Jonathan Olsen: Sure. So, in guidance, you have $800 million of bonds outstanding for seven months of 2024 that weren’t in place in 2023. So we did that deal in August of last year. That would, on its own, represent about $0.04. And then you’re absolutely right, the $640 million 2018-4 securitization is freely pre-payable at any time. We have held off on paying off that debt even following that bond deal because we like having excess cash on hand. It gives us flexibility to use that cash either to retire debt or for growth opportunities. In the current market, I think it’s important to point out that we’re earning on average about 5.3% on those excess cash balances. And you can compare that to the rate at which we’ve swapped that 2018-4 securitization, which is around 4.20%.
So in our guidance is the assumption based on the forward curve and sort of extrapolating what we think our money market yields could be for timing of when we would pivot to potentially paying off that debt. Now, I think the reality is, we’re going to do exactly what I just said in response to the prior question, which is we’re going to watch the market and we’re going to take what the market gives. So I don’t want to give a sense that a specific path forward is prescriptive, but that’s how we got to the $0.03 in the bridge.
Operator: Our next question comes from John Pawlowski from Green Street. Please go ahead. Your line is open.
John Pawlowski: Thanks. I’m sorry to belabor this rent growth question, revenue growth guidance, but I’m still confused. Jon, I want to make sure I understand you guys’ math on loss to lease and earn-in. So if you just take the midpoint of revenue guidance, 5%, you strip out the benefit of bad debt, you get to low-4%. Then you say lost to lease is high-single digits. I know you only capture a portion of that. And the earn-in is 2.5% to 3%. So how do you not get well above 4% kind of organic revenue growth for this year? Am I misunderstanding you guys’ lost to lease and earn-in definition?
Jonathan Olsen: No, I don’t think you’re misunderstanding, John. I think what it reflects is the fact that we’re here in early February. It’s early in the year. There’s a reason that we present guidance in a range because there are a variety of potential outcomes, both positive and negative, right? And so, I think we are cognizant of the fact that we are entering into what feels like a more normal kind of market rent growth environment between new and renewal rent. We are looking at the pre-pandemic experience as sort of our model for how we think the curve is going to develop over time. But I think, as Dallas said earlier, there is certainly the potential for a little bit of upside there, but we’re going to wait and see how the year develops.
Operator: Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead. Your line is open.
Juan Sanabria: All right. Thanks for the time. Just a couple of follow-up questions on guidance. One would be, how do you expect churn or turnover to trend this year relative to last year maybe relative to pre-pandemic? And then, secondly would be just CapEx guidance, what are you assuming in terms of growth rate on a per home basis? Thank you.
Jonathan Olsen: Thanks, Juan. It’s Jon. I think from a turnover perspective, similar to our occupancy guide, when we articulated that we expect it to be generally similar to what we saw in 2023, I think the same holds true for turnover in 2024. The reality is, we’ve still got sort of the tail of the lease compliance backlog to work through. But I think in the grand scheme, we feel very comfortable with the fact that turnover is trending much lower than it was pre-pandemic, and we think that’s emblematic of a really strong demand backdrop, a favorable sort of affordability picture relative to homeownership. That should benefit propensity to rent, duration of stay and likelihood of renewal. With respect to CapEx, I think that, that is going to continue to grow at sort of an inflationary rate.
I think we have done a particularly good job in making smart asset management decisions about where and when it does make sense to reinvest capital into our portfolio and in places where it does not pencil. What we found is, we can sell those homes into an incredibly liquid end-user market at cap rates inside 4% and then recycle that capital into newer assets that are going to have less of a CapEx demand over time.
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 follow-up. Just curious, did you have any material impact in your Greater Los Angeles area assets from the recent flooding? And if so, was that embedded in your guidance at all?
Charles Young: Yes. This is Charles. You’re referring to the atmospheric river event that hit California. Look, we’re still in the process of fully assessing, but early indications is that the vast majority of our portfolio really was not impacted. We have some work orders. There are not that many of them. We’re getting through them. As you can imagine, it’s around landscaping with trees and some roof stuff, but nothing really major, and our teams are great at responding to stuff like this. So we’re assessing, but we don’t see it as being a major issue.
Operator: Our next question comes from Michael Goldsmith from UBS. Please go ahead. Your line is open.
Michael Goldsmith: Hi, guys. Earlier in the call, you made the point that you’re seeing more competition in the build-to-rent type product versus the infill. Are you expecting a difference in performance in between your build-to-rent and your infill product? And then, separately, you’ve talked a little bit about pushing occupancy through the winter months. Is that dissimilar to what you have done in prior years? Thanks.
Charles Young: Yes. I’ll take the second question first. The pushing of occupancy is what we’ve typically done, especially as we’ve had more experience in the portfolio on what’s the best way to operate in a seasonal business, where in the winter and early spring, the demand is lower as you go into the winter and then it picks up going into the spring and summer. Getting full in that period is important because it gives us that position of strength to capture the demand of new lease rent growth. And what’s great about renewals, which is the majority of what we do is pretty steady throughout the year. So this is in line with what we’ve done historically during the pandemic. We did not see that seasonal pattern. And what we’re recognizing now is we’re back to that seasonal pattern.
Going to your first question, look, build-to-rent portfolios, when you take down 100, 200 homes at once, it’s like a lease-up, and there’s going to be a — kind of an aggressive stance to get momentum to get that project going. It’s a moment in time for that project or those that are within kind of driving distance that you may be competing. My point is the majority of our portfolio that we’ve acquired over the 10 years is really more infill, closer into job centers. And the majority of the build-to-rent are typically further out. Now we’re really smart around what projects we take and how they balance to us. But you have to recognize that when there are a number of build-to-rent projects that are hitting a community or MSA at one time, and we may have other homes there, it has an effect, especially when we’re pushing on occupancy.
And we wanted to make sure that we got to a place where we could get — to the second part of this question — we can get occupied and make sure that we’re capturing the best rent growth out there. So it’s something that we’re going to pay attention to. Scott knows, and team, they are understanding what these build-to-run projects are. But long term, they’re fantastic because it’s a great experience for the resident, the amenities that come with it. For us, it’s going to be less capital on repair and maintenance over the short period of time. So this is a balance that you get with the opportunities to take on build-to-rent projects like this.
Operator: This completes our question-and-answer session. I would now like to turn the conference back to Dallas Tanner for any closing remarks.
Dallas Tanner: Thank you. We look forward to seeing many of you in South Florida in a couple of weeks. Please reach out to Scott or Jon with any questions if we can help. Thank you very much. We hope everyone has a great day.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
