Bryan Smith: Yes, Michael, there’s a couple of components there. You identified one of them. The other one was the return to seasonality that we talked about in Q4. What we’re seeing right now is a little bit of negotiation from the rates that we’re mailing to the ones that are signed, you can think of the negotiation band somewhere in the 30 basis point range, so it’s not huge. But we have really high quality assets that are well located and we’re providing really good value that the residents are appreciating.
Michael Goldsmith: Thank you, very much.
Operator: Our next question comes from Brad Heffern with RBC Capital Markets. Please state your question.
Brad Heffern: Hi, everyone. Thanks. I was wondering if you could provide some data on move outs to buy home. Where have they been recently and where does that sit versus historical levels?
Bryan Smith: Sure. Thanks, Brad. This is Bryan. As expected, we have seen a decrease in the proportion of our residents who are moving out to buy. In Q4, it was under 30% for the first time that I can remember, and it continued to tick down just a little bit into January, into the 28% range. Historically, that’s around mid-30%s, so it is a decrease, but it still is the major reason for or major destination for our residents who move out.
Brad Heffern: Okay. And sort of related, can you talk about what the expectation is in guidance for how turnover trends in 2024?
ChrisLau: Yes. The right way to think about it, Brad, is it’s a factor into occupancy. I would also think about it in terms of full year recall is really the return of seasonality that we started to see into late second quarter, third quarter in the back half of the year. So when we’re comping on a full year-over-year basis, we’ll probably see a slight uptick in turnover full year, but really more representative of kind of the return to normal seasonality, kind of post-COVID environment that we settled into in the back part of 2023 and all contemplated in this year’s occupancy guide in the low 96%s.
Operator: Thank you. Our next question comes from Linda Tsai with Jefferies. Please state your question.
Linda Tsai: Hi. Not sure if you answered this, but just any further color on the occupancy guidance? I’m just wondering why that would stay relatively flattish from where you are today when overall demand seems pretty solid and you aren’t really being impacted by new supply.
Bryan Smith: Hi, Linda, this is Bryan. We posted occupancy of 96% in January and our expectation for the year is below 96%s. So we are expecting to have some absorption. Really think about it in terms of what Chris just spoke about in that we saw a return to seasonality and our expectation is that seasonality will persist this year. So the end of the year may have a little bit of a rebalance after the heavy spring leasing season.
Linda Tsai: Thanks. And then my second question is just on the negotiation range of 30 bps, which isn’t that high, how much does that usually trend and does that change a lot depending on what part of the year you’re in?
Bryan Smith: There’s not a huge amount of seasonal variability there. A lot of it has to do with the fact that our offers are fair and they work well in the context of what’s being offered for release in the marketplace at that specific time. Historically, if you go back to pre-COVID periods, it was probably a little bit tighter in the 10 basis point range. We’ve expanded it a little bit just in light of everything that’s happening in the world. But yes, it is still pretty close and we’re comfortable at that range.
Operator: Thank you. Our next question comes from Jesse Lederman with Zelman & Associates. Please state your question.
Jesse Lederman: Hi, thanks for taking my question and congrats on the retirement, Dave. And congrats to Bryan and Chris on the new roles. My first question is just on February and it’s great to hear things have improved a little bit from January. How would you say the improvement feels on pricing power, specifically in February? And maybe what you’re expecting in March compared to kind of the normal seasonal lift? Maybe when seasonality was more of a thing pre-COVID to start the year.
Bryan Smith: Yes. Thanks, Jesse. It’s playing out largely as we expected. The acceleration of demand end of January is really driving excellent results in February. February is not done yet, but we expected to enter the year in a good position. 96% occupancies is certainly that. So we can push pricing as we accelerate into the spring leasing season.
Jesse Lederman: Great. My second question is kind of on your development pipeline and seems like your development pipeline as a percentage of gross assets has inched higher here over the last couple of years and more recently, presumably as other acquisition and growth avenues dry up. On the current trajectory, it looks like it might reach your 10% target that you’ve talked about. How do you think about that going forward? Have you rethought about the target or are there any things you can do to keep that in a range you’re comfortable with? Thanks.
David Singelyn: No, it’s a very astute observation. That is one of a number of things that we look at in sizing the entire program. And so we want to make sure that the risk profile of our company remains the way it’s been from day one, that we don’t change the risk profile. The company is primarily 100% a rental company, and that’s what we want to maintain the balance sheet looking at. We also want to have enough — it’s a balancing program. We want to have an adequate pipeline to be able to have future growth in all economic cycles, as we’ve talked about previously, and I think we have found a balance. I think where we are is kind of where we need to be, but we will flex up at times when there is unique opportunities. Right now, the program is that acquisitions of land and of existing assets is very difficult.
So we’re in a very, very good place. But we do consider that the balance sheet, we consider the capital markets, we consider the shape and the look of our pipeline as we are structuring our development program from period to period.
Operator: Thank you. And our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please state your question.
Austin Wurschmidt: Great, thanks. How does the low 3% loss to lease compare to historical levels for this time of year? And on those renewals that you said you achieved for Feb and March, it sounds like you’re fairly wrapped up for those months. How is that acceptance rates — the acceptance rate trended relative to what you’ve seen also, I guess, over kind of this time of year.
Bryan Smith: Yes, thanks, Austin. The low 3% loss to lease that we see currently, obviously, it’s been a little different the past couple of years with the massive acceleration in new lease rate growth. Our current position, though, is a testament to our revenue management team and the ability that we’ve shown to be able to recapture some of that. Low 3% this time of year, I think is a very healthy position. Keep in mind there’s going to be seasonal variability to that as we get into the spring leasing season, new leases tend to accelerate pretty heavily at that point, which would cause a change in that loss to lease number with the rest of the portfolio. And then looking forward to the results from February and March, they’re not done yet, but we’ve seen retention as expected. I probably have better visibility into February than we do into March, but it’s really playing out as planned.
Austin Wurschmidt: And then just anything on the rent-to-income ratio as you kind of get a little bit, maybe at the margin, greater pushback than what you’ve historically seen. Anything on that rent-to-income ratio that’s stretching above levels that leads you to dial back the rent increases at any point?
Bryan Smith: No. In fact, we’ve been really pleased with the fact that incomes have kept pace with changes in rent, certainly from our applicant pool. That’s been something that we’ve seen even the past three, four years as rents have accelerated greatly. The health of our incoming residents is very strong.
Operator: Thank you. And our next question comes from Tayo Okusanya with Deutsche Bank. Please state your question.
Omotayo Okusanya: Yes, good afternoon. Again, congrats Dave and Bryan, as well as Chris. My question is around just some of the SFR legislation that’s out there, the anti-SFR legislation, wondering if you kind of give us an update on kind of what you’re hearing about some of this legislation, possibility of it kind of moving forward in Congress on federal level or even some other things that are happening in any states that you have exposure to.
David Singelyn: Yes, Tayo, this is Dave, and thanks for your first comments. Legislation, regulation, hasn’t that been the story for 12 years that we have dealt with. It just keeps changing shape from year to year. Let’s keep in mind where we are. We’re in an election year and there’s going to be a lot of rhetoric out there. And what we have seen over the — in the past is that there’s been a lot of talk about a lot of different regulations and very few of them have reached a finish line, especially at the federal level. With that said, all of that rhetoric does get heard, gets heard at the local levels. And this is where having a robust government affairs function and getting in front of it and having the relationships at both the federal and the local levels is very, very important.
And we have invested a lot into that program. We will always have rhetoric out there around us. And at the end of the day, the one thing that I think you will see with American homes is we have always been fair. We have always been thoughtful in how we have treated people. And at the end of the day, that’s what’s important. And we are part of the housing solution here. We are building homes. And the issue around — the reason that there’s so much rhetoric around regulations is the fact that housing is very expensive. Housing now is more than — it’s approaching 40% of many households income. That’s up from low 30%s. But the problem isn’t the providers of housing. The problem here is that we don’t have enough housing. We have a housing shortage, and that has to be dealt with.
And that needs to be dealt with by actually relaxing some regulations and providing incentives to people to create the housing necessary to house Americans in this country. And so yes, it’s out there. I don’t see it any different. I do think it’s a little bit ramped up on the rhetoric side, but that really ties to the fact we’re in an election year, and let’s keep that in mind with where we are in the cycle.
Omotayo Okusanya: Fair enough. Thank you.
David Singelyn: Thank you, Tayo.
Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to David Singelyn for closing remarks.
David Singelyn: Well, thank you to all of you for participating today. But just from my perspective, thank you for your support over the past 12 years. Over the next 10 months, I will be out with Bryan and Chris, hopefully meeting many of you. And I look forward to that as we transition the role to Bryan of the CEO. So have a good day, and we’ll see you over the course of the year. Take care. Bye-bye.
Operator: Thank you. This concludes today’s conference. All parties may disconnect. Have a good day.
