UMH Properties, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. UMH is a REIT operating 124 manufactured-home communities with approximately 23,400 developed homesites across eight states; it also rents and sells manufactured homes and holds REIT securities. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total income | $43.1 | $37.3 | $120.8 | $108.8 |
| Rental and related income | $36.4 | $32.9 | $105.8 | $95.0 |
| Community NOI (non-GAAP) | $20.1 | $17.2 | $58.6 | $49.1 |
| Net income (loss) | $(1.8) | $12.4 | $(18.2) | $24.2 |
| Net income (loss) attributable to common shareholders | $(12.7) | $5.6 | $(45.4) | $6.0 |
| Basic and diluted EPS attributable to common shareholders | $(0.31) | $0.14 | $(1.10) | $0.15 |
| FFO attributable to common shareholders (non-GAAP) | $4.5 | $5.8 | $17.7 | $17.6 |
| Normalized FFO attributable to common shareholders (non-GAAP) | $7.4 | $6.0 | $20.6 | $18.1 |
- Community NOI margin, calculated as NOI divided by rental and related income, was approximately 55.3% in Q3 2020 versus 52.1% in Q3 2019, and 55.4% for the first nine months versus 51.7% in 2019. Management reported operating expense ratios of 44.7% and 44.6% for those 2020 periods, respectively, compared with 47.5% and 47.8% in 2019, excluding non-recurring operating expenses.
- Manufactured-home sales were $6.8 million in Q3, up 54%, and $15.0 million for the nine months, up 8%. Gross profit percentages were 31% and 29%, respectively, versus 25% and 27% in the prior-year periods.
- Q3 net loss included a $6.7 million decline in the fair value of marketable securities, compared with a $9.2 million gain in Q3 2019. For the nine months, the fair-value decline was $31.9 million versus a $15.5 million gain in 2019. The company reported $57.2 million of net unrealized losses in its REIT securities portfolio at quarter-end.
- Operating cash flow was $50.3 million for the first nine months, versus $25.9 million in 2019; investing cash outflow was $77.6 million and financing cash inflow was $77.0 million. The operating cash flow reconciliation includes a $31.9 million noncash adjustment for the securities fair-value decline.
Balance sheet, debt and liquidity
- At September 30, 2020, total assets were $1.095 billion, total liabilities $629.8 million, and shareholders’ equity $464.9 million. Cash and cash equivalents were $54.7 million; marketable securities were $85.2 million. Cash, cash equivalents and restricted cash totaled $68.7 million.
- Mortgages, net of unamortized issuance costs, were $472.4 million, up from $373.7 million at year-end 2019. Gross fixed-rate mortgages totaled $479.1 million at a 3.81% weighted-average rate; weighted-average mortgage maturity was 6.3 years. Loans payable were $34.6 million, down from $83.7 million. The unsecured revolver had $15 million drawn at 1.66% and $60 million of stated availability; a further $50 million accordion was subject to conditions. No mortgages were due in the following 12 months.
- Management reported $29.4 million available on home-sales and inventory credit lines. It stated net debt to total market capitalization was approximately 31%, or approximately 25% after deducting securities.
- On October 20, 2020, UMH redeemed all Series B preferred shares for $96.1 million, including accrued dividends. The company said the redemption was funded in part by the Fannie Mae financing, and disclosed subsequent draws of $30 million on its credit facility and approximately $26 million on its margin line. Subsequent preferred and common ATM sales generated net proceeds of $14.2 million and $117,000, respectively.
- During the first nine months, UMH completed a $106 million Fannie Mae financing at a fixed 2.62% rate, with a 10-year maturity and 30-year amortization. It also issued preferred and common stock through ATM programs, raising net proceeds of $71.5 million and $1.5 million, respectively.
Material changes and management commentary
- Rental and related income rose 10% in Q3 and 11% year to date; Community NOI increased 17% and 19%, respectively. Management attributed growth primarily to earlier acquisitions, higher rents, improved occupancy and additional rental homes. Same-property NOI rose 14% year to date, with same-property occupancy increasing from 83.7% to 86.9%.
- Rental-home occupancy was 95.4% at quarter-end, versus 92.3% at December 31, 2019. UMH added 684 rental homes in the first nine months, bringing its rental-home total to approximately 8,100. Management anticipated adding approximately 800–900 rental homes in 2020; this is an expectation, not a formal earnings forecast.
- Two communities totaling 310 sites were acquired during the first nine months for approximately $7.8 million. The properties had 64% average occupancy at acquisition.
- Management said communities remained open and operating during COVID-19, and that the pandemic had not significantly affected results through the first nine months. It reported over 98% collection of Q3 site and home rental charges and 95% collection of October rent at the time of reporting. Fewer than 100 residents had entered deferred payment plans. Management cautioned that future effects remain uncertain.
- The Series B redemption generated a $2.9 million charge related to original issuance costs. The company continued common dividends at $0.18 per share; preferred dividends are cumulative. Management cited affordable-housing demand, strong rental-home demand and acquisition opportunities, while noting that acquisitions depend on suitable properties and financing.
Risks, contingencies and unusual items
- COVID-19 could adversely affect residents’ ability to pay rent, occupancy, property and securities values, capital-market access, liquidity and operations. The company also cited possible economic downturn, government rent-relief or eviction policies, increased costs and cybersecurity risks.
- Other stated risks include interest rates, debt repayment and refinancing, covenant compliance, access to debt and equity capital, acquisition competition and integration, manufactured-home buyer financing, securities-market volatility and continued REIT qualification.
- UMH has contractual exposure to repurchase certain repossessed manufactured homes financed by 21st Mortgage. The related loan balances were approximately $2.0 million under the current program and $2.0 million associated with acquired communities. The filing does not quantify a likely loss under these arrangements.
- Management said ordinary-course claims and litigation were not expected to have a material adverse effect; the filing reports no legal proceedings. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How much of the reported loss reflects volatile securities marks, and how the portfolio’s $57.2 million unrealized loss and dividend yield affect liquidity and earnings.
- The post-quarter funding and ongoing cost of the $96.1 million Series B redemption, including credit-facility and margin-line draws and any additional financing or equity issuance.
- Whether occupancy, rent collection, same-property NOI growth and the 800–900 rental-home addition expectation are sustained as pandemic conditions evolve.
- Debt capacity, financing terms and access to capital markets, alongside planned acquisitions, development and capital spending.
- Definitions and reconciliations of Community NOI, FFO and Normalized FFO, which are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.