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Executives

Kimberly Callahan – VP, IR

Richard Campo – Chairman and CEO

Keith Oden – President and Trust Manager

Dennis Steen – SVP- Finance and CFO

Analysts

Alex Goldfarb – Sandler O’Neill

Dave Bragg – Zelman & Associates

Rich Anderson – BMO Capital Markets

Eric Wolfe – Citigroup

Seth Laughlin – ICI Group

Michael Salinsky – RBC Capital Markets

Paula Poskon – Robert W Baird

Rob LaQuaglia – Wells Fargo

Camden Property Trust (CPT) Q1 2012 Earnings Call April 27, 2012 12:00 PM ET

Operator

Good afternoon. And welcome to the Camden Property Trust First Quarter 2012 Earnings Release Conference Call. All participants will be in listen only-mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Kim Callahan, Vice President of Investor Relations. Please go ahead.

Kimberly Callahan

Good morning and thank you for joining Camden’s first quarter 2012 earnings conference call. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them.

As a reminder, Camden’s complete first quarter 2012 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 Ric Campo, Camden’s Chairman and Chief Executive Officer, Keith Oden, President, and Dennis Steen, Chief Financial Officer. Our call today is scheduled for one hour and as a result we ask that you limit your questions to two with one follow-up and rejoin the queue if you have additional questions. If we’re unable to speak with everyone in the queue today, we’ll be happy to respond to additional questions by phone or email after the call concludes.

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

Richard Campo

Good morning. The strength of the multi-family fundamentals of Jackson Brown thinks about stay a little bit longer. We think that nation has lead to a great start to the year for Camden and will stay much longer without having to ask please, please, please.

Same-property revenue increased 6.8% with every market contributing including Las Vegas for the second consecutive quarter. Same-property NOI increased 9.6% over the first quarter of 2011 which was only exceeded by the first quarter of 2006 as the best quarterly NOI growth rate that we’ve had in the last 15 years.

Strong operating fundamentals continued to be driven by broad macro factors, pushing more consumers into rental markets. 60% of the new jobs are going to our customer’s, people of 34 years and younger. Homeownership rate continues to fall, while new home mortgages are harder for consumers to fallback for. New supply is not read to at least 2014. In spite of rising rental costs for our customers, their ability to pay higher rents has been consistently improving.

Annual incomes for our customers have increased from $62,400 in the first quarter of 2011 with $69,200 today nearly an 11% increase. A percentage of rent income has declined from 18.4% in the first quarter of 2011 to 18% today in spite of significant rent increases.

Historically, our customers have paid between 22% and 24% of their incomes for rent, but you will not believe that the rental increase cycle has peaked. We are riding a monster way that has a long way to go before getting to shore. I commend our revenue management teams and our on-site teams for getting as much out of this way that they will give. We continued to focus on external growth and improving the quality of our portfolio through acquisitions, dispositions and our development programs. Our 10 active development programs will deliver 2,800 new apartments for a little over $500 million and are leasing up at a faster rate and at higher rates with no concessions then we expect in our original underwriting.

We anticipate starting seven additional properties this year, which will add another 2,061 apartments for an investment of around $400 million. We plan on acquiring $250 million of properties and disposing of a like amount this year. Our real estate investment group and support groups will be very busy. It’s a great time to be in the apartment business.

I’ll turn the call over to Keith now.

Keith Oden

Thanks, Ric. Compared to our expectations, we are off to a great start in 2012. This is one of those quarters that makes me reluctant to talk much about for fear of jinxing any subsequent quarters. With that in mind, my comments will be brief today.

Virtually every metric that we used to monitor the conditions on the ground at our community is either very good or excellent. For the first quarter, same-store average rents on new leases were up 3.1% and renewals were up 8% or blended increase of 4.9%. More importantly in March, new leases came in with a 6.3% increase and renewals averaged 8.4% for a blended increase of 7.1% for the month of March.

Revenue growth year-over-year was strong across 14 of our 15 operating – reporting markets. We saw double digit revenue increases in 5 of our 15 markets, Houston, Austin, Charlotte, Dallas, and Denver. And double digit NOI growth in 7 of our 15 markets. The most amazing turnaround was here in Houston. In the first quarter of 2011, Houston same-store revenue declined by eight-tenths of a percent and in this quarter revenues were up 12%, approximately a 1,300 basis point improvement over the year.

Sequentially, the top four markets for revenue growth were Phoenix, Houston, South Florida, and Dallas. And while every market had positive sequential revenue growth, clearly the leadership in our portfolio is shifting. Our occupancy for the quarter averaged 94.9% up four-tenths of a percent from the fourth quarter. At 94.9%, we were roughly 1.5% higher occupancies in our original plan and this was a large component of our outperformance on property revenues for the first quarter.

Our budgets assumed our occupancy rate with buyers gradually over the year but as it turned out we were able to increase occupancy aggressively in the first quarter while continuing to raise rents. Our occupancy rates budgeted for the balance of the year looked achievable. So, the occupancy related gain in revenue in Q1 not likely be a recurring grant to our plan.

