Q1 2025 Urban Edge Properties Earnings Call
Greetings and welcome to the urban edge properties first quarter 2025 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone.
Todd: Hey, Todd.
Speaker Change: This conference is being recorded it is now my pleasure to introduce your host Jeff Olson. Please go ahead.
Jeff Olson: Good morning, and welcome to urban edge properties first quarter 2025 earnings Conference call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer, Jeff <unk>, Chief Operating Officer, Mark Langer, Chief Financial Officer, Rob Milton General Counsel, Oster, EVP and head of leasing and Android raising cheap.
Jeff Olson: [noise] accounting officer. Please note today's discussion may contain forward looking statements about the companys views of future events and financial performance, which are subject to numerous assumptions risks and uncertainties and wish the company does not undertake to update our actual results and financial condition and business may differ please refer to our filings with the.
Speaker Change: SEC, which are also available on our website for more information about the company and our discussion today, we will refer to certain non-GAAP financial measures reconciliations of these measures to GAAP results are available in our earnings release and our supplemental disclosure package at this time. It is my pleasure to introduce our chairman and Chief Executive Officer.
Jeff Olson: Jeff Olson great. Thank you everybody and good morning, everyone.
Speaker Change: We had a great first quarter January results that exceeded our expectations reporting F. F O as adjusted of 35 per share a 6% increase over the first quarter of last year.
Speaker Change: And the highest quarterly earnings result, and you use 10 year history.
Speaker Change: Same property NOI increased three 8% compared to the first quarter of last year and benefited from rent commenced from are signed but not opened pipeline improved recovery ratios and better than expected collections.
Speaker Change: Leasing momentum continued at a good pace in the first quarter with the execution of 42 leases totaling 434000 square feet.
Speaker Change: This included 18, new leases in the quarter amounting to 118000 square feet with same space cash leasing spreads of 34%.
Speaker Change: Our tenant retention ratio remains high at 95%.
Speaker Change: Our progress in attracting a desirable mix of shop tenants continued as our shop occupancy grew to a new record of 92, 4%.
Speaker Change: Our leasing pipeline remains strong since the tariffs were announced in early April we've not seen any changes in retailer demand at our properties.
Speaker Change: However, the investment sales market is showing early signs of slowing down.
Speaker Change: On the debt side, there has been limited C. M. B S issuance since April life insurance companies and banks are still actively lending on shopping centers generally with spreads that have increased 10 to 30 basis points on the equity side, many reach and foreign.
Speaker Change: Investors are pausing.
Speaker Change: Transactions with private buyers remain active this is highlighted by our successful $25 million sale of eight acres of land at Bergen Town Center, which has been approved for 460 residential units.
Speaker Change: Additionally, we are under contract to sell two more properties for $41 million, which will bring our total dispositions to $66 million. This year at a 5% weighted average cap rate.
Speaker Change: We plan to reinvest this capital into accretive acquisitions that will enhance our portfolio quality and growth rate.
Speaker Change: Now turning to our 2025 outlook, we are reiterating our 2025 full year guidance of achieving <unk> as adjusted of $1 37 to $1 42 per share reflecting growth of 4% at the midpoint.
Speaker Change: We would have likely increased our guidance by two cents a share if not for the economic volatility in April.
Speaker Change: While we had a stronger start to the year than we expected. The economic uncertainty has led us to project a more conservative outlook for the back half of the year, we will revisit our assumptions again next quarter to see if an increase in guidance is appropriate.
Speaker Change: Our five points of differentiation should continue to drive our growth first our properties are concentrated in the DC to Boston corridor. The most densely populated supply constrained region of the country are average three mile population density of APA.
Speaker Change: Proximately 200000 people is the highest in the sector.
Speaker Change: Second our forecasted growth in net operating income is one of the most visible in the sector rooted in our $25 million signed but not opened pipeline representing 9% of our current net operating income third we have a large redevelopment.
Speaker Change: Hi, blind totaling $156 million of projects expected to generate a 14% return fourth we are actively recycling capital by selling some of our noncore lower cap assets and redeploying that capital into it.
Speaker Change: Creative acquisitions.
Speaker Change: Over the past 18 months, we have acquired over $550 million in assets at a seven 2% cap rate and sold approximately $450 million at a five 2% cap rate.
