Earnings Call Transcript - PECO Q4 2021

Operator, Operator

Good afternoon, and welcome to Phillips Edison & Company's Fourth Quarter 2021 Results Presentation. My name is Carmen, and I'll be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release and quarterly financial supplements were issued yesterday, February 10, after market close. These documents and a replay of today's presentation can be accessed on the Investors section of the Phillips Edison & Company website. I would now like to turn the call over to Michael Koehler with Phillips Edison & Company.

Michael Koehler, Vice President of Investor Relations

Thank you, operator. Good afternoon, everyone, and thank you for joining us. I am Michael Koehler, Vice President of Investor Relations with Phillips Edison & Company. Joining me on today's call are our Chairman and Chief Executive Officer, Jeff Edison; our President, Devin Murphy; and our Chief Financial Officer, John Caulfield. During today's presentation, Jeff will provide a brief overview of Phillips Edison & Company, discuss our differentiated strategy and touch on the highlights of the quarter. Devin will discuss our fourth quarter operational results. John will review our fourth quarter financial results and discuss our 2022 financial guidance. Lastly, Jeff will return to provide an update on our acquisition and disposition activity, give our 2022 acquisitions guidance, and provide some closing comments. Following our prepared remarks, we will answer questions from the institutional analyst community. Before we begin, I would like to remind our audience that during the course of this call, management may make forward-looking statements within the meaning of federal securities law. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Such forward-looking statements are made only as of today and will not be updated as actual events unfold. Please refer to yesterday's earnings release and our filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. In addition, we will also refer to certain non-GAAP financial measures. Information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our earnings release and supplemental disclosure, issued yesterday, which are on our website. With that, it's my pleasure to turn the call over to Jeff Edison, our Chief Executive Officer. Jeff?

Jeff Edison, CEO

Thank you, Michael. Good afternoon, everyone, and thank you for being on the call. Phillips Edison Company is exclusively focused on owning and operating neighborhood, grocery-anchored, omnichannel shopping centers. We are one of our nation's largest owners of this type of center. As we speak today, you will notice that we call our tenants our neighbors. We do this because we work hard to create community at our centers, and we treat our retailers as neighbors in that community. We also prioritize customer service and believe that this nomenclature reminds our team to treat our tenants like we would our neighbors. When it comes to our centers, we believe that format drives results and also facilitates attractive long-term growth. Our average center is 115,000 square feet, which is among the smallest average size in the REIT universe. We believe our smaller centers allow for better growth because our average tenant space of 2,300 square feet aligns well with leasing demand. Approximately 70% of leases in strip centers are executed in spaces smaller than 2,500 square feet. This demand drives higher retention rates, higher re-leasing spreads, and overall positive leasing dynamics for PECO. Higher retention rates result in less downtime, lower TI costs, and higher NOI growth. When it comes to our properties, our strategy is simple. We focus on owning centers with the number one or number two grocer in the market. Our centers have an omnichannel neighbor base where the grocer and the center have both delivery and buy online and pick up in the store or BOPIS capabilities. Our centers have a high exposure to neighbors selling necessity-based goods and services. In fact, 72% of our rent comes from neighbors offering both necessity goods and services. We focus on owning centers in trade areas with favorable demographics where our neighbors can be successful. Looking forward, we believe we are well positioned for long-term growth. Our long-term growth includes both strong external and internal growth. We improved our balance sheet with the capital we raised during our underwritten IPO last July. Subsequently, we executed our debut $350 million public bond offering as our investment-grade issuer. With our leverage currently at 5.6x debt-to-EBITDA, our goal is to execute $1 billion of acquisitions, net of dispositions over three years. Our strategy creates significant opportunity for acquisitions, which I'll discuss later. This external growth will complement our strong internal growth over the long term. The key drivers of our internal growth include growing rents through new and renewal leasing spreads, executing leases with annual fixed rental increases, leasing vacant space to new neighbors and executing redevelopment opportunities, which are primarily single-tenant, ground-up, outparcel developments and tear down and rebuild opportunities for our grocer anchors. We believe our strategy has historically and will continue to prospectively generate superior risk-adjusted returns. We do believe that format drives results. Our differentiated strategy allows us to realize higher initial yields on acquisitions plus higher NOI growth plus lower CapEx. This leads to superior economic returns. Our results in the fourth quarter were no exception. The fourth quarter continued the momentum we have seen throughout 2021. For the full year, we exceeded our annual core FFO per share and same-center NOI guidance. The key components of our results are as follows. The operating environment remains as strong as we have seen it in our 30 years in the business. Our rent collections are at pre-pandemic levels. We enjoyed continued high demand for retail space in our well-located small format centers. We realized strong internal growth. Leased occupancy reached an all-time high of 96.3%. Comparable new and renewal rent spreads were healthy at 18.3% and 7.8% respectively. On average, our new and renewal in-line leases executed in the fourth quarter had annual contractual rent bumps of 2.4%. We also realized strong external growth. We continue to execute our goal of acquiring $1 billion of real estate by June of 2024. Since our IPO in July, we acquired $350 million of assets, which we believe meet our internal return requirement of an 8% unlevered IRR. Looking forward, we believe the strong operating environment enhances our ability to execute our internal and external growth plans. It positions us for meaningful long-term growth. John will provide more details on our outlook in a few moments during our 2022 guidance discussion. Now I'd like to turn it over to Devin who will speak in more detail about our operating results for the quarter. Devin?

