Camden Property Trust (CPT) 2012 Q4 法說會逐字稿

Good morning, and welcome to the Camden Property Trust fourth quarter 2012 earnings release conference call. All participants will be in listen only mode.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Kim Callahan, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining Camden's fourth quarter 2012 earnings conference call. Before we begin our prepared remarks, I would line 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 2012 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 is will be discussed on this call.

Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer, Keith Oden, President and Dennis Steen, Chief Financial Officer. Our call today is scheduled for one hour as another multi-family company will begin their call at 1.00 PM Eastern. As a result, we ask you limit your questions to two and rejoin the queue if you have additional questions. If we are unable to speak with everyone in the queue today, we would be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Ric Campo.

Thanks, Kim, and good afternoon to those of you on Eastern time and good morning to the rest. We actually have 15 other people in the room that we didn't name but for support here, which we oftentimes need.

So, it's time to turn the page on 2012 and look forward to another great year for 2013. But before we turn the page on 2012, I want to highlight what has been one of our best years in 20 years. Same property net operating income increased 9.2% over 2011, defining the high watermark in our history as a Company and one of the best in the multi-family sectors for the year. We continue to improve the quality of our property portfolio through capital recycling, redevelopment, and new development. We sold $529 million in properties in 2012 with an average age of 21 years, average rents of $800 per month at an average cap rate of 6.3% which resulted in an unleveraged IRR of 11% for the whole holding period, which is an average of 14 years.

We acquired $904 million of the properties with an average age of 13 years and average rents of $1,024 per month at a 6% cap rate based on 2013 budgets. We continue to create long-term value through our development program and stabilized four properties producing yields in excess of 8%. We continue to add $300 million to $400 million of new development starts annually. We strengthened our balance sheet during 2012 by reducing leverage and improving all financial metrics. 2012 was a year where we spent a significant amount of time simplifying our balance sheet as well and our capital structure by reducing the number of joint ventures and partners. The only remaining joint ventures that we have are with Texas Teachers and Sierra Nevada. A big thank you and job well done goes out to our real estate investments, construction and finance teams for their flawless execution in this endeavor.

2013 looks to be another strong year for Camden as our 6.5% increase in same property net operating income guidance suggests. Our markets continue to produce more jobs than the nation as a whole. While new starts are up in every market, we expect that job-driven demand will more than -- will be more than enough to absorb new supply and allow rents to continue to rise. While job growth has been steady, there continues to be a pent-up demand for an estimated 1.7 million young adult households that are still doubled up and living at home, and we know that most of those folks want to move out and want to rent an apartment at some point.

Our rent to income ratio of 17.7% is well below the long term average of 21%, indicating that our residents can afford to pay more in rent for the Camden living excellence experience that they receive from our Camden operations teams. We are excited about turning the page to the opportunity that 2013 will present. We are celebrating our 20th year as a public Company in July by ringing the closing bell at the New York Stock Exchange. We hope to see many of you in New York when we do that as we begin the next 20 years in this great industry that provides quality housing to many Americans. Keith, I'll turn the call over to you now.

Thanks, Ric, and consistent with prior years, I'm going top use my time on today's call to review the market conditions that we expect to see in our core markets for 2013. I'll address the markets in the order of highest to lowest ranking by assigning a letter grade to each one and give our view as to whether we believe that market will be improving, stable or declining in the year ahead. Following the market overview, I'll provide additional details on our fourth quarter operations. Before I get to the 2013 grades, I'll share the two biggest surprises relative to our 2012 grades and as you might expect, they're both upside surprises. Last year I rated Phoenix as a B minus improving market, and I was right on the improving part, but with a 15.3% NOI growth for the year, Phoenix probably deserved a better starting grade than a B minus. I also rated Denver as a B plus but stable market, but there's nothing stable about the 13.1% NOI growth our Denver team has posted.

Moving on to 2013, our number one ranking this year goes to Charlotte which we rate as an A plus market with a stable outlook. After placing second in same-store revenue growth last year with 10.8%, trailing only Houston, we expect strong growth this year in Charlotte as well. Charlotte will see some new supply this year from an estimated 4,400 completions but with over 18,000 job growth expected and our portfolio at 96.5% occupied today, we believe Charlotte will be our -- one of our top performers again in 2013. Houston is a close second with an A rating and stable outlook. Houston is expected to remain a leader in job creation next year with a forecast of 77,000 new jobs. The energy sector continues to add jobs and consolidate operations here, a trend which has shown no signs of slowing down. We'll see 12,000 new units delivered here this year, which seems pretty normal to us as Houston averaged 11,000 annual completions from the year 2000 through 2009.

Next on the list would be Denver, which also earned an A with a stable outlook. For the third consecutive year we expect Denver to be one of our top five performers and market fundamentals there remain solid. Over 29,000 new jobs are projected in 2013, which should easily absorb the 6,200 completions expected to come on line. Rounding out our top five spots for 2013 are Austin and Dallas, both ranked as A minus with stable outlooks. These are the only two markets which received a lower grade this year than last year, moving from an A minus versus an A. Mainly due to competition from new supply expected during 2013, Austin and Dallas recorded 2012 same-store revenue growth of 9.5% and 8.7%, respectively, and are expected to post above average results again in 2013.

