Austin Wurschmidt: Thanks, Eric. Appreciate the detail response.
Operator: Thank you. We will take our next question from Eric Wolfe with Citi. Your line is now open
Eric Wolfe: Hey, thanks. I just wanted to follow up on the answer there. You said that you don’t expect new lease rates to get much worse from here. So I don’t want to put words in your mouth but does that mean you’re sort of expecting like negative 4% to negative 5% new lease for the foreseeable future? And should that continue through Q2 next year? Because it sounds like you’re saying that what the dynamic you’re seeing today should continue to 2Q and then probably get better as you get into the back half of the year?
Tim Argo: Hey, Eric, this is Tim. I mean I do think new lease rates probably hang in this range for a few months. Obviously, typically Q4 and Q1 are kind of weakest in terms of seasonality and the amount of traffic and all that. But I do think we will see some level of – and Eric hit on this a little bit some level of normal seasonality as we get into later to 2024. So I think as we get into March and April in the spring and the higher traffic volumes that we’ll see some acceleration in those new lease rates. And I don’t expect much change in renewals. We’ve been pretty consistent with our renewal rates going back for several years. We think those will hold up and we think the turnover rate remains low which provides the renewal side with more of that blend when you think about when the lease of our lease rates. So I think we’re going to be in this range for a few months but I don’t think it sticks like that for the next fall.
Eric Bolton: And we typically see the gap between new lease pricing on renewal pricing sort of gap out the most in Q4 and Q1, and then it tends to narrow in Q2 and Q3. And we think that that seasonal pattern is likely to repeat next year.
Eric Wolfe: Got it. That’s really helpful. And I guess that’s my second question, which is that historically, I think you said, there’s been about 500 to 600 basis points of spread on renewals versus new leases. There’s nothing that would sort of change that just based on the supply dynamic today. It’s not going to get wider or necessarily thinner. It’s just — it’s probably going to be about the same spread as typical.
Tim Argo: Yes. And to clarify or put some color on that that 500 spread for us typically is what it is in the summer and kind of Q2, Q3 range with renewals remaining pretty consistent. Historically, Q4, Q1, Q4 is usually the biggest. It’s usually in the 900 basis point range kind of similar to what we’re seeing right now and then squeeze down to call it $700, $800 in Q1 and then get more on that 500 basis point range during the heart of the spring and summer. So, I don’t really see — that’s the normal seasonality and would expect that to recurring some levels.
Eric Wolfe: Got it. Okay. Thank you.
Operator: Thank you. We will take our next question from Jamie Feldman with Wells Fargo. Your line is open.
Jamie Feldman: Great. Thank you and thanks for taking my question. So, it sounds like you could see a ramp-up here in acquisition activity investment activity. You had mentioned the Phoenix acquisition at $317,000 per unit. You also talked about a 5.5% yield. As you think about deals, I mean what are the metrics that you care about? Is it price per unit? Is it AFFO accretion? Is it NAV accretion? And then how do you think about your cost of capital and the required spread on your cost of capital is to put money to work?
Eric Bolton: Well, I mean the thing that we really prioritize more than anything is sort of what sort of stabilized yield do we think we will get from making a new investment and how does that compare to our current cost of capital. And as you think about cost of capital today and look at sort of where we are able to put our balance sheet to work at, call it, 5.5%, you think about longer perspective on cost of capital being a function of dividend yield and sort of FFO yield, core FFO yield. You blend that, you’re still in that kind of 5.5% range. And so as we think about deal that we did in Phoenix. I mean the opportunity to put a brand new asset on the balance sheet that is going to be we think a great performer for us long-term to put that on the balance sheet initially.
Even though it’s still in sort of an initial lease up to be able to bring it on the balance sheet at basically right at our cost of capital with full understanding that we’ve got some real operating upside opportunity that we can capture over the first year or so from our revenue management practices and some of the cost efficiencies that we’ll bring to bear on an operation that doesn’t have those advantages coupled with the fact as Brad mentioned, this property is only — it’s less than half off of one of our other properties and we will over the next year or so pod, what we refer to as pod this property with the other and drive down some of the operating costs. We think over the next couple of years that we’ll see that yield meaningfully go up from there.
So we think at this point that makes a lot of sense to us. And I think that we’re going to continue to we think see more of that opportunity emerge over the coming year.
Jamie Feldman: Okay. And can you quantify how much you think the yield goes up with the revenue management and including the MAA touch on these assets?
Eric Bolton: I’d probably put it at, at least 100 basis point margin expansion to probably 200 somewhere in that range.
Jamie Feldman: Okay. And then secondly, you may have answered it with Eric’s question but just thinking about October, I mean what can you tell us about rent blended rent new renewal rent so far in October?
Tim Argo: Yes, this is Tim. So for October as I mentioned the blended is right around zero. We’re at about negative 5.3 on new lease and 4.4 on renewals as we stand right now.
Jamie Feldman: Okay. And then finally for me, Atlanta, specifically can you talk about — I mean you had kind of below average revenue growth there. Is that pressure on rents from supply? Or is that more about some of the issues you’ve mentioned in the past fraud, some of the other kind of unique factors to that market?
Tim Argo: Yes. I mean, there’s certainly a few unique factors in Atlanta and what you mentioned as part of that. I mean it’s pricing, pricing is a little bit weak. It’s a little bit lower than I would say some of our portfolio average. There we’re getting some of the supply pressure that a lot of the other markets are getting as well. I think what we’re seeing in Atlanta is a little more on the occupancy side. No, it has — it is slowly improving. We saw a 40 basis point increase in occupancy from Q2 to Q3 in Atlanta. But there are a couple of unique circumstances that you mentioned, one, if you remember earlier in the year we talked about between the winter storm and a fire we had in Atlanta. We had a lot of down units that came on sort of late first, early seconds.
So we were kind of working through that from an occupancy standpoint and then, has been well documented by a lot of people at some of the fraud concerns in Atlanta. And I think that’s starting to work itself through as well. The courts are becoming a little more — a little more aggressive on that. And we’ve seen the number of cases [ph] that we had in that market is about double from where it was last year. So, create some pressure in the short-term on occupancy but certainly longer term, in terms of revenue quality and ability to pay is much better. And we’ve also been able through in-house training we’ve done and really focused on fraud income. We’ve seen the number of people coming into the door we think is with that scenario is much less and we’ve seen our number of age balances we have in terms of residence is way down and just the amount of delinquency we have in Atlanta is way down.
So some unique circumstances there for sure, but we think it’s headed in the right direction.
