Camden Property Trust (CPT) Q2 2023 Earnings Call Transcript

Camden Property Trust (CPT 1.44%)
Q2 2023 Earnings Call
Aug 04, 2023, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Kim Callahan

Good morning, and welcome to Camden Property Trust's second-quarter 2023 earnings conference call. I'm Kim Callahan, senior vice president of investor relations. Joining me today are Ric Campo, Camden's chairman and chief executive officer; Keith Oden, executive vice chairman and president; and Alex Jessett, chief financial officer. Today's event is being cast through the Investors section of our website at camdenliving.com, and a replay will be available this afternoon.

We will have slide presentations in conjunction with our prepared remarks and those slides will also be available on our website later today or by email upon request. [Operator instructions] 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 second quarter 2023 earnings release is available on the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We would like to respect everyone's time and complete our call within one hour.

[Operator instructions] At this time, I'll turn the call over to Ric Campo.

Ric Campo -- Chairman and Chief Executive Officer

Good morning. Our on-hold music theme for today was happy birthday. Last week, Camden's board and executive management team rang the closing bell of the New York Stock Exchange to celebrate Camden's 30th birthday as a public company. We were joined by the rest of Camden's 1,700 team members from coast to coast to commemorate this special day.

It's been a remarkable journey, and we want to share a few memorable moments with you. So here we go with 30 years in two minutes and 30 seconds. [Commercial break] Our business was built to last. In 1993, we started with 6,000 apartments in three Texas markets.

with an enterprise value of $200 million. Today, we have 60,000 some built geographically and product diverse apartments with a value of $15.5 billion. Over the years, we have created a best-in-class operating and investment team platform that focuses on constant improvement. Camden exists to improve the lives of our team members, our customers, and our stakeholders, one experience at a time.

Our business continues to be strong. Market conditions continue to moderate from the post-COVID unprecedented housing boom that we all knew would happen. The transaction market is still quiet and with 70% decline from last year. New permits are starting to fall given the difficult financing environment and increased cost of capital.

This should bode well for our markets as supply is absorbed over the next 18 months. Move-outs devising family homes to continue to trend lower than past years and quarters. And finally, I really want to give a big shout-out to our Camden teams for their hard work and their commitment to providing living excellence to our residents. And next up is Keith Oden.

Keith Oden -- Executive Chairman and President

Thanks, Ric. Now for some details on our second-quarter 2023 operating results and July 2023 trends. Same-property revenue growth for the quarter was in line with our expectations at 6.1%, and we have maintained the midpoint of our 2023 revenue guidance as a result. Consistent with the past several quarters, we saw the highest growth rates in our three Florida markets: Tampa, Orlando, and Southeast Florida with very strong results in both Charlotte and Nashville as well.

Despite the understandable concerns about elevated levels of supply in Camden Sunbelt markets, demand for high-quality apartments in our markets remain strong. Second-quarter signed leases grew by a blended rate of 4.1% with new leases up 2.2% and renewals up 5.9%. Our preliminary July results show moderating rates of growth with blended rates in the mid-3% range. Renewal offers for August and September were sent out in the high 5% range.

Occupancy averaged 95.4% during the second quarter of 2023 and trended slightly higher in July at 95.6%. Our portfolio is currently 95.8% occupied positioning us well for the normal seasonal slowing we typically see in the fourth quarter. Net turnover for the second quarter of 2023 was 44% and move-outs to purchase homes were 11.8% for the quarter and 11% year-to-date versus 15.1% in the second quarter of '22 and 13.8% for the full year of 2022. I'll now turn the call over to Alex Jessett, Camden's chief financial officer.

Alex Jessett -- Chief Financial Officer

Thanks, Keith. During the quarter, our lease-ups remained stronger than usual as we completed construction and subsequent to quarter end, stabilized well ahead of schedule, Camden Tempe 2, a 397-unit, $107 million community in Phoenix with a yield north of 7%. In addition to stabilizing ahead of schedule, Camden Tempe 2's rents are approximately 10% ahead of pro forma. Also during the quarter, we continued leasing at Camden NoDA, a 387-unit, $108 million community in Charlotte which is now over 60% leased, averaging over 45 leases per month.

At the end of June, we disposed of Camden Sea Palms, a 138-unit community in Costa Mesa, California for $61.1 million. We sold this 33-year-old community for a 5.7% FFO yield and a 4.25% tax-adjusted cap rate generating an approximate 13% unleveraged IRR over our 25-year hold period. On May 31st, we utilized our unsecured line of credit to retire approximately $185.2 million of secured variable rate debt with a weighted average interest rate of 7.1%. We recognize the charges in conjunction with this early retirement of debt of approximately $2.5 million.

