UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
|
| | | | | | | |
x☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 20172022
|
| | | | | | | |
o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from __________to__________
Commission File Number: 001-36523 (Urban Edge Properties)
Commission File Number: 331-212951-01333-212951-01 (Urban Edge Properties LP)
URBAN EDGE PROPERTIES
URBAN EDGE PROPERTIES LP
(Exact name of Registrant as specified in its charter)
|
| | | | | | | | | | | | | |
Maryland (Urban | (Urban Edge Properties) | | 47-6311266 |
Delaware (Urban | (Urban Edge Properties LP) | | 36-4791544 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number)No.) |
| | | | |
888 Seventh Avenue | New York | New York | | 10019 |
(Address of Principal Executive Offices) | | (Zip Code) |
|
| | | | | | | | | | |
Registrant’s telephone number, including area code: | (212) 956‑2556 | 956-2556 |
| | | |
Securities registered pursuant to Section 12(b) of the Act: | | | |
Title of class | Trading symbol | Name of exchange on which registered |
Common shares of beneficial interest, par value $0.01 per share | UE | The New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Urban Edge Properties YES Yesx NO oUrban Edge Properties LP YES Yes x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Urban Edge Properties YES Yes x NO oUrban Edge Properties LP YES Yes x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Urban Edge Properties:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filerx | x | Accelerated Filero | ☐ | Non-Accelerated Filero | ☐ | Smaller Reporting Companyo | ☐ | Emerging Growth Companyo | ☐ |
Urban Edge Properties LP:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filero | ☐ | Accelerated Filero | ☐ | Non-Accelerated Filerx | x | Smaller Reporting Companyo | ☐ | Emerging Growth Companyo | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 139a)13(a) of the Exchange Act.
Urban Edge PropertiesoUrban Edge Properties LPo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Urban Edge Properties YES o☐ NO xUrban Edge Properties LP YES o☐ NO x
As of October 27, 2017,28, 2022, Urban Edge Properties had 113,817,429 commonhad 117,438,141 common shares outstanding.
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
| | | | | | | | | | | | | | |
| | | | |
| | | | |
Item 1. | | Financial Statements | | |
| | Consolidated Financial Statements of Urban Edge Properties: | | |
| | Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited) | | |
| | Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) | | |
| | Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) | | |
| | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited) | | |
| | Consolidated Financial Statements of Urban Edge Properties LP: | | |
| | Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited) | | |
| | Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) | | |
| | Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) | | |
| | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited) | | |
| | Urban Edge Properties and Urban Edge Properties LP | | |
| | Notes to Consolidated Financial Statements (unaudited) | | |
Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | |
Item 3. | | Quantitative and Qualitative Disclosures about Market Risk | | |
Item 4. | | Controls and Procedures | | |
| | | | |
| | PART II | | |
| | | | |
Item 1. | | Legal Proceedings | | |
Item 1A. | | Risk Factors | | |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | |
Item 3. | | Defaults Upon Senior Securities | | |
Item 4. | | Mine Safety Disclosures | | |
Item 5. | | Other Information | | |
Item 6. | | Exhibits | | |
| | Signatures | | |
| | | | |
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 20172022 of Urban Edge Properties and Urban Edge Properties LP. Unless stated otherwise or the context otherwise requires, references to “UE” and “Urban Edge” mean Urban Edge Properties, a Maryland real estate investment trust (“REIT”), and references to “UELP” and the “Operating Partnership” mean Urban Edge Properties LP, a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean collectively UE, UELP and those entities/subsidiaries consolidated by UE.
UELP is the entity through which we conduct substantially all of our business and own, either directly or through subsidiaries, substantially all of our assets. UE is the sole general partner and also a limited partner of UELP. As the sole general partner of UELP, UE has exclusive control of UELP’s day-to-day management.
As of September 30, 2017,2022, UE owned an approximate 89.9%95.9% ownership interest in UELP. The remaining approximate 10.1%4.1% interest is owned by other limited partners. The other limited partners of UELP are Vornado Realty L.P., members of management, our Board of Trustees and contributors of property interests acquired. Under the limited partnership agreement of UELP, unitholders may present their common units of UELP for redemption at any time (subject to restrictions agreed upon at the time of issuance of the units that may restrict such right for a period of time). Upon presentation of a common unit for redemption, UELP must redeem the unit for cash equal to the then value of a share of UE’s common shares, as defined by the limited partnership agreement. In lieu of cash redemption by UELP, however, UE may elect to acquire any common units so tendered by issuing common shares of UE in exchange for the common units. If UE so elects, its common shares will be exchanged for common units on a one-for-one basis. This one-for-one exchange ratio is subject to specified adjustments to prevent dilution. UE generally expects that it will elect to issue its common shares in connection with each such presentation for redemption rather than having UELP pay cash. With each such exchange or redemption, UE’s percentage ownership in UELP will increase. In addition, whenever UE issues common shares other than to acquire common units of UELP, UE must contribute any net proceeds it receives to UELP and UELP must issue to UE an equivalent number of common units of UELP. This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.
The Company believes that combining the quarterly reports on Form 10-Q of UE and UELP into this single report provides the following benefits:
•enhances investors’ understanding of UE and UELP by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion of the disclosure applies to both UE and UELP; and
•creates time and cost efficiencies throughout the preparation of one combined report instead of two separate reports.
Management operates Urban Edge Properties and the Operating Partnership as one business. The management of Urban Edge Properties consists of the same individuals as the management of the Operating Partnership. These individuals are officers of Urban Edge Properties and employees of the Operating Partnership.
The Company believes it is important to understand the few differences between UE and UELP in the context of how UE and UELP operate as a consolidated company. The financial results of UELP are consolidated into the financial statements of UE. UE does not have any other significant assets, liabilities or operations, other than its investment in UELP, nor does it have employees of its own. UELP, not UE, generally executes all significant business relationships other than transactions involving the securities of UE. UELP holds substantially all of the assets of UE.UE and retains the ownership interests in the Company's joint ventures. UELP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by UE, which are contributed to the capital of UELP in exchange for units of limited partnership in UELP, as applicable, UELP generates all remaining capital required by the Company’s business. These sources may include working capital, net cash provided by operating activities, borrowings under the revolving credit facility,agreement, the issuance of secured and unsecured debt and equity securities and proceeds received from the disposition of certain properties.
Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of UE and UELP. The limited partners of UELP are accounted for as partners’ capital in UELP’s financial statements and as noncontrolling interests in UE’s financial statements. The noncontrolling interests in UELP’s financial statements include the interests of unaffiliated partners in consolidated entities. The noncontrolling interests in UE’s financial statements include the same noncontrolling interests at UELP’s level and limited partners of UELP. The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at UE and UELP levels.
To help investors better understand the key differences between UE and UELP, certain information for UE and UELP in this report has been separated, as set forth below: Item 1. Financial Statements (unaudited), which includes specific disclosures for UE and UELP, Note 15,14, Equity and Noncontrolling InterestsInterest and Note 16 thereto,, Earnings Per Share and Unit. This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of UE and UELP in order to establish that the requisite certifications have been made and that UE and UELP are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2017
TABLE OF CONTENTS
|
| | | | |
| |
| | |
| | | | |
| | Financial Statements | | |
| | Consolidated Financial Statements of Urban Edge Properties: | | |
| | Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 | | |
| | Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) | | |
| | Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2017 (unaudited) | | |
| | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited) | | |
| | Consolidated Financial Statements of Urban Edge Properties LP: | | |
| | Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 | | |
| | Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) | | |
| | Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2017 (unaudited) | | |
| | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited) | | |
| | Urban Edge Properties and Urban Edge Properties LP | | |
| | Notes to Consolidated Financial Statements (unaudited) | | |
Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | |
Item 3. | | Quantitative and Qualitative Disclosures about Market Risk | | |
Item 4. | | Controls and Procedures | | |
| | | | |
| | PART II | | |
| | | | |
Item 1. | | Legal Proceedings | | |
Item 1A. | | Risk Factors | | |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | |
Item 3. | | Defaults Upon Senior Securities | | |
Item 4. | | Mine Safety Disclosures | | |
Item 5. | | Other Information | | |
Item 6. | | Exhibits | | |
| | Signatures | | |
| | | | |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URBAN EDGE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
ASSETS | (Unaudited) | | |
|
Real estate, at cost: | |
| | |
|
Land | $ | 522,085 |
| | $ | 384,217 |
|
Buildings and improvements | 2,013,767 |
| | 1,650,054 |
|
Construction in progress | 117,830 |
| | 99,236 |
|
Furniture, fixtures and equipment | 7,129 |
| | 4,993 |
|
Total | 2,660,811 |
| | 2,138,500 |
|
Accumulated depreciation and amortization | (586,187 | ) | | (541,077 | ) |
Real estate, net | 2,074,624 |
| | 1,597,423 |
|
Cash and cash equivalents | 380,395 |
| | 131,654 |
|
Restricted cash | 8,363 |
| | 8,532 |
|
Tenant and other receivables, net of allowance for doubtful accounts of $3,469 and $2,332, respectively | 24,063 |
| | 9,340 |
|
Receivable arising from the straight-lining of rents, net of allowance for doubtful accounts of $260 and $261, respectively | 85,853 |
| | 87,695 |
|
Identified intangible assets, net of accumulated amortization of $29,771 and $22,361, respectively | 91,305 |
| | 30,875 |
|
Deferred leasing costs, net of accumulated amortization of $15,556 and $13,909, respectively | 20,500 |
| | 19,241 |
|
Deferred financing costs, net of accumulated amortization of $1,484 and $726, respectively | 4,492 |
| | 1,936 |
|
Prepaid expenses and other assets | 16,917 |
| | 17,442 |
|
Total assets | $ | 2,706,512 |
| | $ | 1,904,138 |
|
| | | |
LIABILITIES AND EQUITY | |
| | |
|
Liabilities: | | | |
Mortgages payable, net | $ | 1,408,066 |
| | $ | 1,197,513 |
|
Identified intangible liabilities, net of accumulated amortization of $63,468 and $72,528, respectively | 184,061 |
| | 146,991 |
|
Accounts payable and accrued expenses | 65,769 |
| | 48,842 |
|
Other liabilities | 16,542 |
| | 14,675 |
|
Total liabilities | 1,674,438 |
| | 1,408,021 |
|
Commitments and contingencies |
|
| |
|
|
Shareholders’ equity: | | | |
Common shares: $0.01 par value; 500,000,000 shares authorized and 113,817,429 and 99,754,900 shares issued and outstanding, respectively | 1,138 |
| | 997 |
|
Additional paid-in capital | 945,047 |
| | 488,375 |
|
Accumulated deficit | (18,322 | ) | | (29,066 | ) |
Noncontrolling interests: | | | |
Redeemable noncontrolling interests | 103,818 |
| | 35,451 |
|
Noncontrolling interest in consolidated subsidiaries | 393 |
| | 360 |
|
Total equity | 1,032,074 |
| | 496,117 |
|
Total liabilities and equity | $ | 2,706,512 |
| | $ | 1,904,138 |
|
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2022 | | 2021 |
ASSETS | | | |
Real estate, at cost: | | | |
Land | $ | 544,358 | | | $ | 543,827 | |
Buildings and improvements | 2,464,901 | | | 2,441,797 | |
Construction in progress | 271,898 | | | 212,296 | |
Furniture, fixtures and equipment | 8,303 | | | 7,530 | |
Total | 3,289,460 | | | 3,205,450 | |
Accumulated depreciation and amortization | (790,414) | | | (753,947) | |
Real estate, net | 2,499,046 | | | 2,451,503 | |
Operating lease right-of-use assets | 64,078 | | | 69,361 | |
Cash and cash equivalents | 108,437 | | | 164,478 | |
Restricted cash | 43,954 | | | 55,358 | |
Tenant and other receivables | 16,398 | | | 15,812 | |
Receivable arising from the straight-lining of rents | 64,214 | | | 62,692 | |
Identified intangible assets, net of accumulated amortization of $39,307 and $37,361, respectively | 65,974 | | | 71,107 | |
Deferred leasing costs, net of accumulated amortization of $19,621 and $17,641, respectively | 21,742 | | | 20,694 | |
Prepaid expenses and other assets | 77,649 | | | 74,111 | |
Total assets | $ | 2,961,492 | | | $ | 2,985,116 | |
| | | |
LIABILITIES AND EQUITY | | | |
Liabilities: | | | |
Mortgages payable, net | $ | 1,695,776 | | | $ | 1,687,190 | |
Operating lease liabilities | 59,581 | | | 64,578 | |
Accounts payable, accrued expenses and other liabilities | 78,710 | | | 84,829 | |
Identified intangible liabilities, net of accumulated amortization of $39,040 and $35,029, respectively | 95,371 | | | 100,625 | |
Total liabilities | 1,929,438 | | | 1,937,222 | |
Commitments and contingencies (Note 10) | | | |
Shareholders’ equity: | | | |
Common shares: $0.01 par value; 500,000,000 shares authorized and 117,440,748 and 117,147,986 shares issued and outstanding, respectively | 1,173 | | | 1,170 | |
Additional paid-in capital | 1,006,348 | | | 1,001,253 | |
Accumulated other comprehensive income | 554 | | | — | |
Accumulated deficit | (30,982) | | | (7,091) | |
Noncontrolling interests: | | | |
Operating partnership | 41,387 | | | 39,616 | |
Consolidated subsidiaries | 13,574 | | | 12,946 | |
Total equity | 1,032,054 | | | 1,047,894 | |
Total liabilities and equity | $ | 2,961,492 | | | $ | 2,985,116 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
REVENUE | | | | | | | |
Property rentals | $ | 69,625 |
| | $ | 59,138 |
| | $ | 196,831 |
| | $ | 176,750 |
|
Tenant expense reimbursements | 23,938 |
| | 19,888 |
| | 71,590 |
| | 62,274 |
|
Management and development fees | 369 |
| | 375 |
| | 1,199 |
| | 1,356 |
|
Income from acquired leasehold interest | — |
| | — |
| | 39,215 |
| | — |
|
Other income | 169 |
| | 572 |
| | 831 |
| | 2,118 |
|
Total revenue | 94,101 |
| | 79,973 |
| | 309,666 |
| | 242,498 |
|
EXPENSES | | | | | | | |
Depreciation and amortization | 20,976 |
| | 14,435 |
| | 60,505 |
| | 41,908 |
|
Real estate taxes | 15,872 |
| | 12,729 |
| | 43,975 |
| | 38,701 |
|
Property operating | 11,402 |
| | 9,897 |
| | 35,858 |
| | 32,596 |
|
General and administrative | 6,930 |
| | 6,618 |
| | 22,720 |
| | 20,873 |
|
Casualty and impairment loss | 2,170 |
| | — |
| | 5,637 |
| | — |
|
Ground rent | 2,891 |
| | 2,508 |
| | 7,997 |
| | 7,529 |
|
Transaction costs | 95 |
| | 223 |
| | 278 |
| | 307 |
|
Provision for doubtful accounts | 575 |
| | 149 |
| | 1,674 |
| | 994 |
|
Total expenses | 60,911 |
| | 46,559 |
| | 178,644 |
| | 142,908 |
|
Operating income | 33,190 |
| | 33,414 |
| | 131,022 |
| | 99,590 |
|
Gain on sale of real estate | 202 |
| | — |
| | 202 |
| | 15,618 |
|
Interest income | 719 |
| | 176 |
| | 1,182 |
| | 520 |
|
Interest and debt expense | (14,637 | ) | | (12,766 | ) | | (41,379 | ) | | (39,015 | ) |
Loss on extinguishment of debt | — |
| | — |
| | (1,274 | ) | | — |
|
Income before income taxes | 19,474 |
| | 20,824 |
| | 89,753 |
| | 76,713 |
|
Income tax expense | (318 | ) | | (319 | ) | | (942 | ) | | (349 | ) |
Net income | 19,156 |
| | 20,505 |
| | 88,811 |
| | 76,364 |
|
Less (net income) loss attributable to noncontrolling interests in: | | | | | | | |
Operating partnership | (1,967 | ) | | (1,239 | ) | | (7,431 | ) | | (4,594 | ) |
Consolidated subsidiaries | (11 | ) | | (1 | ) | | (33 | ) | | 1 |
|
Net income attributable to common shareholders | $ | 17,178 |
| | $ | 19,265 |
| | $ | 81,347 |
| | $ | 71,771 |
|
| | | | | | | |
Earnings per common share - Basic: | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
Earnings per common share - Diluted: | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
Weighted average shares outstanding - Basic | 110,990 |
| | 99,304 |
| | 104,938 |
| | 99,281 |
|
Weighted average shares outstanding - Diluted | 111,260 |
| | 99,870 |
| | 115,323 |
| | 99,711 |
|
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUE | | | | | | | |
Rental revenue | $ | 98,175 | | | $ | 105,985 | | | $ | 295,045 | | | $ | 294,257 | |
Other income | 115 | | | 854 | | | 1,300 | | | 2,249 | |
Total revenue | 98,290 | | | 106,839 | | | 296,345 | | | 296,506 | |
EXPENSES | | | | | | | |
Depreciation and amortization | 24,343 | | | 23,171 | | | 73,561 | | | 68,534 | |
Real estate taxes | 16,231 | | | 15,862 | | | 47,662 | | | 47,826 | |
Property operating | 17,672 | | | 15,692 | | | 56,473 | | | 51,874 | |
General and administrative | 9,852 | | | 10,134 | | | 31,607 | | | 28,286 | |
Casualty and impairment loss | — | | | 372 | | | — | | | 372 | |
Lease expense | 3,109 | | | 3,164 | | | 9,327 | | | 9,665 | |
Total expenses | 71,207 | | | 68,395 | | | 218,630 | | | 206,557 | |
Gain on sale of real estate | — | | | 6,926 | | | 353 | | | 18,648 | |
Interest income | 294 | | | 77 | | | 713 | | | 303 | |
Interest and debt expense | (15,266) | | | (14,638) | | | (43,511) | | | (44,193) | |
| | | | | | | |
Income before income taxes | 12,111 | | | 30,809 | | | 35,270 | | | 64,707 | |
Income tax expense | (646) | | | (704) | | | (2,262) | | | (905) | |
Net income | 11,465 | | | 30,105 | | | 33,008 | | | 63,802 | |
Less net (income) loss attributable to NCI in: | | | | | | | |
Operating partnership | (455) | | | (1,149) | | | (1,348) | | | (2,608) | |
Consolidated subsidiaries | 373 | | | (1,190) | | | 835 | | | (961) | |
Net income attributable to common shareholders | $ | 11,383 | | | $ | 27,766 | | | $ | 32,495 | | | $ | 60,233 | |
| | | | | | | |
Earnings per common share - Basic: | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.51 | |
Earnings per common share - Diluted: | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.51 | |
Weighted average shares outstanding - Basic | 117,382 | | | 117,087 | | | 117,359 | | | 117,009 | |
Weighted average shares outstanding - Diluted | 121,683 | | | 117,137 | | | 121,472 | | | 122,212 | |
| | | | | | | |
Net income | $ | 11,465 | | | $ | 30,105 | | | $ | 33,008 | | | $ | 63,802 | |
Effective portion of change in fair value of derivatives | 632 | | | — | | | 578 | | | — | |
Comprehensive income | 12,097 | | | 30,105 | | | 33,586 | | | 63,802 | |
Less comprehensive income attributable to NCI in: | | | | | | | |
Operating partnership | (26) | | | — | | | (24) | | | — | |
Less net (income) loss attributable to NCI in: | | | | | | | |
Operating partnership | (455) | | | (1,149) | | | (1,348) | | | (2,608) | |
Consolidated subsidiaries | 373 | | | (1,190) | | | 835 | | | (961) | |
Comprehensive income attributable to common shareholders | $ | 11,989 | | | $ | 27,766 | | | $ | 33,049 | | | $ | 60,233 | |
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | | | | | Noncontrolling Interests (“NCI”) | | |
| Shares | | Amount | | Additional Paid-In Capital | | | | Accumulated Earnings (Deficit) | | Operating Partnership | | Consolidated Subsidiaries | | Total Equity |
Balance, June 30, 2021 | 117,137,337 | | $ | 1,170 | | | $ | 990,255 | | | | | $ | (42,157) | | | $ | 43,568 | | | $ | 6,154 | | | $ | 998,990 | |
Net income attributable to common shareholders | — | | | — | | | — | | | | | 27,766 | | | — | | | — | | | 27,766 | |
Net income attributable to NCI | — | | | — | | | — | | | | | — | | | 1,149 | | | 1,190 | | | 2,339 | |
| | | | | | | | | | | | | | | |
Limited partnership interests: | | | | | | | | | | | | | | | |
Units redeemed for common shares | — | | | — | | | — | | | | | — | | | (6,302) | | | — | | | (6,302) | |
| | | | | | | | | | | | | | | |
Reallocation of NCI | — | | | — | | | 6,302 | | | | | — | | | — | | | — | | | 6,302 | |
Common shares issued | 451 | | | — | | | 21 | | | | | (20) | | | — | | | — | | | 1 | |
| | | | | | | | | | | | | | | |
Dividends to common shareholders ($0.15 per share) | — | | | — | | | — | | | | | (17,557) | | | — | | | — | | | (17,557) | |
Distributions to redeemable NCI ($0.15 per unit) | — | | | — | | | — | | | | | — | | | (711) | | | — | | | (711) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | | | — | | | — | | | 1,418 | | | 1,418 | |
Share-based compensation expense | — | | | — | | | 507 | | | | | — | | | 2,302 | | | — | | | 2,809 | |
| | | | | | | | | | | | | | | |
Balance, September 30, 2021 | 117,137,788 | | $ | 1,170 | | | $ | 997,085 | | | | | $ | (31,968) | | | $ | 40,006 | | | $ | 8,762 | | | $ | 1,015,055 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | | | Noncontrolling Interests (“NCI”) | | |
| Shares | | Amount |
| | Additional Paid-In Capital | | Accumulated Earnings (Deficit) | | Redeemable NCI | | NCI in Consolidated Subsidiaries | | Total Equity |
Balance, December 31, 2016 | 99,754,900 |
| | $ | 997 |
| | $ | 488,375 |
| | $ | (29,066 | ) | | $ | 35,451 |
| | $ | 360 |
| | $ | 496,117 |
|
Net income attributable to common shareholders
| — |
| | — |
| | — |
| | 81,347 |
| | — |
| | — |
| | 81,347 |
|
Net income attributable to noncontrolling interests
| — |
| | — |
| | — |
| | — |
| | 7,431 |
| | 33 |
| | 7,464 |
|
Limited partnership units issued | — |
| | — |
| | 105,279 |
| | — |
| | 65,805 |
| | — |
| | 171,084 |
|
Common shares issued
| 14,073,037 |
| | 141 |
| | 348,326 |
| | (253 | ) | | — |
| | — |
| | 348,214 |
|
Share-based awards withheld for taxes
| (10,508 | ) | | — |
| | (287 | ) | | — |
| | — |
| | — |
| | (287 | ) |
Dividends on common shares ($0.66 per share) | — |
| | — |
| | — |
| | (70,408 | ) | | — |
| | — |
| | (70,408 | ) |
Share-based compensation expense
| — |
| | — |
| | 3,354 |
| | 58 |
| | 1,836 |
| | — |
| | 5,248 |
|
Distributions to redeemable NCI ($0.66 per unit) | — |
| | — |
| | — |
| | — |
| | (6,705 | ) | | — |
| | (6,705 | ) |
Balance, September 30, 2017 | 113,817,429 |
| | $ | 1,138 |
| | $ | 945,047 |
| | $ | (18,322 | ) | | $ | 103,818 |
| | $ | 393 |
| | $ | 1,032,074 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | | | | | Noncontrolling Interests (“NCI”) | | |
| Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Deficit) | | Operating Partnership | | Consolidated Subsidiaries | | Total Equity |
Balance, June 30, 2022 | 117,442,769 | | $ | 1,173 | | | $ | 1,002,679 | | | $ | (52) | | | $ | (23,568) | | | $ | 42,771 | | | $ | 13,947 | | | $ | 1,036,950 | |
Net income attributable to common shareholders | — | | | — | | | — | | | — | | | 11,383 | | | — | | | — | | | 11,383 | |
Net income (loss) attributable to NCI | — | | | — | | | — | | | — | | | — | | | 455 | | | (373) | | | 82 | |
Other comprehensive income | — | | | — | | | — | | | 606 | | | — | | | 26 | | | — | | | 632 | |
Limited partnership interests: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Reallocation of NCI | — | | | — | | | 3,325 | | | — | | | — | | | (3,325) | | | — | | | — | |
Common shares issued | (1,064) | | | — | | | 21 | | | — | | | (21) | | | — | | | — | | | — | |
Dividends to common shareholders ($0.16 per share) | — | | | — | | | — | | | — | | | (18,776) | | | — | | | — | | | (18,776) | |
Distributions to redeemable NCI ($0.16 per unit) | — | | | — | | | — | | | — | | | — | | | (782) | | | — | | | (782) | |
| | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 338 | | | — | | | — | | | 2,242 | | | — | | | 2,580 | |
Share-based awards retained for taxes | (957) | | | — | | | (15) | | | — | | | — | | | — | | | — | | | (15) | |
Balance, September 30, 2022 | 117,440,748 | | $ | 1,173 | | | $ | 1,006,348 | | | $ | 554 | | | $ | (30,982) | | | $ | 41,387 | | | $ | 13,574 | | | $ | 1,032,054 | |
See notes to consolidated financial statements (unaudited).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | | | | | Noncontrolling Interests (“NCI”) | | |
| Shares | | Amount | | Additional Paid-In Capital | | | | Accumulated Earnings (Deficit) | | Operating Partnership | | Consolidated Subsidiaries | | Total Equity |
Balance, December 31, 2020 | 117,014,317 | | | $ | 1,169 | | | $ | 989,863 | | | | | $ | (39,467) | | | $ | 38,456 | | | $ | 5,872 | | | $ | 995,893 | |
Net income attributable to common shareholders | — | | | — | | | — | | | | | 60,233 | | | — | | | — | | | 60,233 | |
Net income attributable to NCI | — | | | — | | | — | | | | | — | | | 2,608 | | | 961 | | | 3,569 | |
| | | | | | | | | | | | | | | |
Limited partnership interests: | | | | | | | | | | | | | | | |
Units redeemed for common shares | 100,000 | | | — | | | 840 | | | | | — | | | (6,302) | | | — | | | (5,462) | |
Reallocation of NCI | — | | | — | | | 4,614 | | | | | — | | | 848 | | | — | | | 5,462 | |
Common shares issued | 36,533 | | | 1 | | 308 | | | | (124) | | | — | | | — | | | 185 | |
Dividends to common shareholders ($0.45 per share) | — | | | — | | | — | | | | | (52,610) | | | — | | | — | | | (52,610) | |
Distributions to redeemable NCI ($0.45 per unit) | — | | | — | | | — | | | | | — | | | (2,152) | | | — | | | (2,152) | |
Contributions from NCI | — | | | — | | | — | | | | | — | | | — | | | 1,929 | | | 1,929 | |
Share-based compensation expense | — | | | — | | | 1,670 | | | | | — | | | 6,548 | | | — | | | 8,218 | |
Share-based awards retained for taxes | (13,062) | | | — | | | (210) | | | | | — | | | — | | | — | | | (210) | |
Balance, September 30, 2021 | 117,137,788 | | $ | 1,170 | | | $ | 997,085 | | | | | $ | (31,968) | | | $ | 40,006 | | | $ | 8,762 | | | $ | 1,015,055 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | | | | | Noncontrolling Interests (“NCI”) | | |
| Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income | | Accumulated Earnings (Deficit) | | Operating Partnership | | Consolidated Subsidiaries | | Total Equity |
Balance, December 31, 2021 | 117,147,986 | | | $ | 1,170 | | | $ | 1,001,253 | | | $ | — | | | $ | (7,091) | | | $ | 39,616 | | | $ | 12,946 | | | $ | 1,047,894 | |
Net income attributable to common shareholders | — | | | — | | | — | | | — | | | 32,495 | | | — | | | — | | | 32,495 | |
Net income (loss) attributable to NCI | — | | | — | | | — | | | — | | | — | | | 1,348 | | | (835) | | | 513 | |
Other comprehensive income | — | | | — | | | — | | | 554 | | | — | | | 24 | | | — | | | 578 | |
Limited partnership interests: | | | | | | | | | | | | | | | |
Units redeemed for common shares | 250,000 | | | 3 | | | 2,121 | | | — | | | — | | | 2,124 | | | — | | | 4,248 | |
Reallocation of NCI | — | | | — | | | 1,820 | | | — | | | — | | | (6,068) | | | — | | | (4,248) | |
Common shares issued | 49,990 | | | — | | | 286 | | | — | | | (63) | | | — | | | — | | | 223 | |
Dividends to common shareholders ($0.48 per share) | — | | | — | | | — | | | — | | | (56,323) | | | — | | | — | | | (56,323) | |
Distributions to redeemable NCI ($0.48 per unit) | — | | | — | | | — | | | — | | | — | | | (2,337) | | | — | | | (2,337) | |
Contributions from NCI | — | | | — | | | — | | | — | | | — | | | — | | | 1,463 | | | 1,463 | |
Share-based compensation expense | — | | | — | | | 997 | | | — | | | — | | | 6,680 | | | — | | | 7,677 | |
Share-based awards retained for taxes | (7,228) | | | — | | | (129) | | | — | | | — | | | — | | | — | | | (129) | |
Balance, September 30, 2022 | 117,440,748 | | $ | 1,173 | | | $ | 1,006,348 | | | $ | 554 | | | $ | (30,982) | | | $ | 41,387 | | | $ | 13,574 | | | $ | 1,032,054 | |
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 33,008 | | | $ | 63,802 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 75,176 | | | 69,872 | |
Gain on sale of real estate | (353) | | | (18,648) | |
Casualty and impairment loss | — | | | 372 | |
| | | |
| | | |
Amortization of below market leases, net | (5,062) | | | (19,775) | |
Noncash lease expense | 5,282 | | | 5,343 | |
Straight-lining of rent | (1,522) | | | 338 | |
Share-based compensation expense | 7,677 | | | 8,218 | |
| | | |
Change in operating assets and liabilities: | | | |
Tenant and other receivables | (586) | | | (2,505) | |
Deferred leasing costs | (3,493) | | | (1,735) | |
Prepaid expenses and other assets | 795 | | | 512 | |
Lease liabilities | (4,997) | | | (4,901) | |
Accounts payable, accrued expenses and other liabilities | (7,253) | | | (7,756) | |
Net cash provided by operating activities | 98,672 | | | 93,137 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Real estate development and capital improvements | (74,990) | | | (46,447) | |
Acquisitions of real estate | (36,222) | | | (54,547) | |
Proceeds from sale of operating properties | 353 | | | 34,482 | |
Net cash used in investing activities | (110,859) | | | (66,512) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Debt repayments | (93,999) | | | (14,324) | |
Dividends to common shareholders | (56,323) | | | (106,441) | |
Distributions to redeemable noncontrolling interests | (2,337) | | | (4,225) | |
Taxes withheld for vested restricted shares | (129) | | | (210) | |
Contributions from noncontrolling interests | 1,463 | | | 1,929 | |
| | | |
Purchase of interest rate cap | (285) | | | — | |
Proceeds from mortgage loan borrowings | 103,413 | | | — | |
| | | |
Debt issuance costs | (7,284) | | | — | |
Proceeds related to the issuance of common shares | 223 | | | 185 | |
Net cash used in financing activities | (55,258) | | | (123,086) | |
Net decrease in cash and cash equivalents and restricted cash | (67,445) | | | (96,461) | |
Cash and cash equivalents and restricted cash at beginning of period | 219,836 | | | 419,253 | |
Cash and cash equivalents and restricted cash at end of period | $ | 152,391 | | | $ | 322,792 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
|
Net income | $ | 88,811 |
| | $ | 76,364 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 60,576 |
| | 42,682 |
|
Income from acquired leasehold interest | (39,215 | ) | | — |
|
Casualty and impairment loss | 5,637 |
| | — |
|
Loss on extinguishment of debt | 1,274 |
| | — |
|
Amortization of deferred financing costs | 2,175 |
| | 2,106 |
|
Amortization of below market leases, net | (6,842 | ) | | (5,907 | ) |
Straight-lining of rent | 520 |
| | (97 | ) |
Share-based compensation expense | 5,248 |
| | 4,080 |
|
Gain on sale of real estate | (202 | ) | | (15,618 | ) |
Provision for doubtful accounts | 1,674 |
| | 994 |
|
Change in operating assets and liabilities: | |
| | |
|
Tenant and other receivables | (9,605 | ) | | (821 | ) |
Deferred leasing costs | (3,556 | ) | | (2,624 | ) |
Prepaid and other assets | (6,073 | ) | | (1,954 | ) |
Accounts payable and accrued expenses | 12,372 |
| | (1,368 | ) |
Other liabilities | 1,704 |
| | 1,346 |
|
Net cash provided by operating activities | 114,498 |
| | 99,183 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
Real estate development and capital improvements | (55,941 | ) | | (45,668 | ) |
Acquisition of real estate | (211,393 | ) | | (2,000 | ) |
Proceeds from sale of real estate | 5,005 |
| | 19,938 |
|
Net cash used in investing activities | (262,329 | ) | | (27,730 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
|
Debt repayments | (88,559 | ) | | (34,008 | ) |
Dividends paid to shareholders | (70,408 | ) | | (59,390 | ) |
Distributions to redeemable noncontrolling interests | (6,705 | ) | | (3,711 | ) |
Debt issuance costs | (11,352 | ) | | — |
|
Taxes withheld for vested restricted shares | (287 | ) | | (38 | ) |
Proceeds from issuance of common shares | 348,214 |
| | 5,020 |
|
Proceeds from borrowings | 225,500 |
| | — |
|
Net cash provided by (used in) financing activities | 396,403 |
| | (92,127 | ) |
Net increase (decrease) in cash and cash equivalents and restricted cash | 248,572 |
| | (20,674 | ) |
Cash and cash equivalents and restricted cash at beginning of period | 140,186 |
| | 178,025 |
|
Cash and cash equivalents and restricted cash at end of period | $ | 388,758 |
| | $ | 157,351 |
|
See notes to consolidated financial statements (unaudited).
