Camden Property Trust (CPT) 2012 Q1 法說會逐字稿

Good afternoon and welcome to the Camden Property Trust first quarter 2012 earnings release 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, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining Camden's first quarter 2012 earnings conference call. Before we begin our prepared remarks I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC and we encourage you to review them. As a reminder, Camden's complete first quarter 2012 earnings release is available in the Investor Relations section of our website at www.camdenliving.com and it includes reconciliations to non-GAAP financial measures which will be discussed on the 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'd be happy to respond to additional questions by phone or e-mail after the call concludes. At this time I'll turn the call over to Ric Campo.

Good morning. The strength of the multifamily fundamentals that Jackson Brown sings about, stay a little bit longer, we think that renter nation has led to a great start to the year for Camden and will stay much longer without having to ask please, please, please. Same property revenue increased 6.8% with every market contributing, including Las Vegas for the second consecutive quarter. Same property NOI increased 9.6% over the first quarter of 2011, which was only exceeded by the first quarter of 2006 as the best quarterly NOI growth rate that we've had in the last 15 years. Strong operating fundamentals continue to be driven by broad macro factors, pushing more consumers into rental markets. 60% of the new jobs are going to our customers, people 34 years and younger. Home ownership rate continues to fall, while new home mortgages are harder for consumers to qualify for. New supply is not a threat to at least 2014.

In spite of rising rental costs for our customers, their ability to pay higher rents has been consistently improving. Annual incomes for our customers have increased from $62,400 in the first quarter of 2011, to $69,200 today, nearly an 11% increase. The percentage of rent to income has declined from 18.4% in the first quarter of 2011 to 18% today, in spite of significant rent increases. Historically our customers have paid between 22% and 24% of their incomes for rent. We do not believe that the rental increase cycle has peaked. We are riding a monster wave that has a long way to go before getting to shore. I commend our revenue management teams and our on site teams for getting as much out of this wave as it will give.

We continue to focus on external growth and improving the quality of our portfolio through acquisitions, dispositions and our development programs. Our 10 active development programs will deliver 2,800 new apartments for a little over $500 million. And, our leasing up at a faster rate and at higher rates with no concessions than we expected in our original underwriting. We anticipate starting seven additional properties this year, which will add another 2,061 apartments for an investment around $400 million. We plan on acquiring $250 million of properties and disposing of a like amount this year. Our real estate investment group and support groups will be very busy. It's a great time to be in the apartment business. I'll turn the call over to Keith now.

Thanks, Ric. Compared to our expectations, we're off to a great start in 2012. This is one of those quarters that makes me reluctant to talk much about, for fear of jinxing any subsequent quarters. With that in mind, my comments will be brief today. Virtually every metric that we use to monitor the conditions on the ground at our communities is either very good or excellent. For the first quarter, same-store average rents on new leases were up 3.1% and renewals were up 8% or a blended increase of 4.9%. More importantly, in March new leases came in with a 6.3% increase, and renewals averaged 8.4%, for a blended increase of 7.1% for the month of March.

Revenue growth year-over-year was strong across 14 of our 15 reporting markets. We saw double-digit revenue increases in 5 of our 15 markets, Houston, Austin, Charlotte, Dallas and Denver. And double-digit NOI growth in 7 of our 15 markets. The most amazing turnaround was here in Houston. In the first quarter of 2011, Houston's same-store revenue declined by 0.8%, and in this quarter revenues were up 12%, approximately a 1,300 basis point improvement over the year. Sequentially the top four markets for revenue growth were Phoenix, Houston, South Florida and Dallas. While every market had positive sequential revenue growth, clearly the leadership in our portfolio is shifting.

Our occupancy for the quarter averaged 94.9%, up 0.4% from the fourth quarter, at 94.9% we were roughly 0.5% higher occupancy than in our original plan. And this was a large component of our outperformance on property revenues for the first quarter. Our budgets assumed our occupancy rates would rise gradually over the year, but as it turned out, we were able to increase occupancy aggressively in the first quarter while continuing to raise rents. Our occupancy rates budgeted for the balance of the year look achievable, so the occupancy related gain in revenue in Q1 will not likely be a recurring variance to our plan. Compared to a year ago, our traffic has remained roughly the same, which is great, since last year traffic was up significantly in all four quarters.

