Morgan Stanley Equal-Weight On Urban Edge Properties, Near-Term Catalysts 'Limited'

In a report published Monday, Morgan Stanley analyst Haendel E. St. Just initiated coverage of

with an Equal-Weight rating and a $24 price target. Urban Edge was spun off from its parent,

in January 2015. The company has large exposure to the Northeast, a region that generates about 85 percent of its NOI, with NYC contributing 66 percent, driven by "a heavy focus on coastal, near-urban markets." The analyst believes, however, that Urban Edge's near-term SSNOI outlook is challenged due to "(1) the majority of the REIT's GLA (gross leasable area) is locked in longer-term leases (ground and big-box) that offer fewer mark-to-market opportunities and lower rent bumps vs. other leases prevalent at peers (e.g. small shop), (2) its core markets are mature, with slower retail sales growth and (3) minimal portfolio vacancy points to fewer occupancy recapture opportunities." Puerto Rico also presents additional challenges to the company's performance, given that the operating environment in this country remains difficult and could lead to a decline in near-term SSNOI. In the long-term, the company has identified redevelopment opportunities worth about $130 million. "We believe additional projects will be added in the future, pointing to a sizeable store of external growth for UE to harvest. Expected project stabilizations, however, indicate that the vast majority of returns from the current project pipeline are unlikely to be realized before 2018," the Morgan Stanley report added.