UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

For the quarterly period ended March 31, 2019
[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________

For the transition period from __________ to ___________

 

Commission File Number001-12690

 

UMH PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland 22-1890929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)

 

Juniper Business Plaza, 3499 Route 9 North, Suite 3-C, Freehold, NJNJ 07728

(Address of Principal Executive 0ffices)

 (Zip Code)

 

Registrant’s telephone number, including area code(732) 577-9997

 

 

 

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $.10 par valueUMHNew York Stock Exchange
8.0% Series B Cumulative Redeemable Preferred Stock, $.10 par valueUMH PRBNew York Stock Exchange
6.75% Series C Cumulative Redeemable Preferred Stock, $.10 par valueUMH PRCNew York Stock Exchange
6.375% Series D Cumulative Redeemable Preferred Stock, $.10 par valueUMH PRDNew York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer[  ]Accelerated filer [X]
Non-accelerated filer[  ] (Do not check if smaller reporting company)Smaller reporting company [  ]
Emerging growth company[  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each issuer’s class of common stock, as of the latest practicable date:

 

Class Outstanding Common Shares as of NovemberMay 1, 20182019
Common Stock, $.10 par value per share 37,665,51439,510,831

 

 

 

 
 

 

UMH PROPERTIES, INC. AND SUBSIDIARIES

 

FORM 10-Q

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2018MARCH 31, 2019

 

Table of Contents

 

PART I - FINANCIAL INFORMATION 
Item 1.Financial Statements 
 Consolidated Balance Sheets3
 Consolidated Statements of Income (Loss)5
 Consolidated Statements of Comprehensive Income (Loss)Stockholders’ Equity7
 Consolidated Statements of Cash Flows89
 Notes To Consolidated Financial Statements910
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2423
Item 3.Quantitative and Qualitative Disclosures About Market Risk3531
Item 4.Controls and Procedures35
31
PART II - OTHER INFORMATION 
Item 1.Legal Proceedings3632
Item 1A.Risk Factors3632
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3632
Item 3.Defaults Upon Senior Securities3632
Item 4.Mine Safety Disclosures3632
Item 5.Other Information3632
Item 6.Exhibits3733
SIGNATURES3834

 

2
 

 

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2018MARCH 31, 2019 AND DECEMBER 31, 20172018

 

 September 30, 2018 December 31, 2017  March 31, 2019 December 31, 2018 
 (Unaudited)    (Unaudited)   
- ASSETS -             
        
Investment Property and Equipment                
Land $64,395,495  $61,239,644  $68,157,110  $68,154,110 
Site and Land Improvements  491,396,361   463,242,075   535,913,016   533,547,154 
Buildings and Improvements  23,506,934   22,963,926   25,280,722   25,156,183 
Rental Homes and Accessories  244,196,899   216,992,988   262,897,007   254,598,641 
Total Investment Property  823,495,689   764,438,633   892,247,855   881,456,088 
Equipment and Vehicles  18,265,581   16,874,760   19,108,204   18,791,688 
Total Investment Property and Equipment  841,761,270   781,313,393   911,356,059   900,247,776 
Accumulated Depreciation  (189,256,132)  (166,444,512)  (205,673,494)  (197,208,363)
Net Investment Property and Equipment  652,505,138   614,868,881   705,682,565   703,039,413 
                
Other Assets                
Cash and Cash Equivalents  8,879,883   23,242,090   7,347,672   7,433,470 
Marketable Securities at Fair Value  130,931,844   132,964,276   108,700,249   99,595,736 
Inventory of Manufactured Homes  25,091,168   17,569,365   22,684,571   23,703,322 
Notes and Other Receivables, net  29,567,036   25,451,053   32,651,660   31,493,555 
Prepaid Expenses and Other Assets  6,696,881   3,457,083   10,388,355   6,195,596 
Land Development Costs  14,833,002   6,328,578   12,253,423   9,441,025 
Total Other Assets  215,999,814   209,012,445   194,025,930   177,862,704 
                
TOTAL ASSETS $868,504,952  $823,881,326  $899,708,495  $880,902,117 

 

See Accompanying Notes to Consolidated Financial Statements

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – CONTINUED

AS OF SEPTEMBER 30, 2018MARCH 31, 2019 AND DECEMBER 31, 20172018

 

 September 30, 2018 December 31, 2017  March 31, 2019 December 31, 2018 
 (Unaudited)    (Unaudited)   
- LIABILITIES AND SHAREHOLDERS’ EQUITY -                
        
LIABILITIES:                
Mortgages Payable, net of unamortized debt issuance costs $313,419,440  $304,895,117  $329,322,659  $331,093,063 
                
Other Liabilities:                
Accounts Payable  3,683,083   2,960,739   4,665,854   3,873,445 
Loans Payable, net of unamortized debt issuance costs  87,031,122   84,704,487   115,055,477   107,985,353 
Accrued Liabilities and Deposits  5,644,399   4,977,886   9,995,464   7,410,055 
Tenant Security Deposits  5,613,339   5,127,633   5,974,530   5,842,161 
Total Other Liabilities  101,971,943   97,770,745   135,691,325   125,111,014 
Total Liabilities  415,391,383   402,665,862   465,013,984   456,204,077 
                
Commitments and Contingencies                
                
Shareholders’ Equity:                
Series B – 8.0% Cumulative Redeemable Preferred Stock, par value $0.10 per share; 4,000,000 shares authorized; 3,801,200 shares issued and outstanding as of September 30, 2018 and December 31, 2017  95,030,000   95,030,000 
Series C – 6.75% Cumulative Redeemable Preferred Stock, par value $0.10 per share, 5,750,000 shares authorized, issued and outstanding as of September 30, 2018 and December 31, 2017  143,750,000   143,750,000 
Series D – 6.375% Cumulative Redeemable Preferred Stock, par value $0.10 per share, 2,300,000 shares authorized; 2,000,000 and -0- shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively  50,000,000   -0- 
Common Stock - $0.10 par value per share; 111,363,800 and 113,663,800 shares authorized; 37,466,040 and 35,488,068 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively  3,746,604   3,548,807 
Excess Stock - $0.10 par value per share; 3,000,000 shares authorized; no shares issued or outstanding as of September 30, 2018 and December 31, 2017  -0-   -0- 
Series B – 8.0% Cumulative Redeemable Preferred Stock,
par value $0.10 per share; 4,000,000 shares authorized; 3,801,200 shares issued and outstanding as of March 31, 2019 and December 31, 2018		  95,030,000   95,030,000 
Series C – 6.75% Cumulative Redeemable Preferred
Stock, par value $0.10 per share, 5,750,000 shares authorized, issued and outstanding as of March 31, 2019 and December 31, 2018		  143,750,000   143,750,000 
Series D – 6.375% Cumulative Redeemable Preferred
Stock, par value $0.10 per share, 2,300,000 shares authorized; 2,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018		  50,000,000   50,000,000 
Common Stock - $0.10 par value per share; 111,363,800 shares authorized; 39,158,261 and 38,320,414 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively  3,915,826   3,832,041 
Excess Stock - $0.10 par value per share; 3,000,000 shares authorized; no shares issued or outstanding as of
March 31, 2019 and December 31, 2018		  -0-   -0- 
Additional Paid-In Capital  161,254,758   168,034,868   167,362,467   157,449,781 
Accumulated Other Comprehensive Income  -0-   11,519,582 
Accumulated Deficit  (667,793)  (667,793)
Undistributed Income (Accumulated Deficit)  (25,363,782)  (25,363,782)
Total Shareholders’ Equity  453,113,569   421,215,464   434,694,511   424,698,040 
                
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $868,504,952  $823,881,326  $899,708,495  $880,902,117 

 

See Accompanying Notes to Consolidated Financial Statements

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30,MARCH 31, 2019 AND 2018 AND 2017

 

 THREE MONTHS ENDED NINE MONTHS ENDED  THREE MONTHS ENDED 
 September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017  March 31, 2019 March 31, 2018 
              
INCOME:                        
Rental and Related Income $28,728,078  $25,854,623  $84,236,326  $75,678,939  $30,643,717  $27,270,477 
Sales of Manufactured Homes  4,719,036   2,830,314   11,105,302   8,272,395   3,643,714   2,525,487 
Total Income  33,447,114   28,684,937   95,341,628   83,951,334   34,287,431   29,795,964 
                        
EXPENSES:                        
Community Operating Expenses  13,288,715   12,317,856   38,758,711   35,669,793   15,144,253   12,754,816 
Cost of Sales of Manufactured Homes  3,512,705   2,215,767   8,406,701   6,465,665   2,589,169   1,980,171 
Selling Expenses  1,024,188   836,939   2,913,504   2,461,780   1,091,022   804,072 
General and Administrative Expenses  2,559,023   2,354,054   8,200,261   7,190,665   2,174,633   2,358,556 
Depreciation Expense  8,051,627   6,980,113   23,410,519   20,260,556   8,751,311   7,594,634 
Total Expenses  28,436,258   24,704,729   81,689,696   72,048,459   29,750,388   25,492,249 
                        
OTHER INCOME (EXPENSE):                        
Interest Income  563,549   510,358   1,569,955   1,479,495   515,183   470,230 
Dividend Income  2,704,255   2,068,198   7,603,575   5,715,038   1,937,414   2,425,140 
Other Investment Income (Loss), net  (10,487,430)  466,521   (19,742,472)  1,518,289 
Gain on Sales of Marketable Securities, net  -0-   20,107 
Increase (Decrease) in Fair Value of Marketable Securities  8,595,766   (25,898,819)
Other Income  134,761   126,660   334,740   592,251   119,505   67,463 
Interest Expense  (4,247,855)  (3,871,046)  (11,795,315)  (12,040,990)  (4,646,542)  (3,580,468)
Total Other Income (Expense)  (11,332,720)  (699,309)  (22,029,517)  (2,735,917)  6,521,326   (26,496,347)
                        
Income (Loss) before Loss on Sales of Investment Property and Equipment  (6,321,864)  3,280,899   (8,377,585)  9,166,958   11,058,369   (22,192,632)
Loss on Sales of Investment Property and Equipment  (27,479)  (18,898)  (108,111)  (29,540)  (20,976)  (15,705)
Net Income (Loss)  (6,349,343)  3,262,001   (8,485,696)  9,137,418   11,037,393   (22,208,337)
Less: Preferred Dividends  (5,123,257)  (4,938,937)  (15,192,687)  (12,518,431)  (5,123,257)  (4,946,173)
Less: Redemption of Preferred Stock  -0-   (3,502,487)  -0-   (3,502,487)
Net Loss Attributable to Common Shareholders $(11,472,600) $(5,179,423) $(23,678,383) $(6,883,500)
Net Income (Loss) Attributable to Common Shareholders $5,914,136  $(27,154,510)

 

See Accompanying Notes to Consolidated Financial Statements

5

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) – CONTINUED (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30,MARCH 31, 2019 AND 2018 AND 2017

 

  THREE MONTHS ENDED  NINE MONTHS ENDED 
  September 30, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
             
Basic and Diluted Income (Loss) Per Share:                
                 
Net Income (Loss) $(0.17) $0.10  $(0.23) $0.29 
Less: Preferred Dividends  (0.14)  (0.14)  (0.42)  (0.39)
Less: Redemption of Preferred Stock  -0-   (0.11)  -0-   (0.11)
Net Loss Attributable to Common Shareholders $(0.31) $(0.15) $(0.65) $(0.21)
                 
Weighted Average Common Shares Outstanding:                
                 
Basic and Diluted  37,151,432   34,102,231   36,542,855   31,918,211 
  THREE MONTHS ENDED 
  March 31, 2019  March 31, 2018 
       
