Update on manufactured home REITs, and our index leaves the S&P in the dust!

On Sunday, I wrote about trailer parks, also known as manufactured homes in planned communities.

Three REITs are active in this market, and I’ve taken a closer at them:

·       Equity LifeStyle Properties (ELS) — Florida, Arizona, California, NE U.S.; for retirees

·       Sun Communities (SUI) — Midwest U.S.; all ages 

·       UMH Properties (UMH) — PA and NJ; lower income, affordable housing

All three REITs have had impressive returns over the past 12 months, in the 18% to 22% range. But their financials stink! The lousy earnings, or lack thereof, stick out like a sore thumb …

ELS reported its quarterly earnings on April 16: $0.30 vs. $0.61 last year. And they’ve been on a downward trend for the past three years, although they are starting to turn around. 

SUI reported 4th quarter 2011 losses of $0.10 per share on February 23, 2012, missing the $0.06 profit expectations of the 2 analysts following the company. That follows losses of $0.02 and $0.04 the previous quarters.

The next earnings announcement from SUI is expected next week. Estimates are for $0.15. But it would take several quarters of rising earnings to impress me.

UMH isn’t much better: A $0.01 loss for the final quarter of 2011 following two quarters of zero. And 2011 earnings were $0.14 vs. $0.52 for 2010.

Another important number to watch is debt-to-equity ratio. This shows how aggressive the company is in financing growth with debt. The higher it is, the more they have to pay in carrying costs, which can be a huge drain on profits.  

·       ELS: 65%

·       SUI: 102%

·       UMH: 51%

There are many good reasons why these REITs could be successful:

·       Nationwide, homebuilding is off and the surplus is dwindling.

·       Unemployment is dropping.

·       Retail is on the rise.

·       Boomers want to downsize.

·       Manufactured homes are a less-expensive alternative to traditional housing.

I think all three of these manufactured home REITs offer possibilities, so I’ll keep an eye on them. But at least until earnings improve, I’m staying away.

The e-FinancialWriter REIT portfolio for the week ending April 20, 2012, took a nice jump, up over 22% since implemented.  The average 12-return for each REIT was more than 10%, not including 4% in dividends!   

REIT	Sector	Blog date	Price	Closing price 04/20/12	Return to date %	Dividend yield %
PSA	Self storage	3/14/2010	90.75	139.72	53.96	2.83
VTR	Health care	12/30/2010	52.87	56.83	7.49	4.13
HCP	Health care		36.81	39.60	7.58	4.90
HCN	Health care		47.53	54.72	15.13	5.27
SNH	Health care		22.00	21.64	-1.64	6.98
IAECREIN:CN	Canada	9/27/2011	19.45cn	24.05cn	23.64	0
ZRE:CN	Canada		16.29cn	19.59cn	20.26	5.13
INVRLPRA:CN	Canada		5.45cn	5.48 cn	0.59	1.96
NNN	Retail	1/29/2012	27.18	27.28	0.37	5.63
Index return since inception*					22.17
Avg 12-mo return of REITs in portfolio*					10.20
Avg dividend yield of REITs in portfolio						4.09
12-mo return S&P 500					3.08

Source: Bloomberg

*Does not include dividends paid

If you have trouble seeing the chart, just in zoom in with your web browser.

To read the posting where I introduced a specific REIT, click the “Blog date” link. And if you’d like to see prior reports, type “reit index” in the search box.

Enjoy your weekend!

George

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