Compared to a year ago, our traffic has remained roughly the same, which is great, since last year traffic was up significantly in all four quarters. Despite the aggressive renewal increases, we continued to see manageable turnover rates of 48% in the first quarter and this compares to 42% a year ago and 52% last quarter.

In addition, the percentage of residents moving out to purchase a home did pick up slightly to 11.5% in the quarter. It looks like this percentage may have finally found the bottom in the 10.5% range. The financial help of our residents continues to improve. The percentage of our residents listing move outs for financial reasons or job loss was 6.1% versus 9.3% a year ago. Also our bad debt expense for the quarter was 38 basis points and that’s well below our budgeted level of 65 basis points.

At this time, I’ll turn the call over to Dennis Steen, our Chief Financial Officer.

Dennis Steen

Thanks, Keith. I’ll begin today with a few comments on our first quarter results.

We reported funds from operations for the first quarter of 2012 of $68.6 million or $0.83 per diluted share. Representing a $3.1 million or $0.04 per share improvement from a $.079 per share midpoint of our guidance range for the first quarter of $.077 to $0.81 per share and it was an increase of 15% for diluted share from the first quarter of 2011.

The $3.1 million in FFO outperformance for the first quarter relates primarily to $2.6 million in better than expected results from both our consolidated and joint venture communities. Additionally, we experienced a combined $400,000 favorable variance related to lower than expected property management, general and administrative interest and tax expenses. And we had a $100,000 net benefit from three non-recurring items.

The $2.6 million and better than expected results from our communities is the result of the following. Property revenues from our consolidated communities exceeded our forecast by $1.5 million due primarily due to the combination of higher occupancies, lower bad debt expense and higher fee income from our stabilized communities and higher than expected leasing velocity at each of our six lease-up communities in our development pipeline.

Property expenses from our consolidated communities came in approximately $800,000 better than our expectations. The capable variance and expenses is primarily the result of lower than expected salaries and benefits due to lower benefits costs and open positions. And lower repair to maintenance costs resulting from lower than expected unit turnover rates for our portfolio. The last component of outperformance from our communities for the first quarter is at $300,000 favorable variance in FFO contribution from our joint venture communities.

Like our wholly-owned communities, our 44 operating joint venture communities experience similar positive gains in revenues and slightly lower than expected expenses. As I mentioned earlier, we had a net benefit to FFO of a $100,000 during the first quarter from three non-recurring items. I want to provide details on each as there are significant specific line items on our income statement. The first item is an approximately $400,000 benefit related to income allocated to our preferred units. Our prior guidance assume that we would redeem our $100 million 7% preferred units on March 1 and that we would incur a $2.1 million charge on the redemption.

We actually completed the redemption February 10 resulting in an approximate $400,000 benefit to the first quarter. As you can see from our income statement we did incur the $2.1 million charge on the redemption. The second non-recurring item is an approximate $400,000 benefit related to additional rental revenues recorded in the quarter as the result of the purchase accounting treatment for the 12 unconsolidated joint ventures we acquired in January.

As with any acquisition with real estate estates you are required to set up an intangible assets for the value of any above or below market leases and amortize that intangible to rental revenues over the expected life of the underline leases. For the 12 communities acquired we reported a $1.2 million intangible for the value of below market in place leases acquired. $400,000 of the intangible of amortize to rental revenues in the first quarter and $600,000 and $200,000 will be amortized in the second and thrived quarters of 2012 respectively.

To isolate this non-cash amortization we have included it in the other category of property revenues in the components of property net operating income summary on page 11, of our supplemental package.

The third non-recurring item was an approximate $700,000 charge included in other income in the first quarter related to a mark to-market loss on our $500 million interest rate swap that we de-designated last year upon the payoff about $500 million term loan, the loss as a result of the declines in forecasted interest rates through the remaining life of the swap which matures in October of 2012. We do not anticipate material charges in future quarters.

Turning to earnings guidance for the second quarter of 2012, we expect projected FFO per diluted share to be within the range of $0.85 to $0.89 per diluted share. The midpoint of $0.87 per share represents a $0.04 per-share increase from the first quarter of 2012. This $0.04 per share increase is primarily result of the following.

A $0.02 per-share increase in FFO due to the growth in property net operating income as a result of an approximate 1% expected sequential increase in same property NOI as revenue growth from rental rate increases and occupancy gains more than offsets our expected increase in property expenses due to normal seasonal summer increases in utilities and repair and maintenance cost. And the incremental NOI contribution from the lease-up of communities in our development pipeline and from the 12 joint-venture communities we acquired on January 25 of this year.

Additionally, $0.03 per share increase in FFO due to the impact of the redemption of our $100 million, 7% preferred units in the first quarter and a $0.01 per share increase in FFO due to higher property net operating income due to the unfavorable $700,000 charge we reported in the first quarter on our interest rate swap.

