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American Campus Communities Inc. (NYSE:ACC)
Q3 2018 Earnings Conference Call
October 23, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the American Campus Communities Inc. 2018 third quarter earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for any questions.

I would like to remind everyone that this conference is being recorded and would now like to turn the call over to Ryan Dennison, Senior Vice President of Capital Markets and Investor Relations for American Campus Communities. Mr. Dennis, please go ahead.

Ryan Dennison -- Senior Vice President of Capital Markets and Investor Relations 

Thank you. Good morning and thank you for joining the American Campus Communities 2018 third quarter conference call. The press release was furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg-G requirements.

Also posted on the company website in the investor relations section, you will find an earnings materials package which includes both the press release and a supplemental financial package. We are hosting a live webcast for today's call which you can access on the website with the replay available for one month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along.

Management will be making forward-looking statements today, as referenced in the disclosure and the press release in the supplemental financial package and in SEC filings. Management would like to inform you that certain statements made during this conference call which are not historical fact may be deemed forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995.

Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions, they are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved and actual results may vary.

Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said that, I'd now like to introduce the members of senior management joining us for the call -- Bill Bayless, Chief Executive Officer, Jim Hopke, President, Jennifer Beese, Chief Operating Officer, William Talbot, Chief Investment Officer, Daniel Perry, Chief Financial Officer, Kim Voss, Chief Accounting Officer, and James Wilhelm, EVP of Public-Private Transactions.

With that, I'll turn the call over to Bill for his opening remarks. Bill?

William C. Bayless Jr. -- Chief Executive Officer

Thank you, Ryan. Good morning and thank you all for joining us as we discuss our third quarter 2018 financial and operating results.

As the team will detail during the call, the quarter was highlighted by the following -- the successful completion of the 2018 lease up, which positions us for our 14th consecutive year of growth in same-store rental rate, rental revenue, and NOI, strong internal growth, with same-store NOI for the quarter of 4.5% over Q3 of the prior year, the successful delivery of 10 high-quality core pedestrian assets on-time, under budget, and fully stabilized at 97% opening occupancy, and further progress in regards to on campus development awards.

Beyond American Campus' performance, at the recent NMHC Student Housing Conference, industry participants reported another successful lease up and a vibrant transaction market. Additionally, Axiometrics reports solid industry fundamentals nationally regarding the more than 453,000 same-store portfolio, which they track, with core pedestrian assets located within a half-mile of their respective campuses increasing 50 bits to 95.1% in fall of 2018 from 94.6% in the prior year and with rental rates increasing by 1.7%.

Axiometrics also expects new supply for fall of 2019 to decline nationally, with a decrease of 6% to 14% based on how actual construction starts to materialize. In ACC markets, we're tracking new supply for fall of 2019 consistent with historical levels, with new supply representing approximately 1.3% of enrollment.

While we're tracking approximately 28,000 new beds in fall of 2019 versus 26,000 this fall, it's important to note that next year's anticipated new supply is spread over 34 of our markets versus 26 markets this year, translating into a smaller number of new beds per market. It's also worth noting that the top 10 new supply markets for 2019 represent only 18% of our NOI versus this year's top 10, which represented 30% of our NOI. Additionally, over 20 of the 34 new supply markets for next fall received no significant new supply in 2018.

We do expect new supply to continue to impact the Florida State market in the short-term, as 2,168 new beds are scheduled to come online in fall of 2019, in addition to the 2,375 beds that came online in the fall of 2018, with the overall market occupancy only reaching 90% in this fall.

Overall, broad industry fundamentals remain healthy and we look forward to another successful lease up for the fall of 2019-2020 academic year.

With that, I'll turn it over to Jennifer Beese, our Chief Operating Officer, to provide additional color on our operational results.

Jennifer Beese -- Chief Operating Officer

Thanks, Bill. As Bill mentioned, our third quarter 2018 same-store operational results were in line with our expectations. As seen on page S5 of the supplemental, quarterly same-store property NOI increased by 4.5% on a 2% increase in revenue and a decrease in operating expenses of 0.2%, consistent with the quarterly growth profile outlined in prior calls. Our 2% third quarter revenue increase reflects a combination of the '17-'18 and '18-'19 academic years.