Basic Income (Loss) Per Share:        
         
Net Income (Loss) $0.29  $(0.62)
Less: Preferred Dividends  (0.13)  (0.14)
Net Income (Loss) Attributable to Common Shareholders $0.16  $(0.76)
         
Diluted Income (Loss) Per Share:        
         
Net Income (Loss) $0.28  $(0.62)
Less: Preferred Dividends  (0.13)  (0.14)
Net Income (Loss) Attributable to Common Shareholders $0.15  $(0.76)
         
Weighted Average Common Shares Outstanding:        
         
Basic  38,644,540   35,907,090 
         
Diluted  38,894,928   35,907,090 

 

See Accompanying Notes to Consolidated Financial Statements

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED

MARCH 31, 2019 AND 2018

  Common Stock  Preferred  Preferred 
  Issued and Outstanding  Stock  Stock 
  Number  Amount  Series B  Series C 
             
Balance December 31, 2018  38,320,414  $3,832,041  $95,030,000  $143,750,000 
                 
Common Stock Issued with the DRIP*  836,847   83,685   -0-   -0- 
Common Stock Issued through Restricted Stock Awards  1,000   100   -0-   -0- 
Common Stock Issued through Stock Options  -0-   -0-   -0-   -0- 
Preferred Stock Issued through Underwritten Registered Public Offering, net  -0-   -0-   -0-   -0- 
Distributions  -0-   -0-   -0-   -0- 
Stock Compensation Expense  -0-   -0-   -0-   -0- 
Net Income (Loss)  -0-   -0-   -0-   -0- 
                 
Balance March 31, 2019  39,158,261  $3,915,826  $95,030,000  $143,750,000 
                 
                 
Balance December 31, 2017  35,488,068  $3,548,807  $95,030,000  $143,750,000 
                 
Unrealized Net Holding Gain on Securities Available
for Sale, Net of Reclassification Adjustment		  -0-   -0-   -0-   -0- 
Common Stock Issued with the DRIP*  809,076   80,907   -0-   -0- 
Common Stock Issued through Restricted Stock Awards  2,000   200   -0-   -0- 
Common Stock Issued through Stock Options  12,000   1,200   -0-   -0- 
Common Stock Issued through Registered Direct Placement, net  -0-   -0-   -0-   -0- 
Preferred Stock Issued through Underwritten Registered Public Offering, net  -0-   -0-   -0-   -0- 
Preferred Stock Called for Redemption  -0-   -0-   -0-   -0- 
Distributions  -0-   -0-   -0-   -0- 
Stock Compensation Expense  -0-   -0-   -0-   -0- 
Net Income (Loss)  -0-   -0-   -0-   -0- 
                 
Balance March 31, 2018  36,311,144  $3,631,114  $95,030,000  $143,750,000 

See Accompanying Notes to Consolidated Financial Statements

7

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30,MARCH 31, 2019 AND 2018 AND 2017

 

  THREE MONTHS ENDED  NINE MONTHS ENDED 
  September 30, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
             
Net Income (Loss) $(6,349,343) $3,262,001  $(8,485,696) $9,137,418 
                 
Other Comprehensive Income (Loss):                
Unrealized Holding Gain (Loss) Arising During the Period  -0-   2,486,402   -0-   (2,367,127)
Reclassification Adjustment for Net Gains Realized in Income  -0-   (466,521)  -0-   (1,518,289)
Change in Fair Value of Interest Rate Swap Agreements  -0-   (3,164)  -0-   3,983 
                 
Comprehensive Income (Loss)  (6,349,343)  5,278,718   (8,485,696)  5,255,985 
                 
Less: Preferred Dividends  (5,123,257)  (4,938,937)  (15,192,687)  (12,518,431)
Less: Redemption of Preferred Stock  -0-   (3,502,487)  -0-   (3,502,487)
                 
Comprehensive Loss Attributable to Common Shareholders $(11,472,600) $(3,162,706) $(23,678,383) $(10,764,933)
  

 

Preferred

Stock

  

 

Additional

Paid-In

  

Accumulated

Other

Comprehensive

  

Undistributed

Income

(Accumulated

  Total Shareholders’ 
  Series D  Capital  Income (Loss)  Deficit)  Equity 
                
Balance December 31, 2018 $50,000,000  $157,449,781  $-0-  $(25,363,782) $424,698,040 
                     
Common Stock Issued with the DRIP*  -0-   10,588,019   -0-   -0-   10,671,704 
Common Stock Issued through Restricted Stock Awards  -0-   (100)  -0-   -0-   -0- 
Common Stock Issued through Stock Options  -0-   -0-   -0-   -0-   -0- 
Preferred Stock Issued through Underwritten Registered Public Offering, net  -0-   -0-   -0-   -0-   -0- 
Distributions  -0-   (1,065,916)  -0-   (11,037,393)  (12,103,309)
Stock Compensation Expense  -0-   390,683   -0-   -0-   390,683 
Net Income (Loss)  -0-   -0-   -0-   11,037,393   11,037,393 
                     
Balance March 31, 2019 $50,000,000  $167,362,467  $-0-  $(25,363,782) $434,694,511 
                     
                     
Balance December 31, 2017 $-0-  $168,034,868  $11,519,582  $(667,793) $421,215,464 
                     
Unrealized Net Holding Gain on Securities Available
for Sale, Net of Reclassification Adjustment		  -0-   -0-   (11,519,582)  11,519,582   -0- 
Common Stock Issued with the DRIP*  -0-   9,970,592   -0-   -0-   10,051,499 
Common Stock Issued through Restricted Stock Awards  -0-   (200)  -0-   -0-   -0- 
Common Stock Issued through Stock Options  -0-   132,720   -0-   -0-   133,920 
Common Stock Issued through Registered Direct Placement, net  -0-   -0-   -0-   -0-   -0- 
Preferred Stock Issued through Underwritten Registered Public Offering, net  50,000,000   (1,752,720)  -0-   -0-   48,247,280 
Preferred Stock Called for Redemption  -0-   -0-   -0-   -0-   -0- 
Distributions  -0-   (11,173,321)  -0-   -0-   (11,173,321)
Stock Compensation Expense  -0-   282,062   -0-   -0-   282,062 
Net Income (Loss)  -0-   -0-   -0-   (22,208,337)  (22,208,337)
                     
Balance March 31, 2018 $50,000,000  $165,494,001  $-0-  $(11,356,548) $446,548,567 

 

See Accompanying Notes to Consolidated Financial Statements

UMH PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINETHREE MONTHS ENDED

SEPTEMBER 30,MARCH 31, 2019 AND 2018 AND 2017

 

 NINE MONTHS ENDED  THREE MONTHS ENDED 
 September 30, 2018  September 30, 2017  March 31, 2019 March 31, 2018 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Income (Loss) $(8,485,696) $9,137,418  $11,037,393  $(22,208,337)
Non-Cash items included in Net Income (Loss):                
Depreciation  23,410,519   20,260,556   8,751,311   7,594,634 
Amortization of Financing Costs  462,604   496,225   186,659   154,881 
Stock Compensation Expense  1,247,722   998,059   390,683   282,062 
Benefit for Uncollectible Notes and Other Receivables  (835,102)  (934,794)
Provision for Uncollectible Notes and Other Receivables  240,328   294,405 
Gain on Sales of Marketable Securities, net  (20,107)  (1,518,289)  -0-   (20,107)
Decrease in Fair Value of Marketable Securities  19,762,579   -0- 
(Increase) Decrease in Fair Value of Marketable Securities  (8,595,766)  25,898,819 
Loss on Sales of Investment Property and Equipment  108,111   29,540   20,976   15,705 
Changes in Operating Assets and Liabilities:                
Inventory of Manufactured Homes  (7,521,803)  (68,599)  1,018,751   (1,412,332)
Notes and Other Receivables, net of Notes Acquired with Acquisitions  (3,280,881)  167,229 
Notes and Other Receivables  (1,398,433)  (652,660)
Prepaid Expenses and Other Assets  (1,995,025)  (1,044,954)  (2,987,493)  270,173 
Accounts Payable  722,344   747,791   792,409   158,507 
Accrued Liabilities and Deposits  666,513   262,499   2,585,409   (205,094)
Tenant Security Deposits  485,706   650,335   132,369   119,163 
Net Cash Provided by Operating Activities  24,727,484   29,183,016   12,174,596   10,289,819 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of Manufactured Home Communities  (24,549,398)  (40,877,655)
Purchase of Investment Property and Equipment  (38,562,274)  (48,095,917)  (12,104,430)  (10,468,059)
Proceeds from Sales of Investment Property and Equipment  1,956,785   1,651,685   688,991   535,927 
Additions to Land Development Costs  (8,504,424)  (2,263,009)  (2,812,398)  (1,281,690)
Purchase of Marketable Securities  (17,978,715)  (38,002,778)  (508,747)  (6,526,883)
Proceeds from Sales of Marketable Securities  268,675   12,178,413   -0-   268,675 
Net Cash Used in Investing Activities  (87,369,351)  (115,409,261)  (14,736,584)  (17,472,030)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from Mortgages  13,442,000   44,420,000 
Net Proceeds (Payments) on Short Term Borrowings  2,331,831   (16,791,278)
Net (Payments) Proceeds on Short Term Borrowings  7,026,906   (34,305,218)
Principal Payments of Mortgages  (5,094,625)  (24,543,481)  (1,908,904)  (1,714,549)
Financing Costs on Debt  (290,852)  (595,124)  (4,941)  (35,000)
Proceeds from Issuance of Preferred Stock, net of offering costs  48,247,280   138,983,808   -0-   48,247,280 
Redemption of 8.25% Series A Preferred Stock  -0-   (91,595,000)
Proceeds from Registered Direct Placement of Common Stock, net of offering costs  -0-   22,527,507 
Proceeds from Issuance of Common Stock in the DRIP, net of Dividend Reinvestments  21,292,003   46,565,672   8,867,710   9,357,099 
Proceeds from Exercise of Stock Options  1,385,000   5,435,634   -0-   133,920 
Preferred Dividends Paid  (14,927,062)  (12,339,553)  (5,123,257)  (4,680,547)
Common Dividends Paid, net of Dividend Reinvestments  (16,861,142)  (15,124,760)  (5,176,058)  (5,798,374)
Net Cash Provided by Financing Activities  49,524,433   96,943,425   3,681,456   11,204,611 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash  (13,117,434)  10,717,180 
        
Net Increase in Cash, Cash Equivalents and Restricted Cash  1,119,468   4,022,400 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period  27,891,249   9,349,489   12,777,411   27,891,249 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

AT END OF PERIOD

 $14,773,815  $20,066,669  $13,896,879  $31,913,649 

 

See Accompanying Notes to Consolidated Financial Statements

9

UMH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018MARCH 31, 2019 (UNAUDITED)

 

NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES

 

UMH Properties, Inc., a Maryland corporation, together with its subsidiaries (“we”, “our”, “us” or “the Company”) operates as a real estate investment trust (“REIT”) deriving its income primarily from real estate rental operations. The Company owns and operates 115118 manufactured home communities containing approximately 20,70021,500 developed home siteshomesites as of September 30, 2018.March 31, 2019. These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland. The Company, through its wholly-owned taxable subsidiary, UMH Sales and Finance, Inc. (“S&F”), conducts manufactured home sales to residents and prospective residents in its communities. Inherent in the operations of manufactured home communities are site vacancies. S&F was established to fill these vacancies and enhance the value of the communities. The Company also owns a portfolio of REIT securities which the Company generally limits to no more than approximately 20%15% of its undepreciated assets. The consolidated financial statements of the Company include S&F and all of its other wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

The Company has elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code (the “Code”) and intends to maintain its qualification as a REIT in the future. As a qualified REIT, with limited exceptions, the Company will not be taxed under federal and certain state income tax laws at the corporate level on taxable income that it distributes to its shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code. The Company is subject to franchise taxes in some of the states in which the Company owns property.

