Q3 2023 Camden Property Trust Earnings Call
Participants
Alexander J. K. Jessett; Executive VP, CFO & Assistant Secretary; Camden Property Trust
D. Keith Oden; President & Executive Vice Chairman of the Board of Trust Managers; Camden Property Trust
Kimberly A. Callahan; SVP of IR; Camden Property Trust
Richard J. Campo; Chairman of the Board of Trust Managers & CEO; Camden Property Trust
Unidentified Company Representative
Austin Todd Wurschmidt; VP; KeyBanc Capital Markets Inc., Research Division
Bradley Barrett Heffern; Analyst; RBC Capital Markets, Research Division
Connor Mitchell; Research Analyst; Piper Sandler & Co., Research Division
Eric Wolfe
Haendel Emmanuel St. Juste; MD of Americas Research & Senior Equity Research Analyst; Mizuho Securities USA LLC, Research Division
John P. Kim; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Joshua Dennerlein; VP; BofA Securities, Research Division
Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division
Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division
Unidentified Analyst
Wesley Keith Golladay; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Presentation
Operator
Good day, and welcome to the Camden Property Trust Third Quarter 2023 Earnings Conference Call. (Operator Instructions) 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.
Kimberly A. Callahan
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 Jessett, Chief Financial Officer. Today's event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks and those slides will also be available on our website later today or by e-mail upon request. (Operator Instructions)
Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events.
As a reminder, Camden's complete third quarter 2023 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We would like to respect everyone's time and Complete our call within 1 hour as there are other multifamily companies hosting calls later today. Please limit your initial question to 1 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 e-mail after the call concludes. At this time, I'll turn the call over to Rick Campo.
Richard J. Campo
Thanks, Kim, and good morning. Our on-hold music was an honor of and memory of Jimmy Buffett. One of Jimmy's recurring things in his songs was how to navigate through life 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 markets is blowing hard. As a result of the turmoil, we are encouraging our teams to heed Jimmy's advice from 1 of his 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 will make you strong. Don't try to explain it, just nod your head, breathe in, breath out, move on, which is exactly what we plan to do. Our business is strong. We've been through many cycles. 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. I say more normal because we are still not back to normal customer behavior where 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. 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 to continue to be supportive for apartment demand. The share of 25- to 34-year-olds is stable. The share of 34 to 48-year-old 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 home ownership 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% of over the next few years. The long-term trend of in-migration to our markets continues. On the supply side, starts have peaked and the capital markets hurricane has begun to reduce new starts. Annualized August starts fell 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. 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, 1 experience at a time. Keith Oden is up next.
D. Keith Oden
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 in 14 of our 15 markets and positive on both a sequential and year-to-date basis in all of our markets. Occupancy for the third quarter averaged 95.6% ending September at 95.3% as we shifted more to a defensive strategy entering our slower re-leasing season in the fourth and first quarters. 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 0.8% for new leases, 5.9% for renewals and 3.4% for blended rate growth. 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 to date is 4.7% and should average around 4% for the full fourth quarter. Effective blended lease rates for October remained positive at 1.4%. Gross turnover rates for the third quarter were up 200 basis points compared to last year due to higher levels of skips and [move] and lease breaks, but our net turnover was down 200 basis points due to high levels of resident retention by our on-site teams. Move-outs to purchased homes accounted for just over 10% of our total move-outs during the quarter. which is near the lowest level we've seen in over the past 30 years. 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 Camden communities located in those submarkets where new deliveries exceed long-term historical averages. 16% of Camden's communities are being impacted by new supply, but the vast majority are not. 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 '25 and '26. I'll now turn it over to Alex Jessett, Camden's Chief Financial Officer.
Alexander J. K. Jessett
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 $0.015 of lower-than-anticipated revenue for the quarter, which was entirely offset by $0.015 of lower-than-anticipated expenses. The lower revenue resulted primarily from an unexpected rise in bad debt. Our lower-than-anticipated operating expenses resulted almost entirely from lower property taxes in Texas. As previously discussed, the Texas state legislature passed the 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 $0.107 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 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. 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 a total savings of $0.025 per share from our prior guidance. $0.015 of this savings occurred in the third quarter, and the remaining $0.01 will be recognized in the fourth quarter.
