Camden Property Trust (CPT) 2014 Q4 法說會逐字稿

Good morning and welcome to the Camden Property Trust fourth-quarter 2014 earnings conference call. All participants will be in a listen-only mode.

(Operator Instructions)

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

Welcome to Camden's fourth-quarter 2014 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. Any forward-looking statements made on today's call represent Management's current opinions and the Company assumes no obligation to update or supplement these statements because of subsequent events.

As a reminder, Camden's complete fourth-quarter 2014 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. As you probably know, another multi-family company is hosting their call at 1:00 PM Eastern Time today, so we will try to be brief in our prepared remarks and complete the call within one hour.

We ask that you limit your questions to two then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'll be happy to respond to additional questions by phone or e-mail after the call concludes. At this time I'll turn the call over to Ric Campo.

Thanks, Kim. First I want to give a shout out to Michael Bilerman at Citi Research for providing the crude oil theme and several song selections from our pre-call music. We included James Taylor's "How Sweet It Is", not as a reference to light sweet crude oil, but rather to point out that despite all the understandable anxiety about how Houston will be impacted by low oil prices, our geographic diversified portfolio will deliver another year of strong results for our shareholders. How sweet is.

We turn the page on 2014 with a view that 2015 will be another above long-term trend for our business. Revenue should continue to trend above long-term trend growth with 10 of our 15 markets experiencing higher revenue growth in 2015. Continued rising apartment values will continue to put pressure on our operating expenses through property taxes as they make up 30% of our operating costs. We continue to transform our portfolio by selling older assets and recycling that capital into acquisitions and developments.

During 2014 and 2015 we sold $333 million and we'll use that capital to fund development. We continue to enjoy very tight AFFO yield spread on our capital recycling program.

In this last cycle we have sold more than $1.7 billion in properties with an average age of 26 years and have reinvesting those proceeds in our acquisition and development programs. Average rents in our portfolio have increased from $940 at the beginning of this program and now are at $1250 representing the improvement in the quality of our portfolio through this program.

Now let's talk about the elephant in the room, oil prices and their effect on Texas and Houston. So I'm going to start broadly with Texas because I think there's a lot of confusion about Texas and oil and Houston and oil. So Texas has been leading the nation in job growth and in-migration for 15 years. Between 2004 and 2011, 840,000 people moved from (sic) Texas from other parts of the country. The next highest [immigration] state was Florida at 450,000 people.

The highest states that had ex-migration, or net people moving out of their state, was California during that same period. 820,000 people moved out of California during 2004 through 2011, and a lot of them probably moved to Texas. The next highest state with net ex-migration was New York with 750,000 people moving out of the New York area.

So when you think about Texas, why do people and companies move to Texas? It's not about oil. It's about a pro-business environment. It's about low taxation. It's about affordable housing, low cost of living, a young and diverse and educated workforce, and some of you might disagree with this, but also good weather. And based on the Northeaster that hit Boston and the concerns about what might have happened in New York City, you just don't have that in Texas.

And so Texas is a diversified state and it's not dependent on oil. In the 1980s, for example, when we had our big oil bust, the state revenues -- about 15% of the state revenues for the state came from oil. Today it's about 5.7% of state revenues for oil. So Texas is about oil, but it's also about economic development, it's about diversity and a lot of other businesses driving the Texas markets.

The other thing that people talk about with this broad brush about Texas is that Dallas and Houston are connected via oil. Houston, I will admit, is definitely more concentrated in oil and I'm going to talk about Houston in a minute, but there's a report out that we've been interested in that BVA Compass Research put out. And at $40 oil they estimate the annual GDP impact of each city -- and Houston does have a negative GDP impact from $40 oil and I'll talk about that a little more in a second. But Dallas-Fort Worth, for example, they show a 2% increase in GDP in Dallas-Fort Worth as a result of $40 oil.

Obviously, Dallas-Fort Worth is more diversified than Houston from an oil perspective. It's a transportation hub and with low oil costs or low gas costs, it actually improves the Dallas economy. San Antonio gets a minor lift from $40 oil. Austin gets about a 1.5% increase in their annual GDP from $40 oil as well because of its tech business and low-cost gasoline also helps Austin. So when you think about Texas you have to remember that Texas isn't all Texas. It isn't all oil.

Now Houston, let's talk about Houston oil. It's clearly important to Houston. But Houston has three distinct economic drivers. The first is oil. And within that oil sector, 80% of the Houston oil business is upstream, either E&P companies or midstream companies that are transporting the oil and the energy. So that's a big piece, and obviously, the E&P companies are suffering with this oil price and that's the main concern that people have, obviously.

20% of the oil is downstream which would include chemical and product plants and things like that, and of course, that piece of the oil infrastructure is actually doing really well. Low oil prices, low gas prices, increase the margins of chemical companies.

There is about $50 billion of construction underway in the Gulf Coast, another $60 billion behind that, so 20% of the oil business is actually going to create jobs. The other 80% is definitely going to tread water or lose jobs.

The second leg in the Houston economy is medical. The Texas Medical Center employs over 200,000 people and people from all over the world go to the Texas Medical Center and medical is doing incredible. They're having a tough time hiring nurses and hiring other medical professionals and it is an engine that is on fire.

The third leg of the stool, if you will, for the economic activity in Houston is the Port of Houston. The Port of Houston is one of the largest ports in America and with the widening of the Panama Canal, their business is going to increase dramatically.

In addition, 20% of the oil business is actually doing well. This chemical business makes primary chemicals for manufacturing across the world. Those chemicals then get transported down into the port and become an export item for Houston. So the port is actually doing much better as a result of low oil prices as opposed to worse.

