Urban Edge Properties — Q2 2022 Form 10-Q
Business and period: Retail-focused REIT operating primarily in the Washington, D.C.–Boston corridor. At June 30, 2022, its portfolio comprised 69 shopping centers, five malls and two industrial parks totaling approximately 17.2 million square feet. Results below are for the three and six months ended June 30, 2022; comparisons are with 2021. Amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $97.9 | $94.0 | $198.1 | $189.7 |
| Net income | $12.0 | $13.0 | $21.5 | $33.7 |
| Net income attributable to common shareholders | $11.6 | $12.5 | $21.1 | $32.5 |
| Diluted EPS | $0.10 | $0.11 | $0.18 | $0.28 |
| FFO applicable to diluted common shareholders (non-GAAP) | $36.2 | $35.4 | $70.4 | $67.2 |
| Same-property NOI (non-GAAP) | $52.6 | $52.0 | $103.3 | $100.0 |
| Net cash from operating activities | Not reported by quarter | Not reported by quarter | $61.0 | $53.6 |
For Q2, rental revenue was $97.5 million. Revenue growth reflected acquisitions, rent commencements, contractual increases and tenant reimbursements; higher depreciation, property costs and G&A partly offset the increase. Six-month net income was down largely because the comparable 2021 period included an $11.7 million property-sale gain; 2022 recorded only a $0.4 million gain related to escrow from an earlier sale. Same-property NOI rose 1.2% in Q2 and 3.3% for the six-month period. The filing does not provide a single headline operating-margin measure.
Balance sheet, debt and liquidity
- Total assets were $2,970.3 million and total liabilities $1,933.3 million at June 30, 2022. Net mortgages payable were $1,699.8 million; reported mortgage principal before unamortized issuance costs was $1,708.6 million.
- Cash and cash equivalents were $125.5 million; restricted cash was $45.8 million, or $171.3 million combined. Combined cash and restricted cash declined $48.5 million from year-end 2021.
- Variable-rate mortgages totaled $160.0 million, with a weighted average rate of 3.36%; fixed-rate mortgages totaled $1,548.7 million, with a weighted average rate of 4.10%. A 1% change in variable-rate base rates would affect annual interest expense by approximately $1.6 million, before considering other factors.
- The $600 million revolving credit facility had no borrowings outstanding. Management cited approximately $309 million of mortgage debt maturing within the next 12 months and said it was exploring refinancing options. It considered cash, the undrawn facility, refinancing and capital-market access sufficient for near- and long-term needs.
- Operating cash flow of $61.0 million was below investing outflows of $84.0 million, including $36.2 million for acquisitions and $48.1 million for development and capital improvements. Financing activities used $25.5 million, including debt repayments, dividends and distributions.
Changes, outlook and notable items
- The company acquired 40 Carmans Road, a 12,000-square-foot outparcel, and The Shops at Riverwood, a fully leased 78,000-square-foot grocery-anchored center, for total purchase consideration of $37.6 million including transaction costs. No property dispositions were completed in the first half of 2022.
- There were 20 active development, redevelopment or anchor-repositioning projects with estimated total costs of $205.8 million; $134.9 million remained to be funded at quarter-end. Management noted stabilization timing could be affected by economic conditions, tenants, vendors and supply chains. Additional pipeline projects remained under evaluation, with no obligation to proceed.
- The board declared quarterly dividends/distributions of $0.16 per share/unit, equivalent to an annualized $0.64 rate if maintained. The filing provides no formal earnings or FFO guidance; dividend timing and amount remain subject to board discretion.
- Two loans were refinanced in June with floating rates: Plaza at Cherry Hill at Prime plus 0.50% (4.25% floor), and Plaza at Woodbridge at SOFR plus 2.26%. The company bought a one-year interest-rate cap limiting SOFR on the Woodbridge debt to 3%. Riverwood was partly funded with a $21.5 million, seven-year fixed-rate loan at 4.25%.
- Las Catalinas Mall’s modified non-recourse loan carries interest-only payments and allows an optional discounted payoff beginning August 2023, subject to conditions; $5.4 million of interest had accrued. The company also had $9.0 million of remaining exposure under a limited guarantee for the Montehiedra mortgage.
- Management cited inflation and rising interest rates but said it had not experienced material negative impacts at the time of filing. Most leases pass through operating costs to tenants, and most non-recourse debt is fixed-rate; some leases cap expense recoveries. Risks include tenant credit and lease renewals, e-commerce, refinancing and borrowing costs, redevelopment costs and leasing, supply-chain effects, environmental matters and catastrophic events.
- Urban Edge is pursuing insurance litigation over COVID-related rent losses. Insurance coverage has exclusions, deductibles and limits, and management warned premiums may rise. Environmental remediation accruals were $1.7 million. Management did not expect ordinary-course legal matters to have a material adverse effect; no tenant bankruptcy was identified as materially adverse.
Important facts for investors to verify
- Refinancing plans, terms and available liquidity for near-term mortgage maturities, particularly the 2023 debt schedule.
- Actual leasing, occupancy, tenant collections and NOI contribution from acquisitions and redevelopment projects, including the $134.9 million of remaining project funding.
- Exposure to floating rates and the extent to which the Woodbridge cap and fixed-rate debt mitigate higher interest costs.
- Progress and potential recovery from the COVID-related insurance litigation, and adequacy and cost of insurance and environmental reserves.
- Whether operating cash flow and recurring property performance support distributions and planned capital spending; FFO and NOI are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.