Impact of COVID-19
The following discussion is intended to provide certain information regarding the impacts of the COVID-19 pandemic on our business and management's efforts to respond to those impacts.
We continue to monitor our operations and government recommendations and have taken steps to make the safety, security and welfare of our employees, their families and our residents a top priority.
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We have complied with government "stay-at-home" orders and "social distancing"
practices. We have implemented remote working arrangements for our non-essential
employees. Our IT system and website allow for virtual tours of our homes for
sale or rent, online execution of applications and lease agreements, online
payment of rent, and other enhancements. We continue to maintain our communities
and deliver essential services to our residents while following social
distancing protocols. We have suspended the mailing of rent increase
notifications in March and April which will delay these increases. These
increases would have been effective
The significance, extent and duration of the impact of COVID-19 remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time. We will continue to monitor these rapidly evolving developments and respond in the best interests of our employees, residents and shareholders. At this time, we believe that the fallout from COVID-19 will not have a material adverse effect on our financial condition.
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
The Company is a self-administered, self-managed Real Estate Investment Trust
("REIT") with headquarters in
As of
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 15% of its undepreciated assets. As of
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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 three months ended
Sales of manufactured homes decreased 12% during the three months ended
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
149 rental homes during the first three months of 2020. This brings the total
number of rental homes to approximately 7,500 rental homes, or 32.7% of total
sites. Occupied rental homes represent approximately 37.0% of total occupied
sites at quarter end. Occupancy in rental homes continues to be strong and is at
94.0% as of
See PART I, Item 1 - Business in the Company's Annual Report on Form 10-K for
the year ended
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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
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
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 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 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 months ended
Three Months Ended 3/31/20 3/31/19 Rental and Related Income$ 34,358 $ 30,644 Less: Community Operating Expenses (15,508 ) (15,144 ) Community NOI$ 18,850 $ 15,500 24
We 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
FFO and Normalized FFO (i) do not represent Cash Flow from Operations as defined
by
The reconciliation of the Company's
Three Months Ended 3/31/20 3/31/19 Net Income (Loss) Attributable to Common Shareholders$ (42,838 ) $ 5,914 Depreciation Expense 10,227 8,751 Loss on Sales of Depreciable Assets 107 21 (Increase) Decrease in Fair Value of Marketable Securities 38,593 (8,596 ) FFO Attributable to Common Shareholders 6,089 6,090
Adjustments:
Settlement of utility billing dispute over a prior 10-year period -0- 375 Normalized FFO Attributable to Common Shareholders $ 6,089$ 6,465 25 The following are the cash flows provided (used) by operating, investing and financing activities for the three months endedMarch 31, 2020 and 2019 (in thousands): Three Months Ended 3/31/20 3/31/19 Operating Activities$ 17,295 $ 12,175 Investing Activities (20,477 ) (14,737 ) Financing Activities 6,387 3,682
Changes In Results Of Operations
Rental and Related Income increased 12% from
Community Operating Expenses remained relatively stable increasing 2% from
Community NOI increased 22% from
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Sales of manufactured homes decreased 12% from
The impact of COVID-19 has also taken its toll on the conventional housing
market. The
General and Administrative Expenses increased 19% from
Depreciation Expense increased 17% from
Interest Income increased 39% from
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Dividend income decreased 10% from
Increase (Decrease) in Fair Value of
Interest Expense, including Amortization of Financing Costs, decreased 5% from
Changes in Financial Condition
Total Investment Property and Equipment increased 2% or
Mortgages Payable, net of unamortized debt issuance costs, decreased 1% or
Loans Payable, net of unamortized debt issuance costs, decreased 47% or
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 15% of its undepreciated assets.
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The Company's principal liquidity demands have historically been, and are expected to continue to be, distributions to the Company's shareholders, acquisitions, capital improvements, development and expansions of properties, debt service, purchases of manufactured home inventory and rental homes, 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, including through the Company's ATM Program. 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. During
the three months ended
The Company also raised
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The extent to which COVID-19 and related actions impact our operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with any degree of confidence, including the scope, severity, duration and geographies of the outbreak, the actions taken to contain the COVID-19 pandemic or mitigate its impact requested or mandated by governmental authorities or otherwise voluntarily taken by individuals or businesses, the success of governmental actions undertaken to support the economy during the pandemic and the duration and severity of direct and indirect economic effects of the illness and containment measures, among others. As previously discussed, at this time, we believe that the fallout from COVID-19 will not have a material adverse effect on our financial condition.
The Company owns 122 communities, of which 47 are unencumbered. Except 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, unencumbered properties, and lines of credit provide the Company with additional liquidity.
As of
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; 30 ? 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; ? the effect of COVID-19 on our business and general economic conditions; ? 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 made in a timely manner 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 theSecurities and Exchange Commission , including its Annual Report on Form 10-K for the year endedDecember 31, 2019 .
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.
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