Q4 2020 Kite Realty Group Trust Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020, Kite Realty Group of Trust earnings Conference call.
At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.
After the presentation, there will be a question and answer session to ask the question during the session and you will need the press Star then one.
I'd now like the hand, the conference over to your host today, Mr. Bryan Mccarthy Senior Vice President marketing and Communications. Please go ahead.
Thank you and good morning, everyone and welcome to Kite Realty Group fourth quarter earnings call. Some of today's comments contain forward looking statements that are based on the 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 companys results. Please see our SEC filings, including our most recent 10-K.
Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.
On the call with me today from Kite Realty Group are chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom Mcgowan Executive Vice President and Chief Financial Officer Heath Fear Senior Vice President and Chief Accounting Officer, Dave fuel and senior Vice.
President capital markets and Investor Relations, Jason Colton.
I'll now turn the call over to John.
Thanks, Brian 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 of you're doing very well.
Last quarter, we discussed how we seem to be closer to the end of the pandemic and the beginning.
As we passed the one year Mark of the first reported case and the U S.
We're more confident and that statement today.
Currently new cases of falling while the vaccination rate is growing quickly.
And the sense of hope and the country that we didn't have nine six or even a few months ago.
And the sense of hope makes us believe the we're on the cusp of of the country returning to a more normal life.
We continue to have very strong industry, leading collections.
Fourth quarter collections of 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 billed.
While we will never stop pursuing the old rent and we believe the stabilization and rent collection quarter over quarter shows the worst is behind us with.
With that perspective.
Let's discuss our strategy going forward and the more normal environment.
The first part of our strategy is to continue to focus on warmer and cheaper parts of the country. The.
<unk> accelerated the migration to the cities and states that had already been underway.
The technology improve the ability to move to more effectively work from home.
Companies and realize they didn't need to be and major expense of hubs to attract talent.
This accelerated large company moves the cities, such as Dallas, Orlando and Nashville to name a few.
The growth will be dramatic and care G and will continue to position itself to benefit from that growth.
This migration is far from over and the advantage of it presents is becoming more evident.
The shift of warmer cheaper locales is the key reason, we purchased Eastgate crossing and Chapel Hill North Carolina.
Its a premier asset anchored by trader Joe's located in and of <unk> target market.
Please note that we executed a nondisclosure agreement on the transaction and therefore, we will 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 and as leasing and filling the vacancy caused by the pandemic.
We are already well underway and the momentum of last quarter has continued.
K R. G executed 60 leases for over half a million square feet and the fourth quarter.
Additionally, we are on the process of addressing over 80% of the five 9% of ABR from bankrupt tenants.
As a reminder of this is up from 65% last quarter, despite additional bankruptcies and the fourth quarter raising the impact impacted ABR from five four to five 9%.
We currently have 19 vacant anchor spaces and.
And during our big box surge of few years ago, <unk> successfully backfill of 22 vacant anchors at accretive returns.
We're hopeful to do the same with these vacancies are new project anchor acceleration is already well underway 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's the 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 of 490 basis point lease rate decline is from Stein Mart who's.
Whose average ABR at those locations was only $8.16.
If we had to pick a day or to lose this was definitely the one.
This temporary dislocation provide the great opportunity to backfill with a 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 that we're very cognizant of total return.
We're not going to spend unnecessary camp 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 as means of negative spread deal and exchange for limited or zero tenant allowance.
The situation occurred this quarter, we had two <unk>.
Fitness anchor tenants the 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 costs.
Excluding these two leases of over 100000 square feet are blended lease spreads would have been 13, 4% on a GAAP basis and six 8% on the cash basis.
Moving to shop vacancy, we have approximately 182000 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 and our ability to once again received levels and.
And as with the anchors, we've laid out the potential economics, and our investor presentation.
The final part of our go forward plan is to maintain a strong balance sheet and order to take advantage of new opportunities.
One opportunity was the purchase of East gate. Another opportunity has been the redevelopment of the Macy's store at Glen Downtown Center. The began this quarter and addition to the multifamily development, we announced last quarter at Glendale, and we are bringing Ross dress for less five below and old Navy into the shopping center to replace part of the Macy's box.
