Camden Property Trust

NYSE:CPT

Earnings Call Transcript 2022-Q3

[Kimberly Callahan, executive]

Good morning, and welcome to Camden Property Trust Third Quarter 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, 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] And please note, this event is being recorded.

Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them.

Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden's complete third quarter 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 e-mail after the call concludes.

At this time, I'll turn the call over to Ric Campo.

[Richard Campo, executive]

Good morning. The theme of our on-hold music today was Thank You. Earlier this year, our Board of Trust managers wanted to send a message of thanks to Team Camden for their unwavering commitment to our customers, each other and our shareholders throughout the pandemic and beyond. The idea resulted in this video that was shared with all Camden teammates during our annual 15 city award ceremony tour.

[Presentation]

[Richard Campo, executive]

Operating fundamentals continue to be strong and above long-term trends. Rents are following their normal seasonal slowdown as customers prepare for the holidays. Even as seasonality comes into play, new and renewal rents are much higher than historical pre-pandemic levels, setting this up for a strong start in 2023. Demand continues to outstrip supply. And given the rise in interest rates and home price appreciation, apartment affordability is at an all-time high relative to home ownership in all of our markets. Our development pipeline continues to be a source of external growth.

As we discussed on our last earnings call, we will not be selling or buying properties for the balance of the year. Apartment transactions remain quiet as participants cost of capital continues to rise and price discovery continues. Our balance sheet is one of the strongest in REIT land and positions us to take advantage of opportunities, as they unfold. I would like to thank all of our Camden teammates for all they do to improve the lives of our teammates, our customers and our shareholders one experience at a time.

Next up on the call is Keith Oden.

[D. Keith Oden, executive]

Thanks, Ric. Now a few details on our third quarter 2022 operating results and October 2022 trends. Same-property revenue growth was 11.7% for the quarter and 11.6% year-to-date. Our performance was in line with our expectations, so we've maintained our outlook for 2022 full year revenue growth of 11.5% at the midpoint of our guidance range. Rental rates for the third quarter has had signed new leases up 11.8% and renewals up 11.5% for a blended rate of 11.6%. To date, leases signed during October are trending at 6.9% blended growth with new leases at 5.2% and renewals at 9.4%. For leases that became effective in October, the blended rate was approximately 10%.

Occupancy averaged 96.6% during the third quarter, down slightly from 96.9% last quarter and 97.2% in the third quarter of '21. October 2022 occupancy is currently trending at 96.1%.

Net turnover for the third quarter was 51% versus 47% last year, and move-outs to purchase homes dropped to 13.2% versus 15.1% last quarter. We would expect to see a continued decline in move-outs to purchase homes through the remainder of the year given the recent increase in mortgage rates.

Next up is Alex Jessett, Camden's Chief Financial Officer.

[Alexander Jessett, executive]

Thanks, Keith. Before I move on to our financial results and guidance, a brief update on our recent real estate and finance activities.

During the third quarter of 2022, we stabilized both Camden Buckhead, a 366-unit, $164 million new development in Atlanta and Camden Hillcrest, a 132-unit, $92 million new development in San Diego. We began leasing at Camden Atlantic a 269-unit, $100 million new development in Plantation, Florida. And we began construction on Camden Woodmill Creek and Camden Long Meadow Farms to single-family rental communities, both in the Houston metro area with a combined 377-units and the combined cost of $155 million.

During the quarter, we increased our existing unsecured line of credit capacity from $900 million to $1.2 billion and extended the maturity to August 2026, with 2 further 6-month extension options. We also added a $300 million delayed draw term loan with an August 2024 maturity with a further 1-year extension option.

Currently, we have approximately $30 million drawn under our line of credit and no amount is outstanding under our term loan. We will likely use our term loan and line of credit to pay off our $350 million, 3.2% unsecured bond, which matures on December 15 of this year.

Our Board recently increased our share repurchase authorization from $269 million to $500 million. We did not repurchase any shares during or after quarter end. Our balance sheet remains strong with net debt to EBITDA for the third quarter at 4.2x. And at quarter end, we had $348 million left to spend over the next 3 years under our existing development pipeline.

Last night, we reported funds from operations for the third quarter of $187.6 million or $1.70 per share. Included in our results are approximately $1 million or $0.01 per share of property expenses associated with Hurricane Ian, which are excluded from our same-store results. Excluding the impact from Ian, our third quarter results would have been $0.01 above the midpoint of our prior guidance range. This $0.01 per share positive variance resulted primarily from the combination of slightly higher other property income and slightly lower corporate overhead expenses.

During the quarter, we experienced higher-than-anticipated repair and maintenance and utility expenses resulted from inflationary pressures. However, these increased amounts were entirely offset by lower levels of employee health insurance expense due to lower claims amounts.

Last night, we reconfirmed the midpoint of our previous full year same-store growth guidance at 11.25% for revenue, 5% for expenses and 14.75% for net operating income. Our 11.25% same-store revenue growth assumption is based upon occupancy averaging 95.8% for the remainder of the year with the blend of new lease and renewals averaging approximately 8.5%. These expected increases compared to achieve blended increases of approximately 15.5% in the fourth quarter of 2021.

Last night, we also increased the midpoint of our full year 2022 FFO guidance by $0.01 per share for a new midpoint of $6.59. This $0.01 per share increase results primarily from lower than previously anticipated corporate overhead costs.

We also provided earnings guidance for the fourth quarter of 2022. We expect FFO per share for the fourth quarter to be within the range of $1.72 to $1.76. The midpoint of $1.74 represents a $0.04 per share increase from the $1.70 recorded in the third quarter. This increase is primarily the result of the previously mentioned $0.01 per share third quarter impact from Hurricane Ian, an approximate $0.06 sequential increase in same-store NOI, resulting from $0.03 in increased revenue driven by higher net market rents, partially offset by lower occupancy and $0.03 in lower property expenses resulting from our typical seasonal decrease in utility, repair and maintenance and unit turnover expenses combined with the timing of property tax refunds and an approximate $0.03 sequential increase in NOI from our development communities in lease-up and our other nonsame-store communities.

This $0.10 aggregate increase is partially offset by a $0.03 decrease in the amortization of net low market leases related to our second quarter acquisition of the fund assets.

As we discussed on our first quarter earnings call, purchase price accounting required us to identify either below or above market leases in place at the time of the acquisition and amortize differential over the average remaining lease term, which is approximately 7 months. Therefore, in 2022, we will recognize $0.07 of FFO from the noncash amortization of net below-market leases assumed in the acquisition.

We recognized $0.035 of FFO in the third quarter of 2022 from this amortization, and we will recognize the final $0.005 in the fourth quarter. If leases were above market, the amortization would have resulted in an FFO reduction over the remaining lease term. A $0.015 decrease in FFO related to higher interest expense, primarily attributable to higher variable interest rates and $0.015 in higher other corporate costs related to anticipated higher health insurance expenses and the timing of certain year-end accruals.

At this time, we'll open the call up to questions.

[Operator]

[Operator Instructions] And the first question will come from Jeff Spector with Bank of America.

[Jeffrey Spector, analyst]

My first question is a follow-up to Ric's comment on demand continues to outstrip supply. And I know there's a various supply forecast for next year -- different forecast, I should say. How -- I guess, Ric, is that common for now? Or do you feel that, that in 2023 that will continue. How are you guys thinking about supply in '23 in your markets?

[Richard Campo, executive]

Sure, supply in '23 is definitely going to be out there. I think we have a projected supply from Ron Witten's number, about 180,000 new units coming into our markets. And with decent job growth and migration to our markets, we think that's going to continue. And so new supply should -- we should be able to continue to raise rents during that period, barring some big economic issue, obviously, that could be out there on the horizon. But we feel pretty good about the number of units that we observed in 2022 and think that 2023 should be a decent year even with the supply coming in.

[Jeffrey Spector, analyst]

And then my second is on the development pipeline. How are you thinking about that as we head into '23? I mean there does seem to be some clear signposts of the consumer pulling back, weakening? How are you thinking about that as we head into '23?

[Richard Campo, executive]

Clearly, development, we're looking at each one of our developments and making decisions on when we start or if we start in these deals in 2023. And I think good news is we -- there's a fair number of them that are middle of the year, towards the end of the year. And so we'll just have to see how the market works out from that perspective. I think one of the things that we are starting to feel is that construction pricing is flattening out, which is good. And so maybe it makes sense to wait to see few more cards on cost and also how the market -- how the economy does next year.

[Operator]

The next question will come from Nicholas Joseph with Citi.

[Nicholas Joseph, analyst]

Recognize you've been mostly out of the transaction market, but hoping you can provide some color on where cap rates have trended more recently across your market also recognize that probably not a lot is traded, but any kind of recent data points or thoughts around that would be appreciated.

[Richard Campo, executive]

Sure. I think that's exactly right that the market is very quiet from a deal perspective. And we have a little technical problem going here. So Keith's going to join me on this -- on my side here.

But yes, so if you think about the market's today, people -- if you don't have a reason to get into price discovery, then you're probably not going to do it in this market. And so I think that's the -- the key point is that there's just a just no reason to transact in this uncertain environment. Cost of capital has gone up for everyone. The buyers that were using debt, especially floating rate debt, are having to rethink their models. And I think, ultimately, as we get -- this is the high-tech version of when you fix computer keys.

So Yes. So I think it's -- people are sort of waiting for the first quarter to see what happens. The good news is cap rates definitely have risen substantially and the property value. So it depends on who you talk to, you're down anywhere from 10% to 20%. And the good news is you saw our numbers and all our competitors' numbers. We're still driving NOI in a way, way, way above what we normally get. And so that's kind of helping offset some of the cap rate rise.

And so I think ultimately, there will be transactions done. There's still a wall of capital out there that wants to invest in multifamily. And 2023 is going to be a really good year. I think even in a slowing market, we're still going to have decent rent growth. And I think we have a great embedded start for the year that -- so when you start thinking about cash flow growth in 2023, it's going to be better than it is on average, but probably a lot slower than 2022, but that should have some benefit in terms of keeping values from falling dramatically more than they have already.

[Nicholas Joseph, analyst]

That was very helpful. And then as you think about kind of uses of capital, obviously, we've touched on development a bit. You mentioned the share repurchase program. How do you think about executing there your stocks in the mid- to high 5% implied cap rate today? At what point does that become a more attractive use of capital?

[Richard Campo, executive]

Well, as you saw in our release that we increased our buyback program authorized by the Board of $500 million. Historically, we've been a big buyer of the stock, not recently, but the stock buybacks are interesting on the one hand because clearly our -- it's hard to tell what values are today, but it's -- the stock is -- when you think about FFO yield and its implied cap rate, it's a pretty attractive price.

The issue you have in REIT land is that it's hard to buy a lot of stock back. And we definitely want to keep our balance sheet strong. So we're not going to go out and borrow money to buy stock. But as we've done in the past, when you can sell assets in the private market at 100 cents on the dollar and buy your stock at 75 cents on the dollar, that's a pretty good investment.

We'll do it through sales and not through debt. And we'll take our time. And we've always said the stock price has to be 25%-ish of -- at a discount and has to be persistent so we can get in the market on a moderate basis, and we'll -- that continues to be our philosophy.

[Operator]

The next question will come from Steve Sakwa with Evercore.

[Unknown Analyst]

[indiscernible] from Evercore. I just have a follow-up question about development front. So how much more conservative are you being on underwriting? And how much have you changed your development hurdles on your deals given the change in cost of capital?

[Richard Campo, executive]

Well, the development deals that we had under contract that we didn't have hard earnest money on. We definitely have changed our hurdles. Our cost of capital has gone up substantially, obviously, like everyone else's. And when you get down to it, we're not going to do a development that isn't a positive spread of at least 100 to 150 basis points wide of our weighted average cost of capital. And our weighted average cost of capital has gone from 5 and some change to 7 and some change. And so we definitely have implemented that new hurdle into future development pipelines. And then each one of our existing developments that we haven't started today, we're putting that new hurdle on it.

The good news is that rental rates have gone up substantially, as you've seen in our numbers. So we've been able to do better than we had anticipated in a lot of -- in terms of rents. We also think that usually, we were putting a 1% construction cost increased per month, so call it 12% a year. And we think that number is going to slow or go negative when we start seeing starts fall because most merchant builders are telling me today that their starts are going to be down substantially in 2023 and 2024, given cost of capital and the lack of bank financing.

So yes, in fact, we have increased our hurdles, and we are reviewing all of our projects that fit into the new hurdle rate.

[Unknown Analyst]

Okay. That's really helpful. My second question there with $0.07 contraction from the previous top end of guidance. So kind of indicating a more conservative outlook, could you provide some color on the operating trends you've seen so far? And what may be limiting the upside?

[D. Keith Oden, executive]

Yes, there's a $0.07 decline in the top end, but there was a $0.07 rise in the bottom end and really just reflects the fact that we're a month into the last quarter of the year. And there's a lot better visibility in our world when you're looking at 60 days than when you are 120 days or a full year. So it's really more just narrowing the guidance because we think there is likely to be less variability.

The amount of the width of the guidance that we took into the third quarter was primarily around just the uncertainty on collections. I mean and ERAP payments. And so it's just -- it's very hard to model those 2 items because they're -- in this environment, particularly in California and Washington, D.C., they're not things that we have direct control over. So our guidance was reflected that in the third quarter, and we've got a little bit better visibility. We kept the midpoint the same. Actually raised the guidance $0.01 for the full year. But yes, it's just -- it's really just less time over the forecast period and trying to give investors a little bit more clarity around where we think we're likely to end up at the midpoint.

[Operator]

The next question will come from Austin Wurschmidt with KeyBanc Capital Markets.

[Austin Wurschmidt, analyst]

First, you guys still expect to commence the Camden Nations deal this year? And then secondly, going back to development. Last quarter, I think you had discussed yields on future starts ranging from the low 5s to low 6s. And Ric, you just mentioned rents have gone up some, which has helped, but how much the costs need to go down from here for you to achieve that new 7% hurdle rate?

[Richard Campo, executive]

To answer the first part, we're not going to start Nations this year. It will be in next year's start depending upon how the cards fall in the first and second quarter. But in terms of construction costs going down, we don't think they're going to go down substantially very soon. Usually, it takes a really big economic situation -- to a bad situation to drive cost down. We have that in the financial crisis in a big way, but we're not really anticipating that next year at this point, unless you assume financial crises style problem.

But what will happen though is as the pipelines do moderate, there will be fewer developments being done and then costs will just at least stay flat, maybe down a little. But we've already seen some commodity prices like lumber. We're at pre-pandemic prices for lumber and tripled during the pandemic. So I think there will be some less pressure on cost, which is -- and I also think that we'll be able to shorten our development time frame, which will take cost out of it -- out of the system with fewer developments getting done rather than having to add time to the scheduling might be able to take some time out of the schedule and compress that to save money as well.

So ultimately, it will be about where rental levels are. And the good news is, is that rents given where we are today are likely to be strong in 2023, and that should help those yields as well.

[Austin Wurschmidt, analyst]

So looking at the backlog of future starts that you have today, based on some of those assumptions, maybe today's rents and sort of current cost, how many projects? And what sort of volume would that represent that meet the 7% hurdle?

[Richard Campo, executive]

Well, right now, we haven't really spent a bunch of time looking at each development in the pipeline and wondering what it's going to be at this point because we're not at that point yet. But we have around 3,000 units or 3,300 units in our pipeline. And each one is going to be evaluated on an independent basis with the new hurdle rate lens that we're going to put on it.

Now the good news, too, is that when you think about the capital markets that we have today, debt prices, you really don't want to go into the net market if you don't have to, you really don't want to go into the equity market, obviously. And so -- what we will likely do is use dispositions to fund development in the future. And that -- when you start looking at that -- then you start thinking about trading, right? You're trading in existing asset with a certain growth rate at a certain price with -- for a new development that has a different profile.

So we will look at what the incremental sort of accretion dilution is from that model and then -- I think that rather than just saying, okay, I have to have a certain hurdle rate on the development, if we can sell assets and create a limited dilution scenario by selling and funding development and buying other properties, and we'll do that. And so that will change the dynamic a little bit on the hurdle rate for new developments for next year.

And the bottom line is we'll have to figure out -- or the market will have to show us whether there's an ability to fund development and other activities with stock buybacks and what have you through dispositions. And we'll just have to see how that all plays out next year.

[Operator]

The next question will come from Neil Malkin with Capital One Securities.

[Neil Malkin, analyst]

First question, it seems like you've been raising guidance every quarter. Obviously, Sunbelt very strong. That's great. But then the maintaining, it looked like it had to do with potentially D.C., L.A., either elevated vacancies from long-term [ delinquent ] move-outs or some sort of bad debt issue, as the California [indiscernible] are running out of reimbursement funds. I noticed that occupancy in October dipped 50 basis points to like 96.1%. And previously, I think Alex mentioned you guys were assumed to average 96.6% in the back half of this year. So it seems like you took that down by 80 basis points. So maybe can you just talk about what you're seeing and what's leading to that, the drop and all the things I just mentioned.

[Richard Campo, executive]

Alex, do you want to take that?

[Alexander Jessett, executive]

Yes, absolutely. So the first thing I would touch on is occupancy. So occupancy is certainly a little bit lower than we had expected, but by the same token, our asking rents or our net market rents are higher than we thought. So it was really sort of a trade between occupancy and rental rates.

The second thing I will point out, and you are correct, especially in California, we did have less ERAP proceeds from the second quarter to the third quarter and that was primarily the driver of what you saw in the growth differential on a sequential basis for San Diego and L.A. So to give you an idea, San Diego had about $225,000 less ERAP received in the third quarter as compared to the second quarter. If you normalize both of those that our sequential revenue in San Diego would have been up 2.5%.

If you look at L.A. and in particular, the Camden in Hollywood, we had about $220,000 less in ERAP in the third quarter as compared to the second quarter. So obviously, that would have a significant impact. And then in Phoenix, we also had higher bad debt and less reletting income in the third quarter as compared to the second quarter. If you would normalize that, that would have been up 2.7%. So that really is sort of the drivers of what you saw.

[Neil Malkin, analyst]

Okay. And so nothing -- just to be clear, nothing about the potentially elevated move-outs for long-term delinquents, particularly in your California portfolio contributing to any of that? It's more of -- it's really potentially all will be laid out there.

[Richard Campo, executive]

Well, if you have -- we have more skips and evictions than normal and -- than we did in the second -- or third quarter -- second quarter. We had more in the third quarter than the second quarter. And some of that is clearly driven by people who are moving out. One of the things that's really interesting when you look at the numbers is that in the second quarter, we had a higher collection rate. I think the answer is like 97% and change. And then the third quarter was 94% and some change. And that was primarily driven by California and you had a situation where most residents thought they would have to pay their rent. And then California extended the eviction moratorium until January 2023. And so people -- when you give people runway and say, Gee, you don't -- you're not going to be able to be evicted and you don't have to pay your rent, they take an opportunity about -- to do that.

And so hopefully, starting in January, we have no eviction moratoriums or things driving bad consumer behavior, and that will hopefully improve in 2023.

[Neil Malkin, analyst]

Okay. Other one for me is, maybe in-migration talk about that a little bit. It seems like that continues to be very strong. Certainly, commentary we've heard from brokers across the Sunbelt seems like job growth and attraction from employers continues to ramp. But there's been some conversation of potential reversal of that, as some companies implement return to office. So I was hoping you could maybe give us some data points or bigger picture thoughts on in-migration your confidence in that? And then any anecdotal or early signs that there may be some sort of reversion of the in-migration or to be very strong in one way?

[D. Keith Oden, executive]

Yes. So Ron Witten's numbers for migration -- net migration into Camden's markets for 2022 are at $153,000 net to Camden. He's got -- based on the same numbers for 2023, he has net in-migration of $179,000. So not only is it not reversing, but in his -- the work that he's done indicates that net in-migration will actually increase in 2023. And it stays elevated in 2024. And obviously, the forecast numbers and they're subject to a lot of variability. But I think directionally, in-migration is going to continue to be a pretty significant positive to Camden's overall geography.

[Alexander Jessett, executive]

And then I'd add to that, in our particular market, so 21.5% of our move-ins in the third quarter came from non-Sunbelt markets and that's actually up 100 basis points sequentially. And if you compare that to the third quarter of 2020, it's up 400 basis points. So we continue to see sequential increases in migration to our markets.

[Operator]

The next question will come from Rich Anderson with SMBC.

[Richard Anderson, analyst]

So I want to add a sort of a big picture question. And kind of looking back at history to see if we could have some clues about what might happen from all this because the changes that we're seeing, some of it are normal seasonal patterns, as you described, Ric, but then we have a recession, potentially coming.

And I'm wondering if this is Chapter 1 of a pretty meaningful deceleration beyond what would be called normal seasonal patterns. And if you look back at last time multifamily -- last several times multifamily fell into a negative same-store growth scenario. What is it about the current fundamental setup today that you think protects against an outcome like that? Is there -- maybe that could happen in your mind and you leave that option or that scenario open to potentially happening. But I'm just curious what confidence you have, the firm and the industry will avoid something really draconian, call it, a year from now?

[Richard Campo, executive]

Yes. So I think, first of all, if you have a financial crisis, right, like we had in 2008 and '09 is sort of a different world...

A normal recession or a hard landing recession or soft landing, whatever you want to call it, the multifamily business is going to do well. So -- and the reason is, number one, you're starting out from high numbers, right? Occupancy is at a high level across the country. That's number one.

Number two, the consumer -- our consumers are doing really well. Our average income is $117,000, $118,000 for our new people. They're paying less than 20% of the rent in percentage of their income in rent. They have a lot of cash in the bank still. They're well employed. So it's -- our consumers are doing great. And when you have this in-migration coming in, yes, we have supply coming. But we've had supply coming to these markets for the last 30 years, as we've been a public company and supply has never killed the golden goose. It might slow growth a little bit, but in some cases. But because of the diversified portfolio we have, it really doesn't impact the business that much.

So when you think about the single-family home move-outs, we were at 15% in the summer, we were at 13% now. And I think the trending numbers through October are down -- are to 12%, and we think that number is going to go to single digits when you start thinking about interest rates being tripled for single-family home folks and the pricing. The pricing model today for multifamily is as good as it's ever been in our history relative to people moving out to buy houses.

I serve on the Board of the largest privately held homebuilder in America. And our sales are down 50% from June forward, and they're not going up. And it's -- so I think with all that, all those backdrops, this should be a -- multifamily should be a really good place to be in any economic slowdown.

[D. Keith Oden, executive]

So Rich, I would just add to that, that if you start the year, and I think we've given guidance to 2023 with sort of embedded rent growth, and we start the year at 4.5% to 5% up on rents -- rental revenue, it would take -- as long as this is sort of a normal type recession -- even if the land is a little bit on the hard side. As long as it doesn't persist into far into 2024, I think multifamily is a really -- is going to be a really protected place.

As Ric mentioned earlier, our residents are in really good shape. And as long as our residents don't lose their job, now it's a different -- obviously, different scenario as great financial prices. As long as they still have their job, they're going to live where they live. They're going to continue to live out their lease term and it implies that we'll be up 5% on rental growth.

So I think there's just a lot of mitigating factors to where we sit today. It doesn't mean that the margins, of course, it affects things if we lose 2 million or 3 million jobs in the economy, but it's just not a direct impact to our portfolio over the near term, call it, end of 2023.

[Richard Anderson, analyst]

Just a quick side to that, you mentioned rent to income of 20%. What -- how bad has it gotten in history for you guys? And how does 20% compare to when it was at its worst? At its highest?

[Richard Campo, executive]

As -- we actually have stayed in that zone. We've never had -- and I think it just has to do with our markets. We're in high-growth, low-cost markets, right? So the rents aren't noticeably rents anywhere in our markets. So I think we've probably been at 22% maybe over the years and driven by West Coast and East Coast. If you look at California, it's probably higher than that. It's in the 24%, 25%.

But bottom line is that one of the reasons that the Sunbelt has done so well is because it's affordable. And people -- and that's why I think you don't have a lot of the move back. Once you move to Charlotte and see you can get a really cool apartment for half the price in New York City apartment, people like it and they stay. And so I think that the market -- we've never had pressure on our residents' income to rent ratios really in the last -- for the last [indiscernible] years, really.

[Operator]

The next question will come from Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, analyst]

So 2 questions. Just going back to the analysts who asked about Southern Cal and D.C. And obviously, right now, it's not the time to be doing any large transactions just given the capital markets. But if you look at your portfolio and especially comparing it to your peer in America, it would seem like having D.C. and having Southern Cal are not helping the overall portfolio mix. I mean especially D.C. is an outsized weighting.

So when the markets return, it would seem like these are markets to down weight and exit or severely sell down and fund elsewhere. Just sort of curious because the Sunbelt has definitely proven a lot more resilient in its economic diversification and ability to push through supply, whereas D.C. seems to be on a decade-plus supply issue in Southern Cal, while better than the other parts of Northern Cal right now, still has the California cost of living and taxes, et cetera.

So just curious, your thoughts as you look at your portfolio over the next 2 to 3 years?

[D. Keith Oden, executive]

Yes. So the way I look at it, Alex, is that our California portfolio and big chunks of our D.C. Metro portfolio have still not experienced the rental rate reset that all of our other markets have. And I just think that the economics are pervasive. Ultimately, the water will seek the proper level. I think ultimately, rents are going up in California. Probably at some point, we'll exceed the average of our portfolio in the same in D.C. Metro.

So your underlying question of long term is D.C. at 17%, the right number? I mean, we've said consistently that we'd like to shrink that over time. California at 12%? Maybe. But the reality is that until -- there's 2 things going on right now, you have a really a huge disconnect in valuations to kind of what you think the underlying asset ought to trade at. And then more importantly, long term, you've got this opportunity to get the rental reset in those 3 markets, which by the way, just between those 2 markets that all of California and D.C. Metro is almost 30% of our portfolio.

So I'm more interested in let's get through this period of kind of turmoil and uncertainty in pricing. And then let's reap the -- what we know, what I believe to be the underperformance and level setting that needs to happen in those 2 markets, and then we'll look at it at that point. It doesn't mean that around the edges, we still won't do something, as Ric talked about opportunistically to support our development program or even possibly a share buyback program if the math works.

[Richard Campo, executive]

If you think about what we've done in trading assets in the last like 10 years, we sold $3 billion and developed and/or bought $3 billion, and ultimately, we have moved the market concentration around pretty substantially in the last 10 years. And so over a long period of time, you'll see us do some of that.

[Alexander Goldfarb, analyst]

Okay. And then second question is just going back to supply. Again, Sunbelt traditionally has actually done pretty well with managing supply apart from like Houston. But -- as you look at your markets over the next 12 months, are there any markets or any submarkets where you're saying, hey, maybe next year, you guys could be citing this submarket or that submarket that could have a supply issue? Or as you look at all of your properties across all the portfolio, your view is that there's not any area where supply is an outside concentration or risk?

[D. Keith Oden, executive]

So Alex, I would tell you that the answer to that puzzle rests and tell me what the job growth is in these cities. Because if I look at 2022 completions in a market like Austin, where we had almost 17,000 apartments and yet Austin has continued to outperform our overall portfolio, it just tells me that there continues to be real strength in 2 places and the employment growth, but also in migration. Same thing in Charlotte.

Well, if you roll that forward to 2023, the supply market actually increases in almost all of Camden's markets. I think Witten's got completions at about 130,000 this year, moving to about 180,000 completions next year across Camden's portfolio. So that's meaningful, but it's not necessarily concerning to us in light of what's happened on job growth and in-migration.

