Urban Edge Properties — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Urban Edge Properties is a REIT focused on retail real estate, primarily in the Washington, D.C.–Boston corridor. Its portfolio comprised 70 shopping centers, two outlet centers, two malls and two industrial parks, totaling approximately 17.2 million square feet. Unless otherwise noted, amounts below are in U.S. dollars.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $101.8m | $98.3m | $300.3m | $296.3m |
| Net income attributable to common shareholders | $36.1m | $11.4m | $27.3m | $32.5m |
| Diluted earnings per share | $0.31 | $0.10 | $0.23 | $0.28 |
| FFO applicable to diluted common shareholders | $64.2m | $35.9m | $138.8m | $106.3m |
| NOI | $63.4m | $59.6m | $186.0m | $176.3m |
| Same-property NOI | $57.2m | $56.4m | $166.7m | $161.8m |
- Same-property NOI grew 1.5% in Q3 and 3.0% for the first nine months. Including properties in redevelopment, it grew 3.3% and 4.5%, respectively.
- Nine-month cash provided by operating activities was $102.9m, versus $98.7m in 2022. Investing activities used $86.5m and financing activities used $67.2m. Cash and restricted cash totaled $77.9m at September 30, down from $128.8m at year-end 2022.
- Net mortgages payable were $1.643bn, compared with $1.692bn at December 31, 2022. Approximately 92% of debt was fixed-rate; variable-rate debt was $128.7m. The filing reports an $800m revolving facility, with about $775.7m available at quarter-end before subsequent activity.
- Total assets were $2.882bn and total equity was $1.007bn at quarter-end. The quarterly dividend was $0.16 per share, or $0.64 annualized at that rate.
Changes and notable items
- Q3 revenue rose $3.5m year over year, mainly from rent commencements, contractual rent increases and lease termination income. Nine-month revenue rose $4.0m.
- Q3 net income benefited from a $43.0m gain on extinguishment of debt tied to the Las Catalinas Mall refinancing. This refinancing used a discounted payoff of the prior loan; the related Puerto Rico tax expense was $17.1m for Q3, including $16.3m associated with the refinancing and debt cancellation.
- Nine-month net income declined year over year, reflecting a $34.1m non-cash impairment charge on Kingswood Center, higher interest expense and higher income taxes. FFO increased, in part because it excludes real estate impairment and depreciation under the company’s stated non-GAAP definition.
- Interest and debt expense increased to $19.0m in Q3 from $15.3m, and to $52.4m for nine months from $43.5m, reflecting new and refinanced debt and higher variable rates. Property operating and general and administrative expenses were lower year over year for the nine-month period.
Outlook, risks and contingencies
- The filing provides no formal earnings or operating guidance. Management stated that operating cash flow, cash on hand, its revolving facility, potential refinancing and capital-market access are expected to fund operations and obligations. It also notes the board retains discretion over dividends.
- After quarter-end, Urban Edge sold its East Hanover Warehouse portfolio for $217.5m on October 20 and acquired Shoppers World and Gateway Center for $309m on October 23. The acquisitions were funded with sale proceeds and revolver borrowings. As of the filing, approximately $194m was drawn on the revolver and approximately $579.7m remained available.
- Kingswood Center’s mortgage was in default and foreclosure proceedings were ongoing at quarter-end. The property was placed in receivership, management was terminated, and $1.6m of default interest had been accrued. A 50,000-square-foot tenant planned to leave, and another tenant had terminated its lease.
- The company had 23 active development, redevelopment or anchor-repositioning projects with estimated costs of $168.5m; $93.8m remained to be funded. Project timing and costs may be affected by economic conditions, tenants, vendors and supply chains.
- Bed Bath & Beyond-related lease rejections included three Harmon Face Values leases and two Bed Bath & Beyond leases, together representing $3.0m in annual rental revenue; a buybuy Baby lease generating $0.6m annually was assumed by a new operator.
- Subsequent to quarter-end, the company settled litigation and expected to receive $10m later in 2023, with a corresponding gain expected in Q4. Environmental remediation accruals were $1.4m; actual costs could exceed the estimate. The company also cited insurance availability and cost, tenant credit and leasing, interest rates, refinancing, economic conditions and property impairment as risks.
- Management reported compliance with debt covenants other than those related to the Kingswood Center mortgage. The company said LIBOR-to-SOFR loan transitions did not materially affect the loans.
Important facts for investors to verify
- Whether the Las Catalinas refinancing gain and related tax effects are non-recurring, and how they affect comparisons of GAAP earnings with FFO.
- Progress on Kingswood Center’s foreclosure, property operations, and any further impairment or loss exposure.
- Post-quarter acquisition funding, revolver utilization and remaining liquidity, together with upcoming mortgage maturities and refinancing terms.
- Leasing and occupancy trends, tenant collections and replacement plans for vacated or rejected leases.
- Cash requirements and expected completion or stabilization timing for the 23 active projects, and the outcome and timing of the $10m litigation settlement receipt.