Good morning, and welcome to the Kimco's Second Quarter 2018 Earnings Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to David Bujnicki. Please go ahead.
Good morning, and thank you for joining Kimco's Q2 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 Dave 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 this call may be deemed forward looking, and it's 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 make reference to certain non GAAP financial measures that we believe help investors better understand Kimpa'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.
Thanks, Dave, and good morning, everyone. Today, I'll provide an overview of our strong second quarter performance and an update on the great progress we have made on the execution of our strategy. Ross will then report on our quarterly transaction activity and describe the overall transactional environment. Finally, Glenn will provide details on key metrics and our updated 2018 guidance. Execution continues to be our number one priority as we reposition our portfolio for the long term growth and value creation.
Our team continues to work tirelessly as we seek to improve in all aspects of our business, And our results for the quarter continue to demonstrate that our portfolio quality and value creation initiatives are working. Now for some details. We are now over halfway through the year and the pace and strong pricing of our dispositions give us confidence that we will meet our full year disposition range of $7,000,000 to 9 $100,000,000 The vibrant private market valuations coupled with widely available debt financing and strong pricing for our Midwest assets continue to demonstrate the disconnect between public and private pricing. Ross will go into detail on the encouraging pricing, execution and capital formations we have experienced recently. More importantly, as we achieve our targeted dispositions for the current year, it positions us to restart our growth as we enter 2019 with a superior portfolio, concentrated in coastal markets where we see the best opportunity for growth and redevelopment potential.
And as I mentioned, our repositioned portfolio is producing solid results. Leasing volume continues to be near all time highs for the company as our team is working diligently to create vibrant campus like settings where our shoppers want to stay for extended periods of time. Our same site NOI outperformed this quarter due to strong leasing volume, a slowing of new vacancies and the additional rent collected from our Toys R Us boxes. The toys liquidation process has been drawn out, which has given us a running start on our re leasing efforts. These efforts have produced significant interest from major retailers in off price, furniture, fitness, specialty grocery and arts and crafts.
To recap, we had a total of 22 Toys R Us leases that fall into 2 categories, OpCo leases and PropCo leases. 15 of our leases are in the OpCo entity of Toys R Us and we have already resolved 7 of those locations with retailers taking the entire Toys R Us box. Our remaining 8 locations in OpCo have significant tenant interest, we are working to convert this demand into leases as quickly as possible. The second category of our toys boxes are leases in the PropCo entity. We have 7 leases in PropCo, which have not yet been rejected and the date of the auction has not yet been set.
Rent continues to flow on these assets. We anticipate a Q3 resolution of the PropCo entity and have been proactive in marketing these locations. Looking ahead to the Q3, we anticipate that the toys liquidation will have a maximum impact of 70 to 80 basis points on our occupancy and same site NOI as we anticipate recapturing the majority of the boxes that have not yet gone to auction. Notwithstanding the impact, given the strong re leasing to date and the demand for the remaining toys boxes, we feel confident in raising our same site NOI guidance for the year to 2% to 2.5%. Overall, we have seen demand match or exceed supply for high quality locations with retailers focusing on store growth in the top 20 markets where populations are growing, wages are rising and employment is increasing.
Our overall strategy has focused on repositioning our portfolio to be tightly concentrated in these top 20 markets, where we believe demand will continue to be strong over the long run and provide unique opportunities for our mixed use platform. Keep in mind, we are also at a 40 year low for new supply, which we don't see reversing anytime soon as land costs continue to escalate along with increases in labor and construction costs. We see the economy continuing to grow, demand from our retailers continuing to increase and the millennial generation coming into its peak spending years. These factors have generated outsized demand for many of our assets, driving our occupancy level on our small shops to the highest level in the company's history at over 90%. Demand for small shops is being driven by multiple retailers and expand multiple retailers expanding in the restaurant, service, health and wellness, medical and fitness categories.
While our focus continues to be on execution and portfolio improvement, it is worth mentioning the 2 major events that occurred this year that have boosted the retail outlook for the year and as retailers focusing on investment, both in existing store remodels and the rollout of new stores. 1st, tax reform has dramatically lowered the effective tax rate for our retailers, which were paying some of the highest corporate tax rates in the country. In numerous meetings with our retail partners, they have consistently touted tax reform as a major factor in their real estate expansion plans. 2nd, the Supreme Court ruling in the Wayfair case allowing state in positions of sales tax on e commerce will likely level the playing field for all retailers regardless of channel. This ruling has effectively closed the loophole that allowed pure e commerce players to skirt state sales tax and offer the cheapest price possible on a wide assortment of goods.
