Operator: Our next question comes from Keegan Carl from Wolfe Research. Please go ahead. Your line is open.
Keegan Carl: Yes, guys, thanks for the time. So I noticed Pathway sold a home in the quarter, which I believe gives you three total homes sold in the program. Just curious if you could give an update on progress in general, how you see it scaling over time, and what sort of expectations are baked in for more residents potentially buying that home.
Dallas Tanner: It’s a great question. Pathways — and again, we’re a minority partner in the platform, so I want to be careful to speak on their behalf. But they’re basically taking a cautious approach kind of in the interest rate mortgage cycle that they’ve been in and have been selectively deploying capital and sort of fine-tuning their business model when and where it matters. They’ve certainly continue to add homes, a lot in the new construction side of the world as well. But I think that that’s a program that we’ll continue to develop and get smarter over time. I know they’re exploring some opportunities in shared ownership programming and things like that. So we view them as a terrific partner in terms of how we sort of probe the market and understand where the puck is going.
And I think as they have more to report on the early wins in terms of the categories and also the products that will lend themselves to kind of the greatest upside, we’re certainly keen on getting a little bit smarter and deciding when and where we might want to lean in.
Operator: Our next question comes from Anthony Paolone from J.P. Morgan. Please go ahead. Your line is open.
Anthony Paolone: Yes, thanks. I guess, just wanted to understand, you mentioned a high-single-digit loss to lease, but your new lease spreads are kind of flat to down a bit, it seems. So I’m just wondering like how that works. And also, just your thought as the year progresses, like this new renewal spread, the spread between those two numbers, just kind of abnormally wide for, I guess, you guys and multi-family. I’m just trying to think like is there a rent fatigue, like which side kind of goes either up or down, or does that converge?
Charles Young: So, this is Charles. As we talked about, we set ourselves up here at the start of the year with occupancy at 97.5% that we can start to capture that new lease demand that shows up here in February. And so, when you go back, yes, this is in January, a little lower than we’ve been, but we explained why we did that. That was a conscious effort. But we’re set now to start to capture the demand that we expect will historically always shows up in the summer. We’ll see where that goes to. But right now, we’re already seeing the acceleration. And I think we’re in good shape, given our occupancy now, to capture that. That being said, we’ve also been really holding steady on the renewal side at pretty healthy rates. Again, came down slightly as we were following for occupancy, but we’re still seeing steady renewal rates when you go back to anything that’s pre-pandemic.
And with that loss to lease, that’s what gives us the confidence with our current occupancy to try to capture what’s in the market. We’ll see where it ends up, but we’re seeing acceleration from January to February, and we expect that will continue into spring and summer demand.
Operator: Our next question comes from Linda Tsai from Jefferies. Please go ahead. Your line is open.
Linda Tsai: Yes, hi. What is the breakdown in the guide between new and renewal?
Jonathan Olsen: Hi, Linda. It’s Jon. We actually haven’t talked about that, and I think we’re going to stick with what we did include in the guide, which is a blend for the year, high-4s, low-5s.
Operator: Our next question comes from Anthony Powell from Barclays. Please go ahead. Your line is open.
Anthony Powell: A question on, I guess, the cap rates in the MLS market. Are you seeing any change there? And also, your disposition cap rates still remain pretty low at 1.9%. What’s the outlook for that this year?
Dallas Tanner: It certainly feels — and I’ll let Scott add any commentary to this. It certainly feels like we can continue to sell our dispositions back into the MLS kind of in the mid-to-high 3s, low-4s, depending on the marketplace. Again, we have a much — typically, a much more expensive home than most of our peers. So when we go to market with some of that product, there’s massive demand from home buyers. And I think that’s a little bit subject to where mortgage rates are at any given time. But that feels like a very accretive way for us to recycle capital. Scott, anything you’d add to that?
Scott Eisen: No, I would just add that we are continuing our dialogue with the national and regional builders, and we just have a growing backlog of opportunities to work with them on buying partial and full community deals. And I think we feel good about where the spread is on potential cap rates for us. And I think it’s in a consistent way — it’s clearly, call it, in the high-5s, low-6s in terms of where we think there are opportunities for that.
Operator: Our next question comes from Jesse Lederman from Zelman. Please go ahead. Your line is open.
Jesse Lederman: Hi, thanks for taking my questions, and congrats on the strong results. Just looking at your estimate for new home deliveries, it looks like 760, 150 more than in 2023, but this becoming more of a focus for you. What’s preventing this from being even higher? Is it interest rates? Or are you finding it more challenging to compete with primary home buyers, given the for-sale market is heating back up? In other words, are homebuilders kind of shifting away from selling to rental operators at all because of how strong the for-sale market has been? Thanks.
