UMH Properties, Inc. - Q1 2008 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2008. UMH Properties, Inc. is 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 company also sells and finances manufactured homes through a taxable subsidiary and maintains a portfolio of securities available for sale.
Key Financial Metrics
| Metric | Q1 2008 | Q1 2007 |
|---|---|---|
| Total Revenues | $8,315,540 | $8,800,346 |
| Net (Loss) Income | ($305,040) | $837,241 |
| Funds From Operations (FFO) | $713,965 | $1,692,653 |
| Operating Cash Flow | $2,141,340 | ($515,601) |
| Cash and Equivalents (Ending) | $1,939,442 | $1,991,823 |
| Total Debt (Mortgages + Loans) | $81,545,367 | $78,772,453 |
| Occupancy Rate | ~81% | ~81% |
Material Changes vs. Prior Period
- Net Loss: The company reported a net loss of $305,040, a 136% decline from the $837,241 net income in Q1 2007.
- Revenue Decline: Total revenues decreased 6% to $8.32 million. This was driven by a 22% drop in manufactured home sales ($1.78M vs $2.28M) and a shift from a $32,850 gain to a $650,560 loss on securities transactions.
- Expense Increase: Total expenses rose 8% to $8.62 million. Interest expense surged 76% to $1.50 million, primarily due to higher debt balances and a $348,540 increase in interest expense related to the fair value adjustment of interest rate swaps.
- Operating Cash Flow Improvement: Despite the net loss, operating cash flow turned positive ($2.14M) compared to a negative $515,601 in the prior year, largely due to a reduction in manufactured home inventory.
Outlook, Risks, and Unusual Items
- Unusual Items: The primary driver of the net loss was a $650,560 loss on futures contracts (settled and open) used to hedge against interest rate fluctuations. Additionally, the fair value change in interest rate swaps added approximately $349,000 to interest expense.
- Market Conditions: Management notes that liberal lending terms for conventional housing in 2006-2007 created competitive pressure, reducing occupancy from 86% to 81%. Recovery has been slow despite a return to disciplined lending practices.
- Subsequent Events:
- On April 28, 2008, the company secured a $10 million revolving line of credit with Sun National Bank, using $5 million immediately to pay down margin loans.
- On April 14, 2008, an amendment to the Chairman's employment agreement was executed, providing a $1.2 million change-of-control payment if the company sells for at least $16 per share.
- Liquidity: Management believes funds from operations and refinancing activities are sufficient to meet needs for the next several years.
Investor Verification Checklist
- Verify the sustainability of the $650,560 loss on futures contracts and its impact on future earnings volatility.
- Monitor the trend in manufactured home sales, which declined 22% year-over-year, and its effect on long-term rental revenue growth.
- Assess the impact of rising interest rates on the company's variable-rate debt and the effectiveness of their hedging strategies (swaps and futures).
- Review the utilization of the new $10 million revolving credit line and its effect on leverage ratios.
- Confirm occupancy rates remain stable at ~81% despite competitive pressures from conventional housing markets.