Kimco Realty Corp. 2026 Q3 Earnings Call

Please go ahead. Thank you all for joining Kimco's quarterly earnings conference call.

With me today are Conor Flynn, CEO, Ross 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 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 to Conor.

Good morning, and thanks for joining us. I'll start with the quarter and our strategy, and then Dave, Ross, and Glenn will cover operations, transactions, and our financial results and outlook. We delivered a strong third quarter and are raising our full-year FFO and same-property NOI outlook. FFO per share grew 6.8%, keeping us on track for a third consecutive year of FFO per share growth above 5%. At the start of the year, we said the first quarter would be the low point for same-property NOI growth and that it would accelerate from there. That is exactly what we delivered: 1.7% in the first quarter, 3.5% in the second, and 4.9% in the third. We are also seeing early benefits from One Kimco, our unified operating platform, in faster rent commencements and greater cost efficiency.

Traffic at our centers remains strong despite higher rates and pressure on consumer sentiment, up nearly 3% year-over-year. Consumers continue to prioritize convenience and value, and our centers, anchored by grocery and everyday essentials, sit on their daily path of travel. New supply remains extremely limited, and higher construction and financing costs make new development even less likely. That has pushed portfolio occupancy to an all-time high, with small shop occupancy at its record. We still have runway as newly signed anchors open and drive traffic to the shops around them. Retailers' own data shows how much their stores matter to their online business. Stores serve as last-mile fulfillment hubs. ICSC Research found that when a retailer closes a store, its online sales in that trade area fall by more than 11% on average.

That is why retention remains near record levels and retailers keep reinvesting in their fleets, which supports continued rent growth. That demand drives our operating results. How we allocate capital is what compounds them, and it works like a flywheel. It starts with our currency. Flat growth assets like ground leases and single-tenant properties, multifamily assets that we've built on our own parking lots, and the free cash flow that our portfolio generates. Private buyers pay full value for those flat and multifamily assets, with our dispositions this year averaging a cap rate of approximately 5%. With approximately 14,000 multifamily units either built, active, or entitled, this provides a source of additional currency over time.

We've put it to work where it earns the most, acquiring grocery-anchored centers with higher yield and stronger growth, redeveloping our own centers at low double-digit returns, including roughly 28 grocery boxes, and making structured investments that set up future acquisitions. When our stock is the better value, we buy it back. The higher growth investments generate more free cash flow, and the cycle repeats, raising our grocery concentration each time. We believe our valuation does not reflect the quality and growth of the business. Private market pricing for open-air grocery-anchored centers sits in the 5%-6% range, consistent with where we bought and sold this year, while our share price implies a cap rate in the mid to high 7% range. We believe this disconnect creates a compelling opportunity. Rates may drive the headlines, but over time, fundamentals drive value, and we are not done.

As we look to 2027, a meaningful part of our growth is already signed. We have one of the largest signed but not open pipelines in the sector and among the lowest debt maturities next year relative to our peer group, keeping our refinancing exposure minimal. Glenn will walk through those building blocks. That is why we believe Kimco offers consistent growth and a growing dividend at a discounted valuation. With that, I'll turn it over to Dave.

Thanks, Conor, and good morning. Demand across our portfolio remains broad and deep. Lease occupancy reached an all-time high of 96.6%, while small shop occupancy remained at its record 92.9%. Anchor occupancy increased 40 basis points sequentially to 98.2%, within 70 basis points of our all-time high. Just as important, volume and pricing are moving together. We signed 444 leases totaling 2.7 million square feet at a blended cash spread of 12% on comparable spaces. New lease spreads were 31.5%, with anchors at 39.9% and non-anchors at 21%, highlighting the meaningful mark-to-market opportunity that remains in our small shop portfolio. That marks our 20th consecutive quarter of double-digit new lease spreads. Renewals and options were 7.3% and 7.7%, respectively. A meaningful amount of our future growth is already signed. Economic occupancy increased 30 basis points to 92.7%, narrowing the spread with lease occupancy to 390 basis points.

That spread represents over 400 signed leases and approximately $76 million of annual base rent that is yet to commence. Our focus now is converting that signed pipeline into paying rent as quickly as possible. That is where One Kimco comes in, helping us convert leasing demand into earnings more quickly. We are seeing meaningful improvements on what we can control. Once a lease is signed, the next step is getting that tenant to rent commence. By pulling forward rent commencement dates, we now expect $34 million of rent from 2026 commencements, nearly 20% above our original expectations. That is a tangible example of how One Kimco is helping us convert leasing demand into earnings more quickly. We are also using the scale of the platform to drive operating leverage.

Recoveries on retail CAM and insurance have improved 300 basis points since 2024, and we continue to drive G&A efficiency as the platform grows. We are also deploying AI across the platform to find additional efficiencies. That work is still early, but together, these efforts show how One Kimco translates our scale into better operating performance. The opportunity is straightforward: strong retailer demand, significant signed rent waiting to commence, and a platform turning that demand into revenue faster and more efficiently. With that, I will turn it over to Ross.

Thank you, Dave, and good morning. The third quarter advanced the capital recycling strategy Conor described, monetizing lower growth assets at attractive valuations and reinvesting where we can earn both higher yields and stronger growth. Recent market volatility has affected commercial real estate sectors unevenly, but high-quality open-air retail continues to hold up well. Pricing remains competitive, transactions are closing, and there is still significantly more capital looking to invest in the sector than product available. That depth of private demand reinforces the valuation disconnect Conor described, and it makes sourcing a real differentiator. Our joint venture platform and structured investment program let us find opportunities before they reach a crowded bidding process.

If rates remain elevated, we could see more dislocation, and we are positioned to act where risk-adjusted returns are attractive, whether through core acquisitions from sellers who value certainty of execution, or structured investments for owners of high-quality centers who need flexible capital. We see that as a growing source of opportunity as we move into 2027. During the quarter, we sold The Witmer for $211.5 million at an approximately 5.1% cap rate. Together with The Chester last quarter at a 4.9% cap rate, it shows the value we create by developing multifamily on land we already own and monetizing it. We also completed the previously announced $127 million sale of four Costco-anchored assets with low contractual rent growth and redeployed the proceeds through 1031 exchanges into Pompano Marketplace and Sunshine Plaza, two grocery-anchored centers in South Florida. Pompano is the third acquisition sourced through our structured investment program.