<unk>.
The highlight of the project does it do to our partnership with the city of Indianapolis and the form of a tip on the.
The net cost to us as the only $3 9 million, resulting in a very compelling yield.
This is another example of the care G team, adding value at group at Great risk adjusted returns.
We will 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.
And again, thank the entire <unk> team.
I really cannot express enough of my gratitude to the men and women of our team.
The strength of our operations.
It's just not possible without them.
And we all look forward to shifting from surviving the pandemic to thriving and the future.
I'll now turn the call the Heath to discuss the balance sheet and 2021 guidance. Thank you John and good morning, everyone. As we kick off 2021 of our posture of cautious optimism has developed into one of the prudent opportunism and.
As we speak Covid positivity rates of rapidly declining the vaccine rollout is accelerating and children of returning to the classroom.
While we're not out of the woods the clearing his insight.
When the pandemic first hit we collectively made a promise to conduct ourselves and 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-19 related vacancies and leveraging our strong balance sheet and operating promise to prudently unearth future opportunities.
But before delving into the future so let's take a minute to discuss our fourth quarter results.
We generated 29 cents of NAREIT, <unk> and the fourth quarter and.
Excluding the onetime impact of severance charges related to some management changes and <unk> as adjusted is 33 per share. This.
And this includes $3 $4 million of bad debt $2 6 million of which is related to fourth quarter billings as.
As we did last quarter, we've disclosed the bad debt breakdown on page 18 of our supplemental on that.
At the same page you will see that our billings dropped one 3% as compared to the third quarter primarily related to <unk>.
Our balance sheet and liquidity profile remains strong and the fourth quarter, our net debt to EBITDA pro forma for the East Gate transaction was six eight times down from six nine times last quarter, just as important our liquidity position remains strong and no debt maturing until 2022.
And 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 would the releasing not only the anchor spaces, but also of the shops.
As broken out on page 19 of our Investor presentation, we conservatively estimated that our re leasing efforts will cost $100 per square foot for anchors and.
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.
And our average cost per small shop leases and 2020 was $51 per square foot.
And all cases, our for our potential releasing costs are well inside our current availability, even before taking into account cash flow from operations net of dividend payments.
Turning to our guidance for 'twenty and 'twenty one.
We are projecting <unk> as adjusted to be between $1 24, and $1 34 per share we're guiding to <unk> as adjusted for one key reason to reduce the noise from 2020 and provide a clean of 'twenty and 'twenty one episode run rate Accordingly, our guidance excludes any impact from <unk>.
2020 accounts receivable or 2020 related bad debt by way of example to the extent we are unable to collect any of the 2020 of accounts receivable and he will become of bad debt expense and 2021, but it will be excluded from our <unk> as adjusted.
The same holds true and reverse.
If we're able to collect on some of the 'twenty and 'twenty bad debt, which we continue to aggressively pursue we will recognize that as revenue, but it will also be excluded from our <unk> as adjusted and both scenarios. These potential changes and earnings are one time items and would skew the 2021 <unk> run rate.
We will of course highlight the impact of these items throughout the year and we will continue to report NAREIT <unk>.
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 science based on the annualized amount of bad debt associated with fourth quarter billings less the budget of vacancies.
Basically the midpoint of our guidance assumes that the 4% of revenues that we didn't collect and the fourth quarter is not collected in 2021, either by way of additional vacancy or uncollected rents.
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 the fourth quarter recurring revenues have decreased approximately 7% as compared to the first quarter.
And this new slide shows the 'twenty 'twenty, one guidance is only 3% below the first quarter of 2020 annualized.
Said another way this shows that we believe the recovery is already underway.
Finally, this guidance assumes we will sell and additional asset or assets to match fund the East Gate acquisition.
This is consistent with our message about match funding any acquisitions in order to keep leverage and check.
While we are positive about what the future holds we will always ensure and not to take any step that will undo the progress. We've made to date, we have a strong balance sheet are best in class leasing and operating platform.
Our 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 of deep desire to meet and then exceed our pre COVID-19 levels across every single metric. Thank.
