Urban Edge Properties — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; compared with Q1 2022. Urban Edge is a retail-focused REIT, with a portfolio of 76 centers, malls and industrial parks totaling approximately 17.2 million square feet, primarily in the Washington, D.C.–Boston corridor. Urban Edge owns approximately 95.9% of its operating partnership.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $99.4 million | $100.2 million |
| Net income (loss) | $(20.1) million | $9.5 million |
| Net income (loss) attributable to common shareholders | $(19.1) million; $(0.16) per share | $9.5 million; $0.08 per share |
| FFO applicable to diluted common shareholders | $38.6 million | $34.2 million |
| NOI | $61.1 million | $57.1 million |
| Same-property NOI | $56.7 million | $53.9 million |
| Operating cash flow | $29.4 million | $24.5 million |
Same-property NOI rose 5.1%; including properties in redevelopment, it increased 6.3%. The filing does not provide a headline operating-margin measure.
- Revenue and expenses: Revenue declined $0.8 million year over year. Higher property rents were offset by lower tenant reimbursements, other income and percentage rent. Property operating expenses fell $3.8 million, primarily due to lower snow removal, cleaning and security costs; general and administrative expenses declined $2.1 million.
- Profit and unusual item: The company recorded a $34.1 million impairment charge on Kingswood Center, driving the GAAP quarterly loss. FFO excludes the impairment under the company’s stated reconciliation.
- Cash flow and investment: Operating cash flow increased $4.9 million, which management attributed to the timing of tenant receipts and recovery of amounts previously billed and deemed uncollectible. Investing activities used $22.8 million, including $23.2 million for development and capital improvements. Cash, including restricted cash, decreased $17.6 million during the quarter.
- Liquidity and debt: At March 31, cash and cash equivalents were $62.1 million and restricted cash was $49.0 million. Net mortgages payable were $1.687 billion. The $800 million revolving facility had no borrowings outstanding at quarter-end; after subsequent letters of credit, approximately $776.2 million remained available. About 91% of debt was fixed rate. Management reported compliance with debt covenants at quarter-end.
- Distributions and projects: The quarterly dividend/distribution was $0.16 per share or unit. The company had 24 active development, redevelopment or anchor repositioning projects, with estimated total costs of $217.7 million and $150.0 million remaining to fund.
Material changes and developments
- Compared with Q1 2022, the company moved from net income to a net loss, primarily due to the Kingswood impairment. FFO, NOI and same-property NOI nevertheless increased.
- Interest and debt expense rose $1.3 million to $15.3 million, primarily reflecting higher rates on variable-rate debt and 2022 loan refinancings, partly offset by increased capitalized interest.
- After quarter-end, on April 6, the company refinanced the $300 million Bergen Town Center mortgage with a seven-year, $290 million fixed-rate loan at 6.3%. Management said this reduced remaining 2023 debt maturities to approximately $29 million. The refinancing used cash for the difference and was accompanied by $23.8 million of letters of credit under the revolver.
Outlook, commentary and risks
- The filing provides no numerical earnings or operating guidance. Management stated that operating cash flows, cash on hand, the revolver, potential refinancings and access to capital markets are expected to fund operations and short- and long-term obligations.
- Kingswood Center faced tenant departures: a 50,000-square-foot tenant planned to vacate in early 2024, and a 17,000-square-foot tenant terminated its lease effective April 2023. The company recorded the impairment using an estimated fair value of $49 million before selling costs, with Level 3 assumptions including an 8% discount rate and 6% retail/7% office capitalization rates. Subsequent to quarter-end, the mortgage was transferred to special servicing at the company’s request because projected property NOI would not cover debt service.
- Bed Bath & Beyond filed for bankruptcy on April 23, 2023. Three Harmon Face Values locations totaling 18,000 square feet had ceased operations during Q1 and generated $0.5 million in annual rent; three additional Bed Bath & Beyond leases generated $3.1 million in annual rent and remained open at quarter-end. The future status of these stores was uncertain.
- Other risks include tenant bankruptcies and lease renewals, inflation and higher borrowing costs, refinancing needs, development cost and leasing uncertainty, insurance availability and costs, environmental obligations, and the transition from LIBOR to replacement rates. The company disclosed $1.6 million accrued for environmental remediation and a $7.6 million remaining exposure under a limited guarantee on The Outlets at Montehiedra loan.
Most important facts for investors to verify
- Progress and financial consequences of Kingswood Center’s tenant departures, impairment valuation and special-servicing process.
- Whether the Bergen Town Center refinancing terms and reduced 2023 maturities translate into manageable interest costs and liquidity.
- Potential rent losses from Bed Bath & Beyond/Harmon locations and the leasing outlook for affected space.
- Funding, completion timing and expected returns for the $150 million remaining commitment on active projects.
- Future operating cash flow and FFO relative to the $0.16 quarterly distribution, debt service and upcoming maturities.