Devin Murphy, President

Thank you, Jeff. Good afternoon, everyone, and thank you for joining us today. Our differentiated strategy of owning and operating small format centers anchored by the number one or number two grocer continues to generate strong results and resulted in positive results for the fourth quarter. At the end of the fourth quarter, lease portfolio occupancy totaled 96.3% compared to 94.7% at December 31, 2020. Occupancy reached an all-time high in the quarter. Anchor leased occupancy increased to 98.1%. In-line leased occupancy increased to 92.7%. Our leased occupancy to economic occupancy spread was 100 basis points for the quarter, primarily as a result of our anchor leasing activity. Our in-line spread compressed to 80 basis points this quarter. We believe that we can increase in-line occupancy to 95% over time, which will add approximately 70 basis points to our total occupancy rate. During the quarter, we executed 121 new leases and 132 renewal and option leases, totaling 1.4 million square feet of space. We have leased approximately 1.4 million square feet now for four consecutive quarters, illustrating the continued strong demand from retailers for space at our centers. Comparable new lease rent spreads were 18.3%, and comparable renewal lease rent spreads were 7.8%. Our in-house leasing team has been busy executing new in-line leases with neighbors, including Sports Clips, Dunkin Donuts, and retailers for many different lines of necessity retail. Demand for our retail space is coming from retailers in many different businesses. A growing trend that we have seen is national retailers such as Chipotle, Starbucks, and Humana looking to expand their footprints in our suburban markets. Additionally, we have a dedicated renewals team focused exclusively on keeping our existing neighbors in our centers. We enjoyed a retention rate of 86% for the quarter, which is just shy of our full-year retention rate of 88% and in line with our 2017 to 2020 average retention rate of 87%. We believe our retention rates are market-leading. These high retention rates are important because we suffer no downtime and have to invest less tenant improvement dollars into the space. In Q4, our average TI for renewals was only $1.29 per square foot, and for the year averaged $0.95 per square foot. No downtime and lower TIs result in better cash flow growth. These solid retention rates are evidence that our retail space is a great place for our neighbors to successfully operate their businesses. An important part of our internal growth story is redevelopment. During the quarter, we stabilized two ground-up outparcel developments. One at Plaza 23 in the Newark, New Jersey MSA and one at Alameda Crossing in the Phoenix MSA. This additional GLA of 7,300 square feet is fully leased, and the neighbors took possession of the space during the quarter. We have 17 additional redevelopment projects that we began during 2021. The total projected cost for these ground-up redevelopment projects is $45 million. We currently expect incremental underwritten yields on these projects to be between 10% and 12% unlevered. Our pipeline currently includes eight additional projects in 2022, which represents an additional $23 million of investment. We expect this pipeline of redevelopment opportunities to grow throughout the year. For full year 2022, we expect to invest approximately $45 million to $50 million in ground-up and redevelopment opportunities. In addition, we expect to spend $50 million to $55 million on capital improvements, tenant improvements, and leasing commissions at our centers. The results that I just reviewed exhibit the strong operating environment that we currently enjoy and believe we'll continue to enjoy through 2022. I will now turn the call over to John for a discussion of our financial results, our recent capital markets activity, and our 2022 financial guidance. John?

