Camden Property Trust (CPT) 2015 Q3 法說會逐字稿

Good day, and welcome to the Camden Property Trust's third-quarter 2015 conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the call over to Kim Callahan. Please go ahead, ma'am.

Good morning, and thank you for joining Camden's third-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 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 third quarter 2015 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 the call.

Joining me today are Rick Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, President; and Alex Jessett, Chief Financial Officer. 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'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 Rick Campo.

Thanks, Kim, and good morning. Let me begin by congratulating our on-site and support teams for delivering a package of solid results directly to our shareholder's and resident's front doors. For the third quarter your hard work has supported an increase in our same-store property net operating income guidance.

Our development, redevelopment, and construction teams continue to create value for our company. Our $1.1 billion development pipeline will add nearly $350 million of value to our shareholders when completed and leased. We will again be a net seller of properties in 2015, as we were in 2014. Pricing in the acquisition market remains robust given the wall of capital that continues to bid for apartment properties in all of our markets.

Since 2011, we have sold over $1.7 billion of 22-year-old properties that have lower revenue growth potential and increased capital expense requirements. This represents a 20% turnover of our portfolio in a very short timeframe increasing the portfolio quality, revenue growth profile, and lowering capital expenditures. Our capital recycling program will continue in 2016 using sales proceeds to fund further development costs.

The use in apartment market, while slowing, continues to perform at our expectations for the year. Demand is holding up well, given the flat job picture. Apartment fundamentals are strong or improving in all of our other markets and are likely to be above our long-term trends for 2016.

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

Thanks, Rick. At the beginning of this year, we found ourselves in familiar territory as we begin rolling out a solution to a challenge facing the multi-family industry. It's just the latest example of Camden leading the way in our industry.

In 1998, we were the first multi-family company to build residents for water usage, an initiative that promoted water conservation. Although controversial at the time, today the vast majority of apartment communities have followed our lead. In 2005, we were one of the first company's to roll out a system-wide revenue management solution. In 2006, we implemented our bulk cable option, which continues to provide significant savings to our residents compared to their one-off retail substitution offering.

We are in the process of rolling out bulk high-speed Internet with additional savings to come for our residents. Earlier this year we communicated with the largest package carriers that we wanted to begin offering our residents the same service single-family homeowners enjoy; front door delivery. Based on the local and national media coverage of our approach to package delivery, it's clear that there are misconceptions that need to be cleared up. So first, a little background.

The number of on-site packages delivered to our communities has grown from a handful a day 10 years ago, to an average of 150 per community, per week. We handled a total of 1 million packages in 2014 and that number is growing by 30% to 50% per year, and there is no slowdown in sight.

A few years ago we began getting requests from our on-site teams for things such as new package tracking software, package locker systems, and additions to staff to handle packages. While we were evaluating these requests, the response of our on-site teams was merely to work harder and longer to improve the package dilemma for our residents, but we were losing the battle.

Before we started trying any of these new ad hoc solutions to package handling, we decided to make sure that whatever policy we adopted would meet three key objectives. Number one, it would provide the best customer service to the greatest number of our residents. Number two, it would have to free up our on-site staff time from package management, so they could get back to property management. And number three, it had to be a solution that was scalable and could withstand a 5 times increase in volume or, in our case, up to 5 million packages per year, which is very likely where we are headed over the next 5 to 10 years.

So we studied the study the package problem for six months, including all currently available package solutions in the industry, or solutions being proposed by vendors. After doing this, we concluded that there were three classes of customer service solutions at apartment communities that didn't have a 24/7 concierge service option. Camden has 11 high-rise communities with 24/7 concierge service, and they were not included in this rollout.

We identified a first-class solution, and that is the delivery of a resident's package directly to their doorstep by the best package delivery companies in the world, using state-of-the-art tracking software with complete transparency regarding date and time of delivery. This is a service that I enjoy at my house. I suspect that many of you also enjoy this first-class solution at your homes.

We also identified a second-class solution. This occurs when the carriers deliver packages to an intermediary, in our case a management company, which takes possession and then engages their personnel in completing the delivery through a variety of ways. Some use package rooms, some use package lockers, and some use neighborhood distribution centers made available by the carriers. While not as good as first-class service, because residents still had to go retrieve their package and transport it back to their home, at least the residents had better access to retrieve their package at a time of their choice.

Finally, we identified a third-class solution. A management company takes possession of the package and holds it hostage in their office until the resident can get around to picking up their package during office hours. For many residents this was a poor solution.

Unfortunately, this was the Camden model, which is why our efforts to solve this dilemma internally became known as package-gate. Not only were our customers limited to office hours to pick up their packages, we were compounding the problem by having our staff spend more and more time shuffling packages instead of attending to our resident's other needs.

As we studied the second-class solutions, it became clear that no matter which of the options we adopted and no matter how good we got at executing them, we could never achieve the original three objectives we set out. The solution that we ultimately adopted was a hybrid of first-class and second-class solutions: Work with the carriers to allow easy access to deliver packages directly to the doorstep of our residents, and provide those who, for whatever reason, preferred not to have doorstep delivery with information on how to direct their package delivery to the carrier's closest dissolution centers.

As always, with any new initiative, we did a pilot. We piloted the program at 11 communities, and we got really good results. And then we rolled it out to the entire district, then a region, and then ultimately throughout the entire company. The rollout was completed this summer.

The results so far, we estimate that over one-half of our residents now enjoy first-class service. And we think that percentage will grow over time as neighbors see and hear the excellent results they are enjoying by having packages delivered directly to their doorstep.