Despite the aggressive renewal increases we continue to see manageable turnover rates of 48% in the first quarter. This compares to 42% a year ago and 52% last quarter. In addition, the percentage of residents moving out to purchase a home did tick-up slightly to 11.5% in the quarter. It looks like this percentage may have finally found a bottom in the 10.5% range. The financial health of our residents continues to improve. The percentage of our residents listing move-outs for financial reasons or job loss was 6.1% versus 9.3% a year ago. Also our bad debt expense for the quarter was 38 basis points and that's well below our budgeted level of 65 basis points. At this time I'll turn the call over to Dennis Steen, our Chief Financial Officer.

Thanks, Keith. I'll begin today with a few comments on our first quarter results. We reported funds from operations for the first quarter of 2012 of $68.6 million, or $0.83 per diluted share, representing a $3.1 million or $0.04 per share improvement from the $0.79 per share midpoint of our guidance range for the first quarter of $0.77 to $0.81 per share. And it was an increase of 15% per diluted share from the first quarter of 2011. The $3.1 million in FFO outperformance for the first quarter relates primarily to a $2.6 million in better than expected results from both our consolidated and joint venture communities. Additionally, we experienced a combined $400,000 favorable variance, related to lower than expected property management, general and administrative, interest, and tax expenses. And we had a $100,000 net benefit from three nonrecurring items.

The $2.6 million in better than expected results from our communities is the result of the following. Property revenues from our consolidated communities exceeded our forecast by $1.5 million, due primarily to the combination of higher occupancies, lower bad debt expense, and higher fee income from our stabilized communities, and higher than expected leasing velocity at each of our six lease-up communities in our development pipeline. Property expenses from our consolidated communities came in approximately $800,000 better than our expectations. The favorable variance in expenses is primarily the result of lower than expected salaries and benefits due to lower benefits costs and open positions, and lower repair to maintenance costs resulting from lower than expected unit turnover rates for our portfolio. The last component of outperformance from our communities for the first quarter is a $300,000 favorable variance in FFO contribution from our joint venture communities.

Like our wholly owned communities, our 44 operating joint venture communities experienced similar positive gains in revenues and slightly lower than expected expenses. As I mentioned earlier, we had a net benefit to FFO of $100,000 during the first quarter from three nonrecurring items. I want to provide details on each as they are significant to specific line items on our income statement. The first item is an approximate $400,000 benefit related to income allocated to our preferred units. Our prior guidance assumed that we would redeem our $100 million, 7% preferred units on March 1 and that we would incur a $2.1 million charge on the redemption. We actually completed the redemption on February 10th, resulting in an approximately $400,000 benefit to the first quarter. As you can see from our income statement, we did incur the $2.1 million charge on the redemption.

The second nonrecurring item is an approximate $400,000 benefit related to additional rental revenues recorded in the quarter as the result of the purchase accounting treatment for the 12 unconsolidated joint ventures we acquired in January. As with any acquisition of real estate assets, you're required to set up an intangible asset for the value of any above or below market leases and amortize that intangible to rental revenues over the expected life of the underlying leases. For the 12 communities acquired, we recorded a $1.2 million intangible for the value of below-market in-place leases acquired. $400,000 of the intangible was amortized to rental revenues in the first quarter, and $600,000 and $200,000 will be amortized in the second and third quarters of 2012 respectively. To isolate this non-cash amortization, we have included it in the other category of property revenues in the components of property net operating income summary on page 11 of our supplemental package.

The third nonrecurring item was an approximate $700,000 charge included in other income in the first quarter related to a marked to market loss on our $500 million interest rate swap that we de-designated last year upon the payoff of our $500 million term loan. The loss is a result of the declines in forecasted interest rates to the remaining life of the swap which matures in October of 2012. We do not anticipate material charges in future quarters.

Turning to earnings guidance. For the second quarter of 2012, we expect projected FFO per diluted share to be within the range of $0.85 to $0.89 per diluted share. The midpoint of $0.87 per share represents a $0.04 per share increase from the first quarter of 2012. This $0.04 per share increase is primarily a result of the following. A $0.02 per share increase in FFO due to the growth in property net operating income, as the result of an approximate 1% expected sequential increase in same-property NOI, as revenue growth from rental rate increases and occupancy gains more than offsets our expected increase in property expenses due to normal, seasonal, summer increases in utilities and repair and maintenance costs.

