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Item 1A. Risk Factors

2021-02-17 compared with 2020-02-13 · 150 added, 183 removed, 198 unchanged (63% of the section changed)

Risk factors that may materially and adversely affect our business, results of operations and financial condition are summarized below.

These risks have been separated into three groups:

(1) Risks Related to Our Business and Operations and to Our Status as a REIT, (2) Risks Related to Our Common Shares and (3) Risks Related to Our Organization and Structure.

These risks have been separated into the following groups:

• Risks Related to Our Business and Operations;

• Risks Related to Our Liquidity and Indebtedness;

• Risks Related to Business Continuity;

• Risks Related to Environmental Liability and Regulatory Compliance;

• Risks Related to Our Status as a REIT;

• Risks Related to Our Organization and Structure;

• Risks Related to An Investment in Our Common Shares.

The risks and uncertainties described herein may not be the only ones we face.

Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, may also adversely affect our business.

See “Forward-Looking Statements” contained herein.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS AND TO OUR STATUS AS A REIT

There are inherent risks associated with real estate investments and the real estate industry, particularly retail real estate, each of which could have an adverse impact on our financial performance and the value of our properties.

Real estate investments are subject to various risks, many of which are beyond our control.

Our operating and financial performance and the value of our properties can be affected by many of these risks, including, but not limited to, the following:

the convenience and quality of competing retail properties and other retailing platforms such as e-commerce;

local real estate conditions, such as an oversupply of retail space or a reduction in demand for retail space, resulting in vacancies or compromising our ability to rent space on favorable terms;

adverse changes in the financial condition of tenants at our properties, including financial difficulties, lease defaults or bankruptcies;

national, regional and local economies, which may be negatively impacted by inflation, deflation, government deficits, high unemployment rates, severe weather or other natural disasters, decreased consumer confidence, industry slowdowns, reduced corporate profits, lack of liquidity and other adverse business conditions;

civil unrest, acts of war, terrorist attacks and natural or man-made disasters, including seismic activity and floods, which may result in uninsured and underinsured losses;

changes in the enforcement or creation of laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, government fiscal policies and the Americans with Disabilities Act (“ADA”);

the illiquid nature of real estate investments, which may limit our ability to sell properties at the terms desired or at terms favorable to us;

competition for investment opportunities from other real estate investors with significant capital, including other REITs, real estate operating companies and institutional investment funds;

fluctuations in interest rates and the availability and cost of financing, which could adversely affect our ability and the ability of potential buyers and tenants of our properties, to obtain financing on favorable terms or at all.

During a period of economic slowdown or recession, or the public perception that such a period may occur, declining demand for real estate could result in a general decline in rents or an increased incidence of defaults among our existing tenants, and, consequently, our properties may fail to generate revenues sufficient to meet operating, debt service and other expenses.

As a result, we may have to borrow funds to cover fixed costs, and our cash flow, financial condition and results of operations could be adversely affected.

As such, the market price of our common shares, and our ability to service debt obligations and pay dividends and other distributions to security holders could be adversely affected.

See “Forward-Looking Statements”.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

Actual or perceived threats associated with epidemics, pandemics or other public health crises, including the COVID-19 pandemic, could have a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, cash flow, liquidity, and ability to access the capital markets and satisfy debt service obligations.

Epidemics, pandemics or other public health crises, including the recent COVID-19 pandemic, that impact economic and market conditions, particularly in the markets where our properties are located, and preventative measures taken to alleviate their impact, including mandatory business shutdowns, “stay-at-home” orders or other operating limitations issued by local, state or federal authorities, may reduce customers’ ability or willingness to visit retail destinations which in turn may have a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, liquidity, and ability to access capital markets and satisfy debt service obligations.

As a result of our concentrated operations in the New York metropolitan area, the extent and magnitude or perception of the impact of the current COVID-19 pandemic on our and our tenants’ business is heightened.

The ongoing COVID-19 pandemic and restrictions intended to prevent and mitigate its spread have had, and could continue to have, additional adverse effects on our business, including with regards to:

• the ability and willingness of our tenants to renew their leases upon expiration, our ability to re-lease the properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant, particularly in light of the adverse impact to the financial health of many retailers that has occurred and continues to occur as a result of the COVID-19 pandemic and the significant uncertainty as to when and under what conditions potential tenants will be able to operate physical retail locations in the future;

• anticipated returns from development and redevelopment projects, some of which experienced delays;

• the broader impact of the severe economic contraction due to the COVID-19 pandemic, the resulting increase in unemployment that has occurred and its effect on consumer behavior, and the negative consequences that will occur if these trends are not timely reversed;

• macroeconomic conditions, such as a disruption of, or lack of access to, the capital markets as well as the significant decline in our share price from prices prior to the spread of the COVID-19 pandemic;

• our decision to pay dividends at all, or pay them in stock, which in the case of the latter may result in our shareholders having a tax liability with respect to such dividends that exceeds the amount of cash received, if any;

• our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due and potential limitations on our ability to borrow funds under our existing credit facility as a result of covenants relating to our financial results in the current or future periods;

• potential reduction in our operating effectiveness if key personnel become unavailable due to illness or other personal circumstances related to COVID-19.

