Camden Property Trust (CPT) 2015 Q1 法說會逐字稿

Good morning and welcome to the Camden Property Trust first quarter 2015 earnings conference call.

(Operator Instructions)

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

Good morning, and thank you for joining Camden's first quarter 2015 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 risk 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 first quarter 2015 earnings release is available in the investor relations section of our website 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 multifamily company is hosting their call at 1:00 PM Eastern today, so we will try to be brief in our prepared remarks and complete the call within an hour. We ask that you limit your questions to two and rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes.

At this time I'll turn the call over to Ric Campo.

Thanks, Kim. One of the things I was looking forward to in 2015 was a decrease in the month of time I spent talking about the oil business, but just like Bono, I still haven't found what I'm looking for.

During the quarter we continued our capital recycling program, we sold two older properties and started construction on Camden NoMa 2 in Washington, DC. We will continue to recital capital taking advantage of the robust demand and attractive pricing for our properties. Capital recycling improves our portfolio competitiveness, the quality, and the average age.

We've increased the average revenue per month from $1,040 per apartment four years ago, to $1,440 years an apartment today. Our development program continues to add value to our cash flow and our net asset value.

Camden's graphic diversification continues to drive our strong revenue performance for the quarter and for the past four years. We favor markets with pro-business governments, strong job growth, strong population growth, and with an educated and young workforce.

We are currently seeing a market rotation in our portfolio in 2015. With Houston slowing due to the oil and gas economy -- I didn't think I was going to talk about oil and gas, but I probably will in this call -- and increasing supply here in Houston. While markets like Phoenix, Atlanta and Southern California are accelerating, other markets are sort of holding their own as well.

So, at this point, I really want to give a shout out to our team Camden for such a strong start for the year. We really appreciate every thing that they do every day, taking care of our customers and taking care of their Camden customers.

At this point I'll turn the call over to Keith Oden.

Thanks, Ric. We are off to a really good start for 2015. We have same-store revenue growth of 4.6% for the first quarter, which is virtually on top of last year's first quarter revenue growth of 4.7%, and from a historical perspective 4.6% revenue growth is really strong.

As we review the quarterly results with our operating teams last week, all indications are that 2015 will be another very good year for Camden. For the first quarter same-store average ramps on new leases were up 1.3% and renewals were up 6.3%, and that compares to 1.8% on new leases and 6.7% on renewals last year. For April, new leases were up 4% and renewals were up 6.5%, and that compares favorably to 2.8% and 6.6% at this time last year.

Based on this early strength we tweaked our revenue guidance up by 25 basis points for the full year. May and June renewal offers have been sent out at roughly 7.5% increases.

10 of our markets had year-over-year revenue growth of 5.5% or higher which, interestingly, is exactly the same number as in the first quarter of 2014. Our top five markets for quarterly revenue growth were Atlanta at 8.9%, Denver at 8.7%, Austin 6.7%, Dallas 6.2%, and Phoenix at 6.1%. Although Houston fell out of the top five, the growth of the quarter was still a respectable 3.9%. With the exception of Washington, DC Metro and Corpus Christi, all other Camden markets saw sequential revenue growth.

Overall our same-store portfolio averaged 95.5% occupancy for the first quarter, the same as last year and down just 0.1% from the fourth quarter. Occupancy in April averaged 95.9% and we currently stand at 96% occupied portfolio-wide.

Our budget contemplated rising occupancy rates into the second and third quarters, so the occupancy-related revenue gain will likely moderate in future quarters. Qualified traffic was strong across all of our markets, and despite our aggressive renewal rate increases, our occupancy rates remained above plan. In part, this reflects the second lowest net turnover rate that we've ever reported at 43% versus 48% for the first quarter of 2014.

Our residents financial health remains strong, and our current average rent as a percentage of household income stands at 17.1% versus 17.2% for the same period last year. 13.2% of our residents moved out and purchase homes in the quarter, and that compares to 13.7% in the first quarter of 2014, and 14.2% for the full year. All of the home purchase numbers remain well below our long-term average of 18% of moveouts to purchase homes. The home ownership rate reportedly fell again in the first quarter this year to 63.7%, down from the peak of roughly 69%.

Finally, since our last conference call we learned that we are once again included in Fortune Magazine's list of the 100 best places to work, in fact, we moved back into the top 10. Eight straight years on the list, five times in the top 10, which is a rarity. In all of the years Fortune has compiled the list, only 10 companies have ever made it into the top 10 five or more times. We claim this honor our behalf of all of our brethren in REITland, and we give credit give credit our Camden team which has allowed us to achieve our vision of creating a great workplace.

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

Thanks, Keith. Before I move on to our financial results, a brief update on our first-quarter transactional activity.

During the quarter we sold two communities, with an average age of 24 years, for total $114 million. Delivering to our shareholders an unleveraged internal rate-of-return of 10.8% over a 19 year hold period. These committees were sold at an average FFO yield of 6.4% and an average AFFO yield of 5.2% based on trailing 12 month NOI. The difference between the FFO yield and the AFFO yield is $1,300 per door in actual CapEx.

During the quarter we completed construction at Camden La Frontera and Camden Lamar Heights, both in Austin; began leasing at Camden Chandler in Phoenix and Camden Southline in Charlotte; and commenced construction at Camden NoMa Phase 2 in Washington, DC. Also during the quarter we finalize our third fund agreement with Texas teachers. Campden will have a 20% ownership in this new fund, which has a total investment capacity of approximately $450 million based upon 70% leverage. The midpoint of our current earnings guidance does not assume any investments in the third fund in 2015.