And the incremental NOI contribution from the lease-up of communities in our development pipeline and from the 12 joint venture communities we acquired on January 25 of this year. Additionally a $0.03 per share increase in FFO due to the impact of the redemption of our $100 million, 7% preferred units in the first quarter. And a $0.01 per share increase in FFO due to higher property net operating income due to the unfavorable $700,000 charge we recorded in the first quarter on our interest rate swap. The above three positives are partially offset by a $0.02 per share in dilution resulting from the full quarterly impact of the 6.6 million shares we issued in January to fund our acquisition of 12 unconsolidated joint ventures and the impact of shares issued year-to-date through our ATM program, as we continue to reduce leverage and pre-fund the equity requirements for our development activities.

We have not changed our same-store growth or projected transactional assumptions for 2012, but we have increased the bottom end of our 2012 full year FFO per share guidance range by $0.05 to reflect our FFO outperformance for the first quarter of 2012. We now expect full year FFO per share to be in the range of $3.35 to $3.55 per diluted share. At this time, we'll open the call up to questions.

(Operator Instructions) Alex Goldfarb, Sandler O'Neill.

If you could just talk, give a little bit more color, your turnovers was up, but yet you guys increased occupancy. So can you just give more color on the change of the demographic of the tenant base?

In terms of changing demographic of the tenant base, there's really not -- there's nothing between the two quarters that would make us believe that there is any -- I mean we have no evidence that that is actually changing. The fact that the turnover rate was up 6%, roughly 6% on a year-over-year basis is -- does reflect partially that we pushed the heck out of rents. The flip side of that was we had sufficient traffic to be able to do it and we're going to -- we'll continue to do that as we think the tradeoff makes sense. We're within a range right now. Our annual turnover rate tends to run in the 47% to 50% range and we're very comfortable with that range over the course of a year.

So the fact that we're 48% for the quarter really doesn't get on my radar screen very much, in light of the fact that we were able to push rents and push occupancy. You're always going to have -- when you're doing those two things, you're always going to have a little bit more at the margin, people moving and making other decisions, but as Ric mentioned on his -- in the stats that we look at for the ability to pay, relative to our customer base, those metrics have improved materially in each of the last two years. So do they like it? No. No one likes rental increases. Do we get tons of e-mail? Sure. But, can they pay? The answer to that is that they're paying a smaller percentage of their take home pay on a household income basis than they were last year.

The other thing you need that you really think about on turnover is the last few years has been at historic lows, and that's been driven by a lousy economy where people are doubled up and they're not moving around and they're sort of stuck because the economy's not that good. If you think about Texas, and you think about some of these really good economies where we're adding 100,000 jobs, what's happening is that you're sort of releasing that pent-up demand by roommates breaking up and going to smaller units and having their own independent housing situation. So we would expect, in a more buoyant economy where all the jobs are being created, to have a higher turnover rate because people l are actually moving around, and that's a good thing.

Yes, I mean that's more to the point what I was asking is, sort of how many of the people who came in when rents were low, have now sort of left and been replaced by people who are more commensurate with the price point? That's more where my question was going.

I think that's exactly what's happening. You're definitely having people moving down-market that can't afford it and you're having people move into our apartments that have higher incomes that can afford it. I think that that's evidenced by the percentage of rent that they're paying, the increase -- obviously in America, we haven't had an 11% increase in earnings in a 12 month period. Yet our customers their incomes have gone up 11%. Clearly we're replacing sort of weaker customers with stronger customers and it's all a function of the job growth and the buoyancy of the economies that we operate in.

Okay. Second question is, Ric and Keith, you guys have been pretty active in the past in the corporate M&A world. As you speak around and -- what's your sense for other CEOs, boards, are people with -- where the apartment valuations have gone, do you sense that people are starting to be more willing to contemplate M&A? Or do you think it still comes down to whenever a CEO decides it's time, it's time, and apart from that there's not much else that can be done?

I think that the latter part of your question is correct. M&A is a total social situation. It tends to be driven by the CEO and the Board and the Management team as to what they think about the world and how they feel about their business. And I think when you think about the multifamily business today, sure, prices have come back and values have improved dramatically, but when you look out on the horizon, you have to say, well, should I sell today because prices are high? And the question becomes, well, what is our outlook for the future? And right now the outlook for the multifamily future is pretty darn good for the next two or three or four years because of all these macro factors. So I think it's hard for people to -- unless you just believe in the economy's going to go down big time and Europe's going to blow up and the stock market's going to go down 50%, if you believe that, then maybe you're going to run for the doors.

But I don't think from a fundamental perspective people believe that our business is going to start getting bad or not as buoyant as it is today. So when you put that backdrop with, gee, why would I want to sell when I think that the rental rates are going to go up and my cash flows are going to go up? You know, that becomes -- so you have both situations sort of hurting M&A. On the one hand, if you're running a company and you think it's a great time to be in this business, why would you want to sell? Unless you believe it's the top and I don't think anybody in this business that I know thinks it's the top.

