Feb 1, 2013
Executives
Kim Callahan – Vice President of Investor Relations Richard J. Campo – President and Trust Manager D.
Keith Oden – Chairman and Chief Executive Officer Dennis Steen – Senior Vice President of Finance and Chief Financial Officer
Analysts
Eric Wolfe – Citigroup Kana Gallen – Bank of America Merrill Lynch Alexander Goldfarb – Sandler O’Neill Richard Anderson – BMO Capital Markets Robert Stevenson – Macquarie Research Equities Michael Salinsky – RBC Capital Markets Andrew McCulloch – Green Street Advisors Paula J. Poskon – Robert.
W. Baird & Co.
Jeffrey J. Donnelly – Wells Fargo Securities Thomas C.
Truxillo – Bank of America Good morning and welcome to the Camden Property Trust Fourth Quarter 2012 Earnings Release Conference Call. All participants will be in listen-only mode.
(Operator Instructions) after today’s presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Kim Callahan, Vice President, Investor Relations. Please go ahead.
Kim Callahan
Good morning, and thank you for joining Camden’s fourth quarter 2012 earnings conference call. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs.
These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them.
As a reminder, Camden’s complete fourth quarter 2012 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 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. As another multifamily company will begin their call at 1 PM Eastern.
As a result, we ask that you limit your questions to two and rejoin the queue if you have additional questions. If we are unable to speak with everyone in the queue today, we’d be happy to respond to additional questions by phone or e-mail after the call concludes.
At this time, I’ll turn the call over to Rick Campo.
Richard J. Campo
Thanks, Kim and good afternoon to those of you on Eastern Time and good morning to the rest. We actually have 15 other people in the room that we didn’t name, but for support here, which we often times need.
So, it’s time to turn to page on 2012, and look forward to another great year for 2013, but before we turn the page on 2012 I want to highlight what has been one of our best years in 20 years. Same property net operating income increased 9.2% over 2011 finding the high water mark in our history as a company, and one of the best in the multifamily sectors for the year.
We continue to improve the quality of our property portfolio through capital recycling, redevelopment, and new development. We sold $529 million of properties in 2012 with an average age of 21 years, average rents of $800 per month, at an average capital rate of 6.3%, which resulted in an unleveraged IR of 11% for the whole holding period which is an average of 14 years.
We acquired $904 million of properties with an average age of 13 years, the average rents in a $1024 per month, at a 6% capital rate based on 2013 budgets. We continue to create long-term value to our development program, and stabilize four properties producing yields in excess of 8%.
We continue at $300 million to $400 million of new development starts annually. We strengthen our balance sheet during 2012 by reducing the leverage and improving all financial metrics.
2012 was a year where we spend a significant amount of time simplifying our balance sheet as well on our capital structure by reducing the number of joint ventures and partners. The only remaining joint ventures that we have are with Texas Teachers and Sierra-Nevada.
A big thank you and a job well done goes out to our real estate investment construction and finance teams for their flawless execution in this endeavor. 2013 looks to be another strong year for Camden as our 6.5% increase in same property net operating income guidance adjust, our markets continue to produce more jobs than the nation as a whole, while new starts are up in every market.
We expect that job driven demand will be more than enough to absorb new supply, and allow rents to continue to rise. While job growth has been steady, there continues to be a pent-up demand for an estimated $1.7 million young adult households that are still doubled up and living at home, and we know that most of those folks want to move out and want to rent an apartment at some point.
Our rent to income ratio of 17.7% is well below the long-term average at 21% indicating that our residents can afford to pay more on rent for the Camden living excellence experience that they receive from our Camden operations teams. We are excited about turning the page to the opportunity that 2013 will present.
We are celebrating our 20th year as a public company in July, by ringing the closing bell at the New York Stock Exchange. We hope to see many of you in New York when we do that, as we begin the next 20 years in this great industry that provides quality housing to many Americans.
Keith, I will turn the call over to you now?
D. Keith Oden
Thanks Rick. And consistent with prior years, I’m going to use my time on today’s call to review the market conditions that we expect to see in our core markets for 2013.
I will address the markets in the order of highest to lowest ranking by assigning a letter grade to each one, and give our view as to whether we believe that market will be improving, stable or declining in the year ahead. Following the market overview, I will provide additional details on our fourth quarter operations, and before I get to the 2013 grades, I’ll share the two biggest surprises related to our 2012 grades, and as you might expect they are both upside surprises.
Last year I rated Phoenix as a B-minus improving market, and I was right on the improving part but with the 15.3% NOI growth for the year, Phoenix probably deserved a better starting grade than a B-minus. I also rated Denver as a B+ but stable market, but there is nothing stable about the 13.1% NOI growth our Denver teams posted.
Moving on to 2013, our number one ranking this year goes to Charlotte, which we rate as an A+ market, with a stable outlook. After placing second in same-store revenue growth last year with a 10.8% trailing only Houston, we expect strong growth this year in Charlotte as well.
Charlotte will see some of these supply this year from an estimated 4,400 completions, over 18,000 job growth expected, and our portfolio at 96.5% occupied today. We believe Charlotte will be one of our top performers again in 2013.
Houston is the close second with an A rating and stable outlook. Houston is expected to remain a leader in job creation next year with a forecast of 77,000 new jobs.
The energy sector continues to add jobs in consolidated operations here a trend which are showing the signs of slowing down. We’ll see 12,000 new units delivered here this year, which seems pretty normal to us as Houston averaged a 11,000 annual completions from the year 2000 through 20009.
Next on the list will be Denver, which also are in an A, with a stable outlook for the third consecutive year, we expect Denver to be one of our top five performers, and market fundamentals there remain solid. Over 29,000 new jobs are projected in 2013, which should easily absorb to 6,200 completions expected to come online.
