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Edited Transcript of CPT earnings conference call or presentation 3-May-19 3:00pm GMT

Q1 2019 Camden Property Trust Earnings Call

HOUSTON May 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Camden Property Trust earnings conference call or presentation Friday, May 3, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander J. K. Jessett

Camden Property Trust - Executive VP of Finance, CFO & Treasurer

* D. Keith Oden

Camden Property Trust - President & Trust Manager

* Kimberly A. Callahan

Camden Property Trust - SVP of IR

* Richard J. Campo

Camden Property Trust - Chairman of the Board of Trust Managers & CEO

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Conference Call Participants

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* Alexander David Goldfarb

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst

* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Austin Todd Wurschmidt

KeyBanc Capital Markets Inc., Research Division - VP

* Derek Charles Johnston

Deutsche Bank AG, Research Division - Research Analyst

* Jeffrey Alan Spector

BofA Merrill Lynch, Research Division - MD and Head of United States REITs

* Karin Ann Ford

MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst

* Michael Anderson Griffin

Citigroup Inc, Research Division - Senior Associate

* Piljung Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* Richard Charles Anderson

SMBC Nikko Securities Inc., Research Division - Research Analyst

* Trent Nathan Trujillo

Scotiabank Global Banking and Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, everyone, and welcome to the Camden Property Trust First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please also note today's event is being recorded.

And at this time, I'd like to turn the conference call over to Ms. Kim Callahan, Senior VP of Investor Relations. Ma'am, please go ahead.

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Kimberly A. Callahan, Camden Property Trust - SVP of IR [2]

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Good morning, and thank you for joining Camden's First Quarter 2019 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 first quarter 2019 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.

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

We will be brief in our prepared remarks and try to complete the call within 1 hour. (Operator Instructions) If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes.

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

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [3]

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Thanks, Kim and good morning. Our preconference music today featured Keith Urban who is recently named Country Music Entertainer of the Year. That's not why we chose him for our conference call music. That story is too long to tell, and I'll let you call Kim for that story later. But to all of you Camden associates, it needs no explanation whatsoever. I want to give a big thank you to our Camden team for the hard work and focus that produced another solid quarter for Camden. You have clearly shown how you improved the lives of our team members, our customers and our shareholders one strength at a time this quarter.

The first quarter operating performance was better than we expected. And as a result, we increased the same-store revenue and net operating guidance for the year. 2019 looks to be another strong year for Camden in the multifamily business. Apartment demand continues to be strong, driven by healthy job growth in our markets that continue to exceed the national average. In-migration continues to drive population and household growth in most of our markets. Recently released data from the U.S. Census Bureau's 5-year American Community Survey covering 2012 through 2017 identified the top regional magnets for young adults ages 25 to 34, who are our largest customer group. This might surprise some of you, but Houston led the country for millennial migration followed by Denver, Dallas and Austin. Seattle was the only West Coast market in the top 5. Our markets attracted over 245,000 millennials during this time frame. The migration was driven by strong job growth, low cost of living and the high quality of life offered in our markets. 2019 apartment completions are consistent with the levels in 2017 and 2018 and should be absorbed without much trouble.

Our development business continues to create value for our shareholders, recent developments have been leasing up in line with our budgets. We are continuing to add to the development pipeline for future deliveries. We have completed $217 million in acquisitions in 2019 with a full year budget of $300 million. While the acquisition market remains competitive, I'm confident that our teams will hit or exceed our 2019 target.

I'll turn the call over to Keith Oden for some observations on the markets.

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D. Keith Oden, Camden Property Trust - President & Trust Manager [4]

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Thanks, Ric. Our first quarter revenue results were a little bit better than planned, which is certainly a good sign for the balance of 2019. Overall same-store revenues were up 3.7% for the quarter and 0.8% sequentially. First quarter of '19 revenue growth was 4% or better in 6 of our markets with Denver at 5.5%; L.A./Orange County, 5.2%; D.C. Metro, 4.7%; Phoenix up 4.6%; Atlanta up 4.2%; and Orlando at 4% even. Contributing to our revenue outperformance for the quarter were D.C. Metro, L.A./Orange County and Atlanta. And as expected, our weakest markets were B-minus rated Austin, Dallas and South Florida.

Regarding rents on new leases and renewals, in the first quarter, new leases were up 1.1% and renewals up 5.5% for a blended growth rate of 3.3% that compares favorably to the first quarter '18 blended rate of 2.8% and to the prior quarter of 2.4%. As we expected, we've seeing seasonal improvement in new lease rates from January through April, and we anticipate this trend to continue throughout our peak leasing season. April preliminary lease rates are running at 2.9% for new leases and 5.5% for renewals for a blended rate of 4% even. April results combined with our May, June renewals going out at a 5.7% average increase gives us confidence that our leasing momentum should meet our expectations through the summer months.