We believe the ruling could potentially accelerate the trend of omnichannel retailing. Turning to our Signature Series developments and redevelopments. They continue to mature and move closer to producing meaningful growth for the company as we approach 2019. As I mentioned, the lack of new supply. Whenever a high quality project is brought to market by a respected and well capitalized developer, retailers are ready to jump at the opportunity.
Our sites are substantially pre leased, creating positive leasing momentum for these rare high quality opportunities, which are poised to deliver on time. Our Lincoln Square mixed use project in Center City, Philadelphia is starting to pre lease apartments with demand exceeding our budget. The 1st Sprouts Farmers Market in Philadelphia is set to open at Lincoln Square this August and Target will soon follow. Our Pentagon Center mixed use tower called the Whitmer is now topped off and will begin pre leasing apartments in 2019. Dania Phase 1 is now 93% pre leased and is set to open later this summer and stabilize in 2019.
Our mill station development is now 79% pre leased with Costco set to open in September. These Signature Series projects are large in scale and will deliver meaningful growth in 2019 and beyond as we unlock the embedded value of our real estate. In closing, we are pleased with the pace of our dispositions and pricing. We have taken advantage of this public private disconnect by buying back our shares at a discount on a leverage neutral basis. We are witnessing solid demand for our available spaces and have made meaningful progress on our Signature Series development and redevelopments that will start to deliver later this year.
We continue to focus on what we can control, execute on our strategy to position the portfolio to generate consistent growth supported by a strong balance sheet that will create long term shareholder value. Ross?
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. 2nd quarter sales volume continued at significant pace with the sale of 17 shopping centers for $320,000,000 at Kim's share, putting us well on our way to hitting on our 2018 disposition goals of $700,000,000 to $900,000,000 In fact, with $530,000,000 Kim's share of sales for the first half of the year, we are 2 thirds of the way there and we continue to execute. Subsequent to quarter end, we sold an additional 2 shopping centers for a combined $49,000,000 at Kimco share and currently have another $200,000,000 plus at Kimco share either under contract or with an 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 Connor indicated, our team is dedicated to ensuring recurring FFO growth in 2019 and we fully understand how the timing of our 2018 sales impact that goal. Given the timing and pace of our sales volume in 2018, we are comfortable indicating that next year sales will be meaningfully less than this year. Also, another benefit for 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 state 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 remain strong with readily available debt capital at continued low interest rates. With the 10 year settling around 3%, borrowing remains an attractive opportunity 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.
And 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 transaction at 5 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 comprised 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 signed 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 Q2 results. NAREIT FFO was $0.39 per diluted share for the Q2 2018, which includes $9,500,000 or $0.02 per share of net transactional income comprised primarily of $5,600,000 from preferred equity profit participations and $3,600,000 from an equity method distribution above our basis. NAREIT FFO per share for the Q2 last year was $0.41 and includes $0.03 per share of net transactional income, mostly from the $23,700,000 distribution received from our Albertsons investment. FFO as adjusted or recurring FFO, excludes transactional income and expense and non operating impairments, was $155,700,000 or $0.37 per share for the Q2 2018 compared to $160,700,000 or $0.38 per share for the Q2 last year and reflects the impact of our successful disposition program. Our operating portfolio continues to improve and deliver positive results.
During the quarter, the operating team executed 369 leases totaling 2,000,000 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 percent over the past year and 5.2 percent when you exclude our ground leases. Total occupancy is at 96 percent, up 50 basis points from a 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 2nd 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 6 months, same site NOI growth was 3.2%.
In terms of the second half same site NOI growth for 20 18, as Conor indicated, we will be impacted by the Toys R Us liquidation as well as a tough year over year comp for the Q3. Mitigating this impact is the widespread of 3 10 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 2nd quarter with over $300,000,000 in cash, 0 outstanding on our $2,250,000,000 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 3,500,000 shares at a weighted average price of $14.53 per share, totaling $50,800,000 representing a 10 percent FFO yield and a 7.7 percent dividend yield. Year to date, we have repurchased 5,100,000 common shares at weighted average debt to recurring EBITDA remained at 5.7x, same as the Q1. And 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 $300,000,000 6.875 Percent 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 $13,000,000
or $0.03 per share in the
Q3 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 $530,000,000 invested to date 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 Q3 that I previously mentioned.
