Market Overview

Urban Edge Properties Reports First Quarter 2018 Results

Share:

Urban Edge Properties (NYSE:UE) (the "Company") today announced its
results for the quarter ended March 31, 2018.

Financial Results(1)(2)

  • Generated net income of $23.0 million, or $0.18 per diluted share.
  • Generated Funds from Operations applicable to diluted common
    shareholders ("FFO") of $44.1 million, or $0.35 per share.
  • Generated FFO as Adjusted of $41.3 million or $0.33 per share,
    consistent with the first quarter of 2017.
  • Increased current cash balance to $515 million, up nearly $400 million
    compared to March 31, 2017.

Operating Results(1)

  • Increased same-property cash Net Operating Income ("NOI") by 2.4% over
    the first quarter of 2017 due to rent commencements and higher
    recovery revenue.
  • Increased same-property cash NOI including properties in redevelopment
    by 2.7% over the first quarter of 2017.
  • Reported same-property retail portfolio occupancy of 98.2%, a decrease
    of 20 basis points compared to March 31, 2017 and 10 basis points from
    December 31, 2017.
  • Reported consolidated retail portfolio occupancy of 96.1%, down 110
    basis points compared to March 31, 2017 as a result of the acquisition
    of centers with lower occupancy than our existing portfolio in the
    second quarter of 2017. This metric increased 10 basis points compared
    to December 31, 2017.
  • Executed 35 new leases, renewals and options totaling 597,000 square
    feet (sf). Same-space leases totaled 504,000 sf and generated average
    rent spreads of 12.8% on a GAAP basis and 6.9% on a cash basis.

Leasing Activity

Leasing activity during the first quarter was strong. Approximately
151,000 sf of new leases were executed of which only four leases
comprising 58,000 sf were on comparable same space locations including a
53,000 sf furniture store located in Glen Burnie, MD which negatively
impacted the reported cash leasing spread. Eleven new leases comprising
93,000 sf were executed on newly created or redeveloped spaces for which
the new cash rent averaged $41.54 psf.

Development, Redevelopment and Anchor Repositioning Activity

The Company is investing $363 million to renovate and remerchandise 27
of its properties. New retailers include ShopRite, Sprouts, Marshalls,
Homesense, Burlington, Best Buy, Ulta, Five Below, Starbucks and
Chick-fil-A. It has completed $64 million in projects in the last 12
months, has $206 million underway and has approximately $93 million in
its pipeline. There are $200 million of remaining costs to complete
these redevelopment projects. The Company expects to earn approximately
9% on its total investment.

The Company's largest projects include Bergen Town Center and Bruckner
Commons. At Bergen, Best Buy just opened its newest prototype store and
construction is underway on a new 47,000 sf Burlington expected to open
in April 2019. Enhanced food offerings include Cava Grill, Ruth's Chris
Steakhouse and a daytime café. At Bruckner, ShopRite and Burlington are
opening this summer.

Disposition Activity

On April 26, 2018, the Company sold MacArthur Commons in Allentown, PA
for $55 million, consistent with the plan to dispose of assets in
non-core markets.

Balance Sheet Highlights at March 31, 2018(1)(3)(4)

