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UBA > SEC Filings for UBA > Form 10-Q on 9-Jun-2014All Recent SEC Filings




Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this report.

Forward-Looking Statements
This Item 2 includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this Item 2 that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), business strategies, expansion and growth of the Company's operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. Such statements are subject to a number of assumptions, risks and uncertainties including, among other things, general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in laws or regulations and other factors, many of which are beyond the control of the Company. For a more detailed discussion of some of these factors, see the risk factors set forth in "Item 1A Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2013. Any forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those anticipated in the forward-looking statements.

Executive Summary and Overview
The Company, a REIT, is a fully integrated, self-administered real estate company, engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States. Other real estate assets include office properties. The Company's major tenants include supermarket chains and other retailers who sell basic necessities. At April 30, 2014, the Company owned or had equity interests in 67 properties containing a total of 5.0 million square feet of GLA of which approximately 91.5% was leased (91.6% at October 31, 2013). Included in the 67 properties are equity interests in seven unconsolidated joint ventures at April 30, 2014. These joint ventures were approximately 98% leased (96% at October 31, 2013). The Company has paid quarterly dividends to its shareholders continuously since its founding in 1969 and has increased the level of dividend payments to its shareholders for 20 consecutive years.

The Company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases and focuses its investment activities on community and neighborhood shopping centers, anchored principally by regional supermarket chains. The Company believes, because of the need of consumers to purchase food and other staple goods and services generally available at supermarket-anchored shopping centers, that the nature of its investments provide for relatively stable revenue flows even during difficult economic times. The Company is experiencing and in the remainder of fiscal 2014, expects that it may continue to experience a higher level of vacancies, relative to the Company's historical norm, at some of its shopping centers and a lengthening in the time required for re-leasing of vacant space, as the current economic climate continues to negatively affect retail companies. However, the Company believes it is well positioned to weather any difficulties it might encounter. The Company currently has 404,700 square feet of vacant space in its consolidated core property portfolio. Of this vacant space, 178,000 square feet, or 43.9% of the Company's vacant space in its consolidated core property portfolio, is located in two properties that have been more difficult to lease or are in various stages of redevelopment. One of the properties is a 189,000 sf property with 68,000 sf vacant. We are in the process of seeking a zoning change for the property to allow for a higher and better use that we feel will increase the value of the property. We expect to have the new zoning approved in fiscal 2014. The second property is a 200,000 sf shopping center with 110,000 sf vacant. Of this vacant space, 84,000 sf is basement space. The Company is in the process of converting this space to a self-storage use and expects the lease-up of the self-storage to take between 24-48 months from completion of the conversion. Once completed, we believe that the income derived from this new use will be in excess of the rents previously received on the basement space prior to the space becoming vacant in January 2013. With the two aforementioned properties excluded, the Company's leased rate on its remaining 65 property portfolio would be 94.59%.

The Company has a strong capital structure and does not have any secured debt maturing until August 2015. Consistent with its business strategy, the Company expects to continue to explore acquisition opportunities that may arise.

Primarily as a result of property acquisitions in fiscal 2013 and 2014, the Company's financial data shows increases in total revenues and expenses from period to period.

The Company focuses on increasing cash flow, and consequently the value of its properties, and seeks continued growth through strategic re-leasing, renovations and expansion of its existing properties and selective acquisition of income-producing properties, primarily neighborhood and community shopping centers in the northeastern part of the United States.

Key elements of the Company's growth strategies and operating policies are to:

? Acquire neighborhood and community shopping centers in the northeastern part of the United States with a concentration in Fairfield County, Connecticut, Westchester and Putnam Counties, New York and Bergen County, New Jersey

? Hold core properties for long-term investment and enhance their value through regular maintenance, periodic renovation and capital improvement

? Selectively dispose of underperforming properties and re-deploy the proceeds into properties located in the northeast region

? Increase property values by aggresively marketing available GLA and renewing existing leases

? Renovate, reconfigure or expand existing properties to met the needs of existing or new tenants

? Negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents

? Control property operating and administrative costs

Critical Accounting Policies
Critical accounting policies are those that are both important to the presentation of the Company's financial condition and results of operations and require management's most difficult, complex or subjective judgments. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. This summary should be read in conjunction with the more complete discussion of the Company's accounting policies included in Note 1 to the consolidated financial statements of the Company for the year ended October 31, 2013 included in the Company's Annual Report on Form 10-K for that year.

