Fitch Rates Curbline Properties' Sr. Unsecured Notes 'BBB'

Published: 2025-06-30 05:45:18 ET CURB

Published on 06/30/2025 at 05:45

Fitch Ratings has assigned Curbline Properties LP's (Curbline) proposed senior unsecured notes a 'BBB' rating.

Specifically, Curbline is issuing $100 million of unsecured, guaranteed senior notes due 2030 and $50 million of unsecured, guaranteed senior notes due 2032 in a private placement transaction. The use of proceeds would be for general corporate purposes, including funding future acquisitions.

The ratings and Outlook incorporate Curbline's exclusive focus on convenience centers, which offers both benefits and drawbacks compared to traditional shopping centers. The ratings place greater weight on the REIT's property portfolio, which is less granular in terms of asset concentration but will likely evolve from high volume acquisitions. A lack of demonstrated capital markets access is also a key rating factor. This is balanced by the company's strong balance sheet and net cash position.

Key Rating Drivers

Convenience Center Strategy: Curbline is the first and only publicly traded REIT focused exclusively on convenience real estate. This strategy is relatively unproven and not cycle tested, resulting in execution risk. Exposure to small-shop tenants could also increase cash flow volatility versus grocery-anchored shopping centers. Fitch typically views grocery-anchored centers favorably because they attract foot traffic that supports the business of in-line tenants and have proven resilient through market cycles. However, much of Curbline's portfolio is necessity-focused, traffic-centric, and small-shop heavy, which should provide higher rents and stronger negotiating power.

Convenience properties have limited capex needs and high tenant retention rates due to their standardized site plans and the variety of leasing prospects that can utilize existing square footage. During the last two quarters, capex as a percentage of net operating income (NOI) was approximately 5%, increasing cash flow growth and retained cash flow versus other retail formats. Same-property NOI (SPNOI) increased 5.8% year over year in 2024. Fitch expects it to average over 3% from 2024-2026. Management guidance for 2025 is 1.25%-4.25%.

Limited Capital Markets Access: Curbline's access to capital is weaker compared to other larger investment-grade REITs that have a proven track record in the public unsecured bond market. The company is tapping the private placement market earlier than expected, issuing $150 million of unsecured, guaranteed senior notes. Repeated and continued access to private placement unsecured notes would demonstrate a commitment to an unsecured borrowing strategy. However, given Curbline's size and scale, it is unlikely to issue public unsecured bonds in the foreseeable future.

The company is likely to carry some secured debt on its balance sheet (less than 5%). Management has stated that secured market/mortgage debt is sometimes more efficient than the unsecured market.

Solid Tenant Diversification: As of March 31, 2025, Curbline's top 10 tenants represented 12.7% of its total base rent, which is widely more diversified versus peers and in line with the 'A' rating category. National tenants account for over 71% of annualized base rent (ABR), and the company's largest exposure is Starbucks, at 2.3%, which has an investment-grade (IG) rating (rated by other NRSROs). Curbline has no exposure to recent chain bankruptcies (i.e. Party City, Container Store, Joann, and Big Lots), announced store closures (Kohl's and Macy's), theatre tenants (AMC and Cineworld), or other 'at risk' retailers (such as Michael's and Petsmart).

Acquisition-Led Growth Strategy: Curbline has ample capacity to scale with over $990 million of liquidity, consisting of $594 million in cash and cash equivalents and $400 million of availability on the RCF. Management is focusing on external growth and expects to close on $500 million of convenience acquisitions per year to be funded with 50% debt and 50% cash on hand. Depending on its stock performance, the company may use equity as a material source of capital. It acquired 20 properties for $206 million in 4Q24 and another 21 convenience shopping centers for $182.5 million year to date through May 22, 2025.

Increasing Leverage: As of 1Q25, Curbline had a net cash position, with only a $100 million term loan facility outstanding. REIT leverage remains negative and is likely to increase, year over year, as the company raises capital to grow its business. However, Fitch expects the company will manage leverage effectively, including through equity issuances, with a goal of keeping it below peer averages. Fitch forecasts REIT leverage will remain below 5x through 2028.

Large Addressable Market: As of 1Q25, Curbline owns 107 convenience center properties in the U.S. with over 3 million square feet of inventory. This represents just over 1/4 of 1% of the 950 million square feet of total U.S. inventory, according to the International Council of Shopping Centers. The market is extensive enough that management expects to stay focused within the convenience sector without needing to broaden its strategy.

Peer Analysis

Curbline's exclusive convenience center focus is quite unique, as it is primarily comprised of small-shop tenants versus its peers that have anchored portfolios, many of which have a grocery component. Anchored portfolios are considered more stable and are cycle tested, but CURB should see lower operating capital needs and higher growth. The asset quality is solid for the rating, with the highest ABR psf among its peer group at $35.14 as of 1Q25. Occupancy levels (96.0% leased rate and 93.5% commenced rate) are roughly in line with peers.

CURB is in a net cash position. Curbline's peers, Kite Realty Group Trust (KRG; BBB/Positive) and Tanger Inc. (SKT; BBB/Stable), have been operating with REIT leverage of below 5x; Brixmor Property Group, Inc. (BRX; BBB/Stable) and Kimco Realty Corporation (KIM; A-/Stable) were in the mid- to high-5x range at year-end 2024; and InvenTrust Properties Corporation (IVT; BBB-/Stable) has been operating at lower levels.

Fitch links and synchronizes the IDRs of the parent REIT and subsidiary operating partnership based on the weak parent/strong subsidiary approach and the entities operating as a single enterprise with strong legal and operational ties. No Country Ceiling or operating environment aspects impact the rating.

Key Assumptions

SPNOI growth of 1.25%-4.25% in 2025, and exceed 3%, on average, thereafter;

Acquisitions of $500 million or more each year through the forecast period, funded with a combination of cash on hand, debt and equity;

Total capex, including maintenance, as a percentage of NOI of approximately 10%;

Minimal development/redevelopment spending (Fitch's model does not incorporate any amount);

REIT leverage to increase year over year but remain below 4x through 2028;

Fitch expects Curbline to issue private placement bonds each year from 2026-2028 to fund acquisitions, with pricing in the 6.25%-6.75% range;

REIT fixed charge coverage to decrease as the company incorporates more debt into its capital structure (estimated to be approximately 4x in 2028).

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Fitch's expectation of REIT leverage sustaining above 6.0x;

Fitch's expectation of fixed-charge coverage sustaining below 2.0x;

Fitch's expectation of sustained deterioration in operating fundamentals and/or asset quality (e.g., weak SSNOI results and occupancy declines), or evidence of a weaker tenant base (percentage of national tenants declines).

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Demonstration of improved capital access, which could include new public unsecured bonds, frequency of issuance, familiarity and importance among credit investors and pricing;

Increased portfolio granularity, with the top 10 assets representing 15%-20% of NOI;

Fitch's expectation of REIT leverage sustaining below 5.0x.

Liquidity and Debt Structure

Curbline's base case liquidity coverage ratio is strong for the period from April 1, 2025, through Dec. 31, 2026. As of March 31, 2025, the company was positioned well, with cash and cash equivalents of $594 million and full availability under its RCF. During 1Q25, $100 million had been drawn and was outstanding on the term loan facility.

The credit agreement provides for an RCF totaling $400.0 million, which matures in September 2028, subject to two six-month extension options. The term loan facility matures in October 2027, subject to two one-year options to extend. In October of 2024, the company entered into a $100.0 million forward interest rate swap agreement to fix the variable-rate SOFR component of the term loan facility.

Fitch expects Curbline to fund its growth strategy primarily with unsecured borrowings to finance future acquisitions, as well as with some, but less, secured debt.

The company's net operating income is wholly owned and fully encumbered.

Issuer Profile

Curbline Properties Corp. is engaged in owning, managing, leasing and acquiring a portfolio of convenience shopping centers in the U.S. On March 31, 2025, its portfolio comprised 107 properties, aggregating 3.4 million square feet of gross leasable area (GLA).

Summary of Financial Adjustments

Fitch did not make any material non-standard financial adjustments.

Date of Relevant Committee

29 April 2025

Sources of Information

The principal sources of information used in the analysis are described in the Applicable Criteria.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.