91% of our debt is now unsecured. For the second quarter, we reported core FFO of $1.70 per share $0.02 ahead of the midpoint of our prior quarterly guidance. This outperformance was driven by $0.01 in higher non-same-store net operating income, primarily driven by the previously mentioned accelerated leasing activity at our development communities and $0.01 associated with the timing of certain corporate overhead expenses and fee income. Last night, we reaffirmed our same-store revenue, expense, and NOI midpoints at 5.65%, 6.85%, and 5%, respectively.

Our revenue growth midpoint of 5.65% is based upon an anticipated 1.5% average increase in new leases and a 5% average increase in renewables for the remainder of the year for a blend of approximately 3.25%. We are anticipating that our occupancy for the remainder of the year will average 95.6%. We continue to experience a higher than typical level of move-outs by nonpaying residents. As a reminder, all of the municipalities in which we operate have now lifted the restrictions on our ability to enforce rental contracts.

And as a result, we now have twice the amount of early move-outs of nonpayers year to date as compared to the first half of last year. We reserve for effectively 100% of delinquent balances and therefore, there is no net negative revenue impact when nonpaying residents leave. Rather, we receive the benefit of having our real estate back, the opportunity to commence a lease with a resident who abides by their rental contract, and lower bad debt from having a new resident who pays. However, we have noticed higher-than-normal repair and maintenance costs, which I will discuss shortly, partially associated with the move-outs of these delinquent payers.

Although we have maintained the midpoint of our expense growth at 6.85%, we have updated some of the underlying assumptions. Recently, the Texas State legislature passed the tax reform bill subject to voter approval in November. Upon approval, which we believe is likely, Senate Bill 2 will reduce independent school district tax rates by $0.107 per $100 of assessed value. Average independent school district tax rates in our Texas markets are approximately 1% of assess value or 45% of the total Texas tax rate.

Therefore, excluding valuation increases and other tax rate increases, this anticipated reduction equates to an approximate 4.8% reduction in Texas taxes. We have assumed some rate rollbacks in Texas in our prior guidance, so this reduction is not dollar-for-dollar to the bottom line. We have also had greater-than-anticipated success with our Houston valuations, both current year and prior year settlements. As a result of all of these tax adjustments, we now expect total property taxes to increase by 4.5%.

Repair and maintenance make up 13% of our total expenses and are now anticipated to increase by 8.5%, a 350 basis point increase from our prior expectations, resulting from higher unit turnover costs and other miscellaneous repair items. The remaining offset to the property tax favorability is primarily from continued increased levels of insurance expenses resulting from smaller claims generally under $25,000 per occurrence which do not count toward our aggregate $3 million exposure. Last night, we also increased the midpoint of our full-year 2023 core FFO guidance by $0.02 per share for a new midpoint of $6.88 per share. This $0.02 per share increase results primarily from the $0.01 per share second-quarter outperformance of our development communities and $0.01 in lower interest expense associated with the second-quarter prepayment of secured debt.

We also provided earnings guidance for the third quarter of 2023. We expect core FFO per share for the third quarter to be within the range of $1.71 to $1.75. The midpoint of $1.73 represents a $0.03 per share increase from the $1.70 recorded in the second quarter. This increase is primarily the result of an approximate $0.015 sequential increase in same-store NOI resulting from higher expected revenues during our peak leasing periods partially offset by the seasonality of utility expenses and leasing incentives.

A $0.75 sequential increase related to additional NOI from our non same-store and development portfolio, a $0.01 decline in net overhead expenses primarily associated with the timing of certain public company costs, and a $0.005 decline in interest expense associated with the second-quarter debt prepayment. This $0.375 cumulative increase in core FFO is partially offset by three-quarters of a cent of lost FFO from our Camden Sea Palms second-quarter disposition. Our balance sheet remains strong with net debt to EBITDA for the second quarter at 4.2 times and at quarter end, we had $212 million left to spend over the next two years under our existing development pipeline. At this time, we'll open the call up to questions.

Questions & Answers:

Operator

[Operator instructions] Our first question will come from Eric Wolfe with Citi. You may now go ahead.

Nick Kerr -- Citi -- Analyst

Hi. Good morning. It's actually Nick on for Eric this morning. I just wanted to ask what you're all seeing in terms of recent competitive starts, specifically which markets are more or less insulated, and then when you all kind of expect that supply to abate given the current and process pipeline?

