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Kite Realty Group Trust (NYSE:KRG)
Q4 2020 Earnings Call
Feb 12, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2020 Kite Realty Group Trust Earnings Conference Call. [Operator Instructions]

I'd now like to hand the conference over to your host today, Mr. Bryan McCarthy, Senior Vice President, Marketing and Communications. Please go ahead.

Bryan McCarthy -- Senior Vice President of 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-Q. 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 A. Kite -- Chairman and Chief Executive Officer

Thanks, Bryan, and good morning, everyone, and thanks for joining us today. Well, we appreciate that this continues to be a challenging time for all of us, including our investors, tenants, customers, vendors and employees, but we obviously, hope this call finds you doing very well. Last quarter, we discussed how we seem to be closer to the end of the pandemic than the beginning. As we passed the one-year mark of the first reported case in the U.S,, we're more confident in that statement today. Currently, new cases are falling, while the vaccination rate is growing quickly. There is a sense of hope in the country that we didn't have nine, six [Phonetic] or even a few months ago. The sense of hope makes us believe that we're on the cusp of the country returning to a more normal life.

We continue to have very strong industry-leading collections. Fourth quarter collections are 95% of gross rent. As we discussed last quarter, this is a testament to our properties, our people and our processes. Even our third quarter collections continue to clip higher and now sit at 93% of gross rent build. While we will never stop pursuing the old rent, we believe the stabilization in rent collection quarter-over-quarter shows the worst is behind us. With that perspective, let's discuss our strategy going forward in a more normal environment.

The first part of our strategy is to continue to focus on warmer and cheaper parts of the country. The pandemic accelerated a migration to these cities and states that had already been under way. Technology improved the ability to move -- to more effectively work from home. Companies then realized they didn't need to be in major expensive hubs to attract talent. This accelerated large company moves to cities such as Dallas, Orlando and Nashville, to name a few. The growth will be dramatic and KRG will continue to position itself to benefit from that growth. This migration is far from over. And the advantage it presents is becoming more evident. The shift to warmer, cheaper locales is a key reason we purchased Eastgate Crossing in Chapel Hill, North Carolina. It's a premier asset anchored by Trader Joe's, located in a KRGs target market. Please note that we executed a non-disclosure agreement on the transaction. Therefore, we'll be unable to discuss details. what I can say, is the transaction was a win-win for both sides, and we are very happy to be the new owners, with plans to quickly increase the property's value.

The second part of our go-forward strategy is Leasing and filling the vacancy caused by the pandemic. We are already well under way and the momentum of last quarter has continued. KRG executed 60 leases for over 0.5 million square feet in the fourth quarter. Additionally, we are in the process of addressing over 80% of the 5.9% of ABR from bankrupt tenants. As a reminder, this is up from 65% last quarter despite additional bankruptcies in the fourth quarter, raising the impacted ABR from 5.4% to 5.9%. We currently have 19 vacant anchor spaces, and during our Big Box Surge a few years ago, KRG successfully backfilled 22 vacant anchors at accretive returns. We're hopeful to do the same with these vacancies.

Our new project anchor acceleration is already well under way and we've laid out the potential economics on Page 19 of our investor presentation. You'll see that assuming the current ABR for our in-place anchors. There is a potential mark- to-market of nearly 30%. To provide a specific example, we had seven Stein Mart locations become vacant this quarter. And over half of our year-over-year 490 basis point lease rate decline is from Stein Mart, whose average ABR at those locations was only $8.16. If we had to pick [Indecipherable] this was definitely the one. This temporary dislocation provides a great opportunity to backfill for the tenant who will not only pay market rent, but will drive significantly more customer traffic. As we examine new lease opportunities, please keep in mind the very cognizant of total return.

We're not going to spend unnecessary capital simply to inflate our lease spreads. We are going to do what makes the most financial sense for the company and our shareholders. Sometimes, this means a negative spread deal in exchange for limited or zero tenant allowance. The situation occurred this quarter. We had two fitness anchor tenants that declared bankruptcy in 2020. We executed deals to backfill those two spaces with minimal tenant allowances, resulting in negative spreads, but a significant return on cost. Excluding these two leases of over 100,000 square feet, our blended lease spreads would have been 13.4% on a GAAP basis and 6.8% on a cash basis.

Moving to shop vacancy, we have approximately 182,000 square feet of shop space to lease in order to get back to our industry-leading shop lease rate of 92.5% from the end of 2019. Since we've been there before, we are confident in our ability to once again reach these levels. As with the anchors, we've laid out the potential economics in our investor presentation. The final part of our go-forward plan is to maintain a strong balance sheet in order to take advantage of new opportunities. One opportunity was the purchase of Eastgate, another opportunity has been the redevelopment of the Macy's store at Glendale Town Center that began this quarter.