Speaker Change: Finally, our balance sheet is conservatively built for market disruption, considering we have no corporate debt other than $50 million currently drawn on our line.
Speaker Change: We have 31 individual non recourse mortgages totaling $1.6 billion isolating market risk to individual assets rather than at the corporate level. Our remaining 43 properties are unencumbered.
Speaker Change: I'll now turn it over to our Chief operating Officer, Jeff Miller.
Speaker Change: Thanks, Jeff and good morning, everyone.
Speaker Change: We had an excellent first quarter of leasing signing 42 deals for over 430000 square feet 24 renewals at a 6% spread and 18, new leases at an impressive 34% spread.
Speaker Change: That spread was driven by deals with best in class retailers like trader, Joe's Sephora and sweet grief, providing both economic and merchandising upgrades at our assets.
Speaker Change: Our same property leased rate now stands at 96, 6%, a 50 basis point decrease over the previous quarter and a 10 basis point decrease over the first quarter of 2020 for 2024.
Speaker Change: This occupancy decrease was primarily a result of recapturing anchor spaces from Big lots Party city and buy buy baby, we have seven leases with those retailers to were acquired through the bankruptcy process by tenants. We wanted in our properties and five we took back willingly with better replacements in mind.
Speaker Change: We are negotiating deals on those five spaces at better overall terms with tenants that we think are a better fit for those properties than the prior occupants.
Speaker Change: We also continue to improve our shop occupancy, which is now up to 92, 4% a 150 basis point increase since the last quarter and a 400 basis point increase over the prior year.
Speaker Change: Despite a bumpy economy in April our leasing pipeline remains strong we still expect to end 2025 with anchor occupancy of at least 97% and shop occupancy between 93 at 94% with healthy leasing spreads of 20% or more.
Speaker Change: On the development side, we completed redevelopment projects at Monte Adra adverse Commons, Oregon Town Center and Manalapan at an aggregate cost of $22 million. These projects provided not only a healthy return on our investment, but also sets us up for future rent growth as tenants like T. J Maxx Ross first watch <unk>.
Speaker Change: Jim rack all bolster the lineup at those properties.
Speaker Change: We commenced two redevelopment projects in the first quarter totaling $14 million at Yonkers Gateway Center and at our target anchored kingswood crossing in Brooklyn.
Speaker Change: Our total active redevelopment pipeline is now 156 million at an expected 14% return.
Speaker Change: Jeff already touched on some of the dislocation in the transaction market. So I won't add much more there other than just say any volatility should give us a chance to transact at more attractive returns.
Speaker Change: The stability of our portfolio along with the accretive redevelopment opportunities embedded throughout it allows us to be patient.
Speaker Change: I'll now turn it over to our Chief Financial Officer, Mark Langer.
Mark Langer: Thanks, Jeff Good morning, as you just heard we had another excellent quarter with strong earnings continued progress on the leasing front and good execution on our anchor repositioning projects.
Mark Langer: <unk> as adjusted was <unk> 35 per share and our same property NOI, including redevelopment increased three 8% compared to the first quarter of 2024.
Mark Langer: <unk> growth was better than expected due in part to higher net recoveries yearend Cam reconciliation billings and collections from tenants in bankruptcy that continued to pay rent.
Mark Langer: <unk> as adjusted also benefited from the impact of previous accretive capital recycling and lower recurring G&A.
Mark Langer: Our balance sheet remains strong with approximately $800 million of total liquidity, including $98 million in cash.
Mark Langer: Our debt maturity profile is very manageable with only 8% of outstanding debt maturing through 2026 comprised of $124 million mortgage maturing in December of this year and $116 million of maturities in 2026.
Mark Langer: Currently our only variable rate debt pertains to our line of credit.
Mark Langer: Our net debt to annualized EBITDA now stands at five nine times.
Mark Langer: Our balance sheet is well positioned to withstand the economic volatility that has recently emerged and we have significant liquidity to take advantage of opportunities that may arise in the future.
Mark Langer: Turning to our outlook for 2025, Jeff noted that we are reiterating full year <unk> as adjusted guidance of $1 37 to $1 42, and same property NOI growth, including properties in redevelopment of 3% to 4%.
Mark Langer: Our assumption for revenue deemed to be uncollectible is unchanged at $75 to 100 basis points of gross rents as.
