Stephen MacLeod: Yes. Okay. No, that’s very good. And then just when you think about — I’m sorry, underlying organic acquisitions, what do you need to see in the marketplace to sort of unclog, or make the math work for acquisitions? Is it rates stabilizing? Is it rates coming down? I’m just kind of getting — just trying to get a sense of what the goalposts you’re looking for or you would need to see.
Gary Berman: Well, I mean, the math already works, right? So it certainly works on a recycling capital program because we’ve been selling homes at, let’s say, high 3 or 4 caps and taking that capital and reinvesting at 6 caps. So that works all day long. We can’t do that forever. But certainly, we continue to recycle out older homes with higher CapEx into newer homes. So we’re going to continue to do that. You’ll see more of that this quarter Q4 and a little bit into next year. And then the other factor, it’s not really the size of the market. The size of the market is still huge. Even though it’s 25% smaller than last year, the opportunity to buy homes is still significant. The issue is really the cost of capital in an environment where, one, we don’t have a fund, right?
So we’ve now completed those funds. And two, when we do have a new fund, we need to make sure that it’s a lower leverage vehicle, right? So it’s just really the cost of debt. We don’t like negative leverage. Our investors don’t like negative leverage. But if you can buy homes at a 6 cap, which we’re doing, and we think there’ll be a significant opportunity to do that next year, and you can put on low leverage or even no leverage in some cases and then grow your NOI at 4%, 5%, 6%, we think that’s a very compelling opportunity. So the opportunity is still significant, we just need to make sure that we align the capital structure with the opportunity, and that’s the evolution that’s taking place right now.
Operator: Your next question comes from the line of Mario Saric.
Mario Saric: My question is a broader one and it — when it comes to Slide 12 of the call deck. And just looking at FFO year-over-year growth variances. And I appreciate on our 2024 guidance today, presumably going to do that with Q4 results next year. But just conceptually, if I look at all the puts and takes on this chart, operationally, things seem to be going as good as they’ve been in terms of NOI growth. Presumably on the performance fee, acquisition fee side, it can’t get much worse on a year-over-year basis than it did this year, based on some of your commentary that I’m hearing in terms of SFR JV-3, the year-over-year comp in terms of the multi-family portfolio sale has gone and we’ll see what the residential development operations look like.
And then when we look at the interest expense, about 80% of your — that, I think, has hit over caps. So they come up a little bit given where rates are today, but the $0.03 was quite meaningful during Q3. And then Sam touched on kind of lower corporate overhead expenses and the implementation there, $324 million. So higher level, is that kind of a reasonable way to think about it on this chart, the negatives kind of disappear, the positives are still there next year?
Gary Berman: Yes, I think so. I mean I think it’s a thoughtful question. I mean there is a lot to unpack there, and we want to be careful not to give any kind of 2024 guidance. But I think, Mario, what you could expect, and this is what’s really exciting is that our interest expense profile is stabilizing, right? And if you think about the interest expense, it’s basically doubled over 6 quarters. And we think as we head into 2024, that largely stabilizes per quarter. And if you’re able to continue your overhead costs, which we talked about and we intend to do, then essentially any NOI growth, and we continue to think that’s going to be very robust. It’s going to really drop to the bottom line. So that we think is super exciting.
And so we go from a year where we’ve kind of been running to stand still and dealing with much higher interest expense to a year where it starts to look — in 2024, things start to look a lot more positive. And I think as you layer on a new fund, that obviously means more — obviously, more acquisition fees. And I think the other thing I would say is in the Same Home portfolio, we should also start to see more growth in ancillary revenue, right? So overall, I think you’re right. 2024 is going to be a year where the positive should outweigh the negatives.
Mario Saric: Got it. Okay. And just my follow-up, just on the overhead on Slide 15 that Wissam was talking about noting the optimization has started happening over the last couple of months. How much of the expected optimization is already in your Q3 run rate numbers?
Wissam Francis: I could take that, Mario. Very few are in the Q3 run rate numbers. They’re really going to start seeing them come through in Q4 and really next year. Just to give you perspective, the reduction really spend multiple buckets, which is both NOI CapEx and overhead. So even though it’s a 5% reduction in force, it’s really not all in compensation expense. Part of it could be an NOI and overhead. So you’re going to see it come through all the different buckets next year.
Mario Saric: Got it. Okay. That’s my one with a follow-up, I’ll turn it back.
Operator: Your next question comes from the line of Keegan Carl.
Keegan Carl: Maybe first, just wondering if you could provide an update on your plans to exit markets such as California and Southern Florida.
Gary Berman: Yes, sure. So in Southeast Florida, we’re nearly done. We’ve got about 60 homes left in Southeast Florida. So that should be done relatively soon. And I’m incredibly proud of the team because we’ve literally sold 600 homes over time, almost 1 by 1. So it’s been a great result. And then in Southern California, probably take the better part of next year to dispose of the homes.
Keegan Carl: Got it. And then I guess maybe specifically on markets. I was a bit surprised with your Las Vegas performance since it was really strong compared to what some of your peers have been saying in the quarter. I’m just curious what would have driven this.
Gary Berman: Kevin, do you want to take that?
Kevin Baldridge: Yes. I mean, Las Vegas has been a strong market for us. We continue to see good in-migration. And although we took this summer and we felt the strength, and we decided to really push rents, so our lease trade-outs there were close to 9%. So we were able to harness that. Occupancy dropped a little bit, but it’s — now it’s come back again. So it’s just — we have a really good revenue management team. We look at trends. We’re comping every home. We were — and then we’ll put the house up on the market. We’ll look at what’s happening with applications, with leads, we’ll adjust those rents. And so we’re just really attentive to what’s going on with demand, seasonality, availability, and we do it on a home-by-home basis. So I mean, a testament to our revenue management team and how they’re looking at the market.
Operator: Your next question comes from the line of Eric Wolfe.
Eric Wolfe: You mentioned that the interest expense should stabilize going into next year, just assuming rates stay somewhat flat from current levels. But given that you’re able to sell homes at about 4% cap rates, I mean, why wouldn’t you just do more then and pay off a significant percentage of your [indiscernible] debt since there’s like a 250 basis point spread there. I realize there’s going to be some tax implications, but I assume there are also some percentage of your homes with this less capital gain, where it might be efficient to do that. So just trying to understand why not just sell off more at a 4% cap on payout that 6.5%.
