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Camden Property Trust (NYSE:CPT)

Q2 2008 Earnings Call

August 1, 2008 11:00 am ET

Executives

Kim Callahan – Vice President Investor Relations

Richard Campo – Chairman and CEO

Keith Oden – President

Dennis Steen – CFO

Analysts

Christine Kim – Deutsche Bank Securities

Anthony Palone – JPMorgan

Michael Bilerman – Citigroup

Alexander Goldfarb – UBS Investment Bank

Dustin Pizzo – Banc of America Securities

Jay Habermann – Goldman Sachs

Michael Salinsky – RBC Capital Markets

Richard Anderson – BMO Capital Markets

Haendel St. Juste – Green Tree Advisors

Karin Ford – KeyBanc Capital Markets

Operator

Welcome to the Camden Property Trust second quarter 2008 earnings conference call. (Operator Instructions) Now, I would like to turn the conference over to Kim Callahan, Vice President of Investor Relations.

Kim Callahan

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 second quarter 2008 earnings release is available in the Investor Relation section of our website at camdenliving.com and it includes reconciliations to non-GAAP financial measures, which may be discussed on this call.

Joining me today are Rick Campo, Camden’s Chairman and Chief Executive Officer; Keith Oden, President; and Dennis Steen, Chief Financial Officer. At this time, I’ll turn the call over to Rick Campo.

Richard Campo

Last quarter I talked about a tale of two markets. This quarter the story continues, strong market performance in Houston, Dallas, Austin, Atlanta, Charlotte, Raleigh, and California posted 4.3% positive same-store NOI growth over the prior year. Markets that continue to be challenged by weak job growth from the unwinding of the housing bust continue to post declines in net operating income of 2.9% for the quarter over the prior quarter last year.

Overall, same property NOI growth was 0.8% for the quarter, pretty weak relative to our historical growth. Sequential NOI, on a positive note, grew 1.7% over the last quarter. We believe the balance of the year will be more of the same till job growth accelerates. We don’t think this is an inventory issue in the challenged markets. We really think it’s a job growth issue. As a result, we have lowered our same-store property NOI growth to a midpoint of 1% for the year, for the balance of the year. We also have lowered our FFO guidance for the year to $3.55 to $3.65 per share.

During the quarter and subsequent to the end of the quarter, we sold 1,307 apartments for roughly $110 million. The properties were on average of 24 years old. The sale resulted in a 12.63% unleveraged internal rate of return over a 13.5 year holding period. We will continue to recycle capital selling older, slower growing properties and reinvest those funds into development, debt repayment, and stock repurchases. All the sales were financed by Freddie Mac and Fannie Mae. The agencies continue to be a significant financing for us for multifamily properties. The recent enactment of the housing bill will insure that strong agency multifamily financing will continue on [inaudible]. As a matter of fact, we were really excited about the housing bill because it was a serious victory for multifamily companies. The Congress really took a hard look at our industries lobbying efforts to create a more balanced housing policy and we think that that bill really does that.

During the quarter, we made significant progress on our development pipeline. The costs are inline with budget. Leasing continues to be on plan. We did have some challenges in some of our challenging markets achieving pro forma rents. We stabilized yields, are still above 7% and we’ve reduced our yields overall by about 15 basis points.

Future development starts will be staged over the next several years and will be funded using our line of credit, disposition proceeds, joint ventures, and our value-added fund. Our management teams are doing a great job under challenging conditions. We appreciate their commitment to providing living excellence to our customers.

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

Keith Oden

Overall our operating results were inline with our expectations for the quarter with a small miss in revenues more than offset by expense savings. Year-to-date, we’re slightly ahead of plan, but that will change as we move through the second half of the year. Our property level reforecast for the balance of the year indicates a sideway trend in NOI, so we expect to end the year roughly where we are today with the same-store NOI growth of plus or minus 1%. Our original guidance was predicated on a much stronger job growth outlook than we will see in the second half of this year.

To put this in perspective, when we finalized our 2008 plans in the fourth quarter of last year, we were using a consensus estimated increase of 1.3 million jobs for the total U.S. Currently, we are using an estimated 210,000 job loss or $1.5 million negative swing in jobs. In Camden’s 15 core markets, that translates to an original estimate of 406,000 in positive job growth in our market to a now revised 81,000 job growth or a net swing of 325,000 fewer jobs. As you know, we built our platform on the premise that job growth is the primary driver of multifamily performance over the long-term. When the economy is adding jobs, our portfolio will benefit disproportionately to the U.S. averages. The reverse is also true, which is where we find ourselves today.

Rick mentioned the continued bifurcation in our portfolio between the economically challenged markets in our portfolio and those that continue to have decent growth. There’s been a ton of discussion as to what the root cause for the challenges in our underperforming markets is. The consensus view is that the single-family housing debacle and the resulting overhang in unsold inventories are the primary causes for the pain in our challenged markets, so let me give you our non-consensus view and that is this:

We believe the declines in job growth, which have been much more pronounced in our challenged markets, are the primary reasons for the weakness in those markets. The largest downward revisions to 2008 job growth in our portfolio occurred in Phoenix, Las Vegas, Tampa, Orlando, and Los Angeles. It’s much easier for me to connect those dots to our challenges than it is to connect the dots to single-family rental competition as the root cause. Now I know that you may thing that I’m making a distinction without a difference here, but consider this:

If the root cause is weak job growth, then a recovery in job growth from a modest recession could occur as early as 2009, and our portfolio would see the benefits relatively quickly. If the route cause is the single-family housing overhang, which may take two or more years to resolve, then our portfolio will be under pressure for much a longer period of time. Obviously we feel strongly that it is all about the job and recovery may be nearer than the current consensus view.

Now turning to some specifics for the quarter: We continue to see good traffic at our communities. We were down less than 2% in traffic over the prior year, which is a really tough comp. Our closing rate was a solid 34% for the quarter, which allowed us to increase occupancy to an average 94.6% of 80 basis points over the prior quarter. We actually average slightly better than 95% for the month of June.

Unfortunately, our average rental rates were basically flat year-over-year and up a meager two-tenths of a percent sequentially. The pick-up in sequential was primarily from the occupancy gain and other income from our perfect connection cable program and our valet waste initiative. Our resident turnover rate for the quarter was down 3% from last year to 65% and the percentage of move-outs to home purchases was 14.2% or flat with the first quarter but down from 20% in the year ago quarter. We expect to see this trend continue as many residents continue to lack the courage or the financing required to purchase a home in this environment.

Our yield star revenue management system continues to perform as expected and our challenged markets we’ve seen downward price adjustments to achieve 95% occupancy and our healthier markets we’re still getting decent rental increases. As the employment growth forecast began to deteriorate through the second quarter, we challenged our onsite staff to look for ways to accelerate the expense reductions from our numerous technology initiatives. The response has been favorable and we’ll continue to be a focus throughout 2008.

