UMH Properties, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Financial amounts below are in millions unless stated otherwise. UMH is a REIT operating 122 manufactured-home communities with approximately 23,100 developed homesites, and also rents and sells manufactured homes and holds securities of other REITs.
Financial performance and condition
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total income | $40.1 | $37.2 | $77.7 | $71.5 |
| Rental and related income | $35.1 | $31.4 | $69.4 | $62.0 |
| Net income (loss) | $18.3 | $0.7 | $(16.4) | $11.8 |
| Net income (loss) attributable to common shareholders | $10.2 | $(5.5) | $(32.6) | $0.4 |
| FFO attributable to common shareholders, non-GAAP | $7.1 | $5.7 | $13.2 | $11.8 |
| Community NOI, non-GAAP | $19.6 | $16.4 | $38.5 | $31.9 |
- Operating trends: Rental income rose 12% in both the quarter and first half. Community NOI increased 19% in Q2 and 21% in the first half. Same-property NOI grew 14% for the first half; same-property occupancy was 85.8%, up 250 basis points year over year.
- Margins and costs: Community operating expense ratio improved to 44.0% in Q2 from 47.7%, and to 44.6% for the first half from 48.5%. Home-sales gross margin was 28% in Q2 and 27% for the first half. Home sales fell 14% in Q2 and 13% for the first half.
- Cash flow: First-half operating cash flow was $31.0 million versus $11.6 million a year earlier. Investing used $44.7 million and financing provided $11.9 million. Cash, cash equivalents and restricted cash totaled $17.2 million at June 30; cash and cash equivalents alone were $11.0 million.
- Debt and liquidity: Balance-sheet mortgages, net of issuance costs, were $369.7 million and loans payable were $66.1 million. Total liabilities were $458.5 million. The company reported $91.7 million of marketable securities, $60 million available on its unsecured facility and approximately $31.5 million available on home-financing/inventory credit lines. The unsecured facility had $15 million drawn at quarter-end; $32.8 million was outstanding on a margin loan. Management reported net debt to total market capitalization of approximately 30%, or 23% after subtracting securities, and no mortgages due within 12 months.
Material changes and unusual items
- Q2 net income included a $13.4 million increase in the fair value of marketable securities; first-half results included a $25.2 million fair-value decrease. The first-half net loss therefore substantially reflects securities-market volatility, not solely property operations. The portfolio had $50.4 million of net unrealized losses at June 30.
- First-half common-shareholder loss also reflects $16.2 million of preferred dividends. Preferred equity issuance generated $63.1 million net proceeds during the first half through the Series D ATM program.
- Rental and related income growth was attributed mainly to acquisitions, rent increases, improved occupancy and additional rental homes. Depreciation rose 16% in both comparison periods, primarily from acquisitions and rental-home additions.
- Manufactured-home sales weakened amid COVID-19 restrictions; first-half sales operations recorded a $0.2 million loss versus $0.1 million income in the prior-year period.
Outlook, commentary and risks
- Management said communities remained open and that COVID-19 had not significantly affected first-half operating results. April–July rent collections were described as at pre-pandemic levels; 95% of July rent had been collected at the comparable reporting point. Fewer than 100 residents, under 1%, had entered deferred-payment plans. Management nevertheless emphasized that pandemic effects remain uncertain.
- The company anticipated adding approximately 750–800 rental homes in 2020, following 367 additions in the first half. Rental-home occupancy was 95.2% at June 30. Management cited strong affordable-housing and rental demand, while noting no assurance that acquisition opportunities or demand would persist.
- No formal earnings guidance was provided. The company said it intends to pursue acquisitions and property improvements, subject to suitable opportunities, financing and competition.
- Capital access includes a $100 million common-stock ATM program and, after quarter-end, a new $100 million preferred-stock ATM program. No shares had been sold under the common ATM as of June 30; the new preferred program was established after quarter-end. Subsequent events included a $5 million credit-facility draw and a Pennsylvania community acquisition for approximately $3.3 million.
- Key risks include COVID-19 effects on residents’ ability to pay rent, operations, securities values and access to capital; interest rates, debt covenant compliance and refinancing; acquisition availability and integration; manufactured-home buyer financing; and REIT qualification. The company disclosed purchase commitments for two communities totaling about $8.0 million, with one acquisition completed after quarter-end and the other expected later in Q3. It also has contingent home-purchase obligations if certain financed buyers default.
Important facts for investors to verify
- Separate recurring property performance from the large, volatile mark-to-market impact on REIT securities and review the company’s non-GAAP FFO/NOI reconciliations.
- Check rent collections, occupancy, deferred-payment arrangements and the timing of delayed rent increases as pandemic conditions evolve.
- Track ATM equity issuance, preferred dividends and related dilution or fixed distribution obligations, alongside acquisition and rental-home spending.
- Review debt availability, margin-loan exposure, facility covenants and refinancing needs; confirm the status and funding of announced acquisitions.
- Assess the risks associated with the securities portfolio and contingent obligations to repurchase repossessed manufactured homes.