Kimco Realty Corporation (KIM) — Q2 2018 Earnings Call Transcript

Good morning, and thank you for joining Kimco's second quarter 2018 earnings call. Joining me on the call are Conor Flynn, our Chief Executive Officer; Ross Cooper, the President and Chief Investment Officer; Glenn Cohen, Kimco's CFO; David Jamieson, our Chief Operating Officer, as well as other members of our executive team that are present and available to answer questions during the call. As a reminder, statements made during the course of the call may be deemed forward-looking, and it is important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to the company's SEC filings that address such factors. During this presentation, management may refer to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in the Investor Relations area of our website. And with that, I'll turn the call over to Conor.

Thank you, Dave, and good morning everyone. Today I'll share an overview of our strong second quarter performance and an update on the progress made in executing our strategy. Ross will discuss our quarterly transaction activity and the current transactional environment. Lastly, Glenn will provide details on key metrics and our updated guidance for 2018. Execution remains our top priority as we reshape our portfolio for long-term growth and value creation. Our team is working diligently to enhance every aspect of our business, and our quarterly results confirm that our portfolio quality and value creation initiatives are yielding positive outcomes. We are now over halfway through the year, and the solid pricing from our asset dispositions gives us confidence in achieving our annual goal of 700 to 900 million in dispositions. The active private market valuations, along with readily available debt financing and strong pricing for our Midwest assets, continue to highlight the disparity between public and private pricing. Ross will elaborate on the positive pricing, execution, and capital formations we have seen recently. More importantly, as we reach our target dispositions for this year, we are positioned to resume growth as we enter 2019 with an improved portfolio, focusing on coastal markets with the greatest potential for growth and redevelopment. Our repositioned portfolio is delivering strong results. Leasing volume is nearing all-time highs for the company, as our team works hard to foster engaging campus environments where shoppers want to spend time. Our same-site NOI exceeded expectations this quarter due to high leasing volume, a decrease in new vacancies, and additional rent collected from our Toys 'R' Us boxes. The prolonged Toys liquidation process has given us a head start on re-leasing efforts. We are seeing substantial interest from major retailers in the off-price furniture, fitness, specialty grocery, and arts and crafts sectors. In total, we have 22 leases related to Toys 'R' Us, which are divided into OpCo and PropCo categories. We have already resolved seven of the 15 leases in the OpCo entity, with retailers taking over the entire Toys 'R' Us box. The remaining eight OpCo leases have strong tenant interest, and we are working quickly to finalize these deals. The PropCo entity contains seven leases that have not yet been rejected, and we are actively marketing these locations as well. We expect to resolve the PropCo entity in Q3, and rent is starting to stabilize on these assets. Looking ahead to the third quarter, we estimate that the impact of the Toys liquidation will be 70 to 80 basis points on our occupancy and same-site NOI, but given our strong re-leasing efforts and demand for the remaining Toys boxes, we feel confident in increasing our same-site NOI guidance for the year to 2% to 2.5%. Overall, we are witnessing demand match or surpass supply in high-quality locations, with retailers focusing on growth in the top 20 markets where populations and employment are increasing. Our overarching strategy is to concentrate our portfolio in these key markets, where we anticipate sustained strong demand providing unique opportunities for our mixed-use platform. Additionally, we are seeing a 40-year low in new supply, which we do not expect to change soon due to rising land, labor, and construction costs. We foresee continued economic growth and rising demand from retailers, especially as the millennial generation enters its peak spending years. This environment has led to high occupancy levels for our small shops, now exceeding 90%. Demand for these shops is driven by multiple retailers expanding in the restaurant, service, health and wellness, medical, and fitness sectors. While our focus remains on execution and portfolio enhancement, there have been two significant events this year that positively impact the retail outlook. First, tax reform has notably reduced the effective tax rate for retailers who previously faced some of the highest corporate tax rates in the nation. In discussions with our retail partners, tax reform has been frequently mentioned as a significant factor in their real estate expansion plans. Second, the Supreme Court ruling regarding sales tax on e-commerce is likely to create a more level playing field for all retailers, closing the loophole that allowed pure e-commerce players to avoid state sales tax. This ruling may accelerate the trend towards omnichannel retailing. Regarding our signature series developments and redevelopments, they are progressing well and getting closer to generating significant growth as we approach 2019. Due to the lack of new supply, high-quality projects brought to market by reputable, low-capitalized developers are attracting immediate attention from retailers. Our sites are largely pre-leased, fostering positive leasing momentum for these exceptional opportunities. Our Lincoln Square mixed-use project in Center City Philadelphia is beginning to pre-lease apartments with demand exceeding expectations. The first Sprouts Farmers Market in Philadelphia is set to open at Lincoln Square this August, followed by a Target store. Our Pentagon Center mixed-use tower, named the Witmer, is topped off and will start pre-leasing apartments in 2019. Additionally, Dania Phase I is now 93% pre-leased and will open later this summer, stabilizing in 2019. Mill Station development is also nearing completion with 79% pre-leased, and Costco is scheduled to open in September. These signature series projects are significant and will contribute meaningfully to growth in 2019 and beyond as we unlock the value of our real estate. In summary, we are pleased with our pace of dispositions and pricing. We have capitalized on the disconnect between public and private markets by repurchasing shares at a discount on a leveraged neutral basis. Strong demand for our available spaces and steady progress on our signature series developments will begin delivering results later this year. We remain focused on areas within our control, executing our strategy to position the portfolio for consistent growth supported by a robust balance sheet that aims to create long-term value for our shareholders.

