Curbline Properties Corp. (CURB) Q1 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Curbline Properties Corp. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Stephanie Ruys de Perez, Vice President of Capital Markets. Please go ahead.

Thank you. Good morning, and welcome to Curbline Properties First 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 will 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 first quarter conference call. We had an incredibly productive and active start to the year as investment opportunities have remained elevated, leasing demand has remained strong, and we've tapped new markets, increasing our liquidity and access to capital. This activity is falling directly to the bottom line, leading to an increase in our OFFO guidance range. This is, of course, a result of dedication and hard work from our team, and I'd like to thank everyone at Curbline for their contributions that have positioned the company for outperformance. We continue to lead this unique capital-efficient sector with a clear first-mover advantage as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States. I'll start with an overview of investment activity and shift to operational highlights before handing it off to Conor to walk through quarterly results, the 2026 guidance increase and the balance sheet in greater detail. Beginning with investments. In the third quarter of 2025, we began to see an acceleration in acquisition opportunities that were consistent with the existing portfolio and our convenience thesis. This elevated level of activity has continued putting us in a position to raise our 2026 investment target to $850 million from $750 million. We believe the increase is primarily attributable to 4 factors, each of which are unique to Curbline. First, the convenience business is a fragmented but liquid local business with over 90% of transaction activity between private buyers and sellers. We recognized this when we started buying properties before the pandemic and have structured our investment, leasing and property management teams to be in the markets where we want to own properties. This has allowed the team to build personal relationships with the owners of the highest quality real estate and the brokers that dominate each individual market. For the marketed deals we acquired post spin-off, we've worked with 29 different brokerage companies, which highlights not only the fragmented structure of the market, but also the importance of the national network of relationships that Curbline has built. Second, Curbline now has been publicly listed for roughly 18 months, has a proven track record of closing on convenience properties, and we believe owns the largest high-quality portfolio of convenience properties in the U.S., totaling over 5 million square feet. This reputation and scale, along with our access to capital and investment-grade rating is leading to more inbound calls from the aforementioned private owners and brokers that we received before we went public. This brand awareness assisted by local and regional market events has made Curbline the first call and the trusted buyer for high-quality convenience properties and is providing greater visibility and transparency on our deal flow. Specifically, of the $1.2 billion of assets acquired since our spin-off, 22% have been off-market, highlighting the growing importance of inbound calls from sellers. Third, the convenience property type is very different than the grocery and power center business in terms of operations and management. As a result, we've taken the strong accounting, legal and IT infrastructure from our predecessor and layered down the findings from our over $1 billion of acquisitions to refine our investment approach and focus only on actionable deals that we think have a path to success and meet our return hurdles. With a finite number of hours in the day for our deal teams, this has allowed us to increase efficiency and productivity by avoiding deals with unworkable issues that simply aren't worth our time. And fourth, according to the Federal Reserve, over 50% of nonresidential real estate in the country is privately held by individuals over 65 years old. It is becoming clear to us that these owners are seeking liquidity today more than ever, which is adding another potential multiyear tailwind to our deal flow. We are continuing to tailor our team and our network to tap into this growing opportunity set and believe it will lead to a steady pipeline of future deal flow. The net result of these 4 factors is an increase in opportunities that meet our criteria of primary corridors, strong demographics, high traffic counts and creditworthy tenants and importantly, are additive to our future growth rates. And it highlights the unique and significant addressable investment convenience market that provides an opportunity to scale the business. Moving to operations. We've signed over 145,000 square feet of new leases and renewals this quarter. Trailing 12-month spreads remain consistent with our 5-year averages as the shortage of space in affluent markets where we operate continues to lead to attractive leasing economics. We invest in simple, flexible buildings that are at the nexus of consumer behavior. These straightforward rows of shops can support a wide variety of uses, and this flexibility drives tenant demand from an extremely wide pool of tenants. The result of our portfolio is a highly diversified tenant base with only 8 tenants contributing more than 1% of base rent and only 1 tenant more than 2%. All 62 of our new and renewal leases this quarter were with different tenants and 71% were national credit operators. Both of these data points highlight the incredibly deep market for leasing to a wide variety of credit users. In terms of same-property growth, we generated almost 5% growth in the quarter, and our capital expenditures were just 6.3% of quarterly NOI, placing us among the most capital-efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class. In summary, I could not be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience real estate sector in an effort to deliver compelling relative and absolute growth for stakeholders. And with that, I'll turn it over to Conor.

