Hello, everyone. Thank you for joining us, and welcome to Curbline Properties Corp's third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Stephanie Ruys de Perez, Vice President of Capital Markets. Stephanie, please go ahead.
Thank you. Good morning, and welcome to Curbline Properties' third quarter 2026 earnings conference call. Joining me today are Chief Executive Officer, David Lukes, and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on 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-property net operating income. Descriptions and reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning, and welcome to Curbline Properties' third quarter conference call. Third quarter results highlight a continuation of trends from the first half of the year, with more than $300 million of investments and fundraising, providing ample liquidity and capital to drive significant growth into the fourth quarter in 2027. Given that our company celebrated its two-year anniversary just a few weeks ago, I wanted to start with some details on what we've accomplished to date before pivoting to what we are seeing in the market and some operational highlights. I'll then turn it over to Conor to walk through quarterly results and our guidance increase.
As many of you know, Curbline was spun off from our predecessor on October 1st, 2024, with a simple and focused strategy as the only pure play REIT dedicated to convenience real estate, which we believe offers sustainable capital-efficient growth in excess of the retail real estate industry. Our clear first-mover advantage has allowed us to construct an unmatched portfolio in this unique sector and scale the fragmented but liquid convenience marketplace. In the two-year period since spin-off, we have acquired just over $1.7 billion of convenience centers, almost entirely on an individual basis. We funded these acquisitions with $800 million of cash on hand at the time of the spin-off, plus an additional $1.6 billion of capital raised, including almost $1 billion of common equity.
This net investment activity, along with greater than 3% same-property growth in 2024 and 2025, and retained cash flow stemming from the capital-light nature of this sector, has led to significant per-share earnings growth on both an absolute and relative basis. Specifically, annualized OFFO growth has grown from $0.91 per share in the fourth quarter of 2024 to $1.28 per share if you annualize the third quarter of 2026, which is an increase of over 41%. It has also led to compelling total return for shareholders, with shares outperforming the REIT index by over 30% and the shopping center peers by a similar amount.
We are all obviously incredibly proud of our accomplishments to date, but what is most encouraging in our view is that we are still in the early stages of our company's growth plan, and we are highly focused on the large addressable market in front of us within this unique and capital-efficient business. Putting Curbline in context, at the end of the third quarter, we owned 239 convenience centers, as compared to ICSC's estimate of over 68,000 convenience shopping centers in the country. Not every property will fit our mandate, but it is clear to us that there is a meaningful stream of opportunities available to us that are consistent with the assets we own or want to own, and we are making sure that we are positioned with the right team in the right place to win.
For the current year, we have acquired just over $800 million of assets through last Friday, and now expect to exceed our prior expectation of $1 billion of total investments, with visibility on our pipeline through the early part of next year. What is interesting to note is that the addition to the themes I have called out previously, including our marketing efforts, our extensive brokerage network, and the generational tailwinds as owners look to monetize their assets for their families or heirs. You will notice this past quarter that we acquired four properties that are immediately adjacent to or part of our existing centers. If I look at our pipeline, we have a handful of additional acquisitions of adjacent properties extending another potential path for Curbline's growth. We expect this theme or trend to continue going forward with our boots on the ground driving this effort.
In each case, we continue to filter our acquisition opportunities by the factors most accretive to long-term cash flow growth: primary vehicular corridors, strong demographics, high traffic counts, and creditworthy tenants. Simple, flexible buildings with a straightforward row of shops support an extremely wide range of tenants, and the result is a growing Curbline portfolio of highly diversified credit tenants with limited capital needs over time. Moving to operations, we continue to see the elevated demand for space and signed just under 170,000 sq ft of new leases and renewals this quarter. Trailing 12-month spreads remain consistent with our five-year averages as the shortage of space in the affluent markets where we operate continues to lead the attractive leasing economics.
Importantly, as I noted last quarter, commencement of our SNO pipeline started to pick up at the tail end of the third quarter, with the majority of our almost $8 million SNO pipeline expected to commence by March of next year. This operational tailwind, along with the aforementioned investment activity, is driving significant earnings growth with our raised guidance representing over 18% growth, which is among the highest in the entire REIT sector. In terms of same-property growth, third quarter growth of 3.4% accelerated as we expected, with Conor providing more details on this later. Our capital expenditures also remain well below 10% of NOI, placing us among the most capital-efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class and a differentiator in a rising rate environment.
In summary, we remain incredibly optimistic about the opportunity ahead for Curbline as we exclusively focus on the fragmented convenience real estate sector in an effort to deliver compelling relative and absolute growth for stakeholders. I'd like to thank everyone at Curbline for their contributions that have positioned us and the company for outperformance. With that, I'll turn it over to Conor.
Thanks, David. I'll start with third quarter earnings and operating metrics before shifting to the company's revised 2026 guidance and then conclude with the balance sheet. Third quarter NOI was ahead of plan, driven in part by higher year-over-year occupancy and recoveries. Total NOI was up 11% sequentially and over 50% year-over-year, driven by acquisitions along with organic growth. Outside of the quarterly operational outperformance, there are no other material variances for the quarter, highlighting the simplicity of the Curbline income statement and business plan. In the third quarter, we recorded a gross up of $1.8 million of non-cash G&A expense, which is offset by $1.8 million of non-cash other income. This gross up, which is a product of the shared services agreement and nets to zero net income, is expected to continue through the third quarter of 2027 and is excluded from any G&A figures or targets.
In terms of operating metrics, the lease rate was effectively unchanged sequentially, down 10 basis points to 96.4%. Occupancy was up 20 basis points sequentially and 60 basis points year-over-year as we begin to see the impact of rent commencements. Trailing 12-month leasing volume continues to grind higher on elevated activity and portfolio growth. Though quarterly volumes and figures remain volatile, given the lack of available space in the portfolio. As David noted, we remain encouraged by the amount of activity and depth of demand for available space. As expected, same property NOI accelerated in the third quarter to 3.4%, with base rent growth of 2.8% and an easier comparison as compared to the second quarter on recoveries. Importantly, this growth was generated by limited capital expenditures with trailing 12-month CapEx of less than 8% of NOI.
Moving to our outlook for 2026, we are increasing OFFO guidance to a range between $1.25 and $1.27 per share, which at the midpoint represents just over 18% growth. We believe that this level of growth will be the highest, certainly in the retail space and among the highest in the entire REIT sector. Underpinning the midpoint of the range is, one, just over $1 billion of full-year investments. Two, CapEx as a percentage of NOI of less than 10%. And three, G&A of roughly $32 million, which includes fees paid to SITE Centers as part of the shared services agreement. Those fees totaled $1.4 million in the third quarter. In terms of same property NOI, we are now forecasting growth of 2.5%-4% in 2026, following 3.3% in 2025 and 5.8% in 2024.
As I've noted previously, the same property pool is growing but small, and it includes only assets owned for at least 12 months as of December 31st, 2025, resulting in a large non-same property pool, which we expect to grow at a similar rate to the same property pool over the course of the year. That said, we continue to expect an acceleration into the fourth quarter and 2027 driven by lease commencements with almost 75% of the SNO pipeline expected to commence by March 31st of next year and over 98% expected to commence by the end of the third quarter. The speed of the deliveries speak to the simplicity of the buildings that we buy and operate and differentiates Curbline from other purpose-built retail formats.
For moving pieces between the third and the fourth quarters, as a result of the timing of equity settlements in the third quarter, the quarter end share count was higher than the weighted average. Assuming no additional settlement activity, the fourth quarter share count would average about 121 million shares, which is a good starting point to layer on additional share settlement, which will be the primary funding source for fourth quarter acquisitions. Additionally, non-cash revenue is expected to decline sequentially by about $300,000. Finally, G&A is expected to total just under $9 million in the fourth quarter. Additional details on 2026 guidance and the moving pieces that I just outlined can be found on page 10 of the earnings slides. Ending on the balance sheet and some thoughts on growth in 2027. Curbline was spun off with a unique capital structure aligned with the company's business plan.
In the third quarter and fourth quarter to date, Curbline sold just over 3.6 million shares on a forward basis, with roughly $102 million of expected gross proceeds, which we expect to use to fund acquisitions. Including cash and deposits at quarter end of $133 million, total unsettled equity proceeds of $612 million and expected proceeds of $150 million from a term loan expected to close in the fourth quarter. Curbline has $895 million of immediate liquidity before taking into account operating cash flow or any additional capital. In addition, we expect to end the year with a net debt to EBITDA ratio of under 2.5 times, providing substantial additional dry powder and leverage capacity, 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.
Thanks, Conor. Operator, we are now ready to take questions.
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald, please go ahead.
Hey. Great. Good morning, everyone. Can we just start with sort of the acquisitions, obviously looking for it to do over $1 billion this year, which is great. The interest rate environment has obviously changed over the past couple of months. Just love to hear your thoughts on what you're seeing today and how this could play out in terms of acquisition opportunities, cap rates, and then expected IRRs? Thanks.
Sure, Ron. Good morning. It's David. I think one thing we've learned over at least the last five or six years in this sector is that the liquidity of the subsector primarily a result of the fact that most of this is owned by private families. I think life events dictate a lot of need and desire to sell. We've seen a pretty consistent stream of assets every week that come from what is effectively a very large subsector. Every time there's been any capital markets disruption or interest rates movements or geopolitical events, we just haven't really seen a change in the total volume of deals that are hitting the market. You add to that the unlisted assets where we're getting phone calls from sellers at least half the time for assets that we're buying.
I think our confidence level that the deal volumes remain high is also very high. In terms of deal volumes, I think our expectations are we're continuing to see a whole lot of real estate. A small portion of that is real estate that fits our buy box. If I tie that back to your question about cap rates and pricing, I think you just have to remember that given that borrowing rates have gone up and on the margin, I would say so have cap rates. I think it warrants some commentary about the fact that this subsector does contain numerous assets that are lower quality, lower growth, lower credit, and not a lot of spread between market rent and in-place.
Those types of assets, I think, are traditionally bought by levered buyers that are private, and I suspect that those cap rates have already moved up substantially. On the other hand, there is a portion of this subsector which we're very intrigued and interested in. It fits our buy box, and it generally has strong credit, strong traffic, and a lot of mark-to-market on the rents. Given how those market rents keep growing with inflation, I would suspect that the cap rate movement is going to be a little bit stickier for growth type assets.
Great. That's helpful. My second quick one on the same store NOI, good acceleration sort of in the quarter. As you're sort of thinking about the renewals business at 96% sort of inline tenants, what are the prospects of sort of further acceleration from here and how we should think about it? Thanks.
Sure, Ron, it's Conor. I would say there's two pieces to that question. As we talked about last quarter and this quarter, we are expecting acceleration in the same property from the third to the fourth quarter and into 2027. That is largely occupancy driven, as we called out. It's really a function of our SNO pipeline. To your point on pricing power and to David's commentary tying that all together, we still have what we think is a pretty significant supply-demand imbalance in the markets we operate in, which is a huge benefit for us. I think our biggest asset management question with each renewal is, do we renew the existing tenant with 3% annual bumps, or do we potentially upgrade the tenant in terms of credit and mark to market?
Again, it doesn't feel like a material change in terms of the operating environment. I would say it's stable given the supply-demand imbalance. All that said, I wouldn't expect a dramatic change in renewal rates or renewal spreads or new leasing spreads. We've kind of hovered right around 20% on new leasing spreads. Renewals, we've been in this 6%-8% range. Again, don't expect a material change in that. But the same property NOI acceleration really is a function of occupancy as opposed to pushing rents harder.
Helpful. Thank you.
Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd, please go ahead.
Hi. Thanks. Good morning. David, I appreciate the commentary there about the stickier yields and IRRs, I guess, on the higher quality product that you are targeting. Has Curbline's return requirements changed at all as you think about future deployment and just deploying capital and your current dry powder today? How are you thinking about that?