Moving on to financial results. Last night we reported funds from operations for the first quarter of 2015 of $98.5 million or $1.08 per share. These results are $1.8 million, or $0.02 per share, better than the $1.06 mid-point of our prior guidance range. This $0.02 per share positive variance primarily resulted from $1.1 million in better-than-expected operating performances from our communities, and $500,000 in lower-than-expected corporate expenses. The $500,000 positive variance in corporate expenses is primarily driven by timing and lower employee compensation costs.

The $1.1 million better-than-expected performance from our communities is the result of the following. Property revenues from our same-store communities exceeded our forecast by $1.3 million, as both rental and fee income were favorable to plan. Our new Camden technology package with internet service, which I discussed last quarter, is rolling out as scheduled and contributed approximately 30 basis points to our first-quarter same-store revenue growth, in line with expectations.

Property revenues from our consolidated non-same-store and development communities exceeded our forecast by $500,000 as a result of better-than-expected occupancy at our student housing community and accelerated leasing at our development communities. Our Camden Boca Raton development is now 95% leased, and our Camden La Frontera development is 96% leased, both ahead of schedule.

The $1.8 million in better-than-anticipated property revenues from our consolidated communities was partially offset by $700,000 in higher-than-expected property tax expense, which makes up approximately one-third of our total operating costs. Certain property tax refunds we anticipated receiving in the first quarter, will now be received in the second quarter. And late in the first quarter we received larger than anticipated tax evaluation increases for our Houston and Austin communities and adjusted our tax accruals accordingly.

Property values continue to increase in all of our Texas markets and the tax assessors are taking notice. Our original operating budgets were based upon a 5.75% full-year increase in property taxes, which we now anticipate to be closer to 7%.

On page 14 of our supplemental package we provide a closer look at the components of our same-store expense growth for the quarter. Excluding property taxes, the quarterly results from many of our expense line items included certain timing and non-recurring events in current and prior quarters which were accounted for in our original budget. We expect each subsequent quarter's total expense growth to be in the 4% to 5% range.

For full-year 2015 we anticipate larger than usual expense increases for taxes and utilities, with the remaining expense categories averaging an approximate 2.5% increase. In line with expectations, our new Camden technology package with internet service contributed approximately 70 basis points to our total first-quarter same-store expense growth, and approximately 340 basis points to our total utility increase. The combined revenue and expense component from this technology initiative added about 10 basis points to our total same-store and a wide growth for the quarter. Based upon our first quarter operating results we have revised our 2015 same-store guidance.

We now anticipate full-year 2015 same-store revenue growth to be between 4% and 5%, expense growth to be between 4.75% and 5.25%, and NOI growth to be between 3.5% and 5%. As compared to our prior guidance ranges our revised revenue midpoint of 4.5% represents a 25 basis point improvement, a revised expense midpoint of 5% represent a 25 basis point increase, and our revised and allotment of 4.25% represented 25 basis point improvement. The expense increase is entirely driven by higher property taxes.

We've also revise our full-year 2015 FFO per share outlook. We now anticipate 2015 FFO per share to be in the range of $4.40 to $4.56, versus our prior range of $4.36 to $4.56, representing a $0.02 per share increase to the prior midpoint primarily driven by our first quarter out performance.

Last night we also provide earnings guidance for the second quarter of 2015. We expect FFO per share for the second quarter to be within the range of $1.08 to $1.12. The midpoint of $1.10 represents a $0.02 increase from the first quarter of 2015. This $0.02 per share increase is primarily the results of the following.

A $0.04 per share increase in FFO due to growth and property net operating income as a result of an approximate 2% or $0.03 per share expected sequential increase in same-store NOI, as revenue growth from the combination of higher rental and fee income as a we move into our peak leasing periods combined with the receipt of primary tax refunds, more than offset our expected increase in other property expenses due to normal seasonal summer increases in utility and repair on maintenance costs. And an approximately $0.01 per share increase from our non-same-store communities as the additional NOI contribution from our nine communities in lease-up will be partially offset by the lost NOI from our first quarter dispositions and lower occupancy in our student housing committee in Corpus Christi, Texas.

Occupancy declined significant me from May through August of this community. The growth in our property net operating income is being partially offset by a $0.02 per share decrease in FFO due to high property supervision and general administrative expenses resulting from delayed first quarter corporate overhead costs and a timing of our annual trust manager compensation costs.

Finally our capital position remains very strong. We finished the quarter with $174 million of cash on hand, no amounts outstanding under our $500 million unsecured line of credit, and a net debt EBITDA ratio of 5.3 times. At this time will open up the call to questions.

(Operator Instructions)

Nick Joseph, Citigroup.

Thanks. Two questions on Houston actually. On the last call you mentioned that you thought job growth would be 50,000 to 60,000 and the guidance for same-store revenue would be about 3.4%. Do you have updates to either of those or are you still tracking towards that?

The data provider that we rely most heavily on is Ron Witten, and he's still got Houston job growth numbers at about 63,000 for the year. I would tell you that his 63,000 is a soft 63,000 based on what he seeing right now, preliminarily. He's not redone his forecast number so it's still -- so his official forecast is still in the 63,000 range. As you know, one of the challenges is a bit/ask spread on job growth in Houston for 2015 runs all the way from essentially zero to the high end of the range, which is still in the 60,000 range. So I think that's the thing that everybody is still trying to get their hands around, and we'll just have to see as it plays out through the year.

Obviously the first quarter was weak, not only in Houston, but weak all across the entire country in terms of job growth, so we'll have to see how that pans out. We have not changed our forecast for the year, for the full year in terms of revenue growth for Houston, we're still in the mid 3s%. We still think that that's achievable, and the one thing that could make that slide, if you -- if the zero turns out to be the case and not something closer to the 50,000 to 60,000 jobs the we forecast last quarter, then obviously that will come into play in the third and fourth quarter of this year, but at this point we still think the 3.5% is about the right number for the year.