And with that, we'd be happy to answer your questions.
We're ready to move to the Q and A portion of the call. To make the Q and 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.
We will now begin the question and answer session. The first question comes from Samir Khan of Evercore. Please go ahead.
Good morning, guys. So Connor, you mentioned the same store NOI guidance. And when you look at your same store guide, it implies a deceleration of to about 1.3% for the second half. I mean, toys is certainly having an impact of 70 bps to 80 bps, which you mentioned. So what are sort of the other headwinds that kind of get you to the 1.3 in the second half here?
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. We've seen as you've seen in our operating fundamentals that the leasing volume continues to be at 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 Glenn. The other thing I'd offer is that during the Q3 of last year, we received a pretty substantial tax refund of about $1,500,000 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 guide for 2019 yet, but it feels like with toys paying rent a bit longer in 2018, The setup going into 2019 doesn't seem to be that great. So it will be more of a headwind. So what are the things we need to sort of think about from a tailwind perspective as we formulate our thesis for 2019 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 lease to economic occupancy gap of 3 10 basis points today. And quite candidly, that gap is probably going to widen a little bit as we start releasing 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 base.
Yes. I would just add that of the 15 OpCo leases that we have control over, almost half of them are already backfilled. So we feel really good about the momentum we have going there.
Okay. Thanks, guys.
The next question comes from Craig Schmidt of Bank of America. Go ahead, sir.
I guess just on a 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 2019 because again, where we sit today, still have a lot of rent that's still flowing, right? I mean, really through the 1st 6 months of the year, except for 4 of the boxes, everything has been paid so far. And with the 7 PropCo leases, those are still paying as well. So I mean, it's going to be come down to the timing of when from a same site perspective, when those flows start happening. But I think Dave maybe will add here, the prospects on leasing are very strong.
We feel good about being able to get them leased up pretty quickly.
Yes. Thanks, Glenn. As we have reiterated on past calls, the demand side for the Toys R Us boxes continue to be very, very strong. And as Connor referenced, we have almost half of those resolved in the OpCo entity. And 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've 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
Don't lose sight of the fact of just how diverse our portfolio is. Although the toy thing is clearly a headline item, again, it makes up we're talking about 70, 80 basis points of total ABR where we've already released and have assigned 4 of the boxes and other leases coming online. So headline issue more than anything else, I think.
Okay. And then just on the non same store sales, I mean sorry, non same store NOI, even if we exclude Puerto Rico, it's down significantly. I just wonder what's in that bucket?
In terms of the same site NOI, that's rather the NOI coming from non same site locations.
The non same store NOI
Within the other ones. Those are primarily properties that we acquired during last year, Craig. That's pretty much outside of Puerto Rico. That's really what it is driving that.
The next question comes from Jeremy Metz of BMO Capital Markets.
As I look at the
same store detail on Page 9, 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 looked 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 is this more reflective of some of the box leasing you're doing and higher overall churn you're replacing? Just some color on those churns would be great.
This is Dave. So I'll take the first one and the second. So with the first one, we have a year over year the economic occupancy is higher. So you're spot on on that. That's helped with recovery income.
Continue 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 cost. It's not as if that 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 point in 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 non comp side, it is elevated a little bit this quarter.
On the non comp side, it is elevated a little bit this quarter, really driven by 2 specific deals that were value creation deals. If you less those out, we'd be at $21 a foot, which falls below our trailing 4 quarters. So we're still pretty much in line with where we'd expect to be.
Okay. And then maybe a question for Connor or Ray, if he's on the line here, but it looks like Glass Lewis recently recommended against the Albertsons Rite Aid deal. I know it's a little early, but assuming the transaction doesn't come to fruition, how do you think about monetizing that investment going forward? As it seems like that's seemingly going to area where it was going to unlock some needed capital starting in 2019. And I guess if it doesn't happen, could we maybe see you needing to ramp dispositions again to fund that gap?
