Good morning, welcome to Camden Property Trust's Q4 2022 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, a replay will be available this afternoon. We will have a slide presentation in conjunction with our prepared remarks, those slides will also be available on our website later today or by email upon request. If you are joining us by phone and need assistance during the call, please signal a conference specialist by pressing the * key followed by 0. All participants will be in listen-only mode during the presentation with an opportunity to ask questions afterward.
Please note this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risk 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 Q4 2022 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 hope to complete our call within 1 hour, and we ask that you limit your questions to 2, then rejoin the queue if you have additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or email after the call concludes. At this time, I'll turn the call over to Ric Campo.
Our theme for today's on-hold music was Waiting Patiently, which is what we find ourselves doing these days. The bid-ask spread for multifamily assets is as wide as I can ever recall. Sellers seem to be hoping for valuations to return to last year's peak. Some sellers acknowledge a decline in valuations of 10% to 15%. Buyers point to a dramatically different macro backdrop now versus last year and reckon value should be lower. The result is the current standoff that won't be resolved until buyers and sellers adjust their views on valuation and meet somewhere in the middle. Until then, we wait patiently, which is a lot easier for Keith to do than me. This brief video sums up the hours that Keith and I have spent in recent months debating the merits of waiting patiently versus making something happen now.
Patience. Patience. Patience. Patience. Patience? Hell, let's kill something.
By any measure, 2022 was the best operating environment Camden has had in our 30-year history. We exceeded the top end of our guidance and raised guidance every quarter. Operating conditions over the last 2 years have never been better, driven by being in the right markets with the best product and having the best teams. Apartment demand was driven by an acceleration of in-migration to our markets that opened sooner after the pandemic and continue to be more business-friendly, driving outside job opportunities, and a massive release of rental demand from people who were previously at home with their parents or doubled up as government stimulus added to their savings and subsequent buying power. As a result, apartment supply could not keep up with increased demand. 2023 will be a return to a more normal housing demand market.
Consumers still have excess savings. The job market remains strong. Despite rising rents, apartments remain more affordable than purchasing homes for many consumers in our markets, given the rise in home prices and interest rates. Most of us don't like slowing revenue or negative second derivatives. I think we need to put things into perspective. Apartments are and will continue to be a great business. Consumers will always need a place to live and will choose high quality, well-managed properties to live in. We are projecting 5.1% revenue growth for 2023. Absent coming off last year's 11.2% record-breaking growth, our 2023 projected revenue growth would be the 6th highest growth rate achieved over the last 20 years for Camden.
At this point, I'd like to give a big shout-out to our Camden teams across America for a job well done in 2022. I want to thank them for improving their teammates' lives, customers' lives, and stakeholders' lives 1 experience at a time. I'll let Keith take over the call now. Thank you.
Thanks, Rick. As many of you know, we have a tradition of assigning letter grades to forecast conditions in our markets at the beginning of each year and ranking our markets in order of their expected performance during 2023. We currently grade our overall portfolio as an A-minus with a moderating outlook, as compared to an A with a stable outlook last year. Our full report card is included as part of our earnings slide, call slide deck, which is now showing on the screen and will be posted on our website after today's call. At this time last year, we anticipated 2022 same-property revenue growth of 8.75% at the midpoint of our guidance range.
As we announced last night, Camden's overall portfolio achieved same-property revenue growth of 11.2% for 2022, well ahead of our original expectations and marking a record level of same-property revenue growth for our company. While conditions are expected to moderate during 2023, our outlook calls for same-property revenue growth of 5.1% at the midpoint of our guidance range, which would mark another year of above long-term average growth for our portfolio. We anticipate same-property revenue growth to be within the range of 4.1% to 6.1% this year for our portfolio, with most markets falling within that range. The outliers on the positive side should once again include our 3 Florida markets, Orlando, Southeast Florida, and Tampa, with Houston and L.A., Orange County falling likely below 4%.
The macroeconomic environment today is uncertain, the magnitude of 2023 job growth or even job losses remains a wild card, we expect our Sun Belt-focused market footprint will allow us to outperform the U.S. outlook. We expect to see continued demand for apartment homes in 2023, given high mortgage rates for single-family homes and a reluctance from would-be buyers to make the transition to homeownership amidst this uncertain economic environment. We reviewed several third-party forecasts for both supply and demand in our markets for 2023, the outlook for recession scenarios and job growth or job losses varies dramatically. As such, I'll spend my time today focusing more on the supply aspect and expected completions and deliveries in our 15 major markets this year.
Our baseline projection assumes approximately 200,000 new completions across our markets during the course of 2023. Our 3 Florida markets, Orlando, Southeast Florida, and Tampa, once again earned A+ ratings, with moderating outlooks. These 3 markets had a weighted average revenue growth of 16.4% in 2022 and are budgeted to achieve between 6% to 8% this year. Overall supply will likely increase in these markets. We expect completions of 12,000, 11,000, and 6,000 units, respectively. Charlotte, Raleigh, and Nashville would rank next with an A rating and moderating outlooks for 2023 versus 2022. This will be our 1st year of reporting same-property statistics for Nashville. We anticipate same-property revenue growth of 5% to 6% for each of these 3 markets.
New supply will continue to be a headwind this year, particularly in Nashville. In-migration trends and overall levels of demand remain strong. Our estimates for new deliveries in these markets are 11,000, 9,000, and 10,000 units, respectively. Up next are Dallas and Phoenix, which received A-minus ratings with stable outlooks. Dallas should deliver around 20,000 units this year, but so far demand drivers remain strong and should allow for absorption of many new apartment homes. Phoenix is likely to see another 15,000 units completed this year, which will further temper revenue growth from double-digit levels to a more moderate rate of 5% or so. We expect Denver and Austin to fall around the middle of the pack for our portfolio with approximately 5% revenue growth and would rate them as an A-minus with moderating outlook.
Completions in Denver are projected to be around 15,000 apartments, and Austin is expected to see over 20,000 new apartments come online this year. Both of these markets have seen their fair share of supply in the past few years, but demand has been remarkably strong. Given recent announcements regarding layoffs in the technology sector, we'll keep an eye on both of these markets for any future signs of slowing demand. Our next 3 markets, San Diego, Inland Empire, Washington, D.C. Metro, and Atlanta, earned a rating of B+ with a stable outlook. We expect completions of 10,000, 13,000, and 13,000 units, respectively, and revenue growth in the 4% to 4.5% range.
San Diego Inland Empire should face less supply pressure than some of our other markets this year, but the overall regulatory environment in Southern California puts us in a wait-and-see mode for now. Operations in Washington, D.C. Metro, and Atlanta seem to be more of the same and should continue at a steady, stable pace throughout 2023. Houston and L.A. Orange County are our 2 last markets with grades of B and B-minus, respectively, and revenue growth projections of 3% to 4% this year. Our outlooks for these 2 markets are a bit different as we see an improving outlook in Houston versus a stable outlook in L.A. Orange County. Both markets should see manageable new deliveries with 15,000 and 20,000 units, respectively. Economic conditions in Houston may be a bit more resilient with energy companies making profits and performing well.
