This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Greetings and welcome to Regency Centers Corporation fourth quarter and full year 2021 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Christy McElroy, Senior Vice President of Capital Markets. Thank you. You may begin.
Christy McElroy
Good morning and welcome to Regency Center's fourth quarter 2021 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Voss, Chief Financial Officer, Jim Thompson, Chief Operating Officer, and Chris Levitt, SVP and Treasurer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by the forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures, The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our investor relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance and the impacts of COVID-19 on the company's business. Our caution on forward-looking statements also applies to these presentation materials. Lisa?
Lisa Palmer
Thank you, Christy. Good morning, everyone. Thank you for joining us. Reflecting back on 2021, Regency accomplished a great deal over the course of the year, and we have a lot to be proud of. With the disruption caused by the pandemic, it was a year of recovery, but the pace of our progress is a testament to the resiliency of retail properties like ours. As we sit here today, we feel really good about the financial health of our tenants. Our leasing activity is robust. Our investment pipeline is full, and our balance sheet is back to pre-pandemic strength. And of course, this didn't just happen. We wouldn't be where we are without the tireless efforts of our people. So if you would, please just give me a moment to thank the Regency team. Thank you, team. It truly takes all of us. So as we've transitioned into 2022 and look ahead, our story is no longer about recovery. We've moved forward with a focus on growth and also with the benefit of hindsight from the last two years. While we do see lingering effects of the pandemic on our tenants, specifically the impacts of inflation and labor shortages, these headwinds have thus far not impacted demand for our space. This focus on growth did begin last year with regards to our capital allocation strategy, as we've discussed on prior calls. We pivoted to offense in 2021. We completed nearly $500 million of acquisitions last year on an accretive, leverage-neutral basis. During the fourth quarter, we not only closed on the acquisition of our Turducken – Blakeney Shopping Center, but we also announced the purchase of a four-property, grocery-anchored, neighborhood-centered portfolio in Long Island. You've heard me say it before. These types of investments are the bread and butter of what we do, what our company does. Our focus is to invest in strong, well-located, grocery-anchored shopping centers. Overall, the private transaction market for the centers we want to own remains really strong. We continue to see cap rate compression and value appreciation and even steeper competition for deals. But despite this, our acquisition pipeline remains active. That's because our balance sheet and access to capital give us a competitive advantage, as does our reach, given the boots on the ground in most of our target markets. Our Long Island portfolio acquisition was an off-market transaction. It was a group of family-owned assets. Kudos to our team in that market for sourcing this deal. We will continue to look for opportunities like these where the assets meet our criteria for location, quality, format, and growth. We also announced recent dispositions, and in that context, I want to spend a minute on our sale of Costa Verde, since this was previously a part of our redevelopment pipeline. As most of you know, we had been really excited to undertake a mixed-use densification project there that featured retail at its core. We worked for years to entitle the asset, de-leasing the property, all in preparation for future redevelopment. But as time went on, the project evolved into predominantly life science, and the highest and best use was no longer a retail-centric asset. This changed the nature of the project and the risk profile materially. We made the decision to sell as it became clear to us that this was the best path to maximize value and manage our risk for the benefit of our shareholders. Importantly, we did get paid well for the value we created at that site. and we immediately reinvested the proceeds. To be very clear, we don't see another Costa Verde in our portfolio. This asset was somewhat of a unicorn, but we do own really great real estate, and there will be other opportunities to add non-retail uses or to densify our properties. To the extent that makes sense, we will again pursue a similar path. This could mean partnering with experienced operators, a ground lease, or a sale of the non-retail components. but always with the goal of extracting and retaining control over the retail. As an example, we have our West Bard Square project currently underway in Bethesda, Maryland. The redevelopment of this shopping center essentially features a refresh of all the retail, including a new store for our already successful giant grocery anchor, but will also include the development of senior living and apartment components on which we have partnered with others. Before I turn it over to Jim, I'll conclude by saying that Regency emerged from 2020 a stronger company, and we and our tenants spent 2021 adapting to position ourselves for success in the new normal, and we've done just that. We've recovered from the pandemic, we maintained and even raised our dividend, and we are on our front foot today. This consistency that you've seen from us over the years, even through the toughest of times, is evidence of the quality of our assets, our investment discipline, the strength of our balance sheets. and most importantly, our people. Jim?
Christy
Thanks, Lisa. Good morning, everyone. Our teams are encouraged by the positive trends we're seeing in our portfolio and in the overall retail environment. We saw record new leasing volumes during 2021 at 20% above historical levels. For the fourth quarter, rent collections are 99%, and tenants are reporting positive and often record sales. With continued strength in our leasing activity, and lower tenant move-outs, our percent lease rate again rose in the fourth quarter, ending the year at over 94%. We've made good progress from our COVID lows, but we continue to see further upside to occupancy from here, having achieved historical highs north of 96%. Additionally, our teams have an opportunity to further upgrade merchandise mix in this environment, and our new leasing pipelines are healthy and building. The most active categories include grocers, medical, health and wellness, restaurants, cosmetic, home, and off-price. Importantly, we are seeing good activity across all regions for both anchor and shop space. We are also having success keeping our current tenants in place. Our fourth quarter retention rate was 85% well ahead of the historical average, and shop tenant retention was our highest on record in the quarter. Our blended rent spreads were nearly 13% in Q4, positively impacted by the execution of a new anchor lease with Target at a property in Connecticut. As we have often discussed on prior calls, our ability to recapture and mark-to-market legacy anchor leases can often be one of the largest contributors to our rent spreads over time. We also remain successful at driving contractual rent spreads. achieving over 2% annual growth in the vast majority of our leases executed in the fourth quarter, while continuing to remain judicious in our leasing capex spend. Our consistent focus on embedded rent increases resulted in gap rent spreads of 13% in 2021, while also achieving attractive net effective rents. That said, we are cognizant that tenants are continuing to be impacted by inflation, supply chain issues, permitting challenges, and most notably, labor shortages, both in operating existing stores and getting new stores open. We are seeing and planning for an impact to rent commencement timing on the margin. Importantly, these pressures have not yet impacted demand for space, but we also recognize that may not be sustainable as labor shortages continue to adversely impact businesses around the country. For now, many tenants are showing an ability to adapt, including in-store tech advancements, reuse of equipment, and improved e-commerce and curbside platforms. We continue to monitor these trends closely, and our teams are actively working with current and future tenants on these issues when and where possible. Moving to our development and redevelopment pipeline. Much like what we're acquiring, our teams are focused on creating value within our core competency of grocery anchored neighborhood and community centers. We're proud of our track record and our proven ability to do so throughout cycles. Even with the pandemic related challenges facing our industry over the last two years, we continue to start and deliver projects and currently have 300 million in process. To highlight a few, in the fourth quarter, we completed the first phase of our ground up HEB anchored Bay Brook development in Houston. and look forward to starting an additional phase of this successful project in the near future. We completed the redevelopment of the Publix-anchored West Bird Plaza in South Florida this quarter. This project included a complete teardown and rebuild of an older Publix store, as well as facade and site work improvements to the entire center. The immediate impact of significantly enhanced sales volumes of the grocer over pre-redevelopment volumes coupled with the modernization of this very well-located asset, will enable us to significantly upgrade the merchandising mix and keep the center competitive and relevant for years to come. At the Abbott and Cambridge, Massachusetts, we have seen increased leasing activity and anticipate tenant openings later this year. The crossing Clarendon outside of DC, we are nearing construction completion and happy to report that we are now over 95% leased. Looking ahead, we continue to target project spending in the range of $150 to $200 million annually. While our development teams are seeing inflationary pressures on material and labor costs, we are carefully monitoring these increases and adjusting our underwriting. Importantly, we've been able to maintain our targeted project yields. Our teams are being proactive on securing bids, ordering materials early, and utilizing our scale, relationships, and connections to mitigate our risks as effectively as possible. In summary, our team is optimistic about the current retail environment and the positive momentum we are experiencing across all regions in leasing, development, and redevelopment. Mike?