Thank you for everyone for joining the call today operator. This concludes our prepared remarks. Please open the line for questions.
Ladies and gentlemen, and if you'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.
<unk> has been answered all of you wish to remove yourself from the queue. You may do so by pressing the pound key.
Again that is star then one to ask the question.
Our first question comes from the line of Floris Van <unk> with Compass point.
Thanks, Good morning, guys. Thanks for taking my warning.
Good morning, and Florida.
Good morning.
Before I get on my God.
The nice disclosure, particularly pages 15, and 19 of of the.
Of the deck you guys put out I think that's hopefully that'll.
Some of your peers might follow suit and provide that kind of clear <unk>.
Information.
Can I ask you guys a little bit about.
You talk about match funding.
You or your your escape acquisition.
You know what.
Additional non core do you have where should we think about.
Your ground rent income for example of your $16 million of ground lease income that you could presumably cell edge.
Compelling cap rates.
Which actually could booster 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.
Sure.
Yes, I mean, I look I think I think all of the above in terms of things that you mentioned are potentials for us and.
And we've talked about in the past Flores with you and others you know just in terms of.
And on both fronts, we still have some assets that are attractive assets for it but are potentially and markets that.
And 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 Sop, we kind of break out or the 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.
Stay tuned.
And we're actively working on on what we talked about relative to the match funding.
So we look forward to.
Telling you what it is when it when we get it done but we just don't we're not as you know we're not the kind of people to talk about stuff for before it's done that said, we're very confident that we will be doing that soon and.
And that when we do.
This can be a very accretive transaction for us from the from the match funding as as the property that we acquired as you know was 73% leased so a lot of upside and we're already actively engaged and create.
Creating value of that upside.
John maybe if I can follow up on that.
Obviously, you talk or I think of as Heath, who who laid out some of the upside for maybe with your camera for now on the Stein Mart.
Advanced our discussions on that space and.
And.
And how confident are you guys that youre going to make good progress.
This year on on that space, obviously, youre very forthright in terms of the.
The the upside potential in terms of of rent spreads and returns on invested capital how about the timing of that.
And 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 Florida.
I can get over it.
He will cover it will cover it and the spring on number seven.
Honestly look and I mean, it I mean, it was absolutely if youre if youre going to have a tenant may have that big of of impact on your lease percentage right that I know a lot of people look at the reality is we were site. Okay. I mean this is the tenant to lose we've talked about it over the years, they're paying eight bucks.
The 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 and 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 what what I think is that people should focus on here and the reason we laid it out and the Investor presentation is two things one we're really good.
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 it and I'm going to turn that to Tom Yes.
Yes, if you look at Stein Mart, and let's say, we had seven active spaces or very confident that we're moving through the at least half of those but the the real benefit to the company of the real benefit to the shopping centers as you have the company. The let's say it was doing $5 million of.
The revenue out of the store very unproductive and then scenario would be if you can replace that with someone like total wine that is doing or could do $25 million out of that same store, so youre generate and the heck of a lot more tires and of your centers youre, creating visibility so.
We're excited not in terms of just our ability to get these leased but the generate a better experience for our customers with better tenants better rents better spreads et cetera on bottom line, we're going to get them all leased so yes.
And then it's just a matter of time and I think what Tom is referring to is what we're the we have these active deals right now on on half of them, but we'll get them. All of these force, yes, I'll just add one when I first came of kite I asked Tom Mcgough, and how do we get rid of the Stein Mart guys and Tom said he they just keep renewing some of them like John said, we're pretty happy that there are the.
Have you had to take advantage of this is the one one thing also important to point out and we did mentioned this and are prepared comments, though look what happened to our ABR and and we were at 18 last quarter. We're in 18 and 42, that's nearly a 50 pickup and ABR of quarter over quarter and a lot of that is because we've gotten rid of of this $8 tenant and so a little bit of addition by subtraction.
<unk>.
Okay, Thanks and one.
One last question I guess for me, maybe Heath, if you could put the $8 of bad debt reserve for for this year into context and compare it to not last year, obviously, because it was such a screw year, but but compared to 19, what you guys had and just to put it in context.
Yes.
