobs to completions. I think where people are -- where they start the hand-wringing is thinking that because you get this progression from 75,000 to 150,000 that the next data point is likely to be 300,000 and the one after that 600,000. It's just not in the cards for that to happen. It's a matter of scale.

The reason why Ron has reduced the supply outlook is a function of what?

Well, it's three things. Construction lending that we talked about; the equity availability and the sort of selectiveness of the equity capital that's out there; and then, third, which is an interesting number, is that construction costs are starting to rise. So when you look at the numbers in terms of what construction yields could be with costs going up, Whitten's analysis takes into account that it will -- as you go forward in the cycle, it will be harder to make numbers work, and, therefore, from a return perspective and therefore you won't have as many starts.

And then my second question is, if you could -- Keith, if you could just define for me what does stable mean?

Stable means that it's -- when we're giving those tags that go with it, it's looking out over the course of 2012. So at the beginning of 2012, you start out at a point in time. You have a budgeted rental rate increase. Are things getting tighter or not as tight over the course of the year? Stable just means things are stable. If it's a tight market at the beginning of the year, it's likely to be a tight market at the end of the year.

It's not that market rents aren't moving stable, it's relative to where the starting point will be in the beginning of the year?

That is correct.

How many of these stable markets are -- their starting points are very high, if that makes sense?

Yes, so -- Austin.

Okay. Any of the A markets, I guess.

Austin, Dallas, Charlotte. Charlotte's improving. Raleigh, certainly. Denver.

Any one on the top of the A list.

Yes.

Okay. Thank you.

Next question comes from Paula Poskon at Robert W. Baird.

Can you talk a little bit about the strategy of how you're identifying assets for disposition? Is it more asset-specific around age or quality, or more call on the market or sub market dynamics, or just a play on the cap rate environment?

Our discipline around dispositions is almost always around the notion of market -- sub market quality and asset quality. We also have a very -- we look at a five-year return on invested capital, which includes CapEx, rent growth, and a bunch of other things. If you look at the five-year return on invested capital and you take the bottom fourth quarter of our portfolio, that would -- that sort of defines the hunting range for the assets that get on the disposition list.

It starts with returns that are substandard because rents aren't growing fast enough or CapEx is too high. Within that, then we look at things like the direction of the sub market, asset quality, is it still -- has it gotten to the point where it's just not -- we can't operate it to a Camden standard anymore? And that's how we fine tune the list of the bottom quarter of performers. And so for 2000, we're ramping up dispose this year in the $250 million range. So depending on the average asset size, you're talking about six to eight, probably six to eight Camden communities out of 200.

That's helpful. Thanks.

I know we talked a little bit about move-outs to home purchasing. Did you talk at all about move-outs due to rental rate increases, and what's happening there trend-wise and are you still able to backfill with higher quality tenants?

We have experienced in the last two years higher move-outs outside the to-purchase home category, primarily around job relocations and financial instability. Those have moderated, and for 2012 we don't think those are going to be -- we think we're past the worst of the kind of tenant credit concerns; and as Ric mentioned in his comments, our credit quality across our portfolio has actually improved pretty significantly since last year. And the percentage of -- if the percentage of rent on average that our residents are paying is in the 18% range, which from a historical standpoint tells us we've got room to grow on continuing to push rents. You're always -- when you're pushing rents, you always have the possibility that at the margins, yes, the person can pay it but they're annoyed because of it.

And we do our best to manage through that process, but at the same time when you're raising rents an average of 5.5% across an entire portfolio like ours, there's a lot of touch points there with people that are paying higher rent. I think the more interesting way to look at it is, where we are with regard to peak rents in our portfolio; and we are still not -- this is -- the number's kind of hard to get your head wrapped around, because we're always talking about rental increases and how good the market is right now, but we have not yet on average in our portfolio gotten back to the rent level that we were at in February of '08.

Would you say that's the majority of your markets or just a handful?

No, it's probably two-thirds of our markets are still below peak rents; a third are above. But you know, I understand the concept of, you drown in the river and the average depth was only four feet. Rent is large in our portfolio, it just tells you that we've got a lot of room to grow, particularly in markets that have lagged in the recovery. I mean, Las Vegas is still 18% below peak rents and Phoenix is still in the 9% below peak rents. We still think we've got a lot of room for growth in our portfolio from the markets that got beaten up the worst.

Thanks. Just one final question, back to the new supply. Are you seeing -- are you finding it anywhere more difficult, or taking more time, to get plans approved or get through the entitlement process, just given how many municipalities have cut staff over the last several years; and now at least in certain markets where there's more new supply on the radar screen? We're certainly hearing that here in Fairfax County, where the staff is over overwhelmed and can't get through the workload?

I think that definitely is an issue that we have been facing. Municipalities have cut staff, and even in places like Houston, we're a month or two behind on one of our -- phase two of our 55 and older property. Primarily because the building inspectors hadn't inspected buildings in a long time, so you had new people and they cut staff and it's taken longer to get things done because of the limited staff folks. And then the people that are on staff are having to be educated, both our side and their side, to be able to get things accomplished. I think that's definitely a key issue in that it's taking longer to get things planned and longer to get them built.

That's all I have. Thanks very much.

On the other hand, the municipalities seem to be much more motivated these days to have a taxable entity rather than raw land.