Thank you.

Dave Bragg, Zelman & Associates.

Hi, good morning to you. I don't think you mentioned this. What's current occupancy?

Last report was 94.9% occupancy.

Okay. Thanks. And then Ric, could you just talk about your review on the housing recovery occurring in many of your markets, maybe provide some commentary beyond the increase in move-out to buy home rate.

Sure. Housing market in a lot of our markets is improving. I'm talking about not just multifamily but single family. The markets that didn't have the bust, markets like Houston, all of Texas really didn't have a bust. I mean, we have situations in all of those markets where the single family home business is actually doing really well. You do have probably submarket issues, so in Houston for example in the inner loop, houses are on the market for two weeks to three weeks, bids are exceeding listing price now, which kind of hurts my head. My 30-year-old daughter just bought a house by our office and had to pay $10,000 above listing price to be able to get the house.

So the markets that are -- the housing markets that are -- that haven't been affected by the bust, are actually doing pretty well and a lot better than the ones that were affected by the bust. There are some interesting things going on in markets likes Las Vegas where you have sort of the regulatory environment that has created an unusual situation there. In Las Vegas, if you really want to buy a house you do have to pay list price or higher and there are bidding wars going on in Las Vegas. There's some strange things happening as a result of laws that were passed in October of 2011. AB-284 was passed by the legislature in Nevada, which basically its a fairly simple law, that basically said a lender, before they could send out a default notice, which was the first step in a foreclosure process, had to prove through an affidavit that they actually had the mortgage and owned the loan.

And just to give you a sense, the defaults notices that went out in September of 2011, this law came into effect in October of '11, so in September, first three or four weeks of September, they had about 2,000 default notices go out. And in October they had 58. So part of the challenge in Las Vegas is that the inventory is stuck, and so it's creating kind of an interesting situation where there's very limited inventory and housing prices are rising as a result of that. I think the Kay Schiller numbers for March and April are going to be surprising everyone in Las Vegas. Generally, I think, we feel like the single family market is improving in all of our markets. It's all driven by job growth and prices getting marked to market and consumers are buying homes which is good. I fundamentally think that you have to have a positive single family market for the multifamily market to be good long-term because it's such a big driver of our economy.

And then when you think about the higher quality tenants coming in through the front door today, as compared to those that are leaving, and this recovery occurring in the single family market, to what degree do you become more concerned about that move-out to buy rate accelerating from the current level?

Well, I think we always look at those numbers for sure. But in a reasonable economy, and let's just take the '90s as an example when you started out in 1993 with a home ownership rate about 64% by the end of the decade it was 66% or 67%. It almost hit 70% in the next decade. During that period, about 12% to 14% of the people in our apartments moved out to buy homes. What was really -- and it turned out to be a very, very good multifamily environment during that time frame. What was happening was, you had a situation where you had a very vibrant economy. You had 20 plus million jobs created. There was a lot of households created, and we got our fair share of demand from the economy. I think that, as long as single family homes are not going to take share from multifamily until you have a buoyant economy.

As long as we have a buoyant economy and we're creating jobs and we have reasonable household formation like in past history, then multi -- the people moving out the back door to buy homes will be filled with people moving in the front door from the demographics and just a buoyant economy. I think that while single family people worry about people moving out to buy homes, they've always moved out to buy homes in our business. The problem in the 2003 through and sort of 2008 time frame was that we had really good renters who became really bad homeowners because they put no down payment and they didn't have the wherewithal to make a mortgage payment. I think that could be or that would be a threat to multifamily if we had that situation happen again. I doubt, given the bust and given the underwriting criteria and everything going on in the single family mortgage market, that that will happen any time soon. So if we just have a normal environment where 12% to 14% of our people are moving out to buy houses but they're being replaced by new baby boom echo kids and immigrants and others that are traditional renters, we should be fine.

Okay. Thanks a lot.

Dave, just the to clarify, our current occupancy rate is 95.3%.

Okay. That sounds closer to a level you spoke about a month ago. Thank you.

Rich Anderson, BMO Capital Markets.

So I want to talk about this first question on the rent to income ratio. If I'm a resident faced with a 10% rent increase, I might be like -- I'm going to say no, but first let me go look at my own personal rent to income calculations and decide -- I don't think they think that acutely about the situation. I don't know if you think that. But I doubt people think about their own personal rent to income ratio. And so in saying that, I guess my worry is a wearing down effect.

You've got one big rent increase after another. Eventually it's going to get to the point where residents are just collectively put a halt to things. And I'm wondering -- you said you get a lot of pushback and calls and things like that but at what point are you worried that, yes, maybe the rent to income ratio is fine but we're just wearing people down here? And only thing that has to happen is the home market has to open up and then that creates an option and you might still get good rent income or rental growth but maybe not as vibrant as you're getting today? Wonder if you could comment on that?

Rich, there's no question that our folks are not doing rent to income calculations. I think it is useful to think about it from a big picture standpoint. And if you think about where we are right now in rents, we are currently as a portfolio, and obviously it's -- there's variances between markets. But if you take all of Camden's, which is a pretty big footprint, over 15 markets, and you take all of them combined, we just crossed over where we were in peak rents in 2008 last quarter. So in the aggregate, across all of our communities, this is the first quarter that the average resident is paying more in rent in actual dollars than they were in 2008.

But that's a different person.

I understand that. So the question becomes, the market is the market. And as long as we are raising rents and we don't deviate too far from what the rest of the market's doing, then everyone has to look at it and say okay, what is my alternative. I'm going to go shop. And they do it all the time. But the good news is, is that our -- with our yield management system, we know exactly what the market is. We know exactly what demand is. And so we're not guessing about what the price level should be and experimenting. We know, with very good predictability, what you can do with rents and what the likely effect that will be on both turnover and your overall occupancy rate.

So it's not that we're -- that we don't think that there's pressure. Obviously when you get 10% rental increases back to back, no one likes it and there's -- I'm sure there's a certain percentage of people that just out of -- as a matter of principle, not because they're doing their income to rent ratio, but just as a matter of principle, they go shop. They discover that low and behold, everybody in Houston raised their rents 12% in the last year. Or at least, let me say it this way, all of the likely alternatives for our residents which are Class A communities that are well located, our competitors are doing the same thing. Now, are they as sophisticated on revenue management? Of course not.

It doesn't take a whole lot of sophistication to call your comps and say what did you do on rents? Which is what our -- we give a lot of information to the marketplace, other people checking what we're doing on rents. Is there a percentage of that 48% who moved out, notwithstanding the fact that they're going to pay approximately the same amount in rent across the street or down on another block, yes, there probably is. I understand that. And that's the tradeoff. But as long as turnover is staying in a band that we're comfortable with, given traffic, demand, the ability to backfill, and we're raising rents, and we're raising occupancy, then from our perspective as good operators in this business, that's our obligation to do that.

Okay.

And their choice is to say, I'm going to get angry and I'm going to go somewhere else.

Okay. Just a second question then, is, I'm looking at a median household income number in your markets of about $40,000. And you're saying $69,000. Is that the difference between your markets and the subsector of your markets that rent your apartments, is it that substantial or do you think that my $40,000 number is wrong?

I think that broad numbers can mislead people, and when you think about markets, and I always use Houston as an example. You can buy a $140,000 house in Houston but it's not -- that's the median price of a house in Houston, it's not relevant if you're inside the loop. Inside the loop the average housing price is in excess of San Diego, California and that hurts people's heads. If you use an average median income for a broad metropolitan area like Houston, you're going to get totally skewed. Because our average income for example at Camden Travis Street in Houston is around $90,000 a year. Clearly much higher than the average income of Houston overall. That's because it's very well located and the rent's there, $1,500 to $2,500 a month. You go out into the Hinderlands in Houston you can get the same apartment from a square footage perspective for $600. Your average income in that apartment is probably going to be $30,000 to $40,000 per annual income. I do think they're skewed by submarkets in a major way in major metropolitan areas.

Rich, just as a follow-up on that, in Houston, our average household income on our current tenancy is $73,000 a year.

Okay. So just want to say that I heard the music. I heard the words running on empty and it's later than it seems. That was just my interpretation.

Some people have the glass half full and some have them half empty. Now we know who you are.

Thanks, guys.

At least you didn't hear Pretender. (laughter)

We're thinking about little Wayne next time, what do you think?

I've got all kinds of suggestions. I'll let you know. (laughter)

E-mail them. We're always looking for good ideas.

Eric Wolfe, Citi.

Thanks. Ric, when you say that your residents income has grown from $62,000 to $69,000, you're talking about the average across your tenant base or are those just the people that are moving in right now.

That's the average across the tenant base. That includes -- just to clarify, that's household income. So where you have two people living together, that's total household income.

