Negative Points

• The company absorbed a 16 basis point impact on occupancy from the Painted Tree bankruptcy lease rejections, highlighting ongoing tenant credit risks.

• Anchor occupancy dipped 10 basis points quarter-over-quarter to 97.8%, despite being up 110 basis points year-over-year, indicating some volatility in larger tenant spaces.

• The sale of The Milton at a 4.9% cap rate, while a positive proof point, may signal that the company is monetizing assets at relatively low yields, potentially limiting upside if held longer.

• The company faces a competitive acquisition market, with cap rates compressing across all formats and geographies, making it challenging to find accretive deals.

• The exchangeable notes offering included a share repurchase of $4.1 million shares at $25.38 per share, which could be seen as a defensive measure to mitigate dilution, potentially signaling concerns about stock price appreciation.

• The company expects a $3.8 million charge in the third quarter related to the preferred stock repurchase, which will impact both net income and FFO.

• Same-property NOI growth is expected to accelerate in the back half of the year, but the first half was impacted by lapping bankruptcy activity, indicating potential volatility in earnings.

• The company's dividend payout is at 100% of taxable income, which may limit flexibility for future dividend increases if earnings growth slows.

• The new operating model and AI investments, while promising, carry execution risks and may not deliver the expected margin improvements in the near term.

• The company's reliance on capital recycling and 1031 exchanges to drive growth could be impacted by changes in tax laws or market conditions, affecting the pace of portfolio enhancement.

Q & A Highlights

Q: Can you provide more color on the capital recycling strategy, specifically the mix of transactions expected in the back half of the year and the level of activity? A: Ross Cooper (President and CIO) stated that the company is excited about the execution so far, highlighting the sale of Costco assets at aggressive cap rates and the recycling of proceeds into higher-growth grocery-anchored assets. He confirmed that the monetization of The Milton is the first of several, with The Witmer, the second residential tower at Pentagon Centre, expected to close next, potentially this year. The company anticipates continued activity on the acquisition side, with a pipeline that includes opportunities from its Structured Investment Program and the disposal of ground leases at low cap rates, which will be recycled into assets with enhanced growth profiles.

Q: Could you comment on the implied FFO for the second half of the year, given that same-store NOI is set to accelerate but FFO appears flat? A: Glenn Cohen (CFO) explained that the company raised the bottom end of its FFO guidance by $0.02, implying 4% growth at the low end and 4.5% at the high end. He noted a one-time charge of approximately $0.006 per share in Q3 related to the preferred stock repurchase. The timing of transaction activity, with dispositions ahead of acquisitions, also impacts the earnings trajectory, though cash held from sales earns about 4%. The company feels good about its position and aims to meet or exceed its guidance.

Q: Should we think of any residential or mixed-use developments as higher-priority sales, or are there projects you would hold onto? A: Ross Cooper (President and CIO) explained that the company retains optimal optionality on each project, using various structures like joint ventures, preferred equity, ground leases, or outright sales. The decision to monetize depends on the market cycle and the company's cost of capital. Given the current aggressive cap rates for multifamily assets, it makes sense to sell and redeploy capital. Conor Flynn (CEO) added that the mixed-use strategy enhances the value of both the retail and residential components, and the company has 14,000 entitlements, representing a laddered opportunity set with untapped potential.

Q: On the recycling of ground leases into shopping centers, what does year-one accretion look like on an AFFO basis, given the different CapEx requirements? A: Ross Cooper (President and CIO) acknowledged that while year-one AFFO is important, the company focuses on the long-term IRR. The sale of Costco ground leases, with a sub-6% unlevered IRR, and the reinvestment into grocery-anchored centers, with a high-8% to low-9% unlevered IRR, represents a 300-350 basis point spread, inclusive of the costs associated with operating multi-tenant shopping centers. This trade enhances the growth trajectory of the portfolio.

Q: Can you discuss the differences in consumer spending trends between value-oriented and higher-income demographics across the portfolio? A: Conor Flynn (CEO) noted that traffic growth is led by higher-income demographics but remains positive at 2% for lower-income groups. Kimco's portfolio is concentrated in first-ring suburbs of major metros, skewing toward middle-to-upper income levels. David Jamieson (COO) added that middle-income spending is up 5.5% and low-income spending is up 3.5%, with the diverse tenant base catering to all income levels. Ross Cooper (President and CIO) highlighted the resilience of the consumer, supported by low unemployment, which continues to drive spending.

Q: Given the operational initiatives to accelerate rent commencements, have we hit the widest spread between leased and economic occupancy, and where do you expect it to trend? A: David Jamieson (COO) explained that the spread could remain steady through the back half of the year as both physical and economic occupancy grow. He expects compression in 2027 if occupancy remains high and there are no major bankruptcies. The key focus is on converting the SNO pipeline to cash flow, with record mark-to-market spreads on new leases, particularly anchors at 20-25%, driving future cash-flow growth. Conor Flynn (CEO) added that anchor occupancy still has room to run below its all-time high, and small-shop demand remains strong despite record occupancy.

Q: How does the new "One Kimco" operating model impact retailer conversations, and what is the expected investment and long-term benefit to margins? A: David Jamieson (COO) stated that the new model provides a unified message and a single accountable party for retailers, with a national-account team managing multiple sites and leases at once, accelerating execution and pulling forward the SNO pipeline. Conor Flynn (CEO) emphasized that the negotiating leverage is now significantly different, which should enhance margins. Will Teichman (Chief Innovation and Transformation Officer) noted that the company has established a new data platform and AI infrastructure, with weekly AI utilization above 80% among associates. Year-to-date, the company has yielded approximately 5x return on its AI investments in terms of expense savings.

Q: How should investors measure success in the ancillary revenue line, and what is the upside potential? A: David Jamieson (COO) explained that the company is focused on optimizing each asset through national programs, advertising, energy utilization (EV charging, solar), and specialty leasing. The goal is to build a sustained, predictable cash flow stream. Glenn Cohen (CFO) added that the company is enhancing its solar program and exploring all avenues to drive additional revenue from its properties.

Q: How do you think about sizing the exchangeable notes program relative to the overall balance sheet, and how do you balance it with other capital sources? A: Glenn Cohen (CFO) stated that the company does not rely on any single capital source, with options including term loans, commercial paper, traditional bonds, and perpetual preferred. The exchangeable notes provide access to a different investor base and are another tool for capital. Conor Flynn (CEO) added that achieving an A-/A3 credit rating has opened up these opportunities, giving the company complete optionality across the financing spectrum.

Q: Can you provide details on the Pompano Beach deal, including the initial structured investment and the rationale for converting it to an acquisition? A: Ross Cooper (President and CIO) explained that Kimco initially came in as a senior lender at an 8% yield, providing a solution

For the complete transcript of the earnings call, please refer to the full earnings call transcript .