Job growth estimates remain strong across the state of Texas with over 32,000 new jobs projected in Austin, 56,000 in Dallas. New developments are beginning to come on line in both markets with estimated completions of 9,700 units in Austin and just over 11,000 in Dallas. But those new units should face solid demand over the course of 2013. Phoenix and Atlanta both get a grade of B plus with an improving outlook. We have seen above average revenue growth in Phoenix for the past two years and expect the same in 2013. The rents in Phoenix fell nearly 18% from peak to trough, but we've since recovered nearly all of that. The Phoenix economy is doing well with over 52,000 new jobs expected during 2013, and supply is virtually non-existent with a total of 1,500 new units being delivered this year.

Another market expected to see strong job growth and minimal supply in 2013 is Atlanta. Estimates call for 49,000 jobs and fewer than 4,000 completions in that market, which should provide us with another very good year in Atlanta. South Florida holds on to its rating of a B plus with a stable outlook again this year. Completions are estimated around 2,900 apartments with 21,000 new jobs being projected. New supply should be easily absorbed given tight market conditions and pretty decent job growth. Washington DC earned a B rating with a stable outlook. After several years of outperformance, growth in DC slowed during 2011 and 2012 and will probably continue to moderate in 2013. Nearly 9,500 new completions are expected in DC this year, which will increase competition for new residents and may provide us a challenge on some of our renewals; however, job growth is projected at nearly 40,000 this year which will certainly help, but we do expect to see revenue growth in DC moderate a bit more during the year.

Next is Raleigh, also with a B rating and a stable outlook. Raleigh is projected to see the highest level of completions relative to job growth of all of Camden's markets next year with nearly 7,000 new units coming online and the creation of 16,000 new jobs will increase demand. That said, we expect Raleigh to be middle-of-the-pack this year in terms of revenue growth, posting results around the mid point of our overall guidance range. Tampa and Orlando scored B ratings with stable outlooks as well. Projections for 2013 job growth and completions in those markets are very similar with approximately 25,000 new jobs and roughly 2,000 new units of supply expected in each market, providing solid demand with limited supply. The success of our recent developments in both Tampa and Orlando are testaments to the solid fundamentals in those markets as leasing velocities and rental rates were well above expectations at all four of our lease-up communities.

The final market rated as a B with a stable outlook is Southern California. Southern California struggled a bit over the past few years, but economic indicators seem to be pointing in the right direction for next year. Over 65,000 new jobs are expected, it's definitely a step in the right direction for the California economy. Projected completions are 12,400 units in 2013 and that should not materially impact the market conditions.

It's probably no surprise that Las Vegas places last again this year with a C rating, but improving outlook. Las Vegas is still our most challenging market. We think it may have finally bottomed for real this time. 2012 marked a return to positive growth with 1.8% revenue growth in our same-store portfolio and we expect 2013 to be marginally better. Supply is clearly not an issue in Las Vegas with fewer than 800 new units being delivered this year. 27,000 new jobs are projected in 2013, which should allow for positive absorption and improving occupancy rates over the course of the year. Overall, our portfolio would rank as a B plus again this year, which puts us in a great starting position for 2013.

Now, I'll give you a few details of our same property results. Overall trends for the fourth quarter in January look very similar to last year. Fourth quarter new leases were up roughly 0.5%, renewals were up about 7.3% versus 0.5% and 7.5% last year, respectively. In January, new leases were up about 1.2%, renewals up 7.2%, January and February renewals are trending at 7% with 56% and 44% completed, respectively, Currently, our portfolio is roughly 5.3% above the prior peak rents on an overall basis. Occupancy averaged 95.1% in the fourth quarter and ended the year at 94.6%. The average occupancy in January was 94.8% and current occupancy is 95.1%. Net turnover was 52% for the fourth quarters of both 2011 and 2012, completely flat year-over-year. Year-to-date turnover was 57% in 2012 versus 56% in 2011, and overall traffic has declined, but still remains at very strong levels in all of our markets. Move outs to purchase homes was 13.3% in the fourth quarter of 2012 versus 11.2% in the prior quarter of 2011. Move outs to rent homes actually fell during the quarter to 3.6% versus 4% for the full year, and the top reason for moving out of one of Camden's apartments was either moving out of city or the state or closer to work at 18%, and transfers to other units or Camden properties were second at 13.5%.

Finally, I want to thank all of our Camden team members for making Camden a great place to work, a distinction recognized by Fortune Magazine for the sixth year in a row and our fourth straight top 10 finish. Being included on the list of the top 100 companies to work for is an honor that we claim on behalf of our team members and all of the other outstanding real estate investment trusts. At this point, I'll turn the call over to Dennis Steen, Camden's CFO.

