Q3 2023 Camden Property Trust Earnings Call
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Speaker 2: Good day and welcome to the Camden Property Trust 3rd quarter 2023 earning conference call. All participants will be in listen only now.
Good day.
Welcome to the Camden property Trust third quarter 2023 earnings Conference call.
All participants will be in lets say.
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Speaker 2: After today's presentation, there will be an opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Kim Callahan Senior Vice President of Investor Relations. Please go ahead.
Speaker 3: Good morning and welcome to Camden Property Trust's third quarter 2023 earnings conference call. I'm Kim Callahan, Senior Vice President of Investor Relations.
Good morning, and welcome to Camden Property Trust third quarter 2023 earnings Conference call.
I'm Kim Callahan Senior Vice President of Investor Relations. Joining me today are Ric Campo Camden's, Chairman and Chief Executive Officer, Keith Oden, Executive Vice Chairman and President and Alex Yes, It Chief Financial Officer.
Speaker 3: Joining me today are Rick Campo, Tandon's Chairman and Chief Executive Officer, Keith Odin, Executive Vice Chairman and President, and Alex Gessett, 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.
Speaker 3: We will have a slide presentation in conjunction with our prepared remarks, and those slides will also be available on our website later today or by email upon request.
We will have a slide presentation in conjunction with our prepared remarks and those slides will also be available on our website later today whereby email upon request.
Speaker 3: All participants will be in listen only mode during the presentation with an opportunity to ask questions after
All participants will be in listen only mode. During the presentation with an opportunity to ask questions afterward.
Speaker 3: 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.
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.
These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker 3: Further information about these risks can be found in our filings with the SEC, and we encourage you to review them.
Further information about these risks can be found in our filings with the SEC and we encourage you to review them.
Speaker 3: 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.
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.
Speaker 3: As a reminder, Camden's complete third quarter 2023 earnings release is available in the investor section of our website at camdenliving.com and it includes reconciliations to non- GAAP financial measures which will be discussed on this call.
As a reminder, camden's complete third quarter 2023 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.
Speaker 3: We would like to respect everyone's time and complete our call within one hour as there are other multi-family companies hosting calls later today. Please limit your initial question to one. 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 Rick Campo.
We would like to respect everyones time and complete our call within one hour. If there are other multifamily companies hosting calls later today. Please limit. Your initial question to one 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 conclude.
At this time I will turn the call over to Ric Campo.
Speaker 4: Thanks Kim and good morning. Our on-hole music was an honor and memory of Jimmy Buffett. One of Jimmy's recurring things in his songs was how to navigate through life storms, including actual hurt.
Thanks, Kim and good morning.
On hold music was in honor of in memory of Jimmy Buffett wanted Jimmy's recurring themes in his songs was how to navigate through life storms, including actual hurricanes.
Speaker 4: Ironically, this is the first year in memory that we did not have any hurricanes in any of our markets.
Ironically this is the first year in memory that we had did not have any hurricanes in any of our markets on the other hand, the hurricane in the capital markets is blowing hard.
Speaker 4: On the other hand, the hurricane in the capital market just blowing hard. As a result of the turmoil, we're encouraging our teams to heat Jimmy's advice from one of the songs that he wrote for New Orleans after the devastation of Hurricane Katrina. And this is from the song.
As a result of the turmoil, we're encouraging our teams to heat Jimmy's advice from one of the songs that he wrote for New Orleans after the devastation of Hurricane Katrina.
This is from the song.
Speaker 4: If a hurricane doesn't leave you dead, it'll make you strong. Don't try to explain it, just nod your head. Breathe in, breathe out, move on. Which is exactly what we plan to do. Our business is strong. We've been through many cycles.
If a hurricane doesn't leave you dead it'll make a strong don't try to explain it just nod your head re then read out move on.
Which is exactly what we planned to do our business is strong we've been through many cycles.
Speaker 4: This cycle has been different in that we're coming off the best year we ever had, driven by the COVID reopening consumer high. 2023 has been a year of getting back to a more normal multi-family business.
This cycle has been different in that we're coming off the best year, we ever had driven by the Covid reopening consumer high.
2023 has been a year of getting back to a more normal multifamily business.
Speaker 4: I say more normal because we're still not back to normal customer behavior or they actually pay their rent and if they don't they move out.
I'd say more normal because we're still not back to normal customer behavior, where they actually pay their rent and if they don't they move out.
Speaker 4: We have we have high cancellations due to identity theft and fraud, elevated skips and lease breaks.
We have we have high cancellations due to identity theft, and fraud elevated skips and lease breaks.
Speaker 4: Seasonality is back, but it started earlier this year and was stronger than pre-COVID levels. We had planned for a more normal fourth quarter, but that didn't happen.
Seasonality is back but it started earlier this year and was stronger than pre COVID-19 levels. We.
We had planned for a more normal fourth quarter, but that didn't happen.
Speaker 4: As a result, we have revised our fourth quarter full year guidance to reflect weaker new lease growth, lower occupancy, and higher ad debts than we expected even in the summer.
As a result, we've revised our fourth quarter full year guidance to reflect weaker new lease growth lower occupancy and higher bad debts than we expected even in the summer.
Speaker 4: In a normal growth year, however, we would cheer for revenue growth of 5%.
In a normal growth year, however, we would share for revenue growth of 5%.
Speaker 4: Fundamentals for our business are good overall, taking the challenges and the opportunities together. On the demand side, job growth remains robust. US consumer demographics continue to be supported for apartment demand. The share of 25 to 34 year olds is stable. The share of 34 to 48 year olds is growing and they have a high propensity to rent given the record high cost of buying a home.
Fundamentals for our business are good overall, taking the challenges and the opportunities together on the demand side job growth growth remains robust U S. Consumer demographics continue to be supportive for apartment demand the share of <unk> 25 to 34 year olds is stable the share of <unk> 34.
The 48 year olds is growing and they have a high propensity to rent given the record high cost of buying a home.
Speaker 4: The bi-to-rent premium today is that 30-year highs with home ownership out of reach for many people.
The buy to rent premium.
Today is at 30 year highs with homeownership out of reach for many people.
Speaker 4: This should increase apartments, the apartment business share of the housing market at least to 2026.
This should increase apartments, the apartment business share out of the housing market at least through 2026.
Speaker 4: The US share or the share of US households that are living alone continues to grow to nearly 30% and over the next few years. The long-term trend of in-migration to our markets continues.
Sure the or the share of U S households are living alone continues to grow to nearly 30% over.
Over the next few years, the long term trend of in migration to our markets continues.
Speaker 4: On the supply side, starts have peaked, and the capital market tour became, has begun to reduce new starts. Annualized August starts feel 42%. Witt and advisors projects starts will fall to 250,000 units in 2024, and just above 200,000 units in 2025.
On the supply side starts had peaked in the capital markets Hurricane has begun to reduce new starts annualized August darts fell 42% Witten.
Witten Advisors project starts will fall to 250000 units in 2024, and just above 200000 units in 2025.
Speaker 4: Completions will be elevated through the end of 2024, but demand drivers should allow for an orderly lease absorption in our market.
Completions will be elevated through the end of 2024, but demand drivers should allow for an orderly lease absorption in our markets.
Speaker 4: I want to give a big thanks and shout out to Team Camden for improving the lives of our teammates, our customers, and our stakeholders one experience of time.
I want to give a big thanks, and shout out to team Camden for improving the lives of our teammates our customers and our stakeholders one experience of time.
Keith Oden is up next.
Speaker 4: Thanks Rick. Overall our third quarter 2023 operating results were in line with that.
Thanks, Rick overall, our third quarter 2023 operating results were in line with expectations year over year same property revenue growth was positive for the quarter and 14 of our 15 markets and positive on both a sequential and year to date basis in all of our markets.
Speaker 4: Year over year, same property revenue growth was positive for the quarter and 14 of our 15 marks.
Speaker 4: positive on both a sequential and year-to-date basis in all of us.
Speaker 4: Occupancy for the third quarter average 95.6% ending September at 95.3% as we shifted more to a defensive strategy entering our slower leasing season in the fourth and first quarter.
Occupancy for the third quarter averaged 95, 6% ending September at 95, 3% as we shifted more to a defensive strategy.
Our slower leasing season in the fourth and first quarters.
Speaker 4: October occupancy is currently trending at 94.9% and should continue to moderate slightly over the room.
October occupancy is currently trending at 94, 9% and should continue to moderate slightly over the remainder of the year.
Speaker 4: Rents are also moderating given our focus on maintaining occupancy versus raising rental rates. During the third quarter, our effective growth rates were 0.8% for new leases, 5.9% for renewals, and 3.4% for blended rate growth.
Rents are also moderating given our focus on maintaining occupancy versus raising rental rates during the third quarter. Our effective growth rates were eight tenths of a percent for new leases five 9% for renewals and three 4% for a blended rate growth.
Speaker 4: Effective new lease growth for October is currently negative 2.5% and is expected to trend a bit further, down a bit further between now and the end of the year.
Effective new lease growth for October is currently negative two 5%.
As expected the trend a bit further down a bit further between now and the end of the year.
Speaker 4: Effective renewal rate growth for October to date is 4.7% and should average around 4% for the full fourth quarter.
Effective renewal rate growth for October to date is four 7% and should average around 4% for the full fourth quarter effective blended lease rates for October remained positive at one 4%.
Speaker 4: effective blended lease rates for October remain positive at 1.4%.
Speaker 4: Gross turnover rates for the third quarter were up 200 basis points compared to last year due to higher levels of skips and lease breaks, but our net turnover was down 200 basis points due to high levels of resident retention by our on-site turnover.
Turnover rates for the third quarter were up 200 basis points compared to last year due to higher levels of Skipton and movement and lease breaks, but our net turnover was down 200 basis points due to high levels of resident retention by our onsite teams.
Speaker 4: Moveouts to purchase homes accounted for just over 10% of our total moveouts during the quarter, which is near the lowest level we've seen in over the past 30 years.
Move outs to purchase homes accounted for just over 10% of our total move outs during the quarter, which is near the lowest level, we've seen over the past 30 years.
Speaker 4: Supply will remain a factor in many of our markets for the next several quarters, and as expected, we are seeing elevated competition for our communities located in those sub-markets where new deliveries exceed long-term historical averages.
Supply will remain a factor in many of our markets for the next several quarters and as expected we're seeing elevated competition for Camden communities located in those submarkets, where new deliveries exceed long term historical averages.
Speaker 4: 16% of Tamden's communities are being impacted by new supply that the vast majority are not.
16% of Camden's communities are being impacted by new supply, but the vast majority are not.
Speaker 4: We are seeing some encouraging news regarding the future as the level of new starts is big under fall, which boasts well for the supply environment in 25 and 26. I'll now turn it over.
We are seeing some encouraging news regarding the future as the level of new starts has begun to fall, which bodes well for the supply environment in 'twenty five 'twenty six.
I'll now turn it over to Alex just that Kansas Chief Financial Officer.
Speaker 5: Thanks, Keith. For the third quarter, we reported core FFO of $1.73 per share in line with the midpoint of our prior quarterly guidance. Although our net results met expectations, we experienced one and a half cents of lower than anticipated revenues for the quarter, which was entirely offset by one and a half cents of lower than anticipated expenses. The lower revenue resulted primarily from an unexpected rise in bad debt.
Thanks, Keith for the third quarter, we reported core <unk> of $1 73 per share in line with the midpoint of our prior poorly guidance.
Although our net results met expectations, we experienced one five cents of lower than anticipated revenue for the quarter, which was entirely offset by one five cents of lower than anticipated expenses.
The lower revenue resulted primarily from an unexpected rise in bad debt.
Speaker 5: Our lower than anticipated operating expenses resulted almost entirely from lower property taxes in Texas.
Our lower than anticipated operating expenses resulted almost entirely from lower property taxes in Texas.
Speaker 5: As previously discussed, the Texas State Legislature passed a tax reform bill subject to voter approval in November .
As previously discussed the Texas State legislature passed the tax reform Bill subject of voter approval in November.
Speaker 5: Upon approval, which we believe is likely, Senate Bill 2 will reduce independent school district tax rates by $0.107 per $100 of assessed value.
Upon approval, which we believe is likely Senate Bill two will reduce independent school district tax rates by $10 seven.
For $100 to assess value.
Speaker 5: Average independent school district tax rates in our Texas markets are approximately 1% of assessed value, or 45% of the total Texas tax rate. Therefore, excluding valuation increases and other tax rate increases, this anticipated reduction equates to an approximate 4.8% reduction in Texas taxes.
Average independent school district tax rates in our Texas markets are approximately 1% of assessed value or 45% of the total taxes tax rate. Therefore, excluding valuation increases another tax rate increases this anticipated reduction equates to an approximate $4 eight <unk>.
<unk> production in Texas taxes.
Speaker 5: We had previously assumed these independent school district tax rate rollbacks in Texas would be partially offset by other Texas rate increases. However, these other increases have
We had previously assumed these independent school district tax rate rollbacks in Texas would be partially offset by other Texas rate increases how's.
However, these other increases have not occurred.
Speaker 5: We now expect total profit taxes to increase by 2.9 percent, as compared to our prior expectations of 4.5 percent.
We now expect total property taxes to increase by two 9% as compared to our prior expectation of four 5% for.
Speaker 5: for a total savings of two and a half cents per share from our prior guidance.
For total savings of $2.05 per share from our prior guidance.
Speaker 5: One-and-a-half cents of this savings occurred in the third quarter, and the remaining one cent will be recognized in the fourth quarter.
One of the have sense of this savings occurred in the third quarter and the remaining <unk> will be recognized in the fourth quarter.
Speaker 5: Turning back to revenue, we have expected same-store bad debt would be 100 basis points for the third quarter, 90 basis points for the fourth quarter, and 120 basis points for the full year. Instead, bad debt was 40 basis points higher, or 140 basis points in total for the third quarter, with the increase happening primarily in September .
Turning back to revenue, we had expected same store bad debt would be 100 basis points for the third quarter 90 basis points in the fourth quarter and 120 basis points for the full year.
Instead bad debt was 40 basis points higher or 140 basis points in total for the third quarter with the increase happening primarily in September.
Speaker 5: and we are now anticipating 150 basis points of bad debt for both the fourth quarter and full year 2023.
And we are now anticipating 150 basis points of bad debt for both the fourth quarter and full year 2023.
Speaker 5: This 40 basis point increase in bad debt for the third quarter equates to approximately one cent per share. And the 60 basis point increase in the fourth quarter equates to approximately one and a half cents per share.
This 40 basis point increase in bad debt for the third quarter equates to approximately <unk> <unk> per share and a 60 basis point increase from the fourth quarter equates to approximately one and a half cents per share.
Speaker 5: In conjunction with the increase in bad debt on rental revenues, we also experience higher bad debt on administrative and other fees of another half a cent per share for the third quarter and we are anticipating the same additional half cent for fees in the fourth quarter.
In conjunction with the increase in bad debt on rental revenues, we also experienced higher bad debt on an administrative and other fees of another half a cent per share for the third quarter and we are anticipating the same additional half cent for fees in the fourth quarter.
Speaker 5: We believe this higher bad debt is primarily consumer behavior driven and not tied to financial stress of our residents.
We believe this higher bad debt is primarily consumer behavior, driven and not tied to financial stress of our residents.
Speaker 5: Our prior guidance called for 95.6% same score average occupancy in the 3rd and 4th quarters, with fairly consistent occupancy levels throughout the back half of the year.
Our prior guidance called for 95, 6% same store average occupancy in the third and fourth quarters with fairly consistent occupancy levels throughout the back half of the year.
Speaker 5: We actually had higher than anticipated occupancy in both July and August , entirely offset by lower occupancy of 95.3% in September .
We actually had a higher than anticipated occupancy in both July and August entirely offset by lower occupancy of 95, 3% in September.
Speaker 5: In combination with higher than anticipated, skipping revictions.
In combination with higher than anticipated Gibson evictions.
Speaker 5: We believe that historic seasonality, which has been unpredictable since the pandemic has returned.
We believe that historic seasonality, which has been unpredictable since the pandemic has returned.
Speaker 5: We now anticipate occupancy will average 94.8% in the fourth quarter. And the impact of this 80 basis point adjustment from prior estimates is approximately two cents per share.
We now anticipate occupancy well averaged 94, 8% in the fourth quarter and the impact of this 80 basis point adjustment from prior estimates is approximately <unk> <unk> per share.
Speaker 5: As a result of the decline in occupancy, we lowered asking rents more than anticipated in September .
As a result of the decline in occupancy, we lowered asking rents more than anticipated in September.
Speaker 5: We had expected a 1.5% average increase in new leases and a 5% average increase in renewals for a blend of approximately 3.25% in the back half of the year.
We had expected a one 5% average increase in new leases and a 5% average increase the renewal for a blend of approximately three 5% in the back half of the year.
Speaker 5: Our effective blended rates were higher than this at 3.4% to the third quarter. However, lower occupancy caused a reduction in sign rates, which is following through our fourth quarter guidance.
Our effective blended rates were higher than this at three 4% for the third quarter. However, lower occupancy caused a reduction in sign rates, which is flowing through our fourth quarter guidance.
Speaker 5: We are now anticipating 4.25 new leases of negative 4.5%, and a 4% average increase in renewals for a blend of approximately negative 0.7%.
We are now anticipating fourth quarter, new leases of negative four 5% and a 4% average increase in renewals for a blend of approximately negative <unk>, 7%.
Speaker 5: Resulting in a decline of approximately one and a half cents per share for the fourth quarter. The cumulative same-store impact of the greater than anticipated third and fourth quarter bed debt and lower fourth quarter occupancy and rents is approximately seven cents per share of which five and a half cents per share is in the fourth quarter.
<unk> and a decline of approximately $1.05 per share for the fourth quarter.
The cumulative same store impact of the greater than anticipated third and fourth quarter bad debt and lower fourth quarter occupancy and rent is approximately seven cents per share of which five and a half cent per share is in the fourth quarter.
Speaker 5: As a result, we have decreased the midpoint of our full year same store revenue guidance from 5.65% to 5%, effectively in line with our original revenue guidance midpoint at the beginning of this year.
As a result, we have decreased the midpoint of our full year same store revenue guidance from $5 six 5% to 5% effectively in line with our original revenue guidance midpoint at the beginning of this year.
Speaker 5: Turning to expenses. As previously mentioned, we had one and a half cents of favorability primarily in taxes in the third quarter.
Turning to expenses as.
As previously mentioned, we had one five cents of favorability primarily in taxes in the third quarter.
Speaker 5: We are also anticipating favorability and taxes of one cent per share in the fourth quarter.
We are also anticipating favorability in taxes of <unk> <unk> per share in the fourth quarter.
Speaker 5: This two-and-a-half-cent's attack's favorability is anticipated to be partially offset by one-and-a-half-cent's of higher fourth-quarter repair and maintenance and marketing expenses associated with higher skips and evictions and lower occupancy.
This $2.05 of tax favorability is anticipated to be partially offset by one five cents of higher fourth quarter repair and maintenance and marketing expenses associated with higher skips and evictions and lower occupancy.
