UMH Properties, Inc. - 10-Q Summary (Q2 2008)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 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.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2008 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $10,458,996 | $18,774,536 |
| Net Income | $1,511,074 | $1,206,034 |
| Net Income Per Share (Diluted) | $0.14 | $0.11 |
| Funds From Operations (FFO) | $2,504,256 | $3,218,221 |
| Cash Flow from Operations | N/A | $5,043,620 |
| Total Assets | $138,417,378 (as of June 30, 2008) | |
| Total Liabilities | $89,355,845 (as of June 30, 2008) | |
| Shareholders' Equity | $49,061,533 (as of June 30, 2008) | |
| Cash and Equivalents | $2,464,213 (as of June 30, 2008) | |
| Occupancy Rate | Approximately 81% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 8% for the quarter and 7% for the six months compared to 2007. This was driven by a 27% drop in manufactured home sales and a significant swing in securities gains to losses.
- Net Income Drop: Net income fell 22% for the quarter and 56% for the six months year-over-year.
- Securities Losses: The company recorded a $302,400 impairment loss on a security and a $304,088 loss on settled futures contracts for the six-month period, reversing prior gains.
- Interest Expense: Interest expense increased significantly (48% for the six months) due to higher debt balances and unfavorable changes in the fair value of interest rate swaps.
- Operating Cash Flow: Despite lower net income, cash flow from operations improved dramatically, turning from a use of $1.06 million in 2007 to a provision of $5.04 million in 2008, largely due to reduced inventory purchases.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes that liberal lending for conventional housing in 2006-2007 created a difficult competitive market, reducing occupancy from 86% to 81%. Recovery has been slow despite tighter lending standards.
- Dividends: A quarterly dividend of $0.18 per share was paid on June 30, 2008. A subsequent dividend of $0.18 per share was declared on July 1, 2008, payable September 15, 2008.
- Liquidity: The company secured a new $10 million revolving line of credit and refinanced mortgages totaling $8.7 million. Management believes current funds and financing options are sufficient for near-term needs.
- Risks: Key risks include the ability to maintain occupancy and rental rates, access to capital markets, interest rate fluctuations, and the competitive landscape of manufactured housing.
- Executive Compensation: A change-in-control provision was amended for the Chairman, triggering a $1.2 million payment if the company sells for at least $16 per share.
Investor Verification Checklist
- Verify the sustainability of the 81% occupancy rate given the competitive pressure from conventional housing.
- Confirm the status of the $302,400 security impairment and whether further write-downs are anticipated.
- Review the impact of rising interest rates on the company's variable-rate debt and interest rate swap valuations.
- Assess the trend in manufactured home sales volume, which has declined significantly year-over-year.
- Monitor the company's ability to maintain its dividend payout given the decline in net income.