Manufactured Housing REITs Industry Overview and Outlook

Manufactured housing REITs are a unique and growing segment of the real estate investment trust (REIT) market. They offer a way for investors to participate in the manufactured housing industry, which has seen significant growth in recent years.

The manufactured housing industry has been growing steadily, with the number of manufactured homes sold increasing by 10% between 2020 and 2021. This growth is driven in part by the increasing demand for affordable housing options.

Manufactured housing REITs have been able to capitalize on this growth, with several REITs entering the market in recent years. These REITs offer a way for investors to invest in a diversified portfolio of manufactured housing assets.

Manufactured housing REITs are often structured as a portfolio of manufactured home communities, which provide a steady source of income through rent and other fees. This can provide a stable source of returns for investors, with some REITs reporting occupancy rates of over 90%.

Manufactured housing REITs have delivered their strongest year on record across nearly all critical earnings metrics in 2021.

Rents for manufactured housing renters have so far escaped the double-digit rates of rent growth seen in apartment and single-family rental markets, with an average increase of just 3.9% in 2021.

The three major MH REITs - ELS, SUI, and UMH - delivered same-store NOI growth of 10% for full-year 2021, driven by strong performance in their RV segment and occupancy increase in their core manufactured housing parks.

Manufactured housing REITs are expecting NOI growth of another 8% in 2022 at the midpoint of their initial financial outlook.

These REITs have delivered incredible FFO growth of over 22% in 2021, significantly above their earlier estimates, and the initial outlook for 2022 calls for average FFO growth of 8.1%.

MH REITs have continued to grow externally by adding units to existing sites and by growing via acquisitions and site expansions, acquiring $2.15 billion worth of properties in 2021 - the largest full-year total on record.

The most significant deal in 2021 was Sun Communities' $1.3B purchase of Park Holidays, which is expected to be accretive to 2022 Core FFO per share and will represent approximately 7% of the Company's properties and 8% of its total real estate asset value.

Manufactured housing REITs have been the single-best performing REIT sector since 2010, delivering an incredible 24.3% annual compound total returns from 2010 through 2021.

These REITs have emerged from relative obscurity into several of the largest publicly-traded owners of real estate in the world, with a collective market value of roughly $35 billion.

Manufactured housing REITs collectively own around 350,000 manufactured housing and RV sites across the United States, with a portfolio skewed towards higher-end communities with a more "retiree-oriented" demographic.

Equity Lifestyle and Sun Communities have recently expanded into boat marinas through a series of acquisitions, while UMH Properties and Flagship Communities continue to focus primarily on traditional manufactured housing communities.

Manufactured housing REITs have delivered some of the strongest rates of dividend growth of any REIT sector, despite not being known for their high dividend yields.

The three major MH REITs – ELS, SUI, and UMH – delivered same-store NOI growth of 10% for full-year 2021 and are expecting NOI growth of another 8% in 2022.

Manufactured housing REITs acquired $2.15 billion worth of properties in 2021, the largest full-year total on record, with the most significant deal being Sun Communities' $1.3B purchase of Park Holidays.

Manufactured housing REITs have delivered incredible financial performance over the past decade, with a 22% annual compound total return from 2010 through 2020.

Their strong performance is largely due to the affordable housing shortage in the US, which has driven up rents in the manufactured housing sector by just 3.9% on average in 2021. This is significantly lower than the double-digit rates of rent growth seen in apartment and single-family rental markets.

In 2021, the three major MH REITs - ELS, SUI, and UMH - delivered same-store NOI growth of 10% for the full year, and are expecting NOI growth of another 8% in 2022 at the midpoint of their initial financial outlook.

The same three REITs delivered incredible FFO growth of over 22% in 2021, which was significantly above their earlier estimates and was the strongest year of FFO growth on record for all three of these REITs.

Manufactured housing REITs have continued to grow externally by adding units to existing sites and by growing via acquisitions and site expansions, utilizing a strong cost of equity capital.