Speaker 5: As a result, we have adjusted the midpoint of our full year same store expense guidance from 6.85% to 6.5%, or a net 1 cent per share.
As a result, we have adjusted the midpoint of our full year same store expense guidance from $6 eight 5% to six 5% or a net <unk> <unk> per share.
Speaker 5: Our resulting full year same store NOI midpoint has been reduced from 5% to 4.2%.
Our resulting full year same store NOI midpoint has been reduced from 5% to four 2%.
Speaker 5: Last night we also lowered the midpoint of our full year 2023 core FFO guidance by $0.07 per share to a new midpoint of $6.81 per share.
Last night, we also lowered the midpoint of our full year 2023 core <unk> guidance by <unk> <unk> per share to a new midpoint of $6 81 per share.
Speaker 5: This 7 cent per share decline resulted primarily from the previously mentioned 3.5 cent per share increase in same store bad debt.
This seven cents per share decline resulted primarily from the previously mentioned $3.05 per share increase in same store bad debt.
Speaker 5: The two cent per share decrease in same store occupancy.
<unk> per share decrease in same store occupancy in.
Speaker 5: and the one-and-a-half-cent per share decline in same-store rents.
And the one and a half cent per share decline in same store rent.
Speaker 5: Parsley offset by the one cent per share in lower property expenses resulting from lower taxes.
Partially offset by the <unk> per share and lower property expenses, resulting from lower taxes.
Speaker 5: In addition to this net $0.06 per share decline in same-score NOI, we are also anticipating an additional $0.01 in lower non-same-score NOI for similar reasons.
In addition to this net <unk> <unk> per share decline in same store NOI. We are also anticipating an additional <unk> <unk> and lower non same store NOI for similar reasons.
Speaker 5: We also provided earnings guidance for the fourth quarter of 2023.
We also provided earnings guidance for the fourth quarter of 2023.
Speaker 5: We expect core FFO per share for the fourth quarter to be within the range of $1.70 to $1.74. The midpoint of $1.72 represents a one cent per share decline from the $1.73 recorded in the third quarter.
We expect core <unk> per share for the fourth quarter to be within the range of $1 70 to $1 74.
The midpoint of $1 72 represents a one cent per share decline from $1 73 recorded in the third quarter.
Speaker 5: This is primarily the result of approximately one cent in lower same store NOI, resulting from three and a half cents in decreased revenue, given by 80 basis points of lower occupancy and 10 basis points of higher bad debt.
This is primarily the result of approximately <unk> <unk> in lower same store NOI.
<unk> from $3.05 and decreased revenue driven by 80 basis points of lower occupancy and 10 basis points of higher bad debt.
Speaker 5: Porsche offset by two and a half cents and lower proper expenses resulting from typical seasonal declines.
Partially offset by $2.05 and lower property expenses, resulting from typical seasonal decline.
Speaker 6: Our balance sheet remains strong, with net debt to EBITDA for the third quarter at 4.1 times and at quarter end we had $181 million left to spend over the next two years under our existing development pipeline. At this time, we will open the call up to questions.
Our balance sheet remains strong with net debt to EBITDA for the third quarter at four one times.
In a quarter and we added $181 million left to spend over the next two years under our existing development pipeline at.
At this time, we will open the call up to questions.
We will now begin the question and answer Chris Thompson.
Speaker 2: To ask a question, you may press star then one on your touchtone phone.
I'll ask a question you may call.
On your Touchtone phone.
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Speaker 2: To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble a roster.
To withdraw your question. Please press Star then two.
Unknown Executive: Good day, and welcome to the Camden Property Trust, 3rd quarter, 2023, earning conference call. All participants will be in listen-only mode. So do you need assistance? Please signal conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch on phone. To withdraw your question, please press star then two. Please note the event is being recorded.
At this time, we will pause momentarily to assemble our roster.
Speaker 2: Our first question comes from Michael Goldsmith with UBS. Please go ahead. Good morning.
Our first question comes from Michael Goldsmith with UBS. Please go ahead.
Good morning, Thanks, a lot for taking my question.
Speaker 7: How have concessions on the merchant code products trended over the last two months? And are there any other notable drivers on the consumer side? And then alongside this, are you seeing supply impact properties that you previously thought would compete directly with new supply due to either sub-multi-
I'll have concessions on the merchant build products trended over the last two months and are there any other notable drivers on the consumer side and then alongside this are you seeing supply impacted properties that you previously thought would compete directly with new supply due to either submarket or price point. Thank you.
Kimberly Callahan: I would like to turn the conference over to Kim Callahan, senior vice president of investor relations. Please go ahead. Good morning and welcome to Camden Property Trust, 3rd quarter, 2023, earning conference call. I'm Kim Callahan, senior vice president of investor relations.
Speaker 8: Let me take the first part and I'll let Keith do the last part.
Let me take the first part and I'll, let Keith do the last part.
Kimberly Callahan: Joining me today are Rick Campo, Camden's chairman and chief executive officer, Keith Oden, executive vice chairman and president, and Alex Jessett, chief financial officer. Today's event is being webcast to the investor section of our website at CamdenLiving.com and a replay will be available this afternoon. We will have a slide presentation and conjunction with our prepared remarks, and no slides will also be available on our website later today or by email upon request. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward.
Speaker 8: So from a merchant builder perspective, there's an old joke in the merchant builder world that you don't wanna be the last one on the street to get to three months free.
So from a merchant builder perspective, there is a an old joke.
And the merchant builder World that that you don't want to be the last one on the street to get to three months free and so.
Speaker 8: And so, depending on the market you're in, like if you're in a market like Nashville, for example, there's three months free in the market with Merchant Builder product, there's no question about that. In other markets, though, that don't have the, and Nashville was, Nashville and Austin, Texas are the number one supply markets in America right now with maybe 6% new supply coming in.
Depending on the market you're in like if youre in a market like Nashville. For example, there is three months free in the market with merchant builder product. There's no question about that and other markets, though that don't have the Nash.
Nashville was.
Nashville, and Austin, Texas number one supply markets in America, right now with maybe 6% new supply coming in and so you definitely are seeing kind of peak merchant builder concessions. There and then when you looked at but if you look at other markets like Charlotte for example.
Speaker 8: And so you definitely are seeing kind of peak merchant builder pin sessions there.
Speaker 8: And then when you looked at, but if you look at other markets like
Speaker 8: Charlotte for example, there's a month maybe six weeks or something like that and most merchant builders are gonna
Kimberly Callahan: Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees a 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 accompany assumes no obligation to update or supplement these statements because of subsequent events.
Theres a month, maybe six weeks free or something like that in most merchant builders are going to.
Speaker 8: in any market are going to have discounts or free rent to, you know, to, to incent people to come in. And so I think that part of the equation is, is happening pretty normally. And so the markets that are going to be more, that have a higher concentration and have,
And any market are going to have discounts or free rent.
Two to Incent people to come in and so I think that part of the equation as is.
It's happening pretty normally and so the markets that are going to be more.
A higher concentration of half closer to the three months free number.
Speaker 8: And then in terms of consumer behavior,
And then in terms of consumer behavior.
Speaker 8: The, you know, when we think about what are, you know, what we looked at the fourth quarter, you know, consumer behavior is, it's affected by this new supply for sure, but because of the nature of our portfolio, the Keith will talk about in a minute, it's not a huge issue in supply, it's not like changing consumer behavior.
The when.
When we think about what.
Kimberly Callahan: As a reminder, Camden's complete third quarter 2023 earnings release is available in the investor section of our website at CamdenLiving.com and it includes reconciliations to non-gap financial measures, which will be discussed on this call. We would like to respect everyone's time and complete our call within one hour as there are other multi-family companies hosting calls later today. Please limit your initial question to one, 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.
Our.
The way, we looked at the fourth quarter consumer behavior is.
It's affected by this new supply for sure, but because of the nature of our portfolio that Keith will talk about in a minute.
It's not a huge issue in supply isn't like change in consumer behavior thing that that debt.
Speaker 8: The thing that that that that surprised us and maybe we just maybe we were just too optimistic on this was that what post COVID consumer behavior would return to more normal behavior sooner rather than than it has. And let me describe what I mean by that. So I'm talking about when somebody moves into an apartment and they are paying around.
That surprised us and maybe we just maybe we were just too optimistic on this was that post COVID-19 consumer behavior would return to more normal behaviour sooner rather than than it has and let me describe what I mean by that so I'm talking about when somebody moves into an apartment and they are.
Richard Campo: At this time, I'll turn the call over to Rick Campo. Thanks, Kim, and good morning. Our on-hold music was an honor and memory of Jimmy Buffett. One of Jimmy's recurring things in his songs was how to navigate through live storms, including actual hurricanes. Ironically, this is the first year in memory that we did not have any hurricanes in any of our markets. On the other hand, the hurricane in the capital market is blowing hard.
Hey.
They.
Aren't paying their rent today consumers know that if you're in Atlanta. For example that you can see in your apartment for seven or eight months before you you actually have to leave and so that consumer behavior. They know that and you can just go online and say how do I live in an apartment for free as long as I can and they'll give you what you need to.
Speaker 8: Today, consumers know that if you're in Atlanta, for example, that you can stay in your apartment for seven or eight months before you actually have to leave. And so that consumer behavior, they know that. And you can just go online and say, how do I live in an apartment for free as long as I can? And they'll give you what you need to do. And so if you look at Atlanta, for example, our bad debts, they're like 3%. And normally, Atlanta would be picky basis.
And so that if you if you look at Atlanta for example, our bad debts are like 3% and normally Atlanta would be 50 basis points. So that part of the consumer behavior is definitely they understand the system and they haven't we haven't been able to.
Richard Campo: As a result of the turmoil, we're encouraging our teams to heat Jimmy's advice from one of the songs that he wrote for New Orleans after the devastation of Hurricane Katrina. And this is from the song. If a hurricane doesn't leave you dead, it'll make you strong. Don't try to explain it, just nod your head, breathe in, breathe out, move on, which is exactly what we plan to do. Our business is strong, we've been through many cycles.
Speaker 8: So that part of the consumer behavior is definitely, they understand the system, and we haven't been able to convince them that they ought to pay, and if they don't pay, they should move. And so I think that will change, because what's happening is every market is getting tighter in terms of the ability to move people out.
Thanks to them that they they have to pay.
They don't pay they should move and so I think that will change because what's happening is every market is getting tighter in terms of the ability to move people out.
Speaker 8: governments are, you know, backlogged and now they're starting to get, you know, better and over the next, you know, six or eight months, I think it would go back to a more normal situation from that perspective. Keep one of you addressed the issue on supply and oil.
The governments are backlog and now they are starting to get.
Better than over the next six or eight months I think it will go back to a more normal situation from that perspective, Keith why don't you address the issue on supply in our portfolio and.
Richard Campo: This cycle has been different in that we're coming off the best year we ever had driven by the COVID reopening consumer high. 2023 has been a year of getting back to a more normal multi-family business. I say more normal because we're still not back to normal customer behavior, or they actually pay their rent, and if they don't they move out. We have high cancellations due to identity theft and fraud, elevated skips and lease breaks. Seasonality is back, but it started earlier this year and was stronger than pre-COVID levels. We had planned for a more normal fourth quarter, but that didn't happen.
Speaker 4: Yeah, I think the question Michael asked was, is the pool of impact.
Yes, I think the question. The question. Michael asked was is the pool of impacted communities shifted.
Speaker 4: And the short answer to that is no, but I do want to give you a little bit more color and detail around how we look at the supply challenge, and how we quantify it, and then how we make sure that we've been properly participating in that. So we stratify our portfolio because it's really important to do so in times of elevated supply into those markets that are likely to be impacted by new lease ups and those that are not.
Short answer to that is no, but I don't want to give you a little bit more color and detail around how we look at the supply challenge, how we quantify it and then how we how we make sure that we properly.
So we stratify our portfolio because it's really important to do so in times developed elevated supply into those markets that are likely to be impacted by new lease ups and those that are not.
Richard Campo: As a result, we have revised our fourth quarter full-year guidance to reflect weaker new lease growth, lower occupancy and higher bad debts than we expected, even in the summer. In a normal growth year, however, we would share for revenue growth of 5%. Fundamentals for our business are good overall, taking the challenges and the opportunities together. On the demand side, job growth remains robust. U.S, consumer demographics continue to be supported for apartment demand.
Speaker 8: And so that's filter one and the second filter is if it is in a Submarket where we have existing assets then is the price point actually going to be affected by the newly such and our proxy for that is we use ages Approximately for that and we
And so that's filter one in the second filter is if it is.
A sub market, where we have existing assets then is the price point actually going to be affected by the new lease ups are proxy for that is we use age as a proxy for that and.
Speaker 4: We make the cut at 15 years. It's not completely scientific, but it's been useful over the years to look at it that way. So when you stratify Camus portfolio that way, about 16% of Camus total apartment units are in markets that have a supply challenge. Now the interesting thing is, is that of all the things that we have to forecast at the beginning of the year, new supply, impact from new supply is probably one of the most reliable.
We make the cut at 15 years, it's not completely scientific but it's been useful over the years to look at it that way. So when you stratify cameras portfolio that way about 16% of Camden's total apartment units are in markets that have a supply challenge now the interesting thing is is that of all the things that we.
Richard Campo: The share of 25 to 34-year-olds is stable. The share of 34 to 48-year-olds is growing, and they have a high propensity to rent given the record high cost of buying a home. The buy to rent premium today is at 30-year highs with homeownership out of reach for many people. This should increase apartments. The apartment business share of the housing market at least through 2026. The U.S, share or the share of U.S, households that are living alone continues to grow to nearly 30% over the next few years.
Have to forecast at the beginning of the year, new supply impact from new supply is probably one of the most reliable because it.
Speaker 4: that the community is either under construction or not. You may miss the delivery time by a quarter or two, but the supply, once it gets started, it's gonna be there, and it's something you're gonna have to deal with. So if you think about it that way, in the second quarter of this year,
The community is either under construction or not you may you might miss the delivery time by a quarter or two but the supply once it gets started its going to be there and it's going to be here, it's something you're going to have to deal with so if you take if you look if you think about it that way in the second quarter of this year.
Richard Campo: The long-term trend of in-migration to our markets continues. On the supply side, starts have peaked, and the capital market hurricane has begun to reduce new starts. Annualized August starts fill 42%. Witten advisors project starts will fall to 250,000 units in 2024, and just above 200,000 units in 2025. Completions will be elevated through the end of 2024, but demand drivers should allow for an orderly lease absorption in our markets.
Speaker 4: For that 16% of our communities that we believe are being impacted directly by supply, impacted communities had a lower new lease rate.
16% of our communities that we believe are being impacted directly by supply.
The impacted communities had a lower new lease rate than the 84% non impacted communities by 260 basis points.
Speaker 4: then the 84% non-impacted communities by 260 basis.
Speaker 4: So it's important, it's meaningful, but it's only 16% of our portfolio. But yes, supply matters and it matters more directly to those communities where it's happening. So if you roll that forward to the third quarter, I know there's still a lot of elevated anxiety about supply and what's coming and what the impact is gonna be. And I think there's probably just a view that
It's important it's meaningful, but it's only 16% of our portfolio, but but yes supply matters and it matters more directly to those communities where its happening. So if you roll that forward to the third quarter I know, there's still a lot of <unk>.
Richard Campo: I want to give a big thanks and shout out to Team Camden for improving the lives of our teammates, our customers, and our stakeholders when experience the time.
Elevated anxiety about supply and what's coming and what the impact is going to be and I think it's.
It's probably.
Just a view that supply is a bigger part of the challenge in our.
Speaker 4: supplies a bigger part of the challenge and our progression of results from the second to the third quarter. You roll those numbers forward to the third quarter. Same 16% is impacted. So instead of 260 basis points differential between the impacted and non-impacted community, that number moved to 310 basis.
Keith Oden: Keith Odin's up next. Thanks Rick. Overall, our third quarter 2023 operating results were in line with expectations. Year over year, same property revenue growth was positive for the quarter and 14 of our 15 markets. And positive on both the sequential and year-to-date basis in all of our markets.
And our progression of results from the second and third quarter. If you roll it rolled those numbers for the third quarter same 16% is impacted so instead of 260 basis points differential between the impacted or not impacted community that number moved to 310 basis points. So it's 50 basis points on 16%.
Speaker 4: So it's 50 basis points on 16% of our communities and it's only new leases. So if you kind of roll that down, do the math and roll that to the bottom line, we think that the challenge of 2Q to 3Q that was directly attributable to increased supply was about 15 basis points.
Keith Oden: Occupancy for the third quarter average 95.6% ending September at 95.3% as we shifted more to a defensive strategy entering our slower leasing season in the fourth and first quarter. October occupancy is currently trending at 94.9% and should continue to moderate slightly over the remainder of the year. Rents are also moderating given our focus on maintaining occupancy versus raising rental rates. During the third quarter, our effective growth rates were 8% of a percent for new leases, 5.9% for renewals, and 3.4% for blended rate growth.
Of our communities.
And it's only new leases. So if you if you kind of roll that down and do the math and roll that to the bottom line, we think that the challenge of <unk> to <unk> that was directly.
<unk> to increase supply was about 15 basis points and if you compare that to what the stats at Alex gave you on the on the delinquency or bad debt.
Speaker 4: And if you compare that to what the stats that Alex gave you on the on the delinquency or bad debts, you know, that that number alone is 50 basis points of impact in the quarter. So, yeah, it matters and it's something that we pay a lot of attention to because our operations team has to take that into consideration.
That number alone is 50 basis points.
Of impact in the quarter, so yet matters.
It is something that we pay a lot of attention to because of our operations team has to take that into consideration.
Keith Oden: Effective new lease growth for October is currently negative 2.5% and is expected to trend a bit further, down a bit further between now and the end of the year. Effective renewal rate growth for October, today is 4.7% and should average around 4% for the full fourth quarter. Effective blended lease rates for October remain positive at 1.4%.
Speaker 4: when they're making their pricing decisions. But it's, I mean, in our portfolio, yeah, it's in the run rate. We've been dealing with supply for almost nine months now. It's gonna continue for at least through the end of 2024 for sure. And that's just something we're gonna have to deal with. Thank you very much.
When they're when they're making their pricing decisions, but it's I mean in our portfolio. Yes. It's in the run rate we've been dealing with supply for almost nine months now it's going to continue for at least through the end of 2024 for sure and that's just something we're going to have to deal with so.
Thank you very much for the thorough answer good luck in the fourth quarter.
Yes. Thanks.
Keith Oden: Growth turnover rates for the third quarter were up 200 basis points compared to last year due to higher levels of skips and lease breaks, but our net turnover was down 200 basis points due to high levels of resident retention by our onsite teams. Moveouts to purchase homes accounted for just over 10% of our total moveouts during the quarter, which is near the lowest level we've seen in over the past 30 years.
Speaker 2: Our next question comes from Brad Heffern with RBC Capital Markets. Please go ahead.
Our next question comes from Brad Heffern with RBC.
<unk> capital markets. Please go ahead.
