Urban Edge Properties 10-Q for FY2022 Q2
Urban Edge Properties (UE)
10-Q
2022-08-03
For: 2022-06-30
View Original
Added on
April 08, 2026
About this 10-Q
Urban Edge Properties filed this 10-Q on August 3, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $97.85M
- up 4.1% from $94.01M a year earlier
- Net income
- $11.63M
- down 7.3% from net income of $12.55M a year earlier
- Diluted EPS
- $0.10
- down 9.1% from $0.11 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended June 30, 2022
OR
| 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: 333-212951-01 (Urban Edge Properties LP)
(Exact name of Registrant as specified in its charter)
| (Urban Edge Properties) | ||||||||||||||
| (Urban Edge Properties LP) | ||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||||||||
| Registrant’s telephone number, including area code: | |||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | |||||||||||
| Title of class | Trading symbol | Name of exchange on which registered | |||||||||
_______________________________
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 x NO o Urban Edge Properties LP Yes x NO o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Urban Edge Properties Yes x NO o Urban Edge Properties LP Yes x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Urban Edge Properties:
| x | Accelerated Filer | ☐ | Non-Accelerated Filer | ☐ | Smaller Reporting Company | Emerging Growth Company | |||||||||||||||||||||||
Urban Edge Properties LP:
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | x | Smaller Reporting Company | Emerging Growth Company | |||||||||||||||||||||||
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 13(a) of the Exchange Act.
Urban Edge Properties o Urban Edge Properties LP o
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 ☐ NO x Urban Edge Properties LP YES ☐ NO x
As of July 28, 2022, Urban Edge Properties had 117,442,769 common shares outstanding.
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
Item 1. | Financial Statements | |||||||||||||
| Consolidated Financial Statements of Urban Edge Properties: | ||||||||||||||
| Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited) | ||||||||||||||
| Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||||||||
| Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||||||||
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||||||||
| Consolidated Financial Statements of Urban Edge Properties LP: | ||||||||||||||
| Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited) | ||||||||||||||
| Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||||||||
| Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||||||||
| Consolidated Statements of Cash Flows for the Six Months Ended June 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 June 30, 2022 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 June 30, 2022, UE owned an approximate 95.8% ownership interest in UELP. The remaining approximate 4.2% interest is owned by other limited partners. The other limited partners of UELP are 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.
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 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 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 14, Equity and Noncontrolling Interest and Note 16, 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.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
URBAN EDGE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
| June 30, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| ASSETS | |||||||||||
| Real estate, at cost: | |||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Construction in progress | |||||||||||
| Furniture, fixtures and equipment | |||||||||||
| Total | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Real estate, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Tenant and other receivables | |||||||||||
| Receivable arising from the straight-lining of rents | |||||||||||
Identified intangible assets, net of accumulated amortization of $ | |||||||||||
Deferred leasing costs, net of accumulated amortization of $ | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Mortgages payable, net | $ | $ | |||||||||
| Operating lease liabilities | |||||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||
Identified intangible liabilities, net of accumulated amortization of $ | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Shareholders’ equity: | |||||||||||
Common shares: $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Noncontrolling interests: | |||||||||||
| Operating partnership | |||||||||||
| Consolidated subsidiaries | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See notes to consolidated financial statements (unaudited).
1
URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Rental revenue | $ | $ | $ | $ | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Property operating | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Lease expense | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain on sale of real estate | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest and debt expense | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax (expense) benefit | ( | ( | ( | ||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less net (income) loss attributable to NCI in: | |||||||||||||||||||||||
| Operating partnership | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated subsidiaries | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share - Basic: | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share - Diluted: | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding - Basic | |||||||||||||||||||||||
| Weighted average shares outstanding - Diluted | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Effective portion of change in fair value of derivatives | ( | ( | |||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Less comprehensive loss attributable to NCI in: | |||||||||||||||||||||||
| Operating partnership | |||||||||||||||||||||||
| Less net (income) loss attributable to NCI in: | |||||||||||||||||||||||
| Operating partnership | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated subsidiaries | |||||||||||||||||||||||
| Comprehensive income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
See notes to consolidated financial statements (unaudited).
2
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, March 31, 2021 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to NCI | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Limited partnership interests: | |||||||||||||||||||||||||||||||||||||||||||||||
| Units redeemed for common shares | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Dividends to common shareholders ($ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Distributions to redeemable NCI ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Common Shares | Noncontrolling Interests (“NCI”) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Earnings (Deficit) | Operating Partnership | Consolidated Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to NCI | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Limited partnership interests: | |||||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
Dividends to common shareholders ($ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Distributions to redeemable NCI ($ | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited).
3
| Common Shares | Noncontrolling Interests (“NCI”) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Earnings (Deficit) | Operating Partnership | Consolidated Subsidiaries | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to NCI | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Limited partnership interests: | |||||||||||||||||||||||||||||||||||||||||||||||
| Units redeemed for common shares | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Common shares issued | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Dividends to common shareholders ($ | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Distributions to redeemable NCI ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Contributions from NCI | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Common Shares | Noncontrolling Interests (“NCI”) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Earnings (Deficit) | Operating Partnership | Consolidated Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to common shareholders | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to NCI | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Limited partnership interests: | |||||||||||||||||||||||||||||||||||||||||||||||
| Units redeemed for common shares | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common shares issued | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
Dividends to common shareholders ($ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Distributions to redeemable NCI ($ | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Contributions from NCI | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements (unaudited).
4
URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Gain on sale of real estate | ( | ( | |||||||||
| Amortization of below market leases, net | ( | ( | |||||||||
| Noncash lease expense | |||||||||||
| Straight-lining of rent | ( | ||||||||||
| Share-based compensation expense | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Tenant and other receivables | ( | ||||||||||
| Deferred leasing costs | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Lease liabilities | ( | ( | |||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Real estate development and capital improvements | ( | ( | |||||||||
| Acquisitions of real estate | ( | ||||||||||
| Proceeds from sale of operating properties | |||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Debt repayments | ( | ( | |||||||||
| Dividends to common shareholders | ( | ( | |||||||||
| Distributions to redeemable noncontrolling interests | ( | ( | |||||||||
| Taxes withheld for vested restricted shares | ( | ( | |||||||||
| Contributions from noncontrolling interests | |||||||||||
| Purchase of interest rate cap | ( | ||||||||||
| Proceeds from mortgage loan borrowings | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Proceeds related to the issuance of common shares | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash and cash equivalents and restricted cash | ( | ( | |||||||||
| Cash and cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
See notes to consolidated financial statements (unaudited).
5
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
Cash payments for interest, net of amounts capitalized of $ | $ | $ | |||||||||
| Cash payments for income taxes | |||||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Accrued capital expenditures included in accounts payable and accrued expenses | |||||||||||
| Write-off of fully depreciated assets | |||||||||||
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | |||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | |||||||||
| Restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | $ | $ | |||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Restricted cash at end of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
See notes to consolidated financial statements (unaudited).
