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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period _______________ to ______________
Commission File Number 0-13130
United Mobile Homes, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1890929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
125 Wyckoff Road, Eatontown, New Jersey 07724
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (732) 389-3890
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
$.10 par value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K X .
Based upon the assumption that directors and executive officers of the
registrant are not affiliates of the registrant, the aggregate market value
of the voting stock of the registrant held by nonaffiliates of the
registrant at March 14, 2000 was $58,461,568. Presuming that such
directors and executive officers are affiliates of the registrant, the
aggregate market value of the voting stock of the registrant held by
nonaffiliates of the registrant at March 14, 2000 was $43,086,248.
The number of shares outstanding of issuer's common stock as of March 14,
2000 was 7,307,696 shares.
Documents Incorporated by Reference:
- - Exhibits incorporated by reference are listed in Part IV, Item (a)(3).
PART I
ITEM I - BUSINESS
General Development of Business
United Mobile Homes, Inc. (the Company) owns and operates twenty-four
manufactured home communities containing 5,759 sites. The communities are
located in New Jersey, New York, Ohio, Pennsylvania and Tennessee.
The Company was incorporated in the State of New Jersey in 1968. Its
executive offices are located at 125 Wyckoff Road, Eatontown, New Jersey
07724. Its telephone number is (732) 389-3890.
Effective January 1, 1992, the Company elected to be taxed as a real
estate investment trust (REIT) under Sections 856-858 of the Internal
Revenue Code. The company received from the Internal Revenue Service a
favorable revenue ruling that it qualified as a REIT. The Company will not
be taxed on the portion of its income which is distributed to shareholders,
provided it distributes at least 95% of its taxable income, has at least
75% of its assets in real estate investments and meets certain other
requirements for qualification as a REIT.
Background
Monmouth Capital Corporation, a publicly-owned Small Business
Investment Corporation, that had owned approximately 66% of the Company's
stock, spun off to its shareholders in a registered distribution three
shares of United Mobile Homes, Inc. for each share of Monmouth Capital
Corporation. The Company in 1984 and 1985 issued additional shares through
rights offerings. The Company has been in operation for thirty years, the
last fourteen of which have been as a publicly-owned corporation.
Narrative Description of Business
The Company's primary business is the ownership and operation of
manufactured home communities - leasing manufactured home spaces on a month-
to-month basis to private manufactured home owners. The Company also
leases homes to residents.
A manufactured home community is designed to accommodate detached,
single family manufactured housing units, which are produced off-site by
manufacturers and delivered by truck to the site. Such dwellings, referred
to as manufactured homes (which should be distinguished from travel
trailers), are manufactured in a variety of styles and sizes. Manufactured
homes, once located, are rarely transported to another site; typically, a
manufactured home remains on site and is sold by its owner to a subsequent
occupant. This transaction is commonly handled through a broker in the
same manner that the more traditional single-family residence is sold.
Each owner of a manufactured home leases the site on which the home is
located from the Company.
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Manufactured homes are being accepted by the public as a viable and
economically attractive alternative to common stick-built single-family
housing. During the past five years, approximately one-fifth of all single-
family homes built and sold in the nation have been manufactured homes.
The size of a modern manufactured home community is limited, as are
other residential communities, by factors such as geography, topography,
and funds available for development. Generally, modern manufactured home
communities contain buildings for recreation, green areas, and other common
area facilities, which, as distinguished from resident owned manufactured
homes, are the property of the community owner. In addition to such
general improvements, certain manufactured home communities include
recreational improvements such as swimming pools, tennis courts and
playgrounds. Municipal water and sewer services are available to some
manufactured home communities, while other communities supply these
facilities on site. The housing provided by the manufactured home
community, therefore, includes not only the manufactured dwelling unit
(owned by the resident), but also the physical community framework and
services provided by the manufactured home community.
The community manager interviews prospective residents, ensures
compliance with community regulations, maintains public areas and community
facilities and is responsible for the overall appearance of the community.
The manufactured home community, once fully occupied, tends to achieve a
stable rate of occupancy. The cost and effort in moving a home once it is
located in a community encourages the owner of the manufactured home to
resell the manufactured home rather than to remove it from the community.
This ability to produce relatively predictable income, together with the
location of the community, its condition and its appearance, are factors in
the long-term appreciation of the community.
The long-term industry trend may be toward condominium conversions. A
change from investor community ownership to resident ownership would
enhance the value of existing manufactured home communities. All of the
Company's communities are located in areas of the country that have not yet
accepted this concept. Condominium conversion is a long-term possibility
and has no impact on the Company's current operations.
Due to recent REIT legislation, the Company expects to sell
manufactured homes into its communities effective January 2001. This sales
operation was previously performed by Monmouth Capital Corporation, an
affiliated entity.
Investment and Other Policies of the Company
The Company may invest in improved and unimproved real property and
may develop unimproved real property. Such properties may be located
throughout the United States. In the past, it has concentrated on the
northeast.
The Company has no restrictions on how it finances new manufactured
home communities. It may finance communities by purchase money mortgages
or other financing, including first liens, wraparound mortgages or
subordinated indebtedness. In connection with its ongoing activities, the
Company may issue notes, mortgages or other senior securities. The Company
intends to use both secured and unsecured lines of credit. The Company is
exposed to interest rate changes primarily as a result of its line of
credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment
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portfolio and operations. The Company's interest rate risk management
objectives are to limit the impact of interest rate changes on earnings and
cash flows and to lower its overall borrowing costs. To achieve its
objectives, the Company borrows primarily at fixed rates. At December 31, 1999,
the Company had $30,419,153 of fixed rate debt, of which $13,560,951,
with an interest rate of 7.5% matures in 2000, $6,482,090 with an average
interest rate of 7.55% matures in 2003 and $10,376,112 with an average
interest rate of 7.54% matures in 2004. The $13,560,951 may be extended
by the Company for an additional five years at current interest rates.
In addition, the Company has approximately $4.7 million in variable rate
debt due on demand. This debt is primarily a margin loan secured by
marketable securities.
The Company may issue securities for property, however, this has not
occurred to date, and it may repurchase or reacquire its shares from time
to time if in the opinion of the Board of Directors such acquisition is
advantageous to the Company. During 1999, the Company purchased 170,500
shares of its own stock at a total cost of $1,576,309.
The Company also invests in both debt and equity securities of other
REITs. Based on current market conditions, management believes that the
price of those REIT shares are at a discount from the value of the
underlying properties. The Company from time to time may purchase these
securities on margin when the interest and dividend yields exceed the cost
of funds. Such securities are subject to risk arising from adverse changes
in market rates and prices, primarily interest rate risk relating to debt
securities and equity price risk relating to equity securities.
Property Maintenance and Improvement Policies
It is the policy of the Company to properly maintain, modernize,
expand and make improvements to its properties when required. The Company
anticipates that renovation expenditures with respect to its present
properties during 2000 will be consistent with 1999 expenditures. It is
the policy of the Company to maintain adequate insurance coverage on all of
its properties; and, in the opinion of the Company, all of its properties
are adequately insured.
General Risks of Real Estate Ownership
The Company's investments will be subject to the risks generally
associated with the ownership of real property, including the uncertainty
of cash flow to meet fixed obligations, adverse changes in national
economic conditions, changes in the relative popularity (and thus the
relative price) of the Company's real estate investments when compared to
other investments, adverse local market conditions due to changes in
general or local economic conditions or neighborhood values, changes in
interest rates and in the availability of mortgage funds, costs and terms
of mortgage funds, the financial conditions of residents and sellers of
properties, changes in real estate tax rates and other operating expenses
(including corrections of potential environmental issues as well as more
stringent governmental regulations regarding the environment), governmental
rules and fiscal policies including possible proposals for rent controls,
as well as expenses resulting from acts of God, uninsured losses and other
factors which are beyond the control of the Company. The Company's
investments are primarily in rental properties and are subject to the risk
or inability to attract or retain residents with a consequent decline in
rental income as a result of adverse changes in local real estate markets
or other factors.
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Competition for Manufactured Home Community Investments
The Company will be competing for manufactured home community
investments with numerous other real estate entities, such as individuals,
corporations, REITs and other enterprises engaged in real estate
activities, possibly including certain affiliates of the Company. In many
cases, the competing concerns may be larger and better financed than the
Company, making it difficult for the Company to secure new manufactured
home community investments. Competition among private and institutional
purchasers of manufactured home community investments has increased
substantially in recent years, with resulting increases in the purchase
price paid for manufactured home communities and consequent higher fixed
costs.
Environmental, Regulatory and Energy Considerations
The availability of suitable investments and the cost of construction
and operation of manufactured home communities in which the Company may
invest may be adversely affected by legislative, regulatory, administrative
and enforcement action at the local, state and national levels in the
areas, among others, of housing and environmental controls. In addition to
possible increasingly restrictive zoning regulations and related land use
controls, such restrictions may relate to air, ground and water quality
standards, wetlands regulations, noise pollution and indirect environmental
impacts such as increased motor vehicle activity.
The Company owns and operates 11 manufactured home communities which
either have their own wastewater treatment facility, water distribution
system, or both. At these locations, the Company is subject to compliance
of monthly, quarterly and yearly testing for contaminants as outlined by
the individual state's Department of Environmental Protection Agencies.
The Company must also comply with certain Federal Environmental
Protection Agency Regulations which may be more stringent than the state
and local governmental regulations. The costs of such testing are included
in the Company's operating expenses. As of the date of this report, there
are no enforcement actions pending by any federal, state or local
environmental agencies and management believes that the Company is in
compliance with all such regulations.
Currently, the Company is not subject to radon or asbestos monitoring
requirements.
In its normal course of business, the Company does not incur costs
related to local or state zoning issues. However, zoning regulations often
restrict expansion of the Company's communities, but allow continuing
operation of existing communities.
