UMH Properties, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context
UMH is a REIT focused on owning and operating manufactured-home communities. At quarter-end, it owned and operated 128 communities with approximately 24,100 developed homesites, plus an interest in one Florida community through a joint venture. Its businesses also include renting, selling and financing manufactured homes, and investing in securities of other REITs.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Total income | $45.9 million | $43.1 million in Q1 2021 |
| Rental and related income | $41.6 million | $38.7 million in Q1 2021; up 7% |
| Community NOI | $23.5 million | $21.6 million in Q1 2021; up approximately 9% (management also describes same-property NOI growth of 5%) |
| Net income | $3.3 million | $13.9 million in Q1 2021 |
| Net income (loss) attributable to common shareholders | $(4.3) million; $(0.09) per share | $6.8 million; $0.16 per share in Q1 2021 |
| FFO attributable to common shareholders (non-GAAP) | $8.5 million; normalized FFO $9.0 million | $8.4 million; normalized FFO $8.7 million in Q1 2021 |
| Operating cash flow | $5.6 million | $13.2 million in Q1 2021 |
| Cash, cash equivalents and restricted cash | $303.7 million | $125.0 million at December 31, 2021; cash and cash equivalents alone were $292.5 million |
| Total assets / total liabilities / equity | $1,413.8 million / $644.2 million / $769.6 million | Total assets $1,270.8 million and equity $742.1 million at December 31, 2021 |
| Debt | Mortgages, net: $474.5 million; loans payable, net: $41.9 million; Series A Bonds, net: $98.8 million | Mortgages, net: $452.6 million; loans payable, net: $46.8 million; no Series A Bonds at year-end |
Community operating expenses rose 5% to $18.1 million, while rental income rose 7%; the operating expense ratio improved to 43.5% from 44.3%. Manufactured-home sales revenue declined 3% to $4.3 million, but the reported sales-operations result improved to a $103,000 gain from a $237,000 loss. Interest expense increased 14% to $5.5 million, mainly due to the Series A Bonds.
Reported earnings were materially affected by REIT securities: UMH recognized a $30.7 million gain on the sale of securities following Monmouth Real Estate Investment Corporation’s merger and a $31.8 million decrease in securities fair value. The company reported $46.1 million of net unrealized losses in its securities portfolio at quarter-end. These items help explain why GAAP net income fell sharply even as FFO increased modestly.
Changes, financing and liquidity
- Same-property occupancy increased 70 basis points year over year to 86.7%; same-property rental rates increased 4.9%. Rental-home occupancy was 95.3%.
- UMH acquired Center Manor, Pennsylvania, for approximately $5.8 million: 96 developed homesites and 83% occupancy at acquisition. It added 52 rental homes during the quarter.
- The company issued $102.7 million of 4.72% Series A Bonds due 2027, receiving $98.7 million net of offering expenses. The bonds are denominated in Israeli shekels, with principal and interest linked to the U.S. dollar, and include financial covenants.
- A $25.6 million mortgage financing was added to an existing Fannie Mae facility. Fixed-rate mortgages had a 3.78% weighted average rate and 5.2-year weighted average maturity at quarter-end.
- Q1 common-stock ATM sales generated $38.4 million in net proceeds. The new program authorized up to $150 million in sales; $119.1 million remained available at March 31. UMH also reported $98.7 million net proceeds from the bond issue.
- Management reported $50 million available under its unsecured credit facility, plus a possible $50 million accordion, approximately $46.5 million available on revolving lines for home sales and inventory, and $15 million available on a rental-home-secured line. It cited net debt to total market capitalization of approximately 13%, or approximately 11% after subtracting securities.
- The company had $52.7 million of mortgage principal due within the next 12 months. It stated that it believed it could meet its obligations and fund new investments.
Outlook, commentary and risks
Management said demand for affordable housing and rental homes remained strong, while home inventory was scarce. It anticipated adding approximately 700–800 rental homes in 2022 and intended to pursue additional community acquisitions, including through its Nuveen joint venture. These are expectations, not assurances; management noted that acquisition growth depends on suitable properties and financing availability. Subsequent to quarter-end, UMH sold another 739,000 shares through its ATM for $17.7 million net and acquired Mandell Trails, Pennsylvania, for approximately $7.4 million.
Management reported collections consistent with pre-pandemic levels and 94% collection of April 2022 site and home rent as of the filing’s date. It stated that COVID-19 was not then expected to have a material adverse operating effect, while noting continued uncertainty. Key disclosed risks include real estate and economic conditions, competition, occupancy and rental rates, interest rates and refinancing, debt covenant compliance, access to capital, manufactured-home availability and buyer financing, securities-market volatility, and maintaining REIT tax status.
UMH reported no material changes to risk-factor disclosures, no legal proceedings, no defaults upon senior securities, and no off-balance-sheet arrangements. Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How recurring property-level performance and cash generation compare with reported GAAP earnings, which were significantly affected by securities gains and fair-value losses.
- The sustainability of occupancy, rental-rate increases, expense control and planned 2022 rental-home additions.
- The debt schedule, refinancing needs, covenant headroom and exposure to interest rates and the dollar-linked Israeli-shekel bond structure.
- Future use of the common-stock ATM and other funding sources, including the effect of equity issuance on per-share results.
- The value, concentration and recoverability of the REIT securities portfolio, including the reported $46.1 million net unrealized loss.
- Reconcile differences in management’s discussion: the filing cites Community NOI growth of both 8% and 9%, and total liabilities of $643.5 million in the discussion versus $644.2 million on the balance sheet.