An investment in Urban Edge Properties (NYSE: UE) is taking a stake not only in the big city markets where it owns and operates commercial real estate, but in the futures of those retailer tenants, too. For now. This real estate investment trust (REIT) buys, develops and redevelops, and manages retail real estate in urban communities, primarily in the New York metropolitan region. Urban Edge owns 79 properties totaling 16.3 million square feet of gross leasable area.
But it’s also apparently eyeing adaptive reuse of some of that retail space. In January, Urban Edge announced the purchase of Sunrise Mall in Massapequa, New York, giving it 1.2 million square feet of retail space that’s only 65% occupied with anchor tenants, including Macy’s (NYSE: M) and Sears (OTCMKTS: SHLDQ).
That doesn’t sound too promising from the retail perspective, but that may not be the point of this purchase. The announcement said: “Sunrise Mall provides tremendous redevelopment opportunities, given its unique scale and in-place zoning, which provides for industrial and other uses (emphasis added). Its location benefits from excellent access to major roadways that connect the property to the eastern edge of New York City and the entirety of Long Island."
And here’s what CEO Jeff Olson said: “Sunrise Mall is a unique asset with a prime location in a dense, attractive region along the southern shore of Long Island. This acquisition provides a terrific opportunity for Urban Edge to leverage our redevelopment expertise in repurposing underutilized land and creating value.”
Buy the numbers…
As for creating value, 2020 was a rough year for Urban Edge, but it’s showing signs of recovery. Rent collection rates improved to 92% in the fourth quarter from 87% and 80% in the third and second quarters, respectively, the company said. Critically, it paid a special cash dividend of $0.46 per share in January after suspending dividends earlier this year. And it expects to reinstate its recurring quarterly dividend starting in March.
Urban Edge had been paying quarterly dividend s of $0.20 to $0.22 a share since 2015 until it suspended them earlier this year. The January payout makes up for lost ground, but the company is still yielding only 1.50% based on a Feb. 3 trading price of $14.66 per share.
As for that stock price, Urban Edge is trading toward the higher end of its 52-week range of $6.98 to $19.21, according to Nareit. Overall, its one-year total return is -27.81%.
The Millionacres bottom line
Urban Edge operates primarily around the Big Apple, but it also has properties in Washington, D.C., Philadelphia, St. Louis, San Francisco, Charleston, South Carolina, and Puerto Rico. Many of its tenants have handled the pandemic downturn well, too, including brand names such as Best Buy (BBY: NYSE), Home Depot (NYSE: HD), Target (NYSE: TGT), Costco (NASDAQ: COST), and Aldi, and its rent collections are reflecting some recovery.
With the restoration of a dividend and an eye toward adaptive reuse of empty space if and when the opportunity is right, Urban Edge stock merits watching, but I don’t think it’s a buy just yet. There are more compelling opportunities, just among retail REITs for starters. But an emerging strategy of readapting space bears watching.