Rounding out our top five spots for 2013 are Austin and Dallas, both ranked as A-minus with stable outlook, these are the only two markets which received the lower grade this year than last year, and moving from an A-minus versus an A, mainly due to competition from new supply expected during 2013, Austin and Dallas recorded 2012 same-store revenue growth of 9.5% and 8.7% respectively and are expected to post above average results again in 2013. Job growth estimates remained strong across the state of Texas with over 32,000 new jobs projected in Austin 56,000 in Dallas.
New developments are beginning to come online in both markets with estimated completions of 9,700 units in Austin and just over 11,000 in Dallas, but those new unit should face solid demand over the course of 2013. Phoenix and Atlanta both get a grade of B+ with an improving outlook; we’ve seen above average revenue growth in Phoenix for the past two years and expect the same in 2013.
Rents in Phoenix fell nearly 18% from peak to trough, but we’ve since recovered nearly all of that. The Phoenix economy is doing well with over 52,000 new jobs expected during 2013, and supply is virtually non-existent with a total of 1,500 new units being delivered this year.
Another market expected to see strong job growth and minimal supply in 2013 is Atlanta, estimates go for 49,000 jobs and fewer than 4,000 completions in that market, which should provide us with an other very good year in Atlanta. South Florida holds on to its rating of a B-plus with a stable outlook again this year, completions were estimated around 2,900 apartments, with 21,000 new jobs being projected.
New supply should be easily absorbed given tight market conditions and pretty decent job growth. Washington DC are in the B rating with a stable outlook, after several years of out performance growth in DC slowed during 2011 and 2012, and will probably continue to moderate in 2013, nearly 9,500 new completions are expected in DC this year, which will increase competition for new residents, and they provide us a challenge on some of our renewals.
However job growth is projected at nearly 40,000 this year, which will certainly help, but we do expect to see revenue growth in DC moderate a bit more during the year. Next is Raleigh, also with a B rating and a stable outlook.
Raleigh is projected to see the highest level of completions relative to job growth of all of Camden’s markets next year, with nearly 7,000 new units coming on line, and the creation of 16,000 new jobs will increase demand. That said, we expect Raleigh to be in the middle of the pack this year in terms of revenue growth, posting results around the mid point of our overall guidance range.
Tampa and Orlando scored B ratings with stable outlooks as well, projections for 2013 job growth and completions in those markets are very similar, with approximately 25,000 new jobs, and roughly 2,000 new units supply expected in each markets providing solid demand with limited supply. The success of our recent developments in both Tampa and Orlando were testament to the solid fundamentals in those markets as leasing velocities and rental rates were well above expectations at all four of our lease up communities.
The final market rated a B with a stable outlook is Southern California. Southern California struggled a bit over the past few years with economic indicators seem to be pointing in the right direction for next year.
Over 65,000 new jobs were expected. It’s definitely a step in the right direction for the California economy, projected completions are 12,400 units in 2013, and that should not materially impact the market conditions, is probably no surprise that Las Vegas place is last again this year with a C rating, but improving outlook, Las Vegas is still our most challenging market, we think it may have finally bottomed for real this time.
2012 market return to positive growth with 1.8% revenue growth in our same-store portfolio, and we expect 2013 to be marginally better. Supply is clearly not an issue on Las Vegas with fewer than 800 new units being delivered this year, 27,000 new jobs are projected in 2013, which should allow for positive absorption and improving occupancy rates over the course of the year.
Overall our portfolio would rank as a B+ again this year, which puts us in a great starting position for 2013. Now, I’ll give you a few details of our same property results.
Overall trends for the fourth quarter in January looked very similar to last year. Fourth quarter new leases were up roughly 0.5%, renewals were up about 7.3% versus 0.5% and 7.5% last year respectively.
In January new leases were up about 1.2%, renewals up 7.2%, January and February renewals are trending at 7%, with 56% and 44% completed respectively, currently our portfolio is roughly 5.3% above the prior peak rents on an overall basis. Occupancy averaged 95.1% in the fourth quarter, and ended the year at 94.6%, the average occupancy in January was 94.8%, and the current occupancy is 95.1%.
Net turnover was 52% for the fourth quarters of both 2011 and 2012 completely flat year-over-year. Year-to-date turnover was 57% in 2012 versus, 56% in 2011.
And overall traffic has declined, but still remains very strong levels in all of our markets. Moveouts to purchased homes were 13.3% in the fourth quarter of 2012 versus 11.2% in the prior quarter of 2011.
Moveouts rental homes actually fell during the quarter to 3.6% versus 4% for the full-year, and the top reason for moving out of one of Camden’s apartments was either moving out of city, or the state, or closer to work, at 18%, and transfers to other units of Camden Property’s were second at 13.5%. Finally I want to thank all of our Camden team members for making Camden a great place to work, a distinction recognized by Fortune magazine for the sixth year on a row, and our fourth straight top ten finish.
Being included on the list of the top 100 companies to work for is an honor that we claim on behalf of our team members, and all of the other outstanding real-estate investment trust. At this point, I’ll turn the call over to Dennis Steen Camden’s CFO.
Dennis Steen
Thanks Keith. I’ll start today with a few comments on our fourth quarter results, and then move to 2013 earnings guidance.
Camden reported funds from operations for the fourth quarter of $85.9 million or $0.97 per share diluted share, $0.01 per share above the $0.96 midpoint of our prior guidance range of $0.94 to $0.98 per share. Result come in $0.01 per share above the midpoint of our guidance range resulted primarily from two items; first property net operating income exceeded our forecast by $1.6 million, approximately half of the positive variance was due to the NOI performance of our operating properties as both property revenues and expenses performed slightly better than expected producing a 9.2% year-over-year growth in same-store NOI, slightly above our expectation of 9% growth.