Our expense profile in the third quarter was largely in line with our expectations, with the majority of our expense category showing savings or inflationary growth. We are very pleased with our controllable expense categories, both for the quarter and year to date, with Q3 resulting in controllable expense savings of 1.5% in year to date controllable expense growth of only 0.7%.

These results have been positively impacted by our asset management focus on items such as utilities, where we will continue to benefit from additional phases of our LED lighting initiative, as well as leveraging our national purchasing power with our cable and internet providers.

Turning to leasing, as Bill highlighted, both our 2019 same-store portfolio and our 2018 development and presale properties were 97% occupied on September 30th. The ACC team did an outstanding job of once again producing industry-leading leasing results. We are especially pleased to have returned to our long-term track record of opening our new properties fully stabilized.

Based on our initial rate setting and occupancy projections for the '19-'20 academic year, our 2020 same-store properties are expected to produce opening fall rental revenue growth ranging from 1.5% to 3%. Since our portfolio finished this lease up at an occupancy level consistent with our long-term average of approximately 97%, we expect the majority of this revenue growth will be driven by rental rate increases.

We look forward to updating the market on our next call with the specifics of our 2019 guidance expectations. I will now turn the call over to William to discuss our investment activities.

William Talbot -- Chief Investment Officer

Thanks, Jennifer. Turning first to development, we successfully delivered 10 owned assets and presales this fall, totaling almost 7,000 beds and $670 million in cost. All these projects were delivered on time and on budget with a starting fall occupancy of 97%. Development remains our top investment priority, with yields in excess of 200 basis points above current market cap rates for similar products.

We continue to build our future delivery of owned developments with the execution of the ground lease and start of construction of the 584-bed apartment community on the campus of San Francisco State. The $129 million project represents the first private developer-owned on campus P3 housing community within the California State University system and is targeted to deliver in fall of 2020.

We are currently under construction on six owned developments and presales for delivery in 2019 and 2020, totaling 3,744 beds and $534 million, with all projects targeting between a 6.25% to 6.75% nominal yield per developments and 5.34% to 6.25% for presales.

In addition, we are on schedule to break ground on our 10,440-bed, $615 million development on the campus of Walt Disney World in Q4 of this year, subject to final project feasibility and receipt of final permits. The first phase will deliver in May of 2020 and upon completion of the final phase in 2023, we expect to achieve a 6.8% nominal yield.

With regards to on campus third-party development, we continue to progress on our four projects under construction on the campuses of the University of California, Irvine, the University of Arizona, the University of Illinois at Chicago, and Delaware State. All four projects are targeted to open in fall of 2019 and generate $15.9 million in development fees. We are pleased to announce we have been awarded a fifth development on the campus of the University of California, Irvine. The project is in pre-development and is expected to deliver in 2021.

Turning to the investment market, we continue to see tremendous private investor interest in the sector. With the sale of EDR to Greystar and Blackstone that was completed in September, transaction volume through the third quarter totaled over $12.8 billion, eclipsing the all-time volume of annual investment in the sector, according to the BAML HFF third quarter market update. With a significant amount of transactions on the market under contract, most brokers are anticipating a strong fourth quarter of investment activity.

With that, I will now turn it over to Daniel to discuss our financial results.

Daniel Perry -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, William. As reported, total FFOM for the third quarter of 2018 was $60.6 million or $0.44 per diluted share. Results for the quarter were in line with our expectations. Compared to the third quarter of 2017, FFOM declined approximately 2% due to $614 million of capital recycling activity completed in the second quarter of 2018, resulting in lost NOI and non-controlling interest of approximately $5 million and $2.9 million in higher third-party fee income in the third quarter 2017 associated with the closing of the UCI for development.

As Jennifer discussed, our same store operating results were strong at 4.5% NOI growth, but also in line with our expectations. As always, the third quarter is a mix of two academic years, the final summer months of the '17-'18 academic year and the very beginning of the '18-'19 academic year that both influence the same-store revenue growth for the quarter. Accordingly, the third quarter same-store revenue growth of 2% includes the lower revenue growth coming off of the fall 2017 lease up.

With regards to same store operating expenses, we achieved a 0.2% reduction expenses for the quarter. As we have discussed throughout this year, we expected to generate expense savings in the third quarter due to the benefits of the cost control initiatives associated with our asset management program as well as significant hurricane expenses incurred in the prior year quarter.

