Urban Edge Properties(UE) - 2020 Q4 - Annual Report

Part I Item 1. Business Urban Edge Properties is a REIT managing a 16.3 million square foot retail real estate portfolio, primarily in the New York metropolitan area, with 89.4% occupancy as of December 31, 2020 Portfolio Overview as of December 31, 2020 | Property Type | Count | Total Square Feet (sf) | Consolidated Occupancy Rate | |---|---|---|---| | Shopping Centers | 72 | ~16.3 million | 89.4% | | Malls | 5 | | | | Industrial Parks | 2 | | | - The company's primary strategies include maximizing existing property value, developing and redeveloping assets, selectively investing in target markets (primarily the NY metropolitan area), and maintaining capital discipline[39][40][41] - As of year-end 2020, the company has $132.4 million in active redevelopment projects, with $86.6 million remaining to be funded, expected to generate an approximate 8% unleveraged yield[40] - The Home Depot, Inc. is the largest tenant, accounting for $20.7 million, or 6.3%, of total revenue for the year ended December 31, 2020[48] - The company had 106 employees as of December 31, 2020, and emphasizes competitive compensation, professional development, and a positive work environment to attract and retain talent[46] Item 1A. Risk Factors The company faces significant risks from the COVID-19 pandemic, e-commerce shifts, tenant bankruptcies, and high geographic concentration in the New York metropolitan area - The COVID-19 pandemic poses a material risk, potentially impacting tenants' ability to pay rent, lease renewal rates, returns from redevelopment projects, and access to capital markets[53][55] - The growth of e-commerce could adversely affect tenants' sales and lead them to reduce the number or size of their physical stores, potentially impacting the company's cash flow and results[58] - A significant concentration of properties in the New York metropolitan area (over 75% of rental revenue) exposes the company to localized economic downturns; The Outlets at Bergen Town Center alone generated over 10% of rental revenue[64] - Tenant bankruptcies are a key risk, as tenants can reject leases, leading to revenue loss; the bankruptcy of Century 21 in 2020 is cited as an example[63] - As of December 31, 2020, leases accounting for approximately 27% of annualized base rent are scheduled to expire within the next three years, posing a risk if they cannot be renewed or relet on favorable terms[61] - The company's two malls in Puerto Rico, contributing approximately 7% of net operating income, face risks from the region's significant fiscal and economic challenges, including natural disasters and government bankruptcy[80] Item 1B. Unresolved Staff Comments The company reports no unresolved comments from the Securities and Exchange Commission staff - The company reports no unresolved staff comments from the SEC[117] Item 2. Properties As of December 31, 2020, the company's 16.3 million square foot portfolio had an 88.7% retail occupancy rate, with Home Depot as the largest tenant Retail Portfolio Occupancy and Rent Trends (2016-2020) | Year (as of Dec 31) | 2020 | 2019 | 2018 | 2017 | 2016 | |---|---|---|---|---|---| | Total Square Feet (millions) | 15.2 | 14.3 | 15.4 | 15.7 | 13.8 | | Occupancy Rate | 88.7% | 92.4% | 92.6% | 96.0% | 97.2% | | Avg. Annual Base Rent per sf | $18.97 | $19.22 | $17.90 | $17.38 | $17.07 | Top 5 Tenants by 2020 Revenue | Tenant | Number of Stores | % of Total Square Feet | 2020 Revenues (in thousands) | % of Total Revenues | |---|---|---|---|---| | The Home Depot, Inc. | 6 | 5.0% | $20,664 | 6.3% | | The TJX Companies, Inc. | 22 | 4.4% | $17,569 | 5.3% | | Lowe's Companies, Inc. | 6 | 6.0% | $13,609 | 4.1% | | Walmart Inc. | 5 | 4.4% | $12,809 | 3.9% | | Burlington Stores, Inc. | 7 | 2.6% | $11,151 | 3.4% | - The company's portfolio comprises 72 shopping centers, five malls, and two industrial parks, totaling approximately 16.3 million square feet as of December 31, 2020[118] - Leases expiring in 2023 represent the largest near-term rollover risk, accounting for 1.56 million square feet and 10.2% of the total retail portfolio square footage[126] Item 3. Legal Proceedings The company is involved in ordinary course legal actions, which management does not expect to materially affect financial results - The company states that ongoing legal actions from the ordinary course of business are not expected to have a material adverse effect on its financial results[127] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[128] Part II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Urban Edge Properties' shares trade on NYSE under 'UE'; the company suspended Q2/Q3 2020 dividends but repurchased 5.9 million shares for $54.1 million - Due to uncertainties from COVID-19, the company suspended quarterly dividends for Q2 and Q3 2020, but declared a special cash dividend in December 2020; the total dividend for 2020 was $0.68 per share, down from $0.88 in 2019[133] Dividend Tax Treatment Per Share | Year | Total Distribution | Ordinary Dividends | Long Term Capital Gains | Return of Capital | |---|---|---|---|---| | 2020 | $0.68 | $0.68 | $— | $— | | 2019 | $0.88 | $0.73 | $0.15 | $— | - The company's cumulative total shareholder return over the five years ending December 31, 2020 was -32.3%, significantly underperforming the S&P 500 (+103.0%) and the SNL U.S. REIT Equity index (+37.1%)[139] - In March 2020, the Board authorized a $200 million share repurchase program; during 2020, the company repurchased 5,873,923 shares at a weighted average price of $9.22, for a total of $54.1 million[145] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the COVID-19 impact on 2020 results, including a 14.2% same-property NOI decline, $97.8 million net income, and strong liquidity with $419.3 million cash Key Financial Performance Indicators (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | |---|---|---| | Net Income | $97,750 | $116,197 | | FFO | $156,326 | $167,123 | | NOI | $200,383 | $234,288 | | Same-property NOI | $186,059 | $216,836 | - The COVID-19 pandemic negatively impacted 2020 results, causing a 14.2% decline in same-property NOI, primarily due to $30.8 million in uncollectible rental revenue and balances from cash-basis tenants[154][188] - Total revenue decreased by $57.6 million in 2020, mainly due to a $26.5 million increase in uncollectible rental revenue and a $12.0 million increase in write-offs of straight-line rent receivables[175] - The company recognized a $34.9 million gain on extinguishment of debt from the refinancing of the mortgage on The Outlets at Montehiedra in Puerto Rico[178] - A net income tax benefit of $39.0 million was recognized in 2020, primarily due to the tax impact of mortgage refinancing and restructuring transactions related to the company's malls in Puerto Rico[179] - The company maintained strong liquidity, ending 2020 with $419.3 million in cash and cash equivalents and no outstanding balance on its $600 million revolving credit facility[199] Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for real estate asset valuation, impairment, and revenue recognition, particularly tenant receivable collectibility, heightened by the pandemic - Real estate assets are reviewed for impairment when events or changes in circumstances, such as the COVID-19 pandemic, suggest the carrying amount may not be recoverable; this involves estimating future undiscounted cash flows and terminal values[166][167] - Upon acquiring real estate, the purchase price is allocated to assets (land, buildings) and intangibles (above/below-market leases) based on fair value assessments, which require significant estimates[164][165] - The company evaluates the collectibility of tenant receivables on a lease-by-lease and portfolio basis; changes in collectibility assessment, heightened by the pandemic, are recognized as adjustments to rental revenue[168][304] Liquidity and Capital Resources The company ended 2020 with strong liquidity, including $419.3 million cash and no credit facility borrowings, despite a $43.6 million decrease in operating cash flow Summary of Cash Flows (in thousands) | Activity | 2020 | 2019 | |---|---|---| | Net cash provided by operating activities | $112,822 | $156,400 | | Net cash used in investing activities | ($98,460) | ($2,521) | | Net cash used in financing activities | ($80,245) | ($126,265) | - As of December 31, 2020, the company had $419.3 million in cash and cash equivalents and full availability under its $600 million revolving credit agreement[199] - Total mortgages payable stood at $1.6 billion as of year-end 2020, with a weighted average interest rate of 3.92%; the company has no debt maturities until 2022[209][200] - Capital expenditures on a cash basis decreased significantly to $28.5 million in 2020 from $91.3 million in 2019, reflecting a more cautious approach to spending during the pandemic[216] Commitments and Contingencies The company's contingencies include COVID-19 related rent deferrals ($5.1 million) and abatements ($3.9 million), tenant bankruptcies like Century 21, and $1.8 million in environmental remediation accruals - As of December 31, 2020, the company had active redevelopment and anchor repositioning projects totaling $132.4 million, with a remaining funding commitment of $86.6 million[405] - The company initiated litigation under its pollution insurance policies to recover uncollected rents and other amounts resulting from the COVID-19 virus[219][407] - As of December 31, 2020, the company had executed rent deferrals aggregating $5.1 million and rent abatements aggregating $3.9 million for tenants impacted by COVID-19[417] - The September 2020 bankruptcy of Century 21 led to a write-off of $2.5 million in receivables and $2.1 million in rental revenue deemed uncollectible for the year[420][233] - The company has accrued $1.8 million for environmental remediation costs at certain properties as of December 31, 2020, a decrease from $2.7 million in the prior year[226][414] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, with $169.4 million in variable-rate debt, and no material hedging instruments as of December 31, 2020 Debt Composition and Interest Rate Sensitivity (as of Dec 31, 2020) | Debt Type | Balance (in thousands) | Weighted Avg. Interest Rate | Effect of 1% Change in Base Rates (in thousands) | |---|---|---|---| | Variable Rate | $169,371 | 1.90% | $1,694 | | Fixed Rate | $1,428,026 | 4.16% | N/A | | Total | $1,597,397 | | $1,694 | - The estimated fair value of the company's consolidated debt was $1.6 billion as of December 31, 2020, slightly higher than its carrying amount[238] - As of December 31, 2020, the company did not have any material hedging instruments in place to mitigate interest rate risk[237] Item 8. Financial Statements and Supplementary Data This section presents the consolidated financial statements for Urban Edge Properties and its operating partnership for the fiscal year ended December 31, 2020 Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on the financial statements and internal controls, highlighting real estate impairment and tenant receivable collectibility as critical audit matters - The auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting for both UE and UELP[243][256] - Critical Audit Matters highlighted include the significant management judgments required for Real Estate Impairment analysis (specifically capitalization rates) and the Evaluation of Collectibility of Receivables, both influenced by the COVID-19 pandemic[247][248][251] Consolidated Financial Statements The consolidated financial statements show total assets of $2.94 billion, net income of $97.8 million, and operating cash flow of $112.8 million for 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | |---|---|---| | Real estate, net | $2,216,451 | $2,076,839 | | Cash and cash equivalents | $384,572 | $432,954 | | Total Assets | $2,939,560 | $2,846,358 | | Mortgages payable, net | $1,587,532 | $1,546,195 | | Total Liabilities | $1,943,667 | $1,831,582 | | Total Equity | $995,893 | $1,014,776 | Consolidated Income Statement Highlights (in thousands) | Account | 2020 | 2019 | |---|---|---| | Total Revenue | $330,095 | $387,649 | | Total Expenses | $277,608 | $283,781 | | Gain on sale of real estate | $39,775 | $68,632 | | Gain on extinguishment of debt | $34,908 | $— | | Net Income | $97,750 | $116,197 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial figures, including COVID-19 impacts on revenue and receivables, property transactions, debt composition, and lease obligations Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting or financial disclosure - None reported[466] Item 9A. Controls and Procedures Management and independent auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[468][476] - Management assessed internal control over financial reporting using the COSO 2013 framework and concluded it was effective[472][480] - The independent auditor, Deloitte & Touche LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[473][481] - No changes in internal control over financial reporting occurred during Q4 2020 that materially affected, or are reasonably likely to materially affect, internal controls[474][482] Item 9B. Other Information No other information is reported under this item - None[497] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[499] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[500] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides equity compensation plan information as of December 31, 2020, with other security ownership details incorporated by reference Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining for future issuance | |---|---|---|---| | Approved by security holders | 2,853,238 | $21.14 | 3,592,281 | | Not approved by security holders | 1,352,890 | $21.72 | N/A | | Total | 4,206,128 | $21.33 | 3,592,281 | - Additional information on security ownership is incorporated by reference from the 2021 Proxy Statement[503] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[504] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[505] Part IV Item 15. Exhibits and Financial Statement Schedules This section provides an index of all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[507][508][509] Item 16. Form 10-K Summary This item is not applicable - Not applicable[511]