Participants

Areeba Ahmed; Investor Relations and ESG Associate; Urban Edge Properties

Jeffrey Olson; Chairman of the Board of Trustees, Chief Executive Officer; Urban Edge Properties

Jeffrey Mooallem; Chief Operating Officer, Executive Vice President; Urban Edge Properties

Mark Langer; Chief Financial Officer, Executive Vice President; Urban Edge Properties

Ronald Kamdem; Analyst; Morgan Stanley

Floris van Dijkum; Analyst; Compass Point Research & Trading LLC

Samir Khanal; Analyst; EVERCORE ISI

Paulina Rojas Schmidt; Analyst; Green Street Advisors, LLC

Presentation

Operator

Greetings. Welcome to Urban Edge Properties. Fourth quarter 2024 earnings call. (operator instructions) It is now my pleasure to introduce Areeba Ahmed from Investor Relations.
Thank you. You may begin.

Areeba Ahmed

Good morning and welcome to Urban Edge Property 2024 year-end 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. 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 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-gap financial measures, including reference to our 2025 FFO as Adjusted targets. 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 Olsen.

Jeffrey Olson

Okay, thank you, Areeba, and good morning, everyone. 2024 was a year marked by significant accomplishments for Urban Edge. We continued to outperform expectations and delivered outstanding results, notably increasing FFO as Adjusted by 8% for the year to $1.35 per share, allowing us to achieve our three-year earnings target one year ahead of plan.
The strong performance has been fueled by our creative capital recycling, record leasing volumes, and new rent commencements. In 2024 we executed a record 79 new leases totaling 485,000 square feet with a same space cash rent spread of 26% and achieved a new record for shop occupancy at 91%. Same property portfolio occupancy grew to 96.6%. Our signed but not open pipeline is expected to generate $25 million of future annual gross rent, representing 9% of NOI.
Our centers are benefiting from improved co-tenancy as we add retailers like Trader Joe's, BJ's Wholesale Club, TJX, Burlington, and Ross, which stimulate higher quality shop tenants and QSRs like First Watch, Chipotle, Dave's Hot Chicken, Starbucks, and Tatte Bakery and Cafe.
The structural shifts in tenancy have lasting benefits in the form of higher rent growth, improved occupancy, and notable value creation as cap rate compression occurs with new dominant anchors and the addition of high-quality shop tenants. We expect the same pattern to occur if we recapture some of the at-risk names in the headlines today.
Our development and construction team had a very productive year. We completed $30 million of redevelopment projects expected to generate a 16% unlevered return, and we ended the year with $163 million of anchor repositioning and redevelopment projects expected to generate a 15% unlevered return. 2025 marks the 10-year anniversary of the formation of Urban Edge.
It has been rewarding to see us carry out our mission to improve shopping centers located in and on the edge of urban communities. Over the past decade we have built an exceptional team that has significantly improved our portfolio, adding top retailers who drive traffic and rents while replacing underperforming tenants.
Our portfolio is now 80% grocery anchored with grocers generating average sales of $900 per square foot, which we believe is the highest in the sector. Since our spin, we have increased portfolio ABR by almost 30%, achieved record leasing volumes in the past three years, simplified our portfolio through capital recycling, and expanded our concentration in the Boston and Washington DC metro markets.
These accomplishments have significantly improved the strength and stability of our cash flows, and we are optimistic about our growth plans in the next 10 years to continue to add value through disciplined capital allocation and operational excellence.
Now turning to our 2025 outlook, our goals for the year include achieving FFO as Adjusted growth of 4% or better while generating same property NOI growth of at least 3.5%. We expect to generate $8 million of gross rents during 2025 from our $25 million signed but not open pipeline and increase our leased occupancy back to our historical high levels of 97% to 98%. As a result of our higher earnings and taxable income, we are increasing our dividend by 12%.
While we do not include any acquisitions or dispositions in our guidance, we are on the hunt for opportunities, and we are hopeful that we will find deals that make sense for our company. Our track record is strong. Over the last 16 months, we have acquired over $550 million in assets at a 7% cap rate funded in part through $427 million of dispositions at a 5% cap rate. We are proud of our performance over the past decade, and we look forward to continuing our success in 2025.
I will now turn it over to our Chief Operating Officer Jeff.

