Urban Edge Properties Reports First Quarter 2019 Results

NEW YORK–(BUSINESS WIRE)–Urban Edge Properties (NYSE:UE) (the “Company”) today announced its
results for the quarter ended March 31, 2019.

Financial Results(1)(2)

  • Generated net income of $27.9 million, or $0.22 per diluted share.
  • Generated Funds from Operations applicable to diluted common
    shareholders (“FFO”) of $36.5 million, or $0.29 per share, compared to
    $44.1 million, or $0.35 per share, for the first quarter of 2018.
  • Generated FFO as Adjusted of $37.1 million, or $0.29 per share,
    compared to $41.3 million, or $0.33 per share, for the first quarter
    of 2018.
  • FFO as Adjusted for the quarter excludes expenses related to executive
    transition and other income and expenses that are not representative
    of our ongoing core operating results.

Operating Results(1)

  • Reported a decline in same-property cash Net Operating Income (“NOI”)
    including properties in redevelopment of 0.4% compared to the first
    quarter of 2018. Excluding the impact of tenant bankruptcies,
    same-property cash NOI including properties in redevelopment would
    have increased by 3.7%.
  • Reported a decline in same-property cash NOI excluding properties in
    redevelopment of 2.2% compared to the first quarter of 2018. Excluding
    the impact of tenant bankruptcies, same-property cash NOI excluding
    properties in redevelopment would have increased by 1.8%.
  • Reported same-property portfolio occupancy of 94.0%, an increase of 40
    basis points compared to December 31, 2018 and a decrease of 270 basis
    points compared to March 31, 2018.
  • Reported consolidated portfolio occupancy of 93.4%, an increase of 30
    basis points compared to December 31, 2018 and a decrease of 290 basis
    points compared to March 31, 2018.
  • The year-over-year decline in occupancy rates were impacted by 300
    basis points due to bankruptcies related to Toys “R” Us, National
    Wholesale Liquidators and Fallas.
  • Executed 38 new leases, renewals and options totaling 456,000 square
    feet (“sf”) during the quarter. Same-space leases totaled 446,000 sf
    and generated average rent spreads of 11.4% on a GAAP basis and 3.8%
    on a cash basis.

Development and Redevelopment

During the first quarter, the Company completed three redevelopment
projects totaling $86.1 million at Bruckner Commons in the Bronx, NY,
Yonkers Gateway Center in Yonkers, NY and Bergen Town Center in Paramus,
NJ. New anchors Burlington and ShopRite have helped transform Bruckner
Commons into a highly desired community shopping destination with new
food and restaurant options expected to open later this year. Newly
opened Ruth’s Chris at Bergen Town Center expands the selection of food
options by providing a fine dining experience at the center and will be
part of a larger collection of new restaurants including Cava, Chopt and
Sticky’s. During the quarter, Marshalls and Homesense opened at Yonkers
Gateway Center.

The Company also commenced three new redevelopment projects with
estimated gross costs of $13.9 million.

The Company has $121 million of active redevelopment projects under way,
which are expected to generate a 7% unleveraged yield. Approximately $35
million of that amount remains to be funded.

Anchor Leasing

The Company started the year with 11 large anchor vacancies (>30,000 sf)
accounting for approximately 600,000 sf of gross leasable area with a
market rent of approximately $15 million a year. Ten of these vacancies
occurred in the last year resulting from the Toys “R” Us, National
Wholesale Liquidators and Fallas bankruptcies.

During the quarter, the Company executed two leases with Burlington
comprising 100,000 sf. The Company is in active discussions to lease six
spaces and is warehousing the three remaining spaces for redevelopment.

Disposition Activity

The Company sold one property in Chicopee, MA for $18.6 million. Eleven
additional non-core properties are under contract or letter of intent to
sell for approximately $200 million. The weighted average cap rate on
properties sold and under contract for sale is approximately 7.5%. In
total, these properties represent more than half of the value of the
Company’s non-core assets. Proceeds are expected to be used for
acquisitions, redevelopment and potentially a special dividend.