In addition to the multifamily development we announced last quarter at Glendale, we are bringing Ross Dress for Less, Five Below and Old Navy into the shopping center to replace part of the Macy's box. The highlight of the project is that due to a partnership with the City of Indianapolis in the form of a TIF bond, the net cost to us is only $3.9 million, resulting in a very compelling yield. This is another example of the KRG team adding value at great risk-adjusted returns. We'll continue to take advantage of the opportunities that present themselves, while always maintaining the strength of our balance sheet and our liquidity profile.

Before I turn it over to Heath, I want to again thank the entire KRG team. I really cannot express enough of my gratitude to the men and women of our team. The strength of our operations is just not possible without them. And we all look forward to shifting from surviving the pandemic to thriving in the future.

I'll now turn the call to Heath to discuss the balance sheet in 2021 guidance.

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Thank you, John, and good morning, everyone. As we kick off 2021, our posture of cautious optimism has developed into one of prudent opportunism. As we speak, COVID positivity rates are rapidly declining, the vaccine rollout is accelerating, and children are returning to the classroom. While we're not out of the woods, the clearing is sight.

When the pandemic first hit, we collectively made a promise to conduct ourselves in a way that would make us proud when looking back. Suffice to say, I'm proud of how well our people, properties and processes handled and continue to handle the pandemic. Our current focus is on the path forward, filling the COVID-related vacancies and leveraging our strong balance sheet and operating promise to prudently unearth future opportunities.

But before delving into the future, let's take a minute to discuss our fourth quarter results. We generated $0.29 of NAREIT FFO in the fourth quarter. Excluding the one-time impact of severance charges related to some management changes, FFO as adjusted is $0.33 per share. This includes $3.4 million of bad debt, $2.6 million of which is related to fourth quarter billings. As we did last quarter, we've disclosed the bad debt breakdown on Page 18 of our supplemental. On that same page, you will see that our billings dropped 1.3% as compared to the third quarter, primarily really related to Stein Mart.

Our balance sheet and liquidity profile remains strong in the fourth quarter. Our net debt-to-EBITDA, proforma for the Eastgate transaction was 6.8 times, down from 6.9 times last quarter. Just as important, our liquidity position remains strong. No debt maturing until 2022, only $12 million of outstanding capital commitments, and ample liquidity of over $560 million to address the current vacancies. John discussed the potential mark-to-market for the vacant boxes. I'd like to add some color on the potential capital outlay with the releasing not only the anchor spaces, but also the shops. As broken out on Page 19 of our investor presentation, we conservatively estimated that our releasing efforts will cost $100 per square foot for anchor and $55 per square foot for in-line tenants, making the total required capital around $67 million.

As a reminder, we completed the Big Box Surge, spending approximately $64 per square foot and our average cost for small shop leases in 2020 was $51 per square foot. In all cases, our potential releasing costs are well inside our current availability even before taking to account cash flow from operations, net of dividend payments.

Turning to our guidance for 2021, we are projecting FFO as adjusted to be between $1.24 and $1.34 per share. We are guiding to FFO as adjusted for one key reason, to reduce the noise from 2020 and provide a clean 2021 FFO run rate. Accordingly, our guidance excludes any impact from 2020 accounts receivable or 2020 related bad debt. By way of example, to the extent we are unable to collect any of the 2020 accounts receivable, it will become a bad debt expense in 2021, but it will be excluded from our FFO as adjusted. The same holds true in reverse. If we're able to collect on some of the 2020 bad debt, which we continue to aggressively pursue, we will recognize that as revenue, but it will also be excluded from our FFO as adjusted. In both scenarios, these potential changes in earnings are one-time items and would skew the 2021 FFO run rate. We will of course highlight the impact of these items throughout the year and we will continue to report NAREIT FFO.

The midpoint of our guidance assumes approximately $8.2 million of bad debt. The bad debt number is in addition to incremental vacancy included in our forecast for tenants that have or may stop operating. The $8.2 million was primarily sized based on the annualized amount of bad debt associated with the fourth quarter billings, less the budgeted vacancies. Basically, the midpoint of our guidance assumes that the 4% of revenues that we didn't collect in the fourth quarter is not collected in 2021, either by way of additional vacancy or uncollected revs.

Another slide we added to the investor presentation we think will be of interest is Slide 15. This slide expands on our detailed disclosure on Page 18 of the supplemental to incorporate how our 2021 guidance compares to 2020. The supplemental shows that fourth quarter recurring revenues have decreased approximately 7% as compared to the first quarter. This new slide shows that 2021 guidance is only 3% below the first quarter of 2020 annualized. Said another way, this shows that we believe the recovery is already under way.

Finally, this guidance assumes we will sell additional asset or assets to match fund the Eastgate acquisition. This is consistent with our message about match funding any acquisitions in order to keep leverage in check. While we are positive about what the future holds, we will always ensure not to take any step that will undo the progress we've made to-date. We have a strong balance sheet, our best-in-class leasing and operating platform, a portfolio of assets that has consistently outperformed the peer group over the course of 2020, a winning strategy that continues to pay dividends, and most important, a deep desire to meet and then exceed our pre-COVID levels across every single metric.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Floris Van Dijkum with Compass Point.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, good morning, guys. Thanks for taking my questions.

John A. Kite -- Chairman and Chief Executive Officer

Good morning, Floris.

Floris Van Dijkum -- Compass Point -- Analyst

Good Morning. Before I get --- nice disclosure, particularly Pages 15 and 19 of the deck you guys put out. I think that's -- hopefully that will -- some of your peers might follow suit and provide that kind of clear information. Can I ask you guys a little bit about -- you talked about match funding or your Eastgate acquisition. What additional non-core do you have? Or should we think about your ground rent income, for example, your $16 million of ground lease income that you could presumably sell at very compelling cap rates, which obviously could boost your earnings as opposed to selling another non-core assets. Can you walk through your thought process on that and give a little bit of insight?

John A. Kite -- Chairman and Chief Executive Officer

Sure. Yeah, I mean, look, I think all the above in terms of things that you mentioned are potentials for us, and we talked about in the past, Floris, with you and others you now, just in terms of on both fronts. We still have some assets that are attractive assets, but are potentially in markets that we don't view is where we want to be long-term. And then we also have, and we pointed out, in fact, if you look on the last page of our sup, we kind of break out our -- the components of NAV and then leave it to you for cap rates. But obviously, we have a significant amount of ground lease NOI as well. So bottom line, I'd stay tuned. I mean, we're actively working on what we talked about relative to the match funding. So we look forward to telling you what it is when we get it done, but we just don't -- we'll not assume that. We're not the kind of people to talk about stuff before it's done.

That said, we're very confident that we will be doing that soon. And that when we do that, this can be a very accretive transaction for us from those -- from the match funding, as the properties that we acquired as you know was 73% leased. So a lot of upside. And we're already actively engaged in creating value with that upside.

Floris Van Dijkum -- Compass Point -- Analyst

John, maybe if I can follow-up on that. Obviously, that you talked or I think it was Heath who laid out some of the upside, or maybe it was you, I cannot remember for now, on the Stein Mart. How advanced our discussions on that space? And how confident are you guys that you're going to make good progress this year on that space? Obviously, you're very forthright in terms of the upside potential in terms of rent spreads and returns on invested capital. How about the timing of that?

John A. Kite -- Chairman and Chief Executive Officer

I'll give you just a macro, and then I'd like Tom to address it a little more in detail. But bottom line is, as I said, it was me talking about Stein Mart. And I guess, I'm a little hurt that you don't know my voice by now Floris, but I can get over it. I can get over it. We'll cover it in the spring on a number seven. But honestly, look, and I mean it -- I mean it -- It was absolutely -- if you're going to have a tenant, may have that big of an impact on your leased percentage, right, that I know a lot of people look at. The reality is we were psyched, OK. I mean this is the tenant to lose. We've talked about it over the years. They're paying 8 bucks a foot. Look we -- I don't talk about it flippantly that unfortunately that this business went out of business because there was a lot of great people there. But what I do say is, for a long time we were in the position where we knew that this just wasn't a tenant that was going to survive. But based on lease contracts, we can't just say, hey it's time for you to leave.

So what I think is that people should focus on here, and the reason we laid it out in the investor presentation is two things. One, we're really good at this. We just did it a couple of years ago. We like it. This is what we do. We've always been -- The leasing efforts are the tip of the spear, I've said it many times.

And two, yes, we have a lot of deals active on and I'm going turn that to Tom.

Thomas K. McGowan -- President and Chief Operating Officer

Yeah. If you look at Stein Mart, let's say, we had seven active Spaces. We're very confident that we're moving through at least half of those. But the real benefit to the company, the real benefit to the shopping centers is you have a company, the sale was doing $5 million of revenue out of the store, very unproductive. Then, a scenario would be if you could replace that with someone like [Indecipherable] that is doing or could do $25 million out of that same store. So you're generating a heck of a lot more tires in your synergy, creating visibility. So we're excited not in terms of just our ability to get these leased, but to generate a better experience for our customers with better tenants, better rents, better spreads, etc.

Floris Van Dijkum -- Compass Point -- Analyst

And bottom line, we're going to get a mall leased.

