UMH Properties, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. UMH owns and operates manufactured-home communities, leases homes, sells and finances manufactured homes, and invests in other REITs. At quarter-end it owned 68 communities with approximately 12,800 developed homesites.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total income | $16.10 million | $11.14 million | $29.52 million | $22.03 million |
| Rental and related income | $13.76 million | $8.91 million | $25.40 million | $17.67 million |
| Net income | $1.62 million | $2.02 million | $5.77 million | $3.77 million |
| Net income (loss) attributable to common shareholders | ($270,000) | $1.09 million | $1.99 million | $2.15 million |
| Basic and diluted EPS attributable to common shareholders | ($0.02) | $0.07 | $0.11 | $0.14 |
| Cash provided by operations | — | $3.77 million | $4.08 million | |
| FFO attributable to common shareholders | $2.79 million | $2.80 million | $7.45 million | $5.46 million |
| Core FFO attributable to common shareholders | $3.06 million | $2.99 million | $8.32 million | $5.73 million |
Rental income rose 54% in Q2 and 44% for the six-month period, primarily from acquisitions and increased rental-home income. Occupancy was 82%, versus 78% a year earlier and 80% at year-end 2012. Community operating income (rental income less community operating expenses) was $6.84 million in Q2 and $12.53 million for the six months; the corresponding margins were approximately 49.7% and 49.3%, compared with approximately 45.2% in both prior-year periods.
Q2 net income declined year over year, while common shareholders reported a loss after $1.89 million of preferred dividends. Six-month net income increased, but common-attributable income and EPS were lower year over year. Manufactured-home sales were $2.34 million in Q2 and $4.13 million for the six months; sales operations remained loss-making, though the reported gross profit percentage improved to 16% for Q2 and 15% year to date.
Financial position and liquidity
- At June 30, 2013, total assets were $383.5 million, versus $300.3 million at December 31, 2012. Net investment property and equipment was $270.4 million.
- Cash was $14.3 million and available-for-sale securities were $50.3 million. Management reported $15.0 million available under the BMO line and $8.0 million under revolving facilities for home sales and inventory financing. Twenty-five of 68 properties were unencumbered.
- Mortgages payable were $155.0 million and loans payable were $37.1 million, totaling $192.1 million, versus $119.3 million combined at year-end. The company reported a 4.4% weighted-average mortgage rate, down from 5.4% a year earlier.
- Operating cash flow was $3.77 million. Investing activities used $77.21 million, mainly for acquisitions; financing activities provided $76.75 million. The company paid $6.45 million of common dividends and $3.78 million of preferred dividends during the six months.
- The $50 million-capacity BMO revolving facility (including an optional increase subject to conditions) had $20 million drawn. The March 2023 acquisition mortgage of $53.76 million bears fixed interest at 4.065%.
Material changes, outlook, and risks
- UMH acquired 10 communities with 1,854 sites for approximately $67.5 million in March and a 274-site Nashville community for approximately $7.25 million in April. The acquisitions contributed to higher rental revenue, operating costs, depreciation, and interest expense.
- The company had definitive agreements to acquire 14 additional communities with approximately 1,620 sites for about $38 million, assuming approximately $26 million of mortgages. Management anticipated closings in 2013 or early 2014, subject to due diligence.
- Management said it intends to continue growing its real-estate investments and may add rental homes, citing increased rental demand. It stated that available funding sources should be adequate to meet obligations over the next several years. No numerical earnings or revenue guidance was provided.
- The REIT securities portfolio had a fair value of $50.3 million, net unrealized gains of $5.23 million, and generated $3.68 million of realized gains in the first half. Nine securities were temporarily impaired; management said it had the ability and intent to hold them for recovery.
- A putative class action alleges discrimination and consumer-protection violations relating to Memphis Mobile City. UMH considers the action without merit and is defending it with its insurer’s support. Management said ordinary-course claims and litigation were not expected to have a material adverse effect.
- Key stated risks include economic and local real-estate conditions, occupancy and rental rates, competition, acquisition execution, interest rates, debt repayment/refinancing and covenant compliance, access to financing, manufactured-home buyer financing, and continued REIT tax qualification.
Investor verification points
- Confirm whether the acquired communities deliver expected occupancy, rental income, and operating cash flow, and whether the 14 announced acquisitions close on the stated terms and timetable.
- Track debt and liquidity after acquisition spending, including BMO line utilization, refinancing needs, and the ability to fund dividends and investment plans.
- Assess recurring operating performance separately from securities gains: first-half realized securities gains were $3.68 million, while Q2 common-attributable results were a loss.
- Review occupancy, rental-home demand and margins, and the continuing losses in manufactured-home sales operations.
- Monitor the securities portfolio’s impairments and market-value changes, and developments in the Memphis Mobile City litigation.