Lisa
Thank you, Jim. And good morning, everyone. I'll start by addressing fourth quarter results, provide some color around sources and uses relating to recent transactions, and then walk through some highlights of our initial 2022 guidance. Fourth quarter NAREAD FFO was positively impacted by a few items worth mentioning. Uncollectible lease income was a positive $6 million in the quarter. And you can see the components of this detailed on page 33 of our supplemental. Additionally, similar to last quarter, straight line rent benefited from the reversal of reserves triggered by the conversion of some cash basis tenants back to accrual. This non-cash accounting impact benefited uncollectible straight line rent by about $7 million. To reiterate, straight line rent does not impact our core operating earnings, but these conversions created an outsized benefit to Nareed FFO in each of the third and fourth quarters. Following the conversions back to accrual, we now have 17% of our ABR remaining on a cash basis of accounting. For this smaller pool, our cash basis collection rate was 94% in the fourth quarter. From a balance sheet perspective, We ended the year with full capacity on Revolver, and we have no unsecured debt maturities until 2024. Total leverage is back to well within our targeted range of five to five and a half times. The acquisition of Blakeney, which closed in November, was funded with cash on hand and our share of proceeds from dispositions completed in the fourth quarter. The acquisition of the Long Island portfolio, which closed just prior to year end, was funded with the sale of Costa Verde in early January. Notably, and the challenge that often goes under the radar with dispositions of long-held assets, in the last year we've been able to sell nearly $250 million of properties on a tax-efficient basis by structuring 1031 exchanges. Turning to guidance, please be sure to review the very helpful detail in our press release and business update slide deck posted to our website. While our earnings have historically been more visible and predictable, our 2021 earnings were impacted by a few cash basis accounting adjustments that complicated the picture heading into this year. These include prior year reserve collections and straight line rent reversal impacts, where it appears as if expectations around these items resulted in meaningful variability in street estimates. To add some clarity, we've increased the transparency even further in our guidance disclosure relating to these items. Regarding the collection of prior reserves, Last year, we collected $46 million that we had billed and reserved in 2020. This year, we expect to collect about $13 million of revenues billed and reserved in prior years. These impacts are only related to the timing of revenue recognition, and this timing difference represents a $0.19 per share decrease in Mayreit FFO year-over-year in 2022. One of the other big variances, as I mentioned, is the non-cash impact of straight-line rent reserves. Last year, we recognized $43 million of non-cash revenues, which included $13 million driven by the conversion of tenants from cash basis back to accrual. This year, we are forecasting roughly $28 million of non-cash revenues. That's a 9 cent per share difference impacting NARED FFO. And as we've mentioned on prior calls, we only plan to include the cash to accrual conversion impact in forward-looking guidance as tenants are converted. So right now, we have zero impact in our 2022 guidance relating to future conversions. We mentioned on the last call that the JV promote was recognized in Q321, would not recur in 22. And we also discussed that our quarterly net G&A run rate would be higher in 22, driven by annual salary increases, filling open positions, and returning to more normalized levels of T&E. Collectively, these impacts are another 14 cents at the midpoint. We hope you find this walkthrough of material and unusual impacts helpful. Pivoting to same property NOI growth, after adjusting for prior year collections, we are forecasting growth of 3.5% at the midpoint. That's 16 cents per share of incremental positive FFO growth. We will continue our practice of disclosing the same property NOI growth range, excluding prior year collections, for as long as they meaningfully impact our results, providing some reflection of a more normalized growth rate where the primary contributing component is base rent growth. One last reminder on same property NOI. Recall that in the first quarter of last year, we were still recording meaningful uncollectible lease income at nearly $18 million when excluding any impacts from prior period collections. This compares to roughly $2.5 million in the fourth quarter of 21. So as we look to the cadence of growth by quarter during 22, we're anticipating a higher growth rate in the first quarter relative to the other three. Also included in guidance, we expect transaction activity will be accretive to earnings this year. And while on the surface our disposition guidance exceeds acquisitions, remember that the acquired Long Island portfolio closed on December 30th, so the impact is really that of a 2022 purchase. We have about $65 million remaining of unsettled forward ATM equity and expect free cash flow from dividend payments north of $130 million this year, all of which supports and funds our investment pipeline, and future growth opportunities. Finally, a quarter ago, we talked about NOI getting back to 2019 levels on an annualized basis during the first half of 2022, and that was six months sooner than we had originally anticipated. But we're pleased to report that in the fourth quarter of 2021 and after excluding prior year collections, total NOI has now recovered back to 2019 levels. As Lisa alluded, with the recovery behind us, We've now pivoted our mindset toward growth in 2022 and beyond. And with that, we look forward to taking your questions.
Operator
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.
Rich
Hey, good morning, guys. I suspect you're going to get a lot of questions about the guide, but I'd like to start off by saying I think you've done a really good job bridging that, so thank you for it. I have maybe more of a strategic question to kick us off. Chris Winslow, Occupancy looks like it's around 100 basis points below 19 levels curious if you can give us a timeline for full recovery and, more importantly. Chris Winslow, When does your calculus begin to change from occupancy recovery to gains from pushing rents more so it's sort of like Lisa what you were talking about pivoting to offense just a strategic question how close do you think you are to really pivoting.
Lisa
Hey, Rich. This is Mike. Let me start, and then Jim will provide some color as he sees the leasing environment. And let me first say I appreciate your comments on the disclosure. We absolutely understand the complexity and the noise that we've lived through in 20 and 21 and anticipated that and are trying to help as best we can. From an underlying assumption perspective on our same property NOI growth range, We are planning for increases in both top line percent least, as well as commenced occupancy rates in the 75 to 100 basis point range. That is what's underlying and supporting our midpoint of 3.5% growth, which largely is coming from base rent growth. Recall, we're also getting about 1.3% of contractual increases and contributing to our top line NOI as well. With respect to pricing power, I'll let Jim jump in and provide some color on how the teams are attacking our rollover.