As we look to the fourth quarter of 2018, we do expect an increase in same-store operating expense growth given that we achieved a 1.8% reduction in operating expenses in the fourth quarter of 2017. When some of our current face of expense control initiatives started to materialize.

From a balance sheet perspective, as of September 30th, the company's debt to enterprise value was 34.3%, debt to total asset value was 36.2%, and the net debt to run rate EBITDA was 6.2 times. Our floating rate debts now stands at 17.3% of total debt. As you will see in our supplemental, we will update our capital allocation and long-term funding plan on page S16 to reflect the completion of the 2018 development projects.

With the commencement of the San Francisco State ACE development, we have now incorporated our first 2020 development outside of the Disney student housing project announced last quarter. Including the current 2019 and 2020 owned presale developments and the first faces of Disney, expected to be delivered in late 2020, we have approximately $650 million in development cost, which we expect to fund throughout 2019 and 2020 with a mix of cash on hand, cashflow available for reinvestment, and $450 million to $500 million of additional debt, equity, and/or joint venture and disposition capital over the next two years.

As always, we will monitor the markets and access the most attractive sources of capital throughout this time period, both from a weighted average cost of capital perspective and with a focus on maintaining the health of our balance sheet. With that in mind, until we see an improvement in the cost of our equity, we will look to take advantage of the very high-demand environment we are seeing for core student housing from private capital around the globe through a continuation of our annual capital recycling program.

Turning now to our 2019 earnings outlook -- taking into consideration the results of the fall 2018 lease up and operating performance through the third quarter as well as expectations for the remainder of the year, we are tightening our 2018 FFOM guidance range to $2.29 to $2.33 per fully diluted share and maintaining the expected midpoint of $2.31 per share. All changes to the components of guidance were net neutral to the previous midpoint of same-store NOI, total NOI, and overall FFOM, and are detailed on pages S17 and S19 of the earnings supplemental.

With that, I'll turn it back to the operator to start the question and answer portion of the call.

Questions and Answers:

Operator

We will now begin the question and answer session. To ask a question, press * then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we will pause momentarily to assemble our roster.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Hi, good morning. Just a question on the developments -- it looks like you lowered the high-end of your yield target 25 basis points to 6.75. Is there anything in particular that drove that? Is it higher cost? Is it skewed by more ACE developments? If you could, just comment if the next school year is lease up, so, if you're targeting for those to be stabilized year one or if you think there's a possibility those could be two-year stabilizations.

William C. Bayless Jr. -- Chief Executive Officer

Yeah, Juan. If you look at that high-end of that range, we've added 7%, really, for the last five years. When you look at most of the transactions we're doing are coming in between 6.25-6.75. In large part, there are a higher percentage of ACE, as you pointed out. The key point I would make there is that cap rates over that point in time have come down probably 100 basis points.

So, when you look at the spread of that 6.25 to 6.75 at cap rates being between 4%-4.5%, the accretive spread from those targeted development yields to current market cap rates have significantly expanded. Also, the second part of your question, we do believe that all the developments that we're targeting to come on line in fall of 2019 will stabilize year one just as you saw the current 2018 portfolio come in at that 97%.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Great. Then just on the sources and uses, if you look at what you have out for a couple years, it's about $150 million per year, about $600 million in total that could be funded with dispositions or other sources. Is that front-end-loaded given some of the Disney spend and the developments or should we think about that $150 million per year being spread over the next few years?

William C. Bayless Jr. -- Chief Executive Officer

Generally, I think it could be spread throughout 2023. That being said, as you look at the needs throughout 2019 and 2020, we've got about $650 million of funding needs. If you look at the cash on hand and free cashflow available for reinvestment, that would leave about $480 million to be funded from debt and/or equity or dispositions. If we're targeting in the short-term that mid-30s debt to asset value, low-sixes, high-fives debt to EBITDA, that would be a mix of about $100 million in debt and $370 million in dispositions.

So, implying that we would still be in that $150 million to $200 million over the next couple years. Of course, given the outlook for the cap rate environment, it's something we will take into consideration or at least our expectation of the outlook and as to whether or not we choose to do any of that earlier to make sure we monetize at attractive valuations.

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Operator

The next question comes from Nick Joseph with Citi. Please go ahead.