After adjustments to our operating expenses for the cost component of our cable and trash initiatives, operating costs for the first half are down nine-tenths of a percent from the prior year. In making the comparable adjustment to revenues, that would decrease the year-to-date number to essentially flat from the reported 1.5% increase. We do expect expenses to increase in the second half of the year due to seasonality and a fourth quarter ’08 comparison to a fourth quarter ’07 expense number that had roughly $2.2 million worth of downward adjustments for benefit in property taxes.

There’s ample evidence, anecdotal as it might be that consumers are being pressured by rising costs and weaker job markets. We’ve yet to see this stress translated into higher bad debt expense or delinquencies at our communities. Bad debt expense fell from the prior quarter from $6 per unit to $5 per unit, which is in line with our historical average. Delinquencies are in line with what we’ve seen the past two years when times were clearly better for the consumer. These trends are also in line with what our competitors are experiencing.

One of the great ironies emerging from the single-family housing foreclosure mess is that apparently the multifamily industry did a better job of qualifying our residents for a 12-month lease than lenders did in qualifying buyers for a $250,000 mortgage.

As you step back and scan the big picture for the quarter, if you’re a glass is half full kind of person, you would see that sequential NOI was up 1.7%, was positive in 12 of our 15 markets. You would also look at our revised full year guidance and conclude that we’re not expecting any further sequential deterioration between now and year-end. On the other hand, if you’re a glass if half empty kind of person, you’ll see that our challenged markets are still challenged and will remain so throughout 2008 and that we are and will remain near the bottom of our sector in NOI growth for the year. Whichever camp you fall into, I can assure you that our entire team is doing everything possible to fill up the glass.

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

Dennis Steen

I’ll start this morning with a review of our second quarter results. Camden reported FF0 for the second quarter of $54.9 million or $0.94 per diluted share, $0.05 above the midpoint of our prior guidance range of $0.87 to $0.91 per share and $0.04 above the first call mean estimate for the second quarter. The $0.05 per share outperformance to the midpoint of our prior guidance was primarily due to property net operating income exceeding our forecast by $1.6 million and our recognition of a $2.3 million gain on the repurchase and retirement of 27.75 million of our unsecured bonds during the quarter.

These two positives were partially offset by a $1.1 million unfavorable variance related to costs that were expensed on abandoned acquisition activities. Approximately $700,000 of this unfavorable variance is included in general and administrative expense and approximately $400,000 relates to one of our development joint ventures and is therefore included in equity and income of joint ventures.

The $1.6 million favorable variance in property NOI was the result of lower than anticipated property expenses, which more than offset slower than anticipated growth in revenues from our stabilized operating communities, as Keith just discussed. Property expenses were $2.6 million lower than anticipated for the second quarter due primarily to a $1.3 million non-recurring decline, an employee benefit cost due to unusually low claims related to our medical benefit plan, and lower than anticipated utilities and repair and maintenance expenses for our stabilized operating communities.

During the second quarter, we made significant progress in the execution of our 2008 disposition program. In the second quarter, we sold Oasis Sands in Las Vegas, Nevada, and Camden Towne Village in Dallas, Texas recording a gain on sale of $14.7 million. Subsequent to quarter end, we sold four additional communities, Camden Briar Oaks and Camden Woodview, both located in Austin, Camden Arbors in Denver and Camden Lakeview in Dallas. This brings our year-to-date disposition volume of operating real estate assets up to approximately 1,500 units, which has an average age of 24 years generating $120 million in proceeds.

The average cap rate on our 2008 dispositions was 5.9% using 2008 annualized NOI and capex per unit of $650. We’re currently at various stages of marketing additional communities for sale and now expect 2008 total disposition volume in the range of $200 to $350 million.

Our balance sheet metrics and liquidity position continue to be strong. We ended the quarter with over $320 million in availability under our unsecured line of credit. After applying proceeds from asset dispositions completed in July and projected dispositions for the remainder of 2008, we’re currently forecasting over $500 million in availability on our line of credit at year-end 2008. We do have just under $180 million in secured debt maturing in the second half of 2008. Our assumptions include the refinancing of these maturities with new agency secured debt. We’re currently negotiating terms on the new agency debt with indications of all end rates of just under 4% for floating rate debt and the mid to upper 5% range for seven- to ten-year fixed rate debt.

Due to the disruption in the unsecured bond markets, we took the opportunity to repurchase $27.75 million of our unsecured note at an average discount of over 9% representing a 7.13% yield to maturity. This repurchase and retirement resulted in a gain of $2.3 million, which is reported in FFO for the second quarter. We have not forecasted additional repurchases for the remainder of 2008.

Moving on to earnings guidance, we expect full year 2008 FFO per diluted share to be between $3.55 and $3.65 per share with a midpoint of $3.60. This represents a decline from our original full year guidance of $0.10 per share at the midpoint. The decrease in our full year expectation is primarily the result of the following:

As Keith discussed earlier, we have revised our full year same property guidance and we now expect same property NOI growth of 0.5% to 1.5%, down from our original guidance of 2.25% to 3.25%. This 1.75% decline in expected same property NOI growth lowered our full year FFO guidance by approximately $0.09 per diluted share.

Additionally, non-property income net, which includes fee and asset management income, net of expenses and interest in other income is now projected to be approximately $0.06 per share below our original 2008 full year guidance due to the delayed timing of new development joint venture starts originally planned for the second half of 2008. The above negative impacts are partially offset by the $2.3 million or $0.04 per diluted share gain related to the early retirement of unsecured bonds reported in the quarter.

For the third quarter of 2008, we expect FFO per diluted share within the range of $0.85 to $0.89 per diluted share with a midpoint of $0.87 per share representing a $0.07 per share decline from the second quarter of 2008. This decline is the result of the following:

A $0.03 per share decrease in same property NOI as projected growth in same property revenues is more than offset by our seasonal summer increases in utilities and repair and maintenance expenses, a $0.04 per share decrease in property NOI related to our property dispositions completed in the second quarter of 2008 and plans for the third quarter of 2008, and a $0.02 per share decrease related to the net positive impact in the second quarter of 2008 from nonrecurring gains on the early retirement of unsecured bonds and cost associated with abandoned acquisition activities.

These three decrease are partially offset by a $0.01 per share projected increase in property NOI related to the continued lease-up of communities in our development pipeline a $0.01 per share projected net decrease in interest expenses as proceeds from second and third quarter property dispositions are used to pay down balances outstanding on our unsecured line of credit, offset in part by a reduction in capitalized interest due to the completion of units in our development pipeline.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from Christine Kim Deutsche Bank.

