UMH Properties generates the bulk of its income from leasing manufactured homesites to homeowners and renting manufactured homes to tenants. In 2020, 88% of its revenue came from rental and related income while 12% came from the sale of manufactured homes.
The REIT also holds a portfolio of loans backed by manufactured homes it sells. It ended 2020 with a $44.2 million loan portfolio secured by 1,200 homes located throughout 90 communities that generate about $5 million of principal and interest payments each year. Most loans it provides only require a 10% down payment and offer principal amortization ranging from 15 to 25 years. They also carry a relatively higher interest rate (the weighted average was 7.3%), reflecting its typical borrower's higher risk profile.
UMH Properties also holds a portfolio of publicly traded REIT securities, including common and preferred stock. The portfolio had $103.2 million of investments at the end of 2020 (about 7.6% of its total undepreciated assets), with 45% in industrial real estate, 41% in retail REITs, 13% in office properties, and 1% in the healthcare sector. This portfolio generates dividend income and provides a source of capital. Its biggest holding is industrial REIT Monmouth Real Estate Corporation (NYSE: MNR) at $46 million at the end of 2020.
UMH Properties has ample room to expand without making additional acquisitions. The company had about 3,500 vacant lots across its communities. It can fill them by leasing sites to new manufactured homeowners or putting a manufactured home on the site as part of its growing rental program. It currently targets adding 800 to 900 rental homes per year. On top of that, the REIT had about 1,800 vacant acres across its portfolio, giving it enough room to build roughly 7,300 future rental lots.
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UMH Properties weathered the economic storm caused by the pandemic with ease in 2020. Overall, the REIT grew its revenue by 12% to $163.3 million. Meanwhile, it generated $29.2 million, or $0.70 per share, of normalized FFO for the year, up 11% from 2019.
Several factors drove that growth. Same-property occupancy improved from 83.6% to 86.8%. Meanwhile, it added 858 rental homes to its portfolio, increasing it by 12%. The REIT also improved its rental home occupancy from 92.3% to 94.6%, sold 13% more manufactured homes, and acquired two communities with 310 home sites for $7.8 million.
UMH Properties continued its expansion in early 2021. It closed the purchase of its first property in Alabama in January, paying $4.6 million for this 33-acre community that contains 195 developed homesites. What's notable about the property is that occupancy was only 37%. That gives it an enormous opportunity to increase value if it can turn the community around by filling it in with rental homes.
The REIT also purchased its first property in South Carolina in 2021. The 24-acre community had 142 developed home sites with a 49% occupancy level when it bought the property. It paid $3.4 million for the value-add acquisition that it expects to improve through its rental program and marketing strategies. Combined with the Alabama purchase, this community is part of the REIT's efforts to expand its footprint in the fast-growing Sun Belt region.
The REIT also made significant progress on improving its cost of capital in 2020. It completed the financing on 28 communities, generating $106 million in proceeds at a low interest rate of 2.62%. It used the capital to redeem $96 million of preferred stock that yielded 8%. This recapitalization will save it $5 million, or $0.11 per share, each year.
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UMH Properties' focus on affordable housing has created a lot of value for its investors over the years: