UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from __________ to ___________ |
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | identification number) |
| (Address of Principal Executive 0ffices) | (Zip Code) |
Registrant’s
telephone number, including area code
(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 class | Trading Symbol(s) | Name of exchange on which registered | ||
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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:
| ☒ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class | Outstanding Common Shares as of November 1, 2024 | |
| Common Stock, $ par value per share |
UMH PROPERTIES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR
THE QUARTER ENDED
Table of Contents
| 2 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023
(in thousands except per share amounts)
| September 30, 2024 (Unaudited) | December 31, 2023 | |||||||
| - ASSETS - | ||||||||
| Investment Property and Equipment | ||||||||
| Land | $ | $ | ||||||
| Site and Land Improvements | ||||||||
| Buildings and Improvements | ||||||||
| Rental Homes and Accessories | ||||||||
| Total Investment Property | ||||||||
| Equipment and Vehicles | ||||||||
| Total Investment Property and Equipment | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Investment Property and Equipment | ||||||||
| Other Assets | ||||||||
| Cash and Cash Equivalents | ||||||||
| Marketable Securities at Fair Value | ||||||||
| Inventory of Manufactured Homes | ||||||||
| Notes and Other Receivables, net | ||||||||
| Prepaid Expenses and Other Assets | ||||||||
| Land Development Costs | ||||||||
| Investment in Joint Venture | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements
| 3 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – CONTINUED
AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023
(in thousands except per share amounts)
| September 30, 2024 (Unaudited) | December 31, 2023 | ||||||
| - LIABILITIES AND SHAREHOLDERS’ EQUITY - | ||||||||
| LIABILITIES: | ||||||||
| Mortgages Payable, net of unamortized debt issuance costs | $ | $ | ||||||
| Other Liabilities: | ||||||||
| Accounts Payable | ||||||||
| Loans Payable, net of unamortized debt issuance costs | ||||||||
| Series A Bonds, net of unamortized debt issuance costs | ||||||||
| Accrued Liabilities and Deposits | ||||||||
| Tenant Security Deposits | ||||||||
| Total Other Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ Equity: | ||||||||
| Series D – Stock, $ par value per share, shares authorized as of September 30, 2024 and December 31, 2023; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common Stock - $ par value per share, and shares authorized as of September 30, 2024 and December 31, 2023, respectively; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Excess Stock - $par value per share, shares authorized; shares issued or outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total UMH Properties, Inc. Shareholders’ Equity | ||||||||
| Non-Controlling Interest in Consolidated Subsidiaries | ||||||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements
| 4 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
(in thousands except per share amounts)
| THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| INCOME: | ||||||||||||||||
| Rental and Related Income | $ | $ | $ | $ | ||||||||||||
| Sales of Manufactured Homes | ||||||||||||||||
| Total Income | ||||||||||||||||
| EXPENSES: | ||||||||||||||||
| Community Operating Expenses | ||||||||||||||||
| Cost of Sales of Manufactured Homes | ||||||||||||||||
| Selling Expenses | ||||||||||||||||
| General and Administrative Expenses | ||||||||||||||||
| Depreciation Expense | ||||||||||||||||
| Total Expenses | ||||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest Income | ||||||||||||||||
| Dividend Income | ||||||||||||||||
| Gain (Loss) on Sales of Marketable Securities, net | ( | ) | ||||||||||||||
| Increase (Decrease) in Fair Value of Marketable Securities | ( | ) | ( | ) | ||||||||||||
| Other Income | ||||||||||||||||
| Loss on Investment in Joint Venture | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (Loss) before Gain (Loss) on Sales of Investment Property and Equipment | ( | ) | ( | ) | ||||||||||||
| Gain (Loss) on Sales of Investment Property and Equipment | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ||||||||||||
| Preferred Dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss Attributable to Non-Controlling Interest | ||||||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net Income (Loss) Attributable to Common Shareholders Per Share – Basic and Diluted | $ | $ | ) | $ | $ | ) | ||||||||||
| Weighted Average Common Shares Outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See Accompanying Notes to Consolidated Financial Statements
| 5 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
(in thousands)
| Common Stock |
Preferred | |||||||||||
| Issued and Outstanding | Stock | |||||||||||
| Number | Amount | Series D | ||||||||||
| Balance December 31, 2023 | $ | $ | ||||||||||
| Common Stock Issued with the DRIP | ||||||||||||
| Common Stock Issued through Restricted Stock Awards | ||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | 0 | |||||||||||
| Distributions | 0 | |||||||||||
| Stock Compensation | 0 | |||||||||||
| Net Loss | 0 | |||||||||||
| Balance March 31, 2024 | ||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||
| Common Stock Issued through Restricted Stock Awards | ||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | 0 | |||||||||||
| Distributions | 0 | |||||||||||
| Stock Compensation Expense | 0 | |||||||||||
| Net Income (Loss) | 0 | |||||||||||
| Balance June 30, 2024 | $ | $ | ||||||||||
| Common Stock Issued with the DRIP | ||||||||||||
| Common Stock Issued through Restricted Stock Awards | ||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | 0 | |||||||||||
| Distributions | 0 | |||||||||||
| Stock Compensation Expense | 0 | |||||||||||
| Net Income (Loss) | 0 | |||||||||||
| Balance September 30, 2024 | $ | $ | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
| 6 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
(in thousands)
Additional Paid-In | Undistributed Income (Accumulated | Non-Controlling Interest in Consolidated |
Total Shareholders’ | |||||||||||||
| Capital | Deficit) | Subsidiary | Equity | |||||||||||||
| Balance December 31, 2023 | $ | $ | ( | ) | $ | $ | ||||||||||
| Common Stock Issued with the DRIP | ||||||||||||||||
| Common Stock Issued through Restricted Stock Awards | ( | ) | ||||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | ( | ) | ||||||||||||||
