Curbline Properties Aktie

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Curbline Properties Corp. First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Stephanie Ruys de Perez, Vice President of Capital Markets. Please go ahead.

Thank you. Good morning, and welcome to Curbline Properties First Quarter 2026 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty.

In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements.

Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Form 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation.

At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning, and welcome to Curbline Properties first quarter conference call. We had an incredibly productive and active start to the year as investment opportunities have remained elevated, leasing demand has remained strong, and we've tapped new markets, increasing our liquidity and access to capital. This activity is falling directly to the bottom line, leading to an increase in our OFFO guidance range. This is, of course, a result of dedication and hard work from our team, and I'd like to thank everyone at Curbline for their contributions that have positioned the company for outperformance. We continue to lead this unique capital-efficient sector with a clear first-mover advantage as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States.

I'll start with an overview of investment activity and shift to operational highlights before handing it off to Conor to walk through quarterly results, the 2026 guidance increase and the balance sheet in greater detail.

Beginning with investments. In the third quarter of 2025, we began to see an acceleration in acquisition opportunities that were consistent with the existing portfolio and our convenience thesis. This elevated level of activity has continued putting us in a position to raise our 2026 investment target to $850 million from $750 million. We believe the increase is primarily attributable to 4 factors, each of which are unique to Curbline. First, the convenience business is a fragmented but liquid local business with over 90% of transaction activity between private buyers and sellers. We recognized this when we started buying properties before the pandemic and have structured our investment, leasing and property management teams to be in the markets where we want to own properties. This has allowed the team to build personal relationships with the owners of the highest quality real estate and the brokers that dominate each individual market. For the marketed deals we acquired post spin-off, we've worked with 29 different brokerage companies, which highlights not only the fragmented structure of the market, but also the importance of the national network of relationships that Curbline has built.

Second, Curbline now has been publicly listed for roughly 18 months, has a proven track record of closing on convenience properties, and we believe owns the largest high-quality portfolio of convenience properties in the U.S., totaling over 5 million square feet. This reputation and scale, along with our access to capital and investment-grade rating is leading to more inbound calls from the aforementioned private owners and brokers that we received before we went public. This brand awareness assisted by local and regional market events has made Curbline the first call and the trusted buyer for high-quality convenience properties and is providing greater visibility and transparency on our deal flow. Specifically, of the $1.2 billion of assets acquired since our spin-off, 22% have been off-market, highlighting the growing importance of inbound calls from sellers.

Third, the convenience property type is very different than the grocery and power center business in terms of operations and management. As a result, we've taken the strong accounting, legal and IT infrastructure from our predecessor and layered down the findings from our over $1 billion of acquisitions to refine our investment approach and focus only on actionable deals that we think have a path to success and meet our return hurdles. With a finite number of hours in the day for our deal teams, this has allowed us to increase efficiency and productivity by avoiding deals with unworkable issues that simply aren't worth our time.

And fourth, according to the Federal Reserve, over 50% of nonresidential real estate in the country is privately held by individuals over 65 years old. It is becoming clear to us that these owners are seeking liquidity today more than ever, which is adding another potential multiyear tailwind to our deal flow. We are continuing to tailor our team and our network to tap into this growing opportunity set and believe it will lead to a steady pipeline of future deal flow. The net result of these 4 factors is an increase in opportunities that meet our criteria of primary corridors, strong demographics, high traffic counts and creditworthy tenants and importantly, are additive to our future growth rates. And it highlights the unique and significant addressable investment convenience market that provides an opportunity to scale the business.

Moving to operations. We've signed over 145,000 square feet of new leases and renewals this quarter. Trailing 12-month spreads remain consistent with our 5-year averages as the shortage of space in affluent markets where we operate continues to lead to attractive leasing economics. We invest in simple, flexible buildings that are at the nexus of consumer behavior. These straightforward rows of shops can support a wide variety of uses, and this flexibility drives tenant demand from an extremely wide pool of tenants. The result of our portfolio is a highly diversified tenant base with only 8 tenants contributing more than 1% of base rent and only 1 tenant more than 2%. All 62 of our new and renewal leases this quarter were with different tenants and 71% were national credit operators. Both of these data points highlight the incredibly deep market for leasing to a wide variety of credit users.

In terms of same-property growth, we generated almost 5% growth in the quarter, and our capital expenditures were just 6.3% of quarterly NOI, placing us among the most capital-efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class.

In summary, I could not be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience real estate sector in an effort to deliver compelling relative and absolute growth for stakeholders.

And with that, I'll turn it over to Conor.

Thanks, David. I'll start with first quarter earnings and operating metrics before shifting to the company's revised 2026 guidance and then conclude with the balance sheet.

First quarter results were ahead of budget, largely due to higher NOI, driven in part by higher-than-forecast occupancy and resulting recoveries, along with lower G&A expenses. NOI was up 3% sequentially and over 50% year-over-year, driven by acquisitions, along with organic growth. Outside of the quarterly operational outperformance, there were no other material variances for the quarter, highlighting the simplicity of the Curbline income statement and business plan. You will note that in the first quarter, we recorded a gross up of $1.8 million of noncash G&A expense, which was offset by $1.8 million of noncash other income. This gross up, which is a product of the shared services agreement, and that's the 0 net income, will continue as long as the agreement is in place and is excluded from any G&A figures or targets.

In terms of operating metrics, the lease rate was up 30 basis points year-over-year to 96.3%, with occupancy up 60 basis points. Leasing volume in the first quarter accelerated from the fourth quarter, driven by an uptick in renewals, though quarterly volumes and figures remain volatile given the lack of available space in the portfolio and the company's denominator.

As David noted, we remain encouraged by the amount of activity and depth of demand for space. Same-property NOI was up 4.8% for the first quarter, driven by a 3.5% base rent growth and lower uncollectible revenue year-over-year. Importantly, this growth was generated by limited capital expenditures with first quarter CapEx as a percentage of NOI of 6.3% and trailing 12-month CapEx of 7.3% of NOI.

Moving to our outlook for 2026. We are increasing OFFO guidance to a range between $1.20 and $1.23 per share, which at the midpoint represents 14% growth. We believe that this level of growth will be the highest certainly in the retail space and amongst the highest in the entire REIT sector. Underpinning the midpoint of the range is: One, roughly $850 million of full year investments; two, a 3.25% return on cash with interest income declining over the course of the year as cash is invested; three, CapEx as a percentage of NOI of less than 10%; and four, G&A of roughly $32 million, which includes fees paid to SITE centers as part of the shared services agreement. Those fees totaled $1.1 million in the first quarter.

In terms of same-property NOI, we continue to forecast growth of 3% at the midpoint in 2026, which follows 3.3% in 2025 and 5.8% in 2024. As I have noted previously, the same property pool is growing but small, and it includes assets owned for at least 12 months as of December 31, 2025, resulting in a large non-same-property pool which we expect to grow at a similar rate to the same property pool over the course of the year. That said, in the second quarter, the timing of 2025 CapEx spending and a difficult uncollectible revenue comparison will act as an almost 300 basis point headwind to same-property NOI growth. As a result, we expect a meaningful deceleration in same-property growth in the second quarter before accelerating into year-end with second half base rent growth expected to average over 4%. For moving pieces between the first and the second quarter, interest expense is set to increase to about $8.5 million as a result of the funding of the private placement offering in late January. Additionally, noncash revenue is expected to decline sequentially by about $500,000 due to the write-off of below-market leases in the first quarter. And lastly, G&A is expected to remain roughly flat quarter-over-quarter.

Finally, included in the first quarter share count are just under 1 million shares related to the unsettled forward offerings completed to date. We expect dilution from the forward offerings to be an approximately $0.01 per share headwind to 2026 OFFO, which is included in our revised guidance. Additional details on 2026 guidance and the moving pieces that I just outlined can be found on Page 11 of the earnings slides.

Ending on the balance sheet, Curbline was spun off with a unique capital structure aligned with the company's business plan. In the first quarter, Curbline closed on the remaining of the previously announced $200 million private placement offering. Additionally, in the first quarter and the second quarter to date, the company sold 11.8 million shares on a forward basis with $296 million of expected gross proceeds, which we expect to settle in 2026, including cash on hand at quarter end of $306 million, along with total unsettled equity proceeds of $371 million, Curbline has over $700 million of immediate liquidity available to fund the remaining investments included in guidance after taking into account retained cash flow. Curbline now proven access to a variety of capital sources is a key differentiator from the largely private buyer universe acquiring convenience properties. The net result of the capital markets activities since formation is at the company ended the quarter with a leverage ratio of approximately 20%, providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in excess the average.

And with that, I'll turn it back to David.

Thank you, Conor. Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Ronald Kamdem of [ Curbline Properties ].

Just 2 quick ones. Just starting with the acquisition guidance raise to $850 million. Maybe just a little bit more color. Is this still sort of pretty granular? Is there any sort of larger deals in that pipeline? And what are you anticipating in terms of the cap rates and IRR [ specs ]?

Yes, the pipeline at this point is exclusively individual properties. There's no portfolios of note. And I would say that generally, the deeper we get into these markets and the more deal makers we have in regions where we're looking to buy properties, the vast majority of the inventory remains to me individual properties.

On cap rate returns, no real change there from last quarter to the prior quarter, Ron, we're in the low 6s, which is an unlevered IRR in the 7% to 9% depending on the property.

Okay. Got it. That's helpful. And then just on the same-store NOI guidance. I appreciate the color on the decel in 2Q and then the next on to the end of the year. But as you sort of step back, maybe can you just give us some thoughts on just what you think the long-term sort of same-store growth for the portfolio is? Is that 3% plus number the right sort of way to go about it as the portfolio sort of scales?

Ron, again, it's Conor. We -- when we announced the spin-off put out a target of an average growth of 3% for 2024 to 2026. As I mentioned in my prepared remarks, we did 5.8% in 2024, we did 3.3% in 2025. So we're, I'd say, running a little bit ahead of that average number of 3%. And I feel like -- I think we've said this publicly, this is a 2.5% to 4% business in periods of time where there is a supply-demand imbalance, which we happen to be in right now, we're probably in the high end of that range, but that feels like a pretty good bogey for this portfolio over time.

Your next question comes from the line of Craig Mailman from Citi.

It doesn't seem to have impacted consumer spending so far, but just with things with Iran, as they continue to drag out you guys -- the portfolio is a little bit restaurant heavy here just given the nature of it. Just kind of curious what you guys have seen on foot traffic? And if there's been any changes so far? And just your thoughts if this drags out and oil does start to be sort of a drag on consumer spending going forward. Like how should we think about the cushion you guys have in coverages on some of these leases and maybe the appetite of some of these franchises to continue to grow if there's a little bit of pause in the economy?

Craig, it's David. I would say 2 comments on that. One is that foot traffic through geolocation data is very useful for us to figure out the desirability of a property. We use it a lot in acquisitions. We use it a lot to understand what types of tenants we can put in properties and how we can generate leads to make sure that our leasing stays relevant. It's not a great proxy that we use to find out tenant profitability because basket size is difficult to find. Specifically, the majority of our tenants don't hold inventory. They're service-oriented. And so I think we're real estate first, and we're more tenant second. By being real estate first, what that means is we like to own rows of small shops that are simple and ubiquitous, and therefore, the shape and the size of those units can be used by a wide variety of users. I do think that over time, we will always have an exposure to QSRs, the small format QSR business fits into a pretty small, simple rectangular building. That building can be used by lots of other types of tenants. And so avoiding the purpose-built sit-down restaurants is a key differentiator, I think, for this type of real estate. So I think when you're kind of talking about a general slowdown in the economy, I wouldn't really see us as being able to forecast whether that is happening or not, I think we're very squarely in the running Aaron's type of consumer behavior. So if you look at the types of tenants we're putting in our properties and we're buying into, they tend to be those tenants that drive a lot of traffic from running Aaron's. And I think that they're not luxury oriented and they're not destination trips. So I would say that the insulation for us is probably more to do with consumer behavior and a little bit less so on the economy.

Okay. That's helpful. And then just switching gears, maybe cap rates and IRRs and you guys have really ramped the volume here of deals you're doing, and I'm assuming that some competitors are trying to come into the space, and you guys are the first mover. Just kind of curious with the inbounds that you're getting, the 22% off market, what's the prospect of continuing to be able to kind of keep cap rates in that low 6 or maybe even get better deals as you guys can solve solutions for people looking for maybe some either surety of close or deadlines on close or tax issues as they're kind of selling some of these assets. Could you just talk about the difference in returns that you're getting on these off-market where you're getting the inbounds versus a fully marketed deal? And where the market is trending just given how much capital you guys have put out the door lately and some of the attention that might be coming into these assets?