John A. Kite -- Chairman and Chief Executive Officer

It's just a matter of time. I think what Tom is referring to is what we're -- We have these active deals right now, on half of them, but we'll get them all leased for.

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Yeah, I'll just add one. When I first came to Kite, I ask Tom McGowan, how do we get rid of these Stein Mart guys, and Tom said, they just keep renewing. So like John said, we're pretty happy that they're -- that if you had to pick an anchor, this is the one. One thing also important to point out, we did mention this in our prepared comments. So look what happened to our ABR. We were 18 last quarter, were 18 and 42, that's nearly a $0.50 pickup in ABR quarter-over-quarter. And a lot of that is because we've gotten rid of this $8 tenant. So a little bit of addition by subtraction.

Floris Van Dijkum -- Compass Point -- Analyst

Okay, thanks. One last question I guess for me. Maybe Heath, if you could put the $8 of bad debt reserve for this year into context and compare it to not last year, obviously because it was such a screw year, but compared to ' 19 what you guys had, and just to put any context?

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Yeah. So it was $8.2 million dollars Floris. And typically, we have about $3 million on a normal year of a bad debt reserve. And the way we size it, I said in my comments was we really took the intra fourth quarter bad debt number we annualized if -- we took account for those tenants that have bad depth, but were then being modeled as vacant. And then we looked at a couple of other tenant categories that we were still a little concerned on in the end and a little bit of a buffer on top of that. So that's where the $8.2 million came from. So again, it it's not quite 3 times, but almost 3 times as much as the bad debt in a normal year.

Thomas K. McGowan -- President and Chief Operating Officer

I mean, said another way, it's $0.06 a share of impact above a normal year. So it's significant.

Floris Van Dijkum -- Compass Point -- Analyst

Great, thanks guys. That's it from me.

John A. Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Katy McConnell with Citi.

Katy McConnell -- Citi -- Analyst

Hi, great, thanks. So wondering if you can update us on how January rent collections are trending so far? and your outlook for the rest of 1Q based on any new restrictions that we're aware that's impacting the portfolio today?

John A. Kite -- Chairman and Chief Executive Officer

Yeah, the collections in January are on track with our fourth quarter collections. And what was the second question Katy.

Katy McConnell -- Citi -- Analyst

Yeah. I was just asking about your outlook for the rest of 1Q and whether you have any restrictions impacting certain assets or markets that you're aware that could be?

John A. Kite -- Chairman and Chief Executive Officer

No, I think -- If we have improved, that we're good at collecting rent. I mean, I don't know. Okay, I mean -- so we'll continue to collect rent, we're good at it. Our tenants we're fortunate that we have a great relationship with our retailers and we're in the markets that we're in and that have, as I said on the last call, I mean there is a clear correlation between the markets that we're in and businesses being open. So I don't foresee any downturn. We'll see how this thing goes. We're not -- clearly we're not all the way out of the woods. We've been conservative in our projections. But it feels at this point that we will continue on that path.

Katy McConnell -- Citi -- Analyst

All right, makes sense. And then just regarding the Eastgate acquisition. Can you talk about the extent to which you have been working at other marketed opportunities? And just give some color on what the transaction environment first trip looks like today? And also what your plans are for adjusting the vacancy or adding value to that properties going forward?

John A. Kite -- Chairman and Chief Executive Officer

Sure. Yeah, look, this was a unique situation where this came along at the right time. And so we are very, very happy to have been able to get that done. Look, at at this point in the cycle, these are few and far between right now. There is a limited amount of buyers who can actually move quickly and close all cash. That was obviously one of the reasons this was able to happen. But it still, it's not opened up like it was before, Katy, it's going to take a little more time probably due to bid-ask spreads. But I think it's firming up and I think as people -- it sounds corny. But as we get into the spring, it's just going to feel better for people, and I think then you'll probably start to see more activity. But look, I mean -- the thing about it is, there is very low supply out there. So people generally don't want to -- they want to hold their assets unless it's a strategic change for someone, so that created this opportunity.

Katy McConnell -- Citi -- Analyst

Hi, great, thank you.

John A. Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi, thanks, good morning. John, you talked about warmer and cheaper markets, and that's been the company's strategy, in general, but you've also taken some opportunities to move into the New York MSA, for example, few assets in New York, Connecticut, New Jersey. Is there any interest in taking advantage of what may be better pricing in those markets? And if not, are those asset sale candidates.

