Good morning and welcome to the Urban Edge Properties Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Etan Bluman. Please go ahead, sir.

Good morning and welcome to Urban Edge Properties third quarter earnings conference call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer; Mark Langer, Chief Financial Officer; Danielle De Vita, Executive Vice President of Development; Rob Milton, General Counsel; Scott Auster, Senior Vice President and Head of Leasing; and Andrea Drazin, 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 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.

All right. Thank you, Etan and good morning, everyone. I am pleased to announce another strong quarter with FFO as adjusted of $0.30 per share, an 8% increase over the third quarter of last year and a 7% increase year-to-date. This increase is primarily attributed to NOI growth and the acquisitions of Woodward Town Center outside of Washington, D.C. and the shops at Riverwood in Boston. The shopping center industry continues to benefit from strong demand from a broad set of retailers, especially throughout the suburbs around New York City. Just in the past year, we have increased our occupancy from 93% to 95%, a notable growth rate following the pandemic. We had visible NOI growth coming from our signed but not yet open pipeline which has increased to $28 million, representing approximately 12% of our current NOI. We also have 1 million square feet of leases under negotiation, representing an additional 10% of annualized NOI. Our team is energized and committed to getting our portfolio back to our prior occupancy levels of 97% to 98%. Our properties are predominantly situated in the first-ring suburbs within the D.C. to Boston corridor, the most densely populated supply-constrained market in the United States. Leading retailers continue to expand and are focused on growing their omnichannel offerings within our core markets. We are thrilled that Target recently executed a 139,000 square foot lease at Bruckner Commons in the Bronx. Over the past 5 years, we have transformed a deeded [ph] 1970s era Shopping Center, previously anchored by Kmart, Toys"R"Us and a local grocery store into a dominant destination that will be anchored by Target, Shoprite, Burlington, Marshalls and 5 Below. We have redesigned the facades, walkways and outdoor seating areas, making this property one of the most attractive shopping centers in the area.…

[Operator Instructions] The first question we have is from Ronald Kamdem from Morgan Stanley.

Just a couple of quick ones. Just going back to the comments on the 97% to 98% occupancy. I'd just like to dig into that a little bit more. What gives you confidence in that, is that the pipeline, is it the activity? And what are you doing maybe differently with the leasing team to have conviction to get there?

I mean, historically we have averaged in that range. So point 1 is we've been there before and have stabilized there before. Point 2 is that we do have a million square feet of leases under negotiation right now and that's really what gets you there. And we feel good about where we are on executing many of those leases and I should note that the rent spreads on the million square feet under negotiation are averaging about 20%.

Great. And then just on the earnings guidance and obviously appreciate sort of providing that. Could you just talk little bit about what the assumptions for bad debt is in that same store NOI, how should we think about that?

Yes. Sure, Ron. So as I said in my prepared remarks, the biggest wildcard has been the amounts that we're receiving on prior uncollectible estimates and we think there'll be about $1 million or $2 million in that, that will offset kind of the normalized expense level that you've seen. So the key assumption that's implied in guidance is that will collect about $1 million to $2 million on past due.

Okay, got it. And then the last one if I could. So just on the G&A, so the guidance for this year, I see $40.6 million to $41.6 million and you talked about just re-looking at the G&A. Can you just provide a little bit more color on that? I know there's been some management changes. Just can you just dig into what are you guys thinking, like what are you trying to take out?

When we provide guidance for 2023, we'll be more specific. But just in terms of the management changes that were made, there's probably a couple of million dollars of G&A savings right there.

[Operator Instructions] The next question we have is from Brian Spahn from Evercore ISI.

Jeff, I was wondering if there's any color you can provide Just on conversations you're having with retailers, what your sense is of how they're viewing real estate expansion plans as we head into a potential recession here?

Yes. I mean, our conversations have led us to believe that they're still expanding at a rapid pace. Our goal is to get this million square feet of leases that are under negotiation signed. But so far, the tenants have not given us any indication that they are planning to slow down their expansion plans. When you look at our pipeline of a million square feet under negotiation, some of the names that are most notable would include TJ Maxx, Ross, Sephora, Lidl, Burlington, buybuy -- among others. Not buybuy BABY. So we have Scott Auster, who is our Head of Leasing. And Scott, maybe you can comment on it because you're more in the weeds on this than I am.

Yes. Thanks, Jeff. The only thing I would add to that is we did have a full leasing team meeting earlier this week on Tuesday. And at the top of the meeting, we asked our agents, whether they have lost any particular deal just because of the macroeconomic headwinds? And we've only lost 1 and that was a restaurant deal where the operator lost their capital partner because they were getting a little bit worried about the economy. And that's across a pretty expansive and robust pipeline that we have in place right now. So that suggests really that the retailers haven't pulled back at all and that the demand is still there. And I'd say also the demand is across all different category and classification. It's anchors, it shops, it's mom-and-pops, it's franchisees, it's national tenants. So from my vantage point, there's no discernible soft spot in the leasing environment right now.

Look, the consumer remains very strong today. And as long as the consumer is strong, I think retailers will continue to expand. I heard this great quote from a banker last week that I'll mention here. And he said, "Americans are watching the economic forecast for a thunderstorm but seeing it's still sunny outside, they are headed out to surf the waves anyway." And that's the state of the consumer today. And let me be clear, I mean, we, as a company, are not surfing. We're preparing for a slowdown. We're prioritizing our balance sheet as we recently expanded and renewed our line of credit and we're placing a high emphasis on getting these leases under negotiation executed.

Yes. I guess just on the 1 million square foot pipeline, I think that's consistent with the number from last quarter. I guess what I'm trying to understand, are there any changes to the pipeline at the composition? Are deals taking longer to get done? Just anything, any noticeable changes in the negotiations there?

Not right now. I mean 80% of the tenants in the pipeline are national and regional operators. So I would say -- I mean and there are some ins and outs. The pipeline does change each quarter. I mean, we moved some of the pipeline as leases are executed into SNO. And some of the SNO pipeline gets removed as leases are delivered to tenants but no material changes and it's across a variety of retail categories.

Got it. Okay. Last one, just on the transaction market. I mean I realize deals are limited but where do you think bidders are underwriting deals today, I guess, from an unlevered IRR perspective?

Yes. I think some are underwriting unlevered returns close to the double digits, call it 9% to 10% which is implying cap rates are probably up 75 to 150 basis points. But to your point, there's such little activity taking place and I think it's going to take some time for people to recognize either that there's a new environment that we're in which has a higher cost of capital or that cost of capital goes down because interest rates change.

[Operator Instructions] the next question we have is from Paulina Rojas from Green Street.

So blended re-leasing spreads were negative this quarter and you explained how it was driven by one anchor renewal. And so I get that this is very volatile. But taking a little more of a longer perspective, where do you see the mark-to-market of your portfolio? What should we expect for average blended releasing spreads in the interim, not just next quarter or necessarily the next -- let's think about maybe the next 12 to 24 months?

Yes. I mean when you blend it all together, I mean, you're probably somewhere in the 5% to 10% range, including option exercises, et cetera. But again, I would point to the 1 million square feet of leases under negotiation which are the ones that are most active at the moment and the re-leasing spread there is 20%.

Okay. And starting physical occupancy, so it only climbed, I think, 10 basis points in the quarter which given how why wide you're leased but not open spread is, was a little surprising to me. I know your portfolio is difficult in the sense that often see change doesn't necessarily correlate with base rent increases. But how do you think about the cadence of physical occupancy going forward?

Yes. It's a good question because I'll point out exactly to your question in terms of some of the nuances about our portfolio. We actually -- as we look going forward, given that Kohl's, Jeff mentioned the opening of Kohl's, we also have a Shoprite at Huntington opening in this fourth quarter. So we actually think you're going to see there's 150 basis points increase in physical occupancy from those. But the nuance is we have a vacant warehouse that we purchased intentionally vacant to lease that's going to enter the same property pool in the fourth quarter. So we're hard at work just about working on executing a lease. But even if that lease gets executed, it will come in with no physical occupancy in Q4. So the uplift you'll see Paulina net-net is maybe about 30 to 40 basis points on a physical basis, even though there's 150 basis points of a real tailwind coming from the 2 anchors.

[Operator Instructions] At this stage there seem to be no further questions. I would now like to turn the floor back over to Jeff Olson for closing comments.

Great. Thank you very much. We appreciate your interest in UE and look forward to seeing many of you in San Francisco.

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