6
URBAN EDGE PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except unit amounts)
| June 30, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| ASSETS | |||||||||||
| Real estate, at cost: | |||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Construction in progress | |||||||||||
| Furniture, fixtures and equipment | |||||||||||
| Total | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Real estate, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Tenant and other receivables | |||||||||||
| Receivable arising from the straight-lining of rents | |||||||||||
Identified intangible assets, net of accumulated amortization of $ | |||||||||||
Deferred leasing costs, net of accumulated amortization of $ | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Mortgages payable, net | $ | $ | |||||||||
| Operating lease liabilities | |||||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||
Identified intangible liabilities, net of accumulated amortization of $ | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Equity: | |||||||||||
| Partners’ capital: | |||||||||||
General partner: | |||||||||||
Limited partners: | |||||||||||
| Accumulated other comprehensive loss | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total partners’ capital | |||||||||||
| Noncontrolling interest in consolidated subsidiaries | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See notes to consolidated financial statements (unaudited).
7
URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per unit amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Rental revenue | $ | $ | $ | $ | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Property operating | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Lease expense | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain on sale of real estate | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest and debt expense | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax (expense) benefit | ( | ( | ( | ||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less net loss attributable to NCI in consolidated subsidiaries | |||||||||||||||||||||||
| Net income attributable to unitholders | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per unit - Basic: | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per unit - Diluted: | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average units outstanding - Basic | |||||||||||||||||||||||
| Weighted average units outstanding - Diluted | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Effective portion of change in fair value of derivatives | ( | ( | |||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Less net loss attributable to NCI in consolidated subsidiaries | |||||||||||||||||||||||
| Comprehensive income attributable to unitholders | $ | $ | $ | $ | |||||||||||||||||||
See notes to consolidated financial statements (unaudited).
8
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, March 31, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income attributable to unitholders | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to NCI | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Common units issued as a result of common shares issued by Urban Edge | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Equity redemption of OP units | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
Distributions to Partners ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
(1) Limited partners have a 4.4 % common limited partnership interest in the Operating Partnership as of June 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 Loss | Accumulated Earnings (Deficit) | NCI in Consolidated Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to unitholders | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to NCI | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common units issued as a result of common shares issued by Urban Edge | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interests | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Distributions to Partners ($ | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
(2) Limited partners have a 4.2 % common limited partnership interest in the Operating Partnership as of June 30, 2022 in the form of OP and LTIP Units.
See notes to consolidated financial statements (unaudited).
9
| Total Shares | General Partner | Total Units | Limited Partners(1) | Accumulated Earnings (Deficit) | NCI in Consolidated Subsidiaries | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income attributable to unitholders | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to NCI | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Common units issued as a result of common shares issued by Urban Edge | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Equity redemption of OP units | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
Distributions to Partners ($0.30 per unit) | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Contributions from NCI | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||
(1) Limited partners have a 4.4 % common limited partnership interest in the Operating Partnership as of June 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 Loss | Accumulated Earnings (Deficit) | NCI in Consolidated Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to unitholders | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to NCI | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common units issued as a result of common shares issued by Urban Edge | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Equity redemption of OP units | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Reallocation of NCI | — | ( | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Distributions to Partners ($0.32 per unit) | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Contributions from NCI | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based awards retained for taxes | ( | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
(2) Limited partners have a 4.2 % common limited partnership interest in the Operating Partnership as of June 30, 2022 in the form of OP and LTIP Units.
See notes to consolidated financial statements (unaudited).
10
URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Gain on sale of real estate | ( | ( | |||||||||
| Amortization of below market leases, net | ( | ( | |||||||||
| Noncash lease expense | |||||||||||
| Straight-lining of rent | ( | ||||||||||
| Share-based compensation expense | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Tenant and other receivables | ( | ||||||||||
| Deferred leasing costs | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Lease liabilities | ( | ( | |||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Real estate development and capital improvements | ( | ( | |||||||||
| Acquisitions of real estate | ( | ||||||||||
| Proceeds from sale of operating properties | |||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Debt repayments | ( | ( | |||||||||
| Distributions to partners | ( | ( | |||||||||
| Taxes withheld for vested restricted units | ( | ( | |||||||||
| Contributions from noncontrolling interests | |||||||||||
| Purchase of interest rate cap | ( | ||||||||||
| Proceeds from mortgage loan borrowings | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Proceeds related to the issuance of common shares | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash and cash equivalents and restricted cash | ( | ( | |||||||||
| Cash and cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
See notes to consolidated financial statements (unaudited).
11
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
Cash payments for interest, net of amounts capitalized of $ | $ | $ | |||||||||
| Cash payments for income taxes | |||||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | |||||||||||
| Accrued capital expenditures included in accounts payable and accrued expenses | |||||||||||
| Write-off of fully depreciated assets | |||||||||||
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | |||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | |||||||||
| Restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | $ | $ | |||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Restricted cash at end of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
See notes to consolidated financial statements (unaudited).
12
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 focused on managing, developing, redeveloping, and acquiring retail real estate in 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 UE’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 (“OP Units”). As of June 30, 2022, Urban Edge owned approximately 95.8 % of the outstanding common OP Units with the remaining limited OP Units held by members of management and 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 June 30, 2022, our portfolio consisted of 69 shopping centers, five malls and two industrial parks totaling approximately 17.2 million square 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
The consolidated balance sheets as of June 30, 2022 and December 31, 2021 reflect the consolidation of wholly-owned subsidiaries and those entities in which we have a controlling financial interest. As of June 30, 2022 and December 31, 2021, excluding the Operating Partnership, we consolidated two VIEs with total assets of $48.8 million and $48.5 million, respectively, and total liabilities of $24.3 million and $24.7 million, respectively. The consolidated statements of income and comprehensive income for the three and six months ended June 30, 2022 and 2021 include the consolidated accounts of the Company, the Operating Partnership and the 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 acquisition, management, development, and redevelopment 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. The 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 as of June 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.
13
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate — Real estate is carried at cost, net of accumulated depreciation and amortization. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations that improve or extend the useful lives of assets are capitalized. As real estate is undergoing redevelopment activities, all property operating expenses directly associated with and attributable to the redevelopment, including interest, are capitalized to the extent the capitalized costs of the property 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 project is substantially complete. Depreciation is recognized on a straight-line basis over estimated useful lives which range from one to 40 years.
Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, 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 property or business acquired.
Our properties are individually evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying 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 measured based on the excess 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 future billings to tenants for property expenses. We evaluate the collectibility of amounts due from tenants and disputed enforceable charges on both a lease-by-lease and a 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 history, current credit status and publicly available information about the financial condition of the tenant, among other factors. Tenant receivables and receivables arising from the straight-lining of rents are written-off directly when management deems the collectibility 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 straight-lining of rents since lease commencement. If the Company subsequently determines that it is probable it will collect 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 in 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 intended use of the derivative, whether the Company has elected to designate the derivative in a hedging 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
14
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 same line item in the statement of cash flows as the hedged item. For further information on the Company’s derivative instruments and hedge designations, refer to Note 9.
