The reality is kind of using that way, and the reality is that the lease-up profitability started to feather in last year and this year, but that’s probably the best way to look at the earnings contribution from the lease-up activity underway by matching it with the capital that we likely applied to it. But if you’re looking instead at the earnings impact on a specific calendar year basis this year, for example, against last year, and you’re looking at the $0.29 of headwind that we call out on Slide 12 from our capital markets transaction activity and our earnings deck, certainly that may be a little bit longer conversation. Happy to take it offline with you or anyone else, but I think the short answer there is of that $0.29, you can probably attribute about $0.18 of that to funding our investment activity after you subtract the $0.12 associated with the lower interest income this year, ignore the $0.08 from the SIP activity, and then take the $0.11 of financing and refinancing costs and ascribe, say $0.07 of that to the refinancing of $600 million of debt last year and the balance of $0.04 to investment activity.
So what you’re left with to derive that $0.18 is about $0.05 from share count, $0.05 from net dispo activity, $0.04 from lower capitalized interest expense, and then $0.04 of the $0.11 of refinancing costs and financing costs that you see there in that slide. So that’s the way, another way to get at the $0.18 that can give you a sense of comfort that the one way or another what you’re looking at is about 150 basis points to 200 basis points of earnings growth contribution from lease up activity this year.
Eric Wolfe: Okay. That’s helpful. And then I guess just a quick one on the capitalized interest guidance. It looks like based on your guidance, the construction progress or development balance is going down by like $200 million. I’m just taking, what the interest is divided by your weighted average interest rate to get to that. But is that the right way to think about it and then I guess why would that balance be going down if it seems like spending is set to accelerate a little bit this year?
Ben Schall: Yeah, no, I think that is the right way to look at it. I don’t know the exact number, but we have capitalized interest rate — interest expense going down by $0.04, which is about $5 million year-over-year and it’s at a blended capitalized interest rate of 3.5%. So I think it is going down by a couple $100 million and the reality is we have, and this is the natural ebb and flow of construction and progress. We have more completions this year than deals entering new construction. So that’ll oscillate over time and it creates a little bit of a period over period volatility in the capitalized interest expense calculation, but that’s just the nature of that. We don’t — we start projects when they’re ready to go, not at a completely constant evenable — even rateable basis over the course of the years and there’s a little bit of CIP decline from ’23 moving into ’24.
Operator: Thank you. Our next question comes from the line of Steve Sakwa with Evercore. Please proceed with your question.
Steve Sakwa: Yeah, thanks. Good afternoon. First, just on a clarification, I think at the Investor Day, you had talked about an earn in of about 1.5% and I think now you’re talking about an earn in of 1%. Is the difference strictly just moving from like a September 30 or Q3 to Q4? Or is there something else that kind of went on in that stat?
Kevin O’Shea: Yeah, that’s pretty much it, Steve. If you think about it, a lot of our growth comes through the first nine months of the year, including short-term premiums and other activity that happens in Q2. Excuse me, Q2 and Q3 and then traditionally, it sort of decelerates as you go through Q4 and land in January.
Steve Sakwa: Okay. And maybe one for Matt on the development. You talked about the $870 million and the mid-sixes. And it looks like about a third of the starts are going to be in your expansion market. So just how are you sort of sizing that up, just given kind of the supply issues that we’re facing in many of the expansion markets today and you’ve also benefited from basically conservative underwriting with no increase in rents, but rent growth is obviously slowing. So I guess, does the mid-sixes provide much upside going forward if rent growth is relatively flat over the next couple of years?
Kevin O’Shea: Yeah, Steve, I would say, and as I kind of mentioned in my prepared remarks, there may be less upside. Historically, if you look back over a long period of time, we tend to deliver yields that are 20 basis points to 30 basis points higher than what our initial underwriting is because we don’t trend. Now, in the last two years, when rents were rising in double-digit rates in 2021 and 2022, that 20 basis points, 30 basis points was more like 70 basis points or 80 basis points, but that’s why now when you look at, say, the deals leasing up this year, they’ll have some of that wind at their back, but it’s probably back to that kind of 20 basis points to 30 basis points that’s more typical. And that’s why we feel like there’s an adequate margin of safety in there because we’re starting them on today’s economics with that 100 basis points to 150 basis points spread to current cap rates that Ben referenced.
So the two deals we’re talking about in expansion regions or the third of the starts this year in the plan happen to be in North Carolina. I think one is in Raleigh, Durham and one is in the Charlotte area and so you have seen rents, market rents in those markets decline a little bit in ’23. So based on today’s rents, there is more supply coming there. There’s obviously strong demand too, and we’re investing over the long term. These are 20-year investments, but I would say that margin of safety would suggest that if you start those next year, they’re not going to be in lease up for a year and a half, two years after that. We feel pretty confident that we’ll be able to hit our NOI numbers, if not still get a little bit of lift.
Ben Schall: The part, Steve, I’d add to that is you think about this cohort of projects. Starts are definitely coming down this year for financing reasons, economic reasons, but deals that we can make sense of and that we can capitalize in an appropriate way have the potential to open up into a pretty nice pocket, pretty nice window when you look out three years from now. So tough to forecast a lot of other variables in there. And as you said, we’re conservative in underwriting based on today’s environment, but we do keep that in mind as well.
Steve Sakwa: And just a quick clarification, the $870 million, is that mostly back halfway, did you think, in terms of start to the deliveries or kind of more late ’25, maybe even into ’26?
Ben Schall: Yeah, that’s accurate, Steve.
Operator: Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
John Kim: Thank you. I’m a little bit confused on the earn-in question. So I guess my first question is, can you just let us know how you define that? It’s obviously a non-GAAP measure. It’s a relatively new metric within this industry, but I thought that the earn-in was kind of locked in at the end of the year on leases you signed last year and what that contributes to revenue growth this year and it doesn’t really quite move after that. Your lease growth rates didn’t really change during the fourth quarter. So yeah, I’m just questioning how you define that?