The COVID-19 pandemic and restrictions intended to prevent and mitigate its spread have already had a significant adverse impact on economic and market conditions around the world, including the United States and markets where our properties are located, and could further trigger a period of sustained global and U.S.

economic downturn or recession.

While the rapid developments regarding the COVID-19 pandemic preclude any prediction as to its ultimate adverse impact, the current economic, political and social environment presents material risks and uncertainties with respect to our and our tenants’ business, financial condition, results of operations, cash flows, liquidity and ability to access the capital markets and satisfy debt service obligations.

To the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described under this section.

E-commerce may have an adverse impact on our tenants and our business.

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During periods of economic adversity, there may be an increase in the number of tenants that cannot pay their rent and an increase in vacancy rates, which could materially and adversely affect our cash flow, financial condition and results of operations.

We may be unable to renew leases or relet space as leases expire.

When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space.

We may be unable to renew leases or relet space as leases expire on terms comparable to prior leases or at all.

When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space on terms comparable to prior leases or at all.

Spaces that accounted for approximately 13.1% of our annualized base rent for the fiscal year ended December 31, 2020 were vacant as of December 31, 2020, excluding leases signed but not commenced.

In addition, leases accounting for approximately 27% of our annualized base rent for the fiscal year ended December 31, 2020 are scheduled to expire within the next three years.

Even if tenants do renew or we can relet the space, the terms of the renewal or reletting, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases.

Even if tenants do renew or we can relet the space, the terms of the renewal or

reletting, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases.

In addition, changes in space utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property.

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Bankruptcy or insolvency of tenants may decrease our revenues, net income and available cash.

From time to time, some of our tenants have declared bankruptcy and other tenants may declare bankruptcy or become insolvent in the future.

For example, during the year ended December 31, 2018, Toys “R” Us Inc.

(“Toys “R” Us”), Sears Holding Corporation (“Sears”), National Stores Inc.

(“Fallas”) and National Wholesale Liquidators filed for Chapter 11 bankruptcy protection.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources included in Part II, Item 7.

in this Annual Report on Form 10-K and the Notes to Consolidated Financial Statements included in Part II, Item 8.

in this Annual Report on Form 10-K.

From time to time, certain of our tenants have become insolvent or declared bankruptcy and other tenants may declare bankruptcy or become insolvent in the future.

Tenants who file for bankruptcy protection have the legal right to reject any or all of their leases and close related stores.

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The bankruptcy or insolvency of a major tenant could result in a lower level of net income, which may adversely affect our cash flow, financial condition and results of operations and decrease funds available to pay our indebtedness or make distributions to shareholders.

See Part I, Item 2.

“Properties” in this Annual Report on Form 10-K.

For example, during the year ended December 31, 2020, Century 21 Department Stores LLC (“Century 21”) filed for Chapter 11 bankruptcy protection.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources included in Part II, Item 7 in this Annual Report on Form 10-K and the Notes to Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

A significant number of our properties are located in the New York metropolitan area and are affected by the economic cycles there.

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Notably, as of December 31, 2020, one of our New York metropolitan area properties, The Outlets at Bergen Town Center, in Paramus, NJ, generated in excess of 10% of our rental revenue.

Collectively, our New York metropolitan area properties in the aggregate generated 75% of our rental revenue as of December 31, 2019 .

Collectively, our New York metropolitan area properties in the aggregate generated over 75% of our rental revenue as of December 31, 2020.

Real estate markets are subject to economic downturns and we cannot predict the economic conditions in the New York metropolitan area in either the short-term or long-term.

Poor economic or market conditions in the New York metropolitan area, may adversely affect our cash flow, financial condition and results of operations.

Risks related to Puerto Rico.

Our two malls in Puerto Rico make up approximately 8% of our Net Operating Income.

Puerto Rico faces significant fiscal and economic challenges, including its government filing for bankruptcy protection in 2017.

In addition, Hurricanes Irma and Maria placed significant, lasting stress on the island’s already strained economy and infrastructure, exacerbated by recent earthquakes.

These factors have led to an ongoing emigration trend of Puerto Rico residents to the United States and elsewhere.

The combination of these circumstances could result in less disposable income for the purchase of goods sold in our malls and the inability of merchants to pay rent and other charges.

Any of these events could negatively impact our ability to lease space on terms and conditions we seek and could have a material adverse effect on our business and results of operations.

