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EX-31.1 - EXHIBIT 31.1 - Urban Edge Propertiesexhibit311certofceo-sox302.htm
EX-31.2 - EXHIBIT 31.2 - Urban Edge Propertiesexhibit312certofcfo-sox302.htm
EX-32.1 - EXHIBIT 32.1 - Urban Edge Propertiesexhibit321certofceoandcfo-.htm
EX-23.1 - EXHIBIT 23.1 - Urban Edge Propertiesexhibit231consentofindepen.htm
EX-21.1 - EXHIBIT 21.1 - Urban Edge Propertiesexhibit211listofsubsidiari.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the annual period ended December 31, 2015
OR
o
 
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
(Exact name of Registrant as specified in its charter)
Maryland
 
47-6311266
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
888 Seventh Avenue, New York, New York
 
10019
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number including area code:
(212) 956‑2556
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Shares, $.01 par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_______________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  o     NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o     NO x
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. YES x  NO o
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).  YES x NO o
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 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. o
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.
Large Accelerated Filer x 
Accelerated Filer o                              
Non-Accelerated Filer o                              
Smaller Reporting Company o 
 
 
(Do not check if smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
As of June 30, 2015, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $2.2 billion based upon the last reported sale price of $20.79 per share on the New York Stock Exchange on such date.
As of January 29, 2016, the Registrant had 99,290,952 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference information from certain portions of the Registrant’s definite proxy statement for the 2016 annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year.




URBAN EDGE PROPERTIES
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2015

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
Business
 
Item 1A.
 
Risk Factors
 
Item 1B.
 
Unresolved Staff Comments
 
Item 2.
 
Properties
 
Item 3.
 
Legal Proceedings
 
Item 4.
 
Mine Safety Disclosures
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
Item 5.
 
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Item 6.
 
Selected Financial Data
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
Item 8.
 
Financial Statements and Supplementary Data
 
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Item 9A.
 
Controls and Procedures
 
Item 9B.
 
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 10.
 
Directors, Executive Officers and Corporate Governance
 
Item 11.
 
Executive Compensation
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Item 13.
 
Certain Relationships and Related Transactions and Director Independence
 
Item 14.
 
Principal Accounting Fees and Services
 
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
 
 
Item 15.
 
Exhibits and Financial Statement Schedules
 
 
 
Signatures
 
 
 
 
 
 







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. The Company owns 80 shopping centers, three malls and a warehouse park adjacent to one of its centers. The portfolio totals 14.8 million square feet. The consolidated retail portfolio occupancy was 96.2% as of December 31, 2015.
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”). 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 the UE Businesses prior to the date of completion of the separation.
We will elect to be treated as a real estate investment trust (‘‘REIT’’) in connection with the filing of our federal income tax return as of and for the year ended December 31, 2015, subject to our ability to meet the requirements of becoming a REIT at the time of election, and we intend to maintain this status in future periods.
Company Strategies

Our goal is to become the leading owner of retail real estate in and on the edges of major urban markets. 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;

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Being constantly aware of each asset’s competitive positioning within its trade area 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 invest in redeveloping existing properties, selectively developing new shopping centers and acquiring properties in targeted markets. Each investment must meet our standards for expected risk-adjusted return and overall quality compared to our existing portfolio.

Investment considerations include:
Geography: The primary focus is on the New York metropolitan area and the DC to Boston corridor.
Product: As part of our focus on urban markets, we generally target retail properties that serve local communities with necessity and convenience-oriented retailers. We also seek large shopping centers (including 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 2015.
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 are seeking assets in underserved, high barrier-to-entry markets in densely populated, affluent trade areas. We believe that retail properties located in such markets present a 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.

Constantly evaluating our portfolio and, where appropriate, engaging in selective dispositions. We intend to regularly evaluate the future 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 also expect to generate increasing levels of cash from internally generated funds, borrowing under our existing line of credit as well as selective asset sales.

Significant Tenants

None of our tenants accounted for more than 10% of total revenues in any of the years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, The Home Depot was our largest tenant and accounted for approximately $19.0 million, or 5.9% of our total revenue.


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Employees

Our headquarters are located at 888 Seventh Avenue, New York, NY 10019. As of December 31, 2015, we had 124 employees and believe that our relationships with our employees are good.

Available Information

Copies of our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, 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.


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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
 
Material factors that may adversely affect our business and operations 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. 
The value of and income from real estate fluctuate depending on conditions in the general economy and the real estate business. These conditions may also adversely impact our revenues and cash flows.

The factors that affect the value of our real estate include, among other things:
 
national, regional and local economic conditions;
competition from other available space;
local conditions such as an oversupply of space or a reduction in demand for real estate in the area;
how well we manage our properties;
changes in market rental rates;
the timing and costs associated with property improvements and rentals;
whether we are able to pass all or portions of any increases in operating costs through to tenants;
changes in real estate taxes and other expenses;
whether tenants and shoppers consider a property attractive;
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
availability of financing on acceptable terms or at all;
inflation or deflation;
fluctuations in interest rates;
our ability to obtain adequate insurance;
changes in zoning laws and taxation;
government regulation;
consequences of any armed conflict involving, or terrorist attack against, the United States, or individual acts of violence in public spaces, including retail centers;
potential liability under environmental or other laws or regulations;
natural disasters;
general competitive factors; and
climate changes.
 
The rents we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors. If our rental revenues and/or occupancy levels decline, we generally would expect to have less cash available to pay our indebtedness and for distribution to our shareholders. In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs, generally do not decline when the related rents decline.


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Capital markets and economic conditions 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. Demand for retail space may decline nationwide, as it did in 2008 and 2009, due to an economic downturn, bankruptcies, downsizing, layoffs and cost cutting. 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 adversely affect our liquidity and financial condition, including our results of operations, 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 may materially and adversely affect our financial condition and results of operations and the value of our equity securities and any debt securities we may issue in the future.
 
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, which in turn, could materially and adversely affect us.

Internet sales may have an adverse impact on our tenants and our business.
The use of the internet by consumers continues to gain in popularity and growth in internet sales is likely to continue in the future. The increase in internet sales 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 internet sales 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 internet sales 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 and financial results could suffer.

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 than we are. Principal competitive factors include rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends affecting national and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. These competitive factors could materially and adversely affect us.
 
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. In addition, because a majority of our income is derived from renting real property, our income, funds available to pay indebtedness and funds available for distribution to shareholders will decrease if certain of our tenants cannot pay their rent or if we are not able to maintain our occupancy levels on favorable terms. 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.

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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, which could materially and adversely affect us.
 
We derive a significant portion of our revenues from four of our properties. 
As of December 31, 2015, four of our properties located in New Jersey and Puerto Rico generated, in the aggregate, in excess of 25% of our Net Operating Income (as such term is described in Part II. Item 7 of the Annual Report on Form 10-K). 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.  A substantial decline in revenues generated by one or more of these properties could materially and adversely affect our financial condition and results of operations.
 
Some of our properties depend on our anchor or major tenants and decisions made by these tenants, or adverse developments in the businesses of these tenants, could have a negative impact on us. 
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. Any of these developments could materially and adversely affect our financial condition or results of operations.
 
We may be unable to reposition or redevelop some of our properties, which could have a material and adverse impact on our financial condition and results of operations.
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, which could have a material and adverse impact on our financial condition and results of operations.

We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control. 
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the United States. Our leases, loans and other agreements may require us to comply with OFAC requirements. If a tenant or other party with whom we conduct business is placed on the OFAC list, we may be required to terminate the lease or other agreement. Any such termination could result in a loss of revenue or otherwise materially and adversely affect our financial condition and results of operations.

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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 negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could materially and adversely affect our financial condition and results of operations.  
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 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, but these measures, along with our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.
 
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 and materially and adversely affect us.
 
Some of our potential losses may not be covered by insurance. 
We maintain general liability insurance with limits of $200 million per occurrence and all risk property and rental value insurance coverage with limits of $500 million 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 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. Insurance premiums are allocated to each of the retail properties.  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 us.


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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.

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 and therefore could have a material and adverse effect on our results of operations in the period in which the charge is taken.

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. If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could materially and adversely affect our financial condition or results of operations.
 
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 that could materially and adversely affect our financial condition, results of operations and cash flows.

Changes in accounting standards may adversely impact our financial condition and results of operations.
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 affect on our reported results for the affected periods.

Our Investments Are Concentrated in the Northeast and Puerto Rico. Circumstances Affecting These Areas Generally Could Materially and Adversely Affect Our Business.
 
Our properties are generally located in the Northeast and are affected by the economic cycles and risks inherent in this area. 
Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact the Northeast market in either the short-term or long-term. Declines in the economy or declines in the real estate market in these areas could materially and adversely affect our financial performance and the value of our properties. The factors affecting economic conditions in this area include: 
financial performance and productivity of the media, advertising, financial, technology, retail, insurance and real estate industries;
unemployment levels;
business layoffs or downsizing;
industry slowdowns;
relocations of businesses;
changing demographics;
increased telecommuting and use of alternative offices;
infrastructure quality;
changes in local laws or regulations; and

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any oversupply of, or reduced demand for, real estate.

It is impossible for us to assess the future effects of trends in the economic and investment climates, or changes in tax laws (or other applicable laws, rules or regulations), in the Northeast and, more generally, in the United States on the real estate market in these areas. Local, national or global economic downturns, could materially and adversely affect our financial condition or results of operations.
 
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 15% 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 and real GDP growth of less than 1% per year. Total employment and the size of the labor force have decreased causing the unemployment rate to rise to a reported 12% as of December 2015. 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. 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, which could materially and adversely affect our financial condition or results of operations.
 
Natural disasters could have a concentrated impact on the area in which we operate and could adversely impact our financial condition and results of operations. 
We own properties near the Atlantic Coast and in Puerto Rico and natural disasters such as hurricanes could have a material and adverse impact on us. We also have four properties in California that could be impacted by earthquakes. As a result, we could become subject to significant losses and/or repair costs and to the risk of business interruption both of which may or may not be fully covered by insurance. Incurring such losses, costs or business interruptions could materially and adversely affect our financial condition and results of operations.
 
We May Redevelop, Develop, Acquire or Sell Assets. Our Inability to Consummate or Manage These Transactions Could Adversely Affect Our Operations and Financial Results.
 
We may redevelop, develop or acquire properties and these activities may create risks. 
We may redevelop, develop or acquire properties when we believe that a redevelopment, development or acquisition project is consistent with our business strategy. We may not, however, succeed in consummating desired acquisitions or in completing redevelopments and developments on time or within budget. In addition, we may face competition in pursuing redevelopment, development and acquisition opportunities. When we do pursue a project or acquisition, we may not succeed in leasing redeveloped, developed or acquired properties at rents sufficient to cover the costs of redevelopment, development, 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 redevelopment, development and acquisition opportunities that we have begun pursuing and consequently fail to recover expenses already incurred, which materially and adversely affect our financial condition and results of operations.

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 on our earnings, near term returns on the disposed assets may exceed the returns we are able to achieve through reinvestment of the sale proceeds. 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.

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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.
 
Substantially all of our assets are owned by wholly-owned subsidiaries. We depend on dividends and distributions from these subsidiaries. The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or other distributions to us. 
Substantially all of our properties and assets are held through wholly-owned subsidiaries. We depend on cash distributions from our subsidiaries for most of our cash flow. The creditors of each of our subsidiaries are entitled to payment of that subsidiary’s obligations to them when due and payable before that subsidiary may make distributions or dividends to us. Thus, our ability to pay dividends, if any, to our security holders depends on our subsidiaries’ ability to first satisfy their obligations to their creditors and our ability to satisfy our obligations, if any, to our creditors.
 
In addition, our participation in any distribution of the assets of any of our subsidiaries upon the liquidation, reorganization or insolvency of the subsidiary is only after the claims of the creditors, including trade creditors and preferred security holders, if any, of the applicable direct or indirect subsidiaries, are satisfied. The failure of one or more of our subsidiaries to pay distributions to us could materially and adversely affect us.

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 discontinue 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) the level of 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) 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 credit ratings downgrades and default on our obligations that could adversely affect our financial condition and results of operations.

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 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

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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 us. 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.

The Protecting Americans from Tax Hikes Act (PATH Act) was enacted on December 18, 2015 and included numerous tax law changes applicable to REITs and its foreign shareholders.  These provisions have various effective dates beginning as early as December 19, 2015.  We expect that the changes will not materially impact our operations, but will continue to monitor as regulatory guidance is issued.

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.







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RISKS RELATED TO THE SEPARATION
 
Our historical combined financial information for 2014 and prior is 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 2014 and prior refer to our business as operated by and integrated with Vornado. That historical financial information is 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 the periods presented or those that we will 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. Following the separation, Vornado is providing various corporate functions for us, such as human resources, information technology, risk management, public reporting and tax services. Prior to 2015, our historical financial results reflect allocations of corporate expenses from Vornado for such functions and are likely to be less than the expenses we would have incurred had we operated as a separate, publicly-traded company. We will need to make significant investments to replicate or outsource from other providers certain, systems, infrastructure and personnel to which we will no longer have access after expiration of the Transition Services Agreement. Developing our ability to operate without access to certain elements of Vornado’s current operational and administrative infrastructure will be costly and may prove difficult. 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 generally only be provided for a maximum of 2 years 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;
 
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.
 
