On Tuesday, Kimco Realty (NYSE:KIM) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Kimco Realty reported a strong quarter with FFO per diluted share of $0.46, marking a 4.5% increase year over year, and same-property NOI growth of 3.5%.
The company achieved record small shop occupancy of 92.9% and overall portfolio occupancy of 96.4%, despite challenges like the Painted Tree bankruptcy.
Significant leasing activity included 461 leases covering 2.5 million square feet, with new leases showing a 40.4% spread, emphasizing strong retailer demand.
Kimco Realty completed the sale of The Milton, a multifamily building, highlighting the success of its mixed-use platform as a source of long-term value creation.
The company continues its capital recycling strategy, reinvesting proceeds from asset sales into higher-growth shopping centers, enhancing portfolio quality and future earnings potential.
Kimco Realty raised its full-year FFO outlook and increased its quarterly dividend by 12%, reflecting strong operating performance and confidence in future growth.
The company issued $600 million in exchangeable notes at a 3.5% coupon, strengthening its balance sheet and liquidity position with strategic capital management.
Management emphasized the launch of its new national operating model, 'One Kimco,' aiming to improve FFO growth, leasing productivity, and margin expansion through streamlined operations and AI tools.
Despite a competitive market, Kimco Realty is optimistic about continued transaction activity and capital recycling in the second half of the year.
Full Transcript
David Bujnicki, Senior Vice President, Investor Relations
Cooper, President and Chief Investment Officer; Dave Jamieson, Executive Vice President and Chief Operating Officer; Glenn Cohen, Executive Vice President and CFO; as well as other members of the Kimco Realty leadership team who are available for Q&A. Before we begin, some of our comments today may include forward-looking statements based on management's current beliefs and expectations. These are subject to risks and uncertainties described in our SEC filings, and actual results may differ materially.
We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures. Reconciliations to GAAP are available in our earnings release and supplemental package, both posted to our IR website along with an accompanying presentation. The same forward-looking caution applies to those materials. Following prepared remarks, we'll open the call to Q&A. To allow a smooth and efficient call, please limit yourself to one question and re-queue for follow-ups.
With that, I'll turn the call over
Conor Flynn, CEO
Good morning and thanks for joining us today. I'll walk you through our solid second quarter results, which continue to validate our growth strategy and the strength of our portfolio, platform, and operating model. Dave will cover our leasing accomplishments in detail, Ross will take you through our transaction activity, and Glenn will close with our financial results and updated outlook. We delivered another strong quarter with FFO per diluted share of $0.46, up 4.5% year over year, and same-property NOI growth of 3.5%, driven by higher minimum rents and stronger net recoveries.
Small shop occupancy reached a new record of 92.9%, while overall pro rata portfolio occupancy matched our all-time high at 96.4%, even after absorbing a 16 basis point impact from the Painted Tree bankruptcy lease rejections. These results reinforce the depth of demand across the portfolio, with the growth potential stronger than the headline numbers suggest. Leasing remained one of the clearest indicators of demand for our portfolio across the quarter.
We continue to see retailers compete for space in high-quality open-air, grocery-anchored centers, with demand outpacing available supply as new shopping center development remains limited across our markets. Dave will cover the detailed leasing metrics, but the broader takeaway is that our centers continue to attract growing retailers, drive strong rent growth, and benefit from positive shopper traffic and healthy tenant sales. That trend remained evident during the quarter, with foot traffic across our centers increasing 3% year over year, including 3.2% growth in June, and spending across our tenant base also remains robust.
With respect to our mixed-use portfolio, I want to share a meaningful proof point and what it means for future value creation. During the quarter we completed the sale of The Milton, a 253-unit multifamily building at our Pentagon Centre mixed-use property in Pentagon City, Virginia. The sale of The Milton marked an important milestone for our mixed-use platform and our first full-cycle monetization of a ground-up multifamily development within our value-add redevelopment program.
The transaction provides a tangible proof point of the embedded value we can create by entitling, developing, stabilizing, and then selectively monetizing mixed-use assets at the right time. Ross will provide more detail, but the broader message is clear: our mixed-use platform is another meaningful source of long-term value creation. Our capital recycling program continues to be an integral and recurring part of our strategy. Recent asset sales and ground lease monetizations demonstrate our ability to harvest value from low-growth assets and redeploy capital into shopping center investments with stronger long-term growth prospects.
This approach enhances the quality of the portfolio, supports future earnings growth, and allows us to create value without depending solely on external capital. This strategy was further illustrated by the acquisition of two high-quality shopping centers in Florida. Utilizing 1031 exchange proceeds, we purchased Pompano Marketplace, a Walmart-anchored center in Pompano Beach, Florida, for $53 million, marking the third acquisition sourced through our Structured Investment program, a differentiated platform unique to Kimco Realty.
The other center was Sunshine Plaza, a Publix-anchored center in a first-ring suburb of Fort Lauderdale, Florida, for $56 million. On the balance sheet, it remains a clear competitive advantage for Kimco. Glenn will provide more detail on our recent capital markets activity, including our inaugural $600 million exchangeable notes at an attractive 3.5% coupon. The key point is that our liquidity position, access to capital, and investment-grade profile give us the financial flexibility to remain opportunistic and play offense while maintaining discipline in the current environment.
Lastly, reflecting on our strong first-half performance, improved visibility into the balance of the year, and confidence in the underlying strength of the portfolio, we are raising the midpoint of our full-year outlook. In addition, our board has increased the quarterly common cash dividend by 12% over the prior year, supported by our strong operating performance, earnings growth, and rising taxable income, and confidence in the company's long-term growth outlook.
Together, these actions underscore the durability of our cash flows and commitment to delivering long-term value for our shareholders. In conclusion, I want to thank our entire team. The second quarter only reinforced what we believed at the very start of the year: Kimco has the right platform, portfolio, and balance sheet to drive sustainable earnings growth. Strong retailer demand, positive shopper traffic, visible cash flow growth from our sizable signed-but-not-open pipeline, accretive capital recycling, and disciplined balance sheet management all position us to continue creating long-term value for shareholders.
With that, I'll turn it over to Dave to cover leasing in more detail.
