Feb 3, 2012
Executives
Kim Callahan – Vice President, Investor Relations Richard J. Campo – Chairman of the Board and Chief Executive Officer D.
Keith Oden – President Dennis M. Steen – Senior Vice President - Finance and Chief Financial Officer
Analysts
Jana Galan – Bank of America/Merrill Lynch Eric Wolfe – Citigroup Robert Stevenson – Macquarie Research Equities Alexander Goldfarb – Sandler O'Neill & Partners L.P. Karin Ford – Keybanc Capital Markets Richard Anderson – BMO Capital Markets Paula Poskon – Robert W.
Baird & Co., Inc. Michael Salinsky – RBC Capital Markets
Operator
Welcome to the Camden Property Trust Fourth Quarter 2011 Earnings Conference Call. All participants will be in listen-only mode.
(Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Kim Callahan.
Please go ahead.
Kim Callahan
Good morning, and thank you for joining Camden’s fourth quarter 2011 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 fourth quarter 2011 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 this call. Joining me today are Rick 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 are unable to speak with everyone in the queue today, we’ll be happy to respond to additional questions by phone or e-mail after the call concludes.
At this time, I’ll turn the call over to Rick Campo.
Richard J. Campo
Thanks, Kim, and good morning and afternoon to everyone on the call. Our pre-conference music was chosen today to commemorate the 50th anniversary of the Beach Boys.
I know, we’ve received number of e-mails about the Beach Boys, they maybe a little too old for this crowd on the call, but for some of us the good vibrations are definitely a continuing theme in the multifamily business. We are looking forward to catching the wave of continued strong operating performance in 2012.
I want to thank our Camden teams that made our strong 2011 operating performance possible. We ended 2011 strong with same-property revenue increasing 6.7% over the fourth quarter of 2010, and 5.5% for the year, which leads the sector in revenue growth so far.
Same-store net operating income increased 8% for the quarter, and 7.1% for the year. We expect 2012 to be a repeat of the strong growth that we had in 2011.
Strong macro factors continue to favor our business. On the demand side, falling home prices and tougher mortgage underwriting has kept competition from single-family home limited.
Our customers have been doing very well in a slow job growth environment. Nearly, 60% of the jobs created in last two years have gone to people 34 years old and younger.
The average income of our residence has increased from $61,000 per year to nearly $67,000 in the last year driving the ratio of rent paid to income down from 18.5% to 18% in a rising rent environment. Historically, the rent to income ratio across our portfolio has been around 22%.
While more young adults are working now, there are still 1.8 million living at home or in roommate situations, most of whom are waiting to move out into apartments. Multifamily supply is increasing from post World War II lows, but it’s now forecast to reach 200,000 units until late 2014.
Multifamily demand should continue to exceed supply for at least the next several years supporting strong multifamily operating fundamentals. During 2011, and into January 2012, we took advantage of an attractive acquisition disposition and development environment.
We acquired 6,076 apartments in our fund for $590 million, generating double digit cash returns for our partners. We continue to recycle capital through dispositions, and sold 2,800 apartments for $251 million.
Our real estate investment and construction team started 2,800 apartments adding $504 million to our development pipeline. After the end of the quarter, we acquired our partner’s interest in 12 properties, 10 of which we developed.
We financed the acquisition with 100% equity. The acquisition and equity offering was accretive to earnings, and strength in our balance sheet.
Debt-to-EBITDA is now 6.3 times compared to 7.6 times during 2010. We will continue to maintain a strong balance sheet or the debt-to-EBITDA target of around 6 times.
We continue to be active in the transactions market, and we’ll be active this year. Our 2012 guidance includes $250 million on balance sheet acquisitions and $250 million of dispositions.
We expect to add another $350 million to $450 million to our development pipeline bringing our development pipeline to nearly $1 billion. At this point, I’ll turn the call over to Keith Oden.
D. Keith Oden
Thanks, Rick. Consistent with prior years, I’m going to use my time on today’s call to review the market conditions we expect in kind of in our four markets in 2012.
I’ll address the markets in the order of strength by finding elaborate each one as well as our view as to whether we believe the market is likely to be improving, stable or defining in the year ahead. Following the market overview, I’ll provide additional details on fourth quarter operations and our 2012 same-property guidance.
Starting with an overview of Camden’s markets, we’ll begin in Texas and North Carolina, whose markets received our top five spot this year, and all ranked as an A or A minus. Austin received an A rating with a stable outlook, the same rating as last year.
As expected, Austin’s same-property revenue growth ranked number one in our portfolio in 2011, and we expected to remain near the top in 2012. Approximately, 15,000 new jobs are projected in 2012, which should easily absorb the 3,000 completions coming online this year.
Dallas also earned an A with a stable outlook. Coming in just behind Austin at number two for 2011 revenue growth, favorable market condition should place Dallas in the top five markets again in 2012.
Job growth is forecasted at 50,000 this year and the completion of 8,000 new apartments will be right in line with the 20 year historical average for completions in Dallas. In Charlotte, we view that market as an A with an improving outlook.
We began seeing strength in this market during the second quarter of 2011, and by year end, it was one of our top performers. Rents continue to accelerate at rapid pace, and with current occupancy at 96%, Charlotte should be one of the best markets in 2012.
Job growth is expected to be 16,000 this year with only 1,000 new units being delivered. Next is Raleigh with an A minus rating and a stable outlook.
Raleigh was number three in our same-property revenue growth rankings last year, and should see above average performance again this year. 11,000 new jobs and mere 1,100 completions will allow occupancy and rental rates to remain high in this market throughout 2012.
Huston is also an A minus, but with an improving outlook. After lagging in the early part of 2011, this market recovered quickly, and it was one of our best performers by year-end with 4Q ’11 revenues up 9.7% over the prior year, which bodes well for 2012.
Houston is expected to be a leader in job creation in 2012 with the forecast of 66,000 new jobs. We’ll see 7,000 new units delivered here this year, which looks quite reasonable compared to the 11,000 units we averaged each year from 2000 to 2009.
Great Denver and South Florida is B plus markets with stable outlook, and expect the revenue and NOI growth to exceed the midpoint of our same-property guidance range. The outlook for the job growth in Denver this year is favorable with over 34,000 new job expected, and competitions of only 2000 units in 2012.
In south Florida, completions are projected around 2200 apartments with 25,000 new jobs expected. Once again new supply should be easily absorbed given tight market conditions and ample job growth.
Orlando scored B rating this year with an improving outlook. But last year’s performance was slightly below the average for our portfolio.
We believe 2012 will be better. Job growth is expected at nearly 22,000 with less than 1,000 new completion provided the favorable backdrop for our operations there.
Our remaining Eastern and South Eastern markets, Washington DC, Atlanta and Tampa all are in B ratings this year with stable outlook. DC has fairly been one of the best markets in the country for the past several years turning in top tier revenue growth in both 2009 and 2010, and remaining strong for most of 2011.
Our rents in DC are currently 8% above the prior peak levels, which makes it more challenging to aggressively raise rent. As such, growth has begun to moderate, and we expect 4% to 5% revenue growth in the market during 2012.
New supply is starting to come online with 5,000 new units being delivered this year. Job growth is expected to be over 29,000, which will certainly help.
The growth in DC will surely be less robust during 2012 than it has been in previous years. In Atlanta, there are over 30,000 new jobs projected with only 1,200 completions (inaudible) and job growth in Tampa is expected to be closer to 16,000 with 1,600 completions, allowing for decent performance in that market as well.
Moving west, we have Southern California and Phoenix, both rated B minus, but improving. Southern California has struggled for the past few years, but economic indicators staying to be pointing in the right direction for 2012.
Over 54,000 new jobs are expected this year, which is good news given the region’s high unemployment rates. Projected completions of less than 8,000 units in 2012, not materially impact the market.
Phoenix is definitely on recovery mode making its way steadily up the rating scale from an F in 2009 to a B minus today. Our rents fell almost 18% from a big drop in Phoenix.
We recovered half of that so far, most of it during 2011 as year end rents were 8% higher than in 2010. We continue to see strength in Phoenix, and expect it to be one of our top revenue growth markets during 2012.
Stock growth, it will be strong 49,000 new jobs with minimal supply, only 12,000 additional units to be delivered this year. Coming in last this year, is Las Vegas, which we rated at C minus with an improving outlook.
Las Vegas is still most challenging market in our portfolio, but we believe that’s finally bottomed, and is showing signs of improvement going into 2012. While we do expect positive growth this year, the rate of growth will likely be well below that of our other 13 markets.
20,000 new jobs are projected for Vegas in 2012, which is a welcome relief, and we expect only 1,100 completions, but stubbornly high unemployment rate coupled with below average occupancy levels will make meaningful rent gains elusive this year. In comparing our 2012 outlook to last year, all of our markets have a better rating this year, except Washington DC which we lowered from an A to a B.
Overall, our portfolio this year would rank at a B plus compared to an overall ranking of B in 2011. And every market is rated either stable or improving.
Now, key observations about our same-property results. We closed up the fourth quarter with a sequential underlying increase of 4.2%, which was primarily due to lower expenses.
Although revenues were basically flat, this was primarily due to a seasonally anticipated drop in occupancy and lower fee income due to decline in leasing activities. More importantly, our rental rates rose a solid 1.2% from the third quarter with increases in every market except Las Vegas, which was down by a slight 2/10 of 1%.
For the fourth quarter, new lease rates were up only slightly, and renewals were up 7.5% roughly the same as in the fourth quarter of 2010. Renewal rates are trending up in the 7% to 8% for both January and February.
Traffic was down 2% from the prior year quarter, but was up 4% for the full year and our turnover rate for the quarter was 52%. We continue to benefit from incredibly low move-outs to purchase homes, which was 11.2% for the fourth quarter, and for the full year, move-out to purchase homes was 10.9%, the lowest annual level that we’ve ever had.
Finally, I want to thank all of our Camden colleagues for making Camden a great place to work, a distinction recognized by FORTUNE magazine for the fifth year in a year, and our third straight top 10 finish. Placing seventh on the list of Top 150 Companies to Work For is an honor we claim on behalf of all real estate investment for us.
Now, I’ll turn the call over to Dennis Steen, our Chief Financial Officer.
Dennis M. Steen
Thanks, Keith. I’ll begin today with a couple of comments on our fourth quarter results.
Camden reported funds from operations for the fourth quarter of 2011 of $64.3 million or $0.84 per diluted share, $0.01 per share above the $0.83 midpoint of our prior guidance range of $0.81 to $0.85 per share. Results coming in $0.01 per share above the midpoint of our guidance range resulted primarily from two items.
Property revenues exceeding our forecast by $1.5 million due to higher than anticipated revenue growth across our same-store, non-same-store and lease up communities, driven primarily by rental rate increases, slightly higher realization rates on other property income, and better than anticipated leasing velocity at our two development communities and lease-up. We finished 2011 with a 5.5% increase in same-store revenues, towards the top end of our prior guidance range of 5.2% to 5.6%.
Total property expenses continue to perform inline with our expectation for both the fourth quarter and year-to-date periods. For full year 2011, same-store expenses grew 3% over 2010, equaling the midpoint of our original guidance range for 2011.
A $1.5 million favorable variance in property revenues was partially offset by higher than expected G&A and property management expenses of approximately $700,000. This unfavorable variance is the result of higher incentive compensation expense, as we adjusted full year accruals to reflect our actual 2011 performance, although the components of income and expense were generally inline with our expectations for the fourth quarter.
I would now like to discuss our 2012 guidance. You can refer to page 27 of our fourth quarter supplemental package for details on the key assumptions driving our 2012 financial outlook.
We expect 2012 projected FFO per diluted share to be in the range of $3.30 to $3.50 per share, with a midpoint of $3.43 representing a $0.40 per share or 13% increase from our 2011 FFO per share of $3.03, which excludes from 2011 results, the $22.2 million net impact of the following non-recurring items. A net gain of $3.3 million related to the sale of a technology investments in the first quarter, a gain of $4.7 million related to the sales of properties and land in the second quarter, and a loss of $30.2 million related to the discontinuation of a hedging relationship and the write-off of unamortized loan cost related to the pay-off of our $500 million term-loan in 2011.
