UMH Properties, Inc. — Q1 2015 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2015; figures are unaudited and compared with Q1 2014 unless stated otherwise. UMH owns and operates manufactured-home communities, leases and sells homes, and invests in securities of other REITs. At quarter-end it owned 89 communities with approximately 15,200 developed sites across seven states.
Key financial and operating metrics
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total income | $18.34 million | $15.85 million; up 16% |
| Rental and related income | $17.22 million | $14.85 million; up 16% |
| Community operating expenses | $8.81 million | $8.29 million; up 6% |
| Community NOI | $8.40 million | $6.56 million; up 28%. NOI margin was approximately 48.8%, versus 44.2%. |
| Net income | $719,000 | $568,000 |
| Net loss attributable to common shareholders | $(1.17) million; $(0.05) per share | $(1.32) million; $(0.06) per share |
| FFO / Core FFO / Normalized FFO | $3.05 million / $3.16 million / $3.23 million | $2.14 million / $2.42 million / $1.92 million |
| Cash from operating activities | $7.24 million | $5.83 million |
| Cash and cash equivalents | $11.08 million | $8.08 million at Dec. 31, 2014 |
| Debt at quarter-end | Mortgages $221.96 million; loans payable $47.63 million | At Dec. 31, 2014: mortgages $182.67 million; loans payable $77.44 million |
Manufactured-home sales were $1.13 million, with a 22% gross margin; the sales operation recorded a $438,000 loss after selling expenses. Interest expense rose 27% to $2.81 million, primarily due to higher average debt balances. The REIT securities portfolio was valued at $67.92 million and generated dividend income of $1.09 million; its net unrealized gains were $5.51 million.
Material changes and management commentary
- Overall occupancy rose to 82.3% from 80.8% a year earlier; same-store occupancy increased to 83.0% from 81.7%. Rental-home occupancy was 92%, and rental homes totaled approximately 2,700 after 120 additions in the quarter.
- Management attributed higher rental income and NOI mainly to acquisitions, improved occupancy and rental-home income. Community expenses also rose, including $125,000 related to the Memphis litigation settlement.
- UMH acquired Holly Acres in Pennsylvania for $3.8 million in January (141 sites; approximately 96% occupied). After quarter-end, it acquired two further Pennsylvania communities for $5.3 million (324 sites; approximately 63% weighted-average occupancy). A third acquisition, part of agreements totaling approximately $8.8 million for 482 sites, was expected in Q2 subject to due diligence.
- Mortgages increased following approximately $45 million of new Freddie Mac financing and an assumed $2.3 million mortgage; repayments included approximately $8.0 million. Loans payable declined by approximately $29.8 million, including reductions in margin borrowing and credit facilities.
- Liquidity included $11.1 million cash, $67.9 million of marketable securities, available credit-facility capacity, and 21 unencumbered properties. Management stated that expected funds would be adequate to meet obligations over the next several years. No formal earnings guidance was provided.
Outlook, risks and unusual items
- Management intends to add rental homes as demand warrants and pursue opportunistic acquisitions, with a focus on the Marcellus and Utica shale regions. It cited potential to fill approximately 2,700 vacant sites.
- Key risks include occupancy and rental-rate performance, real-estate and local economic conditions, acquisition integration and availability, interest rates, debt refinancing and covenant compliance, access to capital, and manufactured-home buyer financing and repossessions. Results for the quarter are not necessarily indicative of full-year results.
- The Memphis Mobile City lawsuit was settled; UMH paid $125,000 toward its share and reported no further liability. Redevelopment of the community is underway, with municipal approval for its first phase.
- Under agreements with 21st Mortgage, UMH may be required to buy repossessed homes. As of March 31, covered loans included approximately $3.7 million of original loan amounts under one agreement and approximately $2.9 million in balances tied to acquired communities.
- UMH used interest-rate swaps on specified mortgages; the hedges were reported as highly effective. The company disclosed no off-balance-sheet arrangements and no material change in risk factors.
Important facts for investors to verify
- Whether occupancy and rental-home growth continue, and whether acquired communities meet expected operating and integration targets.
- Debt maturities, refinancing terms, credit availability and covenant headroom, particularly after the quarter’s financing activity.
- The sustainability of cash available for common and preferred dividends, given the common-shareholder loss and recurring preferred dividends.
- Exposure and potential losses from REIT securities, home-repurchase commitments, and redevelopment or acquisition contingencies.
- That reported FFO measures are non-GAAP supplemental measures and should be considered alongside GAAP earnings and operating cash flow.