UMH Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. UMH is a REIT that owns and operates manufactured-home communities and also rents, sells, and finances manufactured homes. At quarter-end it operated 127 communities with approximately 24,000 developed homesites.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total income | $48.0 million | $43.1 million | $140.1 million | $120.8 million |
| Rental and related income | $40.2 million | $36.4 million | $118.3 million | $105.8 million |
| Net income (loss) | $4.2 million | $(1.8) million | $34.1 million | $(18.2) million |
| Net income (loss) attributable to common shareholders | $(3.4) million | $(12.7) million | $11.8 million | $(45.4) million |
| Basic earnings (loss) per common share | $(0.07) | $(0.31) | $0.27 | $(1.10) |
| Community NOI (non-GAAP) | $23.4 million | $20.1 million | $67.3 million | $58.6 million |
| Operating cash flow | Not separately presented | Not separately presented | $46.3 million | $50.3 million |
Q3 income rose 11%; nine-month income rose 16%. Management attributed rental growth primarily to acquisitions, rent increases, improved occupancy, and additional rental homes. Community NOI increased 16% for Q3 and 15% for the nine-month period. The nine-month operating expense ratio improved to 43.1% from 44.6%.
Quarterly common-shareholder results remained negative despite consolidated net income, largely reflecting $7.6 million of preferred dividends and a $5.4 million quarterly decline in the fair value of marketable securities. For the nine months, a $14.1 million securities fair-value gain contributed to the improvement from the prior-year loss. The filing’s non-GAAP FFO attributable to common shareholders was $10.8 million for Q3 and $29.1 million for nine months; normalized FFO was $11.1 million and $30.1 million, respectively.
Balance sheet, debt, and liquidity
- At September 30, 2021, total assets were $1.206 billion, total liabilities $536.1 million, and shareholders’ equity $669.6 million.
- Cash and cash equivalents were $82.4 million and marketable securities were $102.8 million. Cash, cash equivalents, and restricted cash totaled $90.5 million.
- Mortgages payable, net of issuance costs, were $467.5 million; loans payable, net, were $39.8 million. Mortgage debt was predominantly fixed-rate, with a weighted-average rate of 3.82% and weighted-average maturity of 5.3 years. The unsecured revolver had $25 million outstanding at 1.59%.
- Loans payable declined $47.2 million from year-end 2020. Management reported net debt to total market capitalization of approximately 20%, or approximately 16% after subtracting securities.
- Available borrowing capacity included $50 million under the unsecured facility, approximately $38.5 million under home-sales and inventory lines, and $15 million under a rental-home facility. The unsecured facility also had a conditional $50 million accordion feature.
- Nine-month investing cash outflow was $64.0 million, including $19.2 million for community acquisitions, $46.5 million for investment property and equipment, and $17.1 million for land development. Financing cash inflow was $79.6 million; cash increased by $61.9 million including restricted cash.
Material changes and operating developments
- Same-property occupancy increased to 87.3% from 85.4% a year earlier. Rental-home occupancy was 95.1% at quarter-end; the company had approximately 8,700 rental homes and added 448 during the first nine months.
- Manufactured-home sales rose 45% year over year for the nine months, to $21.8 million, while gross margin declined to 25% from 29%. Sales were 294 homes versus 252.
- UMH acquired three communities for approximately $18.3 million, adding 543 homesites. The acquisitions’ average occupancy at purchase was 59%.
- Common and Series D preferred shares were issued through at-the-market programs. Nine-month net proceeds were $110.5 million from common stock and $53.2 million from preferred stock. Common shares outstanding increased to 48.7 million from 41.9 million at year-end 2020.
- The REIT securities portfolio was 6.8% of undepreciated assets, within the company’s approximate 15% limit. It carried $25.2 million of net unrealized losses at quarter-end; the company stated it intended and was able to hold the securities for recovery.
Outlook, risks, and unusual items
Management said it intends to pursue acquisitions yielding above its cost of funds and invest in community improvements and rental homes. It cited healthy demand for affordable housing, but gave no formal quantitative earnings or operating guidance. Management said October rent collections were 95% as of the filing’s reporting date and that it did not then expect COVID-19 to have a material adverse operating effect; future effects remained uncertain.
Key risks include real-estate and economic conditions, competition, maintaining rents and occupancy, interest rates, home costs and availability, debt repayment and refinancing, covenant compliance, access to capital markets, acquisition integration, resident financing, securities-market volatility, and continued REIT qualification. The company reported no material change in risk factors, no material litigation, and no off-balance-sheet arrangements. It had contingent home-repurchase commitments relating to approximately $3.0 million of purchaser loan balances.
After quarter-end, the company sold additional common shares through its ATM program and received net proceeds of approximately $7.6 million through October 31. On November 1, 2021, it paid off a $12.4 million mortgage bearing 4.25% interest. Management stated it believed it could meet obligations and fund new investments.
Important facts for investors to verify
- How much of rental and NOI growth reflects same-property performance versus acquisitions and added rental homes.
- Whether occupancy and rent collections remain strong, and whether rising operating costs affect margins.
- How securities gains and losses affect reported earnings, and the scale and concentration of the securities portfolio.
- The effect of continued ATM issuance and preferred dividends on common-shareholder returns and per-share results.
- Debt maturities, revolver availability, refinancing terms, covenant headroom, and the sustainability of distributions alongside acquisition and development spending.