Nick Joseph -- Citigroup -- Analyst

Thanks. Just given your sources and uses that you outlined on S16, what's the current appetite for acquisitions or presale deals beyond what you've already committed to?

William C. Bayless Jr. -- Chief Executive Officer

Nick, at this point in time, as William, I think, mentioned in his script, development continues to be our absolute highest and only focus on investment. Certainly, presale developments as it relates to getting yields at the 5.75% to 6.25% depending upon market and growth profile could be attractive also. But certainly, our own accretive developments are the number one priority of the company.

Nick Joseph -- Citigroup -- Analyst

Thanks. The 97% occupancy this academic year, what percentage of beds are December-ending leases and how does that compare to last year?

William C. Bayless Jr. -- Chief Executive Officer

It's relatively on para with last year. I think on the entire portfolio, we ended up with 100 more December-ending leases. So, nothing material that gives us concern in terms of our fall-off from fall to spring occupancy to be anything more than it traditionally is.

Nick Joseph -- Citigroup -- Analyst

Thanks. Just finally, now that overall occupancy is back to its long-term average, do you think that 2.25% rental revenue growth mid-point is a good longer-term run rate?

William C. Bayless Jr. -- Chief Executive Officer

I think this year, you have a little bit more headwinds, perhaps. In Tallahassee, that we mentioned, it has a little bit of a drag on that. I think the historical run rate is closer to 2.5%. It continues to be the 2.5% to 2.6%, what I would say is more of your long-term. Tallahassee, as I mentioned in my comments, will be a little bit of a tough comp going forward this year with the new supply coming in, which I think is a little bit of a drag on the revenue numbers, but overall -- as Jennifer mentioned in her script at 97%,

I think our historical average is still 97.6%. So, you've got potential 60 points basis of occupancy to our historical averages. That coupled with rate growth, that 2.5% is something we're really comfortable with.

Nick Joseph -- Citigroup -- Analyst

Thanks.

Operator

The next question comes from Sami Kanal with Evercore. Please go ahead.

Samir Khanal -- Evercore ISI -- Managing Director

Hey, guys. Good morning. As you sit here today, could you talk about some of the markets that may be at risk beyond the ones that we -- there's Austin, Tallahassee, College Station, Florida State -- are there any other that are kind of in your radar from a supply standpoint at this time?

William C. Bayless Jr. -- Chief Executive Officer

Yeah. From a supply perspective, as I mentioned in my comments, we actually feel better about going into next year's supply that even '18. While it's up nominally 2,000 beds across the portfolio, as I mentioned, that's in 34 markets versus 26 last year, also 20 of those 34 had no development last year. So, the natural barriers to entry in the space continue to be proven. I mentioned that the new supply coming online is 1.3% of enrollment, which mirrors what the 14-year average has been since we went public.

Certainly, as we mentioned, the focus markets from last year, Tallahassee is the only one that really was a little tougher than expected. As we go into next year, we set rates there down 2% going in. That's why the comment to Nick about Tallahassee being a little bit of a drag on the overall portfolio, but Austin continued to perform well and have same-store NOI growth in what people thought was going to be a challenging year and Austin continued to contribute positively.

College Station, again, kudos to the team -- we're at 97%+ occupancy there, up 160 basis points from last year. We're also pleased to see the College Station market as a whole reach 90%. Last year, it was down in the low 80s. So, you're starting to see some of that absorption in the prior year's enrollment growth kick in. And in all the other markets in the top ten, as I mentioned, we'll have 18% of our NOI. So, it's more normal and ordinary supply as you've seen to historical content.

I don't think supply -- we do point out Tallahassee as a market, given the dynamic there, that it's not a high enrollment growth school when you have another trench coming on next year of good pedestrian supply that we think will have short-term absorption pressures. Shy of that, it's really more of the normal, consistent supply versus demand curve we've seen in the space for the last 12 to 15 years.

Samir Khanal -- Evercore ISI -- Managing Director

Okay. Thanks Bill.

Operator

Next question comes from Drew Babin with Baird. Please go ahead.

Alex Kubicek -- Robert W. Baird & Co. -- Analyst

Good morning. This is Alex Kubicek on for Drew. I'm generally looking for some color on how the core-based acquisition assets performed in the '18-'19 lease up and how do you expect them to perform in your '19-'20 expectations?

