Curbline Properties Q4 2024 Earnings Report

Curbline Properties EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.22
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Curbline Properties Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Curbline Properties Announcement Details

• Quarter: Q4 2024
• Date: 2/11/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, February 11, 2025
• Conference Call Time: 8:00AM ET

Curbline Properties (NYSE:CURB) Corp. is a real estate investment trust which is an owner and manager of convenience shopping centers positioned on the curbline of well-trafficked intersections and major vehicular corridors in suburban. Curbline Properties Corp. is based in NEW YORK.

Curbline Properties Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, and welcome to the Curbline Properties Corp. Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Stephanie Rausta Perez, Vice President of Capital Markets.

[Operator]

You may begin.

[Stephanie Ruys de Perez, Vice President of Capital Markets & Asset Management at Curbline Properties]

Thank you. Good morning, and welcome to the Curb Line Properties' fourth quarter twenty twenty four earnings conference call. Joining me today are Chief Executive Officer, David Lukes and Chief Financial Officer, Connor Feinerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curveline.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.

[Stephanie Ruys de Perez, Vice President of Capital Markets & Asset Management at Curbline Properties]

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 registration statement on Form 10 and our quarterly report on Form 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.

[David Lukes, President and CEO at Curbline Properties]

Good morning, and welcome to the Curbline Properties' fourth quarter twenty twenty four conference call, our first as a stand alone public company. I'd like to start by thanking all of my colleagues at both Curbline and SiteCenters for their tremendous efforts to get us here today. Their work allowed us to unlock a differentiated growth company 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 driven by the economics of the Convenience property type, which is our exclusive focus, the large opportunity set in front of us and our unmatched balance sheet that is aligned with the company's business plan. Given this is our first call, I'll start with an overview of the convenience sector and its unique elements and then share with you our vision for continuing to dominate this attractive subsector and its substantial addressable market.

[David Lukes, President and CEO at Curbline Properties]

I'll conclude with some comments on operations and then Connor will talk about fourth quarter results and outlook for 2025. We began investing in convenience assets now over six years ago, recognizing the strong financial performance of the small format asset class both within the site centers portfolio and the broader retail real estate industry. Tenant retention was high, credit was strong and diversified, and the CapEx load was extremely low on a relative and absolute basis. Importantly, mobile phone geolocation data was also emerging during this period as a sophisticated new tool that we could utilize to identify, underwrite and provide hard facts around investment opportunities. The traditional real estate underwriting of boots on the ground market knowledge became supplemented by data analytics that allowed us a window into tenant performance and customer utilization of the small format property sector.

[David Lukes, President and CEO at Curbline Properties]

Retail and service tenants for their part are also using more sophisticated site selection tools based on consumer location data. These tenants recognize that a significant portion of consumer spending is not only going shopping, but also running errands. These quick trips to a local convenience center are highly profitable for the tenants, but need to be, in fact, convenient. In other words, tenants are willing to pay higher and higher rents to secure a superior and convenient location that's more profitable and that is driving demand for our simple and flexible spaces. Growing demand for the right locations in our property type has produced two noteworthy financial outcomes.

[David Lukes, President and CEO at Curbline Properties]

First, the capital efficiency of the business is superior to many other retail formats and is especially important as capital has become more expensive and valuable. Desirable small format space not only has high tenant retention rates, but is also inexpensive to prepare for the next tenant. When compared to larger buildings that require significant adaptations and 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 as the rest of the retail real estate industry and helps generate compounding cash flow growth for curb line. To that point, in the fourth quarter, CapEx as a percentage of NOI for curb line was just over 5%, which led to over $25,000,000 of retained cash before distributions despite the fact that NOI was just $26,000,000 As curb scales, this retained cash flow will increase providing a durable source of capital that is outsized relative to the company's size and boosting earnings and cash flow growth.

[David Lukes, President and CEO at Curbline Properties]

Second, the sector has kept up with inflation remarkably well. Lease durations in the curb line portfolio are generally shorter when compared with properties with an anchor. And given the aforementioned tailwinds and the supplydemand imbalance, it provides an opportunity to drive rent growth. In other words, this is a renewals business where we can capture growing market rents with little landlord capital or downtime as most tenants are renewing leases since there is a shortage of high quality convenience real estate in suburban communities and steady demand. All of these factors are flowing through into curb line's operating metrics with twenty twenty four same property NOI growth of 5.8%, twenty six % blended straight line leasing spreads and our expectation that same property NOI growth will average greater than 3% for the three year period ending in 2026.

