Release Date: February 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Urban Edge Properties (UE, Financial) achieved an 8% increase in FFO as Adjusted for 2024, reaching $1.35 per share, surpassing their three-year earnings target a year ahead of schedule.
- The company executed a record 79 new leases totaling 485,000 square feet with a same space cash rent spread of 26%, and achieved a new record for shop occupancy at 91%.
- UE's portfolio is now 80% grocery anchored, with grocers generating average sales of $900 per square foot, believed to be the highest in the sector.
- The company completed $30 million of redevelopment projects expected to generate a 16% unlevered return, and has $163 million of anchor repositioning and redevelopment projects expected to generate a 15% unlevered return.
- UE increased its dividend by 12% due to higher earnings and taxable income, reflecting confidence in future growth.
Negative Points
- Tenant bankruptcies remain a challenge, with expected rent loss from tenants like Party City, Big Lots, and Blink Fitness impacting financials.
- The acquisition market is competitive, with cap rates for high-quality assets compressing below 6%, making it challenging to find attractive deals.
- Rising construction costs could potentially erode returns on redevelopment projects, despite strong demand and leasing interest.
- The company faces potential credit losses of 75 to 100 basis points of gross rents, which could impact NOI growth.
- UE's guidance for 2025 includes assumptions of non-recurring items from the previous year, which may not be realized again, affecting year-over-year comparisons.
Q & A Highlights
Q: Can you provide more details on the 75 to 100 basis points of bad debt included in your guidance?
A: Mark Langer, CFO, explained that about 70 basis points of the provision relates to bankrupt tenants, and 40 basis points is a general reserve. This is partially offset by expected collections on old receivables, which nets out to their guidance range.
Q: Could you elaborate on the acquisition pipeline and the competitive cap rates?
A: Jeffrey Olson, CEO, noted that while more products are available, making deals work financially is challenging due to expected cap rates versus financing costs. They focus on capital recycling, pairing acquisitions with dispositions to maintain a favorable spread.
Q: What is the demand for single-tenant assets, and how do current cap rates compare to past transactions?
A: Jeffrey Olson mentioned that while achieving a 200 basis point spread as in the past 24 months is more challenging, they are exploring deals with single-tenant assets at cap rates around the fives. Larger stable power centers might trade at a 6% cap rate.
Q: Can you provide an update on the Sunrise Mall redevelopment and the Bergen Town Center sale?
A: Jeffrey Olson stated that they are excited about the progress at Sunrise Mall but cannot disclose details yet. The Bergen Town Center sale involves selling entitled land for residential development, with plans to redeploy capital into a 1031 exchange.
Q: How are you managing G&A expenses, and what are your plans for future cost reductions?
A: Mark Langer highlighted efforts to streamline processes, reduce headcount, and rebid third-party contracts. They are also exploring automation and AI to further reduce costs, with ongoing evaluations for additional efficiencies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
