Urban Edge Properties Q3 2025: Contradictions Emerge on Cap Rates, Occupancy, and Rent Spreads

Guidance:

• 2025 FFO as adjusted raised $0.01 at midpoint to a range of $1.42 to $1.44 per share (midpoint ~6% growth vs 2024).
• Fourth quarter FFO expected to be $0.36 per share.
• Same-property NOI including redevelopment raised to a new midpoint of 5.25% (prior midpoint 4.6%), implying ~4.5% growth in Q4.
• Signed-not-open (SNO) pipeline to contribute growth: $5.6M annualized commenced in Q3 and ~$300k expected in Q4.
• Expect FFO as adjusted CAGR near 6% over the referenced multi-year period.

Business Commentary:

• Financial Performance and Growth:
• Urban Edge Properties' FFO as adjusted increased by 4% in Q3 2025 compared to Q3 2024, bringing year-to-date growth to 7%.
• Same-property net operating income (NOI) increased by 4.7% in Q3 2025, maintaining a year-to-date growth rate of 5.4%.

• Growth was driven by strong rent commencements, higher net recoveries, and lower recurring G&A, supported by favorable supply-demand dynamics and record-low vacancy rates in shopping centers.

• Acquisition Strategy and Land Value Opportunities:

• Urban Edge Properties acquired Brighton Mills, a grocery-anchored shopping center in Boston, for approximately $39 million, with NOI growth expected to exceed 3% annually.
• The acquisition was funded with proceeds from the sale of Kennedy Commons and McDade Commons, structured as 1031 exchange transactions.

• The company views this acquisition as a textbook covered land play, benefiting from the significant demand for residential and commercial development and land values below $9 million per acre.

• Leasing Activity and Rent Spreads:

• Leasing activity in Q3 2025 totaled 31 deals aggregating 347,000 square feet, including 61% rent spreads on new leases.
• The strong rent spreads were driven by the replacement of bankrupt tenants with national retailers like HomeGoods and Ross.

• The company's same-property lease rate remains stable at 96.6%, with a focus on converting anchor spaces to generate higher rent spreads.

• Capital Recycling and Debt Management:

• Urban Edge Properties raised its 2025 FFO as adjusted guidance by $0.01 per share at the midpoint, due to better-than-expected results.
• The company secured a new $123.6 million 4-year nonrecourse mortgage on Shoppers World at a fixed rate of 5.1%.
• Debt markets for retail assets strengthened, leading to lower interest rates and tighter spreads, enhancing the company's liquidity and flexibility for future growth.

Sentiment Analysis:

Overall Tone: Positive

• Management: "FFO as adjusted increasing 4% over the third quarter of last year...year-to-date growth to 7%"; raised 2025 FFO guidance and Q4 FFO to $0.36; "same-property net operating income increased by 4.7% for the quarter"; strong leasing spreads (new leases ~40% avg, renewals ~10%, and outsized 61% for certain new anchors).

Q&A:

• Question from Michael Goldsmith (UBS Investment Bank, Research Division): Maybe starting with this acquisition, it sounds like there's some better opportunity for growth and then also opportunity for redevelopment over time. So just to get a better sense of the time line for that, are you able to kind of size when the leases expire or so that you could start to monetize some of the opportunities at that site?
  Response: Leases at the Brighton Mills acquisition run long (management said all leases expire in ~22 years); they expect to exceed ~3% annual NOI growth over that term and could monetize earlier via tenant negotiations.

• Question from Michael Goldsmith (UBS Investment Bank, Research Division): We'll work on that. And then, as a follow-up, just as we look forward, can you provide a breakdown of some of the onetime items you recognized in 2025 so that we could strip that out of the 2026 run rate? And then also, I think real estate tax and G&A have been benefits this year. So how can we think about those as we look forward?
  Response: One-time benefits in 2025 are roughly $3.5M total (~$2.0M from old receivable collections and ~$1.5M from CAM recovery billings); real estate taxes are expected to remain stable and G&A has been reduced but will modestly normalize next year.

• Question from Michael Griffin (Evercore ISI Institutional Equities, Research Division): Jeff, maybe you can talk about the opportunity set within Shoppers World. I know you recently got the mortgage refinance there. If I remember correctly, there's a Kohl's box that you could be looking to do something with, whether it's redevelopment into other uses or things like that. But maybe give us a sense of what the opportunity is there and what we could be seeing in the hopper for that property.
  Response: The Kohl's parcel at Shoppers World is excluded from the new mortgage, giving flexibility to reacquire early; the team is studying mixed-use and retenanting options and expects to have an accretive plan to announce early next year.