Thanks, Keith. I'll start today with a few comments on our fourth quarter results and then move to 2013 earnings guidance. Camden reported funds from operation for the fourth quarter of $85.9 million, or $0.97 per diluted share, $0.01 per share above the $0.96 mid point of our prior guidance range of $0.94 to $0.98 per share. Results coming in $0.01 per share above the mid point of our guidance range resulted primarily from two items. First, property net operating income exceeded our forecast by $1.6 million. Approximately half of the positive variance was due to the NOI performance of our operating properties as both property revenues and expenses performed slightly better than expected, producing a 9.2% year-over-year growth in same-store NOI, slightly above our expectation of 9% growth. The other half was due to NOI pick up from the slight delay of several dispositions into the latter half of the fourth quarter and the disposition of Camden Live Oaks moving into January of 2013. This positive variance in property NOI was partially offset by higher property management and G&A expenses primarily related to higher bonuses paid to non-executive employees in recognition of 2012's outperformance. All other components of income and expense were generally in line with our expectations for the fourth quarter.

Moving on to 2013 earnings guidance. You can refer to page 26 of our fourth quarter supplemental package for details on the key assumptions driving our 2013 financial outlook. We expect 2013 projected FFO per diluted share to be in the range of $3.85 to $4.05 with a mid point of $3.95 representing a $0.33 per share, or a 9% increase over 2012. The major assumptions in components of our $0.33 per share increase in FFO at the mid point of our guidance range are as follows. A $0.29 per share, or $26 million, increase in FFO related to the performance of our 44,395 unit same-store portfolio. We are expecting positive same-store net operating income performance of 5.5% to 7.5%, driven by revenue growth of 4.75% to 6.25% and expense growth of 3.2% to 4%. A $0.32 per share, or $29 million, increase in FFO related to increased net operating income from our non-same properties -- non same-store properties, resulting primarily from the 20 communities acquired in 2012 and four development communities which stabilized in 2012 and the incremental contribution from development communities currently in lease up.

We'll also have a $0.09 per share, or $8 million, increase in FFO related to additional net operating income from expected 2013 acquisitions of operating communities and a $0.05 per share, or $4.5 million, increase in FFO related to reduced interest expense, primarily as a result of the pay off of various secured notes in 2012, the favorably priced issuance of $350 million in unsecured debt in the fourth quarter of '12, and $3 million in additional capitalized interest expense expected in '13 related to our 2012 and 2013 development starts. Additionally, we'll expect a $0.04 per share, or $4 million, increase in FFO related to reduced minority interest expense resulting from the redemption of our preferred units in the first quarter of 2012 and our 2012 acquisition of our partner's interest in two consolidated joint ventures. We expect no minority interest expense in 2013.

These above positives are going to be partially offset by a $0.29 per share, or $26 million, decrease in FFO related to lost NOI from both 2012 completed dispositions and 2013 anticipated disposition activity. And an $0.11 negative impact from common shares issued in 2012; a $0.02 per share, or $1.7 million, decrease in FFO related to reduced equity and income of joint ventures resulting primarily from the seven joint venture communities sold in 2012; and our consolidation of Denver West as a result of the purchase of our partner's 50% interest in the fourth quarter of 2012. And a $0.02 per share, or a $2 million, decrease in FFO due to an increase in G&A expenses resulting primarily from costs related to the move of our corporate headquarters later this year and higher incentive compensation expense resulting from the amortization of awards granted in 2012, a year with great performance which are replacing the amortization of awards granted for 2008, a year challenged by the great recession that have now become fully amortized in 2012. Additionally, we anticipate a 3% increase in base compensation.

Taking a closer look at our same-store expense growth of 3.2% to 4% for 2013, we are expecting the largest increases to be in property taxes and insurance expenses. Property taxes are projected to be up 10% in 2013. 6.5% is the result of anticipated increases in assessments for our properties in 2013 due to continuing increases in real estate values, and 3.5% is related to a higher level of favorable tax settlements of protests that were completed in 2012, thus reducing our 2012 expense. Actual settlements were $3.2 million in 2012, and we are forecasting approximately $1 million of settlements for 2013.

Same-store property insurance expenses are expected to be up 17% in 2013 after declining 3% in 2012 and 7% in 2011. The declines in insurance expense for 2012 and 2011 resulted from lower levels of self-insured property and general liability insurance claims. Our projection for 2013 insurance expense assumes a 5% increase in policy premiums and a return to a more normalized level of self-insured losses. The remaining categories of same-store property expenses are projected to be relatively flat to 2012 amounts, which was aided by a 2.5% reduction in repair and maintenance expense resulting primarily from a reduction in unit turn costs as a result of our increased level of repositioning of units in 2013, which I will discuss in a minute; and a reduction in our door to door trash removal cost due to the successful renegotiation in 2012 of our trash removal contracts.

Page 26 of our package also details our expected ranges of acquisitions, dispositions and development activities. The mid point of our 2013 FFO per share guidance assumes the following. $300 million in on-balance sheet dispositions, $63 million of that has already occurred in January with the sale of Camden Live Oaks and the remainder is spread throughout the year, $300 million in acquisitions also spread throughout the year and $325 million of on-balance sheet development starts. We've also provided guidance on the impact of the ramping up of our reposition program to upgrade interior finishes at 39 of our communities over the next two years. Our guidance assumes we will reposition approximately 5,500 units in 2013 at an average cost per unit of $10,000 generating an estimated $95 per month rent premium and an estimated return of 10% on our investment upon stabilization. These communities will remain in our same-store portfolio, and the 2013 projected impact from the revenue-enhancing repositions included in same-store NOI guidance is estimated to be 50 basis points as rent premiums and reductions in turn cost will be partially offset by increased days vacant on the repositioned units.