Thanks, David. I'll start with first quarter earnings and operating metrics before shifting to the company's revised 2026 guidance and then conclude with the balance sheet. First quarter results were ahead of budget, largely due to higher NOI, driven in part by higher-than-forecast occupancy and resulting recoveries, along with lower G&A expenses. NOI was up 3% sequentially and over 50% year-over-year, driven by acquisitions, along with organic growth. Outside of the quarterly operational outperformance, there were no other material variances for the quarter, highlighting the simplicity of the Curbline income statement and business plan. You will note that in the first quarter, we recorded a gross up of $1.8 million of noncash G&A expense, which was offset by $1.8 million of noncash other income. This gross up, which is a product of the shared services agreement, and that's the 0 net income, will continue as long as the agreement is in place and is excluded from any G&A figures or targets. In terms of operating metrics, the lease rate was up 30 basis points year-over-year to 96.3%, with occupancy up 60 basis points. Leasing volume in the first quarter accelerated from the fourth quarter, driven by an uptick in renewals, though quarterly volumes and figures remain volatile given the lack of available space in the portfolio and the company's denominator. As David noted, we remain encouraged by the amount of activity and depth of demand for space. Same-property NOI was up 4.8% for the first quarter, driven by a 3.5% base rent growth and lower uncollectible revenue year-over-year. Importantly, this growth was generated by limited capital expenditures with first quarter CapEx as a percentage of NOI of 6.3% and trailing 12-month CapEx of 7.3% of NOI. Moving to our outlook for 2026. We are increasing OFFO guidance to a range between $1.20 and $1.23 per share, which at the midpoint represents 14% growth. We believe that this level of growth will be the highest certainly in the retail space and amongst the highest in the entire REIT sector. Underpinning the midpoint of the range is: One, roughly $850 million of full year investments; two, a 3.25% return on cash with interest income declining over the course of the year as cash is invested; three, CapEx as a percentage of NOI of less than 10%; and four, G&A of roughly $32 million, which includes fees paid to SITE centers as part of the shared services agreement. Those fees totaled $1.1 million in the first quarter. In terms of same-property NOI, we continue to forecast growth of 3% at the midpoint in 2026, which follows 3.3% in 2025 and 5.8% in 2024. As I have noted previously, the same property pool is growing but small, and it includes assets owned for at least 12 months as of December 31, 2025, resulting in a large non-same-property pool which we expect to grow at a similar rate to the same property pool over the course of the year. That said, in the second quarter, the timing of 2025 CapEx spending and a difficult uncollectible revenue comparison will act as an almost 300 basis point headwind to same-property NOI growth. As a result, we expect a meaningful deceleration in same-property growth in the second quarter before accelerating into year-end with second half base rent growth expected to average over 4%. For moving pieces between the first and the second quarter, interest expense is set to increase to about $8.5 million as a result of the funding of the private placement offering in late January. Additionally, noncash revenue is expected to decline sequentially by about $500,000 due to the write-off of below-market leases in the first quarter. And lastly, G&A is expected to remain roughly flat quarter-over-quarter. Finally, included in the first quarter share count are just under 1 million shares related to the unsettled forward offerings completed to date. We expect dilution from the forward offerings to be an approximately $0.01 per share headwind to 2026 OFFO, which is included in our revised guidance. Additional details on 2026 guidance and the moving pieces that I just outlined can be found on Page 11 of the earnings slides. Ending on the balance sheet, Curbline was spun off with a unique capital structure aligned with the company's business plan. In the first quarter, Curbline closed on the remaining of the previously announced $200 million private placement offering. Additionally, in the first quarter and the second quarter to date, the company sold 11.8 million shares on a forward basis with $296 million of expected gross proceeds, which we expect to settle in 2026, including cash on hand at quarter end of $306 million, along with total unsettled equity proceeds of $371 million, Curbline has over $700 million of immediate liquidity available to fund the remaining investments included in guidance after taking into account retained cash flow. Curbline now proven access to a variety of capital sources is a key differentiator from the largely private buyer universe acquiring convenience properties. The net result of the capital markets activities since formation is at the company ended the quarter with a leverage ratio of approximately 20%, providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in excess the average. And with that, I'll turn it back to David.

Thank you, Conor. Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Ronald Kamdem of [ Curbline Properties ].

Just 2 quick ones. Just starting with the acquisition guidance raise to $850 million. Maybe just a little bit more color. Is this still sort of pretty granular? Is there any sort of larger deals in that pipeline? And what are you anticipating in terms of the cap rates and IRR [ specs ]?