L.A. County has clearly had higher delinquencies in bad debt compared to our other markets. We remain a bit cautious on when restrictions and regulatory issues around evictions and non-payment of rents will actually begin to improve. A few details of our Q4 2022 operating results and January 2023 trends. Same property revenue growth was 9.9% for the Q4 and 11.2% for full year 2022. 9 of our markets had revenue growth exceeding 10% for the quarter. Our top 3 performers were our Florida markets of Tampa, Southeast Florida, and Orlando. Rental rates for the Q4 had signed new leases up 4% and renewals up 8.4% for a blended rate of 6.1%.
Our preliminary January results indicate a return to more normal seasonal trends with a blended growth of 4.2% on our signed leases to date. February and March renewal offers were sent out with an average increase of 8%. Occupancy averaged 95.8% during the Q4 of 2022, compared to 96.6% last quarter and 97.1% in the Q4 of 2021. January 2023 occupancy has averaged 95.4% compared to 97.1% in January 2022. Annual net turnover for 2022 was up slightly compared to 2021 at 43% versus 41%. Move-outs to purchase homes were 13% for the quarter and 13.8% for the full year of 2022, down from 16.4% for the full year of 2021.
I'll now turn the call over to Alex Jessett, Camden's Chief Financial Officer.
Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate activity. During the Q4 of 2022, we completed construction on Camden Atlantic, a 269 unit, $100 million community in Plantation, Florida, which is now almost 90% leased, averaging over 50 leases per month, well ahead of expectations. Turning to financial results, last night we reported funds from operations for the Q4 of 2022 of $191.6 million or $1.74 per share, in line with the midpoint of our prior quarterly guidance. These results represent a 15% per share increase in FFO from the Q4 of 2021.
Included within our Q4 2022 results is approximately $0.01 per share of additional insurance expense associated with the recent winter freeze. Excluding these non-recurring insurance charges, our results would have exceeded the midpoint of our prior guidance range by $0.01 per share, resulting from the faster than expected leasing velocity at Camden Atlantic, combined with lower employee health insurance claims and lower property tax rates in Texas. For 2022, we delivered record same-store revenue growth of 11.2%, expense growth of 5.1%, which included the additional insurance expense from the winter freeze, and record NOI growth of 14.6%. You can refer to page 24 of our Q4 supplemental package for details on the key assumptions driving our 2023 financial outlook.
We expect our 2023 FFO per share to be in the range of $6.70-$7.00, with a midpoint of $6.85 representing a $0.26 per share increase from our 2022 results. This increase is anticipated to result primarily from an approximate $0.36 per share increase in FFO related to the performance of our same-store portfolio. At the midpoint, we are expecting same-store net operating income growth of 5%, driven by revenue growth of 5.1% and expense growth of 5.5%. Each 1% increase in same-store NOI is approximately $0.07 per share in FFO. An approximate $0.26 per share increase in FFO related to the additional NOI from our fund acquisition we completed on April 1st, 2022.
This includes the additional 3 months of ownership in 2023 and an approximate 6% increase in NOI from the portfolio. An approximate $0.16 per share increase in FFO related to the growth in operating income from our development, non-same store, and retail communities, resulting primarily from the incremental contribution from our 9 development communities in lease-up during either 2022 and/or 2023. This $0.78 cumulative increase in anticipated FFO per share is partially offset by a $0.21 per share increase in interest expense, of which $0.08 per share is from the utilization of our unsecured credit facility to retire our $350 million, 3.2% unsecured bond that matured on December 15th, 2022. We are anticipating an average 2023 interest rate on our credit facility of approximately 5.5%.
$0.10 Per share is from the full year impact of the $515 million of secured debt we assumed as part of the fund transaction, inclusive of the impact of higher interest rates on the $185 million of assumed variable rate debt. The remaining $0.03 per share in additional interest expense comes from additional borrowings in 2023 under our line of credit, primarily to fund our anticipated development activities. Our forecast also assumes we will use our credit facility to repay our $250 million, 5.1% unsecured bond, which matures in June 2023. An approximate $0.07 per share decrease in FFO related to our 2022 amortization of net below market leases related to our acquisition of the fund assets.
As we discussed on prior earnings calls, purchase price accounting required us to identify either below or above market leases in place at the time of the acquisition and amortize the differential over the average remaining lease term, which was approximately 7 months. Therefore, in 2022, we recognized $0.07 of FFO from the non-cash amortization of net below market leases assumed in the acquisition. An approximate $0.07 per share decrease in FFO related to equity and income of joint ventures and management fees, as we now own 100% of the fund assets. An approximate $0.06 per share decrease in FFO resulting primarily from the combination of higher general and administrative and property management expenses caused by continued wage pressure and inflation, higher franchise and margin taxes, and higher corporate depreciation and amortization.
An approximate $0.06 per share decrease in FFO due to the additional shares outstanding for full year 2023 resulting primarily from our 2022 equity activity. An approximate $0.04 per share decrease in fee and asset management and interest and other income primarily related to the earn-out received in 2022 from the sale of our CHRP investment and lower cash balances expected in 2023. An approximate $0.01 per share decrease in FFO from the disposition we completed in 2022. Our 2023 same-store revenue growth midpoint of 5.1% is based upon an approximate 4.5% earn-in at the end of 2022 and a current 1.5% loss to lease.
We are assuming we capture 1/3 of this loss to lease in 2023 due to the timing of lease expirations and leasing strategies. We also expect a 3% increase in market rental rates from December 31, 2022 to December 31, 2023. Recognizing 1/2 of this annual market rental rate increase combined with our embedded growth and loss to lease capture results in a budgeted 6.5% increase in 2023 net market rents. As a result of increased supply, we are anticipating an 85 basis point decline in physical occupancy, which results in a 100 basis point decline in economic occupancy after accounting for lower levels of rental assistance proceeds anticipated in 2023.
When combining our 6.5% increase in net market rents with our 100 basis point decline in economic occupancy, we are budgeting 2023 rental income growth of 5.5%. Rental income encompasses 89% of our total rental revenues. The remaining 11% of our property revenues is primarily comprised of utility rebilling and other fees closely correlated to occupancy. These items are expected to grow at approximately 1.5%. Our 2023 same-store expense growth midpoint of 5.5% is primarily driven by above average increases in property taxes and insurance. Property taxes represent approximately 37% of our total operating expenses and are projected to increase approximately 6.5% in 2023, primarily driven by larger valuation increases anticipated in Florida, Georgia, and Colorado.
Insurance represents 6% of our total operating expenses and is anticipated to increase by 12.5% as insurance providers continue to face large global losses. The remaining 57% of our operating expenses are anticipated to grow at approximately 4% as inflation and wage pressures, combined with anticipated increases in marketing expenses as we face increased supply, are partially offset by the positive impact of our 2022 on-site staff restructuring. We are expecting total salaries and benefits to increase at less than 2% in 2023. At the midpoint of our guidance range, we assume $250 million of acquisitions offset by $250 million of dispositions with no net accretion or dilution.
Page 24 of our supplemental package also details other assumptions for 2023, including the plan for $250 million to $600 million of development starts spread throughout the year with approximately $290 million of annual development spend. We expect FFO per share for the Q1 of 2023 to be within the range of $1.63-$1.67.
