UMH

UMH Properties, Inc. 2008 Annual Report (10-K) Summary

Business Context and Reporting Period

Company: UMH Properties, Inc. (UMH)
Reporting Period: Fiscal year ended December 31, 2008
Business Model: UMH 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 leases land sites to private home owners and, through a taxable REIT subsidiary, sells and finances manufactured homes. UMH also maintains a portfolio of debt and equity securities in the manufactured housing sector.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 6% to $36.7 million, primarily driven by a 25% drop in manufactured home sales ($9.6M vs. $12.7M) due to adverse economic conditions and the credit crisis.
• Net Income Drop: Net income fell 42% to $1.5 million. This was caused by a $1.46 million increase in losses on securities transactions (including $2.55 million in impairment charges) and higher interest expenses, partially offset by a 10% increase in income from community operations.
• Community Operations: Rental and related income increased 6% to $25.5 million due to rent increases and higher home rental income. Income from community operations rose to $12.5 million.
• Securities Portfolio: The company recognized $2.55 million in impairment losses on securities deemed "other than temporarily impaired." Unrealized losses on the portfolio totaled $5.67 million at year-end.
• Occupancy: Occupancy declined slightly from 81% to 80%, attributed to new expansion sites placed in service in Q4 and approximately 250 homes leaving the communities (demolished or moved).

Guidance, Outlook, and Risks

• Outlook: Management anticipates 2009 renovation expenditures to be consistent with 2008 (approx. $2.5 million). The company expects to purchase approximately 50 manufactured homes in 2009 for $1.5 million to replace rental units.
• Liquidity: As of Dec 31, 2008, UMH held $2.8 million in cash, $21.6 million in securities, and had approximately $3.3 million available on lines of credit. Management believes these resources are sufficient to meet obligations for the next year.
• Dividends: Total distributions in 2008 were $0.79 per share. A quarterly dividend of $0.18 per share was declared in February 2009.
• Risks:
  • Credit Crisis: Access to financing is negatively impacted by the global credit crisis, potentially affecting refinancing and home buyer financing.
  • Securities Impairment: Continued market volatility could lead to additional impairment charges on the securities portfolio.
  • Refinancing: Two mortgages totaling significant principal are due in 2009; management intends to refinance but faces market uncertainty.
  • REIT Status: Failure to qualify as a REIT would subject the company to corporate income tax, significantly reducing cash flow.

Investor Verification Checklist

• Refinancing Capability: Verify the company's ability to refinance the two mortgages maturing in 2009 given the tight credit market.
• Securities Valuation: Assess the likelihood of further impairment charges on the $21.6 million securities portfolio, which currently holds $5.67 million in unrealized losses.
• Home Sales Recovery: Monitor trends in manufactured home sales and financing availability, as this segment turned from a profit center to a loss center in 2008.
• Occupancy Trends: Track occupancy rates to ensure the decline to 80% does not accelerate due to economic downturns or competition from site-built housing.
• Dividend Sustainability: Confirm that operating cash flows remain sufficient to support the $0.79 per share distribution level required to maintain REIT status.