Jeffrey Mooallem

Thanks Jeff, and good morning everyone. Fourth quarter like all of 2024 was a strong one for Urban edge.
We executed on our business plan by improving deal economics, increasing occupancy, recycling capital into better assets, and delivering projects at accretive returns. Let's get into the details of the quarter and the year, and then we can talk more broadly about what we see for 2025 and our path to continued growth. We signed 29 deals in the fourth quarter for over 400,000 square feet, 16 new leases at a same space spread of 44% and 13 renewals at a 12%.
That brought our total for the year up to 79 new leases totaling just under 50 million square feet and 86 renewals for almost 2 million square feet. The overall leasing volume for 2024 was on the high end of our budget, and the spreads of 26% and 9% on new leases and renewals respectively were strong. Those rent spreads, along with other critical deal points like providing less tenant allowance capital and generating higher average annual rent increases than in years past. Demonstrate our ability to identify and capitalize on the below market rents embedded throughout our portfolio when those leases come back to us.
As Jeff mentioned in the 4th quarter, those results included new deals with a national grocer, soft goods retailers, QSRs, and fitness users, as well as our first pickleball concept lease. Our portfolio same property leased rate now stands at 96.6%, a 30 basis point increase over the third quarter and an 80 basis point increase over a year in 2023.
We ended 2024 with anchor leased occupancy of 98% and small shop occupancy of 90.9%. After gaining 320 basis points in shop occupancy in 2024, we have a clear path in 2025 to an additional 200 to 250 basis points, bring shop occupancy between 93% and 94% for the year, and overall occupancy between 97% and 98% by year end.
The demand continues to well outpace supply in our markets, and foot traffic continues to increase, up 3% over last year at our grocery anchored centers. In the Northeast, retail occupancy is at a 10 year high of 95%, and new shopping center construction is at a near record low, only 0.2% of total supply. Tenant bankruptcies are a reality of our business and will remain so, but increasingly they are more opportunity than risk. In the locations where we have Party City and Big Lots, for example, we have replacement tenants identified as spreads up to 90%.
If we're able to get all those spaces back, some replacement tenants will generate strong incremental returns, while some, because of the capital and time will be a modest return. But all of them will enhance portfolio quality and adjacent leasing as we cycle out older concepts and bring in better operators. We balance all these factors economic return, quality of operator, tenant mix, cross shopping appeal when we look at how a tenant bankruptcy will impact our properties. More often than not, getting space back early is a net positive.
On the development side, we ended 2024 with a strong in place pipeline of $163 million at a 15% return, nearly all of it tied to executed leases. Our development plans at Sunrise Mall in Massapequa, New York gained some traction this quarter as well, with the announcement from Macy's that they would be closing their store there, leaving only one tenant remaining at the mall.
Finally, while we did not acquire or dispose of any assets in the fourth quarter other than the previously announced village at Waugh Chapel deal in October, we remain very active on both fronts. Cap rates for acquisitions have compressed, with higher quality assets now trading below 6%, driven in part by institutional investors aggressively entering the retail space and solving for IRRS that are lower than retail historically commanded.
On the disposition side, we are under contract to sell a freestanding building and parking field at Bergen Town Center in Paramus to a multi-family developer for a price of $25 million representing an approximate 4% cap rate on the current in-place NOI.
I will now turn it over to our Chief Financial Officer Mark Langer.