The midpoint of $1.65 represents a $0.09 per share decrease from the Q4 of 2022, which is primarily the result of an approximate $0.005 Per share sequential increase in NOI from our development and stabilized non-same store communities entirely offset by an approximate $0.035 Per share increase in sequential same-store expenses resulting from the reset of our annual property tax accrual on January 1st of each year and other expense increases primarily attributable to typical seasonal trends, including the timing of on-site salary increases and the lower levels of employee health insurance claims in the Q4 of 2022, which are not expected to reoccur in the Q1 of 2023.
An approximate $0.015 Per share decrease in sequential same-store revenue, primarily driven by lower levels of anticipated rental assistance proceeds and sequential declines in occupancy. An approximate $0.02 per share increase in interest expense resulting from the utilization of our unsecured credit facility to repay the December 15, 2022 maturity of our 3.2%, $350 million unsecured bond. An approximate $0.01 per share decrease in FFO resulting primarily from the timing of our annual corporate salary increases and various other corporate accruals. An approximate $0.01 per share decrease in FFO related to our Q4 2022 amortization of net below market leases related to our acquisition of the fund assets. An approximate $0.005 Decline in fee income related to the timing of our third-party construction activity.
Our balance sheet remains strong, with net debt to EBITDA for the Q4 at 4.1 times. At quarter end, we had $304 million left to spend over the next 3 years under our existing development pipeline. At this time, we'll open the call up to questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press * then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press * then 2 . At this time, we will pause momentarily to assemble our roster. Our 1st question comes from Steve Sakwa with Evercore ISI. Please go ahead.
Thanks. Good morning. I don't know if this is for Keith, Ric or Alex, but just as you think about, kind of your blended spreads and kind of looking at the new versus renewal, could you just provide a little bit more color on the 8% number that you talked about and you know, what sort of, I guess, concessions or discounts are you having to offer, you know, when you're sending them out at 8%? Are people signing at that? And then also the new at 1%, you know, looks kind low. Do you expect that to turn negative at all in the next, say, 6 to 9 months?
Steve, on the renewals that are being sent out, we really don't do concessions in our portfolio. The only time we ever use concessions is on new lease up properties where kind of it's expected and it's just sort of written into the pro forma and underwritten that way. We don't really do concessions. We sign our leases within typically sign them within 50 to 75 basis points of what the renewals are sent out at. There is some give, but it's not a whole lot. Regarding new leases, at 1% up, you know, we do expect that to increase slightly over the course of 2023.
you know, just seasonally, it looks like we do have a return to actual seasonality and did certainly at the end of the Q4 . That'll likely continue until, you know, we get closer to our peak leasing season. you know, overall, we're looking for, you know, another strong year of 5.5% ± rent growth, which as Ric pointed out and, you know, standalone and without, you know, kind of juxtaposition to what we did in 2022, over 11%, that would be a really strong year for our portfolio historically. We're looking forward to that.
To your 2nd question, Steve.
Great, thanks.
To your 2nd question, we don't expect our new leases to go negative at all over the next 6-9 months. If we have, depending upon what happens, what unfolds throughout the year, you know, our feel and the way we built our guidance was that we would have either a very, you know, a reasonable soft landing or a mild recession. We combined that, and that's why we took our occupancy numbers down and our vacancy numbers up. As far as new leases going negative, they don't generally, if you look at historical, sort of timing of seasonality, they tended to go negative in sort of the November, December, January, and then start a positive rise after that.
This year, we didn't have them go negative during that period. We clearly had a, you know, a significant negative second derivative on the growth, but we never went negative. Assuming if you have an recession next year and we have more reasonable or more normal market seasonality, then they may go negative in December. That's just new lease growth.
Great. Thanks, guys.
Mm-hmm.
Our next question comes from Nick Joseph with Citi. Please go ahead.
Thanks. Appreciate you walking through all the different market outlooks. If we kind of drill into Houston, L.A., and Orange County, 3 of the ones I think you're expecting to underperform a bit, you know, been the same markets that have underperformed at least for the past few years. What do you need to see from those markets, you know, maybe structurally, kind of going forward that would change the outlook and get them more towards the top end of the grade?
Well, the challenge you have with Southern California is that if you look at projected migration from either immigration, legal immigration or domestic migration, Southern California over the next 3 years has almost a half a million people leaving. On the other hand, if you look at Texas, including Houston, the projections show around 350,000 of new migrations. That's 1 of the big things, is you just have this drag from people moving out of those markets and moving into our markets. What could help Houston fundamentally is continued energy transition jobs that are happening here and continued, you know, strength in the oil and gas market.
You know, the oil and gas folks, just to give you some numbers, laid off about 80,000 people in the pandemic period and have only added back about 50. What's happened is, they've become more efficient, even though they're printing money right now, if you look at their earnings. They haven't really stepped up to hire, you know, people, and they've become a whole lot more efficient. You know, I think Southern California has some upside because ultimately, when you get past the COVID measures, I mean, you know, that's been the biggest challenge there, is you have huge gap between economic occupancy and physical occupancy, almost 1,300 basis points.
Part of that, I think it's all driven by the fact that in California, you don't have to pay your rent. Ultimately, when that clears which hopefully, you know, may be extended to the end of May or end of March, in terms of restrictions. Hopefully once that ends, you'll have a positive situation where you'll be able to kind of run your business like a business. Today, you know, we can't get our real estate back, and people smile as they live free and drive their BMWs and Teslas and feel pretty good about the world.
Thanks. appreciate that. Then, just on your opening comments on the transaction market, you mentioned the wide bid-ask spread and kind of having some patience. Where would you buy today, I guess, from a cap rate or an unlevered IRR basis? What would you be comfortable underwriting and transacting if the seller was willing to do it there?
You know, the cap rate side is kind of hard to, you know, to peg because the question will be whether, you know, what we think the upside of the property is. A lot of times when we buy properties, you know, they're pretty, you know, poorly managed using revenue management wrong, you know, in a wrong-headed way, and we can, you know, create a lot of value from that. We find properties that are stressed. You know, you may be buying by the pound, not the cap rate, and then we'll be able to drive the cap rate up. In terms of unlevered IRRs, you know, we've increased our unlevered IRR hurdles by at least 100 basis points, given, you know, our cost of capital rise.
We'd be looking at for acquisitions in the 7, you know, kind of plus range on an unlevered IRR basis.
Thank you very much.
Mm-hmm.
Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Hey, good morning, everybody. Alex, I believe you referenced a $0.015 Negative impact to Q4 FFO, from lower rental assistance, and I was wondering if you expect any additional impact going forward and just what you're assuming for, you know, net bad debt for this year in your guidance.
Yeah, absolutely. Net bad debt for us for 2023 should be right around 1.4%. When you think about rental assistance, in 2022, on a same-store basis, we got about $11.5 million Of rental assistance. In 2023, we're assuming some, but really negligible amounts. The best way to sort of think about it is that on a net basis, there's not much of a change in terms of bad debt from 2022 to 2023. If you sort of back out the positive benefits of rental assistance that we got in 2022, then we are showing some improvement in 2023.