[David Lukes, President and CEO at Curbline Properties]

Shifting to the investment side, the positive attributes of capital efficiency and strong top line growth that I just described led us to explore the addressable market for convenience properties six or so years ago. We now have years of transaction data under our belts and arguably own the largest high quality portfolio of convenience assets in The United States with over 3,000,000 square feet of inventory. Despite that fact, what we own today represents just over one quarter of 1% of the nine fifty million square feet of total U. S. Inventory according to ICSE, providing a significant runway to scale and grow curb line.

[David Lukes, President and CEO at Curbline Properties]

In fact, the addressable market is so large that we see a long path of growth that can stay focused on high quality convenience sector without needing to broaden our simple and focused strategy. For context, each week our team is reviewing hundreds of millions of dollars worth of deals. Not every asset will be a fit for curb line, 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. One of the key differentiating aspects of the curb line spin off was matching the balance sheet with the business plan. With over $625,000,000 of cash and over $1,000,000,000 of liquidity at year end, we have ample capacity to scale.

[David Lukes, President and CEO at Curbline Properties]

We are confident that we can close on 500,000,000 of convenience acquisitions per year, which equates to around $125,000,000 per quarter. We've significantly exceeded that pace with $351,000,000 of acquisitions in the last six months. While the pace of closings will not always be evenly spaced, our current pipeline of awarded deals that are working through contract and diligence stands at just under $200,000,000 Since our spin off and subsequent marketing efforts, we have seen a large number of brokers and sellers proactively engage with us, a change from the pre spin environment. This situation allows us to work directly with sellers on a time line and a structure that works best for both parties and further supports our confidence in meeting or exceeding our annual target of $500,000,000 in external acquisitions of high quality convenience properties. That was a key driver in the fourth quarter where we acquired 20 properties for just over $2.00 $6,000,000 with the assets concentrated in the affluent markets that curb line currently operates, including Atlanta, Houston, Denver, Los Angeles and Phoenix.

[David Lukes, President and CEO at Curbline Properties]

We also made acquisitions in the wealthy submarkets such as Kansas City, Memphis and Minneapolis, which share the key characteristics we seek and where we hope we can scale long term. Average household incomes for the fourth quarter investments were nearly $140,000 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. Ending with operations, not surprisingly, overall demand for space remains strong, driven by a mixture of existing retailers and service tenants expanding into key suburban markets, along with new concepts competing for the same space. Recent new and renewal deals include several first to portfolio and recurring national tenants such as Kava, Panda Express, Chase, the UPS Store, LensCrafters and Comcast with notable activity from service tenants, banks, fitness operators and quick service restaurants. Before turning the call over to Connor, I want to again thank everyone at Curb Line along with the team at SiteCenters for their work to complete the spin off of Curb Line Properties.

[David Lukes, President and CEO at Curbline Properties]

It took the work of our entire organization to get here and I couldn't be more optimistic about the opportunity ahead for Curb Line and our ability to generate compelling stakeholder value. And with that, I'll turn it over to Connor.

[Conor Fennerty, CFO at Curbline Properties]

Thanks, David. I'll start with fourth quarter earnings and operations before shifting to the company's 2025 outlook and concluding with the balance sheet. Fourth quarter results were ahead of budget due to better than expected operations and higher than expected acquisition plan. Outside of that outperformance on the NOI side, there were no other material surprises or callouts for the quarter, which speaks to the simplicity of the curb line business plan. In terms of operations, leasing volume in aggregate was sequentially higher and I'd expect to continue to tick higher in terms of volume as the portfolio scales.

[Conor Fennerty, CFO at Curbline Properties]

However, 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 is likely to translate into TTM spreads over the course of the year consistent with 2024. It's important to note that curb's leasing spreads include all units, including those that have been vacant for more than twelve months with the only exclusions related to first generation space and units vacant at the time of acquisition. Same property NOI was up 5.8% for the year and above the top end of the guidance range of 3.5% to 5.5% with outperformance driven by a host of factors. Importantly, this growth was generated by limited capital expenditures with fourth quarter CapEx as a percentage of NOI of just 5%.

[Conor Fennerty, CFO at Curbline Properties]

Moving to our outlook for 2025, we are introducing OFFO guidance in a range between $0.97 per share and $1.01 per share. Underpinning that range is one, approximately $500,000,000 of investments funded roughly fiftyfifty 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 and A of roughly 32,000,000 which includes fees paid to site centers as part of the shared services agreement. You will note that in the fourth quarter of twenty twenty four, we recorded a gross up of $500,000 of additional non cash G and A expense which is offset by $500,000 of non cash other income. This gross up which is a function of the shared service agreement nets to zero net income and will continue as long as the agreement is in place and is excluded from the aforementioned G and A target. In terms of same property NOI, we are forecasting growth of approximately 2.8% at the midpoint in 2025, but there are a few important things to call out.

