Merion Road Capital Management, an investment advisor, released its third-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, Merion Road Small Cap Fund returned +5.4% bringing the YTD returns to +11.2%. This compared to a +9.2% return for the Russell 2000 Index in the quarter and an +11.0% return in YTD. The long-only portfolio of Merion Road rose +5.1% during the quarter bringing the YTD returns to +20.5%. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Merion Road Capital Management highlighted stocks like Curbline Properties Corp. (NYSE:CURB) in the third quarter 2024 investor letter. Curbline Properties Corp. (NYSE:CURB) is a REIT, that develops and manages a portfolio of convenience retail properties. The one-month return of Curbline Properties Corp. (NYSE:CURB) was 4.24%. On November 8, 2024, Curbline Properties Corp. (NYSE:CURB) stock closed at $24.34 per share with a market capitalization of $2.552 billion.
Merion Road Capital Management stated the following regarding Curbline Properties Corp. (NYSE:CURB) in its Q3 2024 investor letter:
“During the quarter I bought two REIT’s which will benefit from lower interest rates but are more immune to economic gyrations; from a risk-management perspective, these provide nice diversification should my broader assessment be off. Additionally, I purchased the newly spun-off Curbline Properties Corp. (NYSE:CURB) when the standalone company was available for trading in the when issued market.
CURB is the recent “good co” spin-off from the shopping center SITE centers. It consists of a portfolio of convenience real estate in suburban markets with a geographic concentration in high growth areas like the Southeast and Southwest. Over 50% of leases serve restaurants with the balance taken by businesses like medical offices, beer & wine retailers, and fitness centers. Unlike office or malls, these properties are not being obviated by scary trends like work from home or online shopping. 96% of properties are currently leased and leasing rates have been strong with average new spreads of +28% and renewal spreads of +8%. The portfolio requires relatively low capital investments given their standardized site plans.
Since 2022 CURB has purchased almost 1.0mm of gross leasable area (GLA) for nearly $700mm imputing an average price of $710/GLA. This 1.0m in GLA represents 37% of the entire portfolio today. CURB was spun with over $600mm of cash and no debt, giving it plenty of fire power to continue rolling up the industry. Management believes that this is an active submarket with most buyers being private entities, positioning CURB to be the preeminent public acquiror.
I think it is fair to assume that valuation levels today should be higher than properties acquired over the past couple years given the improved economic outlook and where we are at in the interest rate cycle. Yet, when CURB became available for trading in the when issued market, it was valued at ~$20/sh which implied just $554/GLA. Given the differential between where the public market was valuing the company and the prices they paid for the same assets, along with an attractive free cash flow yield, I decided to build our position.”
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Curbline Properties Corp. (NYSE:CURB) is not on our list of 31 Most Popular Stocks Among Hedge Funds. While we acknowledge the potential of Curbline Properties Corp. (NYSE:CURB) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.