Greetings! And welcome to the Urban Edge Properties earnings call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Etan Bluman. Please go ahead.

Good morning and welcome to Urban Edge Properties 2023 first quarter 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, Executive 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, and 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, Etan, and good morning everyone. I am pleased to announce that we finished the first quarter with strong results. FFO as adjusted was $0.32 per share for the first quarter, up 13% compared to last year and same property NOI was up significantly at 6.3%. The increases are primarily attributed to new rent commitments and lower operating and G&A expenses. Before I get into the details of the quarter, I want to thank all of you that were able to attend our Investor Day a couple of weeks ago. The New York Stock Exchange provided a great venue and we were thrilled to have the opportunity to engage with so many analysts and investors. Our first quarter results demonstrate continued momentum and successful execution of the growth pillars we outlined during our Investor Day presentation. We opened our presentation with the quote from Willa Cather that reads, “We come and go, but the land is always here”. Our 1,400 acres of land in densely populated urban areas will constantly be a source of revenue growth as we continue to improve and densify our properties. A great example of this occurred last week when we received site plan approval from the Paramus Planning Board to develop 456 multi-family units on the east side of Bergen Town Center. This project features an impressive architectural design, vast landscaping, and numerous amenities. We are currently evaluating offers for the sale or joint venture of this exceptional piece of land. Highlights for the quarter include our signed, but not open pipeline, which is grown for the fourth consecutive quarter, increasing to $31 million or 13% of NOI up from $29 million in the fourth quarter of 2022. We have another 600,000 square feet of leases in our pipeline, representing $14 million or…

Thanks Jeff and good morning everyone. I would like to start with a few comments on the macro environment, then cover the details of our leasing and development activity and finally say a few words about our Bed Bath locations. As you heard us say it Investor Day and have heard many of our peers say as well, the supply and demand balance in our industry is the best we have seen in at least the last 15 years. Despite the economic uncertainty and higher inflation of the last few months, we have not seen a meaningful change in demand from our retailers. We believe this is because there is now an inherent understanding and acceptance from all retailers that the store is where the highest profit margins reside. Whether you are measuring by customer acquisition expense, the cost to deliver the product to the customer, add-on sales or brand recognition value, the brick and mortar store outperforms the online platform on a consistent basis. While the steady macro demand is not unique to Urban Edge our portfolio, mostly located in supply constraint first spring suburbs is a differentiator. These are the markets that benefit most from less product being built, more people moving in, and more people working from home. It is these two factors together, stronger demand and limited supply that has improved our pricing power. Not only in the form of starting rents but also in the increases and other lease provisions that are a critical part of every lease negotiation. In the first quarter we picked up right where we left off with strong leasing activity. 42 leases were executed for a total of 430,000 square feet with same space leases totaling 412,000 square feet and generating an average cash rent spread of 7.5%. The story…

Thanks Jeff. Good morning. I will discuss drivers of our first quarter results, comment on our balance sheet and liquidity, and we'll close with our 2023 guidance. Starting with our results for the quarter, we reported FFO as adjusted at $0.32 per share, and same property NOI growth, including redevelopment of 6.3% compared to the first quarter of 2022. The results were better than our expectations, primarily due to lower credit losses, favorable expense trends with significantly lower snow removal costs this year, and lower G&A due to our continued cost cutting efforts. In terms of our balance sheet, we ended the quarter with total liquidity of approximately $911 million, including our $800 million undrawn line of credit and total cash of $111 million. As Jeff mentioned, subsequent to the quarter, we successfully refinanced our mortgage loan at Bergen Towne Center with a new seven year, $290 million loan at a fixed rate of 6.3%. With this refinancing, we have now reduced our company's debt maturities through 2025 to $235 million, less than 15% of our current outstanding indebtedness. Looking ahead, we have minimal and very manageable maturities in 2024 and 2025. We continue to expect our net debt to forward EBITDA to decline to the 6.5x range as our sizable S&O and leasing pipeline is converted to commenced rents. As set forth in our release, we recognized a non-cash impairment charge on Kingswood Center of approximately $34 million or $0.28 per share. Kingswood Center is located in Brooklyn, New York, and was purchased in February 2020, one month prior to the COVID pandemic. It is a 130,000 square foot property of which two-thirds of the GLA is office space. Towards the end of the quarter, we were informed that two tenants, accounting for over half of the properties leaseable…

Thank you. [Operator Instructions]. And our first question comes from Samir Khanal with Evercore ISI.

Good morning everyone. Hey guys, just curious, on the same store guide that you provided, to get you to the low end that 0% for same store, can you maybe provide a little bit more on what's driving that, even if you sort of incorporate Mark kind of your comments about some of the reserves and the bad debt assumption, it's hard to get to the low end. I'm just trying to understand. I'm not missing anything to get to that flat NOI growth at the low end. Thanks.

Yeah. Well, I think just to start with, the magnitude of those reversals that I mentioned of 2.3 to 2.5, we actually had in the fourth quarter $1.8 million. So if you think about that on a quarterly basis, that's about a 300 to 350 basis point headwind right there, Samir. And then in terms of what other factors drive that low end, while we highlight it, some of the known names of at risk, Bed Bath, and Regal, there are tenants that are on our watch list that we have built into the low end of the range that get there. I just didn't call them all out. So it's really some more at risk fall out and the headwinds of prior peer collections that get to the low end.

Got it. And then I guess on this Kingswood, the impermanent it took, I mean, what is the NOI drag that's factored into guidance at this point? I know it doesn't impact the guidance for this year or even ‘25, but just curious what the NOI drag is.

Yeah, well the NOI, what I've noted in my comments is we're generating $1.4 million of NOI. This year is our projection, but that compares to about $3.4 million of interest expense on the debt service. So it's a $2 million cash drag.

The point on that is whether we get a debt modification or if the lender forecloses on the asset, it should all be accretive to earnings.

Got it. And my last question is not… [Cross Talk]

Which is not in our budget or in our three year plan.

Right, right, okay. And then my last question is on the expense recovery ratio. It was up about 200 basis points from what I saw from last quarter. Do you expect recoveries to sort of continue to move up with occupancy moving up or how should we be thinking about this ratio?

Yeah, we do Samir. The first quarter we did get some benefit. As I said, snow removal was incredibly reduced this period, but it's a high recovery item anyway. And so when we look at the trajectory, as we look at these rent commencement, kind of commensurate with our S&O pipeline, we do think that the recovery ratio should stay in the range you're seeing and then tick up and even get into the high 80s as we go out to ‘24 and ‘25.

Thank you.

Yep.

Thank you.

Our next question comes from Floris Van Dijkum with Compass Point.

Morning, guys. Just following up on Kingswood a little bit, so you took a $34 million impairments. You had mentioned originally, you put $25 million of equity into the asset above the value of the mortgage. So essentially, you've written it down below the value of the mortgage. It would be positive whether you lose the assets in terms of earnings or whether it gets modified? Can you tell us a little bit about the discussions and the appetite for lenders to take control of assets in this environment?

Well, because we're sort of in the midst of all this negotiation, it would be premature for us to comment on it at this point. We're optimistic we're going to have a successful outcome here.

Right. Maybe if I could follow-up as well. One of the other things, which I noticed was your leasing costs were pretty low for your new leases. Maybe if you can tell, maybe if Jeff can comment on sort of the environment now that the supply and demand is in your favor, are you seeing benefits accrued to lower TI’s, as well as your ability to drive higher fixed rent bumps?

Yeah. Hey, good morning, Floris. I mean yes, we're seeing benefits in both areas. On the cost side first, it's mostly just about, we're in now a period more of normalization than escalation, which is a rare thing to be in in the construction cost world. Typically we only see it moving in one direction, but right now it's much easier for us to get price certainty, because number one, material costs have leveled off, and number two, supply chain issues have eased. So we are doing better with our negotiations with tenants on allowances, but a lot of the savings are coming from the fact that projects we budgeted a little bit earlier are now coming in less than we expect them to and we're able to budget more precisely going forward. The second piece of it on increases is something we talk about literally every day around here and Scott sitting next to me and he knows this story well. We're generally seeing a lot more success than we have in the past. In one particular case with one anchor tenant, we're able to extract 15% increases over five years instead of the normal 10. And I think us along with some of our peers are trying to change the language around increases and make them more consistent with inflation and the economics and the metrics that are going on right now are helping us do that.

Thanks, maybe in the last question here for me on. You have six lows leases, which appear to have only 4.8 years of term and they are really, the lowest anchor rent that you have in your portfolio at 9.16. I presume Lows has a number of options that extend that, but what kind of increases would those extension options typically have or is this an opportunity to get back that space and really drive rent?

So Floris, indeed they do have options. I don't know what the increases are off the top of my head. I presume that they're 10% every five, but we can take it offline and…

Thanks. That’s it from me.

Our next question comes from Ronald Kamdem with Morgan Stanley.

Great! Just a couple of quick ones on the approval for the apartment, congrats on that. What's the plan there? Is it it's bringing the third party to do it in house and are there other sort of opportunities to unlock sort of multi-family assets and the rest of the portfolio given all the land you have?

Yeah, I mean, I think our decision on whether selling it or putting it at a JV is all dependent upon final pricing and terms we get from the bidders that are underway. And obviously the benefits of an all cash deal would allow us to immediately redeploy that capital into income producing real estate. In a joint venture it would likely limit our investment either to the land or maybe even less than the land because we could probably take some money out, but it might provide a higher return than selling for cash. So we're evaluating both options. I think by the next call we'll probably have more clarity on it. I can tell you that the buyer pool is large and consists of some of the most reputable, multi-family developers in the region, because they all share our view that this site is one of the best residential development opportunities in Bergen County. In terms of other properties, I mean there are many that we’re evaluating. It's early stages, but as we look at places like Garfield and Woodbridge and Yonkers and Jersey City and Millburn, we think all have opportunities for residential, densification and other types of uses.

Great. And then my second question was just on, just in the footnote on the supplemental, on that 3.5% of ABR on cash basis, maybe you can talk about sort of how that's trending and is there a potential for those to come off or how do you guys think about that?

Yeah, it's been trending down as you would expect. I think we were a little over 5% and 6% last year and it's just a function Ron of those tenants that are on it, you're continuing to pay based on our internal screening criteria and their consistency of them being able to meet current rent payments. So, I think the number is going to continue to get smaller by the end of the year, being 1% or 2%.

Got it. And then my last one, just sorry to keep hitting on Kingswood. It was in the value ad bucket. I clearly understand the cash flow dynamic of it being a creative if you give it back. But has anything changed in terms of the potential value ad opportunity? Like, has your thinking changed there in terms of what this project, because it’s potentially been, putting sort of the cash flow situation aside, which is just economics?

Yeah, I mean, we literally closed on this a month before COVID and because two-thirds of it was office and we ended up losing our largest office tenant and we ended up losing a gym, which was New York Sports Club, which also was COVID related. I think that's what changed. And so, now we're looking to potentially restructure the loan, just given where the NOI is relative to the current debt service.

Got it. That's it for me. Thank you.

Okay, thank you.

[Operator Instructions]. We are closing our question-and-answer session. Now, I would like to turn the floor back over to Jeff Olson for closing comments. Please go ahead.

Okay. Well, thank you. We all appreciate you being here and we'll look forward to seeing you at Nareit or ICSE. Thank you very much.

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day!