Sure. Sure. Well, I mean, I'd say, first of all, there's definitely growing interest in the sector. I think most of that is simply because the financial returns are so heavily focused in cash flow. It's such a low CapEx business. I think that's desirable from a lot of institutions who can generate more of their IRR from cash flow and less on future appreciation. And so there has been growth in interest. We've heard a lot about institutions becoming intrigued by the property type. I think there's 2 things to note on that, though. One is that the market is so fragmented. It is actually quite difficult to put out large pools of capital in a short period of time. You really have to build relationships over a long period of time and be willing to close on a very large number of small transactions. So the granular nature makes it very difficult for someone to push a button and get into the sector. Secondly, if a competitor did want to get into the sector at scale, I think that they would most likely have to team up with a local operator. And when you add fees and carried interest on to that, it almost puts a floor on the going-in cap rate that an institution will be willing to pay to generate the same IRR that they require. And so I do think that has helped put a little bit of a floor on cap rates. I'd just remind you that the going-in cap rate for this asset class can be low 5s to high 6s. It's just that we're doing enough volume that we're blending to around 6. It feels fairly sticky. And part of the reason I feel sticky is that the market rent spread is still generating an unlevered IRR between 7% and 9%. And I don't really see that moving in the near term.

The next question comes from the line of Floris Van Dijkum of Ladenburg Thalmann.

Nice -- another nice quarter here. You guys are really proving your concepts. I wanted to question -- some people have referred to your business almost as a net lease business. You have 98% recovery ratio. Maybe talk a little bit about the management value add? And what are you bringing besides acquisitions, what are you bringing to the table?

Floris, It does have some characteristics that are similar to that lease, but I think the largest difference is that we're buying real estate first. And we're buying a real estate first because when we get a vacancy, we are more likely to release it at a higher spread, and therefore, it is growth. And the growth aspect of this business is very different than that lease. We enjoy a shorter WALT, we enjoy a mark-to-market that we can actually capture. And so I think the management value add is not so much in repositioning or redevelopment as much as it is making sure that the tenants are paying a rent that keeps up with market, and we're always aware of what another tenant will be willing to pay for that same nonpurpose-built simple building format. And I would say our leasing team is very, very aware that the number of deals we're doing is so wide with a wide variety of users. I mean it's pretty shocking that every single lease signed during the quarter was with a different tenant, and that's unusual for a destination type property where it tends to be concentrated on a handful or a dozen national operators. This is a very, very wide pool of leasing. So I think the management value add has everything to do with trying to figure out who can pay the most rent and who's willing to pay that rent to be along the kerb line of a very high-traffic intersection.

Maybe a follow-up question, if I may. Maybe talk a little bit about the difference between your GAAP cap rates and your cash GAAP rates. How much of a difference is there? And is that meaningful? Because presumably, the assets you're buying have quite a bit of below-market rents in place.

Floris, it's Conor. You are spot on. So our average differential between GAAP and cash, I think since we went public is about 35 basis points. That's a pretty wide range, similar to our cap rates where there's -- somewhere it's 0, and there's others where it's 100-plus basis points. So Again, average is kind of like that low 30s on the GAAP versus cash. All the numbers that we've referenced have always been cash. We don't quote or budget GAAP cap rates.

Your next question comes from the line of Thomas Todd of KeyBanc.

David, I just wanted to ask your comments about the ownership held by population that's 65-plus. You indicated you feel that's an important consideration as you think about the years ahead and the company's investment opportunity set. Do you see potential to transact using OP equity a little bit more as you look ahead? And then Also, what do you do to sort of better tapped into the segment of owners? Is the strategy generally consistent with your acquisition strategy currently? Or is there anything that you can do to more quickly or sort of more efficiently tap into that seller cohort?

Yes, it's a really interesting subject because I think over time, when we've looked at the profile of the sellers, it was so heavily tilted towards life events or life planning. And when you look at the ownership of this asset class across the country, and remember, we're a very, very small component of the overall addressable market. So it is an important aspect of what we need to understand is who are the sellers and why are they selling? Well, if they're live events, and if you think about the volume of assets owned across the country of a certain generation, I think we're getting growing confidence that the pipeline of available deals that fit our buy box is growing and will likely grow quite a bit in the next 10 to 15 years as that, that generation starts to move real estate out of their estates either before or after a life event. So to your point, we have definitely started to shift our deal teams to not only be building relationships with brokers, but also estate planning attorneys, wealth management offices, private banks because accessing the data and trying to find out who owns the best real estate in every one of these markets is really important because the likelihood that there's going to be a transaction in the next 10 years is pretty high.

Okay. That's helpful. And then I just wanted to follow up. Obviously, you increased the -- your acquisition guidance, but just curious, last quarter, you said you had visibility on around half of the pipeline that you were discussing. And I'm wondering how much visibility you have today on that increased pipeline? And are you seeing any changes at all in the market in terms of the pace or sort of motivation around seller activity just given some of the turbulence in the credit markets. Does that -- has that caused any sort of broader fallout at all that might put Curb in a little bit of a better position? Or is that not having an impact at all?

Todd, it's Conor. I'll start with the second part of your question, and David can cover things differently. I would say, in short, no. I mean it seems like this market generally is less correlated to the CMBS market, the IG market, whatever it might be. And that probably is a function of the fact that those markets aren't used to finance these assets. To David's point, it generally is private wealth or brokerage houses that are funding these and/or there is no mortgage. So the short answer on the second part of your question is, no, we haven't seen a material impact or change in deal flow because of geopolitical events or macro shocks. To the first question on the pipeline. So at this point, we have closed, we have under contract or have been awarded about 90% of that $850 million bogey. So we've got really good visibility on closings for, call it, the next 2 quarters. And then I would say there's a chance we exceed that figure for the full year. The only thing I'd flag though is that pipeline has some risk to it until we're through due diligence on all the assets. So to David's point, it doesn't include any portfolios of size. So that risk is mitigated by the number of properties, but we've got some more to get those closed. And again, we're optimistic based off what we're seeing that we can hopefully find more over the course of the year, but that's a TBD, and we need to work through the existing pipeline first.

Okay. Got it. That's helpful. Conor, you said closed under contract or awarded about 90% of the $850 million. Is that right?

Yes. So call it $750 million of the $850 million.

Your next question comes from the line of Alexander Goldfarb of Piper Sandler.

So actually, maybe just following up on that question, and maybe I missed it in the release, you guys were clearly very active on the ATM and cash with over, call it, roughly $600 million on hand. So Conor, as we think about the pacing of acquisitions for the balance of the year, is -- are you saying -- is 2Q going to be a real heavy quarter? I mean it doesn't seem like it's so far, we're already 1/3 of the way in. But I just want to understand the cadence just given the amount of cash that you have on hand versus clearly, what's a burgeoning acquisition environment.

Yes. So as I mentioned in my prepared remarks, Alex, we have enough cash and unsettled equity on hand to fund the entirety of the remaining $850 million, so call it the $700 million outstanding as of April 1. You're right to -- it's hard to assume those closings will be concentrated in the second and third quarter. There are obviously some that will spill in the fourth quarter, but we are expecting a pretty active middle of the year in terms of closing time line. So we don't expect the forward activity outstanding for a point past the end of the year, I would say.

Okay. And then the next question goes back to something that we discussed or talked to you guys about, I don't know, a few quarters ago. Your acquisition pool regionally is expensive. It's a lot of markets that may not be traditionally the prime REIT markets. But as you get into these different geographies, are you finding that there are either more opportunities within existing markets where you already are? Or are you finding that there are more opportunities in markets that you hadn't considered. I'm just trying to understand as you build these local relationships, whether it's leading you deeper into existing or whether it's leading to a broadening of markets that you originally never conceived of?

Alex, it's David. Well, I guess -- first of all, when I read your note this morning and you mentioned nooks and crannies. I think that was a very good way of putting it. It feels like markets where we've developed a lot of firsthand knowledge through buying and owning and operating, we're finding more intersections through our research that fit our buy box. And so we're really targeting some of those nooks and crannies within existing markets where the traffic count and the wealth and kind of the Aaron's running and the geolocation data is all telling us that we should be going deeper into a specific submarket. And you've seen that on our acquisition pipeline, where we continue to invest in markets where we already are in. On the other hand, there is a growing knowledge base that we're getting on other markets where it may not be a large MSA, but it has a pocket with a lot of concentrated traffic in wealth and a limited amount of supply, and that's a pretty encouraging algebra to good IRR. So when you see us go into some of these smaller markets, it's simply because there's a lack of supply and there's a kind of an extreme concentration of traffic into a couple of intersections. So whereas, I guess, in summary, it started with going deeper into existing markets and it's moving a little bit into being open-minded to finding other markets that have great properties to buy.

Your next question comes from the line of Mike Mueller with JPMorgan.

Kind of a quick follow-up on the prior question. So as it relates to some of these newer markets, are you seeing any kind of geographical biases when it comes to pricing or underwriting? Or is it really just based on whether it's a convenience center or not? I guess, are the cap rates that you're seeing in like Wisconsin and Minneapolis very different for a comparable product than you'd see in Georgia or Florida?

I think that the historical spread between submarkets still exist in this property type as well. I would say the irony is that I'm not sure that really flows through to the IRR as much as it has to do with -- there are simply more private buyers with more investable capital in areas like Florida and California. And so the competition is a little bit less in some of the other states. I think the trick for us is finding those pockets where we can generate a similar or better IRR, and we probably have a little bit less competition.

Your next question comes from the line of Paulina Rojas of Green Street.

The Whitestone transaction was an interesting data point for the sector and the portfolio shares some characteristics with your portfolio, mainly that is largely an anchored, but it also has a lot of meaningful differences. Do you see any relevant read-through from that deal for Curbline? Anything that you would flag as pertinent to your portfolio?

Yes, Paulina, it's a good question. I want to be careful about not opining on transaction. I would just say there are probably more differences than similarities in our view. And I think average asset size, some of the things you pointed out, market mix, whether or not there's a shadow anchor are pretty big differences versus what we're targeting. I would also just say to David's commentary, we are seeing plenty of real compelling individual transactions or one-off transactions in the markets we want to operate, and so we're focused focusing there. But I would just say at the risk of opining directly on transaction, there are more differences than there are similarities.

Okay. And then markets have been volatile and at various points, we have been a risk of attitude given the geopolitical concerns and what that could mean for inflation rate growth, et cetera. So as you think about that backdrop and what it means, where do you think Curbline sits in terms of vulnerability relative to other service center peers? And I mean that not just operationally, but in the context of your heavy growth-focused strategy.

What was the last part? Sorry, Paulina.

I said that I mean it, not just from operations, what that could mean for the operations of the business, same property NOI and such, but also from a capital markets perspective and the fact that you're in a very heavy growth focused cycle [indiscernible] cycle.

Paulina, it's Conor. I guess a couple of things. I would say our balance sheet and our relative balance sheet to us affords us a lot of cushion for whatever might happen in the macro environment or geopolitical environment to the genesis of your question, whether that's duration, whether that's leverage, whatever it might be. We also, I think, in putting the macro side, if you're in a growth vehicle, feel like you need to be prudently financing your business. And so avoiding a situation where you're trying to match fund or scramble to put financing in place, I think, is one of the ways to mitigate the risk that you're alluding to. From an operational perspective, I think this comes back to, I think, maybe Craig's question on consumer spending. Our service and restaurant-based tenants aren't destination type tenants. They're not sit-down restaurants, they are white tablecloth. I don't know if I would argue the're necessity or all necessity-based, but there is a margin of safety in terms of where they sit and kind of consumer behavior, as David mentioned, as opposed to consumer spending that I think also makes our cash flow stream a little durable.

The last thing I would just say from a tenant or diversification perspective, we do focus on credits. We're 70-plus percent national and a decent chunk of those are public or IG rated, which, again, with no tenant or only 8 tenants greater than 1%, also helps partially mitigate. So I don't know if I were directly answering your question, but it feels like we're trying to do a lot of little things in addition to having a business plan that helps mitigate against potential risk. But again, I'm not sure if that's directly answering your question.

And Paulina, it's David. You certainly tell us if we're answering directly. But I guess what piqued my interest is when you said risk off environment. To me, risk is very much correlated to the size of the bet that one makes and the concentration of where you're willing to concentrate capital. And this business is so granular. We're buying buildings that have a handful of small tenants. And so I think that the diversification aspect not only of the tenant roster, but also regionally and then lastly, by just the sheer amount of capital going into each deal is so small. It feels like a risk mitigator that probably is less correlated to kind of the red light, green light of the overall capital markets because these transactions are happening in local markets with local buyers, whether we're involved or not. And I feel like that diversification is a pretty big differentiator.

Sorry for not being clear, but somehow you got it. And maybe a last one, it's a clarification. I'm not sure I understand. You flagged a headwind for same property NOI related to the timing of bad debt and CapEx spending. Could you help me understand the mechanics of the CapEx component specifically. How does its timing translating to NOI headwind, whether it's really a space that was taken offline or something else?

No. So just over the course of the year, we have capital projects which are recoverable by tenants or a piece can be recovered by tenants. Generally, that's pretty spread out over the course of the year. It happened to be quite concentrated in 2025 and just the second quarter. And given our small denominator, Paulina, it happens to be just a big headwind for this 1 quarter. So similar to lifestyle centers, power centers, grocery, there are capital projects which are recoverable. And for us, again, we just had a concentration in the second quarter.

There are no further questions at this time. And with that, I will now turn the call back to David Lukes for closing remarks. Please go ahead.

Thank you all very much for joining our call, and we look forward to speaking to you in the next quarter.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

Thank you for standing by, and welcome to the Curbline Properties Fourth Quarter 2025 Conference Call. [Operator Instructions]

I'd now like to turn the call over to Stephanie Ruys de Perez, Vice President of Capital Markets. You may begin.

Thank you. Good morning, and welcome to Curbline Properties Fourth Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty.

In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements.

Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Forms 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation.

At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning, and welcome to Curbline Properties' fourth quarter conference call. The fourth quarter capped an incredible first year as a public company for Curbline, and I couldn't be more pleased with our results.

Let me start by thanking the entire team for their tireless efforts to position the company for outperformance. We continue to lead in this unique capital-efficient sector with a clear first-mover advantage as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States. Before Conor walks through the quarterly results and our 2026 guidance in detail, I'd like to take a moment to reflect on our first year as a public company, along with our expectations going forward.

In 2025, we acquired just under $800 million of assets through a combination of individual acquisitions and portfolio deals. We signed over 400,000 square feet of new leases and renewals with new lease spreads averaging 20% and our renewal spreads just under 10%. We generated over 3% same-property growth on top of 5.8% growth the prior year. And importantly, our capital expenditures were just 7% of NOI, placing us among the most capital efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class. We believe that these results are not just reflective of a single year, but a representative of the asset class and the opportunities in front of us and help explain our confidence in delivering superior risk-adjusted returns.

Specifically, one, we believe that there remains a significant addressable investment market that provides an opportunity to scale this business. Two, we believe that the convenience sector with simple and flexible buildings is aligned with consumer behavior. And three, we believe that we have the team and the balance sheet to support our growth and drive compelling returns.

In a little more detail. First, our investment. We believe we currently own the largest high-quality portfolio of convenience properties in the U.S., totaling almost 5 million square feet. The total U.S. market for this asset class is 950 million square feet. 190x larger than our current footprint. Not all of that inventory meets our standards, but our criteria are clear. Primary corridors, strong demographics, high traffic counts and creditworthy tenants. And our track record demonstrates the liquidity of assets that match those metrics, allowing us to grow via a mixture of one-off deals and portfolios while maintaining our industry leadership by acquiring only the best real estate.

Even the top quartile of the convenience sector itself is 50x larger than our current portfolio, providing a very long runway to grow. To achieve this growth in a highly fragmented sector, the company must build a significant network of relationships with sellers and brokers across our target markets. We've built that organization over the past 7 years and the results are showing.

As an example, of the $1 billion of acquisitions we've completed since the spin-off of Curbline, 27% of those deals were direct and off-market with sellers and 73% were marketed through the brokerage community. Even within those marketed deals, there were 24 different brokerage companies involved in the listing of individual properties, which highlights not only the highly fractured market, but the importance of a national network of relationships that Curbline has built.

Second, we invest in simple, flexible buildings that are the nexus of consumer behavior. Our strategy is clear. Provide convenient access to customers running errands woven into their daily lives and leased to tenants with strong credit who are willing to pay top rent to access those customers. Unlike traditional shopping centers built for destination retailers, our properties serve customers running daily errands.

According to third-party geolocation data, 2/3 of our visitors stay less than 7 minutes on our properties, often returning multiple times a day. As a result, rather than purpose-built structures, we favor straightforward rows of shops that support a wide variety of uses. This flexibility drives tenant demand from an extremely wide pool of tenants, rising rents and minimal capital outlay.

On Page 13 of our supplemental, you'll notice that we completed a total of 67 new leases over the course of 2025. 64 of those leases were with unique tenants and 70% were national credit operators, both of which highlight the incredibly deep market for leasing to a wide variety of uses in our simple buildings and the credit tenants are seeking high traffic intersections. The result for our portfolio is a highly diversified tenant base, with only 9 tenants contributing more than 1% of base rent and only one tenant more than 2%.

Third, our team and our balance sheet are built to support our growth and structure to scale. Curbline has all of the pieces on hand to generate double-digit cash flow growth for a number of years to come. Based on our 2026 FFO guidance, we're forecasting 12% year-over-year FFO growth, which is well above the REIT sector average, and is driven not just by external growth, but by the capital efficiency of the business, allowing us to reinvest retained cash flow into additional investments.

In summary, I couldn't be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience marketplace and delivering compelling, relative and absolute growth for stakeholders.

And with that, I'll turn it over to Conor.

Thanks, David. I'll start with fourth quarter earnings and operating metrics before shifting to the company's 2026 guidance and then concluding with the balance sheet.

Fourth quarter results were ahead of budget, largely due to higher than forecasted NOI, driven in part by rent commencement timing, along with higher acquisition volume and lease termination fees, partially offset by G&A. NOI was up 16% sequentially and almost 60% year-over-year, driven by acquisitions, along with organic growth. Outside of the quarterly operational outperformance, there are no other material variances for the quarter, highlighting the simplicity of the Curbline income statement and business plan.

You will note that in the fourth quarter, we recorded a gross up of $1 million of noncash G&A expense, which was offset by $1 million of noncash other income. This grows up, which is a function of the shared services agreement, and that's to zero net income will continue as long as the agreement is in place, and is excluded from any G&A figures or targets. In terms of other operating metrics, the lease rate was unchanged from the third quarter at 96.7% with occupancy up 20 basis points. Leasing volume in the fourth quarter decelerated from the third quarter, but that is simply a function of less available space as overall leasing activity remains elevated.

We remain encouraged by the depth of demand and the economics for available space, which we believe is a differentiator for Curbline as compared to other property types. Same property NOI was up 3.3% for the full year and 1.5% for the fourth quarter despite a 50 basis point headwind from uncollectible revenue. Importantly, this growth was generated by limited capital expenditures with fourth quarter CapEx as a percentage of NOI of 8.9% and full year CapEx as a percentage of NOI of just under 7%.

Moving to our outlook for 2026. We are introducing FFO guidance in a range between $1.17 and $1.21 per share, which at the midpoint, represents 12% growth. We believe that this level of growth will be the highest certainly in the retail space and amongst the highest in the entire REIT sector. Underpinning the midpoint of the range is, one, roughly $700 million of full year investments. Two, a 3.25% return on cash with interest income declining over the course of the year as cash is invested. Three, CapEx as a percentage of NOI of less than 10%, and four, G&A of roughly $32 million, which includes fees paid to SITE centers as part of the shared services agreement. Those fees totaled $970,000 in the fourth quarter.

In terms of same-property NOI, we are forecasting growth of 3% at the midpoint in 2026. As I have noted previously, the same property pool is growing but small. And it includes only assets owned for at least 12 months as of November -- December 31, 2025, resulting in a large non-same-property pool. That said, we don't expect as large of a gap in terms of relative growth between the two pools in 2026, though uncollectible revenue will remain a year-over-year headwind to the same property pool despite limited forecast bad debt activity.

For moving pieces between the fourth quarter of 2025 and the first quarter of 2026, as a result of the funding of the private placement offering in January, interest expense is set to increase to about $8 million in the first quarter Additionally, we do not expect the $1.3 million of lease termination fees recorded in the fourth quarter to reoccur in the first quarter. G&A is also expected to remain roughly flat quarter-over-quarter.

Details on 2026 guidance and expectations can be found on Page 11 of the earnings slides. Ending on the balance sheet, Curbline was spun off with a unique capital structure aligned with the company's business plan. In the fourth quarter, Curbline closed on the first tranche of a $200 million private placement offering with the balanced funding in January. The offering brings total debt capital raised since formation to $600 million, a weighted average rate of roughly 5%.

Additionally, in the fourth quarter and first quarter to date, the company sold 5.2 million shares on a forward basis with $120 million of expected gross proceeds which we expect to settle in 2026. Including cash on hand at year-end of $290 million, along with the debt and equity proceeds, Curbline had $582 million of immediate liquidity available to fund investments leaving a balance of less than $100 million to fund the investments included in guidance after taking account retained cash flow.

Curbline's proven access to unsecured fixed rate debt and now the ATM is a key differentiator from the largely private buyer universe acquiring convenience properties. The net result of the capital markets activity since formation is that the company ended the year with a leverage ratio of less than 20% providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in access to the REIT average.

With that, I'll turn it back to David.

Thank you, Conor. Operator, we are now ready to take questions.

[Operator Instructions] Your first question today comes from the line of Ronald Kamdem from Morgan Stanley.

Can you talk about the acquisition pipeline how it's building. And I know you mentioned $700 million in the guidance. What sort of cap rate is assumed into that? And how has that been trending?

Ron, it's David. I'll let Conor talk about the pipeline. But I would say, cap rates have remained averaging just north of 6% as they have the last couple of quarters. I'll remind you, as we've said in previous quarters that the range can actually be quite wide between mid-5s to high. That really depends a lot on occupancy, the rent roll, mark-to-market and so forth. But when you blend all these deals together, we're still in the low 6s.

And Ron, just on the pipeline. So as you know, our initial expectations prior to the spin-off were to acquire about $500 million of assets on an annual basis. Obviously, we've ramped that up quite a bit to $700 million this year. And at this point, for what we've either closed under contract or have been awarded, it's about half or we have visibility about half of that pipeline today.

So there's quite a bit of visibility on closings for 2026 already. The only thing I would just caveat is there's risk to that, right, until we get through diligence on each of those assets. But again, I just would frame it versus either -- even a year ago, we have a much higher level of visibility on the pipeline today than we did at any point.

Great. My second question was just, I think the same-store NOI had a tough comp, and it looks like leasing spreads decelerated a little bit. Maybe can you -- just talk a little bit more about what happened in the quarter. And then looking forward on the 3% same-store NOI guidance, presumably, that's all sort of based on renewals and no occupancy gains, but any sort of other details what's baked into that in terms of bad debt and so forth?

Sure. It's Conor again, Ron. So on the leasing spreads first, as I always caveat, I encourage folks to look at trailing 12 months, just given how small denominator is. And if we look at the pipeline for leasing activity in the first quarter and the second quarter of this year, we would expect our new lease spreads to be right back in the low 20s, which was where they were for the full year. And I would say a similar comment on renewals, look at TTM as opposed to just one quarter.

For same property, similar response, very small pool. We've got 50% of the assets are in the non-same-store pool. So a couple of shops moving out can create some volatility. It's clear that if you look at our lease rate, it's up year-over-year, and it's effectively unchanged quarter-over-quarter. So the fewer spaces we got back in the fourth quarter, we have already leased, and we expect to rent commence in the second and third quarter for 2026.

The only other thing I would just say on 2026 same-property NOI, it's a pretty wide range for all the reasons I just laid out of 2% to 4%. We do expect a pretty big acceleration over the course of the year because of the leased occupied gap compressing. And again, that speaks to the fact that these are leases just signed over the last couple of months. It doesn't take a lot of -- it's a tighter time line than a larger format center to get those leases rent paying, which speaks to the property type, which is one of the reasons we love it.

And bad debt, sorry.

Yes, of course, sorry. Bad debt, we've got about a 60 basis point bogey for the midpoint of guidance for the year. To put that in contrast or compare it to 2025, we had about 30 basis points of bad debt in 2025 to the same-property pool. So we are expecting a normalization. We're not seeing anything that would cause us to expect year-over-year uptick, but it feels just a prudent base case for now, and we'll update that, obviously, course over the course of the year.

Your next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

My question is, maybe if you can talk a little bit about the operations. Your portfolio is big enough now where you've got some scale. Are you guys seeing any operating synergies by having multiple properties in single markets? I know you're big in Atlanta and Miami, for example. Maybe you talk a little bit about how -- if there's any additional synergies that you can squeeze out of having more assets in single markets.

Floris, thanks for the question. I would say that the synergies, I would put them in two buckets. One is G&A and the expense to run a property. And the second is the more you have in a certain market, the more it allows you to have a little bit of a tighter can pool. In both of those cases, there is some truth that scaling in certain markets does give you a little bit of leverage on both of those costs. But I will say that the recovery rate on this asset class is so high that it doesn't really flow through to same-store NOI or total property performance as much. So I would say that the synergies are nice to have, but they're not a must to have with how this property type operates.

Yes. It feels like the synergies are much more corporate focused in the sense that you're leveraging public company costs, and you're seeing that already as you look at just G&A as a percentage of GAV or G&A as a percentage of revenue.

Maybe my follow-up in terms of capital allocation. Have you considered going -- I guess maybe there hasn't been a need to, but going into more value-add assets with higher vacancies or -- are you sticking to your knitting because frankly, the market is telling you go ahead and keep acquiring.

It's a great question, Floris. I'll probably back up by saying that it is interesting to see in the entire unanchored strip category that there are different strategies that are emerging. Some folks focus on value-add, other folks focus on secondary markets, some people like short walls, no credit. I think you see that in other property types like student housing as a part of multifamily. There's lots of examples you can point to.

For us, if you think about where we are in the real estate cycle right now for retail, leasing demand is high, occupancy is high and rents are growing. And so when we look at our strategy of scaling convenience, I think the 3 risks that we really don't want to take are execution risk, credit risk and capital risk. And if you add those 3 together, it just tells you that the returns we can get on an unlevered IRR basis for buying high-quality real estate that's very well leased with high credit tenants. It doesn't feel worth the risk to take in order to generate slightly higher IRRs.

And so that strategy for us is allowing us to be very specific about which pieces of real estate we buy. And said differently, if you're buying high-quality real estate, that's most likely to outperform in a recession, that's probably a strategy that I think investors would want to see us pursue.

Your next question comes from the line of Craig Mailman from Citigroup.

I guess just the first one, on the $1.3 million of lease term fees, could you just talk about that? And just in general, kind of how much we should think about lease term fees in a given year, just given you guys have kind of smaller spaces and good credit at this point?

It's really hard to hear you. Can you try that one more time?

Sorry, can you hear me now?

It's marginally better. I think it was about term fees, Craig, and stop me if you wouldn't mind repeating the question now.

Yes. Just on term fees, could you just tell us what drove the $1.3 million in the quarter? And how we should think about kind of your lease term fees on a recurring basis, just given it's a little bit of a smaller portfolio and just in general, our sense is you guys have better credit, like was this driven by you guys? Or was this a tenant-driven move?

Craig, okay, I'll take a stab and just let me know if I answer the questions. So if you look at the last 2 years, we had just over $2 million in 2025 and just over $4 million in 2024. It does feel like -- and again, if you look back in 2023 from our SEC filings pre-spin-off, that there have been some quarters where we've had chunky term fees. Some of those have been on tenant driving the entirety of the fee.

Other times, they've been more fragmented. It does feel like it's a pretty -- I don't want to say a recurring part of the business because of how chunky they are. But it does -- we do expect there to be kind of a normal level of term fees over the course of any particular year. And I would expect that number to grow as the portfolio grows. To what's driving those, it could be a function of a number of different things.

One, a tenant just deciding a space or a market doesn't work for them. Others where they go dark and paying and we come to agreement. The best thing about it, though, is, to David's point, just given the economics of our business, more often than not, we wouldn't consider a term fee until it pays for the CapEx, the downtime.

And more often than not, we're actually making money when we get those spaces back. And then the only thing I'd add is unlike a larger format or purpose of building where we've got to tear that down or spend a year repurposing that space, we generally can get a tenant back in between 3 and 9 months.

So for us, we think of it as almost like gravy. But again, it's -- there's generally just a pretty wide range of reasons that drive them. It doesn't feel like it's one specific reason or one specific tenant that drives the boat. Let me know if I answered your question, though, again, just challenging to hear you.

No, that's helpful. Is this better? I switched microphones.

Yes.

Okay. Perfect. Sorry about that. But you did answer my question. I guess on the second question, just on -- kind of sources of capital, you guys are sitting on a good amount of cushion here. And net debt-to-EBITDA even without the forward is around 1x. Could you just talk about going forward, the thought process on incremental equity issuance versus kind of building out your ladder, becoming a more seasoned issuer or potentially setting yourself up to become a more seasoned issuer to lower your cost of debt here?

And just the decision to use the forward, I guess, versus spot, that's -- it's always good in hindsight, but the stock is close to 8%, 9% higher than where you guys issued the forward earlier this quarter. So just thoughts in general on that. I know you guys are issuing at least above my EV, so it's hard to complain, but it feels like speculating on the stock here, you left a little bit on the table.

Sure, Craig. A lot there to unpack. So I would just say, starting with liquidity on hand. We have about $580 million of cash and unsettled equity versus our target of $700 million of investment. So to my comments from the transcript or from the opening remarks, excuse me, we only have about $100 million funding gap for the remainder of the year, which is pretty insignificant when we think about the enterprise value and the fact that we've got an undrawn line of credit behind that.

So the question is, how do we think about sources and uses to kind of fill that gap? To your point, we now are a seasoned private placement issuer. We've got access to the bank market. We have a 0% secured debt ratio, and we now have access on the AGM. It's a pretty wide range or pretty broad menu we now have of options as we think through. And I would just tell you, the way we think about it is consistent with the way we thought about it at SITE Centers and the way we thought about it last year plus, where if equity at one point in time was accretive to the business plan, we would consider it.

But we also like, to your point, to start to build up a market and build up a nice ladder on the private placement market, which we're already seeing a compression in spreads as we continue to tap that market. So I would just tell you, it's a really wide range of menus of options, which is a fantastic spot to be. And over the course of the year, we'll decide what's the best path. But we just have, I would just say, dramatic optionality just given where we are from a leverage perspective, which is fantastic.

Your next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

I wanted to go back to acquisitions and some of the comments that you made about having visibility on around half of the $700 million factored into guidance. Are these all single-off deals? Or are you seeing any portfolios included in the pipeline? And then, is there a limit on the amount of volume that you can do in any given year? Are there any constraints either around your appetite or the amount that you might be able to achieve in terms of acquisitions?

Todd, it's David. I would say that the -- the first part of your question is that to date, our pipeline is almost exclusively -- actually is exclusively single asset acquisitions. So I would say this is the one at a time baseline.

And I think, as you know, when we went public, we did have a question mark as to how much of our deal flow is going to be portfolios versus individual assets. I think what we found is the more of our G&A that we've allocated towards the transaction side of the business and the more people we've been able to move into the field and build relationships, the more deal flow has come to us. And I would say every quarter that goes by, we're starting to see more inventory that fits our criteria as opposed to simply sifting through all of the inventory that's on the market. It is a very, very large asset class.

And the addressable market for us even if you look at the top quartile, it's still a significant amount of deal volume. So I would say our confidence that we can achieve a baseline of our budget, simply doing one-off deals is pretty high. If portfolios do come up, I think it's great. I would say that so far, portfolios have been episodic as opposed to kind of a normal quarterly run rate. And given the fact that there's so much inventory on the one-offs that fit all of our filters in terms of quality, I think we're less aggressive with having the stretch for portfolios that might have assets in them that we don't want. So I think that probably answers your question.

But our confidence is really high that the individual brokerage community and the sellers are starting to approach us with deals that we really find attractive.

Okay. That's helpful. And then I wanted to just ask, it looked like there was perhaps a disposition in the quarter, perhaps something small. Just curious if you can discuss that. And it seems like there would not be really much in the way of dispositions just given your sort of designing and constructing the portfolio from scratch in some sense, but any sort of dispositions or kind of asset management sort of associated activity that you're sort of anticipating in '26?

Yes, Tom, it's David again. As we've said prior, one of the benefits of building a portfolio one at a time is that you don't really have a need to recycle. We don't have in our budget any dispositions planned. Our business plan is not about recycling. We're purely based on buying things that we want to own over the long term. Every now and then from an asset management perspective, something might come up where it simply is better to sell it. In particular, the asset this last quarter, which was very small, happened to be adjacent to a property that SITE centers owned.

They offered us a price to buy that asset that we thought was attractive because the cost to change out a tenant and do some work on it with such that we felt it was better to exit and sell to SITE centers. SITE centers on the other hand, felt like they got more liquidity from owning an adjacent parcel with the property that they're trying to sell. Again, it was quite small. It went to both boards for approval, which are separate boards, as you know, but I don't expect this to be a recurring issue.

Todd, just to expand on that, it was a vacant piece of land. So to David's point, it was sub-$2 million. And there's nothing into the 2026 budget for further dispositions

Your next question comes from the line of Hong Zhang from JPMorgan.

I guess I was wondering if you could talk a little bit about your expectations for the cadence of lease commencements this year.

Sure, Hong. I guess I would respond by kind of giving the framework of same-property NOI because they should go hand in hand. We do expect an acceleration in the first quarter from the fourth quarter on same property and then a modest deceleration in the second quarter, which is a comp on uncollectible revenue and just on some CapEx recovery items.

And then to my response, I think it was to Floris earlier, we do expect a pretty big pickup in the back half of the year from commencements of the spaces recapture in the fourth quarter. So I would expect that gap to compress on the same property to accelerate in the third and the fourth quarter.

Your next question comes from the line of Alexander Goldfarb from Piper Sandler.

So just following up on the capital question. David, you've been speaking for some time about the growth profile, the double-digit growth profile over a number of years. Your acquisition pace has been tremendous. And as Conor pointed out, there's no slowdown in deal flow.

Does your like trajectory as you think about debt normalization, has that accelerated, meaning that instead previously, if you thought -- I think maybe you had 5 years of runway before you get to debt normalization, maybe that sooner, in which case that double-digit growth profile that you guys outlined may actually truncate or the way you see it, you still are fine for the next -- I think you talked about 5 years where you can grow sort of in this double-digit way without capital events slowing that down?

Alex, it's David. I can turn it over to Conor for the long-term business plan, but I think the short story is accurate. And that when we went public, we had a 5-year business plan, and we had a $500 million a year guidance what we thought we could do in the first year, and we obviously exceeded that last year, and I think our budget for this year is certainly higher as well. So I think by definition, that 5-year business plan has compressed.

On the other hand, I feel like the addressable market has also revealed itself to be surprisingly strong. And I think our reliance on portfolio deals has certainly gone down in our own minds. So the confidence that, that cadence will continue is equally as high, but there's no question that the business plan has been pulled forward a little bit.

Yes, Alex, just expanding on that. I would say the 2 other significant variances would be, one, we've outperformed dramatically on operations versus our initial expectations. That obviously has driven a higher level of EBITDA, more retained cash flow, which extends the time line.

To David's point, we bought more quickly, which compresses it. And then the second thing is we've already issued some equity. And just given how small our denominator is, that equity issuance expands the pipeline. So whether the 5-year business plan is now 4.5% or 4.25%, I'm not sure. But there are other factors that have limited our near-term needs for equity. And again, we just have so much optionality with the balance sheet, that runway is still pretty long today.

Okay. And then the second question, Conor. It seems like SITE is -- could well end up coming to an end, I guess, this year. Just that's our math. I don't want to put words in their company's face or name. But your '26 guidance, does that contemplate sort of a complete wind-down separation payment settlement, whatever, resolution from SITE? Or if something happens there, there would be some update to your guidance?

Yes, it's a good question, Alex. So we have assumed the status quo and guidance with no changes to the shared service agreement in 2026. Now as you know, though, if it's terminated by SITE on the 2-year anniversary, which will be October 1, 2026, there would be a pretty significant fee paid by SITE to Curb, which would more than offset, in our view, any expenses associated with the transition. So it would be a good guy of sorts if it did occur in 2026. Given that, to your point, it's a decision by the independent Board of SITE and Curb to terminate it, we didn't feel it's appropriate to put in our budget, but it would be a good guy in any scenario.

Okay. And just if I could just follow up that. I know you're not giving '27 guidance, but as we think about our '27, is there something that you would tell us to think about as we model '27 or you would just say, "Hey, leave everything status quo right now and we'll deal with that a year from now in the February call?

It would be the latter, in my opinion.

Your next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

A quick follow-up question if you don't mind. I was just -- the sites prompted something about your G&A. And maybe if you can talk a little bit about what you think your G&A is going to be on a going-forward basis once the agreement is settled down and what needs to happen internally to make sure you're properly aligned?

Sure, Floris, it's Conor. So we mentioned prior to the spin-off that we felt that Curb could be as, if not more efficient than SITE as it relates to G&A as a percentage of GMV, which is how we look at expenses. That was about 1.1% or 1% of GAV.

To Alex's question from a moment ago, what are some factors or things that have changed? And I would just tell you, one is operational outperformance. Two, we realized we could run this business more efficiently. And so as I mentioned in my prepared remarks, we're paying about $1 million per quarter to SITE.

Effectively, what we've said to folks is that fee would essentially just be replaced by the cost that would come over from SITE once that agreement is terminated. So it's a long inelegant way of saying, we feel like we've got great visibility. We spent an inordinate amount of time on the expense structure of Curb.

And I would just tell you, if we look back versus 2 years ago, it is extremely -- it's more efficient. Our expectation is it will be more efficient today than it was pre-spin-off. Other than that, to Alex's point, once we have clarity on the exact timing of the resolution and termination of the SSA, we'll provide the specifics. But I would just tell you, we expect to run really efficiently pro forma for the termination.

So -- but 1% to 1.5% of GAV is sort of a good benchmark?

No. What I said was 1% to 1.1% of GAV. And what we're saying is Curb, we expect to be more efficient than that. That was just after we deployed the $2.5 billion initial business plan. Once you get through that, then you really start to scale the expense coming back to your first question from the start of the call, then you really start to scale the corporate expenses, and that's where you start to generate pretty significant EBITDA growth.

We have reached the end of our question-and-answer session. I will now turn the call back over to David Lukes for closing remarks.

Thank you all very much for joining our call, and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Curbline Properties Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Stephanie Ruys Perez, Vice President of Capital Markets. You may begin.

Thank you. Good morning, and welcome to Curbline Properties Third Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements.

Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Forms 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation.

At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning, and welcome to Curbline Properties third quarter conference call. Let me begin by expressing my gratitude to the entire Curb team, not only for delivering another strong quarter but also for marking our 1-year anniversary as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States. We continue to lead this unique capital-efficient sector with a clear first-mover advantage. Before Conor walks through the quarterly results, I'd like to take a moment to reflect on what we've accomplished in our first 4 quarters since the spin-off of Curbline Properties. We've acquired $850 million in assets through a combination of individual acquisitions and portfolio deals. We signed nearly 400,000 square feet of new leases and renewals with new lease spreads averaging over 20% and our renewal spreads just under 10%. Importantly, our capital expenditures have averaged just 6% of NOI, placing us among the most capital efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class.

It's hard to overstate the strength of this business model, but 3 key attributes help explain why we're confident in our ability to deliver superior risk-adjusted returns. First, our investments align with real consumer behavior. Unlike traditional shopping centers built for destination retailers, our properties serve customers running daily errands. According to third-party geolocation data, 2/3 of our visitors stay less than 7 minutes on our properties, often returning multiple times a day. These properties serve large and elongated trade areas along major traffic corridors, not just local neighborhoods. In fact, 88% of our customers live more than a mile away and nearly half live more than 5 miles away. This is not a local business. That's why 70% of our tenants are national chains, eager to capture a share of the 40,000 cars that pass by our properties daily. In high-income markets, supply is limited and tenants are willing to pay a premium for access to this valuable traffic.

Second, we invest in simple, flexible buildings. Rather than purpose-built structures, we favor straightforward rows of shops that support a wide variety of uses. This flexibility drives strong tenant demand, rising rents and minimal capital outlay. We don't do loss leader deals, we don't overinvest in tenant improvements, and we don't rely on one tenant to drive traffic to another. Our strategy is clear: provide convenient access to customers running errands woven into their daily lives and leased to tenants with strong credit who are willing to pay top rent to access those customers. The result is a highly diversified tenant base, with only 9 tenants contributing more than 1% of base rent and only 1 tenant more than 2%. Strong tenants drive strong sales which leads to high retention and rent growth with little or no landlord investment. This is the essence of capital efficiency and a key driver of our growing free cash flow.

Third, our balance sheet is built to support our growth. We believe we currently own the largest high-quality portfolio on convenience centers in the United States, totaling 4.5 million square feet. The total U.S. market for this asset class is 950 million square feet, 190x larger than our current footprint. While not all of that inventory meets our standards, but our criteria are clear, primary corridors, strong demographics, high traffic counts and creditworthy tenants. Under John Cattonar's leadership, our investment team is underwriting hundreds of opportunities each month. We have the luxury of choice, the discipline to grow 1 asset at a time and the responsibility to maintain our leadership by acquiring only the best. Even in the top quartile of the convenience sector, it's 50x larger than our current portfolio and we've structured our team, our balance sheet and our operations to scale.

Curbline has all of the pieces on hand to generate double-digit free cash flow growth for a number of years to come. And based on our implied fourth quarter 2025 OFFO guidance, we're forecasting 20% year-over-year FFO growth, which is well above the REIT sector average.

In summary, Curbline has quickly built a track record that highlights the depth and liquidity of the convenience asset class. Our original 2025 guidance range included $500 million of convenience acquisitions. We've obviously significantly exceeded that pace and now expect 2025 investment activity of around $750 million, with potential for additional upside. I couldn't be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience marketplace and delivering compelling relative and absolute growth for stakeholders.

And with that, I'll turn it over to Conor.

Thanks, David. I'll start with third quarter earnings and operating metrics before shifting to the company's 2025 guidance raise and then concluding with the balance sheet.

Third quarter results were ahead of budget, largely due to higher than forecast NOI driven in part by rent commencement timing along with acquisition volume. NOI was up 17% sequentially, driven by organic growth, along with acquisitions. Outside of the quarterly operational outperformance and some upside from lower G&A. There are no other material callouts for the quarter, highlighting the simplicity of the Curbline income statement and business plan. In terms of operating metrics, leasing volume in the third quarter hit record levels even after adjusting for the growth in the portfolio. Overall leasing activity remains elevated and we remain encouraged by the depth of demand for space, which we expect to translate into full year 2025 spreads consistent with 2024. In terms of the lease rate, the strong aforementioned volumes resulted in a 60 basis point increase sequentially to 96.7%, which is among the highest in the retail REIT sector regardless of format.

To put some context around that, in February of this year, we acquired a 6-property 211,000 square foot portfolio for $86 million. Since acquisition, just 7 months ago, in that subset of properties alone, we signed 28,000 square feet of new and renewal leases, taking the lease rate up to over 96% from 94% at the time of acquisition. This leasing velocity speaks to the level of demand for high-quality convenience properties and the speed at which leasing can occur given the simple format of the property type. Same-property NOI was up 3.7% year-to-date and 2.6% for the third quarter despite a 40 basis point headwind from uncollectible revenue. Importantly, this growth was generated by limited capital expenditures with third quarter CapEx as a percentage of NOI of just under 7% and year-to-date CapEx as a percentage of NOI of just over 6%. For the full year, we continue to expect CapEx as a percentage of NOI to remain below 10%.

Moving to our outlook for 2025. We are raising OFFO guidance to a range between $1.04 and $1.05 per share. The increase is driven by better-than-projected operations, along with the pacing and visibility on acquisitions that David mentioned. Underpinning the midpoint of the range is, #1, approximately $750 million of full year investments with fourth quarter investments funded with cash on hand. Number two, a 3.75% return on cash with interest income declining over the course of the quarter as cash is invested. And #3, G&A of roughly $31 million which includes fees paid to SITE Centers as part of the shared service agreement. You will note that in the third quarter, we recorded a gross up of $731,000 of noncash G&A expense which was offset by $731,000 of noncash other income. This gross up, which is a function of the shared services agreement and that's to 0 net income will continue as long as the agreement is in place and is excluded from the aforementioned G&A target.

In terms of same-property NOI, we are now forecasting growth of approximately 3.25% at the midpoint in 2025, but there are a few important things to call out. Similar to our leasing spreads, the same property pool is growing but small and is comping off of 2024s outperformance. And it includes only assets owned for at least 12 months as of December 31, 2024, resulting in a larger non-same-property pool that is growing at a faster rate on an annual basis driven by an expected increase in occupancy. Additionally, uncollectible revenue was a source of income in both the third and the fourth quarter of 2024. As a result, uncollectible revenue will remain a year-over-year headwind particularly in the fourth quarter despite limited year-to-date bad debt activity and very strong operations.

For moving pieces between the third and the fourth quarter as a result of the funding of the private placement offering in September, interest expense is set to increase to about $6 million in the fourth quarter. Interest income is forecast to decline to about $3 million, and G&A is expected to increase to just over $8 million. Additional details on 2025 guidance and expectations can be found on Page 11 of the earnings slides.

Ending on the balance sheet, Curbline was spun off as a unique capital structure aligned with the company's business plan. In the third quarter, Curbline closed a $150 million term loan and funded a previously announced $150 million private placement bond offering, bringing total debt capital raised since formation to $400 million at a weighted average rate of 5%. Additionally, the company expects to fund an additional $200 million of private placement proceeds on or around year-end at a blended 5.25% rate. Curbline's now proven access to unsecured fixed rate debt is a key differentiator from the largely private buyer universe acquiring convenience properties.

The net result of the capital markets activities information is that the company is expected to end the year with over $250 million of cash on hand and a net debt-to-EBITDA ratio less than 1x, providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in excess of the REIT average.

With that, I'll turn it back to David.

Thank you, Conor. Operator, we're now ready to take questions.

[Operator Instructions] Your first question comes from the line of Craig Mailman with Citi.

It's actually Nick Joseph here with Craig. Maybe just starting on kind of your last point, Conor. Obviously, the balance sheet is in a very good position, but you did institute the ATM program or put one in place. So how are you thinking about equity from here, recognizing the balance sheet is in a good spot, but just given where the stock trades at least relative to NAV and where you're seeing acquisition cap rates?

Sure, Nick. So to your point, we put in an ATM on October 1. We also put in a share buyback on October 1. And if you recall from our press release, we simply stated that like all other public companies, we should have all the tools available to us at our disposal for equity at the risk of sounding like a broken record, for us, we look at the source and the use. And so if we had a use of capital that we thought was accretive to fund with equity, we would consider it similar to other public REITs. But outside of that, we're sitting on a significant liquidity position. We've got pretty significant embedded growth. There's a high bar there. So again, to repeat my point, we look at the source and the use at this point. We haven't issued anything to date, but that could be -- that could change depending on what we see from an investment perspective.

And then what's the stabilized yield on the recent lease-up acquisitions? And how does that compare to the in-place cap rates at acquisition?

Nick, I would say that our acquisitions this quarter, the going-in cap rate was a bit higher than last quarter. I would say, if you look at over the course of the year, we're still blending to the low 6s, which is a pretty good reflection of where the top quartile of the sector is trading. The stabilized yield, if you look out a couple of years, it's really dependent upon market rents, which appear to be continuing to grow. And you can see that in our spreads. So I hate to even put a number on what I think stabilized looks like in the next 2 to 3 years, but it sort of feels like the indications are that mark-to-markets are growing.

And your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I just wanted to talk about the acquisition activity in the pipeline heading into '26. You talked about $750 million for the year. That's up from around $500 million. So an incremental $100 million or so here in the fourth quarter. How should we think about the pipeline beyond 4Q, how the pace of acquisitions may trend into '26 and whether you're seeing more product come to market as the company continues to be active in the space?

Todd, it's David. The amount of inventory we're underwriting is definitely increasing every quarter. I think John's team has built relationships nationwide where we're starting to see things that we might not have seen in the past. I would say we're being highly selective on exactly what we want to transact with and what we don't. And if you think about the prepared remarks, I know you said the guidance was originally $500 million so far year-to-date, we're at $644 million, and we would expect that the full year is around $750 million, but there's potential for upside on that. And I think the pipeline going forward is really going to be more of a result of not only increased visibility and deal flow, but also the episodic nature of some of the portfolio deals that we've done. They're harder to project. They are out there, and we're building the relationships so that we feel like we're going to have the ability to take a peek at those when they come to market.

Okay. So it sounds like maybe around $500 million is kind of the right target to think about on sort of a recurring basis. And then when you layer in some larger transactions, perhaps that could be kind of the needle mover moving forward?

I don't think that's what I was implying. What I said is we feel confident that 2025 is going to be $750 million with potential for upside, and we'll see what happens next year, but we're pretty confident that we're seeing an awful lot of inventory that we like.

Yes. And Todd, to David's point, I mean, I think we've kind of built a machine now where we've got visibility on the fourth quarter and the first quarter of next year. And to David's point, it's -- our visibility is a lot higher than where it was when we set our initial bogey. So once we get to 2026 and talk about guidance, we'll provide more of a framework around how we should think about investment volume. But to David's point, I mean, we kind of have visibility now on the next call it, 5 or 6 months, which is a very different perspective than we had at the time to spin-off.

Okay. And then as we think about '26 and sort of the growth algorithm for the same-store, which I realize is rapidly changing. You have blended leasing spreads have been in the low double-digit cash spread range. Can you just remind us what the portfolios blended annual escalator looks like? And then are there any other sort of considerations that we should think about moving forward?

No, it's a good question, Todd. And to kind of the genesis of the question, there is a significant pool change from 2025 to 2026. The good news is the net result is, to David's point, we're buying assets that have very similar characteristics. So there's no material differentiator in terms of structural growth or bumps between the 2025 pool and 2026. If you recall, at the time of spin-off, we said we felt our 2024, 2025, 2026 growth at average north of 3%. And you think about 2024 was 5.8%. 2025, our midpoint of our range is 3.25%, which imply that we would have pretty steady growth over the course of 2026 comparable to 2025. So there's no material considerations to your point on the growth algorithm. This is a really simple company with a really simple income statement. There's nothing for us to call out. There will be headwinds to next year, redevelopment opportunities, though headwinds, nothing like that.

So I don't want to make it sound formulaic. There's obviously a lot of work to get there, to your point in terms of leasing and volume, et cetera. But it should be a growth level that's pretty steady on an occupancy neutral basis compared to any portfolio we're looking at in terms of same-store pools. Let me hope I answer your question there.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

I just want to go back to sort of the cap rate conversation. Obviously, you guys are thinking about IRRs here which I appreciate that. But maybe if you could just double click, I think you said low 6s. Just wondering sort of what are the ranges of those and any difference between sort of larger deal and portfolio deals. And more importantly, as you're sort of a year in and more people are finding out about this business, how should we be thinking about the potential for cap rate compression as you're thinking about the next 12, 24, 36 months?

Ron, it's David. I mean, cap rates, as you are aware and you alluded to, we underwrite for IRR, but of course, the result is a going-in cap rate. When the assets are quite small, the cap rate on year 1 can be pretty wildly different most importantly, if there's a vacancy. One of the things we noted last quarter was we had some assets that we bought that had 1 or 2 vacant units, but in a small format strip center, that means that the cap rate can be quite low to make up for that vacant space and the growth opportunity. On the other hand, there could be fully stabilized assets with strong credit that has a little bit less growth opportunity, but it's also a stable growing asset with not a lot of CapEx. So the net result is the cap rate range can be quite wide in this sector. I mean it can be low 5s to high 6s, even for the top quartile. If you're buying assets with worse demographics, pretty low traffic counts and kind of tertiary markets, you could end up closer to a 7%.

But those aren't the assets that we've been interested in. And that's why I've kind of averaged it down to say that we're blending to a low 6%, but I'd say there could be a 100 basis point swing on 1 asset to the next just given the fundamentals of that rent roll.

Yes. To David's prepared remarks, Ron, so we were just over 6% in the third quarter to David's comments on buying some vacancy. Our fourth quarter blended to 6.25%. So again, that's pretty consistent we've been buying over the course of the year to David's point, vacancy could swing that 20 basis points on a blended basis, but it's been pretty steady. To your point on where they could go. I mean, it feels like that's a macro question as opposed to a sector question. There's a lot of interest in retail in general. I don't think that's unique to convenience assets. But I think it's going to be much more dependent on rates more than anything.

Great. I think that's really helpful. And just going back to the same-store conversation. Look, occupancy has been building this year. So presumably, that's a tailwind for next year. But when you sort of look at the lease rate, where do you guys sort of think is the structural sort of cap that you can sort of get on that?

Ron, it's a really good question. So if you look for the total portfolio, we're at 96.7%, the same property pool is 97.1%. It feels like low 97s is probably the peak here. It doesn't mean there's not occupancy upside, though, because we've got a little bit wider lease occupied spread than we historically had run out over the last, call it, 7, 8 years that we've been tracking this for the portfolio. But David, I don't know if you feel differently. It feels like a couple of hundred basis points of structural vacancy is probably the right spread, and that's just churn of a tenant moving out and the time line to put someone back in.

Yes. I think the only thing I would add to that is that the SNO pipeline and the amount of occupancy upside, you would typically see in a retail portfolio kind of gives the high watermark for growth. The difference with the portfolio where we're specifically buying a shorter WALT with a higher mark-to-market means that most of our growth going forward is going to come through renewals, not necessarily through occupancy.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

So 2 questions. I guess, David, let me just go to that comment that you just made about the types of centers you're going for. Increasingly, it seems that just given the dearth of product, people are sort of eager to buy credit or vacancy issues to be able to get at availability to put tenants in. As you guys look at your target convenience centers in the deal flow, are you seeing a lot of opportunities where there is some potential credit or vacancy issues that would allow you to really drive rent increases by taking out a less productive tenant replacing it or convenience centers aren't really -- don't really offer that same potential that you've seen in a normal open-air shopping center.

Alex, there's always going to be opportunities to upgrade credit. But I will say that in a larger format retail environment, you might be especially proactive because the benefits of upgrading tenant also have a strong traffic driver and you need that traffic driver to feed your other tenants. What's unique about this business is that there's really not much crossover traffic between the even adjacent tenants. The tenants are leasing space because they want to be near the customers on their errand runnings. So our desire to re-tenant buildings is pretty low. What's most important is that we have tenants that are able to generate enough profit to afford the rents that we want to charge. So I would say we're not going to be very aggressive on retrofitting and merchandising properties. What we are going to be aggressive on is raising rents at renewals. And that's part of the reason why I like the convenience center because you tend to have leases that don't have nearly as many options as a larger format tenant, so we can actually get to the market rents, which are continuing to grow.

Okay. And then the second question is you talk a lot about sort of the consistency of your earnings growth. And obviously, you're doing that with the balance sheet the way you're mutually funding using debt and cash. But as we think about the spreads to your implied cap rate, is it your view that you will always maintain a positive spread in order to be able to drive the sort of double-digit earnings growth that you aspire to? Or your view is that you could buy inside of your implied cap rate, but through rent outgrow and have that asset be accretive?

Alex, it's Conor. I'm going to attempt to answer and let me know if I address this. Our view, our kind of business plan, when we complete the spin-off was to invest over a 5-year period, it's $0.5 billion per year, and that led to double-digit growth, and that required no additional equity. If equity over the course of that 5-year plan was accretive, we would consider it, and that would extend that time line or add to that growth profile. Our view in terms of how we structure that growth algorithm to Todd's point was to say that we could buy at a call it, 100 basis point debt spread over the course of that 5-year period, which is consistent with the last 30 years and kind of the debt spread for high-quality assets. If that spread compressed, it obviously would impact that, but there's other levers we have to pull. And one of the unique and exciting things to David's point to Ron's question was, we can generate pretty compelling occupancy-neutral same-property growth and generate significant free cash flow relative to the enterprise.

Those 2 pieces are pretty powerful growth drivers that lead us to, in our view, have the ability to generate better than average versus peers or the REIT sector occupancy neutral growth or leverage neutral growth kind of the genesis of your question. So if spreads compressed, it could impact things, obviously, in terms of relative growth, but we have some other levers that help. The last piece is on G&A, we are still scaling our G&A load over the back half of the 5-year business plan, we start to scale that G&A load, which is pretty impactful as well. So it's a really complicated question. Let me know if I'm addressing it, but there's a lot of levers we have to pull. But there's no doubt that investment spread is impactful to us as it is to other companies that are extremely growing.

But ultimately, Conor, what I hear you saying is your focus is on FFO growth, not same-store. The focus is on delivering double-digit FFO. Okay. Just want to make sure.

Yes, for sure. I mean look, I mean, they should be correlated and our same-property growth, remember, our whole pool is in there. There's no redevelopment pipeline. There's nothing an ebb or flow to growth. So of course, it's important to us, it's important to David's point, for us to express how powerful the organic growth profile is. But for the majority of the business plan, what drives the most -- the biggest proportion of FFO growth is external growth and scaling our expense load. So we're focused on it. It's important to us. But until we are a couple of years in this business plan, it is we're less reliant on organic growth.

Your next question comes from the line of Floris Van Dijkum with Ladenburg.

Question on your options. I can't actually see what percentage of your leasing activity this past quarter was option renewals and what is that typically? And how do you think about that going forward in terms of limiting that ability for your tenants?

I would say that, in general, the option rents for large national chains that do have options are consistent with the rest of the industry, which is 10% every 5. The difference is that they typically don't have as many options as part of the original term and so if a landlord does a 5-year deal with a 5-year option or a 10-year deal with 2 5-year options, by the time we buy the asset, if you look at our WALT, we're buying into that first option or even second option. And so we tend to be able to capture a lot more growth than if you had 5 or 6 options, which is fairly common for a much larger store.

Yes. And the only thing to just expand on that, Floris, so the reason the question might be why your spread is less than 10%. Remember, we're getting fixed bumps on an annual basis, which is different than an anchor tenant where you're just flat for a significant period of time, and then you get a big pop after 20, 30, 40 years. And so that's why we disclosed straight-line rents as well. And you can see we're closer to 20 there on renewals. So we're today its point, realizing some of the mark-to-market over the course of the lease. But then we got another bite at the apple earlier than you would from a lease that you signed and sit on it for 20 years.

Just -- so I think your peers are somewhere around 40% of all leasing activity each quarter is options. Is that something similar with your portfolio today? Or is that a little bit lower already? And do you expect that to trend even lower going forward?

Floris, I don't have the exact number off the top of my head. I mean we do skew towards the nationals. So I bet you, we're modestly lower, but I don't have the number available at my fingertips right now.

Conor. My second question, I noticed you had a couple of larger assets in your acquisitions. I think Mockingbird Central, which is like 80,000 square feet, and you had 1 Springs Ranch at 44,000 square feet. Could you talk maybe about the rationale behind those acquisitions? And are they different assets than the rest of your portfolio?

Floris, it's David. The size of the asset in many cases is simply to do with what someone was able to get zoned in a certain submarket. So I think in general, you're looking at assets that we typically buy are significantly smaller. But there are locations, Boca Raton is another one, we have a large asset we bought a couple of years ago. If you're in a market that's highly supply constrained, a lot of the local kind of running errand and shop business is concentrated in certain zoned areas. So you do get larger properties in some of these higher-density markets. And honestly, the big difference for us is when we look at those types of properties, we're just very careful to understand why the consumer is coming there, what their trip generation is looking like and we want properties that have very little control from larger tenants. And so even if the property is larger, it's generally made up of smaller tenants.

So you're not concerned that you got too much shop space that you have to lease partly because of the supply constraints or...

Yes, it's more like if you think of a major thoroughfare through the United States, take Roosevelt Road in Chicago or think of in Phoenix, you're kind of up and down a long thoroughfare. A lot of the supply is just strung out along a long corridor. But in certain older markets where the zoning was different. Instead of being linear zoning, it's more like concentrated pocket zoning. You end up with having the same amount of inventory, but it's just concentrated at an intersection as opposed to an elongated thoroughfare.

And your next question comes from the line of Mike Mueller with JPMorgan.

I guess as the mix of institutional competition that you're up against for acquisitions, has it been changing materially, I guess, over the past few quarters?

And then just for a second question. How sensitive is the competition to changes in interest rates, say, like the 10-year dipping below 4% again?

Mike, I'll start with the second first. I think the competition tends to be very impacted by rates. Most of the competition that we're bidding against are levered buyers, and that's either small families, local investors, but it also could be private equity funds or even institutions that are using an adviser or an operator. The debt component is important. So I do think that they're more impacted than we are because we still remain to be one of the only cash buyers out there. And so I think on the acquisitions front, we're able to be pretty desirable as a counterparty, simply because we don't rely on rates.

As far as competition goes, there's definitely competition in the space. I mean these assets are well attended when they come to market. I think I said last quarter, about half of our inventory is off market. And that's really coming through relationships where we have a chance to acquire asset before it's broadly marketed. That, I think, is an earned position if you've got a reputation for abiding by your word and closing. So I think the kind of premarketed or off-market deals are pretty important source of inventory for us. But we are seeing competition, whether it's significantly more than a year ago, I'd hate to say that. There's a lot of assets out there in the market. We tend to be focused on the top quartile in terms of quality. There are others that are focused on the middle or the bottom quartile.

So the sector does get a lot of demand, but I wouldn't say there's been an amazing difference in the last 12 months with competition.

And there are no further questions at this time. David, Lukes, I'll turn it back over to you.

Thank you all very much for joining, and we'll talk to you next quarter.

Thank you. This does conclude today's presentation. You may now disconnect.

Hello, and welcome to the Curbline Properties Corp. Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Stephanie Ruys de Perez, Vice President of Capital Markets. You may begin.

Thank you. Good evening, and welcome to Curbline Properties Second Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed earlier, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call.

Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Forms 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation.

At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good evening, and welcome to Curb Line Properties Second Quarter Conference Call. The last 4 months have been incredibly active period for the company that highlight the significant growth potential embedded in Curbline. Specifically, we acquired $415 million of properties in the second quarter and third quarter to date, reported our highest quarterly new leasing volume since we began tracking and have raised or are in the process of raising $300 million of debt capital. And importantly, in terms of investments, our team on the ground are creatively sourcing and reviewing a larger pool of opportunities than ever before, including both marketed and off-market deals. In many cases, working directly with owners where we can come to an agreement on assets that are consistent with our portfolio characteristics. More on that later.

I'd like to start by thanking our incredible team for achieving the results that we reported tonight that support our differentiated investment strategy. capable of generating double-digit earnings and cash flow growth well above the REIT average for a number of years to come. This growth is underpinned by the economics of the convenience property type, which is our exclusive focus. The large addressable market in front of us and our unmatched balance sheet that is aligned with the company's business plan. These ingredients clearly position Curb line to outperform in a variety of macro environments. I'll walk through operations first and then conclude with more details on acquisitions before turning it over to Conor to talk more specifically about the quarter, the increase in expectations for 2025 outlook and our balance sheet.

We began investing in convenience properties almost 7 years ago, recognizing the strong financial performance of the small format asset class, both within the retail sector and the broader real estate industry. Demand for the right locations in our property type has produced 2 noteworthy and differentiated outcomes. First, the capital efficiency of the business is superior to many other retail formats. Desirable small format space not only has high tenant renewal rates, but is also inexpensive to prepare for the next tenant in the event there is vacancy. When compared to larger buildings that are generally purpose-built with longer construction periods, the capital efficiency of our simple business is unique.

