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Brixmor Property Group Inc
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Greetings, and welcome to the Brixmor Property Group's Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I will now turn the call over to Stacy Slater. Thank you. You may begin.
Thank you, operator, and thank you all for joining Brixmor's fourth quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer; as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A.
Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update any forward-looking statements.
Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. [Operator Instructions]
At this time, it's my pleasure to introduce Jim Taylor.
Thanks, Stacy, and good morning, everyone. I'll be brief in my opening remarks as I believe our results this quarter and this year truly speak for themselves. As you review them, please dig in and consider how across every metric, these results demonstrate our accelerating outperformance as we execute our value-add plan, how they set us up for and provide visibility on continued outperformance in 2022 and beyond, and importantly how they underscore the portfolio transformation that has occurred at Brixmor.
As always, our outperformance begins with leasing, where for the year we signed 3.1 million feet of new leases at average cash spreads of over 27%. That volume included nearly a million feet of new leases in the fourth quarter, signed at a record ABR of over $20 a foot in an average spread of 42%. In addition, for the full year, we achieved an all time record new lease ABR of $18.66 of foot as we leveraged strong demand from growing retailers to be in our centers.
We remain disciplined with capital, achieving another all time record net effective rent of $17.82 a foot. We also achieved an all time high for small shop occupancy at 86.7%, but have left more room to run as we benefit from the improvements we've made at our centers. And we drove our average in place ABR to $15.42, another all time record for the company that also underscores the additional mark-to-market we have yet to harvest, as we capitalize on our attractive rent basis.
Looking ahead, our visibility on growth remains as strong as ever, as demonstrated by the record 13 million in ABR we commence during the fourth quarter. The over 50 million of signed, but not commenced rent that will commence over the coming quarters and the additional 45 million of ABR in our forward leasing pipeline. Under Brian, David and the regional leasing teams, we continue to grow market share with our core tenants, while also bringing new concepts to the portfolio, including several mall native retailers seeking the competitive traffic of our well located open air centers.
We also were successful in signing 14 grocery leases. That'll catalyze accretive reinvestment activity at the centers impacted in which grows our pro forma mix of grocery anchored centers to nearly 80% of our portfolio.
Speaking of reinvestments, we delivered another $68 million of projects in the fourth quarter, bring our total for the year to $168 million at an average incremental return of 11%. As we often highlight that is the equivalent value creation of nearly $840 million of ground development delivered this year, but at much, much lower risk. And that reinvestment has a flywheel effect, both in terms of fall on leasing, which we've demonstrated amply throughout the year, but also compression and applied cap rate as we improve those centers.
At the end of the year, we have an additional $374 million of reinvestment underway at an expected incremental return of 9%. And we continue to grow our forward pipeline, which now stands at over $900 million, including some very exciting opportunities or our recent acquisitions that I'll cover in a moment.
Under Haig's leadership, our operations team continued to ramp our service levels at the properties while minimizing leakage. We were also able to compress timeframes between lease execution and run commencement by nearly 20%, despite the headwinds of supply chain disruption as our construction and tenant coordination teams work with tenants to find practical solutions to get stores open sooner. Perhaps most importantly, I'm very pleased with how the improved operations and appearance at our centers is driving great follow on leasing activity.
Looking forward, our execution in leasing reinvestments and operations drives the top line outlook for 2022 of 4% to 5%, which I believe will lead the sector. That expected, outperformance is particularly impressive when you stack it with our historical outperformance, both through and emerging from the pandemic, as well as when you look at our prospects beyond this year as we execute our plan.
In addition to delivering robust internal growth under Mark's leadership, we are executing upon exciting external growth opportunities through acquisitions of assets like Bonita Springs and Granada Shoppes in Southwest Florida; Brea Gateway in Orange County, California; Arboretum in Dallas, Texas; and King's Market and ConneXion both in Atlanta, Georgia.
Since the beginning of last year through today, we've closed on over $390 million of acquisitions that further cluster our investments and markets where we perform well and in centers that provide further upside through leasing reinvestment in operations. Stay tuned in the coming quarters as we announce additional opportunities and also as we launch accretive reinvestment at recently acquired centers.
In fact, we're already at least on two new anchor repositions at rents well above the underwritten rents for the acquisitions. Our tenants and communities are very excited about the changes we'll be bringing to these centers.
Before turning the call over to Angela for a more detailed discussion of our results and outlook, I'd like to close by observing how please I am with how this team continues to deliver under the plan we laid out several years ago, how that performance is accelerating as we've transformed the portfolio, and importantly, how we continue to advance towards our purpose of creating and owning centers that are truly the center of the communities we serve. Angela?
Thanks, Jim and good morning. I am please to report another strong quarter of execution by our team as we continue to deliver on our value-added strategy and capitalize on the strength of the current retail environment.
Nareit FFO was $0.46 per share in the fourth quarter and $1.75 per share for the full year. While same property NOI growth was 9.7% in the fourth quarter or 8.9% for the full year. Same property NOI growth was driven most significantly by revenues deemed uncollectible. During the fourth quarter, we collected $8 million of previously reserved base rent and expense reimbursement income, representing approximately 440 basis points of same property NOI growth during the period.
Importantly, base rent, ancillary and other revenues and percentage rents were also positive contributors of growth this quarter. The contribution from base rent meaningfully accelerated in Q4, as weighted average occupancy grew on a year-over-year basis and the portfolio continued to benefit from the impact of positive releasing spreads recognized over the last two years.
Net expense reimbursements were a detractor from growth this quarter and were impacted by an increase in operating costs as service levels have continued to normalize across the portfolio, following proactive temporary cost reductions during 2020 and as we work to improve the look and feel of our centers to drive traffic and follow on leasing activity. But we have experienced continued improvements in operational metrics throughout the course of 2021.
