What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-14 compared with 2023-02-14 · 148 added, 130 removed, 248 unchanged (53% of the section changed)

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Urban Edge Properties (“UE”, “Urban Edge”, or the “Company”) (NYSE:

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

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

to Boston corridor.

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The VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest.

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.

As of December 31, 2023, our portfolio was comprised of 17.1 million square feet including 71 shopping centers, two outlet centers, two malls and one industrial building.

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.

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 an increase in demand for space.

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.

Microeconomic and macroeconomic conditions have caused volatility in the financial markets, and a rapid rise in inflation since the beginning of 2022.

The Federal Reserve took measures to mitigate the impact of inflation by raising its benchmark interest rate several times throughout 2022.

While the rate hikes enacted by the Federal Reserve had a significant impact on interest rates and increased the cost of borrowing, we continued to see consumer confidence remain strong providing support for retail real estate.

The demand for retail spaces was strong as evidenced by the record number of new leases we executed in 2022.

In 2023, the Federal Reserve continued its interest rate hikes raising the benchmark rate to above 5%.

These rate increases proved to be successful in reducing inflation beginning in the second quarter of 2023.

While inflation has decreased compared to the prior year, it remains at an elevated level relative to the years preceding 2021.

Despite the volatility in interest rates, we were able to complete the largest single asset refinancing in Company history with a new $290 million, 6.3% mortgage on Bergen Town Center on favorable terms compared to similar assets in the market.

Our leasing activity remained strong in 2023, signing a record volume of leases in the fourth quarter and generating an average cash rent spread of 24% on new leases for the year.

We expect to continue to add value to our portfolio through executing our leasing pipeline, active development, redevelopment and anchor repositioning projects, commencing leases signed but not yet opened and identifying additional capital recycling opportunities.

2023 Highlights

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;

• Signed 64 new leases totaling approximately 486,201 square feet, including 49 new leases on a same-space (1) basis totaling 418,322 square feet at an average rental rate of $29.64 per square foot on a GAAP basis and $27.86 per square foot on a cash basis, resulting in average rent spreads of 39.0% on a GAAP basis and 24.2% on a cash basis;

• Renewed or extended 110 leases totaling 1,519,738 square feet, all of which are on a same-space (1) basis, at an average rental rate of $24.35 per square foot on a GAAP basis and $23.95 per square foot on a cash basis, generating average rent spreads of 10.2% on a GAAP basis and 8.4% 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.

• Completed 11 development, redevelopment and anchor repositioning projects, aggregating $58.6 million, seven of which stabilized during the fourth quarter, highlighted by the opening of Sector Sixty6 at Shops at Caguas in October 2023;

• Activated 12 development, redevelopment, and anchor repositioning projects aggregating $60.9 million, expected to generate an approximate 20% unleveraged yield;

• Refinanced the $300 million mortgage secured by the Outlets at Bergen Town Center with a 7-year, $290 million loan at a fixed rate of 6.3%;

• Refinanced the $117 million outstanding mortgage secured by Shops at Caguas (formerly Las Catalinas Mall) with a 10-year, $82 million loan at a fixed rate of 6.6%.

The proceeds were used in conjunction with exercising the discounted payoff option of the previous mortgage on the property which had a carrying value of $117 million and resulted in the recognition of a $43 million gain on the extinguishment of debt;

• Acquired two properties, Shoppers World and Gateway Center, for a total purchase price of $312.2 million inclusive of transaction costs.

The properties, located in the greater Boston area, total 1,392,000 square feet and provide us with critical mass in the Boston market;

• Sold two properties and one property parcel for an aggregate sales price of $318 million.

The two property sales were structured as part of a 1031 exchange with the Boston acquisitions to allow for the deferral of capital gains for income tax purposes.

(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;

• Adding essential tenants to our properties and positioning our retail environments with a mix of high-quality tenants including grocers, discounters, premium healthcare operators and elevated food offerings;

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

• Managing and monitoring property operating and general and administrative expenses and identifying opportunities for savings;

• 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;

• Expediting the delivery of space to tenants and the collection of rents from executed leases that have not yet commenced;

• Generating additional income from our existing assets by redeveloping underutilized existing space, developing new space and pad sites, repositioning anchors, and incorporating non-retail uses such as industrial, self-storage, office and other uses;

• Acquiring assets that meet our investment criteria.