Based upon our planned 2013 transaction acquisition activity and the $200 million in unsecured debt maturities for the fourth quarter of '13, we anticipate needing up to $350 million of new capital for 2013 and anticipate accessing the capital markets opportunistically. The composition of our 2013 capital activity depends upon a variety of factors including capital market conditions at the time we go to market, but will likely include an unsecured bond offering in the second half of the year. As a reminder, we currently have full availability under our $500 million unsecured line of credit.

For the first quarter of 2013, we expect FFO per diluted share to be in the range of $0.92 to $0.96 per share. The mid point of this range represents a $0.03 per share decline from the fourth quarter of 2012. The $0.03 per share decline is primarily the result of the following items. A $0.02, or $1.5 million, decline in same-store NOI resulting from a 3.4% increase in same property operating expenses, almost exclusively due to increases in property taxes and insurance expense for the reasons I previously discussed, which is only partially offset by a slight increase in same property revenues due to the continued improvements in rental rates, partially offset by a slight decline in other property income due to expected seasonality; and a $0.01 or $900,000 decrease in FFO related to a decline in NOI resulting from the net impact of our acquisition and disposition activities. NOI loss on our fourth quarter 2012 dispositions and the sale of Camden Live Oaks in January of this year is greater than the NOI gained from our fourth quarter of 2012 acquisitions. I will now open the call up to questions.

(Operator Instructions)

Our first question is from Eric Wolfe of Citi.

Hi, good afternoon.

Hi, Eric.

On one of your peers calls yesterday they talked about supply being more of a factor in their markets in 2013 versus 2014, their basic thesis being that investors first look to at the coastal markets and then begin broadening their bases out to the sunbelt markets. Just wondering whether you see this trend happening, and if there's some concern about the fact that companies like Lennar and others are trying to build out their multi-family business?

Well, I think that -- I guess my view is that that starts in the non-coastal markets. We're pretty limited to the urban core, and they still are fairly light in the suburban part of these markets. So, I would say that '13, I don't have any concern about '13 having trouble with supply at all. I think '14, when you look at some of the projections out there for some of the folks that we follow like Ron Witton and others, they show '14 and '15 actually accelerating.

But it's not supply issues, it's really job growth. Most folks believe that '13 will be a go along, get along year from a job growth perspective, 150,000, 200,000 jobs. But after all of the government issues are dealt with this year, that '14 and '15 actually accelerate job growth-wise and supply does not really tick up dramatically in '14 or '15. We think that supply is going to stay on a national basis somewhere in the 220,000 to 250,000 units a year. We need 300,000 a year to meet demand after you take out obsolesence. So, we aren't seeing major increase in the non-coastal markets and aren't really worried about '13 or '14.

Great, that's very helpful, and second question is just as you sit back and look at how your markets have performed over the last couple years, and obviously there's been a lot of talk about whether multi-family and single family can co-exist. But have you seen any correlation between now the single family markets have performed in your markets versus multi-family? Has the strongest single family been also the strongest multi-family or vice versa, or has the relationship not really been a strong relationship between the two?

I think it's a pretty good relationship. If you look at Texas for example, you have -- which is one of the best markets in America for multi-families and jobs, Texas didn't have a housing bust per se, no big run up in prices and no big decline in prices. But from a start perspective, their starts in single family homes have been doubling here in Texas, and there's bidding wars for houses and that sort of thing.

So, that clearly has had a beneficial correlation to multi-family, because you're in a situation where you're adding construction jobs and adding all of the activity that happens in a single family market, and that's better for the economy overall, which drives multi-family demand as well. I think that the idea that single family home -- the single family market improves, that multi-family can't do well in that environment is just not the case.

And if you look at, the '90s is a good example, call it the home ownership years, when everyone is buying a home and home ownership rate went from 64% to almost 70%, multi-family did incredibly well during that timeframe. We had net positive absorption, big job growth and big revenue growth, as well, during that timeframe. So, I think unless something happens where you have a bubble caused by incredibly low interest rates and incredibly easy access to home loans which I don't think is going to happen, then I think that the correlation between strong housing markets in general including single family could drive multi-family, as well.

Great. Makes sense, thanks for the detail.

The next question is from Jana Galan of Bank of America.

Thank you, good morning.

Good morning.

Your DC results were very strong in fourth quarter. I was wondering if you could comment. Given the concerns of the new supply, do you feel that your portfolio, maybe because of the submarkets where you're located, or perhaps the price -- the average price point let it do a little bit better than some of the peers that have reported thus far?

Yes, I think that the -- if you think about our portfolio in DC metro, it's all the way from northern Virginia up through Maryland, we have two operating assets in the district and a couple of others under construction there now. But when we look at a submarket level, we just don't think that we're likely to be very much impacted by the new supply that's coming in the DC metro area.