Our qualified traffic continues to support above-trend occupancy levels across our platform. We averaged a strong 95.8% occupancy in the first quarter, which matched the 95.8% last quarter and was above our first quarter '18 level of 95.4%. April occupancy came in at 96% compared to 95.7% last April, and the net turnover rate for the quarter fell again to 38% versus 39% last year.

Our rent-to-income continues to reflect strength as our average rent as a percentage of household income remained at 18.6%, the same as last quarter and only a fractional increase from the 18.3% last year.

Interestingly, our move-outs to purchase homes fell slightly to 14% even versus 14.1% for the first quarter of last year and the full year rate in 2018 of 14.8%. Despite some recent reports of millennials returning to the single family for sale market in greater numbers, to the extent that reports are correct we've yet to see an impact in our markets.

Finally, for the 12th consecutive year, Camden was included in FORTUNE Magazine's list of the 100 Best Places to Work. We celebrate this honor on behalf of the entire REIT industry as an indication of how much progress we've made collectively in the last 26 years. Camden is a great place to work, it's also a great place to live.

Congratulations to our team on achieving our goal of 90% customer sentiment score in the first quarter. Your commitment to improving lives one experience at a time made this possible.

Now I'll turn the call over to Alex Jessett.

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Alexander J. K. Jessett, Camden Property Trust - Executive VP of Finance, CFO & Treasurer [5]

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Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activities. During the first quarter of 2019, we purchased for $97 million Camden Old Town Scottsdale, a newly constructed 316-unit community located in Downtown Scottsdale. And subsequent to quarter-end, we purchased for $120 million Camden Rainey Street, a newly constructed 326-unit, 8-storey building located in Downtown Austin.

During the first quarter of 2019, we stabilized ahead of schedule our Camden Shady Grove development in Rockville, Maryland generating a 7% stabilized yield. We also completed construction on both the first phase of our Camden North End development in Phoenix and the second phase of our Camden Grandview development in Charlotte and began construction on the second phase of Camden North End.

And finally, subsequent to quarter-end, we purchased approximately 4 acres of land in the NoDa, neighborhood of Charlotte for the future development of approximately 400 apartment homes.

On the financing side, during the first quarter, we completed a public offering of 3,375,000 shares generating net proceeds of approximately $328 million. We also repaid at par $439 million of secured debt with a weighted average interest rate of 5.2%. $200 million of this debt was repaid on February 1 with the remaining $239 million repaid on March 1. These secured debt repayments unencumbered 12 Camden communities valued at approximately $1.3 billion. As a result, 98% of our debt is now unsecured and 99% of our assets are unencumbered.

Also during the first quarter, we amended and restated our unsecured line of credit extending the maturity dates to March 2023 and increasing the capacity to $900 million.

Our balance sheet is strong, with net debt-to-EBITDA at 4x and a total fixed charge coverage ratio at 5.9x. We ended the quarter with $242 million outstanding on our unsecured lines of credit. As of today, after taking into effect our first quarter dividend payments and the purchase of Camden Rainey Street, we have $408 million outstanding, which we anticipate refinancing with an upcoming unsecured bond issuance.

Turning to financial results. Last night, we reported funds from operations for the first quarter of 2019 of $120.7 million or $1.22 per share, exceeding the midpoint of our guidance range by $0.02. Our $0.02 per share outperformance for the first quarter was primarily due to approximately $0.0075 in higher same-store net operating income resulting from higher occupancy and the timing of repair and maintenance expense, approximately $0.005 in better-than-anticipated results from our nonsame-store and development communities, and approximately $0.0075 in a combination of lower overhead costs and higher fee and joint-venture income. The impact from our first quarter equity offering was offset by lower interest expense from the earlier-than-anticipated repayment of secured debt and lower amounts of debt outstanding.

Last night, based upon our year-to-date operating performance and our expectations for the remainder of the year, we updated and revised our 2019 full year same-store and FFO guidance. As a result of our better-than-expected first quarter same-store occupancy performance, we increased the midpoint of our full year revenue growth from 3.3% to 3.4%. Additionally, we increased the midpoint of our full year expense growth from 3.25% to 3.35%. This expense increase is driven entirely by higher-than-anticipated insurance expense, resulting from a challenging insurance renewal environment. Our increased revenue guidance, partially offset by our increased expense guidance resulted in increase of the midpoint of our 2019 same-store NOI guidance from 3.3% to 3.4%.

Last night, we also maintained the midpoint of our full year 2019 FFO guidance at $5.07 per share. There are several adjustments to our original guidance including the following increases to FFO. $0.005 from our anticipated 10 basis point increase for our 2019 same-store net operating income, approximately $0.01 from our first quarter outperformance not associated with same-store results, $0.02 of additional acquisition NOI resulting from our earlier-than-anticipated Camden Rainey Street acquisition. We are still budgeting an additional $100 million of acquisitions in the fourth quarter in line with our prior guidance. $0.015 of additional NOI due to the removal of $100 million of fourth quarter pro forma dispositions at the midpoint of our prior guidance.