Thanks. And then you mentioned that values are increasing in all of your Texas markets. Can you talk about cap rates in the transaction market, in Houston specifically?

Sure. Cap rates continue to be very sticky and low here in Houston. The thing -- the real change -- so there's really been no change in cap rates in Houston. What happened is, instead of 15 aggressive to 20 aggressive bidders, now you have 8 to 10. So you have fewer, but still enough liquidity and enough activity on the bid side to keep prices very high. Alex mentioned our fund, $450 million of acquisitions that we are trying to do for our fund, and we have been beat on a number of Houston transactions where we just couldn't stomach the price. And when you get down to 4.5% cap rate on a really high-quality property in Houston, that's happening every day here. I would say that if you have had lower quality properties that don't have a good rehab story, or they're just in poor locations, you probably have a lot less bid for that kind of property, but any kind of property that has quality like Camden's or anything in a B+ to A category is still a voracious bid and a high price.

Thanks.

Johnna Gowen, Bank of America Merrill Lynch.

Thank you. I was just hoping if you could if you provide an update on DC. It seemed in 2014 you were holding up better than peers, but this quarter you were a little bit weaker.

Yes, we had -- so our revenue prep this year was -- or for the quarter was down 0.1%. Interestingly enough, that's the first negative revenue number that we've had in DC since the downturn. So we -- our portfolio did hold up much better than many of our peers, who, I think all of which, have reported a couple of negative quarters in last year. So, it held up a little bit better than the peers have but, yes, we did have a negative 0.1%, but really that was basically in line with our budget for the first quarter of 2015. We still think that we'll be positive of revenues by the end of 2015, it's not going to be a big number, but we think is in the 1% to 2% range for the year and we still think that that's doable. So the update would be for DC, it's really as we expected it to be, and we still expect a positive revenue contribution from DC for the full year.

Thank you. And then on your communities in the lease-up, they've been very successful and also it's in high-supply markets. So was just curious if you're seeing competitors not do too much in terms of concessions, or how you're having so much success there?

Sure. The new development is still very robust around the country, and when you think about concessions, it just depends on which market your in, and it depends on the sub market. Most merchant builders are very quick to pull the trigger on free rent. And the logic is you've got an empty building, so free rent is easy to give since all of your units are not paying rent the day you open. So most people put in, including Camden, at least a month free at concession on your lease-ups. So we have some markets, for example, like in Boca, for example, when we leased-up Boca, much faster than we ever thought, we gave very few concessions. And in the early part of the cycle there were really no concessions to be had. Today they range anywhere from two weeks free, or a look-and-lease kind of thing, to, in some markets, a month free to six weeks free. It just depends on the sub-market. But it's fairly typical and, even with those kinds of concessions, we're leasing-up at generally faster than we anticipated, but there are concessions in the market just because of the nature of them having an empty building they need to fill up.

Thank you.

Nick Yulico, UBS.

Thanks. Just going back Houston, I was hoping you could give a little bit more detail on where renewals and new leases are trending so far in the second quarter.

Yes. So for April in Houston, the new leases came in at about 1.7% up, the renewals came in at about 4%, so the weighted average of those two is just short of 3%. That trend has continued, it's actually gotten a little better on the renewals that have been sent out. They've been sent out any 4.5% to 5% range out into May and June. So slight improvement from the first quarter, but keep in mind that when we gave our forecast for Houston on our -- in our guidance call in last quarter, we graded Houston as a B market and declining. So I think that the market is kind of rolling out exactly as we had anticipated it in our guidance.

So it's stable, we're continuing to push occupancy. We've got occupancy in Houston, for the current occupancy is about 96%, which is higher than we would normally see this time of year. It tells me that at 96% occupied and still able to get 2% to 3% increases on new leases, that we're not under a whole lot of stress from an operating standpoint, but it's early in the year and we'll just have to see a the rest of the year plays out.

And just one other follow-up is, do you have any visibility yet on how the new graduate market's looking? Kids coming out of college, getting jobs. In Houston, I assume they'd be starting to look at apartments. Any insight on whether any of these bigger energy firms are starting to tell their analyst classes, don't bother coming, or any insight on that would be helpful. Thanks.

Sure. The new graduates are not as robust as they were, in terms of, say, if you go back a year, clearly, because the big energy was hiring really big. I think what's happening now is they are not pulling back offers or anything like that. And one of the most important news, at least for a family was my daughter, who graduated from University of Houston with a Masters in Geology in December, actually got a job with an oil field services company, if you can imagine that. So what's happening in having the conver -- I have a lot of conversations with oil and gas people here.

And while they're not hiring as many young graduates, they are -- what they're doing is they're not stop -- not completely not hiring, but what often happens. And I had a conversation with one of my people at a big integrated oil that I actually went to school, with and he's likely to get a retirement package. And basically, what he told me, was they're going to give him a retirement package and then they'll hire two younger people and save a third of his total comp.

That generally is what happens in these kinds of situations is you end up with more younger and less older. And if you think about the economy and the jobs we created since the downturn, somewhere in the tune of 60% of all of the jobs have gone to people 34 years and younger. So I think that trend is probably going to happen here in energy as well, where you'll see sort of older people getting packages and younger people being hired. So I think it's pretty good now. I was at a U of H event this week and I didn't hear anybody talking about people not getting jobs. So I think there's still a fairly robust economy around the petro-chemical business, the medical business, and the port.

Okay I appreciate that.

John Kim, BMO Capital Markets.

