Summary
- Urstadt Biddle is paying out a 5.8% dividend yield to its common shareholders.
- This was supported by FFO for the last reported quarter, which grew by $0.02 over its year-ago figure for a healthy payout ratio of 64%.
- The Series K preferreds pay out a yield on cost that's 130 basis points higher at 7.12%.
Greenwich, Connecticut-based internally managed retail REIT Urstadt Biddle Properties ( UBA ) is relatively under the radar. It has a daily trading volume of around 170,000 and analyst coverage that's relatively muted compared to some of its REIT peers. There is a green shoot of investability here with the REIT last declaring a quarterly cash dividend of $0.25 per share for its class A commons, a 5% increase from the prior quarter, for a 5.8% yield.
The dividend has now been on an upward march since the early months of the pandemic, when it was essentially suspended on the back of stay-at-home orders. The recovery since then has been sustained and dramatic, with the most recent raise being driven by underlying funds from operations strength.
FFO Moves Higher As Equity Value Ebbs
Urstadt Biddle last released earnings for its fiscal 2022 fourth quarter. This saw total revenues come in at $36.06 million , a 5.9% increase from the year-ago quarter and a beat by $670,000 on consensus estimates. This was driven by a 1.1% increase in the REIT's leased consolidated portfolio gross leasable area to 93%. Greater leasing activity drove an increase in base rents of $2.5 million during the fourth quarter, with base rental rates on 108,300 square feet of lease renewals signed during the quarter increasing by 2%.
Urstadt Biddle's portfolio is grocery-anchored and concentrated in suburban New York, Connecticut, and New Jersey. Top tenants include Stop & Shop, CVS, and The TJX Companies. These three companies constitute a combined total of 16.3% of the total annual base rent.
Fourth quarter FFO was $14.7 million, or $0.39 per class A share, for a 64% payout ratio and was a growth of $0.02 from the year-ago comp. This came against total equity, including minority interest, which was around $640 million and in line with the REIT's current market cap. This places Urstadt Biddle stock's price to FFO at 12.1x for the full fiscal year, a level that is 12.5% lower than its peer group median. The REIT faces no maturity until 2024 and held total liquidity as of the end of the quarter at $109 million. This comprised cash and cash equivalents of $15 million and a $94 million unsecured revolver.
The Preferreds Offer A Higher Yield
The REIT has two preferreds trading; Series H ( UBP.PH ) and Series K ( UBP.PK ). Both of these pay out a higher yield than the commons whilst offering a lower risk profile. Urstadt Biddle's 5.875% Series K Cumulative Preferred Stock pays out a $1.47 annual coupon for a 7.12% yield on cost. This is around 130 basis points higher than the yield received by the common shareholders. It's an unusual dichotomy when preferreds, which are safer than commons, pay out a higher yield.
These are essentially a form of fixed income with a quarterly coupon distribution schedule but with no maturity date. They're up for redemption on October 1, 2024. The main difference between the Series H and the Series K centres on the higher headline coupon rate on the former being higher at 6.25% versus 5.88% for the Series K. However, the Series K have a larger discount to par as they currently trade at $20.65, a $4.35 or 17.4% difference to their $25 par value.
Urstadt Biddle is unlikely to immediately redeem these when they come up for redemption next year, with the Series H still trading past their redemption date and with the cost of debt a lot more expensive than when they were initially issued in 2019. The upper limit of the Fed funds rate is currently at 4.75%, a more than 2x increase from 2% in 2019. Hence, holders of the preferreds stand to earn an income likely far into 2025. That said, if Urstadt Biddle does redeem next year then total expected returns would stand at 31.7% with future cumulative dividends at $2.205 aggregated with a capital uplift back to par value.
However, on a total return basis, they've underperformed the commons. The Series K is down around 17% over the last year versus a loss of 4.7% of the class A commons. Over the last three years, the performance for the commons is a 3.7% loss versus a loss of 18% for the preferreds. Critically, the commons represent a number of long-term value accretive factors from a dividend payout that is creeping up to a growing FFO profile that has wrapped these distributions within a healthy payout ratio. I'm leaning towards the commons here, despite the higher yield on the preferreds. The commons do provide a certain stability with their payout that suits more risk-averse investors against a macroeconomic context that could deteriorate further. I'm neutral towards taking a position in both at this time, but the commons would be considered if this changes.
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Urstadt Biddle Properties: An Under The Radar 5.8% Yield