UMH Properties, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. UMH is a REIT focused on owning and operating manufactured-home communities and also sells and finances manufactured homes. It reported 130 communities with approximately 24,400 developed homesites, plus a 40% interest in a Florida joint venture.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total income | $49.2 | $49.0 | $95.1 | $92.1 |
| Rental and related income | $42.2 | $39.3 | $83.8 | $78.1 |
| Net income (loss) | $(6.7) | $16.0 | $(3.4) | $29.9 |
| Net income (loss) attributable to common shareholders | $(22.5) | $8.4 | $(26.8) | $15.2 |
| EPS, basic and diluted | $(0.41) | $0.18 | $(0.50) | $0.34 |
| Community NOI | $23.3 | $22.3 | $46.8 | $43.9 |
| Normalized FFO attributable to common shareholders | $8.7 | $10.3 | $17.7 | $19.0 |
Community NOI is a non-GAAP measure. Operating cash flow was $5.4 million for the first six months, compared with $33.2 million a year earlier. Investing activities provided $0.9 million, while financing activities provided $153.7 million. Cash and cash equivalents were $275.8 million at June 30; including restricted cash, the balance was $285.0 million.
At June 30, total assets were $1.423 billion and total liabilities were $901.4 million. Mortgages payable, net of issuance costs, were $468.8 million; loans payable, net, were $58.4 million; and Series A Bonds, net, were $98.8 million. The company also had $247.1 million of Series C preferred stock classified as a liability after announcing its redemption. Net debt to total market capitalization was approximately 19%, or 17% after also deducting securities.
Material changes and notable items
- Rental income increased 7% in both the quarter and six-month period, with acquisitions, rent increases, occupancy and added rental homes contributing. Same-property occupancy was 86.7% at June 30, unchanged year over year.
- Community NOI rose 5% in Q2 and 7% year to date. Community operating expense ratios increased to 44.8% from 43.3% in Q2 and to 44.1% from 43.8% for the six-month period, reflecting higher personnel, tax, insurance and water/sewer costs.
- Manufactured-home sales declined 27% in Q2 and 20% year to date. Gross profit percentage improved to 31% in Q2 and 31% year to date, versus 27% and 25%, respectively, in 2021.
- Common-shareholder losses were heavily affected by marketable-securities valuation changes: the company recorded a $10.0 million fair-value loss in Q2 and a $41.8 million loss for the six months. The six-month results also included a $30.7 million realized gain from the MREIC merger. The securities portfolio was $46.9 million at quarter-end, with $56.1 million of net unrealized losses.
- Interest expense rose 29% in Q2 and 22% year to date, mainly reflecting the Series A Bonds. The company issued $102.7 million of 4.72% bonds due 2027 and received $98.7 million net proceeds. It also raised $58.2 million net through common-stock ATM sales.
- During the first half, UMH acquired three communities totaling 367 sites for approximately $17.1 million and added 151 rental homes. Rental-home occupancy was 94.6% at June 30.
Outlook, liquidity and risks
Management anticipated adding approximately 700–800 rental homes in 2022 and described demand for affordable housing and rental homes as strong. It plans to continue acquiring and improving communities, subject to suitable properties, financing and competition; no formal earnings guidance was provided. Management said inflation had generally not materially affected continuing operations to date, while noting cost pressures and deferred maintenance at some recently acquired communities.
At quarter-end, management reported $50 million available under its unsecured credit facility, $30.1 million available on revolving lines for home sales and inventory, and $15 million available under a rental-home-secured line. It also cited marketable securities and unencumbered properties as sources of liquidity. On July 26, 2022, UMH redeemed all Series C preferred shares for approximately $249.6 million; it drew $50 million on its credit facility on July 22 in conjunction with the redemption. A July acquisition of Hidden Creek, Michigan, for approximately $21.1 million and an $8 million investment in a newly formed Opportunity Zone fund were also disclosed.
Risks identified include real-estate and economic conditions, interest rates, inflation and home costs, acquisition competition and availability, occupancy and rents, access to debt and equity markets, debt refinancing and covenant compliance, manufactured-home buyer financing, and marketable-securities volatility. Management said COVID-19 had not, at that time, materially affected operations; it reported collecting 93% of July 2022 site and home rent as of the filing’s stated date. The company reported no material change in risk factors, no legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- How the subsequent $249.6 million Series C redemption and $50 million credit-facility draw affect liquidity, leverage and interest costs after quarter-end.
- Whether rental income and NOI growth can continue while operating expenses rise and acquired communities require deferred-maintenance spending.
- How the $56.1 million net unrealized securities loss and continuing market volatility affect reported earnings and available liquidity.
- Whether the company can fund planned acquisitions and 700–800 rental-home additions while managing debt maturities, financing costs and potential equity dilution from ATM issuance.
- Performance and occupancy progress at the recently acquired communities, including La Vista Estates, which was only 6% occupied at acquisition.