UMH Properties, Inc. - Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. UMH Properties, Inc. is a Real Estate Investment Trust (REIT) owning and operating 28 manufactured home communities with approximately 6,800 sites across New Jersey, New York, Ohio, Pennsylvania, and Tennessee. The company also sells and finances manufactured homes through a taxable subsidiary and maintains a portfolio of securities available for sale.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $6,405,865 | $8,315,540 |
| Net Loss | ($1,098,836) | ($305,040) |
| Net Loss Per Share (Basic/Diluted) | ($0.10) | ($0.03) |
| Funds From Operations (FFO) | ($56,459) | $713,965 |
| Net Cash Provided by Operating Activities | $3,029,409 | $1,909,309 |
| Cash and Cash Equivalents (Ending) | $2,951,568 | $1,939,442 |
| Total Liabilities | $92,361,532 | $93,217,625 |
| Shareholders' Equity | $43,030,150 | $44,721,700 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 23% year-over-year, driven primarily by a $1.63 million increase in losses on securities transactions and a 39% drop in manufactured home sales.
- Net Loss Expansion: Net loss increased 260% to $1.1 million. The primary driver was a $1.72 million non-cash impairment charge on securities deemed "other than temporarily impaired."
- Operating Performance: Despite the net loss, core rental income increased 5% to $6.56 million due to rental rate increases. Occupancy remained stable at approximately 80%.
- Expense Reduction: Total expenses decreased 13% to $7.49 million, aided by lower interest expense (down 27%) due to favorable changes in the fair value of interest rate swaps.
- FFO Deterioration: Funds From Operations turned negative ($56,459) compared to a positive $713,965 in the prior year, reflecting the impact of the securities impairment.
Outlook, Risks, and Management Commentary
- Securities Portfolio: The company holds $19.6 million in securities available for sale, which currently carry approximately $5.0 million in unrealized losses. Management attributes these losses to indiscriminate selling in the REIT market rather than fundamental pricing issues and intends to hold these securities long-term.
- Market Conditions: Management cites rising unemployment, declining consumer confidence, and credit market turmoil as negative factors impacting manufactured home sales and occupancy recovery.
- Liquidity: The company generated $3.03 million in operating cash flow. Liquidity is supported by the securities portfolio (subject to margin loans of $4.8 million) and the Dividend Reinvestment and Stock Purchase Plan (DRIP), which raised $705,266 in the quarter.
- Debt Management: The company successfully extended a mortgage on Sandy Valley Estates, receiving a commitment from Bank of America to extend it further to May 1, 2010.
- Risks: Key risks include volatility in the REIT securities market, the ability to maintain occupancy levels, access to capital markets, and the impact of general economic conditions on home sales.
Investor Verification Checklist
- Verify the classification of the $1.72 million securities impairment as "other than temporarily impaired" and assess the likelihood of recovery given subsequent market improvements mentioned by management.
- Monitor the $4.8 million margin loan against the $19.6 million securities portfolio to ensure no margin calls threaten liquidity.
- Track occupancy rates and rental rate increases to confirm the stability of the core rental business amidst the decline in home sales.
- Review the status of the Sandy Valley Estates mortgage extension and any other upcoming debt maturities.
- Assess the sustainability of the dividend ($0.18 per share) given the negative FFO and net loss for the quarter.