And the port is doing incredibly well. They've widened the port and they just had their 100th anniversary and the activity is incredible, so yes, Houston has three economic drivers of which 80% of one is sputtering and has issues.

Now let's talk a little bit about how companies -- you've heard layoffs from various oil companies and what have you. What's interesting is we have a fair amount of intel on how these oil companies are thinking. And what's going on is when you hear the layoffs today, mostly it has to do with the falling rig counts and those layoffs tend to be in the fields and not in the corporate offices.

A good friend of ours who runs one of the mid-sized energy companies was telling me last night that they had eight active rigs in the Eagle Ford shale, and it's a publicly-traded company, and they're now down to four. They may go to two. They have 400 people in their corporate office in Houston, and the psychology is this, they're definitely laying people off in the field but they refuse to lay off people in their corporate office for two reasons.

One, it took them a long time to build that team. and in Houston, Texas today to get to recruit engineers and software technicians and folks like that, it's tough and the competition for talent has been really, really difficult for these companies. So they feel like the oil price situation will be a 12 to 24 month event and that they don't want to come out of the cycle having laid off their key people that will bring them out of the cycle when it turns. So there's a fair amount of job losses, but they're really hesitating on the high-powered jobs at this point.

From a Houston perspective, Houston had 125,000 jobs last year. We always knew that job growth couldn't be sustained. We think it's going to be 60,000 this year.

Most cities in America would love to have 60,000 jobs that Houston is going to generate. So we expect our revenue growth to slow in Houston. We don't expect it to crash. We expect the biggest pressure we have in Houston is the property tax issue because our value of our properties has gone up so much.

So the overreaction to this oil situation has been really interesting and actually could be very helpful for our business going forward. Houston has a big red circle around it right now and the circle is flashing telling investors not to invest in Houston including new development starts. New development starts will fall off the edge of the map here very quickly. Anybody who doesn't have their multi-family equity and debt financing in place are not going to build. So we should see starts fall dramatically and permits fall dramatically over the next 12 to 18 months.

The good news also is that labor is going to be less of a problem. We've had oil companies poaching our top talent at Camden for a long time now. That's probably going to slow and stop.

The other issue that we have in Texas overall is that labor to finish our developments has been tough. Most of our developments have had to be delayed because we can't get the full complement of crews on our jobs and construction cost has gone up as a result of that as well.

We think that both of those issues are going to be dealt with in the next 12 to 18 months. So we fundamentally believe that starts are going to really go down low and that costs are going to go down. So opportunistic folks like Camden are going to take advantage of that opportunity and build into the market so that when the market has a hole in it in 2017 and 2018 we're going to be there to fill it.

So on the good news, Texas is not all oil related. While Houston is, there are plenty of other economic drivers driving Houston than oil. And ultimately a slowdown from white hot to good is something that we think is a good thing for not only Texas and Houston but also Camden.

So with that I would like to thank our Camden teams in the field for a great 2014. I know you're up to 2015 and making sure that we create a lot of value for our shareholders. At this point I'll turn the call over to Keith Oden.

Thanks, Ric. Consistent with prior years, I'm going to spend my time on today's call to review our market conditions that we expect to encounter in our largest markets in 2015. I'll address the markets in the order of best to worst by assigning a letter grade to each one, as well as our view as to whether we believe 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 fourth-quarter operations and our 2015 same property guidance.

Starting with an overview of Camden's markets, our number one ranking for 2015 again goes to Atlanta, which we rate an A+ with a stable outlook. Atlanta was our top market in 2014 with 8.4% same property revenue growth. Supply remains below historical levels with about 8,000 to 10,000 new apartments expected to open in 2015, and 65,000 to 70,000 new jobs should be created. We expect Atlanta to be our top performer again in 2015.

Denver and Austin are in the next two spots with A ratings and outlooks of stable. These markets have performed well for us averaging over 7% revenue growth for the past three years. While new deliveries will continue in both markets, demand should remain strong providing another year of solid growth.

Around 42,000 new jobs are projected for Denver in 2015, which should easily absorb the roughly 8,000 units coming online.

Austin is projecting 35,000 to 40,000 new jobs in 2015 and completions should be down slightly versus last year, but still remain close to 10,000 units. Average rents for our Austin communities range from $1000 to $1400 per month, which does not really put us in direct competition with most of the new development. However, the elevated level of new supply will continue to be a factor weighing on rent growth in Austin this year.

Phoenix and Southern California both earned an A- with improving outlooks and they are expected to post above average results in 2015. The Phoenix economy generated around 55,000 new jobs last year, and nearly 60,000 are expected during 2015. Supply remains well below normal levels with roughly 8,000 new units being delivered this year.

Southern California has been steadily improving over the past few quarters and should be one of our top markets for same-store growth in 2015. The outlooks for job growth in Orange County, LA and San Diego markets are all favorable and new supply remains at very manageable levels.

Dallas is next on the list earning a B+ rating and stable outlook. Job growth estimates remain quite strong with around 75,000 new jobs projected in 2015. New developments have been coming online steadily for several quarters. Another 14,000 new units are set to open this year. We believe demand for apartments should be healthy given the continued strength in the Dallas economy.

Conditions in Charlotte are currently a B+ with a declining outlook. Charlotte's job growth has been steady in the range of 25,000 new jobs annually, but another 7,000 units will be delivered this year. Many located in the urban submarkets of South End and Uptown. Our occupancy remains strong in Charlotte, but our pricing power will be tested during 2015 as these new communities come online.

Las Vegas moves up several places this year after ranking as one of our bottom two markets for the past several years. Today we rate Vegas a B with an improving outlook. Our revenue growth there was less than 2% in both 2012 and 2013, but the market began to turn last year and we posted 3.7% revenue growth for 2014.

Supply is clearly not an issue in Las Vegas, with only 2,000 new units being delivered this year. Job growth has been running at a level of nearly 25,000 new jobs annually and is expected to continue at that rate. Our Las Vegas portfolio is currently 96% occupied and is well-positioned for above-average growth this year.

The Raleigh market was also rated a B with an improving outlook for 2015. Completions peaked last year and are slowing to around 4,000 units during 2015 with over 20,000 new jobs projected. This should position us well to maintain occupancy levels while increasing rental rates this year.

The rating of B with a stable outlook goes to our three Florida markets, South Florida, Tampa and Orlando. Conditions in South Florida should look a lot like last year with job growth of 50,000 easily absorbing the 8,000 or so new completions in that market.

In Tampa and Orlando our 2015 revenue growth projections are also quite similar to 2014, Tampa should see over 30,000 jobs created with around 5,000 new units delivered. Job growth in Orlando is projected closer to 40,000 with 6,000 new apartments coming online, providing balanced levels of supply and demand for both markets.

In Houston, our current rating is a B, and we do expect conditions to decline during 2015. For the past four years our Houston same-store revenue and NOI growth has averaged 8% and 9%, respectively. Over the past 20 years those averages were 3.4% and 4% respectively, so despite the ups and downs we've experienced during many cycles, Houston has been a job that has consistently performed for Camden while the city's averaged over 100,000 new jobs for the past several years, we know that 2015 will be a different story.

It's too early to tell what the exact impact of falling oil prices is going to be, but it's likely that job growth this year will still be in the 50,000 to 60,000 range if current conditions persist. New supply has been steady for the past several quarters and up to 20,000 new apartments are expected to open in 2015. As a result, we are projecting same-store revenue growth to moderate this year in Houston and return to a level around our long-term average of 3.4%.

Washington, DC Metro will be our weakest market again this year with a C rating and stable outlook. Revenue growth was 0.9% in 2014, the lowest in our portfolio, and we expect that to be a recurring theme in 2015. Estimates for completions this year in DC are in the $12,000 range; however, most economists are predicting a better year on the job growth front with estimates of 40,000 or more new jobs this year.

Overall our portfolio would rank close to a B+ again this year, which puts us in a great starting position for 2015. Now a few details on operating results. Same-store revenue growth was 4.2% for the fourth-quarter and 4.5% for the full year of 2014. We saw strong performance during the fourth-quarter with Atlanta up 8.4% followed by Denver up 8%, Austin up 6.9% and LA/Orange County up 6%.

Overall trends for the fourth-quarter and January were better than we experienced in the prior year. Fourth-quarter new leases were up 1.3% and renewals up 6.8% versus down 0.3% and up 5.6% last year on renewals. In January, so far, new leases are up 0.8% and renewals are up 6.5%, again, versus 1.3% and 6.1% last year. February and March renewals are being sent out at around a 7.5% increase and are typically signed within 100 basis points of the offer.

Occupancy averaged 95.7% for the fourth-quarter, in line with our entire last year, and January occupancy has been running 95.5%, which is where it stands today. Net turnover for the fourth-quarter was 46% versus 49% in the prior year, and year-to-date turnover was 53% in 2014 versus 56% in 2013. Moveouts to purchase homes was at 14.5% for the fourth-quarter of 2014 versus 15.5% in the fourth-quarter of 2013, and 13.9% in the third quarter of 2014.

I'll wrap up with a shout out to our Camden team members. In 2010 we made a very bold prediction. We told you that over the next three years would be the best in Camden's history. Your collective efforts since then have made us look incredibly smart, which we aren't, and feel incredibly proud, which we are. In 2014 the best three years became the best four years, and it looks like we are set to make it the best five years in 2015.

Thanks for all you do. We'll see you at the upcoming ACE Awards. I'll turn the call over to Alex Jessett, Camden's Chief Financial Officer.

Thanks, Keith. Last night we reported results for the fourth-quarter of 2014 and provided guidance for both the first quarter and full-year 2015. Before I provide further details on each of these, a few general observations about 2014.

In 2014, and subsequent to year-end, we continue to improve the quality of our portfolio by disposing of approximately 2,100 wholly-owned apartment homes with an average age of 30 years. And we anticipate the disposition of another 27-year-old community with 832 apartment homes this Friday.

This will bring our total disposition volume for the last two quarters to $333 million, $33 million more than our prior guidance midpoint. We used the net proceeds from these dispositions to fund in part our $1 billion pipeline of new developments.

In 2014 we delivered same-store revenue growth of 4.5%, likely to be near the top of the peer group. And our balance sheet remains one of the strongest in the REIT sector with debt to EBITDA in the mid-5 times, a fixed charge expense coverage ratio of 5 times, approximately 80% of our assets unencumbered, and 92% of our debt at fixed rates.

Additionally, we restructured our two funds extending the maturities by approximately eight years to 2026 and, in recognition of the value we have created within the funds, received an additional 11.3% ownership. These funds owned 22 communities encompassing approximately 7,300 apartment homes with an average age of six years. 2014 was another very good year.

The $248 million of 30-year-old dispositions we sold in the fourth-quarter of 2014 and the first quarter of 2015 were sold at an average FFO yield of 6.25%, but an average AFFO yield of 4.7% based on trailing 12 month NOI. The difference between the FFO yield and the AFFO yield being the inclusion of $1,800 per door in actual CapEx.

These communities delivered to our shareholders an unleveraged internal rate of return of 10.25% over a 17-year hold period. We anticipate selling the remaining 27-year-old $85 million community tomorrow at a 6.8% FFO yield and an AFFO yield of 5.7% after accounting for actual CapEx.

Regarding our development pipeline, during the quarter we reached stabilization at Camden NoMa, a $102 million development in Washington DC. NoMa is currently 95% occupied and is expected to achieve a 7% stabilized yield.

Also during the quarter, we completed construction of two wholly owned communities, Camden Boca Raton in Boca Raton, Florida, and Camden Foothills in Scottsdale, Arizona; began leasing at Camden Hayden in Tempe Arizona and commenced construction at Camden Lincoln Station in Denver, Colorado and Camden McGowen Station in Houston, Texas.

Moving on to financial results and guidance. Last night we reported funds from operations for the fourth-quarter of $90.3 million or $0.99 per share, in line with the midpoint of our revised guidance issued on December 29. Included in this result is a one-time charge of $10 million, or $0.11 per diluted share in incentive compensation relating to the value created by our increased ownership in the funds.

Adding this charge back to our reported numbers results in core funds from operations for the fourth-quarter of $100.3 million or $1.10 per share, in line with the midpoint of our original fourth-quarter guidance. Our full-year same-store results of 4.5% for revenue, 3.8% for expenses, and 4.9% for net operating income are exactly the midpoint of our prior guidance ranges.

Moving on to 2015 earnings guidance. You can refer to page 26 of our fourth-quarter supplemental package for details on the key assumptions driving our 2015 financial outlook. As detailed in our supplemental package, our 2014 reported FFO per diluted share of $4.18 included $0.085 of net non-routine charges. Excluding these net non-routine charges, and adjusting for the year-end 2014 share count, our base 2014 FFO per diluted share would have been $4.23. We expect 2015 FFO per diluted share to be in the range of $4.36 to $4.56 with a midpoint of $4.46 representing a $0.23 per share increase over our adjusted 2014 results.

The major assumptions and components of this $0.23 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 47,878 unit same-store portfolio. We are expecting same-store net operating income growth of 3% to 5% driven by revenue growth of 3.75% to 4.75% and expense growth of 4.5% to 5%.

A $0.28 per share, or $25 million, increase in FFO related to net operating income from our non-same-store properties resulting primarily from the incremental contribution from our development communities in lease-up during 2014 and 2015, one development community which stabilized in 2014, and one community acquired in 2014, and a net $0.04 per share, or $4 million, increase in FFO resulting primarily from our increased ownership in the 22 fund communities.

These above positives are partially offset by a $0.14 per share, or $12 million, decrease in FFO related to lost NOI from the $218 million of dispositions completed in the fourth-quarter of 2014; an $0.08 per share, or $7 million, decrease in FFO related to lost NOI from completed and anticipated first quarter 2015 dispositions.

Earlier this month we sold a $29 million operating community and we anticipate the sale of another $85 million property tomorrow. A $0.06 per share, or $5 million, decrease in FFO related to increased interest expense primarily as a result of lower levels of capitalized interest.

In 2015 we anticipate completing approximately 2,000 units of our development pipeline. Once a unit is completed and we receive a certificate of occupancy we must begin expensing all interest and operating costs related to that unit. And finally, a $0.03 per share, or $2.5 million, decrease in FFO due to increases in overhead expenses.

As a reminder, $300 million was the original midpoint of our 2014 disposition volume. Combining the dispositions that were completed in the fourth-quarter of 2014 with the dispositions completed, or anticipated to be completed in the early part of the first quarter of 2015, results in $333 million of total sales, adding $0.02 of additional dilution to 2015 earnings.

Taking a closer look at our anticipated same-store expense growth of 4.5% to 5% for 2015, we are once again expecting a large increase in property taxes. Property taxes are approximately 30% of our total operating expenses and are projected to be up 5.75% in 2015. 5% is core. The result of anticipated increases in assessments for our properties in 2015 due to continuing increases in real estate values.

75 basis points is due to year-over-year reduction in anticipated refunds from prior-year tax protests. Additionally, we are anticipating an 8% increase in property utility expense in 2015 as a result of our recent bulk internet initiative. Utilities are approximately 20% of our total operating expenses and this initiative is adding approximately 75 to 100 basis points to our total 2015 expense growth.

Many of you are aware of our existing bulk cable program where we purchase cable directly from our providers at wholesale and then provide cable services to our residents at a discount to retail prices, generating a profit. The bulk internet program will work the same way.

Like our cable program, the residents will receive internet service at a lower price than they could get in the retail market and Camden will make a profit. A win-win situation. This initiative is adding approximately 25 to 50 basis points to our 2015 estimated same-store revenue depending upon the pace of the rollout.

As 2015 is an implementation year for the program, the actual net profit will be minimal. However, this initiative should become meaningful in 2016 and beyond contributing an estimated $5 million in annual FFO. We will provide more color on future calls regarding the success of the program. Excluding the internet related expenses our utility increase would be approximately 3%, in line with the remainder of our expense categories.

Page 26 of our supplemental package also details our expected ranges of acquisitions, dispositions and development activities. The midpoint of our 2015 FFO per share guidance range assumes the following: $200 million in on balance sheet dispositions, which includes the $29 million completed to date, $85 million of which should close shortly, and the remainder closing in the latter part of the year; $200 million in on balance sheet acquisitions also anticipated to occur in the latter part of the year; and $200 million of on balance sheet development starts throughout the year.

Based on our projected development spend of $350 million in 2015, and our midyear $250 million bond maturity, we anticipate needing approximately $600 million of new capital during the year, which we expect to fund through cash on hand, cash flow from operations, our undrawn $500 million line of credit, and utilization of the capital markets in an opportunistic manner. The composition of our 2015 capital markets activity, if any, will depend upon a variety of factors including the then current market conditions and economic environment.

For the first quarter of 2015, we expect FFO per diluted share to be in the range of $1.04 to $1.08. After adjusting for the $0.11 per share fund restructuring compensation expense, the midpoint of this range represents a $0.04 per share decline from the fourth-quarter of 2014.

The $0.04 per share decline is primarily the result of the following items: a $0.01, or approximately $1 million, decline in sequential same-store net operating income mainly due to higher property taxes and normal seasonal expense increases, partially offset by a slight increase in same property revenues due to continuing improvements in rental rates; a $0.035, or $3.3 million, decrease in FFO related to lost NOI from our fourth-quarter 2014 and first quarter 2015 disposition activities that I previously mentioned; and a $0.005 decrease in FFO due to lower levels of interest capitalization.

These decreases in FFO are partially offset by $0.005, or approximately $500,000, increase in net FFO resulting from our fund restructure, and $0.005, or approximately $500,000, increase in FFO from continued leasing at our development communities and our fourth-quarter 2014 property acquisition.

At this time, I will now open up the call to questions.

Thank you. (Operator Instructions). Nick Joseph, Citigroup.

Good morning. It's Michael Bilerman with Nick. Ric, I appreciate your comments surrounding Texas and Houston and clearly uncertainty and perception doesn't help. And even though you provided a lot of comments I think it's just the uncertainty that weighs.

And I'm curious as you think about your forecast, and I think Keith had mentioned it was a 3.4% same-store revenue growth for 2015 for Houston, I'm just trying to piece that together as you go through the year. Your earn-in is probably just under 3% from 2014. And so what are you assuming in terms of occupancy, rental change on rollovers, and how does that carry through throughout the year and into 2016?

Michael, this is Keith. On our Houston numbers, our actual budget for the year on revenue increase is 3.4% -- or 3.5%. I think I gave the long-term historical average at 3.4%. So we are actually at about 3.5% for the year. Our calculation on the earn-in is a little lower than what you have. We think it's about 2% earn-in for the year. And so the balance of the year -- clearly we think we pick up another 1.5%.

We budgeted occupancies fairly flat and we don't think that we're going to see any big drop in occupancy, certainly not at the high levels that we've had last year. We've been running 96% occupied in Houston for almost 2.5 years now so I don't think we'll see that. We'll be closer to the historical 95% range.

Looking at the beginning of the year, if you take what happened in December in Houston, we were at about 2.7% average between new leases or renewals, new leases were basically flat. And renewals were about 5.5%. That was for December. We don't really have enough data in January, but it looks like the trend in January is a continuation of that.

So we've clearly baked in a significant slowdown, not necessarily so much from declining job growth. I think in a normal year 60,000 jobs would be enough to keep things in a steady state, but you've got 20,000 apartments being delivered. And you have 20,000 apartments being delivered in some really relevant submarkets to our operations.

So we think that we've properly anticipated that in our forecast in Houston for 2015, but I guess the devil's in the details in terms of how long the oil price stays where it is and how quickly companies do respond.

I think that Ric's point is certainly about the fact that the oil companies have spent the last five years clawing each other's eyes out for talent. I think there's going to be a lot of stickiness on the letting that talent go side. I think the duration is going to have to be much longer than what a lot of people are currently thinking to see an impact on that in Houston. Obviously, the field operations are a different story.

Right. And then just as a second question -- maybe just in terms of the transaction market, Houston and Texas more broadly. And maybe you can make an analogous situation to DC when DC was pretty -- went through its weakness, both supply as well as job growth, and the fundamentals were weak.

The thought process was if we can get assets that hopefully will come to the market cheap we'd be all over it. And cap rates really didn't move, so the investor interest looked through what was weaker fundamentals. How do you see that potentially playing out in Texas and what's your desire to participate or not?

Sure. I think it's the same song second verse of DC versus Houston. Anybody who wants to sell probably won't sell because the psychology issue. Right? Which is gee, why should I sell into this uncertainty? So on the one hand I don't think -- there clearly is not going to be any bargains here. There haven't been bargains in Houston for a long time. That's why we haven't bought a lot here. We are developing some but that's it.

In terms of -- there is an interesting piece. Houston has definitely been redlined by a lot of investors, but other markets have not. So people are still getting equity deals done and acquisitions are robust in the other markets. We do think Houston sales will fall off next year just because sellers don't really want to try to see what the market will do today.

But on the other hand, I have heard some folks talking about maybe this is the opportunity to go in because some institutional investors will pull out and maybe you don't have as much competition and some of the developments that were done have such massive profit margins.

We're talking if you built in 2010 here, you might have an 80% profit margin in your development deal. So on the one hand somebody says I've got an 80% margin, maybe I have to take a 70% margin to sell it, then what the hey, I'll still take it. And so there may be some of that going on, but there's no signs that anybody's under distress or anything like that.

I will tell you land prices have adjusted pretty effectively pretty fast. Like some deals that we have been monitoring are down 20% or 30% because of the development side. So we are definitely going to be scouring the market for opportunistic activity and land might be the thing that really is the opportunity as opposed to existing assets.

