UMH Properties, Inc. — Q1 2012 Form 10-Q
Business and period: For the three months ended March 31, 2012. UMH owned and operated 41 manufactured-home communities with approximately 9,000 developed homesites in six states, sold and financed homes through a subsidiary, and invested in other REIT securities.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total income | $10.89 million | $9.02 million | Up 21% |
| Rental and related income | $8.76 million | $7.93 million | Up 10% |
| Manufactured-home sales | $2.13 million | $1.09 million | Up 96% |
| Net income | $1.75 million | $2.12 million | Down 18% |
| Net income attributable to common shareholders | $1.06 million | $2.12 million | Down 50% |
| Basic and diluted EPS attributable to common shareholders | $0.07 | $0.15 | Down $0.08 |
| FFO, as calculated by the company | $2.66 million | $3.51 million | Down 24% |
| Cash from operating activities | $2.76 million | $2.38 million | Up 16% |
Higher rental and home-sales revenue was offset by increased operating, administrative and depreciation expenses, and lower gains on securities sales. The company reported a $1.21 million securities gain in Q1 2012, versus $1.54 million a year earlier. Preferred dividends of $690,319 reduced income attributable to common shareholders; no preferred dividend was reported for Q1 2011. Home-sales operations recorded a $272,486 loss, equal to 13% of sales, versus a $283,223 loss, or 26% of sales, in Q1 2011; reported home-sales gross profit was 7% versus 9%.
Occupancy remained approximately 77%. Management attributed rental growth mainly to acquisitions and higher rental-home income; it said it had added a net approximately 140 rental units since Q1 2011. Rental and home-sales margins beyond the disclosed home-sales figures are not clearly provided.
Financial position and liquidity
- At March 31, 2012, total assets were $230.8 million, cash was $8.8 million, securities available for sale were $47.7 million, and shareholders’ equity was $113.5 million.
- Mortgages payable were $96.3 million and loans payable were $17.6 million. Their combined balance was approximately $113.9 million, broadly flat with year-end 2011; mortgage debt rose while loans payable fell. The securities portfolio was subject to a $9.7 million margin loan.
- Management reported $5 million available under an unsecured line of credit and $7 million under revolving lines for home sales and inventory financing. Twenty-two of the company’s 41 properties were unencumbered.
- Investing activities used $3.91 million and financing activities provided $1.19 million. Cash increased by $31,000 during the quarter. Common dividends paid were $2.81 million; preferred dividends paid were $690,319.
- The securities portfolio had $6.55 million in net unrealized gains. Eight securities were temporarily impaired, with $1.12 million of unrealized losses; management said it intended and was able to hold them for recovery.
Material developments, outlook and risks
- UMH acquired Countryside Estates in Indiana for $2.1 million in January. The 90-site community is being developed in phases and could ultimately contain approximately 200–210 sites.
- In March, UMH agreed to acquire 11 communities in Pennsylvania and New York, with 966 developed homesites and approximately 92% average occupancy, for about $28.25 million. Closing was expected in Q3 2012, subject to due diligence and customary conditions; completion was not assured.
- On April 10, after quarter-end, UMH issued 1.075 million Series A preferred shares and received approximately $26.1 million net proceeds. It intended to fund property purchases, including the pending acquisition, general corporate purposes and potentially debt repayment.
- A new $11.4 million mortgage was obtained in February at LIBOR plus 3.25%, with a swap fixing the effective rate at 4.39% through the February 2017 maturity. UMH also repaid approximately $4.7 million of 7.36% mortgage debt. A mortgage of approximately $2 million was due in July 2012, and management anticipated repayment.
- Management described the economy as slowly improving, noted increased community activity and demand for rentals, and said it intended to continue expanding real-estate investments. It believed available operating cash, asset sales, borrowing capacity and capital-market access would meet obligations for the next several years. This is management’s assessment, not a guarantee.
- Key disclosed risks include occupancy and rental-rate pressure, real-estate and economic conditions, acquisition execution, interest rates, refinancing and debt covenants, access to financing, manufactured-home buyer financing, and continued REIT tax qualification. The filing reported no material change in risk factors, no material litigation, and no off-balance-sheet arrangements.
Investor verification points
- Confirm whether the 11-community acquisition closed, its final price and funding mix, and any changes to expected timing or conditions.
- Track occupancy, rental-home growth, rent levels and community operating costs to assess whether revenue growth translates into stronger property-level returns.
- Reconcile net income, common-shareholder earnings and FFO, including preferred dividends and securities gains, when evaluating recurring performance.
- Monitor securities values, unrealized losses and the margin loan, as well as debt maturities, interest-rate exposure and remaining borrowing availability.
- Assess whether the preferred-stock proceeds and future financing needs support expansion without undue dilution or added leverage.