Yes, the pipeline at this point is exclusively individual properties. There's no portfolios of note. And I would say that generally, the deeper we get into these markets and the more deal makers we have in regions where we're looking to buy properties, the vast majority of the inventory remains to me individual properties.

On cap rate returns, no real change there from last quarter to the prior quarter, Ron, we're in the low 6s, which is an unlevered IRR in the 7% to 9% depending on the property.

Okay. Got it. That's helpful. And then just on the same-store NOI guidance. I appreciate the color on the decel in 2Q and then the next on to the end of the year. But as you sort of step back, maybe can you just give us some thoughts on just what you think the long-term sort of same-store growth for the portfolio is? Is that 3% plus number the right sort of way to go about it as the portfolio sort of scales?

Ron, again, it's Conor. We -- when we announced the spin-off put out a target of an average growth of 3% for 2024 to 2026. As I mentioned in my prepared remarks, we did 5.8% in 2024, we did 3.3% in 2025. So we're, I'd say, running a little bit ahead of that average number of 3%. And I feel like -- I think we've said this publicly, this is a 2.5% to 4% business in periods of time where there is a supply-demand imbalance, which we happen to be in right now, we're probably in the high end of that range, but that feels like a pretty good bogey for this portfolio over time.

Your next question comes from the line of Craig Mailman from Citi.

It doesn't seem to have impacted consumer spending so far, but just with things with Iran, as they continue to drag out you guys -- the portfolio is a little bit restaurant heavy here just given the nature of it. Just kind of curious what you guys have seen on foot traffic? And if there's been any changes so far? And just your thoughts if this drags out and oil does start to be sort of a drag on consumer spending going forward. Like how should we think about the cushion you guys have in coverages on some of these leases and maybe the appetite of some of these franchises to continue to grow if there's a little bit of pause in the economy?

Craig, it's David. I would say 2 comments on that. One is that foot traffic through geolocation data is very useful for us to figure out the desirability of a property. We use it a lot in acquisitions. We use it a lot to understand what types of tenants we can put in properties and how we can generate leads to make sure that our leasing stays relevant. It's not a great proxy that we use to find out tenant profitability because basket size is difficult to find. Specifically, the majority of our tenants don't hold inventory. They're service-oriented. And so I think we're real estate first, and we're more tenant second. By being real estate first, what that means is we like to own rows of small shops that are simple and ubiquitous, and therefore, the shape and the size of those units can be used by a wide variety of users. I do think that over time, we will always have an exposure to QSRs, the small format QSR business fits into a pretty small, simple rectangular building. That building can be used by lots of other types of tenants. And so avoiding the purpose-built sit-down restaurants is a key differentiator, I think, for this type of real estate. So I think when you're kind of talking about a general slowdown in the economy, I wouldn't really see us as being able to forecast whether that is happening or not, I think we're very squarely in the running Aaron's type of consumer behavior. So if you look at the types of tenants we're putting in our properties and we're buying into, they tend to be those tenants that drive a lot of traffic from running Aaron's. And I think that they're not luxury oriented and they're not destination trips. So I would say that the insulation for us is probably more to do with consumer behavior and a little bit less so on the economy.

Okay. That's helpful. And then just switching gears, maybe cap rates and IRRs and you guys have really ramped the volume here of deals you're doing, and I'm assuming that some competitors are trying to come into the space, and you guys are the first mover. Just kind of curious with the inbounds that you're getting, the 22% off market, what's the prospect of continuing to be able to kind of keep cap rates in that low 6 or maybe even get better deals as you guys can solve solutions for people looking for maybe some either surety of close or deadlines on close or tax issues as they're kind of selling some of these assets. Could you just talk about the difference in returns that you're getting on these off-market where you're getting the inbounds versus a fully marketed deal? And where the market is trending just given how much capital you guys have put out the door lately and some of the attention that might be coming into these assets?