Ultimately, our bad debt's only 0.5%, and that's the challenge we have today. It's very elevated. Given the outlook for, you know, a potential recession, you know, we're hoping that that 1.4% will start going down throughout the year and ultimately go back to a 50 basis points in number, you know, in 2024. There's some positive growth that can come from people actually starting to pay their rent.
Yep.
Got it. Understood. Then, it seemed like Houston had started to see some momentum last year, sort of bucking maybe the trend of some of your other markets, given it didn't have as difficult a comps. You know, it is remaining at the lower end of your revenue growth expectations and market outlook. I guess I'm just curious, you know, what's really holding back Houston from stacking up better versus other markets, and is there potential for, you know, a surprise to the upside, as you move through the year?
So we have in our forecast, we've used 15,000 completions in Houston, which, you know, in a normal year in Houston that would be seen as a positive to the overall market conditions given the size of the Houston market. Interestingly enough, in Ron Witten's numbers, he actually has Houston job growth is basically flat or 0 and flat total employment over the year and after. It's 1 of those things where we don't necessarily agree with Ron on everything, and I think it's very possible that he's got the that he has the job growth outlook, he's understated it in Houston.
The Greater Houston Partnership came out with numbers after Ron's latest update that indicated Houston could be as high as 60,000 or 70,000 new jobs in 2023. That's quite a range between 0 and 70,000. I think when we look at our modeling, and he carries that over into his rental forecast, we probably tweaked Ron's rental forecast in Houston to reflect a little bit more dynamic situation on job growth in Houston. I think there is a chance if the energy business continues as it is right now, which is basically almost every energy company in the country in the Q4 reported record earnings. If that trend continues, I just can't imagine that we're not gonna see a more robust job growth situation in Houston.
Yeah. I think the other thing that could help Houston a lot is the, you know, when you think about the federal government spending, even though we have lots of supply coming on, the supply is getting shut off. We, you know, we know that's happening right now given the current financial environment.
We have a tremendous amount of, in Houston, of federal money that's coming here, be it via, you know, hydrogen, carbon capture, you know, expansion of the port, and just a lot of big government projects that are going to create a lot of employment over the next, you know, 12 to 36 months with the massive amounts of spending from the infrastructure bill and the, you know, the Inflation Reduction Act. That Houston should benefit big time from both of those.
That's helpful. Thanks for all the detail.
Our next question comes from Michael Goldsmith with UBS. Please go ahead.
Good morning. Thanks a lot for taking my question. Turnover was down 100 basis points in January, and blended same-lease growth increased to 2%. Is that indicative of an upturn in trend? Maybe asked another way, is there any indication that demand has bottomed, and how did top-of-funnel demand and conversion in January compare to December or prior months?
So the question of kind of where we see demand, you know, I think that the decline that we saw between November and December was far. You know, was outsized compared to normal history. We normally see a decline in occupancy and rental rates from November to December at somewhere around the 20 or 30 basis points. This year it was wide of that by 40 or 50 basis points on both metrics. There's clearly, you know, something changed in the total amount of people seeking to lease apartments between November and December that was a little bit higher than what we would have normally expected. There's no doubt about that.
I mean, we've sort of, kind of made the comment internally that it felt like people, a lot of our renters went home for Christmas holidays and a fair number of them stayed home, so. Our trends have gotten better in January. Our traffic is sufficient to backfill and to maintain the occupancy and over time increase it a little bit. You know, we did decrease our overall occupancy for the year of 2023 from where it was last year. Last year we were at, you know, at historically elevated levels. We modeled 95.7% in occupancy for 2023, which again, by historical standards is really still quite strong for us.
You know, 1 of the things that was. I'll just kind of hit it in a really broad way because and these, this data, these data points that I'm gonna give you right now are just really hot off the press over the last week or 2. As Keith Oden pointed out, we felt definitely a more seasonal situation during the Q4 . But it was also, as he said, you know, it's sort of like people just went away in December. When you look at the stimulus and you know, post-pandemic demand, right? Think about this, these numbers are pretty amazing. In 2021, the industry absorbed 600,000 net new units in 2021 in multifamily, and that's when we had the massive stimulus.
Lots of people had money, they moved out. If you look at the average between 2014 and 2023 or 2021. There were about 150,000 people on average that made between $25,000 and $75,000 a year. In 2021, that number grew to 450,000. The same thing can be said for the $75,000 to $100,000 cohort, went from 100,000 people to 150,000 people. Over $75,000. Those were fewer, but you went from 150,000 people on average to 225,000.
What happened was the whole market moved up in terms of people that had money because of the stimulus and because if you think about even if you lost your job during this pandemic, if you lost your job in 08, 09, you got a fraction of your pay in unemployment. you know, maybe 60% of your pay through unemployment insurance. The way that stimulus worked and the way unemployment insurance was tweaked during the pandemic is you got 110 or 115% of your pay when you lost your job. You had this massive saving. It moved up a lot of people into the world that wouldn't otherwise have been able to afford an apartment, and they all moved out to apartments.
If you look at 2022, we had a net absorption of 50,000 units, right? We had really anemic absorption. A couple other numbers that I think are really fascinating would be in the Q4 of 2008, which was a really bad time in the world, we had a negative, this is national, negative absorption of multifamily of 115,000 units. In the Q4 of 2022, which obviously is a lot better than the Q4 of 2008, we had 181,000 net loss of apartment. 115 to 181.
The 181 was so big relative to the history, I couldn't find a time, at least that Keith and I have been in this business, where the number was that big. What happened, obviously, is that those people that moved up income-wise have spent their money and moved back, and they stayed home after Christmas instead of coming back and renewing their leases. That's why when you start thinking about next year, I think next year, you know, is gonna be a good year, ex some real bad recession side of the equation. That's why you can't continue to have, you know, 14%, 15% NOI growth with double-digit revenue growth when the market is going back to a more normal market.
We're just getting off this sugar high of everybody has money and can go out and do whatever they want, including lease apartments.
That's some very helpful commentary. In your guidance, there's a wide range for development starts. Maybe what macro conditions would you look for that would drive you to the top end of the range versus maybe the bottom end of the range? Thanks.
There are a couple of key points. 1 is that, if you look at what's going on, the biggest sort of change in the market from a product perspective has been banks have really shut down construction lending. With the uncertainty with interest rates, rents now are not going up fast enough to be able to offset the construction cost increases that we've had in the past. You have a lot of models that show merchant builders dropping construction somewhere in the 40% to 50% range. If you look at starts today, they're around 0.5 million. The folks we look at show that those starts going to, like, 250,000 by the end of this year, almost a 50% cut.
If that trend continues, the way we think about the world is, you know, it takes 24-36 months to build a property. You have great legacy land that makes sense for us to build on, and we could deliver at a time where you have very low supply in 2026 and 2027, given the outlook for the supply to be reduced. The other thing we're starting to see is because most folks do believe that they're that starts will come down dramatically this year, you're starting to see price pressure moderate. In the last 3 years, construction costs have gone up, you know, over 30% to almost 40% in terms of cost. Now we're seeing it flatten and actually go down.
