Alexander Goldfarb : So two questions, and apologies about the clock in the background. The first one is, can you just talk a little bit about renewals? I think you said you expect them to be sort of 5%, but new rents down 3%, so an 8% spread. Can you just walk us through why that — that seems a rather wide spread, but in your comments, you said that’s sort of consistent with historic. So maybe you could just talk about that and why existing residents would accept an 8% spread versus new residents?
Tim Argo: Yes. This is Tim, Alex. I mean, the gap is a little bit wider than historical, we look at January for example, it’s about 1,100 basis point gap for the month. But if you look at last year at this time, it’s about 900. And even if you look at over the last several years, really as long as we’ve been tracking it, Q1 runs about an 800 basis point gap. And even as you get into the spring and summer, there’s typically always a gap where we see renewal pricing outperforming new lease pricing. But I mean, I think there’s a few reasons for that, frankly, One, there is a real cost, but a hassle cost and a financial cost to moving. There is the customer service component. When we have someone that’s lived with us and knows kind of what to expect and knows what kind of service you’re going to get.
If you look at our Google star ratings. We averaged 4.4 Google star rating in 2023, which is highest in the sector. 80% of our ratings were 5 star and that is a component that plays out, it may offense itself in this way with our renewal pricing. And then we just — we do dedicate a lot of time in resources to this renewal process. But in our corporate office and on the on-site teams, there’s a lot of thought — there’s a lot of factors considered a lot of — there’s a level of buying that we get from our teams that get them comfortable with the rates we’re sending out at. And again, that manifests itself well. So it will narrow and as we see new lease pricing, we expect to accelerate as we get into the spring and summer, that gap will narrow.
But as I made in the prepared comments, if you look at February, March and even April, we’re averaging right around that 5%. So I think that can hang in there, particularly as new lease rates start to accelerate around that same time frame.
Alexander Goldfarb : Okay. And then the second question is on the supply front, it only seems like a handful of your markets have supply issues, but pressure on new rent seems to be broad brushed. And yet, Sunbelt still as good economy, good jobs, good in migration. So how do you like we understand weakness in new rents in markets that have a lot of supply? But how do we interpret rent softness sort of portfolio wide, especially in the market that aren’t beset by supply? And clearly, your price point seems to be affordable for the community. So I just want to understand the non-supply markets, why there’s been pressure there as well?
Tim Argo: Well, we are seeing pretty good strength. And as I’ve commented on some of the mid-tier markets, if you think about Greenville and Savannah and Richmond and Charleston in those markets, we are seeing pretty good relative performance. I mean the supply is — it obviously varies by market, and we’re seeing it a lot more in some of the larger markets. And I think, frankly, we’re seeing it in some of higher concentration markets. If you think about Austin and Charlotte and Dallas, some of our higher concentration markets is where there’s more supply, which is not surprising, there are good markets to be in the sort of good long-term demand markets, and that’s not really a surprise. So I think there’s some of that concentration factor that’s weighing into it, where those obviously have an outsized impact on what you see at the portfolio level overall.
But if you look at 2023, for example, across all of our markets, deliveries were about 4 — between 4% and 4.5% of inventory across the portfolio. So while it varies pretty widely by market, we did see pretty good. The store leverage is probably 3% to 3.5%. So even for some of the ones that weren’t getting tonne of supply, they were still higher than average.
Operator: [Operator Instructions] We’ll take our next question from the line of Michael Goldsmith with UBS.
Michael Goldsmith : My first question is on the expense — on expenses. Can you walk through where — which line items you’re seeing particular pressure? And how you envision expense trending through the year?
Brad Hill : Yes. Just a couple of things around expenses that I’d point to is, one, our uncontrollable expenses are really what’s driving some of that expense growth whenever you kind of break that down. Real estate taxes are projected to grow at roughly 4.8% for the year. I think you saw that in our guidance. And then you have insurance that’s growing at roughly 16% — 15%, 16% for the year. So that continues to be a bit of a headwind for us as we go into 2024 and for all the same reasons that we’ve seen in previous years just as the market is trying to catch up there. Then when you get into some of our controllable expenses, really the biggest driver there is probably repair and maintenance, while the other items around expenses are pretty much right there at that overall growth rate of 4.1% or actually even slightly lower than that.
Tim Argo: And I’ll add just a couple of points there on the controllable. I mean, we do expect that if you look back to 2023 that all of those controllable line items will moderate in 2024 as compared to 2023 pretty significantly, and you can see that in the guide that we have. I think marketing is the one that’s a little bit variable. I may not — we had pretty reasonable marketing costs in 2023. And certainly in the environment we’re in, that’s something we want to make sure we’re careful about to make sure we’re properly spending there. So that may be the one where you don’t see a significant decrease, but I think the others will see some pretty good moderation.
Michael Goldsmith : And my follow-up is on concessions. How have concessions and competing properties trended? And are you offering any concessions that your stabilized property?
Tim Argo: I mean the concessions for us it stabilized. It’s pretty minimal, I think, across the portfolio. We’re about 0.5% or so of rents and concessions. And with the way we price, there’s a lot of net pricing, we don’t do a tonne of concessions. We do see it more in some of the lease-ups that we’re competing against. I would say in general, concessions in the market and what we’re competing against with went up a little bit in Q4, probably where we saw the biggest change, some of our Carolina markets, Charlotte and Raleigh were ones and we saw concessions pick up a little bit, but still in terms of lease-up and areas of lot development the concession practices is still pretty strong kind of that 1 month to 2 months range.
Operator: And we’ll take our next question from Haendel St. Juste with Mizuho Securities.
Haendel St. Juste : Going back to your comments on your 5% renewal rate. I guess, I’m curious if that 5% renewal pricing does hold, but market rate growth is just 1%. Are you creating a [inaudible] and how do you feel about that going into next year in line of the outlook for rental rates to recover?
Tim Argo: You cut out there a little bit but I know you said a gain lease, is that what you were saying?
Haendel St. Juste : Yes, I was saying that if the 5% renewal rate forecast that you should does hold and market rate growth rate is just 1%. Are you creating a gain to lease? And then how would that impact your outlook for next year when you expecting market rates to recover or you rental like your portfolio to recover?
Tim Argo: Yes. I mean, like I said, the gap is a little wider right now, but I expect it to come in. We haven’t seen any signs like say, going all the way out to April. We’re still kind of in that 5% range. And obviously, depends on the mix and who’s renewing his new lease. We typically — our average stays somewhere in the 20-month range, some money leases and then they do on renewal and typically move it out. So all it is you’re not renewing on top of renewing and top of renewing where that gap continues to get larger and larger. But as I said, we’ve always seen a gap there and a little bit wider right now, but I expect it to narrow as we get into the spring. But no concerns with where we sit here right now.
Eric Bolton : And I’ll just add Handel that I mean, over time to the extent that obviously, the new lease pricing pressure we’re seeing right now is obviously largely a function of supply coming into the market. If that begins to moderate late this year into 2025 in the event that we do see renewal pricing need to moderate a little bit more next year, call it, instead of 5%, we’re in the 3% or 4% range. We also, though, expect new to start to show some improvement next year such that we probably continue to get the blended performance that we need and that we’re after. So it’s a give and take back and forth. We’ve always historically seen new lease pricing in that kind of 4% to 5% range. I don’t recall it ever really materially getting a lot lower than that.
Maybe there was a year back years ago where it got to 3%, but generally, when that’s happening and certainly, we think that will be the scenario this time. By that point, our new lease pricing has started to show some improvements such that the overall blended performance continues to hang in there pretty well.
Haendel St. Juste : I appreciate that Eric. I guess, I’m just thinking ahead and thinking of potentially that renewal rates would need to drop next year, how much CBD unless market rate growth does improve an increase maybe into the mid to single — upper single-digit rate growth?
