Kite Realty Group Trust (KRG) Q4 2021 Earnings Call Transcript

Kite Realty Group Trust (KRG 1.60%)
Q4 2021 Earnings Call
Feb 15, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to Kite Realty Group Trust fourth quarter earnings conference call. [Operator instructions] Please be advised that today's conference may be recorded. [Operator instructions] I would now like to hand the conference over to your host, senior vice president, corporate marketing and communications, Bryan McCarthy. Please go ahead.

Bryan McCarthy -- Senior Vice President, Corporate Marketing and Communications

Thank you, and good morning, everyone. Welcome to Kite Realty Group's fourth quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements.

For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group are chairman and chief executive officer, John Kite; president and chief operating officer, Tom McGowan; executive vice president and chief financial officer, Heath Fear; senior vice president and chief accounting officer, Dave Buell; and senior vice president, capital markets, and investor relations, Jason Colton.

I will now turn the call over to John.

John Kite -- Chairman and Chief Executive Officer

Thanks, Bryan, and thank you, everyone, for joining us today. While we've certainly been looking forward to this call today for quite some time, today is our first opportunity to truly quantify and articulate the benefits of our highly accretive merger. We closed on the transaction in late October, and since then have been working tirelessly to complete the integration and implement KRG's culture and operating philosophy across the combined organization. The timing of the merger was impeccable and KRG was positioned perfectly to take advantage of the opportunity.

It's now become clear that the merger is even better than we anticipated. Today, I'm going to speak about three horizons of opportunity for KRG. Those opportunities that are immediately in front of us, those that will cultivate over the next 18 to 24 months, and those that will materialize over the long term. The most immediate benefit of the merger, of course, is the significant earnings accretion.

As set forth in our press release, we are providing 2022 full year FFO as adjusted guidance of $1.69 to $1.75. Heath will give additional color as to the underlying assumptions. As mentioned in our press release, the midpoint of our guidance represents a 33% increase over KRG's full year 2020 FFO per share. While we've only owned the legacy RPA assets since October 22, we quickly jumped headfirst into attacking operational efficiencies with an intense focus, as always, on our leasing efforts.

Against the backdrop of strong demand from a deep and diverse set of retailers, KRG is experiencing significant leasing momentum across all of our open-air product types. In fact, we're noticing that national retailers are now looking more intently for space across the open-air spectrum, which dovetails nicely with our high-quality and well-located properties. These positive trends are readily evidenced in our fourth quarter and full year leasing results. During the fourth quarter, KRG leased over 900,000 square feet at a very strong 12.9% blended cash spread on comparable new and renewal leases.

The blended spread on our fourth quarter comparable non-option renewals was 10.2%. This is a strong indicator of where market rents are headed for the KRG portfolio. For the full year, KRG leased over 2.6 million square feet at blended cash spreads on a comparable deals of 10.7%. As a reminder, those leasing statistics including the leasing activity from the legacy RPAI portfolio are since October 22nd.

If we include the active -- the activity from the legacy RPAI assets for all of 2021, we leased over 5.1 million square feet for the combined portfolio. Based on this progress, our retail lease percentage stands at 93.4%, up 220 basis points over last year, and yet, we still have significant upside. The portfolio has signed not-open NOI of approximately $33 million, which will primarily come online during the back half of 2022 and the first half of 2023. This bodes extremely well for our growth trajectory going into 2023, as the rents from all these leases will be fully annualized.

The good news is that the $33 million of signed not-open NOI represents about half of the near-term leasing-related NOI opportunity. As detailed in our investor presentation, leasing are active developments, and the balance of the portfolio to pre-pandemic levels, which is very achievable in the current environment, would equate to an additional $34 million of NOI coming online over the next few years, over and above the $33 million of signed not-open NOI. Our increased scale and improved balance sheet represent a host of immediate opportunities, including the potential for lower debt costs, increased liquidity in our stock, and enhanced relevance with our tenants and vendors. We are marching toward completing the active development projects detailed in our supplemental.

It's important to note we reevaluated every in-process legacy RPAI project, solely on a forward-looking basis. Based on KRG's underwritten incremental NOI related to the active developments, we are anticipating very solid returns. We're meticulously reviewing the land bank, also disclosed in our investor deck, in addition to a multitude of other opportunities embedded within the KRG portfolio. We have learned over the years that each project is unique and requires a customized approach in order to achieve the best risk-adjusted returns.

Sometimes that means bringing in an experienced JV partner or monetizing the land. For example, during the quarter, we entered into an agreement with Republic Airways to develop a new $200 million corporate campus on an outdated retail location owned by KRG in Carmel, Indiana. We knew the highest and best use of the land was no longer retail. Therefore, we sold a portion of the land to Republic for approximately $7 million and will serve as the master developer of their campus.

KRG will not only receive a sizable development fee but also a profit component, all the while putting 0 KRG capital at risk. The cash from this development will be recycled into an income-producing investment. A big win for KRG on a site that was not generating any NOI. This is one of several examples detailed in our investor presentation, where KRG creatively generated high-risk adjusted returns for our shareholders.

I'm very optimistic about the long-term outlook. It should come as no surprise that in the near term, we will be spending a significant amount of capital on leasing. Looking beyond the next few years, we begin to generate substantial additional free cash flow, while also naturally deleveraging. We are setting up to be in a very liquid and favorable position with a net debt to EBITDA in the low to mid-five times.

While I can't predict the macro environment, I'm confident we will be ready to respond aggressively regardless. Before I turn the call to Heath, it's important that I note all the great opportunities that I just outlined are ancillary benefits of the merger. We did this deal because we love the real estate and saw significant upside potential period. Having been in this business for over 30 years, having visited nearly every legacy RPAI asset, I can unequivocally tell you that the quality of our portfolio improved by virtue of the merger.