In 2021, MH REITs acquired $2.15 billion worth of properties, the largest full-year total on record, with the most significant deal being Sun Communities' $1.3B purchase of Park Holidays, a UK-based holiday community owner and operator.

Sun Communities' acquisition of Park Holidays is expected to be accretive to 2022 Core FFO per share and will represent approximately 7% of the Company's properties and 8% of its total real estate asset value.

Manufactured housing REITs have reported impressive same-store NOI growth, with Sun Communities reporting an 8% overall NOI growth in 2021, driven by a 6.8% increase in revenue for its manufactured housing segment and a 3.4% increase in expenses.

ELS experienced a 6.4% increase in core community-based rental income in the MH sector for the first quarter of 2024, driven by rent increases and market rents from new residents, while UMH reported a 10.5% year-over-year increase in same-store rental and related income.

The manufactured housing REIT sector is thriving, with key players like Sun Communities, ELS, and UMH demonstrating a strategic understanding of cap rate trends.

Sun Communities' successful transactions in the current market indicate a strategic approach to managing cap rates and navigating market fluctuations effectively, ensuring sustainable growth. This is a testament to the company's ability to adapt to changing market conditions.

A favorable bid-ask spread is also a notable aspect of the manufactured housing REIT sector, with ELS benefiting from strong interest and favorable financing conditions. This has allowed the company to maintain competitive cap rates and a manageable bid-ask spread.

With UMH's strategic investments and refinancing efforts, property values have significantly increased, highlighting effective financial management and a favorable cap rate environment. The company's weighted average interest rate of 4.17% and 92% of total debt at fixed rates are impressive indicators of its financial stability.

These REITs demonstrate adeptness in capital allocation, ensuring profitable transactions and stable growth in the manufactured housing sector.

Sun Communities reported a 6.8% increase in revenue for its manufactured housing segment, while expenses rose by 3.4%, resulting in an 8% overall NOI growth.

Equity LifeStyle Properties (ELS) saw an 8.5% increase in new home sales year-over-year for Q1 2024, driven by the sale of 4,500 new homes over five years.

UMH Properties achieved a 10.5% year-over-year growth in rental income, attributed to annual rent increases and new rental homes, with a 87.5% occupancy rate on same store communities.

The manufactured housing sector experienced significant growth in rental rates and home values across key REITs, with Sun Communities increasing their same store rent per site by 5.9% YoY, from $648 to $686.

Equity LifeStyle Properties (ELS) reported an average rent increase of 5.6% for renewing residents, with new homes selling for around $100,000 due to their high-quality construction and amenities.

UMH Properties improved its community expense ratio from 44.3% to 41.9%, demonstrating effective cost management and strategic investments in new rental homes.

These REITs’ robust rental rate hikes reflect strong demand and tight housing supply, which have pushed up home values and ensured the continued attractiveness and competitiveness of their properties.

Sun Communities continued its selective capital deployment by acquiring strategic marina properties for approximately $12 million and selling two manufactured housing properties, recycling approximately $52 million in proceeds.

UMH expanded its manufactured housing portfolio by installing and renting 800 new homes and refinancing older communities, revealing significant property value appreciation.

The manufactured housing REIT sector has a strategic understanding of cap rate trends.

Key players like Sun Communities, ELS, and UMH demonstrate this understanding through their successful transactions.

Sun Communities' transactions indicate a strategic approach to managing cap rates and navigating market fluctuations effectively.

ELS benefits from strong interest and favorable financing conditions, with 10-year loan terms for high-quality MH assets between 6% and 6.75%.

This maintains competitive cap rates and a manageable bid-ask spread for ELS.

UMH's strategic investments and refinancing efforts have significantly increased property values.

The weighted average interest rate for UMH is 4.17%, with 92% of total debt at fixed rates.

This highlights effective financial management and a favorable cap rate environment for UMH.

The implied cap rate data indicates the market value of each REIT, calculated by dividing the company value and total debt by its NOI.

This data is a culmination of the company's financial performance and debt structure.

In the manufactured housing sector, a favorable bid-ask spread is crucial for profitable transactions and stable growth.

The REITs mentioned earlier demonstrate adeptness in capital allocation, ensuring profitable transactions and stable growth.

Global economic uncertainty is a major concern, with a projected 3.3% decline in global GDP growth in 2023.

Trade tensions between the US and China have been escalating, affecting global supply chains and businesses.

The US Federal Reserve has been raising interest rates to combat inflation, making borrowing more expensive for consumers and businesses.

A 10% decline in the US stock market was seen in the first quarter of 2023, a significant drop that has investors on edge.

The global economic slowdown has led to a decrease in consumer spending, with a 2% drop in retail sales in the first quarter of 2023.

FFO, or Funds From Operations, is the most commonly accepted and reported measure of REIT operating performance. It's calculated by taking a REIT's net income and excluding gains or losses from sales of property, while also adding back real estate depreciation.

AFFO, or Adjusted Funds From Operations, is a non-standardized measurement of recurring/normalized FFO after deducting capital improvement funding and adjusting for "straight line" rents. This helps to get a clearer picture of a REIT's cash flow.

NOI, or Net Operating Income, is a calculation used to analyze the property-level profitability of real estate portfolios. It's typically reported on a "same-store" comparable basis, which means it's based on the performance of properties that have been owned for the same amount of time.

Manufactured housing REITs have been the single-best performing REIT sector since 2010, producing an incredible 22% annual compound total returns from 2010 through 2020.

These REITs outperformed the broad-based Equity REIT Index for an eighth-straight year in 2020, the longest streak of outperformance for any property sector since the early 1990s.

In the first quarter of 2021, MH REITs underperformed, with a 1% gain compared to the 9% gains from the broad-based REIT Index, but UMH Properties was a winner with gains of more than 30%.

Despite the initial underperformance, manufactured housing REITs delivered their strongest year on record across nearly all critical earnings metrics in 2021, with same-store NOI growth of 10% and FFO growth of over 22%.

Occupancy levels in the manufactured housing REIT sector have shown notable improvements across several companies.

Sun Communities achieved a significant increase in same-property occupancy rates by 40 basis points year-over-year, reaching 97.2%.

ELS's MH portfolio maintains a high occupancy rate of 95%, with 96% of units occupied by homeowners, ensuring low turnover and consistent revenue streams.

UMH also reported an increase in occupancy rates, with overall occupancy rising from 87% to 87.5%, and rental unit occupancy improving to 95.1%.

These increases highlight the effective management and high desirability of their properties, ensuring low turnover and stable resident tenure.

Manufactured housing REITs have been the single-best performing REIT sector since 2010.

These REITs have emerged from relative obscurity into several of the largest publicly-traded owners of real estate in the world. They collectively own roughly 350,000 manufactured housing and RV sites across the United States.

Manufactured housing REITs have a portfolio skewed towards higher-end communities with a more "retiree-oriented" demographic than the all-ages community. Equity LifeStyle and Sun Communities have recently expanded into boat marinas through a series of acquisitions.

From an investment perspective, manufactured housing REITs are a traditionally defensive and countercyclical sector due to the "sticky" nature of MH demand and cash flows. They are less affected by economic growth expectations but more affected by changes in long-term interest rates.

Despite their high growth rates, manufactured housing REITs have delivered some of the strongest rates of dividend growth of any REIT sector. They are not known for their high dividend yields, but they have consistently provided strong dividend growth.

Manufactured housing REITs have reported some of the best growth metrics of any REIT over the past decade. Their same-store Net Operating Income (NOI) growth has rebounded to end the year higher by roughly 3% following a pandemic-related hiccup in mid-2020.

Limited supply and strong demand have driven stellar fundamental performance for MH REITs over the past decade. They have reported impressive growth in funds from operations, driven by a combination of same-store "organic" growth and external growth through acquisitions and new development.

Manufactured housing REITs have continued to grow externally by adding units to existing sites and by growing via acquisitions and site expansions. They have acquired more than $1 billion worth of properties over the last year, largely in one-off acquisitions.