[Conor Fennerty, CFO at Curbline Properties]

Similar to our leasing spreads, the pool is growing but small and is comping off of twenty twenty four's outperformance. Additionally, curb line's same property pool is set annually, so it includes only assets owned for at least twelve months as of 12/31/2024. This results in a larger non same property pool, which was roughly 33% of fourth quarter NOI and is growing at a faster rate than the same property pool. To highlight this point, the occupancy for the entire portfolio was 93.9% at year end versus the same property pool of 95.1%. This relative gap is expected to compress in the first half of the year delivering significant organic growth.

[Conor Fennerty, CFO at Curbline Properties]

Additional details on 2025 guidance and expectations can be found on page nine of the earnings slides. Ending on the balance sheet, Curve Line was spun off with a unique capital structure that is positioned to execute on its business plan and differentiate itself from the largely private buyer universe acquiring convenience properties. Specifically, at year end the company had approximately $626,000,000 of cash on hand, no debt, a $100,000,000 undrawn delayed draw term loan and full availability under its $400,000,000 revolving credit facility. We expect to fund the term loan in the first quarter of the year, providing additional capacity liquidity and then we'll utilize additional sources of capital to fund the company's substantial growth profile. The changes in the capital structure to David's point are expected to lead to significant earnings and cash flow growth for a number of years well in excess of the REIT average.

[Conor Fennerty, CFO at Curbline Properties]

With that,

[Conor Fennerty, CFO at Curbline Properties]

I'll turn it back to David.

[David Lukes, President and CEO at Curbline Properties]

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

[Operator]

Thank Your first question comes from Chris Mailman with Citi.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

David, you talked about kind of the inbounds you're now getting from brokers and sellers here after you guys closed the transaction that kind of led to a higher pace of acquisitions and closings. Could you just talk a little bit about the pricing expectations right now that everyone knows you guys have a couple of hundred million of cash, of where you're kind of pricing and underwriting deals today versus maybe six to twelve months ago when you guys are still part of site?

[David Lukes, President and CEO at Curbline Properties]

Sure. Good morning, Craig. I guess the first comment is that this property type historically has been brokered by a lot of small and regional brokers, and even some of the smaller kind of pods within the larger brokerage community. I think there's definitely been a broader spotlight on subsector in the last twelve months,

[David Lukes, President and CEO at Curbline Properties]

and

[David Lukes, President and CEO at Curbline Properties]

that just caused a lot more dialogue. So we tend to get more inbounds from teams that handle this type of product, which allows for a lot more visibility into product that we may or not have seen a year or two ago. In terms of pricing, it's interesting. I'd say in conclusion, the cap rates are probably flat to down a little bit, but the number of deals that we're seeing has grown fairly substantially. So I guess the net result is the unlevered IRR expectations that we have haven't really changed a whole lot.

[David Lukes, President and CEO at Curbline Properties]

I would say assets where cap rates have compressed, it's offset by the fact that market rents are growing and that kind of feeds into the same IRR math.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

And where were you guys in a blended kind of cap rate going in or stabilized, however you want to report it for the deals you guys closed the fourth quarter?

[David Lukes, President and CEO at Curbline Properties]

Yes. For what we've closed, company to date fourth quarter and first quarter thus far, we're 6.25%.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Okay. And I guess just one more question on the underwriting here, because you guys put in the deck, you guys are about 5% of our CapEx is about 5% of NOI. Kind of what was that on traditional grocery anchored? And how does that kind of impact what you guys are willing to pay on going in to get to the same sort of levered IRR, unlevered IRR?

[David Lukes, President and CEO at Curbline Properties]

Yes. Well, first of all, the 5% CapEx load in the fourth quarter was, remember, it's one quarter of a new company with a fairly small portfolio. So I'd take that with some grain of salt. Our previous decks that we've had out the investment community has shown that the subsector is more like mid to high single digits. So I do think that's going to bump around a little based on the pool, but it's definitely a sub 10% CapEx load asset class.

[David Lukes, President and CEO at Curbline Properties]

And historically, I think anchored retail is traditionally north of 20%. If you add redevelopment into that, you're seeing CapEx loads that can far exceed the 20s and get into the 30s and the 40s. So mathematically, it should mean that cap rates should be lower for this asset class to generate the same unlevered IRR. I think you have seen that in the last couple of years. It's a subsector that used to trade in the 7s and 8s and now it's in the kind of mid to low 6s.