Christine Kim – Deutsche Bank Securities

Just a question on the revenue growth guidance, you guys are 1.5% for the first half and are expecting a ramp-up 2% to 2.75%, I’m not just sure what’s going into that assumption.

Keith Oden

Christine, our revenue forecast going forward has a slight increase in the third quarter and then a very slight increase again in the fourth over the run rate. The difference is that in the fourth quarter of last year, which is when we really were getting hammered in the job loss market, we had a reduction or a fall off of about $4.5 million in revenues from Q3 to Q4. So when you run basically flat revenues through that model, you end up at 3% guidance, so we’re pretty comfortable with that in the back half of the year.

Christine Kim – Deutsche Bank Securities

So is that going to come mostly from the rent side then or from an occupancy pick up?

Keith Oden

The occupancy pick up, we’re assuming we maintain in the 94.5% to 95.5% range, so we really are not on a run rate basis forecasting any pick up from occupancy, and it’s really not growing rental rates either. It’s just that if we stay flat from our guidance, a run rate in the second quarter, the comparable in the fourth quarter of ’07 was almost $5 million less than the third quarter of ’07. So it’s basically a flat assumption on occupancy and some small pickup in revenues and that’s coming primarily from the seven or eight markets where we really still have some degree of pricing power. But at the end of the day, it’s not that we’re projecting ramp up or better conditions in Q3 and Q4, it’s just that the comparative drop off in the fourth quarter.

Christine Kim – Deutsche Bank Securities

Speaking of pricing power, could you just comment a little bit on how sensitive people are now to rent increases both on renewals and on new leases that you’re signing?

Keith Oden

In the five markets that we posted a 3% same-store NOI loss, they’re hypersensitive. We’re fighting for market share in those markets. We’ve done a good job and the pricing model has done a good job of kind of fighting back to a 95% occupied condition, which was most of the pick up in the occupancy in those markets quarter-over-quarter, so that’s the good news. The bad news is in order to get there, we’ve had to lower our net effective rents. We don’t concessions because it’s not the way our model price of revenues, but I can tell you that in every one of those markets, concessions are the rule and not the exception. In markets like Tampa, you see the crazies doing two months free and the like in some of the assets that we compete with. But yeah, I would say very sensitive in those markets and not so much in the markets where we’re still able to get some rental increases.

Operator

Our next question comes from Anthony Palone from JP Morgan.

Anthony Palone – JPMorgan

Can you talk about expected development starts dollar-wise over say the next 12 months?

Richard Campo

Sure, we are likely not to start any developments before the end of the year, plus or minus. We may start one project in DC between now and the end of the year on our balance sheet. Next year, I don’t have any specific numbers I can give you right now, but we’re evaluating starts in the first quarter and second quarter. The idea being is that we think that starting projects in first quarter/second quarter ’09 would have deliveries going out into 2010/2011, which we believe is going to be a pretty good time for the multifamily business, especially when you consider what we expect to be a sharp fall off in development starts over the next 12 to 18 months because of the credit crunch and just the negative situation that’s being imposed upon the merchant builders of the world. So we’re going to be very prudent in those starts. We’re not going to start the transactions without having them fully funded either through dispositions or through joint ventures or through the utilization of our value-add fund.

Anthony Palone – JPMorgan

Then in that same light from an accounting and earnings point of view, in the past you’ve been able to quantify how much development delusion you thought was embedded in your FFO. Can you many comment on that for this year? Then what happens to that I guess if the amount of development ongoing comes down, guess that dilution gets lifted a little bit, but maybe on the flipside you have to start to bring in any capitalized overhead?

Richard Campo

Well the first question, I think our guidance shows $14 million of development dilution this year. Clearly as you ramp up development and you start leasing up higher percentages of properties, that development dilution either goes up if you ramp up. If you’re ramping down, that development dilution clearly reduces. So next year based on the current starts that we projected, which have been pretty much none this year, you have a ramping down of that development dilution next year with the lease up of the existing properties that are being in lease up today. So with that, with respect to that, you definitely have a… Next year, we’ll have less development dilution than we have this year when the assets start earning.

The second question about capitalized overhead, clearly in a market where you are not ramping our development up but actually ramping it down some, we have had to expense more capitalized cost than we would’ve otherwise this year. Actually two pieces of that, our value-add fund, we actually have added overhead this year that’s been expensed relative to the value-add fund and because of the nature of the market, I mean this is a very interesting market as everyone well knows, while deals are getting done as evidenced by our dispositions, the acquisition side of the business we’ve been very patient on. So we’ve had actually less fee income anticipated from our value-add fund. At the same, we’ve had to expense additional personnel that we brought into the Company to make sure that we were fully covered on being able to acquire properties. We expect that the sort of big spread between the buyers and sellers will start to change towards the end of the year and into next year, so what we hopefully will be able to match those revenues and expenses.

As far as any additional sort of capitalized overhead, if you look at our numbers today, we have about $12 million annually of sort of development spend, acquisition spend if you will and today we’re expensing about $6 million, so we have a capitalization of about $6 million relative to those numbers. So we feel pretty good about, our people continue to be very focused on getting the development pipeline in place for 2009 and we expect that we will start through joint ventures and fund to a number of developments in the first and second quarter of next year.

Anthony Palone – JPMorgan

Last question, on the projects that stabilized in the quarter, can you give us what the yields ended up being on those?

Richard Campo

We don’t talk about specific individual yields on projects, but all of our projections showed yields in excess of 7% on all the projects and we’re still in that zone.

Operator

Our next question comes from Michael Bilerman from Citigroup.

Michael Bilerman – Citigroup

David Cody here with Michael, a couple of questions, just sort of big picture. It seems that there’s a lot of selling activity largely because of the support of Fannie and Freddie on the buyer side. In the absence of Fannie and Freddie at current volume how do you project that climate relative to buyer interest and their ability to get financing and which entities would step in in the absence of these agencies?

Richard Campo

That’s a good question. If you look at the CMBS market, in 2008 the CMBS market was crowding out Freddie and Fannie. In the first half of 2007, Fannie and Freddie were less than probably 45% of the market; the balance was CMBS like companies and what have you. Today, of course CMBS is zero in 2008 and Fannie and Freddie are about 90% of the financing markets. There are like companies that are continuing to finance properties but Fannie and Freddie clearly are supportive of the multifamily business. When you think about their charge, Fannie and Freddie’s charge is to provide liquidity and stability in the financing markets for housing. One-third of Americans live in rental housing, so the idea that Fannie and Freddie are not going to be there, clearly that’s a big part of their charge.

