Company Overview
UMH Properties, Inc. (NYSE:UMH) is a self-administered, self-managed real estate investment trust (REIT) that owns and operates 139 manufactured home communities across 12 states, totaling approximately 26,200 developed homesites. The company also leases manufactured homes to residents and sells and finances the sale of manufactured homes through its wholly-owned taxable REIT subsidiary, UMH Sales and Finance, Inc.
History and Growth
The company was founded in 1968 and is headquartered in Freehold, New Jersey. Over the past five decades, UMH has grown its portfolio through strategic acquisitions, expansions, and redevelopment of existing communities. In its early years, UMH focused on acquiring and operating manufactured home communities in the Northeast region of the United States before expanding its geographic footprint to its current 12-state presence. In 2011, the company implemented a strategy of purchasing and renting out manufactured homes within its communities, in addition to leasing home sites. This approach allowed UMH to fill vacant sites and enhance the value of its communities. By the end of 2023, UMH owned approximately 10,300 rental homes.
Throughout its history, UMH has utilized a balanced capital structure of equity and debt financing to support its growth. This has included issuing common and preferred stock, obtaining mortgages, and securing credit facilities. The company has demonstrated resilience in the face of economic challenges, successfully navigating the 2008-2009 financial crisis and the COVID-19 pandemic while continuing to expand its portfolio. UMH has also diversified its revenue streams through the addition of self-storage units, oil and gas leases, and cable service agreements.
In 2022, the company formed a qualified opportunity zone fund to acquire, develop, and redevelop manufactured housing communities located in economically distressed areas designated as Qualified Opportunity Zones.
Portfolio and Operations
UMH’s portfolio is diversified across 12 states, with the largest concentrations in New Jersey, New York, and Ohio. As of September 30, 2024, the company’s 139 manufactured home communities contained approximately 26,200 developed homesites, of which approximately 10,300 were owned rental homes. The company’s rental home portfolio has grown significantly in recent years, with the net addition of 284 rental homes during the first nine months of 2024.
Financials
Financially, UMH reported total revenue of $178.7 million for the first nine months of 2024, up 9% from the same period in 2023. Normalized Funds from Operations (FFO), a key metric for REITs, increased 28% year-over-year to $50.3 million. The company’s same-property Net Operating Income (NOI) grew 11% during this period, driven by increases in rental rates and occupancy.
For the most recent quarter, UMH reported revenue of $8,734,000 and net income of $12,964,000. Operating cash flow (OCF) for the quarter was $48,916,000, while free cash flow (FCF) stood at $9,987,000. Year-over-year, the company experienced 10% growth in revenue and 30% growth in net income compared to the same quarter last year, driven by increases in rental rates, occupancy, and rental homes.
UMH’s operations are divided into two main segments: Rental and Related Income, and Sales of Manufactured Homes. The Rental and Related Income segment, which forms the core of UMH’s business, saw an 8% increase in revenue for the three months ended September 30, 2024, and a 9% increase for the nine-month period. This growth was attributed to increases in rental rates, same property occupancy, and the addition of more rental homes. The company’s same property occupancy rate increased 70 basis points to 87.7% as of September 30, 2024, and the number of occupied rental homes grew by 4% to approximately 9,700 homes.
The Sales of Manufactured Homes segment, operated through UMH Sales and Finance, Inc., reported a 10% increase in sales for the three months ended September 30, 2024, and a 6% increase for the nine-month period. The gross profit percentage from these sales improved to 38% and 34% for the three and nine months ended September 30, 2024, respectively, up from 33% and 31% in the prior year periods.
Liquidity
UMH’s balance sheet remains strong, with a net debt to total market capitalization of 22.2% as of September 30, 2024. The company had $66.7 million in cash and cash equivalents and $260 million available on its unsecured revolving credit facility at the end of the third quarter. This financial flexibility positions UMH to continue executing its growth strategy, which includes investing in rental homes, community expansions, and potential acquisitions.
The company’s debt to equity ratio was 0.718 as of the most recent quarter. UMH also reported a current ratio of 12.074 and a quick ratio of 10.354, indicating strong short-term liquidity.
Outlook and Guidance
UMH has tightened its 2024 normalized FFO per diluted share outlook to a range of $0.92 to $0.94, representing approximately 8% annual growth at the midpoint compared to 2023’s normalized FFO of $0.86 per diluted share. This is a slight adjustment from the previous guidance range of $0.91 to $0.95 per diluted share. The company plans to issue full-year 2025 guidance concurrent with its fourth quarter and year-end results.
Strengths and Opportunities
One of the key strengths of UMH’s business model is its focus on affordable housing. The company’s manufactured home communities provide high-quality, yet cost-effective living options for residents, aligning with the growing demand for attainable housing. Furthermore, UMH’s social impact initiatives, such as its work in Qualified Opportunity Zones and potential integration of solar technology, underscore the company’s commitment to sustainable and socially responsible operations.
The manufactured housing industry has seen strong demand driven by the relative affordability of the product compared to traditional housing. UMH has been able to capitalize on this trend through its strategy of acquiring and improving existing communities, as well as developing new sites. The company has consistently been able to raise rental rates by approximately 5-6% annually at most of its communities, contributing to the growth in rental revenue.
Risks and Challenges
However, the company does face some risks, including competition from other manufactured housing providers, regulatory changes that could impact the affordability of its communities, and the potential for economic downturns to affect demand for its homes and rentals. Additionally, the company has experienced increases in community operating expenses, primarily due to higher payroll costs, real estate taxes, rental home expenses, and storm cleanup. Despite these challenges, UMH’s diversified portfolio, strong financial position, and focus on growing its rental home and community expansion initiatives position the company well for continued success in the years ahead.
Conclusion
Overall, UMH Properties, Inc. is a well-established and diversified manufactured housing REIT that has demonstrated its ability to grow through various market conditions. With its focus on affordable housing, strong financial performance, and strategic growth initiatives, UMH appears poised to capitalize on the increasing demand for attainable living solutions across the United States. The company’s dual focus on rental income and sales of manufactured homes provides a balanced approach to revenue generation, allowing UMH to leverage the strong demand for affordable housing and deliver growth in both revenue and profitability across its operating segments.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.