Alex Jessett: Well, when you look at we use Ron Witten and Witten Advisors information a lot, and it’s interesting because development falls off pretty dramatically, or at least starts to in 2024, and you start absorbing that real estate. You have countervailing factors like homeownership rate going down or in terms of people moving out to buy homes at down at 10%, and the prospect for people buying homes next year looks pretty dismal relative to the current environment. And so you have – you do have cross currents that where you don’t need as much job growth for demand – that to create demand for apartments, because you have fewer people moving out to buy homes, you have more people that are, I’ve quoted a number of the percentage of people of adults that live alone in the U.S. And when you get close to a third of the people that are living alone, they don’t go out and buy houses, they rent apartments.
And so that older demographic becomes a higher propensity to rent apartments, and that stabilizes the system as well. So Ron thinks that you’re going to have occupancy levels that stay kind of where they are now and that you’re going to have some modest rent growth in markets and that’s why I think or the rent – we had a 5% rent growth in 2023. Are we going to have the same in 2024? The answer is probably no. But is it sort of a slower year? Yes, but is – I think that there is definitely a construct and a model that would argue that you should have reasonable occupancy and some rent growth in 2024.
Brad Heffern: Okay. Thank you.
Operator: Our next question comes from Haendel St. Juste with Mizuho. Please go ahead.
Haendel St. Juste: Hey, guys. Good morning. I was hoping to talk a bit more about the decision to let occupancy trend down in October. I would have expected occupancy to pick back up a bit here, certainly heading into seasonally slower demand, higher supply, and it sounds like you expect that now to continue into year-end, maybe even mid next year. So I’m curious if, in hindsight, that might have been a tactical misstep and perhaps where occupancy in the portfolio has fallen the most and when we might be able to get back to 95%. Thank you.
Alex Jessett: Well, remember, occupancy and rent are correlated, right? I mean, we could be at 95 – 97% occupancy if we wanted to go out and buy occupancy by lowering rents dramatically. And so we just think it’s a better fit. Our revenue team, we debate where we ought to have our settings on an ongoing basis, and we feel really comfortable with where we are. I would rather have higher rent and higher occupancy, but in this environment, with seasonality and with the consumer doing what they’re doing, we feel comfortable with where we are, and we think we’re going to set up for a reasonable start to 2024.
Ric Campo: So Haendel, just to follow-up on that, the idea that we let occupancy go to 94.9% is kind of implies that that was a conscious decision, and clearly that wasn’t because our occupancy guidance for the back half of the year was at 95.6% going into October. So if you want to kind of connect the dots a little bit, what Alex talked about on our delinquency, but also our continued elevated level of skips and lease breaks. We had planned at the beginning of the year that we felt – we really felt like that 2023 would do – go a long way towards getting back to normal metrics around delinquency and skips and lease breaks. And it would kind of happen radically over the course of the year. And we did make good progress in the first two quarters.
And there was certainly an expectation, and we talked about the expectation of getting to 90 basis points of delinquency by the end of 2023. Well, guess what? We were on a glide path to get there and then all of a sudden instead of dropping again and at the end of the third quarter, that metric reversed and all of a sudden you’re at 140 basis points instead of a glide path to get to 90. So that was – I mean that was completely unexpected. But the way that flows through in our portfolio is skips and lease breaks are in the same category of short-term lease terminations and they’re really either hard to anticipate. You have no idea who’s going to skip or when or when they’re going to move out. Obviously, if they’re facing the termination of their lease then by judicial means, then yes, they probably eventually move out before that date, but there’s no way to anticipate it.
And the challenge is when somebody moves out in the middle of the night, which these skips and lease breaks typically do. A, you don’t have a chance to do anything to pre-lease the apartment, and B, that people who move out in the middle of the night typically don’t take real good care of the asset. So not only do you not get noticed, it takes you longer to turn a unit because it’s been probably maybe a little bit more harshly used. And the – so the days to turn an apartment that is in that category of short-term lease break are just elongated and we thought we would be getting shorter and fewer of those and we didn’t. We got more. And so that’s the biggest reason why that it compounded our challenge of seasonality. Certainly wasn’t anything we thought, wouldn’t it be great to get into the 94%s on occupancy, but it just happens as a result of those factors?
Haendel St. Juste: Got it. Got it. Certainly understand the complexity involved and appreciate the thinking, the thought process here. Maybe can you give us an update on where the portfolio lost lease is overall today and where it’s highest and lowest? And I think last quarter you mentioned the earn in for full year 2024 was around 1.8%. If you were to hit your budget for rest of you, obviously the numbers come in a bit, so perhaps you can give us an update on where you feel that that earn in for next year is. Thanks.
Keith Oden: Yeah, absolutely. So loss to lease for us is just under 1% and we’re actually showing our embedded growth. Assuming we make our reforecast for the fourth quarter, our embedded growth should be right around 0.9% for 2024.