 

The interim Consolidated Financial Statements furnished herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ninethree months ended September 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2017.2018.

 

Use of Estimates

 

In preparing the consolidated financial statements in accordance with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as contingent assets and liabilities as of the dates of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from these estimates and assumptions.

 

910
 

 

Reclassifications

 

Certain amounts in the financial statements for the prior periods have been reclassified to conform to the statement presentation for the current periods.

Derivative Instruments and Hedging Activities

 

In the normal course of business, the Company is exposed to financial market risks, including interest rate risk on its variable rate debt. The Company attempts to limit these risks by following established risk management policies, procedures and strategies, including the use of derivative financial instruments. The Company’s primary strategy in entering into derivative contracts is to minimize the variability that changes in interest rates could have on its future cash flows. The Company generally employs derivative instruments that effectively convert a portion of its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes. The Company previously entered into various interest rate swap agreements that have had the effect of fixing interest rates relative to specific mortgage loans. As of September 30, 2018,March 31, 2019, these agreements have expired and the Company does not have any interest rate swap agreements in effect.

 

Recently Adopted Accounting Pronouncements

 

In May 2017,August 2018, the Securities and Exchange Commission adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification”, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The first presentation of changes in stockholders’ equity is included in this Form 10-Q for the quarter ended March 31, 2019.

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets as a right-of-use asset and a corresponding liability. ASU 2016-02 also makes targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation2018-10, “Codification Improvements to Topic 842, Leases”, which included amendments to clarify certain aspects of the new lease standard. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 718): Scope of Modification Accounting.842) – Target Improvements.” ASU 2017-09 clarifies which changesNo. 2018-11 provides a new transition method and a practical expedient to separating contract components as required by ASU 2016-02. Under ASU 2018-11, an entity applying the new lease accounting standard may record a cumulative adjustment to the terms or conditionsopening balance of undistributed income (accumulated deficit) in the period of adoption, instead of having to restate comparative results, as initially required. Additionally, ASU No. 2018-11 provide lessors with a share based payment award are subjectpractical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance on modification accounting under FASB Accounting Standards Codification Topic 718. Entities would applyif both 1. the modification accounting guidance unlesstiming and pattern of transfer of the value, vesting requirementsnon-lease component(s) and classification of a share based payment awardassociated lease component are the same immediately before and after a change to the terms or conditions(instead of the award.timing and pattern of revenue recognition, as proposed); and 2. the lease component, if accounted for separately, would be classified as an operating lease. In December 2018, the FASB issued ASU No. 2017-09 is effective2018-20, “Leases (Topic 842) – Narrow-Scope Improvements for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Lessors.” ASU 2018-20 allow lessors to make an accounting policy election not to evaluate whether sales taxes and similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction are the primary obligation of the lessor as owner of the underlying leased asset. The amendments also require a lessor to exclude lessor costs paid directly by a lessee to third parties on the lessor’s behalf from variable payments and include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense. In addition, the amendments clarify that when lessors allocate variable payments to lease and non-lease components they are required to follow the recognition guidance in the new lease standard for the lease component and other applicable guidance, such as the new revenue standard, for the non-lease component.

The Company adopted this standard effective January 1, 2018,2019, and it did not have a material impact on ourthe Company’s financial position, results of operations or cash flows. Our primary source of revenue is generated from lease agreements for our sites and homes, where we are the lessor. The non-lease components of our lease agreements consist primarily of utility reimbursements. We have elected the lessor practical expedient to combine the lease and non-lease components. We are the lessee in other arrangements, primarily for our corporate office and a ground lease at one community. For leases with a term greater than one year, right-of-use assets and corresponding liabilities will be included on the Consolidated Balance Sheet. The right-of-use asset and corresponding lease liabilities are measured as the estimated present value of minimum lease payments at the commencement of the lease agreement and discounted by our borrowing rate. As of March 31, 2019, the right-of-use assets and corresponding lease liabilities of $2,862,472 is included in Prepaid Expenses and Other Assets and Accrued Liabilities and Deposits on the Consolidated Balance Sheets. Future minimum lease payments under these leases over the remaining lease terms are as follows:

 

2019 $240,272 
2020  324,246 
2021  326,187 
2022  178,504 
2023  104,662 
Thereafter  7,954,333 
     
Total Lease Payments $9,128,204 

In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition

The weighted average remaining lease term for these leases is 74.4 years. The right of Nonfinancial Assets.” ASU 2017-05 provides guidance for recognizing gains and losses from the transfer of nonfinancialuse assets and in-substance non-financial assets inlease liabilities was calculated using an interest rate of 5%. Additionally, for all leases, we have elected the package of practical expedients, which permits the Company not to reassess expired or existing contracts with non-customers, unless other specific guidance applies. The standard requirescontaining a company to derecognize nonfinancial assets once it transfers controllease, the lease classification for expired or existing contracts, and measurement of a distinct nonfinancial asset or distinct in substance nonfinancial asset. Additionally, when a company transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the company is required to measureinitial direct costs for any non-controlling interest it receives or retains at fair value. The guidance requires companies to recognize a full gain or loss on the transaction. As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20 will be eliminated. As such, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard effective January 1, 2018, and it did not have a material impact on our financial position, results of operations or cash flows.existing leases.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires inclusion of restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard effective January 1, 2018. The Company’s restricted cash consists of amounts primarily held in deposit for tax, insurance and repair escrows held by lenders in accordance with certain debt agreements. Restricted cash is included in Prepaid Expenses and Other Assets on the Consolidated Balance Sheets. ChangesPreviously, changes in restricted cash are reported on the Consolidated Statements of Cash Flows as operating, investing or financing activities based on the nature of the underlying activity.

The following table reconciles beginning of period and end of period balances of cash, cash equivalents and restricted cash for the periods shown:

 

 9/30/18 12/31/17 9/30/17 12/31/16  3/31/19 12/31/18 3/31/18 12/31/17 
                  
Cash and Cash Equivalents $8,879,883  $23,242,090  $14,840,944  $4,216,592  $7,347,672  $7,433,470  $25,951,970  $23,242,090 
Restricted Cash  5,893,932   4,649,159   5,225,725   5,132,897   6,549,207   5,343,941   5,961,679   4,649,159 
Cash, Cash Equivalents And Restricted Cash $14,773,815  $27,891,249  $20,066,669  $9,349,489  $13,896,879  $12,777,411  $31,913,649  $27,891,249 

 

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. The Company adopted this standard effective January 1, 2018, and it did not have a material impact on our financial position, results of operations or cash flows.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. The Company adopted this standard effective January 1, 2018. The Company previously classified its marketable securities as available-for-sale and carried at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of Shareholders’ Equity until realized. The change in the unrealized net holding gains (losses) was reflected in the Company’s Comprehensive Income (Loss). As a result of adoption, these securities will continue to be measured at fair value; however, the change in the unrealized net holding gains and losses is now recognized through net income. As of January 1, 2018, unrealized net holding gains of $11,519,582 were reclassed to beginning retained earningsundistributed income (accumulated deficit) to recognize the unrealized gains previously recorded in “accumulated other comprehensive income” on our consolidated balance sheets. For the three and nine months ended September 30, 2018, the Company recorded a decrease of $10,487,430 and $19,762,579, respectively, in the fair value of these marketable securities, which are included in “Other Investment Income (Loss), net” on our Consolidated Statements of Income (Loss).

 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (ASC 606). The objective of this amendment is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this amendment, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. This amendment applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. An entity should apply the amendments using either the full retrospective approach or retrospectively with a cumulative effect of initially applying the amendments recognized at the date of initial application. In July 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard effective January 1, 2018. For transactions in the scope of ASU 2014-09, we recognize revenue when control of goods or services transfers to the customer, in the amount that we expect to receive for the transfer of goods or provision of services. The adoption of ASU 2014-09 did not result in any change to our accounting policies for revenue recognition. Accordingly, retrospective application to prior periods or a cumulative catch-up adjustment was unnecessary.

Our primary source of revenue is generated from lease agreements for our sites and homes. Resident leases are generally for one-year or month-to-month terms, and are renewable by mutual agreement from us and the resident, or in some cases, as provided by jurisdictional statute. The lease component of these agreements is accounted for under ASC 840 “Leases.” The non-lease components of our lease agreements consist primarily of utility reimbursements, which are accounted for with the site lease as a single lease under ASC 840.

Sales

Prior to the adoption of ASC 606, sales of manufactured homes iswas recognized under ASC 605 “Revenue Recognition” since these homes are not permanent fixtures or improvements to the underlying real estate. In accordance with the core principle of ASC 606, we recognize revenue from home sales at the time of closing when control of the home transfers to the customer. After closing of the sale transaction, we have no remaining performance obligation.

 

Interest income is primarily from notes receivables for the previous sales of manufactured homes andhomes. Interest income on these receivables is accrued based on the unpaid principal balances of the underlying loans on a level yield basis over the life of the loans. Interest income is not in the scope of ASU 2014-09. These sales were recorded upon completion of our performance obligations.ASC 606.

 

Dividend income and other investment incomegain on sales of marketable securities, net are from our investments in marketable securities and are presented separately but are not in the scope of ASU 2014-09.ASC 606.

 

Other income is recognized under ASC 605 “Revenue Recognition” and primarily consists of brokerage commissions for arranging for the sale of a home by a third party, service and marketing agreements with cable providers, and in 2017 included an upfront oil and gas bonus payment. This income is recognized when the transactions are completed and our performance obligations have been fulfilled.

 

As of September 30,March 31, 2019 and 2018, and December 31, 2017, the Company had notes receivable of $28,094,814$31,287,206 and $24,066,567,$24,683,191, respectively. Notes receivables are presented as a component of Notes and Other Receivables, net on our Consolidated Balance Sheets. These receivables represent balances owed to us for previously completed performance obligations for sales of manufactured homes. Due to the nature of our revenue from contacts with customers, we do not have material contract assets or liabilities that fall under the scope of ASC 606.

 

14

Other Recent Accounting Pronouncements

In August 2018, the Securities and Exchange Commission adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification”, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company anticipates its first presentation of changes in stockholders’ equity will be included in its Form 10-Q for the quarter ending March 31, 2019.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2019. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842) – Targeted Improvements.” ASU No. 2018-11 provides a new transition method and practical expedients, including to the need to separate contract components as required by ASU 2016-02. Under ASU 2018-11, an entity applying the new lease accounting standard may record a cumulative adjustment to the opening balance of retained earnings in the period of adoption, instead of having to restate comparative results, as initially required. Additionally, ASU No. 2018-11 provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance if both 1. the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same (instead of the timing and pattern of revenue recognition, as proposed); and 2. the lease component, if accounted for separately, would be classified as an operating lease. The Company is currently evaluating the potential impact these standards may have on the consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying Consolidated Financial Statements.

 

NOTE 2 – NET INCOME (LOSS) PER SHARE

 

Basic Net Income (Loss) per Share is calculated by dividing Net Income (Loss) by the weighted average shares outstanding for the period. Diluted Net Income (Loss) per Share is calculated by dividing Net Income (Loss) by the weighted average number of common shares outstanding, plusand when dilutive, the weighted average number ofpotential net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. In periods with a net loss, the diluted loss per share equals the basic loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.

