Urban Edge Properties annual report, FY2020

Full document

Urban Edge Properties — FY2020 Form 10-K

Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with FY2019. Urban Edge is a REIT focused on retail real estate, mainly in the New York metropolitan area. Its portfolio included 72 shopping centers, five malls and two industrial parks, totaling approximately 16.3 million square feet. Urban Edge Properties LP is its operating partnership.

Financial and operating performance

  • Revenue: $330.1 million, down 14.8% from $387.6 million. Rental revenue was $328.3 million.
  • Profit: Net income was $97.8 million, down from $116.2 million; diluted earnings per share were $0.79 versus $0.91.
  • NOI and FFO: NOI, a non-GAAP measure, was $200.4 million versus $234.3 million. Same-property NOI fell 14.2% to $186.1 million. FFO applicable to diluted common shareholders was $156.3 million, down from $167.1 million.
  • Cash flow: Operating cash flow was $112.8 million, compared with $156.4 million. Cash and restricted cash totaled $419.3 million at year-end, down from $485.1 million.
  • Occupancy: Retail portfolio occupancy was 88.7%, versus 92.4% a year earlier; industrial occupancy remained 100%. Overall consolidated occupancy was 89.4%.
  • Debt and liquidity: Mortgages payable were $1.60 billion principal ($1.59 billion net of issuance costs); weighted-average interest rate was 3.92%. The company had $169.4 million of variable-rate debt and no balance drawn on its $600 million revolver at year-end. It reported compliance with debt covenants and no debt maturities until 2022.
  • Capital spending and distributions: Cash capital expenditures were $28.5 million, down from $91.3 million. The 2020 distribution was $0.68 per share/unit, compared with $0.88 in 2019; second- and third-quarter dividends were suspended, followed by a $0.46 special dividend declared in December.

Material changes and unusual items

  • COVID-19-related rent collection problems, tenant bankruptcies and concessions materially reduced revenue. The company recorded $27.9 million of rental revenue deemed uncollectible and $12.0 million of write-offs of straight-line rent receivables. Same-property occupancy declined to 91.8% from 92.9%.
  • The company recognized a $34.9 million gain on extinguishment of debt after refinancing the Montehiedra mortgage and forgiving its $30 million junior loan plus accrued interest. A $39.0 million income tax benefit, largely connected with Puerto Rico refinancing and legal-entity restructuring, also affected reported earnings.
  • General and administrative expense rose $10.5 million to $48.7 million, primarily from executive transition, accelerated equity-award amortization, transaction and severance costs. Gains on property sales declined to $39.8 million from $68.6 million.
  • Acquisitions totaled $199.5 million, including two Brooklyn properties and Sunrise Mall in Massapequa, New York. Three property sales generated $58.1 million of proceeds, net of selling costs, and a $39.8 million gain.
  • The company repurchased 5.9 million shares for $54.1 million at a weighted-average price of $9.22.

Outlook, commentary and risks

  • Management expected to reinstate a quarterly dividend of approximately $0.15 per share in 2021, subject to Board approval and based on projected taxable income.
  • Management’s 2021 priorities include restoring rent collections, leasing vacant space, commencing rent on signed leases, redeveloping and repurposing properties, and pursuing qualifying acquisitions. It cautioned that execution and results remain uncertain given the pandemic.
  • At December 31, 2020, active development, redevelopment and anchor-repositioning projects totaled $132.4 million, with $86.6 million remaining to fund. Management estimated an approximately 8% unleveraged yield for active redevelopment projects.
  • As of February 12, 2021, the company reported collection of 93% of fourth-quarter 2020 rental revenue; separately, its reported collection table showed 91% of fourth-quarter billings collected as of year-end. It had executed or approved about 112 rent deferrals totaling $8.2 million by February 12.
  • Key exposures include continued COVID-19 effects, tenant credit and lease renewals, e-commerce, concentrated exposure to the New York metropolitan area (over 75% of rental revenue), redevelopment execution, Puerto Rico operations and debt refinancing. Century 21’s bankruptcy vacated a 157,000-square-foot Bergen Town Center store that had generated $4.4 million in annual rent.
  • The company amended its revolver covenants in June 2020. It also filed litigation seeking recovery under insurance policies for COVID-related uncollected rent; the outcome is uncertain. A $1.8 million environmental remediation accrual was recorded, and ordinary-course legal matters were not expected to be material.

Most important facts for investors to verify

  • Whether rent collections and tenant receivable recoveries improved after the reported February 2021 collection figures, and how much deferred rent is ultimately collected.
  • Progress in re-leasing Century 21’s space and other vacancies, and the effect on occupancy, rents and co-tenancy provisions.
  • The terms and sustainability of the planned 2021 dividend, alongside taxable income, operating cash flow and capital needs.
  • Funding, timing, leasing and realized returns for the $86.6 million of remaining redevelopment commitments.
  • Debt maturities, refinancing options, covenant headroom and potential effects of variable rates and LIBOR replacement.
  • Whether Puerto Rico debt arrangements, the Montehiedra guarantee and the COVID-19 insurance litigation create additional cash obligations or recoveries.