UMH Properties, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. UMH is a self-managed REIT that owns and operates manufactured-home communities, leases homes, and sells and finances manufactured homes through a taxable subsidiary. At year-end, it operated 124 communities with approximately 23,400 developed homesites, primarily in the eastern United States.
Financial and operating performance
| Metric | 2020 | 2019 | Change or context |
|---|---|---|---|
| Total income | $163.6 million | $146.6 million | Up 12% |
| Rental and related income | $143.3 million | $128.6 million | Up 11% |
| Manufactured-home sales | $20.3 million | $18.0 million | Up 13% |
| Community NOI | $80.2 million | $66.9 million | Up 20%; non-GAAP measure |
| Net income | $5.1 million | $27.8 million | Down, substantially reflecting marketable-securities valuation changes |
| Net income (loss) attributable to common shareholders | ($29.8 million) | $2.6 million | 2020 included $31.9 million of preferred dividends and a $2.9 million preferred-stock redemption charge |
| Normalized FFO attributable to common shareholders | $29.2 million | $25.2 million | Up 16%; non-GAAP measure |
| Operating cash flow | $69.0 million | $38.5 million | Increased $30.5 million |
- Same-property occupancy rose from 83.6% to 86.8%; overall occupancy was 85.0%, versus 82.0% a year earlier. Rental-home occupancy reached 94.6% across approximately 8,300 homes.
- The community operating-expense ratio improved to 44.1% from 47.5% (excluding non-recurring expenses). Same-property NOI increased 15%, as reported by management.
- Manufactured-home sales totaled 323 units, versus 299 in 2019. Sales operations moved from a $290,000 loss to a $768,000 gain.
- Cash used in investing was $103.8 million; cash provided by financing was $44.3 million. Year-end cash and cash equivalents were $15.3 million.
- At year-end, mortgage debt was $469.3 million and loans payable were $87.0 million, net of debt issuance costs. Total liabilities were $585.4 million. Net debt to total market capitalization was approximately 34%, up from 29%.
- Marketable REIT securities were valued at $103.2 million, with $17.6 million of margin borrowings. The portfolio recorded a $14.1 million unrealized loss for 2020 and had $39.4 million in cumulative net unrealized losses.
Material changes and capital allocation
- UMH acquired two communities with 310 homesites for $7.8 million during 2020. After year-end it acquired two more communities, with 337 homesites, for $8.0 million.
- In August 2020, UMH borrowed approximately $106 million against 28 communities through a 10-year fixed-rate Fannie Mae facility at 2.62%, with 30-year amortization. The weighted-average mortgage rate declined to 3.8% from 4.1%.
- UMH issued Series C and D preferred shares for net proceeds of approximately $96.1 million and redeemed all Series B preferred shares for approximately $96.1 million. Management said the lower-cost financing contributed to annual savings of more than $5 million.
- The common dividend remained $0.72 per share for 2020. In January 2021, the company announced an increase to $0.19 quarterly, or $0.76 annualized.
- Common shareholders’ 2020 distributions were characterized as 100% return of capital for tax purposes, according to the filing.
Outlook, commentary, and risks
- Management reported that rent collections remained consistent with pre-pandemic levels and that 98% of December 2020 site and home rent had been collected by the filing’s stated date. Fewer than 1% of residents entered deferred-payment plans. Management did not then expect COVID-19 to have a material adverse effect, while emphasizing continuing uncertainty.
- Management cited demand for affordable housing and rental homes. For 2021, it expected to purchase approximately 900 rental homes for about $45 million and budgeted approximately $12 million for capital improvements, excluding expansions and rental-home purchases.
- Key risks include rent-control limits, particularly in New York and two New Jersey communities; occupancy and rent collection; regional economic and energy-market exposure; acquisition and development execution; refinancing, variable-rate debt and covenant compliance; and access to debt and equity capital.
- Other material exposures include COVID-related eviction restrictions, manufactured-home loan defaults and repossessions, environmental and weather-related liabilities, securities-market volatility, and the possibility of future REIT qualification or tax-law changes.
- The company disclosed ordinary-course claims and litigation but said management did not believe these would have a material adverse effect. It reported no impairment charges for operating properties at year-end. The auditor issued unqualified opinions on the financial statements and internal controls.
- A related-party consideration is the corporate-office lease: the chairman owns a 24% interest in the landlord. The lease runs through April 2027; management said the rent is comparable to market.
Important facts for investors to verify
- Reconcile the common-shareholder loss with positive net income and FFO, including the effects of preferred dividends, the Series B redemption charge, and securities valuation changes.
- Assess whether occupancy gains, rent increases, and rental-home growth can continue, especially at recently acquired and lower-occupancy communities.
- Review debt maturities and refinancing needs, floating-rate exposure, credit-facility availability, covenants, and the increase in net leverage.
- Evaluate the marketable-securities portfolio’s concentration, unrealized losses, dividend income, and margin-loan collateral requirements.
- Confirm the costs, financing, occupancy assumptions, and returns for the 2021 acquisitions, planned rental-home purchases, and capital improvements.
- Monitor rent-control developments, eviction restrictions, COVID-related collections, and the terms and governance of related-party arrangements.