Due to the capital generated from our recent equity raise, we have removed dispositions from our current 2019 guidance. $0.095 in lower interest expense as a result of proceeds generated from our recent equity offering and our earlier-than-anticipated secured debt repayment, partially offset by earlier acquisition spend and lower disposition proceeds. Our revised guidance now assumes we issue a $400 million, 10-year unsecured bond in mid-June at an all-in rate of approximately 4% after taking into effect in place forward-starting swaps. This $0.145 aggregate increase in our 2019 anticipated FFO per share is offset by the impact of the higher share count resulting from our first quarter equity offering.

Last night, we also provided earnings guidance for the second quarter of 2019. We expect FFO per share for the second quarter to be within the range of $1.24 to $1.28. The midpoint of $1.26 represents a $0.04 per share increase from our $1.22 in the first quarter of 2019. This increase is primarily the result of an approximate 2% or $0.03 per share expected sequential increase in same-store NOI due to higher expected revenues during our peak leasing periods and property tax refunds anticipated during the second quarter. An approximate $0.025 per share increase in NOI from our recent acquisitions and our communities in lease-up and an approximate $0.01 per share decrease in interest expense resulting from lower amounts of average outstanding debt. This $0.065 per share aggregate improvement in FFO is partially offset by an approximate $0.025 per share decrease in FFO resulting from the impact of a full quarter of additional outstanding shares after our late February equity offering.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Austin Wurschmidt from KeyBanc Markets.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [2]

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Just curious, the improvement you've seen in blended lease rates appears to have been driven largely by new lease rates. And I was just curious do you think we could see a scenario where new lease rates nearly achieve the same level as renewals this year?

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D. Keith Oden, Camden Property Trust - President & Trust Manager [3]

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Yes, I don't think we're going to see anything like that, Austin. But it was -- we did see a pretty decent increase in the April numbers and for the new lease rates jumped to about 2.8%. I think it's more likely that the renewal rates will stay about where they are throughout the year in the 5%, 5.5% range. I'd be surprised if the new lease rates got much above where they were for the April number. So I don't think that's likely. I think it's likely that we'll see sort of steady improvement. The 2.8% may not even be repeated for the next 2 months after that. But for the full plan -- for the full year, that should be about the right number for new lease rates. So on a blended basis, you're going to end up still closer to the 3%, 3.5% lease rate gain for the year.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [4]

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Got it. And then, Ric, just curious what gives you the confidence that you think you can meet or exceed your acquisition targets given you have talked about how competitive the transaction environment's been? You clearly had some success early this year. But just curious, again what gives you the confidence and then what metros you're focused on? And are the deals that you're seeing from here stabilized transactions or more of the lease-up?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [5]

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Sure. So hitting the target's pretty easy since it's only $100 million. Exceeding it would be pretty easy given most transactions that we're looking at today are $100-plus million. So $100 million doesn't buy as much as it used to in the past.

In terms of the metros, we like the markets we're in. It's -- there is more value, probably in the Sunbelt markets. We are seeing a fair amount of merchant builder product that has gone through its lease-up, but hasn't fully stabilized and really hasn't been managed as a stabilized property yet. So that gives us the ability to create that upside from what the going in cap rate is. So all the properties we bought in the last sort of cycle here all have the same attributes. We're buying them in sort of mid-4 range and burning concessions off putting some Camden special service and activities in that should drive those cash flows up into the 5s at the end of the second year. Most of them have been -- I think all of them have been substantial discounts for replacement cost anywhere from 10% to 17%, 18%. The Rainey Street project we bought is at least a 17% discount to what it would cost us to build it today. But that's sort of what we're looking for and where we're looking.

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Operator [6]

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Our next question comes from Nick Joseph from Citi.

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Michael Anderson Griffin, Citigroup Inc, Research Division - Senior Associate [7]

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This is Michael Griffin on for Nick. So it seems that you've run at lower leverage levels recently, especially given the equity raise. How should we think about leverage levels going forward for the remainder of the year? And then sort of have your long-term leverage targets changed at all?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [8]

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Sure. Our leverage, we've talked about this since 2009 that we're bringing our leverage down over a moderate period of time, and it's taken us 10 years to sort of get here. And we want to keep our leverage between 4x and 5x debt to EBITDA. We don't even use that concept of debt to market cap anymore given it became sort of obsolete during 2008 and '09. And so we're going to stay in that zone. When you look at what was going on in the first quarter, the bond market was pretty rocky at the end of the first quarter -- or into the fourth quarter and into the sort of midpart of the first quarter and then it got, obviously, improved dramatically, along with the stock market and stock prices. And so at the time when we were looking at these fundings, we decided to tap the equity markets as opposed to the bond markets given the volatility in the bond market at that time.