Rent control affects only two of the Company's manufactured home
communities which are in New Jersey and has resulted in a slower growth of
earnings from these properties.
Number of Employees
On March 14, 2000, the Company had approximately 100 employees,
including Officers. During the year, the Company hires approximately 20
part-time and full-time temporary employees as lifeguards, grounds keepers
and for emergency repairs.
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ITEM 2 - PROPERTIES
United Mobile Homes, Inc. is engaged in the ownership and operation of
manufactured home communities located in New Jersey, New York, Ohio,
Pennsylvania and Tennessee. The Company owns twenty-four manufactured home
communities containing 5,759 sites. The following is a brief description
of the properties owned by the Company:
Number of 1999 Average Current Rent Per
Name of Community Sites Occupancy Month Per Site
Allentown 414 89% $235
4912 Raleigh-Millington Road
Memphis, TN 38128
Brookview Village 133 85% $300
Route 9N
Greenfield Center, NY 12833
Cedarcrest 283 98% $349
1976 North East Avenue
Vineland, NJ 08360
Cranberry Village 201 95% $315
201 North Court
Cranberry Township, PA 16066
Cross Keys Village 133 95% $272
Old Sixth Avenue Road, RD #1
Duncansville, PA 16635
D & R Village 244 93% $337
Route 146, RD 13
Clifton Park, NY 12065
Edgewood Estates 218 85% $210
700 Edgewood Estates
Apollo, PA 15613
Fairview Manor 276 77% $339
2110 Mays Landing Road
Millville, NJ 08332
Forest Park Village 252 93% $273
724 Slate Avenue
Cranberry Township, PA 16066
Heather Highlands 457 69% $206
109 S. Main Street
Pittston, PA 18640
Highland Estates 269 84% $323
60 Old Route 22
Kutztown, PA 19530
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Number of 1999 Average Current Rent Per
Name of Community Sites Occupancy Month Per Site
Kinnebrook 212 89% $334
201 Route 17B
Monticello, NY 12701
Lake Sherman Village 210 96% $256
7227 Beth Avenue, SW
Navarre, OH 44662
Memphis Mobile City 168 88% $218
3894 N. Thomas Street
Memphis, TN 38127
Oxford Village 224 100% $369
2 Dolinger Drive
West Grove, PA 19390
Pine Ridge Village 137 95% $308
147 Amy Drive
Carlisle, PA 17013
Port Royal Village 427 87% $232
400 Patterson Lane
Belle Vernon, PA 15012
River Valley Estates 214 87% $187
2066 Victory Road
Marion, OH 43302
Sandy Valley Estates 364 93% $231
801 First, Route #2
Magnolia, OH 44643
Southwind Village 250 97% $256
435 E. Veterans Highway
Jackson, NJ 08527
Spreading Oaks Village 153 88% $165
7140-29 Selby Road
Athens, OH 45701
Waterfalls Village 202 98% $329
3450 Howard Road
Hamburg, NY 14075
Woodlawn Village 157 96% $442
Route 35
Eatontown, NJ 07724
Wood Valley 161 94% $191
1493 N. Whetstone River Road
Caledonia, OH 43314
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Occupancy rates are very stable with little year-to-year changes once
the community is filled (generally 90% or greater occupancy). It is the
Company's experience that, once a home is set up in the community, it is
seldom moved. The home if sold, is sold on-site to a new owner.
Residents generally rent on a month-to-month basis. Some residents
have one-year leases. Southwind Village and Woodlawn Village (both in New
Jersey) are the only communities subject to local rent control laws.
There are 14 sites at Sandy Valley which are under a consent order
with the Federal Government. This order provides that, as these sites
become vacant, they cannot be reused. The restrictions on use were known
at the time of purchase, and the item is not material to the operation of
Sandy Valley Estates.
In connection with the operation of its 5,759 sites, the Company
operates approximately 450 rental units. These are homes owned by the
Company and rented to residents. The Company engages in the rental of
manufactured homes primarily in areas where the communities have existing
vacancies. The rental homes produce income on both the home and for the
site which might otherwise be non-income producing. The Company sells the
older rental homes when the opportunity arises.
The Company has approximately 700 sites in various stages of
engineering/construction. Due to the difficulties involved in the approval
and construction process, it is difficult to predict the number of sites
which will be completed in a given year.
Significant Properties
The Company operates approximately $67,000,000 (at original cost) in
manufactured home properties. These consist of 24 separate manufactured
home communities and related equipment and improvements. There are 5,759
sites in the 24 communities. No one community constitutes more than 10% of
the total assets of the Company. Port Royal Village with 427 sites, Sandy
Valley Estates with 364 sites, Cedarcrest with 283 sites, Allentown with
414 sites and Heather Highlands with 457 sites are the larger properties.
The following is a description of these properties:
PORT ROYAL VILLAGE
The Company acquired Port Royal Village in 1984. This is a 427-space
manufactured home community located in Belle Vernon, Pennsylvania. The
Company has recently completed a 25 site expansion at this community. The
Company believes this to be a sound acquisition for the following reasons:
(a) the community is well-maintained with city water and its own sewer
plant, as well as a swimming pool and community building; (b) the community
has approximately 87% occupancy; and (c) the community generates
substantial revenues and net operating income with an average monthly gross
rent of $232 per site. Management believes that this community is a
successful and valuable manufactured home community.
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SANDY VALLEY ESTATES
The Company acquired Sandy Valley Estates in 1985. This is a 364-
space manufactured home community located in Magnolia, Ohio. The Company
believes this to be an excellent community because (a) the community is
well-maintained with municipal sewer; (b) the community has its own well
system; (c) the community has approximately 93% occupancy; and (d) the
community generates revenues with an average monthly rental of $231 per
site, which rents are competitive with the other manufactured home
communities in the area. The Company believes that it is an excellent
investment.
CEDARCREST
On July 15, 1986, the Company paid $760,000 to acquire 94.05% of the
partnership interest in a limited partnership that owned a 283-space
manufactured home community located in Vineland, New Jersey. On June 30,
1988 the Company paid $40,000 to acquire an additional 4.95% of the
partnership interest, brining the Company's total ownership to 99%. During
1989 the Company acquired the remaining 1% interest.
The Company believes this to be an excellent community for the
following reasons: (a) the community is well maintained; (b) the community
has municipal sewer and water service; and (c) the community is 98%
occupied. Rents average $349 per month per site and they are competitive
with other communities in the area.
ALLENTOWN
On September 15, 1986 the Company paid $850,000 to all of the limited
partners to acquire 97% of the partnership interests in a limited
partnership that owned a 414-space manufactured home community located in
Memphis, Tennessee.
Royal Green, Inc., the General Partner of this partnership, retained
its 3% interest in the partnership until January 1990 at which time the
Company purchased the 3% interest for $25,500.
The Company believes this to be a sound investment for the following
reasons: (a) the property is well-maintained; (b) the community has
municipal sewer and water service; and (c) rents are $235 per month per
site and are competitive with other manufactured home communities in the
area. Current occupancy is approximately 89%. This is an increase from
the prior year occupancy of 88%. The Company is continuing its effort to
bring occupancy to 90% or higher. In the future, the Company anticipates
that it will be able to increase occupancy.
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HEATHER HIGHLANDS
On January 30, 1992, the Company acquired an 88.36% interested in a
limited partnership operating a 457-space manufactured home community
located in Pittston, Pennsylvania. This partnership has partners who are
also officers, directors and/or shareholders of the Company. Mr. Eugene
Landy, Chairman of the Board, retained the remaining 11.64% limited
partnership interest. The purchase price was approximately $2,500,000.
This purchase was based on an independent appraisal of fair market value.
In January 1995, the Company purchased the remaining 11.64% partnership
interest for $132,600. This price per unit was the same price previously
paid to non-affiliated sellers.
The Company anticipates that the community will ultimately have 415
sites since the use of double-wide units reduces the total number of
available sites.
The Company believes this to be a sound investment for the following
reasons: (a) the property is well-maintained; (b) the community has
municipal sewer and water service; and (c) rents are $206 per month per
site and are competitive with other manufactured home communities in the
area. Current occupancy is approximately 69%. The Company is continuing
its efforts to bring occupancy to 90% or higher.
Mortgages on Properties
The Company has mortgages on various properties. The maturity dates
of these mortgages range from the year 2000 to 2004. Interest varies from
fixed rates of 7% to 7.86%. The aggregate balances of these mortgages
total $30,419,153 at December 31, 1999. (For additional information, see
Part IV, Item 14(a)(1)(vi), Note 5 of the Notes to Consolidated Financial
Statements - Notes and Mortgages Payable).
ITEM 3 - LEGAL PROCEEDINGS
Legal proceedings are incorporated herein by reference and filed as
Part IV, Item 14(a)(1)(vi), Note 13 of the Notes to Consolidated Financial
Statements - Legal Matters.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1999 to a vote
of security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company became publicly owned on January 3, 1985. As of January
5, 1994, shares of the Company were traded on the American Stock Exchange
(symbol UMH). The per share range of high and low quotes for the Company's
stock for each quarterly period is as follows:
1999 1998 1997
HIGH LOW HIGH LOW HIGH LOW
First Quarter 10-15/16 9-3/16 12-1/2 11-1/4 13-5/8 11-1/4
Second Quarter 10 8-1/4 11-13/16 10-1/2 12-1/4 10-7/8
Third Quarter 9-1/2 8-5/8 11 9-7/8 12-3/8 11-1/4
Fourth Quarter 9 8 10-7/8 9-3/8 12-3/16 11-1/4
On March 14, 2000, the closing price of the Company's stock was $8.
As of December 31, 1999, there were approximately 1,100 shareholders
of the Company's common stock based on the number of record owners.