There could be an opportunity over the next 6 months where you do see some significant cost reductions. If we can get our costs down, and we believe fundamentally that supply is going to be down, and the market will be pretty good in 2025 and 2026, we're gonna lean into that's where we would be hitting the top end of our development range. If sort of the, y ou know, the interesting part is if you think about if you have a recession, then those starts will really go down this year, and costs should come down even more.
That could allow well-capitalized companies like Camden to, you know, buck the trend and develop when merchant builders can't and be able to position, you know, higher returns on developments than you would expect today in 2025 and 2026. That's how we think about it.
Thank you very much. Good luck this year.
Thank you.
Our next question comes from Haendel St. Juste with Mizuho. Please go ahead.
Hey. Good morning out there. My 1st question is going back to the same store revenue guide. Can you clarify for us the building blocks and how the math works? I'm looking at your current midpoint of 5.51, but also considering the earn-in, which I think was around 5%, and the market rent growth assumption that you have in your supplemental of 3%. Assuming half of that gets us into the, call it, mid-60s. Can you spend a moment or 2 kind of clarifying the build up to our same store revenue and what are the swing factors to get to the upper and lower end? Thanks.
Absolutely. First of all, you're right. The earn-in, and we'll call it the earn-in plus sort of the loss to lease that we think we can capture is about 5%. We have market rent growth from December 31st of 2022 to December 31st of 2023 of about 3%. Obviously you can only get half of that. To the 5%, you add the 1.5%, and that gets you to 6.5%, and that's what we call net market rent. The driver sort of, you know, the dilutive impact to that is economic occupancy. We are making the assumption that occupancy comes down about 100 basis points.
You take the 6.5%, and you back off the 100 basis points, and that gets you to a 5.5% rental income growth. Now, remember that rental income is only about 89% of our total property revenues. If you take that 5.5% rental income growth, and you multiply it by 89%, you get to about 4.9%. The other 11% of our rental revenues comes from other income. Think about water rebilling, trash rebilling, admin fees, application fees, those type of items, and they're so closely correlated to occupancy. They're also, some of them are statutorily mandated to the amount that you can actually charge. We're expecting that 11% to grow at about 1.5%.
If you multiply those 2 out, you get 0.2. You add the 0.2 to your 4.9, you get exactly to 5.1.
Got it. Got it. That's helpful. 2nd question is on the $250 million of acquisitions and dispositions you outlined in your guide. I guess I'm curious on how we should broadly be thinking about the timing in light of the stall transaction markets you outlined. Are you willing to wait for better cap rates, or are you expecting better cap rates? Getting calls from many and getting more calls from merchant builders or sensing an opportunity there? Then any markets that you're outlining that you're adding more to or culling from? Thanks.
I'll answer the timing and then let Ric and Keith answer the 2nd part of it. The timing of what we have in our model is we've got it towards the end of the year, and we've got them offsetting 1 another. There's no net accretion or dilution from acquisitions or dispositions in our 2023 guidance.
We just got back from NMHC, and it was interesting. There were 88,500 registered people there, a record for NMHC. That doesn't include the 2,000 that don't wanna pay the fee. They just hang around the hoop trying to, you know, have meetings with people, trying to understand the market. It was interesting because you had 3 camps. You had the camp where the capital like people with capital like us and other, you know, portfolio managers and others, and we were all kind of waiting to see what's going to happen. You had merchant builders who still are kidding themselves that they're going to start as many properties that they thought they were going to start this year.
There are some that are realistic, that are actually betting on a lower start number than is projected. Then you have the brokers who are all very excited about getting back to work. You know, when you look at some of the numbers that we heard, January numbers, I heard 1 of the national brokerage groups said they did about $1 billion of sales in January 2022, and this year they've done $80 million. There is definitely a the market is frozen to a certain extent because you have this bid-ask spread. I think as the market, you know, develops, capital will look to try to, you know, get reasonable rates of return.
Like I said earlier, I think it might be where you're buying by the pound, and knowing that ultimately, you'll be able to make a reasonable rate of return, but maybe not initially, in terms of you might buy lease ups and things like that don't really have great returns yet, but you might buy it at, you know, substantially below what we could replace it for today. I do think that there's definitely a wait and see attitude and that will continue, you know, probably, you know, until there's just more clarity. I mean, you know, when you think about the Fed's meeting this week, they, you know, I think most people believed, you know, liked the 25 basis points. Market liked it.
You know, interest rates came down, all of a sudden, ka-bang, you have 500,000 jobs today. The 10-year is back to 3.50. Now we're back to talking about, well, you know, what's the Fed going to do now, right? A 50-year low on unemployment rate. So there's just so much uncertainty that it's hard to get conviction. When I think the market gets conviction, then you'll start seeing there's plenty of dry powder out there. The question is, you know, who will blink first? I think it's going to be the sellers that have to blink first. I'm hoping that anyway.
I hear you. I was at National Housing too. I agree with your comments. I was at National Multi-Housing too, and I did speak to a handful of people in the minority who thought that, well, maybe a better spring selling season and lower interest rates in the back half year could result in lower cap rates. Is that a scenario that you can envision? I mean, how do you think about potentially that outcome?
Well, I guess on the 1 hand, there's a mountain of capital, right? Multifamily is a great business, and people understand that. I guess if the Fed can, you know, sort of thread the needle and doesn't crash the economy and rates, you know, forward rates look like they're going to be in the, you know, the 3% to 3.5% range, I think you could, you know, argue that cap rates might either firm dramatically or come down some.
you know, I think that when you look at the negative leverage that people have to put on their properties today, if you look at Freddie and Fannie spreads relative to the 10 year, you're at about, you know, you're about 5.25%. If you're going to buy a, you know, a 4% cap rate, you got 100 to 150 basis point negative spread there, and you got to figure out how do you get that negative leverage dealt with. If you want a 6, you know, a 6.5% to 7.5% unlevered IRR, you got to bet on some pretty strong growth, or falling cap rates in the future to ever make those numbers work.
There's a scenario for sure, but it's right now, I wouldn't bet on that scenario.
Thanks for the time and the thoughts.
Mm-hmm.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning. Morning down there.
Morning.
2 questions. Morning. 2 questions. First off, on California, just, you know, especially in light of what L.A. recently did, Has your view of that market changed? I mean, I've asked you the question over the years about California, and there are a lot of good qualities about Southern California lifestyle, et cetera. It seems like the conditions there for landlords get, you know, tougher every year. Now, uncertainty, you know, with the good cause and, you know, whether or not further rent evictions, whatever. Is that a market that you still believe in long term, or your view has changed in the past, you know, year where you're like: "You know what? It's not the market that we thought it would return to." You mentioned 500,000 people, I mean, sorry, leaving.
That, you know, eventually that's something that we have to, you know, strategically assess.
Go ahead, Steve.
Alex, you know, the last 2 years as in all the trials and tribulations that have come with the restrictions and the eviction moratorium, et cetera, those have been, to me, a distraction from the bigger picture. You know, California has had a challenge and has been a challenge to operate in for not just the last 2 years, but for the last 3 decades, or 2 and a half decades anyway. You have to kind of get your mind around the fact that it's a different regulatory regime. Everything is going to be trickier. Everything is going to be a little bit stickier in terms of moving forward on new initiatives, et cetera.
