Urban Edge Properties — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter filing. Urban Edge Properties is a REIT whose operating partnership owns and operates substantially all company assets. The portfolio comprised 68 shopping centers, five malls and two industrial parks, totaling approximately 17.0 million square feet.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $425.1 million | $330.1 million |
| Net income | $107.8 million | $97.8 million |
| Net income attributable to common shareholders | $102.7 million | $93.6 million |
| Diluted earnings per common share | $0.88 | $0.79 |
| FFO applicable to diluted common shareholders | $180.3 million | $156.3 million |
| NOI | $223.8 million | $200.4 million |
| Same-property NOI | $196.0 million | $171.5 million |
| Net cash provided by operating activities | $135.3 million | $112.8 million |
- Revenue rose $95.0 million, primarily from $44.7 million of accelerated below-market lease amortization following Kmart and Sears lease terminations, a $30.0 million reduction in rental revenue deemed uncollectible, higher straight-line rent and acquisitions net of dispositions.
- Same-property NOI increased 14.3%; management attributed the comparison in part to pandemic-related uncollectible rent in 2020. These non-GAAP measures are not substitutes for GAAP net income or cash flow.
- Cash and cash equivalents, including restricted cash, were $219.8 million at year-end, down from $419.3 million. Cash flow was $135.3 million from operations, negative $311.2 million from investing and negative $23.5 million from financing. Investing outflows reflected $252.6 million of acquisitions and $95.4 million of development and capital spending.
- Year-end mortgage debt was $1.695 billion, including $161.1 million of variable-rate debt; the balance sheet reports $1.687 billion net of debt issuance costs. The company had no borrowings on its $600 million revolving credit facility, which matures in January 2024 and has two six-month extension options. Management said available operating cash, cash on hand, the facility and capital-market access should fund near- and long-term needs.
- Retail occupancy was 91.1%, excluding Sunrise Mall, compared with 88.7% in 2020. Occupancy for the overall portfolio was 88.8%. The filing states 15.2% of physical occupancy was vacant when excluding signed, uncommenced leases.
Material changes and notable items
- Acquired Woodmore Towne Centre for $198.1 million and two East Hanover industrial properties for a combined $56.1 million, including transaction costs. Acquisitions totaled $254.1 million.
- Sold three properties and a parcel, receiving $37.3 million net of selling costs and recording an $18.6 million gain, below the $39.8 million gain in 2020.
- Paid $20 million to terminate remaining Kmart and Sears leases at Bruckner Commons, Montehiedra and Sunrise Mall, effective October 15, 2021, to control anchor spaces for repositioning and redevelopment. Accelerated amortization of associated below-market lease liabilities contributed approximately $45.9 million to 2021 rental revenue.
- Interest and debt expense fell to $57.9 million from $71.0 million. In 2020, the company also recorded a $34.9 million gain on extinguishment of debt and a $39.0 million income-tax benefit, making reported net income comparisons sensitive to nonrecurring items.
- Declared dividends of $0.60 per common share and OP unit for 2021, versus $0.68 for 2020. The 2020 amount included a special dividend; quarterly dividends had been suspended in the second and third quarters of 2020. No shares were repurchased in 2021.
Outlook, risks and contingencies
- Management’s 2022 priorities include leasing vacant space, improving tenant mix, commencing rent on executed leases, redeveloping and repositioning assets, adding non-retail uses and pursuing qualifying acquisitions. The filing gives no quantified earnings or FFO guidance and cautions that execution is subject to economic uncertainty.
- There were 21 active development, redevelopment or anchor-repositioning projects with estimated costs of $218.7 million; $146.6 million remained to be funded. Management expects active redevelopment projects to generate approximately an 8% unleveraged yield. Construction costs, delays, leasing and stabilization could affect returns.
- COVID-19 remained a risk to tenant solvency, rent collection, leasing and project schedules. The company reported collecting 98% of base rent billed in 2021, including rent deferrals, and foot traffic had returned near pre-pandemic levels.
- Key exposures include retail disruption from e-commerce, lease expirations and tenant bankruptcies, and geographic concentration: New York metropolitan properties represented approximately 74% of annualized base rent. Puerto Rico malls contributed approximately 8% of 2021 NOI and face economic, fiscal and natural-disaster risks.
- Debt and refinancing risks include $349.8 million of principal maturities in 2023 and $163.7 million in 2024. The company was in compliance with debt covenants at year-end. A 100-basis-point rise in rates was estimated to add about $1.6 million in annual interest on year-end variable-rate debt. Variable debt was LIBOR-indexed; transition from LIBOR could affect borrowing costs.
- The Las Catalinas Mall mortgage was restructured in 2020; the company may repay it at a discounted $72.5 million beginning in August 2023, subject to conditions and property performance. A limited corporate guarantee related to the Montehiedra mortgage had $9.9 million of remaining exposure at year-end.
- The company had a pending New Jersey insurance lawsuit seeking recovery of COVID-related uncollected rent and other amounts. It accrued $1.7 million for environmental remediation and noted actual costs could exceed the estimate. Ordinary-course legal matters were not expected by management to have a material adverse effect.
- Auditors issued unqualified opinions on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- How much of revenue and NOI growth is recurring, given the $45.9 million accelerated lease-intangible income and changes in rent collectibility?
- Progress on leasing vacant space and signed leases not yet commenced, and the effect of upcoming lease expirations on occupancy and rents.
- Funding, schedules, leasing commitments and realized yields for the $218.7 million redevelopment pipeline, including the $146.6 million still to be funded.
- Refinancing plans and liquidity for 2023–2024 maturities, covenant headroom, and the LIBOR-to-replacement-rate transition.
- Performance and repayment prospects for the Las Catalinas and Montehiedra loans, and the outcome of the COVID-related insurance litigation.
- Whether the $0.60 annual dividend remains supportable in light of cash flows, capital spending, debt service and REIT distribution requirements.