Balance Sheet Highlights at March 31, 2019(1)(3)(4)

  • Total market capitalization of approximately $4.0 billion comprised of
    127.2 million fully-diluted common shares valued at $2.4 billion and
    $1.6 billion of debt.
  • Net debt to total market capitalization of 28%.
  • Net debt to Adjusted Earnings before interest, tax, depreciation and
    amortization for real estate (“EBITDAre”) of 5.1x.
  • $448.8 million of cash and cash equivalents, including restricted
    cash, and no amounts drawn on the $600 million revolving credit
    facility.
 
(1) Refer to “Non-GAAP Financial Measures” and “Operating Metrics” for
definitions and additional detail.
(2) Refer to page 8 for a reconciliation of net income to FFO and FFO as
Adjusted for the quarter ended March 31, 2019.
(3) Refer to page 10 for a reconciliation of net income to EBITDAre and
annualized Adjusted EBITDAre for the quarter ended March 31, 2019.
(4) Net debt as of March 31, 2019 is calculated as total consolidated
debt of $1.6 billion less total cash and cash equivalents, including
restricted cash, of $448.8 million.
 

Non-GAAP Financial Measures

The Company uses certain non-GAAP performance measures, in addition to
the primary GAAP presentations, as we believe these measures improve the
understanding of the Company’s operational results. We continually
evaluate the usefulness, relevance, limitations, and calculation of our
reported non-GAAP performance measures to determine how best to provide
relevant information to the investing public, and thus such reported
measures are subject to change. The Company’s non-GAAP performance
measures have limitations as they do not include all items of income and
expense that affect operations, and accordingly, should always be
considered as supplemental financial results. The following non-GAAP
measures are commonly used by the Company and investing public to
understand and evaluate our operating results and performance:

  • FFO: The Company believes FFO is a useful, supplemental measure of its
    operating performance that is a recognized metric used extensively by
    the real estate industry and, in particular REITs. FFO, as defined by
    the National Association of Real Estate Investment Trusts (“Nareit”)
    and the Company, is net income (computed in accordance with GAAP),
    excluding gains (or losses) from sales of depreciable real estate and
    land when connected to the main business of a REIT, impairments on
    depreciable real estate or land related to a REIT’s main business and
    rental property depreciation and amortization expense. The Company
    believes that financial analysts, investors and shareholders are
    better served by the presentation of comparable period operating
    results generated from FFO primarily because it excludes the
    assumption that the value of real estate assets diminish predictably.
    FFO does not represent cash flows from operating activities in
    accordance with GAAP, should not be considered an alternative to net
    income as an indication of our performance, and is not indicative of
    cash flow as a measure of liquidity or our ability to make cash
    distributions.
  • FFO as Adjusted: The Company provides disclosure of FFO as Adjusted
    because it believes it is a useful supplemental measure of its core
    operating performance that facilitates comparability of historical
    financial periods. FFO as Adjusted is calculated by making certain
    adjustments to FFO to account for items the Company does not believe
    are representative of ongoing core operating results, including
    non-comparable revenues and expenses. The Company’s method of
    calculating FFO as Adjusted may be different from methods used by
    other REITs and, accordingly, may not be comparable to such other
    REITs.
  • Cash NOI: The Company uses cash NOI internally to make investment and
    capital allocation decisions and to compare the unlevered performance
    of our properties to our peers. The Company believes cash NOI is
    useful to investors as a performance measure because, when compared
    across periods, cash NOI reflects the impact on operations from trends
    in occupancy rates, rental rates, operating costs and acquisition and
    disposition activity on an unleveraged basis, providing perspective
    not immediately apparent from net income. The Company calculates cash
    NOI using net income as defined by GAAP reflecting only those income
    and expense items that are incurred at the property level, adjusted
    for non-cash rental income and expense, and income or expenses that we
    do not believe are representative of ongoing operating results, if any.
  • Same-property Cash NOI: The Company provides disclosure of cash NOI on
    a same-property basis, which includes the results of properties that
    were owned and operated for the entirety of the reporting periods
    being compared totaling 83 properties for the three months ended
    March 31, 2019 and 2018. Information provided on a same-property basis
    excludes properties under development, redevelopment or that involve
    anchor repositioning where a substantial portion of the gross leasable
    area (“GLA”) is taken out of service and also excludes properties
    acquired or sold during the periods being compared. As such,
    same-property cash NOI assists in eliminating disparities in net
    income due to the development, redevelopment, acquisition or
    disposition of properties during the periods presented, and thus
    provides a more consistent performance measure for the comparison of
    the operating performance of the Company’s properties. While there is
    judgment surrounding changes in designations, a property is removed
    from the same-property pool when it is designated as a redevelopment
    property because it is undergoing significant renovation or
    retenanting pursuant to a formal plan that is expected to have a
    significant impact on its operating income. A development or
    redevelopment property is moved back to the same-property pool once a
    substantial portion of the NOI growth expected from the development or
    redevelopment is reflected in both the current and comparable prior
    year period, generally one year after at least 80% of the expected NOI
    from the project is realized on a cash basis. Acquisitions are moved
    into the same-property pool once we have owned the property for the
    entirety of the comparable periods and the property is not under
    significant development or redevelopment. The Company has also
    provided disclosure of cash NOI on a same-property basis adjusted to
    include redevelopment properties. Same-property cash NOI may include
    other adjustments as detailed in the Reconciliation of Net Income to
    cash NOI and same-property cash NOI included in the tables
    accompanying this press release.
  • EBITDAre and Adjusted EBITDAre: EBITDAre and Adjusted EBITDAre are
    supplemental, non-GAAP measures utilized by us in various financial
    ratios. The White Paper on EBITDAre, approved by Nareit’s Board of
    Governors in September 2017, defines EBITDAre as net income (computed
    in accordance with GAAP), adjusted for interest expense, income tax
    expense, depreciation and amortization, losses and gains on the
    disposition of depreciated property, impairment write-downs of
    depreciated property and investments in unconsolidated joint ventures,
    and adjustments to reflect the entity’s share of EBITDAre of
    unconsolidated joint ventures. EBITDAre and Adjusted EBITDAre are
    presented to assist investors in the evaluation of REITs, as a measure
    of the Company’s operational performance as they exclude various items
    that do not relate to or are not indicative of our operating
    performance and because they approximate key performance measures in
    our debt covenants. Accordingly, the Company believes that the use of
    EBITDAre and Adjusted EBITDAre, as opposed to income before income
    taxes, in various ratios provides meaningful performance measures
    related to the Company’s ability to meet various coverage tests for
    the stated periods. Adjusted EBITDAre may include other adjustments
    not indicative of operating results as detailed in the Reconciliation
    of Net Income to EBITDAre and Adjusted EBITDAre included in the tables
    accompanying this press release. The Company also presents the ratio
    of net debt (net of cash) to annualized Adjusted EBITDAre as of
    March 31, 2019, and net debt (net of cash) to total market
    capitalization, which it believes is useful to investors as a
    supplemental measure in evaluating the Company’s balance sheet
    leverage. The presentation of EBITDAre and Adjusted EBITDAre is
    consistent with EBITDA and Adjusted EBITDA as presented in prior
    periods.

The Company believes net income is the most directly comparable GAAP
financial measure to the non-GAAP performance measures outlined above.
Reconciliations of these measures to net income have been provided in
the tables accompanying this press release.

Operating Metrics

The Company presents certain operating metrics related to our
properties, including occupancy, leasing activity and rental rates.
Operating metrics are used by the Company and are useful to investors in
facilitating an understanding of the operational performance for our
properties.

Occupancy metrics represent the percentage of occupied gross leasable
area based on executed leases (including properties in development and
redevelopment) and includes leases signed, but for which rent has not
yet commenced. Same-property portfolio occupancy includes properties
that have been owned and operated for the entirety of the reporting
periods being compared totaling 83 properties for the three months ended
March 31, 2019 and 2018. Occupancy metrics presented for the Company’s
same-property portfolio excludes properties under development,
redevelopment or that involve anchor repositioning where a substantial
portion of the gross leasable area is taken out of service and also
excludes properties acquired within the past 12 months or properties
sold during the periods being compared.

Executed new leases, renewals and exercised options are presented on a
same-space basis. Same-space leases represent those leases signed on
spaces for which there was a previous lease.

ADDITIONAL INFORMATION

For a copy of the Company’s supplemental disclosure package, please
access the “Investors” section of our website at www.uedge.com.
Our website also includes other financial information, including our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports.

ABOUT URBAN EDGE

Urban Edge Properties is a NYSE listed real estate investment trust
focused on managing, acquiring, developing, and redeveloping retail real
estate in urban communities, primarily in the New York metropolitan
region. Urban Edge owns 87 properties totaling 16.1 million square feet
of gross leasable area.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Press Release constitute
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are not
guarantees of future performance. They represent our intentions, plans,
expectations and beliefs and are subject to numerous assumptions, risks
and uncertainties. Our future results, financial condition and business
may differ materially from those expressed in these forward-looking
statements. You can find many of these statements by looking for words
such as “approximates,” “believes,” “expects,” “anticipates,”
“estimates,” “intends,” “plans,” “would,” “may” or other similar
expressions in this Press Release. Many of the factors that will
determine the outcome of these and our other forward-looking statements
are beyond our ability to control or predict; these factors include,
among others, the Company’s ability to complete its active development,
redevelopment and anchor repositioning projects, the Company’s ability
to pursue, finance and complete acquisition opportunities, the Company’s
ability to engage in the projects in its planned expansion and
redevelopment pipeline, the Company’s ability to achieve the estimated
unleveraged returns for such projects and acquisitions, the estimated
remediation and repair costs related to natural disasters at the
affected properties and the loss of or bankruptcy of a major tenant and
the impact of any such event. For further discussion of factors that
could materially affect the outcome of our forward-looking statements,
see “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K
for the year ended December 31, 2018 and the other documents filed by
the Company with the Securities and Exchange Commission.

For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You are cautioned not to place undue
reliance on our forward-looking statements, which speak only as of the
date of this Press Release. All subsequent written and oral
forward-looking statements attributable to us or any person acting on
our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We do not undertake
any obligation to release publicly any revisions to our forward-looking
statements to reflect events or circumstances occurring after the date
of this Press Release.

 

URBAN EDGE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)

 
    March 31,   December 31,
2019 2018
ASSETS
Real estate, at cost:
Land $ 525,027 $ 525,819
Buildings and improvements 2,174,923 2,156,113
Construction in progress 73,649 80,385
Furniture, fixtures and equipment 6,790   6,675  
Total 2,780,389 2,768,992
Accumulated depreciation and amortization (661,435 ) (645,872 )
Real estate, net 2,118,954 2,123,120
Right-of-use assets 96,466
Cash and cash equivalents 416,668 440,430
Restricted cash 32,120 17,092
Tenant and other receivables, net of allowance for doubtful accounts
of $6,486 as of December 31, 2018
39,002 28,563
Receivable arising from the straight-lining of rents, net of $134 as
of December 31, 2018
80,848 84,903
Identified intangible assets, net of accumulated amortization of
$29,582 and $39,526, respectively
53,994 68,422
Deferred leasing costs, net of accumulated amortization of $17,236
and $16,826, respectively
21,558 21,277
Deferred financing costs, net of accumulated amortization of $3,020
and $2,764, respectively
1,963 2,219
Prepaid expenses and other assets 12,854   12,968  
Total assets $ 2,874,427   $ 2,798,994  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net $ 1,549,479 $ 1,550,242
Lease liabilities 91,906
Accounts payable, accrued expenses and other liabilities 85,424 98,517
Identified intangible liabilities, net of accumulated amortization
of $67,223 and $65,058, respectively
141,526   144,258  
Total liabilities 1,868,335   1,793,017  
Commitments and contingencies
Shareholders’ equity:
Common shares: $0.01 par value; 500,000,000 shares authorized and
120,099,294 and 114,345,565 shares issued and outstanding,
respectively
1,201 1,143
Additional paid-in capital 1,005,129 956,420
Accumulated deficit (56,663 ) (52,857 )
Noncontrolling interests:
Operating partnership 55,976 100,822
Consolidated subsidiaries 449   449  
Total equity 1,006,092   1,005,977  
Total liabilities and equity $ 2,874,427   $ 2,798,994  
 
 

URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF
INCOME

(In thousands, except share and per share
amounts)

 
    Quarter Ended March 31,
2019   2018
REVENUE
Rental revenue(1) $ 97,308 $ 98,394
Management and development fees 352 342
Other income 72   317  
Total revenue 97,732   99,053  
EXPENSES
Depreciation and amortization 21,830 21,270
Real estate taxes(2) 15,477 15,775
Property operating(1)(2) 17,061 17,903
General and administrative 10,580 7,641
Casualty and impairment loss (gain), net 3,958 (1,341 )
Lease expense(2) 3,655   2,736  
Total expenses 72,561   63,984  
Gain on sale of real estate 16,953
Interest income 2,506 1,524
Interest and debt expense (16,536 ) (15,644 )
Gain on extinguishment of debt   2,524  
Income before income taxes 28,094 23,473
Income tax expense (202 ) (434 )
Net income 27,892 23,039
Less net income attributable to noncontrolling interests in:
Operating partnership (2,355 ) (2,328 )
Consolidated subsidiaries   (11 )
Net income attributable to common shareholders $ 25,537   $ 20,700  
 
Earnings per common share – Basic: $ 0.22   $ 0.18  
Earnings per common share – Diluted: $ 0.22   $ 0.18  
Weighted average shares outstanding – Basic 116,274   113,677  
Weighted average shares outstanding – Diluted 126,504   113,864  
(1)  

In adherence with ASC 842 Leases, effective January 1,
2019, the Company includes bad debt expense related to operating
lease receivables in “Rental revenue” in the consolidated
statements of income for the quarter ended March 31, 2019 and in
“Property operating expenses” for the quarter ended March 31, 2018.

(2) In adherence with ASC 842, the Company recognized $0.2 million of
common area maintenance and $0.5 million of real estate taxes
associated with ground and building leases in “Lease expense” for
the quarter ended March 31, 2019. The Company recognized $0.2
million and $0.5 million for these associated expenses in “Property
operating expenses” and “Real estate taxes”, respectively, for the
quarter ended March 31, 2018.
 

Reconciliation of Net Income to FFO and FFO as Adjusted

The following table reflects the reconciliation of net income to FFO and
FFO as Adjusted for the quarters ended March 31, 2019 and 2018,
respectively. Net income is considered the most directly comparable GAAP
measure. Refer to “Non-GAAP Financial Measures” on page 3 for a
description of FFO and FFO as Adjusted.

   
Quarter Ended March 31,
2019   2018
Net income $ 27,892 $ 23,039
Less net income attributable to noncontrolling interests in:
Operating partnership (2,355 ) (2,328 )
Consolidated subsidiaries   (11 )
Net income attributable to common shareholders 25,537 20,700
Adjustments:
Rental property depreciation and amortization 21,623 21,072
Gain on sale of real estate (16,953 )
Real estate impairment loss 3,958
Limited partnership interests in operating partnership 2,355   2,328  
FFO Applicable to diluted common shareholders 36,520   44,100  
FFO per diluted common share(1) 0.29   0.35  
Adjustments to FFO:
Executive transition costs(2) 375
Transaction costs 248
Tenant bankruptcy settlement income (27 ) (164 )
Casualty gain, net (580 )
Tax impact from Hurricane Maria 168
Environmental remediation costs 250
Gain on extinguishment of debt   (2,524 )
FFO as Adjusted applicable to diluted common shareholders $ 37,116   $ 41,250  
FFO as Adjusted per diluted common share(1) $ 0.29   $ 0.33  
 
Weighted Average diluted common shares(1) 126,504 126,581
(1)   Weighted average diluted shares used to calculate FFO per share and
FFO as Adjusted per share for the quarter ended March 31, 2018 are
higher than the GAAP weighted average diluted shares as a result of
the dilutive impact of LTIP and OP units which may be redeemed for
our common shares. Weighted average diluted shares used to calculate
FFO per share and FFO as Adjusted per share for the quarter ended
March 31, 2019 is consistent with the GAAP weighted average diluted
shares.
(2) Amount reflects costs associated with the retirement of the
Company’s former Chief Operating Officer.
 

Contacts

Mark Langer, 212-956-2556
EVP and Chief Financial Officer

Read full story here

error: Content is protected !!