4. ACQUISITIONS AND DISPOSITIONS
Acquisitions
During the six months ended June 30, 2022, 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 | $ | ||||||||||||||||||||||||||||
| June 8, 2022 | The Shops at Riverwood | Hyde Park | MA | |||||||||||||||||||||||||||||
| 2022 Total | $ | |||||||||||||||||||||||||||||||
(1) The total purchase price for the properties acquired includes $0.6 million of transaction costs incurred related to the acquisitions.
(2) The outparcel 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.
During the six months ended June 30, 2021, no acquisitions were completed by the Company.
15
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 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| The Shops at Riverwood | ( | |||||||||||||||||||||||||||||||||||||||||||
| 2022 Total | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
(1) As of June 30, 2022, the remaining weighted average amortization periods of the identified intangible assets and identified intangible liabilities acquired in 2022 were 8.8 years and 16.6 years, respectively.
Dispositions
During the six months ended June 30, 2022, no dispositions were completed by the Company. We recognized a gain on sale of real estate of $0.4 million in connection with the release of escrow funds related to a property disposed of in a prior period.
During the six months ended June 30, 2021, we disposed of one property and one property parcel and received proceeds of $23.6 million, net of selling costs, resulting in an $11.7 million net gain on sale of real estate.
5. IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES
Our identified intangible assets (acquired in-place and above-market leases) and liabilities (acquired below-market leases), net of accumulated amortization, were $68.9 million and $97.3 million, respectively, as of June 30, 2022 and $71.1 million and $100.6 million, respectively, as of December 31, 2021.
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in additional rental income of $1.5 million and $3.5 million for the three and six months ended June 30, 2022, respectively, and $2.3 million and $4.8 million for the same periods in 2021.
Amortization of acquired in-place leases inclusive of customer relationships resulted in additional depreciation and amortization expense of $2.8 million and $5.5 million for the three and six months ended June 30, 2022, respectively, and $1.8 million and $3.9 million for the same periods in 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:
| (Amounts in thousands) | Below-Market | Above-Market | In-Place Lease | |||||||||||||||||
| Year | Operating Lease Amortization | Operating Lease Amortization | Amortization | |||||||||||||||||
2022(1) | $ | $ | ( | $ | ( | |||||||||||||||
| 2023 | ( | ( | ||||||||||||||||||
| 2024 | ( | ( | ||||||||||||||||||
| 2025 | ( | ( | ||||||||||||||||||
| 2026 | ( | ( | ||||||||||||||||||
| 2027 | ( | ( | ||||||||||||||||||
(1) Remainder of 2022.
16
6. MORTGAGES PAYABLE
The following is a summary of mortgages payable as of June 30, 2022 and December 31, 2021.
| (Amounts in thousands) | Maturity | Interest Rate at June 30, 2022 | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Mortgages secured by: | ||||||||||||||||||||||||||
| Variable rate | ||||||||||||||||||||||||||
Hudson Commons(1) | 11/15/2024 | $ | $ | |||||||||||||||||||||||
Greenbrook Commons(1) | 11/15/2024 | |||||||||||||||||||||||||
Gun Hill Commons(1) | 12/1/2024 | |||||||||||||||||||||||||
Plaza at Cherry Hill(2) | 6/3/2025 | |||||||||||||||||||||||||
Plaza at Woodbridge(3) | 6/8/2027 | |||||||||||||||||||||||||
| Total variable rate debt | ||||||||||||||||||||||||||
| Fixed rate | ||||||||||||||||||||||||||
| Bergen Town Center | 4/8/2023 | |||||||||||||||||||||||||
| Shops at Bruckner | 5/1/2023 | |||||||||||||||||||||||||
| Hudson Mall | 12/1/2023 | |||||||||||||||||||||||||
| Yonkers Gateway Center | 4/6/2024 | |||||||||||||||||||||||||
| Brick Commons | 12/10/2024 | |||||||||||||||||||||||||
| West End Commons | 12/10/2025 | |||||||||||||||||||||||||
| Las Catalinas Mall | 2/1/2026 | |||||||||||||||||||||||||
| Town Brook Commons | 12/1/2026 | |||||||||||||||||||||||||
| Rockaway River Commons | 12/1/2026 | |||||||||||||||||||||||||
| Hanover Commons | 12/10/2026 | |||||||||||||||||||||||||
| Tonnelle Commons | 4/1/2027 | |||||||||||||||||||||||||
| Manchester Plaza | 6/1/2027 | |||||||||||||||||||||||||
| Millburn Gateway Center | 6/1/2027 | |||||||||||||||||||||||||
| Totowa Commons | 12/1/2027 | |||||||||||||||||||||||||
| Woodbridge Commons | 12/1/2027 | |||||||||||||||||||||||||
| Brunswick Commons | 12/6/2027 | |||||||||||||||||||||||||
| Rutherford Commons | 1/6/2028 | |||||||||||||||||||||||||
| Kingswood Center | 2/6/2028 | |||||||||||||||||||||||||
| Hackensack Commons | 3/1/2028 | |||||||||||||||||||||||||
| Marlton Commons | 12/1/2028 | |||||||||||||||||||||||||
| East Hanover Warehouses | 12/1/2028 | |||||||||||||||||||||||||
| Union (Vauxhall) | 12/10/2028 | |||||||||||||||||||||||||
| The Shops at Riverwood | 6/24/2029 | |||||||||||||||||||||||||
| Freeport Commons | 12/10/2029 | |||||||||||||||||||||||||
| The Outlets at Montehiedra | 6/1/2030 | |||||||||||||||||||||||||
| Montclair | 8/15/2030 | |||||||||||||||||||||||||
| Garfield Commons | 12/1/2030 | |||||||||||||||||||||||||
| Woodmore Towne Centre | 1/6/2032 | |||||||||||||||||||||||||
| Mount Kisco Commons | 11/15/2034 | |||||||||||||||||||||||||
| Total fixed rate debt | ||||||||||||||||||||||||||
| Total mortgages payable | ||||||||||||||||||||||||||
| Unamortized debt issuance costs | ( | ( | ||||||||||||||||||||||||
| Total mortgages payable, net | $ | $ | ||||||||||||||||||||||||
(1)Bears interest at one month London Interbank Offered Rate (“LIBOR”) plus 190
(2)Bears interest at one month Prime Rate plus 50 bps with a minimum 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 %.
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The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $1.5 billion as of June 30, 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 June 30, 2022, we were in compliance with all debt covenants.
As of June 30, 2022, the principal repayments of the Company’s total outstanding debt for the remainder of 2022 and the five succeeding years, and thereafter are as follows:
| (Amounts in thousands) | ||||||||
| Year Ending December 31, | ||||||||
2022(1) | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
(1) Remainder of 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 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. Company borrowings under the Agreement are subject to interest at LIBOR plus 1.05 % to 1.50 % and an annual facility fee of 15 to 30 basis points. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to change. The Agreement contains customary financial covenants including a maximum leverage ratio of 60 % and a minimum fixed charge coverage ratio of 1.5 x.
