Urban Edge Properties: Form 10-Q for the period ended Mar 31, 2023

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, business and targeted occupancy may differ materially from those expressed in these forward-looking statements. You can identify many of these statements by words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q. Many of the factors that will determine the outcome of forward-looking statements are beyond our ability to control or predict and include, among others: (i) the economic, political and social impact of, and uncertainty relating to, the ongoing COVID-19 pandemic and related COVID-19 variants; (ii) the loss or bankruptcy of major tenants; (iii) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration and the Company’s ability to re-lease its properties on the same or better terms, or at all, in the event of non-renewal or in the event the Company exercises its right to replace an existing tenant; (iv) the impact of e-commerce on our tenants’ business; (v) macroeconomic conditions, such as rising inflation and disruption of, or lack of access to, the capital markets, as well as potential volatility in the Company’s share price; (vi) the Company’s success in implementing its business strategy and its ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (vii) changes in general economic conditions or economic conditions in the markets in which the Company competes, and their effect on the Company’s revenues, earnings and funding sources, and on those of its tenants; (viii) increases in the Company’s borrowing costs as a result of changes in interest rates, rising inflation, and other factors, including the discontinuation of USD LIBOR, which will be replaced by SOFR after June 30, 2023; (ix) the Company’s ability to pay down, refinance, hedge, restructure or extend its indebtedness as it becomes due and potential limitations on the Company’s ability to borrow funds under its existing credit facility as a result of covenants relating to the Company’s financial results; (x) potentially higher costs associated with the Company’s development, redevelopment and anchor repositioning projects, and the Company’s ability to lease the properties at projected rates; (xi) the Company’s liability for environmental matters; (xii) damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change; (xiii) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (xiv) information technology security breaches; (xv) the loss of key executives; and (xvi) the accuracy of methodologies and estimates regarding our environmental, social and governance (“ESG”) metrics, goals and targets, tenant willingness and ability to collaborate towards reporting ESG metrics and meeting ESG goals and targets, and the impact of governmental regulation on our ESG efforts. 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and the other documents filed by the Company with the SEC, including the information contained in this Quarterly Report on Form 10-Q.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for any forward-looking statements included in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.

Overview

Urban Edge Properties (“UE”, “Urban Edge” or the “Company”) (NYSE: UE) is a Maryland real estate investment trust that manages, develops, redevelops, and acquires retail real estate, primarily in the Washington, D.C. to Boston corridor. Urban Edge Properties LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as UE’s majority-owned partnership subsidiary and to own, through affiliates, all of the Company’s real estate properties and other assets. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Urban Edge Properties and UELP and their consolidated entities/subsidiaries.

The Operating Partnership’s capital includes general and common limited partnership interests (“OP Units”). As of March 31, 2023, Urban Edge owned approximately 95.9% of the outstanding common OP Units with the remaining limited OP Units held by members of management and the Board of Trustees, and contributors of property interests acquired. Urban Edge serves as the sole general partner of the Operating Partnership.

As of March 31, 2023, our portfolio consisted of 70 shopping centers, two outlet centers, two malls and two industrial parks totaling approximately 17.2 million square feet.

Critical Accounting Estimates

The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 contains a description of our critical accounting estimates, including collectibility, valuing acquired assets and liabilities and impairments. For the three months ended March 31, 2023, there were no material changes to these estimates.

Recent Accounting Pronouncements

Refer to Note 3 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q 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 base 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 expenditures consist of property operating and capital costs, 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, professional fees, information technology, office expenses and other administrative expenses; and interest and debt expense primarily consists of interest on our mortgage debt. 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 results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments, redevelopments and changes in accounting policies. The results of operations of any acquired properties are included in our financial statements as of the date of acquisition. Our results of operations are affected by national, regional and local economic conditions, as well as macroeconomic conditions, which are at times subject to volatility and uncertainty. In the five years preceding 2021, inflation levels remained relatively low compared to historical averages. However, in recent years there has been a rise in inflation due in part to the current economic climate and volatility in the financial markets. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some larger tenants have capped the amount of these operating expenses they are responsible for under their lease. The Federal Reserve has taken measures to suppress inflation by way of benchmark interest rate hikes, resulting in an increase in interest rates. As of March 31, 2023, approximately 91% of our outstanding debt is fixed rate, with the remaining 9% indexed to LIBOR, SOFR or the Prime Rate, plus an applicable margin per the loan agreements. We utilize interest rate derivative agreements to hedge the effect of rising interest rates on our variable rate debt. As of March 31, 2023, we were counter-party to one interest rate swap agreement and one interest rate cap agreement, both of which qualify for, and are designated as, hedging instruments. While we have not experienced any material adverse effects at this time, we are actively managing our business to respond to the ongoing economic and social impact from such events. See “Risk Factors” in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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

(Amounts in thousands)

(1) Refer to pages 29-30 for a reconciliation to the nearest generally accepted accounting principles (“GAAP”) measure.

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Net loss for the three months ended March 31, 2023 was $20.1 million, compared to net income of $9.5 million for the three months ended March 31, 2022. The following table summarizes certain line items from our consolidated statements of income and comprehensive income that we believe are important in understanding our operations and/or those items that significantly changed in the three months ended March 31, 2023 as compared to the same period in 2022:

(Amounts in thousands)

Total revenue decreased by $0.8 million to $99.4 million in the first quarter of 2023 from $100.2 million in the first quarter of 2022. The decrease is primarily attributable to:

• $2.0 million decrease in tenant reimbursements as a result of lower operating expenses;
• $0.8 million decrease in management and development fee and other income;
• $0.4 million decrease in percentage rent due to lower tenant sales; offset by
• $1.4 million increase in property rentals due to rent commencements and contractual rent increases, partially offset by tenant vacates; and
• $1.0 million increase as a result of property acquisitions.

Depreciation and amortization increased by $0.6 million to $25.1 million in the first quarter of 2023 from $24.5 million in the first quarter of 2022. The increase is primarily attributable to:

• $0.4 million increase as a result of property acquisitions; and
• $0.2 million increase due to assets placed in service for completion of capital projects since the first quarter of 2022.

Real estate taxes decreased by $0.3 million to $15.7 million in the first quarter of 2023 from $16.0 million in the first quarter of 2022. The decrease is primarily attributable to:

• $0.5 million decrease as a result of successful tax appeals and lower assessments; offset by
• $0.1 million increase as a result of property acquisitions; and
• $0.1 million decrease in capitalized real estate taxes due to the completion of active development, redevelopment, and anchor repositioning projects, offset by project commencements.

Property operating expenses decreased by $3.8 million to $17.4 million in the first quarter of 2023 from $21.2 million in the first quarter of 2022. The decrease is primarily attributable to:

• $4.1 million lower common area maintenance expenses across the portfolio as a result of lower snow removal, cleaning and security expenses as compared to the first quarter of 2022; offset by
• $0.3 million increase as a result of property acquisitions.

General and administrative expenses decreased by $2.1 million to $9.1 million in the first quarter of 2023 from $11.1 million in the first quarter of 2022. This is primarily attributable to lower employment expenses, professional fees, transaction costs, and other expenses.

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

Interest and debt expense increased by $1.3 million to $15.3 million in the first quarter of 2023 from $14.0 million in the first quarter of 2022. The increase is primarily attributable to:

• $2.0 million increase in interest expense due to higher rates on our variable rate loans and the refinancing of our mortgage loans at Plaza at Woodbridge and Plaza at Cherry Hill in the second quarter of 2022; and
• $0.2 million increase in interest expense in connection with the mortgage loan obtained for the acquisition of The Shops at Riverwood in June 2022; offset by
• $0.9 million increase in capitalized interest expense due to commencement of development, redevelopment and anchor repositioning projects; partially offset by project completions.

Non-GAAP Financial Measures

We use NOI internally 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 net income. The most directly comparable GAAP financial measure to NOI is net income. NOI excludes certain components from net income in order to provide results that are more closely related to a property’s results of operations. We calculate NOI by adjusting net income to add back depreciation and amortization expense, general and administrative expenses, casualty and real estate impairment losses, interest and debt expense, income tax expense and non-cash lease expense, and deduct management and development fee income from non-owned properties, gains on sale of real estate, interest income, non-cash rental income resulting from the straight-lining of rents and amortization of acquired below market leases net of above market leases. NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others.

We calculate same-property NOI using net income as defined by GAAP reflecting only those income and expense items that are reflected in NOI (as described above) and excluding properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service, and also excluding properties acquired or sold during the periods being compared. We also exclude for the following items in calculating same-property NOI: lease termination fees, bankruptcy settlement income, and income and expenses that we do not believe are representative of ongoing operating results, if any. As such, same-property NOI assists in eliminating disparities in net income due to the development, redevelopment, acquisition or disposition of properties during the periods presented, and thus provides a more consistent performance measure for the comparison of the operating performance of the Company’s properties, which the Company believes to be useful to investors. Same-property NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others.

Throughout this section, we have provided certain information on a “same-property” basis which includes the results of operations that were owned and operated for the entirety of the reporting periods being compared, totaling 70 properties for the three months ended March 31, 2023 and 2022. Information provided on a same-property basis excludes properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service and also excludes properties acquired or sold during the periods being compared. While there is judgment surrounding changes in designations, a property is removed from the same-property pool when a property is considered to be a redevelopment property because it is undergoing significant renovation or retenanting pursuant to a formal plan and is expected to have a significant impact on property operating income based on the retenanting that is occurring. A development or redevelopment property is moved back to the same-property pool once a substantial portion of the NOI growth expected from the development or redevelopment is reflected in both the current and comparable prior year period, generally one year after at least 80% of the expected NOI from the project is realized on a cash basis. 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.

Same-property NOI increased by $2.8 million, or 5.1%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Same-property NOI, including properties in redevelopment, increased by $3.7 million, or 6.3%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The following table reconciles net income to NOI and same-property NOI for the three months ended March 31, 2023 and 2022.

(Amounts in thousands)

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

Funds From Operations

FFO applicable to diluted common shareholders was $38.6 million for the three months ended March 31, 2023 compared to $34.2 million for the three months ended March 31, 2022.

We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“Nareit”) definition. Nareit defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT, impairments on depreciable real estate or land related to a REIT's main business, earnings from consolidated partially owned entities, and rental property depreciation and amortization expense. We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period to period both internally and among our peers because this non-GAAP measure excludes net gains on sales of depreciable real estate, real estate impairment losses, rental property depreciation and amortization expense which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. We believe the presentation of comparable period operating results generated from FFO provides useful information to investors because the definition excludes items included in net income that do not relate to, or are not, indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analyses of operating and financial performance more difficult, such as gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT and impairments on depreciable real estate or land related to a REIT's main business. FFO does not represent cash flows from operating activities in accordance with GAAP, should not be considered an alternative to net income as an indication of our performance, and is not indicative of cash flow as a measure of liquidity or our ability to make cash distributions. FFO may not be comparable to similarly titled measures employed by others.

The following table reflects the reconciliation of net income to FFO for the three months ended March 31, 2023 and 2022.

(Amounts in thousands)

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

(2) The gain on sale of real estate for the three months ended March 31, 2023 relates to the release of escrow funds from a property disposed of in a prior period.

(3) During the three months ended March 31, 2023, the Company recognized an impairment charge reducing the carrying value of Kingswood Center, an office and retail property located in Brooklyn, NY.

Liquidity and Capital Resources

Due to the nature of our business, the cash generated from operations is primarily paid to our shareholders and unitholders of the Operating Partnership in the form of distributions. Our status as a REIT requires that we generally distribute at least 90% of our REIT’s ordinary taxable income each year. Our Board of Trustees declared a quarterly dividend of $0.16 per common share and OP unit for the first quarter of 2023, or an annual rate of $0.64. Historically, we have paid regular cash dividends; however, the timing, declaration, amount and payment of distributions to shareholders and unitholders of the Operating Partnership fall within the discretion of our Board of Trustees. Our Board of Trustees’ decisions regarding the payment of dividends depend on many factors, such as maintaining our REIT status, our financial condition, earnings, capital requirements, debt service obligations, limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other factors.

Property rental income is our primary source of cash flow and is dependent on a number of factors, including our occupancy level and rental rates, as well as our tenants’ ability to pay rent. Our properties have historically provided 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, equity offerings and asset sales. Additionally, we have an $800 million Revolving Credit Agreement with certain financial institutions which has a maturity date of February 9, 2027 and includes two six-month extension options. See Note 6 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our Revolving Credit Agreement.

Our short-term cash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, general and administrative expenses, expenditures related to leasing activity and distributions to shareholders and unitholders of the Operating Partnership. Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions. On April 6, 2023, the Company refinanced the mortgage secured by its property, Bergen Town Center, with a new 7-year, $290 million loan at a fixed interest rate of 6.3%. As a result of this refinancing, the Company has reduced its debt maturing in the remainder of 2023 to approximately $29 million, related to mortgage loans encumbering two of our properties.

At March 31, 2023, we had cash and cash equivalents, including restricted cash, of $111.2 million. Subsequent to the quarter, the Company obtained two letters of credit issued under our Revolving Credit Agreement aggregating $23.8 million, reducing the amount available under the facility to approximately $776.2 million. The available balance under our Revolving Credit Agreement and cash on hand are readily available to fund the debt obligations discussed above which are coming due within the next year.

Summary of Cash Flows

Cash and cash equivalents, including restricted cash, was $111.2 million at March 31, 2023, compared to $128.8 million at December 31, 2022 and $198.0 million at March 31, 2022, a decrease of $17.6 million and $86.8 million, respectively. Our cash flow activities are summarized as follows:

(Amounts in thousands)

Operating Activities

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

Net cash provided by operating activities of $29.4 million for the three months ended March 31, 2023 increased by $4.9 million from $24.5 million for the three months ended March 31, 2022. The increase is due to timing of cash receipts and payments related to tenant collections and recovery of amounts previously billed and deemed uncollectible.

Investing Activities

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

Net cash used in investing activities of $22.8 million for the three months ended March 31, 2023 decreased by $0.2 million compared to net cash used in investing activities of $23.0 million for the three months ended March 31, 2022. The decrease is primarily due to (i) $3.9 million decrease in cash used for the acquisition of real estate, and (ii) $0.4 million increase in cash provided by the sale of operating properties, offset by (iii) $4.1 million increase in cash used for real estate development and capital improvements.

The Company has 24 active development, redevelopment or anchor repositioning projects with total estimated costs of $217.7 million, of which $67.7 million has been incurred and $150.0 million remains to be funded as of March 31, 2023.

The following summarizes capital expenditures presented on a cash basis for the three months ended March 31, 2023 and 2022:

(Amounts in thousands)

Financing Activities

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

Net cash used in financing activities of $24.2 million for the three months ended March 31, 2023 increased by $0.9 million from cash used in financing activities of $23.3 million for the three months ended March 31, 2022. The increase is primarily due to (i) $0.6 million increase in cash used for debt repayments related to our mortgage loans, (ii) $0.2 million decrease in cash contributed by noncontrolling interests, and (iii) $0.1 million increase in distributions to shareholders and unitholders of the Operating Partnership.

On August 9, 2022, we amended and restated our Revolving Credit Agreement (as amended, the “Agreement”) to, among other things, increase the available amount under the facility by $200 million to $800 million and extend the maturity date to February 9, 2027, with two six-month extension options. Borrowings under the credit facility may be used to finance pre-development costs, development costs, acquisitions, working capital, equity investments, debt investments, capital expenditures and repayment of indebtedness, to pay fees and expenses incurred in connection with the amended and restated Agreement and for other general corporate purposes. As of March 31, 2023, there were no amounts drawn on the facility. Subsequent to quarter end, we obtained two letters of credit under the Agreement aggregating $23.8 million, to serve as collateral to secure the Company’s obligations to certain lenders. The issuance of these letters has reduced the available balance under the Agreement to approximately $776.2 million.

On August 15, 2022, we entered into an equity distribution agreement with various financial institutions, pursuant to which we may offer and sell common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250 million (the “ATM Program”). The ATM Program replaces the Company’s previous at-the-market program established in June 2021. As of March 31, 2023 we have not issued any common shares under the ATM Program. Refer to Note 14, Equity and Noncontrolling Interest, in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information related to this program.

Contractual Obligations

We have contractual obligations related to our mortgage loans that are both fixed and variable. Our variable rate loans bear interest at a floating rate based on LIBOR, SOFR and the Prime Rate plus an applicable margin of 0.5% to 2.26%. When LIBOR is discontinued, the interest rates of our LIBOR-indexed debt following such event will be based on either alternate base rates, such as SOFR, or agreed upon replacement rates. We do not anticipate that the discontinuation of LIBOR will impact our ability to borrow or maintain already outstanding borrowings, but it could result in higher interest rates and accordingly, higher costs of borrowing to us. Further information on our mortgage loans can be found in Note 6 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, we have contractual obligations for certain properties that are subject to long-term ground and building leases where a third party owns and has leased the underlying land to us. We also have non-cancelable operating leases pertaining to office space from which we conduct our business.

Additional contractual obligations that are not considered to be long-term, fixed in amount or easily determinable include:

• Obligations related to construction and development contracts. Such contracts or obligations will generally be due over the next two years;
• Obligations related to maintenance contracts, which can typically be canceled upon 30 to 60 days’ notice without penalty;
• Obligations related to employment contracts with certain executive officers and subject to cancellation by either the Company or the executive without cause upon notice; and
• Recorded debt premiums or discounts.

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

Cybersecurity

Cybersecurity is an integral part of the Board of Trustees’, Audit Committee’s and the Corporate Governance and Nominating Committee’s risk analysis and discussions with management. In February 2023, the Board of Trustees assigned initial cybersecurity oversight responsibility to the Corporate Governance and Nominating Committee via an amendment to the Committee’s Charter. As we see increased reliance on information technology in the workplace and our business operations, and a shift to remote and hybrid work schedules, Urban Edge has employed several measures to mitigate cyber risks.

In addition to a dedicated information technology and cybersecurity team monitoring our daily operations, the Company engages an independent third-party cybersecurity team for advisory services and cybersecurity assessments such as risk and disaster recovery. We also have a Cyber Risk Committee which works in conjunction with the Computer Incident Response Team to develop strategies to mitigate risks and to address any cyber issues that may arise. The Cyber Risk Committee meets quarterly to review emerging threats, controls, and procedures and will meet at least annually with the Corporate Governance and Nominating Committee to discuss trends in cyber risks and our strategy to defend our information against cybersecurity incidents.

We utilize a risk-based approach that aligns with the National Institute of Standards and Technology Cybersecurity Framework, and Microsoft best practices. Our policies and procedures are reviewed and updated annually by the Cyber Risk Committee and incorporate third-party assessments to benchmark ourselves against industry standards. Our cybersecurity preparedness includes, but is not limited to, vulnerability management programs, penetration testing, simulations, and tabletop exercises. The Company utilizes advanced endpoint protection, firewalls, intrusion detection and prevention, threat intelligence, security event logging and correlation, and backup and redundancy systems. We also have a Disaster Recovery and Business Continuity Committee that meets biannually to review and update our plan, policies, and procedures. In addition, our Information Technology team conducts disaster recovery tests annually and reports results to the Cyber Risk Committee.

We endeavor to apprise employees of emerging risks and require them to undergo quarterly security awareness trainings. Additionally, we conduct internal phishing and other exercises to gauge the effectiveness of the trainings and assess the need for additional training.

Interest Rate Risk

We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control. The following table discusses our exposure to hypothetical changes in market rates of interest on interest expense for our variable rate debt and fixed-rate debt. Interest rate risk amounts were determined by considering the impact of hypothetical interest rates on our debt. This analysis does not take into account all of the factors that may affect our debt, such as the effect that a changing interest rate environment could have on the overall level of economic activity or the action that our management might take to reduce our exposure to the change. This analysis assumes no change in our financial structure. Our exposure to a change in interest rates is summarized in the table below. As of March 31, 2023, our variable rate debt outstanding had rates indexed to LIBOR, SOFR and the Prime Rate.

(Amounts in thousands)

(1) Excludes unamortized debt issuance costs of $7.3 million and $7.8 million as of March 31, 2023 and December 31, 2022, respectively.

(2) If the weighted average interest rate of our fixed rate debt increased by 1% (i.e. due to refinancing at higher rates), annualized interest expense would have increased by approximately $15.4 million based on outstanding balances as of March 31, 2023.

We may utilize various financial instruments to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies, depending on our analysis of the interest rate environment and the costs and risks of such strategies. We do not enter into any financial instrument agreements, such as derivative agreements, for speculation or trading purposes. As of March 31, 2023, the Company was a counterparty to two interest rate derivative agreements which have been designated as cash flow hedges. These derivative instruments are assessed quarterly and as of March 31, 2023, both meet the criteria of an effective hedge.

Discontinuation of LIBOR

The LIBOR benchmark has been the subject of national, international and other regulatory guidance and proposals for reform and replacement, with most LIBOR settings relevant to the Company not expected to be published after June 30, 2023. As a result, we expect that the Company's four LIBOR-based borrowings that extend beyond such date will be converted to a replacement rate. If these are converted to an alternative rate, the differences could result in interest costs that are higher than LIBOR, had it remained available. We do not expect the transitions to have a material impact on the loans affected, however, it is not yet possible to predict with certainty the magnitude of LIBOR’s discontinuation on the Company's borrowing costs. The Company anticipates that the discontinuation of LIBOR will not affect the Company’s ability to borrow or maintain its already outstanding borrowings and interest rate swap.

Fair Value of Debt

The estimated fair value of our consolidated debt is calculated based on current market prices and discounted cash flows at the current rate at which similar loans would be made to borrowers with similar credit ratings for the remaining term of such debt. As of March 31, 2023, the estimated fair value of our consolidated debt was $1.6 billion.

Other Market Risks

As of March 31, 2023, we had no material exposure to any other market risks (including foreign currency exchange risk or commodity price risk).

In making this determination and for purposes of the SEC’s market risk disclosure requirements, we have estimated the fair value of our financial instruments at March 31, 2023 based on pertinent information available to management as of that date. Although management is not aware of any factors that would significantly affect the estimated amounts as of March 31, 2023, future estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.

Evaluation of Disclosure Controls and Procedures (Urban Edge Properties)

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures (Urban Edge Properties LP)

The Operating Partnership’s management maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer of our general partner, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

The Operating Partnership’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of our general partner, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of our general partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 14, 2023.