Urban Edge Properties

NYSE:UE

Earnings Call Analysis

Strong Retail Growth Expected; Debt Profile Healthy

2023 marked a robust period for retail with over 4% rent growth, tightest vacancy since 2007, and record low construction. The company reported FFO as adjusted of $0.31 per share for Q4, finishing the year at $1.25 per share, which aligns with the top end of their guidance. Same property NOI growth with redevelopment was 4.3% for the year, matching high-end expectations. Financing activities included new loans and mortgage payoffs, positioning the debt maturity profile favorably with minimal obligations through 2026. Leverage decreased, with net debt to EBITDA falling to 6.6x. The 2024 guidance anticipates a midpoint FFO as adjusted per share of $1.27 with a predicted 4% same-property NOI growth, powered by leasing activities and expected recognition from the SNO pipeline. There's an assumption of standardizing credit loss and a slight decline in straight-line rent and noncash amortization.

Urban Edge's Record Year and Bright Outlook

Urban Edge celebrated a record year in 2023, leading the shopping center REIT sector with a total shareholder return of 35%, significantly outperforming peers. The company stands out due to its strategic concentration in the densely populated D.C. to Boston corridor, a pre-leased redevelopment pipeline promising 15% returns, and a robust acquisition strategy. An anticipated $80 million property acquisition should further enhance FFO by $0.01 per share. With a strong balance sheet characterized by long-term, nonrecourse single-asset mortgages, Urban Edge is well-positioned for growth, targeting FFO of $1.35 per share in 2025, alongside NOI growth and increased lease occupancy.

Strategic Transactions and Leasing Success

The company's capital recycling strategy yielded fruitful transactions like the Shoppers World and Gateway Center acquisitions in Boston, complementing the sale of non-core assets. Leasing activity was robust, with significant retail demand and 650,000 square feet leased in Q4. Same-property occupancy rose to 96%, and the focus in 2024 will be on boosting shop occupancy to surpass historical highs. Development projects, including the Sector Sixty6 in Puerto Rico, underscore Urban Edge's commitment to growth through high-return investments.

Financial Resilience Amidst Retail Growth

The Northeast market experienced more than 4% retail rent growth in 2023, with historically low vacancy rates and limited retail construction. Looking ahead, the company maintains a strong financing strategy, reflected in a reduced net debt to EBITDA ratio and manageable debt maturity profile. Urban Edge anticipates continued retail strength in its dense markets, setting the stage for sustained financial performance.

Focused 2024 Guidance and Dividend Growth

Urban Edge projects an FFO per share guidance range of $1.24 to $1.29 for 2024, with same-property NOI growth pegged at 4%. The guidance anticipates normalized credit loss levels, a slight decline in straight-line rent, and accounts for interest expense of $83 million to $85 million. The guidance includes the beneficial impact of new and refinanced mortgages and assumes additional leverage of $60 million to $80 million. The company has bolstered investor confidence by increasing its dividend to an annualized rate of $0.68 per share, reflecting both its earnings growth and a strategic focus on cash flow preservation.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to Urban Edge Properties 2023 Year-End Earnings Conference Call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer; Jeffrey Mooallem, Chief Operating Officer; Mark Langer, Chief Financial Officer; Rob Milton, General Counsel; Scott Auster, EVP 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 in which the company does not undertake to update. Our actual results, financial conditions and business may differ. 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.

[Jeffrey Olson, executive]

Great. Thank you, Ariba, and Happy Valentine's Day to everyone.

As highlighted in our press release, 2023 was a record year from virtually every perspective: leasing, development, refinancings, acquisitions, dispositions, executive and Board refreshment, simplification and earnings growth. Our total return to shareholders was 35%, the highest in the shopping center REIT sector, outperforming our peers by 2,300 basis points.

Moreover, we are optimistic about our future, particularly due to several points of differentiation relative to our peers. First, our portfolio is concentrated in the D.C. to Boston corridor, the most densely populated supply-constrained area in the country. This not only results in high embedded land values, but further limits new supply due to lack of available land and high cost to develop in our markets.