John Caulfield, CFO

Thank you, Devin, and good afternoon, everyone. Fourth quarter 2021 NAREIT FFO increased 7.3% to $49.4 million or $0.39 per diluted share. Fourth quarter core FFO increased 24.5% to $60.8 million or $0.47 per diluted share. The increase in both NAREIT and core FFO for the fourth quarter of 2021 was driven by increased revenue at our properties and improved collections. Further driving the increase was a reduction in interest expense versus the fourth quarter of 2020. We had a non-cash charge of $7.4 million for our earn-out liability in Q4 2021, impacting our NAREIT FFO. And we expect an additional charge in the first quarter of 2022, totaling $1.8 million to cover the final settlement of the earn-out in January 2022. Approximately 1.6 million operating partnership units were delivered in January, marking the end of the earn-out period. As we look at the fourth quarter, our general and administrative expenses were higher than other quarters, primarily due to performance-based compensation on our short and long-term incentive programs realized in the quarter. We anticipate our full year 2022 G&A to be in line with our full year 2021 G&A, which was $48.8 million. Also in the quarter, our capital expenditures were higher on a run rate basis than other quarters due to timing and increased tenant improvement dollars spent in the quarter driven by the high volume of leasing activity. Compared to 2020, our NAREIT and core FFO per share results were impacted by a 15% increase in our weighted average share count as a result of issuing 19.55 million shares during our July 2021 IPO. For the full year, our core FFO per share of $2.19 exceeded the high end of our guidance of $2.14 to $2.18. Several things lined up for us during the quarter, which pushed our results above the top end of our guidance. We had a number of acquisitions in the pipeline that we were able to close before the end of the year. Our occupancy increased and exceeded expectations. Our neighbors began paying rent more quickly than anticipated, and our prior period collections were higher than expected. We still have a little over $3 million outstanding on payment plans with our neighbors. We will continue to be conservative in our estimates for collections at the midpoint of our guidance range for 2022, which I will get to shortly. Our fourth quarter 2021 same-center NOI improved to $88.8 million, up 15.2% from a year ago. This improvement was primarily driven by a 2.4% increase in average base rent per square foot, stronger collections compared to 2020 and out-of-period collections for the quarter of $2.3 million. When comparing our results for the quarter ended December 31, 2019, our same-center NOI increased 3.9%. We believe this is a true indicator that we are experiencing growth in our same-center portfolio above and beyond the COVID recovery. As of December 31, 2021, we had approximately $604 million of total liquidity comprised of $116 million of cash, cash equivalents, and restricted cash, plus $489 million of borrowing capacity available on our $500 million credit facility. As of December 31, 2021, our net debt to adjusted EBITDAre was 5.6x compared to 7.3x at December 31, 2020. At December 31, 2021, our debt had a weighted average interest rate of 3.3% and a weighted average maturity of 5.2 years. Approximately 99% of our debt is fixed rate. Our debt ratios and maturities have improved as a result of our IPO in July and debut public debt offering that closed in the fourth quarter. The $350 million 2.625% coupon 10-year notes significantly extended our debt maturity profile, while also diversifying our capital sources. Given our growth plans and maturity profile, we believe we can become a serial issuer in this market. On February 10, we filed a shelf registration statement and a $250 million ATM equity offering program. Following our July IPO, this is the logical next step for us and allows us to efficiently access the capital markets as opportunities arise. We have no immediate plans to utilize the ATM program but wanted to have this option available to us as we continue to evaluate market conditions and capital needs. Yesterday, on February 10, 2022, we issued our 2022 full-year guidance in our earnings release. For 2022, our same-center NOI growth guidance is between 3% and 4%. This is consistent with the growth we have delivered on a historical basis and what we believe we can continue to deliver going forward. Our NOI growth will be one of the core drivers for our core FFO growth. Additionally, we expect to see a reduction in interest expense due to less debt on our balance sheet. For 2022, our core FFO guidance range is between $2.16 and $2.24. When compared to 2021, we expect total core FFO to increase by approximately 11% to $282 million using the midpoint of our guidance. With that, I would like to turn the call back over to Jeff to discuss our recent portfolio activity, provide our 2022 acquisition guidance, and recap our long-term growth strategy. Jeff?

