What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-14 compared with 2022-02-16 · 135 added, 105 removed, 243 unchanged (50% of the section changed)

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UE) is a Maryland real estate investment trust that manages, develops, redevelops, and acquires retail real estate, primarily in the Washington, D.C.

to Boston corridor with a concentration on the New York metropolitan area.

to Boston corridor.

Urban Edge Properties LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as UE’s majority-owned partnership subsidiary and to own, through affiliates, all of our real estate properties and other assets.

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As of December 31, 2022, our portfolio was comprised of 69 shopping centers, five malls and two industrial parks totaling approximately 17.2 million square feet.

COVID-19 Pandemic

On January 30, 2020, the spread of the COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization ("WHO").

On March 11, 2020, the WHO characterized the COVID-19 outbreak as a global pandemic.

Early in the pandemic, the tri-state area of Connecticut, New York and New Jersey enforced preventive measures including mandatory business closures for non-essential businesses and quarantines or “shelter-in-place” requirements.

Given our geographic concentration in the Northeast, many of our tenants faced adverse financial consequences from reduced business operations and social distancing requirements as a result of the COVID-19 pandemic.

The Company’s results for 2020 were negatively impacted by tenant fallout from COVID-driven bankruptcies, uncollected or disputed rents from impacted tenants, and from abatements granted to tenants facing financial hardships due to the pandemic.

Throughout 2021, the widespread distribution of vaccines and reduction of restrictions boosted economic confidence and increased consumer spending, resulting in a strengthened existing retail tenant base and increase in demand for space.

The Company reached record leasing volumes with 161 total new leases, renewals and options, totaling approximately 2 million square feet.

Foot traffic at our properties returned to near pre-pandemic levels, which has increased sales volume for our tenants and we have collected 98% of base rents billed during the year, inclusive of rent deferrals granted as part of our COVID-19 tenant relief efforts.

Economic Considerations

In March of 2020, the World Health Organization characterized the COVID-19 outbreak as a global pandemic.

Many of our tenants faced adverse financial consequences from reduced business operations and restrictions related to the pandemic, and the Company’s results for 2020 were negatively impacted by tenant fallout from COVID-driven bankruptcies, uncollected or disputed rents from impacted tenants, and from abatements granted to tenants facing financial hardships due to the pandemic.

The Company saw leasing momentum and foot traffic at our properties return to near pre-pandemic levels.

During 2022, microeconomic and macroeconomic conditions caused volatility in the financial markets and a rapid rise in inflation.

The Federal Reserve has taken steps to mitigate the impact of inflation by raising its benchmark interest rate several times throughout the year.

While the rate hikes enacted by the Federal Reserve have had a significant impact on interest rates and increased the cost of borrowing, we continue to see consumer confidence and a conviction in retail real estate.

Tenant sales have increased year-over-year and the demand for retail spaces remains strong as evidenced by the record number of new leases we executed in 2022.

The geographic location of our portfolio has also proven to be beneficial.

With hybrid and remote work becoming more common, consumers have demonstrated that convenience and proximity are valued.

The majority of our portfolio is located in one of the most supply-constrained and densely populated markets in the country and offers consumers easy access to essential services and retailers, including medical offices, grocers, and discounters.

We expect to continue to add value to our portfolio through executing on our current leasing momentum, our active development, redevelopment and anchor repositioning projects, and commencement of leases signed but not yet opened.

2022 Highlights

Set forth below are highlights of our development and redevelopment projects, property acquisitions and dispositions, and leasing activities:

• Acquired Woodmore Towne Centre in December 2021 for a purchase price of $198.1 million, including transaction costs.

The property, located in Glenarden, MD, sits on 83 acres including an adjacent 22-acre vacant land parcel and is anchored by top-tier national and regional tenants including grocers Wegmans and Costco;

• Acquired two industrial warehouses aggregating 275,000 sf, for a total purchase price of $56.1 million, including transaction costs.

The two properties, located at 601 Murray Road and 151 Ridgedale Avenue, are adjacent to our existing 943,000 sf warehouse park in East Hanover, NJ;

• Completed the sale of three properties, one property parcel and one ground lease and received proceeds of $37.3 million, net of selling costs, resulting in a $18.6 million net gain on sale of real estate;

• Terminated our remaining leases with Kmart and Sears at Bruckner Commons, The Outlets at Montehiedra, and Sunrise Mall for $20 million, effective October 15, 2021.

Controlling these anchor spaces is a critical aspect of the plans we have under way to reposition and redevelop these spaces;

• Stabilized five redevelopment projects aggregating $29.3 million, two of which stabilized during the fourth quarter.

The 102,000 sf CubeSmart self-storage facility developed on excess land at Tonnelle Commons reached 87% occupancy.

Additionally, the build-out of Fun City was completed at our property in Salem, NH, which opened in November 2021;

• Activated six new redevelopment projects related to anchor leases executed during the year.

These projects have an estimated cost of $102.2 million, of which $95.2 million remains to be funded as of December 31, 2021 and are expected to generate an approximate 8% unleveraged yield;

• Signed 57 new leases totaling 677,817 square feet, including 46 new leases on a same-space (1) basis totaling 431,386 square feet at an average rental rate of $21.15 per square foot on a GAAP basis and $19.43 per square foot on a cash basis, resulting in average rent spreads of 23.0% on a GAAP basis and 9.5% on a cash basis;

• Renewed or extended 104 leases totaling 1,259,467 square feet, including 97 leases on a same-space (1) basis totaling 1,247,758 square feet at an average rental rate of $20.69 per square foot on a GAAP basis and $20.52 per square foot on a cash basis, generating average rent spreads of 10.9% on a GAAP basis and 3.5% on a cash basis.

Set forth below are highlights of our leasing activities, completed and activated development, redevelopment and anchor repositioning projects, and property acquisitions:

• Signed a record 69 new leases totaling approximately 1,032,434 square feet, including 55 new leases on a same-space (1) basis totaling 754,812 square feet at an average rental rate of $23.15 per square foot on a GAAP basis and

$21.34 per square foot on a cash basis, resulting in average rent spreads of 45.1% on a GAAP basis and 22.2% on a cash basis;

• Renewed or extended 90 leases totaling 1,086,469 square feet, all of which are on a same-space (1) basis, at an average rental rate of $20.36 per square foot on a GAAP basis and $20.10 per square foot on a cash basis, generating average rent spreads of 9.2% on a GAAP basis and 6.0% on a cash basis;

• Completed ten development, redevelopment and anchor repositioning projects, aggregating $105.2 million, four of which stabilized during the fourth quarter.

The retenanting of the former Century21 space at Bergen Town Center with Kohl’s was completed in October 2022 and ShopRite at Huntington Commons commenced operations in December 2022.

Additionally, the Company stabilized two small shops projects at our property in Kearny, NJ and the Shops at Bruckner in the Bronx, NY;

• Activated 14 development, redevelopment, and anchor repositioning projects aggregating $98.6 million, including Target at Bruckner Commons, Ralph’s Grocer, Urology Hub and T.J.

Maxx at The Outlets at Montehiedra, Bingo Wholesalers at Burnside Commons, and two industrial leases executed at our warehouse properties in East Hanover, NJ;

• Acquired two properties for a total purchase price of $37.6 million inclusive of transaction costs, including the Shops at Riverwood acquired in June 2022.

The property, located in Hyde Park, MA, sits on an eight acre site located just seven miles south of downtown Boston and is anchored by a grocer, Price Rite Marketplace, and has a strong array of national and regional tenants including Santander, Boston Medical Center, and Planet Fitness;

• Restated and amended the Company’s revolving credit agreement, increasing the facility size by $200 million to $800 million and extending the maturity date to February 9, 2027, with two six-month extension options.

(1) Same-space leases represent those leases signed on spaces for which there was a previous lease.

We intend to create value and grow earnings, funds from operations, and cash flows by:

• Adding essential tenants to our properties and positioning our retail environments with quality grocers, premium healthcare operators and elevated food offerings;

• Managing our balance sheet to allow for flexibility and execution on financing and refinancing opportunities when identified;

• Leasing vacant spaces, proactively extending leases, managing the exercise of tenant options and, when possible, replacing underperforming tenants with operators that can pay higher rents and positively impact our properties;

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See Forward-Looking Statements in this Annual Report on Form 10-K.

(1) Same-space leases represent those leases signed on spaces for which there was a previous lease.

Critical Accounting Estimates

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Actual results could differ from these estimates.

A discussion of possible risks which may affect these estimates is included in “Item 1A.

A discussion of possible risks which may affect these estimates is included in Part I, Item 1A.

“Risk Factors” of this Annual Report on Form 10-K.

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Our significant accounting policies are more fully described in Note 3 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that have a significant level of uncertainty at the time the accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.

accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.

Revenue Recognition and Receivables - Estimating Collectibility

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We evaluate the collectibility of amounts due from tenants and disputed enforceable charges on both a lease-by-lease and a portfolio-level basis, which result from the inability of tenants to make required payments under their operating lease agreements.

We recognize changes in the collectibility assessment of these operating leases as adjustments to rental revenue in accordance with ASC 842 Leases which are recorded as rental revenue deemed uncollectible and are included within the line items Rental revenue on our consolidated statements of income.

Management exercises judgement when evaluating the collectibility of these receivables and will look to both quantitative and qualitative factors.

Such factors include tenants’ current credit status, either from third parties or using an internal risk assessment, payment history, amount of outstanding receivables, tenant sales performance, potential liquidity and current economic and sector specific trends.

Tenant receivables, and receivables arising from the straight-lining of rents, are written-off directly when management deems the collectibility of substantially all future lease payments from a specific lease is not probable, at which point, the Company will begin recognizing revenue from such leases prospectively, based on actual cash received.

This write-off effectively reduces cumulative non-cash rental income recognized from the straight-lining of rents since lease commencement.

If the Company subsequently determines that it is probable it will collect substantially all of the lessee’s remaining lease payments under the lease term, the Company will reinstate the receivable balance, including those arising from the straight-lining of rents.

Changes in our assessments of collectibility are recognized as adjustments to rental revenue in accordance with ASC 842.

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In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts, including fixed rate below-market renewal options, to be paid pursuant to the in-place leases and our estimate of the market lease rates and other lease provisions for comparable leases measured over a period equal to the estimated remaining term of the lease.

Tenant related intangibles and improvements are amortized on a straight-line basis over the related lease term, including any

bargain renewal options.

Tenant related intangibles and improvements are amortized on a straight-line basis over the related lease term, including any bargain renewal options.

We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired.

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In the case that these assumptions change materially, they could have a material impact on our results and financial statements.

During 2021, we acquired three properties and utilized the above factors, including the use of a third-party, to allocate the purchase price of these properties among various assets and liabilities.

During 2022, we acquired two properties and utilized the above factors, including the use of a third party, to allocate the purchase price of these properties among various assets and liabilities.

Further information on these allocations can be found in Part II, Item 8, Note 4 of this Annual Report on Form 10-K.

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

Estimated fair value may be based on discounted future cash flows utilizing appropriate discount and capitalization rates and, in addition to available market information, third-party appraisals, broker selling estimates or sale agreements under negotiation.

Estimated fair value may be based on discounted future cash flows utilizing

appropriate discount and capitalization rates and, in addition to available market information, third-party appraisals, broker selling estimates or sale agreements under negotiation.

Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.

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Recent Accounting Pronouncements

In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04 Reference Rate Reform (ASC 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , and ASU 2021-01 Reference Rate Reform (ASC 848):

Scope which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform in contracts and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met.

ASU 2020-04 and ASU 2021-01 are effective for all entities as of March 12, 2020 through December 31, 2022.

In December 2022, FASB issued ASU 2022-06 Reference Rate Reform (ASC 848):

Deferral of the Sunset Date of Topic 848 , which extended the final sunset date from December 31, 2022 to December 31, 2024.

There were no modifications to our existing debt agreements as a result of reference rate reform in the current year, however, we refinanced two loans in 2022 previously indexed to LIBOR, which are now indexed to SOFR and the Prime Rate.

We plan to transition all variable rate loans currently indexed to LIBOR to SOFR, based on discussions with our lenders.

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

Recent SEC Reporting Updates

On January 11, 2021, the SEC issued Final Rule Release No.

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We early adopted the amendments to two items resulting in the elimination of Item 301, Selected Financial Data, and the omission of Item 302(a), Supplementary Financial Information.

The amendments to Item 303(a)(b) MD&A were adopted in our current Form 10-K for the year ended December 31, 2021.

The amendments to Item 303(a)(b) MD&A were adopted in our Form 10-K for the year ended December 31, 2021.

See Note 3 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recent accounting pronouncements that may affect us.

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Our results of operations are affected by national, regional and local economic conditions, as well as macroeconomic conditions, which are at times subject to volatility and uncertainty.

The current COVID-19 pandemic has increased volatility and uncertainty and has created significant economic disruption in many markets.

Vaccinations for the COVID-19 virus have been widely distributed among the general U.S.

population, which has facilitated the loosening of restrictions previously mandated on our tenants identified as nonessential;

however the potential emergence of vaccine-resistant variants of COVID-19 may trigger restrictions to be put back in place.

Such restrictions may include mandatory business shut-downs, reduced business operations and social distancing requirements.

The long-term consequences of the various restrictions taken during the pandemic on consumer behavior is currently unknown.

Specifically, the revenue and sales volume for certain tenants identified as nonessential may decline significantly as demand for their services and products declines potentially longer term.

We are actively managing our business to respond to the ongoing economic and social impact and uncertainty relating to the COVID-19 pandemic;

however, our future near term and potentially longer term results of operations may be significantly adversely affected.

See “Pandemic-Related Contingencies” under Liquidity and Capital Resources and “Item 1A.

Risk Factors” for more information.

The current economic climate has increased volatility in the financial markets, which has resulted in a rise in already increasing inflation.

Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some larger tenants have capped the amount of these operating expenses they are responsible for under their lease.

The Federal Reserve has taken measures to suppress inflation by way of benchmark interest rate hikes, resulting in an increase in interest rates.

As of December 31, 2022, approximately 91% of our outstanding debt is fixed rate, with the remaining 9% indexed to LIBOR, SOFR or the Prime Rate, plus an applicable margin per the loan agreement.

We utilize interest rate derivative agreements to hedge the effect of rising interest rates on our variable rate debt.

As of December 31, 2022, we were counter-party to one interest rate swap agreement and one interest rate cap agreement, both of which qualify for, and are designated as, hedging instruments.

While we have not experienced any material adverse effects at this time, we are actively managing our business to respond to the ongoing economic and social impact from such events.

See “Risk Factors” in Part I, Item 1A for more information.

The following provides an overview of our key non-GAAP measures based on our consolidated results of operations (refer to NOI, same-property NOI and Funds From Operations applicable to diluted common shareholders (“FFO”) described later in this section):

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Net income for the year ended December 31, 2022 was $47.3 million, compared to net income of $107.8 million for the year ended December 31, 2021.

The following table summarizes certain line items from our consolidated statements of income that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2021 as compared to the same period of 2020:

The following table summarizes certain line items from our consolidated statements of income and comprehensive income that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2022 as compared to the same period of 2021:

For the year Ended December 31,

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Total revenue $ 397,938 $ 425,082 $ (27,144)

Depreciation and amortization 98,432 92,331 6,101

Real estate taxes 61,864 63,844 (1,980)

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General and administrative 43,087 39,152 3,935

Casualty and impairment loss, net 468 3,055 (2,587)

Gain on sale of real estate 353 18,648 (18,295)

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Interest and debt expense 58,979 57,938 1,041

Gain on extinguishment of debt — 34,908 (34,908)

Income tax (benefit) expense 1,139 (38,996) 40,135

Total revenue increased by $95.0 million to $425.1 million in the year ended December 31, 2021 from $330.1 million in the year ended December 31, 2020.

The increase is primarily attributable to:

• $44.7 million accelerated amortization of below-market intangible liabilities in connection with the termination of our Kmart and Sears leases, effective October 15, 2021;

• $30.0 million decrease in rental revenue deemed uncollectible;

• $11.3 million increase in straight-line rent driven by write-offs of receivables arising from the straight-lining of rents for tenants put on cash basis during 2020 compared to a reinstatement of straight-line balances, net of write-offs, during 2021;

Income tax expense 2,903 1,139 1,764

Total revenue decreased by $27.1 million to $397.9 million in the year ended December 31, 2022 from $425.1 million in the year ended December 31, 2021.

The decrease is primarily attributable to:

• $47.5 million decrease in non-cash revenues driven by accelerated amortization of below-market intangible liabilities in connection with certain lease terminations in 2021;

• $0.8 million decrease in management and development fee income;

• $16.2 million increase as a result of property acquisitions net of dispositions;

• $0.2 million increase in management and development fee income and tenant bankruptcy settlement income;

• $1.8 million net decrease in property rentals and tenant reimbursements due to lease terminations and modifications, partially offset by rent commencements and contractual rent increases.

Real estate tax expense increased by $3.8 million to $63.8 million in the year ended December 31, 2021 from $60.0 million in the year ended December 31, 2020.

• $3.2 million decrease in rental revenue deemed uncollectible;

• $1.8 million net increase in property rentals and tenant reimbursements due to rent commencements, contractual rent increases and higher tenant sales.

Depreciation and amortization increased by $6.1 million to $98.4 million in the year ended December 31, 2022 from $92.3 million in the year ended December 31, 2021.

The increase is primarily attributable to:

• $9.7 million increase as a result of property acquisitions net of dispositions;

• $3.6 million decrease due to assets taken out of service for active redevelopment projects and write-offs of fully depreciated assets and lease intangibles as a result of lease terminations and recurring depreciation.

Real estate tax expense decreased by $2.0 million to $61.9 million in the year ended December 31, 2022 from $63.8 million in the year ended December 31, 2021.

The decrease is primarily attributable to:

• $2.4 million decrease as a result of successful tax appeals and lowered assessments;

• $1.0 million of real estate taxes capitalized in connection with redevelopment projects.

• $2.1 million of real estate taxes capitalized in connection with active development, redevelopment and anchor repositioning projects;

• $2.5 million increase as a result of property acquisitions net of dispositions.

Property operating expenses increased by $5.8 million to $74.3 million in the year ended December 31, 2022 from $68.5 million in the year ended December 31, 2021.

The increase is primarily attributable to:

• $6.7 million increase in common area maintenance expenses across the portfolio as a result of spend reductions and limited center hours due to COVID-19 interruptions during 2020;

• $3.0 million higher common area maintenance expenses across the portfolio as a result of increased repairs and maintenance, utility usage, cleaning, and landscaping at our properties in 2022 and spend reductions in 2021;

• $2.8 million increase as a result of property acquisitions net of dispositions.

General and administrative expenses decreased by $9.5 million to $39.2 million in the year ended December 31, 2021 from $48.7 million in the year ended December 31, 2020.

The decrease is primarily attributable to:

General and administrative expenses increased by $3.9 million to $43.1 million in the year ended December 31, 2022 from $39.2 million in the year ended December 31, 2021.

The increase is primarily attributable to:

• $2.5 million of executive transition costs including accelerated amortization of unvested equity awards recognized during 2022;

• $5.4 million decrease in transaction costs related to the Puerto Rico legal entity restructuring and debt refinancing in 2020, offset by;

• $3.1 million increase in payroll, transaction, severance, and other expenses.

We recognized a casualty and impairment loss, net of $0.5 million, in the year ended December 31, 2021 attributable to real estate impairment charges recognized against the carrying value of one property and one ground lease, each of which were disposed of during the year.

We recognized a casualty and impairment loss, net of $3.1 million, in the year ended December 31, 2020 attributable to a real estate impairment charge recognized against the carrying value of one property.

We recognized a gain on sale of real estate of $18.6 million in the year ended December 31, 2021 due to the sale of three operating properties and one property parcel.

We recognized a gain on sale of real estate of $39.8 million in the year ended December 31, 2020 due to the sale of three operating properties.

Interest income decreased by $2.2 million to $0.4 million in the year ended December 31, 2021 from $2.6 million in the year ended December 31, 2020.

The decrease is primarily attributable to a lower cash balance and a decrease in interest rates.

Interest and debt expense decreased by $13.1 million to $57.9 million in the year ended December 31, 2021 from $71.0 million in the year ended December 31, 2020.

The decrease is primarily attributable to:

• $8.1 million decrease due to the troubled debt restructuring on our mortgage at Las Catalinas Mall in Puerto Rico in December 2020, subsequent to which we recognized interest payments as a reduction of the carrying value of the loan and not as interest expense;

• $2.0 million decrease due to the $250 million draw on the Company’s revolving credit agreement in March 2020, with the borrowings fully repaid in November 2020;

• $1.3 million increase in capitalized interest due to the activation of redevelopment projects during 2021;

• $0.9 million decrease in interest on variable-rate debt due to lower interest rates;

• $0.8 million decrease as a result of the refinancing of the mortgage secured by The Outlets at Montehiedra in June 2020.

We recognized a gain on extinguishment of debt of $34.9 million in the year ended December 31, 2020 as a result of the refinancing of the mortgage secured by The Outlets at Montehiedra, consisting of the forgiveness of the $30 million junior loan plus accrued interest of $5.4 million, offset by the write-off of $0.4 million of unamortized deferred financing fees and $0.1 million of transaction costs.

Income tax expense of $1.1 million was recognized in the year ended December 31, 2021 compared to a $39.0 million tax benefit in the year ended December 31, 2020.

The increase is primarily attributable to the tax impact of the mortgage refinancing and legal entity restructuring transactions related to our malls in Puerto Rico in 2020, partially offset by state and local income tax expense resulting from tax strategies implemented to limit the impact from the cancellation of debt at The Outlets at Montehiedra on the Company’s U.S.

federal taxable income.

• $1.4 million increase in professional fees, marketing, transaction and other expenses.

A gain on the sale of real estate of $0.4 million was recognized in 2022 in connection with the release of escrow funds related to a property disposed of in a prior period.

We recognized a gain on sale of real estate of $18.6 million in 2021 related to the sale of three properties and one property parcel.

Interest income increased by $0.7 million to $1.1 million in the year ended December 31, 2022 from $0.4 million in the year ended December 31, 2021.

The increase is primarily attributable to an increase in interest rates on our cash deposits.

Interest and debt expense increased by $1.0 million to $59.0 million in the year ended December 31, 2022 from $57.9 million in the year ended December 31, 2021.

The increase is primarily attributable to:

• $4.3 million increase in interest expense in connection with the mortgage loans obtained for the acquisitions of Woodmore Towne Centre in December 2021 and The Shops at Riverwood in June 2022;

• $3.1 million increase in interest expense due to higher rates on our variable rate loans and the refinancing of our mortgage loans at Plaza at Cherry Hill and Plaza at Woodbridge in the second quarter of 2022;

• $6.4 million increase in capitalized interest expense due to an increase in active development, redevelopment and anchor repositioning projects.

Income tax expense increased by $1.8 million to $2.9 million in the year ended December 31, 2022 from $1.1 million in the year ended December 31, 2021.

The increase is primarily attributable to the performance of our properties in Puerto Rico and final adjustments to state and local income taxes in 2021.

Comparison of the Year Ended December 31, 2021 to December 31, 2020

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Same-property NOI increased by $8.2 million, or 4.1%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Same-property NOI results for the year ended December 31, 2020 were negatively impacted by rental revenue deemed uncollectible primarily due to the COVID-19 pandemic.

Same-property NOI, including properties in redevelopment, increased by $6.4 million, or 2.9%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The comparability of results for the years ended December 31, 2022 and 2021 were impacted by the write-off and subsequent collection of rental revenues previously deemed uncollectible, as well as lease modifications executed in 2021.

The following table reconciles net income to NOI and same-property NOI for the years ended December 31, 2022 and 2021.

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Net income $ 47,339 $ 107,815

Management and development fee income from non-owned properties (1,169) (1,283)

Other expense (125) (561)

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Interest and debt expense 58,979 57,938

Gain on extinguishment of debt — (34,908)

Income tax (benefit) expense 1,139 (38,996)

Income tax expense 2,903 1,139

Non-cash revenue and expenses (1)

(8,257) (55,463)

NOI 240,898 223,811

Sunrise Mall net operating loss 2,544 3,031

Tenant bankruptcy settlement income and lease termination income (822) (1,313)

Real estate tax settlements related to prior periods (2)

Non-same property NOI and other (3)

(31,117) (23,687)

Tenant bankruptcy settlement income and lease termination income (1,313) (1,094)

Same-property NOI $ 210,062 $ 201,842

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Same-property NOI including properties in redevelopment $ 229,116 $ 222,757

(1) Amount for the year ended December 31, 2021 includes accelerated amortization of $45.9 million of below-market intangible liabilities (classified within rental revenue in the consolidated statements of income and comprehensive income).

(2) NOI for the year ended December 31, 2022 includes $1.4 million of prior year real estate tax adjustments for the settlement of successful appeals.

(3) Non-same property NOI includes NOI related to properties being redeveloped and properties acquired or disposed in the period.

Amounts for 2021 include Sunrise Mall which generated a net loss of $3.0 million for the year ended December 31, 2021.

These amounts reflect the total loss on the property and include the portion pertaining to the noncontrolling interest in Sunrise Mall.

Funds From Operations

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We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (‘‘Nareit’’) definition.

Nareit defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT, impairments on depreciable real estate or land related to a REIT's main business, and rental property depreciation and amortization expense.

Nareit defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT, impairments on depreciable real estate or land related to a REIT's main business, earnings from consolidated partially owned entities, and rental property depreciation and amortization expense.

We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period to period both internally and among our peers because this non-GAAP measure excludes net gains on sales of depreciable real estate, real estate impairment losses, rental property depreciation and amortization expense which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions.

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Our properties have historically prov ided us with a relatively consistent stream of cash flow that enables us to pay operating expenses, debt service and recurring capital expenditures.

During the year ended December 31, 2020, the COVID-19 pandemic had an adverse impact on our short-term cash flow by affecting our tenants’ ability to pay rent, however, our collection rates have returned to pre-pandemic levels and we have collected 98% of base rents billed during the year ended December 31, 2021 .

Other sources of liquidity to fund cash requirements include proceeds from financings, equity offerings and asset sales.

Additionally, we have a $600 million revolving credit agreement with certain financial institutions which has a maturity date of January 29, 2024 and includes two six-month extension options.

See Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our short-term cash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, general & administrative expenses, expenditures related to leasing activity and distributions to shareholders and unitholders of the Operating Partnership.

Additionally, we have an $800 million revolving credit agreement with certain financial institutions which has a maturity date of February 9, 2027 and includes two six-month extension options.

See Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information on our revolving credit agreement.

Our short-term cash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, general and administrative expenses, expenditures related to leasing activity and distributions to shareholders and unitholders of the Operating Partnership.

Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.

We have approximately $329 million of debt maturing within the next 12 months related to mortgage loans encumbering three of our properties and are actively exploring our options to refinance them.

At December 31, 2022, we had cash and cash equivalents, including restricted cash, of $128.8 million and no amounts drawn on our $800 million revolving credit agreement.

These amounts are readily available to fund the debt obligations discussed above which are coming due within the next year.

Summary of Cash Flows

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Net cash provided by operating activities primarily consists of cash inflows from rental revenue and cash outflows for property operating expenses, general and administrative expenses and interest and debt expense.

Net cash provided by operating activities for the year ended December 31, 2021 increased by $22.5 million as compared to December 31, 2020, due to the improved collection rates on property rentals and tenant expense reimbursements in 2021 and collection of previously billed and deferred amounts from 2020.

Net cash provided by operating activities for the year ended December 31, 2022 increased by $4.3 million as compared to December 31, 2021, due to new lease commencements and collection of previously billed and deferred amounts from 2021.

Investing Activities

Net cash flow used in investing activities is impacted by the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.

Net cash used in investing activities for the year ended December 31, 2021, increased by $212.7 million compared to December 31, 2020 due to a (i) $128.3 million increase in cash used for acquisitions, (ii) $66.9 million increase in cash used for real estate development and capital improvements, and (iii) $17.5 million decrease in cash provided by the sale of properties and operating leases.

Net cash used in investing activities is impacted by the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.

Net cash used in investing activities for the year ended December 31, 2022, decreased by $159.2 million compared to December 31, 2021 due to a (i) $216.4 million decrease in cash used for acquisitions, offset by (ii) $36.5 million decrease in cash provided by the sale of properties and operating leases, and (iii) $20.7 million increase in cash used for real estate development and capital improvements.

The Company has 25 active development, redevelopment or anchor repositioning projects with total estimated costs of $216.0 million, of which $56.3 million has been incurred and $159.7 million remains to be funded as of December 31, 2022.

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Total capital expenditures $ 116,044 $ 95,377

Development and redevelopment costs includes $20 million incurred by the Company to terminate its three remaining leases with Kmart and Sears at Bruckner Commons, The Outlets at Montehiedra, and Sunrise Mall, effective October 15, 2021.

Controlling these anchor spaces is a critical aspect of the plans the Company has under way to reposition and redevelop these spaces with uses that appeal to the respective communities where the properties are located.

Financing Activities

Net cash flow used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership as well as principal and other payments associated with our outstanding indebtedness.

Net cash used in financing activities for the year ended December 31, 2021, decreased by $56.7 million from the year ended December 31, 2020 due to (i) $71.1 million decrease in debt repayments primarily related to the mortgage refinancing on our Puerto Rico property in 2020, (ii) $54.1 million of cash paid to repurchase common shares in 2020, (iii) $27.0 million increase in proceeds from borrowings under mortgage loans, (iv) $3.5 million decrease in cash used to issue debt, (v) $1.2 million decrease in tax withholdings on vested restricted stock, and (vi) $0.8 million increase in cash contributed by noncontrolling interests, offset by (vii) $101.0 million increase in distributions paid to partners due to the temporary suspension of dividends during 2020 and the declaration of a special dividend in the fourth quarter of 2020, paid in January 2021.

On May 5, 2021 we established an at-the-market equity program (the “ATM Program”), pursuant to which we may offer and sell common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250 million.

Net cash used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership as well as principal and other payments associated with our outstanding indebtedness.

Net cash used in financing activities for the year ended December 31, 2022, increased by $55.2 million from the year ended December 31, 2021 primarily due to (i) $80.2 million increase in debt repayments primarily related to the refinancing of the mortgage loans encumbering Plaza at Cherry Hill and Plaza at Woodbridge in 2022, (ii) $13.8 million decrease in proceeds from borrowings under mortgage loans, (iii) $7.3 million of deferred financing fees paid in 2022 in connection with the increase and extension of our line of credit under our revolving credit agreement and the refinancing of our loans at Plaza at Cherry Hill and Plaza at Woodbridge, and (iv) $4.6 million decrease in cash contributed by noncontrolling interests, offset by (v) $50.7 million decrease in distributions paid to shareholders and unitholders of the Operating Partnership for the declaration of a special dividend in the fourth quarter of 2020, paid in January 2021.

On June 23, 2022, in conjunction with the refinancing of the mortgage loan encumbering our property Plaza at Woodbridge, we entered into an interest rate cap agreement (the “Cap Agreement”) with a third party to limit the maximum SOFR of our floating rate debt to 3%.

On the date of the Cap Agreement, we elected to designate cash flow hedge accounting for this derivative instrument.

Refer to Note 3 and Note 9 in Part II, Item 8 of this Annual Report on Form 10-K for more information related to derivatives and hedging.

On August 9, 2022, we amended and restated our revolving credit agreement to, among other things, increase the available amount under the facility by $200 million to $800 million and extend the maturity date to February 9, 2027, with two six-month extension options.

Borrowings under the credit facility may be used to finance pre-development costs, development costs, acquisitions, working capital, equity investments, debt investments, capital expenditures and repayment of indebtedness, to pay fees and expenses incurred in connection with the amended and restated revolving credit agreement and for other general corporate purposes.

As of December 31, 2022, there were no amounts drawn on the facility.

Refer to Note 6 in Part II, Item 8 of this Annual Report on Form 10-K for more information related to our revolving credit agreement.

On August 15, 2022, we entered into an equity distribution agreement with various sales agents, pursuant to which we may offer and sell common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250 million (the “ATM Program”).

The ATM Program replaces the Company’s previous at-the-market program established in June 2021.

As of December 31, 2022 we have not issued any common shares under the ATM Program.

Refer to Part II, Item 8 Equity and Noncontrolling Interest for more information related to this program.

Refer to Note 14 , Equity and Noncontrolling Interest, in Part II, Item 8 of this Annual Report on Form 10-K for more information related to this program.

Contractual Obligations

We have contractual obligations related to our mortgage loans described further in Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

We have contractual obligations related to our mortgage loans that are both fixed and variable.

Our variable rate loans bear interest at a floating rate based on LIBOR, SOFR and the Prime Rate plus an applicable margin ranging from 0.5% to 2.26%.

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.

We do not anticipate that the discontinuation of LIBOR will impact our ability to borrow or maintain already outstanding borrowings, but it could result in higher interest rates and accordingly, higher costs of borrowing to us.

Further information on our mortgage loans can be found in Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

In addition, we have contractual obligations for certain properties that are subject to long-term ground and building leases where a third party owns and has leased the underlying land to us.

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We believe that cash flows from our current operations, cash on hand, our line of credit under our revolving credit agreement, the potential to refinance our loans and our general ability to access the capital markets will be sufficient to finance our operations and fund our obligations in both the short-term and long-term.

Cybersecurity

Cybersecurity is an integral part of the Board of Trustees’ and the Audit Committee’s risk analysis and discussions with management.

As we see increased reliance on information technology in the workplace and our business operations, and a shift to remote and hybrid work schedules, Urban Edge has employed several measures to mitigate cyber risks.

In addition to a dedicated information technology and cybersecurity team monitoring our daily operations, the Company engages an independent third-party cybersecurity team for advisory services and penetration testing.

We also have a Cyber Risk Committee which works in conjunction with the Computer Incident Response Team (“CIRT”) to develop strategies to mitigate risks and to address any cyber issues that may arise.

The Cyber Risk Committee meets quarterly to review emerging threats, controls, and procedures.

We utilize a risk-based approach following the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (CSF), and Microsoft best practices.

Our policies and procedures are reviewed and updated annually by the Cyber Risk Committee and incorporate third-party assessments to benchmark ourselves against industry standards.

The Company utilizes advanced endpoint protection, firewalls, intrusion detection and prevention, threat intelligence, security event logging and correlation, and backup and redundancy systems.

The Company also has cybersecurity coverage incorporated in its insurance policies.

We apprise employees of emerging risks and require them to undergo quarterly security awareness trainings.

Additionally, we conduct internal phishing and other exercises to gauge the effectiveness of the trainings and assess the need for additional training.

Termination of Management Agreements with Vornado

In connection with the Company’s spin-off from Vornado Realty Trust (“Vornado”) in January 2015, the Company and Vornado entered into management agreements under which the Company provided management, development, leasing and other services to certain properties owned by Vornado and its affiliates, including Interstate Properties (“Interstate”), a partnership in which Steven Roth, Chairman of the Board and Chief Executive Officer of Vornado and a member of our Board of Trustees, is the managing general partner, and Alexander’s, Inc., a company that Vornado owns a material interest in.

Effective March 31, 2022, the Company and Vornado agreed to terminate these management agreements.

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 7. Management’s Discussion and Analysis