Mark Langer

Thanks Jeff. Good morning. As you just heard, we had another excellent quarter marking a strong end to the year. We reported FFO as Adjusted at $0.34 per share for the fourth quarter and $1.35 per share for the full year, representing 8% growth likely among the highest rate in our peer group. As expected, our same property NOI growth, including redevelopment, was very strong, up 7.4% compared to the fourth quarter of 2023, due to rent commencements from several new tenants within our SNO pipeline.
The increase in FFO and NOI this year was also due to accretive capital recycling, contractual rent bumps, and a 180-basis point increase in same property physical occupancy during the year. Our balance sheet remains strong, with over $800 million of total liquidity, including $91 million of cash.
Our debt maturity profile is in great shape, as only 9% of outstanding debt matures through 2026, with only $24 million maturing in December of this year and $116 million maturing in December of 2026. As a result, our earnings have a lot less volatility attributable to interest rates. Additionally, we have made great progress reducing our leverage. Our net debt to annualized adjusted EBITDA is 6 times below the 6.5 times target we outlined at our April 2023 investor day.
Turning to our outlook for 2025, our initial 2025 FFO as adjusted per share guidance is $1.37 to $1.42. Key assumptions include our expectation that NOI, including properties and redevelopment, will increase 3.5% at the midpoint of our range. In terms of the NOI guidance, we assume total credit losses of 75 to 100 basis points of gross rents, which incorporates expected rent loss from tenants who have already filed for bankruptcy, including Party City, Big Lots, and Blink Fitness.
Our NOI growth assumes $8 million of gross rent is recognized in 2025 from our SNO pipeline. I will point out that almost 75% of this revenue is expected to come online in the second half of the year. Year-to-year NOI growth is also impacted by the outsized collections of more than $1 million we obtained in the first quarter of last year that will not be a recurring item this year. Considering these factors, NOI and FFO growth is expected to gradually build during the year as new rents commence.
In terms of capital spending, page 29 of our supplement identifies our active redevelopment and re-anchoring projects which stabilize over the next two years. We have $90 million remaining to fund on these projects, and we expect to spend about $75 million dollars during 2025. In terms of maintenance capital, we incurred about $27 million in 2024.
As I have messaged on prior calls, we expect this level to decline as our anchor repositioning projects come online, and we have budgeted $15 million to $20 million to spend for 2025 related to that capital. We continue to carefully manage our internal operating costs. We assume recurring GNA will be $36 million in 2025, flat compared to the prior year and down 4% compared to 2022.
We are pleased with the progress we have made streamlining processes and seeking efficiencies and we'll continue to evaluate ways to lower costs. In terms of factors influencing our guidance range, the biggest variables are likely to be actual bad debt and tenant fallout levels, shop leasing activity, and delivering the SNO pipeline to achieve our targeted rent commencement dates. We have not included any lease termination fees or any material non-cash adjustments related to straight line rents and guidance.
As announced in our press release, our board recently approved a 12% increase in our dividend to an annualized rate of $0.76 a share. We have previously stated that we expect the dividend to grow as earnings and taxable income grow while we focus on preserving free cash flow to fund our active redevelopment pipeline that is generating healthy returns. This new dividend reflects the projected growth in our taxable income in 2025.
To conclude, we are pleased with the outstanding results we achieved during 2024 and have turned our focus to our leasing pipeline and assessing ways we can achieve our goal to generate earnings and cash flow growth that is distinguished among our peer group. I will now turn the call over to the operator for questions.

Question and Answer Session

Operator

Thank you. (operator instructions)
Our first question is from Ronald Camden with Morgan Stanley. Please proceed.

Ronald Kamdem

Hey, congrats on a great year. Just starting with, I think a little bit on the same story why. I think you talked about the 75 to 100 basis points, sort of bad debt that sort of baked into that. Just wondering how much visibility you have into that. Have you already sort of seen some of the bad debt come through and how that assumption came about? Thanks.

Mark Langer

Sure this is Mark.
We're certainly watching it live as some of those names are bankruptcies where auctions are happening, so we considered all of that data and if I break down the components for you to answer your question, about 70 basis points of provision relates to bankrupt tenants. 40 basis points of the provision is kind of the general reserve, and then partially offsetting that is we assume $150,000 to $200,000 each quarter for some collections on some old receivables, so that nets out and gets you right to our guidance range.

Ronald Kamdem

Great helpful color and then my second one is just to love a little bit more commentary on the acquisition pipeline you guys have had sort of a great 12 months to 18 months, I think you talked about the cap rates are getting pretty competitive but just wondering what you guys are looking at and what could be done this year. Thanks.