When I see what's happened in the private market valuations over the past six months, I couldn't be happier with respect to the timing of our transaction. We doubled down on the amount of GLA that we have in our warmer cheaper markets. These markets continue to benefit from household and employer migration, which is a trend we don't see changing anytime soon. We have a sector-leading presence with over 60% of our ABR in these markets, 40% alone being in Texas and Florida.

The merger also provided KRG with a new or enhanced scale in key gateway markets such as Washington, D.C., New York, and Seattle. These world-class cultural, educational, health, and lifestyle hubs have endured the test of time and are home to many of the opportunities that we discussed. In summary, there's nothing better than owning high-quality assets in high-quality places. As the world opens back up, I encourage each one of you to join us on a property tour and see the quality firsthand.

And as always, I want to thank the entire KRG team for their hard work and dedication. KRG is nothing without our tremendous people. I can't emphasize enough how excited I am about what we've accomplished as a team, but more importantly, what we'll accomplish together in the future. I'll now turn the call to Heath to provide more color on the quarterly results.

Heath Fear -- Executive Vice President and Chief Financial Officer

Thanks, John, and good morning, everyone. I want to echo John's excitement and confidence in the path that lies ahead. The opportunity in front of us is absolutely energizing. On the integration front, our substantial efforts to date have enabled the combined organization to operate at a high level, and truly embrace our internal model of one team, one focus.

Before I discuss KRG's fourth quarter results, please keep in mind that they're a bit clunky by virtue of the fact that we closed the merger on October 22. While the results are from the combined portfolios, we only have two months and nine days of contribution from the legacy RPAI assets. For the fourth quarter, KRG generated $0.43 of FFO per share. As compared to NAREIT, our as adjusted FFO results add back in the $76 million of merger-related costs and deduct the $400,000 of net prior period activity.

For the full year, KRG generated $1.50 of FFO per share, as compared to NAREIT, or as adjusted FFO adds back in the $87 million of merger-related costs and deducts the $3.7 million of prior period activities. Our same-property growth for the fourth quarter and full year is 7.2% and 6.1%, respectively. These results were primarily driven by a reduction in bad debt as compared to the prior-year periods. Absent the net contribution from prior-period activities, the fourth quarter and the full year same-property NOI growth is 6.8% and 4.3%, respectively.

These metrics and a host of others are set forth on the news summary page in a revised supplemental. We hope you like the changes. Our balance sheet and liquidity profile not only remains solid but continue to improve. Our net debt to EBITDA was 6x, down from 6.1 times last quarter.

Adding in $33 million of signed, but not-open, NOI from the combined portfolio, our net debt to EBITDA would be 5.6 times. We are in a great position to not only weather any storm but to also take advantage of any opportunities that present themselves. As John alluded to earlier, we are providing FFO as adjusted guidance of $1.69 to $1.75 per share. The variance from NAREIT FFO is approximately $0.02, which represents our estimate of $4 million of nonrecurring merger-related costs.

Furthermore, the accounting adjustments related to the legacy RPAI below-market leases and above-market debt, contribute an incremental $0.06 of FFO per share to our 2022 guidance. This is a good indicator of our future ability to drive rents and reduce borrowing costs. Additional assumptions at the midpoint include neutral impact from any transactional activity and bad debt of 1.5% of total revenues. As you all know, providing same-property NOI growth is a SKU proposition for the sector, given all the noise over the past few years.

It is especially tricky right after a merger of two companies that approach the potential pandemic credit loss from different perspectives. In order to avoid any confusion, we are assuming same-property NOI growth of 2% at the midpoint, excluding the net impact of prior period adjustments. This estimated 2% same-property growth is primarily driven by occupancy gains and contractual rent bumps. Last week, KRG declared a dividend of $0.20 per share for the first quarter.

This represents a 5% sequential increase and an 18% year-over-year increase. The dividend will be paid on or about April 15th to shareholders of record as of April 8. One last thought before turning the call over for Q&A. In our press release, we touted the anticipated 33% growth of our 2022 FFO per share, as compared to our 2020 FFO per share.

I think another compelling comparison is to look at our original 2020 FFO guidance of $1.50 per share at the midpoint. Like our peers, we gave this guidance before the pandemic set in and reflected KRG's run rate after selling over $0.5 billion of assets in connection with Project Focus. Our 2022 per share guidance represents a 15% increase over our original 2020 per share guidance at the midpoint. During the course of 2021, many of you asked, when will your earnings return to pre-pandemic levels.

On a per-share basis, not only we return to pre-pandemic levels, but we tacked on another 15%. Just another testament to the compelling accretion and synergies associated with our well-timed merger. Thank you to everyone for joining the call today. Operator, this concludes our prepared remarks.

Please open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Floris Van Dijkum of Compass Point. Your line is open.

Floris Van Dijkum -- Compass Point Research -- Analyst

Thanks for taking my question. Heath, I just wanted to delve into this $0.06 below market lease adjustments a bit more. How should the market think about that? Is that just -- is that a one-off event? Does that just mean that you guys bought these things, the RPAI assets cheaply? Or how should investors think about that adjustment in your view?

Heath Fear -- Executive Vice President and Chief Financial Officer

I think they should really look at the upside here, right? We're getting a positive mark based on the below-market rents on the leases and we're getting a positive mark based on the above-market debt. That means that we've got embedded growth, pursuant to an independent third party that looked at our leases. And that we should be able to borrow money at rates that are tighter than the debt that we assume. So I think, yes, it's $0.06.