Revenue Recognition

Revenues from operating leases include revenues from core properties and non-core properties. Rental income is generally recognized based on the terms of leases entered into with tenants. In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. Minimum rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Percentage rent is recognized when a specific tenant's sales breakpoint is achieved. Property operating expense recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs are recognized in the period the related expenses are incurred. Lease incentives are amortized as a reduction of rental revenue over the respective tenant lease terms. Lease termination amounts are recognized in operating revenues when there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and the termination consideration is probable of collection. Lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with the Company. There is no way of predicting or forecasting the timing or amounts of future lease termination fees. Interest income is recognized as it is earned. Gains or losses on disposition of properties are recorded when the criteria for recognizing such gains or losses under accounting principles generally accepted in the United States of America ("GAAP") have been met.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is established based on a quarterly analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receivables, the payment history of the tenants or other debtors, the financial condition of the tenants and any guarantors and management's assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things. Management's estimates of the required allowance is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on tenants, particularly those at retail properties. Estimates are used to establish reimbursements from tenants for common area maintenance, real estate tax and insurance costs. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, common area maintenance and insurance for each of its properties by comparing actual recoveries versus actual expenses and any actual write-offs. Based on its analysis, the Company may record an additional amount in its allowance for doubtful accounts related to these items. For the six month periods ended April 30, 2014 and 2013, the Company increased its allowance for doubtful accounts by $359,000 and $476,000, respectively. It is also the Company's policy to maintain an allowance of approximately 10% of the deferred straight-line rents receivable balance for future tenant credit losses.

Real Estate

Land, buildings, property improvements, furniture/fixtures and tenant improvements are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations and/or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

The amounts to be capitalized as a result of an acquisition and the periods over which the assets are depreciated or amortized are determined based on estimates as to fair value and the allocation of various costs to the individual assets. The Company allocates the cost of an acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its acquisitions. The valuation of the fair value of intangibles involves estimates related to market conditions, probability of lease renewals and the current market value of in-place leases. This market value is determined by considering factors such as the tenant's industry, location within the property and competition in the specific region in which the property operates. Differences in the amount attributed to the intangible assets can be significant based upon the assumptions made in calculating these estimates.

The Company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation. These assessments have a direct impact on the Company's net income.

Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:

        Buildings                                            30-40 years
        Property Improvements                                10-20 years
        Furniture/Fixtures                                    3-10 years
        Tenant Improvements   Shorter of lease term or their useful life

Asset Impairment

On a periodic basis, management assesses whether there are any indicators that the value of the real property may be impaired. A property value is considered impaired when management's estimate of current and projected operating cash flows (undiscounted and without interest) of the property over its remaining useful life is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred, the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset. Changes in estimated future cash flows due to changes in the Company's plans or market and economic conditions could result in recognition of impairment losses which could be substantial. Management does not believe that the value of any of its rental properties is impaired at April 30, 2014.

Liquidity and Capital Resources
At April 30, 2014, the Company had unrestricted cash and cash equivalents of $8.6 million compared to $2.9 million at October 31, 2013. The Company's sources of liquidity and capital resources include its cash and cash equivalents, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Payments of expenses related to real estate operations, debt service, management and professional fees, and dividend requirements place demands on the Company's short-term liquidity.

The Company maintains a conservative capital structure with low leverage levels by commercial real estate standards. As a result of this low leverage level, the Company has been able to avoid the balance sheet recapitalizations that many other commercial real estate companies have had to undertake during the recent down-turn in the economy. The Company maintains a ratio of total debt to total assets below 34% and a very strong fixed charge coverage ratio of over 2.3 to 1, which we believe will allow the Company to obtain additional secured mortgage, or other types of borrowings, if necessary. The Company does not have any fixed rate debt coming due until fiscal 2015 and has 44 properties in its consolidated core portfolio that are not encumbered by secured mortgage debt. At April 30, 2014, the Company had loan availability of $43 million on its unsecured revolving line of credit.

The Company is currently experiencing a reduction of rental revenues at some of its properties because of tenant vacancies. Until these vacancies are re-leased and new tenants begin to pay rent, the Company's cash flow will continue to be negatively affected. Although the Company does not anticipate having to reduce its dividend on common stock, and has no plans to do so, a further significant decline in rental revenue, without a corresponding reduction in expenses, could lead the Company to conclude that it should reduce its common stock dividend until the dividend payout ratio returns to more conservative levels.