David Jamieson, Executive Vice President and Chief Operating Officer
Thanks, Conor. I'll cover second quarter leasing results, occupancy trends, the SNO pipeline, and the launch of our new operating model, all of which continue to support the growth trajectory we laid out last quarter. We signed 461 leases across 2.5 million square feet in the second quarter at a blended spread of 13.1%, bringing our total leased for the first half of the year to over 7 million square feet. New leasing activity remained a clear standout with 161 deals covering 685,000 pro rata square feet at a blended spread of 40.4%, marking our 19th consecutive quarter of double-digit new leasing spreads.
This quarter included several notable lease transactions that highlight the strength of tenant demand and our ability to enhance the merchandising mix across the portfolio. On the anchor side, we replaced a former Rite Aid with Taste of Life, a Japanese-inspired homeowners retailer, at Marketplace at Factoria, and at our Woodlawn Center in Charlotte, North Carolina, we added Lowe's Food, bringing a new grocery component to the site. Within our lifestyle portfolio, we signed our first ever Uniqlo lease, further validating the appeal of that segment of our business and the growing interest we're seeing from leading retailers.
On the non-anchor side, non-anchor leasing activity remained broad-based, with particular strength seen in service-oriented tenants, including fitness, health and wellness, restaurants, and professional services. This includes several solid core leases that not only complemented our lifestyle portfolio but also were a nice addition to our core grocery community assets, which further demonstrates the leverage of our operating platform and our ability to cross-pollinate between the lifestyle and core assets.
Our package leasing initiative also continued to gain momentum this quarter, signing seven deals with two retailers that further enhance small shop occupancy. This disciplined approach is helping us accelerate deal velocity, capture efficiencies of scale, and deepen relationships with growing retailers. Together, these deals reflect what we continue to see across the portfolio: today's retailers are willing to pay premiums for our high-quality locations, and they're actively upgrading our merchandising mix in the process.
Renewals and options totaled 300 deals across 1.9 million square feet at a blended spread of 7%, comprising 6.1% on renewals and 8% on options. This is another clear example of the health and stickiness of our portfolio, with retention remaining at historically high levels as tenants continue to prioritize our open-air, grocery-anchored locations. Small shop occupancy hit a new record high of 92.9%, and we continue to see room for further occupancy gains as demand for smaller-format space remains exceptionally strong.
Anchor occupancy only dipped 10 basis points quarter over quarter to 97.8%, despite a 23 basis point impact from Painted Tree, but remains up 110 basis points year over year. Turning to our SNO pipeline, economic occupancy increased by 20 basis points to 92.4%. The pipeline now represents $95 million in annual base rent, of which $75 million is incremental, and 48% of that is projected to commence by the end of the year. Importantly, this pipeline continues to track ahead of our original plan, with construction and leasing tightly coordinated to keep converting signed leases into cash-paying rent as quickly as possible.
In terms of the actual cash flow from rent commencements, we're now projecting $33 million to be received in 2026, which is percent higher than our initial estimate. The timing of the rent commencement includes $24 million from tenants that opened in the first half of the year, with an additional $9 million projected for the back half of 2026. Effective July 1, we launched our new operating model, moving from a regional structure to a nationally aligned functional team organized around our assets.
It sharpens accountability around the metrics that drive value, brings greater consistency across the portfolio, and accelerates execution. This leverages the scale of our national platform without adding incremental cost. We expect the benefits to build over time through improved FFO growth, same-site performance, leasing productivity, and margin expansion. That structural change is the most visible piece of a broader effort we call One Kimco. Alongside it, we're investing in the operating infrastructure behind it: first, a unified data platform that brings our portfolio, leasing, and property data into one place; second, AI tools that are helping automate routine workflows; and third, modern collaboration tools we're rolling out across the organization. Taken together, this is how we build durable operating leverage, converting the scale of our platform into speed and margin. To sum up, leasing demand remains healthy, spreads continue to run solidly double digits, small shop occupancy reached a new all-time high, and our SNO pipeline continues to convert into cash flow growth.
Combined with continued momentum in package leasing, growing retailer interest in our lifestyle portfolio, and a more focused operating model, we believe the setup for the back half of the year remains strong. With that, I'll turn it over to Ross for an update on the transaction market.
Ross Cooper, President and Chief Investment Officer
Thank you, Dave, and good morning, all. As anticipated, we had an active second quarter and followed that up with a busy July. Our transaction execution has been quite strong, and we expect it will continue through the rest of the year. While the market is as competitive as ever, we are utilizing pre-existing relationships, contractual purchase rights in the form of rights of first offer and rights of first refusal, and JV relationships to find accretive opportunities for external growth.
Simultaneously, we are benefiting from aggressive pricing as the market continues to place substantial value on highly stable, lower-growth assets that do not fit our long-term growth objectives. Paired together, this capital recycling strategy we put in place is truly helping to enhance the growth trajectory of the portfolio. Looking forward, I want to add some additional color on a few of the sales Conor highlighted to showcase the benefits and rationale.
The monetization of the multifamily building, The Milton, is part of our Pentagon Centre mixed-use project that we developed in a partnership with CPPIB. It is a true reflection of the bottoms-up approach that we have taken with the multifamily densification program over the past decade. While the real estate was always exceptionally well located, we viewed the opportunity to create value through a different lens, beginning the formal process of entitling the project for mixed use and selectively and methodically activating two multifamily buildings over the past 10 years.
This meaningfully enhanced the value for each component of the project, including the existing retail at this location. We felt this was a good time to crystallize that value and monetize our ownership in the asset. The first transaction was The Milton at a 4.9% cap rate, emphasizing the tremendous demand and capital available for the best located real estate and the premium that is created with the synergies between well-executed residential and strong-performing retail.
We anticipate monetizing the remainder of Pentagon Centre in phases, with the second residential tower, The Witmer, most likely next and the enclosed retail thereafter, but no formal timeline has been determined. As it relates to the flat-to-low-growth lease disposition initiative, the Costco transaction is a prime example of accretive capital recycling. While the face cap rate is important, the bigger benefit of the transaction is the future cash flow growth of the reinvestment.
