UMH

UMH Properties, Inc. - 10-Q Summary (Period Ended June 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 six months ended June 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

Community Operating Income: Increased 12% to $6,737,717 for the six months ended June 30, 2009, compared to $6,038,045 in the prior year period.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased approximately 17% year-over-year. This was driven by a 45% drop in sales of manufactured homes and a significant increase in net losses on securities transactions.
• Net Income Collapse: Net income fell 93% to $79,726. The primary driver was a non-cash impairment charge of $1,893,314 on securities deemed "other-than-temporarily impaired."
• Home Sales: Sales of manufactured homes dropped 48% for the quarter and 45% for the six-month period, attributed to the difficult economic climate, rising unemployment, and competition from conventional housing.
• Operating Cash Flow: Despite the drop in net income, net cash provided by operating activities increased 36% to $6.84 million, largely due to the add-back of the non-cash impairment charge.
• Debt Structure: Mortgages payable increased by $3.1 million due to a new $4 million mortgage on Weatherly Estates, partially offset by principal repayments. Loans payable decreased by $1.4 million due to margin loan paydowns.

Guidance, Outlook, and Risks

• Outlook: Management believes the manufactured housing industry has performed better than other commercial property types during the recession. They anticipate satisfactory returns from their securities portfolio, which they intend to hold long-term, noting an improvement in unrealized losses during the quarter.
• Liquidity: The company maintains $4.8 million in cash and $22.9 million in securities. It has a $5 million unsecured line of credit ($3.5 million utilized) and a $10 million revolving line for home sales ($8.7 million outstanding).
• Dividends: A dividend of $0.18 per share was paid in June 2009. A subsequent dividend of $0.18 per share was declared on August 5, 2009, payable September 15, 2009.
• Risks: Key risks include the current economic downturn, lack of liquidity in the lending environment, the ability to refinance a $12.5 million mortgage maturing in November 2009, and volatility in the REIT securities market.
• Share Repurchase: The Board renewed a $10 million share repurchase program in June 2009, though no shares had been repurchased as of the period end.

Investor Verification Checklist

• Securities Impairment: Verify the classification of the $1.89 million impairment charge and the company's intent to hold the remaining impaired securities long-term.
• Debt Refinancing: Monitor the status of the $12.5 million mortgage maturing in November 2009, which is currently being refinanced or extended.
• Home Sales Recovery: Assess whether the 45% decline in home sales is a temporary economic effect or a structural shift in the market.
• Occupancy Rates: Confirm the stability of the reported ~80% occupancy rate amidst rising unemployment.
• Related Party Transactions: Review the new employment agreements for Samuel A. Landy and Anna T. Chew effective January 1, 2009, regarding salary and bonus structures.