Urban Edge Properties — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Urban Edge Properties is a REIT focused on retail real estate, primarily in the New York metropolitan area. Its portfolio comprised 81 shopping centers, four malls and a warehouse park, totaling approximately 15.9 million square feet. Urban Edge owned approximately 95.1% of its operating partnership.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $102.7 million | $102.0 million | $200.5 million | $201.0 million |
| Net income | $28.1 million | $59.8 million | $56.0 million | $82.8 million |
| Net income attributable to common shareholders | $26.6 million | $53.7 million | $52.1 million | $74.4 million |
| Diluted EPS | $0.22 | $0.47 | $0.44 | $0.65 |
| FFO applicable to diluted common shareholders | $57.6 million | $39.6 million | $94.1 million | $83.7 million |
| Same-property cash NOI | $53.4 million | $54.3 million | $106.4 million | $108.4 million |
Cash NOI was $60.1 million in Q2 and $119.5 million for the first half, compared with $54.7 million and $114.7 million, respectively. Same-property cash NOI declined 1.8% in Q2 and 1.9% for the first half. Operating cash flow for the first six months was $76.8 million, versus $76.7 million a year earlier; investing cash outflow was $12.4 million and financing cash outflow was $58.4 million.
At June 30, cash and cash equivalents were $412.1 million and restricted cash was $51.5 million. Total assets were $2.86 billion. Mortgages payable were $1.56 billion before debt issuance costs ($1.55 billion net); $169.5 million was variable-rate debt, with a 4.18% weighted-average rate, and fixed-rate debt carried a 4.12% weighted-average rate. The $600 million revolving credit facility was undrawn. The company reported compliance with debt covenants. The quarterly dividend was $0.22 per share, or a stated annual rate of $0.88.
Changes versus comparable periods
- Revenue was nearly flat year over year in Q2 and down $0.5 million for the first half. Net income and EPS fell substantially, primarily reflecting smaller property-sale gains: $11.6 million in Q2 2019 versus $50.4 million in Q2 2018; first-half gains were $28.5 million versus $50.4 million.
- First-half earnings also included $22.7 million of real estate impairment charges, partly offset by $13.6 million of insurance recoveries. The comparable 2018 period included a $2.5 million gain on extinguishment of debt.
- Q2 property operating expenses decreased $7.3 million, partly because the prior-year quarter included a $6.0 million Toys “R” Us lease termination payment. General and administrative expense rose $1.8 million in Q2 and $4.7 million for the first half, including higher share-based compensation, professional fees and severance.
- First-half cash capital expenditures were $50.5 million, compared with $55.0 million. The company sold properties in Chicopee and Glen Burnie during the first half; the Springfield sale closed in July.
Outlook, commentary and risks
- Management said cash from operations, cash on hand, the ATM program, the revolving facility and capital-market access are expected to be sufficient over the next 12 months for operations, debt service and capital expenditures. No debt was scheduled to mature in 2019. No earnings guidance was provided in the supplied filing text.
- The company had 12 active development, redevelopment or anchor-repositioning projects with estimated costs of $120.8 million; $100.1 million had been incurred by June 30. Approximately $20.7 million remained to be funded, with spending expected over the next two years. Two Bergen Town Center acquisitions were under contract, with closings expected by year-end.
- On July 29, 2019, after quarter-end, the company amended its revolving credit agreement, extending maturity to January 29, 2024, with two six-month extension options. The amendment also addressed interest-rate provisions, including potential replacement rates if LIBOR is discontinued.
- Sears/Kmart bankruptcy proceedings resulted in rejection of two Kmart leases at Las Catalinas and Huntington, while ESL assumed two other leases. The four leases had generated $8.5 million in annual rent. The company also reported $1.1 million of Toys “R” Us bankruptcy settlement income; further recoveries, if any, are uncertain.
- Material watch items include retail tenant bankruptcies and vacancies, property impairments and redevelopment execution, variable-rate exposure, insurance availability and cost, and environmental remediation. Environmental remediation accruals were $1.7 million; management cautioned actual costs could exceed that estimate. Management stated ordinary-course legal matters were not expected to have a material adverse effect.
- ASC 842 lease accounting was adopted January 1, 2019. At June 30, operating lease right-of-use assets were $85.4 million and lease liabilities were $83.1 million; adoption included a $2.9 million cumulative-effect adjustment to accumulated deficit.
Most important facts for investors to verify
- Whether same-property NOI stabilizes after its first-half decline and how tenant leasing and occupancy perform.
- The recurring earnings and cash-flow contribution apart from property-sale gains, insurance recoveries, impairments and other unusual items.
- The financial impact of Kmart lease rejections, replacement tenants and any additional bankruptcy settlements.
- Debt maturities, covenant headroom, variable-rate sensitivity and the terms of the amended revolving facility.
- Remaining redevelopment funding needs, expected project returns, and the timing and proceeds of contracted property sales and acquisitions.