For the three and nine months ended September 30, 2018, employee stock options to purchase 2,227,600 shares ofMarch 31, 2019, common stock equivalents of 250,388 shares were included in the computation of Diluted Net Income per Share. For the three months ended March 31, 2018,common stock equivalents of 287,954shares were excluded from the computation of Diluted Net Income (Loss) per Share as their effect would be anti-dilutive. For the three and nine months ended September 30, 2017, employee stock options to purchase 1,778,100 shares of common stock were excluded from the computation of Diluted Net Income (Loss)Loss per Share as their effect would be anti-dilutive.

NOTE 3 – INVESTMENT PROPERTY AND EQUIPMENT

Acquisitions

On May 30, 2018, the Company acquired two manufactured home communities, Camelot Village and Red Bud Estates, located in Anderson, Indiana, for approximately $20,500,000. These all-age communities contain a total of 669 developed homesites that are situated on approximately 231 total acres. At the date of acquisition, the average occupancy for these communities was approximately 91%. In conjunction with this acquisition, the Company drew down $20 million on its unsecured line of credit. On July 13, 2018, the Company obtained a $13,442,000 mortgage loan on these properties (see Note 5).

On August 31, 2018, the Company acquired Summit Village, a manufactured home community located in Marion, Indiana, for approximately $3,500,000. This all-age community contains a total of 134 developed homesites that are situated on approximately 58 total acres. At the date of acquisition, the occupancy for this community was approximately 60%. This acquisition was funded by a drawdown from the Company’s margin line.

These acquisitions have been accounted for utilizing the acquisition method of accounting in accordance with ASC 805, Business Combinations, and accordingly, the results of the acquired assets are included in the statements of income (loss) from the date of acquisition. The following table summarizes the estimated fair value of the assets acquired, including transaction costs of approximately $549,000, for the nine months ended September 30, 2018:

  

At Acquisition

Date

 
Assets Acquired:    
Land $2,839,100 
Depreciable Property  20,934,900 
Notes Receivable and Other  775,400 
Total Assets Acquired $24,549,400 

See Note 12 for the Unaudited Pro Forma Financial Information relating to these acquisitions.

 

NOTE 43 – MARKETABLE SECURITIES

 

The Company’s marketable securities consists primarily of marketable common and preferred stock of other REITs with a fair value of $130,931,844$108,700,249 as of September 30, 2018.March 31, 2019. The Company generally limits its investment in marketable securities to no more than approximately 20%15% of its undepreciated assets. The REIT securities portfolio provides the Company with additional liquidity and additional income and serves as a proxy for real estate when more favorable risk adjusted returns are not available.

The following is a summary of Other Investment Income (Loss), net, for the three and nine months ended September 30, 2018 and 2017:

  Three Months Ended  Nine Months Ended 
  9/30/18  9/30/17  9/30/18  9/30/17 

Gain on Sales of Marketable

Securities, net

 $-0-  $466,521  $20,107  $1,518,289 

Changes in Fair Value of

Marketable Securities

  (10,487,430)  -0-   (19,762,579)  -0- 
Total Other Investment Income (Loss), net $(10,487,430) $466,521  $(19,742,472) $1,518,289 

 

On January 1, 2018, the Company adopted ASU 2016-01, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in “Accumulated Other Comprehensive Income” on our Consolidated Balance Sheets. As a result, on January 1, 2018 the Company recorded an increase to beginning retained earnings of $11,519,582 to recognize the unrealized gains previously recorded in “Accumulated Other Comprehensive Income” on our Consolidated Balance Sheets. Subsequent changes in the fair value of the Company’s marketable securities will be recorded to “Other Investment Income (Loss), net”as “Increase (Decrease) in Fair Value of Marketable Securities” on our Consolidated Statements of Income (Loss).

During the ninethree months ended September 30, 2018,March 31, 2019, the Company sold marketable securities with a cost basis of $248,568 and recognized a Gain on Sale of $20,107. The Company also made purchases of $17,978,715$508,747 in marketable securities. Of this amount, the Company made total purchases of 78,79832,974 common shares of Monmouth Real Estate Investment Corporation (“MREIC”), a related REIT, through MREIC’s Dividend Reinvestment and Stock Purchase Plan for a total cost of $1,183,796$415,475 or a weighted average cost of $15.02$12.60 per share. The Company owned a total of 2,414,7282,479,028 MREIC common shares as of September 30, 2018March 31, 2019 at a total cost of $21,882,359$22,707,883 and a fair value of $40,374,255.$32,673,586.

 

As of September 30, 2018,March 31, 2019, the Company had total net unrealized losses of $8,242,997$31,560,048 in its REIT securities portfolio. For the three and nine months ended September 30, 2018,March 31, 2019, the Company recorded a decrease of $10,487,430 and $19,762,579, respectively,an $8,595,766 increase in the fair value of these marketable securities. The Company held seventeensixteen securities that had unrealized losses as of September 30, 2018.March 31, 2019. The Company normally holds REIT securities long-term and has the ability and intent to hold these securities to recovery.

NOTE 54 – LOANS AND MORTGAGES PAYABLE

 

Unsecured Line of Credit

 

On March 28, 2017,November 29, 2018, the Company entered into an amendeda First Amendment to Amended and restated credit agreementRestated Credit Agreement (the “Amendment”) to renewexpand and expandextend its existing unsecured revolving credit facility. The new unsecured revolving credit facility (the “Facility”). The Facility is syndicated with two banks led by BMO Capital Markets Corp. (“BMO”), as sole lead arranger and sole book runner, andwith Bank of Montreal as administrative agent, and includes JPMorgan Chase Bank, N.A. (“J.P. Morgan”) as the sole syndication agent. The FacilityAmendment provides for an increase from $50 million in available borrowings to $75 million in available borrowings with a $75$50 million accordion feature, bringing the total potential availability up to $125 million, subject to certain conditions.conditions including obtaining commitments from additional lenders. The Amendment also extends the maturity date of the Facility isfrom March 27, 2020 to November 29, 2022, with a one yearone-year extension option. Borrowings will bear interestavailable at the Company’s option, subject to certain conditions including payment of LIBOR plus 1.75% to 2.50% or BMO’s prime lending rate plus 0.75% to 1.50%, based on the Company’s overall leverage. Based on the Company’s current leverage ratio, borrowingsan extension fee. Availability under the Facility will bear interest at LIBOR plus 2% or at BMO’s prime lendingis limited to 60% of the value of the unencumbered communities which the Company has placed in the Facility’s unencumbered asset pool (“Borrowing Base”). The Amendment increased the value of the Borrowing Base communities by reducing the capitalization rate plus 1%applied to the Net Operating Income (“NOI”) generated by the communities in the Borrowing Base from 7.5% to 7.0%. As of September 30, 2018,March 31, 2019, the amount outstanding under the Facility was $35$50 million and the interest rate was 3.83%4.09%.

Loans Payable

 

Loans Payable includes unamortized debt issuance costs of $66,533$388,821 and $61,337$432,126 at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The weighted average interest rate was 4.1%4.4% and 3.0%4.2% at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, not including the effect of unamortized debt issuance costs.

At September 30, 2018, $25,842,770March 31, 2019, $32,315,905 was outstanding on the margin loan at an interest rate of 2.5%3.0%.

Mortgages Payable

On July 13, 2018, the Company obtained a $13,442,000 Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage through Wells Fargo Bank, N.A. (“Wells Fargo”) on Camelot Village and Red Bud Estates. This mortgage is at a fixed rate of 4.27% and matures on August 1, 2028. Principal repayments are based on a 30-year amortization schedule.

 

The following is a summary of our mortgages payable as of September 30, 2018March 31, 2019 and December 31, 2017:2018:

 

 9/30/2018 12/31/2017  3/31/2019 12/31/2018 
 Amount Rate Amount Rate  Amount Rate Amount Rate 
                  
Fixed rate mortgages $316,808,161   4.2% $308,444,180   4.2% $332,502,607   4.3% $334,411,425   4.3%
Variable rate mortgages  -0-   -0-   16,606   4.3%  -0-   -0-   -0-   -0- 
Total mortgages before unamortized debt issuance costs  316,808,161   4.2%  308,460,786   4.2%  332,502,607   4.3%  334,411,425   4.3%
Unamortized debt issuance costs  (3,388,721)      (3,565,669)      (3,179,948)      (3,318,362)    
Mortgages, net of unamortized debt issuance costs $313,419,440   4.3% $304,895,117   4.3% $329,322,659   4.3% $331,093,063   4.3%

 

As of September 30, 2018March 31, 2019 and December 31, 2017,2018, the weighted average loan maturity of mortgages payable werewas 6.0 years and 6.3 years, and 6.9 years, respectively.

 

NOTE 65 - SHAREHOLDERS’ EQUITY

 

Common Stock

 

On September 17, 2018,March 15, 2019, the Company paid total cash dividends of $6,693,069$6,980,052 or $0.18 per share to common shareholders of record as of the close of business on AugustFebruary 15, 2018,2019, of which $1,334,823$1,803,994 was reinvested in the Dividend Reinvestment and Stock Purchase Plan (“DRIP”). Total dividends paid to our common shareholders for the nine months ended September 30, 2018 amounted to $19,786,349 of which $2,925,207 was reinvested. On OctoberApril 1, 2018,2019, the Company declared a dividend of $0.18 per share to be paid DecemberJune 17, 20182019 to common shareholders of record as of the close of business on NovemberMay 15, 2018.2019.

 

During the ninethree months ended September 30, 2018,March 31, 2019, the Company received, including dividends reinvested of $2,925,207,$1,803,994, a total of $24,217,210$10,671,704 from its DRIP. There were 1,800,472836,847 new shares issued under the DRIP during this period.

 

8.0% Series B Cumulative Redeemable Preferred Stock

 

On September 17, 2018,March 15, 2019, the Company paid $1,900,600 in dividends or $0.50 per share for the period from JuneDecember 1, 2018 through August 31, 2018February 28, 2019 to holders of record as of the close of business on AugustFebruary 15, 20182019 of our 8.0% Series B Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share (“Series B Preferred”). Dividends on our Series B Preferred shares are cumulative and payable quarterly at an annual rate of $2.00 per share. Total dividends paid to our Series B Preferred shareholders for the nine months ended September 30, 2018 amounted to $5,701,800.

On OctoberApril 1, 2018,2019, the Company declared a dividend of $0.50 per share for the period from SeptemberMarch 1, 20182019 through November 30, 2018May 31, 2019 to be paid on DecemberJune 17, 20182019 to Series B Preferred shareholders of record as of the close of business on NovemberMay 15, 2018.2019.

17

 

6.75% Series C Cumulative Redeemable Preferred Stock

 

On September 17, 2018,March 15, 2019, the Company paid $2,425,781 in dividends or $0.421875 per share for the period from JuneDecember 1, 2018 through August 31, 2018February 28, 2019 to holders of record as of the close of business on AugustFebruary 15, 20182019 of our 6.75% Series C Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share (“Series C Preferred”). Dividends on our Series C Preferred shares are cumulative and payable quarterly at an annual rate of $1.6875 per share. Total dividends paid to our Series C Preferred shareholders for the nine months ended September 30, 2018 amounted to $7,277,344.

 

On OctoberApril 1, 2018,2019, the Company declared a dividend of $0.421875 per share for the period from SeptemberMarch 1, 20182019 through November 30, 2018May 31, 2019 to be paid on DecemberJune 17, 20182019 to Series C Preferred shareholders of record as of the close of business on NovemberMay 15, 2018.2019.

On April 29, 2019, the Company issued and sold a total of 4,000,000 shares, including as a result of the underwriters’ exercise in full of their overallotment option of 400,000 shares, of its Series C Preferred at an offering price of $25.00 per share in an underwritten registered public offering (See Note 10).

