John Kim: Okay. Now that you’ve closed Southgate, and you have, I guess, a better idea of where rents are coming in at least in the beginning of the year. Can you disclose what the year-end cap rate is on the asset?
John McGrath: Hi John, this is John McGrath. We’re looking at a year one cap rate right around 5%.
John Kim: 5%. So when you say 200 basis points above the cost of capital, is that just over a five year period? Or what can you specify on that?
Paul Beldin: That’s over the IRRs. So our deals will be accretive on – from the beginning, if you will, of our fair trade. And over the IRR period – 10 year IRR period, we expect to have a spread of 200 basis points or more over that cost of capital.
John Kim: Great. And then one final question for me is just you made a lot of discussions today or discussion points about getting into lower regulatory environment. So I was wondering if you were going to continue to pursue that path of reducing your exposure to California and some other highly regulated markets and allocating more towards the Sunbelt?
Paul Beldin: I’ll start and then maybe Terry would be to jump in. As part of our capital allocation, we are very focused on looking at concentration and concentration risk. And one of those areas is, of course, regulatory and political environments. So we will continue to balance our portfolio, both on where we see high growth, but also where we can reduce risk within the portfolio.
Terry Considine: John, I don’t have a lot to add to that. I note that there’s even discussions of national intervention in housing policies. So it’s just a fact of business in America today. We look at expected outcomes in different markets, and we look at the risk factor of regulatory excesses as part of that.
John Kim: Thank you. And sorry, for going over two questions. Sorry for that.
Operator: Thank you, Mr. Kim. The next question comes from the line of Nick Joseph with Citi. You may proceed.
Nick Joseph: Thanks. I appreciate the comments on kind of the AIR Edge and the benefits from the incoming same-store assets as well as, I guess, the acquisitions of 2022. When you look at those deals that you done over the past two years, were any of those pre-stabilization? Or is all the outperformance just from putting it on to your platform?
John McGrath: Hi Nick, this is John McGrath. The AIR Edge is what’s created the opportunity. We buy stabilized product. We put it onto our platform. The greatest advantage that I have as a deal guy, plain as simply as Keith and his team. I can drop the product on to the platform, and they take it from there and the magic has worked.
Nick Joseph: But all the acquisitions were stabilized when you acquire them?
John McGrath: Yes.
Terry Considine: Nick, what I would add to that is that, that also continues. So it’s not a one-time event. But we believe will happen over those 10 years is that in the first time, you’ll have this rate of increase as the customer selection process takes a couple of turns of the rent roll, the capital investment based planning and then investment and then rolls of the rent roll, so that when we take a stabilized asset and add to its value, that will be so much in the first year, but there will also be another increment in the second and another increment in the third and so forth, so that the first five years are likely to be elevated and then some reversion to trend.
