Business Overview and History
Urban Edge Properties (UE) is a leading owner and operator of retail real estate, primarily focused on the Washington, D.C. to Boston corridor. Over the past decade, the company has transformed its portfolio, strategically acquiring high-quality assets, redeveloping underutilized spaces, and recycling capital to drive growth and enhance shareholder value.
Urban Edge was spun off from Vornado Realty Trust in January 2015, becoming an independent, publicly-traded REIT. The company inherited a portfolio of 80 shopping centers and two malls totaling approximately 16 million square feet. Since then, Urban Edge has worked diligently to build out its portfolio and establish itself as a leading owner and operator of retail real estate in its target markets.
The company has made strategic acquisitions to strengthen its presence, including a notable $312 million purchase of two shopping centers in the greater Boston area in 2023. This acquisition exemplifies Urban Edge's commitment to expanding its footprint in high-value markets. As part of its capital recycling strategy, the company has also sold lower-growth assets, using the proceeds to fund acquisitions of higher-quality properties.
Urban Edge's portfolio has undergone significant transformation since its inception. As of the end of 2024, the company's portfolio comprised 71 shopping centers, two outlet centers, and two malls, totaling approximately 17.4 million square feet of gross leasable area. Notably, the portfolio is now 80% grocery-anchored, with the company's grocery tenants generating average sales of $900 per square foot, which management believes is among the highest in the sector.
While Urban Edge has achieved substantial growth and improved the quality of its portfolio, it has also faced challenges. In 2023, the company recognized a $34 million impairment charge related to an office and retail property in Brooklyn, New York, resulting from a tenant's plan to vacate a significant portion of the space. Additionally, Urban Edge has had to navigate tenant bankruptcies, working proactively to backfill vacant spaces with new, higher-quality tenants.
The company's strategy centers on owning and operating urban-oriented retail properties in high-barrier-to-entry markets across the Washington, D.C. to Boston corridor. This geographic focus has served Urban Edge well, as the Northeast region continues to demonstrate strong retailer demand and limited new supply. As of the end of 2024, the company's New York metropolitan area properties accounted for approximately 65% of its annualized base rent.
Urban Edge has been proactive in reshaping its portfolio, completing $427 million in dispositions over the past 16 months at a 5.2% average capitalization rate. The company has used the proceeds from these sales to fund $550 million in acquisitions at a 7.2% average capitalization rate, adding high-quality, grocery-anchored shopping centers to its portfolio. This accretive capital recycling has enhanced the quality and growth profile of Urban Edge's assets.
Financial Performance and Positioning
Urban Edge's financial performance has been impressive, with the company reporting an 8% increase in Funds from Operations (FFO) as adjusted per share to $1.35 in 2024. This growth was driven by new lease commencements, record leasing activity, and the company's strategic capital allocation initiatives.
For the fiscal year 2024, Urban Edge reported total revenue of $445 million, up from $417 million in the prior year. This increase was primarily attributable to higher property rentals and tenant reimbursements due to rent commencements and contractual rent increases, partially offset by a decrease in rental revenue deemed uncollectible. Net income for 2024 was $75.4 million, while operating cash flow and free cash flow both stood at $153.2 million.
In the most recent quarter (Q4 2024), the company reported revenue of $116.4 million, representing a 9.8% increase compared to Q4 2023. This growth was driven by new tenant rent commencements and contractual rent increases, partially offset by a decrease in rental revenue deemed uncollectible. Net income for Q4 2024 was $30.1 million, a 63.9% decrease compared to Q4 2023, primarily due to a decrease in gain on sale of real estate.
The company's balance sheet remains strong, with a net debt to annualized adjusted EBITDA ratio of 6.0x as of December 31, 2024. Only 9% of Urban Edge's outstanding debt matures through 2026, providing the company with ample financial flexibility to execute on its growth plans. The debt-to-equity ratio stood at 1.24x as of December 31, 2024.
Liquidity
In terms of liquidity, Urban Edge had $41.4 million in cash and cash equivalents as of December 31, 2024. The company also had $717.9 million of available capacity under its $800 million revolving credit facility. This substantial liquidity position, coupled with the company's prudent capital management, positions Urban Edge to capitalize on acquisition and redevelopment opportunities.
The company's current ratio and quick ratio both stood at 1.71x, indicating a strong ability to meet short-term obligations. Urban Edge's total mortgages payable, net of unamortized debt issuance costs, was $1.57 billion as of December 31, 2024.
Operational Highlights and Outlook
Urban Edge's operational performance has been exceptional, with the company achieving record leasing volumes in 2024. The company signed 79 new leases totaling 485,000 square feet at a same-space cash rent spread of 26%, while renewing or extending 86 leases totaling 1.9 million square feet at a 9.3% cash rent spread.
These leasing successes, combined with the company's active development and redevelopment pipeline, have driven strong same-property NOI growth. In 2024, same-property NOI, including properties in redevelopment, increased by 5.1% year-over-year. Looking ahead, Urban Edge expects same-property NOI growth, including redevelopment, of at least 3.5% in 2025.
The company's development and redevelopment efforts have also been a key driver of growth. As of December 31, 2024, Urban Edge had 26 active projects with a total estimated cost of $163 million, expected to generate an approximate 15% unlevered yield upon stabilization.
In its 2025 outlook, Urban Edge provided FFO as adjusted guidance of $1.37 to $1.42 per share, reflecting the continued strength of its operating platform and the accretive impact of its capital recycling initiatives. The company also announced a 12% increase in its quarterly dividend to an annualized rate of $0.76 per share, underscoring its confidence in the business and commitment to enhancing shareholder returns.
Urban Edge expects to generate $8 million of gross rents in 2025 from their $25 million signed but not open (SNO) pipeline. The company is targeting to increase their leased occupancy back to 97% to 98% by the end of 2025. Urban Edge plans to spend approximately $75 million on their active redevelopment and re-anchoring projects in 2025. Recurring G&A is expected to be $36 million in 2025, flat compared to the prior year.
Risks and Challenges
While Urban Edge's performance has been impressive, the company is not without its risks. The retail landscape continues to evolve, with the growth of e-commerce posing a threat to traditional brick-and-mortar retailers. Urban Edge's focus on grocery-anchored and experiential retail properties helps mitigate this risk, but the company remains exposed to changes in consumer spending patterns and the financial health of its tenants.
Additionally, the company's geographic concentration in the Northeast exposes it to regional economic conditions and potential natural disasters, such as hurricanes. Urban Edge has taken steps to diversify its portfolio and enhance the resilience of its assets, but these factors still represent potential headwinds.
The retail REIT industry as a whole faces challenges from changing consumer spending patterns and the impact of fiscal and trade policies. However, Urban Edge notes that high-quality, grocery-anchored shopping centers in urban markets continue to perform well, with limited new supply and strong tenant demand.
Conclusion
Urban Edge Properties has demonstrated its ability to navigate the evolving retail landscape and deliver consistent growth for its shareholders. The company's strategic focus on high-quality, urban-oriented properties, coupled with its disciplined capital allocation strategy and strong operational execution, have positioned it for continued success.
As Urban Edge celebrates its 10-year anniversary, the company appears well-equipped to build on its impressive track record and drive additional value creation in the years ahead. With a robust development pipeline, a healthy balance sheet, and a management team committed to enhancing shareholder returns, Urban Edge is a retail REIT worth considering for long-term investors.
The company's strong financial performance, including exceeding its 3-year earnings target one year ahead of plan, and its positive outlook for 2025 further underscore its potential for continued growth and value creation in the retail real estate sector.