[David Lukes, President and CEO at Curbline Properties]

And whether it stops here or whether it keeps going down, Craig, it's a really good question. But it's just interesting to note that the market rents keep growing, the renewal spreads keep increasing and the CapEx load is staying the same. So arguably, we can pay more to achieve the same unlevered IRR.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

And then one last quick one. I know the whole point of the strategy is to not have anchor tenants or really lower that exposure. But and again, I know it's a smaller portfolio today, but just looking through the top tenant list, right, you have Nordstrom Rack, Williams Sonoma, Total Wine and More, and some of those are bigger boxes. Kind of how should we think about you guys mixing some of that type of product in going forward versus the smaller 6,000 to 6,000 or less kind of tenant sizes?

[David Lukes, President and CEO at Curbline Properties]

Yes, it's a great question, Craig. I think you should assume that we will be mostly small shop tenants. It just so happens that good real estate attracts a lot of different national tenants. And sometimes if we see a property that we really like, it happens to have an anchor tenant and we're comfortable with that anchor or we're comfortable with the rent that that anchor is paying and what a small shop would pay in a backfill, we'd be happy to make that investment. It's never going to be a large portion of the company, but it's sometimes unavoidable if you want to buy high quality real estate.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Great. Thank you.

[David Lukes, President and CEO at Curbline Properties]

Thanks, Greg. Thanks, Matt.

[Operator]

The next question comes from Floris Van Dykem with Compass Point. Your line is open.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Hey, good morning guys. So I will I guess my question is, I noticed your NOI margins and expense recoveries, it's a quarter I know and you're a small company and the same store pool is not the whole portfolio yet still relatively small. But your NOI margins declined by 200 basis points and your recovery ratio, I think also declined by three sixty basis points. Anything that you can point us to that caused that? And should we not be worried about that?

[Conor Fennerty, CFO at Curbline Properties]

Hey, Forrest. Good morning. It's Connor. So the fourth quarter was impacted by the O and M reclass. So prior to the spin off, the metrics you're referring to didn't include any expense that we allocated from G and A to OpEx.

[Conor Fennerty, CFO at Curbline Properties]

And so in the fourth quarter we started that kind of reclassification of expenses. So, you're right on an apples to apples basis it would look like recoveries where margins went down. But if you look at the same store pool which is a better reflection of actual property level, operating metrics, you'll see recoveries were up year over year. The margins were up year over year, which I think is consistent with what we expect over time.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Great. Maybe also I noticed, I mean, if I look at your two of your biggest markets, Miami, I think the average size of your asset is like 75,000 square feet and Atlanta is like 29,000 square feet. Where's your sweet spot and any particular reason why there's such a wide discrepancy in two of your biggest markets?

[Conor Fennerty, CFO at Curbline Properties]

Yes, Florence, not to sound like a broken record. It's a very small pool. So to Craig's question, you can have one or two tenants or one or two properties skew a certain market, skew a submarket. To your point, we do have a larger asset in Miami and one of them has anchors excuse me, two of them have anchors, which, again will skew those metrics. I don't think there's a right sweet spot that we think through.

[Conor Fennerty, CFO at Curbline Properties]

To David's point, we're trying to find the best dirt and the best submarkets. At times that's a 4,000 square foot unit or building, excuse me. At other times it could be 20,000 or 25,000. If you look our average unit size or average property size, excuse me, is about 30,000 feet. My guess is that's a pretty consistent or stable number over time as we scale.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Great. And my last question maybe is on the dividend. If you can touch on your dividend policy and what you expect to pay out over the next year or two?

[Conor Fennerty, CFO at Curbline Properties]

Sure, Boris. Obviously, it's a Board decision. Management has always recommended when you think back DDR, site centers, etcetera. We've always recommended the minimum, in terms of taxable minimum, but again it's a Board level decision. There are some interesting unique aspects of curb line that are different than other peers or different than peers have been in public for some time.

[Conor Fennerty, CFO at Curbline Properties]

The biggest one is just our tax depreciation shield in the sense that as we scale that shield will grow, but in the near term it's a smaller shield. The net result is we are closer probably to have, a payout ratio, should the Board accept their recommendation closer to 75% than our preference which would be high 60s, low 70s. But again, I don't think it'd be inconsistent in terms of management recommendation to the Board versus site centers or the peer group.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Thanks Connor.

[Conor Fennerty, CFO at Curbline Properties]

You're welcome, Lars.

[Operator]

The next question is from Ronald Kamden of Morgan Stanley. Your line is open.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Hey, just two quick ones. For the same store NOI guide for '25, just wondering if we could double click in terms of the assumptions for bad debt as well as occupancy gains or anything else you're willing to share?

[Conor Fennerty, CFO at Curbline Properties]

Sure. Hey, Ron, it's Connor. Good morning. So as we mentioned, we continue to expect same store to average greater than 3% for the three year period in 2024 to 2026. '20 '20 '4 was 5.8%, which was above our prior guidance range.