  • Total market capitalization of approximately $4.3 billion comprising
    126.8 million, fully diluted common shares valued at $2.7 billion and
    $1.6 billion of debt.
  • Net debt to total market capitalization of 26%.
  • Net debt to Adjusted Earnings before interest, tax, depreciation and
    amortization for real estate ("EBITDAre") of 4.8x.
  • $473.6 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, 2018.
(3) Refer to page 10 for a reconciliation of net income to EBITDAre and
annualized Adjusted EBITDAre for the quarter ended March 31, 2018.
(4) Net debt as of March 31, 2018 is calculated as total consolidated
debt of $1.6 billion less total cash and cash equivalents, including
restricted cash, of $473.6 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 depreciated real estate
    assets, real estate impairment losses, 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 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 75 properties for the three months ended
    March 31, 2018 and 2017. 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, or under contract to be 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. The Company also presents the ratio of net debt
    (net of cash) to annualized Adjusted EBITDAre for the first quarter of
    2018, 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 are 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 retail portfolio occupancy includes
shopping centers and malls that have been owned and operated for the
entirety of the reporting periods being compared totaling 75 properties
for the three months ended March 31, 2018 and 2017. 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, or under contract to be 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 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 88 properties totaling 16.3 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 Hurricane Maria at the affected
properties. 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, 2017 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,
2018 2017
ASSETS
Real estate, at cost:
Land $   523,798 $   521,669
Buildings and improvements 2,005,590 2,010,527
Construction in progress 165,403 133,761
Furniture, fixtures and equipment 5,996   5,897  
Total 2,700,787 2,671,854
Accumulated depreciation and amortization (601,729 ) (587,127 )
Real estate, net 2,099,058 2,084,727
Cash and cash equivalents 462,774 490,279
Restricted cash 10,817 10,562
Tenant and other receivables, net of allowance for doubtful accounts
of $5,854 and $4,937, respectively
21,564 20,078
Receivable arising from the straight-lining of rents, net of
allowance for doubtful accounts of $528 and $494, respectively
85,727 85,843
Identified intangible assets, net of accumulated amortization of
$36,629 and $33,827, respectively
82,787 87,249
Deferred leasing costs, net of accumulated amortization of $15,390
and $14,796, respectively
20,422 20,268
Deferred financing costs, net of accumulated amortization of $1,998
and $1,740, respectively
2,985 3,243
Prepaid expenses and other assets 17,244   18,559  
Total assets $   2,803,378   $   2,820,808  
 
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net $ 1,552,543 $ 1,564,542
Identified intangible liabilities, net of accumulated amortization
of $66,866 and $65,832, respectively
176,770 180,959
Accounts payable and accrued expenses 71,061 69,595
Other liabilities 15,574   15,171  
Total liabilities 1,815,948   1,830,267  
Commitments and contingencies
Shareholders' equity:
Common shares: $0.01 par value; 500,000,000 shares authorized and
113,923,724 and 113,827,529 shares issued and outstanding,
respectively
1,139 1,138
Additional paid-in capital 947,815 946,402
Accumulated deficit (61,975 ) (57,621 )
Noncontrolling interests:
Operating partnership 100,036 100,218
Consolidated subsidiaries 415   404  
Total equity 987,430   990,541  
Total liabilities and equity $   2,803,378   $   2,820,808  
 

URBAN EDGE PROPERTIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

 
  Quarter Ended March 31,
2018   2017
REVENUE
Property rentals $     69,722 $     62,498
Tenant expense reimbursements 28,672 23,771
Management and development fees 342 479
Income from acquired leasehold interest 39,215
Other income 317   101  
Total revenue 99,053   126,064  
EXPENSES
Depreciation and amortization 21,270 15,828
Real estate taxes 15,775 13,392
Property operating 16,667 13,368
General and administrative 7,641 8,132
Casualty and impairment (gain) loss, net (1,341 ) 3,164
Ground rent 2,736 2,670
Provision for doubtful accounts 1,236   193  
Total expenses 63,984   56,747  
Operating income 35,069 69,317
Interest income 1,524 127
Interest and debt expense (15,644 ) (13,115 )
Gain (loss) on extinguishment of debt 2,524   (1,274 )
Income before income taxes 23,473 55,055
Income tax expense (434 ) (320 )
Net income 23,039 54,735
Less net income attributable to noncontrolling interests in:
Operating partnership (2,328 ) (4,138 )
Consolidated subsidiaries (11 ) (11 )
Net income attributable to common shareholders $     20,700   $     50,586  
 
Earnings per common share - Basic: $     0.18   $     0.51  
Earnings per common share - Diluted: $     0.18   $     0.50  
Weighted average shares outstanding - Basic 113,677   99,639  
Weighted average shares outstanding - Diluted 113,864   100,093  
 

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 quarter ended March 31, 2018. 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, 2018
(in thousands)   (per share)
Net income $     23,039 $       0.18
Less net income attributable to noncontrolling interests in:
Operating partnership (2,328 ) (0.02 )
Consolidated subsidiaries (11 )  
Net income attributable to common shareholders 20,700 0.16
Adjustments:
Rental property depreciation and amortization 21,072 0.17
Limited partnership interests in operating partnership 2,328   0.02  
FFO applicable to diluted common shareholders 44,100 0.35
 
Gain on extinguishment of debt (2,524 ) (0.02 )
Casualty gain, net(2) (580 )
Tenant bankruptcy settlement income (164 )
Environmental remediation costs 250
Reduction of deferred tax asset related to hurricane 168    
FFO as Adjusted applicable to diluted common shareholders $     41,250   $       0.33  
 
Weighted average diluted shares used to calculate EPS 113,864
Assumed conversion of OP and LTIP Units to common shares(1) 12,717  
Weighted average diluted common shares - FFO 126,581  
(1)   Operating Partnership ("OP") and Long-Term Incentive Plan ("LTIP")
Units are excluded from the calculation of earnings per diluted
share for the three months ended March 31, 2018 because their
inclusion is anti-dilutive. FFO includes earnings allocated to
unitholders as the inclusion of these units is dilutive to FFO per
share.
(2) Casualty gain, net for the quarter ended March 31, 2018 includes:
 
 

Quarter Ended

(in thousands)

March 31, 2018

Insurance proceeds, net of hurricane related expenses $       1,341
Provision for doubtful accounts (181 )
Property rental and tenant reimbursement losses (580 )
Casualty gain, net $       580  
 

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 quarter ended March 31, 2018 and
2017. Net income is considered the most directly comparable GAAP
measure. Refer to "Non-GAAP Financial Measures" on page 3 for a
description of cash NOI and same-property cash NOI.

  Quarter Ended March 31,
(Amounts in thousands) 2018   2017
Net income $     23,039 $     54,735
Management and development fee income from non-owned properties (342 ) (479 )
Other income (77 ) (64 )
Depreciation and amortization 21,270 15,828
General and administrative expense 7,641 8,132
Casualty and impairment (gain) loss, net(5) (1,341 ) 3,164
Interest income (1,524 ) (127 )
Interest and debt expense 15,644 13,115
(Gain) loss on extinguishment of debt (2,524 ) 1,274
Income tax expense 434 320
Non-cash revenue and expenses (2,289 ) (40,801 )
Cash NOI(1) 59,931   55,097  
Adjustments:
Non-same property cash NOI(1)(2) (12,474 ) (8,334 )
Tenant bankruptcy settlement income (164 ) (27 )
Hurricane related operating loss(3) 306
Environmental remediation costs 250    
Same-property cash NOI $     47,849   $     46,736  
Cash NOI related to properties being redeveloped(4) 5,983   5,693  
Same-property cash NOI including properties in redevelopment $     53,832   $     52,429  
(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) Non-same property cash NOI includes cash NOI related to properties
being redeveloped and properties acquired or disposed.
(3) Amount reflects rental and tenant reimbursement losses as well as
provisions for outstanding amounts due from tenants at Las Catalinas
that are subject to reimbursement from the insurance company.
(4) Excludes $0.5 million of rental and tenant reimbursement losses as
well as provisions for outstanding amounts due from tenants at
Montehiedra that are subject to reimbursement from the insurance
company.
(5) Casualty and impairment gain of $1.3 million per the consolidated
statements of income is comprised of a $1.5 million insurance gain
net of $0.2 million hurricane-related expenses for the first quarter
of 2018. Casualty and impairment loss for the first quarter of 2017
is comprised of a $3.2 million real estate impairment loss incurred
related to our property in Eatontown, NJ sold in the second quarter
of 2017.
 

Reconciliation of Net Income to EBITDAre and Adjusted EBITDAre

The following table reflects the reconciliation of net income to
EBITDAre and Adjusted EBITDAre for the quarter ended March 31, 2018. Net
income is considered the most directly comparable GAAP measure. Refer to
"Non-GAAP Financial Measures" on page 3 for a description of EBITDAre
and Adjusted EBITDAre.

  Quarter Ended March 31,
(Amounts in thousands) 2018   2017
Net income $     23,039 $     54,735
Depreciation and amortization 21,270 15,828
Interest and debt expense 15,644 13,115
Income tax expense 434 320
Real estate impairment loss   3,164  
EBITDAre 60,387   87,162  
Adjustments for Adjusted EBITDAre:
Casualty gain, net(1) (580 )
Tenant bankruptcy settlement income (164 ) (27 )
Environmental remediation costs 250
Transaction costs 51
(Gain) loss on extinguishment of debt (2,524 ) 1,274
Income from acquired leasehold interest   (39,215 )
Adjusted EBITDAre $     57,369   $     49,245  

(1) Refer to footnote 2 on page 8, Reconciliation of Net
Income to FFO and FFO as Adjusted, for the adjustments included in
Casualty gain, net for the quarter ended March 31, 2018.

View Comments and Join the Discussion!