Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to the Curbline Properties' Second Quarter 2026 Call. I will now hand the conference over to Stephanie Ruys de Perez, VP of Capital Markets. Stephanie, please go ahead.
Thank you. Good morning, and welcome to Curbline Properties' Second 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 Forms 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, OFFO 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.
Thank you, Stephanie. Good morning, and welcome to Curbline Properties' second quarter conference call. Second quarter results highlight the strength of the platform that we have constructed in less than two years since our spin-off. We acquired $374 million of properties in the second quarter alone, and we have now acquired $564 million year-to-date. We raised almost $550 million of equity, including $350 million in our June offering. And importantly, we continue to see elevated demand for space with the vast majority of our SNO pipeline expected to commence over the next three quarters. These factors in aggregate are driving significant earnings growth with our raised guidance representing over 17% growth, which is among the highest in the sector. I'd like to thank everybody at Curbline for their contributions that have positioned 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 real estate 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, as I mentioned, we've acquired over $560 million of real estate year-to-date and are raising our full year investment target to $1 billion of acquisitions from $850 million. I've spent no shortage of time previously discussing the drivers behind the acceleration in acquisition opportunities, and there's really no change as to what we are seeing today. First, it's a fragmented industry, and we have the largest team with an incredible network of relationships across the major metros of the country. Second, our reputation and track record are real assets as we look to expand our portfolio to almost six million square feet of convenience real estate. And third, the platform and scale that we've constructed allow us to be simply more efficient than local competition, and we continue to fine-tune our processes to underwrite better and close faster. And finally, fourth, opportunities continue to be boosted by what we believe to be the long-term tailwinds driven by a transfer of wealth and real estate to the next generation of owners, many of whom are seeking liquidity. The net result of each of these four factors is an increase in opportunities that meet our criteria: primary vehicular corridors, strong demographics, high traffic counts and creditworthy tenants, and importantly, are additive to our future growth rate. And it highlights the unique and significant addressable convenience market that provides an opportunity for us to scale our Curbline business. Moving to operations. We signed over 167,000 square feet of new leases and renewals this quarter. Trailing 12-month spreads remain consistent with our five-year averages as the shortage of space in the 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 for our portfolio is a highly diversified tenant base with only seven tenants contributing more than 1% of base rent and only one tenant of more than 2%. We now have over 1,300 unique tenants in the portfolio, including over 500 unique national tenants, which represents approximately 70% of our base rent. To this point, all 15 of our new leases this quarter were with different tenants, including FedEx Office, Tropical Smoothie and a variety of other health and service users with a similar national mix as the overall portfolio. In terms of same-property growth, year-to-date growth of 2% decelerated as we expected, with Conor providing more details on this later. But our capital expenditures also remain well below 10% of 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, we remain incredibly 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.
Thank you, David. I'll start with second quarter earnings and operating metrics before shifting to the company's revised 2026 guidance and then conclude with the balance sheet. Second quarter results were ahead of budget, largely due to higher NOI, driven in part by higher-than-forecasted occupancy and recoveries, along with higher-than-forecasted acquisition volume. NOI was up 12% 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 second quarter, we recorded a gross up of $1.8 million of non-cash G&A expense, which was offset by $1.8 million of non-cash other income. This gross up, which is a product of the shared services agreement and nets 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 operating metrics, the lease rate was up 20 basis points sequentially to 96.5% despite an almost 20 basis point headwind from acquisitions. Occupancy was also up sequentially to 94.3%, which represents the highest level for the portfolio since the spin-off. Leasing volume in the second quarter accelerated from the first quarter, driven by an uptick in renewals, though quarterly volumes and figures remain volatile given the lack of available space in the portfolio. As David noted, we remain encouraged by the amount of activity and depth of demand for available space. As expected, same-property NOI decelerated in the second quarter due to lower forecasted recovery revenue, which acted as a 260 basis point headwind. The second quarter also included $370,000 of expense related to storm damage at a property in North Carolina, which is an additional 100 basis point headwind. Pro forma for these same-property NOI items, growth would have been 3.1%. Yet despite these headwinds, same-property NOI was ahead of budget and base rent growth was up over 2.3%. Importantly, this growth was generated by limited capital expenditures with trailing 12-month CapEx of 8% of NOI. Moving to our outlook for 2026. We are increasing OFFO guidance to a range between $1.24 and $1.26 per share, which at the midpoint represents just over 17% growth. We believe that this level of growth will be the highest certainly in the retail space and among the highest in the entire REIT sector. Underpinning the midpoint of the range is $1 billion of full year investments, a roughly 3.5% return on cash with interest income declining over the course of the year as cash is invested, CapEx as a percentage of NOI of less than 10% and G&A of roughly $32 million, which includes fees paid to SITE Centers as part of the shared service agreement. Those fees totaled $1.2 million in the second quarter. In terms of same-property NOI, we continue to forecast growth of 3% at the midpoint in 2026, following 3.3% in 2025 and 5.8% in 2024. As I've noted previously, the same-property pool is growing but small, and it includes only 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, we expect a meaningful acceleration in base rent into the fourth quarter, driven by lease commencements with almost 90% of the SNO pipeline expected to commence by March 31 of next year and the entire pipeline to commence by the end of third quarter. The speed of the deliveries speaks to the simplicity of the buildings that we buy and operate and differentiates Curbline from other purpose-built retail formats. For moving pieces between the second and the third quarters, as a result of the timing of equity settlements in the second quarter, the quarter end share count was higher than the weighted average. Assuming no additional settlement activity, the third quarter share count would average about 114 million shares, which is a good starting point to layer on additional share settlements, which will be the primary funding source for second half acquisitions. Additionally, below-market revenue is expected to decline sequentially by about $300,000 due to the write-off of below-market leases in the second quarter. Finally, G&A is expected to total about $8 million in the third quarter and $32 million for the full year. Additional details on 2026 guidance and the moving pieces that I just outlined can be found on Page 10 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 second quarter and including the issue from the June offering, Curbline sold 18.1 million shares on a forward basis with $541 million of expected gross proceeds, which we expect to use to fund acquisitions. Including cash on hand at quarter end of $155 million, along with total unsettled equity proceeds of $696 million, Curbline has over $800 million of immediate liquidity available to fund the roughly $500 million of remaining investments included in guidance. The net result of the capital markets activity since formation as 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 of the REIT average. With that, I'll turn it back to David.
Thank you, Conor. Operator, we are now ready to take questions.
Questions and answers
Your first question is from Ronald Kamdem with Morgan Stanley.
Just starting with some of the KPIs. I think the occupancy, obviously, you gained occupancy despite sort of the drag from the acquisitions you mentioned. I'd just love to hear what you think, how much more upside of occupancy there is? And then on the same-store front, I'm just wondering if the deceleration was maybe a little bit greater than anticipated? And is this sort of 3% the right run rate we should think about going forward?
Sure, Ron. It's Conor. I'll go in reverse order. So our budget for the quarter was for a 100 basis point decline in same-property. And so we outperformed that. And so in a worst-case scenario, it was in line with our expectations. But to my comments, we were better than expected. We've talked about this at length. Our same-property pool is larger than it was last year, but still pretty small relative to the asset base. So it's going to lead to a lot of volatility in operating metrics, which I called out on a number of occasions. So we reported 4.8% growth in the first quarter. Obviously, to your point, a deceleration in the second quarter. And then we're expecting a pretty large acceleration in the back half of the year, just given the SNO pipeline that both David and I mentioned and the timing of commencements into the back half of the year. So as I mentioned, the two other call-outs: the same-property pool was only about 56% of NOI in the second quarter. So you have a significant piece of the company that's not captured. And then the second piece is CapEx as a percentage of NOI remains well below 10%. So the capital needed to generate that 3% plus growth over the course of the year is about one-third of other retail companies. We've said on other calls that we think this is a 2.5% to 4% business. Given the supply-demand imbalance today, it's probably closer to 4%. And again, there's no change to our expectations for growth over the course of the year.
Ron, it's David. I would say part of the challenge of that question is that it really depends on what we're acquiring. Sometimes we're acquiring with vacancy and that would have a negative impact as it did this quarter. In other cases, we're acquiring assets where we might want to replace a tenant. I would point you to Page 13 of our supplemental; you'll note that the relationship between new leases versus renewals is four to one. So there's four times as many renewals as there are new leases. This is generally a renewals business. So I would say as long as the economy is strong, I would expect that occupancy is going to stay at the higher end over the course of time, which I would put as a traditional 97% or so. But it really depends on when we select to replace tenants as opposed to renew them.
If I could just sneak in a follow-up. Just on the acquisitions, obviously, pretty impressive volumes here. Would just love to hear what you guys are seeing in terms of cap rate and return expectations for this vintage of acquisitions versus maybe 12 to 24 months ago?
As of where we sit today with the pipeline of $1 billion expected to purchase this year, the cap rates are still hanging in the low sixes. As I've said on previous calls, just bear in mind that the assets that we're buying are somewhat small, which means that the internal growth rate of those assets can have a pretty big impact on going-in cap rates. So we bought assets in the low fives, and we bought assets in the high sixes, and it really depends on occupancy levels and mark-to-market. I would say the better way to look at this asset class is unlevered IRR, which is around an 8% range. And I think for us, that's a pretty attractive trade for that type of unlevered IRR given the fact that most of that IRR is coming from cash flow simply because of the low CapEx profile.
Your next question is from the line of Craig Mailman with Citigroup.
Can you hear me, guys?
Yes, thanks, Craig. Good morning.
Following up a little bit on Ron's question and maybe asking it in a different way. I know you guys don't give quarterly guidance, but just given the ramp in second quarter acquisitions and a little bit of the drag you saw in occupancy from this crop and you kind of bought one-third of it towards the end of the quarter, I know you guys don't give quarterly guidance, but could you help us think a little bit about the net benefit that should accrue to third quarter sequentially from these acquisitions kind of offset by, Conor, your commentary on where the share count could be just to give us— I know that we always talk about low six caps, but there is that range in there. I don't know if there's some kind of goalpost you can give to help us out.
Craig, it's Conor. Just a couple of things. I don't want to make a mountain out of a molehill about the lease rate and the occupancy of what we acquired. Our portfolio is 96.5% leased and the assets we bought had a lease rate in the 95s. So it's not like we're buying stuff in the 70s or 60s. There's not a huge lease-up. It just happened to be modestly dilutive to our overall portfolio lease rate. We give the timing of each acquisition in the supplement to help with the cadence. But if you effectively use a low six cap rate on those assets that were acquired in the second quarter, you'll get to a really good run rate for the third quarter in terms of an apples-and-apples comparison. And then as you think about the cadence over the course of the year for remaining acquisitions, there's about $0.5 billion left to hit our target. If you assume roughly a 50-50 split over the course of those two quarters and with a similar level of funding or settlement timing, you should get to a solid spot in terms of the guidance range and how we're thinking about the business for the course of the year.
And then as we just think about the opportunity set, I mean, you guys are now at almost double what you initially thought you could do when you spun off from an annual acquisition pace this year. Just can you talk about what you — if this level is sustainable, for how long you think it's sustainable before you get institutional competition and how you guys are now staffed to either handle this or how much more you could kind of do in a year without having to hire more people?
Sure, Craig. It's David. I'll give that a shot. As you know, our initial expectations when we spun out was to do $500 million of acquisitions in the first year. We ended up the first year way above that in the kind of $780 million range. I would note that there were three small- to medium-sized portfolios within that first year. Portfolios in this business tend to be episodic. I don't think that they're something that can be counted on in a normal quarterly run. So if you look at that first year, our one-off asset acquisitions were around $550 million. As we sit here today in the second year, we've got a target of $1 billion, and that is exclusively one-off acquisitions. So what's happening, I think there are a couple of factors. First, there is definitely a transitioning of generational real estate to the next buyers. That either happens through resolving estates or, as we've seen in the last six months, we've seen a lot more sellers that are seeking liquidity to plan for their estates. To us, that's a very good sign that deal activity seems more likely to increase than decrease over the next decade. In terms of the total addressable market, even where we stand today, having effectively doubled the size of the portfolio, we're still about 60 basis points of the total U.S. inventory of this asset class. So I do feel like there's a very credible long-term runway. The second component that I would say is unique, and I've mentioned this in the prepared remarks a number of times, is that we have been trying to find every avenue and sleeve we can to unlock more inventory in this country. If you've got a business you like and you're only 60 basis points, it's our job to figure out how to attack those sleeves. We've done that from cold calling, from mass mailers, from wealth advisers, from accounting firms and law firms. We've driven up and down streets and knocked on doors. At this point today, John has a team that is working on acquisitions in some form, whether it's diligence, sourcing or legal. We've got a 26-person department. That size of a transactions team is far larger than any other institution or non-institution in this country. So I think we're just able to get at more of the deal flow. And I personally have a pretty high confidence that that will continue for years to come.
And in terms of G&A, Craig, we talked about at the time of the spin-off that we thought we could be as efficient as SITE Centers. And if you recall SITE, the way we look at it, SITE's G&A as a percentage of GAV was about 1.1%. We have since updated that framework to say we think Curb can be materially more efficient. And that's despite David's point about adding some folks and adding some more headcount, but we're just starting to scale our G&A load, and that's obviously starting to fall to the bottom line and leading to pretty significant FFO growth. So on the G&A front, you're right, we are adding some more folks. But in terms of the significant fixed expense items, those are already in place, which again is allowing us to really scale our G&A, drive free cash flow and drive pretty significant earnings growth.
