Preferred shares are a permanent drag on earnings per common share.
In the uncertain autumn of 2020, UMH Properties chose to retire a class of preferred equity rather than carry it forward — a quiet but consequential act of financial housekeeping. By redeeming all 3.8 million Series B preferred shares at $25.2722 apiece, the real estate investment trust committed roughly $95.8 million to simplify its capital structure and shed an 8 percent cumulative dividend obligation. Such decisions, made amid pandemic-era uncertainty, speak to the perennial tension between the cost of capital and the desire for strategic freedom.
- A company carrying an 8% cumulative preferred dividend in a low-yield, pandemic-rattled economy faces a quiet but persistent drain on its financial flexibility.
- The forced redemption of all 3.8 million Series B shares at once — rather than a gradual wind-down — signals urgency in reshaping the capital stack before conditions change.
- Preferred shareholders, offered no choice in the matter, must accept $25.2722 per share and walk away, their future participation in UMH's fortunes abruptly severed.
- With nearly $95.8 million deployed in a single transaction, the market will watch closely to see whether UMH replaces this capital with cheaper debt, retains the cash, or accelerates acquisitions.
- The elimination of the Series B obligation lands UMH in a structurally leaner position — but the real story is what management does with the freed cash flow next.
In mid-September 2020, UMH Properties announced it would retire all outstanding Series B preferred stock on October 20 — paying holders $25.2722 per share, a figure combining the $25 liquidation preference with $0.2722 in accrued dividends. The total outlay would reach approximately $95.8 million.
Preferred stock occupies a particular place in the corporate hierarchy: above common equity in dividend priority, but below bondholders in a liquidation. UMH's Series B shares carried an 8 percent cumulative dividend rate, meaning unpaid dividends accumulated over time — a steady obligation the company had chosen to carry until now.
The decision to call all shares simultaneously, rather than allow them to remain outstanding, pointed toward a deliberate restructuring of UMH's capital stack. Whether driven by access to cheaper financing, a strategic pivot, or simply a desire for simplicity, the move gave shareholders roughly five weeks' notice before their forced exit at a fixed price.
The timing added texture to the decision. September 2020 found the country still absorbing the economic shocks of the pandemic, with REITs under particular scrutiny as remote work and lockdowns reshaped demand for real estate. That UMH moved forward with a near-$96 million redemption in this climate suggested either strong confidence in its liquidity or a clear-eyed judgment that the preferred shares had grown too expensive to keep.
With the Series B eliminated, UMH would no longer owe that annual 8 percent dividend, freeing cash flow for debt reduction, acquisitions, or reserves. Observers of the company's capital structure would have good reason to watch what came next.
UMH Properties announced in mid-September 2020 that it would retire all outstanding shares of its Series B preferred stock by the end of the month. The company, a real estate investment trust, planned to redeem the full 3.8 million shares on October 20, paying investors $25.2722 per share—a figure that bundled the $25 liquidation preference with $0.2722 in accumulated but unpaid dividends.
The move represented a substantial capital deployment. At the stated redemption price, the total outlay would reach approximately $95.8 million. For a REIT, such a decision signals a deliberate reshaping of the capital structure, one that eliminates a class of preferred equity carrying an 8 percent cumulative dividend obligation.
Preferred stock, by design, sits between common equity and debt in the corporate hierarchy. Holders receive fixed dividend payments before common shareholders see anything, but they rank below bondholders in a liquidation. The Series B shares had been accruing dividends at that 8 percent rate, meaning the company owed investors not just the principal but also the accumulated income that had piled up since the last dividend payment date.
The decision to call in all outstanding shares at once—rather than letting them remain outstanding indefinitely—suggests UMH saw value in simplifying its capital stack. Perhaps the company had access to cheaper financing elsewhere, or perhaps management believed the preferred shares no longer fit the company's strategic direction. Either way, the October redemption date gave shareholders roughly five weeks' notice to prepare for the cash settlement.
For investors holding the Series B preferred, the redemption meant a forced exit at a predetermined price. They would receive their $25.2722 per share and no longer participate in future dividend payments or any upside the company might generate. The accrued dividend component—that extra $0.2722—represented compensation for the time value of money between the last dividend payment and the redemption date itself.
The timing mattered too. In September 2020, the country was still navigating the early phases of the pandemic's economic fallout. REITs, which own and operate real estate, faced particular scrutiny as lockdowns and remote work threatened the viability of office parks, shopping centers, and other properties. UMH's decision to retire preferred stock during this uncertain period suggested either confidence in the company's liquidity position or a recognition that the preferred shares had become an expensive way to finance operations.
The redemption would reshape UMH's balance sheet going forward. With the Series B shares eliminated, the company would no longer owe that 8 percent cumulative dividend, freeing up cash flow for other uses—debt reduction, common dividends, property acquisitions, or simply maintaining liquidity reserves. Investors watching the company's debt maturity schedule and overall capital structure would have reason to track what UMH did with the breathing room this redemption created.
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Why would a company choose to redeem preferred stock when it costs them nearly $96 million?
Because preferred stock is expensive. That 8 percent dividend obligation compounds over time, and if the company can borrow money more cheaply elsewhere, or if management wants to simplify the capital structure, redemption makes financial sense.
But couldn't they just leave it outstanding indefinitely?
Technically yes, but preferred shares are a permanent drag on earnings per common share. They also signal to the market that the company has a certain risk profile. Retiring them can improve how the company looks to equity investors.
What about the timing—September 2020, pandemic uncertainty everywhere?
That's the interesting part. Either UMH had confidence it could access the capital to pay off $95.8 million without straining itself, or the company felt the preferred shares had become too expensive relative to other financing options. In a downturn, you don't make that move unless you're fairly sure about your footing.
Who gets hurt by this?
The preferred shareholders get their money back at a set price. They don't get hurt, but they also don't benefit if UMH's stock soars. They're out of the game. Common shareholders might benefit if the company uses the freed-up cash flow wisely.
What should investors watch next?
How UMH deploys that $95.8 million and whether the company's debt levels change. If they're borrowing to fund the redemption, that's different from using cash on hand. The debt maturity schedule becomes crucial—when does the company need to refinance, and at what rates?