Urban Edge Properties — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Urban Edge owns and operates retail real estate; its portfolio comprised 79 shopping centers, three malls and a warehouse park totaling 14.8 million square feet. The filing combines Urban Edge Properties and its operating partnership. 2015 comparisons include carved-out results before the January 2015 separation from Vornado, which limits comparability.
Financial performance and liquidity
Amounts below are in millions, except per-share data.
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Total revenue | $80.0 | $79.8 | $242.5 | $242.3 |
| Operating income | $33.4 | $34.0 | $99.6 | $68.5 |
| Net income | $20.5 | $20.0 | $76.4 | $25.2 |
| Diluted EPS | $0.19 | $0.19 | $0.72 | $0.24 |
| FFO applicable to diluted common shareholders | $34.8 | $33.5 | $102.2 | $66.3 |
| Same-property cash NOI | $47.2 | $45.3 | $139.9 | $135.1 |
- Same-property cash NOI grew 4.1% in Q3 and 3.6% for the nine-month period. Total cash NOI was $52.9 million in Q3 and $157.6 million year to date.
- Nine-month net income benefited from a $15.6 million gain on the Waterbury property sale and substantially lower transaction costs than in 2015, when separation-related costs were recorded. Q3 revenue was nearly flat; lower property operating costs and interest expense were partly offset by higher real estate taxes and depreciation.
- Operating cash flow was $99.2 million for nine months, versus $99.9 million. Investing used $26.3 million, including $45.7 million of real estate additions and $19.9 million of sale proceeds. Financing used $92.1 million, including $63.1 million of distributions and $34.0 million of debt repayments.
- At September 30, cash and equivalents were $149.7 million and net mortgages payable were $1.20 billion; no revolving-credit borrowings were outstanding. The company reported $1.21 billion of mortgage principal, with a $500 million undrawn revolving facility. Debt fair value was estimated at $1.26 billion, excluding financing costs.
- Debt maturities include $99.7 million in 2018 and $513.9 million in 2020. No debt was scheduled to mature for the remainder of 2016 or in 2017. The company reported compliance with debt covenants.
Material developments, outlook and risks
- The company sold its Waterbury, Connecticut shopping center in June for $21.6 million, recognizing a $15.6 million gain, and prepaid $21.2 million of variable-rate debt in connection with the sale.
- Active development, redevelopment and anchor repositioning projects totaled an estimated $126.1 million, of which $65.3 million remained to be funded. Management expected the remaining spending over approximately two years; capital sources may include cash, asset sales, borrowing or equity issuance. A $5.0 million Walnut Creek anchor repositioning was completed during Q3.
- The company contracted to acquire adjacent New York metropolitan properties for $44 million and, after quarter-end, $32 million. These were contracts, not reported completed acquisitions.
- An ATM program authorizes up to $250 million of share sales. It generated $4.9 million in Q3 proceeds; an additional $3.8 million sale settled after quarter-end. The quarterly dividend was $0.20 per share/unit, or $0.60 for the first nine months. Management said available cash, operating cash flow, the ATM, revolver and capital-market access were expected to cover operations, debt service and capital spending for the next 12 months. No earnings or NOI guidance was provided.
- Englewood was in mortgage default after tenant departures; the property was in receivership, and Urban Edge no longer managed it. Montehiedra had undergone a troubled-debt restructuring; the company committed $20 million for leasing and capital expenditures and had funded $14.5 million by quarter-end.
- Environmental remediation accruals were $1.4 million for two properties; actual costs could exceed the estimate. The company also noted risks from tenant bankruptcies, insurance availability and uninsured losses. Ordinary-course legal matters were not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether same-property NOI growth, occupancy and rent commencements continue to support results, and how much the reported improvement depends on nonrecurring items.
- Funding needs and returns for the $126.1 million project pipeline, including remaining Montehiedra commitments and the two proposed acquisitions.
- Refinancing plans for the significant 2020 maturity concentration and developments concerning the Englewood default and receivership.
- Future use of the ATM program, potential share dilution, dividend sustainability and access to financing.
- Potential changes in environmental remediation costs, tenant credit conditions and insurance coverage or pricing.