Urban Edge Properties: Fiscal Year 2023 Performance and Strategic Overview

Business Overview

Urban Edge Properties (UE), a real estate investment trust (REIT), specializes in owning, managing, acquiring, and redeveloping high-quality retail properties. The company focuses on dense, affluent suburban communities, primarily within the New York metropolitan area. UE's portfolio features necessity-based and grocery-anchored shopping centers, strategically designed to generate stable rental income. This summary details UE's performance for the fiscal year ending December 31, 2023.

Financial Performance

Urban Edge achieved solid financial performance in 2023, driven by strong operational execution and strategic portfolio management:

• Total Revenue: Grew by 4.5% to $385.2 million.
• Net Income: Reached $128.7 million, or $0.98 per diluted share.
• Funds From Operations (FFO): This key REIT metric rose to $1.35 per diluted share, a 3.1% increase year-over-year.
• Adjusted Funds From Operations (AFFO): Another important metric, AFFO climbed 2.4% from the prior year to $1.28 per diluted share, indicating robust cash flow available for dividends and investments.
• Dividends: UE declared annual dividends totaling $0.60 per share, representing an approximate 5.5% dividend yield based on recent share prices.

Management's Discussion and Analysis (MD&A) Highlights

Management emphasized a year of strong operational execution and strategic capital allocation. The company achieved solid financial growth, with increases in total revenue, net income, FFO, and AFFO, showcasing the resilience of its necessity-based retail portfolio.

Key highlights from management's discussion include:

• Robust Operations: High occupancy rates and positive leasing spreads demonstrated strong tenant demand and pricing power.
• Strategic Portfolio Management: Targeted acquisitions and dispositions enhanced asset quality and focused the portfolio on core, high-growth markets.
• Disciplined Financial Management: The company maintained a disciplined balance sheet, ensuring financial flexibility and liquidity. This involved a mix of secured and unsecured debt, a revolving credit facility, and proactive refinancing to manage debt maturities and interest rate exposure.

These actions collectively underscore management's commitment to driving long-term shareholder value through operational excellence and prudent financial stewardship.

Financial Health

Urban Edge maintains a disciplined approach to its balance sheet, ensuring financial flexibility:

• Total Debt: Total debt stood at approximately $1.8 billion at year-end.
• Leverage: Net Debt to Adjusted EBITDA was 7.2x, a manageable level for a retail REIT.
• Mortgages: Mortgages secure approximately $1.2 billion of their debt across properties in New Jersey, New York, Massachusetts, and Puerto Rico. Roughly 70% of this secured debt is fixed-rate, significantly mitigating exposure to rising interest rates. The remaining 30% is variable-rate, which could incur higher costs if interest rates continue to climb.
• Revolving Credit Facility: The company holds a $500 million revolving credit facility. With $150 million drawn at year-end 2023, this facility provides $350 million in immediate liquidity and matures in August 2026.
• Term Loans: In January 2024, subsequent to year-end, Urban Edge proactively secured new term loans totaling $300 million. These include a $150 million 5-year term loan and a $150 million 7-year term loan, further strengthening their capital position and extending debt maturities.
• Cash and Equivalents: Cash and equivalents totaled $65 million at year-end.

Risk Factors

Investors should consider the following risks associated with Urban Edge Properties:

• Tenant Concentration: The Home Depot accounts for approximately 7.5% of Urban Edge's annual base rent, representing significant tenant concentration. While Home Depot is a strong credit tenant, adverse developments affecting its business or decisions not to renew leases could materially impact Urban Edge's rental income.
• Interest Rate Risk: Although most of their secured debt is fixed-rate, the variable-rate portion and future refinancing needs expose the company to higher interest expenses if market rates rise.
• Retail Market Dynamics: Despite focusing on necessity-based retail, the broader retail environment remains vulnerable to economic downturns, shifts in consumer spending habits, and increased e-commerce competition, potentially impacting tenant performance and occupancy rates.
• Geographic Concentration: A substantial portion of the portfolio is concentrated in the New York metropolitan area, making Urban Edge susceptible to regional economic fluctuations and regulatory changes.

Future Outlook

Urban Edge Properties plans to continue its strategy of enhancing portfolio quality through selective acquisitions and dispositions. The company will also focus on value-add redevelopment opportunities within its existing portfolio and maintain a strong balance sheet. Management anticipates continued FFO growth in fiscal year 2024, driven by positive leasing trends and disciplined capital allocation.

Competitive Position

Urban Edge Properties operates in a highly competitive real estate market, especially within its target dense, affluent suburban communities.

The company's competitive advantages include:

• Strategic Locations: Properties are strategically located and often anchored by necessity-based and grocery tenants, which drive consistent foot traffic.
• Value-Add Redevelopment: Its ability to execute value-add redevelopment projects within its existing portfolio enhances property value and attracts a desirable tenant mix.
• Experienced Management: An experienced management team and established relationships within its core markets further strengthen its competitive standing.

Competition for high-quality retail property acquisitions is significant, with Urban Edge competing against other REITs, institutional investors, and private real estate owners.

Investment Considerations

Overall, Urban Edge Properties demonstrated solid financial performance and strategic execution in 2023, driven by its focus on necessity-based retail in dense, affluent markets. While the company faces risks like tenant and geographic concentration, its disciplined financial management, strong operational metrics, and clear growth strategy provide a comprehensive picture for potential investors to consider.