Speaker 9: Hey, thanks, everybody. Do you think Camden's being negatively impacted in this time of high supply because you have the policy of not offering concessions?
Hey, Thanks, everybody do you think Camden being negatively impacted in the time of high supply because you have the policy of not offering concessions and is there any chance that you might change that policy at least on a near term basis.
Speaker 9: And is there any chance that you might change that policy, at least on a near-term basis?
Speaker 4: Yeah, we do offer concessions on our new lease-ups, because that's traditional, and it's kind of expected by the consumer, but we find that our consumers.
Yeah, we're not.
Keith Oden: Supply will remain a factor in many of our markets for the next several quarters, and as expected, we're seeing elevated competition for our Camden communities located in those submarkets where new deliveries exceed long-term historical averages. 16% of Camden communities are being impacted by new supply that the vast majority are not.
We do offer concessions on our new lease ups, because thats traditional is kind of expected by the consumer but.
We find that our consumers are much.
Speaker 4: uh... much you know could just be transparent telling what the regret is uh... and that's the way the the uh... algorithm and you'll start work so i think i can see yes uh... we have no intention of going back to quoting you know a month free rent the prorating the that month over the balance the lease term it it's to me it's confusing to consumers and it's also uh... it just makes it it puts a little bit more pressure on managing the the bad actor
Just be transparent telling what the rent is.
And Thats the way the.
Algorithm and Youll start work so.
I can't see us we have no intention of going back to quoting a month free rent and the prorating that month over the balance of the lease term and it's to me, it's confusing to consumers and its also it just makes it it puts a little bit more pressure on managing the.
Keith Oden: We're seeing some encouraging news regarding the future as a level of new starts is big undefall, which bodes well for the supply environment in 25 and 26.
Alexander Jessett: I'll now turn it over to Alex Jessett, Camden's chief financial officer. Thanks, Keith. For the third quarter, we reported core FFO of $1.73 per share in line with the midpoint of our prior quarterly guidance. Although our net results met expectations, we experienced one and a half cents of lower than anticipated revenue for the quarter, which was entirely offset by one and a half cents of lower than anticipated expenses. The lower revenue resulted primarily from an unexpected rise in bad debt.
The bad actor.
Speaker 4: move in, pay your rent, expectation that we've had forever in this business. So I will continue to do it on our new development lease ups because that's, it's just part of what we bake into the cake when we think about our performance, but not on the next tablet.
Moving on to pay your rent expectation that we've had forever in this business. So we will continue to do it on our new development lease ups because that.
It's just part of what we baked into the cake when we think about our pro forma but not on not only fabless communities.
Speaker 9: Okay, got it. And then thinking about 2024, not asking for guidance or anything like that, but I'm curious how you guys are thinking about market rent growth at this point. Do you think there's a chance that we won't see it next year based on what we've seen recently, or how have your thoughts on that evolved?
Okay got it.
And then thinking about 2020 for not asking for guidance or anything like that but I'm curious how you guys are thinking about market rent growth at this point do you think there's a chance that we won't see it next year based on what we've seen recently or how have your thoughts on that evolved.
Alexander Jessett: Our lower than anticipated operating expenses resulted almost entirely from lower property taxes in Texas. As previously discussed, the Texas State Legislature passed a tax reform bill subject to voter approval in November. Upon approval, which we believe is likely, Senate bill 2 will reduce independent school district tax rates by 10.7 cents per $100 of assessed value. Average independent school district tax rates in our Texas markets are approximately 1% of assessed value or 45% of the total taxes tax rate.
Speaker 8: Well, when you look at, we use Ron Witten and Witten Advisors information a lot. And it's interesting because development falls off pretty dramatically, where this starts due in 2020.
Well when you look at.
We use Ron Witten advisors inflammation a lot.
And it's interesting because because.
Development falls off pretty dramatically really starts due in 2020.
Speaker 8: for and you start absorbing that real estate.
And you start absorbing.
That real estate.
Speaker 8: You know, you have countervailing factors like home ownership rate going down in terms of people moving out to buy homes are down at 10% and the prospect for people buying homes next year looks pretty dismal relative to the current environment. And so you do have cross currents where you don't need as much job growth to create demand for apartments because you have fewer people moving out to buy homes, you have more people that are, I've quoted a number of.
Countervailing factors like her.
Homeownership rates going down in terms of people moving out to buy homes at down at 10% and the prospects for people buying homes next year looks pretty pretty dismal relative to the current environment and so you have you do have crosscurrents that where you don't need as much job growth for that to create demand for apartments because.
Alexander Jessett: Therefore, excluding valuation increases and other tax rate increases, this anticipated reduction equates to an approximate 4.8% reduction in Texas taxes. We had previously assumed these independent school district tax rate rollbacks in Texas would be partially offset by other Texas rate increases. However, these other increases have not occurred. We now expect total property taxes to increase by 2.9% as compared to our prior expectations of 4.5% for total savings of 2.5 cents per share from our prior guidance.
We have fewer people moving out to buy homes.
Homes, you have more people that are.
Speaker 8: you know, the percentage of people, of adults that live alone in the U.S.
A number of.
The percentage of people of adults live alone in the U S and when you get close to a third of the people that are living alone. They don't go out and buy houses they rent apartments, and so that that older demographic becomes a higher propensity to rent apartments and that stabilizes system as well so.
Speaker 8: And when you get close to a third of the people that are living alone, they don't go out and buy houses, they run apartments. And so that older demographic becomes a higher propensity to rent apartments. And that...
Speaker 5: stabilize the system as well. So, you know, Ron thinks that you're gonna have occupancy levels that stay kind of where they are now. And then you're gonna have, you know, some modest rent growth in markets. And so I think, are the rent, you know, we had a 5% rent growth in 2023, or we're gonna have...
Ron Thanks that youre going to have occupancy levels stay kind of where they are now and then youre going to have.
Alexander Jessett: One and a half cents of this savings occurred in the third quarter and the remaining one cent will be recognized in the fourth quarter. Turning back to revenue, we have expected same-store bad debt would be 100 basis points for the third quarter, 90 basis points for the fourth quarter, and 120 basis points for the full year. Instead, bad debt was 40 basis points higher, or 140 basis points in total for the third quarter, with the increase happening primarily in September.
Some modest rent growth in our end markets and so I think we.
We added 5% rent growth in 2023, or we're going to have.
Speaker 8: You know, the same in 24 answers probably no, but is it a...
<unk> and 'twenty 'twenty four the answer is probably no.
But as it is at a.
Speaker 8: sort of a slower year, yes, but I think that there's definitely a construct and a model that would argue that you should have reasonable occupancy in summer and growth in 2024.
Sort of a slower year, yes, but.
I think that there is there is definitely a key.
Construct and a model that that would argue that you should have reasonable occupancy and some rent growth in 2024.
Alexander Jessett: And we are now anticipating 150 basis points of bad debt for both the fourth quarter and full year 2023. This 40 basis point increase in bad debt for the third quarter equates to approximately 1 cent per share, and the 60 basis point increase in the fourth quarter equates to approximately 1.5 cents per share. In conjunction with the increase in bad debt on rental revenues, we also experienced higher bad debt on administrative and other fees of another 1.5% per share for the third quarter, and we are anticipating the same additional 1.5 cents for fees in the fourth quarter.
Okay. Thank you.
Okay.
Speaker 2: next question comes from Handle Saint Just with Mizzouho. Please go ahead.
Our next question comes from Handelsbanken. Please go ahead.
Speaker 10: Hey, guys. Good morning. I was hoping to talk a bit more about.
Hey, guys good morning.
I was hoping you can talk a bit more about the business.
Speaker 10: decision to let occupancy trend down in October . I would have expected occupancy to pick back up a bit here, certainly heading into seasonally slower demand, higher supply. And it sounds like you expect that now to continue into year-end, maybe even mid-next year. So I'm curious if, in hindsight, that might have been a tactical misstep, and perhaps where occupancy in the portfolio has fallen the most, and when we might be able to get back to 95%?
There's also a lot of occupancy trend Gameloft Cobra I would've expected occupancy the quick Buck.
A bit here certainly heading into seasonally slower demand however supply.
Like do you expect that to continue into year end, maybe even mid next year. So I'm curious with enhance off that might have been a tactical missile and perhaps where occupancy in the portfolio falling the most on whether we might be able to get back to 95%. Thank you.
Alexander Jessett: We believe this higher bad debt is primarily consumer behavior driven and not tied to financial stress of our residents. Our product guidance called for 95.6% same-store average occupancy in the third and fourth quarters, with fairly consistent occupancy levels throughout the back half of the year. We actually had a higher than anticipated occupancy in both July and August, entirely offset by lower occupancy of 95.3% in September. In combination with higher than anticipated skips and evictions, we believe that historic seasonality which has been unpredictable since the pandemic has returned.
Speaker 8: Well, remember, occupancy and rent are correlated, right? I mean, we could be at 95 97% occupancy if we wanted to go out and buy, you know, buy, buy, buy occupancy by by, you know,
Well remember occupancy and rent are correlated right I mean, we could be at 95%, 97% occupancy if we wanted to go out and buy.
Bye bye bye occupancy by by.
Speaker 8: lowering rents dramatically. And so we just think it's a better fit. You know, our revenue team, we debate, you know, where we ought to have our settings on an ongoing basis. And we feel really comfortable with where we are. You know, I would rather have higher rent and higher occupancy, but in this environment with seasonality and with, you know, with the consumer doing what they're doing, we feel comfortable with where we are. And we think we're gonna set up for, you know, a reasonable start to 2024.
Lowering rents dramatically and so we just think it's a better fit our revenue chain, we debate, where we ought to have our settings on ongoing basis and at <unk>.
We feel really comfortable with where we are.
I would rather have higher rents and higher occupancy, but in this environment with with seasonality.
And with.
With the consumer doing what Theyre doing.
Alexander Jessett: We now anticipate occupancy will average 94.8% in the fourth quarter, and the impact of this 80 basis point adjustment from prior estimates is approximately 2 cents per share. As a result of the decline in occupancy, we lowered asking rents more than anticipated in September. We had expected a 1.5% average increase in new leases and a 5% average increase in renewals for a blend of approximately 3.25% in the back half of the year.
We feel comfortable with where we are and we think we're going to set up for a reasonable start to 2024.
Speaker 4: So, Handel, just to follow up on that, the idea that we let occupancy go to 94.9, it kind of implies that that would.
So Andy I want just to follow up on that maybe with the idea that we left occupancy.
Go to $94 nine or is it kind of it.
Kind of implies that that was.
Speaker 4: conscious decision and clearly that wasn't because our occupancy guidance for the back half of the year was at 95.6% going into going into October so but but I think you want to kind of connect the dots a little bit what Alex talked about on our
Conscious decision and clearly that wasn't because our occupancy guidance for the back half of the year was at 95, 6% going into going into October so.
But if you.
Alexander Jessett: Our effective blended rates were higher than this at 3.4% for the third quarter. However, lower occupancy calls to reduction in sign rates which is following through our fourth quarter guidance. We are now anticipating fourth quarter new leases of negative 4.5% and a 4% average increase in renewals for a blend of approximately negative 0.7%. Resulting in a decline of approximately 1.5% per share for the fourth quarter. The cumulative same-store impact of the greater than anticipated third and fourth quarter bad debt and lower fourth quarter occupancy in rents is approximately 7 cents per share of which 5.5% per share is in the fourth quarter.
You're going to kind of connect the dots a little bit.
What Alex talked about on R. R.
Speaker 4: delinquency, but also our continued elevated level of skips and lease breaks. You know, we had planned at the beginning of the year that, you know, we really felt like that
Delinquency, but also our continued elevated level of skips and lease breaks.
We had planned at the beginning of the year that we felt we really felt like that.
Speaker 4: that 2023 would go a long way towards getting back to normal metrics around delinquency and skips and leases.
The 2023 would go a long way towards getting back to normal metrics around delinquency and Gibson lease breaks and it would kind of happen ratably over the course of the year and we did make good progress in the first two quarters and there was certainly an expectation and we talked about the mix.
Speaker 4: And it would kind of happen ratably over the course of the year, and we did make good progress in the first two quarters. And there was certainly an expectation, and we talked about the expectation of getting to, you know, 90 basis points of delinquency by the end of 2023. Well, guess what? You know, we were on a glide path to get there, and then all of a sudden, instead of dropping again at the end of the third quarter, that metric reversed, and all of a sudden...
Spectation of getting to 90 basis points of delinquency by the end of 2023, well guess, what you know we were on a glide path to get there and then all of a sudden instead of instead of dropping again in the at the end of the third quarter.
Alexander Jessett: As a result, we have decreased the midpoint of our full year same-store revenue guidance from 5.65% to 5%. Effectively in line with our original revenue guidance midpoint at the beginning of this year. Turning to expenses, as previously mentioned, we had 1.5 cents of favorability primarily in taxes in the third quarter. We were also anticipating favorability in taxes of 1 cent per share in the fourth quarter. This 2.5 cents of tax favorability is anticipated to be partially offset by 1.5 cents of higher fourth quarter repair and maintenance and marketing expenses associated with higher skips and evictions and lower occupancy.
That metric reverse then all of a sudden you're at 100.
Speaker 4: 140 basis points instead of a glide path to get to 90 so that was I mean that was completely unexpected but
Third 40 basis points instead of a glide path to get to 90. So that was I mean that was completely unexpected but.
Speaker 4: And in the way that flows through in our portfolio is.
And the way that flows through in our portfolio. He is skips and lease breaks are.
Speaker 4: Skips and lease breaks are in the same category of short-term lease terminations, and they're really hard to anticipate. You have no idea who's going to...
Claim category of short term lease terminations in there they're really.
Either hard to anticipate you have no idea who's going to.
Speaker 4: skip or win or when they're gonna move out, obviously if they're facing.
Yep or when are when theyre going to move out obviously, if they are facing.
Speaker 4: you know the termination of their lease then then By judicial means then yeah, they'd they'd probably eventually move out before that date
Termination of the lease then then.
Alexander Jessett: As a result, we have adjusted the midpoint of our full year same-store expense guidance from 6.85% to 6.5% or a net 1 cent per share. Our resulting full year same-store NOI midpoint has been reduced from 5% to 4.2%. Last night, we also lowered the midpoint of our full year 2023 core FFO guidance by 7 cents per share to a new midpoint of $6.81 per share. This 7 cent per share decline resulted primarily from the previously mentioned 3.5 cent per share increase in same-store bad debt, the 2 cent per share decrease in same-store occupancy, and the 1.5 cent per share decline in same-store rents.
Judicial means then yes, they probably eventually move out before that date, but theres no way to anticipate the challenges is when somebody moves out in the middle of the night, which these SKU.
Speaker 4: But there's no way to anticipate it and the challenge is is when somebody moves out in the middle of the night which these skips and lace breaks typically.
The lease breaks typically do.
Speaker 4: A, you don't have a chance to do anything to pre-lease the apartment, and B, people who move out in the middle of the night typically don't take real good care of the asset. Not only do you not get noticed, it takes you longer to turn a unit because it's been probably maybe a little bit more harshly used.
You don't have a chance to do any do anything to pre lease the apartment and b that the people who moved out in the middle of the night typically don't take real good care of the asset so not only do you not get noticed it takes you longer to turn a unit because it's been probably maybe a little bit more harshly used and.
Speaker 4: and the so that the the days to turn an apartment that is in that category of short-term lease break.
So the days to turn an apartment that is in that category of short term lease break or just elongated and we thought we would be getting border and fewer of those and we didn't we got more and so that's that's the biggest reason why.
Speaker 4: are just elongated and we thought we would be getting shorter uh... in fewer of those and and we didn't we got more and and so that's that's the biggest reason why that the compounded our challenge of seasonality
Alexander Jessett: Partly offset by the 1 cent per share in lower property expenses resulting from lower taxes. In addition to this net 6 cent per share decline in same-store NOI, we are also anticipating an additional 1 cent in lower non-same-store NOI for similar reasons. We also provided earnings guidance for the 4th quarter of 2023. We expect core FFO per share for the 4th quarter to be within the range of $1.70 to $1.74. The midpoint of $1.72 represents a 1 cent per share decline from the $1.73 recorded in the 3rd quarter.
Yes.
The compounded our challenge of seasonality.
Speaker 4: Certainly wasn't anything we thought, you know, it wouldn't be great to get into the 94s on oxides, but it just happens as a result of those facts.
Certainly wasn't anything we thought it would be great to get into the 94 is on occupancy, but it just happens as a result of those factors.
Speaker 10: Yeah, it's got to certainly understand the complexity involved and appreciate the thinking of the thought process here. Maybe can you give us an update on where the portfolio lost at least is overall today and where it's highest and lowest. And I think last quarter you mentioned the earn in for full year 24 was around 1.8% if you were to hit your budget. For the rest of your obviously the numbers come in a bit, so perhaps you can give us an update on where you feel that earn in for next year's. Thanks.
Got it got it certainly understand the complexity involved and appreciate the thinking with the thought process here.
Maybe can you give us an update on where the portfolio of Boston leases overall today, and where it is highest and lowest and I think last quarter. You mentioned the earn in for full year 'twenty four was around one 8%. If you were to hit your your budget for Rusty you, obviously the numbers come in a bit so perhaps you could give us an update on how you feel that that earn in for next year. Thanks.
Alexander Jessett: This is primarily the result of approximately 1 cent in lower same-store NOI resulting from 3.5 cents in decreased revenue given by 80 basis points of lower occupancy and 10 basis points of higher bad debt. Partly offset by 2.5 cents in lower property expenses resulting from typical seasonal declines. Our balance sheet remains strong, with net debt to EBITDAF in the 3rd quarter at 4.1 times, and at quarter end we had $181 million left to spend over the next two years under our existing development pipeline.
Speaker 5: Yeah, absolutely. So loss to lease for us is just under 1% and we're actually showing our embedded growth. If the sum we make our reforecast for the fourth quarter, our embedded growth should be right around 0.9% for 2024.
Yeah, absolutely so loss to lease for US is just under 1%.
And we're actually showing our embedded growth.
We make our re forecast for the fourth quarter on better growth should be right around <unk>.
9% for 2024.
Speaker 4: Yes, so on the challenge, you know, where do you have the most challenge on maintaining
Yes, so on the on the.
Challenge, which where do you have the most challenge all maintaining.
Speaker 4: occupancy. It's in the markets where we knew that we were going to have a challenge in the fourth quarter with our supply impacted markets. So it's
Occupancy its in the markets, where we we knew that we were going to have a challenge in the fourth quarter with our supply impacted markets, though.
Unknown Executive: At this time we will open the call up to questions. We will now begin the question and answer session. To ask a question, you may press stars and warn on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.
Speaker 4: It's Atlanta, it's Austin, it's Charlotte, those would be the big three in terms of, you know, kind of a compounding of both.
It's Atlanta Austin is.
Charlotte.
Those would be the big three in terms of kind of a compounding of a boat.
Speaker 4: supply that we that we did anticipate and then you know kind of continued elevated lease breaks which we did not anticipate.
Supply that we that we did anticipate and then.
