Steve Sakwa: Okay. And maybe just to clarify a few numbers that – that Tom threw out just when you talked about move-in rents down 18%, just to be clear, you’re talking about move-in rents in Q4 versus move-in rents in the year ago period. And if that’s true, how – I guess, I’m just trying to look at what is the spread between the move-in rents and the move-out rents because I think that widened out a bit in Q3. And I’m just curious what your expectations are for Q4 and maybe moving into the first half of ‘24.
Tom Boyle: Yes. Good question, Steve and clarification. So yes, I was speaking to a year-over-year metric there. And then, due to the second component of your question about the difference between move-in and move-out rates, I think in the third quarter, that differential was about 26%. And as we’ve talked about in the past, we don’t manage that number specifically, right? So we talk about our existing tenant rate increase program being driven by predictive analytics on individual customers and units and understanding the expected sensitivity of that customer over time and how we can influence that. And on the flipside, right, we are dynamically managing rental rates. And so were trying to attract customers and maximize revenue through a combination of rental rate and move-in volumes.
And so what spits out of that more dynamic at the local level, management is that differential in gap. And again, that gap suggests that we’re earning good revenue on the existing tenant base that continues to perform quite well. To your question around how do we think about that gap today? Clearly, it’s in a range that we’ve operated in, in the past. I think the first quarter, that gap was about 24%, 25%, so not dissimilar to where we are now. You’re suggesting, as we move through the fourth quarter and into the first quarter again, based on the assumptions around move-in rents, we’re likely to see that gap increase a little bit more. And that’s something we’re comfortable operating in.
Steve Sakwa: Great. Thanks for the answers.
Tom Boyle: Thank you.
Joe Russell: Thank you.
Operator: Our next question comes from Spenser Allaway with Green Street Advisors. Please proceed with your question.
Spenser Allaway: Thank you. Apologize if I missed this, but are you guys able to provide some color on the cap rates as it relates to the 3Q acquisitions and the acquisitions that you’re under contract or have completed so far in 4Q?
Joe Russell: So maybe a little perspective on how cap rates are trending Spencer. And then deal-by-deal, there’s likely to be a range in the actual cap rate depending on the asset itself or the portfolio from a stabilization standpoint, etcetera. But if you kind of step back and look to where the environment was going back to 2021, we were in a range of plus 4% or so on a cap rate basis, shifted up to 2022 to 2025. This year, I would say we’re at a 6 handle trending potentially to 7. So again, reflective of the change in cost of capital, Steve’s question about this gap from a seller expectation standpoint, does take a little bit of time from a realization standpoint, but we do see that trend continuing. And we are using that as an opportunity to continue to find appropriately priced assets to bring into the portfolio.
And as I mentioned, we’ve got a number of different situations playing through that we’re confident at some point will likely trade, it just takes some period of time depending on the pressure points and the timing of a particular seller.
Spenser Allaway: Okay. That’s very helpful. Thank you. And then are you guys able to provide any update, if there is any, on the integration of your new tenant insurance platform?
Tom Boyle: Sure. So I think you’re speaking to our Savvy program. So we announced that we would be launching that program here in next month in November. And it’s an initiative, we’re launching the industry to offer our tenant insurance program to other operators. This really came out of our third-party management business in dialogue with some of the operators, they have continued to like to operate the portfolios themselves in our dialogue, but they have said, hey, but what about that tenant insurance piece? Can we talk about that on a standalone basis, and they were intrigued by that. As you know, we share a portion of the premiums that we collect on our third-party managed properties with the owners of those facilities.
So we’ve been working to streamline and simplify our tenant insurance process including making it easy to use digitally, something our customers have embraced over the past couple of years, and we think the industry can benefit from. So in that press release, we noted that we’ve been working with [indiscernible], which is the largest software provider in the industry to be able to offer that same experience on their property management software, and we’re going to be launching that starting here in November. In terms of the opportunity, it’s obviously very early days. We’re launching it next month. But the addressable market, frankly, could be larger than third-party management for those that are interested in a different tenant insurance component, but just getting started there.
And I’d say stepping back, it’s just another way for us to create a win-win with other owners in the industry and build relationships that could bear fruit in a multitude of different ways over time.
Spenser Allaway: Great. Thank you, guys.
Joe Russell: Thank you.
Tom Boyle: Thank you.
Operator: Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Juan Sanabria: Hi, good morning. Just hoping to follow-up on a prior point on the ECR commentary. So has the quantum and/or pace of increases that you’re looking to pass through to existing customers moderated throughout this year? And do you expect – and if not, do you expect that to happen in ‘24 at some point if the current environment continues into next year?
Tom Boyle: Yes. Juan, it’s moderated throughout the year as that cost to replace component has gotten more costly, right? I mean stepping back a couple of years ago, right, we’re in an environment where in many markets, we had a benefit to replace, which is pretty unusual in the sector, and now we’re back to a point in time where there is a cost to replace. And so as we move through this year, and frankly, as we move through last year, too, the cost to replace grew. And so on a year-over-year basis, the contributions from existing customer rate increases has declined modestly year-over-year. The flip side of that is the new move-in volume that we’ve been getting really over the last year is supportive, right, because the more tenants that are coming in will receive those increases over time. And so that will benefit the 2023 back half as well as 2024, given the significant volumes of moving activity we’ve seen.
