Urban Edge (UE) Q3 2025: 61% New Lease Spreads Signal Northeast Retail Scarcity Premium
Urban Edge delivered another quarter of outperformance, driven by exceptional leasing spreads and disciplined capital recycling into high-growth assets. The company’s Boston expansion and redevelopment pipeline are unlocking value as Northeast retail scarcity drives rent power, while competitive acquisition markets test management’s discipline. With strong liquidity and a rising guidance, the focus turns to sustaining NOI growth as one-time revenue items normalize into 2026.
Summary
- Leasing Power Surges: New anchor leases signed at a 61% spread, demonstrating retailer willingness to pay for scarce, quality space.
- Disciplined Asset Rotation: Capital recycling upgraded portfolio growth and resilience, with Boston now 10% of value.
- Growth Tailwinds Persist: Supply constraints and a robust S&O pipeline reinforce multi-year NOI expansion visibility.
Performance Analysis
Urban Edge’s third quarter results highlight the embedded pricing power in Northeast infill retail, with same property net operating income (NOI, property-level income after expenses) up 4.7% year-over-year and FFO (Funds From Operations, a REIT cash flow metric) as adjusted growing 4%. Leasing activity was robust, with 31 deals totaling 347,000 square feet, including 11 new leases at a striking 61% average cash spread—primarily driven by new anchor deals with HomeGoods and Ross backfilling bankrupt tenants. Renewal leasing spreads also remained healthy at 9%, while shop leasing delivered a 42% spread, reflecting demand for smaller spaces from national brands.
Portfolio quality continued to improve through targeted acquisitions and dispositions. The $39 million Brighton Mills acquisition in Boston, funded via 1031 exchanges from lower-growth assets, exemplifies a “covered land play” (acquiring income-producing property with future redevelopment value) at a below-market land basis. Boston now represents 10% of company value, up from 2% five years ago. Liquidity remains strong with over $900 million available, and net debt to EBITDA at 5.6x. The company raised full-year FFO guidance, reflecting better-than-expected results and a durable growth outlook.
- Anchor Backfill Drives Rent Uplift: HomeGoods and Ross leases doubled base rent versus prior tenants on 60% of the square footage.
- Redevelopment Pipeline Accelerates: $149 million in active projects at a projected 15% yield, with $21.5 million S&O (signed-not-open) pipeline representing 7% of NOI.
- Leasing Occupancy Dips, But Economics Improve: Overall lease rate fell 20bps due to a single at-home vacancy, but impact on NOI is minimal and sets up future rent growth.
While one-time collections and CAM recoveries boosted results in 2025, management expects some normalization next year, but underlying rent growth and redevelopment remain the core drivers.
Executive Commentary
"Last week, we completed the $39 million acquisition of Brighton Mills, a 91,000 square foot grocery anchored shopping center...making this a textbook covered land play that delivers solid current returns and meaningful growth as we wait for the leases to expire so that we can eventually extract even more value from the land."
Jeff Olson, Chairman and Chief Executive Officer
"We continue to convert our signed not open pipeline, which now stands at $21.5 million and represents 7% of NOI, into rent commencements. This quarter, we commenced $5.6 million of annualized gross rents from tenants like Starbucks, Sweetgreen, Dave's Hot Chicken, and our first Tesla Service Center."
Jeff Muella, Chief Operating Officer
Strategic Positioning
1. Northeast Infill Scarcity Drives Rent Premiums
Urban Edge’s portfolio concentration in supply-constrained Northeast markets is translating into record-high leasing spreads. Retailers are paying up for quality sites, especially as new development remains muted and population density supports strong sales productivity. The company’s ability to backfill anchor vacancies at double previous rents underscores the scarcity premium and the strategic moat of its asset base.
2. Capital Recycling Elevates Portfolio Quality
Management’s disciplined asset rotation—selling low-growth assets at 5% cap rates and acquiring higher-growth centers at 7%—has upgraded both the growth rate and resilience of the portfolio. The Brighton Mills acquisition exemplifies a “covered land play,” locking in current income with significant future redevelopment upside, and demonstrates the company’s willingness to wait for value realization over a multi-decade horizon.
3. Redevelopment and Shop Creation Unlock Value
Active redevelopment projects and the creative conversion of anchor boxes into shop or pad space are high-return levers. With a $149 million redevelopment pipeline at a 15% projected yield and continued demand from national tenants for smaller spaces, Urban Edge is positioned to drive NOI growth independently of broader market cycles. The company’s willingness to split and repurpose anchor spaces, and to add high-rent pads, reflects a hands-on, value-add operating model.
4. Balance Sheet Strength Supports Opportunistic Growth
Strong liquidity of over $900 million, all non-recourse fixed-rate debt, and a net debt to EBITDA ratio of 5.6x provide ample flexibility to pursue acquisitions and redevelopment. Recent refinancing at favorable rates and prudent capital allocation signal readiness to capitalize on market dislocations or select value opportunities, even as competition for assets intensifies.
5. Institutional Competition and Acquisition Discipline
Urban Edge faces a crowded acquisition environment, with private equity and institutions driving up prices for core assets. Management has maintained discipline, often walking away from deals where pricing exceeds return thresholds, and pairing new acquisitions with asset sales to fund growth without balance sheet strain. This approach has kept the company’s acquisition yield profile well above sector averages.
Key Considerations
This quarter underscores Urban Edge’s ability to extract value from both existing assets and targeted acquisitions, but also highlights the competitive pressures and normalization risks ahead.
Key Considerations:
- Rent Spread Sustainability: Exceptional anchor lease spreads were driven by unique backfill opportunities; normalized spreads are likely to remain strong but not at Q3’s 61% level.
- One-Time Revenue Items: 2025 benefited from $3.5 million in non-recurring collections and CAM recoveries; these will not repeat in 2026, so core growth drivers must compensate.
- Redevelopment Execution: Timely conversion of the $21.5 million S&O pipeline to rent commencements is critical for sustaining NOI growth into 2026 and beyond.
- Acquisition Market Tightness: Asset bidding wars are common; management’s discipline will be tested as capital flows into the sector and spreads compress.
- Tenant Mix and Over-Restauranting: Management is attentive to balancing restaurant and grocer demand, avoiding overexposure to any single retail category as food concepts proliferate.
Risks
Urban Edge’s growth trajectory is exposed to several risks, including intensifying acquisition competition, normalization of non-recurring income, and the potential for tenant bankruptcies to temporarily impact occupancy. Rising interest rates could also pressure acquisition yields and redevelopment returns, while a slowdown in retail expansion or a consumer pullback would test leasing momentum. Management’s ability to sustain discipline in asset selection and execute on redevelopment is critical as market cycles evolve.
Forward Outlook
For Q4 2025, Urban Edge guided to:
- FFO as adjusted of $0.36 per share
- Same property NOI growth (including redevelopment) of approximately 4.5%
For full-year 2025, management raised guidance:
- FFO as adjusted of $1.42 to $1.44 per share (6% growth at midpoint)
- Same property NOI growth midpoint increased to 5.25%
Management cited continued S&O pipeline conversions, lower G&A, and resilient leasing demand as drivers of the guidance raise, while flagging that some one-time revenue items will normalize in 2026. Focus remains on disciplined capital recycling and unlocking redevelopment value.
- Redevelopment commencements and new lease rent commencements to drive near-term growth
- Competitive asset markets may slow acquisition pace but will not compromise underwriting discipline
Takeaways
Urban Edge’s quarter affirms the structural advantage of owning high-quality, infill Northeast shopping centers in a supply-constrained environment.
- Scarcity Premium Realized: Anchor and shop leasing spreads underscore durable rent growth as retailers compete for limited space.
- Portfolio Quality Upgraded: Capital recycling into Boston and value-add assets drives higher long-term NOI growth and resilience.
- 2026 Watchpoint: Investors should monitor normalization of non-recurring income, S&O pipeline execution, and the sustainability of double-digit leasing spreads as competitive pressures persist.
Conclusion
Urban Edge’s Q3 results highlight the compounding value of disciplined asset rotation, creative redevelopment, and Northeast market focus, all underpinned by robust liquidity and prudent capital allocation. Sustaining growth as one-time items fade and acquisition competition intensifies will test management’s execution edge into 2026.
Industry Read-Through
Results reinforce the structural rent power in supply-constrained, infill retail markets, especially in the Northeast, with national retailers willing to pay premiums for high-quality space. The competitive bidding for core shopping centers signals a broader institutional rotation into open-air retail, compressing yields and raising the bar for disciplined acquisition strategies across the sector. Other retail REITs and operators with redevelopment pipelines and infill exposure are likely to see similar tailwinds, but must balance growth with underwriting discipline as capital floods the space and one-time revenue items normalize.