Dallas Tanner: Good question. I think between me and Scott, we can give a little bit more color on what we’re seeing there. I think Scott summed it up nicely, which is our homebuilder pipeline is continuing to grow. Now, we’ve talked about this over the last couple of years. I think a year or so ago, our deliveries were like 350, 400. This past year, it was 700-plus. We — the number that you just quoted in the mid-700s is what we have currently on schedule to deliver. We’ll certainly see other opportunities in closeouts with some of our current partners and new partners that will happen throughout the year that aren’t on schedule would be our best estimate. Those cap rates are typically 6-plus in today’s environment. Now, Scott can talk and give a little bit more color, but strategically speaking, we’re on the record that we have a terrific partnership with Pulte Homes.
We continue to evaluate opportunities. Scott, you’re talking to a number of other builders about some other pipeline additions. And I think I mentioned earlier in the call or yesterday with some media, we’ve got about 1,800 homes under contract, plus or minus another 1,000 that we’re close to putting in our pipeline.
Scott Eisen: Yes. And the only thing — this is Scott. The only thing I would add here is that it’s clear in our dialogue with the builders that they are recognizing that this is an important business line for them. And they clearly have their regular way sales that they’re doing to individual consumers. But at the same time, they look at having an institutional partner like us across the table for them, gives them the ability to just continue to grow. Think of it like fleet sales that somebody does with an auto company. And we are just another opportunity for them to continue to provide housing to America and for us to be an incremental buyer to give that incremental demand and for them to continue to grow their deliveries and for us to have opportunities to grow our platform as well.
Operator: Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead. Your line is open.
Stephen Sakwa: Yes, excuse me, thanks. Jon, I just wanted to maybe circle back on some of those controllable expenses and just see if you could provide a little bit more color. Maybe within the 2023 results, what sort of elevated costs did you incur for all this extra move-out and the delinquencies? And trying to just get a feel for the quantification of that savings maybe moving into and how that might keep those controllable expenses down at that low single-digit growth rate.
Jonathan Olsen: Yes, Steve, it’s — I think the main drivers, when you think about how the delinquency backlog flows through the P&L, there’s obviously a bit of an impact at the occupancy line. We talked about that last year. I think the other primary areas are things like property admin expense, which is really the property-level legal cost to sort of manage through the process of enforcing the terms of our lease. You’ve seen substantial growth in 2023 over 2022 in that area. And the other area is sort of turn OpEx. As we’ve talked about, when we get some of these turns back from homes that had delinquency move-outs, those turns can be 50% more expensive and they can take some number of days longer to work our way through. I think when you look at 2024 versus 2023, I think the important thing is that it’s not that those costs are going down, but that we don’t anticipate substantial year-over-year increases.
Really, the costs are stabilizing. We’re going to work to try to improve upon what our experience was last year, but we still got some wood to chop.
Operator: Our next question comes from Eric Wolfe from Citigroup. Please go ahead. Your line is open.
Unidentified Analyst: Thanks. It’s [Nick] (ph) here with Eric. Just a quick question on the balance sheet. Was hoping to get your early thoughts on the plans for the $2.5 billion term loan maturing early next year. Will you extend it for another year into 2026? Or would you look to put new swaps in place to refinance with longer-term debt?
Jonathan Olsen: Yes, great question. I would start off by pointing out that, that term loan final maturity is in January of 2026. So it’s not a next year event. We don’t have any debt reaching final maturity prior to 2026. With respect to the term loan, we are going to be having dialogue. We’re already in dialogue with our bank group. And our goal is going to be to recast that facility sometime between now and summer 2025. We’ll continue to monitor the rates market as we contemplate the timing of that recast. And at the appropriate time, we’ll also look at our swap book to adjust it based on what our pro forma debt maturity schedule might look like. But I will say that in the grand scheme, we feel very comfortable with both our relationship with our bank group.
We feel very comfortable with our access to capital. We may not love our current price — cost of capital on new debt today. But we’re going to do what we’ve always done, which is to be patient, be opportunistic, watch the market, stay in constant dialogue, and when the appropriate time comes, we’ll work our way through that term loan, and we’ll move on from there.
Operator: Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.
James Feldman: Great, thanks. Sticking with the balance sheet and a debt question, what are you assuming in guidance in terms of debt paydown this year? I know you can pay down the secured loan early. And I think you have some swaps expiring at the end of this year as well. Can you just talk about exactly what’s in guidance?