Thank you, Conor. It has certainly been a busy first half of the year on the transaction side, with our team firing on all cylinders. Second quarter sales volume continued at a significant pace with the sale of 17 shopping centers for 320 million at Kimco's share, putting us well on our way to hitting our 2018 disposition goals of 700 to 900 million. In fact, with 530 million Kim's share of sales for the first half of the year, we are two-thirds of the way there, and we continue to execute. Subsequent to quarter-end, we sold an additional two shopping centers for a combined 49 million at Kimco's share, and currently have another 200 million plus at Kimco's share either under contract or within accepted offer. We maintain our full-year guidance range for both net sales volume and cap rates. As we communicated previously, in conjunction with the initial disposition targets for the year, it was always our goal to maximize proceeds in the first half of the year to minimize dilution in 2019. As Conor indicated, our team is dedicated to ensuring recurring FFO growth in 2019, and we fully understand how the timing of our 2018 sales impacts that goal. Given the timing and pace of our sales volume in 2018, we are comfortable indicating that next year's sales will be meaningfully less than this year. Another benefit of expediting our 2018 sales volume is that it continues to strengthen the remaining core portfolio, as evidenced by our operating fundamentals. As we move through the remainder of 2018, given our continued emphasis on owning properties in dynamic growth markets, we remain focused on reducing the asset count in the Midwest while also selectively pruning flat or low-growth assets from other parts of the country. We sold our last remaining shopping center in Alabama this quarter, removing another non-core estate from our ownership map. The blended cap rate through the first half of the year was at the lower end of our expected range, reflecting positively on both the quality of the centers being sold and the investor demand. Through the first half of the year, we continue to be impressed by the level of activity and the profile of those bidding on our properties. Demand for our sites remains strong, with readily available debt capital at continued low interest rates. With the tenure settling around 3%, borrowing remains an attractive opportunity to maximize yield on investment for buyers. Highlighted during the recent recon in Las Vegas and continuing through today, new bidders have emerged as well as some renewed interest from previously inactive investors. While we have seen more sincere interest from potential portfolio buyers, we continue to see the greatest execution via one-off sales, which we will remain focused on through the back half of the year. There has been no material change in valuations or investor appetite for high-quality core major markets. We have seen continued strong demand for institutional-quality assets, with recent transactions at five caps or below in South Florida, New Jersey, Atlanta, Southern California, Washington, D.C., and elsewhere. Glenn will now provide additional detail on our financial performance for the quarter.