[Conor Fennerty, CFO at Curbline Properties]

For bad debt for 2025, the midpoint of the range is about 55 basis points. The only thing I would just again caution again to sound like a broken record, it is a very small pool. So how you get to the low end really is related to move outs or unexpected move outs. There are no bankruptcies we're tracking or worried about. We have one TGIF.

[Conor Fennerty, CFO at Curbline Properties]

We don't have any exposure to Party City, big lots, rattle off the folks in bankruptcy today. It really is a function of just a small pool and a couple of shops moving out. But as I mentioned in my prepared remarks, we're 95.1% commenced, which we think is a pretty good run rate for the pool going forward, but that just can lead to a little volatility over time just given how small the denominator is.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Great. Helpful. And then just going back to the acquisitions, look, we think this market could be $200,000,000,000 3 hundred billion dollars in terms of activity or in terms of TAM, so clearly a long runway. But just wondering if you could provide just a little bit more details on sort of the competition and the cap rate trends and how that sort of played out versus your expectations. And you mentioned sort of the going in cap rate, but curious is there sort of a target IRR hurdle that you're also looking at?

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Thanks.

[David Lukes, President and CEO at Curbline Properties]

Sure. Good morning, Ron. It's David. I would say that the unlevered IRR expectations that we have have been fairly consistent and that they're high single digits. Sometimes we're 7.5, sometimes we're 8.5, nine.

[David Lukes, President and CEO at Curbline Properties]

But on unlevered basis that's where we've been making investments. I think if you get into other formats that have a lot more repositioning involved, that is one component of any sector is kind of the value add component. Ours is a lot more oriented towards core real estate, that I think is going to outperform in a recession. And the competition for core real estate that has low CapEx and high rent growth on market rents has been pretty fierce and I would say has been getting more so. So cap rates have definitely come down 50 to 75 basis points in the last three years, but I haven't really seen a whole lot of change in the last six to twelve months.

[David Lukes, President and CEO at Curbline Properties]

I think if cap rates are coming in a little bit it's likely that the rents are growing and that's causing the unlevered IRR expectations to be about the same. So competition is getting definitely more active than it was in the past couple of years. I would still say it's mostly local and regional private capital. We have not really bumped into a lot of institutional capital yet.

[Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley]

Super helpful. That's it for me. Thank you.

[David Lukes, President and CEO at Curbline Properties]

Thanks, Ron.

[Operator]

The next question is from Alexander Goldfarb with Piper Sandler. Your line is open.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Good morning and thank you. Good morning, Dan. So just a few questions here. First, David, I think you outlined $500,000,000 of acquisitions targeted for the year. Just sort of curious what the total pool of assets that you're looking at, the total pipeline, is it like $1,000,000,000 of deals, $1,500,000,000 of deals?

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Just trying to understand how many deals come across your desk versus the ones that you actually look at versus the ones that you're successful and win it?

[David Lukes, President and CEO at Curbline Properties]

Yes. Good morning, Alex. I would probably break it down into three categories, those that cross our desk, those that we decide to work on and those that we end up trying to acquire. So I would say the ratio of what we're looking at is probably 10x what we buy. The ratio of what we spend time underwriting and decide to make an offer on is probably three or 4x.

[David Lukes, President and CEO at Curbline Properties]

And that's what's giving us a lot of confidence that there's plenty of room for us to grow in the subsector. I think the available subset is pretty large.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. And then the next question is, you guys talked about sort of same store of 3%, maybe 3% or better. But you also spoke about the original impetus for the company that, the annual growth rates, the annual rent bumps are faster and more broader based across the tenants than traditional shopping centers. So just trying to understand and I'm not a same store person, but still it stands out there. Why wouldn't the same store metric be faster internally if you guys have better internal rent bumps than traditional OpenAir.

[Conor Fennerty, CFO at Curbline Properties]

Yeah, Alex, it's Connor. I think we agree with the premise of your statement.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. But it's still like I'm just trying to understand the 3% versus thinking it would be better if you guys are getting 3% or 4% annual bumps.

[Conor Fennerty, CFO at Curbline Properties]

Yeah. I mean, so on average, our annual bumps are just under 3%. They're kind of mid twos, right? So we are, to my earlier comment, the same store pool is 95.1% commenced, right? So there's maybe a little bit of occupancy growth.

[Conor Fennerty, CFO at Curbline Properties]

But essentially, the midpoint of our range is for 3% growth with no occupancy. And so if you think about that growth rate relative to the peer group, which I'm assuming is the genesis of the question, we are doing better same store on an occupancy neutral basis. We also have no redevelopment pipeline to David's point, right? So the capital needed to generate that growth is substantially lower than I think the equivalent groups, or equivalent growth rates you're referencing. So it's a really good question.

