UMH

UMH Properties, Inc. - 10-Q Filing Summary

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for UMH Properties, Inc., a Real Estate Investment Trust (REIT) owning and operating 30 manufactured home communities with approximately 7,200 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The reporting period covers the three and six months ended June 30, 2010.

Key Financial Metrics

Margins: The gross profit percentage for manufactured home sales decreased from 6% in the prior year period to 5% for the six months ended June 30, 2010.

Material Changes vs. Prior Period

• Revenue Growth: Total income increased 2% year-over-year for the six-month period, driven by a 2% increase in rental and related income ($13.48M vs $13.18M). This was partially offset by a 1% decrease in sales of manufactured homes ($2.55M vs $2.58M).
• Profitability Surge: Net income improved dramatically from $79,726 to $3.36M. This was primarily due to a reversal in securities performance: a net gain of $1.68M on securities transactions in 2010 compared to a net loss of $2.45M in 2009 (which included $1.89M in impairment charges).
• Acquisition Activity: The company acquired two new communities (Sunny Acres and Suburban Estates in Pennsylvania) for approximately $13.2M in June 2010, significantly impacting investing cash flows.
• Expense Increases: Total expenses rose 8% year-over-year, driven by a 10% increase in community operating expenses (due to severe weather repairs and personnel increases) and $160k in acquisition costs.
• Occupancy: Occupancy rates remained steady at approximately 78%, down from 80% in the prior year.

Outlook, Risks, and Management Commentary

• Market Conditions: Management notes that while the economy is slowly improving, high unemployment and difficulties in selling existing homes continue to negatively impact manufactured home sales. However, demand for rental units is increasing as conventional home ownership rates fall.
• Liquidity Strategy: The company maintains a $5M unsecured line of credit (fully available) and utilizes a portfolio of REIT securities ($33.5M) for liquidity. Management intends to hold these securities long-term.
• Dividends: A quarterly dividend of $0.18 per share was paid in June 2010. A subsequent dividend of $0.18 per share was declared on July 1, 2010, payable September 15, 2010.
• Risks: Key risks include the ability to refinance debt, maintain occupancy levels, and the general economic downturn affecting the manufactured housing market. The company has no off-balance sheet arrangements.
• Subsequent Events: On August 2, 2010, the company awarded 60,000 shares of restricted stock and options for 80,000 shares to employees and directors.

Investor Verification Checklist

• Securities Portfolio Valuation: Verify the sustainability of the $1.68M gain on securities transactions and the $3.37M unrealized gain, noting the reversal from significant impairment losses in 2009.
• Home Sales Performance: Monitor the trend of manufactured home sales, which are currently operating at a loss (loss from sales operations was $679k for the six months), and assess the impact of the 5% gross profit margin.
• Debt Maturities and Refinancing: Review the terms of the new $7.5M mortgage (6.5% fixed, resetting in 5 years) and the extension of the Sandy Valley Estates mortgage to ensure refinancing capabilities remain intact.
• Occupancy Trends: Track occupancy rates to ensure they stabilize or improve from the current 78% level, as rental income is the primary revenue driver.
• Acquisition Integration: Assess the operational performance of the two new Pennsylvania communities acquired in June 2010.