I think that some of it gets down to, we just had a great execution from our teams in DC. If you think about same-store last year, we were in the 4.2% range and I think our game plan for 2013 is somewhere in the 3% to 4% range again on same-store. So, I think that we're looking for a year that would look a lot like 2012. Yes, you're going to have some more supply, but we also -- we're forecasting about 50,000 new jobs. That puts a little bit of pressure on the overall ratio that's from the standpoint of new deliveries to job growth that's slightly below the 5 times level that we think is equilibrium, but it's 4 and change. So, I think at the margins that's not going to be a huge issue for us as long as we get the 50,000 jobs that are forecasted in the DC metro area.

Thank you.

And next we have a question from Alexander Goldfarb of Sandler O'Neill.

Good morning down there.

Good morning, Alex.

Dennis, on the capital front, on your $350 million of capital needs for this year, you cited unsecured, but you didn't talk about equity. Are you guys planning on using the ATM, are you planning any equity issuance as part of that $350 million? And part of where this is going is, developers post credit crisis have been using a lot more equity than pre-credit crisis, so given that you are pretty active developer, just want to better understand what we should expect on that front.

Yes, as you look at what we did this past year, we did a lot of delevering this past year and also prefunding a lot of our developments that are going to be coming out of the ground in 2013. As we look at it today with $200 million maturing in the fourth quarter, I think we're going to have a significant piece of this capital need funded by debt, as I mentioned. And you might have a minor piece with ATMs, but once again, we will just have to see based upon the conditions at the time. I think of that $350 million you see there, I think you would definitely think at least $250 million of that would be debt.

Okay, and so if we're modeling, the other $100 million we can just do ratably on the ATMs throughout the year?

Yes, or you can use some combination of ATM and additional debt.

Okay.

It won't make that much of a difference to your numbers, I don't believe.

Okay, second question is just going to the earlier questions about supply, and everyone jumping into the space including Lennar, all that said, supply is still well below. Atlanta, for example, is forecast to be well under supplied versus historic. What are you guys seeing? Are the banks just -- have they really learned a lesson, or are regulators just being very tough on them? It seems hard to believe that with the under supply and the favorable dynamics of apartments that we just aren't seeing supply ramp up even quicker than what it is right now.

Well I think there's a couple things driving that, Alex. First, of all, Lennar, it's interesting they announced $1 billion multi-family deal when Lennar has been a competitor of Camden's for the last 10 years, okay? Lennar isn't doing anything new other than trying to capitalize on the hot multi-family market and drive investors to think about them in that way. But Lennar has been building apartments from -- at least for 10 or 15 years. They just didn't publicize it. So, they are not a new competitor, which I think most people don't realize.

Second, the issue on supply is this; so we started 211,000 units this year, in 2012, I mean. And so when you look at that compared to the bottom, we had 75,000 units start at the bottom of the cycle, and now next year I think we'll probably add from 211,000 to maybe 220,000, 230,000. What's going on in the marketplace is that I think people have sort of learned some lessons in that the merchant builder model has changed dramatically.

The sort of big behemoth 30,000 units under construction, 20,000 units under construction, merchant builder model is done. They might do 5,000 units, but not 20,000 units, and part of that has to do with the capital structure that the banks look at. In the past, the merchant builders used to guarantee the debt, generally a 70% debt, 30% equity scenario, and banks really didn't look at what their tangible capital was in their -- on their balance sheets and today they are.

And so I think there's a limiting factor which has to do with just the size of the companies. And then second, investors, the equity side of the equation, I think, is probably more cautious than the learning side of the business. And you have a group of equity investors who have placed their investments, and they have two or three in Houston, for example, or two or three in various markets, and they are waiting to see what happens in that environment.

The other thing that's sort of coming into the business today which could have a dampening effect on starts is construction costs. Construction costs went down from peak to trough probably 30% in type 1 construction, maybe 20% for stick, and now that has been reversed. There's a lot of discussion and angsting about what kind of numbers you're able to produce with construction costs, and some folks who had some pretty rude awakenings on bidding projects out and having 10%, 15%, 20% increases in the cost to build. So, you do have pressure on the cost side of the equation, and investors on the equity side are definitely being more cautious than they were last time.

Okay, that's helpful. Thank you.

The next question is from Rich Anderson of BMO Capital Markets.

Thanks., good morning down there. Just following on a development question as it relates to you guys. AvalonBay is increasing their development pipeline, primarily through Archstone but obviously, they've made a commitment to development and grow the development portfolio. Are you of that same mindset? It looks from third to fourth quarter you transition from your development pipeline to your under construction pipeline. But what do you think about the growth of your development effort in 2013 and 2014?

Well, we've been pretty consistent with that. We're going to add to the portfolio $300 million to $400 million a year. If you take the entire pipeline that we have, it's over $1 billion, but the bottom line is that we are not going to start $1 billion in any one year. We are going to manage it prudently.

The real -- when you think about the last cycle, we had too much development pipeline and we had too big of a land pipeline, and we're not going to do that again. We will be more prudent in our development endeavors. We have, unlike the last cycle, been funding -- prefunding our development with a combination of equity and debt, and we think that's the right strategy. In terms of development, you can count on $300 million to $400 million of development annually through the next two or three years, and if the market continues to be buoyant from that perspective and we get the numbers that we like, we'll continue to do it.

So, if you thought it was going to be a better and accelerating market next year and the year after -- I'm just trying to extrapolate development expenditures and confidence in management. Is there such a thing with you guys, or are you just sticking to that $300 million to $400 million and not showing your cards?