Momentum clearly accelerated during the fourth quarter, with a 50 basis point sequential improvement in both build and leased occupancy, driven in large part by significant small shop activity. Notably, the small shop lease rate was up 100 basis points quarter-over-quarter, following a 90 basis point sequential improvement in Q3.
As Jim highlighted new lease spreads accelerated to 41.7% and net effective rent climbed to $18.59 per square foot for the quarter, 20% above the prior fourth quarter average on a pool more heavily weighted towards anchor space. The signed, but not commenced pool increased to $50.3 million of annualized base rent up from $43.5 million last quarter driven by an additional 170,000 square feet of leases in the pool and an 8% improvement in average rate across the entire pool. Importantly, approximately 80% of the signed, but not commenced ABR is expected to come online during 2022, waited to the first half of the year.
These metrics taken together underscore the strength of Brixmor's platform, the significant benefits of the portfolio transformation that has occurred over the last five years and the degree to which this company is uniquely positioned to capitalize on the strength of the current environment.
As a result, we have introduced 2022 same property NOI growth guidance, with a range of 2% to 4% driven by a 400 to 500 basis point contribution from base rent and a 50 basis point contribution from net reimbursement income, percentage rents and ancillary and other revenues. Revenues deemed uncollectible, however, is expected to be a headwind in 2022 due to the significant amount of revenue recognized during 2021 related to the prior period. This $26 million of incremental 2021 revenue by itself creates a 340 basis point headwind to same property NOI growth in 2022. That said, our guidance calls for detraction from revenues deemed uncollectible of only 150 to 250 basis points, reflecting changes in the composition of the tenant base, the improvement in cash basis collections rates experienced throughout 2021, additional improvements expected during 2022 and at the high end of the range, some modest collections of amounts previously reserved.
Our assumptions for revenues deemed uncollectible translate into a net reserve of 160 basis points of total revenues at the low end of the range or 90 basis points at the high end of the range versus our historical run rate of 75 to 100 basis points. I would also note that revenues deemed uncollectible will result in higher than usual volatility in reported same property NOI growth as we move through the year.
We have introduced Nareit FFO guidance for 2022, with a range of $1.86 to $1.94 per share. Consistent with our prior methodology our FFO guidance reflects our assumptions for capital recycling activity during 2022, but does not contemplate the conversion of any tenants to, or from cash basis accounting, which could result in significant volatility and GAAP straight-line rental income.
And with that, I'll turn the call over to the operator for Q&A.
Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions]
Our first question is come from the line of Craig Schmidt with Bank of America. Please proceed with your questions.
Thank you. I was wondering if you could tell us how rising construction costs and rising labor costs are impacting your redevelopment efforts.
It's a great question, Craig. As I alluded too in my remarks, we really are aligned with our tenants in terms of getting new openings on time. And as such, we've been working with them to accept current conditions, accept current HVAC equipment and other measures, which not only reduce the cost, but accelerate the time of getting the store open. And in that way, we've managed to hold our returns.
And the other thing I'd comment on is I think tenants are aware of those increased costs and we're driving higher rent, of course, through generating more competition for space. So, we feel pretty good about, not only what we have underway, which is largely prebid, but also what's in that $900 million, a future pipeline in terms of incremental returns.
Great. And then, looking at the progress in the small shop occupancy, where do you think you can take this to in a couple of year’s time?
It's perhaps that -- one of the best indicators of the execution the strategy that I talked about in that we fully expect as we continue to reinvest in the portfolio to drive follow-on leasing in the small shops, which is what we've been doing coming out of the pandemic in a really strong way. We're a little below 87%. And as I've mentioned on other calls, we expect that to go into the high 80%s, even the low 90%s over time, as we continue to execute this plan. And it's not just occupancy, Craig, it's rate.
And that's the other thing you should really take note of in our results is how we're continuing to set consecutive records in terms of rate that we're realizing on new leasing, again, a great reflection of the strategy that we're executing. Because we actually believe that the best way to make money in this business is not building new shopping centers, but rather making existing shopping centers better.
Thank you.
You bet.
Thank you. Our next question is coming from the line of Todd Thomas with KeyBanc. Please proceed with your questions.
Hi. Thanks. Good morning. Jim, just question on rents. You highlighted the net effective rents on new leasing and just talked a little bit about small shop leasing and discuss the future leasing pipeline, which continues to grow. Can you speak to the current mark-to-market opportunity today across the portfolio and whether you feel that mark-to-market opportunity is greater today than you did before the pandemic? And then based on the future leasing pipeline and visibility that you have, do you see leasing spreads increasing further from here?
I think these are strong spreads and I'd hate to promise even higher spread, as we continue to realize the benefit of our plan. But we feel really good about the rents that we're seeing. In fact, we -- we're at a record rent in that forward pipeline of over $53 million that Angela referred to. So, we're really utilizing this moment in time to drive competition amongst tenants to drive rate and not just rate, but the other terms of the leases.
Yeah. Todd and I would just add, I mean, the team's done a fantastic job capitalizing on the operational improvements that we've made at our shopping centers, the investments that we continue to make at our centers. And you add that to the environment and look at our portfolio, we've got rents expiring on anchors the next three years at 950, we signed those leases last year at over 14 bucks. So, we've got good visibility on the mark-to-market opportunity in the portfolio.
And as Jim mentioned, you may see some fluctuations here or there, but long-term, we feel really confidence about our ability to harness that upside.
Okay. Angela, the 400 to 500 basis point increase in base rent growth, that's forecasted in 2022. You ended 2021. The contribution in the fourth quarter was about 200 basis points. It was 10 basis points on average throughout the year. Can you just talk about the -- sort of expected cadence of that growth throughout 2022 and how we should think about that carrying into 2023?