Jeff Edison, CEO

Thanks, John. Following our IPO in July of 2021 through December 31 of 2021, we acquired seven grocery-anchored centers and two outparcels for $267.4 million. This was at the high end of our guidance range. So far, in 2022, we've acquired two additional grocery-anchored shopping centers for $82.9 million and have an additional center under contract for $17.5 million. Our 2022 acquisitions included Cascades Overlook in Arlington, Virginia, a suburb of Washington, D.C. This 151,000 square foot center is anchored by Harris Teeter, a Kroger banner. And Oak Metals Marketplace in Georgetown, Texas, which is in the Austin suburb. This 79,000 square foot center is anchored by Randalls, an Albertsons banner. We believe the centers we have acquired since our IPO will meet or exceed our unlevered IRR target of 8%. Our acquisition pipeline is healthy. For 2022, we are guiding to acquire between $300 million and $400 million of assets net of disposition activity. As we have discussed in the past, we identified 5800 grocery-anchored shopping centers in the United States that fit our strategy. These centers are all anchored by the number one or number two grocer in their respective markets and meet our demographic requirements. We are focused on the three-mile area around each center. We believe this strategy presents a wider and deeper pool of assets to choose from versus a strategy strictly focused on a limited number of markets. To meet our stated goal of $1 billion of net acquisitions by June of 2024, we need to acquire approximately 15 assets per year. This represents approximately 2% of our targeted shopping centers that trade each year. We are well on our way to meeting our $1 billion goal. To optimize our internal growth, we will continue to selectively recycle assets. These proceeds will be deployed into higher quality, higher growth assets. Since our IPO, we have disposed of 11 wholly-owned centers, two outparcels, and one land parcel, totaling approximately 1.1 million square feet for $91.7 million. This was slightly below the low end of the guidance range of $95 million to $105 million, which we gave on our third quarter earnings call. Now before we get to the Q&A section, I would like to quickly recap our quarter. The operating environment remained strong. We realized strong internal growth. We also realized strong external growth. Our differentiated strategy produced strong results for the quarter and have set high expectations for 2022. With that, we'll begin the Q&A portion of our call. Operator?

Operator, Operator

Your first question comes from Rich Hill at Morgan Stanley. Your line is open.

Rich Hill, Analyst

First of all, congrats on a really nice quarter. I wanted to talk through the guide. It is very strong on an absolute and relative basis compared to your peers. And I wanted maybe just to understand and unpack a little bit more if there's something differentiated about your portfolio. Many of your peers talked about bad debt being a headwind in 2022. And I think back to your portfolio already being above 2019 levels on a same-store NOI basis. So I guess that's a long way of saying, is there something different about your portfolio? Do you not have as much bad debt or is this really about your portfolio just holding up and bouncing back a little bit better than peers, which is leading to a guide that looks really strong?