Turning back to revenue. We had 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. 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 $0.01 per share and the 60 basis point increase in the fourth quarter equates to approximately $0.015 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 $0.005 per share for the third quarter, and we are anticipating the same additional $0.005 for fees in the fourth quarter. We believe this higher bad debt is primarily consumer behavior driven and not tied to financial stress of our residents. 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. We actually had 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. 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 $0.02 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. Our effective blended rates were higher than this at 3.4% for the third quarter. However, lower occupancy caused a reduction in signed 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 $0.015 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 rents is approximately $0.07 per share, of which $0.055 per shares in the fourth quarter. 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 $0.015 of favorability primarily in taxes in the third quarter. We are also anticipating favorability in taxes of $0.01 per share in the fourth quarter. This $0.025 of tax favorability is anticipated to be partially offset by $0.015 of higher fourth quarter repair and maintenance and marketing expenses associated with higher skips and evictions and lower occupancy. 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 $0.01 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 $0.07 per share to a new midpoint of $6.81 per share. This $0.07 per share decline resulted primarily from the previously mentioned $0.035 per share increase in same-store bad debt, the $0.02 per share decrease in same-store occupancy and the $0.015 per share decline in same-store rents, partially offset by the $0.01 per share in lower property expenses resulting from lower taxes. In addition to this net $0.06 per share decline in same-store NOI, we are also anticipating an additional $0.01 in lower non-same-store NOI for similar reasons. We also provided earnings guidance for the fourth quarter of 2023. 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 $0.01 per share decline from the $1.73 recorded in the third quarter. This is primarily the result of approximately $0.01 in lower same-store NOI, resulting from $0.035 in decreased revenue driven by 80 basis points of lower occupancy and 10 basis points of higher bad debt, partially offset by $0.025 in lower property expenses resulting from typical seasonal declines. Our balance sheet remains strong with net debt to EBITDA for the third quarter at 4.1x. And at quarter end, we had $181 million left to spend over the next 2 years under our existing development pipeline. At this time, we will open the call up to questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Michael Goldsmith with UBS.
Michael Goldsmith
How about concessions on the merchantable products trended over the last 2 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 submarket or price point?
Richard J. 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 merchant builder world that you don't want to be the last one on the street to get the 3 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 3 months free in the market with the 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 #1 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 look at -- but if you look at other markets like Charlotte, for example, there's a month, maybe 6-weeks free or something like that. And most merchant builders are going to in any market are going to have discounts or free rent to incent people to come in. And so I think that part of the equation is happening pretty normally. And so the markets that are going to be more -- that have a higher concentration are going to have closer to the 3-month free number.
And then in terms of consumer behavior, the -- when we think about 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 and supply isn't like changing consumer behavior. The thing 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 it has. And let me describe what I mean by that. So I'm talking about when somebody moves into an apartment and they aren't paying the rent.
Today, consumers know that if you're in Atlanta, for example, that you can stay in your apartment for 7 or 8 months before you actually have to leave. And so that consumer behavior, they know that, and you can just go online and 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 that -- if you look at Atlanta, for example, our bad debts they're like 3%. And normally, Atlanta would be 80 basis points. So that part of the consumer behavior has definitely -- they understand the system, and they have -- 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.
Governments are backlog and now they're starting to get better and over the next 6 or 8 months. I think you'll go back to a more normal situation from that perspective. Keith, why don't you address the issue on supplying our portfolio and...
D. Keith Oden
Yes. I think the question Michael asked was, is the pool of impacted 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've properly anticipate 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. 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 new lease-ups. And our proxy for that is we use age as a proxy for that. And 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 Canada's 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 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 -- the community is either under construction or not. You may miss the delivery time by a quarter or 2. But the supply once it gets 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 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, the impacted communities had a lower new lease rate than the 84% non-impacted communities by 260 basis points. So it's important and 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 going to be. And I think there's probably a -- just a view that supply is a bigger part of the challenge in our progression of results from the second and third quarter.