Sure. Sure. Well, I mean, I'd say, first of all, there's definitely growing interest in the sector. I think most of that is simply because the financial returns are so heavily focused in cash flow. It's such a low CapEx business. I think that's desirable from a lot of institutions who can generate more of their IRR from cash flow and less on future appreciation. And so there has been growth in interest. We've heard a lot about institutions becoming intrigued by the property type. I think there's 2 things to note on that, though. One is that the market is so fragmented. It is actually quite difficult to put out large pools of capital in a short period of time. You really have to build relationships over a long period of time and be willing to close on a very large number of small transactions. So the granular nature makes it very difficult for someone to push a button and get into the sector. Secondly, if a competitor did want to get into the sector at scale, I think that they would most likely have to team up with a local operator. And when you add fees and carried interest on to that, it almost puts a floor on the going-in cap rate that an institution will be willing to pay to generate the same IRR that they require. And so I do think that has helped put a little bit of a floor on cap rates. I'd just remind you that the going-in cap rate for this asset class can be low 5s to high 6s. It's just that we're doing enough volume that we're blending to around 6 . It feels fairly sticky. And part of the reason I feel sticky is that the market rent spread is still generating an unlevered IRR between 7% and 9%. And I don't really see that moving in the near term.

The next question comes from the line of Floris Van Dijkum of Ladenburg Thalmann.

Nice -- another nice quarter here. You guys are really proving your concepts. I wanted to question -- some people have referred to your business almost as a net lease business. You have 98% recovery ratio. Maybe talk a little bit about the management value add? And what are you bringing besides acquisitions, what are you bringing to the table?

Floris, It does have some characteristics that are similar to that lease, but I think the largest difference is that we're buying real estate first. And we're buying a real estate first because when we get a vacancy, we are more likely to release it at a higher spread, and therefore, it is growth. And the growth aspect of this business is very different than that lease. We enjoy a shorter WALT, we enjoy a mark-to-market that we can actually capture. And so I think the management value add is not so much in repositioning or redevelopment as much as it is making sure that the tenants are paying a rent that keeps up with market, and we're always aware of what another tenant will be willing to pay for that same nonpurpose-built simple building format. And I would say our leasing team is very, very aware that the number of deals we're doing is so wide with a wide variety of users. I mean it's pretty shocking that every single lease signed during the quarter was with a different tenant, and that's unusual for a destination type property where it tends to be concentrated on a handful or a dozen national operators. This is a very, very wide pool of leasing. So I think the management value add has everything to do with trying to figure out who can pay the most rent and who's willing to pay that rent to be along the kerb line of a very high-traffic intersection.

Maybe a follow-up question, if I may. Maybe talk a little bit about the difference between your GAAP cap rates and your cash GAAP rates. How much of a difference is there? And is that meaningful? Because presumably, the assets you're buying have quite a bit of below-market rents in place.

Floris, it's Conor. You are spot on. So our average differential between GAAP and cash, I think since we went public is about 35 basis points. That's a pretty wide range, similar to our cap rates where there's -- somewhere it's 0, and there's others where it's 100-plus basis points. So Again, average is kind of like that low 30s on the GAAP versus cash. All the numbers that we've referenced have always been cash. We don't quote or budget GAAP cap rates.

Your next question comes from the line of Thomas Todd of KeyBanc.

David, I just wanted to ask your comments about the ownership held by population that's 65-plus. You indicated you feel that's an important consideration as you think about the years ahead and the company's investment opportunity set. Do you see potential to transact using OP equity a little bit more as you look ahead? And then Also, what do you do to sort of better tapped into the segment of owners? Is the strategy generally consistent with your acquisition strategy currently? Or is there anything that you can do to more quickly or sort of more efficiently tap into that seller cohort?

Yes, it's a really interesting subject because I think over time, when we've looked at the profile of the sellers, it was so heavily tilted towards life events or life planning. And when you look at the ownership of this asset class across the country, and remember, we're a very, very small component of the overall addressable market. So it is an important aspect of what we need to understand is who are the sellers and why are they selling? Well, if they're live events, and if you think about the volume of assets owned across the country of a certain generation, I think we're getting growing confidence that the pipeline of available deals that fit our buy box is growing and will likely grow quite a bit in the next 10 to 15 years as that, that generation starts to move real estate out of their estates either before or after a life event. So to your point, we have definitely started to shift our deal teams to not only be building relationships with brokers, but also estate planning attorneys, wealth management offices, private banks because accessing the data and trying to find out who owns the best real estate in every one of these markets is really important because the likelihood that there's going to be a transaction in the next 10 years is pretty high.

Okay. That's helpful. And then I just wanted to follow up. Obviously, you increased the -- your acquisition guidance, but just curious, last quarter, you said you had visibility on around half of the pipeline that you were discussing. And I'm wondering how much visibility you have today on that increased pipeline? And are you seeing any changes at all in the market in terms of the pace or sort of motivation around seller activity just given some of the turbulence in the credit markets. Does that -- has that caused any sort of broader fallout at all that might put Curb in a little bit of a better position? Or is that not having an impact at all?

