UBP - Urstadt Biddle Properties Is Repurchasing Shares But The Preferreds Are Preferable

Summary

• UBA boasts a defensive, necessity-based shopping center portfolio in the affluent suburbs around New York City.
• The REIT has two common share classes.
• Management is taking advantage of cheap common shares by buying back their own stock.
• UBA's preferred equity offers about the same upside plus a significantly higher yield.

Urstadt Biddle Properties ( UBA , UBP ) is a small, New York tri-state area essential retail shopping center real estate investment trust ("REIT"). The portfolio consists of only 77 properties, and 87% of the portfolio by square footage is anchored by an essential retailer such as a grocery store, wholesale club, or pharmacy.

These properties are located in the suburbs surrounding New York City, up to about a 2-hour commuting distance in all directions. These suburbs are some of the highest income, most highly educated areas of the country. And since a lot more white-collar workers in this area are now working from home, the daytime populations of these suburban areas is higher than it was before COVID-19.

In the most recently reported quarter, UBA hiked its dividend back to about 11% below its pre-COVID level (from about 15% lower previously), perhaps reflecting that the bulk of the COVID-era tenant turnover has been completed.

So, with UBA trading at about a 5.8% dividend yield, is it a buy today? Or is the other common share class, UBP, a buy at its lower share price?

The ideal investor fit for UBA is a conservative income investor who is primarily interested in the yield. But UBA also features two preferred stocks, Series H ( UBP.PH ) and Series K ( UBP.PK ), that both yield about 7.2% and offer upside to the par of 18-22%. I view the preferreds as a more attractive choice than either of the common share classes.

Urstadt Biddle's Two Common Share Classes

Though I'll refer to Urstadt Biddle as "UBA" throughout this article, the REIT actually has two share classes: Class A Common ( UBA ) and Common ( UBP ).

UBA is the much larger and more liquid share class, and it is the class of shares that management typically issues for investments. It has 1/100th the voting power of UBP and pays at least a 10% higher dividend.

Meanwhile, UBP is the much smaller and less liquid share class, and it is mostly owned by insiders, especially the Urstadt and Biddle families. It has vastly superior voting power but pays a smaller dividend. As such, UBP typically trades at a lower share price than UBA.

I used to own both share classes until around July 2022, when I noticed that UBP was inexplicably trading at a higher price than UBA, despite the lower dividend. The yield differential was enough to convince me to sell UBP and reinvest the proceeds into UBA.

Today, after both share classes traded around the same price for a while last year, the roughly 10% gap between the two classes appears to be reasserting itself.

This may make UBP look like the better buy today, but looking at the dividend yields of each tells a different story:

• UBA: 5.79%
• UBP: 5.71%

As such, since both share classes offer the same economic ownership, UBA appears to be the better buy today between the two common share classes.

Fiscal Q4 2022 Update

UBA's fiscal Q4 and fiscal year-end at the end of October. The REIT reported results for its final fiscal quarter for 2022 in mid-December.

Results show modest improvement in funds from operations and occupancy, while rent rates are moving in a positive direction. Renewal rent rates have increased for six quarters in a row. What's more, management attests that rent collection rates have returned to pre-pandemic levels.

Meanwhile, cash and undrawn availability on the credit facility have moved in a negative direction.

I believe the drop in cash and credit facility availability can be explained by management's decision to repurchase $15.6 million of Class A common shares at an average price of $16.62 apiece as well as ~$302,000 of Common shares at an average price of $16.92 apiece.

Over the course of fiscal 2022, management repurchased about 2% of common shares across both classes.

As the REIT's stock price falls, it appears that 2023 will be another year in which the best use of excess cash will be share buybacks. There is no debt maturing until 2024, so UBA does not need to worry about refinancing any mortgages this year.

Bottom Line

Given that UBA's best use of cash right now is buybacks, I would expect to see another year of mid-single-digit FFO per share growth this year. And given the recently upped dividend, I don't expect another dividend increase announced until the end of the year, if at all.

Investors interested in UBA are probably in it primarily for the yield. UBA's 5.8% dividend yield is attractive given the defensive nature of the mostly grocery-anchored portfolio and low debt at 25% of total capitalization.

But don't forget about the preferred stocks, which offer even higher yields of around 7.2% as well as an upside of 18-22%. I don't believe UBA has much more upside than that in the next few years, which makes UBP.PH and UBP.PK the more attractive picks for safety and yield.

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