The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere herein and in
our annual report on Form 10-K for the year ended December 31, 2010.
The Company is a self-administered, self-managed, real estate investment
trust (REIT) with headquarters in Freehold, New Jersey. The Companys primary business is the ownership and operation of manufactured home
communities leasing manufactured home spaces on a month-to-month basis to private manufactured home owners. The Company also leases homes to
residents and, through its taxable REIT subsidiary, UMH Sales and Finance, Inc. (S&F), sells and finances homes to residents and prospective residents of
our communities. During the nine months ended September 30, 2011, we have purchased three manufactured home communities located in Tennessee for a total
purchase price of $13,300,000. In October 2011, we acquired Clinton Mobile Home Resort, a 116-site community in Tiffin, Ohio. With this acquisition,
we now own thirty-nine communities consisting of approximately 8,860 sites. These communities are located in New Jersey, New York, Ohio, Pennsylvania and
Tennessee. The Company also invests in debt and equity securities of other REITs.
The Companys income primarily consists of rental and related
income from the operation of its manufactured home communities. Income also includes sales of manufactured homes. Total income rose 14% and 15% for
the quarter and nine months ended September 30, 2011, respectively, as compared to the quarter and nine months ended September 30, 2010, primarily due to the
new acquisitions in 2010 and 2011. Sales of manufactured homes have stabilized but continue to be disappointing due to weaknesses in the overall economy.
Our customers still face difficulties in selling their existing homes. This coupled with continued high unemployment rates, has negatively impacted our
sales and our gross profit percentage.
Economic growth in the US economy has moderated and high unemployment
rates have persisted. However, activity in our communities has recently increased as conventional home ownership rates continue to fall. We are
seeing increased demand for rental units and have added approximately 140 rental units, including those purchased with the recent acquisitions, to selected
communities.
The Company also holds a portfolio of securities of other REITs with a
fair value of $38,845,432 at September 30, 2011. The Company invests in these securities on margin from time to time when the Company can achieve an
adequate yield spread. The REIT securities portfolio provides the Company with liquidity and additional income and serves as a proxy for real property
investments. At September 30, 2011, the Companys portfolio consisted of 74% common stocks and 26% preferred stocks. The Companys
weighted-average yield on the securities portfolio was approximately 7.8% at September 30, 2011.
The Company realized a net gain of $2,027,943 and $2,294,542 on
securities transactions for the nine months ended September 30, 2011 and 2010, respectively. At September 30, 2011, the Company had an unrealized loss of
$898,115 in its REIT securities portfolio. The dividends received from our securities investments continue to meet our expectations. It is our
intent to hold these securities long-term.
Total expenses increased by approximately 19% for both the quarter and
nine months ended September 30, 2011, as compared to the quarter and nine months ended September 30, 2010. This was primarily due to the new acquisitions
in 2010 and 2011.
Net income decreased from $1,197,304 for the quarter ended September 30,
2010 to $792,877 for the quarter ended September 30, 2011. Net income decreased from $4,554,940 for the nine months ended September 30, 2010 to $3,153,717
for the nine months ended September 30, 2011. Funds from operations (see page 24) decreased from $2,372,268 for the quarter ended September 30, 2010 to
$1,680,178 for the quarter ended September 30, 2011. Funds from operations decreased from $7,812,583 for the nine months ended September 30, 2010 to
$6,529,361 for the nine months ended September 30, 2011. Income from community operations increased from $3,133,399 for the quarter ended September 30,
2010 to $3,833,061 for the quarter ended September 30, 2011. Income from community operations increased from $9,524,269 for the nine months ended
September 30, 2010 to $11,211,356 for the nine months ended September 30, 2011.
In spite of challenges in the broad economy, the Company continues to
strengthen its balance sheet. On May 26, 2011, we issued 1,338,800 shares of 8.25% Series A Cumulative Redeemable Preferred Stock for net proceeds of
$31,861,173, after underwriting discounts of $1,054,305 and other expenses, including legal and other professional fees, of $554,522. With these proceeds,
we have purchased three Tennessee communities, paid down certain loans and mortgages and in October 2011, purchased the Ohio community.
During the nine months ended September 30, 2011, we have closed on a
$9,520,000 mortgage loan, and have extended our $5,000,000 unsecured line of credit through August 31, 2012. We have modified and extended our $10,000,000
revolving line of credit through June 30, 2014.