Yeah. No, thanks Todd. That's a good question. As I mentioned in my prepared remarks, you did see sort of a really healthy inflection point in the fourth quarter, in the contribution from base rent, because you started to see weighted average occupancy on a year-over-year basis grow, and you're seeing -- you're finally seeing sort of the full flow through effect of the positive spreads we signed over the last several years.
I do think you'll kind of continue to see that grow in terms of the contribution over the course of the year. I did also mention that, the signed non-commence pool is first half weighted, which is definitely good news. You also tend to see more moveouts in the first half of the year than the second half of the year. So, on balance, I would expect that you'll continue to see that grow kind of programmatically over the course of the year.
Okay. All right. Thank you.
Thank you.
Thank you. Our next question is coming from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your questions.
Good morning. Thank you for the time. I was just wondering if you could help us frame the -- how you think market rent growth should improve or trend over the course of 2022. I think previously you noted that rents were kind of 14% higher than pre-COVID levels. If you have any kind of market-to-market there. And maybe think about how rent growth is trending relative to inflation or cost growth to Craig's previous question about redevelopment.
Yeah. We're very encouraged by the breadth and depth of demand that we're seeing from tenants. So, I really need to underscore that, and that is driving a significant amount of the ABR performance that we're realizing in the portfolio. And so, we feel good.
To Craig's question about reinvestment returns, we have seen inflation in cost, but importantly, we've been seeing nice inflation in rents. When you lay that over our strategy, which in a market neutral environment still outperforms because of our low average rent basis and the improvements in reinvestments that we're making in our centers, that inflation in rents is just really an additional tailwind to our plan. But Brian really highlighted it. Look at what's expiring over the next couple of years, and then look at where we're signing rents today. I highlighted it as well in my remarks, and you can see a very healthy spread that gives us this visibility line, not just on 2022, but 2023 and beyond. It's a lot of the activity that we're working on today is 18 months out plus.
Okay. And maybe a question for Angela. Can you help us frame how much has not been collected that could present upside to guidance, and remind us of what's assuming guidance and apologies if I missed that in prepared remarks.
Sorry, I missed the last part of that question. Juan, can you repeat that?
Yeah. How much is potentially sitting out there that hasn't been yet collected? I know there's some piece that isn't still in your tenant base and kind of what's assumed in guidance.
Sure. Yeah. So, we do, in the supplemental package, in our sort of additional COVID disclosures, try to really frame up the total amount over the course of the pandemic that has been accrued for, but not collected and of that amount, how much has been reserved. And it's really that amount that's been reserved that has the ability to be good news go forward basis to the extent it's collected. That amount -- again, the amount that's been reserved is about just a little over $44 million.
About $18 million of that relates to tenants who have exited the portfolio at this point. We will continue to aggressively pursue those amounts, but I -- admittedly, they're lower likelihood and they might take us longer to the extent we are successful in recovering them. About $16 million of the total, so 35% to 40% of the total relates to tenants that are active in the portfolio. And then we're not in dispute with, and there's another $11 million of tenants who are active in the portfolio, but we are in litigation or otherwise actively working to get those amounts repaid.
So that kind of frames up the different buckets within the number. It's about $16 million that is active from active tenants in the portfolio, that's probably the highest likelihood to be received over some time period. Some of that may be received in 2022. Some of that might extend into 2023 or even 2024. And so, the timing of that remains to be seen.
As I talked about revenues deemed uncollectible, it's really fair to say that at the low end of our same property NOI range. We're not forecasting a significant improvement in ongoing collections from cash basis tenants, and we're not really forecasting any significant amount of prior period collections. As you move into the higher end of the range, you may see some modest amount of out of period collections, the range on bad debt in terms of total dollars between the low end of -- the high end of the range is $8 million, but it could come from, again, both an improvement in the ongoing collections rate and some out of period collections amount.
That was great. Thanks Angela.
Sure.
Thank you.
Thank you. Our next question is coming from the line of Floris van Dijkum with Compass Point. Please proceed with your questions.
Thanks for taking my question guys. Just Jim and Angela and Brian, maybe I'd love to get your comments, obviously, you're delivering solid underlying NOI growth, lease spreads continue to stay strong. You're reinvesting capital allocation, 101, selling assets, deploying it into redeveloping and making your current portfolio higher growth, very few things you can flow. One thing is the share price, while your stock has been the best performing strip this year, you're still trading at arguably a very significant discount to NAV. Now we might be slightly out of consensus in our -- our cap rate is a little bit lower, but I would argue that our cap rate is too high because theoretically, the higher your underlying NOI growth, the lower your cap rate, because total return is a combination as everybody between your underlying growth and the warranted cap rate.
Maybe what can you guys give the markets to make people feel more comfortable that cap rates for your portfolio have in fact come down? You mentioned a little bit -- you alluded to -- its Jim in your opening comments, but maybe the other thing to talk about is maybe seeing trands -- talking about transactions in your markets. And I know you have a lot of different markets, so it's harder for people to capture this, but what can you provide the market and the investment community to get them more comfortable that the asset values in your portfolio have gone up?
Well, I appreciate the question Floris and your underlying point is correct. That cap rates continue to compress actually across all of our markets and really have been doing that for the last 18 months. There have been some notable transactions that I'll have Mark comment on, but that's clearly a trend. And the reason is reflected in the performance of platforms like ours, where you see open air centers driving rate, you see great leasing demand, and really a great breadth of demand to be in our centers. And you think about the relative returns in this asset class relative to industrial data centers, multifamily, and it's clearly becoming a very attractive asset class for institutional investors, which is bringing a lot of capital into this space and driving cap rates.
Mark?
