UMH Properties, Inc. — Q1 2020 Form 10-Q
Business and reporting period. The company is a REIT operating 122 manufactured-home communities with approximately 23,100 developed homesites across eight states, and also rents and sells manufactured homes. This unaudited report covers the three months ended March 31, 2020; comparisons are with Q1 2019 unless stated otherwise. Amounts are in U.S. dollars.
Key financial results
| Metric | Q1 2020 | Q1 2019 or comparison |
|---|---|---|
| Total income | $37.6 million | $34.3 million; up 10% |
| Rental and related income | $34.4 million | $30.6 million; up 12% |
| Manufactured-home sales | $3.2 million | $3.6 million; down 12% |
| Community NOI | $18.9 million | $15.5 million; up 22% |
| Net income (loss) | $(34.7) million | $11.0 million |
| Net income (loss) attributable to common shareholders | $(42.8) million; $(1.04) per share | $5.9 million; $0.16 per share |
| FFO attributable to common shareholders | $6.1 million | $6.1 million |
| Normalized FFO attributable to common shareholders | $6.1 million | $6.5 million |
| Cash provided by operating activities | $17.3 million | $12.2 million |
The GAAP loss primarily reflects a $38.6 million decline in the fair value of marketable securities, versus an $8.6 million gain in Q1 2019. The securities portfolio was valued at $78.1 million at quarter-end, down from $116.2 million at December 31, 2019. Management reported cumulative net unrealized portfolio losses of $63.8 million. The loss was largely non-cash; the company’s FFO calculation excludes the market-value change.
Community NOI margin was approximately 54.9% of rental income, compared with 50.6% in Q1 2019. The reported community operating expense ratio fell to 45.1% from 49.4%. Manufactured-home gross profit margin declined to 25% from 29%; home-sales operations recorded a $315,000 loss, compared with a $103,000 loss.
Financial position, debt and liquidity
- Total assets were $999.2 million at March 31, 2020, versus $1,025.5 million at year-end 2019; shareholders’ equity was $560.1 million.
- Mortgages payable, net of issuance costs, were $371.7 million. Loans payable, net of issuance costs, were $44.3 million. Fixed-rate mortgages carried a weighted-average rate of 4.14% before issuance-cost effects; the weighted-average rate on loans payable was 2.3%.
- Cash and cash equivalents were $14.6 million; cash, cash equivalents and restricted cash totaled $22.2 million. Marketable securities were $78.1 million. The company reported $34.1 million available on revolving lines for home sales and inventory and $60 million available on its unsecured facility, with a further $50 million accordion subject to conditions.
- The unsecured facility had $15 million outstanding at a 2.56% rate. A margin loan had $18.5 million outstanding at 0.75%. The company reported no mortgages due within the next 12 months and net debt to total market capitalization of approximately 30%, or approximately 24% after subtracting securities.
- Investing activities used $20.5 million, including $16.9 million for investment property and equipment and $3.7 million for land development. Financing activities provided $6.4 million. The company raised $63.1 million net from Series D preferred shares sold through its ATM program and paid $8.1 million in preferred dividends.
Changes, outlook and management commentary
- Rental-income growth reflected 2019 acquisitions, rental-rate increases, higher occupancy and additional rental homes. Same-property occupancy rose 180 basis points year over year to 84.6%; rental-home occupancy was 94.0% at quarter-end. The company added 149 rental homes in Q1 and had approximately 7,500 rental homes.
- Management expected to add approximately 750–800 rental homes during 2020, while noting COVID-19 had delayed purchases. It anticipated manufactured-home sales would improve as pandemic effects eased; these are expectations, not guarantees.
- COVID-19 did not significantly affect Q1 operating results, but the company said future effects were uncertain. It deferred rent-increase notices, suspending increases expected to affect May and June rental income by approximately $24,000 and $20,000, respectively. It suspended eviction actions and offered payment plans; fewer than 100 residents had executed plans. As of the dates cited, it had collected 94% of April rent versus 96% at the comparable prior-year point, and 64% of May rent by May 5 versus 53% the prior year. Management believed the pandemic fallout would not materially adversely affect financial condition, while warning impacts could be material depending on developments.
- After quarter-end, the company entered contracts to buy two communities in New York and Pennsylvania for approximately $8.0 million. The communities had 315 developed homesites and 63% weighted-average occupancy.
- Other notable changes included a 19% increase in general and administrative expense, mainly attributed to personnel costs, and a 17% increase in depreciation, primarily related to acquisitions and rental-home additions. Interest expense fell 5%, primarily due to lower average loan balances and rates.
Risks, contingencies and other items
Key risks include the uncertain effects of COVID-19 on rent collection, occupancy, home sales, securities values, financing and access to capital; interest-rate and refinancing exposure; acquisition and integration risks; competition; and maintaining REIT tax qualification. The filing also describes potential obligations to purchase certain repossessed homes financed through 21st Mortgage; related loan balances were approximately $2.4 million under each of two arrangements. Management said ordinary-course claims and litigation were not expected to materially affect the company. No legal proceedings were reported in Part II.
Important facts for investors to verify
- Whether rent collections, resident payment plans and occupancy remained resilient as the pandemic progressed, and whether deferred rent increases were implemented.
- Whether the $38.6 million securities fair-value decline recovered or led to further portfolio losses; the portfolio’s concentration and liquidity also merit review.
- Whether operating cash flow and FFO support ongoing common and preferred dividends, especially given Q1 GAAP losses and substantial preferred dividend requirements.
- Whether planned rental-home additions and the two contracted acquisitions proceeded, and whether their occupancy and returns met management’s expectations.
- Availability and terms of credit facilities and capital-market funding, debt covenants, and the company’s ability to fund acquisitions, investment and distributions.