John A. Kite -- Chairman and Chief Executive Officer

Yeah, good question. Todd, look, I mean, I think one of the things we do talk about the strategy, warmer, cheaper. And I think what we've tried to always say, look, that's where the majority of our rent is going to come from. I mean, as an example, Florida, Texas, North Carolina, those three states alone or over 50% of our revenue. That said, there is always going to be opportunities in markets that maybe don't fit that technical profile. So we will look at them and we will study them, and good real estate is good real estate, but it isn't going to be our primary focus. Our primary focus is going to continue to be invested -- the majority of our capital invested in what we call those warmer cheaper markets.

But to the second part of that question. Sure, I mean there is possibilities that we could recycle assets in the Northeast as your specific question, but we're not going to do it at below the value of the asset, right. So I think we need the world to firm up a little more, particularly, it would be nice if those markets opened in a major way, and I think that they're beginning to see that they need to and that there is no real data to support being closed. So I think as that evolves Todd, we'll take a closer look at that.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay, got it. And then on the asset sale that you're contemplating. How 'far down the road are you on match funding Eastgate? And then sort of following up on, I guess, Floris's question. Realizing that there are some leasing upside at Eastgate, can you characterize the pricing maybe in terms of the spread that you anticipate achieving vis-a-vis the capital recycling, John? I think you characterized it as being accretive. Is that in 0021 or longer-term?

John A. Kite -- Chairman and Chief Executive Officer

Well, I wasn't specific on timing for a reason. But I think Todd, what we're trying to say is that, I mean in the two-part question I guess. Number one, I said stay tuned earlier and I think that's the right thing because we're actively working on a couple of opportunities to match fund. So we're confident it will happen. I'm just not ready to say exactly the date or anything like that. And the great thing is as Heath ended in his prepared remarks. Our balance sheet was strong enough that we could do this and it really did not impact us. It did not impact our balance sheet as you can see. So that's a real positive. The match funding is just something we think is smart in this particular transaction, particularly because it is 73% leased and it creates this upside potential. That's what I mean by it being accretive transaction because obviously, we don't think it's going to stay 70% leased, and we are actively engaged in opportunities right now that would significantly increase the occupancy.

So long story short, I can't give the exact details of that Todd, but suffice to say, it was a great, great transaction for us. And it's just what we love to do we love. We love to find these opportunities where there is embedded value that we can go out and just fight to get, and that really motivates us frankly.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then Heath, on the guidance. So the bad debt assumption of $8.2 million for the year, which you talked about being roughly the 4Q ' 20 run rate. Is that a conservative assumption? Or do you not see that improving as we move throughout the year, as conditions continue improving and normalizing?

Heath R. Fear -- Executive Vice President and Chief Financial Officer

I think it's an appropriate assumption at the midpoint of our range. So you know listen, obviously still a lot of variables out there, and we hope that we can outperform it. But at this point in time, where we're sitting, that was a number we felt comfortable with.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right. And just lastly, then the -- also on the guidance. So I understand the assumption around not including any contribution either positive or negative to the guidance range from the 2020 reserves. But this quarter included a net $700,000 negative impact. Do you anticipate that the net impact from prior period adjustments could be negative for a period of time? Or would that potentially -- should we expect that to inflect to the extent that we continue moving toward a more favorable reopening environment?

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Yes, I think Todd the reason we actually are excluding them from our FFO is adjusted for that very reason because I don't know. So in the third quarter, it was $1 million on each side, so basically canceled each other out. In this quarter, it was $700,000 more of deemed uncollectible AR. What happens this quarter, honestly I don't know. And then really the reason we're doing this is because, listen, there's so many volatility -- so much volatility, and a lot of things we're doing to remove one more piece of volatility we thought was the best way of showing you a 2021 run rate despite by way of example. Yeah. We have $13 million of bad debt. We are chasing that debt. We have got collection teams. We have collection attorneys. We're going to do all we can to make sure we get that money.

If I collect half of that bad debt, that's $0.07 to the upside. And I'll tell you what, if I -- if I'm beating FFO estimates with that $0.07, that's not a quality beat, right. Just in the reverse, if all of a sudden during the quarter we deem some tenant have their ARB uncollectible and it's an expense, and I missed guidance or I missed earnings because of that expense, that's a non-quality miss, right. So for us, it's really just about giving you a very pure smooth number. And if I were you -- if I was one of the analysts, I would say to the extent we're breaking out that 2020 number in their guidance. I would ask them, how -- what is your assumption around what's happening. Is it a positive or negative swing. So for us, it's like you know what, we're going let it be were it is. We're going to remove one more variable and we're going to give you the cleanest 2020 number possible.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right, great. Thank you.