Yeah. I think that's right, Jim. In terms of what we've seen across markets, we've seen assets price well into floors and real time end markets in Texas and California and Florida. We've seen strong pricing around via New York City region. We've seen strong pricing in Mid-Atlantic with -- the strong pricing has been pretty broad based from a cap rate perspective. Real time, we're actually seeing very, very strong demand and pricing for what folks might consider tertiary assets and that's -- and we're -- we've been able to exit some of those assets that pricing well above what we could have three or four years ago. So, we're seeing a very strong market in terms of cap rates out. And I think Jim is right. And part of it's being driven by the demand from institutional investors who are really seeing the results, Brian and team are driving and they want to be a part of it.
And if I were to -- do you see that as your growth -- it sounds like your top line growth is actually accelerating this year. Shouldn't that have the effect of reducing the cap rates even more going forward as well?
Yeah. It's Matt. As you point out and again, it's a pretty visible stream of growth that we think is driving that performance. So, the answer is yes, both generally and then more specifically with what we're doing with our assets floors, particularly as we invest at high single low, double digit incremental returns in these assets, we're not only driving rate ROI, which you're seeing in our top line, but we're also creating a great follow-on effect in terms of the cap rate that would be applied to those assets market neutral. Then when you layer on top of that sort of the improving trends that we see in the market, we're creating even more values. So, we're very pleased with what we're seeing.
Thanks guys.
Thank you and go Floris [ph].
Thank you. Our next question is coming from the line of Katy McConnell with Citi. Please proceed with your questions.
Great. Thanks. Good morning, everyone. So given we saw an increase in leasing volumes again this quarter, can you discuss what this could mean for total commenced occupancy upside this year? And then, do you think you've reached a peak at this point in terms of quarterly new leasing volumes or is demand still accelerating?
Yeah. In terms of where sort of we think occupancy might trend over the course of the year. I think likely by the end of next year we will be up from a build occupancy perspective, somewhere in the neighborhood of 100 to 200 basis points. The weighted average impact of that over the course of the year is obviously going to be lower than that. But I do think we'll see some pretty healthy build occupancy growth, as we get into 2022 and continue to see that ramp up over the course of the year.
Yeah. And then Katy, from a volume perspective -- this is Brian -- it's robust now. I mean, if you look at last year, we signed more leases last year than we have in any year since 2016 at the highest rent we've ever signed as a company. Fourth quarter in particular was more GLA than we signed in the last two and a half years. And despite all of that activity, the pipeline is up 20% versus what it was at the end of 2020. So, we see great leasing demand from our core tenants.
From -- as Jim mentioned in his opening remarks, mall native tenants that are accelerating their open air store open to buys. And we're also seeing new concepts as well, both in the small shop and anchor space. So, we've been really encouraged by the depth of demand. And as we continue to reinvest in our, as we continue to make the operational improvements, we expect to continue to attract a good deal of that demand that's out there.
But these volumes are great. And I think really show how we're driving the business, and leveraging the platform. And I think from an expectation standpoint, we expect it to continue to be robust, Katy, as we move forward, but these are incredible levels. And we are just real pleased with what we're able to execute.
Yeah. I just underscore the point, sort of Brian mentioned, which is, given where we're signing new leases today relative to the portfolio average, every 100 basis points of occupancy growth is having a disproportionate impact on NOI growth, just given how significant that improvement in rate really is across the signed, but not commenced pool, but across the forward pipeline as well.
Okay. Great. Thank. And then maybe on the flip side, can you just provide some color on what the store closure environment has been like so far this year and any notable closures or watchlist tenants to be aware of in 1Q?
It's actually been a very healthy environment. We really haven't seen significant store closures or moveouts in the portfolio. We're encouraged by that. And I think it's reflective of, again, the environment where the retailers continue to invest in their stores and seek to grow their pipeline.
Yeah. And Katy, it's a continue of -- continuation -- sorry. The trend that we saw in 2021, our moveouts were down 30% versus 2020. They were down 20% from 2019. And as Angela talked about, our tenant base is stronger today than it was during the pandemic. We continue to see great performance from our core retailers. So that's obviously leading to less moveouts in addition to all the improvements that we've made across the portfolio. And as we look out, we really don't see a tremendous or big number of trouble tenants, or really much out there from a trouble tenancy perspective into the year. So, it's been a pretty muted bankruptcy environment, and it's something that we've been really encouraged by.
Okay. Great. Thanks everyone.
Thank you.
Thank you. Our next question is coming from the line of Greg McGinniss with Scotiabank. Please proceed with your questions.
Hey, good morning. Jim, you've mentioned the benefit of getting tenants into space. Are you seeing a measurable decrease in the time for tenant to take over space and start paying rent? Or is this more about maintaining the status quo in a period with maybe supply chain and labor headwinds?
It's always an opportunity, right? A day that the tenant isn't in the space is a day of lock rent. So, as I highlighted in my commentary, we are really focused on compressing timeframes between execution of the lease and rent commencement. And part of the way we've been doing that is working with tenants on existing conditions, scope letters, et cetera. And we found that they're very much aligned with us because a day that they're not open is a day of lock sales.
So, we continue to work to compress that timeframe in an environment as you allude to that does have some supply chain disruptions and -- but we're fighting that and doing all that we can to continue to execute and deliver. And as I mentioned, I'm real pleased what the team has done, and in particular compressing that timeframe.
And you mentioned in your remarks also about getting tenants to accept, as you said, conditions or, I guess HVAC equipment. Does that mean that they'll take it for the whole lease or does that mean that there's additional work to do while the tenants in place?
Hey, this is Brian. What's been really encouraging to us is because each space is different. Tenants have recognized that they've got to work with -- within some of the existing confines of the space, as Jim mentioned. So we have tenants, as you mentioned, take on existing HVAC units, work with existing facades that are there today, partner with us in terms of delivery, where we may be in there doing work at the same time, because at the end of the day, there's a big appetite to get stores open this year. So, they're recognizing some of the challenges that are in the environment. And our team's just done a really good job, both from a leasing, operating legal perspective across the board in terms of partnering with tenants, getting ahead of things once we get leases approved before they're signed, that we're ready to start work right away. And it's really helping to the point that Jim made condense some of those timeframes while there are challenges that are picking up. So, I'd say it's across the board in terms of how they're working with us, but they're certainly being receptive to how they can get in there and get stores open faster.
