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:

fetch listed on couponmatrix.ukflexible-autos listed on couponmatrix.ukfootshop listed on couponmatrix.ukjoy listed on couponmatrix.uklitecraft listed on couponmatrix.ukthe-royal-mint listed on couponmatrix.uk
fetch listed on couponmatrix.ukStock up on all of your pet essentials at Fetch. As Ocado’s online store designed especially for your furry friends, Fetch is your go-to for all of the food, toys and accessories you need to keep your precious pet happy and healthy. Make the most of a Fetch voucher code to save on your next shop - with these great deals, you can afford to splash out on a treat or two for your family’s best friend!
flexible-autos listed on couponmatrix.ukFlexible Autos is a leading car rental company committed to providing customers with convenience, quality and affordability. With a wide selection of vehicles available for rental in multiple locations around the world, Flexible Autos makes it easy to find the perfect car for your journey. To make it even easier, Flexible Autos also offers discount codes on their website that can be used when booking your vehicle online or at one of their outlets. Whether you're traveling long or short distances, Flexible Autos’ discount codes will help you save money while still enjoying premium quality service. Book your vehicle with a Flexible Autos voucher today and start saving!
footshop listed on couponmatrix.ukKeep your feet in tip-top condition with a welcome break at Footstop, your local podiatrist and chiropodist. As experts in treating feet conditions, you can treat everything from a verruca to an ingrown toenail for a fraction of the price with the latest Footstop discount code from Groupon. There’s nothing quite as annoying as walking on a damaged foot, so address the problem at the first available opportunity with a treatment from Footstop today. We all know that sometimes life gets in the way of our scheduled routine, with the folks at Footstop being no exception. That’s why you won’t have to pay for an appointment you can’t make, provided you give at least 24 hours’ notice. Also, anyone working with a shoestring budget can opt to book a treatment with a foot health practitioner instead of a podiatrist, which – though less extensively qualified – can save you 10% of your booking price. Gradual wear and tear can happen to everything, with your feet being no exception. That’s why we’d recommend getting a routine chiropody treatment, available for less with the latest Footshop vouchers. Each check-up will see one of Footstop’s experts removing any hard or soft skin from your feet, whilst also touching up your nails for good measure. Keeping a strong stride is far easier with a little professional help, so ensure you’ve given yourself the treatment your two feet deserve at Footstop.
joy listed on couponmatrix.ukAllow yourself to be inspired by lifestyle brand JOY and stock up on unique fashion, quirky homeware and top novelty gifts without busting your budget. Use a JOY discount code from us as you browse this uplifting collection, and whether you’re looking for a printed dress, scented candles or a tiered necklace to nail the bohemian look, you can enjoy a guilt-free spree. From effortlessly cool casual clothing to gifts for a wide range of tastes, this irresistible collection will spark serious joy - why shop anywhere else?
litecraft listed on couponmatrix.ukSee the difference a few new fixtures can make to your home at Litecraft, specialists in providing electrical illumination in every shape and form. Even those looking to replace the odd bulb or add a Stanley outdoor light to their porch can use a Litecraft discount code to knock the cost of their investment. With a regularly changing clearance range, weekly deals and frequent product giveaways throughout the year, it’s easy to see why Litecraft lights up so many lives.
the-royal-mint listed on couponmatrix.ukFor over a thousand years, The Royal Mint has been trusted with the production of coins in the UK, making it one of the oldest institutions in the world. Not only do they produce coinage for the UK, they are trusted to produce currency for 60 other countries too. Use a Royal Mint promo code and enjoy savings on their massive range of specially minted coins and bullion or take a trip to the visitor centre to see the product of over British ingenuity, craftsmanship and precision.