Joe Ahlersmeyer: Thinking about your return on inventory on a trailing basis, it has been normalizing, of course. But where do you think that can settle out if you’ve got headwinds maybe on the profitability side from land and incentives, the tailwinds from that production efficiency. Could we actually sort of settle out here in the high 20s? Is that realistic?
Bill Wheat: Well, the way we’re running our business, the way we underwrite our land deals, that’s our focus, with our focus on purchasing finished lots and as many deals as we can. Yes, our goal would be to keep that return on inventory in the homebuilding business as high as we can. And so, definitely, mid- to high 20s is a good level for us. It does fluctuate with where gross margins are. So we’ve been coming down off of some of the peak gross margins we saw last year, but definitely mid to high 20s is a level that we’re striving to achieve.
Operator: Your next question is coming from Carl Reichardt from BTIG.
Carl Reichardt: Joe stole one of my questions. But looking at the guide for next year, are you anticipating much alteration in mix in terms of geography or price points? And I’m particularly interested in some of the smaller markets where you all are really the only large builder, a couple of the acquisitions you’ve done. What percentage of deliveries next year do you think might come from markets like that, however you want to define it?
Michael Murray: Don’t probably have a good breakdown of deliveries by market, stratified by market size or recent entrants, but we do expect to see probably a rotation to smaller home footprints and introduction of smaller plans where we can get municipality approvals. Again, just to maintain the affordability, I think we will see that we’re going to continue to roll with starts, but the compressed cycle times that we’ve gotten out of our construction process is going to allow us to deliver a lot more homes on fewer homes carried in inventory at any given quarter end date.
Jessica Hansen: Carl, this doesn’t perfectly answer your question, but I do want to let people know that in our investor presentation we’re going to post, as we usually do, post the call, we’ve updated our market share dominant slide pretty dramatically to make sure it aligns with all of the markets we operate in. We did a lot of work with Zonda and our internal data. And so, now instead of just reporting on the top 50 US housing markets and where we rank in those, we’re talking about all 118. And so, it will give you some more insight into where we are in terms of whether we’re number 1, top 5, top 10. Out of the 118 markets we’re in today, only 7 we’re not top 10 in and we went through those last night and they are all markets that we essentially have just entered within the last year or two.
So we would expect to be top 10 very quickly and then move up into the top 5 and certainly continue to work on becoming number 1. So it doesn’t answer geographic mix, but I did want to kind of plug the fact that we gave incremental data on market share that we hadn’t historically put out there.
Carl Reichardt: Just as a follow-up, I know you’re not guiding on the rental business in 2024, it’s becoming a bigger portion of PTI and obviously taking up some balance sheet. From an institutional investor perspective on both multifamily and single family, how has that appetite fared for the projects you’re selling at stabilized occupancy? Obviously, spreads have come in there, but there’s also a lot of capital, I would guess, chasing both asset classes. So I’m just sort of curious what you’re seeing from those customers.
Paul Romanowski: We are still seeing strong interest, Carl, from the institutional investors that are out there. As you mentioned, the spreads have come in. And we’re going to see some volatility in gross margin as we move through this process and move through the markets of higher rates, but still seeing consistent activity. I still feel we are in a great position to be the dominant supplier of single-family rental and continuing to grow our multifamily platform.
Operator: Your next question is coming from Mike Rehaut from J.P. Morgan.
Mike Rehaut: I wanted to focus for a moment on the fiscal 2024 closings growth guidance of up 4% to 7%. It seems like that’s a little bit below maybe what you typically shoot for in kind of like a high single-digit range, if I’m not mistaken. And I’m just curious if that’s a function of maybe the current backdrop with the recent move in rates. Also, obviously, your backlog is still down over 20% year-over-year. Just kind of wondering if there’s a little bit of a timing gap here given the backlog, maybe given the current environment, that high single-digit rate is something we should think about you guys maybe returning to in 2025, all else equal?
Jessica Hansen: Great question, Mike. We expected it. We do talk about always positioning ourselves for growth, and you typically hear us talk about plus or minus 10% is how we’re going to position the company. If you look at how we’re exiting 2023 though and our guide for fiscal 2024 closing, it does already assume our typical 2 times housing turn, actually a little bit better than that at the high end. So 2.04 times to 2.11 times would be our guide. And so, it’s already incorporating our improvement in cycle times. And if we continue to be able to have success with that throughout the year, we’ll consider that in what we talk about publicly in terms of what we’re able to deliver for fiscal 2024. But as we sit here in November, that’s a realistic expectation for closing with the visibility that we have today.
It’s not necessarily that we’ve seen a big falloff in demand. Obviously, our sales were up very strong. And so, it’s more a function of the houses we have in inventory and our cycle times.
Michael Murray: This is Mike. Just following on with that is that our lot position is very strong right now. We own 50,000 lots that are finished, and there’s obviously more that are in the controlled portion of our portfolio, that – as we see the market unfold for the year, we will be able to accelerate starts to meet any increased demand. Coming into 2023, we saw a rate spike at the end 2022 and we were a little concerned about the year and the outlook we gave last year at this time. And the team stepped up and delivered a great year in fiscal 2023 and against that backdrop. So positioning for conservatism in the year, but always are – have a desire to grow and to grow in that double-digit level.
Mike Rehaut: I guess also just wanted to circle back. You had mentioned with regard to sticks and bricks, 6% lot inflation. Is that something that has been accelerating, I guess, not just sticks and bricks, but maybe just more broadly, where is a lot as well as construction cost inflation for the fourth quarter on a year-over-year basis? And how do you expect that to play out in 2024 based on current trends? And would that require some amount of price appreciation to offset, let’s say, to maintain your fiscal – your first quarter gross margins?
