UMH Properties, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; it also reports unaudited quarterly results, including the quarter ended December 31, 2019.
Business context
UMH is a self-managed REIT focused on manufactured-home communities, leasing homesites and homes, and selling and financing manufactured homes through its taxable subsidiary. At year-end it owned 122 communities with 23,088 developed sites in eight states, approximately 7,400 rental homes, and a portfolio of REIT securities. It acquired communities with 1,495 sites for approximately $56.2 million during 2019.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total income | $146.6 million | $129.6 million |
| Rental and related income | $128.6 million | $113.8 million |
| Community NOI (non-GAAP) | $66.9 million | $60.9 million |
| Net income (loss) | $27.8 million | $(36.2) million |
| Net income (loss) attributable to common shareholders | $2.6 million; $0.07 basic EPS | $(56.5) million; $(1.53) basic EPS |
| FFO attributable to common shareholders (non-GAAP) | $24.6 million | $27.0 million |
| Normalized FFO attributable to common shareholders (non-GAAP) | $25.2 million | $27.5 million |
| Operating cash flow | $38.5 million | $40.2 million |
- Community NOI increased 10%; same-property NOI rose 6%. Rental income growth reflected acquisitions, rent increases, higher same-property occupancy, and rental homes. Same-property occupancy improved to 83.8% from 82.2%; overall occupancy was 82.0% in both years, with recently acquired communities lowering the portfolio average.
- Community operating expenses rose 17% to $61.7 million. The reported operating-expense ratio was 47.5% in 2019, excluding non-recurring expenses, compared with 46.5% in 2018.
- Manufactured-home sales increased 14% to $18.0 million on 299 homes sold. Sales operations recorded a $290,000 loss, versus a $75,000 gain in 2018.
- Year-end total assets were $1.025 billion and total liabilities $479.1 million. Mortgages, net of issuance costs, were $373.7 million; loans payable, net, were $83.7 million. Mortgage debt carried a 4.1% weighted-average rate and 6.0-year weighted-average maturity.
- Cash and cash equivalents were $12.9 million. Marketable REIT securities were $116.2 million, with $37.5 million of margin borrowing against them. The company reported $60 million available on its unsecured credit facility and $14.2 million available on home-sale and inventory credit lines.
- Net cash used in investing was $122.4 million; financing provided $90.1 million. Common dividends remained $0.72 per share for the year. Net debt to total market capitalization was 29%, versus 37% in 2018.
Changes, outlook, and risks
- Net income swung from a loss to profit, substantially reflecting marketable-securities fair-value changes: a $14.9 million unrealized gain in 2019 versus a $51.7 million unrealized loss in 2018. The securities portfolio still had net unrealized losses of $25.2 million at year-end. FFO and normalized FFO declined year over year despite growth in rental operations.
- Management cited a $375,000 one-time settlement of a utility-billing dispute and $179,000 of emergency windstorm tree-removal costs; these, plus $80,000 of costs for uncompleted acquisitions, totaled $634,000 of 2019 non-recurring items used in its Normalized FFO reconciliation.
- Management expected approximately $19 million of 2020 community renovation expenditures and planned to acquire about 800–900 rental homes for approximately $36–$40 million, including setup. It anticipated a return to profitability for home-sales operations in 2020; this is management’s expectation, not formal earnings guidance.
- After year-end, UMH raised $63.1 million net from Series D preferred-stock sales and reported paying down approximately $54.5 million of borrowings. Loans payable included $67.7 million scheduled within one year as of year-end; refinancing and repayment capacity remain important to liquidity.
- Principal disclosed risks include rent regulation, including New York’s 2019 rent law; exposure to regional and energy-market economies; acquisition and lease-up execution; variable-rate debt and refinancing needs; securities-market volatility; and natural disasters, environmental obligations, and litigation. The filing also identified the then-emerging COVID-19 outbreak as a potential risk. The company reported no material environmental condition known to management and no material adverse effect expected from ordinary-course claims.
- The company reported effective disclosure controls and internal control over financial reporting; its auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether occupancy and rents at recently acquired, relatively low-occupancy communities improve enough to support projected returns and NOI.
- How much recurring operating performance is reflected in FFO and cash flow, apart from securities fair-value movements and one-time items.
- Debt maturities, credit-line availability, post-year-end paydowns, and the company’s ability to fund investments and distributions without excessive new capital issuance.
- The quality and concentration of the REIT securities portfolio, its unrealized losses, dividend income, and margin-loan collateral requirements.
- Execution and cost of the 2020 renovation and rental-home plans, and whether home-sales operations achieve the forecast return to profitability.