Thanks, Ross, and good morning. Following our solid first-half results, we remain confident and energized that we will meet our objectives for 2018 and position our company for growth in 2019. We are starting to realize the benefits of a high-quality portfolio composed of a strong and diverse tenant roster located primarily in the top MSAs where we see the best opportunity for growth. Occupancy is near all-time highs and new leases continue to deliver positive, double-digit spreads. Our development projects are progressing and are expected to begin contributing to our growth in 2019 and beyond. Now for some details on our second quarter results; NAREIT FFO was $0.39 per diluted share for the second quarter 2018, which includes $9.5 million or $0.02 per share net transactional income comprised primarily of $5.6 million from preferred equity profit participations and $3.6 million from an equity method distribution above our basis. NAREIT FFO per share for the second quarter last year was $0.41 and includes $0.03 per share of net transactional income mostly from the $23.7 million distribution received from our Albertsons investment. Our operating portfolio continues to improve and deliver positive results. During the quarter, the operating team executed 369 leases totaling 2 million square feet and an average rent per square foot of just over $18. Our average base rent for the entire portfolio has increased 4.6% over the past year and 5.2% when you exclude our ground leases. Total occupancy is at 96%, up 50 basis points from the year ago and our anchor occupancy is at 98.1%, up 60 basis points from a year ago. Same-site NOI growth was 3.9% for the second quarter, including 10 basis points from redevelopment. Of particular note is the fact that 80% of the same-site growth came from increased minimum rent and percentage rent. For the six-month same-site NOI growth was 3.2%. In terms of the second half same-site NOI growth for 2018, as Conor indicated, we will be impacted by the Toys 'R' Us liquidation as well as the tough year-over-year comp for the third quarter. Mitigating this impact is the widespread of 310 basis points that remains between our leased and economic occupancy levels. After factoring in these items and based on our year-to-date performance, we are raising our same-site NOI guidance range from 1.5% to 2% to a new range of 2% to 2.5%, and believe the upper end of the increased range is achievable. Our balance sheet and liquidity position are in excellent shape. We ended the second quarter with over $300 million in cash, zero outstanding on our $2.25 billion revolving credit facility, and no debt maturing for the balance of the year. We also opportunistically utilized our common share repurchase program to buy back 3.5 million shares at a weighted average price of $14.53 per share, totaling $50.8 million, representing a 10% FFO yield and a 7.7% dividend yield. Year-to-date, we have repurchased 5.1 million common shares at a weighted average price of $14.73, totaling $75.1 million. Our consolidated net debt or recurring EBITDA remained at 5.7x, the same as the first quarter. When you include the transactional EBITDA, the metric improves to 5.5x. In addition, as a result of the progress made on the disposition program, we have elected to exercise the make-whole provision and repay early our $300 million, 6.875% bond due in October 2019. This bond is our most expensive unsecured debt instrument and will be repaid in late August. We will incur a charge of approximately $13 million or $0.03 per share in the third quarter that will be included in our NAREIT FFO. With the repayment of this bond, we will have no debt maturing until 2020 and our weighted average debt maturity will be over 11 years. We remain focused on reducing net debt to EBITDA. A key driver will be the EBITDA contribution that will flow once the development projects with $530 million invested today start to come online in late 2018 and into 2019. Based on our first-half performance and expectations for the balance of the year, we are raising the bottom end of our NAREIT FFO per share and FFO as adjusted per share guidance range from $1.42 to $1.46 to a new range of $1.43 to $1.46. The NAREIT FFO per share range includes the net transactional income to date and the anticipated early debt prepayment charge of $0.03 in the third quarter that I previously mentioned. And with that, we'd be happy to answer your questions.

We're ready to move to the Q&A portion of the call. To make the Q&A more efficient, you may ask a question with an additional follow-up. If you have additional questions, you're more than welcome to rejoin the queue. You may take our first caller.

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Well, you're right, I did go into detail about the impact of the Toys. We'll have to see how that PropCo auction plays out still. But we feel actually very comfortable in the high end of our 2% to 2.5% range. As you've seen in our operating fundamentals, the leasing volume continues to be near all-time highs, but that is the real focus of us is continuing to look at the back half of the year and continuing to push that.

Yes, it's quiet. The other thing I'd offer is that during the third quarter of last year, we received a pretty substantial tax refund of about $1.5 million that is not there this year, on one of our sites. So that just adds to the tougher comp comparison.

