What changed in this filing

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Item 1A. Risk Factors

2022-02-16 compared with 2021-02-17 · 63 added, 45 removed, 303 unchanged (26% of the section changed)

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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.

Actual or perceived threats associated with epidemics, pandemics or other public health crises, including the COVID-19 pandemic, have had and 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 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, 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.

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.

• anticipated returns from development and redevelopment projects, some of which experienced delays due to the COVID-19 pandemic;

• the broader impact of the pandemic and its effect on consumer behavior;

• 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 credit facility as a result of covenants relating to our financial results;

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

While the U.S.

economy has shown signs of improvement compared to fiscal year 2020 and widespread use of vaccines has alleviated COVID-19 restrictions, the spread of new strains of the COVID-19 virus is likely to pose additional challenges.

Accordingly, developments regarding the COVID-19 pandemic preclude prediction as to the ultimate economic, political and social impact, and may continue to present 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.

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E-commerce could result in a downturn in the business of some of our current tenants and could affect the way other current and future tenants lease space.

For example, the migration towards e-commerce has led many omnichannel retailers to prune the number and size of their traditional “brick and mortar” locations to increasingly rely on e-commerce and alternative distribution channels.

For example, the migration towards e-commerce has led many omnichannel retailers to prune the number and size

of their traditional “brick and mortar” locations to increasingly rely on e-commerce and alternative distribution channels.

Many tenants also permit merchandise purchased on their websites to be picked up at, or returned to, their physical store locations, which may have the effect of decreasing the reported amount of their in-store sales and the amount of rent we are able to collect from them (particularly with respect to those tenants who pay rent based on a percentage of their in-store sales).

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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.

Spaces that accounted for approximately 15.2% of physical occupancy were vacant as of December 31, 2021, excluding leases signed but not commenced.

In addition, leases accounting for approximately 28% of our annualized base rent for the fiscal year ended December 31, 2021 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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In addition, our leases generally do not contain restrictions designed to ensure the ongoing creditworthiness of our tenants.

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.

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

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 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.

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Because a significant number of our properties are located in the New York metropolitan area, we are particularly susceptible to adverse economic and other developments in that area.

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 over 75% of our rental revenue as of December 31, 2020.

Notably, as of December 31, 2021, one of our New York metropolitan area properties, The Outlets at Bergen Town Center, in Paramus, NJ, generated in excess of 10% of our annualized base rent.

Collectively, our New York metropolitan area properties in the aggregate generated approximately 74% of our annualized base rent as of December 31, 2021.

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.

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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, 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.

As of December 31, 2021, we had 21 active redevelopment projects in which we have invested a total of approximately $72.1 million, and based on our current plans and estimates, we anticipate it will cost an additional $146.6 million to complete.

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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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.

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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.

We have historically used moderate levels of leverage and expect to continue to incur indebtedness to support our activities.

As of December 31, 2021, our outstanding indebtedness was $1.7 billion, of which $161.1 million was variable rate indebtedness.

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

As of December 31, 2021, approximately 9.5% of our current outstanding debt bore interest at variable rates which bears interest at a floating rate based on the London Interbank Offered Rate (“LIBOR”), plus an applicable margin.

We are exposed to risks related to a potential rising interest rate environment for our current or any future variable interest rate debt.

Interest expense on our variable rate debt at December 31, 2021 would increase by approximately $1.6 million annually for every 100-basis-point increase in interest rates.

While we may enter into interest rate hedging transactions with counterparties, there can be no guarantee that the future financial condition of these counterparties will enable them to fulfill their obligations under such agreements.

In 2017, U.K.

regulators announced that they intend to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

As a result, U.S.

regulators identified the Secured Overnight Financing Rate (“SOFR”) as their preferred alternative to USD LIBOR in derivatives and other financial contracts.

Additionally, while U.S.

official guidance states that there should be no new LIBOR trading after December 31, 2021, USD LIBOR will continue to be published until June 2023 and we are not currently able to predict when LIBOR will cease to be available in the United States.

When LIBOR is discontinued, the interest rates of our LIBOR-indexed debt following such event will be based on either alternate base rates, such as SOFR, or agreed upon replacement rates.

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

If the cost or amount of our debt 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 our company, including our ability to make distributions to our shareholders.

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.

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.

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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.

Our two malls in Puerto Rico make up approximately 8% of our net operating income for the year ended December 31, 2021.

Puerto Rico faces significant fiscal and economic challenges, including those resulting from natural disasters such as hurricanes and earthquakes, the COVID-19 pandemic, 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.

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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.

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.

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.

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RISKS RELATED TO ENVIRONMENTAL LIABILITY AND REGULATORY COMPLIANCE

We may be adversely affected by laws, regulations or other issues related to climate change.

We may become subject to laws or regulations related to climate change, which could cause our business, results of operations and financial condition to be impacted adversely.

The federal government has enacted, and some of the states and localities in which we operate may enact, certain climate change laws and regulations or have begun regulating carbon footprints and greenhouse gas emissions.

Although these laws and regulations have not had any known material adverse effects on our business to date, they could result in substantial costs, including compliance costs, increased energy costs, retrofit costs and construction costs, including monitoring and reporting costs, and capital expenditures for environmental control facilities and other new equipment.

We have implemented strategies to support our continued effort to reduce energy and water consumption, greenhouse gas emissions, and waste production across our portfolio.

We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related to climate change will affect our business, results of operations and financial condition.

Additionally, the potential physical impacts of climate change on our operations are highly uncertain,

and would be particular to the geographic circumstances in areas in which we operate.

These may include changes to global weather patterns, which could include local changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperature averages or extremes.

These impacts may adversely affect our properties, our business, financial condition and results of operations.

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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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.

Increased scrutiny and changing expectations from investors, customers, employees, and others regarding our environmental, social and governance practices and reporting could cause us to incur additional costs, devote additional resources and expose us to additional risks, which could adversely impact our reputation, customer acquisition and retention, access to capital and employee retention.

Companies across all industries are facing increasing scrutiny related to their ESG practices and reporting.

Investors, customers, employees, and other stakeholders have begun to focus increasingly on ESG practices and to place increasing importance on the implications and social cost of their investments, purchases, and other interactions with companies.

With this increased focus and demand, public reporting regarding ESG practices is becoming more broadly expected.

If our ESG practices and reporting do not meet investor, customer, or employee expectations, which continue to evolve, our reputation and tenant retention may be negatively impacted.

Any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management, and workforce inclusion and diversity.

It is possible that stakeholders may not be satisfied with our ESG reporting, our ESG practices or our speed of adoption.

We could also incur additional costs and devote additional resources to monitor, report and implement various ESG practices.

If we fail, or are perceived to be failing, to meet the standards included in any sustainability disclosure or the expectations of our various stakeholders, it could negatively impact our reputation, tenant and employee retention, and access to capital.

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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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.

In 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.

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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.

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.

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.

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.

The Board of Trustees’ decisions regarding the payment of dividends depend 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.

Our ability to pay dividends depends on our ongoing ability to generate cash from operations and access to the capital markets, and therefore, we cannot guarantee that we will pay dividends in the future.

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

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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