As of September 30, 2011, the Company had approximately $7 million in
cash and cash equivalents, $39 million in securities encumbered by $13 million in margin loans, $5 million available on its unsecured line of credit and $5.4
million available on its revolving line of credit. The Company also has facilities totaling $5 million to finance inventory purchases, of which $1.5
million was utilized.
The Company intends to continue to increase its real estate investments.
In 2010, we added seven manufactured home communities, encompassing over 1,200 sites, to our portfolio. As of September 30, 2011, we have added
three additional communities, encompassing almost 700 sites. In October 2011, we added an additional 116-site community. We are well positioned for
future growth and will continue to seek opportunistic investments. However, there is no
20
guarantee that any new opportunities will materialize or that the Company will be able to
take advantage of such opportunities.
The Company believes that funds generated from operations and the DRIP,
the funds available on the line of credit, together with the ability to finance and refinance its properties will provide sufficient funds to adequately meet
its obligations over the next year.
See PART I, Item 1 Business in the Companys 2010 annual report on Form 10-K
for a more complete discussion of the economic and industry-wide factors relevant to the Company and the opportunities and challenges, and risks on which the
Company is focused.
Changes In Results Of Operations
Rental and related income increased 20% from $7,087,977 for the quarter ended September
30, 2010 to $8,482,122 for the quarter ended September 30, 2011. Rental and related income increased 19% from $20,563,458 for the nine months ended
September 30, 2010 to $24,460,311 for the nine months ended September 30, 2011. This was primarily due to the acquisition of seven communities during 2010
and three communities at the end of the second quarter of 2011. This was partially offset by a decrease in occupancy in one of our communities in Memphis,
TN due to a severe rainstorm that swept the region in May 2010, and severe flooding in May 2011. All residents of the community were evacuated in 2011.
At this time, we anticipate re-opening Memphis Mobile City. Without the effect of this community, occupancy remained relatively stable at
approximately 77%. The Company has faced many challenges in filling vacant homesites due to the current economic environment.
Sales of manufactured homes amounted to $1,182,455 and $1,382,362 for the quarters ended
September 30, 2011 and 2010, respectively, a decrease of 14%. Sales of manufactured homes amounted to $3,826,400 and $3,930,793 for the nine months ended
September 30, 2011 and 2010, respectively, a decrease of 3%. Cost of sales of manufactured homes amounted to $1,061,969 and $1,280,009 for the quarters
ended September 30, 2011 and 2010, respectively. Cost of sales of manufactured homes amounted to $3,519,974 and $3,711,988 for the nine months ended
September 30, 2011 and 2010, respectively. Selling expenses amounted to $638,649 and $413,906 for the quarters ended September 30, 2011 and 2010,
respectively. Selling expenses amounted to $1,514,416 and $1,210,136 for the nine months ended September 30, 2011 and 2010, respectively. Loss from
the sales operations (defined as sales of manufactured homes less cost of sales of manufactured homes less selling expenses) amounted to $518,163, or 44% of
total sales, for the quarter ended September 30, 2011 as compared to $311,553, or 23% of total sales, for the quarter ended September 30, 2010. Loss from
sales operations amounted to $1,207,990, or 32% of total sales, for the nine months ended September 30, 2011 as compared to $991,331, or 25% of total sales, for
the nine months ended September 30, 2010. The Company believes that sales of new homes produces new rental revenue and is an investment in the upgrading
of the communities.
Community operating expenses increased 18% from $3,954,578 for the quarter ended September
30, 2010 to $4,649,061 for the quarter ended September 30, 2011. Community operating expenses increased 20% from $11,039,189 for the nine months ended
September 30, 2010 to $13,248,955 for the nine months ended September 30, 2011. This was primarily due to
21
the acquisitions during 2010 and 2011, and an increase in personnel and related costs, and repairs and
maintenance. General and administrative expenses increased 42% from $800,086 for the quarter ended September 30, 2010 to $1,132,796 for the quarter ended
September 30, 2011. General and administrative expenses increased 30% from $2,410,378 for the nine months ended September 30, 2010 to $3,124,761 for the
nine months ended September 30, 2011. This was primarily due to an increase in compensation costs. Acquisition costs relating to transaction and due
diligence costs associated with the acquisitions of the communities in 2010 and 2011 amounted to $25,813 and $-0- for the quarters ended September 30, 2011 and
2010, respectively, and $161,439 and $160,058 for the nine months ended September 30, 2011 and 2010, respectively. These costs would have previously been
capitalized. Depreciation expense increased 35% from $1,168,920 for the quarter ended September 30, 2010 to $1,580,906 for the quarter ended September 30,
2011. Depreciation expense increased 34% from $3,257,794 for the nine months ended September 30, 2010 to $4,371,441 for the nine months ended September
30, 2011. This was primarily due to the acquisitions during 2010 and 2011. Amortization expense increased 39% from $57,369 for the quarter ended
September 30, 2010 to $79,628 for the quarter ended September 30, 2011. Amortization expense increased 45% from $165,858 for the nine months ended
September 30, 2010 to $240,194 for the nine months ended September 30, 2011. This was primarily due to the new mortgages in 2010 and 2011.
Interest and dividend income decreased 2% from $1,165,860 for the quarter ended September
30, 2010 to $1,145,694 for the quarter ended September 30, 2011. Interest and dividend decreased 7% from $3,486,532 for the nine months ended September
30, 2010 to $3,233,502 for the nine months ended September 30, 2011. This was primarily due to a decrease in the average balance of notes receivables.
Gain on securities transactions, net amounted to $486,087 for the
quarter ended September 30, 2011, as compared to $610,458 for the quarter ended September 30, 2010 and $2,027,943 for the nine months ended September 30, 2011,
as compared to $2,294,542 for the nine months ended September 30, 2010. At September 30, 2011, the Company had an unrealized loss of $898,115 in its REIT
securities portfolio. The dividends received from our securities investments continue to meet our expectations. It is our intent to hold these
securities long-term.
Interest expense remained relatively stable for the quarter ended September 30, 2011 as
compared to the quarter ended September 30, 2010. Interest expense increased 13% from $3,809,877 for the nine months ended September 30, 2010 to
$4,304,507 for the nine months ended September 30, 2011. This was primarily due to an increase in mortgages payable due to the new mortgages for the
2010 acquisitions.
Changes in Financial Condition
Total investment property and equipment increased 10% or $18,027,517
during the nine months ended September 30, 2011. This increase was primarily due to the acquisition of the three manufactured home communities in
Tennessee for a total purchase price of approximately $13,300,000. The Company also added approximately 140 rental units, including those purchased with
the recent acquisitions, to selected communities.
22
Securities available for sale increased 35% or $10,087,955 during the nine months ended
September 30, 2011. This increase was due primarily to purchases of $19,183,660, partially offset by the sales of securities with a cost of $1,747,209
and a decrease in unrealized gain of $7,348,496.
Inventory of manufactured homes remained relatively stable. Because conventional
home ownership rates continue to decline, the Company is optimistic about future sales and rental prospects.
Mortgages payable decreased 1% or $516,329 during the nine months ended September 30,
2011. This decrease was due to principal repayments of $10,036,329, including the repayment of two mortgages with a balance of approximately $8.4 million. This
decrease was offset by a new mortgage of $9,520,000.
Loans payable decreased 12% or $2,721,062 during the nine months ended September 30, 2011.
This decrease was primarily due to proceeds from the new mortgage and, in part, proceeds from the preferred stock offering, being used to pay down the
loans and the lines of credit.
On May 26, 2011, the Company issued 1,338,800 shares of 8.25% Series A Cumulative
Redeemable Preferred Stock for net proceeds of $31,861,173, after underwriting discounts of $1,054,305 and other expenses, including legal and other
professional fees, of $554,522. With these proceeds, we have purchased three Tennessee communities, paid down certain loans and mortgages, and in October
2011, purchased an Ohio community. The Company intends to make additional acquisitions when opportunities arise. On September 15, 2011, the Company paid
$736,341 in preferred dividends or $.55 per share to preferred shareholders of record as of August 15, 2011. Series A preferred share dividends are
cumulative and payable quarterly at an annual rate of $2.0625 per share. On October 4, 2011 the Company declared a preferred dividend of $.515625 per share to
be paid on December 15, 2011 to preferred shareholders of record, November 15, 2011.