William C. Bayless Jr. -- Chief Executive Officer

Yeah. Core came in right at about 96%, which is right in line with the expectations. We had to give a specific guidance by portfolio. With the 97% occupancy average at the midpoint of our guidance, I would say we expect that subcomponent to operate no less than that. So, a little bit of room for improvement there of 100 basis points of occupancy, I would say, built into that.

Alex Kubicek -- Robert W. Baird & Co. -- Analyst

Great. That's really helpful. So, assuming the '19-'20 lease up is more rate driven given tougher occupancy comps, do you expect a similar distribution of rent growth outcomes for the assets, given the occupancy buckets you provide in the supplemental and are you guys more hesitant to push rate on those properties that are under 95% until the occupancy kind of breaks that threshold?

William C. Bayless Jr. -- Chief Executive Officer

That's a great question. If you look at the breakdown currently on page S8 of the supplemental and you look at that first category this year where the properties that were 98% or greater contributed 3.8% rental rate growth, I would point out that all of our Tallahassee properties from the year before were in that bucket. So, that 3.8% strong growth well above the median in the portfolio was including Tallahassee being in that bucket.

Well, Tallahassee is now in the lower bucket of the 95% or blow. That 98% or above currently consists going into next year of 59,000 beds or 63% of our portfolio, so a little higher average. I would say that category has greater pricing potential this year than last because of the makeup of what is in there.

As it relates to the bucket that is 95% and below, this is one where we do not in any form or fashion get hung up with what the headline rental rate number is on that in that it's all about maximization of rental revenue. So, we will always in that category market by market -- I mentioned Tallahassee, Tallahassee we ended up in the market coming in about 92% occupancy. We're down on setting rates in that market next year targeting about 2% below that currently, but we believe we got 700 bits of occupancy to make up for it.

So, when you look at that category this year, it was the greatest contributor with rental rate growth -- I'm sorry, with rental revenue growth -- being 6.1%. So, we're really agnostic as to how that growth ultimately materializes. So, it's not unusual for us to see -- this year, we had a great opportunity with that portfolio being at 84.1%. You saw us make hey with where that group leased up to at the 92.8%.

The last time we saw that much occupancy potential in that category was back in '08 when we bought GMH. You saw the same type of metrics as you see on this page in terms of that year we had rental rate down in that category to produce that growth. It also gives you a good foundation of rental rate off of which to grow going into future years, which you'll see in that portfolio this year as it moves in. So, yeah, you'll see a consistent probably management of rate versus occupancy in that category as you've seen previously.

Alex Kubicek -- Robert W. Baird & Co. -- Analyst

Thanks. That's really helpful. One more question from me -- we were curious as to whether this year's lease up exposed any indications of distress among the private developers and if so, whether any opportunities exist where ACC might seek to acquire some of those properties down the road.

William C. Bayless Jr. -- Chief Executive Officer

The one thing -- if any of you all visited the NMHC Student Housing Conference, one of the questions that was asked during my panel, there was a quote by Chris Merrill that they asked us to comment on at Harrison Street. You have a lot of what had been merchant developers in the space that now have equity available to them with the global influx of capital and they are now looking at longer hold periods and for the first time in their company's history, turning from a merchant developer where they have one or two-year old properties they stabilize and flip into now going to operate those properties on a more three-to-five year horizon.

Candidly, we're two to three years into that. Our greatest opportunities for growth have come in past years when the acquisition and the consolidation cycles were in play and people that were attempting to build larger portfolios don't have the operating platform that we do and it creates the opportunities for us when we do get back into an acquisition mode to create that upside in occupancy.

So, I think that you will see over the next let's call it three to seven years in the cycle, maybe two to seven years in the cycle, start to see some of those shorter term funds three to five years that are putting those portfolios together with folks that had been merchant developers, come to market and those portfolios are going to offer more operational upside than what you've seen in the last two to three years with the first year stabilization taking place and then the flips.

So, I do think from an investment trend perspective -- again, we're completely out of the acquisitions game at the moment, but the cycles will come and go and there will be a point in time we'll back in and I do think over the decades-long strategic plan, we will be the industry consolidator and you'll see those opportunities for us to have more growth potential organically as we integrate larger M&A opportunities down the road that have that operational upside.

Alex Kubicek -- Robert W. Baird & Co. -- Analyst

Thanks for all the help.

Operator

Next question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead.