So we're going to keep our powder dry to a certain extent and part of that has to do with just our fundamental belief that we should operate with lower leverage, and we should get a better multiple for -- better stock multiple from investors over a long period of time with that kind of leverage. And then second, we're getting to the point where I think this is the longest recovery in the history of the U.S. in June. And so with that said, it's just I think prudent to have lower leverage this late in the cycle. We'd rather be at the lower end of the leverage spectrum versus the higher end of the leverage spectrum so that when we do have a cycle, we have plenty of dry powder to take -- powder to acquire properties from folks that don't have that same view and have higher leverages and have to sell their properties in a down market.

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Michael Anderson Griffin, Citigroup Inc, Research Division - Senior Associate [9]

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Got it. That's very helpful. One other quick question on the Camden Rainey Purchase. You'd mentioned previously that Austin is one of your lower-growth markets. I'm just curious, is this more an asset-specific play kind of to get more exposure to the market maybe. Sort of a little color kind of on that would be nice.

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [10]

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Sure. It's definitely an asset-specific play. We've been monitoring this property for a couple of years. It is in the downtown area and it's on the east side of Austin and not in the sort of core downtown, which makes it more affordable. The rents are -- when you look at Austin, I mean, the rents are $3 a foot plus in the downtown core, but they're less on the sort of east side of Austin. So we like the idea behind being in downtown. You are 2 miles from UT. Google just broke ground on a property where we work across the street. So it just balances our portfolio really well in Austin, brings our NOI contribution up a bit as well, which is important and it gives us that balance between sort of high-end urban, downtown product versus our suburban product as well. And we like that balance between urban and suburban so that when the market -- when you do have sort of cycles that the market will obviously have over time, we have that good balance from a diversification perspective.

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Operator [11]

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Our next question comes from John Kim from BMO.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [12]

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On your acquisition pace being ahead of last year and ahead of guidance, are you more optimistic with your underwriting as far as rental growth assumptions? Or is this mainly a function of your cost of capital improving?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [13]

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I think it's both. We have seen rental growth tick up a bit in some of these markets, and given that we're late cycle in terms of just it's been good for so long, you saw a little -- we saw an uptick in revenue growth. And I think it sort of gives us a little bit of confidence that this could go on for a longer period of time than most people think. And that does definitely give us a little more confidence. The fact that we have our debt where we want it in this really low zone gives us a little bit more capacity to be a little more bullish and buy more properties than we would have otherwise.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [14]

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And then you quoted a 18.6% rent-income ratio. That's lower than many of your peers, but it's even lower than your main Sunbelt peer. I think they quoted 20% yesterday. Can you just remind us the parameters of how you calculate this figure?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [15]

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Yes, that's household income divided by total monthly rental expense.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [16]

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So average, not median, in household?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [17]

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No. It's the average.

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Operator [18]

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Our next question comes from Trent Trujillo from Scotiabank.

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Trent Nathan Trujillo, Scotiabank Global Banking and Markets, Research Division - Analyst [19]

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Good quarter and new start to the year. So occupancy was up pretty materially in Atlanta and Dallas and Charlotte on a year-over-year basis each by about 100 basis points. These are also markets noted for having elevated supply. So can you talk about how you're able to achieve these occupancy levels? And how you're thinking about maximizing revenue in these markets during peak leasing season?

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D. Keith Oden, Camden Property Trust - President & Trust Manager [20]

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Yes. Our entire portfolio right now at 95.8% is -- that's really strong for us historically. We sort of targeted the mid-95s as an occupancy rate for a long time. In the markets where -- it really just a story of where the supply is. Yes, it's true there's a fair amount of supply in Charlotte, in Dallas, in Atlanta. It really just depends on what your footprint is. And in the Atlanta market, we are not -- there's a fair amount of activity around the Buckhead submarket, but a lot of other communities in Atlanta are not just in the footprint where there's been a new development. It's also true in Dallas. Less true in Charlotte and the story in Charlotte continues to be just decent -- good enough job growth to continually sort of get -- make the absorption numbers work.

The other thing is that, I think, in Ric's opening remarks, the fact that we are getting domestic in-migration to almost all of our core markets, where job growth has happened in addition to the job growth, it's got to be a factor that's continuing to give us the ability to absorb the number of the -- all this new supply that based on historical numbers of job growth and supply would otherwise be a head-scratcher. But I'm fairly convinced that a decent percentage of that story is the in-migration into our markets domestically. And by and large, I mean, a large proportion of those are in our prime rental cohort. The millennials in the 25- to 34-year range that have a higher propensity to rent. So when you look at the -- look across our portfolio in total, every market that we're in has a 95-plus occupancy rate and that's a really good place to be.