Good morning, Todd. I think absolutely they have. Our cost of capital has gone up, both on the equity and the debt side, so our unlevered IRR expectations have also increased. I will just remind you that it depends on the risk level to generate that IRR, but there is no question they have gone up. I am sure Conor has some commentary as well with respect to how we look at returns relative to our five-year plan.
Sure. Todd, as we have discussed a number of occasions, we look at everything through a five-year cash flow accretion model in addition to the kind of other traditional REIT metrics. If it was accretive to acquire a property today under that calculus and we thought it was additive to the company, we would consider it. To David's point, I would just point out three things. We have never adjusted our buy box or characteristics of properties, regardless of our share price, whether it is higher or lower. The second piece is the source and the use are the critical part of the analysis. So you are right, cost of capital has gone up.
I think just looking at either cost of debt or cost of equity alone misses out on the other important piece of the equation, which is what is the going yield or, to David's point, what is the growth profile? The last point I would just make is, as I mentioned in my comments, we have got over $900 million of immediate liquidity on hand. If we were just to invest the remainder of that capital over the course of 2026 and 2027, we are still in a position to generate well into double digit growth next year, which is pretty encouraging and speaks to our earlier comments about being flexible and maintaining optionality, which has been our kind of core principle or guiding principle since we completed the spinoff two years ago.
Okay. Then just thinking about sort of acquisition pace, I guess, and the shared services agreement. Does the expiration of the shared services agreement at all play into the desire to achieve greater scale and perhaps some discipline around acquisition activity? If acquisition pricing doesn't adjust enough to today's cost of capital, would you be comfortable slowing investment activity, even if that means entering the standalone structure at maybe a slightly smaller scale than you previously anticipated, just given the current pace of investments that you've been achieving?
So Todd, if you think back to our spinoff timing, we initially put out kind of guidance or a target of $500 million per year. Right? So you think about that would imply about $1.5 billion of total investments from the time of the spinoff to the end of the SSA in October of next year. We've bought $1.7 billion in the first two years. So from a scale perspective, we're well past what we expected to be or where we expected to be, excuse me. If you recall, since our spinoff, we've updated our kind of G&A bogey of saying, "Hey, we thought we could be as efficient as SITE" to, "We think we could be more efficient than SITE." So whether or not we buy a single property from here, we feel really good about our scale, our positioning, our G&A leverage, et cetera.
In terms of the combat discipline, I would just say, again, we bought $1.7 billion. I think it's only two investments have been greater than $50 million, i.e., two portfolios greater than $50 million. So I would just say we've been incredibly disciplined, incredibly focused on making sure we've been buying the right real estate over that period. It might look like a significant number of dollars, but it's all underwritten at an individual basis, which I think is really important. So again, it kind of dovetails back to my response to your first question, to David's response to Ron. We've been incredibly disciplined from the start in terms of how we invest capital. I don't expect a higher return hurdle to change that. It just means that we're looking at it through a different lens.
Lastly, I think to your question about how we think about the pace of deployment, et cetera, we've got a pipeline that really goes out for the next two quarters, and that's been consistent really over the last year plus. So our visibility on investments and the spread, et cetera, for the initial spread, I should say, for the fourth quarter and the first quarter next year is incredibly high. I think that helps give us a lot of confidence in terms of our growth for next year and deploying capital over the course of 2027.
Okay, great. That's all really helpful. Thank you.
Thanks, Todd.
Your next question comes from the line of Craig Mailman with Citi. Craig, your line is open. Please go ahead.
Hey, good morning, guys. I don't want to beat a dead horse here on yield expectations on new acquisitions, but I'm just kind of curious. Your commentary on the stickiness of cap rates, how deep is the buyer pool beyond you guys from sort of a cash buyer perspective that you wouldn't have a little bit more negotiating power to either retrade your going-in yields higher or be a little bit firmer in setting kind of pricing expectations in a rising rate environment?
