Greetings and welcome to the Urban Edge Properties Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Areeba Ahmed, Investor Relations Associate. Thank you, you may begin.

Good morning and welcome to Urban Edge Property's second quarter 2024 earnings conference call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer; Jeff Mooallem, Chief Operating Officer; Mark Langer, Chief Financial Officer; Rob Milton, General Counsel; Scott Auster, EVP 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 results, financial condition, and business may differ. 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, including reference to our 2025 FFO as adjusted target. Reconciliations of these measures to GAAP results are available in our earnings release, supplemental disclosure package, and our April 2023 investor presentation in the investor section of our website. At this time, it is my pleasure to introduce our Chairman and Chief Executive Officer, Jeff Olson.

Great. Thank you, Areeba, and good morning, everyone. Our second quarter results reflect our continued progress towards achieving the goals we outlined at our April 2023 investor day. We generated 7% earnings growth for the quarter and raised our 2024 FFO as adjusted guidance by half a penny per share at the midpoint, reflecting 5% expected growth for the year. We continue to believe that we will reach the high end of our 2025 FFO target of $1.31 to $1.39 per share, implying 5% to 6% growth over 2024. The two biggest drivers of our growth are strong operating fundamentals and accretive acquisitions. Starting with operations, occupancy increased to 96.5%, up 150 basis points over last year, and up 30 basis points sequentially. We executed 23 new leases during the quarter, a record high for the company. Notably, our shop occupancy increased by 520 basis points compared to the second quarter of 2023, and by 140 basis points sequentially. This shop growth is a direct result of the anchor repositioning efforts we have completed over the several years and the ongoing demand for high-quality retail space. Net operating income should continue to grow at higher than historical averages as we deliver spaces to tenants with signed leases and execute our redevelopment pipeline. Our signed but not open pipeline amounts to $29 million of gross rent, which should add another 11% to net operating income. Also, our $170 million redevelopment pipeline is expected to yield an impressive 15% return. Turning to acquisitions, we have acquired $426 million of shopping centers since October 2023 at a 7.2% cap rate, primarily funded with $356 million of asset sales at a 5.2% cap rate. We are in late-stage negotiations to acquire several high-quality shopping centers in the D.C. to Boston corridor, which will likely be funded with a mix of capital sources, including low-cap rate single-tenant asset dispositions, mortgage debt, and equity. Our balance sheet is in great shape, with only 11% of our total debt maturing through 2026. We are very pleased with our results and the growth opportunities we see ahead. I will now turn it over to our Chief Operating Officer, Jeff Mooallem.

Thanks, Jeff, and good morning, everyone. Let's start with some of our leasing and development activity from this past quarter and then get into more of the details and what we're seeing with acquisitions and dispositions. We executed 47 deals in the second quarter for a total of 506,000 square feet, and of those 47 deals, 41 were shop deals, 22 new leases, and 19 renewals. The 22 new leases represent an all-time quarter high at Urban Edge and are a direct result of the heavy lifting we've done with anchor vacancies over the past several years. Anchored tenant leasing remains both the best leading indicator of and the best tool for effective shop leasing. Our shop average new lease cash spread of 19% would not have been possible without some of the anchors we've brought to our properties, including ShopRite, TJ Maxx, and Aldi. Shop occupancy has now reached 90%, and with a third quarter pipeline that looks just as robust as the second quarter, we remain on track to surpass 91% shop occupancy by the end of the year. The 140 basis point gain in shop leasing from last quarter and 520 basis point gain in shop leasing from last year has helped push our overall same property lease occupancy rate up by another 30 basis points to 96.5%. Vacancy remains at historic lows and it's moving lower, and foot traffic at our properties is up almost 7% in the second quarter compared to the prior year. A good example of the current demand landscape is Stop & Shop's recent announcement that they will be closing 32 stores. Of the four Stop & Shops in our portfolio, two are exceptional performers. One is a very strong store with term through 2029, and the fourth, the only one in our portfolio on the closure list is a lower tier store in need of renovation with an expiring lease. We received multiple inbound inquiries on that space. When Stop & Shop let us know they'd be closing that store, we quickly identified the best replacement grocer, and we negotiated a deal with no capital and no downtime. We hope to have a lease executed in the next 30 days, well before the Stop & Shop lease expiration early next year. The one new anchor lease signed in the quarter is with BJ's Wholesale Club at Bruckner Commons. That lease was signed in June, and at the same time, we entered into a lease termination agreement with Target at the same property. We cannot get into any of the specifics of the Target termination agreement, the terms of which are confidential, but what we can say is that while there are changes in timing and differences in square footage, rents, and capital for each of those two leases, the overall initial return on cost for each one is comparable, and the BJ's contractual lease term is 20 years, twice as long as Target's. The simultaneous execution speaks volumes to the excellence of our UE team and to the demand for our real estate. We believe BJ's is a great addition to the Bruckner community, and we look forward to building on our leasing momentum at this dominant retail destination. We also continue to execute our low-risk business plan of building out space for signed leases at other properties. In June, we completed the second phase of our Huntington Commons project on Long Island, which included adding a Burlington and repositioning many of the shop tenants with necessity-based uses, like urgent care, salon, and fitness. We also activated two development projects, a First Watch restaurant at Bergen Town Center and a ground-lease bank pad at Woodmore Town Center. Both of these projects are a perfect example of the state of the market today, as we leased a raw shell space that had been vacant for nearly a decade and an unused pad that had sat empty since the property was built, to credit tenants at double-digit development yields. Again, our overall $170 million development pipeline is expected to generate a 15% yield on cost, and it is 90% comprised of projects tied to signed leases. Jeff touched a little on the state of the acquisition market, so let me just add a little more color there. The REITs have been active buyers in 2024, and we are no exception, having already bought $426 million of assets since October of last year at what in hindsight looks like very attractive returns. Prices have gone up since those deals, but we still see value in the types of assets we want to acquire; large, dominant, surface-parked retail with a mix of power and grosser tenancy in our core markets. We have four assets totaling about $350 million with those characteristics under heavy diligence at the moment. On the flip side, as interest rates and cap rates continue to move down, our high-credit, stable cash flow, single-tenant assets are attracting more attention from triple-net and 1031 buyers. We are in the market with three of those assets right now as potential capital sources. Our team is extremely busy, and while it is early on both the buys and the sells, we believe we can close out 2024 with more of what we did in 2023 and the first half of 2024; selling in the fives and acquiring in the sevens while enhancing portfolio quality.