[Conor Fennerty, CFO at Curbline Properties]

But effectively the same store pool has little to no occupancy growth. And even in despite that fact, we're still doing effectively 3% growth, which I think speaks to your question.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

So, Conor, just sorry to follow-up. You said I think like 2.5% internal bumps. Recollection was that you guys were getting sort of 3% to four percent annual bumps. Was I mistaken on that or?

[David Lukes, President and CEO at Curbline Properties]

No, Alex, I think you're, it's David. I think when we're blending tenants that have options or tenants that have longer term leases, let's call it a Starbucks, versus a tenant that has maybe two years left of term and they've got 3% annuals and they're going to get a big bump at the expiration of their term when they have no option. When you blend all of that together and you take out some credit loss assumption, that's what Connor is talking about. I think it's just a different category than saying yes, when we sign leases, we generally have three plus percent rent escalations. But when you put in all the other algebraic formulas, I think you get down to just below 3%.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. Thank you for that.

[David Lukes, President and CEO at Curbline Properties]

What would materially change that obviously is market rent growth because it is a renewals business. So, yes, you're getting fixed rent bumps on most tenants of call it 3%. But as you can see from our disclosure, it's whenever you have a tenant that comes due with a shorter lease term and there's a renewal.

[David Lukes, President and CEO at Curbline Properties]

And the market rents have been growing. So it does feel like the opportunity to overachieve that is definitely there.

[Alexander Goldfarb, Managing Director at Piper Sandler Companies]

Okay. Appreciate that.

[David Lukes, President and CEO at Curbline Properties]

Thanks, Alex. Thanks.

[Operator]

The next question comes from Michael Mueller with JPMorgan. Your line is open.

[Michael Muller., Analyst at JP Morgan]

Yes.

[Michael Muller., Analyst at JP Morgan]

Hi.

[Michael Muller., Analyst at JP Morgan]

I guess first, what gets you to the low and high end of the same store NOI guide for '25 given that you have 55 basis points of bad debts at the midpoint and you've talked about economic occupancy being fairly stable at 95.1%?

[Conor Fennerty, CFO at Curbline Properties]

Hey, Mike, it's Connor. Good morning. It really is just on budgeted move outs. The only thing I would just qualify that is, even if we hit the low end of the same store guidance range, which is not our expectation, but it feels prudent given it's February 11, that wouldn't push us to the low end of the FFO range. And so you think about like factors that matter for growth over the course of 2025 and 2026, it feels odd to say it, but same store is not the biggest driver.

[Conor Fennerty, CFO at Curbline Properties]

In fact, it's probably the fourth or fifth biggest driver in terms of what drives growth. So, I don't want to downplay its importance, but given that it's just over 60% of the NOI pool, whereas if you look at the peer group or REITs and average, same store in general usually is 95% to 100% of NOI. So it's a little unique for us just given how we, build up our pools and how we just given the point we are in terms of our kind of life cycle of growth. But, it's a little funny in that regard until we get bigger over time.

[Michael Muller., Analyst at JP Morgan]

Got it. And I guess that's a good segue into the second question. The overall portfolio economic occupancy rate of 93.9%, obviously, stuff you're buying is going into that. What do you think a timeline to get up to the same store level of 95 or 95.1 is? Is that a two year process?

[Michael Muller., Analyst at JP Morgan]

Is it faster? Does it take longer?

[Conor Fennerty, CFO at Curbline Properties]

Materially faster. And so that was my point in the prepared remarks. The non same store pool will effectively on top of the same store pool within the first six months of the year. This is not think about David's opening comments. When we're back selling tenants, we aren't repurposing space.

[Conor Fennerty, CFO at Curbline Properties]

It's one tenant that goes into the exact same space that the prior tenant is in. So there is very little downtime. There's lots of this big S and O pipeline, that you've seen with some of our peers. We shouldn't have that, which I think again the same store pool, which is 95%, commenced and a lease rate of 95.9% or 96.1%, that's a good spread, 100 basis points. We're never going to have this 400 basis point SNO pipeline that some of the peers have.

[Michael Muller., Analyst at JP Morgan]

Got

[Michael Muller., Analyst at JP Morgan]

it. Okay. Thank you.

[Conor Fennerty, CFO at Curbline Properties]

You're very welcome.

[Operator]

The next question comes from Todd Thomas of KeyBanc Capital Markets. Your line is open.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Hi. Thanks. Good morning. When you announced the spin and since that time over the last year, the market was pricing in more rate cuts and perhaps a lower interest rate environment altogether. Now, the market seems to be pricing in a higher for longer environment for a more extended period of time.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Does that impact or change your capital raising or capital allocation strategy at all at the margin? How do you think about either side of the balance sheet moving forward?

