Camden Property Trust (CPT) 2013 Q4 法說會逐字稿

Good day and welcome to the Camden Property Trust fourth-quarter 2013 earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

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

(Operator Instructions)

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

Good morning, and thank you for joining Camden's fourth-quarter 2013 earnings conference call. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them.

As a reminder, Camden's complete fourth-quarter 2013 earnings release is available in the Investor Relations section of our website at Camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.

Joining me today are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Alex Jessett, 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 time. As a result, we ask that you limit your questions to two, and then rejoin the queue if you have additional questions. If we are unable to speak with everyone in the queue today, we'll be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Rick Campo.

Thank you, Kim. So with a little help from Led Zeppelin, one of my favorite classic rock-and-roll bands, we closed out 2013. It's been a year of Good Times, Bad Times for apartment REIT investors. After a Whole Lotta Love in the first two quarters of the year, the second half of the year turned out to be a Heart Breaker. Multi-family investors began to see the glass half empty, with a catalyst for higher share prices seemingly Over the Hills and Far Away. We continue to do all that we can to increase our earnings in 2014, as we seek a Stairway to Heaven, which will get Camden's share price back to premium to NAV, or at least NAV. ¶ We closed out 2013 with the highest FFO in our Company's history and exceeding our original plan by $0.16 a share, or $14 million. 2013 same-property net operating income increased 6.2% over 2012, which was actually slightly less than our expectations in the fourth quarter, primarily due to the continued deterioration or deceleration of the Washington DC market, especially in the last two months of the year. 2014 looks like will be another year where NOI growth is well above our long-term trend. We expect 4.25% net operating income growth for 2014.

We ended the year with one of the strongest balance sheets in the sector. During 2013, we were a net seller of properties. We expect to be a net seller in 2014, using the proceeds from the sales of older non-core assets and using those proceeds to fund our development pipeline. We expect to start between $150 million and $300 million of new developments in 2014. Supply-and-demand fundamentals continue to be positive in most of our markets, with nearly all of our markets having at least five jobs projected for every apartment delivered. New development has become more challenging with costs rising and increased competition; however, development returns continue to be more attractive than acquisitions.

Team Camden continues to outperform our competitors in our markets, by providing living excellence to more than 100,000 residents. Social media is increasingly becoming a key component of our marketing success. I would like to give a special shout out to our Camden team members, Kim Bortz, Project Manager in our corporate office in Houston; and Kyle Jones, a member of our maintenance team at Amber Oaks in Austin who both won tickets to the Super Bowl this weekend by winning a Twitter Vine-video contest, which helps engage our Camden employees in the fascinating and important world of social media. We understand that we are probably preaching to the choir on this call, which means there's no need for me to Ramble On, Led Zeppelin says. So at this point, I will turn the call over to Keith Oden.

Thank you, Ric. Consistent with our years past, I'm going to use my time on today's call to review the market conditions we expect to encounter in our largest markets for the year. I'll address each market in the order of the best to worst, by assigning a letter grade to each one. And as well, we'll give our view as to whether we think that market is likely to be improving, stable, or declining in the year ahead. Following the market overview, I'll provide additional details on our operations.

Starting with an overview of Camden's markets, our number-one ranking for 2014 goes to Atlanta. That is, assuming that they can get their freeways open soon. We rated the market as an A with an improving outlook. Atlanta placed third in same-property revenue growth last year, trailing only Houston and Charlotte, and posted 7.1% revenue growth for the second year in a row. Supply remains well below historical levels, with 7,000 to 10,000 new apartments expected to open this year, and nearly 60,000 new jobs should be created. Overall, we expect Atlanta to be a top performer again in 2014.

Denver and Houston earn the next two spots, as they did in 2013, holding on to A ratings with stable outlooks. These markets have done well for us, averaging over 7% revenue growth for the past three years. While deliveries are ramping up in both markets, demand should remain strong, providing another year of solid growth. Around 37,000 new jobs are projected for Denver in 2014, which should easily absorb the 7,000 units coming online this year. Houston is expected to remain a leader in job creation during 2014, with forecasts averaging roughly 75,000 new jobs to be created. We expect over 15,000 completions this year versus 12,000 last year, but that's still well below the peak deliveries of 17,000 to 18,000 units that we saw in Houston during the last few cycles.

Austin and Dallas once again round out our top five picks, remaining at A-minus ratings with stable outlooks. Like Denver and Houston, these markets averaged over 7% revenue growth for the past three years and are expected to post above-average results again in 2014. Job growth remains very strong across the state of Texas, with around 33,000 new jobs projected in Austin and over 65,000 new jobs in Dallas. New developments have been coming online steadily in both of these markets, particularly Austin. In 2014 estimated completions are a little over 9,000 in Austin, but not all of these deliveries will compete with our communities. Approximately 12,000 new units will open this year in Dallas, but they should face fairly healthy demand, given the continued strength in the Dallas economy.

Southern California barely misses our top five this year, rising to a B plus with an improving outlook. Southern California struggled a bit over the past few years, placing in the bottom third of our same-property rankings. Things seem to be pointing in the right direction for 2014, and we expect to see good results this year. The outlooks for job growth in the Orange County, LA, and San Diego markets are all favorable, and new supply remains at very manageable levels.

Phoenix and Charlotte both earned a B plus, with a stable outlook. The Phoenix economy is poised to do well, with nearly 60,000 new jobs expected during 2014, and supply remains well below normal levels, with only 4,500 new units being delivered this year. In Charlotte, we've seen above-average revenue growth for the past several years, but as we all know, trees don't grow to the sky. Projections for job growth remain steady, around 25,000 jobs in 2014, but with another 5,000 units being delivered this year, many located in the urban submarkets of South End and Uptown, rent growth will definitely begin to moderate in 2014.

South Florida also rated a B plus, with a stable outlook this year; completions are estimated around 7,500, with 40,000 new jobs projected. New supply should be easily absorbed, given tight market conditions and ample job growth. Our South Florida portfolio is currently over 97% occupied, versus 94.5% last January, providing a very good starting point to the year.

Our next three markets are Raleigh, Tampa, and Orlando, all maintaining the same B rating, with a stable outlook, as they had last year. Raleigh has faced a wave of new supply, with around 6,000 completions last year and a similar amount projected for 2014. Job growth continues at a moderate pace; 15,000 to 20,000 new jobs are expected, but absorption will likely be challenging given these numbers. In Tampa and Orlando, projections for 2014 job growth and completions are similar, with approximately 30,000 to 35,000 new jobs in each market, and around 5,000 new units of new supply expected in each market, providing a balanced level of supply and demand.

Las Vegas actually moves up one place this year, after ranking last for the past three years, earning a C plus rating and an improving outlook. After posting sub-2% revenue growth for the past two years, we think 2014 may yield 3% or better growth. Supply is clearly not an issue in Las Vegas, with less than 2,000 new units being delivered this year. We think the 25,000 projected new jobs in 2014 should provide for positive absorption and improving occupancy rates over the course of the year.

It will surprise absolutely no one on this call that Washington DC is our lowest-ranking market this year, with a C rating and a declining outlook. Revenue growth has steadily declined in DC over the past few years, and is expected to be flat or slightly down in 2014. Estimates for 2014 completions in DC vary widely depending on the data provider, but we believe that somewhere in the 10,000 to 20,000 units will be delivered in 2014, and we think that job growth numbers will be somewhere in the 25,000 to 40,000 range for the DC-metro area. Whatever the numbers end up being, we know that the DC market is going to be challenging in 2014 and same-property revenue growth will be the lowest of our 14 major markets. If you put all those results together, overall our portfolio would rank slightly below the B plus grade that we had for the overall portfolio in 2013, which we think puts us in a great starting position to this year.

Now a few details on operating results. Same-store revenue growth was 4.8% for the fourth quarter. We saw strong performance in Houston, up 8.2%, followed by Atlanta up 7.1%; Charlotte up 6.9%; Dallas, Raleigh, and San Diego each up 6.2%. And despite all the concerns that I think are well-founded about new supply in Austin, the revenue growth held up very well at 5.8% for the quarter. Overall trends for the fourth quarter in January are very similar to last year. Fourth-quarter leases were up 0.1% and renewals were up 6% versus 0.5% and 7% last year, respectively. In January, new leases are up 1% and renewals are up 6%, versus the 1% and 7% last year. So roughly in line with where we started 2013. January and February renewals are coming in with roughly 6% increases.

Occupancy averaged 95.8% for the fourth quarter, that's 70 basis points higher than last year, and the average occupancy rate in January in our portfolio was 95.5%, which is where it stands right now. Net turnover for the fourth quarter was 49% versus 52% in the prior year, and year-to-date turnover actually fell from 2012 to 56% from 57%.

Overall, traffic continues to trend down slightly, but that's okay with us, because we're getting a much higher quality of traffic through better marketing. And we -- all of our markets, we believe, have sufficient traffic to maintain our portfolio at the current occupancy levels and meet our objectives for 2014 rental growth. Move outs to purchase homes were 15.5% in the fourth quarter, and that compares to the fourth quarter of 2013 of 13.3%, so a little over 2.5% up over the year. We expect this trend will continue to move back closer to our historical norm of roughly 18% of our move outs lost to home purchases.

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 seventh year in a row, placing us at Number 11 this year. Being included on the list of the Top 100 companies to work for is an honor that we claim on behalf or our team members and all of the other outstanding Real Estate Investment Trusts.

At this point, I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thank you, Keith. Last night we reported results for the fourth quarter of 2013 and provided guidance for both the first quarter and full year of 2014. Before I provide further details on each of these, a few general observations about 2013.

In 2013, we delivered FFO per share of $4.11, beating the midpoint of our original guidance by $0.16 per share, or $14 million. We delivered same-store net operating income growth of 6.2%, likely to be near the top of the peer group. We continued to improve the quality of our portfolio by disposing of approximately 3,900 wholly owned apartment homes, with an average age of 25 years, and disposing of nearly 3,700 joint-venture apartment homes, with an average age of 19 years.

We used the net proceeds from these dispositions to fund in part the acquisition of approximately 1,100 apartment homes with an average age of five years and to start $425 million of well-located quality developments, including what will become our flagship California community, The Camden, located at the corner of Selma and Vine in Hollywood. The Camden will be a mixed-use development, with 287 units, over 40,000 square feet of pre-lease retail, with concierge services provided by SB Entertainment Group. And we did all of this while maintaining the lowest leverage in the multi-family space, as measured by net debt to EBITDA. By any measure which we can control, 2013 was a very good year.

During 2013, the $329 million of 25-year-old dispositions were sold at an average FFO yield of 6.8%, but an average AFFO yield of 5.2%. The difference between the FFO yield and the AFFO yield being the inclusion of $1,350 per door in annual capital expenditures. The $225 million of five-year-old acquisitions were purchased at an average FFO yield of 5.25%, and an average AFFO yield of 5%, after including annual capital expenditures of $600 per door. On a real cash flow basis, we were able to significantly improve the quality of our portfolio with only 20 basis points of dilution. Additionally, the $329 million of wholly owned communities that we sold in 2013 delivered to our shareholders an unleveraged internal rate of return of 10.5% over a 16-year hold period.

Moving on to financial results and guidance, last night we reported funds from operations for the fourth quarter of $96.9 million, or $1.08 per share, representing an approximate $3.2 million, or $0.04 per share out-performance to the midpoint of our prior guidance range. This out-performance resulted primarily from: $1.2 million of lower-than-anticipated interest expense, due almost entirely to a slightly later and better-priced fourth-quarter unsecured bond offering; $900,000 in higher-than-anticipated property net operating income; $300,000 in higher-than-anticipated joint venture income due to continued out-performance from our joint-venture communities; $300,000 in lower-than-anticipated income tax expense due to the benefit of a current-year tax loss, which resulted from the final wind down of a technology investment we had previously written off for book purposes; and $200,000 in higher-than-anticipated net CNS at management income, primarily due to higher third-party construction fees and fund development fees.

Of the $900,000 in higher-than-anticipated property net operating income, approximately $900,000 came from our non-same-store communities, and approximately $300,000 came from later than anticipated dispositions. These two positive variances were offset slightly by our same-store revenues, coming in $300,000 below the expectations that were contained in the mid-point of our fourth-quarter FFO guidance. The positive variances from our non-same-store communities were primarily due to continued out-performance from the three communities we acquired during 2013, combined with higher levels of occupancy at many of our other non-same-store communities. The negative variance of same-store revenues was entirely driven by the DC market.

One last thing on the fourth-quarter results, I'm sure many of you noticed the large reduction in Phoenix same-store operating expenses this quarter. For 2013, we only had three operating communities in our Phoenix same-store portfolio, and one of those communities received a very favorable property tax refund in the fourth quarter. We knew that this refund was coming, and we had taken it into consideration when we provided our prior guidance.

Moving on to 2014 earnings guidance. You can refer to page 26 of our fourth-quarter supplemental package for details on the key assumptions driving our 2014 financial outlook. As detailed in our supplemental package, our 2013 reported FFO per diluted share of $4.11 included $0.075 of non-routine items. Excluding these non-routine items and adjusting for the year-end 2013 share count, our base 2013 FFO per diluted share would have been $4.03. We expect 2014 FFO per diluted share to be in the range of $4.10 to $4.30, with a midpoint of $4.20, representing a $0.17 per share increase over our adjusted 2013 results.

The major assumptions and components of this $0.17 per share increase in FFO at the midpoint of our guidance range are as follows. A $0.22 per share or $20 million increase in FFO related to the performance of our 47,915-unit same-store portfolio. We are expecting same-store net operating income growth of 3.25% to 5.25%, driven by revenue growth of 3.5% to 4.5%, and expense growth of 3.25% to 4.25%. A $0.13-per-share, or $12 million, increase in FFO related to net operating income from our non-same-store properties, resulting primarily from three communities acquired in 2013, three development communities which stabilized in 2013, and the incremental contribution from our development communities in lease-up during 2013 and 2014. And a $0.05-per-share, or $5 million, increase in FFO related to reduced interest expense, primarily as a result of the pay off of an unsecured note in 2013; the favorably priced issuance of $250 million in unsecured debt in the fourth quarter of 2013; and $6.5 million in additional capitalized interest expected in 2014 related to our 2013 and 2014 development starts.

These above positives are partially offset by a $0.15-per-share, or $14-million, decrease in FFO related to lost NOI from 2013 completed dispositions. As a reminder, we sold $329 million of operating communities during 2013. A $0.03 per share, or $3 million decrease in FFO related to lost NOI from 2014 anticipated net disposition activity; and finally, a $0.05 per share, or $4 million decrease in FFO related to reduced equity and income of joint ventures and associated net management fee income, of which $0.01 is related to the April 2013 disposition of our Las Vegas joint-venture communities, $0.02 relates to fund communities currently under contract for disposition, and $0.02 relates to additional pro forma fund dispositions throughout 2014. Likely, many of you on the call did not have the $0.04 of dilution from the fund disposition or the $0.03 of dilution from our 2014 pro forma net dispositions in your current forecast models.

Taking a closer look at our same-store expense growth of 3.25% to 4.25% for 2014, we are once again expecting the largest increase to be in property taxes, although at a more moderate level than 2013. Property taxes are approximately 30% offer our total operating expenses and are projected to be up 7% in 2014. 6% is core, the result of anticipated increases in assessments for our properties in 2014 due to continuing increases in real estate values. 1% is due to a year-over-year reduction in anticipated refunds from prior-year tax [process]. The remaining categories of same-store property expenses are projected to grow at about 2.5% in the aggregate. Page 26 of our supplemental package also details our expected ranges of acquisitions, dispositions, and development activities.

The midpoint of our 2014 FFO-per-share guidance range assumes the following: $300 million in on-balance-sheet dispositions and $100 million in on-balance-sheet acquisitions, anticipated to occur in the latter part of the year; $450 million in joint-venture dispositions spread throughout the year; and $225 million of on-balance-sheet development starts. We have also provided guidance on the same-store net operating income impact from our 2014 revenue-enhancing repositions. Our guidance assumes we will reposition approximately 5,500 units in 2014 at an average cost per unit of approximately $10,000, contributing 50 basis points to our same-store net operating income growth.

Based on our anticipated development spend in 2014, we anticipate needing approximately $500 million of new capital during the year. Net disposition activity is anticipated to provide $200 million. For the remaining $300 million needed, we anticipate accessing the capital markets opportunistically. The composition of our 2014 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 or term loan in the middle of the year. As a reminder, at the end of 2013, we had full availability under our $500 million unsecured line of credit.

For the first quarter of 2014, we expect FFO per diluted share to be in the range of $1.02 to $1.06. The midpoint of this range represents a $0.04 per share decline from the fourth quarter of 2013. The $0.04 per share deadline is primarily the result of the following items: a $0.02, or $1.6 million, decline in sequential same-store net operating income, resulting from a 2.4% increase in same property operating expenses, mainly due to higher property taxes, partially offset by a slight increase in same property revenues due to continued improvements in rental rates; and a $0.02, or $1.5-million, decrease in FFO related to lost NOI from our fourth-quarter 2013 disposition activities. As a reminder, we disposed of eight communities with an average age of 24 years for $171 million during the fourth quarter of 2013.

I will now open up the call to questions.

(Operator Instructions)

The first question comes from Derek Bower of ISI Group.

Great, thank you. Taking what you've learned from the week or two months of 2013, as you said, I think mostly it was the DC. Is there anything that makes you feel more comfortable or confident in your guidance range for 2015? And even though DC was still positive over the fourth quarter, when would you expect revenue growth to turn negative?

Yes, so Derek, if you look at our game plan for 2014 as it relates to 2013. Out of our 15 markets, we have an increase in revenue projected in 4 of those markets, and we have a decrease projected in 11 markets. Obviously, these are from very high-levels, markets like Charlotte, where we had a 2013 revenue growth of 8.3%. Those are clearly going to be moderating. So we think that we've properly captured the deceleration that we expect to occur across all of our portfolio.

Clearly, the one that we've had to wrestle with the most is DC. We think that it will be flat to slightly negative in 2014. We have a different mix of assets in that market from suburban to urban, different price points than many of our competitors do. And I think that if you look back over 2013, that's one of the reasons why the timing of the effect on our DC markets was very different than most of the other reporting companies that have DC exposure.

So the DC market was interesting. We felt like it would hold together throughout 2013, but if you look at the sequential numbers, and most of this occurred in the November/December time frame. In our entire portfolio for the third quarter, our occupancy actually went up by 40 basis points, which is as you all know very unusual for us. While in DC, our portfolio there actually dropped 30 basis points, so a net swing between our overall results and the broad portfolio than what happened in DC. And if you look at that and drill that down to rental rates, again sequentially, in our entire portfolio we were up 6/10 -- or 60 basis points on rental rates. And yet we were down 30 basis points just in the DC market, or a delta, a swing between those two of 90 basis points. And those are pretty big swings from 3Q to 4Q.

Obviously, we had some of that baked into our forecast for the deceleration that we thought was going to happen in the fourth quarter, because it was more than we thought it was going to be. But I think we feel comfortable with the guidance that we've given. We know that some of our markets are going to moderate from the very, very high levels they have been. But we're also very constructive about the fact that we think we're going to deliver a 4.25% same-store NOI growth next year, which is still above trend for our long-term portfolio.

Great, Thank you for the color. Are there any markets in particular that are going to be driving that 50 basis point of redevelopment NOI this year? And what do you think the impact is from the 7,000 units that will be rolling into same-store in 2014?

There's really no specific market scattered around the country. When we look at redevelopment, we look at the assets within each market and pick the best ones from a redevelopment perspective. And then in terms of the second part of your question, we roll in all of those properties into our portfolio and then start capturing the NOI growth in the base portfolio. And so it's hard to go through and say, okay, well how much of it is -- how much of the NOI is or revenue growth was specifically related to one property that was -- or these units that were actually put in play throughout the year?

Derek, you're asking about the additional same-store units that we have in '14 versus '13?

Yes, I'm trying to get a sense for those 7,000 units. Did that pool of assets out-perform in 2013 from your same-store pool?

Yes, so if you look at them, most of them are located in Houston. There's one in Dallas and there's a couple on the West Coast, so they are better performers. None of them are DC asset, which is obviously going to be our lower performer for 2014. So yes, there should be some slight incremental increase due to those new same-store units.

Yes, so just a little bit of additional information around that. Our non-same-store communities for 2013 actually outperformed the original forecast by about $2.5 million. So same-store pool came in slightly below where we thought it was going to be, primarily, as we've talked about in the impact in DC. So the total number is about $700,000 to $800,000 light on the same-store portfolio, offset by $2.5 million positive on the non-same-store. So it's developments leasing faster, it's acquisitions outperforming, and so I think that it's fair to say that some of our stronger -- the profile of those apartments, both in the market they're in and the product types that they are, should be additive and will be additive to our 2014 same-store.

Great. Thank you for the color.

You bet.

The next question comes from Alex Goldfarb of Sandler O'Neill.

Good day. First, want to go to California, and not to suggest that you guys are going to get into the nightclub scene out there, (laughter) but -- Rock of Ages comes to mind. You guys have now started two deals, and clearly it's been an area that you haven't done much in before, but Keith, you spoke about Southern California jumping up on your list as far as markets in 2014. Should we expect to see more investment from Camden in Southern California over the next 12 to 18 months?

Well, we definitely like Southern California. I think it's a great market, and moving up on our list. And we've been in California for a long time, and the reason you hadn't seen us develop more there was in the last cycle, we just couldn't stomach the yields. People were developing at 5% pro forma yields, which we didn't think made a lot of sense. And so today, with the recalibration of land costs and construction costs, the two properties that we have today are going to yield in the mid 6%s, so it's very attractive. We are working on other transactions in California, and it is definitely a long-term, core market. So yes, you can see us making more investments in California.

When you say mid 6%s, that's the trended, that's not on current, right?

I think the trended ones are -- that is trended, that's right. It's mid 6% to 7% trended, probably -- and there's not a lot of trending going on there. It's just probably maybe 50 or 75 basis points less than that if you use current rent.

Second question is the markets like Vegas, Phoenix, Tampa, Orlando, when do you think that we'll see these markets return to their prior peaks? Do you think that's a 2015 or that's a 2016 and beyond? What would be your guess?

I think the only one that's still meaningfully below the peak is Vegas. And even after what we think happens in 2014, we'll probably still be in the 13% to 14% below the prior peak in Vegas rents. All of the other markets that we operate in are either at or back above a peak rent. So in our portfolio, the one big gap that still exists is in Vegas.

Let's make sure we understand peak rents are 2007, right? So I know inflation is low, but when you go back to peak rents in 2007 and you say they are peak in 2014, that means that -- and when you look at our tenant profile, our resident profile, and their incomes have grown pretty dramatically during that time frame. Maybe not the people that started in that property, but when you look at our growth in income. So people are basically getting today a 2007 rent with a 2014 income, which relates to about a 17% of household income for rent, so there's room in those rents, even though they are quote-unquote, peak.

Okay that's helpful, thank you.

The next question comes from Rich Anderson of BMO Capital Markets. Please go ahead.

Hi, Thank you. Good morning.

Good morning.

So I'm curious if you that where you think we're at right now from a deceleration standpoint on a same-store basis, is this, in your mind, the trough of this current cycle? In other words, when you look three or four or five years in advance, do you think this is where we'll be for awhile? Or what are the circumstances where the numbers can go decidedly in a different path, even negative from an absolute growth perspective?

So Rich, if you take our numbers back over 20 years reported as a public Company, you can even go back beyond that, and we've got closer to 30 years of data. The average rental increase over that long period of time across our markets, product types, cycles, et cetera, is around 3%. And so, as we think about 2014 at being 4.25%, and keeping in mind and in perspective that, that comes on the heels of a progression of NOI that had us at 7.1%, 9.2%, 6.2% last year, and then 4.25% this year. The long-term NOI growth in our portfolio is 3%, so at some point in this cycle, or as we play out the next couple years, do you trim back closer to that 3%? Statistically, you could make a pretty good case for that.

The difference is that there really are some very different dynamics in play still. We came out of a very, very deep hole, and we dug very quickly up out of the hole. And yet, if you look at the level of new supply that's coming, and you contrast that with where we think the demand is both demographically and in new jobs, you can still look out in 2015 and 2016 and say those could be very constructive years for this business, and by that I mean above trend.

Let me add to that, that the dynamics today, we haven't added all the jobs back we lost during the recession, so its been anemic job growth. Most people talk about how the financial crisis created this very long-term recovery that we have been experiencing. There's still 2 million missing people that are doubled up, young people that are doubled up either in roommate situations or in parent homes. You have 1 million missing households out there, when you start looking at normal household formation, that just haven't come back yet. And I think that's a function of the anemic job growth that the market has had.

So if you have the same job growth over the next couple of years of 200,000 jobs a month, perhaps, that will release that excess demand, if you will. That should allow this business to be a good business for the next two or three years, until that demand is all taken up, So and then if you have job acceleration, as opposed to go-along, get-along jobs, then you could have an acceleration of revenue and NOI growth, because the amount of rent people are paying is still very low relative to historic norms in terms of what they have to pay out of their paychecks to pay for rent. So you could argue that we could have an accelerating market starting in 2014 and 2015 and 2016 if we unbundle this excess demand and if we have better job growth.

Rich, the two data providers that we look at very closely and when we're laying out our game plans and tests for reasonableness are Whitten and Accumetrics. And if you look at their 2014 forecast for net effective rents and you average the two of them, it's right at 3.1%. We will do better than that, but a lot of that -- some of that is because of our repositions in the markets. And they've got their forecast for 2015.

And by the way, the reason I think this is important is they capture in their -- Ron Whitten, I know captures in his model many of the things that Ric just laid out as far as the demographic trends and the longer-term view of supply and demand. They have got their 2015 forecast that we have access to is right on top of 3% net effective rent growth. Now if we can get a little bit of break on expenses, 3% net effective rent growth could easily turn into 4% or 4.5% in the year 2015. So I would probably, as I sit here today, I would take that.

The reason why I asked is in the third-quarter conference call, you targeted a same-store revenue number and then November and December you missed on things very short-term stuff that you would normally be able to see coming. And we're talking a lot of long-term stuff, but what about in the very short-term what could go wrong? What went wrong in November, December in DC relative to your expectations? What could go wrong in the here and now? Or do you feel like you're in the bag at least for the first half of 2014 with what you're seeing today?

Yes, I think what happened in the fourth quarter is that we were definitely surprised by November and December in DC. And so far this year, DC has performed exactly according to our budget. It's basically flat for the first part of the year, and obviously, it is unusual for us not to see something like that in DC. But when the markets turn and they turn really fast and really hard, then you look at it and go -- maybe I should have seen that. Bottom line is though, we just missed our projections in November and December, but we're right on top of them now. And we feel pretty confident that our budgets going forward for the first half of the year are reasonable.

Then my final, quick question is on Atlanta, top of your list. Would you be more inclined to be a net buyer or seller in that market, given what you're seeing today?

We made one really significant investment acquisition in Atlanta last year, and we thought we caught it just about right. It was about an $80 million investment. And then we've got our development at Buckhead that's under way right now, and that's a very significant development opportunity for us. So we're putting capital to work in Atlanta, and we think we've done it at the right point of the cycle. We're looking at a couple other opportunities right now in Atlanta, so wouldn't surprise me to see us continue to be a net acquirer of assets in Atlanta in 2014.

Got it, thank you.

You bet.

The next question comes from Nick Joseph of Citigroup.

Thank you. Given that your stock trades at a discount, how do you internally weigh new development starts versus repurchasing stock?

Well, we clearly look at that, and we -- if you go back to the last cycle, we were a big buyer of our stock -- or two cycles ago, in the early part of -- or late part of the 1990s. And what you have to do is look at your capital allocation and developments; you can't just start and stop. You have them under construction, and there's a delimit spend there. And so the key issue is how do you allocate your capital? And right now, we do an analysis that shows our rate of return relative to our developments.

And then, we obviously look at buying or look at what the relative value of the stock is. And the constraint you have is how much can you sell versus staying inside the tax aspects of REIT land? And then how much do you have to fund on your development side that's already under construction? And then how much would you have left of capital then, to buy stock? And that's the balance, and I've said for a long time that if the stock price stays persistently at a significant discount to NAV, then we would be a buyer of the stock.

The bottom line though is for us is, how long is that persistent? And then how long does the development market or the acquisition markets stay buoyant for us to be able to sell assets? And with all these constraints, it's all about capital allocation, obviously, and we look at what the best investment is. And it doesn't make sense for us to buy a lot of net acquisitions today, because of the development spend that we have.

Okay, thank you. And then for the development starts expected in 2014, what markets are you looking to start those from, from your pipeline?

If you look at our pipeline, which is in our supplement, that's pretty much the order of which we could start these developments. So the very first one on the list is --

One in Phoenix, one in Denver, and the third is a toss up, depends on some permitting issues, but very potentially another start in Houston. So the low end of the range we start two of those, the high end of the range we start three or four.

Okay, great Thank you.

You bet.

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

Good morning, guys. Going back to the development question, can you talk about the timing of starts? And also as you think about acquisitions today, I realize you are liquidating the fund -- [fund one]. Would there be a thought about potentially putting in place in another fund at this point, given to where you're trading at relative to NAV?

Timing of development starts are likely to be one in the first quarter, and then most of the other starts will probably be towards the end of the year in terms of development starts, middle of the year to the end. And then in terms of additional funds, we really enjoy our relationship with our fund with Texas Teachers. And I would say that the idea of we clearly could have had a great success with our fund and great success on creating a lot of value for our partners. And it's one of the things that we continue to look at and it could be that we expand our relationship or do another fund. But at this point, we're studying those issues.

One of the big things that we -- they did coming out of this financial crisis was make sure that we cleaned up our balance sheet and made our balance sheet much more clean and simple. And so this is the only joint venture that we have today and the only fund, and you will not see Camden doing a lot of different structured finance transactions. We want to keep it simple and stay in that zone.

My follow-up, Alex, you went through all of the components of expense growth, very helpful. Can you talk a little bit about the components of revenue growth? What you are underwriting in terms of rents versus occupancy, as well as the component from other income contribution there? And then also how much of the 50 basis point lift is actually in the revenue number versus the expense number?

Sure, so if you look at the revenue side, we're anticipating occupancy to be relatively flat for 2014 versus 2013. So the incremental growth is going to be on the rental rate side. Other income for us pretty much grows at a 3% rate. And if you look at -- I think your last question was on repositions, most of the impact for repositions, the positive impact for repositions in 2014, is actually expense driven. There's probably about 10 basis points that's on the revenue side.

Great, very helpful, thank you much.

The next question comes from Dave Bragg of Green Street Advisors. Please go ahead.

Good morning. The apartment REIT sector has seen plenty of consolidation over the last year or so, and given Camden's historical track record in that department, wanted to ask you how important you think that scale is today? How do you feel about the size of the Camden franchise, especially relative to the public peers now?

Well clearly, there has been consolidation, as you point out. We over the years have been actively involved in that. I think from a scale perspective, Camden is a very good size from a scale perspective. We -- I don't think bigger is better. We can buy the same, we have the same buying power and very, very similar cost of capital to much larger companies, so I don't think it's a huge issue. I think the only area would probably be on the G&A side, the bigger than you are, the more efficient your G&A portfolio is. I also think you have to be careful that and make sure you understand the components of fund business and how the G&A needs to be managed that way, at least analyzed that way.

So I don't think that there's any compelling reason to be bigger, and I don't think bigger has been better in a lot of cases. As long as you're big enough to have liquidity in your stock and liquidity in your bonds, and we seem to have plenty of that. I think the last deal we did compared to the much bigger companies on bond deals, was actually tighter than -- tighter spread than our larger competitors. There likely will be more M&A in this space, and we have no problem with M&A, as long as it's the right transaction and the right additive to -- additive value to the portfolio into our earnings.

That's helpful, thank you. And my second question is on the spread between renewals and new move-ins, which seems to continue to be wide if it's not widening even more over the last year, or so as you think about the next couple years, how long can this spread be maintained before you have, especially in today's day and age with very good visibility on what you're charging on new move-ins, before you have more pushback from existing residents?

Dave, when you look at the trends the gap is almost -- you can look at it cyclically over what happens over a year; the gap narrows and then it widens back out again. I don't think that the gap that we're at right now in terms of new leases, if you got to think about what our game plan is for 2014, we're probably somewhere in the range of 2% to 2.5% on new leases in terms of new lease rates. And we'll probably end up somewhere in the range of 5%, 6% on renewals. Which that's in -- within 100 basis points of where we've been for the last four years.

So how long it can continue to go on, I think as long as we continue to have constructive demand in our markets which we still do. As long as we continue to operate at above -- at around or above 95% occupied, which we are, then I think you can continue -- we will continue to see that kind of a spread. A lot of it has to do with when you're analyzing the renewal piece, it's what was that person's lease on move-in? Which gets to -- in our world because we use revenue management, what was the lease term that they executed?

There's a whole lot of variables that go into that, but it doesn't -- as an operator, when I look at that and I see 300 or 400 basis point spread new leases to renewals, as long as our residents are continuing to grow their income and they're at a relatively low percentage of their disposable income to pay their rent, that doesn't really bother me. And it wouldn't bother me to see that continue into 2015.

Okay, thank you.

You bet.

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

Thank you very much. When we visited Austin last in September, there was some conversation that one of the reasons you were still able to push rent growth on renewals is that even folks who wanted to buy houses and move out couldn't find enough inventory. And now we see your home ownership -- move-outs to home ownership is starting to tic up. Can you talk a little bit about what the home ownership inventory looks like in some of your markets? And are there any that you're particularly worried about or not?

Paula, I don't have the numbers at my fingertips on the inventory of the single-family, but I can tell you that from a macro-perspective, everything that we see and everything that we've looked at indicates that we are in a very constrained inventory condition. So if you spread that, since that data is coming from all of the major metropolitan areas and we operate in 15 of them, there's clearly a part of the story that is just inventory constrained.

I would say that in our case in Austin, it's also -- our footprint in Austin is very different than where some of the pressure has been with regard to new supply. If you think about all the -- most of the new development that's being done, it's in and around the University and south of there in the downtown area. And honestly, we just don't have any exposure in that market. We are currently under development in a -- on an asset that's north of campus. It's on the fringes probably of where the big slug of new supply is coming, and that's not to say that at some point it matters how many rocks you're throwing into the lake, as far as level of rents.

But I think our portfolio is just a little bit differently situated. So I think our performance in Austin, as evidenced by the 5.8% rental revenue -- or increase in revenues in the fourth quarter has held up pretty well. But I don't have the numbers market by market, but my guess is that we do have -- it is part of the story.

Thank you, Keith.

You bet.

The next question comes from Vincent Chow of Deutsche Bank.

Hello, everyone. A question going back to the tax expense, I think 7% up this year. Can you break that down in terms of the range of gains you expect to see across your markets? And did the larger gains tie -- or does it match up with the list of markets that you highlighted at the beginning, in terms of which ones would see the greatest tax increases?

Absolutely, and it does. So we look at it in our Texas markets. We are assuming that they are pretty much up 7%, and obviously they are very property tax focused. Our Mid-Atlantic regions are up about 4%; our West Coast is up about 2%; and then our Florida regions are up about 6%.

Okay, plus 6%. Actually, so if only one market is at plus 7%, I know it's a big one, but wouldn't it be coming in lower than 7% total?

Well we also have, we've got, sorry California markets are up 9% -- California and Arizona. Part of our Arizona challenge is that the favorability we had in the property tax refund in the fourth quarter that I spoke about on the script, you have the double effect the next year.