Second, we have executed leases that will generate $27 million of rent upon commencement, representing 11% of our current NOI. We also have $168 million of anchor repositioning and redevelopment projects underway, expected to generate a 15% return. Importantly, over 90% of this pipeline is pre-leased.

Third, our size. With an equity market cap of approximately $2 billion, we have a greater opportunity to increase per share earnings through higher internal growth and modest acquisition activity.

For example, we have one $80 million property in our acquisition pipeline, which, if closed, should increase FFO by $0.01 a share on a leverage-neutral basis. Our FFO growth targets for 2024 and 2025 reflect minimal acquisition activity.

Fourth, our balance sheet and secured debt strategy. Our long-term debt consists solely of nonrecourse single-asset mortgages. This has allowed us to eliminate nearly $100 million of debt during market dislocations. Only 13% of our debt is maturing through 2026, and we maintain a well-laddered debt maturity profile.

Fifth, we own nearly all the anchors in our shopping centers, which is why our top tenants include Home Depot, Lowe's, Target and Walmart. These 4 tenants alone generate $35 million in annual rent. Many of these anchor parcels would likely trade in the 5.5% to 6% cap rate range as evidenced by our recent sale of Freeport Commons.

We also own most of the outparcels on our properties, which would also trade at similar cap rates in the private market. All of these factors position us well for 2024 as we continue to take advantage of the significant opportunities we see to drive increased value and long-term growth.

Now turning to our 2024 outlook. Our goals for the year include achieving same property NOI growth of at least 4%, advancing our $27 million SNO pipeline and increasing our lease occupancy back to our historical high of 97% to 98%. Mark will provide further details of our guidance, but I can confidently say that our team is highly focused on achieving the targeted growth we outlined at Investor Day, which is to generate FFO of $1.35 per share or higher in 2025. To that end, we increased our annual dividend by 6%, reflecting our confidence in our earnings and cash flow growth.

Finally, I want to extend my gratitude to the UE team for their tremendous execution and accomplishments in the past year. We are excited to build on this momentum and continue executing our growth strategy in 2024.

I will now turn it over to our Chief Operating Officer, Jeff Mooallem.

[Jeffrey Mooallem, executive]

Thanks, Jeff, and good morning, everyone.

I echo Jeff's appreciation for the amazing job our team did in 2023, my first year at Urban Edge. As we look into 2024 and beyond, I feel confident that our efforts around capital recycling, leasing and development will continue to produce these strong results.

First, acquisitions and dispositions. Our October 2023 sale of an industrial portfolio in East Hanover, New Jersey and our simultaneous purchase of Shoppers World and Gateway Center in Boston were our most notable transactions of the year. We're delighted to add these 2 great retail assets to Urban Edge, and I can tell you that retailer demand has already exceeded our initial expectations.

We've been active on other fronts as well. In December, we sold an additional $101 million of noncore assets at a blended 5.8% cap rate. And we're now under contract to sell 2 small noncore properties for a total of $38 million by the end of this quarter at a blended 5% cap rate. We've also continued our buying momentum with last week's acquisition of Heritage Square in Watchung, New Jersey for $34 million.

Heritage Square is anchored by 2 TJX concepts, has 4 outparcels and is diagonally across Route 22 from our existing Greenbrook Commons anchored by BJ's and Altis. We love the critical mass, stable national retailer lineup and flexibility that this property provides. We acquired Heritage Square at a going-in cap rate above 7.75%, making it immediately accretive and providing future growth through below-market rents with minimal turnover risk.

It's worth mentioning here that the investment sales market is continuing to come back to life, as both buyers and sellers have adjusted to the new normal for interest and cap rates. We're seeing more and more deals, both on-market and off-market, and our team is busy underwriting everything that fits our profile.

In leasing, we also finished the year strong, with our best quarter of 2023 in terms of number of deals, square footage leased and leasing spreads. 51 deals were executed in the fourth quarter, for a total of 650,000 square feet, and same-space deals generated an average cash rent spread of 18%. Of the 51 deals this quarter, 22 were new leases, with a very strong same-space average spread of 38%.

