Greetings and welcome to the Urban Edge Properties First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Holmes. Please go ahead.

Good morning and welcome to Urban Edge Properties’ first quarter earnings conference call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer; Mark Langer, Chief Financial Officer; Chris Weilminster, Chief Operating Officer; Danielle De Vita, EVP of Development; Herb Eilberg, Chief Investment Officer; and Rob Milton, General Counsel. 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 future results, financial condition and business may differ materially. 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 Investors section of our website. At this time, it is my pleasure to introduce our Chairman and Chief Executive Officer, Jeff Olson.

Great. Thank you, Jen and good morning everyone. We are pleased to report a strong start to the year, with FFO as adjusted of $0.28 per share for the first quarter, up 8% compared to prior year driven by a 5.5% increase in same-property NOI and external growth through approximately $250 million of acquisitions completed over the past year. We ended the quarter with same-property leased occupancy of 93.9%, up 280 basis points year-over-year. Including three anchor leases we executed since the end of the first quarter, our occupancy is now 94.5%, up 40 basis points compared to December 31, 2021. The gap between our leased versus physical occupancy in our same-property pool is now 380 basis points. Opening these tenants continues to be a top priority and will be a significant contributor to NOI. In total, we have $22 million of future gross revenue coming from executed leases not yet rent commenced, representing approximately 10% of our current NOI, which may be the highest percentage among our peers. The open-air shopping center sector is performing exceptionally well. Simply look at the share performance of our 40 largest tenants who are publicly traded and comprise 52% of our total rents. Since February 2020, right before COVID shut the world down, the stock prices of these 40 companies are up 33% on a weighted average basis led by our top five tenants: Home Depot, TJX, Lowe’s, Best Buy and Walmart. Leasing momentum is strong as we head to ICSC, with over 1 million square feet of leases under negotiation at spreads that exceed 20%. Our strategic plan is focused on improving retail real estate and first-ring suburban markets primarily throughout the DC to Boston corridor. There are four pillars to our plan. The first pillar is upgrading our properties through adding…

Thank you, Jeff, and good morning, everyone. I am happy to see the solid leasing momentum continue into 2022 with 33 leases totaling 308,000 square feet executed in the first quarter, and same space leases generating an average cash rent spread of 5%. Equally exciting is our 1 million square foot leasing pipeline at expected rent spreads of 20%. This pipeline includes important anchor backfilling at Bruckner, Hudson Mall and Montehiedra. At Bruckner, we have made great progress on leasing the majority of the former Kmart store to a high-profile national retailer and the former Toys box to another national retailer. We look forward to sharing the details of this activity upon lease execution. We are also leasing the former Fallas box to two discount retailers and Aldi grocery store. Once completed, Bruckner will solidify its position as one of the most dominant retail destinations in the Bronx. At Hudson Mall, we are backfilling the toys box with a national grocer and are negotiating leases with well-recognized retailers to retenant and renovate a significant portion of the property. The enhancements we plan to make at Hudson Mall will transform the property located in Jersey City in a manner consistent with what we are accomplishing at Bruckner. At Montehiedra, we are backfilling the Kmart box with three tenants, including a grocer, a soft goods discount retailer and a medical service provider. We remain on track to execute these leases during the second and third quarter of this year. Demand is being driven by a broad range of retailer categories, including grocers, soft goods retailers, general merchandise retailers, sporting goods, home improvement, health and beauty retailers; medical and personal service providers, restaurants, especially in the fast casual concept niche; fitness operators, and we are seeing large entertainment concepts back looking for growth…