Okay. And I guess as a follow-up, I know you don't have an estimate or a guide for '19 yet, but it feels like with Toys paying rent a bit longer in '18, the setup going into '19 doesn't seem to be that great, so it'll be more of a headwind. So what are the things we need to think about from a tailwind perspective as we formulate our thesis for '19 here from a same-store perspective?

Well, again, we're not going to give guidance yet. We're only halfway through 2018. But there are some positives if you look at it. We have a least-to-economic occupancy gap of 310 basis points today. Quite candidly that gap is probably going to widen a little bit as we start re-leasing some of these Toys boxes, so you're going to wind up with more leasing done there and widen that gap a little bit until it starts narrowing when those flows start coming online. Remember same site is in our case cash-based.

Yes, I would just add that of the 15 OpCo leases we have control over, almost half of them are already PropCo, so we feel really good about the momentum we have going there.

Okay, thanks guys.

I guess just on the follow-up, if you had to speculate will Toys 'R' Us be a bigger impact in 2018 or 2019?

I would say probably have a little bit more impact potentially in '19. Because, again, where we sit today, we still have a lot of rent that's still flowing, right? I mean, really through the first six months of the year, except for four of the boxes, everything has been paid so far. And with the seven PropCo leases, those are still paying as well. I mean, it's going to come down to the timing of when, from a same-site perspective, those flows start happening. But I think Dave maybe will add here, the prospects on leasing are strong. We feel good about being able to get them leased up pretty quickly.

Yes, and thanks, Glenn. As we have reiterated on past calls, the demand side for the Toys 'R' Us boxes continues to be very, very strong. As Conor referenced, we have almost half of those resolved in the OpCo entity. We continue to pre-lease the PropCos in the case we do actually recapture some of those boxes, and we've seen excellent activity on those that we just recaptured this quarter as well. So we feel very comfortable with where we stand today in terms of the demand side of this and see it as a positive outcome longer-term.

Yes, it's important to remember how diverse our portfolio is. While the Toys aspect is certainly a prominent topic, it represents only about 70-80 basis points of the total ABR. We have already re-leased and signed agreements for those spaces, and the lease is now coming into effect. So, I believe it's more of a headline issue than anything else.

Okay. Regarding the non same-store NOI, even when we exclude Puerto Rico, it has decreased significantly. I'm curious about what is included in that category.

Regarding the same-site NOI, is that distinct from the NOI generated by non-same-site locations, Craig?

Yes, the non-same-store NOI, and then given your footnote I subtract that out. I'm coming down with a decrease of about 41%.

Those are primarily properties that we acquired during last year, Craig. That's pretty much what's driving that.

Okay. Thank you.

Hey guys, good morning. As I look at the same-store detail on page nine, your recoveries have been trending higher than your actual increase in expenses. Is this simply a reflection of the higher occupancy leading to greater recoveries? And then in terms of the tenant improvement dollars, it looks like this is the highest it's been on a quarterly basis in a few years. So just wondering, are you having to get more today to drive leasing or this more reflective of some of the box leasing you're doing and higher overall churn you're replacing? Just some color on those trends would be great.

This is Dave. So I'll take the first one and the second. So with the first one we have year-over-year the economic occupancy is higher, so you're spot-on on that, it's helped with the recovery income. We'll continue to see that trend on a go-forward basis. As it relates to the TI dollars and the contributions, in general, we haven't seen a change in deal costs. It's not as if the tenants themselves are demanding more to induce them to come into our centers. It's really driven by the population of the tenancy at any given time. So when you look at our operating real estate lease summary sheet, on the new lease side you'll see on this quarter it's actually around $13.10, while the trailing four quarters was about $15. So we're right in line there, actually a little bit less. On the non-comp side it is elevated a little bit this quarter, really driven by two specific deals that were value-creation deals. If you exclude those, we'd be at $21 a foot, which falls below our trailing four quarters, so we're still pretty much in line with where we'd expect to be.

Okay. I have a question for Conor or Ray if he's available. It seems that Glass Lewis recently opposed the Albertsons Rite Aid deal. Although it's still early, if the transaction doesn't go through, how do you plan to monetize that investment moving forward? It appears that this deal was supposed to provide some necessary capital starting in 2019. If it doesn't materialize, could we possibly see you needing to increase this position again to cover that gap?