| Distributions | ( | ) | ( | ) | ||||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance March 31, 2024 | ( | ) | ||||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||||||
| Common Stock Issued through Restricted Stock Awards | ( | ) | ||||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | ( | ) | ||||||||||||||
| Distributions | ( | ) | ( | ) | ( | ) | ||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Net Income (Loss) | ( | ) | ||||||||||||||
| Balance June 30, 2024 | ( | ) | ||||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||||||
| Common Stock Issued through Restricted Stock Awards | ( | ) | ||||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | ( | ) | ||||||||||||||
| Distributions | ( | ) | ( | ) | ( | ) | ||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Net Income (Loss) | ( | ) | ||||||||||||||
| Balance September 30, 2024 | $ | $ | ( | ) | $ | $ | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
| 7 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
(in thousands)
| Common Stock | Preferred | |||||||||||
| Issued and Outstanding | Stock | |||||||||||
| Number | Amount | Series D | ||||||||||
| Balance December 31, 2022 | $ | $ | ||||||||||
| Common Stock Issued with the DRIP | ||||||||||||
| Common Stock Issued through Restricted Stock Awards | ||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | 0 | |||||||||||
| Distributions | 0 | |||||||||||
| Stock Compensation Expense | 0 | |||||||||||
| Net Loss | 0 | |||||||||||
| Balance March 31, 2023 | ||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||
| Common Stock Issued through Restricted Stock Awards | ||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | 0 | |||||||||||
| Distributions | 0 | |||||||||||
| Stock Compensation Expense | 0 | |||||||||||
| Net Loss | 0 | |||||||||||
| Balance June 30, 2023 | ||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||
| Common Stock Issued through Restricted Stock Awards | ||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | 0 | |||||||||||
| Distributions | 0 | |||||||||||
| Stock Compensation Expense | 0 | |||||||||||
| Net Loss | 0 | |||||||||||
| Balance September 30, 2023 | $ | $ | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
| 8 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
(in thousands)
Additional Paid-In | Undistributed Income (Accumulated | Non-Controlling Interest in Consolidated |
Total Shareholders’ | |||||||||||||
| Capital | Deficit) | Subsidiary | Equity | |||||||||||||
| Balance December 31, 2022 | $ | $ | ( | ) | $ | $ | ||||||||||
| Common Stock Issued with the DRIP | ||||||||||||||||
| Common Stock Issued through Restricted Stock Awards | ( | ) | ||||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | ( | ) | ||||||||||||||
| Distributions | ( | ) | ( | ) | ||||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance March 31, 2023 | ( | ) | ||||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||||||
| Common Stock Issued through Restricted Stock Awards | ( | ) | ||||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | ( | ) | ||||||||||||||
| Distributions | ( | ) | ( | ) | ||||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance June 30, 2023 | ( | ) | ||||||||||||||
| Common Stock Issued with the DRIP | ||||||||||||||||
| Common Stock Issued through Restricted Stock Awards | ( | ) | ||||||||||||||
| Common Stock Issued through Stock Options | ||||||||||||||||
| Common Stock Issued in connection with At-The-Market Offerings, net | ||||||||||||||||
| Preferred Stock Issued in connection with At-The-Market Offerings, net | ( | ) | ||||||||||||||
| Distributions | ( | ) | ( | ) | ||||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance September 30, 2023 | $ | $ | ( | ) | $ | $ | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
| 9 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
(in thousands)
| NINE MONTHS ENDED | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Non-Cash items included in Net Income (Loss): | ||||||||
| Depreciation | ||||||||
| Amortization of Financing Costs | ||||||||
| Stock Compensation Expense | ||||||||
| Provision for Uncollectible Notes and Other Receivables | ||||||||
| (Gain) Loss on Sales of Marketable Securities, net | ( | ) | ||||||
| (Increase) Decrease in Fair Value of Marketable Securities | ( | ) | ||||||
| (Gain) Loss on Sales of Investment Property and Equipment | ( | ) | ||||||
| Loss on Investment in Joint Venture | ||||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Inventory of Manufactured Homes | ||||||||
| Notes and Other Receivables, net of notes acquired with acquisitions | ( | ) | ( | ) | ||||
| Prepaid Expenses and Other Assets | ( | ) | ||||||
| Accounts Payable | ( | ) | ( | ) | ||||
| Accrued Liabilities and Deposits | ( | ) | ( | ) | ||||
| Tenant Security Deposits | ||||||||
| Net Cash Provided by Operating Activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of Manufactured Home Communities | ( | ) | ||||||
| Purchase of Investment Property and Equipment | ( | ) | ( | ) | ||||
| Proceeds from Sales of Investment Property and Equipment | ||||||||
| Additions to Land Development Costs | ( | ) | ( | ) | ||||
| Purchase of Marketable Securities | ( | ) | ( | ) | ||||
| Proceeds from Sales of Marketable Securities | ||||||||
| Investment in Joint Venture | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net Payments from Short-Term Borrowings | ( | ) | ( | ) | ||||
| Principal Payments of Mortgages and Loans | ( | ) | ( | ) | ||||
| Financing Costs on Debt | ( | ) | ( | ) | ||||
| Proceeds from At-The-Market Preferred Equity Program, net of offering costs | ||||||||
| Proceeds from At-The-Market Common Equity Program, net of offering costs | ||||||||
| Proceeds from Issuance of Common Stock in the DRIP, net of dividend reinvestments | ||||||||
| Proceeds from Exercise of Stock Options | ||||||||
| Preferred Dividends Paid | ( | ) | ( | ) | ||||
| Common Dividends Paid, net of dividend reinvestments | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase in Cash, Cash Equivalents and Restricted Cash | ||||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | ||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements
| 10 |
UMH PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 (UNAUDITED)
NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES
UMH
Properties, Inc., a Maryland corporation, and 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
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 three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023.