As of December 31, 2019 , the Company has individual, non-recourse mortgages on each of its Puerto Rico properties as follows:

a $113.2 million mortgage, comprised of a senior and junior loan, maturing in July 2021 secured by The Outlets at Montehiedra and a $129 million mortgage maturing in August 2024 secured by the Las Catalinas Mall.

Natural disasters could have a concentrated impact on us.

We own properties near the Atlantic Coast and in Puerto Rico which are subject to natural disasters such as hurricanes, floods and storm surges.

We also have four properties in California that could be impacted by earthquakes.

As a result, we could become subject to business interruption, significant losses and repair costs, such as those we experienced from Hurricane Maria, which damaged and caused the temporary closure of our two properties in Puerto Rico.

The Company maintains comprehensive, all-risk property and rental value insurance coverage on our properties, however losses resulting from a natural disaster may be subject to a deductible or not fully covered and such losses could adversely affect our cash flow, financial condition and results of operations.

Some of our properties depend on anchor or major tenants and decisions made by these tenants, or adverse developments in the businesses of these tenants, could materially and adversely affect our business, results of operations and financial condition.

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We may develop or redevelop properties when we believe that doing so is consistent with our business strategy.

As of December 31, 2019 , we had 13 properties in our redevelopment project pipeline and nine active redevelopment projects.

As of December 31, 2020, we had 10 properties in our redevelopment project pipeline and 13 active redevelopment projects.

We have invested a total of approximately $45.8 million in our active projects, which are at various stages of completion, and based on our current plans and estimates, we anticipate it will cost an additional $86.6 million to complete our active projects.

We anticipate engaging in additional development and redevelopment activities in the future.

In addition to the risks associated with real estate investments in general as described elsewhere, the risks associated with future development and redevelopment activities include:

In addition to the risks associated with

real estate investments in general as described elsewhere, the risks associated with future development and redevelopment activities include:

• expenditure of capital and time on projects that may never be completed;

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• higher than estimated construction or operating costs, including labor and material costs;

inability to complete construction on schedule due to a number of factors, including inclement weather, labor disruptions, construction delays, delays or failure to receive zoning or other regulatory approvals, acts of terror or other acts of violence, or natural disasters (such as fires, seismic activity or floods);

• inability to complete construction on schedule due to a number of factors, including inclement weather, labor disruptions, construction delays, restrictions caused by the COVID-19 pandemic, delays or failure to receive zoning or other regulatory approvals, acts of terror or other acts of violence, or natural disasters (such as fires, seismic activity or floods);

• significant time lag between commencement and stabilization resulting in delayed returns and greater risks due to fluctuations in the general economy, shifts in demographics and competition;

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If we were to lose the right to operate a property due to a breach or non-renewal of the ground or building lease, we would be unable to derive income from such property, which could materially and adversely affect us.

Loss of our key personnel could adversely affect the value of our business, results of operations and financial condition.

We are dependent on our key executive personnel.

Although we believe qualified replacements could be found for these key executives in the event of a departure, the loss of one or more of their services, market knowledge and business relationships, could materially and adversely affect our business, results of operations and financial condition.

Our assets may be subject to impairment charges.

Real estate is carried at cost, net of accumulated depreciation and amortization.

Our properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable.

Such events and changes include macroeconomic conditions, including those caused by global pandemics, like the recent COVID-19 pandemic, which resulted in property operational disruption and could indicate that the carrying amount may not be recoverable.

An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis, taking into account the appropriate capitalization rate in determining a future terminal value.

An impairment loss is based on the excess of the property’s carrying amount over its estimated fair value.

Recording an impairment charge results in an immediate reduction in our income in the period in which the charge is taken, which could materially and adversely affect our results of operations and financial condition.

RISKS RELATED TO OUR LIQUIDITY AND INDEBTEDNESS

Risks related to our outstanding debt.

If we are unable to obtain debt financing or refinance existing indebtedness upon maturity on terms favorable to us, our financial condition and results of operations would likely be adversely affected.

In addition, the cost of our existing variable rate debt may increase, especially in a rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts or on acceptable terms.

As of December 31, 2020, we had $169.4 million of variable rate debt and our $600 million revolving credit facility, on which no balance is outstanding at December 31, 2020, bears interest at a floating rate based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin, and we may continue to borrow additional funds at variable interest rates in the future.

In the event that LIBOR is discontinued, the interest rates of our debt following such event will be based on either alternate base rates or agreed upon replacement rates.

Such an event would not affect our ability to borrow or maintain already outstanding borrowings, although it could result in higher interest rates.

Increases in interest rates would increase the interest expense on our variable rate debt and reduce our cash flow, which could (i) adversely affect our ability to service our debt and meet our other obligations and (ii) reduce the amount we are able to distribute to our

shareholders.