Good morning. If I can quote another U2 song, it looks like you're running to stand still in Texas regarding the higher property taxes. How do you feel comfortable that this won't happen again in 2016?

That's really one of the challenges that we have here for sure. Of course, our state legislature is in session, and they meet every two years because they don't want to meet every year because they might do something stupid. So they're actually talking about a $3 billion property tax cut in the state right now. And the challenge you have with where we are in property taxes here is that during the downturn we pounded on the values big time, and got them down pretty aggressively, and now are on the way up.

I think that the good news is that we've had substantial increases and the question will be can we fight those increases effectively? We generally have been very effective at that, and one of the things that I think you have to remember on property taxes, is that it's not so much about, is your property tax evaluation exactly what the current market value is of your property?

There's a fairness test, which means that if there are four properties in a line and your property happens to be assessed at a higher value as the one next to you, you can argue, even though your value may not be as right at your net asset value of the property, you can argue for a cut property tax reduction on a fairness basis. So with that said, yes, we're at risk with property taxes in Texas but, on the other hand, we've done it very good the battle in the area and hopefully will be able to do that again in 2016.

Okay. Thanks for the color. On your balance sheet you've been very consistent in using a very modest amount of floating-rate debt compared to your peers. Is this something that you can contemplate increasing and, in particular, how do you fund a $250 million maturity this year?

Yes, so obviously we do look at floating-rate debt quite a bit. We think for us, probably about 20% is the maximum amount that we would like to go up to. Obviously, we are under that number right now, so we do think we'd have the capacity to take on some more float. We do have a $250 million bond maturity in June of this year but, as I said earlier, we've got full capacity underneath our $500 million line of credit, and were sitting at about $174 million of cash. So we've got a lot of options when it comes to how do we handle that maturity.

On the flip side of that equation, with interest rates as low as they are today, when you can lock in a 10 year unsecured bond at 3.25% or 3.5%, five years from now that might look really good. So that's sort of the push and pull, right? You can really feast on incredibly low rates, but, on the other hand, if you lock up long-term debt at pretty historical lows, there's some compelling arguments about that as well.

Great. Thank you.

Alex Goldfarb Sandler O'Neill.

Good day down there. Just a few quick questions. First, on Houston. As we watch the oil price bounce around, you obviously hit a low of, what, close to $40 and now it's up in the mid-$50s, can you just help us understand how all your friends in the oil business view that? They seem a lot more long-term then finance firms seem to operate their business, but still it would seem like people are breathing a much better sigh relief now that oil is rebounded up, versus the lows that it was. But just curious if that's changed any of the talking, the chatter among your executive peers?

The interesting part of what's going on is that a lot of people thought there would be more carnage in that space. Right? You have more M&A, you have -- they actually, in the Houston Chronicle, publish what they call a death list, and it's companies that are on the edge, that levered up and were blowing and going and using short-term debt to finance their business and didn't have positive cash flow. So they made this list, and one of the top companies on that list that I think the stock price collapsed to about $1 a share and their bonds were trading at $0.30 on the dollar. Well that company, about a month ago, got a $1.5 billion infusion on a secured basis to take out their challenges and now they're sitting on -- sitting great and their stock quadrupled, it went from like $1 to $4, or something like that.

So what's happened here is that there's massive amount of capital that's been put -- that has been accumulated and that's sitting on the sidelines waiting for the big drop, almost like we were in 2009 and 2010. Then the big dropper, the big value or the free lunch, if you will, never came for real estate, obviously, and it may not come for oil and gas because there's so much liquidity and people are getting deals done, so there's not a lot of carnage there.

The people that are -- that have low debt and prepared for the cycle are very excited about having opportunities to deploy capital in a lower-cost environment. So on the one hand, people talk about great things happening or be able to buy things, but on the other hand, there's not a lot for sale. We do have these two big mergers that are going on right now with Shell and the BG Group, and you also have Halliburton and Becker Hughes.

So there are going to be some divestitures around that. And the discussion that I've heard with some of the people that are close to it, they said they have buyers lined up to buy that and they think -- to buy their assets, and it's going to be a very robust pricing. Probably a lot less robust than it was a year ago, when the price of oil was $100. So I think part of the issue is there's just a huge amount of liquidity and capital so there's no capital shortage and, therefore, you don't have a lot of wounded companies out there, or others trying to get -- trying to -- others that are really trying to make a deal.

Okay. And then the second question is, on the property tax, you discussed Texas a bit, but broader, when you think about Florida and some of the other heavy property tax states, how much of a mark do you think still exists in your portfolio between where -- as far as the big true-ups? Do you expect still a lot more or, in your view, most of the assessors have taken your properties to market?

Obviously we evaluate that constantly. I think we have a very good team that contests all of these taxes on a regular basis. Certainly, tax assessors have been getting more aggressive in some of these markets. But Florida, in particular, we've done a pretty good job of keeping them in check, and it's not a market that we look at and think there's a tremendous amount of risk. The bottom line --

That's a hard question to really answer because the problem is is that net asset value, or the value of a property, is interesting in the discussion but not what really drives the taxes discussion. What drives it is the relative valuations of the properties in the market place that you're comparing yours with. So most of the properties are probably substantially under their market value. The question is, how much are you under the market value compared to your competitors across the street, and that's where you negotiate.

You're not obviously giving 2016 guidance, but if you're raising the impact of real estate taxes this year, we saw the same thing with Post where they've been hit with that successive years. Is this something you think is going to be an issue over the next few years? Or your view is this one-time pressure is more this year and otherwise it's just normal property tax?

