Q4 2022 Camden Property Trust Earnings Call
Good morning, and welcome to Camden Property Trust fourth quarter 2022 earnings Conference call.
Kim Callahan senior Vice President of Investor Relations joining.
Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman, and President and Alex <unk> Chief Financial Officer.
Today's event is being webcast through the investors section of our website at Camden living Dot com and a replay will be available. This afternoon. We will have a slide presentation in conjunction with our prepared remarks and those slides will be also be available on our website later today or by email upon request.
You are joining us by phone and need assistance during the call. Please signal a conference specialist by pressing the Star T followed by zero, all participants will be in listen only mode. During the presentation with an opportunity to ask questions afterward, and please note. This event is being recorded.
Before we begin our prepared remarks, I would like to advise everyone that we will be making forward looking statements based on our current expectations and beliefs.
These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Further information about these risks can be found in our filings with the SEC and we encourage you to review them any forward looking statements made on today's call represent management's current opinions and the company assumes no obligation to update or supplement these statements because of subsequent events.
As a reminder, camden's complete fourth quarter 2022 earnings release is available in the investors section of our website at Camden living Dot Com and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call.
We hope to complete our call within one hour and we ask that you limit your questions to two then rejoin the queue. If you have additional items to discuss.
If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email. After the call concludes at this time I'll turn the call over to Ric Campo.
I think for today's on hold music was waiting patiently, which is what we find ourselves doing these days the bid ask spread for multifamily assets. This is why it is I can't ever recall southern seem to be hoping for valuations to return to last year's peak some sellers acknowledge the decline in valuations.
10% to 15%, but buyers point to a dramatically different macro backdrop now versus last year and reconciling values should be lower.
Result is the current standoff, there won't be resolved until buyers and sellers adjust their views on valuation and meet somewhere in the middle until then we wait patiently, which is a lot easier for Keith to do than me. This brief video sums up the hours that Keith and I have spent in recent months debating the merits of waiting patiently versus.
Making something happen now.
Patients patients.
Asia.
Patients patient.
Well, that's still something.
By any measure 2022 with the best operating environment Cameron has had in our 30 year history, we exceeded the top end of our guidance and raised guidance every quarter.
Operating conditions over the last two years have never been better driven by being in the right markets with the best product and having the best team in <unk>.
Apartment demand was driven by.
And acceleration of in migration into our markets that opened sooner after the pandemic and continue to be more business friendly driving outside job opportunities.
And a massive relief of rental demand from people who were previously at home with their parents are doubled up.
As.
Government stimulus added to their savings.
Subsequent buying power as a result of apartment supply could not keep up with increased demand two.
2023 will be a return to a more normal housing demand market.
We are still have excess savings in the job market remains strong despite rising rents apartments remain more affordable than purchasing homes for many consumers in our markets given the rise in home prices and interest rates most of us don't like slowing revenue.
Or negative second derivatives, but I think we need to put things into perspective apartments are and will continue to be a great business consumers will always need a place to live and we'll choose high quality well managed properties delivered.
We are projecting five 1% revenue growth for 2023 absent coming off last year's 11, 2% record breaking growth. Our 2023 projected revenue growth will be the sixth highest growth rate achieved over the last 20 years for Camden.
At this point I'd like to give a big shout out to our Camden teams across America for a job well done in 2022.
Want to thank them for improving their teammates live customers lives and stakeholders lives one experience at a time.
It's Keith take over the call now thank you.
Thanks, Rick as many of you know we have a tradition of assigning letter grades to forecast conditions in our markets at the beginning of each year and ranking our markets in order of their expected performance. During 2023, we currently great. Our overall portfolio as an a minus with a moderating outlook.
As compared to an a with a stable outlook last year. Our full report card is included as part of our earnings Slide call Slide deck, which is now showing on the screen and will be posted on our website after today's call.
At this time last year, we anticipated 2022 same property revenue growth of eight three quarter percent at the midpoint of our guidance range as we announced last night Camden's overall portfolio achieved same property revenue growth of 11, 2% for 2022, well ahead of our original expectations.
And marking a record level of same property revenue growth for our company.
While conditions are expected to moderate during 2023, our outlook calls for same property revenue growth of five 1% at the midpoint of our guidance range, which would mark another year of above long term average growth for our portfolio.
We anticipate same property revenue growth to be within the range of $4, 1% to six 1%. This year for our portfolio with most markets falling within that range. The outliers on the positive side should once again include our three Florida markets, Orlando, South, Florida, and Tampa with Houston and L. A orange.
Counting falling likely below 4%.
The macroeconomic environment today is uncertain and the magnitude of 2023 job growth or even job losses remains a wildcard, but we expect our sunbelt focus market footprint will allow us to outperform the U S outlook, we expect to see continued demand for apartment homes in 2023, given high mortgage rates for single family homes.
And a reluctance from would be buyers to make the transition to homeownership amidst this uncertain economic environment.
We reviewed several third party forecast for both supply and demand in our markets for 2023, and the outlook for recession scenarios and job growth or job losses varies dramatically.
As such I'll spend my time today, focusing more on the supply aspect and expected completions and deliveries and our 15 major markets. This year.
Those estimates also vary quite a bit but our baseline projection assumes approximately 200000, new completions across our markets. During the course of 2023.
Our three Florida markets, Orlando and Southeast, Florida, Tampa, Once again earned a plus rating, but with a moderating outlook.
These three markets had a weighted average revenue growth of 16, 4% in 2022 and are budgeted to achieve between 6% to 8% this year.
Overall supply will likely increase in these markets and we expect completions of 12000 11006 thousand units respectively.
Charlotte Raleigh, and Nashville would rank next with an a rating and moderating outlooks for 2023 versus 2022. This will be our first year of reporting same property statistics for Nashville, but we anticipate same property revenue growth of 5% to 6% for each of these three markets new supply will continue to be a hedge.
When this year, particularly in Nashville, but in migration trends in overall levels of demand remains strong.
Our estimates for new deliveries in these markets are 11 nine and.
10000 units respectively.
Up next are Dallas, and Phoenix, which received a minus ratings with stable outlooks.
Dallas should deliver around 20000 units this year, but so far demand drivers remain strong and should allow for absorption of many new apartment homes Phoenix.
Phoenix is likely to see another 15000 units completed this year, which will further tempered revenue growth from double digit levels to a more moderate rate of 5% or so we.
We expect Denver, and Austin to fall around the middle of the pack for our portfolio with approximately 5% revenue growth and.
And would rate them as an a minus with moderating outlook.
Completions in Denver are projected to be around 15000 apartments and in Austin is expected to see over 20000, new apartments come online this year.
Both of these markets has seen their fair share of supply in the past few years, but demand has been remarkably strong given recent announcement announcements regarding layoffs in the technology sector. We will keep an eye on both of these markets for any future signs of slowing demand.
Our next three markets, San Diego Inland Empire, Washington, D C Metro in Atlanta.
The rating of B, plus with a stable outlook, we expect completions of 10000 13013 thousand units, respectively and revenue growth in the four to five four to four 5% range.
