UMH Properties, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. UMH is a REIT focused on manufactured-home communities, with additional manufactured-home sales, rentals and investments in other REIT securities.
Business context
At year-end, UMH owned 74 communities with 13,494 developed sites across seven states. Excluding the closed Memphis Mobile City community, occupancy was 81%, up from 80% at December 31, 2012. The company acquired 17 communities for an aggregate stated purchase price of $88.27 million, adding approximately 2,700 sites.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Total income | $62.21 million | $46.83 million |
| Rental and related income | $53.48 million | $38.01 million |
| Manufactured-home sales | $8.73 million | $8.82 million |
| Income from community operations | $24.34 million | $17.45 million |
| Net income | $5.84 million | $6.47 million |
| Net income (loss) attributable to common shareholders | ($1.72 million) | $1.75 million |
| FFO attributable to common shareholders | $9.94 million | $9.15 million |
| Core FFO attributable to common shareholders | $11.40 million | $10.01 million |
| Cash from operating activities | $11.24 million | $9.09 million |
Rental growth was primarily acquisition-driven: rental income rose 41%, while community operating expenses increased 42%, including non-recurring deferred-maintenance costs at some acquired properties. Community operating income margin was approximately 45.5% of rental income, versus 45.9% in 2012. Home sales declined 1% in revenue and fell to 164 homes from 210; the sales operation’s reported loss narrowed to $0.64 million from $1.43 million.
Year-end cash was $7.62 million; securities available for sale were $59.25 million, with $18.57 million of margin borrowings secured by the portfolio. Mortgages payable totaled $160.64 million and other loans payable $49.12 million. Mortgage weighted-average interest was approximately 4.54%. The $35 million unsecured revolving facility had $20 million drawn and $15 million available. Total assets were $407.98 million and shareholders’ equity $190.59 million.
Investing activities used $110.37 million, principally for acquisitions and property investment; financing activities provided $95.71 million. Common distributions remained $0.72 per share for the year; Series A preferred distributions were $2.0625 per share annually at an 8.25% rate. Approximately 74% of the 2013 common distribution was characterized as return of capital for tax purposes.
Changes, outlook and risks
- UMH raised approximately $35 million through its dividend reinvestment and stock purchase plan, issuing 3.66 million common shares. Acquisition-related borrowing contributed to higher interest expense, up 35% to $7.85 million.
- Management said activity and rental demand had increased and described the U.S. economy as improving. It intends to pursue further acquisitions, subject to suitable properties and financing.
- At year-end, the company had definitive agreements to acquire 12 communities in Ohio and Pennsylvania, with approximately 1,340 sites, for about $37.15 million; approximately $27 million of mortgages were expected to be assumed. Closings were anticipated in the first and second quarters of 2014, subject to due diligence.
- For 2014, management budgeted approximately $6.5 million for capital improvements, excluding expansions and rental-home purchases. It also expected to buy about 200 rental homes for approximately $8 million; management estimated each could generate about $300 monthly rent in addition to site rent.
- Key risks include financing and refinancing availability, variable-rate and demand debt, concentration in seven states and manufactured housing, occupancy and homebuyer financing conditions, regulatory and environmental requirements, and continued REIT qualification. The company reported no property impairment charges for 2013.
- Memphis Mobile City remained closed following the 2011 flood; redevelopment depends on permits and market conditions. A purported class-action lawsuit related to the community remained pending; management said it believed the action lacked merit and the insurer was supporting the defense.
- UMH agreed in certain circumstances to repurchase homes securing referred or acquired home loans after borrower default. Loans subject to repurchase obligations from certain community acquisitions totaled approximately $4.2 million; an approximately $0.8 million deposit was held with the lender. No transactions had occurred under the separate November 2013 referral agreement by year-end.
Most important facts to verify
- Confirm the audited common-shareholder loss of $1.72 million and reconcile it with positive net income of $5.84 million, including preferred dividends and the use of FFO/Core FFO as supplemental—not GAAP—measures.
- Assess acquisition contributions to rental growth, occupancy trends, deferred maintenance, and whether pending 2014 purchases closed on expected terms.
- Review debt maturities and refinancing needs, the $20 million revolving-facility balance, demand borrowing, and the collateral and market risks of securities held against margin loans.
- Evaluate cash available for investment and distributions against operating cash flow, capital plans, rental-home purchases, and the common and cumulative preferred dividend obligations.
- Reconcile the MD&A statement reporting total assets of $404,979,974 with the audited balance sheet and selected financial data, both of which report $407,979,974.
- Review the flood-related litigation, redevelopment approvals, home-loan repurchase exposure, and the assumptions supporting the 2014 acquisition and rental-home outlook.