But I think ultimately, at the end of the day, these are two very, very positive things, that show you, again, it's one of the positive benefits of the merger. We've got a great portfolio with great upside.

Floris Van Dijkum -- Compass Point Research -- Analyst

Great. Maybe if I just follow up and maybe, John, if I can get your views on this as well. Obviously, we estimated the yield that at the time of the transaction was 6.8%, your stock price has fall a little bit, so close to the time of the completion, it was probably risen by almost 100 basis points to 7.8%. Cap rates have clearly come down in the market.

What would you estimate this portfolio would trade at in today's markets in light of the Donahue Shriver portfolio transaction, rumored yields, and some of the other things? And maybe if you can comment a little bit on your own implied cap rates, which presumably will go up as a result of this transaction, the fact that you're writing these leases to market, means your NOI goes up, although your AFFO is a little bit lower. Clearly, that has an impact on your share price and your value. If you could -- John, if you could maybe comment a little bit on the evolution of cap rates and particularly when it relates to KRG?

John Kite -- Chairman and Chief Executive Officer

All right, Floris, I'm going to unpack that question. It's a heavy suitcase you just laid out there. But look, bottom line, first of all, it's great to be on the call. It's great to get the opportunity to finally be able to really show people how great of a transaction this really was.

And we've been doing this for a really long time. And I'm -- it's one of the best transactions I've ever seen. So that's pretty simple. In terms of your question about cap rates and cap rate compression between when we first started working on this deal and now, you got to remember that that's almost a year when we first engaged in conversations in April of last year.

Cap rates have easily compressed 100 to 200 basis points across the spectrum. If we were doing this deal today, that would just be a whole different ball game. I think the cap rate would obviously be significantly lower. That goes without question.

You mentioned you've been on top of a lot of these trades. I mean everything we're looking at, everything that's happening in the market, with the wall of capital that is really pressing into retail right now across the board, I mean multiple, multiple transactions are trading in the fours. It's pretty hard to get something that you like that's north of five, even just thinking about buying something at a five, it used to be, OK. I could buy anything I wanted, you can't.

So the reality is we met what we said when we said our timing was impeccable, but it wasn't by accident. We said -- when you go back to the beginning of COVID, I believe it was the first quarter call that we had during the COVID -- initial COVID issue. We said we'd come out of it stronger. We knew we would.

And we did come out stronger, and we took advantage of an incredible opportunity to put together two great companies that now makes one really, really good company that's top five in the space. And per your question, is trading at a significant discount for whatever reason. You asked me my view of cap -- of our NAV. Look, we put components out there for you guys to do the work that makes it reasonably easy.

We don't throw NAVs around very lightly. But if you just look at the consensus NAV from the 12 or 13 analysts that cover us, just under $25 the last time it was updated. I think it probably goes up from there. I think you -- last time I looked, you were around $27.

So look, most smart people would value the company between, say, $25 and $29. So that's not me saying, it's out there. People have those numbers out there. I wouldn't argue with the higher end of that, but we're out to prove and perform, and that's what we do.

We will prove and perform. But I could go on, it's just a great deal.

Floris Van Dijkum -- Compass Point Research -- Analyst

Thanks, John. I will -- maybe if I can talk about the -- I know that you -- obviously, you've laid out your guidance for '22, but it appears that -- and that's based on relatively muted NOI growth. Are you stealing a page of David Simon's book and coming out with numbers that you think you could surpass later on this year?

John Kite -- Chairman and Chief Executive Officer

Well, I try not to steal from David. I make a habit of not doing that. But I would say, I feel like our guidance that we put out is conservative. I think it's appropriately conservative in the beginning of a year, although we're feeling pretty robust right now about our views and COVID still exists.

So we have to -- the reason that we used the 1.5% bad debt kind of numbers that -- that's smart to do in the beginning of the year. Historically, pre-COVID, that number would range between 75 bps and one. So we believe that's conservative but reasonable. Because you never know what's around the quarter right now in the beginning of the year.

So yes, when I look at the guidance that we laid out and how Heath laid it out on the call, I look at the levers that we have as a large organization, I would be disappointed if we weren't at the top end or better.

Heath Fear -- Executive Vice President and Chief Financial Officer

And Floris, I'll just add, when you said muted 2% NOI growth, two things. Number one, our signed but not-open NOI, it comes on, as John said, in the back half of the year. So we're really setting up tremendously well for 2023. So -- and also again, when you're thinking about our same-store guidance, you got to think about it in terms of the bad debt assumption, right? That's 1.5%.

In a normal year prior to pre-COVID, we were running 75 to 100. So again, we added in what we thought was an appropriate amount to -- again, COVID is not gone. So we feel like this is a pretty conservative guidance, and we aim to outperform it.

Floris Van Dijkum -- Compass Point Research -- Analyst

Thanks, guys.

John Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Todd Thomas of KeyBanc Capital Markets. Your line is open.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. John, you commented in your prepared remarks that it's clear that the RPAI merger is better than expected. Can you just talk a little bit about what specifically has trended better than expected, how the RPAI portfolio is tracking versus planned? And maybe put some context around that comment in some detail around either occupancy gains or leasing activity or whether it's sort of some of the added benefits you mentioned around discussions with retailers, vendors, etc.?

John Kite -- Chairman and Chief Executive Officer

I think it's all the above, Todd. I mean let's start with NOI higher than we thought it was going to be. So that's a good place to be. So revenue is higher expenses are where we kind of thought they would be, which creates a better NOI picture.

And again, I think we've been reasonably conservative as we pointed out already. When you look at the fourth quarter and you look at our leasing spreads, sector-leading spreads at basically 13%. That's the combined company from October 22nd on. I think there was -- there may have been some concern around that particular topic that we have shown was an unnecessary concern.