Hi, this is Ray. Regarding the Albertsons and Rite Aid transaction, Albertsons is performing exceptionally well. They have achieved two consecutive quarters of same-store sales growth. In the most recent quarter, they exceeded last year's EBITDA by $44 million. Their trajectory looks promising. If Rite Aid shareholders do not approve the transaction, we believe we are well positioned to pursue other opportunities. Today we announced the transaction with SUPERVALU, and there has been significant consolidation in the wholesale grocery sector. I see many opportunities ahead for Albertsons, and we will continue to focus on profitability and navigate as we move forward. Glenn also wants to discuss the capital aspect.

Yes, from the capital standpoint again, as I've mentioned several times already, there's nothing in our numbers for '18 or '19 as it relates to Albertsons. We remain completely focused on execution around the portfolio, our dispositions, the balance sheet management, our developments, and our redevelopments. When and if Albertsons happens it'll be a positive for us, but there's nothing baked into our numbers for it. And as I mentioned, we have no debt maturities and enormous amounts of liquidity at this standpoint. So we are very comfortable with our capital position.

And our disposition plan for '19 will not be impacted one way or the other, so that wouldn't impact our desire or need to ramp up dispos in '19.

Hi. My first question is, so conceptually when you look at the increase in shop occupancy, can you kind of frame it up for us as what's really driven that. Is that from increased leasing or more is that just from dispositions?

No, I'd say this is Dave. The higher quality portfolio is clearly starting to showcase its benefits. The higher occupancy is driven by the accelerated lease-up of the vacancies. Those vacancies are typically vacant for less time than the sites we've sold in the past. In addition, our retention rates are higher as well, which contributes significantly to maintaining an increase in occupancy quarter-over-quarter and year-over-year. That's where we see a massive improvement in our occupancy rates.

Yes, in fact, the dispositions through the first half of the year averaged 96% occupancy. So the assets that we're selling are actually primarily stabilized.

You can really see the boost coming from the growing economy. The small shops are significantly driven by local entrepreneurs and franchisees. We've also experienced a considerable increase from sectors such as medical, fitness, health and wellness, services, and restaurants. These areas of the economy are thriving and continue to drive the growth in occupancy for our small shops.

Okay. When you review your watch list, have you noticed a shift in the mix regarding the anchor versus shop split?

I don't think the mix has changed all that much. The mix has always been a focus on retailers that have gotten themselves in a bit of trouble, whether it's through over-leveraging or a distressed business plan. So that really hasn't changed the shift or the mix of the watch list.

Hey, good morning out there. Just a few questions, first, just going back to the Albertsons, on the last call you guys said that you expected to vote in July, now the vote is in August. Glenn, you'd been pretty clear that there's a lot of capital that's going to come out of monetizing Albertsons that's non-dilutive because you're not booking any income against it. So it does seem like monetizing Albertsons is critical to you guys de-leveraging and getting on your run rate especially when we look at dividend coverage which is pretty tight and the sales this year mean that you're going to have to increase it despite the very tight coverage. So if you could just walk through, it just seems to Jeremy's question, it wasn't maybe I suppose would have liked but just if Albertsons doesn't happen, how do you plan to de-lever in a non-dilutive way or should we assume that in our modeling that if this doesn't happen that there will be dilution and just a little bit more from Ray on why the vote was pushed from July to August sounds like Albertsons doesn't have the votes to win.

Okay, so couple of things. First, as it relates to leverage, again there's nothing in our numbers for 2019 and our leverage is going to naturally come down because we have all these developments and redevelopments that are going to start flowing and producing further EBITDA. Now the reality is if Albertsons doesn't happen, it does happen and monetizes, the leverage comes down that much quicker. To your point, we're not booking any income and we would have this inflow of cash, but we have not based our forecasts on that happening. So we're not really concerned about it; leverage will naturally come down over time. It accelerates in the event that monetization happens.

Alex, we feel very comfortable with our capital plan to fund everything we're looking to do in 2019 with the plan we have in place with no Albertsons monetization whatsoever because the EBITDA will come online, it will improve the dividend coverage not the way we're running the business. We're focused on running the business, not having an investment that we don't control the monetization of impacting that.