Hi. This is Ray. With respect to the Albertson incentive Rite Aid transaction, for us, at least on the Albertsons side, they are really performing very well. The last 2 about 2 straight quarters of same store comp growth. For this last quarter, they beat their EBITDA was $44,000,000 above last year's, and they're really trending very well.
So to the extent that the Rite Aid shareholders don't approve the transaction, I think we're very well suited for the company going forward to take other opportunities. You start today with a transaction with SUPERVALU. There's really a lot of consolidation in the grocery business on the wholesale side, but I think there's a lot of opportunities going forward for Albertsons. And we'll just keep our head down and keep making money on that end and work it out as we go forward. But I think I also want to talk about the capital part.
Yes. From the capital standpoint, again, as I've mentioned several times already, there is nothing in our numbers for 'eighteen or 'nineteen as it relates to Albertsons. We remain completely focused on execution around the portfolio, our dispositions, our balance sheet management, our developments, our redevelopments. When and if Albertsons happens, it will 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
And our disposition plan for 2019 will not be impacted one way or the other. So that wouldn't impact our desire or need to ramp up dispose in 2019.
Okay. Our next question comes from Mr. Brian Hawthorne of RBC. Please go ahead.
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. Higher occupancy is driven by accelerated lease up of those vacancies. Those vacancies are typically vacant last time as opposed those sites that we've sold in the past.
In addition, our retention rates are higher as well. So that's obviously a big contributor to maintaining an increase in your occupancy quarter over quarter, year over year. So that's where we see a massive improvement in terms
of 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 really see the boost coming from the growing economy and the small shops are really driven by either local entrepreneurs, franchisees, and that's really where the and then also we've seen a big boost medical, from fitness, from health and wellness, from service, and from restaurants. And so those areas of the economy are booming, and they continue to really drive the occupancy growth in our small shops.
Okay. And then the other one, when you look at your watch list, have you seen the shift mix from in terms of like the anchor versus shop split? I
don't think that changes 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 overleveraged or a distressed business plan. So that really hasn't changed the shift or the mix of the watch list.
Okay. Thank you.
The next question comes from Alex Goldfarb of Sandler O'Neill. Please go ahead.
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 and now the vote is in August. Glenn, you've 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 deleveraging 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 Jeremy's question, it wasn't maybe as full as would have liked. But just if Albertsons doesn't happen, how do you plan to delever 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 a couple of things. 1st, as it relates to leverage, if 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 it 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 forecast on that happening. So we're not really concerned about it. Leverage will naturally come down over time. It accelerates in the event that a 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. And that's the way we've been running the business. We're focused on running the business, not having an investment that we don't control the monetization of impacting that.
I mean, but Ray, is there color is the read on the vote on the change
of vote?
Yes. I mean this is Ray. I mean the reason for the timing of being pushed back a couple of weeks is just really procedurally. They have to get the approval and the final okay from the SEC of what they when they filed the S-four and they had to negotiate that. It took a couple of weeks longer than they thought.
And they felt that instead of giving 30 days, they did like 40 odd days for the vote to happen. It was just a decision they made. They really think middle of July or early August is kind of a rounding error and timing. There was nothing else than that.
Okay. And then just as a second question, everyone's favorite topic, FASB accounting. Glenn, have do you guys have an estimate for what the change in internal lease accounting is going to impact your 2019 numbers?
We do. I mean, our initial estimate based on what we've done is it will impact it by about $0.02 to $0.03 somewhere between $8,000,000 $11,000,000 So that will be that's got to be taken into account as you're doing guidance numbers for 'nineteen.
Okay. Thank you.
The next question comes from Christy McElroy of Citi. Please go ahead.
Hey, good morning, everyone. Just to 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 $15,000,000 of rent commencing in second half. Can you maybe provide an update on that number?
And in terms of like 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 may be more muted?
Yes. I would say that the Q3 would be our low point in terms of quarterly same site NOI growth, And you'll see it start picking up again in the 4th quarter. And again, we raised our guidance, so we're comfortable at that percent to 2.5% range and that we are comfortable that we will get toward the upper end of that range as well.
Right. So just an update on the $15,000,000 is that still generally within the range or is it high?
Yes, Christy, that's still with it's still within the range, but it will be more weighted towards the Q4.
