Terry Considine: Rich. I think the AIR culture, and certainly my values are to be completely transparent to best I can let you know what I know. And what we wanted to communicate with run rate FFO, which was originated following the Aimco separation in ’22, not the original one in 2020. Would said a lot of the income that we — real income, cash money that we were receiving in ’22, was a one-time event. We need to — we just — we wanted to ask the market to take the burden of a third definition of profitability, but to see that one part is recurring, one part isn’t. We did it again last year with a lesser concern, but we had these swaps that had been accelerated and we didn’t want to either confuse the market or let the market confuse that thinking, we were confused, but we knew these were nonrecurring and we’re going to call them out.
And so we’re completely transparent in what we do, and I think sometimes people aren’t used to that and just find the volatility of life upsetting. But that’s why we do that, I think in 2024, you’re right, it’s increasingly likely that we won’t have that exposure, but we will have nonrecurring income and expenses that are unpredictable every year.
Rich Anderson: Right.
Terry Considine: Hopefully, they won’t be as material.
Rich Anderson: Right. I mean, I think everybody does is the point. But fair enough. Thanks very much.
Terry Considine: You bet.
Operator: Thank you. [Operator Instructions] Your next question comes from the line of John Pawlowski from Green Street Advisors. Your line is open.
John Pawlowski: Thanks. Josh, I have two questions on recent acquisitions in the last few quarters, just so I understand the underwriting process. One, the Raleigh market, I think they’re expecting high single-digit per annum supply growth this year and next year, so it feels like rents are going to be more likely down than up. So how do you get comfortable pushing chips in a Raleigh? Second question would be on the Bethesda acquisition several months ago. 550 taper door, $3,600 rent. It’s really, really high. And so how do you get comfortable pushing rents over a longer period of time to get to these double-digit IRRs you’re setting?
Josh Minix: Thank you, John. Both really good questions. Taking them in order. With Raleigh, this has been a long-term plan for us and part of our intentional portfolio diversification strategy. We’re attracted to the market for all the reasons that are probably obvious, the favorable rule of law there, and we look to have a balance of factors across the portfolio, taking a long-term outlook and looking at discounts to replacement cost. We did underwrite the supply that’s not a secret to anyone, and we were well aware. We think this timing was a particular time where the buyers were all underwriting the supply, and we had the opportunity to purchase on income that took that into account and allow us to get an unusually attractive basis that we think will age quite well as we work in those properties and we’re benefited greatly by Keith and the AIR Edge, which will generate internal growth with those properties.
Not relying on the market to generate our returns, but really relying on the execution to generate the returns. Following up on Bethesda, the purchase of the elm there, we’re very excited about. It is an expensive building to buy and an expensive building to live at. It’s also the highest quality building that I’m aware of in the greater DC Metro. And we bought it under both development and replacement cost and believe that that will be a long term asset with a strategic advantage in the space
John Pawlowski: Okay.
Terry Considine: And I will just — I just add, if I might, John, add to Josh’s comments. Just as to Raleigh, don’t miss the cost basis of buying at a discount to replace them. And as to Bethesda, we’ve had a show and tell and an SEC filing, which will walk through in great detail, show you exactly how we underwrote it.
John Pawlowski: Okay. Maybe one follow-up on the Raleigh. So what’s the exit cap rate assumption [Technical Difficulty] long term NOI growth assumption? How do you want to frame it to get from a mid-5% cap rate in a market where rents are going to be stagnant to over a 10% IRR, it seems like a massive pickup.
Josh Minix: Yeah. No, really good question. It is a massive pickup, and that’s driven by Keith and his team, not by just riding a market wave. So we’re really looking at the nuances of the property, taking the in place cap rate, and then looking at what happens once Keith operates at his usual level of efficiency. And that provides a significant increase in the yield. And you’ve seen that in our previous acquisition portfolios, where we’ve had roughly double the same store growth, and we expect that here. And that isn’t market driven growth, that’s Aaron, Keith-driven growth. So that’s the biggest driver. In terms of exit cap rates, we’re generally exiting roughly where cap rates are today. So we’re not accounting — we’re not assuming the cap rates compress over time.