You know kind of continued elevated lease breaks, which we did not anticipate.
Unknown Executive: At this time, we will pause momentarily to assemble a roster.
Great guys. Thank you so much.
Sure.
Michael Goldsmith: Our first question comes from Michael Goldsmith with UBS. Please go ahead. Good morning. Thanks for opportunity my question. How have concessions on the merchandise products trended over the last two months? Are there any other notable drivers on the consumer side? And then alongside this, are you seeing supply impact properties that you previously thought would compete directly with new supply due to either some market or price point? Thank you.
Speaker 2: next question comes from Austin Worshnet with Keebang Tapra Market. Keep going.
Our next question comes from often when Schmidt with Keybanc capital markets. Please go ahead.
Speaker 11: Good morning. Thank you. You guys referenced that a couple times that only 16% of the communities are being impacted by new supply, but clearly
Hey, good morning. Thank you you guys referenced that a.
A couple of times and only 16% of the communities are being impacted by new supply, but clearly new lease rate growth has dropped dramatically occupancy has fallen as well I guess is it your belief that the <unk> is as bad as leap lease rate growth.
Speaker 11: New lease rate growth has dropped dramatically. Occupancy has fallen as well. I guess, is it your belief that 4Q is as bad as lease rate growth, you know, and occupancy could get and that we actually see both, you know, rate growth and occupancy reaccelerate into 2024 just given some of the items you highlighted around the impact from seasonality, skips and evicts, et cetera? And I guess what would change that view?
And the occupancy could get in that we actually see both rate growth and occupancy reaccelerate into 2024, just given some of the items you highlighted around the impact from seasonality Gibson of VIX, etc, and I guess, what would what would change that view.
Richard Campo: Let me take the first part and I'll let Keith do the last part. So from a merchant builder perspective, there's an old joke in the in the merchant builder world that you don't want to be the last one on the street to get to three months free. And so the depending on the market you're in, like if you're in a market like Nashville, for example, there's three months free in the market with merchant builder product.
Speaker 8: I think the issue will be what happens in 2029 with the economy overall, right? I mean, if we have continued to have robust job growth like we've had so far, and we know we have seen it seasonality this year more than we've had, you know, since the pandemic.
I think the issue will be what happens in 2029 with the economy overall right. I mean, if we have continued to have robust job growth like we like we've had so far.
We know we have seen seasonality this year more than we've had since the since the pandemic and you would expect to have a similar pattern similar seasonal pattern in the first quarter of 2024, which is very typical.
Richard Campo: There's no question about that. In other markets, though, that don't have the, you know, and Nashville was, you know, Nashville and Austin, Texas was number one supply markets in America right now with maybe six percent new supply coming in. And so you definitely are seeing kind of peak merchant builder concessions there. And then when you looked at, but if you look at other markets like Charlotte, for example, there, you know, there's a month, maybe six weeks free or something like that.
Speaker 8: and you would expect to have a similar pattern, a similar seasonal pattern in the first quarter of 2024, which is...
You have the slowdown start in September October if you bought them in January and then then you start moving up in February March April and I think that is very plausible and it really just depends on.
Richard Campo: And most merchant builders are going to in any market are going to have discounts or or free rent to, you know, to to incent people to come in. And so I think that part of the equation is is happening pretty normally. And so the markets that are going to be more to have a higher concentration and have closer to the three month free number. And then in terms of consumer behavior, the, you know, when we think about what are, you know, what we looked at fourth quarter, you know, consumer behavior is, it's affected by this new supply for sure. But because of the nature of our portfolio, the people talk about in a minute, it's not a huge issue in supply isn't like changing consumer behavior.
On the strength of the economy in.
The consumer still has a fair amount of savings in that because you look at consumer spending.
Speaker 8: the consumer spending, you know, it was very robust in the last number that came out. And I think the PCE today came out pretty strong where people are actually, you know, spending more than wages are rising. And so the consumer continues to be, you know, pretty resilient and assuming that you have, you know, a reasonable, you know, construct for 2024, you should have a pickup in leasing and occupancy levels likely have had every year. You know, you know, you know, you know, you have a lot of work to do.
Very robust in the last number that came out in the I think the PCE today came out pretty strong where people are actually.
Speaker 12: you know, spending more than wages are rising. And so the consumer continues to be, you know, pretty resilient and assuming that you have a, you know, a reasonable, you know, construct for 2024, you should have a pickup in leasing and occupancy levels like we have had every year, before the pandemic.
Spending more than than wages.
Are rising and so the consumer continues to be pretty.
Pretty resilient in and assuming that you have.
Reasonable.
Construct for 2024, you should have a pickup in leasing and occupancy levels like we have had every year.
Before the pandemic.
Speaker 4: So, Austin, I would say that of the three things that we've highlighted,
So Austin a lot I would say that of the three things that we've highlighted and talked about supply or bad debts, and skips and evictions on supply. There is we're going to have challenge in 2024, that's similar to what we've had in 2023. The number of deliveries that are coming is going to be about the same in Kansas market.
Keith Oden: The thing that that that that surprised us and maybe we just maybe we were just too optimistic on this was that what post COVID consumer behavior would return to more normal behavior sooner rather than than it has. And let me describe what I mean by that. So I'm talking about when somebody moves into an apartment and they, they, they are paying the rent. Today, consumers know that if you're in Atlanta, for example, that you can stay in your apartment for seven or eight months before you, you actually have to leave.
Speaker 4: talked about supply, bad debts, and skips of evictions.
Speaker 4: On supply, we're going to have the challenge in 2024 that somewhere to what we've had in 2023. The number of deliveries that are coming is going to be about the same in Canada's market. But from our perspective, we have already lived in that environment now for almost a year or nine months or so. And it's in our run rate. I mean, if you just stratify our portfolio between impacted and non-impact.
But from our perspective, we have we have already lived in that environment now for almost a year nine months or so and it's in our run rate I mean, if you just if you stratify our portfolio between impacted or not impacted the differential is in the second and third quarter was somewhere around 300 basis points between those two.
Keith Oden: And so that consumer behavior, they know that and you can just go online and say, how do I live live in an apartment for free as long as I can and they'll give you what you need to do. And so that if you, if you'll get Atlanta, for example, our bad debts, they're like 3% and normally Atlanta would be incubation points. So that part of the consumer behavior is definitely, they understand the system and they haven't, we haven't been able to, you know, convince them that they ought to pay.
Speaker 4: The differential is in the second and third quarter, we're somewhere around 300 basis points between those two groupings of assets, impacted and not impacted. The ones that are impacted now are probably gonna continue to be impacted in 2024. So I think the good news is from the standpoint as an operator, that's in our run rate, probably gonna stay there at least in 2024. In terms of bad debts and...
Groupings of assets impacted or not impacted the ones that are impacted now I'll, probably going to continue to be impacted in 2024. So I think the good news is from a from the standpoint of them as an operator.
That's in our run rate is probably going to stay there at least for 2024.
In terms of bad debts, and skips and evictions I mean, we still have a very.
Speaker 4: I mean, we still have a very, you know, clear expectation that this is a process of kind of cleansing the COVID in the bad behavior that came as a result of all the regulatory construct during COVID, but there's no reason that to me that we would expect.
Clear expectation that this is a process of kind of cleansing the COVID-19.
Keith Oden: And if they don't pay, they should move. And so I think that will change because what's happening is every market is getting tighter in terms of the ability to move people out. The governments are, you know, backlogged and now they're starting to get, you know, better and over the next six or eight months, I think it will go back to a more normal situation from that perspective.
The bad behavior that came as a result of all the the regulatory construct around COVID-19, but theres no reason that the.
To me that we would expect our.
Speaker 4: bad debts to continue to be as elevated as they are right now or expect to be in the fourth quarter. I mean, if you just go back to the 27 or 28 years of this portfolio prior to COVID, our bad debt averaged 50 basis points a year forever.
Bad debts to continue to be.
As elevated as they are.
Now are expect to be in the fourth quarter. I mean, if you just go back to the 27 or 28 years. This portfolio prior to Covid, our bad debt averaged 50 basis points a year forever.
Keith Oden: He's wanting to address the issue on supply and our portfolio. Yeah, I think the question, the question Michael asked was this is the pool of impact, of the communities shifted. And the short answer to that is no, but I do want to give you a little bit more color and detail around how we look at the supply challenge and how we quantify it and then how we make sure that we properly anticipate that.
Speaker 4: And then all of a sudden in COVID it peaks at 200 and then we start making progress. We think that we're on a glide path to get to 90 basis points by the end of the year and lo and behold, we're not. But I still have every expectation that this is a process of unwinding a lot of bad behavior and a lot of bad actors. And I do think, we obviously thought a lot more of that would happen in 2023, but I think that's a continuing process that probably gets wrapped up in 2024. The same one gets an eviction.
And then all of a sudden and told that it peaks at 200, and then we start making progress we think that we're on the glide path to get to 90 basis points by the end of the year and Lo and Behold, we're not but I still have every expectation that that this is a process of unwinding a lot of bad behavior and a lot of bad actors and I do think we.
Keith Oden: So we stratify our portfolio because it's really important to do so in times of elevated supply into those markets that are likely to be impacted by newly subs and those that are not. And so that's that's filter one and the second filter is if it is in a sub market where we have existing assets, then is the price point actually going to be affected by the newly subs and our proxy for that is we use age is a proxy for that and we we make the cut at 15 years.
We thought a lot more of that would happen in 2023, but I think that's a continuing process it probably.
It gets wrapped up in 2020 for the same old skips and evictions.
Speaker 4: and the other things that we have to do is to get the skills and evictions or double the level that they were in our portfolio prior to prior to COVID. And again, we probably we probably going to have some . . . .
Skips and evictions or double the level that they were in our portfolio prior to.
Prior to Covid and again, we probably we probably going to have some.
Speaker 4: Bad behavior we've talked some renters some really bad habits over the last two and a half years Maybe it stays a little bit elevated from what it was, but I can't see it being double what it was pre-COVID You know end it to end throughout 2024 so I think that those two will work them work their way out in 2024 But the supply challenge is gonna be worse in 2024 But I think we've captured that already most of that in our run, right? Maui
Yes.
Bad behavior, we've talked some rent or some really bad habits over.
Keith Oden: It's not completely scientific, but it's been useful over the years to look at it that way. So when you stratify Camden's portfolio that way, about 16% of Camden's total cut apartment units are in markets that have a supply challenge. Now the interesting thing is that of all the things that we have to forecast at the beginning of the year, new supply impact from new supply is probably one of the most reliable because it's, you know, that the community is either under construction or not.
Over the last two and a half years.
Maybe it stays a little bit elevated from what it was but I can't see it being double what it was pre COVID-19.
Yes.
Throughout 2024, so I think that those two will work them work their way out in 2024, but the supply challenge is going to be 24, but I think we've captured that already most of that in our run rate.
Got it thanks for the thoughts and that's my one question.
Keith Oden: You may you may miss the delivery time by a quarter or two, but the supply wants to get started. It's going to be there and it's going to be something you're going to have to deal with. So if you take, if you think about it that way in the second quarter of this year, for that 16% of our communities that we believe are being impacted directly by supply. That the impacted communities had a lower new lease rate than the 84% non impacted communities by 260 basis points.
Speaker 2: Our next question comes from Eric Wolf, Luke City. Please go ahead.
Our next question comes from Eric Wold with Citi. Please go ahead.
Hey, thanks.
Speaker 13: I just wanted to follow up on that last answer. I guess I'm trying to understand what you think would sort of change from a sort of process perspective to sort of get the bad debt down, whether, you know, it's sort of external or internal.
I just wanted to follow up on that last answer I guess I'm trying to understand what you think would sort of change from a sort of a process perspective to sort of get the bad debt down whether it's sort of external or internal.
Speaker 13: Because it feels like we're pretty removed with COVID at this point. And to your point, it's cheaper. You can just kind of look up ways to get out of leases now. And it's sort of embedded in people's mentality.
It feels like we're pretty removed from Covid at this point and to your point. It's cheaper you can just kind of look up what needs to get out of leases now and it's sort of embedded in People's mentality. So is there anything like you think you can do on an internal perspective, maybe theres. Some warning signs for the recent skips and evictions like a common factor or something that you've found with them just trying to under.
Keith Oden: So it's it's important it's meaningful, but it's only 16% of our portfolio, but, but yes, supply matters and it matters more directly to those communities where it's happening. So if you roll that forward to the third quarter, I know there's still a lot of elevated anxiety about supply and what's coming and what the impact is going to be. And I think it's probably just a view that supplies a bigger part of the challenge in our progression of results from the second to the third quarter.
Speaker 13: So is there anything like you think you can do on an internal perspective? Maybe there's some warning signs for the recent skips and evictions like a common factor or something.
Speaker 13: that you found with them, just trying to understand what would what would bring that down from 150 basis points or 140 basis points that you're running at. And, and, you know, as you're thinking about guidance for next year, I mean,
Stand what would what would bring that down from the 150 basis point to 140 basis points that you are running that and now as youre thinking about guidance for next year I mean.
Speaker 13: I guess, how would you come up with an estimate for bad debt just given all this noise that you're seeing now?
I guess, how would you come up with an estimate for bad debt just given all of this noise that youre seeing now.
Keith Oden: You roll it, roll those numbers forward to the third quarter. Same 16% is impacted. So instead of 260 basis points differential between the impacted and non impacted community, that number moved to 310 basis points. So it's 50 basis points on 16% of our communities and and it's only new leases. So if you if you kind of roll that down, do the math and roll that to the bottom line, we think that the challenge of 2Q to 3Q that was directly attributable to increased supply was about 15 basis points.
Speaker 4: Yeah, I mean, it's go ahead, Keith. Yeah, so so no, there's no question. It'll be a challenge. We certainly faced that this year as well. And and we were
Yes.
Go ahead Keith.
So there is no question that it'll be a challenge, we certainly face that this year as well and we were more optimistic than it looks like we should have been on in terms of bad debt, but what we'll solve that as two things one.
Speaker 4: more optimistic it looks like than we should have been in terms of bad debts. But what will solve it is two things. One, making sure that that we do everything possible to to accelerate and to move forward the process of getting folks who are in our apartments paying they're not paying rent out. Now the good news is is that in in virtually every one of our markets and sub-markets
Making sure that we do everything possible to accelerate and to move forward. The process of getting folks who are in our apartment paint theyre not paying rent out now the good news is is that in virtually every one of our markets and submarkets.
Keith Oden: And if you compare that to what the the stats that Alex gave you on the on the delinquency or bad depth, you know, that that number alone is 50 basis points of impact in the quarter. So yet matters and it's something that we pay a lot of attention to because our operations team has to take that consideration when they're when they're making their price decisions. But it's I mean in our portfolio, yeah, it's in the run rate. We've been dealing with supply for almost nine months now. It's going to continue for at least through the end of of 2024 for sure. And that's just something we're going to have to deal with.
Speaker 4: The regulatory prohibition on being able to move forward to get someone out of your apartment from a judicial perspective that's not paying rent, those have all lapped.
Regulatory prohibition on being able to move forward to get someone out of your apartment from a judicial perspective.
Not paying rent those of all labs. So what we're left with is municipalities who are just theres a huge backlog. They are overwhelmed some cities have done a whole lot better job than others that kind of getting their act together and.
Unknown Executive: So.
Speaker 4: So what we're left with is municipalities who are just, there's a huge backlog, they're overwhelmed. Some cities have done a whole lot better job than others at kinda getting their act together and moving things through the process. But even the worst of the players have, for example, in Atlanta, in
<unk>.
And moving things through the process, but even the worst of the even the worst of the players have.
For example in Atlanta and.
Speaker 4: in Montgomery County up in the D.C. area. Even those have improved, they just haven't improved as much as most of the other cities. So part of it is just we gotta get the bad actors out and there's a pathway for that. It's just, it's still taking longer than it did historically, and in some places it's.
In Montgomery County in the D. C area, even those have improved they just havent improved as much as most of the other cities. So part of it is just we got to get the bad actors out and there is a there is a pathway for that it's just it's still taking longer than it did historically and in some places it will take.
Bradley Heffern: Thank you very much for this thorough answer, good luck in the fourth quarter Next question comes from Brad Heffern with RBC Capital Markets, please go ahead Okay, thanks everybody.
Richard Campo: Do you think Camden being negatively impacted in the time of high supply because you have the policy of not offering concessions? And is there any chance that you might change that policy at least on a near-term basis? Yeah, we're not, we do offer concessions on our new lease-ups because that's traditional and is kind of expected by the consumer, but we find that our consumers are much, you know, just be transparent, telling what the rent is, and that's the way the algorithm and yield-star work.
Speaker 4: Way too long for that to happen and we're doing everything possible But it's like pushing on a string when you're trying to get municipalities to you know to focus on something like this so
<unk>.
Wait too long for that to happen and we're doing everything possible, but it's like pushing on a string when youre trying to get municipalities to to focus on something like this so yeah, I think that I think that that will work itself out and I think ultimately.
Speaker 4: Yeah, I think that I think that that will work itself out. And I think ultimately the, you know, the skips and evictions.
The.
The skips and evictions.
Speaker 4: We have done some things internally. We have the highest incidence of people who are fraudsters and bad actors. We've instituted things like...
<unk> done some things internally.
And we have where we have the highest incidence of kind of people who are fraudsters and bad actors. We then we've instituted things like.
Speaker 4: you know income verification which we you know back in the old days in the dark ages we did on every lease and then we've uh... you know we went to a a purely online system in the interest of making it frictionless for our customers well it you know we're gonna have to probably go back and some more of these uh... sub-markets and municipalities and introduce some more friction uh... that that will be a burden to the good actors but will also deter and catch the bad actors
Richard Campo: So, I can't see us, we have no intention of going back to quoting, you know, a month-free rent and then pro-rating that month over the balanced lease term. It's, to me, it's confusing to consumers and it's also, it just makes it, it puts a little bit more pressure on managing the, you know, the bad actor, move in, pay your rent, expectation that we've had forever in this business. So, I will continue to do it on our new development lease-ups because that's, that's just part of what we bake into the, the cake when we think about our performance, but not on, not on established communities.
Income verification, which we you know back in the old days in the Dark ages, we did on our release and then we.
We went to a purely online system in the interest of making it frictionless for our customers well.
Unknown Executive: Okay, got it.
We're going to have to probably go back in some more of these submarkets.
Submarkets in municipalities and introduce some more friction.
That will be a burden to the good actors, but will also determine catch the bad actors we've done that in Atlanta, we were testing it in a bunch of other submarkets, but obviously there is a there's a balancing act between putting impediments to do business with good people.
Speaker 4: We've done that in Atlanta. We were testing it in a bunch of other submarkets, but obviously there's a balancing act between putting impediments to do business with good people, which income verification and these other things are versus letting bad actors get into your community and then having to go through a five to six months process to get them to move on. So yeah, it's, you know,
Income verification and these other things are versus letting bad actors.
