UMH Properties Stock: Growth With A Margin Of Safety (NYSE:UMH)

UMH Properties, Inc. (NYSE:UMH), included in 1968 and headquartered in Freehold, NJ, owns and operates manufactured house communities. It primarily leases manufactured homesites and houses to residents.

Although the dividend would not appear as protected as I would have it, the REIT has a really lengthy historical past, an incredible sufficient portfolio, conservative financing, satisfactory liquidity, well-laddered maturities, and the value displays low cost to NAV.

Portfolio

As of September 30, UMH had 135 manufactured house communities in its portfolio, which consisted of ~25,800 developed homesites, situated in Alabama, Georgia, Indiana, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, South Carolina, and Tennessee. Moreover, it owns an possession curiosity in two communities situated in Florida, which it additionally operates.

Reality be instructed, the portfolio could be very concentrated, as is apparent within the picture above. However I believe that that is alleviated to a point by the nice variety of homesites that the REIT leases.

Efficiency

Wanting on the long-term historic working efficiency, it appears like the corporate has been rising at a gradual however regular price. Within the final decade, particularly, its income has been growing exponentially, with FFO following at a slower tempo and working earnings extra erratically:

Transitioning to newer outcomes, the occupancy price as of the tip of September was 94.2%, depicting respectable effectivity in using the REIT’s property.

Moreover, vital progress is mirrored within the newest quarterly figures when annualized and in comparison with the corresponding common annual ones of the final 3 fiscal years:

Click on to enlarge

Now, despite the fact that the value efficiency has been very erratic, it has adopted the growth represented within the working efficiency of UMH:

Leverage

As for its leverage, about half of its property are financed with long-term debt, a degree it slowly reached all through the a long time. Liquidity additionally appears satisfactory, with a debt-to-EBITDA ratio of 8.4x and curiosity protection at 1.18 instances.

Moreover, 79% of the REIT’s debt carries a set rate of interest. Talking of which, its value of debt can be engaging because the weighted common rate of interest of its mortgages, loans, and bonds is 4.71%. Furthermore, there is no such thing as a instant menace to profitability from probably larger curiosity bills as there is no such thing as a maturity in 2024 and the three years after contain small quantities coming due relative to the ~$966 million of mortgages, loans, and bonds excellent.

Dividend & Valuation

UMH at the moment pays a quarterly dividend of $0.21 per share which means a 5.48% ahead yield. Though the yield is pretty engaging, the dividend isn’t ideally suited for a dividend-focused portfolio.

First, the 96.83% payout ratio primarily based on AFFO is regarding and although the REIT has been paying a dividend for 33 years, it has solely lately began growing it after it reduce it in 2008 (and really conservatively at that).

Regardless, the 7.2% implied cap price the shares are buying and selling at appears a bit excessive to me as we speak. Again once I was protecting Solar Communities (SUI), I used to be extra pessimistic about cap charges usually and I assumed that such a big cap price premium over residential property made sense on the time (round 7%). But when residential properties can fetch sub-5% within the close to time period, I believe that 6% for manufactured homesites/houses is much less conservative than 7% however extra affordable. We must also think about that UMH makes use of a 5% cap price to calculate the worth of a few of its property in its newest investor presentation.

Due to this fact, assuming a 6% cap price, UMH is promoting at a 23.1% low cost to NAV ($19.92), which displays a 30.04% upside. Moreover, the value has lately gone a lot larger than the current NAV, however sadly started falling concerning the time the Fed began elevating the speed in 2022:

Dangers

REITs are pretty predictable and are not often speculative automobiles, however there are all the time some dangers concerned. The primary is expounded to the dividend; once more, it won’t be an incredible match for a dividend portfolio as a result of the cost document does not imply respectable future dividend progress and the excessive payout ratio makes this much more unlikely. The corporate might reduce the dividend once more and for those who purchase the inventory only for it, you may need to understand a loss to get out of your place to reallocate your funds accordingly.

Moreover, the REIT’s portfolio isn’t as diversified as some traders would favor to hedge dangers that come from modifications in inhabitants, unemployment charges, and lease costs. For those who’re in search of publicity to manufactured houses however better diversification, then Solar Communities presents that each geographically and primarily based on asset sort, however I do not suppose it is as engaging as UMH.

Final, asset values fluctuate on a regular basis, which makes NAV calculations not an actual science. I consider that 6% is conservative contemplating that the corporate makes use of 5% to worth its property as we speak, however you’ll be able to solely assume what the marketplace for manufactured homesites/houses goes to be sooner or later and generally you will be improper.

Verdict

All in all, I consider that the REIT is a purchase at its present worth. I do not love the dividend yield, nor the excessive payout ratio, however the working efficiency has been nice and the low cost to NAV is engaging.

What’s your take? Do you personal UMH or intend to? Why or why not? Let me know under and I will get again to you as quickly as I can. Thanks for studying!