Ric Campo -- Chairman and Chief Executive Officer

Well, the good news is, is that we've definitely started seeing starts decline in all the markets. If you look at the RealPage headline that came out just recently, the headline was -- starts finally started to decline -- starts in May were down -- May over June or June over May were down 13.5%. In June, from last year, they're down 33%. So clearly, the tight financial markets and the difficulty of getting bank financing and equity financing, along with increased cost of capital is having its -- the Fed's desire result, which is it's slowing everything down.

In terms of absorption, when you look at how we've been absorbing in most of our markets, it's been good. As Alex pointed out in our -- in his opening remarks, all of our developments have actually done better than we anticipated from a net absorption perspective. So we think it's going to be 12 months, 18 months kind of time frame to absorb all this new supply. And then when you think about what the market might look like in -- sort of toward end of 2024 and into 2025, it's pretty constructive for the supply side of the equation.

So -- and as Alex pointed out, we haven't seen this -- the wall of supply that everybody is worried about Eve'sIt's just not really negatively impacted our portfolio. A lot of reasons for that, but one of which is a substantial portion of our properties are just not affected by it because they are lower price points and they're not in the competitive sort of high-end market. So our product diversity is really helping us from a supply perspective. There's no question about that.

Nick Kerr -- Citi -- Analyst

I appreciate the color. And then I guess sort of a follow-up on that is with presumably less deliveries in I guess, '25, '26, what's Camden's appetite for ramping up your deliveries and you have the balance sheet to do so.

Ric Campo -- Chairman and Chief Executive Officer

Well, clearly, if things work out the way we think they might, there'll be plenty of opportunity to acquire shovel-ready deals that can't get financed. And we have -- history has shown that we will be aggressive in that area for sure?

Nick Kerr -- Citi -- Analyst

Thank you. Appreciate the color.

Operator

Our next question will come from Austin with KeyBanc Capital Markets. You may now go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Thank you. How do we reconcile the 95.6% average occupancy assumption for the back half of the year with the economic impact from backfilling nonpaying residents versus just normal course turnover?

Ric Campo -- Chairman and Chief Executive Officer

Yes. The normal course turnover is happening as we would normally expect it. The big difference in our portfolio over the last 6 months has been the incidence of sort of what we call short-term notices to vacate and primarily, those are people who have not been paying rents. They've been protected by a statutory moratoriums on getting our real estate back in all of our markets that we operate in those moratoriums have run their course.

So as people sort of reach the end of the game, which is we can now proceed in normal order and have them removed from our property for nonpayment of rent. When that day of reckoning gets close, they typically result -- most of them resolve that by just moving out. And those -- they end up being in our portfolio when we refer to the skip, but they're just people who disappear. And as Alex said, it's not necessarily a bad thing because these are people who haven't been paying rent, but they've been living in the apartment.

So if you have people who move out because they skipped as opposed to the ordinary course where we would get 30 or 60 days notice and have an opportunity to backfill that apartment, it just creates a much tougher dynamic for our on-site teams. And as I think Alex mentioned in the number, we have roughly twice as many folks in that category, which is short-term notice to move out as we would normally have or we had pre-covid. So you have -- it's the double impact of the normal turnover cycle, but you -- on top of that, you had this cohort of people who sort of move out in the middle of the night and it takes a different set of factors to react to that for our on-site teams, and that shows up in the occupancy rate in the 95.6% that we're projecting through the balance of the year.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

But if you were to put a number of units or how much of the occupancy that represents those skips and/or vacant units related to long-term delinquent tenants. Can you just put some numbers around that? And then could you also share what just bad debt is today?

Alex Jessett -- Chief Financial Officer

There's a couple of things. The first one is, if you actually look at our total turnover, our total turnover actually is down, and it's because we have less folks moving out to purchase houses. So that's the offset of that. And so based upon that, that's why we actually think we're going to see occupancy continue to pick up from this level.

Keith said in his prepared remarks that we're at 95.8%. We're actually going to be about 96% by next week. And so that's -- we continue to have strong occupancy because the turnover is maintaining -- is pretty low. If you look at our bad debt, we think our bad debt for the full year is going to average about 120 basis points.

And that is -- and we're thinking that probably in the fourth quarter, it should be around 90 basis points. That's compared to historical of about 50 in normal times.

Keith Oden -- Executive Chairman and President

Yes. And Austin, just to put a number on the -- Alex's point about the move-outs to purchase homes. We were about 11% for last quarter. But as we roll out that number forward into July, it actually dropped to single digits at 9.8%.

We haven't seen single-digit move-outs to purchase homes since you'd have to go back to the great financial crisis. We had a couple of quarters in there where we were single digits on that metric, and we hit that again in July. So that trend continues for sure.

