UMH Properties, Inc. — 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011; filed March 15, 2012. The filing also provides unaudited quarterly data. UMH owns and operates manufactured-home communities, rents homes, and sells and finances homes through a taxable subsidiary. At year-end it owned 40 communities with about 8,900 developed sites across five states; a January 2012 acquisition brought the portfolio to 41 communities and about 9,000 sites.
Financial performance and condition
| Metric | 2011 | 2010 | Change/comment |
|---|---|---|---|
| Total income | $39.31 million | $34.01 million | Up 16% |
| Rental and related income | $32.99 million | $27.88 million | Up 18%, principally from acquisitions |
| Manufactured-home sales | $6.32 million | $6.13 million | Up 3%; sales operations recorded a $1.53 million loss |
| Net income | $3.70 million | $6.67 million | Down 45% |
| Net income attributable to common shareholders | $2.04 million; $0.14 per share | $6.67 million; $0.52 per share | 2011 reflects $1.66 million of preferred dividends |
| FFO / adjusted FFO | $7.97 million / $8.96 million | $11.19 million / $11.19 million | Adjusted FFO adds back the $0.98 million flood loss; FFO is a non-GAAP supplemental measure |
| Cash from operating activities | $8.41 million | $6.48 million | Up from 2010 |
| Cash from investing activities | $(39.77) million | $(33.89) million | Use mainly for acquisitions, property investment and securities |
| Cash from financing activities | $34.49 million | $28.55 million | Includes preferred-stock proceeds |
| Total assets / shareholders’ equity | $223.94 million / $105.88 million | $188.78 million / $71.93 million | Equity rose mainly from preferred stock and DRIP issuance |
Manufactured-home gross margin improved to 9% from 7%, but sales operations remained loss-making as selling expenses exceeded gross profit. Community operating expenses increased 19% and interest expense increased 11%, primarily reflecting portfolio growth. Overall occupancy was 77% at year-end versus 78% in 2010, excluding the closed Memphis community; management said roughly 145 newer homes were sold into communities during 2011 without improving overall occupancy.
At December 31, 2011, cash and equivalents were $8.80 million. Marketable REIT securities were $43.30 million, with $13.66 million of margin loans secured by the portfolio. Mortgages payable totaled $90.28 million and other loans payable $23.95 million. Mortgage rates averaged about 5.63%; approximately $3.88 million of long-term mortgages were variable-rate. The company reported $5 million available on its unsecured line and $2 million available on its home-financing revolver; inventory credit facilities totaled $5 million, of which $2.37 million was drawn. Common distributions remained $0.72 per share for the year; Series A preferred stock carries an 8.25% cumulative annual dividend.
Material changes versus prior period
- Five 2011 community acquisitions added about 900 sites for approximately $17.5 million. Rental growth was principally acquisition-driven.
- Net income declined as securities transaction gains fell to $2.69 million from $3.93 million and the company recorded a $0.98 million net flood loss. Interest expense, depreciation, general and administrative costs, and community expenses also rose.
- Securities available for sale increased to $43.30 million from $28.76 million, while the portfolio’s unrealized net gain fell to $2.46 million from $6.45 million.
- The May 2011 preferred-stock offering generated $31.85 million net proceeds. The company used proceeds for acquisitions and debt repayment. Shareholders’ equity increased substantially, while preferred dividends reduced earnings available to common shareholders.
- For fourth-quarter 2011, net income was $0.54 million, but common shareholders had a loss of $0.15 million, or $(0.01) per share, after preferred dividends. Fourth-quarter 2010 net income and common earnings were both $2.11 million, or $0.16 per share.
Outlook, risks and unusual items
- Management intended to pursue opportunistic acquisitions in 2012, subject to suitable properties and financing. It believed operating cash flow, the DRIP, credit availability and financing or refinancing capacity would meet obligations over the next several years; this is management’s expectation, not a guarantee.
- Management budgeted about $3.3 million for 2012 capital improvements, including approximately $1.6 million related to Memphis Mobile City, and expected to purchase about 100 rental homes for roughly $3 million. A January 2012 Indiana acquisition cost $2.1 million.
- Memphis Mobile City, a 157-site community, remained closed after a May 2011 flood and all residents were evacuated. UMH recorded a $984,701 loss net of estimated insurance proceeds; reopening was anticipated but no final decision had been made. A separate lawsuit alleges discrimination and consumer-protection violations involving current and former residents; the company disputes the claims and says its insurer supports the defense.
- One REIT security was down approximately $900,000, or 38%, at year-end and was considered temporarily impaired. Management said it would continue monitoring it; further decline or downgrade could prompt an impairment charge.
- Key risks include economic weakness and tight financing for homebuyers, acquisition and refinancing access, debt and demand-payable margin borrowing, geographic concentration, occupancy and rent growth, manufactured-home sales losses, regulatory and environmental compliance, REIT qualification and dividend capacity. Two New Jersey communities are subject to rent control.
- Auditors issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Progress and cost to reopen, repair or otherwise resolve Memphis Mobile City, including insurance recoveries and the litigation’s status.
- Same-community occupancy, rent growth and acquisition performance, separately from portfolio growth; confirm the reported occupancy basis excludes Memphis.
- Cash flow available after distributions, capital expenditures and preferred dividends, and the sustainability of the common dividend.
- Debt maturities, covenants, demand features and refinancing outcomes. After year-end, UMH reported repayment of the approximately $4.7 million Port Royal mortgage, an $11.4 million mortgage financing with an interest-rate swap, and other refinancing activity.
- Valuation, concentration and impairment exposure in the REIT securities portfolio, particularly the security with the approximately 38% decline, and the collateral and terms of margin borrowing.
- Acquisition integration and the economics of the home-sales and rental-home businesses, which continued to generate operating losses in home sales.