UMH Properties, Inc. - Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. UMH Properties, Inc. is a Real Estate Investment Trust (REIT) that owns and operates 28 manufactured home communities with approximately 6,800 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The company also engages in the sale and financing of manufactured homes through its taxable subsidiary, UMH Sales and Finance, Inc.
Key Financial Metrics
- Total Income: $8,161,272 (Rental: $6,704,321; Home Sales: $1,456,951).
- Net Income: $1,884,998 (EPS: $0.15 Basic/Diluted).
- Funds From Operations (FFO): $2,888,541.
- Cash Flow from Operations: $2,681,185.
- Liquidity: Cash and cash equivalents totaled $6,845,533. Securities available for sale totaled $36,978,067.
- Debt: Mortgages payable were $69,844,877. Loans payable were $18,288,203. Total liabilities were $91,605,044.
- Occupancy: 78% (down from 80% in Q1 2009).
Material Changes vs. Prior Period
Compared to the quarter ended March 31, 2009:
- Profitability Turnaround: The company reported a net income of $1.88 million, reversing a net loss of $1.10 million in the prior year period.
- Revenue Growth: Total income increased 7% ($518,973). Rental income rose 2% due to rate increases, while home sales revenue increased 34% ($371,151).
- Securities Performance: A significant driver of the turnaround was a net gain on securities transactions of $981,915, compared to a loss of $2.28 million in 2009. The 2009 loss included $1.72 million in impairment charges which did not recur in 2010.
- Expense Increases: Total expenses rose 12% ($746,011), driven by higher costs of home sales, community operating expenses (due to severe winter repairs), and general administrative costs.
- Home Sales Margins: While sales volume increased, the gross profit percentage on home sales decreased from 8% in 2009 to 6% in 2010 due to economic headwinds.
Outlook, Risks, and Management Commentary
Management Commentary: Management notes that while the US economy is showing signs of improvement, high unemployment and difficulties in selling existing homes continue to impact occupancy and sales. The company is actively raising rental rates (3-6% annually) and positioning itself for future growth through opportunistic investments. The company holds a portfolio of REIT securities intended for long-term holding, which currently provides liquidity and yield.
Debt and Liquidity: The company has a $5 million unsecured line of credit (30% utilized) and is in the process of refinancing a $2.4 million mortgage maturing in May 2010. Management believes funds from operations, the Dividend Reinvestment Plan (DRIP), and available credit lines are sufficient to meet obligations.
Risks: Key risks include the ability to maintain occupancy and rental rates, access to debt and equity markets, and the impact of general economic conditions on the manufactured housing industry. There are no material legal proceedings or defaults on senior securities reported.
Investor Verification Checklist
- Verify the success of the refinancing for the $2.4 million mortgage maturing in May 2010.
- Monitor occupancy trends to see if the 78% level stabilizes or improves as the economy recovers.
- Review the gross profit margin on manufactured home sales, which declined to 6% despite higher volume.
- Assess the sustainability of the $981,915 gain on securities transactions, which was a major contributor to net income.
- Confirm the utilization rates of the company's three lines of credit ($5M unsecured, $10M home sales, $7.5M inventory).