Urstadt Biddle Properties Inc is a US$754.0m small-cap, real estate investment trust (REIT) based in Greenwich, United States. REITs are basically a portfolio of income-producing real estate investments, which are owned and operated by management of that trust company. They have to meet certain requirements in order to become a REIT, meaning they should be analyzed a different way. Below, I’ll look at a few important metrics to keep in mind as part of your research on UBA.
REIT investors should be familiar with the term Fund from Operations (FFO) – a REIT’s main source of cash flow from its day-to-day business activities. FFO is a higher quality measure of earnings because it takes out the impact of non-recurring sales and non-cash items such as depreciation. These items can distort the bottom line and not necessarily reflective of UBA’s daily operations. For UBA, its FFO of US$63.0m makes up 75.5% of its gross profit, which means the majority of its earnings are high-quality and recurring.
In order to understand whether UBA has a healthy balance sheet, we have to look at a metric called FFO-to-total debt. This tells us how long it will take UBA to pay off its debt using its income from its main business activities, and gives us an insight into UBA’s ability to service its borrowings. With a ratio of 20.9%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take UBA 4.79 years to pay off using operating income alone. Given that long-term debt is a multi-year commitment this is not unusual, however, the longer it takes for a company to pay back debt, the higher the risk associated with that company.
Next, interest coverage ratio shows how many times UBA’s earnings can cover its annual interest payments. Usually the ratio is calculated using EBIT, but for REITs, it’s better to use FFO divided by net interest. This is similar to the above concept, but looks at the nearer-term obligations. With an interest coverage ratio of 4.85x, it’s safe to say UBA is generating an appropriate amount of cash from its borrowings.
I also use FFO to look at UBA’s valuation relative to other REITs in United States by using the price-to-FFO metric. This is conceptually the same as the price-to-earnings (PE) ratio, but as previously mentioned, FFO is more suitable. In UBA’s case its P/FFO is 12.47x, compared to the long-term industry average of 16.5x, meaning that it is undervalued.
In this article, I’ve taken a look at Funds from Operations using various metrics, but it is certainly not sufficient to derive an investment decision based on this value alone. Urstadt Biddle Properties can bring about diversification for your portfolio, but before you decide to invest, take a look at the other aspects you must consider before investing:
Future Outlook: What are well-informed industry analysts predicting for UBA’s future growth? Take a look at our free research report of analyst consensus for UBA’s outlook.
Valuation: What is UBA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether UBA is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
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