UMH Properties, Inc. - Q2 2007 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2007. UMH Properties, Inc. is a Real Estate Investment Trust (REIT) owning and operating 28 manufactured home communities with approximately 6,700 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The company also sells and finances manufactured homes through its taxable subsidiary and maintains a portfolio of REIT securities.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2007 | Six Months Ended June 30, 2007 |
|---|---|---|
| Total Revenues | $11,351,020 | $20,151,366 |
| Net Income | $1,928,327 | $2,765,568 |
| Diluted EPS | $0.18 | $0.26 |
| Funds From Operations (FFO) | $2,782,363 | $4,475,016 |
| Cash and Equivalents | $1,465,240 (Balance Sheet) | $1,465,240 (Balance Sheet) |
| Operating Cash Flow | Not provided for quarter | ($1,059,913) Used |
| Total Debt (Mortgages + Loans) | $59,185,882 | $59,185,882 |
| Occupancy Rate | 82% | 82% |
Material Changes vs. Prior Period
- Revenue: Total revenue increased 10% for the quarter and 1% for the six months compared to the prior year. The quarterly increase was driven by a significant gain on securities transactions ($463,929 vs. a loss of $418,703 in 2006), partially offset by a decline in manufactured home sales.
- Net Income: Net income rose 58% for the quarter to $1.93 million but fell 18% for the six months to $2.77 million. The six-month decline was attributed to lower home sales in Q1 and higher interest expenses.
- Expenses: Total expenses increased 3% (quarter) and 5% (six months). Increases were driven by higher community operating expenses (due to new acquisitions and real estate taxes) and interest expense (due to higher debt balances and reduced benefits from interest rate swaps).
- Occupancy: Occupancy declined from 84% in June 2006 to 82% in June 2007, attributed to competition from site-built housing and challenges filling vacant sites.
- Debt Structure: The company secured an $11.48 million mortgage on Fairview Manor in January 2007 and a $10.44 million mortgage on Highland Estates in August 2007 (subsequent event) to refinance existing debt and pay down lines of credit.
Outlook, Risks, and Management Commentary
- Outlook: Management expects funds from operations and refinancing to be sufficient to meet liquidity needs. The company intends to replace older rental homes sold to residents in 2007 to stabilize rental income.
- Dividends: A quarterly dividend of $0.25 per share was paid in June 2007. A subsequent dividend of $0.25 per share was declared on July 2, 2007, payable in September 2007.
- Risks: Key risks include changes in the general economic climate, increased competition, government regulations, and the ability to maintain rental rates and occupancy levels. The company also faces risks related to interest rate fluctuations, mitigated by futures contracts and interest rate swaps.
- Subsequent Events: In July 2007, related entities Monmouth Real Estate Investment Corporation and Monmouth Capital Corporation completed a strategic combination, converting the company's holdings in MCC to MREIC stock and debentures.
Investor Verification Checklist
- Verify the sustainability of the 58% quarterly net income increase, which was heavily influenced by non-recurring gains on securities transactions and futures contracts.
- Monitor the trend in occupancy rates (currently 82%) and the company's ability to fill vacant sites amidst competition from site-built housing.
- Review the impact of rising interest expenses on future profitability, noting the reduced benefit from interest rate swaps compared to the prior year.
- Assess the decline in manufactured home sales revenue and the corresponding drop in income from sales operations (from 9% margin to 4% margin for the six-month period).
- Confirm the company's liquidity position given the negative operating cash flow of $1.06 million for the six-month period, which was offset by financing activities.