San Diego inland Empire subject stays less supply pressure than some of our other markets. This year, but the overall regulatory environment in southern California puts us in a wait and see mode for now for our operations in Washington D. C Metro in Atlanta seem to be more of the same and should continue at a steady stable pace throughout 2023.
Houston and L. A orange county, or two last market with grades of B, and B minus respectively and revenue growth projections of 3% to 4% this year.
Our outlook for these two markets are a bit different as we see an improving outlook in Houston versus a stable outlook in L. A orange County.
Both markets should see manageable new deliveries with 15000, 20000 units, respectively, but economic conditions in Houston, maybe a bit more resilient with energy companies, making profits and performing well.
La counting was clearly has clearly had higher delinquencies and bad debt compared to our other markets and we remain a bit cautious on when restrictions and regulatory issues around evictions and nonpayment of rents will actually begin to improve.
Now a few details of our fourth quarter 'twenty to operating results in January 2023 trends.
Property revenue growth was nine 9% for the fourth quarter and 11, 2% for full year 2022.
Nine of our markets had revenue growth exceeding 10% for the quarter and our top three performers were our Florida markets, the Tampa, South East, Florida and Orlando.
Rental rates for the fourth quarter has signed new leases up 4% and renewals up eight 4% for a blended rate of six 1%.
Our preliminary January results indicate a return to more normal seasonal trends with a blended growth of four 2% of our signed leases to date February and March renewal offers were sent out with an average increase of 8%.
Occupancy averaged 95, 8% during the fourth quarter of 'twenty, two compared to 96, 6% last quarter and 97, 1% in the fourth quarter of 'twenty one.
January 2023 occupancy has averaged 95, 4% compared to 97, 1% in January 2022.
Annual net turnover for 2022 was up slightly compared to 2021 at 43% versus 41% and move outs to purchase homes were 13% for the quarter and 13, 8% for the full year of 2022 down from 16, 4% for the full year of 2021.
I'll now turn the call over to Alex Jeff that Camden's Chief Financial Officer.
Thanks, Keith before I move on to our financial results and guidance a brief update on our recent real estate activity during the fourth quarter of 2022, we completed construction on Camden Atlantic a 269 unit $100 million community in plantation, Florida, which is now almost 90% leased averaging over 50 leases.
Per months well ahead of expectations.
Turning to financial results last night, we reported funds from operations for the fourth quarter of 2022 of $191 6 million or $1 74 per share in line with the midpoint of our prior quarterly guidance. These.
These results represent a 15% per share increase in <unk> from the fourth quarter of 2021 include.
Included within our fourth quarter 2022 results is approximately <unk> <unk> per share of additional insurance expense associated with the recent winter freeze.
Excluding these nonrecurring insurance charges, our results would have exceeded the midpoint of our prior guidance range by <unk> <unk> per share, resulting from the faster than expected leasing velocity at Camden Atlantic combined with lower employee health insurance claims and lower property tax rates in Texas.
For 2022, we delivered record same store revenue growth of 11, 2% expense growth of five 1%, which included the additional insurance expense from the winter freeze and record NOI growth of 14, 6%.
You can refer to page 24 of our fourth quarter supplemental package for details on the key assumptions driving our 2023 financial outlook.
We expect our 2023 <unk> per share to be in the range of $6 70 to $7 with the midpoint of $6 85.
Representing a 26 cent per share increase from our 2022 results.
This increase is anticipated to result, primarily from an approximate 36 per share increase in SSO related to the performance of our same store portfolio at.
At the midpoint, we are expecting same store net operating income growth of 5% driven by revenue growth of five 1% and expense growth of five 5%.
Each 1% increase in same store NOI is approximately <unk> <unk> per share in <unk>.
An approximate 26 cent per share increase in <unk> related to the additional NOI from our fund acquisition. We completed on April one 2022. This includes the additional three months of ownership in 2023, and an approximate 6% increase in NOI from the portfolio.
And an approximate <unk> <unk> per share increase in <unk> related to the growth in operating income from our development non same store and retail communities, resulting primarily from the incremental contribution from our nine development communities in lease up turn either 2022 <unk> 2023.
This 78% cumulative increase in anticipated <unk> per share is partially offset by a <unk> <unk> per share increase in interest expense of which <unk> <unk> per share from the utilization of our unsecured credit facility to retire our $350 million three 2% unsecured bonds.
That matured on December 15th 2022.
We are anticipating an average 2023 interest rate on our credit facility of approximately five 5%.
<unk> per shares from the full year impact of the $515 million of secured debt, we assumed as part of the fund transaction inclusive of the impact of higher interest rates on the $185 million of assumed variable rate debt.
The remaining <unk> <unk> per share in additional interest expense comes from additional borrowings in 2023 under our line of credit primarily to fund our anticipated development activities.
Our forecast also assumes we will use our credit facility to repay our $250 million five 1% unsecured bond, which matures in June of 2023.
An approximate <unk> <unk> per share decrease in <unk> related to our 2022 amortization of net below market leases related to our acquisition of the fund assets as.
As we discussed on prior earnings calls purchase price accounting required us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term, which was approximately seven months. Therefore.
Therefore in 2022, we recognized seven <unk> from the noncash amortization of net below market leases assumed in the acquisition.
An approximate <unk> <unk> per share decrease in <unk> related to equity and income of joint ventures and management fees as we now own 100% of the fund assets.
An approximate <unk> <unk> per share decrease in SFO, resulting primarily from the combination of higher general and administrative and property management expenses caused by continued wage pressure and inflation higher franchise, the margin taxes and higher corporate depreciation and amortization.
An approximate <unk> <unk> per share decrease in <unk> due to the additional shares outstanding for full year 2023, resulting primarily from our 2022 equity activity.
An approximate <unk> <unk> per share decrease in CNS that management and interest and other income primarily related to the earn out received in 2022 from the sale of our chirp investment and lower cash balance is expected in 2023, and an approximate <unk> <unk> per share decrease in <unk> from the dispositions we completed in 2010.
Me too.
Our 2023 same store revenue growth midpoint of five 1% is based upon an approximate four 5% earn in at the end of 2022 and a current one 5% loss to lease.
We are assuming we capture a third of this loss to lease in 2023 due to the timing of lease explorations and leasing strategies.
We also expect a 3% increase in market rental rates from December 31, 2022 to December 31 2023.
Recognizing half of this annual market rental rate increase combined with our embedded growth and loss to lease capture results and have budgeted six 5% increase in 2023 net market rents.
As a result of increased supply.
Our anticipated an 85 basis point decline in physical occupancy, which results in a 100 basis point decline in economic occupancy.
After accounting for lower levels of rental assistance proceeds anticipated in 2023.
When combining our six 5% increase in net market rents with our 100 basis point decline in economic occupancy. We are budgeting 2023 rental income growth of five 5%.
<unk> income encompasses 89% of our total rental revenues.
The remaining 11% of our property revenues is primarily comprised of utility rebelling and other fees closely correlated to occupancy and these items are expected to grow at approximately one 5%.
Our 2023 same store expense growth midpoint of five 5% is primarily driven by above average increases in property taxes and insurance.
Property taxes represent approximately 37% of our total operating expenses and are projected to increase approximately six 5% in 2023, primarily driven by larger valuation increases anticipated in Florida, Georgia and Colorado.
