Mark Parrell: Again, where’s the recession and what part of the economy? And I guess, I’d say if we get through the bulk of the leasing season into July and August and the job numbers are still pretty good and unemployment claims are still pretty low, then I’m very much of the mindset that we’ll have a really good year. If you start to feel those numbers roll over in March, then the year for us and everybody else in the apartment industry is going to feel a little different.
Operator: And we’ll take our next question from the line of Nick Yulico with Scotiabank. Please go ahead.
Nick Yulico: Thanks. First question, maybe for you, Mark, is how you guys are thinking about potential for stock buybacks? I mean, you’re not — not as much acquisitions planned now, harder to pencil as you’ve talked about, you do have a fair amount of free cash flow after the dividend. So, — low leverage balance sheet. So I’m just trying to understand at some point the stock buybacks become compelling? Do you need asset sales to fund that, or did the balance sheet already set up in a way to handle stock buybacks?
Mark Parrell: Yes. Thanks for that question, Nick. I mean, we’ve had versions of this conversation before. The unique thing about a stock buyback versus some of the other investments we make is it has both a capital allocation and a capital structure impact. I mean, we don’t retain a whole heck of a lot of cash flow after CapEx because we’re a REIT, and we have to distribute all our income. So, we look at it, it’s either incurring a whole — I mean to make a meaningful impact on a company our size, you have to incur a meaningful amount of debt and go out there. And we can do that. We’ve got space for that right now. But you can only do that one time before you’ve affected your ratings, you’ve affected your multiple. We all learned in business school, riskier businesses with more debt, have less multiples, lower multiples.
So, the debt side is possible, but it has offsets and is risk. And I also tell you on your asset sales, I mean, Alec and his team have bought well over the years. We’ve done a lot of 1031s. So, there’s a lot of embedded gains. You might sell an asset for $100 million and have $75 million, $80 million of gain to deal with. And so, not a lot of cash flow there either after needed distributions. So, I’ll tell you, Nick, when we see our stock price when it’s trading at such a material discount to NAV like it is now as, is a signal not to use the equity markets to fund growth. That’s what we see it as. And that’s very clear to us. But we do talk to the Board about buybacks periodically, and it’s not like sort of categorically off the table. But again, it’s more of a financial maneuver.
And if you don’t do it in size, it’s not terribly meaningful. And the last comment is I’ve watched a lot of REITs buy back meaningful amounts of stock usually away from our sector. And it hasn’t proven to have turned out all that well. I think it’s better used as an indicator of when not to issue equity than it is to go whole hog on some giant share buyback.