There can be no assurance that we will be able to execute on our growth strategy, especially given the ongoing economic uncertainty.

• Generating additional income from our existing assets by redeveloping underutilized existing space, repositioning anchors, and monetizing unused land by developing new spaces and pad sites and researching additional income producing uses;

• Recycling capital by divesting non-retail and smaller assets in non-core markets and acquiring assets that meet our investment criteria in our target markets.

There can be no assurance that we will be able to execute on our growth strategy.

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

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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

Rental revenue comprises revenue from fixed and variable lease payments, as designated within tenant operating leases .

Components of this include contractual rents arising from tenant operating lease agreements, tenant expense reimbursements, and straight-line rental income.

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 and comprehensive 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.

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

These assessments are inherently sensitive as they are based on the judgement of management and information available at the time of evaluation.

We routinely reassess the quantitative and qualitative factors used to derive these estimates and believe the methods and assumptions noted above to be reasonable in evaluating collectibility.

We have not had any changes to the methods or assumptions used to evaluate collectibility.

Although we routinely reassess these estimates, taking into consideration all information available and future projections, they are subject to uncertainty and have a direct impact on our net income.

Actual results may differ from these estimates and can have a material impact on our operating results.

Real Estate - Estimates Related to Valuing Acquired Assets and Liabilities

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Real Estate - Estimates Related to Impairments

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

Our properties are individually evaluated for impairment quarterly, and whenever events or changes in circumstances 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 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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Estimates are subjective and may change if additional damage is later assessed or if future cash flows are revised.

During the year ended December 31, 2022, we have had no changes to the methods or assumptions used in our analyses of fair value of our real estate assets and have not incurred any material impairment losses.

During 2023, we recognized a $34.1 million impairment charge related to one of our properties located in Brooklyn, NY.

Further information on impairments can be found in Part II, Item 8, Note 9 of this Annual Report on Form 10-K.

We have had no changes to the methods or assumptions used in our analyses of fair value of our real estate assets during the year ended December 31, 2023.

We operate in a business that has significant investments in real estate and our estimates of valuation are subject to current market conditions and tenant operations, which drive future cash flows, and are beyond our control.

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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.

During June 2023, the Company entered into loan amendments to transition its four LIBOR-based loans to SOFR.

The amendments went into effect July 2023 and did not have a material impact on the loans affected.

In August 2023, FASB issued ASU 2023-05 Business Combinations - Joint Venture Formation (Subtopic 805-60):

Recognition and Initial Measurement , which provides an update to the accounting treatment of joint ventures upon formation.

This update requires companies to measure assets and liabilities contributed to joint ventures at fair value at the time of formation and has an effective date of January 1, 2025.

The update is to be applied prospectively, with a retrospective option for previously formed joint ventures.

The Company has not elected retrospective application for its previously formed joint ventures and has no new joint ventures impacted by this update.

In November 2023, FASB issued ASU 2023-07 Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which provides for additional disclosures as they relate to a Company’s segments.

Additional requirements per the update include disclosures for significant segment expenses, measures of profit or loss used by the Chief Operating Decision Maker and how these measures are used to allocate resources and assess segment performance.

The amendments in this ASU will also apply to entities with a single reportable segment and is effective for all public entities for fiscal years beginning after December 15, 2023.

The Company is evaluating the impact of this update on its disclosures and will apply the required amendments in its December 31, 2024 Annual report on Form 10-K.

In December 2023, FASB issued ASU 2023-09 Income Tax (Topic 740):

Improvements to Income Tax Disclosures which provides for additional disclosures for rate reconciliations, disaggregation of income taxes paid, and other disclosures.

The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2024.

The Company is evaluating the impact of this update and will adopt the amendments in our December 31, 2025 Annual Report on Form 10-K.

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.

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

On July 26, 2023, the SEC issued Final Rule Release No.

33-11216, Cybersecurity Risk Management, Strategy Governance, and Incident Disclosure.

This rule, effective on December 15, 2023, adopts amendments to Regulation S-K and adds Item 1C.

Cybersecurity be provided in Part I of Form 10-K.

The main provisions of the amendments require companies to provide disclosure around their risk management, strategy and governance as it relates to cybersecurity to give investors insight into the processes and policies in place.

These amendments were adopted in our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

Additionally, see Note 7 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recent amendments to the Internal Revenue Code.

Additionally, see Note 7 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recent amendments to the Code.

Results of Operations

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

During 2021 and 2022, inflation levels were elevated resulting in increased costs for certain goods and services.

Inflation began to decrease in the second quarter of 2023 but still remains at elevated levels compared to the years preceding 2021.

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.

Throughout 2022 and the first half of 2023, the Federal Reserve raised the benchmark interest rate to mitigate rising inflation, resulting in an increase in the cost of borrowing.

As of December 31, 2023, approximately 84% of our outstanding debt is fixed rate, with the remaining 16% indexed to SOFR, plus an applicable margin per the respective loan agreements.

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

As of December 31, 2023, we were counterparty to one interest rate swap agreement and one interest rate cap agreement, both of which qualify for, and are designated as, hedging instruments.

We are actively managing our business to respond to the economic and social impact from events such as those described above.

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

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Net income for the year ended December 31, 2023 was $259.9 million, compared to net income of $47.3 million for the year ended December 31, 2022.

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:

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 changed significantly in the year ended December 31, 2023 as compared to the same period of 2022:

For the Year Ended December 31,

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General and administrative 37,070 43,087 (6,017)

Real estate impairment loss 34,055 — 34,055

Gain on sale of real estate 217,708 353 217,355

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Interest and debt expense 74,945 58,979 15,966

Gain on extinguishment of debt 41,144 — 41,144

Income tax expense 17,800 2,903 14,897

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;

Total revenue increased by $19.0 million to $416.9 million in the year ended December 31, 2023 from $397.9 million in the year ended December 31, 2022.

The increase is primarily attributable to:

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

• $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.

• $9.7 million increase in other income primarily driven by a litigation settlement payment received in the fourth quarter of 2023;

• $1.6 million increase in property rentals and tenant reimbursements due to rent commencements and contractual rent increases, partially offset by tenant vacates;

• $1.2 million increase in non-cash revenues driven by accelerated amortization of below-market intangible liabilities in connection with certain lease terminations in 2023;

• $3.2 million increase in rental revenue deemed uncollectible.

Depreciation and amortization increased by $10.5 million to $109.0 million in the year ended December 31, 2023 from $98.4 million in the year ended December 31, 2022.

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• $6.3 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;

• $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.

• $4.2 million increase due to assets placed in service for completion of redevelopment projects during the year.

Real estate tax expense increased by $3.0 million to $64.9 million in the year ended December 31, 2023 from $61.9 million in the year ended December 31, 2022.

The increase is primarily attributable to:

• $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;

• $2.3 million increase as a result of successful tax appeals and lowered assessments in 2022 and higher assessments, net of successful appeals in 2023;

• $1.3 million increase as a result of property acquisitions net of dispositions;

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;

• $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.

• $0.6 million increase in capitalized real estate taxes due to the commencement of development, redevelopment and anchor repositioning projects, offset by project completions.

Property operating expenses decreased by $5.8 million to $68.6 million in the year ended December 31, 2023 from $74.3 million in the year ended December 31, 2022.

The decrease is primarily attributable to:

• $7.0 million lower common area maintenance expenses across the portfolio as a result of lower snow removal, utilities, and repairs and maintenance at our properties in 2023;

• $1.2 million increase as a result of property acquisitions net of dispositions.

General and administrative expenses decreased by $6.0 million to $37.1 million in the year ended December 31, 2023 from $43.1 million in the year ended December 31, 2022.

The decrease is primarily attributable to lower employment expenses, professional fees and transaction costs.

We recognized a real estate impairment loss of $34.1 million in the first quarter of 2023, reducing the carrying value of an office and retail property located in Brooklyn, NY.

A gain on sale of real estate of $217.7 million was recognized in 2023 related to the sale of two properties and one property parcel.

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

Interest income increased by $1.9 million to $3.0 million in the year ended December 31, 2023 from $1.1 million in the year ended December 31, 2022.

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

The increase is attributable to higher average cash balances and higher interest rates on our deposits.

Interest and debt expense increased by $16.0 million to $74.9 million in the year ended December 31, 2023 from $59.0 million in the year ended December 31, 2022.

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;

• $11.0 million increase due to financings and refinancings of mortgage loans, net of repayments;

• $3.7 million increase due to higher rates on our variable rate mortgage loans;

• $3.2 million increase due to a draw on our line of credit to finance the acquisition of two properties in the fourth quarter of 2023;

• $0.7 million increase in amortization of deferred financing costs related to debt transactions during 2023;

• $2.6 million increase in capitalized interest expense due to an increase in active development, redevelopment and anchor repositioning projects.

We recognized a $41.1 million gain on the extinguishment of debt for the year ended December 31, 2023 attributable to the Shops at Caguas loan refinancing in August 2023, partially offset by a loss on extinguishment of debt related to the early payoff of three mortgage loans during the year.

Income tax expense increased by $14.9 million to $17.8 million in the year ended December 31, 2023 from $2.9 million in the year ended December 31, 2022.

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.

The increase was primarily driven by an income tax expense recognized in the third quarter of 2023 related to the Shops at Caguas loan refinancing in August 2023.

Comparison of the Year Ended December 31, 2022 to December 31, 2021

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NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others.

We calculate same-property NOI using net income as defined by GAAP reflecting only those income and expense items that are reflected in NOI (as described above) and excluding properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service, and also excluding properties acquired or sold during the periods being compared.

We also exclude for the following items in calculating same-property NOI:

lease termination fees, bankruptcy settlement income, and income and expenses that we do not believe are representative of ongoing operating results, if any.

As such, same-property NOI assists in eliminating disparities in net income due to the development, redevelopment, acquisition or disposition of properties during the periods presented, and thus provides a more consistent performance measure for the comparison of the operating performance of the Company’s properties, which the Company believes to be useful to investors.

As such, same-property NOI assists in eliminating disparities in net income due to the development, redevelopment, acquisition, disposition or foreclosure of properties during the periods presented, and thus provides a more consistent performance measure for the comparison of the operating performance of the Company’s properties, which the Company believes to be useful to investors.

Same-property NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others.

Throughout this section, we have provided certain information on a “same-property” basis which includes the results of operations that were owned and operated for the entirety of the reporting periods being compared, which total 66 properties for the years ended December 31, 2023 and 2022.

Information provided on a same-property basis excludes properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service and also excludes properties acquired or sold during the periods being compared.

While there is judgment surrounding changes in designations, a property is removed from the same-property pool when a property is considered to be a redevelopment property because it is undergoing significant renovation or retenanting pursuant to a formal plan and is expected to have a significant impact on property operating income based on the retenanting that is occurring.

While there is judgment surrounding changes in designations, a property is removed from the same-property pool

when a property is considered to be a redevelopment property because it is undergoing significant renovation or retenanting pursuant to a formal plan and is expected to have a significant impact on property operating income based on the retenanting that is occurring.

A development or redevelopment property is moved back to the same-property pool once a substantial portion of the NOI growth expected from the development or redevelopment is reflected in both the current and comparable prior year period, generally one year after at least 80% of the expected NOI from the project is realized on a cash basis.

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Same-property NOI, including properties in redevelopment, increased by $5.6 million, or 2.5%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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, 2023 and 2022.

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Net income $ 259,876 $ 47,339

Other expense (125) (561)

Other income (9,097) (125)

Depreciation and amortization 108,979 98,432

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Interest and debt expense 74,945 58,979

Gain on extinguishment of debt (41,144) —

Income tax expense 17,800 2,903

Non-cash revenue and expenses (11,610) (8,257)

(8,257) (55,463)

NOI 250,129 240,898

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Same-property NOI including properties in redevelopment $ 231,638 $ 226,040

(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.

(1) Non-same property NOI includes NOI related to properties being redeveloped and properties acquired, disposed, or that are in the foreclosure process during the periods being compared.

Funds From Operations

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FFO applicable to diluted common shareholders $ 184,438 $ 145,172

(1) Represents earnings allocated to Long-Term Incentive Plan (“LTIP”) and Operating Partnership (“OP”) unitholders for unissued common shares, which have been excluded for purposes of calculating earnings per diluted share for the periods presented because they are anti-dilutive.

(1) Represents earnings allocated to Long-Term Incentive Plan (“LTIP”) and OP unitholders for unissued common shares, which have been excluded for purposes of calculating earnings per diluted share for the periods presented because they are anti-dilutive.

Liquidity and Capital Resources

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

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.

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.

During the year ended December 31, 2023, the Company obtained five letters of credit issued under the Agreement, aggregating $30.1 million, and provided them to mortgage lenders to secure its obligations for certain capital requirements per the respective mortgage agreements.

On October 23, 2023, the Company used its line of credit to partially finance the acquisition of two properties located in the greater Boston area.

As of December 31, 2023 there was approximately $153 million drawn under the Agreement with an available remaining balance of $616.9 million under the facility.

The letters of credit issued under the Agreement have reduced the amount available under the facility but remain undrawn and no separate liability has been recorded in association with them.

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.

In August 2022, the Company entered into an equity distribution agreement with various financial institutions acting as agents, forward sellers, and forward purchasers (the “Equity Distribution Agreement”).

Pursuant to the Equity Distribution Agreement, the Company may from time to time offer and sell, through the agents and forward sellers, the Company’s common shares, par value $0.01 per share, having an aggregate offering price of up to $250 million (the “ATM Program”).

As of December 31, 2023, no common shares had been issued under the ATM Program.

On January 2, 2024, the Company issued 73,550 common shares at a weighted average price of $18.30 per share under the ATM Program, generating net cash proceeds of $1.3 million.

See Note 14 in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding the ATM Program.

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.

As of the date of this filing, we have approximately $70.8 million of debt maturing within the next 12 months related to mortgage loans encumbering two of our properties and are actively exploring our options to refinance or pay at maturity.

At December 31, 2023, we had cash and cash equivalents, including restricted cash, of $174.2 million and $616.9 million available under our 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

Cash and cash equivalents, including restricted cash, was $128.8 million at December 31, 2022, compared to $219.8 million as of December 31, 2021, a decrease of $91.1 million.

Cash and cash equivalents, including restricted cash, was $174.2 million at December 31, 2023, compared to $128.8 million as of December 31, 2022, an increase of $45.5 million.

Our cash flow activities are summarized as follows:

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Net cash used in investing activities (117,702) (151,913)

Net cash used in financing activities (78,767) (23,530)

Net cash provided by (used in) financing activities 161 (78,767)

Operating Activities

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, 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.

Net cash provided by operating activities for the year ended December 31, 2023 increased by $23.4 million as compared to December 31, 2022.

The increase is attributed to a $10 million litigation settlement received in the fourth quarter of 2023, higher rental revenue from new tenant rent commencements and the timing of cash receipts and payments related to tenant collections and operating expenses.

Investing Activities

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.

Net cash used in investing activities for the year ended December 31, 2023 decreased by $34.2 million compared to December 31, 2022.

The increase is attributed to (i) $312.6 million increase in cash provided by the sale of properties and operating leases, and (ii) $0.3 million decrease in cash used for real estate development and capital improvements, offset by (iii) $278.7 million increase in cash used for acquisitions.

The Company has 23 active development, redevelopment or anchor repositioning projects with total estimated costs of $168.1 million, of which $55.9 million has been incurred and $112.2 million remains to be funded as of December 31, 2023.

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Financing Activities

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 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.

Net cash provided by or 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 provided by financing activities for the year ended December 31, 2023, increased by $78.9 million from net cash used in financing activities of $78.8 million for the year ended December 31, 2022.

The increase is primarily due to (i) $366.3 million increase in proceeds from borrowings under mortgage loans, (ii) $309.0 million increase in borrowings under the Company’s unsecured line of credit, and (iii) $0.3 million increase in cash contributed by noncontrolling interests, offset by (iv) $595.6 million increase in debt repayments related to mortgage loans and our unsecured line of credit, and (v) $1.2 million increase of deferred financing fees paid in connection with the financing and refinancing of mortgages during the year.

Financing activity for the year included:

• On December 29, 2023, the Company completed the sale of Freeport Commons and repaid the $43.1 million mortgage secured by the property at closing.

We recognized a $0.8 million loss on extinguishment of debt as a result of the early payoff.

• On November 29, 2023, the Company paid off the $20.6 million mortgage secured by its property, Hudson Mall, which had a maturity date of December 1, 2023 and a fixed interest rate of 5.07%.

• On November 20, 2023, the Company obtained a 6-year, $43.7 million non-recourse mortgage secured by its property Huntington Commons, bearing interest at a fixed rate of 6.29%.

• On October 23, 2023, the Company closed on the acquisitions of Shoppers World and Gateway Center and used its line of credit to partially finance the acquisitions.

As of December 31, 2023, there was $153 million drawn on the credit facility bearing interest at 6.56%.

• On October 20, 2023, the Company completed the sale of its East Hanover Warehouses portfolio and repaid the $40.1 million mortgage secured by the property at closing.

We recognized a $0.6 million loss on extinguishment of debt as a result of the early payoff.

• On August 30, 2023, the Company refinanced its mortgage secured by Shops at Caguas with a new 10-year, $82 million loan at a fixed interest rate of 6.6%.

The proceeds from the new loan were used to pay off the Company’s previous loan, at a discounted amount of $72.5 million, resulting in a gain on extinguishment of debt of $43 million for the year ended December 31, 2023.

• On June 23, 2023, the Company refinanced its mortgage secured by the Shops at Bruckner with a new 6-year, $38 million loan at a fixed interest rate of 6.0%.

The proceeds from the refinancing were used to pay off the outstanding principal balance on the previous loan of approximately $8.7 million.

• On June 23, 2023, the Company used the remaining funds from the Shops at Bruckner refinancing to pay off the $29 million mortgage secured by the Plaza at Cherry Hill, which had a maturity date of June 15, 2025.

• On June 7, 2023, the Company obtained a 10-year, $16 million non-recourse mortgage at fixed interest rate of 6.0% secured by its property, Newington Commons.

• On April 6, 2023, the Company refinanced the mortgage secured by its property, Bergen Town Center, with a 7-year, $290 million loan at a fixed interest rate of 6.30%.

The proceeds from the loan were used to pay off the Company’s previous mortgage on the property which had an outstanding balance of $300 million.

In May 2023, the Company entered into a two-year interest rate cap agreement with a third-party to limit the maximum SOFR of our Plaza at Woodbridge floating rate debt to 3%.

The new cap has an effective date of July 3, 2023 and replaces the previous interest rate cap which expired on July 1, 2023.

The purchase price of the new interest rate cap was $1.1 million and is included in the prepaid expenses and other assets line item of the consolidated balance sheets.

On January 2, 2024, the Company repaid three variable rate loans aggregating $75.7 million with interest rates of 7.34% on the payoff date.

The loans were secured by Hudson Commons, Greenbrook Commons and Gun Hill Commons and were due to mature in the fourth quarter of 2024.

Contractual Obligations

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.

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

Our variable rate loans bear interest at a floating rate based on SOFR plus an applicable margin ranging from 1.10% to 2.26%.

In connection with reference rate reform and the discontinuation of LIBOR, all of our LIBOR-indexed debt has been transitioned to SOFR effective July 2023.

The discontinuation of LIBOR did not have an impact on 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.

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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