Todd, it's Conor. I'll start with the second part of your question, and David can cover things differently. I would say, in short, no. I mean it seems like this market generally is less correlated to the CMBS market, the IG market, whatever it might be. And that probably is a function of the fact that those markets aren't used to finance these assets. To David's point, it generally is private wealth or brokerage houses that are funding these and/or there is no mortgage. So the short answer on the second part of your question is, no, we haven't seen a material impact or change in deal flow because of geopolitical events or macro shocks. To the first question on the pipeline. So at this point, we have closed, we have under contract or have been awarded about 90% of that $850 million bogey. So we've got really good visibility on closings for, call it, the next 2 quarters. And then I would say there's a chance we exceed that figure for the full year. The only thing I'd flag though is that pipeline has some risk to it until we're through due diligence on all the assets. So to David's point, it doesn't include any portfolios of size. So that risk is mitigated by the number of properties, but we've got some more to get those closed. And again, we're optimistic based off what we're seeing that we can hopefully find more over the course of the year, but that's a TBD, and we need to work through the existing pipeline first.

Okay. Got it. That's helpful. Conor, you said closed under contract or awarded about 90% of the $850 million. Is that right?

Yes. So call it $750 million of the $850 million.

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

So actually, maybe just following up on that question, and maybe I missed it in the release, you guys were clearly very active on the ATM and cash with over, call it, roughly $600 million on hand. So Conor, as we think about the pacing of acquisitions for the balance of the year, is -- are you saying -- is 2Q going to be a real heavy quarter? I mean it doesn't seem like it's so far, we're already 1/3 of the way in. But I just want to understand the cadence just given the amount of cash that you have on hand versus clearly, what's a burgeoning acquisition environment.

Yes. So as I mentioned in my prepared remarks, Alex, we have enough cash and unsettled equity on hand to fund the entirety of the remaining $850 million, so call it the $700 million outstanding as of April 1. You're right to -- it's hard to assume those closings will be concentrated in the second and third quarter. There are obviously some that will spill in the fourth quarter, but we are expecting a pretty active middle of the year in terms of closing time line. So we don't expect the forward activity outstanding for a point past the end of the year, I would say.

Okay. And then the next question goes back to something that we discussed or talked to you guys about, I don't know, a few quarters ago. Your acquisition pool regionally is expensive. It's a lot of markets that may not be traditionally the prime REIT markets. But as you get into these different geographies, are you finding that there are either more opportunities within existing markets where you already are? Or are you finding that there are more opportunities in markets that you hadn't considered. I'm just trying to understand as you build these local relationships, whether it's leading you deeper into existing or whether it's leading to a broadening of markets that you originally never conceived of?

Alex, it's David. Well, I guess -- first of all, when I read your note this morning and you mentioned nooks and crannies. I think that was a very good way of putting it. It feels like markets where we've developed a lot of firsthand knowledge through buying and owning and operating, we're finding more intersections through our research that fit our buy box. And so we're really targeting some of those nooks and crannies within existing markets where the traffic count and the wealth and kind of the Aaron's running and the geolocation data is all telling us that we should be going deeper into a specific submarket. And you've seen that on our acquisition pipeline, where we continue to invest in markets where we already are in. On the other hand, there is a growing knowledge base that we're getting on other markets where it may not be a large MSA, but it has a pocket with a lot of concentrated traffic in wealth and a limited amount of supply, and that's a pretty encouraging algebra to good IRR. So when you see us go into some of these smaller markets, it's simply because there's a lack of supply and there's a kind of an extreme concentration of traffic into a couple of intersections. So whereas, I guess, in summary, it started with going deeper into existing markets and it's moving a little bit into being open-minded to finding other markets that have great properties to buy.

Your next question comes from the line of Mike Mueller with JPMorgan.

Kind of a quick follow-up on the prior question. So as it relates to some of these newer markets, are you seeing any kind of geographical biases when it comes to pricing or underwriting? Or is it really just based on whether it's a convenience center or not? I guess, are the cap rates that you're seeing in like Wisconsin and Minneapolis very different for a comparable product than you'd see in Georgia or Florida?

I think that the historical spread between submarkets still exist in this property type as well. I would say the irony is that I'm not sure that really flows through to the IRR as much as it has to do with -- there are simply more private buyers with more investable capital in areas like Florida and California. And so the competition is a little bit less in some of the other states. I think the trick for us is finding those pockets where we can generate a similar or better IRR, and we probably have a little bit less competition.

