UMH Properties, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; balance-sheet comparisons are with December 31, 2018. UMH is a REIT operating manufactured-home communities and selling, renting, and financing manufactured homes. At quarter-end it owned 118 communities with approximately 21,500 developed homesites.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total income | $37.23 million | $32.10 million | $71.52 million | $61.89 million |
| Net income (loss) | $0.75 million | $20.07 million | $11.79 million | $(2.14) million |
| Net income (loss) attributable to common shareholders | $(5.54) million | $14.95 million | $0.38 million | $(12.21) million |
| Common diluted EPS | $(0.15) | $0.40 | $0.01 | $(0.34) |
| Community NOI (non-GAAP) | $16.42 million | $15.52 million | $31.92 million | $30.04 million |
| FFO attributable to common shareholders (non-GAAP) | $5.67 million | $6.15 million | $11.76 million | $12.51 million |
| Normalized FFO attributable to common shareholders (non-GAAP) | $5.67 million | $6.68 million | $12.14 million | $13.01 million |
- Rental and related income increased 11% in Q2 and 12% year to date. Manufactured-home sales rose 51% and 49%, respectively.
- Community NOI increased 6% in both periods. The operating expense ratio rose to 47.7% in Q2 from 45.0%, and to 48.5% year to date from 45.9%; excluding a $375,250 one-time utility-billing settlement, the six-month ratio was 47.9%.
- Q2 GAAP earnings were sharply lower year over year, principally reflecting a $2.35 million fair-value loss on marketable securities versus a $16.62 million gain in Q2 2018. For the first half, the fair-value change was a $6.24 million gain versus a $9.28 million loss in 2018. The portfolio had $33.91 million of net unrealized losses at June 30.
- Six-month operating cash flow was $11.65 million, down from $14.44 million. Investing used $34.46 million; financing provided $19.33 million. Cash, cash equivalents, and restricted cash ended at $9.30 million, including $3.72 million of unrestricted cash.
- Total assets were $915.29 million and total liabilities $385.30 million. Mortgages payable were $330.65 million before debt issuance costs, at a 4.3% weighted-average rate; loans payable net of costs were $38.72 million. Mortgages were fixed rate, with a 5.8-year weighted-average maturity. Net debt was approximately 29% of total market capitalization, or approximately 20% after securities, per management.
- Marketable securities were $106.77 million. UMH reported $75 million available under its unsecured facility, with a further $50 million accordion subject to conditions, and approximately $20.7 million available on home-related revolving facilities. No amount was drawn on the unsecured facility at quarter-end.
Material changes and capital allocation
- UMH issued 4.0 million Series C preferred shares in April at $25 per share, raising approximately $96.7 million net. Series C shares outstanding increased to 9.75 million. Preferred dividends increased to $6.29 million in Q2 from $5.12 million a year earlier.
- Common shares outstanding increased to 40.15 million from 38.32 million at year-end, including issuance through the dividend reinvestment plan. The company raised $21.40 million through the DRIP during the first half.
- Investment property and equipment increased 3% to $925.52 million gross, reflecting capital spending and 336 rental homes added during the first half. Rental-home occupancy was 93.6%, compared with 92.3% at year-end; same-property occupancy reached 83.6%, up 140 basis points year over year.
- Loans payable fell substantially, primarily reflecting reductions in margin-loan and credit-facility borrowings. Mortgages payable declined modestly due to principal payments.
Outlook, commentary, and risks
- Management plans to continue acquiring communities and investing in improvements and rental homes, and anticipated adding approximately 800 rental homes in 2019. No earnings or FFO guidance was provided.
- Management cited favorable affordable-housing demand, stronger occupancy, rental-rate increases generally of 3%–5% annually, and healthy manufactured-home sales demand. It cautioned that suitable acquisitions, financing, and future rental-home demand are not assured.
- Three communities were acquired after quarter-end: Friendly Village for approximately $19.39 million and New Colony and 51 Estates for approximately $11.65 million combined. A further contracted community, part of four purchases totaling approximately $56.24 million, was expected to close later in Q3. Acquired communities had occupancy of approximately 46% and 76%, respectively.
- On July 1, UMH obtained $38.78 million of 10-year Fannie Mae mortgages at 3.41%, refinancing approximately $11.5 million of debt previously bearing a 5.94% weighted-average rate.
- Risks highlighted include real-estate and local-market conditions, competition, acquisition and integration execution, occupancy and rent levels, interest rates, refinancing and covenant compliance, access to capital, homebuyer financing, securities-market volatility, and maintaining REIT tax status.
- Under a home-financing arrangement, UMH agreed to purchase certain repossessed homes from 21st Mortgage at 80%–95% of related loan balances; covered balances were approximately $2.7 million for current-community loans and $2.8 million for loans tied to acquired communities. Management said ordinary-course litigation was not expected to have a material adverse effect. No off-balance-sheet arrangements were reported.
Investor verification priorities
- Reconcile GAAP net income and common-shareholder earnings with FFO and normalized FFO, particularly the sizable marketable-securities fair-value swings.
- Assess whether NOI growth can outpace community expense growth and improve the operating expense ratio, including costs at recently acquired communities.
- Verify liquidity and leverage after the post-quarter mortgage refinancing, acquisitions, preferred-stock dividends, and common distributions.
- Review acquisition occupancy, planned capital needs, and the expected timing and funding of the remaining contracted purchase.
- Monitor securities-portfolio concentration and unrealized losses, home-loan credit exposure and repossession obligations, and progress toward the 2019 rental-home addition target.