UMH Properties, Inc. - 10-Q Summary (Q3 2007)
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2007. UMH Properties, Inc. is a Real Estate Investment Trust (REIT) owning and operating 28 manufactured home communities with approximately 6,700 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 available for sale.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 |
|---|---|---|
| Total Revenues | $9,971,274 | $30,122,640 |
| Net Income | $110,239 | $2,875,807 |
| Funds From Operations (FFO) | $1,006,754 | $5,481,770 |
| Net Cash from Operating Activities | N/A | ($69,659) |
| Cash and Cash Equivalents | $1,169,960 | $1,169,960 |
| Total Debt (Mortgages + Loans) | $71,242,765 | $71,242,765 |
| Securities Available for Sale | $22,861,855 | $22,861,855 |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased approximately 60% for the quarter and 21% for the nine months compared to the same periods in 2006. This was driven by a 41% increase in losses on securities transactions and higher interest expenses.
- Revenue Mix: Total revenues increased slightly (1%). Rental income rose due to rate increases and prior expansions, while sales of manufactured homes declined by 5% (quarter) and 6% (nine months) as 2006 included sales from expansions that sold out.
- Operating Cash Flow: Net cash used in operating activities was ($69,659) for the nine months ended September 30, 2007, a significant reversal from the $3.24 million provided in the prior year period. This was primarily due to increased inventory of manufactured homes and notes receivables.
- Debt Structure: Mortgages payable increased by $15.4 million and loans payable by $0.9 million. The company secured new long-term mortgages on Fairview Manor ($11.48M) and Highland Estates ($10.44M) to refinance existing debt and pay down margin loans.
- Securities Portfolio: The company recorded a net loss of $458,614 on securities transactions for the quarter, largely due to realized losses on settled futures contracts used to hedge interest rate risk.
Outlook, Risks, and Management Commentary
- Occupancy Trends: Management notes a long-term decline in occupancy from 90% in 2000 to 82% in 2006 due to competition from conventional housing. However, occupancy increased slightly by 69 sites (approx. 1%) during 2007.
- Liquidity: The company believes funds from operations, refinancing, and its Dividend Reinvestment and Stock Purchase Plan (DRIP) will meet future needs. The DRIP generated $4.45 million in new capital during the nine-month period.
- Dividends: A quarterly dividend of $0.25 per share was paid in September 2007. A subsequent dividend of $0.25 per share was declared on October 2, 2007, payable in December 2007.
- Risks: Key risks include changes in the general economic climate, increased competition in geographic areas, regulatory changes affecting manufactured housing, and the ability to acquire properties on favorable terms. The company also faces market risk regarding its securities portfolio, mitigated by futures contracts and interest rate swaps.
Investor Verification Checklist
- Verify the sustainability of rental rate increases (3-4% annually) against the competitive pressure from conventional housing.
- Monitor the impact of interest rate fluctuations on the company's variable rate debt and the effectiveness of their interest rate swap hedges.
- Assess the performance of the securities portfolio, specifically the volatility of futures contracts and the valuation of REIT equity holdings.
- Review the trend in occupancy rates to determine if the slight 2007 increase is a reversal of the long-term decline.
- Confirm the company's ability to service its increased debt load ($71.2M total) given the negative operating cash flow for the nine-month period.