If 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 points. So it's 50 basis points on 16% of our communities in its 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. And if you compare that to what the stats that Alex gave you on the delinquency or bad debts, that number alone is 50 basis points of impact in the quarter. So yes, it matters, and it's something that we pay a lot of attention to because our operations team has to take that into consideration 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 9 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.
Operator
Our next question comes from Brad Heffern with RBC Capital Markets.
Bradley Barrett Heffern
Do you think Camden being negatively impacted in this 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?
D. Keith Oden
Yes. We're not -- 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 are much -- to just be transparent, telling what the rent is. And that's the way the algorithm and YieldStar works. So I can't see us -- we have no intention of going back to "a month free rent" and then prorating that month over the balance of the 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 bad actor move in, pay your rent, the expectation that we've had forever in this business. So we'll continue to do it on our new development lease-ups because that's -- it's just part of what we baked into the cake when we think about our pro forma, but not on any established communities.
Bradley Barrett Heffern
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?
Richard J. Campo
Well, when you look at -- we use Ron Witten and Witten Advisors information a lot. And it's interesting because continued development falls off pretty dramatically, release starts due in 2024 and you start absorbing that real estate. You have countervailing factors like homeownership rate going down -- in terms of people moving out to buy homes at -- down at 10%. And the prospect for people buying homes next year looks 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 -- 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 the percentage of people of adults that live alone in the U.S. and when you get close to 1/3 of the people that are living alone, they don't go out and buy houses. They're in apartments. And so that older demographic becomes a higher propensity to rent apartments, and that stabilizes the system as well.
So 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 some modest rent growth in markets. And so I think are the rent -- we had 5% record growth in 2023 or we're going to have the same in '24? The answer is probably no. But is it a sort of a slower year? Yes. But is -- I think that there's -- there is definitely a construct and a model that would argue that you should have reasonable occupancy in some rent growth in 2024.
Operator
Next question comes from Haendel St. Juste with Mizuho.
Haendel Emmanuel St. Juste
[I'll probably going] to talk a bit more about the decision to let occupancy trend down in October? I would have expected occupancy ticked 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 is falling the most and when we might be able to get back to 95%?
Richard J. Campo
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 by occupancy, by lowering rents dramatically. And so we just think it's a better fit. Our revenue team, we debate where we ought to have our settings on an ongoing basis. And we feel really comfortable with where we are. I would rather have higher rent and higher occupancy. But in this environment with seasonality and 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 a reasonable start to 2024.
D. Keith Oden
So Haendel, just a follow up on that. The idea that we let occupancy go to 94.9% 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% going into October. So -- but I think if you want to kind of connect the dots a little bit, what Alex talked about on our delinquency, but also our continued elevated level of skips and lease break. We had planned at the beginning of the year that we felt -- we really felt like that 2023 would go a long way towards getting back to normal metrics around delinquency and skips and lease breaks and it would kind of happen ratably over the course of the year, and we did make good progress in the first 2 quarters. And there was certainly an expectation and we talked about the expectation of getting to 90 basis points of delinquency by the end of 2023.
Well, guess what? We were on a glide path to get there and all of a sudden, instead of dropping again in -- at the end of the third quarter, 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 -- and the way that flows through in our portfolio is skips and lease breaks are in the same category of short-term lease terminations. And 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 the termination of their lease then by judicial means, then yes, 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 skips and lease breaks typically do, a, you don't have a chance to do anything to pre-lease the apartment; and b, 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 the -- so the days to turn an apartment that is in that category of short-term lease break are just elongated. And we thought we would be getting shorter in fewer of those, and we didn't. We got more. And so that's the biggest reason why it compounded our challenge of seasonality. Certainly wasn't anything we thought it -- wouldn't it be great to get into the 94s on occupancy, but it just happens as a result of those factors.