Okay. Thank you. And then just looking at that final block of tenant categories, slightly weaker in collections, obviously very strong overall, but entertainment, fitness, maybe some restaurants and services, just curious, what's driving inability to collect rent at this point. And at what point do you think about taking back that space from the tenant?
Greg, I would say just from an entertainment perspective, again, it's a very low percentage of our ABR overall, less than 2%. But we have worked with some tenants within that space. I would say also that we have been more proactive in terms of taking space back when, in certain places we're just lifting eviction moratoriums like we saw recently in New York. And as we saw throughout the pandemic, when many of those moratoriums were lifted, we had tenants come to the table. And we certainly saw that in the fourth quarter. And some of these have just been lifted recently.
So, we expect that to continue to happen relative to some of the other categories that you mentioned. We've been really encouraged by what we are seeing from a fitness perspective, particularly on the low cost provider side, we've seen more demand in terms of coming back to our boutique fitness operations as well. So, I would say overall, we feel better about those categories. There's still some tenants within them that we're having a few challenges with, but net-net, I think we're in a much better position as we head into 2022.
And it is a tenant-by-tenant process, and we're making those judgments tenant-by-tenant, given the health of their business, given the length of time they were forced to close, given traffic levels, et cetera. And tenant-by-tenant, we're making the best business decision we can.
Great. Thank you.
You bet.
Thank you. Our next question is coming from the line of Anthony Powell with Barclays. Please proceed with your questions.
Hi. Good morning. Maybe follow-up on that question. In terms of the revenues deemed uncollectible, what's the cadence we should expect throughout the year? Should we expect that to be higher in the first quarter or maybe get a bit lower as we get through the year and as you worked out these tenant issues, or is it kind of a more, I guess, even spread throughout the year?
Yeah. It's a really good question. As I mentioned in the prepared remarks, it's likely to be volatile over the course of the year, because of potential collections of prior period amounts. Putting that aside, because that is difficult for us to predict. And again, even at the high end of the range, there's only a modest amount of that activity in the forecast for the full year.
I would say the reserve we expect for current period billings, I would expect to continue to improve as we move through the year. So to be higher in the first quarter. And as Brian mentioned, we continue to address some of the tenants who have -- had the benefit of eviction moratoriums or other kind of structural support, we continue to move that reserve number lower as we move through the year.
Right. So, should we be modeling, I guess, closer to your historical norm by fourth quarter and 2023, or is it that too optimistic?
Obviously, it's a range, right? And even at the high end of the range for the full year, it's still sort of just in line with where we've been from a historical standpoint. If you look at page 11 of the supplemental, that really gives you some additional detail on what we reserved specifically for fourth quarter billings, it's higher than that 160 basis point number that's in embedded in the low end of the range.
So, I would assume certainly we start the first quarter at a higher level and again, continue to improve as we move through the year. Where we end up between the 160 basis point reserve of total revenue and the 90 basis points will depend on the cadence of that improvement in current period collections over the course of the year, as well as those prior period collections, which might be lumpy and create some volatility.
Got it. And maybe on cap rates, you mentioned that you're continuing to compress, how do you view rising rates as kind of a driver of that? Do you see, I guess, cap rates for your segment maybe being impacted as cap rates go up or given the higher yield you present relative to other asset classes can cap rates actually be drive your cap rate compression even further this year and beyond.
I do think the biggest driver at relative spread between this asset class, which has proven its durability and resilience and other asset classes like multifamily, industrial data centers, et cetera. I think that's going to be the biggest driver in the market. Of course, interest rates matter. Where is that risk-free return rate is going to impact, where cap rates go, but just given the sheer weight of capital that we see getting invested in the space, particularly assets that are core, assets that don't have reinvestment potential, lease up vacancy, the types of things that we focus on, that's where we're seeing the cap rates get most aggressive as Mark alluded to, and we're seeing cap rates well into the fours. So, that's that -- that would be our best view of how this continues to play out.
All right. Thank you.
You bet.
Thank you. Our next question is coming from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.
Hey, good morning.
Good morning.
So, two questions. First, Jim, on the small shop, you spoke of being 87 now, trying to get to the upper 80%s, maybe low 90%s. Is there something structural about small shop and maybe it's just when you do all the leasing and all the little spaces just structurally, you can never be north of, I don't know, 92% 93%, or is there something else at work? I would think given no new supply in probably over 15 years and all the credit challenge tenants flushed out of the system, I would think that you'd have -- you'd be able to push that number into the 93%, 94% range. So, again, just trying to see if there's something structural at work where not maybe the peak.
It's a great question. And I think we are going into a different environment where you don't have -- you have increasing tenant demand without a lot of new supply. But there is an element of turnover that happens with small shop tenants that's greater than what you see at the anchor level and that sort of consistent turnover generally results in occupancy levels for small shop, that trail where your anchor occupancy is. It's just part of the business. But where we settle out, well, we'll see.
But we're really encouraged Alex to your underlying point, by the health of the tendency, the strength of their demand, and also importantly, the visibility that we have on continuing to improve that as we reinvest in our centers, as we bring in more vibrant anchors, as we bring in grocery uses, as I talked about in our remarks for many of those reinvestment projects. We're actually holding onto as additional vacancy as the anchors deliver. And then we have follow on leasing on the backs of that.
So, I like where we're going. And I think as Angela highlighted, the other thing to really look at is not just where that occupancy level is, but what are we doing with rate? And there really encouraged by what we're seeing.