$8 $2 million florist, and typically we have about $3 million on a on a normal year of of a bad debt reserve and the.
And we size it I said and my comments was we really took the insurer of fourth quarter bad debt number we annualized it and we took account for those tenants that had bad debt book will then being modeled is vacant and then we'd looked at a couple of other tenant categories that we were still and a little concerned on and the end of the little bit of of buffer on top of that so that's where the $8 $2 million came from so again.
It's not quite three times, but almost three times as much as the bad debt and a normal year I mean said another way, it's six cents a share of.
Impact above a normal year, so it's significant.
Great. Thanks, guys. That's it for me.
Thank you.
Our next question comes from Katy Mcconnell with Citi.
So on.
And then you can update us on how January rent questions are trending so far and your outlook for the rest of one day.
And the new restrictions.
And taking the portfolio today.
Yes, the collections and January are on track with what our fourth quarter collections.
And what was the second question.
Yes, and just asking about.
The outlook for the rest of <unk> and whether you have any restriction and Pat Thank you.
Market.
Yeah.
No no.
Now I think we're.
If we have improved that were good and collecting rent I mean, I don't know.
So we will continue to collect rent we're good at it are tenants. We're fortunate that we have a great relationship with our retailers and where and the markets that we're in it did have as I said on the last call. I mean, there is a clear correlation between the markets that we're in and business being business as being open.
And so I don't foresee any any any downturn, we'll see how this thing goes we're not and clearly we're not all the way out of the woods, we've been conservative and our projections, but.
It feels at this point that we will continue on that path.
Alright, Thanks John.
And then just regarding the <unk> acquisition can you talk about the expense which day.
And yet there mark of that opportunity and just give some color on what the transaction environment.
Looks like today.
And also of what your plans are for John.
And the vacancy.
Of that property.
Sure.
Yeah look this was a unique situation.
You know, where this came along and at the right time and.
So we were very very happy to have been able to get that done.
Look it at this point and the cycle. These are these are few and far between right now there's a limited amount of 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's still it's not opened up like it was before Katie it's going to take a little more time probably.
Due to the 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.
Just going to feel better for people and.
I think then youll probably start to see more activity.
But look I mean, the thing about it is theres very low supply out there. So people generally don't want to.
I want to hold assets.
And unless it's a strategic change for some on so that created this opportunity.
Alright, great. Thank you.
Thank you.
Our next question comes from Todd Thomas with Keybanc capital markets.
Hi, Thanks, good morning.
John you talked about warmer and cheaper markets and that's been the company's strategy and.
General and but you've also taken some opportunities to move into.
And the New York MSA for example of few assets and New York, Connecticut, New Jersey.
Any interest in and taking advantage of what maybe better pricing and those markets and and if not are those asset sale candidates.
Yes. 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's always going to be opportunities and 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 of focus is going to continue to be invested.
The majority of our capital invested and 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.
In the northeast as your specific question.
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 and.
And of major way and I think that they are beginning to see that they need to and Theres no real data to support being closed so I think as that as that evolves Todd we'll take a closer look at that.
Okay.
Got it and then 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, Florida is question realizing that there's some leasing upside of at East Gate.
Can you characterize the pricing maybe in terms of the spread that you anticipate achieving these of V. The capital recycling John I think you characterized it as being accretive is that is that in 2021 or longer term.
Well I wasn't specific on timing for a reason.
But I think I think Todd what we're trying to say is that.
And the two part question I guess number one.
And I said stay tuned earlier and I think thats the right thing because you know we're actively working on on a couple of opportunities.
To match fund and so we're confident it will happen and I'm, just not ready to say exactly the date or anything like that.
And the Great thing is as Heath kind of ended with and 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 of smart and 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 the 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 of great.
Great transaction for us.
And it's just what we love to do we loved it and we love to find these opportunities where there is embedded value that we can go out and and just fight to get and that.
And that really motivates us frankly.
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 <unk> 'twenty run rate.
Is that is that a conservative assumption or do you not see that improving as we move throughout the year and as conditions continue improving and normalizing.
I think it's and appropriate assumption at the midpoint of our range. So obviously you still of lot of variables out there.