Rich, it's more an issue of the way we view the development pipeline, which is unlike a merchant builder's or folks who are kind of in the market and out of the market. They got to catch lightning in a bottle twice which is once when they start and once when they exit on valuations, and that's just not the way we view it. The way we view it is we're producing product at a wholesale rate in locations we want to own for the next 20 years. So, ramping up dramatically or dialing back dramatically is more of a behavior that I think is a little bit more consistent with the merchant build model.

I don't think you -- as Ric said, I think that we've given guidance that we'll add $300 million to $400 million to the pipeline this year to go with what we started in 2012 and assuming conditions still look favorable in 2014, I think you can probably expect somewhere along that line, as well. Projects lease up and roll off of that, which gives us a steady state development pipeline at an aggregate level that we're extremely comfortable with, given our debt metrics and our commitment to pre-funding it. I think it's a core competency of ours. We have to renew and refresh our portfolio across 15 markets, and we'll continue to do that through both acquisitions and new development.

Okay, and then the last follow-up question is on the dividend increase, how much of that was a function of having to deal with taxable net income issues, or how much is it you just woke up one day and said, I want to raise the dividend by 12.5%?

It was definitely not mandated by a need to deal with our tax characteristics. It was just simply a dividend increase based upon our increase in cash flow.

And also Rich, our long term stated policy has been to increase the dividend at roughly 50% of the FFO growth rate. And if you take what we actually did, in terms of a dividend increase, forgetting what our guidance was at the beginning of the year, we so significantly beat our guidance relative to last year's dividend increase, that's the reason why it looks like it's above the 50% level. But if you take what we actually delivered in 2012 plus what we expected to deliver in 2013, we're pretty close to that 50% metric.

Sounds good, thanks.

The next question is from Bob -- Rob Stevenson of Macquarie.

Good afternoon, guys. Just a couple quick questions on cap rates. Can you talk about what the cap rate was on the 12 acquisitions excluding the joint venture purchases? And then also what it was on the dispositions and where you guys are on the expectations for a stabilized yield on the current development pipeline?

Okay, so the first one on the acquisitions. The 2013 budget has a 6% cap rate, so we bought those during the year, so it's probably in the mid 5%s in terms of cap rates. On the dispositions, the cap rate was in the -- was 6.3% on average, so it's mid 6%s, which is -- I think is interesting when you think about that 23-year-old assets or 20 plus year old assets and there wasn't a huge spread -- negative spread between the two. And that's something we're capitalizing on right now, we think it's a really good time to sell old and buy, new because both the cap rate spreads are just not as wide as they tended to be in the past. On the new development, we have 6.5% to 7.5%, so call it 7% and some change on new developments that we started.

Okay, and at this point, is 150 basis points enough for you guys on the development from a risk rewards standpoint? That seems low relative to historical norms.

The average has been from 100 to 200. We're comfortable with 150 basis points of positive spread to the cap rates we're buying at.

And also, Rob, it's probably -- you're talking cap rates on acquisitions, dispositions which are, in one case were 21-year old assets and the other case were 13-year-old assets. If you're talking apples-to-apples cap rates on new construction core product, you probably got a 4% handle on it today versus the 7% that we're developing to. We're probably north of 250 at this point on apples-to-apples.

Okay, and then just lastly, Keith, just in terms of your market outlook, which is the market that you would feel least confident betting your total comp for 2013 on the performance of?

Least confident?

I've got to believe you guys are sand bagging a little bit, right, as normal? A little bit of sand bagging in there so that we can have beating all of the numbers, but which one is the one that's the least amount of confidence in continuing to be an A or a B, as we go throughout '13?

I think to me the market that has the most potential variability in it, there's two. One is Raleigh, based on the amount of new construction relative to the size of that market and the projected job growth. So, you may have some pressure there, but I think we've properly captured that in our rental forecast for 2013.

The other is just, at a 20,000-foot level is California, and the uncertainty of a couple of things, the overall fiscal situation and how that plays out in terms of what real job growth is going to be. The out migration of Phil Mickelson notwithstanding him changing his mind, I think it's a real issue in terms of the tax structure in California. And then on top of all of that, if you want to start fretting about something, Prop 13 is certainly something to fret about. If what happens -- what they're currently talking about as a surplus, we'll see if that actually happens. If it doesn't and they have to go back to the well on revenues, I think there's some risk associated with they end up getting it through revisions to Prop 13 since they now -- the democrats now have a super majority in both houses, so I think that's a risk.

Okay, thanks guys.

Our next question is from Ross Nussbaum of UBS.

Hi, thanks, it's Derrick on for Ross. Circling back on your outlook for DC, can you comment if you have seen or expect to see any change in cap rates inside and outside the district?

We haven't seen much cap rate changes in DC at this point. I think that the transaction activity has been consistent and there hasn't been a very -- any kind of major change in cap rates at this point.

Okay, thanks, and then I think you mentioned you're still about 300 bps below historical rent to income. Is there any markets where you're actually above the respective historical average?

We'll have to get back to you on that. I don't have the detailed market information, but we would be happy to do that offline.

Okay, fair enough and then just lastly, did you give the move outs for financial reasons?

