UMH Properties: Buy the fundamentals (the activist is free)

I know a thing or two about mobile homes, starting with how my dad owned several dealerships. So I got to spend a few summers hanging out around them.

I’ve also lived in South Carolina for most of my life, where there’s quite the spread of these communities. And I have friends and colleagues who invest in this housing category as well. They’ve given me plenty of insights into the business on top of my own research.

Really, the more I learn about manufacturing housing, the more I appreciate it. Once you set aside any preconceived notions about “trailer parks,” you find they can be attractive in any economic environment.

Including the housing mess we’ve been experiencing for years now.

We all know the U.S. is millions of homes short of where it should be. Add in the elevated cost of both houses and mortgages, and the American Dream seems triply beyond most people’s reach.

If they think within the box, that is.

If they’re willing to get creative, however, they can see that a new manufactured home costs a mere fraction of a traditional house, old or new, per square foot. Because contractors build them inside factories instead of constantly exposing them to the elements, they can:

But that’s just one reason why investors should be intrigued by manufactured housing. The list is actually really quite long, as I’m more than happy to discuss in detail.

Under a typical manufactured housing arrangement, residents own the actual homes but not the land they’re “parked” on. That belongs to a landlord, who then charges monthly rent.

This setup works well for both parties since landlords don’t have to bother about structure-related headaches such as fixing roofs and snaking drains. And they pass those savings on to tenants in the form of very affordable monthly fees.

Monthly fees, mind you, that tend to keep coming year after year after year. Between the cost of living and sheer nuisance of packing up and moving a so-called “mobile home”?

Most people just don’t bother.

Here’s another reason manufactured community residents tend to stay put: There are only so many options available.

Many towns and cities take issue with new mobile home properties being built anywhere near them. They think “trailer parks” bring everyone else’s property value down, completely ignoring how beautiful some of these villages can be.

Their aesthetics can be particularly attractive when publicly traded real estate investment trusts, or REITs, are running them. These corporate landlords also often cater to senior citizens, who are far less likely to go looking for homes elsewhere once they’re comfortably established.

That’s definitely true of both Equity LifeStyle Properties (ELS) and Sun Communities (SUI). They’re the dominant players in the manufactured housing REIT space.

Equity owns or operates 453 properties across 35 states and British Columbia, along with RV resorts, campgrounds, and marinas – most of which are located in significant retirement, coastal, and Sunbelt markets.

Sun Communities, meanwhile, manages a portfolio of 295 manufactured housing communities, with RV parks as a substantial secondary focus.

Both are great businesses. So much so that they tend to overshadow their much smaller competitor, UMH Properties (UMH).

But with all due respect to the bigger REITs, I think that’s a mistake right now.

Founded in 1968, UMH has a market capitalization of only around $1.4 billion. But it still owns or partially owns, and fully operates, 145 manufactured housing communities with about 27,100 developed homesites across 12 states.

While it started out in Pennsylvania, Ohio, and Indiana, it’s been reaching into Tennessee, Alabama, South Carolina, Georgia, and Florida more recently. This strategic Southern expansion seeks to take advantage of the Sunbelt’s boom and corresponding cheaper costs of doing business.

Better still, it owns about 2,300 acres for future development – an especially valuable bonus considering the difficulty in establishing new manufactured housing communities. That task can become much easier, of course, when you already own the desired plots and surrounding land.

Speaking of ownership, UMH actually owns about 11,200 of the manufactured homes on its properties. And that side of its business is doing very well. While its overall community occupancy sat at around 89% last quarter, its rental homes came in at 95%.

As for full-out sales, those increased from about $10.5 million in Q2-25 to $11.4 million. This means its generating more money from already existing, fully operational and managed properties…

With more ready-and-waiting lots just waiting to be filled.

That readily available room to grow is important for a REIT of UMH’s size, particularly considering its dividend – which it didn’t raise from 2008 through 2020 as it struggled to improve earnings. That was hardly ideal, but the story has changed and continues to be improved upon now.

UMH now pays an annualized $0.90 per share, with estimated adjusted funds from operations (AFFO) per share of $0.99. While that does make its payout ratio rather high, the situation should improve from here.

The REIT’s 2027 forward growth estimates in 2027 put it up 9%, which would give it more free cash flow to work with.

Some of those expectations might come down to Erez Asset Management, an investment firm that specializes in undervalued small-cap REITs.

Its chairman and chief investment officer, Bruce Schanzer, used to run a REIT himself. So he’s very well acquainted with what to look for.

Earlier this year, Erez disclosed an approximate 4% stake in UMH. Its rationale was that the landlord owns valuable assets with durable resident demand full of meaningful long-term growth potential.

So basically all the reasons I like the business.

However, Erez also criticized UMH’s corporate governance for making those real estate assets appear less valuable than they are. Erez wants the board to pursue strategies to unlock their full potential…

Including perhaps even seeking out a bigger buyer.

For the record, that’s not the reason I’m recommending UMH today. Acquisition potential should only ever be the cherry on top, not the actual sundae.

UMH is attractive on its own one way or the other. Though I will admit that Erez putting its net asset value at approximately $21.25–$24.25 per share would make it more so.

After all, the stock is currently trading at $16.24.

That puts it at about 16.9x forward earnings, a roughly 19% discount from its longer-term normal multiple of around 20.8x. And along with its 9% growth rate projections next year, analysts expect UMH to see a 4% uptick in earnings this year.

Therefore, I can’t see how its current multiple is justified.

It does, however, give us quite the discount to work with and a 5.5% dividend yield. For comparison’s sake, SUI and ELS each offer roughly 3.5%. So that’s a substantial difference.

Altogether, if Erez is right about this REIT reaching a midpoint of $23 per share, that could mean total returns above 40%. And even if UMH simply performs as everyday analysts expect, with the stock’s multiple normalizing at 19.5x…

We could still see total returns of 25%.

Those are the kinds of results I’m more than happy to participate in.

Happy SWAN investing,

Brad Thomas
Editor, The Wide Moat Daily