Chris Marr: So in the context of 2023, where if you recall, every quarter, the volatility just seemed to be abnormal. If you think back, we had a relatively normal January of ’23. And then February was fine, and then March was really bad. And then, we seem to have another repeat in the second quarter, where June was pretty disappointing. September in the third quarter was pretty disappointing. The fourth quarter was the first quarter during last year, where kind of our expectation of seasonal trends met the reality. And then we saw that continue here into January and February. We obviously have the benefit here on March 1 of knowing how those two months went and that gives us some confidence that we’re off to a start that matches up with our expectations and guidance for the full year.
All that being said, as you know, and I think I answered to a previous question, you get into the latter part of this month and certainly into April, May and the beginning of June. And so that’s where the assumptions that Tim laid out at kind of both ends of the spectrum are going to start to materialize, and we’ll have obviously a lot more information, just nature of the business, as you know, from a seasonal perspective.
Samir Khanal: Got it. And I wanted to ask you on occupancy and your thoughts on that. I mean, if you go back to 2019, you’re about 100 basis points below. So just curious on your thoughts as to how to think about occupancy through the year, and we sort of leveled off on occupancy, or do you think there’s further sort of movement downward here in this year? Thanks.
Chris Marr: Yes. I think our kind of midpoint expectations is we generally bounce around where we are today. Yet there’s a modest level of occupancy improvement as we get later into the year at kind of the midpoint at the more conservative end that doesn’t materialize. And at the better end, we, obviously, as Tim said, we see a better mobility market for us in the busy season, and then that translates into some stronger occupancy. But clearly, the experience in ’23 is we just didn’t see a whole cohort of customers that we expected to get going into the busy rental season, and then that trickles through the balance of the year, both from an occupancy and a REIT perspective. Supply, as Tim said, I think is a bit of our friend.
It continues to come down, again, market-by-market. There are parts of the country that are going to continue to experience a little bit of pain from the supply there. I think North Jersey is probably the one that fits into that. And then there are markets like Phoenix, where I think all the supply that came in got certainly hidden by the tremendous surge in demand from COVID. And then as things have stabilized out, I think you’re just going to naturally have a kind of a lower market occupancy for a time again, until that population growth backfills in that supply.
Samir Khanal: Got it. And just one last one, if I may. I think you touched on ECRIs, but I don’t know if you gave the magnitude. I mean what are those increases look like today? Maybe compare them to last year at this point.
Chris Marr: Yes. If you think about last year, again, we kind of came down in ’22 and ’23 from those kind of 20% type increases on average that we saw at peak COVID, they’ve been basically right, averaging around 15% here for some time. And again, our kind of expectations as we go through 2024 is the cadence in and magnitude will be pretty consistent at the midpoint. I think, again, in a more bullish scenario with better mobility, we would think we could maybe extract a little bit more out of that.
Operator: The next question comes from Eric Luebchow at Wells Fargo.
Eric Luebchow: You touched a little bit on the M&A environment. You said the bid-ask spread remains pretty wide. I think you talked about it being around 15% or so towards the end of last year. So maybe you could update us on that. And I guess, given where your current cost of capital is, is there kind of a way to think about which cap rate ranges may be attractive for you to start to do more transactions that fit your investment criteria?
Tim Martin: Your recollection is good. We saw through the bulk of 2023, we found like, we were generally about 20% disconnect and last quarter talked about that narrowing a bit maybe into the 15% off the mark, and now I would say it’s probably closer to 10. So we’re getting closer. And again, from looking at it from our cost of capital for the right opportunity, generally speaking, we’re looking for something in the 6 cap or better range. And so we’re starting to find a couple of those opportunities on attractive properties that fit our criteria and what we’re looking for at returns that make sense to us, but it’s a trickle at this point. we’re ready for it to be more of a trickle when it starts to open up.
Eric Luebchow: Okay. And then just one more for me. As you think about capital allocation, if it remains a trickle and you don’t see a lot of acquisition opportunities. I guess at one point at what point would you consider other forms of capital overall repurchasing shares, which I know have been a big part of your plan historically. But given where your leverage is today, you, obviously, have a lot of room to bring leverage higher for other forms of capital return.
Tim Martin: No doubt. Great question. As we think about it, our number one objective is to is if we had the alternative would be to continue to grow and expand in the markets that we want to be in with assets that quality. If those opportunities aren’t there, we tend to double down on our focus on internal opportunities for redevelopments and potentially some developments if they penciled out. But at some point, if that is disconnected and we continue to just delever and delever and delever as we have been and there is also a disconnect in the value of our shares versus private market valuations, of course, we have that tool to consider share repurchases. And at some point, the disconnect is big enough and the time period is long enough, then that is certainly something that we would consider.
Operator: Next question comes from Mike Mueller at JPMorgan.
Michael Mueller: Two quick ones here. One, just a clarification. I just want to make sure we using the same terminology. During the guidance discussion, when you talked about rate parity, hopefully in the fall, you’re talking about new move-in rates that you’re getting then on a year-over-year basis compared to those move-in rates from last year. Is that correct?
Tim Martin: That’s correct. Question Michael Mueller Okay. And then second, on the expense side, do you have any visibility as to when, I guess, insurance growth will moderate. You talked about it being 47%, I think a 20% expectation after you kind of hit the mid-May or whatever the date was this year. But do you think it stays outsized in terms of growth for the foreseeable future? Or do you see a notable drop off in the next year or so?
