Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Urban Edge Properties (UE, Financial) reported a 9% growth in FFO per share compared to the third quarter of last year, driven by a 5.1% increase in same-property net operating income.
- The company successfully acquired $552 million worth of high-quality shopping centers at a 7% cap rate, funded through $425 million of dispositions of noncore assets.
- Leasing activity remained strong with 23 new leases executed at a same-space cash spread of 15%, and shop occupancy increased to 90.4%.
- Urban Edge Properties (UE) increased its 2024 FFO as adjusted guidance to $1.32 to $1.35 per share, reflecting a 7% expected FFO growth for the year.
- The company has a $159 million redevelopment pipeline expected to generate a 14% unlevered yield on cost, indicating strong future growth potential.
Negative Points
- The acquisition market has become more competitive, with cap rates compressing, making targeted property acquisitions more challenging.
- Same-property leased occupancy slightly decreased by 10 basis points compared to the prior quarter due to an expected lease termination.
- Uncollectible rental revenue was higher than the unusually low level recorded in the third quarter of last year, although it was 25 basis points lower than expected.
- The company issued approximately 4.4 million shares of common stock under its ATM, raising $84 million, which could dilute existing shareholders.
- Urban Edge Properties (UE) faces potential tenant risks from bankruptcies such as Big Lots, which could impact future revenue and occupancy rates.
Q & A Highlights
Q: Can you discuss the current shop occupancy levels and future targets?
A: Jeffrey Mooallem, COO, stated that shop occupancy increased by 500 basis points this quarter, aiming for 91% by year-end. They target 92-93% next year, focusing on leasing vacant and underleased spaces, and potentially combining spaces for better tenants.
Q: How do you plan to fund future acquisitions, considering market conditions?
A: Mark Langer, CFO, explained that funding will be a blend of asset sales, debt, and potentially equity, focusing on growth initiatives. Jeffrey Olson, CEO, added that they are actively seeking acquisitions in the D.C. to Boston corridor, leveraging local expertise and relationships for off-market deals.
Q: Can you provide more details on the space returned by a national tenant and its impact?
A: Jeffrey Mooallem, COO, mentioned that the space was not generating revenue as the tenant had not opened. They received a termination fee and expect to re-tenant the space soon, minimizing any revenue impact.
Q: What are the drivers for the wide range in same-store NOI guidance?
A: Mark Langer, CFO, noted that the range is due to potential tenant fallout and bad debt risks. The high end assumes no tenant issues, while the low end accounts for possible tenant defaults.
Q: How has the competitive market affected cap rates, and what formats are impacted?
A: Jeffrey Olson, CEO, observed a 50-75 basis point compression in cap rates over the past 6-9 months, with increased demand for larger centers. They focus on acquiring centers with a mix of grocery stores and other tenants for better spreads.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