The most common reason we heard for reluctance to opt for doorstep delivery is concern that their package might be lost or stolen. Our results so far show this fear is largely unfounded. Since we adopted this hybrid approach an estimated 500,000 packages have been delivered to residents doorsteps, and we have not seen an increase in reports of packages being lost or stolen.

The response from our residents was predicted by our pilots and our initial rollouts. The majority of our residents are fine with the new approach. This isn't surprising, since we were moving all of them from third-class service to either first-class or second-class service.

Despite this, not everybody was happy, and there was a small but vocal minority of residents who preferred the old approach. Change always creates anxiety. And even after several months to as long as one year on the new plan some residents remain unhappy.

Last week a few of them had the opportunity to share their opinions on local and national news. I'm not sure why the media got so interested in a change in how we handle packages, but they did. Finally, we have 100,000 plus residents and as of last week, we are not aware of more than a handful of resident communications to our on-site staff that the resident would not be renewing their lease due to our change in package handling.

All of our on-site policies are designed to provide leading excellence to the greatest possible percentage of current and future residents. Our expense over last year with our package delivery policy indicates that we are achieving that objective.

We're always looking to improve our customer service, and if a better solution for package handling comes along, regardless of whose idea it is, we will adjust our policy accordingly. In the meantime, we will continue to support the carriers who are providing first-class delivery service to the majority of our residents. In addition, we'll continue to look for better ways to provide second-class service to our residents who don't choose the doorstep delivery option.

We are well past worrying about how many of our residents might leave because of our improved package policy. We are focused on how many residents are more likely to stay or sign new leases with us because we offer them the first-class experience of having their packages delivered directly to their front doorstep.

Meanwhile, back at the ranch, operating conditions across our portfolio remain strong. As we posted the best quarterly revenue growth in nine quarters. Same-store revenue growth for the third quarter was 5.5% with all markets except Houston and DC over 5%.

Our top five markets exceeded 8% growth: Denver at 9.3%; Phoenix at 8.5%; Atlanta, 8.4%; San Diego/Inland Empire, 8.3%; and Dallas at 8.2%. DC and Houston performed as expected for the quarter with approximately 1% and 3% revenue growth. All markets performed well sequentially with 2.1% revenue growth over last quarter.

New leases for the second quarter were up 3.5%, and renewals were up 6.9%, both 20 basis points better than that this time last year. October new leases and renewals are running 1.1% and 6%, and November/December renewals offers are going out at about 7.3%. For the third quarter, occupancy averaged 96% versus 95.9% last quarter, and 95.9% in the third quarter of last year.

Year-to-date our net turnover was 3% below last year at 53% versus 56%. Move outs to purchase homes fell in line with seasonal trends at 14.2% versus 14.8% last quarter and basically flat with a year ago.

Our on-site teams continue to outperform their competitors, as well as their budgets. Keep it up. Finish strong. We'll see you soon.

I will turn the call over to Alex Jessett, Chief Financial Officer.

Thanks, Keith. Last night we reported funds from operations for the third quarter of 2015 of $104.4 million or $1.14 per share. These results are in line with the midpoint of our prior guidance range for the third quarter of $1.12 to $1.16 per share.

For third quarter, total property revenues exceed our forecast by approximately $900,000 or $0.01 per share. With half the variance coming from our same-store communities, and half of the variance coming from our non-same-store and development communities.

Fee income continues to be favorable to plan driven primarily by higher occupancy and additional pricing power which enabled us to collect higher net fees at move-in. This positive variance was entirely offset by higher than anticipated property level expenses related to higher employee benefit and healthcare charges and the timing of property tax refunds we now anticipate during the fourth quarter. All other line items for the quarter were in line with expectations.

Our new Camden technology package with bundled cable and Internet service is rolling out as scheduled. And for the third quarter contributed approximately 30 basis points to our NOI growth. For the year, this initiative has added 50 basis points to our same-store revenue growth, 100 basis points to our expense growth, and 20 basis points to our NOI growth. We now have approximately 20,000 units signed up for our technology package, and the program is performing in line with expeditions.

Based upon our year-to-date operating performance, we have revised upwards and tightened our 2015 full-year revenue, expense, and NOI guidance. We now anticipate full-year 2015 same-store growth to be between 5.1% and 5.3% for revenues, expenses, and NOI. The new midpoint of 5.2% for both revenue and NOI, represents a 20 basis point improvement.

We are increasing our expense midpoint by 20 basis points as a result of the previously mentioned higher than anticipated levels of employee benefit and healthcare charges we recognized in the third quarter. We've also revised our full-year 2015 FFO per share outlook. We now anticipate a 2015 FFO per share to be in the range of $4.51 to $4.55 versus our prior range of $4.47 to $4.57 representing a $0.01 per share increase to the midpoint. This results mainly from higher same-store NOI growth now expected in the fourth quarter.

Our revised full year 2015 FFO guidance assumes no additional real estate transactions in the fourth quarter. Last night we also provided earnings guidance for the fourth quarter of 2015. We expect FFO per share for the fourth quarter to be within the range of $1.17 to $1.21. The midpoint of $1.19 represents a $0.05 per share increase from the third-quarter 2015.

This $0.05 per share increase is primarily the result of the following: A $0.065 per share increase in FFO due to growth and property net operating income comprised of a $0.03 per share increase resulting from an approximate 2% expected sequential increase in same-store NOI driven primarily by our normal third to fourth quarter seasonal decline in utilities, repair and maintenance, unit turnover, and personnel expenses and the timing of certain property tax refunds. A $0.02 per share increase resulting from the NOI contributions of our five developments in lease up, a $0.02 per share increase resulting from the normal to third to fourth quarter seasonal increase in revenue from our Camden Miramar student housing community. And a $0.05 per share decrease due to the lost NOI from our recently completed $33 million disposition. This $0.065 per share increase in FFO will be partially offset by a $0.015 per share decrease in FFO as a result of a planned fourth quarter bond transaction.

Turning to the capital markets. During the third quarter we completed the refinancing of our existing line of credit, increasing our borrowing capacity by $100 million to $600 million in total, extending the maturity date by four years, and decreasing our borrowing spread by 20 basis points.

Although our current plans for the fourth quarter contemplate a new $250 million,10-year bond transaction, we are flexible to the exact timing of an issuance. We are monitoring bond market conditions closely and may complete this issuance this year or early next year.

Currently we estimate that all in,10-year bond pricing for Camden will be in the high 3% range. Our balance sheet remains strong, with debt to EBITDA at 5.4 times, a fixed charge expense coverage ratio at 5.3 times, secure debt to gross real estate assets at 11%, 78% of our assets unencumbered, and 84% of our debt at fixed rates.

At this time we'll open the call up for questions.

(Operator Instructions)

Our first question today comes from Nick Joseph of Citigroup.

It's Michael Dorman here with Nick. Rick you talked a lot about the private market and acquisition pricing being robust. We've clearly seen some M&A deals and larger portfolio transactions.

I guess how aggressive are you going to be to try to narrow this gap between your stock your NAV? How much of the company would you sell? Would you entertain a sale of the company? I'm just curious how you're going to take advantage of it?

We clearly have taken advantage of upgrading the quality of our portfolio by selling a substantial amount of assets into this market and redeploy the capital into either development or acquisitions and also lowering our debt profile pretty dramatically over that period of time as well. So does make a lot of sense to take advantage of the acquisition, the high bid prices that are out there, and we will continue to do that.

As far as selling the company, when you get into the discussion of that kind of thing -- so the question about whether you want to sell your company or not is really a function of -- you think the value proposition, the spread between the NAV of the Company today, and the current stock price, is a permanent issue because of something wrong with the company.

For example, if people don't trust management, or there's just a fundamental chasm between the public markets and the private markets. But generally, over the 22 years that we have been in this business, we have found that those times are around but they generally aren't permanent. Generally the markets, or the spread between NAV and prior market value and stock prices, narrow over time if you do the right thing, which is continuing to allocate capital properly during these market times, and then making sure that you are executing above and beyond what the private market is executing on from an net operating income expense perspective.

We tell our people in the field we want them to exceed the market conditions, outperform their markets no matter what the market conditions are. As long as we do that with the management team, we keep our debt low, we focus on executing in the field every single day, the gap between our stock price and our NAV will narrow over time. If we didn't think that it would narrow, and it was a permanent -- investors didn't want to invest in rate stocks and there was a long-term permanent disconnect, then we would clearly look at making sure that we harvested that value for shareholders.

Thanks. And then -- this is Nick here. You mentioned that almost all of your markets are stronger, improving, and that you'll see above long-term trends in 2016, except for Houston, obviously. So what are your expectations for Houston revenue growth both to finish in 2015 and looking ahead to next year?

Nick, we still think we'll finish in the 3% range for Houston this year and with regard to next year, we're just in the process right now of doing our ground-up budgets and once we get numbers from the field, we are very much decentralized as relates to our budgeting process. We give guidelines, but ultimately our operators in the field have the best intelligence and do the best job, given the information that we provide them with, and coming up with their budget. We'll see what comes out that process in the next 30 days or so, and then we'll put together a plan for 2016 that's appropriate given that input.

Houston clearly is not going to be better in 2016, better than 2015, but I will tell you that a lot of people are surprised by the demand side of the equation given the supply coming in and also given the job growth being flat. And so there's a lot of interesting things, dynamics that are going on in this market that people get. One of which is, we had a housing shortage here for a long period of time, and we're just filling that shortage hole through this new supply coming in.

The other thing that has been happening that is very interesting, is that the product that is being built, that's delivered in Houston today, a lot of it hasn't ever existed in the market. We're talking about high end high-rise buildings, urban developments that today are leasing for $2.50 to $3.00 per square foot. That is creating its own new demand from suburban flight, if you will, people moving in because of the traffic and the product is bigger, it's more luxurious, and it's more welcoming to that empty nester crowd that is trying to get rid of the traffic scenario. So that has been a really interesting and unusual situation because in last cycles you just had regular apartments. Today we have apartments that are actually appealing to the nontraditional apartment dwellers. Somebody who has an average income of $0.25 million and up and can afford to live where they want.

Just follow up on that supply, what percentage of that supply is being built in Houston is being done by the merchant builders?

90%, 95%.

(Multiple speakers) Does that --

So let's put it this way. There is only one development being built today in Houston by a public company which is Camden. And all the rest are Merchant Builders, so it's actually 99% probably.

What is your expectation around what type of concessions that they will use to lease up?

Merchant builders are very typical in this, and we are too. New developments tend to -- when you have zero occupied property, giving free rent is easy to do since you don't have any revenue anyway, right? So free rent today ranges, depending on where you are, to zero for the hottest properties, and up to one month or two months free for some of the merchant builder properties that's there today.

There is a dichotomy happening, the shift between the As and the Bs, which is very typical and cycles like this, where the suburban properties in Houston did not have as much competition. Everyone wanted to be in the urban core, so the urban core is probably weaker than that suburban core, and the A properties are growing at a -- or getting more pressure from the supply than the B properties.

Thanks.

Jenna Glenn of Bank of America Merrill Lynch

Thank you. Maybe following up on that new type of supply that's been delivered. You had great results in Denver and Atlanta, but those markets are seeing a lot of mid- and high-rise products builds. Can you maybe comment on how your portfolio compares in the price point?