Jeff Edison, CEO

Rich, thank you for your question and for being here today. We truly believe that our format drives results. We have seen that the combination of a grocery store with necessary goods has performed well during the pandemic and will continue to do so. Therefore, we are optimistic about the year ahead. We have carefully evaluated our goals and are confident they are achievable. Overall, it is our format that is contributing to our success. John, would you or Devin like to provide more detail on this?

John Caulfield, CFO

Sure, thank you for the question, Rich. When we examine the core FFO growth, the primary driver is the NOI growth. Our peers have mentioned the impact of bad debt, but our experience in 2021 was not as severe, which provides us with a stable foundation moving into 2022. We've communicated that our properties are adjusting to the new post-COVID environment. The growth stems from both organic factors and recent acquisitions, as well as those we plan to make. To anticipate a question that is likely to come up, the effect of out-of-period collections this quarter is approximately $2.3 million, corresponding to the bad debt reversal. Looking ahead to next year, we have only $3 million in outstanding payment plans. Therefore, when we assess our guidance on a same-store and FFO basis, we expect to collect that amount, and it is reflected in the upper range of our guidance.

Rich Hill, Analyst

And if I may, just one more question. I know you guys focus on unlevered IRRs when you're acquiring properties. So forgive a sell-side question here. But could you maybe give a little bit of a guidance on what the cap rates for your acquisitions would be in 2022?

Jeff Edison, CEO

Rich, thanks for being on the call this morning. Where we are acquiring assets, Rich, today in the market is between a low of 5.75% and up to 6.75%. So it's in that range that we are acquiring assets. And you'll note that for full year '21, the weighted average cap was 6.4% on acquisitions. And in the first quarter, the cap rate was almost 6%, just under 6%. So it's in that range and that's where we expect it to stay on a go-forward basis.

Caitlin Burrows, Analyst

Maybe one on occupancy. You guys had some meaningful increases in occupancy in the third quarter. And again, in the fourth quarter, Devin, I think you mentioned that you think in-line occupancy could get to 95%, increasing occupancy 70 basis points overall. So I was just wondering if you could give some more detail on your expectations for 2022? And given the strong operating environment, how much additional increase is realistic near-term?

Devin Murphy, President

Caitlin, as you saw both in the fourth quarter and through full year '21, we were successful in increasing our occupancy to the level that we're currently reporting. We've guided on that occupancy increase to occur over the next two years. So we believe that we will get that in-line occupancy up to 95% over the next 24 months. And how much of that we're going to get in '22 is hard to know, but based on how strong the pipeline is currently, we will probably get a meaningful component of that in calendar year '22. So on our redevelopment, Caitlin, we know that they are smaller redevelopments, and therefore, they have shorter cycle times. And so that makes it a little bit easier for us to anticipate when they're going to come online. We have seen increases in costs and we have included those increases in costs in our budgeted numbers, and the returns that we've articulated include the increases that we're seeing on costs. Where we're seeing delays is in the permitting process, and then in some instances, in terms of the availability of the necessary goods. But all of that is built into our expectations. And therefore, the numbers that we gave in our earnings release, we're confident we will deliver on. And we continue to be very happy with the kind of returns we're able to generate on this activity.

Jeff Edison, CEO

Caitlin, we are experiencing strong demand for these particular outlets. We are optimistic that we will continue to see this strong demand from retailers looking to expand into these locations. We're not observing any issues on the leasing side. While there are some challenges with permitting and costs, tenant demand remains extremely high for these locations. They feature drive-throughs and conveniences that many retailers are currently focused on.

Craig Schmidt, Analyst

I guess throughout the fourth quarter earnings, we've been hearing about a transaction market that's getting much more competitive and seeing compressing cap rates. I'm just wondering, given your different approach to servicing your acquisitions, are you seeing that same challenge or are you able to circumvent it?