In other words, less capital is needed to generate the same organic growth rate as the rest of the retail real estate industry and helps generate compounding cash flow growth for Curbline. To that point, in the second quarter, CapEx as a percentage of NOI for Curbline was just over 7%, which led to almost $25 million of retained cash before distributions. As Curb scales, this retained cash flow will increase, providing a durable source of capital that's outsized relative to the company's asset base, boosting earnings and cash flow. The second outcome is that our space is highly liquid because of the number of tenants that are willing to take a 1,000 to 2,000 square foot shop unit is significantly higher than for purpose-built large-format units. This liquidity allows the property type to keep up with inflation remarkably well, improved tenant diversification, reducing credit risk concentration and provides an opportunity to drive rent growth as we seek to maximize rental income given the productivity of the unit size.

The strength in demand for our units was highlighted by the depth and the breadth of second quarter leasing volume with almost 50,000 square feet of new leases signed which is our highest level since we began tracking operating metrics for the curve line portfolio. New deals included leases with Chick-fil-A, Just Salad, Chase, Club Champion and a variety of other service users. Activity remains wide in terms of tenants seeking to lease space and includes primarily national service tenants, banks, medical and wellness operators and quick service restaurants. Net leasing volume pushed the company's lease rate up to 96.1% sequentially, among the highest in the sector and drove 22% blended straight-line leasing spreads for the trailing 12-month period. The economics of our business, a high return on leasing capital and the widest pool of tenants to work with, along with significant national exposure, position Curbline for absolute and relative success throughout a cycle.

Shifting to the investment side, which is the second driver of Curbline's growth. Part of the thesis behind the Curbline spin-off was a large addressable yet fragmented market that had not been institutionalized. Not every asset is a fit for the company, but we believe there is a significant opportunity set of properties that do share common characteristics with our existing portfolio, including excellent visibility, access and compelling economics highlighted by a broad available tenant universe and limited capital needs. To that point, since the company's spin-off, Curbline has acquired over $750 million of assets and demonstrated now for 5 straight quarters the depth and liquidity of the asset class with acquisition volume of over $100 million per quarter. Our original 2025 guidance range included $500 million of convenience acquisitions for the year which equates to around $125 million per quarter.

We've obviously significantly exceeded that pace with the acceleration in activity a function of our marketing efforts as we've seen a larger number of brokers and individual sellers proactively engage with us. This is a distinct change from the pre-spin environment. The situation also allows us to work directly with sellers on a time line and a process that works best for both parties and has increased the visibility and the volume of our pipeline of investments. To this point, just this past week, we closed on a 23-property portfolio for $159 million. Over the last several years, we developed a relationship with the principals of one of the larger and sophisticated convenience center owners in the country. That relationship led to a joint effort to structure a transaction of individually selected properties that work for both sides.

The assets acquired have characteristics consistent with our portfolio and our investment thesis and are located primarily throughout the Southeastern United States in markets that we know well. While portfolios remain unique and difficult to find in the convenience space, our ability to source and structure these unique opportunities further differentiates Curbline as the trusted partner for owners of high-quality assets seeking liquidity. For the second quarter, Curbline acquired 19 properties for $155 million via 17 separate transactions. Investments continue to be concentrated in the affluent market the Curbline currently operates in already, including Houston, Chicago, Phoenix and Atlanta. However, we continue to make acquisitions in new submarkets that share the key characteristics we seek, including our first properties in Dallas and the New York Metro area, where we hope to scale long term.

Average household income for the second quarter investments were nearly $137,000 with a weighted average lease rate of over 96% highlighting our focus on acquiring properties where renewals and lease bumps drive growth without significant CapEx. Before turning the call over to Conor, I do want to highlight one of the key differentiating aspects of the Curbline spin-off, which is our balance sheet. The net cash position at quarter end matches the business plan with almost $430 million of cash and over $1 billion of liquidity, including financings expected to close in the third quarter. I could not be more opportunistic about the opportunity ahead of us.

And with that, I'll turn it over to Conor.

Thanks, David. I'll start with second quarter earnings and operations before shifting to the company's 2025 guidance raise and then concluding with the balance sheet. Second quarter results were ahead of budget largely due to higher than forecast NOI driven by stronger base rent, recoveries and other income. NOI was up over 8% sequentially, driven by organic growth, along with acquisitions. Outside of the quarterly operational outperformance and some upside from lower G&A and higher interest income, there are no other material callouts for the quarter, highlighting the simplicity of the curve line income statement and business plan. In terms of operating metrics, as David noted, leasing volume in the second quarter was extremely strong, even after adjusting for the growth in the portfolio.

And given the current pipeline, we expect another strong quarter in terms of volume and spreads in the third quarter. However, as we've noted each quarter since the spinoff, with this small but growing denominator, operating metrics will remain volatile and be heavily impacted by acquisitions. That said, overall leasing activity remains elevated, and we remain encouraged by the depth of demand for space which we expect to translate into trailing 12-month spreads over the course of the year, consistent with 2024. It is important to note that Curb's leasing spreads include all units, including those that have been vacant for more than 12 months with the only exclusions related to first generation space and units vacant at the time of acquisition.

Same-property NOI was up 6.2% for the quarter and 4.4% year-to-date driven in part by the aforementioned operational outperformance. Importantly, this growth was generated by limited capital expenditures with second quarter CapEx as a percentage of NOI of just over 7%. For the full year, we continue to expect CapEx as a percentage of NOI to remain below 10%, though the third quarter is expected to be higher than year-to-date levels due to the timing of rent commencements and resulting tenant allowances.

Moving to our outlook for 2025. We are raising OFFO guidance to a range between $1 and $1.03 per share. The increase is driven by better-than-projected operations, along with the pacing and visibility on acquisitions that David mentioned. Underpinning the midpoint of the range is, one, approximately $700 million of full year investments funded roughly 50-50 with debt and cash on hand; two, a 4% return on cash with interest income declining over the course of the year as cash is invested and three, G&A of roughly $32 million, which includes fees paid to site centers as part of the shared service agreement.

You will note that in the second quarter, we recorded a gross up of $625,000 and of noncash G&A expense, which was offset by $625,000 of noncash other income. This gross up, which is a function of the shared service agreement and nets to 0 net income will continue as long as the agreement is in place and is excluded from the aforementioned G&A target. In terms of same-property NOI, we continue to forecast growth of approximately 2.8% at the midpoint in 2025 but there are a few important things to call out. Similar to our leasing spreads, the same property pool but small and is comping off of 2024s outperformance and it includes only assets owned for at least 12 months as of December 31, 2024, resulting in a larger non-same-property pool that is growing at a faster rate on an annual basis, driven by an expected increase in occupancy.

Additionally, uncollectible revenue was a source of income in both the third and fourth quarters of 2024. So while base rent growth is expected to accelerate into the third quarter from the second quarter, uncollectible revenue will be a significant year-over-year headwind despite limited year-to-date bad debt activity. In terms of moving pieces between the second and third quarter due to the timing of acquisitions and debt capital raised interest expense is set to increase to about $4 million in the third quarter, and interest income is forecast to decline also to about $4 million. Those 2 factors totaled roughly a $0.04 per share headwind. Additional details on 2025 guidance and expectations can be found on Page 12 of the earnings slides.

Ending on the balance sheet, Curbline was spun off with a unique capital structure that positions the company to execute on its business plan, it differentiates Curb from the largely private buyer universe, acquiring convenience properties. In the second quarter, the company received its inaugural investment-grade credit rating from Fitch, further separating itself from other bidders. The rating in addition to resulting in lower credit facility borrowing costs allowed the company to tap the private placement market in June with $150 million closed and expected to fund into September. On top of that, in July, the company raised an additional $150 million via new term loan. The $300 million of expected aggregate proceeds have a weighted average coupon of 5.1% and and 5.7 years of duration, immediately laddering Curbline's maturity ladder and funding second half acquisitions according to plan.

The net result is that the company is expected to end the year with over $300 million of cash on hand, assuming $700 million of acquisitions and a debt-to-EBITDA ratio less than 1x, providing substantial dry powder and liquidity to continue to acquire assets and scale. resulting in significant earnings and cash flow growth well in excess of the REIT average. With that, I'll turn it back to David.

Thank you, Conor. Operator, we are ready to take questions.

[Operator Instructions] Your first question comes from Ronald kamden with Morgan Stanley.

Just on the acquisitions, pace and pipeline, obviously, a pretty large portfolio in there. I'd just love if you one, can comment just a little bit on sort of cap rate trends, and it does seem like there's more portfolios that you guys are looking at maybe even more than the business plan anticipated. I just wonder if you could comment on that as well and how you're building out those relationships.

The cap rates, I would say, have not changed dramatically. If you look at our year-to-date, we're blending to about a 6% cap on forward 12-month NOI. A lot of that depends on the pool that you're measuring as we go through the year, even of the assets that we bought, we've ranged from low 5s to high 6s, and a lot of that really just depends on whether there's vacancy. So I would say the cap rate trends are still fairly sticky. In terms of finding more product, there's a tremendous amount that we've downloaded and worked on with the brokerage market. But I would say, as the year goes on, we've definitely had more and more off-market buyers. I would say right now, about half of our pipeline is marketed and the other half is off market. So I agree with you. One of our jobs going forward is to continue to build relationships with people that have been in this business for a long time and have built some pretty enviable portfolios.

Great. And then my second question was just it seemed like gain occupancy sequentially as well. Just any commentary on tariff impact, what you're hearing sort of from tenants, it doesn't seem like it's having an impact, but I did see the leasing spreads, new lease was down a little bit this quarter. Just any comments on that.

I'm happy to start on the leasing spreads. As I said in my prepared remarks, we continue to expect leasing spreads for 2025 to be consistent with 2024. So I would just point to the fact that probably a pool shift, we've got small denominator across the board, not to sound like a broken record. So we should just see more volatility in our quarterly operating metrics than you would, some of our larger peers. But there's been no change in either the tone of conversations surrounding tariffs and no resulting impact to leasing economics or volume.

The next question comes from Craig Mailman with Citigroup.

Just on the portfolios, are you guys I guess could you just comment on kind of the process here? Are these ones that you can cherry pick and kind of put together the portfolio you want? Or should we expect if portfolio acquisitions ramp a bit to see some dispositions as you guys get rid of some assets that really just don't fit the criteria, but you had to take as part of the deal.

Let me start with the punch line so that I can reverse into this. We do not have a disposition pipeline. We do not expect to be doing capital recycling, and we're not buying anything that we don't want to own over the long term. Most of what we're buying, if you look on the sub and you kind of look through what our acquisitions have been, they're mostly individual acquisitions. There are some owners throughout the country that have a similar thesis to us and have bought things that are very similar to what we want to buy. And in some cases, they're willing to sell some or all of them to us. So far, we've done 3 portfolios. This is certainly the largest one, but we had a 6 pack and a 3 pack previously. In all of those cases, they were individually selected and did not represent 100% of what that seller owned.

Okay. Appreciate that. And then just as you guys continue to build out the portfolio, I mean you have some markets that are still kind of single asset markets. What's the current thought process on how much critical mass that you would look for to enter a market.

It's a really good question, Craig. From an operating perspective, we really don't have a challenge with operating in a market where we're kind of starting with one and slowly growing. It has more to do with how much we think we could get into that market. So said differently, we're a little light right now in the Northeast and the Pacific Northwest. We would like to be bigger. So you may see us buy 1 property in a dominant city with the understanding and belief that we're going to continue to do that. And that's what you've seen in New York and in Dallas. Those are markets that we expect to be able to be competitive and grow the portfolio. But in terms of operating, you remember these properties don't have a lot of touch from a property management standpoint and from an even a leasing standpoint, it's really a renewals business. So I would say that the operating leverage of having scale is not quite as important as it is learning the market and understanding it and want to find the right properties.

The next question comes from Todd Thomas of KeyBanc Capital Markets.

First, I just wanted to follow up on the acquisitions in the quarter and the year-to-date activity of the portfolio deal in July. I think, David, you said year-to-date, the cap rates are blending to about 6%. I think that's down a little bit from last quarter, around 6.25%. And I'm just curious if there's any outsized embedded mark-to-market opportunities versus the balance of the Curb portfolio on these acquisitions? And is there any expected change at all in the CapEx investment required across these deals that's different than the CapEx profile of the current portfolio as it pertains to sort of a little bit of redevelopment or some leasing capital.

Yes. Todd. You are correct. In the previous 2 quarters, we've highlighted that our closings to date 6.25%. We're saying that year-to-date, it's a 6%. So that obviously means that the pool has changed a little bit, but we bought quite a bit in the last quarter as well. So the cap rate difference has everything to do with whether there's vacancy. Anything that we can find that has a tenant that's expiring. In a number of cases, we've actually asked the seller to not lease that space and let the tenant expire. That's primarily because there is a pretty big mark-to-market right now with vintage older assets and tenants that are losing terms. So where a seller might want to tie up that tenant, thinking they're going to get better value for the long term.