Prior to the housing bill that was passed last week or this week, you had the implied guarantee of the government and now you have the actual whole faith in credit of the government. They’ve expanded the ability of Fannie and Freddie to access the discount window as well or said window, so you have a situation where I know there’s a lot of concern about Fannie and Freddie and their ability to fund, but they’re in a better position vis-à-vis liquidity today than they have been ever. When you think about sort of the politics of Fannie and Freddie, the Bush administration, the conservative Republicans have been trying to break them up or control them, make them smaller for the last eight years and they’ve been unsuccessful Now you have a situation where Fannie and Freddie are the sort of white knights to bail out the single-family housing market and the government has taken a very more aggressive policy position by putting the full faith of the government Fannie and Freddie. So when you take the idea of Fannie and Freddie’s liquidity…

Now if you ask me about what their shareholders should be worried about, that’s a whole different story, but we think that Fannie and Freddie are going to continue to be major players in this market. They’re taking advantage of entrenching their market share. CMBS markets will come back in the future, but Fannie and Freddie are positioning themselves to have a larger share of market when that in fact does come back. The other thing I think is real instructive on Fannie and Freddie is that when you look at their multifamily business, the multifamily loans are the most profitable loans that Fannie Mae has and Freddie, but they also have very, very low default rates; I mean less than 1% default rates in the multifamily sector. So when you look at their loans as a percentage of their total book, multifamily is a small piece of it so they’re actually expending their business as opposed to contracting it.

Now if Fannie and Freddie went away and they just said, “Gee, multifamily is really not housing and we really didn’t want you to lend multifamily,” then you would be, multifamily would probably be in the same boat that commercial real estate is, office buildings and hotels and retail where they’re having a real tough time financing. Even with Fannie and Freddie financing, the sales volumes are down 70% in 2008 over 2007. But I don’t see Fannie and Freddie being a real issue. I think they’re going to continue to be in the market in a major way and take advantage of the opportunity they have.

Michael Bilerman – Citigroup

Along those lines, did you need to provide any seller financing and were you approached for financing by any of your buyers?

Richard Campo

No, not at all. I think one of the things that when you look at this whole idea of the transaction volumes being down significantly this year versus last year, big deals have trouble. If you have anything over $100 million plus, you start having issues. But small bite-sized deals that $20 million, $30 million, those kind of deals are being done every day and I think what’s happened there is you got sort of these small, medium sized regional players that can aggregate equity capital, get a Fannie/Freddie loan and get deals done. That’s why you’re seeing a fair number of these smaller deals because I think the total, if you look at our sales, I mean I think we have one over $20 million and the rest of them were all sort of smaller bite sized kind of deals. I think that’s where the sweet spot of the transaction market is going to be going forward I think, at least until the big spread and the largest transaction narrows.

Michael Bilerman – Citigroup

This is Michael Bilerman speaking. Going back to sort of the sequential, the moderation potential increase in NOI and thinking about the revenue line that you’re talking about holding occupancy and really not, really having flattish rent, it sounds like that’s predicated on there being an uptick in jobs overall in the U.S. I’m just wondering, in tying that to what happened in the second quarter where it sounds like yield star really pushed occupancy at a little bit at the expense of rent that if you sort of trend, things get a little bit more murky and a little bit worse in the back half of the year that you’re going to see, you many hold occupancy but rents will trail down, in which case you may fall a little bit lighter on your forecast.

Keith Oden

Michael, in our planning we are using the latest reforecasting of Witten’s numbers, which shows roughly a 200,000 job decline overall for the year. I’ve seen numbers as low as 100 and as high as 300, but I think that’s in the range of what most people’s expectation is today. So our reforecasting contemplates that that’s kind where we end up. We got another number today that was I guess slightly better than consensus on the number of job losses. But I think that we’re, I now that we have anticipated that level of job loss. Now if it ends up that we get a further revision of the unemployment rate, we end up with a total job loss of something materially higher than the 200,000 for the year, then obviously that’s a different that’s a different situation.

But I think it’s important to note that in our numbers, if you look at the revenue progression second quarter, third quarter, fourth quarter, there’s really a very modest increase in the top line revenue number. The change in the pick up relative to the first half of the year on a run rate basis is really the fact that fourth quarter last year kind of fell off the chart. There’s two things that happen. Fourth quarter definitely came off significantly in the fourth quarter in ’07. The second thing that happened is that, which hurts our same-store NOI guidance, is the, we have a very bad comparable in the fourth quarter expenses to the ’07 number. We had roughly $2.2 million in adjustments in fourth quarter ’07 that we’re not going to have this year in our expenses, so we’re going to see higher than trend expenses in the fourth quarter, but relative to fourth quarter ’07 actuals, if we just kind of maintain where we are right now with a very modest increase, that’s how you get to the 3% number. So we’re fairly comfortable with that and, again, this is based on a property level ground up reforecast of every community in our same-store pool.

Operator

Our next question comes from Alex Goldfarb from UBS.

Alexander Goldfarb – UBS Investment Bank

Just quickly, you mentioned it in the opening comments, I believe, but I didn’t quite catch it. Your revenue outlook for the quarter and then in your guidance with or without the cable and trash, can you just break that out again?

Keith Oden

Year-to-date, the revenue actuals would’ve been, without the cable and trash income, would’ve been nine-tenths of 1%.

Alexander Goldfarb – UBS Investment Bank

What about for the quarter?

Keith Oden

For the quarter it would’ve been two-tenths of a percent.

Alexander Goldfarb – UBS Investment Bank

Then for the full year, what is the revenue without the cable and trash?

Keith Oden

The revenue without is roughly, you take 300 basis points off of our same store NOI, off the expense numbers, and we’re in the 4.25% to 5.25% range. So take 300 basis points off of that and it puts you roughly around the 1.5% to 2% for the year.

Alexander Goldfarb – UBS Investment Bank

Then going quickly just back to the comments on Fannie and Freddie, I mean just in speaking to people there’s some buzz that maybe Fannie and Freddie would be told to focus more on like affordable apartments and less so on like the market great deals that’s sort of product more typical of that REITs have. It sounded from your comments that you don’t believe that to be the case. Can you just expand a little?

Dennis Steen

The interesting thing about affordable, people think of affordable and they get confused. Affordable can be a lot of things to a lot of different people, but affordable doesn’t mean Section A. It doesn’t mean the 50% of median income. Fannie Mae’s definition of affordable is basically between 100% and 80% of median income. If you take most of the apartment portfolios in America, that’s probably 80% of their portfolio for the apartment REITs as evidenced if you go back to the Archstone transaction last year, Fannie and Freddie provided $12 billion worth of financing and most of those properties were “affordable.” When you think about it, the whole idea of apartments is that apartments because of their nature are affordable relative to the median incomes, even in markets like the District in DC.