Your next question comes from the line of Paulina Rojas of Green Street.

The Whitestone transaction was an interesting data point for the sector and the portfolio shares some characteristics with your portfolio, mainly that is largely an anchored, but it also has a lot of meaningful differences. Do you see any relevant read-through from that deal for Curbline? Anything that you would flag as pertinent to your portfolio?

Yes, Paulina, it's a good question. I want to be careful about not opining on transaction. I would just say there are probably more differences than similarities in our view. And I think average asset size, some of the things you pointed out, market mix, whether or not there's a shadow anchor are pretty big differences versus what we're targeting. I would also just say to David's commentary, we are seeing plenty of real compelling individual transactions or one-off transactions in the markets we want to operate, and so we're focused focusing there. But I would just say at the risk of opining directly on transaction, there are more differences than there are similarities.

Okay. And then markets have been volatile and at various points, we have been a risk of attitude given the geopolitical concerns and what that could mean for inflation rate growth, et cetera. So as you think about that backdrop and what it means, where do you think Curbline sits in terms of vulnerability relative to other service center peers? And I mean that not just operationally, but in the context of your heavy growth-focused strategy.

What was the last part? Sorry, Paulina.

I said that I mean it, not just from operations, what that could mean for the operations of the business, same property NOI and such, but also from a capital markets perspective and the fact that you're in a very heavy growth focused cycle [indiscernible] cycle.

Paulina, it's Conor. I guess a couple of things. I would say our balance sheet and our relative balance sheet to us affords us a lot of cushion for whatever might happen in the macro environment or geopolitical environment to the genesis of your question, whether that's duration, whether that's leverage, whatever it might be. We also, I think, in putting the macro side, if you're in a growth vehicle, feel like you need to be prudently financing your business. And so avoiding a situation where you're trying to match fund or scramble to put financing in place, I think, is one of the ways to mitigate the risk that you're alluding to. From an operational perspective, I think this comes back to, I think, maybe Craig's question on consumer spending. Our service and restaurant-based tenants aren't destination type tenants. They're not sit-down restaurants, they are white tablecloth. I don't know if I would argue the're necessity or all necessity-based, but there is a margin of safety in terms of where they sit and kind of consumer behavior, as David mentioned, as opposed to consumer spending that I think also makes our cash flow stream a little durable. The last thing I would just say from a tenant or diversification perspective, we do focus on credits. We're 70-plus percent national and a decent chunk of those are public or IG rated, which, again, with no tenant or only 8 tenants greater than 1%, also helps partially mitigate. So I don't know if I were directly answering your question, but it feels like we're trying to do a lot of little things in addition to having a business plan that helps mitigate against potential risk. But again, I'm not sure if that's directly answering your question.

And Paulina, it's David. You certainly tell us if we're answering directly. But I guess what piqued my interest is when you said risk off environment. To me, risk is very much correlated to the size of the bet that one makes and the concentration of where you're willing to concentrate capital. And this business is so granular. We're buying buildings that have a handful of small tenants. And so I think that the diversification aspect not only of the tenant roster, but also regionally and then lastly, by just the sheer amount of capital going into each deal is so small. It feels like a risk mitigator that probably is less correlated to kind of the red light, green light of the overall capital markets because these transactions are happening in local markets with local buyers, whether we're involved or not. And I feel like that diversification is a pretty big differentiator.

Sorry for not being clear, but somehow you got it. And maybe a last one, it's a clarification. I'm not sure I understand. You flagged a headwind for same property NOI related to the timing of bad debt and CapEx spending. Could you help me understand the mechanics of the CapEx component specifically. How does its timing translating to NOI headwind, whether it's really a space that was taken offline or something else?

No. So just over the course of the year, we have capital projects which are recoverable by tenants or a piece can be recovered by tenants. Generally, that's pretty spread out over the course of the year. It happened to be quite concentrated in 2025 and just the second quarter. And given our small denominator, Paulina, it happens to be just a big headwind for this 1 quarter. So similar to lifestyle centers, power centers, grocery, there are capital projects which are recoverable. And for us, again, we just had a concentration in the second quarter.

There are no further questions at this time. And with that, I will now turn the call back to David Lukes for closing remarks. Please go ahead.

Thank you all very much for joining our call, and we look forward to speaking to you in the next quarter.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.