Operator

Next question will come from Steve Sakwa with Evercore ISI. You may now go ahead.

Steve Sakwa -- Evercore ISI -- Analyst

Yeah. Thanks. Good morning. I just was wondering if you could provide a little bit more color on the kind of monthly trends on the new lease rates and kind of on the signings, just to give us a sense for the trend, April, May, June, and into July.

And I guess with delivery set to ramp over the next four quarters. I'm just wondering, do you expect new leases at all to go negative in, say, the next four quarters?

Alex Jessett -- Chief Financial Officer

Yes. So if you look at the trend, obviously, for the second half of the year, we told you new leases would be up 1.5%, renewals up 5% for a blended 3.25%. At this point in time, we're heading into our peak leasing periods and so it's going to follow some normal seasonalities over the next couple of months and then obviously coming back down into the fourth quarter. In terms of rents going negative, if you're just looking at sequential month-over-month, you do typically see some negative typically in November and December, that's what we are anticipating.

So that being a decline going from October to November to December. And as I said, that's just typical seasonal patterns.

Operator

Our next question will come from Haendel St. Juste with Mizuho. You may now go ahead.

Haendel St. Juste -- Mizuho Securities -- Analyst

Hey, there. Thanks for taking my questions. A couple here. First, what's the portfolio loss to lease overall? And where is the highest and lowest among your core markets?

Alex Jessett -- Chief Financial Officer

Yes. So our overall loss to lease is in the sort of 2% to 3% range. The lowest loss to lease is Phoenix, which is teetering right on the edge of flat loss at least to a slight gain to lease and our highest would actually be San Diego, Inland Empire, followed by Denver and Nashville.

Haendel St. Juste -- Mizuho Securities -- Analyst

And most of your larger markets, Houston, Atlanta DC, where does that lie?

Alex Jessett -- Chief Financial Officer

Yes. So Houston is right around 1%, Atlanta is right around, call it, 0.5%. And then D.C. is -- DC is actually pretty high.

It's right around sort of mid-4s.

Haendel St. Juste -- Mizuho Securities -- Analyst

And so when I think about the loss lease and then you mentioned the 3.25% blended rent expectation in the back half of the year. Ballpark what does that imply in 2024 earnings?

Alex Jessett -- Chief Financial Officer

Yeah. Right around 1.8%. So if we hit our numbers for rest of the year getting to December of '23, this should be 1.8% earn-in.

Haendel St. Juste -- Mizuho Securities -- Analyst

Thank you.

Operator

Our next question will come from John Kim with BMO Capital Markets. You may now go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thanks and happy birthday, everyone. A question on your revenue guidance -- on your same-store revenue guidance that you've maintained, it sounds like the bad debt is coming in better than expected with your guidance for the year, 20 basis points lower than prior. But when you isolate leases signed in June, it looks like it decelerated from 4.8% in May about 3.4%. And I was wondering if that deceleration had come in steeper than you had thought?

Ric Campo -- Chairman and Chief Executive Officer

No. I mean right now, we are progressing exactly as we had anticipated. Remember also that we did increase guidance in the first quarter. But so as compared to what we thought when we last increased guidance, everything is progressing as we expected.

John Kim -- BMO Capital Markets -- Analyst

OK. And then Alex, you mentioned you already anticipated some of the Texas reduction in taxes. I think at NAREIT, you discussed Texas and Florida as potential states. And just an update on Florida, if that was already factored into your guidance for the year?

Alex Jessett -- Chief Financial Officer

Yes. So Florida, for us, we are anticipate meeting. I'll sort of do it by market. Tampa is up 10%, Orlando is up 10% and South Florida is up 7%.

So obviously, some of our higher growth markets in terms of taxes. But -- that compares to Texas, which we think our total tax number is going to be up 1.4%.

John Kim -- BMO Capital Markets -- Analyst

So the reduction in millage rate are not anticipated in Florida?

Alex Jessett -- Chief Financial Officer

No. We do have some reductions in millage rates. This is the total. So if I look at tax rates, we're anticipating about down in 1% Tampa, 1.5% down in Orlando, 1.5% down in South Florida on Millage.

Ric Campo -- Chairman and Chief Executive Officer

It's all driven by value. The values are continuing to be assessed higher in most markets.

John Kim -- BMO Capital Markets -- Analyst

OK. Great. Thank you.

