Good morning and welcome to the Urban Edge Properties Third Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Etan Bluman. Please go ahead, sir.

Good morning and welcome to Urban Edge Properties third quarter earnings conference call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer; Mark Langer, Chief Financial Officer; Danielle De Vita, Executive Vice President of Development; Rob Milton, General Counsel; Scott Auster, Senior Vice President and Head of Leasing; and Andrea Drazin, Chief Accounting Officer. Please note today's discussion may contain forward-looking statements about the company's views of future events and financial performance which are subject to numerous assumptions, risks and uncertainties in which the company does not undertake to update. Our actual future results, financial condition and business may differ materially. Please refer to our filings with the SEC which are also available on our website for more information about the company. In 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 supplemental disclosure package in the Investors section of our website. At this time, it is my pleasure to introduce our Chairman and Chief Executive Officer, Jeff Olson.

All right. Thank you, Etan and good morning, everyone. I am pleased to announce another strong quarter with FFO as adjusted of $0.30 per share, an 8% increase over the third quarter of last year and a 7% increase year-to-date. This increase is primarily attributed to NOI growth and the acquisitions of Woodward Town Center outside of Washington, D.C. and the shops at Riverwood in Boston. The shopping center industry continues to benefit from strong demand from a broad set of retailers, especially throughout the suburbs around New York City. Just in the past year, we have increased our occupancy from 93% to 95%, a notable growth rate following the pandemic. We had visible NOI growth coming from our signed but not yet open pipeline which has increased to $28 million, representing approximately 12% of our current NOI. We also have 1 million square feet of leases under negotiation, representing an additional 10% of annualized NOI. Our team is energized and committed to getting our portfolio back to our prior occupancy levels of 97% to 98%. Our properties are predominantly situated in the first-ring suburbs within the D.C. to Boston corridor, the most densely populated supply-constrained market in the United States. Leading retailers continue to expand and are focused on growing their omnichannel offerings within our core markets. We are thrilled that Target recently executed a 139,000 square foot lease at Bruckner Commons in the Bronx. Over the past 5 years, we have transformed a deeded 1970s era Shopping Center, previously anchored by Kmart, Toys 'R' Us and a local grocery store into a dominant destination that will be anchored by Target, Shoprite, Burlington, Marshalls and 5 Below. We have redesigned the facades, walkways and outdoor seating areas, making this property one of the most attractive shopping centers in the area. Target will solidify the center's position as one of the most important retail nodes in the Bronx and we have more upside coming from leasing the remaining 41,000 square feet of space adjacent to Target and the 43,000 square foot former Toys 'R' Us. We currently have $261 million of active redevelopment projects underway and expect to generate a 10% unlevered return on this investment. Our tenant coordination team is the busiest they have been in years, preparing to open over 50 new stores within our portfolio. As approximately 90% of these projects are associated with executed leases, there is minimal speculative risk. Notably, the $26 million project to relocate Kohl's into Bergen Town Center is 2 quarters ahead of its original schedule as Kohl's will hold its grand opening tomorrow. The store looks great and we are excited to reactivate 134,000 square feet of space that has been vacant for almost 2 years. We look forward to seeing other new anchor stores open in the coming quarters, including Shoprite and Marshalls at Huntington, Sector 66 at Las Catalinas, Nemours Children's Health at a new location and Ralph's Grocery Store and Walgreens at Montehiedra. We are keeping a close eye on inflationary pressures and the potential impact on consumer spending. The macroeconomic environment and the associated rising cost of capital will make the prospect of near-term acquisitions challenging. We are also cognizant of the impact these same pressures could have on our retail tenants. However, we would also note that the majority of our rent comes from tenants that are traditionally in recession-resilient categories and our overall tenancy is weighted towards well-capitalized national or regional retailers. Given current market conditions and considering the economic challenges that may arise in 2023, our plan is to protect our balance sheet and carefully scrutinize future capital and redevelopment spending to ensure appropriate yield hurdles are met. Additionally, we will be performing an intensive review of G&A as we finalize our 2023 budget to ensure we are taking measures to run the business as efficiently as possible. We are excited to welcome a new Chief Operating Officer. Jeff, Mark and I worked together for many years at Equity One and he has a unique skill set covering a range of disciplines, including acquisitions, leasing, construction, legal and development. He's a great leader and values our culture of transparency, community and growth. We look forward to having Jeff meet with the investment community in the new year after he starts and we will certainly have him with us during our Investor Day, which we plan to hold this spring. On the governance side, we continue to refresh our Board with outstanding talent. I am pleased to welcome Mary Baglivo and Kathy Sandstrom to our Board of Trustees. Mary was previously the CEO of the Americas for Saatchi and Saatchi and Kathy was a Senior Managing Director at Heitman, one of the largest real estate investors in the United States, both on the private and public side.

Thanks, Jeff. Good morning. I will discuss drivers of our third-quarter results, outline key assumptions within our newly announced guidance for 2022 and close with comments on our balance sheet and liquidity. First, in terms of our third quarter results, we had a very good quarter with FFO as adjusted of $0.30 per share, achieving same property NOI growth of 3.4% compared to the third quarter of last year or 1.5% when including properties in redevelopment. NOI growth this quarter benefited from the recovery of amounts deemed uncollectible in prior periods of $2.5 million versus $1.9 million we received in the third quarter of last year. Turning to the fundamentals. Same-property leased occupancy increased 180 basis points year-over-year, likely one of the highest growth rates in the strip sector. As compared to the second quarter, the same property leased occupancy rate is down 20 basis points, predominantly due to the anticipated expiration of a 145,000 square foot anchor lease at our well-located property in Totowa, New Jersey. Having anticipated this vacancy, we are already in discussions with multiple users to backfill the space. During the quarter, total portfolio shop occupancy increased 40 basis points to 83.7% as we executed deals with quality tenants, including Shake Shack, First Watch, Golf Tech and Dunkin', among many others. One side note on our same property occupancy. Given the redevelopment taking place at Bruckner Commons, the asset is not currently in the same property pool but the target lease will increase consolidated occupancy by 90 basis points. Overall leasing spreads this quarter were negative 1.1%. The negative spread was driven by the renewal of a strong anchor at one of our assets where we agreed to accept a lower rent in exchange for control rights and renewal terms we obtained at some of our other locations with this tenant. As we have mentioned in the past, our smaller portfolio size makes our spreads more volatile. To this point, spreads on new leases we have executed since the end of the third quarter, including the Target lease are slightly above 100%, given Target is paying twice what Kmart was paying on comparable space. Jeff noted the $28 million of gross rents we expect to realize from leases signed but not yet commenced. This is up from $23 million we reported last quarter and reflects $7.3 million of new rents from recently executed leases, including Target at Bruckner, while $1.8 million of rents commenced during the period, resulting in a net increase of $5.5 million. We have updated our disclosure related to the timing of the signed but not open pipeline, highlighting that we expect about $600,000 in Q4 of this year with an additional $10.9 million coming next year. Details can be found on Page 22 of our supplement. In terms of our balance sheet and liquidity, we ended the quarter with total cash of $152 million and have no amounts drawn on our recently expanded and recast $800 million line of credit which has a new maturity date of February 2027. We continue to explore all options related to refinancing our $300 million Bergen mortgage maturing in April, which is the bulk of our total $329 million of maturities coming due in 2023. We are currently evaluating a range of options, including a new mortgage, using our line of credit, obtaining a term loan, or using a combination of unsecured debt along with secured financing on other unencumbered assets. About 9% of our total debt aggregating $160 million is at a floating rate of which 6% or $107 million is currently unhedged. We have minimal and very manageable maturities in 2024 and 2025, amounting to $144 million and $52 million, respectively. As Jeff mentioned at the outset, we have issued guidance for 2022 and expect to continue issuing annual guidance in the future. For full year 2022, we expect FFO as adjusted to range from $1.17 per share to $1.19 per share. This range considers rents commencing from our signed but not open pipeline, higher interest expense from our variable rate debt and recoveries from amounts uncollectible in prior periods. We have outlined our key assumptions related to our FFO guidance in our earnings release. We plan to provide guidance for 2023 when we report our full year results in early 2023. However, at this time, I'll note a few items that should be considered. Based on our mortgages maturing next year and the unhedged portion of variable rate debt, we expect interest expense on in-place debt will increase $10 million to $11 million next year, considering the current SOFR Curve. The ultimate increase will largely depend on the financing obtained for Bergen Town Center. Looking at our receivables, we expect only minimal collections during 2023 on accounts previously deemed uncollectible as we now believe that the bulk of collections we were estimating have been realized including another $1 million to $2 million which we are expecting in the fourth quarter of this year. In terms of at-risk tenants, top of the list for us, given their bankruptcy filing, is Regal Theaters, where we have 1 location generating approximately $2 million in annual gross rent. Regal has not accepted or rejected the site yet but we are proactively marketing this space, given the uncertainty of their business. Regarding Bed Bath & Beyond, we learned that 1 location we have with an early 2023 expiration will not be renewed and we are actively in the market talking to potential replacements. It is too early to mention new tenant names but we feel good that we will be able to replace the approximate $1 million in gross rent Bed Bath generated at this property. In closing, we are grateful for the dedication and execution provided by the UE team again this quarter and we look forward to meeting with many investors in 2 weeks at the NAREIT Conference in San Francisco.

The first question we have is from Ronald Kamdem from Morgan Stanley.

Just a couple of quick ones. Just going back to the comments on the 97% to 98% occupancy. I'd just like to dig into that a little bit more. What gives you confidence in that, is that the pipeline, is it the activity? And what are you doing maybe differently with the leasing team to have conviction to get there?

I mean, historically we have averaged in that range. So point 1 is we've been there before and have stabilized there before. Point 2 is that we do have a million square feet of leases under negotiation right now and that's really what gets you there. And we feel good about where we are on executing many of those leases and I should note that the rent spreads on the million square feet under negotiation are averaging about 20%.

Great. And then just on the earnings guidance and obviously appreciate sort of providing that. Could you just talk a little bit about what the assumptions for bad debt are in that same-store NOI, and how should we think about that?

Yes, sure, Ron. So as I said in my prepared remarks, the biggest wildcard has been the amounts that we're receiving on prior uncollectible estimates and we think there'll be about $1 million or $2 million in that, that will offset kind of the normalized expense level that you've seen. So the key assumption that's implied in guidance is that we will collect about $1 million to $2 million on past due.

Okay, got it. And then the last one if I could. So just on the G&A, so the guidance for this year, I see $40.6 million to $41.6 million and you talked about just re-looking at the G&A. Can you just provide a little bit more color on that? I know there's been some management changes. Just can you just dig into what are you guys thinking, like what are you trying to take out?

When we provide guidance for 2023, we'll be more specific. But just in terms of the management changes that were made, there's probably a couple of million dollars of G&A savings right there.

The next question we have is from Brian Spahn from Evercore ISI.

Jeff, I was wondering if there's any color you can provide just on conversations you're having with retailers, what your sense is of how they're viewing real estate expansion plans as we head into a potential recession here?

Yes. I mean, our conversations have led us to believe that they're still expanding at a rapid pace. Our goal is to get this million square feet of leases that are under negotiation signed. But so far, the tenants have not given us any indication that they are planning to slow down their expansion plans. When you look at our pipeline of a million square feet under negotiation, some of the names that are most notable would include TJ Maxx, Ross, Sephora, Lidl, Burlington, among others.

Yes. Thanks, Jeff. The only thing I would add to that is we did have a full leasing team meeting earlier this week on Tuesday. And at the top of the meeting, we asked our agents whether they have lost any particular deal just because of the macroeconomic headwinds? And we've only lost one and that was a restaurant deal where the operator lost their capital partner because they were getting a little bit worried about the economy. And that's across a pretty expansive and robust pipeline that we have in place right now. So that suggests really that the retailers haven't pulled back at all and that the demand is still there. And I'd say also the demand is across all different categories and classifications. It's anchors, it's shops, it's mom-and-pops, it's franchisees, it's national tenants. So from my vantage point, there's no discernible soft spot in the leasing environment right now.

Look, the consumer remains very strong today. And as long as the consumer is strong, I think retailers will continue to expand. I heard this great quote from a banker last week that I'll mention here. And he said, 'Americans are watching the economic forecast for a thunderstorm but seeing it's still sunny outside, they are headed out to surf the waves anyway.' And that's the state of the consumer today. And let me be clear, I mean, we, as a company, are not surfing. We're preparing for a slowdown. We're prioritizing our balance sheet as we recently expanded and renewed our line of credit and we're placing a high emphasis on getting these leases under negotiation executed.

Yes. I guess just on the 1 million square foot pipeline, I think that's consistent with the number from last quarter. I guess what I'm trying to understand, are there any changes to the pipeline at the composition? Are deals taking longer to get done? Just anything, any noticeable changes in the negotiations there?

Not right now. Eighty percent of the tenants in the pipeline are national and regional operators. The pipeline changes each quarter; some leases are executed and move to signed but not open, while some signed but not open leases are removed as they are delivered to tenants. However, there are no significant changes, and this is consistent across various retail categories.

Got it. Okay. Last one, just on the transaction market. I mean I realize deals are limited but where do you think bidders are underwriting deals today, I guess, from an unlevered IRR perspective?

Yes. I think some are underwriting unlevered returns close to the double digits, call it 9% to 10% which is implying cap rates are probably up 75 to 150 basis points. But to your point, there's such little activity taking place and I think it's going to take some time for people to recognize either that there's a new environment that we're in which has a higher cost of capital or that cost of capital goes down because interest rates change.

The next question we have is from Paulina Rojas from Green Street.

Blended re-leasing spreads were negative this quarter, primarily due to one anchor renewal. I understand that this situation is quite volatile. However, looking at the longer term, how do you view the mark-to-market value of your portfolio? What can we anticipate for average blended re-leasing spreads in the interim, particularly over the next 12 to 24 months?

Yes. I mean when you blend it all together, I mean, you're probably somewhere in the 5% to 10% range, including option exercises, etc. But again, I would point to the 1 million square feet of leases under negotiation which are the ones that are most active at the moment and the re-leasing spread there is 20%.

Yes, it's a good question because I want to highlight some nuances about our portfolio. Looking ahead, with the opening of Kohl's mentioned by Jeff and a Shoprite opening in Huntington this fourth quarter, we expect to see a 150 basis points increase in physical occupancy from those. However, we also have a vacant warehouse that we purchased intentionally, which is set to enter the same property pool in the fourth quarter. We are actively working on executing a lease for that. Even if the lease is executed, it will initially have no physical occupancy in Q4. Therefore, the overall increase you will see, Paulina, is likely around 30 to 40 basis points on a physical basis, despite having a 150 basis points real tailwind from the two anchors.

At this stage, there seem to be no further questions. I would like to turn the floor back over to Jeff Olson for closing comments.

Great. Thank you very much. We appreciate your interest in UE and look forward to seeing many of you in San Francisco.

Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.