Urban Edge Properties — Q1 2022 Form 10-Q
Business and period: Urban Edge Properties is a REIT focused on retail properties, primarily along the Washington, D.C.–Boston corridor. This filing covers the three months ended March 31, 2022, compared with Q1 2021. Its portfolio comprised 68 shopping centers, five malls and two industrial parks totaling approximately 17.2 million square feet. UE owned approximately 95.9% of the operating partnership.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $100.2 million | $95.7 million | Up $4.5 million, or about 4.7% |
| Rental revenue | $99.4 million | $94.6 million | Increase reflected acquisitions, improved rent collectibility and higher percentage rent, partly offset by lease terminations and modifications |
| Net income | $9.5 million | $20.7 million | Lower primarily because Q1 2021 included an $11.7 million property-sale gain |
| Net income attributable to common shareholders | $9.5 million | $19.9 million | Diluted EPS was $0.08 versus $0.17 |
| FFO applicable to diluted common shareholders | $34.2 million | $31.8 million | Up approximately 7.6% |
| NOI | $57.1 million | $53.6 million | Up approximately 6.5% |
| Same-property NOI | $50.9 million | $48.3 million | Up $2.7 million, or 5.5% |
| Cash from operating activities | $24.5 million | $18.8 million | Up $5.7 million, attributed to acquisitions, stronger collections and collection of previously deferred amounts |
General and administrative expense rose $2.5 million to $11.1 million; depreciation and amortization increased $1.7 million to $24.5 million. Interest and debt expense declined $0.8 million to $14.0 million, primarily due to more capitalized interest, partly offset by interest on debt associated with the Woodmore Towne Centre acquisition. The filing does not provide a clearly stated operating-margin measure.
Financial position and liquidity
- At March 31, 2022, total assets were $2.96 billion and total liabilities were $1.92 billion. Net mortgages payable were $1.68 billion; gross principal balance was $1.69 billion.
- Cash and cash equivalents were $151.8 million; restricted cash was $46.2 million, for combined cash and restricted cash of $198.0 million. This combined amount was $21.8 million lower than at year-end 2021.
- No borrowings were outstanding on the $600 million revolving credit facility, which matures January 29, 2024 and has two six-month extension options. Management stated available cash and liquidity were sufficient for obligations, including upcoming debt maturities.
- Approximately 90.5% of mortgage principal was fixed-rate; variable-rate debt totaled $159.8 million and was LIBOR-indexed. A 1% increase in base rates was estimated to increase annual interest expense by approximately $1.6 million on variable-rate debt. The company had no material hedging instruments in place.
- Operating cash flow was more than offset by $23.0 million of investing outflows and $23.3 million of financing outflows. Investing included $19.1 million for development and capital improvements and $3.9 million for an acquisition.
- The quarterly dividend was $0.16 per share and OP unit, equivalent to an indicated annual rate of $0.64, subject to board discretion.
Material changes and notable items
- Q1 2021 included $23.6 million of net property-sale proceeds and the related $11.7 million gain; there were no dispositions in Q1 2022.
- In February 2022, the company acquired a 12,000-square-foot outparcel at 40 Carmans Road for a reported purchase price of $4.26 million, supporting its Sunrise Mall redevelopment plans.
- Same-property NOI improved 5.5%. Management cited improved rent collection, higher tenant sales-related percentage rent and contractual rent increases among the positive factors.
- Management and development fee income decreased, and agreements with Vornado were terminated effective March 31, 2022, apart from certain projects expected to finish by mid-2022. The company does not expect material fees after that date.
- The company had 20 active development, redevelopment or anchor-repositioning projects with estimated total costs of $207.1 million; $136.4 million remained to be funded at quarter-end.
Outlook, risks and contingencies
- No formal earnings or financial guidance is provided in the filing. Management said it had not experienced material negative impacts from the prevailing economic environment at that time and believed operating cash flow, cash on hand, the revolver, refinancing capacity and capital-market access would fund near- and long-term needs.
- Debt principal repayments in the maturity schedule total $94.2 million for the remainder of 2022 and $349.8 million in 2023. Separately, management describes approximately $81 million of 2022 maturities tied to mortgages on two properties; the difference reflects the scope of the measures and should be checked against the debt schedule.
- Las Catalinas Mall’s non-recourse loan was modified in 2020 after the property’s cash flow was deemed insufficient to service debt. The company accrued $5.4 million of related interest. It may have an option to repay at a discounted $72.5 million beginning August 2023, subject to conditions and future property performance.
- A $12.5 million limited corporate guarantee related to the Montehiedra loan had $9.4 million of remaining exposure. No separate liability was recorded.
- The company is pursuing insurance recovery in New Jersey for COVID-related uncollected rents and other amounts. Insurance coverage, exclusions, deductibles and rising premiums may expose the company to uninsured losses or higher costs.
- Environmental remediation accruals were $1.7 million. Management said ordinary-course legal matters were not expected to have a material adverse effect; it also reported no tenant bankruptcies believed likely to have a material adverse effect.
- Disclosed risks include tenant credit and bankruptcies, lease renewals and re-leasing, e-commerce, inflation and rising interest rates, debt refinancing, project costs and leasing assumptions, insurance availability, environmental matters, climate-related events, cybersecurity and continued REIT qualification.
Most important facts for investors to verify
- Near-term refinancing and repayment plans, especially 2022 maturities and the larger 2023 maturity schedule.
- Whether collections, occupancy, lease renewals and same-property NOI growth remain durable.
- Progress, remaining funding needs and expected returns for the 20 redevelopment and repositioning projects, particularly Sunrise Mall.
- Las Catalinas’ operating performance, accrued interest and feasibility of the discounted repayment option; also monitor Montehiedra guarantee exposure.
- Potential impact of LIBOR transition, interest-rate increases and debt refinancing costs on interest expense and liquidity.
- Outcome of the COVID-related insurance litigation and the effect of insurance costs, exclusions and coverage limits.