Operator

Our next question will come from Alexander Goldfarb with Piper Sandler. You may now go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you and yeah, happy 30th, although you guys don't look a day over 20, so happy birthday. So two questions here. The first question is on the skips and evictions. I get that for markets like maybe L.A.

or Atlanta, but your occupancies were down across the portfolio, which almost says that you guys were focusing more on driving rate this quarter. So maybe just broadly, if you can put a little bit more color on evictions and skips, if it's beyond Atlanta and L.A. And then two, for all the talk that we hear about supply in the Sunbelt, you guys are pretty good at driving rents up 7% or so -- or revenues up 7% -- so maybe just a bit more color on what you're seeing operationally so we can understand the difference between how much of the portfolio is impacted by the elevated skips and evictions versus supply versus just normal pricing policy that you guys used in the peak leasing season?

Keith Oden -- Executive Chairman and President

Yes. Let's start with the supply question first, then we'll come back to the skip and evictions. So one of the things that we've always done is when we think about our operating plan for the year, it's very much a bottom-up process. And we have to do that because the one big variable in our markets is typically are you going to be impacted by lease-ups in your submarket? And so to the extent we have communities that are going to be impacted by competitors and new supply they need to take that into consideration when they're thinking about their game plan.

So we do a bottom-up analysis. And when you do that, can you start with -- at the submarket level, and if you just -- we use our own kind of gathering of assets to define a submarket. But if you want to use RealPage, it's a pretty good proxy for that. So if you've got lease-ups that are going to be going on in a submarket that we have existing communities and that's the first level that clearly is going to -- that community will be impacted.

And then the second thing you look at is what's the age of Camden's asset relative to the new development? And we use a filter of 10-year-old assets or older. We run them at a different price point. They're probably not going to be competing with brand-new development. So when you take the supply that everybody is understandably focused on and concerned about, but if you run it through those two filters, it's an asset that's being built in a submarket that affects the Camden asset -- and it is -- a Camden asset less than or more than 10 years old.

When you run all of the supply in all of Camden's markets through those two filters, what comes out of that is about 15% of the total supply market by market is impacting a Camden community. So it's the scary headline numbers of 400,000 apartments being delivered over Camden's 16 markets in a six-quarter period when you when you go through the analysis from bottom up and look at, is this really likely to impact the Canada community, it turns out that it's about 15% of the supplies in that category. So that's a big part of the reason why even though you see -- sometimes you see these numbers that look kind of crazy in a market like Austin, where over the '23, '24 time frame, you've got in '23 and '24, roughly 40,000 apartments being delivered. That's a scary headline number for sure.

But when you do the bottom-up analysis, you should cover that really only about 20% of that supply that it's even impacting any of Camden's community. So I think our -- so far, we've been able to handle whatever supply is in communities with the end migration and strong job growth in these markets. And we expect that some version of that is likely to continue throughout '23 and '24.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. And then is it fair to say it's just the eviction and skips is really just Atlanta and L.A., right? Or is it other markets as well that are being impacted?

Alex Jessett -- Chief Financial Officer

Yes. So clearly, Atlanta and California are the outliers, but I will tell you that we are seeing upticks in some of our other markets -- that, by the way, is a good thing. All of the courts have opened up, but all the courts are delayed. And so you're starting to see some acceleration on the courtside, which is really getting folks that have not been abided by the rental contracts for quite some time, and you're starting to get them out much quicker now, which is obviously, as I said, is a good thing.

And you should expect to see these numbers start tailing off pretty good as we move through the year because once again, the systems are open and things are starting to flow a lot better.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. Second question is Avalon, as you guys saw, was released from the RealPage, I don't know what you guys can add from your standpoint. But do you see that you guys may also be released from this class action litigation?

Ric Campo -- Chairman and Chief Executive Officer

We're not going to comment on class action litigation on this call. Thanks.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. Thank you.

Operator

Our next question will come from Josh Dennerlein with Bank of America. You may now go ahead.

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

Yeah. Hey, guys. Thanks for the time. Just wanted to clarify, I think a comment or Austin's question on new lease growth in the second half of the year.

I think you said month-over-month seasonality things might turn negative. But what about on a year-over-year basis for new lease growth in 4Q?

Alex Jessett -- Chief Financial Officer

No.

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

Still assuming positive?

Alex Jessett -- Chief Financial Officer

That is correct. Yes.

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

OK. All right, perfect. Thanks, guys.

Operator

Our next question will come from Brad Heffern with RBC. You may now go ahead.

Brad Heffern -- RBC Capital Markets -- Analystw

Hey. Thanks. Good morning, everybody. I just wanted to dig into the occupancy commentary a little bit more.

Have you had a shift in pricing strategy to more of an occupancy focus and that's what's driving the recent uptick to 96%? Or is there something else that's driving it?

