And I’ll suggest you that our cap rates continue to be significantly conservative relative to NATREF, which is the index that most institutional investors look at in the private market space. And our cap rates for office are 17% higher. So we’re very conservative relative to where NATREF cap rates are and those NATREF cap rates just came out of the last day. And so we continue to be very thoughtful about market conditions reflecting those market conditions in our quarterly assessments. And so we want to make sure we’re giving you real-time data and real-time expectations as to where we see those debt service coverage and loan-to-values. Does that help, Tracy?
Tracy Benguigui: No, it helps for sure, because it feels like then your LTV is probably more realistic and less scale than maybe what others report given that diligence. But just wondering where that 63% could go from here if I look at the next few quarters.
Deanna Strable: Well, Tracy, I’m not sure what – where the 63% is. I actually think that’s the loan-to-value on our ‘24 maturities. So the actual total office portfolio is what Pat mentioned as is 57%. And then the other thing I would make note of on the ‘24 maturities is even though the LTV is 63%, the debt service coverage is 3.8%, and we have a 94% occupancy. So ultimately, for those loans that are maturing in ‘24, we feel good that those are attractive loans that will be maturing next year.
Tracy Benguigui: Got it. We’re seeing traditional Life and annuity insurers borrowing a page from the playbook of alternative asset managers and they’re creating these side cars in Bermuda by making an equity stake alongside consortium of investors as a way to accumulate assets and earn fee income. I’m wondering what your thoughts are given you do have large asset management capabilities.
Dan Houston: Yeah. It really came in garbled, Tracy, on your question, but I believe it’s whether or not there’s an offshore solution that would help in capital relief for some of our spread businesses. Deanna, do you want to frame that for us?
Deanna Strable: Yeah. Tracy, good question. We always evaluate opportunities to create value for our customers and opportunities and look at what our competitors are doing relative to that. We have been exploring whether we should set up a Bermuda entity specifically focused on PRT and term, our focus will be on new sales as we go forward. And we won’t – we aren’t considering a sidecar arrangement relative to that. One, given the size of our portfolio, the size of our new sales and our ability to manage that in-house relative to that. So there’ll be more to come on that as we go forward, but I always want to be mindful to make sure that we are being as capital efficient as we can in creating value for our shareholders.
Dan Houston: Right, thank you.
Tracy Benguigui: Thank you.
Operator: Thank you. Our last question will come from the line of Josh Shanker with Bank of America. Please proceed with your questions.
Josh Shanker: Yeah, thank you. So the timing of the $0.02 dividend rate also comes in concert with a $100 million increase to the buyback expectations. It seems that you were a bit surprised by just how much cash flow you’re generating. To what extent are you – is that a number that should generally be forecastable for you over time? And can you go through some of the history when you did the Talcott deal about how much it reduced your cash flow by and when you recover to the levels where you’re going to be raising dividends again?
Dan Houston: Yeah. So it’s a good question. The first thing I would say is, you have to look at the last two years for Principal and know that forecasting some of these has been challenging, given some of the changes that we’ve made, we do have a very strong capital position. We anticipated that in the post-strategic review when we were doing our analysis. We wanted to use a fair amount of judgment of not having perfect clarity to what this might look like. But as we said during the strategic reviews outcome, we’re committed to returning capital through both share buyback through increased dividends and targeting our 40% payout ratio, but also investing in these organic businesses, knowing that most of those businesses deployments would be in our fee businesses. And having said that, we still look for opportunities in spread where it’s appropriate. But I’ll have Deanna add some additional comments.
Deanna Strable: Yeah. Thanks, Josh for the question. We came out of the strategic review and really committed to that 75% to 85% free cash flow ratio, and we managed to make sure that we’re within that. We were happy to be able to raise our dividend $0.01 last quarter and $0.02 this quarter. And as you’re aware, that has been on pause since our strategic review as we wanted to understand the impact on our earnings level. And then, as you know, also in 2022, the markets were pretty negative. And so we needed to understand how we could get through that as well. We did have a few one-timers in the quarter that did help our free capital flow. They netted to about $100 million positive impact. The two most notable one is the admittance of the negative IMR, but that was partially offset by the AAR tax impact that we talked about.