Since property taxes are one-third of our operative cost, we're vigilant and we are focused on this every single day with our teams in the field. Assessors want to have values going up. The good news is, is we get hit sort of regionally. What will happen right now Texas is getting smacked, and a couple of years ago Florida was. And so it's always going to be something that we're worried about, whether it's above trend. Next year it's likely to be above its long-term trend of 3%, but will it be 7%? We hope not, but I'm not sure what the numbers will look like in 2016. The key is making sure that you're constantly on and you have the best people focused on it, and we have that.

Thank you.

Rich Anderson, Mizuho Securities.

Thanks. Good morning there. So Ric, does anyone care right now about West Texas being of 11% this year, up 40% from the trough? Is that having any impact on business in Houston, or people are writing that off for the time being?

It does have an impact, because when you think about companies that have debt, and their debt is tied to the value of their production and the value of the assets in the ground, it's important to them because they have more value when you relate -- when they start marking their assets to market and then compare it to their debt. So it is a big deal to have it up $10 or $11, and I think the biggest issue that most people in the oil field want, they just need less volatility. They want to make sure that if they get $60 oil, or $58 oil, they can live with that as long as they believe that it's not going to $30.

Rich, I think just to add to that, the stat that probably is more directly impacting and impactful is not necessarily the gyrations and the price of West Texas crude, it's the drilling rig count. And so that is probably a more meaningful thing to watch in terms of directional impact on the overall economy. And we're down now at 932 rigs which is about half of what we were a year ago, but the rate of decline in the rig count has slowed pretty dramatically. I think the last decline, weekly decline, was 20 rigs or so, and at one point, we were dropping 75 to 80 rigs on a weekly basis. So I think watching the rig count over the next quarter or two is probably more telling to what the prognosis for the oil patch in Texas is going to be throughout 2015 and into 2016. Assuming that oil stays approximately in some band around $45 to $60 a barrel, the more interesting thing to watch is probably rig counts.

Because it is forward-looking, you mean?

And also because it directly impacts the employment. When the rig stops drilling, there's a great quote in the Wall Street Journal the other day that basically -- it said something, I'll paraphrase, that the probability that you lose your job is directly related to the proximity of your job to an oil rig. So that's something -- there's just a lot of truth in that.

So when you think about all of the layoffs that have been announced, not all of them, but substantially all of the layoffs that have been announced in the oil field services companies and the majors, have been in the oil patch and the oil field workers, and that -- those people are not in Houston. Now ultimately there is a flow through. You can't have a 50% drop in active rigs and not have a derivative impact on Houston. And where we are in finding out how big that's going to be, I think that's what's causing the bid/ask spread of zero jobs to 60,000. People are grappling with that.

The decline in rigs is also a driving force to pushing oil prices up.

It is, but it's less than what you might think because if you think about it, you're talking about drilling rigs dropping 50 on a week-over-week basis. That production does come on pretty quickly, but it's in the scheme of world oil supply, it's a drop.

The other challenge with supply dropping is that the fracked wells, both in Texas and in North Dakota, once they drill them, they deplete really fast. Something like 45% to 50% in the first year, which means that they bring that oil out really fast. So you still have, even though the rig count drops, you still have production ramping up because they're bringing that oil out really fast. I have heard, anecdotally, that people are now drilling wells, testing them out and then capping them, and waiting for lower all prices, rather than bringing the oil out, selling it and then having to store it in Oklahoma. So that's been an interesting situation now where they're drilling and capping.

The tankers are waiting offshore to get a better price.

Okay, and then my second question is, assuming the impact -- the real immediate impact of all this, and has been is on the office sector. And assuming someone who loses their job doesn't call Ric Campo and given the bad news, I'm leaving my apartment, I think that that's more of an extended impact on your business, in the multifamily business. So if this kind of stays status quo and 2016 is a decline from 2015, and you've talked about recycling capital, why wouldn't you -- and you talked about the bid in Houston still -- why wouldn't to be more inclined to be a seller in Houston today, before that 2016 impact?

Well I think it's all about, at the margins we've sold assets in Houston. It doesn't make sense to me really to sell the assets that we have here. When we look at our asset pricing model and we rank our assets and we rank which ones in our portfolio are the right ones to sell. Houston is not even in the top -- in the bottom third in terms of return -- the forward return on invested capital growth rate. And so to me, I look at our portfolio globally and I don't react to and try to time markets. Because will be long real estate 100% of the time and I want to be long the right properties in the markets that we are going to be in long-term, and we want to sell the properties that are going to grow slower on a return on invested capital. And that is on real cash flow, on AFFO, and we have other assets in our portfolio that are just higher priority sells.

Understood. Thank you very much.

Jordan Sadler, KeyBanc Capital Markets.

Hello guys. Question, it's been a while since you guys have been involved in the M&A game, but obviously have had an appetite historically. I'm curious where we are in the cycle, and just the opportunities that seem to be out there. What is your current latest taking on the environment?

I think it is fun to watch. But we have been involved in M&A and we focus -- when I think about buying a company or doing M&A, it's all about, is it a strategic opportunity that improves our ability, our long-term growth in our NAV, in our cash flow, or -- and that's one type. And the other would be tactical, which doesn't really change your world, but it improves the quality of the portfolio, the growth rate going forward, and things like that. As long as you can do it leverage-neutral and you did it on -- and we did it on a way where it was not significantly diluted, then great, let's do it.