Keith Oden -- Executive Chairman and President

So yes, when we had the situation that I described earlier, which is you have this elevated level of short notice move-outs we absolutely, when we -- it's more than double what it should be historically. And we saw that beginning to impact our occupancy numbers in several of our markets in the sort of the May, June time frame, and we adjusted marketing spend. And then we also adjusted pricing to make sure that we maintained our occupancy through this period of time where it's elevated. I think the good news is, is that we're probably pretty far along with the exception of maybe, as Alex said, maybe in California, possibly a little bit in Atlanta.

We're probably pretty far along in the process of getting rid of that cohort of people who've been living with us not paying rent. Facing an eviction and then just leaving of their own volition, there's a finite number of them. I mean they moved in, they -- many of them have been not paying rent for a couple of years. The gig is up, the time -- the clock is running.

And eventually, they will either be evicted or they'll move out just prior to that. So there's a fine act group. It's an elevated concern right now. it's -- we've probably got another quarter or so of kind of grinding through that process at the end of which things should return to normal in terms of the cadence of getting proper notices being able to backfill, pre-lease, etc.

So I think we're getting closer to the end of that. We're just not there yet.

Brad Heffern -- RBC Capital Markets -- Analystw

OK. Got it. And then on the development side, can you talk about where construction costs have trended and if the math on a new start today is penciling out better than it has over the past couple of quarters?

Ric Campo -- Chairman and Chief Executive Officer

So construction cost has definitely flattened but has not gone down. And so in terms of -- and when you look at land cost, landholders are probably -- if you're really motivated, land costs are down 20%, 30%, probably. But there's not a lot of motivated land sellers and a 30% decline in land cost with a construction cost that has stayed flat, but not gone up, still is very, very hard to pencil when you think about rental rates and sort of occupancy rates systemwide are not going up as much as they were. So you still have a very, very difficult time penciling development yields today.

Hence, the significant drop in starts -- in the June number relative to the June number last year, almost a third. And we think that fundamentally because of this dynamic, you're -- it's not just the lack of availability of funds because if developers could show that they can make a seven-plus cash-on-cash return on a new development, I think lenders would probably fund it. But the problem is that if you're dealing with the current environment, it's -- especially with interest rate costs going up as much as they have, that's a pretty big part of the construction overall project cost, it just doesn't pencil. And so we have not seen any kind of relief in the construction costs.

And I really don't think you will. I mean you have a -- when you think about just the -- even though construction is going down in the multifamily space, you still have a lot of contractors that are building out what's under construction, and that takes 12 to 18 months, and those folks are really busy now. Now what will be really interesting to see is that if this continues the way you think it may continue, you should see some pretty interesting cost numbers in 2025, 2026 because when contractors start looking out into the future and they don't see a pipeline they're going to have to be more competitive and start tightening their margins and thinking about how they have to compete to get the next job in 2025 and 2026. So we could see some cost reductions next year toward the end of the year.

But right now, the pipeline is full and contractors are still printing money.

Brad Heffern -- RBC Capital Markets -- Analystw

Thank you.

Operator

[Operator instructions] Our next question will come from Jamie Feldman with Wells Fargo. You may now go ahead.

Jamie Feldman -- Wells Fargo Securities -- Analyst

Great. Thank you. Maybe shifting gears a little bit to the balance sheet. Can you talk -- I know you put some refinancings on the credit line and during the quarter, can you just talk about the impact that had on your guidance? And then just as you're thinking about, I assume turning -- turning it out into some unsecured at some point, how do you think about the variability to your numbers if you can't get it done in reasonable time or at a reasonable price? And then as you look ahead to your 24 expirations, how do you back that into potential unsecured needs?

Alex Jessett -- Chief Financial Officer

Yes, absolutely. So if you look at the debt that we prepaid, the rate on that debt was about 100 basis points north of our line of credit rate. So it was actually accretive to prepay that debt. And that is the $0.01, $0.01 of the $0.02 increase that we had in our guidance for our full-year numbers is coming from lower-than-anticipated interest expense entirely associated with that early prepayment.

I will tell you that in our full-year numbers, we are not assuming any bond transactions. Today, we could do a 10-year that would be probably at least 75 basis points inside of what we're borrowing underneath our line of credit. And so if we do a bond transaction sometime this year, assuming that rates hold or improve, it's going to be accretive to our numbers.

Ric Campo -- Chairman and Chief Executive Officer

Yeah. The variable debt is embedded in our run rate and won't change our numbers in any kind of capital markets transaction in the bond market would be accretive to our numbers this year and next year. The interesting thing when you think about floating-rate debt today is that historically, floating-rate debt has been cheaper than long-term debt. Obviously, with the Fed doing what they're doing, short-term debt is now actually more expensive than long-term debt.

