Is The Vornado/Urban Edge (NYSE:UE) Spin-Off A Good Investment?
Sourced through Scoop.it from: seekingalpha.com
Urban Edge , a recent spin off of Vornado Realty Trust (NYSE:VNO), has enjoyed a good run in relation to other REITS stocks following the release of the second quarter results last week. The company has demonstrated strong operating results, reporting in as the third best performing stock in the first week of August. Urban Edge, a $2.2 Billion market cap shopping center REIT, suffered a significant share price drop this year, along with many of its peers. Their year to date stock performance is approximately down six percent.
In terms of metrics, fundamentals, and strategy, Urban Edge appears to be the type of company where each piece is in its proper place. The company makes investments in larger shopping centers, with multiple anchors, in the DC-Boston marketplace. The company is currently doing well by surfing the industry tailwinds. Their dividend yield is fair, dividend payout rate is conservative, and debt is in control. Urban Edge has enough cash in hand to fund their future redevelopment pipeline of $200 million. The average term of new leases is eleven years, which is good news for investors looking for stability.
The fundamentals of the shopping center industry strengthen as more jobs are created and the economy improves. This positive trend reflects in Urban Edge's recent results. Internal growth, specifically property cash NOI growth, has shown strong results. The company posted a 4.2 percent growth rate in comparison with the same period last year due to two main factors.
1. Financial occupancy increased by 130 basis points to 96.6 percent.
2. Rent spread was 12.0 percent, on a same space basis, for new leases and renewals.
Urban Edge had an increase in General and Administrative (G&A) this quarter compared with the same period last year. The additional costs are associated with operating as a separate public traded company. Although Vornado is currently providing corporate functions (such as human resources, information technology, risk management, public reporting and tax services), Urban Edge is paying a separate executive team.
The company incurred large costs paid in connection with the spin off during the first quarter. Some executives were paid share based compensation; the company also paid professional fees to advise on the transaction.
The additional G&A costs during the second quarter certainly offset the gains associated with internal growth. Funds from operations have remained at $0.30 per share.
Urban Edge is diligent in focusing on redevelopment of its properties by performing renovations and expanding their current footprint. The company has allocated $80 million in redevelopment, which should result in returns between eight and ten percent. We have yet to see results, however revenues increased slightly by two percent. So far this year, Urban Edge has acquired two small properties adjacent to properties the company already owns.
Regarding funding, Urban Edge's ratio of net debt to total market capitalization is 30.7 percent. Debt to annualized adjusted EBITDA was 5.8 times. The company has approximately $193 million of cash and cash equivalents on hand. They have not drawn on their revolving credit facility.
A rapid valuation analysis shows that Urban Edge is trading at twenty times price to FFO, which is fairly priced for an industry rookie. The company's dividend yield has been on par with the shopping center sector in general. Urban Edge is helped, as a stand-alone entity, due to the fact that they were a part of Vornado. However, being boring in this industry pays off even more. At this time, I don't see any reason for rushing towards a stock purchase.
Curated by Heli Brecailo
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.