Okay. And so I guess my question is if you look at just the people moving in this last quarter or recently, how much higher are their incomes relative to those people that are moving out? Is that like a $10,000 gap, $20,000 gap, trying to understand how much the income profile of your tenants is sort of changing recently?

From the third to the -- third quarter of '11 to the current quarter, it went from $66,000 to $69,000. So $3,000 difference in household income.

But the challenge is that includes the entire base. We haven't tracked it that way, and we probably could, but we haven't, we don't have those numbers in front us right now. But clearly the new people coming in have a higher income than the existing people that are -- that say have been there for two years and we don't recheck their income to drive that number up. And so we think that that $69,000 is probably low, because our existing bases that renew are not re-qualified. They don't tell us when they get raises. I would think that, that clearly some of the people coming in have higher incomes. But also our existing embedded base are getting raises as well. We can try to maybe get some more granular information on that and get back to you later on that.

Got you. That would be helpful. And then just a second question on your guidance. You mentioned that the $2.6 million better NOI from the consolidated and JV properties. It wouldn't seem like that NOI benefit is being carried forward in your guidance. I'm just wondering what would make this reverse or is there something offsetting it later on?

I think as you see as we go from the first quarter to second, I looked at that walk, the first component of our growth is $0.02 improvement due to the performance of the NOI of our properties and that's even in a quarter where we normally have an increase in expenses. So there's still a decent walk from first to second. I think our same-store revenue guidance is actually up 1.8% consecutively.

Right. I guess the reason I'm asking because if you look at your first quarter same-store revenue growth and you compare that with your fourth quarter, they're about the same. And you look at last year where you ended up from a same-store revenue perspective at 5.5% and you compare that with your guidance this year, also 5.5%, it would seem to me you're predicting a deceleration this year, that's essentially equivalent to what you had in acceleration last year. I don't know if that's the right way to think about it?

I think what we've done in our guidance, and the first quarter is always the toughest quarter to try to decide whether you're going to change your guidance for the whole year, and so we sort of tickled the guidance if you will by raising the bottom of the guidance. But what we've done from a pure modeling perspective is just use our original budgets through the -- for the second, third and fourth quarter. We clearly beat in the first quarter, and we do have our occupancies and our rental rates ramping up in that budget, but with that said, that's how we did our guidance. So clearly it implies that, I guess just the math, implies that if you started out at 6.8% revenue growth and you say your averages are going to be 5.5% for the year, that you have a decline in that but I think the -- there's upside in those numbers, clearly.

And if you look back at last year into the second quarter, we actually our same-store portfolio increased on revenues 2.9%. But a significant piece of that was an increase in occupancy. So we're not going to have that same type of impact this year as we did last.

Got you. That makes sense. Thank you.

Seth Laughlin, ICI Group.

Thanks. Good morning. My first question's just on DC supply. It sounds like everyone's sort of expecting the bulk of it to begin in the fourth quarter this year. Just wondering if that's in your budgets and if you can help us and kind of what the magnitude of that impact's going to be?

We missed the first part of your question, so can you repeat it?

Yes. Apologies. It's just a question on the DC supply. It sounds like fourth quarter's when we're going to begin to see the bulk of that hit the market. Wanted to see if that's in your budgets and if you can help us with the magnitude of the impact on your portfolio that you expect there?

Sure. The new supply is definitely in our budget. When we do our budgets we do them on a property by property basis, and each property looks at its competitive set and we try to then manage our budgets based on the competitive set. So with that said, any new developments would be in fact dialed into those scenarios. When you look at DC, it definitely has decelerated from its peak but we still believe it's going to be a positive contributor to the overall income growth. Keith, do you want to --?

Yes, the we -- numbers for 2012 completions for DC Metro are about 6,000 apartments. Same source for job growth in 2012, DC Metro is 36,000 jobs. Sort of at the five to one ratio that we -- kind of thumbnail ratio that we've used in the past, that would imply pretty close to equilibrium in that market. So if you get 6,000 new apartments at five to one, you need 30,000 jobs to naturally take that -- take on that absorption.

Yes, there's go to be supply and that's not allocated perfectly across that market. There's going to be pockets that are going to have some competitive pressure from the new lease ups. The overall market in DC, even though it has decelerated, we're still raising rates in DC. We're not raising them at 10%, we're raising them at 4%. In most days, that would be considered a really healthy market. But when Houston's doing 12% and Charlotte's doing 14% and Dallas is doing 10%, you say, well you know DC looks weak. I think we're going to be okay there.

