UMH Properties, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless otherwise indicated, financial amounts below are in millions. UMH is a REIT focused on owning and operating manufactured-home communities; it also rents, sells and finances manufactured homes. At quarter-end, it owned and operated 135 communities with approximately 25,700 developed homesites, plus had an interest in two Florida communities through a joint venture.
Financial performance and operating metrics
- Revenue: Total income rose 15% to $52.6 million from $45.9 million. Rental and related income increased 9% to $45.3 million; manufactured-home sales increased 70% to $7.3 million.
- Community operations: Community NOI, a non-GAAP measure, increased 7% to $25.2 million. Same-property NOI rose 6%; same-property occupancy improved 100 basis points to 87.0%, and rental rates increased 4.5%. Community operating expenses rose 11% to $20.1 million. The operating expense ratio increased to 44.3% from 43.5%.
- Home sales: UMH sold 83 homes versus 61. Gross profit margin was 32%, compared with 30%; reported sales-operation gain was $0.24 million, or 3% of sales, versus $0.10 million, or 2%.
- Profit and per-share results: GAAP net loss attributable to common shareholders was $5.3 million, or $0.09 per share, compared with a $4.3 million loss, also $0.09 per share. Net loss was $1.5 million, versus net income of $3.3 million in Q1 2022. The comparison was affected by marketable-securities results: Q1 2022 included a $30.7 million securities-sale gain and a $31.8 million fair-value loss; Q1 2023 included a $0.04 million sale loss and a $2.4 million fair-value loss.
- Funds from operations: FFO attributable to common shareholders was $10.6 million versus $8.5 million; Normalized FFO was $11.7 million versus $10.4 million. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
- Cash flow: Operating cash flow was $12.9 million, up from $5.6 million. Investing activities used $40.2 million, while financing activities provided $29.4 million. Cash, cash equivalents and restricted cash ended the quarter at $43.1 million, including $32.9 million of cash and cash equivalents.
- Debt and liquidity: Total liabilities were $778.9 million and shareholders’ equity was $591.4 million. Mortgages, net of issuance costs, were $460.9 million; loans payable, net, were $191.1 million; Series A bonds, net, were $99.4 million. The unsecured credit facility was expanded to $180 million, with $100 million drawn and $80 million available. Management also reported approximately $51.4 million available on home-sales and inventory lines and $34.9 million on the rental-home line. Net debt to total market capitalization was approximately 38% (36% after securities). Mortgages of $13.5 million mature within 12 months.
- Margins and expenses: Interest expense increased 52% to $8.3 million, primarily due to higher average borrowings, higher rates and the Series A bonds. General and administrative expenses rose 28% to $5.0 million; management cited personnel, stock compensation, professional fees and $0.56 million of identified non-recurring items.
Material changes and notable items
- UMH acquired Mighty Oak, a newly developed 118-site community in Georgia, for approximately $3.7 million through its opportunity zone fund. It added 230 rental homes in Q1; the rental-home portfolio totaled approximately 9,300 homes, with 93.7% occupancy.
- Manufactured-home inventory was $88.3 million, up from $34.3 million a year earlier. Management attributed the increase to inventory purchases amid supply-chain issues; floorplan financing was $57.1 million at an 8.48% rate.
- Mortgages declined by approximately $48.0 million during the quarter, while loans payable, net, rose approximately $37.6 million. Management cited mortgage paydowns funded in part by additional credit-line borrowings.
- UMH raised $34.3 million net from common-stock ATM sales and $19.3 million net from preferred-stock ATM sales during Q1. These equity offerings support liquidity but increase share counts and may dilute existing holders. The common dividend was increased 2.5% to $0.205 per share quarterly.
- The REIT securities portfolio was $39.3 million, approximately 2.2% of undepreciated assets, with cumulative net unrealized losses of $38.5 million. UMH said it does not intend to increase this portfolio.
Outlook, risks and contingencies
- Management expects to continue acquisitions and community investment, including adding rental homes to vacant sites. It anticipates adding approximately 700–800 rental homes in 2023. Management cited affordable-housing demand, but said growth depends on suitable properties, financing availability and competition; there is no assurance opportunities will materialize.
- Management described demand for rental homes as strong and remained optimistic about home sales and rental prospects. It said annual rent increases of roughly 4%–5% have generally helped offset inflation, while acquired communities may require above-normal maintenance spending.
- Key disclosed risks include interest-rate and refinancing exposure, debt-covenant compliance, access to debt and equity markets, inflation and operating costs, competition, occupancy and rent levels, home availability and buyer financing, securities-market volatility, and maintaining REIT tax qualification. The filing states there were no material changes to previously disclosed risk factors.
- The company reported no material litigation proceedings, no defaults on senior securities and no off-balance-sheet arrangements. It disclosed home-repurchase commitments related to certain customer loans: associated balances were approximately $1.0 million under each of two arrangements as of March 31, 2023. Management said ordinary-course claims and litigation are not expected to have a material adverse effect.
- After quarter-end, UMH established a new common-stock ATM program of up to $150 million and continued preferred-stock ATM sales. These financing plans are not guaranteed sources of capital and may affect dilution and future funding costs.
Important facts for investors to verify
- Whether rental-rate growth and occupancy gains continue to outpace community operating-cost increases, and whether the expense ratio improves.
- How higher interest rates, floating-rate borrowings, refinancing needs and debt maturities affect interest expense, covenant headroom and liquidity.
- Whether the elevated home-inventory balance and related floorplan debt convert into sales without margin or cash-flow deterioration.
- The sustainability of FFO and Normalized FFO growth relative to GAAP losses, cash flow, capital spending and shareholder distributions.
- The scale and pricing of future ATM issuances, related dilution, and management’s ability to fund acquisitions and rental-home growth on acceptable terms.