So you have a situation where Freddie and Fannie, I guess the biggest risk in Freddie and Fannie today is that they’re going to have a new regulator. There’s a new sheriff in town. That regulator is going to be set up, it’s not going to be in place until probably the first or probably second quarter of 2009 is what we’re hearing about, so OFHEO is going to continue to run them for at least the next eight or nine or ten months and then the regulators going to come in and figure what them to do. But when you get done to it, one of the prime issues that Freddie and Fannie has is that they focus on affordable housing. They get tremendous credit for making multifamily loans, and equity investments for that matter, in multifamily because a multifamily property by definition because of the 80% to 100% of median income test is affordable. They have requirements to participate in affordable housing and multifamily is what they call affordable housing rich for their achievement of those goals. So I don’t, I think we have to really be careful about what afford housing is. Affordable housing often time is confused with this low income aspect and it really isn’t the low income. It’s about people who make 80% to 100% of the median income.

Alexander Goldfarb – UBS Investment Bank

Then on your debt, how much more secure debt can you issue and still stay within your current investment grade rating?

Keith Oden

We have about 9% in secured debt and the bottom line is that we could usually double that without any trouble.

Alexander Goldfarb – UBS Investment Bank

Without any trouble to your existing investment grade rating?

Keith Oden.

Right. Fundamentally, we are an unsecured borrower and it just is the right thing to do for a public company long-term. But right now you have a dislocation in the market and you can do a Fannie Mae loan in the mid 5s. If we went out into the unsecured bond market, it probably in 7+, so you’ve got this 150 to 250 basis point negative spread on unsecured versus secured. We are a long-term unsecured borrower, but in this time of dislocation when you have spreads that are gapped out beyond what they’ve been in the last ten years, you got to look at secured debt and that’s what a lot of companies are doing and we’re doing the same thing.

But at the end of the day, I think the markets will come back to some resemblance of reasonableness from a spread perspective on the unsecured side and we’ll be back in that market. But we definitely are not going to risk our unsecured ratings. We have alto of bondholders that have confidence that we won’t do that, and we won’t. But we will take advantage within the context of being able to take advantage of this spread differential at this point without sort of getting in trouble with our unsecured bondholders.

Operator

Our next question comes from Dustin Pizzo from Banc of America.

Dustin Pizzo – Banc of America Securities

Just to focus on Fannie and Freddie for another minute here, on the upcoming agency refinancing that you’re thinking about doing, it sounds like the spread you’re anticipating on that tenure portion of it is about 50 basis points lower than one of your largest peers announced a deal yesterday. Could you just provide a bit more color there and maybe the types of conversations that you’re having with them?

Richard Campo

Well, we’re having specific conversations with Freddie and Fannie on an ongoing basis. All the numbers we put out are recent quotes that we got in the last week, so I think you have to be careful with… I know with comparing the rates at various times because obviously there’s spread differential and also rate differential and the rates have been bouncing around pretty good here at late. But generally there’s competition between Freddie and Fannie. They both want to do the deals with the best borrowers and the sort of key top borrowers are the ones are going to get the best spreads. Public REITs, including Camden, are some of the number one borrowers that Freddie and Fannie want to lend to. I can’t talk specifically about the last deal, but I can say the numbers that we threw out today in the mid to high 5s are actually quotes from both agencies over the last ten days.

Dennis Steen

Those quotes are based upon a leverage of about 55%, which might be different than the other quotes or other transactions that have been completed recently.

Dustin Pizzo – Banc of America Securities

Then on your guidance, are you guys still factoring in the $200 to $400 million of JV acquisitions. Did you touch on that?

Richard Campo

We are lowering those really. I sort of mention that when I talk about being patient and having a, we have a gap right between our fee income and I think Dennis talked about the lower fee income in his comments. You might reiterate that, Dennis. But we really believe that the acquisition market for our fund and our joint ventures is going to improve by the end of the year and early next year. We just are being prudent and not sort of pulling the trigger too fast on that at this point and so that has led to our projections for fee income to be lower this year than we had really anticipated. Dennis, you might want to…

Dennis Steen

In our guidance, as I mentioned earlier, there was a $0.06 impact due to the delay of any development joint venture starts from the last half of this year into the first part of next year. But we don’t have any projected fee income from development joint ventures in the last half in our current forecast.

Dustin Pizzo – Banc of America Securities

Is that purely new development JVs or could we see you also potentially contribute some of your recently completed or soon to be completed developments into the fund?

Richard Campo

We would not contribute recently to completed developments to the fund, no. The fund is a value-add fund and that would be sort of a core holding and that’s really not the strategy of the fund and so we would not be doing that, no.

Dustin Pizzo – Banc of America Securities

Then just lastly, what was the original coupon and maturity on the bonds that you repurchased?

Dennis Steen

Maturity was 2,017eens [sic] with a couple of 5.57%.

Operator

Our next question comes from Jay Habermann from Goldman Sachs.

Jay Habermann – Goldman Sachs

Rick, your comments about this being a tale of two markets and you provided different NOI growth between the better market versus the weaker market, I’m just curious given Keith’s comments about this sort of being more of jobs related impact, your expectations for some of your better markets as I guess you look out over the next six to 12 months, do you expect to see more deterioration in some of the better markets, or really more weakness in some of your again sunbelt supply affected housing markets?

Richard Campo

We think the stronger market is going to continue to be strong. When you look at Houston, for example, I mean Houston and Dallas are the top two job markets in the country right now and we think they’re going to continue to be strong. Austin, we’re getting nearly 10% same-store NOI growth there. So the key is really jobs and because those markets even in a slower job growth scenario, still have very reasonable job growth.

Jay Habermann – Goldman Sachs

Just again in the event of a more prolonged downturn, do you have expectations in terms of further asset sales? I guess and also can you talk about expense control as you look out in the second half of the year and even beyond?

Richard Campo

Sure. If we can continue to sell 24-year-old assets with an achieved IRs that we’re achieving and Dennis threw out the $650 reserve cap rate at 5.9%, the actual reserves, the actual real spend on those deals were over $1,100 per door. So when you look at the effective cap rate with real capex, it was like 5.5%. So we will continue to sell assets like that, be able to fund our development and buyback stock and bonds and other things that create value for shareholders long-term. So as long as there’s a Freddie and Fannie financing bid out there and we have these regional players who are willing to be buy these older assets and make assumptions that they’re going to be able to rehab them or do something that we haven’t been able to do today, we’ll continue to do that. Keith, you might comment on the…

Keith Oden

Jay, on the expense control, I mean when you’re in this kind of environment and we started having all these conversations with our site level folks at the end of the first quarter as we started seeing the job growth estimates come down. You have to…It’s a nickels and dimes business and you have to focus on expense controls and I think that when you take our numbers and make the proper adjustments for the cable and valet waste component, we’re likely to end the year up in roughly a 2% total expense increase and that includes the effective, the bad or the real weak fourth quarter comparison from ’07 on expenses. If you normalize that, we’re closer to 1% year-over-year total expense growth and that’s in light of the fact that we have had to take our property tax estimates up from the original, our original forecast and obviously we have the same cost pressures that everybody else does down the line with regard to payroll, etc.