That's something that we've lived with for 20 years. We know how to do it. We're good at it. We have a very seasoned team in California that knows how to navigate their way through normal, you know, the normal regulatory morass in California. The last 2 years have been an exception to that for sure. I do believe, and we believe as a team, that the end of the, at least the eviction moratorium and the ability to get control of our real estate is coming to an end.
I, you know, I know that they've said, "I swear to God, this is the last time we're gonna extend it." I do believe that the L.A. County extension for this last 2 months came with a very public announcement supported by virtually the entire council that said, "We're gonna do this, and then really and truly, no kidding, this is the last 1." Whether it is or it isn't, and whether it goes on for another 2 months beyond that, in the big picture of having operated out there for almost 20, over 20 years, I don't think you can-
You know, a business like ours, given the nature of our assets and the long-term commitments that we make, I don't think you can kinda just get emotionally wound up about what craziness the last 2 years have been. I think if you look beyond that, California is actually a really good story in terms of being a landlord because it's, you know, just as difficult as it is to run properties, it's 3x difficult to build properties in California. It's kind of like the new supply challenge is not gonna be what it is that we have to deal with in our other markets. California will-
You know, I guess I'm a little more optimistic than most people that we'll reach a tipping point in some of these places where, you know, sanity has to prevail. Maybe we don't end up with the continued hemorrhage of outmigration from California and things get more on a normal track. If that were to happen, you'd get a great return in demand. You haven't had any a meaningful amount of replacement or new product built, you know, in the last 4 years in terms of new starts. I think it could end up being a really good operating environment, once we get past this, you know, 2 and a half years of craziness.
Okay. 2nd question is, Ric, you guys are always sort of the speaker on regulatory policy. Obviously, we all know what the White House put out. In your view, does this make Fannie Freddie debt less attractive if borrowers think that the government's gonna use them to affect change? 2nd, the CFPB and FTC obviously have broader, you know, regulatory powers to go after all apartments. Do you fear that, you know, this is gonna be some sort of overreach? Or your view is the local regulations that already regulate apartments are already so tough that it's really hard to, you know, to really sort of up the ante, if you will?
On the 1st question with Freddie and Fannie, I don't think it's gonna affect it that much, you know, because when you look at those guidelines, They're really targeting lower income and trying to help there. I mean, 1 of the things that people don't realize is when you think about the attacks that the multifamily business are getting, you have to think about who the largest entities that evict people are public housing agencies, right? Federal Government. Not market rate companies like Camden. Just to give people a sense, too, by the way, in normal times where We try to keep our residents as long as we can.
We work with them to create value for them, and we work on payment plans. You know, in a normal time, out of 60,000 apartments, we maybe evict 600 people a year. A lot of those evictions are people, not monetary defaults, but the person's, like, had a, you know, has a dog that bit somebody or is disruptive to their neighbors. I feel pretty good about long term that we're not gonna be under siege.
You know, clearly for a politician, when rents go up 30%, they scream for rent control, and they scream for, "Oh my God, there's bad people doing things." It's almost like when energy prices, you know, go up and gasoline is $4.50 a gallon, they think the energy companies are the villains, right? It's really supply and demand driving that. I think we do have to be vigilant though, because it is politically expedient oftentimes to just say, "Well, we'll put a cap on and we'll do rent control because that'll help the constituents." Ultimately, we all know that, and there's lots of economic analysis on this, both left and right think tanks all think that rent control stifles supply, which ultimately creates the problem for folks.
Good news for Camden is we're in the markets we're in, we don't have a lot of major regulatory, you know, you know, targets on us. I think that a lot of the, Even, like, if you look at Florida, for example, where a couple of the markets have tried to put in rent control, I mean, they're just getting massive pushbacks from both legally and from the state houses. We do need to be vigilant, but I don't think we're at risk of having some massive government making us do stuff.
Thank you.
Mm-hmm.
Our next question comes from Chandni Luthra with Goldman Sachs. Please go ahead.
Hi. Thank you for taking my question. The first one's on TRS acquisition. With the benefit of hindsight, if you think about the different moving pieces, especially around higher interest expense now versus, you know, at the time of the transaction, how would you qualitatively think about this deal now and, you know, the net accretion from it? Especially when you consider the dynamic that has also increased your exposure to markets like Houston and D.C. that, you know, as you mentioned, are your B-ish, B-minus kind of ratings in sort of, you know, the whole deck.
Well, I think the acquisition is still a great acquisition. At the time, we financed it with equity, mostly equity. We had $600 million of cash, and we, you know, executed a large equity transaction to pay for it. Ultimately, when I think about that portfolio, it was a very low risk acquisition for us, primarily because we either built them or bought them. We operated them, so there was really no transition risk or no, oh, gee, got your risk because you didn't know what was going on with those properties, since we clearly knew everything that was going on with those properties.
You know, from a accretion dilution perspective, it was accretive in 2022, and it's accretive in 2023. You know, when you look at our. The walk that Alex showed in our, and went through in our press release, the broader interest rates going up were a drag on our FFO, not as a result of that transaction per se. It was bonds coming due that were, you know, at 3 and some change that we're having to finance at 5 and some change now. I think it was a very good transaction for us.
Ultimately, we would've had to unwind that that portfolio because we had a 2026 kinda timeframe where we would have to sell the assets. To be able to acquire really high quality properties with very little transaction risk was really attractive to us. To the issue of longer term, we want to lower our exposure in D.C. and Houston, and the fund transaction actually increased our exposure to Houston. We were willing to sort of delay that a bit to be able to acquire those quality properties. Ultimately, we are going to grow our way out or do dispositions and acquisitions in other markets to be able to lower those exposures.
Really, it's all about trying to become more geographically diverse so that we can have less volatility in our cash flow, and that's sort of the 1 of the reasons why we wouldn't exit California right now, because it's a good, it's a good ballast and also could be great upside over the next couple of years once we get out of the pandemic issue. Yeah, we will continue to focus on being more diverse around the country and move assets around. If you think about from 2014 to through, you know, through roughly 2020, we sold, you know, over $3 billion of properties and moved the portfolio around pretty dramatically during that time and changed our geographic footprint and we will continue to do that.
Hopefully in this environment when buyers and sellers get closer together, we'll be able to execute some of those sales and acquisitions to move to continue to diversify our portfolio.
Very helpful. Thank you for that. As a follow-up, you know, as we think about occupancy in 2023 and the dip that you guys talked about, how much of it is emanating from higher supply versus you guys perhaps prioritizing pricing over occupancy? You know, as we think about California in this mix down the line, as you said, a couple of months down the line, you would be perhaps thinking about looking to get back your real estate from tenants who are not paying currently. How would you put that in this mix of, you know, how occupancy might develop?
