Joshua Dennerlein: Yes, hey guys. I just wanted to explore a comment, I thought I heard from you earlier about just like – I think it was like supply, you’ll have to deal with through the end of 2024. Was that implying that the softness we’re seeing in the new lease rate growth will continue through the end of 2024? Or is it just like a general comment on supply? Just trying to think through like kind of what we could be in 2024 [ph]?
Ric Campo : Yes. It’s a general comment on supply. But to Keith’s point on the 16% of our portfolio that is impacted by supply and through those numbers out there about the differential between those 16% and the balance of the portfolio. And so we’re going to have more supply through 2024. But again, it’s limited to that piece of the portfolio. Now there’s the discussion earlier about, well, what is it? Is it the sort of softness in the fourth quarter? Is it all supply? Is it all consumer behavior? Is it all – and what’s happening is it’s a combination of everything, right? Supply is on the one hand, is an issue for a part of the portfolio. Consumer behavior is probably the biggest part of the equation, because when you have more move-outs than you thought you’d have because people are skipping or breaking their leases, then you have to backfill those folks.
And when you backfill them and if you – if you didn’t have that, you didn’t have to backfill them. And then when you have the bad debt side of the equation, it’s sort of a circular equation. So it’s really three different things that are happening and supply will be a headwind for that part of the portfolio in 2024. And hopefully, we won’t have as much of a headwind from skips and breaks and bad debts because we’re implementing things that are trying to keep the bad actors out and the municipalities are all getting better. And there are – as Keith mentioned, there are just not as many barriers to getting people out. There is a backlog, but that backlog is starting to improve. And if you look just in a few markets like, for example, every market in the country, except three are 1%, 1.5%, 1.8% kind of bad debts and the three that are having trouble are California and Atlanta.
In California, bad debts are still 4.3%. And now the moratoriums are out or have been taken off, but the courts are backlogged. And so you – those backlogs will fix. And what will happen is that – and what’s happening now with certain folks is that they understand that they can stay longer and they do. And then when they get close to the edge, when they know that there’s no other sort of administrative way for them to stay in, then they skip in the middle of the night. I think 85% of our skips and lease breaks are people who owe us money, which on one hand, is a really good thing because we’re getting them out of the property because they haven’t been paying. On the other hand, it creates more vacancy and it creates more bad debt.
So you have to look at that part of the equation and say, all right, because of seasonality, we needed to fill more apartments at a slower time, and that’s the circular effect of that – of those things. So, I think that next year, even with new supply, we’ll still have that as a headwind in some of our properties, but we should be getting more clarity on getting our real estate back faster and having bad debts go down.
Joshua Dennerlein: Okay. Appreciate that color. And then I don’t think we touched on it yet, but just any plans for the floating rate debt exposure if you guys are just going to keep it as is or there’s something you guys want to do at this point with it?
Ric Campo: So when you think about floating rate debt, and if you think over a long period of time, floating rate debt has always been cheaper than long-term debt. Today, we’re in a very unusual situation with a flat yield curve. And so even though it’s steepening a little bit because of long-term rates going up. But at the end of the day, the bottom-line in our portfolio is we have very, very low debt. So when you look at it as a percentage of total debt, it looks high. But because we have low debt, it’s very manageable. And so it’s already in our run rate with our line of credit costs and our term loan at this point. And so it doesn’t make a lot of sense to me to worry too much about what floating rate debt is going to be over the next couple years because I think ultimately the yield curve will steepen and either short rates will come down.
And I just don’t think we need to be betting on long-term bonds right now, given, the volatility in the bond market. So we’re comfortable with the level we have today. And I look at it as sort of gas in the tank to a certain extent because when rates start dropping, that’ll flow through to our FFO because we’ll start having lower interest costs. The worst thing in the world would be to fix long-term rates today at these current rates and then see the whole yield curve move down over the next couple years.
Joshua Dennerlein: Okay. Thanks, Ric. Appreciate it.
Operator: Our next question comes from Steve Sakwa with Evercore ISI. Please go ahead.
Steve Sakwa: Yes, thanks. Just my one question. I know with capital deployment is probably not really high on the list right now. I think we’ve got the stock probably trading north of a 7.5% implied cap rate. So I guess, how are you thinking maybe about share repurchases and marrying that up if there is a disposition market? I know there’s a lot of institutional capital looking for high quality apartments. So sort of any thoughts on shrinking the company a bit and buying back stock?
Ric Campo: Well, we’ve been really consistent in how we’ve described our stock buyback sort of appetite in the past. And that has been that it had to have at least a 20%, 25% discount to, what we thought NAD [ph] was and needed to be persistent, and we needed to sell assets to fund it. And maybe this is the time where we have persistency. We’ve had times in the past where we had the opportunity, but we didn’t have the timing to be able to sell assets and buy. We have sold one asset this year, small one for $61 million. And when you think about capital deployment today pretty hard to get a – when you look at an implied cap rate of seven and a half and if you look at a long-term model of what apartments will do once we get through this uncertainty of and the supply cliff that everybody’s worried about.
You should see reasonable returns for multifamily companies come back again. So it makes sense for us to do that. We do have – there is a disposition market, yes, dispositions or the acquisition market is slow. It’s down 60%, 70% from the prior year. But I think it’s really interesting when you think about that it sounds 60% to 70%, which the flip side of that means that there’s deals getting done. And so for us, we were aggressive buyers of the stock when the stock was down substantially for a long period of time. And if we have the opportunity to do it, we probably will.