[David Lukes, President and CEO at Curbline Properties]

If I'm understanding your question correctly, Todd, I would say that remember if there's higher for longer, what it's happened is that cap rates may not have moved up according to what the forward curve would suggest, but market rents have. And so our allocation to purchasing properties where we think we can keep up with inflation or exceed inflation is still pretty strong, which puts us in a pretty happy place to be in this subsector. Our ability to keep up with inflation with this type of tenant roster, lack of downtime and lack of CapEx makes us even more convinced that it's a really good place to be in a hyper longer environment.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. And then, I mean, it sounds like your plan is to fund acquisitions fiftyfifty debt and equity. Is there any thought to tapping the equity markets at all during the year perhaps a little bit sooner rather than later, to sort of maintain the balance sheet advantage that you have by locking in your cost of capital today and elongating the company's runway for investments?

[Conor Fennerty, CFO at Curbline Properties]

Hey, Tah, it's Connor. I would just say, remember, even if we used all of our cash, right, so $626,000,000 remaining, we would still have no debt and our balance sheet advantage would still be dramatic versus REITs overall or private investors, whatever it might be, right? So I'd start with that. The second point is on equity. The ATM is not an option, until September.

[Conor Fennerty, CFO at Curbline Properties]

It's just a function of being a new public company. And we always look at our cost of capital, whether it's debt, whether it's equity every day versus, every opportunity we're looking at. So if there was an opportunity whether it's debt or equity we saw and we had a compelling investment opportunity, I think we would look to that option. And there are a number of alternatives we could look forward to raise capital today. I would just tell you again, we're always looking at the source and the use.

[Conor Fennerty, CFO at Curbline Properties]

It's never just saying here's the source, we like the price. But there's nothing in guidance today for call it an acceleration of capital investment or capital funded with equity. We'll just see how it plays out over the course of the year.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. And then just lastly, I'm just curious, I know you're again in sort of capital deployment mode and have the capacity on the balance sheet to fund your investments all on balance sheet. But I'm just curious where you stand on joint ventures. You were open to exploring partnerships previously for the right type of partners, the right type of investment timeframe and so forth. Is that something that you'd be open to at Curb in a way to further leverage your equity and maybe help accelerate sort of the increasing scale for the platform a little bit more quickly?

[David Lukes, President and CEO at Curbline Properties]

Todd, it's David. I would say that our happiness in a very simple strategy with a simple plan and a simple capital structure, it makes us very confident that we've got the right strategy right now. I think our desire to come to make that more complex would be extremely low. We've had a number of investors talk about the idea of doing something together. I think frankly we have a great runway ahead of us.

[David Lukes, President and CEO at Curbline Properties]

We got a balance sheet that matches our plan. And so I just don't see the use for making our platform any more complicated than it is today.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. All right. Thank you.

[David Lukes, President and CEO at Curbline Properties]

Thanks, Todd.

[Operator]

The next question comes from Paulina Rojas with Green Street. Your line is open.

[Paulina Rojas Schmidt, Senior Analyst at Green Street Advisors, LLC]

Good morning. You mentioned expecting to close acquisition of about $500,000,000 a year. And in 1Q, I only closed around $200,000,000 So your guidance seems conservative, which is slightly prudent. But my question is, are there any specific factors that lead you to believe the strong activity in 4Q shouldn't be extrapolated into 2025?

[David Lukes, President and CEO at Curbline Properties]

Good morning, Pauline. It's David. It's a little hard to hear you, so I'm going to take a crack at it. You can tell me if we miss anything. But, yes, we recognize the fact that we have earmarked $500,000,000 of external acquisitions as our target annually.

[David Lukes, President and CEO at Curbline Properties]

And the first quarter out of the gate, we exceeded that. So I think what you're asking is why can't we simply extrapolate the fourth quarter. And I would just say we've been public for January. And during that one hundred and twenty days, we happen to have a quarter in which we closed a lot of real estate. We don't really know what the eventual pipeline should be or will be.

[David Lukes, President and CEO at Curbline Properties]

And so I think our comfort level saying $500,000,000 still seems like an achievable goal that we're confident with. Could we exceed that? We probably could. But are we comfortable with $500,000,000 Yes, we are. And I still think that keeps us in the acquisition mode of maintaining precision on high quality properties.

[Paulina Rojas Schmidt, Senior Analyst at Green Street Advisors, LLC]

Thank you. And your strategy is really centered around owning assets located in high traffic intersections and affluent suburbs. So as you evaluate potential acquisitions, do you have sort of hard benchmarks in terms of minimum household income or daily traffic for the centers that you're considering?