And we hope that we can outperform it but at this point and time, where we're sitting and that was the number we felt comfortable with.
Alright, and then just lastly, then the.
Also on the guidance so I understand the.
The assumption around not including any contribution.
And if it were negative to the guidance range from from the 2020.
The reserves.
But this this quarter included and net $700000 negative impact do you anticipate that the net impact from prior period adjustments could be could be negative for a period of time or would that potentially.
Should we expect that to <unk> and <unk>.
<unk> flat to the extent that we continue moving toward a more favorable.
And our reopening environment.
Yes, I think type of the reason, we actually are excluded them from our <unk> adjusted for the very reason because I don't know.
So in the third quarter, it was $1 million on each sides of basically canceled each other out and this quarter. It was $700000 more of the deemed uncollectible.
And what's happens this quarter I honestly, I don't know and they'll really.
The reason we're doing this is because listen there's so many volatility some of the so much volatility and.
And a lot of things were doing so to remove one more piece of volatility. We thought was the best way of showing you of 2021 run rate just by the way the way of an example, yes, we of $13 million of bad debt. We are chasing that bad debt. We've got collection teams. We have collection of 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 <unk> to the upside and I'll tell you, what if I'm, beating <unk> estimates of that seven.
Lot of quality beat right and.
And the reverse.
And all of a sudden during the quarter, we deemed from tenants have their ARV uncollectable, and it's an expense and I Miss guidance for I Miss earnings because of that expense thats of non quality Miss right. So for US. It's really just about giving you a very pure smoothed number and the.
If I were if that was one of the analysts I would say for the acceptance of the arent breaking out that 2020 number and their guidance I would ask them.
And what are your what is your assumption around what's happening is that of positive or negative swing. So for us. It's like you know what.
We're going to we're going to let it be one of this we're going to remove one more variable and we're going to give you. The cleanest 21 of 2020 number possible.
Alright, great. Thank you.
Thank you.
Yes.
Our next question comes from Alexander Goldfarb with Piper Sandler.
Hey.
Good morning.
And just echoing that.
On the prior year on the.
And the comment.
I appreciate you for you guys are doing but at the same time.
Per.
For the ball when everyone's sort of guide.
Guidance on the same NAREIT definition.
And I understand that you'd want to exclude things that either.
Throw the number one way or the other.
But bill 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.
Two questions and.
For whoever came up with slide 27, and the deck, it's a bit of salt and our New York wounds, maybe you want to remove that slide going forward little painful to see how much we're losing out by by moving up here.
So on the remaining 5% of rents that you haven't collected.
And I saw 4% with bad debt but of that.
The tenants should we think about that that there was another 4% of vacancy the come or how should we think about that 4%.
The number of bad debt.
As we think about you guys going forward.
Yeah on the line listen it's the of.
All of that for that for percent of it we handicapped that about.
The 60% of it is still money good so I wouldn't take that 4% and just say well you know we're going to throw it out of the window of we're going to give up on it so.
I think I'd harken back to the slide that shows you our our annualized first quarter revenues to our.
And to our guidance for 'twenty and 'twenty, one of which shows the 3% decline. So again, it's 4%, but it's but it's.
No.
Like I said, we're not going to give up on it.
Okay, but heath, what youre, saying is of that 4% a little bit more than half do you think is money good.
Well put it this way we have for $4 million of uncollected rent and $2 6 billion of it we wrote off alright, so that $2 6 million of and obviously, we think that's the 4% rate, we think thats not money good.
Okay. So thats 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 that slide that shows the 3% down which is awesome and I'm just trying to understand how that relates to this 4% and if we should expect.
And the occupancy to go down by that amount.
So we don't guide the occupancy what I will tell you is that youll continue to see the spread between leased and occupied and widen.
And the.
And at the height of the Big box surge, we havent spread I was think of as high as 320 basis points. So as the year of those across as we start signing up.
Leases youre going to see that spread widen out tremendously and.
I could easily say of hitting 300 are beyond that based on the velocity of box deals that we get done over the next two years.
Alex.
Yeah.
Yes, and just take into account that were I mean, that's the point in time right. You are looking at a point and 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 it's out there youre going to see it alright, we're not not reporting it.
