Market Overview

Urban Edge Properties Reports First Quarter 2017 Results

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Urban Edge Properties (NYSE:UE) (the "Company") today announced its
results for the three months ended March 31, 2017.

Financial Results(1)

  • Generated net income of $54.7 million, or $0.50 per diluted share.
  • Generated Funds from Operations applicable to diluted common
    shareholders ("FFO") of $73.5 million, or $0.68 per share.
  • Generated FFO as Adjusted of $35.6 million, or $0.33 per share, an
    increase of 6.5% per share compared to the first quarter of 2016. FFO
    as Adjusted excludes $39.2 million of non-cash income from acquired
    leasehold interests at the Shops at Bruckner and a $1.3 million loss
    on extinguishment of debt at Tonnelle Commons.

Operating Results(1)

  • Increased same-property cash Net Operating Income ("NOI") by 5.6%
    compared to the first quarter of 2016 primarily due to rent
    commencements at Garfield Commons, Kearny Commons and Bergen Town
    Center along with higher recoveries.
  • Increased same-property cash NOI including properties in redevelopment
    by 6.6% compared to the first quarter of 2016. Rent commencements at
    East Hanover warehouses, Walnut Creek and Montehiedra contributed to
    this growth.
  • Increased consolidated retail portfolio occupancy by 120 basis points
    to 97.2% compared to March 31, 2016 and remained unchanged compared to
    December 31, 2016.
  • Increased same-property retail portfolio occupancy by 110 basis points
    to 98.3% compared to March 31, 2016 and by 20 basis points compared to
    December 31, 2016.
  • Executed 17 new leases and renewals and exercised options totaling
    94,000 square feet (sf) during the quarter. All were same-space leases
    and generated average rent spreads of 6.2% on a GAAP basis and 1.4% on
    a cash basis.

Acquisition Activity

Acquired or entered into contracts to acquire nine assets, seven in the
New York metro area, totaling $452 million. Funding for these
acquisitions comprises $176 million in UE operating partnership units
(6.5 million units), $69 million of assumed debt, $117 million in new,
non-recourse, mortgage loans and $90 million in cash of which
approximately $48 million in cash remains to be funded.

Property  

 

Location

    GLA SF     Occupancy
 
Closed transactions
Yonkers Gateway Center Yonkers, NY Included in transaction
(partial fee and leasehold land under contract below
interests)
Shops at Bruckner

 

Bronx, NY

114,000 100%
Hudson Mall

 

Jersey City, NJ

383,000 97%
 
Property Location GLA SF Occupancy
 
Transactions under contract
Yonkers Gateway Center Yonkers, NY 436,770 88%
(fee and leasehold interests not
previously acquired)
The Plaza at Woodbridge Woodbridge, NJ 413,013 81%
 
The Plaza at Cherry Hill Cherry Hill, NJ 412,969 74%
Manchester Plaza Manchester, MO 130,934 89%
Millburn Gateway Center Millburn, NJ 102,725 97%
21 E Broad St/One Lincoln Plaza Westfield, NJ 21,908 100%
Total

 

2,015,319

87%
 

Development, Redevelopment and Anchor Repositioning Activity

  • Advanced fourteen active projects. Estimated gross costs for active
    and completed projects total $193 million of which $103 million
    remains to be funded. These projects are expected to generate an 11%
    return. Fourteen additional pipeline projects are expected to earn 9%
    on the projected investment of $70-84 million.

Financing Activity

  • Refinanced the mortgage on Tonnelle Commons in North Bergen, NJ,
    increasing the loan balance from $74 million to $100 million and
    reducing the interest rate from 4.59% to 4.18% with a 10-year fixed
    rate mortgage. Upon repaying the original loan, the Company recognized
    a $1.3 million loss on extinguishment of debt.
  • Amended the revolving credit facility, increasing borrowing capacity
    by $100 million to $600 million and extending the maturity date from
    February 2019 to March 2021 with two six-month extension options.