Jeff Edison, CEO

Yes, we are experiencing more competition for the properties we are purchasing compared to the past. We are beginning to notice a significant increase in the volume of products available in the market. Although it's still early, there appears to be a lot more product becoming available. The main competition is coming from the portfolio side, where aggressive pricing is prevalent. In terms of individual assets, which are smaller purchases, we are also seeing increased competition. However, we are not observing dramatic changes in pricing on the individual assets, unlike what is happening in the portfolio market. There has likely been around 25 to 50 basis points of compression in our markets, and we expect this trend to continue. As mentioned earlier, we see cap rates ranging from 5.75% to 6.25%. Nonetheless, we remain optimistic about selectively identifying assets that can provide an 8% unlevered IRR.

Devin Murphy, President

Jeff, the only thing I would add to that is, Craig, on our watchlist, the largest tenants in our watchlist are in fitness, pet supplies, and office supplies, on those categories. But the top five tenants on our watchlist represent less than 2.5% of our total ABR. So it's not a meaningful exposure. And as we come out of the pandemic, a lot of these retailers' businesses are improving, particularly fitness. So again, it's something we watch closely. But the beauty of our business model is we are highly diversified in terms of our exposure to tenants. And therefore, the watchlist exposure is well diversified.

Juan Sanabria, Analyst

Just a big picture question for me. Do you have a sense of the latest trends across your portfolio from a consumer perspective just given some of the inflationary pressures, be it a headline consumer confidence today take a ding, people are clearly feeling a little more soft in a rising prices. But just curious what you guys are seeing on the ground from your pockets of consumers?

Jeff Edison, CEO

It's a great question, and we are monitoring it closely. We are experiencing strong usage of our centers. In fact, we have more customers visiting our centers now than in 2019, and this trend continues. We are optimistic about this situation and are keeping a close eye out for any potential changes. While there is a lot of discussion about inflation affecting certain retailers more than others, our perspective on the consumer is that we are in the necessity part of the business, making us less vulnerable compared to some other retail sectors. Overall, we feel very positive about the current environment, and we are not observing any significant pullback from consumers, especially regarding necessities. In fact, we are seeing robust growth, and our retailers are also experiencing solid growth. Devin, do you have any additional insights on this?

Devin Murphy, President

I think you nailed it, Jeff. I mean, the thing that protects us to a degree is the fact that 73% of our rents are coming from necessity-based goods, necessity retailers. And obviously, the consumer had less discretion in terms of necessity goods than they do in non-necessity goods. And so we have not seen the current environment yet become a meaningful headwind. But again, it's something that we're concerned about and are watching closely.

Jeff Edison, CEO

We remain dedicated to identifying projects that yield an 8% unlevered IRR consistently, adhering to our stringent underwriting criteria, and acquiring the leading grocer in a market with significant potential. If we can achieve this, we will persist with our acquisition strategy. The market may necessitate a reduction in this goal. However, we are committed to maintaining our balance sheet at an investment-grade level following our significant leap at the IPO. It is also possible for us to reach a debt to EBITDA ratio in the low-60s, depending on market conditions. Our strategy focuses on selectively pursuing strong buying opportunities.

Haendel St. Juste, Analyst

First question is on the leasing spreads. I know they could be lumpy, especially on the new's side. But with that in mind, I guess, can you discuss the jump in new lease rates in the fourth quarter? Is that more an anomaly, maybe perhaps due to mix? And then how would you assess the near-term outlook for spreads as you look at your expiring rents here over the next year or two versus market rent?

Devin Murphy, President

Haendel, if you look at our new leasing spreads over time and you take the pandemic year of 2020 out of the picture and you go back to 2017 and look at 2017, 2018, 2019, and 2021, the average new leasing spread for us was 14.9%. And so the metric that we put up in 2021 of 15.7% is in line with what we've been able to do historically. So we don't tend to see the volatility in leasing spreads. I mean, if you look at that four-year window, the low was 13.3% in '19 and the high was 15.9% in '17 with an average of 14.9%.

