UE

Urban Edge Properties 2024 Q2 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2024, for Urban Edge Properties (UE) and Urban Edge Properties LP (UELP). UE is a Maryland REIT focused on owning, managing, and developing retail real estate, primarily in the Washington, D.C. to Boston corridor. As of June 30, 2024, the portfolio consisted of 71 shopping centers, two outlet centers, and two malls totaling approximately 17.2 million square feet. UE owns approximately 94.7% of the Operating Partnership (UELP), which holds substantially all assets.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased by 7.5% ($7.5 million) in Q2 2024 compared to Q2 2023, driven by property acquisitions, rent commencements, and lower uncollectible revenue.
• Profitability: Net income surged to $32.0 million in Q2 2024 from $10.6 million in Q2 2023. This improvement is largely due to a $21.7 million gain on extinguishment of debt resulting from the foreclosure settlement of the Kingswood Center property and a $13.4 million gain on the sale of real estate.
• Expense Increases: Depreciation and amortization rose by $14.2 million due to new acquisitions and completed redevelopment projects. Interest and debt expense increased by $3.8 million due to new debt and higher borrowings on the credit facility, partially offset by the payoff of five loans.
• Acquisitions and Dispositions: The Company acquired two properties (Heritage Square and Ledgewood Commons) for a total of $117.0 million. It disposed of two properties for net proceeds of $34.8 million, recognizing a $15.3 million gain.

Guidance, Outlook, and Risks

• Dividends: The Board declared a quarterly dividend of $0.17 per share/unit for Q2 2024, maintaining an annualized rate of $0.68.
• Capital Markets: The Company utilized its At-The-Market (ATM) equity program, issuing 2.7 million shares for net proceeds of $47.4 million in the first six months of 2024. Subsequent to the quarter, an additional $16.0 million was raised.
• Debt Management: Approximately 88% of outstanding debt is fixed-rate. The Company refinanced the Yonkers Gateway Center mortgage ($50 million) and secured a new mortgage for Ledgewood Commons ($50 million). It also repaid three variable-rate loans totaling $75.7 million.
• Development Pipeline: There are 23 active development/redevelopment projects with $109.2 million remaining to be funded.
• Risks:
  • Tenant Bankruptcies: Four tenants (Red Lobster, Express, Sam Ash, Sticky's) filed for Chapter 11 bankruptcy in Q2 2024, representing 54,100 sq. ft. and $2.5 million in annual revenue.
  • Insurance Costs: Premiums have increased significantly and may continue to rise due to weather events in core markets.
  • Interest Rates: While 88% of debt is fixed, the remaining 12% is variable (SOFR-based), exposing the company to rate fluctuations.

Investor Verification Checklist

• Debt Extinguishment Gain: Verify the sustainability of earnings given the $21.7 million non-recurring gain from the Kingswood Center foreclosure.
• Tenant Bankruptcy Exposure: Monitor the status of the four bankrupt tenants (Red Lobster, Express, Sam Ash, Sticky's) and potential lease terminations.
• Acquisition Integration: Assess the performance and stabilization timeline of the two new acquisitions (Heritage Square and Ledgewood Commons).
• Insurance Premiums: Review the impact of rising insurance costs on Net Operating Income (NOI) and property-level profitability.
• Debt Maturities: Confirm refinancing plans for the $47 million of debt maturing within the next 12 months.