If the cost or amount of our indebtedness increases or we cannot refinance our debt in sufficient amounts or on acceptable terms, we are at risk of default on our obligations, which could have a material adverse effect on us.

Covenants in our existing financing agreements may restrict our operating, financing, redevelopment, development, acquisition and other activities.

The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to reduce insurance coverage.

Our existing revolving credit facility contains, and any debt that we may obtain in the future may contain, customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants (i) that limit our ability to incur debt based upon (1) our ratio of total debt to total assets, (2) our ratio of secured debt to total assets, (3) our ratio of earnings before interest, tax, depreciation and amortization (EBITDA) to interest expense and (4) our ratio of EBITDA to fixed charges, and (ii) that require us to maintain a certain level of unencumbered assets to unsecured debt.

Our ability to borrow is subject to compliance with these and other covenants.

Failure to comply with our covenants could cause a default under the applicable debt instrument and we may then be required to repay such debt with capital from other sources or to give possession of a secured property to the lender.

Under those circumstances, other sources of capital may not be available to us or may be available only on unattractive terms.

Defaults on secured indebtedness may result in foreclosure.

In the event that we default on mortgages in the future, either as a result of ceasing to make debt service payments or failing to meet applicable covenants, the lenders may accelerate the related debt obligations and foreclose and/or take control of the properties that secure their loans.

As of December 31, 2020, we had $1.6 billion of secured debt outstanding and 33 of our properties were encumbered by secured debt.

As of December 31, 2020, we were in compliance with all debt covenants.

Further, for tax purposes, the foreclosure of a mortgage may result in the recognition of taxable income related to the extinguished debt without us having received any accompanying cash proceeds.

As a result, since we are structured as a REIT, we may be required to identify and utilize sources for distributions to our shareholders related to such taxable income in order to avoid incurring corporate tax or to meet the REIT distribution requirements imposed by the Code.

We may not be able to obtain capital to make investments.

We depend primarily on external financing to fund the growth of our business because one of the requirements of the Code for a REIT is that it distributes at least 90% of its taxable income, excluding net capital gains, to its shareholders.

There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof.

Our access to debt or equity financing depends on the willingness of third parties to lend to or to make equity investments and on conditions in the capital markets generally.

There can be no assurance that new financing or other capital will be available or available on acceptable terms.

The failure to obtain financing or other capital could materially and adversely affect our business, results of operations and financial condition.

For information about our available sources of funds, see Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources included in Part II, Item 7.

in this Annual Report on Form 10-K and the Notes to Consolidated Financial Statements included in Part II, Item 8.

in this Annual Report on Form 10-K.

RISKS RELATED TO BUSINESS CONTINUITY

Risks related to our malls in Puerto Rico.

Our two malls in Puerto Rico make up approximately 7% of our net operating income.

Puerto Rico faces significant fiscal and economic challenges, including those resulting from natural disasters such as hurricanes and earthquakes, the COVID-19 pandemic in 2020, and its government filing for bankruptcy protection in 2017.

These factors have led to an ongoing emigration trend of Puerto Rico residents to the United States and elsewhere.

The combination of these circumstances could result in less disposable income for the purchase of goods sold in our malls and the inability of merchants to pay rent and other charges.

Any of these events could negatively impact our ability to lease space on terms and conditions we seek and could have a material adverse effect on our business and results of operations.

As of December 31, 2020, we have individual, non-recourse mortgages on each of our Puerto Rico properties.

Natural disasters could have a concentrated impact on us.

We own properties near the Atlantic Coast and in Puerto Rico which are subject to natural disasters such as hurricanes, floods and storm surges.

We also have four properties in California that could be impacted by earthquakes.

We maintain comprehensive, all-risk

property and rental value insurance coverage on our properties, however losses resulting from a natural disaster may be subject to a deductible or not fully covered and such losses could adversely affect our cash flow, financial condition and results of operations.

Some of our potential losses may not be covered by insurance.

We maintain numerous insurance policies including for general liability, property, pollution, acts of terrorism, trustees’ and officers’, cyber security, workers’ compensation and automobile-related liabilities.

However, all such policies are subject to the terms, conditions, exclusions, deductibles and sub-limits, among other limiting factors.

For example, our terrorism insurance policy excludes coverage for nuclear, biological, chemical or radiological terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act.

Certain of the insurance premiums are charged directly to each of the properties but not all of the cost of such premiums are recovered.

We are responsible for deductibles, losses in excess of insurance coverage, and the portion of premiums not reimbursable by tenants at our properties, which could be material.

We continue to monitor the state of the insurance market and the scope and costs of available coverage.

We cannot anticipate what coverage will be available on commercially reasonable terms in the future and expect premiums across most coverage lines to increase in light of recent events.