The other half was due to NOI pickup from the slight delay of several dispositions into the later of half of the fourth quarter, and the disposition of Camden Live Oaks moving into January of 2013. This positive variance in property NOI was partially offset by higher property management and G&A expenses primarily related to higher bonuses paid to non-executive employees in recognition of 2012’s out performance.
All other components of income and expense were generally in line with our expectations for the fourth quarter. Moving on to 2013 earnings guidance; you can refer to page 26 of our fourth quarter supplemental package for details on the key assumptions driving our 2013 financial outlook.
We expect 2013 projected FFO per diluted share to be in the range of $3.85 to $4.05 with a mid point of $3.95 representing a $0.33 per share or 9% increase over 2012. The major assumptions in components of our $0.33 per share increase in FFO at the midpoint of our guidance range are as follows.
A $0.29 per share or $26 million increase in FFO related to the performance of our 44,395 units same-store portfolio. We are expecting positive same-store net operating income performance of 5.5% to 7.5% driven by revenue growth of 4.75% to 6.25% and expense growth of 3.2% to 4%.
A $0.32 per share or $29 million increase in FFO related to increased net operating income from our non-same-store properties resulting primarily from the 20 communities acquired in 2012, and four development communities were stabilized in 2012, and the incremental contribution from development communities currently in lease up. We’ll also have an $0.09 per share or $8 million increase in FFO related to additional net operating income from expected 2013 acquisitions of operating communities, and a $0.05 per share or $4.5 million increase in FFO related to reduced interest expense primarily as a result of the pay-off of various secured notes in 2012, but favorably priced issuance of $350 million in unsecured debt in the fourth quarter of ‘12 and $3 million in additional capitalized interest expense expected in ‘13 related to our 2012 and 2013 development starts.
Additionally, we’ll expect a $0.04 per share or $4 million increase in FFO related to reduced minority interest expense resulting from the redemption of our preferred units in the first quarter of 2012, and our 2012 acquisition of our partners interest in two consolidated joint ventures, we expect no minority interest expense in 2013. These above positive are going to be partially offset by a $0.29 per share or $26 million decrease in FFO related to lost NOI from both 2012 completed dispositions, and 2013 anticipated disposition activity, and in a $0.11 negative impact from common shares issued in 2012, a $0.02 per share or $1.7 million decrease in FFO related to reduced equity in income of joint ventures resulting primarily from the seven joint venture community sold in 2012, and our consolidation of Denver West as result of the purchase of our partners 50% interest in the fourth quarter of 2012.
And a $0.02 per share or $2 million decrease in FFO due to an increase in G&A expenses resulting primarily from cost related to the move of our corporate headquarters later this year, and higher incentive compensation expense resulting from the amortization of awards granted in 2012, a year with great performance, which are replacing the amortization of awards granted for 2008, a year challenged by the great recession, that have now become fully amortized in 2012. Additionally we anticipate a 3% increase in base compensation.
Taking a closer look at our same-store expense growth, a 3.2% to 4% for 2013, we are expecting the largest increases to be in property taxes and in insurance expenses. Property taxes are projected to be up 10% in 2013 6.5% as a result of anticipated increases in assessments for our properties in 2013 due to continuing increases in real estate barriers.
And a 3.5% is related to a higher level of favorable tax settlements of protests that were completed in 2012, thus reducing our 2012 expense. Actual settlements were $3.2 million in 2012, and we are forecasting approximately $1 million of settlements for 2013.
Same-store property insurance expenses are expected to be up 17% in 2013 after declining 3% in 2012, and 7% in 2011, the declines in insurance expense for 2012 and 2011 resulted from lower levels of self insured property in general liability insurance claims. Our projection for 2013 insurance expense assumes a 5% increase in policy premiums, and a return to a more normalized level of self insured office.
The remaining categories of same-store property expenses are projected to be relatively flat to 2012 amounts, which was dated by a 2.5% reduction in repair and maintenance expense resulting primarily from a reduction in unit churn costs as a result of our increased level of repositioning of units in 2013, which I will discuss in a minute, and a reduction in our door-to-door thrash removal costs due to the successful renegotiation in 2012 of our thrash removal contracts. Page 26 of our package also details our expected ranges of acquisitions, dispositions, and development activities.
The midpoint of our 2013 FFO per share guidance assumes the following, $300 million in on balance sheet dispositions, $53 million of that has already occurred in January, with the sale of Camden Live Oaks, and the reminder is spread throughout the year. $300 million in acquisitions, also spread throughout the year, and $325 million of on balance sheet development starts.
We’ve also provided guidance on the impact of the ramping up of our reposition program to upgrade interior finishes at 39 of our communities over the next two years. Our guidance assumes we will reposition approximately 5,500 units in 2013 at an average cost per unit of $10,000, generating an estimated $95 per month rent premium and an estimated return of 10% on our investment up on stabilization.
These communities will remain in our same-store portfolio, and the 2013 projected impact from the revenue enhancing repositions included in same-store NOI guidance is estimated to be 50 basis points as read premiums and reductions in churn costs, will be partially offset by increased space vacant on the reposition units. Based up on our planned 2013 transaction activity and the $200 million in unsecured debt maturities for the fourth quarter of ‘13, we anticipated needing up to $350 million of new capital for 2013, and anticipate accessing the capital markets opportunistically.
The composition of our 2013 capital activity depends up on a variety of factors including capital market conditions at the time we go to market, but will likely include an unsecured bond offering in the second half of the year. As a reminder we currently have full availability under our $500 million unsecured line of credit.
For the first quarter of 2013, we expect FFO per diluted share to be in the range of $0.92 to $0.96 per share. The mid point of this range represents $0.03 per share decline from the fourth quarter of 2012.
The $0.03 per share decline is primarily the result of the following items, a $0.02 or $1.5 million decline in same-store NOI resulting from a 3.4% increase in same property operating expenses almost exclusively due to increases in property taxes and insurance expense for the reasons I previously discussed, which is only partially offset by a slight increase in same property revenues due to the continued improvements in rental rates, partially offset by a slight decline in other property income due to expected seasonality, and $0.01 or $900,000 decrease in FFO related to a decline in NOI resulting from the net impact of our acquisition and disposition activities. NOI lost on our fourth quarter 2012 dispositions, and the sale of Camden Live Oaks in January this year is greater than the NOI gained from our fourth quarter of 2012 acquisition.
I will now open the call up to questions.
Operator
We will now begin the question-and-answer session (Operator Instructions) And our question is from Eric Wolfe of Citi.
Eric Wolfe – Citigroup
Hey good afternoon. One of your peers call yesterday, they talk about supply being more of factor in the markets in 2013 versus 2014, the basic thesis being that investors first look to the costal markets, and then sort of begin to broaden their basis out to the Sundale markets, just wondering weather you see this trend happening, and if there is some concern about the fact that companies like Lennar and others are trying to built out there a multifamily business?
Dennis Steen
So I think that I guess my view is that starts in the non-coastal markets we’re pretty limited to the sort of the urban core and they still are fairly light in the suburban part of these markets, so I would say that ‘13 I don’t have any concern about ‘13 having trouble with supply at all. I think ‘14 when you look at some of the projections out there for some of the folks that we follow like Ron Witton and others, they show ’14 and ‘15 actually accelerating, but it’s not supply issue, it’s really job growth.
Most folks believe that ’13 is going to sort of be a goal along get along here from a job growth perspective 150,000, 200,000 jobs, but after all of the sort of government issues are dealt with this year that ‘14 and ‘15 actually accelerate job growth wise and supply does not really tick up dramatically in ‘14 or ‘15, we think the supply is going to stay on a national basis somewhere in the 220,000 to 250,000 units a year. We need 300,00 a year to meet demand after you take out the obsolescence so, we haven’t seen any major increase in the non-coastal markets and aren’t really worried about ‘13 or ‘14.
Eric Wolfe – Citigroup
Great that’s very helpful, and second question is just as you kind of sit back and look at how your markets have performed over the last couple of years, and obviously there has been a lot of talk about whether multifamily and singe family can coexist, but have you seen any correlation between how the single family markets have performed in your markets, versus the multifamily has the strongest single family have been also the strongest multifamily or vice versa or is the relationship not really been a strong relationship between the two.
Richard J. Campo
I think it’s a pretty good relationship if you look at Texas for example you had which is one of the best markets in America for multifamily and jobs, Texas didn’t have a housing burst for say no big run up in prices and no big decline in prices, but from a start perspective there is starts in single family homes have been doubling here in Texas, and their spending more for houses and that sort of thing, so that clearly has had a beneficial correlation to multifamily, because you’re in a situation where you’re adding construction jobs, and adding all the activities that happens in single family market, and that’s better for the economy overall, which drives multifamily demand as well. So I think the idea that a single family home the single family market improves the multifamily can do well in that environment, it’s just not or not the case, and if you look the ‘90s as a good example, call as the home ownership years when everyone was buying a home and the home ownership rate went from 64% to almost 70%, a multifamily did incredibly well during that time frame, and we had net positive absorption big job growth, and big revenue growth as well during that time frame.
So I think unless something happens where you have a bubble caused by incredibly low interest rates, and credibly easy access to home loans, which I don’t think it’s going to happen, then I think that the correlation between strong housing markets in general including single family could drive multifamily as well.
Eric Wolfe – Citigroup
Make sense thanks for the detail.
Operator
of
Kana Gallen – Bank of America Merrill Lynch
Thank you, good morning.
Dennis Steen
Good morning.
Kana Gallen – Bank of America Merrill Lynch
Your DC results were very strong in fourth quarter, I was wondering if you could comment given the concerns of the new supply DC of the year portfolio maybe because of the sub-markets, where you are located or perhaps of the price average price points let it do a little bit better than some of the peers there reported thus far.
Dennis Steen
Yeah. I think that if we think about our portfolio in DC Metro, it’s all the way from Northern Virginia up through Maryland we have two operating assets in the district and a couple of others under construction there now, but when we look at a submarket level we just don’t think that we’re likely to be very much impacted by what the new supply that’s coming in the DC Metro area, I think that some of that it’s get down to, we just had a great execution from our teams in DC, if you think about same-store last year, we were in the 4.2% range, and I think our game plan for 2013, is somewhere in the 3% to 4% range again on the same-store.
So I think we’re looking for a year that we look a lot like 2012, yeah you’re going to have some more supply, but we’d also, we’re forecasting about 50,000 new jobs that puts a little bit of pressure on the overall ratio, it’s from the standpoint of the new deliveries to job growth. It’s slightly below the five times level that we think is equilibrium.
But it’s foreign change, so I think it’s the margins that’s not going to be a huge issue for us as long as we get the 50,000 jobs that are forecasted in the DC Metro area.
Kana Gallen – Bank of America Merrill Lynch
Thank you.
Operator
Next we have a question from Alexander Goldfarb with Sandler O’Neill.
Alexander Goldfarb – Sandler O’Neill
Hi, good morning down there.
Dennis Steen
Good morning, Alex.
Alexander Goldfarb – Sandler O’Neill
Dennis on the capital front, on your $350 million of capital needs this year, you stated unsecured, but you didn’t talk about equity, are you guys planning on using the ATM, are you planning any equity issuances part of that $350 million, and part of where that it’s going is developers post credit crisis have been using a lot more equity than pre-credit crisis, so given that you guys are pretty active developer just want a better understand what we should expect on that front?