We have to reported and and I got to lean into that a little bit because of the bottom line is when 2022 comes around and we're comparing things to 'twenty and 'twenty, one I think youre going to say Hey that was smart you guys did that because now we can't 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 for.
Far from us trying to not be transparent. It is the opposite right, we're making on China clearly yeah go ahead, but yes look I totally hear you and I totally understand.
What you guys are trying to do and I appreciate it that's got that right and claims John.
I know.
And I want everybody to understand that we'll certainly be showing both numbers and that you know in terms of in terms of the impact of of.
The bad debt the Heath was talking about and how that relates to the leasing percentages.
I think the point of the guidance was we were being reasonable and all of these assumptions and probably leaning towards conservative but it is because.
And we were talking about being out of the pandemic, but we're not so we're still utilizing that caution as it relates to really everything and.
Terms of the projections.
And then the second question is you.
You guys, obviously are standout for on your non essentials for the number of tenants paying rent and open and all of that fun stuff.
Would you say, it's just purely the the difference and the Covid regulations and the municipalities whereby most of your properties are located in states that didn't shut down and let their tenants open or are there other specific screening.
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 towards the Sun belt, but there are other dynamics that are in there that allowed these businesses too to stay afloat.
And to reopen because obviously early on and a bunch of will close which is negative cash stream, but.
They've all it seems like almost all of them have rebounded pretty healthily. So I didn't know if there's something else specific that's driving that.
Sure I mean, great question look.
When we lay out that the little acronym that we've talked about the three PS people proper.
Properties processes.
And 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 and other markets and.
And frankly, we have peers that own similar exposures.
And 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.
Of 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 geez you collected more theater rent than almost anybody or it seems like your fitness guys are paying a little more of the restaurants look pretty good.
Only three what you would call white tablecloth restaurants, okay. So that's a factor there but in the and.
And it's all of those things and these tenants ultimately decide I want to work with kite and there are of good landlord and they've been supportive of us and 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 and everybody underestimates, how little supply there is and class a open air real estate, Matt everybody.
And I just you got to think about that so it's all of those things combined.
Alex but as you know we are the kind of people that we just never stopped going and we're always always on this so ultimately it's going to be of great thing for both us and our customers.
Thanks, Thanks, John Thanks.
Thank you.
Our next question comes from Chris Lucas with capital one Securities.
Hey, Good morning, guys. Just a couple of quick ones for me I guess just on the transaction that you guys completed.
Sort of.
I guess thinking about it sort of and reverse so you bought it and now you're going to go look to finance that are essentially.
Fund the acquisitions with the dispositions is that really a function of how you want to do things or is that of function of the market for finding things, it's just too difficult and so trying to pre preload the disposals just not the.
It's not just is not warranted.
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 will feel very good that this was a great transaction and.
And when it gets to stabilization it will be from an EBITDA standpoint significantly higher than where it is right now. So we can just literally b C.
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 the or.
Maybe are a 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 is something that we want to do and I think we will see what happens and that's why we said stay tuned and.
We are very confident and our ability to get things done and.
When we do it and then we can talk about a little more in terms of of the logic behind it but that's the big picture.
Thanks, John for that and then just on the dividend you guys bumped it from the sort of thing within the stat.
That was 15% run rates of now 17, just trying to understand sort of what the.
What is the sort of fundamental thought process behind your dividend distribution at this point.
Sure I think I think the dividend is and as in terms of.
And the business practice behind it is kind of in lock step with what we said earlier is that we're still subject to the to the pandemic and we're still being conservative with where we think.
We are and the timing of full recovery. So I think thats, 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, whereas our cash flow today, how do we see of growing and where does this fit in light of the capex requirements that we also laid out that are more significant.
And 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.
That's not ubiquitous across our our universe and Tim in terms of peers, but that's our that's our decision right now.
And keep in mind I mean I.
When the pandemic was and it throws the dividend was <unk>, 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.
And much better today than we did and we were paying a five cent dividend.
Okay.
Okay. Thank you for that John and that's all of him.
Okay. Thank you.