Mark Langer: As we have previously stated our $25 million of Sn or pipeline remains a significant driver of NOI growth with $4 4 million of annualized gross rent commenced in the first quarter and our expectation to recognize an additional $4 4 million from our asset and our pipeline for the rig.
Mark Langer: <unk> 2025 predominantly.
Mark Langer: Predominantly weighted to the second half of the year.
Mark Langer: Our same property NOI growth was ahead of plan in the first quarter, we have built in more conservative assumptions for the remainder of the year, incorporating and contingency to cover potential volatility and rent collections tenant fallout and other income.
Mark Langer: We reduced the high end of our expected recurring G&A expense for 2025 by $500000 to a new midpoint of $35 8 million, which.
Mark Langer: Which is comparable to the amount incurred in the prior year.
Mark Langer: The reduction reflects our continued efforts to carefully manage third party spending as well as internal costs, including head count.
Mark Langer: We are pleased with the efforts our entire team is making to ensure we operate with speed and efficiency.
Mark Langer: To conclude our team remains focused on executing our business plan to drive leasing and the occupancy and deliver new tenant spaces on time, whilst carefully managing costs.
Mark Langer: We have a talented and seasoned team that has successfully navigated a variety of economic cycles and we are confident that we can continue to drive sector leading growth in the years ahead.
Mark Langer: I will now turn the call over to the operator for questions.
Mark Langer: Thank you we will now be conducting a question and answer session.
Speaker Change: We would like to ask a question. Please press star one on your telephone keypad.
Mark Langer: Confirmation tone will indicate your line is in the question queue.
Mark Langer: You May press Star two if you would like to remove your question from the queue.
Mark Langer: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Your first question comes from Ronald Camden with Morgan Stanley. Please go ahead.
Ronald Camden: Good morning, Ron.
Ronald Camden: Well I don't your line is live.
Speaker Change: Okay, well move on to Michael Griffin with Evercore. Please go ahead.
Michael Griffin: Great. Thanks, Jeff I appreciate your kind of commentary as it relates to the demand for you know releasing some of those bigger boxes, but you know if you think there is this macro uncertainty with the tariff policy and businesses might be putting decisions on hold I mean does that change your kind of thinking around the time frame.
Michael Griffin: Getting those leased up and how it might ultimately impact occupancy.
Michael Griffin: But so far we have seen no slowdown from the retailers.
Speaker Change: And that's not only across our portfolio, but when we're speaking to our breadth of Ren when we're speaking to.
Michael Griffin: Retail investors are retail landlords we.
Michael Griffin: We are not seeing any one show a slowdown at the moment last night I had dinner with somebody who runs one of the largest retail real estate brokerage firms here in the New York area and he told me that they have 500 leases out right now that they're negotiating and not one of them has seen a material change realm.
Michael Griffin: <unk> to their historical norms. So at the moment, we're not seeing that.
Speaker Change: Great. That's a that's some helpful context, and maybe you could give a little more color on you know the dispositions that were announced and the ones that you know or are under contract I realize there are probably.
Speaker Change: Only so much you can say, particularly for the ones that are under contract, but you know a 5% cap rate seems pretty attractive, particularly given you were acquiring properties in the low sevens last year. So you know as we think about the opportunity set for external growth is is that a fair spread too to assume about 200 basis points between act.
Speaker Change: Physicians and dispose and any color there would be helpful.
Speaker Change: Well look over the last 18 months, that's what we've been able to do to the tune of around $500 million. We have we obviously have some visibility on the 66 million that we've announced this morning at a five those are three separate assets. One was land that is gonna get used for residential purposes, but it had a building on it.
Speaker Change: So I think that was done at around a 4% cap rate.
Speaker Change: We will hope to do more in the future, but it's too early to tell and then likewise, we're trying to line up acquisitions on the other side of the equation because many of these will be done in 10 31.
Speaker Change: And we're definitely on the hunt for those acquisitions.
Speaker Change: Great. That's it for me thanks for the time.
Speaker Change: You bet. Thank you.
Speaker Change: Next question Floris Van <unk> with Compass point. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking my question.
Speaker Change: Hey.
Speaker Change: Jeff You mentioned something in your opening remarks.
Speaker Change: Which sort of caught my attention and maybe if you could.
Speaker Change: Spend on that and maybe Mark if you can give a little bit more detail behind it and it was.
Speaker Change: If it was not for the currency.
Speaker Change: Disruption in the market or volatility.
Speaker Change: With the tariffs you would have raised your outlook by <unk>, maybe if you can go into more detail what specifically are.
Speaker Change: Are you being more cautious about.
Speaker Change: And Oh.
Speaker Change: Oh did you raise your your bad debt assumptions or what are the other things that you did not to raise your guidance going forward.
Speaker Change: I think Florida, we're just being more conservative and we added to the contingency. There is nothing specific that's specific to a certain tenant that caused us to do it. It's just that we thought that it would be more prudent to have more conservative guidance out at the moment and not raise at this time.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Fair enough and then.
Speaker Change: One of the other things is as you look out obviously, you you youre looking at negotiating and deploying some of that capital.
Speaker Change: Maybe.
Speaker Change: You're doing a lot of these 10 31 exchanges and.
Speaker Change: What kind of impact does that have on your taxable income I'm thinking there is another company that I cover in the office sector that has done a lot of 10 31 exchanges in its history and one of the obviously the good news is that you deferred the tax the bad news is.
Speaker Change: It forces you to pay out more in terms of dividends.
Speaker Change: And obviously you guys are still your payout ratio is still very modest.
Speaker Change: But how do you think about that and what kind of impact would that have on your your taxable income and your dividend.
Speaker Change: Would that force you to.
Speaker Change: Through these 10 31 exchanges does that force you to bump up your dividend, maybe a little quicker than you otherwise might have.
Speaker Change: I don't think so at all but yeah, no forced by nature of doing the 10 31, just to clarify for you that is what's protecting us to defer the gain so had we not put these in 10 31 exchanges. It would have increased taxable income and to your point, therefore increased potential pressure on distributing that in the form of.
Speaker Change: The dividend, but because we're protecting these gains via the deferral in 10 31, we are not adding any pressure to the dividend. So that's why we find it particularly attractive to do so.
Speaker Change: Got it.
Speaker Change: Just to clarify the new tax basis of your or the new depreciable basis of your asset is the basis of your previous asset correct.
Speaker Change: Correct, Yes, that's correct.
Speaker Change: Got it okay.
Speaker Change: That's it for me thanks, guys.
Speaker Change: Okay.
Operator: Next question Paulina Rama with Green Street. Please go ahead.
Paulina Rama: Good morning.
Speaker Change: And in your press release, you mentioned that rent growth is accelerating across your markets.
Speaker Change: You provided some numerical context, our guidance to support that common and.
Speaker Change: Do you believe the number of Pks, we had in Q1 Q had any impact a landlord negotiating leverage.
Paulina Rama: Yeah Paulina.
Jeff Olson: Pauline and good morning, it's Jeff <unk>.
Jeff Olson: I mean as far as context, what we can tell you is that we are pushing rents across the board. We recently at a situation, where we had a national retailer telling us they were topped out in the in the mid teens.
Jeff Olson: And we passed on the deal and they were able to come back in the low 20. So you can you can attribute to 10% to 15% ish.
Jeff Olson: Increase in market rents from that transaction and I think that maybe it's a little less than that maybe five to 10 is a good number to use but certainly we've seen some some legitimate market rent growth across our markets and good demand across the board the bankruptcies in the first quarter in particular, if you look at big lots and party city, which had been hanging out there for a very.
Jeff Olson: A long time and you could add Joanne as to that list. Although we don't have any joanne as exposures, we don't view those as a canary in the coal mine of multiple retailer bankruptcies. There are names on the at risk list that we worry about and that we talk about often but we don't we think the retailer balance sheets are overall very healthy.
Jeff Olson: When we talked to our biggest tenants like the home depots. The Walmart the T. J Maxx companies Theyre not worried Ross is performing extremely well in the northeast so far and has opened up there. They are buying program to do a lot more stores, we're negotiating a couple of deals with them right now.
Jeff Olson: So we don't really see any big bankruptcy headlines coming down the Pike obviously.
Jeff Olson: The economic disruption, we're all worried about and the potential recession that that could cause is on all of our mines, but but leaving that aside we feel like the state of the industry is very healthy right now.