Christy
Yeah, Rich. As you saw, our spreads are getting better. We had roughly 13% this quarter on a blended basis. When you couple that with the embedded rent steps, we continue to get it over 2% in the vast majority of our spaces. the prudent leasing capital spend that we're doing is driving really good gap rents as well as net effective rents. And combined, when you look at that whole package, that's what we're looking at as far as the positive direction for long-term growth in the portfolio. The demand continues to be very strong across all regions, like I indicated in the prepared remarks. We think that will continue to, at least in our portfolio, continue to have the leverage shift more towards the landlord side, we believe, as spaces do get more occupied. I think we'll be able to drive even harder deals. But I think the stay at home change in the entire Retail landscape, I think, has been very positive for us in our product type. We are close to homes. We're in generally very strong demographic, high density marketplaces, not a lot of urban locations. So that has played well for our product type. And we continue to see that as a positive vehicle to help support our demand going forward.
Lisa
And, hey, Rich, one last comment, because I realize you were asking a little bit about forward total recovery. Importantly, to highlight our top end and how we think about kind of maximum occupancy, we are 96% is where our eyes are. We think our portfolio and the quality of our assets and the historical performance of them would support a 96% occupancy rate. You drop about 150 basis points off of that for a commenced occupancy rate. So not only do we see 75 to 100 basis points supporting our 22 growth, we see growth beyond that of similar rates of increases. And if you think about our post-GFC recovery progress, this recovery, 75 to 100 is a little bit below what we experienced post-GFC, but we did have more room, more vacancy coming out of the GFC, more space to fill than we do now. This trajectory feels right to us. feels healthy and feels appropriate for that long-term recovery.
Rich
Got it. So as I think about this, it sounds like to me, you know, a year from now, knock on wood, you're going to have, you're going to be in a pretty good place back to where you were prior to the GFC. 2021 was obviously a remarkable year of recovery. 22 is sort of blocking and tackling and a little bit of a transition to get back to that level where we were prior to, why do I say the GFC? God, COVID. It sounds like you're going to be in a really good place 12 months from now. Is that fair?
Lisa Palmer
Absolutely. And I think that that's a really good point, Rich. So our NOI really has recovered. Our total NOI has recovered. And I have the utmost confidence that when we look at how we will perform in 2022 from an earnings perspective, despite the complexities of that we talked about with the guidance, that our recovery will stack up really well versus 2019 versus everyone else in the sector. And that's with our balance sheet actually being even better positioned today. Our net debt to EBITDA is lower today than it was with going into COVID. And that was with maintaining and raising our dividends. So we feel really good about it, and we feel good about 2022. Great. Thank you, guys.
Operator
Our next question comes from the line of Katie McConnell with Citi. Please proceed with your question.
Katie McConnell
Great. Thanks. Good morning, everyone. So I just had two more questions on guidance. And the first is within your Citi store guidance range, what are you assuming for new beds at expense this year versus 2021? And secondly, understanding the straight line guidance will only be updated as those cash tenants are converted back to accrual. Or can you maybe help us quantify how large that total impact could be in theory if that entire pool is converted back to accrual method tomorrow?
Lisa
Sure. I appreciate those questions, Katie. From a bad debt expense perspective, so let's talk about current year billings is the question here. In 2021, we ended the year at about 175 basis points of bad debt expense on 2021 billings. As we think about our underlying assumptions going into 22, we see improvements in our cash collection rates, and we're calling for about in the area of 100 basis points on a comparable basis. In dollars, that's equating to about $10 million of improvements. We could do better than that on the top end. And we provided for maybe a little bit less collection on the bottom end. But at the top end, we could see us returning to our historical averages by year end. So not on an average for 22, but by year end. And that historical average, to remind you, is about 50 basis points of build revenues. And that is where we anticipate ultimately recovering to. The question on straight line rent is a good one. And I'd point you to page 34 of our supplement where we've been breaking down more diligently our COVID disclosures. What you'll see there is a reserve on our straight line rents of $33 million. So this is getting to your point of what is the maximum potential. In theory, that $33 million is the maximum potential, but a heavy dose of caution there, Katie, on whether we will ever eventually convert all of those tenants back to accrual. Recall, we have 17%, as I indicated, on a cash basis of accounting today. There is some visibility, as we sit here in mid-February, to converting more tenants in the first quarter. I think, just to give you a number on that, our outlook calls for, in the area, $5 million of potential conversion income on an FFO basis, non-cash. We're on an as-converted basis, and we'll continue to update everyone as those conversions occur.
Katie
It's Michael Bellarmine here with Katie. Maybe Lisa or Mike, maybe just stepping back overall, and I recognize there's a lot of complexities with the prior reserves and non-cash income that clearly at least it appeared as though the street got a little bit ahead of itself. And it's not only to you, obviously, other companies across other sectors as well. it impacted. But when you sort of compare your line item guidance relative to the street, it would seem at least half of it is more core-related, lower core NOI, a bit higher interest expense, higher G&A, even above the levels that you'd sort of previously indicated. And so missing the street by 5% or 6%, half of that being core, how do you look at that item? Because I don't think all of this is truly just, you know, reserves and non-cash, there seems to be some either conservatism in your views or that, you know, the street just got way ahead of itself. And so I'm just trying to understand from your vantage point how you look at things and how you're going to pivot to stronger FSO growth as we roll into 23 and 24.
Lisa
I appreciate the question, Michael. and would agree a little bit with getting a little bit ahead just to walk through some of the, some of the details, just so we're all on the same page. Yes. The non-cash conversion item is a, is a major component of the, of the decelerating growth, right? So if you just look at the fourth quarter on a run rate basis, that's, that's 5 cents of your, of your, of our issue going forward. And again, we're not guiding on future conversions, although let me reiterate the, the potential Q1 conversion of about $5 million. Then we get into what we still call our core, which includes prior year collections. And that is an unusual and immaterial moving item. That component of ULI is going to be about a 3% impact to the fourth quarter. So that is impacting our run rate going forward and is effectively, Michael, absorbing our good, healthy growth and base rent and NOI going forward in our three 3.5% guide on that line item, which leaves and isolates on the core our increase in GNA as a drag. And again, that's an item that we identified in the third quarter call. We wanted to make sure that people's run rates for quarterly GNA was in the $20 million range, which was about a $2 million increase per quarter over what we experienced in 21. On that line item, just for some context, You know, as I said on the call, we're filling open positions. We've increased our annual salary increases. A big component of our increase is returning to normalcy on the T&E front. Our teams are back on the road. We are reinflating those line items to 2019 levels. That's about 40% or so of our forecasted increase in G&A. And then I need to mention that and remind everyone, we did have an unusual one-time negative GNA impact in 21 related to LTI forfeitures. You know, we had some departures, most notably at the CIO level, and there was a one-time impact that benefited 21 that will not recur in 22. You put all that together, and I think you want us to boil this down and think about and hear how we're thinking about the business looking through prior year collections and thinking about the midpoint of our core range, that's a 3% increase as we're thinking about our core operating business. And if you think about the upper end of that range and try to compare it to 2019, we're only 2% off of that reported number if we want to put a line in the sand as 2019 recovery. So We feel, as Lisa said, we feel great about the outlook for 22. We are on the right vector of recovery on the leasing front, and we're looking forward to growth from this point forward.
