SITE Centers Corp.

Good day and welcome to the site center second quarter 2024 operating results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Stephanie Ruiz de Perez, Vice President of Capital Markets. Please go ahead.

Thank you. Good morning and welcome to SightCenter's second quarter 2024 earnings conference call. Joining me today are Chief Executive Officer David Lukes and Chief Financial Officer Connor Fenerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at www.sightcenters.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 of the SEC, including our most recent report on Form 10-K and 10-Q. In addition, we'll be discussing non-GAAP financial measures on today's call, including FFO, operating FFO, and same-store net operating income. Descriptions and reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning. I'd like to start by thanking all of my colleagues at Site Centers for their tremendous efforts over the past few quarters. The dedication, flexibility, and thoughtful execution from the entire organization has been astounding. The results we announced today showcase the significant progress we've made on our strategic goals as we prepare for the planned spinoff of the convenience portfolio from within Site Centers into a new and unique focused growth company called CurbLine Properties. We closed nearly $1 billion of transactions in the quarter. We purchased or retired over $50 million in debt and reported 24% trailing 12-month new leasing spreads for the CurbLine portfolio. Each of these accomplishments mark additional progress on the dual path of growing our CurbLine portfolio through acquisitions and organic NOI growth and maximizing the value of the site center's portfolio through dispositions along with continued leasing and asset management. As we march closer to the spinoff date expected in October, we've spent considerable time with the investment community and have consistently heard two main questions. First, what is the genesis of the Curb Line strategy, and how big of an opportunity does it represent? And second, what will site centers look like at the time of the spinoff, and how do we plan on maximizing value for all stakeholders? So I'll start with those two questions, talk briefly about staffing and Curb Line acquisitions, and then conclude with the second quarter operations before turning it over to Connor to talk in greater detail about results and the outlook for the second half of the year. Starting with CurbLine, we began investing in convenience assets over five years ago as we witnessed the strong financial performance of the small format asset class. Retention was high, credit was strong and diversified, and the CapEx load was extremely low. Importantly, mobile phone geolocation data also emerged during this period as a sophisticated and new tool that we could utilize to identify underwrite and provide hard facts around our 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 as we transitioned through the pandemic years two outcomes became notable first the capital efficiency of the business became increasingly important as capital itself became more expensive and valuable. In other words, the significantly higher conversion of top-line rental income down to property cash flow helped offset higher capital costs while also generating compounding cash flow growth. Second, the sector has kept up with inflation remarkably well. Lease duration in general in the curb line portfolio is shorter when compared with properties with a traditional anchor. This is certainly an opportunity as the increase of customers throughout the week with suburban communities due to population growth and flexible work mandates have steadily increased demand for convenience-oriented real estate from tenants seeking to access those customers, resulting in higher tenant retention and higher rent growth. In other words, this is a renewals business where we can capture growing market rents with little landlord capital, as most tenants are renewing leases since there is a shortage of high-quality convenience real estate in suburban communities. To that point, same-store NOI for the curb-line portfolio is expected to average greater than 3% for the next three years when factoring in all of this. These combined attributes, capital efficiency and strong top-line growth, have led numerous investors to ask us about the addressable market for convenience properties. We now have five-plus years of transactions data under our belts and arguably own the highest quality portfolio of convenience assets in the United States. Despite that fact, what we own today represents only one-quarter of 1% of the 950 million square feet of total U.S. inventory, according to ICSC. As of quarter end, the CurbLine portfolio included 72 wholly owned convenience properties, or 2.4 million square feet of real estate, expected to generate about $84 million of NOI. These assets share common characteristics, including excellent visibility, access, and we believe compelling economics highlighted by limited CapEx needs. We continue to expect the spinoff to be completed on October 1st of this year, with CURB capitalized with no debt and $600 million of cash. Given a substantial disposition activity to date and consistent with our commentary from last quarter, we now no longer expect CURB to retain a preferred investment in site centers, which is a good segue since proceeds from the sale of site centers' portfolio of anchored properties has been used to facilitate an unmatched balance sheet for CURBLINE. As a result, I'll spend a moment on the expected strategy for site centers after the spin. As of last Friday, we have closed $951 million of wholly owned property sales year to date with total closed dispositions since July 1st, 2023 of just over $1.8 billion at a blended cap rate of 7.1%. As of Friday, the company has over $1 billion of additional real estate currently either under contract, in contract negotiation, or with executed non-binding LOIs at a blended cap rate in the mid-sevens. Although we expect some of these transactions to close pre-spin, others will close in the fourth quarter, and some may fall out. As a result, we are not in a position today to quantify the site center's portfolio at the time of the spinoff and expect to update disclosure on the portfolio itself as we near the spin date. What we can say is that site centers post-spin will contain a diversified portfolio, including assets in major markets with strong tenant sales, and we remain flexible and open to a variety of outcomes and the eventual path to creating value for our stakeholders. In terms of potential buyers and activity, the pool of interest remains deep and it remains an active and liquid market for our portfolio of open-air shopping centers. Leasing momentum remains strong, market rents are growing, and replacement costs remain elevated, factors we believe they're supporting strong buyer interest. In addition to considering further asset sales, we will continue to focus on leasing and asset management and listen to the signals from the public and private market with respect to valuation and expect to act on those signals as appropriate. Shifting to post-spend staffing, both curb line and site centers will have their own leasing and property management teams along with dedicated accounting and legal leadership. Other departments and staff will remain within site centers and be utilized by both companies under a shared service agreement, including the accounting, legal, and IT departments, among others. The purpose of this agreement is to facilitate an orderly transition of our current resources and allow each company to pursue its business plan with as little G&A friction as possible. It's an elegant way to maintain historical portfolio knowledge keep the talent on our team intact, and allow flexibility to execute each business plan. More detail and clarity on the shared service agreement will be provided in the Form 10. Moving to acquisitions, we acquired five convenience properties in the second quarter with total acquisitions at share of $65 million, including our partner's interest in Meadowmont Village in Chapel Hill, North Carolina. The convenience portion of this property is expected to be included in the curb spinoff We closed another $27 million of acquisitions in the third quarter to date and have over $200 million of additional convenience assets awarded or under contract, subject to our completion of diligence. Average household incomes for the second quarter investments were over $117,000, with a weighted average lease rate of over 96%, excluding metamount, highlighting our focus on acquiring properties where renewals and lease bumps drive growth without significant capex. As I noted, going forward, we remain encouraged by the unique opportunities in the convenience subsector, including the size of the opportunity itself and have plenty of room to grow. And combined with a balance sheet that is expected to have no outstanding debt and substantial liquidity, CurbLine Properties has the opportunity to generate compelling and elevated relative growth and returns for stakeholders. Ending with operations, Overall quarterly leasing volume was up sequentially again, despite a materially smaller portfolio and less availability. Leasing demand continues to be steady from both existing retailers and service tenants expanding into key suburban markets, along with new concepts competing for the same space. Despite the strength of execution from our leasing team, our lease rate was down 100 basis points sequentially, in large part due to the sale of assets with an average lease rate of almost 97%. In terms of leasing spreads, we added new disclosure in the supplement this quarter, breaking out activity for CurbLine. Leasing activity, velocity, and economics continue to improve as we grow this portfolio, highlighted by almost 50% straight-line new leasing rent spreads for the trailing 12-month period. Recent new and renewal deals include a number of first-to-portfolio and recurring national tenants, including CAVA, Panda Express, Wells Fargo, the UPS Store, LensCrafters, and Comcast. Before turning the call over to Connor, I want to thank, again, everyone at Site Centers for their work these past few quarters. There is no shortage of individuals and teams across the company who have worked tirelessly to position both Site and CurbLine for success, and I'm extremely grateful for all of their contributions. And with that, I'll turn it over to Connor.

Thanks, David. I'll start with second quarter earnings and operations before concluding with updates to our 2024 outlook. including balance sheet moving pieces heading into the expected spinoff date. Second quarter results were ahead of budget due to better than expected operations, including higher than forecast lease termination fees and a number of other smaller positive variances. In terms of operations, leasing volume was sequentially higher, to David's point, despite a smaller asset base. With this smaller denominator, operating metrics for both site and curb remain volatile, Though based on the leasing pipeline at quarter end, overall leasing activity and economics remain elevated, and we remain encouraged by the depth of demand for space. As David noted, we did break out curb line leasing activity and spreads in the supplement this quarter. It is important to note that curbs leasing spreads include all units, including those that have been vacant for more than 12 months, with the only exclusions related to first-generation space and units vacant at the time of acquisition. Additionally, the curve lease rate was negatively impacted by the acquisition of vacant space at Meadowmont Village, which represented about half of the sequential change, and the recapture of two vintage restaurant pads, which accounted for the remainder. Both pads, one in Phoenix and the other in Orlando, have an identified backfill user with an expected blended 75% mark-to-market on the new deals. Moving to our outlook for 2024, we are extremely excited to form and scale the first publicly traded REIT focused exclusively on convenience assets with an expected spinoff date of October 1st. And based on the site mortgage commitment announced in October, along with recent transaction and other financing activity, we have positioned both site and CurbLine with the balance sheets that they need to execute on their business plans. As a result of the plan spinoff, and significant expected transaction activity, we did not provide a formal 2024 FFO guidance range. We did provide projections, though, for total portfolio NOI for the site and CURB portfolios, which have been updated to reflect first half 2024 acquisitions and dispositions. For the CURB portfolio, total NOI is now expected to be roughly $84 million in 2024, up from $79 million. at the midpoint of the projected range before any additional acquisitions, and same-store NOI growth is expected to be between 3.5% and 5.5% for 2024. For the site portfolio, total NOI is now expected to be $201 million at the midpoint of the projected range before any additional dispositions, and includes only properties owned as of June 30th. Details on the assumptions underpinning these ranges are in our press release and earnings slides. In terms of other line items, we continue to expect JV fees to be about $1.25 million and G&A to be about $12 million in the third quarter. Given the significant cash balance on hand, interest income remains elevated at almost $9 million for the quarter, though that figure will come down over the remainder of the year as we use the cash on hand to repay debt. On that point, in the second quarter, we repurchased just under $27 million of unsecured bonds at a discount resulting in a gain of approximately $300,000. Finally, transaction volume, particularly the timing of asset sales, is expected to be the largest driver of quarterly FFO, and the second quarter included $11.2 million of NOI from assets sold in the quarter, as detailed in the income statement. Moving to the balance sheet, in terms of leverage, at quarter end, debt to EBITDA was just over three times, and cash on hand was over $1.1 billion. We continue to expect to close the site center's mortgage facility, subject to the satisfaction of closing conditions, sometime in the middle of the third quarter, with proceeds along with cash on hand expected to be used to retire outstanding unsecured debt, including all outstanding unsecured notes and the unsecured term loan. Details on the projected capital structures for both site and curb can be found on page 11 of the earnings slides. For curb line properties, the company at the time to spend is expected to have no debt and $600 million of cash. As David noted, curb line is no longer expected to have a preferred investment in site centers. This highly liquid balance sheet will allow curb line to focus on scaling its platform while providing the capital to differentiate itself from the largely private buyer universe acquiring convenience properties. Finally, prior to the spinoff, we expect to provide additional details on the portfolios run rates, and balance sheets of both site and curb line pro forma for third quarter to date transactions. And with that, I'll turn it back to David.

Thank you, Connor. Operator, we're ready for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Dori Keston with Wells Fargo. Please go ahead.

Thanks. Good morning. Can you remind us what the timing is for the Form 10?

Sure, Dori. I would expect it would come out sometime in September.

Okay. And for the assets under contract or letter of intent currently, can you give us a sense of the type of bidders you're seeing and the level of competition and just how that compares to what you saw with your initial sales?

Sure. I would say that the bidders – I think that have emerged over the past, what, John, six or nine months have kind of fit into three categories. There's the private buyers that generally are local families, family offices, and they've usually been unlevered buyers. Then there's been the kind of traditional private equity funds that have raised capital and are looking at open-air properties. And then the third group have been the kind of traditional spread investors, which include a lot of the institutions. So those three groups make up the bulk of what we've seen from the bidding tent. And the pricing can be quite wide between all three of those, depending on which one's most active. And I think that story probably explains most of what the bidding's been looking like in the last six or nine months, and I don't think it's really changed.

Okay. And you did say what's under contractor LOI is in the mid-7% range? Yes. That's correct. And then last, regarding the 7% long-term cap rate spend as a percentage of NOI, In the last few quarters, it's been a little bit higher than that, I guess closer to 10%. I guess can you explain what that has to do with? Is it the size of the space being filled? Is it about retention? Or is it the incoming tenant?

Yeah, Dori, it's a function of a couple of things. And I would just caution, just as I noted, the pool is small or the dominator is small. So just you could have one deal move things positively or negatively. To your point, we've been trending below 10%. The last couple quarters just tipped up. And that is solely a function of just increased leasing activity. Similar to anchored portfolios coming out of COVID, there's just been a lot of demand. And so just the overall volume has increased relative to historical standards. But I would just tell you our confidence in that number, you know, kind of remaining sub-10% over the long term is incredibly high, just given the property type and the site plans that we're buying.

Okay.

Thank you. Welcome. Thanks, Lori.

Our next question comes from Craig Mailman with Citi. Please go ahead.

Hey, good morning. Connor, you know, you noted that one asset that you bought and, you know, one kind of vacate move, the occupancy numbers here, almost 120 basis points. I'm just kind of curious, as you guys continue to build out Curb, kind of the plan on mixing in, you know, fully stabilized deals versus, some deals with some level of vacancy as you guys put the portfolio together, just as we can think about kind of as it's a smaller portfolio growing, the variability in occupancy and kind of timing of NOI commencements.

Sure, Craig. Good morning. It's David. I'll start and then see if Connor can fill in what I've missed. But yeah, In general, this asset class is a highly leased asset class. There's not enough square footage for the demand right now from convenience tenants. And as we look at our historical data, I think that remains true even through recessions and the pandemics and so forth. So I would expect the occupancy volatility to be less than a traditional anchored property. And what that means is, as we're buying, we're really not buying vacancy. We're buying stabilized assets. And the best way to describe that is we're buying and growing a renewals business where we expect to be capturing mark-to-market with low capex. Every now and then, we're able to find a property that was undermanaged and may have some vacancy upside. But for the most part, we're buying stabilized properties that have mark-to-market opportunity.

Yeah, to David's point, Craig, I mean, I think our average lease rate on what we require, including Metamon, has probably been north of 98%, 99%. Maybe there's one small vacancy, to David's point, that might be recently vacated, and that's one of our upside opportunities. But in general, our confidence in this portfolio running between 96% and 98% lease, which is consistent with the last 10-plus years, is very high.

Is there a significant or any kind of yield difference on taking that lease up risk from maybe a local owner versus buying something fully stabilized?

Not really. And I mean, honestly, there's just not many assets for sale that have vacancy. You might find one shop here and there, but honestly, the competition for this type of property is pretty strong from local investors and sellers are being paid for that vacancy. So if there is a vacancy, it's going to show up in the cap rate. So I think that when we look at the economics and we run our models to figure out what's the best risk-adjusted return, buying existing tenants that have renewal upside is just a better risk-adjusted return than paying extra for a vacancy and trying to generate a lot more growth, especially at scale. If you think about the volume of assets we're buying, there's not that much vacancy in the country for the high-quality properties in high-income neighborhoods. So I think what we're looking for is strong credit, strong occupancy, but a big mark to market and hopefully a shorter weighted average lease term.

That makes sense. And then You guys are 13% West Coast today. I don't know what the breakout of California is of that, but are you guys kind of less interested at this point given the minimum wage issues going on because you guys do have a fair amount of probably fast food, fast casual in that portfolio that you're building?

I think, Craig, we said we're focused on creating a really high-quality diversified portfolio. There are times, to your point, where certain geographies might lag others. I think our confidence in high-income metros throughout the country, whether the top 20, top 25, top 30, whatever it might be, is high. So you're right. There might be some headwinds in California. There's no mandate internally to grow or avoid certain geographies outside of our goal of just having a well-diversified portfolio.

Well, then just one last quick one. I know the Form 10 isn't out yet, but... As we think about kind of the final structure for site, is it going to be fairly clean from a change of control or other friction costs to make it more saleable? Someone wants to come in and just buy the rest of the assets without having to kind of pay a platform value for a company that's essentially liquidating?

Yeah, I would say that the cleanliness of site centers should be very high, and I think it has a lot of different options for potential outcomes. I think the board and the management team are open-minded as to what those outcomes are, and we're trying to do everything we can to structure it so that it's a pretty simple business. Great. Thank you. Thanks, Greg.

Our next question comes from Todd Thomas with KeyBank Capital Markets. Please go ahead.

Hi, thanks. Good morning. First question, appreciate the curb leasing activity breakout. You know, pretty strong new lease spreads there in the quarter, almost 100%. David, you talked about high retention in the convenience segment. It's a renewals business with lower capex. But I'm just curious if you see a little bit of a more, you know, significant opportunity to capitalize on better merchandising in the near term with, you know, better rent growth and mark-to-market opportunities. higher turnover over the next, you know, maybe couple of years for the pro forma curb portfolio?

Good morning, Todd. I think that's unlikely. I think if you look at the tenant roster, it's a pretty well diversified group of high credit tenants. Even when we buy, you know, local shops, we're making sure that we like the tenant credit and We feel like there's strength in the operations. We feel like the tenants have been in business for a long time. I think the risk-adjusted returns for this asset class have more to do with finding successful businesses, successful tenants, and increasing the rents along with their increased profitability as opposed to buying properties and effectively redeveloping or re-tenanting. I think that's somewhat unnecessary because we're buying front row tenants. very convenient properties that usually have already attracted the best tenants. And so I just don't think it's necessary to do a whole lot of tenant recycling.

And to that point, Todd, I mean, think about our forecast for same store for the next three years. The kind of assumptions underpinning that don't require us to significantly turn over the asset base and to kind of tie that into Dory's question. That's why the CapEx percentage in Hawaii is so low. You know, this is a renewals business. We're pushing rent at maturity. it is not to re-tenant or re-merchandise or change over the tenant roster of any of these properties.

Okay. And then I guess like sticking with that a little bit, you know, the capital efficiency of the segment within retail, you know, you mentioned that you've looked at, you know, sort of a history of operations for these types of assets, you know, through the pandemic and the later cycle. I think you said about five years or so. But, you know, it's been a little while since we've gone through a traditional cycle, certainly more than five years. And I'm just curious how you think the portfolio would perform if the economy were to go through a cycle where some of the, you know, potential risk might be, you know, you have about 30 percent of the portfolio occupied by nonnational tenants, the relatively high exposure of, you know, food and restaurant tenants. You know, how are you thinking about that if we were to go through a little bit of a broader, you know, economic cycle?

Yeah, Todd, it's Connor. The five years that David referenced was just on transactions activity. We've been buying these assets for five years. To your point, we've gone back much further than that, and the carve-out portfolio is a great proxy for how we think this portfolio will perform during recession. We will lose occupancy, right, in any recession similar to any property type in the real estate industry. Generally, NOI growth is correlated GDP growth, the two-quarter lag, right? That's not unique to this. But what's fascinating is if you look back for the last 15 years, including through the GFC, this portfolio actually had higher occupancy and higher lease rate than the anchor portfolio, meaning the carve-out versus the rest of the property, which is a little counterintuitive to your point on shops and traditional risk and associated risk of shops. But I think to David's point, we are solving for credit. And generally, tenants that operate on the curb line of major vehicular corridors are credit tenants. They're not the locals. Generally, the locals are back in line. The last thing I'd point to you is you're right, we're 70% national. If you look at how that compares to the rest of the pure group or kind of broader retail property formats, that's at the very high end of that range. So, again, I feel like we're really well positioned. If there is a recession, this portfolio, like any portfolio, would lose occupancy, but there's a lot of kind of risk mitigants we put in place. Some of those are structural, like the property type. Others are just how we solve for acquisitions and solving for credit. The last thing is where there's a local, to David's point, we look for seasoning, how the vent recycles, particularly if it's a local restaurant, whatever it might be. But, again, I do think there's a lot of risk mitigants in the portfolio that help cushion us in the event of any kind of shock to the system. I don't know if that answers your question.

Yeah, that's helpful. All right, thank you. Thanks a lot.

Our next question comes from Samir Canal with Evercore ISI. Please go ahead.

Hey, David, good morning. I guess just in terms of conversations picking up on the disposition side, Have you seen any of that happen given what the 10-year yield or the interest rates have done over the last, let's call it 90 days, since the last call? I mean, I know you talked about the pipeline of about a billion. I was trying to gauge a little bit more on how much you can potentially sell before the spin. Thanks.

Yeah. Good morning, Samir. I mean, I think if you're thinking about how much more there could be, I wouldn't look past what we've said we have, you know, awarded or under contract or under LOI. I mean, that's a – a pretty current analysis of where the pipeline is today. Have we gotten more calls in the last couple weeks? No. But I think the level of interest from buyers over the last nine months has been so high that I don't really see a notable change in the temperament due to rates potentially going down. I mean, one of the things that you and I have talked about in the past is it's been very interesting. A lot of the buyers in the last nine months have been unlevered buyers. You know, a lot of family offices have local real estate investors. And, you know, they look at open-air shopping centers. They see what happened during the pandemic. They look at the collections rate. And they really have not been all that dedicated to leverage. And so I'm not sure it's making a huge difference with what we've been selling lately.

Okay, got it. And I guess on just the acquisitions, I don't know if you disclosed the cap rate on the CurbLine convenience items you're buying. What's been the cap rate on that?

Well, we've been kind of just around six and a half from a GAAP perspective. There's not a material difference between GAAP and cash, but round numbers, we've been around six and a half, Samir.

Okay. Thank you.

You're welcome.

Our next question comes from Floris Van Dijkum with Compass Point. Please go ahead.

Hey, guys. Thanks for taking my question. Morning. You guys are avoiding the trap that small cap REITs fall into, which is typically they have lots of leverage. CurbLine is going to have zero leverage, and you're going to have a – and cash, with which you basically almost double the NOI from CurbLine before you have to go back to the market. So that's – I mean, to me, that makes this a unique story besides some of the other things. I just have a question, a couple questions, I guess. Number one, how much – is there a significant difference in OCR between your national and local tenants? I think you're around 28% local. And how concerned are you – in the ability to push rents higher, and at what level does, and to where, to the extent that you have that information, obviously, but to what extent, you know, is there going to be a ceiling in terms of where you can push your OCR to, particularly for your local tenants?

I'll let David handle that one for us. I mean, it's funny. I actually was looking at that data yesterday as part of our curb line of credit process, What's fascinating is the lowest occupancy cost ratios in the portfolio happen to be some of our local restaurants, which intuitively you think is probably one of the higher OCRs. I guess to answer my question to Todd, or echo back to my response to Todd, excuse me, look, if sales dip, it's going to put pressure on OCRs. So I think this business is correlated to GDP growth, sales growth, etc., But I would just tell you it's one factor we look at upon many in terms of underwriting, and there's a pretty healthy cushion. David, I don't know if you responded differently to that.

Yeah, the only thing I'll add for us that I find really interesting is that when you have small format spaces, you know, 30 by 60, so it's an 1,800-square-foot unit, there's hundreds of businesses that can occupy that space close to the customer and, you know, up along the curb line. And you are right, to a certain extent, on the positive side, if things are going really well, you might have a tenant that has an occupancy cost ratio that's kind of at their max, and you can only get so much in a rent renewal, whereas a big national high credit tenant that has more sales might be able to pay more. And that has happened a number of times. It's particularly happening in Miami right now, where when we have local tenants expiring, the nationals can simply pay significantly more. So we have been doing some tenant recycling when those local tenants run out of bandwidth to pay more rent and the market rents are higher. On the other hand, I do think that this type of business keeps up with inflation pretty well simply because most of these tenants are able to raise their sales along with inflation and we're able to keep up with the rents at the same time. So I guess I feel like there will be some recycling of tenants when we want to really push rents high. But on the other hand, I think we're very focused on the low-capx nature of it, and we're pretty dedicated to being a renewals business. So we're trying to find tenants that we buy that have been in the property for a long time and have a proven track record.

What is that renewal percentage today, and what is that average over the last five years?

Yeah, so for nationals, it's mid-90s. This last quarter is 100% for nationals. For locals, it's been about mid-80s. So blended over the last seven years, it's called been, you know, depending on the quarter, anywhere between 80 and 90% for us.

Wow. Okay. Another question for you guys in terms of debt strategy for curb going forward and Connor, I guess that's more towards you, but you're not going to have any debt to begin with. Is your view that you want to build up a higher pool of unsecured assets and then tap the unsecured markets? or would you be relying on select mortgage as you make more acquisitions and you deploy some of that, you know, the $600 million of cash?

Of course, it's a great question, and the nice part is we've got a lot of flexibility and time to think about it. If you look back historically for the last seven years at site centers, we have been an unsecured borrower. We like that market. We think it's really attractive. We've also maintained relationships with LIFCOs and other mortgage providers because, we like to have kind of all the arrows in the quiver, where there are times when the unsecured market's closed, and it's great to have those secure relationships, and vice versa. So I think it's fair to assume we'll operate a similar balance sheet strategy with Curb. To your point, though, on day one, we have a fully unencumbered pool, which provides a lot of flexibility and optionality. So again, not at the risk of reiterating what I just said, I think you'll see a little bit of both. But just given the size of properties, the unsecured market is definitely more efficient for CURB, and it's likely we tilt that way, similar to how site centers have operated the last seven years.

Great. Thanks, guys.

You're welcome. Thanks, Loris.

Our next question comes from Ronald Camden with Morgan Stanley. Please go ahead.

Hey, just a couple quick ones. One on the sources and uses. I think I'm looking at $115 million of acquisitions expected in 3Q, $446 million of sales, I think, expected in 3Q as well. just on the acquisition front, is that are all those already sort of in the pipeline under contract? How much of that is speculative and so forth?

Good morning, Ron. So none of it is speculative. To David's point, we have $200 million plus, you know, awarded to us. That figure is what we feel confident on closing prior to the spin-off date.

Great. And then, look, my follow-up was just going to be on the – is it fair to say the transaction activity – has been even sort of greater than you sort of anticipated when you started this process initially? Because now if you could do sort of 100 million of acquisitions plus or minus in a quarter, you know, you're going to be able to do, you know, 300, 400 million plus annually. Is that sort of the right way to think about it, sort of post-spin, you know, acquisition run rate on an annual basis for us to think about?

Yeah, Ron, I assume you're talking about have we been surprised on the transaction activity, meaning on the sales or on the buy?

Both, but I was talking more on the sales, but I think you guys have been doing more on the buy as well.

Yeah, I think, I mean, we've mentioned to a number of people in retrospect that we had a high degree of confidence that we could sell high-quality assets, but we were unprepared for the level of interest, and I think the sales activity has far exceeded our expectations in terms of pace and pricing. On the acquisition side, that's actually been a little bit of a challenge because there's only so much time in the day with the transactions team. And given how much has been sold in the last nine months, it's just a time allocation of how much can you allocate towards the acquisitions front. But if you look at $200 million that's been awarded to us, we feel pretty confident that we can support our previous statements that this business, we feel pretty confident we can buy about $500 million a year. So, you know, that would be $125 million a quarter, and I think that fits pretty well with what we have been awarded to us to date. So it feels like that run rate, our confidence level is pretty high. Great.

That's it for me. Thanks so much. Thanks, Ron.

Our next question comes from Linda Tsai with Jefferies. Please go ahead. Yes, hi.

What's the average weighted lease term for CURB's current 72 centers, and what do you see as ideal for balancing risk and reward?

Hey, Linda, it's Connor. It's about five years right now. I think it's like 5.2 years as of June 30th.

Yeah, I mean, in terms of ideal, Linda, there's only no such thing as an ideal because when you're buying stabilized assets that have in-place leases, I would say the vault is going to be between, you know, four and five and a half years consistently. It's hard to really see a portfolio grow that's not in that range.

I think the variance is that WALT might not be dissimilar to an anchor property. The variance is there are very few leases that are out double digits, meaning there are no tenants that generally have control for 15, 20, 25 years that have the massive market. And so you might have a fresh 10-year term in there, to David's point, a couple mid-option tenants, and then all this kind of blend of plus or minus five years. But it doesn't impact the liquidity or the ability to drive growth or rental growth in the near term.

Thanks for that. And then the comment that the local tenants might run out of bandwidth to pay higher rents, are there any other metrics besides OCR you're monitoring to assess that?

Yeah, the cell phone traffic data. I mean, that's been one of the primary tools to understand the, you know, we don't know basket size specifically, but we certainly can look at historical trends of customer visits. And that has been helpful in understanding when we would like to renew a tenant and when we think we can do better.

Got it. And then the $1 billion under LOI or, you know, under contract in the mid-sevens, would that pricing look any different 12 months ago?

Just to clarify, we said over $1 billion under contract or LOI?

Would the pricing look different a year ago? That's a good question. I don't know, Linda. That's a really good question. It's hard to speculate.

Okay. And then in terms, I think you said it was like 950 million of, well, square feet from ICSC. That kind of fits convenience centers. But how much of that do you think qualifies with, you know, the 117,000 HHI, good visibility, good economics, like you were talking about earlier for what you're targeting for your portfolio?

I would say as we've been tracking all of these transactions for the past five years and we look at how many deals we've underwritten and what we have made offers on, it's been around 15%. And so if you take that as a proxy and say, well, 15% pass all of the hurdles and thresholds and underwriting standards, You know, 15% of $950 million is still a substantial growth opportunity, and that to us feels like why our confidence level that this is a real growth story is pretty intact.

Thanks.

Thanks, Linda.

Our next question comes from Alexander Goldsherb with Piper Sandler. Please go ahead.

Hey, good morning. Two questions here. First, just all this conversation on the efficiency of the convenience assets and that it's really a mark-to-market story. It's not necessarily a replacement story or a lease-up story. It sounds like from an efficiency, overall platform efficiency, curb should be, you know, I don't know how many points better, but it should be some material magnitude more efficient than site center's. Is that a fair assessment? And if that is, is there some metrics that you can provide on overall corporate efficiency? Like is this platform, you know, 500 basis points more efficient or how do we gauge that given all the positives that you said about managing the portfolio?

Alex is Connor. The short answer is yes. Um, the longer answer is what we said publicly is that we think curb can be as efficient as site. Um, once it's fully invested, um, which I think is a very good kind of proxy to use for the first couple of years. But then you're right. As you bolt on and grow to Forrest's point and a couple other points around growth, you should run a much more efficient platform. There are also some real benefits of the spinoff where we're looking at other efficiencies and abilities that kind of boot up a kind of startup-type mentality from a whole host of other perspectives from department-wise, IT, et cetera. So there's a lot of optionality. There's a lot of efficiencies in business. But the short answer is yes.

Okay. And then the second question is just going to that huge demand for your traditional assets, but it doesn't sound like you're facing a similar competitive pool for the convenience assets. So what's going on in the buyer base? I mean, or are you seeing the same amount of buyer interest in convenience assets that you're seeing when you sell the traditional assets? Just trying to understand because From what you're describing, it would seem like the convenience assets should be highly desirable, equal to the assets that you're selling, but maybe you're going to say, hey, it's really a yield play for the private buyers. They'd rather buy stabilized mid-7s than buying a 6.5.

Alex, good morning. It's David. I would say I don't want to give the impression that there has not been competition buying convenience assets. I mean, there have been competition. every situation has involved a lot of bidders going after the same properties. We just happen to have a couple of benefits. One is we're national, we're unlevered, and we can do due diligence quickly and close quickly. So I think we've been a preferred buyer for sellers, but it is a very desirable asset class. It's historically owned by local private wealth within these secondary markets, and so we're usually one of the few institutions to show up looking at these types of properties, but it's definitely competitive. I mean, you know, cap rates are definitely competitive on the convenience side for sure.

Okay. Thanks, David.

Yep.

Our next question comes from Paulina Rojas with Green Street. Please go ahead.

Good morning. You have a same property and life growth guidance for curve line of 3.5 to 5.5. How is the portfolio doing year-to-date? And the range feels a little wide, so I'm intrigued about the swing factors behind that guidance.

Hey, Paulina. Good morning. It's Connor. You're right. The range is wide. To my comments in our script, look, it's a small denominator, so there could be some more volatility variability, you know, a couple hundred thousand dollars either way. But our confidence in that range is very high right now. We're running kind of midpoint to the higher end of it. And we haven't had any credit issues to date. So you think about the major bankruptcy headlines that have impacted some of the anchor properties. We haven't had any of those. To my earlier comment or response, retention has been very high. So we feel really good about it. It's just the function of having a really small denominator that is allowing us or pushing us to have a little bit wider range than normal.