John A. Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning. Just echoing the prior -- on the guidance comment. I mean, I appreciate Heath what you guys are doing, but at the same time, it is preferable when everyone sort of dines on the same NAREIT definition. I understand that you want to exclude things that either throw the number one way or the other. But feel just for comparison it is. I think it is good to adhere to the NAREIT definition even though it has its flaws. But I appreciate what you're trying to do. The two questions. And first, whoever came up with Slide 27 in the deck. It's a bit of salt in our New York wounds, maybe you want to remove that slide going forward. Little painful to see how much we're losing out by living up here. So on the remaining 5% of rents that you haven't collected, I saw 4% with bad debt. But of those tenants, should we think about that there is another 4% of vacancy that comes? Or how should we think about that 4% number of bad debt as we think about you guys going forward?

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Yeah, I mean, listen, it's -- of that 4% of it, we handicap that about, 50% to 60% of it is still money good. So I wouldn't take that 4% and just say we're going to throw that out of the window or we're going to give up on it. So again, I think I'm talking to get back to that slide that shows you -- our annualized first quarter revenues to our guidance for '21, which shows that 30% is fine. So again, it's 4%, but it's -- like I said, we're not going to give up on it.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. But Heath, what you're saying is, of that 4%, a little bit more than half you think is money good.

Heath R. Fear -- Executive Vice President and Chief Financial Officer

I'll put this way. We have $4.4 million of uncollected rent and $2.6 million that we wrote-off. All right, so that 2.6 million of it, obviously, we think that's the 4%, right. We think that's not money good.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. So that's vacancy. So in other words, we're going to see vacancy rise by that amount? Or I'm just trying to just understand -- I understand the slide that shows the 3% down, which is awesome, but I'm just trying to understand how that relates to this 4%? And if we should expect the occupancy to go down by that amount.

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Yeah, [Indecipherable] where I will tell you is that you'll continue to see the spread between lease and occupied widen, right. In the height of the Big Box Surge, we had a spread that I think was highest 320 basis points. So as the year goes across, as we saw start [Phonetic] are signing up leases, you're going to see that spread widen out tremendously. And I could easily see it hitting 300 or beyond that based on the velocity of past deals that we get done over the next few years. I mean. This taking into account that we're--I mean that's a point in time, right. You're looking at a point in time and we're actively leasing, and this is all in that guidance that we gave you. And the other thing I want to tell you is, we are -- we are guiding to the as adjusted number, but we will report the NAREIT number every quarter. So if you -- it's out there, you're going to see it, all right. We're not reporting it. We have to report it.

And I got to lean into that a little bi, because the bottom line is, when 2022 comes around and we are comparing things to 2021, I think you're going to say, hey, that was smart, you guys did that because now we can figure out what the hell is going on with these other guys. So we'll see -- we'll see, but it isn't any -- it is far from us trying to not be transparent, it is the opposite, right. We're are going to clearly. Yeah, go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

Yeah. No, look I totally hear you and I totally understand what you guys are trying to do and I appreciate it. It's, that's not [Speech Overlap]

John A. Kite -- Chairman and Chief Executive Officer

I want everybody to understand that we'll certainly be showing both numbers and that -- in terms of the impact of the bad debt that Heath was talking about and how that relates to the leasing percentages, I think the point of the guidance was, we were being reasonable in all these assumptions and probably leaning toward conservative, but it is because -- we're talking about being out of the pandemic, but we're not. So we're still utilizing that caution as it relates to really everything in terms of the projections.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. And then the second question is, you guys obviously are stand out for on your not essentials for the number of tenants paying rent, open and all that fun stuff. Would you say it's just purely the difference in the COVID regulations in the municipalities, whereby most of your properties are located in states that didn't shut down and let their tents open? Or are there other specific screenings, maybe just the way the business models worked or the layout or something else that's also driving it, that it's not just purely, hey, the portfolio is weighted toward the Sun Belt, but there are other dynamics that are in there that allow these businesses to stay afloat and to reopen, because obviously early on a bunch would flow, which is negative cash drain, but they've all -- it seems like almost all of them that rebounded pretty healthily, so I don't know if there is something else specific that's driving that?

John A. Kite -- Chairman and Chief Executive Officer

Sure. I mean, great question. Look, I think when we lay out that little acronym that we've talked about the PPPs, people, properties, processes, that's real. And to the extent that -- yes, we are -- as I said, Florida, Texas, North Carolina is like 52% of our rent. But we have -- we obviously have lots of properties in other markets. And frankly, we have peers that own similar exposures that we've significantly out collected. So in the end of the day, it's never one thing, it's just not. And I think it's this combination of who we are as people, where these properties are located, and what our relationships are with the retailers. And I've said it a couple of quarters ago. Sometimes you would say well why -- you collected more theater rent than almost anybody or it seems like you're fitness guys are paying a little more. The restaurants look pretty good. We have only three what you would call white tablecloth restaurants, OK. So that's a factor there.

