UMH Properties, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. The unaudited filing covers a manufactured-home-community REIT, home sales and financing, and investments in other REIT securities. At September 30, UMH owned 38 communities with approximately 8,744 sites; a 116-site Ohio community was acquired in October, bringing the portfolio to 39 communities and approximately 8,860 sites.
Financial performance and position
| Metric | Q3 2011 | Nine months 2011 | Comparable 2010 |
|---|---|---|---|
| Total income | $9.66 million | $28.29 million | $8.47 million and $24.49 million |
| Net income | $0.79 million | $3.15 million | $1.20 million and $4.55 million |
| Net income attributable to common shareholders | $0.10 million | $2.19 million | $1.20 million and $4.55 million |
| FFO | $1.68 million | $6.53 million | $2.37 million and $7.81 million |
| Cash provided by operating activities | Not reported separately for the quarter | $5.58 million | $2.58 million |
Q3 and nine-month total income rose 14% and 15%, respectively, while total expenses increased approximately 19% in both comparisons. Rental and related income grew 20% for the quarter and 19% year to date, primarily due to acquisitions. Community operating income increased to $3.83 million for Q3 and $11.21 million year to date, from $3.13 million and $9.52 million. Home sales declined 14% for Q3 and 3% year to date; sales operations recorded losses of $0.52 million and $1.21 million, respectively. The filing does not provide a consolidated operating-margin figure.
Q3 and nine-month earnings and FFO declined year over year. Preferred dividends of $0.69 million for Q3 and $0.97 million year to date reduced earnings attributable to common shareholders; the new Series A preferred shares carry an 8.25% cumulative dividend. Basic and diluted earnings per common share were $0.00 for Q3 and $0.15 for nine months, versus $0.09 and $0.36 in 2010.
At September 30, total assets were $214.88 million, cash $7.45 million, securities available for sale $38.85 million, total liabilities $113.28 million, and shareholders’ equity $101.61 million. Mortgages payable were $90.30 million and other loans payable $19.52 million. Of mortgages, $71.30 million was fixed-rate and $19.00 million variable-rate; all loans payable were variable-rate. Securities were encumbered by $13.43 million of margin loans. Cash increased by $1.79 million over the nine months. Investing used $33.87 million, principally for acquisitions, property and securities; financing provided $30.09 million.
Material changes, outlook and risks
- UMH raised $31.86 million net from its May 2011 issuance of 1,338,800 Series A preferred shares. It acquired three Tennessee communities for $13.30 million, repaid certain borrowings, and later used offering proceeds toward the October Ohio acquisition.
- Management reported approximately $5 million available on its unsecured credit line, $5.4 million on its revolving line, and $5 million of inventory-financing facilities, of which $1.5 million was used. The company also had 18 unencumbered properties. Management believed operations, capital-raising, credit availability, and refinancing capacity would cover obligations over the next several years; it gave no numerical earnings or operating guidance.
- Management cited persistent unemployment and weak home-sale conditions, difficulty filling vacant sites, and increased demand for rental units. Occupancy excluding the affected Memphis community was approximately 77%. The company added about 140 rental units and intends to pursue acquisitions, but noted opportunities are not assured.
- Memphis Mobile City was evacuated after severe May 2011 flooding. UMH anticipated reopening but had made no final decision; the property’s net carrying amount was approximately $2 million, and insurance recovery remained subject to deductibles. A purported class action alleging discrimination and consumer-protection violations relating to the community was being defended; management considered it without merit and said its insurer was supporting the defense.
- The REIT securities portfolio had a $0.90 million net unrealized loss at quarter-end; 21 holdings had $3.47 million of unrealized losses, all reported as less than 12 months in duration. Management intended to hold the securities long term. Securities-market value changes, margin borrowing, interest rates, occupancy, home-buyer financing, debt refinancing and access to capital markets remain relevant risks.
- The $5 million Bank of America line was extended to August 2012; the $10 million Sun National revolving line was extended to June 2014 and repriced to LIBOR plus 350 basis points. GE reduced its inventory-financing line from $6 million to $2 million.
Most important facts for investors to verify
- Whether Memphis Mobile City reopens, the amount and timing of any insurance recovery, and developments in the related lawsuit.
- Whether acquisitions improve occupancy and cash generation, particularly given the Tennessee properties’ approximately 73% average occupancy at purchase and the October Ohio property’s 98% occupancy.
- The sustainability of operating cash flow and common distributions alongside the 8.25% cumulative preferred dividend and continued acquisition spending.
- Exposure to market losses and margin calls in the securities portfolio, and the terms, covenants, maturities and refinancing needs of variable-rate debt and credit facilities.
- Whether home sales recover and the reported losses from sales operations narrow; interim results are not necessarily indicative of full-year results.