No amounts were drawn or outstanding under the Agreement as of June 30, 2022 or December 31, 2021. Financing costs associated with executing the Agreement of $1.7 million and $2.2 million as of June 30, 2022 and December 31, 2021, respectively, are included in the prepaid expenses and other assets line item of the consolidated balance 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 June 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.
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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 4.3 years. As of June 30, 2022, the remaining exposure under the guarantee is $9.0 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 elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the filing of its 2015 tax return for its tax year ended December 31, 2015. With the exception of the Company’s taxable REIT subsidiary (“TRS”), to the extent the Company meets certain requirements under the Code, the Company will not be taxed on its federal taxable income. 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, 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.
For U.S. federal income tax purposes, the Company and 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. However, during the six months ended June 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 federal, state and local income taxes. These income taxes are included in income tax expense on the consolidated statements of income and comprehensive income.
During the six months ended June 30, 2022, the Company was subject to Puerto Rico corporate 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 10 % branch profits tax on the earnings and profits generated from its allocable share of Puerto Rico operating activities and such tax is included in income tax expense on the consolidated statements of income and comprehensive income.
19
8. LEASES
All rental revenue was generated from operating leases for the three and six months ended June 30, 2022 and 2021. The components of rental revenue for the three and six months ended June 30, 2022 and 2021 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Rental Revenue | |||||||||||||||||||||||
| Fixed lease revenue | $ | $ | $ | $ | |||||||||||||||||||
Variable lease revenue(1) | |||||||||||||||||||||||
| Total rental revenue | $ | $ | $ | $ | |||||||||||||||||||
(1) Percentage rents for the three and six months ended June 30, 2022 were $0.3 million and $1.5 million, respectively, and $0.3 million and $0.7 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. 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 this instrument. In accordance with the fair value hierarchy established by ASC 820, this financial instrument has been classified as Level 2 as quoted market prices are not readily available for valuing the asset. The table below summarizes the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2022:
| As of June 30, 2022 | ||||||||||||||||||||||||||
| (Amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
Interest rate cap(1) | $ | $ | $ | $ | ||||||||||||||||||||||
(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 June 30, 2022, the Company was a counterparty to one interest rate derivative agreement which has been designated as a cash flow hedge.
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.
20
The table below summarizes our derivative instrument, which is used to hedge the corresponding variable rate debt, as of June 30, 2022:
| (Amounts in thousands) | ||||||||||||||||||||||||||||||||
| Hedged Instrument | Fair Value | Notional Amount | Spread | Interest Rate | Expiration | |||||||||||||||||||||||||||
| Plaza at Woodbridge interest rate cap | $ | $ | SOFR + | 7/1/2023 | ||||||||||||||||||||||||||||
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 June 30, 2022 and December 31, 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 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, which is 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 our Level 2 financial instruments as of June 30, 2022 and December 31, 2021:
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||
| (Amounts in thousands) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||
Mortgages payable(1) | $ | $ | $ | $ | ||||||||||||||||||||||
(1) Carrying amounts exclude unamortized debt issuance costs of $8.8 million and $8.2 million as of June 30, 2022 and December 31, 2021, respectively.
Nonfinancial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We assess the carrying value of our properties for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
10. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we are a party to various legal proceedings, claims or regulatory inquiries and investigations arising out of, or incident to, our ordinary course of business. While we are unable to predict with 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 have a material adverse effect on our results of operations or consolidated financial position.
Redevelopment and Anchor Repositioning
The Company has 20 active development, redevelopment or anchor repositioning projects with total estimated costs of $205.8 million, of which $134.9 million remains to be funded as of June 30, 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.
Insurance
The Company maintains numerous insurance policies including for general liability, property, pollution, acts of terrorism, trustees’ and officers’, cyber, workers’ compensation and automobile-related liabilities. However, all such policies are subject to terms, conditions, exclusions, deductibles and sub-limits, amount other limiting factors. For example, the Company’s terrorism insurance excludes coverage for nuclear, biological, chemical or radiological terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act.
21
The Company’s primary and excess insurance policies providing coverage for pollution related losses have an aggregate limit of $75 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 COVID-19 virus.
Insurance premiums are typically charged directly to each of the properties but not all of the cost of such premiums are recovered. The Company is responsible for deductibles, 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 available coverage. We cannot anticipate what coverage will be available on commercially reasonable terms in the 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.
Certain of our loans and other agreements contain customary covenants requiring the 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, such requirement could materially and adversely affect our ability to finance our properties and expand our portfolio.
Environmental Matters
Each of our properties has been subjected to varying degrees of environmental assessment at various times. Based on these assessments, we have accrued costs of $1.7 million on our consolidated balance sheets as of June 30, 2022 and December 31, 2021, for remediation costs for environmental contamination at certain properties. While this accrual reflects our best estimates of the potential costs of remediation at these properties, there can be no assurance that the actual costs will not exceed these amounts. Although we are not aware of any other material environmental 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.
Bankruptcies
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 June 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 on the consolidated balance sheets:
| Balance at | |||||||||||
| (Amounts in thousands) | June 30, 2022 | December 31, 2021 | |||||||||
| Deferred tax asset, net | $ | $ | |||||||||
| Other assets | |||||||||||
| Finance lease right-of-use asset | |||||||||||
Deferred financing costs, net of accumulated amortization of $ | |||||||||||
| Prepaid expenses: | |||||||||||
| Real estate taxes | |||||||||||
| Insurance | |||||||||||
| Licenses/fees | |||||||||||
| Total prepaid expenses and other assets | $ | $ | |||||||||
22
12. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
The following is a summary of the composition of accounts payable, accrued expenses and other liabilities on the consolidated balance sheets:
| Balance at | |||||||||||
| (Amounts in thousands) | June 30, 2022 | December 31, 2021 | |||||||||
| Deferred tenant revenue | $ | $ | |||||||||
| Accrued capital expenditures and leasing costs | |||||||||||
| Accrued interest payable | |||||||||||
| Other liabilities and accrued expenses | |||||||||||
| Security deposits | |||||||||||
| Accrued payroll expenses | |||||||||||
| Finance lease liability | |||||||||||
| Total accounts payable, accrued expenses and other liabilities | $ | $ | |||||||||
13. INTEREST AND DEBT EXPENSE
The following table sets forth the details of interest and debt expense on the consolidated statements of income and comprehensive income:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Total interest and debt expense | $ | $ | $ | $ | |||||||||||||||||||
14. EQUITY AND NONCONTROLLING INTEREST
At-The-Market Program
On June 7, 2021 the Company established an at-the-market equity program (the “ATM Program”), pursuant to which the Company may offer and sell common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250 million. 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.
As of June 30, 2022, the Company has not issued any common shares under the ATM Program. 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. The Company has no obligation to sell any shares under the ATM Program.
Share Repurchase Program
The Company has a share repurchase program for up to $200 million, under which, 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 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 six months ended June 30, 2022 and 2021, no shares were repurchased by the Company. As of June 30, 2022, the Company has repurchased 5.9 million common shares at a weighted average share price of $9.22 , for a total of $54.1 million. All share repurchases by the Company were completed between March and April of 2020. There is approximately $145.9 million remaining for share repurchases under this program.
23
Units of the Operating Partnership
The Operating Partnership’s capital includes general and common limited partnership interests in the operating partnership. As of June 30, 2022, Urban Edge owned approximately 95.8 % of the outstanding common OP 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 such that they do not have characteristics of a controlling financial interest. As such, the Operating Partnership is considered a 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.
Dividends and Distributions
During the three months ended June 30, 2022 and 2021, the Company declared distributions on common shares and OP Units of $0.16 and $0.15 per share/unit, respectively. During the six months ended June 30, 2022 and 2021, respectively, the Company declared distributions on common shares and OP Units of $0.32 and $0.30 per share/unit in the aggregate.
Noncontrolling Interests in Operating Partnership
Noncontrolling interests in the Operating Partnership reflected on the consolidated balance sheets of the Company are comprised of OP Units and limited partnership interests in the Operating Partnership in the form of LTIP Unit awards. LTIP Unit 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 Units were issued to contributors in exchange for their property interests in connection with the Company’s property acquisitions in 2017.
The total of the OP Units and LTIP Units represent a 4.2 4.0 two years from the date of issuance, redeem their LTIP Units for cash, or for the Company’s common shares on a one -for-one basis, solely at our election. Holders of outstanding OP Units may redeem their units for cash or the Company’s common shares on a one -for-one basis, solely at our election.
Noncontrolling Interests in Consolidated Subsidiaries
The Company’s noncontrolling interests 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 interests is presented separately on our consolidated statements of income and comprehensive income.
15. SHARE-BASED COMPENSATION
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Share-based compensation expense components: | |||||||||||||||||||||||
Time-based LTIP expense(1) | $ | $ | |||||||||||||||||||||
Performance-based LTIP expense(2) | |||||||||||||||||||||||
| Stock option expense | |||||||||||||||||||||||
| Restricted share expense | $ | $ | |||||||||||||||||||||
| Deferred share unit (“DSU”) expense | |||||||||||||||||||||||
| Total Share-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
(1) Expense for the three and six months ended June 30, 2022 includes the 2022, 2021, 2020 and 2019 LTI Plans.
(2) Expense for the three and six months ended June 30, 2022 includes the 2017 OPP plan and the 2022, 2021, 2020, 2019, and 2018 LTI Plans.
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Equity award activity during the six months ended June 30, 2022 included: (i) 318,264 LTIP Units granted, (ii) 289,742 LTIP Units vested, (iii) 75,512 stock options vested, (iv) 44,214 restricted shares granted, (v) 20,592 restricted shares vested, (vi) 11,287 restricted shares forfeited, and (vii) 4,381 LTIP Units 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 35 th 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 55 th 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 75 th 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.
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 June 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 calculate 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.
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The following table sets forth the computation of our basic and diluted earnings per share:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands, except per share amounts) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Less: Earnings allocated to unvested participating securities | ( | ( | ( | ( | |||||||||||||||||||
| Net income available for common shareholders - basic | $ | $ | $ | $ | |||||||||||||||||||
| Impact of assumed conversions: | |||||||||||||||||||||||
| OP and LTIP Units | |||||||||||||||||||||||
| Net income available for common shareholders - dilutive | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding - basic | |||||||||||||||||||||||
Effect of dilutive securities(1): | |||||||||||||||||||||||
| Restricted share awards | |||||||||||||||||||||||
| Assumed conversion of OP and LTIP Units | |||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | |||||||||||||||||||||||
| Earnings per share available to common shareholders: | |||||||||||||||||||||||
| Earnings per common share - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share - Diluted | $ | $ | $ | $ | |||||||||||||||||||
(1) For the three months ended June 30, 2022 and 2021 and the six months ended June 30, 2022, the effect of the redemption of OP and LTIP Units 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands, except per unit amounts) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to unitholders | $ | $ | $ | $ | |||||||||||||||||||
| Less: net income attributable to participating securities | ( | ( | ( | ( | |||||||||||||||||||
| Net income available for unitholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average units outstanding - basic | |||||||||||||||||||||||
| Effect of dilutive securities issued by Urban Edge | |||||||||||||||||||||||
| Unvested LTIP Units | |||||||||||||||||||||||
| Weighted average units outstanding - diluted | |||||||||||||||||||||||
| Earnings per unit available to unitholders: | |||||||||||||||||||||||
| Earnings per unit - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per unit - Diluted | $ | $ | $ | $ | |||||||||||||||||||
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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 and business may differ materially from those expressed in these forward-looking statements. You can identify many of these statements by 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 forward-looking statements are beyond our ability to control or predict and include, among others: (i) the economic, political and social impact of, and uncertainty relating to, the COVID-19 pandemic and related COVID-19 variants, including its impact on our retail tenants and their ability to make 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 Company’s ability to re-lease its properties on the same or better terms, or at all, in the event of non-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 a disruption of, or 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 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, 2021 and the other documents filed by the Company with the SEC, including the information contained in this Quarterly Report on Form 10-Q.
We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for any forward-looking statements included in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on 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 manages, develops, redevelops, and acquires retail real estate, 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 UE’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 (“OP Units”). As of June 30, 2022, Urban Edge owned approximately 95.8% of the outstanding common OP Units with the remaining limited OP Units held by members of management and the Board of Trustees, and contributors of property interests acquired. Urban Edge serves as the sole general partner of the Operating Partnership.
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As of June 30, 2022, our portfolio consisted of 69 shopping centers, five malls and two industrial parks totaling approximately 17.2 million square feet.
Critical Accounting Estimates
The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 contains a description of our critical accounting estimates, including collectibility, valuing acquired assets and liabilities and impairments. For the six months ended June 30, 2022, there were no material changes to these estimates.
Recent Accounting Pronouncements
Refer to Note 3 to the unaudited consolidated financial statements in Part I, Item 1 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 expenditures consist of property operating and capital 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 include: payroll, professional fees, information technology, office expenses and other administrative expenses; and interest and debt expense primarily consists of interest on our mortgage 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 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 and 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. Additionally, the majority of our non-recourse debt includes fixed rate terms and one of our variable loans is hedged with a derivative instrument, which helps to alleviate the impact of rising interest rates on our operations. 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 Net Operating Income (“NOI”), same-property NOI and Funds From Operations (“FFO”) applicable to diluted common shareholders described later in this section):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income | $ | 12,009 | $ | 12,981 | $ | 21,543 | $ | 33,697 | |||||||||||||||
FFO applicable to diluted common shareholders(1) | 36,236 | 35,403 | 70,407 | 67,162 | |||||||||||||||||||
NOI(1) | 59,648 | 57,236 | 116,710 | 110,815 | |||||||||||||||||||
Same-property NOI(1) | 52,633 | 51,991 | 103,312 | 100,045 | |||||||||||||||||||
(1) Refer to pages 32-33 for a reconciliation to the nearest generally accepted accounting principles (“GAAP”) measure.
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Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021
Net income for the three months ended June 30, 2022 was $12.0 million, compared to net income of $13.0 million for the three months ended June 30, 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 that significantly changed in the three months ended June 30, 2022 as compared to the same period in 2021:
| Three Months Ended June 30, | |||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | $ Change | ||||||||||||||||||||
| Total revenue | $ | 97,854 | $ | 94,006 | $ | 3,848 | |||||||||||||||||
| Depreciation and amortization | 24,691 | 22,488 | 2,203 | ||||||||||||||||||||
| Property operating expenses | 17,596 | 15,891 | 1,705 | ||||||||||||||||||||
| General and administrative expenses | 10,634 | 9,484 | 1,150 | ||||||||||||||||||||
| Gain on sale of real estate | 353 | — | 353 | ||||||||||||||||||||
| Interest and debt expense | 14,241 | 14,728 | (487) | ||||||||||||||||||||
| Income tax expense (benefit) | 711 | (34) | 745 | ||||||||||||||||||||
Total revenue increased by $3.8 million to $97.9 million in the second quarter of 2022 from $94.0 million in the second quarter of 2021. The increase is primarily attributable to:
•$3.9 million increase as a result of property acquisitions net of dispositions; and
•$0.7 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 second quarter of 2021; offset by
•$0.8 million decrease in non-cash revenues driven by lease terminations and write-offs of receivables arising from the straight-lining of rents for tenants put on cash basis during the second quarter of 2021.
Depreciation and amortization increased by $2.2 million to $24.7 million in the second quarter of 2022 from $22.5 million in the second quarter of 2021. The increase is primarily attributable to:
•$2.8 million increase as a result of property acquisitions net of dispositions; offset by
•$0.6 million decrease due to write-offs of fully depreciated assets from recurring depreciation and amortization and lease terminations.
Property operating expenses increased by $1.7 million to $17.6 million in the second quarter of 2022 from $15.9 million in the second quarter of 2021. The increase is primarily attributable to:
•$1.0 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 as well as spend reductions in the second quarter of 2021; and
•$0.7 million increase as a result of property acquisitions net of dispositions.
General and administrative expenses increased by $1.2 million to $10.6 million in the second quarter of 2022 from $9.5 million in the second quarter of 2021. This is primarily attributable to an increase in salary, bonus, professional fees, transaction costs, and other expenses.
A gain on the sale of real estate of $0.4 million was recognized in the second quarter of 2022 in connection with the release of escrow funds related to a property disposed of in a prior period.
Interest and debt expense decreased by $0.5 million to $14.2 million in the second quarter of 2022 from $14.7 million in the second quarter of 2021. The decrease is primarily attributable to:
•$1.7 million increase in capitalized interest expense due to an increase in active development, redevelopment and anchor repositioning projects; offset by
•$1.0 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
•$0.2 million increase in interest expense due to the refinancing of our mortgage loans at Plaza at Woodbridge and Plaza at Cherry Hill in the second quarter of 2022.
An income tax expense of $0.7 million was recognized in the second quarter of 2022 based on the performance of our properties in Puerto Rico.
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Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021
Net income for the six months ended June 30, 2022 was $21.5 million, compared to net income of $33.7 million for the six months ended June 30, 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 that significantly changed in the six months ended June 30, 2022 as compared to the same period in 2021:
| Six Months Ended June 30, | |||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | $ Change | ||||||||||||||||||||
| Total revenue | $ | 198,055 | $ | 189,667 | $ | 8,388 | |||||||||||||||||
| Depreciation and amortization | 49,218 | 45,363 | 3,855 | ||||||||||||||||||||
| Real estate taxes | 31,431 | 31,964 | (533) | ||||||||||||||||||||
| Property operating expenses | 38,801 | 36,182 | 2,619 | ||||||||||||||||||||
| General and administrative expenses | 21,755 | 18,152 | 3,603 | ||||||||||||||||||||
| Gain on sale of real estate | 353 | 11,722 | (11,369) | ||||||||||||||||||||
| Interest and debt expense | 28,245 | 29,555 | (1,310) | ||||||||||||||||||||
| Income tax expense | 1,616 | 201 | 1,415 | ||||||||||||||||||||
Total revenue increased by $8.4 million to $198.1 million in the six months ended June 30, 2022 from $189.7 million in the six months ended June 30, 2021. The increase is primarily attributable to:
•$7.5 million increase as a result of property acquisitions net of dispositions; and
•$1.6 million net increase in property rentals and tenant reimbursements income due to higher tenant sales, rent commencements and contractual rent increases, partially offset by lease terminations and lease modifications executed in 2021; offset by
•$0.7 million decrease in lease termination income and management and development fee income.
Depreciation and amortization increased by $3.9 million to $49.2 million in the six months ended June 30, 2022 from $45.4 million in the six months ended June 30, 2021. The increase is primarily attributable to:
•$5.4 million increase as a result of property acquisitions net of dispositions; offset by
•$1.5 million decrease due to write-offs of fully depreciated assets from normal depreciation and amortization and lease terminations.
Real estate taxes decreased by $0.5 million to $31.4 million in the six months ended June 30, 2022 from $32.0 million in the six months ended June 30, 2021. The decrease is primarily attributable to:
•$1.5 million increase in capitalized real estate taxes due to an increase in active development, redevelopment and anchor repositioning projects; and
•$0.2 million decrease due to successful tax appeals and lowered assessments; offset by
•$1.2 million increase as a result of property acquisitions net of dispositions.
Property operating expenses increased by $2.6 million to $38.8 million in the six months ended June 30, 2022 from $36.2 million in the six months ended June 30, 2021. The increase is primarily attributable to:
•$1.3 million increase as a result of property acquisitions net of dispositions; and
•$1.3 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 2022 and spend reductions in 2021.
General and administrative expenses increased by $3.6 million to $21.8 million in the six months ended June 30, 2022 from $18.2 million in the six months ended June 30, 2021. This is primarily attributable to an increase in salary, bonus, professional fees, transaction costs and other expenses.
A gain on the sale of real estate of $0.4 million was recognized in 2022 in connection with the release of escrow funds related to a property disposed of in a prior period. We recognized a gain on sale of real estate of $11.7 million in 2021 related to the disposition of one property and a property parcel.
Interest and debt expense decreased by $1.3 million to $28.2 million in the six months ended June 30, 2022 from $29.6 million in the six months ended June 30, 2021. The decrease is primarily attributable to:
•$3.3 million increase in capitalized interest expense due to an increase in active development, redevelopment and anchor repositioning projects; offset by
•$2.0 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.
Income tax expense increased by $1.4 million to $1.6 million in the six months ended June 30, 2022 from $0.2 million in the six months ended June 30, 2021. The increase is primarily attributed to the performance of our properties in Puerto Rico.
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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” basis which includes the results of operations that were owned and operated for the entirety of the reporting periods being compared, which total 69 and 68 properties for the three and six months ended June 30, 2022 and 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 or sold 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.
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Same-property NOI increased by $0.6 million, or 1.2%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021 and increased by $3.3 million, or 3.3%, for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.
The following table reconciles net income to NOI and same-property NOI for the three and six months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income | $ | 12,009 | $ | 12,981 | $ | 21,543 | $ | 33,697 | |||||||||||||||
| Other (income) expense | (91) | 161 | (530) | (450) | |||||||||||||||||||
| Depreciation and amortization | 24,691 | 22,488 | 49,218 | 45,363 | |||||||||||||||||||
| General and administrative expense | 10,634 | 9,484 | 21,755 | 18,152 | |||||||||||||||||||
| Gain on sale of real estate | (353) | — | (353) | (11,722) | |||||||||||||||||||
| Interest income | (214) | (90) | (419) | (226) | |||||||||||||||||||
| Interest and debt expense | 14,241 | 14,728 | 28,245 | 29,555 | |||||||||||||||||||
| Income tax expense (benefit) | 711 | (34) | 1,616 | 201 | |||||||||||||||||||
| Non-cash revenue and expenses | (1,980) | (2,482) | (4,365) | (3,755) | |||||||||||||||||||
| NOI | 59,648 | 57,236 | 116,710 | 110,815 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
Non-same property NOI(1) | (7,362) | (5,987) | (14,989) | (11,646) | |||||||||||||||||||
| Sunrise Mall net operating loss | 347 | 1,028 | 1,701 | 1,638 | |||||||||||||||||||
| Tenant bankruptcy settlement income and lease termination income | — | (286) | (110) | (762) | |||||||||||||||||||
| Same-property NOI | $ | 52,633 | $ | 51,991 | $ | 103,312 | $ | 100,045 | |||||||||||||||
| NOI related to properties being redeveloped | 4,627 | 5,262 | 8,966 | 10,254 | |||||||||||||||||||
| Same-property NOI including properties in redevelopment | $ | 57,260 | $ | 57,253 | $ | 112,278 | $ | 110,299 | |||||||||||||||
(1) Non-same property NOI includes NOI related to properties being redeveloped and properties acquired or disposed in the period.
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Funds From Operations
FFO was $36.2 million for the three months ended June 30, 2022 compared to $35.4 million for the three months ended June 30, 2021. FFO was $70.4 million for the six months ended June 30, 2022 compared to $67.2 million for the six months ended June 30, 2021.
We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“Nareit”) definition. Nareit defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT, impairments on depreciable real estate or land related to a REIT's main business, and rental property depreciation and amortization expense. 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 six months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income | $ | 12,009 | $ | 12,981 | $ | 21,543 | $ | 33,697 | |||||||||||||||
| Less net (income) loss attributable to noncontrolling interests in: | |||||||||||||||||||||||
| Operating partnership | (506) | (584) | (893) | (1,459) | |||||||||||||||||||
| Consolidated subsidiaries | 123 | 150 | 462 | 229 | |||||||||||||||||||
| Net income attributable to common shareholders | 11,626 | 12,547 | 21,112 | 32,467 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Rental property depreciation and amortization | 24,457 | 22,272 | 48,755 | 44,958 | |||||||||||||||||||
| Gain on sale of real estate | (353) | — | (353) | (11,722) | |||||||||||||||||||
Limited partnership interests in operating partnership(1) | 506 | 584 | 893 | 1,459 | |||||||||||||||||||
| FFO applicable to diluted common shareholders | $ | 36,236 | $ | 35,403 | $ | 70,407 | $ | 67,162 | |||||||||||||||
(1) Represents earnings allocated to LTIP and OP unitholders for unissued common shares, which have been excluded for purposes of calculating earnings per diluted share for the periods presented because they are anti-dilutive.
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Liquidity and Capital Resources
Due to the nature of our business, 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 REIT’s ordinary taxable income each year. Our Board of Trustees declared a quarterly dividend of $0.16 per common share and OP unit for first and second quarter of 2022, or an annual rate of $0.64. Historically, we have paid regular cash dividends; however, the timing, declaration, amount and payment of distributions to shareholders and unitholders of the Operating Partnership fall within the discretion of our Board of Trustees. Our Board of Trustees’ decisions regarding the payment of dividends depend on many factors, such as maintaining our REIT 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 have 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 a $600 million revolving credit agreement with certain financial institutions, which has a maturity date of January 29, 2024 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 cash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, general and administrative 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 June 30, 2022, we had cash and cash equivalents, including restricted cash, of $171 million and no amounts drawn on our $600 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 $171.3 million at June 30, 2022, compared to $219.8 million at December 31, 2021 and $379.0 million at June 30, 2021, a decrease of $48.5 million and $207.7 million, respectively. Our cash flow activities are summarized as follows:
| Six Months Ended June 30, | |||||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | $ Change | ||||||||||||||
| Net cash provided by operating activities | $ | 60,976 | $ | 53,585 | $ | 7,391 | |||||||||||
| Net cash (used in) provided by investing activities | (83,967) | 3,847 | (87,814) | ||||||||||||||
| Net cash used in financing activities | (25,524) | (97,652) | 72,128 | ||||||||||||||
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 $61.0 million for the six months ended June 30, 2022 increased by $7.4 million from $53.6 million for the six months ended June 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 $84.0 million for the six months ended June 30, 2022 increased by $87.8 million compared to net cash provided by investing activities of $3.8 million for the six months ended June 30, 2021 primarily due to (i) $36.2 million increase in cash used for the acquisition of real estate, (ii) $28.7 million increase in cash used for real estate development and capital improvements, and (iii) $22.9 million decrease in cash provided by the sale of properties.
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The Company has 20 active development, redevelopment or anchor repositioning projects with total estimated costs of $205.8 million, of which $70.9 million has been incurred and $134.9 million remains to be funded as of June 30, 2022.
The following summarizes capital expenditures presented on a cash basis for the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30, | ||||||||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||||||||
| Capital expenditures: | ||||||||||||||
| Development and redevelopment costs | $ | 38,909 | $ | 13,729 | ||||||||||
| Capital improvements | 8,238 | 3,831 | ||||||||||||
| Tenant improvements and allowances | 951 | 1,791 | ||||||||||||
| Total capital expenditures | $ | 48,098 | $ | 19,351 | ||||||||||
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 $25.5 million for the six months ended June 30, 2022 decreased by $72.1 million from cash used in financing activities of $97.7 million for the six months ended June 30, 2021, primarily due to (i) $53.3 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) $19.5 million of proceeds from borrowings under mortgage loans, net of repayments.
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. 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.
During 2021 we established an at-the-market equity program (the “ATM Program”), pursuant to which we may offer and sell common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250 million. As of June 30, 2022 we have not issued any common shares under the ATM Program. 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 Prime 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 to 60 days’ notice without penalty;
•Obligations related to employment contracts with certain executive officers and subject to cancellation by either the Company or the executive without cause upon notice; and
•Recorded debt premiums or discounts.
We believe that cash flows from our current operations, cash on hand, the 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 obligations in both the short-term and long-term.
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Cybersecurity
Cybersecurity is an integral part of the Board 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 quarterly security awareness trainings. Additionally, we conduct internal phishing exercises to gauge the effectiveness of the trainings and record response rates for these tests to assess the need for additional training.
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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 June 30, 2022, our variable rate debt outstanding had rates indexed to LIBOR, SOFR and the Prime Rate.
| 2022 | 2021 | ||||||||||||||||||||||||||||
| (Amounts in thousands) | June 30, Balance | Weighted Average Interest Rate | Effect of 1% Change in Base Rates | December 31, Balance | Weighted Average Interest Rate | ||||||||||||||||||||||||
| Variable rate mortgages | $ | 159,978 | 3.36% | $ | 1,600 | $ | 161,084 | 1.85% | |||||||||||||||||||||
| Fixed rate mortgages | 1,548,659 | 4.10% | — | (2) | 1,534,324 | 4.10% | |||||||||||||||||||||||
| $ | 1,708,637 | (1) | $ | 1,600 | $ | 1,695,408 | (1) | ||||||||||||||||||||||
(1) Excludes unamortized debt issuance costs of $8.8 million and $8.2 million as of June 30, 2022 and December 31, 2021, respectively.
(2) If the weighted average interest rate of our fixed rate debt increased by 1% (i.e. due to refinancing at higher rates), annualized interest expense would have increased by approximately $15.5 million based on outstanding balances as of June 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. On June 23, 2022, in connection with the refinancing of one of our variable rate loans, we 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%. As of June 30, 2022, this derivative instrument is deemed to be an effective hedge and has been designated for cash flow hedge accounting.
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 June 30, 2022, the estimated fair value of our consolidated debt was $1.6 billion.
Other Market Risks
As of June 30, 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 June 30, 2022 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 June 30, 2022, future estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.
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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 months ended June 30, 2022 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 months ended June 30, 2022 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.
ITEM 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 disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 16, 2022.
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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) 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 Plan or Program(1) | ||||||||||||||||||||||
| April 1, 2022 - April 30, 2022 | 527 | (2) | $ | 19.06 | — | $ | 145,900,000 | |||||||||||||||||||
| May 1, 2022 - May 31, 2022 | — | — | — | $ | 145,900,000 | |||||||||||||||||||||
| June 1, 2022 - June 30, 2022 | 752 | (2) | 18.14 | — | $ | 145,900,000 | ||||||||||||||||||||
| Total | 1,279 | $ | 18.52 | — | ||||||||||||||||||||||
(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) Issuer Purchases of Equity Securities: Not applicable.
| 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 Plan or Program | ||||||||||||||||||||||
| April 1, 2022 - April 30, 2022 | 527 | $ | 19.06 | — | $ | — | ||||||||||||||||||||
| May 1, 2022 - May 31, 2022 | — | (1) | — | — | $ | — | ||||||||||||||||||||
| June 1, 2022 - June 30, 2022 | 752 | 18.14 | — | $ | — | |||||||||||||||||||||
| Total | 1,279 | $ | 18.52 | — | ||||||||||||||||||||||
(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
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
39
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits listed below are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q.
INDEX TO EXHIBITS
The following exhibits are included as part of this Quarterly Report on Form 10-Q:
| Exhibit Number | Exhibit Description | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | |||||||
| 101.CAL* | Inline XBRL Extension Calculation Linkbase | |||||||
| 101.LAB* | Inline XBRL Extension Labels Linkbase | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |||||||
| 101.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.
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PART IV
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
| URBAN EDGE PROPERTIES | |||||
| (Registrant) | |||||
| /s/ Mark Langer | |||||
Mark Langer, Chief Financial Officer | |||||
Date: August 3, 2022 | |||||
| URBAN EDGE PROPERTIES LP | |||||
| By: Urban Edge Properties, General Partner | |||||
| /s/ Mark Langer | |||||
Mark Langer, Chief Financial Officer | |||||
Date: August 3, 2022 | |||||
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jeffrey S. Olson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Urban Edge Properties;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| August 3, 2022 | ||||||||
| /s/ Jeffrey S. Olson | ||||||||
| Jeffrey S. Olson | ||||||||
| Chairman of the Board of Trustees and Chief Executive Officer of Urban Edge Properties | ||||||||
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Mark Langer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Urban Edge Properties;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| August 3, 2022 | ||||||||
| /s/ Mark Langer | ||||||||
| Mark Langer | ||||||||
| Chief Financial Officer of Urban Edge Properties | ||||||||
EXHIBIT 31.3
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jeffrey S. Olson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Urban Edge Properties LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| August 3, 2022 | ||||||||
| /s/ Jeffrey S. Olson | ||||||||
| Jeffrey S. Olson | ||||||||
| Chairman of the Board of Trustees and Chief Executive Officer of Urban Edge Properties, general partner of Urban Edge Properties LP | ||||||||
EXHIBIT 31.4
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Mark Langer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Urban Edge Properties LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| August 3, 2022 | ||||||||
| /s/ Mark Langer | ||||||||
| Mark Langer | ||||||||
| Chief Financial Officer of Urban Edge Properties, general partner of Urban Edge Properties LP | ||||||||
EXHIBIT 32.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Urban Edge Properties, hereby certifies, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) of Urban Edge Properties fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Urban Edge Properties.
| August 3, 2022 | /s/ Jeffrey S. Olson | ||||||||||
| Name: | Jeffrey S. Olson | ||||||||||
| Title: | Chairman of the Board of Trustees and Chief Executive Officer of Urban Edge Properties | ||||||||||
| August 3, 2022 | /s/ Mark Langer | ||||||||||
| Name: | Mark Langer | ||||||||||
| Title: | Chief Financial Officer of Urban Edge Properties | ||||||||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).
EXHIBIT 32.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Urban Edge Properties, hereby certifies, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) of Urban Edge Properties LP fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Urban Edge Properties LP.
| August 3, 2022 | /s/ Jeffrey S. Olson | ||||||||||
| Name: | Jeffrey S. Olson | ||||||||||
| Title: | Chairman of the Board of Trustees and Chief Executive Officer of Urban Edge Properties, general partner of Urban Edge Properties LP | ||||||||||
| August 3, 2022 | /s/ Mark Langer | ||||||||||
| Name: | Mark Langer | ||||||||||
| Title: | Chief Financial Officer of Urban Edge Properties, general partner of Urban Edge Properties LP | ||||||||||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).