Urban Edge Properties — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Urban Edge is a retail-property REIT focused primarily on the New York metropolitan area. Its portfolio comprised 73 shopping centers, four malls and a warehouse park, totaling approximately 15.1 million square feet.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Total revenue | $93.4 million | $97.7 million |
| Net income | $51.3 million | $27.9 million |
| Net income attributable to common shareholders; diluted EPS | $49.0 million; $0.40 | $25.5 million; $0.22 |
| Cash NOI | $57.7 million | $59.3 million |
| Same-property cash NOI | $54.6 million | $55.1 million; down 1.1% |
| FFO applicable to diluted common shareholders | $34.8 million | $36.5 million |
| Cash from operating activities | $20.8 million | $29.4 million |
Net income increased substantially, principally because gains on property sales rose to $39.8 million from $17.0 million. Revenue declined 4.5%; rental revenue was $93.0 million versus $97.3 million. Interest and debt expense was $17.2 million, up from $16.5 million. The filing does not provide a consolidated operating-margin figure.
At March 31, cash and cash equivalents were $622.7 million and restricted cash was $20.0 million. Total debt was $1.87 billion: $1.63 billion of mortgages and $250 million drawn on the $600 million revolving facility, leaving $350 million available. The reported weighted-average interest rate on total debt was 3.80%. The company reported compliance with debt covenants at quarter-end, but noted that future rent declines could affect covenant compliance and revolver access. The debt schedule lists $6.3 million of principal repayments for the remainder of 2020 and $123.2 million for 2021.
Operating cash flow fell $8.6 million year over year. Investing cash outflow was $44.3 million, including $92.1 million of cash acquisitions, partly offset by property-sale proceeds. Financing cash inflow was $181.0 million, mainly reflecting the $250 million revolver draw.
Material changes and significant transactions
- Acquired Kingswood Center and Kingswood Crossing in Brooklyn for a combined $167.3 million, including transaction costs; assumed a mortgage associated with Kingswood Center. The acquisitions were funded through 1031 exchanges.
- Sold three properties for $58.1 million net proceeds, recognizing a $39.8 million gain. The prior-year quarter included one property sale and a $17.0 million gain.
- Repurchased 4.5 million shares during the quarter for $42.8 million under a newly authorized $200 million program. After quarter-end, the company repurchased another 1.4 million shares for $11.3 million.
- Declared a first-quarter dividend of $0.22 per share and OP unit, but subsequently suspended quarterly distributions because of COVID-19 uncertainty. Management said it intends to reinstate a regular dividend of at least the amount needed to maintain REIT qualification, subject to future Board decisions.
Outlook, risks and unusual items
- COVID-19 and collections: As of April 27, 55% of portfolio gross leasable area (46% measured by annualized base rent) remained open. The company reported receiving approximately 56% of April rent billed, totaling $15.8 million. Collection rates differed materially by tenant type; management anticipated rent concessions or deferrals, with the financial impact not yet known.
- Debt and liquidity risks: The company drew $250 million on its revolver as a precaution. Management believed available cash, revolver capacity and capital-market access would fund operations and obligations for at least 12 months, while warning that rent declines could affect financial covenants and access to the facility.
- Las Catalinas mortgage: In April, the company notified the servicer of its approximately $129 million non-recourse Puerto Rico mall loan that cash flow would not cover the April debt-service payment and that it would not fund the shortfall. The loan was in default, subject to default interest, and the lender could accelerate the balance. Negotiations with the special servicer were ongoing; resolution and timing were undetermined.
- Development and transactions: Nine active projects had estimated costs of $52.8 million, with $16.0 million remaining to fund. Stabilization dates were delayed or being monitored because of COVID-19. A further approximately $300 million project pipeline was being reevaluated, with no obligation to proceed. Management expected lower acquisition and disposition activity during Q2 and potentially the rest of 2020.
- Other contingencies: The company had filed COVID-19-related insurance claims and was pursuing coverage. Environmental remediation accruals were $1.0 million; actual costs could exceed the estimate. Management reported ordinary-course legal matters were not expected to have a material adverse effect.
- No formal financial guidance is provided in the supplied filing text. Management emphasized significant uncertainty around tenant operations, rent recovery, consumer behavior, and the pandemic’s duration.
Important facts for investors to verify
- Subsequent rent collections, concessions, deferrals and tenant defaults, including the durability of April collection levels.
- Progress and financial consequences of the Las Catalinas loan default and negotiations.
- Compliance with revolver covenants as operating results and collections evolve, and remaining liquidity after any further borrowing or repayment needs.
- Dividend reinstatement timing and amount, and whether the share-repurchase program continues amid heightened liquidity uncertainty.
- Revised development schedules, project funding requirements, and actual outcomes of planned property acquisitions or dispositions.
- Whether the large reported increase in net income translates into recurring operating performance, given the significant property-sale gains and lower FFO and NOI.