Urban Edge Properties — Q1 2017 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2017, for Urban Edge Properties and its operating partnership. The REIT owns and operates retail real estate in high-barrier-to-entry markets. Its portfolio comprised 81 shopping centers, four malls and one warehouse park totaling 15.2 million square feet.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $126.1 million | $83.1 million |
| Net income | $54.7 million | $19.8 million |
| Net income attributable to common shareholders | $50.6 million; diluted EPS $0.50 | $18.6 million; diluted EPS $0.19 |
| Cash NOI / same-property cash NOI | $55.6 million / $48.1 million | $52.3 million / $45.5 million |
| FFO attributable to diluted common shareholders | $73.5 million | $33.5 million |
| Operating cash flow | $37.2 million | $32.4 million |
| Cash and restricted cash | $122.8 million | $140.2 million at December 31, 2016 |
| Mortgage debt, net | $1,257.0 million | $1,197.5 million at December 31, 2016 |
Same-property cash NOI increased 5.6% year over year. The company declared a quarterly dividend of $0.22 per share and OP unit, equivalent to an annual rate of $0.88. No amounts were drawn on the revolving credit facility at quarter-end.
Material changes and unusual items
- Revenue rose $43.0 million, but the increase was chiefly driven by $39.2 million of income recognized when the company acquired the Shops at Bruckner leasehold interest and wrote off related lease intangibles and a straight-line rent receivable. This was a non-recurring acquisition-related item, not ordinary rental growth.
- Excluding that item, reported results also reflected 2017 acquisitions, higher rents and tenant reimbursements; other income declined due to lower tenant bankruptcy settlement income.
- Urban Edge acquired Yonkers Gateway Center, the Shops at Bruckner and Hudson Mall for aggregate stated consideration of $128.4 million, funded through cash, assumed debt and $48.8 million of OP units.
- A $3.2 million impairment was recorded on the Eatontown, New Jersey property held for sale. The company also recorded a $1.3 million loss on extinguishment of debt after refinancing its North Bergen mortgage.
- General and administrative expense increased $1.4 million, including higher employment costs, $0.5 million of severance expense and increased professional and IT costs.
Debt, liquidity, outlook and risks
- Gross mortgage principal was $1,265.5 million; the weighted-average rate on fixed-rate debt was 4.25%. About $515.2 million of principal was scheduled to mature in 2020. The company reported compliance with debt covenants.
- The revolving facility was increased to $600 million and extended to March 2021, with two six-month extension options. It carries a LIBOR-based rate and includes a 60% maximum leverage covenant and 1.5x minimum fixed-charge coverage covenant.
- Management said cash on hand, operating cash flow, the ATM equity program, the credit facility and capital-market access should be sufficient for the next 12 months’ operations, debt service and capital expenditures. No formal earnings guidance was provided.
- Active development, redevelopment and anchor-repositioning projects totaled $186.9 million, with $102.8 million remaining to fund, expected over roughly two years. Funding may come from cash, asset sales, debt or equity.
- After quarter-end, the company contracted to acquire seven retail assets totaling 1.5 million square feet for $325 million; closing was expected in Q2 2017, subject to customary conditions.
- Englewood remained in default and receivership after tenant departures left operating cash flow insufficient for debt service; the company retained title pending disposition. The filing also describes potential environmental remediation costs of $1.4 million at two properties and notes that actual costs could be higher.
- Management cited tenant rent-paying ability, vacancies and bankruptcies, redevelopment execution, financing and interest-rate exposure, and insurance availability and coverage limits as relevant risks. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- How much of reported revenue, net income and FFO growth reflects the $39.2 million leasehold-accounting gain, and what are recurring operating trends?
- Progress and final economics of the $325 million proposed acquisition, including financing and closing conditions.
- Funding and leasing milestones for the $102.8 million of remaining redevelopment commitments.
- Plans and recovery prospects for the Englewood property and its defaulted mortgage.
- Ability to manage the 2020 maturity concentration and maintain liquidity and covenant compliance.