For the years ended December 31, 1999, 1998 and 1997, total dividends
paid by the Company amounted to $5,441,904 or $.75 per share, $5,204,623 or
$.7375 per share and $4,620,296 or $.70 per share, respectively.
On January 20, 2000, the Company declared a dividend of $.1875 per
share to be paid on March 15, 2000 to shareholders of record February 15,
2000.
Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition, availability and cost of bank financing
and other factors considered relevant by the Board of Directors. The
Company elected REIT status beginning in 1992. As a REIT, the Company must
pay out at least 95% of its taxable income in the form of a cash
distribution to shareholders.
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ITEM 6 - SELECTED FINANCIAL DATA
December 31,
1999 1998 1997 1996 1995
Income Statement Data:
Rental and Related
Income $17,752,823 $16,783,821 $15,330,300 $14,533,218 $13,332,961
Income from Community
Operations 9,760,550 9,180,332 8,513,206 8,311,469 7,449,168
(Loss) Gain on Sales
Of Investment
Property and
Equipment (1,964) 13,095 (10,546) 333,647 5,758
Net Income 4,556,136 4,201,691 4,197,258 3,729,526 2,491,581
Net Income Per Share -
Basic and Diluted .63 .60 .63 .61 .44
..............................................................................
Balance Sheet Data:
Total Assets $58,575,312 $50,046,649 $43,599,259 $35,875,206 $29,758,397
Mortgages
Payable 30,419,153 21,411,576 20,111,023 17,351,030 17,707,635
Shareholders'
Equity 21,391,307 23,212,813 20,830,541 16,426,145 10,290,487
..............................................................................
Average Number of
Shares
Outstanding 7,252,774 7,042,701 6,617,479 6,072,637 5,639,455
Funds from
Operations * $7,010,633 $6,591,995 $6,324,536 $5,693,631 $4,358,765
Cash Dividends
Per Share .75 .7375 .70 .60 .525
* Defined as net income, excluding gains (or losses) from sales of
depreciable assets, plus depreciation. Includes gain on sale of land of
$290,303 in 1996. Funds from Operations do not replace net income
determined in accordance with generally accepted accounting principles
(GAAP) as a measure of performance or net cash flows as a measure of
liquidity. Funds from Operations is not a GAAP measure of operating
performance and should be considered as a supplemental measure of operating
performance used by real estate investment trusts.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Revenue and Expense
1999 vs. 1998
Rental and related income increased from $16,783,821 for the year
ended December 31, 1998 to $17,752,823 for the year ended December 31, 1999
primarily due to rental increases to residents, increased occupancy and
expansions to existing communities. During 1999, the Company was able to
obtain an average rent increase of approximately 4.5%.
Overall occupancy rates are satisfactory with only eleven manufactured
home communities experiencing vacancies over ten percent. Some of these
vacancies are the result of expansions completed toward the end of the
year. The Company has completed a 79 site expansion at Fairview Manor, a
40 site expansion at Highland Estates, and a 25 site expansion at Port
Royal Village. The Company is also evaluating further expansion at
selected communities in order to increase the number of available sites.
Some of these communities are in various stages of expansion.
Community operating expenses increased from $7,603,489 for the year
ended December 31, 1998 to $7,992,273 for the year ended December 31, 1999
primarily as a result of increased expenses, such as advertising,
associated with the expansions.
The Company's income from community operations continues to show
steady growth rising from $9,180,332 in 1998 to $9,760,550 in 1999.
General and administrative expenses increased from $1,386,757 in 1998
to $1,621,479 in 1999 primarily as a result of an increase in personnel.
Interest expense increased from $1,505,577 in 1998 to $2,105,546 in
1999. This was primarily as a result of a higher average principal balance
outstanding. Interest capitalized on construction in progress amounted to
$179,000 and $154,000 for 1999 and 1998, respectively.
Investment income increased from $409,457 in 1998 to $1,054,262 in
1999 due to purchases of securities available for sale during 1998 and
1999. The Company also realized a gain of $53,473 on the sale of $364,450
of securities available for sale.
Depreciation expense remained relatively stable in 1999 and 1998.
Other expenses decreased from $105,460 in 1998 to $77,154 in 1999 due
primarily to the write-off in 1998 of unamortized financing costs on the D
& R mortgage upon refinancing.
Loss/gain on sales of investment property and equipment remained
relatively stable in 1999 and 1998.
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For the year ended December 31, 1999, the Company reported net income
of $4,556,136 as compared to net income of $4,201,691 for the year ended
December 31, 1998. The Company is currently experiencing modest inflation.
Modest inflation is believed to have a favorable impact on the Company's
financial performance. With modest inflation, the Company believes that it
can increase rents sufficiently to match increases in operating expenses.
High rates of inflation (more than 10%) could result in an inability to
raise rents to meet rising costs and could create political problems such
as the imposition of rent controls. The Company anticipates continuing
profits in 2000.
1998 vs. 1997
Rental and related income increased from $15,330,300 for the year
ended December 31, 1997 to $16,783,821 for the year ended December 31, 1998
primarily due to rental increases to residents, increased occupancy,
expansions and the acquisition of a new community in December 1997. During
1998, the Company was able to obtain rent increases of $4.00 to $28.00 per
month on most of its occupied sites.
Overall occupancy rates are satisfactory with eleven manufactured home
communities experiencing vacancies over ten percent. Some of these
vacancies are the result of expansions completed during 1997. The Company
is also evaluating further expansion at selected communities in order to
increase the number of available sites. Some of these communities are in
various stages of expansion.
Community operating expenses increased from $6,817,094 for the year
ended December 31, 1997 to $7,603,489 for the year ended December 31, 1998
primarily as a result of the acquisition of an additional community in
December 1997 and increased expenses such as advertising associated with
the expansions.
The Company's income from community operations continues to show
steady growth rising from $8,513,206 in 1997 to $9,180,332 in 1998.
General and administrative expenses remained relatively stable in 1998
and 1997.
Interest expense increased from $1,123,445 in 1997 to $1,505,577 in
1998. This was primarily as a result of higher average principal balances
outstanding and a lower amount of interest capitalized on construction in
progress. Interest capitalized on construction in progress amounted to
$154,000 and $250,000 for 1998 and 1997, respectively.
Interest and dividend income increased from $333,511 in 1997 to
$409,457 in 1998 due to purchases of securities available for sale during
1997 and 1998 partially offset by a realized gain of $92,811 in 1997.
.
Depreciation expense increased from $2,116,732 in 1997 to $2,403,399
in 1998 due primarily to the addition of a new community in December 1997.
Other expenses increased from $42,000 in 1997 to $105,460 in 1998 due
primarily to the write-off of unamortized financing costs on the D & R
Village mortgage upon refinancing.
Loss/gain on sales of investment property and equipment remained
relatively stable in 1998 and 1997.
-14-
Liquidity and Capital Resources
The Company uses funds for real estate acquisitions, real property
improvements, amortization of debt incurred in connection with such
acquisitions and improvements and investment in debt and equity securities
of other REITs. The Company generates funds through cash flow from
properties, mortgages on properties and increases in shareholder
investments. The Company has liquidity available from a combination of
short and long-term sources. The Company currently has mortgages payable
totaling $30,419,153 secured by ten communities and loans payable totaling
$4,674,385 primarily secured by investment securities. The Company has
approximately $13.6 million of mortgages payable with a maturity date of
December 1, 2000. The Company may extend the term for an additional five
years at current interest rates. The Company also has a $1,000,000 line of
credit with Summit Bank, of which $500,000 was used at December 31, 1999.
The Company believes that its 24 manufactured home communities have market
values in excess of historical cost. Management believes that this
provides significant additional borrowing capacity.
Net cash provided by operating activities increased from $6,258,913 in
1997 to $6,556,937 in 1998 to $6,770,625 in 1999. Cash flow was primarily
used for capital improvements, payment of dividends, purchases of
securities available for sale and expansion of existing communities. The
Company meets maturing mortgage obligations by using a combination of cash
flow and refinancing. The dividend payments were primarily made from cash
flow from operations.
In addition to normal operating expenses, the Company requires cash
for additional investments in manufactured home communities, capital
improvements, purchase of manufactured homes for rent, scheduled mortgage
amortization and dividend distributions. As a REIT, the Company must
distribute at least 95% of its taxable income.
The Company also invests in debt and equity securities of other REITs.
During 1999, the Company invested approximately $6,800,000 in these
securities. Although the securities portfolio at December 31, 1999 has
experienced an approximate 10% decline in value from cost, management
believes that this is temporary in nature.
The Company estimates that in 2000 it will purchase approximately 25
manufactured homes to be used as rentals for a total cost of $500,000.
Management believes that these manufactured homes will each generate
approximately $300 per month in rental income in addition to lot rent.
Once rental homes reach 10 years old, the Company generally sells them.
Capital improvements include amounts needed to meet environmental and
regulatory requirements in connection with the manufactured home
communities that provide water or sewer service. Excluding expansions, the
Company is budgeting approximately $1,000,000 in capital improvements for
2000.
-15-
The Company has a Dividend Reinvestment and Stock Purchase Plan
(Plan). Cash received from the Plan is a significant additional source of
liquidity and capital resources. During 1999, the Company paid $5,441,904
in dividends. Amounts received under the Plan amounted to $1,631,789. The
success of the Plan resulted in a substantial improvement in the Company's
liquidity and capital resources in 1999.
The Company has undeveloped land which it could develop over the next
several years. In 2000, construction is expected to be completed on
approximately 200 sites. The Company is also exploring the utilization of
vacant land for town houses. The Company continues to analyze the highest
and best use of its vacant land, and uses it accordingly.
The Company believes that funds generated from operations, together
with the financing and refinancing of its properties, will be adequate to
meet its needs over the next several years.