We expect that to change in the future because over the long term, people have been always cheaper and you have the optionality without having to fix rates, long term, and all that. But ultimately, we -- with a 4.2 times debt to EBITDA, we have one of the strongest balance sheets in the sector. We will take an opportunity to put some of that accretion into our earnings when the market is right for that.

Jamie Feldman -- Wells Fargo Securities -- Analyst

OK. Great. That's very helpful. And then you make a great point on the leverage.

I mean, how are you thinking about capital if you were to find some really interesting opportunities on the acquisition side? Would you just increase leverage or JVs? Or just what are your latest thoughts?

Ric Campo -- Chairman and Chief Executive Officer

Well, we definitely have room in our leverage. We've always talked that our leverage is going to remain between four and five times. And so we have dry powder to be able to increase the leverage if we choose to with the right opportunities. Today, there really isn't a lot of great opportunities just given the bid ask spread between buyers and sellers.

And given the horizon on construction costs perhaps coming down in 2025, and '25, '26 being a lean year for development, it seems to us that, that might be something we'd lean into before acquisitions. The comment on joint ventures. No, we will not do joint ventures. We have the most pristine and simple balance sheet in REIT land with zero joint ventures and zero complicated things on our balance sheet, and we're going to keep it that way.

We would rather invest 100% of our shareholders' dollars into fewer transactions rather than dilute our management's focus on whose investment we are the stewards of, and we just think it complicates our balance sheet and complicates our world, and we just aren't going to do that.

Jamie Feldman -- Wells Fargo Securities -- Analyst

OK. That's very helpful. If you don't mind me just squeezing in one more because one of your investors have emailed me this question. Can you talk about occupancy stabilization potential in Atlanta and Austin?

Alex Jessett -- Chief Financial Officer

What are you referring to?

Jamie Feldman -- Wells Fargo Securities -- Analyst

At what point do you think market occupancy can stabilize there? It seems like those are two of the outliers versus the portfolio average?

Keith Oden -- Executive Chairman and President

Yes. So both of those markets are in the mid-94s, which is down from where they were last year. for a long period of time, we considered sort of 95 to be the number in terms of where we want to operate our portfolio that's gotten -- that's come up over time for a whole lot of reasons, primarily around the ability to turn units more quickly and some efficiencies and just getting it -- the real estate prepared to release. The -- so you got two separate issues.

You have in Austin, you do have a ton of units that are coming to market. So marketwide, my guess is that you're still going to see pressure broadly in Austin as they kind of work our way through close to 40,000 apartments in '23 and '24, they are being delivered. I mean the point I would make, and I made earlier is only about 20% of that supply, we think, is relevant to Camden's world. But obviously, the other 80% is relevant to somebody else's world.

And so my guess is we're going to stay under pressure. The entire market will stay under pressure, but I don't -- I think Camden is going to be OK and in terms of being able to handle the supply that's coming. So Atlanta is a little bit different case. They have much fewer units that are coming.

They do have supply that's coming in '23 and '24, obviously. But there's -- Atlanta has been a little bit of a microcosm of fraud and just bad acts that have nothing to do with COVID at all, most of this came about post COVID, but it was actually pretty widespread and it's one of those things that once it gets into the network of the fraudsters, until you react and put in countermeasures, which we have done and most of our competitors have done, once they get in the door, it's in the environment we're in, it's kind of hard to -- it still takes six to seven months to go through the process, you can technically evict for nonpayment in Atlanta. The reality on the ground is that, it's a process, it's crowded. There are a lot of people trying to get through the process.

So it's slow. So there was an issue in Atlanta that's separate and apart from any of the supply issues. It's just we've got people that are -- we've got folks in our apartments that we're working through to get out, my guess is most of our competitors do as well. But again, that will run its course over the next 4 to 6 months, and I think Atlanta will be fine.

Ric Campo -- Chairman and Chief Executive Officer

I'll give you a personal example of this issue. So last year, I rented an apartment in Chicago. I opened a bank account at Bank of America that has thousands of dollars flowing through it. I opened a Bank of America credit card, which I immediately ran up to the limit and then defaulted on.

And by the way, I've never lived in Chicago. I never released an apartment or opened a bank account or had a Bank of America credit card that I defaulted on, my credit score went to 510. And just recently, I tried to rent an apartment at a competitor in Charlotte and the competitor happened to be -- happen to know my name because they were pretty well known. And they sent the information to a regional vice president said, by the way, is Ric Campo really trying to lease an apartment in Charlotte.