Alexander Goldfarb -- Sandler O'Neill -- Managing Director

Hey, good morning down there. I appreciated the "Smokey & The Bandit." So, just a few quick questions here -- one of the things with the topic on last quarter's call was the ability for you guys to grow in 2019 after you guys have done the balance sheet and portfolio repositioning. So, can we just talk about two items -- one, Daniel, the cost efficiencies, you mentioned hurricane was a positive this quarter, but also some cost saves.

So, how much cost saves, given that you're going to have like the 2.25 midpoint on revenue, it sounds like operating expenses are going to be key to driving NOI next year. And then two on the capital markets front, we can get a sense where bond yields are, but just curious on the disposition side, assume that any dispositions would be for handles rather than higher cap rate assets. So, if you could, just provide a little comment on two of those as we think about 2019 and earnings growth.

Daniel Perry -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure. Obviously, we certainly know the market would like to see a return to more normalized earnings-per-share growth, as would we. As we get ready to give guidance on the next call, the things we'll be assessing through the rest of the year here are exactly as you point out -- on the same-store NOI growth, the revenue side is laid out. You have the lease up from this fall generating 3.6% opening revenue growth. The 2.25 that you just referenced is for next fall.

When you bring the two of those together and the seasonality that impacts the summer months, you're going to come up with something in the high two's in terms of revenue growth. So, the other side of the NOI equation is what we can do on the operating expense side. We have seen a lot of benefits of the asset management initiatives. We think over the long-term that there are continued benefits from that.

Whether or not those will generate additional savings relative to this year is hard to determine at this point. Also, when you consider that property taxes are 25% of our operating expense budget, if you're seeing 5%+ growth in your property taxes, you'd have to have 2% growth in the rest of your more controllable operating expenses to keep same store operating expense growth around 3%. So, the real mover that unfortunately we can't control are the property taxes.

So, we assessments come in through the end of the year here, we'll get a better handle on that and our thoughts for next year and what we will do for guidance.

The second part of the equation is what we do on the capital front. As you mentioned, we know where bond yields are today. As we look at bonds or other sources of long-term debt capital that we might use to term out our floating rate debt, that can have an impact. So, we will look at what triggers we want to pull there with the idea of obviously managing our exposure to the interest rate market for the long-term but also trying to generate earnings growth.

Then lastly, on dispositions, as I talked about on the earlier question, we can do about $150 million to $200 million of dispositions a year to manage the funding need, which is very reasonable through 2023. Whether or not we decide to go ahead and do any of that earlier, though, is what can certainly swing earnings. We like where the cap rate environment is today and being able to monetize assets in that 4% to 4.5% range. Those are the types of assets that we would be looking at recycling. But whether or not we want to do more of it could certainly have an impact on earnings.

We always at this time of year are going through a full assessment of the portfolio now that we've completed the lease up and seen what markets we think it's the right time to go ahead and harvest capital in. That will drive how much we come out with in terms of a guidance for disposition.

I think the $200 million that we talked about on the last call is still a decent starting point for people to think about and then we will look about whether we're going to do $150 million or $300 million next year and give that as part of our guidance.

Alexander Goldfarb -- Sandler O'Neill -- Managing Director

Okay. And then the second question is for Bill -- Bill, on the revenue expectations for the next school year, the 1.5% to 3% -- at the low-end, at the 1.5%, if you described a scenario where the supply outlook is improving, it's spread over a lot more markets and it's less of your NOI impacted, I understand Tallahassee, but every year, there's always some sort of market that's an issue. What would cause revenue growth to only be 1.5%? What are some of the negatives that go there versus something in the 2% to 3% range?

William C. Bayless Jr. -- Chief Executive Officer

Yeah, just all occupancy variation, Alex. As you finish out the lease up on the portfolio of 168 properties and look at all of the potential outcomes throughout the marketplaces, you could collectively end up at a lower occupancy based on small minute variations in numerous markets. So, it's all part of a potential realistic range of outcomes. Certainly, from a rate perspective, to fall very low in occupancy and have your rate diminishment fall to that level, that would be a rare situation that we haven't seen occur throughout the portfolio, where you've seen both of those instances happen.