From an investment perspective, the long-term return profile of the Costco assets was materially below that of the properties we acquired. The Costco leases that were sold had a compound annual growth rate, or CAGR, of under 1%, translating to a sub-6% unlevered IRR based on a 10-year hold, with tenant control on those leases for decades. We were able to take the proceeds from the sale and utilize a 1031 exchange to acquire two grocery-anchored centers in South Florida in a tax-efficient manner, with a CAGR for the two assets more than 350 basis points higher than the Costco properties.
As such, we turned a sub-6% unlevered IRR into north of a 9% unlevered IRR. Most importantly, these transactions demonstrate how capital recycling can create earnings growth without relying on external equity issuance while simultaneously improving the long-term growth profile of the portfolio. Additionally, the assets were acquired off market due to a longstanding relationship with the seller. One of the two properties, the Pompano Center, was a structured investment that was converted into equity ownership.
This is the third acquisition from our structured investment program, all of which were grocery-anchored centers that we intend to hold long term—further evidence of the program being both an accretive way to get yield and another important avenue for our acquisition pipeline. We expect the capital recycling from low cap rate multifamily and flat-to-low-growth leases to continue, with the proceeds reinvested into higher-growth assets that will further enhance our portfolio.
I will now pass it to Glenn for the financial results of the quarter.
Glenn Cohen, Chief Financial Officer
Thanks, Ross, and good morning. As the team has outlined, Kimco delivered another quarter of strong operational and financial performance, highlighted by 4.5% growth in FFO per share, continued improvement in credit trends, and further strengthening of our balance sheet and liquidity position. These results reflect the quality of our portfolio, the resilience of our cash flows, and the benefits of our disciplined capital allocation strategy. I'll focus on the key drivers behind the quarter, our capital markets activity, the balance sheet, and our outlook.
FFO for the second quarter was $309.2 million, or $0.46 per diluted share, compared to $297.6 million, or $0.44 per diluted share, in the second quarter of last year. Operationally, the portfolio continues to perform at a high level. Same-property NOI increased 3.5%, driven by the growth in minimum rents, stronger net recovery income, and continued improvement in tenant credit performance. Credit loss came in at 57 basis points for the quarter compared to 89 basis points for the second quarter of 2025.
Year to date, credit loss is just 54 basis points, reflecting the continued strength and resilience of our retailer base. These operating fundamentals translated into another quarter of FFO growth. Importantly, there were no material one-time adjustments or non-cash items affecting comparability this quarter. Turning to the balance sheet, we ended the quarter with consolidated net debt to EBITDA of 5.2x, or 5.5x on a look-through basis including pro rata JV debt and preferred stock.
We ended the quarter with $2.7 billion of total liquidity, including $700 million of cash on hand, much of which will be used to satisfy our upcoming 2026 debt maturities. A few additional details regarding our successful inaugural exchangeable note offering: On the strength of investor demand, we upsized and issued $600 million of 3.5% exchangeable senior notes due 2031. The notes carry an initial exchange price of approximately $32.36 per share, representing a 27.5% premium to our stock price at issuance and nearly 60% above our stock price at the beginning of the year.
In connection with the offering, we repurchased approximately 4.1 million shares of common stock for $104.7 million at $25.38 per share. This structure was deliberately designed to mitigate the potential dilution from the offering while diversifying our capital sources, extending our maturity ladder, and securing an attractive cost of capital. It was also compelling from a capital allocation perspective, given our dividend yield exceeded 4% at the time of the issuance compared to the 3.5% coupon on the notes.
Subsequent to quarter-end, we also repurchased 516,750 shares of our 7.25% Class N convertible preferred stock for $33.3 million, funded through the issuance of 549,250 common shares—which was sized to cover the holders' related hedge positions—and $19.6 million of cash. This transaction will result in a charge of approximately $3.8 million in the third quarter, reflected in both net income and FFO. As we look ahead to 2027, we remain exceptionally well positioned with substantial liquidity and a broad set of financing alternatives, including the unsecured bond market, term loans, commercial paper, and the exchangeable note market.
As always, we'll remain opportunistic with respect to timing and execution. Given our strong first-half results, we are raising the lower end of our full-year 2026 FFO outlook to $1.83 per diluted share from $1.81 previously, while maintaining the top end at $1.84. The revised outlook reflects strong first-half operating performance, improving credit trends, and greater visibility into the remainder of the year, while still maintaining flexibility for the timing of transactional activity.
We are also raising our same-property NOI growth assumption to a range of 3% to 3.5%, up from 2.8% to 3.5% previously, and tightening our credit loss assumption to 55 to 75 basis points from the prior level of 65 to 90 basis points. We've also adjusted downward our assumption for interest expense and preferred equity dividends, reflecting the financing activity to date. As always, our outlook considers the timing of capital activity, including financing, acquisitions, dispositions, and redevelopment spend, and all other assumptions remain substantially unchanged.
I'd also note that the Board declared a quarterly cash dividend of $0.28 per common share, or $1.12 on an annualized basis. The 12% increase over the dividend declared in the third quarter of the prior year reflects continued growth in operating cash flows, earnings, and taxable income. We believe a growing dividend remains an important component of total shareholder return while maintaining the flexibility to invest in future growth opportunities.
In closing, the quarter reflected continued operating momentum, disciplined capital allocation, and further balance sheet strengthening, combined with improving credit trends and significant liquidity. We believe Kimco Realty remains well positioned for the second half of the year to further execute our growth strategy and create long-term value for shareholders. And with that, we are happy to take your questions.
OPERATOR
We will now begin the question-and-answer session. Please limit yourself to one question. If you'd like to ask a follow-up question, please rejoin the queue. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.
Your first question comes from the line of Michael Goldsmith with UBS. Michael, your line is open. Please go ahead.
Connor, Analyst at UBS
Hey, good morning, this is Connor here with Michael. Just wanted to touch upon the transaction activity and the capital recycling. Obviously, you guys made a lot of progress in the quarter with, you know, activity around ground leases, shops, apartments, and, you know, incorporating the SIP as well. So while you didn't change guidance on the acquisitions and transaction activity, we were just wondering if you'd be able to kind of share your thoughts and provide some color on what we should expect for either a similar level of activity in the back half of the year, and maybe just, like, the mix of transactions that you currently have in the pipeline.