Insurance represents 6% of our total operating expenses and is anticipated to increase by 12, 5% as insurance providers continue to face large global losses.
The remaining 57% of our operating expenses are anticipated to grow at approximately 4% as inflation and wage pressures combined with anticipated increases in marketing expenses as we face increased supply are partially offset by the positive impact of our 2022 onsite staff restructuring.
We are expecting total salaries and benefits to increase at less than 2% in 2023.
At the midpoint of our guidance range, we assume $250 million of acquisition offset by $250 million of dispositions with no net accretion or dilution.
Page 24 of our supplemental package also details other assumptions for 2023, including the plan for $250 million to $600 million of development starts spread throughout the year with approximately $290 million of annual development spend.
We expect <unk> per share for the first quarter of 2023 to be within the range of $1 63 to $1 67 and the.
The midpoint of $1 65 represents a nine <unk> per share decrease from the fourth quarter of 2022, which is primarily the result of an approximate half cent per share sequential increase in NOI from our development and stabilized non same store communities entirely offset by an approximate $3.
<unk> per share increase in sequential same store expenses, resulting from the reset of our annual property tax accrual on January the first of each year and other expense increases primarily attributable to typical seasonal trends, including the timing of onsite salary increases and the lower levels of employee health insurance claims in the fourth quarter of 2022.
<unk>, which are not expected to reoccur in the first quarter of 2023.
At approximate one half cent per share decrease in sequential same store revenue, primarily driven by lower levels of anticipated rental assistance proceeds and sequential declines in occupancy.
An approximate <unk> <unk> per share increase in interest expense, resulting from the utilization of our unsecured credit facility to repay the December 15th 2022 maturity of our three 2% $350 million unsecured bond.
And approximately <unk> <unk> per share decrease in <unk>, resulting primarily from the timing of our annual corporate salary increases and various other corporate accruals in.
An approximate <unk> <unk> per share decrease in SSO related to our fourth quarter 2022 amortization of net below market leases related to our acquisition of the fund assets.
And an approximate <unk> <unk> decline in fee income related to the timing of our third party construction activity.
Our balance sheet remains strong with net debt to EBITDA for the fourth quarter at four one times and at quarter end, we had $304 million left to spend over the next three years under our existing development pipeline.
At this time, we will open the call up to questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw from the question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Steve <unk> with Evercore ISI. Please go ahead.
Yes, thanks, good morning.
If this is for a key correct or Alex, but just as you think about.
Kind of your blended.
Spreads and kind of looking at the new versus renewal could you just provide a little bit more color on the 8% number that you talked about and what sort of.
I guess concessions or discounts or are you having to offer.
You are sending them out at as our people signing at that and then also the new at 1%.
Looks kind of low do you expect that to turn negative at all in the next say six to nine months.
Yes.
<unk> on the on the renewals that remains sent out.
We really don't do concessions in our portfolio. The only time, we ever used concessions is on.
New lease up properties, where kind of it.
Expected.
It's just on a written into the pro forma and underwritten that way, but we don't really do concession we found our leases with them.
Typically sign them within 50 to 75 basis points of what the renewals were sent out at so there is some but it's not a lot.
Regarding new leases.
At 1%.
We do expect that to increase slightly over the course of 2023.
Seasonally it.
It looks like we do have a return to the actual seasonality and did and certainly at the end of the fourth quarter.
And that will likely continue until we get closer to our peak leasing season, but.
Overall, we're looking for.
Another strong year of five 5% plus or minus rent growth.
As Rick pointed out.
Stand alone and without.
Kind of juxtaposition to what we did in <unk>.
2020 to over 11% that would be a really strong year for our portfolio. Historically, so we're looking forward to that.
To your second great. Thanks, Steve.
To your second question, we don't expect our new leases to go negative at all over the next six to nine months now if we have depending upon what happens what unfolds throughout the year, whether we are feel and the way. We built our guidance was that we would have either a bear.
A reasonable soft landing or a mild recession and so we combined that and that's why we took our occupancy numbers down in our vacancy numbers up but as far as new lease going negative.
Generally if you look at historical.
Sort of timing of <unk>.
Seasonality.
They tended to go negative in the in sort of November December January and then start a positive rise after that this year. We didn't have them go negative during that period now we clearly had a significant negative second derivative of growth, but we never went negative so assuming you haven't a recession next year.
And we have more reasonable or more normal market.
Seasonality then.
May go negative in December .
That's just new lease growth.
Great. Thanks, guys.
Mhm.
Our next question comes from Nick Joseph with Citi. Please go ahead.
I appreciate you walking through.
All of the different market outlooks, but if we.
Well into Houston L, a and Orange County, three of the ones that I think you're expected to underperform a bit.
In the same markets that have underperformed at least over the past few years. So what do you need to see from those markets, maybe structurally kind of going forward that would change the outlook and get them more towards the top end that'd be great.
While the challenge you have with southern California is that if you look at projected pop.
Popular projected migration from either immigration legal immigration or domestic migration southern California over the next three years has almost half a million half a million people, leaving and on the other hand, if you look at Texas, including Houston, we are about that.
The projections show around 350000 of new migration.
So that's one of the big things is you have this dragging people moving out of the out of those markets and moving into our markets.
What could help Houston fundamentally is.
As.
Continued.
Energy transition jobs that are happening here and continued strength in the oil and gas market.
On the oil and gas folks just give you some numbers.
Laid off about 80000 people and the pandemic period and have only added back about it so.
So what's happened is as they become more efficient even though they are printing money right now if you look at that.
Their earnings they but they haven't haven't really stepped up to hire people and they've become a whole lot more efficient.
I think southern California has some upside because ultimately when you get past the COVID-19 measures I mean.
The biggest challenge there is you have huge.
GAAP between economic occupancy and physical occupancy occupancy almost <unk>.
<unk> thousand 500 basis points and part of that and I think it's all driven by by the fact that in California, you don't have to pay your rent and and so ultimately when that clears, then which hopefully there'll be extended at the end of may or end of March.
In terms of restrictions, but hopefully once that and you will have a positive.
Situation, where you'll be able to kind of run your business like a business today.
We can't get our real estate back and people smile as they live free and and drive their Bmw's teslas and feel pretty good about the world.
Thanks, I appreciate that and then just on your opening comments on the transaction Mark you mentioned, the likelihood that spread and kind of back in some patients.
Where would you buy today I guess from a cap rate or an unlevered IRR basis, what would you be comfortable underwriting and transacting with salary was willing to do it there.
The cap rate side is kind of hard to two.
To peg because the question will be whether whether it's what we think the upside of the property has a lot of times when we buy properties. They are probably pretty poorly managed using using revenue management wrong.
Wrong headed way and we can create a lot of value from that so we find properties that are stressed.
Be buying by the pound not the cap rate and then we will be able to drive the cap rate up in <unk>.
A unlimber our Unlevered IRR is we've increased our unlevered IRR hurdles by at least 100 basis points. So.
Our cost of capital rise so we'd be looking at for acquisitions in the seven.
Plus range on Levered IRR basis.
Thank you very much.
Our next question comes from Austin, where Smith with Keybanc capital markets. Please go ahead.