The major assumptions and components of our $0.40 per share increase in FFO at the midpoint of our guidance range are as follows. A $0.35 per share or $27 million increase in FFO related to the performance of our $48,400 same-store portfolio.
We are expecting positive same-store net operating income performance of 6% to 8%. A $0.07 per share or $5 million increase in FFO related to increased net operating income from our non-same-store properties, and the incremental contribution from the development communities in lease-up.
An $0.08 per share or $6 million increase in FFO related to reduced interest expenses primarily as a result of reductions in our outstanding debt from our prior share issuances, the favorable refinancing of unsecured debt in 2011, and $4 million in additional capitalized interest related to our 2011 and 2012 development starts. A $0.38 per share or $29 million increase in FFO related to additional net operating income from both pro forma acquisitions anticipated in 2012, and a purchase of the remaining 80% ownership interest in the 12 joint venture communities we completed in January of 2012.
A $0.05 per share or $3.6 million net increase in FFO related to our election to redeem our $100 million, 7% perpetual preferred units in the first quarter of 2012. Included in the net $0.05 per share is preferred payment savings for 10 months, partially offset by $0.02 charge we will record in the first quarter related to the write-off of the unamortized discount on the preferred units.
And a $0.03 per share or $2.7 million increase in FFO related to increased net fee and asset management income related primarily to fund acquisitions both completed in 2011, and anticipated in early 2012. These positives are partially offset by a $0.37 negative impact from previously completed share issuances in 2011, and early 2012; and a $0.17 per share or $12.5 million decrease in FFO related to lost NOI from both 2011 completed dispositions and 2012 anticipated disposition activity.
On Page 27 of our supplemental package, you can also see details on our expected ranges of acquisitions, dispositions and development activities. The midpoint of our 2012 FFO per share guidance range assumes the following.
$250 million in on balance sheet disposition spread throughout the year, $250 million in additional acquisition spread throughout the year, which excludes the completed purchase of the 80% ownership interest in 12 unconsolidated joint-venture assets previously disclosed. $125 million in acquisition in our funds spread throughout the first half of the year.
And as a reminder, our investment period ends in the second quarter of this year. $350 million of on balance sheet development starts, and $50 million of development starts through our funds.
Based upon our planned 2012 transaction activity, and $190 million of unsecured debt maturities in the fourth quarter of ‘12, we anticipate needing approximately $300 million of new capital for the remainder of 2012, and anticipate accessing the capital markets opportunistically. The composition of that capital activity depends on the capital market conditions at the time we go to market, but will likely be a combination of unsecured debt and common shares.
For the first quarter of 2012, we expect projected FFO per diluted share to be in the range of $0.77 to $0.81. The midpoint of this range represents a $0.05 per share decline from the fourth quarter of 2011.
This $0.05 per share decline is primarily result of the following items. A $0.01 or $700,000 decline in same-store NOI resulting from a 4% increase in same-property operating expenses partially offset by 1% increase in same-property revenues.
A net $0.02 per share or $1.5 million increase in minority interest expense primarily resulting from a $2 million charge we’ll record in the first quarter related to the write-off of the unamortized discount on our preferred units upon redemption. A $0.01 per share or $1 million decrease in FFO related to fourth quarter of 2011 dispositions, and the sale of Camden Vista Valley in Phoenix, which was completed in January of this year, and a $0.07 negative impact from previously completed share issuances in 2011 and early 2012.
The previously mentioned 4% increase in same-property operating expenses primarily results from a $600,000 increase in property taxes as we expect full year same-property real estate taxes to increase by 4.3% in 2012 over 2011. A $1.2 million increase in salaries and benefits related to annual salary increases implemented in February, and higher first quarter employment taxes.
A slight increases in all other categories as we expect same-property expenses to increase by 3% in 2012 over 2011 at the midpoint of our guidance. The previously mentioned 1% increase in same-property revenue primarily relates to higher rental rates and occupancy across our portfolio.
These negatives are partially offset by a $0.06 per share, or $5 million increase in FFO related to net operating – additional net operating income from the purchase of the remaining 80% ownership interest in the 12 community joint ventures we completed in January of 2012. As a reminder, our Board will evaluate our dividend payout for 2012 at its next meeting and we’ll announce the 2012 dividend rate in mid-March.
Our stated dividend policy continues to be to increase our dividend at approximately one half of the growth rate in FFO per share. That concludes our remarks.
And I’ll be glad to answer any questions at this time.
Operator
(Operator Instructions) And our first question comes from Jana Galan at Bank of America/Merrill Lynch.
Jana Galan – Bank of America/Merrill Lynch
Hi, thank you. I was curious, if you could talk a little bit about the acquisition environment, and you’ve already been very active starting off the year.
If you could talk about the cap rates on those transactions, and maybe what you’re anticipating to spread between acquisitions and dispositions could be going forward?
Richard J. Campo
Sure, the acquisition market, we think it’s going to be pretty good this year. Towards the end of the year, people started pulling assets from the market, and at least from what we hear from the broker community, there is a fair number of broker opinions value that, what are coming out and there is a fair number of owners that are being pushed by their banks, and other vendors where we have debt maturing this year.
So we think it’s going to be a pretty good acquisition environment. As far as cap rates go, the good news is, there is going to be more assets out there, the bad news is, cap rates are low.
So cap rates on acquisitions are going to be anywhere from depending on core portfolios of 4.25, sort of outside core market somewhere in the 5 to 5.5 range. In terms of acquisitions versus dispositions and the spread between acquisitions and dispositions, last year, we were sort of right on top of each other in terms of ability to sell dispositions assets pretty much at same price we’re buying acquisitions at.
This year we’re budgeting somewhere between 150 and 250 basis points of negative spread between acquisitions and dispositions, but if the market remains blank, we’ll probably do better than that.
Jana Galan – Bank of America/Merrill Lynch
Thank you very much.
Operator
The next question comes from Eric Wolfe at Citigroup.
Eric Wolfe – Citigroup
Hi, thanks. Looking at the multifamily starts number, they’ve obviously been trending up off of pretty low bottom, but looking at the competition, a much higher percent or rental now versus condos in the mid-2000.
So I just wanted to get your thoughts on whether this trend is something to be concerned about, and even though the effected total starts remained impressed, the actual number of apartments delivering is going to be pretty close to where it was in the mid-2000s?
Dennis M. Steen
Yeah, Eric, this is something that we’ve been tracking for long time, and we watch very carefully. When we talk about the starts in multifamily, we include both components, both up for sale, and for rent.
Even in this environment, that proportion has moved up slightly, but it’s – the bigger issue is the total number of starts, not what’s moving around within the category of multifamily. And just to put that in perspective, because I know there is a lot of concern and fairly starts have moved up from the bottom.
At the bottom, we were at a run rate of something around 75,000 annual starts. And right now depending on whose numbers you’re using, we’re probably in the 150,000 to 160,000 annualized.
One of the data providers that we used because there is a – it does a great deal of – has done historically a great deal of work in these particular areas is Ron Witten. And Ron just recently brought his forecast down for total multifamily starts to be below to the 200,000 level throughout 2014, and in his previous forecast had starts moving up close to the 250,000 in the 2014, ’15 timeframe.
So there is a lot of analysis that goes behind that. But the bottom-line is that, recently the trend has been towards a more moderate view of the total starts.
And just to put it in perspective, as it relates to Camden’s portfolio, I mean one of the things that we have used historically, and this goes back 20 years, it’s a pretty decent of rule-of-thumb, and in our business, it’s not perfect, but it’s like any rule-of-thumb. There is a reason that people have used it over the years.
If you think about in any given market, roughly five jobs creates a net demand for one multifamily unit. So if you got five jobs, you’re going to get one additional net demand.
So one of the things that we look at it is, the ratio of the jobs being created to the – what the completions or deliveries are likely to be. If you look at our portfolio for 2012, and you take the jobs number divided by the completions number.
So anything above 5:1 ratio means that things are getting tighter and better around the margin, and anything less than 5:1 would indicate that things are – that supply is getting the edge. Out of the 17 markets that we operate in, there is not a single market that currently has less than a 5:1 ratio.
If you take the aggregate ratio for all Camden’s markets, the ratio right now is 10:1. So we were projecting across Camden’s markets about 440,000, call it jobs, and about 44,000 completions.
That’s an extraordinary number, and I’ve said, we’ve been tracking this for 20 years, and I’ve never seen a scenario like that. There have been times when completions were lower, but it was normally on a market where you’re hemorrhaging jobs.
So the fact that we don’t have any single market that’s less than 5:1 and the average across our portfolio is 10:1, this tells me that there’s a, we got a long way to go. If starts stay below 200,000 to get anywhere close to a level of concern where the supply is going to be driving the overall results in multifamily.
Obviously it matters, all supply matters, it’s like filling rocks in the pond, if there is some tangential effect. But if we continue with the kind of what we’re forecasting for 2012 is kind of a middle of the road moderate results on jobs growth, and today’s number is any indication we may do significantly better than that, which would only help improve those stats that I just gave you.
So that’s a long way of sand, it’s not something that we’re really concerned about at this point, and if Witten’s forecast are right, we think we’ve got until 2015 before it becomes an issue.
Eric Wolfe – Citigroup
That’s very helpful. And just a real quick one on the CapEx numbers, I guess the forecast.
It looks like you’re predicting about 1000 per unit in terms of CapEx this year. And as I think about that 1000 number, it’s up from about 800 in 2010.
So I’m just wondering, is that deferred CapEx that’s going in, or is there a change in the composition of portfolio. What’s accounting for this increase?
Richard J. Campo
So I would not call it deferred, because deferred implies that you’re sort of, it implies something different than what happened. I would call it, where we had choices to make, for example, a paint job that’s on a community that’s at the margins.
And you live with it another year, we absolutely made those decisions in 2009 and 2010. So we knew that there was going to be a catch-up component primarily around things like big ticket items like paint jobs, we’ve got far more paint jobs that we pursued last year, and budgeting again in 2012, than we did in’09 and ’10, and that makes up, that’s primarily the different, Eric.
Eric Wolfe – Citigroup
Great, thank you.
Richard J. Campo
You bet.
Operator
The next question comes from Rob Stevenson of Macquarie.
Robert Stevenson – Macquarie Research Equities
Hi, good afternoon, guys. Rick, you talked earlier about getting the development pipeline up to $1 billion.
Is this just a temporary increase, or do you feel comfortable running at that level, longer term which is close to 15% of your enterprise value? And I guess how are you thinking about also using joint ventures or funds to offset some of that risk to you guys?
Richard J. Campo
Well, we are not comfortable with having $1 billion in any one year, because what happens in this pipeline scenario is that, you start one, you finish one, you start one, you finish one. So we’re comfortable on the $400 million, $500 million range, sort of annually as we’re completing our properties.
But as we’re completing developments and adding new ones, but we definitely are not going to get to the level that we were at the peak in the last cycle. And the big difference in this cycle is that, we’re funding the development with equity, as we go, our balance sheet is a lot stronger than it was in the last cycle.
Generally, we will not do joint ventures per se to offload the risk, we will do some in our fund. But I actually found that joint ventures in the past didn’t necessarily offset the risk when you had to deal with your joint venture partner with respect to bringing new capital on the table sometimes.
So oftentimes joint ventures really don’t reduce risk much. With that said, we are definitely going to keep an eye on the total number of on balance sheet exposure that we have relative to the size of the company, and the strength of the balance sheet.
Robert Stevenson – Macquarie Research Equities
Okay. And then, Keith, if I miss it or did you talk about the rent growth on the January, February or March renewals yet?
D. Keith Oden
Yeah, we gave the January and February numbers in the range of 7% to 8% on rentals.
Robert Stevenson – Macquarie Research Equities
Okay. And then quickly, Dennis, you said, you already owned 20% of the little over 4000 JV units you just bought out your partner’s interest in.
These assets will be in the same-store pool for 2012?
Dennis M. Steen
They will not. They’re going to be in non-same-store for 2012, and they won’t actually come into the same-store pool, maybe not until 2014, because they’ll be out part of this month.
So they’re not going to be in same-store.
Robert Stevenson – Macquarie Research Equities
Even though you already owned a portion of it.
Dennis M. Steen
Yeah, because we actually consolidated them on January 20, something. And we will not be reporting in the same-store pool.
Robert Stevenson – Macquarie Research Equities
Okay, thanks, guys.
Operator
The next question comes from Alex Goldfarb with Sandler O'Neill.
Alexander Goldfarb – Sandler O'Neill & Partners L.P.
Good morning to everyone there. Just the California investment, it was definitely eye opening, just given that you guys haven’t done anything in California for quite sometime.
Just want to get a little bit more color, what finally prompted you guys to go out there? And does this reflect the start of more investments, do the numbers now pencil, that make it worthwhile to allocate capital to California, or was this more of just a one-off?
Dennis M. Steen
No, we’re committed to California. Clearly, the challenge has been in the past that the cap rates have been difficult to make the numbers work.
But bottom line is, we think the California market is a great market long-term. Particularly, their acquisition of the Glendale track just was a very, very opportunistic kind of transaction where we are buying the land at substantially less than it was offered for and worth in the past, and then we’re able to generate a very attractive development yield on that project.
We still have our Hollywood in buying or so many buying project that we’re working on in California, and we’ll continue to be active in California.
Alexander Goldfarb – Sandler O'Neill & Partners L.P.
Can you just give us sense what the expected returns are there on the Glendale deal, and how much below market you’re on a per dollar price what you paid for the land?
Richard J. Campo
Well, the land was under contract before we acquired it at the peak of the market at around $32 million, $31 million plus or minus, we bought the land for $23 million.
Alexander Goldfarb – Sandler O’Neill & Partners L.P.
No. Not the Hollywood, the Glendale?
Richard J. Campo
That’s Glendale.
Alexander Goldfarb – Sandler O’Neill & Partners L.P.
Okay.
Richard J. Campo
That is Glendale. And we’re projecting a unlevered or a non-trended return around 5.5, 6 and with a trended in the 6 to 7, 6.5 to 7.
And we think that’s a pretty attractive transaction.
Alexander Goldfarb – Sandler O’Neill & Partners L.P.
Okay. And the second question is, on construction lending, it seems, that it’s still quite strict, the banks are still pretty tough in giving construction loans out.
In your sense just speaking like all of your merchant friends, is there a sense that this is coming from the regulators that’s keeping the banks from lending or is this more that it’s internal to the banks like they just do not want to take any construction risk, and therefore they are being very careful in where they actually do construction loans.
Dennis M. Steen
I think, it’s both. I think on the one hand, the regulators are pushing them to get merchant builders that have stranded loans, that haven’t been able to either sell those assets yet to pay off.
So you’re getting some pressure from regulators. We’re hearing that from our banks.
And then also, it’s just the banks asking questions today that they didn’t ask in the past, which is questions like what are your continuing liabilities, and what ratio of capital do you have in your entity to continue the liabilities demand that they are just not willing to take a merchant builder’s guarantee without any capital behind the guarantee. I mean, some of these merchant builders were 50:1 leverage to their capital.
And I remember asking some of my merchant builder friends who will not be named here. What was your ratio of actual tangible capital and not your real estate value, but real liquid capital to your debt?
And the bottom line is that, they said that it was infinite. They couldn’t calculate the number because you really have not liquid capital.
It was all just their joint – the equity was reflected on the balance sheet with their joint venture interest in their promoted interest if you will. We actually talked to a banker that said that their bonuses were going to be eliminated because of downgrades, because of credit ratings on those kinds of loans.
So with that said, it is a very difficult environment today, it hasn’t you’re not back to the sort of heavy days in 2005 and 2006 where any merchant builder to get a loan without much trouble. It’s a very difficult time, and I think the other interesting piece of that is, it’s not just the debt that’s the governor on multifamily development, it’s the equity.
You have a number of equity people that were out there who have said; well I’m going to do two deals in Houston. I’m going to do two deals in Washington DC.
And the merchant builders are fighting for that equity. So it’s both the equity side of the equation and the debt side of the equation that’s the governor and the mark, and that’s why when those – taken those numbers down and others have taken, their construction starts down.
It was almost sort of happening in August, September of last year, but you haven’t seen really any major improvement in the credit market since then.
Alexander Goldfarb – Sandler O’Neill & Partners L.P.
So the point is that, despite the pretty solid story for apartments in terms of limited supply and people choosing the rent, it’s probably known just you don’t see any cracks in the construction lending, it sounds like it’s going to be pretty strict for a while?
Richard J. Campo
I think so.
Alexander Goldfarb – Sandler O’Neill & Partners L.P.
Okay. Thank you.
Operator
The next question comes from Karin Ford at Keybanc Capital.
Karin Ford – Keybanc Capital Markets
Hi, good morning. Keith, I wanted to follow up with you on your rating for Washington DC this year.
I know you took it down from an A to B, but after hearing your commentary about the challenges there, I was surprised that you rated it stable. What gives you confidence that that market shouldn’t be labeled deteriorating given many things, that seem like are going to be issue later on in the year there?
D. Keith Oden
Well, I think there is a lot of hindering about the potential for issues later in the year, but if you look at where most people are on forecasting job growth in DC, we’re still in the 30,000 to 40,000 job range for DC, and while the others some, there is some supply coming online even that market is still with jobs and projected supply is still above a 5:1 ratio for 2012. And if you look at our, so in terms of thinking about our numbers going forward in DC, we’re still projecting roughly 4.5% revenue growth in DC and that’s in most years in this business that would be considered to be a really strong number, but relative to some of our other markets where we’re getting double-digit revenue growth, it doesn’t look strong.
So it’s – given what’s happened in the last few years in terms of rent growth, and the fact that we’re 8% above the peak rents than in DC relative to most of our other markets where we’re still below the peak. It’s time certainly for a little bit more cautionary note, but 4.5 revenue growth that in any of our markets in any given year, I will take that any day.
I think most of the – it’s not that it was not a different scenario out there that you could kind of get in your brain and trivialize out. But I can think of half a dozen of those, but I think the most likely outcome for 2012 is still a year where we get 30,000 to 40,000 jobs.
We bring on 5,000, 6,000 new apartments and we still get the 4.5% rent growth.
Karin Ford – Keybanc Capital Markets
So it sounds like the job outlook is really the thing we should watch for whether or not we need to change the scenario or trivialize it later on the year?
D. Keith Oden
Absolutely.
Karin Ford – Keybanc Capital Markets
Okay.
D. Keith Oden
Because the supply side of the thing is already baked.
Karin Ford – Keybanc Capital Markets
Right.
D. Keith Oden
It is what it is.
Karin Ford – Keybanc Capital Markets
Yeah.
D. Keith Oden
We are going to get – that’s the kind of deliveries we’re going to get. And I think the variable that we will all be watching is this job growth.
Karin Ford – Keybanc Capital Markets
Okay. Second question, I know you said your purchases, move-outs for home purchases was stable across the portfolio in the fourth quarter.
Were there certain markets where the number was up more than the portfolio as a whole? I think one of your competitors said they saw some – an increase in Phoenix, do you guys see any markets where you saw a tick up in that number?
D. Keith Oden
If you look at it across-the-board, you’ve got a – in our portfolio the range is pretty broad and so it’s kind of hard to say, was any broad brush, what’s going on. All the way from Ohio and Denver, it was almost 17% for the fourth quarter.
You had – Atlanta was in that range, 17%. But at the other end of the range, you got, California is still at 5.9%, Las Vegas or Austin is at 7.4%.
Most of the Houston markets were in the 10%, 11% range. So it’s not that we don’t have markets that are higher, it’s just that even the markets that are higher are below the average rate that we’ve seen in our portfolio for the last 20 years, which is somewhere around 18%, 18.5% range for a long-term average.
So even in outlier market, where you see 16%, 17% relative to ’12 or ’11 that things like a lot, but relative to historical averages, it’s still extraordinarily low.
Karin Ford – Keybanc Capital Markets
Okay, thank you for the color.
Operator
The next question comes from Rich Anderson with BMO Capital Markets.
Richard Anderson – BMO Capital Markets
Hey, good morning.
Richard J. Campo
(Inaudible)
Richard Anderson – BMO Capital Markets
So, Rick, your comments about construction financing being hard to come by. That kind of surprised me, because I guess I’ve been hearing that banks are lending for multifamily construction more these days.
Is this a new phenomenon?
Richard J. Campo
Well, I think they are lending more than they were.
Richard Anderson – BMO Capital Markets
Right.
Richard J. Campo
But they’re not at full till the way they were pre-bust and pre-financial crisis…
Richard Anderson – BMO Capital Markets
But it’s trending up, isn’t it, not?
Richard J. Campo
Clearly, it’s trending up.
Richard Anderson – BMO Capital Markets
Okay.
Richard J. Campo
I mean starts have gone from 70,000 units or 75,000 units to 150,000. So obviously those are, when you look at the pure increase, you could say construction lending has doubled and it clearly has.
The question though is, can the merchant builders ramp up as fast as they could in the last cycle. And part of the issue is that the structure of their businesses has fundamentally changed, where in the past the banks would make them construction loans without regard to the capital that they had behind their companies to pay those loans back.
And that’s a different animal today.
Richard Anderson – BMO Capital Markets
So I guess, I meant when I say trending up, but trending up substantially. Let’s start with my statement.
Richard J. Campo
They are.
Richard Anderson – BMO Capital Markets
Okay. Just so and we’re clear.
Dennis M. Steen
When we started, post-Wold War II low, and you have a historical number of 300,000 and you go from 75,000 to 150,000, that’s substantial.
Richard Anderson – BMO Capital Markets
Yeah. Okay.
I just wanted to clarify that statement.
D. Keith Oden
Rich. Rich, let me give you the progression, and again...
Richard Anderson – BMO Capital Markets
You are eating up my question time here, but go ahead.
Richard J. Campo
Go head.
D. Keith Oden
The progression is in the U.S. starts, and these are Witten’s numbers.
And so the 11 actuals would have been 150, that ‘12 projected as 186 in the 2013 projected as 177. Now, if you go back to 2009 in that progression, you get the risk number, which was up 75,000 apartments.
Don't misunderstand our message, starts have increased and based upon these numbers, they are likely to increase again in 2012, and then moderate to roughly 175 in 2013. To me that's not the question, because what that level of starts translates to in our markets, like the Camden level, where we’re looking at starts and completions, that translates into roughly 43,000 apartments.
And we’re projecting 438,000 jobs in 2012, that’s a 10:1 ratio. It’s not yet zero, and 43,000, but it’s a decent size number of completions across Camden’s market, just it’s dropped by the historical relationship of jobs to completion.
So I think what – where people are, where they’ve started the [handling] is thinking that, because you get this progression from 75 to 150, that the next data point is likely to be 300, and the one after than 600. And it’s just not in the cards.
Richard Anderson – BMO Capital Markets
Okay.
Richard J. Campo
I mean that could happen. So it’s a matter of scale.
Richard Anderson – BMO Capital Markets
So the reason why Ron has reduced the supply outlook is a function of what?
D. Keith Oden
Two things, but there’s three things, construction lending that we’ve talked about.
Richard Anderson – BMO Capital Markets
Yeah.
D. Keith Oden
The equity availability, and the sort of selectiveness of the equity capital that’s out there. And then third, which is an interesting number is that, construction costs are starting to rise.
So when you look at the numbers in terms of what construction yields could be with costs going up, Witten’s analysis, takes into account that it will – as you go forward in the cycle, it will be harder to make numbers work, and therefore from a return perspective, and therefore you won’t have as many starts.
Richard Anderson – BMO Capital Markets
Okay. And then my second question is, if you could just find for me what the stable mean?
Richard J. Campo
Stable means that it’s looking – when we’re giving those Ag that go with it, it’s looking out over the course of 2012. Though at the beginning of 2012, you start out a point in time, you have a budgeted renewal rate increase, or things getting tighter or not as tight over the course of the year.
So stable just mean, things are stable, if it’s a tight market at the beginning of the year, it’s likely to be a tight market at the end of the year.
Richard Anderson – BMO Capital Markets
Okay. So, it’s not like market rents aren’t moving stable.
It’s relative to where the starting point will be in the beginning of the year?
Richard J. Campo
That’s correct.
Richard Anderson – BMO Capital Markets
Okay. How many of the stable markets are, the starting points are very high, that makes sense?
Richard J. Campo
Yeah, so Austin?
Richard Anderson – BMO Capital Markets
Okay. Any of the A markets I guess?
Dennis M. Steen
Yeah, Austin, Dallas, Charlotte, but Charlotte is improving [really] certainly.
Richard Anderson – BMO Capital Markets
Then anyone on the top of the A list. Okay, thank you.
Dennis M. Steen
Yeah.
Operator
The next question comes from Paula Poskon at Robert W. Baird.
Paula Poskon – Robert W. Baird & Co., Inc.
Thanks. Good afternoon.
Dennis M. Steen
Hi, Paula.
Richard J. Campo
Hi, Paula.
Paula Poskon – Robert W. Baird & Co., Inc.
Can you talk a little bit about the strategy of how you’re identifying assets for dispositions? Is it more asset specific, around age or quality or more call on the market or sub-market dynamics or just a caught in the outplay on the cap rate environment?
Dennis M. Steen
So, our discipline around dispositions is almost always around the notion of sub-market quality and asset quality. We also have a very, we look at a five-year return on invested capital, which includes CapEx, rent growth and much of other things.
So if you look at the five-year return on invested capital and you just take the bottom fourth quarter of our portfolio, so that sort of defines the hunting range for the assets that get on the disposition list. It starts with returns that are substandard because rents aren’t growing fast enough, or CapEx is too high, within that then we look at things like the direction of the submarket, asset quality, is it still – is it gotten to the point where it just not – we can’t operate it to a Camden standard anymore.
And that’s how we fine tune the list of the bottom quarter of performers. And so, for 2000, we’re ramping up dispose this year in the $250 million range.
So depending on the average asset size we’re talking about 6 to 8, probably 6 to 8 Camden communities out of 200.
Paula Poskon – Robert W. Baird & Co., Inc.
That’s helpful. Thanks.
And I know you talked a little bit about move-outs to home purchasing. Could you talk a little about move-outs due to rental rate increases, and what’s happening there trend wise and are you still able to backfill with higher quality tenants?
Dennis M. Steen
Yeah, we have experienced in the last two years, higher move-outs outside the to purchase home category, primarily around job relocations and financial instability. Those have moderated.
And for 2012, we don’t think those are going to be – we think we are past the worst of the kind of tenant credit concerns. And as Rick mentioned in his comments, our credit quality across our portfolio has actually improved pretty significantly since last year.
And the percentage of rent on average that our residents are paying is in the 18% range, which from a historical standpoint tells us that we’ve got room to grow on continuing to push rents. You’re always – when we are pushing rents, you always have the possibility that at the margins, yes, the person can pay it, but they are annoyed because of it.
And we do our best to manage through that process. But at the same time, when you are raising rents on average of 5.5% across an entire portfolio like ours, there’s a lot of touch points there with people that are paying higher rent.
I think the more interesting way to look at it is, where we are with regard to peak rents in our portfolio. And we are still not – this is as the numbers kind of hard to get your head wrapped around because we’re all talking about rental increases and how good the market is right now.
But we have not yet, on average in our portfolio gotten back to the rent level that we were at in February of ’08.
Paula Poskon – Robert W. Baird & Co., Inc.
Would you say that’s the majority of your markets or just a handful?
Dennis M. Steen
No, it’s probably two-thirds of our markets are still below peak rents or further above. And I understand the concept of you drowned in the river and the average depth was only 4 feet, but it’s a bit large in our portfolio, it just tells you that we’ve got lot of room to grow, particularly in markets that have lagged in the recovery.
I mean, the Las Vegas is still 18% below peak rent and Phoenix is still in the 9% below peak rent. So we still think we got a lot of room up for growth in our portfolio from the markets that got beaten up the worst.
Paula Poskon – Robert W. Baird & Co., Inc.
Thanks. And then just one final question, back to the new supply.
Are you seeing, are you finding it anywhere more difficult or taking more time to get plans approved or get through the entitlement process just given how many municipalities have cut staff over the last several years and now at least in certain markets where there is more new supply on the radar screen, we are certainly hearing that here in Fairfax County, where the staff is overwhelmed and just can’t get through the workload?
Richard J. Campo
I think that’s definitely a initiative we have been facing is municipalities have cut staff, and even in places like Houston where a month or two behind on one of our space, our 55 and older property primarily because the building inspectors hadn’t inspected buildings in a longtime. So you had new people and they cut staff and its taken longer to get things done because of the limited staff folks and then the people that are on staff are having to be educated both our side and their side to be able to get things accomplished.
I think that’s definitely a key issue and that it’s taking longer to get things planned and longer to get them build.
Paula Poskon – Robert W. Baird & Co., Inc.
That’s all I have. Thanks very much.
Yeah.
Dennis M. Steen
Yeah, on the other hand municipalities are seem to be much more motivated these days to have a taxable interest rather than rolling out, so. Yeah, unfortunately they don’t communicate in house, they’re some inspectors they maybe helped you – help you, gave your project sort of its own, but once its in the upper they tend to be just sort of [side load] and they do what they do.
Paula Poskon – Robert W. Baird & Co., Inc.
Great. Thanks very much.
That’s all I have.
Dennis M. Steen
You bet.
Operator
The next question comes from Michael Salinsky at RBC Capital Markets.
