Description

Urstadt Biddle Properties (UBP) is an under the radar small cap retail focused REIT.  Like most small cap retail REITs, UBP was written off a year ago. While the price has recovered from the depths of the pandemic, UBP is still trading at a 25% discount to pre-pandemic levels.  Unlike most retail REITS, UBP owns properties in defensible suburban locations anchored primarily by “essential” businesses.

Consider the following:

Properties are generally anchored by grocery or drug store tenants.

Conservative Capital Structure

Conservative Management Team that values Stability

Dividend that is likely to increase.

Properties are generally anchored by grocery or drug store tenants

UBP owns 70 properties and interests and interests in 11 joint ventures aggregating 5.2 million square feet located primarily in suburbs of New York City.  Over 70% of UBP’s tenants by GLA were designated as “essential” businesses in the early stage of the pandemic. The largest property is the 374,000 square foot Ridgeway Shopping Center in Stamford, Connecticut.

The top 10 tenants in terms of annual base rent are:

Stop & Shop                             8.2%

CVS                                          4.7%

TJX                                           3.4%

Bed, Bath & Beyond                2.8%

Acme                                        2.6%  

Shoprite                                    2.0%

BJ’s                                           1.6%  

Staples                                      1.4%

Kings Supermarkets                 1.2%

Walgreens                                 1.1%

            Total                           29.0%

Conservative Capital Structure

Debt to total assets was roughly 33% at fiscal year end.  UBP had $35 million of revolver borrowings and $300 million of mortgage debt. Interest expense was roughly $14 million last year and was over 4 times covered by 2020’s depressed operating cash flow of $62 million.  Scheduled debt amortization is $7 million in 2021 and $56 million in 2022.  The revolver was increased to $125 million from $100 million in April.

In addition to the mortgage debt, UBP has two series of perpetual preferred stock , aggregating $225 million (UBP-H and UBP-K), which are both trading at a premium to their $25 face value.

UBP’s common stock consists of two classes.  The common stock, which trades under the symbol UBP, has 10.2 million shares outstanding and carries 20 votes per share.  (77% of the common shares are controlled by insiders.)  There are 30.1 million Class A shares (UBA) which have one vote.  The Class A shares have a $.28 quarterly dividend compared to the $.25 on the common shares.  

Note that this write-up is focused on the common shares, which are less liquid than the Class A shares but have greater voting rights.  While the Class A shares are entitled to a dividend that is 10% greater than the common shares, the Class A shares trade  about 20% higher than the common shares.

Conservative Management Team

This is a family run company with good stewardship.  There are two Biddles and one Urstadt on the Board.  The CEO is Will Biddle.  His wife is the former Catherine Urstadt.  Her brother Charles D. Urstadt is the third family member on the board, and the company chairman.  Charles J. Urstadt, the company’s former chairman died last year at the age of 91.  While there is no indication that the family intends to sell, Eleanor Urstadt, Charles J. Urstadt’s widow, controls 45% of the super-voting stock through various family trusts.

Potential Dividend Increase

Dividends have been paid every year since the company was founded in 1969, and increased for 26 consecutive years before being slashed during last year’s pandemic.

UBP reduced its quarterly dividend on the common stock from $.25 to $.0625 in the second quarter of 2020.  The dividend was partially restored to $.125 in the third quarter of 2020 and has been maintained at $.125 through the first quarter of 2021.

Dividends are currently at a run rate of around $30 million ($16.2 million of preferred dividends and $13.7 million of common dividends).  REIT’s must distribute at least 90% of taxable income each year, so a recovery in UBP’s income is likely to flow through to shareholders. In fact, the company noted in its first quarter 10-Q:

“Based on the Company’s updated taxable income projections for the fiscal year ending 2021, we will most likely need to pay dividends over the remainder of the fiscal year at higher levels in order to meet the distribution requirements necessary for it to continue qualifying as a REIT for U.S. federal income tax requirements.”

Recent Performance

UBP has held up well in the face of the pandemic, and should continue to recover a s the smaller in-line tenants get back to business.  Rents in the quarter ended January 31, 2020 were down about 6% from the prior year. FFO for the quarter was $12.4 million vs. $12.9 million in the prior year.  UBP’s position in the suburbs of New York, and its tenant mix position it to benefit from the exodus from New York City.

Catalyst

As mentioned in the recent 10-Q, there is a good chance that the dividend will need to be increased this year.

While there is no indication that the family intends to sell, the death of Charles J Urstadt last year, may cause the family to consider a sale.  The recent sale of Weingarten Realty (WRI) to Kimco suggests that there is an attractive market for UBP’s assets.