Thanks, Jeff. Good morning. I will comment on our second quarter results, our balance sheet and liquidity, and conclude with comments on our outlook. Starting with our results, we reported FFO as adjusted at $0.32 per share in the second quarter. Same property NOI growth, including redevelopment was up 4% compared to the second quarter of 2023. The increase was primarily attributed to new rent commencements, contractual rent bumps, and lower bad debt. NOI this year has benefited from our retention rate, which was almost 100% in the first six months. On the financing front, we closed on a new five-year, $50 million nonrecourse mortgage for our recently acquired property, Ledgewood Commons, at a fixed rate of 6%, executed at a spread of 180 basis points, resulting in a leveraged cash return on that purchase in excess of 10%. We continue to see debt spreads compress as the demand for retail paper remains strong across most major lending sources, especially life companies and CMBS, as well as select regional banks. We are currently negotiating mortgages that reflect spreads of 155 to 180 basis points, as the appetite for high-quality retail centers remains strong. Given our recent purchase of Ledgewood and our anticipated progress on the acquisition front, we issued about 2.5 million shares of common stock under our APM, raising approximately $45 million of net proceeds. We had $150 million drawn on our line of credit at the end of the quarter, and have since reduced the balance by $45 million. We were pleased to announce that on June 27, the Kingswood Center property foreclosure was completed, and the lender took possession of the property, resulting in a $22 million gain on debt extinguishment and the elimination of the $69 million mortgage we had on our books. This is another example of the benefit of our secured debt strategy. With the elimination of this mortgage, our net debt to annualized EBITDA is now 6.4 times, and already below the 2025 target of 6.5 times we mentioned at our investor day last year. We expect to see further improvement in this metric as EBITDA grows from future rent commencements within our S&O pipeline and future CapEx requirements decline. Turning to our outlook for 2024, we increased the low end of our FFO as adjusted per share guidance by $0.02 a share, primarily due to our better-than-expected performance year to date, and our expectations that same property NOI growth, including redevelopment, will be at our new midpoint of 5.25%, up from the prior midpoint of 5%. NOI expectations have increased based on the strength of market fundamentals and lower levels of bad debt and tenant fallout. In terms of some of the at-risk names in the headlines, we have less than $2.5 million of gross rent exposure from Red Lobster, Express, and Sticky's. These tenants operate in highly desirable locations and have historically performed well at our centers. None of these operators have closed at our properties. Overall, losses for uncollected rents across our portfolio have been lower than anticipated, as we have not suffered from any sizable tenant fallout. Given the strength in market fundamentals, we often view tenant fallout from weak operators as a long-term opportunity rather than a risk. We continue to make progress on our S&O pipeline, with another $3.6 million of annualized gross rent commencing in the second quarter and an additional $3 million expected to be recognized in the second half of this year, of which 80% is weighted to the fourth quarter. Moving to transactions, our guidance reflects $117 million of acquisitions related to Heritage Square and Ledgewood Commons and the non-core dispositions that have closed to date. Guidance does not assume any additional acquisitions or dispositions this year. Should we make progress and close on new transactions, we will provide updates at the appropriate time. We updated our guidance assumptions related to interest expense to reflect the elimination of the Kingswood Center mortgage and for financing activity we expect for the remainder of the year. The only variable-rate exposure we have is related to our line of credit, which currently bears interest at SOFR plus 103 basis points. We continue to carefully manage G&A expenses and updated our guidance this quarter to bring the high end of the expected G&A range down from $37.5 million to $37 million. In closing, I would like to thank the UE team for their continuous focus, executing our business plan, simplifying our portfolio while showing prudent capital allocation from capital recycling and other accretive acquisitions has helped ensure we can deliver on our goal to provide sustainable earnings and cash flow growth. The strength of our cash flow has been greatly enhanced by the anchor repositioning efforts we have completed and we expect further improvement as new tenants open and shop leasing follows. We have a very strong balance sheet, abundant liquidity, and a team excited to grow the enterprise. We look forward to continuing our track record of generating consistent earnings growth in the future. I will now turn the call over to the operator for questions.

Yeah, thanks. I was just hoping that you guys could talk a little bit more about the leasing pipeline. I guess there have been some issues around the lower-end consumer and just spending, and I'm just wondering how the retailers are thinking about store opening plans in light of a softer economy. Thanks.

Yeah, hey, Steve. It's Jeff Mooallem. Good morning. We've heard the same thing, and we've heard that noise for a few months now, but we have not seen it. If that message has been delivered to the retailers, it hasn't made its way to the real estate directors who run the Northeast. There is still the priority issue for them is a shortage of space, and when we talk to them, there's still an appetite to grow more stores. Certainly, a lot of our centers are recession-proof in the sense that they're anchored by tenants like Home Depot, Walmart, that are generally going to generate traffic in any economic cycle. And in the centers where we have grocery stores and other things, we're still seeing a lot of QSR demand. Urgent care is a big thing. Salon, we recently opened all those concepts out at our Huntington property. We're not seeing a slowdown, and in fact, our third-quarter pipeline for shop leasing looks very similar to what we executed in the second quarter.

Great. Thanks, Jeff. And then maybe for either you or Jeff Olson, just on the transaction side, how are you thinking about underwriting deals? How are you altering your return hurdles? And I guess, how do you compare those acquisition returns to redevelopment? I guess ground-up development is less of an option or priority, but how are you weighing the return hurdles between kind of both capital deployment options?

Hi, Steve. I mean, we're really looking for accretive transactions. I mean, clearly, redevelopment at a 15% return would be in the highest order of capital allocation. But I do think we're limited in terms of the volume of redevelopment we can do. So, I mean, we're going full throttle on it. I don't think there's a whole lot more that's there, certainly not at a 15% return. So, on the acquisition front, I mean, what we're looking for are assets that overall would increase the quality of our portfolio, increase credit, increase growth profile. We are finding stuff in the DC to Boston corridor. So, we like that because we know the markets very well, and many of these assets are in very close proximity to existing assets that we control. And then the next key is the funding behind it. And as I said in my opening comments, we're looking at a blend of funding that includes selling some single-tenant assets. Mortgage financing, as Mark explained, has become very price efficient at spreads of 155 to 180 basis points over treasuries. And as you know, treasuries have come down too. And then we potentially could use equity if we found it to be an accretive transaction.

Great. Thanks. That's it for me.

Hey, Mark, just one for me here. When I look at your guidance assumption, you have G&A and interest and debt expense, I think went down in total about $3 million at the midpoint. And you also raised NOI. But I'm just trying to understand why FFO didn't go up more from a guidance perspective, what am I missing here?

The only piece you're missing is the interest, as I explained in my comment, was really related to Kingswood. And recall, Samir, that all of the Kingswood results from an FFO as adjusted standpoint where our guidance was, was excluding the impact of Kingswood already. So the real tweaks that impacted the midpoint were the NOI change that we highlighted. It's a good question, Samir.

All right. Good. Okay. That's it for me. Thanks, guys.

Hey, guys. Jeff, I'd be curious to get your thoughts on the news that came out yesterday on Blackstone potentially being in talks with ROIC. What kind of implications do you think that brings for the shopping center sector?

I could see the case for large institutions investing more in open air retail because a lot has happened. First, we talked about lower debt costs, both in terms of spreads and rates. Second is the fundamentals of the space continue to strengthen and we're seeing it across the board in our portfolio in terms of lower vacancy and in terms of our leasing pipeline. And then valuations are relatively attractive. If you look at the assets that we've bought to date since October of last year, we're getting leverage returns that are really close to the double digits, which is hard to get in other property sectors. And then lastly, I mean, we're starting to see more capital formation around open air retail. So it's not surprising to see that there may be some potential privatizations out there, Floris.

Thanks. And maybe one follow-up, and maybe this is for Mooallem. Obviously, one of the key drivers to NOI growth is higher shop occupancy, and shop rents are double the anchor rents typically. Can you talk a little bit about that pipeline that you have, the S&O pipeline? I believe a lot of it is anchor-driven, but what percentage of that S&O pipeline is shop space and how much incremental shop occupancy do you think you could push once anchors open? What has been the experience over the last couple of years?

Floris, good morning. Happy to handle it. I'll defer to Mark to give you the exact percentage of shop versus anchor, but what I would say is that we identify 2024 at Urban Edge as sort of the year of the shop leasing, and we've made tremendous progress in that. We had a goal to get to between 91% and 92% by the end of the year. We're tracking at about 90% right now. We expect to be at 91%. And although the starting rents are better than where the prior leases are, and we've reported a healthy 19% spread for this past quarter, just as notable, we're doing better on other negotiations of other terms. So for example, I think in this past quarter, our average annual increases coming from these shop leases was about 3%, whereas in past quarters, maybe we had a lot more leases that were 10% every five years or something like that. It's not just the starting rent. It's also doing better on increases, protected areas. We're getting a lot more tenants to take space as is with no build-out requirements, giving less in allowance, things like that. So the shop leasing has definitely been a stronger performer. The exact percentage of our S&O pipeline that's coming from shop versus anchor, Mark might be able to better answer that, but certainly, shop is where we're focused on for the rest of this year.

Floris, it's about almost 40% of the dollars in that S&O pipeline are from shop.

Two quick ones for me. Just starting with the acquisition pipeline, I think I heard you say $350 million in the pipeline. Maybe can you talk a little bit more about cap rates formats, any color on that pipeline? And also, if you could touch on the funding, I see that you did some equity in the quarter. How are you thinking about funding that piece of it?

First of all, we're in negotiations, so until we advance those negotiations, we're limited in terms of what we can provide in terms of information. But most of what we're looking at is off market, number one. Number two, it's typically larger format assets that include a grocer, and then also some power components, mostly like discounters and off-price retailers. And again, these assets are in our trade area, the D.C. to Boston corridor. So once the transaction progressed to a point where we can disclose more, we'd be happy to do so. But in general, we are looking for accretive transactions day one, and then also year three, four, and five.

And Ron, one of the things I'd add to that is what makes us somewhat unique as a buyer in the market today is that our track record over the last 9 months to 12 months, we've probably been the largest acquirer of single assets. So we get a lot of first calls, and more importantly, we get a lot of last calls when deals are out there, even if they're off market. Often, these deals come with financing that's attractive and assumable for a qualified borrower. And because of our size and balance sheet and credibility, we're usually one of the more qualified borrowers. So we're an appealing target for sellers and an appealing SME for lenders that helps us get deals as well.

Ron, on the funding side, in addition to potentially assuming debt, on the funding side, we also mentioned potentially disposing of low cap rate single tenant assets, and then also equity to the extent it makes sense and it's accretive.

My second one was just going to be on Puerto Rico, maybe just a quick update on how those assets have been performing. I know they've been doing well and what you're up to thinking of potentially monetizing some of those assets as the backdrop gets better.

On the operational side, everything is going very well. We've delivered some of our anchor spaces that are slated to open in the next few months with TJ Maxx and with Ralph's Grocery Store. Very excited. We brought those projects in at or above budget, both in terms of time and cost, and we've generated a tremendous amount of leasing activity around it. The assets are effectively 100% occupied including temp tenants, but we've been slowly converting a lot of those temp tenants to perm tenants, including in some cases, changing them out for better names, better credit. We have a couple of deals there that we'd be super excited to announce hopefully in the third quarter call as those leases should get signed in the next month or so, but big national names coming over from the mainland that we think will add a lot of value to those shopping centers. So we're very happy with how Puerto Rico is performing right now from an operating standpoint. As far as the long-term strategy for potential disposition, I'll defer to Jeff on that, but we talk about everything.

Ron, our focus is increasing NOI. There's a significant lift that we expect over the next 12 to 24 months, and then I think we'll revisit it then.

Thank you. We will now be conducting a question-and-answer session. The next question is from Steve Sakwa from Evercore ISI. Please go ahead. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.