We'll get that to you, one second. Financial reasons in 2012 was 5.2%.

And for the quarter?

The quarter was 5% flat.

Okay, got it. Great, thank you.

Great.

The next question is from Michael Salinsky of RBC Capital Markets.

Good morning, guys. Could you talk a little bit about what your market rent growth expectations are for '13 relative to '12? I think you said -- you kind of walked through the markets, but how does that compare? Are there any markets where you're expecting a significant drop off or a significant pick up there? And then, just curious on the redevelopment spending there that's included in the numbers. How -- can you talk a little bit about the plans to roll that out, what's that's going to entail and what kind of drag you expect a little bit, and how the benefit's picking up in the back half of the year? Just walk through the program a little bit more.

Yes, so without going market by market through the 2012 revenue versus 2013 same-store projections, across-the-board, if you think about where we were in 2012, we were at 6.5%. This year, guidance the is 5.4%. Just kind of eyeballing it, I don't see -- I see maybe two or three of the markets where we're slightly better in revenues than we were in 2012.

But as you might expect, across-the-board we're down 1.1% on top line revenues versus where we were in 2012. I don't see any big declines in terms of year-over-year. 2%-ish in the Charlottes and Houstons of the world on revenues, Las Vegas actually picks up, DC I think I give you earlier, it's 4.2% last year and we're in the 3% to 4% range this year. Not big swings across-the-board, but overall, just a little bit of moderation from the 2012 levels.

Okay, and then can you just walk a little bit through in terms of redevelopment, how that's going to impact the numbers, when you expect to see the benefits?

We'll let Dennis give you the redevelopment, because it really doesn't drag the portfolio, but go ahead, Dennis.

Ultimately, if you look at what we've given you guidance on of doing 5,500 units and we expect to do that over that ratably year, ramping up by the mid year to get to a steady state. So, if you look at the impact to this year, if you take $95 a unit and you say the 5,500 units come in ratably during the year, we think the net impact to revenues after knocking out 9 to 10 days worth of incremental vacancy, is about $1.3 million, or 20 basis points on revenues.

And that's on the same-store.

Yes.

Okay, that's helpful.

That help?

Yes, that clarifies it a little more, and you're going to disclose that, I'm assuming, correct? The amount that you spent a quarter?

Yes, that will be disclosed every quarter.

Okay, and then just as a follow-up question, does the Sierra Nevada -- the debt on the Sierra Nevada joint venture mature this year? And if so, can you talk about what the plan is for that joint venture long-term?

Sure, the debt does mature this year. It's a Freddie Mac loan, and we are working on either -- on two plans, one is to either extend the loan or the other is to sell the assets.

Okay, thank you much.

Our next question is from Andrew McCullough of Green Street Advisors.

Hi, guys. Following up on that CapEx question, on the recurring and revenue enhancing CapEx spend for '13, these are pretty big numbers compared to what you've done historically. How much of the spending in your mind is really deferred maintenance?

None. It's all kitchens and baths. And the interesting thing is if you think -- most people say gee, you're going to rehab a 10-year- old property, if you think about -- I was thinking about my wife and my home and how many times I've redone my kitchen, and what we're doing is we're updating to current market needs or current market tastes, if you will, perfectly good kitchens and baths. But people are willing to pay more for granite and pay more for cherry cabinets and the like. There's zero dollars involved in CapEx that would be described as deferred maintenance. It's all improving the quality of the customer experience, which they ultimately pay a higher rent for.

Okay, thanks. Second question on single family rentals. That industry continues to gain steam, and we saw the first company recently become public. I know this is a business you guys in particular have followed very closely. Asking your crystal ball a little bit here, but as you sit here today and look at the single family rental landscape, what do you think the probability that Camden at some point gets into that business?

Very low probability. When we looked at it multiple times in the cycle and we still fundamentally believe, and I think it remains to be seen whether these companies that are in this business now can get any large scale, because I don't think they know what operating costs are in large portfolios or how that really works. And so, I think that's the big if. The question ultimately is -- I do think people are going to make money in that business, don't get me wrong in that, but I don't think it's a long term institutional public REIT style business that 20 years from now you're going to have large public companies owning single family homes.

There's too much competition between mom and pop, and mom and pop have no overhead expenses, they do the maintenance themselves, they rent the properties themselves, and so it will be -- it's a little different animal then a multi-family business. If I thought there was, A, a way to scale it and B, a way to make it a long-term viable business, we would have been in the business in 2008, '09, or '10. But I haven't been able to figure that out. And maybe I'm wrong and somebody will figure it out, but Camden won't.

Andrew, we spent a lot of time, effort, energy and intellectual capital doing -- looking at a buy and hold strategy, and we could never figure out how to get the numbers -- the buy and hold rental strategy anywhere past about a 4.5 to 5, and that was using what we thought were pretty aggressive -- speaking of CapEx.

Ric is right. I don't think the folks know what the long-term operating costs are in this model for running 500 single family houses strung out all over Phoenix. But I certainly can assure you that I have no idea what the CapEx costs are when you have to turn a single family home that's been under somebody's rental for a year and leaves in the middle of the night. You think apartment CapEx numbers are spooky, try to do a unit turn on a single family home. Its been trashed, so it's just a tough go.

