New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Organization
We are a real estate investment trust, organized as a Maryland corporation, engaged in the acquisition, ownership and management of commercial real estate.
We were organized as an unincorporated business trust (the “Trust”) under the laws of the Commonwealth of Massachusetts on July 7, 1969. In 1997, the shareholders of the Trust approved a plan of reorganization of the Trust from a Massachusetts business
trust to a Maryland corporation. As a result of the plan of reorganization, the Trust was merged with and into the Company, the separate existence of the Trust ceased, the Company was the surviving entity in the merger and each issued and outstanding
common share of beneficial interest of the Trust was converted into one share of Common Stock, par value $.01 per share, of the Company.
Tax Status – Qualification as a Real Estate Investment Trust
We elected to be taxed as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”),
beginning with our taxable year ended October 31, 1970. Pursuant to such provisions of the Code, a REIT that distributes at least 90% of its real estate investment trust taxable income to its shareholders each year and meets certain other conditions
regarding the nature of its income and assets will not be taxed on that portion of its taxable income that is distributed to its shareholders. Although we believe that we qualify as a real estate investment trust for federal income tax purposes, no
assurance can be given that we will continue to qualify as a REIT.
Description of Business
Our business is the ownership of real estate investments, which consist principally of investments in income-producing properties, with primary emphasis on
neighborhood and community shopping centers in the metropolitan New York tri-state area outside of the City of New York. We believe that our geographic focus allows us to take advantage of the strong demographic profiles of the areas that surround the
City of New York and the natural barriers to entry that such density and limitations on developable land provide. We also believe that our ability to directly operate and manage all of our properties within the tri-state area reduces overhead costs
and affords us efficiencies that a more dispersed portfolio would make difficult.
At October 31, 2022, the Company owned or had
equity interests in 77 properties comprised of neighborhood and community shopping centers, office buildings, single tenant retail or
restaurant properties and office/retail mixed use properties located in three states, containing a total of 5.3 million square feet of gross
leasable area (“GLA”). We seek to identify desirable properties, typically neighborhood and community shopping centers, for acquisition, which we acquire in the normal course of business. In addition, we regularly review our portfolio and, from time
to time, may sell certain of our properties. For a description of the Company's properties and information about the carrying amount of the properties at October 31, 2022 and encumbrances, see Item 2. Properties and Schedule III located in Item 15.
In addition, we own and operate self-storage facilities at two of our retail properties. The self-storage facilities are managed for us by Extra Space
Storage, a publicly traded REIT. One of the self-storage facilities is located in the back of our Yorktown Heights, NY shopping center in below grade space with approximately 57,300 square feet of GLA. The second self-storage facility is located adjacent to our Dock shopping center in Stratford, CT with approximately 90,000 square feet of available GLA. In
addition, we are close to completion on a third self-storage facility, which is located at our Pompton Lakes shopping center and will have approximately 60,100 square feet of available GLA.
We actively manage and supervise the operations and leasing of all of our properties. We also derive income from the management of six properties owned by
third parties and in which we have no equity interest.
In addition to our business of owning and managing real estate, we are also involved in the beer, wine and spirits retail business, through our ownership of
six subsidiary corporations formed as taxable REIT subsidiaries. Each subsidiary corporation owns and operates a beer, wine and spirits retail store at one of our shopping centers. To assist with the management of our operations, we have engaged an
experienced third-party, retail beer, wine and spirits manager, which also owns many stores of its own. Each of these stores occupies space at one of our shopping centers, fulfilling a strategic need for a beer, wine and spirits business at such
shopping center. These stores are not currently providing material earnings in excess of what the Company would have earned from leasing the space to unrelated tenants at market rents. However, these businesses are continuing to mature, and net sales
and earnings may eventually become material to our financial position and net income. Nevertheless, our primary business remains the ownership and management of real estate, and we expect that the beer, wine and spirts business will remain an
ancillary aspect of our business model. We may open additional beer, wine and spirits stores at other shopping centers if we determine that any such store would be a strategic fit for our overall business and the investment return analysis supports
such a determination.
We derive other ancillary income from property related sources such as solar array installations and electrical vehicle charging stations.
Growth Strategy
We have a conservative capital structure, which includes permanent equity sources of Common Stock, Class A Common Stock and two series of perpetual preferred
stock, which are only redeemable at our option. In addition, we have mortgage debt secured by some of our properties and a $125 million Facility. We do not have any secured debt maturing until August of 2024.
Key elements of our growth strategies and operating policies are to:
|
• |
maintain our focus on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, which we
believe can provide a more stable revenue flow even during difficult economic times, given the focus on food and other types of staple goods;
|
|
• |
acquire quality neighborhood and community shopping centers in the northeastern part of the United States with a concentration on properties in the metropolitan tri-state
area outside of the City of New York, and unlock further value in these properties with selective enhancements to both the property and tenant mix, as well as improvements to management and leasing fundamentals, with the hope of growing our assets through acquisitions subject to the availability of acquisitions that meet our investment parameters;
|
|
• |
selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria;
|
|
• |
invest in our properties for the long-term through regular maintenance, periodic renovations and capital improvements, enhancing their attractiveness to tenants and
customers (e.g. curbside pick-up), as well as increasing their value;
|
|
• |
leverage opportunities to increase GLA at existing properties, through development of pad sites and reconfiguring of existing square footage, to meet the needs of
existing or new tenants;
|
|
• |
proactively manage our leasing strategy by aggressively marketing available GLA, renewing existing leases with strong tenants, anticipating tenant weakness when necessary
by pre-leasing their spaces and replacing below-market-rent leases with increased market rents, with an eye towards securing leases that include regular or fixed contractual increases to minimum rents;
|
|
• |
improve and refine the quality of our tenant mix at our shopping centers;
|
|
• |
maintain strong working relationships with our tenants, particularly our anchor tenants;
|
|
• |
maintain a conservative capital structure with low leverage levels, ample liquidity and diverse sources of capital; and
|
|
• |
control property operating and administrative costs.
|
Renovations, Expansions and Improvements
We invest in properties where cost effective renovation and expansion programs, combined with effective leasing and operating strategies, can improve the
properties’ values and economic returns. Retail properties are typically adaptable for varied tenant layouts and can be reconfigured to accommodate new tenants or the changing space needs of existing tenants. We also seek to leverage existing
shopping center assets through pad site development. In determining whether to proceed with a renovation, expansion or pad, we consider both the cost of such expansion or renovation and the increase in rent attributable to such expansion or
renovation. We believe that certain of our properties provide opportunities for future renovation and expansion. We generally do not engage in ground-up development projects.
Environmental Initiatives
We also seek to improve our properties in ways that provide additional ancillary revenue or value, while benefiting the environment and communities in which
we have a presence. For example, we have a robust alternative energy program, pursuant to which we have placed a number of solar panel installations on the roofs of our shopping centers and are working on additional installations. We have also
installed electric vehicle charging stations at a number of our properties, which we believe will not only benefit the environment but enhance customer experience at our shopping centers. Other initiatives include converting incandescent and
florescent lighting to LED at various properties and upgrading parking lot lighting systems to operate more efficiently. While we are committed to environmental responsibility, we also believe that these initiatives need to be financially feasible and
beneficial to the Company, which may require that these projects be completed over a period of time. The Company will continue to seek financially responsible opportunities to reduce our carbon footprint and lower our energy usage, while improving the
value of our properties.
We are aware that climate change may exacerbate changes in weather patterns and natural disasters, including increased flooding at one or more of our
properties. We carry flood insurance on all of our properties, but will continue to keep vigilant to understand the potential impacts of climate change and take steps to mitigate its impact and to comply with any new regulations.
Acquisitions and Dispositions
When evaluating potential acquisitions, we consider such factors as (i) economic, demographic, and regulatory conditions in the property’s local and regional
market; (ii) the location, construction quality, and design of the property; (iii) the current and projected cash flow of the property and the potential to increase cash flow; (iv) the potential for capital appreciation of the property; (v) the terms
of tenant leases, including the relationship between the property’s current rents and market rents and the ability to increase rents upon lease rollover; (vi) the occupancy and demand by tenants for properties of a similar type in the market area;
(vii) the potential to complete a strategic renovation, expansion or re-tenanting of the property; (viii) the property’s current expense structure and the potential to increase operating margins; (ix) competition from comparable properties in the
market area; and (x) vulnerability of the property's tenants to competition from e-commerce.
We may, from time to time, enter into arrangements for the acquisition of interests in properties with property owners through the issuance of non-managing member units or partnership units in joint venture entities that we control, which we refer to as our DownREIT entities. The limited partners and non-managing
members of each of these joint ventures are entitled to receive annual or quarterly cash distributions payable from the joint ventures. The limited partners and non-managing members of these joint ventures have the right to require the Company to
repurchase or redeem all or a portion of their limited partner or non-managing member interests for cash or Class A Common Stock of the Company, at our election, at prices and on terms set forth in the partnership or operating agreements. We also have
the right to redeem all or a portion of the limited partner and non-managing member interests for cash or Class A Common Stock of the Company, at our election, under certain circumstances, at prices and on terms set forth in the partnership or
operating agreements. We believe that this acquisition method may permit us to acquire properties from property owners wishing to enter into tax-deferred transactions.
From time to time, we selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet
our acquisition criteria.
Leasing Results
At October 31, 2022, our properties
collectively had 942 leases with tenants providing a wide range of products and services. Tenants include regional supermarkets, national and
regional discount stores, other local retailers and office tenants. At October 31, 2022, the 71 consolidated properties were 93.0% leased and 92.6% occupied (see Results of Operations discussion in Item 7). At October 31, 2022, we had equity investments in six properties which we do not
consolidate; those properties were 94.4% leased. We believe the properties are adequately covered by property and liability insurance.
A substantial portion of our operating lease income is derived from tenants under leases with terms greater than one year. Most of the leases provide for
the payment of monthly fixed base rents and for the payment by the tenant of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance expenses incurred in operating the properties.
For the fiscal year ended October 31, 2022, no
single tenant comprised more than 10.3% of the total annual base rents of our properties. The following table sets forth a schedule of our ten
largest tenants by percent of total annual base rent of our properties to total annual base rent for the year ended October 31, 2022.
|
Tenant
|
|
Number
of Stores
|
|
|
% of Total Annual
Base Rent of Properties
|
|
|
Stop & Shop
|
|
|
11
|
|
|
|
10.3
|
%
|
|
CVS
|
|
|
9
|
|
|
|
4.4
|
%
|
|
Acme
|
|
|
6
|
|
|
|
3.7
|
%
|
|
The TJX Companies
|
|
|
4
|
|
|
|
2.7
|
%
|
|
ShopRite
|
|
|
3
|
|
|
|
1.9
|
%
|
|
Bed Bath & Beyond (includes Harmon Cosmetics)
|
|
|
2
|
|
|
|
1.6
|
%
|
|
BJ's
|
|
|
3
|
|
|
|
1.6
|
%
|
|
Staples
|
|
|
3
|
|
|
|
1.4
|
%
|
|
Walgreens
|
|
|
4
|
|
|
|
1.2
|
%
|
|
J.P Morgan Chase
|
|
|
8
|
|
|
|
1.1
|
%
|
| |
|
|
53
|
|
|
|
29.9
|
%
|
See Item 2. Properties for a complete list of the Company’s properties.
The Company’s single largest real estate investment is its 100% ownership of the general and limited partnership interests in the Ridgeway Shopping Center
(“Ridgeway”).
Ridgeway is located in Stamford, Connecticut and was developed in the 1950s and redeveloped in the mid-1990s. The property contains approximately 374,000
square feet of GLA. It is the dominant grocery-anchored center and the largest non-mall shopping center located in the City of Stamford, Fairfield County, Connecticut. For the fiscal year ended October 31, 2022, Ridgeway revenues represented approximately 10.1% of the Company’s
total revenues and its assets represented approximately 6.5% of the Company’s total assets at October 31, 2022. As of October 31, 2022, Ridgeway was 98% leased. The property’s largest tenants (by base rent) are: The Stop & Shop Supermarket Company (21%), Bed, Bath & Beyond (15%) and Marshall’s Inc., a division of the TJX Companies
(11%). No other tenant accounts for more than 10% of Ridgeway’s annual base rents.
The following table sets forth a schedule of the annual lease expirations for retail leases at Ridgeway as of October 31, 2022 for each of the next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
|
Year of Expiration
|
|
Number of
Leases Expiring
|
|
|
Square Footage
of Expiring Leases
|
|
|
Minimum
Base Rentals
|
|
|
Percentage of
Total Annual
Base Rent that is
Represented by
the Expiring Leases
|
|
|
2023 (Note A below)
|
|
|
14
|
|
|
|
93,870
|
|
|
$
|
3,169,500
|
|
|
|
28.8
|
%
|
|
2024
|
|
|
2
|
|
|
|
1,925
|
|
|
|
85,700
|
|
|
|
0.8
|
%
|
|
2025
|
|
|
2
|
|
|
|
42,000
|
|
|
|
1,138,800
|
|
|
|
10.4
|
%
|
|
2026
|
|
|
2
|
|
|
|
5,724
|
|
|
|
149,200
|
|
|
|
1.4
|
%
|
|
2027
|
|
|
6
|
|
|
|
101,422
|
|
|
|
3,460,800
|
|
|
|
31.5
|
%
|
|
2028
|
|
|
2
|
|
|
|
37,125
|
|
|
|
1,293,600
|
|
|
|
11.8
|
%
|
|
2029
|
|
|
1
|
|
|
|
4,000
|
|
|
|
95,300
|
|
|
|
0.9
|
%
|
|
2030
|
|
|
1
|
|
|
|
2,347
|
|
|
|
61,300
|
|
|
|
0.6
|
%
|
|
2031
|
|
|
3
|
|
|
|
46,541
|
|
|
|
1,003,400
|
|
|
|
9.1
|
%
|
|
2032
|
|
|
2
|
|
|
|
9,935
|
|
|
|
262,300
|
|
|
|
2.4
|
%
|
|
Thereafter
|
|
|
1
|
|
|
|
9,390
|
|
|
|
272,300
|
|
|
|
2.5
|
%
|
|
Total
|
|
|
36
|
|
|
|
354,279
|
|
|
$
|
10,992,200
|
|
|
|
100
|
%
|
(A) - Included in these amounts is a 56,000 square foot lease with Bed Bath and Beyond, which expires on January 31, 2023. This tenant has informed the
Company that it plans on vacating the space at lease expiration. The annual base rent for this space is currently $1.5 million. The Company is in the process of negotiating a lease for a large portion of this space with a national retailer.
For further financial information about our only reportable operating segment, Ridgeway, see note 1 of our financial statements in Item 8 included in this
Annual Report on Form 10-K.
Financing Strategy
We intend to continue to finance acquisitions and property improvements and/or expansions with the most advantageous sources of capital that we believe are
available to us at the time, and which may include the sale of common or preferred equity through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings, investments in real estate
joint ventures and the reinvestment of proceeds from the disposition of assets. Our financing strategy is to maintain a strong and flexible financial position by (i) maintaining a prudent level of leverage, and (ii) minimizing our exposure to interest
rate risk represented by floating rate debt.
Compliance with Governmental Regulations
We, like others in the commercial real estate industry, are subject to numerous federal, state and local laws and regulations, including environmental laws
and regulations. We may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, as well as certain other potential costs relating to hazardous or toxic substances (including
government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may
be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property
and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as
collateral, which, in turn, would reduce our revenues and ability to make distributions.
Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with
Disabilities Act of 1990. The requirements of this Act, or of other federal, state or local laws or regulations, also may change in the future and restrict further renovations of our properties with respect to access for disabled persons. Future
compliance with the Americans with Disabilities Act of 1990 and similar regulations may require expensive changes to the properties.
Competition
The real estate investment business is highly competitive. We compete for real estate investments with investors of all types, including domestic and foreign
corporations, financial institutions, other real estate investment trusts, real estate funds, individuals and privately owned companies. In addition, our properties are subject to local competition from the surrounding areas. Our shopping centers
compete for tenants with other regional, community or neighborhood shopping centers in the respective areas where our retail properties are located. In addition, the retail industry is seeing greater competition from internet retailers who may not
need to establish “brick and mortar” retail locations for their businesses. This may reduce the demand for traditional retail space in shopping centers like ours and other grocery-anchored shopping center properties. Our few office buildings compete
for tenants principally with office buildings throughout the respective areas in which they are located. Leasing decisions are generally determined by prospective tenants on the basis of, among other things, rental rates, location, and the physical
quality of the property and availability of space.
Human Capital
We believe that our employees are one of our greatest resources. In order to attract and retain high performing individuals, we are committed to partnering
with our employees to provide opportunities for their professional development and promote their well-being. To that end, we have undertaken various initiatives, including the following:
|
•
|
providing department-specific training and access to online training seminars and opportunities to participate in industry
conferences;
|
|
•
|
introducing the next generation of real estate leaders through summer internship programs;
|
|
•
|
providing annual reviews and regular feedback to assist in employee development and providing opportunities for employees to
provide suggestions to management and safely register complaints;
|
|
•
|
providing family leave, for example, for the birth or adoption of a child, as well as sick leave, that exceeds minimum
regulatory requirements;
|
|
•
|
focusing on creating a workplace that values employee health and safety, and to that end providing expanded paid sick leave
during the early part of the COVID-19 pandemic;
|
|
•
|
committing to the full inclusion of all qualified employees and applicants and providing equal employment opportunities to all
persons, in accordance with the principles and requirements of the Equal Employment Opportunities Commission and the principles and requirements of the Americans with Disabilities Act; and
|
|
•
|
appreciating the many contributions of a diverse workforce, understanding that diverse backgrounds bring diverse perspectives,
resulting in unique insights.
|
Our executive offices are located at 321 Railroad Avenue, Greenwich, Connecticut. Urstadt Biddle Properties Inc. has 55 employees, all located at the Company’s executive offices and we believe our relationship with our employees is good.
Company Website
All of the Company’s filings with the SEC, including the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge at the Company’s website at www.ubproperties.com as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the SEC. These filings can also be accessed through the SEC’s website at www.sec.gov.
Risks Related to COVID-19
The COVID-19 pandemic has caused severe disruptions in the United States and global economies, including disruptions
in the financial and labor markets, which could materially and adversely affect our financial condition, results of operations, cash flows, liquidity and performance and that of our tenants.
In March 2020, the World Health Organization declared the outbreak of COVID-19
a global pandemic. The COVID-19 pandemic has caused, and could continue to cause, significant disruptions to the U.S. and global economy, as well as significant volatility and negative pressure in the financial markets. During the early part of
the pandemic, the U.S. economy came under severe pressure due to numerous factors, including preventive measures taken by local, state and federal authorities to alleviate the public health crisis, such as mandatory business closures,
quarantines and restrictions on travel. These measures, as implemented by the tri-state area of Connecticut, New York and New Jersey, generally permitted businesses designated as “essential” to remain open but limited the operations of other
categories of our tenants to varying degrees. These restrictions have been long since lifted, and the negative impact of the COVID-19 pandemic appears to be much improved, with most tenant businesses operating at pre-pandemic levels. For certain
categories of our tenants, such as dry cleaners and some small format fitness tenants, however, the negative impact of COVID-19 was more severe and the recovery is still in progress. We may be unable to fully collect on rents from such tenants, and in some cases, may need to secure replacement tenants.
Moreover, the evolution of new COVID-19 variants makes the situation difficult to predict. A worsening of the COVID-19 pandemic or outbreaks of other highly
infectious diseases could materially and adversely affect us, particularly if business conditions, the regulatory environment or the public health situation returns
to that experienced during the early days of the COVID-19 pandemic. These impacts could include:
|
•
|
a deterioration in consumer sentiment, changes in consumer behavior
in favor of e-commerce, or negative public perception of the COVID-19 health risk, which could result in decreased foot traffic to our shopping centers and
tenant businesses for an extended period of time, which could negatively impact our tenants’ businesses;
|
|
•
|
the inability of tenants to meet their lease obligations or other obligations (including repayment of deferred rents) to us in full, or at
all, or to otherwise seek modifications of such obligations or declare bankruptcy due to economic and business conditions;
|
|
•
|
the ability and willingness of new tenants to enter into leases during what is perceived to be uncertain times, the ability and willingness
of existing tenants to renew their leases upon expiration, and our ability to re-lease the properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant;
|
|
•
|
disruptions to the supply chain or lack of employees available or willing to work due to perceptions of COVID-19 health risk, as well as
general labor shortages, that could make it difficult for our tenants to operate, as well as to pay rent;
|
|
•
|
state, local or industry-initiated efforts, such as a rent freeze for tenants, the suspension of a landlord’s ability to enforce evictions,
or the mandatory closures of businesses, which could affect our ability to collect rent or enforce remedies for the failure to pay rent;
|
|
•
|
severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could make it
difficult for us to access debt and equity capital, draw on our credit facility or obtain additional indebtedness or refinance indebtedness as it becomes due; and
|
|
•
|
volatility in the trading prices of our Common Stock and Class A Common Stock.
|
To the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of
heightening many of the other risks described in this Annual Report on Form 10-K.
Risks Related to our Operations and Properties
There are risks relating to investments in real estate and the value of our property that are beyond our control,
including global, national, regional and local economic and market conditions.
Yields from our properties depend on their net income and capital appreciation. Real property income and capital appreciation may be adversely affected by
general and local economic conditions, neighborhood values, demographic trends, competitive overbuilding, zoning laws, weather, casualty losses and other factors beyond our control. Since substantially all of our income is rental income from real
property, our income and cash flow could be adversely affected if a large tenant is, or a significant number of tenants are, unable to pay rent or if available space cannot be rented on favorable terms. Operating and other expenses of our properties,
particularly significant expenses such as interest, real estate taxes and maintenance costs, generally do not decrease when income decreases and, even if revenues increase, operating and other expenses may increase faster than revenues.
We may be unable to sell properties when appropriate because real estate investments are illiquid.
Real estate investments generally cannot be sold quickly. In addition, there are some limitations under federal income tax laws applicable to real estate and
to REITs in particular that may limit our ability to sell our assets. With respect to each of our four consolidated joint ventures, McLean, Orangeburg, High Ridge and Dumont, which we refer to as our DownREITs, we may not sell or transfer the contributed property during contractually agreed upon protection periods other than as part of a tax-deferred transaction under the Code or if the conditions exist that would give
us the right to call all of the non-managing member units or partnership units, as applicable, following the death or dissolution of certain non-managing members or following a contracted fixed date. Because of these market, regulatory and
contractual conditions, we may not be able to alter our portfolio promptly in response to changes in economic or other conditions. Our inability to respond quickly to adverse changes in the performance of our investments could have an adverse
effect on our ability to meet our obligations and make distributions to our stockholders.
Our business strategy is mainly concentrated in one type of commercial property and in one geographic location, which
could make us more vulnerable to regional economic downturns and natural disasters.
Our primary investment focus is neighborhood and community shopping centers, with a concentration in the metropolitan New York tri-state area outside of the
City of New York. For the year ended October 31, 2022, 100.0% of our total revenues were from properties located in this area. Moreover, the Company's single largest real estate investment is its ownership of the Ridgeway Shopping Center
("Ridgeway") located in Stamford, Connecticut. For the year ended October 31, 2022, Ridgeway revenues represented approximately 10.1% of the Company's total revenues and approximately 6.5%
of the Company's total assets at October 31, 2022.
Because we are concentrated in one geographic area, negative changes in regional economic conditions, rates of employment, and demographic trends can result
in our geographic focus area becoming a less desirable place for tenants to locate, making it more difficult for us to increase rents and retain tenants. Potential changes to the local real estate markets, such as the competitive overbuilding of
retail space, or a decrease in demand for shopping center properties due to demographic or market trends could also adversely affect our financial condition and results of operations.
We are also impacted by weather patterns and natural disasters, including changes in weather patterns and natural disaster exacerbated by climate change,
that could have a more significant localized effect in the areas where our properties are concentrated. The occurrence of natural disasters or severe weather conditions can delay new development projects, increase investment costs to repair or replace
damaged properties, increase operation costs, increase future property insurance costs, disrupt our business and the business of our tenants, and negatively impact the ability of some tenants to pay rent. Tenants may also be less willing to lease
space that they view as susceptible to natural disasters. We may also face potential additional regulatory requirements by government agencies in response to such perceived risks.
As a result of our geographic concentration and focus on one type of property, we may be exposed to greater risks than if our investment focus was based on
more diversified types of properties and in more diversified geographic areas.
We are dependent on anchor tenants at many of our retail properties.
Most of our retail properties are dependent on a major or anchor tenant, often a supermarket anchor. If we are unable to renew any lease we have with the
anchor tenant at one of these properties upon expiration of the current lease on favorable terms, or to re-lease the space to another anchor tenant of similar or better quality upon departure of an existing anchor tenant on similar or better terms, we
could experience material adverse consequences with respect to such property, such as higher vacancy, re-leasing on less favorable economic terms, reduced net income, reduced funds from operations and reduced property values. Vacated anchor space also
could adversely affect a property because of the loss of the departed anchor tenant’s customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that some anchors have to vacate and prevent re-tenanting by
paying rent for the balance of the lease term. In addition, vacated anchor space could, under certain circumstances, permit other tenants to pay a reduced rent or terminate their leases at the affected property, which could adversely affect the future
income from such property. There can be no assurance that our anchor tenants will renew their leases when they expire or will be willing to renew on similar economic terms. See Item 1. Business in this Annual Report on Form 10-K for additional
information on our ten largest tenants by percent of total annual base rent of our properties.
Similarly, if one or more of our anchor tenants goes bankrupt, we could experience material adverse consequences like those described above. Under
bankruptcy law, tenants have the right to reject their leases. In the event a tenant exercises this right, the landlord generally may file a claim for a portion of its unpaid and future lost rent. Actual amounts received in satisfaction of those
claims, however, are typically very limited and will be subject to the tenant’s final plan of reorganization and the availability of funds to pay its creditors. We can provide no assurance that we will not experience impactful bankruptcies by anchor
tenants in the future.
We face potential difficulties or delays in renewing leases or re-leasing space.
We derive most of our income from rent received from our tenants. Although substantially all of our properties currently have had favorable occupancy rates
over time, we have experienced periods of decline in occupancy, including during the COVID-19 pandemic. We cannot predict that current tenants will renew their leases upon expiration of their terms. In addition, current tenants could attempt to
terminate their leases prior to the scheduled expiration of such leases or might have difficulty in continuing to pay rent in full, if at all, in the event of a severe economic downturn or other market disruption, such as the COVID-19 pandemic. If
this occurs, we may not be able to promptly locate qualified replacement tenants and, as a result, we would lose a source of revenue while remaining responsible for the payment of our obligations. Even if tenants decide to renew their leases, the
terms of renewals or new leases, including the cost of required renovations or concessions to tenants, may be less favorable than current lease terms.
In some cases, our tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types
of services within the particular retail center, or limit the ability of other tenants within the center to sell that merchandise or provide those services. When re-leasing space after a vacancy, such provisions may limit the number and types of
prospective tenants for the vacant space. Zoning restrictions and other regulatory hurdles may also impede or delay our ability to re-lease vacant space. The failure to re-lease space or to re-lease space on satisfactory terms could adversely affect
our results from operations. Additionally, properties we may acquire in the future may not be fully leased and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property
until the property is fully leased. As a result, our net income, funds from operations and ability to pay dividends to stockholders could be adversely affected.
We may acquire properties or acquire other real estate related companies, and this may create risks.
We may acquire properties or acquire other real estate related companies when we believe that an acquisition is consistent with our business strategies. We
may not succeed in consummating desired acquisitions on time or within budget. When we do pursue a project or acquisition, we may not succeed in leasing newly acquired properties at rents sufficient to cover the costs of acquisition and operations.
Acquisitions in new markets or industries where we do not have the same level of market knowledge may result in poorer than anticipated performance. We may also abandon acquisition opportunities that management has begun pursuing and consequently fail
to recover expenses already incurred and will have devoted management’s time to a matter not consummated. Furthermore, our acquisitions of new properties or companies will expose us to the liabilities of those properties or companies, some of which we
may not be aware of at the time of the acquisition. In addition, redevelopment of our existing properties presents similar risks.
Newly acquired properties may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is also possible
that the operating performance of these properties may decline under our management. As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention. In addition, our
ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure. We may not succeed with this integration or effectively manage additional properties, particularly in
secondary markets. Also, newly acquired properties may not perform as expected.
Competition may adversely affect our ability to acquire new properties.
We compete for the purchase of commercial property with many entities, including other publicly traded REITs and private equity funded entities. Many of our
competitors have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments. If we are unable to successfully compete for the properties we have targeted for
acquisition, we may not be able to meet our growth and investment objectives. We may incur costs on unsuccessful acquisitions that we will not be able to recover. The operating performance of our property acquisitions may also fall short of our
expectations, which could adversely affect our financial performance.
Competition may limit our ability to generate sufficient income from tenants and may decrease the occupancy and rental
rates for our properties.
Our properties consist primarily of open-air shopping centers and other retail properties. Our performance, therefore, is generally linked to economic
conditions in the market for retail space. In the future, the market for retail space could be adversely affected by:
• weakness in the national,
regional and local economies;
• the adverse financial
condition of some large retailing companies;
• the impact of e-commerce on
the demand for retail space;
• ongoing consolidation in the
retail sector; and
• the excess amount of retail
space in a number of markets.
In addition, numerous commercial developers and real estate companies compete with us in seeking tenants for our existing properties. If our competitors
offer space at rental rates below our current rates or the market rates, we may lose current or potential tenants to other properties in our markets and we may need to reduce rental rates below our current rates in order to retain tenants upon
expiration of their leases. Increased competition for tenants may require us to make tenant and/or capital improvements to properties beyond those that we would otherwise have planned to make. As a result, our results of operations and cash flow may
be adversely affected.
E-commerce and other changes in consumer behavior present challenges for many of our tenants and may require us to
modify our properties, diversify our tenant composition and adapt our leasing practices to remain competitive.
Many of our tenants face increasing competition from e-commerce and other sources that could cause them to reduce their size, limit the number of locations
and/or suffer a general downturn in their businesses and ability to pay rent. We may also fail to anticipate the effects of changes in consumer buying practices, particularly of online sales and the resulting change in retailing practices and tenant
space needs, which could have an adverse effect on our results of operations and cash flows. We are focused on anchoring and diversifying our properties with tenants that are more resistant to competition from e-commerce (e.g. groceries, essential
retailers, restaurants and service providers), but there can be no assurance that we will be successful in modifying our properties, diversifying our tenant composition and/or adapting our leasing practices.
Property ownership through joint ventures could limit our control of those investments, restrict our ability to
operate and finance the property on our terms, and reduce their expected return.
As of October 31, 2022, we owned four of our
operating properties through consolidated joint ventures and six through unconsolidated joint ventures. Our joint ventures, including any joint ventures we may enter into in the future, may involve risks not present with respect to our wholly-owned
properties, including the following:
|
• |
We may share decision-making authority with our joint venture partners regarding certain major decisions affecting the ownership or operation of the joint venture and the
joint venture property, such as, but not limited to, (i) additional capital contribution requirements, (ii) obtaining, refinancing or paying off debt, and (iii) obtaining consent prior to the sale or transfer of our interest in the joint
venture to a third party, which may prevent us from taking actions that are opposed by our joint venture partners;
|
|
• |
Our joint venture partners may have business interests or goals with respect to the property that conflict with our business interests and goals, which could increase the
likelihood of disputes regarding the ownership, management or disposition of the property;
|
|
• |
Disputes may develop with our joint venture partners over decisions affecting the property or the joint venture, which may result in litigation or arbitration that would
increase our expenses and distract our officers from focusing their time and effort on our business, disrupt the day-to-day operations of the property such as by delaying the implementation of important decisions until the conflict is resolved,
and possibly force a sale of the property if the dispute cannot be resolved; and
|
|
• |
The activities of a joint venture could adversely affect our ability to qualify as a REIT.
|
In addition, with respect to our four consolidated joint ventures, McLean, Orangeburg, High Ridge and Dumont, we have additional obligations to the limited
partners and non-managing members and additional limitations on our activities with respect to those joint ventures. The limited partners and non-managing members of each of these joint ventures are entitled to receive annual or quarterly cash
distributions payable from available cash of the joint venture, with the Company required to provide such funds if the joint venture is unable to do so. The limited partners and non-managing members of these joint ventures have the right to require
the Company to repurchase all or a portion of their limited partner or non-managing member interests for cash or Class A Common Stock of the Company, at our election, at prices and on terms set forth in the partnership or operating agreements. We also
have the right to redeem all or a portion of the limited partner and non-managing member interests for cash or Class A Common Stock of the Company, at our election, under certain circumstances, at prices and on terms set forth in the partnership or
operating agreements. The right of these limited partners and non-managing members to put their equity interest to us could require us to expend cash or issue Class A Common Stock of the REIT at a time or under circumstances that are not desirable to
us.
In addition, the partnership agreement or operating agreements with our partners in McLean, Orangeburg, UB High Ridge and Dumont include certain restrictions
on our ability to sell the property and to pay off the mortgage debt on these properties before their maturity, although refinancings are generally permitted. These restrictions could prevent us from taking advantage of favorable interest rate
environments and limit our ability to best manage the debt on these properties.
If we were to employ higher levels of leverage, it would result in increased risk of default on our obligations and in
an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay dividends and make distributions.
We have incurred, and expect to continue to incur, indebtedness to advance our objectives. The only restrictions on the amount of indebtedness we may incur
are certain contractual restrictions and financial covenants contained in our unsecured revolving credit agreement. Accordingly, we could become more highly leveraged, resulting in increased risk of default on our financial obligations and in an
increase in debt service requirements. This, in turn, could adversely affect our financial condition, results of operations and our ability to make distributions.
Using debt to acquire properties, whether with recourse to us generally or only with respect to a particular property, creates an opportunity for increased
return on our investment, but at the same time creates risks. Our goal is to use debt to fund investments only when we believe it will enhance our risk-adjusted returns. However, we cannot be sure that our use of leverage will prove to be
beneficial. Moreover, when our debt is secured by our assets, we can lose those assets through foreclosure if we do not meet our debt service obligations. Incurring substantial debt may adversely affect our business and operating results by:
|
• |
requiring us to use a substantial portion of our cash flow to pay interest and principal, which reduces the amount available for distributions, acquisitions and capital
expenditures;
|
|
• |
making us more vulnerable to economic and industry downturns and reducing our flexibility to respond to changing business and economic conditions;
|
|
• |
requiring us to agree to less favorable terms, including higher interest rates, in order to incur additional debt, and otherwise limiting our ability to borrow for
operations, working capital or to finance acquisitions in the future; or
|
|
• |
limiting our flexibility in conducting our business, which may place us at a disadvantage compared to competitors with less debt or debt with less restrictive terms.
|
Market interest rates could adversely affect the share price of our stock and increase the cost of refinancing debt.
A variety of factors may influence the price of our common and preferred equities in the public trading markets. Some investors may perceive REITs as
yield-driven investments and compare the annual yield from dividends by REITs with yields on various other types of financial instruments. An increase in market interest rates may lead purchasers of stock to seek a higher annual dividend rate from
other investments, which could adversely affect the market price of the stock.
Although a significant amount of our outstanding debt has fixed interest rates, including through interest rate hedges, we do borrow funds at variable
interest rates under our Unsecured Revolving Credit Facility (“Facility”) and certain secured borrowings. As of October 31, 2022, less than
1.0% of our outstanding debt was variable rate debt not hedged to fixed rate debt, and as of October 31, 2022, we had $30.5 million of outstanding borrowings on our Facility. If interest rates were to continue rising, it would increase the amount of interest expense that we
would have to pay for any borrowings under the Facility. In addition, we anticipate that we will need to refinance existing indebtedness on our properties as such debt matures. A change in interest rates may increase the risk that we will not be able
to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new
equity capital or sales of properties, our cash flow will not be sufficient to repay all maturing debt in years when significant “balloon” payments come due. As a result, our ability to retain properties or pay dividends to stockholders could be
adversely affected and we may be forced to dispose of properties on unfavorable terms, which could adversely affect our business and net income.
We may be adversely affected by changes in LIBOR reporting practices, the method by which LIBOR is determined or the
use of alternative reference rates.
As of October 31, 2022, we had approximately $155.7 million of mortgage notes outstanding that are indexed to the London Interbank Offered Rate (“LIBOR”). All of these mortgages are subject to interest
rate swaps that convert the floating rates in the notes to a fixed interest rate. Under existing guidance, the publication of the LIBOR reference rate was to be discontinued
beginning on or around the end of 2021. However, the ICE Benchmark Administration, in its capacity as administrator of USD LIBOR, announced that it extended publication of U.S. dollar LIBOR (other than one-week and two-month tenors) by 18 months to June 2023. In August and December 2022, we amended six mortgages and their related interest rate swap agreements to include market standard provisions
for determining the benchmark replacement rate for LIBOR in the form of the Secured Overnight Financing Rate (“SOFR”). We are in the process of working with the lenders and counterparties to amend the remaining mortgage promissory notes and swap
contracts that reference LIBOR to provide SOFR or an alternative method as a benchmark rate. These changes could result in interest obligations that are slightly more
than or do not otherwise correlate exactly over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Although
we believe there would be no material impact on our financial position or results of operations, because this will be the first time any of the reference rates for our promissory notes or our swap contracts will cease to be published, we cannot be
sure that the transition will be seamless and without any adverse impact.
We are obligated to comply with financial and other covenants in our debt that could restrict our operating
activities, and failure to comply could result in defaults that accelerate the payment under our debt.
Our mortgage notes payable contain customary covenants for such agreements including, among others, provisions:
|
• |
restricting our ability to assign or further encumber the properties securing the debt; and
|
|
• |
restricting our ability to enter into certain new leases or to amend or modify certain existing leases without obtaining consent of the lenders.
|
Our Facility contains financial and other covenants which may limit our ability, without our lenders’ consent, to engage in operating or financial activities
that we may believe desirable. Our Facility contains, among others, provisions restricting our ability to incur unsecured and secured indebtedness, create certain liens, and consolidate, merge or sell all or substantially all of our assets, all as
further detailed in Item 7 included in this Annual Report on Form 10-K.
If we were to breach any of our debt covenants and did not cure the breach within any applicable cure period, our lenders could require us to repay the debt
immediately, and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. As a result, a default under our debt covenants could have an adverse effect on our financial condition, our results of
operations, our ability to meet our obligations and the market value of our shares.
We may be required to incur additional debt to qualify as a REIT.
As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income. We are subject to income tax on amounts of
undistributed taxable income and net capital gain. In addition, we would be subject to a 4% excise tax if we fail to distribute sufficient income to meet a minimum distribution test based on our ordinary income, capital gain and aggregate undistributed
income from prior years. We intend to make distributions to shareholders to comply with the Code’s distribution provisions and to avoid federal income and excise tax. We may need to borrow funds to meet our distribution requirements because:
|
• |
our income may not be matched by our related expenses at the time the income is considered received for purposes of determining taxable income; and
|
|
• |
non-deductible capital expenditures, creation of reserves, or debt service requirements may reduce available cash but not taxable income.
|
In these circumstances, we might have to borrow funds on terms we might otherwise find unfavorable and we may have to borrow funds even if our management
believes the market conditions make borrowing financially unattractive. Current tax law also allows us to pay a portion of our distributions in shares instead of cash.
Our ability to grow will be limited if we cannot obtain additional capital.
Our growth strategy includes the redevelopment of properties we already own and the acquisition of additional properties. We are required to distribute to
our stockholders at least 90% of our taxable income each year to continue to qualify as a REIT for federal income tax purposes. Accordingly, in addition to our undistributed operating cash flow, we rely upon the availability of debt or equity capital
to fund our growth, which financing may or may not be available on favorable terms or at all. The debt could include mortgage loans from third parties or the sale of debt securities. Equity capital could include our common stock or preferred stock.
Additional financing, refinancing or other capital may not be available in the amounts we desire or on favorable terms.
Our access to debt or equity capital depends on a number of factors, including the general state of the capital markets, the markets perception of our growth
potential, our ability to pay dividends, and our current and potential future earnings. Depending on the outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to
implement this strategy.
We cannot assure you we will continue to pay dividends at historical rates.
Our ability to continue to pay dividends on our shares of Class A Common stock or Common stock at historical rates or to increase our dividend rate, and our
ability to pay preferred share dividends will depend on a number of factors, including, among others, the following:
|
• |
our financial condition and results of future operations;
|
|
• |
the performance of lease terms by tenants;
|
|
• |
the terms of our loan covenants;
|
|
• |
payment obligations on debt; and
|
|
• |
our ability to acquire, finance or redevelop and lease additional properties at attractive rates.
|
For example, during the early days of the COVID-19 pandemic, we reduced the quarterly dividend on our Class A Common stock and Common stock in 2020 when
compared with pre-pandemic levels in an effort to preserve cash due to the then current economic uncertainty. We then increased the dividend in 2021 and again for the first quarter of fiscal 2022, but not to pre-pandemic levels, as the situation
stabilized. In the event our financial condition or other factors necessitate, we may choose to reduce our dividends again in the future. Additionally, we may in the future choose to pay distributions in our stock rather than solely in cash, which
may result in our stockholders having a tax liability with respect to such distributions that exceeds the amount of cash received, if any.
If we do not maintain or increase the dividend on our common shares, it could have an adverse effect on the market price of our shares of Class A Common
Stock or Common Stock and other securities. Any preferred shares we may offer may have a fixed dividend rate that would not increase with any increases in the dividend rate of our common shares. Conversely, payment of dividends on our common shares may
be subject to payment in full of the dividends on any preferred shares and payment of interest on any debt securities we may offer.
We cannot guarantee that any share repurchase program will be fully consummated or will enhance long-term stockholder
value, and share repurchases could increase the volatility of our stock prices and could diminish our cash reserves.
We engage in share repurchases of our Class A Common Stock and Common
Stock from time to time in accordance with authorizations from the Board of Directors. Our repurchase program does not have an expiration date and does not obligate us to
repurchase any specific dollar amount or to acquire any specific number of shares. Further, our share repurchases could affect our share trading prices, increase their volatility, reduce our cash reserves and may be suspended or terminated at any
time, which may result in a decrease in the trading prices of our stock
Supply chain disruptions and unexpected construction expenses and delays could impact our ability to timely deliver
spaces to tenants and/or our ability to achieve the expected value of a construction project or lease, thereby adversely affecting our profitability.
The construction and building industry, similar to many other industries, are experiencing worldwide supply chain disruptions due to a multitude of factors
that are beyond our control. Materials, parts and labor have also increased in cost over the past year or more, sometimes significantly and over a short period of time. Although we are generally not engaged in large-scale development projects,
small-scale construction projects, such as building renovations and maintenance, pad site developments and tenant improvements required under leases are a routine and necessary part of our business. We may incur costs for a property renovation or
tenant buildout that exceeds our original estimates due to increased costs for materials or labor or other costs that are unexpected. We also may be unable to complete renovation of a property or tenant space on schedule due to supply chain
disruptions or labor shortages, which could result in increased debt service expense or construction costs. Additionally, some tenants may have the right to terminate their leases if a renovation project is not completed on time. The time frame
required to recoup our renovation and construction costs and to realize a return on such costs can often be significant and materially adversely affect our profitability.
We are dependent on key personnel.
We depend on the services of our existing senior management to carry out our business and investment strategies. We do not have employment agreements with
any of our existing senior management. As we expand, we may continue to need to recruit and retain qualified additional senior management. The loss of the services of any of our key management personnel or our inability to recruit and retain
qualified personnel in the future could have an adverse effect on our business and financial results.
Our insurance coverage on our properties may be inadequate.
We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire, flood, earthquake, and rental loss. All of
these policies contain coverage limitations. We believe these coverages are of the types and amounts customarily obtained for or by an owner of similar types of real property assets located in the areas where our properties are located, and we intend
to obtain similar insurance coverage on subsequently acquired properties. However, our circumstances or the availability of insurance could change.
The availability of insurance coverage may decrease and the prices for insurance may increase as a consequence of significant losses incurred by the
insurance industry and other factors outside our control, including potential changes in weather patterns as a result of climate change. As a result, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at
reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, the expense of obtaining these types of insurance may not be
justified. We therefore may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or
a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations related to the property. We cannot guarantee that
material losses in excess of insurance proceeds will not occur in the future. We also cannot guarantee that historic events or vulnerabilities are indicative of likely future losses or exposure, especially as it relates to the extent and frequency of
natural disasters, as weather and climate patterns may change.
In addition, all of our tenants are required under their leases to carry general liability and other appropriate insurance, as well as to indemnify us for
certain claims that may be caused by or related to their business activities or occur on their premises. However, some tenants fail to comply with these insurance requirements, making it difficult for us to collect on their indemnification
obligations.
If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue, negatively impact the property’s
ability to generate future cash flow and result in large expenses to repair or rebuild the property. Also, due to inflation, changes in codes and ordinances, environmental considerations and other factors, it may not be feasible to use insurance
proceeds to replace a building after it has been damaged or destroyed. Further, we may be unable to collect insurance proceeds if our insurers are unable to pay or contest a claim. Events such as these could adversely affect our results of operations
and our ability to meet our obligations, including distributions to our shareholders.
Properties with environmental problems may create liabilities for us.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for
the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages
for injuries to persons and adjacent property). A property can be adversely affected either through direct physical contamination or as the result of hazardous or toxic substances or other contaminants that have or may have emanated from other
properties. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or
tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those
substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make
distributions.
Prior to the acquisition of any property and from time to time thereafter, we obtain Phase I environmental reports, and, when deemed warranted, Phase II
environmental reports concerning the Company’s properties. There can be no assurance, however, that (i) the discovery of environmental conditions that were previously unknown, (ii) changes in law, (iii) the conduct of tenants or neighboring property
owner, or (iv) activities relating to properties in the vicinity of the Company’s properties, will not expose the Company to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition and
results of operations.
We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business
disruptions.
We rely extensively on internal and external technology systems to process transactions and manage our business, which includes the storage of personal,
financial and other information that is entrusted to us by our tenants, employees and third-parties. As such, our business is at risk from and may be impacted by cybersecurity attacks, including ransomware attacks, denial of service and the theft or
compromise of confidential, proprietary or personal information. Remote working arrangements could heighten these risks. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a
number of measures to prevent, detect and mitigate these threats, which include password encryption, frequent password change events, firewall detection systems, anti-virus software and frequent backups; however, there is no guarantee such efforts will
be successful in preventing a cyber-attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. A successful attack could disrupt and otherwise adversely affect our business operations and
financial prospects, damage our reputation and involve significant legal and/or financial liabilities and penalties, including through lawsuits by third-parties.
The Americans with Disabilities Act of
1990 could require us to take remedial steps with respect to existing or newly acquired properties.
Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with
Disabilities Act of 1990. Investigation of a property may reveal non-compliance with this Act. The requirements of this Act, or of other federal, state or local laws or regulations, also may change in the future and restrict further renovations of our
properties with respect to access for disabled persons. Future compliance with this Act may require expensive changes to the properties.
Risks Related to our Organization and Structure
We will be taxed as a regular corporation if we fail to maintain our REIT status.
Since our founding in 1969, we have operated, and intend to continue to operate, in a manner that enables us to qualify as a REIT for federal income tax
purposes. However, the federal income tax laws governing REITs are complex. The determination that we qualify as a REIT requires an analysis of various factual matters and circumstances that may not be completely within our control. For example, to
qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some
issuers. We also are required to distribute to our stockholders at least 90% of our REIT taxable income (excluding capital gains) each year. Our continued qualification as a REIT depends on our satisfaction of the asset, income, organizational,
distribution and stockholder ownership requirements of the Internal Revenue Code on a continuing basis. At any time, new laws, interpretations or court decisions may change the federal tax laws or the federal tax consequences of qualification as a
REIT. If we fail to qualify as a REIT in any taxable year and do not qualify for certain Internal Revenue Code relief provisions, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at
regular corporate rates. In addition, distributions to stockholders would not be deductible in computing our taxable income. Corporate tax liability would reduce the amount of cash available for distribution to stockholders which, in turn, would
reduce the market price of our stock. Unless entitled to relief under certain Internal Revenue Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a
REIT.
We will pay federal taxes if we do not distribute 100% of our taxable income.
To the extent that we distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In
addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of:
|
• |
85% of our ordinary income for that year;
|
|
• |
95% of our capital gain net income for that year; and
|
|
• |
100% of our undistributed taxable income from prior years.
|
We have paid out, and intend to continue to pay out, our income to our stockholders in a manner intended to satisfy the distribution requirement and to avoid
corporate income tax and the 4% nondeductible excise tax. Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow money or sell assets to pay
out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
Gain on disposition of assets deemed held for sale in the ordinary course of business is subject to 100% tax.
If we sell any of our assets, the IRS may determine that the sale is a disposition of an asset held primarily for sale to customers in the ordinary course of
a trade or business. Gain from this kind of sale generally will be subject to a 100% tax. Whether an asset is held "primarily for sale to customers in the ordinary course of a trade or business" depends on the particular facts and circumstances of
the sale. Although we will attempt to comply with the terms of safe-harbor provisions in the Internal Revenue Code prescribing when asset sales will not be so characterized, we cannot assure you that we will be able to do so.
Dividends payable by REITs may be taxed at higher rates.
Dividends payable by REITs may be taxed at higher rates than dividends of non-REIT corporations. The maximum U.S. federal income tax rate for qualified
dividends paid by domestic non-REIT corporations to U.S. stockholders that are individuals, trust or estates is generally 20%. Dividends paid by REITs to such stockholders are generally not eligible for that rate, but under current tax law, such
stockholders may deduct up to 20% of ordinary dividends (i.e., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning before January 1, 2026. Although this deduction reduces the
effective tax rate applicable to certain dividends paid by REITs, such tax rate may still be higher than the tax rate applicable to regular corporate qualified dividends. This may cause investors to view REIT investments as less attractive than
investments in non-REIT corporations, which in turn may adversely affect the value of stock of REITs, including our stock. In addition, the relative attractiveness of real estate in general may be adversely affected by the favorable tax treatment given
to corporate dividends, which could negatively affect the value of our properties.
Our ownership limitation may restrict business combination opportunities.
To qualify as a REIT under the Internal Revenue Code, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals during the last half of each taxable year. To preserve our REIT qualification, our charter generally prohibits any person from owning shares of any class with a value of more than 7.5% of the value of all of our outstanding
capital stock and provides that:
|
• |
a transfer that violates the limitation is void;
|
|
• |
shares transferred to a stockholder in excess of the ownership limitation are automatically converted, by the terms of our charter, into shares of "Excess Stock;"
|
|
• |
a purported transferee receives no rights to the shares that violate the limitation except the right to designate a transferee of the Excess Stock held in trust; and
|
|
• |
the Excess Stock will be held by us as trustee of a trust for the exclusive benefit of future transferees to whom the shares of capital stock ultimately will be
transferred without violating the ownership limitation.
|
We may also redeem Excess Stock at a price which may be less than the price paid by a stockholder. Pursuant to authority under our charter, our Board of
Directors has determined that the ownership limit does not apply to any shares of our stock beneficially owned by Elinor F. Urstadt (spouse of late Mr. Charles J. Urstadt, the Company’s former Chairman Emeritus), Willing L. Biddle (President &
Chief Executive Officer), Catherine U. Biddle (director and spouse of Willing L. Biddle), Elinor P. Biddle (non-executive employee and daughter of Mr. & Mrs. Biddle), Dana C. Biddle (daughter of Mr. & Mrs. Biddle) and Charles D. Urstadt
(director and Chairman and son of Mr. & Mrs. Urstadt and brother of Mrs. Biddle) (together, the “Urstadt and Biddle Family Members”), but only to the extent that the aggregate value of all such stock does not exceed nineteen and ninety
one-hundredth percent (19.9%) of the value of all of the company’s outstanding common stock, Class A common stock and preferred stock at any date of determination, unless at least two of the Urstadt and Biddle Family Members would separately be considered as among the five largest shareholders (which for this purpose requires ownership of at least 7.5%) based on value of shares (and determined after applying the
ownership rules in Sections 542, 544 and 856(h) of the Code), in which case the maximum aggregate value of all shares of our stock beneficially owned by the Urstadt and Biddle Family Members is increased to twenty-seven percent (27.00%). At October 31, 2022, together, the Urstadt and Biddle Family Members hold
approximately 68.7% of our outstanding voting interests
through their beneficial ownership of our Common Stock and Class A Common Stock. At October 31, 2022, directors and executive officers of the Company, excluding any Urstadt and Biddle Family Member, hold approximately 0.2%. The ownership limitation may delay or discourage someone from taking control of the Company, even though a
change of control might involve a premium price for our stockholders or might otherwise be in their best interest.
Certain provisions in our charter and bylaws and Maryland law may prevent or delay a change of control or limit our
stockholders from receiving a premium for their shares.
Among the provisions contained in our charter and bylaws and Maryland law are the following:
|
• |
Our Board of Directors is divided into three classes, with directors in each class elected for three-year staggered terms.
|
|
• |
Our directors may be removed only for cause upon the vote of the holders of two-thirds of the voting power of our common equity securities.
|
|
• |
Our stockholders may call a special meeting of stockholders only if the holders of a majority of the voting power of our common equity securities request such a meeting
in writing.
|
|
• |
Any consolidation, merger, share exchange or transfer of all or substantially all of our assets must be approved by (i) a majority of our directors who are currently in
office or who are approved or recommended by a majority of our directors who are currently in office (the "Continuing Directors") and (ii) the affirmative vote of holders of our stock representing a majority of all votes entitled to be cast on
the matter.
|
|
• |
Certain provisions of our charter may only be amended by (i) a vote of a majority of our Continuing Directors and (ii) the affirmative vote of holders of our stock
representing a majority of all votes entitled to be cast on the matter.
|
|
• |
The number of directors may be increased or decreased by a vote of our Board of Directors.
|
In addition, we are subject to various provisions of Maryland law that impose restrictions and require affected persons to follow specified procedures with
respect to certain takeover offers and business combinations, including combinations with persons who own 10% or more of our outstanding shares. These provisions of Maryland law could delay, defer or prevent a transaction or a change of control that
our stockholders might deem to be in their best interests. As permitted by Maryland law, our charter provides that the “business combination” provisions of Maryland law described above do not apply to acquisitions of shares by the late Charles J.
Urstadt, and our Board of Directors has determined that the provisions do not apply to Willing L. Biddle, or to Willing L. Biddle’s or the late Charles J. Urstadt’s spouses and descendants and any of their affiliates. Consequently, unless such
exemptions are amended or repealed, we may in the future enter into business combinations or other transactions with Mr. Willing L. Biddle or any of Mr. Willing L. Biddle’s or the late Mr. Charles J. Urstadt’s respective affiliates without complying
with the requirements of the Maryland business combination statute. Furthermore, shares acquired in a control share acquisition have no voting rights, except to the extent approved by the affirmative vote of two-thirds of all votes entitled to be cast
on the matter, excluding all interested shares. Under Maryland law, "control shares" are those which, when aggregated with any other shares held by the acquiror, allow the acquiror to exercise voting power within specified ranges. The control share
provisions of Maryland law also could delay, defer or prevent a transaction or a change of control which our stockholders might deem to be in their best interests. As permitted by Maryland law, our bylaws provide that the "control shares" provisions
of Maryland law described above will not apply to acquisitions of our stock. As permitted by Maryland law, our Board of Directors has exclusive power to amend the bylaws and the Board could elect to make acquisitions of our stock subject to the
“control shares” provisions of Maryland law as to any or all of our stockholders. In view of the common equity securities controlled by Elinor F. Urstadt, for herself and in her capacity as the executor of Charles J. Urstadt’s estate, and Willing L.
Biddle and Catherine U. Biddle, any may control a sufficient percentage of the voting power of our common equity securities to effectively block approval of any proposal which requires a vote of our stockholders.
Our stockholder rights plan could deter a change of control.
We have adopted a stockholder rights plan. This plan may deter a person or a group from acquiring more than 10% of the combined voting power of our
outstanding shares of Common Stock and Class A Common Stock because, after (i) the person or group acquires more than 10% of the total combined voting power of our outstanding Common Stock and Class A Common Stock, or (ii) the commencement of a tender
offer or exchange offer by any person (other than us, any one of our wholly-owned subsidiaries or any of our employee benefit plans, or certain exempt persons), if, upon consummation of the tender offer or exchange offer, the person or group would
beneficially own 30% or more of the combined voting power of our outstanding Common Stock and Class A Common Stock, number of outstanding Common Stock, or the number of outstanding Class A Common Stock, and upon satisfaction of certain other
conditions, all other stockholders will have the right to purchase Common Stock and Class A Common Stock of the Company having a value equal to two times the exercise price
of the right. This would substantially reduce the value of the stock owned by the acquiring person. Our Board of Directors can prevent the plan from operating by approving the transaction and redeeming the rights. This gives our Board of
Directors significant power to approve or disapprove of the efforts of a person or group to acquire a large interest in us. The rights plan exempts acquisitions of Common Stock and Class A Common Stock by Willing L. Biddle, as well as members of
Willing L. Biddle’s and the late Charles J. Urstadt’s families and certain of their affiliates.
The concentration of our stock ownership or voting power limits our stockholders’ ability to influence corporate
matters.
Each share of our Common Stock entitles the holder to one vote. Each share of our Class A Common Stock entitles the holder to 1/20 of one vote per share.
Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock.
As of October 31, 2022, Elinor F. Urstadt, for herself and in her capacity as the executor of Charles J. Urstadt’s estate, and Willing L.
Biddle and Catherine U. Biddle beneficially owned approximately 21.2% of the value of our outstanding Common Stock and Class A Common Stock,
which together represented approximately 68.2% of the voting power of our outstanding common stock. They therefore have significant influence
over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This
concentrated control limits or restricts our stockholders’ ability to influence corporate matters.