Quality of the assets, we talked about that early on. But you look at the metrics that the combined company has compared to the top five peers, and it's another way to triangulate why we should be trading at a much higher price than we are right now. So I think the metrics, Todd, in terms of you look at demographics, you look at super zip, you look at ABR, you just look at the quality that is -- you can kind of discern from a metric, it's all there. The leasing activity, as we mentioned, when you look at the combined leasing activity, if you would have had both companies for the year is a tremendous number, over 2.5 million square feet.

And just everything that we're looking at is better than we originally underwrote. I don't know how else to say that.

Tom McGowan -- President and Chief Operating Officer

Yeah. The only one I would add, Todd, is the active development pipeline. I think when we got into this, we obviously didn't understand what all was contained and how it would be dealt with. But this active development pipeline is very manageable when you go through each one of these properties and you look at $105 million that is yet to be spent.

We have our arms around it already. We understand the execution. So we feel comfortable there and look forward to the upside of that component as well.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. That's helpful. And then at Kite, you had focused previously on increasing exposure to leases with fixed CAM over the years, and that helped drive your NOI margins higher. Expense recoveries -- the expense recovery ratios came in a little bit with the integration of the RPAI portfolio this quarter.

Are there plans to roll out fixed CAM across the RPAI portfolio? And are there opportunities you see to -- relative to the roughly 72% NOI margin today to get back to a higher level? And how much upside do you think there could be overtime? And what's the time frame to do that?

John Kite -- Chairman and Chief Executive Officer

Yeah. First of all, there is no RPAI portfolio. It's just one portfolio, right, that we've talked about, one team, one focus. It means a lot to us.

But yes, obviously, bringing in the new properties, none of them had -- were on fixed CAM. So when you look at the combination, obviously, it's going to reduce our exposure to fixed CAM. It took -- it takes time, Todd, it took five years probably for that fixed CAM initiative to really get to the point where it was north of 50% of our portfolio and began to really pay benefits. We will do the same thing here.

And we are doing the same thing as of this -- every real estate committee meeting that we have right now. There was obviously deals that were in progress pre-closing that were done that would be not fixed CAM. But outside that, it would be an aberration to not have fixed CAM. And I would say that when you look at our margins and our recovery ratios, we were just way above the peer set.

I mean we're still now even in the combined numbers at the top end of the peer set, but we'll drive that home. I mean that's one of the things that we talked about that we do. That's a grind. We grind that out.

We push hard to get that done. So it will take some time, but we definitely feel good about the ability to improve that over the next few years.

Heath Fear -- Executive Vice President and Chief Financial Officer

And Todd, just to put some numbers around that. Every 25 basis point improvement in NOI margin is one share of FFO. So again, as John said, as we see what happened to our margins, we view this as a long-term opportunity.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. And Heath, just for you on the balance sheet. The mortgage debt maturing through the balance of '22, I guess, really looks like April of '23. Should we assume like Bayonne debt, they're mostly repaid at maturity with cash on hand, or are you looking to refinance any of those?

Heath Fear -- Executive Vice President and Chief Financial Officer

Yes, Todd. So as you remember, we did that exchangeable deal last year with the goal of paying off the 2022 mortgages. And the reason why we didn't pay them off right away was because the open at par period is 90 days before the maturity date. So we're actually getting a yield maintenance savings by paying them off 90 days ahead.

So when you're modeling the payoff of the 2022 mortgages, just assume we're paying them all off at par 90 days ahead of their maturity.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. Got it. And that's cash on hand and the $125 million in the short-term deposits?

Heath Fear -- Executive Vice President and Chief Financial Officer

Correct. Correct.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. Got it. Thank you.

Heath Fear -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Alexander Goldfarb of Piper Sandler. Your question, please.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, morning. Good morning out there. So just a question going back to sort of the guidance and you referenced the $0.06 from accounting benefit. How much has market rent growth impacted the numbers? So when you look back sort of 6 months ago when you were penciling the deal versus now, how much benefit is from the overall market growing? I mean, obviously, it's a good thing, right? But just sort of curious for how much change has happened subsequent to you underwriting this deal, both in actual market rent growth versus also what you found as you went through the RPAI and were busy combining it with legacy KRG.

John Kite -- Chairman and Chief Executive Officer

Yeah, Alex. I mean, I do think that's a factor in the sense that -- I mean just look at our spreads, right? You look at a 13% blended spread Q4, which is the combined company. That would tell you right there that, as you have said previously, that people underestimated lack of supply, right? We're talking about the demand equation, but we forget about equilibrium and how that plays a factor in all of economics. And so the supply side was low.

So we're able to most often drive pretty strong rents. And that's the other reason that we pointed to over 10% spreads on a cash basis in our non-option renewals, right? And as you know, the non-option renewals are the opportunity for a tenant to say, "Look, I can just walk away from this lease, I don't have an option", and it's -- the flip side is true for us. We can just say, walk away. And in that case, we've gotten a 10% cash spread plus with almost no TI associated with that.

So that's a huge margin. So I think it's just a -- it's a play out of what the big picture looks like right now, which is that we're in the right business at the right time.

Alexander Goldfarb -- Piper Sandler -- Analyst

But John, can you give some sort of perspective on how much market rent has grown in the past six months?

John Kite -- Chairman and Chief Executive Officer

Yeah. I mean beyond the spreads, Alex, it's hard for me to -- I can tell you the spreads. You can see that the leases we signed in terms of new leases in Q4 were over $25 a square foot. So I mean, look, I can't give you more than that outside of our own portfolio, because I don't -- I'm not sure what people are doing outside of our portfolio.