| 11 |
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 revenue and expenses for the years then ended. These estimates and assumptions include the allowance for doubtful accounts, valuation of inventory, depreciation, valuation of securities, accounting for land development, reserves and accruals, and stock compensation expense. Actual results could differ from these estimates and assumptions.
Reclassifications
Certain amounts in the financial statements for the prior periods have been reclassified to conform to the statement presentation for the current periods.
Investment in Joint Venture
The Company accounts for its investment in entities formed under its joint venture with Nuveen Real Estate under the equity method of accounting in accordance with ASC 323, Investments – Equity Method and Joint Ventures. The Company has the ability to exercise significant influence, but not control, over the operating and financial decisions of the joint venture entities. Under the equity method of accounting, the cost of an investment is adjusted for the Company’s share of the equity in net income or loss from the date of acquisition, reduced by distributions received and increased by contributions made. The income or loss is allocated in accordance with the provisions of the operating agreement. The carrying value of the investment in the joint venture is reviewed for other than temporary impairment whenever events or changes in circumstances indicate a possible impairment. Financial condition, operational performance, and other economic trends are among the factors that are considered in evaluation of the existence of impairment indicators (See Note 4).
Leases
The Company accounts for its leases under ASC 842, “Leases.” Our primary source of revenue is generated from lease agreements for our sites and homes, where we are the lessor. These leases are generally for one-year or month-to-month terms and renewable by mutual agreement from us and the resident, or in some cases, as provided by jurisdictional statute.
We
are the lessee in other arrangements, primarily for our corporate office and a ground lease at one community. As of September 30, 2024
and December 31, 2023, the right-of-use assets and corresponding lease liabilities of $
| 12 |
Future minimum lease payments under these leases over the remaining lease terms are as follows (in thousands):
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total Lease Payments | $ |
The
weighted average remaining lease term for these leases is
Restricted Cash
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.
The following table presents beginning of period and end of period balances of cash, cash equivalents and restricted cash for the periods shown (in thousands):
| 9/30/24 | 12/31/23 | 9/30/23 | 12/31/22 | |||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted Cash | ||||||||||||||||
| Cash, Cash Equivalents And Restricted Cash | $ | $ | $ | $ | ||||||||||||
Revenue Recognition
We account for our Sales of Manufactured Homes in accordance with Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers (Topic 606)” (ASC 606). For transactions in the scope of ASC 606, 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.
Rental and related income is generated from lease agreements for our sites and homes. The lease component of these agreements is accounted for under ASC 842 “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 842.
| 13 |
Revenue from sales of manufactured homes is recognized in accordance with the core principle of ASC 606, at the time of closing when control of the home transfers to the customer. After closing of the sale transaction, we generally have no remaining performance obligation.
Interest income is primarily from notes receivables for the previous sales of manufactured homes. 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.
Dividend income and gain (loss) on sales of marketable securities are from our investments in marketable securities and are presented separately but are not in the scope of ASC 606.
Other income primarily consists of brokerage commissions for arranging for the sale of a home by a third party and other miscellaneous income. This income is recognized when the transactions are completed and our performance obligations have been fulfilled.