Impact of Year 2000
The Company has experienced no significant impact of its operations or
its ability to accurately process financial information due to a Year 2000
related issue. In addition, the Company has no information that indicates
a significant tenant, vendor or service provider may be unable to meet
their rental obligations, sell goods or provide services to the Company
because of Year 2000 issues. The Company will continue to monitor its
operations for year 2000 related issues.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 1 - Business.
-16-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Part IV,
Item 14(a)(1) are incorporated herein by reference.
The following is the Unaudited Selected Quarterly Financial Data:
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
______________________________________________________________________________
1999 March 31 June 30 September 30 December 31
Rental & Related
Income $ 4,321,983 $ 4,451,646 $ 4,446,644 $ 4,532,550
Income from Community
Operations 2,358,294 2,391,122 2,363,374 2,647,760
Net Income 1,083,153 1,071,653 1,119,211 1,282,119
Net Income per Share-
Basic and Diluted .15 .15 .15 .18
______________________________________________________________________________
1998 March 31 June 30 September 30 December 31
Rental & Related
Income $ 4,118,835 $ 4,179,675 $ 4,225,218 $ 4,260,093
Income from Community
Operations 2,302,499 2,348,817 2,224,582 2,304,434
Net Income 1,051,103 1,066,737 955,431 1,128,420
Net Income per Share-
Basic and Diluted .15 .16 .13 .16
______________________________________________________________________________
1997 March 31 June 30 September 30 December 31
Rental & Related
Income $ 3,765,720 $ 3,804,373 $ 3,862,240 $ 3,897,967
Income from Community
Operations 2,235,925 2,110,522 2,061,932 2,104,827
Net Income 1,072,954 975,294 889,132 1,259,878
Net Income per Share-
Basic and Diluted .16 .15 .13 .19
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-17-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age & Principal Occupation Director Shares Percent
Office Held During the Past Five Years Since Beneficially of Stock
Robert J. Vice President of The David 1980 18,515 (1) 0.25%
Anderson Cronheim Company; past
Age: 77 President of the Industrial Real
Director Estate Brokers Association
of New York and New Jersey
Ernest V. Financial Consultant; 1969 30,165 (2) 0.41%
Bencivenga Treasurer and Director
Age: 82 (1961 to present) and
Secretary/ Secretary (1967 to present)
Treasurer of Monmouth Capital
and Director Corporation; Treasurer and
Director (1968 to present)
of Monmouth Real Estate
Investment Corporation
Anna T. Chew Certified Public Accountant; 1994 36,053 (3) 0.49%
Age: 41 Controller (1991 to present)
Vice President and Director (1993 to present)
and Chief of Monmouth Real Estate
Financial Investment Corporation; Controller
Officer and (1991 to present) and Director
Director (1994 to present) of Monmouth
Capital Corporation.
Charles P. Investor; Director (1970 1969 62,317 (4) 0.85%
Kaempffer to present) of Monmouth
Age: 62 Capital Corporation;
Director Director (1974 to present)
of Monmouth Real Estate
Investment Corporation;
Vice Chairman and
Director (1996 to present)
of Community Bank of New
Jersey; Director (1989 to 1996) of
Sovereign Community Bank (formerly
Colonial Bank)
Eugene W. Attorney at Law for the 1969 908,568 (5) 12.43%
Landy firm of Landy & Landy;
Age: 66 President and Director
Chairman of (1961 to present) of
the Board and Monmouth Capital Corporation;
Director President and Director (1968 to
Director present) of Monmouth Real Estate
Investment Corporation.
-18-
Name, Age & Principal Occupation Director Shares Owned Percent
Office Held During the Past Five Years Since Beneficially of Stock
Samuel A. Attorney at Law for the 1992 272,815 (6) 3.73%
Landy firm of Landy & Landy;
Age: 39 Director (1989 to
President and present) of Monmouth Real
Director Estate Investment Corporation;
Director (1994 to present) of
Monmouth Capital Corporation.
Richard H. Vice President of Remsco 1986 380,851 (7) 5.21%
Molke Associates, Inc., a
Age: 73 construction firm.
Director
Eugene Obstetrician and Gynecologist; 1977 81,163 (8) 1.11%
Rothenberg Investor
Age: 67
Director
Robert G. Investor; Director (1968 1969 131,468 (9) 1.80%
Sampson to present) of Monmouth
Age: 74 Real Estate Investment
Director Corporation; Director
(1963 to present)
of Monmouth Capital
Corporation; General
Partner (1983 to present
of Sampco, Ltd., an
investment group.
TOTALS............ 1,921,915 26.28%
1) Beneficial ownership, as defined herein, include common stock as to
which a person has or shares voting and/or investment power as of
March 14, 1997.
2) Includes 8,956 shares held by Mr. Bencivenga's wife and 4,632 shares
held in the United Mobile Homes, Inc. 401(k) Plan.
3) Includes 32,977 shares held jointly with Ms. Chew's husband and 3,194
shares held in the United Mobile Homes, Inc. 401(k) Plan.
4) Includes (a) 60,317 shares held as Trustee for Defined Benefit Pension
Plan for which Mr. Kaempffer has power to vote and (b) 2,000 shares held
by Mr. Kaempffer's wife.
5) Includes (a) 63,360 shares held by Mr. Landy's wife, (b) 172,608 shares
held by Landy Investments, Ltd. in which Mr. Landy has a beneficial
interest, (c) 61,388 shares held in the Landy & Landy, Employee's
Pension Plan, of which Mr. Landy is a Trustee with power to vote, and
(d) 113,565 shares held in the Landy & Landy, Employees' Profit Sharing
Plan, of which Mr. Landy is a Trustee with power to vote. Excludes
215,238 shares held by Mr. Landy's adult children in which he disclaims
any beneficial interest.
6) Includes (a) 25,824 shares held jointly with Mr. Samuel A. Landy's
wife, (b) 15,423 in a custodial account for his sons, and (c) 6,005
shares held in the United Mobile Homes, Inc. 401(k) Plan.
7) Includes (a) 38,034 shares owned by Mr. Molke's wife, (b) 149,184
shares in the Richard H. Molke Grantor Retained Annuity Trust dated
December 21, 1992, and (c) 149,183 shares in the Louise G. Molke Grantor
Retained Annuity Trust dated December 21, 1992.
8) Includes (a) 56,878 shares held by Rothenberg Investment, Ltd. in
which Dr. Rothenberg has a beneficial interest.
9) Includes 48,492 shares held by Sampco, Ltd. in which he has a
beneficial interest.
-19-
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table.
The following Summary Compensation Table shows compensation paid by
the Company for services rendered during 1999, 1998 and 1997 to the
Chairman of the Board, President and Vice President. There were no other
executive officers whose aggregate cash compensation exceeded $100,000:
Name and Annual Compensation
Principal Position Year Salary Bonus All Other Options
Eugene W. Landy 1999 $150,000 $ - $ 52,876 (1) -
Chairman of the 1998 $ 75,000 $ - $ 173,376 (1) 25,000
Board 1997 $ - $ - $ 343,850 (1) 50,000
Samuel A. Landy 1999 $205,000 $ 7,885 $ 15,410 (2) 25,000
President 1998 $199,650 $43,979 $ 18,559 (2) 25,000
1997 $181,500 $39,981 $ 18,880 (2) 25,000
Anna T. Chew 1999 $120,577 $13,654 $ 13,650 (3) 10,000
Vice President 1998 $110,000 $16,231 $ 14,752 (3) 10,000
1997 $100,000 $11,846 $ 14,955 (3) 8,000
(1) Represents base compensation of $75,000 in 1998 and $150,000 in 1997,
as well as Directors' fees, fringe benefits and legal fees. Also includes
an accrual of $40,000, $80,000 and $160,000 for 1999, 1998 and 1997,
respectively for pension and other benefits in accordance with Eugene W.
Landy's employment contract.
(2) Represents Directors' fees, fringe benefits and discretionary
contributions by the Company to the Company's 401(k) Plan allocated to an
account of the named executive officer.
(3) Represents Directors' fees and discretionary contributions by the
Company to the Company's 401(k) Plan allocated to an account of the named
executive officer.
-20-
Stock Option Plan.
The following table sets forth, for the executive officers named in
the Summary Compensation Table, information regarding individual grants of
stock options made during the year ended December 31, 1999:
Potential Realized
% of Total Price Value at Assumed Annual
Options Granted to Per Expiration Rates for Option Term
Name Granted Employees Share Date 5% 10%
Samuel A. Landy 25,000 41% $11.5625 1/05/04 $45,963 $133,698
Anna T. Chew 10,000 16% $ 8.8125 2/28/04 $24,347 $ 53,801
The following table sets forth for the executive officers named in the
Summary Compensation Table, information regarding stock options outstanding
at December 31, 1999:
Value of
Unexercised
Options
Number of Unexercised at Year-End
Shares Value Options at Year-End Exercisable/
Name Exercised Realized Exercisable/Unexercisable Unexercisable
Eugene W. Landy -0- N/A 125,000 / -0- $ -0- / $ -0-
Samuel A. Landy 25,000 $14,063 100,000 / 25,000 $ -0- / $ -0-
Anna T. Chew 10,000 $16,250 38,000 / 10,000 $ -0- / $ -0-
Compensation of Directors.
The Directors receive a fee of $1,000 for each Board meeting attended.
Directors also receive a fixed annual fee of $7,600, payable $1,900
quarterly. Directors appointed to house committees receive $150 for each
meeting attended. Those specific committees are Compensation Committee,
Audit Committee and Stock Option Committee.
Employment Contracts.
On December 14, 1993, the Company and Eugene W. Landy entered into an
Employment Agreement under which Mr. Eugene Landy receives an annual base
compensation of $150,000 plus bonuses and customary fringe benefits,
including health insurance, participation in the Company's 401(k) Plan,
stock options, five weeks vacation and use of an automobile. In lieu of
annual increases in compensation, there will be additional bonuses voted by
the Board of Directors. On severance of employment for any reason, Mr.