But in the end, it's all those things and these tenants ultimately decide. I want to work with Kite, and there are good landlord and they've been supportive of us in the past, and we need to support them, and damn, I need this location. I don't want to lose this location. And I always said to everybody, everybody underestimates how little supply there is in Class A open-air real estate rents, everybody. And I just -- you got to think about that. So it's all those things combined, Alex. But as you know, we are the kind of people that we just never stop going, and we're always, always on this. So ultimately it's going to be a great thing for both us and our customers.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thanks, John. Thanks.

John A. Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Chris Lucas with Capital One Securities.

Chris Lucas -- Capital One Securities, Inc. -- Analyst

Hey, good morning, guys. Just a couple of quick ones from me. I guess just on the transaction that you guys completed, sort of, I guess, thinking about it sort of in reverse. So you bought it and now you're going to look to finance it or essentially fund the acquisitions with the dispositions. Is that really a function of how you want to do things? Or is that a function of the market for finding things is just too difficult and so trying to pre-load the disposed is just not -- it's not -- this not warranted.

John A. Kite -- Chairman and Chief Executive Officer

I mean, look, Chris, I think it's probably everything right now, but the reality is we don't have to. We don't have to do anything and feel good. We'll will feel very good that this was a great transaction, and when it gets to stabilization it will be from an EBITDA standpoint, significantly higher than where it is right now. So we could just literally be, say, hey, this is a great deal, we don't need to do anything and our balance sheet will remain intact. I think what we're saying is, we're looking at options within the portfolio that don't have growth profiles that this has or maybe are little more dispersed geographically that we take advantage of it, and I think we can do that and that creates a lot of accretion when we do that. So I don't want you to think that we have to do it, Chris. We absolutely do not. It's something that we want to do. And I think we'll see what happens. And that's why we said stay tuned, and we are very confident in our ability to get things done. And when we do it, then we can talk about a little more in terms of the logic behind it, but that's the big picture.

Chris Lucas -- Capital One Securities, Inc. -- Analyst

Okay. Thanks, John for that. And then just on the dividend, you guys bumped it from the sort [Indecipherable] run rate is now $0.17. Just trying to understand sort of what the -- what is the sort of fundamental thought process behind or dividend distribution at this point?

John A. Kite -- Chairman and Chief Executive Officer

Sure. I think the dividend is in terms of the business practice behind it is kind of a lockstep. What we said earlier is that we're still subject to the pandemic and we're still being conservative with where we think we are in the timing of full recovery. So I think that's a big part of it. But essentially we look at the dividend less from these ratios that people throw out and more from cash flow. Where is our cash flow today, how do we see it growing, and where does this fit in. In light of the capex requirements that we also laid out, that are more significant in the next couple of years than they have been historically. So we've been to this movie before and we think it's smart to put ourselves in a position to not have the dividend drag on the cash flow, right. I mean, and I think that's not ubiquitous across our universe in terms of peers, but that's our our decision right now.

And keep in mind, I mean, I think when the pandemic was in its throws, the dividend was $0.05, but we were paying it, right. So we've come a long way, Chris. But I think we have a long way to go and I think as we evolve, we're going to look at this every quarter. We're going to look at our cash flow,we're going to look at the leasing patterns and adjust accordingly. But let me just say that, obviously we feel much better today than we did when we are paying a $0.05 dividend.

Chris Lucas -- Capital One Securities, Inc. -- Analyst

Okay, thank you for that, John. That's all I have.

John A. Kite -- Chairman and Chief Executive Officer

Okay, thank you.

Operator

[Operator Instructions] Our next question comes from Craig Schmidt with Bank of America.

Craig Schmidt -- Bank of America -- Analyst

Thank you. Given the increased leasing volume in the fourth quarter and looking at your leasing pipeline, I'm wondering do you think you can lease more square footage in '21 than you did in 2019.

John A. Kite -- Chairman and Chief Executive Officer

I mean, interesting question. I would think so just based on the fact that we have more available space to lease. But to be candid, Craig, we don't really set the goals by lease square footage. We're really looking at so many other things. Merchandising is very important to us. So I think you know, look, we'll see, it's early, we're just starting. But when you leased 0.5 million in the previous quarter, you look at the growth that we've had. I would hope so, but we're not. I'm not putting that out there, it's just not something that we're really focused on. We're really more focused on what we said, which is we're going to backfill the bankruptcy that was -- we're going to bank backfill the bankrupt tenants. We're going to backfill the boxes. We've done it before, literally a couple of years ago, and we're excited to do it again.

Craig Schmidt -- Bank of America -- Analyst

Great. And then given that backfilling, are you seeing a merchandizer tenant mix shift in your portfolio as you fill some of these previous vacancies, like the health club or Stein Mart and others?

