Business context and reporting period
UMH Properties, Inc. is a REIT that owns and operates manufactured-home communities and also leases, sells, and finances manufactured homes. This unaudited 10-Q covers the three months ended March 31, 2013, compared with the same quarter of 2012. At quarter-end, UMH owned 67 communities with approximately 12,500 developed homesites. It acquired 10 communities with 1,854 sites on March 1 for approximately $67.5 million; a further 274-site Nashville community was acquired April 2 for $7.25 million.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total income | $13.43 million | $10.89 million; up 23% |
| Rental and related income | $11.64 million | $8.76 million; up 33% |
| Manufactured-home sales | $1.78 million | $2.13 million; down 16% |
| Net income | $4.15 million | $1.75 million |
| Net income attributable to common shareholders / diluted EPS | $2.26 million / $0.13 | $1.06 million / $0.07 |
| Operating cash flow | $1.68 million | $2.76 million |
| FFO / Core FFO attributable to common shareholders | $4.66 million / $5.25 million | $2.66 million / $2.74 million |
Community operating income (rental income less community operating expenses) was $5.69 million, versus $3.97 million; its ratio to rental income was approximately 49%, versus 45%. Net income benefited substantially from $3.31 million of realized gains on REIT securities, compared with $1.21 million a year earlier. Interest expense rose 17% to $1.68 million, while depreciation increased 49% to $2.39 million. The filing does not provide a consolidated operating-margin measure.
Investing activities used $59.84 million, primarily for the 10-community acquisition; financing activities provided $55.61 million. Cash declined $2.55 million to $8.49 million. At March 31, assets were $362.71 million and total liabilities were $180.03 million. Mortgages payable were $161.74 million, up from $108.87 million at year-end; additional loans payable were $12.14 million. The new $53.76 million acquisition mortgage carries a fixed 4.065% rate and matures in 2023. UMH reported $49.04 million of securities available for sale, $35 million available under its new unsecured revolver, and $6.9 million available on home-sales/inventory revolving lines. It also reported 22 unencumbered properties.
Common and preferred dividends paid were $3.16 million and $1.89 million, respectively. The quarterly common dividend was $0.18 per share; the Series A preferred dividend was $0.515625 per share. The preferred stock carries an 8.25% cumulative annual dividend rate.
Material changes versus the prior period
- Rental growth reflected 2012–2013 acquisitions and increased rental-home income; occupancy rose to 81% from 77% at March 31, 2012. Management also reported occupancy improving from 80% at year-end 2012.
- The March acquisition expanded the portfolio and drove higher property expenses, depreciation, mortgage debt, and acquisition costs. Acquisition costs were $591,068 versus $82,657.
- Manufactured-home sales and sales costs declined. The company reported a 15% gross-profit percentage on home sales versus 7% a year earlier, but sales operations remained loss-making after selling expenses.
- Common shares outstanding at quarter-end increased to 17.80 million from 17.11 million at year-end, including shares issued through the dividend reinvestment and stock purchase plan.
Outlook, risks, and unusual items
Management said community activity had recently increased, demand for rental units was improving, and it intended to continue pursuing opportunistic acquisitions. It stated that funds generated should be adequate to meet obligations over the next several years. No quantitative earnings or FFO guidance was provided. Management described the economic recovery as slow and cited affordability and the relative stability of manufactured-housing communities as supportive factors.
The company entered a $35 million unsecured Bank of Montreal revolving credit facility on March 29, 2013, with potential capacity up to $50 million subject to additional commitments. On April 1 it borrowed $20 million, partly in anticipation of the Nashville acquisition. On April 3 it repaid approximately $5.7 million of mortgages carrying 6.8% interest. These are post-quarter events.
Key risks identified include occupancy and rental-rate trends, local real-estate conditions, acquisition execution, interest rates, debt repayment and refinancing, covenant compliance, access to financing, manufactured-home buyer financing and repossessions, and maintaining REIT tax qualification. UMH held $8.24 million in net unrealized gains in its REIT securities portfolio; investment values and realized gains may fluctuate. Two securities were temporarily impaired, with aggregate unrealized losses of $50,100. Management reported no material litigation, no material changes to risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether acquired communities sustain occupancy and rental growth, and how acquisition-related costs affect recurring results.
- How much reported earnings growth depends on realized and unrealized gains in the REIT securities portfolio versus community operations.
- Operating cash flow fell despite higher net income; assess cash conversion, capital needs, and distributions against ongoing cash generation.
- Debt increased materially: review the new revolver’s actual utilization, covenants, refinancing exposure, and variable-rate sensitivity.
- Confirm the subsequent Nashville acquisition, $20 million revolver borrowing, and mortgage repayments are reflected in later-period results and liquidity.
- Consider dilution from share issuance and the cumulative preferred dividend obligation when assessing common-shareholder returns.