So, the 1.5% to 3% is something that, as Jennifer mentioned in her comments, with the 97% occupancy, that is a variation that is pretty much predicated upon your rental rate variation throughout the lease up. So, as we did mention, the percent of the portfolio and those top ten supply margins is only 18% of the NOI this year versus 30%. So, the overall profile is one that we're comfortable with in terms of that 1.5% to 3% being a very realistic range that we can operate within.

Alexander Goldfarb -- Sandler O'Neill -- Managing Director

Thank you, Bill.

William C. Bayless Jr. -- Chief Executive Officer

Thank you, Alex.

Operator

The next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Hi, good morning, guys. I wanted to touch a little bit on the capital allocation side. You talked about potentially evaluating some of the presale deals to the extent they were in the right markets with the right growth. But just curious -- with the stock trading off today, I've got it trading at a 6 implied cap rate. My numbers are probably higher after today's move. You start to approach a development-type yield on your existing portfolio, given the transaction environment, would you consider selling additional assets to buy back stock?

Daniel Perry -- Executive Vice President, Chief Financial Officer, and Treasurer

I would tell you the first comment you made there was around presales. Certainly, in the environment we're in, that drops on the priority list. The developments, as Bill talked about, remain the top priority. We do have a development pipeline through 2023, not obviously completely to the size that we've had historically, but we've got an in-place development pipeline that we need to address.

So, the first priority would be recycling assets to make sure we're in a strong position to fund that. We don't want to be putting ourselves in a situation where we're using our capital from recycling to buy back stock and then get stuck in a position where we would have to drive up leverage to complete our development pipeline.

So, the question that you always go to when you're talking about stock buybacks is how persistent is the discount going to be on your stock price and is it something that is going to persist for several years to where you can make a fundamental shift in your strategy, but until we see something like that develop, we're going to be focused on making sure we're in a position to manage the health of the balance sheet and complete the development pipeline we have in place, which will create value.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Thanks. Appreciate your comments there. Bill, from your comments with regard to Alex's question, it seems like the 1.5% to 3% range is a range you're very comfortable with, I'd say, in the current environment. And even speaking to the properties this year that were 95% and above occupied achieved revenue growth of 3%.

So, it seems like that's a fairly reasonable range and something, I guess, that setting a little bit of a lower bar versus the prior couple of years, how will you think about evaluating reassessing that range given you did that a few times this year and ultimately there was a little bit of more challenged market conditions in a market like Tallahassee that ultimately has you coming in a little softer than expected toward the end of the pre-leasing season.

William C. Bayless Jr. -- Chief Executive Officer

Yeah. And certainly, those last two years of reassessing that range, when we look at that 1.5% to 3% being very realistic given the current market conditions and the outcome, we do believe that's a good realistic basis for our guidance moving into next year and something we are comfortable with. It is based upon where actual current market conditions are and the lease that we've just gone through and how we believe the opportunity is to perform.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Again, if you have a question, please press * then 1. The next question comes from John Pawlowski with Green Street Advisors. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Just sticking with the guidance for next year's lease up, I was just curious about the process on supply growth. You went through Axio's numbers. The short question is do you just take Axio's supply growth forecast -- is that embedded in the 2.25% at the midpoint?

William C. Bayless Jr. -- Chief Executive Officer

Certainly, we look at Axio in terms of the industry fundamental statements that we make, but we have absolute rock solid data in our markets that we operate in that we share with Axio to make sure that they have everything consolidated int heir projections and utilize that market by market data in relation to our own portfolio.

That is a very in-depth -- I'll give you an example here. Just to take you through, you look at the development that is taking place at Florida State and where we mentioned Florida State. Most of that development that is taking place at Florida State is core pedestrian properties in close proximity to campus that are direct competitive comps to the current assets that we own in that marketplace and we evaluate what those particular assets coming in impact may be on our rental rate growth ability and velocity of leasing.

By contrast, you look at San Marcos, which is in the top ten, all of that development coming in in San Marcos is more of a long bicycle, candidly more of a drive portfolio of properties being developed versus our core pedestrian across the street. So, the impact on new development in those two markets is completely different as we assess our own assets individually in setting rates for last year and how it may impact velocity. Then we utilize the lands program week by week, day by day, to validate the initial strategic decisions that we're making off of what I just mentioned in terms of managing that throughout the process.