Haendel Emmanuel St. Juste
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 loss lease is overall today and where is 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 rest of year, (inaudible) haven't seen the numbers come in a bit. So perhaps you can give us an update on where you feel that earning for next year is?
Alexander J. K. Jessett
Yes, absolutely. So loss to lease for us is just under 1% and we're actually showing our embedded growth. Assuming we make our re-forecast for the fourth quarter, our embedded growth should be right around 0.9% for 2024.
D. Keith Oden
Yes. So on the challenge, which 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. So it's Atlanta, it's Austin, it's Charlotte, those would be the big 3 in terms of kind of a compounding of both supply that we did anticipate and then kind of continued elevated lease breaks, which we did not anticipate.
Operator
Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.
Austin Todd Wurschmidt
You guys referenced that a couple of times that only 16% of 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 4Q is as bad as lease rate growth and occupancy could get and 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, skips and evictions, et cetera? And I guess what would change that view?
Richard J. Campo
I think the issue will be what happens in 2029 with the economy overall, right? I mean, if we have -- continue to have robust job growth like we've had so far, and we know we had seasonality this year more than we've had since the pandemic, then you would expect to have a similar pattern, a similar seasonal pattern in the first quarter of 2024, which is very typical, where you have the slowdown start in September, October, 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 the strength of the economy and the consumer still has a fair amount of savings and you look at consumer spending, 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 spending more than wages that are rising. And so the consumer continues to be pretty resilient and assuming that you have a reasonable construct for 2024, you should have a pickup in leasing and occupancy levels like we have had every year before the pandemic.
D. Keith Oden
So Austin, I would say that of the 3 things that we've highlighted and talked about supply, bad debts and skips and evictions. On supply, there's -- 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 Camden's market. But from our perspective, we have already lived in that environment now for almost a year or 9 months or so, and it's in our run rate. I mean if you just -- if you stratify our portfolio between impacted and non-impacted, the differential is in the second and third quarter was somewhere around 300 basis points between those 2 groupings of assets impacted and not impacted.
The ones that are impacted now are probably going to continue to be impacted in 2024. So I think -- the good news is from the standpoint of -- as an operator, that's in our run rate, probably going to stay there at least through 2024. 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 and 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 bad debts to continue to be as elevated as they are right now or expected to be in the fourth quarter.
I mean, if you just go back to -- on the 27 or 28 years of this portfolio prior to COVID our bad debt averaged 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 (inaudible) 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 in skips and evictions. Skips and evictions are double the level that they were in our portfolio prior to COVID. And again, we probably -- we're probably going to have some bad behavior. We've talked some renters, some really bad habits over the last 2.5 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 in throughout 2024. So I think that those 2 will work their way out in 2024. But the supply challenge is going to be [less in] in 2024. But I think we've captured that already, most of that in our run rate.
Operator
Our next question comes from Eric Wolfe with Citi.
Eric Wolfe
I just wanted to follow up on that last answer. I guess I'm trying to understand one thing. What sort of changed from a sort of process perspective to sort of get the bad debt down whether it's sort of external or internal, it seems like we're pretty (inaudible) at this point and to your point, certainly you can just kind of look up ways 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 there's some warning signs for the recent skips and evictions like a common factor or something, that you find with them? Just trying to understand what would -- what will bring that down from the 150 basis points or 140 basis points that you're running at? And 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?
Richard J. Campo
Yes, Go ahead, Keith.
D. Keith Oden
Yes. So no, there's no question, and it will 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 bad debts. But what will solve it is 2 things. One, making sure that we do everything possible to accelerate and to move forward the process of getting folks who are in our apartments paying -- that are 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 lapsed.
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 -- even the worst of the players have, for example, in Atlanta and 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 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 focus on something like this.
So yes, I think that, that will work itself out. And I think ultimately, the skips and evictions, we have done some things internally. We're -- and we have -- where we have the highest incidence of kind of people who are fraudsters and bad actors. We've instituted things like income verification, which we -- back in the old days and the dark ages, we did on every lease. And then we went to a purely online system in the interest of making it frictionless for our customers.