Eugene Landy will receive severance pay of $450,000 payable $150,000 on
severance and $150,000 on the first and second anniversaries of severance.
If employment is terminated following a change in control of the Company,
Mr. Eugene Landy will be entitled to severance pay only if actually severed
either at
-21-
the time of merger or subsequently. In the event of disability, Mr. Eugene
Landy's compensation shall continue for a period of three years, payable
monthly. On retirement, Mr. Eugene Landy shall receive a pension of
$50,000 a year for ten years, payable in monthly installments. In the
event of death, Mr. Eugene Landy's designated beneficiary shall receive
$450,000, $100,000 thirty days after death and the balance one year after
death. The Employment Agreement terminated December 31, 1998 but was
automatically renewed and extended for successive one-year periods.
Effective January 1, 1999, the Company and Samuel A. Landy entered
into a three-year Employment Agreement under which Mr. Samuel Landy
receives an annual base salary of $205,000 for 1999, $215,000 for 2000 and
$225,000 for 2001 plus bonuses and customary fringe benefits. Bonuses
shall be at the discretion of the Board of Directors and shall be based on
certain guidelines. Mr. Samuel Landy will also receive four weeks
vacation, use of an automobile, and stock options for 25,000 shares in each
year of the contract. On severance or disability, Mr. Samuel Landy is
entitled to one year's pay. The Company also agrees to loan to Mr. Samuel
Landy $100,000 at the Company's corporate borrowing rate with a 5-year
maturity and a 15-year principal amortization. Additional amounts, secured
by Company stock, may be borrowed at the same terms for the exercise of
stock options.
Effective January 1, 2000, the Company extended Anna T. Chew's
Employment Agreement for an additional three years. Ms. Chew will receive
an annual base salary of $133,100 for 2000, $146,400 for 2001 and $161,000
for 2002 plus bonuses and customary fringe benefits. On severance for any
reason, Ms. Chew is entitled to an additional one year's pay. In the event
of disability, her salary shall continue for a period of two years.
Report of Board of Directors.
Overview and Philosophy
The Company has a Compensation Committee consisting of two independent
outside Directors. This Committee is responsible for making
recommendations to the Board of Directors concerning executive
compensation. The Compensation Committee takes into consideration three
major factors in setting compensation.
The first consideration is the overall performance of the Company.
The Board believes that the financial interests of the executive officers
should be aligned with the success of the Company and the financial
interests of its shareholders. Increases in funds from operations, the
enhancement of the Company's equity portfolio, and the success of the
Dividend Reinvestment and Stock Purchase Plan all contribute to increases
in stock prices thereby maximizing shareholders' return.
The second consideration is the individual achievements made by each
officer. The Company is a small real estate investment trust (REIT). The
Board of Directors is aware of the contributions made by each officer and
makes an evaluation of individual performance based on their own
familiarity with the officer.
-22-
The final criteria in setting compensation is comparable wages in the
industry. In this regard, the REIT industry maintains excellent
statistics.
Evaluation
Mr. Eugene Landy is under an employment agreement with the Company.
His base compensation under this contract is $150,000 per year. (The
Summary Compensation Table for Mr. Eugene Landy shows a salary of $150,000,
$12,876 in director's fees, fringe benefits and legal fees plus $40,000
accrual for pension and other benefits in 1999).
The Committee also reviewed the progress made by Mr. Samuel A. Landy,
President. Funds from operations increased by approximately 6%. Mr.
Samuel Landy is under an employment agreement with the Company. His base
compensation under this contract is $205,000 for 1999.
COMPARATIVE STOCK PERFORMANCE.
The line graph compares the total return of the Company's common stock
for the last five years to the NAREIT ALL REIT Total Return Index published
by the National Association of Real Estate Investment Trust (NAREIT) and to
the S&P 500 Index for the same period. The total return reflects stock
price appreciation and dividend reinvestment for all three comparative
indices. The information herein has been obtained from sources believed to
be reliable, but neither its accuracy nor its completeness is guaranteed.
1994 1995 1996 1997 1998 1999
United Mobile Homes, Inc. 100 140 173 189 184 155
NAREIT All REIT 100 118 161 191 155 145
S & P 500 100 137 169 225 290 351
-23-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On March 13, 2000, no person owned of record, or was known by the
Company to own beneficially more than five percent (5%) of the shares of
the Company, except the following:
Percent
Name and Address Shares Owned of
Title of Class of Beneficial Owner Beneficially Class
Common Stock Eugene W. Landy 908,568 12.43%
20 Tuxedo Road
Rumson, NJ 07760
Common Stock Richard H. Molke 380,851 5.21%
8 Ivins Place
Rumson, NJ 07760
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain relationships and related party transactions are incorporated
herein by reference to Part IV, Item 14(a)(1)(vi), Note 9 of the Notes to
Consolidated Financial Statements - Related Party Transactions.
-24-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) The following Financial Statements are filed as part of this
report.
Page(s)
(i) Independent Auditors' Report 27
(ii) Consolidated Balance Sheets as of December 31, 1999 and 28
and 1998
(iii) Consolidated Statements of Income for the years 29
ended December 31, 1999, 1998 and 1997.
(iv) Consolidated Statements of Shareholders' Equity for 30-31
the years ended December 31, 1999, 1998 and 1997
(v) Consolidated Statements of Cash Flows for the years 32
ended December 31, 1999, 1998 and 1997
(vi) Notes to Consolidated Financial Statements 33-44
(a)(2) The following Financial Statement Schedule for the
years ended December 31, 1999, 1998 and 1997 is
filed as part of this report.
(i) Schedule III - Real Estate and Accumulated Depreciation 45
All other schedules are omitted for the reason that they are not
required, are not applicable, or the required information is set forth in
the financial statements or notes thereto.
-25-
(a)(3) The Exhibits set forth in the following index of Exhibits are
filed as part of this Report.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws: Articles of
Incorporation and By-Laws, Certificate of Incorporation and
Amendments thereto are incorporated by reference to the
Company's Registration Statement No. 2-92896-NY, and
Amendments thereto, filed with the SEC on August 22, 1984.
Material Contracts:
(a) Stock Option Plan is incorporated by reference to the
Company's Proxy Statement dated April 25, 1994 filed with
the SEC April 27, 1994.
(b) 401(k) Plan Document and Adoption Agreement effective
April 1, 1992 is incorporated by reference to that filed
with the Company's 1992 Form 10-K filed with the SEC on
March 9, 1993.
(c) Employment contract with Mr. Eugene W. Landy dated
December 14, 1993 is incorporated by reference to that
filed with the Company's 1993 Form 10-K filed with the
SEC on March 28, 1994.
(d) Employment contract with Mr. Ernest V. Bencivenga dated
November 9, 1993 is incorporated by reference to that filed
with the Company's 1993 Form 10-K filed with the SEC on
March 28, 1994.
(e) Employment contract with Mr. Samuel A. Landy effective
January 1, 1996 is incorporated by reference to that filed
with the Company's 1995 Form 10-K filed with the SEC on
March 28, 1996.
(f) Employment contract with Ms. Anna T. Chew effective
January 1, 1997 is incorporated by reference to that filed
with the Company's 1996 Form 10-K filed with the SEC on
March 27, 1997.
(21) Subsidiaries of the Registrant:
The Company operates through nine wholly-owned multiple
Subsidiaries carrying on the same line of business. The
parent company of these subsidiaries is the Registrant.
The line of business is the operation of manufactured home
communities.
(23) Consent of KPMG LLP
(a)(3)(b) Reports on Form 8-K
None.
-26-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United Mobile Homes, Inc.:
We have audited the consolidated financial statements of United Mobile
Homes, Inc. as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Mobile Homes, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Shorts Hills, New Jersey /s/ KPMG LLP
March 15, 2000
-27-
UNITED MOBILE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
- ASSETS - 1999 1998
INVESTMENT PROPERTY AND EQUIPMENT
Land $ 6,779,335 $ 6,797,935
Site and Land Improvements 49,256,596 46,198,257
Buildings and Improvements 2,697,313 2,691,426
Rental Homes and Accessories 7,888,924 5,656,441
---------- ----------
Total Investment Property 66,622,168 61,344,059
Equipment and Vehicles 2,969,556 2,643,774
---------- ----------
Total Investment Property and
Equipment 69,591,724 63,987,833
Accumulated Depreciation (27,429,461) (25,091,588)
---------- ----------
Net Investment Property and
Equipment 42,162,263 38,896,245
---------- ----------
OTHER ASSETS
Cash and Cash Equivalents 724,650 832,408
Securities Available for Sale 12,794,514 7,752,565
Notes and Other Receivables 1,082,126 734,724
Unamortized Financing Costs 252,648 157,928
Prepaid Expenses 121,521 168,515
Land Development Costs 1,437,590 1,504,264
---------- ----------
Total Other Assets 16,413,049 11,150,404
---------- ----------
TOTAL ASSETS $58,575,312 $50,046,649
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
MORTGAGES PAYABLE $30,419,153 $21,411,576
---------- ----------
OTHER LIABILITIES
Accounts Payable 105,215 152,011
Loans Payable 4,674,385 3,368,512
Accrued Liabilities and Deposits 1,493,897 1,495,653
Tenant Security Deposits 491,355 406,084
--------- ---------
Total Other Liabilities 6,764,852 5,422,260
---------- ----------
Total Liabilities 37,184,005 26,833,836
---------- ----------
SHAREHOLDERS' EQUITY:
Common Stock - $.10 par value per
share, 10,000,000 shares authorized,
7,483,196 and 7,246,580 shares
issued and 7,312,696 and
7,246,580 shares outstanding as
of December 31, 1999 and 1998,
respectively 748,320 724,658
Additional Paid-In Capital 24,549,267 23,427,783
Accumulated Other
Comprehensive Loss (1,662,178) (271,835)
Accumulated Deficit (667,793) (667,793)
Treasury Stock at Cost (170,500
shares at December 31, 1999) (1,576,309) -0-
---------- ----------
Total Shareholders' Equity 21,391,307 23,212,813
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $58,575,312 $50,046,649
========== ==========
See Accompanying Notes to
Consolidated Financial Statements
-28-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Rental and Related Income $17,752,823 $16,783,821 $15,330,300
Community Operating Expenses 7,992,273 7,603,489 6,817,094
---------- ---------- ----------
Income from Community
Operations 9,760,550 9,180,332 8,513,206
Other Expenses (Income):
General and Administrative 1,621,479 1,386,757 1,356,736
Interest Expense 2,105,546 1,505,577 1,123,445
Investment Income (1,054,262) (409,457) (333,511)
Depreciation Expense 2,452,533 2,403,399 2,116,732
Amortization of Financing Costs 77,154 105,460 42,000
--------- --------- ---------
Income Before Gain (Loss)
On Sales of Assets 4,558,100 4,188,596 4,207,804
(Loss) Gain on Sales of Assets (1,964) 13,095 (10,546)
--------- --------- ---------
Net Income $ 4,556,136 $ 4,201,691 $ 4,197,258
========= ========= =========
Net Income Per Share -
Basic and Diluted $ .63 $ .60 $ .63
========= ========= =========
Weighted Average Shares
Outstanding:
Basic 7,252,774 7,042,701 6,617,479
========= ========= =========
Diluted 7,267,695 7,060,542 6,679,994
========= ========= =========
See Accompanying Notes to
Consolidated Financial Statements
-29-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Additional
Common Stock Issued Paid-In
Number Amount Capital
Balance 12/31/96 6,433,676 $ 643,368 16,275,434
Common Stock Issued with the DRIP 382,636 38,263 4,309,405
Common Stock Issued Through the
Exercise of Stock Options 49,000 4,900 312,350
Distributions -0- -0- (324,403)
Net Income -0- -0- -0-
Unrealized Net Holding Gains on
Securities Available for Sale
Net of Reclassification
Adjustment -0- -0- -0-
--------- ------- ----------
Balance 12/31/97 6,865,312 686,531 20,572,786
Common Stock Issued with the DRIP 357,268 35,727 3,695,329
Common Stock Issued through the
Exercise of Stock Options 24,000 2,400 162,600
Distributions -0- -0- (1,002,932)
Net Income -0- -0- -0-
Unrealized Net Holding Losses on
Securities Available for Sale -0- -0- -0-
--------- ------- ----------
Balance 12/31/98 7,246,580 $724,658 $23,427,783
Common Stock Issued with the DRIP 187,616 18,762 1,613,027
Common Stock Issued through the
Exercise of Stock Options 49,000 4,900 394,225
Distributions -0- -0- (885,768)
Net Income -0- -0- -0-
Unrealized Net Holding Losses on
Securities Available for Sale
Net of Reclassification Adjustment -0- -0- -0-
Purchase of Treasury Stock -0- -0- -0-
--------- ------- ----------
Balance 12/31/99 7,483,196 $ 748,320 $24,549,267
========= ======= ==========
*Dividend Reinvestment and Stock Purchase Plan
See Accompanying Notes to Consolidated Financial Statements
-30-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Accumulated
Other
Comprehensive Accumulated Treasury Comprehensive
(Loss)/Income Deficit Stock Income
Balance 12/31/96 $ 76,501 $ (569,158) $ -0-
Common Stock Issued with
the DRIP -0- -0- -0-
Common Stock Issued through
the Exercise of Stock
Options -0- -0- -0-
Distributions -0- (4,295,893) -0-
Net Income -0- (4,197,258) -0- $4,197,258
Unrealized Net Holding
Gains on Securities Available
for Sale
Net of Reclassification
Adjustment 162,516 -0- -0- 162,516
------- -------- ---- ---------
Balance 12/31/97 239,017 (667,793) -0- $4,359,774
=========
Common Stock Issued with
the DRIP -0- -0- -0-
Common Stock Issued through
the Exercise of Stock
Options -0- -0- -0-
Distributions -0- (4,201,691) -0-
Net Income -0- 4,201,691 -0- $4,201,691
Unrealized Net Holding
Losses on Securities
Available for Sale 510,852 -0- -0- (510,852)
------- ------- ---- ---------
Balance 12/31/98 (271,835) (667,793) -0- $3,690,839
=========
Common Stock Issued with
the DRIP -0- -0- -0-
Common Stock Issued through
the Exercise of Stock
Options -0- -0- -0-
Distributions -0- (4,556,136) -0-
Net Income -0- 4,556,136 -0- $4,556,136
Unrealized Net Holding Losses on
Securities Available for Sale
Net of Reclassification
Adjustment (1,390,343) -0- -0- (1,390,343)
Purchase of Treasury
Stock -0- -0- (1,576,309)
--------- ---------- --------- ---------
Balance 12/31/99 $(1,662,178) $(667,793) $(1,576,309) $3,165,793
========= ======= ========= =========
See Accompanying Notes to Consolidated Financial Statements
-31-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $4,556,136 $4,201,691 $4,197,258
Depreciation 2,452,533 2,403,399 2,116,732
Amortization of Financing Costs 77,154 105,460 42,000
Gain on Sales of Securities
Available for Sale (53,473) -0- (92,811)
(Loss) Gain on Sales of Investment
Property and Equipment 1,964 (13,095) 10,546
Changes in Operating Assets and Liabilities -
Notes and Other Receivables (347,402) (56,444) (171,081)
Prepaid Expenses 46,994 (59,100) 175,578
Accounts Payable (46,796) (70,463) 16,048
Accrued Liabilities and Deposits ( 1,756) 17,798 (42,786)
Tenant Security Deposits 85,271 27,691 7,429
--------- --------- ---------
Net Cash Provided by Operating
Activities 6,770,625 6,556,937 6,258,913
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Manufactured Home
Communities -0- -0- (4,236,000)
Purchase of Investment Property and
Equipment (3,792,004) (2,169,674) (2,537,589)
Proceeds from Sales of Investment
Property and Equipment 344,173 303,972 332,615
Additions to Land Development Costs (2,206,010) (2,024,796) (2,300,481)
Purchase of Securities Available for
Sale (6,796,742) (4,716,181) (2,743,605)
Proceeds from Sales of Securities
Available for Sale 417,923 -0- 892,733
---------- --------- ----------
Net Cash Used by Investing Activities (12,032,660) (8,606,679) (10,592,327)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Mortgages and Loans 10,500,000 3,600,000 3,150,000
Net Proceeds from Short-Term Borrowings 1,305,873 2,789,539 578,973
Principal Payments of Mortgages and
Loans (1,492,423) (2,299,447) (390,007)
Financing Costs on Debt (171,874) ( 90,694) ( 53,950)
Proceeds from Dividend Reinvestment
and Stock Purchase Plan -0- 1,870,075 2,522,815
Proceeds from Exercise of Stock Options 399,125 165,000 317,250
Dividends Paid (3,810,115) (3,343,642) (2,795,443)
Purchase of Treasury Stock (1,576,309) -0- -0-
--------- --------- ---------
Net Cash Provided by Financing
Activities 5,154,277 2,690,831 3,329,638
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH (107,758) 641,089 (1,003,776)
CASH & CASH EQUIVALENTS - BEGINNING 832,408 191,319 1,195,095
------- ------- ---------
CASH & CASH EQUIVALENTS - END $ 724,650 $ 832,408 $ 191,319
======= ======= =======
See Accompanying Notes to
Consolidated Financial Statements
-32-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST
United Mobile Homes, Inc. (the Company) has elected to be taxed as a
Real Estate Investment Trust (REIT) under Sections 856-858 of the Internal
Revenue Code. The Company will not be taxed on the portion of its income
which is distributed to shareholders, provided it distributes at least 95%
of its taxable income, has at least 75% of its assets in real estate
investments and meets certain other requirements for qualification as a
REIT.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS - The Company owns and operates twenty-four
manufactured home communities containing 5,759 sites. The communities are
located in New Jersey, New York, Ohio, Pennsylvania and Tennessee.
These manufactured home communities are listed by trade names as follows:
MANUFACTURED HOME COMMUNITY LOCATION
Allentown Memphis, Tennessee
Brookview Village Greenfield Center, New York
Cedarcrest Vineland, New Jersey
Cranberry Village Cranberry Township,Pennsylvania
Cross Keys Village Duncansville, Pennsylvania
D & R Village Clifton Park, New York
Edgewood Estates Apollo, Pennsylvania
Fairview Manor Millville, New Jersey
Forest Park Village Cranberry Township, Pennsylvania
Heather Highlands Inkerman, Pennsylvania
Highland Estates Kutztown, Pennsylvania
Kinnebrook Monticello, New York
Lake Sherman Village Navarre, Ohio
Memphis Mobile City Memphis, Tennessee
Oxford Village West Grove, Pennsylvania
Pine Ridge Village Carlisle, Pennsylvania
Port Royal Village Belle Vernon, Pennsylvania
River Valley Estates Marion, Ohio
Sandy Valley Estates Magnolia, Ohio
Southwind Village Jackson, New Jersey
Spreading Oaks Village Athens, Ohio
Waterfalls Village Hamburg, New York
Woodlawn Village Eatontown, New Jersey
Wood Valley Caledonia, Ohio
-33-
BASIS OF PRESENTATION - The consolidated financial statements of the
Company include all of its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES - In preparing the consolidated financial statements,
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. Actual results could differ
significantly from these estimates and assumptions.