As a reminder, ladies and gentlemen that is star then one of if you'd like to ask a question at this time.
Our next question comes from Craig Schmidt with Bank of America.
Thank you.
Given the increase leasing volume in the fourth quarter and looking at your leasing pipeline I'm wondering do you think you can lease more square footage and 21 than you did in 2019.
Interesting 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.
<unk> is very important to us.
So I think look we'll see it's early we just starting but.
But when you when you least half a million and the.
And in the previous quarter Youll 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 and we're really more focused on what we said, which is we're going to backfill the the bankruptcy.
We're going to backfill.
Backfill of the bankrupt tenants were going to backfill the boxes, we've done it before literally a couple of years ago and we're excited to do it again.
Great and then given that back filling or you've seen our merchandise of tenant mix shift.
On your portfolio as you drill some of these previous vacancies like the health club and Stein Mart and others.
I mean, I'll start and I'll give Tom Tom the floor, but.
I think we're seeing a really interesting opportunity to improve the.
The the merchandize and improve the tenancy.
Tom gave one example, with Stein Mart right in terms of like total wind for example, but there is a myriad of of tenants out there and I'll give that the Tom.
Yes, I would say just general diversity seems to be improving and.
And you look at the grocery and you look at the grocery side and.
And you have the all of these expense extremely active trader Joe's is out their whole foods Amazon different names pop up you may see sprouts for Firestone and you can see fresh market. So you're you're really put in a position of the landlord to have more and more options and <unk>.
And this may not seem like something that will come back, but we're seeing activity on the spirit side the <unk>.
And the.
Total wine and then the value guys.
We met what the couple of them last week, and we're getting already on a deal with buy buy baby.
Old Navy five below T J, Burlington and so we feel as good about our inventories today as we did in 2019, that's for sure in terms of our ability to find replacement tenants I'll say it another way Craig I think theres more tenants doing deals right now and then there was in 2019.
That is unequivocal and bullish and that shows the power that I mentioned earlier on.
And well located open air real estate that hasn't been built new since 2007, okay.
Unfortunately, I am starting to feel like that was a hell of a long time ago I was pretty young and 2007. So so I'll tell you Craig I mean people are focusing on the negative of this it is it is a positive and it is a positive for our industry and we're gonna be sector, leading and how quickly we move on this and.
I think that also falls into our small shops that convenience play and as people become busier and busier and and one quick transactions and more shops. So we see that following not only on the box side, but on the shop side as well.
That's encouraging and then just finally for me the past year Kite spent about $1 7 million on maintenance Capex and in 2019, you expense for three.
And he had been 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 and 21 versus 'twenty.
Yes.
I can tell you right now our budget and 'twenty, one is higher than our budget and 20 for Capex spend.
Obviously that was heavily impacted by the second and third quarter and the depths of the pandemic.
Pulling back where we needed to some of it was of run.
And became a run through and the sense that.
And we were able to the more efficiently.
And manage these but remember we're heavily fixed cam. So there is there is obviously a benefit to that but we're never going to.
What's the word we're never going to put ourselves of the 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 youll see the things are well taken care of I did one of my surprise visits last week and and I'll call out the team down.
And in Delray Beach and.
And I pulled them into the shopping center.
Non common of course and it looked damn good so.
Look I think we're really good at that Craig and where operators I think Heath ended on that we've always said we're operators. There's a lot of guys out there who are financial guys and all of the southern stuff, but we pride ourselves on being really really efficient high quality operators and that's what you need.
When you are and this kind of environment right now you got to have really good operators and I think that's why we've as he said I mean, we've outperformed and the metrics during the pandemic because when the tide goes out you see who's running it right. So we've done well there and Craig I would add and addition to sort of.
The belt tightening during the during Covid and remember that the 2019 number included a bunch of assets that we sold for that Capex number had.
Associated with the 'twenty for US we sold so our run rate on a go forward basis is likely going to be less than what youre seeing in 2019 numbers.
Great. Thanks, Thanks for the the thoughts.
Thank you.
I'm showing no further questions in queue at this time I would like to turn the call back to John Kite for closing remarks.
Well just wanted to thank everyone for joining us onward, and upward and thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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