URBAN EDGE PROPERTIES
2016 ANNUAL REPORT
March 28, 2017
To Our Shareholders:
We are delighted with our achievements since our spin from Vornado Realty Trust in January
2015. We have established a strong track record built on generating industry-leading operating
results, creating substantial value from development, redevelopment and anchor repositioning
and making smart, strategic acquisitions.
Since the spin, we have:
Increased FFO as Adjusted to $1.27 per share in 2016, a 5% increase over 2015.
•
• Raised the dividend by 10% to $.88 per share on an annualized basis while maintaining a
•
•
•
conservative FFO payout ratio.
Produced same-property cash NOI growth of 4.1% in both 2015 and 2016.
Increased same-property occupancy to 98.0% in 2016, up from 97.2% in 2015 and 96.5%
in 2014.
Increased active development, redevelopment and anchor repositioning projects to $192
million in 2016, up from $123 million in 2015 and $66 million in 2014.
• Acquired four shopping centers and several outparcels in the New York metropolitan area
for $160 million.
• Maintained a fortress balance sheet with a net debt to total capitalization ratio of less than
30% and a net debt to Adjusted EBITDA ratio of 5.5x.
Most importantly, we achieved an 18% total return for shareholders from the date of our spin
through the date of this letter. This result compares to -9% for the Bloomberg Shopping Center
Index, outperformance of 2,700 basis points relative to our shopping center peers.
Our strategy
We own, operate and increase the value of retail real estate in and around urban areas, principally
in the New York metropolitan region. Favorable demographics, supply constraints and barriers to
entry create attractive investment opportunities in our markets. While retail may be overbuilt
across America, there is significant demand for quality space throughout metro New York.
In March 2016, we presented a three-year roadmap to increase our net asset value (NAV) by $5-
$6 per share and to increase our FFO as Adjusted to $1.45-$1.50 per share, each by 2018. We are
on track to achieve those objectives. Our plan reflects increasing same-property NOI by at least
2-3% annually and investing approximately $300 million in development, redevelopment and
anchor repositioning activities. Notable projects include:
• Expanding and remerchandising Bergen Town Center, our largest property and one of the
most productive outlet/value-oriented centers in the country. We are replacing
underperforming retailers with successful, sought after merchants, expanding food
offerings and adding approximately 100,000 square feet (sf) of new space. Our five-year
plan is to grow net operating income by 6% annually, expand in-line sales productivity
from $600 per sf to $800 per sf and increase NAV by at least $200 million.
• Redeveloping the circa-1950 Bruckner Commons in the Bronx where we are investing
over $50 million to completely renovate the center. We are adding the borough’s first
ShopRite and a 50,000 sf, two-level, national off-price retailer.
• Converting Montehiedra Town Center in Puerto Rico to a hybrid outlet/value-oriented
offering by adding Polo, Gap, Puma, Nike and other outlets and by renovating and
expanding the food court and cinema. Since our October 2016 grand reopening, total
sales are up more than 30% and comparable in-line sales are up 15%, remarkable
performance in the face of a tough local economy.
• Using previously vacant land to accommodate new, high-quality retailers and restaurants
including Burlington, Ulta and PetSmart in Garfield, NJ, Petco and La-Z-Boy in North
Plainfield, NJ, Popeyes in Rockaway, NJ and honeygrow and Shake Shack in Marlton,
NJ.
• Adding, expanding and upgrading grocers in existing properties including ShopRite in
Rockaway, NJ, 99 Ranch in Hackensack, NJ, Food Bazaar in North Bergen, NJ, Lidl in
Cherry Hill, NJ and Aldi in the Bronx. We are in active discussions to add grocers to
many of our other properties.
• Upgrading tenants at existing properties including Anthropologie and Z Gallerie in
Walnut Creek, CA and Saks Off Fifth and Forever 21 Red in East Hanover, NJ.
• Recapturing below market leases such as an underperforming 39,000 sf retailer in
Towson, MD released to four national tenants at five times the prior rent. We have many
other below market leases throughout our portfolio that we expect to recapture in advance
of their lease expirations and release at much higher rents.
Acquisitions with value-add components are an important part of our strategy. We have recently
acquired several high-quality properties at attractive prices including:
• Yonkers Gateway Center, Yonkers, NY - fee and leasehold interests in 35 acres of land
underlying a 437,000 sf center anchored by Burlington, Best Buy, DSW, PetSmart and
Alamo Drafthouse Cinema. The property is the largest and most productive shopping
center on Central Avenue, a primary retail corridor in Westchester County.
• Hudson Mall, Jersey City, NJ - a 383,000 sf center anchored by Marshalls, Staples, Toys
“R” Us and Old Navy. The 32-acre property is adjacent to our Hudson Commons
shopping center. When combined with our existing asset, we own 49 acres with 1,800
feet of frontage on Route 440.
Shops at Bruckner, Bronx, NY - the leasehold interest in a 114,000 sf center directly
across from our 387,000 sf Bruckner Commons. We already owned the land and now
control the entire property. Anchors are Marshalls and Old Navy.
•
• Outparcel acquisitions at Bergen Town Center, North Bergen and Lawnside - these
parcels will facilitate redevelopment or expansions at each property.
We have additional acquisitions underway that we expect to conclude later this year.
Competitive advantages
We are one of the largest shopping center owners in the New York metropolitan region. Our 49-
property portfolio in the region would be impossible to replicate because assets of comparable
quality rarely trade in this area. This presence also provides us with unique market knowledge,
merchant relationships and operating efficiencies.
We have broad and deep experience in redeveloping shopping centers. Our in-house developers,
designers, builders, architects, leasing representatives and operators have completed over $2
billion in projects over the past ten years alone.
Our company is large enough to matter, but small enough to grow. Every one of our 118
employees is known and heard. Every center receives intensive attention from me, Bob, Mark
and the rest of our executive team.
Our balance sheet is strong, liquid and flexible. We have one of the lowest debt ratios in the
sector, minimal short-term maturities and no corporate borrowings. Our debt comprises only
nonrecourse, property-level mortgages. We have over $700 million in liquidity with $132 million
of cash at the end of 2016 and nothing outstanding under our recently-expanded $600 million
line of credit.
Lastly, we have the people and balance sheet to take advantage of buying opportunities that arise
in market downturns.
Closing thoughts
Headlines constantly remind us that shopping centers face significant headwinds. Retailers are
failing and closing stores at a rate not seen in recent memory and e-commerce is growing. The
headlines, however, do not tell the full story.
Many merchants are proactively and successfully addressing changing consumer behavior by
providing better value, selection, customer service and omni-channel initiatives and by
reinvesting in their stores. Among them are our top six tenants, Home Depot, Walmart, TJX,
Lowes, Stop & Shop (Ahold) and Best Buy. Collectively this group accounts for more than 25%
of our annualized base rent and all six companies generated positive shareholder returns in each
of the last one, three, five and ten year periods.
Our leasing team is in discussions with multiple retailers interested in our shopping centers
including Costco, Target, Dick’s Sporting Goods, Burlington, Best Buy, Forever 21, Petco,
PetSmart, La-Z-Boy, DSW, Ulta, LA Fitness, Five Below, Starbucks, Whole Foods, ShopRite,
Sprouts, Lidl, Aldi and Trader Joe’s. Together this group plans to open over 2,000 stores in the
next three years. Our 98% same-property occupancy is a great indicator of demand for our
properties.
We are grateful for our outstanding dealmakers and business leaders including Bob Minutoli,
Mark Langer, Michael Zucker, Bernie Schachter, Herb Eilberg, Rob Milton and Jen Holmes.
Urban Edge has an amazing group of employees who tirelessly pay attention to the details that
matter. We have a positive, can-do attitude and are committed to producing superior results. We
also have an extraordinarily experienced, talented and engaged Board of Trustees focused on
creating value for shareholders.
Urban Edge's first two years as a public company have been terrific and our future is bright.
Thank you for investing with us.
Sincerely,
Jeffrey S. Olson
Chairman and Chief Executive Officer
NON-GAAP FINANCIAL MEASURES
The Company uses certain non-GAAP performance measures, in addition to the primary GAAP presentations, as we believe these
measures improve the understanding of the Company's operational results. We continually evaluate the usefulness, relevance,
limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information
to the investing public, and thus such reported measures are subject to change. The Company's non-GAAP performance measures
have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be
considered as supplemental financial results. FFO, FFO as Adjusted, cash NOI, same-property cash NOI, EBITDA and Adjusted
EBITDA are non-GAAP measures commonly used by the Company and investing public to understand and evaluate our operating
results and performance. The Company believes net income is the most directly comparable GAAP financial measure to FFO,
FFO as Adjusted, cash NOI, same-property cash NOI, EBITDA and Adjusted EBITDA. Reconciliations of these measures to net
income have been provided in the tables below.
Reconciliation of Net Income to FFO and FFO as Adjusted
The following table reflects the reconciliation of net income to FFO and FFO as Adjusted for the twelve months ended December
31, 2016. Net income is considered the most directly comparable GAAP measure.
Net income
Less (net income) attributable to noncontrolling interests in:
Operating partnership
Consolidated subsidiaries
Net income attributable to common shareholders
Adjustments:
Gain on sale of real estate
Rental property depreciation and amortization
Limited partnership interests in operating partnership
FFO Applicable to diluted common shareholders(1)
Transaction costs
Tenant bankruptcy settlement income
Benefit related to income taxes
Twelve Months Ended
December 31, 2016
(in thousands)
(per share)(2)
$
96,630
$
0.91
(5,812)
(3)
90,815
(15,618)
55,484
5,812
136,493
1,405
(2,378)
(625)
134,895
$
(0.05)
—
0.86
(0.15)
0.53
0.05
1.29
0.01
(0.02)
(0.01)
1.27
FFO as Adjusted applicable to diluted common shareholders(1)
$
Weighted average diluted common shares - FFO(1)
(1) Refer to the table below for reconciliation of weighted average diluted shares used in EPS calculations and weighted average diluted common
106,099
shares used in FFO per share calculations.
(2) Individual items may not add up due to total rounding.
Reconciliation of Net Income to Cash NOI and Same-Property Cash NOI
The following table reflects the reconciliation of net income to cash NOI, same-property cash NOI and same-property cash NOI including
properties in redevelopment for the twelve months ended December 31, 2016 and 2015. Net income is considered the most directly
comparable GAAP measure.
(Amounts in thousands)
Net income
Add: Income tax expense (benefit)
Income before income taxes
Gain on sale of real estate
Interest income
Interest and debt expense
Operating income
Depreciation and amortization
General and administrative expense
Transaction costs
NOI
Less: non-cash revenue and expenses
Cash NOI(1)
Adjustments:
Cash NOI related to properties being redeveloped(1)
Tenant bankruptcy settlement income(3)
Management and development fee income from non-owned properties
Cash NOI related to properties acquired, disposed, or in foreclosure(1)
Environmental remediation costs
Real estate tax settlement income related to prior periods
Other(2)
Subtotal adjustments
Same-property cash NOI
Adjustments:
Cash NOI related to properties being redeveloped
Same-property cash NOI including properties in redevelopment
Twelve Months Ended
December 31,
2016
2015
$
$
$
96,630
804
97,434
(15,618)
(679)
51,881
133,018
56,145
27,438
1,405
218,006
(6,465)
211,541
(17,315)
(2,378)
(1,759)
(2,246)
—
—
156
(23,542)
187,999
17,315
205,314
$
$
$
41,348
1,294
42,642
—
(150)
55,584
98,076
57,253
32,044
24,011
211,384
(6,122)
205,262
(17,497)
(4,022)
(2,261)
(1,920)
1,379
(532)
182
(24,671)
180,591
17,497
198,088
(1) Cash NOI is calculated as total property revenues less property operating expenses, excluding the net effects of non-cash rental income and non-cash ground
rent expense.
(2) Other adjustments include revenue and expense items attributable to non-same properties and corporate activities.
(3) Tenant bankruptcy settlement income includes lease termination income.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
The following table reflects the reconciliation of net income to EBITDA and Adjusted EBITDA for the twelve months ended
December 31, 2016 and 2015. Net income is considered the most directly comparable GAAP measure.
(Amounts in thousands)
Net income
Depreciation and amortization
Interest and debt expense
Income tax expense (benefit)
EBITDA
Adjustments for Adjusted EBITDA:
Tenant bankruptcy settlement income
Transaction costs
Gain on sale of real estate
Equity awards issued in connection with the spin-off
Environmental remediation costs
Severance costs
Real estate tax settlement income related to prior periods
Twelve Months Ended
December 31,
2016
2015
$
96,630
$
56,145
51,881
804
205,460
(2,378)
1,405
(15,618)
—
—
—
—
41,348
57,253
55,584
1,294
155,479
(3,738)
24,011
—
7,143
1,379
693
(532)
184,435
Adjusted EBITDA
$
188,869
$
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the annual period ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number: 001-36523 (Urban Edge Properties)
Commission File Number: 333-212951-01 (Urban Edge Properties LP)
URBAN EDGE PROPERTIES
URBAN EDGE PROPERTIES LP
(Exact name of Registrant as specified in its charter)
Maryland (Urban Edge Properties)
Delaware (Urban Edge Properties LP)
47-6311266
36-4791544
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
888 Seventh Avenue, New York, New York
(Address of Principal Executive Offices)
10019
(Zip Code)
Registrant’s telephone number including area code:
Securities registered pursuant to Section 12(b) of the Act:
Urban Edge Properties
Title of Each Class
Common Shares, $.01 par value per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Urban Edge Properties LP
Title of Each Class
None
Name of Each Exchange on Which Registered
N/A
Securities registered pursuant to Section 12(g) of the Act:
Urban Edge Properties: None
Urban Edge Properties LP: Units of Partnership Interest
_______________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Urban Edge Properties
YES
NO
Urban Edge Properties LP YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Urban Edge Properties
YES
NO
Urban Edge Properties LP YES
NO
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Urban Edge Properties
YES
NO
Urban Edge Properties LP YES
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Urban Edge Properties
YES
NO
Urban Edge Properties LP YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Urban Edge Properties
Urban Edge Properties LP
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Urban Edge Properties:
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Urban Edge Properties LP:
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Urban Edge Properties
YES
NO
Urban Edge Properties LP YES
NO
As of June 30, 2016, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the
Common Stock held by nonaffiliates of the Registrant was approximately $3.0 billion based upon the last reported sale price of $29.86 per share
on the New York Stock Exchange on such date.
As of January 31, 2017, Urban Edge Properties had 99,749,917 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference information from certain portions of the Urban Edge Properties’ definite proxy statement for the 2017 annual
meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the period ended December 31, 2016 of Urban Edge Properties and
Urban Edge Properties LP. Unless stated otherwise or the context otherwise requires, references to “UE” and “Urban Edge” mean
Urban Edge Properties, a Maryland real estate investment trust (“REIT”), and references to “UELP” and the “Operating Partnership”
mean Urban Edge Properties LP, a Delaware limited partnership. References to the “Company,” “we,” “us” and “our” mean
collectively UE, UELP and those entities/subsidiaries consolidated by UE.
UELP is the entity through which we conduct substantially all of our business and own, either directly or through subsidiaries,
substantially all of our assets. UE is the sole general partner and also a limited partner of UELP. As the sole general partner of
UELP, UE has exclusive control of UELP’s day-to-day management.
As of December 31, 2016, UE owned an approximate 94.0% ownership interest in UELP. The remaining approximate 6.0% interest
is owned by limited partners. The other limited partners of UELP are Vornado Realty L.P. (owning approximately 5.4% of the
ownership interest of UELP), and members of management and our Board of Trustees. Under the limited partnership agreement
of UELP, unitholders may present their common units of UELP for redemption at any time (subject to restrictions agreed upon at
the time of issuance of the units that may restrict such right for a period of time). Upon presentation of a common unit for redemption,
UELP must redeem the unit for cash equal to the then value of a share of UE’s common shares, as defined by the limited partnership
agreement. In lieu of cash redemption by UELP, however, UE may elect in its sole discretion to acquire any common units so
tendered by issuing common shares of UE in exchange for the common units. If UE so elects, its common shares will be exchanged
for common units on a one-for-one basis. This one-for-one exchange ratio is subject to specified adjustments to prevent dilution.
UE generally expects that it will elect to issue its common shares in connection with each such presentation for redemption rather
than having UELP pay cash. With each such exchange or redemption, UE’s percentage ownership in UELP will increase. In
addition, whenever UE issues common shares other than to acquire common units of UELP, UE must contribute any net proceeds
it receives to UELP and UELP must issue to UE an equivalent number of common units of UELP. This structure is commonly
referred to as an umbrella partnership REIT, or UPREIT.
The Company believes that combining the annual reports on Form 10-K of UE and UELP into this single report provides the
following benefits:
•
•
•
enhances investors’ understanding of UE and UELP by enabling investors to view the business as a whole in the same
manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation because a substantial portion
of the disclosure applies to both UE and UELP; and
creates time and cost efficiencies throughout the preparation of one combined report instead of two separate reports.
The Company believes it is important to understand the few differences between UE and UELP in the context of how UE and
UELP operate as a consolidated company. The financial results of UELP are consolidated into the financial statements of UE. UE
does not have any other significant assets, liabilities or operations, other than its investment in UELP, nor does it have employees
of its own. UELP, not UE, generally executes all significant business relationships other than transactions involving the securities
of UE. UELP holds substantially all of the assets of UE. UELP conducts the operations of the business and is structured as a
partnership with no publicly traded equity. Except for the net proceeds from equity offerings by UE, which are contributed to the
capital of UELP in exchange for common units of partnership in UELP, as applicable, UELP generates all remaining capital
required by the Company’s business. These sources may include working capital, net cash provided by operating activities,
borrowings under the revolving credit facility, the issuance of secured and unsecured debt and equity securities and proceeds
received from the disposition of certain properties.
Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated
financial statements of UE and UELP. The limited partners of UELP are accounted for as partners’ capital in UELP’s financial
statements and as noncontrolling interests in UE’s financial statements. The noncontrolling interests in UELP’s financial statements
include the interests of unaffiliated partners in consolidated entities. The noncontrolling interests in UE’s financial statements
include the same noncontrolling interests at UELP’s level and limited partners of UELP. The differences between shareholders’
equity and partners’ capital result from differences in the equity issued at UE and UELP levels.
To help investors better understand the key differences between UE and UELP, certain information for UE and UELP in this report
has been separated, as set forth below: Part II, Item 8. Financial Statements which includes specific disclosures for UE and UELP,
and Note 15, Equity and Noncontrolling Interests, Note 17, Earnings Per Share and Unit and Note 18 thereto, Quarterly Financial
Data.
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications
for each of UE and UELP in order to establish that the requisite certifications have been made and that UE and UELP are compliant
with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 5.
Item 6.
Item 7.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART IV
1
3
15
15
19
19
20
23
25
39
40
72
72
77
77
77
77
77
77
78
79
PART I
ITEM 1.
BUSINESS
The Company
Urban Edge Properties (“UE” or the “Company”) (NYSE: UE) is a Maryland real estate investment trust focused on managing,
developing, redeveloping, and acquiring retail real estate in urban communities, primarily in the New York metropolitan region.
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. UE and
UELP were created to own the majority of Vornado Realty Trust’s (“Vornado”) (NYSE: VNO) former shopping center business.
As of December 31, 2016, the Company’s portfolio consisted of 79 shopping centers, three malls and a warehouse park adjacent
to one of its centers totaling 14.8 million square feet with an occupancy rate of 97.2%.
Prior to the separation, the portfolio is referred to as “UE Businesses.” On January 15, 2015, pursuant to a separation and distribution
agreement between UE and Vornado (the “Separation Agreement”), the interests in certain properties held by Vornado’s operating
partnership, Vornado Realty L.P. (“VRLP”), were contributed or otherwise transferred to UE in exchange for 100% of our
outstanding common shares. Following that contribution, VRLP distributed 100% of our outstanding common shares to Vornado
and the other common limited partners of VRLP, pro rata with respect to their ownership of common limited partnership units in
VRLP. Vornado then distributed all of the UE common shares it had received from VRLP to Vornado common shareholders on
a pro rata basis. As a result, VRLP common limited partners and Vornado common shareholders all received common shares of
UE in the spin-off at a ratio of one common share of UE to every two VRLP common units and every two common shares of
Vornado.
Substantially concurrently with such distribution, the interests in certain properties held by VRLP, including interests in entities
holding properties, were contributed or otherwise transferred to UELP in exchange for approximately 5.4% of UELP’s outstanding
common limited partnership interests in the Operating Partnership (“OP Units”).
As part of the separation transaction, Vornado capitalized UE with $225 million of cash and agreed to provide transition services
to UE including human resources, information technology, risk management, public reporting and tax services for up to two years
pursuant to a transition services agreement between UE and Vornado (the “Transition Services Agreement”). On June 28, 2016,
the Company executed an amendment to the Transition Services Agreement, extending Vornado’s provision of information
technology, risk management services and the portion of human resources service related to health and benefits through July 31,
2018, unless terminated earlier. The fees charged to us by Vornado for these transition services approximate the actual cost incurred
by Vornado in providing such transition services to us. Pursuant to the Transition Services Agreement, UE provides leasing,
property management and development services to Vornado for certain of Vornado’s shopping center properties for which we
receive management and other fees believed to be at a market rate.
We review operating and financial information for each property on an individual basis and, therefore, each property represents
an individual operating segment. We aggregate all of our properties into one reportable segment due to their similarities with
regard to the nature and economics of the properties, tenants and operational process.
Unless the context otherwise requires, “we”, “us” and “our” refer to UE after giving effect to the transfer of assets and liabilities
from Vornado as well as to UE Businesses prior to the date of completion of the separation.
The Company elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended, commencing
with the filing of its 2015 tax return. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as
a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable
income which is distributed to its shareholders. Prior to the separation from Vornado, UE Businesses historically operated under
Vornado’s REIT structure. As Vornado operates as a REIT and distributes 100% of taxable income, no provision for federal income
taxes was made in the accompanying consolidated and combined financial statements for periods prior to the separation. If we
fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular corporate rates (including any
alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Our two Puerto Rico
malls are subject to a 29% non-resident withholding tax which is included in income tax expense in the consolidated and combined
statements of income.
1
Company Strategies
Our goal is to be the leading owner of retail real estate in and on the edges of major urban markets, principally in the New York
metropolitan region. We believe urban markets offer attractive investment opportunities resulting from a unique interplay of
demographic, supply/demand and redevelopment/development trends. To achieve this goal, our primary strategies include:
Maximizing the value of existing properties through proactive management. We intend to maximize the value of each of our assets
through a comprehensive, proactive management strategy encompassing: continuous asset evaluation for highest-and-best-use;
efficient and cost-conscious day-to-day operations that minimize retailer operating expense and preserve property quality; and
thoughtful leasing. Leasing is a critical value-creation function and includes the following:
• Monitoring retailer sales, merchandising, store operations, timeliness of payments, overall financial condition and
related factors;
• Being constantly aware of each asset’s competitive positioning and making physical improvements or adjusting
merchandising if circumstances warrant;
• Continuously canvassing trade areas to identify unique operators that can distinguish a property and enhance its
offerings;
• Maintaining regular contact with the brokerage community to stay abreast of new merchants, potential relocations,
new supply and overall trade area dynamics;
• Conducting regular portfolio reviews with key tenants;
• Building and nurturing broad and deep relationships with retailer decision-makers;
•
Focusing on spaces with below-market leases that might be recaptured;
• Understanding the potential impact of options, exclusives, co-tenancy and other restrictive lease provisions; and
• Optimizing required capital investment in every transaction.
Actively investing. We intend to redevelop existing properties, to selectively develop new shopping centers and to acquire properties
in targeted markets. Each investment must meet our standards for risk-adjusted return and for overall quality compared to our
existing portfolio.
Investment considerations include:
• Geography: Our primary focus is on the New York metropolitan area and the Washington DC to Boston corridor.
• Product: We generally target retail properties that serve local communities with necessity and convenience-oriented
retailers. We also seek large shopping centers (with a grocer where possible) in our targeted markets where significant
density and supply constraints provide attractive market rent dynamics.
•
Tenancy: We consider tenant mix, sales performance and related occupancy cost, lease term, lease provisions and other
factors. Our current tenant base comprises a diverse group of merchants including department stores, grocers, category
killers, discounters, entertainment offerings, health clubs, DIY stores, in-line specialty shops, restaurants and other food
and beverage vendors and service providers. We believe that this diversification provides stability to our cash flows as
no specific retail category constitutes more than 20% of our portfolio’s annual base rental revenue and no one retailer
contributed more than 7% of our annual base rental revenue in 2016.
• Rent: We consider existing rents relative to market rents. Additionally, we target submarkets that have potential for
market rent growth as evidenced by strong retailer performance.
• Competition and Barriers-to-Entry: We seek assets in underserved, high barrier-to-entry markets in densely populated,
affluent trade areas. We believe that retail properties located in such markets present more attractive risk-return profile
relative to other markets. We intend to invest in our existing core markets, and, over time, may expand into new markets
that have similar characteristics.
• Access and Visibility: We seek assets with convenient access and good visibility.
• Physical Condition: We seek assets in good physical condition taking into account aesthetic, functional, structural and
environmental considerations.
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Constantly evaluating our portfolio and, where appropriate, engaging in selective dispositions. We intend to regularly evaluate
the prospects for each property and, where appropriate, to dispose of those properties that do not meet our investment criteria. We
intend to reinvest a large part of the proceeds from any dispositions into redevelopment, development and acquisitions, or we may
use such proceeds to reduce outstanding debt.
Maintaining capital discipline. We intend to keep our balance sheet flexible and capable of supporting growth. We expect to
generate increasing levels of cash from internally generated funds and to have substantial borrowing capacity under our existing
line of credit and from potential secured debt financing on our existing assets.
Significant Tenants
None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2016, 2015 and 2014.
As of December 31, 2016, The Home Depot was our largest tenant and accounted for approximately $20.2 million, or 6.2% of
our total revenue.
Employees
Our headquarters are located at 888 Seventh Avenue, New York, NY 10019. As of December 31, 2016, we had 114 employees
and believe that our relationships with our employees are good.
Available Information
Current Reports on
Quarterly Reports on
Copies of our Annual Report on
and amendments
to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners of us, filed or furnished
pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934, are available free of charge through our website
(www.uedge.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and
Exchange Commission. Also available on our website are copies of our Audit Committee Charter, Compensation Committee
Charter, Corporate Governance and Nominating Committee Charter, Code of Business Conduct and Ethics and Corporate
Governance Guidelines. In the event of any changes to these charters or the code or guidelines, changed copies will also be made
available on our website. Copies of these documents are also available directly from us free of charge. Our website also includes
other financial information, including certain non-GAAP financial measures, none of which is a part of this Annual Report on
Form 10-K. Copies of our filings under the Securities Exchange Act of 1934 are also available free of charge from us, upon
request.
ITEM 1A. RISK FACTORS
You should carefully consider the following risks and other material in this information statement in evaluating our company and
our common shares. Any of the following risks could materially and adversely affect our business, results of operations and
financial condition. These risks have been separated into four groups: (1) Risks Related to Our Business and Operations and to
Our Status as a REIT, (2) Risks Related to the Separation, (3) Risks Related to Our Common Shares and (4) Our Declaration of
Trust and Applicable Law May Hinder Any Attempt to Acquire us.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS AND TO OUR STATUS AS A REIT
Factors that may materially and adversely affect our business, results of operations and financial condition are summarized below.
The risks and uncertainties described herein may not be the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial, may also adversely affect our business. See “Forward-Looking
Statements” contained herein.
The Value of and Income from Real Estate Investments Fluctuate Due to Various Factors.
We are subject to risks that affect the general retail environment.
Our properties are in the retail shopping center real estate market. This fact means that we are subject to factors that affect the
retail environment generally, including the level of consumer spending and consumer confidence, unemployment rates, the threat
of terrorism and increasing competition from discount retailers, outlet malls, retail websites and catalog companies. These factors
could materially and adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in
our shopping centers.
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E-commerce may have an adverse impact on our tenants and our business.
E-commerce continues to gain in popularity and growth in internet sales is likely to continue in the future. E-commerce could
result in a downturn in the business of some of our current tenants and could affect the way other current and future tenants lease
space. For example, the migration towards e-commerce has led many omnichannel retailers to prune the number and size of their
traditional “bricks and mortar” locations to increasingly rely on e-commerce and alternative distribution channels. Many tenants
also permit merchandise purchased on their websites to be picked up at, or returned to, their physical store locations, which may
have the effect of decreasing the reported amount of their in-store sales and the amount of rent we are able to collect from them
(particularly with respect to those tenants who pay rent based on a percentage of their in-store sales). We cannot predict with
certainty how growth in e-commerce will impact the demand for space at our properties or how much revenue will be generated
at traditional store locations in the future. If we are unable to anticipate and respond promptly to trends in retailer and consumer
behavior, our occupancy levels could be materially and adversely affected.
Retail real estate is a competitive business.
We compete with a large number of property owners and developers, some of which may be willing to accept lower returns on
their investments. Given the number of store closings announced by a variety of department stores and fast fashion concepts, there
is increased pressure on shopping center owners to seek a smaller number of top retailers. Other owners and developers may
attempt to take tenants from our shopping centers by offering lower rents or other incentives to compel them to relocate.
We depend on leasing space to tenants on economically favorable terms and on collecting rent from tenants who ultimately
may not be able to pay.
Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms. A majority
of our income depends on the ability of our tenants to pay the full amount of rent and other charges due under their leases on a
timely basis. Some of our leases provide for the payment, in addition to base rent, of additional rent above the base amount
according to a specified percentage of the gross sales generated by the tenants and generally provide for reimbursement of real
estate taxes and expenses of operating the property. Economic and/or competitive conditions may impact the success of our tenants’
retail operations and therefore the amount of rent and expense reimbursements we receive from our tenants. While demand for
our retail spaces has been strong, there can be no assurance in our ability to maintain our occupancy levels on favorable terms.
Any reduction in our tenants’ abilities to pay base rent, percentage rent or other charges on a timely basis will decrease our income,
funds available to pay indebtedness and funds available for distribution to shareholders. If a tenant does not pay its rent, we might
not be able to enforce our rights as landlord without delays and might incur substantial legal and other costs. During periods of
economic adversity, there may be an increase in the number of tenants that cannot pay their rent and an increase in vacancy rates.
We may be unable to renew leases or relet space as leases expire.
When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do
renew or we can relet the space, the terms of the renewal or reletting, taking into account among other things, the cost of
improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. In addition,
changes in space utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial
costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases
or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to
service debt obligations and pay dividends and distributions to security holders could be adversely affected.
Bankruptcy or insolvency of tenants may decrease our revenues, net income and available cash.
From time to time, some of our tenants have declared bankruptcy and other tenants may declare bankruptcy or become insolvent
in the future. In the case of our shopping centers, the bankruptcy or insolvency of a major tenant could cause us to have difficulty
leasing the remainder of the affected property (see dependence on anchors and major tenants). Our leases generally do not contain
restrictions designed to ensure the ongoing creditworthiness of our tenants. As a result, the bankruptcy or insolvency of a major
tenant could result in a lower level of net income and funds available to pay our indebtedness or make distributions to shareholders.
We derive a significant portion of our revenues from four of our properties.
As of December 31, 2016, four of our properties in the aggregate generated in excess of 25% of our Net Operating Income (as
such term is described in Part II. Item 7 of this Annual Report on Form 10-K) (The Outlets at Bergen Town Center and Tonnelle
Commons in New Jersey and The Outlets at Montehiedra and Las Catalinas Mall in Puerto Rico). The occurrence of events that
have a negative impact on one or more of these properties, such as an economic downturn affecting the surrounding area or a
natural disaster that damages one or more of the properties, would have a much larger adverse effect on our revenues than a
corresponding occurrence affecting less significant properties.
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Some of our properties depend on anchor or major tenants and decisions made by these tenants, or adverse developments in
the businesses of these tenants, could materially and adversely affect our business, results of operations and financial condition.
Some of our properties have anchor or major tenants that generally occupy larger spaces, sometimes pay a significant portion of
a property’s total rent and often contribute to the success of other tenants by drawing customers to a property. If an anchor or major
tenant closes, such closure could adversely affect the property even if the tenant continues to pay rent due to the loss of the anchor
or major tenant’s drawing power. Additionally, closure of an anchor or major tenant could result in lease terminations by, or
reductions in rent from, other tenants if the other tenants’ leases have co-tenancy clauses that permit cancellation or rent reduction
if an anchor tenant closes. Retailer consolidation, store rationalization, competition from internet sales and general economic
conditions may decrease the number of potential tenants available to fill available anchor tenant spaces. As a result, in the event
one or more anchor tenants were to leave one or more of our centers, we cannot be sure that we would be able to lease the vacant
space on equivalent terms or at all. In addition, we may not be able to recover costs owed us by the closed tenant. In certain cases,
some anchor and non-anchor tenants may be able to terminate their leases if they do not achieve defined sales levels.
We may be unable to reposition or redevelop some of our properties.
Our business strategy includes redeveloping a number of our properties. In connection therewith, we are subject to various risks,
including:
• we may not have sufficient capital to proceed with planned repositioning or redevelopment activities;
•
redevelopment costs for a project may exceed original estimates, possibly making the project infeasible or unprofitable;
• we may not be able to obtain zoning or other required governmental permits and authorizations;
• we may not be able to obtain anchor store and mortgage lender approvals, if applicable, for repositioning or redevelopment
activities; and
• we may not be able to finance such projects at favorable rates and terms.
There can be no assurance that our redevelopment projects will have the desired results of attracting and retaining desirable tenants
and increasing customer traffic. If redevelopment projects are unsuccessful, our investments in those projects may not be fully
recoverable from future operations or sales.
Many real estate costs are fixed, even if income from our properties decreases.
Our financial results depend primarily on leasing space in our properties to tenants on terms favorable to us. Costs associated with
real estate investment, such as real estate taxes, insurance and maintenance costs, generally are not reduced even when a property
is not fully occupied, rental rates decrease, or other circumstances cause a reduction in income from the property. As a result, cash
flow from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to rent our properties
on favorable terms. Under those circumstances, we might not be able to enforce our rights as landlord without delays and may
incur substantial legal costs.
Loss of our key personnel could adversely affect the value of our business, results of operations and financial condition.
We are dependent on the efforts of our key executive personnel. Although we believe qualified replacements could be found for
these key executives in the event of a departure, the loss of one or more of their services could materially and adversely affect our
business, results of operations and financial condition.
Our business and operations would suffer in the event of system failures.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our
information technology infrastructure, our systems are vulnerable to damages from any number of sources, including computer
viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system
failure or accident that causes interruptions in our operations could result in a material and adverse disruption to our business. We
may also incur additional costs to remedy damages caused by such disruptions.
The occurrence of cyber incidents or a deficiency in our cybersecurity could cause a disruption to our operations, a compromise
or corruption of our confidential information and/or damage to our business relationships.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information
resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized
access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased,
so have the risks posed to our systems, both internal and those we have outsourced. The primary risks that could directly result
5
from the occurrence of a cyber incident are operational interruption, damage to our relationship with our tenants and private data
exposure. In accordance with the Transition Services Agreement, Vornado provides information technology services to the
Company. Vornado has implemented processes, procedures and controls to help mitigate these risks and we maintain cyber
insurance, but these measures do not eliminate such risks.
We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability
to lease and/or sell real estate.
Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the
environment including air and water quality, hazardous or toxic substances and health and safety. Under some environmental laws,
a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances
released at a property. The owner or operator may also be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination. These
laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused such
release. The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate
or to borrow using the real estate as collateral. Other laws and regulations govern indoor and outdoor air quality including those
that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or
remodeling and also govern emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint
and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws. We are
also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and
bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible
individuals. We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to
the foregoing regulated substances or related claims arising out of environmental contamination or human exposure at or from
our properties.
Most of our properties have been subjected to varying degrees of environmental assessment at various times. To date, these
environmental assessments have not revealed any environmental condition material and adverse to our business. However,
identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of
contamination, human exposure to contamination or changes in cleanup or compliance requirements could result in significant
costs to us.
Generally, our tenants must comply with environmental laws and meet remediation requirements. Our leases typically impose
obligations on our tenants to indemnify us from any compliance costs we may incur as a result of the environmental conditions
on the property caused by the tenant. If a lease does not require compliance or if a tenant fails to or cannot comply, we could be
forced to pay these costs. If not addressed, environmental conditions could impair our ability to sell or re-lease the affected
properties in the future or result in lower sales prices or rent payments.
Some of our potential losses may not be covered by insurance.
We maintain general liability insurance with limits of $200 million per occurrence for properties in the U.S. and Puerto Rico, and
all-risk property and rental value insurance with limits of $500 million for properties in the U.S. and $139 million for properties
in Puerto Rico per occurrence, with sub-limits for certain perils such as floods and earthquakes. We also maintain coverage for
terrorism acts with limits of $500 million for properties in the U.S. and $139 million for properties in Puerto Rico per occurrence
and in the aggregate for terrorism events excluding coverage for nuclear, biological, chemical or radiological (“NBCR”) terrorism
events, as defined by Terrorism Risk Insurance Program Reauthorization Act which expires in December 2020. In addition, we
maintain coverage for cybersecurity with limits of $5 million in the aggregate providing first and third party coverage including
network interruption, event management, cyber extortion and claims for media content, security and privacy liability. Insurance
premiums are charged directly to each of the retail properties and warehouses. We will be responsible for deductibles and losses
in excess of insurance coverage, which could be material.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we
cannot anticipate what coverage will be available on commercially reasonable terms in the future. The incurrence of uninsured
losses or costs could materially and adversely affect our business, results of operations and financial condition.
Certain of our loans and other agreements contain customary covenants requiring the maintenance of insurance coverage. Although
we believe that we currently have adequate insurance coverage for purposes of these agreements, we may not be able to obtain
an equivalent amount of coverage at reasonable costs in the future. If lenders or other counterparties insist on greater coverage
than we are able to obtain, such requirement could materially and adversely affect our ability to finance our properties and expand
our portfolio.
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Future terrorist acts and shooting incidents could harm the demand for, and the value of, our properties
Over the past several years, a number of highly publicized terrorist acts and shootings have occurred at domestic and international
retail properties. In the event concerns regarding safety were to alter shopping habits or deter customers from visiting shopping
centers, our tenants would be adversely affected as would the general demand for retail space. Additionally, if such incidents were
to continue, insurance for such acts may become limited or subject to substantial cost increases. Such an incident at one of our
properties, particularly one in which we generate a significant amount of revenue, could materially and adversely affect our
business, results of operations and financial condition.
Our assets may be subject to impairment charges.
Our long-lived assets, including real estate held for investment, are carried at net book value unless circumstances indicate that
the carrying value of the assets may not be recoverable. Our properties are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount of the property may not be recoverable. When assets are identified as held for
sale, we estimate the sales prices net of selling costs of such assets. If, in our opinion, the net sales prices of the assets which have
been identified for sale are expected to be less than the net book value of the assets, an impairment charge is recorded and we
write down the asset to fair value. An impairment charge may also be recorded for any asset if it is probable, in our estimation,
that the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the
carrying value of the property. Recording an impairment charge results in an immediate reduction in our income in the period in
which the charge is taken, which could materially and adversely affect our business, results of operations and financial condition.
Compliance or failure to comply with the Americans with Disabilities Act, safety regulations or other requirements could result
in substantial costs.
The Americans with Disabilities Act (“ADA”) generally requires that public buildings including our properties meet certain federal
requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal
government or the award of damages to private litigants and/or legal fees to their counsel. We could be required under the ADA
to make substantial alterations to, and capital expenditures at, one or more of our properties, including the removal of access
barriers, it could materially and adversely affect our business, results of operations and financial condition.
Our properties are subject to various federal, state and local regulatory requirements such as state and local fire and life safety
regulations. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether
existing requirements will change or whether compliance with future requirements will require significant unanticipated
expenditures.
There may be changes in accounting standards.
New accounting standards or pronouncements that may become applicable to us from time to time, or changes in the interpretation
of existing standards and pronouncements, could have a material and adverse effect on our reported results for the affected periods.
We face possible adverse changes in tax laws, which may result in an increase in our tax liability and adverse consequences
to our shareholders.
Changes in U.S. federal, state and local tax laws or regulations, with or without retroactive application, could have a negative
effect on us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and
negatively affect our ability to qualify to be taxed as a REIT and/or the U.S. federal income tax consequences to our investors and
to our company of such qualification. In addition, recent election results and the shortfall in tax revenues for states and municipalities
in recent years may lead to an increase in the frequency and size of such tax law changes. Even changes that do not impose greater
taxes on us could potentially result in adverse consequences to our shareholders. For example, a decrease in corporate tax rates
could decrease the attractiveness of the REIT structure relative to companies that are not organized as REITs.
In any event, the rules of Section 355 of the Code and the Treasury Regulations promulgated thereunder, which apply to determine
the taxability of the separation and the combination, have been the subject of change and may continue to be the subject of change,
possibly with retroactive application, which could have a negative effect on us and our shareholders. If such changes occur, we
may be required to pay additional taxes on our assets or income. These increased tax costs could materially and adversely affect
our business, results of operations and financial condition, and the amount of cash available for payment of dividends.
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Our Investments Are Concentrated in the Northeast and Puerto Rico.
A significant number of our properties are located in the Northeast and are affected by the economic cycles there.
Real estate markets are subject to economic downturns and we cannot predict the economic conditions in the Northeast in either
the short-term or long-term. Factors negatively affecting economic conditions in the Northeast include: industry slowdowns or
recession, unemployment levels, downsizing, relocations of businesses, changing demographics, increases in telecommuting and
use of alternative offices, infrastructure quality, increases in real estate and other taxes, the cost of complying with governmental
regulations increases in regulation, changes in local laws, and reduced demand for real estate.
We own and operate two malls in Puerto Rico that are affected by the struggling local economy and that may be adversely
affected by pending changes in tax laws.
Our two malls in Puerto Rico make up approximately 11% of our Net Operating Income (as such term is described in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included as Part II, Item 7 of this Annual Report on
10-K). Since 2007, Puerto Rico has experienced a struggling economy, with total employment and the size of the labor force
decreasing causing the unemployment rate to rise. The government and its agencies are struggling to service and to restructure
their debt and a series of new consumer and business taxes have been implemented and proposed. A continued economic downturn
and increases in taxes in Puerto Rico may result in continued or increased migration of residents from Puerto Rico to the mainland
United States and elsewhere, which could decrease the territory’s tax base, exacerbating the territorial government’s cash flow
issues, and decrease the number of consumers in Puerto Rico. The combination of these circumstances could result in less disposable
income for the purchase of goods sold in our centers, declining merchant sales and merchant inability to pay rent and other charges,
and could negatively impact our ability to lease space on terms and conditions we seek.
Natural disasters could have a concentrated impact on us.
We own properties near the Atlantic Coast and in Puerto Rico which are subject to natural disasters such as hurricanes, floods and
storm surge. We also have four properties in California that could be impacted by earthquakes. As a result, we could become
subject to significant losses and repair costs and to business interruption, all of which may or may not be fully covered by insurance.
We May Develop, Redevelop, Acquire or Sell Assets. Our Inability to Consummate or Manage These Activities Could
Materially and Adversely Affect Us.
We may develop, redevelop or acquire properties and these activities may create risks.
We may develop, redevelop or acquire properties when we believe that a development, redevelopment or acquisition project is
consistent with our business strategy. We may not, however, succeed in consummating desired acquisitions or in completing
developments and redevelopments on time or within budget. In addition, we may face competition in pursuing development,
redevelopment and acquisition opportunities. When we do pursue a project or acquisition, we may not succeed in leasing developed,
redeveloped or acquired properties at rents sufficient to cover the costs of development, redevelopment, acquisitions and operations.
Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention. If we choose
to pursue acquisitions in new markets or acquire assets that contain non-retail uses where we do not have the same level of market
knowledge, it may result in weaker than anticipated performance. We may abandon development, redevelopment and acquisition
opportunities that we have begun pursuing and consequently fail to recover expenses already incurred.
It may be difficult to buy and sell real estate quickly, which may limit our flexibility.
Real estate investments are relatively difficult to buy and sell quickly. Consequently, we may have limited ability to promptly
change our portfolio in response to changes in economic or other conditions. Moreover, our ability to buy, sell, or finance real
estate assets may be materially and adversely affected during periods of uncertainty or unfavorable conditions in the credit markets
as we or potential buyers of our assets may experience difficulty in obtaining financing, which may limit our flexibility.
Our capital recycling strategy entails various risks.
We intend to selectively explore opportunities to sell non-core properties and reinvest the sale proceeds in other parts of our
business, including in the acquisition of higher quality properties in our target markets and the development and redevelopment
of our properties, or to use the proceeds to pay down debt. While we hope to minimize the dilutive effect of these sales through
acquisitions, earnings from acquired properties may be less than the earnings from the disposed assets. Also, in the event we are
unable to sell these assets for amounts equal to or in excess of their current carrying values, we would be required to recognize
impairment charges. Any such impairment charges or earnings dilution could materially and adversely affect our business, financial
condition and results of operations. The sale of our assets may generate gains for tax purposes if not adequately deferred through
a Section 1031 exchange, creating the obligation to make additional distributions to our shareholders.
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We face significant competition for acquisitions of real properties, which may reduce the number of acquisition opportunities
available to us and increase the costs of these acquisitions.
The current market for acquisitions is extremely competitive. This competition may increase the demand for the types of properties
in which we typically invest and, therefore, increase the prices paid for such acquisition properties. We also face significant
competition for attractive acquisition opportunities from an indeterminate number of investors, including publicly-traded and
privately-held REITs, private equity investors and institutional investment funds, some of which have greater financial resources,
greater ability to borrow funds and the willingness to accept more risk than we can prudently manage, including risks with respect
to the geographic proximity of investments and the payment of higher acquisition prices. This competition will increase if
investments in real estate become more attractive relative to other forms of investment. Competition for investments may reduce
the number of suitable investment opportunities available to us and may have the effect of increasing prices paid for such acquisition
properties and, as a result, adversely affecting our ability to grow through acquisitions.
Our Organizational and Financial Structure Gives Rise to Operational and Financial Risks.
Economic conditions and capital markets can materially and adversely affect our liquidity, financial condition, results of
operations and the value of our debt and equity securities.
There are many factors that can affect the value of our equity securities and any debt securities we may issue in the future, including
the state of the capital markets and the economy. Government action or inaction may adversely affect the state of the capital
markets. The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads may
materially and adversely affect our liquidity and the liquidity and financial condition of our tenants. Our inability or the inability
of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs could materially and
adversely affect our business, financial condition and results of operations and the value of our equity securities and any debt
securities we may issue in the future.
Covenants in our existing financing agreements may restrict our operating, financing, redevelopment, development, acquisition
and other activities.
The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the
lender, to further mortgage the applicable property or to reduce insurance coverage. Our existing revolving credit facility contains,
and any debt that we may obtain in the future may contain, customary restrictions, requirements and other limitations on our ability
to incur indebtedness, including covenants (i) that limit our ability to incur debt based upon (1) our ratio of total debt to total assets,
(2) our ratio of secured debt to total assets, (3) our ratio of earnings before interest, tax, depreciation and amortization (EBITDA)
to interest expense and (4) our ratio of EBITDA to fixed charges, and (ii) that require us to maintain a certain level of unencumbered
assets to unsecured debt. Our ability to borrow is subject to compliance with these and other covenants. Failure to comply with
our covenants could cause a default under the applicable debt instrument and we may then be required to repay such debt with
capital from other sources or to give possession of a secured property to the lender. Under those circumstances, other sources of
capital may not be available to us, or may be available only on unattractive terms.
We have outstanding debt. The amount of debt and its cost may increase and refinancing may not be available on acceptable
terms.
If we are unable to obtain debt financing or refinance existing indebtedness upon maturity, our financial condition and results of
operations would likely be adversely affected. In addition, the cost of our existing debt may increase, especially in the case of a
rising interest rate environment, and we may not be able to refinance our existing debt in sufficient amounts or on acceptable
terms. If the cost or amount of our indebtedness increases or we cannot refinance our debt in sufficient amounts or on acceptable
terms, we are at risk of default on our obligations.
Rising interest rates could adversely affect our cash flows.
Of our $2.0 billion of debt outstanding as of December 31, 2016, $38.8 million bears interest at variable rates. We have a $500
million revolving credit facility, on which no balance is outstanding at December 31, 2016, that bears interest at LIBOR plus
1.15%. We may borrow additional funds at variable interest rates in the future. Increases in interest rates would increase the interest
expense on our variable rate debt and reduce our cash flow, which could adversely affect our ability to service our debt and met
our other obligations and also could reduce the amount we are able to distribute to our shareholders.
We may not be able to obtain capital to make investments.
We depend primarily on external financing to fund the growth of our business because one of the requirements of the Internal
Revenue Code (the “Code”) for a REIT is that it distributes at least 90% of its taxable income, excluding net capital gains, to its
shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access
9
to debt or equity financing depends on the willingness of third parties to lend to or to make equity investments and on conditions
in the capital markets generally. Although we believe that we will be able to finance any investments we may wish to make in the
foreseeable future, there can be no assurance that new financing or other capital will be available or available on acceptable terms.
The failure to obtain financing or other capital could materially and adversely affect our business, results of operations and financial
condition. For information about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital Resources” and the notes to the audited consolidated and combined financial
statements included in Part II, Item 8. in this Annual Report on Form 10-K.
We may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates.
Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for federal income tax
purposes, we may fail to remain so qualified. Qualifications are governed by highly technical and complex provisions of the Code
for which there are only limited judicial or administrative interpretations and that depend on various facts and circumstances that
are not entirely within our control. In addition, legislation, new regulations, administrative interpretations or court decisions may
significantly change the relevant tax laws and/or the federal income tax consequences of qualifying as a REIT. If, with respect to
any taxable year, we fail to maintain our qualification as a REIT and do not qualify under statutory relief provisions, we could not
deduct distributions to shareholders in computing our taxable income and would have to pay federal income tax on our taxable
income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If we
had to pay federal income tax, the amount of money available to distribute to shareholders and pay our indebtedness would be
reduced for the year or years involved, and we would no longer be required to make distributions to shareholders. In addition,
we would also be disqualified as a REIT for the four taxable years following the year during which qualification was lost unless
we were entitled to relief under the relevant statutory provisions.
We are also required to pay certain corporate-level taxes on our assets located in Puerto Rico and such taxes may increase if
recently proposed taxes are implemented.
REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.
To qualify to be taxed as a REIT, and assuming that certain other requirements are also satisfied, we generally must distribute at
least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital
gains, to our shareholders each year so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the
extent that we satisfy this distribution requirement and qualify for taxation as a REIT, but distribute less than 100% of our REIT
taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject
to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible
excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified
under U.S. federal income tax laws. We intend to distribute 100% of our REIT taxable income to our shareholders.
From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the
recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of
reserves, or required debt or amortization payments. If we do not have other funds available in these situations, we could be
required to borrow funds on unfavorable terms, sell assets at disadvantageous prices, distribute amounts that would otherwise be
invested in future acquisitions, capital expenditures or repayment of debt, or make taxable distributions of our shares or debt
securities to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution
requirement and avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs
or reduce our equity. Further, amounts distributed will not be available to fund investment activities. Thus, compliance with the
REIT requirements may hinder our ability to grow, which could adversely affect the value of our shares. Any restrictions on our
ability to incur additional indebtedness or make certain distributions could preclude us from meeting the 90% distribution
requirement. Decreases in funds from operations due to unfinanced expenditures for acquisitions of properties or increases in the
number of shares outstanding without commensurate increases in funds from operations would adversely affect our ability to
maintain distributions to our shareholders. Consequently, there can be no assurance that we will be able to make distributions at
the anticipated distribution rate or any other rate.
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse
consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of
properties on a tax deferred basis.
From time to time we may dispose of properties in transactions that are intended to qualify as “like kind exchanges” under Section
1031 of the Code (“Section 1031 Exchanges”). It is possible that the qualification of a transaction as a Section 1031 Exchange
could be successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits
would increase. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax,
10
possibly including interest and penalties. As a result, we may be required to borrow funds in order to pay additional dividends or
taxes, and the payment of such taxes could cause us to have less cash available to distribute to our shareholders. In addition, if a
Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable
year in question, including any information reports we sent our shareholders. Moreover, it is possible that legislation could be
enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not
possible for us to dispose of properties on a tax deferred basis.
RISKS RELATED TO THE SEPARATION
Our historical combined financial information for periods prior to our spin-off on January 15, 2015 are not necessarily
representative of the results that we would have achieved as a separate, publicly-traded company and may not be a reliable
indicator of our future results.
The combined financial statements for periods prior to our spin-off on January 15, 2015 refer to our business as operated by and
integrated with Vornado. That historical financial information was derived from the consolidated financial statements and
accounting records of Vornado. Accordingly, the historical combined financial information does not necessarily reflect the financial
condition, results of operations or cash flows that we would have achieved as a separate, publicly-traded company during those
historic periods or those that we achieve in the future. Factors which could cause our results to differ from those reflected in such
historical financial information and which may materially and adversely impact our ability to achieve similar results in the future
may include, but are not limited to, the following:
•
•
Prior to the separation, our business was operated by Vornado as part of its broader corporate organization rather than as
an independent company. During the two year period following the separation, Vornado provided various corporate
functions for us, such as human resources, information technology, risk management, public reporting and tax services,
and, currently, continues to provide information technology, risk management and certain human resources services. Prior
to 2015, our historical financial results reflect allocations of corporate expenses from Vornado for such functions and are
less than the expenses we have incurred as a separate, publicly-traded company. We have and will need to continue to
make significant investments to replicate or outsource from other providers certain, systems, infrastructure and personnel
to which we no longer have access after expiration of the Transition Services Agreement, currently July 2018. Developing
our ability to operate without access to certain elements of Vornado’s current operational and administrative infrastructure
has and will continue to be costly and may present difficulties. We may not be able to operate our business efficiently or
at comparable costs and our profitability may decline;
Prior to the separation, our business was integrated with the other businesses of Vornado and we were able to take
advantage of Vornado’s purchasing power in areas such as information technology, marketing, insurance, treasury services,
property support and the procurement of goods. Although we have entered into certain transition and other separation-
related agreements with Vornado, these arrangements may not fully capture the benefits we previously enjoyed as a result
of being integrated with Vornado and may result in us paying higher charges than in the past for these services. In addition,
services provided to us under the Transition Services Agreement will only be provided through July 2018 and this time
may not be sufficient to meet our needs. As an independent company, we may be unable to obtain goods and services at
the prices and terms obtained prior to the separation, which could decrease our overall profitability;
• Generally, prior to 2015, our working capital requirements and capital for our general corporate purposes, including
acquisitions and capital expenditures, have historically been satisfied as part of the corporation-wide cash management
policies of Vornado. We may now need to obtain additional financing from banks, through public offerings or private
placements of debt or equity securities, from strategic relationships or through other arrangements, all of which may not
be on terms as favorable to those obtained by Vornado. As a result, the cost of capital for our business may be higher than
Vornado’s cost of capital prior to the separation; and
• As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the
Dodd-Frank Act and will be required to prepare our financial statements according to the rules and regulations required
by the SEC. Complying with these requirements result in significant costs to us and require us to divert substantial
resources, including management time, from other activities.
Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating
as an independent company. For additional information about the past financial performance of our business and the basis of
presentation of the historical combined financial statements, please refer to “Selected Financial Data,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the audited consolidated and combined financial statements
and accompanying notes in Part II in this Annual Report on Form 10-K.
11
If the distribution by each of Vornado and VRLP together with certain related transactions does not qualify as a transaction
that is generally tax-free for U.S. federal income tax purposes, Vornado and Vornado shareholders could be subject to significant
tax liabilities. In addition, under its Tax Matters Agreement with Vornado, UE is subject to certain restrictions and could be
required to indemnify Vornado for certain material tax obligations that could arise.
Vornado received a private letter ruling from the IRS to the effect that the distribution of UE common shares by each of Vornado
and VRLP, together with certain related transactions, will, with respect to UE, VRLP, Vornado and the shareholders of Vornado,
qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 351 and 355 of the Code.
Vornado obtained an opinion from of Roberts & Holland LLP, special tax counsel to Vornado, satisfactory to the Vornado Board
of Trustees, to the effect that the distribution of UE common shares by each of Vornado and VRLP, together with certain related
transactions, with respect to UE, VRLP, Vornado and the shareholders of Vornado, qualifies as transactions that are generally tax-
free for U.S. federal income tax purposes under Sections 351, 355, and 731 of the Code, including with respect to certain matters
relating to these transactions that are not covered by the private letter ruling from the IRS. The private letter ruling is, and the
opinion of Roberts & Holland LLP is based on, among other things, certain facts and assumptions, as well as certain representations,
statements and undertakings of Vornado and UE (including those relating to the past and future conduct of Vornado and UE). If
any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if Vornado or UE breach any
of their respective covenants in the separation documents, the private letter ruling from the IRS and the opinion of Roberts &
Holland LLP may be invalid and the conclusions reached therein could be jeopardized. In such case, the IRS could assert that the
distribution of UE common shares by each of Vornado and VRLP, together with certain related transactions, should be treated as
a taxable transaction. The opinion of Roberts & Holland LLP is not binding on the IRS or any courts.
If the distribution, together with certain related transactions, fails to qualify for tax-free treatment, in general, Vornado would
recognize taxable gain as if it had sold the UE common shares in a taxable sale for its fair market value and Vornado shareholders
who received UE common shares in the distribution could be subject to tax as if they had received a taxable distribution equal to
the fair market value of such shares.
The Tax Matters Agreement between UE and Vornado governs Vornado’s and UE’s respective rights, responsibilities and obligations
with respect to taxes and liabilities, including taxes arising in the ordinary course of business, taxes, if any, incurred as a result of
any failure of the spin and certain related transactions to qualify as tax-free for U.S. federal income tax purposes, tax attributes,
tax returns, tax elections, tax contests and certain other tax matters. The agreement imposes certain restrictions on UE and its
subsidiaries, including restrictions on share issuances, business combinations, sales of assets and similar transactions designed to
preserve the tax-free status of the distribution and certain related transactions. In addition, UE may be required to indemnify
Vornado against any additional taxes resulting from any violation of a covenant or any inaccuracy or falsity of a representation
made by UE related to these matters, or from the taking of these restricted actions by UE.
Potential indemnification obligations to Vornado pursuant to the Separation Agreement could materially and adversely affect
our financial condition.
The Separation Agreement with Vornado contains provisions governing certain aspects of our relationship with Vornado.
Among other things, the Separation Agreement provides for indemnification obligations designed to make us financially
responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the
separation and distribution, as well as those obligations of Vornado that we assumed pursuant to the Separation Agreement.
These indemnity obligations could be substantial.
Certain of our Trustees and Executive Officers may have actual or potential conflicts of interest because of their previous or
continuing equity interest in, or positions at, Vornado.
Some of our Trustees and Executive Officers are persons who are or have been employees of Vornado. Because of their current
or former positions with Vornado, certain of the Trustees and Executive Officers may own Vornado common shares or other equity
awards. Even though our Board of Trustees consists of a majority of Trustees who are independent, some of our Executive Officers
and some of our Trustees continue to have a financial interest in Vornado common shares. In addition, one of our Trustees is the
Chairman of the Board of Trustees and CEO of Vornado. Continued ownership of Vornado common shares, or service as a Trustee
at both companies, could create, or appear to create, potential conflicts of interest.
We may not achieve some or all of the expected benefits of the separation and the separation may materially and adversely
affect our business, financial condition and results of operations.
We may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may
be delayed due to a variety of circumstances, not all of which may be under our control. We may not achieve these benefits for a
variety of reasons, including, among others that we may be more susceptible to market fluctuations and other adverse events than
if we were still a part of Vornado and our business is less diversified than Vornado’s business prior to the separation.
12
Our agreements with Vornado in connection with the separation and distribution involve potential conflicts of interest and
may not reflect terms that would have resulted from negotiations between unaffiliated third parties.
Because the separation and distribution involved the division of certain of Vornado’s existing businesses into two independent
companies, we have entered into certain agreements with Vornado including a Separation Agreement, a Transition Services
Agreement, a Tax Matters Agreement and an Employee Matters Agreement. The terms of these agreements were determined while
we were still a wholly-owned subsidiary of Vornado. They were determined by persons who were, at the time, employees, officers
or trustees of Vornado or its subsidiaries and, accordingly, had a conflict of interest. For example, during the period in which the
terms of those agreements were prepared, we did not have a board of trustees that was independent of Vornado. As a result, the
terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated
third parties. Arm’s-length negotiations between Vornado and an unaffiliated third party in another form of transaction, such as a
buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. See “Certain
Relationships and Related Person Transactions.”
In connection with our separation from Vornado, Vornado will indemnify us for certain pre-distribution liabilities and liabilities
related to Vornado assets. However, there can be no assurance that these indemnities will be sufficient to protect us against
the full amount of such liabilities, or that Vornado’s ability to satisfy its indemnification obligation will not be impaired in the
future.
Pursuant to the Separation Agreement, Vornado has agreed to indemnify us for certain liabilities. However, third parties could
seek to hold us responsible for any of the liabilities that Vornado agreed to retain and to indemnify us from and there can be no
assurance that Vornado will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in
recovering from Vornado any amounts for which we are held liable, such indemnification may be insufficient to fully offset the
financial impact of such liabilities and we may be temporarily required to bear these losses while seeking recovery from Vornado.
RISKS RELATED TO OUR COMMON SHARES
We cannot guarantee the timing, amount, or payment of dividends on our common shares.
Although we expect to pay regular cash dividends, the timing, declaration, amount and payment of dividends to shareholders falls
within the discretion of our Board of Trustees. Our Board of Trustees’ decisions regarding the payment of dividends depends on
factors such as our financial condition, earnings, capital requirements, debt service obligations, limitations under our financing
arrangements, industry practice, legal requirements, regulatory constraints, and other considerations that it deems relevant. Our
ability to pay dividends depends on our ongoing ability to generate cash from operations and access to the capital markets. We
cannot guarantee that we will pay dividends in the future.
Your percentage of ownership in our company may be diluted in the future.
In the future, your ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or
otherwise. For example, in August 2016, we entered into distribution agreements with various financial institutions as part of our
implementation of a continuous equity offering program (the "ATM Program") under which we may sell up to $250 million in
common shares, par value of $0.01 per share, from time to time in “at-the-market” offerings or certain other transactions. In
addition, we have and anticipate that we will continue to grant compensatory equity awards to our trustees, officers, employees,
advisers and consultants who will provide services to us. The issuance of additional common shares, including sales under the
ATM Program and awards to our executives, would dilute the interests of our current shareholders, and could depress the market
price of our common shares, impair our ability to raise capital through the sale of additional equity securities, or impact our ability
to pay dividends. We cannot predict the effect that future sales of our common shares or other equity-related securities including
the issuance of OP units would have on the market price of our common shares.
In addition, our declaration of trust authorizes us to issue, without the approval of our shareholders, one or more classes or series
of preferred shares having such designation, voting powers, preferences, rights and other terms, including preferences over our
common shares respecting dividends and distributions, as our Board of Trustees generally may determine. The terms of one or
more classes or series of preferred shares could dilute the voting power or reduce the value of our common shares. For example,
we could grant the holders of preferred shares the right to elect some number of our trustees in all events or on the occurrence of
specified events, or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences
we could assign to holders of preferred shares could affect the residual value of the common shares.
13
OUR DECLARATION OF TRUST AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US
Our Declaration of Trust sets limits on the ownership of our shares.
Generally, for us to maintain a qualification as a REIT under the Code, not more than fifty percent (50%) in value of the outstanding
shares of beneficial interest of the Company may be owned, directly or indirectly, by five or fewer individuals at any time during
the last half of the Company’s taxable year. The Code defines “individuals” for purposes of the requirement described in the
preceding sentence to include some types of entities. Under the Company’s Declaration of Trust, no person or entity may own
more than 9.8% of the outstanding common shares, or 9.8% of the outstanding preferred shares of any class or series, with some
exceptions for persons or entities approved by the Company’s Board of Trustees. These restrictions on transferability and ownership
may delay, deter or prevent a change in control of the Company or other transaction that might involve a premium price or otherwise
be in the best interest of the shareholders.
Maryland law contains provisions that may reduce the likelihood of certain takeover transactions.
Maryland imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland
real estate investment trust and certain persons who beneficially own at least 10% of the trust’s shares (an “interested shareholder”).
Unless approved in advance by the Board of Trustees of the trust, or otherwise exempted by the statute, such a business combination
is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder.
After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the Board of
Trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the corporation’s outstanding shares entitled
to vote and (ii) two-thirds of the corporation’s outstanding shares entitled to vote which are not held by the interested shareholder
with whom the business combination is to be effected, unless, among other things, the corporation’s common shareholders receive
a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously
paid by the interested shareholder for his or her shares.
In approving a transaction, the Board of Trustees may provide that their approval is subject to compliance, at or after the time of
approval, with any terms and conditions determined by the board. The business combination provisions of Maryland law may
have the effect of delaying, deferring or preventing a change in control of UE or other transaction that might involve a premium
price or otherwise be in the best interest of our shareholders. The business combination statute may discourage others from
attempting to acquire control of UE and increase the difficulty of consummating any offer.
Until the 2018 annual meeting of shareholders, UE will have a classified Board of Trustees and that may reduce the likelihood
of certain takeover transactions.
Our Board of Trustees is currently divided into three classes of trustees. The initial terms of the second and third classes will expire
at the second and third annual meetings of shareholders held following the separation, respectively. Shareholders elect only one
class of trustees each year. Shareholders elected successors to trustees of the first class for a two-year term and will elect successors
to trustees of the second class for a one-year term, in each case upon the expiration of the terms of the initial trustees of each class.
Commencing with the 2017 annual meeting of shareholders, and each annual meeting of shareholders held thereafter, the successors
to the Trustees whose terms expire at each annual meeting shall be elected to hold office for a term expiring at the next annual
meeting of shareholders and until their successors are duly elected and qualify. There is no cumulative voting in the election of
trustees. Until the 2018 annual meeting of the shareholders, the classified board may reduce the possibility of a tender offer or an
attempt to change control of UE, even though a tender offer or change in control might be in the best interest of UE’s shareholders
and UE.
We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover transactions.
The Company’s Declaration of Trust and bylaws authorize the Board of Trustees in its sole discretion and without shareholder
approval, to:
•
•
•
•
cause UE to issue additional authorized, but unissued, common or preferred shares;
classify or reclassify, in one or more classes or series, any unissued common or preferred shares;
set the preferences, rights and other terms of any classified or reclassified shares that the Company issues; and
increase the number of shares of beneficial interest that the Company may issue.
The Board of Trustees can establish a class or series of common or preferred shares whose terms could delay, deter or prevent a
change in control of the Company or other transaction that might involve a premium price or otherwise be in the best interest of
the Company’s shareholders, although the Board of Trustees does not now intend to establish a class or series of common or
14
preferred shares of this kind. The Company’s declaration of trust and bylaws contain other provisions that may delay, deter or
prevent a change in control of the Company or other transaction that might involve a premium price or otherwise be in the best
interest of our shareholders and the Company.
We may change our policies without obtaining the approval of our shareholders.
Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth,
operations, indebtedness, capitalization and dividends, are exclusively determined by our Board of Trustees. Accordingly, our
shareholders do not control these policies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved comments from the staff of the Securities and Exchange Commission as of the date of this Annual Report
on Form 10-K.
ITEM 2. PROPERTIES
As of December 31, 2016, our portfolio is comprised of 79 shopping centers, three malls and a warehouse park totaling
approximately 14.8 million square feet. We own 59 properties 100% in fee simple, except for Walnut Creek (Mt. Diablo) where
we own a 95% interest. We lease 19 properties under ground and/or building leases as indicated in the table below. Where a
property is subject to a ground and/or building lease to a third party, we have included the year of contractual maturity of the lease
next to the name of the property. As of December 31, 2016, we had $1.2 billion of outstanding mortgage indebtedness which is
secured by our properties. The following pages provide details of our properties as of December 31, 2016.
Total Square
Feet (1)
Percent
Leased (1)
Weighted
Average
Annual Rent
per sq ft (2)
Major Tenants
45,000
45,000
31,000
7,000
100.0%
100.0%
100.0%
100.0%
$26.49
19.26
70.00
Best Buy
Best Buy
Anthropologie
115.00
Z Gallerie
189,000
100.0%
9.72
Walmart, Staples
Property
SHOPPING CENTERS AND MALLS:
California:
Signal Hill
Vallejo (leased through 2043)(6)
Walnut Creek (1149 South Main Street)(5)
Walnut Creek (Mt. Diablo) (3)
Connecticut:
Newington
Maryland:
Baltimore (Towson)
155,000
100.0%
22.97
Glen Burnie
Rockville
Wheaton (leased through 2060)(6)
121,000
94,000
66,000
90.4%
98.1%
100.0%
9.54
24.53
16.36
hhgregg, Staples, HomeGoods, Golf Galaxy, Tuesday
Morning, Ulta, Kirkland's, Five Below (4 leases not
commenced)
Gavigan’s Home Furnishings, Pep Boys
Regal Cinemas
Best Buy
Massachusetts:
Cambridge (leased through 2033)(6)
Chicopee
Milford (leased through 2019)(6)
Springfield
New Hampshire:
Salem (leased through 2102)(6)
New Jersey:
48,000
224,000
83,000
182,000
100.0%
100.0%
100.0%
100.0%
21.83
PetSmart, Modell’s Sporting Goods
5.50
9.01
5.67
Walmart
Kohl’s
Walmart
37,000
100.0%
12.58
Babies “R” Us
Bergen Town Center - East, Paramus
211,000
97.4%
19.41
Lowe's, REI, Kirkland's (lease not commenced)
15
Bergen Town Center - West, Paramus
960,000
99.3%
32.09
Brick
Carlstadt (leased through 2050)(6)
Cherry Hill
East Brunswick
278,000
100.0%
78,000
100.0%
261,000
427,000
99.2%
100.0%
East Hanover (200 - 240 Route 10 West)
343,000
96.9%
East Hanover (280 Route 10 West)
East Rutherford (leased through 2194)(6)
Eatontown
Englewood(5)
Garfield
Hackensack
Hazlet
Jersey City
Kearny
Lawnside
Lodi (Route 17 North)
Lodi (Washington Street)
Manalapan
Marlton
Middletown
Montclair
Morris Plains
North Bergen (Kennedy Blvd)
North Bergen (Tonnelle Ave)
North Plainfield
Paramus (leased through 2033)(6)
Rockaway
South Plainfield (leased through 2039)(6)
Totowa
Turnersville
Union (2445 Springfield Ave)
Union (Route 22 and Morris Ave)
Watchung
Woodbridge
New York:
Bronx (1750-1780 Gun Hill Road)
Bronx (Bruckner Boulevard)(5)
Buffalo (Amherst)
Commack (leased through 2021)(6)
Dewitt (leased through 2041)(6)
Freeport (240 West Sunrise Highway)
(leased through 2040)(6)
Freeport (437 East Sunrise Highway)
Huntington
Inwood
Mount Kisco
New Hyde Park (leased through 2029)(6)
28,000
197,000
30,000
41,000
263,000
275,000
95,000
236,000
104,000
147,000
171,000
85,000
100.0%
100.0%
15.0%
64.1%
100.0%
96.2%
100.0%
100.0%
98.2%
99.3%
100.0%
83.6%
208,000
100.0%
213,000
231,000
18,000
177,000
62,000
410,000
218,000
100.0%
100.0%
100.0%
91.2%
100.0%
100.0%
99.0%
63,000
100.0%
173,000
56,000
94.8%
96.3%
271,000
100.0%
92,000
100.0%
232,000
276,000
170,000
226,000
100.0%
99.4%
98.3%
84.1%
77,000
100.0%
489,000
311,000
47,000
46,000
44,000
173,000
204,000
100,000
189,000
101,000
83.3%
96.9%
100.0%
100.0%
100.0%
100.0%
99.7%
100.0%
100.0%
100.0%
18.69
23.45
9.16
14.93
20.31
34.71
12.71
44.00
20.83
13.70
21.89
3.43
12.37
18.86
14.63
12.50
20.39
17.47
14.18
13.21
26.20
21.59
13.73
20.47
10.02
46.61
13.41
20.53
16.96
7.00
17.85
18.75
16.84
13.76
34.50
16.86
9.19
20.69
22.51
20.28
21.95
15.64
19.54
16.85
20.21
Target, Century 21, Whole Foods Market, Marshalls,
Nordstrom Rack, Saks Off 5th, HomeGoods, H&M,
Bloomingdale's Outlet, Nike Factory Store, Old Navy,
Nieman Marcus Last Call Studio
Kohl's, ShopRite, Marshalls, Kirkland's (lease not
commenced)
Stop & Shop
Walmart, Toys “R” Us, Maxx Fitness
Lowe’s, Kohl’s, Dick’s Sporting Goods, P.C. Richard & Son,
T.J. Maxx, LA Fitness
The Home Depot, Dick's Sporting Goods, Saks Off Fifth
(lease not commenced), Marshalls
REI
Lowe’s
Citibank
New York Sports Club
Walmart, Burlington, Marshalls, PetSmart
The Home Depot, Staples, Petco, 99 Ranch (lease not
commenced)
Stop & Shop (4)
Lowe’s, P.C. Richard & Son
LA Fitness, Marshalls
The Home Depot, PetSmart
National Wholesale Liquidators
Blink Fitness, Aldi
Best Buy, Bed Bath & Beyond, Babies “R” Us, Modell’s
Sporting Goods, PetSmart
Kohl’s, ShopRite, PetSmart
Kohl’s, Stop & Shop
Whole Foods Market
Kohl’s, ShopRite (4)
Food Bazaar
Walmart, BJ’s Wholesale Club, PetSmart, Staples
Costco, The Tile Shop, La-Z-Boy, Petco (lease not
commenced)
24 Hour Fitness
ShopRite, T.J. Maxx
Staples, Party City
The Home Depot, Bed Bath & Beyond, buy buy Baby,
Marshalls, Staples
Haynes Furniture Outlet (DBA The Dump), Verizon Wireless
(lease not commenced)
The Home Depot
Lowe’s, Toys “R” Us, Office Depot
BJ’s Wholesale Club
Walmart
Planet Fitness, Aldi
Kmart, Toys “R” Us, ShopRite (lease not commenced)
BJ’s Wholesale Club, T.J. Maxx, HomeGoods, Toys “R” Us,
LA Fitness
PetSmart, Ace Hardware
Best Buy
Bob’s Discount Furniture
The Home Depot, Staples
Kmart, Marshalls, Old Navy, Petco
Stop & Shop
Target, Stop & Shop
Stop & Shop
16
Oceanside
Queens(5)
Rochester
Rochester (Henrietta) (leased through
2055)(6)
Staten Island
West Babylon
Pennsylvania:
Allentown
Bensalem
Bethlehem
Broomall
Glenolden
Lancaster
Springfield (leased through 2025)(6)
Wilkes-Barre (461 - 499 Mundy Street)
Wyomissing (leased through 2065)(6)
York
South Carolina:
Charleston (leased through 2063)(6)
16,000
46,000
205,000
165,000
165,000
66,000
100.0%
81.3%
100.0%
97.9%
88.8%
95.1%
372,000
100.0%
185,000
153,000
169,000
102,000
228,000
41,000
204,000
100.0%
93.9%
100.0%
100.0%
100.0%
100.0%
91.8%
76,000
93.4%
111,000
100.0%
28.00
37.73
3.08
4.15
24.05
17.17
12.16
12.84
7.33
10.85
12.43
4.76
22.99
12.89
15.86
9.21
Party City
Walmart
Kohl’s
Western Beef, Planet Fitness
Best Market, Rite Aid
Burlington Coat Factory, Giant Food, Dick's Sporting Goods,
T.J. Maxx, Petco, Big Lots
Kohl's, Ross Dress for Less, Staples, Petco
Giant Food, Petco
Giant Food, Planet Fitness, A.C. Moore, PetSmart
Walmart
Lowe's, Community Aid, Mattress Firm
PetSmart
Bob's Discount Furniture, Babies "R" Us, Ross Dress for Less,
Marshalls, Petco
LA Fitness, PetSmart
Ashley Furniture, Tractor Supply Company, Aldi
45,000
100.0%
14.19
Best Buy
Virginia:
Norfolk (leased through 2050)(6)
Tyson’s Corner (leased through 2035)(6)
114,000
38,000
100.0%
100.0%
Puerto Rico:
Las Catalinas
Montehiedra(5)
356,000
540,000
93.9%
93.8%
7.08
43.04
36.04
18.35
Total Shopping Centers and Malls
13,831,000
97.2%
$17.07
WAREHOUSES:
East Hanover - Five Buildings(5)
942,000
91.7%
4.77
BJ’s Wholesale Club
Best Buy
Kmart, Forever 21
Kmart, The Home Depot, Marshalls, Caribbean Theatres,
Tiendas Capri
J & J Tri-State Delivery, Foremost Groups Inc., PCS Wireless,
Fidelity Paper & Supply Inc., Meyer Distributing Inc.,
Consolidated Simon Distributors Inc., Givaudan Flavors Corp.,
Opulux (lease not commenced)
Total Urban Edge Properties
14,773,000
96.8%
$16.43
(1) Percent leased is expressed as a percent of total existing square feet (gross leasable area) subject to a lease.
(2) Weighted average annual rent per square foot including ground leases and executed leases for which rent has not commenced is calculated by annualizing
tenant's current base rent (excluding any free rent periods), and excludes tenant reimbursements, concessions and storage rent. Excluding ground leases where
the Company is the lessor, the weighted average annual rent per square foot for our retail portfolio is $19.77 per square foot.
(3) Our ownership of Walnut Creek (Mt. Diablo) is 95% at December 31, 2016.
(4) The tenant has ceased operations at this location but continues to pay rent.
(5) Not included in the same-property pool for the purposes of calculating same-property cash NOI as of December 31, 2016. Refer to “Non-GAAP Financial
Measures” on page 32 for the definition and further discussion of same-property cash NOI.
(6) The Company is a lessee under a ground or building lease. The total square feet disclosed for the building will revert to the lessor upon lease expiration.
As of December 31, 2016, we had approximately 1,200 leases. Lease terms generally range from five years or less in some instances
for smaller tenants to 25 years or more for major tenants. The majority of our leases provide for reimbursements of real estate
taxes, insurance and common area maintenance charges (including roof and structure in shopping centers, unless it is the tenant’s
direct responsibility), and percentage rents based on tenant sales volume. Percentage rents accounted for less than 1% of total
revenues during 2016.
17
Occupancy
The following table sets forth the consolidated retail portfolio occupancy rate (excluding warehouses), square footage and weighted
average annual base rent per square foot of properties in our retail portfolio as of December 31 for the last five years:
Total square feet
Occupancy Rate
Average Annual Base Rent per sf
2016
2015
2014
2013
2012
13,831,000
13,901,000
13,880,000
13,922,000
13,645,000
97.2%
$17.07
96.2%
$16.64
95.8%
$16.57
95.6%
$16.38
95.0%
$16.35
December 31,
The following table sets forth the occupancy rate, square footage and weighted average annual base rent per square foot of our
warehouses as of December 31 for the last five years:
2016
942,000
91.7%
$4.77
2015
942,000
79.1%
$4.80
December 31,
2014
942,000
60.8%
$4.41
2013
942,000
45.6%
$4.35
2012
942,000
55.9%
$4.34
Total square feet
Occupancy Rate
Average Annual Base Rent per sf
Major Tenants
The following table sets forth information for the 10 largest tenants by total revenues for the year ended December 31, 2016:
Tenant
Number of
Stores
The Home Depot
Walmart
Lowe's
Stop & Shop / Koninklijke Ahold NV
The TJX Companies, Inc.
Kohl's
Best Buy Co., Inc.
BJ's Wholesale Club
Sears Holding, Inc. (Kmart)
PetSmart, Inc.
7
9
6
9
15
8
7
4
4
10
Square Feet
920,000
1,439,000
976,000
656,000
543,000
716,000
313,000
454,000
547,000
253,000
% of Total
Square Feet
6.2%
9.7%
6.6%
4.4%
3.7%
4.8%
2.1%
3.1%
3.7%
1.7%
2016 Revenues
20,213,000
$
18,516,000
13,209,000
12,033,000
11,510,000
9,637,000
8,045,000
7,766,000
7,248,000
6,617,000
% of Total
Revenues
6.2%
5.7%
4.1%
3.7%
3.5%
3.0%
2.5%
2.4%
2.2%
2.0%
18
Lease Expirations
The following table sets forth the anticipated expirations of tenant leases in our consolidated portfolio for each year from 2017
through 2027 and thereafter, assuming no exercise of renewal options or early termination rights:
Year
Month-To-Month
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Thereafter
Sub-total/Average
Vacant
Total
Number of
Expiring Leases
Square Feet of
Expiring Leases
Percentage of
Retail Properties
Square Feet
Weighted Average Annual
Base Rent of Expiring Leases
Total
Per Square Foot
21
72
71
104
82
79
67
47
58
38
47
41
55
782
97
879
49,000
284,000
1,033,000
1,198,000
1,270,000
879,000
1,197,000
1,093,000
1,352,000
544,000
618,000
739,000
3,189,000
13,445,000
386,000
13,831,000
(1)
(1)
0.4%
2.0%
7.4%
8.7%
9.2%
6.3%
8.7%
7.9%
9.8%
3.9%
4.5%
5.3%
23.1%
97.2%
2.8%
100.0%
$
2,023,700
$
8,159,320
14,988,830
26,475,800
22,936,200
18,265,620
15,441,300
20,253,290
18,292,560
9,694,080
8,095,800
14,403,110
51,119,670
$
$
230,312,850
$
N/A
230,312,850
41.30
28.73
14.51
22.10
18.06
20.78
12.90
18.53
13.53
17.82
13.10
19.49
16.03
17.13
N/A
N/A
(1) We expect to achieve moderate increases in average rents as we renew or re-lease these spaces.
ITEM 3.
LEGAL PROCEEDINGS
We are party to various legal actions that arise in the ordinary course of business. In our opinion, after consultation with legal
counsel, the outcome of such matters is not expected to have a material adverse effect on our financial position, results of operations,
or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Dividends
Our common shares are listed on the NYSE under the symbol “UE”. Our common shares began “regular way” trading on
January 15, 2015. As of February 15, 2017, there were 1,748 holders of record of our common shares. There have been no
repurchases of equity securities. The following table sets forth the high and low closing prices and the cash dividends declared on
our common shares by quarter for 2016 and 2015:
2016
2015
High Price Low Price
Declared Per Share High Price Low Price
Cash Dividends
Cash Dividends
Declared Per Share
Quarter Ended
Fourth quarter
$
28.21
$
24.74
$
Third quarter
Second quarter
First quarter
30.15
29.86
25.99
27.06
24.49
22.22
0.22
0.20
0.20
0.20
$
24.33
$
21.58
$
23.06
24.02
24.67
20.12
20.79
23.25
0.20
0.20
0.20
0.20
The Company elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended, commencing
with the filing of its 2015 tax return. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as
a dividend to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable
income which is distributed to its shareholders. Prior to the separation from Vornado, UE Businesses historically operated under
Vornado’s REIT structure. As Vornado operates as a REIT and distributes 100% of taxable income, no provision for federal income
taxes was made in the accompanying consolidated and combined financial statements for periods prior to the separation. If we
fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular corporate rates (including any
alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years.
Future distributions will be declared and paid at the discretion of the Board of Trustees and will depend upon cash generated by
operating activities, our financial condition, capital requirements, annual dividend requirements under the REIT provisions of the
Internal Revenue Code of 1986, as amended, and such other factors as our Board of Trustees deems relevant.
Our total annual dividends per common share for 2016 was $0.82 per share. The annual dividend amount may differ from dividends
as calculated for federal income tax purposes. Distributions to the extent of our current and accumulated earnings and profits for
federal income tax purposes generally will be taxable to a shareholder as ordinary dividend income. Distributions in excess of
current and accumulated earnings and profits will be treated as a nontaxable reduction of the shareholder’s basis in such
shareholder’s shares, to the extent thereof, and thereafter as taxable capital gains. Distributions that are treated as a reduction of
the shareholder’s basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized
upon the sale of the shareholder’s shares. No assurances can be given regarding what portion, if any, of distributions in 2016 or
subsequent years will constitute a return of capital for federal income tax purposes. During a year in which a REIT earns a net
long-term capital gain, the REIT can elect under Section 857(b)(3) of the Code to designate a portion of dividends paid to
shareholders as capital gain dividends. If this election is made, the capital gain dividends are generally taxable to the shareholder
as long-term capital gains.
We have determined the dividends paid on our common shares during 2016 and 2015 qualify for the following tax treatment:
Total Distribution per Share
Ordinary Dividends
Long Term Capital Gains Return of Capital
$
2016
2015
$
0.82
0.80
$
0.82
0.80
— $
—
—
—
20
Total Shareholder Return Performance
The following performance graph compares the cumulative total shareholder return of our common shares with the Russell 2000
Index, the S&P 500 Index, SNL U.S. REIT Equity Index and the SNL REIT Retail Shopping Ctr Index as provided by SNL
Financial LC, from January 15, 2015 to December 31, 2016, assuming an investment of $100 and the reinvestment of all dividends
into additional common shares during the holding period. Historical stock performance is not necessarily indicative of future
results.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this
annual report into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such
acts.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
(1) $100 invested on January 15, 2015 in stock or index, including reinvestment of dividends.
Stock/Index
UE
S&P 500
Russell 2000
SNL U.S. REIT Equity
Cumulative(1)
Total Return %
Total Return $ as of
1/15/2015
12/31/2015
12/31/2016
22.6
17.2
20.9
5.7
100
100
100
100
101.4
104.7
99.7
97.1
SNL U.S. REIT Retail Shopping Center
98.9
(1) Cumulative total return is for the period from the separation date on January 15, 2015 to December 31, 2016.
100
2.4
122.6
117.2
120.9
105.7
102.4
21
Recent Sales of Unregistered Shares
Under the terms of UELP’s limited partnership agreement, the common limited partnership units in our limited partnership may
be redeemed, subject to certain conditions, for cash or an equivalent number of our common shares, at our option. During the three
months ended December 31, 2016, there were no redemptions of operating partnership units. All other equity securities sold by
us during 2016 that were not registered have been previously reported in a Quarterly Report on Form 10-Q or Current Report on
Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During 2016, 2,744 restricted common shares were forfeited by former employees. We did not repurchase any of our equity
securities during the three months ended December 31, 2016. All other securities repurchased by us have been previously reported
in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.
Equity Compensation Plan Information
Information regarding equity compensation plans is presented in Part III, Item 12 of this Annual Report on Form 10-K and
incorporated herein by reference.
22
ITEM 6.
SELECTED FINANCIAL DATA
The following table includes selected consolidated and combined financial data set forth for the Company and the Operating
Partnership as of and for each of the five years in the period ended December 31, 2016. The consolidated balance sheets as of
December 31, 2016 and December 31, 2015 reflects the consolidation of properties that are wholly-owned and properties in which
we own less than 100% interest, but in which we have a controlling interest. The consolidated statement of income for the year
ended December 31, 2016 includes the consolidated accounts of the Company. The consolidated and combined statement of income
for the year ended December 31, 2015 includes the consolidated accounts of the Company and the combined accounts of UE
Businesses. Accordingly, the results presented for the year ended December 31, 2015 reflect the aggregate operations, changes in
cash flows and equity on a carved-out and combined basis for the period from January 1, 2015 through the date of separation and
on a consolidated basis subsequent to the date of separation. The financial data for the periods prior to the separation date are
prepared on a carved-out and combined basis from the consolidated financial statements of Vornado as UE Businesses were under
common control of Vornado prior to January 15, 2015. This selected financial data should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our audited consolidated and
combined financial statements and related notes included in Part II, Items 7 and 8, respectively, of this Annual Report on Form
10-K.
Urban Edge Properties
(Amounts in thousands, except per share amounts)
Operating Data:
Year Ended December 31,
2016
2015
2014
2013
2012
Property rentals
$
236,798
$
231,867
$
232,592
$
228,282
$
232,031
Tenant expense reimbursements
Income from Stop & Shop settlement
Management and development fees
Other income
Total revenue
Total expenses
Operating income
Net income
Net income attributable to operating partnership
Net income attributable to consolidated subsidiaries
Net income attributable to common shareholders(1)
$
84,921
84,617
81,887
—
1,759
2,498
325,976
192,958
133,018
96,630
(5,812)
(3)
90,815
$
—
2,261
4,200
322,945
224,869
98,076
41,348
(2,547)
(16)
38,785
$
—
535
662
315,676
193,236
122,440
65,794
—
(22)
65,772
$
73,170
59,599
606
1,338
362,995
195,782
167,213
109,335
—
(21)
109,314
$
70,453
—
794
955
304,233
179,267
124,966
69,850
—
(13)
69,837
Earnings per common share - Basic(2):
Earnings per common share - Diluted(2):
Weighted average shares outstanding - Basic(2)
Weighted average shares outstanding - Diluted(2)
Dividends declared per common share
(1) Net income earned prior to January 15, 2015 is attributable to Vornado as it was the sole shareholder prior to January 15, 2015. Refer to Note
99,364
99,278
99,252
99,248
99,248
99,248
99,794
99,248
99,248
99,248
0.91
0.39
0.66
1.10
0.70
0.91
0.39
0.66
1.10
0.70
0.80
0.82
—
—
—
1 to the consolidated and combined financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
(2) The common shares outstanding at the date of separation are reflected as outstanding for all periods prior to the separation. Refer to Note 2
to the consolidated and combined financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
23
(Amounts in thousands)
Balance Sheet Data as of period end:
Real estate, net of accumulated depreciation
Total assets
Mortgages payable, net
Total liabilities
Redeemable noncontrolling interests
Total equity
Other Data:
Cash flow Statement Data:
Provided by operating activities
Used in investing activities
Provided by (used in) financing activities
Urban Edge Properties LP
(Amounts in thousands, except per unit amounts)
Operating Data:
2016
Year Ended December 31,
2014
2013
2015
2012
$ 1,597,423
1,904,138
1,197,513
1,408,021
35,451
496,117
$ 1,575,530
1,918,931
1,233,983
1,447,477
33,177
471,454
$ 1,555,301
1,731,176
1,278,182
1,472,313
—
258,863
$ 1,562,416
1,749,965
1,200,762
1,408,381
—
341,584
$ 1,609,121
1,857,055
1,251,234
1,467,167
—
389,888
137,249
(59,230)
(115,858)
138,078
(66,415)
93,795
105,688
(45,586)
(63,807)
240,527
(24,926)
(212,636)
108,364
(31,875)
(73,385)
Year Ended December 31,
2016
2015
2014
2013
2012
Property rentals
$
236,798
$
231,867
$
232,592
$
228,282
$
232,031
Tenant expense reimbursements
Income from Stop & Shop settlement
Management and development fees
Other income
Total revenue
Total expenses
Operating income
Net income
Net income attributable to consolidated subsidiaries
Net income attributable to unitholders(1)
$
84,921
84,617
81,887
—
1,759
2,498
325,976
192,958
133,018
96,630
(3)
96,627
$
—
2,261
4,200
322,945
224,869
98,076
41,348
(16)
41,332
—
535
662
315,676
193,236
122,440
65,794
(22)
65,772
$
$
73,170
59,599
606
1,338
362,995
195,782
167,213
109,335
(21)
109,314
$
70,453
—
794
955
304,233
179,267
124,966
69,850
(13)
69,837
Earnings per unit - Basic(2):
Earnings per unit - Diluted(2):
Weighted average units outstanding - Basic(2)
Weighted average units outstanding - Diluted(2)
Distributions declared per unit
0.82
(1) Net income earned prior to January 15, 2015 is attributable to Vornado as it was the sole unitholder prior to January 15, 2015. Refer to Note
104,965
105,455
104,965
104,965
106,099
104,965
105,276
104,965
105,374
104,965
0.91
0.63
1.04
0.67
0.39
0.80
0.67
0.39
0.91
1.04
0.63
—
—
—
1 to the consolidated and combined financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
(2) The units outstanding at the date of separation are reflected as outstanding for all periods prior to the separation. Refer to Note 2 to the
consolidated and combined financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
24
(Amounts in thousands)
Balance Sheet Data as of period end:
Real estate, net of accumulated depreciation
Total assets
Mortgages payable, net
Total liabilities
Total equity
Other Data:
Cash flow Statement Data:
Provided by operating activities
Used in investing activities
Provided by (used in) financing activities
2016
Year Ended December 31,
2014
2013
2015
2012
$ 1,597,423
1,904,138
1,197,513
1,408,021
496,117
$ 1,575,530
1,918,931
1,233,983
1,447,477
471,454
$ 1,555,301
1,731,176
1,278,182
1,472,313
258,863
$ 1,562,416
1,749,965
1,200,762
1,408,381
341,584
$ 1,609,121
1,857,055
1,251,234
1,467,167
389,888
137,249
(59,230)
(115,858)
138,078
(66,415)
93,795
105,688
(45,586)
(63,807)
240,527
(24,926)
(212,636)
108,364
(31,875)
(73,385)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are
not guarantees of future performance. They represent our intentions, plans, expectations and beliefs and are subject to numerous
assumptions, risks and uncertainties. Our future results, financial condition and business may differ materially from those expressed
in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,”
“believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Annual
Report on Form 10-K. Many of the factors that will determine the outcome of these and our other forward-looking statements are
beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-
looking statements, see “Risk Factors” in Part I, Item 1A, of this Annual Report on Form 10-K for the year ended December 31,
2016.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak
only as of the date of this Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable
to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred
to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect
events or circumstances occurring after the date of this Annual Report on Form 10-K.
The following discussion should be read in conjunction with the consolidated and combined financial statements and notes thereto
included in Part II, Item 8 of this Annual Report on Form 10-K.
Overview
Urban Edge Properties (“UE” or the “Company”) (NYSE: UE) is a Maryland real estate investment trust that owns, manages,
acquires, develops, redevelops and operates retail real estate in high barrier-to-entry markets. Urban Edge Properties LP (“UELP”
or the “Operating Partnership”) is a Delaware limited partnership formed to serve as the Company’s majority-owned partnership
subsidiary and to own, through affiliates, all of the Company’s real estate properties and other assets. UE and UELP were created
to own the majority of Vornado Realty Trust’s (“Vornado”) (NYSE: VNO) former shopping center business. Prior to the separation,
the portfolio is referred to as “UE Businesses.” Unless the context otherwise requires, references to “we”, “us” and “our” refer to
Urban Edge Properties and UELP and their consolidated entities/subsidiaries after giving effect to the transfer of assets and
liabilities from Vornado as well as to UE Businesses prior to the date of the separation.
Prior to its separation on January 15, 2015, UE was a wholly owned subsidiary of Vornado. Pursuant to a separation and distribution
agreement between UE and Vornado (the “Separation Agreement”), the interests in certain properties held by Vornado’s operating
partnership, Vornado Realty L.P. (“VRLP”), were contributed or otherwise transferred to UE in exchange for 100% of our
outstanding common shares. Following that contribution, VRLP distributed 100% of our outstanding common shares to Vornado
and the other common limited partners of VRLP, pro rata with respect to their ownership of common limited partnership units in
VRLP. Vornado then distributed all of the UE common shares it had received from VRLP to Vornado common shareholders on
25
a pro rata basis. As a result, VRLP common limited partners and Vornado common shareholders all received common shares of
UE in the spin-off at a ratio of one common share of UE to every two VRLP common units and every two common shares of
Vornado.
Substantially concurrently with such distribution, the interests in certain properties held by VRLP, including interests in entities
holding properties, were contributed or otherwise transferred to UELP in exchange for approximately 5.4% of UELP’s outstanding
common limited partnership interests in the Operating Partnership (“OP Units”).
The Operating Partnership’s capital includes OP Units. As of December 31, 2016, Urban Edge owned approximately 94.0% of
the outstanding common OP Units with the remaining limited OP Units held by VRLP, and members of management and our
Board of Trustees. Urban Edge serves as the sole general partner of the Operating Partnership. The third party unitholders have
limited rights over the Operating Partnership such that they do not have characteristics of a controlling financial interest. As such,
the Operating Partnership is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary which
consolidates it. The Company’s only investment is the Operating Partnership.
As part of the separation, Vornado capitalized UE with $225 million of cash. Vornado also paid $21.9 million of the transaction
costs incurred in connection with the separation, which is reflected within non-cash separation costs paid by Vornado within the
statement of cash flows. Of the $21.9 million transaction costs, $17.4 million were contingent on the completion of the separation.
The remaining $4.5 million of transaction costs were allocated to Vornado on the separation date.
As of December 31, 2016, our portfolio consisted of 79 shopping centers, three malls and a warehouse park totaling 14.8 million
square feet.
Operating Strategies. Our operating strategy is to maximize the value of our existing assets through proactive management
encompassing: continuous asset evaluation for highest-and-best-use; efficient and cost-conscious operations that minimize retailer
operating expense and preserve property quality; and thoughtful leasing to the most desirable tenants. During 2016, we
accomplished the following leasing results:
•
•
•
•
increased same-property retail portfolio occupancy(1) to 98.0% as of December 31, 2016 from 97.2% as of December 31,
2015;
increased consolidated retail portfolio occupancy(2) to 97.2% as of December 31, 2016 from 96.2% as of December 31,
2015;
signed 54 new leases totaling 354,911 square feet, including 26 new leases on a same-space(3) basis totaling 132,315
square feet at an average rental rate of $32.00 per square foot on a GAAP basis and $29.47 per square foot on a cash
basis, generating average rent spreads of 41.7% on a GAAP basis and 25.8% on a cash basis; and
renewed or extended 52 leases totaling 554,259 square feet, including 52 leases on a same-space basis totaling 554,259
square feet at an average rental rate of $16.87 per square foot on a GAAP basis and $16.53 per square foot on a cash
basis, generating average rent spreads of 13.1% on a GAAP basis and 7.1% on a cash basis.
Investment Strategies. Our investment strategy is to selectively deploy capital through a combination of acquisitions, redevelopment
and development in our target markets that is expected to generate attractive risk-adjusted returns and, at the same time, to sell
assets that no longer meet our investment criteria. In addition to creating value from our existing assets through proactive
management, when appropriate, we will redevelop certain assets, will pursue new developments and will acquire properties adjacent
to them. During 2016, we:
•
•
•
•
increased the number of active development and redevelopment projects which have a total expected investment of $191.7
million of which $110.5 million remains to be funded;
completed projects at Walnut Creek and East Hanover REI;
identified approximately $73.0 million of development and redevelopment pipeline projects expected to be completed
over the next several years;
completed the sale of a shopping center located in Waterbury, CT for $21.6 million resulting in a gain of $15.6 million;
The sale completed the reverse Section 1031 tax deferred exchange transaction with the acquisition of Cross Bay
Commons;
(1)Information provided on a same-property basis includes the results of properties that were owned and operated for the entirety of the reporting periods being
compared and 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 properties acquired, sold, or in the foreclosure process during the periods being compared and totals 77 properties as of December 31,
2016 and December 31, 2015.
(2)Our retail portfolio includes shopping centers and malls and excludes warehouses.
(3)The “same-space” designation is used to compare leasing terms (cash leasing spreads) from the prior tenant to the new/current tenant. In some cases, leases are
excluded from "same-space" because the gross leasable area of the prior lease is combined/divided to form a larger/smaller, non-comparable space.
26
•
•
acquired a 0.3 acre outparcel adjacent to Tonnelle Commons in North Bergen, NJ for $2.7 million on December 22, 2016,
which will be the future site of a 2,000 sf Popeye's and;
executed contracts to acquire Hudson Mall in Jersey City, NJ for an aggregate purchase price of $43.7 million, the Shops
at Bruckner in the Bronx, NY for an aggregate purchase price of $32.0 million, and Yonkers Gateway Center in Yonkers,
NY for an aggregate purchase price of $51.7 million. These acquisitions closed subsequent to December 31, 2016.
Capital Strategies. Our capital strategy is to keep our balance sheet flexible and capable of supporting growth by using cash flow
from operations, borrowing under our existing line of credit and reinvesting funds from selective asset sales. During 2016, we:
•
•
•
prepaid $21.2 million of the variable rate portion of our cross-collateralized mortgage loan to maintain compliance with
covenant requirements, in connection with the sale of our property in Waterbury, CT;
transferred our property in Englewood, NJ to receivership; the receiver manages the property while the Company remains
the title owner until the receiver disposes of the property; and
ended the year with cash and cash equivalents of $131.7 million and net debt (net of cash) to total market capitalization
of 26.0% as of December 31, 2016.
2017 Outlook. We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:
leasing vacant spaces, extending expiring leases at higher rents, processing the exercise of tenant options and, when
possible, replacing underperforming tenants with tenants that can pay higher rent;
•
•
•
•
expediting the delivery of space to and the collection of rent from tenants with executed leases that have not yet commenced;
creating additional value from our existing assets by redevelopment of existing space, development of new space such
as expansion and pad sites and by anchor repositioning; and
disposing of non-core assets and, when possible, reinvesting the proceeds in the redevelopment of and/or new development
on existing properties and in acquiring additional properties meeting our investment criteria.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America,
referred to as “GAAP”, requires management to make estimates and assumptions that in certain circumstances affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenue and expenses. These estimates are
prepared using management’s best judgment, after considering past and current events and economic conditions. In addition,
certain information relied upon by management in preparing such estimates includes internally generated financial and operating
information, external market information, when available, and when necessary, information obtained from consultations with third
party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is
included in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Management considers an accounting estimate to be
critical if changes in the estimate could have a material impact on our consolidated and combined results of operations or financial
condition.
Our significant accounting policies are more fully described in Note 3 to the consolidated and combined financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K; however, the most critical accounting policies, which involve the
use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates,
are as follows:
Real Estate — The nature of our business as an owner, redeveloper and operator of retail shopping centers means that we invest
significant amounts of capital into our properties. Depreciation, amortization and maintenance costs relating to our properties
constitute substantial costs for us as well as the industry as a whole. Real estate is capitalized and depreciated on a straight-line
basis in accordance with GAAP and consistent with industry standards based on our best estimates of the assets’ physical and
economic useful lives which range from 3 to 40 years. We periodically review the estimated lives of our assets and implement
changes, as necessary, to these estimates. These assessments have a direct impact on our net income. Real estate is carried at cost,
net of accumulated depreciation and amortization. Expenditures for ordinary maintenance and repairs are expensed to operations
as they are incurred. Significant renovations and improvements that improve or extend the useful lives of assets are capitalized.
Real estate undergoing redevelopment activities is also carried at cost but no depreciation is recognized. All property operating
expenses directly associated with and attributable to, the redevelopment, including interest, are capitalized to the extent the
capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when completed. If the cost
of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of redeveloped
property, the excess is charged to impairment expense. The capitalization period begins when redevelopment activities are underway
and ends when the project is substantially complete. Generally, a redevelopment is considered substantially completed and ready
for its intended use upon completion of tenant improvements, but no later than one year from completion of major construction
27
activity. We make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact
on net income because capitalized costs are not subtracted in calculating net income.
Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements,
identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and
acquired liabilities. We assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization
rates and available market information. Estimates of future cash flows are based on a number of factors including historical
operating results, known trends, and market/economic conditions. Based on these estimates, we allocate the purchase price to the
applicable assets and liabilities.
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. 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. We consider qualitative and quantitative factors in
evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation
of in-place leases. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods
in the amortization period utilized. If a lease terminates prior to its stated expiration, all unamortized amounts relating to that lease
are written off.
Our properties are individually reviewed for impairment 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. An impairment loss is measured based on the excess of
the property’s carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding
periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows,
anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences
could be material to our consolidated and combined financial statements. The evaluation of anticipated cash flows is subjective
and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially
from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.
Allowance for Doubtful Accounts — We make estimates of the collectibility of our current accounts receivable and straight-line
rents receivable which require significant judgment by management. The collectibility of receivables is affected by numerous
factors including current economic conditions, bankruptcies, and the ability of the tenant to perform under the terms of their lease
agreement. While we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt
expense, actual collectibility could differ from those estimates which could affect our net income.
With respect to the allowance for current uncollectible tenant receivables, we assess the collectibility of outstanding receivables
by evaluating such factors as nature and age of the receivable, credit history and current financial condition of the specific tenant
including our assessment of the tenant’s ability to meet its contractual lease obligations, and the status of any pending disputes or
lease negotiations with the tenant.
The straight-line receivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Due
to the nature of the straight-line receivable, the collection period of these amounts typically extends beyond one year. The extended
collection period for straight-line rents along with our evaluation of tenant credit risk may result in the deferral of a portion of
straight-line rental income until the collection of such income is reasonably assured. These estimates have a direct impact on our
earnings.
Revenue Recognition — We have the following revenue sources and revenue recognition policies:
• Base Rent - income arising from minimum lease payments from tenant leases. These rents are recognized over the non-
cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements
under the leases. We commence rental revenue recognition when the tenant takes possession of the leased space and the
leased space is substantially ready for its intended use. In addition, in circumstances where we provide a lease incentive
to tenants, we recognize the incentive as a reduction of rental revenue on a straight-line basis over the term of the lease.
28
•
Percentage Rent - income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds.
These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been
achieved).
• Expense Reimbursements - revenue arising from tenant leases which provide for the recovery of all or a portion of the
operating expenses, real estate taxes and capital improvements of the respective property. This revenue is accrued in the
same periods as the expenses are incurred.
• Management, Leasing and Other Fees - income arising from contractual agreements with third parties. This revenue is
recognized as the related services are performed under the respective agreements.
Recent Accounting Pronouncements
See Note 3 to the audited consolidated and combined 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.
Results of Operations
We derive substantially all of our revenue from rents received from tenants under existing leases on each of our properties. This
revenue includes fixed based rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants
and percentage rents that are based on specified percentages of tenants’ revenue, in each case as provided in the respective leases.
Our primary cash expenses consist of our property operating and capital expenses, general and administrative expenses, and interest
and debt expense. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance,
and utilities; general and administrative expenses include payroll, office expenses, professional fees, acquisition costs, and other
administrative expenses; and interest expense is primarily on our mortgage debt and amortization of deferred financing costs on
our revolving credit facility. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties.
We also capitalize certain expenses, such as taxes, interest, and salaries related to properties under development or redevelopment
until the property is ready for its intended use.
Our consolidated and combined results of operations often are not comparable from period to period due to the impact of property
acquisitions, dispositions, developments and redevelopments. The results of operations of any acquired property are included in
our financial statements as of the date of its acquisition.
The following provides an overview of our key financial metrics based on our consolidated and combined results of operations
(refer to cash Net Operating Income (“NOI”), same-property cash NOI and Funds From Operations applicable to diluted common
shareholders (“FFO”) described later in this section):
(Amounts in thousands)
Year Ended December 31,
2016
2015
Net income
FFO applicable to diluted common shareholders(1)
Cash NOI(2)
Same-property cash NOI(2)
(1) FFO applicable to diluted common shareholders is utilized as a performance measure for Urban Edge, refer to page 34 for a reconciliation to
136,493
205,262
180,591
211,541
187,999
97,951
96,630
41,348
$
$
the nearest GAAP measure.
(2) Refer to page 33 for a reconciliation to the nearest GAAP measure.
29
Comparison of the Year Ended December 31, 2016 to 2015
Net income for the year ended December 31, 2016 was $96.6 million, compared to net income of $41.3 million for the year ended
December 31, 2015. The following table summarizes certain line items from our consolidated and combined 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, 2016 as compared to the same period of 2015:
(Amounts in thousands)
Total revenue
Real estate tax expenses
Property operating expenses
General and administrative expenses
Transaction costs
Gain on sale of real estate
Interest and debt expense
Income tax expense
For the year ended December 31,
2016
2015
$ Change
$
325,976
$
322,945
$
51,429
45,280
27,438
1,405
15,618
51,881
804
49,311
50,595
32,044
24,011
—
55,584
1,294
3,031
2,118
(5,315)
(4,606)
(22,606)
15,618
(3,703)
(490)
Total revenue of $326.0 million in the year ended December 31, 2016 increased $3.0 million from $322.9 million in the year ended
December 31, 2015. The increase is primarily attributable to:
•
•
•
•
•
$4.4 million net increase in property rentals due to rent commencements from higher occupancy, contractual rent increases
and increase in specialty leasing income, offset by tenant vacancies at development projects;
$0.5 million net increase associated with properties acquired and sold in 2016 and 2015;
$0.3 million increase in tenant expense reimbursements due to recoveries derived from the growth in capital improvements
partially offset by a decrease in recoverable expenses;
partially offset by $1.7 million lower tenant bankruptcy settlement income; and
$0.5 million decrease in management and development fee income due to properties under management sold during 2015.
Real estate tax expenses increased by $2.1 million to $51.4 million in the year ended December 31, 2016 from $49.3 million in
the year ended December 31, 2015. The increase is primarily attributable to:
•
•
•
$2.3 million increase due to higher assessed values and tax refunds received in 2015;
$0.5 million increase due to the acquisition of Cross Bay Commons in December 2015; and
partially offset by $0.7 million of additional real estate taxes capitalized related to space taken out of service for
development and redevelopment projects.
Property operating expenses decreased by $5.3 million to $45.3 million in the year ended December 31, 2016 from $50.6 million
in the year ended December 31, 2015. The decrease is primarily attributable to:
•
•
•
$3.2 million lower common area maintenance expenses;
$1.4 million of environmental remediation costs accrued in 2015; and
$0.7 million decrease in non-recoverable operating expenses including property level litigation costs.
General and administrative expenses decreased by $4.6 million to $27.4 million in the year ended December 31, 2016 from $32.0
million in the year ended December 31, 2015. The decrease is primarily attributable to:
•
•
$7.1 million of share-based compensation expense incurred in 2015 in connection with the one-time issuance of LTIP
units to certain executives in connection with our separation transaction; and
partially offset by $2.5 million of share-based compensation expense incurred in 2016 due to equity awards granted and
the vesting of existing equity awards.
Transaction costs decreased $22.6 million to $1.4 million in the year ended December 31, 2016 from $24.0 million in the year
ended December 31, 2015. The decrease is primarily due to costs incurred in connection with the separation transaction in 2015.
Gain on sale of real estate assets of $15.6 million in the year ended December 31, 2016 was recognized as a result of the sale of
our property in Waterbury, CT on June 9, 2016. The sale completed the reverse Section 1031 tax deferred exchange transaction
with the acquisition of Cross Bay Commons.
30
Interest and debt expense decreased $3.7 million to $51.9 million in the year ended December 31, 2016 from $55.6 million in the
year ended December 31, 2015. The decrease is primarily attributable to:
•
•
•
$1.9 million of additional interest capitalized related to increased levels of development and redevelopment;
$1.1 million of costs expensed in connection with the refinancing of the loan secured by Montehiedra in January 2015;
and
$0.7 million due to a lower mortgage payable balance as a result of scheduled principal payments and debt prepayment
in connection with the sale of our property in Waterbury, CT during the second quarter of 2016.
Income tax expense decreased $0.5 million resulting in income tax expense of $0.8 million in the year ended December 31, 2016
from $1.3 million of expense in the year ended December 31, 2015 as a result of a $0.6 million reduction to the accrued income
tax liability recorded during 2016, partially offset by the current period income tax expense accrual.
Comparison of the Year Ended December 31, 2015 to 2014
Net income attributable to common shareholders for the year ended December 31, 2015 was $38.8 million compared to net income
of $65.8 million for the year ended December 31, 2014. The following table summarizes certain line items from our consolidated
and combined 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, 2015 as compared to the same period of 2014:
(Amounts in thousands)
Total revenue
Real estate tax expenses
Property operating expenses
Depreciation and amortization
General and administrative expenses
Transaction costs
Interest and debt expense
Income tax expense
Net income attributable to noncontrolling interests
For the year ended December 31,
2015
2014
$ Change
$
322,945
$
315,676
$
49,311
50,595
57,253
32,044
24,011
55,584
1,294
2,563
49,835
51,988
53,653
17,820
8,604
54,960
1,721
22
7,269
(524)
(1,393)
3,600
14,224
15,407
624
(427)
2,541
Total revenue increased by $7.3 million to $322.9 million in the year ended December 31, 2015 from $315.7 million in the year
ended December 31, 2014. The increase is primarily attributable to:
•
•
•
•
$3.7 million of tenant bankruptcy settlement and lease termination income;
$2.7 million in tenant expense reimbursements as a result of higher occupancy and recoverable costs; and
$1.7 million in management and development fees due to additional properties under management;
partially offset by a net decrease in property rentals of $0.9 million.
Real estate tax expenses decreased by $0.5 million to $49.3 million in the year ended December 31, 2015 from $49.8 million in
the year ended December 31, 2014. The decrease is primarily attributable to $0.5 million of real estate tax settlement income
received in 2015 related to prior periods.
Property operating expenses decreased by $1.4 million to $50.6 million in the year ended December 31, 2015 from $52.0 million
the year ended December 31, 2014. The decrease is primarily attributable to:
•
•
•
$0.8 million lower utility and insurance costs including amounts capitalized for properties in redevelopment;
$0.7 million of landlord costs associated with deferred maintenance on vacancies and other non-recurring expenses
incurred in the fourth quarter of 2014;
partially offset by $0.1 million higher other property operating expenses incurred in the year ended December 31, 2015.
General and administrative expenses increased by $14.2 million to $32.0 million in the year ended December 31, 2015 from $17.8
million in the year ended December 31, 2014. The increase is primarily attributable to:
•
•
$7.1 million of share-based compensation expense, including the one-time issuance of LTIP units to certain executives
in connection with our separation transaction; and
$7.1 million associated with operating as a separate, publicly traded company including added headcount and a separate
executive team.
31
Transaction costs increased $15.4 million to $24.0 million in the year ended December 31, 2015 from $8.6 million in the year
ended December 31, 2014. The increase is primarily attributable to:
•
•
$13.3 million of transaction costs incurred in connection with the separation transaction including $10.0 million of
professional fees and $3.3 million of transfer taxes; and
$2.1 million of transaction costs related to acquisitions and potential transactions in 2015.
Interest and debt expense increased $0.6 million to $55.6 million in the year ended December 31, 2015 from $55.0 million in the
year ended December 31, 2014. The increase is primarily attributable to:
•
•
•
•
•
$3.1 million related to recognition of a full year of interest on financing obtained for Las Catalinas on July 16, 2014;
$1.6 million of fees and amortization of deferred financing costs associated with the revolving credit facility entered into
on January 15, 2015;
partially offset by $1.9 million of interest capitalized related to development projects in 2015;
$1.7 million of interest on $29.1 million of loans repaid during the first quarter of 2015 and $28.0 million of loans repaid
in 2014; and
$0.5 million of interest due to the lowering of the interest rate of the mortgage loan secured by Montehiedra from 6.04%
to 5.33% in connection with the debt restructuring on January 6, 2015.
Income tax expense decreased $0.4 million to $1.3 million in the year ended December 31, 2015 from $1.7 million in December 31,
2014. The decrease is attributable to an adjustment to update our projected annual income tax provision on our Puerto Rico
properties based on estimated taxable income.
Net income attributable to noncontrolling interests increased $2.5 million to $2.6 million in 2015. The increase is attributable to
the 5% noncontrolling interest in the property operations as well as net income of $2.5 million allocated to the OP and LTIP unit
holders, representing a 5.8% weighted average interest in the Operating Partnership in the year ended December 31, 2015.
Non-GAAP Financial Measures
Throughout this section, we have provided certain information on a “same-property” cash basis which includes the results of
operations that we consolidated (or combined), owned and operated for the entirety of both periods being compared, totaling 77
properties for the twelve months ended December 31, 2016 and 2015. Information provided on a same-property basis excludes
properties 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, sold, or that are in the foreclosure process during the periods
being compared. As such, same-property cash 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. While there is judgment
surrounding changes in designations, a property is removed from the same-property pool when it is designated as a redevelopment
property because it is undergoing significant renovation or retenanting pursuant to a formal plan that is expected to have a significant
impact on its operating income. 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 the earlier of one year after construction is substantially complete or when gross leasable
area related to the redevelopment is 90% leased. Acquisitions are moved into the same-property pool once we have owned the
property for the entirety of the comparable periods and the property is not under significant development or redevelopment.
We calculate same-property cash NOI using net income as defined by GAAP reflecting only those income and expense items that
are incurred at the property level, adjusted for the following items: lease termination fees, bankruptcy settlement income, non-
cash rental income and ground rent expense and income or expenses that we do not believe are representative of ongoing operating
results, if any.
The most directly comparable GAAP financial measure to cash NOI is net income. Cash NOI excludes certain components from
net income in order to provide results that are more closely related to a property’s results of operations. We calculate cash NOI
by adjusting GAAP operating income to add back depreciation and amortization expense, general and administrative expenses,
real estate impairment losses and non-cash ground rent expense, and deduct non-cash rental income resulting from the straight-
lining of rents and amortization of acquired below market leases net of above market leases.
We use cash NOI internally to make investment and capital allocation decisions and to compare the unlevered performance of our
properties to our peers. Further, we believe cash NOI is useful to investors as a performance measure because, when compared
across periods, cash NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and
acquisition and disposition activity on an unleveraged basis, providing perspective not immediately apparent from operating
32
income or net income. Cash NOI and same-property cash NOI should not be considered substitutes for operating income or net
income and may not be comparable to similarly titled measures employed by others.
Same-property cash NOI increased by $7.4 million, or 4.1% for the twelve months ended December 31, 2016 as compared to the
twelve months ended December 31, 2015.
The following table reconciles net income to cash NOI and same-property cash NOI for the twelve months ended December 31,
2016 and 2015.
For the year ended December 31,
2016
2015
(Amounts in thousands)
Net income
Add: income tax expense
Income before income taxes
Gain on sale of real estate
Interest income
Interest and debt expense
Operating income
Depreciation and amortization
General and administrative expense
Transaction costs
NOI
Less: non-cash revenue and expenses
Cash NOI
Adjustments:
Cash NOI related to properties being redeveloped
Tenant bankruptcy settlement income(2)
Management and development fee income from non-owned properties
Cash NOI related to properties acquired, disposed, or in foreclosure
Environmental remediation costs
Real estate tax settlement income related to prior periods
Other(1)
Subtotal adjustments
$
96,630
$
804
97,434
(15,618)
(679)
51,881
133,018
56,145
27,438
1,405
218,006
(6,465)
211,541
(17,315)
(2,378)
(1,759)
(2,246)
—
—
156
(23,542)
187,999
Same-property cash NOI
(1) Other adjustments include revenue and expense items attributable to non-same properties and corporate activities.
(2) Tenant bankruptcy settlement income includes lease termination income.
$
$
41,348
1,294
42,642
—
(150)
55,584
98,076
57,253
32,044
24,011
211,384
(6,122)
205,262
(17,497)
(4,022)
(2,261)
(1,920)
1,379
(532)
182
(24,671)
180,591
33
Funds From Operations
FFO for the twelve months ended December 31, 2016 was $136.5 million compared to $98.0 million for the twelve months ended
December 31, 2015.
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 depreciated real estate
assets, real estate impairment losses, 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. FFO does not represent cash flows from operating activities in
accordance with GAAP, should not be considered an alternative to net income as an indication of our performance, and is not
indicative of cash flow as a measure of liquidity or our ability to make cash distributions. FFO may not be comparable to similarly
titled measures employed by others.
(Amounts in thousands)
Net income
Less (net income) attributable to noncontrolling interests in:
Operating partnership
Consolidated subsidiaries
Net income attributable to common shareholders
Adjustments:
Gain on sale of real estate
Rental property depreciation and amortization
Limited partnership interests in operating partnership(1)
Twelve Months Ended December 31,
2016
2015
$
96,630
$
41,348
(5,812)
(3)
90,815
(15,618)
55,484
5,812
(2,547)
(16)
38,785
—
56,619
2,547
FFO applicable to diluted common shareholders
(1) Represents earnings allocated to vested LTIP and OP unit holders for unissued common shares which have been excluded for purposes of
calculating earnings per diluted share for the periods presented. FFO calculations include earnings allocated to vested LTIP and OP unit holders
and the respective weighted average share totals include the shares that may be issued upon redemption of units as their inclusion is dilutive.
136,493
97,951
$
$
34
Liquidity and Capital Resources
Due to the nature of our business, we typically generate significant amounts of cash from operations; however, the cash generated
from operations is primarily paid to our shareholders and the unitholders of the Operating Partnership in the form of distributions.
Our status as a REIT requires that we distribute 90% of our REIT taxable income each year. Our Board of Trustees declared a
quarterly dividend of $0.20 per common share and OP Unit for each of the first three quarters in 2016, and a dividend of $0.22
per common share and OP Unit for the fourth quarter of 2016, or an annual rate of $0.82. We expect to pay regular cash dividends,
however, the timing, declaration, amount and payment of distributions to shareholders and unitholders of the Operating Partnership
falls within the discretion of our Board of Trustees. Our Board of Trustees’ decisions regarding the payment of dividends depends
on many factors, such as maintaining our REIT tax status, our financial condition, earnings, capital requirements, debt service
obligations, limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other
factors.
Property rental income is our primary source of cash flow and is dependent on a number of factors including our occupancy level
and rental rates, as well as our tenants’ ability to pay rent. Our properties provide us with a relatively consistent stream of cash
flow that enables us to pay operating expenses, debt service and recurring capital expenditures. Other sources of liquidity to fund
cash requirements may include proceeds from financings, equity offerings and asset sales.
Our short-term liquidity requirements consist of normal recurring operating expenses, lease obligations, regular debt service
requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring
expenditures (general & administrative expenses), non-recurring expenditures (such as tenant improvements and redevelopments)
and distributions to shareholders and unitholders of the Operating Partnership. Our long-term capital requirements consistent
primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.
At December 31, 2016, we had cash and cash equivalents of $131.7 million and no amounts drawn on our line of credit. On
August 8, 2016, the Company established an at-the-market (“ATM”) equity program, pursuant to which the Company may offer
and sell its common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250.0 million. From September
2016 to December 2016, the Company issued 307,342 common shares at a weighted average price of $28.45 under the ATM equity
program, generating cash proceeds of $8.7 million. We have no debt maturing in 2017. We currently believe that cash flows from
operations over the next 12 months, together with cash on hand, our ATM equity program, our line of credit and our general ability
to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital
expenditures.
Summary of Cash Flows
Our cash flow activities are summarized as follows:
(Amounts in thousands)
Twelve Months Ended December 31,
2015
Increase (Decrease)
2016
Net cash provided by operating activities
$
Net cash used in investing activities
Net cash (used in) provided by financing activities
$
137,249
(59,230)
(115,858)
$
138,078
(66,415)
93,795
(829)
7,185
(209,653)
Cash and cash equivalents including restricted cash was $140.2 million at December 31, 2016, compared to $178.0 million as of
December 31, 2015, a decrease of $37.8 million. Net cash provided by operating activities of $137.2 million for the year ended
December 31, 2016 comprised of $140.1 million of cash from operating income and $2.9 million net decrease in cash due to timing
of cash receipts and payments related to changes in operating assets and liabilities. Net cash used in investing activities of $59.2
million for the year ended December 31, 2016 was comprised of (i) $69.9 million of real estate additions and (ii) $9.3 million
from the acquisition of real estate, partially offset by, (iii) $19.9 million proceeds from the sale of operating properties. Net cash
used in financing activities of $115.9 million for the year ended December 31, 2016 was comprised of (i) $86.3 million of
distributions paid to common shareholders and unitholders of the Operating Partnership and (ii) $38.5 million for debt repayments,
offset by, (iii) $8.9 million proceeds from the issuance of common shares including shares issued under our ATM equity program.
Cash and cash equivalents including restricted cash was $178.0 million at December 31, 2015, compared to $12.6 million as of
December 31, 2014, an increase of $165.5 million. This increase resulted primarily from net cash provided by operating activities
of $138.1 million for 2015, which was comprised of (i) $124.0 million increase in cash from operating income and (ii) $14.1
million net increase in cash due to timing of cash receipts and payments related to changes in operating assets and liabilities. Net
cash used in investing activities of $66.4 million for 2015 was comprised of (i) $36.3 million of real estate additions and (ii) $30.1
35
million of real estate acquisitions. Net cash provided by financing activities of $93.8 million for 2015 was comprised of (i) $227.7
million of Vornado’s contributions, net, in connection with the spin-off partially offset by, (ii) $79.2 million of dividends paid to
common shareholders, (iii) $44.7 million for debt repayments, (iv) $5.2 million of debt issuance costs primarily related to our
revolving credit facility, and (v) $4.9 million of distributions to redeemable noncontrolling interests.
Financing Activities and Contractual Obligations
Below is a summary of our outstanding debt and maturities as of December 31, 2016.
(Amounts in thousands)
Cross collateralized mortgage loan:
Fixed Rate
Variable Rate(1)
Total cross collateralized
First mortgages secured by:
North Bergen (Tonnelle Avenue)
Englewood(3)
Montehiedra Town Center, Senior Loan(2)
Montehiedra Town Center, Junior Loan(2)
Bergen Town Center
Las Catalinas
Mount Kisco (Target)
Interest Rate at
Principal Balance at
Maturity
December 31, 2016
December 31, 2016
9/10/2020
9/10/2020
4.36%
2.36%
$
1/9/2018
10/1/2018
7/6/2021
7/6/2021
4/8/2023
8/6/2024
11/15/2034
4.59%
6.22%
5.33%
3.00%
3.56%
4.43%
6.40%
Total mortgages payable
Unamortized debt issuance costs
519,125
38,756
557,881
73,951
11,537
87,308
30,000
300,000
130,000
14,883
1,205,560
(8,047)
1,197,513
Total mortgages payable, net of unamortized debt issuance costs $
(1) Subject to a LIBOR floor of 1.00%, currently bears interest at LIBOR plus 136 bps. In June 2016, in connection with the sale of our property
in Waterbury, CT, we prepaid $21.2 million of the variable rate portion of our cross collateralized mortgage loan to maintain compliance
with covenant requirements.
(2) On January 6, 2015, we completed a loan restructuring applicable to the $120.0 million, 6.04% mortgage loan secured by Montehiedra
Town Center. Refer to Note 7- Mortgages Payable of our consolidated and combined financial statements included in Part II, Item 8 of this
Annual Report on Form 10-K.
(3) On March 30, 2015, we notified the lender that due to tenants vacating, the property’s operating cash flow would be insufficient to pay its
debt service. As of December 31, 2016 we were in default and the property was transferred to receivership. Urban Edge no longer manages
the property but will remain its title owner until the receiver disposes of the property.
The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $859.2 million as of
December 31, 2016. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties
and in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity.
Our property in Waterbury, CT was held as collateral in our cross collateralized mortgage loan. In connection with the sale of our
property in Waterbury, CT on June 9, 2016, we prepaid $21.2 million of the variable rate component of our cross collateralized
mortgage loan in order to maintain compliance with covenant requirements. As of December 31, 2016, we were in compliance
with all debt covenants.
On January 15, 2015, we entered into a $500 million unsecured Revolving Credit Agreement (the “Agreement”) with certain
financial institutions. The Agreement has a four-year term with two six-month extension options. Borrowings under the Agreement
are subject to interest at LIBOR plus 1.15% and we are required to pay an annual facility fee of 20 basis points which is expensed
as incurred. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to increase
if our leverage ratio increases above predefined thresholds. The Agreement contains customary financial covenants including a
maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x. No amounts have been drawn to date under
the Agreement.
During the year ended December 31, 2014, Montehiedra Town Center (“Montehiedra”), our property in the San Juan area of Puerto
Rico, was experiencing financial difficulties which resulted in a substantial decline in its net operating cash flows. As such, we
transferred the mortgage loan secured by Montehiedra to the special servicer and discussed restructuring the terms of the mortgage
loan. In January 2015 we completed the modification of the $120.0 million, 6.04% mortgage loan. The loan was extended from
36
July 2016 to July 2021 and separated into two tranches, a senior $90.0 million position with interest at 5.33% to be paid currently
and a junior $30.0 million position with interest accruing at 3.0%. As part of the planned redevelopment of the property, we
committed to fund $20.0 million through an intercompany loan for leasing and capital expenditures of which $16.9 million has
been funded as of December 31, 2016. This $20.0 million intercompany loan is senior to the $30.0 million mortgage position
noted above and accrues interest at 10%. Both the intercompany loan and related interest are eliminated in our consolidated and
combined financial statements. We incurred $2.0 million of debt issuance costs in connection with the loan modification.
Below is a summary of contractual obligations as of December 31, 2016:
(Amounts in thousands)
Contractual cash obligations(1)
Long-term debt obligations
Total
2017
Commitments Due by Period
2020
2019
2018
2021
Thereafter
$ 1,450,618
$ 70,322
$ 147,941
$ 64,218
$ 553,810
$ 140,768
$ 473,559
Operating lease obligations
68,303
8,964
7,676
7,354
5,110
4,522
34,677
$ 1,518,921
$ 79,286
$ 155,617
$ 71,572
$ 558,920
$ 145,290
$ 508,236
(1) Includes interest and principal payments. Interest on variable rate debt is computed using rates in effect as of December 31, 2016.
Capital Expenditures
The following summarizes capital expenditures presented on a cash basis for the twelve months ended December 31, 2016 and
2015:
(Amounts in thousands)
Capital expenditures:
Development and redevelopment costs
Maintenance capital expenditures
Tenant improvements and allowances
Total capital expenditures
Twelve Months Ended December 31,
2015
2016
$
$
51,585
$
15,180
3,136
69,901
$
20,624
12,714
2,951
36,289
The increase in cash spent on development and redevelopment during the twelve months ended December 31, 2016 as compared
to the same period in 2015 was primarily the result of the advancement of our active redevelopment projects at Bruckner Boulevard,
Montehiedra Town Center and Garfield totaling $31.8 million. The increase in maintenance capital expenditures during the twelve
months ended December 31, 2016 as compared to the same period in 2015 was primarily the result of the timing of capital projects
across our portfolio.
As of December 31, 2016, we had approximately $186.2 million of active redevelopment, development and anchor repositioning
projects at various stages of completion and $5.5 million of completed projects pending twelve month stabilization, an increase
of $68.9 million from $122.8 million of projects as of December 31, 2015. We have advanced these projects $49.4 million since
December 31, 2015 and anticipate that these projects will require an additional $110.5 million over the next three years to complete.
We expect to fund these projects using cash on hand, proceeds from dispositions, borrowings under our line of credit and/or using
secured debt, or issuing equity.
Commitments and Contingencies
Loan Commitments
In January 2015 we completed a modification of the $120.0 million, 6.04% mortgage loan secured by Montehiedra. As part of the
planned redevelopment of the property, we committed to fund $20.0 million for leasing and other capital expenditures of which
$16.9 million has been funded as of December 31, 2016.
Insurance
We maintain general liability insurance with limits of $200 million per occurrence for properties in the U.S. and Puerto Rico, and
all-risk property and rental value insurance with limits of $500 million for properties in the U.S. and $139 million for properties
in Puerto Rico per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of our properties. We also
maintain coverage for terrorism acts with limits of $500 million for properties in the U.S. and $139 million for properties in Puerto
37
Rico per occurrence and in the aggregate excluding coverage for nuclear, biological, chemical or radiological terrorism events as
defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. In addition, we maintain
coverage for cybersecurity with limits of $5 million in the aggregate providing first and third party coverage including network
interruption, event management, cyber extortion and claims for media content, security and privacy liability. Insurance premiums
are charged directly to each of the retail properties and warehouses. We will be responsible for deductibles and losses in excess
of insurance coverage, which could be material.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we
cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Our mortgage loans are non-recourse and contain customary covenants requiring adequate insurance coverage. Although we
believe that we currently have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an
equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain,
it could adversely affect our ability to finance our properties and expand our portfolio.
Environmental Matters
Each of our properties has been subjected to varying degrees of environmental assessment at various times. Based on these
assessments and the projected remediation costs, we have accrued costs of $1.4 million on our consolidated balance sheets for
potential remediation costs for environmental contamination at two properties. While this accrual reflects our best estimates of
the potential costs of remediation at these properties, $0.1 million has currently been expended and there can be no assurance that
the actual costs will not exceed this amount. With respect to our other properties, the environmental assessments did not reveal
any material environmental contamination. However, there can be no assurance that the identification of new areas of contamination,
changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements
would not result in significant costs to us.
Bankruptcies
Although base rent is supported by long-term lease contracts, tenants who file bankruptcy may have the legal right to reject any
or all of their leases and close related stores. In the event that a tenant with a significant number of leases in our shopping centers
files bankruptcy and cancels its leases, we could experience a reduction in our revenues. We monitor the operating performance
and rent payments of all tenants in our shopping centers, especially those tenants in arrears or operating retail formats that are
experiencing significant changes in competition, business practice, or store closings in other locations. We are not aware of any
bankruptcy or announced store closings by any tenants in our shopping centers that would individually cause a material reduction
in our revenues.
Inflation and Economic Condition Considerations
Most of our leases contain provisions designed to partially mitigate the impact of inflation. Although inflation has been low in
recent periods and has had a minimal impact on the performance of our shopping centers, there are more recent data suggesting
that inflation may be a greater concern in the future given economic conditions and governmental fiscal policy. 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 the lease. A small number of our leases also
include percentage rent clauses enabling us to receive additional rent based on tenant sales above a predetermined level, which
sales generally increase as prices rise and are typically related to increases in the Consumer Price Index or similar inflation indices.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2016 or December 31, 2015.
38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control. The following
table discusses our exposure to hypothetical changes in market rates of interest on interest expense for our variable rate debt and
fixed-rate debt. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our debt.
This analysis does not take into account all of the factors that may affect our debt, such as the effect that a changing interest rate
environment could have on the overall level of economic activity or the action that our management might take to reduce our
exposure to the change. This analysis assumes no change in our financial structure. Our exposure to a change in interest rates is
summarized in the table below.
(Amounts in thousands)
Variable Rate
Fixed Rate
December 31,
Balance
$
$
38,756
1,166,804
1,205,560 (1)
2016
Weighted
Average
Interest Rate
2.36%
4.26%
2015
Effect of 1%
Change in
Base Rates
December 31,
Balance
$
$
388 (2) $
—
388
$
60,000
1,183,957
1,243,957 (1)
Weighted
Average
Interest Rate
2.36%
4.25%
(1) Excludes unamortized debt issuance costs. The fixed rate debt was presented net of unamortized fees of $1.7 million as of December 31, 2015
in our Form 10-K as filed with SEC for Urban Edge Properties. The net unamortized fees of $1.7 million were revised to be presented with
unamortized debt issuance costs as disclosed in Note 7 - Mortgages Payable to our consolidated and combined financial statements included
in Part II, Item 8 of this Annual Report on Form 10-K.
(2) The variable rate debt is subject to a LIBOR floor such that a 1% change in base rates does not impact the actual borrowing rate by 1%.
We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings,
including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies.
As of December 31, 2016, we did not have any hedging instruments in place.
Fair Value of Debt
The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the
current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As
of December 31, 2016, the estimated fair value of our consolidated debt was $1.2 billion.
Other Market Risks
As of December 31, 2016, we had no material exposure to any other market risks (including foreign currency exchange risk or
commodity price risk).
In making this determination and for purposes of the SEC’s market risk disclosure requirements, we have estimated the fair value
of our financial instruments at December 31, 2016 based on pertinent information available to management as of that date. Although
management is not aware of any factors that would significantly affect the estimated amounts as of December 31, 2016, future
estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.
39
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Report of Independent Registered Public Accounting Firm for Urban Edge Properties
Report of Independent Registered Public Accounting Firm for Urban Edge Properties LP
Urban Edge Properties Consolidated Balance Sheets as of December 31, 2016 and 2015
Urban Edge Properties Consolidated and Combined Statements of Income for the years ended December 31, 2016,
2015 and 2014
Urban Edge Properties Consolidated and Combined Statement of Changes in Equity for the years ended December
31, 2016, 2015 and 2014
Urban Edge Properties Consolidated and Combined Statements of Cash Flows for the years ended December 31,
2016, 2015 and 2014
Urban Edge Properties LP Consolidated Balance Sheets as of December 31, 2016 and 2015
Urban Edge Properties LP Consolidated and Combined Statements of Income for the years ended December 31,
2016, 2015 and 2014
Urban Edge Properties LP Consolidated and Combined Statement of Changes in Equity for the years ended
December 31, 2016, 2015 and 2014
Urban Edge Properties LP Consolidated and Combined Statements of Cash Flows for the years ended December 31,
2016, 2015 and 2014
Notes to Consolidated and Combined Financial Statements
Page
41
42
43
44
45
46
48
49
50
51
52
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
Urban Edge Properties
New York, New York
We have audited the accompanying consolidated balance sheets of Urban Edge Properties (the "Company") as of December 31,
2016 and 2015, and the related consolidated and combined statements of income, changes in equity, and cash flows for each of
the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in the
Index at Item 15. These consolidated and combined financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on the consolidated and combined financial statements
and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position
of Urban Edge Properties as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated
and combined financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated and combined financial statements, the combined financial statements of the Company
include allocations of certain expenses from Vornado Realty Trust. These costs may not be reflective of the actual costs which
would have been incurred had the Company operated as an independent, stand-alone entity separate from Vornado Realty Trust.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 16, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2017
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Partners of
Urban Edge Properties LP
New York, New York
We have audited the accompanying consolidated balance sheets of Urban Edge Properties LP (the "Operating Partnership") as of
December 31, 2016 and 2015, and the related consolidated and combined statements of income, changes in equity, and cash flows
for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules
listed in the Index at Item 15. These consolidated and combined financial statements and financial statement schedules are the
responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the consolidated and
combined financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position
of Urban Edge Properties LP as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated
and combined financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated and combined financial statements, the combined financial statements of the Operating
Partnership include allocations of certain expenses from Vornado Realty Trust. These costs may not be reflective of the actual
costs which would have been incurred had the Operating Partnership operated as an independent, stand-alone entity separate from
Vornado Realty Trust.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Operating Partnership's internal control over financial reporting as of December 31, 2016, based on the criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 16, 2017 expressed an unqualified opinion on the Operating Partnership's internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2017
42
URBAN EDGE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
Real estate, at cost:
Land
Buildings and improvements
Construction in progress
Furniture, fixtures and equipment
Total
Accumulated depreciation and amortization
Real estate, net
Cash and cash equivalents
Restricted cash
Tenant and other receivables, net of allowance for doubtful accounts of $2,332 and $1,926,
respectively
Receivable arising from the straight-lining of rents, net of allowance for doubtful accounts of
$261 and $148, respectively
Identified intangible assets, net of accumulated amortization of $22,361 and $22,090, respectively
Deferred leasing costs, net of accumulated amortization of $13,909 and $12,987, respectively
Deferred financing costs, net of accumulated amortization of $726 and $709, respectively
Prepaid expenses and other assets
Total assets
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net
Identified intangible liabilities, net of accumulated amortization of $72,528 and $65,220,
respectively
Accounts payable and accrued expenses
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Common shares: $0.01 par value; 500,000,000 shares authorized and 99,754,900 and
99,290,952 shares issued and outstanding, respectively
Additional paid-in capital
Accumulated deficit
Noncontrolling interests:
Redeemable noncontrolling interests
Noncontrolling interest in consolidated subsidiaries
Total equity
Total liabilities and equity
See notes to consolidated and combined financial statements.
December 31,
December 31,
2016
2015
$
384,217
1,650,054
99,236
4,993
2,138,500
(541,077)
1,597,423
131,654
8,532
9,340
$
389,080
1,630,539
61,147
3,876
2,084,642
(509,112)
1,575,530
168,983
9,042
10,364
87,695
88,778
30,875
33,953
19,241
1,936
17,442
$ 1,904,138
18,455
2,838
10,988
$ 1,918,931
$ 1,197,513
146,991
$ 1,233,983
154,855
48,842
14,675
1,408,021
45,331
13,308
1,447,477
997
993
488,375
(29,066)
475,369
(38,442)
35,451
33,177
360
496,117
$ 1,904,138
357
471,454
$ 1,918,931
43
URBAN EDGE PROPERTIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(In thousands, except share and per share data)
Year Ended December 31,
2016
2015
2014
REVENUE
Property rentals
Tenant expense reimbursements
Management and development fees
Other income
Total revenue
EXPENSES
Depreciation and amortization
Real estate taxes
Property operating
General and administrative
Ground rent
Transaction costs
Provision for doubtful accounts
Total expenses
Operating income
Gain on sale of real estate
Interest income
Interest and debt expense
Income before income taxes
Income tax expense
Net income
Less net income attributable to noncontrolling interests in:
Operating partnership
Consolidated subsidiaries
Net income attributable to common shareholders
Earnings per common share - Basic:
Earnings per common share - Diluted:
Weighted average shares outstanding - Basic
Weighted average shares outstanding - Diluted
$
$
$
$
$
236,798
84,921
1,759
2,498
325,976
56,145
51,429
45,280
27,438
10,047
1,405
1,214
192,958
133,018
15,618
679
(51,881)
97,434
(804)
96,630
(5,812)
(3)
90,815
$
0.91
0.91
99,364
99,794
$
231,867
84,617
2,261
4,200
322,945
57,253
49,311
50,595
32,044
10,129
24,011
1,526
224,869
98,076
—
150
(55,584)
42,642
(1,294)
41,348
(2,547)
(16)
38,785
$
0.39
0.39
99,252
99,278
See notes to consolidated and combined financial statements.
232,592
81,887
535
662
315,676
53,653
49,835
51,988
17,820
10,304
8,604
1,032
193,236
122,440
—
35
(54,960)
67,515
(1,721)
65,794
—
(22)
65,772
0.66
0.66
99,248
99,248
44
URBAN EDGE PROPERTIES
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
Common Shares
Noncontrolling Interests
(“NCI”)
Shares
Amount
Additional
Paid-In
Capital
Vornado
Equity
Accumulated
Earnings
(Deficit)
Redeemable
NCI
— $
— $
— $ 341,265
$
— $
— $
NCI in
Consolidated
Subsidiaries
319
Total
Equity
$ 341,584
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
65,772
—
— (148,515)
— 258,522
—
—
—
—
(2,022)
40,807
—
—
—
—
(27,649)
— 245,067
99,247,806
993
472,925
(473,918)
43,146
—
—
—
—
—
—
—
258
—
2,186
—
99,290,952
993
475,369
—
—
465,534
(1,586)
—
—
—
—
—
4
—
—
—
—
—
—
9,293
(38)
—
3,751
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,547
27,649
—
—
—
—
7,899
(4,918)
—
22
65,772
22
— (148,515)
341
258,863
—
16
—
38,785
2,563
—
— 245,067
—
—
—
—
— (79,167)
—
—
10,261
(4,918)
—
—
—
—
(258)
(79,167)
176
—
(38,442)
33,177
357
471,454
90,815
—
(348)
—
(81,240)
149
—
—
5,812
—
—
—
1,533
(5,071)
—
3
—
—
90,815
5,815
8,949
(38)
— (81,240)
—
—
5,433
(5,071)
Balance, January 1, 2014
Net income attributable to
Vornado
Net income attributable to
noncontrolling interests
Distributions to Vornado net
Balance, December 31,
2014
Net income (loss)
attributable to common
shareholders(1)
Net income attributable to
noncontrolling interests
Limited partnership units
issued to Vornado at
separation
Contributions from Vornado
Issuance of shares in
connection with separation
Common shares issued
Dividends on common
shares ($0.80 per share)
Share-based compensation
expense
Distributions to redeemable
NCI ($0.80 per unit)
Balance, December 31,
2015
Net income attributable to
common shareholders
Net income attributable to
noncontrolling interests
Common shares issued
Share-based awards
retained for taxes
Dividends on common
shares ($0.82 per share)
Share-based compensation
expense
Distributions to redeemable
NCI ($0.82 per unit)
Balance, December 31,
2016
99,754,900
$
997
$ 488,375
$
— $
(29,066) $
35,451
$
360
$ 496,117
(1)
Net loss earned from January 1, 2015 through January 15, 2015 is attributable to Vornado as it was the sole shareholder prior to January 15, 2015. Refer to
Note 1 - Organization.
See notes to consolidated and combined financial statements.
45
URBAN EDGE PROPERTIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Twelve Months Ended December 31,
2016
2015
2014
$
96,630
$
41,348
$
65,794
Depreciation and amortization
Amortization of deferred financing costs
Amortization of below market leases, net
Straight-lining of rent
Share-based compensation expense
Gain on sale of real estate
Non-cash separation costs paid by Vornado
Provision for doubtful accounts
Change in operating assets and liabilities:
Tenant and other receivables
Deferred leasing costs
Prepaid and other assets
Accounts payable and accrued expenses
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Real estate additions
Acquisition of real estate
Proceeds from sale of operating properties
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayments
Contributions from Vornado
Dividends paid to shareholders
Distributions to redeemable noncontrolling interests
Debt issuance costs
Taxes withheld for vested restricted shares
Proceeds from issuance of common shares
Proceeds from borrowings
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
$
57,178
2,830
(7,776)
227
5,433
(15,618)
—
1,214
(78)
(3,815)
141
(237)
1,120
137,249
(69,901)
(9,267)
19,938
(59,230)
(38,458)
—
(81,240)
(5,071)
—
(38)
8,949
—
(115,858)
(37,839)
178,025
140,186
$
58,299
2,738
(7,907)
333
10,261
—
17,403
1,526
(4)
(2,940)
(671)
11,300
6,392
138,078
(36,290)
(30,125)
—
(66,415)
(44,654)
227,732
(79,167)
(4,918)
(5,198)
—
—
—
93,795
165,458
12,567
178,025
$
See notes to consolidated and combined financial statements.
54,897
1,660
(8,762)
(1,559)
3,878
—
—
1,032
(5,914)
(1,963)
767
(4,929)
787
105,688
(39,509)
(6,077)
—
(45,586)
(42,481)
(148,786)
—
—
—
(2,540)
—
130,000
(63,807)
(3,705)
16,272
12,567
46
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest (includes amounts capitalized of $3,763, $1,856 and
$0, respectively)
Cash payments for income taxes
NON-CASH INVESTING AND FINANCING ACTIVITIES
Accrued capital expenditures included in accounts payable and accrued expenses
Write-off of fully depreciated assets
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND
RESTRICTED CASH
Cash and cash equivalents per consolidated balance sheet
Restricted cash per consolidated balance sheet
Cash and cash equivalents and restricted cash per consolidated and combined
statement of cash flow
Twelve Months Ended December 31,
2016
2015
2014
$
51,137
$
52,814
$
53,133
1,277
1,907
1,342
12,492
4,585
8,699
10,588
1,592
2,612
$
131,654
8,532
$
168,983
9,042
$
2,600
9,967
$
140,186
$
178,025
$
12,567
See notes to consolidated and combined financial statements.
47
URBAN EDGE PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit and per unit amounts)
ASSETS
Real estate, at cost:
Land
Buildings and improvements
Construction in progress
Furniture, fixtures and equipment
Total
Accumulated depreciation and amortization
Real estate, net
Cash and cash equivalents
Restricted cash
Tenant and other receivables, net of allowance for doubtful accounts of $2,332 and $1,926,
respectively
Receivable arising from the straight-lining of rents, net of allowance for doubtful accounts of
$261 and $148, respectively
Identified intangible assets, net of accumulated amortization of $22,361 and $22,090, respectively
Deferred leasing costs, net of accumulated amortization of $13,909 and $12,987, respectively
Deferred financing costs, net of accumulated amortization of $726 and $709, respectively
Prepaid expenses and other assets
Total assets
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net
Identified intangible liabilities, net of accumulated amortization of $72,528 and $65,220,
respectively
Accounts payable and accrued expenses
Other liabilities
Total liabilities
Commitments and contingencies
Equity:
Partners’ capital:
General partner: 99,754,900 and 99,290,952 units outstanding, respectively
Limited partners: 6,378,704 and 6,150,224 units outstanding, respectively
Accumulated deficit
Total partners’ capital
Noncontrolling interest in consolidated subsidiaries
Total equity
Total liabilities and equity
See notes to consolidated and combined financial statements.
December 31,
December 31,
2016
2015
$
384,217
1,650,054
99,236
4,993
2,138,500
(541,077)
1,597,423
131,654
8,532
9,340
$
389,080
1,630,539
61,147
3,876
2,084,642
(509,112)
1,575,530
168,983
9,042
10,364
87,695
88,778
30,875
33,953
19,241
1,936
17,442
$ 1,904,138
18,455
2,838
10,988
$ 1,918,931
$ 1,197,513
146,991
$ 1,233,983
154,855
48,842
14,675
1,408,021
45,331
13,308
1,447,477
489,372
37,081
(30,696)
495,757
476,362
35,548
(40,813)
471,097
360
496,117
$ 1,904,138
357
471,454
$ 1,918,931
48
URBAN EDGE PROPERTIES LP
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(In thousands, except unit and per unit amounts)
Year Ended December 31,
2016
2015
2014
REVENUE
Property rentals
Tenant expense reimbursements
Management and development fees
Other income
Total revenue
EXPENSES
Depreciation and amortization
Real estate taxes
Property operating
General and administrative
Ground rent
Transaction costs
Provision for doubtful accounts
Total expenses
Operating income
Gain on sale of real estate
Interest income
Interest and debt expense
Income before income taxes
Income tax expense
Net income
Less: net income attributable to NCI in consolidated
subsidiaries
Net income attributable to unitholders
Earnings per unit - Basic:
Earnings per unit - Diluted:
Weighted average units outstanding - Basic
Weighted average units outstanding - Diluted
$
$
$
$
$
$
$
$
236,798
84,921
1,759
2,498
325,976
56,145
51,429
45,280
27,438
10,047
1,405
1,214
192,958
133,018
15,618
679
(51,881)
97,434
(804)
96,630
(3)
96,627
0.91
0.91
105,455
106,099
231,867
84,617
2,261
4,200
322,945
57,253
49,311
50,595
32,044
10,129
24,011
1,526
224,869
98,076
—
150
(55,584)
42,642
(1,294)
41,348
(16)
41,332
0.39
0.39
105,276
105,374
$
$
$
See notes to consolidated and combined financial statements.
232,592
81,887
535
662
315,676
53,653
49,835
51,988
17,820
10,304
8,604
1,032
193,236
122,440
—
35
(54,960)
67,515
(1,721)
65,794
(22)
65,772
0.63
0.63
104,965
104,965
49
URBAN EDGE PROPERTIES LP
CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN EQUITY
(In thousands, except unit and per unit amounts)
General
Partner
Limited
Partners(1)
Vornado
Equity
Accumulated
Earnings
(Deficit)
NCI in
Consolidated
Subsidiaries
Total
Equity
$
— $
— $
341,265
$
— $
319
$ 341,584
Balance, January 1, 2014
Net income attributable to Vornado
Net income attributable to noncontrolling interests
Distributions to Vornado, net
Balance, December 31, 2014
Net income (loss) attributable to unitholders(2)
Net income attributable to noncontrolling interests
Contributions from Vornado
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Issuance of units in connection with separation
473,918
27,649
Common units issued as a result of common
shares issued by Urban Edge
Distributions to Partners ($0.80 per unit)
Share-based compensation expense
Balance, December 31, 2015
Net income attributable to unitholders
Net income attributable to noncontrolling interests
Common units issued as a result of common
shares issued by Urban Edge
Distributions to Partners ($0.82 per unit)
Share-based compensation expense
Share-based awards retained for taxes
258
—
2,186
476,362
—
—
9,297
—
3,751
(38)
—
—
7,899
35,548
—
—
—
—
1,533
—
65,772
—
(148,515)
258,522
(2,022)
—
245,067
(501,567)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
43,354
—
—
—
(258)
(84,085)
176
(40,813)
96,627
—
(348)
(86,311)
149
—
—
22
—
341
—
16
—
—
—
—
—
357
—
3
—
—
—
—
65,772
22
(148,515)
258,863
41,332
16
245,067
—
—
(84,085)
10,261
471,454
96,627
3
8,949
(86,311)
5,433
(38)
Balance, December 31, 2016
$ 496,117
(1) Limited partners have a 6.0% common limited partnership interest in the Operating Partnership as of December 31, 2016 in the form of units of interest in the
(30,696) $
$ 489,372
37,081
— $
360
$
$
Operating Partnership (“OP Units”) and Long Term Incentive Plan (“LTIP”) units.
(2)
Net loss earned from January 1, 2015 through January 15, 2015 is attributable to Vornado as it was the sole unitholder prior to January 15, 2015. Refer to
Note 1 - Organization.
See notes to consolidated and combined financial statements.
50
URBAN EDGE PROPERTIES LP
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of deferred financing costs
Amortization of below market leases, net
Straight-lining of rent
Share-based compensation expense
Gain on sale of real estate
Non-cash separation costs paid by Vornado
Provision for doubtful accounts
Change in operating assets and liabilities:
Tenant and other receivables
Deferred leasing costs
Prepaid and other assets
Accounts payable and accrued expenses
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Real estate additions
Acquisition of real estate
Proceeds from sale of operating properties
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayments
Contributions from Vornado
Distributions to partners
Debt issuance costs
Taxes withheld for vested restricted units
Proceeds from issuance of units
Proceeds from borrowings
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest (includes amounts capitalized of $3,763, $1,856 and $0,
respectively)
Cash payments for income taxes
NON-CASH INVESTING AND FINANCING ACTIVITIES
Accrued capital expenditures included in accounts payable and accrued expenses
Write-off of fully depreciated assets
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND
RESTRICTED CASH
Cash and cash equivalents per consolidated balance sheet
Restricted cash per consolidated balance sheet
Cash and cash equivalents and restricted cash per consolidated and combined
statement of cash flow
Twelve Months Ended December 31,
2016
2015
2014
$
96,630
$
41,348
$
65,794
57,178
2,830
(7,776)
227
5,433
(15,618)
—
1,214
(78)
(3,815)
141
(237)
1,120
137,249
(69,901)
(9,267)
19,938
(59,230)
(38,458)
—
(86,311)
—
(38)
8,949
—
(115,858)
(37,839)
178,025
$ 140,186
$
51,137
$
$
58,299
2,738
(7,907)
333
10,261
—
17,403
1,526
(4)
(2,940)
(671)
11,300
6,392
138,078
(36,290)
(30,125)
—
(66,415)
(44,654)
227,732
(84,085)
(5,198)
—
—
—
93,795
165,458
12,567
178,025
52,814
54,897
1,660
(8,762)
(1,559)
3,878
—
—
1,032
(5,914)
(1,963)
767
(4,929)
787
105,688
(39,509)
(6,077)
—
(45,586)
(42,481)
(148,786)
—
(2,540)
—
—
130,000
(63,807)
(3,705)
16,272
12,567
53,133
$
$
1,277
1,907
1,342
12,492
4,585
8,699
10,588
1,592
2,612
$ 131,654
8,532
$
168,983
9,042
$
2,600
9,967
$ 140,186
$
178,025
$
12,567
See notes to consolidated and combined financial statements.
51
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1.
ORGANIZATION
Urban Edge Properties (“UE”, “Urban Edge” or the “Company”) (NYSE: UE) is a Maryland real estate investment trust that owns,
manages, acquires, develops, redevelops and operates retail real estate in high barrier-to-entry markets. Urban Edge Properties
LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as the Company’s majority-owned
partnership subsidiary and to own, through affiliates, all of the Company’s real estate properties and other assets. Prior to its
separation on January 15, 2015, UE was a wholly owned subsidiary of Vornado Realty Trust (“Vornado”) (NYSE: VNO). UE
and UELP were created to own the majority of Vornado’s former shopping center business. Prior to the separation, the portfolio
is referred to as “UE Businesses.” Unless the context otherwise requires, references to “we”, “us” and “our” refer to Urban Edge
Properties and UELP and their consolidated entities/subsidiaries after giving effect to the transfer of assets and liabilities from
Vornado as well as to UE Businesses prior to the date of the separation.
Pursuant to a separation and distribution agreement between UE and Vornado (the “Separation Agreement”), the interests in certain
properties held by Vornado’s operating partnership, Vornado Realty L.P. (“VRLP”), were contributed or otherwise transferred to
UE in exchange for 100% of our outstanding common shares. Following that contribution, VRLP distributed 100% of our
outstanding common shares to Vornado and the other common limited partners of VRLP, pro rata with respect to their ownership
of common limited partnership units in VRLP. Vornado then distributed all of the UE common shares it had received from VRLP
to Vornado common shareholders on a pro rata basis. As a result, VRLP common limited partners and Vornado common shareholders
all received common shares of UE in the spin-off at a ratio of one common share of UE to every two VRLP common units and
every two common shares of Vornado.
Substantially concurrently with such distribution, the interests in certain properties held by VRLP, including interests in entities
holding properties, were contributed or otherwise transferred to UELP in exchange for 5.4% of UELP’s outstanding common
limited partnership interests in the Operating Partnership (“OP Units”).
The Operating Partnership’s capital includes OP Units. As of December 31, 2016, Urban Edge owned approximately 94.0% of
the outstanding common OP Units with the remaining limited OP Units held by VRLP, and members of management and our
Board of Trustees. Urban Edge serves as the sole general partner of the Operating Partnership. The third party unitholders have
limited rights over the Operating Partnership such that they do not have characteristics of a controlling financial interest. As such,
the Operating Partnership is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary which
consolidates it. The Company’s only investment is the Operating Partnership.
As part of the separation, Vornado capitalized UE with $225 million of cash. Vornado also paid $21.9 million of the transaction
costs incurred in connection with the separation, which is reflected within non-cash separation costs paid by Vornado within the
statement of cash flows. Of the $21.9 million transaction costs, $17.4 million were contingent on the completion of the separation.
The remaining $4.5 million of transaction costs were allocated to Vornado on the separation date.
As of December 31, 2016 our portfolio consisted of 79 shopping centers, three malls and a warehouse park totaling 14.8 million
square feet.
2.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION AND COMBINATION
The accompanying consolidated and combined financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for annual financial information and with the instructions of Form
10-K. The consolidated financial statements as of and for the year ended December 31, 2016 reflect the consolidation of the
Company, the Operating Partnership, wholly-owned subsidiaries and those entities in which we have a controlling financial interest,
including entities where we have been determined to be a primary beneficiary of a variable interest entity (“VIE”).
The results presented for the year ended December 31, 2015 reflect the operations and changes in cash flows on a carved-out and
combined basis for the period from January 1, 2015 through the date of separation and on a consolidated basis subsequent to the
date of separation. The financial statements for the periods prior to the separation date are prepared on a carved-out and combined
basis from the consolidated financial statements of Vornado as UE Businesses were under common control of Vornado prior to
January 15, 2015. Such carved-out and combined amounts were determined using the historical results of operations and carrying
amounts of the assets and liabilities transferred to UE Businesses. The financial statements reflect the common shares as of the
date of the separation as outstanding for all periods prior to the separation. All intercompany transactions have been eliminated
in consolidation and combination.
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For periods presented prior to the date of the separation, our historical combined financial results for UE Businesses reflect charges
for certain corporate costs which we believe are reasonable. These charges were based on either actual costs incurred by Vornado
or a proportion of costs estimated to be applicable to UE Businesses based on an analysis of key metrics including total revenues,
real estate assets, leasable square feet and operating income. Such costs do not necessarily reflect what the actual costs would
have been if the Company were operating as a separate stand-alone public company. These charges are discussed further in Note
5 — Related Party Transactions.
Our primary business is the ownership, management, redevelopment, development and operation of retail shopping centers. We
do not distinguish our primary business or group our operations on a geographical basis for purposes of measuring performance.
We review operating and financial information for each property on an individual basis and therefore, each property represents
an individual operating segment. None of our tenants accounted for more than 10% of our revenue or property operating income.
We aggregate all of our properties into one reportable segment due to their similarities with regard to the nature and economics
of the properties, tenants and operations, as well as long-term average financial performance.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Real Estate — Real estate is carried at cost, net of accumulated depreciation and amortization. Expenditures for ordinary
maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements that improve
or extend the useful lives of assets are capitalized. As real estate is undergoing redevelopment activities, all property operating
expenses directly associated with and attributable to the redevelopment, including interest, are capitalized to the extent the
capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when completed. If the cost
of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of redeveloped
property, the excess is charged to impairment expense. We capitalize all property operating expenses directly associated with and
attributable to the development of a project, including interest expense. The capitalization period begins when redevelopment
activities are underway and ends when the project is substantially complete. Depreciation is recognized on a straight-line basis
over estimated useful lives which range from 3 to 40 years. Tenant related intangibles and improvements are amortized on a
straight-line basis over the lease term, including any bargain renewal options.
Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements,
identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and
acquired liabilities and we allocate the purchase price based on these assessments. We assess fair value based on estimated cash
flow projections utilizing appropriate discount and capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We
record acquired intangible assets (including acquired above-market leases, acquired in-place leases and tenant relationships) and
acquired intangible liabilities (including below-market leases) at their estimated fair value separate and apart from goodwill. 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.
Our properties are individually reviewed for impairment 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. An impairment loss is measured based on the excess of
the property’s carrying amount over its estimated fair value. Impairment analyses are based on our current plans, intended holding
periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows,
anticipated holding periods, or market conditions change, our evaluation of impairment losses may be different and such differences
could be material to our consolidated and combined financial statements. The evaluation of anticipated cash flows is subjective
and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially
from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.
Cash and Cash Equivalents — Cash and cash equivalents consist of highly liquid investments with original maturities of three
months or less and are carried at cost, which approximates fair value due to their short-term maturities. The majority of our cash
and cash equivalents consists of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance
Corporation limit and (ii) United States Treasury Bills. To date we have not experienced any losses on our invested cash.
53
Restricted Cash — Restricted cash consists of security deposits and cash escrowed under loan agreements for debt service, real
estate taxes, property insurance, tenant improvements, leasing commissions and capital expenditures.
Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable includes unpaid amounts billed to tenants
and accrued revenues for future billings to tenants for property expenses. We periodically evaluate the collectibility of amounts
due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to
make required payments under the lease agreements. We also maintain an allowance for receivables arising from the straight-
lining of rents. These receivables arise from earnings recognized in excess of amounts currently due under the lease agreements.
Management exercises judgment in establishing these allowances and considers payment history and current credit status in
developing these estimates. Accounts receivable are written-off when they are deemed to be uncollectible and we are no longer
actively pursuing collection.
Deferred Leasing Costs — Deferred leasing costs include direct salaries, third-party fees and other costs incurred by us to originate
a lease. Such costs are capitalized and amortized on a straight-line basis over the term of the related leases.
Deferred Financing Costs — Deferred financing costs include fees associated with our revolving credit agreement. Such fees are
amortized on a straight-line basis over the terms of the related revolving credit agreement as a component of interest expense,
which approximates the effective interest rate method, in accordance with the terms of the agreement. No amounts have been
drawn to date under the agreement.
Revenue Recognition — We have the following revenue sources and revenue recognition policies:
• Base Rent - income arising from minimum lease payments from tenant leases. These rents are recognized over the non-
cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements
under the leases. We commence rental revenue recognition when the tenant takes possession of the leased space and the
leased space is substantially ready for its intended use. In addition, in circumstances where we provide a lease incentive
to tenants, we recognize the incentive as a reduction of rental revenue on a straight-line basis over the term of the lease.
•
Percentage Rent - income arising from retail tenant leases that is contingent upon tenant sales exceeding defined thresholds.
These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been
achieved).
• Expense Reimbursements - revenue arising from tenant leases which provide for the recovery of all or a portion of the
operating expenses, real estate taxes and capital improvements of the respective property. This revenue is accrued in the
same periods as the expenses are incurred.
• Management, Leasing and Other Fees - income arising from contractual agreements with third parties. This revenue is
recognized as the related services are performed under the respective agreements.
Noncontrolling Interests — Noncontrolling interests represent the portion of equity that we do not own in those entities that we
consolidate. We identify our noncontrolling interests separately within the equity section on the consolidated balance sheets.
Redeemable Noncontrolling Interests — Redeemable noncontrolling interests include OP units and limited partnership interests
in the Operating Partnership in the form of long-term incentive plan (“LTIP”) unit awards.
Variable Interest Entities - Certain entities that do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a
controlling financial interest qualify as VIEs. VIEs are required to be consolidated by their primary beneficiary. The primary
beneficiary of a VIE has both the power to direct the activities that most significantly impact economic performance of the VIE
and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The consolidated
and combined financial statements reflect the consolidation of VIEs in which the Company is the primary beneficiary.
Earnings Per Share and Unit — Basic earnings per common share and unit is computed by dividing net income attributable to
common shareholders and unitholders by the weighted average common shares and units outstanding during the period. Unvested
share-based payment awards that entitle holders to receive non-forfeitable dividends, such as our restricted stock awards, are
classified as “participating securities.” Because the awards are considered participating securities, the Company and the Operating
Partnership are required to apply the two-class method of computing basic and diluted earnings that would otherwise have been
available to common shareholders and unitholders. Under the two-class method, earnings for the period are allocated between
common shareholders and unitholders and other shareholders and unitholders, based on their respective rights to receive dividends.
54
During periods of net loss, losses are allocated only to the extent the participating securities are required to absorb their share of
such losses. Diluted earnings per common share and unit reflects the potential dilution of the assumed exercises of shares including
stock options and unvested restricted shares to the extent they are dilutive.
Share-Based Compensation — We grant stock options, LTIP units, OP units, restricted share awards and performance-based units
to our officers, trustees and employees. The term of each award is determined by the compensation committee of our Board of
Trustees (the “Compensation Committee”), but in no event can such term be longer than ten years from the date of grant. The
vesting schedule of each award is determined by the Compensation Committee, in its sole and absolute discretion, at the date of
grant of the award. Dividends are paid on certain shares of unvested restricted stock, which makes the restricted stock a participating
security.
Fair value is determined, depending on the type of award, using either the Black-Scholes option-pricing model or the Monte Carlo
method, both of which are intended to estimate the fair value of the awards at the grant date. In using the Black-Scholes option-
pricing model, expected volatilities and dividend yields are primarily based on available implied data and peer group companies
historical data. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
Compensation expense for restricted share awards is based on the fair value of our common shares at the date of the grant and is
recognized ratably over the vesting period. For grants with a graded vesting schedule or a cliff vesting schedule, we have elected
to recognize compensation expense on a straight-line basis. Also included in Share-based compensation expense is the unrecognized
compensation expense of awards issued under Vornado’s outperformance plan (“OPP”) prior to the separation for the Company’s
employees who were previously Vornado employees. The OPP unrecognized compensation expense is recognized on a straight-
line basis over the remaining life of the OPP awards issued. Share-based compensation expense is included in general and
administrative expenses on the consolidated and combined statements of income.
When the Company issues common shares as compensation, it receives a like number of common units from the Operating
Partnership. Accordingly, the Company’s ownership in the Operating Partnership will increase based on the number of common
shares awarded under our 2015 Omnibus Share Plan. As a result of the issuance of common units to the Company for share-based
compensation, the Operating Partnership accounts for share-based compensation in the same manner as the Company.
Income Taxes — Our two Puerto Rico malls are subject to income taxes which are based on estimated taxable income and are
included in income tax expense in the consolidated and combined statements of income. Income taxes are accounted for under
the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using the enacted tax rates in effect for the year in which these temporary differences are
expected to be recovered or settled. Earnings and profits, which determine the taxability of dividends to shareholders, differs from
net income reported for financial reporting purposes primarily because of differences in depreciable lives and cost bases of the
malls, as well as other timing differences.
Concentration of Credit Risk — A concentration of credit risk arises in our business when a national or regionally-based tenant
occupies a substantial amount of space in multiple properties owned by us. In that event, if the tenant suffers a significant downturn
in its business, it may become unable to make its contractual rent payments to us, exposing us to potential losses in rental revenue,
expense recoveries, and percentage rent. Further, the impact may be magnified if the tenant is renting space in multiple locations.
Generally, we do not obtain security from our national or regionally-based tenants in support of their lease obligations to us. We
regularly monitor our tenant base to assess potential concentrations of credit risk. None of our tenants accounted for more than
10% of total revenues in the year ended December 31, 2016. As of December 31, 2016, The Home Depot was our largest tenant
with 7 stores which comprised an aggregate of 920,000 square-feet and accounted for approximately $20.2 million, or 6.2% of
our total revenue for the year ended December 31, 2016.
Recently Issued Accounting Literature
In January 2017, the FASB issued an update (“ASU 2017-01”) Clarifying the Definition of a Business, which introduces amendments
that are intended to make the guidance on the definition of a business more consistent and cost-efficient. The objective of the
update is to add further guidance that assists entities in evaluating whether a transaction will be accounted for as an acquisition
of an asset or a business by providing a screen to determine when the set of assets and activities acquired is not a business. ASU
2017-01 is effective for annual periods beginning after December 15, 2017, with early adoption permitted. Early adoption is
permitted as of the beginning of a reporting period for which financial statements have not yet been issued. The ASU must be
applied prospectively on or after the effective date. The adoption of this standard will result in less real estate acquisitions qualifying
as businesses and, accordingly, acquisition costs for those acquisitions that are not businesses will be capitalized rather than
expensed.
55
In November 2016, the FASB issued an update (“ASU 2016-18”) Statement of Cash Flows - Restricted Cash, that requires entities
to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash
flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted
cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017,
with early adoption permitted. We elected to early adopt ASU 2016-18 including retrospective adoption for all prior periods. The
impact of the adoption of ASU 2016-18 is the addition of a reconciliation of the totals in the statement of cash flows to the related
captions in the balance sheet.
In August 2016, the FASB issued an update (“ASU 2016-15”) Statement of Cash Flows - Classification of Certain Cash Receipts
and Cash Payments, which addresses specific cash flow classification issues where there is currently diversity in practice including
debt prepayment and proceeds from the settlement of insurance claims. ASU 2016-15 is effective for annual periods beginning
after December 15, 2017, with early adoption permitted. We elected to early adopt ASU 2016-15 effective as of September 30,
2016. The adoption of ASU 2016-15 did not impact our results of operations or cash flows.
In June 2016, the FASB issued an update (“ASU 2016-13”) Measurement of Credit Losses on Financial Instruments, which replaces
the incurred impairment methodology in current GAAP with a methodology that reflects expected credit losses. The update is
intended to provide financial statement users with more decision-useful information about the expected credit losses on financial
instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 is effective
for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December
15, 2018. We are evaluating the impact this standard will have on our consolidated and combined financial statements.
In February 2016, the FASB issued an update (“ASU 2016-02”) Leases, which revises the accounting related to lease accounting.
Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms
greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. The provisions of ASU 2016-02 are effective for fiscal years beginning after December 15,
2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We elected the
modified retrospective transition approach and expects to adopt the standard beginning January 1, 2019. This standard will impact
our consolidated financial statements by the recording of right-of-use assets and lease liabilities on our consolidated balance sheets
for operating and finance leases where we are the lessee. In addition, leases where we are the lessor that meet the criteria of a
finance lease will be amortized using the effective interest method with corresponding charges to interest expense and amortization
expense. Leases where we are the lessor that meet the criteria of an operating lease will continue to be amortized on a straight-
line basis. Lastly, internal leasing department overhead previously capitalized will be expensed.
In April 2015, the FASB issued an update (“ASU 2015-03”) Simplifying the Presentation of Debt Issuance Costs to ASC Topic
835-30 Interest - Imputation of Interest. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from that debt liability, consistent with the presentation of a debt discount.
The recognition and measurement guidance for debt issuance costs is not affected by the amendments in ASU 2015-03. ASU
2015-03 is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015
with early adoption permitted. We elected to early adopt ASU 2015-03 effective as of December 31, 2015. The effect of ASU
2015-03 was to reclassify the net unamortized balance of debt issuance costs of $10.0 million as of December 31, 2015 from
deferred financing costs to a contra liability deduction of mortgages payable. Mortgages payable as of December 31, 2016 are
presented net of $8.0 million of unamortized debt issuance costs. The adoption of ASU 2015-03 did not impact our results of
operations or cash flows.
In February 2015, the FASB issued an update (“ASU 2015-02”) Amendments to the Consolidation Analysis to ASC Topic 810
Consolidation. Under amendments in this update, all reporting entities are within the scope of Subtopic 810-10 Consolidation -
Overall, including limited partnerships and similar legal entities, unless a scope exception applies. The presumption that a general
partner controls a limited partnership has been eliminated. Overall the amendments in this update are to simplify the codification
and reduce the number of consolidation models and place more emphasis on risk of loss when determining controlling financial
interests. ASU 2015-02 is effective for public businesses for interim and annual periods beginning after December 15, 2015. We
adopted ASU 2015-02 as of March 31, 2016. Under ASU 2015-02 the Company’s Operating Partnership is considered a variable
interest entity (“VIE”). The Company is the primary beneficiary of the VIE, 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. The
Operating Partnership was formed to serve as the Company’s majority-owned partnership subsidiary and to own, through affiliates,
all of the Company’s real estate properties and other assets. The Company consolidates the Operating Partnership as it is the
primary beneficiary of the VIE.
56
In May 2014, the FASB issued an update (“ASU 2014-09”) Revenue from Contracts with Customers to ASC Topic 606, which
supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. ASU 2014-09 requires additional
disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. During
the year ended December 31, 2016, the FASB issued the following updates to ASC Topic 606 to clarify and/or amend the guidance
in ASU 2014-09: (i) ASU 2016-08 Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies
the implementation guidance on principal versus agent considerations, (ii) ASU 2016-10 Identifying Performance Obligations
and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance
and (iii) ASU 2016-12 Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of ASU 2014-09.
In August 2015, the FASB issued an update (“ASU 2015-09”) Revenue from Contracts with Customers to ASC Topic 606, which
defers the effective date of ASU 2014-09 for all entities by one year. ASU 2015-09 is effective beginning after December 15, 2017,
including interim reporting periods within that reporting period. Early adoption is permitted only for annual reporting periods
beginning after December 15, 2016, including interim reporting periods within that reporting period. We are permitted to use either
the modified retrospective or the retrospective method for adopting this standard. We are currently evaluating the impact of the
adoption on our consolidated and combined financial statements including gain recognition on real estate sales and the presentation
of tenant reimbursement income.
4.
ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 2016, we purchased land that is the site of a future 2,000 sf Popeye’s for $2.7 million. During
the year ended December 31, 2015, we acquired three properties with existing leases. All acquisitions have been accounted for as
business combinations. The purchase prices were allocated to the acquired assets based on their estimated fair values at date of
acquisition.
The following table provides a summary of acquisition activity in 2016 and 2015:
Date Purchased
Property Name
City
State
April 29, 2015
June 29, 2015
Bergen Town Center - outparcel
Paramus
Lawnside - outparcel
December 23, 2015
Cross Bay Commons
Lawnside
Queens
NJ
NJ
NY
December 22, 2016 North Bergen - outparcel
North Bergen
NJ
Square Feet/
Acres
Purchase Price
(unaudited)
(in thousands)
0.8 (1)
$
2,000
46,000
2015 Total
0.3 (1)
2016 Total $
2,750
375
27,000
30,125
2,667
2,667
(1) In acres.
The aggregate purchase price of the above property acquisitions have been allocated as follows:
(Amounts in thousands)
Land
Buildings and improvements
Identified intangible assets
Deferred leasing costs
Identified intangible liabilities
Amount
2016
2015
2,667
$
—
—
—
—
2,667
$
17,145
12,821
1,760
594
(2,195)
30,125
$
$
We expensed approximately $1.2 million of transaction-related costs in connection with completed or pending property acquisitions
that were closed subsequent to December 31, 2016 which are included in Transaction costs in the consolidated and combined
statements of operations.
In conjunction with the acquisition of Cross Bay Commons on December 23, 2015, we entered into a reverse like-kind exchange
agreement under Section 1031 of the Internal Revenue Code with a third party intermediary. The exchange agreement was for a
maximum of 180 days and allowed us, for tax purposes, to defer gains on the sale of other properties sold within 180 days after
the acquisition date.
57
On June 9, 2016, we completed the sale of a shopping center located in Waterbury, CT. The sales price of this property of $21.6
million, less costs to sell, resulted in net proceeds of $19.9 million. Accordingly, we recorded a gain on sale of $15.6 million. The
sale completed the reverse Section 1031 tax deferred exchange transaction with the acquisition of Cross Bay Commons.
From December 23, 2015 to June 9, 2016, a third party intermediary was the legal owner of Cross Bay Commons, although we
controlled the activities that most significantly impacted the property and retained all of the economic benefits and risks associated
with it, and therefore we concluded it was a VIE and we were the primary beneficiary of the VIE. Accordingly, effective
December 23, 2015, we consolidated Cross Bay Commons and its operations even during the period it was held by a third party
intermediary. The consolidated balance sheets included total assets and liabilities of Cross Bay Commons of $29.5 million and
$2.5 million, respectively, as of December 31, 2015.
Refer to Note 19 - Subsequent Events for acquisitions closed subsequent to December 31, 2016.
5.
RELATED PARTY TRANSACTIONS
In connection with the separation, the Company and Vornado entered into a transition services agreement under which Vornado
provided transition services to the Company including human resources, information technology, risk management, tax services
and office space and support. The fees charged to us by Vornado for those transition services approximated the actual cost incurred
by Vornado in providing such services. On June 28, 2016, the Company executed an amendment to the transition services agreement,
extending Vornado’s provision of information technology, risk management services and the portion of the human resources service
related to health and benefits through July 31, 2018, unless terminated earlier. Fees for these services remain the same except that
they may be adjusted for inflation. As of December 31, 2016 there were no amounts due to Vornado related to such services.
During the twelve months ended December 31, 2016 and 2015 there were $1.7 million and $2.4 million of costs paid to Vornado
included in general and administrative expenses, respectively, which consisted of $0.9 million and $0.4 million of rent expense
for two of our office locations and $0.8 million and $2.0 million of transition services fees, respectively.
Management and Development Fees
In connection with the separation, the Company and Vornado entered into a property management agreement under which the
Company provides management, development, leasing and other services to certain properties owned by Vornado and its affiliates,
including Interstate Properties (“Interstate”) and Alexander’s, Inc. (NYSE:ALX). Interstate is a general partnership that owns
retail properties in which Steven Roth, Chairman of Vornado’s Board and Chief Executive Officer of Vornado, and a member of
our Board of Trustees, is the managing general partner. Interstate and its partners beneficially owned an aggregate of approximately
7.1% of the common shares of beneficial interest of Vornado as of December 31, 2016. As of the year ended December 31, 2016,
Vornado owned 32.4% of Alexander’s, Inc. During the twelve months ended December 31, 2016, 2015, and 2014 we recognized
management and development fee income of $1.8 million, $2.3 million, and $0.5 million respectively. As of December 31, 2016
and December 31, 2015, there were $0.3 million and $0.7 million of fees, respectively, due from Vornado included in tenant and
other receivables in our consolidated balance sheets.
58
6.
IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES
The following table summarizes our identified intangible assets and liabilities:
(Amounts in thousands)
In-place leases
Accumulated amortization
Below-market ground leases(1)
Accumulated amortization
Above-market leases
Accumulated amortization
Identified intangible assets, net of accumulated amortization
Below-market leases
Accumulated amortization
December 31, 2016
December 31, 2015
$
29,065
(12,244)
23,730
(9,847)
441
(270)
30,875
219,519
(72,528)
146,991
$
$
31,872
(13,032)
23,730
(8,875)
441
(183)
33,953
220,075
(65,220)
154,855
Identified intangible liabilities, net of accumulated amortization
(1) Intangible assets related to below-market leases where the Company is a lessee under a ground lease.
$
Amortization of acquired below-market leases, net of acquired above-market leases resulted in additional rental income of $7.8
million, $7.9 million and $8.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Amortization of acquired in-place leases and customer relationships resulted in additional depreciation and amortization expense
of $2.0 million, $1.5 million and $1.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Certain shopping centers were acquired subject to ground leases or ground and building leases. Amortization of these acquired
below-market leases resulted in additional rent expense of $1.0 million in each of the years ended December 31, 2016, 2015 and
2014.
The following table sets forth the estimated annual amortization related to intangible assets and liabilities for the five succeeding
years commencing January 1, 2017:
(Amounts in thousands)
Year
Below-Market
Operating Leases(1)(3)
In-Place Leases(2)
Below-Market
Ground Leases(4)
$
2017
2018
2019
2020
7,419
$
7,198
7,175
7,182
1,482
$
1,300
1,179
1,136
972
972
972
972
2021
(1) Estimated annual amortization of acquired below-market leases, net of acquired above-market leases.
(2) Estimated annual amortization of acquired in-place leases and customer relationships.
(3) The annual amortization of the below-market intangible liabilities in the table above includes $1.6 million associated with our ground lease
for the Shops at Bruckner which was sold subsequent to December 31, 2016. Refer to Note 19 - Subsequent Events for further information.
1,037
7,153
622
(4) Estimated annual amortization of below-market leases where the Company is a lessee under a ground lease.
59
7.
MORTGAGES PAYABLE
The following is a summary of mortgages payable as of December 31, 2016 and December 31, 2015.
(Amounts in thousands)
Cross collateralized mortgage loan:
Fixed Rate
Variable Rate(1)
Total cross collateralized
First mortgages secured by:
North Bergen (Tonnelle Avenue)
Englewood(3)
Montehiedra Town Center, Senior Loan(2)(4)
Montehiedra Town Center, Junior Loan(2)
Bergen Town Center
Las Catalinas
Mount Kisco (Target)(5)
Maturity
9/10/2020
9/10/2020
1/9/2018
10/1/2018
7/6/2021
7/6/2021
4/8/2023
8/6/2024
11/15/2034
Interest Rate at
December 31, 2016
December 31,
2016
December 31,
2015
4.36%
2.36%
4.59%
6.22%
5.33%
3.00%
3.56%
4.43%
6.40%
$
519,125
$
38,756
557,881
73,951
11,537
87,308
30,000
300,000
130,000
533,459
60,000
593,459
75,000
11,537
88,676
30,000
300,000
130,000
14,883
1,205,560
(8,047)
1,197,513
$
15,285
1,243,957
(9,974)
1,233,983
Total mortgages payable, net of unamortized debt issuance costs $
Total mortgages payable
Unamortized debt issuance costs
(1) Subject to a LIBOR floor of 1.00%, bears interest at LIBOR plus 136 bps. In June 2016, in connection with the sale of our property in
Waterbury, CT, we prepaid $21.2 million of the variable rate portion of our cross collateralized mortgage loan to maintain compliance with
covenant requirements.
(2) On January 6, 2015, we completed the modification of the $120.0 million, 6.04% mortgage loan secured by Montehiedra Town Center.
Refer to “Troubled Debt Restructuring” disclosure below.
(3) On March 30, 2015, we notified the lender that due to tenants vacating, the property’s operating cash flow would be insufficient to pay its
debt service. As of December 31, 2016 we were in default and the property was transferred to receivership. Urban Edge no longer manages
the property but will remain its title owner until the receiver disposes of the property. We have determined this property is held in a VIE
for which we are the primary beneficiary. Accordingly, as of December 31, 2016 we consolidated Englewood and its operations. The
consolidated balance sheet included total assets and liabilities of $12.4 million and $14.2 million, respectively.
(4) The mortgage payable balance secured by Montehiedra was presented net of unamortized fees of $1.7 million as of December 31, 2015 in
our Form 10-K as filed with SEC for Urban Edge Properties. The net unamortized fees of $1.7 million were revised to be presented with
the unamortized debt issuance costs.
(5) The mortgage payable balance on the loan secured by Mt. Kisco (Target) includes $1.1 million of unamortized debt discount as of
December 31, 2016 and December 31, 2015. The effective interest rate including amortization of the debt discount is 7.26% as of
December 31, 2016.
The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $859.2 million as of
December 31, 2016. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties
and in certain circumstances, require lender approval of tenant leases and/or yield maintenance upon repayment prior to maturity.
Our property in Waterbury, CT was held as collateral in our cross collateralized mortgage loan. In connection with the sale of our
property in Waterbury, CT on June 9, 2016, we prepaid $21.2 million of the variable rate component of our cross collateralized
mortgage loan in order to maintain compliance with covenant requirements. As of December 31, 2016, we were in compliance
with all debt covenants.
As of December 31, 2016, the principal repayments for the next five years and thereafter are as follows:
(Amounts in thousands)
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
17,120
99,708
17,320
513,870
120,048
437,494
60
On January 15, 2015, we entered into a $500 million Revolving Credit Agreement (the “Agreement”) with certain financial
institutions. The Agreement has a four-year term with two six-month extension options. Borrowings under the Agreement are
subject to interest at LIBOR plus 1.15% and we are required to pay an annual facility fee of 20 basis points which is expensed as
incurred. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to increase if
our leverage ratio increases above predefined thresholds. The Agreement contains customary financial covenants including a
maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x. No amounts have been drawn to date under
the Agreement. Financing fees associated with the Agreement of $1.9 million and $2.8 million as of December 31, 2016 and
December 31, 2015, respectively, are included in deferred financing fees in the consolidated balance sheets.
Troubled Debt Restructuring
During the year ended December 31, 2014, Montehiedra Town Center (“Montehiedra”), our property in the San Juan area of Puerto
Rico, was experiencing financial difficulties which resulted in a substantial decline in its net operating cash flows. As such, we
transferred the mortgage loan secured by Montehiedra to the special servicer and discussed restructuring the terms of the mortgage
loan. In January 2015 we completed the modification of the $120.0 million, 6.04% mortgage loan. The loan was extended from
July 2016 to July 2021 and separated into two tranches, a senior $90.0 million position with interest at 5.33% to be paid currently
and a junior $30.0 million position with interest accruing at 3.0%. As part of the planned redevelopment of the property, we
committed to fund $20.0 million through an intercompany loan for leasing and capital expenditures of which $16.9 million has
been funded as of December 31, 2016. This $20.0 million intercompany loan is senior to the $30.0 million mortgage position
noted above and accrues interest at 10%. Both the intercompany loan and related interest are eliminated in our consolidated and
combined financial statements. We incurred $2.0 million of debt issuance costs in connection with the loan modification.
8.
INCOME TAXES
The Company has elected to qualify as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended,
commencing with the filing of our tax return for the 2015 fiscal year. Under those sections, a REIT, which distributes at least 90%
of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions, will not be taxed
on that portion of its taxable income which is distributed to its shareholders. Prior to the separation from Vornado, UE Businesses
historically operated under Vornado’s REIT structure. As Vornado operates as a REIT and distributes 100% of taxable income, no
provision for federal income taxes has been made in the accompanying consolidated and combined financial statements for periods
prior to the separation. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular
corporate rates (including any alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable
years.
The following summarizes the tax status of dividends paid for the years ended December 31, 2016 and 2015:
Dividend paid per share
Ordinary income
Return of capital
Capital gains
Year Ended December 31,
2016
2015
$
0.82
$
100%
—%
—%
0.80
100%
—%
—%
The REIT and the other minority members are partners in the Operating Partnership. As such, the partners are required to report
their share of taxable income on their tax returns. We are also subject to certain other taxes, including state and local taxes and
franchise taxes which are included in general and administrative expenses in the consolidated and combined statements of income.
Our two Puerto Rico malls are subject to a 29% non-resident withholding tax which is included in income tax expense in the
consolidated and combined statements of income. The Puerto Rico tax expense recorded was $0.8 million, $1.3 million, and $1.7
million for the twelve months ended December 31, 2016, 2015, and 2014 respectively. Both properties are held in a special
partnership for Puerto Rico tax reporting (the general partner being a qualified REIT subsidiary or “QRS”).
61
Income tax expense consists of the following:
(Amounts in thousands)
Income tax expense:
Current(1)
Deferred(2)
Total income tax expense
2016
Year Ended December 31,
2015
2014
$
$
609
195
804
$
$
1,417
(123)
1,294
$
$
1,721
—
1,721
(1) Current income tax expense for the year ended December 31, 2016 is net of a $0.6 million reduction to the accrued income tax liability recorded
in the second quarter of 2016.
(2) The deferred portion of income tax expense related to temporary differences for periods prior to the separation date are reflected as contributions
from Vornado in the consolidated and combined statement of changes in equity.
A net deferred tax liability of $3.8 million is included in our consolidated balance sheet within Other Liabilities as of December 31,
2016, comprised of temporary differences related to our two Puerto Rico properties, a deferred tax liability of $4.5 million offset
by a deferred tax asset of $0.7 million. The deferred tax liability of $4.5 million is comprised of $2.3 million of tax depreciation
in excess of GAAP depreciation, $1.9 million straight-line rents and $0.3 million of amortization of acquired leases not recorded
for tax purposes. The deferred tax asset of $0.7 million is comprised of $0.3 million of GAAP to tax depreciation adjustment, $0.2
million of amortization of deferred financing fees not recorded for tax purposes and $0.2 million excess of bad debt expense for
tax purposes.
The temporary differences resulting from activity during the years ended December 31, 2016 and 2015 is recorded within Income
Tax Expense on the consolidated and combined statements of income.
Below is a table summarizing the net deferred income tax liability balance as of December 31, 2016 and 2015:
(Amounts in thousands)
Balance at January 1, 2015
Change in deferred tax assets:
Depreciation
Amortization of deferred financing costs
Provision for doubtful accounts
Change in deferred tax liabilities:
Depreciation
Straight-line rent
Amortization of acquired leases
Balance at December 31, 2015
Change in deferred tax assets:
Depreciation
Amortization of deferred financing costs
Provision for doubtful accounts
Change in deferred tax liabilities:
Depreciation
Straight-line rent
Amortization of acquired leases
Balance at December 31, 2016
$
$
(3,730)
(123)
254
(72)
(2)
51
15
(3,607)
(94)
(46)
(14)
(88)
39
8
(3,802)
The Operating Partnership is organized as limited partnership and is generally not subject to federal income tax. Accordingly, no
provision for federal income taxes has been reflected in the accompanying consolidated and combined financial statements. The
Operating Partnership, however, is subject to the non-resident withholding tax at our two Puerto Rico malls.
62
9.
FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The
objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted)
in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices based on inputs
not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs used when little or no market
data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In
determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.
Financial Assets and Liabilities Measured at Fair Value on a Recurring or Non-Recurring Basis
There were no financial assets or liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2016
and December 31, 2015.
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on the consolidated balance sheets include cash and cash equivalents
and mortgages payable. Cash and cash equivalents are carried at cost, which approximates fair value. The fair value of mortgages
payable is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available
to borrowers with similar credit ratings, which are provided by a third-party specialist. The fair value of cash and cash equivalents
is classified as Level 1 and the fair value of mortgages payable is classified as Level 2. The table below summarizes the carrying
amounts and fair value of these financial instruments as of December 31, 2016 and December 31, 2015.
(Amounts in thousands)
Assets:
Cash and cash equivalents
Liabilities:
Mortgages payable(1)
(1) Excludes unamortized debt issuance costs.
As of December 31, 2016
As of December 31, 2015
Carrying Amount
Fair Value
Carrying Amount
Fair Value
$
$
131,654
1,205,560
$
$
131,654
1,216,989
$
$
168,983
1,243,957
$
$
168,983
1,262,483
The following interest rates were used by the Company to estimate the fair value of mortgages payable:
Mortgages payable
December 31, 2016
December 31, 2015
Low
2.0%
High
2.3%
Low
2.0%
High
2.3%
63
10.
LEASES
As Lessor
We lease space to tenants under operating leases which expire from 2017 to 2072. The leases provide for the payment of fixed
base rents payable monthly in advance as well as reimbursements of real estate taxes, insurance and maintenance costs. Retail
leases may also provide for the payment by the lessee of additional rents based on a percentage of their sales.
Future base rental revenue under these non-cancelable operating leases excluding extension options is as follows:
(Amounts in thousands)
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
$
221,690
211,175
192,078
166,899
149,882
960,042
These future minimum amounts do not include additional rents based on a percentage of tenants’ sales or reimbursements. For
the years ended December 31, 2016, 2015 and 2014, these additional rents were $0.8 million, $1.2 million, and $1.5 million
respectively.
As Lessee
We are a tenant under long-term ground leases or ground and building leases for certain of our properties. Lease expirations
range from 2017 to 2102. Future lease payments under these agreements, excluding extension options, are as follows:
(Amounts in thousands)
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
$
8,964
7,676
7,354
5,110
4,522
34,677
11.
COMMITMENTS AND CONTINGENCIES
Legal Matters: There are various legal actions against us in the ordinary course of business. In our opinion, after consultation
with legal counsel, the outcome of such matters will not have a material adverse effect on our financial condition, results of
operations or cash flows.
Loan Commitments: In January 2015 we completed the modification of the $120.0 million, 6.04% mortgage loan secured by
Montehiedra. As part of the planned redevelopment of the property, we committed to fund $20.0 million for leasing and building
capital expenditures of which $16.9 million has been funded as of December 31, 2016.
Redevelopment: As of December 31, 2016, we had approximately $191.7 million of active development, redevelopment and
anchor repositioning projects underway of which $110.5 million remains to be funded as of December 31, 2016. Based on current
plans and estimates we anticipate the remaining amounts will be expended over the next three years.
Insurance: We maintain general liability insurance with limits of $200 million per occurrence for properties in the U.S. and Puerto
Rico, and all-risk property and rental value insurance coverage with limits of $500 million for properties in the U.S. and $139
million for properties in Puerto Rico per occurrence, with sub-limits for certain perils such as floods and earthquakes on each of
our properties. We also maintain coverage for terrorism acts with limits of $500 million for properties in the U.S. and $139 million
for properties in Puerto Rico per occurrence and in the aggregate excluding coverage for nuclear, biological, chemical or radiological
terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020. In
addition, we maintain coverage for cybersecurity with limits of $5 million in the aggregate providing first and third party coverage
64
including network interruption, event management, cyber extortion and claims for media content, security and privacy liability.
Insurance premiums are charged directly to each of the retail properties and warehouses. We will be responsible for deductibles
and losses in excess of insurance coverage, which could be material.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism. However, we
cannot anticipate what coverage will be available on commercially reasonable terms in the future.
Our mortgage loans are non-recourse and contain customary covenants requiring adequate insurance coverage. Although we
believe that we currently have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an
equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain
it could adversely affect our ability to finance our properties and expand our portfolio.
Environmental Matters: Each of our properties has been subjected to varying degrees of environmental assessment at various
times. Based on these assessments and the projected remediation costs, we have accrued costs of $1.4 million on our consolidated
balance sheets for potential remediation costs for environmental contamination at two properties. While this accrual reflects our
best estimates of the potential costs of remediation at these properties, $0.1 million has currently been expended and there can be
no assurance that the actual costs will not exceed this amount. With respect to our other properties, the environmental assessments
did not reveal any material environmental contamination. However, there can be no assurance that the identification of new areas
of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup
requirements would not result in significant costs to us.
12.
PREPAID EXPENSES AND OTHER ASSETS
The following is a summary of the composition of the prepaid expenses and other assets in the consolidated balance sheets:
(Amounts in thousands)
Deposits for acquisitions
Other assets
Prepaid expenses:
Real estate taxes
Insurance
Rent, licenses/fees
Total Prepaid expenses and other assets
13.
OTHER LIABILITIES
Balance at
December 31, 2016
December 31, 2015
$
$
6,600
$
2,161
5,198
2,545
938
17,442
$
100
2,367
5,646
1,934
941
10,988
The following is a summary of the composition of other liabilities in the consolidated balance sheets:
(Amounts in thousands)
Deferred ground rent expense
Deferred tax liability, net
Deferred tenant revenue
Environmental remediation costs
Total Other liabilities
Balance at
December 31, 2016
December 31, 2015
$
$
6,284
$
3,802
3,280
1,309
14,675
$
6,038
3,607
2,284
1,379
13,308
65
14.
INTEREST AND DEBT EXPENSE
The following table sets forth the details of interest and debt expense.
(Amounts in thousands)
Interest expense
Amortization of deferred financing costs
Total Interest and debt expense
Twelve Months Ended December 31,
2015
2014
2016
$
$
49,051
2,830
51,881
$
$
52,846
2,738
55,584
$
$
53,300
1,660
54,960
15.
EQUITY AND NONCONTROLLING INTEREST
At-The-Market Program
On August 8, 2016, the Company established an at-the-market (“ATM”) equity program, pursuant to which the Company may
offer and sell its common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250.0 million through a
consortium of broker-dealers acting as sales agents. Sales of common shares may be made, as needed, from time to time in ATM
offerings as defined in Rule 415 of the Securities Act of 1933, including by means of ordinary brokers’ transactions on the NYSE
or otherwise (i) at market prices prevailing at the time of sale (ii) at prices related to prevailing market prices or (iii) as otherwise
agreed to with the applicable sales agent.
From September 2016 to December 31, 2016, the Company issued 307,342 common shares at a weighted average price of $28.45
under its ATM equity program, generating cash proceeds of $8.7 million. We paid $0.1 million of commissions to distribution
agents and $0.4 million in additional offering expenses related to the issuance of these common shares. We used the net proceeds
to fund acquisition opportunities and fund our development and redevelopment pipeline. Actual future sales will depend on a
variety of factors including, but not limited to, market conditions, the trading price of our common shares and our capital needs.
We have no obligation to sell the remaining shares available under the active ATM equity program.
Common Units of the Operating Partnership
Operating Partnership units were issued by the Operating Partnership to the Company in connection with the issuance of common
shares by the Company under its ATM equity program, as discussed above.
Dividends and Distributions
During the twelve months ended December 31, 2016 and 2015, the Company declared dividends on our common shares and OP
unit distributions of $0.82 per share/unit, and $0.80 per share/unit, respectively.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests reflected on the consolidated balance sheets of the Company are comprised of OP Units and
limited partnership interests in the Operating Partnership in the form of LTIP unit awards. In connection with the separation, the
Company issued 5.7 million OP units, representing a 5.4% interest in the Operating Partnership to VRLP in exchange for interests
in VRLP properties contributed by VRLP. LTIP unit awards were granted to certain executives pursuant to our Omnibus Share
Plan (the “Omnibus Share Plan”). The total of the OP units and LTIP units represent a 6.0% weighted-average interest in the
Operating Partnership for twelve months ended December 31, 2016. Holders of outstanding vested LTIP units may, from and after
two years from the date of issuance, redeem their LTIP units for cash, or for the Company’s common shares on a one-for-one basis,
solely at the Company’s election. Holders of outstanding OP units may, at a determinable date, redeem their units for cash or the
Company’s common shares on a one-for-one basis solely at our election.
Noncontrolling Interest
The noncontrolling interest relates to the 5% interest held by others in our property in Walnut Creek, CA (Mt. Diablo). The net
income attributable to noncontrolling interest is presented separately in our consolidated and combined statements of income.
66
16.
SHARE-BASED COMPENSATION
On January 7, 2015 our board and initial shareholder approved the Urban Edge Properties Omnibus Share Plan, under which
awards may be granted up to a maximum of 15,000,000 of our common shares or share equivalents. Pursuant to the Omnibus
Share Plan, stock options, LTIP units, operating partnership units and restricted shares were granted. We have a Dividend
Reinvestment Plan (the “DRIP”), whereby shareholders may use their dividends to purchase shares. During the twelve months
ended December 31, 2016 and 2015, 12,564 and 11,407 shares were issued under the DRIP, respectively.
On November 3, 2015, the Compensation Committee of the Board of Trustees of the Company approved the Company’s 2015
Outperformance Plan (“OPP”). The OPP is a multi-year, performance-based equity compensation plan under which participants,
including our Chairman and Chief Executive Officer, have the opportunity to earn awards in the form of LTIP Units if, and only
if, we outperform a predetermined total shareholder return (“TSR”) and/or outperform the market with respect to a relative TSR
in any year during the requisite performance periods as described below. The aggregate notional amount of the 2015 OPP grant
was $10.2 million.
Awards under the 2015 OPP may be earned if we (i) achieve a TSR level greater than 7% per annum, or 21% over the three-year
performance measurement period (the “Absolute Component”), and/or (ii) achieve a TSR equal to or above, that of the 50th
percentile of a retail REIT peer group (“Peer Group”) comprised of 15 of our peer companies, over a three-year performance
measurement period (the “Relative Component”). Dividends on awards accrue during the measurement period.
If the designated performance objectives are achieved, LTIP Units are also subject to time-based vesting requirements. Awards
earned under the 2015 OPP vest 50% in year three, 25% in year four and 25% in year five. Our executive officers are required to
hold earned 2015 OPP awards for one year following vesting.
The fair value of the 2015 OPP on the date of grant was $3.9 million using a Monte Carlo simulation to estimate the fair value
based on the probability of satisfying the market conditions and the projected share price at the time of payment, discounted to
the valuation date over a three-year performance period. Assumptions include historic volatility (25.0%), risk-free interest rates
(1.2%), and historic daily return as compared to our Peer Group (which ranged from 19.0% to 27.0%). Such amount is being
amortized into expense over a five-year period from the date of grant, using a graded vesting attribution model. In the twelve
months ended December 31, 2016 and 2015, we recognized $1.1 million and $0.2 million of compensation expense related to the
OPP’s LTIP Units, respectively. As of December 31, 2016 there was $2.6 million of total unrecognized compensation cost related
to the OPP’s LTIP Units, which will be recognized over a weighted-average period of 2.6 years.
All stock options granted have ten-year contractual lives, containing vesting terms of three to five years. As of December 31,
2016, the weighted average contractual term of shares under option outstanding at the end of the period is 8.3 years. The
following table presents stock option activity for the twelve months ended December 31, 2016 and 2015:
Shares
Under
Options
Weighted Average
Exercise Price per
Share
Weighted Average
Remaining Expected
Term
(In years)
Outstanding at January 1, 2015
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2015
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
— $
2,302,762
—
(13,623)
2,289,139
196,713
(8,501)
(5,067)
2,472,284
45,352
$
$
—
23.89
—
24.46
23.89
23.52
24.46
24.46
23.86
23.74
—
6.15
—
—
6.15
6.00
—
—
5.33
—
67
During the twelve months ended December 31, 2016 and 2015, the fair value of the options granted was estimated on the grant
date using the Black-Scholes pricing model with the following assumptions:
Risk-free interest rate
Expected option life
Expected volatility
February 17,
2015
March 12,
2015
1.76%
6.00
24.00%
1.91%
6.50
25.00%
April 20,
2015
1.60%
6.25
26.00%
August 17,
2015
February 8,
2016
1.95%
6.25
27.00%
1.31%
6.25
23.94%
The options were granted with an exercise price equivalent to the average of the high and low share price on the grant date. No
options were granted during the year ended December 31, 2014.
The following table presents information regarding restricted share activity during the twelve months ended December 31,
2016 and 2015:
Unvested at January 1, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2016
Shares
Weighted Average Grant
Date Fair Value per Share
—
35,460
(1,022)
(3,721)
30,717
117,399
(15,977)
(2,744)
129,395
$
$
—
22.84
24.46
24.18
22.62
24.55
23.17
23.55
24.29
During the twelve months ended December 31, 2016 and 2015, we granted 117,399 and 35,460 restricted shares, respectively,
that are subject to forfeiture and vest over periods ranging from one to four years. The total grant date value of the 15,977 and
1,022 restricted shares vested during the years ended December 31, 2016 and 2015 was $0.4 million and $25 thousand, respectively.
There were 433,040 LTIP units issued to executives during the year ended December 31, 2015, 343,232 of which were issued in
connection with the separation transaction and were immediately vested. During the year ended December 31, 2016, 39,439 units
vested. The remaining 50,369 units vest over a weighted average period of 2.2 years.
Share-based compensation expense, which is included in general and administrative expenses in our consolidated and combined
statements of income, is summarized as follows:
(Amounts in thousands)
Share-based compensation expense components(2):
Restricted share expense
Stock option expense
LTIP expense(3)
Outperformance Plan (“OPP”) expense(1)
Total Share-based compensation expense
Year Ended December 31,
2015
2016
$
$
1,314
$
2,437
473
1,209
5,433
$
282
1,901
7,748
330
10,261
(1) OPP Expense for the years ended December 31, 2016 and 2015 includes $0.1 million and $0.2 million, respectively, of unrecognized
compensation expense of awards issued under Vornado’s OPP for UE employees who were previously Vornado employees. The remaining
OPP unrecognized compensation expense was transferred from Vornado to UE as of the separation date and is amortized on a straight-line
basis over the remaining life of the OPP awards issued.
(2) We did not have any equity awards issued prior to the date of the separation. $3.9 million of share-based compensation expense is included
in general and administrative expenses in our combined statements of income for the year ended December 31, 2014 and is related to Vornado
equity awards issued prior to the separation for Vornado employees.
(3) LTIP expense excludes the expense associated with LTIP units under the 2015 OPP.
68
As of December 31, 2016, we had a total of $11.0 million of unrecognized compensation expense related to unvested and restricted
share-based payment arrangements including unvested stock options, LTIP units, and restricted share awards which were granted
under our Omnibus Share Plan as well as OPP awards issued by Vornado. This expense is expected to be recognized over a weighted
average period of 1.8 years.
17.
EARNINGS PER SHARE AND UNIT
Urban Edge Earnings per Share
The Company has calculated earnings per share (“EPS”) under the two-class method. The two-class method is an earnings allocation
methodology whereby EPS for each class of Urban Edge common shares and participating securities is calculated according to
dividends declared and participating rights in undistributed earnings. Restricted shares issued pursuant to our share-based
compensation program are considered participating securities, and as such have non-forfeitable rights to receive dividends.
The computation of diluted EPS reflects potential dilution of securities by adding potential common shares, including stock options
and unvested restricted shares, to the weighted average number of common shares outstanding for the period. For the year ended
December 31, 2015, there were options outstanding for 2,289,139 shares, that potentially could be exercised for common shares.
These options, with exercise prices ranging from $24.46 to $22.83, have been excluded from the diluted EPS calculation, as their
effect is anti-dilutive to the Company’s net income because the option prices were greater than the average market prices of our
common shares during 2015. In addition, there were 129,395 unvested restricted shares outstanding that potentially could become
unrestricted common shares. The computation of diluted EPS for the years ended December 31, 2016 and 2015 included the
114,354 and 25,829 weighted average unvested restricted shares outstanding, respectively, as their effect is dilutive.
The effect of the redemption of OP and vested LTIP units is not reflected in the computation of basic and diluted earnings per
share, as they are redeemable for common shares on a one-for-one basis. The income allocable to such units is allocated on this
same basis and reflected as noncontrolling interests in the accompanying consolidated and combined financial statements. As
such, the assumed redemption of these units would have no net impact on the determination of diluted earnings per share since
they would be anti-dilutive.
As described in Note 2, the common shares outstanding at the date of the separation are reflected as outstanding for all periods
prior to the separation. The following table sets forth the computation of our basic and diluted earnings per share:
(Amounts in thousands, except per share amounts)
Numerator:
Year Ended December 31,
2016
2015
2014
Net income attributable to common shareholders
$
Less: Earnings allocated to unvested participating securities
Net income available for common shareholders - basic
$
90,815
(114)
90,701
38,785
(23)
38,762
$
65,772
—
65,772
Impact of assumed conversions:
Unvested LTIP units
53
—
—
Net income available for common shareholders - diluted
$
90,754
$
38,762
$
65,772
Denominator:
Weighted average common shares outstanding - basic
99,364
99,252
99,248
Effect of dilutive securities:
Stock options using the treasury stock method
Restricted share awards
Assumed conversion of unvested LTIP units
257
114
59
—
26
—
—
—
—
Weighted average common shares outstanding - diluted
99,794
99,278
99,248
Earnings per share available to common shareholders:
Earnings per common share - Basic
Earnings per common share - Diluted
$
$
0.91
0.91
$
$
0.39
0.39
$
$
0.66
0.66
69
Operating Partnership Earnings per Unit
As described in Note 2, the units outstanding at the date of the separation are reflected as outstanding for all periods prior to the
separation. The following table sets forth the computation of basic and diluted earnings per unit:
(Amounts in thousands, except per unit amounts)
Numerator:
Net income attributable to unitholders
Less: net income attributable to participating securities
Net income available for unitholders - basic and diluted
Denominator:
Weighted average units outstanding - basic
Effect of dilutive securities issued by Urban Edge
Unvested LTIP units
Weighted average units outstanding - diluted
Earnings per unit available to unitholders:
Earnings per unit - Basic
Earnings per unit - Diluted
18.
QUARTERLY FINANCIAL DATA (unaudited)
Year Ended December 31,
2016
2015
2014
96,627
(211)
96,416
$
$
41,332
(22)
41,310
$
$
65,772
—
65,772
105,455
105,276
104,965
371
273
26
72
—
—
106,099
105,374
104,965
0.91
0.91
$
$
0.39
0.39
$
$
0.63
0.63
$
$
$
$
The following tables summarize the quarterly results of operations of Urban Edge Properties and Urban Edge Properties LP for
the years ended December 31, 2016 and 2015:
(Amounts in thousands, except per share/unit amounts)
Total revenue
Operating income
Net income
Net income attributable to noncontrolling interests in
operating partnership
Net (income) loss attributable to noncontrolling interests in
consolidated subsidiaries
Net income attributable to common shareholders
Net income attributable to unitholders
Earnings per common share - Basic
Earnings per common share - Diluted
Earnings per common unit - Basic
Earnings per common unit - Diluted
Three Months Ended,
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
$
83,478
$
79,973
$
79,457
$
33,428
20,266
33,414
20,505
32,790
36,071
83,068
33,386
19,788
(1,218)
(1,239)
(2,201)
(1,154)
(4)
19,044
20,262
0.19
0.19
0.19
0.19
(1)
19,265
20,504
0.19
0.19
0.19
0.19
(2)
33,868
36,069
0.34
0.34
0.34
0.34
4
18,638
19,792
0.19
0.19
0.19
0.19
70
(Amounts in thousands, except per share/unit amounts)
Total revenue
Operating income
Net income (loss)
Net (income) loss attributable to noncontrolling interests in
operating partnership
Net (income) loss attributable to noncontrolling interests in
consolidated subsidiaries
Net income (loss) attributable to common shareholders
Net income (loss) attributable to unitholders
Earnings (loss) per common share - Basic
Earnings (loss) per common share - Diluted
Earnings (loss) per common unit - Basic
Earnings (loss) per common unit - Diluted
19.
SUBSEQUENT EVENTS
Three Months Ended,
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
$
80,622
$
79,825
$
78,715
$
83,783
29,576
16,167
34,011
20,045
30,807
17,153
3,682
(12,017)
(942)
(1,179)
(986)
560
1
15,226
16,168
0.15
0.15
0.15
0.15
(6)
18,860
20,039
0.19
0.19
0.19
0.19
(5)
16,162
17,148
0.16
0.16
0.16
0.16
(6)
(11,463)
(12,023)
(0.12)
(0.12)
(0.12)
(0.12)
Pursuant to the Subsequent Events Topic of the FASB ASC, we have evaluated subsequent events and transactions that occurred
after our December 31, 2016 consolidated balance sheet date for potential recognition or disclosure in our consolidated and
combined financial statements.
Subsequent to December 31, 2016, we completed the acquisition of the following properties:
City
Yonkers
State
NY
Square
Feet
Purchase Price
(in thousands)
191,500
$
51,700
Date Purchased
January 4, 2017
Property Name
Yonkers Gateway Center(1)
Shops at Bruckner(2)
Hudson Mall(3)
January 17, 2017
32,000
February 2, 2017
43,700
(1) On January 4, 2017 we acquired interests in Yonkers Gateway Center. Consideration for this purchase consisted of the issuance of $48.8
Jersey City
114,000
383,000
Bronx
NY
NJ
$
$
million in OP units and $2.9 million of cash. The total number of OP units issued was 1.8 million.
(2) On January 17, 2017, we acquired the leasehold interest in the Shops at Bruckner for $32.0 million, consisting of the assumption of the existing
debt of $12.6 million and $19.4 million of cash. The property is a 114,000 sf retail center in the Bronx, NY directly across from the Company’s
375,000 sf Bruckner Commons. The Company owns the land under the Shops at Bruckner and has been leasing it to the seller under a ground
lease. Concurrent with the acquisition, the Company has written-off the existing intangible balance related to the below-market ground lease.
As a result, the Company will recognize lease settlement income in the first quarter of 2017.
(3) On February 2, 2017, we acquired Hudson Mall, a 383,000 sf retail center in Jersey City, NJ adjacent to our existing Hudson Commons
shopping center. Consideration for this purchase consisted of the assumption of the existing debt of $23.8 million and $19.9 million of cash.
The above acquisitions were funded using a combination of available cash on hand, equity and the assumption of existing mortgage
debt. Acquisition related expenses totaling $0.5 million were expensed as incurred. We have not yet measured the fair value of
the tangible and identified intangible assets and liabilities nor the proforma results of operations.
71
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures (Urban Edge Properties)
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures
are effective.
Management’s Annual Report on Internal Control over Financial Reporting
The management of Urban Edge Properties and subsidiaries (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company, defined in Rule 13a-15(f) promulgated under the Securities
Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and
principal financial officers, or persons performing similar functions, and effected by the Company’s board of trustees, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, which requires the use of
certain estimates and judgments, and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and trustees of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and
procedures or internal control over financial reporting will prevent all errors and fraud. In designing and evaluating our control
system, management recognized that any control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact
that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, that may affect our operation have been or
will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management’s override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions that cannot be anticipated at the present time, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and may not be detected.
72
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2016. In making this assessment, the Company’s management used the criteria set forth by the Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)
(the COSO criteria). Based on this assessment, management has concluded that, as of December 31, 2016, the Company’s internal
control over financial reporting is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by Deloitte
& Touche LLP, an independent registered public accounting firm as stated in their attestation report which is included herein.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during
the three months ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Controls and Procedures (Urban Edge Properties LP)
Evaluation of Disclosure Controls and Procedures
The Operating Partnership’s management maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15
(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that
information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including the Chief Executive Officer and Chief Financial Officer of our general partner, as
appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and
procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives
of disclosure controls and procedures are met.
The Operating Partnership’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of our
general partner, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer of our general partner concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting
The Operating Partnership’s management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Operating Partnership, defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the supervision of, the Operating Partnership’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the board of trustees, management and other personnel
of the Operating Partnership’s general partner, to provide reasonable assurance regarding the reliability of financial reporting,
which requires the use of certain estimates and judgments, and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and trustees of the Operating Partnership’s general partner;
and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
The Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of our general partner,
do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and
fraud. In designing and evaluating our control system, management recognized that any control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further,
the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, that may affect our operation have been or will be detected. These inherent limitations include the realities that
73
judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s
override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions that cannot be anticipated at the present
time, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud may occur and may not be detected.
The Operating Partnership’s management assessed the effectiveness of the Operating Partnership’s internal control over financial
reporting as of December 31, 2016. In making this assessment, the Operating Partnership’s management used the criteria set forth
by the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework) (the COSO criteria). Based on this assessment, management has concluded that, as of December 31, 2016, the
Operating Partnership’s internal control over financial reporting is effective.
The effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2016 has been audited
by Deloitte & Touche LLP, an independent registered public accounting firm as stated in their attestation report which is included
herein.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during
the three months ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
Urban Edge Properties
New York, New York
We have audited the internal control over financial reporting of Urban Edge Properties (the "Company") as of December 31, 2016,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion
on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated and combined financial statements and financial statement schedules as of and for the year ended December 31, 2016
of the Company and our report dated February 16, 2017 expressed an unqualified opinion on those financial statements and
financial statement schedules and included an explanatory paragraph regarding the allocations of certain expenses from Vornado
Realty Trust as discussed in Note 2 to the consolidated and combined financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2017
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Partners of
Urban Edge Properties LP
New York, New York
We have audited the internal control over financial reporting of Urban Edge Properties LP (the "Operating Partnership") as of
December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Operating Partnership's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Operating Partnership's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated and combined financial statements and financial statement schedules as of and for the year ended December 31, 2016
of the Operating Partnership and our report dated February 16, 2017 expressed an unqualified opinion on those financial statements
and financial statement schedules and included an explanatory paragraph regarding the allocations of certain expenses from Vornado
Realty Trust as discussed in Note 2 to the consolidated and combined financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 16, 2017
76
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We hereby incorporate by reference the information appearing under the caption “Information about our Board of Trustees and
its Committees” in our definitive proxy statement relating to our 2017 Annual Meeting of Shareholders to be held on May 10,
2017.
ITEM 11. EXECUTIVE COMPENSATION
We hereby incorporate by reference the information appearing under the caption “Executive Officer Compensation” in our definitive
proxy statement relating to our 2017 Annual Meeting of Shareholders to be held on May 10, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
We hereby incorporate by reference the information appearing under the caption “Security Ownership of Certain Beneficial Owners
and Management” in our definitive proxy statement relating to our 2017 Annual Meeting of Shareholders to be held on May 10,
2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We hereby incorporate by reference the information appearing under the caption “Certain Relationships and Related Transactions”
in our definitive proxy statement relating to our 2017 Annual Meeting of Shareholders to be held on May 10, 2017.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
We hereby incorporate by reference the information appearing under the caption “Principal Accounting Fees and Services” in our
definitive proxy statement relating to our 2017 Annual Meeting of Shareholders to be held on May 10, 2017.
77
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1) Financial Statements
Our consolidated and combined financial statements and notes thereto, together with the Reports of Independent Registered Public
Accounting Firm are included as a separate section of this Annual Report on Form 10-K commencing on page 41.
(2) Financial Statement Schedules
Our financial statement schedules are included in a separate section of this Annual Report on Form 10-K commencing on page
81.
(3) Exhibits
A list of exhibits to this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and
is incorporated herein by reference.
(b) See Exhibit Index
(c) Schedules other than those listed above are omitted because they are not applicable or the information required is included in
the combined financial statements or the notes thereto.
78
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
SIGNATURES
URBAN EDGE PROPERTIES
(Registrant)
Date: February 16, 2017
By:
/s/ Mark Langer
Mark Langer, Chief Financial Officer
URBAN EDGE PROPERTIES LP
By: Urban Edge Properties, General Partner
Date: February 16, 2017
By:
/s/ Mark Langer
Mark Langer, Chief Financial Officer
79
KNOWN BY ALL PERSONS BY THESE PRESENTS, that the individuals whose signatures appear below hereby constitute
and appoint Jeffrey S. Olson and Mark Langer, and each of them severally, as his or her true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for him or her and in his or her name, place and stead in any and all
capacities to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do or perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or of his substitute or substitutes, may lawfully do to cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
By:
/s/ Jeffrey S. Olson
Chairman of the Board of Trustees
February 16, 2017
Jeffrey S. Olson
By:
/s/ Mark Langer
Mark Langer
and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
February 16, 2017
By:
/s/ Jennifer Holmes
Chief Accounting Officer
February 16, 2017
Jennifer Holmes
(Principal Accounting Officer)
By:
/s/ Michael A. Gould
Trustee
Michael A. Gould
By:
/s/ Steven H. Grapstein
Trustee
Steven H. Grapstein
By:
/s/ Steven J. Guttman
Trustee
Steven J. Guttman
By:
/s/ Amy B. Lane
Trustee
Amy B. Lane
By:
/s/ Kevin P. O’Shea
Trustee
Kevin P. O’Shea
By:
/s/ Steven Roth
Trustee
Steven Roth
February 16, 2017
February 16, 2017
February 16, 2017
February 16, 2017
February 16, 2017
February 16, 2017
80
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A
Description
Year Ended December 31, 2016:
Allowance for doubtful accounts
Year Ended December 31, 2015:
Allowance for doubtful accounts
Year Ended December 31, 2014:
Allowance for doubtful accounts
Column B
Balance
at Beginning
of Year
Column C
Additions
(Reversals)
Expensed
Column D
Column E
Uncollectible
Accounts
Written-Off
Balance
at End
of Year
$
1,926
$
1,214
$
(547) $
2,593
2,432
2,398
1,526
1,032
(2,032)
(998)
1,926
2,432
81
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Initial cost to company
Gross amount at which
carried at close of period
Description
Encumbrances
Land
Building and
improvements
Costs
capitalized
subsequent
to
acquisition
Land
Building and
improvements
Total(2)
Accumulated
depreciation
and
amortization(1)
Date of
construction
Date
acquired
SHOPPING CENTERS AND MALLS:
Allentown, PA
$
27,506
$
187
$
15,580
$1,823
$
187
$
17,403
$
17,590
$
13,806
1957
1957
Baltimore (Towson),
MD
14,331
581
3,227
11,306
435
14,680
15,115
Bensalem, PA
13,652
2,727
6,698
2,042
2,728
8,740
11,468
6,392
4,061
Bergen Town Center -
East,
Paramus, NJ
Bergen Town Center -
West,
Paramus, NJ
Bethlehem, PA
Brick, NJ
Bronx
(Bruckner
Boulevard), NY
Bronx
(1750-1780 Gun Hill
Road), NY
Broomall, PA
Buffalo (Amherst),
NY
Cambridge (leased
through 2033)(3), MA
Carlstadt (leased
through 2050)(3), NJ
Charleston (leased
through 2063)(3), SC
Cherry Hill, NJ
Chicopee, MA
Commack (leased
through 2021)(3), NY
Dewitt (leased
through 2041)(3), NY
East Hanover
(200 - 240 Route 10
West), NJ
East Hanover
(280 Route 10 West),
NJ
East Rutherford,
(leased through
2194)(3), NJ
Eatontown, NJ
Englewood, NJ
Freeport
(240 West Sunrise
Highway) (leased
through 2040)(3), NY
Freeport
(437 East Sunrise
Highway), NY
1968
1972/
1999
1957/
2009
1957/
2009
1966
1968
1968
1972
2003
2003/
2015
1966
1968
—
6,305
— 33,434
6,305
33,434
39,739
6,334
300,000
15,812
82,240
331,835
33,563
396,324
429,887
5,129
29,316
827
1,391
5,200
11,179
1,344
7,031
839
1,391
6,532
18,210
7,371
19,601
98,118
5,727
13,746
—
66,100
259,503
(52,180)
48,890
224,533
273,423
13,703
N/A
2007
—
9,805
—
—
—
—
6,427
850
5,743
—
—
—
12,722
7,618
5,864
895
—
—
—
—
559
11,885
22,124
2,171
1,399
6,428
850
34,009
3,570
40,437
4,420
7,124
2,739
2009
1966
2005
1966
4,056
13,078
5,107
17,770
22,877
7,905
1968
1968
261
261
231
N/A
16,458
16,458
3,785
N/A
2007
—
261
16,458
3,634
2,694
—
43
7,116
6,363
—
—
4,840
—
184
—
3,938
—
—
—
4,864
895
—
—
559
3,634
8,534
—
227
7,116
10,301
3,634
13,398
895
227
7,116
10,860
931
4,402
—
N/A
1964
1969
2006
1964
1969
187
N/A
2006
1,805
5,745
N/A
1964
1957/
1972
2006
1964
1957/
1972
1962/
1998
35,098
2,232
18,241
9,533
2,671
27,335
30,006
15,746
1962
4,174
12,471
—
11,537
—
—
4,653
2,300
—
7,075
36,727
4,999
60
108
17,245
(8,390)
—
—
4,653
1,495
7,075
7,075
1,959
N/A
36,787
5,107
9,660
36,787
9,760
11,155
6,687
1,466
1,129
2007
N/A
N/A
2007
2005
2007
—
—
—
260
—
260
260
195
N/A
2005
19,611
1,231
4,747
4,158
1,231
8,905
10,136
5,883
1981
1981
82
Rockaway, NJ
12,068
East Brunswick, NJ
33,640
2,417
17,169
7,046
2,417
24,215
26,632
16,977
Initial cost to company
Gross amount at which
carried at close of period
Description
Encumbrances
Land
Building and
improvements
Costs
capitalized
subsequent
to
acquisition
Land
Building and
improvements
Total(2)
Accumulated
depreciation
and
amortization(1)
Date of
construction
Date
acquired
—
—
6,286
37,211
—
—
15,286
—
18,605
—
4,953
45
462
850
692
7,400
14,537
21,200
12,419
652
309
3,140
8,068
2,571
1,820
39,218
2,073
715
10,219
4,948
9,413
(2,165)
12,304
33,667
19,097
7,495
3,376
63
1,024
2,951
2,280
844
7,798
2,129
45
462
850
542
7,400
14,537
21,200
12,419
652
309
3,140
47,286
47,331
10,179
4,644
2,535
15,317
7,248
13,328
36,618
21,377
8,339
11,174
2,192
5,106
3,385
15,859
14,648
27,865
57,818
33,796
8,991
11,483
5,332
3,334
2,219
9,480
1,736
381
8,138
6,218
3,173
3,640
693
2009
1958
1975
1963
N/A
N/A
N/A
N/A
1965
1938
1966
130,000
15,280
64,370
12,696
15,280
77,066
92,346
34,373
1996
9,805
1,226
3,164
1,005
1,226
4,169
5,395
3,744
1969
10,409
—
19,309
15,840
15,940
—
2,414
238
7,606
725
1,611
283
—
66
9,446
(1)
13,125
7,189
3,464
5,248
2,644
6,825
10,988
3,249
—
419
—
419
117,308
19,611
14,883
9,182
1,104
22,700
66,751
23,176
6,411
26,700
1,889
1,815
—
10,308
—
2,421
4
—
1,200
1,486
238
7,606
1,046
1,454
283
—
66
9,267
1,104
23,297
—
2,421
9,446
9,684
4,072
1999
15,769
13,693
14,609
8,497
—
838
89,842
8,300
27,918
4
2,686
23,375
14,739
16,063
8,780
—
904
99,109
9,404
51,215
4
5,107
4,391
9,052
9,769
6,388
—
714
35,533
7,165
6,133
N/A
1971
1973
1963
N/A
1972
1996/
2015
1961
N/A
126
1,087
1970
1965
1998
1958
1975
1963
2007
2015
2007
2004
1965
1959
1966
2002
1969/
2015
1975
2004
1971
1973
1963
1976
1972
1997
1985
2007
1976
1965
—
—
3,927
15
—
3,942
3,942
3,285
N/A
2005
4,676
2,308
636
175
2,308
810
3,118
501
1993
1959
Garfield, NJ
Glen Burnie, MD
Glenolden, PA
Hackensack, NJ
Hazlet, NJ
Queens, NY
Huntington, NY
Inwood, NY
Jersey City, NJ
Kearny, NJ
Lancaster, PA
Las Catalinas, Puerto
Rico
Lawnside, NJ
Lodi (Route 17
North), NJ
Lodi (Washington
Street), NJ
Manalapan, NJ
Marlton, NJ
Middletown, NJ
Milford (leased
through 2019)(3), MA
Montclair, NJ
Montehiedra, Puerto
Rico
Morris Plains, NJ
Mount Kisco, NY
New Hyde Park
(leased through 2029)
(3), NY
Newington, CT
Norfolk
(leased through 2050)
(3), VA
North Bergen
(Kennedy
Boulevard), NJ
North Bergen
(Tonnelle Avenue),
NJ
North Plainfield, NJ
Oceanside, NY
Paramus
(leased through 2033)
(3), NJ
73,951
24,493
— 66,537
34,473
—
—
—
6,577
2,710
—
2,172
—
3,470
6,083
9,652
13,983
(2,653)
2,306
—
— 12,569
—
—
2,647
20,599
1,228
2,541
—
2,940
—
1
6,577
2,710
—
2,172
—
3,470
6,083
9,652
Rochester, NY
4,023
Rochester (Henrietta)
(leased through 2055)
(3), NY
Rockville, MD
Salem (leased
through 2102)(3), NH
Signal Hill, CA
—
—
—
—
56,557
11,329
2,306
12,569
—
3,875
23,140
—
2,941
91,030
17,906
5,016
12,569
2,172
3,875
26,610
6,083
12,593
12,863
3,087
552
3,083
—
3,481
6,508
—
754
2009
1955
N/A
1957/
2009
1966
1971
N/A
N/A
N/A
2006
1989
2007
2003
1966
1971
2005
2006
2006
83
Initial cost to company
Gross amount at which
carried at close of period
Description
Encumbrances
Land
Building and
improvements
Costs
capitalized
subsequent
to
acquisition
Land
Building and
improvements
Total(2)
Accumulated
depreciation
and
amortization(1)
Date of
construction
Date
acquired
South Plainfield
(leased through 2039)
(3), NJ
Springfield, MA
Springfield (leased
through 2025)(3), PA
Staten Island, NY
Totowa, NJ
Turnersville, NJ
Tyson’s Corner
(leased through 2035)
(3), VA
Union
(2445 Springfield
Avenue), NJ
Union
(Route 22 and Morris
Avenue), NJ
Vallejo (leased
through 2043)(3), CA
Walnut Creek
(1149 South Main
Street), CA
Walnut Creek
(Mt. Diablo), CA
Wyomissing
(leased
through 2065)(3), PA
York, PA
WAREHOUSES:
East Hanover - Five
Buildings, NJ
TOTAL UE
PROPERTIES
Leasehold
Improvements,
Equipment and Other
Watchung, NJ
13,828
West Babylon, NY
Wheaton (leased
through 2060)(3), MD
Wilkes-Barre
(461 - 499 Mundy
Street), PA
—
—
—
Woodbridge, NJ
18,957
4,702
5,255
—
—
22,729
—
—
—
—
—
—
4,777
—
2,797
—
10,044
2,471
2,286
494
—
2,797
12,330
2,965
12,330
5,762
—
80
—
80
80
11,446
21,262
4,055
11,446
25,317
36,763
11,994
1,342
5,544
1,708
17,566
3,049
17,658
3,949
2,959
1,118
80
7,667
13,722
2,228
N/A
1993
N/A
N/A
1957/
1999
1974
2007
1966
2005
2004
1957
1974
—
—
—
—
N/A
2006
120
900
—
92
900
—
—
—
26,148
19,700
45,090
19,700
45,090
64,790
10,802
N/A
2007
29,668
3,025
7,470
3,634
3,025
11,104
14,129
5,978
1962
1962
—
2,945
221
—
3,166
3,166
863
N/A
2006
2,699
19,930
(1,112)
2,699
18,818
21,517
219
N/A
2006
5,909
4,178
6,720
—
5,463
13,786
1,691
2,774
712
5,908
4,441
6,720
1,692
7,974
14,498
7,600
12,415
21,218
306
4,916
3,121
N/A
1994
N/A
2007
1959
2007
—
5,367
—
—
5,367
5,367
1,375
N/A
2006
6,053
1,509
—
409
26,646
2,675
1,146
2,526
2,646
2,568
1,869
1,452
6,053
1,539
—
409
27,792
5,171
33,845
6,710
4,515
4,020
4,515
4,429
—
—
6,501
2,741
3,348
3,192
N/A
1959
N/A
1970
2007
1959
2005
1970
—
576
7,752
29,694
691
37,332
38,023
16,196
1972
1972
1,205,560
374,755
1,089,248
669,502
384,217
1,749,290
2,133,507
539,967
—
—
—
4,993
—
4,993
4,993
1,110
TOTAL
$ 1,205,560
$374,755
$ 1,089,248
$ 674,495
$384,217
$ 1,754,283
$2,138,500
$
541,077
(1) Depreciation of the buildings and improvements are calculated over lives ranging from the life of the lease to forty years.
(2) Aggregate cost for federal income tax purposes was $1.9 billion as of December 31, 2016.
(3) The Company is a lessee under a ground or building lease. The building will revert to the lessor upon lease expiration.
84
URBAN EDGE PROPERTIES AND URBAN EDGE PROPERTIES LP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(Amounts in Thousands)
The following is a reconciliation of real estate assets and accumulated depreciation:
Real Estate
Balance at beginning of period
Additions during the period:
Land
Buildings & improvements
Construction in progress
Less: Impairments and assets sold or written-off
Balance at end of period
Accumulated Depreciation
Balance at beginning of period
Additions charged to operating expenses
Less: Accumulated depreciation on assets written-off
Balance at end of period
Year Ended December 31,
2016
2015
2014
$
2,084,642
$
2,022,804
$
1,984,172
2,667
18,316
47,234
2,152,859
(14,359)
2,138,500
509,112
42,989
552,101
(11,024)
541,077
$
$
$
10,984
8,840
52,602
2,095,230
(10,588)
2,084,642
467,503
52,197
519,700
(10,588)
509,112
$
$
$
6,077
31,998
3,169
2,025,416
(2,612)
2,022,804
421,756
48,359
470,115
(2,612)
467,503
$
$
$
85
The following exhibits are filed as part of this Annual Report on Form 10-K:
INDEX TO EXHIBITS
Exhibit
Number
2.1
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13
10.14
10.15
10.16*
10.17*
10.18*
10.19*
10.20*
Exhibit Description
Separation and Distribution Agreement by and among Vornado Realty Trust, Vornado Realty L.P., Urban Edge
Properties and Urban Edge Properties LP, dated as of January 14, 2015 (incorporated by reference to Exhibit 2.1
to Form 8-K filed January 21, 2015)
Declaration of Trust of Urban Edge Properties, as amended and restated (incorporated by reference to Exhibit 3.1
to Form 8-K filed January 21, 2015)
Amended and Restated Bylaws of Urban Edge Properties (incorporated by reference to Exhibit 3.2 to Form 8-K
filed January 21, 2015)
Employment Offer Letter between Urban Edge Properties and Herb Eilberg (incorporated by reference to Exhibit
10.1 to Form 10-Q filed on May 4, 2016)
Form of Non-Employee Trustee Restricted Stock Agreement under Urban Edge Properties 2015 Omnibus Share
Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on May 4, 2016)
Amendment to Transition Services Agreement by and between Vornado Realty Trust and Urban Edge Properties,
dated as of June 28, 2016 (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on August 5, 2016)
Limited Partnership Agreement of Urban Edge Properties LP, dated as of January 14, 2015 (incorporated by
reference to Exhibit 10.1 to Form 8-K filed January 21, 2015)
Transition Services Agreement by and between Vornado Realty Trust and Urban Edge Properties, dated as of
January 15, 2015 (incorporated by reference to Exhibit 10.2 to Form 8-K filed January 21, 2015)
Tax Matters Agreement by and between Vornado Realty Trust and Urban Edge Properties, dated as of January 15,
2015 (incorporated by reference to Exhibit 10.3 to Form 8-K filed January 21, 2015)
Employee Matters Agreement by and between Vornado Realty Trust, Vornado Realty L.P., Urban Edge Properties
and Urban Edge Properties LP, dated as of January 15, 2015 (incorporated by reference to Exhibit 10.4 to Form
8-K filed January 21, 2015)
Urban Edge Properties 2015 Omnibus Share Plan (incorporated by reference to Exhibit 10.5 to Form 8-K filed
January 21, 2015)
Form of Stock Option Agreement under Urban Edge Properties 2015 Omnibus Share Plan (incorporated by
reference to Exhibit 10.6 to Form 8-K filed January 21, 2015)
Form of Restricted Stock Agreement under Urban Edge Properties 2015 Omnibus Share Plan (incorporated by
reference to Exhibit 10.7 to Form 8-K filed January 21, 2015)
Form of Restricted LTIP Unit Agreement under Urban Edge Properties 2015 Omnibus Share Plan (incorporated
by reference to Exhibit 10.8 to Form 8-K filed January 21, 2015)
Form of Non-Employee Trustee Restricted LTIP Unit Agreement under Urban Edge Properties 2015 Omnibus
Share Plan (incorporated by reference to Exhibit 10.9 to Form 8-K filed January 21, 2015)
Revolving Credit Agreement among Urban Edge Properties LP, as Borrower, the Banks party thereto, and Wells
Fargo Bank, National Association, as Administrative Agent, dated as of January 15, 2015 (incorporated by reference
to Exhibit 10.10 to Form 8-K filed January 21, 2015)
Loan and Security Agreement, between the Individual Borrowers party thereto, Towson VF L.L.C. and Vornado
Finance II L.P., dated August 18, 2010 (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to Form
10 filed November 13, 2014)
Loan Agreement between VNO Bergen Mall Owner LLC and Wells Fargo Bank, National Association, dated
March 25, 2013 (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to Form 10 filed November 13,
2014)
Amended and Restated Employment Agreement between Vornado Realty Trust and Jeffrey Olson (incorporated
by reference to Exhibit 10.7 to Amendment No. 3 to Form 10 filed December 11, 2014)
Amendment, dated as of January 14, 2015, to Amended and Restated Employment Agreement between Vornado
Realty Trust and Jeffrey Olson (incorporated by reference to Exhibit 10.11 to Form 8-K filed January 21, 2015)
Form of Indemnification Agreement between Urban Edge Properties and each of its trustees and executive officers
(incorporated by reference to Exhibit 10.15 to Form 10-K/A filed on March 23, 2015)
Urban Edge Properties 2015 Employee Share Purchase Plan (incorporated by reference to Exhibit 4.4 to Form
S-8 filed February 17, 2015)
Employment Agreement between Urban Edge Properties and Mark Langer (incorporated by reference to Exhibit
10.1 to Form 8-K filed on April 7, 2015)
86
10.21*
10.22*
21.1†
23.1†
23.2†
24.1†
31.1†
31.2†
31.3†
31.4†
32.1†
32.2†
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Employment Agreement between Urban Edge Properties and Robert Minutoli (incorporated by reference to Exhibit
10.2 to Form 10-Q filed on May 14, 2015)
Form of Performance LTIP Unit Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K filed on
November 5, 2015)
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm for Urban Edge Properties
Consent of Independent Registered Public Accounting Firm for Urban Edge Properties LP
Power of Attorney (included on signature page)
Certification by the Chief Executive Officer for Urban Edge Properties pursuant to rule 13a-14(a)/15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Financial Officer for Urban Edge Properties pursuant to rule 13a-14(a)/15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Executive Officer for Urban Edge Properties LP pursuant to rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Financial Officer for Urban Edge Properties LP pursuant to rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Executive Officer and Chief Financial Officer for Urban Edge Properties pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Executive Officer and Chief Financial Officer for Urban Edge Properties LP pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Extension Calculation Linkbase
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* Management contracts and compensatory plans or arrangements required to be filed pursuant to Item 15(b) of Form 10-K.
† Filed electronically herewith
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TRUSTEES
JEFFREY S. OLSON
Chairman and Chief Executive Officer,
Urban Edge Properties
STEVEN ROTH
Chairman and Chief Executive Officer,
Vornado Realty Trust
MICHAEL A. GOULD
Former Chairman and Chief Executive Officer,
Bloomingdale’s, David Yurman
STEVEN H. GRAPSTEIN
Chief Executive Officer, Como Holdings USA, Inc.
Director, David Yurman
EXECUTIVE OFFICERS
STEVEN GUTTMAN
Founder and Principal, Storage Deluxe
Former Chairman and Chief Executive Officer,
Federal Realty
AMY B. LANE
Director, The TJX Companies Inc.
GNC Holdings, Inc. and NextEra Energy
KEVIN P. O’SHEA
Chief Financial Officer, AvalonBay Communities
JEFFREY S. OLSON
Chairman and Chief Executive Officer
JENNIFER HOLMES
Chief Accounting Officer
ROBERT MINUTOLI
Executive Vice President and Chief Operating Officer
ROBERT C. MILTON III
Executive Vice President and General Counsel
MARK J. LANGER
Executive Vice President and Chief Financial Officer
BERNARD I. SCHACHTER
Executive Vice President – Asset Management
HERBERT EILBERG
Chief Investment Officer
COMPANY DATA
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
Parsippany, New Jersey
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Co.
New York, New York
ANNUAL MEETING
The annual meeting of shareholders of Urban Edge
Properties, will be held at 9:30 a.m. on Wednesday,
May 10, 2017 at the offices of Sullivan & Cromwell
LLP, 535 Madison Avenue, New York, NY 10022.
MICHAEL ZUCKER
Executive Vice President – Leasing
REPORT ON FORM 10-K
Shareholders may obtain a copy of the Company’s
annual report on Form 10-K as filed with the Securities
and Exchange Commission free of charge (except
for exhibits), by writing to the Secretary, Urban
Edge Properties, 888 Seventh Avenue, New York,
New York 10019; or, visit the Company’s website
at www.uedge.com and refer to the Company’s
SEC Filings.
888 Seventh Avenue
New York, NY 10019
212.956.2555
www.uedge.com