John Kite: But to your point, Heath, you’re not seeing a change in the credit environment. Like the bad debt is just going back to sort of a normalized level. It’s not like you see it going there. It’s just sort of a placeholder for based on historic, right.
Heath Fear: Historically, Alex, we run between 75 basis points and 100 basis points of bad debt of total revenues. We set it at 100. So we set it at the high end of our historical range. Nothing is leading us to believe that we’re going to be significantly higher in this historical range. But we thought that’s the right place to set it and we’ll see where things end up.
John Kite: Yes, I mean, Alex, if you look at, obviously fourth quarter, I mean, we’re at a little over 70 basis points in the fourth quarter. Some of that’s just going to be all that post COVID stuff is worn off, and we shouldn’t be collecting as much as we were in the past from previous receivables. But 70 basis points in the fourth quarter, that’s a very reasonable number. But again, beginning of the year, lots of things happening in the world. 100 basis points at the midpoint was the prudent thing to do. This feels like Groundhog Day. I remember this call a year ago, talking about the prudence of guidance and the way you go about it and the way you underwrite it. And maybe it’s just how we operate here at this company, but we are very granular. But in the end, it’s very early in the year, and it’s a dynamic world, a dynamic market, but our job is to outperform Alex, you know, that. That’s what we’re built on. So we look forward to the challenge.
Alex Goldfarb: Thanks, John. Thanks, Heath.
John Kite: Thank you.
Heath Fear: Thanks.
Operator: Thank you. Our next question comes from Jeff Spector with Bank of America. Your line is open.
Jeff Spector: Great. Thank you. Can you hear me?
John Kite: We can, Jeff.
Jeff Spector: Great. Great. Good afternoon. I wanted to discuss the leasing spend. John, you had mentioned the spend. I think it’s through maybe the second half of 2025. And the returns on that spend, I guess. Can we put that into context like how are those returns today versus historical and with the backdrop, right, the strength in demand? Again, how have you changed your mindset on when to spend, when not to spend.
John Kite: Yes. I mean, I think great question, Jeff. The returns are absolutely higher than they have been historically. But I would say that in the last post COVID, there was some disruption. But then as we got footing, returns really accelerated and I’m speaking for us right now. I don’t really know what other people are doing in terms of returns, but we’ve always tried to be conservative when we lay out what we’ve accomplished and then what’s out there still yet to do. So when you look at our investor presentation, there’s that contrast between what we’ve already accomplished, the 26 boxes that we leased, and then what’s left to do. But when I sit there and say we’re getting 30% returns on capital and 30% spreads, that’s the world that we’re actively engaged in right now.
There’s no reason to think that they would be a significant decline. But I’ll be the first to admit, those are very high numbers. They’re higher numbers than most of the peers. So it’s not like we’re just out there trying to get those numbers. We’re out there trying to get the best possible tenant for the shopping center. And I think I made mention of that in the prepared remarks, and it kind of is a thematic around. This is not a foot race. We’re in a long-term value creation business. And if we can keep doing those deals and we spend 200, probably a little over 200 in the next two years to do that, well, you can imagine why we’re so excited about AFFO and cash flow growth when we get to the end of 2025 and into 2026. And then we’re going to have tons of choices to deploy that capital, Jeff.
And by the way, the balance sheet at that point, if we just continue – if we don’t deploy it and we just continue to plow it into the company in terms of bringing down debt. I mean, you’re going to get your leverage down to the four times range. So a lot of optionality there, but at this point in time the market continues to avail itself to us in that regard.
Jeff Spector: Okay. Thank you. And to confirm, it sounds like again focus on the lease-up, not acquisitions, right, and development, of course, not acquisitions through 2025.
John Kite: Yes. I mean I think, as I was saying, when I laid out the plan for 2024 clearly, we’re always in the market. We’re always valuing what we own and valuing what’s out there. So we will transact, but it will be on the margin most likely and we like to do it in a neutral way or accretive way. So that takes effort. It takes a lot of time, but that’s what we’ve been able to do. As we – but in terms of deploying capital into acquisitions that would go away that would take away from our lease-up program, absolutely, we will not be doing that.
Jeff Spector: Great. Thank you.
John Kite: Thanks.
Operator: Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is open.
Michael Mueller: Yeah. I was wondering, can you talk a little bit about how you see build occupancy trending through 2024 into 2025?
