And so as we go into 2024 and 2025, we’re going to lean heavily into this utilizing the data that we’ve been able to mine and I think it’s going to produce a lot of results for us.
Joe Fisher: Hey, John, just to add on to that because I think embedded in your comment a little bit is in an environment where there’s concessions or better rent opportunities, if you will. Want that overwhelm their desire to stay or go. The reality is when we went and look back at the last 10 years of that controllable performance on turnover, only one of the top 15 factors actually had to do with rents. And so it has a lot more to do with their move-in experience and then what’s their experience subsequent to move in. So it’s both at the property level when you’re dealing with things like crash and pet waste or noise or parking and how do we remedy those. And/or at an individual level, how do you remedy certain circumstances that they’re having related to perhaps service calls the maintenance issues, some of the appliance issues, maybe noise next door.
Just are we responsive in meeting their needs. And so there’s a lot of property and individual level controllable factors. Have nothing to do with rent that we think we can take care of, to hopefully give them a better experience and therefore, a stickier resident at the end of the day.
Operator: Our next question is from Haendel St. Juste with Mizuho. Please proceed.
Haendel St. Juste: Hey, guys. Just one left on my list here. Joe, was hoping maybe you could add some light on why the bad debt reserve was up. I think about $9.2 million here, up 10% versus last quarter. And I know you guys are contorta bit differently, but maybe you can remind us what’s embedded in your full year ’23 guide from a bad debt perspective? Thanks.
Joe Fisher: Yes. And so just for reference, where he’s looking for everybody on the call, just attach them at one down in footnote 2, we disclosed our net AR reserve. And I’d say, number one, that number is an output of two other inputs. And so you have our gross accounts receivable and then you have a reserve that we put against that, which is basically predicting what do we think is uncollectible of that gross amount. And so the net of those two is roughly $9 million, it was up about $900,000 in the quarter. And that’s really driven by two things. That gross accounts receivable actually came down by about $1 million. And so that number coming down, clearly, a good thing in terms of collections. The other piece is we brought our reserve down as we looked at in the month collections and collections over time getting to that 9.5%.
We’re looking at that and saying we think collectibility of that gross accounts receivable actually improved. So, kind of, similar to what you see with the banks when they’re getting a delinquency on a mortgage loan. It’s really no different and that instead of us having a delinquent payment and then writing it off to zero, we’re actually assessing collectibility of each one of those delinquencies. So it’s not necessarily binary utilizing a little bit of science and a little bit of hear. So the trends that we see in continue to be good on collections. It ticked up a little bit, but we think it would probably be stable to trending down here over the next couple of quarters.
Haendel St. Juste: Appreciate that. And then broadly, within the guidance for bad debt near-term expectations, growth the motivation.
Joe Fisher: Sorry. Yes, yes. So we’re — we kind of have in the full year at this point, plus or minus that 98.5% collected. We think we’ll probably level out of that here in the back half. We were a little bit lighter than that in the first half of the year. Little bit better in the second half of the year as we had success getting those long-term delinquents out. And so I think for a full year, 98.5%, I mentioned earlier, maybe there’s some upside to that as we go into 2024, that’s really going to depend on the regulatory environment, plus some additional screening mechanisms that we’re putting in place here in the back half of this year to try to keep fraudulent individuals from coming through the front door. So there could be a little bit of upside.
But again, I don’t think it’s a big number for you 98.5%.And over time, we get to 99% maybe there’s 50 bps on the table over a couple of year period. And so it’s not going to be the key driver for our performance next year, but hopefully, it is a slight positive.
Operator: Our next question is from Adam Kramer with Morgan Stanley. Please proceed.
Adam Kramer: Hey, guys. Just wanted to ask, I think you guys characterized kind of the competitive environment with some of the new supply as maybe kind of no longer rational in some ways in terms of kind of the concessions they’re offering. Maybe just if you could kind of — I don’t know, it’s a little bit of a high-level question. Maybe just kind of describe some of the behavior you’re seeing from these developers, right, kind of to the extent to which they are offering concessions. And then just move on the other side of it, right, to the extent that they’re not able to kind of hit their targets for lease-up. Are you kind of starting to get inbounds from them where they have different pressures, capital markets challenges? And maybe there’s opportunity there on kind of more of the distressed side.
Tom Toomey: Hey, Adam, this is Toomey. It’s always hard to judge if people are being rational irrational. But my experience says this, I think the developers are being rational about it because they’re looking at their maturing loan and trying to say, I need an extension. I need a debt service coverage ratio and they’re mostly going to pro forma one month free. And they’ll stretch during slow periods of time to two months for to try to get there. Capitulation is when they go to three months free. Then they are immediately calling their lender and saying, “We need to start negotiating a paydown and/or an extension.” So you’re right to connect. What is the ultimate goal is to get to that refi and hold on to the asset as long as possible.
And I’m not sure that there’ll be irrational. What I think has caught us by surprise is the customer, that’s sitting in that B Apartment, paying $2,200 a month and looking at the A down the street at 3,000 and saying two months free, I don’t have to pay any rent, even though I can’t afford the three most likely. I’m going to stretch for it and hope for a better day or a raise. And frankly, a lot of them are getting those raises. So that’s the surprise to us is the jump from B to A in a lot of these markets. And I wouldn’t expect that to — I’m not sure I hate this forecasting stuff all the time. But the truth is, that doesn’t seem very rational to me on the consumer side, jumping that way and putting themselves further in underwater, if you will, at a time of higher rates, higher credit card balances.
So we may see that reverse. No evidence of it yet. But that’s the surprise. We’re speaking. The developers, not so much, not really surprised. They don’t seem desperate yet. We’re not seeing any market with a three-month free flag hanging out there. And when we do, I think that will be some very, very interesting times.
Adam Kramer: That’s really helpful Tom. Thank you. I’ll leave it there.
Operator: Our next question is from John Pawlowski with Green Street. Please proceed.
John Pawlowski: Thanks for the time. Joe, just one question on the developer capital program just how quickly, given how quickly property values and land values are moving. Can you give us a sense what you think the true loan-to-value ratio is for the average deal in your existing book right now?
