Citi Initiates Neutral Coverage on Curbline Properties Amid Growth and Valuation Risk via Investing.com

Investing.com — Citi Research initiated coverage on Curvature properties Body. (NYSE: ) with a “neutral” rating, placing the stock in their model portfolio with an overweight position.

Curbline, a recent spinoff of SITE Centers (NYSE: ), makes up about 66% of the former combined entity and specializes in retail real estate, a niche market that includes smaller, unanchored properties.

The initiation follows Curbline’s capitalization of approximately $800 million in cash, along with a $100 million undrawn term loan, which provides a solid financial foundation for future growth.

The company’s appeal lies in its potential for above-trend earnings growth driven by incremental acquisitions on a smaller asset base.

Citi analysts pointed to the company’s strong tenant credit and projected a comparatively lower long-term capital expenditure compared to its peers.

Despite these favorable attributes, Citi analysts led by Craig Mailman, Seth Bergey and Nick Joseph maintain a balanced outlook due to Curbline’s valuation of premiums compared to retail companies and execution risks related to scaling its acquisition strategy.

Curbline’s valuation, trading at about 24 times estimated 2025 funds from operations, is considerably higher than the broader retail REIT sector, which typically trades at about 14 times FFO.

Analysts have set a price target of $25 per share, slightly above the current price of $23.82, reflecting a modest expected yield of 5% on October 7, 2024.

While the premium valuation reflects Curbline’s potential to grow faster than its peers, Citi remains cautious about the company’s ability to execute on its acquisition strategy, particularly its plan to buy $125 million in assets per quarter .

Citi analysts identified key catalysts for potential outperformance, including Curbline’s ability to grow externally without relying heavily on capital markets, the resilience of its retail assets during economic downturns and strong operational execution marked by tight controls of expenses.

However, they also flagged several risks, including the company’s premium valuation relative to its peers, the challenges of being the first public REIT to focus solely on comfort assets and the potential for slower-than-expected growth.

While Curbline’s high-risk profile is flagged in Citi’s quantitative model, analysts refrained from applying a formal high-risk rating due to its experienced management team and the familiarity of its public market assets.