UMH Properties, Inc. 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2009. UMH Properties, Inc. is a Real Estate Investment Trust (REIT) incorporated in Maryland. The Company owns and operates 28 manufactured home communities containing approximately 6,800 sites located in New Jersey, New York, Ohio, Pennsylvania, and Tennessee. Its primary business is leasing manufactured home spaces on a month-to-month basis. Through its taxable REIT subsidiary, UMH Sales and Finance, Inc., the Company also sells and finances manufactured homes to residents.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Income | $32,019,252 | $35,103,657 |
| Rental and Related Income | $26,491,999 | $25,542,745 |
| Sales of Manufactured Homes | $5,527,253 | $9,560,912 |
| Net Income | $3,689,388 | $1,527,150 |
| Funds from Operations (FFO) | $7,834,295 | $5,585,059 |
| Net Cash Provided by Operating Activities | $11,355,096 | $8,267,886 |
| Total Assets | $147,971,540 | $137,939,325 |
| Mortgages Payable | $70,318,950 | $65,952,895 |
| Shareholders' Equity | $55,971,862 | $44,721,700 |
| Dividends Per Share | $0.72 | $0.79 |
Liquidity: As of December 31, 2009, the Company held $4.5 million in cash and cash equivalents, $31.8 million in securities available for sale, and had approximately $3.5 million available on lines of credit.
Material Changes vs. Prior Period
- Revenue Decline: Total income decreased 9% to $32.0 million, primarily driven by a 42% drop in manufactured home sales ($5.5 million vs. $9.6 million) due to adverse economic conditions and reduced consumer confidence.
- Rental Growth: Rental and related income increased 4% to $26.5 million, aided by average rent increases of approximately 5% and increased home rental income.
- Profitability Surge: Net income increased 142% to $3.7 million. This was largely due to a decrease in impairment losses on securities (from $2.5 million in 2008 to $1.9 million in 2009) and reduced interest expense.
- Occupancy Decline: Overall occupancy fell from 80% in 2008 to 78% in 2009. Despite selling 128 new homes, the total number of occupied sites decreased by 168 due to approximately 300 homes leaving the communities (demolished or moved).
- Margin Compression: The gross profit percentage on home sales decreased from 14% in 2008 to 8% in 2009.
Guidance, Outlook, and Risks
Management Commentary: Management notes that while the U.S. economy is slowly emerging from recession, the manufactured housing sector faces continued challenges from low interest rates making site-built housing accessible and competition from apartment rentals. The Company is focusing on strengthening its balance sheet, raising rental rates, and controlling operating expenses.
Capital Expenditures: The Company anticipates renovation expenditures of approximately $1.0 million in 2010 and budgets approximately $2.0 million for capital improvements (excluding expansions and rental home purchases).
Risks and Contingencies:
- Refinancing Risk: The Company has a mortgage of approximately $2.4 million due in 2010. Management intends to refinance this debt but notes uncertainty in the credit markets.
- REIT Qualification: The Company must distribute at least 90% of taxable income to maintain REIT status. Failure to do so would result in corporate taxation.
- Market Risk: The Company is exposed to interest rate risk on variable-rate debt and equity price risk regarding its portfolio of other REIT securities.
- Environmental Liability: The Company owns 13 communities with wastewater treatment facilities or water distribution systems, subject to state environmental testing and compliance.
Investor Verification Checklist
- Refinancing Capability: Verify the Company's ability to refinance the $2.4 million mortgage maturing in 2010 given current credit market conditions.
- Occupancy Trends: Monitor the 78% occupancy rate and the net loss of 168 sites to assess the impact of the economic recession on core rental revenue.
- Home Sales Viability: Review the sustainability of the home sales business, which saw a 42% revenue drop and margin compression to 8%.
- Securities Portfolio: Assess the valuation of the $31.8 million securities portfolio, which swung from an unrealized loss of $5.7 million in 2008 to a gain of $2.2 million in 2009.
- Dividend Sustainability: Confirm that operating cash flow ($11.4 million) remains sufficient to cover dividend distributions ($8.2 million) and debt service obligations.