Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number: 001-36523 (Urban Edge Properties)
Commission File Number: 333-212951-01 (Urban Edge Properties LP)
URBAN EDGE PROPERTIES
URBAN EDGE PROPERTIES LP
(Exact name of Registrant as specified in its charter)
Maryland (Urban Edge Properties)
 
47-6311266
Delaware (Urban Edge Properties LP)
 
36-4791544
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
888 Seventh Avenue, New York, New York
 
10019
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number including area code:
 
(212) 956‑2556
 
 
 
 
 
Title of class of registered securities
 
Trading symbol
 
Name of exchange on which registered
Common shares of beneficial interest, par value $0.01 per share

 
UE
 
The New York Stock Exchange

_______________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Urban Edge Properties    YES 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:
Large Accelerated Filer x 
Accelerated Filer o                              
Non-Accelerated Filer o                              
Smaller Reporting Company o 
Emerging Growth Company o                              
Urban Edge Properties LP:
Large Accelerated Filer o                              
Accelerated Filer o                              
Non-Accelerated Filer x 
Smaller Reporting Company o 
Emerging Growth Company o                              
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 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 o   NO x         Urban Edge Properties LP     YES o   NO x
As of April 26, 2019, Urban Edge Properties had 120,405,524 common shares outstanding.




URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 2019

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
Financial Statements
 
 
 
 
Consolidated Financial Statements of Urban Edge Properties:
 
 
 
 
Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited)
 
 
 
Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
Consolidated Financial Statements of Urban Edge Properties LP:
 
 
 
 
Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited)
 
 
 
Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)
 
 
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (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 March 31, 2019 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 March 31, 2019, UE owned an approximate 94.4% ownership interest in UELP. The remaining approximate 5.6% interest is owned by 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. 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)
 
March 31,
 
December 31,
 
2019
 
2018
ASSETS

 
 

Real estate, at cost:
 

 
 

Land
$
525,027

 
$
525,819

Buildings and improvements
2,174,923

 
2,156,113

Construction in progress
73,649

 
80,385

Furniture, fixtures and equipment
6,790

 
6,675

Total
2,780,389

 
2,768,992

Accumulated depreciation and amortization
(661,435
)
 
(645,872
)
Real estate, net
2,118,954

 
2,123,120

Right-of-use assets
96,466

 

Cash and cash equivalents
416,668

 
440,430

Restricted cash
32,120

 
17,092

Tenant and other receivables, net of allowance for doubtful accounts of $6,486 as of December 31, 2018
39,002

 
28,563

Receivable arising from the straight-lining of rents, net of $134 as of December 31, 2018
80,848

 
84,903

Identified intangible assets, net of accumulated amortization of $29,582 and $39,526, respectively
53,994

 
68,422

Deferred leasing costs, net of accumulated amortization of $17,236 and $16,826, respectively
21,558

 
21,277

Deferred financing costs, net of accumulated amortization of $3,020 and $2,764, respectively
1,963

 
2,219

Prepaid expenses and other assets
12,854

 
12,968

Total assets
$
2,874,427

 
$
2,798,994

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Liabilities:
 
 
 
Mortgages payable, net
$
1,549,479

 
$
1,550,242

Lease liabilities
91,906

 

Accounts payable, accrued expenses and other liabilities
85,424

 
98,517

Identified intangible liabilities, net of accumulated amortization of $67,223 and $65,058, respectively
141,526

 
144,258

Total liabilities
1,868,335

 
1,793,017

Commitments and contingencies


 


Shareholders’ equity:
 
 
 
Common shares: $0.01 par value; 500,000,000 shares authorized and 120,099,294 and 114,345,565 shares issued and outstanding, respectively
1,201

 
1,143

Additional paid-in capital
1,005,129

 
956,420

Accumulated deficit
(56,663
)
 
(52,857
)
Noncontrolling interests:
 
 
 
Operating partnership
55,976

 
100,822

Consolidated subsidiaries
449

 
449

Total equity
1,006,092

 
1,005,977

Total liabilities and equity
$
2,874,427

 
$
2,798,994

 

See notes to consolidated financial statements (unaudited).

1



URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share amounts)
 
 
Three Months Ended March 31,
 
2019
 
2018
REVENUE
 
 
 
Rental revenue
$
97,308

 
$
98,394

Management and development fees
352

 
342

Other income
72

 
317

Total revenue
97,732

 
99,053

EXPENSES
 
 
 
Depreciation and amortization
21,830

 
21,270

Real estate taxes
15,477

 
15,775

Property operating
17,061

 
17,903

General and administrative
10,580

 
7,641

Casualty and impairment loss (gain), net
3,958

 
(1,341
)
Lease expense
3,655

 
2,736

Total expenses
72,561

 
63,984

Gain on sale of real estate
16,953

 

Interest income
2,506

 
1,524

Interest and debt expense
(16,536
)
 
(15,644
)
Gain on extinguishment of debt

 
2,524

Income before income taxes
28,094

 
23,473

Income tax expense
(202
)
 
(434
)
Net income
27,892

 
23,039

Less net income attributable to noncontrolling interests in:
 
 
 
Operating partnership
(2,355
)
 
(2,328
)
Consolidated subsidiaries

 
(11
)
Net income attributable to common shareholders
$
25,537

 
$
20,700

 
 
 
 
Earnings per common share - Basic:
$
0.22

 
$
0.18

Earnings per common share - Diluted:
$
0.22

 
$
0.18

Weighted average shares outstanding - Basic
116,274

 
113,677

Weighted average shares outstanding - Diluted
126,504

 
113,864

 
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, December 31, 2017
113,827,529

 
$
1,138

 
$
946,402

 
$
(57,621
)
 
$
100,218

 
$
404

 
$
990,541

Net income attributable to common shareholders

 

 

 
20,700

 

 

 
20,700

Net income attributable to noncontrolling interests

 

 

 

 
2,328

 
11

 
2,339

Limited partnership interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
Units redeemed for common shares
10,000

 

 
79

 

 

 

 
79

Reallocation of noncontrolling interests

 

 
484

 

 
(563
)
 

 
(79
)
Common shares issued
102,353

 
1

 
40

 
(65
)
 

 

 
(24
)
Dividends on common shares ($0.22 per share)

 

 

 
(24,997
)
 

 

 
(24,997
)
Distributions to redeemable NCI ($0.22 per unit)

 

 

 

 
(2,786
)
 

 
(2,786
)
Share-based compensation expense

 

 
1,173

 
8

 
839

 

 
2,020

Share-based awards retained for taxes
(16,158
)
 

 
(363
)
 

 

 

 
(363
)
Balance, March 31, 2018
113,923,724

 
$
1,139

 
$
947,815

 
$
(61,975
)
 
$
100,036

 
$
415

 
$
987,430


 
Common Shares
 
 
 
 
 
Noncontrolling Interests (“NCI”)
 
 
 
Shares
 
Amount

 
Additional
Paid-In Capital
 
Accumulated Earnings
(Deficit)
 