But if we can -- I mean, look, if we're growing rents on a cash basis north of 10 like we have been for a while, it's a pretty damn good environment, Alex.

Heath Fear -- Executive Vice President and Chief Financial Officer

And I'd say another indicator where the market rents are going because I can't remember being on real estate committee and having more deals where we've had multiple options for our space. So when you're in a situation where obviously you can pick the player and you can drive rents. It's something we haven't seen for a very long time.

John Kite -- Chairman and Chief Executive Officer

And again, to the beginning of your question, that's why there was a positive mark-to-market on RPAI rents, right? And again, I think when we announced the deal, not sure people would have guessed that one.

Alexander Goldfarb -- Piper Sandler -- Analyst

Then it leads to the follow-up, which is on the supply side. Obviously, in the -- basically since probably '04, we haven't really had any new supply in the stuff before that was driven either by rooftops or massive retailer rollouts. Do you see anything in the inkling that would either forebode supply or even if the rents pencil to make supply work or where we stand now, there's not enough retailer demand, in addition, there's not enough of a spread between construction costs and what the rents would have to be to even contemplate supply in a meaningful way?

John Kite -- Chairman and Chief Executive Officer

Look, I think all those factors are part of what's kept new supply in a reasonable place. You also have to remember, you talked about '04, but I would say, Alex, when you went from '04 -- probably '01 to '08 -- '01 to '07, six years of a lot of construction and a lot of stuff that shouldn't have been built in the first place. It takes a long time for that to go away, and that's what has been playing out. This is obviously a very long time.

But you also have a lot of people that were in that merchant building kind of retail business that are just gone. And so people like us that have been doing this for a really long time, we expect to get high returns for this stuff, as Tom said and what we underwrote. So I think the dynamics are there that would keep a lid on us for a while. It doesn't mean that at some point, someone who's whatever, 28 years old, doesn't know what the hell I'm talking about and build some spec.

I mean, it happens, but it's very limited. No offense to the 28-year-old. I mean it that way. I mean.

Tom McGowan -- President and Chief Operating Officer

You've got to think outside the box. And if you look at a handful of our properties, we were out getting tax increment financing and lowering bases on properties and being creative, working with municipalities to get the returns that we get. So we know whatever we're going to do, we're going to have to look outside the box, be creative to make things work.

Alexander Goldfarb -- Piper Sandler -- Analyst

Yeah. No, that's a good point. And John, to your point, we were all 28 and at the time. So -- that's the experiences of mistakes last.

Thank you.

John Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Katie McConnell of Citi. Please go ahead.

Katie McConnell -- Citi -- Analyst

Thanks. Good morning, everyone. I just wanted to follow up on some of the noncore drivers within your guidance to better understand where you're coming in relative to expectations. So just wondering if you can comment on what you're assuming for total straight-line rent and FAS in 2022? And then on G&A, should we look to 4Q as a good run rate? Or are you expecting further synergies from the merger to benefit 1Q?

Heath Fear -- Executive Vice President and Chief Financial Officer

Yes. So on the straight line, if you look at what we have in our 2022 model and you deduct RPAI run rate straight line and KRG's run rate straight line prior to the merger, the difference is around $0.02 positive. However, that upside is split between the merger accounting that you just discussed and also new leases coming on the line. So again, $0.02, but split between those two items.

And then -- I'm sorry, what was the second part of your question, Katie? On the G&A in the fourth quarter.

Katie McConnell -- Citi -- Analyst

The second part is just on G&A. Yeah.

Heath Fear -- Executive Vice President and Chief Financial Officer

Yeah. Is the fourth quarter a good run rate on the G&A. Listen, there's a lot of noise in the fourth quarter in the G&A. There's temporary employees, etc.

There's merger-related expenses. So I would say that's not a good run rate. I will tell you that the G&A savings that we articulated -- on the last call, those are still intact and the timing of those are still intact. But I think going across the year, I think on a quarterly basis, you'll see G&A -- and again, this is going to be elevated by merger costs, etc..

You're going to see G&A somewhere around I don't know, $12 million to $13 million a quarter.

Katie McConnell -- Citi -- Analyst

OK. Thanks. And then now that you've broken out the office lease expirations separately, can you just speak to the 22% of ABI that expires this year? And how much of that space you could potentially get back? And just what the leasing environment looks like today?

Tom McGowan -- President and Chief Operating Officer

Yes. We did have an outsized number in terms of percentage of ABR that would be expiring or coming due. I will tell you they really come through two specific properties. One is Reisterstown and 1 is Fordham.

And in terms of working with the team, we are going to be in a position at Real Estate Committee next week to handle about 150,000 square feet of that, which is very positive. And then at Fordham, we're continuing to work on it. So we do not have any great concern, even though there's no question that, that 22% range was a high number in terms of rolling leases. So we have a have our arms around it.

We're leased up in our office components, not including active developments of close to 93%. So it's a big charge for us as we push forward, and we're going to be paying a lot of attention to the office portfolio.

John Kite -- Chairman and Chief Executive Officer

The only thing I would add to that, Katie, is when you look at it in totality against our total NOI, it's still a pretty small number. So I mean, I guess it's cleaner to have it broken out like that, but it's not a number that is particularly scary at all.

Katie McConnell -- Citi -- Analyst

Makes sense. OK. Thanks, everyone.

John Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Anthony Powell of Barclays. Your question, please.

Anthony Powell -- Barclays -- Analyst

Hi. Good morning. I think, John, you mentioned that you're seeing increased retail interest across the open-air spectrum. Maybe you could go into more detail on that point.

What are you seeing in the grocery-anchored center's mixed-use power standards and what not?