But if we can, and I’m not saying we could maintain that, but that’s the kind of focus that we’re going to have to have if we start putting together a game plan and ’09 had similar characteristics, revenue growth that ’08 does. So it’s a constant focus. As far as the good news is that we’re coming into a time where many of the technology enhancements that we’ve made onsite. As well as here at the corporate office, we are beginning to see some real tangible benefits from that. One of the things that has been a significant assistance this year in our year-over-year expenses is the fact that just on one example, last year we made the decision strategically to kind of get out of the housekeeping business and we lowered our onsite headcount by about 163 housekeeper positions and outsourced all of that on a contract basis and the year-over-year savings on direct costs is in the $2 million range, never mind all the ancillary costs that go with that headcount.

It’s just something that’s the nature of this business and it’s something that’s even more critical in times where you’re revenue growth is meager. It’s certainly where we are in ’08 and we’ll take a hard look at 2009 as we get a better handle on, hopefully a better handle on when the job growth situation turns around. But yeah, it’s a constant focus for us.

Jay Habermann – Goldman Sachs

Rick or Keith, you mentioned the revised disposition target, can you just give us a sense of sort of the non-core pool of assets that you’re looking at for further sales, and again this is over say the next 12/18 months, just how that large could be?

Richard Campo

Well generally, I would say that we have at least another couple hundred million, $250 million of assets that we’d like to sell over time. You’re going to add that every year because the whole objective of managing a portfolio is to try to pick the properties that are going to be the better growth properties when you look at total return on investment capital including capex. We’re always going to be a seller of sort of the bottom 5% of the portfolio on an ongoing basis. But I would say that our existing held for sale, we have probably have another $200 to $250 million behind that and just depends on what the cap rates and how the market ends up.

The challenge you obviously have is that when we sell a 24-year-old asset harvest very good return on that asset over a very long period of time and then reinvest that capital into other activities. From an FFO perspective, you generally have a dilutive effect and so you have this sort of balance between improving your NAV and your asset quality versus FFO growth. If you look at the capital recycling we’ve done over the last few years, if we hadn’t done that capital recycling, we’d have FFO that’d be probably I think the differential between sales last year versus this year was like $0.32 a share. So there’s a good… You have to strike a decent balance between selling a lot and having your FFO being diluted. On the other hand, you obviously have to create a long-term young faster growing portfolio until there’s just a balance between those.

Jay Habermann – Goldman Sachs

Just quickly for Dennis, any share repurchase built into the balance of the year?

Dennis Steen

None.

Richard Campo

It doesn’t mean we won’t buy any though.

Operator

Our next question does from Michael Salinsky from RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Rick, some of your peers mentioned that June trends particularly had dropped off significantly, but the July picked up. Did you see similar trends in your portfolio?

Richard Campo

Not really. I think June was fine and July came in according to our plan. Keith, you might want to comment on that more.

Keith Oden

Total revenues?

Michael Salinsky – RBC Capital Markets

Yeah, they saw traffic across the properties was down a little bit. There was also some softening [inaudible]. Just June was a lot softer than they had anticipated.

Keith Oden

June was really, from June to July, we were slightly up and dead on with our reforecast, so we think we’ve got certainly on the near-term. We have pretty decent visibility and July was dead on with our reforecast.

Michael Salinsky – RBC Capital Markets

Secondly, Atlanta and Charlotte have held up a lot better for you guys and some of your peers, could you comment on what do you think what’s driving that? Also, Northern Virginia’s been a little softer. Could you comment on that one as well?

Keith Oden

Atlanta and Charlotte, when you look across, when we kind of lay them out relative to original plan, both of those markets are right on track with what we originally anticipated, so it’s hard to know what anybody else had in their planning. But those markets had kind of unfolded the way we expected. Charlotte was a little bit softer than what we thought in the first quarter, but we had a pretty recovery in the second. The real question on Charlotte that I think has got everybody a little bit on edge there is what happens going forward with bank consolidation. But I think to date that’s been more something of kind of getting people to sit on their hands in nervousness than actual job loss losses and I think that [inaudible] we’re going to end up okay in Charlotte.

Northern Virginia has definitely been a weak spot for us. We report our numbers as DC Metro, but the reality is that our issue and DC Metro has been Northern Virginia. Our District assets have held up nicely as have our Maryland assets. If you average those together, they’re probably in the 1.5%/2% range on growth and that’s been offset by the negative at Northern Virginia. We actually had a pretty decent recovery in the June/July timeframe in Northern Virginia. It’s probably not going to get back on plan by the end of the year, but certainly it was encouraging to see an uptick in the Northern Virginia market.

On a comp set basis, we’ve actually trailed the comp set in Northern Virginia. Part of that is that Northern Virginia, you got almost bifurcate that between assets in Arlington that sort of like they’re part of the district. We have a couple in that category and then assets in Loudon County which really kind of march to their own drummer, and unfortunately that’s been a pretty negative beat for the last nine months.

Michael Salinsky – RBC Capital Markets

Finally, Rick, a question for you: You’ve mentioned the last call and on this call that you think 2010 and 2011 are going to be great years for the multifamily sector based upon supply trends at this point. I’m just curious what your thoughts are preliminary on 2009 at this point?

Richard Campo

It depends on job growth obviously. I think that most of the consensus job number has 2009 picking up. I don’t think anybody on a consensus basis has a deep recession planned, so I think that 2009 is better than 2008, but I don’t think it’s a barn burner type of recovery like we had in the last cycle. Because what you have going on right now is you don’t have a true recession. I mean even though we talk about our challenged markets and they were down 2.9% from an NOI perspective, that’s not a recession. I mean if we go into the recession, you’re down 5%/6%/7% in a deep recession and I think that when you start looking, it just depends on job growth obviously.

Ultimately if we have sort of a get along/get along and we stop losing jobs and start adding a few, then 2009 is better than 2008. You should have an acceleration of job growth into 2010 and 2011 and that’s why we think that those could be really good years for multifamily. When you look at multifamily permits, they haven’t dropped off the edge of the earth yet because you had a lot of deals that have been funded prior to the really teeth of the credit crunch coming, especially from a construction perspective. So you have I think over the next six months, we’re going to see starts fall of dramatically, so you’ll have a great supply scenario along with decent job growth that should make 2009 better than 2008 and then 2010 and ’11 really doing really well.

We actually had a, I’ve done some analysis on a recession scenario, sort of an early ‘90s style recession, and it’s interesting that even in a recession scenario, you don’t have the same kind of declines in NOIs across the board the way you did either in the ‘90s or in the 2000 recession and primarily because supply. Supply has not peaked. Supply has been going down over the last few years. We’re probably 30% less supply than we had in 2006. When you think about what’s happened in multifamily, you have supply that’s lower. You have the homebuilding mentality is over. Some people think that the percentage of home ownership, which the Bush Administration was trying to get to 70%, sort of got to 69ish. Some people think the home ownership percentage is going to low 60s and when you have this mentality where your customers aren’t running out to buy houses and even if they want to buy a house, they have to a real down payment down now and they have much stringent underwriting criteria given the housing bust. So you have a pretty decent outlook even in a recessionary scenario for multifamily, so I think that we feel confident borrowing even in a major recession that even multifamily is going to be in a pretty good position middle half of 2009 and into 2010 and ’11.

Operator

Our next question will come from Rich Anderson from BMO Capital Markets.

Richard Anderson – BMO Capital Markets

Two or three questions here: First, is there anything about this experience that you’re getting sort of the proportionate share of downside at least currently as you said because of jobs that might cause you to tweak your sort of geographic footprint over the longer term.

Richard Campo

No, and the reason being is that this is an unprecedented time. Who could’ve predicted that you would have the massive dislocation that we’ve had in the home business and at the same time had a situation where the business is not that bad, right. You think about it and why we talked about: Yeah, we have challenged markets and we have all these headwinds and is Fannie and Freddie going to be around and all that and at the end of the day, we have 1% same-store NOI growth. Well it’s not five, but it’s not negative six. You’ve got situation where clearly the metrics aren’t as good and they’ve been falling, but it’s not as bad as a homebuilder market or some of the financial institutions that have taken their hit. So from that perspective, I think we have to be careful that we aren’t sort of in group speak about how horrible it is because it really isn’t that bad, and the fundamentals of this business are poised to do a lot better over the next three to four years. So the other thing I think is really interesting is when you think about capital, everybody wants to know about how we’re going to fund our development pipeline and gee do they need capital and all that and I think those are great and important concerns. But when you think about competition for capital, the public companies are well positioned now. We’re sitting on a billion three of dry powder with our value-add fund, plenty of dry powder in our own lines of credit and credit capacities, yet people are worried about capital? The interesting is the private guys are desperate for capital. They don’t have any alternatives for raising a lot of capital today, so I think what’s going to happen is you’re going to have a major shift in the strength of the public company, these would be the private guys and the competition for deals is going to be a lot less, which should in fact improve our ability to complete transactions in 2009 and 2010.

Richard Anderson – BMO Capital Markets

Another question on sort of job-related to the jobs and you again mentioned in the past that’s all about the jobs and not about the shadow supply or whatever. But if it is about the jobs, then why wouldn’t have bad debt gone up? If it’s about jobs, then you would’ve thought that that number might have deteriorated and it didn’t. So can you sort of reconcile that for me?

Keith Oden

Rich, if you think about where we are in the big picture, even though the job situation has clearly been deteriorating, I think the numbers came out today and we were at 5.7% unemployment rate nationally. 5% in the old days, 5.5%/5% used to be considered frictional and structural unemployment, so we’re not that far removed from that. So even though it’s been deteriorating and jobs have been going away for sure, it’s clear that most of our, the folks in our communities have been able to replace their jobs with another job. It may not be the one that they had; it may not be paying what it was paying them, but most of them have been able to replace their jobs. Those that haven’t, move out and move, double up, and do all the other things that happen during a job losses or a recessionary time. But counterbalancing all of that is the fact that just in our portfolio alone, last year we were losing 20% of our residents to buy homes, and today’s that 14%. That 6% swing in that one component is a huge difference in terms of what our net exposure is, if you will, to move outs that have to be replaced. So interesting, the bad debt, even on our delinquencies, as you look delinquencies, we haven’t really deteriorated, so I think there’s something to be said for people pay their cell phone bill and they pay their rent and then the rest of it they try to make ends meet. I don’t think that this is not unique to us. If you look across our markets where kind of look at a Las Vegas bad debt delinquency rates year-over-year versus a market like Houston where you wouldn’t expect to see any change, we really just don’t see any difference across these challenged markets. So I don’t… I think a lot of it has to do with the shifting nature of where our move outs are going and what the underlying component of that is so…

Richard Compo

It’s also about credit quality. I mean we will maintain our credit quality. When you get down to, you want to turbo your occupancy, try to push rents, you lower your credit standards and you get a bunch of people in there that won’t pay and I think that’s something that the multifamily industry has grown up knowing is that, and the professionally managed ones, the public companies understand that if you drop your credit standards, you’re going to have higher bad debt. I think that the industry has done a good job of making sure that that they didn’t drop, they didn’t sort of have a gut wrench reaction and say, “Oh my god, I better get a warm body in there whether that warm body is going to pay me or not.”

Richard Anderson – BMO Capital Markets

Last question is on the Fannie and Freddie angle, and I hear you. It’s a profitable business for Fannie and Freddie and on that basis there should be no reason for them to curtail their lending practices. But on the sort of the negative sort of skeptical side of that, I mean doesn’t put it the multifamily industry in a bit of a competitive disadvantage? Fannie and Freddie know how critical of a role that they’re playing in your business right now, if it’s not the only game in town, it’s certainly one of the only games in town from a capital raising standpoint. So I mean how does that play into the role of them potentially getting more aggressive with you, and not just you, but everybody? I mean do they sort of have you by the baseballs, I guess?

Richard Campo

It’s interesting because it’s sort of like the don’t want to kill the golden goose, right. They’re making all this money on multifamily, they have to be careful that they don’t widen their spreads to a point where they chill the market and so you have a situation where the spreads actually have tightened because they did get a little ahead of themselves in the first quarter and you saw a drop in originations. I think the good news is that because Freddie and Fannie are both big institutions, they compete against each other so you have a situation where there is a competitive response to the market given that they both want to do the deals, right.

Now if we only had one, then you might have an interesting situation. But when you got down to the ultimate market condition, you have two competitors that are definitely dominating the market and what they’re doing is they’re trying to entrench themselves so that when the CMBS market does come back, and we know it will at some point, then they’ll have an upper hand and be able to continue to sort of protect their market share. So I think there’s a balance between how much they can charge and how much a borrower can afford and they’re playing that balancing game between, they know they’re the only date at the dance and they are using that power to get the best borrowers, so I mean marginal borrowers at the end of the line and are going to be the ones that are going to get the widest spreads and the more sort of difficult underwriting. So I think they’re, I don’t see them getting to the point where they’re a monopoly saying, “Okay, guys, here it is. Take it or leave it.”

Keith Oden

Rich, they have changed the game too. If you look at what they’ve done on underwriting standards and loan to value in the last 12 months, it’s a totally different game. On a risk-adjusted basis, whatever spread they’re getting today is a heck of a lot richer than it was 12 months ago.

Operator

Our next question comes from Haendel St. Juste from Green Tree Advisors.

