Jessica Hansen: So to the first part of your question, we’re over 60% of the houses that we’re closing today were developed this past fiscal year on a lot developed by a third party. So the 54% is kind of a minimum that we would expect to take down finished because in a lot of cases, as you likely recall, industry practices for – we have hundreds of land professionals across the country that are very good at what they do. So they’ll go out, source the land, negotiate it with the land seller, put it under contract and then we’ll go find a third-party developer. So in a lot of cases, some of that stuff and the other 45% that we maybe today has not identified who’s going to develop it. By the time we bring it on our balance sheet, it will be from a third party. And then in terms of the markets where we’re buying more finished lots versus not, do you expect that to skew?
Paul Romanowski: No, I don’t expect that to skew. Ken, we continue to build our developer partnerships in all markets. And I would expect that, over time, you’ll continue to see a rise, not a reduction in the number of lots we buy fully developed as we derisk our balance sheet and our lot pipeline.
Ken Zener: Thank you very much. Thank you, David.
David Auld: Thank you, Ken. I appreciate the support through the years.
Operator: Your next question is coming from Susan Maklari from Goldman Sachs.
Susan Maklari: My first question is around the community count growth. Any thoughts there on how we should be thinking about that for 2024? Is something in that mid to high single-digit range as you talked about in the past still a reasonable goal?
Jessica Hansen: On a year-over-year basis, Sue, yes. I think we would expect – as we look at fiscal 2024, we’ve driven a lot of increased absorption out of our communities for quite some time now. And so we’re shifting to some of that growth now coming from just incremental community count and continuing to expand our footprint. So I think mid to high single is a good base case. We don’t specifically guide the community count for a reason. It’s pretty hard to predict just because there are so many moving pieces to communities coming on and offline, but I do think that’s a reasonable base case assumption that we’ll obviously update as we move throughout the year if necessary.
Susan Maklari: You’re guiding to buying back $1.5 billion of stock over the next year, which is up versus the $1 billion that you did in this past year. Can you just talk about what’s driving that confidence? How you’re thinking about the cash generation of the business as you go forward from here and what that could mean in terms of capital allocation priorities?
Bill Wheat: It’s been the goal of ours to consistently repurchase shares over time and grow that over time. And so, this is just another step in that progression. And in the business, as we see I’d say, increased visibility and confidence in our ability to generate cash flow into fiscal 2024. That’s given us a little more certainty around being able to guide a little more specifically to that growth than we have in the past. As Mike said earlier, a year ago, we were concerned about our production capacity and how quickly we could actually deliver homes. We have more certainty around that today. And so, with that, that gives us more visibility around our cash flow. And so, repurchases, dividends, distributions to shareholders are an important part of our of our capital allocation.
And so, as we’re guiding to $3 billion of homebuilding cash flow with $1.5 billion of that going to share repurchase, another $400 million going to dividends, that’s obviously a very important part of our capital allocation.
Operator: Your next question is coming from Rafe Jadrosich from Bank of America.
Rafe Jadrosich: I wanted to just follow up on the comments on the lot cost outlook, up 11% year-over-year in the fourth quarter. Is there something that’s driving that higher near term? Or is that sort of the run rate we should be expecting as we go into fiscal 2024?
Bill Wheat: That is our current run rate. It has been inflecting a bit higher. It reflects several things. Obviously, land prices time over a number of years have increased incrementally. But we’ve also seen significant inflation in development costs and all that includes in that, whether it’s the infrastructure costs themselves along with costs from government permits and regulations and requirements there as well as lengthening the time of development. The development time lines have lengthened dramatically, which then adds to, obviously, the costs associated with it. So there has been pretty strong inflation across really all of our markets on lots getting developed. And there’s still a shortage of lots out there in the market for builders as well.
And so, that is our current run rate. Whether that’s going to accelerate further or whether we might see some moderation over time, I don’t think we have visibility to that, but we do still expect to see probably stronger lot cost inflation than our other inflation in our stick and brick costs as we go in 2024.
Rafe Jadrosich: On the rental outlook, there are some signs that rents are coming down. And as you mentioned earlier, cost of capital is higher. How do you think about incremental investments in rental in this current rate environment? Is there a level of rates where you pull back? And if demand is weaker, like how do you handle what you’ve invested there? Like, would you sell at retail or just continue to rent them out? Just how could you handle that in different rate environments?
Paul Romanowski: We are watching it closely, and we continue to be in the market with stabilized assets. And we just like – as we sell homes, we watch the market closely, look at what demand is and what that pricing is. We don’t intend to continue to hang on to stuff and significantly increase our balance sheet. So while we’re indicating that we may see some choppiness in margins as we flow through this market, but we still feel good about the demand that’s out there, we feel good about our position and the platform and intend to continue to grow the platform and be positioned to do so, but we’ll watch it closely in the coming quarters and adjust accordingly.
Michael Murray: The strategic value of the platform for us to be a very good multifamily developer is significant as a land user. Being a residential developer, we’ve done that for a long time. And now going into the multifamily development side, we become a better buyer of land parcels and a better partner for land sellers. And so, strategically, it’s a business we’re going to stay in, going to continue to scale that business, but we will be opportunistic and responsive to market conditions with what we do.
Operator: Your next question is coming from Jade Rahmani from KBW.
Jade Rahmani: Not sure if this was stated earlier, but could you get the percentage of your buyers that are taking some kind of mortgage buy down or interest rate incentive? And secondly, what percentage are taking the full-term buy down?
Paul Romanowski: It’s about 60% of our buyers are utilizing some type of rate buy-down and a fair chunk of those – I don’t have specific numbers – almost all are permanent 30-year buy-down.
Jade Rahmani: On the rental business, could you talk to a rough ballpark of exit cap rates that – or acquisition cap rates that the purchases of your development assets are looking to achieve?