Hey, good morning, everybody.
Alex I believe you referenced a one five cent negative impact fourth quarter <unk>.
From lower rental assistance and I was wondering if you expect any additional impact going forward and just what you're assuming for net bad debt for this year in your guidance.
Yeah, absolutely so net bad debt for us for 2023 should be right around one 4%. When you think about rental assistance. So in 2022 on a same store basis, we got about $11 $5 million of rental assistance and in 2023, we're assuming.
Some but really negligible amounts so.
So the best way to sort of think about it is that on a on a net basis theres not much of a change in terms of bad debt from 2022 to 2023, but if you if you sort of back out.
Positive benefits of rental assistance that we got in 2023, then we are shown excuse me in 2022, then we are showing some improvement.
In 2023.
And ultimately our bad debts on the 5%.
The challenge we have today, it's very elevated and given the outlook for.
A potential recession.
Hoping that that one 4% will will start going down throughout the year and then then ultimately go back to a 50 basis points and number 2024. So there is some positive growth that can come from people actually starting to pay their rent.
Got it understood and then it seemed like Houston had started to see some momentum last year sort of bucking the trend of some of your other markets given it didn't have as difficult comps.
But it is remaining at the lower end of your revenue growth expectations and market outlook and I guess I'm just curious, what's really holding back Houston from stacking up better versus other markets and is there potential for a <unk>.
Surprised to the upside.
As you move through the year.
Yes, so so we have in our.
<unk> forecast, we've use 15000 completions in Houston, which.
Normally youre in Houston that would be that would be seen as a positive to the overall market conditions, given the size of the Houston market.
Interestingly enough and Ron Witten numbers. He actually has Houston job growth is basically flat or zero and flat total employment over the year after.
It's one of those things, where where we don't we don't necessarily agree with Ron on everything and I think it's very possible that he's got the.
That he has the job growth outlook.
He is understated in Houston, the greater Houston partnership came out with numbers. After Ron's latest update that indicated the Houston could be as high as 60 or 70000, new jobs in 2023.
Quite a range between zero and 70000 so.
I think when we look at our modeling and carry that over into his rental forecast we.
We probably tweak ron's rental forecast in Houston.
To reflect a little bit more dynamic situation on job growth in Houston. So I think there is there is a chance. It's the energy business continues as it is right now which is basically almost every energy company in the country in the fourth quarter reported record earnings if that trend continues I just can't imagine.
That we're not going to see a more robust job growth situation in Houston I think the other thing that could help Houston a lot as well.
When you figure out the federal government spending even though we have.
Lots of supply coming on the supply chain is shut off we know that's happening right now given the current financial environment.
<unk>.
We have a tremendous amount of in Houston.
Federal money.
Coming here be it.
Hydrogen carbon capture expansion of the port in just a lot of big government projects that that are going to are going to create a lot of employment over the next 12 months.
36 months with the massive amounts of spending from the infrastructure Bill and the inflationary.
Inflation reduction Act.
This should benefit big time from both of those.
That's helpful. Thanks for all the detail.
Our next question comes from Michael Goldsmith with UBS. Please go ahead.
Good morning, Thanks, a lot, particularly my question.
Turnover was down 100 basis points in January and blended lease growth increased to 2% is that indicative of an upturn in trend maybe asked another way is there any indication that demand has bottomed and how did top of funnel demand and conversion in January compared to December prior months.
So the question of kind of where we see demand.
I think that.
The decline that we saw between November and December was.
It was outsized compared to normal history, we normally see a decline in occupancy and rental rates from November to December .
Somewhere around the 20 or 30 basis points and then this year. It was it was why does that bias 40, or 50 basis points on both metrics.
Theres clearly.
There's something changed in the total amount of people.
Speaking of partners seeking to lease apartments between November and December there was a little bit higher than what we would have normally expected.
How about that I mean.
We sort of we sort of.
I made the comment internally that.
It felt like people a lot of our renters went home for Christmas holidays.
There are a number of them stayed home so.
But our trends have gotten better in January are our traffic is sufficient.
Sufficient to backfill and to maintain the occupancy and overtime increase it a little bit we did in <unk>.
Decrease our overall occupancy for the year of 2023 from where it was last year, but last year we.
Historically elevated levels and we've modeled 95, 7% occupancy for 2023, which again <unk>.
Historical standards is really still quite strong for us.
What are the things that was all just kind of hit it in a really broad.
Broad way because this data of these data points that I'm going to give you right. Now are just really hot off the press over the last week or two as Keith pointed out we felt definitely a more a seasonal situation during the fourth quarter, but it was also as he said.
Sort of like people just went away in December .
And when you look at the stimulus and.
Post pandemic demand right and think about this these numbers are pretty amazing and 2021.
The industry absorbed 600000 net new units in 2021 in multifamily and that's why we had the massive stimulus lots of people have money and they moved out if you look at the.
The average between 22014 and 2023 or 2021. The average average there were about 150000 people on average that made between 25070 5000 hours a year and 2021 that number grew to fill.
Two 450000.
And so the same thing can be said for the 75100 <unk> cohort went from 100 100000 people to 150000 people and then over 75 went from those were fewer but you went from 150000 people.
On average to $2 25, and what happened was the whole market moves up in terms of people that have money because of the stimulus and because if you think about even if you lost your job during this pandemic.
I'll ask your job and OE down nine you've got a fraction of your pay and unemployment, maybe 60% of your pace or unemployment insurance the way that stimulus work and the way unemployment insurance was tweaked during the pandemic as you got 110 or 115% of your pay when you lost your job. So you had this massive savings.
It moved up a lot of people into the world that that wouldn't otherwise have been able to afford an apartment and they all moved out to apartments. If you look at 2022, we are net absorption of 50000 units.
Right. So you had we had really anemic absorption a cup.
Other numbers I think are really fascinating would be in the fourth quarter of 2008, which was a really bad time in the world. We had a negative this is national negative absorption of multifamily of 115000 units.
In the fourth quarter of 'twenty, two which obviously is a lot better than the fourth quarter of 2008.
We had 181000 net.
Loss of apartment.
So $1 15 to 181, the 181 was so big relative to <unk>.
History, I Couldnt I couldnt find the time at least that Keith and I have been in this business, where the number was that big.
What happened obviously is that those people have moved up income wise have spent their money and move back and they stayed home app for Christmas instead of coming back and renewing their leases and Thats why when you start thinking about next year I think next year.
To be a good year ex some real bad recession side of the equation, but that's why you can't continue to have.
$14, 15% NOI growth with double digit revenue growth when the market is going back to a more normal market. We're just getting off the sugar high of everybody has money and can go out and do whatever they want including lease departments.
That's some very helpful commentary and then in your guidance. There is a wide range for development starts. So maybe what macro conditions would you look for that would drive you to the top end of the range versus maybe the bottom end of the range. Thanks.
So there are a couple of key points. One is one is that if.
If you look at what's going on in the biggest sort of change in the market from a product perspective has been banks have really shut down construction lending and with the uncertainty with interest rates rents now are not going up fast enough to be able to offset the construction cost increases that we've had in the past. So you have a.
A lot of models that show merchant builders dropping construction somewhere in the 40% to 50% range. If you look at it.