Well, we're going to have to probably go back in some more of these submarkets and municipalities and introduce some more friction that will be a burden to the good actors, but will also deter and catch the bad actors. We've done that in Atlanta. We're 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 off -- get into your community and then having to go through 5 to 6 months process to get them to move on. So yes, it's complex calculus, but our folks are really good 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 ops team's original guidance that we shared with the Street, we said that we thought total revenues would be up 5.1% for the entire year. 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 points off of our original guidance on a $1.6 billion number. And given all of the cross currents and forecasting and assumption making and the execution that goes with that, I think that's pretty remarkable.
Eric Wolfe
Yes. No, it did makes sense. And I agree. I guess what's concerning people sort of this -- the shift maybe in tone and trying to understand what's driving it at this moment, right? Because it did seem 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 then impact in 2024. But then I guess along those lines, we got 16% of your properties that are directly impacted by supply. Just curious how that number will sort of look throughout next year as that goes down? And then if you sort of have a view when the impact of supply will peak next year?
D. Keith Oden
Yes. So my guess is that, that number 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 -- merchant builders tend to be [herd] animals and they building the same places and -- so a lot of the product that's going to be coming in '24 is in the same submarkets as 2023. So I think it may tick up a little bit. But I think that the -- again, based on the analysis that we've done internally and it's pretty detailed at the property level, we think that we're probably -- is probably most of it is in our run rate for a year similar in 2024 to what we had this year.
Operator
Our next question comes from Joshua Dennerlein with Bank of America.
Joshua Dennerlein
I just wanted 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 the softness we're seeing in the new lease rate 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 2024?
Richard J. Campo
Yes. It's a general comment on supply. But to Keith's point on the 16% of our portfolio that is impacted by supply and through those numbers out there about the differential between those 16% and the balance of the portfolio. And so we're going to have more supply through 2024. But again, it's limited to that piece of the portfolio.
Now there's the discussion earlier about, well, what is it? Is it the sort of softness in the fourth quarter? Is it all supply? Is it all consumer behavior? Is it all -- and what's happening is it's a combination of everything, right? Supply is 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 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. And when you backfill them and if you -- 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 circular equation. So it's really 3 different things that are happening and supply will be 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 bad debts because we're implementing things that are trying to keep the bad actors out and the municipalities are all getting better.
And there are -- 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 in a few markets like, for example, every market in the country, except 3 are 1%, 1.5%, 1.8% kind of bad debts and the 3 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 (inaudible) are backlogged. And so you -- those backlogs will fix. And what will happen 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'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 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 look at that part of the equation and say, all right, because of seasonality, we needed to fill more apartments at a slower time, and that's the circular effect of that -- 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 go down.
Joshua Dennerlein
Okay. 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 as is or there's something you guys want to do at this point with it?
Richard J. Campo
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 in a very unusual situation with a flat yield curve. 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 in our portfolio is we have very, 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. And so it's already in our run rate 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 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 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 run rates start dropping, that will flow through to our FFO because we'll start having lower interest cost. 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 move down over the next couple of years.
Operator
Our next question comes from Steve Sakwa with Evercore ISI.
Stephen Thomas Sakwa
Just one question. I know with capital deployment is probably not really high on the list right now. I think we've got the stock probably trading north of a 7.5% implied cap rate. So I guess 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?
Richard J. Campo
Well, we've been really consistent in how we've described our stock buyback sort of appetite in the past, and that has been -- it had to have at least a 20%, 25% discount to what we thought NAV was and needed to be persistent. And we needed to sell assets to fund it. 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 1 asset this year, a small one for $61 million. And when you think about capital deployment today, pretty hard to get a -- when you look at an implied cap rate of 7.5%. And if you look at a long-term model of what apartments will do once we get through this uncertainty of -- and the supply cliff that everybody is 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 sounds 60% to 70%, which the flip side of that means that there's deals getting done. And so for us, 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.
Operator
Our next question comes from John Kim with BMO Capital Markets.