In terms of your markets in Texas and then maybe specifically in Atlanta, not concerned about supply, sort of muting that growth in this calendar year?

Clearly not in this calendar year or next. I mean, Houston has probably 10,000 permits being pulled in Houston right now. But the problem is, or maybe the benefit is, that those units aren't going to be leasing up until '13, best case, end of '13.

We've got completions in Houston out to '13, or in '13, of about 11,000 apartments, which again sounds like a big number, but in a market like Houston it's really not that troublesome. Particularly in light of a job growth forecast for 2013 that's predicting another 90,000 or so jobs. Again, five to one on the 11,000 -- 55,000 jobs, we're probably going to get 90,000 jobs.

Understood.

And there's really nothing -- you can't go to the grocery store and buy multifamily apartments. It is what it is. The completion numbers for '13 are -- that's a pretty hard number, and known and knowable. So that's why I think Ric's opening comments that you've got to get out to 2014 in every one of these markets before you start -- before you'll see us doing any hand-wringing about supply because it is a known number for what going to come in 2012 and 2013. Now, the job growth side of it, who knows. We're certainly in our markets, we're clipping along at some pretty decent job growth right now. Nationally it's still pretty tepid, but in our markets, it's better than that.

Understood. I guess my next question is just on San Diego. There's been a lot of talk about weakness in that market. Looks like you guys had some pretty healthy sequential growth? Maybe a little more color there, are you seeing something that market that others aren't? Or is that just a blip and a one time?

I would say its a blip. San Diego continues to be a struggle. Probably just a real weak fourth quarter. In fact, I think we did have a real weak fourth quarter. One of our communities -- we only have I think three, four communities that roll up into same-store there. One of them is very much affected by what happens in the deployments, and we had their two aircraft carriers that within the last six months have been moved, one for renovation and one for permanent redeployment and it whacked us and --

Understood.

In the fourth quarter. So I think the story -- our story is about the same as everybody else's for San Diego.

And I'll just wrap up, apologies if I missed this, what are you guys sending of out for renewals going forward?

The April renewals are running in the 8% plus range, 8.2%. New leases, we didn't give that in the prepared remarks. New leases are running in the 6.2% range. So pretty consistent with what we saw for the month of March.

But are you accelerating those renewal requests as you kind of head further into the summer or do you expect that to stay at the current level?

Our renewal rates on renewal increases going back for probably 14 months have averaged about 8%. And I just don't see any reason to think that's going to change much.

Understood. That's all from me.

Michael Salinsky, RBC Capital Markets.

On the development side, couple of your peers took up the return expectations turning ahead. Just curious as to how, as you're starting to lease some of these properties up, how the actual rents are -- how rents are trending versus your actual underwriting? And also I think you talked about development starts for the year. Can you give us a sense of how that lays out in terms of actual starts, maybe on a quarterly basis?

Sure. In terms of rents, rents are definitely higher than our original pro forma, probably 3% to 4%. The more interesting part for me was the speed at which they were leasing up, and also the fact that we were giving no concessions. In a typical development lease-up, over the last 20 years since I've been involved in it or maybe more. I don't know that we've ever had developments that have leased up with zero concessions. Meaning that you have customers coming into the projects and there's a lot of construction mess and you start delivering a few buildings and everything else that's going on and usually you give them a month or half a month or something that's an enticement for them to leave.

This environment in Tampa and Orlando, zero concessions is pretty amazing. And what you have there is just no supply and there's a pretty high demand for new paint and new developments there in this environment. So with that said, we definitely have higher rents and no concessions. That should lead to higher returns, obviously, somewhere between 40 to 50 basis points is what we expect in terms of better returns once they're stabilized.

Michael, in terms of development starts, Q2 -- right now we have it scheduled is one in Q2, two in Q3, and four in Q4. One of which is a Fund asset.

Okay. Appreciate the color there. Second of all, just in light of the higher turnover you guys talked about there, can you give us a sense if there's any markets where you're facing greater resistance? And also if there are any markets in particular across the portfolio as you're pushing along the renewal and new lease rates, where you saw pretty big spike in turnover?

We didn't -- we have not really seen any big spikes. From the standpoint of our variance to prior quarter, 42% to 48% would imply kind of an average delta of about 6% more than turnover rates in the prior year. And we've got some 7% and 8%. The only one that jumped out at me was Austin at 11%, in terms of change in turnover rate year-over-year. When you look at it, it's because -- it's not because this turnover rate is elevated. It's because it was so incredibly low a year ago. In Austin we went from 35% to 46%. The number on that, that strikes me as odd, is the 35%.

