UMH Properties, Inc. - 10-Q Summary (Q3 2012)
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2012. UMH Properties, Inc. is a self-administered Real Estate Investment Trust (REIT) owning and operating 55 manufactured home communities with approximately 10,400 developed homesites across six states. The company also sells and finances manufactured homes through a taxable subsidiary and maintains a portfolio of securities from other REITs.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2012 | Nine Months Ended Sep 30, 2012 |
|---|---|---|
| Total Revenue | $12,186,668 | $34,221,643 |
| Net Income | $1,405,754 | $5,174,487 |
| Net Income Attributable to Common Shareholders | $161,138 | $2,308,837 |
| Funds From Operations (FFO) - Common | $2,101,664 | $7,561,625 |
| Cash from Operating Activities | N/A | $4,710,629 |
| Total Debt (Mortgages + Loans) | $131,476,903 | $131,476,903 |
| Cash and Cash Equivalents | $4,440,658 | $4,440,658 |
| Securities Available for Sale | $53,567,433 | $53,567,433 |
Note: Debt figures represent the sum of Mortgages Payable ($106,934,062) and Loans Payable ($24,542,841) as of September 30, 2012.
Material Changes vs. Prior Period
- Revenue Growth: Total income increased 26% for the quarter and 21% for the nine-month period compared to 2011, driven by acquisitions and increased rental home income.
- Occupancy: Occupancy rates improved from 77% at year-end 2011 to 80% as of September 30, 2012.
- Acquisitions: The company acquired 15 communities totaling approximately 1,500 sites during the first nine months of 2012, including a major transaction of 11 communities for $28.25 million in August.
- Securities Portfolio: The portfolio of other REIT securities grew 24% to $53.6 million, generating a net gain on sales of $3.5 million for the nine-month period.
- Expenses: Community operating expenses and depreciation increased significantly (14% and 22% respectively for the quarter) due to the expanded property portfolio.
Guidance, Outlook, and Risks
Management Commentary: Management notes that while the US economic recovery is slower than anticipated, activity in their communities has increased. They are seeing higher demand for rental units and home sales. The company intends to continue increasing real estate investments and seeks opportunistic acquisitions.
Capital Markets: In April 2012, the company raised approximately $25.7 million via a preferred stock offering. In a subsequent event (October 31, 2012), it issued an additional 1.25 million shares of preferred stock for approximately $31 million to fund further acquisitions and debt repayment.
Risks and Contingencies:
- Refinancing: A mortgage of approximately $7.5 million matures in 2013 and is currently being refinanced.
- Market Risk: Exposure to interest rate fluctuations on variable-rate debt, partially mitigated by an interest rate swap agreement.
- General Risks: Risks include changes in real estate markets, competition, ability to maintain occupancy, and compliance with REIT tax requirements.
Investor Verification Checklist
- Acquisition Integration: Verify the occupancy and revenue performance of the 15 communities acquired in 2012 to ensure they meet projected returns.
- Debt Maturity: Confirm the terms and status of the refinancing for the $7.5 million mortgage maturing in 2013.
- Preferred Stock Dilution: Review the impact of the recent preferred stock issuances (April and October 2012) on common shareholder dividends and equity structure.
- Securities Valuation: Assess the stability of the $53.6 million REIT securities portfolio, noting $1.6 million in unrealized losses on temporarily impaired securities.
- Home Sales Margins: Monitor the gross profit percentage on manufactured home sales, which was 11% for the quarter and 9% for the nine-month period.