John P. Kim
I just wanted to clarify two items mentioned on this call and my one question. Alex, I think you mentioned that you're expecting new lease growth rates at minus 4.5%, but renewals at positive 4%. I'm just wondering how sustainable that is, especially when you have lost lease at around 1%. And then for Rick and Keith, in your response to Haendel's question on occupancy, I just wanted to clarify that you're still operating at or below 95% for the time being, there's no immediate focus to get it above 95%?
Alexander J. K. Jessett
So on the -- Yes, go ahead.
D. Keith Oden
I'll do -- I'll take the occupancy first and then get it back to Alex. The -- yes, so in light of the fact that we -- our guidance for the fourth quarter included occupancy of our prior guidance before we just issued revised guidance, 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 -- so we're not going to make silly decisions on our either new leases or our renewal rates in order to achieve that. It just doesn't make sense. But yes, within the limits of the levers that we can pull and still get back to mid-95s. That would be our preference.
Alexander J. K. 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 to November. And keep in mind that if you're doing a renewal, you're typically signing that renewal a month to 2 months ahead of time 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 quarter.
John P. Kim
My question was more on the spread between the renewal and new leases, 850 basis points.
Alexander J. K. Jessett
Yes. 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 maintain that.
Operator
Our next question comes from Rich Anderson with Wedbush.
Unidentified Analyst
So I wonder if all of this noise in the system could create an opportunity for you. I imagine you guys are managing the skip and evict process a lot better than your neighboring peers, and you're managing supply better. Ric, you said something about maybe consumer behavior settles down within the next 6 months. 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 year?
Richard J. Campo
Well, it's an interesting question, Rich, for sure. Welcome back, by the way. And 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. Right now, there really is, even with the transactions that are going on today, the 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 buy -- bid and the ask, and it's definitely been coming from primarily the sellers and not the buyers.
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. And so the question will be, will there be distress? And it's hard to say. I mean the deals that are blowing up today, and there are plenty of deals blowing up today are really seeing [C-minus] transactions that were overleveraged, all with floating rate debt that were properties that I would never want to take you on a property tour to do because I wouldn't want you to be on those -- be in that part of town. 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 in the investment-grade market today, and we'll see if -- if there happens in the future. But right now, there's just no opportunity there.
Unidentified Analyst
Okay. And then the 16% supply impacted portfolio. How do you marry that with where you're seeing this skip and evict situation? Is there any meaningful like shared markets? Or the skip and evict issue is sort of more of an overall portfolio phenomenon? Or is it sort of anywhere in particular?
D. Keith Oden
Yes, the skip and evict is highly concentrated in the markets that continue to have the -- that had the worst COVID regulatory restrictions against pursuing -- yes, California, D.C. proper, Montgomery County, Atlanta for a different reason, but that's probably 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 4, I think Ric gave the number in California alone, our bad debts, which is tied directly to the skip and evict, question is it's almost of our 140 basis points, California alone is almost 30 basis points of that. So 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. But there -- 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 while we're sharing merchant builder maxims from the ages, the mantra of a merchant builder is anything worth doing is worth doing success. And so that's kind of where we find ourselves today. And -- and that's true in every one of our markets, there's a supply issue to 1 degree or another.
Richard J. Campo
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 20-story building in downtown, has the most fraud of any building in Houston, also the highest rents of any building we have in Houston. And if you go to Atlanta Buckhead, I think we have 35 lease 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 to Keith's point, in California, our bad debts in L.A. 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 you want to be, say, that than L.A. 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 the past, you pay your phone bill first, then you pay your apartment rent. And now because of the government doing what they did during COVID, apartment rents down the list for more people than it should be. But we're going to get ready to -- we're getting push it so that it goes to be right next to cell phones again.
Operator
(Operator Instructions) Our next question comes from Connor Mitchell with Piper Sandler.
Connor Mitchell
So I'll just keep it to the one as we're at past 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?