Chris Marr: Yes. Mike, it’s Chris. I think that I wish I had that crystal ball, that would be awesome. I think there are so many variables. One is mother nature. One is the investment returns that the insurers are achieving and another is the entry or exit of capital into the property and casualty insurance space, particularly from the reinsurers. And I just think we’re kind of in a period where we have maybe a little bit less competition maybe some concern about how they’re matching up their assets and liabilities from a return perspective. And then we’ve had some events that haven’t impacted our sector, but certainly have impacted commercial real estate from mother nature perspective. So I think we’re maybe a little bit optimistic based on what we hear that, that a moderating trend over the next couple of years is feasible.
But honestly, that’s one of those things that really is kind of dependent upon both the time of your renewal ours is in May and then what’s going on with those other things outside of our control.
Michael Mueller: Got it. So you find out when you find out.
Operator: And the next question comes from Todd Thomas at KeyBanc.
Todd Thomas: Sorry about that, it’s been a long earnings season. I’ll try this again. Chris, just wanted to, I guess, follow up first on Samir’s question. And I’m wondering, as you look back whether you have any sense why operating trends were volatile like you discussed during much of ’23, whether it was maybe related to pricing strategies that you’re employing customer demand competitor pricing, if there’s any light that you can really shed on that in retrospect?
Chris Marr: Yes. I think when we look back, I think you have a whole bunch of factors you really kind of named most of them. I think we had weather. So I think, to some degree, you had some instances in some of those months that I rattled off as sort of oddly poor, where you just had maybe a deferral of demand in those months. And then for those customers who still had the need, perhaps they showed up in the month following. I think we had that really odd situation in the resale of existing single-family homes where you just saw a historical low activity. And I think that was an impact. I think you saw other impacts on the housing side in terms of folks willing to relocate from an apartment perspective, given how pricing was moving there.
I think competitor pricing certainly came into play to some degree on that. You had weird macro events. Not sure that the banking crisis or other things from a geopolitical perspective, ultimately really impact the storage customer, but to some degree, perhaps they do a little bit in terms of mobility. So a lot of anecdotal, hard to pinpoint to one item. It was just certainly, from my experience doing this for 30 years. It was a very unusual year.
Todd Thomas: Okay. In terms of competitor pricing, have you seen that become a little bit more, I guess, either predictable or just even out a little bit more?
Chris Marr: Yes, I’m not sure I could say that it’s become any more predictable. Again, week-by-week in some markets with some of the stores that we compete with, it’s become a little bit more constructive and then we have other markets where quite the opposite is true. So it continues to be a very interesting competitive environment out there.
Todd Thomas: Okay. And then in terms of investments, it doesn’t sound like you’re seeing a lot, but some recent activity you acquired in Northern New Jersey and a couple in Connecticut. As you look ahead to the extent the transaction environment loosens up a little bit, I’m just curious how you think about deploying capital between the urban markets and the Sunbelt and whether there’s a preference or not as you think about investments moving forward.
Tim Martin: We have a pretty wide view, Todd, across all of our target markets. There’s really no preference in the short term is to focus energy on some of the top 40 versus other of the top 40. You’re really looking for opportunities that present themselves. We wish we could bring people to market exactly where we want them to be. But the reality is, you’re evaluating the opportunities that present themselves, and you don’t. There’s not enough out there that you could really target to say, I want to focus on these 5 MSAs at the exclusion of the others. We’re pretty wide open across the spectrum of the markets that we’re interested in for high-quality assets, still interested across the gamut of very low occupied lease-up type opportunities versus stabilized opportunities so long as on a risk-adjusted basis, they make sense to us and are complementary to our strategy.
Todd Thomas: Okay. Tim, does the 100 million to 200 million assumption that’s in guidance, you mentioned that guidance does not include any unannounced acquisitions, maybe 100 million to 200 million doesn’t really move the needle much, I guess, depending on the yields. But does the guidance actually include that assumption, or is that just sort of a range around acquisition activity that you think is reasonable for the year?
Tim Martin: Yes. Our FFO guidance does not include the impact of that $100 million to $200 million. It’s more of what you described. It’s an indication to try to give you a feel for where we think we can transact as we sit here today. But frankly, zero visibility into opportunities that would add up to that amount other than what we’ve disclosed. It just feels like it’s a year that is not going to be 2021. It feels like that’s pretty much a certainty. But it does feel like we’re getting a little bit more constructive when we underwrite opportunities. Again, as you mentioned, we found a couple of opportunities. Those were relationship-driven, one of our third-party management platform, one with a seller that we’ve transacted with in the past.
So I won’t say they’re completely inside or opportunities, but not marketed opportunities. So you do think that there likely is a pent-up group of sellers who are looking for liquidity at some point, have been patiently waiting for that opportunity. And if we have a year from a transaction market that looks like cap rates aren’t moving, you would think that at some point, there is a recognition from the seller side of the table and say, if I need liquidity, this is the market that I find myself in, so I’m going to transact. And if that happens, we could see some opportunities in that gap that we have seen that has been contracting. Perhaps that contracts a little bit further. And we find things in with return levels that make sense from our perspective.
I would think sitting here today that that my best guess is that we could find 1, 2 property small portfolios that would add up to that 100 million to 200 million, but they’re not in FFO, they would be incremental to that one way or the other. I mean, if we found some compelling lease up opportunities they would be a bit of a drag in the short term on our FFO number in ’24.
Operator: We have no further questions. I will turn the call back over for closing comments.
Chris Marr: Thank you all for participating in our call. We will see some of you, I assume, next week and safe travels, and we look forward to sharing with you our first quarter results in a couple of months. Have a great weekend.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.