Thank you, Chris. Good morning. I will start by covering some of our financial highlights for the first quarter and then provide an update on business fundamentals, including our NOI and earnings expectations and we will close with comments on our balance sheet and liquidity. Starting with our results for the quarter, we reported FFO as adjusted of $0.28 a share, slightly better than our expectations primarily due to the benefit of earning an additional $700,000 of percentage rent related to 2021 tenant sales, which we now disclose in our supplement. NOI growth was strong during the first quarter, up 5.5% on a same property basis when compared to the first quarter of 2021 and up 3.8% when including properties in redevelopment. The first quarter results this year included $1.3 million of recoveries for amounts previously reserved, an expected decline compared to quarterly levels throughout 2021, including $3.3 million recognized in the first quarter of last year. One positive trend we continue to see regarding the strength of the retail recovery is embedded in the high collection rates we have achieved on the rent deferrals we executed during the pandemic. Of the nearly $12 million of total deferrals, our collection rate is currently at 98%. This is a real testament to our receivable and collections team and also to our tenants who are honoring their commitment to pay amounts that were deferred during the height of the pandemic. In addition, our collections on base rents this quarter exceeds 99% and is now at pre-pandemic levels. In terms of items impacting future NOI and earnings growth, it is helpful to note the following. The biggest driver of future growth comes from our leased but not commenced pipeline that Jeff highlighted, which currently consists of approximately $22 million of future annual gross…

Thank you, sir. [Operator Instructions] The first question we have is from Rich Hill from Morgan Stanley.

Hey, good morning guys. I really liked in your press release where you talked about getting back to 96% occupancy, maybe even a little bit higher than that. I think it’s really nice to be front footed about that. Can we maybe just talk through the cadence of getting back to those levels? I recognize there is a lot of moving parts between redevelopment and leasing. But for our modeling purposes, I think it would be helpful for us and maybe others to just maybe understand how – the cadence of getting back to that 96% plus level?

Yes. I mean, I will turn it over to Chris in a minute. Good morning. Yes, our goal to get back to 96% from a timing perspective is by the end of this year. So, we have a specific path to get there lease by lease. We do expect that we will be higher than that as we go into the outer years into ‘23 and ‘24. If you recall, we averaged 97% to 98% for quite some time period. So, our expectation is we will probably be back at those levels within 24 months. But Chris, do you want to add to that?

Sure. Sure. Good morning, Rich. We have a lot of activity right now with regard to the – some of the anchor spaces and our small shop – our smaller anchor spaces, a lot of activity with retailers. And we think by the end of the second quarter, we are going to be able to report a large chunk of that GLA to be leased up. That’s close to – we have got over 300,000 square feet and we have got activity in all of that space right now. So, that’s a big piece on the anchor side. On the small shop side or on the shop side leasing, we have got about 42 transactions we need to get done, and we are making very good progress on those as well. It’s harder to get into it because it’s a lot more transactions, but we are finding a lot of activity in the F&B side and the health and beauty side and the personal services side, the medical side, those are all driving that occupancy on the small shop. So, we think we can pick up 300 plus basis points in small shop occupancy from what’s been reported and get that done by year-end, which will push us hopefully over the finish line on the 96%. And we are certainly not focused to stick on 96%. I mean we think that once we get there, that there is a good pathway over the next couple of years to find our way back up to our more traditional occupancy at 97%-plus.

Got it. And maybe just one accounting housekeeping item, on Las Catalinas Mall, I recognize that’s financed in few CMBS deals. Are there any sort of accounting nuances we should be aware of, because I do recognize there is going to be a pretty attractive gain relative to the loan balances, if I am thinking about that correctly?

Yes. Rich, this is Mark. I think the only nuance is that we can’t recognize that gain Jeff’s referenced until we actually execute and fully refinance it. So, it’s not like – there is no contingent gain. So, we will book it once it’s executed.

Okay. Thanks guys. Congrats on the nice quarter.

Thank you, Rich.

Thank you. The next question we have is from Samir Khanal from Evercore ISI.

Hey. Good morning everybody. Jeff, this NOI that’s going to come through, now I think it’s $22 million, which is higher from the prior quarter. And then I think the breakdown, if I heard this correctly, it was $5 million for this year. Is there any – if you take the other side of this, I know it’s all positive, but is there any way that, that timing could sort of slip given the macro issues out there and just sort of labor issues we hear about?

Sure. Well, first of all, the $22 million, when you add in the 100,000 square feet of leases that we just signed since the end of the quarter, that actually goes up to $24 million. So, it’s actually increased. But yes, I think there is a little bit of risk. We certainly have built in contingencies in these numbers just because of the supply chain issues, both respect to our development costs, but also to the timing of getting these tenants opened. So, what we have outlined on Page 21 in the supplement, which goes through the timing year-by-year, we feel very good about those numbers as of today.