So in both Denver and Atlanta our portfolio is less exposed to where the bulk of the construction is has been going on. It tends to be in the population and job growth centers outside of the CVD. And, obviously, we have a couple of assets in those markets, but generally speaking we're going to be less affected. In both of those markets, if you look at supply and demand situations out in the into 2016, they both look still pretty strong.

In Denver it looks like our forecast for 2016 is about 30,000 jobs. And the forecast for new deliveries in 2016 is about 7,000 apartments. So that's really that far off of what we consider to be equilibrium.

The numbers in Atlanta, 2016 forecasting 65,000 jobs; forecasting 11,000 new apartments. That's actually a condition that would add to overall market tightness, not the other direction.

Obviously, if you are in a sub-market and you have three new, or two or three new communities that are trying to get leased up, they're your direct competitors, you're going to catch some shrapnel from that. I don't care really what the market conditions are, but generally speaking, we think those markets were -- we're very well-positioned in those markets at the sub market level, and if you just look at it at the macro level, those should continue to be pretty strong markets for us next year.

I think the thing that's interesting too, when you think about those markets with strong job growth, is you still have 1 million to 1.5 million millennials that are still living at home more than they were living home in 2007. There is still an unbundling that is coming that is happening as a result of these job growths.

And then when you look at the idea that the millennials are not buying homes now, we just on the new home sales numbers look pretty down across country in the last week or so. So the home purchases, we don't have as many people moving out to buy homes, and the millennials are taking time to get married and change jobs and things like that.

So that demand side is a whole lot more robust which means that you need a whole lot less job growth in order to fill up the properties or to create more demand for multifamily. You saw the homeownership rate flatten and stop declining, but it's still at very low levels. So that just bodes well for the increase in demand in these markets like Denver and Atlanta and Charlotte, and even Florida, Southern California.

Thank you. Appreciate the update on the move outs for home trends staying kind of flat. Do you have an update on affordability for your markets?

Yes. We've been bumping around 17.1%, 17.2% for long time. We did have a slight uptick in the quarter to about 17.5%. But again, well below what we think the long-term average of affordability is in our portfolio, which is over 20 years is closer to about 19%. So we still think we've got a fair amount of room there. Again, quarter to quarter blips are hard to read much into, but it did tick up 17.5%.

Thank you

You bet.

Alexander Goldfarb of Sandler O'Neill.

Good morning. Rick, to Bilerman's question of -- maybe I missed it, but did you address or talk about maybe selling a chunk of the portfolio? Not the whole company, but clearly if the demand is strong, and you guys are [max of discount], it would seem like a good time to sell assets that may not fit longer-term. I'm sure you could probably shelter a fair amount and pay a nice special dividend and reward investors. So what are your thoughts about that?

Well, clearly we have shown that we're willing to sell assets. $1.7 billion and we continue to look at the portfolio and trim the portfolio the way it we think it needs to be trimmed. So that's not out of the question. It's just a matter of the right moves, at the right time, at the right price. And so we clearly recognize that there is this disconnect today, and we're going to maximize the value for shareholders anyway we can including portfolio analysis.

Okay. And then switching to Houston. If we just think about what may go on there, and let's assume that it is a replay of what happened in Washington DC, we have a prolonged soft market. Are there any lessons that you took away from operating in DC over the past number of years that would help you maybe do a bit better in Houston vis-a-vis a soft market with supply continuing to come on? I get it that it's more higher end supply, but still, its supply. Is there anything any takeaway's from operating in DC that may help perform in Houston for the next -- during this soft time?

Not really, Alex, it's really not from lessons learned from DC. This is lessons learned from 30 years of being in this business and operating a bunch of different markets.

One of the things that we always do when we are forecasting weakness in the market ahead, is we start adjusting things like lease term, which we have already started that process some time ago in Houston. Normally we would encourage 12-month leases, so that in a rising market we get to reset the price every 12 months. And obviously, as you start doing your forecasting and you see that you're not going to be in a strong rent growth period or potentially not a strong growth period, longer leases are better for the landlord. And we've already done that.

The other thing is that you try -- one of the things that we know is that as merchant builders bring on their product, they're going to give very aggressive on concessions. So one of the things that we do, is we get very much more aggressive on renewals. It gets increasingly expensive to back fill vacant units in an environment where merchant builders are willing to give pretty substantial concessions to try to get to the finish line.

We have done all that and, obviously, we did that in the first part of the Washington DC cycle. You never know how long these things are going to persist.

I do think it's interesting though because in our numbers, in commentary, we seem to get people who are lumping Houston and DC together. Obviously, they are the two weakest performing markets in our portfolio right now. So I understand the natural tendency to do that, but I think you're talking about markets that are in very different places.

And Washington DC has been in our, either bottom one or two for four years. Houston has been in our top four for four straight years. So it's the first year in five that Houston won't be in our top-performing market. So I just think you've got markets that are very different states, and obviously the operations formula for that is those two are very different.

Okay. Appreciate it. And like the opening music. Looks like you guys had some fun with your notoriety over the past week, so thanks.

Ian Weissman of Credit Suisse.

Hi, guys, this is Chris for Ian. Great quarter on revenue growth, but same-store OpEx is up 5.7% as we've talked about on previous calls. You talked about higher employer benefit expense. Could you talk little bit more about that number overall? What drove the 12.8% increase in Houston, and then just the overall 9.2% increase in property taxes?

Absolutely. If you look at Houston, the 12.8% is almost entirely driven by property taxes. Houston, for the year on property tax basis, is going to be up approximately 20%. If you look at what it was for the quarter, taking into account certain refunds we got a year ago same quarter, it was up close to 24%. So that is what drove the Houston operating expense issue.