Richard Campo: And then thinking about 2024, not asking for guidance or anything like that, but I'm curious how you guys are thinking about market rent growth at this point. Do you think there's a chance that we won't see it next year based on what we've seen recently or how have your thoughts on that evolved? Well, when you look at, we use Ron Witten and Witten Advisors information a lot and it's interesting because, because, you know, development falls off pretty dramatically where these starts through in 2024 and you start absorbing that, that real estate.
Get into your community and then having to go through a <unk>.
Five to six months process to get them to move on so yes. It is.
Speaker 4: Complex calculus, but our folks are really good at doing a you know doing forecasting I think one of the things that Rick said in his
Complex calculus, but our folks are really good at doing.
Doing forecasting I think one of the things that Rick said and as that.
Speaker 4: that I personally think is quite remarkable, is that when we started the year, based on our top teams, original guidance that we shared with the street, we said that we thought total revenues.
I personally think is quite remarkable is that when we started the year based on our ops teams original <unk> original guidance that we shared with the street. We said that we thought total revenues would be up five 1% for the entire year. So that was our original guidance.
Richard Campo: You know, you have countervailing factors like home ownership rate going down, in terms of people moving out to buy homes at down at 10% and, and the prospect for people buying homes next year looks pretty, pretty dismal relative to the current environment. And so you have, you do have cross currents that where you don't need as much job growth for demand, that to create demand for apartments because you have fewer people moving out of my homes.
Speaker 4: would be up 5.1% for the entire year. Okay, that was our original guidance. Then we increased the guidance in the first quarter because it looked like things were getting a little better and then again in the second quarter. But when it's all said and done, if we make our fourth quarter numbers, which we fully expect to do, our Ops team will have delivered 5% same store NOI revenue growth. That's 10 basis.
Then we increase the guidance in the first quarter because it looked like things were getting a little better and then again in the second quarter, but when it's all said and done if we make our fourth quarter numbers, which we fully expect to do.
Our ops team will have delivered 5% same store NOI revenue growth at 10 basis points off of our original guidance on a $1 $6 billion number and given all the cross currents.
Speaker 4: off of our original guidance on a $1.6 billion number. And given all the cross-currents and, you know,
Richard Campo: You have more people that are, I've quoted a number of, you know, the percentage of people of adults that live alone in the US. And when you get close to a third of the people that are living alone, they don't go out and buy houses, they run apartments. And so that older demographic becomes a higher propensity to rent apartments and that stabilizes the system as well. So, you know, Ron thinks that you're going to have occupancy levels that stay kind of where they are now and then you're going to have, you know, some modest rent growth in markets.
Speaker 4: forecasting and assumption making and then execution that goes with that I think that's pretty remarkable.
And you know forecasting an assumption, making and then execution that goes with that I I think that's pretty remarkable.
Speaker 13: Yep, not, it makes sense. And they agree. I guess what's concerning people sort of this shift maybe in tone and trying to understand what's driving it, at this moment, right? Because it's like things are pretty good up until maybe August or September and then there's some kind of shift that happened and people trying to figure out whether it's supply or shift in the consumer. And so just trying to understand how that's going to impact.
Yeah, no that makes sense and then I agree I guess, what's concerning but sort of.
The shifts maybe in tone and trying to understand what's driving it at this millimeter I think it did seem like things are pretty good up until maybe August through September and then theres, some kind of shifts that happened and people trying to figure out whether it's supply or or shifting the consumer you know and so I was just trying to understand how that's going to impact.
Richard Campo: And so I think are the rent, you know, we had a 5% record in 2023 or we're going to have, you know, the same in 2024 and answers probably no. But is it a sort of a slower year, yes, but is I think that there's, you know, there's definitely a construct in a model that that would argue that you should have reasonable occupancy in summer and growth in 2020.
Speaker 13: 2024. But I mean, I guess along those lines, you know, you got 16% of your properties that are directly impacted by supply. I was just curious, you know, how that number will sort of look throughout next year, goes up, goes down. And then if you sort of have a view on when the impact of supply will peak next year.
2024, but then I guess along those lines.
Unknown Executive: Okay, thank you.
You got to 16% of your properties that are directly impacted by supply.
Curious how that number.
Sort of look throughout next year. It goes up goes down and then if you sort of have a view on when the impact of supply will peak next year.
Speaker 4: Yeah, so my guess is that that numbers will move some. It may tick up a little bit next year, but I would be very surprised if it went above 18% or so of impact.
Yeah. So my guess is is that that number will move some it may tick up a little bit next year, but I would be very surprised if it if it went above 18% or so of impacted communities because honestly, where the stuff is under construction right now it's just a matter of.
Haendel Juste: Okay, next question comes from Handel St. Juste, Liz Muziuho, please get ahead. Hey guys, good morning. I was hoping to talk a bit more about the decision to let off you, the trend down in October. I would have expected I can see you pick back up a bit here, certainly getting into seasonally slower demand, higher supply. And it sounds like you expect that not to continue into year end, maybe even mid next year.
Speaker 8: Because honestly, where the stuff is under construction right now, it's just a matter of.
Speaker 4: Merchant builders tend to be herd animals and they build in the same places and so a lot of the product that's that's going to be coming in 24 is in the same sub market as 2023. So, I think it might, it might pick up a little bit, but I think that the, you know, again, based on the analysis that we've done internally, and it's pretty, pretty detailed at the property level, you know, we think that that.
Merchant builders tend to be herd animals, and they build in the same places and so a lot of the product that's going to be coming in 'twenty. Four is in the same submarkets as 2023, So I think it might tick up a little bit, but I think that the.
Haendel Juste: So I'm curious if in hindsight, that might have been a tactical mistake. And perhaps we're occupancy in the portfolio is falling the most. And when we might be able to get back to 95 percent. Thank you. Well, remember, occupancy and rent are correlated, right? I mean, we could be at 95 97 percent occupancy if we wanted to go out and buy, you know, buy, buy, buy occupancy by, you know, okay, lowering rent dramatically.
Again based on the analysis that we've done internally and it's pretty pretty detailed at the property level.
We think that that.
Speaker 4: we're probably, it's probably most of it is in our run rate for a year similar in 2024 to what we had this year.
Probably it's probably most of it is in our run rate for a year similar in 2024 to what we had this year.
Okay. Thank you I appreciate it.
Okay.
Haendel Juste: And so we just think it's a better fit, you know, our revenue team, we debate, you know, where, where we are to have our settings on an ongoing basis. And we feel really comfortable with where we are, you know, I would rather have higher rent and higher occupancy. But in this environment with seasonality and with, you know, with the consumer doing what they're doing, we feel comfortable with where we are. And we think we're going to set up for, you know, a reasonable start to 2024.
Speaker 2: Our next question comes from Joshua Dennerlein with Bank of America. Please go ahead.
Next question comes from Joshua <unk> with Bank of America. Please go ahead.
Speaker 14: Yeah, hey guys, I just wanted to explore a common I thought I heard from you earlier about just like
Yeah, Hey, guys.
Just wanted to explore a comment I thought I heard from me earlier about just like I think it was like supply you will have to deal with through the end of 2024.
Speaker 14: like supply you'll have to deal with through the end of 2024. Was that implying that maybe the softness we're seeing in the new East Ray growth will continue through the end of 2024 or is it just like a general comment on supply? Just trying to think through like kind of what we could be in store.
Is that implying that maybe the softness we're seeing in the new lease rate growth will continue through the end of 'twenty 'twenty four or is it just like a general comment on supply just trying to think through like kind of what we could be in store for.
Haendel Juste: So, so handout, just to follow up on that, you know, the idea that, you know, that we let occupancy go to 94.9 is kind of kind of implies that that was a conscious decision. And clearly that wasn't because our occupancy guidance for the back half of the year was at 95.6 percent going into, going into October. So, but I think you want to kind of connect the dots a little bit. What Alex talked about on our, our delinquency, but also our continued elevated level of steps and lease breaks.
Speaker 8: Yeah, it's a general comment on supply, but to Keith's point on the 16% of our portfolio that is impacted by supply, I mean, through those numbers out there about the differential between, you know, the differential between those 16% and the balance of the portfolio.
Yes, it's a general comment on supply, but to Keith's point on the 16% of our portfolio that is impacted by supplying through those numbers out there about the differential between the.
The differential between the 16% in the balance of the portfolio and so.
Speaker 12: You know, we're going to have more supply, you know, through 2024, but again, it's limited to that piece of the portfolio now, and there's the discussion earlier about, well, what is it? Is it all?
We're going to have more supply through the through 2024.
But but again it's it's.
It's limited to that piece of the portfolio now and Theres the discussion earlier about well what does it all.
Speaker 12: the sort of softness in the fourth quarter.
Is the the sort of softness in the fourth quarter.
Haendel Juste: You know, we had, we had planned at the beginning of the year that, you know, we felt, we really felt like that, that 2023 would do go a long way towards getting back to normal metrics around delinquency and steps and lease breaks. And it would kind of happen radically over the course of the year. And we did make good progress in the first two quarters. And there was certainly an expectation and we talked about the expectation of getting to, you know, 90 basis points of delinquency by the end of 2023.
Speaker 12: Is it all supply? Is it all consumer behavior? Is it all, you know, and what's happening is it's a combination of everything, right?
Is it is it all supply as it all consumer behavior is at all.
What's happening is it's a combination of everything right suppliers on the one hand is an issue for a part of the portfolio consumer behavior is probably the biggest part of the equation because when.
Speaker 12: The fly is on the one hand, is an issue for part of the portfolio. Consumer behavior is probably the biggest part of the equation because...
Speaker 12: when you have more move outs than you thought you'd have because people are skipping or breaking their leases, then you have to backfill those folks.
When you have more move outs than you thought you would have because people are skipping or breaking their leases and you have to backfill those those folks and when you back filament. If you're if you didnt have that you didn't have to backfill them and then when you have the bad debt side of equation, it's sort of a sort of a circular equation. So it's really three different things that are <unk>.
Speaker 12: And when you backfill them, and if you're if you didn't have that, you didn't have to backfill them. And then when you have the bad debt side of the equation, it's sort of a
Haendel Juste: Well, guess what, you know, we were all a glide path to get there. And then all of a sudden, instead of, instead of dropping again in the, at the end of the third quarter, it's that metric reversed and all of a sudden you're at 140 basis points instead of a glide path to get to 90. So that was, I mean, that was completely unexpected. But in the way that flows through in our portfolio is skips and lease breaks are, you know, in the same category of short term lease terminations.
<unk> and supply will be.
Headwind for that part of the portfolio in 2024, and hopefully we won't have as much of a headwind from skips and brakes, and and and bad debts. Because we're implementing things that that are trying to keep the bad actors out and and the municipalities are all getting better and there.
Speaker 12: and bad debts because we're implementing things that are trying to keep the bad actors out and the municipalities are all getting better. As Keith mentioned, there are just not as many barriers to getting people out. There is a backlog, but that backlog is starting to improve. And if you look just at a few markets, like for example, every market in the country except three are 1% 1.5, 1.8, kind of bad debts. And the three that are having trouble are California and Atlanta. In California, bad debts are still 4.3. And now the moratoriums are out, or have been taken off, but the courts are backlogged. And so those backlogs will fix. And what will happen is
There are as Keith mentioned, they're just not as many barriers to getting people out there is a backlog, but that backlog is starting to to improve and if you look just a.
Haendel Juste: And they're, they're really a they're hard to anticipate you have no idea who's going to skip or win or when they're going to move out. Obviously, if they're facing, you know, the termination of their lease, then, then by judicial means, then yeah, they probably eventually move out before that date. But there's no way to anticipate it. And the challenge is is when somebody moves out in the middle of the night, which these, you know, skips and lease breaks typically do.
A few markets like for example, every market in the country, except free or 1% 1518 kind of bad debt and the three that are having trouble or California and in Atlanta in California, Our bad debts are still four three.
Haendel Juste: Hey, you don't have a chance to do anything to pre-least the apartment and be that people who move out in the middle of the night typically don't take real good care of the asset. So not only do you not get noticed, it takes you longer to turn a unit because it's been probably maybe a little bit more harshly used. And so the days to turn an apartment that is in that category of short term lease break are just elongated.
Speaker 15: and Atlanta.
Speaker 12: California or a bad death is still 4.3 and now the moratoriums are out or have been taken off, but the courts are backlogged.
Now the moratoriums are out.
<unk> been taken off but the.
The courts are backlog and what.
Speaker 12: And so those backlogs will fix and what will happen is is that what's happening now with certain folks.
Those backlogs will fix and what will happen is is that what's happening now with certain folks is that they understand that they can stay longer and they do and then when they get close to the edge when they know that there is no other sort of administrative wave.
Speaker 12: is that they understand that they can stay longer, and they do, and then when they get close to the edge, when they know that there's no other sort of administrative way for them to stay in, then they skip in the middle of the night. I think 85% of our skips and lease breaks are people who owe us money, which on the one hand is a really good thing, because we're getting them out of the property because they haven't been paying. On the other hand, it creates more vacancy, and it creates more bad debt, so you have to, you look at that part of the equation and say, all right.
Way for them to stay in then they skip in the middle of the night I think 85% of our of our skip some lease breaks are people, though as money, which on the one hand, it's really good thing because we're getting them how does the property and because they have been paying on the other hand, it creates more vacancy and it creates more bad debt. So so you have to look at that part of the equation.
Haendel Juste: And we thought we would be getting shorter in fewer of those and we didn't, we got more. And so that's that's the biggest reason why, you know, that the compounded our challenge of seasonality certainly wasn't anything we thought. But, you know, it wouldn't be great to get into the 94s on occupancy, but it just happens as a result of those facts. Yeah, it's got to certainly understand the complexity involved and appreciate the thinking of the thought process here.
Alright.
Speaker 12: Because of seasonality, we needed to fill more apartments at a slower time, and that's the circular effect of those things. So I think that next year, even with new supply, we'll still have that as a headwind in some of our properties, but we should be getting more clarity on getting our real estate back faster and having bad debts.
Because of seasonality, we needed to fill more apartments at a slower time and that's that's the circular effect of of that of those things. So I think that next year, even with new supply will still have that as a headwind in some of our properties, but we should be getting more clarity on getting our real estate back faster and having bad.
Haendel Juste: Maybe can you give us an update on where the portfolio lost Lisa's overall today and where it's highest and lowest, and I think last quarter you mentioned the earn in for four years 24 hours around 1.8% if you were to hit your your budget for us to be obviously the numbers come in a bit, so perhaps you can give us an update on where you feel that that earning for next year is thanks. Yeah, absolutely.
Let's go down.
Speaker 14: OK, appreciate that color and then I don't think we touched on it yet, but just any plans for the floating rate dead exposure. If you guys are just going to keep it as is, or there's.
Okay I appreciate that color and then I don't think we've touched on it yet, but just any plans for the floating rate debt exposure.
Haendel Juste: So lost release for us is just under 1% and we're actually showing our embedded growth. It's assuming we make our reforecast for the fourth quarter, our embedded growth should be right around 0.9% for 2024. Yeah, so on the challenge, which where do you have the most challenge on maintaining occupancy, it's in the markets where we knew that we were going to have a challenge in the fourth quarter with our supply impacted markets.
Guys are just going to keep it as is or theirs.
Something you guys wanted to do at this point with it.
Speaker 8: So when you think about floating rate debt, and if you think over a long period of time, floating rate debt has always been cheaper than long-term debt.
So when you think about floating rate debt.
And if you think over a long period of time 40, red floating rate debt has always been cheaper in the long term debt today, we're in a very unusual situation, where they where the flat yield curve and so even though it's keeping them a little bit because of long term rates going up.
Speaker 8: Today we're in a very unusual situation where they were the flat yield curve. And so even though it's steepening a little bit because of long-term rates going up.
Speaker 12: But at the end of the day, the bottom line in our portfolio is we have very low debt. So when you look at it as a percentage of total debt, it looks high. But because we have low debt, it's very manageable.
But at the end of the day the bottom line. There our portfolio is we have very very low debt. So when you look at it look at it as a percentage of total debt it looks high but because we have low debt.
Haendel Juste: So it's Atlanta, it's Austin, it's Charlotte. But those would be the big three in terms of kind of a compounding of both supply that we that we did anticipate and then kind of continue to elevate at least breaks, which we did not anticipate. Great. Thank you so much. Sure.
It's very manageable and so it's already in our run rate with our line of credit costs in our term loan at this point and so it doesn't make a lot of sense to me to to worry too much about what floating rate debt is going to be over the next couple of years because.
Speaker 12: And so it's already in our run rate, you know, with our line of credit costs and our term loan at this point. And so it doesn't make a lot of sense to me to worry too much about what floating rate debt is going to be over the next couple of years because
Speaker 12: You know, I think, ultimately, the yield curve will steepen, and either short rates will come down. And I just don't think we need to be betting on long-term bonds right now, given the volatility in the bond market. So, you know, we're comfortable with the level we have today. And I look at it as sort of gas in the tank, to a certain extent, because when rates start dropping, you know, that'll flow through to our FFO, because we'll start having, you know, lower interest costs.
Ultimately the yield curve will steepen and either short rates will come down.
I, just don't think we need to be betting on on long term bonds right now given the volatility in the bond market. So we're comfortable with with with the level, we have today and I look at it as sort of gas in the tank to a certain extent because when rates start dropping.
Austin Wurschmidt: Next question comes from Austin, where should we keep paying capital markets? Go ahead. Yeah, good morning. Thank you. You guys referenced that a couple of times and only 16% of the communities are being impacted by new supply, but clearly. New lease rate growth has dropped dramatically occupancy is falling as well. I guess is it your belief that 4Q is as bad as lease lease rate growth, you know, and occupancy could get in that we actually see both, you know, rate growth and occupancy reaccelerate into 2024, just given some of the items you highlighted around the impact from seasonality, skips and a VIX, et cetera.
That'll that'll flow through to our <unk>, because we will we will start having lower interest costs. The worst thing in the world would be to fix long term rates today at these current rates and then see the whole yield curve moved down over the next couple of years.
Speaker 16: The worst thing in the world would be to fix long-term rates today, these current rates, and then see the whole yield curve move down over the next couple of years. Okay. Thanks, Rick. Appreciate it.
Yes.
Okay. Thanks, Greg I appreciate it.
Our next question comes from Steve <unk>.
<unk> <unk> with Evercore ISI. Please go ahead.
Austin Wurschmidt: And I guess what would what would change that view? I think the the issue will be what happens in 2029 with the economy overall, right? I mean, if we have continued to have robust job growth like we like we've had so far. And we know we have seen seasonality this year more than we've had, you know, since the since the pandemic, then you would expect to have a similar pattern similar seasonal pattern in the first quarter of 2024, which is.
Speaker 11: Yeah, thanks. Just one question. I know capital deployment's probably not really high on the list right now. I think we've got the stock probably trading north of a seven and a half percent implied cap rate. So I guess my question is, how are you thinking maybe about share repurchases and marrying that up if there is a disposition market? I know there's a lot of institutional capital looking for high quality apartments. So sort of any thoughts on shrinking the company a bit and buying back stock?
Yeah. Thanks, just one question.