Jeffrey Olson

Hi, Ron, it's Jeff. So yeah, I mean we are seeing more product than we saw last year, and we do expect that there will be more trades that will occur through across the country. But it is challenging to make the deals pencil just given the expected cap rates relative to financing costs. We think the best way to leverage this environment, at least for us, is through capital recycling. So, when we compare an acquisition with a disposition at a spread and sell some of our lower growth assets, exchange those for higher growth assets, we think those are the types of trades that make the most sense. And again, if you sort of look back over the last 16 months, we've done about $550 million of acquisitions at an average cap of 7.2%. that CAGR is about 2.5% over the next five years.
Principally funded with dispositions, so that's $427 million of dispositions over the last 16 months at a cap rate of 52, which had a CAGR of about 1%. So those types of deals make a lot of sense, and we're hoping that we're going to find some of those in 2025.

Ronald Kamdem

Great, that's it for me thank you.

Operator

Our next question is from Floris van Dijkum with Compass Point. Please proceed.

Floris van Dijkum

Thanks. Good morning, guys. Capital recycling its creative capital recycling is obviously very attractive.
Maybe if you could talk a little bit about some of the other, I think you still have six Lowe's boxes, you've got a cold I think single tenant asset maybe talk about what the demand is for that and obviously cap rates have compressed a little bit based on your commentary. What do you think the spread would be today if you were to so, some of those drier assets and recycle. Is it going to be as attractive as what you've achieved over the last, call it 24 months?

Jeffrey Olson

Yeah, I mean it was so attractive. It was almost 200 basis points in the last 24 months. I do think it will be more difficult to get that 200 basis points, but we are exploring several deals right now on the disposition front, mostly single tenant assets that we think will get a cap rate somewhere around, call it in the fives. And there may be some larger stable power centers that we own that have great credit but lower growth, and maybe we'll be in the 6% cap rate on those. So, the decision really will be made based on what's in our acquisition pipeline and how attractive those assets are relative to what we might be able to dispose of course. So, is that 100 million? Is it 200 million? I hope so.

Floris van Dijkum

Fair enough. Let me ask you another question on your redevelopment. I noticed obviously you announced the Macy's termination at Sunrise. I don't know if you can make any comments on where that project stands today, and then also talk maybe a little bit about the Bergen Tow Center apartments or the sale to an apartment developer and how you're thinking about mixed use in your portfolio.

Jeffrey Olson

Yeah, so on Sunrise, I mean, we're very excited about our progress. We can't get into more details just because of the confidential nature of our discussions that ultimately will allow us to redevelop the property. We do hope to disclose more later this year on it.
In terms of the residential sale, we created a lot of value by entitling that land for about 450 residential units, and we felt that the best way to monetize that value was to sell it to a local developer and we will redeploy that capital in a 1031 on an acquisition that we've already made.

Floris van Dijkum

Right, and that maybe the last question that I have. As you guys are still continuing to spend on, in particular, Bruckner, as the market strengthens, what happens to your expected returns as the vacancy continues to drop and space gets tighter, are you seeing more attractive returns or is it, are the returns being offset by rising costs in construction as well?

Jeffrey Mooallem

Hey, good morning, Flores. It's Jeff Mooallem. Yes, and yes, we are definitely seeing some better returns. You cited Bruckner as an example. We're out there marketing some still available space and we're getting very good interest at very good prices, better than we underwrote, but definitely capital costs erode into some of that return. I would say we feel very good about the 15%.
Unlevered yield that we're targeting in our development pipeline right now. If anything, we're hoping that comes in a little higher. And when we look further out past 2025, we don't see a reason why that would come down materially, but we're always watching costs and right now we're in an interesting time and place with costs. There's a lot of concern about, where those are going to go with various government policies, and I'd say we feel good that we're going to do better than what we budgeted, but costs are definitely hitting the numbers a bit.

Floris van Dijkum

Thanks. That's it for me.

Jeffrey Olson

Thank you, Floris.

Operator

As a reminder to start one on your telephone keypad, if you would like to ask a question. Our next question is from Samir Khanal with Evercore ISI. Please proceed.

Samir Khanal

Yes, good morning. Mark, on GNA, I mean, you've done a good job, bringing that down for the last several years. I think the midpoint, when you look at that in '25, it's also down versus last year. And I think in your opening remarks you talked about streamlining processes. Maybe expand on that a little bit as we kind of think about GNA not only for '25 and maybe even years beyond. Thanks.