Unfortunately, they don't communicate in-house, though, from inspectors. They maybe help you get your project zoned, but once it's in the hopper, they tend to be just sort of siloed and they do what they do.

Thanks very much. That's all I have.

Next question comes from Michael Salinsky at RBC Capital Markets.

First question -- did you give new lease rates which you guys are expecting for new lease growth in 2012? And also, just given how aggressively you pushed in the fourth quarter on renewals, how do renewals compare to current market rates in the portfolio?

The first question was on rental rates?

No, your new lease rates. You quoted, I think, a 7% to 8% number for the fourth quarter. I'm just curious as to what your -- your new lease rates were significantly below that. I'm curious as you look ahead to '12, what you dialed in for new lease rent growth?

So, if you think about what the number we gave you was for renewals for both January and February. So from a revenue management standpoint, we're looking at -- the model is forecasting out no further than 120 days to 150 days. So as we put together our budgets, we're looking at what's the total amount of rental increase that's going to happen for that individual community. So our revenue growth is a -- forecasting -- we don't forecast the difference between new lease rates and renewal rates using our revenue management tool. We do that through our property management folks, who make, depending on that community, every community has its own historical renewal rate. And they break it down between renewals and new leases and have a rental growth rate assumption for that market. So I'm -- our rental target at the midpoint is 5.5% across the entire market, but it varies pretty widely across that, from community to community and within each community, depending on how many renewals they historically have versus new leases.

Okay. Second one -- just a bookkeeping question. Can you walk through what you're expecting in terms of real estate tax growth for 2012, as well as utilities; and also just what in terms of sources and uses, what you're expecting in terms of total development outlays, including land purchases to back-stock the pipeline?

As far as kind of expenses, I'll tackle that one first. We have a 3% growth in expenses, 4.3% is real estate taxes; and if you kind of look at where we probably have the highest increases in real estate taxes, it's going to be in our Texas and Florida markets. And a couple of those markets, all of those markets are probably greater than 5%. What's offsetting that to get us to a 3% growth rate, the other big line item in expenses is salaries. We're actually budgeting to only go up 1.5%, and that's mainly because we had negative experience in 2011 as it related to large medical claims. That's the next biggest category. The only other item of size that I'd talk about is kind of R&M, and we're looking at R&M being relative flat, up 0% to 1% in '12 over 2011.

Okay. Did you give the development spend?

Development spend for 2012 is going to be approximately $200 million.

That includes additional land purchases to back-stock the pipeline or no?

Yes, it does.

Thank you.

Our next question comes from Seth Laughlin at ISI Group.

Thanks. I was just hoping to get a little bit more color on the increase in the average income for your tenant base. It seems pretty pronounced, given what we're seeing nationally in terms of wage growth. Is that more concentrated in certain markets, or is there something going on that's unique to your portfolio?

I think it's really across the portfolio; and what's happening is, as rent increases and renewal rates increase, what's happening is people who took advantage of lowering rents where they could afford a better-located or maybe higher quality apartment than they had in the past, they were able to move up, so you had sort of B buyers moving up into A properties because of the lowering of the rents. As the rent cycle has turned around, now what's happening is those folks that aren't necessarily -- their incomes haven't gone up enough to offset that rent, they're starting to have to move down market. So what's happening is that our people are -- sort of the new people coming in the door are -- they have higher income, so it's not necessarily that our existing rent base is increasing at a very significant rate, because obviously $61,000 to $67,000 is a pretty big increase relative to what's going on in labor, in income growth.

So it's really people moving in that have higher incomes and people moving out that have lower incomes, because they were pushed -- they came up during the rental decline cycle and now they're going back down market in the cycle. We haven't seen a lot of variation in markets. It's sort of happening in all the markets in a very similar way, where people were just getting higher quality residents coming in the door when our lower quality residents are having to move down market.

How does that $67,000 compare to the prior peak, and do you worry about as you upgrading tenants that just by the nature of that definition they're better qualified for ultimate home purchases later in the cycle?

Well, I think -- I don't know have the numbers for the peak at this point. We can look them up and get you those offline; but I think that even these -- even the residents that are coming in now that have higher incomes still have the same issues with respect to the people that are in there -- the credit scores are better, but the balance sheets of these people are pretty limited in terms of down payments and the ability to get home loans. I don't think that our -- that the people are more apt to buy a home, but obviously when you have higher incomes, they have the ability to do that. I think one of the things we looked at is the age range, and our age range really hasn't changed that much. And what drives home ownership is really demographics based on age.

The older the people get, the higher propensity they have to own homes, and so from that perspective, even though our income's up our average age has not risen. Sort of the early 20, mid 20s group continues to be the dominant demographic for us that is pushing our business. They tend to be very high propensity to rent folks. And so even if they have better incomes, they're not going to go buy homes until they get to that sort of sweet spot of the demographic to buy homes, which is really 35 to 45 years old.

Understood. That's helpful.

Maybe just one quick follow up. I know you were talking about this jobs-to-completions ratio, and the average about 5 to 1. Can you give a little more color at the market level for call it the top five or six markets in your portfolio?

Top five or six ranked by?

Sure, yes, any way you have them.

I'll get that to you offline.

That's all from me. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Ric Campo for any closing remarks.

Great. Well, thanks for participating on the call, and we will be taking music requests via email for the next call, so we'll see you at the next conference. Thank you.

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