So I think the good news in all of Witten's data for -- that we look at is if you roll forward into 2023, his data indicate that starts across Camden in the markets go from 210,000 down to less than 150,000 and then they fall further to about 115,000 in 2024. Now that -- that's probably a lot of good news for the multifamily world in '25 and '26 and now we're way out on the horizon. But the reality is, starts are coming way down, completions are going to have to slug through for the next year-and-a-half or so because they're going to continue to be elevated by historical norms.

But it's our view that we'll continue to have -- be able to backfill that in our -- with our geography between new job growth and in-migration.

[Operator]

Next question will come from Chandni Luthra with Goldman Sachs.

[Chandni Luthra, analyst]

So I wanted to talk about Hurricane Ian. Are you guys seeing any increase in short-term leases or any impact on rates in the aftermath of the hurricane?

[Alexander Jessett, executive]

No, we're not.

[D. Keith Oden, executive]

Fortunately for us, we had very little damage. We had no quite residents nor did we have any seriously impact. So -- we got lucky a different path of that storm, maybe where it was originally forecast over the top of Tampa Bay, would be having a different conversation with you. But no, it's -- we had been very little disruption. We had minimal amount of damage. The estimate that we gave was a little less than $1 million, which given the size and magnitude of that storm and the fact that it went right over the top of Orlando as a Category 1 storm is -- we were very pleased with how it turned out.

We have not -- we've either seen benefit from people moving from the really badly affected areas into our market. Those are not -- that wouldn't be a normal place where that those people would kind of see short-term shelter while they try to rebuild their homes on the -- at the gulf coast of Florida. So overall, it's been not a big issue for us, either physically on our assets or [indiscernible].

[Chandni Luthra, analyst]

Got it. And as a follow-up, any preliminary thoughts on expenses next year? How should we think about real estate taxes, insurance all the other line items that go into that bucket?

[Alexander Jessett, executive]

Yes, absolutely. So real estate taxes, I'll address that 1 first. Obviously, that's our largest expense line item. And 2023 is going to be an interesting year because if you think about what assessors look at, they typically look at the preceding years sort of NOI growth and obviously, 2022 has been a fantastic growth year. But then they're also supposed to look at real values and clearly, real values have come down.

And so I think we're going to have a lot of protests and probably a lot of lawsuits working through this process in 2023. But I think if I was -- obviously, we're still working through our budgets. But at this point in time, I would believe that our property tax expenses are probably going to be towards the high end of our typical range.

If you think about the rest of the expense categories, Clearly, R&M and utilities are going to be driven by the inflationary pressure. So it depends upon what inflation is doing at that point in time.

On the salary side, as I talked about in our last earnings call, we rolled out this year our work reimagine program, which is a benefit to us on site in 2022 by about $1 million, but it should be a benefit to us on site in 2023, about $4 million to $5 million. So obviously, that's a positive that should offset a lot of these expense pressures that are potentially out there.

And then on the insurance side, although we did have a large storm in Florida, this has been a pretty light year in terms of sort of global -- global events. So my hope is, is that insurance starts to normalize.

[Operator]

The next question will come from Rob Stevenson with Janney.

[Robert Stevenson, analyst]

What's the current expected stabilized yield on the $758 million development pipeline? And what's the current market that you're seeing for land? Is pricing come off there? And are you seeing transactions? Or is that on hold just like actual property transactions?

[Richard Campo, executive]

Yes. The yield is in the -- we have properties that are 5.5% to 6.5%. So it's -- we call it right at 6-ish. The -- in terms of land, we have seen some landowners that we were negotiating with lower their price, but the challenge you have today is it's really hard to kind of peg what the price ought to be. So there is definitely some sort of movement on land sellers in terms of what should the price be in the future. I think, again, it's hard to underwrite today. And even with land prices going down some, we haven't executed.

What we have been doing though our land positions that we already have that are under contract in hard earnest money, we are having pushing those out. And so people are agreeing to push them out, understanding that if we had to make a decision today that we likely would either ask for a haircut or not clothes.

And so I think that's -- the land tends to be stickier during the early part of a repricing scenario. But once they start seeing contracts drop because I know most of my merchant builder friends, if they're not hard on a contract and have significant investments, they've dropped their contracts, and they know those land sellers are all getting dropped across the country. And it will be interesting to see what happens in the first quarter.

[Robert Stevenson, analyst]

Okay. And then the second question, given the strong rent growth, what's the earn-in today heading into 2023?

[Alexander Jessett, executive]

Yes, absolutely. So the earn-in for us right now is about 5%.

[Operator]

The next question will come from Wes Golladay with Baird.

[Wesley Golladay, analyst]

I have a question on the supply. If we look out to midyear last year, we were tracking for about 165,000 forecast for 2022 supply and now it's looking at about 130,000. Do you think the same thing will play out next year with 180,000 forecast now?

[D. Keith Oden, executive]

Yes. I think the difference is just the slippage in time frames for the deliveries on the completions. And we've seen it on all of our construction projects. And I assume that everyone else is experiencing either that or worse because there's lots of folks that don't have near the reach and the experience and relationships that we do to get these things brought to the finish line. And it's still a battle.

So I know that the Witten and RealPage both have tried to capture some of the delay and -- because we had this persistent issue of saying, we think completions will be x for 3 straight years, it's turned out that they were 80% of x. So I know they've tried to adjust their forecasting. My guess is they still haven't captured it in the 2023 numbers. It wouldn't surprise me to see some of that 180,000 shift into 2024. I don't really -- I think the right way to look at the completions number is over maybe a 2- to 3-year period, just add them all up. Because if it started, it's going to complete.

