Urstadt Biddle Properties (UBA) announced a dividend cut in the most recent earnings release. This was not surprising. Urstadt Biddle is a real estate investment trust or ‘REIT’. It invests in shopping centers. Many commercial retail tenants have been hit hard by the impact of COVID-19. Government restrictions and the requirement for ‘social distancing’ have severely reduced sales at many businesses located in shopping centers. Despite the long history of Urstadt Biddle as a dividend growth stock the dividend was cut.
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Overview of Urstadt Biddle
Urstadt Biddle was founded in 1969. The REIT invests in retail shopping centers in the New York City area. This includes New York, Jew Jersey, and Connecticut. The REIT also owns one property in New Hampshire. Urstadt Biddle’s business is to acquire, develop, own, and manage commercial real estate.
Urstadt Biddle views its geographic area of operation as a competitive advantage. Available real estate in the NYC area is expensive and scarce. Additionally, zoning ordinances limit available land for commercial development. This has led to high barriers to entry. Further, the NYC area population tends to grow with time. The REIT states in its most recent annual report that the median household income within a 3-mile radius from its properties is about $112,000. This is very high. To put it in context the median national income is only $61,937 in 2018.
The REIT owns 81 total properties with approximately 5.3 million square feet at end of 2019. The REIT is led by Charles Urstadt and Willing Biddle. Interestingly, there are two classes of common stock. The ‘A’ shares trade as the ticker UBA and the regular shares trade as the ticker UBP. Each UBA share has at least a 10% higher dividend but only 1/20th the vote of a UBP share. The UBP shares are mostly owned by management giving them effective control of the REIT.
What is a Real Estate Investment Trust Anyway?
A real estate investment trust or ‘REIT’ is a company that owns, operates, or finances income-generating real estate. A REIT’s stock is usually publicly traded on stock exchanges. So, in this way, small investors are able to invest in the commercial real estate market without having large amounts of of their own capital.
To qualify as a REIT, a company must own real estate that generates income and is distributed to shareholders. Specifically, according to Investopedia, a REIT must
- Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
- Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
- Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
- Be an entity that’s taxable as a corporation
- Be managed by a board of directors or trustees
- Have at least 100 shareholders after its first year of existence
- Have no more than 50% of its shares held by five or fewer individuals
Urstadt Biddle Dividend Cut
Urstadt Biddle has paid over 200 consecutive quarters or 50 years of uninterrupted dividends to its shareholders. Further, Urstadt Biddle has raised the annual dividend to its shareholders for the last 26 consecutive years. I like that on their most recent annual report the REIT stated “Stock prices are only opinions. But dividends are facts.” In my opinion the statement is very true.
The 26 years of consecutive dividend growth made Urstadt Biddle a Dividend Champion. This is pretty select group of stocks. It is very hard to get to 25+ years of dividend growth. At the end of May, there were only 137 total stocks with 25 years or more of dividend growth.
The specific statement from the company was:
At their quarterly meeting on Friday June 5, 2020, the Directors of Urstadt Biddle Properties Inc. (NYSE: UBA and UBP), declared quarterly dividends on the Company’s Class A Common Stock and Common Stock. The dividends were declared in the amounts of $0.07 for each share of Class A Common Stock and $0.0625 for each share of Common Stock. The dividends are payable July 17, 2020 to stockholders of record on July 3, 2020. See the Company’s earnings press release, issued June 8, 2020, for a more detailed discussion of these dividends. The dividends represent the 202nd consecutive quarterly dividend on common shares declared since the Company began operating in 1969.
Note that the quarterly regular cash dividend or distribution was $0.28 per share before the dividend cut by Urstadt Biddle. In fact, the REIT had raised the quarterly cash dividend 1.8% at the end of December 2019. The company even paid this new higher dividend in April. However, it is likely that too many tenants needed rent relief that in turn led to a reduction in cash flow. Ultimately, Urstadt Biddle needed to cut the dividend. So, let’s dig a little deeper and find out why.
Commercial Retail Tenants Are Stressed
Urstadt Biddle’s first quarter ended on January 31, 2010. The company beat revenue estimates by a slight amount and only missed Funds From Operations or ‘FFO’ estimates by $0.01. Interestingly, the REIT did not warn of a potential impact of COVID-19 or coronavirus in the press release at that time. Granted the first quarter earnings release was in early March for results through end of January and COVID-19 was only starting to spread at that time.
However, Q2 2020 was materially impacted by COVID-19. The REIT missed revenue estimates and FFO estimates by $0.05. Urstadt Biddle rents to quite a few food and grocery establishments. This meant that approximately 68.7% of its tenants based on gross leasable area or ‘GLA’ were deemed ‘essential businesses’. A total of ~87.5% of these were open and operating in some form in the second quarter. This meant that about 62.7% of the REIT’s tenants were open and operating.
But Urstadt Biddle received a total of 339 rent relief requests. This was out of roughly 900 total tenants. So, over one-third of the REIT’s tenants requested some kind of relief. The stress on commercial retail tenants has led to lower rent collections. Only 68.7% of total April 2020 rent, common area maintenance charges or ‘CAM’ and real estate taxes were paid. This metric declined some in May 2020 as only 60.2% of rent, CAM, and real estate taxes were paid.
With numbers like these due to COVID-19 and government restrictions, it is not surprising that the dividend was cut by Urstadt Biddle.
Final Thoughts on Urstadt Biddle Dividend Cut
I am unsure when Urstadt Biddle will increase the dividend back to the earlier dollar value per share. It is likely that retail tenants will still face months of challenges and a slow climb back to ‘normal’ operations. This probably means that the dividend will remain at a lower level for at least one or two more quarters.
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With that said, Urstadt Biddle is a conservatively run REIT with a decent balance sheet and it should recover is the NYC area economy recovers. Unfortunately, its area of operations was hit hard by the pandemic. In the end Urstadt Biddle had to cut the dividend and the REIT is no longer a Dividend Champion.
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