Item 1. Business
ITEM 1. BUSINESS
The Company
Urban Edge Properties (“UE”, “Urban Edge” or the “Company”) (NYSE: UE) is a Maryland REIT that manages, develops, redevelops, and acquires retail real estate, primarily in the New York metropolitan area. Urban Edge Properties LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as UE’s majority-owned partnership subsidiary and to own, through affiliates, all of our real estate and other assets. Our portfolio is currently comprised of 72 shopping
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centers, five malls and two industrial parks totaling approximately 16.3 million square feet (sf) with a consolidated occupancy rate of 89.4%.
For additional information on recent business developments, see I tem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K.
Company Strategies
Our goal is to be a leading owner and operator of retail real estate in major urban markets, with a focus on the New York metropolitan area. We believe urban markets offer attractive acquisition and redevelopment opportunities resulting from high population density, strong demand from consumers, above average retailer sales trends, a limited supply of institutional quality assets and a large number of older, undermanaged assets that remain privately owned. We seek to create value through the following primary strategies:
Maximize the value of existing properties through proactive management. We intend to maximize the value of each of our assets through comprehensive, proactive management encompassing: continuous asset evaluation for highest-and-best-use; targeted leasing to desirable tenants; and efficient and cost-conscious day-to-day operations that minimize operating expenses and enhances property quality. Repurposing retail real estate with high-quality retailers, with a focus on grocers, and incorporating other uses including industrial, residential, self-storage, and medical are increasingly important to our business plan. Leasing and asset management are critical value-creation functions that include:
• Monitoring retailer sales, merchandising, store operations, timeliness of payments, overall financial condition and related factors;
• Being constantly aware of each asset’s competitive position within its trade area and recommending physical improvements or adjusting merchandising if circumstances warrant;
• Continuously canvassing trade areas to identify unique operators that can distinguish a property and enhance its offerings;
• Maintaining regular contact with the brokerage community to stay abreast of new merchants, potential relocations, new supply and overall trade area dynamics;
• Conducting regular portfolio reviews with key merchants;
• Building and nurturing deep relationships with tenant decision-makers;
• Focusing on spaces with below-market leases that might be recaptured;
• Understanding the impact of options, exclusives, co-tenancy and other restrictive lease provisions; and
• Optimizing required capital investment in every transaction.
Develop and redevelop assets to their highest and best use. Our existing portfolio presents considerable opportunity to generate attractive returns through upgrading and expanding our properties and replacing retail space with industrial, multifamily, self-storage and other uses. As of December 31, 2020, we have $132.4 million of active redevelopment projects, of which $86.6 million remains to be funded. These projects are expected to generate an approximate 8% unleveraged yield. Active redevelopment projects include $83.5 million of projects related to large anchor leases executed during the year including the addition of best-in-class groce rs to three p roperties. Additionally, our active redevelopment projects include the conversion of a former discounter retail space into an industrial warehouse facility that has been fully leased to a wholesale grocery and distribution tenant. We will continue to explore opportunities throughout our portfolio to achieve similar upgrades in tenancy, to densify sites where feasible and to repurpose certain retail space to non-retail uses.
Invest in target markets. We intend to selectively deploy capital through acquisitions in our target markets that meet our criteria for risk-adjusted returns and enhance the overall quality of our existing portfolio. At the same time, we plan to sell assets that no longer meet our return requirements and strategic objectives. Investment considerations for acquisitions include:
• Competition and Barriers-to-Entry : We seek assets in underserved, high barrier-to-entry markets in densely populated, affluent trade areas. We believe that properties located in such markets present more attractive risk-return profile relative to other markets.
• Geography : We focus primarily on the New York metropolitan area and secondarily on the Washington, DC to Boston corridor. We intend to invest in our existing core markets, and, over time, may expand into new markets that have similar characteristics.
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• Product : We generally seek large properties that provide scale relative to the competition and optionality for redevelopment to meet the changing demands of the local community.
• Tenancy : We consider tenant mix, sales performance and related occupancy cost, lease term, lease provisions, omni-channel capabilities, susceptibility to e-commerce disruption and other factors. Our tenant base comprises a diverse group of merchants, including department stores, supermarkets, discounters, entertainment offerings, health clubs, DIY stores, in-line specialty shops, restaurants and other food and beverage vendors and service providers.
• Rent : We derive our revenue from fixed and variable rents from our tenants. We consider existing rents relative to market rents and target submarkets that have potential for market rent growth as evidenced by strong retailer sales performance.
• Access and Visibility : We seek assets with convenient access and good visibility.
• Physical Condition : We consider aesthetics, functionality, building and site conditions and environmental matters in evaluating asset quality.
Maintain capital discipline. We intend to keep our balance sheet flexible and capable of supporting growth. We expect to generate increasing levels of cash flow from internally generated funds and to have substantial borrowing capacity under our existing revolving credit agreement and from potential secured debt financing on our existing assets.
Environmental, Social and Governance (“ESG”) Achievements, Initiatives, and Objectives
We seek to drive financial performance while engaging in environmentally and socially responsible business practices grounded in sound corporate governance. We believe that disclosure around our ESG practices allows our stakeholders to see our company holistically and understand its trajectory beyond fundamentals and financial metrics. In addition to a dedicated team of professionals, we have a robust suite of environmental, social, and governance policies that inform and guide our ESG approach and drive our ESG goals forward. From an environmental perspective, it is our goal to implement strategies to support the continued reduction of energy, greenhouse gas water, and waste production across the portfolio. We are committed to maintaining sustainable operations and believe that our long-term sustainability goals will provide positive financial and environmental outcomes for shareholders, tenants, employees and the communities in which we invest.
Further information on our ESG practices can be found on our website in the Investors section. The information on our website is not incorporated by reference in this Annual Report on Form 10-K.
Human Capital
At December 31, 2020, we had 106 employees. We believe that our employees are one of our greatest resources. Our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas. We provide professional training and development workshops and aim to provide a workplace environment where employees are informed, engaged, feel empowered, and can succeed. Our employees enjoy subsidized health and wellness benefits, professional training and development workshops, ergonomic office equipment, telecommuting opportunities and policies encouraging work/life balance. Through our Wellness program, recently launched volunteer platform and quarterly Town Hall meetings with all employees, among other initiatives, we continually strive to provide a workplace environment where employees are informed, engaged, feel empowered and can succeed.
Our headquarters are located at 888 Seventh Avenue, New York, NY 10019.
Significant Tenants
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2020, 2019 and 2018. The Home Depot, Inc. is our largest tenant and accounted for approximately $20.7 million, or 6.3%, of our total revenue for the year ended December 31, 2020.
REIT Qualification
The Company elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the filing of its 2015 tax return for its tax year ended December 31, 2015. With the exception of the Company’s taxable REIT subsidiary (“TRS”), to the extent the Company meets certain requirements under the Code, the Company will not be taxed on its federal taxable income. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular corporate rates (including any alternative minimum tax, which, for corporations, was repealed
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under the Tax Cut and Jobs Act (“TCJA”) for tax years beginning after December 31, 2017) and may not be able to qualify as a REIT for the four subsequent taxable years. In addition to its TRS, the Company is subject to certain foreign and state and local income taxes, in particular income taxes arising from its operating activities in Puerto Rico, which are included in income tax expense in the consolidated statements of income.
Available Information
Copies of our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners of us, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through our website (www.uedge.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our website are copies of our Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Code of Business Conduct and Ethics and Corporate Governance Guidelines. In the event of any changes to these charters or the code or guidelines, changed copies will also be made available on our website. Our website also includes other financial information, including certain non-GAAP financial measures, none of which is a part of this Annual Report on Form 10-K. Copies of our charters, code, guidelines, and filings under the Exchange Act are also available free of charge from us, upon request.
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