UMH Properties, Inc. - 10-Q Summary (Period Ended Sept 30, 2008)
Business Context and Reporting Period
UMH Properties, Inc. is a Real Estate Investment Trust (REIT) owning and operating 28 manufactured home communities with approximately 6,800 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The company also sells and finances manufactured homes through a taxable subsidiary and maintains a portfolio of securities. This report covers the quarterly and nine-month periods ended September 30, 2008.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2008 | Nine Months Ended Sept 30, 2008 |
|---|---|---|
| Total Revenues | $10,240,058 | $29,014,594 |
| Net Income | $1,201,017 | $2,407,051 |
| Net Income Per Share (Diluted) | $0.11 | $0.22 |
| Funds From Operations (FFO) | $2,208,546 | $5,426,767 |
| Cash Flow from Operations | N/A | $6,746,619 |
| Cash and Equivalents | $2,306,207 (Balance Sheet) | $2,306,207 (Ending Balance) |
| Total Debt (Mortgages + Loans) | $88,168,962 | $88,168,962 |
| Occupancy Rate | ~80% | ~80% |
Material Changes vs. Prior Period
- Revenue: Total revenue increased 3% for the quarter but decreased 4% for the nine months compared to 2007. The nine-month decline was driven by a 24% drop in manufactured home sales and a net loss on securities transactions.
- Net Income: Quarterly net income surged 989% year-over-year due to higher rental income and lower expenses. However, nine-month net income fell 16% due to a $302,400 impairment loss on securities, a $304,088 loss on settled futures contracts, and higher interest expenses.
- Expenses: Total expenses decreased 8% for the quarter but increased 3% for the nine months. Interest expense rose significantly for the nine-month period due to higher debt balances, partially offset by favorable changes in interest rate swap valuations.
- Home Sales: Sales of manufactured homes declined 22% for the quarter and 24% for the nine months, attributed to a difficult competitive market and reduced consumer confidence.
Outlook, Risks, and Unusual Items
- Unusual Items: The company recognized a $302,400 impairment loss on a security deemed "other than temporarily impaired" and a $304,088 loss on settled futures contracts during the nine-month period. The company ceased investing in futures contracts as of May 15, 2008.
- Liquidity and Debt: The company refinanced mortgages on D&R Village and Waterfalls Village ($8.7M) and established a new $10M revolving line of credit with Sun National Bank. It also extended maturities on other mortgages and secured commitments to extend credit lines through late 2009.
- Dividends: A quarterly dividend of $0.18 per share was paid in September 2008, with another $0.18 declared for December 2008.
- Risks: Management cites risks related to the real estate market, competition from site-built housing, interest rate fluctuations, and the ability of customers to obtain financing. The company notes that the recovery of manufactured home communities has been slow.
Investor Verification Checklist
- Debt Maturities: Verify the status of the refinancing commitment for Cranberry Village and Forest Park Village mortgages, which were extended to December 31, 2008.
- Securities Portfolio: Review the composition of the $26.6M securities portfolio (12% preferred, 65% common, 23% debentures) and assess exposure to further impairments given the $302k write-down in 2008.
- Home Sales Trend: Monitor the continued decline in manufactured home sales and its impact on occupancy rates, which have dropped from 86% in 2005 to 80% currently.
- Interest Rate Swaps: Confirm the impact of the remaining interest rate swap agreements on future interest expense, noting that two of three agreements expired as of September 30, 2008.
- Related Party Transactions: Note the change-in-control provision for the Chairman of the Board, which triggers a $1.2M payment if the company sells for at least $16 per share.