Ross Cooper, President and Chief Investment Officer
Sure, Connor, happy to answer that. So yeah, I mean we're really excited with the execution thus far. As we've talked about at the beginning of the year, you know, the accretive capital recycling is really critical in enhancing the growth profile of the portfolio. So selling some of those Costcos at super aggressive cap rates, recycling that into the grocery-anchored assets with a significantly higher growth profile was a great trade. Converting on the value creation of our first multifamily crystallization I think was an important step and we do anticipate that we'll see more of that.
As I mentioned, the Whitmer is the next multifamily project that we would anticipate closing. While we haven't identified a definitive time frame, we do think that that will happen this year as well. So with that, you know, we feel really confident in some of the sources of future acquisitions that we've been working on. Obviously the dispos have been front-weighted in the first half of this year, but we do anticipate that the activity on the acquisition side will continue to grow here in the back half.
And we have a couple of things that we're excited about that we're working through. So the structured investment program continues to be a source of opportunity. And not only are we excited about the yields that we've been able to achieve within that program, but do believe that the quality of the assets within that book have continued to improve. And with the third acquisition from that program taking place with one of those two grocery-anchored assets, we think that future acquisitions from that program will continue with quality that we're really excited about.
And then of course we continue to have a pretty substantial amount of ground leases to dispose of at low cap rates and low growth profiles that will continue to recycle. We can be pretty methodical with the timing on that. As we've talked about, tax efficiency and conversion into 1031 exchanges will continue to be an important part of that program. But we feel really good about the execution and think that we can continue to recycle out of the lower growth, lower cap rates and into some acquisitions that will have significantly enhanced growth profile.
So that will continue through the back half of the year and then of course into ’27 and beyond.
OPERATOR
Thank you. Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead.
Juan Sanabria, Analyst at BMO Capital Markets
Good morning and thanks for the time. I guess a question for Glenn. Could you just comment a little bit about the implied FFO in the second half? I think it's flat, but same-store NOI is set to accelerate. Sounds like you have more acquisition activity also expected as per Ross's last answer. And I know you called out like a one, one-cent pref one-timer on the cost side, but just curious on how we should think about the earnings trajectory in the second half.
Thank you.
Glenn Cohen, Chief Financial Officer
Sure. You know, again, we did raise the bottom end of the guidance and lifted it, you know, two cents from where it was, which gets you to, at the bottom end, 4% growth. The, you know, the upper end at 1.84 is 4.5% growth. So we're approaching where, you know, where we've been talking about trying to keep up with that, you know, 5% growth level. So you're starting to get to those levels. As I did point out, we do have a charge in the third quarter that we're aware of.
So that's about two-thirds of a penny. That has an impact on it. And you also have, again, the timing of the transaction activity that, you know, Ross is talking about. So you have some of the dispos ahead of the acquisitions. The good news is the cash that we're holding on earns about 4%. So it's not zero by any means. But again, the deployment of that capital and the timing of that kind of plays into the overall guidance activity that we have. So we feel really good about where we're headed and we're going to continue to do everything we can to meet what's there and hopefully try to exceed it.
OPERATOR
Your next question comes from the line of Mike Mueller with JP Morgan. Mike, your line is open. Please go ahead.
Mike Mueller, Analyst at JP Morgan
Yeah, hi. I guess just going back to the dispositions and resi, should we think of anything that you develop in terms of resi or mixed use as being a higher priority sale at some point down the road or are there some projects that you would hold on to?
Ross Cooper, President and Chief Investment Officer
That's a good question. I think that the beauty of the program and the way that we've structured it is that we have optimal optionality. So when we develop these projects, we've structured them in a variety of different ways. You've seen us self-develop with a joint venture partner, contribute our land into a JV where our component is sort of structured as pref equity, where we're able to achieve a return during the development phase, as well as, you know, longer-term ground leases, as well as selling off the dirt in the form of the entitlements pre-development.
So we look at each and every one of these projects through a very unique decision tree and make the determination as to how we activate it, what the exit strategy is, what the timing of that is, and we really do retain the right in each and every one of these instances to really control our exit, control our destiny. So when you're in a market like we're in today, where we're able to sell the Milton at a 4.9 cap, as well as some of our other multifamily that we know would price in this market at very aggressive cap rates, it's likely a portion of the market cycle where it makes sense for us to monetize and redeploy.
But to the extent that we have opportunities with higher yields where we think it makes sense either in the medium or even long term to own it, we have the ability to do that at the appropriate time if our cost of capital allows for that. So we do view it as a form of currency that we can utilize and sort of pick and match when and if we look to monetize. But we're going to do that on a case-by-case basis.
Conor Flynn, CEO
Michael, I think the key too is the enhancement of the retail. So when we look at creating a mixed-use environment, we're seeing the thesis play out where the retail is driving premiums on the apartments, but the apartments are also driving premiums on the retail. You're creating that campus environment that enhances each other. And so the components that we see for the future of Kimco is really unlocking that and enhancing the retail component and then, as Ross said, having total optionality on the apartment side.
So we think that the program continues to bear fruit. Fourteen thousand entitlements. We obviously have a laddered opportunity set that we continue to activate and we continue to see that there's a lot of untapped potential within the portfolio and we're excited about the future.
Glenn Cohen, Chief Financial Officer
Yeah, I would just add that the other thing to keep in mind about the program is we're doing it in a capital-light manner, which is really, really helpful. We're not taking major drag on earnings to build these over a two-, three-year period. The preferred equity structure that we've created with the partners really has allowed us to build these without having a drag on earnings.
OPERATOR
Your next question comes from the line of Andrew Real with Bank of America. Andrew, your line is open. Please go ahead.
Andrew Real, Analyst at Bank of America
Good morning. Thanks for taking my question. Maybe just a follow-up on the recycling. You know, these ground leases have basically near-zero capex, whereas the acquired shopping centers are going to have some leasing and TI requirements. So I guess, on this 100-basis-point spread, can you lay out what year-one accretion actually looks like on an AFFO basis? Thanks.
Ross Cooper, President and Chief Investment Officer
Yeah, it's a good question. And that's why we also wanted to indicate what the IRR trajectory of these investments is because we look at it through a few different lenses. Clearly year one from an AFFO standpoint is important, but that spread, while it's going to be anywhere from 50 to 100 basis points, is just one factor. When we think about the CAGR, the trajectory and the IRR of a 10-year hold, that's where we're seeing selling of the ground leases—Costco is the example that we gave—being sub-6% and recycling that including and factoring in all costs associated with operating a multi-tenant shopping center where we're able to generate, you know, high eights, low nines for the recycling into the grocery-anchored shopping center. So you're seeing that, you know, 300 to 350 basis point spread on the IRR inclusive of costs associated with the multi-tenant shopping center. So it's definitely a good trade for us from the growth trajectory, even factoring in the capex-like nature of the ground leases.
OPERATOR
Your next question comes from the line of Jamie Feldman with Wells Fargo. Jamie, your line is open. Please go ahead.
Jamie Feldman, Analyst at Wells Fargo
Great. Thanks for taking my question. So traffic trends have been pretty solid. You highlighted seven consecutive months of spending improvement. Can you talk more about the differences you're seeing in value-oriented versus higher-income consumers across the portfolio?
Conor Flynn, CEO
Sure, I'm happy to start. And then Dave, you can add some color. When you look at the growth of the traffic, you know, clearly it's still being led by the high-income, highest-demographics piece of it, but it's still positive 2% on the lowest-income demographic as well. So, you know, I think people are retrenching if you're in the lower demographic. But when you look at Kimco's portfolio, we sit in that first-ring suburb of really the top major metropolitan areas.
And so our consumer skews toward that middle to upper end on the income levels. And so, you know, we continue to look and see how our tenants are performing because obviously traffic's a leading indicator but we don't necessarily have the visibility inside the store. But when you look at the credit card spending, when you look at where, you know, our retailers are performing and how they're presenting their store operating plans and their new growth plans, it's very clear the store base is producing meaningful growth for them.
And we continue to think that that's going to showcase with our portfolio reviews, platform deals, and the relationships we have across the retail spectrum.
David Jamieson, Executive Vice President and Chief Operating Officer
Yeah, just add a couple data points too. On the middle-income side, we're seeing spending up about five and a half percent. On the low-income side, it's still about 3.5%. So you are seeing increases on the spend side. And complementing what Connor was saying, our shopping centers do cater to, you know, all needs on the income spectrum. And, you know, depending on where you are in terms of your discretionary income or the cycle of the market, you know, our diversity of our tenant base helps service that.
You're still going to the grocery store, you still need to eat. So it's just really dependent on what you buy within the store, you know, may vary month to month, year over year, depending on your situation. But that's our intention. Our intention is to always be there for you when it's needed.
Glenn Cohen, Chief Financial Officer
I would just add, you know, the consumer continues to be incredibly resilient. Right. They've dealt with higher interest rate environment for the last few years, they've dealt with higher gas prices, they've dealt with higher egg prices throughout it. And I think the saving grace of all that really has been, if you look at where unemployment is, unemployment has remained incredibly low, job turnover's remained incredibly low. And again, when you're sitting and are feeling comfortable that your paycheck's coming, people continue to spend.
So, you know, we continue to watch that. We're looking for that crack in it but, you know, so far, so good.
Jamie Feldman, Analyst at Wells Fargo
Thank you.
OPERATOR
Your next question comes from the line of Michael Griffin with Evercore ISI. Michael, your line is open. Please go ahead.
Michael Griffin, Analyst at Evercore ISI
Great, thanks.
UNKNOWN Analyst
On the leasing front, you know, Dave, I'm curious, your SNO spread this quarter came in about 10 bps from last quarter at 400 basis points. Just given all of the operational initiatives that Kimco Realty has been undertaking, you know, getting these tenants open quicker, commencing rents quicker, does it feel like we've hit sort of that widest spread between leased and economic occupancy? And can you give us a sense of where you expect that to trend into the back half of the year and then as we kind of start to think 2027?
Thank you.
David Jamieson, Executive Vice President and Chief Operating Officer
Yeah, no, I appreciate the question. You know, so when you look at the SNO pipeline, obviously it's the physical occupancy that, as we continue to push leasing and we're able to continue growing physical occupancy, if your economic stays the same, that will widen the spread. But as we're opening tenants and getting them into the cash-paying component and growing economic occupancy, I think you're having both initiatives run extremely strong right now.
So you could see a fairly steady state through the back half of the year. And if our occupancy levels remain high and there's no bankruptcies or material issues in, say, '27, you could start to see that compression. But I think what's most important is the conversion to cash flow and the mark-to-market that we're seeing. So even on the widening of the spread that we've had elevated, when you look at the mark-to-market on the new leases — obviously this quarter was a record quarter — when you look at the mark-to-markets on the anchors in the 20–25% range historically that we're seeing, you're seeing the real cash flow growth come through.
So it being elevated is actually a good thing because it's showing the future cash flow. But it's the conversion of the old to the new that matters most to us. So we're continuing to push on all fronts and just grow that cash flow.
Conor Flynn, CEO
The only thing I'd add is I think we still have room to run on the occupancy side. When you look at our anchor occupancy, it's still below all-time high. So the physical occupancy lift we still have to go is still there in the anchor component. And then, obviously, small shops being at an all-time high, you would think we're sort of cresting that potential ceiling. But I don't think that's the case. I think we're continuing to see diversified demand come into small shops, as Dave outlined, from a number of different uses that continue to gravitate towards the convenience and the value proposition that our shopping centers offer.
And you're seeing it with the consumer continuing to show up with our traffic counts.
UNKNOWN Analyst
Great, thanks so much.
OPERATOR
Your next call is from Greg McInnis with Scotiabank. Greg, your line is open. Please go ahead.
Greg McInnis, Analyst at Scotiabank
Hey, good morning. I had a few follow-up questions on the new One Kimco operating model. Firstly, how does that impact conversations with retailers and then what's the expected size of the investment on the tech side, the data, AI tools, collab tools, and then what's the expected long-term benefit to the margin?
David Jamieson, Executive Vice President and Chief Operating Officer
Thank you. Sure. I'll take the retail question and I'll kick it over to Will on the other questions. As relates to the retailer, the conversations have been extremely constructive. It's one unified message across the country. We have one accountable party as part of the One Kimco launch. We also have a national account team that's been launched as well, focusing on those retailers that we have package deals working — obviously large anchors and nationals that are actively growing.
So we're able to sit with them and address multiple sites, multiple leases, multiple opportunities at once, and then have one clear, concise message back to them, and they're able to roll those leases up with one group managing the entire deal flow end to end. So you're seeing acceleration of the execution, which is huge on both sides. And then even on the back end of it too, we're seeing, with construction and development working directly with their heads of construction, a pull-forward on the SNO pipeline with a number of retailers opening sooner.
And that's really important for them because they're pressured to hit their open-to-buys and get their stores open as quickly as possible. So there's this real complementary relationship that we've been developing over an extended period of time, and One Kimco sort of wraps it all together and is really, really putting our full resources to work.
Conor Flynn, CEO
The only thing I'd add is the negotiating leverage that Kimco has today is very different from what it's been in the past. And having One Kimco, having that negotiating leverage, is very different from the regional structure we had before. And I think that's a meaningful change that you should see in the margin enhancement going forward. And then Will, do you want to take the AI question?
Will Teichman — Executive Vice President, Chief Innovation & Transformation Officer
Sure. Good morning. With respect to digital transformation and just the broader move to our new operating model, our Office of Innovation and Transformation is taking the lead in coordinating these efforts. And in the second quarter we were proud to be a part of helping the company to transition through these changes, which impacted our people, processes, as well as system investments that we had to make. We're very focused right now on consolidating a pipeline of digital transformation initiatives, and we've made some significant progress in the first half of this year, including establishing a new data platform, as Dave mentioned in his prepared remarks, as well as standing up key AI and agentic infrastructure. We're really pleased with the progress and, from an upskilling perspective, are pleased to see now weekly AI utilization within our workforce above 80% among all of our associates. We have AI-powered workflows that are now in place across asset management, leasing, underwriting, legal, and other key functions. And we really see this as the early innings of a shift akin to the emergence of the internet.
As we think about what this will cost the business, our focus is on surfacing investments in incremental steps which will pay back along the way. So I can't put a number to what we will invest over the next decade around these transformation efforts, but what I can tell you is that year to date we've yielded approximately 5x return on the amount of money that we've spent and invested in our AI initiatives — so 5x in terms of expense savings offsetting the expenses that we've invested into these efforts.
Greg McInnis, Analyst at Scotiabank
Okay, thank you.
OPERATOR
Your next question comes from the line of Floris van Dijkum with Ladenburg Thalmann. Floris, your line is open. Please go ahead.
Floris van Dijkum, Analyst at Ladenburg Thalmann
Thanks. Nice progress on capital recycling. My question is a little bit of a different topic, which I don't know gets a lot of attention, but the ancillary revenue line — and maybe this is for Dave. I think ancillary revenues are 1.8% of total revenues today. You talk about the potential growth in that. How should we measure success? Where do you think this can go and how should investors look at this? Should this be as a percentage of revenues? Should it be as a percentage of per asset or per square foot? And what's the upside potential? Do you have a target, you know, three to five years hence, in terms of what it could represent as a percentage of revenues?
David Jamieson, Executive Vice President and Chief Operating Officer
Yeah, it's a great, great question, Floris. So the way we're looking at it is obviously optimizing the value of each of our assets. I think as a percent of revenues, as we continue to grow it, we're focused a lot on building national programs as well that build a residual base into that revenue line that we can grow over time. And then on top of that, you have the specialty income side, which is really the backfilling of vacant space intermittently while you're looking at long-term replacements.
Those are usually driven by the seasonal Spirit Halloween deals. So as you're growing your occupancy and stabilizing your tenant base with that predictable residual cash flow with long-term leases, we're looking at alternatives of how do we build a sustained, predictable cash flow within the ancillary income world. And so we look at each of our assets as how to optimize it either through advertising, through energy utilization — obviously EV charging, solar, etc. When we're looking at the specialty leasing side, how do you activate residual, excess parking and common area space that's underutilized at the time. So it's a real forensic approach that is nuanced in nature, depending on the asset. But we have the team and the resources and are really driving an enterprise initiative behind that.
Conor Flynn, CEO
I mean, we've been really enhancing the solar program. We have a couple of larger projects on some of our properties that — you know, so we're looking at every avenue that we have, from solar, EV charging stations, just full use of the property anywhere we can to drive additional revenue.
OPERATOR
Your next question comes from the line of Rich Hightower with Barclays. Rich, your line is open. Please go ahead.
Rich Hightower, Analyst at Barclays
Yeah, hey, good morning, guys. I just wanted to ask about the convert issuance and how you think about sizing that program relative to the overall balance sheet. I guess, you know, in the near term, obviously it's a great low-cost source of capital. In the longer term, you know, that market's a little more volatile than maybe traditional debt. You know, you might be perceived to be sort of over-earning on the interest expense side of things for, you know, for some period of time.
So how do you think about balancing that relative to all the other sources of capital?
Glenn Cohen, Chief Financial Officer
It's a good question. We're always looking at the capital structure that we have. We don't rely on any one specific part. You know, you have a whole lot of options available between term loans. We have a commercial paper program on the short end that we haven't really accessed yet that's fully available to us. Obviously you have the traditional bond market in multiple tenors, and we've been a participant. We've issued paper that's been as short as five years.
We have four issuances of 30-year paper. We have perpetual preferred — when it's been opportunistic to issue them, we have those outstanding as well. So I think the way we really look at it is it's just another tool and another opportunity for us, and it really gave us another opportunity to expand investors in our company. The exchangeable investor is very different than, in a lot of cases, the traditional bond investor. So it's just another access to capital that we think, as a large company that's an A-rated credit, it's a good thing to use today in balance, like anything else.
Conor Flynn, CEO
The only thing I'd add is the strategic goal of getting the A3 rating opens up all of these opportunities that Glenn has been talking about. I think when you look at positioning ourselves for the long term, we really do believe that we've checked the box in terms of balance sheet improvement, and taking it from obviously where we were to where we are today allows us, I think, complete optionality across the spectrum of financing that we can see and, again, be opportunistic when those windows open.
OPERATOR
Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin, your line is open. Please go ahead.
Caitlin Burrows, Analyst at Goldman Sachs
Hi, good morning everyone. Just on the Pompano Beach deal, could you remind us on the initial structured investment, maybe when that was and your take on why they initially decided to go with that structure, followed by the sale now? And when you have a property like that going from a structured investment to a property acquisition, does that process end up being FFO dilutive?
Ross Cooper, President and Chief Investment Officer
Yeah, it's a good question. And actually I think Pompano is a great example of our program and how we really look to sort of cater our capital to a solution for a borrower and something that's unique to Kimco in the way we structure our deals. The Pompano deal was done a few years ago where we actually came in as a senior lender at a slightly higher LTV than what a traditional lender would come in at. And while it's a really strong performing Walmart neighborhood grocery-anchored shopping center, there were a couple of moving pieces with that asset that we got very comfortable with and thought there was significant upside long term.
Where I think a traditional lender may have struggled with some of the initial pieces—and a few examples I can give you there—there was a former Joanne's box that was a bit uncertain. We had known through our tenant relationships and through dealing with the borrower there that Burlington was looking to take that Joanne's box that hadn't been completed yet. But we had full faith in talking with the retailer that that was going to come to fruition and ultimately did.
In addition to that, there was a Stein Mart box that previously went through bankruptcy. There were leases that were being negotiated with Marshalls and Five Below to replace that Stein Mart. So again, we got very comfortable with the trajectory of where the cash flow and the tenancy of that asset was going to, even though it may have been a little bit early in the transition of that asset. We came in as that senior lender at an 8% yield, but again, that yield for Kimco is flat as a fixed interest rate.
And then we had the opportunity as the borrower was looking to sell the asset, to utilize our right to step in and acquire that asset at a price that we're very comfortable and excited about. To your point, clearly the going-in cap rate is going to be lower than the 8% yield that we were earning as a lender. But when you think about the growth trajectory of where that initial yield is going to go over time, we see, you know, three and a half to 4% plus CAGR on that versus what was initially a flat income stream as a lender.
So over time we'll see the cash flow yield grow and catch up to that initial yield from the structured investment. But it is important to take a slightly separate perspective when we're thinking about what our structured investment program yields and what the purpose of that program is versus our long-term hold portfolio that we're looking to enhance the growth over time. And obviously being able to utilize that acquisition of the 1031 exchange for the Costco sales that were done at a flat five cap was a really good trade for us.
Caitlin Burrows, Analyst at Goldman Sachs
I mean, simply put, you're being paid to ROFR.
Ross Cooper, President and Chief Investment Officer
Yeah. The other thing, Caitlin, to keep an eye on is obviously that 8% that got paid back. The new structured investment book that you've seen us deploy this year is averaging over 10%. So, you know, obviously we're net positive in terms of the capital going out versus the capital we're getting back. And that's our goal for that program is obviously have a bit of a positive spread as well as have it be net positive.
Caitlin Burrows, Analyst at Goldman Sachs
Thank you.
OPERATOR
Your next question comes from the line of Craig Mailman with Citigroup. Craig, your line is open. Please go ahead.
Craig Mailman, Analyst at Citigroup
Good. Good morning everyone. Connor, maybe just want to go back to something you said in your prepared remarks that the growth potential here is higher than maybe the headlines suggest and maybe dig into that a little bit. You know, as Glenn was talking, clearly you guys are targeting that four and a half to 5%. You're doing a lot on the capital recycling side, kind of increasing the growth profile of the company overall. I guess when you kind of highlight something like that, what's the time frame that we should be thinking about to get kind of the kind of acceleration above maybe 5% given all that you're doing here, is that even a possibility?
And then just also as we think about, you guys raised a dividend 12%. And I know we had talked about that dividend growth may exceed kind of earnings growth here. So just from a total return perspective, also since this is real estate, just how do you think about that opportunity maybe versus peers?
Conor Flynn, CEO
Yeah, it's a good question, Craig. I think when you look back the last two years, we've produced FFO growth of 5 and then 6% plus. So we've clearly reset the trajectory of our earnings growth versus sort of prior cycles. And, you know, I think that continuation of that growth profile will obviously be contingent on where the consumer goes, where the retailer environment goes, where interest rate goes. But from a fundamental standpoint, if you think about the structure we have, the platform we have, the investments we're making.
That's why we're super excited about the future of Kimco. We are investing in our people, we are investing in AI, we are investing in our platform at a point where we're coming at it from a position of strength. So we're reorganizing at all-time high occupancies to drive further occupancy growth. We're refinancing obviously into a higher interest expense environment. But we have an A- A3 credit rating. So the balance sheet's in the best shape it's ever been in.
When you talk to our folks, when you tour our assets, you know, the assets itself really are thriving because of the diversity of demand we're experiencing. And then when you look at the future opportunity set of our entitlement program, we've got 14,000 entitlements, we've just completed our first round trip of monetizing a multifamily project. You look at all of these levers we have for growth and we got super excited about where we sit today, but also where we're going tomorrow.
And I think that's why we're at a position of strength and look at the mark-to-market that we have across the entire portfolio. And you see that SNO pipeline coming online. The SNO pipeline is just base rent, it's not recoveries. And so that enhances it even further as our margin I think is really at a point where it's going to enhance from here. So you put all those ingredients together and I think it's very compelling to think that Kimco is still trading at a discount, yet our growth is at the top of the charts in terms of our peer group and our balance sheet's at the top of the charts in terms of the entire REIT industry.
And so you put those components together and I think it's a very compelling time to invest in Kimco.
Glenn Cohen, Chief Financial Officer
Let me just clarify a little bit on the dividend too, which I think will help. As we mentioned, where payout today is 100% of our taxable income from the operations of the business. So if you think about percentage growth on FFO, our base of FFO from last year at $1.76, every penny we grow is about 56 basis points where a penny of growth on the dividend is 4%. So just you got to keep that in mind because as we're growing our funds available for distribution, every 7 million that we grow or a penny of FFO per share is requiring us to add to the dividend.
So the percentages are, they're dramatically different because you're using just a much different base number of the dividend versus FFO.
OPERATOR
Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander, your line is open. Please go ahead.
Alexander Goldfarb, Analyst at Piper Sandler
Hey, morning out there. Connor. You mentioned in the opening comments about revenue recognition, executing deals or doing things to get things that are open sooner. And you said that you guys are ahead of schedule from a material perspective. You know, as you guys launch One Kimco, obviously you're increasing leverage with the tenants to get them in sooner. Do you see this as a material impact to FFO growth? Meaning as you go through and listen to your ops guys, your leasing team, everyone throughout the organization to get tenants to take space sooner, do you see this as a material element that can boost FFO?
Or you would say, hey, this is just one of the spices in the spice cabinet that adds to that 5% plus?
Conor Flynn, CEO
No, I do think it drives FFO growth further. I mean, if you think about it, it's not only, Alex, from a new deal perspective, it also is on a renewal perspective. So we would typically do renewals on a one-off basis and try and get the best intel you can from your local leasing rep to sort of drive that renewal. When you have the strength of One Kimco behind the renewal process, in essence, at the time we are at today, we have more negotiating leverage than we've had in the past.
And so we can take that pipeline of renewals of, say, 10 to 20 or even 30 plus renewals that are happening in a year and really strengthen that renewal rate to a point where it's a driving force of FFO. And as you know, renewals don't take any capex. And so that is really where I see a meaningful impact of the earnings growth FFO trajectory going forward.
Alexander Goldfarb, Analyst at Piper Sandler
Thank you.
OPERATOR
Your next question comes from the line of Omotayo Akusanya with Deutsche Bank Omotayo. Your line is open. Please go ahead.
Omotayo Akusanya, Analyst at Deutsche Bank
Yes, good morning everyone. I just wondered if you could talk a little bit about the expectations for same-store NOI growth acceleration in the back half of '26. I think your full-year guidance is 3 to 3.2 or so and you're 2.6 year to date. So just kind of walk us through the back half. You know, the acceleration that's expected on a year-over-year basis—is it just easier comp? So kind of what's driving that?
Glenn Cohen, Chief Financial Officer
Yeah, again, you know, the first half of the year, if you look at where we were, we had a first deal with lapping the bankruptcy activity that happened last year with Party City, Joanne's, Big Lots and others. So to your point, we are expecting continued acceleration of growth in the back half of the year. That gets us into the revised guidance range that we put out at 3, you know, 3 to 3.5%. So that'll imply, you know, mid 3s to a little over 4%, third and fourth quarter as we go for the rest of the year.
And again, if we're hitting those levels, we are going to get into the mid to upper range of the revised guidance.
Omotayo Akusanya, Analyst at Deutsche Bank
Thank you.
OPERATOR
Your next question comes from the line of Ronald Camden with Morgan Stanley. Ronald, your line is open. Please go ahead.
Ronald Camden, Analyst at Morgan Stanley
Hey, great. Just one on just unanchored centers. I know some of your peers have sort of been going in that direction. Just sort of curious, you know, your thoughts, how you guys think about that, expanding the aperture. Is that something that's interesting? And if I could just ask a quick follow-up to the discussion on the inline lease, inline occupancy at record levels. I'm just curious if you're willing to think about what it would take to get to maybe 94, how you guys are thinking about that.
Conor Flynn, CEO
Thanks. Sure. On the first question, I think strategically we see, you know, the small strip center as part of our ecosystem. When you look at every single shopping center we own, it's a component of it. And so, you know, obviously underwriting those assets, they're smaller check sizes, but if they're good real estate with below-market leases, with the ability to use our platform to show growth, I think we've always been looking for those types of centers.
And if you look at, you know, across Long Island where we sit today, a lot of our centers are similar to that size and scale with significant growth profiles. So, you know, we continue to see that as part of our ecosystem that we'll continue to look to underwrite. As you know, there's been a lot of capital formed for that structure and that asset class. It's been very competitive, but we continue to mine for those opportunities and have them across our portfolio.
David Jamieson, Executive Vice President and Chief Operating Officer
And then on the second question, obviously supply is muted, the demand side is high, so that's working in our favor to help continue to push occupancy north. The focus on grocery conversion, so continuing to add grocery stores to our shopping centers, either through backfill opportunities or a redevelopment pipeline, is creating a halo effect that helps us absorb the balance of the inline space as well. That's also a contributor to pushing our occupancy northward and helping on the growth side as well.
So continue to heads-down focus, blocking and tackling, basic execution through the back half of the year.
OPERATOR
Thank you. Your next question comes from the line of Paulina Roja with Green Street. Paulina, your line is open. Please go ahead.
Paulina Roja, Analyst at Green Street
Good morning. I think we haven't touched on cap rates. Has anything shifted in terms of pricing recently or has it been mostly steady since last quarter?
Ross Cooper, President and Chief Investment Officer
Yeah, I mean, I think cap rates continue to be very competitive, and what I would say that we've seen change a bit is that there seems to be more compression and a tightening between different formats. I think Conor just mentioned all the capital that's chasing the unanchored strip format. Obviously grocery continues to be extremely competitive, but we're also seeing the lowest cap rates for more traditional power and lifestyle than we've seen in quite some time.
So you're seeing a bit of a convergence of cap rates for all formats. And I would say that that also holds true geographically. Whereas several years ago I think you saw a pretty significant premium or spread between some of the gateway sort of primary markets versus secondary and even tertiary, you're seeing that spread really narrowing and more aggressive cap rates in some of the secondary markets that historically may not have been chased by lots of institutions.
So lots of capital chasing all formats, all geographies. And we'll continue to pick our spots and find the right opportunities for Kimco Realty.
Paulina Roja, Analyst at Green Street
Thank you.
OPERATOR
We have reached the end of the Q and A session. I will now turn the call back to David Bujnicki for closing remarks.
David Bujnicki, Senior Vice President, Investor Relations
We just want to thank everybody that participated on the call. If you are looking for additional information, you can find it in our financial supplement as well as our updated investor presentation on our website. Otherwise, have a wonderful week. Take care.
OPERATOR
This concludes today's call. Thank you for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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