| | | | Nine Months Ended September 30, |
| | | 2022 | | 2021 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | |
Cash payments for interest, net of amounts capitalized of $5,922 and $734, respectively | | Cash payments for interest, net of amounts capitalized of $5,922 and $734, respectively | $ | 41,274 | | | $ | 44,424 | |
Cash payments for income taxes | | Cash payments for income taxes | 967 | | | 5,077 | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | | NON-CASH INVESTING AND FINANCING ACTIVITIES | |
Accrued capital expenditures included in accounts payable and accrued expenses | | Accrued capital expenditures included in accounts payable and accrued expenses | 17,031 | | | 32,600 | |
Write-off of fully depreciated assets | | Write-off of fully depreciated assets | 7,765 | | | 5,336 | |
| | | Nine Months Ended September 30, | |
| 2017 | | 2016 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | |
Cash payment for interest, includes amounts capitalized of $2,912 and $2,755, respectively | $ | 40,567 |
| | $ | 38,503 |
| |
Cash payments for income taxes | 1,237 |
| | 1,258 |
| |
NON-CASH INVESTING AND FINANCING ACTIVITIES | | | | |
Acquisition of real estate through issuance of OP units | 171,084 |
| | — |
| |
Acquisition of real estate through assumption of debt | 69,659 |
| | — |
| |
Accrued capital expenditures included in accounts payable and accrued expenses | 15,226 |
| | 12,340 |
| |
Write-off of fully depreciated assets | 910 |
| | 958 |
| |
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | | | | RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
Cash and cash equivalents at beginning of period | $ | 131,654 |
| | $ | 168,983 |
| Cash and cash equivalents at beginning of period | $ | 164,478 | | | $ | 384,572 | |
Restricted cash at beginning of period | 8,532 |
| | 9,042 |
| Restricted cash at beginning of period | 55,358 | | | 34,681 | |
Cash and cash equivalents and restricted cash at beginning of period | $ | 140,186 |
| | $ | 178,025 |
| Cash and cash equivalents and restricted cash at beginning of period | $ | 219,836 | | | $ | 419,253 | |
| | | | | | | |
Cash and cash equivalents at end of period | $ | 380,395 |
| | $ | 149,698 |
| Cash and cash equivalents at end of period | $ | 108,437 | | | $ | 268,952 | |
Restricted cash at end of period | 8,363 |
| | 7,653 |
| Restricted cash at end of period | 43,954 | | | 53,840 | |
Cash and cash equivalents and restricted cash at end of period | $ | 388,758 |
| | $ | 157,351 |
| Cash and cash equivalents and restricted cash at end of period | $ | 152,391 | | | $ | 322,792 | |
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except unit and per unit amounts)
| | | September 30, | | December 31, | | September 30, | | December 31, |
| 2017 | | 2016 | | 2022 | | 2021 |
ASSETS | (Unaudited) | | |
| ASSETS | | | |
Real estate, at cost: | |
| | |
| Real estate, at cost: | | | |
Land | $ | 522,085 |
| | $ | 384,217 |
| Land | $ | 544,358 | | | $ | 543,827 | |
Buildings and improvements | 2,013,767 |
| | 1,650,054 |
| Buildings and improvements | 2,464,901 | | | 2,441,797 | |
Construction in progress | 117,830 |
| | 99,236 |
| Construction in progress | 271,898 | | | 212,296 | |
Furniture, fixtures and equipment | 7,129 |
| | 4,993 |
| Furniture, fixtures and equipment | 8,303 | | | 7,530 | |
Total | 2,660,811 |
| | 2,138,500 |
| Total | 3,289,460 | | | 3,205,450 | |
Accumulated depreciation and amortization | (586,187 | ) | | (541,077 | ) | Accumulated depreciation and amortization | (790,414) | | | (753,947) | |
Real estate, net | 2,074,624 |
| | 1,597,423 |
| Real estate, net | 2,499,046 | | | 2,451,503 | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | 64,078 | | | 69,361 | |
Cash and cash equivalents | 380,395 |
| | 131,654 |
| Cash and cash equivalents | 108,437 | | | 164,478 | |
Restricted cash | 8,363 |
| | 8,532 |
| Restricted cash | 43,954 | | | 55,358 | |
Tenant and other receivables, net of allowance for doubtful accounts of $3,469 and $2,332, respectively | 24,063 |
| | 9,340 |
| |
Receivable arising from the straight-lining of rents, net of allowance for doubtful accounts of $260 and $261, respectively | 85,853 |
| | 87,695 |
| |
Identified intangible assets, net of accumulated amortization of $29,771 and $22,361, respectively | 91,305 |
| | 30,875 |
| |
Deferred leasing costs, net of accumulated amortization of $15,556 and $13,909, respectively | 20,500 |
| | 19,241 |
| |
Deferred financing costs, net of accumulated amortization of $1,484 and $726, respectively | 4,492 |
| | 1,936 |
| |
Tenant and other receivables | | Tenant and other receivables | 16,398 | | | 15,812 | |
Receivable arising from the straight-lining of rents | | Receivable arising from the straight-lining of rents | 64,214 | | | 62,692 | |
Identified intangible assets, net of accumulated amortization of $39,307 and $37,361, respectively | | Identified intangible assets, net of accumulated amortization of $39,307 and $37,361, respectively | 65,974 | | | 71,107 | |
Deferred leasing costs, net of accumulated amortization of $19,621 and $17,641, respectively | | Deferred leasing costs, net of accumulated amortization of $19,621 and $17,641, respectively | 21,742 | | | 20,694 | |
Prepaid expenses and other assets | 16,917 |
| | 17,442 |
| Prepaid expenses and other assets | 77,649 | | | 74,111 | |
Total assets | $ | 2,706,512 |
| | $ | 1,904,138 |
| Total assets | $ | 2,961,492 | | | $ | 2,985,116 | |
| | | | | | | |
LIABILITIES AND EQUITY | |
| | |
| LIABILITIES AND EQUITY | | | |
Liabilities: | | | | Liabilities: | |
Mortgages payable, net | $ | 1,408,066 |
| | $ | 1,197,513 |
| Mortgages payable, net | $ | 1,695,776 | | | $ | 1,687,190 | |
Identified intangible liabilities, net of accumulated amortization of $63,468 and $72,528, respectively | 184,061 |
| | 146,991 |
| |
Accounts payable and accrued expenses | 65,769 |
| | 48,842 |
| |
Other liabilities | 16,542 |
| | 14,675 |
| |
Operating lease liabilities | | Operating lease liabilities | 59,581 | | | 64,578 | |
Accounts payable, accrued expenses and other liabilities | | Accounts payable, accrued expenses and other liabilities | 78,710 | | | 84,829 | |
Identified intangible liabilities, net of accumulated amortization of $39,040 and $35,029, respectively | | Identified intangible liabilities, net of accumulated amortization of $39,040 and $35,029, respectively | 95,371 | | | 100,625 | |
Total liabilities | 1,674,438 |
| | 1,408,021 |
| Total liabilities | 1,929,438 | | | 1,937,222 | |
Commitments and contingencies |
|
| |
|
| |
Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | | | |
Equity: | | | | Equity: | |
Partners’ capital: | | | | Partners’ capital: | |
General partner:113,817,429 and 99,754,900 units outstanding, respectively | 946,185 |
| | 489,372 |
| |
Limited partners:12,729,634 and 6,378,704 units outstanding, respectively | 104,722 |
| | 37,081 |
| |
General partner: 117,440,748 and 117,147,986 units outstanding, respectively | | General partner: 117,440,748 and 117,147,986 units outstanding, respectively | 1,007,521 | | | 1,002,423 | |
Limited partners: 4,974,470 and 4,662,654 units outstanding, respectively | | Limited partners: 4,974,470 and 4,662,654 units outstanding, respectively | 43,766 | | | 41,030 | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 554 | | | — | |
Accumulated deficit | (19,226 | ) | | (30,696 | ) | Accumulated deficit | (33,361) | | | (8,505) | |
Total partners’ capital | 1,031,681 |
| | 495,757 |
| Total partners’ capital | 1,018,480 | | | 1,034,948 | |
Noncontrolling interest in consolidated subsidiaries | 393 |
| | 360 |
| Noncontrolling interest in consolidated subsidiaries | 13,574 | | | 12,946 | |
Total equity | 1,032,074 |
| | 496,117 |
| Total equity | 1,032,054 | | | 1,047,894 | |
Total liabilities and equity | $ | 2,706,512 |
| | $ | 1,904,138 |
| Total liabilities and equity | $ | 2,961,492 | | | $ | 2,985,116 | |
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUE | | | | | | | |
Rental revenue | $ | 98,175 | | | $ | 105,985 | | | $ | 295,045 | | | $ | 294,257 | |
Other income | 115 | | | 854 | | | 1,300 | | | 2,249 | |
Total revenue | 98,290 | | | 106,839 | | | 296,345 | | | 296,506 | |
EXPENSES | | | | | | | |
Depreciation and amortization | 24,343 | | | 23,171 | | | 73,561 | | | 68,534 | |
Real estate taxes | 16,231 | | | 15,862 | | | 47,662 | | | 47,826 | |
Property operating | 17,672 | | | 15,692 | | | 56,473 | | | 51,874 | |
General and administrative | 9,852 | | | 10,134 | | | 31,607 | | | 28,286 | |
Casualty and impairment loss | — | | | 372 | | | — | | | 372 | |
Lease expense | 3,109 | | | 3,164 | | | 9,327 | | | 9,665 | |
Total expenses | 71,207 | | | 68,395 | | | 218,630 | | | 206,557 | |
Gain on sale of real estate | — | | | 6,926 | | | 353 | | | 18,648 | |
Interest income | 294 | | | 77 | | | 713 | | | 303 | |
Interest and debt expense | (15,266) | | | (14,638) | | | (43,511) | | | (44,193) | |
| | | | | | | |
Income before income taxes | 12,111 | | | 30,809 | | | 35,270 | | | 64,707 | |
Income tax expense | (646) | | | (704) | | | (2,262) | | | (905) | |
Net income | 11,465 | | | 30,105 | | | 33,008 | | | 63,802 | |
Less net loss (income) attributable to NCI in consolidated subsidiaries | 373 | | | (1,190) | | | 835 | | | (961) | |
Net income attributable to unitholders | $ | 11,838 | | | $ | 28,915 | | | $ | 33,843 | | | $ | 62,841 | |
| | | | | | | |
Earnings per unit - Basic: | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.52 | |
Earnings per unit - Diluted: | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.51 | |
Weighted average units outstanding - Basic | 121,405 | | | 120,903 | | | 121,320 | | | 120,839 | |
Weighted average units outstanding - Diluted | 121,683 | | | 121,987 | | | 121,657 | | | 122,212 | |
| | | | | | | |
Net income | $ | 11,465 | | | $ | 30,105 | | | $ | 33,008 | | | $ | 63,802 | |
Effective portion of change in fair value of derivatives | 632 | | | — | | | 578 | | | — | |
Comprehensive income | 12,097 | | | 30,105 | | | 33,586 | | | 63,802 | |
| | | | | | | |
Less net loss (income) attributable to NCI in consolidated subsidiaries | 373 | | | (1,190) | | | 835 | | | (961) | |
Comprehensive income attributable to unitholders | $ | 12,470 | | | $ | 28,915 | | | $ | 34,421 | | | $ | 62,841 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
REVENUE | | | | | | | |
Property rentals | $ | 69,625 |
| | $ | 59,138 |
| | $ | 196,831 |
| | $ | 176,750 |
|
Tenant expense reimbursements | 23,938 |
| | 19,888 |
| | 71,590 |
| | 62,274 |
|
Management and development fees | 369 |
| | 375 |
| | 1,199 |
| | 1,356 |
|
Income from acquired leasehold interest | — |
| | — |
| | 39,215 |
| | — |
|
Other income | 169 |
| | 572 |
| | 831 |
| | 2,118 |
|
Total revenue | 94,101 |
| | 79,973 |
| | 309,666 |
| | 242,498 |
|
EXPENSES | | | | | | | |
Depreciation and amortization | 20,976 |
| | 14,435 |
| | 60,505 |
| | 41,908 |
|
Real estate taxes | 15,872 |
| | 12,729 |
| | 43,975 |
| | 38,701 |
|
Property operating | 11,402 |
| | 9,897 |
| | 35,858 |
| | 32,596 |
|
General and administrative | 6,930 |
| | 6,618 |
| | 22,720 |
| | 20,873 |
|
Casualty and impairment loss | 2,170 |
| | — |
| | 5,637 |
| | — |
|
Ground rent | 2,891 |
| | 2,508 |
| | 7,997 |
| | 7,529 |
|
Transaction costs | 95 |
| | 223 |
| | 278 |
| | 307 |
|
Provision for doubtful accounts | 575 |
| | 149 |
| | 1,674 |
| | 994 |
|
Total expenses | 60,911 |
| | 46,559 |
| | 178,644 |
| | 142,908 |
|
Operating income | 33,190 |
| | 33,414 |
| | 131,022 |
| | 99,590 |
|
Gain on sale of real estate | 202 |
| | — |
| | 202 |
| | 15,618 |
|
Interest income | 719 |
| | 176 |
| | 1,182 |
| | 520 |
|
Interest and debt expense | (14,637 | ) | | (12,766 | ) | | (41,379 | ) | | (39,015 | ) |
Loss on extinguishment of debt | — |
| | — |
| | (1,274 | ) | | — |
|
Income before income taxes | 19,474 |
| | 20,824 |
| | 89,753 |
| | 76,713 |
|
Income tax expense | (318 | ) | | (319 | ) | | (942 | ) | | (349 | ) |
Net income | 19,156 |
| | 20,505 |
| | 88,811 |
| | 76,364 |
|
Less: (net income) loss attributable to NCI in consolidated subsidiaries | (11 | ) | | (1 | ) | | (33 | ) | | 1 |
|
Net income attributable to unitholders | $ | 19,145 |
| | $ | 20,504 |
| | $ | 88,778 |
| | $ | 76,365 |
|
| | | | | | | |
Earnings per unit - Basic: | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
Earnings per unit - Diluted: | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
Weighted average units outstanding - Basic | 123,433 |
| | 105,404 |
| | 114,979 |
| | 105,370 |
|
Weighted average units outstanding - Diluted | 123,703 |
| | 105,970 |
| | 115,323 |
| | 105,800 |
|
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(In thousands, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Shares | | General Partner | | Total Units | | Limited Partners(1) | | | | Accumulated Earnings (Deficit) | | NCI in Consolidated Subsidiaries | | Total Equity |
Balance, June 30, 2021 | 117,137,337 | | | $ | 991,425 | | | 5,376,145 | | | $ | 46,396 | | | | | $ | (44,985) | | | $ | 6,154 | | | $ | 998,990 | |
Net income attributable to unitholders | — | | | — | | | — | | | — | | | | | 28,915 | | | — | | | 28,915 | |
Net income attributable to NCI | — | | | — | | | — | | | — | | | | | — | | | 1,190 | | | 1,190 | |
| | | | | | | | | | | | | | | |
Common units issued as a result of common shares issued by Urban Edge | 451 | | | 21 | | | (526,396) | | | — | | | | | (20) | | | — | | | 1 | |
Equity redemption of OP units | — | | | — | | | — | | | (6,302) | | | | | — | | | — | | | (6,302) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Reallocation of NCI | — | | | 6,302 | | | — | | | — | | | | | — | | | — | | | 6,302 | |
Distributions to Partners ($0.15 per unit) | — | | | — | | | — | | | — | | | | | (18,268) | | | — | | | (18,268) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | | | — | | | 1,418 | | | 1,418 | |
Share-based compensation expense | — | | | 507 | | | — | | | 2,302 | | | | | — | | | — | | | 2,809 | |
| | | | | | | | | | | | | | | |
Balance, September 30, 2021 | 117,137,788 | | | $ | 998,255 | | | 4,849,749 | | | $ | 42,396 | | | | | $ | (34,358) | | | $ | 8,762 | | | $ | 1,015,055 | |
|
| | | | | | | | | | | | | | | | | | | |
| General Partner | | Limited Partners(1) | | Accumulated Earnings (Deficit) | | NCI in Consolidated Subsidiaries | | Total Equity |
Balance, December 31, 2016 | $ | 489,372 |
| | $ | 37,081 |
| | $ | (30,696 | ) | | $ | 360 |
| | $ | 496,117 |
|
Net income attributable to unitholders | — |
| | — |
| | 88,778 |
| | — |
| | 88,778 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | 33 |
| | 33 |
|
Common units issued as a result of common shares issued by Urban Edge | 348,467 |
| | — |
| | (253 | ) | | — |
| | 348,214 |
|
Limited partnership units issued | 105,279 |
| | 65,805 |
| | — |
| | — |
| | 171,084 |
|
Distributions to Partners ($0.66 per unit) | — |
| | — |
| | (77,113 | ) | | — |
| | (77,113 | ) |
Share-based compensation expense | 3,354 |
| | 1,836 |
| | 58 |
| | — |
| | 5,248 |
|
Share-based awards withheld for taxes | (287 | ) | | — |
| | — |
| | — |
| | (287 | ) |
Balance, September 30, 2017 | $ | 946,185 |
| | $ | 104,722 |
| | $ | (19,226 | ) | | $ | 393 |
| | $ | 1,032,074 |
|
(1) Limited partners have a 10.1%4.0% common limited partnership interest in the Operating Partnership as of September 30, 20172021 in the form of units of interest in the Operating Partnership Units (“OP Units”) and Long-Term Incentive Plan Units (“LTIP”LTIP Units”) units..
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Shares | | General Partner | | Total Units | | Limited Partners(2) | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Deficit) | | NCI in Consolidated Subsidiaries | | Total Equity |
Balance, June 30, 2022 | 117,442,769 | | | $ | 1,003,852 | | | 5,124,493 | | | $ | 44,849 | | | $ | (52) | | | $ | (25,646) | | | $ | 13,947 | | | $ | 1,036,950 | |
Net income attributable to unitholders | — | | | — | | | — | | | — | | | — | | | 11,838 | | | — | | | 11,838 | |
Net loss attributable to NCI | — | | | — | | | — | | | — | | | — | | | — | | | (373) | | | (373) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 606 | | | 26 | | | — | | | 632 | |
Common units issued as a result of common shares issued by Urban Edge | (1,064) | | | 21 | | | (150,023) | | | — | | | — | | | (21) | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Reallocation of noncontrolling interests | — | | | 3,325 | | | — | | | (3,325) | | | — | | | — | | | — | | | — | |
Distributions to Partners ($0.16 per unit) | — | | | — | | | — | | | — | | | — | | | (19,558) | | | — | | | (19,558) | |
| | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | 338 | | | — | | | 2,242 | | | — | | | — | | | — | | | 2,580 | |
Share-based awards retained for taxes | (957) | | | (15) | | | — | | | — | | | — | | | — | | | — | | | (15) | |
Balance, September 30, 2022 | 117,440,748 | | | $ | 1,007,521 | | | 4,974,470 | | | $ | 43,766 | | | $ | 554 | | | $ | (33,361) | | | $ | 13,574 | | | $ | 1,032,054 | |
(2) Limited partners have a 4.1% common limited partnership interest in the Operating Partnership as of September 30, 2022 in the form of OP and LTIP Units.
See notes to consolidated financial statements (unaudited).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Shares | | General Partner | | Total Units | | Limited Partners(1) | | | | Accumulated Earnings (Deficit) | | NCI in Consolidated Subsidiaries | | Total Equity |
Balance, December 31, 2020 | 117,014,317 | | | $ | 991,032 | | | 4,729,010 | | | $ | 41,302 | | | | | $ | (42,313) | | | $ | 5,872 | | | $ | 995,893 | |
Net income attributable to unitholders | — | | | — | | | — | | | — | | | | | 62,841 | | | — | | | 62,841 | |
Net income attributable to NCI | — | | | — | | | — | | | — | | | | | — | | | 961 | | | 961 | |
| | | | | | | | | | | | | | | |
Common units issued as a result of common shares issued by Urban Edge | 36,533 | | | 309 | | | 220,739 | | | — | | | | | (124) | | | — | | | 185 | |
Equity redemption of OP units | 100,000 | | | 840 | | | (100,000) | | | (6,302) | | | | | — | | | — | | | (5,462) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Reallocation of NCI | — | | | 4,614 | | | — | | | 848 | | | | | — | | | — | | | 5,462 | |
Distributions to Partners ($0.45 per unit) | — | | | — | | | — | | | — | | | | | (54,762) | | | — | | | (54,762) | |
Contributions from NCI | — | | | — | | | — | | | — | | | | | — | | | 1,929 | | | 1,929 | |
Share-based compensation expense | — | | | 1,670 | | | — | | | 6,548 | | | | | — | | | — | | | 8,218 | |
Share-based awards retained for taxes | (13,062) | | | (210) | | | — | | | — | | | | | — | | | — | | | (210) | |
Balance, September 30, 2021 | 117,137,788 | | | $ | 998,255 | | | 4,849,749 | | | $ | 42,396 | | | | | $ | (34,358) | | | $ | 8,762 | | | $ | 1,015,055 | |
(1) Limited partners have a 4.0% common limited partnership interest in the Operating Partnership as of September 30, 2021 in the form of Operating Partnership Units (“OP Units”) and Long-Term Incentive Plan Units (“LTIP Units”).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Shares | | General Partner | | Total Units | | Limited Partners(2) | | Accumulated Other Comprehensive Income | | Accumulated Earnings (Deficit) | | NCI in Consolidated Subsidiaries | | Total Equity |
Balance, December 31, 2021 | 117,147,986 | | | $ | 1,002,423 | | | 4,662,654 | | | $ | 41,030 | | | $ | — | | | $ | (8,505) | | | $ | 12,946 | | | $ | 1,047,894 | |
Net income attributable to unitholders | — | | | — | | | — | | | — | | | — | | | 33,843 | | | — | | | 33,843 | |
Net loss attributable to NCI | — | | | — | | | — | | | — | | | — | | | — | | | (835) | | | (835) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 554 | | | 24 | | | — | | | 578 | |
Common units issued as a result of common shares issued by Urban Edge | 49,990 | | | 286 | | | 561,816 | | | — | | | — | | | (63) | | | — | | | 223 | |
Equity redemption of OP units | 250,000 | | | 2,124 | | | (250,000) | | | 2,124 | | | — | | | — | | | — | | | 4,248 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Reallocation of NCI | — | | | 1,820 | | | — | | | (6,068) | | | — | | | — | | | — | | | (4,248) | |
Distributions to Partners ($0.48 per unit) | — | | | — | | | — | | | — | | | — | | | (58,660) | | | — | | | (58,660) | |
Contributions from NCI | — | | | — | | | — | | | — | | | — | | | — | | | 1,463 | | | 1,463 | |
Share-based compensation expense | — | | | 997 | | | — | | | 6,680 | | | — | | | — | | | — | | | 7,677 | |
Share-based awards retained for taxes | (7,228) | | | (129) | | | — | | | — | | | — | | | — | | | — | | | (129) | |
Balance, September 30, 2022 | 117,440,748 | | | $ | 1,007,521 | | | 4,974,470 | | | $ | 43,766 | | | $ | 554 | | | $ | (33,361) | | | $ | 13,574 | | | $ | 1,032,054 | |
(2) Limited partners have a 4.1% common limited partnership interest in the Operating Partnership as of September 30, 2022 in the form of OP and LTIP Units.
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 33,008 | | | $ | 63,802 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 75,176 | | | 69,872 | |
Gain on sale of real estate | (353) | | | (18,648) | |
Casualty and impairment loss | — | | | 372 | |
| | | |
| | | |
Amortization of below market leases, net | (5,062) | | | (19,775) | |
Noncash lease expense | 5,282 | | | 5,343 | |
Straight-lining of rent | (1,522) | | | 338 | |
Share-based compensation expense | 7,677 | | | 8,218 | |
| | | |
Change in operating assets and liabilities: | | | |
Tenant and other receivables | (586) | | | (2,505) | |
Deferred leasing costs | (3,493) | | | (1,735) | |
Prepaid expenses and other assets | 795 | | | 512 | |
Lease liabilities | (4,997) | | | (4,901) | |
Accounts payable, accrued expenses and other liabilities | (7,253) | | | (7,756) | |
Net cash provided by operating activities | 98,672 | | | 93,137 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Real estate development and capital improvements | (74,990) | | | (46,447) | |
Acquisitions of real estate | (36,222) | | | (54,547) | |
Proceeds from sale of operating properties | 353 | | | 34,482 | |
Net cash used in investing activities | (110,859) | | | (66,512) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Debt repayments | (93,999) | | | (14,324) | |
Distributions to partners | (58,660) | | | (110,666) | |
Taxes withheld for vested restricted units | (129) | | | (210) | |
Contributions from noncontrolling interests | 1,463 | | | 1,929 | |
Purchase of interest rate cap | (285) | | | — | |
| | | |
Proceeds from mortgage loan borrowings | 103,413 | | | — | |
| | | |
Debt issuance costs | (7,284) | | | — | |
Proceeds related to the issuance of common shares | 223 | | | 185 | |
Net cash used in financing activities | (55,258) | | | (123,086) | |
Net decrease in cash and cash equivalents and restricted cash | (67,445) | | | (96,461) | |
Cash and cash equivalents and restricted cash at beginning of period | 219,836 | | | 419,253 | |
Cash and cash equivalents and restricted cash at end of period | $ | 152,391 | | | $ | 322,792 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
|
Net income | $ | 88,811 |
| | $ | 76,364 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 60,576 |
| | 42,682 |
|
Income from acquired leasehold interest | (39,215 | ) | | — |
|
Casualty and impairment loss | 5,637 |
| | — |
|
Loss on extinguishment of debt | 1,274 |
| | — |
|
Amortization of deferred financing costs | 2,175 |
| | 2,106 |
|
Amortization of below market leases, net | (6,842 | ) | | (5,907 | ) |
Straight-lining of rent | 520 |
| | (97 | ) |
Share-based compensation expense | 5,248 |
| | 4,080 |
|
Gain on sale of real estate | (202 | ) | | (15,618 | ) |
Provision for doubtful accounts | 1,674 |
| | 994 |
|
Change in operating assets and liabilities: | |
| | |
|
Tenant and other receivables | (9,605 | ) | | (821 | ) |
Deferred leasing costs | (3,556 | ) | | (2,624 | ) |
Prepaid and other assets | (6,073 | ) | | (1,954 | ) |
Accounts payable and accrued expenses | 12,372 |
| | (1,368 | ) |
Other liabilities | 1,704 |
| | 1,346 |
|
Net cash provided by operating activities | 114,498 |
| | 99,183 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
Real estate development and capital improvements | (55,941 | ) | | (45,668 | ) |
Acquisition of real estate | (211,393 | ) | | (2,000 | ) |
Proceeds from sale of real estate | 5,005 |
| | 19,938 |
|
Net cash used in investing activities | (262,329 | ) | | (27,730 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
|
Debt repayments | (88,559 | ) | | (34,008 | ) |
Distributions to partners | (77,113 | ) | | (63,101 | ) |
Debt issuance costs | (11,352 | ) | | — |
|
Taxes withheld for vested restricted units | (287 | ) | | (38 | ) |
Proceeds from issuance of units | 348,214 |
| | 5,020 |
|
Proceeds from borrowings | 225,500 |
| | — |
|
Net cash provided by (used in) financing activities | 396,403 |
| | (92,127 | ) |
Net increase (decrease) in cash and cash equivalents and restricted cash | 248,572 |
| | (20,674 | ) |
Cash and cash equivalents and restricted cash at beginning of period | 140,186 |
| | 178,025 |
|
Cash and cash equivalents and restricted cash at end of period | $ | 388,758 |
| | $ | 157,351 |
|
See notes to consolidated financial statements (unaudited).
| | | | Nine Months Ended September 30, |
| | | 2022 | | 2021 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | |
Cash payments for interest, net of amounts capitalized of $5,922 and $734, respectively | | Cash payments for interest, net of amounts capitalized of $5,922 and $734, respectively | $ | 41,274 | | | $ | 44,424 | |
Cash payments for income taxes | | Cash payments for income taxes | 967 | | | 5,077 | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | | NON-CASH INVESTING AND FINANCING ACTIVITIES | |
Accrued capital expenditures included in accounts payable and accrued expenses | | Accrued capital expenditures included in accounts payable and accrued expenses | 17,031 | | | 32,600 | |
Write-off of fully depreciated assets | | Write-off of fully depreciated assets | 7,765 | | | 5,336 | |
| | | Nine Months Ended September 30, | |
| 2017 | | 2016 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | |
Cash payment for interest, includes amounts capitalized of $2,912 and $2,755, respectively | $ | 40,567 |
| | $ | 38,503 |
| |
Cash payments for income taxes | 1,237 |
| | 1,258 |
| |
NON-CASH INVESTING AND FINANCING ACTIVITIES | | | | |
Acquisition of real estate through issuance of OP units | 171,084 |
| | — |
| |
Acquisition of real estate through assumption of debt | 69,659 |
| | — |
| |
Accrued capital expenditures included in accounts payable and accrued expenses | 15,226 |
| | 12,340 |
| |
Write-off of fully depreciated assets | 910 |
| | 958 |
| |
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | | | | RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
Cash and cash equivalents at beginning of period | $ | 131,654 |
| | $ | 168,983 |
| Cash and cash equivalents at beginning of period | $ | 164,478 | | | $ | 384,572 | |
Restricted cash at beginning of period | 8,532 |
| | 9,042 |
| Restricted cash at beginning of period | 55,358 | | | 34,681 | |
Cash and cash equivalents and restricted cash at beginning of period | $ | 140,186 |
| | $ | 178,025 |
| Cash and cash equivalents and restricted cash at beginning of period | $ | 219,836 | | | $ | 419,253 | |
| | | | | | | |
Cash and cash equivalents at end of period | $ | 380,395 |
| | $ | 149,698 |
| Cash and cash equivalents at end of period | $ | 108,437 | | | $ | 268,952 | |
Restricted cash at end of period | 8,363 |
| | 7,653 |
| Restricted cash at end of period | 43,954 | | | 53,840 | |
Cash and cash equivalents and restricted cash at end of period | $ | 388,758 |
| | $ | 157,351 |
| Cash and cash equivalents and restricted cash at end of period | $ | 152,391 | | | $ | 322,792 | |
See notes to consolidated financial statements (unaudited).
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.ORGANIZATION
Urban Edge Properties (“UE”, “Urban Edge” or the “Company”) (NYSE: UE) is a Maryland real estate investment trust that owns, manages, acquires, develops, redevelopsfocused on managing, developing, redeveloping, and operatesacquiring retail real estate in high barrier-to-entry markets.urban communities, primarily in the Washington, D.C. to Boston corridor. Urban Edge Properties LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as the Company’sUE’s majority-owned partnership subsidiary and to own, through affiliates, all of the Company’s real estate properties and other assets. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Urban Edge Properties and UELP and their consolidated entities/subsidiaries.
The Operating Partnership’s capital includes general and common limited partnership interests in the operating partnership (“OP Units”). As of September 30, 2017,2022, Urban Edge owned approximately 89.9%95.9% of the outstanding common OP Units with the remaining limited OP Units held by Vornado Realty L.P., members of management ourand the Board of Trustees, and contributors of property interests acquired. Urban Edge serves as the sole general partner of the Operating Partnership. The third partythird-party unitholders have limited rights over the Operating Partnership such that they do not have characteristics of a controlling financial interest. As such, the Operating Partnership is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary which consolidates it. The Company’s only investment is the Operating Partnership. The VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest.
As of September 30, 2017,2022, our portfolio consisted of 8569 shopping centers, fourfive malls and a warehouse parktwo industrial parks totaling 16.7approximately 17.2 million square feet.feet (“sf”), which is inclusive of a 95% controlling interest in our property in Walnut Creek, CA (Mt. Diablo), and an 82.5% controlling interest in Sunrise Mall, in Massapequa, NY.
| |
2. | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION |
2.BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions of Form 10-Q. Certain information and footnote disclosures included in our annual financial statements have been condensed or omitted. In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and the Operating Partnership and the results of operations and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 20172022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2022. Accordingly, these consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, as filed with the Securities and Exchange Commission (“SEC”).
The consolidated balance sheets as of September 30, 20172022 and December 31, 20162021 reflect the consolidation of wholly-owned subsidiaries and those entities in which we have a controlling financial interest. As of September 30, 2022 and December 31, 2021, excluding the Operating Partnership, we consolidated two VIEs with total assets of $47.7 million and $48.5 million, respectively, and total liabilities of $24.5 million and $24.7 million, respectively. The consolidated statements of income and comprehensive income for the three and nine months ended September 30, 20172022 and 20162021 include the consolidated accounts of the Company, the Operating Partnership and the Operating Partnership.two VIEs. All intercompany transactions have been eliminated in consolidation.
In accordance with ASC 205 Presentation of Financial Statements, certain prior period balances have been reclassified in order to conform to the current period presentation.
Our primary business is the ownership,acquisition, management, redevelopment, development, and operationredevelopment of retail shopping centers and malls. We do not distinguish from our primary business or group our operations on a geographical basis for purposes of measuring performance. We reviewThe Company’s chief operating decision maker reviews operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. None of our tenants accounted for more than 10% of our revenue or property operating income.income as of September 30, 2022. We aggregate all of our properties into one reportable segment due to their similarities with regard to the nature and economics of the properties, tenants and operations, as well as long-term average financial performance.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UseReal Estate —Real estate is carried at cost, net of Estimates —The preparation of financial statements in conformity with GAAP requires managementaccumulated depreciation and amortization. Expenditures for ordinary maintenance and repairs are expensed to make estimates and assumptionsoperations as they are incurred. Significant renovations that affectimprove or extend the reported amountuseful lives of assets are capitalized. As real estate is undergoing redevelopment activities, all property operating expenses directly associated with and liabilities and disclosure of contingent assets and liabilities atattributable to the dateredevelopment, including interest, are capitalized to the extent the capitalized costs of the financial statementsproperty do not exceed the estimated fair value of the property when completed. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of redeveloped property, the excess is charged to impairment expense. The capitalization period begins when redevelopment activities are under way and ends when the reported amountsproject is substantially complete and ready for its intended use. Depreciation is recognized on a straight-line basis over estimated useful lives which range from one to 40 years.
Upon the acquisition of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Literature
In May 2017, the FASB issued an update (“ASU 2017-09”) Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting will not apply ifreal estate, we assess the fair value vesting conditions,of acquired assets (including land, buildings and classificationimprovements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and assumption of liabilities and we allocate the purchase price based on these assessments on a relative fair value basis. We assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We record acquired intangible assets (including acquired above-market leases, acquired in-place leases and tenant relationships) and acquired intangible liabilities (including below-market leases) at their estimated fair value. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the awardsproperty or business acquired.
Our properties are individually evaluated for impairment whenever events or changes in circumstances indicate that the same immediately before and aftercarrying amount may not be recoverable. An impairment exists when the modification. ASU 2017-09carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis taking into account the appropriate capitalization rate in determining a future terminal value. An impairment loss is effective for annual periods beginning after December 15, 2017, with early adoption permitted. We expect to adopt the standard beginning January 1, 2018. Once adopted, if we encounter a change to the terms or conditions of any of our share-based payment awards we will evaluate the need to apply modification accountingmeasured based on the new guidance. The general treatmentexcess of the property’s carrying amount over its estimated fair value. Estimated fair value may be based on discounted future cash flows utilizing appropriate discount and capitalization rates, in addition to available market information, third-party appraisals, broker selling estimates or sale agreements under negotiation. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows change based on uncertain market conditions, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements.
Tenant and Other Receivables and Changes in Collectibility Assessment — Tenant receivables include unpaid amounts billed to tenants, disputed enforceable charges and accrued revenues for modificationsfuture billings to tenants for property expenses. We evaluate the collectibility of share-basedamounts due from tenants and disputed enforceable charges on both a lease-by-lease basis and at the portfolio-level, which result from the inability of tenants to make required payments under their operating lease agreements. We recognize changes in the collectibility assessment of these operating leases as adjustments to rental revenue in accordance with ASC 842 Leases. Management exercises judgment in assessing collectibility and considers payment awards is to recordhistory, current credit status and publicly available information about the incremental valuefinancial condition of the tenant, among other factors. Tenant receivables and receivables arising from the change as additional compensation cost.
In February 2017,straight-lining of rents are written-off directly when management deems the FASB issued an updated (“ASU 2017-05”) Other Income - Gains and Lossescollectibility of substantially all future lease payments from a specific lease is not probable, at which point, the Company will begin recognizing revenue from such leases prospectively, based on actual amounts received. This write-off effectively reduces cumulative non-cash rental income recognized from the Derecognitionstraight-lining of Nonfinancial Assets, to clarifyrents since lease commencement. If the scope and accounting for derecognition of nonfinancial assets. ASU 2017-05 eliminated the guidance specific to real estate sales and partial sales. ASU 2017-05 defines “in-substance nonfinancial assets” and includes guidance on partial sales of nonfinancial assets. ASU 2017-05Company subsequently determines that it is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. At this point in time, we do not believe the adoption of ASU 2017-05probable it will have a material impact on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued an update (“ASU 2017-01”) Clarifying the Definition of a Business, which changes the definition of a business to exclude acquisitions wherecollect substantially all of the lessee’s remaining lease payments under the lease term, the Company will reinstate the receivables balance, including those arising from the straight-lining of rents.
Derivative Financial Instruments and Hedging —At times, the Company may use derivative financial instruments to manage and mitigate exposure to fluctuations in interest rates on our variable rate debt. These derivatives are measured at fair value and are recognized as assets or liabilities on the Company’s consolidated balance sheets, depending on the Company’s rights or obligations under the respective derivative contracts. The accounting for changes in the fair value of a derivative varies based on eligibility and Company elections, including the assets acquired are concentratedintended use of the derivative, whether the Company has elected to designate the derivative in a single identifiablehedging relationship and apply hedge accounting, and whether the hedge relationship has satisfied certain criteria to be deemed an effective hedge. Effectiveness of the hedging relationship is assessed on a quarterly basis by a third-party to determine if the relationship still meets the criteria to be considered an effective hedge. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
In a cash flow hedge, hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the earnings effect of the hedged transaction. A derivative instrument designated as
a cash flow hedge is adjusted to fair value on the Company’s consolidated balance sheets. The change in fair value, net of the amortization of the purchase price of the instrument, is deemed to be the effective portion of change and is recognized in Other Comprehensive Income (“OCI”) in the Company’s consolidated statements of income and comprehensive income, with the amortization of the purchase price included in interest and debt expense. Cash flows from the derivative are included in the prepaid expenses and other assets, or accounts payable, accrued expenses and other liabilities line item in the statement of cash flows, depending on whether the hedged item is recognized as an asset or a groupliability. For further information on the Company’s derivative instruments and hedge designations, refer to Note 9.
Recently Issued Accounting Literature — In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04 Reference Rate Reform (ASC 848): Facilitation of similar identifiable assets. While there are various differences betweenthe Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01 Reference Rate Reform (ASC 848): Scope which provides temporary optional guidance to ease the potential burden in accounting for an asset acquisitionreference rate reform in contracts and a business combination,other transactions that reference the largest impact is that transaction costsLondon Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are capitalized for asset acquisitions rather than expensed when they are considered business combinations.met. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. We elected to early adopt2020-04 and ASU 2017-01 effective January 1, 2017. The adoption of this standard has resulted in asset acquisition classification for the real estate acquisitions closed in the nine months ended September 30, 2017, and accordingly, acquisition costs for these acquisitions have been capitalized (refer to Note 4 Acquisitions and Dispositions).
In February 2016, the FASB issued an update (“ASU 2016-02”) Leases, which revises the accounting related to lease accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-022021-01 are effective for fiscal years beginning afterall entities as of March 12, 2020 through December 15, 2018 and should be applied through31, 2022. We currently do not anticipate the need to modify our existing debt agreements as a modified retrospective transition approach for leases existing at, or entered into after, the beginningresult of the earliest comparative period presentedreference rate reform in the current year, however if any modification is executed as a result of reference rate reform, the Company will elect the optional expedient available under ASU 2020-04 and ASU 2021-01, which allows entities to account for the modification as if the modification was not substantial. We will disclose the nature of and reason for electing the optional expedient in each interim and annual financial statements. Early adoption is permitted. We expect to adopt the standard beginning January 1, 2019. This standard will impact our consolidated financial statements by the recording of right-of-use assetsstatement period if and lease liabilities on our consolidated balance sheets for operating and finance leases where we are the lessee. We are currently in the process of evaluating the inputs required to calculate the amount that will be recorded on our consolidated balance sheets for these leases. In addition, leases where we are the lessor that meet the criteria of a finance lease will be amortized using the effective interest method with corresponding charges to interest expense and amortization expense. Leases where we are the lessor that meet the criteria of an operating lease will continue to be amortized on a straight-line basis. Further, internal leasing department costs previously capitalized will be expensed within general and administrative expenses. Historical capitalization of internal leasing costs was $0.5 million and $0.8 million during the nine months ended September 30, 2017 and the year endedwhen applicable through December 31, 2016, respectively. We expect this standard will have an impact on the classification of reimbursements of real estate taxes, insurance expenses and certain non-lease components of revenue (reimbursements of common area maintenance expenses) for new leases executed on or after January 1, 2019. There will be no material impact on total revenues.2022.
In May 2014, the FASB issued an update (“ASU 2014-09”) Revenue from Contracts with Customers to ASC Topic 606, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. During the year ended December 31, 2016, the FASB issued the following updates to ASC Topic 606 to clarify and/or amend the guidance in ASU 2014-09: (i) ASU 2016-08 Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations, (ii) ASU 2016-10 Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance and (iii) ASU 2016-12 Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of ASU 2014-09. In August 2015, the FASB issued an update (“ASU 2015-09”) Revenue from Contracts with Customers to ASC Topic 606, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2015-09 is effective beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We have commenced the process of adopting ASU 2014-09 for reporting periods beginning after December 15, 2017 using the modified retrospective approach, including evaluating all sources of revenue we expect will be impacted by the adoption of ASU 2014-09. Specifically,
we have evaluated the impact ASU 2014-09 will have on the Company’s management and development fee income as well as tenant reimbursement income relating to certain non-lease components of revenue. Currently, the Company does not believe the adoption will impact the timing of the recognition of these revenue sources. For tenant reimbursement income, we expect there may be an impact to the classification of certain lease and non-lease components of revenue from leases upon the adoption of (“ASU 2016-02”) Leases with no material impact to total revenue. We are in the process of completing our evaluation of the overall impact, including the required disclosures for adoption January 1, 2018.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the Company or the Operating Partnership, or they are not expected to have a material impact on our consolidated financial statements.
| |
4. | ACQUISITIONS AND DISPOSITIONS |
4. ACQUISITIONS AND DISPOSITIONS
Acquisitions
During the nine months ended September 30, 2017,2022 and 2021, we closed on the following acquisitions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Date Purchased | | Property Name | | City | | State | | Square Feet | | Purchase Price(1) |
| | | | | | | | | | (in thousands) |
February 24, 2022 | | 40 Carmans Road(2) | | Massapequa | | NY | | 12,000 | | | $ | 4,260 | |
June 8, 2022 | | The Shops at Riverwood | | Hyde Park | | MA | | 78,000 | | | 33,343 | |
| | | | | | | | 2022 Total | $ | 37,603 | |
| | | | | | | | | | |
August 10, 2021 | | 601 Murray Road | | East Hanover | | NJ | | 88,000 | | | $ | 18,312 | |
August 19, 2021 | | 151 Ridgedale Avenue | | East Hanover | | NJ | | 187,000 | | | 37,759 | |
| | | | | | | | 2021 Total | $ | 56,071 | |
|
| | | | | | | | | | | | | |
Date Purchased | | Property Name | | City | | State | | Square Feet | | Purchase Price(1) |
| | | | | | | | | | (in thousands) |
January 4, 2017 | | Yonkers Gateway Center | | Yonkers | | NY | | — |
| (2) | $ | 51,902 |
|
January 17, 2017 | | Shops at Bruckner | | Bronx | | NY | | 114,000 |
| | 32,269 |
|
February 2, 2017 | | Hudson Mall | | Jersey City | | NJ | | 383,000 |
| | 44,273 |
|
May 24, 2017 | | Yonkers Gateway Center | | Yonkers | | NY | | 437,000 |
| (2) | 101,825 |
|
May 24, 2017 | | The Plaza at Cherry Hill | | Cherry Hill | | NJ | | 413,000 |
| | 53,535 |
|
May 24, 2017 | | Manchester Plaza | | Manchester | | MO | | 131,000 |
| | 20,162 |
|
May 24, 2017 | | Millburn Gateway Center | | Millburn | | NJ | | 102,000 |
| | 45,583 |
|
May 24, 2017 | | 21 E Broad St / One Lincoln Plaza | | Westfield | | NJ | | 22,000 |
| | 10,158 |
|
May 25, 2017 | | The Plaza at Woodbridge | | Woodbridge | | NJ | | 411,000 |
| | 103,962 |
|
| | | | | | | | Total | $ | 463,669 |
|
| |
(1)
| Includes $11.3 million of transaction costs incurred since January 1, 2017. |
| |
(2)
| On January 4, 2017, we acquired fee and leasehold interests, including the lessor position under an operating lease for the whole property. On May 24, 2017, we purchased the remaining fee and leasehold interests not previously acquired, including the lessee position under the operating lease for the whole property. |
On January 4, 2017, we acquired fee and leasehold interests in Yonkers Gateway Center for $51.9 million. Consideration for this purchase consisted of the issuance of $48.8 million in OP units and $2.9 million of cash.(1) The total number of OP units issued was 1.8 million at a value of $27.09 per unit. Transaction costs associated with this acquisition were $0.2 million.
On January 17, 2017, wepurchase price for the properties acquired the leasehold interest in the Shops at Bruckner for $32.3 million, consisting of the assumption of the existing debt of $12.6 million and $19.4 million of cash. The property is a 114,000 sf retail center in the Bronx, NY directly across from our 376,000 sf Bruckner Commons shopping center. We own the land under the Shops at Bruckner and had been leasing it to the seller under a ground lease that ran through September 2044. Concurrent with the acquisition, we wrote-off the unamortized intangible liability balance related to the below-market ground lease as well as the existing straight-line receivable balance. As a result, we recognized $39.2 million of income from acquired leasehold interest in the nine months ended September 30, 2017. Transaction costs associated with this acquisition were $0.3 million.
On February 2, 2017, we acquired Hudson Mall, a 383,000 sf retail center in Jersey City, NJ adjacent to our existing Hudson Commons shopping center. Consideration for this purchase consisted of the assumption of the existing debt of $23.8 million and $19.9 million of cash. Transaction costs associated with this acquisition were $0.6 million.
On May 24 and 25, 2017, we acquired a portfolio of seven retail assets (the "Portfolio”) comprising 1.5 million sf of gross leasable area, predominantly in the New York City metropolitan area, for $325 million. The Portfolio was privately owned for more than three decades and was 83% leased as of the date of acquisition. Consideration for this purchase consisted of the issuance of $122 million in OP units, the assumption of $33 million of existing mortgage debt, the issuance of $126 million of non-recourse, secured mortgage debt and $44 million of cash. The total number of OP units issued was 4.5 million at a value of $27.02 per unit. Transaction costs associated with this acquisition were $10.2 million.
All acquisitions closed during the nine months ended September 30, 2017 were accounted for as asset acquisitions in accordance with ASU 2017-01, adopted January 1, 2017. Accordingly,2022 and 2021 includes $0.6 million of transaction costs incurred since January 1, 2017 related to these transactions were capitalized as partin each of the asset’s purchase price.periods.
