Ben Schall: Yeah, John, I think it’s footnoted on the slide, but just to be specific, when you start the year, it reflects essentially the rent roll or gross potential is a common term for the month of January relative to the average gross potential or rent roll that we had in place for 2023. So as I mentioned earlier in response to Steve’s question, you tend to realize a substantial portion, if not all, of your rent roll growth in the first nine months of the year or so. It accelerates in the spring, peaks in the summer, and then starts to come down in the fall as a result of not only decelerating like-term rent change, but the mix from unlike-term rent change where you burn off short-term premiums and other things. So essentially, in Q4, you don’t really see sequentially, if you think about it, any material growth occur during that period of time.
So you might have eight months or nine months that you’re up kind of an average of a point and a half, like as we were talking about, and the last two or three months is closer to zero and that’s how you get closer to kind of the low ones. But we can certainly walk you through it in more detail offline if you like.
John Kim: Yeah, absolutely. I think it’s your peers don’t define it the same way. So it’s worth delving into a little bit. I’ll do that offline.
Ben Schall: It’s also probably a timing issue. We described the point and a half as kind of where we were spot basis at the end of Q3. I know some companies sort of estimate where they think they might be in January and provide that information on their calls. We tend to provide on a spot basis.
John Kim: Okay. My second question is on your initiatives, including Avalon Connect and the capital spend you have on that. How much of that do you expense versus capitalize?
Ben Schall: For Avalon Connect specifically, the costs associated with those programs are essentially 100% expensed.
Operator: Thank you. Our next question comes from the line of Josh Dennerlein with Bank of America. Please proceed with your question.
Joshua Dennerlein: Yeah. Hey, guys. Appreciate all the color on how the Avalon Connect flows to the same-store expenses this year. Could you remind us how it’s going to flow through the revenue line item this year and what kind of ramp you’re assuming?
Ben Schall: Yeah. Josh, what I would do is refer you back to the slide on the revenue decomposition and that contribution of 80 basis points from other rental revenue. Almost all of it, not all of it, almost all of it is related to Avalon Connect driving other rental revenue up. There’s also increasing trash fees and other things that are happening, but most of that increase is related to Avalon Connect.
Joshua Dennerlein: So, I guess maybe on a quarterly basis, because it looks like one key of a big uptick, and then it kind of drops off. So, just kind of trying to figure out the quarterly cadence.
Ben Schall: Yeah. Why don’t we get back to you on that as opposed to going quarter-by-quarter on the call, if that’s okay. We’ll ramp up as we move through the year, for sure and essentially what happens is, think about it as mirroring lease expirations, because we push that through at the apartment level as leases expire. So that’s the way probably to think about how we’ll bleed through quarter-to-quarter at a high level.
Joshua Dennerlein: Okay. That’s helpful. And then maybe just curious on a breakdown for expense growth, kind of like, do the subcomponents like utilities, R&M. Could you provide just like your underlying projections for that?
Ben Schall: Yeah. Why don’t I give you some high level commentary, since that’s a lot of categories to go through on the call, but sort of high level things to think about here; property taxes, overall, we’re expecting year-over-year growth sort of in the mid 4% range. A substantial portion of that is being driven by the phase-out of property tax abatement programs, as I mentioned in my prepared remarks. Insurance, we are expecting another year of kind of double digit growth in insurance, given what’s happening in the market, which, we can certainly talk about if you like. As it relates to utilities, Avalon Connect, I just mentioned, we’re expecting utilities as a category to be sort of in the low double digit range and again, almost all of that is related to Avalon Connect.
Core utilities are actually quite modest in terms of growth rate and a couple others maybe to mention are on the payroll side. We’ve essentially got a merit increase of 4%. That’s about 90% of payroll. Benefits are going up about 6%. So those two combined are 420 basis points, but we’re picking up about 100 basis points from our payroll reductions. So that will net out in the low threes and then the only other thing of note I would say, really, that’s a little unusual, is in our office operations category, it’s accounting for 20 basis points, 25 basis points of total expense growth, really related to legal and eviction costs that were somewhat elevated last year. We expect them to be elevated a little bit more this year as we continue to process people who are non-paying residents.
So those are some sort of high level comments. Hopefully those are helpful.
Operator: Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.
Brad Heffern: Yeah, thanks, everybody. Can you just talk about how the start of the year has looked so far versus the kind of normal trends for demand, rent growth off the seasonal trough, etcetera?
Ben Schall: Yeah, happy to take that one, Brad, pretty much consistent with what we’ve outlined in terms of our outlook. And I would say relative to historical norms for January growth, it’s modestly below. Sort of if you look at the change in asking rent in the month of January, say, for the five years pre-COVID as compared to this January, asking rents are trending up just at a slightly lower growth rate.
Brad Heffern: Okay, got it. And then I know you get the blends already, but I was curious if you could give the underlying assumption for market rent growth across the portfolio in ’24.
Ben Schall: Yeah, we’re expecting average asking rent growth throughout the year to be sort of in that 2.25% to 2.5% range and actual rent change in the portfolio would be roughly 2%.
Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. You use a macro scenario from NAI [ph] of like about it seems like 1% GDP growth and 55,000 jobs per month. How sensitive is the rent growth to kind of your underlying macro forecast? Like said, another way, if the economy is better, how much more rent growth can you get in 2024? Thank you.