The Company raised $10,244,642 from the issuance of shares in the DRIP during the nine
months ended September 30, 2011, which included dividend reinvestments of $1,232,921. Dividends paid on the common stock for the nine months ended
September 30, 2011 were $7,771,780 of which $1,232,921 was reinvested. On October 4, 2011, the Company declared a common stock dividend of
$0.18 per common share to be paid December 15, 2011 to common shareholders of record as of November 15, 2011.
The Company uses a variety of sources to fund its cash needs in addition to cash generated
through operations. The Company may sell marketable securities, borrow on its line of credit, refinance debt, or raise capital through the DRIP or capital
markets.
Liquidity And Capital Resources
The Companys principal liquidity demands have historically been, and are expected to
continue to be, distributions to the Companys stockholders, acquisitions, capital improvements, development and expansions of properties, debt service,
purchases of manufactured home inventory, investment in debt and equity securities of other REITs and payments of expenses
23
relating to real estate operations. The Companys ability to generate cash adequate to meet these
demands is dependent primarily on income from its real estate investments and securities portfolio, the sale of real estate investments and securities,
refinancing of mortgage debt, leveraging of real estate investments, availability of bank borrowings, proceeds from the DRIP, and access to the capital markets.
Net cash provided by operating activities amounted to $5,575,472 and $2,584,226 for the
nine months ended September 30, 2011 and 2010, respectively.
As of September 30, 2011, the Company had approximately $7 million in cash, $39 million in
securities encumbered by $13 million in margin loans, $5 million available on its unsecured line of credit, $5.4 million available on its revolving line of
credit, and facilities totaling $5 million to finance inventory purchases, of which $1.5 million was utilized. The Company also owns 38 properties, of
which 18 are unencumbered. These marketable securities, non-mortgaged properties, and lines of credit provide the Company with additional liquidity.
The Company has been raising capital by accessing the capital markets and through its DRIP. The Company believes that funds generated from
operations, the capital markets, the DRIP, the funds available on the lines of credit, together with the ability to finance and refinance its properties, will
provide sufficient funds to adequately meet its obligations over the next several years.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Funds From Operations
Funds from Operations (FFO) is defined as net income excluding preferred dividends and
gains (or losses) from sales of depreciable assets, plus depreciation. FFO should be considered as a supplemental measure of operating performance used by
real estate investment trusts (REITs). FFO excludes historical cost depreciation as an expense and may facilitate the comparison of REITs which have
different cost basis. The items excluded from FFO are significant components in understanding and assessing the Companys financial performance.
FFO (1) does not represent cash flow from operations as defined by generally accepted accounting principles; (2) should not be considered as an
alternative to net income as a measure of operating performance or to cash flows from operating, investing and financing activities; and (3) is not an
alternative to cash flow as a measure of liquidity. FFO, as calculated by the Company, may not be comparable to similarly entitled measures reported by
other REITs.
24
The Companys FFO for the three and nine months ended September 30, 2011 and 2010 is
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Net Income
|
|
$792,877
|
$1,197,304
|
|
$3,153,717
|
|
$4,554,940
|
Preferred Dividend
|
|
(690,319)
|
-0-
|
|
(966,447)
|
|
-0-
|
Depreciation Expense
|
|
1,580,906
|
|
1,168,920
|
|
4,371,441
|
|
3,257,794
|
(Gain) Loss on Sales of
Depreciable Assets
|
|
(3,286)
|
|
6,044
|
|
(29,350)
|
|
(151)
|
|
|
|
|
|
|
|
|
FFO
|
|
$1,680,178
|
$2,372,268
|
|
$6,529,361
|
|
$7,812,583
|
The following are the cash flows provided (used) by operating, investing and financing
activities for the nine months ended September 30, 2011 and 2010:
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
Operating Activities
|
$5,575,472
|
|
$2,584,226
|
|
Investing Activities
|
(33,874,206)
|
|
(17,546,313)
|
|
Financing Activities
|
30,090,057
|
|
12,495,777
|
Safe Harbor Statement
Statements contained in this Form 10-K, including the documents that are incorporated by
reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Also, when we use any of
the words anticipate, assume, believe, estimate, expect, intends, plans,
seeks, could, may, or similar expressions, we are making forward-looking statements. These forward-looking statements are
not guaranteed and are based on our current intentions and on our current expectations and assumptions. These statements, intentions, expectations and
assumptions involve risks and uncertainties, some of which are beyond our control, which could cause actual results or events to differ materially from those we