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Trent Nathan Trujillo, Scotiabank Global Banking and Markets, Research Division - Analyst [21]

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Thank you for that detail. And you touched on Charlotte, and you made that land purchase this past quarter very recently. Can you talk about the opportunity that you see there and what kind of stabilized yield you're anticipating for that development, and maybe how that compares to cap rates?

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Alexander J. K. Jessett, Camden Property Trust - Executive VP of Finance, CFO & Treasurer [22]

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Yes. Absolutely. So it's NoDa neighborhood in just outside of Downtown Charlotte. It's about 400 units, total cost is going to be about $100 million, and we are anticipating the yield of about 6.5%. So very healthy spread to what you can get on a new acquisition.

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Operator [23]

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Our next question comes from Alexander Goldfarb from Sandler O'Neill.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [24]

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Just a few questions on your markets. Some of the stuff that jumped out, L.A./Orange County was your strongest revenue growth market and some of your peers had commented on their calls, recent weakness. So curious is this just specific because of where your assets are located versus maybe you know Downtown L.A. or what have you that maybe you guys were better off based on where your assets are located? Or have you seen some subsequent post quarter weakness in your L.A./Orange County assets?

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D. Keith Oden, Camden Property Trust - President & Trust Manager [25]

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No. We're still tracking about -- it's same as we did in the first quarter, which is really strong, but it's not -- our outperformance relative to our plan in L.A./Orange County was $150,000 on revenues. So it was not like it was a big surprise to us. The change in L.A./Orange County, a pretty decent part of that pick up was at one community, it's our -- the Camden Community in Hollywood and some of which is burning off concessions from the prior year, in addition to which we've got a onetime -- our signage income, which came in, in the first quarter, which is more of a timing issue from the prior year.

But of the total outperformance of $150,000, a pretty good chunk of that was at the Camden, but, again, not unanticipated for us. Our footprint is a little bit different than many of our competitors in L.A./Orange County. But this is -- our performance is really pretty much on track with where we expected it to be for the year.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [26]

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Okay. And then the second quarter is on rent control. Colorado, the legislature voted down the overturn of the 40-year ban state-wide there. We'll leave California aside because that's been enough discussed. Do you feel that your other markets would go more the way of Colorado, where politicians would understand that invoking rent control is counter to housing? Or are you getting a sense in some of the other Sunbelt markets where you are that maybe what is a coastal phenomenon may creep into some of your markets?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [27]

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I don't think that's going to be the case. We have a couple of positive things in most of these markets. And when you think about -- when we think about why we're in the markets we're in, it's about pro-business, it's about population growth and employment growth and that drives job growth. And at the end of the day, these markets are affordable markets from a cost of living perspective. So even if you -- the rent sort of shock that you're getting in some of these other large markets where you have this imbalance between supply and demand that really drives the price of housing up, you just don't have that as much in these other markets because we can build and we can create that supply for the demand that's there.

So there aren't any major markets that we are in that are considering rent control the way -- or that -- I mean, there's always discussion about it because at the lower ends, when you start thinking about teachers and firefighters and folks like that, they are getting pushed out into the suburbs. They can't live in the downtown or urban areas in any market, including Houston or Dallas or Austin. But as you go out into the suburban areas, the price of housing drops pretty dramatically and it becomes affordable. The argument of whether you should be able to live in a downtown high-rise at $3 a foot is an interesting argument, but people aren't trying to control that rent because they can go out of the suburbs and get properties at $1.20 or $1.30 a foot.

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Operator [28]

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Our next question comes from Jeff Spector from Bank of America.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [29]

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I'm not sure if you discussed this already, so I apologize if you did. But can you talk about your thoughts on 2020 supply in your markets, especially in the southeast where clearly demand is stronger than expected?

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D. Keith Oden, Camden Property Trust - President & Trust Manager [30]

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Yes. So for 2019 for the entire year, you're looking at completions -- looking at Ron Witten's work it looks like we get about 137,000 apartments across Camden's footprint in all of 2019. And just for comparison, last year in 2018, we got 138,000. So it's virtually identical in terms of the supply. Now it's the location it moves around a little bit from market to market, but in the aggregate, it's almost identical in terms of the completions. The flip side of that coin though is job growth, and in Witten's numbers -- in Camden's footprint for 2019 actually had a pretty sizable increase from last year. He had total employment growth of 557,000 across Camden's portfolio last year, and he's got that number going up to 630,000 this year. I don't know what today's job's number is going to do to his forecast, but it certainly couldn't hurt what his forecast is.