All right. Thanks.

Anthony Paolone, JPMorgan.

Ric, I was wondering if you can talk about evaluations in the private market and perhaps both individual assets and also perhaps even commenting on the Gables valuation? And would also like you to maybe tie it into how you think Camden's trading perhaps? Because it seems like you guys are at one of the highest implied cap rates right now.

Sure. I think the Gables transaction is a really interesting one because it was heavily bid, the cover bid was $500,000 on a $3.2 billion transaction and this is all in the marketplace and it's not confidential in any way. You've read the reports. The portfolio interestingly enough matches up pretty effectively with ours.

It was about a 60% A and 40% B portfolio. 42% based in Texas, 12% based in DC. So when you think about it, heavily bid, very robust pricing, sub-5% cap rate with CapEx. And you look at the portfolio being 54% in the two markets and the two markets people are worried about today, yet there was huge institutional capital demand for the product and it hasn't closed yet, but I understand it's closing in February. So I think that's pretty instructive.

The private market has definitely not discounted Texas overall or Houston from a punitive perspective as they have public company stocks. Camden has underperformed by about 900 basis points since the oil prices started dropping relative to our peers, and on a pure cap rate basis you haven't seen any of that happen in the marketplace at all. So that's the way I see it.

Okay. Thanks. And then just a follow up on Houston. Any sense of what the impact on the 3.5% growth rate would be if the job number were to come out as flat or even go negative this year?

It's really hard to extrapolate that one. It's hard to see some of the estimates that are in the market right now of Houston having as bad as negative job growth in 2015. I just can't even -- there's nothing that we look at that gets anything close to that.

And I think we're very comfortable in the 50,000 to 60,000 range, and again, for all the reasons that -- it's not that there won't be job losses, there will and there already have been. But Schlumberger has already announced job cuts, Baker Hughes has announced job cuts, but if you look through that and look at where those are happening, as Ric mentioned, those are primarily field jobs.

To date there have been really literally a handful of notifications of layoffs and those are less than -- in the cases that we've seen, less than 100 individuals involved in the oil and gas industry. So it's hard to get a thought process around where we are right now and having that big of a disruption in 2015.

I think there's going to be a lot of stickiness on employment in the headquarter offices of all these oil companies and I think the question really becomes more -- almost more of a 2016 question. If you have a scenario that you want to run and say, let's say for grins, oil prices stay in the $40s for another -- throughout 2015 and throughout 2016, I think you're dealing with a different set of facts then. But for 2015 it's hard to parse that.

The other part of it is we have 2% built in because of 2013 or 2014 rent growth. And the other part of that equation will be what happens to the national economy? If you continue to create 250,000 jobs, that will drive the other parts of the Houston economy.

So if you say zero jobs, then you're probably not going to get 3.5%. You're probably going to be in the 2% kind of zone I would think. Good for the first half and bad for the second half.

Okay. Thanks a lot.

Dave Bragg, Green Street Advisors.

Can you talk about the net impact on the rest of your portfolio at $40 oil? You shared a lot of thoughts on Houston, but for the portfolio as a whole, you regularly disclosed the rent income ratio and now you have an effective tax cut for your customers. So how much more can you push rents at $40 oil than $100? If you could quantify that and tell us if that, in your mind, offsets the weakness that you're seeing in Houston?

So Dave, if you look at our portfolio and you stratify the way our budget is rolled up this year, and again we have a very -- it's a very grassroots -- down at the property level -- it begins at the property level. We give guidance on some macro issues, but these are -- by and large these are budgets that are developed by the people in the individual markets. So of the 15 markets that we operate in, the budgeted revenue increases for 2015 are higher than the budgeted revenue increases for 2014.

And I think -- yes, you've got five markets that are lower than 2014, but there's not a single market -- the only market in our portfolio that has revenue growth declining by more than 1% is Houston, and it's down 2.3%.

So you've got four markets that have very slight downs and you've got 10 markets with ups. So I think that the answer from the people that are best suited to make that judgment about what the current state of play vis-a-vis consumer confidence, ability to pay, what's going on in their individual markets -- the resounding statement from our folks was that in 10 out of the 15 markets they think it's going to be better in 2015 than 2014. And obviously a tax cut vis-a-vis the price of gasoline is an important part of that.

I think also that what Ric mentioned in his prepared comments is that the tax cut aspect of the oil price decline is a net positive in our other two Texas markets in Austin and Dallas, so the big loser in this is Houston for sure. We think we've put a fence around what the impact can be in 2015 and we'll see.

Just to follow up on that, if it's a positive in the other two Texas markets I assume it's a positive in the rest of your markets. So would you suggest that the near-term and long-term growth rate for your portfolio is better at $40 oil than $100?

I think net-net it is. Because you've got the impact spread over 87% of our portfolio ex-Houston that is clearly going to benefit. And I think you're going to see it in the job growth numbers and that's the number one driver of the performance in all of our markets.

Okay. Thank you.

Ian Weissman, Credit Suisse.

Most of my questions have been asked and answered, but just a quick question on your development starts. It looks like you tempered your expectations from previous comments made in past quarters.

My question is, are the deals just not penciling because the bulk of your pipeline is in DC and Houston? Would you start projects in those markets today or do you think the economics just don't make sense?

Well, we really haven't moderated our view. We have said all along that once we got through our big pipeline we would start moderating the development activity from $250 million to $350 million annually plus or minus. In DC we actually finished our NoMa project and we are going to start our NoMa 2 project. And the interesting thing in DC, and this is I think going to happen in Houston as well, is that construction costs have moderated in DC. So we are able to build our NoMa 2 at a little bit less than our NoMa 1.

