UMH Properties Investor Pitch-Q3 2022 Preview, Keen Insights by MHI-Award Winner UMH for Manufactured Home Community Researchers, ‘Mobile Home Park’ Investing; plus MHVille REITs, Stocks Update
According to the Seeking Alpha financial news website, is the following information about “UMH Properties Q3 2022 Earnings Preview.” Further below is information was obtained from UMH Properties, which is there “UMH Investor Presentation – October 2022.” That UMH investor pitch is packed with insights that arguably the vast majority of investors, and even numbers of manufactured home professionals, may overlook. The Manufactured Housing Institute (MHI) award winning UMH investor pitch is arguably an example of the truth hiding in plain sight, as the fact check, analysis and expert commentary by MHProNews herein will reveal.
Nov. 07, 2022 5:35 PM ET UMH Properties, Inc. (UMH)By: Mary Christine Joy, SA News Editor1 Comment
UMH Properties (NYSE:UMH) is scheduled to announce Q3 earnings results on Tuesday, November 8th, after market close.
The consensus FFO Estimate is $0.23 and the consensus Revenue Estimate is $50.22M
Over the last 2 years, UMH has beaten FFO estimates 38% of the time and revenue estimates 50% of the time.
Inflation is specifically listed by Cavco Industries as a factor that their management admits can negatively impact their operation’s performance and profitability.
By comparison to Cavco’s 10Q remarks to investors about the risks from inflation to their operation, the word “inflation” is only mentioned once in the UMH investor pitch. It is as a footnote, as shown below. So, by simply comparing cautionary notes to investors from one publicly traded company with another, a potentially significant warning emerges that Cavco sounded but UMH apparently did not.
[1] Assumes 5% annual construction cost inflation
[2} Assumes 95% occupancy and 3% annual rent growth
Note that UMH’s footnote #2 above projects 3 percent annual rent growth is not a rate that would keep up with the current rates of inflation. 3% rent growth was okay in January 2020, when the rate of inflation was about half of UMH’s 3 percent annual increase plan. But by September 2020, that same plan means there is about a 5.2 percent loss in earnings if “rent growth” is kept at 3%. The flip side, of course, is that renters of a UMH rental property would likely value the more modest rate of increase. For renters, the UMH 3 percent rent growth plan is good news.
MHProNews note 1. Democratic House Majority Whip James Clyburn recently told left-leaning MSNBC that Democrats voting for giant spending bills ‘knew’ that the result would be inflation. Clyburn stated what was obvious to critics of the massive spending bills. There are those who say the full effects of inflation have not yet occurred. For instance, as interest rates rise, the cost to the federal budget of paying the interest on over 31 trillion dollars in federal debt will only grow. That means that other parts of the budget may face cutbacks. Note 2: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, use your back key, escape or follow the prompts.
That issue of rent growth vs. the inflation rate is one that MHProNews highlighted earlier this year as being overlooked in reports on the manufactured home community sector. See that still relevant report and analysis linked below.
While there is a generic disclosure among the forward-looking statements segment of their investment pitch about regulatory risks, the reality is that the Consumer Financial Protection Bureau (CFPB) announced earlier this year (2022) that they are probing the manufactured home community segment of the manufactured home industry. That probe could be due in part to complaints and concerns stirred up by the residents and customers of other Manufactured Housing Institute (MHI) member firms that have been reported by MHProNews/MHLivingNews and numbers of reports in mainstream media.
Those briefly outlined factors above don’t mean that manufactured home community (MHC) operations aren’t profitable. It is apparent from the UMH and other publicly traded firm disclosures that manufactured home communities, and MHC REITs (Real Estate Investment Trusts), routinely make money.
But inflation related factors ought to imply that UMH management (along with others in the REIT and manufactured home community investment arena) should press for public policies that aim to bring inflation-causing federal borrowing under control. Additionally, UMH leaders arguably ought to be pressing public officials to end carbon-energy punishing policies under control. Why? Because in the absence of such a press for more consumer and business friendly public policies, investor yields will suffer. Evidence of that is found below. Consider UMH’s own information from their investor pitch deck in the page shown. Then look at the UMH 1-year performance trend. As Joe Biden might say if he was involved in manufactured housing, think of a 3-letter word that begins with the letter O.Ouch.
The current 1-Year trend for UMH Properties above ought be a flag for investors. Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts. Distributions are down since 2007, per UMH’s own investor relations presentation. MHProNews Note 1: there is no explanation if these distribution amounts are adjusted for inflation. Note 2: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
This need to press for a change in domestic energy policies under Biden and the contemporary Democratic Party may be especially true for UMH. The reason? UMH indicates as much by labeling their “exposure” in the Marcellus and Utica shale regions. That noted, for balance and in fairness, lower rents than conventional housing ought to keep the demand for their rental units higher than more costly alternatives offered by conventional housing competitors.
Per sources at UMH, a push for ESG and similar ‘woke’ policies may result in possible harm to investors. Democratic policies at the federal and state levels could negatively impact UMH’s otherwise seemingly sound strategy of investing in areas where fracking and other oil/gas production efforts would yield good working-class jobs. MHProNews Note 1: From page 55 of their investor presentation is this remark: “Well positioned to benefit from the expanding energy sector investments being made in our region.” That is odd given the periodically repeated Biden Administration pledge to shut down drilling. More recently, Joe Biden has pledged to shut down coal mining. Unless political winds change, the loss of those energy sector jobs from Biden-era policies could have negative ripple effects in the region where UMH has the bulk of their properties. MHProNews Note 2: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
With those initial areas of concern noted, per UMH, are the following statements and related MHProNews analysis.
Company Highlights
UMH Properties, Inc. (“UMH” or “the Company”) is a publicly owned Real Estate Investment Trust (“REIT”) operating since 1968 and as a public company since 1985.
Leading owner and operator of manufactured home communities – leasing manufactured home sites to private residential homeowners
Robust portfolio of 132 manufactured home communities containing approximately 25,000 developed home sites, an increase of 5 communities totaling approximately 900 sites from a year ago, located across NJ, NY, OH, PA, TN, IN, MI, MD, AL, and SC.
Expanding rental portfolio of approximately 8,900 units, an increase of 253 in the last 12 months; anticipating an additional 700-800 homes per year
Well positioned for growth with 3,600 existing vacant lots to fill, and nearly 1,900 vacant acres on which to build approximately 7,600 future lots
Transformative joint venture with Nuveen Real Estate allowing UMH to pursue accretive development deals while reducing the need for capital”
It appears from the above that UMH has fallen behind their own stated goal of adding some ‘700 to 800’ rental manufactured homes annually. Their investor pitch states that they only added 253 units in the preceding 12 months. MHProNews Note 1: there is no explanation if these distribution amounts are adjusted for inflation. Note 2: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
Manufactured Home Sales Rates Analysis
UMH reported there were 324 manufactured homes sold. They have per this report 132 manufactured home communities. While in fairness the math may be skewed a bit based on when a community came into the UMH portfolio, the basic math for manufactured homes sold looks like this: 324/132 = or some 2.45 HUD Code manufactured homes sold per year per communities.
Given the affordable housing crisis, and high demand for lower cost housing, that sales rate per location of a mere 2.45 manufactured homes sold annually appears to be extraordinarily low.
Additionally, as is noted under the UMH presentation page posted above, the company appears to be hundreds of units behind their own annual goal on adding rental units. While there are a range of factors that may account for that low level of new rental units being added to the UMH portfolio, one possibility is the long-lead times that numbers of manufacturers have reported in the post-COVID19 pandemic announcement affordable housing demand. That noted, there are plenty of questions to be asked – and hopefully honestly answered – about the proper deployment of capital and planning found among the manufactured home industry’s top producers.
UMH is correct in pointing out the favorable demographic trends in terms of how that should benefit manufactured homes. That noted, it is like one finger pointing to an opportunity while three fingers are pointing back at them with the kinds of concerns noted above. Given trends that ought to benefit manufactured housing, the lack of manufactured home sales by UMH is rather stark.
Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
The interior photo at the bottom of a UMH Properties of a presumably new single section manufactured home is paired with an artists rendering of the exterior of a single section manufactured home. Why not use an actual exterior photo instead of that rendering in the bottom right photo collage above? Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
The extensive operating history of UMH Properties timeline above reveals something that ought to be a 5-star point for investigators to probe. Note where UMH Properties (UMH) was in terms of their portfolio in 2010. Pre-2010, they were a relatively modest firm with about 35 communities total. But since then, the opportunities for opportunistic increases in their portfolio grew. What explains that pattern? UMH doesn’t explain it, so this MHProNews analysis will do so. In 2009, Clayton Homes’ sister brand and Berkshire Hathaway owned 21st Mortgage Corporation announced a cut off of financing to thousands of independent manufactured home retailers. That cutoff tipped thousands of previously successful and profitable firms into a position where they were often forced to sell out or close. Because manufactured home communities in the 20th century were routinely had a business model that counted on independent retailers filling their vacant home sites, some manufactured home communities witnessed an increase in the numbers of vacancies under trends like fewer retailers and the liar/no doc conventional housing loans that occurred in the first decade of the 21st century. Those trends shed light on why so many once highly occupied and well maintained ‘mom and pop’ owned manufactured home communities began to experience increasing vacancies. Those who failed to adapt to those briefly described trends steadily lost occupancy. By contrast, some manufactured home communities did adapt by adding sales and/or leasing of manufactured homes to their business model. MHProNews display NOTE; Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
Note: depending on your browser or device, many images in this report can be clicked to expand. Click the image and follow the prompts. To return to this page, use your back key, escape or follow the prompts.
UMH Properties is a regional player that appears at times to have aspirations to become a more national manufactured home community operator. At this time, the bulk of their locations are in the mid-Atlantic and upper Midwestern states. MHProNews Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts. Equity Lifestyle Properties (ELS) Chairman Sam Zell has remarked during a Manufactured Housing Institute (MHI) meeting that rentals were okay so long as they were kept marginal and are properly managed. The question about UMH Properties, based on that Zell remark, is this. Has UMH put too much into rentals? While the math for rentals can obviously work out in a profitable fashion, it significantly alters the fundamental business model that mobile home parks in years gone by, or even manufactured home communities more recently have operated under. Namely, that a homeowner is invested in their dwelling which is unlikely to move. That makes manufactured home communities a good investment that can also, if properly balanced, can give residents a good opportunity too. That noted, UMH’s press for rentals has obviously come at some loss of emphasis for sales. The data on homes sold (shown above and in their pitch deck) makes that clear. Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection, you click the image in the open window to expand the image to a larger size. To return to this page, X out (close) the window, or depending on the device, you may need to use your back key, escape key (Esc), or follow the prompts.
As noted above, these ‘opportunistic’ acquisitions were made possible in good measure due to a combination of factors that include the throttling of retail financing for new HUD Code manufactured home sales previously made by thousands of retailers that now are no more. A secondary consequence was the disruption of the prior business model for thousands of manufactured home communities nationally. These facts and related evidence clearly impact the residence of manufactured home communities. While UMH arguably has some advantages over its larger REIT rivals it is also suffering from a problematic implementation of their acquisition strategy. UMH was reportedly advised some years ago to focus more efforts on building their vertically integrated manufactured home sales system. While rentals are profitable, these facts from their own pitch deck – when carefully examined – apparently reveal slips and gaps in their own business model. Put differently, there are pluses and minuses when UMH is compared to Sun (SUI) or Equity Lifestyle (ELS). Meanwhile, publicly traded Flagship Communities (formerly SSK Communities) is steadily growing their portfolio as is ‘privately’ owned RHP Properties. https://www.manufacturedhomelivingnews.com/attorney-general-wm-tong-its-criminal-and-its-elder-abuse-sun-communities-in-latest-private-equity-mhville-drama-involving-major-manufactured-housing-institute-me/
UMH President and CEO Sam Landy appears to have the qualities needed that would allow him to break away from the problematic association of his firm with other MHI members (see examples herein) that often have so-called ‘predatory’ tactics. UMH, for example, was not targeted by HBO’s Last Week Tonight with John Oliver’s satirical slam errantly dubbed “Mobile Homes.” That noted, Landy may not be willing to resist the occasion ‘award’ from an association that is marked by problematic players.
Amidst these troubling examples of their fellow “proud members” of MHI, UMH has the potential to revitalize the essentially dormant efforts of NAMHCO. Alternatively, UMH’s leadership could be part of an effort to forge a new post-production trade group that is more white hat member and behavior focused instead of the all too often gray-to-black hat behavior apparent from so many top MHI brands (see linked examples herein).
The evidence-based case can be made that CEO Landy during the Preserving Access period of MHI’s history was better grounded in what was necessary for the industry, and thus his firm, to advance. Again, insiders at UMH have told MHProNews that a segment of voices inside that company have been working from within to repositioning the company – for want of a better term – into a more ESG and ‘woke’ mindset. The drive for rentals vs. a mindset geared more toward learning the art of volume sales to spur more manufactured home ownership in their portfolio are part of that group’s thinking.
There is much more to be unpacked from the UMH presentation, some of which has been covered previously by MHProNews. The latest UMH pitch-deck is found at this link here. A bold new strategy at UMH could make them a true white hat leader in the MHC segment of the industry. Will they respond to that opportunity to become more profitable and more respected apart from MHI than within it?
There are no indications that such is the case at UMH, but then, hope springs eternal. Watch for follow up reports on UMH Properties and other publicly traded brands, all too many of which are “proud members” of the problematic MHI.