When you think about operating expenses in general, so taxes for us this year are going to be up approximately 7%. Taxes make up a third of our total operating expenses, so right off the bat you've got approximately 2.1% increase in operating expenses before you look at anything else. And on top of that, the new technology package we are rolling out with bulk internet is adding about 100 basis points to our full-year expense number. Those are really the outliers. Once you extract those, the rest of our operating expenses are in line with expectations and with the past history.

Great. When we hear you have a huge refund in 2014 versus this year, what is driving your ability to get that big a refund last year versus not being able to do something similar this year?

The refund I was referring to were refunds in Houston last year, in regards the 12.8% increase in expenses for Houston. A lot of that is just timing. So what happens is, is when we get all of our assessments out from the appraisal district, we obviously contest the vast majority of them and lots of them end up actually going to litigation. So the settlement timing is really dependent upon when you get the final resolution with the appraisal district.

Got you. And then just moving over to the Camden Washingtonian land parcel that you acquired earlier this month. Did you talk about maybe the capital budget for the project, what you underwrite in terms of the stabilized yield and then where does that fit into the Shadow pipeline in terms of expected starts?

Sure. The Washingtonian is -- the underwritten yield is in the [mid-sixes]. And the start is scheduled for 2016. We have when you look at our starts this year, we started two projects this year and our development pipeline is definitely shrinking. It's appropriate in this part of the cycle and with capital constraints the way they are. We think that project is a great project, great yield and we will evaluate the start in 2016 when we get closer to it.

Great. Thank you very much.

Jordan Sadler of KeyBanc Capital Markets. Rob Stevenson of Janney.

Good afternoon, guys. When you think about the run rate for same-store expenses given personnel costs and given the property taxes and given your exposure to markets like Texas and others that are being hyper aggressive on passing through, what's out there that gives you relief over the next couple of years that you don't keep seeing 4.5%, 5% same-store expense growth?

Ultimately, when you endure, as Alex mentioned, 20% increases in tax costs in a market, how many of those can there be before there is no gap between assessed value and market value? So each year that you get one of those behind you, you think you're making progress. In terms of long-term expense, if you go back 20 years look at our reported same-store operating expenses, it's roughly 3% on all expenses and the interesting thing is over that same time frame, property taxes, the increase in property taxes over 20 years has been about 2.1% in our portfolio.

So even though right now we are getting by killed property taxes and it certainly makes us want to pull our hair out, the reality is, is over the long period of time, they've been below the average of all other expenses in our portfolio. We are definitely getting slammed right now and some of that is just reflects the reality that everyone knows that property values, even in markets like Houston, which are getting a lot of scrutiny right now, the stuff is still trading at cap rates that make your eyes spin.

I think long term it's a 3%. 2.5% to 3% cost market in terms of expense growth; long term, it's 2% on taxes. But right now I'll tell you we are upside down on the 2%.

Okay. And then today, how you think about redevelopment within the portfolio? What's the overall opportunity there and how much did you guys spend, or are going to spend on 2015, and what are returns averaging for you guys?

The entire program that we laid out a couple of years ago had a spend about $230 million associated with it with a pro forma yield of about $11 million and that is what we have returned year to date on our redevelopments. Obviously, the bulk of that is behind us.

I think this year we are on track to do about 2,500 to 3,000 apartments. We've probably have another number similar to that, that would be available for 2016. But obviously the bulk of it, having done 20,000 apartments already, is those that's it makes sense for economically, and given their market position, have been done.

Okay. Thanks guys.

Jordan Sadler, KeyBanc.

This is Austin Wurschmidt here with Jordan. I was wondering if you can provide some thoughts on the elevated multifamily permit levels and then what your thoughts were on the homebuilders getting into the multifamily business more permanently?

Well, the multifamily, the elevation of the supply is a function of the demand that is being met. If you go back to the over the last five years, we've had a shortage of multifamily housing in America for the last five years. That's why occupancy rates are the highest they've been and rental rate growth is been robust for a long time. So we are basically delivering and starting projects that are being absorbed into the marketplace very efficiently.

I think that the ability for multifamily to increase the level of production from this level is very limited, even with home builders getting into the building -- getting into the business. Also, there's a bunch of office companies get into it. Hines is now developing apartments as well as these office companies, or the home builders.

The challenge you have today is that if you look at our deliveries, for example at Camden, every one of our projects is delayed at least two months and then sometimes as long as six to eight, nine months. It's primary because of a lack of construction workers and a lack of ability to get product complete. I think some of the worry about supply has been muted or at least the effect of supply has been muted by the fact that you have a lot of projects under construction that can't deliver to the market because of this construction worker shortage. So don't think that the industry has the capacity to increase the supply side of the equation very much from where it is today.

The other thing that will hold that back to a certain extent is because of this shortage of construction workers, costs have gone up dramatically, lands costs have gone up, and the financing model that was used in the last cycle before the great recession has changed dramatically, where banks actually look for merchant builders' liquidity and actually test for contingent liabilities relative to real tangible capital. Which is amazing, right?

In 2007, most merchant builders had infinite contingencies to capital, or guarantees to capital, which is pretty amazing. So today I don't think you have, even with the new competition coming in, that you don't have an ability to really increase the number of units that are being built that are sort of at today's level.

Thanks for all the detail there. And then just could you comment on the performance in DC between your suburban and CBD properties? Which set of properties are you more optimistic about headed into 2016?

