UMH Properties, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing, not a standalone fourth-quarter report; selected quarterly figures are unaudited. UMH is a REIT focused on manufactured-home communities, rental homes, manufactured-home sales and financing, and investments in other REIT securities.
Business context and operating footprint
- At year-end, UMH owned and operated 88 communities with 15,041 developed sites across seven states. Reported occupancy was 82.3%, excluding the closed Memphis Mobile City; same-community occupancy was 83.2%.
- UMH had approximately 2,600 rental homes, with 91.5% occupancy. Rental units represented about 19.6% of occupied sites.
- In 2014, UMH acquired 14 communities for $42.55 million, adding approximately 1,612 sites. A Pennsylvania community acquired in January 2015 added 141 sites; the company then reported 89 communities and approximately 15,200 sites.
Financial and operating metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Total income | $71.43 million | $62.21 million |
| Rental and related income | $63.89 million | $53.48 million |
| Manufactured-home sales | $7.55 million | $8.73 million |
| Net income | $4.24 million | $5.84 million |
| Net loss attributable to common shareholders | $(3.32) million; $(0.15) per share | $(1.72) million; $(0.09) per share |
| Net cash from operating activities | $24.33 million | $11.24 million |
| FFO attributable to common shareholders | $11.84 million | $9.94 million |
| Core FFO attributable to common shareholders | $12.32 million | $11.40 million |
Preferred dividends of $7.56 million exceeded 2014 net income, resulting in a loss attributable to common shareholders despite positive consolidated net income. FFO and Core FFO are non-GAAP supplemental measures and should not be treated as cash flow or a substitute for GAAP earnings.
- Community operating income (rental and related income less community operating expenses) rose 24% to $30.29 million. Rental income increased 19%, mainly from acquisitions, higher occupancy, rental homes and rent increases at certain communities.
- Home sales fell 14%; units sold declined to 134 from 164. The home-sales operation recorded a loss of $1.88 million, compared with $0.64 million in 2013, reflecting higher selling expenses and a weak housing market.
- Interest expense rose 30% to $10.19 million, primarily due to acquisition-related borrowing. The weighted-average mortgage rate was approximately 4.78%, versus 4.5% at 2013 year-end.
- Cash used in investing activities was $56.03 million; financing activities provided $32.17 million. Total assets were $478.27 million and total liabilities were $269.44 million at year-end.
Debt, liquidity and distributions
- Mortgages payable were $182.67 million and other loans payable were $77.44 million, for total reported mortgage and loan debt of approximately $260.11 million. Mortgage maturities ranged from 2015 to 2023; the $35 million unsecured BMO credit facility was drawn in full and matures in March 2016, with a conditional one-year extension and potential accordion capacity.
- Year-end cash was $8.08 million. Marketable REIT securities were valued at $63.56 million, with $19.39 million of margin borrowings secured by the portfolio. Management also cited $15 million of potential additional credit-facility capacity, subject to conditions.
- Common distributions remained $0.72 per share for the year. The company stated its intention to continue comparable quarterly distributions, but future payments depend on earnings, liquidity, financing and REIT requirements. About 98% of the 2014 common distribution was classified as return of capital for tax purposes.
- UMH raised approximately $32.79 million net through its dividend reinvestment and stock purchase plan in 2014, issuing approximately 3.55 million shares. The 8.25% Series A preferred stock carries an annual dividend of $2.0625 per share and a $25 liquidation value.
Changes, outlook, risks and unusual items
- Growth in rental income, operating cash flow, FFO and occupancy was offset by lower GAAP net income, a larger common-shareholder loss, higher interest expense and worsening home-sales losses. Acquisitions and rental-home investment expanded the asset base and contributed to higher depreciation and operating costs.
- Management planned to pursue selective acquisitions and expected approximately $7 million of 2015 capital improvements, excluding expansions and rental-home purchases. It estimated about $20 million for roughly 500 rental homes in 2015, with expected rent of approximately $300 monthly per home in addition to site rent. These are plans, not guaranteed results.
- Management said operating cash flow, DRIP proceeds, credit lines and the ability to finance or refinance properties should meet obligations over the next several years. This outlook depends on capital-market access, refinancing, property performance and acquisition opportunities.
- Material risks include geographic concentration, occupancy and rent pressure, interest-rate and refinancing exposure, dependence on external capital, manufactured-home financing and sales weakness, regulatory and environmental obligations, REIT qualification and distribution requirements, and market risk in the REIT securities portfolio.
- Memphis Mobile City remained closed following prior flooding, with redevelopment in progress. A class-action lawsuit alleging discrimination and consumer-protection violations remained ongoing; UMH said it considered the case without merit and its insurer was supporting the defense. No material environmental liability or required impairment charge was reported.
- UMH had agreed to purchase additional Pennsylvania communities; one closed in January 2015, while other planned transactions remained subject to due diligence and completion. Subsequent refinancing included a $8.1 million fixed-rate mortgage in February 2015 and a $2.2 million mortgage in March 2015.
Most important facts for investors to verify
- Whether occupancy and rent growth continue, particularly at recently acquired communities and sites requiring lease-up.
- Whether operating cash flow and FFO support common distributions, given the GAAP loss attributable to common shareholders and the high proportion of distributions classified as return of capital.
- Debt maturities, covenant headroom, refinancing progress and availability of the conditional credit-facility accordion; assess margin borrowing and pledged securities separately from unrestricted liquidity.
- Whether rental-home investment improves community economics and whether home-sales losses and customer-loan credit losses moderate.
- Execution and funding of planned acquisitions, 2015 rental-home purchases and capital improvements, including any changes in projected costs or timing.
- Developments in the Memphis litigation and redevelopment, and the terms and potential exposure under agreements to repurchase certain repossessed homes.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management reported controls were effective at December 31, 2014.