NoMa 1, for example, is yielding over a 7% cash on cash return. Our NoMa 2 returns look like they're going to be higher than NoMa 1. So we like those kind of returns and when the cap rates are sticky at the sub-5% and I can build to a 7%, 7.5% in those markets I'm going to still do it.

In Houston, we're going to start McGowen Station which we'll deliver in 2017 and we think it's perfect timing to get our costs in line with the redline around Houston. And we know this is a great long-term market and so we're going to build that building.

That particular one we've been working on for 13 years. People talk about how easy it is to build in Texas, but that particular site is one of the prime sites in Midtown. We negotiated with the city, a 3-acre city park in the project, so it's a very unique and interesting project so that's where we are from that perspective.

Thank you. And just one follow-up question on the Gables, but more importantly on just the transaction market in general. Where would you peg unlevered IRRs today in your markets and how much have they compressed over the last six months?

I would say unlevered IRRs are probably in the high 5%s now and they were in the 6% -- it probably tightened probably 25 basis points at least in the last few months. And it depends on the type of property you're doing.

Part of the challenge with using unlevered IRR as your kind of bogie is that most of the private buyers that are the buyers that are country club monies, they don't even ever think of unlevered IRR's. A lot of the people we sell to I'd ask them the question after they buy, I'd say what was your target in unlevered IRR? And they go we're not sure how to calculate that or what that is. What we're interested in is cash on cash return and what the levered equity returns are.

They do a levered IRR, but it's sort of interesting -- and with interest rates as low as they are with using floating rate debt, these cash on cash returns are just out of control and the leverage equity returns are out of control too. But generally institutions are in the 5%s.

Helpful. Thank you very much.

Alexander Goldfarb, Sandler O'Neill.

Just two quick questions here. One, as far as Houston goes, if we use DC as a template, what should we expect on turnover or confessions or NOI margin impact if competitors are suddenly discounting or offering free rent, et cetera, to try and lure tenants, should we expect -- Keith you spoke about 3.5% revenue, but what about the expense of trying to keep people in there?

Well, if you use DC as a model, in the last four years we had one year that was, call it down 3%, and the other three have been flat to up 50 basis points. So the story in DC really is more of a -- you had a slight oversupplied condition, but you had job growth dropped from -- on a run rate basis of 50,000 to 60,000 jobs a year we dropped down to about 10,000 jobs.

So you just didn't have the demand in DC and you had this pent-up supply that just kept dribbling into the marketplace without any net demand to take care of it. So I think in the Houston scenario, if we are right and if the economists that we follow are right, and we get 50,000 to 60,000 jobs, you're going to have some impact from direct competitors that are in lease-up.

They tend to be pretty aggressive when they get to the 30-yard line trying to get the ball in the end zone and get the lease-up completed, so yes, you'll have people that are offering free rent. We've already seen some of that in some of our markets. And we just have to do what we've always done which is sell the value proposition. We think we have properly anticipated the pressure that we're likely to see in Houston in 2015, and we'll just have to see how it plays out.

So your marketing budget is up a little bit, then?

Yes. So we don't have a marketing budget by community or even by city. We have a marketing budget for the entire -- for all of Camden and we target those dollars where they need to be targeted. And it's all -- 90% of what we do these days is internet spend.

And we are very agile and very flexible when it comes to where do you need to spend the dollars to have the desired impact on meeting your objectives? So I am certain that based on our methodology, Houston's going to get more money this year than they got in 2014.

Okay. And then just finally, Denver, I don't think you mentioned that. That's another energy market. What are your expectations for there as far as impact either positive or negative?

When you look at Denver as an energy market, it is so small relative to its overall job growth. I think it's sort of like Dallas to a certain extent. And we think Denver is going to be a very strong market this year. It was a very strong market last year. The demographics, the job growth, the starts, we feel really good about Denver.

Yes. We're -- at budgeted revenue increase in Denver, we are at 6% this year. That's down from last year actuals of about 7% or 6.9%. So a little bit less than last year, but last year was an incredible year for Denver and the second highest ranked in our portfolio for the second year running.

Thank you.

Rich Anderson, Mizuho Securities.

Thanks, I'll be quick. When you look at the $0.22 dilution in your FFO guidance from dispositions, what would be a guess of what that number would be, if it would be anything at all, if you were to give AFFO guidance?

Last call I said we had a 15 basis points negative spread on FFO for $1 billion plus of dispositions. If you look at the spread, the spread on this last round was probably 30 basis points negative maybe. So that's a real issue because it's really interesting because when we look at our disposition when we make an analysis of it, we don't even look at FFO, we look at real cash flow.

What I look at is I say if I can sell a 30-year-old asset at a cash flow yield of X and I can build a new development at a cash flow yield of Y, and there's a tight little spread on that, and oftentimes it's positive, because people underestimate their CapEx.

We've sold a lot of these deals at 4.5% AFFO yields. We're taking that 4.5% and putting it into a new development that has a 5.5% or 6% AFFO yield. So I haven't seen that, Rich, in my business career very often. That's why we've been pounding it and sold so much.

My quick math, Rich, is it is about $0.01 or $0.02 versus the $0.22.

Okay. That's all I've got. Thanks.

Karin Ford, KeyBanc.

Just going back to the DC analogy, Ric, Keith, do you foresee a scenario where market rent growth in Houston could possibly go negative either later in 2015 or even in 2016?

I think if the current conditions, meaning $40 a barrel oil, persist into 2016 you'll likely see that, yes.

Okay. That's helpful. And have you seen the impact yet on the consumer mindset in Houston or is it ahead of potential job losses there? Or is the environment and the mentality continuing to be positive?

I think by and large when you think about 13% of the workforce is in oil and gas and then you have the add-on to the oil and gas, consumers are nervous. There's no question about it.

Because you're starting to see every day in the paper other issues about layoffs and what have you and they're talking about it on the news all the time. So I don't think we've seen anybody on our sites, per se, that are all nervous, but I think it's just people -- the uncertainty creates a certain amount of angst and people worry about it.

I think on the other hand, the low gas prices are helping all of the consumers as well. So even though overall Houston itself has a job issue this year -- or potentially could have a job issue this year, all the consumers are still getting the same benefit that the rest of the consumers in America are which is a big tax cut. So on the one hand they feel good about low gas prices. On the other hand they worry how it's going to affect them individually.

And did you guys consider not starting McGowen Station?

We did. Absolutely. We looked at it very critically and because we think we're going to be able to buy it out from a construction perspective at lower than what our budget is. And because we're delivering into 2017 knowing that there's no one going to start a deal that they don't have funded today, we're going to be leasing in 2017 and 2018 which I think will be a very low supply environment in a very great location with transit access. And it will be -- so, yes, we went through a very deliberate process and decided that it was the right thing to do.

Thanks very much.

Tom Lesnick, Capital One.

Thanks, I'll be quick. Just shifting away from Houston for a second, I was wondering if you could perhaps elaborate a little bit on the timing of the bulk internet implementation this year. I'm just trying to think about margin sequentially through the year.

Yes. So the rollout is underway. And we've got a pretty ambitious schedule for rolling it out. It will happen pro rata throughout the year would be your best assumption. Although keep in mind that in 2015, the net contribution -- even though there's a lot of noise on the expense side, and a little bit on the revenue side, the net contribution of the program is less than $1 million.

So I don't think it's going -- if we had our druthers we would have mashed the revenue, netted it with the expense, and called it a rounding error and moved on, but our accountants won't let us do that. So we have to report both the expense side and the revenue side. So there will be some noise in our numbers for this year.

Also into 2016 we'll complete the rollout. And as Alex mentioned in his remarks, the payoff for this program minus the rollout year of 2015 is by the end of 2016 we'll be at roughly a $5 million profit FFO impact for years beyond 2016. So ultimately you're talking about a fairly sizable amount of money and we've got to go through a little bit of noise in the reporting to get to that.

All right. Great. Thank you.

Ross Nussbaum, UBS.

Ric, can you comment just for a second on the decision to award the special incentive, $10 million incentive comp, at the end of the year? It would seem to me that most of the value creation in terms of triggering the promote was cap rates going down and market rents going up as opposed to massive outperformance at the property level. So I guess I'm just curious around the decision to give that special comp.

Well, we have a fundamental philosophy at Camden and that is that we share the wealth with all of our employees and that's a critical part of our culture. And I would beg to differ on the on-site production because every single pro forma that we did -- and remember we were trying to hit a low teens return for our investors, and we did far better than that, had in the 20%s IRR.

And those returns and the result of the restructure was directly driven by a combined team effort. We had a team that acquired the properties. We had a team that did due diligence. We had a team that did the financing. We had a team that did the asset management. We had a team that was on-site that focused on maximizing value for Camden and for Texas Teachers.

And so every single property outperformed their original pro forma, while cap rates have compressed. It's one of those kind of things where if you are making the decisions and your teams are effective and you're beating your budgets, you can always say -- well you just got in front of a good market and it ran into you. And I found over the last 30 years in the real estate business that it takes a lot of teams doing the right things at the right time at the right place to make sure you get in front of that market and let it run over you.

And so with that said, we fundamentally believe that our employees are some of the most important people in our constituent group. And if our employees have smiles on their faces and get paid on a big value creation, then the customers will smile and ultimately the shareholders will smile.

So that's just part of our culture and that's why it was really important for us to make sure that everyone knew that senior management didn't take -- Keith and Malcolm and I, didn't take a nickel in it and most of the bonus, about 80% of it, went to -- actually 85% of it went to field people and people on the team. So that's just our philosophy.

Thanks. Appreciate it.

Jana Galan, Bank of America Merrill Lynch.

Just a couple quick questions on the move out for homeownership. Was the year-over-year decline pretty consistent through the portfolio or did any markets tick up? And then when you look out for 2015 with better job growth and higher consumer confidence, do you think you could see a little bit of pressure from greater move outs for homeownership?

Jana, we'll have to get you the individual market. We have that. We just don't have it in front of us. But in terms of overall move outs to home purchases, we have been surprised consistently over the last three years that that metric has not moved back up more aggressively with an improving economy.

And there's a whole lot of demographic reasons around why we believe that's not happening including it's taking -- millennials are taking longer to get married, they're taking longer to have children, which has historically been the triggering event for, in many cases, moving out of an apartment and buying your first home.

So there's a lot of things that we think are not part of the cycle but they probably are a real secular change in terms of the demographics and the way people are forming families at what rate, at what age and having children.

So I think that's likely to continue. But it has been surprising. Our long-term average move outs to home purchases is around 18% and we actually ticked down from the prior year, so I'd be surprised at this point if 2015 gets much beyond the 14.5% range across all our markets.

Thank you.

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

Thank you. Appreciate your attention on the call. And we will talk to you next quarter. Or see you in Florida too. Thank you.

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