I thought it was telling the other day, and it went from what everybody is talking about to -- I was listening the other day and I heard Barry Sternly on one of the morning talk shows say that the game is already over. And like Ric said I think some people obviously are going to make money, but they are going to make money because they bought houses at $0.50 on the dollar and they are going to sell them at $0.80 on the dollar and they'll make money. But buy and hold single family homes is a long way off.

Great, thanks for the color.

You bet.

The next question is from Paula Poskin of Robert W. Baird.

Thanks, I have a follow-up on your disposition strategy. Is the pool of assets based more on the asset quality themselves or more about markets, submarket migration?

It's both, actually. It's really asset quality within the submarket and how that submarket is performing over the long term. It's definitely about all those -- both of those three issues are the equation that we look at. And we have our -- we do have a quantitative analysis at the headquarters here in Houston and then we send it out to the field and make sure that it's not just people looking at numbers. It's people sitting on the ground working with the properties every single day, and they're making very, very subjective decisions based on what's going on in the real world.

Paula, the metrics in the starting point for all of that, as Ric said, is we use a five-year rolling return on invested capital, ROIC calculation for our entire portfolio. And so you think about what that's capturing. It's capturing rental rate growth or what's getting to the bottom line in NOI, and it's capturing the reinvestment required in CapEx. On any given day, if you take our portfolio and string it from 100 to 200 on that metric, your dispo candidates will come out of the bottom 15.

Thanks very much.

You bet.

Next we have a question from Jeff Donnelly of Wells Fargo.

Yes, two questions for Keith. One is, I guess what are the odds that Las Vegas could produce a Phoenix-like experience like you saw in 2012, where it's surprises you, the upside may be triggered by that outward migration from California?

What are the odds? That's a great one for Las Vegas. So, if you think about where Las Vegas is right now, we're forecasting roughly 30,000 new jobs. There are a total of 800 apartments that are going to be delivered, new apartments delivered in Las Vegas. So, the normal metric that you would think about is 30,000 new jobs could absorb 6,000 apartments at a 5 to 1 ratio of job growth to completions.

There's going to be pressure, we know there's going to be pressure on -- upward pressure on rents; the question is, are we far enough along to where that really turns into rental rate growth? Most of the -- the unemployment rate is coming down, the 29,000 is going to help that, but you're still at an unemployment rate in the city of somewhere in the -- after all that's said and done, you'll probably end the year at 9% to 10% unemployment.

I think you could catch a year next year in Vegas with 30,000 jobs if that sticks and 800 new apartments, I think you could catch a year where it's up 5%, 6%. I think we're in the 2% to 3% range guidance for next year. If you think about --, so go out 2014 and the year beyond that, on Whitten's numbers, he's got Las Vegas being a top five market. So, we'll see.

That's helpful, and last question is, I know you're not in these markets, but do you watch a Boston, a San Francisco or a New York close enough to assign a letter grade to them? And if you were there, do you think that would alter the rankings of the markets that you are in?

Honestly, I have my impression, but it's not worth sharing on a conference call. It's not something that we follow, not the kinds of metrics that we look at for our own portfolio.

That's helpful. Thanks guys.

The next question is from Tom Truxillo of Bank of America.

Hi, thanks. I'd like to approach Alex's question on capital from a little different point of view. You guys have obviously done a great job to delever and simplify the balance sheet. Are you comfortable where your metrics are now? Do you plan to continue to improve those balance sheet metrics, or do you think you have them to a point where you could add a little bit of leverage?

We are very comfortable with where we are now, but that doesn't necessarily mean we don't want to continue to improve it, because we do. We think fundamentally that -- I think that this is just the, I don't want know if you want to call it the hangover from the Great Recession or the realization from the Great Recession, that lower leverage is better than higher leverage.

And we are in a cyclical business. We've been in this business long enough to know that you make hay while the sun shines and you feed the ducks when they're quacking, to quote Sam Zell. But bottom line is we will operate going forward with lower leverage than we have in the past, and we will make sure that when the next cycle comes that we can take advantage of it on a much larger scale than we were able to on the last cycle. So, lower leverage is better. We would -- you can not expect us to add incremental leverage from where we are today. I would think that we would be continuing to lower our leverage rather than increase it.

Great, and second question, on the comments on sources and uses, I appreciate that and the fact you said you probably will be in the market with an unsecured note in the second half of the year. Given where the move in rates has gone since the beginning of the year, have you thought about tapping the market now and prefunding or perhaps just putting in like an interest rate hedge to lock in the rates because they may be significantly higher than they are now when you actually do need the money.

I see a scenario every single day (laughter). It's one of those things where you have to balance the, what do you do with the cash, and it sort of hurts my head to put cash in a 0.1% interest-bearing account and paying, even though the rates are incredibly low. I know there are some hedge opportunities, as well. We look at that all the time and when we look at our capital structure and decide whether we're willing to buy that insurance, if you will, and how much that insurance costs.

Okay, great. Thanks for the comments.

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

Great, well, we appreciate your attention on the call today, and we will see everyone at the next conference and this summer at our 20th anniversary bell ringing, so thank you very much, and this will end the call.

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