Okay, perfect. And then, Ross, just how should we think about that accelerated pace of dispositions? And what sounds like what you talked about a decent transaction market conditions in terms of where you expect to fall on the full year range, which remains pretty wide at this point, recognizing your comments that 2019 volume will fall off. But obviously, the difference between an incremental $150,000,000 from here versus $350,000,000 in second half has pretty meaningful implications for how we're thinking about further dilution in 2019. Maybe you could give us a little bit more of a precise more precision in terms of where you expect to fall in the range?
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 we'll be at the midpoint and probably towards the upper end of that range by the end of the year.
Okay. That's helpful. Thank you.
Sure. The
next question comes from Vince Tibone of Green Street Advisors. Please go ahead.
Good morning. For the 7 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 question, as it relates to the 7, we had 4 that were assigned this last quarter. So there's obviously no downtime in rent. They're assumed immediately. And so that resolves those.
As it relates to the there are 2 that released, we had expected those to start flowing towards the back half of end of 2018 and 2019. And then we did sell 1 within the quarter as well. So that was that totals up to your 7. It relates to the balance, we've always stated that we expect them all to get resolved within the next 18 to 24 months.
Okay. That's helpful. With the 4 that were assumed, how did that number maybe compare to what you were expecting at the beginning of the liquidation process? I know some are still outstanding or still in the process, but I'm just curious how that compared to your expectations?
That resulted better than our original assumption and expectation.
Okay, great.
And then one more for me. Can you quantify how much the switch from variable to fixed CAM this year has impacted same store in the first half. And I think you've said it was an incremental boost in the Q1. So is that the same in the second quarter? And is this going to 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 said and done. So again, we remain comfortable with the guidance range that we've put out.
Okay. Thank you. That's all I have.
The next question comes from Michael Mueller of JPMorgan. Please go ahead.
Yes, hi. Just a quick one here. How much of the 50 basis point same store NOI increase is coming from the, I guess, the slower unwind of toys?
Tough to break it out, right?
It's probably not a lot, Mike, to be honest with you. I mean, really what's happening is rent commencements are a key driver for us in the same site growth because, again, we're cash based. So as these rents 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 line. So that's more of the driver. The Toys R Us has a modest impact at this point.
It's more of the back half that's in there.
Okay. That was it. Thank you.
The next question comes from Rich Hill of Morgan Stanley. Please go ahead.
Hey, good morning guys. I just want to spend a little bit of time on CapEx and get your opinions on how we're supposed to be thinking about it. It looks like quarter over quarter it increased and I recognize that can be pretty noisy. It doesn't look like it's that far off from where it was the year end twelvethirty oneseventeen, but you've also sort of obviously 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 in line and big box?
Or have your CapEx spend per square foot increasing? Anything that you can give us color on that, that would be really helpful.
Sure. Similar to what I referenced earlier is that on our page in terms of new lease deals and the costs associated with those, it's really indicative 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 leases than prior quarters. So you'll see an elevation in terms of number of deals and GLA executed compared to Q1, which will have an impact on those numbers as well.
But as I referenced in the non comp new leases, it is elevated at $36 this quarter, driven by 2 specific deals. You strip those out and you're back to $21 which is in line with our trailing 4, actually slightly below that. So on a go forward basis, we continue to see our deal costs remaining pretty much where they've been historically.
I would just add that the demand for the toys boxes, we've been pleasantly surprised that they're being backfilled by a single user. So when you look at the CapEx, the net effective rents, it does benefit and it accelerates the RCDs, the rent commencement dates when you have a single user backfilling that box. And so for the 1st round of leases that we've done, there have been single users coming into those boxes, which is a nice benefit to see.
Got it. Okay. That's it for me. Thank you, guys.
The next question comes from Stephen Kim of SunTrust. Please go ahead.
Hey, thanks. This is Ki Bin. Going back to the lease accounting question, 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 A42. So it sounds like there was a change?
No, we have modified it somewhat that we'll be able to continue to capitalize some of those costs. But there are other costs that are much harder to capitalize. There's a lot of legal costs that we are able to capitalize today that you won't be able to under the lease accounting, and you can't capitalize 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 $8,000,000 to $11,000,000 impact in total for the year.
We did try and get ahead of it and change our compensation plan to address it, but there is obviously things that Glenn has pointed out that doesn't capture just the leasing side of it.