Okay. Got it. And I guess on the – just on the transaction market here, and it sounds like you have something under contract on the grocery side. Maybe just give us sort of a general view of kind of what you are seeing in terms of pricing with volumes going up, just kind of an overview on the transaction market. And not only grocery anchor centers, but are you starting to see some trades on maybe a bit more top tier centers as well? Any color would be helpful.

Yes. No. Happy to provide some and I will let Herb comment as well. But in terms of cap rate, even though interest rates have gone up, we have not seen any significant movement in cap rates. And when we look at trades, there is a $400 million portfolio in Boston that’s trading in the very low-4s. That’s probably the most active comp that’s out there. But there have been a couple of large portfolios in Long Island, I think totaling around $500 million that have also traded in the 4-ish cap rate range, call it the mid to high-4s. And obviously, this is well below the mid to high-6s that our cap rate is trading at based on our current price according to the math behind your numbers and many others. But Herb, do you want to make a comment on cap rates?

Yes, sure. Samir good morning. Just echoing what Jeff said, we really haven’t seen much movement, particularly in the higher quality, institutional quality assets. Again, those tend to be lower leveraged transactions, so that makes sense. In some of the secondary markets, we are starting to see some impact. Those tend to be more levered buyers. So, it’s natural there that you would see some widening of cap rates. But I think the headline is there is no shortage of demand for good retail assets, certainly much more so than in recent years, and that trend seems to be continuing. So, we think that, that wave of capital is going to mitigate any real impact from higher interest rates.

That’s it for me. Thank you.

Great. Thank you, Samir.

[Operator Instructions] The next question we have is from Paulina Rojas from Green Street. Please go ahead.

Good morning. I am curious can you provide different pieces of information for leased occupancy, what does that mean for physical occupancy, the 96% that you are expecting for leased occupancy for the end of the year?

I am sorry I didn’t quite get that, Paulina. Can you repeat that question?

Yes. So, you are expecting by the end of the year to reach leased occupancy of 96%, right?

Correct.

What are you expecting for physical occupancy?

For physical occupancy. Do you have that number, Jen? I mean the way I would model it – I don’t have the exact number off the top of my head, but the way I would model it is, again, I would look at this – the chart on Page 21 that shows $4.9 million of rent coming in, in 2022 from the leases that have been executed, but not yet rent commenced. And then in 2023, that number is $15 million. So, those are the numbers that you are ultimately looking to get at, but we can get back to you with the actual expectation of physical occupancy.

Thank you. And the other question is, so can you provide or remind me what your expectation is for acquisitions, dispositions this year and in the intermediate-term? I know back in 2019, you had a sort of guidepost, but I am not sure if that stands today.

Yes. I mean historically, we have done $200 million to $300 million of acquisitions each year, but we don’t have a specific target because it’s very much opportunistic-based. But I think over the course of the next 5 years, that’s a reasonable goal. In terms of dispositions, I think we have stated that, likewise, we have sold about $50 million a year, and I think that’s probably within the range. But over an extended time period.

Thank you. In your deck, you mentioned that you, of course, you highlight your focus on the DC and Boston corridor, but you also say – is the ability to target other infill submarkets?

Yes.

And I am curious, what other markets outside this corridor have you seriously considered or are you having your weight for execution?

I mean we – first of all, we have nothing identified at the moment in the pipeline. But we do have a lot of expertise and we have some properties in California, and we have a lot of expertise in Florida as well. We would like those two markets just in principle, because they are highly densely populated markets, consistent with our theme of operating in the most densely populated market today, which is the New York Metro area. But in order to get to those markets, we really would want to have critical mass and size. And we realize that there are challenges in making that happen. Ideally, it would come from a portfolio transaction very similar to the way we expanded when Mark and I were at Equity One with the Capital & Counties deal that got us into California.

Great. Thank you.

Okay. Thank you.

Thank you. The next question we have is from Floris Van Dijkum from Compass Point.