At Star.
Starts today, they're around half a million dollars and so the.
We look at show that those starts going to like 250000 by the end of this year almost a 50% cut so if that trend continues then the way we think about the world is as it.
It takes 24 to 36 months to build a property you have great legacy land that makes sense for us to build on and we could deliver at a time, where you have very low supply in 2026 and 2027, given the outlook for the supply to be reduced the other thing we're starting to see is because most folks are.
I do believe that.
That starts will come down dramatically. This year then.
Youre starting to see price pressure moderate.
Last year, there was probably up in the last three years construction costs have gone up over 30% to almost 40% in terms of cost now we're seeing it flattened it actually go down so.
There could be an opportunity over the next six months.
You do see some significant cost reductions and if we can get our costs down and we believe fundamentally that that that supply is going to be down.
The market will be pretty good in 2025, and 2026, then we're going to lean into that and that's where that's where we would be hitting the top end of our development range.
Sure.
The interesting part is if you think about if you have a recession than than those starts.
Will really go down this year and costs should come down even more so that could allow well capitalized companies like Camden to Buck the trend in <unk> and develop when merchant builders can't and be able to position.
Higher returns on development than you would expect today in 2025 and 2026. So that's how we think about it.
Thank you very much good luck this year.
Thank you.
Our next question comes from the Handel St Juste with Mizuho. Please go ahead.
Hey, good morning out there.
My first question is going back to the same store revenue guide.
Can you clarify for us the building blocks and how the math works I'm looking at your.
Midpoint of 551, but also considering the earn in which I think was around 5% and the market rent growth.
I'm sure that you have.
In your supplemental a 3% festival half of that gets us into the mid <unk>. So can you spend a moment if you kind of clarifying the buildup of our central revenue and what are the swing factors to get to the upper and lower end.
Yeah, absolutely so.
First of all you're right the earn in and we'll call. It the R&M plus sort of the loss of lease that we think we can captures about 5% and then we have market rent growth from December 31, and 'twenty two to December 30, 123 of about 3%. So obviously you can only get half of that.
Two the 5% you add the one 5% and that gets you to six 5% and that's what we call net market rent than.
And then the driver sort of that.
Dilutive impact to that is economic occupancy so we are making the assumption.
Occupancy comes down about 100 basis points. So you take the six 5% and you back off the 100 basis points and that gets you to a five 5% rental income growth now remember that rental income is only about 89% of our total property revenues. So if you take that five 5% rental income growth and you multiply it by.
89% you.
You get to about four 9% and then the other 11% of our rental revenues.
It comes from other income and think about.
Water rebuilding trash rebuilding admin fees application fees those type of items in there so closely correlated to occupancy.
And there are also some of them are statutorily mandated said the amount that you can actually charge and so we're expecting that 11% to grow at about one 5%. So if you multiply those two out to get to you had to point to year $4 nine and you get exactly to five one.
Got it got it that's helpful.
Second question is on the.
$250 million of acquisitions and dispositions you you outlined in your guide I guess Im curious.
How we should broadly be thinking about the timing in light of this fall transaction market. You outlined are you willing to wait for better cap rates or are you expecting better cap rates getting calls for many.
Any more calls for merchant builders are sensing an opportunity there and then any any markets that you are.
Outlining that you're adding more to or or calling from thanks.
So I'll answer the timing and then lead to that Rick and Keith the answer the second part of it but the timing of what we have in our model is we've got it towards the end of the year and we've got some offsetting one another so there's no net accretion or dilution from acquisitions and dispositions in our 'twenty three guidance.
We just got back from <unk> and it was interesting there were 88500 registered people there are a record for inmate C and that doesn't include the couple thousand that don't want to pay the fee is just hanging around the hoop trying to trying to.
I have meetings with with people try to understand the market and we sort of it was interesting because you had sort of three camps you had the camp where the capital.
People with capital like Us and other portfolio managers and others and we were we were all kind of we're kind of waiting to see what's going to happen. Then you had merchant builders, who still are kidding themselves that they're going to start as many properties that they thought they were going to start this year and there are some that are that are realistic.
Or actually betting on them.
Lower start number then as projected.
And then you have the brokers who are all very excited about getting back to work.
When you look at some of the numbers that we heard January numbers I heard one of the national brokerage groups said, they did about $1 billion of <unk>.
Sales in January of 2022, and this year, they've done $80 million and so there is definitely a more.
It is frozen to a certain extent because you have this bid ask spread.
And I think as the market.
You know.
Develops capital, we'll look to try to get reasonable rates of return like I said earlier I think it might be.
You are buying by the pound and knowing that ultimately you'll be able to make a reasonable rate of return, but maybe not initially in.
In terms of lease ups and things like that.
Don't really have great returns, yet you might buy it at substantially below what we can replace a four today.
I do think that there is definitely a wait wait and see attitude and that.
That will continue probably until Theres, just more clarity I mean, when you think about the fed's meeting this week.
I think most people believe.
The 25 basis points of market liked it interest rates came down and then all of a sudden cabane you have 500000 jobs today than 10 years back to $3 50, and now we're back to talking about well, what's it going to do now right.
<unk> year low in unemployment rate.
So.
There's just so much uncertainty that it's hard to get conviction in one when I think the market gets conviction then youll start seeing there's plenty of dry powder out there and the question is who will Blink first and I think it's going to be the sellers that have to Blink first.
I am hoping that here yet.
Okay.
That would be too high.
I agree with your comments I was asking about the housing too and I did speak to a handful of people and the minority who thought that well, maybe a better screen policies and lower interest rates in the back half year could result in lower cap rates is that.
Whenever you have that you've given vision of how you think about essentially that that outcome.
Well I guess on the one hand, there is a mountain of capital right and multifamily is a great business and people understand that.
And so.
I guess, if you have.
Ed can sort of thread the needle and doesn't crash the economy and key end rates forward rates look like theyre going to be in the.
The three to three 5% range.
You could argue that cap rates might either firm dramatically come down some.
I think that when you look at the at the negative leverage that people have to put on their properties today if you.
If you look at Freddie and Fannie spreads relative to the 10 year Youre at about Youre about five 5.25% and if youre going to buy a.
4% cap rate, you've got 150 to 100 to 150 basis point negative spread there and you got to figure out how to how do you get that negative leverage negative leverage dealt with and if you want to six.
Six five to seven and a half Unlevered IRR you got to bet on some pretty strong growth.
Or or falling cap rates in the future to ever make those numbers work. So there is a scenario for sure, but it's right now I wouldn't bet on that scenario.
Thanks for the time with us.
Mhm.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, good morning down there.
So two questions.
Good morning, two questions first off.
On California, especially in light of what L. A recently did.
Do you.
Has your view of that market changed I mean, I've asked you. The question over the years about California, and there are a lot of good quality is about southern California lifestyle et cetera, but it seems like the conditions there for landlords get tougher tougher every year now uncertainty.
With the good cause.
Whether or not further rent infections, whatever is that a market that you still believe in long term or your view has changed in the past year, where you like you know what it's not the market that we thought it would it would return to you mentioned 500000 people returning I mean, sorry, leaving that eventually that's something that we have to.
Yes strategically assess.
So yes so.
Alex.
The last two years.
As.
And all of the trials and tribulations that have come with the <unk>.
<unk>.
The eviction moratorium et cetera, those have been to me those have been a distraction from the bigger picture Cal.
California has had.
The challenge has been a challenge to operate in for not just the last two years, but for the last three decades.
Anyway.
So there is a.
You have to kind of get your.
Your mind around the fact that it's a different regulatory regime everything is going to be trickier everything is going to be a little bit stickier in terms of moving forward on.
New initiatives et cetera.
But that's something that we've lived with for 20 years.
And we know how to do it we're good at it we have a very.
Seasoned team in California that knows how to navigate their way through normal.
The normal regulatory morass in California that the last two years have been an exception to that for sure, but I do I do believe and we believe as a team that that.
The end of the at least the eviction.
Moratorium and the ability to get control of our real estate is coming to an end and.
I know that they've said I swear to God. This is the last time, we're going to extend it but I do believe that the La County.
Extinction.
For this last two months came with a very public announcement supported by virtually the entire council that said, we're going to do this and then really and truly no kidding. This is the last one so whether it is or it isn't and whether it goes on for another two months beyond that in the big picture of having operated out there for <unk>.
Almost 20 over 20 years I don't think you can.
Is this like ours, given the nature of our assets in the long term commitments that we make I don't think you can kind of just get emotional.
<unk>.
Wound up about what craziness the last two years and I think if you look beyond that.
California's actually a really good story in terms of being a landlord because its.
Just as difficult as it is to run properties its three yet difficult to build properties in California, So it's kind of like the.
The new supply challenge is not going to be what it is we have to deal with in our other markets. So.
California will.
I guess I'm, a little more optimistic than most people that debt.
<unk> reached a tipping point in some of these places where.
Sanity has to prevail and maybe we don't end up with the continued hemorrhage.
Out migration from California, and things get more on a normal track if that were to happen you would get a great return in demand you haven't had any meaningful amount of replacement or new product built in.
Last four years in terms of new starts I think it could end up being a really good operating environment. Once we get past this two and a half years of crisis.
Second second question is Rick you guys are already started.
Speaker on regulatory policy, obviously, we all know what the White house put out in your view does this make Fannie Freddie debt less attractive if borrowers think that the government is going to use them to effect change and second the CFPB and FTC, obviously a broader.
Regulatory powers to go after all apartments do you fear that this is going to be some sort of overreach or your view is there with local regulations had already regulated apartments are already so to us.
That it's really hard to to really sort of upped the ante if you will.
So on the first question with Freddie and Fannie I don't think its going to affect it that much because when you look at those guidelines.
Are you really targeting targeting lower income and.
And trying to help there.
One of the things that people don't realize is when you think about the attacks that the multifamily business are getting you have to think about who the largest.
Entities.
Evict people are public housing agencies, right central government and so not market rate companies like Camden, just to give people a sense too by the way.
In a normal time normal times, where we want we try to keep our residents as long as we can we work with them to create value for them and we work on payment plans.
In a normal time out of 60000 apartments, we maybe.
600 people a year and a lot of those evictions or people not monetary defaults, but the person's life.
Has a dog that bit somebody or or is disruptive to their neighbors. So I feel pretty good about long term that we're not going to be under siege.
Clearly for a politician when rents go up 30%.
Scream for rent control on the screen for Oh, My God, There's bad people do anything its almost like the when energy prices go up in gasoline is $4 50, a gallon they think.
Energy companies are the villains right, but it's really supply and demand drivers.
I think I think the we do have to be vigilant, though because it is a politically expedient oftentimes too.
Just say well, we'll put a cap on them, we'll do rent control because that'll help constituents, but ultimately we all know that that and theres lots of economic.
Analysis on this both left and right think tanks, all think that rent control.
Eiffel supply, which ultimately creates the problem for folks are.
Good news for Camden as we're in the markets. We're in we don't have a lot of major regulatory.
Targets on us and I think that a lot of the even like when you look at Florida for example, where a couple of the markets have tried to.
I had to put in rent control and they're just getting massive pushback from from both legally and from the Statehouses. So we do need to be vigilant, but I don't think we're at risk of.
Having some massive government, making us do stuff.
Thank you.
Mhm.
Our next question comes from Tim Luke It's Goldman Sachs. Please go ahead.
Hi, Thank you for taking my question.
This is my first one's on Prs acquisition.
With the benefit of hindsight as you think about the different moving pieces, especially around higher interest expense now question as you know at the time of the transaction how would you qualitatively think about this deal now and you don't see the net accretion from it, especially when you consider the dynamic that doesn't also increased your exposure.
Markets like Houston, and DC that.
As you mention our yard B, B b minus kind of ratings.
In sort of the whole deck.
Yes.
Well I think the acquisition is still a great acquisition at the time, we financed it with with equity mostly equity, we had $600 million of cash and we.
Large equity transaction to pay for it.
So.
Ultimately when you when I think about that portfolio. It was a very.
Low risk acquisition for us primarily because we've either built or bought them. We operated them. So there was really no transition risk or no <unk> got your risk because you didn't know what was going on with those properties as we clearly knew everything that was going on with those properties.
So.
From a from a.
Accretion dilution perspective, it was accretive in 2022 and its accretive in 2023.
When you look at.
Our.
The work that Alex showed showed in our and went through in our press release.
The broader interest rates going up.
Were a drag on our <unk> not as a result of that transaction per se. It was bonds coming due that were recently and some change that we're having to finance at five and some change now so.
It was a very good transaction for us ultimately, we would've had to unwind that that portfolio because we had a.
Sure.
A 2026 kind of timeframe, where we would have to sell the assets.
And so to be able to acquire really high quality properties with very little transaction risk was really attractive.
To the issue of longer term, where we want to lower our exposure in D C and Houston in the fund transaction actually increased our exposure to Houston.
We were willing to sort of delay that a bit.
To be able to acquire those quality properties, but ultimately we are going to grow our way is to grow our way out or two dispositions and acquisitions in other markets to be able to lower this.
Sure.
And really it's all about trying to become more geographically diverse so that we can have less volatility in our cash flow.
That's sort of the.
One of the reasons why we wouldn't exit, California, right now because it's a good it's a good ballast and also could be great upside over the next couple of years once we get out of the pandemic issues. So yes, we will continue to focus on being more diverse around the country and move assets around you think about from 2014.
Through.
Through 2020 roughly 2020.
We sold over $3 billion of properties and moved the portfolio around pretty dramatically during that time and changed our our geographic footprint and we will continue to do that so hopefully in this.
In this environment when buyers and sellers get closer together, we'll be able to execute some of those.
Sales and acquisitions to move to continue to diversify our portfolio.
Very helpful. Thank you for that and as a follow up you know as we think about occupancy in 2023 and the dip that you guys talked about.
How much you said is emanating from higher supply.
As you guys, perhaps prioritizing pricing over occupancy and then as we think about California in this mix down the line as you said a couple of months down the line you would be.
Perhaps thinking about looking to get back you on real estate from tenants who are not currently.
How would you put that and this makes us how occupancy might develop.
Yes.
We're modeling.
Occupancy 90, 544, plus or minus for 2023, which.
Which.
Compared to our long term averages about what we would like to operate the portfolio in any case, we've certainly been higher than that for the last couple of years, but as Rick described and the drivers of demand that sort of made that happen.
Were very unusual and probably not likely to I hope, we don't see that kind of is.
That kind of demand driven for that reason than anytime in the near future. So I think we will.
We use.
Pretty good.
Pretty strict revenue management shop.
The.
The levers that you can pull or the primary lever is pricing.
To try to adjust your occupancy to maintain this in the mid 95% mid to upper 95% range. So we will we will continue to take those recommendations from Youll start we think the inputs to the model both on the looking at the new supply, which we know is going to be a headwind. We think we've we think we've properly accounted for that in our <unk>.
Our cast but.
Ultimately it will come down to the conditions on the ground in each individual market as.
As viewed by the.
Youll store model in terms of where the pricing actually falls in.
California.
If we if they do let the.
Vixen moratorium and finally lapse at the end of March which again, we think we think that is likely to happen.
That doesn't mean that in itself doesn't solve.
The issue of getting your real estate back you still have to go through a legal process to to effect, an eviction and unfortunately with California in several of our other markets, even even those where they have long since given up on the eviction moratoriums are still struggling to catch up with the process.
Going through a legal evictions. So we're prepared to do that we are expect to be first in line to pursue evictions, but we just know that it's going to be some lag between okay.
We've lifted the moratorium now you can begin the process, which in some cases can take 30 to 90.
<unk> 90 days, depending on the jurisdiction. So it'll be I think even after March 31 that will be.
A little bit of a.
The drag in terms of.
To get our real estate back.
The flipside of that is is that we think that once the the gig is up for the non for the strikers that they may choose to just move out voluntarily before we a victim because they know there's the end is in sight and that's something that they haven't had to contemplate for the last two years.
Thank you for all that detail.
Okay.
Our next question comes from Rich Anderson with SMB CLEC. Please go ahead, hey, thanks, good morning out there thanks for hanging with us.
So when you're driving around the country.
I'm curious to know how is the market clearing to get you to where you are at with revenue growth of five 1% versus last year. Obviously, we're all expecting deceleration, but is this landlords like yourself and others kind of slow playing it because of the uncertainty that lies ahead or are you seeing some.
Sort of behavioral shifts with residents, that's causing the market to.
Clear.
Clearing and it'll kind of all comes down to market rental rate growth, what you're assuming for this year at 3%.
Is there a chance that we do have this soft landing or no recession or whatever you want to call. It.
Rent growth number could be something much higher than 3%.
Sure that's why we have a range right.
I think.
The upside in our guidance could clearly be occupancy I mean, if you have a very positive.
Job number today.
Eye-popping obviously.
If you if the fed can thread the needle and keep job growth going in and have a song.
A soft landing whether it's a landing.
And you keep the consumer going then yes.
Are you have two parts of upside in that guidance, one would be the rate rises to 3% and the other would be we probably beat our occupancy numbers in the occupancy numbers, probably the one that that that is the when you think about when I think about those numbers. The earn in is the earn in of 3% that's what most market.
The pundits are putting out there.
Then the Occupancies, where we where we could be more it could be too conservative given given an outcome there.
You just that I, just described and so.
There are two places where you could beat and that those are the really the two.
So I guess the question is.
Is this.
Proactive from you or are you seeing behavioral shifts from your residents that are there.
Landing you where you are at now MAA, you said theyre not seeing any behavioral shifts with their with the residents that they are really more focused on the macro and that's what's driving more of the landing right now is that as a consistent theme for you guys.
I would say that base.
Based on the numbers I said earlier, where you had a negative absorption in the fourth quarter of 181000 units in America.
That's consumer behavior those are people staying at home for Christmas and those are people who who.
Got paid all kinds of big stimulus money had cash coming out of.
Because the <unk> savings and decided to go out and rent apartment and then they spent that cash and now theyre going Hmm, what am I going to do maybe the economy is uncertain and I'm going to go back to and live with mom and dad.
Double up and try to save money again, and I think that consumer behavior is clear that that has happened and we went from like I said 600000 positive net absorption in 2021 and was 50000 and 2022.
50000, when you think about it was all in the first half of the year.
If you look at the at the.
Positive absorption was all in the first half.
The second quarter, you started having kind of flat third quarter, you had negative some and then the fourth quarter you had a big negative and so I would say that is a definite consumer behavior issue.
It's out there and I don't I don't think you can ignore it.
Our our view and Thats why we came out with occupancy falling in rent being moderated.
It's just a.
And it is based on also.
A less robust economy in 2023.
And Richard on the consumer behavior side.
One of the stats that we gave in our prepared remarks was people move outs to purchase homes, which was about 13, 8% for all of last year just to give you a refresh on that number in the month of January that number dropped to 10, just over 10% move outs to purchase homes and my guess is it fair.
Those below falls into single digits next quarter, and we've only seen single digits on that stat for maybe two consecutive quarters during the middle of the great financial crisis and so on.
We're we're getting to some pretty uncharted territory in terms of housing affordability and the willingness and ability of people to move out of apartments to buy homes and I I don't think that I think we're at the beginning of that cycle.
Nearly a positive on that.
Go ahead, rich, yes, im sorry.
Thanks, Dan to go through the call here one real quick question for Alex if.
If I'm doing the numbers right.
Our variable rate debt exposure went from 6% last quarter to 15% I know that you had the deal $550 million of secured debt.
Is that is that a number 15% that we should be expecting for the full year or do you expect some something to maybe right size youre about an a rated debt exposure in the coming months and quarters.
Yeah, absolutely so in our guidance, we are not assuming any capital transactions, obviously, we're watching the market closely.
Rates have been coming down until until this morning.
And spreads have been tightening so we're watching that closely if we have the opportunity we will take out some of this this floating rate debt with a with a fixed rate debt, but but at this point in time, where we're sort of operating under the under the thesis that interest rates are going to come down.
As we go through the year and based upon that it probably makes sense to push out fixing rates really as long as we can so that's that's what's baked into our model as I said, we're gonna be optimistic, though and if we see if we see an option it will take it.
Fair enough. Thanks, thanks, everyone.
Okay.
Our next question comes from Wes Golladay with Baird. Please go ahead.
Hey, everyone. Thanks for taking the time I just want to follow up on that last question, if I understand it correctly. So it looks like you can borrow today around four 5% and have a 1% interest savings on that floating rate debt would you have a pure lead to pay that off and I guess that would just be upside. The guidance. If you were to take out today, but it sounds like you just want to be a little bit more.
Well I guess aggressive at this point and they could get a little bit lower than the four and a half I decided.
Yeah, and I'll tell you I mean spreads came in this week alone about 30 basis points and so if you would've asked me.
On Monday I would have told you the numbers for <unk>. It was 45 this morning.
So obviously, that's heading in the right direction.
But we want to see if we want to see where rates continue and whether or not we can get any better on that.
On the floating rate debt, that's associated with the fund transaction.
We assume there is a there was a 1% penalty, obviously, 1% really not that much and certainly that could go into the math pretty easily when.
When we look at what's on our line and what's on our term loan. There is no penalty. So that really does give us tremendous flexibility and if this if the unsecured market continues to.
It continues to improve.
There are some central upside there.
Okay, and then going back to Houston I think you cited supply of 15000 is that a lot of that supply directly impacting your portfolio and then if you were to look out to next year would you expect supply to be comparable up or down.
So actually most of the stuff that is being built in Houston right now is not directly comparable with our portfolio. Some of it is obviously the downtown assets in Midtown assets. There has been a reasonable amount of construction in both of those submarkets, but our our portfolio in Houston.
Suburban.
And they're really just hasnt been that much new supply of buildings in the suburban markets in Houston.
Just gotten started.
Maybe a year and a half ago.
It's slow considerably in terms of new starts.
I think we're as with most of these markets when you see a scary headline number.
On completions are a good example would be Austin, there's 20000 apartments.
We are set to be completed in Austin This year end.
Kind of headline number just sort.
You got to take a double take because when you see it 20 <unk>.
Starts in a market like Austin, but when you really go through the geography of where our portfolio is such a such a big amount of that is in or around the downtown area and we literally have one community that is impacted by all of that so.
If our if our portfolio we're heavily.
Oriented to downtown either in Houston, or Austin, that'd be a much greater concern than what I think it's actually going to be obviously all supply in the market matters, but it's like throwing rocks and upon the margins if its not near you raises.
Raises the water level, a little bit, but it's not a huge issue unless it happens to be in the particular sub market where your assets are located.
Got it and just to follow up on that was going to be do you think it accelerates next year does it comparable or down in the <unk>.
Early view on that.
Yeah on on for Houston starts or excuse me completions next year, we have it at 19000 apartments.
Completion, okay, great sounds about right.
Okay. Thanks for the time everyone.
Sure.
Our next question comes from Joshua <unk> with Bank of America. Please go ahead.
Yeah. Thanks, everyone.
Just wanted to touch base on I appreciate the build from 2022 to 2023 epitope guidance at the midpoint.
I just wanted to touch on that amortization of net below market leases from the fund acquisition is that.
Like something we have to factor into 2023 or is it fully out now that we've kind of lapped 2022, just just trying to get a sense of how we should be modeling this going forward.
Yeah. It is fully out there is absolutely nothing in 2023. So the variance that you are looking at is the seven that we recognized in 2022 as compared to zero in 2023.
Okay. Okay I appreciate that Alex and then maybe touching base on the markets Phoenix seems like it's kind of some of my screens it looks like maybe it's.
A market that's weakening it was interesting to see your occupancy went up sequentially could you kind of just provide more color on what youre seeing on the ground and how maybe your portfolio is positioned versus maybe some new supply.
Kind of how you think we've got we have completions in Phoenix.
23 of 15000 apartments.
Employment growth in Phoenix next year.
It was about 26000 jobs.
So.
That's a little bit out of equilibrium in terms of.
Job growth to two new new deliveries, although the new deliveries.
Or actually have actually.
Come down.
Pretty substantially from where they were in.
In the previous year. So I think I think Phoenix is we have it listed as a.
A modest market and.
Moderating so I think thats or excuse me, a modest and stable so that seems about right.
The overall operating environment in Phoenix.
Okay I appreciate it.
Our next question comes from John Kim with BMO capital markets. Please go ahead.
Thank you on your same store revenue guidance. This year I appreciate the breakdown.
But one component that seem to be missing is the renewal rate growth, especially.
That renewal versus new lease rate spreads widened in the fourth quarter and again, even more so in January .
So I guess my question, what's a good run rate for that renewal versus new lease spread and how is that factored into your guidance here.
Yeah, absolutely so for the full year, we've got renewals up about four 9% and new leases up 2%.
When you blend that out that gets you to about three 5% in that three 5% picks up the market rent.
Yeah.
About one third of the loss to lease that we said we'd capture so if you think about the sort of renewal component that you were addressing that renewal component is what youre going to find and it is captured in that loss to lease and so that's what we're saying is that we're gonna get.
We'll get about a third of that based upon timing and then based upon leasing strategies.
So when you say market rental growth weaker songs.
Reflective of the 2% will lease growth rate out of those two tie them together.
Yeah, So Marty so market rental rate is going to be the rental rate that we expect December 31, 23 as compared to December 31, 2022, right. So youre going to youre going to pick up that component.
And then the renewals.
Renewals are coming up to market.
That is effectively what youre, what youre picking up in the loss to lease and then the new leases if people leave and you're back filling them. That's also getting picked up in the loss to lease.
Okay.
I hate it thank you.
Absolutely.
Our next question comes from Robin Lu with Green Street. Please go ahead.
Good morning, Alex I noticed.
And Florida market take hold double digit expense growth this quarter.
<unk> expense throughout 2023.
<unk> market.
Yeah. So when you see that a lot of that is due to the timing of property tax refunds.
And sort of how that flows through the system and so.
No I would not expect that to be a sort of run rate type item.
I mean, how many hospitals are expected to be fairly high I know you pointed to about a half a turn for the portfolio I E Texas.
Part of it.
A bit higher.
If not double digits.
The state.
And high single digit range.
No you know and if you think about the states that I, specifically called out for having higher higher property taxes, you do have Florida.
But Texas was not one of them. So you got Florida, you've got Georgia, and you've got Colorado in those those are the markets that we're anticipating having higher property tax expense and so that's where.
If we're averaging five 5% and property taxes make up a third of our total expenses those markets.
That are going to have the higher growth in property taxes are going to have the higher expense growth. So yeah, I would expect that once again.
It's in Florida, and then Georgia and Colorado.
That's clear and then I wanted to talk about the GP market, how its front door traffic in trending.
Relative to the portfolio average and are you seeing any signs of people find migrate sub ads or even out of state.
Yeah.
So we certainly have seen.
Some out migration from from D C.
Particularly the D C proper as opposed to D. C. Metro is not anything like we've seen from New York or California.
I would say at the margins, yes, we do get.
In terms of folks that show up in Atlanta.
So our relocation purposes.
It's.
Certainly in the top three or four.
From destination. So I think I think again more D. C proper then than the suburban areas and a lot of that is just driven by.
Employers.
Where you happen to be your offices located in DC proper people have been very reluctant to return to their offices because it's been allowed us basically work from anywhere and if you can work from anywhere.
D C proper is probably not in your top 10 places to work from if you have complete flexibility. So yes, I think it's.
We have three.
Three assets in DC proper.
And we certainly have seen more of that from those three assets than what we had seen prior to COVID-19 for sure.
But compared to L. A for example, Washington DC has positive net in migration over the next three years compared to 350.
Our migration.
So it's not as.
You don't have the back door open as big as you do in DC versus any of the other California markets.
This concludes our question and answer session I would like to turn the conference back over to Ric Campo for any closing remarks.
Thanks, we appreciate.
You all being on the call today and do you have any other questions. We'll be around so just give us a call and we'd be happy to give you more detail.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Yeah.
Yeah.
Yeah.
[music].
Okay.
[music].
Yeah.
Okay.
[music].
Yes.
[music].
Okay.
Yes.
Okay.
Yeah.
[music].
Yes.
Yeah.