Notes Receivables
We
account for our receivables in accordance with 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 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. As of September 30, 2024 and December 31, 2023, the Company had notes receivable of $
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
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) less Income (Loss) Attributable to Non-Controlling Interest by the weighted average number of common shares outstanding, and when dilutive, the potential 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, 2024, common stock equivalents resulting from employee stock options to purchase million shares of common stock amounted to and shares, respectively, which were included in the computation of Diluted Net Income per Share. For the three and nine months ended September 30, 2023, common stock equivalents of shares and shares, respectively, were excluded from the computation of Diluted Net Loss per Share as their effect would be anti-dilutive.
| 14 |
NOTE 3 – MARKETABLE SECURITIES
The
Company’s marketable securities consist primarily of marketable common and preferred stock of other REITs with a fair value of
$
As
of September 30, 2024, the Company had total net unrealized losses of $
NOTE 4 – INVESTMENT IN JOINT VENTURE
In
December 2021, the Company and Nuveen Real Estate (“Nuveen” or “Nuveen Real Estate”), established a joint venture
for the purpose of acquiring manufactured housing and/or recreational vehicle communities that are under development and/or newly developed
and meet certain other investment guidelines. The terms of the initial joint venture entity were set forth in a Limited Liability Company
Agreement dated as of December 8, 2021 (the “LLC Agreement”) entered into between a wholly owned subsidiary of the Company
and an affiliate of Nuveen. The LLC Agreement provided for the parties to initially fund up to $
| 15 |
Under
the terms of the LLC Agreement, after December 8, 2024 or, if later, the second anniversary of the acquisition and placing in service
of a manufactured housing or recreational vehicle community, Nuveen will have a right to initiate the sale of one or more of the communities
owned by the joint venture entity. If Nuveen elects to initiate such a sale process, the Company may exercise a right of first refusal
to acquire Nuveen’s interest in the community or communities to be sold for a purchase price corresponding to the greater of the
appraised value of such communities or the amount required to provide a
The
LLC Agreement between the Company and Nuveen provided that until the capital contributions to the joint venture are fully funded or the
joint venture is terminated, the joint venture will be the exclusive vehicle for the Company to acquire any manufactured housing communities
and/or recreational vehicle communities that meet the joint venture’s investment guidelines. These guidelines called for the joint
venture to acquire manufactured housing and recreational vehicle communities that have been developed within the previous
The
LLC Agreement provides that Nuveen will have the right to remove and replace the Company as managing member of the joint venture and
manager of the joint venture’s properties if the Company breaches certain obligations or certain events occur. Upon such removal,
Nuveen may elect to buy out the Company’s interest in the joint venture at
The LLC Agreement requires the Company to offer Nuveen the opportunity to have the joint venture acquire a manufactured housing community or recreational vehicle community that meets the investment guidelines. If Nuveen decides not to acquire the community through the joint venture, however, the Company is free to purchase the community on its own outside of the joint venture.
| 16 |
In
December 2021, the joint venture entity closed on the acquisition of Sebring Square, a newly developed all-age, manufactured home community
located in Sebring, Florida, for a total purchase price of $
During
the time since the joint venture with Nuveen was first established in 2021, the Company and Nuveen have continued to seek opportunities
to acquire additional manufactured housing and/or recreational vehicle communities that are under development and/or newly developed
and meet certain other investment guidelines. During 2022, the Company and Nuveen informally agreed that any future acquisitions would
be made by one or more new joint venture entities to be formed for that purpose and that the original joint venture entity formed in
December 2021 will not consummate additional acquisitions but will maintain its existing property portfolio, consisting of the Sebring
Square and Rum Runner communities. The Company and Nuveen also informally agreed that, unless otherwise determined in connection with
any specific future investment, capital for any such new joint venture entity would continue to be funded
In
November 2023, the Company expanded its relationship with Nuveen Real Estate and formed a new joint venture entity with Nuveen. The new
joint venture entity was established to, directly or through one or more subsidiaries, identify, source, originate, acquire, hold, operate,
sell, lease, mortgage, maintain, own, manage, finance, refinance, reposition, improve, renovate, develop, redevelop, pledge, hedge, exchange,
and otherwise deal in and with the rental of manufactured housing and/or recreational vehicle communities that meet other investment
guidelines. The terms of the new joint venture entity are set forth in a Limited Liability Company Agreement dated as of November 29,
2023 (the “Second LLC Agreement”) entered into between a wholly owned subsidiary of the Company and an affiliate of Nuveen.
The Company serves as managing member of this new joint venture entity and is responsible for day-to-day operations of the joint venture
entity and management of its properties, subject to obtaining approval of Nuveen Real Estate for major decisions (including investments,
dispositions, financings, major capital expenditures and annual budgets). The Company receives property management oversite, development
and other fees from the joint venture entity. acres of land located in Honey Brook, Pennsylvania, previously owned by the Company,
with a carrying value cost basis of $
| 17 |
References in this report to the Company’s joint venture relationship with Nuveen are intended to refer to its ongoing relationship with Nuveen.
The Company accounts for its joint venture with Nuveen Real Estate under the equity method of accounting in accordance with ASC 323, “Investments – Equity Method and Joint Ventures”.
