On Thursday, B.Riley assumed coverage on UMH Properties (NYSE:UMH), a real estate investment trust (REIT) specializing in manufactured housing communities, with a Buy rating and a new price target of $18.50. The firm's positive stance on the stock is influenced by UMH's growth potential within its existing portfolio, which includes the addition of new homesites and rental units that are expected to yield attractive returns.
UMH's strategy of implementing modest homesite rental increases of around 5% is anticipated to foster steady growth across various economic conditions. The affordability of UMH's properties is also likely to shield in-place rents from macroeconomic challenges.
Moreover, the REIT's undeveloped land, which constitutes 27.5% of its owned acreage, provides significant opportunities for the addition of new residences, with high-single-digit returns on these developments appearing feasible.
The firm highlights the compelling economics of these developments compared to UMH's cost of capital and other residential development types. Despite the impact of rising interest rates and general and administrative expense growth on per-share growth in recent years, the trends are expected to stabilize. Notably, UMH has secured 90% of its debt at fixed rates, with no bullet maturities due until 2025.
While acknowledging that UMH's higher leverage and the volatility from its public securities portfolio might justify a discount compared to peers, the firm posits that the current discount is excessively wide when contrasted with other residential REITs. This assessment suggests a more favorable outlook for UMH's stock value moving forward.
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