UMH

UMH Properties, Inc. - 10-Q Summary (Period Ended September 30, 2010)

Business Context and Reporting Period

This is a quarterly report (Form 10-Q) for UMH Properties, Inc., a Real Estate Investment Trust (REIT) owning and operating 30 manufactured home communities with approximately 7,200 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The reporting period covers the three and nine months ended September 30, 2010. The Company also operates a taxable subsidiary, UMH Sales and Finance, Inc., for the sale and financing of manufactured homes.

Key Financial Metrics

Debt Profile: Total Mortgages Payable were $76,337,178 (approx. 89% fixed rate) and Loans Payable were $23,671,960 (approx. 11% fixed rate) as of September 30, 2010.

Material Changes vs. Prior Period

• Net Income Surge: Net income for the nine months ended September 30, 2010, increased significantly to $4.55 million from $1.42 million in the prior year. This was primarily driven by a $2.29 million gain on securities transactions in 2010, compared to a $2.15 million loss in 2009 due to impairment charges.
• Acquisitions: The Company acquired two communities (Sunny Acres and Suburban Estates) in Pennsylvania for $13.2 million in June 2010, adding 407 sites. This increased investment property and equipment by 13%.
• Operating Expenses: Total expenses increased by 6% year-over-year for the nine-month period, driven by higher community operating expenses (12% increase) due to repairs, personnel, and flood-related costs (~$130,000), as well as increased depreciation from new acquisitions.
• Home Sales Decline: Sales of manufactured homes decreased 11% to $3.93 million for the nine months, resulting in a loss from sales operations of $991,331 (25% of sales), compared to a loss of $644,539 (15% of sales) in the prior year.
• Cash Flow: Net cash provided by operating activities decreased 72% to $2.58 million, largely due to a $3.44 million increase in inventory of manufactured homes and an increase in notes receivables.

Guidance, Outlook, and Risks

• Outlook: Management notes that while the broader economy faces high unemployment, demand for rental units is increasing as conventional home ownership rates fall. The Company has added approximately 120 rental units to selected communities.
• Future Acquisitions: On October 29, 2010, the Company entered a definitive agreement to acquire 5 additional communities in Pennsylvania (824 sites) for approximately $25 million, expected to close in Q4 2010.
• Liquidity: The Company maintains a $5 million unsecured line of credit (fully available) and a $10 million revolving line for home sales ($8.1 million utilized). It holds $36.6 million in securities, though $11.8 million is encumbered by margin loans.
• Risks: Key risks include the economic environment affecting home sales, the ability to refinance debt, occupancy levels, and the potential for natural disasters (e.g., the flood in Memphis, TN, which impacted occupancy).
• Dividends: A dividend of $0.18 per share was declared on October 1, 2010, payable December 15, 2010.

Investor Verification Checklist

• Securities Portfolio Volatility: Verify the sustainability of the $2.29 million gain on securities transactions, which was the primary driver of the net income increase, compared to the operating loss in home sales.
• Home Sales Margin: Monitor the widening loss margin on manufactured home sales (25% of sales revenue) and its impact on future profitability given the economic headwinds.
• Debt Maturities: Review the terms of the new $7.5 million mortgage (6.5% fixed, resets in 5 years) and the extension of the Sandy Valley Estates mortgage to ensure refinancing risk is managed.
• Inventory Build-up: Assess the $3.44 million increase in manufactured home inventory and the Company's ability to convert this to sales or rental revenue.
• Acquisition Financing: Confirm the funding sources for the pending $25 million acquisition of 5 new communities and its impact on leverage ratios.