• FFO as Adjusted Per Share: $0.33, up 4.4% year-over-year

• Same Property NOI Growth: Increased by 3.7%

• Acquisitions: $426 million at a weighted average cap rate of 7.2%

• Dispositions: $356 million at a weighted average cap rate of 5.2%

• 2024 FFO as Adjusted Guidance: Increased by $0.03 to $1.30 per share

• 2025 FFO as Adjusted: Expected towards high end of $1.31 to $1.39 range

• Leasing Activity: Same-property occupancy up 140 basis points; cash leasing spreads 23% on new leases

• Redevelopment Pipeline: $166 million expected to generate a 15% return, 90% pre-leased

• Interest Expense: More predictable after $500 million of fixed rate refinancings

• Unencumbered Asset Pool: Increased by $400 million to $1.5 billion

• Warning! GuruFocus has detected 8 Warning Signs with UE.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Urban Edge Properties reported a 4.4% increase in first quarter FFO, as adjusted, to $0.33 per share, driven by higher NOI growth of 3.7% for the same property pool.

• The company successfully acquired two shopping centers in New Jersey, enhancing its portfolio with high-quality retail properties at attractive cap rates.

• Leasing activity remains robust with a 140 basis point increase in same-property occupancy and strong cash leasing spreads of 23% on new leases.

• Urban Edge Properties has a healthy balance sheet with significant refinancing activities, reducing interest expense and extending debt maturities.

• The company has increased its 2024 FFO as adjusted guidance by $0.03 per share at the midpoint, reflecting better than expected results and strong retail fundamentals.

Negative Points

• The company's reliance on acquisitions for growth could be risky if market conditions change or if expected returns from these investments fail to materialize.

• Interest rate volatility remains a concern, which could impact financing costs and capital structure stability in the future.

• While the company has a strong leasing activity, the overall retail sector faces challenges from e-commerce and changing consumer behaviors that could affect long-term property values.

• Urban Edge Properties has a significant portion of its portfolio in the competitive and supply-constrained markets of the Northeast, which could limit expansion opportunities.

• The company's strategy involves disposing of non-core properties, which, while optimizing the portfolio, could result in short-term revenue dips if not managed carefully.

Q & A Highlights

Q: Could you talk a little bit about the pricing dynamic and how much upside you think there is on both the anchor spreads and blended spreads given the tightness of the market? A: Jeffrey Mooallem, Urban Edge Properties - Chief Operating Officer, Executive Vice President, noted that the market continues to be strong and in their favor. They've executed several renewals with high levels of renewals from a square footage standpoint, including a couple of anchor deals. They've had success in pushing renewal rates higher than the standard 10% every five years, which is typically the starting point from anchors. The discussions with anchors have been productive, moving towards a more balanced playing field compared to the past.

Q: Could you discuss where you're sourcing your deals from, given the positive trends in retail and the attractive cap rates on your acquisitions? A: Jeffrey Olson, Urban Edge Properties - Chairman of the Board of Trustees, Chief Executive Officer, explained that they stay active with brokers and are known for their certainty to close, which makes them a preferred buyer. The deals often come from funds looking to exit their positions, and Urban Edge leverages an extensive brokerage network primarily from DC to Boston. They also engage directly with sellers and sometimes receive deals from lenders.

Q: Can you provide an update on what's happening with the Bruckner and Sunrise properties, particularly with their low lease occupancy and reimagining efforts? A: Jeffrey Mooallem mentioned that for Sunrise, they are progressing with their plans and hope to share more details soon. For Bruckner, they are actively working on leasing the vacant spaces, with one leased to Target and ongoing discussions for the other spaces.

Q: What impact do you expect from the increase in physical occupancy on your expense recovery ratio? A: Mark Langer, Urban Edge Properties - Chief Financial Officer, Executive Vice President, noted that as physical occupancy is expected to grow by 100 to 150 basis points this year, the recovery ratio should increase from 83% to around 85%. Historically, when occupancy was higher, recovery ratios approached 88-90%.

Q: What's driving the record target occupancy, and how does disposing of lower-quality assets affect this? A: Jeffrey Olson highlighted that the main driver is the retenanting of spaces previously leased to underperforming tenants with stronger anchors, which has led to increased shop occupancy. Dispositions have not been a factor as sold assets were fully leased.

Q: Could you talk about your financing strategies given the current market conditions? A: Jeffrey Olson discussed their active engagement in refinancing and acquiring new properties, taking advantage of interest rate volatility to lock in favorable rates. They aim to maintain a competitive edge by ensuring they have a cost of capital that allows them to transact effectively in the market.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.