(2) The purchase prices for all acquisitions were allocatedoutparcel is included with Sunrise Mall in our total property count and non-GAAP metrics. The Company has an 82.5% controlling interest in the property with the remaining 17.5% owned by others.
The 12,000 sf outparcel acquired in February 2022, located at 40 Carmans Road, is adjacent to the entrance of our mall in Massapequa, NY. This acquisition supports the overall plans we currently have under way to redevelop Sunrise Mall.
On June 8, 2022, the Company closed on the acquisition of The Shops at Riverwood, a 78,000 sf grocery-anchored shopping center for a purchase price of $33.3 million, including transaction costs. The center is located in the greater Boston area and is fully leased. In conjunction with the acquisition, the Company entered into a reverse like-kind exchange under Section 1031 of the Internal Revenue Code with a third-party intermediary, which allows us, for tax purposes, to defer gains on the sale of other properties sold within 180 days after the acquisition date. In addition to the VIEs mentioned in Note 2, pursuant to the exchange agreement, the property is in possession of an Exchange Accommodation Titleholder (“EAT”) and is classified as a VIE until the earlier of the termination of the agreement or 180 days after the acquisition date. The EAT is the legal owner of the property, however, we control the activities that most significantly impact the entity and retain all of the economic benefits and risks associated with the entity. Therefore, since the title of the property will be transferred back to the Company and we have determined that we are the primary beneficiary of the VIE, we have consolidated the VIE and its operations as of the acquisition date.
The two industrial properties, acquired assets and liabilities based on their relative fair values at datein August 2021, are adjacent to our existing 943,000 sf warehouse park in East Hanover, NJ. The acquisition of acquisition.
151 Ridgedale Avenue was partially funded using cash proceeds from previous dispositions.
The aggregate purchase price of the above property acquisitions have been allocated as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property Name | | Land | | Buildings and improvements | | Identified intangible assets(1) | | Identified intangible liabilities(1) | | | | | | Total Purchase Price |
(in thousands) | | | | | | | | | | | | | | |
40 Carmans Road | | $ | 1,118 | | | $ | 3,142 | | | $ | — | | | $ | — | | | | | | | $ | 4,260 | |
The Shops at Riverwood | | 10,866 | | | 19,441 | | | 4,024 | | | (988) | | | | | | | 33,343 | |
2022 Total | | $ | 11,984 | | | $ | 22,583 | | | $ | 4,024 | | | $ | (988) | | | | | | | $ | 37,603 | |
| | | | | | | | | | | | | | |
601 Murray Road | | $ | 2,075 | | | $ | 14,733 | | | $ | 1,722 | | | $ | (218) | | | | | | | $ | 18,312 | |
151 Ridgedale Avenue | | 2,990 | | | 35,509 | | | — | | | (740) | | | | | | | 37,759 | |
2021 Total | | $ | 5,065 | | | $ | 50,242 | | | $ | 1,722 | | | $ | (958) | | | | | | | $ | 56,071 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Property Name | | Land | | Buildings and improvements | | Identified intangible assets | | Identified intangible liabilities | | Debt premium | | Total purchase price |
(in thousands) | | | | | | | | | | | | |
Yonkers Gateway Center | | $ | 40,699 |
| | $ | — |
| | $ | 25,858 |
| | $ | (14,655 | ) | | $ | — |
| | $ | 51,902 |
|
Shops at Bruckner | | — |
| | 32,979 |
| | 12,029 |
| | (12,709 | ) | | (30 | ) | | 32,269 |
|
Hudson Mall | | 15,824 |
| | 37,593 |
| | 9,930 |
| | (17,344 | ) | | (1,730 | ) | | 44,273 |
|
Yonkers Gateway Center | | 22,642 |
| | 110,635 |
| | 38,162 |
| | (68,694 | ) | | (920 | ) | | 101,825 |
|
The Plaza at Cherry Hill | | 14,602 |
| | 33,666 |
| | 7,800 |
| | (2,533 | ) | | — |
| | 53,535 |
|
Manchester Plaza | | 4,409 |
| | 13,756 |
| | 3,256 |
| | (1,259 | ) | | — |
| | 20,162 |
|
Millburn Gateway Center | | 15,783 |
| | 25,387 |
| | 5,360 |
| | (947 | ) | | — |
| | 45,583 |
|
21 E Broad St / One Lincoln Plaza | | 5,728 |
| | 4,305 |
| | 679 |
| | (554 | ) | | — |
| | 10,158 |
|
The Plaza at Woodbridge | | 21,547 |
| | 75,017 |
| | 11,596 |
| | (4,198 | ) | | — |
| | 103,962 |
|
Total | | $ | 141,234 |
| | $ | 333,338 |
| | $ | 114,670 |
| | $ | (122,893 | ) | | $ | (2,680 | ) | | $ | 463,669 |
|
(1) As of September 30, 2022, the remaining weighted average amortization periods of the identified intangible assets and identified intangible liabilities acquired in 2022 were 8.7 years and 16.4 years, respectively. The remaining weighted average amortization periods of the identified intangible assets and identified intangible liabilities acquired in 2021 were 6.8 years and 3.1 years, respectively.
Dispositions
On JuneDuring the nine months ended September 30, 2017, we2022, no dispositions were completed by the Company. We recognized a gain on sale of ourreal estate of $0.4 million in connection with the release of escrow funds related to a property previously classified as held for saledisposed of in Eatontown, NJ, for $4.8a prior period.
During the nine months ended September 30, 2021, we disposed of three properties and one property parcel and received proceeds of $34.9 million, net of selling costs. Prior tocosts, resulting in an $18.6 million net gain on sale of real estate. Of the sale, the book value of this property exceeded its estimated fair value less costs to sell, and as such, an impairment charge of $3.5 million was recognizeddispositions completed during the nine months ended September 30, 2017. Our determination of fair value was based on the executed contract of sale2021, two were completed as 1031 exchanges with the third-party buyer.
On September 8, 2017, we completedacquisition of 151 Ridgedale Avenue, allowing for the deferral of capital gains from the sale of excess land in Kearny, NJ for $0.3 million, resulting in a gain of $0.2 million.income tax purposes.
On June 9, 2016, we completed the sale of a shopping center located in Waterbury, CT for $21.6 million, resulting in a gain of $15.6 million.
| |
5. | RELATED PARTY TRANSACTIONS |
In connection with the separation, the Company and Vornado Realty Trust (“Vornado”) entered into a transition services agreement under which Vornado provided transition services to the Company including human resources, information technology, risk management, tax services and office space and support. The fees charged to us by Vornado for those transition services approximated the actual cost incurred by Vornado in providing such services. On June 28, 2016, the Company executed an amendment to the transition services agreement, extending Vornado’s provision of information technology, risk management services and the portion of the human resources service related to health and benefits through July 31, 2018, unless terminated earlier. Fees for these services remain the same except that they may be adjusted for inflation. As of September 30, 2017 and December 31, 2016, there were no amounts due to Vornado related to such services.
During the three and nine months ended September 30, 2017, there were $0.3 million and $1.2 million, respectively, of costs paid to Vornado included in general and administrative expenses, which consisted of $0.2 million and $0.7 million, respectively, of rent expense for two of our office locations and $0.1 million and $0.5 million, respectively, of transition services fees. For the three and nine months ended September 30, 2016, there were $0.4 million and $1.3 million, respectively, of costs paid to Vornado included in general and administrative expenses, which consisted of $0.2 million and $0.7 million, respectively, of rent expense for two of our office locations and $0.2 million and $0.6 million of transition services fees, respectively.
Management and Development Fees
In connection with the separation, the Company and Vornado entered into property management agreements under which the Company provides management, development, leasing and other services to certain properties owned by Vornado and its affiliates, including Interstate Properties (“Interstate”) and Alexander’s, Inc. (NYSE:ALX). Interstate is a general partnership that owns retail properties in which Steven Roth, Chairman of Vornado’s Board and Chief Executive Officer of Vornado, and a member of our Board of Trustees, is the managing general partner. Interstate and its partners beneficially owned an aggregate of approximately 7.1% of the common shares of beneficial interest of Vornado as of December 31, 2016. As of September 30, 2017, Vornado owned 32.4% of Alexander’s, Inc. During the three and nine months ended September 30, 2017, we recognized management and development fee income of $0.4 million and $1.2 million, respectively, and $0.4 million and $1.4 million for the same periods in 2016. As of September 30, 2017 and December 31, 2016, respectively, there were $0.3 million of fees due from Vornado included in tenant and other receivables in our consolidated balance sheets.
6. IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES
Our identified intangible assets (acquired in-place and above and below-marketabove-market leases) and liabilities (acquired below-market leases), net of accumulated amortization, were $91.3$66.0 million and $184.1$95.4 million, respectively, as of September 30, 2017, respectively,2022 and $30.9$71.1 million and $147.0$100.6 million, respectively, as of December 31, 2016, respectively.
2021.
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $2.7$1.6 million and $6.8$5.1 million and for the three and nine months ended September 30, 2017,2022, respectively, and $2.2$15.0 million and $6.0$19.8 million for the same periods in 2016.
2021.
Amortization of acquired in-place leases andinclusive of customer relationships resulted in additional depreciation and amortization expense of $2.9$2.6 million and $6.0$8.1 million for the three and nine months ended September 30, 2017,2022, respectively, and $0.8$2.2 million and $1.6$6.1 million for the same periods in 2016.
Certain shopping centers are subject to ground leases or ground and building leases. Amortization of these acquired below-market leases resulted in additional rent expense of $0.2 million and $0.7 million for the three and nine months ended September 30, 2017 and 2016, respectively.
2021.
The following table sets forth the estimated annual amortization income and expense related to intangible assets and liabilities for the remainder of 2022 and the five succeeding years commencing January 1, 2018:years:
| | | | | | | | | | | | | | | | | | | | |
(Amounts in thousands) | | Below-Market | | Above-Market | | In-Place Lease |
Year | | Operating Lease Amortization | | Operating Lease Amortization | | Amortization |
2022(1) | | $ | 1,945 | | | $ | (360) | | | $ | (2,432) | |
2023 | | 7,772 | | | (1,081) | | | (9,097) | |
2024 | | 7,536 | | | (920) | | | (7,870) | |
2025 | | 7,355 | | | (725) | | | (6,454) | |
2026 | | 6,977 | | | (606) | | | (5,706) | |
2027 | | 6,683 | | | (458) | | | (5,119) | |
(1) Remainder of 2022.
|
| | | | | | | | | | | | | | | | |
(Amounts in thousands) | | Below-Market | | Above-Market | | | | Below-Market |
Year | | Operating Lease Income | | Operating Lease Expense | | In-Place Leases | | Ground Leases |
2018 | | $ | 12,074 |
| | $ | 1,574 |
| | $ | 11,285 |
| | $ | 972 |
|
2019 | | 11,620 |
| | 1,294 |
| | 8,592 |
| | 972 |
|
2020 | | 11,453 |
| | 1,016 |
| | 7,325 |
| | 972 |
|
2021 | | 11,251 |
| | 803 |
| | 6,013 |
| | 622 |
|
2022 | | 10,802 |
| | 426 |
| | 4,224 |
| | 590 |
|
7.6. MORTGAGES PAYABLE
The following is a summary of mortgages payable as of September 30, 20172022 and December 31, 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in thousands) | | Maturity | | Interest Rate at September 30, 2022 | | September 30, 2022 | | December 31, 2021 |
Mortgages secured by: | | | | | | | | |
Variable rate | | | | | | | | |
Hudson Commons(1) | | 11/15/2024 | | 4.42% | | $ | 27,620 | | | $ | 28,034 | |
Greenbrook Commons(1) | | 11/15/2024 | | 4.42% | | 25,710 | | | 26,097 | |
Gun Hill Commons(1) | | 12/1/2024 | | 4.42% | | 24,311 | | | 24,680 | |
Plaza at Cherry Hill(2) | | 6/3/2025 | | 6.75% | | 29,000 | | | 28,244 | |
Plaza at Woodbridge(3) | | 6/8/2027 | | 4.66% | | 52,947 | | | 54,029 | |
Total variable rate debt | | | | | | 159,588 | | | 161,084 | |
Fixed rate | | | | | | | | |
Bergen Town Center | | 4/8/2023 | | 3.56% | | 300,000 | | | 300,000 | |
Shops at Bruckner | | 5/1/2023 | | 3.90% | | 9,192 | | | 9,698 | |
Hudson Mall | | 12/1/2023 | | 5.07% | | 21,577 | | | 22,154 | |
Yonkers Gateway Center | | 4/6/2024 | | 4.16% | | 25,447 | | | 26,774 | |
Brick Commons | | 12/10/2024 | | 3.87% | | 48,869 | | | 49,554 | |
West End Commons | | 12/10/2025 | | 3.99% | | 24,770 | | | 25,100 | |
Las Catalinas Mall | | 2/1/2026 | | 4.43% | | 120,715 | | | 123,977 | |
Town Brook Commons | | 12/1/2026 | | 3.78% | | 30,971 | | | 31,400 | |
Rockaway River Commons | | 12/1/2026 | | 3.78% | | 27,420 | | | 27,800 | |
Hanover Commons | | 12/10/2026 | | 4.03% | | 62,728 | | | 63,000 | |
Tonnelle Commons | | 4/1/2027 | | 4.18% | | 99,298 | | | 100,000 | |
Manchester Plaza | | 6/1/2027 | | 4.32% | | 12,500 | | | 12,500 | |
Millburn Gateway Center | | 6/1/2027 | | 3.97% | | 22,605 | | | 22,944 | |
Totowa Commons | | 12/1/2027 | | 4.33% | | 50,800 | | | 50,800 | |
Woodbridge Commons | | 12/1/2027 | | 4.36% | | 22,100 | | | 22,100 | |
Brunswick Commons | | 12/6/2027 | | 4.38% | | 63,000 | | | 63,000 | |
Rutherford Commons | | 1/6/2028 | | 4.49% | | 23,000 | | | 23,000 | |
Kingswood Center | | 2/6/2028 | | 5.07% | | 70,154 | | | 70,815 | |
Hackensack Commons | | 3/1/2028 | | 4.36% | | 66,400 | | | 66,400 | |
Marlton Commons | | 12/1/2028 | | 3.86% | | 37,400 | | | 37,400 | |
East Hanover Warehouses | | 12/1/2028 | | 4.09% | | 40,700 | | | 40,700 | |
Union (Vauxhall) | | 12/10/2028 | | 4.01% | | 45,600 | | | 45,600 | |
The Shops at Riverwood | | 6/24/2029 | | 4.25% | | 21,466 | | | — | |
Freeport Commons | | 12/10/2029 | | 4.07% | | 43,100 | | | 43,100 | |
The Outlets at Montehiedra | | 6/1/2030 | | 5.00% | | 78,004 | | | 79,381 | |
Montclair(4) | | 8/15/2030 | | 3.15% | | 7,250 | | | 7,250 | |
Garfield Commons | | 12/1/2030 | | 4.14% | | 40,300 | | | 40,300 | |
Woodmore Towne Centre | | 1/6/2032 | | 3.39% | | 117,200 | | | 117,200 | |
Mount Kisco Commons | | 11/15/2034 | | 6.40% | | 11,920 | | | 12,377 | |
Total fixed rate debt | | | | | | 1,544,486 | | | 1,534,324 | |
Total mortgages payable | | 1,704,074 | | | 1,695,408 | |
| | Unamortized debt issuance costs | | (8,298) | | | (8,218) | |
Total mortgages payable, net | | $ | 1,695,776 | | | $ | 1,687,190 | |
(1)Bears interest at one month London Interbank Offered Rate (“LIBOR”) plus 190 bps.
(2)Bears interest at the Prime Rate plus 50 bps with a minimum rate of 4.25%.
(3)Bears interest at one month Secured Overnight Financing Rate (“SOFR”) plus 226 bps. The variable component of the debt is hedged with an interest rate cap agreement to limit SOFR to a maximum of 3%.
(4)This property is encumbered by a variable rate loan that has been fixed at a rate of 3.15% with an interest rate swap agreement that expires at the maturity of the loan.
|
| | | | | | | | | | | | |
| | | | Interest Rate at | | September 30, | | December 31, |
(Amounts in thousands) | | Maturity | | September 30, 2017 | | 2017 | | 2016 |
Cross-collateralized mortgage loan: | | | | | | |
| | |
|
Fixed Rate | | 9/10/2020 | | 4.39% | | $ | 507,993 |
| | $ | 519,125 |
|
Variable Rate(1) | | 9/10/2020 | | 2.59% | | 38,756 |
| | 38,756 |
|
Total cross collateralized | | | | | | 546,749 |
| | 557,881 |
|
First mortgages secured by: | | | | | | | | |
Englewood(3) | | 10/1/2018 | | 6.22% | | 11,537 |
| | 11,537 |
|
Montehiedra Town Center, Senior Loan(2) | | 7/6/2021 | | 5.33% | | 86,383 |
| | 87,308 |
|
Montehiedra Town Center, Junior Loan(2) | | 7/6/2021 | | 3.00% | | 30,000 |
| | 30,000 |
|
Plaza at Cherry Hill(8) | | 5/24/2022 | | 2.84% | | 28,930 |
| | — |
|
Westfield - One Lincoln(8) | | 5/24/2022 | | 2.84% | | 4,730 |
| | — |
|
Plaza at Woodbridge(8) | | 5/25/2022 | | 2.84% | | 55,340 |
| | — |
|
Bergen Town Center | | 4/8/2023 | | 3.56% | | 300,000 |
| | 300,000 |
|
Shops at Bruckner(6) | | 5/1/2023 | | 3.90% | | 12,304 |
| | — |
|
Hudson Mall(7) | | 12/1/2023 | | 5.07% | | 25,170 |
| | — |
|
Yonkers Gateway Center(9) | | 4/6/2024 | | 4.16% | | 33,601 |
| | — |
|
Las Catalinas | | 8/6/2024 | | 4.43% | | 130,000 |
| | 130,000 |
|
North Bergen (Tonnelle Avenue)(5) | | 4/1/2027 | | 4.18% | | 100,000 |
| | 73,951 |
|
Manchester Plaza | | 6/1/2027 | | 4.32% | | 12,500 |
| | — |
|
Millburn Gateway Center | | 6/1/2027 | | 3.97% | | 24,000 |
| | — |
|
Mount Kisco (Target)(4) | | 11/15/2034 | | 6.40% | | 14,562 |
| | 14,883 |
|
| | Total mortgages payable | | 1,415,806 |
|
| 1,205,560 |
|
| | Unamortized debt issuance costs | | (7,740 | ) | | (8,047 | ) |
Total mortgages payable, net of unamortized debt issuance costs
| | $ | 1,408,066 |
| | $ | 1,197,513 |
|
| |
(1)
| Subject to a LIBOR floor of 1.00%, bears interest at LIBOR plus 136 bps. |
| |
(2)
| As part of the planned redevelopment of Montehiedra Town Center, we committed to fund $20.0 million for leasing and capital expenditures which has been fully funded as of September 30, 2017. |
| |
(3)
| On March 30, 2015, we notified the lender that due to tenants vacating, the property’s operating cash flow would be insufficient to pay its debt service. As of September 30, 2017, we were in default and the property was transferred to receivership. Urban Edge no longer manages the property but will remain its title owner until the receiver disposes of the property. We have determined this property is held in a VIE for which we are the primary beneficiary. Accordingly, as of September 30, 2017, we consolidated Englewood and its operations. The consolidated balance sheet included total assets and liabilities of $12.4 millionand $14.6 million, respectively.
|
| |
(4)
| The mortgage payable balance on the loan secured by Mount Kisco (Target) includes $1.0 million and $1.1 million of unamortized debt discount as of September 30, 2017 and December 31, 2016, respectively. The effective interest rate including amortization of the debt discount is 7.26% as of September 30, 2017. |
| |
(5)
| On March 29, 2017, we refinanced the $74 million, 4.59% mortgage loan secured by our Tonnelle Commons property in North Bergen, NJ, increasing the principal balance to $100 million with a 10-year fixed rate mortgage, at 4.18%. As a result, we recognized a loss on extinguishment of debt of $1.3 million during the nine months ended September 30, 2017 comprised of a $1.2 million prepayment penalty and write-off of $0.1 million of unamortized deferred financing fees on the original loan.
|
| |
(6)
| On January 17, 2017, we assumed the existing mortgage secured by the Shops at Bruckner in connection with our acquisition of the property’s leasehold interest. |
| |
(7)
| On February 2, 2017, we assumed the existing mortgage secured by Hudson Mall in connection with our acquisition of the property. The mortgage payable balance on the loan secured by Hudson Mall includes $1.6 million of unamortized debt premium as of September 30, 2017. The effective interest rate including amortization of the debt premium is 3.37%as of September 30, 2017.
|
| |
(8)
| Bears interest at one month LIBOR plus 160 bps. |
| |
(9)
| Reflects the $33 million existing mortgage assumed in connection with the acquisition of Yonkers Gateway Center on May 24, 2017. The mortgage payable balance on the loan secured by Yonkers Gateway Center includes $0.9 million of unamortized debt premium as of September 30, 2017. The effective interest rate including amortization of the debt premium is 1.77%as of September 30, 2017.
|
The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $1.3$1.5 billion as of September 30, 2017.2022. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and in certain circumstances require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity. As of September 30, 2017,2022, we were in compliance with all debt covenants.
As of September 30, 2017,2022, the principal repayments of the Company’s total outstanding debt for the nextremainder of 2022 and the five succeeding years, and thereafter are as follows:
| | | | | | | | |
(Amounts in thousands) | | |
Year Ending December 31, | | |
2022(1) | | $ | 4,576 | |
2023 | | 351,500 | |
2024 | | 166,383 | |
2025 | | 72,686 | |
2026 | | 229,556 | |
2027 | | 316,774 | |
Thereafter | | 562,599 | |
|
| | | | |
(Amounts in thousands) | | |
Year Ending December 31, | | |
2017(1) | | $ | 5,126 |
|
2018 | | 29,762 |
|
2019 | | 20,398 |
|
2020 | | 517,328 |
|
2021 | | 122,727 |
|
2022 | | 96,749 |
|
Thereafter | | 623,716 |
|
(1)Remainder of 2017.2022.
Revolving Credit Agreement
On January 15, 2015, we entered into a $500 million Revolving Credit Agreement (the “Agreement”) with certain financial institutions. On March 7, 2017, we amended and extended the Agreement. The amendment increasedAgreement to increase the credit facility size by $100 million to $600 million and extended the maturity date to March 7, 2021, with two six-month extension options. On July 29, 2019, we entered into a second amendment to the Agreement to extend the maturity date to January 29, 2024, with two six-month extension options.
On June 3, 2020, we entered into a third amendment to the Agreement, which among other things, modified certain definitions and the measurement period for certain financial covenants to a trailing four-quarter period instead of the most recent quarter annualized.
On August 9, 2022, we restated and amended the Agreement, which increased the credit facility size by $200 million to $800 million and extended the maturity date to February 9, 2027, with two six-month extension options. Borrowings under the amended Agreement are subject to interest at LIBORSOFR plus 1.15%1.05% to 1.50% and we are required to pay an annual facility fee of 15 to 30 basis points which is expensed within interest and debt expense as incurred.points. Both the spread over LIBORSOFR and the facility fee are based on our current leverage ratio and are subject to increase if our leverage ratio increases above predefined thresholds.change. The Agreement contains customary financial covenants including a maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x.
No amounts have beenwere drawn to dateor outstanding under the Agreement.Agreement as of September 30, 2022 or December 31, 2021. Financing feescosts associated with executing the Agreement of $3.5$7.2 million and $1.9$2.2 million as of September 30, 20172022 and December 31, 2016,2021, respectively, are included in deferred financing fees inthe prepaid expenses and other assets line item of the consolidated balance sheets.sheets, as deferred financing costs, net.
Mortgage on Las Catalinas Mall
In April 2020, we notified the servicer of the $129 million non-recourse mortgage loan on Las Catalinas Mall in Puerto Rico that cash flow would be insufficient to service the debt and that we were unwilling to fund the shortfalls. In December 2020, the non-recourse mortgage loan on Las Catalinas Mall was modified to convert the mortgage from an amortizing 4.43% loan to interest-only payments, starting at 3.00% in 2021 and increasing 50 basis points annually until returning to 4.43% in 2024 and thereafter. The terms of the modification enable the Company, at its option, to repay the loan at a discounted value of $72.5 million, beginning in August 2023 through the extended maturity date of February 2026.
While it is possible we will be able to repay the loan at the discounted value in the future, such repayment is contingent upon certain factors including the future operating performance of the property as well as the ability to meet all required payments on the loan. Therefore, in accordance with ASC 470-60 Troubled Debt Restructurings, the Company did not recognize a gain at the time of the restructuring, as the future cash payments, including contingent payments, are greater than the carrying value of the mortgage payable.
We have accrued interest of $5.4 million related to this mortgage, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of September 30, 2022. We incurred $1.2 million of lender fees in connection with the loan modification, which are treated as a reduction of the mortgage payable balance and amortized over the term of the loan in accordance with the provisions under ASC 470-60.
Mortgage on The Outlets at Montehiedra
In connection with the refinancing of the loan secured by The Outlets at Montehiedra (“Montehiedra”) in the second quarter of 2020, the Company provided a $12.5 million limited corporate guarantee. The guarantee is reduced commensurate with the loan amortization schedule and will reduce to zero in approximately 4 years. As of September 30, 2022, the remaining exposure under the guarantee is $8.5 million. There was no separate liability recorded related to this guarantee.
Mortgage on Plaza at Cherry Hill
On June 3, 2022, the Company refinanced the mortgage loan secured by its property, Plaza at Cherry Hill, located in Cherry Hill, NJ, with a new $29 million, 3-year, floating rate mortgage. The floating rate is calculated as the Prime Rate plus 50 basis points with a floor of 4.25% and is interest-only for the entire loan term.
Mortgage on Plaza at Woodbridge
On June 8, 2022, the Company refinanced the mortgage loan secured by its property, Plaza at Woodbridge, located in Woodbridge, NJ, and entered into a new 5-year loan agreement for $52.9 million. The terms of the loan require payment of interest at a floating rate equal to 2.26% plus one-month SOFR. Additionally, the agreement with the lender requires the Company to enter into an interest rate cap agreement to limit the maximum SOFR to 3% if the current rate is greater than 2% for five consecutive business days. On June 23, 2022, the Company purchased a one-year interest rate cap for $0.3 million which has been designated as a hedging instrument.
Mortgage on The Shops at Riverwood
On June 24, 2022, the Company obtained a 7-year non-recourse mortgage loan of $21.5 million at a fixed interest rate of 4.25% to partially fund the acquisition of The Shops at Riverwood.
7. INCOME TAXES
The Company has elected to qualifybe taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the filing of ourits 2015 tax return for its tax year ended December 31, 2015. With the 2015 fiscal year. Under those sections, aexception of the Company’s taxable REIT that distributes at least 90% of its REIT taxable income as a dividendsubsidiary (“TRS”), to its shareholders each year and whichthe extent the Company meets certain other conditionsrequirements under the Code, the Company will not be taxed on that portion of its taxable income which is distributed to its shareholders. As a REIT, we generally will not be subject to federal income taxes, provided that we distribute 100% of taxable income. It is our intention to adhere to the organizational and operational requirements to maintain our REIT status. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular corporate rates (including any alternative minimum tax)tax, which, for corporations, was repealed under the Tax Cuts and Jobs Act (“TCJA”) for tax years beginning after December 31, 2017) and may not be able to qualify as a REIT for the four subsequent taxable years. In addition to its TRS, the Company is subject to certain foreign, and state and local income taxes, in particular income taxes arising from its operating activities in Puerto Rico, which are included in income tax expense on the consolidated statements of income and comprehensive income.
The REITFor U.S. federal income tax purposes, the Company and the other minority members are partners in the Operating Partnership. As such, the partners are required to report their share of taxable income on their respective tax returns. We are alsoHowever, during the nine months ended September 30, 2022 and 2021, certain non-real estate operating activities that could not be performed by the Company, occurred through the Company’s TRS, which is subject to certain other taxes, includingfederal, state and local income taxes. These income taxes and franchise taxes which are included in general and administrative expenses inincome tax expense on the consolidated statements of income and comprehensive income.
Our twoDuring the nine months ended September 30, 2022, the Company was subject to Puerto Rico malls arecorporate income taxes on its allocable share of Puerto Rico operating activities. The Puerto Rico corporate income tax consists of a flat 18.5% tax rate plus a graduated income surcharge tax for a maximum corporate income tax rate of 37.5%. In addition, the Company is subject to a 29% non-resident withholding10% branch profits tax whichon the earnings and profits generated from its allocable share of Puerto Rico operating activities and such tax is included in income tax expense inon the consolidated statements of income and comprehensive income. The
For the three and nine months ended September 30, 2022, the Puerto Rico income tax expense recorded was $0.3$0.6 million and $2.3 million, respectively, and $0.7 million and $1.4 million for the quarterssame periods in 2021. The REIT was not subject to any material state and local income tax expense or benefit for the three and nine months ended September 30, 2017 and 2016, respectively, and $0.9 million and $0.3 million for2022. For the nine months ended September 30, 20172021, the REIT’s state and 2016, respectively. Both propertieslocal income tax benefit was $0.5 million. All amounts for the three and nine months ended September 30, 2022 and 2021 are heldincluded in a special partnershipincome tax expense on the consolidated statements of income and comprehensive income.
8. LEASES
All rental revenue was generated from operating leases for Puerto Rico tax reporting (the general partner being a qualified REIT subsidiary or “QRS”).the three and nine months ended September 30, 2022 and 2021. The components of rental revenue for the three and nine months ended September 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Rental Revenue | | | | | | | |
Fixed lease revenue | $ | 73,111 | | | $ | 80,961 | | | $ | 216,356 | | | $ | 216,200 | |
Variable lease revenue(1) | 25,064 | | | 25,024 | | | 78,689 | | | 78,057 | |
Total rental revenue | $ | 98,175 | | | $ | 105,985 | | | $ | 295,045 | | | $ | 294,257 | |
(1) Percentage rents for the three and nine months ended September 30, 2022 were $1.0 million and $2.6 million, respectively, and $0.8 million and $1.5 million for the same periods in 2021.
9. FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of one interest rate cap and one interest rate swap. We rely on third-party valuations that use market observable inputs, such as credit spreads, yield curves and discount rates, to assess the fair value of these instruments. In accordance with the fair value hierarchy established by ASC 820, these financial instruments have been classified as Level 2 as quoted market prices are not readily available for valuing the assets. The table below summarizes the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2022 |
(Amounts in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Interest rate cap and swap(1) | | $ | — | | | $ | 1,966 | | | $ | — | | | $ | 1,966 | |
| | | | | | | | |
| | |
| | | | | | | | |
(1) Included in Prepaid expenses and other assets on the consolidated balance sheets.
There were no financial assets or liabilities measured at fair value on a recurring basis as of December 31, 2021.
Derivatives and Hedging
When we designate a derivative as a hedge, depending on the nature of the hedge, changes in the fair value of the instrument will be recognized in OCI until the gains or losses are reclassified to earnings. Derivatives that are not designated as hedges are adjusted to fair value through earnings. As of September 30, 20172022, the Company was a counterparty to two interest rate derivative agreements which have been designated as cash flow hedges.
On June 23, 2022, in conjunction with the refinancing of the mortgage loan encumbering our property Plaza at Woodbridge, we entered into an interest rate cap agreement (the “Cap Agreement”) with a third-party to limit the maximum SOFR of our floating rate debt to 3%. On the date of the Cap Agreement, we elected to designate cash flow hedge accounting for this derivative instrument.
The table below summarizes our derivative instruments, which are used to hedge the corresponding variable rate debt, as of September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in thousands) | | | | | | | | | | | | |
Hedged Instrument | | Fair Value | | Notional Amount | | Spread | | Interest Rate | | Effective Interest Rate | | Expiration |
Plaza at Woodbridge interest rate cap | | $ | 444 | | | $ | 52,947 | | | SOFR + 2.26% | | 4.66% | | 4.66% | | 7/1/2023 |
Montclair interest rate swap | | 1,522 | | | 7,250 | | | LIBOR + 2.57% | | 5.39% | | 3.15% | | 8/15/2030 |
The table below summarizes the effect of our derivative instruments on our consolidated statements of income and December 31, 2016.comprehensive income for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized Gain Recognized in OCI on Derivatives |
(Amounts in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Hedged Instrument | | 2022 | | 2021 | | 2022 | | 2021 |
Plaza at Woodbridge interest rate cap | | $ | 290 | | | $ | — | | | $ | 236 | | | $ | — | |
Montclair interest rate swap | | 342 | | | — | | | 342 | | — | |
Total | | $ | 632 | | | $ | — | | | $ | 578 | | | $ | — | |
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
There were no financial assets or liabilities measured at fair value on a non-recurring basis as of September 30, 20172022 and December 31, 2016.2021.
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on the consolidated balance sheets include cash and cash equivalents and mortgages payable. Cash and cash equivalents are carried at cost, which approximates fair value. The fair value of mortgages payable is calculated by discounting the future contractualbased on current market prices and discounted cash flows of these instruments usingat the current risk-adjusted rates availablerate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt, which areis provided by a third-party specialist. The fair value of cash and cash equivalents is classified as Level 1 and the fair value of mortgages payable is classified as Level 2. The table below summarizes the carrying amounts and fair value of theseour Level 2 financial instruments as of September 30, 20172022 and December 31, 2016.2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2022 | | As of December 31, 2021 |
(Amounts in thousands) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Mortgages payable(1) | | $ | 1,704,074 | | | $ | 1,545,402 | | | $ | 1,695,408 | | | $ | 1,692,674 | |
|
| | | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
(Amounts in thousands) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | |
| | |
| | |
| | |
|
Cash and cash equivalents | | $ | 380,395 |
| | $ | 380,395 |
| | $ | 131,654 |
| | $ | 131,654 |
|
Liabilities: | | |
| | |
| | |
| | |
|
Mortgages payable(1) | | $ | 1,415,806 |
| | $ | 1,432,817 |
| | $ | 1,205,560 |
| | $ | 1,216,989 |
|
(1)Carrying amounts exclude unamortized debt issuance costs of $7.7$8.3 million and $8.0$8.2 million as of September 30, 20172022 and December 31, 2016,2021, respectively.
The following market spreads were used byNonfinancial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We assess the Company to estimate the faircarrying value of mortgages payable:our properties for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
No material impairment charges were recognized during the three and nine months ended September 30, 2022 or 2021. |
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Low | | High | | Low | | High |
Mortgages payable | 1.8% | | 2.2% | | 2.0% | | 2.3% |
10. COMMITMENTS AND CONTINGENCIES
ThereLegal Matters
From time to time, we are a party to various legal actions against us in theproceedings, claims or regulatory inquiries and investigations arising out of, or incident to, our ordinary course of business. In our opinion, after consultationWhile we are unable to predict with legal counsel,certainty the outcome of any particular matter, management does not currently expect, when such matters are resolved, that our resulting exposure to loss contingencies, if any, will not have a material adverse effect on our financial condition, results of operations or cash flows.consolidated financial position.
Loan Commitments: In January 2015, we completed the modification
Redevelopment and Anchor Repositioning
The Company has 23 active development, redevelopment or anchor repositioning projects with total estimated costs of the $120.0$260.9 million, 6.04% mortgage loan secured by Montehiedra Town Center. As part of the planned redevelopment of the property, we committedwhich $174.9 million remains to fund $20.0 million for leasing and building capital expenditures which has been fullybe funded as of September 30, 2017.2022. We continue to monitor the stabilization dates of these projects, which can be impacted from economic conditions affecting our tenants, vendors and supply chains. We have identified future projects in our development pipeline, but we are under no obligation to execute and fund any of these projects and each of these projects is being further evaluated based on market conditions.
Redevelopment: As of September 30, 2017, we had approximately $199.4 million of active development, redevelopment and anchor repositioning projects underway of which $109.4 million remains to be funded. Based on current plans and estimates we anticipate the remaining amounts will be expended over the next two years.
Insurance
We maintainThe Company maintains numerous insurance policies including for general liability, insurance with limitsproperty, pollution, acts of $200 million for properties interrorism, trustees’ and officers’, cyber, workers’ compensation and automobile-related liabilities. However, all such policies are subject to terms, conditions, exclusions, deductibles and sub-limits, amongst other limiting factors. For example, the U.S. and Puerto Rico and all-risk property and rental valueCompany’s terrorism insurance coverage with limits of $500 million for properties in the U.S. and $139 million for properties in Puerto Rico, with sub-limits for certain perils such as floods and earthquakes on each of our properties. Our insurance includes coverage for terrorism acts but excludes coverage for nuclear, biological, chemical or radiological terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. In addition, we maintainAct.
The Company’s primary and excess insurance policies providing coverage for cybersecurity with limitspollution-related losses have an aggregate limit of $5$50 million and provide remediation and business interruption coverage for pollution incidents, which pursuant to our policies, expressly include the presence and dispersal of viruses. On December 23, 2020, the Company initiated litigation in New Jersey state court, Bergen County, under these policies to recover uncollected rents and other amounts resulting from the aggregate providing first and third party coverage including network interruption, event management, cyber extortion and claims for media content, security and privacy liability. COVID-19 virus.
Insurance premiums are typically charged directly to each of the retail properties and warehouses. We will bebut not all of the cost of such premiums are recovered. The Company is responsible for deductibles, and losses in excess of insurance coverage, and the portion of premiums not reimbursable by tenants at our properties, which could be material.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, weavailable coverage. We cannot anticipate what coverage will be available on commercially reasonable terms in the future.future and expect premiums across most coverage lines to increase in light of recent events. The incurrence of uninsured losses, costs or uncovered premiums could materially and adversely affect our business, results of operations and consolidated financial position.
Our mortgageCertain of our loans are non-recourse and other agreements contain customary covenants requiring adequatethe maintenance of insurance coverage. Although we believe that we currently have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders or other counterparties insist on greater coverage than we are able to obtain, itsuch requirement could materially and adversely affect our ability to finance our properties and expand our portfolio.
Hurricane-Related Charges
On September 20, 2017, Hurricane Maria made landfall on Puerto Rico and damaged our two properties. The Company estimates it will spend approximately $6.5 million repairing its properties and expects insurance proceeds to cover these costs in addition to business interruption losses, subject to applicable deductibles estimated to be approximately $2.5 million. Based on management’s estimates, which are subject to change, the Company recognized a $2.2 million charge reflecting the net book value of assets damaged during the third quarter.
All anchor tenants are open for business with the exception of Marshalls at Montehiedra, which requires substantial restoration work. The Company has made significant progress remediating the damage to its assets, but full operations, particularly with respect to the interior of each mall, will not resume until power is restored on a continuous basis, the timing of which is uncertain and outside the Company’s control.
The Company has comprehensive, all-risk property and rental value insurance coverage on these properties, including business interruption, with a limit of $139 million per occurrence and in the aggregate and with sub-limits for certain perils such as floods, earthquakes, civil authority and service interruption. Our deductible for windstorm is 2% of total insured value and business interruption coverage has a deductible equal to three days of cessation of operations. No determination has been made as to the total amount or timing of insurance payments that may be received as a result of the hurricane.
The Company has received a $1.0 million cash advance from its insurance provider for the business interruption caused to these properties. Approximately $0.5 million of the advance is included in property rentals on our consolidated statement of income which offsets rent abatements due to tenants in September. The remaining $0.5 million is recorded as deferred revenue and is included in accounts payable and accrued expenses on our consolidated balance sheet as of September 30, 2017 and will be recognized as earned in subsequent periods.
As of September 30, 2017, the Company has individual, non-recourse mortgages on each of the properties as follows: a $116.4 million mortgage, comprised of a senior and junior loan, maturing in July 2021 secured by the Montehiedra Town Center and a $130.0 million mortgage maturing in August 2024 secured by the Las Catalinas Mall.
Environmental Matters
Each of our properties has been subjected to varying degrees of environmental assessment at various times. Based on these assessments, and the projected remediation costs, we have accrued costs of $1.2$1.6 million and $1.3$1.7 million on our consolidated
balance sheets as of September 30, 20172022 and December 31, 2016,2021, respectively, for potential remediation costs for environmental contamination at twocertain properties. While this accrual reflects our best estimates of the potential costs of remediation at these properties, $0.1 million has currently been expended during the nine months ended September 30, 2017 and there can be no assurance that the actual costs will not exceed this amount. With respect to ourthese amounts. Although we are not aware of any other properties, the environmental assessments did not reveal any material environmental contamination. However,contamination, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
Although our rental revenue is supported by long-term leases, leases may be rejected in a bankruptcy proceeding and the related tenant stores may permanently vacate prior to lease expiration. In the event a tenant with a significant number of leases or square footage in our shopping centers files for bankruptcy and rejects its leases with us, we could experience a reduction in our revenues. We monitor the operating performance and rent collections of all tenants in our shopping centers, especially those tenants in arrears or operating retail formats that are experiencing significant changes in competition, business practice, or store closings in other locations. As of September 30, 2022, there are no tenant bankruptcies that we believe will have a material adverse effect on our results of operations or consolidated financial position.
11. PREPAID EXPENSES AND OTHER ASSETS
The following is a summary of the composition of the prepaid expenses and other assets inon the consolidated balance sheets:
| | | Balance at | | Balance at |
(Amounts in thousands) | September 30, 2017 | | December 31, 2016 | (Amounts in thousands) | September 30, 2022 | | December 31, 2021 |
Deferred tax asset, net | | Deferred tax asset, net | $ | 35,252 | | | $ | 37,420 | |
Other assets | $ | 3,600 |
| | $ | 2,161 |
| Other assets | 19,111 | | | 19,712 | |
Deposits for acquisitions | — |
| | 6,600 |
| |
Deferred financing costs, net of accumulated amortization of $6,856 and $5,932, respectively | | Deferred financing costs, net of accumulated amortization of $6,856 and $5,932, respectively | 7,154 | | | 2,234 | |
Finance lease right-of-use asset | | Finance lease right-of-use asset | 2,724 | | | 2,724 | |
| Prepaid expenses: | | | | Prepaid expenses: | |
Real estate taxes | 7,425 |
| | 5,198 |
| Real estate taxes | 8,591 | | | 9,982 | |
Insurance | 4,400 |
| | 2,545 |
| Insurance | 3,536 | | | 1,088 | |
Rent, licenses/fees | 1,492 |
| | 938 |
| |
Total Prepaid expenses and other assets | $ | 16,917 |
| | $ | 17,442 |
| |
Licenses/fees | | Licenses/fees | 1,281 | | | 951 | |
Total prepaid expenses and other assets | | Total prepaid expenses and other assets | $ | 77,649 | | | $ | 74,111 | |
|
12. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
The following is a summary of the composition of accounts payable, accrued expenses and other liabilities inon the consolidated balance sheets:
| | | | | | | | | | | |
| Balance at |
(Amounts in thousands) | September 30, 2022 | | December 31, 2021 |
Deferred tenant revenue | $ | 25,273 | | | $ | 28,898 | |
Accrued capital expenditures and leasing costs | 18,066 | | | 19,164 | |
Accrued interest payable | 10,481 | | | 9,879 | |
Other liabilities and accrued expenses | 8,085 | | | 8,057 | |
Security deposits | 7,246 | | | 6,693 | |
Accrued payroll expenses | 6,546 | | | 9,134 | |
Finance lease liability | 3,013 | | | 3,004 | |
Total accounts payable, accrued expenses and other liabilities | $ | 78,710 | | | $ | 84,829 | |
| | | |
|
| | | | | | | |
| Balance at |
(Amounts in thousands) | September 30, 2017 | | December 31, 2016 |
Deferred ground rent expense | $ | 6,445 |
| | $ | 6,284 |
|
Deferred tax liability, net | 3,867 |
| | 3,802 |
|
Deferred tenant revenue | 4,532 |
| | 3,280 |
|
Environmental remediation costs | 1,232 |
| | 1,309 |
|
Other liabilities | 466 |
| | — |
|
Total Other liabilities | $ | 16,542 |
| | $ | 14,675 |
|
13. INTEREST AND DEBT EXPENSE
The following table sets forth the details of interest and debt expense:expense on the consolidated statements of income and comprehensive income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Interest expense | $ | 14,344 | | | $ | 13,893 | | | $ | 41,056 | | | $ | 41,946 | |
Amortization of deferred financing costs | 922 | | | 745 | | | 2,455 | | | 2,247 | |
Total interest and debt expense | $ | 15,266 | | | $ | 14,638 | | | $ | 43,511 | | | $ | 44,193 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Interest expense | $ | 13,913 |
| | $ | 12,043 |
| | $ | 39,204 |
| | $ | 36,909 |
|
Amortization of deferred financing costs | 724 |
| | 723 |
| | 2,175 |
| | 2,106 |
|
Total Interest and debt expense | $ | 14,637 |
| | $ | 12,766 |
| | $ | 41,379 |
| | $ | 39,015 |
|
14. EQUITY AND NONCONTROLLING INTEREST
At-The-Market Program
In 2016,On August 15, 2022 the Company establishedand the Operating Partnership entered into an at-the-market (“ATM”equity distribution agreement (the “Equity Distribution Agreement”) equity program, pursuantwith various financial institutions acting as agents, forward sellers, and forward purchasers. Pursuant to whichthe Equity Distribution Agreement, the Company may offer and sell from time to time itsoffer and sell, through the agents and forward sellers, the Company’s common shares, par value $0.01 per share, withhaving an aggregate gross salesoffering price of up to $250.0$250 million through a consortium(the “ATM Program”). Concurrently with the Equity Distribution Agreement, the Company entered into separate master forward confirmations (collectively, the “Master Confirmations”) with each of broker dealers actingthe forward purchasers. Sales under the ATM Program may be made from time to time, as needed, by means of ordinary brokers’ transactions or other transactions that are deemed to
be “at the market” offerings, in privately negotiated transactions, which may include block trades, or as otherwise agreed with the sales agents. The ATM Program replaces the Company’s previous at-the-market program established on June 7, 2021.
The Equity Distribution Agreement provides that the Company may also enter into forward sale agreements pursuant to any Master Confirmation and related supplemental confirmations with the forward purchasers. In connection with any forward sale agreement, a forward purchaser will, at the Company’s request, borrow from third parties, through its forward seller, and sell a number of shares equal to the amount provided in such agreement.
As of September 30, 2017, $241.3 million of2022, the Company has not issued any common shares remained available for issuance under this ATM equity program and there were no common shares issued under the ATM equity program during the nine months ended September 30, 2017. From September 2016 to December 31, 2016, the Company issued 307,342 common shares at a weighted average price of $28.45 under its ATM equity program, generating cash proceeds of $8.7 million. We paid $0.1 million of commissions to distribution agents and $0.4 million in additional offering expenses related to the issuance of these common shares. Actual futureProgram. Future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common shares, and our capital needs. We haveThe Company has no obligation to sell the remainingany shares available under the active ATM equity program.Program.
Underwritten Public Offering
On May 10, 2017,Share Repurchase Program
The Company has a share repurchase program for up to $200 million, under which, the Company issued 7.7may repurchase its shares from time to time in the open market or in privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18. The amount and timing of the purchases will depend on a number of factors including the price and availability of the Company’s shares, trading volume and general market conditions. The share repurchase program does not obligate the Company to acquire any particular amount of common shares and may be suspended or discontinued at any time at the Company’s discretion.
During the nine months ended September 30, 2022 and 2021, no shares were repurchased by the Company. As of September 30, 2022, the Company has repurchased 5.9 million common shares of beneficial interest in an underwritten public offering pursuant to the Company’s effective shelf registration statement previously filed on Form S-3 (File No. 333-212951) with the SEC on August 5, 2016. This offering generated cash proceeds of $193.5 million, net of $1.3 million of issuance costs.
Stock Purchase Agreement
On August 4, 2017, the Company issued 6.25 million common shares of beneficial interest to a large institutional investor at a netweighted average share price of $24.80 per$9.22, for a total of $54.1 million. All share pursuant to the Company’s effective shelf registration statement previously filed on Form S-3 (File No. 333-212951) with the SEC on August 5, 2016. The issuance was a direct sale with no underwriter or placement agent such that net cash proceeds torepurchases by the Company were $155 million.completed between March and April of 2020. There is approximately $145.9 million remaining for share repurchases under this program.
Units of the Operating Partnership
An equivalent numberThe Operating Partnership’s capital includes general and common limited partnership interests in the operating partnership. As of September 30, 2022, Urban Edge owned approximately 95.9% of the outstanding common units were issuedOP Units with the remaining limited OP Units held by members of management, Urban Edge’s Board of Trustees and contributors of property interests acquired. Urban Edge serves as the sole general partner of the Operating Partnership. The third-party unitholders have limited rights over the Operating Partnership to the Company in connection with the Company’s issuancesuch that they do not have characteristics of common shares of beneficial interest, as discussed above.
The Operating Partnership issued 1.8 million OP units in connection with the acquisition of Yonkers Gateway Center on January 4, 2017, at a value of $27.09 per unit. On May 24 and 25, 2017,controlling financial interest. As such, the Operating Partnership issued 2.6 million OP unitsis considered a VIE, and 1.9 million OP units, respectively, in connection with the Portfolio acquisition atCompany is the primary beneficiary which consolidates it. The Company’s only investment is the Operating Partnership. The VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a value of $27.02 per unit (refer to Note 4 Acquisitions and Dispositions).majority voting interest.
Dividends and Distributions
During the three months ended September 30, 20172022 and 2016,2021, the Company declared dividendsdistributions on our common shares and OP unit distributionsUnits of $0.22$0.16 and $0.20$0.15 per share/unit, respectively. During the nine months ended September 30, 20172022 and 2016, 2021, respectively, the Company declared distributions on common stock dividendsshares and OP unit distributionsUnits of $0.66$0.48 and $0.60$0.45 per share/unit respectively.in the aggregate.
Redeemable
Noncontrolling Interests in Operating Partnership
Redeemable noncontrollingNoncontrolling interests in the Operating Partnership reflected on the consolidated balance sheets of the Company are comprised of OP unitsUnits and limited partnership interests in the Operating Partnership in the form of LTIP unitUnit awards. In connection with the separation, the Company issued 5.7 million OP units, representing a 5.4% interest in the Operating Partnership to VRLP in exchange for interests in VRLP properties contributed by VRLP. LTIP unitUnit awards were granted to certain executives pursuant to our 2015 Omnibus Share Plan (the “Omnibus Share Plan”) and our 2018 Inducement Equity Plan (the “Inducement Plan”). OP unitsUnits were issued to contributors in exchange for their property interests in connection with the Company’s acquisition of Yonkers Gateway Center and the Portfolio acquisition. property acquisitions in 2017.
The total of the OP unitsUnits and LTIP unitsUnits represent a 10.3%4.1% and 9.0%4.0% weighted-average interest in the Operating Partnership for the three and nine months ended September 30, 2017,2022, respectively. Holders of outstanding vested LTIP unitsUnits may, from and after two years from the date of issuance, redeem their LTIP unitsUnits for cash, or for the Company’s common shares on a one-for-one basis, solely at our election. Holders of outstanding OP unitsUnits may at a determinable date, redeem their units for cash or the Company’s common shares on a one-for-one basis, solely at our election.
Noncontrolling InterestInterests in Consolidated Subsidiaries
The Company’s noncontrolling interest relatesinterests relate to the 5% interest held by others in our property in Walnut Creek, CA (Mount Diablo). and 17.5% held by others in our property in Massapequa, NY. The net income attributable to noncontrolling interestinterests is presented separately inon our consolidated statements of income and comprehensive income.
15. SHARE-BASED COMPENSATION
2017 Outperformance Plan
On February 24, 2017, the Compensation Committee of the Board of Trustees of the Company approved the Company’s 2017 Outperformance Plan (“2017 OPP”), a multi-year performance-based equity compensation program. Under the 2017 OPP, participants, including our Chairman and Chief Executive Officer, have the opportunity to earn awards in the form of LTIP units if, and only if, we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR in any year during the requisite performance periods as described below. The aggregate notional amount of the 2017 OPP grant is $12.0 million.
Awards under the 2017 OPP may be earned if we (i) achieve a TSR level greater than 7% per annum, or 21% over the three-year performance measurement period, and/or (ii) achieve a TSR equal to or above, that of the 50th percentile of a retail REIT peer group comprised of 14 of our peer companies, over a three-year performance measurement period. Distributions on awards accrue during the measurement period, except that 10% of such distributions are paid in cash. If the designated performance objectives are achieved, LTIP units are also subject to time-based vesting requirements. Awards earned under the 2017 OPP vest 50% in year three, 25% in year four and 25% in year five.
The fair value of the 2017 OPP on the date of grant was $4.1 million using a Monte Carlo simulation to estimate the fair value based on the probability of satisfying the market conditions and the projected share price at the time of payment, discounted to the valuation date over a three-year performance period. Assumptions include historic volatility (19.7%), risk-free interest rates (1.5%), and historic daily return as compared to our Peer Group. Such amount is being amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model.
Share-Based Compensation Expense
Share-based compensation expense, which is included in general and administrative expenses in our consolidated statements of income and comprehensive income, is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Share-based compensation expense components: | | | | | | | |
Time-based LTIP expense(1) | $ | 1,357 | | | $ | 1,326 | | | $ | 3,820 | | | $ | 3,659 | |
Performance-based LTIP expense(2) | 885 | | | 976 | | | 2,862 | | | 2,889 | |
Stock option expense | 206 | | | 384 | | | 647 | | | 1,181 | |
Restricted share expense | 98 | | | 98 | | | 272 | | | 365 | |
Deferred share unit (“DSU”) expense | 34 | | | 25 | | | 76 | | | 124 | |
Total Share-based compensation expense | $ | 2,580 | | | $ | 2,809 | | | $ | 7,677 | | | $ | 8,218 | |
(1) Expense for the three and nine months ended September 30, 2022 includes the 2022, 2021, 2020 and 2019 LTI Plans.
(2) Expense for the three and nine months ended September 30, 2022 includes the 2017 OPP plan and the 2022, 2021, 2020, 2019, and 2018 LTI Plans.
Equity award activity during the nine months ended September 30, 2022 included: (i) 408,845 stock options vested, (ii) 341,789 LTIP Units vested, (iii) 332,458 LTIP Units granted, (iv) 44,214 restricted shares granted, (v) 23,652 restricted shares vested, (vi) 19,974 LTIP Units forfeited, and (vii) 13,924 restricted shares forfeited.
2022 Long-Term Incentive Plan
On February 11, 2022, the grant date, the Compensation Committee of the Board of Trustees approved the 2022 Long-Term Incentive Plan (“2022 LTI Plan”). The plan is a multi-year, equity compensation program under which participants, including our Chairman and Chief Executive Officer, receive awards in the form of LTIP Units that, with respect to one half of the program, vest based solely on the passage of time, and with respect to the other half of the program, are earned and vest if certain relative and absolute total shareholder return (“TSR”) and/or funds from operations (“FFO”) growth targets are achieved by the Company over a three-year performance period. The total grant date fair value under the 2022 LTI Plan was $8.6 million comprising both performance-based and time-based awards as described further below:
Performance-based awards
For the performance-based awards under the 2022 LTI plan, participants have the opportunity to earn awards in the form of LTIP Units if Urban Edge’s absolute and/or relative TSR meets certain criteria over the three-year performance measurement period (the “TSR Performance Period”) beginning on February 11, 2022 and ending on February 10, 2025. Participants also have the opportunity to earn awards in the form of LTIP Units if Urban Edge’s FFO growth component meets certain criteria over the three-year performance measurement period (the “FFO Performance Period”) beginning January 1, 2022 and ending on December 31, 2024. The Company granted performance-based awards under the 2022 LTI Plan representing 349,438 Units. The fair value of the performance-based award portion of the 2022 LTI Plan on the grant date was $4.3 million using a Monte Carlo simulation to estimate the fair value of the Absolute and Relative components through a risk-neutral premise.
Under the absolute TSR component, 50% of the LTIP Units will be earned if the Company’s TSR over the TSR Performance Period is equal to 18%, 100% of the LTIP Units will be earned if the Company’s TSR over the TSR Performance Period is equal to 27%, and 200% of the LTIP Units will be earned if the Company’s TSR over the TSR Performance Period is equal to or greater than 36%. The relative TSR component is based on the Company’s performance compared to a peer group comprised of 14 companies. Under the relative TSR Component, 50% of the LTIP Units will be earned if the Company’s TSR over the TSR Performance Period is equal to the 35th percentile of the peer group, 100% of the LTIP Units will be earned if the Company’s TSR over the TSR Performance Period is equal to the 55th percentile of the peer group, and 200% of the LTIP Units will be earned if the Company’s TSR over the TSR Performance Period is equal to or above the 75th percentile of the peer group. Under the FFO growth component, 50% of the LTIP Units will be earned if the Company’s FFO growth over the FFO Performance Period is equal to 3%, 100% of the LTIP Units will be earned if the Company’s FFO growth over the FFO Performance Period is equal to 5%, and 200% of the LTIP Units will be earned if the Company’s FFO growth over the FFO Performance Period is equal to or greater than 7%. If the Company’s performance-based awards are between such thresholds, earnings will be determined using linear interpolation.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Share-based compensation expense components: | | | | | | |
Restricted share expense | $ | 527 |
| | $ | 352 |
| | $ | 1,435 |
| | $ | 968 |
|
Stock option expense | 650 |
| | 604 |
| | 1,919 |
| | 1,833 |
|
LTIP expense | 147 |
| | 95 |
| | 410 |
| | 378 |
|
Outperformance Plan (“OPP”) expense | 565 |
| | 308 |
| | 1,484 |
| | 901 |
|
Total Share-based compensation expense | $ | 1,889 |
| | $ | 1,359 |
| | $ | 5,248 |
| | $ | 4,080 |
|
Time-based awards
The time-based awards granted under the 2022 LTI Plan, also granted in the form of LTIP Units, vest ratably over three years except in the case of our Chairman and Chief Executive Officer, where the vesting is ratable over four years. As of September 30, 2022, the Company granted time-based awards under the 2022 LTI Plan that represent 266,766 LTIP Units with a grant date fair value of $4.3 million.
16. EARNINGS PER SHARE AND UNIT
Urban Edge Earnings per Share
We have calculatedcalculate earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation methodology whereby EPS for each class of Urban Edge common shares and participating securities is calculated according to dividends declared and participating rights in undistributed earnings. Restricted shares issued pursuant to our share-based compensation program are considered participating securities, and as such have non-forfeitable rights to receive dividends.
The following table sets forth the computation of our basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net income attributable to common shareholders | $ | 11,383 | | | $ | 27,766 | | | $ | 32,495 | | | $ | 60,233 | |
Less: Earnings allocated to unvested participating securities | (6) | | | (12) | | | (17) | | | (29) | |
Net income available for common shareholders - basic | $ | 11,377 | | | $ | 27,754 | | | $ | 32,478 | | | $ | 60,204 | |
Impact of assumed conversions: | | | | | | | |
OP and LTIP Units | 388 | | | — | | | 1,103 | | | 2,608 | |
Net income available for common shareholders - dilutive | $ | 11,765 | | | $ | 27,754 | | | $ | 33,581 | | | $ | 62,812 | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 117,382 | | | 117,087 | | | 117,359 | | | 117,009 | |
Effect of dilutive securities(1): | | | | | | | |
| | | | | | | |
Restricted share awards | 58 | | | 50 | | | 61 | | | 56 | |
Assumed conversion of OP and LTIP Units | 4,243 | | | — | | | 4,052 | | | 5,147 | |
Weighted average common shares outstanding - diluted | 121,683 | | | 117,137 | | | 121,472 | | | 122,212 | |
| | | | | | | |
Earnings per share available to common shareholders: | | | | | | | |
Earnings per common share - Basic | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.51 | |
Earnings per common share - Diluted | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.51 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net income attributable to common shareholders | $ | 17,178 |
| | $ | 19,265 |
| | $ | 81,347 |
| | $ | 71,771 |
|
Less: Earnings allocated to unvested participating securities | (39 | ) | | (26 | ) | | (133 | ) | | (88 | ) |
Net income available for common shareholders - basic | $ | 17,139 |
| | $ | 19,239 |
| | $ | 81,214 |
| | $ | 71,683 |
|
Impact of assumed conversions: | | | | | | | |
OP and LTIP units | — |
| | — |
| | 7,175 |
| | — |
|
Net income available for common shareholders - dilutive | $ | 17,139 |
| | $ | 19,239 |
| | $ | 88,389 |
| | $ | 71,683 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 110,990 |
| | 99,304 |
| | 104,938 |
| | 99,281 |
|
Effect of dilutive securities(1): | | | | | | | |
Stock options using the treasury stock method | 94 |
| | 436 |
| | 180 |
| | 259 |
|
Restricted share awards | 176 |
| | 130 |
| | 164 |
| | 109 |
|
Assumed conversion of OP and LTIP units | — |
| | — |
| | 10,041 |
| | 62 |
|
Weighted average common shares outstanding - diluted | 111,260 |
| | 99,870 |
| | 115,323 |
| | 99,711 |
|
| | | | | | | |
Earnings per share available to common shareholders: | | | | | | | |
Earnings per common share - Basic | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
Earnings per common share - Diluted | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
(1) For the three and nine months ended September 30, 2016 and the three months endedSeptember 30, 20172022, the effect of the redemption of certain OP and LTIP unitsUnits for Urban Edge common shares would have an anti-dilutive effect on the calculation of diluted EPS. Accordingly, the impact of such redemption has not been included in the determination of diluted EPS for these periods.
Operating Partnership Earnings per Unit
The following table sets forth the computation of basic and diluted earnings per unit:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands, except per unit amounts) | 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net income attributable to unitholders | $ | 11,838 | | | $ | 28,915 | | | $ | 33,843 | | | $ | 62,841 | |
Less: net income attributable to participating securities | (6) | | | (12) | | | (17) | | | (29) | |
Net income available for unitholders | $ | 11,832 | | | $ | 28,903 | | | $ | 33,826 | | | $ | 62,812 | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average units outstanding - basic | 121,405 | | | 120,903 | | | 121,320 | | | 120,839 | |
Effect of dilutive securities issued by Urban Edge | 58 | | | 50 | | | 61 | | | 56 | |
Unvested LTIP Units | 220 | | | 1,034 | | | 276 | | | 1,317 | |
Weighted average units outstanding - diluted | 121,683 | | | 121,987 | | | 121,657 | | | 122,212 | |
| | | | | | | |
Earnings per unit available to unitholders: | | | | | | | |
Earnings per unit - Basic | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.52 | |
Earnings per unit - Diluted | $ | 0.10 | | | $ | 0.24 | | | $ | 0.28 | | | $ | 0.51 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands, except per unit amounts) | 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net income attributable to unitholders | $ | 19,145 |
| | $ | 20,504 |
| | $ | 88,778 |
| | $ | 76,365 |
|
Less: net income attributable to participating securities | (39 | ) | | (43 | ) | | (142 | ) | | (174 | ) |
Net income available for unitholders | $ | 19,106 |
|
| $ | 20,461 |
|
| $ | 88,636 |
|
| $ | 76,191 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average units outstanding - basic | 123,433 |
| | 105,404 |
| | 114,979 |
| | 105,370 |
|
Effect of dilutive securities issued by Urban Edge | 270 |
| | 566 |
| | 344 |
| | 368 |
|
Unvested LTIP units | — |
| | — |
| | — |
| | 62 |
|
Weighted average units outstanding - diluted | 123,703 |
| | 105,970 |
| | 115,323 |
| | 105,800 |
|
| | | | | | | |
Earnings per unit available to unitholders: | | | | | | | |
Earnings per unit - Basic | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
Earnings per unit - Diluted | $ | 0.15 |
| | $ | 0.19 |
| | $ | 0.77 |
| | $ | 0.72 |
|
17. SUBSEQUENT EVENTS
Pursuant to the Subsequent Events Topic of the FASB ASC, we have evaluated subsequent events and transactions that occurred after our September 30, 2017 consolidated balance sheet date for potential recognition or disclosure in our consolidated financial statements. Based on this evaluation, the Company has determined there are no subsequent events required to be disclosed.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein 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, business and businesstargeted occupancy may differ materially from those expressed in these forward-looking statements. You can findidentify 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 Quarterly Report on Form 10-Q. 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 factorspredict and include, among others,others: (i) the estimated remediationeconomic, political and repair costssocial impact of, and uncertainty relating to, the COVID-19 pandemic and related COVID-19 variants, including its potential impact on our retail tenants and their ability to Hurricane Mariamake rent and other payments or honor their commitments under existing leases; (ii) the loss or bankruptcy of major tenants; (iii) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration and the timingCompany’s ability to re-lease its properties on the same or better terms, or at all, in the event of re-openingnon-renewal or in the event the Company exercises its right to replace an existing tenant; (iv) the impact of e-commerce on our tenants’ business; (v) macroeconomic conditions, such as rising inflation and resumptiondisruption of, full operationsor lack of access to, the capital markets, as well as potential volatility in the Company’s share price; (vi) the Company’s success in implementing its business strategy and its ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (vii) changes in general economic conditions or economic conditions in the markets in which the Company competes, and their effect on the Company’s revenues, earnings and funding sources, and on those of its tenants; (viii) increases in the Company’s borrowing costs as a result of changes in interest rates, rising inflation, and other factors, including the discontinuation of USD LIBOR, which is currently anticipated to occur in 2023; (ix) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due and potential limitations on the Company’s ability to borrow funds under its existing credit facility as a result of covenants relating to the Company’s financial results; (x) potentially higher costs associated with the Company’s development, redevelopment and anchor repositioning projects, and the Company’s ability to lease the properties at projected rates; (xi) the affected properties.Company’s liability for environmental matters; (xii) damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change; (xiii) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (xiv) information technology security breaches; (xv) the loss of key executives; and (xvi) the accuracy of methodologies and estimates regarding our environmental, social and governance (“ESG”) metrics, goals and targets, tenant willingness and ability to collaborate towards reporting ESG metrics and meeting ESG goals and targets, and the impact of governmental regulation on our ESG efforts. 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2021 and the other documents filed by the Company with the SEC, including the information contained in this Quarterly Report on Form 10-Q.
For these statements, weWe claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.1995 for any forward-looking statements included in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
Overview
Urban Edge Properties (“UE”, “Urban Edge” or the “Company”) (NYSE: UE) is a Maryland real estate investment trust that owns, manages, acquires, develops, redevelops, and operatesacquires retail real estate, primarily in high barrier-to-entry markets.the Washington, D.C. to Boston corridor. Urban Edge Properties LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as the Company’sUE’s majority-owned partnership subsidiary and to own, through affiliates, all of the Company’s real estate properties and other assets. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Urban Edge Properties and UELP and their consolidated entities/subsidiaries.
The Operating Partnership’s capital includes general and common limited partnership interests in the operating partnership (“OP Units”). As of September 30, 2017,2022, Urban Edge owned approximately 89.9%95.9% of the outstanding common OP Units with the remaining limited OP Units held by Vornado Realty L.P., members of management ourand the Board of Trustees, and contributors of property interests acquired. Urban Edge serves as the sole general partner of the Operating Partnership. The third party unitholders have limited rights over the Operating Partnership such that they do not have characteristics of a controlling financial interest. As such, the Operating Partnership is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary which consolidates it. The Company’s only investment is the Operating Partnership. The VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest.
As of September 30, 2017,2022, our portfolio consisted of 8569 shopping centers, fourfive malls and a warehouse parktwo industrial parks totaling 16.7approximately 17.2 million square feet.
Critical Accounting Policies and Estimates
The Company’s 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 contains a description of our critical accounting policies,estimates, including accounting for real estate, allowance for doubtful accountscollectibility, valuing acquired assets and revenue recognition.liabilities and impairments. For the nine months ended September 30, 2017,2022, there were no material changes to these policies, other than the adoption of the Accounting Standards Update (“ASU”) 2017-01 described in Note 3 to the unaudited consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.estimates.
Recent Accounting Pronouncements
Refer to Note 3 to the unaudited consolidated financial statements in Part I, Item I1 of this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements that may affect us.
Results of Operations
We derive substantially all of our revenue from rents received from tenants under existing leases on each of our properties. This revenue includes fixed base rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants’ revenue, in each case as provided in the respective leases.
Our primary cash expensesexpenditures consist of our property operating and capital expenses,costs, general and administrative expenses, and interest and debt expense. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance and utilities; general and administrative expenses includeinclude: payroll, professional fees, information technology, office expenses and other administrative expenses; and interest and debt expense is primarily consists of interest on our mortgage debt and amortization of deferred financing costs on our revolving credit facility.debt. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes, interest and salaries related to properties under development or redevelopment until the property is ready for its intended use.
Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments, redevelopments and redevelopments.changes in accounting policies. The results of operations of any acquired properties are included in our financial statements as of the date of acquisition. Our results of operations are affected by national, regional and local economic conditions, as well as macroeconomic conditions, which are at times subject to volatility and uncertainty. The current global climate has increased volatility in the market and has caused a surge in already increasing inflation. The Federal Reserve has taken measures to suppress inflation by way of benchmark rate hikes, resulting in an increase in interest rates. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some larger tenants have capped the amount of these operating expenses they are responsible for under their lease. As of September 30, 2022, approximately 91% of our outstanding debt is fixed rate, with the remaining 9% indexed to LIBOR, SOFR or the Prime Rate, plus an applicable margin per loan agreement. We occasionally utilize interest rate derivative agreements to hedge the effect of rising interest rates on our variable rate debt. As of September 30, 2022, we were counter-party to one interest rate swap agreement and one interest rate cap agreement, both of which qualify for and are designated as hedging instruments. While we have not experienced any material negative impacts at this time, we are actively managing our business to respond to the ongoing economic and social impact from such events. See “Risk Factors” in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The following provides an overview of our key financial metrics, including non-GAAP measures, based on our consolidated results of operations (refer to cash Net Operating Income (“NOI”), same-property cash NOI and Funds From Operations (“FFO”) applicable to diluted common shareholders (“FFO”) described later in this section):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 11,465 | | | $ | 30,105 | | | $ | 33,008 | | | $ | 63,802 | |
FFO applicable to diluted common shareholders(1) | 35,938 | | | 45,302 | | | 106,345 | | | 112,463 | |
NOI(1) | 59,586 | | | 56,809 | | | 176,296 | | | 167,625 | |
Same-property NOI(1) | 52,750 | | | 51,026 | | | 155,840 | | | 150,849 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 19,156 |
| | $ | 20,505 |
| | $ | 88,811 |
| | $ | 76,364 |
|
FFO applicable to diluted common shareholders(1) | 40,000 |
| | 34,773 |
| | 152,131 |
| | 102,166 |
|
Cash NOI(2) | 60,807 |
| | 52,867 |
| | 175,355 |
| | 157,590 |
|
Same-property cash NOI(2) | 47,812 |
| | 46,017 |
| | 142,978 |
| | 136,527 |
|
(1) Refer to page 33pages 33-34 for a reconciliation to the nearest generally accepted accounting principles (“GAAP”) measure.
(2) Refer to page 32 for a reconciliation to the nearest GAAP measure.
Significant Development/Redevelopment Activity
The Company had 16 active development, redevelopment or anchor repositioning projects with total estimated costs of $199.4 million, of which $90.0 million (or 45%) has been incurred as of September 30, 2017. As of September 30, 2017, the Company had completed projects at six properties for a total investment of $36.5 million.
Acquisition/Disposition Activity
On January 4, 2017, we acquired fee and leasehold interests in Yonkers Gateway Center for $51.9 million. Consideration for this purchase consisted of the issuance of $48.8 million in OP units and $2.9 million of cash. The total number of OP units issued was 1.8 million at a value of $27.09 per unit. Transaction costs associated with this acquisition were $0.2 million.
On January 17, 2017, we acquired the leasehold interest in the Shops at Bruckner for $32.3 million, consisting of the assumption of the existing debt of $12.6 million and $19.4 million of cash. The property is a 114,000 sf retail center in the Bronx, NY directly across from our 376,000 sf Bruckner Commons shopping center. We own the land under the Shops at Bruckner and had been leasing it to the seller under a ground lease that ran through September 2044. Concurrent with the acquisition, we wrote-off the unamortized intangible liability balance related to the below-market ground lease as well as the existing straight-line receivable balance. As a result, we recognized $39.2 million of income from acquired leasehold interest in the nine months ended September 30, 2017. Transaction costs associated with this acquisition were $0.3 million.
On February 2, 2017, we acquired Hudson Mall, a 383,000 sf retail center in Jersey City, NJ adjacent to our existing Hudson Commons shopping center. Consideration for this purchase consisted of the assumption of the existing debt of $23.8 million and $19.9 million of cash. Transaction costs associated with this acquisition were $0.6 million.
On May 24 and 25, 2017, we acquired a portfolio of seven retail assets (the "Portfolio”) comprising 1.5 million sf of gross leasable area, predominantly in the New York City metropolitan area, for $325 million. The Portfolio was privately owned for more than three decades and was 83% leased as of the date of acquisition. Consideration for this purchase consisted of the issuance of $122 million in OP units, the assumption of $33 million of existing mortgage debt, the issuance of $126 million of non-recourse, secured mortgage debt and $44 million of cash. The total number of OP units issued was 4.5 million at a value of $27.02 per unit. Transaction costs associated with this acquisition were $10.2 million.
On June 30, 2017, we completed the sale of our property previously classified as held for sale in Eatontown, NJ, for $4.8 million, net of selling costs. Prior to the sale, the book value of this property exceeded its estimated fair value less costs to sell, and as such, an impairment charge of $3.5 million was recognized during the nine months ended September 30, 2017. Our determination of fair value was based on the executed contract of sale with the third-party buyer.
On September 8, 2017, we completed the sale of excess land in Kearny, NJ for $0.3 million, resulting in a gain of $0.2 million.
On June 9, 2016, we completed the sale of a shopping center located in Waterbury, CT for $21.6 million, resulting in a gain of $15.6 million. During the three and nine months ended September 30, 2016, there were no acquisitions.
Significant Debt and Equity Activity
Debt Activity
During May of 2017, $126 million of non-recourse, secured debt was obtained in connection with the funding of the Portfolio acquisition. The mortgages are scheduled to mature beginning in 2022 through 2027. In addition, we assumed a $33 million existing mortgage in connection with the acquisition of Yonkers Gateway Center on May 24, 2017. The mortgage payable balance on the loan secured by Yonkers Gateway Center includes $0.9 million of unamortized debt premium as of September 30, 2017.
On March 29, 2017, we refinanced the $74 million, 4.59% mortgage loan secured by our Tonnelle Commons property in North Bergen, NJ, increasing the principal balance to $100 million with a 10-year fixed rate mortgage, at 4.18%. As a result, we recognized a loss on extinguishment of debt of $1.3 million during the nine months ended September 30, 2017 comprised of a $1.2 million prepayment penalty and write-off of $0.1 million of unamortized deferred financing fees on the original loan.
On January 15, 2015, we entered into a $500 million Revolving Credit Agreement (the “Agreement”) with certain financial institutions. On March 7, 2017, we amended and extended the Agreement. The amendment increased the credit facility size by $100 million to $600 million and extended the maturity date to March 7, 2021 with two six-month extension options. Borrowings under the Agreement are subject to interest at LIBOR plus 1.15% and we are required to pay an annual facility fee of 15 basis points which is expensed within interest and debt expense as incurred. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to increase if our leverage ratio increases above predefined thresholds. The Agreement contains customary financial covenants including a maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x. No amounts have been drawn to date under the Agreement.
During June 2016, in connection with the sale of a shopping center located in Waterbury, CT, we prepaid $21.2 million of our cross collateralized mortgage loan to release the property from the mortgage and maintain compliance with covenant requirements.
On March 30, 2015, we notified the lender that due to tenants vacating the Englewood shopping center, the property’s operating cash flow would be insufficient to pay its debt service. As of September 30, 2017, we were in default and the property was transferred to receivership. Urban Edge no longer manages the property but will remain its title owner until the receiver disposes of the property.
Equity Activity
On January 7, 2015, our board and initial shareholder approved the Urban Edge Properties 2015 Omnibus Share Plan, under which awards may be granted up to a maximum of 15,000,000 of our common shares or share equivalents. Pursuant to the Omnibus Share Plan, stock options, LTIP units, Operating Partnership units and restricted shares are available for grant. We have a Dividend Reinvestment Plan (the “DRIP”), whereby shareholders may use their dividends to purchase shares.
On February 24, 2017, the Compensation Committee of the Board of Trustees of the Company approved the Company’s 2017 Outperformance Plan (“2017 OPP”), a multi-year performance-based equity compensation program. The purpose of the 2017 Outperformance Plan is to further align the interests of the Company’s shareholders with that of management by encouraging the Company’s senior officers to create shareholder value in a “pay for performance” structure. The aggregate notional amount of the
2017 OPP grant is $12.0 million. 302,000 LTIP units were granted in connection with the 2017 OPP. LTIP units will be awarded if the performance criteria are met in accordance with the OPPs.
On May 10, 2017, the Company issued 7.7 million common shares of beneficial interest in an underwritten public offering pursuant to the Company’s effective shelf registration statement previously filed on Form S-3 (File No. 333-212951) with the SEC on August 5, 2016. This offering generated cash proceeds of $193.5 million, net of $1.3 million of issuance costs. We intend to use the proceeds of this offering for development and redevelopment projects and for general corporate purposes including potential acquisitions that may be identified in the future.
On August 4, 2017, the Company issued 6.25 million common shares of beneficial interest to a large institutional investor at a net price of $24.80 per share, pursuant to the Company’s effective shelf registration statement previously filed on Form S-3 (File No. 333-212951) with the SEC on August 5, 2016. The issuance was a direct sale with no underwriter or placement agent such that net cash proceeds to the Company were $155 million.
An equivalent number of common units were issued by the Operating Partnership to the Company in connection with the Company’s issuance of common shares of beneficial interest, as discussed above. The Operating Partnership issued 1.8 million OP units in connection with the acquisition of Yonkers Gateway Center on January 4, 2017 at a value of $27.09 per unit. On May 24 and 25, 2017, the Operating Partnership issued 2.6 million OP units and 1.9 million OP units, respectively, in connection with the Portfolio acquisition at a value of $27.02 per unit.
Other equity activity during the nine months ended September 30, 2017 included: (i) 137,259 stock options granted, (ii) 104,698 restricted shares granted, (iii) 31,734 LTIP units granted, (iv) 53,236 restricted shares vested, (v) 16,789 LTIP units vested, (vi) 11,760 2015 OPP LTIP units forfeited, (vii) 5,879 stock options forfeited, and (viii) 5,251 restricted shares forfeited.
Comparison of the Three Months Ended September 30, 20172022 to the Three Months Ended September 30, 20162021
Net income for the three months ended September 30, 20172022 was $19.2$11.5 million, compared to net income of $20.5$30.1 million for the three months ended September 30, 2016.2021. The following table summarizes certain line items from our consolidated statements of income and comprehensive income that we believe are important in understanding our operations and/or those items whichthat significantly changed in the three months ended September 30, 20172022 as compared to the same period of 2016:in 2021:
| | | For the Three Months ended September 30, | | Three Months Ended September 30, | | |
(Amounts in thousands) | 2017 | | 2016 | | $ Change | (Amounts in thousands) | 2022 | | 2021 | | $ Change | |
Total revenue | $ | 94,101 |
| | $ | 79,973 |
| | $ | 14,128 |
| Total revenue | $ | 98,290 | | | $ | 106,839 | | | $ | (8,549) | | |
Property operating expenses | 11,402 |
| | 9,897 |
| | 1,505 |
| |
Depreciation and amortization | 20,976 |
| | 14,435 |
| | 6,541 |
| Depreciation and amortization | 24,343 | | | 23,171 | | | 1,172 | | |
Real estate taxes | 15,872 |
| | 12,729 |
| | 3,143 |
| Real estate taxes | 16,231 | | | 15,862 | | | 369 | | |
Casualty and impairment loss | 2,170 |
| | — |
| | 2,170 |
| |
Property operating expenses | | Property operating expenses | 17,672 | | | 15,692 | | | 1,980 | | |
General and administrative expenses | | General and administrative expenses | 9,852 | | | 10,134 | | | (282) | | |
| Gain on sale of real estate | | Gain on sale of real estate | — | | | 6,926 | | | (6,926) | | |
Interest and debt expense | 14,637 |
| | 12,766 |
| | 1,871 |
| Interest and debt expense | 15,266 | | | 14,638 | | | 628 | | |
Interest income | 719 |
| | 176 |
| | 543 |
| |
Provision for doubtful accounts | 575 |
| | 149 |
| | 426 |
| |
|
Total revenue increaseddecreased by $14.1$8.5 million to $94.1$98.3 million in the third quarter of 20172022 from $80.0$106.8 million in the third quarter of 2016.2021. The decrease is primarily attributable to:
•$13.3 million decrease in non-cash revenues driven by accelerated amortization of below-market intangible liabilities in connection with the termination of our Kmart and Sears leases in the third quarter of 2021; and
•$0.8 million decrease in lease termination income and management and development fee income; offset by
•$4.5 million increase as a result of property acquisitions net of dispositions; and
•$1.1 million net increase in property rentals and tenant reimbursement income due to rent commencements, contractual rent increases and the impact of lease modifications executed in the third quarter of 2021.
Depreciation and amortization increased by $1.2 million to $24.3 million in the third quarter of 2022 from $23.2 million in the third quarter of 2021. The increase is primarily attributable to:
•$7.62.5 million increase as a result of property acquisitions net of dispositions that closed since September 2016;dispositions; offset by
•$4.11.3 million net increase in tenant expense reimbursementsdecrease due to an increasewrite-offs of fully depreciated assets and lease intangibles as a result of lease terminations and recurring depreciation.
Real estate taxes increased by $0.4 million to $16.2 million in recoverable expenses and revenue from recoverable capital projects;
$2.8 million net increase in property rentals due to rent commencements and contractual rent increases, partially offset by
$0.4 million decrease in other income due to lower tenant bankruptcy settlement income received during the third quarter of 2017.2022 from $15.9 million in the third quarter of 2021. The increase is primarily attributable to:
•$0.7 million increase as a result of property acquisitions net of dispositions; and
•$0.4 million increase due to higher property assessments, net of successful appeals; offset by
•$0.7 million increase in capitalized real estate taxes due to commencement of development, redevelopment and anchor repositioning projects.
Property operating expenses increased by $1.5$2.0 million to $11.4$17.7 million in the third quarter of 20172022 from $15.7 million in the third quarter of 2021. The increase is primarily attributable to:
•$1.2 million higher common area maintenance expenses across the portfolio as a result of increased repairs and maintenance, cleaning, security, landscaping and utility usage at our properties in the third quarter of 2022; and
•$0.8 million increase as a result of property acquisitions net of dispositions.
General and administrative expenses decreased by $0.3 million to $9.9 million in the third quarter of 2016. The increase is primarily attributable to an increase in common area maintenance expenses as a result of acquisitions that closed since September 2016.
Depreciation and amortization increased by $6.5 million to $21.02022 from $10.1 million in the third quarter of 2017 from $14.42021. This is primarily attributable to a decrease in stock compensation expense due to the vesting of equity awards in third quarter of 2021.
A gain on the sale of real estate of $6.9 million was recognized in the third quarter of 2016. The increase is primarily attributable to:
$6.3 million increase as a result2021 in connection with the disposition of acquisitions net of dispositions that closed since September 2016;
$0.6 million increase from development projects and tenant improvements placed into service since September 2016, partially offset by
$0.4 million in-place lease write-off due to a tenant vacating during the third quarter of 2016.
Real estate taxes increased by $3.2 million to $15.9 millionour property in the third quarter of 2017 from $12.7 million in the third quarter of 2016. The increase is primarily attributable to:
$2.4 million increase as a result of acquisitions net of dispositions that closed since September 2016;
$0.5 million increase due to higher assessed values and tax refunds received in 2016; and
$0.2 million increase due to additional real estate taxes capitalized in the third quarter of 2016 related to space taken out of service for development and redevelopment projects.
The Company recognized a casualty loss of $2.2 million in the third quarter of 2017 to write-off the estimated net book value of the fixed assets damaged by Hurricane Maria in Puerto Rico.Turnersville, NJ.
Interest and debt expense increased by $1.8$0.6 million to $15.3 million in the third quarter of 2022 from $14.6 million in the third quarter of 2017 from $12.8 million in the third quarter of 2016.2021. The increase is primarily attributable to:
•$1.3 million increase in interest expense in connection with the mortgage loans obtained for the acquisition of Woodmore Towne Centre in December 2021 and The Shops at Riverwood in June 2022; and
•$1.2 million increase in interest expense due to interest fromhigher rates on our variable rate loans issued and assumed on acquisitions closed since September 2016 as well as the increased loan balance from the refinancing of theour mortgage loan secured by our Tonnelle Commons property in North Bergen, NJ.
Interest income increased by $0.5 million to $0.7 millionloans at Plaza at Woodbridge and Plaza at Cherry Hill in the thirdsecond quarter of 2017 from $0.22022; offset by
•$1.9 million in the third quarter of 2016. The increase is primarily attributable to an increase in the cash balancecapitalized interest expense due to multiple equity offerings since September 2016.commencement of development, redevelopment and anchor repositioning projects.
Provision for doubtful accounts increased by $0.4 million to $0.6 million in the third quarter of 2017 from $0.2 million in the third quarter of 2016. The increase is primarily attributable to an increase in reserves due to tenant bankruptcies.
Comparison of the Nine Months Ended September 30, 20172022 to the Nine Months Ended September 30, 20162021
Net income for the nine months ended September 30, 20172022 was $88.8$33.0 million, compared to net income of $76.4$63.8 million for the nine months ended September 30, 2016.2021. The following table summarizes certain line items from our consolidated statements of income and comprehensive income that we believe are important in understanding our operations and/or those items whichthat significantly changed in the nine months ended September 30, 20172022 as compared to the same period of 2016:in 2021:
| | | For the Nine Months ended September 30, | | Nine Months Ended September 30, | | |
(Amounts in thousands) | 2017 | | 2016 | | $ Change | (Amounts in thousands) | 2022 | | 2021 | | $ Change | |
Total revenue | $ | 309,666 |
| | $ | 242,498 |
| | $ | 67,168 |
| Total revenue | $ | 296,345 | | | $ | 296,506 | | | $ | (161) | | |
Depreciation and amortization | | Depreciation and amortization | 73,561 | | | 68,534 | | | 5,027 | | |
Real estate taxes | | Real estate taxes | 47,662 | | | 47,826 | | | (164) | | |
Property operating expenses | 35,858 |
| | 32,596 |
| | 3,262 |
| Property operating expenses | 56,473 | | | 51,874 | | | 4,599 | | |
General and administrative expenses | 22,720 |
| | 20,873 |
| | 1,847 |
| General and administrative expenses | 31,607 | | | 28,286 | | | 3,321 | | |
Depreciation and amortization | 60,505 |
| | 41,908 |
| | 18,597 |
| |
Real estate taxes | 43,975 |
| | 38,701 |
| | 5,274 |
| |
Casualty and impairment loss
| 5,637 |
| | — |
| | 5,637 |
| |
| Gain on sale of real estate | 202 |
| | 15,618 |
| | (15,416 | ) | Gain on sale of real estate | 353 | | | 18,648 | | | (18,295) | | |
Interest and debt expense | 41,379 |
| | 39,015 |
| | 2,364 |
| Interest and debt expense | 43,511 | | | 44,193 | | | (682) | | |
Loss on extinguishment of debt | 1,274 |
| | — |
| | 1,274 |
| |
| Income tax expense | 942 |
| | 349 |
| | 593 |
| Income tax expense | 2,262 | | | 905 | | | 1,357 | | |
Total revenue increaseddecreased by $67.2$0.2 million to $309.7$296.3 million in the nine months ended September 30, 20172022 from $242.5$296.5 million in the nine months ended September 30, 2016.2021. The increasedecrease is primarily attributable to:
•$39.213.3 million decrease in income from acquired leasehold interest due to the write-offnon-cash revenues driven by accelerated amortization of the unamortizedbelow-market intangible liability related to the below-market ground lease acquired and existing straight-line receivable balanceliabilities in connection with the acquisitiontermination of our Kmart and Sears leases in the groundthird quarter of 2021; and
•$1.4 million decrease in lease at Shops at Bruckner;termination income and management and development fee income; offset by
•$13.812.0 million increase as a result of property acquisitions net of dispositions that closed since September 2016;dispositions; and
•$9.32.5 million increase in tenant expense reimbursements due to an increase in recoverable expenses and revenue from recoverable capital projects;
$6.2 millionnet increase in property rentals and tenant reimbursements income due to higher tenant sales, rent commencements and contractual rent increases, and an increase in percentage rental income, net of tenant vacancies primarily at properties undergoing development, partially offset by lease terminations and lease modifications executed in 2021.
$1.3 million decrease in other income due to a decrease in tenant bankruptcy settlement income received during 2017.
Property operating expensesDepreciation and amortization increased by $3.3$5.0 million to $35.9$73.6 million in the nine months ended September 30, 20172022 from $32.6$68.5 million in the nine months ended September 30, 2016.2021. The increase is primarily attributable to anto:
•$8.0 million increase in common area maintenance expenses as a result of property acquisitions that closed since September 2016.net of dispositions; offset by
General•$3.0 million decrease due to write-offs of fully depreciated assets and administrative expenses increasedlease intangibles as a result of lease terminations and recurring depreciation.
Real estate taxes decreased by $1.8$0.2 million to $22.7$47.7 million in the nine months ended September 30, 20172022 from $20.9$47.8 million in the nine months ended September 30, 2016.2021. The increasedecrease is primarily attributable to:
•$1.6 million net increase in employment costs including $1.12.2 million increase in stock compensation expense and $0.5 million severance expense; and
$0.2 million netcapitalized real estate taxes due to an increase in legal, other professional feesactive development, redevelopment and costs relatedanchor repositioning projects; offset by
•$1.9 million increase as a result of property acquisitions net of dispositions; and
•$0.1 million increase due to information technology.higher property assessments, net of successful appeals.
Depreciation and amortizationProperty operating expenses increased by $18.6$4.6 million to $60.5$56.5 million in the nine months ended September 30, 20172022 from $41.9$51.9 million in the nine months ended September 30, 2016.2021. The increase is primarily attributable to:
•$12.02.6 million higher common area maintenance expenses across the portfolio as a result of increased repairs and maintenance, utility usage, cleaning, and landscaping at our properties in 2022 and spend reductions in 2021; and
•$2.0 million increase as a result of property acquisitions net of dispositions that closed since September 2016;dispositions.
$4.4 million increase in amortization of in-place leases as a result of the write-off of the existing intangible assets at Yonkers Gateway Center upon acquisition of the remaining feeGeneral and leasehold interests;
$2.6 million increase from development projects and tenant improvements placed into service since September 2016, partially offset by
$0.4 million in-place lease write-off due to a tenant vacating during the third quarter of 2016.
Real estate taxesadministrative expenses increased by $5.3$3.3 million to $44.0$31.6 million in the nine months ended September 30, 20172022 from $38.7$28.3 million in the nine months ended September 30, 2016. The increase2021. This is primarily attributable to:to an increase in salary, bonus, professional fees, transaction costs and other expenses.
$3.4 million increase as a resultA gain on the sale of acquisitions net of dispositions that closed since September 2016;
$1.6 million increase due to higher assessed values and tax refunds received in 2016; and
$0.3 million increase due to additional real estate taxes capitalizedof $0.4 million was recognized in 2022 in connection with the third quarterrelease of 2016escrow funds related to space taken outa property disposed of service for development and redevelopment projects.
Casualty and impairment losses of $5.6 million werein a prior period. We recognized in the nine months ended September 30, 2017 as a result of the following events:
$3.5 million real estate impairment loss on our property previously classified as held for sale in Eatontown, NJ, due to the book value of this property exceeding its fair value less costs to sell. The Company’s determination of fair value was based on the executed contract of sale with the third-party buyer less selling costs; and
$2.2 million casualty loss in the third quarter of 2017 to write-off the estimated net book value of the fixed assets damaged by Hurricane Maria in Puerto Rico.
Gaingain on sale of real estate of $18.6 million in 2021 related to the sale of three properties and one property parcel.
Interest and debt expense decreased by $15.4$0.7 million to $0.2$43.5 million in the nine months ended September 30, 20172022 from $15.6$44.2 million in the nine months ended September 30, 2016.2021. The decrease is primarily attributable to:
•$15.65.2 million gainincrease in capitalized interest expense due to an increase in active development, redevelopment and anchor repositioning projects; offset by
•$3.2 million increase in interest expense in connection with the mortgage loans obtained for the acquisitions of Woodmore Towne Centre in December 2021 and The Shops at Riverwood in June 2022; and
•$1.3 million increase in interest expense due to higher rates on saleour variable rate loans and the refinancing of real estateour mortgage loans at Plaza at Cherry Hill and Plaza at Woodbridge in the nine months ended September 30, 2016 as a resultsecond quarter of the sale of our property in Waterbury, CT on June 9, 2016, offset by2021.
$0.2 million gain on sale of real estate in the nine months ended September 30, 2017 as a result of the sale of excess land at our property in Kearny, NJ on September 8, 2017.
Interest and debtIncome tax expense increased $2.4by $1.4 million to $41.4$2.3 million in the nine months ended September 30, 20172022 from $39.0 million in the nine months ended September 30, 2016. The increase is primarily attributable to:
$2.9 million increase of interest from loans issued and assumed on acquisitions closed since September 2016, partially offset by
$0.5 million interest decrease due to a lower mortgage payable balance as a result of principal payments of our cross-collateralized mortgage loan.
Loss on extinguishment of debt of $1.3 million in the nine months ended September 30, 2017 was recognized as a result of the refinancing of our mortgage loan secured by our Tonnelle Commons property in North Bergen, NJ. The loss on extinguishment of debt is comprised of a $1.2 million prepayment penalty and $0.1 million of unamortized deferred financing fees on the original loan.
Income tax expense increased by $0.6 million resulting in income tax expense of $0.9 million in the nine months ended September 30, 2017 from $0.3 million of expense in the nine months ended September 30, 2016 as a result of a $0.6 million reduction2021. The increase is primarily attributed to the accrued income tax liability recordedperformance of our properties in the second quarter of 2016.Puerto Rico.
Non-GAAP Financial Measures
We use NOI internally to make investment and capital allocation decisions and to compare the unlevered performance of our properties to our peers. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, 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 most directly comparable GAAP financial measure to NOI is net income. NOI excludes certain components from net income in order to provide results that are more closely related to a property’s results of operations. We calculate NOI by adjusting net income to add back depreciation and amortization expense, general and administrative expenses, casualty and real estate impairment losses, interest and debt expense, income tax expense and non-cash lease expense, and deduct management and development fee income from non-owned properties, gains on sale of real estate, interest income, non-cash rental income resulting from the straight-lining of rents and amortization of acquired below market leases net of above market leases. NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others.
We calculate same-property NOI using net income as defined by GAAP reflecting only those income and expense items that are reflected in NOI (as described above) and excluding properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service, and also excluding properties acquired or sold during the periods being compared. We also exclude for the following items in calculating same-property NOI: lease termination fees, bankruptcy settlement income, and income and expenses that we do not believe are representative of ongoing operating results, if any. As such, same-property 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, which the Company believes to be useful to investors. Same-property NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others.
Throughout this section, we have provided certain information on a “same-property” cash basis which includes the results of operations that were owned and operated for the entirety of the reporting periods being compared, totaling 75which total 69 and 68 properties for the three and nine months ended September 30, 20172022 and 2016.2021, respectively. Information provided on a same-property basis excludes properties that were 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 sold, under contract to be sold, or that are in the foreclosure processsold during the periods being compared. While there is judgment surrounding changes in designations, a property is removed from the same-property pool when a property is considered to be a redevelopment property because it is undergoing significant renovation or retenanting pursuant to a formal plan and is expected to have a significant impact on property operating income based on the retenanting that is occurring. 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.
We calculate same-property 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.
The most directly comparable GAAP financial measure to cash NOI is net income. Cash NOI excludes certain components from net income in order to provide results that are more closely related to a property’s results of operations. We calculate cash NOI by adjusting GAAP operating income to add back depreciation and amortization expense, general and administrative expenses, casualty and real estate impairment losses and non-cash ground rent expense, and deduct non-cash rental income resulting from the straight-lining of rents and amortization of acquired below market leases net of above market leases.
We use cash NOI internally to make investment and capital allocation decisions and to compare the unlevered performance of our properties to our peers. Further, we believe 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. As such, 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. Cash NOI and same-property cash NOI should not be considered substitutes for operating income or net income and may not be comparable to similarly titled measures employed by others.
Same-property cash NOI increased by $1.8$1.7 million, or 3.9%3.4%, for the three months ended September 30, 2017 as2022, compared to the three months ended September 30, 20162021 and increased by $6.5$5.0 million, or 4.7%3.3%, for the nine months ended September 30, 20172022, as compared to the nine months ended September 30, 2016.
2021.
The following table reconciles net income to cash NOI and same-property cash NOI for the three and nine months ended September 30, 20172022 and 2016.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 11,465 | | | $ | 30,105 | | | $ | 33,008 | | | $ | 63,802 | |
| | | | | | | |
Other (income) expense | 230 | | | (75) | | | (300) | | | (524) | |
Depreciation and amortization | 24,343 | | | 23,171 | | | 73,561 | | | 68,534 | |
General and administrative expense | 9,852 | | | 10,134 | | | 31,607 | | | 28,286 | |
Gain on sale of real estate | — | | | (6,926) | | | (353) | | | (18,648) | |
Interest income | (294) | | | (77) | | | (713) | | | (303) | |
Interest and debt expense | 15,266 | | | 14,638 | | | 43,511 | | | 44,193 | |
| | | | | | | |
Income tax expense | 646 | | | 704 | | | 2,262 | | | 905 | |
Real estate impairment loss | — | | | 372 | | | — | | | 372 | |
Non-cash revenue and expenses | (1,922) | | | (15,237) | | | (6,287) | | | (18,992) | |
NOI | 59,586 | | | 56,809 | | | 176,296 | | | 167,625 | |
Adjustments: | | | | | | | |
Non-same property NOI(1) | (8,466) | | | (6,273) | | | (23,677) | | | (18,143) | |
Sunrise Mall net operating loss | 1,637 | | | 1,023 | | | 3,338 | | | 2,661 | |
Tenant bankruptcy settlement income and lease termination income | (7) | | | (533) | | | (117) | | | (1,294) | |
Same-property NOI | $ | 52,750 | | | $ | 51,026 | | | $ | 155,840 | | | $ | 150,849 | |
NOI related to properties being redeveloped | 4,964 | | | 5,829 | | | 13,930 | | | 16,083 | |
Same-property NOI including properties in redevelopment | $ | 57,714 | | | $ | 56,855 | | | $ | 169,770 | | | $ | 166,932 | |
(1) Non-same property NOI includes NOI related to properties being redeveloped and properties acquired or disposed in the period.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 19,156 |
| | $ | 20,505 |
| | $ | 88,811 |
| | $ | 76,364 |
|
Add: income tax expense | 318 |
| | 319 |
| | 942 |
| | 349 |
|
Income before income taxes | 19,474 |
| | 20,824 |
| | 89,753 |
| | 76,713 |
|
Interest income | (719 | ) | | (176 | ) | | (1,182 | ) | | (520 | ) |
Gain on sale of real estate | (202 | ) | | — |
| | (202 | ) | | (15,618 | ) |
Interest and debt expense | 14,637 |
| | 12,766 |
| | 41,379 |
| | 39,015 |
|
Loss on extinguishment of debt | — |
| | — |
| | 1,274 |
| | — |
|
Operating income | 33,190 |
| | 33,414 |
| | 131,022 |
| | 99,590 |
|
Depreciation and amortization | 20,976 |
| | 14,435 |
| | 60,505 |
| | 41,908 |
|
Casualty and impairment loss | 2,170 |
| | — |
| | 5,637 |
| | — |
|
General and administrative expense | 6,930 |
| | 6,618 |
| | 22,720 |
| | 20,873 |
|
Transaction costs | 95 |
| | 223 |
| | 278 |
| | 307 |
|
NOI | 63,361 |
| | 54,690 |
| | 220,162 |
| | 162,678 |
|
Less: non-cash revenue and expenses | (2,554 | ) | | (1,823 | ) | | (44,807 | ) | | (5,088 | ) |
Cash NOI(1) | 60,807 |
| | 52,867 |
| | 175,355 |
| | 157,590 |
|
Adjustments: | | | | | | | |
Cash NOI related to properties being redeveloped(1) | (6,158 | ) | | (5,809 | ) | | (18,580 | ) | | (16,667 | ) |
Cash NOI related to properties acquired, disposed, or in foreclosure(1) | (6,357 | ) | | (164 | ) | | (11,987 | ) | | (1,134 | ) |
Management and development fee income from non-owned properties | (369 | ) | | (375 | ) | | (1,199 | ) | | (1,356 | ) |
Tenant bankruptcy settlement income | (115 | ) | | (545 | ) | | (628 | ) | | (2,035 | ) |
Other(2) | 4 |
| | 43 |
| | 17 |
| | 129 |
|
Subtotal adjustments | (12,995 | ) | | (6,850 | ) |
| (32,377 | ) |
| (21,063 | ) |
Same-property cash NOI | $ | 47,812 |
| | $ | 46,017 |
|
| $ | 142,978 |
|
| $ | 136,527 |
|
(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.
Funds From Operations
FFO was $35.9 million for the three andmonths ended September 30, 2022 compared to $45.3 million for the three months ended September 30, 2021. FFO was $106.3 million for the nine months ended September 30, 2017 was $40.0 million and $152.1 million, respectively,2022 compared to $34.8$112.5 million and $102.2 million, respectively, for the three and nine months ended September 30, 2016.2021.
We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (‘‘NAREIT’’(“Nareit”) definition. NAREITNareit defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciateddepreciable real estate assets,and land when connected to the main business of a REIT, impairments on depreciable real estate impairment losses,or land related to a REIT's main business, and rental property depreciation and amortization expense. We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period to period both internally and among our peers because this non-GAAP measure excludes net gains on sales of depreciable real estate, real estate impairment losses, rental property depreciation and amortization expense which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. We believe the presentation of comparable period operating results generated from FFO provides useful information to investors because the definition excludes items included in net income that do not relate to, or are not, indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analyses of operating and financial performance more difficult, such as gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT and impairments on depreciable real estate or land related to a REIT's main business. 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 may not be comparable to similarly titled measures employed by others.
The following table reflects the reconciliation of net income to FFO for the three and nine months ended September 30, 2022 and 2021. | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Amounts in thousands) | 2017 | | 2016 | | 2017 | | 2016 | (Amounts in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 19,156 |
| | $ | 20,505 |
| | $ | 88,811 |
| | $ | 76,364 |
| Net income | $ | 11,465 | | | $ | 30,105 | | | $ | 33,008 | | | $ | 63,802 | |
Less (net income) attributable to noncontrolling interests in: | | | | | | | | |
Less net (income) loss attributable to noncontrolling interests in: | | Less net (income) loss attributable to noncontrolling interests in: | |
Operating partnership | (1,967 | ) | | (1,239 | ) | | (7,431 | ) | | (4,594 | ) | Operating partnership | (455) | | | (1,149) | | | (1,348) | | | (2,608) | |
Consolidated subsidiaries | (11 | ) | | (1 | ) | | (33 | ) | | 1 |
| Consolidated subsidiaries | 373 | | | (1,190) | | | 835 | | | (961) | |
Net income attributable to common shareholders | 17,178 |
| | 19,265 |
| | 81,347 |
| | 71,771 |
| Net income attributable to common shareholders | 11,383 | | | 27,766 | | | 32,495 | | | 60,233 | |
Adjustments: | | | | | | | | Adjustments: | |
Rental property depreciation and amortization | | Rental property depreciation and amortization | 24,100 | | | 22,941 | | | 72,855 | | | 67,898 | |
Limited partnership interests in operating partnership(1) | | Limited partnership interests in operating partnership(1) | 455 | | | 1,149 | | | 1,348 | | | 2,608 | |
Gain on sale of real estate | — |
| | — |
| | — |
| | (15,618 | ) | Gain on sale of real estate | — | | | (6,926) | | | (353) | | | (18,648) | |
Rental property depreciation and amortization | 20,855 |
| | 14,269 |
| | 59,886 |
| | 41,419 |
| |
Real estate impairment loss | — |
| | — |
| | 3,467 |
| | — |
| Real estate impairment loss | — | | | 372 | | | — | | | 372 | |
Limited partnership interests in operating partnership(1) | 1,967 |
| | 1,239 |
| | 7,431 |
| | 4,594 |
| |
FFO applicable to diluted common shareholders | $ | 40,000 |
| | $ | 34,773 |
| | $ | 152,131 |
| | $ | 102,166 |
| FFO applicable to diluted common shareholders | $ | 35,938 | | | $ | 45,302 | | | $ | 106,345 | | | $ | 112,463 | |
(1) Represents earnings allocated to LTIP and OP unit holdersunitholders for unissued common shares, which have been excluded for purposes of calculating earnings per diluted share for the periods presented. FFO applicable to diluted common shareholders calculations includes earnings allocated to LTIP and OP unit holders. For the nine months ended September 30, 2017 calculation, the weighted average share total includes the redeemable shares outstanding as their inclusion is dilutive. For the three months ended September 30, 2017 and the three and nine months ended September 30, 2016, the respective weighted average share totalspresented because they are excluded because their inclusion is anti-dilutive.
Liquidity and Capital Resources
Due to the nature of our business, we typically generate significant amounts of cash from operations; however, the cash generated from operations is primarily paid to our shareholders and unitholders of the Operating Partnership in the form of distributions. Our status as a REIT requires that we generally distribute at least 90% of our REITREIT’s ordinary taxable income each year. OurOur Board of Trustees declared a quarterly dividend of $0.22$0.16 per common share and OP unit for each of the first three quarters of 2017,2022, or an annual rate of $0.88. We expect to pay$0.64. Historically, we have paid regular cash dividends,dividends; however, the timing, declaration, amount and payment of distributions to shareholders and unitholders of the Operating Partnership fallsfall within the discretion of our Board of Trustees. Our Board of Trustees’ decisions regarding the payment of dividends dependsdepend on many factors, such as maintaining our REIT tax status, our financial condition, earnings, capital requirements, debt service obligations, limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other factors.
Property rental income is our primary source of cash flow and is dependent on a number of factors, including our occupancy level and rental rates, as well as our tenants’ ability to pay rent. Our properties providehave historically provided us with a relatively consistent stream of cash flow that enables us to pay operating expenses, debt service and recurring capital expenditures. Other sources of liquidity to fund cash requirements include proceeds from financings, equity offerings and asset sales. Additionally, we have an $800 million revolving credit agreement with certain financial institutions, which has a maturity date of February 9, 2027 and includes two six-month extension options. See Note 6 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our revolving credit agreement.
Our short-term liquiditycash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring expenditures (general &general and administrative expenses),expenses, expenditures related to leasing activity and distributions to shareholders and unitholders of the Operating Partnership. Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions. We have approximately $309 million of debt maturing within the next 12 months related to mortgage loans encumbering two of our properties and are actively exploring our options to refinance.
At September 30, 2017,2022, we had cash and cash equivalents, including restricted cash, of $380.4$152.4 million and no amounts drawn on our $800 million revolving credit agreement. These amounts are readily available to fund the debt obligations discussed above which are coming due within the next year.
Summary of Cash Flows
Cash and cash equivalents, including restricted cash, was $152.4 million at September 30, 2022, compared to $219.8 million at December 31, 2021 and $322.8 million at September 30, 2021, a decrease of $67.4 million and $170.4 million, respectively. Our cash flow activities are summarized as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | |
(Amounts in thousands) | 2022 | | 2021 | | $ Change |
Net cash provided by operating activities | $ | 98,672 | | | $ | 93,137 | | | $ | 5,535 | |
Net cash used in investing activities | (110,859) | | | (66,512) | | | (44,347) | |
Net cash used in financing activities | (55,258) | | | (123,086) | | | 67,828 | |
Operating Activities
Net cash flow provided by operating activities primarily consists of cash inflows from rental revenue and cash outflows for property operating expenses, general and administrative expenses and interest and debt expense.
Net cash provided by operating activities of $98.7 million for the nine months ended September 30, 2022 increased by $5.5 million from $93.1 million for the nine months ended September 30, 2021. The increase is driven by operating income generated from property acquisitions completed, tenant rent commencements, and collection of previously billed and deferred amounts from lease modifications.
Investing Activities
Net cash flow used in investing activities is impacted by the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.
Net cash used in investing activities of $110.9 million for the nine months ended September 30, 2022 increased by $44.3 million compared to net cash used in investing activities of $66.5 million for the nine months ended September 30, 2021. The increase is primarily due to (i) $34.1 million decrease in cash provided by the sale of properties, and (ii) $28.5 million increase in cash used for real estate development and capital improvements, offset by (iii) $18.3 million decrease in cash used for the acquisition of real estate.
The Company has 23 active development, redevelopment or anchor repositioning projects with total estimated costs of $260.9 million, of which $86.0 million has been incurred and $174.9 million remains to be funded as of September 30, 2022.
The following summarizes capital expenditures presented on a cash basis for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(Amounts in thousands) | | 2022 | | 2021 |
Capital expenditures: | | | | |
Development and redevelopment costs | | $ | 57,515 | | | $ | 37,441 | |
Capital improvements | | 15,636 | | | 6,781 | |
Tenant improvements and allowances | | 1,839 | | | 2,215 | |
Total capital expenditures | | $ | 74,990 | | | $ | 46,437 | |
Financing Activities
Net cash flow used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership, as well as principal and other payments associated with our outstanding indebtedness.
Net cash used in financing activities of $55.3 million for the nine months ended September 30, 2022 decreased by $67.8 million from cash used in financing activities of $123.1 million for the nine months ended September 30, 2021. The decrease is primarily due to (i) $52.0 million decrease in distributions to shareholders and unitholders of the Operating Partnership for declaration of a special dividend in the fourth quarter of 2020, paid in January 2021, and (ii) $23.7 million of proceeds from borrowings under mortgage loans, net of repayments, offset by (iii) $7.3 million of deferred financing fees paid in 2022 for the increase and extension of our line of credit. credit under our revolving credit agreement and the refinancing of our loans at Plaza at Cherry Hill and Plaza at Woodbridge.
On March 7, 2017,June 23, 2022, in conjunction with the refinancing of the mortgage loan encumbering our property Plaza at Woodbridge, we entered into an interest rate cap agreement (the “Cap Agreement”) with a third-party to limit the maximum SOFR of our floating rate debt to 3%. On the date of the Cap Agreement, we elected to designate cash flow hedge accounting for this derivative instrument. Refer to Note 3 and Note 9 in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information related to derivatives and hedging. On August 9, 2022, we amended and extendedrestated our line of credit. The amendment increasedrevolving credit agreement to, among other things, increase the creditavailable amount under the facility size by $100$200 million to $600$800 million and extendedextend the maturity date to March 7, 2021February 9, 2027, with two six-month extension options.
On May 10, 2017, Borrowings under the Company issued 7.7 million common sharescredit facility may be used to finance pre-development costs, development costs, acquisitions, working capital, equity investments, debt investments, capital expenditures and repayment of beneficial interestindebtedness, to pay fees and expenses incurred in an underwritten public offering pursuant to the Company’s effective shelf registration statement previously filed on Form S-3 (File No. 333-212951)connection with the SECamended and restated revolving credit agreement and for other general corporate purposes. As of September 30, 2022, there were no amounts drawn on August 5, 2016. This offering generated cash proceeds of $193.5 million, net of $1.3 million of issuance costs.the facility.
On August 4, 2017, the Company issued 6.25 million common shares of beneficial interest to a large institutional investor at a net price of $24.80 per share, pursuant to the Company’s effective shelf registration statement previously filed on Form S-3 (File No. 333-212951)15, 2022, we entered into an equity distribution agreement with the SEC on August 5, 2016. The issuance was a direct sale with no underwriter or placement agent such that net cash proceeds to the Company were $155 million.
In 2016, the Company established an at-the-market (“ATM”) equity program,various financial institutions, pursuant to which
the Companywe may offer and sell
from time to time its common shares, par value $0.01 per share, with an aggregate gross sales price of up to
$250.0$250 million
through a consortium of broker dealers acting as sales agents.(the “ATM Program”). The ATM Program replaces the Company’s previous at-the-market program established in June 2021. As of September 30,
2017, $241.3 million of2022 we have not issued any common shares
remained available for issuance under this ATM equity program and there were no common shares issued under the ATM
equity program duringProgram. Refer to Note 14, Equity and Noncontrolling Interest, in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information related to this program.
Contractual Obligations
We have contractual obligations related to our mortgage loans that are both fixed and variable. Our variable rate loans bear interest at a floating rate based on LIBOR, SOFR and the nine months ended SeptemberPrime Rate plus an applicable margin of 0.5% to 2.26%. When LIBOR is discontinued, the interest rates of our LIBOR-indexed debt following such event will be based on either alternate base rates, such as SOFR, or agreed upon replacement rates. While such an event would not affect our ability to borrow or maintain already outstanding borrowings, it could result in higher interest rates. Further information on our mortgage loans can be found in Note 6 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, we have contractual obligations for certain properties that are subject to long-term ground and building leases where a third party owns and has leased the underlying land to us. We also have non-cancelable operating leases pertaining to office space from which we conduct our business. Additional contractual obligations that are not considered to be long-term, fixed in amount or easily determinable include:
•Obligations related to construction and development contracts. Such contracts or obligations will generally be due over the next two years;
•Obligations related to maintenance contracts, which can typically be canceled upon 30 2017. From September 2016 to December 31, 2016,60 days’ notice without penalty;
•Obligations related to employment contracts with certain executive officers and subject to cancellation by either the Company issued 307,342 common shares at a weighted average price of $28.45 under its ATM equity program, generating cash proceeds of $8.7 million. We paid $0.1 million of commissions to distribution agents and $0.4 million in additional offering expenses related toor the issuance of these common shares. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common sharesexecutive without cause upon notice; and our capital needs. We have no obligation to sell the remaining shares available under the active ATM equity program.
On January 4, 2017, we issued 1.8 million OP units in connection with the acquisition of Yonkers Gateway Center at a value of $27.09 per unit. On May 24 and 25, 2017 we issued 2.6 million OP units and 1.9 million OP units, respectively, in connection with the Portfolio acquisition at a value of $27.02 per unit.•Recorded debt premiums or discounts.
We have no debt scheduled to mature in 2017. We currently believe that cash flows from our current operations, over the next 12 months, together with cash on hand, our ATM equity program, ourthe line of credit under our revolving credit agreement, the potential to refinance our loans and our general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirementsobligations in both the short-term and capital expenditures.long-term.
Cybersecurity
Summary of Cash Flows
Our cash flow activities are summarized as follows:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(Amounts in thousands) | 2017 | | 2016 | | Increase (Decrease) |
Net cash provided by operating activities | $ | 114,498 |
| | $ | 99,183 |
| | $ | 15,315 |
|
Net cash used in investing activities | (262,329 | ) | | (27,730 | ) | | (234,599 | ) |
Net cash provided by (used in) financing activities | 396,403 |
| | (92,127 | ) | | 488,530 |
|
Cash and cash equivalents including restricted cash was $388.8 million at September 30, 2017, compared to $140.2 million as of December 31, 2016,Cybersecurity is an increase of $248.6 million. Net cash provided by operating activities of $114.5 million for the nine months ended September 30, 2017 was comprised of $119.7 million of cash from operating income and a net decrease of $5.2 million in cash due to timing of cash receipts and payments related to changes in operating assets and liabilities. Net cash used in investing activities of $262.3 million for the nine months ended September 30, 2017 was comprised of (i) $211.4 million of acquisitions of real estate and (ii) $55.9 million of real estate development and capital improvements, offset by (iii) $5.0 million of proceeds from sale of real estate. Net cash provided by financing activities of $396.4 million for the nine months ended September 30, 2017 was comprised of (i) $348.2 million proceeds from the issuance of common shares and (ii) $225.5 million proceeds from borrowings, offset by (iii) $88.6 million for debt repayments, (iv) $77.1 million of distributions paid to common shareholders and unitholders of the Operating Partnership, (v) $11.3 million of debt issuance costs, and (vi) $0.3 million of taxes withheld on vested restricted units.
Financing Activities and Contractual Obligations
Below is a summary of our outstanding debt and maturities as of September 30, 2017.
|
| | | | | | | | |
| | | | Interest Rate at | | Principal Balance at |
(Amounts in thousands) | | Maturity | | September 30, 2017 | | September 30, 2017 |
Cross-collateralized mortgage loan: | | | | | | |
Fixed Rate | | 9/10/2020 | | 4.39% | | $ | 507,993 |
|
Variable Rate(1) | | 9/10/2020 | | 2.59% | | 38,756 |
|
Total cross collateralized | | | | | | 546,749 |
|
First mortgages secured by: | | | | | | |
|
Englewood(3) | | 10/1/2018 | | 6.22% | | 11,537 |
|
Montehiedra Town Center, Senior Loan(2) | | 7/6/2021 | | 5.33% | | 86,383 |
|
Montehiedra Town Center, Junior Loan(2) | | 7/6/2021 | | 3.00% | | 30,000 |
|
Plaza at Cherry Hill(8) | | 5/24/2022 | | 2.84% | | 28,930 |
|
Westfield - One Lincoln(8) | | 5/24/2022 | | 2.84% | | 4,730 |
|
Plaza at Woodbridge(8) | | 5/25/2022 | | 2.84% | | 55,340 |
|
Bergen Town Center | | 4/8/2023 | | 3.56% | | 300,000 |
|
Shops at Bruckner(6) | | 5/1/2023 | | 3.90% | | 12,304 |
|
Hudson Mall(7) | | 12/1/2023 | | 5.07% | | 25,170 |
|
Yonkers Gateway Center(9) | | 4/6/2024 | | 4.16% | | 33,601 |
|
Las Catalinas | | 8/6/2024 | | 4.43% | | 130,000 |
|
North Bergen (Tonnelle Avenue)(5) | | 4/1/2027 | | 4.18% | | 100,000 |
|
Manchester Plaza | | 6/1/2027 | | 4.32% | | 12,500 |
|
Millburn Gateway Center | | 6/1/2027 | | 3.97% | | 24,000 |
|
Mount Kisco (Target)(4) | | 11/15/2034 | | 6.40% | | 14,562 |
|
Total mortgages payable | | 1,415,806 |
|
Unamortized debt issuance costs | | (7,740 | ) |
Total mortgages payable, net of unamortized debt issuance costs | | $ | 1,408,066 |
|
| |
(1)
| Subject to a LIBOR floor of 1.00%, bears interest at LIBOR plus 136 bps. |
| |
(2)
| As part of the planned redevelopment of Montehiedra Town Center, we committed to fund $20.0 million for leasing and capital expenditures which has been fully funded as of September 30, 2017. |
| |
(3)
| On March 30, 2015, we notified the lender that due to tenants vacating, the property’s operating cash flow would be insufficient to pay its debt service. As of September 30, 2017, we were in default and the property was transferred to receivership. Urban Edge no longer manages the property but will remain its title owner until the receiver disposes of the property. We have determined this property is held in a VIE for which we are the primary beneficiary. Accordingly, as of September 30, 2017 we consolidated Englewood and its operations. The consolidated balance sheet included total assets and liabilities of $12.4 millionand $14.6 million, respectively.
|
| |
(4)
| The mortgage payable balance on the loan secured by Mount Kisco (Target) includes $1.0 million and $1.1 million of unamortized debt discount as of September 30, 2017 and December 31, 2016. The effective interest rate including amortization of the debt discount is 7.26% as of September 30, 2017. |
| |
(5)
| On March 29, 2017, we refinanced the $74 million, 4.59% mortgage loan secured by our Tonnelle Commons property in North Bergen, NJ, increasing the principal balance to $100 million with a 10-year fixed rate mortgage, at 4.18%. As a result, we recognized a loss on extinguishment of debt of $1.3 million during the nine months ended September 30, 2017 comprised of a $1.2 million prepayment penalty and write-off of $0.1 million of unamortized deferred financing fees on the original loan.
|
| |
(6)
| On January 17, 2017, we assumed the existing mortgage secured by the Shops at Bruckner in connection with our acquisition of the property’s leasehold interest. |
| |
(7)
| On February 2, 2017, we assumed the existing mortgage secured by Hudson Mall in connection with our acquisition of the property. The mortgage payable balance on the loan secured by Hudson Mall includes $1.6 million of unamortized debt premium as of September 30, 2017. The effective interest rate including amortization of the debt premium is 3.37%as of September 30, 2017.
|
| |
(8)
| Bears interest at one month LIBOR plus 160 bps. |
| |
(9)
| Reflects the $33 million existing mortgage assumed in connection with the acquisition of Yonkers Gateway Center on May 24, 2017. The mortgage payable balance on the loan secured by Yonkers Gateway Center includes $0.9 million of unamortized debt premium as of September 30, 2017. The effective interest rate including amortization of the debt premium is 1.77%as of September 30, 2017.
|
The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $1.3 billion as of September 30, 2017. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity. As of September 30, 2017, we were in compliance with all debt covenants.
On January 15, 2015, we entered into a $500 million Revolving Credit Agreement (the “Agreement”) with certain financial institutions. On March 7, 2017, we amended and extended the Agreement. The amendment increased the credit facility size by $100 million to $600 million and extended the maturity date to March 7, 2021 with two six-month extension options. Borrowings under the Agreement are subject to interest at LIBOR plus 1.15% and we are required to pay an annual facility fee of 15 basis points. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to increase if our leverage ratio increases above predefined thresholds. The Agreement contains customary financial covenants, including a maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x. No amounts have been drawn to date under the Agreement.
Capital Expenditures
The following summarizes capital expenditures presented on a cash basis for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(Amounts in thousands) | | 2017 | | 2016 |
Capital expenditures: | | | |
|
Development and redevelopment costs | | $ | 39,781 |
| | $ | 38,835 |
|
Capital improvements | | 4,237 |
| | 4,081 |
|
Tenant improvements and allowances | | 4,877 |
| | 2,752 |
|
Total capital expenditures | | $ | 48,895 |
| | $ | 45,668 |
|
As of September 30, 2017, we had approximately $199.4 million of active redevelopment, development and anchor repositioning projects at various stages of completion and $36.5 million of completed projects, an increase of $44.2 million from $191.7 million of projects as of December 31, 2016. We have advanced these projects $40.3 million since December 31, 2016 and anticipate that these projects will require an additional $114.4 million over the next two years to complete. We expect to fund these projects using cash on hand, proceeds from dispositions, borrowings under our line of credit and/or using secured debt, or issuing equity.
Commitments and Contingencies
Loan Commitments
In January 2015, we completed a modification of the $120.0 million, 6.04% mortgage loan secured by Montehiedra. Asintegral part of the planned redevelopmentBoard of Trustees’ and the Audit Committee’s risk analysis and discussions with management. As we see increased reliance on information technology in the workplace and business operations, and a continued shift to remote and hybrid work schedules, Urban Edge has employed several measures to mitigate cyber risks.
In addition to a dedicated information technology and cybersecurity team handling monitoring and daily operations, the Company engages an independent third-party cybersecurity team for advisory and penetration testing. We also have a Cyber Risk Committee which works in conjunction with the Computer Incident Response Team (CIRT) to develop strategies to mitigate risks and to address any cyber issues that may arise. The Cyber Risk Committee meets quarterly to review emerging threats, controls, and procedures.
We utilize a risk-based approach following the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (CSF), and Microsoft best practices. Our policies and procedures are reviewed and updated annually by the Cyber Risk Committee and incorporate third-party assessments to benchmark ourselves against industry standards. The Company utilizes advanced endpoint protection, firewalls, intrusion detection and prevention, threat intelligence, security event logging and correlation, and backup and redundancy systems. The Company also has cybersecurity coverage incorporated in its insurance policies.
We circulate communications pieces alerting users to new emerging risks and require all employees to complete periodic security awareness trainings. Additionally, we conduct internal phishing exercises to gauge the effectiveness of the property, we committedtrainings and record response rates for these tests to fund $20.0 millionassess the need for leasing and other capital expenditures which has been fully funded as of September 30, 2017.additional training.
Insurance
We maintain general liability insurance with limits of $200 million for properties in the U.S. and Puerto Rico and all-risk property and rental value insurance coverage with limits of $500 million for properties in the U.S. and $139 million for properties in Puerto Rico, with sub-limits for certain perils such as floods and earthquakes on each of our properties. Our insurance includes coverage for terrorism acts but excludes coverage for nuclear, biological, chemical or radiological terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. In addition, we maintain coverage for cybersecurity with limits of $5 million in the aggregate providing first and third party coverage including network interruption, event management, cyber extortion and claims for media content, security and privacy liability. Insurance premiums are charged directly to each of the retail properties and warehouses. We will be responsible for deductibles and losses in excess of insurance coverage, which could be material.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. Our mortgage loans are non-recourse and contain customary covenants requiring adequate insurance coverage. Although we believe that we currently have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties and expand our portfolio.
Hurricane-Related Charges
On September 20, 2017, Hurricane Maria made landfall on Puerto Rico and damaged our two properties. The Company estimates it will spend approximately $6.5 million repairing its properties and expects insurance proceeds to cover these costs in addition to business interruption losses, subject to applicable deductibles estimated to be approximately $2.5 million. Based on management’s estimates, which are subject to change, the Company recognized a $2.2 million charge reflecting the net book value of assets damaged during the third quarter.
All anchor tenants are open for business with the exception of Marshalls at Montehiedra, which requires substantial restoration work. The Company has made significant progress remediating the damage to its assets, but full operations, particularly with respect to the interior of each mall, will not resume until power is restored on a continuous basis, the timing of which is uncertain and outside the Company’s control.
The Company has comprehensive, all-risk property and rental value insurance coverage on these properties, including business interruption, with a limit of $139 million per occurrence and in the aggregate and with sub-limits for certain perils such as floods, earthquakes, civil authority and service interruption. Our deductible for windstorm is 2% of total insured value and business interruption coverage has a deductible equal to three days of cessation of operations. No determination has been made as to the total amount or timing of insurance payments that may be received as a result of the hurricane.
The Company has received a $1.0 million cash advance from its insurance provider for the business interruption caused to these properties. Approximately $0.5 million of the advance is included in property rentals on our consolidated statement of income which offsets rent abatements due to tenants in September. The remaining $0.5 million is recorded as deferred revenue and is included in accounts payable and accrued expenses on our consolidated balance sheet as of September 30, 2017 and will be recognized as earned in subsequent periods.
As of September 30, 2017, the Company has individual, non-recourse mortgages on each of the properties as follows: a $116.4 million mortgage, comprised of a senior and junior loan, maturing in July 2021 secured by the Montehiedra Town Center and a $130.0 million mortgage maturing in August 2024 secured by the Las Catalinas Mall.
Environmental Matters
Each of our properties has been subjected to varying degrees of environmental assessment at various times. Based on these assessments and the projected remediation costs, we have accrued costs of $1.2 million and $1.3 million on our consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively, for potential remediation costs for environmental contamination at two properties. While this accrual reflects our best estimates of the potential costs of remediation at these properties, $0.1 million has currently been expended during the nine months ended September 30, 2017 and there can be no assurance that the actual costs will not exceed this amount. With respect to our other properties, the environmental assessments did not reveal
any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
Bankruptcies
Although our base rent is supported by long-term leases, leases may be rejected in a bankruptcy proceeding and the impacted stores may close prior to lease expiration. In the event that a tenant with a significant number of leases in our shopping centers files for bankruptcy and rejects its leases with us, we could experience a reduction in our revenues. We monitor the operating performance and rent collections of all tenants in our shopping centers, especially those tenants in arrears or operating retail formats that are experiencing significant changes in competition, business practice, or store closings in other locations. During September 2017, Toys “R” Us filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. As of September 30, 2017, the Company had leases with Toys “R” Us at nine locations with annualized base rent of $5.0 million. We are unable to estimate the outcome of the bankruptcy proceedings at this time. We are not aware of any additional bankruptcies or announced store closings by any tenants in our shopping centers that would individually cause a material reduction in our revenues.
Inflation and Economic Condition Considerations
Most of our leases contain provisions designed to partially mitigate the impact of inflation. Although inflation has been low in recent periods and has had a minimal impact on the performance of our shopping centers, there are more recent data suggesting that inflation may be a greater concern in the future given economic conditions and governmental fiscal policy. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some larger tenants have capped the amount of these operating expenses they are responsible for under the lease. A small number of our leases also include percentage rent clauses enabling us to receive additional rent based on tenant sales above a predetermined level, which sales generally increase as prices rise and are typically related to increases in the Consumer Price Index or similar inflation indices.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of September 30, 2017 or December 31, 2016.
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control. The following table discusses our exposure to hypothetical changes in market rates of interest on interest expense for our variable rate debt and fixed-rate debt. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our debt. This analysis does not take into account all of the factors that may affect our debt, such as the effect that a changing interest rate environment could have on the overall level of economic activity or the action that our management might take to reduce our exposure to the change. This analysis assumes no change in our financial structure. Our exposure to a change in interest rates is summarized in the table below. As of September 30, 2022, our variable rate debt outstanding had rates indexed to LIBOR, SOFR and the Prime Rate.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
(Amounts in thousands) | September 30, Balance | | Weighted Average Interest Rate | | Effect of 1% Change in Base Rates | | December 31, Balance | | Weighted Average Interest Rate |
| | | | | | | | | |
Variable rate mortgages | $ | 159,588 | | | 4.93% | | $ | 1,596 | | | $ | 161,084 | | | 1.85% |
Fixed rate mortgages | 1,544,486 | | | 4.10% | | — | | (2) | 1,534,324 | | | 4.10% |
| $ | 1,704,074 | | (1) | | | $ | 1,596 | | | $ | 1,695,408 | | (1) | |
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
(Amounts in thousands) | September 30, Balance | | Weighted Average Interest Rate | | Effect of 1% Change in Base Rates | | December 31, Balance | | Weighted Average Interest Rate |
| |
Variable Rate | $ | 127,756 |
| | 2.76% | | $ | 1,278 |
| (2) | $ | 38,756 |
| | 2.36% |
Fixed Rate | 1,288,050 |
| | 4.25% | | — |
| | 1,166,804 |
| | 4.26% |
| $ | 1,415,806 |
| (1) | | | $ | 1,278 |
| | $ | 1,205,560 |
| (1) | |
(1)Excludes unamortized debt issuance costs of $7.7$8.3 million and $8.0$8.2 million as of September 30, 20172022 and December 31, 2016,2021, respectively.
(2) The variableIf the weighted average interest rate portion of our cross-collateralizedfixed rate debt is subjectincreased by 1% (i.e. due to a LIBOR floorrefinancing at higher rates), annualized interest expense would have increased by approximately $15.4 million based on outstanding balances as of 1% such that a change in base rates may not have a corresponding impact on the actual borrowing rate.September 30, 2022.
We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. We do not enter into any financial instrument agreements, such as derivative agreements, for speculation or trading purposes. As of September 30, 2017,2022, the Company was a counterparty to two interest rate derivative agreements which have been designated as cash flow hedges.
On June 23, 2022, in connection with the refinancing of one of our variable rate loans, we did not have any hedging instruments in place.entered into a one-year interest rate cap agreement for a purchase price of approximately $0.3 million. The cap agreement has an expiration date of July 1, 2023 and limits the maximum SOFR of the variable loan it is hedged with to 3%. This derivative instrument is assessed quarterly and as of September 30, 2022 meets the criteria of an effective hedge.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of September 30, 2017,2022, the estimated fair value of our consolidated debt was $1.4$1.5 billion.
Other Market Risks
As of September 30, 2017,2022, we had no material exposure to any other market risks (including foreign currency exchange risk or commodity price risk).
In making this determination and for purposes of the SEC’s market risk disclosure requirements, we have estimated the fair value of our financial instruments at September 30, 20172022 based on pertinent information available to management as of that date. Although management is not aware of any factors that would significantly affect the estimated amounts as of September 30, 2017,2022, future estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.
| |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures (Urban Edge Properties)
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the three and nine months ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures (Urban Edge Properties LP)
The Operating Partnership’s management maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer of our general partner, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
The Operating Partnership’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of our general partner, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of our general partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the three and nine months ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party to various legal actions that arise in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
There have beenITEM 1A. RISK FACTORS
Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors previously disclosed in the Company’sPart I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20162021 filed with the SEC on February 16, 2017.
2022.
| |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Urban Edge Properties
(a) Recent Sales of Unregistered Securities: Not applicable.
(b) Use of Proceeds from Sales of Registered Securities: Not applicable.
(c) Not applicable.Issuer Purchases of Equity Securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | (a) Total Number of Shares Purchased | | (b) Average Price Paid per Share | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1) |
July 1, 2022 - July 31, 2022 | | — | | | $ | — | | | — | | | $ | 145,900,000 | |
August 1, 2022 - August 31, 2022 | | 957 | | (2) | 15.81 | | | — | | | $ | 145,900,000 | |
September 1, 2022 - September 30, 2022 | | — | | | — | | | — | | | $ | 145,900,000 | |
Total | | 957 | | | $ | 15.81 | | | — | | | |
(1) In March 2020, the Board of Trustees authorized a share repurchase program for up to $200 million of the Company’s common shares. Under the program, the Company may repurchase its shares from time to time in the open market or in privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18. The share repurchase program does not obligate the Company to acquire any particular amount of common shares and may be suspended or discontinued at any time at the Company’s discretion.
(2) Represents common shares surrendered by employees to us, to satisfy such employees’ tax withholding obligations in connection with the vesting of restricted common shares.
Urban Edge Properties LP
(a) Recent Sales of Unregistered Securities: Not applicable.
(b) Use of Proceeds from Sales of Registered Securities: Not applicable.
(c) Not applicable.Issuer Purchases of Equity Securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | (a) Total Number of Units Purchased | | (b) Average Price Paid per Unit | | (c) Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | | (d) Maximum Number (or Approximate Dollar Value) of Units that May Yet be Purchased Under the Plans or Programs |
July 1, 2022 - July 31, 2022 | | — | | | $ | — | | | — | | | $ | — | |
August 1, 2022 - August 31, 2022 | | 957 | | (1) | 15.81 | | | — | | | $ | — | |
September 1, 2022 - September 30, 2022 | | — | | | — | | | — | | | $ | — | |
Total | | 957 | | | $ | 15.81 | | | — | | | |
(1) Represents OP Units previously held by the Company that were redeemed in connection with the surrender of restricted common shares by employees to the Company to satisfy such employees’ tax withholding obligations in connection with the vesting of restricted common shares.
| |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
| |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
A list ofThe exhibits tolisted below are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.10-Q.
INDEX TO EXHIBITS
The following exhibits are filedincluded as part of this Quarterly Report on Form 10-Q:
|
| | | | | | | |
Exhibit Number | | Exhibit Description |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
101.INS101.SCH* | | XBRL Instance Document |
101.SCH | | Inline XBRL Taxonomy Extension Schema |
101.CAL101.CAL* | | Inline XBRL Extension Calculation Linkbase |
101.LAB101.LAB* | | Inline XBRL Extension Labels Linkbase |
101.PRE101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase |
101.DEF101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase |
104* | | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
* Filed herewith
** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
PART IV
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
| | | | | |
| URBAN EDGE PROPERTIES |
| (Registrant) |
| |
| URBAN EDGE PROPERTIES |
| (Registrant) |
| |
| /s/ Mark Langer |
| Mark Langer, Chief Financial Officer |
| |
| Date: November 1, 20173, 2022 |
| |
| URBAN EDGE PROPERTIES LP |
| By: Urban Edge Properties, General Partner |
| |
| /s/ Mark Langer |
| Mark Langer, Chief Financial Officer |
| |
| Date: November 1, 20173, 2022 |
| |