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Manufactured Housing: A Rare Opportunity

Oct. 05, 2021 10:30 AM ETVNQ, REM, THO, CWH, IYR, UMH, XLRE, WGO, SUI, SRET, ELS, HZO, KBWY, BC, MORT, SCHH, LCII, MBUU, FREL, REET, SRVR, PATK, SKY, REZ, MCFT, USRT, ICF, RWR, CVCO, NETL, RIET, UMH.PR.D, INDS, UMH.PC, OLD, ROOF, NURE, FRI, RSPR, PSR, PPTY, BBRE, IVRA, JRE, MHCUF, FPRO, TREIX29 Comments

Summary

  • Despite reporting stellar results throughout the year, Manufactured Housing REITs' remarkable streak of eight straight years of outperformance over the REIT Index is suddenly in doubt entering the fourth quarter.
  • Pressured by concerns over rising rates, inflation, and the broader rotation from growth into value, MH REITs have pulled back into "correction territory" for just the third time over the past decade.
  • Consistent with the trends across the residential REIT industry, MH REITs significantly boosted their growth outlook last quarter, citing strong rental housing demand and substantial upwards rent pressures.
  • Heightened rate sensitivity is the result of MH REITs' historically counter-cyclical fundamentals and the remarkable consistency in delivering mid-single-digit rent growth regardless of the macroeconomic environment.
  • Beneficiaries of the intensifying housing shortage - creating a compelling backdrop for companies across the housing industry - the correction could be the long-awaited buying opportunity for these dividend growth champions.
  • This idea was discussed in more depth with members of my private investing community, Hoya Capital Income Builder. Learn More »

Vast trailer park, mobile home court on sunny summer morning.

JamesBrey/E+ via Getty Images

REIT Rankings: Manufactured Housing

manufactured housing reits

(Hoya Capital Real Estate, Co-Produced with Colorado WMF)

Despite reporting stellar results throughout the year, manufactured housing REITs' remarkable streak of eight straight years of outperformance over the REIT Index is suddenly in

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This article was written by

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Real Estate  • High Yield • Dividend Growth

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of HOMZ, RIET, AMT, ARE, AVB, BXMT, DRE, DLR, EFG, EQIX, FB, FR, MAR, MGP, NLY, NHI, NNN, PLD, REG, ROIC, SBRA, SPG, SRC, STOR, STWD, PSA, EXR, AMH, CUBE, ELS, MAA, UDR, SUI, CPT, NVR, EQR, INVH, ESS, PEAK, LEN, DHI, HST, AIV, MDC, ACC, PHM, TPH, MTH, WELL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (29)

R
Thanks, my FLGMF up over 16% since I saw this on your article.....Unfortunately unable to afford paid service d/t health related unemployment.
l
Have you compared prefab housing to manufactured housing? Eventually, large sections of our major cities will have to be torn down for safety reasons and too costly maintenance with high labor costs. Supposedly, the Chinese can build ten-story buildings in weeks vs months to a year elsewhere. Any US companies doing the same? Meaning, why stop with manufactured houses, why not manufactured buildings on a large scale of 5 stories or higher?
A
MasterCraft is tops to water ski from....www.boats.com/... Glad it was mentioned in the article.
c
I already own SUI for number of years, and it is definitely a forever holding for me. Keep eyeing ELS to add as a complement, it's hard to get a true bargain dip buying opportunity in these names
Hoya Capital profile picture
@clrodrick Thanks for sharing - indeed, it was remarkable that this was just the 3rd correction in 10+ years. Compare that to a REIT like Simon Property which has had 4 "corrections" in just the past 12 months.
B
@Hoya Capital Real Estate Growth through pain!
Greg_Maryland profile picture
Hoya,
Another excellent deep dive.

Who typically provides the chattel loans for the manufactured homes? Any lenders that specialize?
Hoya Capital profile picture
@Greg_Maryland This link from Urban Institute lists the Top 20 Manufactured Housing Lenders. A couple of pubic companies on the list including Wells Fargo and Guild Mortgage.

www.urban.org/...
Rob G. in Vegas profile picture
@Greg_Maryland Believe it or not, but the top two lenders are Warren Buffett companies!
Capt. Spaulding profile picture
Hoya Capital: Thank you for another excellent tour of the (sector) horizon. Much appreciated, as ever.

My two cents: From my perch in SW FL, the marina angle makes a great deal of sense, at least intuitively. Any sources for information about the addressable market, economics of the business, etc.?

Cheers, and Hoya Saxa,
Capt. Spaulding
Hoya Capital profile picture
Thanks, @Capt. Spaulding! Agree - I think the marina business makes a lot of sense. ELS and SUI have been among the largest owners of boat slips simply through their RV and MH parks, and I trust that they have a firm grip on the economics and the market opportunity.

I'll try to hunt down some good info on the institutional marina business. I recall that SUI or ELS had a good presentation on marinas - or at least a few good slides as part of their investor deck.
Rob G. in Vegas profile picture
My guess is that UMH eventually buys FLGMF. A way to pick up 10,000 sites in markets that UMH will invest in (Kentucky, Indiana) and the FFO multiple for Flagship is much discounted compared to the U.S. REITs.
Philipsonh profile picture
Reits are usually held by income investors; however, none of the 4 noted pay anywhere near a decent dividend. That does not help. For those of us who only hold products paying 4-5% or more annually, these are of no interest.
Hoya Capital profile picture
Thanks, @Philipsonh. Agree that there are two distinct camps in the REIT investing world - those looking for income and those looking for growth.

We try to cover (and offer investment options) for both sides of the sector.
David Jensen, CFA profile picture
@Philipsonh of no interest, to you.

Those of us with balanced REIT portfolios that include both income- and growth-oriented REITs find growth ideas interesting -- though more so last year than this year.
c
@Philipsonh - if you insist on only owning investments that payout 4%+ you are really missing out on some great opportunities!
albertciampi profile picture
It’s hard to go wrong with any of these REITS. I may pick up some SUI. Congratulations on your new ETF.
B
@Hoya Capital Real Estate What is the dividend rate?
Hoya Capital profile picture
Hi @Bobbie B - Information on Hoya Capital High Dividend Yield ETF (Ticker: RIET) is linked here: https://www.hoyaetfs.com/riet

Feel free to reach out directly with any questions.
R. Paul Drake profile picture
Thanks for the article. Regarding dividend growth, it is notable that SUI did not cut their dividend during the Great Recession, leaving less upside and constraining dividend growth. In contrast, ELS cut their dividend and has since grown it back at a rapid rate from a low base. By now their payout ratios are similar and so it would seem that their dividend growth rates will be less disparate going forward.
Paul
Hoya Capital profile picture
Very good point @R. Paul Drake. Indeed - ELS started from a lower-base and I think SUI got a bit ahead of itself when this particular time period in the analysis started. (2015)
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