• Question from Michael Griffin (Evercore ISI Institutional Equities, Research Division): And then maybe you can give a little bit of color around the rent spreads in the quarter, particularly as it relates to the new leases. It looks like it was up about 60% year-over-year. Was one lease skewing that, that maybe absent that, it's probably in the 20% or 30% range? Or is that really indicative of, I guess, the demand that you're seeing within the new lease part of the leasing pipeline?
  Response: The ~60% new-lease spread was driven primarily by two anchor re-leases (HomeGoods and Ross) replacing bankrupt tenants; sustainably the company expects double-digit spreads and targets being north of 20%, not 60% each quarter.

• Question from Michael Griffin (Evercore ISI Institutional Equities, Research Division): And Jeff, just real quick, what is the expected time frame between executing those leases on those backfilled anchor boxes versus when the new tenant is going to commence occupancy?
  Response: When both parties are motivated, openings can be relatively quick; management expects the two anchors (HomeGoods and Ross) to open in 2026—one in H1 and the other in H2.

• Question from Floris Gerbrand Van Dijkum (Ladenburg Thalmann & Co. Inc., Research Division): Jeff, Jeff Mooallem, that is. I had a question on the comments you made about splitting an anchor box. Can you talk about the opportunity to create more shop space in your portfolio? How many more opportunities are there available to take anchor and split it? And what are the returns for that kind of capital?
  Response: Splitting anchors is evaluated constantly; small anchors (example: 11k sf) can be split and re-leased to high-paying shop tenants (rents in the $40s–$60s) and justify the economics, but many remaining anchors are deeper/challenging so opportunities are opportunistic rather than widespread.

• Question from Floris Gerbrand Van Dijkum (Ladenburg Thalmann & Co. Inc., Research Division): Great. Maybe a follow-up question. Talk a little bit about the acquisition environment, and also maybe the ability to fund acquisitions as well. I know that New York and Boston are pretty competitive markets. I would imagine it's pretty tough to find a product that fits your criteria. Maybe talk a little bit about what you're seeing, what's out there, and your appetite for transactions going forward?
  Response: Acquisition market is very competitive with many bidders; Urban Edge is underwriting ~$200M of assets (none under contract), has lost deals, and will remain disciplined—pairing acquisitions with dispositions and continuing capital recycling.

• Question from Michael Gorman (BTIG, LLC, Research Division): Jeff, maybe kind of continuing on with that right now. I'm kind of interested when you think about Brighton and some of the other deals that you've done, they're a little bit nontraditional, right, whether it's covered land play, redevelopment opportunity. And I'm curious, do you see the same level of institutional competition for those maybe nontraditional shopping center assets that have additional upside for a sophisticated operator? Or is that kind of the niche where you're finding more success right now because the institutional capital can't go there as easily?
  Response: It varies by deal; Brighton attracted many bidders (~a dozen) because it was straightforward, but their value-add platform helps differentiate opportunities and limits some buyer pools, which is advantageous on the margin.

• Question from Michael Gorman (BTIG, LLC, Research Division): Okay. Great. That's helpful. And then maybe just on the tenant environment for a minute. Jeff, you highlighted some of the small shop tenant demand and rattled off 3 food concepts. We saw a stat recently floating around that almost 50% of food spending now is outside of the home. I'm wondering how you balance the demand you're seeing from the restaurant side of the business with what you're seeing from your grocers, which also continue to have strong sales. I mean, how does that dynamic play out? Is there any end to the demand for the food concepts? I'm just curious how you see that trending in your portfolio.
  Response: Both grocers and restaurant concepts remain in expansion mode; the company is cautious about oversaturating with QSRs and will limit restaurant concentration while continuing to pursue grocer opportunities across the spectrum.

• Question from Michael Gorman (BTIG, LLC, Research Division): Great. That's helpful. And then maybe just last one for me. Whether it's on the investment side or the discussions with tenants, has there been any shift in tone or demand or preference around the D.C. Metro area, understanding it's a long-term business, but with some of the volatility here in the near term that could continue for a couple of years, has there been any shift there, like I said, either on the institutional capital demand side or on the tenant side in that MSA?
  Response: No tenant-side shift in D.C.; centers are performing and tenants remain active; buyer demand is frothy generally, with Boston and New York drawing higher institutional interest versus D.C.

• Question from Paulina Rojas-Schmidt (Green Street): The industry is really highly leased. So what do you think the retailers are seeing that is different and will allow perhaps to sustain these high levels of occupancy for some time, instead of -- as it has been more frequently the case of peaks following almost like an inevitable slowdown in occupancy, another metric?
  Response: The underlying driver is supply scarcity—new retail construction has fallen materially and single-level surface centers (especially in the Northeast) are limited—creating durable supply-demand tailwinds and pricing power for existing centers.

