UMH Properties, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; financial amounts below are in millions unless noted. UMH is a REIT operating manufactured-home communities and selling, financing, and renting manufactured homes. At quarter-end it owned and operated 132 communities with approximately 25,000 developed homesites, plus an interest in one Florida joint-venture community.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total income | $51.9 | $48.0 | $147.0 | $140.1 |
| Rental and related income | $42.9 | $40.2 | $126.7 | $118.3 |
| Community NOI | $23.7 | $23.4 | $70.5 | $67.3 |
| Net income (loss) | ($5.2) | $4.2 | ($8.6) | $34.1 |
| Net income (loss) attributable to common shareholders | ($9.7) | ($3.4) | ($36.5) | $11.8 |
| Common loss (income) per share, diluted | ($0.18) | ($0.07) | ($0.68) | $0.28 |
| FFO attributable to common shareholders | $10.3 | $10.8 | $18.5 | $29.1 |
| Normalized FFO attributable to common shareholders | $11.7 | $11.1 | $29.3 | $30.1 |
Community NOI is a company-defined non-GAAP measure. The community operating expense ratio rose to 44.7% in Q3 from 41.8% and to 44.3% for the nine months from 43.1%. Manufactured-home sales were $9.0 million in Q3 and $20.3 million year to date; management reported a 30% gross profit percentage in both 2022 periods, versus 25% in 2021.
Cash flow: Nine-month operating cash flow was $5.1 million, down from $46.3 million. Investing cash outflow was $58.4 million; financing cash outflow was $0.6 million. The cash-flow statement reports $71.1 million of cash, cash equivalents, and restricted cash at September 30, including $62.5 million of cash and cash equivalents.
Balance sheet and liquidity: Total assets were $1.267 billion, total liabilities $755.3 million, and shareholders’ equity $511.6 million. Net mortgages were $499.7 million, loans payable net of issuance costs $127.3 million, and Series A Bonds net of issuance costs $99.0 million. Cash and marketable securities were $62.5 million and $39.2 million, respectively. Management reported net debt to total market capitalization of approximately 36% (34% after securities) and $65.6 million of mortgage principal due within 12 months.
Material changes versus the prior comparable period
- Rental income increased 7% in both Q3 and the first nine months, reflecting acquisitions, rental-rate increases, occupancy, and added rental homes. Same-property NOI grew 4% for the nine-month period, primarily with a 6% rental-rate increase.
- Community NOI grew more slowly than rental income: 1% in Q3 and 5% year to date. Higher community expenses included costs at acquired properties with deferred maintenance, personnel, property taxes, insurance, tree removal, and water and sewer.
- Common-shareholder results turned negative year to date, largely amid a $43.0 million decrease in marketable-securities fair value, higher interest expense, and other costs. The prior-year nine-month period included a $14.1 million fair-value increase. Q3 included a $6.4 million loss on securities sales; year-to-date results included a $24.3 million gain on securities sales, principally from the MREIC merger.
- Interest expense rose 46% in Q3 and 30% year to date, reflecting the Series A Bonds, higher borrowings, and higher interest rates. General and administrative expense increased 63% in Q3 and 34% year to date, including higher personnel and stock-compensation costs and identified non-recurring items.
- Debt increased: mortgages payable, net, rose $47.1 million from year-end 2021; loans payable, net, rose $80.6 million. UMH issued $102.7 million of 4.72% Series A Bonds due 2027 and used $249.6 million to redeem all Series C preferred shares in July.
Outlook, commentary, risks, and unusual items
- Management said demand for affordable housing and rental homes remained strong; rental-home occupancy was 94.3% at quarter-end. UMH had added 293 rental homes in the first nine months and anticipated adding approximately 500 during 2022.
- Management described continued plans to acquire, improve, develop, and expand communities, including through its Nuveen joint venture and opportunity-zone fund. It disclosed anticipated near-term closings on two communities totaling 511 sites for approximately $42 million, plus land for approximately $2.8 million. These were expectations, not completed transactions as of the filing.
- On November 7, 2022, after quarter-end, UMH amended its unsecured facility, increasing available borrowings from $75 million to $100 million, adding a $400 million accordion feature subject to conditions, and extending maturity to November 2026, with a conditional one-year extension option.
- The filing cites risks including real-estate and economic conditions, interest rates and inflation, acquisition competition and availability, occupancy and rental rates, financing access and refinancing, debt-covenant compliance, and manufactured-home buyer financing. Management said it believed COVID-19 would not materially adversely affect operations; collections were described as consistent with pre-pandemic levels, with 98% of Q3 site and home rent collected as of the stated date.
- Other notable items: UMH reported $57.3 million of net unrealized losses in its REIT securities portfolio at September 30. It had 30 unencumbered communities. Management stated that debt covenants were met and disclosure controls were effective; the filing reported no material risk-factor changes, no material litigation, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the drivers of the sharp year-to-date decline in GAAP earnings and operating cash flow, including securities valuation and sales, working-capital movements, and the $33.5 million inventory increase.
- Review debt maturities, borrowing-base availability, rates, covenants, and the terms and conditions of the post-quarter credit-facility amendment; assess the $65.6 million of mortgages due within 12 months.
- Track same-property occupancy, rental-rate growth, expense ratios, and the cost and pace of improving recently acquired communities.
- Assess the remaining marketable-securities exposure and potential volatility, as well as funding needs and returns from acquisitions, rental-home additions, and development.
- Consider dilution and capital allocation from common-stock ATM sales, dividends, and the Series C preferred redemption; confirm subsequent-period ATM issuance and planned acquisition closings.