I think the problem that you have today, or the challenge with company-to-company M&A, is when you think in our stock price, our currency isn't a great currency right now to swap with somebody else given that we're trading a substantially below our net asset value. So it's hard to go by somebody and pay them a premium at NAV and then give them our stock at a discount to NAV, that doesn't make a lot of sense to me. So when you get down to the whole M&A issue, M&A tends to be socially driven, and not necessarily because somebody wants to sell, so I think there's a lot of social issues around it. We have been successful in the past. Everything we've ever done has been strategic, that has created value for Camden and shareholders long-term. And if we saw something like that and it worked financially, great, but I don't see a lot of it. And what do we have, like 9 companies left, out of 35? Since, what, the last 20 years. Interesting --

Is getting slimmer.

It is.

Hello guys, it is Austin, works from here with Jordan. You've talked in the past about construction cost declining across DC and potentially Houston, and you started a new project in DC this quarter. Would you guys consider any starts in Houston or is that stable for now?

We have a construction start in Houston we did last year, which was at the end of last year, which is McGowan Station. We do think that construction cost is going to be coming down in Houston. Our McGowan Station project has a fairly long lead in terms of being able to go -- to start our building. We're building a 400 space parking garage and a cap for a park, a 3-acre park adjacent to the property, which will take us probably into the fall to get to the point where we're actually going vertical on our building. So we are going really slow on our buyout on that job, and hopefully we'll be in a situation where we can get some favorable pricing later in the fall and towards the end of the year. But I do think construction costs are going to come down here.

When you look at office buildings, for example, there is 17 million square feet under construction right now. And there very likely won't be a lot of a speculative construction going forward. A lot of that stuff, 4.5 million square feet of the 17 million square feet is Exxon's new facility up in North Houston, and that's almost finished.

So what's happening is the construction workers that are working on those jobs, and the construction contractors, are looking on the horizon going, where's my pipeline? And the pipeline is going to shrink pretty dramatically. I think the same thing's going to happen with multifamily here in Houston. If you don't have it -- if you don't have your project financed today, it's highly likely that you're not going to get it financed. So with the pipeline that we see today, what's coming on-line in 2015 and 2016, is you're going probably see a significant drop, at least 50% drop, from 2016 to 2017. And that could -- that should have a -- the downward pressure on construction cost when construction companies today are at premium margins and we need to get back to more normal margins.

So just to be clear, would you start another one in Houston this year?

Probably not. We have one that we started and I think we -- we have two tracks of land in downtown. The downtown market is really robust and doing well, but even if we wanted to start it this year, we really couldn't, because we're not finished with plans and what have you. It could be a 2016 start, but we'll watch the market and make sure that our timing is right on that.

Good. Thanks for the talk.

Vincent Chao, Deutsche Bank.

Hello, good afternoon everyone. I just wanted to stick with Houston here, if we're at 3.9% today, and it sounds like 3.5% is sort of the expectation for the year. I guess would you expect the number to end the year at the lowest level, or do you think we'll bottom out sometime in 2015 and potentially have the opportunity to see that go back up again in 2016 or towards the end of 2015?

So my guess is that you would draw a straight line from 3.9% down to a mathematical average of 3.4%, because the timing of the supply. Then the wild-card on that forecast gets back to the job's number, whether it's at the bearish end of the spectrum or more towards the bullish end of the spectrum. But, yes, what we are seeing a right now, and what's happening in Houston, is completely in line with the plan that we laid out. Because when we laid our plan out, the 20,000 -- 22,000 apartments that are going to be delivered in 2015 were 100% knowable.

Now there's been a little bit of shifting in timing of the delivery of those apartments, just because contractors haven't had enough labor to get the units turned, but they're coming, and it's pretty easy to identify where they are and where the impacts going to be. We did that on a sub-market by sub-market basis around our communities, and we think we have properly anticipated, and gotten a fence around, the supply impact and then you're left with the question of demand and growth.

Okay, that makes sense. Maybe just another question, a little bit of a different slant here, but obviously you're long-term positive on Houston. You've got a little bit -- you got some additional land tracts there that you mentioned, but I was just wondering, you made comments that cap rates really haven't moved on income producing, was just wondering of land prices have changed at all and if you'd have any interest in picking up some additional land in Houston?

Land prices have changed some. They went from white hot to hot. And if there re opportunities in a big land -- people selling land at a big discount, we might look at that. I think you haven't seen any bargains or anybody in trouble. You have a classic situation here where people expect -- you have the job losses and everything that everybody talks about Houston about and then they go, well let's go find some value. And guess what, there's really not -- there's no value anywhere. Value is defined, I've got to find somebody who's down on their luck and willing to sell me a property at $0.50 of the dollar. Properties, that land for example, that was going for silly numbers like to $200 a foot and up from $100 a foot, now it's $150 a foot, but it's still pretty high, and it's still need -- and in order for that land to be utilized properly in a development, you'd still have to build a very high-end product, very dense, and what have you. So there really is not a lot of value opportunity there. Our guys are definitely looking, we're trying to find some of those things, but we still see land that was under contract closing at really high prices here. So there really not a lot of great value. We are searching for it.

Okay. Thank you.

Drew Babin, Robert W Baird.

Morning. Quick question on the way supply is kind of shaping up in 2017 for DC. Based on what I'm looking at, it looks like things trail off a little bit in 2016, but hearing rumblings, and there may be some supply coming in 2017. I was hoping you could talk about, I know it's early to kind of pinpoint a number, but where that supply may be coming, especially relative to Camden NoMa.