So our DC-proper communities have historically outperformed our suburban assets. In the last four years, there hasn't been much spread because there hasn't been a whole lot of pricing power but the pricing power that we have had was in our DC-proper assets. Obviously, we had great success with our NoMa lease-up. We had great success with South Capital.

Those came on the market at a time where there was not the whole lot of other competition in DC proper. Based on that, we started NoMa II, which again we think going to hit the market at really opportune time. So my guess is, is that there's probably a permanent benefit to DC-proper assets if you look at it over a 10-year time frame versus suburban but before DC hit the skids in this cycle, both of those asset classes were doing externally well but DC proper would've had a premium then as well.

Great, thank you.

Dave Bragg of Green Street Advisors.

Thank you, good morning. Just going back to the topic of capital allocation, despite the unfavorable cost of capital Camden is really still a net grower this year, when we factor in the development and the stops under performance this year and over the long term doesn't make it clear that the strategy is working. So it's good to hear that you're considering a more aggressive approach on asset sales.

Our question is, is about development, the continued focus on development kind of sticks out given your cost to capital. How do you think about the risk-adjusted returns available on development versus the stock?

We've had lots of discussions about stock buybacks and the challenge that we've had with buying the stock back has been the volatility and the blackout periods we have been in. When you look at the disconnect between the stock price and NAV, and historically we've been a big buyer of the stock back, we purchased a huge amount of stock in the past.

We have typically done it at a 20% discount to NAV and so I think that is a reasonable opportunity to do if we have, what we've been saying all along, which is a persistent disconnect and the last time I looked, in the last three months, we were a 52-week high and a 52-week low. That happened during our blackout period the last time.

So when you think about our development pipeline, we've definitely shrunk it and we are definitely not driving that to high levels today because of the capital situation and the cycle in the market. So if this persistent disconnect between NAV and the actual stock price continues, we will be in the market buying the stock back.

Thanks for that, Rick. So that now that maybe the stock's performance today takes it back closer to a 20% discount and the stock's been trading at a discount to the group for about a year now, that might be setting you up for opportunity to do that?

We've always said, a persistent and a significant discount allows us to sell assets and buy stock and keep it on and leverage neutral basis, we will be doing that.

The second question, besides the capital allocation, the other key reason stock might be trading at the discount that it is, is probably Houston. What are your thoughts on selling assets in Houston and proving out private market values there?

I don't think selling assets in Houston proves anything, because the private market is robust. You can look at lots of trades that have been done in the last 60 days at sub-5% cap rates. Selling a couple assets in Houston is not going to convince people that Houston is not going off the cliff in 2016 and 2017. So I think it's sort of a moot -- or a game that wouldn't get you anything.

When we look at selling assets, we want to sell assets that are slow-growing assets that of high CapEx that somebody will pay a premium for the because they put the real CapEx number in their underwriting. We want to keep the portfolio quality, long term, really good and we like our Houston assets. We think Houston is going to be a great market long term and our Houston assets don't screen in the bottom quartile of our properties when we look at them on that basis.

Okay, thank you.

Wes Golladay of RBC Capital Markets.

Hello, everyone. I want to go back to that point you made about the pent up demand in Houston. Where were these people staying? Were they coupled up or were they outside the Beltway? Would some of your properties be impacted by that supply, your properties that are outside the Beltway if people were to start to move into the city?

The people that are moving into the city are leaving homes and not apartments. And so the new supply that is coming in this a new product type that's attracting empty-nesters into the urban core, they're definitely coming out of homes, not apartments. Those are typical people who, kids go to college so they have a big house and husband and wife or what have you and they'll move in.

In terms of where the people were, I think there were a lot of people doubled up. No question about that. A lot of people would come into Houston and they would settle into a specific area and then figure the city out and then move to where they ultimately wanted to be. There was definitely a fair amount of double-up folks.

The other thing I think was happening too, and I think this is supporting suburban, and that is that the suburban supply has not been as robust as the urban supply in Houston. So those folks were feeling the suburban properties up to the point where they had 97%, 98% occupancies and that is just unsustainable. Houston generally is a 95% occupied market, maybe even a 94.5% market and today we probably have 200 basis points of excess occupancy in the overall market because of the people moving in.

And then how is the tenant health out there? You notice any uptick in bad debt expense in your Houston properties?

No not at all. We have a meeting every -- at least once a month but also when we have conference calls, what have you. We check with our managers and we've had very limited information about people moving out because they lost their job in energy were something like that. There has not been a massive wave of energy losses that have impacted our specific properties.

I will give you an example. When Enron went bust in 2001, we had a property in downtown -- or in Midtown Houston that went from 95% occupancy to 75% in a day. Nothing like that is happening here today in Houston, Texas.

And then you offered up some preliminary job forecast for some of the markets. Did you happen to have one for Houston or are you guys still working on that?

We've got Houston -- and these are not our numbers. These are Ron Whitten's numbers, just be clear. We got Houston at about 30,000, 31,000 jobs forecasted for 2016. He is still carrying 20,000 to 25,000 for 2015. Houston historically has a big chunk of their annual job growth in the fourth quarter. We'll see if that happens or not. But any case, his number for 2016 is about 31,000.

Okay. Thanks a lot. I appreciate all the color.

Dan Oppenheim, Zelman and Associates.

Thanks very much. Rick, you talked about the development pipeline coming down going forward, based on capital and the environment overall. Just out of curiosity, how much do you think starts will come down for you in 2016 and 2017 versus, say, 2015?

Well, in 2015 we started two projects. I don't think we'll start more than two in any of those years, given the current environment. So they likely will come down some because of just project cost. In 2015 Camden NoMa is a big project and the other ones will probably be smaller than that in 2016 and 2017. In terms of total dollars.