6.375% Series D Cumulative Redeemable Preferred Stock

 

On January 22, 2018, the Company issued 2,000,000 shares of its new 6.375% Series D Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 Per Share (“Series D Preferred”) at an offering price of $25.00 per share in an underwritten registered public offering. The Company received net proceeds from the sale of these 2,000,000 shares, after deducting the underwriting discount and other estimated offering expenses, of approximately $48.2 million and has used and plans to use the net proceeds of the offering for general corporate purposes, which includes the purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, potential acquisitions of additional properties and possible repayment of indebtedness on a short-term basis.

Dividends on the Series D Preferred shares are cumulative from January 22, 2018 and are payable quarterly in arrears on March 15, June 15, September 15, and December 15 at an annual rate of $1.59375 per share. On September 17, 2018,2019, the Company paid $796,876 in dividends or $0.3984375 per share for the period from JuneDecember 1, 2018 through August 31, 2018February 28, 2019 to holders of record as of the close of business on AugustFebruary 15, 20182019 of our 6.375% Series D Preferred. Total dividends paid toCumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share (“Series D Preferred”). Dividends on our Series D Preferred shareholders for the nine months ended September 30, 2018 amounted to $1,947,918.

The Series D Preferred, par value $0.10shares are cumulative and payable quarterly at an annual rate of $1.59375 per share, has no maturity and will remain outstanding indefinitely unless redeemed or otherwise repurchased. Except in limited circumstances relating to the Company’s qualification as a REIT, and as described below, the Series D Preferred is not redeemable prior to January 22, 2023. On and after January 22, 2023, the Series D Preferred will be redeemable at the Company’s option for cash, in whole or, from time to time, in part, at a price per share equal to $25.00, plus all accrued and unpaid dividends (whether or not declared) to the date of redemption. The Series D Preferred shares rank on a parity with the Company’s Series B Preferred shares and the Company’s Series C Preferred shares with respect to dividend rights and rights upon liquidation, dissolution or winding up.

Upon the occurrence of a Delisting Event or Change of Control, each as defined in the Prospectus pursuant to which the shares of Series D Preferred were offered, each holder of the Series D Preferred will have the right to convert all or part of the shares of the Series D Preferred held into common stock of the Company, unless the Company elects to redeem the Series D Preferred.

Holders of the Series D Preferred generally have no voting rights, except if the Company fails to pay dividends for nine or more quarterly periods, whether or not consecutive, or with respect to certain specified events.

In conjunction with the issuance of the Company’s Series D Preferred, the Company filed with the Maryland State Department of Assessments and Taxation Articles Supplementary setting forth the rights, preferences and terms of the Series D Preferred shares and reclassifying 2,300,000 shares of Common Stock as shares of Series D Preferred.  After the reclassification, the Company’s authorized stock consists of 111,363,800 shares of Common Stock, 4,000,000 shares of Series B Preferred, 5,750,000 shares of Series C Preferred, 2,300,000 shares of Series D Preferred and 3,000,000 shares of excess stock.share.

 

On OctoberApril 1, 2018,2019, the Company declared a dividend of $0.3984375 per share for the period from SeptemberMarch 1, 20182019 through November 30, 2018May 31, 2019 to be paid on DecemberJune 17, 20182019 to Series D Preferred shareholders of record as of the close of business on NovemberMay 15, 2018.2019.

 

NOTE 76 – STOCK BASED COMPENSATION

On June 14, 2018, the shareholders approved and ratified an amendment and restatement (and renaming) of the Company’s Amended and Restated 2013 Incentive Award Plan (formerly 2013 Stock Option and Stock Award Plan) (the Plan). The amendment and restatement made two substantive changes: (1) provide an additional 2,000,000 common shares for future grant of option awards, restricted stock awards, or other stock-based awards; and (2) allow for the issuance of other stock-based awards.

 

The Company accounts for awards of stock options and restricted stock in accordance with ASC 718-10, Compensation-Stock Compensation. ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). The compensation cost for stock option grants is determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. The compensation expense for restricted stock is recognized based on the fair value of the restricted stock awards less estimated forfeitures. The fair value of restricted stock awards is equal to the fair value of the Company’s stock on the grant date. Compensation costs of $394,168$390,683 and $1,247,722$282,062 have been recognized for the three and nine months ended September 30,March 31, 2019 and 2018, respectively, and $328,002 and $998,059 for the three and nine months ended September 30, 2017, respectively.

On AprilJanuary 2, 2018, the Company awarded a total of 45,000 shares of restricted stock to Samuel A. Landy and Anna T. Chew, pursuant to their employment agreements. The grant date fair value of these restricted stock grants was $589,050. These grants vest ratably over 5 years.

On April 2, 2018,2019, the Company granted options to purchase 540,00060,000 shares of common stock to forty participants.two participants in the Company’s Amended and Restated 2013 Incentive Award Plan. The grant date fair value of these options amounted to $1,100,933.$95,332. These grants vest over one year. Compensation costs for grants issued to a participant who is of retirement age is recognized at the time of the grant.

On July 9, 2018, the Company granted options to purchase 40,000 shares of common stock to four participants. The grant date fair value of these options amounted to $94,732. These grants vest over one year.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants during the ninethree months ended September 30, 2018 and 2017:March 31, 2019:

 

  2018  2017 
       
Dividend yield  4.78%  5.80%
Expected volatility  25.82%  26.30%
Risk-free interest rate  2.74%  2.37%
Expected lives  10   10 
Estimated forfeitures  -0-   -0- 

The weighted-average fair value of options granted during the nine months ended September 30, 2018 and 2017 was $2.06 and $1.81 per share, respectively.

2019
Dividend yield5.10%
Expected volatility25.26%
Risk-free interest rate2.66%
Expected lives10
Estimated forfeitures-0-

 

As of September 30, 2018,March 31, 2019, there were options outstanding to purchase 2,227,6002,312,600 shares. There were 1,986,5001,900,500 shares available for grant under the Amended and Restated 2013 Incentive Award Plan. During the nine months ended September 30, 2018, eight participants exercised options to purchase a total of 128,500 shares of common stock at a weighted-average exercise price of $10.78 per share for total proceeds of $1,385,000. The aggregate intrinsic value of options outstanding as of September 30, 2018March 31, 2019 was $6,547,456 and the aggregate intrinsic value of options exercised during the nine months ended September 30, 2018 was $509,770.$4,472,200.

 

NOTE 87 - FAIR VALUE MEASUREMENTS

 

In accordance with ASC 820-10, Fair Value Measurements and Disclosures, the Company measures certain financial assets and liabilities at fair value on a recurring basis, including marketable securities. The fair value of these financial assets and liabilities was determined using the following inputs at September 30, 2018March 31, 2019 and December 31, 2017:2018:

 

  Fair Value Measurements at Reporting Date Using 
     Quoted Prices  Significant    
     In Active  Other  Significant 
     Markets for  Observable  Unobservable 
     Identical Assets  Inputs  Inputs 
  Total  (Level 1)  (Level 2)  (Level 3) 
As of September 30, 2018:                
Marketable Securities - Preferred stock $4,366,692  $4,366,692  $-0-  $-0- 
Marketable Securities - Common stock  126,565,152   126,565,152   -0-   -0- 
Total $130,931,844  $130,931,844  $-0-  $-0- 
                 
As of December 31, 2017:                
Marketable Securities - Preferred stock $5,377,522  $5,377,522  $-0-  $-0- 
Marketable Securities - Common stock  127,586,754   127,586,754   -0-   -0- 
Total $132,964,276  $132,964,276  $-0-  $-0- 

  Fair Value Measurements at Reporting Date Using 
     Quoted Prices In Active Markets for Identical Assets  Significant Other Observable Inputs  Significant Unobservable Inputs 
  Total  (Level 1)  (Level 2)  (Level 3) 
As of March 31, 2019:                
Marketable Securities - Preferred stock $3,907,645  $3,907,645  $-0-  $-0- 
Marketable Securities - Common stock  104,792,604   104,792,604   -0-   -0- 
Total $108,700,249  $108,700,249  $-0-  $-0- 
                 
As of December 31, 2018:                                               
Marketable Securities - Preferred stock $3,399,558  $3,399,558  $-0-  $-0- 
Marketable Securities - Common stock  96,196,178   96,196,178   -0-   -0- 
Total $99,595,736  $99,595,736  $-0-  $-0- 

In addition to the Company’s investments in marketable securities, the Company is required to disclose certain information about the fair values of its other financial instruments, as defined in ASC 825-10, Financial Instruments. Estimates of fair value are made at a specific point in time, based upon, where available, relevant market prices and information about the financial instrument. Such estimates do not include any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. All of the Company’s Marketable Securities have quoted market prices and traded in active markets and are therefore classified in Level 1 of the fair value hierarchy.

 

The fair value of Cash and Cash Equivalents and Notes Receivable approximates their current carrying amounts since all such items are short-term in nature. The fair value of variable rate Mortgages Payable and Loans Payable approximate their current carrying amounts since such amounts payable are at approximately a weighted-average current market rate of interest. As of September 30, 2018,March 31, 2019, the fair value of Fixed Rate Mortgages Payable amounted to $315,928,372$329,623,904 and the carrying value of Fixed Rate Mortgages Payable amounted to $316,808,161.$332,502,607.

 

NOTE 98 – CONTINGENCIES, COMMITMENTS AND OTHER MATTERS

 

From time to time, the Company may be subject to claims and litigation in the ordinary course of business. Management does not believe that any such claims or litigation will have a material adverse effect on the financial position or results of operations.

The Company entered into a contract to purchase two communities for a purchase price of approximately $45,287,000. This acquisition is expected to close in the second or third quarter of 2019.

 

The Company has an agreement with 21st Mortgage Corporation (“21st Mortgage”) under which 21st Mortgage can provide financing for home purchasers in the Company’s communities. The Company does not receive referral fees or other cash compensation under the agreement. If 21st Mortgage makes loans to purchasers and those purchasers default on their loans and 21st Mortgage repossesses the homes securing such loans, the Company has agreed to purchase from 21st Mortgage each such repossessed home for a price equal to 80% to 95% of the amount under each such loan, subject to certain adjustments. This agreement may be terminated by either party with 30 days written notice. As of September 30, 2018,March 31, 2019, the total loan balance under this agreement was approximately $3.0$2.9 million. Additionally, 21st Mortgage previously made loans to purchasers in certain communities we acquired. In conjunction with these acquisitions, the Company has agreed to purchase from 21st Mortgage each repossessed home, if those purchasers default on their loans. The purchase price ranges from 55% to 100% of the amount under each such loan, subject to certain adjustments. As of September 30, 2018,March 31, 2019, the total loan balance owed to 21st Mortgage with respect to homes in these acquired communities was approximately $3.3$3.0 million. Although this agreement is still active, this program is not being utilized by the Company’s new customers as a source of financing.

S&F entered into a Chattel Loan Origination, Sale and Servicing Agreement (“COP Program”) with Triad Financial Services, effective January 1, 2016. Neither the Company, nor S&F, receive referral fees or other cash compensation under the agreement. Customer loan applications are initially submitted to Triad for consideration by Triad’s portfolio of outside lenders. If a loan application does not meet the criteria for outside financing, the application is then considered for financing under the COP Program. If the loan is approved under the COP Program, then it is originated by Triad, assigned to S&F and then assigned by S&F to the Company. Included in Notes and Other Receivables is approximately $14,066,000$18,448,000 of loans that the Company acquired under the COP Program as of September 30, 2018.March 31, 2019.

 

NOTE 109 - SUPPLEMENTAL CASH FLOW INFORMATION

 

Cash paid for interest during the ninethree months ended September 30,March 31, 2019 and 2018 was $4,784,802 and 2017 was $11,881,714 and $11,851,093,$3,762,503, respectively. Interest cost capitalized to Land Development was $532,640$336,386 and $368,967$307,197 for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively.

 

During the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, the Company had Dividend Reinvestments of $2,925,207$1,803,994 and $2,181,064,$694,400, respectively, which required no cash transfers.

 

NOTE 11–10– SUBSEQUENT EVENTS

 

Management has evaluated subsequent events for disclosure and/or recognitionOn April 2, 2019, the Company awarded a total of 117,600 shares of restricted stock to Samuel A. Landy and Anna T. Chew, pursuant to their employment agreements. The grant date fair value of these restricted stock grants was $1,634,640. These grants vest ratably over 5 years.

On April 2, 2019, the Company granted options to purchase 584,000 shares of common stock to forty participants in the financial statements throughCompany’s Amended and Restated 2013 Incentive Award Plan. The grant date fair value of these options amounted to $1,012,293. These grants vest over one year. Compensation costs for grants issued to a participant who is of retirement age is recognized at the date thattime of the financial statementsgrant.

On April 29, 2019, the Company issued and sold a total of 4,000,000 shares, including as a result of the underwriters’ exercise in full of their overallotment option of 400,000 shares, of its Series C Preferred at an offering price of $25.00 per share in an underwritten registered public offering. The additional shares of Series C Preferred will form a single series with, will have the same terms as, and will vote as a single class with, the 5,750,000 outstanding shares of Series C Preferred issued in July 2017 and will rank on a parity with the Company's outstanding 8.0% Series B Cumulative Redeemable Preferred Stock and its outstanding 6.375% Series D Cumulative Redeemable Preferred Stock. After giving effect to the offering, the Company has a total of 9,750,000 shares of Series C Preferred outstanding.

The Company received net proceeds from the sale of the 4,000,000 shares of Series C Preferred of approximately $96.6 million, after deducting the underwriting discount and other estimated offering expenses, and intends to use the proceeds for general corporate purposes, which may include purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, potential acquisitions of additional properties and possible repayment of indebtedness on a short-term basis.

In conjunction with the issuance of the Company’s Series C Preferred, on April 26, 2019 the Company filed with the Maryland State Department of Assessments and Taxation (the “Maryland SDAT”), an amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 16,000,000 shares. As a result of this amendment, the Company’s total authorized shares were issued.increased from 126,413,800 shares (classified as 111,363,800 shares of Common Stock, 4,000,000 shares of Series B Preferred, 5,750,000 shares of Series C Preferred, 2,300,000 shares of Series D Preferred and 3,000,000 shares of excess stock) to 142,413,800 shares (classified as 127,363,800 shares of Common Stock, 4,000,000 shares of Series B Preferred, 5,750,000 shares of Series C Preferred, 2,300,000 shares of Series D Preferred and 3,000,000 shares of excess stock).

Immediately following this amendment, the Company filed with the Maryland SDAT Articles Supplementary reclassifying 4,000,000 shares of Common Stock as shares of Series C Preferred. After this amendment, the Company’s authorized stock consists of 123,363,800 shares of Common Stock, 4,000,000 shares of Series B Preferred, 9,750,000 shares of Series C Preferred, 2,300,000 shares of Series D Preferred and 3,000,000 shares of excess stock.

On April 30, 2019, the Company expanded its revolving line of credit for the financing of homes from $10 million to $15 million.

 

NOTE 1211 – PROFORMA FINANCIAL INFORMATION (UNAUDITED)

 

The following unaudited pro forma condensed financial information reflects the acquisitions during 20172018 and through September 30, 2018.March 31, 2019. This information has been prepared utilizing the historical financial statements of the Company and the effect of additional Revenue and Expenses from the properties acquired during this period assuming that the acquisitions had occurred as of the first day of the applicable period, after giving effect to certain adjustments including: (a) Rental and Related Income; (b) Community Operating Expenses; (c) Interest Expense resulting from the assumed increase in Mortgages and Loans Payable related to the new acquisitions; and (d) Depreciation Expense related to the new acquisitions. The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisitions reflected herein been consummated on the dates indicated or that will be achieved in the future.

 Three Months Ended Nine Months Ended  Three Months Ended 
 9/30/18 9/30/17 9/30/18 9/30/17  3/31/19 3/31/18 
              
Rental and Related Income $28,842,000  $27,209,000  $85,590,000  $80,117,000  $30,644,000  $28,780,000 
Community Operating Expenses  13,310,000   12,865,000   39,240,000   37,496,000   15,144,000   13,653,000 
Net Loss Attributable to
Common Shareholders		  (11,428,000)  (5,213,000)  (23,601,000)  (7,476,000)
Net Loss Attributable to
Common Shareholders
Per Share –Basic and Diluted		 $(0.31) $(0.15) $(0.65) $(0.23)
Net Income (Loss) Attributable to Common Shareholders  5,914,000   (27,770,000)
Net Income (Loss) Attributable to Common Shareholders per Share – Basic and Diluted $0.15  $(0.77)

 

2322
 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

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 footnotes thereto included elsewhere herein and in the Company’s annual report on Form 10-K for the year ended December 31, 2017.2018.

 

The Company is a self-administered, self-managed Real Estate Investment Trust (“REIT”) with headquarters in Freehold, New Jersey. The Company’s primary business is the ownership and operation of manufactured home communities which includes leasing manufactured home spaces on an annual or month-to-month basis to residential 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 the sale of manufactured homes to qualified residents and prospective residents of our communities.

 

As of September 30, 2018,March 31, 2019, the Company owned and operated 115118 manufactured home communities containing approximately 20,70021,500 developed home sites.homesites. These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland.

 

The Company earns income from the operation of its manufactured home communities, leasing of manufactured homesites, the rental of manufactured homes, the sale and finance of manufactured homes, the brokering of home sales, and from appreciation in the values of the manufactured home communities and vacant land owned by the Company. The Company also invests in marketable securities of other REITs which the Company generally limits to no more than approximately 20%15% of its undepreciated assets.

 

The Company believes that its capital structure, which allows for the ownership of assets using a balanced combination of equity obtained through the issuance of common stock, preferred stock and debt, will enhance shareholder returns as the properties appreciate over time.

The Company intends to continue to increase its real estate investments. Our business plan includes acquiring communities that yield in excess of our cost of funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. This has resulted in increased occupancy rates and improved operating results. For the ninethree months ended September 30, 2018,March 31, 2019, total income increased 14%15% from the prior year period and Community Net Operating Income (“NOI”), as defined below, increased 14%7%. Same property occupancy, which includes communities owned and operated as of January 1, 2017,2018, increased by 40120 basis points to 83.2%83.1% over the prior year period. Year to date, same property NOI increased 7.5%4.7% over the prior year period. We have been positioning ourselves for future growth and will continue to seek opportunistic investments. There is no assurance that the Company can continue to buy existing manufactured home communities that meet the requirements of the business plan or that the demand for rental homes will continue in the future.

Sales of manufactured homes performed exceptionallycontinued to perform well, during the third quarter of 2018, increasing by 67% over the prior year period. Year to date, sales increased 34%approximately 44%. Demand for housing remains healthy, due to improvements in the economy, sustained wage and job growth and still favorable interest rates. Conventional single-family home prices continue their rise supported by low inventories and increasing sales. As household formation strengthens and for-sale inventory remains limited, a large share of housing demand will be looking at alternative forms of housing. Our property type offers substantial comparative value that should result in increased demand.

 

The macro-economic environment and current housing fundamentals continue to favor home rentals. Rental homes in a manufactured home community allow the resident to obtain the efficiencies of factory-built housing and the amenities of community living for less than the cost of other forms of affordable housing. We continue to see strong demand for rental homes. We have added an additional 608153 rental homes during the first ninethree months of 2018.2019. This brings the total number of rental homes to approximately 6,2006,700 rental homes, or 30.0%31.0% of total sites. Occupied rental homes represent approximately 33.9%35.0% of total occupied sites at quarter end. Occupancy in rental homes continues to be strong and is at 93.3%93.6% as of September 30, 2018.March 31, 2019. We compare favorably with other types of rental housing, including apartments, and we will continue to allocate capital to rental home purchases, as demand dictates. We anticipate adding a total of approximately 800 rental homes in 2018.2019.

During the nine months ended September 30, 2018, the Company acquired three all-age communities in Indiana containing a total of 803 homesites on 289 acres for an aggregate purchase price of approximately $24,000,000.

The following is a summary of the communities acquired as of September 30, 2018:

Community Date of Acquisition  State  

Number of

Sites

  Purchase Price  

Number of

Acres

  Occupancy at Acquisition 
                   
Camelot Village and
Red Bud Estates		  May 30, 2018   IN   669  $20,500,000   231   91%
                         
Summit Village  August 31, 2018   IN   134   3,500,000   58   60%
Total as of September 30, 2018          803  $24,000,000   289   86%

 

See PART I, Item 1 – Business in the Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 20172018 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.

 

Significant Accounting Policies and Estimates

 

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of Assets and Liabilities, Revenues and Expenses, and related disclosure of contingent Assets and Liabilities at the date of the Company’s Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.

 

On a regular basis, management evaluates our assumptions, judgments and estimates. Management believes there have been no material changes to the items that we disclosed as our significant accounting policies and estimates under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.

 

Supplemental Measures

 

In addition to the results reported in accordance with GAAP, management’s discussion and analysis of financial condition and results of operations include certain non-GAAP financial measures that in management’s view of the business we believe are meaningful as they allow the investor the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash flow of the portfolio. These non-GAAP financial measures as determined and presented by us may not be comparable to related or similarly titled measures reported by other companies, and include Community NOI, Funds from Operations (“FFO”), Core Funds from Operations (“Core FFO”) and Normalized Funds from Operations (“Normalized FFO”).

We define Community NOI as rental and related income less community operating expenses such as real estate taxes, repairs and maintenance, community salaries, utilities, insurance and other expenses. We believe that Community NOI is helpful to investors and analysts as a direct measure of the actual operating results of our manufactured home communities, rather than our Company overall. Community NOI should not be considered a substitute for the reported results prepared in accordance with GAAP. Community NOI should not be considered as an alternative to net income (loss) as an indicator of our financial performance, or to cash flows as a measure of liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions.

 

The Company’s Community NOI for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 is calculated as follows:

 

 Three Months Ended Nine Months Ended  Three Months Ended 
 9/30/18 9/30/17 9/30/18 9/30/17  3/31/19 3/31/18 
              
Rental and Related Income $28,728,078  $25,854,623  $84,236,326  $75,678,939  $30,643,717  $27,270,477 
Less: Community Operating Expenses  13,288,715   12,317,856   38,758,711   35,669,793   (15,144,253)  (12,754,816)
Community NOI $15,439,363  $13,536,767  $45,477,615  $40,009,146  $15,499,464  $14,515,661 

 

We also assess and measure our overall operating results based upon an industry performance measure referred to as Funds from Operations Attributable to Common Shareholders (“FFO”), which management believes is a useful indicator of our operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of a REIT. FFO, as defined by The National Association of Real Estate Investment Trusts (“NAREIT”), represents net income (loss) attributable to common shareholders, as defined by accounting principles generally accepted in the United States of America (“U.S. GAAP”), excluding extraordinary items, as defined under U.S. GAAP, gains or losses from sales of previously depreciated real estate assets, and impairment charges related to depreciable real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization. NAREIT created FFO as a non-U.S. GAAP supplemental measure of REIT operating performance. We define Core Funds from Operations Attributable to Common Shareholders (“Core FFO”), as FFO, excluding acquisition costs, costs of early extinguishment of debt,the change in the fair value of marketable securities and costs associated with the Redemption of Preferred Stock.securities. We define Normalized Funds from Operations Attributable to Common Shareholders (“Normalized FFO”), as Core FFO, excluding gains and losses realized on marketable securities investments and certain one-time charges. FFO, Core FFO and Normalized FFO should be considered as supplemental measures of operating performance used by REITs. FFO, Core FFO and Normalized FFO exclude historical cost depreciation as an expense and may facilitate the comparison of REITs which have a different cost basis. However, other REITs may use different methodologies to calculate FFO, Core FFO and Normalized FFO and, accordingly, our FFO, Core FFO and Normalized FFO may not be comparable to all other REITs. The items excluded from FFO, Core FFO and Normalized FFO are significant components in understanding the Company’s financial performance.

FFO, Core FFO and Normalized FFO (i) do not represent Cash Flow from Operations as defined by U.S. GAAP; (ii) should not be considered as alternatives to net income (loss) as a measure of operating performance or to cash flows from operating, investing and financing activities; and (iii) are not alternatives to cash flow as a measure of liquidity.

 

The reconciliation of the Company’s U.S. GAAP Net LossIncome (Loss) to the Company’s FFO, Core FFO and Normalized FFO for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 are calculated as follows:

 

  Three Months Ended  Nine Months Ended 
  9/30/18  9/30/17  9/30/18  9/30/17 
             
Net Loss Attributable to                
Common Shareholders $(11,472,600) $(5,179,423) $(23,678,383) $(6,883,500)
Depreciation Expense  8,051,627   6,980,113   23,410,519   20,260,556 

Loss on Sales of Depreciable

Assets

  27,479   18,898   108,111   29,540 
FFO Attributable to Common                
Shareholders  (3,393,494)  1,819,588   (159,753)  13,406,596 
                 
Adjustments:                
Decrease in Fair Value of                
Marketable Securities  10,487,430   -0-   19,762,579   -0- 
Redemption of Preferred Stock  -0-   3,502,487   -0-   3,502,487 
Core FFO Attributable to                
Common Shareholders  7,093,936   5,322,075   19,602,826   16,909,083 
                 
Adjustments:                
Non- Recurring Other Expense(1)  -0-   -0-   525,000   -0- 

Gain on Sales of Marketable

Securities, net

  -0-   (466,521)  (20,107)  (1,518,289)
Normalized FFO Attributable to                
Common Shareholders $7,093,936  $4,855,554  $20,107,719  $15,390,794 

(1) Consists of one-time payroll expenditures

  Three Months Ended 
  3/31/19  3/31/18 
       
Net Income (Loss) Attributable to Common Shareholders $5,914,136  $(27,154,510)
Depreciation Expense  8,751,311   7,594,634 
Loss on Sales of Depreciable Assets  20,976   15,705 
FFO Attributable to Common Shareholders  14,686,423   (19,544,171)
         
Adjustments:        
(Increase) Decrease in Fair Value of Marketable Securities  (8,595,766)  25,898,819 
Core FFO Attributable to Common Shareholders  6,090,657   6,354,648 
         
Adjustments:        
Settlement of utility billing dispute over a prior 10-year period  375,250   -0- 
Gain on Sales of Marketable Securities, net  -0-   (20,107)
         
Normalized FFO Attributable to Common Shareholders $6,465,907  $6,334,541 

 

The following are the cash flows provided (used) by operating, investing and financing activities for the ninethree months ended September 30, 2018March 31, 2019 and 2017:2018:

 

 Nine Months Ended  Three Months Ended 
 9/30/18 9/30/17  3/31/19 3/31/18 
             
Operating Activities $24,727,484  $29,183,016  $12,174,596  $10,289,819 
Investing Activities  (87,369,351)  (115,409,261)  (14,736,584)  (17,472,030)
Financing Activities  49,524,433   96,943,425   3,681,456   11,204,611 

 

2826
 

 

Changes In Results Of Operations

 

Rental and Related Income increased 11%12% from $25,854,623$27,270,477 for the three months ended September 30, 2017March 31, 2018 to $28,728,078$30,643,717 for the three months ended September 30, 2018. Rental and Related Income increased 11% from $75,678,939 for the nine months ended September 30, 2017 to $84,236,326 for the nine months ended September 30, 2018.March 31, 2019. These increases were primarily due to the acquisitions made during 2017 and 2018, as well as increases in rental rates and same property occupancy and additional rental homes. The Company has been raising rental rates by approximately 3% to 5% annually at most communities. Same property occupancy has increased 40120 basis points from 82.8%81.9% as of September 30, 2017March 31, 2018 to 83.2%83.1% at quarter-end. Occupied rental homes increased 15%14% from approximately 5,0005,500 homes at September 30, 2017March 31, 2018 to 5,8006,200 homes at September 30, 2018.March 31, 2019.

 

Community Operating Expenses increased 8%19% from $12,317,856$12,754,816 for the three months ended September 30, 2017March 31, 2018 to $13,288,715$15,144,253 for the three months ended September 30,March 31, 2019. These increases were primarily due to an increase in water and sewer costs, rental home expenses and payroll and personnel costs primarily from the acquisitions made during 2018. In addition, there was a one-time settlement of $375,250 for a utility billing dispute over a prior 10-year period.

Community Operating ExpensesNOI increased 9%7% from $35,669,793$14,515,661 for the ninethree months ended September 30, 2017March 31, 2018 to $38,758,711$15,499,464 for the ninethree months ended September 30, 2018.March 31, 2019. These increases were primarily due to the acquisitions made during 2017 and 2018, and the harsh 2018 winter.

Community NOI increased 14% from $13,536,767 for the three months ended September 30, 2017 to $15,439,363 for the three months ended September 30, 2018. Community NOI increased 14% from $40,009,146 for the nine months ended September 30, 2017 to $45,477,615 for the nine months ended September 30, 2018. These increases were primarily due to the acquisitions during 2017 and 2018 and increases in rental rates, occupancy and rental homes. The Company’s Operating Expense Ratio (defined as Community Operating Expenses divided by Rental and Related Income) improved from 47.6%was 49.4% and 46.8% for the three months ended September 30, 2017 to 46.3%March 31, 2018 and 2019, respectively. Excluding the one-time settlement charge of $375,250, the Company’s Operating Expense Ratio for the three months ended September 30, 2018. The Company’s Operating Expense Ratio improved from 47.1% for the nine months ended September 30, 2017 to 46.0% for the nine months ended September 30, 2018.March 31, 2019 was 48.2%. Many recently acquired communities have deferred maintenance requiring higher than normal expenditures in the first few years of ownership. Because most of the community expenses consist of fixed costs, as occupancy rates increase, these expense ratios are expected to continue to improve. Since the Company has the ability to increase its rental rates annually, increasing costs due to inflation and changing prices have generally not had a material effect on revenues and income from continuing operations.

Sales of manufactured homes increased 67%44% from $2,830,314$2,525,487, or 54 homes, for the three months ended September 30, 2017March 31, 2018 to $4,719,036$3,643,714, or 66 homes, for the three months ended September 30, 2018. Sales of manufactured homes increased 34% from $8,272,395 for the nine months ended September 30, 2017 to $11,105,302 for the nine months ended September 30, 2018. The Company has seen a 21% increase in the number of homes sold from 169 homes sold for the nine months ended September 30, 2017 to 204 homes sold for the nine months ended September 30, 2018.March 31, 2019. Cost of sales of manufactured homes amounted to $3,512,705$2,589,169 and $2,215,767$1,980,171 for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. Cost of sales of manufactured homes amounted to $8,406,701 and $6,465,665 for the nine months ended September 30, 2018 and 2017, respectively. The gross profit percentage was 26%29% and 22% for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. The gross profit percentage was 24% and 22% for the nine months ended September 30, 2018 and 2017, respectively. Selling expenses, which includes salaries, commissions, advertising and other miscellaneous expenses, amounted to $1,024,188$1,091,022 and $836,939$804,072 for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. Selling expenses amounted to $2,913,504 and $2,461,780 for the nine months ended September 30, 2018 and 2017, respectively. Loss from the sales operations (defined as sales of manufactured homes less cost of sales of manufactured homes less selling expenses less interest on the financing of inventory) amounted to $69,963$102,568 or 1%3% of total sales and $319,996$293,010 or 11%12% of total sales for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. Loss from the sales operations amounted to $650,924 or 6% of total sales and $1,046,985 or 13% of total sales for the nine months ended September 30, 2018 and 2017, respectively. Many of the costs associated with sales, such as salaries, and to an extent, advertising and promotion, are fixed.

 

The U.S. homeownership rate was 64.4%64.2% in the thirdfirst quarter of 2018,2019, according to the U.S. Census. This is down from 69.2% at its peak at the end of 2004. The conventional single-family housing market has strengthened and conventional home prices continue their rise. The inherent affordability of our property type becomes more and more apparent which should result in increased demand. The Company continues to be optimistic about future sales and rental prospects given the fundamental need for affordable housing. The Company believes that sales of new homes produces new rental revenue and is an investment in the upgrading of our communities.

General and Administrative Expenses increased 9%decreased 8% from $2,354,054$2,358,556 for the three months ended September 30, 2017March 31, 2018 to $2,559,023$2,174,633 for the three months ended September 30, 2018.March 31, 2019. This decrease was primarily due to a decrease in personnel costs. General and Administrative Expenses increased 14% from $7,190,665 for the nine months ended September 30, 2017 to $8,200,261 for the nine months ended September 30, 2018. These increases were primarily due to an increase in personnel and personnel costs. Additionally, for the nine months ended September 30, 2018, there was a one-time payroll expenditure of $525,000 for two employees. General and Administrative expenses without this one-time payroll expenditure as a percentage of gross revenue (Total Income plus Interest, Dividend and Other Income) was 6.9% and 7.3% for the three and nine months ended September 30,decreased from 7.2% in 2018 respectively, compared to 7.5% and 7.8% for the three and nine months ended September 30, 2017, respectively. Personnel costs also increased due to an increase5.9% in our stock price which increased the fair value of stock options granted. The weighted-average fair value of options granted increased from $1.81 per share for the nine months ended September 30, 2017 to $2.06 for the nine months ended September 30, 2018. Additionally, for the nine months ended September 30, 2018, the entire compensation cost of $204,000 for an employee of retirement age was recognized at the time of grant.2019.

 

Depreciation Expense increased 15% from $6,980,113$7,594,634 for the three months ended September 30, 2017March 31, 2018 to $8,051,627$8,751,311 for the three months ended September 30, 2018. Depreciation Expense increased 16% from $20,260,556 for the nine months ended September 30, 2017 to $23,410,519 for the nine months ended September 30, 2018.March 31, 2019. This increase was primarily due to the acquisitions and the increase in rental homes during 20172018 and 2018.2019.

Interest Income increased 10% from $510,358remains relatively stable for the three months ended September 30, 2017March 31, 2019 compared to $563,549the three months ended March 31, 2018.

Dividend income decreased 20% from $2,425,140 for the three months ended September 30, 2018. Interest Income increased 6% from $1,479,495 for the nine months ended September 30, 2017March 31, 2018 to $1,569,955 for the nine months ended September 30, 2018. These increases were primarily due to an increase in the average balance of notes receivable. The average balance at September 30, 2018 and 2017 was approximately $25.3 million and $20.7 million, respectively.

Dividend Income increased 31% from $2,068,198$1,937,414 for the three months ended September 30, 2017 to $2,704,255 for the three months ended September 30, 2018. Dividend Income increased 33% from $5,715,038 for the nine months ended September 30, 2017 to $7,603,575 for the nine months ended September 30, 2018. These increases were primarily due to the increase in the average balance of marketable securities from $120.5 million at September 30, 2017 to $131.9 million at September 30, 2018.March 31, 2019. Dividends received from our marketable securities investments were at a weighted average yield of approximately 8.2%7.2% and 7.1%8.9% at September 30,March 31, 2019 and 2018, and 2017, respectively, and continue to meet our expectations. These decreases are primarily due to a reduction in dividends from two securities. It is the Company’s intent to hold these marketable securities long-term.

Other Investment Income (Loss), net decreased

Increase (Decrease) in Fair Value of Marketable Securities increased from incomea loss of $466,521$(25,898,819) for the three months ended September 30, 2017March 31, 2018 to a lossgain of $10,487,430$8,595,766 for the three months ended September 30, 2018. Other Investment Income (Loss), net decreased from income of $1,518,289 for the nine months ended September 30, 2017 to a loss of $19,742,472 for the nine months ended September 30, 2018. These changes were primarily due to the change in fair value of the marketable securities portfolio. On January 1, 2018, the Company adopted ASU 2016-01, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in “Accumulated Other Comprehensive Income” on our Consolidated Balance Sheets. As a result, on January 1, 2018 the Company recorded an increase to beginning retained earnings of $11,519,582 to recognize the unrealized gains previously recorded in “Accumulated Other Comprehensive Income” on our Consolidated Balance Sheets.March 31, 2019. As of September 30, 2018,March 31, 2019, the Company had total net unrealized losses of $8,242,997$31,560,048 in its REIT securities portfolio. The total change in fair value of marketable securities for the three months ended September 30, 2018 was a decrease of $10,487,430. The total change in fair value of marketable securities for the nine months ended September 30, 2018 was a decrease of $19,762,579.

 

Interest Expense, including Amortization of Financing Costs, increased 10%30% from $3,871,046$3,580,468 for the three months ended September 30, 2017March 31, 2018 to $4,247,855$4,646,542 for the three months ended September 30, 2018. TheMarch 31, 2019. This was primarily due to an increase in the average balance of financing on our inventory increasedloans payable from $625,000 at September 30, 2017 to $15.8$67.5 million at September 30, 2018. The interest rate on this financing is approximately 7%. Interest Expense remained relatively stable forMarch 31, 2018 to $111.5 million at March 31, 2019. Additionally, the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The weighted average interest rate on our mortgages payable decreasedincreased from 4.2% at March 31, 2018 to 4.3% at September 30, 2017 to 4.2% at September 30, 2018,March 31, 2019, not including the effect of unamortized debt issuance costs.

31

 

Changes in Financial Condition

 

Total Investment Property and Equipment increased 8%1% or $60,447,877$10,791,767 during the ninethree months ended September 30, 2018.March 31, 2019. The Company purchased three communities and added 608153 rental homes to its communities. The Company’s occupancy rate on its rental homes portfolio increased 30130 basis points and was 93.3%93.6% at September 30, 2018March 31, 2019 as compared to 93.0%92.3% at December 31, 2017.2018.

 

Marketable Securities decreased 2%increased 9% or $2,032,432$9,104,513 during the ninethree months ended September 30, 2018.March 31, 2019. This decreaseincrease was due to a net decreaseincrease in the fair value of $19,762,579$8,595,766 and sales with a cost basis of $248,568, offset by purchases of $17,978,715.$508,747.

 

Mortgages Payable, net of unamortized debt issuance costs, increased 3%decreased 1% or $8,524,323$1,770,404 during the ninethree months ended September 30, 2018.March 31, 2019. The increase wasdecrease is primarily due to a new mortgageprincipal payments of $13,442,000 and$1,908,904, offset by amortization expense of $407,800, partially offset by principal payments of $5,094,625 and cost of the new mortgage of $230,852.

$143,356.

Loans Payable, net of unamortized debt issuance costs, increased 3%7% or $2,326,635$7,070,124 during the ninethree months ended September 30, 2018.March 31, 2019. This increase was primarilymainly due to an increase of $13.6$6 million on our revolving line of credit facilities forsecured by the purchase of inventory and other loans payable, partially offset by a decrease of $11.3 million on our margin loan.Company’s eligible notes receivable.

 

Liquidity and Capital Resources

 

The Company’s focus is on real estate investments, including investment in rental homes. Additionally, the Company invests in marketable debt and equity securities of other REITs. The REIT securities portfolio provides the Company with liquidity and additional income and serves as a proxy for real estate when more favorable risk adjusted returns are not available. The Company generally limits its marketable securities investments to no more than approximately 20%15% of its undepreciated assets.

 

The Company’s principal liquidity demands have historically been, and are expected to continue to be, distributions to the Company’s stockholders, acquisitions, capital improvements, development and expansions of properties, debt service, purchases of manufactured home inventory and rental homes, investment in marketable securities of other REITs, financing of manufactured home sales and payments of expenses relating to real estate operations. We anticipate that the liquidity demands of the recent properties acquired will be met by the operations of these acquisitions. The Company’s ability to generate cash adequate to meet these demands is dependent primarily on income from its real estate investments and marketable securities portfolio, the sale of real estate investments and marketable securities, refinancing of mortgage debt, leveraging of real estate investments, availability of bank borrowings, lines of credit, proceeds from the DRIP, and access to the capital markets.

In addition to cash generated through operations, the Company uses a variety of sources to fund its cash needs, including acquisitions. The Company may sell marketable securities from its investment portfolio, borrow on its unsecured credit facility or lines of credit, finance and refinance its properties, and/or raise capital through the DRIP and capital markets. The Company intends to continue to increase its real estate investments. Our business plan includes acquiring communities that yield in excess of our cost of funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. There is no guarantee that any of these additional opportunities will materialize or that the Company will be able to take advantage of such opportunities. The growth of our real estate portfolio depends on the availability of suitable properties which meet the Company’s investment criteria and appropriate financing. Competition in the market areas in which the Company operates is significant. To the extent that funds or appropriate communities are not available, fewer acquisitions will be made.

The Company continues to strengthen its capital and liquidity positions. On January 22, 2018,The Company raised $10,671,704 from the issuance of common stock in the DRIP during the three months ended March 31, 2019, which included Dividend Reinvestments of $1,803,994. Dividends paid on the common stock for the three months ended March 31, 2019 were $6,980,052, of which $1,803,994 were reinvested. Dividends paid on the Series B Preferred shares, the Series C Preferred and the Series D Preferred shares for the three months ended March 31, 2019 totaled $5,123,257.

Subsequent to quarter end, the Company also issued 2,000,000an additional 4,000,000 shares, including the underwriters’ exercise of their overallotment option of 400,000 shares, of its new 6.375% Series D Cumulative RedeemableC Preferred Stock (“Series D Preferred Stock”) at an offering price of $25.00 per share in an underwritten registered public offering. The Company received net proceeds from the sale of these 2,000,000the 4,000,000 shares of Series C Preferred of approximately $96.6 million, after deducting the underwriting discount and other estimated offering expenses, of approximately $48.2 million and is using and plansintends to use the net proceeds of the offering for general corporate purposes, which may include the purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, potential acquisitions of additional properties and possible repayment of indebtedness on a short-term basis.

 

The Company also raised $24,217,210 from the issuance of common stock in the DRIP during the nine months ended September 30, 2018, which included Dividend Reinvestments of $2,925,207. Dividends paid on the common stock for the nine months ended September 30, 2018 were $19,786,349, of which $2,925,207 were reinvested. Dividends paid on the Series B Preferred shares, the Series C Preferred shares and the Series D Preferred shares for the nine months ended September 30, 2018 totaled $14,927,062.

Net Cash provided by Operating Activities amounted to $24,727,484$12,174,596 and $29,183,016$10,289,819 for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively. As of September 30, 2018,March 31, 2019, the Company had Cashcash and Cash Equivalentscash equivalents of $8.9$7.3 million, Marketable Securitiesmarketable securities of $130.9$108.7 million, encumbered by $25.8$32.3 million in margin loans, $6.0 million available on its revolving line of credit for the financing of home sales, approximately $12.7$11.8 million available on its revolving credit facilities for the financing of inventory purchases and $15$25 million available on itsour unsecured revolving credit facility, with an additional $75$50 million potentially available pursuant to an accordion feature.

 

The Company owns 115118 communities, of which 7046 are unencumbered. TheseExcept for 15 communities in the borrowing base for our unsecured credit facility, these unencumbered communities can be used to raise additional funds. Our marketable securities, non-mortgagedunencumbered properties, and lines of credit provide the Company with additional liquidity. The Company has been raising capital through its DRIP and through public offerings and registered direct placements of its preferred stock.

As of September 30, 2018,March 31, 2019, the Company had total assets of $868,504,952$899,708,495 and total liabilities of $415,391,383.$465,013,984. The Company’s net debt (net of unamortized debt issuance costs and cash and cash equivalents) to total market capitalization as of September 30, 2018March 31, 2019 was approximately 31%34% and the Company’s net debt, less securities to total market capitalization as of September 30, 2018March 31, 2019 was approximately 20%26%. As of March 31, 2019, the Company has three mortgages due in the next 12 months of approximately $13.9 million. The Company believes that it has the ability to meet its obligations and to generate funds for new investments.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

Cautionary Statement Regarding Forward-Looking Statements

 

Statements contained in this Form 10-Q, 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”). Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about the Company’s expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, performance and underlying assumptions and other statements that are not historical facts. Forward-looking statements can be identified by their use of forward-looking words, such as “may,” “will,” “anticipate,” “expect,” “believe,” “intend,” “plan,” “should,” “seek” or comparable terms, or the negative use of those words, but the absence of these words does not necessarily mean that a statement is not forward-looking.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described below and under the headings “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These and other risks, uncertainties and factors could cause our actual results to differ materially from those included in any forward-looking statements we make. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results to differ materially from our expectations include, among others:

 

 ●changes in the real estate market conditions 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;
 ●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;
 ●our ability to integrate acquired properties and operations into existing operations;
 ●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;
 ●the ability of manufactured home buyers to obtain financing;
 ●the level of repossessions by manufactured home lenders;
 ●market conditions affecting our investment securities;
 ●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 this Form 10-Q and the Company’s 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 Company’s President and Chief Executive Officer (principal executive officer) and the Company’s Vice President and Chief Financial Officer (principal financial and accounting officer), with the assistance of other members of the Company’s management, have evaluated the effectiveness of the Company’s 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 Company’s President and Chief Executive Officer and Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of such period.

 

Changes In Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the quarterly period ended September 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

PART II – OTHER INFORMATION

 

Item 1.Legal Proceedings

 

None.

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 Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s 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 Company’s business, financial condition and/or operating results.

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 Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s 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 Company’s business, financial condition and/or operating results.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

None.

 

Item 3.Defaults Upon Senior Securities

 

None.

None.

 

Item 4.

Item 4. Mine Safety Disclosures

 

None.

None.

 

Item 5.

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.

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, 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, Chief Financial Officer (Furnished herewith).
  
101

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018March 31, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows and (v)(iv) the Notes to Consolidated 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.

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 1, 2018 May 2, 2019By/s/ Samuel A. Landy
  Samuel A. Landy
  President and Chief Executive Officer
  (Principal Executive Officer)
   
DATE:November 1, 2018   May 2, 2019By/s/ /s/ Anna T. Chew
  Anna T. Chew
  Vice President and Chief Financial Officer
  (Principal Financial and Accounting Officer)