Operating Partnership
 
Consolidated Subsidiaries
 
Total Equity
Balance, December 31, 2018
114,345,565

 
$
1,143

 
$
956,420

 
$
(52,857
)
 
$
100,822

 
$
449

 
$
1,005,977

Net income attributable to common shareholders

 

 

 
25,537

 

 

 
25,537

Net income attributable to noncontrolling interests

 

 

 

 
2,355

 

 
2,355

Impact of ASC 842 adoption

 

 

 
(2,918
)
 

 

 
(2,918
)
Limited partnership interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
Units redeemed for common shares
5,762,184

 
57

 
46,090

 

 

 

 
46,147

Reallocation of noncontrolling interests

 

 
1,250

 

 
(47,397
)
 

 
(46,147
)
Common shares issued
20,657

 
1

 
69

 
(35
)
 

 

 
35

Dividends to common shareholders ($0.22 per share)

 

 

 
(26,390
)
 

 

 
(26,390
)
Distributions to redeemable NCI ($0.22 per unit)

 

 

 

 
(1,576
)
 

 
(1,576
)
Share-based compensation expense

 

 
1,892

 

 
1,772

 

 
3,664

Share-based awards retained for taxes
(29,112
)
 

 
(592
)
 

 

 

 
(592
)
Balance, March 31, 2019
120,099,294

 
$
1,201

 
$
1,005,129

 
$
(56,663
)
 
$
55,976

 
$
449

 
$
1,006,092



See notes to consolidated financial statements (unaudited).

3



URBAN EDGE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Net income
$
27,892

 
$
23,039

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
21,747

 
21,430

Casualty and impairment loss
3,958

 

Gain on sale of real estate
(16,953
)
 

Gain on extinguishment of debt

 
(2,524
)
Amortization of deferred financing costs
720

 
722

Amortization of below market leases, net
(2,360
)
 
(2,633
)
Amortization of right-of-use assets
2,014

 

Straight-lining of rent
(22
)
 
66

Share-based compensation expense
3,664

 
2,020

Provision for doubtful accounts

 
1,236

Change in operating assets and liabilities:
 

 
 

Tenant and other receivables
(10,379
)
 
(5,320
)
Deferred leasing costs
(1,201
)
 
(938
)
Prepaid and other assets
93

 
1,295

Accounts payable, accrued expenses and other liabilities
254

 
(4,392
)
Net cash provided by operating activities
29,427

 
34,001

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Real estate development and capital improvements
(26,696
)
 
(29,272
)
Acquisition of real estate

 
(3,965
)
Proceeds from sale of operating properties
18,202

 

Insurance proceeds

 
1,000

Net cash used in investing activities
(8,494
)
 
(32,237
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Debt repayments
(1,144
)
 
(844
)
Dividends to common shareholders
(26,390
)
 
(24,997
)
Distributions to redeemable noncontrolling interests
(1,576
)
 
(2,786
)
Taxes withheld for vested restricted shares
(592
)
 
(363
)
Proceeds (payments) related to the issuance of common shares
35

 
(24
)
Net cash used in financing activities
(29,667
)
 
(29,014
)
Net decrease in cash and cash equivalents and restricted cash
(8,734
)
 
(27,250
)
Cash and cash equivalents and restricted cash at beginning of period
457,522

 
500,841

Cash and cash equivalents and restricted cash at end of period
$
448,788

 
$
473,591


See notes to consolidated financial statements (unaudited).


4



 
Three Months Ended March 31,
 
2019
 
2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash payment for interest net of amounts capitalized of $565 and $1,154, respectively
$
16,122

 
$
17,253

Cash payments for income taxes
7

 
618

Cash payments for lease liabilities
2,740

 

NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Accrued capital expenditures included in accounts payable and accrued expenses
15,559

 
23,074

Write-off of fully depreciated assets
7,106

 
689

Operating lease liabilities arising from obtaining right-of-use assets
93,613

 

Mortgage debt forgiven in foreclosure

 
11,537

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period
$
440,430

 
$
490,279

Restricted cash at beginning of period
17,092

 
10,562

Cash and cash equivalents and restricted cash at beginning of period
$
457,522

 
$
500,841

 
 
 
 
Cash and cash equivalents at end of period
$
416,668

 
$
462,774

Restricted cash at end of period
32,120

 
10,817

Cash and cash equivalents and restricted cash at end of period
$
448,788

 
$
473,591


 See notes to consolidated financial statements (unaudited).

5



URBAN EDGE PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except unit and per unit amounts)
 
March 31,
 
December 31,
 
2019
 
2018
ASSETS

 
 

Real estate, at cost:
 

 
 

Land
$
525,027

 
$
525,819

Buildings and improvements
2,174,923

 
2,156,113

Construction in progress
73,649

 
80,385

Furniture, fixtures and equipment
6,790

 
6,675

Total
2,780,389

 
2,768,992

Accumulated depreciation and amortization
(661,435
)
 
(645,872
)
Real estate, net
2,118,954

 
2,123,120

Right-of-use assets
96,466

 

Cash and cash equivalents
416,668

 
440,430

Restricted cash
32,120

 
17,092

Tenant and other receivables, net of allowance for doubtful accounts of $6,486 as of December 31, 2018
39,002

 
28,563

Receivable arising from the straight-lining of rents, net of $134 as of December 31, 2018
80,848

 
84,903

Identified intangible assets, net of accumulated amortization of $29,582 and $39,526, respectively
53,994

 
68,422

Deferred leasing costs, net of accumulated amortization of $17,236 and $16,826, respectively
21,558

 
21,277

Deferred financing costs, net of accumulated amortization of $3,020 and $2,764, respectively
1,963

 
2,219

Prepaid expenses and other assets
12,854

 
12,968

Total assets
$
2,874,427

 
$
2,798,994

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Liabilities:
 
 
 
Mortgages payable, net
$
1,549,479

 
$
1,550,242

Lease liabilities
91,906

 

Accounts payable, accrued expenses and other liabilities
85,424

 
98,517

Identified intangible liabilities, net of accumulated amortization of $67,223 and $65,058, respectively
141,526

 
144,258

Total liabilities
1,868,335

 
1,793,017

Commitments and contingencies


 


Equity:
 
 
 
Partners’ capital:
 
 
 
General partner: 120,099,294 and 114,345,565 units outstanding, respectively
1,006,330

 
957,563

Limited partners: 7,109,786 and 12,736,633 units outstanding, respectively
59,822

 
105,447

Accumulated deficit
(60,509
)
 
(57,482
)
Total partners’ capital
1,005,643

 
1,005,528

Noncontrolling interest in consolidated subsidiaries
449

 
449

Total equity
1,006,092

 
1,005,977

Total liabilities and equity
$
2,874,427

 
$
2,798,994

 

See notes to consolidated financial statements (unaudited).