INVESTMENT PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment
are carried at cost. Depreciation for Sites and Building (15 to 27.5
years) is computed principally on the straight-line method over the
estimated useful lives of the assets. Depreciation of Improvements to
Sites and Buildings, Rental Homes and Equipment and Vehicles (3 to 27.5
years) is computed principally on the straight-line method. Land
Development Costs are not depreciated until they are put in use, at which
time they are capitalized as Sites or Site Improvements. Interest Expense
pertaining to Land Development Costs are capitalized. Maintenance and
Repairs are charged to income as incurred and improvements are capitalized.
The costs and related accumulated depreciation of property sold or
otherwise disposed of are removed from the accounts and any gain or loss is
reflected in the current year's results of operations. If there is an
event or change in circumstances that indicates that the basis of an
investment property may not be recoverable, management assesses the
possible impairment of value through evaluation of the estimated future
cash flows of the property, on an undiscounted basis, as compared to the
property's current carrying value. If a property is determined to be
impaired, it will be recorded at fair value.
UNAMORTIZED FINANCING COSTS - Legal fees and loan processing fees for new
and restructured mortgages are being amortized over the life of the related
debt.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates
of deposit and bank repurchase agreements with maturities of 90 days or
less.
SECURITIES AVAILABLE FOR SALE - The Company's securities are classified as
available-for-sale and are carried at fair value. Gains or losses on the
sale of securities are based on identifiable cost and are accounted for on
a trade date basis. Unrealized holding gains and losses are excluded from
earnings and reported as a separate component of Shareholders' Equity until
realized. A decline in the market value of any security below cost that is
deemed to be other than temporary results in a reduction in the carrying
amount to fair value. Any impairment is charged to earnings and a new cost
basis for the security established.
REVENUE RECOGNITION - The Company derives its income primarily from the
rental of manufactured home sites. The Company also owns approximately 450
rental units which are rented to residents. Revenue is recognized on the
accrual basis.
-34-
NET INCOME PER SHARE - Basic net income per share is calculated by dividing
net income by the weighted-average number of common shares outstanding
during the period (7,252,774, 7,042,701 and 6,617,479 in 1999, 1998 and
1997, respectively). Diluted net income per share is calculated by
dividing net income by the weighted-average number of common shares
outstanding plus the weighted-average number of net shares that would be
issued upon exercise of stock options pursuant to the treasury stock method
(7,267,695, 7,060,542 and 6,679,994 in 1999, 1998 and 1997, respectively)
(See Note 6). Options in the amount of 14,921, 17,841 and 62,515 for 1999,
1998, and 1997, respectively, are included in the diluted weighted average
shares outstanding.
STOCK OPTION PLANS - Stock option plans are accounted for under the
intrinsic value based method as prescribed by Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees". As such,
compensation expense would be recorded on the date of grant only if the
current market price on the underlying stock exceeds the exercise price.
Included in these Notes to Consolidated Financial Statements are the pro
forma disclosures required by SFAS No. 123, "Accounting for Stock-Based
Compensation," which assumes the fair value based method of accounting had
been adopted.
TREASURY STOCK - Treasury stock is accounted for under the cost method.
OTHER COMPREHENSIVE INCOME - Comprehensive income consists of net income
and net unrealized gains or losses on securities available for sale and is
presented in the consolidated statements of shareholders' equity.
RECLASSIFICATION - Certain amounts in the financial statements for the
prior years have been reclassified to conform to the statement presentation
for the current year.
-35-
NOTE 3 - INVESTMENT PROPERTY AND EQUIPMENT
The Company is currently conducting an expansion program at a number
of its communities. During 1999, 144 sites were added to existing
communities.
The following is a summary of accumulated depreciation by major
classes of assets:
December 31, 1999 December 31, 1998
Site and Land Improvements $ 22,453,059 $ 20,749,083
Buildings and Improvements 1,330,046 1,236,080
Rental Homes and Accessories 1,588,790 1,363,402
Equipment and Vehicles 2,057,566 1,743,023
---------- ----------
Total Accumulated Depreciation $ 27,429,461 $ 25,091,588
========== ==========
NOTE 4 - SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale at
December 31, 1999 and 1998:
1999 1998
Market Market
Cost Value Cost Value
Equity Securities:
Monmouth Real Estate Investment
Corporation * (338,111 shares and
270,568 shares at December 31,
1999 and 1998, respectively) $1,972,238 $1,627,330 $1,620,390 $1,488,125
Monmouth Capital Corporation *
(21,903 shares and 21,545 shares
at December 31, 1999 and 1998,
respectively) 55,986 55,435 55,004 75,409
Preferred Stock 5,094,590 4,685,168 1,423,920 1,436,440
Other Equity Securities 5,556,581 4,695,206 3,097,790 2,921,517
Debt Securities (maturing in
2001 to 2003) 1,777,297 1,731,375 1,827,297 1,831,074
---------- ---------- --------- ---------
Total $14,456,692 $12,794,514 $8,024,401 $7,752,565
========== ========== ========= =========
* Related entity - See Note 9.
-36-
Gross unrealized gains on debt securities amounted to $-0- and $22,975
as of December 31, 1999 and 1998, respectively. Gross unrealized losses on
debt securities amounted to $45,922 and $19,198 at December 31, 1999 and
1998, respectively. Gross unrealized gains on equity securities amounted
to $88,117 and $111,698 as of December 31, 1999 and 1998, respectively.
Gross unrealized losses on equity securities amounted to $1,704,373 and
$387,311 as of December 31, 1999 and 1998, respectively.
During the years ended December 31, 1999, 1998 and 1997, gross gains
on sales of securities amounted to $53,473, $-0- and $92,811, respectively.
Dividend income for the years ended December 31, 1999, 1998 and 1997
amounted to $734,623, $260,352 and $132,396, respectively. Interest Income
for the years ended December 31, 1999, 1998 and 1997 amounted to $266,166,
$149,105 and $108,304, respectively. These amounts have been included in
Investment Income.
NOTE 5 - LOANS AND MORTGAGES PAYABLE
LOANS PAYABLE
During 1999 and 1998, the Company purchased securities on margin. The
margin loan was 7% during 1999 and 8% during 1998 and is due on demand. At
December 31, 1999 and 1998, the margin loan amounted to $4,097,172 and
$3,257,386, respectively and is secured by investment securities with a
market value of $12,794,514 and $7,752,565, respectively.
UNSECURED LINE OF CREDIT
The Company has a $1,000,000 unsecured line of credit with Summit
Bank, of which $500,000 was used at December 31, 1999. The interest rate
on this line of credit is prime plus 1/2%. This line of credit expires on
February 9, 2000. This line was subsequently increased to $2,000,000 at an
interest rate of prime.
MORTGAGES PAYABLE
The following is a summary of mortgages payable at December 31, 1999
and 1998:
Interest
Property Due Date Rate 1999 1998
Cranberry Village 08-02-04 7.86% $ 2,480,841 -0-
D & R Village 05-01-03 7.5% 3,469,814 $ 3,550,650
Forest Park Village 08-02-04 7.86% 3,969,346 -0-
Sandy Valley 05-01-00 10.5% -0- 843,691
Sandy Valley 03-01-04 7% 3,925,925 -0-
Water Falls Village 01-01-03 7.625% 3,012,276 3,083,814
Various (5 properties) 12-01-00 * 7.5% 13,560,951 13,933,421
---------- ----------
TOTAL MORTGAGES PAYABLE $30,419,153 $21,411,576
========== ==========
* May be extended by the Company for an additional five years at
current interest rates.
-37-
At December 31, 1999 and 1998, mortgages are collateralized by real
property with a carrying value of $26,997,426 and $21,569,697,
respectively, before accumulated depreciation and amortization. Interest
costs amounting to $179,000 and $154,000 were capitalized during 1999 and
1998, respectively, in connection with the Company's expansion program.
RECENT FINANCING
On April 28, 1998, the Company entered into a $3,600,000 mortgage
payable to Summit Bank. The interest rate on this mortgage is fixed at
7.5%. This mortgage loan is due on May 1, 2003. Proceeds of this mortgage
were used to retire existing debt and to purchase securities available for
sale.
On February 10, 1999, the Company entered into a $4,000,000 mortgage
payable to Summit Bank. The interest rate on this mortgage is fixed at
7.0%. This mortgage loan is due on March 1, 2004. Proceeds of this
mortgage were used primarily to retire existing debt, purchase securities
available for sale and purchase Treasury Stock.
On July 28, 1999, the Company entered into a $4,000,000 mortgage and a
$2,500,000 mortgage with First Union Bank. These mortgages bear interest
at an effective rate of 7.86%. These mortgages mature on August 2, 2004.
Proceeds from these mortgages were used primarily to retire existing debt,
purchase securities available for sale and fund land development.
The aggregate principal payments of all mortgages payable are
scheduled as follows:
2000 - $13,925,898
2001 - 427,008
2002 - 463,410
2003 - 6,242,460
2004 - 9,360,377
----------
Total - $30,419,153
==========
NOTE 6 - EMPLOYEE STOCK OPTIONS
The Company maintains Stock Option Plans for officers and key
employees to purchase up to 750,000 shares of common stock. Options may be
granted any time up to December 31, 2003. No option shall be available for
exercise beyond ten years. All options are exercisable after one year from
the date of grant. The option price shall not be below the fair market
value at date of grant. Cancelled or expired options are added back to the
"pool" of shares available under the plan.
