UMH Properties: The 5.5% Yield Could Be Safe But Consider The …

Quaint summer living space accompanied with green pasture

saintho/iStock via Getty Images

UMH Properties (NYSE:UMH) last declared a quarterly cash dividend of £0.205 per share, in line with its prior payment and for a 5.5% yield. As of the end of the fiscal 2022 fourth quarter, the Freehold, New Jersey-based REIT had built a portfolio of 135 manufactured home communities containing around 25,700 home sites. This was an increase of 7 communities and 1,500 sites from its year-ago comp.

ChartData by YCharts

The REIT also owns just over 10,000 rental homes and anticipates adding at least 800 rental homes every year.

It recently entered into a £30 million revolving credit line to buy more rental property with its total likely set to top 11,000 homes this year. Growth will also come from internal development with the REIT owning nearly 2,100 vacant acres that can accommodate at least 7,800 future lots with there also being roughly 3,800 vacant units to fill.

Book Value, Funds From Operation, And The Payout Ratio

UMH currently trades on a market cap of £891 million with shares currently trading hands at £14.95 per share, falling from a 52-week peak of £25.46 per share. Hence, the commons are currently trading at a marked premium against a £5.62 per share book value.

The REIT currently sports a 2.67x price-to-book value which is around 91% higher than the average for its peer group.

ChartData by YCharts

Critically, it’s the income that matters here and this has been on an upward march since the pandemic. UMH has essentially raised its dividend every year since the pandemic with its 3-year dividend compound annual growth rate at 3.79%, which is almost 4x higher than its peer group median.

FFO per share for its fiscal 2022 fourth quarter came in at £0.20, down around 9.1% or £0.02 versus the year-ago comp and a miss by £0.03 on consensus estimates. Earnings were materially hampered by a still-rising Fed funds rate with 80% of UMH’s total debt of £762 million being fixed.

The weighted average interest rate on its mortgage debt stood at 3.93% exiting the fourth quarter, up 18 basis points from 3.75% in the year-ago period. Hence, FFO did not cover the dividend for the quarter with a payout ratio of 102.5%. However, management dismissed the risk to the payouts and flagged that their current occupancy at 93.3% is expected to strengthen.

This comes as their monthly rent per home increased by 5.9% to £873 per month as of the end of the fourth quarter.

The Series D Preferred Stock

UMH’s 6.375% Series D Cumulative Preferred Stock (NYSE:UMH.PD) pays out a £1.59 coupon for a 7.25% yield on cost. Whilst these started trading back in January 2018 and came up for redemption in January of this year, the prospect of a near-term redemption seems low on the back of the marked difference in the Fed funds rate now versus 2018. Hence, with their yield more than 175 basis points more than the commons they present a strong alternative to more risk-averse income investors.

UMH Properties 6.375% Series D Cumulative Preferred Stock

QuantumOnline

At £21.92 they’re trading at a 12.3% discount to their £25 par value with this gap widening in recent weeks on the back of the mini-banking panic that followed the Silicon Valley Bank failure.

Critically, this could represent a window of opportunity to build a position in the preferreds at its second-largest discount to par since it started trading. The largest was of course during the pandemic with the current gap likely to close as we head towards summer and once the market is assured that the banking panic is fully in the rearview mirror.

UMH Properties preferreds versus commons performance

Seeking Alpha

The Series D is up 83.6% on a total return basis over the last 3 years versus gains of around 80.3% on the commons. Over the last year and the preferreds are down 8.67% versus a loss of 35% on the commons.

This performance dichotomy is inherent with angst around a hawkish Fed and a rising rate environment pushing REITs to their lowest multiple in years. This dynamic will likely remain through the first half of 2023 with the Fed funds rate likely set for one final 25 basis point hike. With the Series D being perpetual and cumulative its owners are set to receive the £1.59 coupon indefinitely.

The risk to this coupon is minuscule with the preferreds ranked higher than the commons on UMH’s capital structure.

The biggest disruption would probably come from interest rates moving beyond current market expectations if inflation remains sticky. Preferreds are essentially fixed-income instruments with an equity-like structure. The positive duration effect has already seen lower-interest bonds and preferreds trade at persistent discounts to par since the Fed started its most aggressive hiking cycle in over a decade.

I think both the commons and preferreds offer value here.

The preferreds offer a higher yield and a built-in margin of safety against a still uncertain macroeconomic backdrop.

The dividend paid to common shareholders is on the up and sports a healthy coverage ratio supported by a growing portfolio of manufactured homes.

Tags:

bella-italia listed on couponmatrix.ukcamper listed on couponmatrix.ukgrind listed on couponmatrix.ukspells-of-love listed on couponmatrix.ukthe-ritz listed on couponmatrix.ukuk-office-direct listed on couponmatrix.uk
bella-italia listed on couponmatrix.ukSpaghetti, penne, ravioli; whatever your taste in pasta, you’ll find it fresh and hot at Bella Italia. With your Bella Italia vouchers to hand, you can feed the whole family with mouth-watering meals, packed with authentic Italian flavour for an affordable price. Don’t forget to add sides of garlic bread and olives for the table and enjoy an extra serving of Italian classics that will have you full up in no time.
camper listed on couponmatrix.ukLooking for a bargain on your next outdoor escapade? Check out our latest Camper discount code and vouchers and could save big on a new set of shoes! Whether you're looking for a new pair of shoes or a sazzy set of sandals for the beach abroad, we've got you covered so you can traverse wherever the world takes you without breaking the bank At Groupon, we know that saving money is important to our customers. That's why we work hard to find the best bargains on Camper shoes/ We want you to be able to get the products you need at a price you can afford, so we'll always try to help you save as much as possible. Be it Black Friday or your average Tuesday, trust Groupon to provide the savings you need on shoes you'll love. One of Camper's top-selling products is the Koborah sandal, ideal for sunny escapades both at home and abroad. If you're shopping for something more formal, we make it easy to save money on a variety of different Camper products with the latest vouchers. If you're looking for a way to save money on your next purchase, there's always a great cost-cutting option at Groupon!
grind listed on couponmatrix.ukWhenever the day-to-day slog seems too arduous, there’s always a cup of Grind coffee to pick you up. As experts in delivering roastery quality beans every month, all a coffee connoisseur needs to indulge their habit for less is a Grind discount code. With an emphasis on making coffee a more environmentally friendly habit through sustainable packing and ethically-sourced beans, your conscience will always be clean and your coffee mug always full when you choose Grind.
spells-of-love listed on couponmatrix.ukFrequently adorned on royalty and celebrities alike, Spells of Love jewellery has seduced many thanks to its effortless style and seamless splendour. From emerald earrings through to tourmaline bracelets, there’s no end of options to shop and save on with the latest Spells of Love discount from Groupon. When it comes to the finer things, Spells of Love is all you need when you want jewellery to truly treasure.
the-ritz listed on couponmatrix.ukIt’s time to hunt out those glad rags and book an afternoon at one of London's most prestigious locations. We know you’re worried about the dreaded moment that bill arrives, which is why we’ve got plenty of Ritz vouchers for you to get your hands on. Whether afternoon tea floats your boat or a 3 course meal is more up your street, The Ritz will deliver an unrivaled dining experience that you won't be forgetting any time soon.
uk-office-direct listed on couponmatrix.ukReliable office supplies can save a business a small fortune, so it;'s always best - no matter how big or small your enterprise is - to obtain your essentials from a name you can trust. That might ordinarily cost you a little more, but the UK Office Direct discount code pushes costs down, letting you get your hands on premium quality equipment and accessories to make sure your business is never let down by sub-standard essentials.