Yeah. We're modeling, you know, occupancy that's 95.4 ± for 2023, which, you know, which compared to our long-term average is about where we would like to operate the portfolio in any case. We've certainly been higher than that for the last couple of years. You know, as Rick described, the drivers of demand that sort of made that happen, you know, were very unusual and probably not likely to. I hope we don't see that kind of a that kind of demand driven for that reason anytime in the near future. I think we'll, you know, we use. We're pretty strict revenue management shop.
The levers that you can pull are, the primary lever is pricing, to try to adjust your occupancy to maintain in the, in the mid 95%, mid to upper 95% range. We will continue to take those recommendations from YieldStar. We think the inputs to the model, both on the, you know, looking at the new supply, which we know is gonna be a headwind, we think we've properly accounted for that in our forecast. Ultimately, it will come down to the conditions on the ground in each individual market, as, you know, as viewed by the YieldStar model in terms of where the pricing actually falls.
In California, if they do let the eviction moratorium finally lapse at the end of March, which again, we think that is likely to happen, that doesn't, you know, that in itself doesn't solve the issue of getting.
Your real estate back, you still have to go through a legal process to effect an eviction. Unfortunately, with California and several of our other markets, even those where they have long since given up on the eviction moratorium, they're still struggling to catch up with the process of going through a legal eviction. We're prepared to do that. You know, expect to be first in line to pursue evictions, but we just know that it's gonna be some lag between, okay, you know, we've lifted the moratorium, now you can begin the process, which in some cases can take 30 to 90 days, depending on the jurisdiction. It'll be a-
You know, I think even after March 31, it will be a little bit of a drag in terms of time to get our real estate back. The flip side of that is that we think that once the gig is up for the rent strikers, that they may choose to just move out voluntarily before we evict them because they know there's. You know, the end is in sight, and that's something that they haven't had to contemplate for the last 2 years.
Thank you for all that detail.
Mm-hmm.
Our next question comes from Rich Anderson with SMBC. Please go ahead.
Hey, thanks. Good morning out there. Thanks for hanging with us.
Mm-hmm.
You're driving around the country and I'm curious to know how is the market clearing that gets you to where you're at with revenue growth at 5.1% versus last year. Obviously, we're all expecting deceleration, is this landlords like yourself and others kind of sort of slow playing it because of the uncertainty that lies ahead, or are you seeing some sort of behavioral shifts with residents that's causing the market to clear where it's clearing? It all kind of comes down to market rental rate growth, what you're assuming for this year at 3%.
Is there a chance that if we do have this soft landing or no recession at all, or whatever you wanna call it, that market rent growth number could, you know, be something much higher than 3%?
Sure. That's why we have a range, right? you know, I think. The upside in our guidance could clearly be occupancy. I mean, if you have a very positive. You know, the job number today was, you know, eye-popping obviously. If you-
Right.
If the Fed can thread the needle and keep job growth going and have a, you know, a soft landing, whether it's a landing, you know, and you keep the consumer going, then, yeah. I think you have 2 parts of upside in that guidance. 1 would be the rate, right? The 3%. The other would be, we probably beat our occupancy numbers. The occupancy number is probably the 1 that, when I think about those numbers, the earn-in is the earn-in. The 3%, that's what most market pundits are putting out there. The occupancy is where-
could be too conservative given an outcome that you just, that I just described. There, you know, there are 2 places where you could beat, and those are the really the 2.
I guess what the question is: Is this proactive from you, or are you seeing behavioral shifts from your residents that are, you know, landing you where you're at now? MAA said they're not seeing any behavioral shifts with their residents, that they're really more focused on the macro, that's what's driving where they're landing right now. Is that a consistent theme for you guys?
I would say that, you know, based on the numbers I said earlier, you know, where you had a negative absorption in the Q4 of 181,000 units in America, that's consumer behavior. Those are people.
Yeah.
staying home for Christmas. Those are people who, you know, got paid all kinds of big stimulus money, had cash coming out of, you know, because of forced savings, and decided to go out and rent an apartment, and then they spent that cash, and now they're going, "Hmm, what am I gonna do? Maybe the economy's uncertain, and I'm gonna go back and live with mom and dad or double up and try to save money again." I think that consumer behavior is clear that that has happened. You know, we went from, like I said, 600,000 positive net absorption in 2021, and it was 50,000 in 2022. The 50,000, when you think about it, was all in the H1 of the year.
If you look at the positive absorption was all in the H1, and the Q2 you started having kind of flat. Q3 you had negative some, then the Q4 you had a big negative. I would say that is a definite consumer behavior issue that's out there, and I don't think you can ignore it. Our view, and that's why we came out with occupancy falling and rent being moderated. It's just. It is based on also a less robust economy in 2023.
Rich, on the consumer behavior side, you know, 1 of the stats we gave in our prepared remarks was people move out to purchase homes, which was about 13.8% for all of last year. Just to give you a refresh on that number, in the month of January, that number dropped to 10%, just over 10%, move-outs to purchase homes. My guess is it falls into single digits by next quarter, and we've only seen single digits on that stat for maybe 2 consecutive quarters during the middle of the great financial crisis. I mean, We're getting to some pretty uncharted territory in terms of housing affordability and the willingness and ability of people to move out of apartments to buy homes.
I don't think that's, you know, I think we're at the beginning of that cycle.
It's clearly a positive on that, on that side, obviously. Go ahead, Rich.
Yeah, I'm sorry. I don't mean, I.
That's okay.
I'm anxious to get through the call here. 1 real quick question for Alex. If I'm doing the numbers right, your variable rate debt exposure went from 6% last quarter to 15%. I know that, you know, you had to deal the $550 million of secured debt. Is that a number, 15% that we should be expecting for the full year? Do you expect something to, you know, maybe right size your about the rate debt exposure in the coming months and quarters? Thanks.
Yes. Yeah, absolutely. In our guidance, we are not assuming any capital transactions. Obviously, we're watching the market closely. You know, rates have been coming down until this morning, and the spreads have been tightening. We're watching that closely. If we have the opportunity, we will take out some of this floating rate debt with fixed rate debt. At this point in time, we're sort of operating under the thesis that interest rates are gonna come down as we go through the year. Based upon that, it probably makes sense to push out fixing rates really as long as we can. That's what's baked into our model.
As I said, we're gonna be opportunistic, though, and if we see, if we see an option, we'll take it.
Mm-hmm. Okay. Fair enough. Thanks. Thanks, everyone.
Mm-hmm.
Our next question comes from Wes Golladay with Baird. Please go ahead.
Hey, everyone. Thanks for taking the time. I just want to follow up on that last question, if I understand it correctly. It looks like you can borrow today around 4.5% and have a 1% interest savings on that floating rate debt. Would you have a penalty to pay that off? I guess that would just be outside the guidance if you were to take it out today, but it sounds like you just want to be a little bit more, I guess, aggressive at this point, and if you could get a little bit lower than the 4.5 I just cited.
I'll tell you, I mean spreads came in this week alone about 30 basis points. If you would have asked me on Monday, I would have told you the number was 4.8. It was 4.5 this morning. Obviously that's heading in the right direction. We wanna see where rates continue and whether or not we can get any better on that. On the floating rate debt that's associated with the fund transaction, the debt we assume there is a 1% penalty. Obviously 1%'s really not that much, and certainly that can go into the math pretty easily.