Okay. And the second question is, I guess, it's for Brian, but, I'm sure whoever will jump in. Given all the headlines and obviously the raft of thefts and crime and you've seen drug stores, for example, closing down in certain markets. What are you guys seeing across the portfolio as far as fallout? Are you seeing any changes in leasing dynamic could be favorable, you could be getting more tenant interested in your properties, or are you seeing any markets where it's suddenly tougher to do leasing? I'm just sort of curious what the impact has been from a practical standpoint on the portfolio.
Alex, it's Brian. It's certainly something that we've discussed at length with our tenants, and our operating teams have done a fantastic job across the portfolio of making our property safe. And so, whether that's additional facility managers that we've put in place at a number of our redevelopment assets, whether that's security measures like steal monitoring that we've done at and places. But I would say generally, we haven't seen an uptick in terms of crime at our properties, but we have been working with tenants in terms of what security measures we may put in place at a center that they're reimbursing us for that it comes up in leases.
So, I'd say across the board, it's certainly been a concern from some tenants, but our operating teams have done a fantastic job being able to manage through it in places where we may have somewhat of an uptick. And we had very little of that, even during the social unrest that we saw in kind of early 2020.
Yeah.
You haven't seen any lease -- any leasing benefit or negative?
Well, I think there is an underlying benefit that in terms of an increased focus by a number of these tenants on more suburban locations. And we're certainly fortunately not seeing some of the security issues that you're seeing in more urban locations that tenants are focused on. But as Brian mentioned, we've been partnering well with our tenants to ensure that our centers are safe and well operated.
Okay. Thank you.
You bet.
Thank you. Our next question is coming from the line of Samir Khanal with Evercore. Please proceed with your questions.
Hi, good morning everybody. So, Angela, when I look at your, I guess, the bridge from 2021 to 2022, you're baking in some dilution from transactions, is that the thought to take advantage of some of the pricing out there? Because I know you talked about the strong sort of 4% cap rates or generally, how should we think about your portfolio strategy -- sort of portfolio recycling plans over the next 12 to 24 months here?
Yeah. I mean, I think we are really excited by -- as Mark sort of highlighted earlier what we're seeing on both sides of the equation. So, I think the transaction activity that we executed on in the fourth quarter and early in the first quarter really speaks to the continue -- the ability to continue our strategy of kind of value-add investing at returns, that really work for us. And then, as Mark highlighted the compression we're seeing in cap rates on some more secondary and tertiary markets is also a great opportunity for us to take advantage of as well. So, I do think you're going to continue to see us active on both sides of the equation and continue to underwrite, I think, really thoughtfully and try to drive the overall portfolio growth rate higher over the course of time. But yeah, you'll see us continue to execute on both sides as we move through 2022.
And my -- and I guess my question is around net effective rents. I mean, it was up quite a bit from the prior period, but you also signed more anchors, right, which usually requires more sort of leasing CapEx. So, I guess, were there any anchor tenants that drove this net effective rent? Just trying to get a little bit more color.
There were actually quite a few anchor tenants that, that drove that result higher. It certainly wasn't one or two deals, but across the pool, there were some really fantastic transactions with quarter. Brian?
Yeah. If you look, Samir, it was our best anchor quarter that we've had since before the pandemic and particularly we signed some great grocery leases with two leases with Sprouts that are kicking off redevelopment in Philadelphia and Los Angeles. A new lease with Whole Foods, that's going to kick off redevelopment outside of Philadelphia. And then you look at the rest of the anchor tenants. It's the who's who, who's active in the open air space in terms of Burlington, Ross, TJX, so. But those strong gross leases were certainly impacted the number during the quarter.
And I would just say back to Jim's earlier point, we're seeing a lot of competition for box space. There's not much being built. And so, when we're getting space back, we're certainly -- we have one, two -- we have multiple players that are competing for that space. So, we were really encouraged with the anchor acceleration in the fourth quarter and also encouraged by the rate for sure.
Thanks very much.
Thank you.
Thank you. Our next question is coming from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your questions.
Hi, good morning. First, I just had a quick follow-up on an earlier question. Angela, you mentioned that build occupancy could be up 100 to 200 basis points by the end of next. I just wanted to clarify, did you mean 2023 for that?
No. I meant by the end of 2022. Weighted average occupancy would be up by a much lower number, call it 50 to 100 basis points, something like that. That would be closer to the impact on NOI. But I think, 1231 to 1231, you could be up in build occupancy by 100 to 200 basis point.
Okay. Got it. Makes sense. And then just bigger picture, Jim, you talked at the beginning about the great growth prospects that Brixmor has and we've gone through a lot of them. But when we look at the FFO growth rate in 2022, excluding the items that impact comparability, it is still low single digit. So, just wondering, does 2022 have either COVID through others that are limiting earnings growth, making it somewhat of a transition year or there just so many moving pieces that growing off you can see in higher rent ends up -- getting regularly offset by something else.
Angela, I know you mentioned, the revenues deemed uncollectible part, we just went through some of the transaction impacts, but can you guys just give some more detail on maybe achieving that growth rate that you talked about?
Yeah. I mean, I would just say, you're right, but I think revenues deemed uncollectible is the biggest thing sort of detracting optically in the growth rate on FFO between 2021 and 2022. I had mentioned that $26 million of 2020 rent that effectively came through in 2021, just about $0.09 a share. So that's having a material impact on how the growth rate looks between 2021 and 2022, despite that very strong improvement or contribution from base rent growth and sort of what's really going on with the portfolio within same property. So that's one of the largest factors I would point to.
I think on the transaction side, just keep in mind, we've got two years of activity embedded in the number and you're looking at maybe a penny of dilution at the midpoint of the range. So, it's really not a significant detractor from growth during this time period. The biggest detractor from growth is those out of period collections in 2021.
Got it. Okay. Thanks.
Thank you. Our next question is coming from the line of Mike Mueller with JP Morgan. Please proceed with your questions.