The above three positives are partially offset by $0.02 per share in dilution resulting from the full quarterly impact of 6.6 billion shares we issued in January to fund our acquisition of 12 unconsolidated joint ventures and the impact of shares issued year-to-date through our ATM program as we continued to reduce leverage and prefund the equity requirements for our development activities. We have not changed our same-store growth or projected transaction assumptions for 2012, but we have increased the bottom end of our 2012 full year FFO per share guidance range by $0.05 to reflect our FFO outperformance for the first quarter of 2012. We now expect full year FFO per share to be in the range $3.35 to $3.55 per diluted share.

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

Question-and-Answer Session

Operator

(Operator Instructions). And our first question is from Alex Goldfarb with Sandler O’Neill.

Alex Goldfarb – Sandler O’Neill

Good morning down there.

Richard Campo

Good morning.

Alex Goldfarb – Sandler O’Neill

Just the first question is on the turnover. If you can just talk give a little bit more color, your turnover was up but yet you guys increased occupancy. So, can you just give more color on the change of the demographic of the tenant base?

Dennis Steen

In terms of changing demographics of the tenant base there is really not – there is nothing between the two quarters that will make us believe that there was any – we’ve no evidence but that is actually changing. The fact that turnover rate that the turnover rate was up 6% roughly 6% over on year-over-year basis does reflect partially that we push the heck out of rents but the flipside of that was we had sufficient traffic to be able to do it.

And we are going to we’ll continue to do that as we think the trade off makes sense. We are within a range right now. Our annual turnover rate tends to run in the 47% to 50% range and we’re very comfortable with that range over the course of the year. So the fact that we’re 48 for the quarter really doesn’t get on my radar screen very much in light of the fact that we were able to push rents and push occupancy.

So you’re always going to have when you’re doing those two things, you’re always going to have little bit more at the margin. People moving and making other decisions but as Rick mentioned on his in the stats that we look out for the ability to pay relative to our customer base, those metrics have improved materially in each of the last two years. So do they like it, no? No one likes rental increases. Do we get tons of emails? Sure but can they pay? And the answer of that is that they are paying a smaller percentage of their take home pay on a household income basis than they were last year.

I think the other thing that you need really think about on turnover is the last few years has been at historical lows and that’s been driven by a lousy economy where people are doubled up and they are not moving around. They’re sort of stuck because economy is not that good.

But if you think about Texas and you think about some of these really good economies who are adding 100,000 jobs but what’s happening is that you are sort of releasing that pent up demand by roommates breaking up and going to smaller units and having their own independent housing situation. So we would expect in a more buoyant economy where all the jobs are being created to have a higher turnover rate because people are actually moving around and that’s a good thing.

Alex Goldfarb – Sandler O’Neill

Yeah. That’s mote to the point what I was asking you sort of how many of the people who came in when rents were low have now sort of left and been replaced by people who are more commensurate with the price point that’s more of my question was going.

Dennis Steen

Well, I think – I think that’s exactly what’s happening. You’re definitely having people moving down market they can afford it and you’re having people move into our apartments that have higher incomes, they can afford it. And I think that’s evidenced by the percentage of rent that they’re paying. The increase – obviously in America, we haven’t had a 11% increase in earnings in a 12-month period, yet our customers have their incomes have gone up 11%. So clearly, we’re replacing sort of weaker customers with stronger customers and it’s all a function of the job growth and the buoyancy of the economy that we’re operating.

Alex Goldfarb – Sandler O’Neill

Okay. And then second question is, Rick and Keith, you guys have been pretty active in the past in the corporate M&A world. As you speak around – what’s your sense for other CEOs (inaudible) our people with where the apartment valuations have gone. Do you sense that people are starting to be more willing to contemplate M&A or you think it still comes down to whenever a CEO decides its time, its time and apart from that there is not much else that can be done?

Richard Campo

I think that the latter part of your question is correct. M&A is a total social situation. It tends to be driven by the CEO and the board and the management team as to what they think about the world and how they feel about their business. And I think when you think about the multi-family business today, share prices have come back and values have improved dramatically, but when you look out on the horizon, you have to say; well, should I sell today because prices are high and the question becomes; well, what is your outlook for the future.

And right now, the outlook for the multi-family future is pretty damn good for the next two to three of four years, because of all these macro factors. So I think it’s hard for people to unless you just believe in, the economy is going to go down big-time and Europe is going to blow up and stock markets are going to go down 50%. You believe that then maybe you are going to run for the doors, but I don’t think from a fundamental perspective people believe that our business is going to start getting bad or not as buoyant as it is today.

So, when you put that backdrop with why would I want to sell when I think that the rental rates are going to go up and my cash flow is going up that becomes – so you have both situations sort of hurting M&A. On the one hand if you are running a company and you think it’s a great time to be in this business, why would you want to sell unless you believe it’s a top and I don’t think anybody in this business and I don’t think at the top.

Alex Goldfarb – Sandler O’Neill

Thank you.

Operator

And our next question is from Dave Bragg of Zelman & Associates.

Dave Bragg – Zelman & Associates

Hi, good morning to you. I don’t think you mentioned this, what’s current occupancy?

Richard Campo

Last report was 94.9.