And the question is sort of not -- it's a rounding there if it completes in 2023 or first quarter of 2024. So I would -- I think it would be more useful for most folks to look at it and say, give me 3 years' worth of numbers and over that period of time, I'll give you my employment forecast, and we'll see how that matches up versus trying to handicap any individual year. But my guess is they probably still haven't captured all and it's likely to be less than the 180,000.

[Wesley Golladay, analyst]

Okay. And then I'd like to talk about Houston. I believe the plan was to reduce exposure. But then you bought a JV -- your JV that have high use exposure and then you have 2 starts with Houston. So I'm detecting a little bit more bullish to you and then -- maybe zooming out maybe a few years, in the past, you had mentioned that Houston was more than an energy city and at some point side of the chemical industry and medical. But right now, we have a big energy differential between the U.S. and everyone else around the world has seen. And I'm just wondering, in your industry context, have indicated that they may have plans for bigger expansions in the area if this differential would persist?

[Richard Campo, executive]

Sure. So we had a unique opportunity with the acquisition of the fund with Texas Teachers to acquire properties that have zero execution risk, right? And so we knew we had to do something with the fund over the next 2 or 3 years because of the finite life of it. So it just made sense for us to do that.

Yes, it kind of went against [indiscernible], we want to reduce our exposure in Houston over time. The -- and the other part of it is we started 2 development deals, which were single-family rental for rent properties. And so on that side, that's an opportunity for us to really understand the market and learn the market because I think it's very compatible business with the regular multifamily business.

Long term, if you think about where Houston is right now, Houston has not had the same reset of rents that Dallas, Austin or Florida or other major markets. And the reason being was because energy in 2020 got hammered, right, when the oil prices were negative and Wall Street has taken the energy companies to -- would shed multiple times and it has required more dividends and stock buybacks and so rather than drill -- baby drill, they're not doing that. What they're doing is, they're being very methodical in their capital allocation and making sure they have dividends to pay their shareholders. So that is new the job growth in Houston compared to these other markets.

For example, Austin and Dallas, recruit their pre-pandemic employment and went substantially higher than pre-pandemic employment about 8 or 9 months before Houston did. Now we hit our pre-pandemic employment this summer. Now we're still doing well in Houston, but on a relative basis, it's not as robust as the other markets. And so I think Houston -- I've said in a couple of calls, that Houston gas in the tank, and it really does because when you think about energy cycles, they tend to be anywhere from 5- to 10-year cycles.

And most folks think we're in a super cycle right now because of the lack of drilling because of the -- domestically, because of the government doesn't really want a lot of domestic oil and gas drilling. There's a lot of pushback from the Biden administration. You have [indiscernible] cutting production 2 million barrels. You got the Russia and Ukraine situation. And so we know we have to have energy, and the world has to have energy, and it's not going to renewables as fast as people think.

So I think Houston is really well positioned over the next few years. And then when you add in the energy transition, which is ultimately, we know we have to transition, but Houston is going to be likely the energy transition capital of the world as well and primarily because when you think about the Inflation Reduction Act, there's about $100 billion of capital that we think is going to come to Houston, albeit the carbon capture that we -- and if you look at what Exxon and some of these other big companies have done, they've gone out in the Gulf and started leasing shallow water wells that are spent so that they can store a carbon in those fields that are all depleted.

And so when you think about the fact that Houston is the #1 exporter of energy in the country and [indiscernible] in the world, and there's a lot of production with chemicals and we start thinking about decarbonizing industrial complex, the carbon capture, the green hydrogen and ammonia and all those things that are going to propel us forward into an energy transition is happening here and the headquarter companies are here. So I think it's going to be -- Houston is going to be a great market over the long term, and it's going to -- it'll have more gas in its tank than the rest of the markets in a recession because of that.

Now ultimately, we fundamentally want to lower our exposure in markets we're really concentrated in because it may be great over the next 2 or 3 years, but the way that our portfolio has been -- has really been constructed is to be diversified geographically. And when you have D.C., Houston and California being our 3 largest markets, we want to diversify ultimately. So we will do some trading in this environment. Like I said before, we've been over $3 billion of moving assets around in the markets. And we'll continue to do that. And hopefully, we can do it -- in the last year or 2, we've been able to do it on a nondilutive basis. And hopefully, that will continue.

Whatever the prices are when they reset, I don't think there's going to be a massive differential between cap rates in Houston or in D.C. or California versus the rest of the Sunbelt. And if we can sell assets and fund development or buy newer higher-growth assets in the other markets where we're underweighted, we will lean into that.

[Operator]

The next question will come from John Pawlowski with Green Street.

[John Pawlowski, analyst]

Alex, you mentioned bad debt and Phoenix is ticking up. What is bad debt as a percent of revenues in that market? And are there any other markets seeing upward pressure right now outside of just timing impacts in regulated markets?

[Alexander Jessett, executive]

Yes, absolutely. So if you look at collections, so our collections right now for the quarter were right around 98.6% and that compares to the last quarter when it was right around 99.2%. So if you look at Phoenix, our collections there, we're 99.2%, but to a point that Ric made earlier, if you look at California, our collections in the second quarter in California were 97.3%, that dropped off to 94.2% in the third quarter '22. That's the real collection story.

[John Pawlowski, analyst]

Okay. And then, Keith, are your local team seeing a slowdown in traffic in any markets outside of the normal seasonality right now?

