Kimco Realty Corporation (KIM) Q2 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to the Kimco's Second Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] 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 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 make reference 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 Web site. 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 a 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 taste and strong pricing of our dispositions give us confidence that we will meet our full-year disposition range of 7 to 900 million. The vibrant private market evaluations 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 reposition 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 life settings where our shoppers want to stay for extended periods of time. Our same-site NOI outperformed this quarter due to a strong leasing volume, a slowing of new vacancies and the additional rent collected from our Toys "R" U boxes. The Toys liquidation process had been drawing out, which has given us a running start on our re-leasing efforts. These efforts have produced significant interest for major retailers and off-priced furniture, fitness, specialty grocery, and arts and crafts. To recap, we had a total of 22 Toys "R" Us leases that fall into two categories; OpCo leases and PropCo leases. Fifteen of our leases are in the OpCo entity of Toys "R" Us, and we have already resolved seven of those location with retailers taking the entire Toys "R" Us box. Our remaining eight locations at OpCo have significant tenant interests, and 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 seven leases in PropCo which have not yet been rejected, and the date of the auction has not yet been set. Rent continues to slow on those assets. We anticipate Q3 resolution of the PropCo entity, and have been proactive in marketing these locations. Looking ahead to the third quarter, 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 a 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 is 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 millenial generation coming into its peak spending years. These factors have generated outside 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 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 two 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. First, tax reform has dramatically lowered the effect of 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 totted tax reform as a major factor in the real estate expansion plans. Second, the Supreme Court ruling in the [indiscernible] 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 allows 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 can 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 respected and low-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 first 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 Witmer is now topped off and will begin pre-leasing apartments in 2019. Dania Phase I is now 93% pre-leased, and it's 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 leveraged neutral basis. We are witnessing solid demand for our available spaces, and have made meaningful progress on a 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. Second quarter sales volume continued a significant pace with the sale of 17 shopping centers for 320 million at Kim share putting us well on our way to hitting on our 2018 disposition goals of 700 million to 900 million. In fact, with 530 million Kim 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 share, and currently have another 200 million plus at Kimco 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 impact 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. 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 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. 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 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 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 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. a : 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 least 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 weighted average price of $14.73, totaling $75.1 million. Our consolidated net debt or recurring EBITDA remained at 5.7x same as the first quarter. 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-hold 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 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 Q&A session [Operator Instructions]. The first question comes from Samir Khan of Evercore. Please go ahead.

, :

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 that 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. And 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-base.

Yes, I would just add that of the 15 OpCo leases that we have control over, almost half of them are already PropCo [ph], 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 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, so. I mean, it's going to 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 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 continue to be very, very strong. And as Conor 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 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, don't lose sight of the fact of just how diverse our portfolio is. Although the Toys 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 re-leased and have a sign for the boxes now the lease is 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, 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 outside of Puerto Rico. That's really what it is driving that.

Okay. Thank you.

The next question comes from Jeremy Metz of BMO Capital Markets. Please go ahead.

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 looked 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 give 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 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 less those out 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. And then maybe a question for Conor 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 -- or it was going to unlock some needed capital starting in 2019. And I guess if it doesn't happen could we maybe see you needed to ramp this position again to fund that gap?

Hi. This is Ray. With respect to the Albertsons and Rite Aid transaction, for us, at least on the Albertsons side they are really performing really well. The last two -- they've got two straight quarters of same-store comp growth. This last quarter they beat the EBITDA with $44 million above last year's. And they're really trending very well. So to the extent that if 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 saw today the transaction with SUPERVALU. There's been 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 you go forward. But I think Glenn also wants to talk about the capital part.

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, 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.

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. The higher occupancy it's driven by accelerated lease up of the vacancies. Those vacancies are typically vacant less time as opposed to 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 from 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 the mix [technical difficulty] 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-leveraged or a distressed business plan. So that really hasn't changed the shift or the mix of the watch list. Q – Brian Hawthorne: Okay, thank you.

The next question comes from Alex Goldfarb of Sandler O'Neill. Please go ahead.

Hey, good morning out there. Just few questions, first, just going back to the Albertsons, on 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 seem 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 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 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 a investment that we don't control the monetization of impacting that.

Is the read on the vote has not changed?

Yes, I mean -- this is Ray, I mean the reason for the timing of doing perspective, it isn't really procedurally, they have to get your approval on the final okay from the SEC of what they will file the S-4, they had to negotiate that. It took a couple of weeks long than they thought and they felt instead of giving 30 days get like 40 odd days for the vote to happen. It's just the decision they made, they really think middle July or early August kind of rounding and timing, it was nothing else than that.

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 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 million and $11 million. So that will be -- that's got to be taken into account as you're doing guidance numbers for 2019.

Okay, thank you.

The next question comes from Christy McElroy of Citi. Please go ahead.

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 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 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.

Okay, okay, perfect. And then, Ross, just how should we think about that accelerated pace of disposition 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 it remains pretty wide at this point recognizing your comments that 2019 volume will fall off but obviously the difference between an incremental $150 million from here versus $350 million 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 that 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.

Okay, that's helpful, thank you.

The next question comes from Vince Tibone of Green Street Advisors. Please go ahead.

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 end of 2018 into 2019 and we did sell one within the quarter as well. So that was, that totals up to your seven, as it relates to the balance, we've always stated, we expect them all get resolved within the next 18 to 24 months.

Okay, that's helpful. The four that were assumed, how does that number maybe compared 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 a better than our original assumption expectations.

Okay, great. And then one more for me, can you quantify how much the switch from variable to fix 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.

Okay, thank you, that' 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 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.

The next question comes from Rich Hill of Morgan Stanley. Please go ahead. Q – Rich Hill: 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 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 them 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 been historically.

I would just add that. The demand for the Toy boxes we've been pleasantly surprised that they're being back filled by a single user, so when you look at the CapEx net effective rents it does benefit and accelerate the RCBs the recommends 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.

The next question comes from Stephen Kim of SunTrust. Please go ahead.

Hey, thanks. This is Ki Bin. Going back to these accounting questions, I thought I was in under the impression that you guys might change the way you comment faith 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 they're other cost that are much part of the capital is a lot of legal costs that we're able to capitalists 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 is 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 he 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 they cap rates as well?

Sure. Yes, the occupancy was average 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 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 AV 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.

Right, thank you.

[Operator Instructions] 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 heard to the gap between the lease and occupied space looks like about 310 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 side of NOI the back half of the year and how would you describe your overall leasing conversation the process and finding that the tends occupied diminishing and asked especially because last year at this time again we're expecting that gap between the physical and the least a tailwind to materialize but it took a bit longer?

Well, again the gap is widening primarily because the toys are up liquidation, so you have the good news is that we've least the boxes. The bad news at the moment is that with the rents not flowing for same site purposes, so you have is winding that's occurred. The gap will probably stay this wide during the second half of the year because as we go into the third quarter, you're going to have more leases that move more toys boxes that came back us in the third quarter 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 but why do that gap is going to be until we test thoughts flowing.

Which set this up for 2019 to have to be a strong.

Correct. And then on your second part I'm going to turn it over to David terms of the timing on the leases getting done with the tenants.

Yes, in terms of the choice, we're going to see and generally I think that timely leases has maintain itself historically as what we've seen with choice 18 to 24 months as it relates to the other anchor leases, we continue to see between a leasing an executed an opening on the sat around 10 months.

Got it. Okay. And then, Glenn, and just follow up on one more the -- curious on your appetite for stock buyback here given your recent run the stock here over 2017 you're buying your David Price below 15 assuming the stock price holds here curious how you thinking about allocating those incremental business and proceed beyond your normal reed of?

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 yields, 77 dividend yields, so we'll watch what cost of the capital is. Again, we also just announced that we're going to pay off our $300 million dollars bond, so we're going to use cash to help bring those debt levels down, so it's really washing with quite a bit of capital is to where that stock prices and then trying to do best capital allocation as we see fit.

There were still trading at a sizeable discount to net asset value, so it obviously still is a piece of the capital allocation plan that we have, now we have plenty of opportunity to utilize that.

Thank you.

The next question comes from Linda Tsai of Barclays. Please go ahead.

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

We've used probably that 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 is 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 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 really the product kind of fits 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 on 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.

The conference has now concluded. Thank you for attending today's presentation. You may disconnect.