UMH Properties, Inc. - 10-Q Summary (Period Ended September 30, 2009)
Business Context and Reporting Period
This is a quarterly report (Form 10-Q) for UMH Properties, Inc., a Real Estate Investment Trust (REIT) owning and operating 28 manufactured home communities with approximately 6,800 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The reporting period covers the three and nine months ended September 30, 2009. The company also operates a taxable subsidiary, UMH Sales and Finance, Inc., for the sale and financing of manufactured homes.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2009 | 9 Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $25,432,007 | $29,014,594 |
| Net Income | $1,419,756 | $2,407,051 |
| Funds From Operations (FFO) | $4,510,526 | $5,426,767 |
| Net Cash from Operating Activities | $9,111,980 | $6,746,619 |
| Cash and Cash Equivalents | $3,053,144 | $2,306,207 |
| Total Assets | $144,807,183 | $137,939,325 |
| Total Liabilities | $93,075,965 | $93,217,625 |
| Mortgages Payable | $68,420,619 | $65,952,895 |
| Securities Available for Sale | $30,463,087 | $21,575,072 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 12% year-over-year for the nine-month period, primarily driven by a 41% drop in sales of manufactured homes ($4.4M vs $7.5M). This was partially offset by a 4% increase in rental income and a 9% increase in interest/dividend income.
- Net Income Drop: Net income fell 41% to $1.42M. The decline is attributed to a non-cash impairment charge of $1.89M on securities deemed other-than-temporarily impaired and the reduction in home sales.
- Community Operations: Despite the broader revenue decline, income from community operations (rental income less operating expenses) increased 7% to $9.91M, aided by rental rate increases of 3-6% annually and stable occupancy at approximately 80%.
- Securities Portfolio: The portfolio grew 41% to $30.5M. While the company recorded a net loss on securities transactions of $2.15M for the nine months, the unrealized gain position improved significantly from a loss of $5.67M at year-end 2008 to a gain of $1.20M at September 30, 2009.
- Debt and Liquidity: Mortgages payable increased 4% due to a new $4M mortgage on Weatherly Estates. Loans payable decreased 10% due to margin loan paydowns. The company maintains a $5M unsecured line of credit (fully available) and a $10M revolving line for home sales ($8.69M outstanding).
Guidance, Outlook, and Risks
- Outlook: Management believes the manufactured housing industry has performed better than other commercial property types during the recession. They anticipate performing well due to home affordability and a slowdown in site-built home construction. The company intends to hold its securities portfolio long-term.
- Dividends: A quarterly dividend of $0.18 per share was declared on October 6, 2009, payable December 15, 2009. Total dividends paid for the nine months were $6.08M.
- Capital Markets: The company continues to raise capital through its Dividend Reinvestment and Stock Purchase Plan (DRIP), raising $4.77M in the nine-month period. A $10M share repurchase program was renewed in June 2009, though no shares have been repurchased to date.
- Risks: Key risks include the current economic downturn, lack of liquidity in the lending environment, rising unemployment, and the ability to refinance a $12.5M mortgage maturing in November 2009. Management is optimistic about refinancing this debt.
- Unusual Items: The $1.89M non-cash impairment charge on securities is a significant unusual item impacting net income but not cash flow.
Investor Verification Checklist
- Refinancing Status: Verify the successful refinancing or extension of the $12.5M mortgage maturing in November 2009.
- Securities Valuation: Review the composition of the $30.5M securities portfolio and the criteria used to determine the "temporary" nature of the remaining impairments.
- Home Sales Recovery: Monitor trends in manufactured home sales and occupancy rates, as these remain depressed compared to 2008 levels.
- Debt Covenants: Confirm compliance with debt covenants given the current economic environment and the company's leverage.
- FFO vs. Net Income: Note the divergence between Net Income ($1.42M) and FFO ($4.51M) due to non-cash impairment charges and depreciation.