John A. Kite -- Chairman and Chief Executive Officer

I mean I'll start, and I'll give Tom the floor. But I think we're seeing a really interesting opportunity to improve the merchandise, improve the tenancy. Tom gave one example with Stein Mart, right, in terms of like Total Wine, for example. But there is a myriad of tenants out there, and I'll give that to Tom.

Thomas K. McGowan -- President and Chief Operating Officer

Yeah, I would say just general diversity seems to be improving, and you look at the grocery -- if you look at the grocery side and you have all these -- it's been extremely active Trader Joe's out there, Whole Foods, Amazon different names pop up. You may see Sprouts Free Fire soon. You can see Fresh Market. So you're really putting on a position as as a landlord to have more and more options and fitness may not seem like something that will come back, but we're seeing activities on the [Indecipherable] Total Wine, and then the value guys. We met with a couple of them last week and we're getting ready on a deal with Buy Buy Baby, Old Navy, Five Below, TJ Burlington. So we feel is good about our inventory today as we did in 2019, that's for sure. In terms of our ability to find replacement tenants.

John A. Kite -- Chairman and Chief Executive Officer

I'll say it another way, Craig. I think there is more tenants doing deals right now than there was in 2019, that is unequivocal.

Thomas K. McGowan -- President and Chief Operating Officer

I believe so.

John A. Kite -- Chairman and Chief Executive Officer

And that shows the power that I mentioned earlier of well located open-air real estate that hasn't been built new since 2007, OK. Like, I mean, unfortunately I'm starting to feel like that was a hell of a long time ago, I was pretty young in 2007. So, I'll tell you, Craig. I mean, people are focusing on the negative of this. It is a positive, and is a positive for our industry, and we're going to be sector-leading, and how quickly we move on this.

Thomas K. McGowan -- President and Chief Operating Officer

And I think that also falls into our small shops, that convenience play, as people become busier and busier in one quick transactions and more shops. So we see that following not only on the box side, but on the shop side as well.

Craig Schmidt -- Bank of America -- Analyst

That's encouraging. And then just finally from me. The past year kite spent about $1.7 million on maintenance capex, in 2019 you spent $4.3 million. I mean I can see it being prudent that you might be pushing some of the capex down the road, but do you think there'll be an increase in capex spending in '21 versus '20.

John A. Kite -- Chairman and Chief Executive Officer

Yeah, I mean. I can tell you right now our budget in '21 is higher than our budget in '20 for capex spend. Obviously, that was heavily impacted by the second and third quarter in the depths of the pandemic, pulling back where we needed to. Some of it was a run -- it became a run-through in the sense that we were able to more efficiently manage these. But remember, we're heavily fixed CAM. So there is obviously a benefit to that, but we're never going to, what's the word -- we're never going to put ourselves a situation where we're deferring maintenance. We're not going to do that. We've never done that. If you visit and I hope you do, our shopping centers. Very quickly, I think you'll see that these things are well taken care of. I did want to my surprise visits last week and I'll call out the team down in Delray Beach and I pulled into the shopping center. Anyhow, they don't come, of course. And it looks damn good.

So look, I think we're really good at that Craig, and we're operators. I think Heath ended on that. We've always said we're operators. There is a lot of guys out there who are financial guys and all those other stuff. But we pride ourselves on being really, really efficient high quality operators, and that's what you need when you're in this kind of environment right now. You've got to have really good operators, and I think that's why we've, as he said. I mean we've outperformed in the metrics during the pandemic because when the tide goes out, you see who is running it, right. So we've done well there.

Heath R. Fear -- Executive Vice President and Chief Financial Officer

And Craig, I would add, in addition to sort of belt tightening during COVID. Remember that the 2019 number included a bunch of assets that we sold. So that capex number had dollars associated with the 24 houses we sold. So our run rate on a go forward basis is likely going to be less that what you're seeing in the 2019 numbers.

Craig Schmidt -- Bank of America -- Analyst

Great, thanks for the thoughts.

John A. Kite -- Chairman and Chief Executive Officer

Thank you.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to John Kite for closing remarks.

John A. Kite -- Chairman and Chief Executive Officer

Well, I just want to thank everyone for joining us, onward and upward. Thank you.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Bryan McCarthy -- Senior Vice President of Marketing and Communications

John A. Kite -- Chairman and Chief Executive Officer

Heath R. Fear -- Executive Vice President and Chief Financial Officer

Thomas K. McGowan -- President and Chief Operating Officer

Floris Van Dijkum -- Compass Point -- Analyst

Katy McConnell -- Citi -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Chris Lucas -- Capital One Securities, Inc. -- Analyst

Craig Schmidt -- Bank of America -- Analyst

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