Good morning guys. Thanks for taking my question. I would be interested maybe, Jeff, if you can comment a little bit on, there is still reticence from investors to really recognize the growth in urban markets, and certainly, New York and San Francisco and DC and Boston are still viewed as sort of a little bit with the same with a lot of people who think that everybody is moving away. Maybe if you could talk about why demand should grow? And then in particular, you talked about getting your overall occupancy up. Your shop occupancy is at 81.9%. Where – what was the peak for your shop occupancy? And obviously, shop rents are double what they are for approximately – for your anchor occupancy. Where do you think you can push that? And can you push that higher than where it was in the past? And then also, how do those leases look today – sorry, it’s a multifaceted question. But are you being able to drive higher fixed bumps on those rents as there is now more competition to lease space?

Yes. Alright. Let me take the first part of your question first. In terms of urban markets, look, the name of our company is Urban Edge Properties, and our properties are located on the edge of these urban markets. And they are in first-ring suburban markets and principally outside of the New York Metro area. And what we have seen since COVID is we have seen more activity at our centers. They are busier today than they were before COVID, in part because people are working from home, so they are visiting our centers more frequently. And what the retailers are telling us is that they need more stores throughout our markets. And because our markets are so densely populated and supply-constrained, they are having a hard time finding boxes. And that’s the whole thesis of the company, is operating in densely populated markets where it’s hard to find space, which should allow us, over time, to push rent and get tenants to do unconventional things outside of their typical prototypes, because they have no other options. And all you have to do is drive up and down Central Avenue in Yonkers to see what the big box tenants are doing to get into that market. So, when we talk to retailers, retailers are not telling us they favor the Sun Belt markets over getting more stores in the Northeast. Secondly, when you look at the productivity behind the retailers that operate throughout our portfolio, I mean on average, according to Placer, they are in the 75th percentile within their chain averages. So, the Northeast – and our stores, in particular, are producing some of the highest sales within the respective chains of our tenants. So, we are very bullish on the Northeast corridor, particularly these first-ring suburban markets for retail demand. Chris or Mark, did you want to take the second part?

Yes, what I would tell you is that where our historicals were, we were at anchor at about 99% on occupancy on the anchor side and about 93% on shop space. That would get us up to the 98% – that would get us up to – sorry, just lost my train of thought.

The 98%.

That would get us up to the 98% occupancy. I apologize, I was confusing that with the 96%, but that gets us up to 98%, getting back to the historical question. And then on the rents, where we are doing the shop space, we are definitely seeing annually that we are able to get – we are pushing hard to get to 3%-plus increase range depending on who the tenants are. And the anchor still seemed to be stuck on that 10%, but we push in every angle possible.

Chris, can you just comment on the demand for shop space today that allows us to get back up to that 93%? Where are you seeing it coming from? And how is it now compared to 3 years ago?

Yes. In the remarks, as I mentioned over and over about the categories, the food and beverage categories, the health and beauty aid categories, the personal services categories, the fitness categories, I think people left the workforce and found other opportunities to make money. They invested in franchises, their own concepts. We are seeing a lot of demand from those types of categories, and it’s much more robust post-COVID than it was pre-COVID. There is just no doubt with regard to the activity. And as we also look at the fact with the cost of construction being where it is, there is very little new supply coming into the market. So, as spaces fill, as Jeff has been saying for the past years, we see occupancy increase across the board in the centers in our core markets. We are able to secure these types of tenants. And these tenants are looking for quality real estate. And so even the ones that are already in market are looking to move from a c or b up to an a type property. We are seeing a lot of that traffic. So, we are very confident in our ability to grow that small shop leasing back up into the low to mid-90%. And that will be a key to getting us up to that historical occupancy level of the 97%-plus to 98% occupancy, 96%, again, barring something catastrophic beyond our control in the markets. We are really pushing hard and feel very confident about reaching that 96% occupancy rate by the end of this year.

And Floris, what I am most excited about is, as the market gets back to full capacity, we will – there will then be a much smaller subset of spaces available for those tenants wanting to get into the market. So, we should be able to push rents higher than what we have been able to do over the last year, just because there is less space available.