Thanks. Hi. Angela, first, was the sequential pickup in G&A just because of equity comp and what sort of G&A run rate should we be thinking about?
Yeah. That's a good question, Mike. There was some true ups at your end. As you pointed out, to some extent tied to stock based compensation based on performance during 2021. So, certainly, the fourth quarter does not represent a run rate going forward. If you look at just our recurring G&A number, which is adjusted for litigation and non-routine legal, I would expect growth in kind of the 3% range as we get into 2022, really reflecting mostly a normalization of activity in terms of T&E and conferences and return to office, those sorts of things.
Got it. And then, can we also get a range of cap rates for your fourth quarter and year-to-date acquisitions and how should we be thinking about disposition volumes this year for the base case?
Sure. Yeah. In terms of the cap rates, as it relates to what was executed during the quarter on it, the acquisition side, I would say it was very consistent with what we had described to you in terms of our expectations. Last quarter, it was sort of in the low to mid 5% range. And again, I just underscore that that's low to mid 5% kind of in place with some really great near term value-add opportunities within that portfolio that as Jim mentioned his remarks were already in the process of taking advantage of at a number of those centers.
On the disposition side, I would say the full year disposition cap rate was kind of in the mid 7% range. The fourth quarter was a little bit higher than that as we exited some pretty secondary and tertiary markets. But I would expect that as we move into 2022 and the quality of the disposition pool importantly continues to improve, I think you'll see us do better than that full year level of kind of mid 7%.
Got it. Okay. Thank you.
Thank you, Mike.
Thank you. Our next question is coming from the line of Ki Bin Kim with Truist. Please proceed with your questions.
Thanks. Just to clarify on your capital deployment. In 2022, how should we think about the dollar values in acquisitions, dispositions, and development?
Ki Bin, it's a great question. And we've always been reluctant to provide volume guidance as that relates importantly to acquisitions because we want to make sure that we always remain disciplined. We're excited by what we're seeing from an opportunity standpoint. So, I do expect those volume levels to continue to increase as you've seen us do in the second half of 2021. And again, it's going to be focus, Ki Bin, on acquisitions that we find have upside that are also located in markets where we already own assets. So, we're not guessing as to what the upside is or what the rate is. We know it because we're competing in that market as we speak.
And so, expect us to execute on additional opportunities, very similar to what we've announced. And if they remain attractive, we'll continue to execute upon them. If not, we'll remain disciplined. And the nice thing about it, Ki Bin, is that it's an additional lever for growth beyond the great internal that we have, as you mentioned through reinvestments, which is largely funded with our free cash flow to leasing spreads, which allow us to capitalize on the real significant mark-to-market that's embedded in our existing leases.
So that's kind of how we think about it and how we prioritize it. Reluctant again, to give specific levels of acquisitions guidance, I don't think you'd want us to. I think instead we'll remain disciplined, but we are excited by the pipeline of what we see.
Yeah. I would just add in terms of the value enhancing reinvestment pipeline overall, I would expect levels of spend in 2022 to be a little bit above long-term average of $150 million to $200 million, which sort of reflects some of the delays we proactively did in 2020 kind of bringing those projects back online and accelerating the activity there. And some of the other exciting opportunities that are coming forward in this environment, just given the strength of the leasing environment. So, I'd expect us to be kind of $200 million, $225 million in the total value enhancing bucket in 2022.
Okay. Great. And you guys obviously had a great year-end quarter on leasing volume. So, when you look at the total addressable group of new leases that you're negotiating today. How does that volume look like compared to a couple quarters ago? How does the quality of the tenant look like versus a couple quarters ago? And given some of the larger macro factors and maybe pull forward of retail spending, like how does that all that calculus work out in terms of what the forward looks like?
As Brian mentioned, importantly, we're seeing growth in that forward pipeline and not just in terms of volume, but also rate and quality of tendency. So, we're really encouraged by what we not only have signed, but not commenced, but also what we're in legal negotiating today. And again, some of that activity is activity that triggers additional accretive reinvestments in the properties themselves. So, we're excited about that. And as I highlighted my remarks, we're seeing it already in recent acquisitions, got a couple of anchor repositions already lined up for centers that we've closed within the last couple of months. So just really great execution by Brian and the leasing team and Mark and the investments team coordinating and making sure that we integrate those assets well as we acquire them.
Okay. Thank you.
You bet.
Thank you. Our next question is coming from the line of Linda Tsai with Jefferies. Please proceed with your questions.
Hi. Thanks for taking my question. In terms of the expected 100 basis points increase in year-over-year occupancy, what would the least retention rate translate to at year-end 2022? I realized it was understated this year around 72%.
Yeah. I don't have a specific retention rate, but as Brian mentioned earlier, our moveouts have been very low throughout 2021 and that trend has continued into the early part of 2022. We've had an exceptionally light bankruptcy season. And the overall health of the watchlist and sort of the tendency within the portfolio is very, very strong right now. So, I would expect what without giving a specific number in terms of what that'll look like at year-end, I would expect it to be, again, an improvement over where we've been over the last several years.
Yeah. I would just add Linda is where we are -- where at year-end from a GLA perspective that over 82% was ahead of where we were at the end of 2019. And as Angela mentioned, the trends that we're seeing from a moveout perspective, we continue to be encouraged by. And I think it goes back to what Jim has talked about throughout the call, the improvements that we continue to make at our centers, both from an operational standpoint, as well as the reinvestment, better tenants are staying there at higher rent. So, we've been able to not just attract better tenants to our properties, but keep the ones in place that we want to grow with long-term.
Thanks for the color. And then in terms of the rents that we're previously deemed uncollectible, and they're paying now, can you just give some color on the tenant type? Should we assume they're just mostly local and experiential?
