Urban Edge Properties — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Urban Edge is a REIT focused on retail properties, 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. Urban Edge owned approximately 95.9% of its operating partnership.
Key financial results
Amounts below are in millions, except per-share data and where noted.
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenue | $99.1 | $97.9 | $198.5 | $198.1 |
| Net income (loss) | $10.6 | $12.0 | $(9.6) | $21.5 |
| Net income (loss) attributable to common shareholders | $10.3 | $11.6 | $(8.9) | $21.1 |
| Diluted EPS | $0.09 | $0.10 | $(0.08) | $0.18 |
| NOI (non-GAAP) | $61.5 | $59.6 | $122.7 | $116.7 |
| Same-property NOI (non-GAAP) | $56.1 | $54.9 | $110.9 | $106.8 |
| FFO attributable to diluted common shareholders (non-GAAP) | $35.9 | $36.2 | $74.5 | $70.4 |
Q2 same-property NOI increased 2.3% year over year; first-half same-property NOI increased 3.8%. First-half same-property NOI including properties in redevelopment rose 5.1%. The filing cautions that NOI and FFO are non-GAAP measures and should not be viewed as substitutes for net income or cash flow.
- Operating costs and interest: Q2 property operating expense fell $1.9 million, primarily on lower common-area maintenance costs; G&A fell $0.7 million. Interest and debt expense rose $3.9 million to $18.1 million. For the first half, interest and debt expense increased $5.2 million to $33.4 million, while property operating and G&A expenses declined by $5.7 million and $2.8 million, respectively.
- Cash flow: First-half operating cash flow was $68.4 million, versus $61.0 million a year earlier. Investing used $56.5 million, versus $84.0 million; financing used $47.3 million, versus $25.5 million. Cash and restricted cash ended June at $93.4 million, down from $128.8 million at year-end 2022.
- Balance sheet and liquidity: Total assets were $2.90 billion and total liabilities $1.92 billion at June 30. Net mortgages payable were $1.68 billion; reported mortgage principal before unamortized issuance costs was $1.70 billion. Cash and restricted cash totaled $93.4 million, and approximately $775.7 million remained available under the $800 million revolving facility, with no borrowings outstanding. The company reported about $45 million of mortgage debt maturing within 12 months.
- Debt profile: Approximately 92% of outstanding debt was fixed rate. Variable-rate mortgages totaled $129.4 million, with a 1% base-rate increase estimated to add about $1.3 million to annual interest expense. The filing reports fixed-rate mortgages of $1.57 billion at a 4.67% weighted-average rate; refinancing at rates 1% higher would increase annualized interest expense by approximately $15.7 million, based on period-end balances.
Material changes and unusual items
- First-half net loss included a $34.1 million non-cash impairment charge on Kingswood Center, an office and retail property in Brooklyn. The charge followed tenant departures and a planned vacancy, and reflected lower estimated property value amid office-market uncertainty. The property’s estimated fair value was $49 million before estimated selling costs.
- Kingswood’s mortgage was transferred to special servicing at the company’s request in May after projected property cash flow was expected to be insufficient for debt service. The loan was in default at June 30; $0.8 million of default interest had accrued, and lender discussions were ongoing with an uncertain outcome.
- Debt transactions included a $290 million, seven-year Bergen Town Center refinancing at 6.3%; a $38 million, six-year Shops at Bruckner refinancing at 6.0%; and a new $16 million, ten-year Newington Commons mortgage at 6.0%. Proceeds from the Bruckner refinancing helped repay the $29 million Plaza at Cherry Hill mortgage before maturity, resulting in a $0.5 million extinguishment loss.
- Three Harmon Face Values leases, totaling 18,000 square feet and $0.5 million of annual rent, were rejected in the Bed Bath & Beyond bankruptcy and vacated. Three other Bed Bath & Beyond leases remained open at June 30 and generated $3.1 million of annual rent; their future status was uncertain.
- Twenty-two active development, redevelopment or anchor-repositioning projects had estimated total costs of $196.5 million, with $128.2 million remaining to fund. The company noted that project timing may be affected by economic conditions affecting tenants, vendors and supply chains.
Outlook, risks and contingencies
The filing provides no specific earnings, revenue or occupancy guidance. Management stated that operating cash flow, cash on hand, the revolving facility, potential refinancings and capital-market access are expected to fund operations and obligations in the short and long term. The board declared a $0.16 quarterly dividend per share and OP unit, equivalent to an annual rate of $0.64; future distributions remain at the board’s discretion.
Management identified risks including tenant bankruptcies and lease renewals, inflation and higher borrowing costs, access to capital and refinancing, development costs and leasing outcomes, environmental liabilities, natural disasters, cybersecurity and maintaining REIT status. All LIBOR-indexed loans were amended to transition to SOFR effective July 2023; management said the transition did not materially affect the affected loans. Environmental remediation accruals were $1.5 million. The company also disclosed a $7.1 million remaining exposure under a limited guarantee related to The Outlets at Montehiedra. Management did not expect ordinary-course legal matters to have a material adverse effect. Disclosure controls were assessed as effective, and the filing reported no material change in risk factors from the 2022 Form 10-K.
Most important facts for investors to verify
- Progress and final terms of negotiations with the Kingswood Center lender, including default interest, property cash flow and any further impairment or restructuring.
- Whether the remaining Bed Bath & Beyond stores continue operating, and the leasing and rent-replacement outlook for rejected Harmon Face Values locations.
- Debt maturities, refinancing rates and covenant compliance, particularly given higher interest costs and the stated near-term mortgage maturities.
- Cash generation and funding needs for the $128.2 million of remaining project costs, alongside dividend coverage and distributions.
- Actual performance versus the non-GAAP NOI and FFO trends, including the effects of uncollectible rent and redevelopment activity.