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 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

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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.
 
Under the Tax Matters Agreement between UE and Vornado, 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 in certain sections of the Tax Matters Agreement, or from the taking of certain restricted actions by UE. For a more detailed discussion, please refer to “Certain Relationships and Relationships and Related Person Transactions — Tax Matters Agreement.”

We may not be able to engage in desirable strategic or capital-raising transactions. In addition, if we were able to engage in such transactions, we could be liable for adverse tax consequences resulting therefrom. 
To preserve the tax-free treatment of the separation, for the two-year period following our spin-off from Vornado, we will be prohibited, except in specific circumstances, from: (i) taking any action that would result in the Company ceasing to be engaged in the active conduct of the UE business (within the meaning of the Code); (ii) redeeming or otherwise repurchasing (directly or indirectly) any of our outstanding stock, other than pursuant to open market stock repurchase programs meeting certain requirements set forth in IRS Revenue Procedures; (iii) varying the relative voting rights of separate classes of our stock or converting one class of our stock into another class of its stock; (iv) liquidating or partially liquidating the Company; (v) merging or consolidating the Company with any other corporation; (vi) selling or otherwise disposing of (other than in the ordinary course of business) the assets of the Company and its subsidiaries, or taking any other action or actions if such sale, other disposition or other action or actions in the aggregate would have the effect that one or more persons acquire (or have the right to acquire), directly or indirectly, as part of a plan or series of related transactions, assets representing fifty percent (50%) or more of the fair market value of our assets; or (vii) taking any other action or actions that in the aggregate would have the effect that one or more persons acquire (or have the right to acquire), directly or indirectly, as part of a plan or series of related transactions, stock or equity securities of the Company representing a fifty percent (50%) equity interest in the Company, other than certain permitted acquisitions.
 
These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business.

Potential indemnification liabilities 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. If we are required to indemnify Vornado under the circumstances set forth in the Separation Agreement, we may be subject to substantial liabilities and could materially affect our financial condition.
 
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

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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: (i) we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Vornado; and (ii) our business is less diversified than Vornado’s business prior to the separation. The delay or failure to achieve some or all of the benefits expected to result from the separation, could materially and adversely affect our business, financial conditions and results of operations.
 
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 an indirect 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.
 
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and share price. 
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 are required to prepare our financial statements according to the rules and regulations required by the SEC. In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing.
 
In addition, the Sarbanes-Oxley Act requires that we, among other things, establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting.
 
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause our company to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in our company and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered

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public accounting firm report a material weakness in our internal control over financial reporting. This could materially adversely affect our company by, for example, leading to a decline in our share price and impairing our ability to raise additional capital.

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.  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. Such awards will have a dilutive effect on our earnings per share, which could adversely affect 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.

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.

15



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 first, second and third classes will expire at the first, second and third annual meetings of shareholders held following the separation, respectively.  Shareholders elect only one class of trustees each year. Shareholders will elect successors to trustees of the first class for a two-year term and 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 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.


16



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, 2015, our portfolio is comprised of 80 shopping centers, three malls and a warehouse park totaling approximately 14.8 million square feet. We own 62 properties 100% in fee simple, except for Walnut Creek (Mt. Diablo) where we own a 95% interest. We lease 18 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, 2015, 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, 2015.
Property
 
Percent Leased (1)
 
Weighted Average Annual Rent per sq ft (2)
 
Total Square Feet (1)
 
Major Tenants
SHOPPING CENTERS AND MALLS:
 
 
 
 
California:
 
 
 
 
 
 
 
 
Signal Hill
 
100.0%
 
$24.08
 
45,000
 
Best Buy
Vallejo (ground leased through 2043)
 
100.0%
 
17.51
 
45,000
 
Best Buy
Walnut Creek (1149 South Main Street)
 
100.0%
 
45.11
 
29,000
 
Barnes & Noble
Walnut Creek (Mt. Diablo) (3)
 
100.0%
 
74.00
 
7,000
 
Anthropologie
 
 
 
 
 
 
 
 
 
Connecticut:
 
 
 
 
 
 
 
 
Newington
 
100.0%
 
9.70
 
188,000
 
Wal-Mart, Staples
Waterbury
 
78.0%
 
16.69
 
147,000
 
ShopRite, Goodwill (lease not commenced)
 
 
 
 
 
 
 
 
 
Maryland:
 
 
 
 
 
 
 
 
Baltimore (Towson)
 
100.0%
 
16.89
 
155,000
 
hhgregg, Staples, HomeGoods, Golf Galaxy
Glen Burnie
 
90.5%
 
9.33
 
121,000
 
Gavigan’s Home Furnishings, Pep Boys
Rockville
 
98.1%
 
24.09
 
94,000
 
Regal Cinemas
Wheaton (ground leased through 2060)
 
100.0%
 
14.94
 
66,000
 
Best Buy
 
 
 
 
 
 
 
 
 
Massachusetts:
 
 
 
 
 
 
 
 
Cambridge
     (ground and building leased through 2033)
 
100.0%
 
21.83
 
48,000
 
PetSmart, Modell’s Sporting Goods
Chicopee
 
100.0%
 
5.50
 
224,000
 
Wal-Mart
Milford
     (ground and building leased through 2019)
 
100.0%
 
9.01
 
83,000
 
Kohl’s
Springfield
 
100.0%
 
5.74
 
182,000
 
Wal-Mart
 
 
 
 
 
 
 
 
 
New Hampshire:
 
 
 
 
 
 
 
 
Salem (ground leased through 2102)
 
100.0%
 
12.58
 
37,000
 
Babies “R” Us
 
 
 
 
 
 
 
 
 
New Jersey:
 
 
 
 
 
 
 
 
Bergen Town Center - East, Paramus
 
92.9%
 
18.08
 
211,000
 
Lowe’s, REI
Bergen Town Center - West, Paramus, NJ
 
99.9%
 
31.02
 
960,000
 
Target, Century 21, Whole Foods Market, Marshalls, Nordstrom Rack, Saks Off 5th, HomeGoods, Hennes & Mauritz, Bloomingdale’s Outlet, Nike Factory Store, Old Navy, Nieman Marcus Last Call Studio
Brick
 
98.2%
 
18.61
 
278,000
 
Kohl’s, ShopRite, Marshalls
Carlstadt (ground leased through 2050)
 
95.5%
 
23.38
 
78,000
 
Stop & Shop
Cherry Hill
 
97.3%
 
8.55
 
261,000
 
Wal-Mart, Toys “R” Us, Maxx Fitness (lease not commenced)
Dover
 
94.7%
 
13.26
 
173,000
 
ShopRite, T.J. Maxx
East Brunswick
 
100.0%
 
14.01
 
427,000
 
Lowe’s, Kohl’s, Dick’s Sporting Goods, P.C. Richard & Son, T.J. Maxx, LA Fitness

17



Property
 
Percent Leased (1)
 
Weighted Average Annual Rent per sq ft (2)
 
Total Square Feet (1)
 
Major Tenants
East Hanover (200 - 240 Route 10 West)
 
85.9%
 
19.81
 
343,000
 
The Home Depot, Dick’s Sporting Goods, Marshalls
East Hanover (280 Route 10 West)
 
100.0%
 
35.20
 
24,000
 
REI
East Rutherford
 
100.0%
 
12.50
 
197,000
 
Lowe’s
Eatontown
 
73.7%
 
29.09
 
30,000
 
Petco
Englewood(6)
 
64.1%
 
20.74
 
41,000
 
New York Sports Club
Garfield
 
100.0%
 
12.78
 
195,000
 
Wal-Mart, Marshalls, Petsmart (lease not commenced)
Hackensack
 
94.4%
 
23.60
 
275,000
 
The Home Depot, Staples, Petco, 99 Ranch (lease not commenced)
Hazlet
 
100.0%
 
3.43
 
95,000
 
Stop & Shop(4)
Jersey City
 
100.0%
 
12.21
 
236,000
 
Lowe’s, P.C. Richard & Son
Kearny
 
100.0%
 
19.95
 
104,000
 
LA Fitness (lease not commenced), Marshalls
Lawnside
 
99.3%
 
14.38
 
147,000
 
The Home Depot, PetSmart
Lodi (Route 17 North)
 
100.0%
 
12.13
 
171,000
 
National Wholesale Liquidators
Lodi (Washington Street)
 
83.3%
 
20.38
 
85,000
 
Blink Fitness, Aldi
Manalapan
 
100.0%
 
17.47
 
208,000
 
Best Buy, Bed Bath & Beyond, Babies “R” Us, Modell’s Sporting Goods, PetSmart
Marlton
 
100.0%
 
14.08
 
213,000
 
Kohl’s(5), ShopRite, PetSmart
Middletown
 
100.0%
 
12.88
 
231,000
 
Kohl’s, Stop & Shop
Montclair
 
100.0%
 
26.20
 
18,000
 
Whole Foods Market
Morris Plains
 
94.1%
 
20.78
 
177,000
 
Kohl’s, ShopRite(4)
North Bergen (Kennedy Boulevard)
 
100.0%
 
13.03
 
62,000
 
Food Basics
North Bergen (Tonnelle Avenue)
 
100.0%
 
20.37
 
410,000
 
Wal-Mart, BJ’s Wholesale Club, PetSmart, Staples
North Plainfield
 
95.5%
 
8.22
 
206,000
 
Costco, The Tile Shop, La-Z-Boy (lease not commenced)
Paramus (ground leased through 2033)
 
100.0%
 
42.23
 
63,000
 
24 Hour Fitness
South Plainfield (ground leased through 2039)
 
82.0%
 
21.29
 
56,000
 
Staples, Party City
Totowa
 
100.0%
 
16.96
 
271,000
 
The Home Depot, Bed Bath & Beyond, buy buy Baby, Marshalls, Staples
Turnersville
 
96.3%
 
7.00
 
96,000
 
Haynes Furniture Outlet (The Dump)
Union (2445 Springfield Avenue)
 
100.0%
 
17.85
 
232,000
 
The Home Depot
Union (Route 22 and Morris Avenue)
 
99.4%
 
18.34
 
276,000
 
Lowe’s, Toys “R” Us, Office Depot
Watchung
 
96.6%
 
16.57
 
170,000
 
BJ’s Wholesale Club
Woodbridge
 
84.1%
 
13.81
 
226,000
 
Wal-Mart
 
 
 
 
 
 
 
 
 
New York:
 
 
 
 
 
 
 
 
Bronx (1750-1780 Gun Hill Road)
 
100.0%
 
33.65
 
77,000
 
Aldi, Planet Fitness
Bronx (Bruckner Boulevard)(6)
 
78.4%
 
16.44
 
501,000
 
Kmart, Toys “R” Us
Buffalo (Amherst)
 
100.0%
 
9.35
 
311,000
 
BJ’s Wholesale Club, T.J. Maxx, Home Goods, Toys “R” Us, LA Fitness
Commack
     (ground and building leased through 2021)
 
100.0%
 
21.96
 
47,000
 
PetSmart, Ace Hardware
Dewitt (ground leased through 2041)
 
100.0%
 
20.46
 
46,000
 
Best Buy
Freeport (240 West Sunrise Highway)
     (ground and building leased through 2040)
 
100.0%
 
20.28
 
44,000
 
Bob’s Discount Furniture
Freeport (437 East Sunrise Highway)
 
100.0%
 
18.86
 
173,000
 
The Home Depot, Staples
Huntington
 
100.0%
 
14.24
 
204,000
 
Kmart, Marshalls, Old Navy, Petco
Inwood
 
92.5%
 
18.20
 
100,000
 
Stop & Shop
Mount Kisco
 
100.0%
 
16.69
 
189,000
 
Target, Stop & Shop
New Hyde Park (ground and building
     leased through 2029)
 
100.0%
 
20.21
 
101,000
 
Stop & Shop
Oceanside
 
100.0%
 
28.00
 
16,000
 
Party City
Queens(6)
 
84.6%
 
41.04
 
46,000
 
 
Rochester
 
100.0%
 
3.08
 
205,000
 
Wal-Mart
Rochester (Henrietta)
     (ground leased through 2056)
 
94.2%
 
3.96
 
165,000
 
Kohl’s

18



Property
 
Percent Leased (1)
 
Weighted Average Annual Rent per sq ft (2)
 
Total Square Feet (1)
 
Major Tenants
Staten Island
 
88.8%
 
23.88
 
165,000
 
Western Beef, Planet Fitness
West Babylon
 
92.7%
 
17.11
 
66,000
 
Best Market, Rite Aid
 
 
 
 
 
 
 
 
 
Pennsylvania:
 
 
 
 
 
 
 
 
Allentown
 
100.0%
 
11.69
 
372,000
 
Burlington Coat Factory, Giant Food, Dick’s Sporting Goods, T.J. Maxx, Petco, Big Lots
Bensalem
 
