UMH Properties, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. UMH is a REIT focused on manufactured-home communities, with related rental-home, home-sales and financing operations. It owned and operated 135 communities with approximately 25,800 developed homesites; it also held an interest in two Florida communities through a joint venture.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total income | $56.0 million | $51.9 million | $163.9 million | $147.0 million |
| Rental and related income | $48.1 million | $42.9 million | $140.5 million | $126.7 million |
| Community NOI | $27.5 million | $23.7 million | $79.7 million | $70.5 million |
| Net loss attributable to common shareholders | $(5.8) million | $(9.7) million | $(15.5) million | $(36.5) million |
| Loss per common share, basic and diluted | $(0.09) | $(0.18) | $(0.25) | $(0.68) |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $90.3 million | $5.1 million |
- Q3 rental income increased 12% and nine-month rental income increased 11%. Management attributed growth mainly to acquisitions, higher rents, improved occupancy and additional rental homes. Same-property NOI rose 13% in Q3 and 10% year to date.
- Community NOI increased 16% in Q3 and 13% year to date. The operating expense ratio improved to 42.9% in Q3 from 44.7%, and to 43.3% year to date from 44.3%.
- Manufactured-home sales revenue fell 13% in Q3, although units sold were roughly flat at 90 versus 89. Year-to-date sales revenue increased 15%, to $23.4 million, on 264 homes sold versus 236. Gross profit margins were 33% in Q3 and 31% year to date.
- Net losses narrowed year over year, but results included fair-value declines in marketable securities of $5.5 million in Q3 and $10.4 million year to date. Nine-month 2022 results also included a $24.3 million realized securities gain. Normalized FFO, a non-GAAP measure, was $14.4 million for Q3 and $39.2 million year to date, versus $13.1 million and $35.5 million, respectively.
- Q3 interest expense was $7.7 million, up 11%; nine-month interest expense was $24.7 million, up 31%, primarily reflecting bond interest, higher average borrowings and interest rates.
Financial position and liquidity
- At September 30, 2023, total assets were $1.39 billion, total liabilities $715.1 million and shareholders’ equity $677.7 million. Cash and cash equivalents were $38.6 million; marketable securities were $27.6 million.
- Mortgages payable, net, were $442.2 million, down from $508.9 million at year-end 2022; the reported average fixed mortgage rate was 3.92%. Loans payable, net, were $144.6 million, with a reported weighted-average rate of 7.32%. Series A Bonds, net, were $99.8 million. The unsecured revolving facility had $100 million outstanding at 7.27%, with $80 million available under its $180 million commitment.
- Management reported approximately $177.4 million available across revolving lines for home sales, rental-home and inventory financing. It also cited 56 unencumbered communities. Net debt to total market capitalization was approximately 34% (33% after subtracting securities); no mortgages were due within 12 months.
- Nine-month operating cash flow was $90.3 million, investing cash use $134.9 million and financing cash inflow $49.3 million. The operating-cash-flow increase was primarily associated with a $49.5 million reduction in manufactured-home inventory, compared with a $33.5 million inventory increase in the prior-year period.
Changes, outlook and risks
- Same-property occupancy reached 88.4%, up 210 basis points year over year; management cited rental-rate increases of 5.3%. Rental homes numbered approximately 9,900, with 94.2% occupancy. The company added 779 rental homes net in the first nine months and anticipated adding approximately 800–900 for full-year 2023.
- UMH raised its quarterly common dividend to $0.205 per share in January 2023. To fund growth and strengthen liquidity, it issued common and Series D preferred shares through at-the-market programs, receiving net proceeds of $122.0 million and $46.8 million, respectively, during the first nine months. This increases share counts and may dilute existing holders.
- Investment in property and equipment rose by $108.1 million from year-end, while manufactured-home inventory fell to $39.0 million from $88.5 million. The company acquired the 118-site Mighty Oak community for approximately $3.7 million. A proposed purchase of two Maryland communities for approximately $12.5 million remained pending as of November 8, 2023.
- Management described demand for affordable housing and rental homes as strong and intends to pursue acquisitions, community improvements and rental-home additions. Acquisition opportunities, financing availability and the ability to achieve expected returns are not assured. The filing gives no earnings or FFO guidance.
- Key disclosed risks include interest-rate and refinancing exposure, access to debt and equity markets, competition, inflation in operating and insurance costs, maintaining occupancy and rental rates, manufactured-home availability and buyer financing, property integration, debt-covenant compliance, securities-market volatility and maintaining REIT qualification. The company reported no material risk-factor changes, no material litigation and no off-balance-sheet arrangements.
- Contingencies include obligations to repurchase certain repossessed homes financed by 21st Mortgage; associated loan balances were approximately $2.4 million under the prior program and $740,000 in acquired communities. The prior program was terminated, but obligations on existing loans remain. Management said ordinary-course claims and litigation were not expected to materially affect results.
Investor verification points
- Reconcile reported GAAP losses with FFO and Normalized FFO, including the treatment of securities fair-value changes and other adjustments.
- Assess the sustainability of operating cash flow, given the material inventory reduction, and compare cash generation with capital spending, dividends and debt service.
- Review the cost, maturity and covenant terms of variable-rate facilities, as well as liquidity availability and refinancing needs.
- Evaluate share dilution from common and preferred ATM issuance against the returns on acquisitions and rental-home investment.
- Track occupancy, rent increases, rental-home additions, manufactured-home sales margins and the pending Maryland acquisition.