UMH Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
Business context and reporting period
UMH is a REIT focused on owning and operating manufactured-home communities, leasing sites and homes, and selling and financing manufactured homes. At quarter-end it owned and operated 135 communities with approximately 25,700 developed homesites, plus an interest in two Florida communities through its Nuveen joint venture. It also held a controlling 77% interest in its opportunity zone fund.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total income | $55.3 | $49.2 | $107.9 | $95.1 |
| Rental and related income | $47.1 | $42.2 | $92.4 | $83.8 |
| Manufactured-home sales | $8.2 | $7.0 | $15.5 | $11.3 |
| Net loss | $(0.4) | $(6.7) | $(1.9) | $(3.4) |
| Net loss attributable to common shareholders | $(4.4) | $(22.5) | $(9.7) | $(26.8) |
| Loss per common share, basic and diluted | $(0.07) | $(0.41) | $(0.16) | $(0.50) |
| Community NOI (non-GAAP) | $27.0 | $23.3 | $52.2 | $46.8 |
| Normalized FFO attributable to common shareholders (non-GAAP) | $13.0 | $12.0 | $24.8 | $22.4 |
Community NOI increased 16% in Q2 and 12% for the six-month period. The reported community operating expense ratio improved to 42.6% from 44.8% in Q2 and to 43.4% from 44.1% for the first half. Same-property NOI rose 13% in Q2 and 9% for the first half; same-property occupancy reached 87.9%, up 190 basis points year over year, and rental rates increased 4.7%.
Operating cash flow was $52.4 million for the first half, compared with $5.4 million in 2022, primarily reflecting a $27.4 million reduction in manufactured-home inventory versus a $22.3 million inventory increase in the prior-year period. Investing cash outflow was $93.8 million and financing cash inflow was $49.7 million. Cash, cash equivalents and restricted cash increased $8.3 million to $49.2 million; cash and cash equivalents alone were $41.5 million.
At June 30, total assets were $1.394 billion and total liabilities were $756.0 million. Debt carrying values included $444.8 million of mortgages, $182.4 million of loans and $99.6 million of Series A bonds. Mortgages were fixed-rate, with a 3.92% weighted-average rate and 5.2-year weighted-average maturity; no mortgages were due in the next 12 months. Loans payable, net, averaged 7.48%. The $100 million unsecured revolving facility had $80 million available, subject to borrowing-base limits; management also reported approximately $99.7 million available across revolving facilities for home sales and inventory. Net debt to total market capitalization was approximately 34%, or approximately 32% after deducting securities.
Material changes versus the prior comparable period
- Rental growth reflected 2022 acquisitions, higher rents and occupancy, and additional rental homes. Rental-home occupancy was 93.9% at June 30; UMH added 534 rental homes in the first half.
- Manufactured-home sales increased 18% in Q2 and 38% in the first half, but sales-operation gain as a share of sales declined year over year: 8% versus 13% in Q2 and 6% versus 9% for the first half, including inventory financing interest.
- Interest expense rose 35% in Q2 and 43% in the first half, reflecting higher average borrowings, higher rates and interest on the Series A bonds.
- First-half 2022 results included a $30.7 million gain on marketable-security sales and a $41.8 million fair-value decrease in securities. In the first half of 2023, the corresponding items were a $43,000 loss and a $4.9 million decrease. The portfolio had $41.1 million of net unrealized losses at June 30, 2023.
- Mortgage debt, net, decreased $64.1 million from year-end 2022, while loans payable, net, increased $28.9 million. Share issuance increased common shares outstanding, and the company also issued Series D preferred shares through at-the-market programs.
Outlook, commentary, risks and unusual items
Management said it intends to continue acquiring communities and investing in physical improvements and rental homes, citing demand for affordable housing. It anticipated adding approximately 800–900 rental homes in 2023. Management noted that recently acquired communities may require above-normal deferred-maintenance spending and that acquisitions depend on suitable properties, financing and competition.
After quarter-end, UMH agreed to buy two Maryland communities for approximately $12.5 million, expanded its OceanFirst revolving line from $20 million to $35 million, and reported additional common and Series D preferred ATM issuances. It also paid down approximately $35 million of floorplan inventory financing after June 30. These subsequent-period actions are not included in the June 30 balance sheet.
Principal disclosed risks include interest-rate and refinancing exposure, inflation and operating-cost increases, occupancy and rent trends, access to debt and equity markets, acquisition competition and availability, manufactured-home buyer financing, securities-market movements, and maintaining REIT tax status and debt-covenant compliance. The company reported compliance with Series A bond covenants at June 30, no material change to its risk factors, no material litigation, and no off-balance-sheet arrangements. It stated that disclosure controls were effective and that no material internal-control changes occurred during the quarter.
Most important facts for investors to verify
- Track same-property occupancy, rent increases, NOI growth and operating expenses, including maintenance needs at acquired communities.
- Assess the impact of rising interest expense and borrowing costs, available credit, debt maturities and covenant headroom.
- Review the sustainability of operating cash flow, particularly the effect of inventory movements, capital spending and community acquisitions.
- Monitor common and preferred ATM issuance, resulting dilution and dividend obligations; the common dividend was raised to $0.205 per share per quarter.
- Evaluate manufactured-home sales margins and financing exposure, including remaining repurchase obligations on certain legacy 21st Mortgage loans.
- Follow the marketable-securities portfolio and its substantial accumulated unrealized losses, as well as the assumptions underlying non-GAAP NOI, FFO and Normalized FFO.