Got it. Okay, and then going back to your comments about Southern California, that's moving up in the rankings there. I was wondering if could you break that out more between San Diego expectation and Orange County and LA? And specifically, LA seems like it's slowed a little bit in terms of same-store revenue growth from last quarter.

Yes, so if you think about those markets, and I mentioned earlier that there were four markets that were, if you look at revenue growth year-over-year, that were actually getting better, and then the 11 markets that were moderating. San Diego, Inland Empire is increasing by almost 200 basis points over the prior year on revenue growth. LA and Orange County is up about 120 basis points, and those were -- so that -- of all of the markets that we have that are increasing, Las Vegas is up about 240 basis points. Everything else, Atlanta 35, everything else in our portfolio is down year-over-year. So if you -- looking at it year-over-year, San Diego, Inland Empire, LA, Orange County, represents most of the positive variance in -- or what we think will be projected revenue for 2014 over 2013.

Okay, thank you, guys.

The next question comes from Anthony Paolone of JPMorgan.

Thank you. I had a question about the kitchen and bath contribution. You guys mentioned 50 basis points to NOI. Is that just the $55 million roughly, at call it an 8% return happening ratably over the year, which is a $200 million or so. And then that compared to the baseline NOI, is that the 50 basis points?

That's correct.

Okay, then I'm trying to understand by the same regard, wouldn't you then have to pull in the full impact of the $85 million spent last year? It seems like if you did that, it would be more like 125 basis points. Is that -- am I looking at that right?

Well the spend last year definitely went into the base number, into your base same-store pool. So the increases that those rents got are embedded in the same-store NOI growth. So if you try to pull them out and say -- well how much of it was from the repositioning of these dollars, then your math is probably pretty close. But we just embed those into our base, and then draw them forward into the NOI growth.

Okay, but so then if you didn't do it in either year though, would that mean that your NOI growth would be around 3?

Well I think the issue there is the question -- and we debate that all the time here. You can do this math 100 different ways. The question then becomes, what impact did the repositioning have on the existing leases? Because you're moving people out to refurbish the units. And then what would the growth rate have been on those existing leases that you did rehab?

So I guess you can technically go through a math say, if you didn't have repositionings, you'd have much lower NOI growth. But on the other hand, the question is what would those leases have been if you hadn't done it in the future years? So at some point the bottom line is, do you end up with taking out -- or you end up with growth from those units, and they do fold into your NOI growth going forward.

Okay got you, thank you.

Okay.

The next question comes from Ryan Bennett of Zelman & Associates.

Good afternoon. I know we're running up against the 1 pm deadline here, but just quickly on the disposition guidance you guy provided for 2014 on your consolidated assets. I'm curious at how you're looking at that source of dispositions as a cost of capital and where those assets sit in the same-store NOI range that you provided for the overall portfolio.

Well, we haven't decided which assets are going to go into that portfolio yet, because what we do is force rank them based on their budget and based on CapEx and based on what we think the future growth rate is going to be. So by definition, they should be at the lower end of our same-store NOI growth, because that's why we would sell an asset is if it had high CapEx and low return on invested capital going forward. We are in the process of going through the analysis of which properties we will sell, but generally speaking, they are at the low end of the growth range.

As a follow-up, what is the type of demand out there that you're seeing for lower-growth assets that you might be, that you're putting out in the market?

Well the interesting thing is that there's a lot of -- there's very high demand for these assets, because if they have higher CapEx, then somebody sees something different in them than we do, and they become value-add plays for a lot of these B buyers out there. So there's still very high demand for them. And as Alex went through the numbers earlier, we're still getting very, very good prices on these properties relative to their real cash flow.

And knowing the buyers of the last group of assets that we sold, they look at it as -- they look at these assets as they can improve them and run them, theoretically, on a lower cost basis than we do as a public Company. And that's part of the game that they play in terms of trying to figure out whether they can actually get a value-added proposition. So oftentimes, we don't, we aren't going to improve these properties to the point where somebody looks at them and says, I can't add value to them. So they are really value-add plays and there's high demand for them.

And the buyers are playing a very different game in the leverage markets and the financial instrument markets. And if you're willing to go very short-term or floating-rate debt, you can get incredible financial leverage by buying six FFO yielding assets from us that we think are very attractive to trade. And they can financially engineer them in a way that doesn't make sense for us on the balance sheet, but obviously makes sense for them.

Okay, thank you.

The last questioner for today will be Karin Ford from KeyBanc Capital Markets.

Good afternoon. Ric, a question for you on the GSEs. Does the appointment of Mel Watt as the Head of the FHFA going to have any impact on either the multi-family or the single-family market with respect to Fannie and Freddie, do you think?

Most people think that Watt deployment is positive for the GSEs. DeMarco is definitely not doing what the administration really wanted him to do, which was to keep Freddie and Fannie going. And to -- that he was trying to constrain the amount of loans and the types of loans and pushing fees up. And I think Watt is definitely much more constructive of trying to keep the housing market going. And so I think it's definitely a positive for the GSEs and a positive for single-family and multi-family mortgage finance.

Great, thank you.

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

We appreciate your time today, and we'll talk to you on the next quarter call, thank you.

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