The incurrence of uninsured losses, costs or uncovered premiums could materially and adversely affect our business, results of operations and financial condition.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources included in Part II, Item 7.

in this Annual Report on Form 10-K and the Notes to Consolidated Financial Statements included in Part II, Item 8.

in this Annual Report on Form 10-K.

Terrorist acts and shooting incidents could harm the demand for, and the value of, our properties.

Over the past several years, a number of highly publicized terrorist acts and shootings have occurred at domestic and international retail properties.

In the event concerns regarding safety were to alter shopping habits or deter customers from visiting shopping centers, our tenants would be adversely affected as would the general demand for retail space.

Additionally, if such incidents were to continue, insurance for such acts may become limited or subject to substantial cost increases.

Such an incident at one of our properties, particularly one in which we generate a significant amount of revenue, could materially and adversely affect our business, results of operations and financial condition.

Our business and operations would suffer in the event of system failures.

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our information technology (“IT”) infrastructure, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures.

We have placed reliance on third party managed services to perform a number of IT-related functions.

We implemented a new information technology platform in August 2017, including a new enterprise resources planning (“ERP”) system.

We may experience system difficulties related to our new platform and integrating the services provided by third parties.

We have placed reliance on third party managed services to perform a number of IT-related functions and we may experience system difficulties related to our platform and integrating the services provided by third parties.

If we experience a system failure or accident that causes interruptions in our operations, we could experience material and adverse disruptions to our business.

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Our internal and outsourced IT networks and related systems are essential to the operation of our business and our ability to perform day to day operations.

Although (i) we make efforts to maintain the security and integrity of our IT networks and related systems and ensure that our vendors do and (ii) we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

Accordingly, we or our vendors may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.

A breach or significant and extended disruption in the functioning of our systems, including our primary website, may damage our reputation and cause us to lose customers, tenants and revenues, generate third-party claims, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information, and require us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues, and we may not be able to recover these expenses in whole or in any part from our service providers, responsible parties, or insurance carriers which could have a material adverse effect on our business and operations.

RISKS RELATED TO ENVIRONMENTAL LIABILITY AND REGULATORY COMPLIANCE

We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate.

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and that future uses or conditions, or changes in environmental laws and regulations will not result in additional material environmental liabilities to us.

For example, during the years ended December 31, 2019 and December 31, 2018 , the Company recognized $1.4 million and $0.6 million , respectively, of environmental remediation costs at certain properties based on third-party estimates of the potential costs of remediation at these properties.

Generally, our tenants must comply with environmental laws and meet remediation requirements.

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If not addressed, environmental conditions could impair our ability to sell or re-lease the affected properties in the future or result in lower sales prices or rent payments, which could adversely impact our cash flow, financial condition and results of operations.

Some of our potential losses may not be covered by 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 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 available coverage.

We cannot anticipate what coverage will be available on commercially reasonable terms in the future and expect premiums across most coverage lines to increase in light of recent events.

The incurrence of uninsured losses, costs or uncovered premiums could materially and adversely affect our business, results of operations and 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.

Future terrorist acts and shooting incidents could harm the demand for, and the value of, our properties.

Over the past several years, a number of highly publicized terrorist acts and shootings have occurred at domestic and international retail properties.

Additionally, if such incidents were to continue, insurance for such acts may become limited or subject to substantial cost increases.

Our assets may be subject to impairment charges.

Real estate is carried at cost, net of accumulated depreciation and amortization.

Our properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable.

An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.

An impairment loss is measured by the excess of the property’s carrying amount over its estimated fair value.

Compliance or failure to comply with the Americans with Disabilities Act, safety regulations or other requirements could result in substantial costs.

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If we incur substantial costs to comply with the ADA and any other legislation, our cash flow, financial condition and results of operations could be adversely affected.

Changes in accounting principles, or interpretations thereof, could have a significant impact on our financial position and results of operations.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

These principles are subject to interpretation by the U.S.

Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting principles.

A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls.

For example, in February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases , which requires lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of classification.

Implementing ASUs, as well as other new accounting guidance may require us to make significant upgrades to and investments in our ERP systems, and could result in significant adverse changes to our financial statements.

For additional information regarding updated standards, see the section titled “Recently Issued Accounting Literature” in Note 3 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

We face possible adverse changes in tax law.

Changes in U.S.

federal, state and local tax laws or regulations, with or without retroactive application, could have a negative effect on us.

New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT and/or the U.S.

federal income tax consequences to our investors and to the Company of such qualification.

Any changes to the Code and Treasury Regulations promulgated thereunder that apply to determine the taxability of our separation from Vornado have been the subject of change and may continue to be the subject of change, possibly with retroactive application, which could have a negative effect on our shareholders and could adversely affect our business, results of operations and financial condition, and the amount of cash available for payment of dividends.

Even changes that do not impose greater taxes on us could potentially result in adverse consequences to our shareholders.

In December 2019, the IRS issued proposed Treasury regulations related to Section 162(m) of the Code that extend the $1 million deduction limit that publicly traded corporations may take for compensation paid to “covered employees” to a REIT’s distributive share of any compensation paid by the REIT’s operating partnership to certain current and former executive officers of the REIT.

This change may limit our ability to deduct certain compensation that would have been deductible under prior law.

Our existing tax protection agreements, and any tax protection agreements that we enter into in the future, could limit our flexibility with respect to disposing of certain of properties or refinancing our indebtedness.

In connection with certain contributions of properties to UELP, we and UELP have entered into tax protection agreements with the contributors of such properties that generally provide that if we dispose of any interest in the contributed properties in a taxable transaction within a certain time period, subject to certain exceptions, we may be required to indemnify the contributors for their tax liabilities attributable to the built-in gain that existed with respect to such property interests, and certain tax liabilities incurred

as a result of such tax protection payments.

Therefore, although it may be in our stockholders’ best interests that we sell a contributed property, it may be economically prohibitive for us to do so because of these obligations.

In the future, we and UELP may enter into additional tax protection agreements which could further limit our flexibility to sell or otherwise dispose of our properties.

In addition, one of our current tax protection agreements requires, and any tax protection agreements we enter into in the future may require, UELP to maintain for specified periods of time secured debt on certain of our assets and/or allocate partnership debt to certain contributors of properties to enable them to continue to defer recognition of their taxable gain with respect to the contributed properties.

If the failure of UELP to maintain such levels of debt causes any such contributor to recognize gain, we may be required to deliver to such contributor a cash payment intended to approximate the contributor’s tax liability resulting from such failure and certain tax liabilities incurred as a result of such tax protection payment.

This tax protection agreement may restrict UELP’s ability to repay or refinance debt or require UELP to maintain more or different debt than UELP would otherwise require for our business.

Covenants in our existing financing agreements may restrict our operating, financing, redevelopment, development, acquisition and other activities.

Our ability to borrow is subject to compliance with these and other covenants.

Under those circumstances, other sources of capital may not be available to us or may be available only on unattractive terms.

Risks related to our outstanding debt.

As of December 31, 2019 , we had $169.5 million of variable rate debt and our $600 million revolving credit facility, on which no balance is outstanding at December 31, 2019 , bears interest at a floating rate based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin, and we may continue to borrow additional funds at variable interest rates in the future.

In the event that LIBOR is discontinued, the interest rates of our debt following such event will be based on either alternate base rates or agreed upon replacement rates.

Such an event would not affect our ability to borrow or maintain already outstanding borrowings, although it could result in higher interest rates.

Defaults on secured indebtedness may result in foreclosure.

As of December 31, 2019 , we had $1.6 billion of secured debt outstanding and 31 of our properties were encumbered by secured debt.

Further, for tax purposes, the foreclosure of a mortgage may result in the recognition of taxable income related to the extinguished debt without us having received any accompanying cash proceeds.

We may not be able to obtain capital to make investments.

There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof.

Our access to debt or equity financing depends on the willingness of third parties to lend to or to make equity investments and on conditions in the capital markets generally.

There can be no assurance that new financing or other capital will be available or available on acceptable terms.

The failure to obtain financing or other capital could materially and adversely affect our business, results of operations and financial condition.

in this Annual Report on Form 10-K and the Notes to Consolidated Financial Statements included in Part II, Item 8.

in this Annual Report on Form 10-K.

RISKS RELATED TO OUR STATUS AS A REIT

We may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates.

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Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferred basis.

Risk related to the terms of our agreements related to our separation from Vornado.

In connection with our separation from Vornado, we entered into certain agreements with Vornado, including a separation agreement (the “Separation Agreement”) and a tax matters agreement (the “Tax Matters Agreement”, together with the Separation Agreement, the “Agreements”), which govern certain aspects of our relationship with Vornado.

For example, the Tax Matters Agreement governs Vornado’s and UE’s respective rights, responsibilities and obligations with respect to taxes and liabilities and certain other tax matters.

Pursuant to the agreement, UE may be required to indemnify Vornado in certain circumstances.

The Separation Agreement also contains indemnification provisions which may make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the separation and distribution, as well as additional obligations of Vornado that we assumed pursuant to the Separation Agreement.

The terms of our Agreements, including those relating to tax and indemnification, were determined while we were still a wholly-owned subsidiary of Vornado.

They were determined by persons who were, at the time, employees, officers or trustees of Vornado or its subsidiaries and, as a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties.

Arm’s-length negotiations between Vornado and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party.

See “Certain Relationships and Related Person Transactions.”

There is no assurance that Vornado can satisfy its indemnification obligations to us or that such indemnification can fully offset the related liabilities.

Pursuant to the Separation Agreement, Vornado has agreed to retain and indemnify us for certain liabilities.

However, third parties could seek to hold us responsible for any of such liabilities and there can be no assurance that Vornado will fully satisfy its indemnification obligations.

Even if we ultimately succeed in recovering from Vornado any amounts for which we are held liable, such indemnification may be insufficient to fully offset the financial impact of such liabilities and we may be temporarily required to bear these losses while seeking recovery from Vornado.

RISKS RELATED TO OUR COMMON SHARES

We face possible adverse changes in tax law.

Changes in U.S.

federal, state and local tax laws or regulations, with or without retroactive application, could have a negative effect on us.

New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT and/or the U.S.

federal income tax consequences to our investors and to us of such qualification.

Even changes that do not impose greater taxes on us could potentially result in adverse consequences to our shareholders.

This change may limit our ability to deduct certain compensation that would have been deductible under prior law.

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

Our Declaration of Trust sets limits on the ownership of our shares.

Generally, for us to maintain a qualification as a REIT under the Code, not more than fifty percent (50%) in value of our outstanding shares of beneficial interest may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year.

The Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities.

Under our Declaration of Trust, no person or entity (or group thereof) may own more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding shares of any class or series, with some exceptions for persons or entities approved by the Board of Trustees.

A transfer of our shares of beneficial interest to a person who, as a result of the transfer, violates the ownership limit will be void under certain circumstances, and, in any event, would deny that person any of the economic benefits of owning shares in excess of the ownership limit.

These restrictions on transferability and ownership may delay, deter or prevent a change in control of us or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders.

Our Declaration of Trust limits the removal of members of the Board of Trustees.

Our Declaration of Trust provides that, subject to the rights of holders of one or more classes or series of preferred shares to elect or remove one or more trustees, a trustee may be removed only for cause and only by the affirmative vote of two-thirds of the votes entitled to be cast in the election of trustees.

This provision, when coupled with the exclusive power of the Board of Trustees to fill vacancies on the Board of Trustees, precludes shareholders from removing incumbent trustees except for cause and upon a substantial affirmative vote and filling the vacancies created by the removal with their own nominees.

These limitations may delay, deter or prevent a change in control of us or other transactions that might involve a premium price or otherwise be in the best interest of our shareholders.

Maryland law contains provisions that may reduce the likelihood of certain takeover transactions.

Certain provisions of Maryland law, may have the effect of inhibiting a third-party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our shares, including:

• “Business combination” provisions that, subject to certain exceptions, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting shares at any time within the two-year period immediately prior to the date in question) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter impose fair price or super majority shareholder voting requirements on these combinations;

• “Control share” provisions that provide the holders of “control shares” of a company (defined as shares that, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise voting power in the election of trustees within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of the voting power of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by Maryland law, our Bylaws provide that we will not be subject to the control share provisions of Maryland law.

However, we cannot assure you that the Board of Trustees will not revise our Bylaws in order to be subject to such control share provisions in the future.

Certain provisions of Maryland law permit the board of trustees of a Maryland real estate investment trust with at least three independent trustees and a class of shares registered under the Exchange Act, without shareholder approval and regardless of what is currently provided in its declaration of trust or bylaws, to implement certain corporate governance provisions, some of which (for example, implementing a classified board) are not currently applicable to us.

These provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control under circumstances that otherwise could provide the holders of shares of our shares with the opportunity to realize a premium over the then current market price.

We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions.

Our Declaration of Trust and Bylaws authorize the Board of Trustees in its sole discretion and without shareholder approval, to:

• cause us to issue additional authorized, but unissued, common or preferred shares;

• classify or reclassify, in one or more classes or series, any unissued common or preferred shares;

• set the preferences, rights and other terms of any classified or reclassified shares that we issue;

• increase the number of shares of beneficial interest that we may issue.

The Board of Trustees can establish a class or series of common or preferred shares whose terms could delay, deter or prevent a change in control of us or other transaction that might involve a premium price or otherwise be in the best interest of our shareholders.

Our Declaration of Trust and Bylaws contain other provisions that may delay, deter or prevent a change in control of us or other transaction that might involve a premium price or otherwise be in our best interest or the best interest of our shareholders.

RISKS RELATED TO AN INVESTMENT IN OUR COMMON SHARES

The market prices and trading volume of our equity securities may be volatile.

22 unchanged sentences

Although we expect to pay regular cash dividends, the timing, declaration, amount and payment of dividends to shareholders falls within the discretion of the Board of Trustees.

The Board of Trustees’ decisions regarding the payment of dividends depends on factors such as our financial condition, earnings, capital requirements, debt service obligations, limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other considerations that it deems relevant.

As a result of COVID-19 and the uncertainties it generated, our Board of Trustees temporarily suspended quarterly dividend distributions for the second and third quarters of 2020.

regulatory constraints, and other considerations that it deems relevant.

Our ability to pay dividends depends on our ongoing ability to generate cash from operations and access to the capital markets.

We cannot guarantee that we will pay dividends in the future.

Your percentage of ownership in the Company may be diluted in the future.

Your percentage of ownership in our Company may be diluted in the future.

In the future, your ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or compensatory equity awards to our trustees, officers or employees, or otherwise.

1 unchanged sentence

We cannot predict the effect that future sales of our common shares or other equity-related securities including the issuance of Operating Partnership units would have on the market price of our common shares.

In addition, the Company’s Declaration of Trust authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred shares having such designation, voting powers, preferences, rights and other terms, including preferences over our common shares respecting dividends and other distributions, as the Board of Trustees generally may determine.

In addition, our Declaration of Trust authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred shares having such designation, voting powers, preferences, rights and other terms, including preferences over our common shares respecting dividends and other distributions, as the Board of Trustees generally may determine.

The terms of one or more classes or series of preferred shares could dilute the voting power or reduce the value of our common shares.

7 unchanged sentences

These factors could result in a decline in the market prices of our publicly-traded equity securities.

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

The Company’s Declaration of Trust sets limits on the ownership of our shares.

Generally, for us to maintain a qualification as a REIT under the Code, not more than fifty percent (50%) in value of the outstanding shares of beneficial interest of the Company may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of the Company’s taxable year.

The Code defines “individuals” for purposes of the requirement described in the preceding sentence to include some types of entities.

Under the Company’s Declaration of Trust, no person or entity (or group thereof) may own more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding shares of any class or series, with some exceptions for persons or entities approved by the Board of Trustees.

A transfer of shares of beneficial interest of the Company to a person who, as a result of the transfer, violates the ownership limit will be void under certain circumstances, and, in any event, would deny that person any of the economic benefits of owning shares in excess of the ownership limit.

These restrictions on transferability and ownership may delay, deter or prevent a change in control of the Company or other transaction that might involve a premium price or otherwise be in the best interest of the shareholders.

The Company’s Declaration of Trust limits the removal of members of the Board of Trustees.

The Company’s Declaration of Trust provides that, subject to the rights of holders of one or more classes or series of preferred shares to elect or remove one or more trustees, a trustee may be removed only for cause and only by the affirmative vote of two-thirds of the votes entitled to be cast in the election of trustees.

This provision, when coupled with the exclusive power of the

Board of Trustees to fill vacancies on the Board of Trustees, precludes shareholders from removing incumbent trustees except for cause and upon a substantial affirmative vote and filling the vacancies created by the removal with their own nominees.

These limitations may delay, deter or prevent a change in control of the Company or other transactions that might involve a premium price or otherwise be in the best interest of our shareholders.

Maryland law contains provisions that may reduce the likelihood of certain takeover transactions.

“Business combination” provisions that, subject to certain exceptions, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting shares at any time within the two-year period immediately prior to the date in question) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter impose fair price or super majority shareholder voting requirements on these combinations;

“Control share” provisions that provide that holders of “control shares” of the Company (defined as shares that, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise voting power in the election of trustees within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of the voting power of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by Maryland law, the Company’s Bylaws provide that we will not be subject to the control share provisions of Maryland law.

However, we cannot assure you that the Board of Trustees will not revise the Company’s Bylaws in order to be subject to such control share provisions in the future.

These provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for the Company or of delaying, deferring or preventing a change in control under circumstances that otherwise could provide the holders of shares of our shares with the opportunity to realize a premium over the then current market price.

We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions.

The Company’s Declaration of Trust and Bylaws authorize the Board of Trustees in its sole discretion and without shareholder approval, to:

cause the Company to issue additional authorized, but unissued, common or preferred shares;

classify or reclassify, in one or more classes or series, any unissued common or preferred shares;

set the preferences, rights and other terms of any classified or reclassified shares that the Company issues;

increase the number of shares of beneficial interest that the Company may issue.

The Board of Trustees can establish a class or series of common or preferred shares whose terms could delay, deter or prevent a change in control of the Company or other transaction that might involve a premium price or otherwise be in the best interest of the Company’s shareholders.

The Company’s Declaration of Trust and Bylaws contain other provisions that may delay, deter or prevent a change in control of the Company or other transaction that might involve a premium price or otherwise be in the best interest of our shareholders and the Company.

UNRESOLVED STAFF COMMENTS

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors