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UMH Properties Closes Portfolio Buyout, Adds New Community

Zacks Equity Research

UMH Properties, Inc. UMH recently closed the acquisition of Northtowne Meadows, a high-quality community, situated in Erie, MI, for roughly $25.2 million.

This community consists of 386 developed homesites and spans nearly 85 acres. Further, the property is 88% occupied. Management believes, given the strong demand for the company’s recently-acquired properties in this MSA, Northtowne Meadows too will exhibit similar fundamental strength.

The transaction marks the completion of the acquisition of a four-community portfolio consisting of around 1,500 homesites. This portfolio was acquired for nearly $55 million. The company has the ability to boost occupancy and property value through the execution of its value-creation strategy that entails upgradation and improvement of communities.  

During the second quarter, UMH Properties raised $100 million through a preferred equity offering. The company aims to deploy the remaining capital into rental homes, financing homes, capital improvements and expansions. Furthermore, capital provided through this issue will enable the company to pursue any accretive acquisition opportunities.

Notably, the rising housing shortage has likely benefited the manufactured housing sector, and REITs, including Equity Lifestyle Properties ELS and Sun Communities, Inc.  SUI. In fact, it is one of the cheapest, non-subsidized housing options in most markets, and has spurred demand for manufactured houses. In addition, the increase in wage among blue-collar workers has supported the latest stellar growth for the manufactured housing sector.

Banking on this favorable trend, companies are expanding their manufactured-housing footprint. In fact, recently, Sun Communities entered into an agreement to acquire a portfolio of 31-community manufactured housing properties, for $343.6 million. (Read more: Sun Communities to Buy Jensen's Manufactured Housing Assets)

As for UMH Properties, the rising national demand for affordable housing provides the company an opportunity to use available vacant sites, and improve its earnings and property value.

However, competition has been intensifying amid attractive fundamentals of the manufacturing homes sector and a favorable demand-supply environment. This has resulted in a challenging acquisition market, making such opportunities scarce and less accretive.

Moreover, while funds raised through preferred equity offering will be used to enhance property quality and strengthen the company’s portfolio, the near-term dilution from this offering is a concern.

Zacks Rank and A Key Pick

UMH Properties currently carries a Zacks Rank #3 (Hold). Shares of the company have declined 5.2% as against the industry’s growth of 8.5%, over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same space is Equity Residential EQR. It carries a Zacks Rank of 2 (Buy), presently. The Zacks Consensus Estimate for the company’s 2019 funds from operations (FFO) per share has been revised marginally upward over the past month. Also, shares of the company have gained 10.3% in three months’ time. 

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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