Urban Edge Properties — Q1 2021 Form 10-Q
Business context and reporting period. Urban Edge Properties is a REIT focused on retail real estate, primarily in the New York metropolitan area. For the three months ended March 31, 2021, its portfolio comprised 70 shopping centers, five malls and two industrial parks, totaling approximately 16.2 million square feet. Urban Edge owned approximately 95.6% of its operating partnership.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $95.7 million | $93.4 million | +2.5% |
| Net income | $20.7 million | $51.3 million | -59.6% |
| Net income attributable to common shareholders | $19.9 million | $49.0 million | -59.3% |
| Diluted EPS | $0.17 | $0.40 | Lower |
| FFO applicable to diluted common shareholders | $31.8 million | $34.8 million | -8.7% |
| NOI | $53.6 million | $57.7 million | -7.1% |
| Same-property NOI | $51.3 million | $54.1 million | -5.2% |
| Cash from operating activities | $18.8 million | $20.8 million | -$2.0 million |
Balance sheet and funding. At March 31, 2021, total assets were $2.88 billion, total liabilities $1.88 billion, and equity $1.00 billion. Mortgages payable were $1.594 billion gross ($1.585 billion net of issuance costs), with a 3.92% weighted-average interest rate. Cash and cash equivalents were $324.5 million; including restricted cash, total cash was $376.9 million. The $600 million revolver was undrawn, and the company reported compliance with debt covenants. Management said available cash, the revolver and capital-market access should fund operations and requirements for at least the next 12 months; no debt was scheduled to mature before Q2 2022.
Operating cash flow was $18.8 million. Investing activities provided $15.4 million, including $23.2 million of property-sale proceeds, while financing activities used $76.6 million. Financing cash outflow included $71.3 million of dividends paid; the quarter’s declared dividend was $0.15 per share/unit, down from $0.22 a year earlier. The filing does not reconcile the cash paid to the current-quarter declaration in that line item; the year-end balance sheet reported a $55.9 million dividend payable.
Material changes and drivers
- Net income fell sharply mainly because real-estate sale gains declined to $11.7 million from $39.8 million. The 2021 gain followed sales of one property and a parcel; no properties were acquired in Q1 2021.
- Revenue increased $2.3 million, reflecting acquisitions net of dispositions, higher tenant reimbursements and other income, partly offset by lower property rentals and rent-related write-offs.
- Property operating expenses rose $5.8 million, principally due to $4.0 million of higher common-area maintenance costs, mainly snow removal, and $1.8 million from acquisitions net of dispositions.
- Interest and debt expense declined $2.3 million, primarily following the Las Catalinas Mall loan restructuring, lower variable rates and the absence of the prior-year revolver draw.
- Operating cash flow decreased $2.0 million. Investing cash flow improved year over year because there were no acquisitions, while 2020 included $92.1 million of acquisition spending.
Outlook, risks and unusual items
- COVID-19 and rent collection: Substantially all gross leasable area was open for business. The company collected about 93% of Q1 rental revenue as of March 31 and reported 95% collection as of April 29. As of March 31, executed rent deferrals totaled $8.2 million and abatements totaled $6.7 million; by April 29, executed or approved deferrals were approximately $9.8 million. Tenant defaults, bankruptcies and unpaid deferred rent could pressure revenue and cash flow.
- Development commitments: Twelve active development, redevelopment or anchor-repositioning projects had estimated costs of $121.1 million, with $81.7 million remaining to fund. The company expected this spending over six to eighteen months, subject to construction restrictions, and was reevaluating future pipeline projects.
- Debt-specific exposure: The $129 million Las Catalinas Mall mortgage was modified in December 2020 to interest-only payments at a reduced initial rate, rising over time; the company accrued $5.4 million of related interest. A discounted repayment option begins in August 2023. At Montehiedra, Kmart announced a store closure; a $12.5 million limited guarantee could be affected if specified lease-related conditions occur, though no triggering event had occurred by the filing date.
- Other contingencies: The company is litigating in New Jersey to recover COVID-related losses under insurance policies. Environmental remediation accruals were $1.8 million. Management did not expect ordinary-course legal matters to materially affect financial condition or results.
- Market and operating risks: Management cited pandemic duration and tenant recovery, retail bankruptcies, e-commerce, leasing and redevelopment outcomes, interest rates and LIBOR transition, refinancing and covenant capacity, insurance availability and cost, environmental liabilities, and REIT qualification. No formal earnings or FFO guidance was provided in the supplied filing text.
Important facts for investors to verify
- Subsequent rent collections, deferral repayments, abatements and tenant-credit developments, including bankruptcy and store-closure outcomes.
- Progress, leasing, expected returns and remaining funding needs for the $121.1 million development and redevelopment program.
- Las Catalinas loan performance and repayment options, and whether Kmart’s closure triggers any Montehiedra guarantee obligations.
- Near-term debt maturities, covenant headroom, and availability of the undrawn revolver if tenant cash receipts weaken.
- The drivers of declining same-property NOI and FFO, and the sustainability of the $0.15 quarterly distribution given cash flow and capital needs.
- Outcome of the COVID-related insurance litigation and any changes to environmental remediation estimates.