I know you are talking but the funding environments being more difficult. What about the funding via asset sales, given how strong the interest is there still at this point?

Funding asset sales are -- there is no limit to the number of assets that you can sell today given the robust bid. The issue with asset sales to fund development is that we have a limited amount that we can sell and not have to pay a special dividend because of the tax aspects of REIT land.

We've said the past that we can sell somewhere in the $300 million, plus or minus, depending on the gain structure without paying a special dividend. But every dollar over that, from a sales perspective, you have to either do it 1031 exchange or you have to do a special dividend of the gain. Which we're not opposed to, if it makes sense and we can create value in that way.

Great, thank you.

Vincent Chao, Deutsche Bank.

Hi, good afternoon, everyone. Going back to the job growth side of things, I think in the opening comments, you talked about expecting for most of your markets to see continued above-trend job growth. I was just curious, does that presume that job growth picks up from where it's been in the last couple months? We've seen a little bit of a dip here. Just curious what kind of overall growth you're thinking about.

The numbers that we gave you today on job growth in our markets for the 2016 forecast are from Ron Witten and he has using a national or US number in 2016 of 2.5 million and that would compare to what he is forecasting for full year 2015 of that 2.9 million. So he is actually forecasting fewer jobs in 2016 than what were created in 2015 by about 300,000.

So that then derives or drives his analysis that the individual city level so if you carry that across all our markets, you would say that the overall job market is likely to be a little less robust in 2016 than 2015. But 2.5 million jobs overall next year, I think most people would take that. We certainly would.

Okay. It sounds like he is projecting Houston to actually be up. So, is there any market that is projected to really fall. I'm thinking west coast where they have been extremely strong?

Yes, again, we can send you the numbers market by market of what is forecast for 2015, 2016. But if you just look at the macro number of coming down from 2.9 million to 2.5 million, that would imply that across all markets, it's going to be a little less robust. But our markets tend to create more jobs than the national average does and that is the reason we operate in these markets.

I can send it to you market by market.

Okay, I'll follow up afterwards. And then just one other question on the expense side. It sounds like most of that was -- we talked about the key drivers. But have you had to think about changing your marketing expenses at all in terms trying to adjust to current conditions and drive demand, drive volume need? Then we do a much better job of allocating that resource where it's needed.

In terms of total marketing spend, our actual marketing spend has been down the last three or four years primarily because of the ability to do better targeting through our search engine. What we do more of now is rotating dollars between markets and even between sub-markets. Sometimes targeting specific communities.

So where there is a need, then we do a much better job of allocating that resource where it is needed whereas before, we would have had to take -- if Houston is showing some weakness, then we would support all Houston communities and we no longer do that, because in Houston, even today, despite the fact that the overall market is 3% we've got a whole lot of our communities that are still 4%, 5% and 6%, again, primarily suburban assets.

Where we need to spend the money, we are a lot smarter about spending it overall. Marketing spend for the last couple years is down slightly. If you go back to the total spend as a percentage of where we were, say, five, six years ago, it is down pretty significantly. It's just being smarter about where you spend your money and having better idea of what communities need support and at what parts of the cycle.

Okay, that make sense. Thanks.

Tom Lesnick, Capital Loan Securities.

It looks like most of your under construction lease-up properties improved by double digits, lease-up sequentially, but looking at Camden Flatirons, that only approved a couple percentage points. Just wondering what, if anything, was driving that and what are your thoughts generally on Denver's supply right now?

On Camden Flatirons, that a 424-unit community and this we always know that this happens, you get to a point in your lease up we are actually competing with yourself in the sense that you've got residents that moved in 12 months ago. We've averaged the entire time frame of that lease up about 25 to 30 apartments per month. So if you do the math, somewhere when you get to about 80% occupied, you start running into the residents you put in there on day one. It's part of what we know is going to happen. Though yes, that one was a little weak in the quarter but we're well along the way of getting that one stabilizes.

Overall in Denver, still a really good environment to be leasing in. There is a fair amount of new stuff that is being built right now but we were very early to our starts in Denver and they have come online at a very good time for getting well above pro forma rents in every case.

Okay and then Alex, I'm just curious on the planned unsecured issue in 4Q, we heard another company talk about their known debt financing need this quarter and their preference actually to utilize a term loan market as opposed to the unsecured market right now, citing volatility in the unsecured market. I'm just wondering, have you guys considered a term loan in lieu of the unsecured? What are your thoughts there?

The unsecured bond market certainly has been -- has had some ups and downs during the last quarter. The thing I'll tell you is when you're still at historically low interest rates, it seems best to get duration. The challenge with the bank term loan market is five is a preference and some go out to sevens, but at interest rates this low, we still like tens and longer.

Okay, fair enough. Thanks, guys.

Rich Anderson, Mizuho Securities.

Thanks. I knew it was going to be a busy day, so I FedEx my questions. Did you receive them?

Yes, as a matter of fact it got delivered directly to my doorstep. Because I demand first-class service.

So what's your answer, then?

The answer is no. (Laughter)

Keith, if you were to look at Dallas, Austin, Charlotte and Denver, we talk a lot about Houston and DC but those are some markets where I think you can argue there's some supply issues. Would you be changing your rank on them in terms of the direction they were going from maybe neutral, positive to decline on any one of those four?

Not right now, Rich. If you look at the job growth those four are getting this year and what's projected next year, still all four of those are very strong markets. Of those four, a percentage basis, you've got the Charlotte market has a lot of new construction that is working its way through the pipeline. But even Charlotte next year projecting about 16,000 new apartments, plus or minus, and Charlotte projected to be about 32,000 jobs. So that is disequilibrium in this near term, but I would tell you that we have not seen any real pressure from the new developments to this point.

