Urban Edge Properties

Good morning and welcome to Urban Edge Properties' 2023 Year-End Earnings Conference Call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer, Jeff Mualem, Chief Operating Officer, Mark Langer, Chief Financial Officer, Rob Milton, General Counsel, Scott Oster, EVP and Head of Leasing, and Andrea Drazen, 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, and which the company does not undertake to update. Our actual results, financial conditions, 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. Reconciliations of these measures to GAAP results are available in our earnings release and supplemental disclosure package 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 happy Valentine's Day to everyone. As highlighted in our press release, 2023 was a record year from virtually every perspective, leasing, development, refinancings, acquisitions, dispositions, executive and board refreshment, simplification, and earnings growth. Our total return to shareholders was 35%, the highest in the shopping center REIT sector, outperforming our peers by 2,300 basis points. Moreover, we are optimistic about our future particularly due to several points of differentiation relative to our peers. First, our portfolio is concentrated in the DC to Boston corridor, the most densely populated supply constrained area in the country. This not only results in high embedded land values, but further limits new supply due to lack of available land and high costs to develop in our markets. Second, we have executed leases that will generate $27 million of rent upon commencement, representing 11% of our current NOI. We also have $168 million of anchor repositioning and redevelopment projects underway, expected to generate a 15% return Importantly, over 90% of this pipeline is pre-leased. Third, our size. With an equity market cap of approximately $2 billion, we have a greater opportunity to increase per share earnings through higher internal growth and modest acquisition activity. For example, we have one $80 million property in our acquisition pipeline, which if closed, should increase FFO by a penny a share on a leverage neutral basis. Our FFO growth targets for 2024 and 2025 reflect minimal acquisition activity. Fourth, our balance sheet and secure debt strategy. Our long-term debt consists solely of non-recourse single asset mortgages. This has allowed us to eliminate nearly $100 billion of debt during market dislocations. Only 13% of our debt is maturing through 2026, and we maintain a well-laddered debt maturity profile. Fifth, we own nearly all the anchors in our shopping centers, which is why our top tenants include Home Depot, Lowe's, Target, and Walmart. These four tenants alone generate $35 million in annual rent. Many of these anchor parcels would likely trade in the 5.5% to 6% cap rate range as evidenced by our recent sale of Freeport Commons. We also own most of the out parcels on our properties, which would also trade at similar cap rates in the private market. All of these factors position us well for 2024 as we continue to take advantage of the significant opportunities we see to drive increased value and long-term growth. Now, turning to our 2024 outlook. Our goals for the year include achieving same property NOI growth of at least 4%, advancing our $27 million SNO pipeline, and increasing our leased occupancy back to our historical high of 97 to 98%. Mark will provide further details of our guidance, but I can confidently say that our team is highly focused on achieving the targeted growth we outlined at Investor Day, which is to generate FFO of $1.35 per share or higher in 2025. To that end, we increased our annual dividend by 6%, reflecting our confidence in our earnings and cash flow growth. Finally, I want to extend my gratitude to the UE team for their tremendous execution and accomplishments in the past year. We are excited to build on this momentum and continue executing our growth strategy in 2024. I will now turn it over to our Chief Operating Officer, Jeff Muella.

Thanks, Jeff, and good morning, everyone. I echo Jeff's appreciation for the amazing job our team did in 2023, my first year at Urban Edge. As we look into 2024 and beyond, I feel confident that our efforts around capital recycling, leasing, and development will continue to produce these strong results. First, acquisitions and dispositions. Our October 2023 sale of an industrial portfolio in East Hanover, New Jersey, and our simultaneous purchase of Shoppers World and Gateway Center in Boston were our most notable transactions of the year. We're delighted to add these two great retail assets to Urban Edge, and I can tell you that retailer demand has already exceeded our initial expectations. We've been active on other fronts as well. In December, we sold an additional $101 million of non-core assets at a blended 5.8% cap rate, and we're now under contract to sell two small non-core properties for a total of $38 million by the end of this quarter at a blended 5% cap rate. We've also continued our buying momentum with last week's acquisition of Heritage Square in Wachung, New Jersey for $34 million. Heritage Square is anchored by two TJX concepts, has four out parcels, and is diagonally across Route 22 from our existing Green Brook Commons, anchored by DJs and Aldis. We love the critical mass, stable national retailer lineup and flexibility that this property provides. We acquired Heritage Square at a going-in cap rate above 7.75%, making it immediately accretive and providing future growth through below-market rents with minimal turnover risk. It's worth mentioning here that the investment sales market is continuing to come back to life, as both buyers and sellers have adjusted to the new normal for interest and cap rates. We're seeing more and more deals, both on-market and off-market, and our team is busy underwriting everything that fits our profile. In leasing, we also finished the year strong, with our best quarter of 2023 in terms of number of deals, square footage leased, and leasing spreads. 51 deals were executed in the fourth quarter for a total of 650,000 square feet, and same space deals generated an average cash rent spread of 18%. Of the 51 deals this quarter, 22 were new leases with a very strong same space average spread of 38%. Tenant signing leases this quarter included a national single credit tenant to backfill our 94,000 square foot space in total in New Jersey that was previously occupied by Bed Bath & Beyond. While we can't announce the tenant just yet, We're excited about the use and the credit that they will bring to the property, not to mention the leasing spread. For full year 2023, we completed about 2 million square feet of leasing transactions, about 500,000 square feet of which is attributable to new leases. With an overall spread of about 12% and a new lease spread of almost 25%, it was a year of both quantity and quality leasing. As we've said before, the record low supply of available space in our core Northeast markets, coupled with healthy retailers investing more money to improve the in-store experience, has really helped propel our leasing efforts, and the results are evident in the numbers. Our same property occupancy rate increased 150 basis points from the prior quarter and now sits at 96%, with our anchor lease occupancy up to approximately 98%, and our shop occupancy up 230 basis points to approximately 88%. We are laser focused in 2024 on increasing our shop occupancy back to and above Urban Edge's historical high watermark of 91%, a potential 300 basis point increase. We expect this increase to be driven by two components, 150 basis points of deals underway in our leasing pipeline and 150 basis points from converting temporary tenants to permanent tenants. We continue to see demand from fast casual restaurants, discounters, and health care providers, which gives us confidence we'll meet our shop leasing goals. And finally, on the development side, we completed seven projects with aggregated costs of $38 million in the fourth quarter. This includes the opening of Sector 66, a 123,000 square foot indoor entertainment destination at Shops of Caguas in Puerto Rico. And we commenced another 38 million of redevelopment projects during the quarter, bringing our active project total to $168 million at year end, which we expect will generate a 15% unleveraged yield. Overall, we remain very bullish, not only on what was accomplished in 2023, but on where the business is headed. We have low basis assets in the most densely populated part of the country, allowing us to generate healthy spreads and development yields as leases mature and weaker tenants depart. We have a more stable transaction market where interest rate volatility has effectively boxed out high leverage and debt dependent buyers and provided way better opportunities for companies with strong balance sheets and strong relationships. And most of all, we have a tight leasing market where for the first time in at least 20 years, demand meaningfully exceeds supply. According to Cushman and Wakefield's most recent market study, 2023 was a year of more than 4% retail rent growth, the lowest level of retail vacancy since 2007, and a record low year for retail construction. And nowhere are these trends more pronounced than in the Northeast. We expect this to continue, and we intend to take advantage of the wind at our backs. I'll now turn it over to our Chief Financial Officer, Mark Langer.