Curbline Properties has a $500 million acquisition pipeline as it accelerates building out its portfolio of convenience shopping centers, or strip malls, a retail real estate sector it says has plenty of runway.
New York-based Curbline, spun off from Site Centers in October as a standalone company, on Thursday reported that year to date it's acquired 16 properties for $139 million. On top of that, the firm has more than $500 million of additional properties under contract or awarded with executed letters of intent, the company's president and CEO David Lukes said on a first-quarter earnings call. Most of those deals are slated to close late in the second quarter or early in the third quarter. That's all a brisker spending spree than the company originally expected.
Curbline, which now has 107 centers totaling 3 million square feet, bills itself as the "first public real estate company focused exclusively on convenience properties located on the curbline in the wealthiest submarkets" in the United States. Beachwood, Ohio-based Site, before it spun off Curbline, began investing in strip malls seven years ago.
The properties — loosely defined as retail sites without a big-box or grocery store to anchor them — have high tenant retention and low capital expenditures, according to Curbline, which is why the company sees them as a profitable retail real estate play for a landlord. And the demand for space from tenants, in a market with retail vacancies are low, is high, according to Lukes.
"Retail and service tenants recognize that a significant portion of consumer spending is not only shopping, but running errands," he said. "These quick trips to a local convenience center are highly profitable for the tenant but need to be, in fact, convenient. In other words, tenants are willing to pay a premium to secure a superior and convenient location that's more profitable. And that's driving demand for our simple and flexible spaces."
First-quarter purchases
In the first quarter Curbline acquired 11 shopping centers for $124.2 million, followed by five more properties in the second quarter to date for $14.9 million. Those purchases included a portfolio of six centers in Jacksonville, Florida, in February for $86 million. That purchase included Carrie Plaza at 10400 San Jose Blvd. There are over 68,000 convenience centers in the United States, according to Curbline.
"We came off of Curb's [first-quarter] earnings call more enthused by the prospect for the company to thrive despite tariff uncertainty, given its focus on upscale infill convenience centers serving the daily needs of surrounding rooftops," investment bank Piper Sandler said Thursday in a note.
Curbline's original guidance was for $500 million in acquisitions this year, or $125 million a quarter, a pace the company has "significantly exceeded," according to Lukes.
"The acceleration in activity is a function of our marketing efforts as we have seen a larger number of brokers and individual sellers proactively engage with us, a change from the pre-spin environment," he told Wall Street analysts. "Assets continue to be concentrated in the affluent markets that Curbline operates already including Phoenix, Houston and Philadelphia. However, like Jacksonville, we continue to make acquisitions in new wealthy submarkets that share the key characteristics we seek, including our first property in Seattle, which were acquired subsequent to quarter-end and where we hope to scale long term."
Smaller sellers, not institutions
The vast majority of Curbline's pending purchases are with single-shopping-center owners, such as regional landlords, according to Lukes.
"Curb's acquisition business model thrives on the disruption in the lives of local owners, like death and divorce, that cause them to sell their small infill convenience centers," Piper Sandler said. "Critically, larger centers tend to be owned by institutions who are more influenced by changes in the capital markets while Curb's [less than] $15 million typical center is far more liquid and abundant."
The company's strategy sits well with Piper Sandler.
"We like management's focus on one-offs or possible 2-5 asset portfolios, which means they are only buying assets they want, not forced to take cats if they only want dogs," the Wall Street firm said. "There is also little appetite for [joint ventures], as wholly owned is easier to manage, plus allows the balance sheet to remain primarily unsecured."
The tenant roster at the Jacksonville centers includes FedEx Office, Wingstop, Verizon Wireless, Pizza Hut, First Watch, The UPS Store, and Dunkin.