And I think it speaks to what Rick talked about earlier is, is that if you just look at traditional measures of did you grow jobs and what was the multifamily supply, I don't think you can get to the answer that we've absorbed almost 14,000 units in Charlotte and we are still 96%, 97% occupied and raising rents. It doesn't make any sense so there's have to be other things at play. And I think the unbundling that Rick described is certainly an evidence in Charlotte.

Okay, and then a follow-up to Rick. Early on in the conversation, you said your Company is not broken beyond repair and you're not going sell. I get all that and no one's arguing the call quality of the organization.

Looking at it the other way, if you had the equity markets to back you up, do you see any kind of situations out there of scale that are, quote-unquote, broken and or permanently below NAV that you would be buying right now if you could?

I think that is a complicated math situation with stock prices where they are at this point because you'd have to use massive leverage which would be counter to what we want to do with leverage-wise. I don't think I see that out there. You're talking about public companies. The broken ones have been taken out. We're always looking for interesting opportunities, but when you look at this capital environment it would be pretty hard to make the math work with equity prices where they are today.

No doubt. Okay. Thank you very much.

John Kim of BMO Capital Markets.

Thank you. On Houston, your organic growth is pretty much what you expected at the beginning of the year. But is it safe to say the employment pictures not a strong? Are you concerned at all with the recent announcements by Chevron and Halliburton, as far as white-collar jobs being cut?

We are definitely concerned about the long-term aspect of what is going on in energy, obviously. If energy prices continue to stay at these low levels and these companies have to adjust, it's definitely going to impact Houston. We understand that.

But the interesting part is it's hard to say when and where. To the issue with Chevron and Halliburton, they have both -- they are reticent to say where the jobs are being cut and a lot of them are cutting jobs outside of Houston and bringing people in Houston to warehouse them in Houston.

It's really hard to say how that's going to play out that's why there's probably pretty limited visibility into what happens in 2016. On the one hand, you've got the bulls who say that oil is going to be $70 by June of 2016 and on the other hand, you have the bears who say it's $20. Obviously, there's a big difference between those two numbers in terms of how the economy overall performs. At this point, you haven't seen any major employer give pink slips to a ton of different apartment dwellers that live in our properties.

Rick, in reference to your experience with Enron, I know the situation appears to be different, but is there anything you can do this time around if things did turn sour quickly?

The key is, we manage it every single day. We mark our properties to market every day. We extended our leases, as Keith discussed, so that we have longer duration. And beyond that, you just have to offer the best living experience of the market and out perform the market no matter what the conditions are. We've been to this movie before.

Houston is a market that we know how to operate on the uptick and we know how to operate on the down tick. And so we will get through this time in, I think, a very reasonable way. What will is it going to look like next year or the year after? It is anybody's guess at this point.

The good news is, is the terriblizing that people do about Houston and you think about it's 12.5% of our portfolio and the reason it's only 12.5% is we don't want have any one market be the dominant market that's going to take the whole Company south. If you have a 10% decline in Houston's NOI next year, it's 100 basis-point change in our overall same-property NOI for the portfolio, or 110, or something like that. So at the end of the day, you can terriblize Houston but hasn't -- we haven't seen it manifest and I think that it is well overblown and already in the stock.

Okay. Moving on to potentially something else that's overblown, package-gate. Keith you did a good job explaining your rationale, but it seems like the cost to handle the extra packages is really not that significant, especially when you consider all the media attention brought to. How serious are you at this point considering other options like your competitors have addressed this?

To answer your question about considering other options, we're not, because we are perfectly happy with the solution that we've put in place. Now about half of our residents in our portfolio get their packages delivered directly to their front door, which we think is a far better customer experience for almost everyone. I think ultimately that number of 50% of our residents will continue to climb and at some point, our residents, the people who come to our to our community, will begin asking, as they are in the market shopping, they will begin asking our competitors, why don't they have the option of having their package delivered directly to their door?

When that question starts being asked in large numbers by our customer base, then we'll see what other people do. But we're perfectly comfortable with we are and we think that we're providing a higher level of service a large number of our residents already and we think the number's going to grow.

If you look at what happened we started billing for water, now that's a whole different animal, right? You're not taking something away from somebody, you're -- and in this case, we're improving their service by the packages. But when we billed for water, we had properties across the street from us that would put big billboard bandit signs on their property saying, free water here, don't lease at Camden.

Well, I can tell you that those properties today charge for water. Any property in the institutional quality real estate realm today charges for water. So somebody has to lead the way and start paving the way and we're going to take some arrows from the press and maybe competitors saying, oh, I can't believe they're doing that, but at the end of the day, it's a better solution for the customers, it's a better solution for us and our competitors will follow, you watch.

When you talk about customer satisfaction to the state, how do you track this? Is this on surveys, or your property manager feedback, or --

Property manager feedback. You just look at the numbers, right? And when we ask our 170 property community managers, how many people in your community have actually given notice or made a change to their living status based on our package policies, the answer is, a handful.

Anybody from the outside looking in, unless you have access to the facts, I can't imagine that you could make an informed judgement about what's better for us or our customers. The solution that we've rolled that is the only one that I'm aware of that actually meets the three objective that we set we set out for making a change to our package policy, provides best customer service, frees up our onsite staff's time, and it's a solution that's scalable up to 5 million packages. If you've got another one that meets those objectives, I want to hear it.

I'll take that offline. Thank you.

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

I appreciate your time today and we will see you at NAREIT's here in a few weeks. Thank you.

This concludes our conference. Thank you for attending today's presentation. You may now disconnect.