Richard J. Campo
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 returns 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, I mean, 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 in 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 I think though that as we get more stability because I think what world hates and we all hate the most is volatility and not having some sort of stability and knowing -- I mean, a view of what things are going to be in the future, right? And I think that's what's sort of causing all this consternation in the market.
When you start thinking 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, there'll be lots of contractors that will work for food. 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 over -- 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 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 -- well, if we get the right returns and balance our returns from a cost of capital and a spread perspective in the right zone, and perhaps we would start developing to be able to deliver into a really good market in '26 and '27.
We're playing a long game here. And we will -- if that's a countercyclical move relative to our competitors, we'll do that. And then same thing goes with acquisitions. We have been -- if you look at our history since -- starting really in 20 -- probably maybe 10 years ago, we sold over $3 billion of properties, bought a bunch of properties, and we sold older properties with lower growth and higher CapEx and reinvested in newer, lower CapEx, higher growth properties. And we did that on a very, very -- turned out to be accretive basis. And so this -- the 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. So yes, 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 path with one of the strongest balance sheets in the sector 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.
Operator
Our next question comes from Wes Golladay with Baird.
Wesley Keith Golladay
I have a question on the delta from new leases in your 5 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?
D. Keith Oden
So the recovery on can pay but won't pay, we turned -- obviously, we turn people over to collection agencies. We pursue them. My guess is that before those folks actually go -- face 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 with -- to varying degrees of success. But -- so the can't pay won't pay is -- are an interesting subgroup. They can't pay -- the won't pay, can't pay, the recovery is actually quite low, but we do pursue. I'm sorry, I didn't catch the first part of your question, Wes.
Wesley Keith Golladay
Yes, the delta on the new leases in the 5 market, I guess that supply will be here next year on -- so yes, 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 in the fraud market? So is it artificially low right now in the new leases in those markets you cited?
Alexander J. K. Jessett
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.
Operator
Our next question comes from James Feldman with Wells Fargo.
Unidentified Analyst
This is John on for Jamie. There was comments about this before, but just trying to think about [your revolver] and we need to fund right now for development and where interest rates are. How do you think about growth in this environment?
Richard J. Campo
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? Because you broke up.
Unidentified Analyst
I understand -- Sorry, can you hear me now?
Richard J. Campo
Yes.
Unidentified Analyst
Perfect. Just trying to understand, given maturities in '24, the size of your revolver right now? Just how do you afford to grow in this environment?
Unidentified Company Representative
Alex, do you want to take that?
Richard J. Campo
Well, bottom line is -- we have access to lots of capital markets, right? And the bond market is open. The great thing about the multifamily business is that -- so if the capital markets are open, we could issue bonds to take out the maturities and we obviously have access to that market. We also have -- and if the bond market isn't open have access to Freddie and Fannie and there's still a robust lending environment out there for multifamily. 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've built this balance sheet for times like this. And when you are sitting at a [4.1%] debt-to-EBITDA with very low debt and having somewhere around $12 billion of 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.
Alexander J. K. Jessett
Yes. 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 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.
Operator
Our next question comes from Robin (inaudible) with Green Street.
Unidentified Analyst
Just one for me. Just want to touch on development. You did well in competing Tempe lease-up without much concessions or outside concessions. How are you thinking about the lease-up strategy for the new Raleigh in 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?
Richard J. Campo
Well, as I said before, the -- it really just depends on the market conditions. Right now, we're offering, I think, 4 to 6 weeks free, and on those properties, and we're getting traction on them and are leasing them up, Camden NoDa, for example, is doing really well in Charlotte, and we don't have the kind of concessions, I think the people are worried about the 3 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. 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 Tempe II with a very, very fast pace with limited -- we did give concessions, but not dramatically. So I think we're going to be fine leasing up the properties we've built in both Raleigh and Charlotte going forward.
Operator
This concludes our question-and-answer session. Would like to turn the conference over to Richard Campo for any closing remarks.
Richard J. Campo
Great. Well, I appreciate everybody on the call today, and we will see you very soon at Nareit in LA. So take care, and thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