We have a lot of tenant relationships. If you look at our top 25 tenants, those are people we're calling all the time and showing them what we're buying. So in many cases, we'd like to have a little bit of vacancy that we can work with and make sure that we've got the credit and the long-term tenant roster that we want to see. So in certain quarters, if you see the cap rate go down, it's not necessarily due to market factors as much as it is vacancy. And I think that's probably more consistent with this past quarter. That's not to say that cap rates might go down. I think that has a lot more to do with how much competition we see in the bidding 10 probably has a lot to do with the rates. But at this point, I think it's primarily mark-to-market and vacancy opportunities that are making that gap.

And Todd, just on the capital needs, there is no plan for redevelopment or expansion of our construction efforts. And in terms of CapEx percentage of NOI, no change in terms of our long-term bogey for less than 10% of CapEx percentage NOI. A big piece of that, one, is not having redevelopment. But the second piece is just the structural nature of the business in the sense that our payback period on leasing volume is about 1 year or leasing activity, I should say, is about 1 year. And it's just hard on a 1,200 or 1,300 square foot suite to spend more to drive you in excess of that 10% figure. So again, no change in terms of the capital needs of the business. That's a key part, a key ingredient of the thesis, as David outlined in his prepared remarks.

Okay. Did you disclose what the occupancy rate or lease rate is on the acquisition volume completed in the quarter and in July?

In the second quarter, Todd, it was roughly in line, it just about 96%. So right in line with the portfolio. For the third quarter to date, and obviously, we're still acquiring, still have a pretty decent pipeline, it's a little bit lower. So to David's point, that cap rate is lower because we bought some vacancy that we obviously think we can lease up to portfolio average. So a little bit lower lease and occupancy rate for what we bought in the third quarter to date. But again, once we know the total numbers for the third quarter, we can give an update on where we are for that.

The next question comes from Alexander Goldfarb with Piper Sandler.

David, first, I have 2 questions. First question is you guys are buying not only in the major MSAs but also some of the smaller markets, Mobile, Alabama and other parts of Alabama, deep in Tennessee and elsewhere. But you mentioned overall, the cap rates seem to be pretty tight. So my question is, we often think of the major metros, the institutional markets trading tighter than sort of the tertiary, but it doesn't sound like that's your experience plus you're obviously going for cash flow, which says that the cash flow is pretty attractive, again, whether you're in a major metro or tertiary. So can you just give a little context on how you're looking at where you're acquiring and just some more comparison of sort of the Alabama of the world versus the Atlantis and I'm using those sort of just as a generic for describing in different markets.

Sure. Happy to. Mean one thing, I guess, I could go back on is normally when you're thinking primary markets, you would be coming at it, at least in my background, you'd be coming at it from a purchasing power standpoint of how many people live in the area and how many people will go to your destination to go shopping. What's different about this asset class is these assets are so small. The most important feature is whether they're convenience for people not going shopping, but running errands. And running errands is a pretty significant part of kind of the daily suburban life. I certainly think it's probably increased with a lot of the flexible work environment and when you get into markets that have a significant amount of people, but it's not primary, there's still a lot of traffic.

For us, traffic count, the right intersection, the right side of the road and the right format and visibility for the building does drive a lot of tenant demand. And so our confidence level after the last 7 years of underwriting these properties, our confidence level in primary and secondary market knowledge is pretty high. So we're open-minded to buying assets that we do think have long-term growth profile, particularly if they're older properties that have vintage releases that are pretty far below market. So that, I guess, is the answer to the first question.

The cap rate question, I think you're right. The cap rate spread on high-quality assets with a strong mark-to-market are not substantially different between primary and secondary where you get a big cap rate expansion in this asset class is when you're off the main road, you have a very low traffic count. It might be more of a neighborhood center and there's just not enough traffic to make it convenient for running errands. So that type of higher cap rate property is available in the unanchored strip category, but I don't think it's convenient and therefore, it doesn't really deserve to be in an institutional portfolio.

The only thing I'd add, if you look at Page 9 of our supplement, our top 5 markets, which are Miami, Atlanta, Phoenix, Orlando and Houston, represent 44% of ABR. So to David's point, the secondary markets that we're in share the common characteristics, excuse me, the rest of the portfolio. But the foundation of the portfolio and the vast majority still remains concentrated in the largest primary markets throughout the United States. It feels like the secondary assets we're adding on are just additive to that investment pipeline.

That's helpful perspective. The second question is, and I'm asking this from Curb perspective, not a site perspective. But your sister company, presumably is in wind-down mode selling assets that just paid a special dividend. From Curb's perspective, is there any impact to expenses or the P&L if they accelerate plans, if they finish whatever they're going to do sooner than expected versus later. Just trying to understand as we think about -- I know, Conor, you're not giving '26 guidance. But as we think out over the next year -- is there -- are there any additional expenses? If you could just remind us that we should be thinking about or Curb as is unaffected whatever pace site chooses to do whatever it's going to do.

Let me start with that, and I'll pass it over to Conor, who probably add some specifics he wants to share. But I'll just remind you that the shared service agreement with the 2 companies, the purpose of that was to allow 1 company to grow and 1 company to shrink, while sharing certain expenses that would have been difficult to manage if you were on your own. That has been working very well because we have a lot of departments that serve both companies under the shared service agreement. So I think the basis of your question is, over time, will something change if there was an acceleration in site centers. The only thing that's contractual that you can look at is if you look in the Form 10 and you look at the shared service agreement that was published at the time of the spin-off, there is a defined capability for a termination of that shared service agreement at year 2 as opposed to year 3.

But the impact of that happening has to do with the payment from 1 company to the other. So at the end, I guess, at the speech, I would say that there's really nothing noteworthy because site happens to be going faster or slower. I don't think that pace is going to have much of an impact to Curb.

Yes. I would just say, I mean, there's definitely no specifics we'd like to provide at this time, to your point, Alex, but the immediate term is as Curb scales, as you know, we pay 2% of base revenue -- excuse me, gross revenue to side. So that's the only immediate change. And then to David's point, in the event that there was an early termination, there would be a significant fee paid to buy side to Curb, which would offset any potential expense increase. But in the meantime, you'll just see G&A slowly move higher as curb scales just given that the relationship.

The next question comes from Floris Van Dyke with Landenburg Thalmann.

A quick question here for me. As you think about these portfolio transactions, have you had entered into discussion Yes, it doesn't seem like you've done an OP transaction yet, but would you consider doing that? And would that facilitate some of the tax issues that the sellers might have? And how strategic do you expect that could be going forward?

Floris, it's David. It is certainly an arrow in the quiver that would be nice to use. We have certainly expressed that opinion to a lot of sellers, particularly ones that have a basis issue and a tax obligation. OP units is a very elegant way to structure something that helps both the seller and the buyer. So we're certainly using it as an option. I would say that the relative success of getting those done has been a little bit low. But again, our company is only, what, 9 months old now. So I would say there's still time. But I would expect that to be something that we could use in the future.

And maybe if I can ask one follow-up. Part of -- I would imagine your value add besides obviously having sort of discovered and institutionalized this space is the ability to manage the portfolio is a little bit better. Can you maybe remind us what the -- you talked a little bit about the pending or the new acquisitions in the third quarter having a lower vacancy. If you look at the average vacancy in the properties that you acquired to where you brought the occupancy levels to today, how much of a pickup do you typically have you seen over the short history of the company.

I was going to say that what's funny is that the amount of occupancy up or down is so minimal so far that it's not really a measurable impact. I mean the vast majority of the growth in cash flow for each asset is renewals. When you can find vacancy, it can be very attractive. And there are certain times recently where we have been forcing vacancy because we think that there's a better credit tenant they can pay more rent and do more business. It's in my prepared remarks, I mentioned the productivity of the space. There are some tenants that are just simply more profitable out of the same square footage and they can pay more.

So market rent is less relevant than the profitability of that particular tenant. So I would say that the rental increases on renewals far outpaced the occupancy gains right now. It just so happens if we can find something with some vacancy, it's definitely attractive to us.

Yes, Floris, -- in terms of specifics, we're 96.1% leased as the second quarter. If you look back, obviously, we're mid- 95% at year-end. So to David's point, the vast majority of what we bought has been 95%, 96% leased. There have been some assets we bought that were high 80s, low 90s, and we've driven that up. But there's been very little, I would say, dispersion in terms of the lease rate really across the portfolio.

The next question comes from Michael Mueller with JPMorgan.

Two quick ones here. I guess first, for the $150 million of notes closing in September, do you know when in September at the beginning of the beginning of the month, end of the month? And then for the second question, on the portfolio acquisition, you mentioned you picked 23 assets out of curiosity, were there still a substantial number of assets left that you didn't pick that could be interesting for you down the road at some point.

I would say the specific number of assets that, that seller owns is I'm not at liberty to discuss, but I will say that this is a group that's very sophisticated. They've done a great job acquiring properties over a long period of time. and we would be lucky if they would be willing to do business in the future. But the assets that we picked in this particular portfolio are ones that fit our mandate, they fit our submarkets and they fit the underwriting criteria that we had at this time. So we're certainly -- we're very proud and happy to get this one across the finish line.

Mike, in terms of the private placement, the first week of September. So early September to your first question.

The next question comes from Paulina Rojas with Green Street.

Hello. Are you using occupancy costs as a key metric to monitor rents across your portfolio? And if so, where do you estimate OCR stands today? And do you have a benchmark you're using to manage and optimize your portfolio performance?

Paulina, it's David. There are some cases, and I would say it's minimal where we have information where we can manage occupancy cost, I would say that's mostly on tenants that are willing to share that information, which most likely are local or regional tenants. So OCRs are very important if we're underwriting someone who is maybe expanding a business they have 2 or 3 units, and they want to do a fourth, and we want to understand how much they can afford to pay. Given that over 70% of the portfolio is National Credit, we don't have a lot of visibility other than nationally published information, particularly from public companies. So if you look at our top 25 list on Page 15 of our sub and you look to those tenants, we don't really have an OCR capability when it comes to all of those tenants, but we certainly have the ability to underwrite their credit, and we're demanding credit to be signed from the guarantor being the corporate entity. So I would say credit on one side, the OCR underwriting has much more to do with smaller businesses that are growing, and those are relatively few.

My second question circling back to the market distribution. We have seen some rates by assets in the Midwest. And what's your view on that region specifically? And would you consider establishing a more meaningful presence there, I know you have some assets, but would you consider growing there if the right opportunities emerge in terms of prudential or you'd prefer to avoid that from a brand or marketing perspective.

I think our acquisitions right now, Paulina, are purely faced on the financial returns from the asset that we think we can derive over the long term. There are many cities in the top 20 or 30 MSAs that we would be happy to be in. We certainly have bought a couple of properties in the Midwest. I would see us continuing to do so, but they have to match the criteria that we want for that particular property, which generally falls into demographics, scarcity of use, high traffic count, easy layout of the building, ubiquitous small shop spaces and kind of proven tenure of existing tenants. And those are available in a number of cities. So I think our activity in the Midwest has been active and will continue to be, but I wouldn't say it's a driving force as much as it is the whole country, I think, is open to us as long as it's in a market that we understand and believe in.

The next question comes from Ken Billingsley with Compass Point.

One of the questions I had was just looking at Page 13 as a supplement. And looking at new leases versus renewals, it looks approximately 30% of the leases that you're signing on the new side, but the terms are nearly double. So just trying to get an idea, are you -- is this a case of -- were you talking about the occupancy has not really changed much from your acquisition, are you bringing in more national people with those new leases? Or can you just give me maybe get a little bit more color on what's going on with those new leases and getting a longer term?

Sure, Ken. It's Conor. So I would just say traditionally, a national lease is a 10-year initial term, which is why our new leases right around 10.5 years, and we're 70-plus percent national. So that's what's driving that. on renewals, remember, it's a mix of negotiated renewals and options, typically an option, particularly with the national is a 5-year term. So that's driving that. And in general, we are, just given the rent growth we're seeing in this market, pretty focused on keeping our wall at a manageable level. So I would say that's driving the other piece of that. So I would be surprised if our new leases deviated dramatically from 10 years. I'd be surprised if our renewals moved dramatically from 5 years. I think it feels like a pretty standard duration in terms of years.

So is there any color you could add on when you are swapping out -- so you talked about how you're wanting to lease some of these acquisitions at least on vacant space. Are you actively being able to swap out from more national players? Or is it a higher percentage of that versus local?

Yes. I would just say we are acutely focused on credit. So if there's a jump ball between a local and a national tenant, timeout of 10, we'll go with that national tenant. It's not necessarily a thesis of what we're buying, kind of swapping out local or national tenants. Generally, if we're buying great real estate, the national is already there. So again, if there's a vacancy and we see an opportunity to put a national tenant in, great. But the thesis on this property type is not about kind of upgrading tenant roster. To David's point, it's really about pushing rents of who's there. And again, if we buy the right real estate, 9x out of 10, the nationals are already there.

This concludes the question-and-answer session. I will now turn the call to David Lukes for closing remarks.

Thank you all for joining our call, and we'll talk to you next quarter.

This concludes today's conference call. Thank you for joining. You may now disconnect.