Yeah. I mean, I think the collections page in the supplemental gives some good color in terms of where we continue to see improvement in collections. Most categories have returned to pre-pandemic levels. There are really four categories that still lag somewhat to historical experience and that's entertainment, most significantly restaurants, a little bit on fitness and then other services.
One thing I would note, when you look at that page in the supplemental and this came up in someone's previous question, it looks as though there's been a step down in some of those categories relative to Q3. I don't think that's what's going on within those categories. I think the third quarter number you're seeing now is a dramatic improvement in those categories relative to third quarter when we reported it. And some of those categories are now paying, but the pay -- it's just taking a little bit longer. And so, I do think we're seeing and continue to see even through the fourth quarter and into January and here in February, continued improvement in those categories. And so what looks like an optical step down between Q3 and Q4 really isn't, it's just the passage of time.
So, we're encouraged by the trends overall in the portfolio. Those are the categories we continue to work most closely with, and continue to watch most closely. But I would say the trends over the last several months have been -- continued to be encouraging.
Thanks.
Thank you.
Thank you. Our next question is coming from the line of Paulina Rojas with Green Street. Please proceed with your questions.
Hello.
Hi.
Hi. We have seen a modest decline in strip -- in traffic to strip centers since the last half of January, which is likely driven by the increasing Omicron cases. So, what is the retailer's reaction to this? Do they perceive this as the new normal in a way, or they still express worry?
It's interesting. The traffic levels are down roughly 3%, so very modest year-over-year and on a two-year basis, they're actually up 11%. So, we're, obviously, monitoring that closely, but we're encouraged by really honestly, the lack of impact of Omicron and how it's done very little to disrupt the consumer patterns that we see at the shopping centers. And again, that's reflected in not only the modest move year-over-year, but the more significant increase over the last two years.
Thank you. And then, on the expenses side, what are you modeling for expenses, net of reimbursements? So, in practical terms, should these line item be it tailwind for same property NOI growth in 2022, given the higher occupancy and reimbursements or a drug due to higher overall costs?
Yeah. So, the same property detail we gave in the press release suggests that net reimbursement income percentage rents and ancillary to get there would be 50 basis point contribution to same property NOI growth in 2022. I would say the bulk of that 50 basis points likely comes from net reimbursement income, because as you point out, we're in an environment where we believe we're going to continue to improve occupancy over the course of the year.
Great. Thank you.
Thank you.
Thank you. Our next question is coming from the line of Haendel St. Juste with Mizuho. Please proceed with your questions.
Hey, thanks for taking my question. Good morning. A couple questions. I guess, first on leasing, I guess I'm curious, are you at a point now, or maybe willing -- doing or willing to take back some space from certain tenants, and maybe in person vacancy in order to relay that space back at higher rates, better tenants.
We're doing it all the time. I mean, it's really -- it's a great question Haendel, and it's part of that reinvestment pipeline. So, when you look at that $380 million or so that we have underway today, a lot of that has been set up by recapturing space either at the end of the term, when we can get it back or in some instances, even earlier than that. In some of those cases, we've been actually, or will be able to collect some termination revenue in addition to we think improving the merchandising of the center.
So, we continue to be really focused on driving long-term growth and value at the center, not simply driving occupancy. So, we've talked a lot about occupancy. We've talked about rate, but the value creation engine and the core principles of how we execute remain the same.
Appreciate that color, Jim. I know you've been adding grocer to the portfolio. That's the focus of the platform. But I guess I'm curious on what your interests today could be in more big box oriented assets. We've seen improved demand as you've been pointing out, better yields, even better, I guess, investment psychology. And in particular, if there is a big box portfolio and say, Northern California, your level of interest there. Thanks.
We are seeing -- I'm going to let Mark comment on this. We are seeing improved pricing for big box portfolios, I think in part reflecting many of the things that you point to. But as we look at acquisitions, it's really about what we see as the opportunity at that center to bring in better tenants of better rents and do so in a way that's accretive from a capital perspective. And typically our assets that we're looking at are mix of anchors, junior anchors and small shops. You're probably not going to see us execute a strategy of going after pure big box type centers, because oftentimes the upside is just not there.
Yeah. Jim, I think you've hit on it. I mean, we're certainly seeing a compression in cap rates from a big box perspective. And we'll certainly try to take advantage of that for assets, where we maximize value. And on the acquisition side, Jim, I think you've hit it right. It's really looking at the center that we might be acquiring and is there a big rent mark-to-market that's available? Is there a big incremental return we can do from a redevelopment perspective, that's really driving our ability to look at those assets? Can we add a grocer, will that press the cap rate? That's how we think about it. But I think you hit it. I don't think we're in a strategy of going and simply acquiring at market, power center boxes today.
Got it. Got it. No, that's helpful guys. I appreciate that. If I could add one more quick question. Angela, the $250 million of notes maturing, I think it's the second quarter of this year. I don't know if it's been brought up. Don't think you've addressed it yet, but just curious what the plan there could be and maybe a sense of where you could issue unsecured debt today. Thanks.
Yeah. The $250 million actually matured here at the beginning of February. So, those have been repaid, really with cash on hand and liquidity available to us today. We evaluate the fixed income market all the time, and continue to watch it closely in this environment. It's obviously been a little more volatile lately. Our next real use of proceeds from an unsecured issuance perspective would probably be liability management on our 2024 debt. There's really no other need to be active in the capital markets outside of that. So, we'll continue to evaluate it closely, and watch and -- particularly watch for an improvement in kind of the volatility in the market and see how some of these other deals go and whether or not it makes sense for us to execute on something like that.
Got it. Got it. Well, wonderful. Thank you all.
Thank you, Haendel.
Thank you. There are no further questions at this time. I would now like to turn the call back over to Stacy Slater for any closing comments.
Thanks everyone. We look forward to speaking to many of you over the next few weeks.
Thank you.
This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.