And the answer was no, he isn't. And so this fraud is really interesting, and it's sort of a cottage industry on the Internet. Where people go on an Internet and say, how do you live in an apartment for free for six months or for three months or for nine months? And then they cipher through the system and figure out how to do it. six months to get my credit score back to where it should be and to get all the fraud off of my personal credit report.

But having been personally where my identity was stolen and try to rent apartments, with our competitors has been a real eye-opener and it's something that, unfortunately, is happening in our industry.

Jamie Feldman -- Wells Fargo Securities -- Analyst

Yeah. It's crazy. All right. Well, thank you very much for your color, and appreciate you letting me squeeze in that last question.

Operator

Our next question will come from Michael Goldman with UBS. You may now go ahead.

Ami Probandt -- UBS -- Analyst

Hi. This is Ami Probandt. I'm thinking about the long-term outlook for the portfolio and how supply impacts it. Do you think that you can avoid a large chunk of potential future supply by being selective in the submarkets that you acquire or develop in? Or is supply just really not avoidable in the Sunbelt?

Ric Campo -- Chairman and Chief Executive Officer

Well, I think as Keith pointed out earlier, our portfolio, we diversify our portfolio geographically and through product. And the way we do it product-wise is we buy in submarkets, maybe buy properties that have different price points. And so new development oftentimes has to be because of the cost structure in building new properties, you have to be generally at the top of the market. When you think about housing in America, including rental housing, not just single-family for sale, we have a shortage of affordable apartments in America, a big shortage.

And so the challenge with that shortage is that the numbers don't work to build to that middle market. The numbers have to be when you bring new development, and it has to be at the top end of the market and so -- or to the middle top end of the market. And so when you have a portfolio like Camden's that has a lot of middle market properties that where you think that where the rents are 30%, 40% less than what it cost to do a new development. People are not going to lower their rents unless they have to which today they don't have to, you don't have any major oversupply anywhere, including the Sunbelt.

You're in a situation where those folks that are in those middle market properties are not going to move into the A properties or the top of the market properties because they just can't afford them. And so that's -- so our portfolio is built for the long haul. We have -- we're going to have some of our properties, as Keith pointed out, that do have competition from new development, which is the top end of our properties. But a lot of our properties are middle market and they're not going to be negatively affected.

And so -- and the idea that Sunbelt supply is always a problem. Well, we've operated in the Sunbelt for 30 years, and we've continued to do well in up and down markets and oversupply and undersupply. The good news today is that the market is really efficient. And once a market overshoots supply, guess what, people stop building.

And we've seen it in all of our markets, and you're going to be seeing significant declines in starts and in -- over the next 18 months. And then we're going to be in a situation where people are going to say, when do you think supply is going to start in the Sunbelt again? After we have really good rent growth in toward the end of 2024 and 2025. So the reason the Sunbelt builds is because we need the supply because that's where the job growth is. That's where the in-migration is, that's where the folks are moving.

And it's not that you build just to build. You build to make a reasonable rate of return on your investment. And people in the Sunbelt have done a great job in making a return on their investment. But when they can't, they stop.

And so we're going to see that stop coming very soon, and then we'll go back to the cycle where we've overshoot on the building didn't happen. So rental rise and occupancies arise faster than normal in 2025 and 2026 as a result of that cycle. And then they'll catch up with supply in '27, '28 and rental rents will -- in occupancies will go down probably some a little. But bottom line is that's just a normal cycle.

And the good news is, is that cycle has happened over the multiple times over the last 30 years, and we continue to do really well long term in this business.

Ami Probandt -- UBS -- Analyst

OK. And then just a quick one. If you want to start a development project today, what would be the yields that you would target?

Ric Campo -- Chairman and Chief Executive Officer

So we have a development pipeline today and the projects we're starting all have roughly 6% sort of cash flows with a with an IRR that's 7.75% to 8%, 8.5%, something like that.

Ami Probandt -- UBS -- Analyst

OK. Thanks.

Operator

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

Ric Campo -- Chairman and Chief Executive Officer

We appreciate you being on the call today and supporting Camden for now over 30 years. We look forward to the start of the fall conference season, and we'll see you soon. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Kim Callahan

Ric Campo -- Chairman and Chief Executive Officer

Keith Oden -- Executive Chairman and President

Alex Jessett -- Chief Financial Officer

Nick Kerr -- Citi -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Haendel St. Juste -- Mizuho Securities -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

Brad Heffern -- RBC Capital Markets -- Analystw

Jamie Feldman -- Wells Fargo Securities -- Analyst

Ami Probandt -- UBS -- Analyst

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