Operator: [Operator Instructions]. Our next question comes from Jamie Feldman with Wells Fargo.
James Feldman: Just quickly, I just wanted to get your thoughts on your debt maturities in ’24 and ’25. Obviously, a much larger maturity pipeline in ’25 with $825 million of unsecured. But what are your thoughts — like maybe can you talk to us about what’s in your guidance in terms of refinancing? And is there any chance you’d pull forward the ’25 maturities? And might that have any impact on your outlook if you did that? Just kind of what are you thinking about the markets in general?
Kevin O’Shea: Yes. Sure, Jamie. This is Kevin. Maybe just to kind of provide some context, I’ll just start with our capital plan for the year. It’s not changed significantly from our initial outlook. And as you recall, what we identified then and it’s still true today is that for 2024, we have $1.4 billion in uses, which consists of $1.1 billion of investment spend and then a $300 million debt maturity later this year in November, which has a 3.7% interest rate. So that’s the usage we’ve got for this year. Our sources are pretty straightforward and have kind of 3 broad parts, $400 million of free cash flow. We anticipate drawing down about $175 million of unrestricted cash that we had at the beginning of the year and ending the year with 2 25 in cash at the end of the year.
And then our contemplated about $850 million or so of external capital, which at the time we contemplated would be sourced through the combination of 2 debt offerings. We’re early in the year, a lot can change, and we’ll see what will happen. In our Q1 reforecast, we assumed that we do only about $700 million of incremental debt this year and probably use about $100 million or so of net disposition proceeds from the acquisition — disposition activity that’s underway. So not a lot of change. So two debt deals, we have $250 million of hedges in place that we intend to apply to our first debt deal. The $250 million are basically effectively struck at a 3.7%, 10-year rate. So if we were to do a small debt deal, we’d probably be looking at the cost of debt today, somewhere in the low 5% range versus an unhedged 10-year debt deal that would be more like .
So we’re in great shape. I mean it kind of goes back to Ben’s initial comments. We have a terrifically strong balance sheet, lots of free cash flow, low leverage at 4.3x, and well-laddered debt maturities that typically range from $500 million a year to $800 million or so a year. Next year is a little bit more elevated, but it’s still just over 2 points of our capitalization. So relative to the broader REIT industry, even that maturity is a modest one. That $825 million breaks down into a June maturity in 2025 at around 3.6%, and then there’s another $300 million in November 2025, also at around 3.6%. So our maturities are spaced out roughly 6 months apart. They’re relatively light and level across the spectrum. And so we’re well positioned to kind of roll those debt maturities as they come due.
We do not currently anticipate prepaying them. And certainly with debt rates where they are today, which is relatively unattractive compared to the expiring rate. It’s unlikely we would pull that forward to retire them early. So we’ll probably address those as they come due. And again, this is a pretty light year for capital markets activity, including debt, and we’ll take things as they come.
James Feldman: Great. That’s very helpful. And then for the next year, would you put a hedge on early? And when would you want to do that?
Kevin O’Shea: Yes. Jamie, it’s sort of — one of the — hedging is something we do. We evaluate continually over the course of the year. We don’t have rigid fixed plans to hedge X percent of debt maturity, in advance of its maturity. It’s really a function of what do we anticipate doing in the current year and the following year? And how do we think about our evolving sense of the capital plan that we’ll have for each of those years and what the opportunity set looks like in the treasury market for hedging.
Operator: Our next question comes from Michael Lewis with Truist Securities.
Michael Lewis: I know we’re already going long, but I have just one question. And it relates to a topic you talked a lot about, which is the Sunbelt versus the established regions and what 2025 and 2026 are going to look like. When I look at your Slide 8, 1.3% growth, unit growth in your established regions in ’25 versus 2.5% in the Sunbelt. It’s not really clear to me where the advantage lies there, right? In other words, what should that spread be? Because once you layer demand onto it, if I’m just looking at households created versus units added, it looks to me like maybe your expansion regions are going to have better fundamentals than your established ones in ’25 and more likely ’26. So I’m just wondering, what do you think is an equilibrium for that difference in supply? It’s just not clear to me that there’s a big advantage there.
Benjamin Schall: Yes, Michael, I’ll make a couple of comments. So starts in the Sunbelt expected to peak at some point kind of mid this year, stay elevated as you get through kind of the middle of next year. And then given the reduction in start volume, starts to come down back towards more historical levels as you get towards the end of 2025. So I think that was sort of part of your comment there. Now the impacts on markets as deals deliver, to my comments earlier, will be more extended. And then if you look further out, you’re exactly right. It is both obviously demand and supply story. And for us, it very much leads into how do we think about our overall portfolio optimization. And broadly, that’s the reason we’re headed towards 25% in the expansion markets.
We think that’s a nice addition. Also continue to feel very strongly about the performance opportunity in our South region. So there’s more into that we went into the Investor Day, but that is as we get into a more normalized environment, leading to how we think about our longer-term optimization goals.
Michael Lewis: Okay. So if 2.5% supply growth in the Sunbelt next year, is that — I mean it sounds like you think things are going to kind of gradually get better. But I mean, is that a concerning number versus the 1.3% established regions? Or are those pretty — you think fundamentals in those 2 parts of your portfolio might start to look pretty similar next year?
Benjamin Schall: I think they start to approach closer to historical norms for a period of time. Matt made the comment earlier about now the barriers to starting deals in the Sunbelt and the shortness of those market cycles. So it does factor into how do we think about our overall portfolio optimization.
Sean Breslin: And Mike, one thing, I think, to keep in mind here is I’d be a little careful about isolating years as being very unique in terms of the delivery cycle and the impact on fundamentals. As Ben was alluding to earlier, what you see on that chart in terms of deliveries for 2024, where it does peak in the back half of this year, people will be leasing up. Putting those units into the market 12 to 13 months beyond sort of the initial delivery dates in terms of how they’re leasing them up. And if you think of the impact on pricing, you’ve got those deliveries coming in plus you have new deliveries that are beginning in 2025. So the units coming in to market takes a long period of time for them to lease up. And the impact on stabilized assets takes time as rents are reset to a new sort of market clearing price.
As those leases expire, it has to roll through the rent roll. So when you sort of take the compounded effect, I think that’s why we’re saying that for 2025, we feel much better about our performance in the established regions relative to the Sunbelt. And that should carry into 2026, given the time it takes to lease up the assets and those new prices to be reflected in stabilized asset rent rolls, if that makes sense.
Michael Lewis: Yes. ’23 was a high supply year, too, right? Understood.
Operator: And there are no further questions at this time. I’ll hand the floor back to Ben Schall for closing remarks.
Benjamin Schall: All right. And thank you all for joining us today. We appreciate your engagement and support, and we’ll talk with you soon.
Operator: Thank you. That concludes our call for today. All parties may disconnect.