Tenant signing leases this quarter included a national single credit tenant to backfill our 94,000 square foot space in [indiscernible], New Jersey that was previously occupied by Bed Bath & Beyond. While we can't announce the tenant just yet, we're excited about the use and the credit that they will bring to the property, not to mention the leasing spread.

For full year 2023, we completed about 2 million square feet of leasing transactions, about 500,000 square feet of which is attributable to new leases. With an overall spread of about 12% and a new lease spread of almost 25%, it was a year of both quantity and quality leasing.

As we've said before, the record low supply of available space in our core Northeast markets, coupled with healthy retailers investing more money to improve the in-store experience, has really helped propel our leasing efforts, and the results are evident in the numbers. Our same property occupancy rate increased 150 basis points from the prior quarter and now sits at 96%, with our anchor lease occupancy up to approximately 98% and our shop occupancy up 230 basis points to approximately 88%.

We are laser-focused in 2024 on increasing our shop occupancy back to and above Urban Edge's historical high watermark of 91%, a potential 300-basis-point increase. We expect this increase to be driven by 2 components: 150 basis points of deals underway in our leasing pipeline and 150 basis points from converting temporary tenants to permanent tenants. We continue to see demand from fast casual restaurants, discounters and health care providers, which gives us confidence we'll meet our shop leasing goals.

And finally, on the development side, we completed 7 projects with aggregated costs of $38 million in the fourth quarter. This includes the opening of Sector Sixty6, a 123,000 square foot indoor entertainment destination at shops of Caguas in Puerto Rico. And we commenced another $38 million of redevelopment projects during the quarter, bringing our active project total to $168 million at year-end, which we expect will generate a 15% unleveraged yield.

Overall, we remain very bullish, not only on what was accomplished in 2023, but on where the business is headed. We have low basis assets in the most densely populated part of the country, allowing us to generate healthy spreads and development yields as leases mature and weaker tenants depart.

We have a more stable transaction market where interest rate volatility has effectively boxed out high leverage and debt-dependent buyers, and provided way better opportunities for companies with strong balance sheets and strong relationships. And most of all, we have a tight leasing market, where for the first time in at least 20 years, demand meaningfully exceeds supply.

According to Cushman & Wakefield's most recent market study, 2023 was a year of more than 4% retail rent growth, the lowest level of retail vacancy since 2007 and a record low year for retail construction. And nowhere are these trends more pronounced than in the Northeast. We expect this to continue, and we intend to take advantage of the wind in our backs.

I'll now turn it over to our Chief Financial Officer, Mark Langer.

[Mark Langer, executive]

Thanks, Jeff. Good morning.

I will comment on our fourth quarter results, provide insights on our balance sheet and liquidity and conclude with an outline of key assumptions impacting our 2024 guidance.

Starting with our results for the quarter. We reported FFO as adjusted of $0.31 per share in the fourth quarter and $1.25 per share for the full year, achieving the high end of our guidance range. Same property NOI growth, including redevelopment, was down 1.3% compared to the fourth quarter of 2022 and up 2.5% for the full year compared to 2022. When excluding the impact of out-of-period collections, same property NOI growth with redevelopment was up 0.6% in the quarter and up 4.3% for the year. The 4.3% growth rate was at the high end of our prior guidance range of 3.5% to 4.5%.

As we expected, there was a noticeable swing between headline NOI growth and the growth rate excluding collections on out-of-period receivables, given nearly $2 million of collections in Q4 of last year compared to about $700,000 received in Q4 of 2023. We also expected fourth quarter NOI to be impacted by the timing of certain deferred maintenance projects that were completed towards the end of the year.

On the financing front, we obtained a new 6-year $43.7 million nonrecourse mortgage secured by Huntington Commons, at a fixed rate of 6.29%, executed at a spread of 185 basis points. And we paid off our $20.7 million maturing mortgage at Hudson Mall. After the quarter, we prepaid 3 variable rate mortgages, aggregating $76 million that bore interest at a rate of SOFR plus 200 basis points or 7.34%.

Looking ahead, as Jeff highlighted, our debt maturity profile is in great shape, as we have minimal maturities aggregating $213 million through 2026, representing only 13% of outstanding debt. Our total mortgage indebtedness has a weighted average term to maturity of 5 years, with a weighted average interest rate of 5%.

We continue to see strong interest from lenders for retail properties and are in active discussion with life companies and regional banks. The CMBS market is showing increasing interest in retail properties, but pricing levels haven't been as competitive, although we expect that market to strengthen during the year.

We have made great progress reducing our leverage, consistent with the plan we outlined during our April Investor Day. Our net debt to annualized EBITDA decreased to 6.6x in the fourth quarter due to the execution of our capital recycling efforts and the growth in recurring EBITDA, which was up over 8% compared to 2022. As we continue to execute our plan and benefit from EBITDA growth of our SNO pipeline, we expect this level to decrease below 6.5x in 2025.

Turning to our outlook for 2024. Our initial 2024 FFO as adjusted per share guidance range is $1.24 to $1.29 or about $1.27 at the midpoint. Our guidance incorporates the following key assumptions. We expect same-property NOI growth, including properties and redevelopment, to increase 4% at the midpoint of our range, driven by the full year impact of leases that commenced, including $8 million of annualized gross rent that rent commenced in the fourth quarter of 2023 and an additional $6 million from the SNO pipeline that is expected to be recognized in 2024. I will point out that $4.5 million of the $6 million coming online in 2024 is weighted to the second half of the year.

Another thing to recall is that snow removal costs in the first part of last year were significantly lower than [indiscernible], which will provide a headwind in the NOI growth rate this year. While we don't guide on a quarterly basis, our expectation is that the 4% NOI annual growth rate will not be evenly generated throughout the year, but will be strongest in the third and fourth quarters.

Our guidance assumes that credit loss reverts to a more normalized level of 75 basis points to 100 basis points of gross revenues or approximately $4 million. Our guidance at the midpoint assumes about $500,000 of collections on past amounts deemed uncollectible compared to approximately $3 million that was received in 2023.

One item to note outside of cash NOI that is impacting FFO guidance is our expectation that we will incur a year-over-year decline of $0.02 per share in straight-line rent and noncash amortization, driven by the timing of previous anchor contractual rent increases that are now in the back half of their lease terms as well as nonrecurring GAAP free rent and the impact of dispositions executed last year.

As Jeff Mooallem mentioned, our guidance assumes that lease occupancy grows to 97% to 98%, with shock occupancy growing to 91% and anchor occupancy growing above 98%. Interest and debt expense guidance of $83 million to $85 million includes $6 million of regular and default interest that is accrued, but not being paid on Kingswood Center, given the property is going through the foreclosure process. We have assumed Kingswood Center remains on balance sheet for the full year. However, the full FFO impact of the property, including interest expense, is not included in FFO as adjusted. So any changes regarding the ultimate resolution of the foreclosure will not impact our guidance on that metric.

The primary factors driving the interest expense guidance reflect the full year impact of new and refinanced mortgages obtained in 2023 and that we disclosed in our earnings release and in our 10-K. Our 2024 guidance assumes that we will add $60 million to $80 million of new leverage during the year at rates of approximately 6% to 6.5%. So all things considered, when excluding the impact of Kingswood, interest and debt expense is expected to increase 7% to 9% in 2024, which recurring G&A will be $35.5 million to $37.5 million in 2024 from 2022 levels.

Moving to transactions. Our guidance includes the $34 million acquisition of Heritage Square that we announced today and noncore dispositions that Jeff Mooallem just described. We have no other material capital activities assumed in our guidance.

As we announced, our Board recently approved an increase in our dividend to an annualized rate of $0.68 a share. As we have stated in the past, we expect the dividend to grow as earnings and taxable income grow, while we maintain an emphasis on preserving free cash flow to fund our anchor repositioning pipeline that is generating unleveraged returns of 15%.

To conclude, our team is committed to executing the growth strategy we outlined at Investor Day in April, achieving $1.35 per share in FFO in 2025, and we are on track to achieve that. We appreciate the hard work exhibited by the entire UE team as their efforts have been instrumental in driving our success. We look forward to build on our momentum during 2024.

Thank you for your continued support and interest in UE. I will now turn the call over to the operator for questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Floris Van Dijkum with Compass Point.

[Floris Gerbrand van Dijkum, analyst]

I've got -- let me start with something that Jeff talked about, which I think it's actually really interesting and potentially massive incremental upside, I think, from where we stand today, even though your pipeline is already, I think, 11% of NOI growth, something like that.

Your 12% vacancy in your shop space, which is based on my math, it's almost $12 million of incremental ABR upside. What is going to move the needle there? Is that dependent on you doing more anchor repositionings and upgrading, redeveloping the assets? Or are you now finding greater demand from retailers just to take the space as is? Or is it dependent on you spending money on the centers? And how do you -- and how much potentially can you get at that $12 million potential bogey?

[Jeffrey Mooallem, executive]

Floris, thanks for the question. Yes, I mean, like anything else, there's a few different answers. One of which is we've done so much anchor repositioning work over the last few years that we will start to see the fruits of that labor coming through in the shop occupancy. So a lot of our centers were new anchors have opened, for instance, we mentioned earlier in the call, our asset in [indiscernible], New Jersey. We just had an Aldi open there in the fourth quarter. So there'll be some shop leasing that's a result of better anchor repositioning over the last few years.

The second of which answer I'd give you is that the team is super focused on shop this year. We're pretty much where we need to be on an anchor portfolio occupancy basis. So we're really looking harder at all of our shops, spending more time canvassing, spending more time on the ground with brokers and with smaller retailers, and we think that will also lead to some results.

And then the third component to keep in mind is a lot of the shop occupancy gains we're expecting do come from converting temporary tenants to permanent tenants. So in Puerto Rico, for example, we have quite a bit of temporary tenant space that we know those tenants are anxious to either get converted into permanent tenants or we have other people sort of waiting to take those spaces.

So we'll see some shop occupancy gains that won't necessarily be fresh dollars. It will be the incremental dollars between the temp and the perm, which will hurt your little -- your $12 million number there a little bit, but they're still -- we're expecting about $1 million of total gains from converting temp to permanent over the next year.

[Jeffrey Olson, executive]

And Floris, the only thing I'd add is we actually made that part of an STI goal for the executive team and then obviously for the leasing team, specifically on shop leasing. And I believe our targeted amount is around $6.5 million this year.

[Floris Gerbrand van Dijkum, analyst]

Great. And maybe a follow-up question, if I may. I'd love to get your -- an update on what's going on at Sunrise as well as Hudson. I saw that you paid off the mortgage at Hudson. Any particular reason why you wanted to do that? Does that give you more flexibility? And talk a little bit about the entitlement process at those properties.

[Jeffrey Olson, executive]

Yes. Hudson, it does give us more flexibility. It was not that large of a loan to begin with. So we want to keep it unencumbered while we go through the process of redeveloping that asset, which is still in the early stages, but it has so much potential.

Lots of stuff going on at Sunrise, but we can't get into any specifics just given the confidential nature of the discussions underway. But we're very optimistic, and we hope to provide more guidance once it's appropriate for us to do so.

[Operator]

Our next question comes from the line of Samir Khanal with Evercore ISI.

[Samir Khanal, analyst]

I guess with leased occupancy at 98% now, especially on the anchor side, just generally, what's the conversation been with anchor tenants today, right? I mean given all the comments you made on supply, the strong demand, I mean, historically, they've paid lower rent. So trying to understand how much more runway there is on pricing power.

[Jeffrey Mooallem, executive]

Yes. Samir, it's Jeff Mooallem. Yes, I would say that a 98% leased anchor portfolio allows us to play a little more offense than defense. So certainly more offense than we've been able to play in the past. We only have a few anchor boxes left, but we have other anchor boxes that we view to be underleased.

Meaning if we have the opportunity to get them back and those conversations can get started, we think there's a lot of the rents. Some of those are tenants that are potential watchlist tenants. So we keep a close eye on those and kind of think about who we want to put in and at what kind of rent rates if we get certain space back.

But your question is a good one. There's certainly an opportunity now to push not just rent, but to push other things that are important to us. Increases, restrictions, all of that sort of stuff, the amount of capital we put into space, that all goes into the deals. And of course, if we have the leverage of less vacancy or more users for our vacancy, we can cut a better deal.

[Samir Khanal, analyst]

Got it. And I guess, Mark, on the same-store NOI growth, the 3% to 5%, I mean, it's still a pretty wide range there. Maybe talk us through what needs to happen to sort of get us to the top end and the low end there?

[Mark Langer, executive]

Sure. So really, the main pillars, when we look at our NOI growth in that range, it gets down to the pace and rate at which the incoming leases get executed and filled. So from an RCD space basis, you saw my comments on the SNO and the timing of that. So that's one element.

And another big element, of course, is the tenant credit loss provision, which has its own range. So in order to get to the high and low end, it's really a function of taking, for the low end, the more conservative levels of bad debt, some tenant fallout and some slowdown in the pace of the rent commencements. And on the upper end of that range, Samir, it's really getting to low levels of reserve, low fallout and getting full execution on the SNO. So those are really the biggest drivers.

[Samir Khanal, analyst]

And maybe as a follow-up, I mean, is it taking longer to open up open tenants these days given some of the approvals in the -- just trying to maybe talk around that a little bit.

[Jeffrey Mooallem, executive]

Samir, you're hitting on all my hot buttons today. Yes, listen, I mean it's just the nature of the business where we are today. Things take a little bit longer to negotiate. Things take a little bit longer to get approved. There's more municipality involvement than there has historically been in the past.

We are in some very high-density, good income demographic locations. And generally, those are the places that have towns that get very involved in a permitting process. So you get the bad along with the good of these kinds of first drink suburban locations.

It is taking longer than we'd like. We've had a couple of deals where we've pushed delivery back a quarter or 2 quarters. We are getting it done. But certainly, we'd love to expedite the process.

[Operator]

Our next question is from the line of Ronald Kamdem with Morgan Stanley.

[Ronald Kamdem, analyst]

Just 2 quick ones for me. Just on the same-store NOI, both sort of the 4Q number, you talked about sort of the -- I think there was some out-of-period stuff that happened in there. Maybe can you just provide a little bit more color on what would happened in 4Q? And why the divergence between the first half versus second half in the '24 guidance as well?

[Mark Langer, executive]

Sure, it's Mark. 4Q was -- the specific answer was really the timing. As we noted in the press release, the deferred maintenance, the big dollars really come from some parking lot and paving projects, that was the big driver. So it was just a function of timing.

If you look on a full year basis, as I said in my comment, the NOI number for the year was in line or even the high end of our guidance. In particular, when you exclude the other big variable in this quarter, Ron, on a year-over-year basis, was the collections from out-of-period receivables. I mean that was a meaningful difference of about $1.3 million and that we had expected as well.

So the combination of just the timing of spend. And so I'd just say, if you look at it more on a full year basis, you'd get a better picture than just looking individually at Q4, which is evident when you look at our guide for next year.

[Ronald Kamdem, analyst]

Right. And then so for the guide for next year, I think you talked about the first half potentially being lower before ramping in the second half of the year. Is that sort of similar timing? Is it lease commencement? What's sort of driving that?

[Mark Langer, executive]

Yes. Two factors driving that. One is just seasonality on the OpEx side. Snow removal costs, obviously much more pronounced in 1Q, and sometimes even a little in Q2. And then secondly and importantly, what I commented on in the opening remarks about the cadence and pace of the SNO delivery, Ron.

75% of that SNO amount that we disclosed this year is really coming in the back half of the year. So NOI and FFO will be a gradual build and not ratable for those 2 factors, both on the expense side and just the timing of rent commencements.

[Ronald Kamdem, analyst]

Great. And so just my last one, if I may. Just on -- so I saw the Harris Square deal. Can you just talk just broad strokes about the acquisition market? Are you seeing sort of more opportunities, less opportunities? How are you guys thinking about that pipeline this year?

[Mark Langer, executive]

Yes. I mean I think we're seeing more opportunities. We do have a nice pipeline that's building. We closed on heritage. We've got probably another $80-ish million under serious negotiation at the time. And we do hope to close on more acquisitions this year.

We're finding that the market is tough to find an asset that meets all of the characteristics that we're looking for. So maybe every 1 out of 100 deals sort of fits our profile, but Heritage Square certainly was one of those, and the one that we have -- that we're negotiating fits that as well. Jeff, do you want to add anything to that?

[Jeffrey Olson, executive]

No, I would echo that the market is a little bit -- it's still tough. It's still tight, but what is a little different, Ron, for maybe in past cycles is because interest rates are not at historic lows anymore, the highly levered buyers or the buyers who are maybe dependent on raising capital for investment deals don't show up at the table quite as often.

And when they do, they don't have quite the same credibility and certainty with the sellers that we do as a well-capitalized all-cash buyer. So we are seeing some competitive advantages as a buyer in the market today versus where it might have been a few years ago.

[Operator]

[Operator Instructions] The next question is from the line of Paulina Rojas with Green Street.

[Paulina Rojas Schmidt, analyst]

Following up with the prior question. So you have the plan to do modest acquisitions. And you have -- your preferred option has been recycling assets. But if you were to see an opportunity, a larger opportunity, would you consider issuing equity to take advantage of that, considering how well your stock has done recently?

[Jeffrey Olson, executive]

Paulina, I think we would, provide it again that all the boxes are checked, where the portfolio is accretive in terms of cap rate and relative to implied cap rate growth relative to the growth of our portfolio risk relative to risk levels in our portfolio. But yes, I think that could be a source of capital for us under the right circumstances.

[Paulina Rojas Schmidt, analyst]

Okay. And then I'm curious.

[Jeffrey Olson, executive]

And again, Paulina, what I would come back to, which I think is different from many of our peers in this space, because of our company's size, there aren't that many companies that can do an $80 million deal and actually show $0.01 a share in FFO accretion. So this could play to our advantage if everything lines up.

[Paulina Rojas Schmidt, analyst]

Yes, I agree. And then I'm looking at the Heritage property you acquired. It's anchored by [indiscernible] Ulta. And it has no growth. And that [indiscernible]. So the industry, in general, investors, love grocery-anchored centers. So -- I mean trick by your thoughts about what do you see is the benefit of adding a grocer to centers like this in terms of...

[Jeffrey Olson, executive]

I mean, in particular, this center is anchored by 2 TJX concepts. And in total, I would say they bring the same amount of traffic to the center as a grocery store. By the way, TJX is now our largest tenant, and we love TJX. We think they are a nominal company. So we looked at it from that perspective.

[Jeffrey Mooallem, executive]

Paul, I would add to that, that the center has 4 outparcels to, I believe, the best-in-class tenants in each of their categories. You have a Miller's Ale House, a CityMD, a Chick-fil-A and a Starbucks that's under construction. So those outparcels alone drive a tremendous amount of traffic.

We own the property across the street, which has a BJ's Warehouse club and an Aldi grocer. So we're very familiar with the trade area. In our view, more important than having a grocer in the property is really understanding the market, and this is a market we know really well. We feel very comfortable with the tenancy there.

[Paulina Rojas Schmidt, analyst]

That's very interesting. And do you think that there is a cap rate compression for having a grocer even if it's unwarranted?

[Jeffrey Olson, executive]

No question, Paulina. This could have been a sub-6 asset, 6% cap rate asset with a grocer -- with a high-quality grocer for around 6.

[Paulina Rojas Schmidt, analyst]

And then if I may, the last one, we have talked about how good fundamentals are. Big picture, do you think this is a business that could grow on a same-store basis more than 3% in the coming years?

[Jeffrey Olson, executive]

I think it's probably a 2 -- I think it's more likely a 2% to 3% business for the next several years. I think that trend could move in a positive direction, but it's only as leases expire, which takes a longer time period. And I think it's possible that we get above that 3%, but it's going to take some time to get there as an industry.

[Operator]

Thank you. At this time, we've reached the end of our question-and-answer session. And I'll now turn the floor back to Jeffrey Olson for closing remarks.

[Jeffrey Olson, executive]

Great. We appreciate your interest in UE, and we look forward to seeing many of you soon. Thank you very much.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.