If I could slip a third in. Are you guys — how do you guys think about as your 500 of your 1,300 tenants are national? Are you guys close to or going to think about this as an avenue of kind of a national accounts group now that you have, I would assume, one of the biggest, if not the biggest, non-anchored strip portfolios in the country? How are you guys thinking about organizing to maximize the benefits from having the scale to drive up rents or occupancy or improve tenancy?
It's a really interesting point, Craig. I think it's prescient given you're right, we're suddenly on the map for a lot of tenants that we weren't on the map a year ago. In fact, I'm not sure the sector was really on the map a year or two ago. But this first started to come up in Las Vegas this year at the ICSC conference. A lot of the tenants are looking for growth. And if we're buying assets that have a two-thirds to one-third national to local mix, the nationals can generate more four-wall EBITDA from this real estate than the locals. Therefore, I think a lot of the nationals are seeing an opportunity to replace local tenants with national tenants. They started to get a lot more aggressive in Las Vegas with approaching us about how they can work with us on a portfolio basis. So I do agree with you that that's an interesting avenue, especially given the fact that we're targeting high-traffic intersections and high-end demographics, which is where a lot of the national chains want to be. So I would say it's an open question. It's a really good point. And you'll probably get a lot more commentary on us over the course of the year as we develop those relationships and figure out how it's best to serve those tenants.
Your next question is from the line of Todd Thomas with KeyBanc Capital Markets.
First, I just wanted to follow up on the discussion around cap rates and IRRs. I was just wondering, first, is the recent rise in the 10-year treasury having any impact on more recent price discussions that you're having? And then is Curb changing its underwriting hurdles at all in the current environment, just given the improvement in the company's cost of capital? Or has anything changed at all for the company's investment efforts as a result?
I wish I could say that the industry reacts very quickly to borrowing costs. It just seems like unlevered IRRs are the more dominant approach from even the competition that we have locally, even though a lot of them use debt. So I don't really think the cap rates have changed in the last couple of months. We're still seeing the same range. The averages have been about the same. In terms of our own underwriting, given that we're looking at unlevered IRRs, a lot of that IRR is dependent on the mark-to-market and what we think market rents are growing at. And I think we're pretty conservative on both factors. So I don't think we've seen the need yet to reconsider our underwriting assumptions.
And then Conor, in terms of scaling the platform and some of the commentary around G&A, can you just provide an update on the shared services agreement with SITE Centers, just given where we are in the year today, late July, what the latest is with regard to the agreement? And also the impact that we should be considering for G&A after taking into account the gross-ups, which you've talked about the net out, but also the fees paid to SITE Centers and how we should start to think about that as we focus on 2027?
Sure. Todd, SITE, as you know, had the one-time option to terminate the SSA by June 30, and they did not exercise that option. So as a result, absent a negotiation between the two parties, the SSA would remain in place through the full length of the agreement, which is October 1 of next year. If you recall, our budget for this year assumes status quo. So there's no impact to our budget or G&A this year. As it relates to 2027, obviously, as we get closer and provide guidance, we can give more updates there. But we do have the pieces for you in our slides in terms of the breakout between the fee paid to SITE, which was $1.2 million this quarter, and what I will call our core or other G&A, which is expenses related to Curbline. So as we grow, that fee paid to SITE will grow. But if you recall, the structure of the SSA was that the fees paid were meant to mirror the cost of the services that SITE are providing. So bluntly, we're not expecting material change to G&A once the SSA expires, whether that's today or whether that's over a year from now. So status quo for this year. But again, given how we structured the agreement, there's no expected material change to G&A when that agreement does expire.
Your next question is from the line of Floris Van Dijkum with Ladenburg.
I love the simplicity of your business, which I suspect a lot of the investors on the call probably do as well. I had a couple of questions. The Sunbelt clearly is the biggest part of your portfolio with over 70% of your ABR coming from those markets. How do you think about growing in other key markets going forward? I think I looked briefly at your slide; I think you have only two or three assets in the New York Metro area, one in New Jersey, one in Long Island as far as I could tell. Do you not see the opportunity to acquire there? Or are cap rates lower? Or is there more competition? And can you maybe talk a little bit about your acquisition strategy and how you expand into other key markets across the country, please?
Floris, it's David. When we spun out Curbline, the base portfolio had a concentration in the Southeast and the Southwest. As we've grown over the past 18 to 20 months, we've started to develop more relationships and get more deals done in the Mountain states, Denver in particular, the Pacific Northwest and the Midwest. So it's less of a desire to be concentrated and more a desire to be distributed among the top 30 MSAs as long as assets meet our hurdles of traffic, primary corridors and strong demographics. The Northeast corridor has been slower, in part because this real estate is generationally owned and many owners have a very low basis, so it will take time to penetrate those older markets. The Pacific Northwest has also been a bit more difficult to ramp up. But we've proven we're willing to allocate resources to build those relationships. We're starting to make a dent, and once we get into a market, I do think that buying deals in markets prompts a lot more deals to come. So I would expect that the mix will look different in the next couple of years.