John Caulfield, CFO

So in the fourth quarter, they were higher dollars. And I wouldn't say it was any space in particular; absolutely the kind of cost per space does vary by the use and the size. But I would say in terms of the timing, it was higher when you look at the quarter individually. On both the TI and the capital side, just the capital improvements, if you look at the supplement, almost 2/3 of our capital improvements were spent in the fourth quarter. So TI is really a function of we've had increased leasing volumes. And I would say that that will carry into 2022. But I believe it was in Devin's remarks we provided some comments that it would be approximately $50 million to $55 million for that lump sum for the full year is what we're expecting. And that would be CI, TI, as well as leasing commissions.

Jeff Edison, CEO

Haendel, that's an excellent question. The response is that we would expand if we could. We are diligently working to enhance that aspect. Our focus is on a disciplined approach to development, primarily targeting single-tenant and small multi-tenant spaces near our centers, as well as certain tear-down or rebuild projects for grocers that offer favorable economics. If we had the capacity for larger volumes, we would pursue that. However, due to the time required to establish these projects and their size, which generally range from 1 million to 3 million, it demands significant time and effort to implement. This is why we proceed with this strategy. The returns we are experiencing, around 9% to 10%, make it a robust investment vehicle. If expansion were feasible, we would pursue it, and we will keep exploring ways to do so. For the foreseeable future, viewing it as approximately a $50 million a year business is a reasonable perspective.

Michael Mueller, Analyst

In the fourth quarter, we reported $0.47 per share. If we adjust for a couple of cents from prior periods, that brings us to $0.45. When annualized, this amounts to about 180. To reach an average of $0.55 per quarter, we need to understand how to bridge the gap between $0.45 and that average, especially considering core growth may contribute a few cents. Is the remainder primarily driven by acquisitions?

John Caulfield, CFO

Thank you for your question, Mike. Regarding the quarter, the reported $0.47 includes prior period collections, but we also faced higher expenses affecting the NOI due to corporate property operations. We noted increased performance compensation in our G&A, which also applies to our properties that had a remarkable year. These two factors somewhat balance each other out. When considering the same-center growth, our acquisitions from 2021, and the net acquisitions planned for 2022, the key element is in the NOI. Additionally, as I mentioned earlier, our G&A will remain relatively stable at that level, and interest expenses are expected to decrease slightly compared to 2021 due to a lower debt load.

Devin Murphy, President

John, go ahead. I wasn't sure of Mike's question, if he was asking about what the built-in rent CAGR is on new leases. Was that your question, Mike?

John Caulfield, CFO

I would say on the 2021 leases specifically that the rent bumps would be in that range of 2% to 2.5% for the full year. And that's what our tenants are operating under in existing leases.

Tamara Fique, Analyst

Just a question on guidance. I'm just wondering if you can maybe help us, and you've answered this a little bit just a moment ago about the 70 basis points of contractual bumps embedded in the portfolio. But what are the other components of 2022 same-store NOI growth guidance? Just maybe help us frame that up beyond the 70 basis points from the rent bumps.

John Caulfield, CFO

I'll go ahead and take that one. So in our 3% to 4% same-store NOI guidance, I did just mention that the rent bumps piece, we would say, is 60 to 70 basis points from the embedded portfolio. I would say new leasing spreads are, and again, this is for '22, 70 to 80 basis points. I would also say that redevelopment is 70 to 80 basis points. That's the outparcel projects that we've been discussing previously. The big lift is in occupancy; we have meaningfully increased occupancy, and that will continue to carry income into 2022 as well as our projections. And so that's 200 to 250 basis points of our growth. And then the math is actually similar to what is that we have about, call it, 80 basis points assumed loss in same-center NOI related to bad debt. So in the 2022 year, we are anticipating that our bad debt will return to historical levels, which is between 60 and 80 basis points of revenue. And that range is what's giving us the 3% to 4%.

Tamara Fique, Analyst

And then I appreciate the comments around the consistency in re-leasing spreads. But given the currently high occupancy and expectations for continued growth there, I mean, should we be thinking about bigger re-leasing spreads going forward if you can sustain that occupancy level or do you feel like you're putting tenants up against kind of higher occupancy costs at this point?