6



URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except unit and per unit amounts)
 
 
Three Months Ended March 31,
 
2019
 
2018
REVENUE
 
 
 
Rental revenue
$
97,308

 
$
98,394

Management and development fees
352

 
342

Other income
72

 
317

Total revenue
97,732

 
99,053

EXPENSES
 
 
 
Depreciation and amortization
21,830

 
21,270

Real estate taxes
15,477

 
15,775

Property operating
17,061

 
17,903

General and administrative
10,580

 
7,641

Casualty and impairment loss (gain), net
3,958

 
(1,341
)
Lease expense
3,655

 
2,736

Total expenses
72,561

 
63,984

Gain on sale of real estate
16,953

 

Interest income
2,506

 
1,524

Interest and debt expense
(16,536
)
 
(15,644
)
Gain on extinguishment of debt

 
2,524

Income before income taxes
28,094

 
23,473

Income tax expense
(202
)
 
(434
)
Net income
27,892

 
23,039

Less: net income attributable to NCI in consolidated subsidiaries

 
(11
)
Net income attributable to unitholders
$
27,892

 
$
23,028

 
 
 
 
Earnings per unit - Basic:
$
0.22

 
$
0.18

Earnings per unit - Diluted:
$
0.22

 
$
0.18

Weighted average units outstanding - Basic
126,391

 
126,123

Weighted average units outstanding - Diluted
126,505

 
126,582

 
See notes to consolidated financial statements (unaudited).


7



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, December 31, 2017
113,827,529

 
$
947,540

 
12,812,954

 
$
105,495

 
$
(62,898
)
 
$
404

 
$
990,541

Net income attributable to unitholders

 

 

 

 
23,028

 

 
23,028

Net income attributable to noncontrolling interests

 

 

 

 

 
11

 
11

Common units issued as a result of common shares issued by Urban Edge
102,353

 
41

 

 

 
(65
)
 

 
(24
)
Limited partnership units issued, net
10,000

 
563

 
27,810

 
(563
)
 

 

 

Distributions to Partners ($0.22 per unit)

 

 

 

 
(27,783
)
 

 
(27,783
)
Share-based compensation expense

 
1,173

 

 
839

 
8

 

 
2,020

Share-based awards retained for taxes
(16,158
)
 
(363
)
 

 

 

 

 
(363
)
Balance, March 31, 2018
113,923,724

 
$
948,954

 
12,840,764

 
$
105,771

 
$
(67,710
)
 
$
415

 
$
987,430

(1) Limited partners have a 10.1% common limited partnership interest in the Operating Partnership as of March 31, 2018 in the form of units of interest in the Operating Partnership (“OP Units”) and Long-Term Incentive Plan (“LTIP”) units.

 
Total Shares
 
General Partner
 
 Total Units
 
Limited Partners(2)
 
Accumulated Earnings
(Deficit)
 
NCI in Consolidated Subsidiaries
 
Total Equity
Balance, December 31, 2018
114,345,565

 
$
957,563

 
12,736,633

 
$
105,447

 
$
(57,482
)
 
$
449

 
$
1,005,977

Net income attributable to unitholders

 

 

 

 
27,892

 

 
27,892

Net income attributable to noncontrolling interests

 

 

 

 

 

 

Impact of ASC 842 adoption

 

 

 

 
(2,918
)
 

 
(2,918
)
Common units issued as a result of common shares issued by Urban Edge
20,657

 
70

 

 

 
(35
)
 

 
35

Equity redemption of OP Units
5,762,184

 
46,147

 
(5,762,184
)
 

 

 

 
46,147

Limited partnership units issued, net

 

 
135,337

 

 

 

 

Reallocation of noncontrolling interests

 
1,250

 

 
(47,397
)
 

 

 
(46,147
)
Distributions to Partners ($0.22 per unit)

 

 

 

 
(27,966
)
 

 
(27,966
)
Share-based compensation expense

 
1,892

 

 
1,772

 

 

 
3,664

Share-based awards retained for taxes
(29,112
)
 
(592
)
 

 

 

 

 
(592
)
Balance, March 31, 2019
120,099,294

 
$
1,006,330

 
7,109,786

 
$
59,822

 
$
(60,509
)
 
$
449

 
$
1,006,092

(2) Limited partners have a 5.6% common limited partnership interest in the Operating Partnership as of March 31, 2019 in the form of units of interest in the Operating Partnership (“OP Units”) and Long-Term Incentive Plan (“LTIP”) units.


See notes to consolidated financial statements (unaudited).


8



URBAN EDGE PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Net income
$
27,892

 
$
23,039

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
21,747

 
21,430

Casualty and impairment loss
3,958

 

Gain on sale of real estate
(16,953
)
 

Gain on extinguishment of debt

 
(2,524
)
Amortization of deferred financing costs
720

 
722

Amortization of below market leases, net
(2,360
)
 
(2,633
)
Amortization of right-of-use assets
2,014

 

Straight-lining of rent
(22
)
 
66

Share-based compensation expense
3,664

 
2,020

Provision for doubtful accounts

 
1,236

Change in operating assets and liabilities:
 

 
 

Tenant and other receivables
(10,379
)
 
(5,320
)
Deferred leasing costs
(1,201
)
 
(938
)
Prepaid and other assets
93

 
1,295

Accounts payable, accrued expenses and other liabilities
254

 
(4,392
)
Net cash provided by operating activities
29,427

 
34,001

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Real estate development and capital improvements
(26,696
)
 
(29,272
)
Acquisition of real estate

 
(3,965
)
Proceeds from sale of operating properties
18,202

 

Insurance proceeds

 
1,000

Net cash used in investing activities
(8,494
)
 
(32,237
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Debt repayments
(1,144
)
 
(844
)
Distributions to partners
(27,966
)
 
(27,783
)
Taxes withheld for vested restricted units
(592
)
 
(363
)
Proceeds (payments) related to the issuance of common shares
35

 
(24
)
Net cash used in financing activities
(29,667
)
 
(29,014
)
Net decrease in cash and cash equivalents and restricted cash
(8,734
)
 
(27,250
)
Cash and cash equivalents and restricted cash at beginning of period
457,522

 
500,841

Cash and cash equivalents and restricted cash at end of period
$
448,788

 
$
473,591


See notes to consolidated financial statements (unaudited).


9



 
Three Months Ended March 31,
 
2019
 
2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
Cash payment for interest net of amounts capitalized of $565 and $1,154, respectively
$
16,122

 
$
17,253

Cash payments for income taxes
7

 
618

Cash payments for lease liabilities
2,740

 

NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Accrued capital expenditures included in accounts payable and accrued expenses
15,559

 
23,074

Write-off of fully depreciated assets
7,106

 
689

Operating lease liabilities arising from obtaining right-of-use assets
93,613

 

Mortgage debt forgiven in foreclosure

 
11,537

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period
$
440,430

 
$
490,279

Restricted cash at beginning of period
17,092

 
10,562

Cash and cash equivalents and restricted cash at beginning of period
$
457,522

 
$
500,841

 
 
 
 
Cash and cash equivalents at end of period
$
416,668

 
$
462,774

Restricted cash at end of period
32,120

 
10,817

Cash and cash equivalents and restricted cash at end of period
$
448,788

 
$
473,591


 See notes to consolidated financial statements (unaudited).