• Question from Paulina Rojas-Schmidt (Green Street): Do you think you're able to single out anchors that are leading the expansion in the Northeast? Or it's really too dispersed to highlight a few names?
  Response: Expansion is somewhat dispersed, but TJX concepts (including Ross) are notable expanders in the Northeast and are flexible on rents, helping drive demand for quality boxes.

• Question from Paulina Rojas-Schmidt (Green Street): And my last question is, you still clearly have a path of growth coming from the signed not open pipeline. But looking past that, what do you think is Urban Edge's same-property NOI growth on an occupancy-neutral basis, given all these positive background that you have described?
  Response: Longer-term target is sustainable same-property NOI growth of ~3%+ (SNO pipeline ~7% of NOI and capital recycling support incremental growth toward that goal).

Contradiction Point 1

Cap Rate and Acquisition Market Activity

It involves the cap rates for quality assets and the level of activity in the acquisition market, which are key financial indicators for investors and strategic decision-makers.

What is the monetization timeline for Brighton Mills? What 2025 one-time charges will affect 2026's run rate? - Michael Goldsmith(UBS Investment Bank)

2025Q3: Cap rates for quality assets range from 5.5% to 6%, implying unleveraged IRRs in the 8% to 9% range. - Jeffrey S. Olson(CEO)

Can you discuss the acquisition market, cap rates, and provide an update on Kohl's? - Ronald Kamdem(Morgan Stanley)

2025Q2: The acquisition market is heating up, driven by investors recognizing durable cash flows and growth, with more banks entering the market. - Jeffrey S. Olson(CEO)

Contradiction Point 2

Occupancy Levels and Pricing Power

It involves the company's expectations regarding occupancy levels and pricing power, which are critical for assessing the health of the business and future revenue growth.

What is the timeline for monetizing the Brighton Mills property? What one-time 2025 items will affect the 2026 run rate? - Michael Goldsmith(UBS Investment Bank)

2025Q3: We have pricing power on shop occupancy and can achieve occupancy levels between 93,000 and 94,000 square feet. - Jeffrey S. Mooallem(COO)

How are you managing leasing and pricing in a high-occupancy environment? - Michael Griffin(Evercore ISI)

2025Q2: We have substantial leasing spreads and delivery conditions. Leasing terms include better rent increases and exclusives. - Jeffrey S. Mooallem(COO)

Contradiction Point 3

Occupancy Trends and Retailer Demand

It reflects differing perspectives on the impact of macroeconomic conditions on retailer demand and occupancy levels, which are crucial for assessing the company's financial performance and growth prospects.

What caused the 60% increase in rent spreads during the quarter, and is this trend expected to continue? - Michael Griffin (Evercore ISI Institutional Equities, Research Division)

2025Q3: The 60% rent spread was driven by unique situations, particularly anchor leases with HomeGoods and Ross replacing bankrupt tenants. Future rent spreads are expected to be in the double digits but likely less than 60%. - Jeffrey Mooallem(COO)

How might macroeconomic uncertainties related to tariff policy and businesses delaying decisions affect the timeline for leasing and ultimately impact occupancy rates? - Michael Griffin (Evercore)

2025Q1: So far, we have seen no slowdown from the retailers. No material changes in historical norms. Dinner with a large retail brokerage firm confirmed this. - Jeff Olson(CEO)

Contradiction Point 4

Future Rent Spread Trends

It directly impacts expectations regarding the future rent spread trends, which are crucial for understanding the company's revenue growth trajectory and investor expectations.

What caused the 60% rise in rent spreads this quarter, and does it signal future trends? - Michael Griffin (Evercore ISI Institutional Equities, Research Division)

2025Q3: I do think the rent spreads are going to continue to be strong, and we're probably going to continue to have double-digit rent spreads across the board. It's certainly going to be less than 60% because we're not driving that much anchor activity. - Jeffrey Mooallem(COO)

Can you elaborate on the 10% rent spread guidance for 2025? - Floris Gerbrand Van Dijkum (Ladenburg Thalmann & Co. Inc., Research Division)

2024Q4: Looking forward to 2025, we expect to maintain at least a 10% rent spread on new leasing activity. - Mark Langer(CFO)

Contradiction Point 5

Capital Recycling and Taxation

It involves differing explanations of the impact of capital recycling through 1031 exchanges on taxable income and dividend payout, which is crucial for understanding the company's tax strategy and financial health.

How is 1031 impacting your payout? Is there more flexibility in this area? - Michael Goldsmith (UBS Investment Bank, Research Division)

2025Q3: 1031 exchanges defer gains, protecting us from increased dividend pressure. - Mark Langer(CFO)

How does using 1031 exchanges for capital recycling affect your taxable income and dividend payout? - Floris Van Dijkum (Compass Point)

2025Q1: 1031 exchanges defer gains, protecting us from increased dividend pressure. - Mark Langer(CFO)