Jeff Olson: Thank you and my.
Jeff Olson: My other question is and I think you during periods of market volatility investors.
Jeff Olson: Tended to view traditional small format grocery anchored centers, it's safe for our space.
Jeff Olson: Space compared to larger properties, we said higher.
Jeff Olson: Exposure to anchor space.
Speaker Change: What's your view on this perception and given the credit quality of your anchors hurts your senior portfolio would perform in a more difficult environment relative to a typical again small grocery anchored center portfolio.
Speaker Change: Yeah, Paulina, it's just for a while and again, it's a great question and it's one that we ask ourselves constantly as we do our internal valuations as we look at our external opportunities we.
Speaker Change: We feel very good about how our portfolio would perform in a recessionary environment I like to say to our employees here that.
Speaker Change: Urban edge is a good place to be when times are good and a great place to be when times are bad and I really do believe that now.
Speaker Change: Now of course, if you're comparing it to a very healthy grocery store with a reasonable 10 to 20000 square feet amount of shop space and a thriving environment and those shops are getting 3% a year increases.
Speaker Change: That's an excellent investment and it's priced that way right Theres, a 50 to 150 basis point Delta between where those price in the market today, and where some of our stuff might price, but a lot of the grocery anchored centers. We look at are very heavy on shop space and in our opinion, therefore, it might be exposed more to a slowdown in the economy than some of our properties.
Speaker Change: You are very heavy heavy on well balance sheet at anchor spaces.
Speaker Change: Who's to say what happens in a recession, but historically if you look at the GSC and other other times of turbulence as its been the small shops, it's been the local mom and Pops and the weaker balance sheets that have struggled the most and had the most trouble coming out of it so when I look at our balance sheet and our on our tenant roster I view it as more bullet.
Proof in a little bit more insulated than some of the peers, we'd love to buy more great grocery anchored shopping centers, but we're not going to stretch and buy something with too much shop space just because it has a grocer in it if we think it's going to be more susceptible to a slower economy.
Speaker Change: Thank you great color.
Speaker Change: Thank you.
Speaker Change: Once again, if he would like to ask a question. Please press star one on your telephone Keypad next question will come from Ronald Camden with Morgan Stanley. Please go ahead.
Ronald Camden: Sorry about that I guess two quick ones just on I think you guys have clearly had a lot of success sort of capital recycling over the past past couple of years here.
Ronald Camden: You know I am just wondering sort of post tariff postal slowing economy does that create sort of more opportunities on the acquisition side less opportunities. Just what are you seeing in the market and any sort of early reads on cap rates.
Ronald Camden: I mean, we are underwriting a handful of deals right now I still think the bid ask spread is pretty wide and it's probably going to take some time to sort out what true pricing is so most sellers today want yesterday's price.
Ronald Camden: So we're gonna be patient at the moment.
Speaker Change: Makes sense. My second question is just on I think you are.
Speaker Change: You know you talked about some of the conservatism in the guidance can you just remind us what the bad debt assumptions is now versus previous and even more specific just on the Kohl's Kohl's exposure. Amy can you some thoughts on all that space, there's opportunities to get that back sooner.
Speaker Change: Hum and so forth so bad debt calls thanks.
Speaker Change: Great. Let me just start with Kohl's, because I mean, we.
Speaker Change: We don't view Kohl's is having near term bankruptcy risk.
Speaker Change: Look at the pricing of their public bonds that come through later this year theyre trading at about par.
Speaker Change: Many of our stores are the most productive stores in their portfolio and they have a relatively cheap rents at $11 a foot. So we'd love to get back many of those spaces I doubt, we will anytime soon but the demand is strong for those boxes.
Speaker Change: And in terms of bad debt run.
Speaker Change: We reiterated our guide for bad debt to be 75 to 100 basis points of gross rents were about 10 bps lower than that in Q1, but as you heard US say, we built in a little bit of additional contingency for the back half of the year. So.
Speaker Change: That's where we stand with the reiterated guidance.
Speaker Change: Great. Thanks, so much that's it for me.
Speaker Change: There are no further questions I would like to turn the floor over to Jeff <unk> for closing remark.
Speaker Change: Great well, we appreciate your interest and look forward to seeing everyone. Soon thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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