10



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 New York metropolitan area. 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 our real estate properties and other assets. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Urban Edge Properties and UELP and their consolidated entities/subsidiaries.
The Operating Partnership’s capital includes general and common limited partnership interests in the operating partnership (“OP Units”). As of March 31, 2019, Urban Edge owned approximately 94.4% of the outstanding common OP Units with the remaining limited OP Units held by members of management, our 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 March 31, 2019, our portfolio consisted of 82 shopping centers, four malls and a warehouse park, totaling approximately 16.1 million square feet (sf).
2.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions of Form 10-Q. Certain information and footnote disclosures included in our annual financial statements have been condensed or omitted. In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and the Operating Partnership and the results of operations and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. Accordingly, these consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities Exchange Commission (“SEC”).

The consolidated balance sheets as of March 31, 2019 and December 31, 2018 reflect the consolidation of wholly-owned subsidiaries and those entities in which we have a controlling financial interest. The consolidated statements of income for the three months ended March 31, 2019 and 2018 include the consolidated accounts of the Company and the Operating Partnership. All intercompany transactions have been eliminated in consolidation.

In accordance with ASC 205 Presentation of Financial Statements, the Company reclassified Property rentals and Tenant reimbursement income to Rental revenue on its consolidated statements of income for the three months ended March 31, 2019 and 2018, respectively, as reflected in our Form 10-K. Additionally, the Company includes credit losses related to operating lease receivables as a reduction to rental revenue in "Rental revenue" in the consolidated statements of income for the quarter ended March 31, 2019 due to the adoption of (“ASU 2016-02”) ASC 842 Leases. Provision for doubtful accounts are included in "Property operating expenses" for the quarter ended March 31, 2018.

Our primary business is the ownership, management, redevelopment, development and operation of retail shopping centers and malls. We do not distinguish 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. 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.

11



3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recently Issued Accounting Literature — Effective for the fiscal period beginning January 1, 2019, we adopted (“ASU 2016-02”) ASC 842 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). In connection with the adoption of ASU 2016-02, we also adopted (i) ASU 2019-01 Leases (ASC 842): Codification Improvements, (ii) ASU 2018-20 Leases (ASC 842): Narrow-Scope Improvements for Lessors, (iii) ASU 2018-11 Leases (ASC 842): Targeted Improvements, (iv) ASU 2018-10 Codification Improvements to ASC 842, Leases and (v) ASU 2018-01 Leases (ASC 842): Land Easement Practical Expedient for Transition to Topic 842.

We initially applied the standard at the beginning of the period of adoption through the transition method issued by ASU 2018-11 and have presented comparative periods under ASC 840 Leases. Due to the effects of applying ASC 842, the Company recognized a $2.9 million cumulative-effect adjustment to its accumulated deficit to adjust reserves on receivables from straight-line rents. The new standard requires lessees to apply a two-model approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use ("ROU") asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The Company has elected the short-term lease recognition exemption, and therefore, leases with a term of 12 months or less are not recognized on the balance sheet. The new standard requires lessors to account for leases using an approach that is substantially equivalent to guidance for sales-type leases, direct financing leases and operating leases under ASC 840. For purposes of transition, we did not elect the hindsight practical expedient but did elect the land easement practical expedient to not reassess whether existing land easements contain leases and the practical expedient package, which has been applied consistently to all of our leases. As a result of electing the practical expedient package, we did not (i) reassess whether any expired or existing contracts are or contain leases, (ii) reassess the lease classification for any expired or existing leases or (iii) reassess initial direct costs for any existing leases.

From a lessee perspective, the initial adoption on January 1, 2019 resulted in the recognition of operating lease ROU assets and lease liabilities for 24 operating leases with an aggregate balance of $98.5 million and $93.6 million, respectively. On January 1, 2019, we also reclassified $11.9 million of acquired below-market lease intangibles and $7.1 million of accrued rent and adjusted the carrying values of our ROU assets by the corresponding amounts. If a finance lease is commenced in the future, a finance lease ROU asset and finance lease liability will be recognized on the balance sheet. The Company will recognize amortization of the finance lease ROU asset and interest expense on the lease liability. As of March 31, 2019, our operating lease ROU assets and lease liabilities were $96.5 million and $91.9 million, respectively, as presented on our consolidated balance sheet. The standard's adoption has also impacted the presentation of our consolidated income statement beginning with the period ending March 31, 2019, due to accounting for the lease and non-lease components as a single lease component for all classes of underlying assets, presented as lease expense on the consolidated statement of income. Prior to the adoption of ASC 842, related lease and non-lease expense amounts were recognized within lease expense, real estate taxes, property operating expenses and general administrative expenses on the consolidated statement of income.

From a lessor perspective, the adoption resulted in additional general and administrative expenses, attributable to internal leasing department costs not meeting the definition of initial direct costs under ASC 842. Capitalized internal leasing costs were $0.5 million for the three months ended March 31, 2018. The standard's adoption has also impacted the presentation of our consolidated income statement due to accounting for lease and non-lease components as a single lease component, presented as rental revenue on the consolidated statement of income, however there has been no change in the timing of revenue recognition since adoption. Additionally, under the amendments issued in ASU 2018-20, the Company has accounted for common area maintenance expenses paid directly by tenants to third-parties as variable rental revenue and has reported the corresponding expense within property operating expenses, however real estate taxes and insurance expenses paid directly by tenants have not been accounted for by the Company.

The adoption of this standard has also resulted in additional quantitative and qualitative footnote disclosures beginning with this Quarterly Report on Form 10-Q for the period ending March 31, 2019 (refer to Note 8 Leases).

ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses will become effective for the fiscal period beginning January 1, 2020. ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments and also modifies the impairment model with new methodology for estimating credits losses. In November 2018, the FASB issued ASU 2018-19 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which included amendments to clarify receivables arising from operating leases are within the scope ASC 842. Due to the adoption of ASC 842, the Company includes credit losses related to operating lease receivables as a reduction to rental revenue in "Rental revenue" in the consolidated statements of income. The Company is currently evaluating the impact of this new standard.


12



Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant to the Company or the Operating Partnership, or they are not expected to have a material impact on our consolidated financial statements.

4.
ACQUISITIONS AND DISPOSITIONS

Acquisitions

During the three months ended March 31, 2019, no acquisitions were completed by the Company.
As of March 31, 2019, we were under contract to purchase an office building in Maywood, NJ, adjacent to our existing property, Bergen Town Center. The building is subject to a ground lease, which the Company will acquire the lessee position of for a purchase price of $7.1 million. The transaction is scheduled to close by the end of 2019.

Dispositions

On March 15, 2019, we completed the sale of our property in Chicopee, MA for $18.2 million, net of selling costs, resulting in a $17.0 million gain on sale of real estate recognized during the three months ended March 31, 2019.

Subsequent to March 31, 2019, the Company executed a contract to sell its property in Glen Burnie, MD for $16.2 million. The sale is anticipated to close by the end of the second quarter of 2019.

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 $54.0 million and $141.5 million as of March 31, 2019, respectively, and $68.4 million and $144.3 million as of December 31, 2018, respectively.

Amortization of acquired below-market leases, net of acquired above-market leases resulted in additional rental income of $2.4 million and $2.6 million for the three months ended March 31, 2019 and 2018, respectively.
 
Amortization of acquired in-place leases and customer relationships resulted in additional depreciation and amortization expense of $2.1 million and $2.8 million for the three months ended March 31, 2019 and 2018, respectively.

The following table sets forth the estimated annual amortization income and expense related to intangible assets and liabilities for the remainder of 2019 and the five succeeding years:
(Amounts in thousands)
 
Below-Market
 
Above-Market
 
 
Year
 
Operating Lease Amortization
 
Operating Lease Amortization
 
In-Place Leases
2019(1)
 
$
7,442

 
$
(917
)
 
$
5,420

2020
 
9,810

 
(1,014
)
 
6,177

2021
 
9,672

 
(807
)
 
4,965

2022
 
9,596

 
(433
)
 
4,032

2023
 
9,548

 
(327
)
 
3,702

2024
 
9,301

 
(266
)
 
3,264

(1) Remainder of 2019.


13



6.     MORTGAGES PAYABLE
 
The following is a summary of mortgages payable as of March 31, 2019 and December 31, 2018.
 
 
 
 
Interest Rate at
 
March 31,
 
December 31,
(Amounts in thousands)
 
Maturity
 
March 31, 2019
 
2019
 
2018
First mortgages secured by:
 
 
 
 
 
 
 
 

Variable rate
 
 
 
 
 
 
 
 
Cherry Hill (Plaza at Cherry Hill)(1)
 
5/24/2022
 
4.09%
 
$
28,930

 
$
28,930

Westfield (One Lincoln Plaza)(1)
 
5/24/2022
 
4.09%
 
4,730

 
4,730

Woodbridge (Plaza at Woodbridge)(1)
 
5/25/2022
 
4.09%
 
55,340

 
55,340

Jersey City (Hudson Commons)(2)
 
11/15/2024
 
4.39%
 
29,000

 
29,000

Watchung(2)
 
11/15/2024
 
4.39%
 
27,000

 
27,000

Bronx (1750-1780 Gun Hill Road)(2)
 
12/1/2024
 
4.39%
 
24,500

 
24,500

Total variable rate debt
 
 
 
 
 
169,500

 
169,500

Fixed rate
 
 
 
 
 
 
 
 
Montehiedra (senior loan)
 
7/6/2021
 
5.33%
 
84,476

 
84,860

Montehiedra (junior loan)
 
7/6/2021
 
3.00%
 
30,000

 
30,000

Bergen Town Center - West, Paramus
 
4/8/2023
 
3.56%
 
300,000

 
300,000

Bronx (Shops at Bruckner)
 
5/1/2023
 
3.90%
 
11,432

 
11,582

Jersey City (Hudson Mall)(4)
 
12/1/2023
 
5.07%
 
24,149

 
24,326

Yonkers Gateway Center(5)
 
4/6/2024
 
4.16%
 
31,310

 
31,704

Las Catalinas
 
8/6/2024
 
4.43%
 
130,000

 
130,000

Brick
 
12/10/2024
 
3.87%
 
50,000

 
50,000

North Plainfield
 
12/10/2025
 
3.99%
 
25,100

 
25,100

Middletown
 
12/1/2026
 
3.78%
 
31,400

 
31,400

Rockaway
 
12/1/2026
 
3.78%
 
27,800

 
27,800

East Hanover (200 - 240 Route 10 West)
 
12/10/2026
 
4.03%
 
63,000

 
63,000

North Bergen (Tonnelle Ave)
 
4/1/2027
 
4.18%
 
100,000

 
100,000

Manchester
 
6/1/2027
 
4.32%
 
12,500

 
12,500

Millburn
 
6/1/2027
 
3.97%
 
24,000

 
24,000

Totowa
 
12/1/2027
 
4.33%
 
50,800

 
50,800

Woodbridge (Woodbridge Commons)
 
12/1/2027
 
4.36%
 
22,100

 
22,100

East Brunswick
 
12/6/2027
 
4.38%
 
63,000

 
63,000

East Rutherford
 
1/6/2028
 
4.49%
 
23,000

 
23,000

Hackensack
 
3/1/2028
 
4.36%
 
66,400

 
66,400

Marlton
 
12/1/2028
 
3.86%
 
37,400

 
37,400

East Hanover Warehouses
 
12/1/2028
 
4.09%
 
40,700

 
40,700

Union (2445 Springfield Ave)
 
12/10/2028
 
4.01%
 
45,600

 
45,600

Freeport (Freeport Commons)
 
12/10/2029
 
4.07%
 
43,100

 
43,100

Garfield
 
12/1/2030
 
4.14%
 
40,300

 
40,300

Mt Kisco(3)
 
11/15/2034
 
6.40%
 
13,865

 
13,987

Total fixed rate debt
 
 
 
 
 
1,391,432

 
1,392,659

 
 
Total mortgages payable
 
1,560,932

 
1,562,159

 
 
Unamortized debt issuance costs
 
(11,453
)
 
(11,917
)
Total mortgages payable, net of unamortized debt issuance costs

 
$
1,549,479

 
$
1,550,242

(1) 
Bears interest at one month LIBOR plus 160 bps.
(2) 
Bears interest at one month LIBOR plus 190 bps.
(3) 
The mortgage payable balance on the loan secured by Mt Kisco includes $1.0 million of unamortized debt discount as of both March 31, 2019 and December 31, 2018, respectively. The effective interest rate including amortization of the debt discount is 7.27% as of March 31, 2019.

14



(4) 
The mortgage payable balance on the loan secured by Hudson Mall includes $1.2 million of unamortized debt premium as of both March 31, 2019 and December 31, 2018, respectively. The effective interest rate including amortization of the debt premium is 3.78% as of March 31, 2019.
(5) 
The mortgage payable balance on the loan secured by Yonkers Gateway Center includes $0.7 million of unamortized debt premium as of both March 31, 2019 and December 31, 2018, respectively. The effective interest rate including amortization of the debt premium is 3.67% as of March 31, 2019.

The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $1.3 billion as of March 31, 2019. 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 March 31, 2019, we were in compliance with all debt covenants.

During 2017, our property in Englewood, NJ was transferred to a receiver. On January 31, 2018, our property in Englewood, NJ was sold at a foreclosure sale and on February 23, 2018, the court order was received approving the sale and discharging the receiver of all assets and liabilities related to the property. We recognized a gain on extinguishment of debt of $2.5 million as a result of the forgiveness of outstanding mortgage debt of $11.5 million, which is included in gain on extinguishment of debt in the consolidated statement of income for the three months ended March 31, 2018.

As of March 31, 2019, the principal repayments for the next five years and thereafter are as follows:
(Amounts in thousands)
 
 
Year Ending December 31,
 
 
2019(1)
 
$
3,396

2020
 
7,567

2021
 
122,827

2022
 
100,896

2023
 
344,423

2024
 
274,370

Thereafter
 
707,453

(1) Remainder of 2019.

On January 15, 2015, we entered into a $500 million Revolving Credit Agreement (the “Agreement”) with certain financial institutions. On March 7, 2017, we amended and extended the Agreement. The amendment increased the credit facility size by $100 million to $600 million and extended the maturity date to March 7, 2021 with two six-month extension options. Borrowings under the Agreement are subject to interest at LIBOR plus 1.10% to 1.55% and an annual facility fee of 15 to 35 basis points. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to increase if our leverage ratio increases above predefined thresholds. The Agreement contains customary financial covenants including a maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x. No amounts have been drawn to date under the Agreement. Financing fees associated with the Agreement of $2.0 million and $2.2 million as of March 31, 2019 and December 31, 2018, respectively, are included in deferred financing fees, net in the consolidated balance sheets.


15



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 exception to 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 TCJA (defined below) 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, including a 29% non-resident withholding tax on its two Puerto Rico malls, which are included in income tax expense in the consolidated statements of income. The Company is also subject to certain other taxes, including state and local franchise taxes which are included in general and administrative expenses in the consolidated statements of income.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. Effective January 1, 2018, for businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. Since UE has elected to qualify as a REIT under sections 856-860 of the Internal Revenue Code with intent to distribute 100% of its taxable income and did not have any activities in a Taxable REIT Subsidiary (“TRS”) prior to January 1, 2018, there was no impact to the Company’s financial statements.

On December 31, 2017, the Company elected, for tax purposes, to treat the wholly-owned limited partnership that held its Allentown property as a taxable REIT subsidiary (“TRS”). A TRS is a corporation, other than a REIT, in which we directly or indirectly hold stock, which has made a joint election with us to be treated as a TRS under Section 856(l) of the Code. A TRS is required to pay regular U.S. federal income tax, and state and local income tax where applicable, as a non-REIT “C” corporation. The Allentown legal entity restructuring resulted in a capital gain recognized for tax purposes in 2017 and a step up in tax basis to the Allentown property resulting in no capital gains recognized for tax purposes in 2018 upon the property’s sale on April 26, 2018. The Company’s consolidated financial statements for the three months ended March 31, 2018 reflect the TRS’ federal and state corporate income taxes associated with the operating activities at the TRS. The tax expense recorded in association with the operating activities of the TRS was $0.2 million for the three months ended March 31, 2018. As of December 31, 2018, the Allentown TRS has been dissolved and as such, the Company’s consolidated financial statements for the three months ended March 31, 2019 do not reflect any corporate income taxes associated with such TRS.
Our two Puerto Rico malls are subject to a 29% non-resident withholding tax which is included in income tax expense in the consolidated statements of income. The Puerto Rico tax expense recorded was $0.2 million for the three months ended March 31, 2019 and 2018, respectively. Both properties are held in a special partnership for Puerto Rico tax reporting (the general partner being a qualified REIT subsidiary or “QRS”).

The REIT and the other minority members are partners in the Operating Partnership. As such, the partners are required to report their share of taxable income on their tax returns. We are also subject to certain other taxes, including state and local taxes and franchise taxes which are included in general and administrative expenses in the consolidated statements of income.


16



8.
LEASES

Leases — We have approximately 1,200 operating leases at our retail shopping centers and malls, which generate rental income from tenants and operating cash flows for the Company. Our tenant leases are dependent on the Company, as lessor, agreeing to provide our tenants with the right to control the use of our real estate assets, as lessees. Our real estate assets are comprised of retail shopping centers and malls. Tenants agree to use and control their agreed upon space for their business purposes. Thus, our tenants obtain substantially all of the economic benefits from the use of our shopping center space and have the right to direct how and for what purpose the real estate space is used throughout the period of use. Given these contractual terms, the Company has determined that all tenant contracts of this nature contain a lease. The Company assesses lease classification for each new and modified lease. All new and modified leases commenced in the three months ended March 31, 2019 have been assessed and classified as operating leases.
Contractual rent increases of renewal options are often fixed at the time of the initial lease agreement which may result in tenants being able to exercise their renewal options at amounts that are less than the fair value of the rent at the date of renewal. In addition to fixed base rents, certain rental income derived from our tenant leases is variable and may be dependent on percentage rent or the Consumer Price Index ("CPI"). Variable lease payments from percentage rents are earned by the Company in the event the tenant's gross sales exceed certain amounts. Terms of percentage rent are agreed upon in the tenant's lease and will vary based on the tenant's sales. Variable lease payments dependent on the CPI, will change in accordance with the corresponding increase or decrease in CPI if negotiated and agreed upon in the tenant's lease. Variable lease payments dependent on percentage rent and the CPI were $0.6 million for the three months ended March 31, 2019. Variable lease payments also arise from tenant expense reimbursements, which provide for the recovery of all or a portion of the operating expenses, common area maintenance expenses, real estate taxes, insurance and capital improvements of the respective property and amounted to $28.3 million in the three months ended March 31, 2019. The Company accounts for variable lease payments as "Rental revenue" on the consolidated statement of income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.

The Company also has 21 properties in its portfolio either completely or partially on land or a building that are owned by third parties. These properties are leased or subleased to us pursuant to ground or building leases, with remaining terms ranging from less than one year to over 80 years and provide us the right to operate each such property. We also lease or sublease real estate for our three corporate offices with remaining terms ranging from one to two years. ROU assets are recorded for these leases, which represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from these leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The initial measurement of a ROU asset may differ from the initial measurement of the lease liability due to initial direct costs, prepaid lease payments and lease incentives. As of March 31, 2019, no other contracts have been identified as leases. Our leases often offer renewal options, which we assess against relevant economic factors to determine whether the Company is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods, for which the Company has determined are reasonably certain of being exercised, are included in the measurement of the corresponding lease liability and ROU asset.

The discount rate applied to measure each ROU asset and lease liability is based on the incremental borrowing rate of the lease due to the rate implicit in the lease not being readily determinable. The Company initially considers the general economic environment and factors in various financing and asset specific secured borrowings so that the overall incremental borrowing rate is appropriate to the intended use of the lease. Certain expenses derived from these leases are variable and are not included in the measurement of the corresponding lease liability and ROU asset, but are recognized in the period in which the obligation for those payments is incurred. These variable lease payments consist of payments for real estate taxes and common area maintenance, which is dependent on projects and activities at each individual property under ground or building lease.

Accounts Receivable and Changes in Collectibility Assessment — Accounts receivable includes unpaid amounts billed to tenants and accrued revenues for future billings to tenants for property expenses. We periodically evaluate the collectibility of amounts due from tenants, resulting from the inability of tenants to make required payments under the lease agreements. We recognize changes in the collectibility assessment of these operating leases as adjustments to rental revenue. We also assess changes in the collectibility of receivables arising from the straight-lining of rents and record these changes as adjustments to rental revenue. These receivables arise from earnings recognized in excess of amounts currently due under the lease agreements. Management exercises judgment in assessing collectibility and considers payment history and current credit status. Accounts receivable are written-off directly when they are deemed to be uncollectible.

Leases as lessor

We have approximately 1,200 operating leases at our retail shopping centers and malls, which generate rental income from tenants and operating cash flows for the Company. Our tenant base comprises a diverse group of merchants including department stores,

17



supermarkets, discounters, entertainment offerings, health clubs, DIY stores, in-line specialty shops, restaurants and other food and beverage vendors and service providers. Tenant leases for under 10,000 sf generally have lease terms of five years or less. Tenant leases for 10,000 sf or more generally have lease terms of 10 to 25 years, and are considered anchor leases with one or more renewal options available upon expiration of the initial lease term. Contractual rent increases for the renewal options are often fixed at the time of the initial lease agreement which may result in tenants being able to exercise their renewal options at amounts that are less than the fair value of the rent at the date of renewal.

The components of rental revenue for the three months ended March 31, 2019 were as follows:
 (Amounts in thousands)
Three Months Ended March 31, 2019
Rental Revenue
 
Fixed lease revenue
$
68,484

Variable lease revenue
28,824

Total rental revenue
$
97,308


Maturity analysis of lease payments as lessor

The Company’s operating leases are disclosed in the aggregate due to their consistent nature as real estate leases. As of March 31, 2019, the undiscounted cash flows to be received from lease payments of our operating leases on an annual basis for the next five years and thereafter are as follows:
(Amounts in thousands)
 
 
Year Ending December 31,
 
 
2019(1)
 
$
218,367

2020
 
246,431

2021
 
226,006

2022
 
206,988

2023
 
184,699

2024
 
152,018

Thereafter
 
895,260

Total undiscounted cash flows
 
$
2,129,769

(1) Remainder of 2019.

As of December 31, 2018, future base rental revenue under non-cancelable operating leases, under ASC 840 as lessor, was as follows:
(Amounts in thousands)
 
 
Year Ending December 31,
 
 
2019
 
$
256,598

2020
 
235,652

2021
 
216,247

2022
 
198,449

2023
 
176,282

Thereafter
 
986,865

 
These future minimum amounts do not include additional rents based on a percentage of tenants’ sales and tenant expense reimbursements. For the year ended December 31, 2018, rental revenue from percentage rent was $2.0 million. For the year ended December 31, 2018, rental revenue from tenant expense reimbursements was $108.7 million.

Property. plant and equipment under operating leases as lessor
As of March 31, 2019, substantially all of the Company’s real estate assets are subject to operating leases.






18



Leases as lessee

As of March 31, 2019, the Company had 21 properties in its portfolio either completely or partially on land or a building that was owned by third parties. These properties are leased or subleased to us pursuant to ground or building leases, with remaining terms ranging from less than one year to over 80 years and provide us the right to operate the property. We also lease or sublease real estate for our three corporate offices with remaining terms ranging from one to two years.

The components of lease expense for the three months ended March 31, 2019 were as follows:
 (Amounts in thousands)
Three Months Ended March 31, 2019
Lease expense
 
Operating lease cost(1)
$
2,981

Variable lease cost
674

Total lease expense
$
3,655

(1) The Company is an intermediate lessor and recognized sublease income of $5.1 million included within rental revenue on the consolidated statement of income in relation to certain ground and building lease arrangements. Operating lease cost includes amortization of below-market ground lease intangibles and straight-line lease expense.

Supplemental balance sheet information related to leases was as follows:
 
March 31, 2019
Supplemental noncash information
 
Weighted-average remaining lease term - operating leases
15.9 years

Weighted-average discount rates - operating leases
4.01
%

Maturity analysis of lease payments as lessee

The undiscounted cash flows to be paid on an annual basis for the next five years and thereafter are presented in the table below. The total amount of lease payments, on an undiscounted basis, are reconciled to the lease liability on the consolidated balance sheet by considering the present value discount.
(Amounts in thousands)
 
 
Year Ending December 31,
 
 
2019(1)
 
$
8,040

2020
 
9,708

2021
 
9,051

2022
 
9,077

2023
 
8,875

2024
 
8,881

Thereafter
 
76,856

Total undiscounted cash flows
 
130,488

Present value discount
 
(38,582
)
Discounted cash flows
 
$
91,906

(1) Remainder of 2019.

As of December 31, 2018, future lease payments under operating lease agreements, including extension options if reasonably assured of being exercised, under ASC 840 as lessee, were as follows:
(Amounts in thousands)
 
 
Year Ending December 31,
 
 
2019
 
$
10,640

2020
 
9,614

2021
 
8,957

2022
 
8,982

2023
 
8,850

Thereafter
 
85,535


19



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 or Non-Recurring Basis

There were no financial assets or liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2019 and December 31, 2018.

Financial Assets and Liabilities not Measured at Fair Value
 
Financial assets and liabilities that are not measured at fair value on the consolidated balance sheets include cash and cash equivalents and mortgages payable. Cash and cash equivalents are carried at cost, which approximates fair value. The fair value of mortgages payable is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings, which are 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 these financial instruments as of March 31, 2019 and December 31, 2018.
 
 
 
As of March 31, 2019
 
As of December 31, 2018
(Amounts in thousands)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Assets:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
416,668

 
$
416,668

 
$
440,430

 
$
440,430

Liabilities:
 
 

 
 

 
 

 
 

Mortgages payable(1)
 
$
1,560,932

 
$
1,565,563

 
$
1,562,159

 
$
1,543,963

(1) Carrying amounts exclude unamortized debt issuance costs of $11.5 million and $11.9 million as of March 31, 2019 and December 31, 2018, respectively.

The following market spreads were used by the Company to estimate the fair value of mortgages payable:
 
March 31, 2019
 
December 31, 2018
 
Low
 
High
 
Low
 
High
Mortgages payable
1.7%
 
1.9%
 
1.7%
 
1.9%

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.
During the three months ended March 31, 2019, we recognized a $4.0 million impairment charge on our property in Westfield, NJ as a result of the loss of a significant tenant at the property. The valuation of our property in Westfield, NJ was based on comparable property transactions in the property’s surrounding area. The Company believes the inputs utilized to measure the fair value was reasonable in the context of applicable market conditions, however due to the significance of the unobservable inputs in the overall fair value measures, including market conditions and expectations for growth, the Company determined that such fair value measurement is classified as Level 3. The impairment charge is included as an expense under casualty and impairment loss (gain), net on our consolidated statement of income for the three months ended March 31, 2019.


20



10.     COMMITMENTS AND CONTINGENCIES
 
There are various legal actions against us in the ordinary course of business. After consultation with legal counsel, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
Redevelopment
As of March 31, 2019, we had approximately $121.2 million of active development, redevelopment and anchor repositioning projects underway, of which $34.8 million remains to be funded. Based on current plans and estimates, we anticipate the remaining amounts will be expended over the next two years.
Insurance 
The Company maintains (i) general liability insurance with limits of $200 million for properties in the U.S. and Puerto Rico and (ii) all-risk property insurance with limits of $500 million per occurrence and in the aggregate for properties in the U.S. and $139 million for properties in Puerto Rico, subject to the terms, conditions, exclusions, deductibles and sub-limits when applicable for certain perils such as floods and earthquakes and (iii) numerous other insurance policies including trustees’ and officers’ insurance, workers’ compensation and automobile-related liabilities insurance. The Company’s insurance includes coverage for acts of terrorism but excludes coverage for nuclear, biological, chemical or radiological terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. In addition, the Company maintains coverage for certain cybersecurity losses with limits of $5 million per occurrence and in the aggregate providing first and third-party coverage including network interruption, event management, cyber extortion and claims for media content, security and privacy liability. Insurance premiums are typically charged directly to each of the retail properties and warehouses 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 coverage for acts of terrorism. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future and expect premiums across most property 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 financial condition.
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.

Hurricane-Related Charges
On September 20, 2017, Hurricane Maria made landfall, damaging our two properties in Puerto Rico. During the three months ended March 31, 2018, the Company received $1.5 million in casualty insurance proceeds, which were partially offset by $0.2 million of hurricane related costs, resulting in net casualty gains of $1.3 million included in casualty and impairment loss (gain), net on the accompanying consolidated statements of income.

During the three months ended March 31, 2018, the Company recognized $0.8 million of business interruption losses. Losses of $0.6 million pertained to rent abatements due to tenants that had not reopened since the hurricane, recorded as a reduction of rental revenue and $0.2 million was recorded as a provision for doubtful accounts, within property operating expenses, for unpaid rents.

The Company is in active dialogue with its carrier regarding the insurance claim related to Hurricane Maria, which is still open, and no determination has been made as to the amount or timing of additional insurance proceeds, if any, that may be received.

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 March 31, 2019 and December 31, 2018, respectively, 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. During the three months ended March 31, 2018, the Company recognized $0.3 million of environmental remediation costs within property operating expenses on the consolidated statements of income. 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.


21



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 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.

Sears Holdings Corporation (“Sears”) filed for Chapter 11 bankruptcy protection on October 15, 2018. The Company has four Kmart leases with Sears comprising approximately 547,000 sf, which generate $8.5 million in annual rental revenue. In January 2019, Sears announced the acquisition of its assets by ESL Investments (“ESL”) for approximately $5.2 billion. Kmart closed its stores at Las Catalinas in Puerto Rico and in Huntington, NY at the end of January 2019; however, property rents have been paid on all four Kmart locations through April 2019. As of April 30, 2019, our Kmart lease at Las Catalinas was rejected. It is not clear whether ESL will attempt to assume or reject the remaining leases. The Company is monitoring the proceedings and considering its alternatives.

11.     PREPAID EXPENSES AND OTHER ASSETS

The following is a summary of the composition of the prepaid expenses and other assets in the consolidated balance sheets:
 
Balance at
(Amounts in thousands)
March 31, 2019
 
December 31, 2018
Other assets
$
2,914

 
$
2,765

Prepaid expenses:
 
 
 
Real estate taxes
5,168

 
6,911

Insurance
3,787

 
2,509

Licenses/fees
985

 
783

Total Prepaid expenses and other assets
$
12,854

 
$
12,968

 

12.     ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

The following is a summary of the composition of accounts payable, accrued expenses other liabilities in the consolidated balance sheets:
 
Balance at
(Amounts in thousands)
March 31, 2019
 
December 31, 2018
Deferred tenant revenue
$
28,384

 
$
28,697

Accrued capital expenditures and leasing costs
22,943

 
29,754

Accrued interest payable
9,292

 
8,950

Deferred tax liability, net
4,685

 
5,532

Security deposits
5,458

 
5,396

Accrued payroll expenses
2,453

 
5,747

Other liabilities and accrued expenses
12,209

 
7,371

Accrued rent(1)

 
7,070

Total accounts payable, accrued expenses and other liabilities
$
85,424

 
$
98,517

(1) In connection with the adoption of ASC 842 on January 1, 2019, we reclassified $7.1 million of accrued rent and adjusted the carrying values of our ROU assets by the corresponding amount.


22



13.     INTEREST AND DEBT EXPENSE
 
The following table sets forth the details of interest and debt expense in the consolidated statements of income:
 
Three Months Ended March 31,
(Amounts in thousands)
2019
 
2018
Interest expense
$
15,816

 
$
14,922

Amortization of deferred financing costs
720

 
722

Total Interest and debt expense
$
16,536

 
$
15,644


14.     EQUITY AND NONCONTROLLING INTEREST

At-The-Market Program
In 2016, the Company established an at-the-market (“ATM”) equity program, pursuant to which the Company may offer and sell from time to time its common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250.0 million through a consortium of broker dealers acting as sales agents. As of March 31, 2019, $241.3 million of common shares remained available for issuance under this ATM equity program and there were no common shares issued under the ATM equity program during the three months ended March 31, 2019 and 2018, respectively. Actual future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common shares and our capital needs. We have no obligation to sell the remaining shares available under the active ATM equity program.
Dividends and Distributions
During the three months ended March 31, 2019 and 2018, respectively, the Company declared dividends on our common shares and OP unit distributions of $0.22 per share/unit.
Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests 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.
In connection with the separation from Vornado Realty L.P. (“VRLP”), the Company issued 5.7 million OP units, which represented a 5.4% interest in the Operating Partnership, to VRLP in exchange for interests in VRLP properties contributed by VRLP. On February 28, 2019, the Company issued 5.7 million common shares to VLRP, in exchange for an equal number of LTIP units after receiving a notice of redemption from VLRP. The issuance is exempt from registration in reliance upon Section 4(a)(2) of the Securities Act of 1933, as amended, on the basis that no public offering was made.
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 an 8.4% weighted-average interest in the Operating Partnership for the three months ended March 31, 2019. Holders of outstanding vested LTIP units may, from and after 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, at a determinable date, redeem their units for cash or the Company’s common shares on a one-for-one basis, solely at our election.
Noncontrolling Interest in Consolidated Subsidiaries
The noncontrolling interest relates to the 5% interest held by others in our property in Walnut Creek, CA (Mount Diablo). The net income attributable to noncontrolling interest is presented separately in our consolidated statements of income.


23



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, is summarized as follows:
 
Three Months Ended March 31,
(Amounts in thousands)
2019
 
2018
Share-based compensation expense components:
 
 
Restricted share expense
$
751

 
$
587

Stock option expense
1,071

 
585

LTIP expense
1,208

 
166

Outperformance Plan (“OPP”) expense
564

 
682