Thanks Jeff. So, I mean it sounds like – I mean just back-of-the-envelope, if you increase your small shop by just over 10%, just alone on that, your operating margins are going to be massively higher rents, and that’s assuming just on current rents. That’s going to be even significantly higher if you are able to push rents. Maybe if – one last question for me, which is Kohl’s, they are 3.7% of your rent, but they are paying very low average rents of $150 [ph] a square foot or something like that. But maybe talk or comment on the Kohl’s situation. And sort of is that a risk, or is that an opportunity for you guys?

Look, I do think it’s an opportunity. I mean most of our Kohl’s locations are stores that they opened when they came to New Jersey a long time ago. And as I look through our rankings, and see that, on average, our Kohl’s are operating in the 80th percentile of their chains with respect to sales and consumer traffic. We feel very good about how they are performing. I mean we have some of the top performers in the chain. We are particularly excited about relocating what Placer identifies as the eighth most visited site out of 1,139 stores in the chain in Paramus, New Jersey to Bergen Mall. So, we do believe in the concept. We believe they operate in great locations within our portfolio. And relative to the rents that they pay, we feel very good about the inherent value of the real estate in those locations.

Thanks Jeff. That’s it for me.

Okay. Thank you.

[Operator Instructions] The next question we have is from Chris Lucas from Capital One Securities.

Good morning guys. I guess just two questions for me. One is going back to the shop space question, and I apologize if you talked about this in your prepared remarks, I missed the front end. Is there a component of the sort of 18.1% of vacant shop space that’s effectively not leasable right now because it’s in redevelopment, or you are waiting for anchors to sort of position the space to be leased?

There is one that we are repositioning and taking some small shop out at Hudson Mall. That’s one that’s affecting some of the numbers that you are looking at where we are going to consolidate and roll them into anchor space. So, as we look to reposition…

Push them a little bit back at Yonkers as well, but those would be the two.

Those are the two, Yonkers and Hudson.

Okay. And then I guess the other question for me, and Mark, I am going to ask this one for you and then there is a series of questions follow-up. But I will do it one at a time, which is related to percentage rents and just the inflationary environment we find ourselves in right now. Was there much percentage rent in your overall rental revenue? I don’t know how important it is to sort of your revenue story.

Yes. The answer is, historically it has not been, kind of averaging $1 million to $2 million. But given the trend that’s happened, it’s picked up, which is what you saw. And it’s also the reason, Chris, why we decided we would add that disclosure because it has been a bit lumpy, and we expect it to be. So, while we had a good chunk this quarter, it really pertained to sales that came in from last year-end reports. So, I think when you look at that trend, while we had about $1.2 million in Q1, we expect very modest levels in Q2, Q3 just because of the timing of reporting. In Q4, we should see a moderate pick-up, call it, $0.5 million. So all-in, we would expect to have $2 million to $3 million for the full year.

But Mark, the $1.2 million in Q1 compares to what of Q1 last year?

About $0.5 million. So, it was up $700,000.

Okay. And then, Mark, just if I stick with this, if I am forecasting out, and I am not looking for guidance, but I am just trying to figure out. If I think about next year, so Q1 of ‘23, are there tenants that are getting close to that breakpoint? And then just given the inflationary environment that you will see some kick in where they have exceeded that break point, or is that sort of a – or do you feel like that’s a fairly stable number going forward relative to sort of what we saw this year?

Well, given the trends we made, we certainly would hope it’s stable. So, from a year-over-year basis, you are saying kind of looking Q1 of this year to Q1 of next year, we would hope to see that same pickup just based on the trends.

Okay. And then, Chris, just on this same topic, are you having conversations with tenants? Is this an area of focus for you guys, or is it really still just about maximizing base rent and bumps?

It is. We are using all that, sales trend is important to us because we want to – that helps us get maximization in bumps and pushing the tenants we want to do business with. So, it’s all important and we pay attention to it, very much so.

Okay. Thank you. That’s all I have this morning.

Great. Thank you.

[Operator Instructions] At this stage, there seems to be no further questions. Can I please turn over back to Jeff Olson.

Great. Well, thank you, everyone. We look forward to seeing you both at ICSC and at NAREIT. So, please call us if you have any questions on this call. Thank you.

Thank you. Ladies and gentlemen that then concludes today’s conference. Thank you for joining us. You may now disconnect your lines.