Sean Breslin: Yeah, probably the best way to look at it is I refer you back to the slide that we showed the revenue decomposition there and first, what I would say is that reflects, more than 90% of our portfolio coming from the established regions at this point, but in terms of just broader demand supply fundamentals, we definitely expect much better performance out of our established regions, generally speaking. The one, question that we have, I’d say, that we think we’ve reflected appropriately is in Northern California, which has been weaker for us recently and I think it’s just a question of how the job environment unfolds. We think we’ve modelled that appropriately, but if you look at that slide, you can kind of see what’s happening in Northern California.
It is not benefiting nearly as much as Southern California in terms of the bad debt contribution. So I think on par, it’s a little more reflective of apples-to-apples with our expansion regions. So overall demand-supply much better in the established regions, maybe a little bit of a question around Northern Cal.
Austin Wurschmidt: And then just, just focused on kind of the urban versus suburban, you continue to kind of talk about this strategic focus of shifting into more suburban markets and sort of a preferred incremental investment there. So what’s sort of the expectation for lease rate growth when you look at those two, urban versus suburban, for the year? Thank you.
Ben Schall: Yeah, we haven’t broken it out between urban and suburban in terms of the forecast. I can tell you in Q4, we certainly saw better growth out of our suburban portfolio, which was about 200 basis points. The urban portfolio was essentially flat. I did provide sort of the breakout in January as well from East and West, but in terms of urban, suburban, we’ve not traditionally broken that out. If you look at it on a blended basis, as I mentioned before, it was 2%. If you think across the markets, it’s really kind of market specific is more the driver than urban, suburban in many cases. So for example, in the York metro area, we’re expecting better growth out of this city and northern New Jersey, less growth really in Westchester, Long Island, Central Jersey.
If you go to the Mid Atlantic, it’s very different. We’re expecting challenged growth in the district, but better growth in Northern Virginia and Suburban Maryland. On the West Coast, fortunately we don’t have a lot in urban Seattle, but urban Seattle is pretty rough right now, I would say. More of our north and east side portfolio is performing much better and then generally down in the Bay Area, I think we’re all familiar with the challenges in San Francisco. We certainly expect it to lag in a similar theme in LA. So I think you have to kind of go through each market individually to look at it, but that gives you hopefully some color by region.
Austin Wurschmidt: Do you think that 200 basis points in the fourth quarter is a decent proxy for what you see moving forward in the call it medium term?
Ben Schall: Yeah, I probably wouldn’t extrapolate that going forward right at this point. I think it’s a good kind of point for where we were in Q4. We do expect based on what I just said, a lot of these suburban markets will hold up better in some of these specific regions, but I wouldn’t necessarily count on it being a 200 basis point spread as you move through the full year.
Austin Wurschmidt: Okay. It sounds like seasonality is a little bit of a factor. Thank you.
Operator: Thank you. Our next question comes from the line of Eric Wolfe with Citi . Please proceed with your question.
Eric Wolfe: Hey, thanks. I think at your Investor Day you gave an estimate around 175 basis points of annual earnings contribution from your development pipeline. I was hoping you could just give an estimate for the contribution this year and if there’s just anything that might be influencing more this year versus a typical year and if it’s just going to kind of be maybe a bigger contribution in 2025 as you lease up the communities that are delivering.
Kevin O’Shea: Yeah, sure. Eric, this is Kevin. It’s a good question and perhaps one we’re spending a little bit of time on. Up front, I’ll give you the punchline and give you a couple of ways to think about the earnings accretion this year from development undergoing lease up that produces an estimate of about $0.18 of accretion per share this year, give or take, which equates to about 170 basis points of earnings growth in 2024, which is consistent with the typical level of earnings growth we get from development in most years and in line with the 150 basis point to 200 basis point earnings contribution to growth that we outlined at Investor Day last November. So maybe just before we begin, a couple of contextual comments, which won’t surprise you, but might be helpful just for the broader audience.
First, as you know, when you look at our investment in capital activity, we do have a broad set of investment uses, even if development is our primary use of capital, and we have multiple sources of capital. So as a result, since cash is fungible, attributing specific capital sources to specific capital uses to isolate a discrete earnings impact in a period-over-period basis requires making some reasonable estimates and assumptions. Second, as you know, since we substantially match fund our development starts with long-term capital when we start those projects, and we started the $1.6 billion or so of projects under lease up two to three years ago, the reality is that we sourced much of that capital two to three years ago. So third, when you kind of go back and look at the capital we’ve raised over the last, say, three years, you’d find that to fund the whole business, we raised $2.1 billion at a blended initial cost of 2.9% in ’21, $1.5 billion in 2022 at a blended initial cost of 4.1%, and $1.4 billion last year at a blended initial cost of 4.6%.
So some portion of the capital in those prior years was used to fund the $1.6 billion that began lease up last year and is being leased up this year as well. Obviously, we have another 850 [ph] that’s in the plan for this year at kind of roughly around a 5% cost of capital, which is relevant as you look at sort of earnings growth and so forth for your modelling purposes, and the reality is that capital isn’t going to be sourced to pay for the development that’s already completed in lease up. And so, as you look at the $1.6 billion in lease up that currently is around a yield of about 6% and if you just conservatively just look at this from an economic point of view, which is sort of the first way to look at this, and say you have $1.6 billion development at a 6% yield, and say it was funded with some portion of the capital, the $3 billion that we raised over the last two years at call an average 4.4% initial cost, you’ve got about 160 basis points of spread accretion on that development, which translates into about $25.5 million of annualized profit or about $0.18 of annualized growth, which in turn equates to about 170 basis points of earnings growth on last year’s core FFO.