When we look at what's on our line and what's on our term loan, there is no penalty. That really does give us tremendous flexibility. If this, if the unsecured market, continues to improve, you know, there's some potential upside there.
Okay. Going back to Houston, I think you cited supply of 15,000. Is that a lot of that supply directly impacting your portfolio? If you were to look out to next year, would you expect supply to be comparable up or down?
Actually, most of the stuff that is being built in Houston right now is not directly comparable with our portfolio. Some of it is. Obviously, the downtown assets and midtown assets, there's been a reasonable amount of construction in both of those sub-markets. Our portfolio in Houston tends, you know, suburban, and there really just hasn't been that much new supply built in the suburban markets in Houston. It had just gotten started, maybe a year and a half ago, and now it's slowed considerably in terms of new starts. I think we're, as with most of these markets, you know, when you see a scary headline number on completions, a good example would be Austin.
There's 20,000 apartments that are set to be completed in Austin this year. You know, kind of headline number, It sort of, you know, you got to take a double take to when you see a 20,000 starts in a market like Austin. When you really go through the geography of where our portfolio is, such a big amount of that is in or around the downtown area, and we literally have 1 community that is impacted by all of that. If, you know, if our, if our portfolio were heavily oriented to downtown, either in Houston or Austin, that'd be a much greater concern than what I think it's actually gonna be. Obviously, all supply in a market matters, but it's like throwing rocks in a pond.
You know, at the margins, if it's not near you, it raises the, you know, it raises the water level a little bit, but it's not a huge issue unless it happens to be in the particular sub-market where your assets are located.
Got it. Just to follow up on that, was it gonna be. Do you think it accelerates next year, or does it comparable or down?
So-
Any early view on that?
Yeah. For Houston starts or, excuse me, completions, next year, we have it at 19,000 apartments completions-
Okay, great.
about right.
Okay, thanks for the time, everyone.
Sure.
Our next question comes from Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Thanks, everyone. I just wanted to touch base on, appreciate the build from 2022 to 2023 FFO guidance at the midpoint. I just want to touch on that amortization of net below market leases from the fund acquisition. Is that, like, something we have to factor into 2023, or is it fully out now that we've kind of lapped 2022? Just trying to get a sense of how we should be modeling this going forward.
Yeah, it is fully out. There is absolutely nothing in 2023. The variance that you're looking at is the $0.07 that we recognized in 2022 as compared to 0 in 2023.
Okay. Okay. Appreciate that, Alex. Then, maybe, touching base on the markets. From some of my screens, it looks like maybe it's a market that's weakening. It was interesting to see your occupancy went up sequentially. Could you kind of just provide more color on what you're seeing on the ground and how maybe your portfolio is positioned versus maybe some new supply and, yeah, kind of how you?
Yeah.
see it all shake out.
We have completions in Phoenix for 2023 of 15,000 apartments. Employment growth in Phoenix next year is about 26,000 jobs. You know, that's a little bit out of equilibrium in terms of, you know, job growth to new deliveries. Although the new deliveries have actually come down pretty substantially from where they were in the previous year. I think Phoenix is. We have it listed as an A-minus market and moderating, so I think that's. Or excuse me, A-minus and stable, so that seems about right for the overall operating environment in Phoenix.
Okay. Appreciate that. Bye.
Our next question comes from John Kim with BMO Capital Markets. Please go ahead.
Thank you. On your same-store revenue guidance this year, I appreciate the breakdown. 1 component that seems to be missing is the renewal rate growth, especially since that renewal versus new lease rate spread widened the Q4 and again even more so in January. I guess my question is, what's a good run rate for that renewal versus new lease spread, and how is that factored into your guidance this year?
Yeah, absolutely. For the full year, we've got renewals up about 4.9% and new leases up 2%. When you blend that out, that gets you to about 3.5%, and that 3.5% picks up the market rent, plus the about 1/3 of the loss to lease that we said we'd capture. If you think about the sort of renewal component that you are addressing, that renewal component is what you're gonna find and is captured in that loss to lease. That's what we're saying is that we'll get about 1/3 of that based upon timing and then based upon leasing strategies.
When you say market rental growth is 3%.
Mm-hmm.
That's not reflective of the 2% new lease growth rate? How do those 2 tie in together?
Yeah. Market rental rate is gonna be the rental rate that we expect December 31st of 2023 as compared to December 31st of 2022, right? You're gonna pick up that component. The renewals, if renewals are coming up to market, that is effectively what you're picking up in the loss to lease. The new leases, if people leave and you're backfilling them, that's also getting picked up in the loss to lease.
Okay. I appreciate it. Thank you.
Absolutely.
Our next question comes from Robi Souw with Green Street. Please go ahead.
Good morning. Alex, I noticed Texas and Florida markets printed double-digit expense growth this quarter. Are you baking in similar expense growth throughout 2023 for these markets?
Yeah. When you see that, a lot of that's due to the timing of property tax refunds, and sort of how that flows through the system. No, I would not expect that to be a sort of run rate type item.
I mean, property taxes are expected to be fairly high. I know you pointed to about 2.5% for the portfolio this year, but Texas and Florida probably screens a little bit higher. If not double-digits, do you see these states to print, you know, in the high single-digit range?
No. You know, if you think about the states that I specifically called out for having higher property taxes, you do have Florida. Texas was not 1 of them. You've got Florida, you've got Georgia, and you've got Colorado. Those are the markets that we're anticipating having higher property tax expense. So that's where, you know, if we're averaging 5.5% and property taxes make up 1/3 of our total expenses, those markets that are gonna have the higher growth in property taxes are gonna have the higher expense growth. Yeah, I would expect that once again in as said, Florida and then Georgia and Colorado.
That's clear. Then I want to talk about the D.C. market. How is front door trafficking trending in D.C. relative to the portfolio average? Are you seeing any signs of people starting to migrate to the suburbs or even out of state?
We've certainly seen some outmigration from D.C., particularly the D.C. proper as opposed to D.C. Metro. It's not anything like we've seen from New York or California. I would say at the margins, yeah, we do get, you know, in terms of folks that show up in Atlanta for relocation purposes, you know, it's certainly in the top 3 or 4, you know, from destinations. I think again, more D.C. proper than the suburban areas. A lot of that's just driven by employers in the, you know, where you happen to be. Your office is located in D.C. proper. People have been very reluctant to return to their offices because they've been allowed to basically work from anywhere.
If you can work from anywhere, in, you know, D.C. proper is probably not in your top 10 places to work from if you have complete flexibility. Yeah, I think it's. We have 3 assets in D.C. proper, and we certainly have seen more of that from those 3 assets than what we had seen prior to COVID, for sure.
Compared to L.A., for example, Washington D.C. has positive net in-migration over the next 3 years compared to 350,000 out-migration. You don't have the backdoor open as big as you do in D.C. versus any of the other California markets.
This concludes our question and answer session. I would like to turn the conference back over to Ric Campo for any closing remarks.
Thanks. We appreciate you all being on the call today. If you have any other questions, we'll be around, so just give us a call, and we'd be happy to give you more detail. Thanks.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.