We continue to have success pushing higher embedded rent bumps primarily in the small shops. In 2023, fixed rent bumps for new and non-option renewal shop leases were 300 basis points, which was 60 basis points higher than the in-place shop average. Improving our long-term growth trajectory will take time, but we remain focused on elevating the growth profile for the entire portfolio. We have duly recaptured space from poorly capitalized or lower growth tenants and replaced them with tenants that have superior balance sheets, better offerings and higher growth. As we've mentioned time and time again, we measure our leasing success in terms of tenant quality, merchandising, rent growth and return on capital. We kept our development spend in check, while at the same time preparing our pipeline for activation once we've completed the elevating leasing activity.

We relentlessly advocated for a ratings change resulting in an outlook upgrade from S&P, which we expect will materialize into a full upgrade to BBB in the next 12 months. During 2023, we sold four noncore assets for a mid-five cap, generating $142 million in proceeds. We purchased Prestonwood Place in the Dallas MSA for a high six cap for approximately $81 million. Over the past two years, the blended cap rates on dispositions have been approximately 125 basis points tighter than the cap rate on acquisitions. Based on our success in 2023, it follows that our action plan for 2024 would be very similar. We will aggressively lease up our vacancy while achieving higher embedded growth and enhancing the merchandising mix. Our signed-not-open pipeline increased to $31 million, and we expect 87% of the NOI to commence in 2024.

Over the first half of 2024, we expect the SNO pipeline to remain elevated, reflecting the velocity of new lease execution against the rapid pace of tenant openings. On Page 7 of our investor update, we detailed a compelling opportunity for investors based on the current share price and the potential prices at various capitalization rates taking into account the $31 million of signed-not-open NOI. It's important to note that this page does not account for any additional lease-up or the significant value of our entitled land bank. We expect to spend over $200 million on leasing capital in the next two years, while still generating free cash flow. As we've emphasized on numerous occasions, leasing space in this environment is hands down the best use of capital as it relates to the absolute and risk-adjusted returns.

It’s worth recognizing the longer-term AFFO cash flow and leverage implications due to our elevated leasing activity and associated capital spend. Looking at our model, our leasing spend begins to normalize towards the back half of 2025. At the same time, the incremental rent from all new leasing activity begins to peak, resulting in a meaningful earnings and dividend growth plus a dramatic increase in AFFO per share. Our leverage levels dip significantly and the cash available for investing activities ramps up to a level well in excess of $100 million a year. During 2024, we’ll keep our development spend in check and provide more detail on each of our opportunities when appropriate. We expect acquisitions will be match funded with proceeds from dispositions with the goal of exiting lower growth properties or one asset markets and relocating that NOI into our target markets.

We’ll also keep the pressure on the rating agencies in pursuit of ratings that more accurately reflect our credit metrics. Lastly, we’re embarking on an investor outreach plan called 4 and 24. Our goal is for investors to better understand the high quality of our portfolio and the depth of talent across the entire organization. We look forward to seeing many of you at our first event in Naples next week and at the subsequent events in Dallas, Washington, D.C., and Las Vegas. In closing, KRG produced another year of operational outperformance in 2023 and we intend to exceed expectations again in 2024. Thanks for your time and continued dedication and commitment. I’ll turn the call to Heath.

Heath Fear: Thank you, John. For the fourth quarter of 2023, KRG earned $0.50 of NAREIT FFO per share and $2.03 per share for the full year. During the quarter, same property NOI grew by 2.8%, primarily driven by 170 basis point increase in minimum rent and 120 basis point increase in net recoveries. For the full year, same property NOI growth was 4.8% with primary contributors being higher minimum rent, all time high overage rent and lower bad debt. As John mentioned, we exceeded our original 2023 FFO guidance by $0.11 per share. $0.07 of the increase is related to operational outperformance in our same property pool. $0.02 is attributable to properties outside the same property pool with the remaining $0.02 related to the net impact of non-cash items, termination fees and net transactional activity.

We are establishing 2024 NAREIT FFO guidance of $2 to $2.06 per share included in our guidance are the following assumptions. A same property NOI growth range of 1% to 2% and a full year of bad debt assumption range of 75 basis points to 125 basis points of total revenues. On Page 5 of our fourth quarter investor presentation, we set forth a bridge to quantify the impact of year-over-year trends in our 2024 NAREIT FFO guidance and the same property NOI growth assumption. It’s important to note that, but for the following three items, our 2024 same property growth assumption would have been 200 basis points higher at 3.5%. The net impact of the bankruptcy of Bed Bath & Beyond, the failure of a large theater tenant to renew its lease in November of last year and during 2023, the company experienced a historically low level of bad debt at 42 basis points of revenue, while the mid-point of our bad debt assumption for our 2024 guidance is set at 100 basis points of total revenues.

Taking a longer-term view on growth, from 2021 through the mid-point of our 2024 guidance, our FFO CAGR is anticipated to be 10.6% and our average annualized same property NOI growth is anticipated to be 4.4%. Also, it’s worth noting that from 2021 through 2023, our dividend CAGR was 18.8%. Our net debt to EBITDA stands at 5.1 times, which remains at the lower end of our long-term target. Additionally, our debt service coverage ratio remains above 5 times and we have over $1.1 billion of liquidity. Subsequent to quarter end, KRG returned to the public debt market by issuing a 10-year $350 million bond at 5.5%. The fact that we were more than 10 times oversubscribed was not by accident. We spent a year reintroducing KRG to the fixed income community and successfully navigated a very tight issuance window.

While we are very pleased with the execution and demand, we see an opportunity for further spread compression as our bonds become more liquid and our ratings improve. Proceeds from the bond will be used to satisfy all of our 2024 debt maturities when they come due at the end of June. In the meantime, we have the proceeds invested in an account earning interest in excess of the yield on the maturing debt. Thank you to the fixed income community for effectively rerating our cost of debt to levels that are more reflective of the state of our credit metrics. As John mentioned, we look forward to showcasing our Naples portfolio at our first 4 and 24 event next week. The dates of the next three installments in Dallas, D.C., and Las Vegas are available on our website.

Thank you for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions.

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