So, the Axiometrics level is great to determine the broader macro for the environment. We drill down much more intimately with our own data in the markets we're operating on and assess that direct competitive impact versus just the market.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks. Is that direct competitive ring you draw around properties, is it processed the same for this year's process versus last year in terms of how wide you set that competitive range?

William C. Bayless Jr. -- Chief Executive Officer

Yeah. That is probably the most intimate part of our rate-setting process that we do. At times, it comes down to -- at the end of the rental rate process, candidly, the team will schedule a meeting with me and Jim and Jennifer where we'll go through the three or four markets that look the most challenging or where there's a variation of opinion in terms of what are the direct competitive -- this year, one of the greatest examples we had in our portfolio is Syracuse.

If you talk to our competitors, they'll tell you that's one of the toughest comps. We did very well in Syracuse last year. If EDR was still public, they'd be commenting on Syracuse as one of the markets they're most concerned about. We're virtually done with our lease up in Syracuse next year with solid metrics because of how we analyze that direct competitive comp versus what was happening in the marketplace.

So, it really is a market by market assessment. Your data and your business intelligence gives you data points to study and to look at. But at the end of the day -- this is where American Campus and why you see the 14 years of consecutive growth -- at the end of the day, there is always a little bit of human subjectivity that has to come in to making the calls in the tougher markets.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Syracuse, since you mentioned it, just as an example of a university that's pushed for on campus mandates for sophomores and even debating juniors living on campus -- just curious, any of your other schools, are they currently evaluating on campus -- mandatory on campus living for upper classmen?

William C. Bayless Jr. -- Chief Executive Officer

If you look over the 15 years that we've been public, those situations have been few and far between. So, Syracuse doing so -- this is where investment criteria and selection are paramount. When you look at our assets in Syracuse and why we're doing very well is because we are in those pedestrian legacy sites that are comparable in location to the on-campus housing. The people that are getting hurt are those properties that are further out from campus that don't perform as well.

Now, sometimes, you've seen those housing initiatives take place. For example, you see ASU went from no housing policy to on campus expectation for freshmen, largely driven by us and all of our investment on campus.

So, the one thing I would say as a general statement is that we have always said at American Campus even where we own off-campus properties and don't have any investment on campus, we like to see the university having a very large -- we don't mind if it is an increasing on campus base, whether it's a first-year housing requirement or a first-year and a sophomore because the most likely tenant to live in an American Campus Community, where we focus on emulating an academic environment just like the university does, those are our number one target market each year.

For example, this year, at Virginia Commonwealth University, we opened an ACE transaction that was a 1,200-bed facility that was adding to the number of residence hall beds on campus. It wasn't a change in policy, but there were 1,200 more residence hall beds on campus than previous that we brought online. We also own three off-campus assets that have a little bit of a variation in their occupancy this year because of those 1,200 beds we brought on.

Long-term, those three apartment complexes we own off-campus are going to have better prospects every year because of those 1,200 extra beds feeding off campus every year. So, that's not necessarily a negative thing when universities do that if we own the right assets and the right location.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Thanks, Bill.

William C. Bayless Jr. -- Chief Executive Officer

Thank you.

Operator

This concludes our question and answer session. I would now like to turn the conference back over to Bill Bayless for any closing remarks.

William C. Bayless Jr. -- Chief Executive Officer

Yes, we want to thank you for joining us as we did discuss our Q3 results. I do want to give a special thanks to the American Campus team. As always, you all delivered again this fall and led the industry once again. Also, we're celebrating our 25th anniversary. So, I want to thank you for the decades of hard work that you've put forth that have made American Campus the best in class company. We look forward to visiting with the rest of you in November out at NAREE and talking with you about the opportunities we have at that time. Thanks so much.

Operator

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

Duration: 48 minutes

Call participants:

Ryan Dennison -- Senior Vice President of Capital Markets and Investor Relations 

William C. Bayless Jr. -- Chief Executive Officer

Jennifer Beese -- Chief Operating Officer

William Talbot -- Chief Investment Officer

Daniel Perry -- Executive Vice President, Chief Financial Officer, and Treasurer

Juan Sanabria -- Bank of America Merrill Lynch -- Analyst

Nick Joseph -- Citigroup -- Analyst

Samir Khanal -- Evercore ISI -- Managing Director

Alex Kubicek -- Robert W. Baird & Co. -- Analyst

Alexander Goldfarb -- Sandler O'Neill -- Managing Director

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

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