Dave Bragg – Zelman & Associates

Okay. Thanks. And then Rick, could you just talk about your view on the housing recovery occurring in many of your markets, maybe provide some commentary beyond the increasing move out by home rate?

Richard Campo

Sure, the housing market in a lot of our markets is improving. I am talking about not just multifamily, but single-family, the markets that didn’t have the bust markets like Houston, whole of Texas really didn’t have a buzz, I mean we have situations in all of those markets where the single-family home business is actually doing really well. You do have probably submarket issues. So in Houston for example in the inner loop – houses around the market or two weeks to three weeks bids are exceeding listing price now which is kind of hurts my head, my 30 year old daughter just bought a house by her office and had to be $10,000 above listing price to be able to get the house.

So, that the market that are – the housing markets that are that haven’t been affected by the buzz were actually doing pretty well and a lot better than once that are affected by the buzz. There are some interesting things going on in markets like Las Vegas where you have sort of the regulatory environment that has created an unusual situation there in Las Vegas. If you really want to buy house you do have to pay less price or higher and you’re bidding mortgage going on Las Vegas.

And there are some strange things happening as a result of the laws that were passed in October 2011, AB284 was passed by the legislature in Nevada, which basically fairly simple low, that basically said lender before they can send out a default notice which was the first step in a foreclosure process had approved through an enough data that they actually had the mortgage and own the loan.

And just to give you a sense of the defaults notices that went on in September 2011, this law came into effect in October of 2011. During September first three or four weeks of September had about 2,000 default notices go out. And in October they had 58. So part of the challenge in Las Vegas is that the inventory stock and such creating kind of an interesting situation where there is really limited inventory and housing prices are rising as a result of that.

I think the Case-Shiller numbers for March and April are going to be surprising everyone in Las Vegas, but generally I think we feel like the single-family market is improving in all of our markets and it’s all driven by job growth and prices getting mark-to-market and consumers are buying homes, so it’s good and I fundamentally think that you have to have a positive single-family market for the multifamily market to be good long-term because it’s such a big driver of our economy.

Dave Bragg – Zelman & Associates

And then when you think about the higher quality tenants coming in through the front door today, as compared to those that are leaving and this recovery occurring in the single-family market. To what degree, do you become more concerned about that move out to by rate accelerating from the current level?

Richard Campo

Well I think the – we always look at those numbers for sure, but in a reasonable economy and let’s just take the 90s as an example where you start out in 1993 with home ownership rate about 64%. By the end of the decade, it was like 66% or 67% and that almost hit 70% in the next decade. During that period about 12% to 14% of the people in our apartments moved out to buy homes.

What was really turned out to be a very, very good multi-family environment during that timeframe, what was happening was, you had the situation where you got a very vibrant economy. You had 20 plus million jobs created. So there was a lot of households created and we got our fair share of demand from the economy. I think that as long as single-family homes are not going to take share from multi-family until you have a buoyant – a buoyant economy.

As long as we have a buoyant economy or creating jobs and we are – we have reasonable household formation like in past history then people moving out the backdoor to buy homes will be filled with people moving in the front door from the demographics and just a buoyant economy. So I think that while single family people worried about – worry about people moving out to buy homes, they’ve always moved out to buy homes in our business.

The problem in the 2003 through 2008 timeframe was that we had really good renters who became really bad homers because they put no down payment. They didn’t have the wherewithal to make a mortgage payment. I think that could be or that would be a threat to multifamily if we had that situation happen again. I doubt given the bust and given the underwriting criteria and everything going on in the single family mortgage market that will happen anytime soon. So if we just have a normal environment where 12%, 14% of our people moving out to by houses but they are being replaced by new baby boom echo kids and immigrants and others that are traditional renters. We should be fine.

Dave Bragg – Zelman & Associates

Okay. Thanks a lot.

Richard Campo

And Dave just to clarify, our current occupancy rate is 95.3%.

Dave Bragg – Zelman & Associates

Okay. That sounds to closer to a level that you spoke about a month ago. Thank you.

Operator

The next question is from Rich Anderson at BMO Capital Markets.

Rich Anderson – BMO Capital Markets

Hey, Good morning everybody.

Richard Campo

Hi, Rich.

Rich Anderson – BMO Capital Markets

So I want to talk about this first question on the rent to income ratio. So like if I’m a resident faced with a 10% rent increase it might be like – I’ve got to say no but let me first go look at my own personal rent to income calculation side. I don’t think they think that acutely about the situation. I don’t know if you think that, but I doubt people think about their own personal rent income ratio. And so, in saying that, I guess my worry is a wearing down effect. You got one big rent increase after another, eventually it’s going to get to the point where residents are just collectively put a halt to things.

And I am wondering, you said you gave a lot of push back in calls and things like that, but at what point are you worried that, maybe rent income ratio is fine, but we’re just wearing people down here? And only thing that have to happen is the homework has to open up and then that creates option and you might still get good rent income or rental growth but maybe not as vibrant as you’re getting today. I wonder if you could comment on that.

Richard Campo

Yeah. Rich, I would – there is no question that our folks are not doing rent to income calculation. But I think it is – it’s useful to think about it from a big picture standpoint. And if you think about where we are right now in rent, we are currently as a portfolio and obviously it’s – there is variances between markets, but if you take all of Camden’s, which is a pretty big footprint over 15 markets and you take all of them combined, we just crossed over where we were in peak brands in 2008 last quarter. So in the aggregate across all of our communities, this is the first quarter that the average resident is paying more in rent in actual dollars than they were in 2008.

Rich Anderson – BMO Capital Markets

But that’s a different person.

Richard Campo

I understand that. But – so the question becomes, the market is the market. And as long as we are raising rents and we don’t deviate too far from what the rest of the market is doing then everyone has to look at and say, okay, what is my alternative. I’m going to go shop and they do it all the time but the good news is that our – with our yield management system we know exactly what the market is. We know exactly what demand is and it’s what I guessing about what the price level should be and experimenting we know with very good predictability what you can do with rents and what the likely effect that will be on both turnover and your overall occupancy rates.

So, it’s not that we’re, we don’t think that there is pressure. Obviously when you get 10% rental increases back-to-back no one likes it and there’s – I’m sure there are a certain percentage of people that just out of as a matter of principle not because of their doing their income to rent ratio, but just as a matter of principle, they go shop. They discover that lo and behold everybody in Houston raised their rents 12% in the last year and or at least let me explain this way. All of the likely alternatives for our residents which are class A communities that are well located.

Our competitors are doing the same thing. Now are they sophisticated on revenue management? Of course not, but there it doesn’t take a whole lot of sophistication to call your comps and say what did you do on rents which is what our – we give a lot of information to the marketplace. Other people check in what we’re doing on rents. So is a percentage of that 48% we moved out notwithstanding the fact that they’re going to pay approximately the same amount of rent across the street or down on another block. Yeah, that probably is. And I understand that and that’s the trade-off but as long as turnover is staying in a band that we’re comfortable with given traffic demand, the ability to backfill and we’re raising rents and we’re raising occupancy then from our perspective as good operators in this business that’s our obligation to do that.

Dennis Steen

Okay. And there choice is to say I’m going to get angry and I’m going to go somewhere else.

Rich Anderson – BMO Capital Markets

Okay. Just second question then is I’m looking at median household income number in your markets of about 40,000 and you’re saying 69,000. Is that the difference between your markets and the subsector of your market that rents your apartment is it that substantial or do you think that my 40,000 number is wrong?

Richard Campo

I think that broad numbers can mislead people and when you think about markets I always use Houston as an example. You can buy $140,000 house in Houston. But it’s not – that’s the medium price of a house in Houston is not relevant if you’re inside the loop. Inside the loop, the average housing price is an excess of San Diego, California.

And that hurts people’s head so if you use a average meeting income for a broad metropolitan area like Houston you’re going to get total skewed because our average income for example at Camden Travis Street in Huston is around $90,000 a year. Clearly much higher than the average income of Houston overall. And that’s because it’s very well located and in the rents there 1,500 bucks to $2,500 a month. You go out into the Hinterlands in Huston, you can get the same apartment from a square footage perspective for $600 and your average income in that apartment is probably going to be $30,000 to $40,000 per annual income. So I do think they are skewed by submarkets in a major way in major metropolitan areas.

Dennis Steen

Rich just as a follow-up on that, in Houston the average – or average household income on our current Tennessee is 73,000 a year.

Rich Anderson – BMO Capital Markets

Okay.

Richard Campo

Yeah.

Rich Anderson – BMO Capital Markets

Okay. So, I just want to say that I heard the music and I heard the words running on empty and it’s later than it seems, but that was just my interpretation, so.

Richard Campo

Some people have the glass half full and some have half empty. Now we know who you are?

Rich Anderson – BMO Capital Markets

Okay, thanks guys.

Dennis Steen

At least you didn’t hear it, at least you didn’t hear for tender.

Richard Campo

We will think about little wane next time, what do you think?

Rich Anderson – BMO Capital Markets

Oh, I got all kinds of suggestions, all that you know.

Richard Campo

E-mail one. We are always looking for good ideas.

Operator

And our next question is from Eric Wolfe of Citi.

Eric Wolfe – Citigroup

Thanks. Ric, when you said your residence income has gone from 62,000 to 69,000, you’re talking about the average of costs at your tenant base or those just the people that are moving in right now?

Richard Campo

That’s the average across the tenant base.

Eric Wolfe – Citigroup

Okay.

Richard Campo

That includes.....right.

Eric Wolfe – Citigroup

Okay.

Richard Campo

Just to clarify that’s household income.

Eric Wolfe – Citigroup

Okay.

Richard Campo

So, where you have two people living together, that’s total household income.

Eric Wolfe – Citigroup

Okay. And so I guess – I guess my question is if you look at just the people moving in this last quarter or recently, how much high are their incomes relative to those people that are moving out, is that like a $10,000 gap, $20,000 gap, trying to understand how much the income profile of your tenants is sort of changing recently?

Dennis Steen

Yeah, from the third to the fourth quarter of 2011 to the current quarter, it went from 66 to 69, so $3,000 difference in household income.

Richard Campo

But the challenge is does that includes the entire base. We haven’t tracked it that way and we probably could, but we haven’t. We don’t have those numbers in front of us right now. But clearly the new people coming in have a higher income than the existing people that are – that are, let’s say have been there for two years and we don’t recheck their income to drive that number up. And so, we think that that 69 is probably low, because our existing basis never knew are not re-qualified and they don’t tell us when they get raises. So I would think that – that clearly some of the people coming in have higher incomes, but also our existing embedded base are getting raises as well. So we can try and – maybe get some more granular information on that and get back to you later on that.

Eric Wolfe – Citigroup

That would be helpful. And then just a second question on your guidance, you mentioned that $2.6 million better NOI from the consolidated and JV properties. It wouldn’t seem like that’s – that NOI benefit is being carried forward in your guidance. So I’m just wondering what would make this reverse or is there something offsetting it later on?

Richard Campo

I think as you see as we go from the first quarter to second, as I looked at the backlog, the first component of our growth is $0.02 improvement due to the performance of the NOI of our properties and that even in a quarter where we normally have an increase in expenses. So I mean there is still a decent walk from first to second. I think our same store revenue guidance is actually up 1.8% consecutively.

Eric Wolfe – Citigroup

I guess the reason I am asking this if you look at your first quarter same-store revenue growth and you compare that with your fourth quarter, they’re about the same. And you look at last year where you ended up from the same-store revenue perspective at 5.5% and you compare that with your guidance this year, also 5.5%. It would seem to be me that you’re predicting – deceleration this year that’s essentially equivalent to what you had in acceleration last year. And I don’t know if that’s the right way to think about it?

Richard Campo

Well, I think what we’ve done in our guidance, the first quarter is always the toughest quarter to try to decide whether you’re going to change your guidance for the whole year so we sort of tickle the guidance if you will by raising the bottom of the guidance, but what we’ve done from our peer modeling perspective is just to use our original budget through the, for the second and third and fourth quarter. We clearly beat in the first quarter and then we do have our occupancies and our rental rates ramping up in that budget. But with that said we’re – that’s how we did our guidance. So clearly it implies that, I guess just a math implies that if you start out at 6.8% revenue growth and you say your average is going to be 5.5% for the year, you have a decline in that, but I think there’s upside in those numbers clearly.

Dennis Steen

And if you look back in last year in to the second quarter we actually are same store portfolio increase on revenues 2.9% with a significant piece of that was an increase in occupancy. So we’re not going to have that same type of impact this year as we did last.

Richard Campo

Right.

Eric Wolfe – Citigroup

That makes sense. Thank you.

Operator

And our next question comes from Seth Laughlin of ICI Group.

Seth Laughlin – ICI Group

Thanks. Good morning. My first question is just on DC supply it sounds everyone starting to expect the bulk of it to began in the fourth quarter of this year. Just wondering if that’s in your budget and if you can help us in kind of what the magnitude of that impact is going to be.

Richard Campo

First of all we missed the first part of your question, so can you repeat it?

Seth Laughlin – ICI Group

Yeah. Apologies it’s just a question on the DC supply. It sounds like fourth quarter when we’re going begin to see the bulk of that hit the market. Wanted to see if that’s in your budgets and if you can help us with the magnitude of the impact on your portfolio that you expect there?

Richard Campo

Sure. The new supply is definitely in our budget, when we do our budgets we do them on a property-by-property basis and each property looks that it’s competitive set and we try to then manage our budget space on the competitor set. So with that said any developments would be in fact, dialed into those to those scenarios and when you look at DC, it definitely has decelerated from its peak but we still believe it’s going to be a positive contributor to the overall income growth. Keith, you want to....

Keith Oden

Yeah, the written numbers for 2012 completions for DC metro are about 6,000 apartments. Same-stores for job growth in 2012 DC metro is 36,000 jobs sort of at the five to one ratio that we – is there a kind of thumbnail ratio that we’ve used in the past that would imply pretty close to equilibrium in that market. So if you get 6,000 new apartments that at 5 to 1, you will need 30,000 jobs to naturally take that – take on that absorption.

So, yeah, there’s going to be supply and that’s not allocated perfectly across that market. There’re going to be pockets that are going to have some competitive pressure from the new lease-ups but you got – the overall market in DC even though it has decelerated, we’re still raising rents in DC as we do not raise on the 10%, we raise on it 4%, so in most days that would be considered really healthy market.

Seth Laughlin – ICI Group

All right.

Richard Campo

But when Houston’s doing 12 and Charlotte is doing 14 and Dallas is doing 10, you say well DC looks weak. Well, I think we’re going to be okay there.

Seth Laughlin – ICI Group

And in terms of your markets in Texas and then maybe specifically in Atlanta not concerned about supply sort of meeting that growth in this calendar year?

Richard Campo

No, clearly not this calendar year or next. I mean there’s – Houston has probably 10,000 permits being closed in Houston right now, but the problem is may be the benefit is that that those units aren’t going to leasing up until 2013, best case – end of 2013.

Keith Oden

We’ve got completions in Houston out after 2013 or in 2013 of about 11,000 apartments, which again sounds like a big numbers, but in a market like Houston, it’s really not that troublesome, particularly in light of the job growth forecast or 2013 that’s predicting another 90,000 or so jobs. So again, 5 to 1 on the 11,000, 55,000 jobs, we are probably going to get 90,000 jobs.

Seth Laughlin – ICI Group

Understood.

Richard Campo

And there is really nothing you can’t go to the grocery store and buy a multi-family apartment, it is what it is, those – the completion numbers for 2013 are, I mean that’s a pretty hard number and known and knowable. And so that’s my – I think in Ric’s opening comment that you got to get out to 2014 in everyone of these markets before you start, but you will see us doing any hindering about supply, because it is a known number in for what’s come in 2012 and 2013. Now the job growth side of it, who knows. We are certainly in our markets, we are clipping along, there is some pretty decent job growth right now, nationally it’s still pretty tacit but in our markets it’s a better than that.

Seth Laughlin – ICI Group

Understood. I guess my next question is just on San Diego, there has been a lot of talk about weakness in that market, but it looks like you guys have some pretty healthy sequentially growth as maybe just a little bit more color there, are you seeing something in that market other aren’t or is that just a blip in one time?

Dennis Steen

I would say it’s a blip.

Richard Campo

San Diego continues to be a struggle, probably it was just a real weak fourth quarter, in fact I think we did have a real weak fourth quarter. One of our communities only have, I think three or four communities that role up into the same store there. One of them is very much affected by what happened in the deployment and we have two aircraft carriers that within the last six months have been moved, one for renovation and one for permanent redeployment and it – then it wacked us in the fourth quarter. So I think the story – our story is about same as everybody else is for San Diego.

Seth Laughlin – ICI Group

Great. And then I’ll just wrap up, apologize if I missed this. What are you guys setting up for renewals going forward?

Richard Campo

The April renewals are running in the 8 plus range, 8.2%; new leases, we didn’t give that in the prepared remarks. New leases are running in the 6.2% range. So pretty consistent with what we saw for the month of – for the month of March.

Seth Laughlin – ICI Group

But are you accelerating those renewals requests as you kind of head further into the summer or do you expect that to stay at the current level?

Richard Campo

Our renewals rates on renewal increases going back are probably 14 months, they have averaged about 8%. And I just don’t see any reasons but think that that’s going to change much.

Seth Laughlin – ICI Group

Understood. That’s all from me.

Richard Campo

Thank you.

Operator

And next we have a question from Michael Salinsky of RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Good morning, guys. On the development side, couple of your peers took up the return expectations turning ahead, just curious as to how as you start leasing these properties up, how the actual rents are under – how rents are trending versus your actual underwriting? And also, I think you talked about development strategy for the year. Can you give us a sense how that lays down in terms of actual starts maybe on a quarterly basis?

Richard Campo

Sure. In terms of our brands, rents are definitely higher than our original pro forma, probably 3% to 4%. The more interesting part for me was the speed at which they are releasing up and also the fact that we were giving no concessions in a typical development lease up over the last 20 years since I have been involved in it or maybe more. I don’t know that we’ve ever had development sort of leased up with zero concessions meaning that you have customers coming into the projects and there’s lot of construction mess and you start delivering a few buildings and everything else is going on and usually you give a little month or half a month or something.

It’s an enticement for them to lease. So this environment in Tampa and Orlando, zero concessions is pretty amazing. And what you have there is just no supply and there’s a pretty high demand for new paint and new developments there in this environment. And with that said, we definitely have higher rents and no concessions that should lead to higher returns obviously somewhere between 40 to 50 basis points is what we expect in terms of better returns once they’re stabilized.

Richard Campo

Michael in terms of development starts right now we haven’t scheduled this one in Q2 and Q3 and Q4 one of which is a fund asset.

Michael Salinsky – RBC Capital Markets

Okay. Appreciate the color there. Second of all just in light of the higher turnover you guys talked about there. Can you give us a sense if there are any markets where you’re facing greater resistance and also there’re any markets in particular across the portfolio, is it pushing longer renewal and new lease rates, where you saw pretty big spike in turnover?

Richard Campo

We didn’t – we have not really seen any big spike from the standpoint of variance to prior quarter 42% to 48% would imply kind of an average delta of about 6% more than turnover rates in the prior year. And we’ve got some 7s and 8s, the only one that jumped out at me was Austin at 11% in terms of change in turnover rate year-over-year. And when you look at it because it’s not because their discounted rate elevated, because it was so incredibly low a year ago. So went – and Austin went from 35% to 46%, but the number on that that strike me as hard as the 35%.

Michael Salinsky – RBC Capital Markets

And just as a follow-up to that. Can you talk a little bit about the loss lease, and you guys have been pushing pre aggressively, just curious as to how your – how the rents across the portfolio there, compared to market at this point?

Richard Campo

So, we don’t – our loss to lease change is hourly, because we are in a revenue management world, we re-price our inventory online every minute. So it’s not a number that we – that data is even meaningful for us to try to think about in terms of loss lease.

Michael Salinsky – RBC Capital Markets

Okay, so it’s safe to say that you’re moving rents to market or you pushing rents above market at this point?

Richard Campo

We are moving rents to what our yields star revenue pricing model recommends. I would say right now that we are probably in the 90% plus accept range. So not meaning that that 90% plus of all of the recommended lease rent either renewals or new leases are accepted without any further scrutiny and there is always a percentage up that do get scrutiny for – everybody has their own little one-off vagaries of reasons. So when you say pushing on the market, we are pushing them to what we believe the market is or what the market will sustain.

Sometimes that may mean that we are pushing the rents more than our competitors because they’re not – they’re just not as quick to adapt to changes in market conditions. What normally happens is they call us or somebody else like us and ask what you’re doing on rents. We tell them and they adjust the rents.

Michael Salinsky – RBC Capital Markets

Okay. That’s great color. I greatly appreciate you guys. Thank you.

Richard Campo

The poor man’s revenue management system.

Operator

And next we have a question from Paula Poskon of Robert W. Baird.

Paula Poskon – Robert W Baird

Thanks, Good Afternoon. I do want to follow up on the home owners to move out to home ownership ratio, is that ratio pretty consistent across your markets or do you see a wide variance across the markets?

Richard Campo

It doesn’t vary that much. There are a couple of them that are little bit counterintuitive. Our Las Vegas move out to home ownership is one of the lowest in the portfolio which is – maybe because what Rick is saying earlier about the homes that are kind of stuck in the pipeline and you just can’t get access to that inventory. So, on the high end you’d see a Denver at 15%, 16%.

You probably see Atlanta or Raleigh in the 16% range. On the lowest end, you got California at 7.8% and then you got Vegas and Austin in the 10% range and those will be the three lowest in terms of turnover rate. So our move out is not a – there’s not a huge change. Our historical number on the average on this number is in the 18%, 19% range. So we have no – we don’t have any single market that even back to the long-term average of move out to purchase home.

Paula Poskon – Robert W Baird

That’s helpful. Thanks. And then just a bigger picture question, given the growth that you’re contemplating over the next couple of years. Do you think your current platform, your infrastructure can handle and manage that growth or do you feel like you’re going to need to add some bandwidth and some infrastructure?

Richard Campo

Our current platform could handle lot of growth. We have systems in place where we had properties that’s just plug and play. The systems are very scalable so we would require very little additional G&A or infrastructure to grow the platform with roughly 70,000 units I don’t think we need to be much unless you get maybe up to the – over 100,000 unit kind of zone.

Paula Poskon – Robert W Baird

That’s helpful, that’s all I have. Thank you.

Richard Campo

Okay.

Operator

And next we have a follow up question from Rich Anderson of BMO Capital Markets.

Rich Anderson – BMO Capital Markets

Thanks. Sorry to keep you going here. But a question on the income growth at 11% you mentioned is that all pure income growth or is that also a function of how you move the portfolio around over the course of the past year.

Richard Campo

Now that’s same store so it would be same store household income. So it should be reflecting of what’s going on in the portfolio. We do think it’s probably understated because of the fact that we do not re-underwrite or ask the people who are renewing their leases if their rent has – if their income has gone up or down. We expect to paying a 10% increase in their rent that they are likely to have had income growth, but we don’t actually go back and ask them. So that number is – should be all same store, it should be exactly the same portfolio for each period that we’re measuring.

Rich Anderson – BMO Capital Markets

Okay. That’s all I have. Thanks.

Richard Campo

Okay. Great.

Operator

And next we have a question from Rob LaQuaglia of Wells Fargo.

Rob LaQuaglia – Wells Fargo

Thanks guys. Just a quick question on your longer term portfolio plans, Washington D.C. has become a larger and larger contributor to your overall NOI. And I think at 19%, it’s the highest it’s ever been. Where would you expect that to peak out and what is the target percentage in that market over the next two to three years?

Richard Campo

Well, we like Washington D.C. a lot long-term. I mean it’s great market and it always has been a great market. Overall as we manage our portfolio, we will – that number will go up and down. It will probably stay in the zone that it is now maybe up a couple percent, may be down a couple percent, but we – we are more interested in the quality of the portfolio within that market. We do have two new developments that are building there and we have some aligned properties into the extent that we would do more acquisitions and/or development in D.C. we would likely sell a couple of assets as well.

So we sort of like where are there and we like the – and I think one of the big issues the big thing if you have to remember about Washington D.C. is its very different submarket. So the District is very different than Loudon County and some of these other markets. So we don’t really look at it as 19% in one specific market because of the way you can slice that submarkets up pretty effectively.

Rob LaQuaglia – Wells Fargo

Great. Thanks.

Richard Campo

Sure.

Operator

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

Richard Campo

Great, we appreciate everybody on the call today. And we will see you in (inaudible). Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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