And maybe my follow-up, David. As you think about OP units, do you expect that those will become more prevalent, particularly as you talk about these generational and tax issues going forward? I note that one of your peers used an OP unit deal recently in Long Island. Do you think you'll be more prevalent in using those to source and complete acquisitions going forward?
That's an open question. Given how little the industry has used OP units in the last decade, there's a reason for that. From our perspective and from the seller's perspective, the math is often better on an after-tax basis for using OP units, but sellers do not always prefer that structure. In many cases, you're resolving an estate with multiple heirs, and there are other methods such as 1031 exchanges when people are planning. We certainly like the structure and think it can make sense for both parties, but it's not easy to get across the finish line. I would expect it will be more than zero, but I don't anticipate a dramatic change from what you've seen in the last decade.
Your next question is from the line of Alexander Goldfarb with Piper Sandler.
David, just two follow-up questions. First, on the size and scale of the platform and the G&A efficiency: could you argue that perhaps you need more people if you're knocking on every country club, every dentist office, every wealth manager across the country? Would that require more people, like a sales force that has to be out there pounding the pavement for each individual deal? I'm trying to understand how the platform can be more efficient if the deals individually are smaller and you have to tease them out one at a time.
You're right — more people can generate more deal flow. We have added people where it makes sense. We initially expected $500 million a year and now we're at $1 billion this year, so the team has grown and produced results. We're careful with G&A, but we're willing to allocate G&A toward growing the business where we see an opportunity to do so.
Alex, does more people necessitate a higher G&A run rate? In certain departments, yes — transactions, for example. But this business is simple in other facets, and we are more efficient in those areas. So while we're running a bit higher headcount for sourcing deals, in other departments we don't carry the same administrative burden, which benefits G&A overall.
Second question: tenant diversity. I hear your point that your portfolio is on the radar of more national tenants. But isn't there an argument that local tenants or small regionals provide the sort of uniqueness that makes people want to go to your center versus the one across the street? New concepts often start out local or regional and can be differentiating. How do you think about that mix?
Certain elements of that are correct, but there are trade-offs. The industry tends to be in the 70/30 national-to-local range, plus or minus. I don't think it will shift to 90/10. Local tenants can be stable and creditworthy; we conduct robust credit analysis on local tenants. The distinction is also about the product: our assets are simple rows of shops on vehicular corridors designed for convenience. Customers often spend less than seven minutes on our assets; they come for convenience rather than to cross-shop at destination stores. Our job is to generate as much rent as we can from creditworthy tenants who benefit from the high traffic counts and convenience of the locations.
Your next question is from the line of Mike Mueller with JPMorgan.
Conor, you clearly have a lot of unsettled equity to tap today. But on a go-forward basis, how are you thinking about the equity-debt mix for acquisition funding?
Mike, great question. We have just under $900 million of either cash, unsettled equity, or expected free cash flow over the course of the year, and that's offset by use to satisfy the rest of our pipeline of about $500 million. We expect to end the year with roughly $350 million to $375 million of cash, assuming no changes in the investment cadence. So for the next six-plus months, we've got the equity and cash on hand. From there, it's likely you'll see us look to the private placement market. We were active on the equity front and currently operate with a lower debt-to-equity mix in the low 20s. Going forward, our original base case assumed availability of debt, and we retain that capacity depending on pricing at the time. So it's to be determined for next year, but we have significant leverage capacity if we choose to use it.
What are you seeing today for acquisition pricing if we're looking at just one-off transactions versus buying a larger pool of comparable properties? Is there a significant portfolio premium or discount, or is it actually smaller here because of how intensive the product is?
I can start: the rest of our pipeline, which is $1 billion, is 100% one-offs. When we reference this low six cap rate, that is what we're referring to on an individual basis.
Mike, the portfolios we talk about in this asset class tend not to be very large. Often, if an owner has multiple properties, we may only want a portion of them. I don't think there's a consistent premium or discount for larger portfolio size; it's typically the sum of individual asset values.
We have reached the end of the Q&A session. I will now turn the call back to David Lukes, CEO, for closing remarks. David, please go ahead.
Thank you all for your time, and we look forward to speaking to you next quarter.
This concludes today's call. Thank you for attending. You may now disconnect.