UMH Properties, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. UMH is a REIT focused on manufactured-home communities, with additional manufactured-home sales and financing and investments in other REIT securities. It owned 126 communities with approximately 23,800 developed homesites.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total income | $43.1 million | $37.6 million |
| Rental and related income | $38.7 million | $34.4 million |
| Manufactured-home sales | $4.4 million | $3.2 million |
| Net income (loss) | $13.9 million | $(34.7) million |
| Net income (loss) attributable to common shareholders | $6.8 million; $0.16 per diluted share | $(42.8) million; $(1.04) per diluted share |
| Community NOI (non-GAAP) | $21.6 million | $18.9 million |
| FFO / Normalized FFO attributable to common shareholders (non-GAAP) | $8.4 million / $8.7 million | $6.1 million / $6.1 million |
| Net cash from operating activities | $13.2 million | $17.3 million |
- Community NOI increased 14%; same-property NOI increased 16%. Same-property occupancy rose 320 basis points, from 83.1% to 86.3%. The community operating-expense ratio improved to 44.3% from 45.1%.
- Home sales increased 37% by revenue, from 62 to 73 homes, while gross margin declined to 21% from 25%. The sales operation reported a $237,000 loss, versus a $315,000 loss.
- General and administrative expense rose 33% to $3.4 million, reflecting personnel costs, higher bonus accruals and stock compensation. Without specified special bonus and restricted-stock grants, G&A was 6.9% of gross revenue, versus 6.4% reported in Q1 2020.
- Cash and cash equivalents were $24.8 million; cash, cash equivalents and restricted cash totaled $40.1 million. Marketable securities were $108.2 million. Total assets were $1.12 billion, total liabilities $574.8 million and shareholders’ equity $545.2 million.
- Mortgages payable, net, were $468.8 million and loans payable, net, $75.8 million. The unsecured facility had $45 million drawn at 1.72%; fixed-rate mortgages averaged 3.81%, with a 5.8-year weighted-average maturity. Management reported net debt at approximately 29% of total market capitalization, or approximately 23% after deducting securities.
- Available borrowing capacity included approximately $30 million under the unsecured facility, $24.8 million under revolving lines for home sales and inventory, and $15 million under rental-home financing. The unsecured facility also had a potential $50 million accordion, subject to conditions. Mortgages of $14.7 million were due within 12 months.
Material changes and unusual items
- The sharp year-over-year improvement in GAAP net income was substantially affected by marketable-security valuations: Q1 2021 included a $10.2 million fair-value gain, compared with a $38.6 million loss in Q1 2020. UMH also recorded a $730,000 loss on securities sales in Q1 2021. The portfolio had $29.1 million of net unrealized losses at quarter-end.
- Operating growth reflected 2020–2021 acquisitions, rent increases, improved occupancy and additional rental homes. UMH acquired two communities in Alabama and South Carolina for approximately $8.0 million in aggregate, with 337 sites and 42% average occupancy at acquisition.
- Operating cash flow declined despite higher earnings. Investing activities used $18.7 million, including community acquisitions, property and equipment purchases, and land development; financing activities provided $17.0 million.
- UMH raised $30.9 million net through Series D preferred shares and $6.6 million net through common shares under ATM programs during the quarter. Subsequent to quarter-end, it raised another $22.4 million net from preferred shares and $39.2 million net from common shares. These issuances increase liquidity but dilute existing shareholders and add preferred-dividend obligations.
Outlook, commentary and risks
- Management anticipated adding approximately 800–900 rental homes in 2021; 218 were added in Q1. Rental-home occupancy was 95.4% at March 31, 2021. This is management’s stated plan, not a guarantee.
- Management described demand for rental homes and affordable manufactured housing as strong, noted fewer move-outs, and reported collecting 95% of April site and home rent as of the filing’s stated date. It said the pandemic had not significantly affected Q1 results and did not then expect a material adverse operating effect, while emphasizing uncertainty.
- Key risks include economic and real-estate-market conditions, occupancy and rental-rate trends, competition, acquisition availability and integration, interest rates, refinancing and debt-covenant compliance, access to capital markets, manufactured-home buyer financing, securities-market volatility, and maintaining REIT tax status.
- UMH disclosed purchase obligations for certain homes repossessed by 21st Mortgage following borrower defaults. Related loan balances were approximately $1.5 million under one agreement and $1.9 million for acquired communities; the ultimate obligation depends on defaults and contractual terms. Management said ordinary-course claims and litigation were not expected to have a material adverse effect; the legal-proceedings section reported none.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring property operations versus volatile securities fair-value changes; review NOI, FFO and normalized FFO reconciliations and their non-GAAP limitations.
- Whether same-property occupancy and NOI growth, rent increases, and the planned addition of 800–900 rental homes are sustained, including the capital and operating costs required.
- The effect of common and preferred ATM issuance on per-share results, shareholder dilution, and recurring dividend requirements.
- Liquidity and refinancing capacity relative to debt maturities, variable-rate borrowings, credit-facility conditions and the $14.7 million of mortgages due within 12 months.
- Actual collection trends and pandemic-related effects, along with exposure to securities valuation changes and contingent home-repurchase obligations.