Dennis Steen
Just kind of look at what we did this past year, we did a lot of de-levering this past year and also prefunding a lot of our developments that are going to be coming out of the ground in 2013, so as we look at it today, we are $200 million maturing in the fourth quarter, I think we are going to have the significant piece of this capital need funded by debt as I mentioned, and you might have a minor piece with ATMs, but once again we will just have to see based up on the conditions at the time, so I can go back $350 million you see there, I would think you would definitely think of at least $250 million of that would be debt.
Alexander Goldfarb – Sandler O’Neill
Okay, and so if we are modeling the other $100 million we can just do ratably on the ATMs throughout the year.
Dennis Steen
Yeah, you can see some combination of ATM an additional debt.
Alexander Goldfarb – Sandler O’Neill
Okay.
Dennis Steen
Will not make that much of a difference to your numbers, I don’t believe.
Alexander Goldfarb – Sandler O’Neill
Okay. Second question is yeah just going to the earlier questions about supply and everyone jumping into the states including Lennar, all that said, supply is still well below I mean Atlanta for example is forecast to be well under supply versus historic.
What do you guys seeing, are the banks just have they really learning the lesson or regulators just being very tough on them. It just seems hard to believe that with the under supply and the favorable dynamics of apartments that we’re just not seeing the supply ramp up even quicker than what it is right now?
D. Keith Oden
I think there is a couple of things driving that Alex, first of all Lennar, it’s interesting that they announce $1 billion multifamily deal when Lennar has been a competitor of Camden for the last 10 years. Okay, Lennar isn’t doing anything new other than trying to capitalize on the hard multifamily market and drive investors think about them in that way, but Lennar has been building apartments from at least for a 10 or 15 years, they just didn’t publicize it, so they are not a new competitor which I think most people don’t realize.
Second the issue on supply is this, we started 211,000 units this year, 2012 I mean and so when you look that compared to the bottom, we had 75,000 unit start at the bottom of the cycle and now next year, I think we’ll probably add from 211 to maybe 220, 230, so what’s going on in the marketplace is that I think people have sort of learned some lessons in that the merchant builder model has changed dramatically, the sort of big [Bahama] 30,000 units under construction, 20,000 units under construction, merchant builder model is done. They might do 5,000 units, but not 20,000 units and part of that has to do with the capital structure that the banks look at, in the past the merchant builders used to guarantee the debt, generally the 70% debt, 30% equity scenario, and thanks really didn’t look at sort of what their tangible capital was on their balance sheets.
And today they are, and so I think there is a limiting factor, which has to do with just the size of the company. And then second, investors the equity side of the equation, I think is in probably more cautious than the lending side of the business, and you sort of have a group of equity investors, who have a place there investments, and they have two or three in Houston for example, two or three in various markets in there, sort of waiting to see what happens in that environment.
The other thing that sort of coming into the business today, which could have a dampening effect on starts is construction costs. The construction costs, went down from peak to trough probably 30% in type 1 construction may be 20%, for stick and now that has been reversed, so there is a lot of discussion and anxiety about what kind of numbers you are able to produce with construction costs, and folks have had some pretty rude awakenings on building projects out having 10%, 15%, 20% increases in the cost to build.
So you do have some pressure on the cost side of the equation and investors on the equity side are definitely being more cautious than they were last time.
Alexander Goldfarb – Sandler O’Neill
Okay, that’s helpful. Thank you.
Operator
And the next question is from Rich Anderson of BMO Capital Markets.
Richard Anderson – BMO Capital Markets
Thanks good morning down there. So just following on that development question as it relates to you guys, so (inaudible) is increasing their development pipeline primarily through (inaudible), but obviously they made a commitment to development and grow the development portfolio, are you that’s in mindset, I mean it looks like from third quarter to fourth quarter, you just kind of transition from your development pipeline to your under construction pipeline, but what do you think about the growth of your development effort in 2013 and 2014?
D. Keith Oden
Well, we have been pretty consistent with that, we’re going to add to the portfolio $300 million to $400 million a year, and if you take the entire pipeline that we have, it’s over $1 billion, but the bottom line is that we are not going to start $1 billion in any one year, we are going to manage it prudently the real when you think about the last cycle, we had too much development pipeline, and we had too big of a land pipeline, and we are not going to do that again, we will be more prudent in our development endeavors, we have unlike the last cycle been prefunding our development through the combination of equity and debt, and we think that’s the right strategy. So in terms of development you can count on $300 million to $400 million of development that annually through the next two or three years, and if the market continues to be buoyant from that perspective, we’ll get the numbers that we like we’ll continue to do it.
Richard Anderson – BMO Capital Markets
So if you thought that it was going to be a better an accelerating market next year, and the year after, I’m just trying to extrapolate development expenditures, and confidence in management, is there such a thing with you guys, or are you kind of just stick into that $300 million to $400 million and not showing your cards.
Dennis Steen
So Rich it’s more an issue of the way we view the development pipeline, which is unlike merchant builders or folks that we are kind of in the market, and out of the market, they got a catch lightning in a bottle twice, which is once when they start, and once when they exit on valuations. And that’s not the way we view it, what the way we view it is, we are producing product at a wholesale rate, and locations that we want to own for the next 20 years.
So ramping up dramatically, you’re dialing back dramatically is more of behavior, I think it’s a little bit more consistent with the merchant build model. I don’t think as Rick said, I think we’ve given guidance that will add $300 million to $400 million to the pipeline this year to go with what we started in 2012, and assuming conditions still a favorable in 2014, and I think you could probably expect somewhere along that line as well.
Project lease up and roll off of that which gives us the steady state development pipeline at an aggregate level that we are extremely comfortable with, given our debt metrics, and our commitment to prefunding, so I think it’s a core confidence of ours, we have to renew and refresh our portfolio across 15 markets, and we’ll continue to do that through both acquisitions and new development.
Richard Anderson – BMO Capital Markets
And then the last follow-up question is on the dividend increase, how much of that was a function of having to do with taxable net income issue or you just woke up one day and said I want to raise the dividend by 12.5%.
Dennis Steen
Yeah, it was definitely not mandated by a need to deal with our tax characteristics, it was just simply a dividend increase based up on our increase in cash flow.
D. Keith Oden
And also Richard long-term stated policy has been to increase the dividend of roughly 50% of the FFO growth rate, and if you take what we actually did in terms of the dividend increase forgetting, what our guidance was at the beginning of the year, we saw significantly beat our guidance relative to last years dividend increase, that’s the reason, why it looks like its above the 50% level, but if you take – what we actually delivered in 2012 plus what we expect to deliver in 2013, we are pretty close to that 50% metric.
Richard Anderson – BMO Capital Markets
Sounds good, thanks.
Richard J. Campo
Okay.
Operator
And the next question is from Rob Stevenson, Macquarie.
Robert Stevenson – Macquarie Research Equities
Good afternoon guys, just a couple of quick questions on cap rate, can you talk about what the cap rate was on the 12 acquisitions excluding the joint venture purchases and then also what it was on the disposition, and where you guys are on the expectations for stabilized yield on the current development pipeline?
Dennis Steen
Okay, so the first one on the acquisitions, the 2013 budget has the 6% cap rates, we bought those during the year, so it’s probably in the mid volumes in terms of cap rates. On the dispositions the cap rate was 6.3% on average, so it was mid sixes call it.
And which I think, it’s interesting when you think about that 23 year old assets or 20 plus year old assets, and there wasn’t a huge spread negative spread between the two and that’s something we are capitalizing on right now, we think it’s really good time to sell all and then buy new, because both cap rates present just not as wide as they tended to be in the past. On the new development, we have 6.5% to 7.5%, so call it seven and some change on new development that we started.
Robert Stevenson – Macquarie Research Equities
Okay, and at this point I mean, is 150 basis point enough for you guys on development from a risk reward standpoint, I mean that seems low relative to sort of historical norms.
Dennis Steen
The average has been from 100 to 200, we’re comfortable with the 150 basis points of positive spread to the cap rates we’re buying now.
D. Keith Oden
And also Rob it’s probably, you’re talking cap rates on acquisitions, dispositions, which are in one case, with 21 year old assets, and other case with 13 old assets, if you are talking apples-to-apples cap rates on new construction core product, you probably go four handle on it, today versus a 7% that we’re developing, we are probably north of 250 at this point on apples-to-apples.
Robert Stevenson – Macquarie Research Equities
Okay, and then just lastly Keith, I mean just in terms of your market outlook, which is the market that you would feel least confident, betting your total comp for 2013 on the performance of?
D. Keith Oden
Least confident.
Robert Stevenson – Macquarie Research Equities
I got to believe that you guys are sandbagging a little bit right, as normal I mean a little bit of sandbagging in there to, so that you’ll have beating all the numbers, but I mean which one is the one that sort of the least amount of confidence in continuing to be an A or a B as we go throughout ‘13.
D. Keith Oden
I think to me the market that has the most potential variability in it, there is two; one is Raleigh, based on the new amount of construction relative to the size of that market and the projected job growth, so you might have some fresh air there, I think we properly capture that in our little forecast for 2013. The other is just at a 20,000 foot level is California.
And the uncertainty of the couple of things the overall fiscal situation and how that plays out in terms of what real job growth is going to be, the out migration of Phil Mickelson not withstanding him changing his mind, I think it’s a real issue in terms of the tax structure in California. And then on top of all that, if you want threatened about something Prop 13 is certainly something to threat about, if what happens what they are currently talking about is a surplus.
We’ll see if that actually happens, if it doesn’t, and they have to go back to the well on revenues. I think they are some risk associated with the – they end up getting it through revisions to Prop 13, since they now the Democrats now have a super majority in both House’s so I think that’s real.
Robert Stevenson – Macquarie Research Equities
All right. Thanks guys.
Operator
And our next question is from Rose (inaudible) of UBS.
Unidentified Analyst
Hey, thanks it’s Derick on for Rose. Circling back on your outlook for DC, can you comment if you have seen or expect to see any change in cap rates, inside and outside of the circuit.
Dennis Steen
We haven’t seen much cap rate, changes in DC at this point. I think that the transaction activity has been consistent, and there hasn’t been a very anytime major change in cap rates at this point.
Unidentified Analyst
Okay thanks. And then I think you mentioned, you’re still about 350 bps below historical rent to income.
Is there any markets where you’re actually above the respective historical average.
Dennis Steen
We’ll have to get back to you, I don’t have the detailed market information. We’ll be happy to do that offline.
Unidentified Analyst
Okay fair enough, and then just lastly did you give the moveouts for financial reasons?
Dennis Steen
We’ll get back to you in one second. Financial reasons in 2012, was 5.2%.
Unidentified Analyst
And for the quarter?
Dennis Steen
The quarter was 5.5%.
Unidentified Analyst
Okay, got it. Great thank you.
D. Keith Oden
All right.
Operator
And the next question is from Michael Salinsky of RBC Capital Markets.
Michael Salinsky – RBC Capital Markets
Good morning, guys.
Dennis Steen
Good morning. Michael.
Michael Salinsky – RBC Capital Markets
Talk a little bit about what your market rent growth expectations are for ‘13, relative to ’12. I mean I think you said, you kind of wants the market, how does that compared to any markets where you expecting a significant drop up or drop off or a significant pick up there.