100.0%
 
12.56
 
185,000
 
Kohl’s, Ross Dress for Less, Staples, Petco
Bethlehem
 
97.4%
 
7.46
 
147,000
 
Giant Food, Petco
Broomall
 
100.0%
 
10.43
 
169,000
 
Giant Food(5), Planet Fitness, A.C. Moore, PetSmart
Glenolden
 
100.0%
 
12.41
 
102,000
 
Wal-Mart
Lancaster
 
100.0%
 
4.68
 
228,000
 
Lowe’s, Sleepy’s, Community Aid
Springfield
     (ground and building leased through 2025)
 
100.0%
 
20.90
 
41,000
 
PetSmart
Wilkes-Barre (461 - 499 Mundy Street)
 
91.7%
 
12.89
 
204,000
 
Bob’s Discount Furniture, Babies “R” Us,
Ross Dress for Less, Marshalls, Petco
Wyomissing
     (ground and building leased through 2065)
 
93.2%
 
15.56
 
76,000
 
LA Fitness, PetSmart
York
 
86.2%
 
8.75
 
111,000
 
Ashley Furniture, Tractor Supply Company, Aldi
 
 
 
 
 
 
 
 
 
South Carolina:
 
 
 
 
 
 
 
 
Charleston (ground leased through 2063)
 
100.0%
 
14.19
 
45,000
 
Best Buy
 
 
 
 
 
 
 
 
 
Virginia:
 
 
 
 
 
 
 
 
Norfolk
     (ground and building leased through 2069)
 
100.0%
 
7.08
 
114,000
 
BJ’s Wholesale Club
Tyson’s Corner
     (ground and building leased through 2035)
 
100.0%
 
39.13
 
38,000
 
Best Buy
 
 
 
 
 
 
 
 
 
Puerto Rico:
 
 
 
 
 
 
 
 
Las Catalinas
 
93.4%
 
35.99
 
355,000
 
Kmart
Montehiedra(6)
 
92.0%
 
17.71
 
541,000
 
Kmart, The Home Depot, Marshalls, Caribbean Theatres, Tiendas Capri, Nike Factory Store
 
 
 
 
 
 
 
 
 
Total Shopping Centers and Malls
 
96.2%
 
16.64 (2)
 
13,901,000
 
 
 
 
 
 
 
 
 
 
 
WAREHOUSES:
 
 
 
 
 
 
 
 
East Hanover - Five Buildings(6)
 
79.1%
 
4.80
 
942,000
 
J & J Tri-State Delivery, Foremost Groups Inc., PCS Wireless, Fidelity Paper & Supply Inc., Consolidated Simon Distributors Inc., Meyer Distributing Inc., Givaudan Flavors Corp.
 
 
 
 
 
 
 
 
 
Total Urban Edge Properties
 
95.1%
 
$16.27
 
14,843,000
 
 
(1) 
Percent leased is expressed as a percent of total square feet (gross leasable area) subject to a lease.
(2) 
Weighted average annual rent per square foot is calculated by annualizing tenant’s current base rent as of December 31, 2015, including ground rent, and excludes tenant reimbursements, concessions and storage rent. The total weighted average annual rent per square foot includes 3.6 million square feet where the tenants own the building and pay us rent pursuant to ground leases. Excluding the ground leases, the weighted average annual rent per square foot for shopping centers and malls is $19.45 per square foot.
(3) 
Our ownership of Walnut Creek (Mt. Diablo) is 95% as of December 31, 2015.
(4) 
The tenant has ceased operations at this location, but continues to pay rent.
(5) 
The leases for these former Bradlees’ locations is guaranteed by Stop & Shop.
(6) 
Not included in the same-property pool for the purposes of calculating same-property NOI as of December 31, 2015.







19



As of December 31, 2015, we had approximately 1,100 leases. Lease terms generally range from five years or less in some instances for smaller tenants to as long as 25 years 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 2015.

Occupancy

The following table sets forth the consolidated retail portfolio occupancy rate, 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:
 
 
December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
Total square feet
 
13,901,000

 
13,880,000

 
13,922,000

 
13,645,000

 
13,623,000

Occupancy Rate
 
96.2
%
 
95.8
%
 
95.6
%
 
95.0
%
 
95.0
%
Average Annual Base Rent per sf
 

$16.64

 

$16.57

 

$16.38

 

$16.35

 

$15.95


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:
 
 
December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
Total square feet
 
942,000

 
942,000

 
942,000

 
942,000

 
942,000

Occupancy Rate
 
79.1
%
 
60.8
%
 
45.6
%
 
55.9
%
 
45.3
%
Average Annual Base Rent per sf
 

$4.80

 

$4.41

 

$4.35

 

$4.34

 

$4.85


Major Tenants

The following table sets forth information for the 10 largest tenants by total revenues for the year ended December 31, 2015:
Tenant
 
Number of Stores
 
Square Feet Leased
 
Percent of Total Square Feet
 
2015 Revenues
 
Percent of Total Revenues
 
 
 
 
 
 
 
 
 
 
 
The Home Depot
 
7
 
865,000

 
5.8
%
 
$
19,019,000

 
5.9
%
Wal-Mart/Sam's Wholesale
 
9
 
1,439,000

 
9.7
%
 
18,842,000

 
5.8
%
Lowe's
 
6
 
976,000

 
6.6
%
 
13,078,000

 
4.0
%
The TJX Companies, Inc.
 
15
 
543,000

 
3.6
%
 
11,998,000

 
3.7
%
Stop & Shop / Koninklijke Ahold NV
 
9
 
656,000

 
4.4
%
 
11,814,000

 
3.7
%
Kohl’s
 
8
 
716,000

 
4.8
%
 
8,984,000

 
2.8
%
Sears Holdings, Inc. (Sears and Kmart)
 
4
 
547,000

 
3.7
%
 
7,716,000

 
2.4
%
BJ's Wholesale Club
 
4
 
454,000

 
3.1
%
 
7,680,000

 
2.4
%
Best Buy Co. Inc.
 
7
 
313,000

 
2.1
%
 
7,668,000

 
2.4
%
ShopRite
 
5
 
337,000

 
2.3
%
 
7,620,000

 
2.4
%









20



Lease Expirations

The following table sets forth the anticipated expirations of tenant leases in our consolidated portfolio for each year from 2016 through 2026 and thereafter, assuming no exercise of renewal options or early termination rights:
 
 
 
 
 
 
Percentage of
 
Weighted Average Annual
 
 
 
Number of
 
Square Feet of
 
Retail Properties
 
Base Rent of Expiring Leases
 
Year
 
Expiring Leases
 
Expiring Leases
 
 Square Feet
 
Total
 
Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
Month-To-Month
 
13
 
42,000

 
0.3%
 
$
1,769,880

 
$
42.14

 
2016
 
82
 
328,000

 
2.4%
 
9,771,120

 
29.79

(1) 
2017
 
88
 
531,000

 
3.8%
 
11,671,380

 
21.98

(1) 
2018
 
76
 
1,166,000

 
8.4%
 
17,046,920

 
14.62

 
2019
 
103
 
1,198,000

 
8.6%
 
26,379,960

 
22.02

 
2020
 
83
 
1,303,000

 
9.4%
 
22,841,590

 
17.53

 
2021
 
65
 
898,000

 
6.5%
 
17,493,040

 
19.48

 
2022
 
48
 
997,000

 
7.2%
 
12,372,770

 
12.41

 
2023
 
46
 
1,100,000

 
7.9%
 
19,943,000

 
18.13

 
2024
 
56
 
1,348,000

 
9.7%
 
18,400,200

 
13.65

 
2025
 
40
 
547,000

 
3.9%
 
9,654,550

 
17.65

 
2026
 
30
 
628,000

 
4.5%
 
6,958,240

 
11.08

 
Thereafter
 
61
 
3,281,000

 
23.6%
 
48,690,040

 
14.84

 
Sub-total/Average
 
791
 
13,367,000

 
96.2%
 
222,961,560

 
16.68

 
Vacant
 
122
 
534,000

 
3.8%
 
 N/A

 
 N/A

 
Total
 
913
 
13,901,000

 
100%
 
222,961,560

 
 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.


21



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 18, 2016, there were 1,779 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 stock by quarter for 2015:
 
Price Per Share
 
Cash Dividends Declared Per Share
 
High Price
 
Low Price
 
2015
 
 
 
 
 
Fourth quarter
$
24.33

 
$
21.58

 
$
0.20

Third quarter
$
23.06

 
$
20.12

 
$
0.20

Second quarter
$
24.02

 
$
20.79

 
$
0.20

First quarter
$
24.67

 
$
23.25

 
$
0.20


We will elect to be treated as a REIT for U.S. Federal income tax purposes in connection with the filing of our federal income tax return for the period ended December 31, 2015, subject to our ability to meet the requirements to be treated as a REIT at the time of election, and we intend to maintain this status in future periods.

Future distributions will be declared and paid at the discretion of the Board of Directors 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 Directors deems relevant.

Our total annual dividends per common share for 2015 was $0.80 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 2015 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 2015 qualify for the following tax treatment:
 
Total Distribution per Share
 
Ordinary Dividends
 
Long Term Capital Gains
 
Return of Capital
2015
$
0.80

 
$
0.80

 
$

 
$


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 US REIT Equity Index and the SNL REIT Retail Shopping Ctr Index as provided by SNL Financial LC, from January 15, 2015 to December 31, 2015, assuming an investment of $100 and the reinvestment of all dividends into additional common shares during the holding period. Equity real estate investment trusts are defined as those that derive more than 75% of their income from equity investments in real estate assets. The FTSE NAREIT Equity REIT Total Return Index includes all tax qualified real estate investment trusts listed on the NYSE, NYSE Amex (formerly known as the American Stock Exchange), or the NASDAQ National Market. Stock performance for the past five years is not necessarily indicative of future results.


22



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.

 
 
Total Return % as of
Index
 
12/31/2015
UE
 
1.38

Russell 2000
 
(0.30
)
S&P 500
 
4.68

SNL U.S. REIT Equity
 
(2.91
)
SNL U.S. REIT Retail Shopping Center
 
(1.03
)

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 year ended December 31, 2015, there were no redemptions of operating partnership units, no unregistered sales of equity securities, and we did not repurchase any of our equity securities.

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.


23



ITEM 6.
SELECTED FINANCIAL DATA

The following table includes selected consolidated and combined financial data set forth as of and for each of the five years in the period ended December 31, 2015. The consolidated balance sheet as of 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 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.
 
Year Ended December 31,
(Amounts in thousands, except per share amounts)
2015
 
2014
 
2013
 
2012
 
2011
Operating Data:
 
 
 
 
 
 
 
 
 
Property rentals
$
231,867

 
$
232,592

 
$
228,282

 
$
232,031

 
$
223,883

Tenant expense reimbursements
84,617

 
81,887

 
73,170

 
70,453

 
73,863

Income from Stop & Shop settlement

 

 
59,599

 

 

Management & development fees
2,261

 
535

 
606

 
794

 
786

Other income
4,200

 
662

 
1,338

 
955

 
1,324

Total revenue
322,945

 
315,676

 
362,995

 
304,233

 
299,856

Total expenses
224,869

 
193,236

 
195,782

 
179,267

 
155,818

Operating income
98,076

 
122,440

 
167,213

 
124,966

 
144,038

Net income
41,348

 
65,794

 
109,335

 
69,850

 
87,460

Net income attributable to operating partnership
(2,547
)
 

 

 

 

Net income attributable to noncontrolling interest
(16
)
 
(22
)
 
(21
)
 
(13
)
 
3

Net income attributable to common shareholders(1)
$
38,785

 
$
65,772

 
$
109,314

 
$
69,837

 
$
87,463

 
 
 
 
 
 
 
 
 
 
Earnings per common share - Basic(2):
0.39

 
0.66

 
1.10

 
0.70

 
0.88

Earnings per common share - Diluted(2):
0.39

 
0.66

 
1.10

 
0.70

 
0.88

Weighted average shares outstanding - Basic(2)
99,252

 
99,248

 
99,248

 
99,248

 
99,248

Weighted average shares outstanding - Diluted(2)
99,278

 
99,248

 
99,248

 
99,248

 
99,248

Dividends declared per common share
0.80

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data as of period end:
 
 
 
 
 
 
 
 
 
Real estate, net of accumulated depreciation
$
1,575,530

 
$
1,555,301

 
$
1,562,416

 
$
1,609,121

 
$
1,637,393

Total assets
1,918,931

 
1,731,176

 
1,749,965

 
1,857,055

 
1,877,107

Mortgages payable
1,233,983

 
1,278,182

 
1,200,762

 
1,251,234

 
1,275,441

Total liabilities
1,447,477

 
1,472,313

 
1,408,381

 
1,467,167

 
1,511,383

Redeemable noncontrolling interests
33,177

 

 

 

 

Total equity
471,454

 
258,863

 
341,584

 
389,888

 
365,724

(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 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.
 





24



 
Year Ended December 31,
(Amounts in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Other Data:
 
 
 
 
 
 
 
 
 
Cash flow Statement Data:
 
 
 
 
 
 
 
 
 
Provided by operating activities
138,078

 
105,688

 
240,527

 
108,364

 
97,730

Used in investing activities
(65,490
)
 
(44,504
)
 
(27,013
)
 
(32,886
)
 
(39,023
)
Provided by (used in) financing activities
93,795

 
(63,807
)
 
(212,636
)
 
(73,385
)
 
(58,673
)

Funds From Operations (“FFO”)
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 generally accepted accounting principles), 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, and 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 generated from operating activities, is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by others.
The following table illustrates the calculation of FFO applicable to diluted common shareholders for each of the five years in the period ended December 31, 2015:
 
Year Ended December 31,
(Amounts in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Net income attributable to common shareholders
$
38,785

 
$
65,772

 
$
109,314

 
$
69,837

 
$
87,463

Adjustments:
 
 
 
 
 
 
 
 
 
Rental property depreciation and amortization
56,619

 
53,222

 
53,479

 
52,603

 
50,611

Real estate impairment losses

 

 
19,000

 
6,000

 

Limited partnership interests in operating partnership(1)
2,547

 

 

 

 

FFO applicable to diluted common shareholders
$
97,951

 
$
118,994

 
$
181,793

 
$
128,440

 
$
138,074

(1) Represents earnings allocated to long-term incentive plan (“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 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.
FFO applicable to diluted common shareholders for the twelve months ended December 31, 2015 and 2014 include certain items that affect comparability which are included in the table below. The aggregate of these items decreased FFO applicable to diluted common shareholders by $30.0 million, or $0.28 per diluted share, for the year ended December 31, 2015, respectively. During the twelve months ended December 31, 2014, there were $8.6 million, or $0.08 per diluted share, of items that affected comparability.
 
Twelve Months Ended December 31,
(Amounts in thousands)
2015
 
2014
Items that affect comparability:
 
 
 
Transaction costs
$
24,011

 
$
8,604

One-time equity awards related to the spin-off
7,143

 

Environmental remediation costs
1,379

 

Severance costs
693

 

Tenant bankruptcy settlement income
(3,738
)
 

Real estate tax settlement income related to prior periods
(532
)
 

Debt restructuring expenses
1,034

 

Items that affect comparability
$
29,990

 
$
8,604


25



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 our Annual Report on Form 10-K for the year ended December 31, 2015.
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 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, 2015, our portfolio consisted of 80 shopping centers, three malls and a warehouse park totaling 14.8 million square feet. 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 after giving effect to the transfer of assets and liabilities from Vornado as well as to the 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 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, 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 Contributions from Vornado on the statement of changes in equity included in Part II, Item 8 of this Annual Report on Form 10-K. 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 net loss attributable to Vornado in the statement of changes in equity included in Part II, Item 8 of this Annual Report on Form 10-K.
We will elect to be treated as a real estate investment trust (“REIT”) in connection with the filing of our federal income tax return as of and for the year ended December 31, 2015, subject to our ability to meet the requirements to be treated as a REIT at the time of election, and we intend to maintain this status in future periods.

26



For periods 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 the 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 in our consolidated and combined financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

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 2015, we accomplished the following leasing:
signed 49 new leases totaling 682,995 square feet, including 31 new leases on a same-space(1) basis totaling 311,089 square feet at an average rental rate of $25.64 per square foot in 2015 as compared to the prior in-place average rent of $23.56 per square foot, resulting in an 8.8% average rent spread;
renewed or extended 60 leases totaling 713,545 square feet, including 60 leases on a same-space basis totaling 713,545 square feet at an average rental rate of $20.48 per square foot in 2015 as compared to the prior in-place average rent of $18.92 per square foot, an 8.3% average rent spread;
increased consolidated retail portfolio occupancy(2) to 96.2% as of December 31, 2015 from 95.8% as of December 31, 2014; and
increased same-property retail portfolio occupancy(3) to 97.2% as of December 31, 2015 from 96.3% as of December 31, 2014.
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 those assets, will pursue new developments on them and will acquire properties adjacent to them. During 2015, we:
increased the number of active development and redevelopment projects which have a total expected investment of $122.8 million of which $91.0 million remains to be funded;
identified approximately $200.0 million of planned expansions and renovations expected to be completed over the next several years;
acquired Pan Bay Center (subsequently renamed Cross Bay Commons) in Queens, NY for an aggregate purchase price of $27.0 million;
acquired an outparcel adjacent to Bergen Town Center for $2.8 million; and
acquired an outparcel adjacent to the existing Lawnside shopping center for $0.4 million.
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 2015, we:
modified a $120.0 million, 6.04% mortgage loan secured by Montehiedra, extending the maturity date from July 2016 to July 2021 and separating the principal into two tranches, a senior $90.0 million position with interest at 5.33% paid currently and a junior $30.0 million position with interest accruing at 3.0%;
closed on a $500 million revolving credit agreement with a four-year term and two six-month extension options with no amounts drawn as of December 31, 2015;
prepaid $29.1 million in mortgage loans; and
ended the year with cash and cash equivalents of $169.0 million and a net debt (net of cash) to total market capitalization of 28.9% as of December 31, 2015.
 
 
 
 
 
 
 
 
 
 
 
(1)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.
 
 
(2)Our retail portfolio includes shopping centers and malls and excludes warehouses.
 
(3) 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 79 properties as of December 31, 2015 and 2014.

27



2016 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 report. 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 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

28



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.
 
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 and real estate taxes 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 or with partially owned entities. This revenue is recognized as the related services are performed under the respective agreements.







29



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.
Throughout this section, we have provided certain information on a “same-property” basis which includes the results of operations that we consolidated (or combined), owned and operated for the entirety of both periods being compared. Information provided on a same-property basis excludes properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service and properties acquired, sold, or in the foreclosure process during the periods being compared. While there is judgment surrounding changes in designations, a property is removed from the same-property pool when a property is considered to be a redevelopment property because it is undergoing significant renovation or re-tenanting pursuant to a formal plan and is expected to have a significant impact on property operating income based on the retenanting that is occurring. A development or redevelopment property is moved back to the same-property pool once a substantial portion of the growth expected from the development or redevelopment is reflected in both the current and comparable prior year period, generally the first full year in which the property 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 NOI using operating 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.

In this section we present NOI, which is a non-GAAP financial measure. The most directly comparable GAAP financial measure to NOI is income before income taxes. NOI excludes certain components from net income attributable to common shareholders in order to provide results that are more closely related to a property’s results of operations. We calculate 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 believe NOI and same-property NOI are meaningful non-GAAP financial measures because real estate acquisitions and dispositions are evaluated based on, among other considerations, property NOI applied to market capitalization rates. We utilize these measures to make investment and capital allocation decisions and to compare the unlevered performance of our properties to our peers. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, 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 income or net income. NOI and same-property NOI should not be considered substitutes for operating income or net income and may not be comparable to similarly titled measures employed by others.



30



Same-Property NOI and Occupancy Information

NOI and same-property NOI are non-GAAP financial measures that aid in the assessment of the performance of our properties and portfolio as it relates to the total return on assets. The most directly comparable GAAP financial measure to NOI is income before income taxes. Same-property NOI increased by $7.1 million, or 4.1%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014.

The following table reconciles income before income taxes to NOI and same-property NOI for the year ended December 31, 2015 and 2014.

 
For the year ended December 31,
(Amounts in thousands)
2015
 
2014
Income before income taxes
$
42,642

 
$
67,515

  Interest income
(150
)
 
(35
)
  Interest and debt expense
55,584

 
54,960

Operating income
98,076

 
122,440

Depreciation and amortization
57,253

 
53,653

General and administrative expense
32,044

 
17,820

Transaction costs
24,011

 
8,604

Subtotal
211,384

 
202,517

    Less: non-cash rental income
(7,468
)
 
(10,880
)
    Add: non-cash ground rent expense
1,346

 
1,531

NOI
205,262

 
193,168

Adjustments:
 
 
 
NOI related to properties being redeveloped
(16,039
)
 
(15,598
)
Tenant bankruptcy settlement and lease termination income
(4,022
)
 
(260
)
Management and development fee income from non-owned properties
(2,261
)
 
(535
)
Environmental remediation costs
1,379

 
(272
)
NOI related to properties acquired, disposed or in foreclosure
(611
)
 
(471
)
Real estate tax settlement income related to prior periods
(532
)
 

Other
(69
)
 
(53
)
    Subtotal adjustments
(22,155
)
 
(17,189
)
Same-property NOI
$
183,107

 
$
175,979





















31



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:
 
For the year ended December 31,
(Amounts in thousands)
2015
 
2014
 
$ Change
Total revenue
$
322,945

 
$
315,676

 
$
7,269

Real estate taxes
$
49,311

 
$
49,835

 
$
(524
)
Property operating expenses
$
50,595

 
$
51,988

 
$
(1,393
)
Depreciation and amortization
$
57,253

 
$
53,653

 
$
3,600

General and administrative expenses
$
32,044

 
$
17,820

 
$
14,224

Transaction costs
$
24,011

 
$
8,604

 
$
15,407

Interest and debt expense
$
55,584

 
$
54,960

 
$
(624
)
Income tax expense
$
1,294

 
$
1,721

 
$
427

Net income attributable to noncontrolling interests
$
2,563

 
$
22

 
$
2,541


Total revenue increased by $7.2 million to $322.9 million in 2015 from $315.7 million in 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 2015 from $49.8 million in 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 2015 from $52.0 million in 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 2015 from $17.8 million in 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.
Transaction costs increased $15.4 million to $24.0 million in 2015 from $8.6 million in 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 2015 from $55.0 million in 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;

32



$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 2015 from $1.7 million in 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.

Comparison of the Year Ended December 31, 2014 to 2013

Net income for the year ended December 31, 2014 was $65.8 million compared to net income of $109.3 million for the year ended December 31, 2013. 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, 2014 as compared to the same period of 2013:
 
For the year ended December 31,
(Amounts in thousands)
2014
 
2013
 
$ Change
Total revenue
$
315,676

 
$
362,995

 
$
(47,319
)
Property operating expenses
$
51,988

 
$
45,845

 
$
6,143

General and administrative expenses
$
17,820

 
$
19,376

 
$
(1,556
)
Real estate impairment loss
$

 
$
19,000

 
$
(19,000
)
Transaction costs
$
8,604

 
$

 
$
8,604

Interest and debt expense
$
54,960

 
$
55,789

 
$
(829
)
Income tax expense
$
1,721

 
$
2,100

 
$
(379
)
Net income attributable to noncontrolling interests
$
22

 
$
21

 
$
1


Total revenue decreased by $47.3 million to $315.7 million in 2014 from $363.0 million in 2013. The decrease is primarily attributable to:
$59.6 million as a result of a litigation settlement with Stop & Shop recognized in the year ended December 31, 2013;
partially offset by $8.7 million in tenant expense reimbursements due to higher real estate taxes and reimbursable property operating expenses;
$4.3 million in property rentals due to higher average rents and higher average occupancy in 2014; and
$0.7 million in other income due to certain one-time income items recognized in 2013.
Property operating expenses increased by $6.2 million to $52.0 million in 2014 from $45.8 million in 2013. The increase is primarily attributable to an increase in the amount of repairs and maintenance costs in the year ended December 31, 2014 including $3.3 million of higher snow removal costs.
General and administrative expenses decreased $1.6 million to $17.8 million in 2014 from $19.4 million in 2013. The decrease is primarily attributable to a lower average head count.
Transaction costs increased $8.6 million to $8.6 million in 2014. This increase is primarily attributable to:
$5.4 million of professional fees associated with the separation transaction; and
$3.2 million in a cash make-whole payment to Jeffrey S. Olson, Chairman and Chief Executive Officer of UE in accordance with his employment agreement.
Interest and debt expense decreased $0.8 million to $55.0 million in 2014 from $55.8 million in 2013. The decrease is primarily attributable to $0.8 million of interest associated with the repayment and refinancing of the existing mortgage loan secured by Bergen Mall in March 2013.
Income tax expense decreased by $0.4 million to $1.7 million in 2014 from $2.1 million in 2013. The decrease was attributable to an adjustment to update our projected annual income tax provision on our Puerto Rico properties based on estimated taxable income.

33



Net income attributable to noncontrolling interests remained consistent in 2014 as compared to 2013.

Liquidity and Capital Resources

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 include proceeds from financings and asset sales. We anticipate that cash flows from continuing operations over the next 12 months, together with existing cash balances, will be adequate to fund our business operations, debt amortization and recurring capital expenditures.

Dividends

Our Board of Trustees declared a quarterly dividend of $0.20 per common share for each of the quarters in 2015, or an annual rate of $0.80. On February 18, 2016, the Board of Trustees declared a quarterly dividend of $0.20 per common share, payable on March 31, 2016 to shareholders of record on March 15, 2016. We expect to pay regular cash dividends, however, 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 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.

Financing Activities and Contractual Obligations
 
Below is a summary of our outstanding debt and maturities as of December 31, 2015.
 
 
 
 
Interest Rate at
 
Principal Balance at
(Amounts in thousands)
 
Maturity
 
December 31, 2015
 
December 31, 2015