Mark Langer

Yeah, so there's three prongs that you know we obviously looked at Samir over the last couple of years.
One is just the headcount we allocate to different functions. Secondly is, what we spend on third parties. We did a deep dive on all consultancy, third party outsourcing vendors, everything you can imagine, which, amounts to big dollars, and that really tied into the last element is you know we're. Can we streamline process? So what I would tell you is it isn't any one thing, Samir, that drove, kind of this decline or the stabilization.
It was a bunch of, some kind of little things, moderate things where we rebid aggressively rebid all of those larger three-party contracts that helped and in terms of streamlining, we are like many comp. Is exploring ways and using AI and other RPA type tools where we're trying to automate things that we were spending 20, 30, 40 hours of manpower on, and we're seeing some very good results. I'm very encouraged what we're seeing and that's why I said in my prepared remarks we're not done. We're continuing to evaluate it, but there are at this point going to be smaller gradual changes and not any one big outsized event.

Samir Khanal

Okay, got it.
Thank you for that. And then I guess on Jeff, on Sunrise, I mean with Macy's terminating their lease, is that, I mean, I know it's still early, but it will that continue to be sort of retail or are you considering various uses, alternatives? It's just any, I don't know, any initial comments would be great. Thanks.

Jeffrey Mooallem

Hey, good morning, Samir. It's Jeff Mooallem. I'll take it.
Look, I think what we've said before and what's still consistent is the 78-acre parcel of land. So, it's important that we all think about it as potentially more than one category of use. We're exploring a lot of different things right now. We're very encouraged, as Jeff. By the progress we've made, Macy's closing their store there is a big step forward in our development plans, and we're excited for what's to come. Nothing more that we can really say beyond that at this point, but we are hoping that we'll be able to announce something here definitely in 2025.

Operator

Thank you.
Our next question is from Paulina Rojas with Green Street Advisors. Please proceed.

Paulina Rojas Schmidt

Good morning. And you mentioned in your prepared remarks that high quality centers in the markets are trading below a 6% cap rate. And can you characterize a little more what type of assets can trade a sub six in terms of size and number of boxes, whether it has or not a grocer and a little more color around that.

Jeffrey Mooallem

Hey, good morning, Paulina. Yeah, I think having a grocer is an important component of what we would call maybe a core plus type asset.
Certainly, all the investors today, and we're no different, are looking for growth. So, when you combine a good grocer doing good sales and with, a reasonable amount of lease term left, call it at least you know 7 to 10 years of lease term. And growth opportunities through shop space, maybe adding pads, things like that. Those are the assets that are really most desirable right now in the market.
There's not a lot of them that get circulated, and when they do, there's there's quite a frenzy over them. So we're hearing guidance from brokers and we're seeing deals ourselves that are being quoted. Between a 5.5 and 6 cap rate range, and there is capital out there now that's solving for, high single digit or low double digit levered IRRs that can afford to pay those prices. It's definitely gotten compressed on the buy side. We did not see those at all a year ago and to Jeff's point earlier about, the 7.2%. A return on the deals we've been able to buy, we bought really well. We bought some assets that today would trade were very short of 50 to 100 basis points lower than the cap rates at which we purchased them. So, the buying has gotten tougher, and there are some assets now that are definitely going to be in the fives.

Jeffrey Olson

And Paulina may be one of the best examples is a company that's based out your way, which was $4 billion of a so I think that that certainly had an impact on the market.

Paulina Rojas Schmidt

Yes, of course, And then more big picture, how are you seeing your cost of equity today and is an idea issuing equity, would you consider that as a source of funding for certain acquisitions.

Jeffrey Olson

I think modestly, I think that clearly the best funding source is selling low cap rate, low growth assets, and also some of our non-core assets that could include excess land. That is what we're focused on. But is there room for a modest amount of equity maybe depending upon the deal.

Paulina Rojas Schmidt

Okay, thank You.

Jeffrey Olson

Thank you.

Operator

With no further questions in the queue, I would like to turn the call back over to management for closing remarks.

Jeffrey Olson

Great. Well, thank you for your interest in Urban Edge. We look forward to seeing many of you in Florida at the City conference next month.
Thank you very much.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.