[D. Keith Oden, executive]

No. I mean, traffic, we still continue to have -- by a lot of the technology that we put in place in particular funnel, the complaint that I hear most commonly is that we have more traffic than we can reasonably handle given the -- or that we can effectively handle because of the very low vacancies across the entire portfolio. But -- we're generating plenty of traffic. There's still tons of people that want to live in Camden apartments across all 15 cities. And these are -- even though our occupancy rate did fall from the second quarter, you're still north of 96% in the fourth quarter, and those are crazy good numbers from a historical perspective for Camden.

[John Pawlowski, analyst]

Okay. Just one follow-up there. Again, I don't want to be pedantic, but I thought it would assume that occupancy would slip into the high 95% over the balance of this year, but you're still seeing occupancy above 96% today?

[D. Keith Oden, executive]

So we're going to -- Go ahead Alex.

[Alexander Jessett, executive]

Yes. So we will average 95.8% for the full year, that is where our average is. And obviously, that assumes that occupancy will follow a seasonal pattern as we get towards the end of the year.

[Operator]

The next question will come from Barry Luo with Mizuho.

[Beier Luo, analyst]

I just wanted to quickly ask if you guys disclosed the loss to lease?

[Alexander Jessett, executive]

Yes. So loss to lease to us is about 5.5%.

[Beier Luo, analyst]

Okay. And is there any chance you see that loss lease go negative during this year?

[Richard Campo, executive]

No.

[Beier Luo, analyst]

Okay. And for -- just secondly, on expenses, do you think any -- can you talk any about like tax efficiencies in terms of mitigating labor pressures?

[Alexander Jessett, executive]

I'm sorry, what's the question?

[Beier Luo, analyst]

Just any tax efficiencies on mitigating like labor pressures for next year and tech initiatives?

[Alexander Jessett, executive]

Yes. So absolutely. So if you recall, we talked about our work reimagine program, which is -- could not happen without our tech initiatives that we have in place, mainly [indiscernible] and funnel. And so because of those factors, we should be able to pick up about a net $4 million to $5 million benefit on the salary side in 2023. So absolutely.

[Operator]

The next question will come from Dennis McGill with Zelman & Associates.

[Dennis McGill, analyst]

Just to start, I wanted to clarify the occupancy comment. I thought in the prepared remarks, you said 95.8% for the rest of the year, meaning the fourth quarter for guidance? And I think just a minute ago, you said 95.8% in a different way. So can you just clarify that first?

[Alexander Jessett, executive]

95.8% in the fourth quarter.

[Dennis McGill, analyst]

Okay. That's what I thought. And then just generally, as we think about that number and that 80 basis points deceleration from the third quarter, recognizing their healthy levels. That's a pretty stark change relative to what you've seen in the past seasonally. And at the same time, you're talking to still good traffic, income growth and strong income metrics. You talked about in-migration being favorable. You've got for-sale affordability is going against the consumer. So the narrative is they're staying in apartments longer. I guess all of that collectively would suggest that you wouldn't have to make the trade-off of occupancy and rate right now. So what are some of the offsets you think, that are filtering through that's causing that sequential deceleration?

[Alexander Jessett, executive]

Well, I think you've got a couple of factors. Number one, we are pushing rents. And as we follow normal seasonal patterns, if you push rent, you should see occupancy come down. Number two, as we've talked about, our turnover has picked up a little bit, and that is driven by people finally that have been long-term non-payers, starting to move out. And as we have the ability to enforce contracts, we should expect to see that number tick up a little bit. That, by the way, is a good thing because those are folks who are not paying and if we can move them out, although our physical occupancy will come down, it doesn't actually have any net impacts on our financial occupancy. So those are a couple of factors that are driving that.

[Dennis McGill, analyst]

Okay. And then when you think about that, I guess, is now that that's come down a bit, the 95.8% a valid point between physical and economic, but do you start to think about pricing power getting back to pre-pandemic levels here then pretty soon since that's a bit below occupancy where you were in the fourth quarter '19. So is that the transition that we're seeing, as you move into the first part of next year?

[Alexander Jessett, executive]

We continue to have a lot of very strong things going in our favor in terms of migratory patterns and we've talked about job creation in our markets. I think the -- I think what we have to see is what is the long-term job creation in 2023. But I think we are going to remain in a pretty good strong position in terms of our ability to push rents. And then once we keep pushing rents, we should be able to push some occupancy a little bit further. But as I said, it depends upon what do we see in the economy in '23.

[Richard Campo, executive]

We could have 96% occupancy all the time if we wanted to. Remember, we have a dynamic revenue pricing system and we've made a choice. And that choice is based on keeping our -- keeping rental rates going up. And if you think about Alex mentioned that our average rental rate was [ 8 ] and some change -- our average revenue growth is going to be [ 8 ] and some change in the leases through the end of the year. And that's a really good number.

If you look at historically go back to pre-pandemic levels, I mean, we're usually negative to zero in the last 2 months of the year on revenue in terms of new leases -- renewals and new leases. And so we're going to be [ 600 or 800 ] basis points above pre-pandemic levels going into 2023. And we just think it's the right fit.

And to Alex's point earlier, we want people to move out that are paying us. And so -- and we're trying to help them understand that. We've had discussions about paying people to move out, right? I mean, because it's just -- and it's primarily a D.C. in California. But if we -- so I don't look at the 80 basis points as a flaw in the system. I look at it as keeping pressure on the rent and making sure you're starting 2023 at a really good place with an earn-in and a loss to lease that is pretty substantial.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ric Campo for any closing remarks. Please go ahead.

[Richard Campo, executive]

Great. Well, we appreciate your time today on the call, and we will see some of you at Nareit in San Francisco. So we'll have a lot of new stuff to talk about then probably since it will be about a week-and-a-half. So take care, and have a great weekend, and go Astros. Take care. Bye.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.