Urban Edge Properties(UE) - 2020 Q2 - Quarterly Report

markdown [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Urban Edge Properties (UE) and Urban Edge Properties LP (UELP) for the period ended June 30, 2020 [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) For the six months ended June 30, 2020, Urban Edge Properties reported net income of $83.8 million, a significant increase from $56.0 million in the prior year, primarily driven by a $34.9 million gain on debt extinguishment and a $13.6 million income tax benefit Urban Edge Properties - Key Financials (Six Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | **Income Statement** | | | | Total Revenue | $166,979 | $200,479 | | Gain on Extinguishment of Debt | $34,908 | $0 | | Net Income | $83,833 | $55,959 | | Diluted EPS | $0.67 | $0.44 | | **Balance Sheet (as of June 30, 2020)** | | | | Total Assets | $3,125,107 | - | | Total Liabilities | $2,097,997 | - | | Cash and Cash Equivalents | $615,579 | - | | **Cash Flow** | | | | Net Cash from Operating Activities | $41,977 | $76,837 | - The company drew **$250 million** from its unsecured credit facility in March 2020 as a precautionary measure to increase its cash position and financial flexibility in light of the COVID-19 pandemic[85](index=85&type=chunk)[193](index=193&type=chunk) [Notes to Consolidated Financial Statements](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant events and accounting treatments, including property acquisitions, a mortgage default, debt refinancing gains, and the financial impact of COVID-19 on rental income and company policies - As of June 30, 2020, the company's portfolio consisted of **73 shopping centers**, **four malls**, and a warehouse park, totaling approximately **15.1 million square feet**[51](index=51&type=chunk) - Due to the COVID-19 pandemic's impact on tenant collectibility, the company recognized **$13.9 million** as rental revenue deemed uncollectible and wrote off **$6.0 million** of straight-line rent receivables during the first six months of 2020[61](index=61&type=chunk)[122](index=122&type=chunk) - In February 2020, the company acquired Kingswood Center and Kingswood Crossing in Brooklyn, NY for **$167.3 million**; it also disposed of three properties for **$58.1 million**, resulting in a **$39.8 million gain**[70](index=70&type=chunk)[71](index=71&type=chunk)[74](index=74&type=chunk) - In April 2020, the company defaulted on the **$129 million** non-recourse mortgage loan on Las Catalinas Mall in Puerto Rico, and remains in negotiations with the special servicer[82](index=82&type=chunk)[89](index=89&type=chunk) - In June 2020, the company refinanced the mortgage on The Outlets at Montehiedra, resulting in the forgiveness of a **$30 million** junior loan and accrued interest, leading to a **$34.9 million** net gain on debt extinguishment[87](index=87&type=chunk) - The Board of Trustees authorized a **$200 million** share repurchase program in March 2020 and suspended the quarterly dividend for Q2 2020 due to uncertainty from the COVID-19 pandemic[128](index=128&type=chunk)[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant operational and financial impacts of the COVID-19 pandemic, including a 19.7% decrease in Q2 same-property NOI, while highlighting strong liquidity and rent collection efforts [Results of Operations](index=35&type=section&id=Results%20of%20Operations) For Q2 2020, total revenue fell by $29.1 million year-over-year, primarily due to increased uncollectible rent, while net income increased to $32.5 million largely due to a $34.9 million gain on debt extinguishment Comparison of Key Metrics (Three Months Ended June 30) | Metric (in thousands) | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $73,619 | $102,747 | $(29,128) | | Gain on Extinguishment of Debt | $34,908 | $0 | $34,908 | | Net Income | $32,545 | $28,067 | $4,478 | | Same-property NOI | $43,951 | $54,754 | $(10,803) | | FFO | $55,656 | $57,582 | $(1,926) | - The decrease in Q2 revenue was primarily driven by a **$12.2 million** increase in rental revenue deemed uncollectible and a **$6.0 million** increase in write-offs of receivables from straight-lining of rents, both related to the COVID-19 pandemic[166](index=166&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $639.8 million in cash and $350 million available on its credit line, despite suspending its Q2 dividend and facing tenant bankruptcies - As of June 30, 2020, the company had **$639.8 million** in cash and cash equivalents and **$350 million** of available capacity under its revolving credit agreement[192](index=192&type=chunk) - The quarterly dividend was temporarily suspended for Q2 2020 due to uncertainty from the COVID-19 pandemic[189](index=189&type=chunk) - As of August 4, 2020, the company had collected approximately **72%** of second quarter rental revenue billed and **73%** of July rental revenue billed[190](index=190&type=chunk)[221](index=221&type=chunk) - The bankruptcy of 24 Hour Fitness in June 2020 led to a write-off of **$3.5 million** in straight-line rent receivables and **$0.8 million** in uncollectible rental revenue[124](index=124&type=chunk)[226](index=226&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk from its $420 million variable-rate debt, where a 1% increase in rates would raise annual interest expense by $4.2 million Variable Rate Debt Exposure (as of June 30, 2020) | Debt Type | Balance (in thousands) | Weighted Avg. Interest Rate | Effect of 1% Rate Change (Annual) | | :--- | :--- | :--- | :--- | | Variable rate unsecured debt | $250,000 | 1.22% | $2,500 | | Variable rate mortgages | $170,021 | 1.92% | $1,700 | | **Total** | **$420,021** | | **$4,200** | - As of June 30, 2020, the company did not have any interest rate hedging instruments in place[232](index=232&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[237](index=237&type=chunk)[240](index=240&type=chunk) [PART II - OTHER INFORMATION](index=50&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions that arise in the ordinary course of business, which management does not expect to have a material adverse effect on its financial position - The company states that ongoing legal actions from the ordinary course of business are not expected to have a material adverse effect on its financial condition[242](index=242&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the material risks posed by the COVID-19 pandemic, including adverse impacts on tenants' ability to pay rent, potential for increased rent concessions, and delays in development projects - The primary updated risk factor relates to the COVID-19 pandemic, which could materially adversely affect the business, financial condition, and cash flow of both the company and its tenants[244](index=244&type=chunk) - Specific pandemic-related risks include tenants' inability to pay rent, the need to grant further rent concessions, delays in development projects, and potential limitations on borrowing under the credit facility due to covenant compliance[246](index=246&type=chunk) - The company's operational concentration in the New York metropolitan area is noted as a factor that heightens the impact of the COVID-19 pandemic[245](index=245&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2020, the company issued 30,000 common shares in exchange for OP Units and repurchased 1,421,700 shares for approximately $11.3 million under its $200 million program Issuer Purchases of Equity Securities (Q2 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | April 2020 | 1,421,700 | $7.98 | $11,345,000 | | May 2020 | 109,474 (1) | $10.79 | - | | June 2020 | 0 | - | - | - The **109,474** shares purchased in May represent common shares surrendered by employees to satisfy tax withholding obligations upon the vesting of LTIP units[250](index=250&type=chunk) [Item 3. Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported in this item[252](index=252&type=chunk) [Item 4. Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company [Item 5. Other Information](index=54&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, executive separation agreements, and required CEO/CFO certifications