Katie
And you feel like it's an accelerating growth into 23 and 24?
Lisa Palmer
I think that it goes back to what we just answered with regards to the continued ability to increase our occupancy. We do feel, we feel good about that. We still have room to run. And the fact that also, I think, I appreciate the question, Michael, about the different line items, if you will. But as I think about it, and Mike, I can't articulate it better than Mike did. The core business is the same property NOI guide, excluding all that prior year noise, And that's a midpoint of 3.5%. That's growth to me and continued growth. And I think it's really important to not brush over the fact that I said our net debt to EBITDA is lower today than it was entering COVID. We have capital. We have room to run. We are looking for opportunities. Our development pipeline is refilling, and we are really active in the acquisition arena, $500 million last year or so. Yes, I believe I have a lot of confidence on the future growth for our company.
Lisa
And philosophically, as you know, we don't guide on speculative transactions on the acquisition front. We have $30 million in our 22 guidance. That is an opportunity in the Pacific Northwest that is under contract, and we feel great about closing. But as Lisa said, and we've indicated throughout 2021, With our balance sheet and our free cash flow levels exceeding $130 million, we're on our front foot on the investment front and looking forward to putting those opportunities to work.
Katie
Yeah, I think investors are just trying to understand. This is my last comment. I'll yield the floor. But just trying to understand, Lisa, exactly what that top line positive growth, and you can see the occupancy going up in all the initiatives, the transaction activity, the development, redevelopment. that it should ultimately translate into better growth. And with a disappointing guide, I think investors are sort of questioning that. It may make sense to go the federal route and sort of lay out the multi-year building blocks to your growth so that people can get comfortable that that top line same store growth is really going to drive bottom line earnings growth and dividend growth. And I know The dividend was never cut, and that's an important part of everything. And the balance sheet's in good position. It may just need a little bit more guidance to the street so that we can see this multi-year growth platform come into effect.
Lisa Palmer
Sure. Absolutely. And I want to make sure – I think the team has done a tremendous job of providing the individual components, so I want to make sure that I recognize that of the team and – It is a lot of one-time things in 2021, which I believe that we have very specifically already laid out. But appreciate the comment, Michael. We not only maintained the dividend, we actually had a pretty significant increase too.
Michael
Yeah. Our next question comes from the line of Michael Goldsmith with UBS.
Operator
Please proceed with your question.
Michael
Good morning. Thanks a lot for taking my question. Lisa, 2021 was a pretty unique year for retail where the consumer benefited from stimulus and child tax credits. There was a shift from services to goods. So we entered 2022 we're facing with some of these factors reversing, plus we've got inflation, which could even into discretionary dollars. What is your outlook for kind of the consumer and, and retail for the year? And given your focus on grocery anchored centers, do you feel like you're really well positioned to kind of stay the course, even if, uh, you know, if this 2022 becomes a little bit of a volatile year for, for retail and the consumer?
Lisa Palmer
Um, Michael, I think you answered the question for me yourself. I do feel, I believe that there's no question that there's a lot of impact to the consumer, but with regards to the part of the retail sector that we are playing in, if you will, is the best positioned. So Jim said it in answering the occupancy question, being close to people's homes. So there's no question. I mean, we all read the same data and news articles, some of the largest increases that are impacting families are in gasoline and in energy, and people are staying closer to home, which is a little bit of a tailwind, if you will. Even in spite of the headwinds of rising prices, it's a tailwind for suburban shopping centers and for grocery-anchored shopping centers. People are eating at home more often, and when they're not eating at home, they're staying close to home to eat. So, again, it's benefiting our product type. We're seeing it in sales at our shopping centers. Our sales are up not just over 2021 and 2020, but over 2019, kind of a more normal environment, if you will. So our outlook is still really bullish on grocery-anchored shopping centers, and you're seeing that translate into the demand for that product type as well in the transaction market.
Michael
That's helpful. And then, Mike, on the guidance, thanks again for the detailed breakdown. You know, can you outline some of the items that may not be included in your guidance? You talked about future transactions and acquisitions. And then at the same time, you know, your guidance calls for same property NY growth of two and three quarters to four and a quarter, extra term fees in the prior year reserve collections. If we back out some of the outsized expense recovery from the prior year, does that kind of reflect the go-forward growth algorithm of the core business?
Lisa
Thanks. Sure. I think much like you did with Lisa, I think you answered some of that there, Michael. We do exclude transaction activity, again, kind of as a rule at Regency philosophically, and we just don't – We just don't want to set those expectations for us internally into making poor investment decisions. So those will all be incremental as we move forward. Within the same property NOI line item, I appreciate you bringing up the tough comp in Q2 from 21. We did have an outsized recovery experience in 21 that will not recur in 22. That's about a 50 basis point drag. Essentially, there's three big components to the same property growth at the mid. It's 400 basis points total, 300 basis points coming from base rent growth, and 100 basis points coming from improvement in ULI. And I went through that assumption on bad debt expense on a previous question. And then that drag of 50 basis points is bringing us back down to the three and a half. Four percent compared to historical averages is pretty healthy. You know, you've heard us and followed us and heard us talk about 2.5% to 3% on a stabilized basis being a normal rate of growth annually for Regency. So, 4% would reflect a rising level of occupancy, which we articulated in that 75 to 100 basis point range.
Michael
Thank you very much. Good luck in 2022. Thanks, Michael.
Operator
Our next question comes from the line of Flores Van Dishcombe with Compass Point. Please proceed with your question. Thanks. Morning, everyone.
Flores Van Dishcombe
I had a question on the – obviously, we saw the – we've heard about the Donahue-Schreiber transaction going at a very low cap rate, and we've heard some of your competitors and peers talk about that cap rates are going lower. As you think about allocating capital – over the next year or two. Lisa and Mike, how are you thinking about that when you're weighing developments versus new acquisitions? Because new acquisitions clearly are going to be at lower cap rates than what they've occurred over the last 18 months. And then also, maybe talk a little bit about your differentiated approach to development relative to your two large-cap strip peers, and can you put enough capital to work in that space, in your view?
Lisa Palmer
I'll start, and I'll allow Mike to add any color as needed. So, Flores, we strategically, and how we think about putting capital to work, we have not changed our point of view And we do look at investments holistically. And we always say the best use of our capital is to reinvest back into the centers that we already own and we know really well. And we are constantly intentionally and intensively managing those assets to do that. And we have a pretty good track record of doing so and putting capital work there and getting really good risk-adjusted returns with that capital. But those opportunities are limited, as you pointed out. I mean, that is not an unlimited open check, if you will. And then we also use our free cash flow and balance sheet capacity to invest in ground-up developments. And again, I think we have the best team in the business. We have the best track record in the business. We have, as the Costa Verde sale will show you, we have... once again, really refocused on our bread and butter on what we do best, which is grocery-anchored shopping centers. And we still are enjoying a lot of success there. Just in the past, I lose track of time, but we have a Publix underway here. I can almost see it outside of my window. In Jacksonville, we just were ready to potentially start Phase 2 of an HEB that we actually green-lighted during COVID. Many of you have had the opportunity to see our recently completed Wegmans in Raleigh. We've got a Publix underway in Richmond, and I can go on and on and on. We've got a fantastic team, and we will continue to get more than our fair share of those opportunities. And as we all know, grocery is growing, and we're going to continue to have the opportunity to do that. And then with acquisitions, I think Blakeney, Long Island, again, success. You know, Pruneyard prior to that. We have boots on the ground. We have the team in the ground. We have relationships, really important, that help bring opportunities to us. And we do have a cost of capital advantage. When we're able to use that and use our expertise and see an opportunity to add to the quality of our portfolio and add to the future growth rate of our portfolio, we're going to take advantage of it. And I feel really confident that we'll do that.
Flores Van Dishcombe
Thanks, Lisa. If I can add, maybe have another question here in terms of, you know, technology and data. I mean, you were the largest owner. You're now the second largest owner, but you've had this wealth of information at your fingertips. Maybe if you can talk a little bit about how all of that information and getting the new information, particularly regarding cell phone usage or traffic at your centers, how is that helping the business? How is that helping your small shop? And does that actually... allow Regency to maybe boost, in particular, small shop occupancy, which has always lagged, or anchor occupancy? Are there things where you can actually monetize some of that technology and data and improve the economics of the business?
Lisa Palmer
I'll start, and Jim can add to the extent that he has anything. Any little nuggets, but it is, I appreciate the recognition of the size. I do think that scale matters. We talked about that going back to 2017 when we merged with Equity One. Just that one combination made a difference with relationship with tenants, with our ability to mine data, as you said, and also just the absolute levels of free cash flow that we have allow us to invest back in the business as well. and that is in technology and in data analysis and in being able to do a little R&D and what can we do to help drive occupancy and drive higher rents in our shopping centers. And I think you continue to see that. And we have, I mean, our peers are doing some of the same as well. It's not as if we have a secret sauce. I think we have all gotten better and more sophisticated, certainly over the 25 years that I've been here, And I think we're going to continue to do that. We're going to continue to be able to help our tenants and further drive occupancy. The higher the quality of the shopping center, the more ability you have to do that. And I think, again, we are well positioned to do so.
Jim
Thank you.
Operator
Our next question comes from the line of Sameer Kunal with Evercore. Please proceed with your question.
spk09
Hi, good morning, everybody. Hey, Jim, correct me if I'm wrong, but I think in your opening remark you talked about labor shortages and I think the impact on rent commencement times. Maybe just expand that on a bit, kind of what you're seeing in your portfolio, just trying to understand that a little bit more.
Christy
Yeah, Sameer, obviously it impacts It's a headwind that we see out there. I would say it has not been impactful to date. But we're cognizant of it and prepared to expect some delay on a rent commencement. Probably the biggest challenge as I look at it today is still probably on the front end from the permitting perspective. The municipalities are still working from home from a lot of perspectives. It's hard to get plans approved. It's hard to get inspectors out. So that's probably the one thing that we're having the hardest time circumventing and figuring out better ways to solve the problem, because that's the toughest issue. Everything else, we're getting creative. We're figuring out ways to multiple options for different product types. How do you pre-order items? Preparing white box well before you need it. Things that we've always done on the margin, but now are just absolutely critical to think about what's plan B and be ready to snap to plan B, know what it is, execute on it without losing time. So far, like I say, it hadn't been an impact, but Eyes wide open, I think the labor issue is the one that kind of keeps me thinking about, and the impact I think is basically there. Supply chain, we're kind of working around, but the labor, hopefully knock on wood, is starting to sort itself out.
spk09
Okay, thanks for that. And I guess, that's my second question that Mike released. I know you don't guide your transactions, But is there a way to sort of give us an idea of what that pipeline looks like today? I mean, how active is that? Maybe the volume of product you're currently looking at, whether it's portfolios, one-off assets, just trying to get a sense of how much on the offense you can be this year considering where pricing is. And you did, you know, you did that $500 million last year and the ability to repeat that. Thanks.
Lisa
Let me, Samir, start a little bit from a financial perspective, and I'm going to let Lisa speak to our pipeline and our activity. And this dovetails a bit with a question from Flores previously. We've talked a lot about growth. We've talked a lot about continued recovery in 2022 and beyond. And Lisa has been great about mentioning our balance sheet position. So if you put all that together, that organic EBITDA growth and us intentionally wanting to operate within this five to five and a half balance sheet range and a starting point at five one today, that is going to provide us with that capacity and firepower to continue to be proactive and on our front foot on acquisition activity. You could, I think the numbers, absent any more disruption and a more continual rate of growth, much like we're projecting in 22 in that three to three and a half percent range, you could pretty easily rationalize a $200 to $300 million acquisition pipeline that Regency can afford to bring on without undue pressure from our perspective to our balance sheet. And we're excited, and we think that capital, effectively, you're over-leveraging those acquisitions without over-leveraging your total balance sheet, which is allowing us to be competitive.
Lisa Palmer
I don't know that I have that much to add, but I think that if you do think about the guidance, and we did guide slightly, it says that we're really close to being able to announce that $30 million acquisition. But there's a lot behind that as well that we are actively pursuing. It's just that it's never definitive in that world until it's definitive. And so to the point about not wanting to get ahead of ourselves with guidance, because when we do acquire, it will be accretive. So to the extent that we couldn't meet the guidance, if you would, then we would be walking backwards. And instead, when we announce an acquisition, it's going to be accretive. And we are actively pursuing, and I feel confident that we're going to have some success this year.
Jim
Thank you.
Operator
Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Juan Sanabria
Hi. Thanks for the time. First question would just be cap rate expectations, maybe a range of recognizing you don't want to negotiate against yourself, but how should we think about cap rates? I know you just said that they're going to be accreted, but just from a given you're using debt to fund it, it sounds like, but just what expectations do we have in mind for cap rates?
Lisa Palmer
that's a great observation, Juan. That is the point about being able to lean in with our balance sheet is that when we look at our weighted average cost of capital for new acquisitions, we can lean in a little bit more. But with that said, cap rates continued, you know, said it in our prepared remarks, compress valuations rising. Floris indicated, you know, that the report about one large portfolio that is in, you know, sub five cap rate range. And as I spoke about, the demand for grocery-anchored shopping centers is really strong. The competition is steep in the transaction market, and we continue to see cap rates in the 4.5% to 5.5% range, depending on how stabilized they are, how much growth there is to still harvest coming out of the disruption from the last two years. But with that said, I go back to team, we have 22 offices across the country. We have boots on the ground. We have a competitive advantage with our cost of capital. We have a competitive advantage with our experience and our expertise. And we're like the Blakeney's that were sub 5% or like the Long Island portfolio that was north of 5%. There's going to be a little bit of a range, but it's going to be in that basically that band, if you will, for the quality that we're looking for.
Juan Sanabria
Helpful. Thank you. And then just a bigger picture question. I'm hoping you could help us frame how rents have moved or grown and kind of what you're expecting going forward on that front and compare that to cost growth. And is the difference maybe costs or outpacing rents, at least for now, a limiting factor in truly ramping up more significantly your development pipeline? Or how are you guys seeing that and thinking about those two variables as as drivers of capital allocation?
Lisa Palmer
Let me open. I'm going to toss to Jim to talk about the rents that we're getting. The fortunate thing with our type of product, we do have 10% to 14% of our space turn on an annual basis. So you do have an opportunity to kind of keep up with inflation, if you will, and mark rents to market, in addition to the fact that we're getting annual contractual rent steps and already getting 3% annual increases. So that's also helping us move towards inflation. But from the actual experience of 2021 and results with net effective rents, which also capture some of that cost increases for the capital that you're spending, we had great success. And the same with our developments in terms of underwriting our costs capturing that as we're thinking about the go forward, we're incorporating that, and we are still building that pipeline and anticipate being able to achieve the returns that we need to achieve. Right.
Christy
I would just pile on there on the inflation side. As I mentioned, in our redevelopment and development pipelines, we're continuing to perform as advertised on yields, and as we're underwriting new deals, Again, eyes wide open on the inflation, the timing delays. All those things are being built in, and we're maintaining what we believe are appropriate yields going in.
Michael
Thank you.
Operator
Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
Jeff Spector
Hi. Good morning. One follow-up on the guidance, and I apologize if I missed this, but, again, just thinking about, I guess, the low end of the same store NOI guidance at 2.75%, what would cause you to be at that low end? Is it simply thinking about more of a flat occupancy? Like, what would cause the bottom end to occur?
Lisa
Hey, Jeff. Appreciate that. It would be a different view on move outs primarily, to your point. And it would also include maybe a bit of a delay on contributions from some of our redevelopments as well, a timing delay. In combination, that would be the support for the low end. We have planned for move out activity in 22 to be consistent with our historical averages. You know, Jim mentioned our higher retention rate, but the plan for 22 would be that we revert on the margin down into kind of a more normalized level of move outs. And that's part of the business. Tenants will move out. In our best of times or normal times, you know, a 75% retention rate is considered pretty normal. So that downside would include a little bit worse environment, if you would, on the move out front. I think I'm looking around the table at Jim and Lisa. We're very confident. with the midpoint of this range. As we sit here in mid-February and think about the environment we're in, coming out of this Omicron wave, all else being equal, and if we continue on this path, we're pretty confident in delivering at that midpoint, and hopefully our eye level is north of that.
Jeff Spector
Thank you. And then just a big picture question, Lisa, you've mentioned grocery anchored centers, And we still receive a lot of incoming questions on brick-and-mortar grocer, I guess. Just big picture, what are your latest thoughts on that business? What are you hearing? What are the grocers doing to keep the brick-and-mortar relevant versus, let's say, this more elevated e-commerce for grocer?
Lisa Palmer
I appreciate the question. Jeff, but I don't know that it's really changed very much in the last 12 to 18 months. There was certainly a lot of acceleration in the early parts of the pandemic with regards to how grocers were reacting and how they were adapting, if you will, to the new challenges. I think that You've heard me say this before, and it's not just for grocers. It's for all retailers. The most profitable way for them to get their goods into a customer's hands is for the customer to come into the store. So they continue to invest in the store as well in that experience. But at the same time, they understand the competitive need to be able to serve the customer well. through the other methods, if you will. And that is curbside, which a lot made really, really quick advances because they had to during the beginning of the pandemic. And the successful operators are now doing that extremely successfully. And so curbside is one, no doubt. And then last is the home delivery. And again, they recognize the need, though it's clearly the least profitable for all. And we see that. That is, I mean, look at what Amazon is doing with opening stores so that they can also complement their home delivery with curbside and with pickers, if you will, anything to get closer to the customer, that last mile. And our grocery stores, our shopping centers, have that last mile distribution capability. And so a lot of the operators are then investing into that. And you're seeing different means of testing R&D, right? Kroger is doing more of the, as we know, right, the Ocado. You're seeing, you know, Albertsons is probably investing the most right now in micro-fulfillment. HEB is doing a kind of a A combination of both. And all of the better operators are investing. They're investing in technology. They're investing in the customer experience. They're investing in delivery, if you will, whether it's from their store curbside or whether it's to the homes. And again, the last mile matters. And that's where we're positioned.
Jeff Spector
Thank you. And then just my last question, I guess, whether it's dispositions or... As you think about the portfolio positioning for the next few years, can you just talk about regions? And are there any regions you're hoping to maybe lighten up on or add to?
Lisa Palmer
We like the markets that we're in. You've heard us speak in the past that I do think that the pandemic has actually provided a lot of tailwinds for suburban shopping centers. which, again, is where we are located. Also, there have been some migration patterns, and markets are seeing accelerated population growth that they weren't seeing before. I'd love to talk about my hometown as one of those. Jacksonville is seeing quite a bit of population growth. It is a market that we will be looking more aggressively for potential new investment opportunities. You've heard us talk about Phoenix as a market that we are currently not in. It is one that we've added to our target market list, if you will. But beyond that, we like the markets we're in. We're going to continue to invest capital in compelling opportunities. Trade areas matter. And that is really where we focus our attention. It's on trade areas.
Jeff Spector
Great. Thank you.
Operator
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Anthony Powell
Hi. Good morning. This question – On its development, I guess there seems to be more interest in doing things like life sciences, apartments, and offices in suburban, I guess, areas. Have you looked at your portfolio to see if there's an opportunity to systematically mine these development opportunities like you have done with Costa Verde, or are there going to be kind of more one-off deals?
Lisa Palmer
We are constantly evaluating how we can maximize the value at all of our properties, whether that is specifically just harvesting land and growing retail NOI, or whether there's an ability to add different uses. It is a daily conversation at our asset management level. And we do have future opportunities. We've alluded to some in our supplemental disclosure, and we'll continue to have some. We have a portfolio of over 400 shopping centers across the country, and we own really great real estate dirt under the shopping centers. Um, we will continue to target development spend in that 150 to $200 million on an annual basis. And some of that's going to come from properties that we already own. Got it. I guess.
Anthony Powell
Do you see, I guess, you know, a higher mix of new mixed use development or I guess things like that relative to prior levels or is it going to be kind of similar to what you've done before?
Lisa Palmer
No, and again, looking at Costa Verde as an example, we are going to be focused where we can extract the value from the retail to the extent that the capital to be invested for other uses, our goal would be to use an experienced partner, perhaps ground lease that or sell it like we did with Costa Verde. So our dollars invested are going to be focused on retail. Got it. Okay. Thank you.
Operator
Our next question comes from the line of Keebin Kim with Truist. Please proceed with your question.
Keebin Kim
Thank you. Good morning. Quick question on your non-same-store NOI projections for 2022. It's expected to be a two-cent drag. I'm just curious about that. Is that because of those J-curve nature to some of the development where it's dilutive in the beginning that you should regroup later? If you can help understand that line item better.
Lisa
No, I appreciate that question, Keegan. Actually, the same property pool basically is all of our assets at this point in time. So we really don't have much remaining in the non-same pool. This is our captive insurance program that we have classically held in our non-same property pool. And what you're seeing here is an incredibly positive 2021 from a claims perspective. We are anticipating in this guidance that, again, we revert to more classic or historical levels of claims. But what you had was a year and 21 absent any hurricanes, absent any tornadic activity. So we're planning for, knock on wood, that that would not recur this year.
Keebin Kim
Got it. And can you help us understand how mechanics of your expense reimbursement that you're recouping, given the inflationary environment that we're in, I'm curious if expenses go up 10%, how much of that are you actually able to pass on to tenants versus creating maybe some additional leakage that might be dragging things right away down?
Lisa
Yeah, I mean, on a current year basis, our recovery rates, we anticipate maintaining at historical levels and growing as we grow our commenced occupancy. We do have that unique one-time item in 21 in the second quarter, which was really a follow-on from 20. If you really trace it back, we were concerned about collecting on recoveries in 21 coming out of the depths of the pandemic in 20. And that's reverberating through our 22 results. So again, you know, unfortunate, some noise. That's in that noise category. But on a current year basis, we feel confident in whatever increases are to occur on the expense line items, which we are not anticipating to be I think our expense growth is in line with historical averages. We're anticipating an ability to pass that through and maintain our recovery rates. Okay. Thank you.
Operator
Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question.
Greg McGinnis
Hey, everyone. Obviously, a lot's been covered, so just one for me, and I apologize if this is a already been discussed, but regarding the $85 million impairment this quarter, where Potrero was expected to be a transformative redevelopment project within the Equity One portfolio, it appears you're now looking to offload that property. Can you just provide some background on the evolution of that site and why it's no longer a fit for the portfolio?
Lisa
Sure. And good morning, Greg. So really, let me handle it from an accounting standpoint first, and then... Lisa or I, we can talk about the future prospects of the project. But impairments are really about hold period analysis. So as we do our work to essentially measure all of our assets, the assumption of hold period is the biggest assumption towards whether or not you have to mark your assets to market. So obviously, sales are a classic example of when you mark your assets to market and you recognize an impairment or a gain. In this case, together with some of our movement on an asset like Costa Verde, together with some movement in that center city, particular trade area of San Francisco, the probability of sale increased to a level where that trigger from an accounting standpoint resulted in a requirement to mark the asset to fair market value. So you go through that exercise as you're required to do. And the valuation that is supporting that mark is a current valuation as supported by market participants and brokers on what I would deem a retail-only long-term basis. So that's what happened from an accounting standpoint. Petrero is a great asset. It's a very good retail center. At the time of the original allocation of basis post-merger with Equity 1, there was a near-term plan in place that involved a material densification project. And to Lisa's point previously, if you think about the allocation of retail to non-retail, it was a significant amount of non-retail densification. And she articulated very well our plans going forward, which is to mine to the best of our ability and extract where we can the retail component of projects, but to use other means of extracting value on non-retail. So that could, again, include selling air rights. It could include joint ventures. It could include ground leases. It could include monetizing assets and redeploying that, maximizing land value and redeploying that capital as we did from Costa Verde into the Long Island portfolio.
Lisa Palmer
I don't have that much to add. I think, Mike, you covered it. It becomes essentially a financial analysis decision. It's similar to Costa Verde, similar to Sequoia. It's a great retail site, but what path maximizes the value while managing the risk? And we haven't made a decision. I mean, it's not held for sale, but the probability of the whole period, that changed. which triggered the impairment evaluation and analysis. But still more to come. We have not made a decision on that asset.
Greg McGinnis
All right. Well, thank you very much for the clarity there.
Operator
Our next question comes from the line of Mike Muller with JP Morgan. Please proceed with your question.
Mike Muller
Sorry about that. I just have a quick one. Just given the demand picture, is there any chance we could see the 150 to 200 development spend accelerate?
Lisa Palmer
For 2022, the probability of that's not very high because it does take time. And remember, while we have the best team in the business and they were working throughout kind of the disruption period, we did pause for a period of time when there was no visibility to how long this would last. last, if you will, starting in April of 2020. We flipped the switch back on pretty quickly, but that pause still created a little bit of a delay, if you will, and we are rebuilding and there is a potential for it in future years, certainly not for 2022.
Mike Muller
Yeah, I was thinking more over the next three years or so.
Lisa Palmer
Mike, I'd love for you to come set goals for my team and speak to them and and let them see if they can do more. The more we can do, the better, because we can fund it.
Mike Muller
Okay, that was it. Thank you.
Operator
As a reminder, it is star one to ask a question. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Linda Tsai
Yeah, hi. In terms of the comments that 1Q would see a bigger benefit, I think from prior period collections, in terms of the percentage that 1Q will comprise what would that look like? I think in the past it's ranged from like 23 to 25% in recent years pre-COVID.
Lisa
Yeah, I'm going to go back to the comments, Linda, and just kind of leave it there. But we're coming off an $18 million Q1 charge from bad debt or uncollectible lease income in Q1 of 21. And recall Q4, we're down to about $2.5 million of a quarterly charge, which, you know, could replicate in Q1 of 22 could improve as we continue to see improvements in cash collection rates. So that's going to be the difference. And what we wanted to do was be mindful of the fact that there's going to be continued variance in that percentage and that Q1, there's a probability that Q1 could have a rate of growth that's higher than the top end of our range and will float back down to within our range over the course of the year.
Linda Tsai
Thanks for that clarification. And then just in terms of higher energy costs and consumers staying closer to home.
Rich
Sorry about the drilling.
Linda Tsai
Are you seeing any bifurcation between the high and low end consumer in terms of spending strength?
Lisa Palmer
We don't necessarily, I mean, we have a pretty consistent investment philosophy. We don't actually have that wide of a kind of a range, if you will. But I think it is more about suburban close to home than it is necessarily about the high end and low end consumer. Dollars are being spent within a relatively small circle around consumers' homes. Although travel did pick up too. I'm sure you've seen that as well in December of 2021, topping 2019. So we are seeing the return of the consumer despite inflationary headwinds. the consumer is spending.
Michael
Thank you.
Operator
Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.
Chris
Hey, good morning, everybody. Mike, thanks so much and your team for all the detail. It really helped me narrow down some of the gap between my expectations and your guidance. But I did want to sort of maybe dig into one other area or two other areas along those lines. On the higher period rent guidance number, is there an upside to that number that you can quantify for us that could happen in 2022?
Lisa
It's a great question, Chris. Let me show you where to look, and then we'll talk a little bit about prospects. So we have $13 million in of prior year collections, plus or minus, in the plan. If you look at our reserved AR, again, on that very helpful page 34 of the supplement, it's $50 million. So that's, in effect, largely cash basis reserves. I'd be very careful to think about that as a maximum potential collection opportunity. We've talked at length through 21, and we believe this into 22. What's remaining to be collected and what has been reserved is largely for Regency, a West Coast shop space local type of lien. We like the tenants we had in those shopping centers pre-pandemic. We continue to like those users and those tenants post. And the team, as directed by Jim, is going to probably more diligently use abatements as a tool. They were down for longer. The hole was deeper. Why go through the pain and the cost of replacing a tenant and absorbing the downtime in the capital? So that is, I would just, you know, some caution as we think about what is the outperformance potential of that $13 million assumption. That being said, it's been a hard number to handicap into 21, clearly. I think our initiating guidance in 21 was sub $10 million and we ended up at 46. It's a tough number to get our arms around. We think 13 is a really good estimate. Importantly, we've collected nearly 30% of that through January, but as time goes on, that collection rate will continue to grind down.
Chris
That's really helpful. Just thinking about your cash basis tenants, relative to what you were able to collect on a percentage of billings last year, was there any delta to that in terms of your guidance assumptions for 22?
Lisa
On the cash basis collection rate?
Chris
Yeah.
Lisa
I mean, again, that's going to come through our ULI assumptions initial from 21 to 22, but we're collecting 94% on our existing cash basis tenancy, which, again, today is 17% of our overall ABR. That is a pretty healthy rent. That's on current billings. I don't want to take that 94% and apply it to what we just talked about from a prior previously reserved amount. But if you think about what I said from a ULI perspective, that would imply going from 175 basis points of bad debt to in the 100 area, that would imply that we think our cash basis collection rate is going to improve from here. So we feel good about growth starting in 22 and beyond and moving occupancy in the right direction and moving uncollectible leasing income in the right direction. and moving commenced occupancy in the right direction.
Chris
Thanks for that, Mike. And then, Jim, just wanted to follow up on the permitting delays question. Is that mostly a West Coast phenomenon, or is it more widespread than just the West Coast?
Christy
Chris, I would say it's probably more predominant on the West, as they've been the slowest to recover. They're the laggards on things like this. So in most of the country, we're getting better service. And quite frankly, the West is catching up very, very quickly in all the major metrics. So I feel like that too will get cleaned up here pretty quickly.
Chris
Okay. And last question, Lisa. On your acquisition underwriting, and this may be way premature, but just wanted to understand Given the backdrop of inflation, does replacement costs become part of the underwriting criteria at this point, or are we well away from that?
Lisa Palmer
It really doesn't. When we are looking at evaluating opportunities, we are certainly just looking at what is the NOI growth profile, if you will. So the going in return plus growth. So essentially getting us to our unlevered IRR or a total return because our intent is to hold these assets forever.
Chris
Thank you guys for your time.
Operator
Our next question comes from the line of Tammy Fike with Wells Fargo. Please receive your question.
Tammy Fike
Thank you. Maybe just following up on Chris's question, what is happening with that bucket of tenants that is giving you confidence in collecting that $13 million of prior period rents? And maybe what isn't happening with the remaining portion that doesn't give you confidence in collecting that? And does that full $50 million remain in occupancy today?
Lisa
Yeah. It's really timing, Tammy. And Jim has hit on it and we've hit on it kind of repeatedly through 21. It's it's the West coast just being a couple months, three months behind. And it was a very deliberate snowflake tenant by tenant approach that Regency's employed into working through and resolving outstanding obligations. So, um, you know, we, we worked through a large component of what was an original 85 or so million dollar reserve on 2020 rents, uh, looking back at year end 20, into the more rapidly recovering on the East Coast, specifically the Southeast, moving into the Central, more rapid recovery. And now the West, behaviorally, has been very similar to those regions. But again, the difference has been just the time that they were down. The hole that was dug was deeper. And it's just, we've made the assessment that it may not be appropriate to chase after previous rent at the risk of future rent. And again, making these, literally, case by case, going back through your rent rolls, do you have the right operator, do you have the right use, do you want this use in your space going forward, and do you want to avoid the downtime? I think I'd leave it at that, Tammy, for the color as to why that difference to the 50 million exists.
Michael
Okay, thanks.
Christy
To me, when you look at the cash collections and where we are in the West Coast at 98, and you look at some of the tougher categories, the personal services up to 97% collection, you're looking at fitness up to 95%. The way I interpret that is we have picked the ponies we want to ride going forward. And to Mike's point, we are now in the delicate balance of how much how much more do you want to push on collecting really old rents? And we're, we're looking more forward than we are backwards quite frankly today.
Lisa
No financial impact because of the result. Correct.
Tammy Fike
Got it. Thank you. That's helpful. And then just, just one more, I'm thinking about the 1.3% annual contractual rent increases embedded in same store NOI growth. And I know Jim, you mentioned 2% on new leasing activity. I guess, are you able to drive that portfolio level higher over time, particularly given the inflation levels today?
Lisa
We hope so. But, Tammy, it's a tough mountain to move. We have long targeted 1.5% as an upper end of our ability to get there over time. And it's going to take a lot of time, to Lisa's point earlier, only turning about 10% of your portfolio annually. What's happening is we've had such great success over the last eight plus years embedding contractual increases into the majority of our shop spaces, really, that as those tenants are replaced with tenants, you're just replacing like-for-like contractual increases. So that is the ability to push that number really ends up coming down to your recapture of anchor spaces. and your ability to embed contractual increases there. So, 1.3 today, really healthy number. It's moved off of 1.2 over the last several years. 1.4, I think, is visible, and 1.5 is an ultimate target, but that's going to take some time to get to.
Tammy Fike
Great. Thank you. Appreciate the time.
Operator
There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Lisa Palmer
Thank you. I just want to thank you all for your time. It was a long one this morning. And I look forward to seeing hopefully most of you live and in person this year. Thank you.
Operator
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
Disclaimer