Cash Flows

The Company expects to meet its short-term liquidity requirements primarily by generating net cash from the operations of its properties. The Company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity requirements for the balance of fiscal 2014 and to meet its dividend requirements necessary to maintain its REIT status.

The Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows which are expected to increase over time due to property acquisitions and growth in operating income in the existing portfolio and from other sources. The Company derives substantially all of its revenues from rents under existing leases at its properties. The Company's operating cash flow therefore depends on the rents that it is able to charge to its tenants, and the ability of its tenants to make rental payments. The Company believes that the nature of the properties in which it typically invests - primarily grocery-anchored neighborhood and community shopping centers - provides a more stable revenue flow in uncertain economic times, in that consumers still need to purchase basic staples and convenience items. However, even in the geographic areas in which the Company owns properties, general economic downturns may adversely impact the ability of the Company's tenants to make lease payments and the Company's ability to re-lease space as leases expire. In either of these cases, the Company's cash flow could be adversely affected.

Net Cash Flows from:

Operating Activities

Net cash flows provided by operating activities amounted to $22.3 million for the six months ended April 30, 2014 compared to $24.6 million in the comparable period of fiscal 2013. The net decrease in operating cash flows in the first six months of fiscal 2014 when compared with the corresponding prior period was due primarily to the Company receiving a one-time payment of $1.3 million in the first six months of fiscal 2013 from the State of Connecticut as further compensation for property easements provided to the State of Connecticut relating to the re-construction of a state highway that bisects one of the Company's properties; an increase in restricted cash related to two mortgages that were assumed with the property acquisitions in the first quarter of fiscal 2014; and an increase in fiscal 2014 for prepaid real estate taxes and commercial insurance premiums.

Investing Activities

Net cash flows used in investing activities amounted to $19.0 million for the six months ended April 30, 2014 compared to $44.5 million in the comparable period of fiscal 2013. The net decrease in cash flows used in investing activities in fiscal 2014 when compared to the corresponding prior period was the result of purchasing three properties in the first six months of fiscal 2014 for a net investment of $21.0 and purchasing equity interests in two unconsolidated joint ventures in the first half of fiscal 2014 for $6.6 million versus purchasing equity interests in eight properties in the first six months of fiscal 2013 for a net investment of $14.2 million and purchasing equity interests in two unconsolidated joint ventures in the first half of fiscal 2013 for $18.0 million.. In addition, in the first six months of fiscal 2013, the Company purchased $28 million in marketable securities with proceeds from a completed stock offering in September 2012. This cash used in the first six months of fiscal 2013 was partially offset by the repayment of a $13 million loan made by the Company in a prior year to one of its unconsolidated joint ventures. In addition, cash flows from investing activities increased when compared with the prior period as a result of the Company selling three properties in the first quarter of fiscal 2014 that raised proceeds of $17.4 million versus selling one property in the first quarter of fiscal 2013 that raised cash proceeds of $4.5 million.

The Company invests in its properties and regularly pays for capital expenditures for property improvements, tenant costs and leasing commissions.

Financing Activities

Net cash flows provided by financing activities amounted to $2.3 million in the first six months of fiscal 2014 compared with net cash used in financing activities of $35.4 million in the comparable period of fiscal 2013. The change in net cash provided/used in financing activities in the first six months of fiscal 2014 when compared to the corresponding period of fiscal 2013 was attributable predominantly to the Company borrowing a net $27.1 million on its Unsecured Revolving Credit Facility ("Facility") described below in the first six months of fiscal 2014 compared to no borrowings in the comparable period of fiscal 2013. In addition, in the first six months of fiscal 2013, the Company repaid $11.6 million on the Facility. In the first quarter of fiscal 2014, the Company also increased the annualized dividend rate on the Company's outstanding Class A Common stock by $0.01 per share. The first six months of fiscal 2013 also included the payment of dividends on the Company's Series C Preferred stock that was redeemed in May 2013.

Capital Resources

The Company expects to fund its long-term liquidity requirements such as property acquisitions, repayment of indebtedness and capital expenditures through other long-term indebtedness (including indebtedness assumed in acquisitions), borrowings on its Facility, proceeds from sales of properties and/or the issuance of equity securities. The Company believes that these sources of capital will continue to be available to it in the future to fund its long-term capital needs; however, there are certain factors that may have a material adverse effect on its access to capital sources. The Company's ability to incur additional debt is dependent upon its existing leverage, the value of its unencumbered assets and borrowing limitations imposed by existing lenders. The Company's ability to raise funds through sales of equity securities is dependent on, among other things, general market conditions for REITs, market perceptions about the Company and its stock price in the market. The Company's ability to sell properties in the future to raise cash will be dependent upon market conditions at the time of sale.

Financings and Debt

The Company is exposed to interest rate risk primarily through its borrowing activities. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. Mortgage notes payable and other loans of $180 million consist entirely of fixed rate mortgage loan indebtedness with a weighted average interest rate of 5.278% at April 30, 2014. The mortgage loans with fixed interest rates are secured by 16 properties with a net book value of $286.4 million and have fixed rates of interest ranging from 2.78% to 11.31%. The Company made principal payments of $1.9 million in the six months ended April 30, 2014 compared to $1.45 million in the comparable period of fiscal 2013. The Company may refinance its mortgage loans, at or prior to scheduled maturity, through replacement mortgage loans. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such refinancings can be achieved.

The Company has an $80 million unsecured revolving credit facility with a syndicate of four banks led by The Bank of New York Mellon, as administrative agent. The syndicate also includes Wells Fargo Bank N.A. (syndication agent), Bank of Montreal and Regions Bank (co-documentation agents). The Facility gives the Company the option, under certain conditions, to increase the Facility's borrowing capacity up to $125 million (subject to lender approval). The maturity date of the Facility is September 21, 2016 with a one-year extension at the Company's option. Borrowings under the Facility can be used for, among other things, acquisitions, working capital, capital expenditures, and repayment of other indebtedness and the issuance of letters of credit (up to $10 million). Borrowings will bear interest at the Company's option of Eurodollar rate plus 1.5% to 2.0% or The Bank of New York Mellon's prime lending rate plus 0.50% based on consolidated indebtedness, as defined. The Company pays an annual fee on the unused commitment amount of up to 0.25% to 0.35% based on outstanding borrowings during the year. The Facility contains certain representations, financial and other covenants typical for this type of facility. The Company's ability to borrow under the Facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit the Company's level of secured and unsecured indebtedness and additionally require the Company to maintain certain debt coverage ratios. The Company was in compliance with such covenants at April 30, 2014.

As of April 30, 2014, $43 million is available to be drawn on the Facility.

Off-Balance Sheet Arrangements

The Company has seven off-balance sheet investments in real estate property including a 66.67% equity interest in the Putnam Plaza shopping center, an 11.642% equity interest in the Midway Shopping Center L.P., a 50% equity interest in the Chestnut Ridge Shopping Center and Plaza 59 Shopping Centers, a 20% economic interest in a partnership that owns a retail real estate investment and a 50% equity interest in the Gateway Plaza Shopping Center and Applebee's at Riverhead. These unconsolidated joint ventures are accounted for under the equity method of accounting as we have the ability to exercise significant influence over, but not control, the operating and financial decisions of these investments. Our off-balance sheet arrangements are more fully discussed in Note 5, "Investments in and Advances to Unconsolidated Joint Ventures" in the accompanying financial statements.

Capital Expenditures

The Company invests in its existing properties and regularly makes capital expenditures in the ordinary course of business to maintain its properties. The Company believes that such expenditures enhance the competitiveness of its properties. In the six months ended April 30, 2014, the Company paid approximately $8.7 million for property improvements, tenant improvements and leasing commission costs (approximately $3.9 million representing recurring property improvements and approximately $4.8 million related to new tenant space improvements and leasing costs). The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates. The Company expects to incur approximately $6.4 million predominantly for anticipated capital improvements and leasing costs related to new tenant leases during the balance of fiscal 2014. The increase in new tenant costs when compared to the corresponding period of fiscal 2013 predominantly relate to the two properties discussed earlier in Item 2 that are under re-development along with our Briarcliff, NY property that is also under re-development to accommodate a new lease with CVS. We expect CVS to take possession of the space sometime in the summer of 2014. These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources.

Acquisitions and Significant Property Transactions

The Company seeks to acquire properties which are primarily shopping centers located in the northeastern part of the United States with a concentration in . . .

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