Okay. And then I think your expectation is for curb lines and property NOI to grow at

and more than three percent can you remind us of the different components and behind the three percent plus three percent sure so bumps plus national options gets to kind of low twos mark to market and some occupancy growth gets you to kind of mid to high threes and then some credit loss probably pushes you to low threes those components could change over time right just as as occupancy gets higher in the portfolio But generally, that's the math behind it.

And regarding occupancy, I know you have mentioned a couple of times that you are acquiring stable assets. So is it fair to assume that your current lease rate is or that we shouldn't expect your lease rate to climb higher from where it is today or you see farther occupancy gains from where we are?

We see the commensurate we expect to be higher. So this portfolio generally, we think, I think I made the comment earlier, can run kind of 95% to 98% least. We're at the lower end of that range right now. We have a pretty decent-sized S&O pipeline to push that back higher. So, yeah, there is some occupancy upside in the portfolio today. Thank you. You're welcome. Thanks, Paulina.

Our last question comes from Keebin Kim with Truist. Please go ahead.

Thanks for the morning. Just a couple of follow-ups on the six and a half percent gap cap rate on the acquisitions that you're looking at. Does that include any lease mark to market upside?

Yeah. So the gap cap rate would, but to my point, keep in the gap between cash and gaps, no pun intended. It's pretty skinny. It's not like you're buying an anchor property with a, you know, a $2 rent that market's 10 and you've got this, you know, three going in yield that becomes a seven. You know, I bet you the cash yield is probably 635 and the gap yield is 65.

Okay. And for Curb longer term, is there somewhat of an optimal mix for tenant mix or credit profile that you're looking at as you build this portfolio?

I think tenant mix, not necessarily, but credit, yes. We've heavily tilted towards credit. I think that it's going to be a balancing act of measuring credit with growth, and a lot of the growth comes from local shop tenants, but that also comes with some risk. So over time, as we get the portfolio enlarger and larger, we'll settle in on that right ratio between credit and non-credit, but I think the credit component is more important than the actual tenant roster mix.

Yeah, one of the things we like the most about this portfolio, keeping in this concept, if you look at page 15 of our slides, our tenant concentration is incredibly low and should continue to improve. And so to my earlier response on credit and credit risk, one of the massive mitigants of this portfolio is that there are no kind of major tenants where if they file for bankruptcy, start to close stores, you see this dramatic sudden impact to earnings or NOI for a certain year, and you have these kind of quote-unquote transition years that you've seen in other kind of anchor portfolios. So to David's point, one of the credit mitigants is the fact that you've got this massive diversification from a tenant perspective that is, in our view, one of the strongest and most compelling aspects of the portfolio. Thank you.

Thanks for that. And just last quick one, what was the cap rate for the assets that you sold end of quarter?

The asset we sold end of quarter? Sorry, help me out.

Yeah, the dispositions in 2Q, what was the cap rate?

Oh, I think it was a 7.1 or 7.05. And the blended to date on the $1.8 billion has been 7.1. And I think if you just do the math on the ranges for NOI ranges, the variance quarter per quarter, I think it's a 7.1. But I can come back to that.

Okay, thank you.

You're welcome.

Our next question comes from hung thing with JP Morgan. Please go ahead.

Yeah. Hey guys. Um, I guess what, what would you, what do you think would be the normal, at least the occupied gap for the curb line portfolio compared to, I think the 220 basis points today?

Yeah, it's a good question. I mean, my guess is closer to a hundred basis points. Um, you know, one of the things we like about the property type is, you know, you're not, there aren't dramatic redevelopment projects or, you know, repurposing or reimagining, to use some of the words I've been using in the retail space the last couple of years, it's just releasing. And so the odds of or the timeline to back down a shop with another shop to David's point that's 30 by 60 is pretty short. So that will lead to a tighter S&O pipeline or S&O gap versus other property types. So round numbers, I bet it's about 100 basis points.

Got it. And I guess how do lease options differ in the curve portfolio compared to, I guess, the site standalone? or it's more traditional anchored centers?

They don't. I mean, a national lease in the current portfolio is no different than in an anchored portfolio. It's a 10 and two fives. A local might have one five or no options, but still a 10-year initial term. So there's really no difference, except for the fact that the number of options in a lease will be dramatically lower, meaning, I think I answered this in an earlier response, you're not going to see any tenants with control for 30 or 40 years with a $4 lease that you just can't get at. You're going to see, at most, two options on the back end. And to David's point, we generally are buying 100% leased or seasoned properties. So the number of tenants that have control past, you know, making itself 20, 34 is really skinny. You can probably count them on one hand. Yeah, perfect. Thanks. You're welcome, all.

This concludes our question and answer session. I would like to turn the conference back over to David Luke, Chief Executive Officer, for any closing remarks.

Thank you very much for joining our call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.