And then just curious, on the redevelopment spending that’s included in the numbers. You’ve talked a little bit about the plans to roll that out, what’s kind of that, what that’s going to kind of entail?
What kind of drag you expect a little bit how the benefits picking up in the back half of the year, just walk through the program a little bit more.
Dennis Steen
So without going market by market through the 2012 revenue versus 2013 kind of same-store projections across the board, if you think about where we were in 2012, we were at 6.5%. This year guidance is 5.4%, just kind of eyeball in it, I don’t see I see maybe two or three of the markets where we are slightly better in revenues than we were in 2012, but as you might expect across the board we are down 1.1% on top line revenues versus where we were on 2012, don’t see any big declines in terms of year-over-year, 2% in the Charlotte and the Houston of the world on revenues, Las Vegas actually picks up; DC I think I gave you earlier, it’s that we were 4% - 2% last year and we are in the 3% to 4% range this year, so not big swings across the Board, but overall, just a little bit of moderation from the 2012 levels.
Michael Salinsky – RBC Capital Markets
Okay. And then could you just walk a little bit through – in terms of redevelopment, how that’s going to impact the numbers when you expect to see the benefits?
D. Keith Oden
I will let Dennis give you the redevelopment, because it really doesn’t drag the portfolio.
Dennis Steen
Yeah, ultimately if you look at well we are going to give you guidance on the 5,500 units and we expect to do that kind of ratably over the year, kind of ramping up by the mid year to get to a steady state, so if you kind of look at the impact of this year, if you take $95 a unit and you kind of say the 5,500 units come in ratably during the year. We think the net impact to revenues after knocking out 9 days to 10 days worth of incremental vacancy is about $1.3 billion or 20 basis points on revenues.
Michael Salinsky – RBC Capital Markets
And that’s on the same-store?
Dennis Steen
Yeah.
Michael Salinsky – RBC Capital Markets
Okay, that’s helpful. Yeah, that clarifies a bit more and you want to disclose that I am assuming correct, the amounts you spend in the quarter.
D. Keith Oden
Yeah, let me disclose every quarter.
Michael Salinsky – RBC Capital Markets
Okay. And this is a follow-up question.
Does the Sierra-Nevada, the debt on the Sierra-Nevada joint venture mature this year and if so can you talk about kind of what the plan is for that joint venture long-term?
D. Keith Oden
Sure, the debt does mature this year, it’s a Freddie Mac loan and we are working on either on two plants; one is to either extend the loan or the other is to sell the assets.
Michael Salinsky – RBC Capital Markets
Okay, thank you very much.
Operator
And our next question is from Andrew McCulloch of Green Street Advisors.
Andrew McCulloch – Green Street Advisors
Hey guys. Following up on that CapEx question, on the recurring and revenue enhancing CapEx spend for 2013.
Is it pretty big numbers compared to what you’ve done historically? How much of the spending in your mind is really deferred maintenance?
D. Keith Oden
None, it’s all kitchens and baths, the interesting thing is that most people say, you are going to rehab a 10 year old property. If you think about, I was thinking about my wife and my home and how many times I have redone my kitchen and what we are doing is, we are updating to current market needs, your market taste if you will perfectly good kitchens and baths, but people are willing to pay more for granite, pay more for cherry cabinets and the lights.
So there is zero dollars involved in CapEx that would be described as deferred maintenance and it’s all improving the quality and the customer experience, which they ultimately pay a higher rent for.
Andrew McCulloch – Green Street Advisors
Okay, thanks. Same question on single family rentals.
That industry continue to gain theme and we saw you know the first company recently come public, I know this is the business you guys in particular have followed very closely. Happy that first of all little bit here, but you sit here today and look at the single-family rental landscape, what do you mean the probability that Camden at some point get’s into that business?
D. Keith Oden
Very low probability. When we looked at it multiple times in the cycle and we still fundamentally believe and I think it remains to be seen whether these companies that are in this business now can get any large scale, because I don’t think they know what operating processes are in large portfolios or how that really works.
And so I think that’s the big if, the question ultimately is, I do think people are going to make money in that business, don’t get me wrong there, but I don’t think it’s a long-term institutional public REIT sell business that 20 years from now you are going to have large public companies and on single family homes. There is too much competition between Mom-and-pop.
And Mom-and-pop have no overhead expenses, they do the maintenance themselves, they rent the properties themselves and so it will be – it’s a little different animal than a multi-family business. So if I thought that there was a) way to scale it and b) a way to make it long-term viable business, we would have been in the business in 2008, 2009 or 2010, but I haven’t been able to figure that out.
And maybe I am wrong and somebody will figure it out, but Camden won’t.
Dennis Steen
Andrew, we spent a lot of time, effort, energy, and intellectual capital looking at a buy in whole strategy and we could never figure out how to get the numbers, the buy in whole rental strategy anywhere past about 4.5 and 5 and that was using what we thought were pretty aggressive. Speaking of CapEx, Rick is right, I don’t think that folks know what the long-term operating costs are in this model for running 500 single family houses, strong out all over Phoenix, but I certainly can assure you that I have no idea what the CapEx costs are when you have to turn a single family home that’s been under somebody’s rental for a year and leasing in the middle of the night.
So you think apartment CapEx numbers are spooky, try to do a unit turn on single family home, it’s been trashed.
D. Keith Oden
It’s tough. I thought it was telling the other day, it went from what everybody is talking about to I was listening the other day and heard Barry Sternlicht on one of the morning talk show say that the game is already over and like Rick said, I think some people obviously are going to make money, but they are going to make money, because they bought houses at $0.50 on $1 and they are going to sell them at $0.80 on $1 and they will make money, but buy in whole single family home is a long way off.
Andrew McCulloch – Green Street Advisors
Great. Thanks for the color.
D. Keith Oden
You bet.
Operator
And the next question is from Paula Poskon of Robert. W.
Baird.
Paula J. Poskon – Robert. W. Baird & Co.
Thanks. I just have a follow-up on your disposition strategy.
Is the pool of assets based more on the asset quality themselves or more about sub-market migration?
D. Keith Oden
It’s both actually, it’s really asset quality within the sub-market and how that sub-market is performing over the long-term. It’s definitely about all those three issues of the equation that we look at.
And we do have sort of a quantitative analysis at the headquarters here in Houston and then we sent it out to the field and make sure that it’s not just people looking at numbers, it’s people sitting on the ground, working with the properties every single day and they are making very, very subjective decisions based on what’s going on in the real world.
Dennis Steen
Paul, the metrics in the starting point for all of that as Rick said is, we use the five year rolling return on invested capital, ROIC calculation for our entire portfolio and so you think about what it’s capturing, it’s capturing rental rate growth, what’s getting to the bottom line and NOI and it’s capturing the reinvestment required in CapEx. So on any given day, if you take our portfolio and string it from 100 to 200 on that metric, you just go Canada this will come out of the bottom 15.
Paula J. Poskon – Robert. W. Baird & Co.
Thanks very much.
Dennis Steen
You bet.
Operator
And next we have a question from Jeff Donnelly of Wells Fargo.
Jeffrey J. Donnelly – Wells Fargo Securities
Yeah, I guess maybe two questions for Keith. One is, I guess what are the odds at Las Vegas could produce I guess like a Phoenix like experience that you saw in 2012 or it surprises, your upside maybe triggered by that outward migration from California?
D. Keith Oden
What are the odds? That’s a great one for Las Vegas.
So if you think about where Las Vegas is right now, we are forecasting roughly 30,000 new jobs. There are a total of 800 apartments.
They are going to be delivered – new apartments delivered in Las Vegas. So the normal metric if you would think about is 30,000 new jobs could absorb 6,000 apartments that are 5:1 ratio of job growth to completion.
So there is going to be pressure, we know there is going to be upward pressure on rents. The question is, are we far enough long to where that really turns into rental rate growth.
If most of the – the unemployment rate is coming down, the 29,000 is going to help that, but you are still in an unemployment rate in the city of somewhere in – after all that set and done, you probably end the year at 9% to 10% unemployment. I think you could catch a year, next year in Vegas with 30,000 jobs if that sticks and 800 new apartments, I think you could catch it a year where it’s up 5%, 6%.
I think we are sort of in the 2% to 3% range guidance for next year. And if think about to, so go out 2014 and the year beyond on that, on witness two, she has got Las Vegas being a top buyer market, so we will see.
Jeffrey J. Donnelly – Wells Fargo Securities
Yeah, so for – last question is, I know you are not in these markets, but do you watch the Boston, or San Francisco, or New York close enough to assign a letter grade to them and I guess if you were there, do you think they would alter the rate, the rankings of the markets that you are in?
Richard J. Campo
Honestly, I have my impression, but it’s not worth sharing on a conference call. So I guess this is not something that we follow, not the kinds of metrics that we look at for our own portfolio.
Jeffrey J. Donnelly – Wells Fargo Securities
Yeah, that’s helpful. Thanks guys.
Operator
The next question is from Tom Truxillo of Bank of America.
Thomas C. Truxillo – Bank of America Merrill Lynch
Hi, thanks. Like the first Alex’s question on capital from a little different point of view, you guys have obviously done a great job to delever and simplify the balance sheet.
Are you comfortable where your metrics are now or do you plan to continue to see improve this balance sheet metrics or do you think you kind are having so point that we could actually add a little bit of leverage?
D. Keith Oden
We are very comfortable with where we are now, but that doesn’t necessarily mean we don’t want to continue to improve it, because we do. We think fundamentally that I think this is just the – I don’t know if you want to call it hang out from the great recession or the realization from the great recession, that lower leverage is better than higher leverage and we are in a cyclical business.
While we have been in this business long enough to know that you make hay while the sun shines and you feed the ducks when they are quacking to quote Sam Zell, but bottom line is, we will operate going forward with lower leverage than we have in the past and we will make sure that when the next cycle comes we can take advantage of it on a much larger scale than we were able to on the last cycle. So lower leverage is better, we would – you cannot expect us to add incremental leverage from where we are today.
I would think that we would be continuing to lower our leverage rather than increasing.
Thomas C. Truxillo – Bank of America Merrill Lynch
Great. And then second question on the comments on sources and uses, I appreciate that.
And in fact, you said you probably will be in the market with an unsecured note in the second half of the year. Given where the moving rates has gone since the beginning of the year, have you thought about kind of tapping the market now and prefunding or perhaps just putting in like an interest rate hedge to kind of lock in the rates, because they maybe significantly higher than they are now when you actually do need the money?
D. Keith Oden
I see a scenario every single day.
Dennis Steen
Yeah, its one of those things where you sort out the balance, what you do with the cash and it sort of hurts my head to put cash in a 0.1% interest bearing account and paying even the rates are incredibly low. I know there are some hedge opportunities as well.
We look at that all the time and when we look at our capital structure and decide whether we are willing to buy that insurance if you will and how much that insurance costs.
Thomas C. Truxillo – Bank of America Merrill Lynch
Okay, great. Thanks for the comments.
Operator
And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Richard J. Campo
Great. Well, we appreciate your attention on the call today and we will see everyone at the next conference and this summer at our 20th anniversary bell ringing.
So thank you very much and this will end the call.
Operator
The conference is now concluded. Thank you for attending today’s presentation.
You may now disconnect.