Okay. As a follow-up to that, can you talk a little bit about the loss lease? I know you guys have been pushing pretty aggressively. Just curious how the rents across the portfolio there compare to market at this point?

So we don't -- our loss to lease changes hourly because we're in a revenue management world. We reprice our inventory online every minute. So it's just not a number that we -- that is even meaningful for us to try to think about in terms of loss to lease.

Okay. It's safe to say though you're moving rents to market or are you pushing rents above market at this point?

We're moving rents to what our yield star -- I would say right now that we are probably in the 90% plus accept range. So meaning that 90% plus of all of the recommended lease -- either renewals or new leases, are accepted without any further scrutiny. And there's always a percentage of them that do get scrutiny, for everybody has their own little one-off vagaries of reason. When you say pushing them to market, we're pushing them to what we believe the market is or what the market will sustain. Sometimes that may mean that we're pushing rents more than our competitors, because they're not -- they're just not as quick to adapt to changes in market conditions. What normally happens is they call us or somebody else like us and ask what are you doing on rents. We tell them and they adjust their rents.

That's great color. I really appreciate it, guys.

The poor man's revenue management system.

Paula Poskon, Robert W. Baird.

Thanks, good afternoon. I just wanted to follow up on the homeowners, the move out to home ownership ratio. Is that ratio pretty consistent across your markets or do you see a wide variance across the markets?

It doesn't vary that much. There a couple of them that are a little bit counter-intuitive. Our Las Vegas move-outs to home ownership is one of the lowest in the portfolio. Which is maybe because what Ric was saying earlier about the homes that are kind of stuck in the pipeline and you just can't get access to that inventory. So on the high end you'd see Denver at 15%, 16%. You probably see Atlanta or Raleigh in the 16% range. On the lowest end, you've got California at 7.8%. And then you've got Vegas and Austin in the 10% range, and those would be the two -- three lowest in terms of turnover rates or move-outs. There's not a huge change. Our historical number on the average on this number is in the 18%, 19% range. So we have no -- we don't have any single market that's even back to the long-term average of move-outs to purchase homes.

That's helpful. Thanks. And then just a bigger picture question. Given the growth that you're contemplating over the next couple of years, do you think your current platform, your infrastructure, can handle and manage that growth or do you feel like you're going to need to add some bandwidth and some infrastructure?

Our current platform can handle a lot of growth. We have systems in place where when we add properties, it's just plug and play. The systems are all very scalable, so we would require very little additional G&A or infrastructure to grow the platform. With roughly 70,000 units, I don't think we need to do much unless you get maybe up to the 100 -- over 100,000 unit kind of zone.

That's helpful. That's all I have. Thank you.

Rich Anderson, BMO Capital Markets.

Thanks. Sorry to keep it going here, but a question on the income growth at 11% you mentioned. Is that all pure income growth or is that also a function of how you move the portfolio around over the course of the past year?

No, that's same-store, so it would be same-store household income. So it should be reflective of what's going on in the portfolio. We do think it's probably understated because of the fact that we do not re-underwrite or ask the people who are renewing their leases if their income has gone up or down. We expect if they're paying a 10% increase in their rent that they're likely to have had income growth but we don't actually go back and ask them. So that number is -- should be all same-store, so it should be exactly the same portfolio for each period that we're measuring.

Okay. That's all I have. Thanks.

Rob of Wells Fargo.

Thanks, guys. Just a quick question on your longer term portfolio plans. Washington, DC has become larger and larger contributor to your overall NOI. I think at 19%, it's the highest it's ever been. Where would you expect that to peak out and what is the target percentage in that market over the next two to three years?

We like Washington, DC a lot, long-term. It's a great market and it always has been a great market. Overall, as we manage our portfolio, we will -- that number will go up and down. It will probably stay in the zone that it is now, maybe up a couple percent, maybe down a couple percent, but we -- we're more interested in the quality of the portfolio within that market. We do have two new developments we're building there. We have some outlying properties. To the extent that we would do more acquisitions and/or development in DC, we would likely sell a couple assets as well. So we sort of like where we are there and we like the -- I think one of the big issues you have to remember about Washington, DC is it's very different submarkets, so the district is very different than Loudoun County and some these other markets. We don't really look at it as 19% in one specific market because of the way you can slice those submarkets up pretty effectively.

Thanks.

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

Great. We appreciate everybody on the call today and we will see you at NAREIT. Thank you.

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