Value never goes out of fashion, both for equity investing and for purchasing or renting a home. In terms of housing choices, manufactured homes are much more affordable than single family site-built homes or apartments. When it comes to investing, manufactured housing REITs’ defensiveness in the form of low turnover rates and limited overbuilding risks remains very attractive to value investors. Sun Communities Inc (NYSE:SUI), a REIT that owns and develops manufactured housing and recreational vehicle sites, is an excellent proxy for this defensive property type. Sun Communities also sports a higher yield and is more capital efficient than its closest peer.
Why home buyers and tenants choose manufactured housing?
It is typical of investors to make the mistake of analyzing a stock from an investor’s perspective, before even considering from a customer’s perspective if people will buy the company’s products. For example, a consumer goods company might appear to be an attractive stock investment if it is undervalued and debt-free, and if it sports an attractive dividend yield, but the stock price of the company will still collapse if the firm loses customers because of inferior products or poor customer service. Along the same lines, it is necessary to understand why there is demand for the manufactured housing developed by Sun Communities Inc (NYSE:SUI).
Manufactured homes have proven to be popular with both home buyers and tenants looking to stretch their dollar. According to the 2012 Quick Facts report released by the Manufacturing Housing Institute, the 2011 average sales price for a manufactured home was $60,600, compared with $207,950 for a single family site-built home (excluding land cost). In its most recent earnings conference call, Sun Communities Inc (NYSE:SUI) disclosed that the average rent for its manufactured homes was $0.55 per square foot, almost half that of $0.92 per square foot of rent for an average apartment. Another way to see this is that a tenant gets about 50% more space by renting a manufactured home with the same amount of rent paid for an apartment. Again, be it groceries or housing, value for money never goes out of fashion.
Why investors choose manufactured housing REITs?
If affordability is the buzzword for home buyers and tenants in choosing manufactured homes, then defensiveness is the key factor in investors choosing manufactured housing REITs over other types of REITs.
Firstly, Sun Communities’ manufactured housing business is largely recession-proof. The low turnover rate of manufactured housing REITs puts office building REITs and shopping center REITs to shame. Sun Communities Inc (NYSE:SUI)’ tenants typically occupy its manufactured homes for an average of 13 years.