NOTE 5 – OPPORTUNITY ZONE FUND
In
July 2022, the Company invested $
| 18 |
NOTE 6 – LOANS AND MORTGAGES PAYABLE AND OTHER LONG-TERM INDEBTEDNESS
Loans Payable
The following is a summary of our loans payable as of September 30, 2024 and December 31, 2023 (in thousands):
| 9/30/2024 | 12/31/2023 | |||||||||||||||||
| Amount | Rate | Amount | Rate | |||||||||||||||
| Margin Loan | (1) | $ | N/A | $ | N/A | |||||||||||||
| Unsecured revolving credit facility | (2) | N/A | % | |||||||||||||||
| Floorplan inventory financing | (3) | % | N/A | |||||||||||||||
| FirstBank rental home loan | (4) | % | % | |||||||||||||||
| FirstBank rental home line of credit | (5) | N/A | N/A | |||||||||||||||
| Triad rental home loan | (6) | N/A | N/A | |||||||||||||||
| OceanFirst notes receivable financing | (7) | N/A | N/A | |||||||||||||||
| Total Loans Payable | % | % | ||||||||||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||||||||||||
| Loans Payable, net of unamortized | ||||||||||||||||||
| debt issuance costs | $ | % | $ | % | ||||||||||||||
| (1) | ||
| (2) | ||
| (3) | ||
| (4) | ||
| (5) | ||
| (6) | ||
| (7) |
On
April 2, 2024, the Company expanded the borrowing capacity on its unsecured revolving credit facility from $
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Series A Bonds
On
February 6, 2022, the Company issued $
Under the Deed of Trust, the Company has the right to redeem the 2027 Bonds, in whole or in part, at any time on or after 60 days from February 9, 2022, the date on which the 2027 Bonds were listed for trading on the Tel Aviv Stock Exchange (the “TASE”). Any such voluntary early redemption by the Company will require payment of the applicable early redemption amount calculated in accordance with the Deed of Trust. The Company does not intend to redeem the 2027 Bonds. Upon the occurrence of an event of default or certain other events, including a delisting of the 2027 Bonds by the TASE, the Company may be required to effect an early repayment or redemption of all or a portion of the 2027 Bonds at their par value plus accrued and unpaid interest. The Deed of Trust permits the Company, subject to certain conditions, to issue additional 2027 Bonds without obtaining approval of the holders of the 2027 Bonds.
The 2027 Bonds are general unsecured obligations of the Company and rank equal in right of payment with all of the Company’s existing and future unsecured indebtedness. The Deed of Trust includes certain customary covenants, including financial covenants requiring the Company to maintain certain ratios of debt to net operating income, to shareholders’ equity and to earnings, and customary events of default. The 2027 Bonds were offered solely to investors outside the United States and were not offered to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the Securities Act of 1933).
Mortgages Payable
The following is a summary of our mortgages payable as of September 30, 2024 and December 31, 2023 (in thousands):
| 9/30/2024 | 12/31/2023 | |||||||||||||||
| Amount | Rate | Amount | Rate | |||||||||||||
| Fixed rate mortgages | $ | % | $ | % | ||||||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||||||||||
| Mortgages Payable, net of unamortized debt issuance costs | $ | % | $ | % | ||||||||||||
As
of September 30, 2024 and December 31, 2023, the weighted average loan maturity of mortgages payable was
| 20 |
NOTE 7 – SHAREHOLDERS’ EQUITY
Common Stock
On
April 1, 2024, the Company announced a $ increase, representing a
On
September 16, 2024, the Company paid total cash dividends of $
During
the nine months ended September 30, 2024, the Company received, including dividends reinvested of $
On
January 10, 2024, the Board of Directors reaffirmed our Common Stock Repurchase Program (the “Repurchase Program”) that authorizes
us to repurchase up to $
Common Stock At-The-Market Sales Programs
On
April 4, 2023, the Company entered into an equity distribution agreement (“2023 Common ATM Program”) with BMO Capital Markets
Corp., J.P. Morgan Securities LLC, B. Riley Securities, Inc., Compass Point Research & Trading, LLC, and Janney Montgomery Scott
LLC, as distribution agents (the “Distribution Agents”) under which the Company was permitted to offer and sell shares of
the Company’s common stock, $ par value per share (the “Common Stock”), having an aggregate sales price of up to
$
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On
March 12, 2024, the Company terminated the use of the 2023 Common ATM Program and entered into a new equity distribution agreement (“2024
March Common ATM Program”) with BMO Capital Markets Corp., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, B. Riley Securities,
Inc., Compass Point Research & Trading, LLC, and Janney Montgomery Scott LLC, as Distribution Agents under which the Company was permitted to
offer and sell shares of the Company’s common stock, $ par value per share, having an aggregate sales price of up to $
On September 13, 2024, the Company filed with the State Department of Assessments and Taxation of the State of Maryland (the “Maryland SDAT”) an amendment (the “Articles of Amendment”) to the Company’s charter to increase the Company’s authorized shares of common stock, par value $ per share (“Common Stock”), by million shares. The Articles of Amendment became effective at 10:00 a.m., Eastern time, on September 16, 2024.
On
September 16, 2024, the Company terminated the use of the 2024 March Common ATM Program and entered into a new equity distribution
agreement (“2024 September Common ATM Program”) with BMO Capital Markets Corp., J.P. Morgan Securities LLC, Wells Fargo
Securities, LLC, B. Riley Securities, Inc., Compass Point Research & Trading, LLC, and Janney Montgomery Scott LLC, as
Distribution Agents under which the Company may offer and sell shares of the Company’s common stock, $
par value per share, having an aggregate sales price of up to $
| 22 |
Under
the 2023 Common ATM Program, the 2024 March Common ATM Program and the 2024 September Common ATM Program, during the nine months ended September
30, 2024, a total of million shares of Common Stock were issued and sold at a weighted average price of $per share, generating
gross proceeds of $
As
of September 30, 2024, $
6.375% Series D Cumulative Redeemable Preferred Stock
On
September 16, 2024, the Company paid $
On
October 1, 2024, the Company declared a dividend of $ per share for the period from September 1, 2024 through November 30, 2024
to be paid on
Preferred Stock At-The-Market Sales Program
On
January 10, 2023, the Company entered into an At Market Issuance Sales Agreement (“2023 Preferred ATM Program”) with B. Riley.
Under the 2023 Preferred ATM Program, the Company may offer and sell shares of the Company’s
| 23 |
As
of September 30, 2024, $
The Company accounts for awards of stock, 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 $ and $ million have been recognized for the three and nine months ended September 30, 2024, respectively. Compensation costs of $ and $ million have been recognized for the three and nine months ended September 30, 2023, respectively.
On
January 10, 2024, the Company awarded a total of shares of restricted stock to six employees under the Company’s 2023 Equity
Incentive Award Plan (the “2023 Plan”). The grant date fair value of these restricted stock grants was $
On January 10, 2024, the Company awarded a total of shares of common stock to nine members of our Board of Directors in payment of directors fees. The grant date fair value of these awards was $.
On
January 10, 2024, the Company granted options to purchase shares of common stock to nine members of our Board of Directors under
the 2023 Plan. The grant date fair value of these options amounted to approximately $
On March 26, 2024, the Company awarded a total of shares of common stock to nine members of our Board of Directors in payment of directors fees. The grant date fair value of these awards was $.
On March 26, 2024, the Company awarded a total of shares of common stock to four employees, pursuant to their employment agreements. The grant date fair value of these awards was $.
On
March 26, 2024, the Company awarded a total of shares of restricted stock to four employees, pursuant to their employment agreements.
These grants are subject to a combination of both performance-based and time-based metrics. The grant date fair value of these restricted
stock grants was $
| 24 |
On March 26, 2024, the Company granted options to purchase shares of common stock to sixty employees under the Company’s 2023 Plan. The grant date fair value of these options amounted to approximately $ million. These grants vest ratably over . Compensation costs for grants issued to a participant who is of retirement age are recognized at the time of the grant.
On June 20, 2024, the Company awarded a total of shares of common stock to nine members of our Board of Directors in payment of directors fees. The grant date fair value of these awards was $.
On September 25, 2024, the Company awarded a total of shares of common stock to nine members of our Board of Directors in payment of directors fees. The grant date fair value of these awards was $.
| 2024 | ||
| Dividend yield | ||
| Expected volatility | ||
| Risk-free interest rate | ||
| Expected lives | ||
| Estimated forfeitures |
During
the nine months ended September 30, 2024, twenty-four participants exercised options to purchase a total of shares of common
stock at a weighted-average exercise price of $ per share for total proceeds of $
As of September 30, 2024, there were options outstanding to purchase million shares, with an aggregate intrinsic value of $million. There were shares available for grant under the 2023 Plan.
| 25 |
NOTE 9 – 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, 2024 and December 31, 2023 (in thousands):
| 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, 2024: | ||||||||||||||||
| Marketable Securities - Preferred stock | $ | $ | $ | $ | ||||||||||||
| Marketable Securities - Common stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2023: | ||||||||||||||||
| Marketable Securities - Preferred stock | $ | $ | $ | $ | ||||||||||||
| Marketable Securities - Common stock | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
In addition to the Company’s investment in marketable securities at fair value, the Company is required to disclose certain information about 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. However, for a portion of the Company’s other financial instruments, no quoted market value exists. Therefore, estimates of fair value are necessarily based on a number of significant assumptions (many of which involve events outside the control of management). Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties, future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only and, therefore, cannot be compared to the historical accounting model. Use of different assumptions or methodologies is likely to result in significantly different fair value estimates.
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 loans payable approximate their current carrying amounts since such amounts
payable are approximately at a weighted-average current market rate of interest. As of September 30, 2024, the estimated fair value
of fixed rate mortgages payable amounted to $
NOTE 10 – CONTINGENCIES, COMMITMENTS AND OTHER MATTERS
The Company is subject to claims and litigation in the ordinary course of business. Management does not believe that any such claim or litigation will have a material adverse effect on the business, assets, or results of operations of the Company.
| 26 |
The
Company had an agreement with 21st Mortgage under which 21st Mortgage provided financing for home purchasers in the Company’s communities.
This program was terminated on June 22, 2023, however, the Company’s repurchase obligations for the outstanding loans that were
originated by 21st Mortgage remain in effect. The Company did not receive referral fees or other cash compensation under the agreement.
If 21st Mortgage made loans to purchasers and those purchasers defaulted on their loans and 21st Mortgage repossessed the homes securing
such loans, the Company agreed to purchase from 21st Mortgage each such repossessed home for a price equal to
The Company entered into a Manufactured Home Retailer Agreement (the “MHRA”) with 21st Mortgage on January 24, 2023, under which 21st Mortgage provides financing for home purchasers in the Company’s communities. 21st Mortgage has no recourse against the Company under the MHRA except in instances where the Customer defaults before two scheduled monthly payments are paid by the purchaser and the default is based on any dispute between S&F surrounding the terms or execution of the purchase and sale of the home. Upon such a default, S&F is to take assignment of the loan from 21st Mortgage for the unpaid principal balance plus accrued interest. As of September 30, 2024, no loans have been originated under the MHRA.
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 $
The
Company and one of its subsidiaries are parties to a Limited Liability Company Agreement dated as of December 8, 2021 with an affiliate
of Nuveen, which governs the initial joint venture entity between the Company and Nuveen. The LLC Agreement provided for the parties
to initially fund up to $
| 27 |
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION
Cash
paid for interest during the nine months ended September 30, 2024 and 2023 was $
During
the nine months ended September 30, 2024 and 2023, the Company had Dividend Reinvestments of $
NOTE 12 – SUBSEQUENT EVENTS
Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were issued.
Since
October 1, 2024, the Company issued and sold an additional shares of its Common Stock under the 2024 September Common ATM Program
at a weighted average price of $per share, generating net proceeds of $
Since
October 1, 2024, the Company issued and sold an additional
shares of its Series D Preferred Stock under the 2023 Preferred ATM Program at a weighted average price of $
per share, generating net proceeds of $
| 28 |
NOTE 13 – PROFORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma condensed financial information reflects the acquisitions during 2023 and 2024. 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 (in thousands).
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 9/30/24 | 9/30/23 | 9/30/24 | 9/30/23 | |||||||||||||
| Rental and Related Income | $ | $ | $ | $ | ||||||||||||
| Community Operating Expenses | ||||||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) Attributable to Common Shareholders
Per Share – Basic and Diluted | $ | $ | ) | $ | $ | ) | ||||||||||
| 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, 2023.
The Company is a Maryland corporation that operates as a self-administered, self-managed 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 residents. The Company also leases manufactured homes to residents and, through its wholly-owned taxable REIT subsidiary, S&F, sells and finances the sale of manufactured homes to residents and prospective residents of our communities and for placement on customers’ privately-owned land. During 2022, the Company also formed a qualified opportunity zone fund to acquire, develop and redevelop manufactured housing communities requiring substantial capital investment and located in areas designated as qualified opportunity zones by the Treasury Department pursuant to a program authorized under the 2017 Tax Cuts and Jobs Act to encourage long-term investment in economically distressed areas. The Company currently holds a 77% interest in the qualified opportunity zone fund. The Company also has an ownership interest in and operates two communities in Florida through its joint venture relationship with Nuveen Real Estate. In November 2023, the Company expanded its joint venture relationship with Nuveen Real Estate and formed a new joint venture entity for the development of a new manufactured housing community located in Honey Brook, Pennsylvania. The community, once complete, will contain 113 manufactured home sites situated on approximately 61 acres.
| 29 |
As of September 30, 2024, the Company owns and operates 139 manufactured home communities containing approximately 26,200 developed homesites, of which approximately 10,300 are rental homes that we own. The 139 communities include two communities in central Florida owned through a joint venture with Nuveen Real Estate in which the Company has a 40% interest (Sebring Square and Rum Runner), the Countryside Village expansion (Duck River Estates) and the Allentown expansion (River Bluff Estates) in Tennessee, which are now considered separate communities, and also include two communities acquired through the Company’s qualified opportunity zone fund (See Note 5). These 139 communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Maryland, Michigan, Alabama, South Carolina, Florida and Georgia.
The Company is in preliminary discussions with a leading national homebuilder regarding the potential formation of a joint venture to develop approximately 131 acres of undeveloped land adjacent to one of the Company’s existing manufactured home communities in southern New Jersey. If necessary governmental approvals can be obtained, the purpose of the joint venture would be to construct roads, infrastructure and other site improvements on the property and then sell the improved lots to an affiliate of the Company’s joint venture partner, which would construct luxury single family residential homes to sell to purchasers. It is envisioned that the joint venture partner would fully fund the costs of required site improvements and obtain all approvals. The Company would contribute the real property to the joint venture and receive a percentage of the sale price of each home. If the parties elect to proceed, it is anticipated that the joint venture partner would seek preliminary subdivision and site plan approvals over the next two years and, if these approvals are obtained, the joint venture would then be formally established. Pursuit of this project would be contingent upon execution of definitive documentation setting forth the terms of an agreement between the parties and a 90-day due diligence review period for the benefit of the joint venture partner. There can be no assurance that the Company and its potential joint venture partner will reach agreement or proceed with this arrangement or that required governmental approvals can be obtained.
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 and the brokering of home sales, self-storage leases, oil and gas leases, cable service agreements and from appreciation in the values of the manufactured home communities and vacant land owned by the Company. In addition, the Company receives property management and other fees from its joint venture arrangements with Nuveen and from its opportunity zone fund. Management views the Company as a single segment based on its method of internal reporting in addition to its allocation of capital and resources.
| 30 |
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 over time are expected to 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 three and nine months ended September 30, 2024, rental and related income increased 8% and 9%, respectively, from the prior year periods and Community Net Operating Income (“NOI”), as defined below, increased 7% and 11%, respectively. Same property NOI, which includes communities owned and operated as of January 1, 2023 (excluding Memphis Blues, Duck River Estates and River Bluff Estates), increased 7% and 11% for the three and nine months ended September 30, 2024, respectively, over the prior year period driven by a 70 basis point increase in occupancy, to 87.7%, and a rental rate increase of 4.5%. We have been positioning ourselves for future growth and will continue to seek opportunistic investments. In addition, on behalf of our joint venture arrangement with Nuveen Real Estate, we will seek opportunities to acquire manufactured home communities that are under development and/or newly developed and meet certain other investment guidelines. We will also seek additional opportunities, through our opportunity zone fund, to acquire communities that require substantial capital investment and are located in qualified opportunity zones.
For the three and nine months ended September 30, 2024, sales of manufactured homes increased 10% and 6%, respectively from the prior year periods. Demand for quality affordable housing remains healthy while inventory is scarce. 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. Due to high mortgage rates and lack of inventory, the higher cost of buying a home versus renting one is at its most extreme since 1996. Despite mortgage rates hitting a two-year low this past September as they moved toward 6%, rates are still too high for many buyers and according to the National Association of Realtors, sales of existing homes are on track for their worst year since 1995 for the second year in a row. Even if this year’s sales slightly exceed last year’s level, sales are still on track for the worst two-year period since the mid-1990s, when the country’s population was considerably smaller. 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 284 rental homes during the first nine months of 2024, net of home sales. This brought the total number of rental homes to approximately 10,300 rental homes, or 39.7% of total sites. Occupied rental homes represented approximately 42.9% of total occupied sites at quarter end. Occupancy in rental homes continues to be strong and was at 94.4% as of September 30, 2024. Our manufactured home communities compare favorably with other types of rental housing, including apartments, and we will continue to allocate capital to rental home purchases, as demand dictates.
See PART I, Item 1 – Business in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 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.
| 31 |
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, 2023.
Supplemental Measures
In addition to the results reported in accordance with U.S. GAAP, management’s discussion and analysis of financial condition and results of operations include certain non-U.S. 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-U.S. 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 Net Operating Income (“Community NOI”), Funds from Operations Attributable to Common Shareholders (“FFO”) and Normalized Funds from Operations Attributable to Common Shareholders (“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 U.S. 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.
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The Company’s Community NOI for the three and nine months ended September 30, 2024 and 2023 is calculated as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 9/30/24 | 9/30/23 | 9/30/24 | 9/30/23 | |||||||||||||
| Rental and Related Income | $ | 51,937 | $ | 48,135 | $ | 153,760 | $ | 140,503 | ||||||||
| Less: Community Operating Expenses | 22,511 | 20,673 | 65,203 | 60,795 | ||||||||||||
| Community NOI | $ | 29,426 | $ | 27,462 | $ | 88,557 | $ | 79,708 | ||||||||
We assess and measure our overall operating results based upon FFO, an industry performance measure 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 Nareit, represents net income (loss) attributable to common shareholders, as defined by accounting principles generally accepted in the U.S. (“U.S. GAAP”), excluding gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, the change in the fair value of marketable securities, and the gain or loss on the sale of marketable securities plus certain non-cash items such as real estate asset depreciation and amortization. Included in the Nareit FFO White Paper - 2018 Restatement, is an option pertaining to assets incidental to our main business in the calculation of Nareit FFO to make an election to include or exclude gains and losses on the sale of these assets, such as marketable equity securities, and include or exclude mark-to-market changes in the value recognized on these marketable equity securities. In conjunction with the adoption of the FFO White Paper - 2018 Restatement, for all periods presented, we have elected to exclude the change in the fair value of marketable securities from our FFO calculation. Nareit created FFO as a non-U.S. GAAP supplemental measure of REIT operating performance. We define Normalized Funds from Operations Attributable to Common Shareholders (“Normalized FFO”), as FFO, excluding certain one-time charges. FFO and Normalized FFO should be considered as supplemental measures of operating performance used by REITs. 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 and Normalized FFO and, accordingly, our FFO and Normalized FFO may not be comparable to all other REITs. The items excluded from FFO and Normalized FFO are significant components in understanding the Company’s financial performance.
FFO and Normalized FFO (i) do not represent cash flow from operations as defined by U.S. GAAP; (ii) should not be considered as an alternative 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.
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The Company’s FFO and Normalized FFO attributable to common shareholders for the three and nine months ended September 30, 2024 and 2023 are calculated as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 9/30/24 | 9/30/23 | 9/30/24 | 9/30/23 | |||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | $ | 8,181 | $ | (5,831 | ) | $ | 2,444 | $ | (15,546 | ) | ||||||
| Depreciation Expense | 14,693 | 14,147 | 44,435 | 41,271 | ||||||||||||
| Depreciation Expense from Unconsolidated Joint Venture | 209 | 179 | 610 | |||||||||||||