Yeah. Good morning, Craig. It's David. I think that the buyer pool out there for this asset class has been very large for a very long period of time. There are a significant number of private buyers that are active in this space. We infrequently run into the same people in bidding tents across the country because there's so few regional, and we're the only national operator, but there's a number of regional operators. I would say the frequency of running into the same names is pretty low. Given that we're only buying a certain small percentage of the overall sector, I think you could appreciate that there are a lot of buyers.
Whether we behave or act in an aggressive or a conciliatory manner, I think the pricing of the entire sector at large is being priced through by the numerous other transactions where we're not involved. I think my commentary earlier was that I will freely admit that I think a lot of this sub-sector is bought by levered local buyers, and therefore, that going-in spread is really important. There's a pretty substantial group of buyers that are indeed looking at how growthy this property type is. Because of that, I think unlevered IRR expectations on the one hand, you would expect the math to make cap rates go up substantially with borrowing costs. On the other hand, the reason borrowing costs are going up is because of inflation.
Inflation rolls right through to the retailers and how they raise their prices on goods and services, and it affects market rents because replacement cost goes up. I'll give you an example. If you look on page 16 of our supp, you'll see the number of assets that we bought this quarter, and I'll just kind of highlight two. There's a large group of assets we bought in Los Angeles called Candlewood Shops. If you look at the entire rent roll of that property, which is a pretty large group of assets, the average tenure of all those tenants in place is 18 years. Same thing with Lexington Station in Minneapolis. The average tenure is 11 years. When you have national credit tenants that have been in a property for 10 or 20 years, the mark to market is really substantial.
I think a lot of buyers are less concerned about going in cap rate, and they're more concerned about the lack of CapEx to generate pretty substantial same-store growth over the next five or 10 years. That's why I think the cap rates are likely to be stickier. Again, it's only been a couple of months since we've been in this environment, and I think we'll see what happens over the next couple of quarters.
No, that's helpful. I guess just from a capital raising perspective, debt, that doesn't make sense here. Most likely, just from a strategic standpoint of not fatiguing the market or becoming predictable. I guess, just any thoughts on avoiding those two pitfalls here as you guys look to keep the pace of deals consistent in 2027 and beyond?
Sure, Craig. As I mentioned in my prepared remarks, we have just under $900 million of liquidity on hand, and that includes $150 million term loan that we expect to close in the fourth quarter. That's before retained cash flow, which is pretty significant relative to our asset base. On top of that, our entire asset base is unencumbered. We have no maturities until 2029, and we expect to end the year with a debt-to-EBITDA ratio called 2.1, 2.2. So we can be incredibly tactical and look at a variety of funding sources over the course of the year. Not all of those are available to our peers, not all of those are available to private investors. So I would just tell you, we feel really good about this environment. This is almost tailor-made for our platform in terms of how much liquidity we have on hand.
You're right, we like to be tactical and turn things on and off, whether that's debt, equity, et cetera. But I would just tell you, with $900+ million liquidity, immediate liquidity on hand, I feel like we're in a really good spot on a relative and absolute basis. I would also come back to my response, I think it was to Todd. Even if we just invested just the cash on hand, we're well into the double digits for next year in terms of earnings growth. That's before PE, which I think doesn't get a lot of air time, the operational growth that David was referring to a moment ago with assets like Candlewood.
Again, just to tie it all back together, with that much liquidity relative to our asset base before free cash flow, we feel like we're in a really good spot, particularly given what we think is a pretty steady stream of investment opportunities in front of us.
What do you think is the range of borrowing costs for you guys, depending on where you are in the term structure or kind of product type between secured or unsecured?
Yeah. We're about to close, as I've mentioned a couple of times, a $150 million term loan in the fourth quarter. If we weren't to swap that, our all-in rate would be about a 4.9%. We've obviously swapped 100 of that $150 million and call it the low fives. Let's just call that product 5.1%, 5.2%. I haven't checked the five-year treasury today, but private placement market, we're about 130 basis points over. Depending on the hour of day we're looking at that, we're anywhere in the high fives, low sixes. That's just two options. Again, as I mentioned just a moment ago, we're 100% unencumbered. We have no joint ventures. We've just got incredible optionality, which has been our focus, and a focus of ours to maintain since our spin-off.