Yes, this is Ray. The reason for the timing of the perspective is that they needed to obtain final approval from the SEC for the S-4 filing, which required negotiation. This process took a couple of weeks longer than expected, leading them to decide on extending the voting period from 30 to 40 days. They believe that mid-July or early August is a more suitable timeframe, and that was the rationale behind their decision.

Okay. And then just as a second question, everyone's favorite topic FASB accounting, Glenn have you guys have an estimate for what the change in internal lease accounting is going to impact your 2019 numbers?

We estimate that the impact will be approximately $0.02 to $0.03 per share, translating to around $8 million to $11 million. This should be considered when calculating guidance numbers for 2019.

Hey, good morning everyone. Just a follow-up on the discussion around the second half, same-store trajectory there was a lot of talk about the Toys impact but just as it relates to the leases that have been executed but yet to commence, I think you had previously talked about $15 million of rent commencing in the second half, can you maybe provide an update on that number and in terms of timing, is that weighted more to Q4 as we think about the same-store trajectory going from Q3 which sounds like there's going to be a more significant deceleration to Q4 which is maybe more muted?

Yes, I would say that the third quarter would be our low point in terms of quarterly same-site NOI growth and you'll see start picking up again in the fourth quarter. And again we raised our guidance. So we're comfortable at that 2% to 2.5% range and that we are comfortable that we will get towards the upper end of that range as well.

Great, so just an update on the $15 million; is that still generally within the range or is it higher?

Yes, Christy, that's still...

It's still within the range, but it will be more weighted towards the fourth quarter.

Sure. It was always the team's goal to push as much of the dispositions to the first half of the year as possible. So we're very pleased with that; I think you will see a little bit of a slowdown in Q3 in terms of total volume certainly compared to Q2 but to your point given where we are and the pace and the execution, we would expect that at a minimum will be at the midpoint and probably towards the upper end of that range by the end of the year.

Good morning. For the seven Toys boxes that have been resolved, when do you expect those leases to commence and do you expect the time to backfill Toys or how will the time to backfill Toys compare to the time it took to backfill Sports Authority in your mind?

Sure. With the first, the first question as it relates to the seven, we had four that were signed this last quarter so there's obviously no doubt having rent there, resumed immediately and so that resolves. As it relates to two that release, we'd expect to start flowing towards the back half of 2018 into 2019 and we did sell one within the quarter as well. So that totals up to your seven, as it relates to the balance, we've always stated, we expect them all to get resolved within the next 18 to 24 months.

Okay, that's helpful. The four that were assumed, how does that number maybe compare to what you were expecting at the beginning of liquidation process? I know some are still outstanding or still in the process but I'm just curious compared to your expectations?

That results better than our original assumption expectations.

Okay, great. And then one more for me, can you quantify how much the switch from variable to fixed cam this year has impacted the same-store in the first half and I think you have said it was an incremental boost in the first quarter, so that is the same in the second quarter and this is going to be kind of a headwind slightly in the second half, just given the comps?

It probably helps us 20, 30 basis points at the beginning part of the year, but I think it's going to all balance out when we're all set and done. So again, we remain comfortable with the guidance range that we've put out.

Yes, hi. Just a quick one here, how much of the 50 basis points same-store NOI increase is coming from the slower unwind of Toys?

I have to break it out.

It's probably not a lot, Mike. To be honest, I mean it really was happening as rent commencements are a key driver for us in the same-site growth because again, like cash bit. So the rents are really starting to flow, and you see that of the 3.8% same-site growth for the quarter, 3% of it or 80% of the number is really coming from the minimum rent law. So that's more of the driver; I mean the Toys 'R' Us has modest impact at this point, it's more of the back half that's in there.

Okay, that was it, thank you.

Hey, good morning guys. Just want to spend a little bit of time on CapEx and get your opinion from how we're supposed to be thinking about it, it looks like quarter-over-quarter had increased and I recognized that can be pretty noisy, it doesn't look like it's that far off from where it was at the year-end 12/31/17, but you've also sort of obviously you had done a good job in reducing the size of your portfolio, so I'm curious how we should be thinking about CapEx going forward and if you're seeing any changes in sort of your mix of CapEx spend between end line and Big Box or there have your CapEx spend per square foot increasing, anything that you can give us color on that, that would be really helpful?