So our forecast for new supply in DC and, this year is about 11,000 apartments. We've got it coming down to about 7,000 next year, and then if you -- the numbers out 2017, which are must less reliable, are also around 7,500. That's -- if you get the kind of job growth that we're currently forecasting for the DC Metro area, which is in the 40,000 to 50,000 apartments. 11,000 of new supply is not a really troublesome number if you get the 40,000 and 50,000 jobs. And then if you -- as you look out into the 2016 and 2017 timeframe, unless something changes pretty quickly, that 2016 number of 7,500 apartment is going to be fairly reliable. And then, in that case, for equilibrium you need to create another 30,000, 35,000 jobs in DC Metro. And I certainly hope that that would be something that -- a number that we could surpass if we get some kind of recovery in the DC Metro area. 30,000 to 40,000 in DC Metro area is still fairly anemic relative to the long-term employment growth in that whole region. So I think the real -- the wild-card is still on the employment side of things. Right now, completions look like they would be fairly manageable in DC Metro.

Any indication at this point, in terms of sub-market within DC Metro, on where the supply is more likely to be concentrated?

Well, you've got a fair amount of construction going on right now in the District, but that is historically isn't in the area that's been the strongest in terms of bringing in new people to live in the district. That's just where people want to live, because of a whole host of reasons. Then the historical rent gross has been better there. Our -- when we look at DC Metro and we kind of --and we look at it property community by community when we came up with our game plan for 2015, with our operating teams. It's really not sub-market related in terms of Northern Virginia's Maryland versus DC proper. It's really sub-market driven with regard to new supply. So if you have a community that's got two new lease-ups that are considered comparable and are in the same sub-market, that community is going to struggle with lease-up. It doesn't really matter whether it's -- what part of Northern Virginia it's in, or what part of DC Metro it's in. So it's more a matter of find out where this new supply is coming on-line, and that is likely to be where the pressure's going to be. It's certainly been that case for our portfolio.

Great, that's helpful, thank you.

Ian Weissman, Credit Suisse

Hi guys, this is Chris for Ian. Just curious if you could update us on the shadow pipeline on NoMa to put you at $115 million into your $100 million to $300 million guidance. It sounds like you've tabled Shady Grove (inaudible) until 2016, are you done with starts for the year, or do you think that Buckhead or Atlantic will come online this year, or start? Thanks.

On NoMa, there are definitely two or three other projects, including Avalon Base Project, which is right across the street from ours. And we -- NoMa is an interesting case, because NoMa, if you think about it three years ago, NoMa was a place that was kind of nowhere. And all of a sudden, now you have a robust, walkable area, very high demand. We leased-up NoMa Phase 1 ahead of schedule and ahead of budget on rents and returns. So we really like the Phase 2 investment, and we like NoMa long-term. I think it's going to be fine there with the number of apartments that are coming up. It's not over-committed, or over -- there's not too much to absorb, I don't think. Especially when some of the additional improvements are done in the NoMa area, it's very good.

And just to clarify, Shady Grove has not been shelved as a 2015 start. (multiple speakers)

Yes, the second question was Shady Grove, and Shady Grove is a start for 2015.

And if you add those two together, that's roughly $200 million, and that's kind of the mid-point of our guidance range of $100 million to $300 million starts.

The Atlanta deal is probably a 2016 start, not a 2015 start. And if you look on our pipeline on page 17, you can see there are four in the pipeline, and Shady Grove is one of them, and the other three are likely to be either end of -- sometime in 2016 or even 2017, depending on how we feel about Houston.

Got it, I think I misunderstood your last comments, okay. So just going back to DC quickly, you talked about how supply in different sub-markets affects rent gross. Just wanted to talk about what you're actually seeing on the ground right now. We've heard from some of the peers that the CBD is actually kind of catching up with the suburban markets. What are you seeing in the different sub-markets of Washington DC?

So actually in the, since the end of the quarter, I think I gave you the April new lease and renewal numbers for DC, which are really pretty good. We're at 2.3% on new leases, 4.3% on renewals, and that's a weighted average of about 3.2% and that was for actuals in April. Our renewal offers that have gone out in the entire DC Metro area, that go out into through May and June are actually have gone out at about 4.6%. So that -- and I also think I shared with you, our occupancy rate, with it currently -- it's currently a little bit above 96%. So we were 94.7% occupied in the first quarter, there are a whole lot of reasons for that, but obviously the weather was atrocious in DC. But, not withstanding that, we're back at 96% occupied and our new lease and renewal numbers are stronger now than they were in the first quarter. So all that sounds a lot more constructive to me, and I think that that's why we still feel like, despite the 0.1% down in the first quarter on revenues, that by the end of the year, we're going to have a positive revenue number for DC Metro.

Okay, thank you very much.

David Siegal, Greenshoot Advisors.

Hi Steve Bragg with a quick one before David goes. The questions is, just following-up on your comments that you trade -- you think you're stock is at a substantial discount to NAV, and you seem to have a lot more conviction and outlook for asset values in Houston than the public markets do, so why not repurchase shares right now?

Well, we've always said that we are -- we would repurchase our shares if they were at a substantial discount for a reasonable period of time. The challenge that we've had this year is that he volatility has been kind of wild, right? $82 to $72 to $79 to whatever it is today, and the challenge -- so to me the issue is we need to sell assets and then buy the stock if we're going to that. And we need to make sure that it's -- that we have a period of time to be able to do it in, and we just haven't seen that opportunity, it's been so volatile. But if we have a period of time where we have the ability to sell assets and buy the stock and it's at a substantial discount, we'll do that.

Okay, and based on your past experience doing this, and we all know you've been an active buyer of your own stock in the past, how much time does that usually take?

Well it's got to be more than a week or two. That's kind of what we've seen, or maybe a month. So to me, the other challenge you have, is you have these long blackout periods where you can't buy either, right? Somebody will say, are you buying your stock right now, and we have only certain windows in time that we can actually do that with blackout periods. So to me it's got to be persistent, it's got to be more than a month.

Is it fair to assume, given the significantly better value seen in your stock then in the transaction market, you've put any of your acquisition plans on hold for now?

Well we have $450 million to spend in the fund, so no, we haven't put our acquisitions from the fund on hold. If you look at our history, the last three years we've been a net seller of property. The question will be whether we are going to continue to be a net seller of properties. So clearly to me, the think that's attractive to trading assets in the capital recycling part, is that we've been able to trade older, 20 plus year-old assets, for newer assets at a very, very low spread to -- negative spread to real cash flow, or AFFO. To me, that is a good think to do in an environment like this. Generally, the spread between older assets and newer assets has been very wide, and we're at really historically tight spreads there. So we will continue to try to turn those assets that way and increase the quality of the portfolio, increase the rents, increase the -- or decrease the average age. So we may do some of that as well, but that wouldn't preclude us, if we had the opportunity with a reasonable amount of time, just to sell assets and buy stock, either.

Great. This is David Siegal. Can you talk about the difference in performance between your urban Houston assets and some of your suburban Houston assets? It looks like the higher price-point, more urban located properties had slower rent growth. I'm curious if you could just kind of talk about that.

It's interesting, it's something that we do look at, and if you go back over a four year timeframe, the difference in the As and Bs is rounding. There are points in time, and right now is one, that there's probably more pressure on the urban stuff. But I don't think that's a function of product type or mindset of the renter or the choice that they are making. I think it's as simple as, that's also where most of the new supply is coming online.

So my thesis is that it's always more instructive to look at where the -- in a market that's growing supply, look where the new supply is and that's likely to be where you're going to get an impact, a disproportionate impact on the ability to raise rents. It doesn't mean that people's attitudes have changed about where they want to live, it just means there's a ton more under construction and being delivered in the urban areas, which is flowing through, in some cases, to our urban communities. So I don't think it's -- I think I would say that's the distinction in the marketplaces, there's just more supply.

Yes, it's a cycle today, or clearly the urban properties are under more pressure than the suburban properties. So very simply the As are definitely going to outperformed the Bs, and that's exactly what happens in this cycle. That's why we also have a diversified product-base within our portfolio of a fair amount of Bs and As and we like to keep them that way so that we have a balance so that were not sitting all in the urban core, and then when the market gets to where it is today, we end up suffering more than having a balanced portfolio.

Great. And last question, do you expect the rents on the NoMa Phase 2 to be comparable with Phase 1 and what kind of yield are you expecting for that development?

Sure. We think they're going to be higher than, but slightly higher than, because new paint is always more expensive than old paint and NoMa 2 will be a couple years old we are finished. And our yields are very robust, the yield we have is interestingly on NoMa 1 is and 8% plus or minus, I think our NoMa 2 is projected at 8%, I think maybe we're at 7.5% plus or minus on NoMa 1. So the thing that's interesting about it, people love to talk about to DC and the lack of rent growth, but, on the other hand, we can develop $115 million project and have an 8% yield in a market where you can sell them at sub 5s, that creates a lot of net asset value.

Great. Thank you.

Tom Lesnick, Capital One Securities.

Hello, thanks. Most of my questions have been answered at this point but Ric, I just want to ask about the big picture geographic investment allocation decisions. In the context of Vegas do you see Houston, and the recent development push with Austin, LA and Charlotte, can you shed some light to the extent that you can without disclosing something proprietary? The process by which make those geographic allocation decisions, and what is the lead time with which you are making them?

Sure. So every budget cycle we go through a massive review of each market, and we do it within the market, we rank assets within that market, and then we look at a broad macro view going forward. So it's always interesting to look backwards, but forward is more important in my view. So we look at where the growth is going to be over the next two or three years, and where we want to position our assets from that perspective. And then we make decisions on development starts, acquisitions, dispositions, along that cycle. We do review this every quarter, as well, and each market gets its analysis from a macro perspective and then we drill down into the sub-markets, and that's how we make our long-term decisions on what we're going to sell, what we're going to buy and what we're going to build.

Alright. Fair enough. Thank you.

Dan Oppenheim, Zelman & Associates.

Thanks very much. I was wondering about the renewals. You're talking about 7.5% in May and June, but also talking about 4.5% in Houston, so presumably everything, ex Houston, is closer to 8%. I'm wondering if you're doing that also in April, what you're seeing in terms of retention, if you think that puts the retention at any risk, a few comments early on about this being a second lowest turnover you've seen. Do you think you can get 7.5% and keep turnover that low, or does it start to creep up as the year goes on?

So on the 7.5%, that's the rate increase that the rentals go out at, and we typically, through the process of conversations, end up losing about 100 basis points on that. So you can -- the 7.5% renewal probably turns into 6.5% on executed renewals. That's portfolio wide. So to back up to your April question, new leases were up about 4% in April across the entire portfolio, renewals were up about 6.5%. So May, June, ought to look a whole lot like April, which was a darn good month. Does that answer your question?

Sure. And in terms of the turnover, you're expecting with that level of renewal increases, we see turnover stay this low?

I think the 43% is an unusually low number, and our turnover rate is always lowest in the first quarter, so throughout the year that will trend back up. But from a 43% versus 48% in the quarter last year, I think clearly we should be, on the year, we're going to be less turnover than what we had in 2014. But that's the number in 2014, if I remember right, was about 56% plus or minus, on turnover. So maybe that number is 52%, 53%, but yes, it will trend because it always does throughout the year.

Right, but only seasonally. You're not expecting that the higher rent will push some turnover?

We have not seen that in April, nor have we seen in the renewals that have gone out in May and June.

Great. Thank you.

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

Okay great. We really appreciate you being on the call today, and we will see you at May read. Thanks.

Thank you. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect.