Grocery Anchored Value With Urstadt Biddle


  • Grocery anchored shopping centers are performing well fundamentally.
  • Yet some of the REITs remain cheap.
  • UBA has nice growth and an attractive valuation.
  • Looking for a portfolio of ideas like this one? Members of Portfolio Income Solutions get exclusive access to our model portfolio. Learn More »

Shopping basket full of variety of grocery products, food and drink on yellow background.

Bet_Noire/iStock via Getty Images

Grocery anchored shopping centers have quickly become a highly desired real estate asset class as grocery stores provide such a reliable supply of foot traffic. Prices of the grocery anchored REITs have been rising, but four of them still trade at attractive valuations: Kimco (KIM), Brixmor (BRX), Kite Realty (KRG) and Urstadt Biddle (NYSE:UBA). I think any of these four would be a solid investment, but the two that really stand out to me are UBA and KRG. This article will provide an overview of the relative valuation within the sector and then go deeper on the specific fundamentals of UBA. Later this week we will post our Kite Realty analysis to Portfolio Income Solutions.

Urstadt Biddle: The Buy Thesis

The affluent catchment radii around UBA's shopping centers make its locations ideal for attracting new tenants as well as increasing rental rates on existing tenants. I see upside to occupancy as the economy shifts from pandemic style delivery back to in-person shopping. Over the next two years, UBA is slated to grow FFO/share by 18% which is strong growth relative to its 13X FFO multiple. It also boasts a 24% discount to NAV making it the deep value play in the shopping center sector.

Broad valuation and metrics in the grocery anchored shopping center sector

There are quite a few grocery anchored REITs, but many trade at rather high multiples around 20X FFO. While I do like grocery fundamentals, that is more than I feel comfortable paying for this kind of asset.

If we exclude the high multiple companies, those trading in the attractive range are the four mentioned above and their vital stats are tabulated below.

Table Description automatically generated with medium confidence

Author generated using company data

The table is duplicated for AFFO in addition to FFO because both are important metrics for retail REITs. AFFO tends to be lumpier between years, so it can be thrown off by timing issues, but it captures the maintenance capex that is missed by FFO.

What you may notice in the table is that these REITs trade in a fairly tight band of valuation with only a small spread between their multiples. In fact, they have traded in a reasonably tight spread for quite a while, generally rising and falling in tandem.

Graphical user interface, chart Description automatically generated

SNL Financial

UBA had broken out ahead of the pack in 2019 but due to its location in New York it got hit a bit harder by the pandemic and is now the slight laggard of the group.

I find this sort of pricing pattern to be intriguing as it means UBA has the biggest rebound potential if they can fully overcome the COVID related difficulties. There are a few factors that make me quite confident UBA will fully rebound fundamentally.

  1. Balance sheet
  2. Small shop nature of disruption
  3. Location strength

Most of the shopping center REITs operate with fairly conservative leverage, but UBA is particularly cautious with a debt to total capital of 21.56%.

Graphical user interface, table Description automatically generated


As such the temporary revenue interruptions caused by the pandemic are unlikely to have caused any ripple effects via financial distress. Therefore, if the properties can rebound the company can fully rebound, and it looks as though the properties are most of the way through a rebound.

FFO/share dropped in 2022 to $1.19 from the pre-pandemic level of $1.43. UBA mostly recovered in 2021 with FFO/share of $1.36 and looks to pass its pre-pandemic peak in 2022 with expected FFO of $1.50 per share.


SNL Financial

I think the rebound could actually be more significant than this and that UBA might surpass the consensus estimates. See, UBA still is not collecting about 4% of its rent as of January.

Graphical user interface Description automatically generated


And occupancy is only 92%.

This leaves quite a bit of upside as these non-paying tenants get replaced with paying tenants and occupancy rises to perhaps 94%-96%.

Whether or not this can happen depends on if the damage done was at a property level or a tenant level. Examining the data, it looks to me as though the damage is entirely at the tenant level and that the properties themselves are in high demand.

Dark anchor versus loss of small shops which pay high rent

When an anchor tenant goes under it can damage the entire property. A dark anchor store means less foot traffic which erodes the viability of the small shops. It can be a nasty situation and even worse if there are co-tenancy clauses in the lease contracts of the small shops.

However, anchors also pay significantly less rent per square foot so the damage hit to earnings from a dark anchor will actually be less in the near term than a non-paying small tenant.

Well, UBA is overwhelmingly grocery and pharmacy anchored, both of which performed quite well during the pandemic and continue to perform well today. Instead, its damage was in the small shops. The laundromats/dry cleaners, day care centers, gyms, and some restaurants.

This small shop damage causes a bigger hit to near term FFO/share because they pay high rent per square foot, but importantly it has a rather muted effect on the viability of the shopping center.

The grocery stores remained open which kept foot traffic high. In fact, foot traffic at UBA shopping centers has already surpassed the pre-pandemic peak.

Chart, bar chart Description automatically generated


So at a cursory glance, the big dip in FFO might make it look like UBA was severely damaged by the pandemic, but when you dig in and look at the property level fundamentals I think a full recovery is quite clear.

It is only a matter of time before they can kick out the bad tenants and replace them with high paying small shop tenants.

The anchors are stellar foot traffic generators and the locations are among the strongest. UBA's portfolio is concentrated in the wealthy areas around Manhattan.

Map Description automatically generated

SNL Financial

This places it firmly at the highest household income of all the retail REITs in a 3-mile catchment radius.

Chart, scatter chart Description automatically generated


Small shop tenants like to locate near customers with high disposable incomes which makes demand for UBA space high.

Over the coming years I anticipate full collection of rents owed (or replacement of bad tenants) and a significant tick up in occupancy - both of which significantly grow FFO/share.

I find the coming FFO growth to be unusually strong relative to what is typically expected for a 13X multiple REIT. UBA also looks attractive from an NAV standpoint.

NAV accretion not priced in

Consensus NAV for UBA is $25.61 which places it at a 24.7% discount to NAV.

Table Description automatically generated

SNL Financial

However, I think this is a stale number. As grocery anchored shopping centers became a hot commodity over the past couple quarters, cap rates have come down considerably and now sit in the 5s. The $25.61 NAV is based on a 6.10% cap rate, so if one were to value it in the mid 5s the NAV would be significantly higher.

Risks To Buy Thesis - Why I'm Not Presently Long

I wrote this article as a bull thesis because I think it would be entirely reasonable to buy UBA here. The reason I am not presently long, however, is because I strongly believe domestic migration will continue to be a major factor.

For quite a while people have been moving from expensive cost of living coastal areas toward the sunbelt and to a lesser extent toward the Midwest. This trend picked up significantly during the pandemic and some people think it will slow back down as the pandemic ends.

I am of the belief that it will continue at a rapid pace. Quite simply, most of the U.S.A. is beautiful and I think people can be happy living in a variety of areas, so why not do so at a dramatically lower cost of living?

The cost difference between areas like NYC and San Francisco as compared to the sunbelt has gotten so enormous that there is this semi-permanent incentive to move. Work from home has unlocked the ability to capitalize on the cost savings and I suspect the rapid domestic migration will continue.

UBA is at risk here because its Manhattan adjacent market is more likely to be on the negative internal migration side of the equation.

If you are less convinced than I am that the southward migration will continue, then UBA can be a great stock. Its sub 13X FFO multiple and massive discount to NAV make an opportunistic entry point into a long standing and well-run company. It has a bit of a near term catalyst in the form of fairly rapid FFO growth from the rebound on top of normal organic growth.

Opportunistic Market Sale: 20% off for a limited time!

Right now there are abnormally great investment opportunities. With the market crash, some fundamentally strong stocks have gotten outrageously cheap and I want to show you how to take advantage and slingshot out of the dip.

To encourage readers to get in at this time of enhanced opportunity we are offering a limited time 20% discount to Portfolio Income Solutions. Our portfolio is freshly updated and chalk full of babies that were thrown out with the market bathwater.

Grab your free trial today while these stocks are still cheap!

This article was written by

Dane Bowler profile picture
Access professional analysis and a curated high yield portfolio

2nd Market Capital Advisory specializes in the analysis and trading of real estate securities. Through a selective process and consideration of market dynamics, we aim to construct portfolios for rising streams of dividend income and capital appreciation.

Our Portfolio Income Solutions Marketplace service provides stock picks, extensive analysis and data sheets to help enhance the returns of do-it-yourself investors.

Investment Advisory Services

We now offer a way to directly invest in our Proprietary Investment Portfolio Strategy via REIT Total Return, which replicates our activity in client accounts. Total Return client’s brokerage accounts are automatically invested simultaneously and at the same price when we make a trade in the REIT Total Return Portfolio (also known as 2CHYP).

Learn more about our REIT Total Return Portfolio.

Dane Bowler, along with fellow SA contributors Simon Bowler and Ross Bowler, is an investment advisory representative of 2nd Market Capital Advisory Corporation (2MCAC). As a state registered investment advisor, 2MCAC is a fiduciary to our advisory clients.

Full Disclosure. All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of the specific person. Please see our SA Disclosure Statement for our Full Disclaimer.


Disclosure: I/we have a beneficial long position in the shares of KRG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Important Notes and Disclosure
All articles are published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.
The information offered is impersonal and not tailored to the investment needs of any specific person. Readers should verify all claims and do their own due diligence before investing in any securities, including those mentioned in the article. NEVER make an investment decision based solely on the information provided in our articles.
It should not be assumed that any of the securities transactions or holdings discussed were profitable or will prove to be profitable. Past Performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions.
Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts, and findings in this article.
S&P Global Market Intelligence LLC. Contains copyrighted material distributed under license from S&P
2nd Market Capital Advisory Corporation (2MCAC) is a Wisconsin registered investment advisor. Dane Bowler is an investment advisor representative of 2nd Market Capital Advisory Corporation.

Recommended For You

Comments (16)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.