And the interesting thing within that is that if you look at the total U.S. employment growth and, again, this is not reflective of this morning's number, but total U.S., Witten has job growth coming down from 2.7 million nationally in 2018 to 2 million even in 2019. So a drop of 700,000 jobs nationally is his forecast and yet Camden across our portfolio we're picking up about 80,000 jobs more than last year, which is -- it just reflects our thesis all along, which is we are in and want to continue to be in markets that grow employment and population that's better than the national average. And clearly, we're seeing that in a pretty big way between '18 and '19.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [31]

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That's helpful. And are you able to comment on 2020 at this point?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [32]

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It's coming, isn't it? No matter what you do, but we're not going to talk about 2020 and how we think the market's going to be.

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D. Keith Oden, Camden Property Trust - President & Trust Manager [33]

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If you limit it to completions and employment growth, Witten's forecast, sure. I mean he's got the supply in Camden's markets ticking up in 2020, although there is -- I can tell -- it goes up to about 150,000 from 137,000. However, I would caution you that for the last 3 or 4 years, every forecast for completions has been moved out further because it takes longer and because the labor shortages on getting these communities turned, some of its product type, you got more high-rise so it just takes longer to construct and longer to lease up.

So every forecast that we've seen for the last 4, 5 years on year out deliveries, some of those deliveries are going to slip. But in the aggregate, yes, it's somewhere around 150,000 apartments unless -- subject to the slippage that we know occurs. So not a huge increase across Camden's portfolio.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [34]

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Okay. That's helpful. And then my second question if you could just talk about Lincoln Square, the parking structure there that you can convert to apartments. We thought that was very interesting. What other ideas are you exploring or thinking about, especially when you're thinking about future disruption?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [35]

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Well, the good news is that's really hard to disrupt a place to sleep. You can't digitize that. You need a place to sleep, you generally need a bathroom, you don't necessarily need a kitchen anymore. But that's the good news for apartment. So we don't think disruption is going to be a major issue for our business. But we do think that, that clearly transportation's going to be disrupted and the use of real estate overall is going to be disrupted. If you look at parking as a percentage of the built environment, it's a little over 50% of the built environment in America today, right? So when you start thinking about autonomous cars and Rideshare and things like that, most projections show that the amount of cars and their requirement for parking is going to be reduced over a reasonably short period of time, like 10 years.

So what we've been doing is making sure that when we build our garages like the -- you're probably talking about a NAREIT story that was out there about our property in Denver. So what we're doing is we're designing them in a way where we usually -- primarily use poured-in-place concrete as opposed to sort of Tinkertoy sort of concrete. In that way, the structures are more sound. They're always sound, but for sure, they're easier to convert on flat floor plates. We try to keep the circulation on the ends and make sure that we have plenty of chassis for electrical and plumbing so that we can put those in and don't have to kind of break out concrete in the future. So we're probably spending a little bit more in terms of future adaptation of those spaces, but it's not enough to move the needle on our returns. They're still reasonable from that perspective.

I think there's going to be a lot of interesting changes in the future and everything is going to mobile and it's already on mobile, and we're working on a lot of mobile solutions for -- to help our residents with their lifestyle from the ultimate package issue that's out there still that everyone's wrestling with. Ultimately, we think there'll be a mobile solution that allow packages to be put directly into the apartments via an app. I think that's going to be, really, a win for us not only on the revenue side because we think there's revenue opportunity there, but also on the expense saving side when you start thinking about not having to deal with a lot of those issues in the office where our folks had actually deal with more customer service issues as opposed to those kind of issues.

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Operator [36]

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Our next question comes from Drew Babin from Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [37]

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Question on -- sort of extending on Alex's question about Southern California. Can you maybe talk about D.C. where your revenue growth is also significantly outperformed what peers are seeing? Is that sort of a footprint issue as well? And are you seeing anything that's materially different going from 1Q into April there?

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D. Keith Oden, Camden Property Trust - President & Trust Manager [38]

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Yes. When we look at, it's a footprint issue. It really is. And we just have a higher percentage of our assets that are more suburban. They're great assets. We have a very young portfolio in D.C. We just completed 2 new construction projects in D.C. Both of them leased up incredibly well at better than pro forma rents. So it's -- but you're talking about the differences instead of -- in the downtown space, in NoMa, it's $3 a square foot. In NoDa and Shady Grove, it's $2 a square foot. So it's just -- it's primarily a price point issue and a mix -- an asset mix issue. We did outperform in D.C. relative to our plan. We did about $160,000 better on the revenue side than what we thought we would do in the first quarter. And that's -- it looks like that's continuing into April as well. But I would say it's more -- the biggest difference from us and the peer group would be the footprint.

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [39]

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I'm going to add one other comment on that and that's the third level, which really is -- it gets down to where the rubber meets the road, and those are the people that are working on these properties every single day. And when Keith mentions that Camden's been on this Great Place to Work list for 12 years, it does matter when people are smiling and hitting customer service rates at 90%. We have an awesome team there and they're able to squeeze out a little bit more revenue. I believe then our competitors and manage expenses a little bit better as well just because they have that attitude and that culture.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [40]

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Okay. That's helpful. And then just one more question from me on the pipeline. If you look at the 5 projects that are currently is that in lease-up and under development, what are you looking at now in terms of stabilized yields on those? And I guess that comment probably could extend to the lease-ups as well. Are there any projects that are maybe falling short or meaningful exceeding original expectations?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [41]

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Well, the projects that are in lease-up are meeting our expectations, and they tend to be -- if you look at those projects, they're more suburban projects, less urban. And we then move on to the ones that are construction. These are seriously urban projects. So when you look at the downtown project Lake Eola, and also, Buckhead, these are high-rise, concrete construction projects, which are going to trend lower in terms of yield than the more suburban wood-frame projects. So our yields are going to be in the 6% range plus or minus for the development communities, and they're probably more like the 6.5% to 7% in the completed communities under lease-up.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [42]

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Okay. And I guess to just on the lease-up communities. McGowen Station is a little different in that it's a little more urban in vertical. Is that one where you're kind of hitting your ultimate goals? I know there has been some decent supply in Downtown Houston.

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [43]

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Yes. We are. And the lease-up velocity is pretty much on track. We're on track on our budgets. And it's going to be a great project. Houston has had -- the downtown area and midtown that's where all the supply has been concentrated. It's starting to move out into the suburbs now. But we're excited about that project, and it's going to be a great long-term asset for Camden.

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Operator [44]

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Our next question comes from Rich Anderson from SMBC Nikko.

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Richard Charles Anderson, SMBC Nikko Securities Inc., Research Division - Research Analyst [45]

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Ric, very interesting 2020 is coming. Could you say the same thing about 2021? I mean that would be interesting to know.

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [46]

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I could, absolutely. It's coming too. You're, obviously a Game of Thrones fan, right?

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Richard Charles Anderson, SMBC Nikko Securities Inc., Research Division - Research Analyst [47]

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Not at all, actually. Don't want to be. Okay. So I have a question about a topic that came up last quarter on D.C. and specifically, the government shutdown. And you guys had some -- you called, a handful of folks that came back to you looking for a rent relief or some sort of help in the midst of all of that. And it made me think that perhaps people or the credit in terms of -- behind these rents is very month-to-month specific and missing out on a paycheck for 30 days was enough to get people nervous. So first of all, tell me I'm wrong, hopefully. And second, why would it be so tight if you guys are underwriting your tenants so carefully so that it's not such a paycheck-to-paycheck type of scenario when it comes to your rents?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [48]

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Sure. So number one, our credit quality has not suffered at all. I mean you can -- when you think about credit quality, if we had a credit quality issue, you would see bad debts tick up. Our bad debts have been very consistent for a long period of time. I do think though, however, that people generally have issues when they're not getting their paycheck. And so whether their credit is still good, but most people are not saving a lot, and it's a complicated dance. If you look at our 18.6% rent income, that tells us that they're spending money elsewhere. And a lot of them have other expenses that they have to deal with as well. And I think part of it too is that you hear in the media where the people are reaching out to the government workers who aren't getting paid and so they sort of think they can get something for free to a certain extent.

Now we didn't waive rent. What we did was waived late fees and worked with them to get the rent paid, and they actually all paid the rent. So it's more of a timing issue than anything else. And like I said, it was a handful. And the interesting thing, it wasn't just D.C. because the government workers were all over the country. And we had some people in California, we had people in Colorado. And I don't think that if they miss one month of income, they're in trouble. But I think that several months would hurt most people.

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Richard Charles Anderson, SMBC Nikko Securities Inc., Research Division - Research Analyst [49]

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Yes. Fair enough. But I mean maybe you're just kind of responding to a human nature response to the situation. Is that a fair way to put it?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [50]

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Absolutely. We want to make sure that we take care of our residents and customer service is a big issue. So if somebody comes in and says, "Look, I can't pay my rent this week. I don't want a late fee, and I'm a government worker," you'd say, fine. And we sent that out as -- actually we were proactive on that, and then our teams sent out guidance to everyone across the platform and said, if somebody has an issue, take care of them.

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Richard Charles Anderson, SMBC Nikko Securities Inc., Research Division - Research Analyst [51]

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Okay. Second question is sort of big picture. Do you guys have sort of a vision into being included in the S&P 500? I know you're not going to guide your strategy around that. But is that something that is on your radar screen that you care about significantly?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [52]

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Well, it'd be interesting and nice, I guess. But we don't have any control over that. And so I don't really worry about things I can't control.

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Richard Charles Anderson, SMBC Nikko Securities Inc., Research Division - Research Analyst [53]

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Okay.

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D. Keith Oden, Camden Property Trust - President & Trust Manager [54]

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Yes. I think it's something that we would all love to be a part of the S&P, but it's not like you go audition for it. So we'd love to be. I mean it would be an important thing and it's a positive. There's no question about it, particularly in this world of index funds. It's just -- it would be a good thing. So if anybody from S&P's on the line listening, we're available.

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Operator [55]

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Our next question comes from Derek Johnston from Deutsche Bank.

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Derek Charles Johnston, Deutsche Bank AG, Research Division - Research Analyst [56]

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Are you still targeting around $300 million in annual development starts and has that thinking shifted at all with the lower-for-longer rates this stellar job and wage growth and the probability of this being more of a super cycle versus end of cycle?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [57]

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We are continuing to target $300 million a year. The challenge that we have today is that construction costs continue to rise, land prices continue to rise and finding transactions that can -- where we could ramp up that is real difficult. And we are very, very focused on getting the right returns and disciplined in how we allocate the capital. I do think that even lower -- sort of the economy going longer and rents doing well and all that is great. But we are still in late cycle, and we don't feel like that it makes sense to ramp it up dramatically. And we really can't because of the constraints that we put on our return requirements. I guess if we decided to lower our hurdle rates and just sort of put the pedal to metal we could, but that's just something that over the years we just don't do.

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Derek Charles Johnston, Deutsche Bank AG, Research Division - Research Analyst [58]

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All right. Now that makes. And then just -- I don't know if someone asked this and I apologize if I missed it. But expense growth driven by property taxes and payroll did seem to continue this quarter. And we're just looking to get your thoughts on when you see this elevated trend on expense is softening?

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Alexander J. K. Jessett, Camden Property Trust - Executive VP of Finance, CFO & Treasurer [59]

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Yes. No, absolutely. So if you look at for the first quarter property taxes were up 7.7%. We think for the full year, it'll be up actually 4%. The big difference between the 2 is that we're expecting about $2 million of refund slip between the second quarter and the third quarter. If you look at salaries, salaries were up about 6%. That's actually sort of the in line with what we're expecting for the full year. If you recall in 2018, we had a really good year for employee health care costs, which were very low. And when we started this year, I sort of guided to the fact that we didn't think that would continue, and so that's what you're seeing.

And then the last item on there is property insurance, which we talked about in the first quarter was a little bit higher than we expect for the full year at about 24%. We actually think the full year is going to be closer to about 16%. But that's entirely driven by 2 factors. Number one, this is just a really tough renewal environment when you look at all of the hurricanes that have happened in the last 2 years, and you think about wildfires in California, you think about floods in the Midwest, those all equally impact insurance providers. And ultimately, when things like that occur, they start to rise -- they start to raise premiums. And then the second thing is that we did have some hailstorms in the first quarter in Dallas that sort of dragged on these numbers a little bit too. But when we look at our full year, we feel really comfortable with our revised guidance for our full year expenses.

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Operator [60]

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And our next question comes from Karin Ford from MUFG Securities.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [61]

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I was wondering if the ramp on occupancy and new lease rent growth from the first quarter into April was better than seasonal trend or just in line with what you normally see.

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D. Keith Oden, Camden Property Trust - President & Trust Manager [62]

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Little bit better than seasonal trends. We're 1% -- little better than 1% for the quarter and that jumped up to 2.8%. I think that will moderate. I think that for the full year, you're going to -- it will be somewhere in the 5% to 5.5% on renewals and somewhere in the 2% plus or minus on new leases over the platform. It gets us to somewhere around the 3.5% for the full year on lease growth. But I think the April numbers that's probably going to end up moderating some as we go forward.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [63]

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Got it. And then just to follow up on the parking question. Ric, any sense for how much value could be hidden in your parking structures and your land if there does end up being a drastic reduction in parking needs in the future?

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [64]

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Well, it could be substantial for sure because today while we're charging some parking, we're getting basically pretty much 0 revenue from that investment other than normal rent, right? So if you're going to actually convert a property from, say, a 300-unit apartment to a 500-unit apartment by adapting those parking garages, and you're going to make, call it, a 6% or 7% return on that investment, it's pretty substantial in the portfolio when you think about half of our real estate is probably parking.

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Operator [65]

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(Operator Instructions) Our next question comes from John Guinee from Stifel.

And at this time, ensuring no additional questions, I would like to turn the conference call back over to management for any closing remarks.

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Richard J. Campo, Camden Property Trust - Chairman of the Board of Trust Managers & CEO [66]

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Great. Well, thanks so much. We'll see you at NAREIT coming up. Appreciate the opportunity to be with you today. Thank you.

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Operator [67]

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Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.