UMH Properties, Inc. 2010 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: UMH Properties, Inc.
Reporting Period: Fiscal year ended December 31, 2010
Business Model: UMH is a self-administered Real Estate Investment Trust (REIT) that owns and operates 35 manufactured home communities containing approximately 8,000 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The Company leases sites to private home owners and, through its taxable subsidiary UMH Sales and Finance, Inc. (S&F), sells and finances manufactured homes to fill vacancies and upgrade communities.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Income | $34,010,964 | $32,019,252 |
| Net Income | $6,668,915 | $3,689,388 |
| Funds From Operations (FFO) | $11,193,185 | $7,834,295 |
| Net Income Per Share (Basic) | $0.52 | $0.32 |
| Operating Cash Flow | $6,481,751 | $11,355,096 |
| Total Assets | $188,780,515 | $147,971,540 |
| Total Liabilities | $116,852,762 | $91,999,678 |
| Shareholders' Equity | $71,927,753 | $55,971,862 |
| Mortgages Payable | $90,815,777 | $70,318,950 |
| Weighted-Average Interest Rate (Mortgages) | 5.8% | N/A |
| Occupancy Rate | 78% | 78% |
Material Changes vs. Prior Period
- Acquisitions: The Company significantly expanded its portfolio in 2010, acquiring seven manufactured home communities (adding over 1,200 sites) for an aggregate purchase price of approximately $37.45 million. This drove a 33% increase in investment property and equipment.
- Net Income Growth: Net income increased 81% to $6.67 million, primarily driven by a $3.93 million net gain on securities transactions, compared to a $1.8 million loss in 2009.
- Revenue Mix: Rental and related income increased 5% to $27.88 million, with approximately 60% of the increase attributed to new acquisitions. Sales of manufactured homes increased 11% to $6.13 million, though the gross profit margin on sales declined from 8% to 7% due to economic headwinds and increased selling expenses.
- Operating Expenses: Total expenses rose 14% to $30.73 million, largely due to increased community operating expenses, depreciation, and acquisition costs ($447,577) which were expensed under new accounting standards (ASC 805).
- Debt Levels: Mortgages payable increased 29% to $90.8 million to fund acquisitions. The Company also utilized lines of credit and margin loans, with total variable rate debt (including short-term borrowings) totaling approximately $19.8 million.
Guidance, Outlook, and Risks
- Outlook: Management anticipates continued demand for affordable housing as conventional home ownership rates decline. The Company plans to continue seeking opportunistic investments in 2011 and budgeting approximately $1 million for capital improvements (excluding expansions).
- Liquidity: As of December 31, 2010, the Company held $5.66 million in cash, $28.76 million in securities (encumbered by $7.7 million in loans), and had approximately $2 million available on unsecured lines of credit. Management believes funds from operations, the Dividend Reinvestment Plan (DRIP), and available credit lines are sufficient to meet obligations.
- Risks:
- Economic Conditions: High unemployment and credit market volatility continue to impact home sales and the ability of customers to obtain financing.
- Refinancing: The Company faces risks related to "balloon payments" and refinancing debt on favorable terms, particularly with a $4.7 million mortgage maturing in December 2011.
- REIT Status: Failure to meet the 90% distribution requirement or other technical requirements could result in the loss of REIT status and significant corporate taxation.
- Geographic Concentration: Properties are concentrated in five states, exposing the Company to local economic downturns.
- Unusual Items: The 2010 results included a significant non-operating gain on securities transactions. Conversely, the Company incurred approximately $176,000 in flood-related costs in Memphis, TN.
Key Facts for Investor Verification
- Debt Maturities: Verify the refinancing status of the $4.7 million mortgage due in December 2011 and the $15 million mortgage due in December 2013.
- Occupancy Stability: Confirm that the 78% occupancy rate remains stable despite the addition of 1,200 new sites and the economic environment.
- Home Sales Margins: Monitor the gross profit percentage on manufactured home sales, which declined to 7% in 2010, and the impact of rising selling expenses.
- Securities Portfolio: Review the composition and unrealized gains ($6.45 million) of the REIT securities portfolio, which significantly impacted 2010 net income.
- Dividend Sustainability: Assess the ability to maintain the $0.72 per share annual dividend given the requirement to distribute 90% of taxable income and the reliance on operating cash flow versus borrowings.