Sure. Similar I referenced earlier is that on our page in terms of new lease fields and cost associated with those is really inductive of what's in the population on a quarter-over-quarter basis, so it will vary as a result of that in this quarter for example we executed more anchor releases than prior quarter, so you'll see an elevation in terms of number of deals and GLA executed compared to Q1 which will have an impact on the numbers as well. But as I reference in the non-comp new leases it is elevated at $36 this quarter driven by specific deals, you strip those out and you back to $21 which is in line with trailing four, actually slightly below that. So on a go-forward basis, we continue to see our deal cost remaining pretty much where they've been historically.

I would just add that the demand for the Toy boxes we've been pleasantly surprised that they're being backfilled by a single user, so when you look at the CapEx net effective rents it does benefit and accelerate the RCBs that recommence the days when you have a single user battling that box, and so for the first round of leases that we've done, they've single users coming out of those boxes which is a nice benefit to see.

Got it. Okay, that's it for me. Thank you, guys.

Hey, thanks. This is Ki Bin. Going back to these accounting questions, I thought I was under the impression that you guys might change the way you compensate your leasing agents in order to not be really impacted by this ASU for two. And so it sounds like there was a change?

No, we have modified it somewhat that will be able to continue to capitalize some of those costs, but there are other costs that are much part of the capital, a lot of legal costs that we're able to capitalize is that you won't be able to under the lease accounting and you can have less all of the costs that we have today. So in total, I mean again, we're primarily a very internal leasing organization, again as I mentioned I think there's an $8 million to $11 million impact in total for the year.

We did try to get out of it and change our compensation plan to address it but there're obviously things that going to pointed out that it doesn't capture just the leasing side of it.

Right, so it didn't change the compensation plan. It would have been maybe like $5 million higher is that was the delta?

Yes, I mean it would have been much higher followed by another $0.02 or $0.03.

Okay. And just going back to your asset sales, obviously have made some pretty good progress the first half, can you give us a sense about the occupancy rates, ABR and the account overall quality of what you sold so far and the cap rates as well?

Sure. Yes, the occupancy was averaged out right at 96%, so they're primarily stabilized assets as it was previously mentioned, I mean there's good quality assets there outside of markets that we view as long-term growth markets for us and may not have the redevelopment or value-add potential that our coastal portfolio, our portfolio in Texas and a couple of other select markets have which is why we've ultimately decided to exit those, but that the quality is fine and the tenancy is stable in many cases good credit. So the demand has been there. The better pools have been relatively deep more so than we saw in 2017 AB is sort of right around or slightly below the average of the remainder of the portfolio so you're seeing a slight uptick based upon the dispositions in the go forward portfolio but overall within the portfolio there were there's no real distress remaining even the disposition that we're selling are well-stabilized solid assets.

And the cap rate was?

Yes, so the cap rate to the first half we're is still on the low end of that 7.5% to 8% range and we continue to see that at the low to mid-point of cap rate range going forward.

Hi, the 115 credit losses you forecasted for 2019 how much of you've used on a year-to-date basis?

We've used probably about half of it so far then in the balance of the probably good use we go to the rest of the toy boxes, so we still feel comfortable that we are credible levels off of the year, are really the appropriate level.

And then in the centers where Toys went dark, did it create any potency issues in terms of other retailers leaving?

Not really, no.

Okay. And then just any update on Puerto Rico, I think Puerto Rico is in the same property numbers right now and is going to have a beneficial impact when it reenters the pool in 2019?

Well, it's not actually going to reenter the pool in 2019 we removed it, so we can keep focused on the continental U.S. is the same site pool and if you look at our same site pool it's probably the largest most complete fool of pretty much anyone there's only an asset in total that are not in the same cycle today and several of those are Puerto Rico assets but in terms of operations Puerto Rico has performed pretty well. Our occupancy level is back to where it was prior to the hurricane. The guys and our team have done a tremendous job getting the properties back in shape, and we've actually benefited from the fact that we actually had capital and people on the ground to repair those properties quickly where some of the other retail property owners really just didn't have the access to the capital or the product kind of fits their properties up, so we've really been able to benefit from some further lease up.

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