UMH Properties, Inc. — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012. UMH is a REIT focused on owning and operating manufactured-home communities, with additional home rentals and sales/financing through its taxable subsidiary, plus investments in other REITs. At year-end it owned 57 communities with approximately 10,600 developed sites across six states.
Financial performance and position
| Metric | FY 2012 | FY 2011 | Change / context |
|---|---|---|---|
| Rental and related income | $38.0 million | $33.0 million | Up 15%, primarily from acquisitions |
| Manufactured-home sales | $8.8 million | $6.3 million | Up 39%; 210 homes sold versus 130 |
| Total income | $46.8 million | $39.3 million | Up 19% |
| Net income | $6.5 million | $3.7 million | Up 75%, aided by higher securities gains and acquisitions |
| Net income attributable to common shareholders | $1.75 million; $0.11 per diluted share | $2.04 million; $0.14 per diluted share | Down 14%; increased preferred dividends absorbed more of net income |
| Funds from operations (FFO) | $9.15 million | $7.97 million | Up 15%; company-defined supplemental measure |
| Core FFO | $10.01 million | $9.22 million | Up 9%; adds acquisition costs and, where applicable, flood loss |
| Cash from operating activities | $9.09 million | $8.41 million | Up 8% |
| Cash / available liquidity at year-end | $11.0 million cash; $57.3 million securities; $5.0 million undrawn unsecured line | $8.8 million cash; $43.3 million securities | No margin borrowing outstanding; additional credit capacity disclosed |
| Mortgages payable | $108.9 million | $90.3 million | Up 21%; weighted-average mortgage rate 5.25% |
| Total assets / shareholders’ equity | $300.3 million / $175.0 million | $223.9 million / $105.9 million | Growth reflected acquisitions and equity issuance |
Community operating expenses were $20.6 million, up 16%, largely with portfolio growth. Home-sales operations recorded a $1.24 million loss after selling expenses, versus a $1.53 million loss in 2011. Securities generated $4.09 million of realized gains and $3.24 million of dividend income; the portfolio’s year-end fair value was $57.3 million, including $6.6 million of net unrealized gains. These investment results contributed materially to reported earnings and remain exposed to market-price risk.
Investing activities used $69.8 million, principally for community acquisitions, property investment and securities purchases; financing activities provided $62.9 million, chiefly from preferred/common equity and mortgage proceeds. Common dividends remained $0.72 per share for the year; 77.39% of the 2012 common distribution was characterized as return of capital for tax purposes. Series A preferred stock carries an 8.25% cumulative annual dividend.
Changes, outlook and notable items
- UMH acquired 17 communities during 2012 for approximately $47.6 million, adding about 1,700 developed sites. Excluding the closed Memphis property, occupancy improved to 80% at year-end from 77% a year earlier; weighted-average monthly site rent was $391.
- Preferred-stock issuance raised approximately $57 million net during 2012, and the DRIP brought in $18.1 million. Common shares outstanding also increased, so investors should consider dilution alongside portfolio growth.
- On March 1, 2013, after the reporting date, UMH acquired 10 communities with 1,854 sites for $67.5 million. The purchase was funded in part by a $53.76 million, 4.065% fixed-rate mortgage due in 2023. The company reported that it then owned 67 communities with approximately 12,500 sites.
- Management plans to continue pursuing acquisitions and expects approximately $3.8 million of 2013 capital improvements, excluding expansions and rental-home purchases. It also estimated purchasing about 150 rental homes for approximately $5.25 million, with expected rent of about $300 monthly per home in addition to site rent. These are plans, not assured results.
- The company reported increasing rental demand and added a net of approximately 190 rental homes during 2012. Management cited persistent unemployment, tight buyer financing, difficulty for customers selling existing homes, and weak consumer confidence as headwinds to home sales.
- Interest-rate exposure is partly hedged: swaps fixed rates on approximately $24.7 million of variable-rate mortgages. Management estimated a 1 percentage-point rate change would affect interest expense by about $16,000 on remaining variable-rate long-term debt at year-end; approximately $10.4 million of additional variable-rate borrowing was due on demand.
- Memphis Mobile City remained closed following the 2011 flood; redevelopment as an RV and manufactured-home community was under consideration. A related class-action lawsuit alleging discrimination and consumer-protection violations was being defended; management considered it without merit, and the insurer was supporting the defense.
- The 2013 mortgage maturity table and subsequent-event disclosure warrant reconciliation: a roughly $7.4 million mortgage was extended for two years, while the contractual-obligations table still lists $10.4 million of mortgages due within one year. Management stated it believed available operating cash, equity, credit lines and financing capacity would meet obligations.
Investor verification priorities
- Review acquisition-level occupancy, site rents, capital needs and financing for both the 2012 purchases and the March 2013 portfolio; assess integration and returns against acquisition costs.
- Reconcile scheduled debt maturities with the reported extension, and verify credit-line availability, covenants, rates and refinancing requirements.
- Assess recurring property-level performance separately from securities gains and other one-off items, including the $499,471 oil-and-gas drilling bonus received in 2012.
- Track common-share dilution, preferred-dividend burden, cash available for distributions and the high return-of-capital portion of common dividends.
- Monitor occupancy and rental growth, home-sales losses and receivable/loan losses; the filing reports a $745,993 provision for uncollectible notes and other receivables in 2012.
- Follow the Memphis redevelopment and litigation, and confirm the status and cost of environmental, water/sewer, licensing and other regulatory obligations.
Controls and audit: The independent auditor gave an unqualified opinion on the 2012 financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective as of year-end.