John Kite -- Chairman and Chief Executive Officer

Yeah. Anthony, thank you. I mean I think what we're seeing is that you're seeing the retailers obviously they're doing well. So the backdrop of a lot of this is they're doing well.

They've come out of COVID with just a vigor and an excitement about the business. They figured out their business from a margin perspective. They know that they are -- that the physical retail environment is the profitable outlet for them. So they're trying to push as much of that into the stores as they can.

And what I meant by that was, if you look at a tenant like a LuluLemon or you look at a tenant like Sephora or you look at a tenant like West Elm, you might think those are tenants that would be lifestyle type tenants only or maybe they would go and mixed use. But we're doing deals with those guys right now in grocery-anchored centers and community centers and power centers. A lot of the brands -- I mean you look at Adidas, you look -- I mean we could go on and on with the brands that are doing that. But the great thing for us is that we're well represented across these kind of five food groups, the community centers, the neighborhood centers, mixed-use power, and lifestyle.

That said, Anthony, we're still predominantly community and neighborhood, right? I mean, that's like almost 60% of our revenue is community and neighborhood. So the other stuff supplements it, which gets us in front of people and then they realize, damn, I want to look at this whole portfolio, right? I want an opportunity to sit down with KRG and look at the whole thing. So that's what I meant by that, and it's just great for our team right now.

Anthony Powell -- Barclays -- Analyst

Got it. Thanks. Maybe on the bad debt, the 1.5% for this year, is that what we're actually seeing here in mid-February. Is that kind of what the actual number of kind of delinquent tenants in the portfolio right now?

Heath Fear -- Executive Vice President and Chief Financial Officer

No. I would tell you, for the course of 2021, it was 1.5%. However, that was front weighted and as the year improved into the fourth quarter, it was more like 75 to 100. So that was not a run rate most recently.

But again, we thought it was a conservative number. And again, we're not -- we don't have any reason to believe that we're going to suffer that kind of credit loss. Our watch list right now is smaller than it's ever been. You saw a tremendous amount of wash-out of the weaker tenants during COVID.

But as John mentioned, we're not out of this thing yet, right? So we put in a number there that we felt comfortable with and that we fully intend to should the world not take a drastic turn and outperform.

Anthony Powell -- Barclays -- Analyst

Got it. So assuming there's no, I guess, major COVID setbacks, it's safe to assume, even though your guidance is 1.5% that you should probably exit the year closer to that normal range. Is that fair?

John Kite -- Chairman and Chief Executive Officer

Yeah. I mean I would say we're entering the year feeling like that we'll be there. I think we guided to something at the midpoint that was conservative, because last summer, we also felt the same way, and things changed a little bit. I highly doubt we'll go down that path that we did last summer where it got worse after the fact.

But that's why when you sit down at the beginning of the year and you're going through all your numbers, you do something like that, Anthony. But no, we're entering in the year well below the 1.5%.

Anthony Powell -- Barclays -- Analyst

All right. Thank you.

John Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Wes Golladay of Baird. Your line is open.

Wes Golladay -- Robert W. Baird and Company -- Analyst

Can you talk about your expectations for leasing this year? Can you achieve the $5 million volume again? Are you going to pivot more to a small shops. And then lastly, can you talk about what you're seeing on the tenant churn environment?

John Kite -- Chairman and Chief Executive Officer

Well, let me start with that, and then Tom can get into it, too. Look, [Inaudible] when you look at 2022, Wes, when you look at 2022 and you look at 2023, that's what we are talking about. We still -- 2023 actually looks good as well. So I think entering the year, we still have this disproportional impact from the original Stein Mart fallout and the boxes that we had.

And so that's why our spread between leased and occupied is pretty significant, which is frankly just a lot of upside. So when -- would we like to pick up -- we don't guide to specific percentages on leasing, because of all the inputs and ebbs and flows. But I would say within the next 24 months, we would anticipate that we'll be back very close to where we were on a lease percentage, which will put our FFO per share well above where we are today. So I think it's really going in the right direction.

Tom, do you want to.

Tom McGowan -- President and Chief Operating Officer

And I'll talk about the boxes just real quickly because they are obviously huge drivers of lease percentage. And if you take a look at what we have accomplished in the last year, we executed 27 deals, 27 boxes with a spread of 12%, but more importantly, return on capital of 29%. The remaining 36 boxes that we have -- actually have a lower ABR at about $11.85. So once again, we feel like there's great spread potential there.

But more importantly, our pipeline through that 36, we're planning on putting a significant dent in that number. So we're looking for a big year of leasing without question. We've got this new combined team and everyone is going to drive this to the finish line. I can assure you that.

Heath Fear -- Executive Vice President and Chief Financial Officer

Wes, I'll add one more thing. If you look at where our lease rate was at the end of 2019 where it is at the end of 2021, we have one of the highest spreads. We have -- there's another 270 basis points of opportunity just to get us back to where we were in 2019. So in addition to my commentary, I said, hey, listen, our FFO per share is already 15% over where it was pre-pandemic.

We also have the largest upside in terms of leasing left in front of us.

Wes Golladay -- Robert W. Baird and Company -- Analyst

Got it. And I want to go back to that market commentary question. I guess, what's the original expectation for the RPAI portfolio to have a, I guess, maybe an above-market rent when you acquired the assets and then just based on the S/4, it looked like it was going to be a headwind to earnings this year on the pro forma. And then it looks like maybe market rent got stronger or you've got a better handle of the assets and you saw more upside in them.

Is that what was going on?

John Kite -- Chairman and Chief Executive Officer

No, I wouldn't say that we initially took a position that we thought that there was any above-market rent. Maybe we just kind of assumed it would be neutral. But as we got into it, we looked at -- obviously, again, we got a third party involved, and we looked at it more granularly and that's when you come up with the fact that you've got some positive rent marks. But in terms of S/4, I'm guessing there was a straight-line rent involved in some of that as well.

And -- but bottom line, as I said, last when I was kind of giving my overall comment to why we did this deal, we knew there was upside, right? We knew we had upside from a leasing perspective, from an operational perspective, from a people perspective, real estate. That's why I said what I said at the end, I mean, we saw this opportunity. And you got to remember, it's pretty easy to look back right now and go, "Oh, well, geez, that was easy. That was a good deal".

Well, guess what, it was a little different last April when we first started talking about this. And we have positioned the company to be one of the few that could even do it, right? So I think people got to look at their lens and kind of think back to what it was like and then maybe give us a little credit for a little foresight on a hell of a deal.

Wes Golladay -- Robert W. Baird and Company -- Analyst

Yeah. You definitely got the cap rate compression tailwind since then. So congratulations on that.

John Kite -- Chairman and Chief Executive Officer

Yep. Thank you.

Operator

Thank you. Our next question comes from Linda Tsai of Jefferies. Your line is open.

Linda Tsai -- Jefferies -- Analyst

Hi. Good morning. On the same-store guidance, of 2% range of 1% to 3%, what's the balance of revenue growth versus expense growth?

Heath Fear -- Executive Vice President and Chief Financial Officer

The balance of revenue growth -- the data drivers, as I said in my comments were basically occupancy and rent bumps. So in terms of the expense growth, I think that's -- again, we're going to be trying to improve our margins over time, but I don't think you're going to see a huge pickup immediately over the course of the year. It's going to be heavily weighted toward the revenues.

John Kite -- Chairman and Chief Executive Officer

And then Linda, the other thing to remember there is, obviously, that includes the 1.5% bad debt. So that's your range really in the sense that if we were trending to more what we have been historically, it's probably closer to the 3% than it is the 2%.

Linda Tsai -- Jefferies -- Analyst

Got it. And then why did economic occupancy declined 30 bps?

Heath Fear -- Executive Vice President and Chief Financial Officer

Yeah. That was in the same-store pool. And so again, that's only the historical KRG portfolio, because we didn't have the RPAI portfolio in that. And honestly, that 30 basis points was one deal.

It was a Burlington that had vacated at one of our assets. And listen, that's one of the things of having a very small denominator, which we don't have anymore, is that one deal can do some violence to your numbers. But you also saw that the lease rate was up 30%. So I think that's the number that we care more about.

So -- and also that Burlington -- I'm sorry, it was an Office Depot left that's now being backfilled with Burlington. So it's one anchor deal of 30,000 square feet, moved the needle that much.

John Kite -- Chairman and Chief Executive Officer

That's the right trade.

Tom McGowan -- President and Chief Operating Officer

Yeah, we'll take that one.

Linda Tsai -- Jefferies -- Analyst

And then just on the new cash spreads being so strong. Can you just talk about what's driving that? And to the extent that that's repeatable.

John Kite -- Chairman and Chief Executive Officer

Yeah. I mean, look, Linda, like we talked about, really, it's just everything. It's very -- it's the real estate, it's the environment. It's the fact that we're still backfilling old Stein Marts is a chunk of that, that we talked about last year.

We had more exposure than anybody else to that particular tenant. But the positive of that was that particular tenant-paid single-digit rents. So that's a factor. I mean, look, as I said, we're sector-leading at 13% blended spreads.

Will that moderate over time, when we fill up those boxes, I'm sure it comes down a little bit. But the reality is, as long as we're generating near or above these double-digit spreads, we're in a very healthy environment with limited supply. So I feel about -- I feel pretty good about our chances of being able to outperform.

Linda Tsai -- Jefferies -- Analyst

Thanks.

John Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question comes from Chris Lucas of Capital One. Please go ahead.

Chris Lucas -- Capital One Securities -- Analyst

Hey. Good morning, everybody. Just kind of going back to the tenant retention question that was asked earlier. I guess just kind of curious as to maybe how that would -- how you're seeing that this year compared to sort of pre-COVID levels? And then sort of as an add-on to that, are you seeing anchors come to you at a rate that is higher than we saw previously for early exercise of renewals?

John Kite -- Chairman and Chief Executive Officer

Hey, Chris. Yes, I mean, I think we're -- the retention is kind of back to where it was pre-COVID, in the sense that we're a little over 80%, probably 83 -- I don't have in front of me, a little over 80% on retention. And that's kind of where we like to be. I mean, remember some of the retention that -- some of the loss is by our choice, right, in terms of rollovers that we don't -- that if someone has a non-option renewal, we may not renew them, right? So a little over 80% is a good place to be, and it's where we were historically.

In terms of early renewals, yes, I mean we definitely have those conversations. And again, with our more meaningful portfolio that we have today, more impactful to the retailer. I think that that puts us in a position where -- that we're going to hear a lot more from them on the front end.

Tom McGowan -- President and Chief Operating Officer

Part of that will just relate to where they sit in the market currently. We feel like we have a strong market rent and they want to come in and work with us on a 10-year deal versus a five. We're always willing to listen to that, but it's going to come down to basic economics.

Chris Lucas -- Capital One Securities -- Analyst

OK. Thank you, guys. And then, Heath, just on the same-store guidance. Just -- and you had mentioned, I think, in your prepared comments that, obviously, you guys had a different approach to bad debt than RPAI.

How does that factor or if at all, into your same-store guidance? And if it doesn't, sort of where should we be thinking about that number coming in from prior periods for 2022?

Heath Fear -- Executive Vice President and Chief Financial Officer

Yep. So in terms of prior period stuff in 2022, Chris, we don't have a lot. We have about $18 million of, call it, the good news bucket, about $7 million of that is the tenants that vacated. So those are just in various levels of collections and then another $11 million are from tenants that haven't vacated.

So there may be some good news from prior periods, but we didn't have any of that in our guidance. And in terms of how I'm thinking about the same-store and the bad debt assumption, like John said, if you were to go, head back to historical bad debt run rate of 75 to 100 basis points, that 2% number is really a 3% number. So again, it's a factor of really the conservatism in our assumption this year. So -- and also, again, as I mentioned before, it's a factor of the $33 million coming online, it's very weighted to the back half of 2022.

I think a lot of our peers are actually having the -- that spread happening in the first half. And again, this is all setting us up so very nicely for 2023.

Chris Lucas -- Capital One Securities -- Analyst

OK. Thank you, guys.

Heath Fear -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Craig Schmidt of Bank of America.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Thank you. Regarding leasing volumes, do you anticipate that Kite can maintain above-average leasing volumes in '22? And where do you think that total leasing volume might come out at?

John Kite -- Chairman and Chief Executive Officer

Well, again, Craig, we're not guiding to the specific leasing volumes, but I do -- obviously, we do think that it's going to continue not just in '22, but in '23, as Heath pointed out a second ago, with deals that we're working on in terms of, -- as we pointed out in our investor presentation, we've got the development pipeline that's leasing up that Tom talked about. And then getting back to where we were pre-COVID. I think the pipeline is definitely going to remain strong. I think our spreads will remain strong.

So the leasing volume is a reflection of the quality and the quantity of deals that are out there right now. So yes, I think it will continue.

Tom McGowan -- President and Chief Operating Officer

And the only other thing I'll add, Craig, is we have two teams now that have been put together. And there's a lot of energy behind these groups. And we've set them up to be successful. So we're already seeing the benefits of that and this new focus tying in the Kite culture, we're expecting big things as we keep pushing forward.

John Kite -- Chairman and Chief Executive Officer

The only thing I'd add to that, Craig, is I wouldn't really focus on quarterly volumes. It happens over a year. I wouldn't -- I know people write about a quarterly leasing number. It's just kind of a meaningless number among what we're really doing.

This plays out over a longer time.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Is this just a change in approach from the retailers that they want more bricks-and-mortar locations? I mean, to have such an elevated period of leasing, at least your mind for three years, it would seem that you need to have a sea change in terms of your approach to the business.

John Kite -- Chairman and Chief Executive Officer

Yeah. Look, I think it's what we all talk about with all the companies have been talking about for a little while now, which is that there's one profitable way to sell retail product. It's in a physical store. The other stuff is marketing.

It just doesn't make money. Now I will say, buy online, pick up in-store changed the game. And curbside pickup changed the game. You see all of our big retailers that, for the most part, are involved in that spectrum.

And they know that they want to drive people to the store because the margins are much higher than if they ship it from a warehouse to Timbuktu, which in today's world is very expensive to do. So I think it's a realization and it's a rebirth of the market. And again, open-air retail has really been a huge beneficiary of those changes. And then again, going back to why we did the deal that we did, right? We did the deal that we did because we knew that was happening.

We knew this was awesome real estate, and we knew there was a lot of upside. And now we just laid that out today for everyone to see. And we're just getting started with that.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Great. And then what do you think your estimated annual redevelopment spend will be? I think you have $105 million in current active. But what is maybe an annual target?

John Kite -- Chairman and Chief Executive Officer

Yeah. We're not really putting out those annual targets. It's really more -- that's really more internal discipline. If we put out targets, people chase them.

So we don't want to do deals just because we put out a target. We do deals because we get high adjusted -- risk-adjusted returns. Tom was talking about the $105 million. That's actually -- that's the active development pipeline that includes a little bit of redevelopment, a little bit of new development, $100 million of spend for a company with a balance sheet that's almost $8 billion.

I mean it's pretty small. So we'll be opportunistic there, Craig. We're going to find opportunistic deals that throw off the returns that experienced players like us need to justify doing a deal versus allocating capital somewhere else. So we'll do it.

We mentioned that we have that $105 million. We also mentioned that we have an embedded land bank, and it's truly that, a bank. We might monetize that in one or two or three different forms. And that's why we laid out the examples that we put in our investor presentation of the different ways of doing development, which lower risk and increased returns vis-a-vis joint ventures, sales, 100% ownership.

It just depends on the deal. And again, we've been doing this for a long time and have seen lots of cycles, have seen lots of things that go right and lots of things that go wrong. So I think we're the right stewards for that particular pipeline.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

John Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

At this time, I'd like to turn the call back over to CEO, John Kite for closing remarks. Sir?

John Kite -- Chairman and Chief Executive Officer

OK. Thank you very much to everyone for joining today. I hope you can hear, if not see, our enthusiasm that we have going forward for the next several years for this great company. And we will see a lot of you in the next couple of weeks in person.

Really looking forward to the opportunity to further discuss. Thanks, and everybody, have a great day.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Bryan McCarthy -- Senior Vice President, Corporate Marketing and Communications

John Kite -- Chairman and Chief Executive Officer

Heath Fear -- Executive Vice President and Chief Financial Officer

Floris Van Dijkum -- Compass Point Research -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Tom McGowan -- President and Chief Operating Officer

Alexander Goldfarb -- Piper Sandler -- Analyst

Thomas McGowan -- President and Chief Operating Officer

Katie McConnell -- Citi -- Analyst

Anthony Powell -- Barclays -- Analyst

Wes Golladay -- Robert W. Baird and Company -- Analyst

Linda Tsai -- Jefferies -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

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