Jeff Edison, CEO

Tammy, that's a great question. We're currently balancing improving occupancy levels, which provide us with more pricing power than we've historically had. While we have not incorporated expectations for higher rent spreads into our assumptions, we believe there is potential for that. We plan to test this opportunity this year. It's still early to determine if we can consistently exceed those numbers moving forward, but we are currently experiencing one of the best operating environments we’ve had. Thus, we are hopeful of pushing those numbers a bit higher.

John Caulfield, CFO

And Jeff, just to add on to that. Tammy, the second part of your question was whether the pressure that we're putting on our neighbors. I would first say that our grocer health ratio we reported was 2.4%. And really, those are very long leases, so that's not really where the pressure will be applied. When we look at our in-line neighbors from a ratio standpoint, our estimates are we're about 10% of their cost, and that varies based on the usage. And so as we look at the growth that they're realizing, given the necessity-based nature and their ability to push those costs, we believe we can achieve these and maintain that relationship without putting excess pressure on our neighbors.

Devin Murphy, President

The last piece is, we don't believe that our in-line tenants are feeling pressure because, as you noted in our retention rate at 88%, nine out of every 10 tenants are renewing and they're renewing at these kind of spreads that we've been talking about. So the evidence is clear that the tenants do not feel pressured. Their businesses are thriving in our centers, and therefore, they want to stay in our centers, and the retention rate is reflective of that dynamic.

Todd Thomas, Analyst

Just first question, I just wanted to follow-up on investments and the strategy. There does seem to be a bit of product coming to the market. Is there any appetite for sort of a small or mid-sized portfolio or should we generally expect the one-offs primarily? And would there be a scenario where it might make sense to grow the joint venture and asset management platform?

Jeff Edison, CEO

It's a great question. Yes, there is additional product coming on the market, and we are evaluating every portfolio that is for sale, having reviewed all transactions or commitments to date. I do not expect us to invest in a portfolio in the current environment where a significant premium is being paid. We believe there is a portfolio premium. If this trend continues, we will likely focus on growing through individual acquisitions. However, if we identify a portfolio that meets our unlevered internal rate of return and we believe it is being offered at market value rather than a premium, we would be very interested in pursuing it. Our assessment will hinge on whether we can underwrite it to an 8% unlevered internal rate of return and ensure we are buying it at a market rate. We review all market opportunities because of our extensive experience and strong relationships, making us a priority for sellers of open-air centers. We will continue to assess these opportunities diligently to find the best ones.

Tamara Fique, Analyst

And then just one last question. Just as we think about dispositions in 2022, curious if you have anything teed up there? And maybe what you're expecting for the year in total? And just if you can give us a sense for cap rates on the pool of assets that you're looking to sell?

Jeff Edison, CEO

As we mentioned, the $350 million figure is a net amount. Our disposals will be in addition to that. Therefore, our acquisitions will exceed that amount by whatever the disposal total is. Regarding the range we provided of $300 million to $400 million, we anticipate it will align with that. While we haven't offered specific guidance on our disposals, historically, they have ranged from $100 million to $125 million annually. We expect to continue along those lines. However, our primary focus remains on achieving incremental growth through net acquisitions.

Operator, Operator

And this concludes our Q&A answer session. I would like to turn it back to Mr. Edison for some closing comments.

Jeff Edison, CEO

Thank you. Thanks everybody for being on the call and for your questions. We had a really nice quarter. We entered 2022 I think in a really good position. We're excited about some of the opportunities that's going to create for us. And again, we appreciate your questions. And obviously, we are here to answer them as we go forward. We'll root for the Bengals this weekend because we have to because we got our Cincinnati base. But for you guys, we thank you for your time today and look forward to hopefully having a really good 2022. It's certainly starting off really well. So let's keep our fingers crossed. Thanks, guys. Appreciate it.

Operator, Operator

And you may now disconnect.