Release Date: July 31, 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 7% earnings growth for the second quarter and raised its 2024 FFO as adjusted guidance by $0.05 per share at the midpoint.
- Occupancy increased to 96.5%, with a record high of 23 new leases executed during the quarter.
- The company's redevelopment pipeline is expected to yield a 15% return, with $170 million in projects underway.
- Urban Edge Properties (UE) has acquired $426 million of shopping centers since October 2023 at a 7.2% cap rate, enhancing portfolio quality.
- The balance sheet is strong, with only 11% of total debt maturing through 2026, and net debt to annualized EBITDA already below the 2025 target.
Negative Points
- The company faces potential risks from tenant fallout, although it views this as a long-term opportunity.
- Interest rates and cap rates continue to move down, which could impact future acquisition costs and returns.
- The guidance for FFO did not increase as much as expected despite improvements in G&A and interest expenses.
- The company has exposure to at-risk tenants like Red Lobster and Express, although they have historically performed well.
- There is uncertainty around the acquisition pipeline, with $350 million in assets under heavy diligence but no finalized deals yet.
Q & A Highlights
Q: Can you discuss the leasing pipeline and how retailers are approaching store openings given the softer economy?
A: Jeffrey Mooallem, COO, stated that despite concerns about the lower-end consumer spending, they have not seen a slowdown in demand for retail space. Retailers are still eager to open new stores, particularly in centers anchored by strong tenants like Home Depot and Walmart. The third-quarter pipeline for shop leasing is robust, similar to the second quarter.
Q: How are you approaching acquisitions versus redevelopment in terms of return hurdles?
A: Jeffrey Olson, CEO, explained that while redevelopment offers high returns (15%), the volume is limited. Acquisitions are focused on enhancing portfolio quality and are funded through a mix of asset sales, mortgage financing, and potentially equity. They are targeting assets in the DC to Boston corridor.
Q: Why didn't FFO guidance increase more despite lower G&A and interest expenses?
A: Mark Langer, CFO, clarified that the interest expense reduction was related to the Kingswood Center mortgage, which was already excluded from FFO guidance. The primary adjustment to the midpoint was due to increased NOI expectations.
Q: What are your thoughts on Blackstone's potential interest in ROIC and its implications for the shopping center sector?
A: Jeffrey Olson, CEO, noted that large institutions are increasingly interested in open-air retail due to lower debt costs, strong fundamentals, and attractive valuations. This interest could lead to more capital formation and potential privatizations in the sector.
Q: Can you provide an update on the performance of your Puerto Rico assets and any plans for monetization?
A: Jeffrey Mooallem, COO, reported strong operational performance with high occupancy and successful leasing activity. They are focused on increasing NOI over the next 12 to 24 months before considering potential dispositions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
