UMH Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. Unless stated otherwise, amounts below are in millions of dollars.
Business context
UMH is a REIT focused on manufactured-home communities and related home rentals, sales and financing. At quarter-end it owned and operated 127 communities with approximately 24,000 developed homesites across ten states. Its REIT securities portfolio was $115.4 million, or 7.7% of undepreciated assets.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total income | $49.0 | $40.1 | $92.1 | $77.7 |
| Rental and related income | $39.3 | $35.1 | $78.1 | $69.4 |
| Manufactured-home sales | $9.6 | $5.0 | $14.0 | $8.2 |
| Net income (loss) | $16.0 | $18.3 | $29.9 | $(16.4) |
| Net income (loss) attributable to common shareholders | $8.4 | $10.2 | $15.2 | $(32.6) |
| Basic and diluted earnings (loss) per share | $0.18 | $0.25 | $0.34 | $(0.79) |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $33.2 | $31.0 |
Community NOI, a non-GAAP measure, was $22.3 million for Q2 and $43.9 million for the six months, up 14% in each comparison. The community operating expense ratio improved to 43.3% for Q2 from 44.0%, and to 43.8% for the six months from 44.6%. Manufactured-home sales gross margin was 27% in Q2 versus 28%, and 25% for the six months versus 27%.
FFO attributable to common shareholders was $9.9 million in Q2 versus $7.1 million; normalized FFO was $10.3 million versus $7.1 million. For the six months, FFO was $18.2 million versus $13.2 million, and normalized FFO was $19.0 million versus $13.2 million. These are non-GAAP supplemental measures, not substitutes for GAAP earnings or cash flow.
Financial position, liquidity and capital
- At June 30, total assets were $1.212 billion and total liabilities were $559.4 million. Mortgages, net of issuance costs, were $466.2 million; loans payable, net, were $63.5 million. Mortgages were predominantly fixed-rate, at a reported weighted-average rate of 3.84%; the unsecured credit facility balance was $45 million at 1.59%.
- Cash and cash equivalents were $90.1 million; marketable securities were $115.4 million. Cash, cash equivalents and restricted cash totaled $102.3 million. Management reported approximately $34.8 million available on home-sale/inventory lines, $15 million on rental-home financing and $30 million on the unsecured facility, with a further $50 million potentially available under its accordion feature.
- Six-month investing cash outflow was $49.6 million and financing cash inflow was $90.0 million. Financing included $84.7 million net proceeds from common-stock ATM sales and $53.2 million net proceeds from preferred-stock ATM sales, partly offset by debt payments and dividends.
- Management reported net debt to total market capitalization of approximately 22%, or approximately 16% after subtracting securities. Mortgages of $14.6 million were due within the next 12 months.
Changes versus the prior comparable period
- Rental income rose 12% in both the quarter and six-month period, reflecting acquisitions, rent increases, higher occupancy and additional rental homes. Same-property occupancy increased 280 basis points year over year to 87.1%; same-property NOI increased 15% for the six months.
- Manufactured-home sales increased 91% in Q2 and 70% for the six months. Home sales operating income was $1.2 million in Q2, compared with $0.1 million, and $0.9 million for the six months, compared with a $0.2 million loss.
- GAAP net income was affected materially by marketable-securities fair-value changes: a $9.3 million gain in Q2 2021 versus $13.4 million in Q2 2020, and a $19.5 million gain for the first half of 2021 versus a $25.2 million loss in the prior-year period. Thus the first-half earnings swing does not solely reflect property operations.
- Interest expense increased 19% in Q2 and 13% for the six months, primarily due to higher average debt, including 2020 financing. Debt balances were reduced during the first half through repayment of margin and inventory-related borrowing.
- UMH acquired three communities in Alabama, South Carolina and Ohio, adding 543 homesites for approximately $18.3 million. It also added 352 rental homes in the first half.
Outlook, risks and unusual items
- Management said it intends to continue acquiring communities and investing in improvements and rental homes, and anticipated ordering approximately 800–900 rental homes in 2021. It cautioned that suitable acquisitions, financing and future demand are not assured; no earnings or revenue guidance was provided.
- Management reported collections consistent with pre-pandemic levels and 95% of July site and home rent collected as of the filing discussion. It said COVID-19 had not significantly affected reported-period operations and did not then expect a material adverse effect, while emphasizing continuing uncertainty.
- Marketable securities had $19.8 million of net unrealized losses at June 30, despite the first-half fair-value gain. The portfolio exposes reported earnings to market movements; UMH stated it intended and was able to hold the securities for recovery.
- Other risks identified include real-estate conditions and competition, interest rates, acquisition and occupancy execution, debt repayment/refinancing and covenant compliance, access to capital markets, home costs and buyer financing, and REIT qualification. The company disclosed contingent commitments to purchase certain repossessed homes; related loan balances were approximately $1.5 million under one arrangement and $1.8 million for acquired communities.
- After quarter-end, UMH paid down its floorplan financing on July 28 and repaid $20 million on its unsecured line of credit on August 2. It declared a $0.19-per-share common dividend and quarterly Series C and Series D preferred dividends payable September 15.
- The filing reported no material litigation, no off-balance-sheet arrangements, no material change in risk factors, and effective disclosure controls.
Investor verification priorities
- Separate recurring community operating trends from reported GAAP earnings, which were substantially affected by securities valuation changes.
- Review the composition, unrealized losses and concentration of the REIT securities portfolio, including the MREIC investment.
- Verify debt maturities, facility availability, covenant compliance and the effect of post-quarter debt repayments on liquidity.
- Track same-property occupancy, rental-home occupancy, operating costs and whether planned 2021 rental-home purchases are achieved.
- Assess acquisition integration and the costs of improving recently acquired, lower-occupancy communities, as well as manufactured-home sales margins and financing-related contingencies.