Haendel St. Juste – Green Tree Advisors

Couple questions. Actually could you share with me the disposition cap rate for the assets sold during the second quarter?

Dennis Steen

It was 5.9% cap rate based upon $6.50 a door and 2008 annualized NOI.

Haendel St. Juste – Green Tree Advisors

Just for the assets sold during the second quarter?

Dennis Steen

Oh, during the second quarter only?

Haendel St. Juste – Green Tree Advisors

Those were the ones that were subsequent.

Dennis Steen

That was a year-to-date number I just gave you.

Haendel St. Juste – Green Tree Advisors

I’m actually looking for more of the assets that were sold.

Dennis Steen

In the second quarter?

Haendel St. Juste – Green Tree Advisors

The ones that were sold after the quarter please.

Dennis Steen

It’s very similar. I don’t have it broken out. I’ve got the four – Lakeview, Arbors, Briar Oaks, and Woodview and it was just right at 6% at $6.50 a door.

Richard Campo

The actual capex, Haendel, was $1,168 (bucks) per door, which would give you a, if you wanted the real capex which includes the real capex with the cash flows Dennis described from the 5.8.

Haendel St. Juste – Green Tree Advisors

How does the pricing compare to your expectations? With that, can you share any thoughts on that decline in pricing from peak values?

Richard Campo

Sure, the interesting thing is we don’t think there’s been a significant decline in value from the peak values because these kind of assets always were sort of in the 5.5% to 6% range because of the high capex aspect of them and age and sort of location issues, so I don’t think that they’ve gone, the prices have changed that much. You might have had some lunatic who would’ve paid a four cap rate in the past, but I don’t think that really is the case for these kinds of assets.

During the negotiation process, we did sort of a mid or sort of a low to high in where we thought the pricing would come in and there was definitely some renegotiations that went on with these assets. But generally speaking, the renegotiations were 1% to 2% max and on an asset like a $25 million deal in Austin, Briar Oaks, you might’ve given up $100 to $200,000 to get the deal done because at the end of the day the market just believed that it needed to retrade whether it was $100,000 on a $25 million deal or $400,000 at the end. It didn’t really matter that much. So we didn’t have any significant retrades that caused us to have to go back to the players. The other thing we had was we had a good group of buyers. There was 10 to 12 regional buyers on every asset and we had a good sort of process in being able to sell these assets.

Haendel St. Juste – Green Tree Advisors

Next question: Considering your recent asset sales and your relatively strong liquidity, what are your current thoughts on capital allocation today in terms of buying back more bonds, the opportunity there versus stock buybacks and other opportunities?

Richard Campo

Well the key there is we’ve always said that if we can sell assets like this and then buy our stock back, it makes a lot of sense. We bought $230 million of stock bought. We have authorization to buy another $270 million of stock, plus or minus, and we’re going to be opportunistic with acquiring the stock and bonds, balancing that with doing it on a leverage neutral basis. So we’ve sort of, we wanted to see how these dispositions went. We have another group of dispositions in the pipeline that are going to be sold over the next quarter or so. I think the key is being patient and being opportunistic in both acquiring stock and bonds. It doesn’t make a lot of sense to us to go out and sell assets and buy other assets when we can buy our stock on an effective basis at a pretty attractive relative to what we could buy the existing asserts. We will continue to buy assets and do development in our fund in joint ventures because the rate of return we get on our equity is obviously far higher and we get better leverage from that perspective.

Haendel St. Juste – Green Tree Advisors

Lastly, you gave color on year-to-date or actually different in your strong markets versus weak market, do you expect that the relative gap to close over the next six months between your strongest and weakest market widen, any color you’d like to share on perspective thoughts on those two roots of assets or markets relative to each other?

Keith Oden

Yeah, in our reforecast handout, we expected we’ll end up about where we are right now by rolling our reforecast through on top of our first half results. I just don’t see the dynamics that are in place right now, not going to change in the challenged markets. We’re still in pretty good share and the markets that are not being challenged, a big chunk of that comes from our Texas exposure and those may actually get better over the next six months than the first half so…

Operator

Our next question comes from Karin Ford from KeyBanc Capital.

Karin Ford – KeyBanc Capital Markets

Just one more quick question on Fannie and Freddie because I know, Rick, you’re very knowledgeable on this particular topic. Is it your view that the government, you mentioned that their liquidity position is the best today that it’s been in a long time. Is it your view that the government liquidity and OFHEO and/or the Fed, that liquidity that they’re providing there is for more than just to stem what are expected to be big losses coming on the single-family side that they’ll actually allow Fannie and Freddie to use government liquidity to then lend on to the apartments?

Richard Campo

Absolutely. I think they’re worried about the losses but Freddie and Fannie pulled so much of America’s mortgage market that without Freddie and Fannie today, there would be no home lending. They’re 90% of the entire single-family mortgage market today because of the meltdown in these mortgage market that these the private mortgage market is going on. So it’s not about subsidizing multifamily or subsidizing single-family, it’s about creating the mortgage market and keeping the mortgage market going. If the government didn’t give the expressed backing of Fannie and Freddie’s bond’s I mean you would have a meltdown that is hard to imagine what happens if they did fail. So I think the government, that’s why the government has basically thrown the towel in and said, “All right, we can’t constrain their growth. We’ll put in a stronger regulator and that regulator over time will make sure they don’t do speculative investments. But the point that the Bush Administration had about Fannie and Freddie over the last, their entire terms of the Administration was that they were getting this implied government guarantee and going out and making aggressive investments. All the problems they had with financial and accounting issues and executive comp and all that stuff that the government still couldn’t get control of them during that timeframe and now they’ve just thrown the towel in because if they hadn’t thrown the towel in, you’d have a huge meltdown in the financial markets. So I don’t see that as a threat to the multifamily business because you think about the losses in homes, they got to make money somewhere and multifamily is their most profitable least risky loan.

Karin Ford – KeyBanc Capital Markets

So you don’t see a risk that the government would say, “You need to preserve capital on the multifamily side to try to stem some of the losses on the single-family side”?

Richard Campo

I don’t see that at all. The risk that the regulator comes in…I think the biggest risk is the regulator, the new regulator comes in middle of ’09 and says, “All right, your risk-based capital needs to be higher than it is today.” Now OFHEO has already come in and said both on Freddie and Fannie that they’re adequately capitalized today and so the ultimate risk obviously is if you do have the regulator come in and say, “Gee, we want you to have more capital,” then either have to raise capital or lower their ability to make loans.” But I don’t think anybody sees that right now.

Operator

That does conclude today’s question-and-answer session.

Richard Campo

Thanks a lot for your participation, and we will see most of you I hope next month in Austin at our Investor Meeting. So thanks a lot and we will talk to you soon.

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Source: Camden Property Trust Q2 2008 Earnings Call Transcript
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