Question-and-Answer Session
Operator
(Operator Instructions) Our first question today will come from Jay Habermann with Goldman Sachs.
Jay Habermann - Goldman Sachs
Hi, good morning everyone. Here with Johan as well. I guess for Mike, as you walk through the reserves and you said the 2.5% you set aside thus far and you anticipate roughly 1.75%, sort of the ramp up in the back half of the year. I guess as we look forward in to next year and if you think occupancy could trend below the 90% or 89% range, where perhaps you bottomed historically?
I mean, would you anticipate taking further reserves just to be cautious at this point in the cycle? Then secondarily, can you walk through the impairments? Just give us some sense of, how you’re arriving at fair value especially in the Pru Kim and preferred equity, as well as Valad?
Mike Pappagallo
Okay, Jay on your first point, I just wanted to make one clarification that as we think about trending upward in the second half of the year, that those estimates have been provided for or considered in our guidance. As we look into next year, if there is anticipation in further bankruptcies, decreases in occupancy, recognize that we have to provide and will be providing our normal bad debt reserves through the process into next year.
I think the point that I wanted to make is that because we have a substantial amount of reserves. In effect anticipating that there are going to be increased losses and to the extent that there are, that our reserves will be sufficient to cover those increased losses. So that the affect on the profit and loss statement will be somewhat muted, that there will be a more historic charge-off of issuing expensing to the P&L.
So that’s why we’re not expecting a large spike or reductions in NOI from credit losses because of existing reserves built over a period of years. With respect to impairments, the process essentially, in particularly for those assets, which are acquired to be estimated at fair value on discounted cash flow basis.
We essentially look to the marketplace, we looked at studies for average cap rates and discount rates, using things like core past studies and the like things that are in affect verifiable from an audit perspective. As you know, cap rates on strip centers and other assets and as they range across the board and depending on whether it’s a development deal or not.
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