[David Lukes, President and CEO at Curbline Properties]

It's a really interesting

[David Lukes, President and CEO at Curbline Properties]

it's a really interesting question. I would say, Paulina, a couple of years ago, we had a fairly simple chart as to what we were looking for to sort through deal flow because as per one of the previous questions, if we're looking at 10 times the number of assets that we bought, it's a lot of real estate underwriting. So we started with a chart of what we thought were the most important metrics. What we've learned over time is that they're all important, but they're not necessarily a hard yes or a hard no. If I look at what we've eventually bought over the years, household income is very important.

[David Lukes, President and CEO at Curbline Properties]

There's no question that it does better during a recession. There's just a lot more errands running. There's a lot more discretionary spending, which means there's more types of tenants that want to be in those submarkets. So we're more focused on the zip code or the tap score if you would like to use that, something that tells us, you know, the consumer health in that market. And that might be in a relatively small city and it might be in a large city.

[David Lukes, President and CEO at Curbline Properties]

The second thing we tend to look at is is traffic driving by. And I think the average daily traffic on the road is a really important fundamental differentiator. You can buy unanchored strip centers that are buried inside of communities with low traffic counts, but they just don't generate the tenant demand of having that same property type up against a road that has a strong traffic intersection. So, I would say between demographics and daily traffic on the intersection, those are probably two of the most critical.

[Paulina Rojas Schmidt, Senior Analyst at Green Street Advisors, LLC]

Thank you.

[David Lukes, President and CEO at Curbline Properties]

Thanks, Malia.

[Operator]

Your next question comes from Kevin Kim with Truist Bank. Your line is open.

[Ki Bin Kim, Managing Director at Truist Securities]

Hey, thanks. This is Ki Bin. Just a quick question on G and A. How much more G and A is being allocated to operating expenses than previously? When we go back to the models, I just want to make sure that we can reconcile our previous estimates.

[Conor Fennerty, CFO at Curbline Properties]

Hey, Ki Bin, it's Connor. So it's $300,000 of G and A is allocated to OpEx in the fourth quarter. That's consistent with our guidance from the September 17 pre spin off deck. And that number should be pretty static over the life of the shared services agreement. Now once that agreement is over, you could see the composition change a little bit at the margin.

[Conor Fennerty, CFO at Curbline Properties]

But in terms of total G and A, it's a pretty static number.

[Ki Bin Kim, Managing Director at Truist Securities]

And that's for the quarter, right?

[Conor Fennerty, CFO at Curbline Properties]

That's a quarter, yes, I'm sorry. You're exactly right. So it's $300,000 per quarter about $1,200,000 per year.

[Ki Bin Kim, Managing Director at Truist Securities]

And can you just help me understand I understand the expense going to site, but the income accounting for it, Where does that stand from?

[Conor Fennerty, CFO at Curbline Properties]

You're referring to the gross up?

[Ki Bin Kim, Managing Director at Truist Securities]

Yeah.

[Conor Fennerty, CFO at Curbline Properties]

Yeah. So effectively, it's the value of the services we're receiving from site versus the value of the fees paid to them. And the gross up is this horrifically tortured calculation to compare the two effective value streams.

[Conor Fennerty, CFO at Curbline Properties]

That number will move around over time depending on the relative size of both curb and site, and the services provided in both directions. So that's why we've excluded it from, guidance, G and A guidance going forward. The critical piece is to flag and understand is the net income is zero per quarter. So there might be quarters where the gross up expense is $1,000,000 and the gross up income is $1,000,000 but it's always a push in terms of net impact to, curb. Post termination of the shared service agreement that goes away.

[Conor Fennerty, CFO at Curbline Properties]

So it's this unfortunate, tortured accounting noise that we have for the first couple of years of the life of Curve and then it goes away. But again, I would just reiterate it nets to a zero over the course of the each quarter and year.

[Ki Bin Kim, Managing Director at Truist Securities]

Okay. Thank you.

[Conor Fennerty, CFO at Curbline Properties]

You're welcome.

[Operator]

This concludes the question and answer session. I'll turn the call to David Lukes for closing remarks.

[David Lukes, President and CEO at Curbline Properties]

Thank you everyone for joining. We'll talk to you next quarter.

Participants

Executives

• Stephanie Ruys de Perez, Vice President of Capital Markets & Asset Management
• David Lukes, President and CEO
• Conor Fennerty, CFO

Analysts

• Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.
• Floris van Dijkum, Managing Director at Compass Point Research & Trading
• Ronald Kamdem, Managing Director & Head of US REITs and CRE Research at Morgan Stanley
• Alexander Goldfarb, Managing Director at Piper Sandler Companies
• Michael Muller., Analyst at JP Morgan
• Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets
• Paulina Rojas Schmidt, Senior Analyst at Green Street Advisors, LLC
• Ki Bin Kim, Managing Director at Truist Securities