Curbline Properties (CURB) Q3 2025 Earnings Call Transcript

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DATE

Tuesday, October 28, 2025, at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — David Lukes
• Chief Financial Officer — Conor Fennerty

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TAKEAWAYS

• Acquisition Activity -- Total assets acquired reached $850 million through a combination of individual and portfolio transactions during the first four quarters following the spin-off.
• Leasing Volume -- Nearly 400,000 square feet of new and renewal leases signed.
• Capital Expenditures -- CapEx has averaged 6%-7% of NOI year-to-date in 2025; CapEx for the third quarter was just under 7% of NOI, and full-year CapEx as a percentage of NOI is expected to remain below 10%.
• No Material Callouts -- Aside from higher-than-forecast NOI and lower G&A, management indicated no other significant quarterly variances, stating "the simplicity of the Curbline income statement and business plan."
• NOI Growth -- with same-property NOI up 2.6% and same-property NOI up 3.7% year-to-date, despite a 40 basis point headwind from uncollectible revenue in Q3 2025.
• Lease Rate -- The sequential lease rate increased by 60 basis points to 96.7% in Q3 2025. A February 2025 acquisition's lease rate improved from 94% to over 96% within seven months.
• Tenant Diversification -- Only 9 tenants each contribute more than 1% of base rent and only one tenant exceeds 2% of base rent.
• Balance Sheet Capacity -- Net debt-to-EBITDA is set to end 2025 below 1x with over $250 million in cash on hand at year-end, following $400 million in total debt capital raised at a 5% weighted average rate since formation.
• FFO Guidance -- OFFO (non-GAAP) guidance for 2025 raised to $1.04–$1.05 per share.
• Investment Outlook -- Expected acquisition activity for 2025 increased to roughly $750 million, compared to the original $500 million guidance, according to the updated outlook.
• Interest Expense -- Interest expense for the fourth quarter is projected at $6 million. Interest income is expected to drop to $3 million in the fourth quarter as cash is deployed.
• Cap Rates -- Management said, "Our fourth quarter blended to 6.25%," with a range "low 5s to high 6s" based on deal specifics, and select acquisitions in Q3 2025 occurred above prior quarter levels.
• G&A Expenses -- A noncash gross-up of $731,000 in G&A for Q3 2025 was offset by an equal amount of noncash other income; expected G&A for Q4 is just over $8 million.
• Same-Property NOI Guidance -- Forecast full-year 2025 same-property NOI growth at midpoint of 3.25%.
• ATM Program -- An at-the-market equity program and share buyback were both established on October 1, with no shares issued to date; management emphasized equity would only be used for "accretive" opportunities.
• Private Placement Offering -- An additional $200 million in private placement proceeds is expected to be funded around year-end at a 5.25% blended rate.

SUMMARY

Curbline Properties (NYSE:CURB.WI) management credited the outsized sequential NOI growth in Q3 2025 was primarily driven by the timing of rent commencements and acquisition volume. The increase in full-year 2025 OFFO (non-GAAP) guidance reflects operational overperformance and an accelerated pace of acquisitions. Tenant diversification continues to limit exposure, as only one tenant contributes more than 2% of rent. Curbline Properties' unsecured, fixed-rate debt access differentiates it from primarily levered private competitors and underpins its liquidity position. Higher projected interest expense and G&A in the fourth quarter are tied to recent funding activities and shared services arrangements. Average cap rates on acquisitions remain in the low-6% range, fluctuating with portfolio mix and transaction-specific vacancies, based on year-to-date 2025 activity. Management maintains that the company's growth algorithm requires limited capital outlay, supported by simple property layouts and recurring organic rent growth.

• Lukes said, "Curbline has all of the pieces on hand to generate double-digit free cash flow growth for a number of years to come."
• Fennerty stated, and clarified that most FFO growth will be driven by acquisitions and operating leverage rather than organic same-property results in the near term.
• Recent large-format acquisitions were explained as a function of zoning in supply-constrained, higher-density markets, rather than a shift in asset strategy.
• Leasing demand remains high, with record activity and prompt lease-up in recent acquisitions, supporting management's expectation of sustained strong spreads throughout 2025.
• The at-the-market and buyback programs are characterized as tools to provide future flexibility rather than signaling imminent share issuance.

INDUSTRY GLOSSARY

• OFFO: Operating Funds From Operations; a variant of FFO that adjusts for one-time or noncash items for operating performance clarity.
• Cap Rate: Capitalization rate; the ratio of net operating income to property acquisition price, used to value real estate assets.
• Same-Property NOI: Net operating income generated from properties held for the entirety of both comparison periods, excluding impact from acquisitions or dispositions.
• WALT: Weighted Average Lease Term; measures the average remaining lease term across a property portfolio, weighted by rent or area.
• ATM Program: At-the-market equity offering program, allowing the company to issue shares incrementally at prevailing market prices.

Full Conference Call Transcript

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.

Conor Fennerty: 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.

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

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

Nicholas Joseph: 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?

Conor Fennerty: 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.

Nicholas Joseph: 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?

David Lukes: 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.

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

Todd Thomas: 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?

David Lukes: 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.

Todd Thomas: 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?

David Lukes: 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.

Conor Fennerty: 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.

Todd Thomas: 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?

Conor Fennerty: 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.

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

Ronald Kamdem: 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?

David Lukes: 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.

Conor Fennerty: 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.

Ronald Kamdem: 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?

Conor Fennerty: 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 timeline to put someone back in.

David Lukes: 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.

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

Alexander Goldfarb: 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.

David Lukes: 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.

Alexander Goldfarb: 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?

Conor Fennerty: 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 timeline 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.

Alexander Goldfarb: 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.

Conor Fennerty: 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.

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

Floris Gerbrand Van Dijkum: 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?

David Lukes: 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.

Conor Fennerty: 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.

Floris Gerbrand Van Dijkum: 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?

Conor Fennerty: 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.

Floris Gerbrand Van Dijkum: 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?

David Lukes: 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.

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

Conor Fennerty: 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.

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

Michael Mueller: 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?

David Lukes: 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.

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

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

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