Again, those are two markets, just going off the top of my head, but very different types of markets, very different rates. But again, as your questions alluded to and as David responded to, we're four months into a pretty dynamic time, and we'll see how things flush out over the next 9 - 12 months.
Great. Thanks.
Thanks, Craig.
Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander, please go ahead.
Hey. Morning there. Two questions. First, maybe just picking up that point there. You guys are blessed with a pretty good cost of equity, but you're also, Conor, talking about debt, and clearly debt is what is concerning folks today in the market, just given the volatility. As you think about your capital, I know that you're closing on a term loan, presumably that was in the works for some time, but as you think about your capital structure going forward, are you thinking about adding more debt? Or given where interest rates are, your view is just primarily remain heavy on the equity funding, but have debt sort of as an availability, sort of as an undrawn resource, but not really something that you're planning to use?
I would say, Alex, we love optionality, not to beat a dead horse here, but if you think back to our spinoff and our initial business plan, it was to invest the cash and raise some debt over the five-year period, and that was what led to double-digit FFO growth and invest $500 million a year. Things have obviously dramatically been different in a positive way since then. We've obviously raised just under $1 billion of equity. We bought over $1.7 billion. We've pivoted because of a different cost of capital. So I would just tell you, every morning we wake up, we look at our screens, we look at our menu of options, we look at new options, and we say, at that point in time, based off our uses, what is the best path for us to consider?
I know it sounds like an evasive answer, but that will be our job tomorrow morning, is to wake up, look at our screens, see what the best available source is, and then compare it to the use, which is critical. So I wouldn't imply that we'll be more equity-focused or debt-focused going forward. I would just tell you, we will pivot based off what the market has available to us based off our uses.
Okay. Then, David, you mentioned adjacent properties. Obviously, you guys have a huge pipeline, and I don't know how big these adjacent properties are as far as percentage of deal flow. But I'm just curious, are you finding that these are owned by the same sellers, meaning they additionally were monetizing part of their portfolio and now they're monetizing more? Or these are sort of friends that are nearby, and they see that their buddy sold and now they're going to sell. I would imagine that as you sort of cluster, the operational synergies go up as far as pricing and rent and being able to optimize tenancy. So maybe if you could just expand on, one, if this is just a little talking point or if you see this as a material growth avenue, these adjacent properties.
Then two, your thoughts on, just given the high retention rates, if there is sort of operational upside or because most tenants renew, it's not like you're going to get that many operational synergies the way we would think at a shopping center or mall, et cetera.
Sure, Alex. I would say that six months ago it was a talking point. Now it's becoming a bit more material. Meaning it's a trend that's picked up. The more dense we are in a certain market, we do have tended to just get more opportunities from friends of friends. We heard you sold to Curbline. Can you give us their number? We'll give them a ring. We're thinking about selling. I mean, that is happening more and more, just word of mouth. There are also situations where we bought a property from someone and got a right to purchase, basically a first right to purchase if they ever sold another property nearby. We've exercised those rights sometimes. The third situation would be that someone has a family interest that controls adjacent parcels.
One side of the family wants to sell today, the next side of the family may decide to sell six months or a year later. It's been a variety of reasons. But I would say that, as John and I and Conor have been looking at the pipeline and kind of witnessing the deal makers and what activity they're doing, we've seen this to be a bit more of a trend than it had been last year. It makes us just remember that having the amount of allocated personnel sourcing deals out in the field is reaping other benefits other than just waiting for a property to hit the market.
I think that's kind of the important piece is that on its own, it's not meaningful, but when you add it to all of these other arrows in our quiver, we just feel like sourcing deals is becoming easier and easier. Our confidence l evel that the volumes can stay high for opportunities is pretty strong.
Thank you.
Thanks, Alex.
Your next question comes from the line of Floris van Dijkum with Ladenburg. Floris, please go ahead.
Thank you. Hey, guys. Congrats. Another good quarter. Just wanted to maybe get around to the higher IRR expectation question, maybe in a slightly different way. Obviously, rates have gone up. Cap rates seem to be sticky. That would suggest if you are buying assets still at around the high 5s or low 6% cap rates, that your IRR expectations have increased on some of the properties. Maybe talk about your early acquisitions. So you have been doing this for a couple of years now. If you look at your first year and look at the returns that you have achieved and the NOI growth you have achieved relative to your early expectations, how has that panned out, and how does that give you confidence as you look forward in additional acquisitions?
Hey, good morning, Floris. It is David. All right. So what is interesting is that we seem to come back frequently to talk about going-in cap rates. But I know that we have discussed many times that there are other important factors to unlevered IRR other than just going-in cap rate. The going-in cap rates for this asset class have always been from the low 5s to, I would say, the low 7s. I mean, there is a very wide range of going-in cap rates for unanchored strips, just depending on the credit quality, the mark-to-market available. Kind of the demographics, the shape of the building, the re-lease ability of it. All these things factor into whether it is a growth asset or whether it is kind of a risky asset. So going in cap rate, it is very difficult to quantify for an entire sector.
I tend to focus more on what we're interested in, and we're interested in growth assets. To your point, if we look back at the year leading into the spin and the first year after the spin, what happened to our underwriting versus actual? I would say we were fairly consistently wrong on mark to market, in the fact that we were just too conservative. You could either say that we didn't fully appreciate the mark to market at the time, or it could be that market rents have continued to grow. We've generally outpaced the renewal spreads and the new leasing spreads from our original budgets. I think what you've seen is the unlevered IRRs have been higher than our hurdles were. The second component is that CapEx has been a little bit less than we had expected.
We mentioned that at the spin, we were targeting a less than 10% CapEx load for the entire sector. We're running about 8% over the last few years. When you run that through your model, a little bit more aggressive on mark to market, a little bit better renewal spreads, and maybe a 20% reduction in total CapEx. The unlevered IRRs have been really healthy. I do think that our expectations need to increase and reflect the signals we're getting from the market, both on equity and debt. There are other levers within each underwriting that we can look at pretty carefully, and still feel confident that we're making a good long-term decision.
Thanks, David. Maybe the next question, I look at your largest market being Atlanta. You got 30 properties, call it $21 million of ABR. By the way, that's a fifth of what Simon's Lenox Square has. How much more expansion do you have in your largest market, Atlanta? I also noticed, I saw the first time some assets in Madison. Are you expanding and selectively picking up some assets in other markets simply because the opportunities are bigger there? Or because you need to deploy the capital and you feel like you can scale in some of those smaller markets as well?
Yeah. I think we've said in the past that if we could snap our fingers, we would be equal weighted in the top 30 markets in the U.S. The reason we say that is primarily from a diversification standpoint. Specific targets by each sub-market don't really exist for us in practice, because we're simply underwriting each asset across the country that comes available and we're a little bit more agnostic as to how that MSA starts to rank up. Atlanta, specifically, has just had a lot of growth, a lot of strength, and it's also had a lot of assets that have been available to us. We've been a lot more active in Atlanta.
It's also a ring city and, as you know, a ring city tends to have lots of pockets all the way around the city center, and those pockets each are different factors that are available. You can't say that about some other cities that are a bit more linear. South Florida is different, right? You've got just less geography to work with than some of the larger cities. I just lost the second half of your question.
That's fine. It was on Madison. Yeah.
Yeah. Moving into other cities that we see strong demographics and we see opportunities become available, we're open-minded to it.
Great. Thanks, guys.
Your next question comes from the line of Mike Mueller with JPMorgan. Mike, your line is open. Please go ahead.
Hey, thanks. Two operating questions. First, I guess given the heightened focus on the consumer these days, can you talk a little bit about how you're viewing tenant health and kind of bad debt going forward? The second question is, with the commentary about SNO coming online. Outside of acquisition mix impact, where do you think the 94.5% economic occupancy could go to by the end of 2027?
Sure. Good morning, Mike, it's Conor. On credit, we haven't seen over the course of the year a change. It hasn't come up in a lot of our calls. I think our placeholder for the year has been about 60 basis points of uncollected revenue, and we've been running just under that. There has been an uptick in national bankruptcies, as you've seen with Sleep Number and Leslie's Pool Supplies and a couple on the anchor side as well. You've seen a little bit of pain on the entertainment side of late in the credit markets. For us, we have not seen a material change in AR, aged AR or renewal rates. As I mentioned at the start of my answer, 60 basis points has been our placeholder, and there isn't a change in that going into the fourth quarter.
In terms of the SNO pipeline and the gap between the kind of lease occupied spread, we said a couple of times before, if we're 96.5% leased, it feels like, Mike, 150 basis points or 100 basis points is probably a good spread in terms of that lease occupied gap, just given it's a shorter timeline to sign a lease and get it commenced, unlike some of the more purpose-built retail formats. From a percentage lease perspective, I would look at it that way. The challenge is percentage lease and dollars won't line up. I do think using the SNO dollars as a ramp as opposed to the lease occupied gap is a better way to kind of model it out over the next three quarters.
Okay, thanks.
You're welcome.
Your next question comes from the line of Linda Tsai with Truist. Linda, your line is open. Please go ahead.
Hi. Thank you. Do you have a sense of how bifurcated the market is in terms of buyers, whether they're levered or all cash? And maybe if you don't, just in terms of what you've seen in the deals that you've done.
Good morning, Linda. It's David. I really don't have a statistically good and accurate response. We get imperfect information, but as you know, we've looked at a lot of deals, and we bought a pretty large number of deals, so we do get some anecdotal information. I would say the traditional mortgage borrower is a lot more focused on flatter assets with a higher yield. We tend to not bump into them very frequently. On the higher quality unanchored, it is a lot more common for folks to use debt if they're private. I would say a lot of times that debt appears to be sourced through private wealth networks and other types of financings, not a traditional mortgage. I think their all-in borrowing rates tend to be lower than if they did a non-recourse debt piece.
Thanks for the color. Sorry if I missed this earlier-
Linda, I certainly think we're the only effectively unlevered or all cash buyer, but there are other ones that have a similar appearance.
Thanks. Sorry if I missed this earlier. What is the retention rate in your portfolio, and is there a view of what this could grow to?
We don't report on a quarterly basis, Linda. I don't have the number off the top of my head. My guess is, I think, I want to say for our nationals, it's the low 90s over the last five years. To my response to Mike from a moment ago about credit, we really haven't seen a change in that retention rate. Albeit there has been an uptick from a very low base of bankruptcies, as I mentioned a moment ago.
On the uptick in bankruptcies, do you view it as seasonal, or is it growing into 2027? Does it relate to higher interest rates at all?
No, it's a good question. It feels like if you rewind back to 2017, 2018, there was a little more seasonality to bankruptcies than there was, I would say, call it 10 + years ago. It feels like it's a little less seasonal today. But there haven't been that many. By me saying there's been an uptick in bankruptcies, I'm not saying in our portfolio, I'm just saying in the kind of national retail space. It does feel like it's the kind of COVID winners who then became losers, i.e. pool, entertainment focused, that are the kind of recent headlines of sorts. We really have had no exposure. But again, it does feel like an uptick, albeit from a very low base. As we look into 2027, I would imagine, yeah, the credit markets will, if they remain tighter, will definitely have an impact.
There's no one on our watch list that is of scale, and that's purposeful, that we've got on our list that we're worried about in 2027. But I would have to think if GDP growth slows and/or the credit markets continue to tighten, that would have an impact on the retail environment overall. For us, just given our payback period on our leasing, our diversification of credit, again, it feels like it's a real relative win for us. But there's nothing on our radar that's jumping out to us. It's just an observation based off economic growth in the credit markets.
Thank you.
You're welcome.
Thanks, Linda.
You're welcome.
There are no further questions at this time. I will now turn the call back to David Lukes for closing remarks.
Thank you all for joining our call. We will speak to you next quarter.
This concludes today's call. Thank you for attending. You may now disconnect.