Right. So if you didn't change the compensation plan, it would have been maybe like $5,000,000 or higher. Is that what's the delta? Yes. I mean the impact would
have been much higher, probably by another $0.02 or $0.03
Okay. And just going back to your asset sales, obviously, you guys have made some pretty good progress this first half. Can you just give us a sense about the occupancy rates, the ABR and just the kind of 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 we've previously mentioned, I mean, they're good quality assets. They're 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, the quality is fine. The tenancy is stable, in many cases, good credit. So the demand has been there. The bidder pools have been relatively deep, more so than we saw in 2017. ABR 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 and the go forward portfolio. But overall, within the portfolio, there's no real distress remaining, even the dispositions that we're selling are well stabilized solid assets.
And the cap rate was?
Yes. So the cap rate through the first half of the year is still on the low end of that 7.5% to 8% range, and we continue to see that at the low to midpoint of cap rate range going forward.
All right. Thank you.
The next question comes from Haendel St. Juste of Mizuho. Please go ahead.
Hey, good morning. Glenn, I guess a couple for you. One, I guess you referred to the gap between leased and occupied space, it looks like about 3 10 basis points, which is very similar to what it was at this point last year. So I'm curious how much of the closing of that gap is implied in your outlook for same site NOI in the back half of the year? And how would you describe the overall leasing conversation, the process?
Are you finding that the time to occupy is diminishing? And I ask especially because last year at this time, again, we're expecting that gap between the physical and the least tailwind to materialize, but it took a bit longer.
Well, again, the gap is widened primarily because of the Toys R Us liquidation. So you have the good news is that we've leased the boxes. The bad news at the moment is that with the rents not flowing for safe site purposes, so you have this widening that's occurred. The gap will probably stay this wide during the second half of the year because as we go into the Q3, you're going to have more leases that more toys boxes that came back to us in the Q3. And then it's a matter of the lease up that's going to go with it.
So the more leasing that actually gets done, the wider that gap is going to be until the cash starts flowing.
Which sets us up for 'nineteen to have to be a strong year.
Correct. And then on your second point, I'm going to turn it over to Dave in terms of the timing on the leases getting done with the tenants.
Yes. In terms of the toys, we're continuing to see and generally, I think the timing of the leases has maintained itself historically as what we've seen with toys boxes 18 to 24 months as it relates to the other anchor leases, we continue to see between a lease being executed and opening on the anchor set around 10 months.
Got it. Got it. Okay.
And then Glenn, just to follow-up on one more. The I guess curious on your appetite for stock buybacks here, given your recent run of stocks here over 'seventeen, you're buying year to date with the price below 15. Assuming the stock price holds here, curious how you're thinking about allocating those incremental disposition proceeds beyond your normal re dev? Thanks.
Again, the primary focus for us is to continue to improve overall net debt to EBITDA. We were very opportunistic buying the stock back at under $15 a share, as I mentioned, 10% FFO yield, 7.7 dividend yield. So we'll watch where cost of capital is. Again, we also just announced that we're going to pay off our $300,000,000 bond. So we're going to use cash to help bring those debt levels down.
So it's really watching what cost of capital is and where that stock price is and then trying to do best capital allocation as we see fit.
Yes, we're still trading at a sizable discount to net asset value. So it obviously still is a piece of the capital allocation plan that we have, and we have plenty of opportunity to utilize that.
The next question comes from Linda Tsai of Barclays. Please go ahead.
Hi. Of the 100 bps in credit losses you forecasted for 2019, how much have you used on a year to date basis?
We used probably about half of it so far. And then the balance of it will probably get used up as we go through the rest of the toys boxes. So we still feel comfortable that where our credit loss levels are for the year are really the appropriate level.
And then in the centers where toys went dark, did it create any co tenancy issues in terms of other retailers leaving?
Not really, no.
Okay. And then just any update on Puerto Rico. I think Puerto Rico isn't in the same property numbers right now. Is it 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 that we can keep focused on the Continental U. S. As the same site pool. And if you look at our same site pool, it's probably the largest or most complete pool of pretty much anyone.
There's only 10 assets in total that are not in our same site pool today. 7 of those are our 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 really the product to kind of fix their properties up. So we've really been able to benefit from some further lease up.
Thanks.
This concludes our question and answer session. I would like to turn the conference back over to David Bujnicki for any closing remarks.
Thank you for participating in our call today. I'm available to answer any follow-up questions you may have, and I hope you enjoy the rest of your day.