UMH Properties, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. UMH is a REIT operating manufactured-home communities, leasing homes, selling and financing manufactured homes, and investing in other REIT securities. At quarter-end it operated 107 communities with approximately 19,400 developed sites.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total income | $28.8 million | $25.2 million | $55.3 million | $48.7 million |
| Net income | $3.6 million | $3.1 million | $5.9 million | $5.0 million |
| Net loss attributable to common shareholders | $(0.2) million | $(0.7) million | $(1.7) million | $(1.6) million |
| Community NOI | $13.4 million | $11.7 million | $26.5 million | $22.9 million |
| Operating cash flow | Not presented separately for the quarter | $16.6 million | $11.7 million |
Rental and related income rose 13% in both the quarter and first half, primarily from acquisitions, rent increases, higher same-property occupancy, and more rental homes. Community NOI increased 15% in both periods. The community operating expense ratio improved to 46.9% from 47.8% in Q2 and to 46.9% from 48.1% for the first half. First-half FFO attributable to common shareholders was $11.6 million, versus $9.7 million; Normalized FFO was $10.5 million, versus $8.6 million. These are non-GAAP measures.
Manufactured-home sales increased 26% in Q2 and 21% in the first half. The gross profit percentage was 22% in Q2 (unchanged) and 22% for the first half (23% prior year). The sales operation continued to report a loss, though the first-half loss narrowed to $0.7 million from $0.8 million.
Financial position, cash flow, and capital
- At June 30, total assets were $746.2 million, total liabilities $389.2 million, and shareholders’ equity $357.0 million. Cash was $8.2 million and available-for-sale securities were $109.1 million.
- Mortgages payable, net of issuance costs, were $311.3 million; loans payable, net, were $64.2 million. Both increased from year-end 2016. Management reported net debt at approximately 32% of total market capitalization, or approximately 23% after deducting securities.
- For the first half, operating cash flow was $16.6 million; investing cash outflow was $75.9 million, including $40.9 million for community acquisitions; financing cash inflow was $63.2 million. Cash increased $4.0 million to $8.2 million.
- The unsecured revolving facility was expanded to $50 million, with a conditional $75 million accordion feature. $35 million was outstanding at quarter-end. The filing also reported approximately $6 million available on a home-sales line and approximately $15 million available on revolving facilities for inventory purchases.
- Management reported 29 unencumbered communities and stated it was refinancing a mortgage of approximately $10.2 million extended through August 31, 2017. Subsequent to quarter-end, UMH paid down $35 million on its unsecured line of credit.
Material changes, outlook, and risks
- UMH acquired six communities with 1,354 homesites during the first half for an aggregate purchase price of approximately $40.5 million. Total investment property and equipment increased 10% from year-end.
- Same-property occupancy rose 180 basis points year over year to 82.5%; rental-home occupancy was 93.6%. The company added 433 rental homes in the first half and anticipated adding approximately 800 during 2017, as the market dictated. Management cited strong rental-home demand and expected continued growth, but gave no formal earnings guidance.
- Management said acquisition opportunities, rental demand, occupancy, financing availability, interest rates, competition, manufactured-home buyer financing, and the ability to refinance debt could affect results. Acquired communities may require above-normal maintenance spending. Home sales remained below pre-recession levels and were affected by customer financing constraints and other market conditions.
- After quarter-end, UMH issued 5.75 million Series C preferred shares in total, receiving approximately $139.0 million net proceeds, and announced redemption of all Series A preferred shares for $91.6 million. The Series C carries a 6.75% cumulative dividend; Series A carried 8.25%. The proceeds were intended partly to fund the redemption, with the balance for general corporate purposes.
- The company reported approximately $5.9 million of notes receivable purchased under its chattel-loan program and potential home-repurchase obligations tied to roughly $7 million of loans under agreements with 21st Mortgage. Management did not expect ordinary-course claims or litigation to have a material adverse effect. No legal proceedings were reported.
- Portfolio securities had $10.8 million of net unrealized gains at quarter-end, while nine securities had temporary unrealized losses totaling $5.0 million. Management said it had the ability and intent to hold them to recovery. Securities market values remain a source of potential volatility.
Important facts for investors to verify
- Whether occupancy, rental-home additions, and same-property NOI growth continue, and whether acquisitions achieve targeted yields after maintenance and integration costs.
- Progress and final terms of refinancing the $10.2 million mortgage, and available borrowing capacity, covenants, and maturities across credit facilities.
- Completion and cash impact of the Series A redemption, including the net cost of replacing 8.25% preferred stock with Series C at 6.75% and any effects on common-shareholder distributions.
- Performance and valuation of the REIT securities portfolio, including exposure to unrealized losses and any related-party investment activity.
- Credit performance of manufactured-home financing and the company’s contingent obligations to repurchase repossessed homes.