I know, it's capital deployment, it's probably not really high on the list right now I think we've got the stock probably trading north of a seven 5% implied cap rate. So I guess my question is how are you thinking maybe about share repurchases and marrying that up if there is a disposition market I know, there's a lot of institutional capital looking for high quality apart.
And so sort of any thoughts on shrinking the company a bid and buy back stock.
Austin Wurschmidt: You know, very typical where you have the slowdown start in September October, you know, you bought them in January, and then you start moving up in February, March, April. And I think that is very plausible and it really just depends on on, you know, the front of the economy and the consumer, you know, still has a fair amount of savings in the, you know, you look at consumer spending. You know, it was very robust in the last number that came out in the, I think the PCE today came out pretty strong with where people are actually, you know, spending more than wages are rising.
Speaker 12: Well, we've been really consistent and have we described our stock buyback sort of appetite in the past. And that has been that, you know, it had to have at least a 20, 25% discount to what we thought NAD was. And I needed to be persistent. And we needed to sell assets to fund it.
Well, we've been really consistent in how we've described are our stock buyback sort of appetite in the past and that has been that it had to have at least 2025% discount to where we thought NAV was and I needed to be persistent and we needed to sell assets to two.
Speaker 12: And maybe this is the time where we have persistency. We've had times in the past where we had the opportunity, but we didn't have the timing to be able to sell assets and buy. We have sold one asset this year, small one for $61 million.
<unk> funded and maybe this is a time, where we have persistency. We've had a we've had times in the past, where we had the opportunity, but we didn't have the timing to be able to sell assets and buy.
Austin Wurschmidt: And so the consumer continues to be, you know, pretty resilient and assuming that you have a, you know, a reasonable, you know, construct for 2024. Or you should have a pickup and in leasing and, and, and occupancy levels like we have had every year, you know, before the pandemic. So Austin, I would say that of the three things that we've highlighted and talked about supply, bad debts and skips of evictions, on supply, we're going to have the challenge in 2024 that's similar to what we've had in 2023, the number of deliveries that are coming is going to be about the same in Canada's market.
We have sold one asset this year, a small one for $61 million.
Speaker 12: And, you know, when you think about capital deployment today, pretty hard to get a, you know, when you look at an implied cap rate of 7.5, and if you look at a long-term, you know, model of what apartments...
When you think about capital deployment today.
Pretty hard to get a when you look at an implied cap rate of seven and a half and if you look at a long term.
Model of <unk>.
What apartments will do once we get through this uncertainty of.
Speaker 12: will do once we get through this uncertainty of, and the supply cliff that everybody's worried about. You should see reasonable returns for multifamily companies come back again. So it makes sense for us to do that. We do have, there is a disposition market. Yes, dispositions or the acquisition market is slow. It's down 60, 70% from the prior year. But I think it's really interesting when you think about that, it's down 60 to 70%, which.
The supply Clift and everybody's worried about you should see.
<unk>.
Returns for multifamily companies come back again so.
It makes sense for us to do that we do have.
There is a disposition market, yes dispositions or the acquisition market is slow it's down 60% to 70%.
Austin Wurschmidt: But from our perspective, we have already lived in that environment now for almost a year or nine months or so. And it's in our run rate. I mean, if you just, if you stratify our portfolio between impacted and not impacted, the differential is in the second, third quarter, was somewhere around 300 basis points between those two groupings of assets impacted and not impacted. The ones that are impacted now probably going to continue to be impacted in 2024.
The prior year.
But I think it's really interesting when you think about that 60% to 70% of which the flipside of that means that.
Speaker 8: flip side of that means that, you know, there's deals getting done. And so, you know, for us, you know, we were aggressive buyers of the stock when the stock was down substantially for a long period of time. And if we have the opportunity to do it, we probably will.
There's deals getting done and so.
For us.
We were aggressive buyers of the stock when the.
When the stock was was down substantially for a long period of time and if if we have the opportunity to do it we probably will.
Austin Wurschmidt: So I think the good news is from a from the standpoint of as an operator that that's in our run rate, probably going to stay there at least 24 in terms of bad debts and skips and evictions. I mean, we still have a very clear expectation that this is a process of kind of cleansing the COVID in the bad behavior that came as a result of all the regulatory constructions. There's no reason that to me that we would expect a bad debts to continue to be as elevated as they are right now or expect to be in the fourth quarter.
Yeah.
Great. Thanks, that's it for me.
Mhm.
Speaker 2: next question comes from John Kim with the M.O. Capital Markets. Step ahead.
Your next question comes from John Kim with BMO capital markets go ahead.
Speaker 17: Thank you. I just wanted to clarify two items, imagine that was called in my one question. Alex, I think you mentioned that you're expecting newly-scrothed rates at minus score and 1 1 1% but renewals at positive four. I'm just wondering how sustainable that is, especially when you have lost a lease at around 1%.
Thank you I just wanted to clarify two items mentioned on this call and my one question.
Alex I think you mentioned that youre expecting new lease growth rates at minus four 5%, but renewals at positive four and I'm just wondering how sustainable that is especially when you have lots of lease at around 1%.
Speaker 17: And then for Rick and Keith, in your response to Handel's question on occupancy, I just wanted to clarify that you're okay operating at or below 95% of the time being. There's no immediate focus to get it above.
And then for Rick and Keith in your response to handle the question on occupancy I just wanted to clarify that you're okay operating.
Austin Wurschmidt: I mean, if you go back to on the 27 or 28 years of this portfolio prior to COVID, our bad debt average 50 basis points a year forever. And then all of a sudden in COVID, it peaks at 200 and then we start making progress. We think that we're on a glide path to get to 90 basis points by the end of the year and lo and behold, we're not. But I still have a very expectation that this is a process of unwinding a lot of bad behavior and a lot of bad actors.
At or below 95% for the time being there is no.
Immediate focus to get at about 95.
Speaker 4: So on the, you go ahead. Yeah, I'll do, I'll take the occupancy first and then give it back to Alex. Yeah, and so in light of the fact that we, our guidance for the fourth quarter included occupancy, our prior guidance before we just issued revised guidance.
Sure.
You go ahead I'll do I'll take the occupancy first and then give it back to Alex the yeah. So.
In light of the fact that we are.
Our guidance for the fourth quarter included.
Occupancy of our pre.
Austin Wurschmidt: And I do think we obviously thought a lot more of that would happen in 2023, but I think that's a continuing process that probably gets wrapped up in 2024. The same one gets an eviction. Skips and evictions are double the level that they were in our portfolio prior to prior to COVID. And again, we probably, we probably going to have some bad behavior. We've talked some renters, some really bad habits over the last two and a half years.
Our guidance before we just issued revised guidance.
Speaker 4: had an occupancy rate being flat at about 95.6, 95.7. That was our expectation. We're at 94.9 as we closed out October . So, no, we're not good with operating at 94.9. The target that we set was 95.6, and we'd like to get back to that as quickly as possible, but we're not, you know, so we're not going to, you know,
On the occupancy rate being flat at about 95, 695, seven and that was our expectation were at 94 nine as we closed out October so.
No were not good with operating at 94 nine.
Target that we set was 95, six and we'd like to get back to that as quickly as possible, but we're not so.
So we're not going to.
Speaker 4: makes silly decisions on our either new leases or our renewal rights in order to achieve that. It just doesn't make sense. But yeah, within the limits of the levers that we can pull and still get back to 95, that would be our preference.
Make silly decisions on are either new leases.
Or our renewal rates in order to achieve that it just doesn't make sense, but yeah within the within the limits of the levers that we can pool and still get back to 90 mid 90 fives.
Austin Wurschmidt: Maybe it stays a little bit elevated from what it was, but I can't see it being double what it was pre-COVID, you know, you know, into throughout 2024. So I think that those two will work their way out in 2024, but the supply challenge is going to be worse in 2024. But I think we've captured that already. Most of that in our run, right? Got it. Thanks for the thoughts and that's my one question.
Our preference.
Speaker 8: And then to your question on whether or not we think that the new leases and renewals that we have in our guidance for the fourth quarter is sustainable, obviously, we're sitting here today almost to November and keep in mind that if you're doing a renewal, you're typically signing that renewal a month to two months ahead of time and, and new leases are typically call it.
And then to your question on whether or not we think that the new leases and renewals that we have in our guidance for the fourth quarter is sustainable.
Obviously, we're sitting here today, almost can November and keep in mind that if youre doing a renewal you're typically shining that renewal a month to two months ahead of time and new leases are typically call. It.
Austin Wurschmidt: Our next question comes from Eric Wolfe with city. Please go ahead. Hey, thanks. I just wanted to follow up on that last answer. I guess I'm trying to understand what you think would sort of change from a sort of process perspective to sort of get the bad debt down. Whether, you know, it's sort of external or internal, because it feels like we're pretty removed with COVID at this point. And to your point, it's two, three.
Speaker 4: 15 to 20 days ahead of time. I think we feel very confident about these rates for the quarter.
15 to 20 days ahead of time, I think we feel very confident about.
These rates for the for the quarter.
Speaker 17: My question is more on the spread between the renewal and the newly 650 basis points.
My question is more on the spread between the renewal of nearly 850 basis points.
Speaker 5: Yeah, you know, 850 basis points is historically a little wide, but it's not completely out of the realm of where we have operated at points in time. So we think we can, think we can maintain that.
850 basis points is historically, a little wide, but it's not completely out of the realm of where we have operated and at points in time. So we think we can think we can maintain that.
Austin Wurschmidt: You can just kind of look up ways to get out of weeks is now and it's sort of embedded in people's mentality. So is there anything like you think you can do on an internal perspective? Maybe there's some warning signs for the recent skits and evictions, like a common factor or something that you found with them. Just trying to understand what would bring that down from the 150 basis points or 140 basis points that you're running at.
Okay. Thank you.
Speaker 18: Our next question comes from Rich Anderson with Wedbush. Please go ahead. Hey, thanks. Good morning. So I wonder if all of this noise in the system
Our next question comes from Rich Anderson with Wedbush. Please go ahead.
Hey, Thanks, good morning.
So I wonder if all of this noise in the system.
Austin Wurschmidt: And now as you're thinking about guidance for next year, I mean, I guess how would you come up with an estimate for bad debt just given all this noise that you're seeing now? Yeah, I mean, go ahead, Keith. Yeah, so there's no question that it'll be a challenge. We certainly face that this year as well, and we were more optimistic that it looks like than we should have been in terms of that desk.
Speaker 18: could create an opportunity for you. I imagine you guys are managed.
Could create an opportunity for you I imagine you guys are managing the skipping Vic process, a lot better than your neighboring peers.
Speaker 18: skipping the VIC process a lot better than your neighboring peers and your managing supply better. Rick, you said something about maybe consumer behavior settled down within the next six months.
And you're managing supply better Rick you said something about well, maybe consumer behavior settles down within the next six months not that there's distress, but youre, obviously, a premier operator in your markets, particularly relative to your private competition.
Speaker 18: Not that there's distress, but you're obviously a premier operator in your markets, particularly relative to your private competition. Do you think that there could be an opportunity to step in where people are perhaps a little bit less prepared or ill-prepared to handle these stresses? And that despite what Steve said about you're probably not going to buy anything, maybe you start buying stuff in a little bit more aggressive fashion as we get into the latter part of next
Austin Wurschmidt: But what we'll solve it is two things. One, making sure that we do everything possible to accelerate and to move forward the process of getting folks who are in our apartment's paint, they're not paying rent out. Now, the good news is that in virtually every one of our markets and submarkets, the regulatory prohibition on being able to move forward to get someone out of your apartment from a judicial perspective that's not paying rent, those have all laughed.
Do you think that there could be an opportunity to step in where people are perhaps a little bit less preparer, who will prepare to handle these stresses and that despite what Steve said about you're probably not going to buy anything maybe you start buying stuff.
And a little bit more aggressive fashion as we get into the latter part of next year.
Speaker 8: Well, it's an interesting question, Rich, for sure. Welcome back, by the way. And you know, bottom line.
Well, it's an interesting question rich for sure welcome back by the way.
Bottom line is.
Speaker 12: Capital allocation is an interesting thing, and we look at what the most opportune, we try to figure out what the most opportune investment.
Capital allocation is an interesting thing and we look at at what the most opportunity we try to figure out what the most opportune.
Austin Wurschmidt: So what we're left with is municipalities who are just, there's a huge backlog, they're overwhelmed. Some cities have done a whole lot better job than others that kind of getting their act together and moving things through the process. But even the worst of the players have, for example, in Atlanta and Montgomery County, in the DC area, even those have improved, they just haven't improved as much as most of the other cities.
Investment.
Speaker 8: you know, strategy is and we'll try to execute that. You know, right now there really is, even with the transactions that are going on today.
<unk> is and we'll try to execute that.
Right now there really is even with the transactions that are going on today.
Speaker 12: Deals are still trading at 5.5 or 5.25, and so there isn't a lot of distress in the marketplace today. And so I think you have had a sort of a narrowing of the gap between the bid and the ask.
Their deals are still trading at five and a half an hour five in a quarter and so there isn't a lot of distress in the marketplace today and so I think you have had a sort of a narrowing of the gap between the bid and the ask and it's definitely been coming from primarily the the sellers are not the buyers.
Austin Wurschmidt: So part of it is just we got to get the bad actors out and there's a pathway for that. It's just, it's still taking longer than it did historically and in some places it's still taking way too long for that to happen. And we're doing everything possible, but it's like pushing on a string when you're trying to get municipalities to, you know, to focus on something like this. So yeah, I think that, I think that that will work itself out.
Speaker 12: And it's definitely been coming from primarily the sellers and not the buyers.
Speaker 12: But there is a big wall of capital that continues to be out there waiting for that, some more clarity on what is the long-term tenure going to look like, is the Fed done, how is supply impacting, all these uncertainties that we have in the market today, and that wall of capital is just sitting there waiting.
But there is a big wall of capital that continues to be out there waiting for that.
Some more clarity on what what is the long term tenure going to look like as the fed done how supply impacting you know all these uncertainties we have in the market today and that wall of capital just sitting there waiting then and so the question will be will there be distress and.
Speaker 8: so the question will be, will there be distress? And you know, that's hard to say. I mean, the deals that are blowing up today, and there are plenty of deals blowing up today, are really...
Austin Wurschmidt: And I think ultimately the, you know, the steps and evictions we have done some things internally, we're, and we have, we have the highest incidence of kind of people who are fraudsters and bad actors. We've instituted things like, you know, income verification, which we, you know, back in the old days and the dark ages, we did on every lease. And then we've, we've, you know, we went to a purely online system in the interest of making it frictionless for our customers.
It's hard to say I mean, the deals that are blowing up today and there are plenty of deals point up today are really seeing C. C minus transactions that were over leveraged all with floating rate debt that were properties that I would never want to take you on a property tour to do because I Wouldnt want you.
Speaker 8: C and C minus transactions that were over leveraged, all the floating rate debt that were properties that I would never want to take you on a property tour to do because I...
Speaker 8: wouldn't want you to be on that part of town.
Would it.
Beyond those being that part of town and so I wouldn't want to be there either and so those are the deals that are blowing up and it was not our type of properties. Okay and so there is really no stress in the in the investment grade market today.
Speaker 8: And so, and I wouldn't want to be there either. And so those are the deals that are blowing up and those are not our type of properties, okay? And so there's really no stress in the investment grade market today. And we'll see if there is, if there.
Austin Wurschmidt: Well, it, you know, we're going to have to probably go back and some more of these submarkets and municipalities and introduce some more friction that will be a burden to the good actors, but we'll also deter and catch the bad actors. We've done that in Atlanta. We were testing it in a bunch of other submarkets, but obviously there's a, there's a balancing act between putting impediments to do business with good people, which, you know, income verification and these other things are versus letting bad actors get off, you know, get into your community and then having to go through a, you know, five to six months process to get them to move on.
We'll see if there is.
Speaker 12: happens in the future, but right now, there's just no opportunity here.
If there happens in the future but.
Now Theres just no opportunity there.
Speaker 18: And then the 16% supply impacted portfolio. How do you marry that with where you're seeing this skipping evict situation? Is there any meaningful like shared markets or is the skipping evict issue sort of more of a overall portfolio phenomenon?
Okay, and then the 16% supply impacted portfolio, how do you marry that with where Youre seeing this skipping a VIX situation is there any meaningful like shared markets or does the skipping of Vic issue was sort of more of our overall portfolio phenomenon.
Is it sort of located anywhere in particular.
Speaker 4: Yeah, the skip and evict is highly concentrated in the markets that continue to have the worst, that had the worst COVID regulatory restrictions against pursuing, yeah, California, DC proper, Montgomery County,
Yes, the skipping of VIX is highly concentrated in the markets that continue to have the work that had the worst COVID-19 regulatory restrictions against Countersuing.
Austin Wurschmidt: So yeah, it's, you know, it's complex calculus, but our folks are really good at doing, you know, at doing forecasting. I think one of the things that Rick said in this that I personally think is quite remarkable is that when we started the year based on our opt teams, original, original guidance that we shared with the street, we said that we thought total revenues would be up 5.1% for the entire year.
Yes, California D C proper mcgovern.
Montgomery County.
Speaker 4: It'll it'll land up for a different reason, but that's that's prime we've talked about in the last call, but that's primarily a kind of a localized
Atlanta for a different reason, but that's that's prime we've talked about on the last call, but that's primarily a kind of a localized fraud infestation of fraudsters, but if you took those four I think Rick gave the number in California alone.
Speaker 4: fraud, you know, infestation of fraudsters. But if you took those four, I think Rick gave the number in California alone, you know, our bad debts, which is, which is tied directly to the skip and a bit.
Austin Wurschmidt: Okay, that was our original guidance. Then we increased the guidance in the first quarter because it looked like things were getting a little better and then again in the second quarter, but when it's all said and done, if we make our fourth quarter numbers, which we fully expect to do, our opt team will have delivered 5% same store NLI revenue at 10 basis points off of our original guidance on a $1.6 billion number and given all the cross currents and, you know, forecasting and assumption making and then execution that goes with that.
Our bad debts, which is which is tied directly to the skip and Vic question is.
Speaker 4: is it's almost of our 140 basis points.
It's almost of our 140 basis points, California alone has almost 30 basis points of that so it's a.
Speaker 4: California alone is almost 30 basis point to that. So it's a
Speaker 4: You know, that's not a generalized problem. The supply, I would say, is generalized. It's better in some places worse than others, but we're in markets that everybody, people want to move to, people want to do business in, and people want to build apartments in.
It's not that's not a generalized problem the supply I would say is generalized it's better in some places worse than others.
We're in markets that everybody if people want to move to people want to do business in and people want to build apartments down.
Austin Wurschmidt: I think that's pretty remarkable. Yeah, no, it doesn't make sense, and they agree. I guess, you know, what's concerning people sort of the shift maybe in tone and trying to understand what's driving it, you know, at this moment or I think it's like things are pretty good up until maybe August or September, and then there's some kind of shift that happened and people trying to figure out whether it's supply or shift in the consumer, you know, and so just trying to understand how that's going to impact 2024.
Speaker 4: And while we're sharing merchant builder maxims from the ages, the mantra of a merchant builder is anything worth doing is worth doing to excess.
And you know, while we're while we're sharing merchant builder.
<unk> from from from the ages.
The mantra of a merchant builder is anything worth doing is worth doing to access and so that's kind of where we find ourselves today and and that's true in every one of our markets. There is a supply issue to one to one degree or another.
Speaker 4: So that's kind of where we find ourselves today. And that's true in every one of our markets. There's a supply for you to one degree or another.
Speaker 8: The interesting thing about the fraudsters is they tend to go to the highest-end properties and they tend to go to new properties. For example, our downtown Houston building, which is a 22-story building in downtown, has the most fraud of any building in Houston, also the highest rents of any building we have in Houston. If you go to Atlanta, Buckhead, I think we have 35 lease breaks there, and they were all fraudulent people.
The interesting thing about about the fraudsters if they tend to go to the highest end properties and they tend to go to new properties. For example, our downtown Houston building, which is at 22 story building in downtown has for most fraud or any building in Houston also the highest rents as any any building, we havent Houston and and if you go to Atlanta.
Austin Wurschmidt: But I mean, I guess along those lines, you know, you got 16% of your properties that are directly impacted by supply. It's just curious, you know, how that number will sort of look throughout next year, there's up, goes down, and then if you sort of have a view on when the impact of supply will peak next year. Yeah, so my guess is that that numbers will move some, it may tick up a little bit next year, but I would be very surprised if it went above 18% or so of impacted communities because honestly where the stuff is under construction right now, it's just a matter of, you know, merchant builders tend to be herd animals and they build in the same places, and so a lot of the product that's going to be coming in 24 is in the same sub-market as 2023.
Okay, and I think we have 35.
Lease breaks there and they were all fraudulent people.
Speaker 8: And so it's interesting because the fraud folks tend to be the higher end, going to the higher end property, more sophisticated. And then to Keith's point in California, our bad debts in LA County are 5.3%, and in San Diego they're 3.2. And the difference between those two numbers is that San Diego is just more open and less sort of militant, if you want to say that, than LA County.
So it's interesting because the fraud folks tend to be the higher end go into the higher end property more sophisticated and then to Keith's point in California.
Our bad debts in la.
La County, or five 3% and in San Diego, the three two and the difference between those two numbers is.
San Diego is just more a more open and less sort of militant if you want to be say that then la county, and so it's definitely driven by the regulatory construct that has trained people to know that they don't really have to pay in.
Austin Wurschmidt: So I think it might pick up a little bit, but I think that the, you know, again, based on the analysis that we've done internally and it's pretty detailed at the property level, you know, we think that that we're probably, it's probably most of it is in our run rate for it.
Speaker 12: definitely driven by the regulatory construct that has trained people to know that they don't really have to pay. In the past, you paid your phone bill first, then you paid your apartment rent. And now because of the government doing what they did during COVID, apartment rent's down the list for more people than it should be. But we're going to get ready to, we're going to push it so that it goes to be right next to cell phones again. Awesome. Thanks.
In the past you pay your so your phone Bill first then you paid your apartment rent and now because of the government doing what they did during COVID-19 apartment rents down the list.
Austin Wurschmidt: Yeah, you're similar in 2024 to what we had this year.
Unknown Executive: Thank you, appreciate it.
For more people than it should be but we're going to get ready to we're going to push it. So then it goes to the two to be right next to cell phones again.
Eric Wolfe: Next question comes from Joshua Dennerlin with Bank of America, please go ahead. Yeah, hey guys, I just want to explore a comment I thought I heard from you earlier about just like, I think it was like supply, you'll have to deal with through the end of 2024. Was that implying that maybe the softness we're seeing in the new East Ray growth will continue through the end of 2024 or is it just like a general comment on supply, just trying to think through like kind of what we could be in store for.
Awesome, Thanks, very much everyone.
Sure.
Speaker 2: As a reminder, please limit yourself to one core.
As a reminder, please limit yourself to one question.
Speaker 2: Our next question comes from Connor Mitchell with Piper Sandler. Please go ahead.
Next question comes from corner Mitchell with Piper Sandler. Please go ahead.
Speaker 19: Hey, thanks for taking my question. So, I'll just keep it to the one as we're at the top of the hour. With the updated guidance and the updated outlook for the current environment, can you just talk about how this impacts and affects the investment appetite, development timing, deliveries for you guys, and then the underwriting process and some assumptions that are going into that?
Hey, Thanks, Thanks for taking my question.
So I'll just I'll just keep it to the warrants were at the top of the hour.
With the updated guidance and the updated outlook for the current environment can you just talk about how this impacts it affects the investment appetite.
Eric Wolfe: Yeah, it's a general comment on supply, but to keep point on the 16% of our portfolio that is impacted by supply and through those numbers out there about the differential between, you know, the differential between those 16% and the balance of the portfolio. And so, you know, we're going to have more supply through the 3 2024, but again, it's limited to that piece of the portfolio now. And there's the discussion earlier about, well, what is it is it all is the sort of softness in the fourth quarter.
Development timing deliveries for you guys and then the underwriting process and some assumptions that are going into that.
Speaker 12: So our current development pipeline is doing really well. The lease-ups that we're doing are doing really well. We just finished Tempe, and it was a really solid return that we're making on those. So we're doing well in the existing portfolio in terms of new starts or acquisitions or other capital deployment.
So our current development pipeline is doing really well the lease ups that we're doing or are doing really well. We just finished <unk> and it was a really solid returns that we're making on those so we're we're doing well on the existing portfolio in terms of new starts or acquisitions or.
Other capital deployment I mean.
Speaker 12: This is a very unusual time. Our cost of capital has gone up dramatically and we recognize that and we understand that it doesn't make a lot of sense to underwrite transactions today at the current environment based on our cost of capital. And so we have pushed back development starts.
This is a very unusual time, what our cost of capital has gone up dramatically and we recognize that and we understand that that.
Eric Wolfe: Is it is it all supply? Is it all consumer behavior? Is it all, you know, and what's happening is it's a combination of everything right supply is on the one hand is an issue for part of the portfolio consumer behavior is probably the biggest part of the equation because. When you when you have more move outs than you thought you'd have because people are skipping or breaking their leases, then you have to backfill those those folks and when you backfill them and if you're, if you didn't have that, you didn't have to backfill them.
Eric Wolfe: And then when you have the bad debt side of the equation, it's sort of a sort of a circular equation. So it's really three different things that are happening in supply will be, you know, a headwind for that part of the portfolio in 2024. And hopefully we won't have as much of a headwind from skips and breaks and and bad debts because we're implementing things that are trying to keep the bad actors out.
It doesn't make a lot of sense to underwrite transactions today at the current in the current environment based on our cost of capital and so we have pushed back development starts and.
Speaker 12: and we have been very quiet on the acquisition front, obviously. I think, though, that as we get more stability, because I think what the world hates, and we all hate the most, is volatility and not having some sort of stability and knowing having a view of what things are going to be in the future, right?
And we have been very quiet on the acquisition front, obviously and so.
I think though that as we as we.
We'll get more stability, because I think what.
With the World H and we all hate most just volatility and not having some sort of stability in knowing having a view of what things are going to be in the future right I think thats whats sort of causing all this this consternation in the market.
Speaker 12: I think that's what's causing all this transformation in the market.
Speaker 8: when you start thinking about capital in the future.
When you start thinking about about capital in the future, though as we think what's going to happen to development costs. For example, when developments go from 550000 units to 200000 units there'll be lots of contractors that will work for food and that that will squeeze margins.
Speaker 12: though as we think what's going to happen to development costs, for example, when developments go from 550,000 units to 200,000 units, there'll be lots of contractors that will work for-
Speaker 12: And that will squeeze margins that should, with inflation overall coming down, with workers not having jobs as a result of construction costs or construction being shut down, we should be able to get a whole lot better pricing on properties in the future than we can today. That has to play out during 2024. And so when that happens, then the question is, if you actually believe those start numbers.
Eric Wolfe: And and the municipalities are all getting better and they're there. There are as Keith mentioned, they're just not as many barriers to getting people out. There is a backlog, but that backlog is starting to to improve. And if you look just a few markets like, for example, every market in in the country except three are one percent, you know, one and a half one point a, you know, kind of bad debts and the three that are having trouble are California and Atlanta and California or bad debts are still 4.3.
That should with inflation overall coming down with workers not having jobs as a result of construction cost for construction being being shut down we should be able to get a whole lot better pricing on properties in the future than we can today that has to play out over twice during 2024 and so when that happens then the question.
If you if you actually I believe the start numbers than in 2025, and 2026, it's going to be a very constructed constructive environment to deliver new properties and if the capital markets are forcing merchant builders not to build which is exactly what it's doing and we have the capital to build and maybe we.
Speaker 12: then in 2025 and 2026, it's going to be a very constructed, constructive environment to deliver new properties. And if the capital markets are forcing merchant builders not to build, which is exactly...
Eric Wolfe: And now the moratoriums are out or have been taken off, but the the courts are backlogged. And so you what those backlogs will fix and what will happen is, is that what's happening now with certain folks is that they understand that they get say longer and they do. And then when they get close to the edge, when they know that there's no other, you know, sort of administrative way for them to say in, then they skip in the middle of the night, I think 85% of our our skips and these breaks are people who owe us money, which you know on the one hand is really good thing because we're getting them out of the property and give them and paying on the other hand, it creates more vacancy and it creates more bad debt.
Speaker 12: And we have the capital to build and maybe we will, if we get the right returns and balance our returns.
Well, if we get the right returns and balanced our returns.
Speaker 12: from a cost of capital and a spread perspective in the right zone, then perhaps we would start developing to be able to deliver into a really good market in 26 and 27. We're playing the long game here, and we will, if that's a counter-cyclical move relative to our competitors, we'll do that.
From a cost of capital on a spread perspective in the right zone and perhaps we we would start developing them to be able to deliver into a really good market in 'twenty six 'twenty seven were planned long game here and we will if that's a counter cyclical move relative to our competitors will do that.
Speaker 12: And then the same thing goes with acquisitions. You know, we have been, if you look at our history, since you know, starting really in 2020, probably...
And then same thing goes with with acquisitions, we have been if you look at our history since.
Starting really in 'twenty probably.
Eric Wolfe: So, so you have to, you look at that part of the equation and say alright, because of seasonality, we needed to fill more apartments at a slower time and that's, that's the circular effect of that of those things.
Speaker 12: Yeah, maybe 10 years ago, and we sold over $3 billion for properties, but...
Maybe 10 years ago, we sold over $3 billion of property spot.
Speaker 12: a bunch of properties and we sold older properties with lower growth and higher capex.
A bunch of properties so.
Older properties with lower growth and higher Capex and reinvested in newer lower capex higher growth properties and we did that on a on a very very it turned out to be accretive basis and so this offers the opportunity next year with capital the way. It is today could open the opportunity for us to.
Speaker 12: and reinvested in newer, lower capex, higher growth properties. And we did that on a very, very, it turned out to be a creative basis. And so this opportunity next year with capital the way it is today.
Eric Wolfe: So I think that next year, even with new supply, we'll still have that as a headwind in some of our properties, but, but we should be getting more clarity on getting our real estate back faster and having bad debt. Okay, appreciate that caller.
Speaker 12: could open the opportunity for us to do a lot of that portfolio management as well.
Do a lot of that portfolio management as well so yeah.
Eric Wolfe: And then I don't think we touched on it yet, but just any plans for the floating rate debt exposure, if you guys are just going to keep it out of this or there's something you guys want to do at this point with it. So when you think about floating rate debt, and if you think over a long period of time floating rate debt has always been cheaper than long term debt. Today we're going to very unusual situation where they were the flat yield curve.
Speaker 12: uh... yeah i think the bottom line is that today it's a really weird world and and there's it makes sense to to uh... for us
Yeah, I think the bottom line is is that today, it's really weird world and.
It makes sense to to sort of.
Speaker 12: sit Stan Pat with one of the strongest balance sheets in the sector and kind of
Stand Pat with what are the strongest balance sheets in the sector, and and and kind of wait and see to see where capital could be deployed in the future and what the best returns that we can make on that would be.
Speaker 8: waiting for the city to see where capital could be deployed in the future and what the best returns that we could make on that would be.
Eric Wolfe: And so even though it's steepening a little bit because of long term rates going up. But at the end of the day, the bottom line there are portfolio is we have very, very low debt. So when you look at it, look at it as a percentage of total debt, it looks high, but but because we have low debt, it's very manageable. And so it's already in our run rate, you know, with our line of credit costs and our term loan at this point.
Thanks, I appreciate all the color that's it for me.
Sure.
Speaker 2: Our next question comes from West Holliday. We're cleared. Please go ahead.
Our next question comes from Wes Golladay with Dan. Please go ahead.
Speaker 18: Hi, everyone. Thanks for sticking around. I have a question on the Delta for the new leases in your FOD markets, would that be worse than your supply markets? And for those tenants that are that can pay but won't pay, what type of recovery can you get?
Hi, everyone. Thanks for sticking around.
I have a question on the Delta for the new leases in your five markets.
Would that be worse than your supply markets and for those tenants that are that can pay but won't pay what type of recovery can you get there.
Eric Wolfe: And so it doesn't make a lot of sense to do that. To me, to to worry too much about what floating rate debt is going to be over the next couple of years because, you know, I think ultimately the yield curve will steepen any short rates will come down. And I just don't think we need to be betting on on long term bonds right now, given the volatility in the bond market.
Speaker 4: So, the recovery on can pay but won't pay, obviously we turn people over to collection agencies, we pursue them.
So the recovery on can pay but won't pay.
We turn.
Obviously, we turn people over to collection agencies, we pursue them.
Speaker 4: You know, my guess is that before, before those folks actually go, you know, face the eviction music, in some cases they will, you know, try to have a conversation about if I pay this, would you not pursue me? Those conversations go on all the time.
My guess is is that before before those folks actually go.
Eric Wolfe: So, you know, we're comfortable with with with the level we have today. And I look at it as sort of gas in the tank to a certain extent because when when rates start dropping. You know, that'll that'll that'll flow through to our FFO because we'll we'll start having, you know, lower interest costs. The worst thing in the world would be to fix long term rates today. These current rates and then see the whole yield curve moved down over the next couple of years.
Steve Stockflow: Okay. Thanks for appreciate it.
The eviction music.
In some cases they will.
Try to have a conversation about if I pay this would you not pursue me.
Those conversations go on all the time.
Speaker 4: with varying degrees of success. But the can pay won't pays are an interesting subgroup. The can pay, the won't pay can't pay, the recovery is actually quite low, but we do pursue.
With varying degrees of success, but so they can pay won't pays.
An interesting subgroup the campaign.
<unk> can't pay.
The recovery is actually quite low.
Steve Stockflow: Our next question comes from Steve. Stock flow rates ever core ISI please go ahead. Yeah, thanks. Just about one question. I know with capital deployments, probably not really high on the list right now. I think we've got the stock probably trading, you know, north of a seven and a half percent implied cap rate. So, I guess my question is how are you thinking maybe about share repurchases and marrying that up. If there is a disposition market, I know there's a lot of institutional capital looking for high quality apartment. So, sort of any thoughts on shrinking the company a bid and buy back stock.
But we do we do pursue them.
Speaker 20: I'm sorry, I didn't catch the first part of your question, Wes. Oh, yeah, the delta on the new leases in the fraud market, I get that supply will be here next year on, you know, so yeah, that's in the run rate. I'm trying to see what kind of potential lift you can have from just having a more normal lease market in the fraud market. So is it artificially low right now on the new leases in those markets you cited?
I'm, sorry, I didn't catch.
The first part of your question.
Yeah, the yeah, the delta on the new.
New leases in their fraud market I mean, I get that supply will be here next year on.
So yeah I think that's in the run rate I'm trying to see what kind of potential lift you can have from just having a more normal lease market and the fraud market. So is it artificially low right now on the new leases and in those markets you said it.
Speaker 6: Absolutely it is. I mean if you think about so to give you an idea in Atlanta Our new lease effective trade out for October was down 7.1 percent. So that's a It's pretty good indication of a market where we've got an ability once we get that fraud sorted out to get that back to a A far more normal run rate. So absolutely
But absolutely. It is I mean, if you think about so to give you an idea in Atlanta, our new lease effective trade out for October was down seven 1%. So that's a pretty.
Steve Stockflow: Well, we've been really consistent in and how we described our stock buy back sort of appetite in the past. And that has been that, you know, it had to have at least at 20, 25% discount to what we thought NAD was. And I needed to be persistent and we needed to sell assets to to fund it. And maybe this is the time where we have persistency. We've had we've had times in the past where we had the opportunity, but we didn't have the timing to be able to sell assets and buy.
Pretty good indication of a market, where we've got an ability once we get that fraud sorted out to get that back to a a far more normal run rate so absolutely.
Great. Thanks for taking the time.
Yes.
Speaker 2: Your next question comes from James Bobman with Wells Fargo, please go ahead.
Our next question comes from Jamie Feldman with Wells Fargo. Please go ahead.
Speaker 13: Hi, team. This is John for Jamie. There was comments about this before, but just kind of think about. Over and what we need to find right now.
Hi, This is John on for Jamie.
There was comments about this before but just trying to think about.
Steve Stockflow: You know, we have sold one asset this year, small one for $61 million. And when you think about capital deployment today, pretty hard to get a, you know, when you look at an implied cap rate of seven and a half. And if you look at at a long term, you know, model of of what apartments will do once we get through this uncertainty of. And the supply cliff that everybody's worried about, you should see, you know, reasonable, you know, returns for multi family companies come back again.
Mulder and what we need to.
But right now for development in.
Speaker 16: you know, where industries are about growth in this environment.
Where interest rates are.
Growth in this environment.
Speaker 12: I'm sorry, you kind of broke up. We have $180 million roughly left to spend on the development that we have in place now. And what was the other part of your question? Is your breath?
I'm, sorry, you broke up.
$188 million roughly left to spend on the development that we have in place now and what was the other part of your question.
Because you broke up I understand sorry can you hear me now.
Yeah.
Speaker 9: I'm just trying to understand, given maturities in 24, you know, the size of your revolver right now, just how do you afford to, you know,
Perfect just trying to understand.
Steve Stockflow: So, you know, it makes sense for us to do that. We do have there is a disposition market. Yes, you know, dispositions are, or the acquisition market is slow. It's down 60, 70% from the prior year. But, you know, I think it's really interesting when you think about that, it sounds 60 to 70%, which the flip side of that means that, you know, there's deals getting done. And so, you know, for us, you know, we were aggressive buyers of the stock went when the when the stock was down substantially for a long period of time. And if we have the opportunity to do it, we probably will. Great, thanks.
Given maturities in 'twenty four.
The size of the euro.
Your revolver right now just how do you afford to.
To grow in this environment.
Alex you want to take that well.
Speaker 12: Well, bottom line is, we have access to lots of capital markets, right? And bond markets open. And the great thing about the multi-family businesses that, so the capital markets are open. We could issue bonds to kick out the maturities. And we obviously have access to that market. We also have, and if the bond market is not, when we have access to Freddie and Fanny, and they're still in robust lending environment out there for multi-family. So, we're not.
Bottom line as well.
Access to lots of capital markets right.
The bond market is open.
The great thing about the multifamily businesses that so the capital markets are open we can issue bonds to take out the maturities.
Yeah.
We obviously have access to that market. We also have and if the bond market is not only have access to Freddie and Fannie and Theres still a robust lending environment out there for multifamily so we.
John Kim: It's it for me.
We don't we're not concerned at all about about our capital issues and that isn't that constraint I don't think given our low debt.
Speaker 12: concerned at all about our capital issues. And that isn't a constraint. I don't think given our low debt, and we built this balance sheet for times like this.
John Kim: Next question comes from John Kim with BMO Capital Markets. Step ahead. Thank you.
Alexander Jessett: I just wanted to clarify two items, imagine that was called in my one question. Alex, I think you mentioned that you're expecting newly scoth rates at minus four and a half percent, but renewals at positive four. I'm just wondering how sustainable that is, especially when you have lost at least at around one percent. And then for Rick and Keith, in your response to Handel's question on occupancy, I just wanted to clarify that you're okay operating at or below 95% of the time being there's no immediate focus to get it above 95.
And we built this balance sheet for times like this and when you are sitting at a four <unk> debt to EBITDA with with.
Speaker 12: And when you are sitting at a 401 debt to EBITDA with very low debt and having somewhere around $12 billion of the real estate that has no mortgage on it, that's a problem.
With very low debt and having somewhere around <unk>.
$12 billion of real estate that has no mortgage on it.
That's a pretty.
Speaker 12: safe position to sit in and to be able to fund maturities and fund capital for opportunities, you know, if they manifest themselves.
Safe position to sit in and to be able to two two.
<unk>, our maturities and fund capital for opportunities.
If they manifest themselves.
Speaker 15: Yeah, I would just add to that, that the revolver is not the constraint at all. And obviously, we're not thrilled about a 10-year costing us, you know, 6%, but that is still a lot cheaper than what it would cost a private person to go out and borrow money. And so, if the opportunities are really there and if we can do something accretively to the debt in 2024, that's what we'll absolutely do. And for once, we actually do have a cost of capital advantage over the private guys.
Yeah, I would just add to that that the revolver is not the constraint at all and obviously, we're not thrilled about a 10 year costing us 6%, but that is still a lot cheaper than what it would cost a private person to go out and borrow money and so if the opportunities are really there and if we can do something accretively.
Keith Oden: So I'll pick the occupancy first thing back to Alex. Yeah, and so in light of the fact that we are guidance for the fourth quarter included, you know, occupancy of our prior guidance before we just issued revised guidance, had an occupancy rate being flat at about 95, 6, 95, 7. And that was our expectation, we're at 94, 9 as we closed out October. So no, we're not good with operating at 94, 9.
The debt in 2024, that's what we will absolutely do and for once we actually do have a cost of capital advantage over the private guys.
Got it thank you.
Sure.
Keith Oden: The target that we set up was 95, 6 and we'd like to get back to that as quickly as possible, but we're not, you know, so, so we're not going to, you know, make silly decisions on our either new leases, or our renewal rates in order to achieve that. It just doesn't make sense. But yeah, within the limits of the levers that we can pull and still get back to 95, that would be our preference.
Speaker 2: next question comes from Robin Littler Green Street. Please go ahead.
Our next question comes from.
Rob.
Green Street. Please go ahead.
Yes.
Speaker 21: Hi, good morning. Just one for me. I just want to touch on development. You did well in completing 10-P lease-up without much concessions or outside concessions. How are you thinking about the lease-up strategy for the new Raleigh and Houston properties now that those properties are entering the market at a time with more competition? Do you expect to provide more incentives to increase occupancy quicker?
Hi, Good morning, just one from me.
I'll touch on development, you do well competing Tempe Mesa without much concessions all outside some session.
Are we thinking about the lease up strategy for the knee Raleigh, Houston property now that properties entering the market at a time with more competition.
Alexander Jessett: And then to your question on whether or not we think that the new leases and renewals that we have in our guidance for the fourth quarter is sustainable. Obviously, we're sitting here today almost can November and keep in mind that if you're doing a renewal, you're typically signing that renewal a month to two months ahead of time. And and new leases are typically call it 15 to 20 days ahead of time. I think we feel very confident about these rates for the for the quarter.
Expect to provide more incentives to increase occupancy quicker.
Speaker 12: Well, as I said before, you know, it really just depends on the market conditions. Right now, you know, we're offering, I think, four to six weeks free and on those properties. And we're, you know, getting traction on them.
Although as I said before the.
It really just depends on the market conditions right now we're offering I think four to six weeks free and on those properties and were getting traction on them in and leasing them up we pay them to notice for example is doing really well and in Charlotte and we don't have the kind of concessions.
Speaker 12: and on our lease in them up, we came to a note of, for example, assuming it really well and Charlotte, and we don't have the kind of concessions, I think that people are worried about the three months free or something like that. But at the end of the day, concessions are just part of the equation for in the merchant-builder world and we will compete effectively with all the rest of the properties that are out there.
Alexander Jessett: My question is more on the spread between the renewal and the new leases. It's 850 basis points. Yeah, you know, 850 basis points is historically a little wide, but but it's not completely out of the realm of where we have operated at points in time. So we think we can think we can maintain that. Thank you.
I think that people are worried about the three months free or something like that but at the end of the day concessions are just part of the equation for <unk>.
In the merchant builder World and we will we will compete effectively with all the rest of the properties that are out there and ultimately.
Speaker 12: And ultimately, they will lease up. If you look at the absorption rates that we've had, and I think Phoenix is a great example. I mean, Phoenix was one of the, or is one of the markets with a lot of supply. Yet at the same time, we leased up, you know, 10 to two with a, you know, very, very fast pace with limited, we did get concessions, but not.
They are they will lease up if you look at the if you look at the absorption rates that we've had and I think Phoenix is a great example, I mean <unk>.
Richard Campo: Next question comes from Rich Anderson with Redbush. Please go ahead. Hey, thanks. Good morning. So I wonder if all of this noise in the system could create an opportunity for you. I imagine you guys are managing the skipping of the process a lot better than your neighboring peers and your managing supply better. Rich, you said something about maybe consumer behavior settled down within the next six months. Not that there's distress, but you're obviously a premier operator in your markets, particularly relative to your private competition.
Was one of the or is one of the markets with a lot of supply yet at the same time, we leased up.
Richard Campo: Do you think that there could be an opportunity to step in where people are perhaps a little bit less prepared or it'll prepare to handle these stresses? And that despite what Steve said about you're probably not going to buy anything, maybe you start buying stuff in a little bit more aggressive fashion as we get into the latter part of next.
Temporary two with.
Very very fast pace with with with limited limited, we did give concessions, but not dramatically. So I think we're going to be fine leasing up the properties that we have built in Raleigh and Charlotte.
Speaker 12: dramatically, so I think we're going to be fine leasing up the properties that we built in both Raleigh and Charlotte going forward.
Going forward.
Alright. Thank you appreciate the time.
Absolutely.
Speaker 2: This concludes our question and answer session. We'd like to turn the conference back over to your campus for any closing remarks.
This concludes our question and answer session I would like to turn the conference back over to Rick Campo for any closing remarks.
Speaker 12: Great. Well, I appreciate everybody on the call today, and we will see you very soon at NARIBD in LA. So, take care and thank you.
Great well I appreciate everybody on the call today, and we'll see you very soon at NAREIT in L. A so take care and thank you.
Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Richard Campo: Well, it's an interesting question, Rich, for sure. Welcome back, by the way. And, you know, bottom line is capital allocation is an interesting thing, and we look at what the most opportune, we try to figure out what the most opportune investment strategy is, and we'll try to execute that. You know, right now, there really is even with the transactions that are going on today. You know, there are deals are still trading at five and a half, you know, or five and a quarter.
Richard Campo: And so there isn't a lot of distress in the marketplace today. And so I think you have had a sort of a narrowing of the gap between the, the bid and the ask, and it's definitely been coming from primarily the, the sellers and not the buyers, but there is a big wall of capital that continues to be out there waiting for that, that, that some more clarity on, you know, what, what is the long term 10 you're going to look like, what, is the Fed done, how supply impact, you know, what, what is the long term 10 you're going to look like, what, is the Fed done, how supply impact, you know, all these, you know, uncertainties that we have in the market today, and that wall of capital is just sitting there waiting.
Richard Campo: And so the question will be, will there be distress. And, you know, that's hard to say. I mean, the, the, the deals that are blowing up today and there are plenty of deals blowing up today are, are really seeing, you know, see, see minus transactions that were over leverage all the floating rate debt that were properties that I would never want to take you on a property tour to do because I wouldn't, I wouldn't want you to, you know, be on those, being that part of town.
Richard Campo: And so, and I wouldn't want to be there either. And so those are the deals that are blowing up and not our type of properties. Okay. And so there is really no stress in the, in the investment grade market today, and, and we'll, we'll see if there is that, if there, if there happens in the future, but, you know, right now, there's just no opportunity there. Okay. And then the 16% supply impacted portfolio.
Richard Campo: How do you marry that with where you're seeing this skip and evict situation? Is there any meaningful, like, shared markets, or is the skip and evict issue sort of more of a overall portfolio phenomenon? Or is it sort of located anywhere in particular? Yeah, the skip and evict is highly concentrated in the markets that continue to have the word that had the worst COVID regulatory restrictions against a calursuing. Yeah, California, DC, proper, Montgomery, you know, Montgomery County Atlanta for a different reason, but that's, that's prime, we talked about in the last call, but that's primarily a kind of a localized.
Richard Campo: Because fraud, you know, infestation of fraudsters, but, but if you took those four, I think Rick gave the number in California alone, you know, our bad debts, which is, which is pad directly to the skip and evict question is, you know, it's almost of our 140 basis points. California alone is, is almost 30 basis point to that. So it's, you know, it's not, that's not a generalized problem. The supply, I would say, is generalized.
Richard Campo: It's, it's better in some places worse than others, but they're, you know, we're in, we're in markets that everybody, people want to move to, people want to do business in and people want to build apartments in. And, you know, while we're, while we're sharing merchant builder, you know, maxims from, from, from the ages, the mantra of a, of a merchant builder is anything worth doing is worth doing to access. And so that's kind of what we find ourselves today.
Richard Campo: And, and that's true in every one of our markets. There's, there's a supply issue to one, to one degree or another. The interesting thing about, about the fraudsters is they tend to go to the highest end properties and they tend to go to new properties. For example, our downtown Houston building, which is a 22 story building in downtown, has the most fraud of any building in, in Houston also the highest rents of any, any building we have in Houston.
Richard Campo: And, and, and if you go to Atlanta, okay, I think we have 35. Reast breaks there, and they were all fraudulent people. And so it's interesting because the fraud folks tend to be the higher end going to the higher end property, more sophisticated. And then the key point in California are bad debts in, in L.A. County or 5.3%. And in San Diego, they're 3.2. And, and the difference between those two numbers is that San Diego is just more, more open and less sort of militant if you want to be say that than L.A. County.
Richard Campo: And so it's definitely driven by the, the regulatory construct that is trained people to know that they don't really have to pay. You know, in the past, you, you paid your own, your phone bill first, then you paid your apartment rent. And now, because of the government doing what they did during COVID, apartment rents down the list for, for, for more people than it should be. But we're going to get ready to, we're going to push it so that it goes to the, to, to be right next to a cell phone scan.
Unknown Executive: Awesome. Thanks very much, everyone. Sure.
Unknown Executive: As a reminder, please limit yourself to one question.
Connor Mitchell: Our next question comes from Connor Mitchell with Piper Sandler. Please go ahead. Hey, thanks. Thanks for taking my question. So I'll just keep it to the one that's worth a half the hour with the updated guidance and the updated outlook for the current environment.
Richard Campo: Can you just talk about how this impacts and affects the invested appetite, development timing, deliveries for you guys and then the underrated process and some assumptions that are going into that. So our current development pipeline is doing really well. The lease-ups that we're doing are doing really well. We just finished Tempe and it was a really solid, you know, returns that we're making on those. We're doing well on the existing portfolio in terms of new starts or acquisitions or, you know, other capital deployment.
Richard Campo: I mean, this is a very unusual time. Our cost of capital has gone up dramatically and we recognize that and we understand that that it doesn't make a lot of sense to underwrite transactions today at the current environment based on our cost of capital. And so we have pushed back development starts and we have been very quiet on the acquisition front, obviously. And so, you know, I think though that as we as we get more stability because I think what what the world hates and we all hate most is volatility and not having some sort of stability and knowing having a view of what things are going to be in the future, right.
Richard Campo: I think that's what sort of causing all this this consternation in the market. When you start thinking about about capital in the future, though as we think what's going to happen to development costs, for example, when developments go from 550,000 units to 200,000 units, they'll be lots of contractors that will work for food. And that that will squeeze margins that that should with inflation overall coming down with workers not having jobs as a result of construction costs or construction being being shut down.
Richard Campo: We should be able to get a whole lot better pricing on properties in the future than we can today. That has to play out over 20 in during 2024. And so when that happens, then the question is, if you actually believe those start numbers, then in 2025 and 2026, it's going to be a very constructed, constructive environment is delivering properties and if the capital markets are forcing merchant builder is not to build, which is exactly what it's doing.
Richard Campo: And we have the capital to build and maybe we will, if we get the right returns and balance our returns, you know, from a cost of capital and a spread perspective in the right right zone. And perhaps we, we would start developing to be able to deliver into a really good market in 26 and 27th.
Richard Campo: We're planned long game here and and we will, if that's a counter sick, go move relative to our competitors will do that. And then the same thing goes with with acquisitions, you know, we have been, if you look at our history since, you know, starting really in 2020, probably maybe 10 years ago, we sold over $3 billion properties, but, you know, a bunch of properties and we sold older properties with lower growth and higher capex.
Richard Campo: And reinvested in newer lower capex higher growth properties and we did that on a on a very, very turned out to be a creative basis. And so this opportunity next year with capital, the way it is today could open the opportunity for us to do a lot of that portfolio management as well.
Richard Campo: So, yeah, I think the bottom line is is that today it's a really weird world. And there's, it makes sense to sort of stand pat with one of the strongest balance sheets in the sector. And, and kind of wait and see to see where capital could be deployed in the future and what the best returns that we could make on that would be. Thanks, I appreciate all the callers, except for me.
Wesley Golladay: Sure. Next question comes from West Golladay. We're clear.
Wesley Golladay: Please go ahead. Hi everyone, thanks for sticking around. I have a question on the delta for the new pieces in your five markets. Would that be worse than your supply markets? And for those ten instead of that can pay but won't pay, what type of recovery can you get there? So the recovery on can pay but won't pay, we turn, we, you know, obviously we turn people over to collection agencies, we pursue them.
Wesley Golladay: You know, my guess is, is that before, before those folks actually go, you know, face the eviction music. In some cases they will, you know, try to have a conversation. If I pay this, would you not pursue me? Those conversations go on all the time with varying degrees of success. But the can pay won't pay is an interesting subgroup, the can pay that won't pay can't pay the recovery is actually quite low.
Wesley Golladay: But we do pursue them. I'm sorry, I didn't catch the first part of your question. Oh, yeah, the delta on the new new new leases in the five market, I get that supply will be here next year on, you know, so yeah, that's in the run rate. I'm trying to see what kind of potential lift you can have from just having a more normal lease market in the, the fraud market. So is it artificially low right now on the new leases in those markets you said it.
Wesley Golladay: Alright, absolutely it is. I mean, if you think about so to give you an idea in Atlanta, our new lease effective trade out for October was down 7.1%. So that's a pretty good indication of a market where we've got an ability once we get that fraud sorted out to get that back to a far more normal run rate. So absolutely. Great. Thanks for the take of the time.
James: Next question comes from James.
John Kim: Hi, this is John on for Jamie. There was comments about this before, but just kind of think about all of her and what we need to find out for development. You know, where to straight out about growth in this environment. I'm sorry, you kind of broke up. We have 180, 80 million dollars roughly left to spend on the development that we have in place now. And what was the other part of your question? Did you broke up and understand sorry, can you immunize? Yeah. Perfect.
Unknown Executive: I'm just trying to understand given materities and 24, you know, the size of your your revolver right now, just how do you afford to you know to grow in this environment? Yeah. I'll show you one. Check that. We have access to lots of capital markets, right? And the bond markets open. The great thing about the multi-family business is that the capital markets are open. We could issue bonds to take out the maturities and we obviously have access to that market.
Unknown Executive: We also have, and if the bond market is not only have access to Freddie and Fanny, and they're still in robust lending environment out there for multi-family. So we're not concerned at all about our capital issues and that isn't a constraint. I don't think given our low debt, and we built this balance sheet for times like this. And when you are sitting at a 401 debt to Yvdal with very low debt and having somewhere around $12 billion or that real estate that has no mortgage on it, that's a pretty safe position to sit in and to be able to fund maturities and fund capital for opportunities if they manifest themselves.
Unknown Executive: Yeah, I would just add to that that the revolver is not the constraint at all. And obviously we're not thrilled about a 10 year costing us, you know, 6%. But that is still a lot cheaper than what it would cost a private person to go out and borrow money. And so if the opportunities are really there and if we can do something accretively to the debt in 2024, that's what we'll absolutely do. And for once we actually do have a cost of capital advantage over the private guys. Got it. Thank you. Sure.
Unknown Executive: Hi, good morning. I just want to touch on development. You do well in completing 10 p Lisa without much concessions or outside concessions. How are you thinking about the lease up strategies for the new rally in Houston properties now that those properties are entering the market at a time with more competition to expect to provide more incentives to increase off you receive quicker. Well, as I said before the, you know, it really just depends on the market conditions right now.
Unknown Executive: You know, we're offering. I think four to six weeks free. And on those properties and, and we're, you know, getting, you know, traction on them. And on our lease and them up, we, you know, came to note, for example, is doing really well and Charlotte and we don't have the kind of concessions. I think the people are worried about the three months free or something like that. But, you know, at the end of the day, concessions are just part of the equation for in the merchant building world.
Unknown Executive: And, and we will, we will, you know, compete effectively with all the rest of the properties that are out there. And, and ultimately, they, they will lease up. If you look at the, if you look at the absorption rates that we've had, you know, and I think Phoenix is a great example. I mean, Phoenix was, was one of the, or is one of the markets with a lot of supply yet at the same time we leased up, you know, 10 to two with a very, very fast pace with, with, with limited limited.
Unknown Executive: We did get concessions but not, you know, dramatically. So, I think we're going to be finally seeing up the, the properties that we, that we built in both rally and Charlotte going forward. All right, thank you. I appreciate time. Absolutely.
Kimberly Callahan: This concludes our question and answer session. We'd like to turn the conference back over to your council for any closing remarks. Great. Well, I appreciate everybody on the call today and we will see you very soon at Marybden LA, so take care and thank you.
Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.
Unknown Executive: You may now disconnect.