Michael Salinsky – RBC Capital Markets
Good morning, guys. First question, did you get new lease rates, what you guys expect new lease growth in 2012.
And also just given how aggressively you pushed in the fourth quarter on renewals? How do renewals compare to input – renewals compared to current market rates in the portfolio?
Dennis M. Steen
The first question was on rental rates?
Michael Salinsky – RBC Capital Markets
No, your new lease rates. You quoted I think 7% to 8% number for the fourth quarter.
I am just curious just to what you – but your new lease rates were significantly below that. So I’m just curious as you look at ’12 kind of what you dialed in for new lease rent growth?
Dennis M. Steen
So if you think about – but the number that we gave you was for renewals, for both, for January and February. So from a revenue management standpoint, we’re looking at the model it’s forecasting out.
No further than 120 to 150 days, so as we go put together our budgets, we’re looking at what’s the total amount of rental increase that’s going to happen for that individual community. So our revenue growth, forecasting, we don't forecast the difference between new lease rates and renewal rates using our revenue management tool.
We do that through our property management folks who make depending on that community, every community has its own historical renewal rate and they break it down between renewals and new leases and have a rental growth rate assumption for that market. So, our own target at the midpoint is 5.5% across the entire market, but it varies pretty widely across that from community to community and within each community depending on how many renewals they historically have versus new leases.
Michael Salinsky – RBC Capital Markets
Okay. Second one is just a book keeping question.
Can you walk through what you’re expecting in terms of real estate tax growth for 2012, as well as utilities and also just, in terms of sources and uses, what you’re expecting in terms of total development outlays, including land purchases to back stock the pipeline?
Dennis M. Steen
Okay. As far as kind of expenses, I’ll talk about that one first.
We have a 3% growth in expenses, 4.3% is real estate taxes and if you kind of look at where we probably have the highest increases in real estate taxes it’s going to be in our Texas and Florida market. And a couple of those markets, all of those markets are probably greater than 5%, but was offsetting that to get us to a 3% growth rate.
The other big line item in expenses is salaries, we’re actually budgeting to only go up 1.5% and that is because we had negative experience in 2011, as that relate to large medical claims, so that’s the next biggest category. And the only other item of size that I’d talk about is kind of R&M and we are looking at [R&B] and relatively flat zero to 1% in ’12 over 2011.
Michael Salinsky – RBC Capital Markets
Okay. Did you give the development spent?
Dennis M. Steen
Yeah, development spent for 2012 is going to be approximately $200 million.
Michael Salinsky – RBC Capital Markets
That includes additional line purchases to backstop the pipeline or no?
Dennis M. Steen
Yes, it does.
Michael Salinsky – RBC Capital Markets
Okay. Thank you.
Operator
Our next question comes from (inaudible) at ISI Group.
Unidentified Analyst
Thanks. I was just hoping to get a little bit more color on the increase in the average income for your tenant base, it seems pretty pronounced given what we’re seeing internationally in terms of waste growth.
Is that more concentrated in certain markets or is there something going on that you need your portfolio?
Richard J. Campo
I think, it’s really across the portfolio, and what’s happening is, as the rent increases and renewal rates increase, what’s happening is, people who took advantage of lowering rents were they could afford a better located or maybe higher quality apartments than they hand in the past, they were able to move up, sort of B buyers moving up into A properties because of the lowering of the rents. As the rent cycle has turned around, now what’s happening is as folks that aren’t necessarily their incomes haven’t gone up enough to offset that rent, they certainly have to actually move down market.
So what’s happening is that our people are, so the new people coming in the door are – they have higher income. So it’s not necessary that our existing rent basis is increasing at a very significant rate, because obviously 61,000 to 67, 000 is pretty big increase relative to what’s going on in the income growth.
So it’s really people moving in that have higher incomes and people moving out that have lower incomes because they were pushed, they came up during the rental decline cycle and now they’re having going back down market in the cycle. We haven’t seen a lot of variation in markets, it’s already happening in all the markets in a very similar way where people are just getting the higher quality residents coming in the door, when our lower quality residents are having to move down market.
Unidentified Analyst
How does that 67,000 compared to the prior peak, and do you worry about as you kind of upgrading tenants that just by the nature of that definition they are better qualified for ultimate home purchases, later on the cycle?
Dennis M. Steen
Well, I think, I don’t have the numbers for the peak at this point; we can look them up and give you those offline. But I think that even these, even the residents are coming in now that have higher incomes, still have the same issues with respect to the people that are in there, credit scores are better, but the balance sheets of these people are pretty limited in terms of down payments and the ability to get home loans.
I don’t think that our – that the people are more out to buy a home, but obviously, when you have higher incomes, they have the ability to do that. I think one of things we looked at is sort of the age range, and our age range really hasn’t changed that much.
And what drives home ownership is really demographics based on age, those are the people get the higher propensity they have to own homes. And so from that perspective, even though our income is up, our average age has not risen.
The – sort of early 20, mid-20s group continues to be the dominant demographic force that is pushing our business. They tend to be very high propensity to rent folks.
And so even if they have better incomes, they are not going to go buy homes until they get to that sort of sweet spot of the demographic to buy homes, which is really 35 to 45 years old.
Unidentified Analyst
Understood. That’s helpful.
Maybe just one quick follow-up, I know you’re talking about this kind of jobs to completions ratio and the average about 5:1. Can you give a little more color at the market level for – let’s call it the top five or six markets in your portfolio?
Dennis M. Steen
Top five or six ranked buy?
Unidentified Analyst
Sure. In anyway you have them?
Richard J. Campo
Yeah. I will get back to you offline.
Unidentified Analyst
Sure, that’s all from me. Thank you.
Richard J. Campo
Okay.
Operator
This concludes our question-and-answer session. I’d like to turn the conference back over to Rick Campo for any closing remarks.
Richard J. Campo
Great, well thanks for staying on the call. And we will be taking music requests via email for the next call.
So we’ll see you at the next conference. Thank you.
Operator
Conference is now concluded thank you for attending today’s event. You may now disconnect.