anticipate or project. Such risks and uncertainties include, but are not limited to, the following:
·
changes in the real estate market and general economic conditions;
·
the inherent risks associated with owning real estate, including local
real estate market conditions, governing laws and regulations affecting manufactured housing communities and illiquidity of real estate investments;
·
increased competition in the geographic areas in which we own and
operate manufactured housing communities;
·
our ability to continue to identify, negotiate and acquire manufactured
housing communities and/or vacant land which may be developed into manufactured housing communities on terms favorable to us;
25
·
our ability to maintain rental rates and occupancy levels;
·
changes in market rates of interest;
·
our ability to repay debt financing obligations;
·
our ability to refinance amounts outstanding under our credit
facilities at maturity on terms favorable to us;
·
our ability to comply with certain debt covenants;
·
the availability of other debt and equity financing alternatives;
·
continued ability to access the debt or equity markets;
·
the loss of any member of our management team;
·
our ability to maintain internal controls and processes to ensure all
transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any
potential fraud or embezzlement is thwarted or detected;
·
our ability to qualify as a real estate investment trust for federal
income tax purposes;
·
the ability of manufactured home buyers to obtain financing;
·
the level of repossessions by manufactured home lenders;
·
changes in federal or state tax rules or regulations that could
have adverse tax consequences;
·
our ability to qualify as a real estate investment trust for federal
income tax purposes; and
·
those risks and uncertainties referenced under the heading "Risk
Factors" contained in contained in the Companys Form 10-K and other filings with the Securities and Exchange Commission.
You should not place undue reliance on these forward-looking statements, as events
described or implied in such statements may not occur. The forward-looking statements contained in this Form 10-Q speak only as of the date hereof and the
Company expressly disclaims any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or
otherwise.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to information required regarding quantitative and
qualitative disclosures about market risk from the end of the preceding year to the date of this Quarterly Report on Form 10-Q.
ITEM 4 - CONTROLS AND PROCEDURES
The Companys Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Companys management, have evaluated the effectiveness of the Companys disclosure controls and procedures as of
the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that the Companys disclosure controls and procedures are effective.
26
Changes In Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial
reporting during the quarterly period ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
27
PART II
OTHER INFORMATION
|
|
Item 1 -
|
Legal Proceedings none
|
|
|
Item 1A -
|
Risk Factors
There have been no material changes to information
required regarding risk factors from the end of the preceding year to the date of this Quarterly Report on Form 10-Q. In addition to the other information
set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect the Companys business, financial condition
or future results. The risks described in the Companys Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and
uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Companys
business, financial condition and/or operating results.
|
|
|
Item 2 -
|
Unregistered Sale of Equity Securities and Use of Proceeds
none
|
|
|
Item 3 -
|
Defaults Upon Senior Securities none
|
|
|
Item 4 -
|
Removed and Reserved
|
|
|
Item 5 -
|
Other Information
|
|
|
|
(a) Information Required to be Disclosed in a Report on Form
8-K, but
not Reported none
|
|
|
|
(b) Material Changes to the Procedures by which Security
Holders May
Recommend Nominees to the Board of Directors none
|
|
|
28
|
|
Item 6 -
|
Exhibits
|
|
|
|
31.1
Certification of Samuel A. Landy, President and Chief Executive
Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (Filed herewith).
|
|
|
|
31.2
Certification of Anna T. Chew, Vice President and Chief Financial
Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (Filed herewith).
|
|
|
|
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Samuel A. Landy, President and Chief Executive Officer, and Anna T. Chew, Vice President and
Chief Financial Officer (Furnished herewith).
|
|
101
The following materials from UMH Properties,
Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the
related notes to these financial statements.
As provided in Rule 406T of Regulation S-T, this
information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act
of 1934.
|
|
|
29
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UMH PROPERTIES, INC.
DATE:
November 7, 2011
By /s/ Samuel A. Landy
Samuel A. Landy
President and
Chief Executive Officer
DATE:
November 7, 2011
By /s/ Anna T. Chew
Anna T. Chew
Vice President and
Chief Financial Officer
30