Manufactured Home REITs Have Experienced Good Gains

chart01.pngUnder the perception that Janet Yellen will not raise interest rates for a while, many investors have been searching for yield. Popular REITs like net lease stocks appreciated, but we have started to take notice in interest on other REIT sectors. For instance, manufactured homes have experienced some good gains.

There are three stocks that make up the manufactured home REIT sector. These stocks had around a 10% return last June, which was more than the average REIT. Even the undervalued UMH, whose portfolio is mainly focused on fracking regions in Pennsylvania and Ohio, have also rallied by 13% in June. Not to mention, that they are now accumulating over 20% a year to date return. The stock is yielding almost 6% and its dividends have not been covered yet.

As a result, all three of these stocks seem to be fairly priced, and we are not currently seeing any upside right now. It is still possible that Yellen could lend a hand to REIT stocks again, but this is not something that I would consider an investment strategy. With her short history, that is mainly made up of flip-flopping, it is fair to say that the Fed’s opinions have been swinging to the moods of the world’s economy.

Equity LifeStyle Properties has already released Q2 results. They have shown that the market fundamentals are continuing to hold strong. For manufactured business, which includes the majority of revenues, occupancy has increased for the 27th consecutive quarter. Plus the monthly rent base is continuing to trend upwards. For their Recreational Vehicle business, the same-store NOI rose by 6%.

Both Sun Communities and UMH Properties will release their Q2 results this week. Sun Communities are coming from the major acquisition of Carefree Communities. This caused an increase in its number of communities by approximately 44%. This will be the first time we will review the consolidated results of such a large company.

To sum up, I would wait for the Sun Communities and UMH Properties Q2 results. However, this time around I am not hopeful that there will be a window of opportunity.

Source: Sun Communities Inc.(NYSE:SUI), Equity LifeStyle Properties, I(NYSE:ELS), UMH Properties Inc.(NYSE:UMH)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author is long FCH, XHR, CLDT, and PEB.

This Manufactured Homes REIT Continues to Impress

chart01Running Equity LifeStyle Properties can be quite appealing, especially when all you have to do is manage the growth. This comes easy since manufactured homes REITs have experienced tailwinds from demographics change. The company was in the leading list in announcing results for the first quarter this year, and, from what I can tell, it had an upper hand as far as the REIT stocks are concerned.

The aging population has been a factor

Apart from the stock, something more interesting cannot be overlooked when it comes to manufactured home REITs. The percentage of aging population goes a long way in determining possible success in this type of property. This is why investors are keen on considering this factor.

With the increasing rate in the percentage of the aging population, the prospect has been positive for manufactures homes, whose average age of new residents is in the upper 50s. With an estimated 10,000 people turning 65 daily, investors are counting on more opportunities out of this shift.

Enterprise achievements

Equity LifeStyle continues to impress on some fundamental aspects, with increase in several fields in a year over year comparison. Normalized FFO has risen by 10%, with normalized FFO per share shooting up 11%; not to forget the dividends, which have stricken a whole 13% increase. Moreover, a consistent decrease in the total debt compared to the total investment has come down to 24%. These come at a time the interest rate has been satisfactorily on high 4’s and a debt maturity schedule well laddered.

Leading the sector

Just to be clear, I’m not recommending the purchase of Equity LifeStyle stocks. With a total market capitalization of $8 billion, there is no doubt this is a leader in the sector. However, the share price has hiked over recent years. Multiples have been sky high, and dividend yield has been one of the lowest among equity REITs.

Multifamily

Multifamily, a sector close to manufactured home, have shown signs of weakness lately. Although asking rents have displayed a significant rise over the past year, vacancies advanced in the fourth quarter of 2015. This has led investors to think that rents reached a peak and any further increases will go overboard.

In fact, there are concerns supply will catch up with demand soon. If this is true in 2016, it will be the end of a six-year period of expansion in which rents have been pushed to new heights in high coveted cities, such as San Francisco, New York, Denver and Houston. This year, more landlords in these cities have increased rental concessions.

Apartment REITs’ share prices have fallen in recent weeks, showing a negative investor sentiment. With the release of Q1, we will see if those suspicions will strengthen or fail.

Source: Equity LifeStyle Properties, I(NYSE:ELS), Fast Graphs, Reis, Wall Street Journal

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

This Manufactured Home REIT Should Have Cut Dividend

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Check the reports for Dividend Yield by Sector and Weekly Returns.

UMH Properties, a small cap REIT that owns and operates manufactured home communities, may be one of the most consistent dividend paying stocks in our REIT roster, but their dividends have not been covered by funds from operations (FFO) for the past six years. With the release of Q4 results last week, FFO figures have not been encouraging, prompting a discussion when they will cover their dividends. Nevertheless, hopes have been high and investors have been optimistic. Shares rose by 7% last week.

For the full year of 2015, UMH had a significant dividend shortfall of approximately 25%, since normalized FFO reached $0.55, as opposed to an annual dividend of $0.72. They have issued debt and equity to cover the deficit and have maintained a dividend yield of 7%, the highest in the sector of manufactured homes and top 20% among equity REITs.

I see advantages in a potential dividend cut. If they reduced the dividend to $0.55, the yield would be 5.3%, which is still above the equity REIT average. Also, they would finally stop financing distributions. But a dividend cut seems unlikely because they may be afraid to send investors a wrong message. Investors could interpret the cut as a sign of weak perspectives.

Manufactured home sector has proven to be a good sector to invest, and I don’t have doubts that the success of its peers has affected UMH positively. UMH’s larger peers, Equity LifeStyle Properties and Sun Communities had great results last year, with total returns north of 17%. Even UMH fared well, with a total return above 10%. FFO multiples have also been high, especially for Equity LifeStyle, which is trading at 24x.

The company’s Achilles’ heel is that their communities are concentrated in the Marcellus and Utica shale regions (Ohio and Pennsylvania).  Management has not been concerned, though. They argued that, despite low energy prices, pipeline construction to reach end-consumers and gas processing plant construction have driven industrial development in the regions.

In summary, although I see the manufactured home sector positively, I can’t disregard UMH’s uncovered dividend and its dependency on the energy industry, so I’d not invest in this stock right now.

Summary of the Week

As companies continue to release Q4 results, it has been another good week for equity REIT stocks, which returned an average of 1.1%. Most sectors have returned positively, with the exception of lodging. Several lodging stocks have occupied bottom positions in our weekly ranking. Data center and timber have been the highlights of the week.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source:Equity LifeStyle Properties, I(NYSE:ELS), Sun Communities Inc.(NYSE:SUI), UMH Properties Inc.(NYSE:UMH), Fast Graphs.

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on March 11, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of February 29, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.