Balance Sheet Highlights at March 31, 2017(2)

  • Total market capitalization of approximately $4.1 billion comprising
    108.1 million, fully diluted common shares valued at $2.8 billion and
    $1.3 billion of debt.
  • Net debt to total market capitalization of 28%.
  • Net debt to Adjusted Earnings before interest, tax, depreciation and
    amortization ("EBITDA") was 5.9x.
  • $111 million of cash and cash equivalents 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) The tables accompanying this press release provide the
calculation of fully diluted common shares and a reconciliation of net
income to EBITDA and Adjusted EBITDA.

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 depreciated real estate
    assets, real estate impairment losses, rental property depreciation
    and amortization expense. The Company believes that financial
    analysts, investors and stockholders 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
    transaction costs associated with acquisition and disposition activity
    and 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 operating income or 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 the following items: lease
    termination fees, bankruptcy settlement income, non-cash rental income
    and ground rent 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 76 properties for the three months ended
    March 31, 2017 and 2016. 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, sold, under contract to be sold, or that are in the
    foreclosure process 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 for a full quarter.
    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.
  • EBITDA and Adjusted EBITDA: EBITDA and Adjusted EBITDA are
    supplemental, non-GAAP measures utilized by us in various financial
    ratios. EBITDA and Adjusted EBITDA 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 EBITDA and Adjusted
    EBITDA, 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. The
    Company also presents the ratio of net debt (net of cash) to
    annualized Adjusted EBITDA, which it believes is useful to investors
    as a supplemental measure in evaluating the Company's balance sheet
    leverage.

The Company believes net income is the most directly comparable GAAP
financial measure to the non-GAAP 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 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 retail portfolio occupancy includes
shopping centers and malls that have been owned and operated for the
entirety of the reporting periods being compared totaling 76 properties
for the three months ended March 31, 2017 and 2016. Occupancy metrics
presented for the Company's same-property retail 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, properties sold, under contract to be sold, or that are
in the foreclosure process 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 with comparable gross
leasable area.

ADDITIONAL INFORMATION

For a copy of the Company's supplemental disclosure package, please
access the "Investors" section of UE's 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 86 properties totaling 15.2 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 and the Company's ability to achieve the
estimated unleveraged returns for such projects and acquisitions. 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,
2016 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,
2017 2016
ASSETS
Real estate, at cost:
Land $ 436,088 $ 384,217
Buildings and improvements 1,719,079 1,650,054
Construction in progress 108,401 99,236
Furniture, fixtures and equipment 5,077   4,993  
Total 2,268,645 2,138,500
Accumulated depreciation and amortization (553,649 ) (541,077 )
Real estate, net 1,714,996 1,597,423
Cash and cash equivalents 110,974 131,654
Restricted cash 11,812 8,532
Tenant and other receivables, net of allowance for doubtful accounts
of $2,557 and $2,332, respectively
11,841 9,340
Receivable arising from the straight-lining of rents, net of
allowance for doubtful accounts of $207 and $261, respectively
86,176 87,695
Identified intangible assets, net of accumulated amortization of
$23,693 and $22,361, respectively
73,879 30,875
Deferred leasing costs, net of accumulated amortization of $14,555
and $13,909, respectively
19,391 19,241
Deferred financing costs, net of accumulated amortization of $972
and $726, respectively
4,011 1,936
Prepaid expenses and other assets 17,271   17,442  
Total assets $ 2,050,351   $ 1,904,138  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net $ 1,256,955 $ 1,197,513
Identified intangible liabilities, net of accumulated amortization
of $58,657 and $72,528, respectively
145,748 146,991
Accounts payable and accrued expenses 54,286 48,842
Other liabilities 16,154   14,675  
Total liabilities 1,473,143   1,408,021  
Commitments and contingencies
Shareholders' equity:
Common shares: $0.01 par value; 500,000,000 shares authorized and
99,826,975 and 99,754,900 shares issued and outstanding, respectively
998 997
Additional paid-in capital 489,190 488,375
Accumulated deficit (419 ) (29,066 )
Noncontrolling interests:
Redeemable noncontrolling interests 87,068 35,451
Noncontrolling interest in consolidated subsidiaries 371   360  
Total equity 577,208   496,117  
Total liabilities and equity $ 2,050,351   $ 1,904,138  
 
   

URBAN EDGE PROPERTIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

 
Three Months Ended March 31,
2017     2016
REVENUE
Property rentals $ 62,498 $ 58,929
Tenant expense reimbursements 23,771 22,507
Income from acquired leasehold interest 39,215
Management and development fees 479 455
Other income 101   1,177  
Total revenue 126,064   83,068  
EXPENSES
Depreciation and amortization 15,828 13,915
Real estate taxes 13,392 13,249
Property operating 13,368 12,859
General and administrative 8,081 6,720
Real estate impairment loss 3,164
Ground rent 2,670 2,538
Transaction costs 51 50
Provision for doubtful accounts 193   351  
Total expenses 56,747   49,682  
Operating income 69,317 33,386
Interest income 127 167
Interest and debt expense (13,115 ) (13,429 )
Loss on extinguishment of debt (1,274 )  
Income before income taxes 55,055 20,124
Income tax expense (320 ) (336 )
Net income 54,735 19,788
Less (net income) loss attributable to noncontrolling interests in:
Operating partnership (4,138 ) (1,154 )
Consolidated subsidiaries (11 ) 4  
Net income attributable to common shareholders $ 50,586   $ 18,638  
 
Earnings per common share - Basic: $ 0.51   $ 0.19  
Earnings per common share - Diluted: $ 0.50   $ 0.19  
Weighted average shares outstanding - Basic 99,639   99,265  
Weighted average shares outstanding - Diluted 100,093   99,363  
 

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 three months ended March 31, 2017. Net income is
considered the most directly comparable GAAP measure.

    Three Months Ended

March 31, 2017

(in thousands)     (per share)
Net income $ 54,735 $ 0.51
Less (net income) attributable to noncontrolling interests in:
Operating partnership (4,138 ) (0.04 )
Consolidated subsidiaries (11 )  
Net income attributable to common shareholders 50,586 0.47
Adjustments:
Rental property depreciation and amortization 15,579 0.14
Real estate impairment loss 3,164 0.03
Limited partnership interests in operating partnership 4,138   0.04  
FFO Applicable to diluted common shareholders(1) 73,467 0.68
 
Income from acquired leasehold interest(2) (39,215 ) (0.36 )
Loss on extinguishment of debt 1,274 0.01
Transaction costs 51
Tenant bankruptcy settlement income (27 )  
FFO as Adjusted applicable to diluted common shareholders(1) $ 35,550   $ 0.33  
 
Weighted average diluted common shares - FFO(1) 108,255

(1)

 

Refer to the table below for reconciliation of weighted average
diluted shares used in EPS calculations and weighted average
diluted common shares used in FFO per share calculations.

(2)

Income from acquired leasehold interest at the Shops at Bruckner
includes the write-off of unamortized intangible liability related
to the below-market ground lease acquired and existing
straight-line receivable balance.

 

FFO and FFO as Adjusted are non-GAAP financial measures. The Company
believes FFO, as defined by NAREIT, is a widely used and appropriate
supplemental measure of operating performance for REITs, and that it
provides a relevant basis for comparison among REITs. The Company
believes FFO as Adjusted provides additional comparability between
historical financial periods. Refer to "Non-GAAP Financial Measures"
above.

The following table reflects the reconciliation of weighted average
diluted shares used in EPS calculations and weighted average diluted
common shares used in FFO per share calculations.

(in thousands)     Three Months Ended

March 31, 2017

Weighted average diluted shares used to calculate EPS 100,093
Assumed conversion of OP and LTIP Units to common stock(1) 8,162
Weighted average diluted common shares used to calculate

FFO per share

108,255

(1) OP and LTIP Units are excluded from the calculation of
earnings per diluted share for the three months ended March 31, 2017
because their inclusion is anti-dilutive. FFO includes earnings
allocated to unitholders as the inclusion of these units is dilutive to
FFO per share.

Reconciliation of Net Income to Cash NOI and Same-Property Cash NOI

The following table reflects the reconciliation of net income to cash
NOI, same-property cash NOI and same-property cash NOI including
properties in redevelopment for the three months ended March 31, 2017
and 2016. Net income is considered the most directly comparable GAAP
measure.

    Three Months Ended March 31, 2017
(Amounts in thousands) 2017     2016
Net income $ 54,735 $ 19,788
Add: income tax expense 320   336  
Income before income taxes 55,055 20,124
Interest income (127 ) (167 )
Interest and debt expense 13,115 13,429
Loss on extinguishment of debt 1,274    
Operating income 69,317 33,386
Depreciation and amortization 15,828 13,915
Real estate impairment loss 3,164
General and administrative expense 8,081 6,720
Transaction costs 51   50  
NOI 96,441 54,071
Less: non-cash revenue and expenses (40,801 ) (1,811 )
Cash NOI(1) 55,640   52,260  
Adjustments:
Cash NOI related to properties being redeveloped(1) (5,452 ) (4,676 )
Cash NOI related to properties acquired, disposed, or in foreclosure(1) (1,580 ) (493 )
Management and development fee income from non-owned properties (479 ) (455 )
Tenant bankruptcy settlement income (27 ) (1,150 )
Other(2) (8 ) 51  
Subtotal adjustments (7,546 ) (6,723 )
Same-property cash NOI $ 48,094   $ 45,537  
Adjustments:
Cash NOI related to properties being redeveloped 5,452   4,676  
Same-property cash NOI including properties in redevelopment $ 53,546   $ 50,213  

(1)

 

Cash NOI is calculated as total property revenues less property
operating expenses, excluding the net effects of non-cash rental
income and non-cash ground rent expense.

(2)

Other adjustments include revenue and expense items attributable
to non-same properties and corporate activities.

Cash NOI and same-property cash NOI are non-GAAP financial measures. The
Company believes that same-property cash NOI is a widely used and
appropriate supplemental measure of operating performance for comparison
among REITs. Refer to "Non-GAAP Financial Measures" above.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

The following table reflects the reconciliation of net income to EBITDA
and Adjusted EBITDA for the three months ended March 31, 2017 and 2016.
Net income is considered the most directly comparable GAAP measure.

    Three Months Ended March 31, 2017
(Amounts in thousands) 2017     2016
Net income $ 54,735 $ 19,788
Depreciation and amortization 15,828 13,915
Interest and debt expense 13,115 13,429
Income tax expense 320   336  
EBITDA 83,998   47,468  
Adjustments for Adjusted EBITDA:
Income from acquired leasehold interest (39,215 )
Real estate impairment loss 3,164
Loss on extinguishment of debt 1,274
Transaction costs 51 50
Tenant bankruptcy settlement income (27 ) (1,150 )
Adjusted EBITDA $ 49,245   $ 46,368  
 

EBITDA and Adjusted EBITDA are non-GAAP financial measures. Refer to
"Non-GAAP Financial Measures" above.

The following table reflects the Company's fully diluted common shares
outstanding which is the total number of shares that would be
outstanding assuming all possible conversions. Fully diluted common
shares outstanding are utilized to calculate our equity market
capitalization to allow investors the ability to assess our market
value. The sum of the total equity market capitalization and total debt,
as calculated in accordance with GAAP, represents the Company's total
market capitalization.

   
March 31, 2017
Common shares outstanding 99,826,975
OP and LTIP units (dilutive) 8,284,166
Fully diluted common shares 108,111,141

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