-38-
A summary of the status of the Company's stock option plans as of
December 31, 1999, 1998 and 1997 and changes during the years then ended
are as follows:
1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 384,500 $10.38 336,500 $ 9.97 278,000 $ 8.31
Granted 61,000 9.94 83,000 11.13 107,500 12.69
Exercised (49,000) 8.15 (24,000) 6.88 (49,000) 6.47
Expired -0- -0- (11,000) 11.16 -0- -0-
------- ------ -------
Outstanding at
end of year 396,500 10.59 384,500 10.38 336,500 9.97
======= ======= =======
Options exercisable
at end of year 335,500 301,500 229,000
======= ======= =======
Weighted-average
fair value of
options granted
during the year 1.10 1.36 1.99
The Company has elected to continue to follow APB Opinion No. 25 in
accounting for its stock option plans and, accordingly, no compensation
cost has been recognized. Had compensation cost been determined consistent
with SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts as follows:
1999 1998 1997
Net Income As reported $ 4,556,136 $ 4,201,691 $ 4,197,258
Pro forma 4,475,560 4,022,731 4,066,414
Net Income Per
Share - Basic As reported .63 .60 .63
and Diluted Pro forma .62 .57 .61
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 in 1999, 1998 and 1997: dividend yield
of 8 percent for 1999, 7 percent for 1998 and 5 percent for 1997; expected
volatility of 25 percent; risk-free interest rates of 6.25 percent, 5.74
percent and 6.24 percent in 1999, 1998 and 1997, respectively; and expected
lives of five years.
-39-
The following is a summary of stock options outstanding as of December
31, 1999:
Date of Number of Number of Option Expiration
Grant Employees Shares Price Date
01/05/95 2 75,000 8.25 01/05/00
08/03/95 3 9,000 8.375 08/03/00
08/17/95 2 15,000 8.375 08/17/00
01/10/96 1 25,000 10.62 01/10/01
06/27/96 5 27,000 10.75 06/27/01
01/03/97 1 25,000 13.12 01/03/02
03/17/97 1 25,000 13.37 03/17/02
06/25/97 6 26,500 11.50 06/25/02
12/15/97 1 25,000 13.06 12/15/02
01/08/98 1 25,000 12.75 01/08/03
08/05/98 8 33,000 10.00 08/05/03
08/05/98 1 25,000 11.00 08/05/03
01/05/99 1 25,000 * 11.56 01/05/04
09/28/99 8 36,000 * 8.812 09/28/04
-------
396,500
=======
* Unexercisable
As of December 31, 1999, there were 272,500 shares available for grant
under these plans.
NOTE 7 - TREASURY STOCK
During the year ended December 31, 1999, the Company purchased 170,500
shares of its own stock for a total cost of $1,576,309.
NOTE 8 - 401(K) PLAN
Any full-time employees who are over 21 years old and have completed
one year of service (as defined) are eligible for the Company's 401(k) Plan
(Plan). Under this Plan, an employee may elect to defer his/her
compensation (up to a maximum of 15%) and have it contributed to the Plan.
Employer contributions to the Plan are at the discretion of the Company.
During 1999, 1998 and 1997, the Company made matching contributions to the
Plan of up to 50% of the first 6% of employee salary. This amounted to
$31,967, $38,271 and $33,218 for 1999, 1998 and 1997, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS AND OTHER MATTERS
TRANSACTIONS WITH MONMOUTH REAL ESTATE INVESTMENT CORPORATION
During 1999, 1998 and 1997, the Company purchased shares of Monmouth
Real Estate Investment Corporation (MREIC) common stock primarily through
its Dividend Reinvestment and Stock Purchase Plan (See Note 4). There are
six Directors of the Company who are also Directors and shareholders of
MREIC.
-40-
TRANSACTIONS WITH MONMOUTH CAPITAL CORPORATION AND THE MOBILE HOME STORE, INC.
During 1999, 1998 and 1997, the Company purchased shares of Monmouth
Capital Corporation (MCC) common stock primarily through its Dividend
Reinvestment and Stock Purchase Plan (See Note 4). Six directors of the
Company are also directors and shareholders of MCC.
The Company receives rental income from The Mobile Home Store, Inc.
(MHS), a wholly-owned subsidiary of MCC. MHS sells and finances the sales
of manufactured homes.
MHS pays the Company market rent on sites where MHS has a home for
sale. Total site rental income from MHS amounted to $159,065, $152,935 and
$117,709, respectively for the years ended December 31, 1999, 1998 and
1997.
Effective April 1, 1995, the Company and MHS entered into an agreement
whereby MHS leases space from the Company to be used as sales lots, at
market rates, at most of the Company's communities. Total rental income
relating to these leases amounted to $142,680, $139,200 and $90,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
As a REIT, the Company cannot be in the business of selling
manufactured homes for profit. During 1999, 1998 and 1997, the Company had
approximately $62,000, $139,000 and $134,000 respectively, of rental homes
that were sold to MHS at book value.
During 1999, 1998 and 1997, the Company purchased from MHS at its
cost, 24, 10 and 7 new homes, respectively totaling $530,520, $269,192 and
$198,374, respectively to be used as rental homes.
SALARY, DIRECTORS', MANAGEMENT AND LEGAL FEES
During the years ended December 31, 1999, 1998 and 1997, salary,
Directors', management and legal fees to Mr. Eugene W. Landy and the law
firm of Landy & Landy amounted to $160,600, $166,100 and $183,850,
respectively.
OTHER MATTERS
During 1994, the Company entered into a three-year employment
agreement and a five-year employment agreement with two of its executive
officers. The agreements provide for base compensation, bonuses and fringe
benefits, in addition to specified severance and retirement benefits. The
Company is accruing these benefits over the terms of the agreements.
Included in general and administrative expense for the years ended December
31, 1999, 1998 and 1997 were $41,875, $83,750 and $167,500 respectively,
relating to these agreements.
-41-
In August, 1999, the Company entered into a lease for its corporate
offices. The lease is for a five-year term at market rates with monthly
lease payments of $12,225. The lessor of the property is owned by certain
officers and directors of the Company. It is anticipated that lease
payments and the resultant lease term will commence during the first
quarter of 2000, when all lease improvements have been completed. A
portion of the monthly lease payment will be reimbursed by other related
entities utilizing the leased space (MCC and MREIC). The amount of
reimbursement from these entities has not yet been determined.
NOTE 10 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has a Dividend Reinvestment and Stock Purchase Plan
(DRIP). Under the terms of the DRIP, shareholders who participate may
reinvest all or part of their dividends in additional shares of the Company
at approximately 95% of the market price. Shareholders may also purchase
additional shares at approximately 95% of their market price by making
optional cash payments. Generally, dividend reinvestments and purchases of
shares are made quarterly on March 15, June 15, September 15 and December
15.
Effective June 24, 1998, the Company amended the Dividend Reinvestment
and Stock Purchase Plan. Shareholders may no longer purchase additional
shares by making optional cash payments. The dividend reinvestment feature
of the Plan remains unchanged.
Amounts received and shares issued in connection with the DRIP for the
years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
Amounts Received/Dividends
Reinvested $ 1,631,789 $ 3,731,056 $ 4,347,668
Number of Shares Issued 187,616 357,268 382,636
NOTE 11 - DISTRIBUTIONS
The following dividends were paid to shareholders during the three
years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
Quarter Ended Amount Per Share Amount Per Share Amount Per Share
March 31 $1,358,734 $ .1875 $1,202,990 $ .175 $1,129,043 $ .175
June 30 1,352,118 .1875 1,311,297 .1875 1,144,741 $ .175
September 30 1,359,730 .1875 1,340,697 .1875 1,163,882 $ .175
December 31 1,371,322 .1875 1,349,639 .1875 1,182,630 $ .175
--------- ----- --------- ----- --------- ----
$5,441,904 $ .75 $5,204,623 $ .7375 $4,620,296 $ .70
========= === ========= ===== ========= ===
Total distributions to shareholders for 1999 amounted to $5,441,904,
or $.75 per share, of which 75.64% was taxed as ordinary income, .65% was
taxed as capital gains and 23.71% was a return of capital. This amount
does not include the dividend resulting from the discount on shares
purchased through the Company's Dividend Reinvestment and Stock Purchase
Plan.
-42-
On January 20, 2000, the Company declared a dividend of $.1875 per
share to be paid on March 15, 2000 to shareholders of record February 15,
2000.
NOTE 12 - FEDERAL INCOME TAXES
The Company elected to be taxed as a REIT. As the Company has
distributed all of its income currently, no provision has been made for
Federal income or excise taxes for the years ended December 31, 1999, 1998
and 1997.
NOTE 13 - LEGAL MATTERS
There are no lawsuits pending against the Company that
management believes will have a material effect on the financial condition
or results of operations of the Company.
In the normal course of business, the Company is a Defendant in
various legal cases, all of which are being defended by the Company's
insurance carrier.
During 1998, the Company paid a judgment of $68,142 to Stults and
Associates, Inc. (Stults), an engineering firm. Stults & Associates have
claimed various amounts for attorney's fees. The Company continues to
vigorously contest Stults & Associates claim for attorney's fees and
believes if any attorney fees are awarded, the amount will be less than
$100,000. Management believes that the outcome of this lawsuit will not
have a material effect on the financial condition or results of operations
of the Company.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose certain information about fair
values of financial instruments, as defined in SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments".
Limitations
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. For a portion of the
Company's 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.
-43-
The fair value of cash and cash equivalents and notes receivables
approximates their current carrying amounts since all such items are short-
term in nature. The fair value of securities available for sale is based
upon quoted market values. The fair value of mortgages payable in 1998
approximated their carrying amounts since such amounts payable were at
approximately a weighted-average current market rate of interest. For
1999, the fair and carrying values of mortgages payable amounted to
$30,109,153 and $30,419,153, respectively. The fair value of mortgages
payable is based upon discounted cash flows at current market rates for
instruments with similar remaining terms.
NOTE 15 - SUPPLEMENTAL CASH FLOW AND COMPREHENSIVE INCOME INFORMATION
Cash paid during the years ended December 31, 1999, 1998 and 1997 for
interest was $2,120,268, $1,351,577 and $1,373,445, respectively.
During the years ended December 31, 1999, 1998 and 1997, land
development costs of $2,284,546, $1,711,778 and $3,507,879, respectively
were transferred to investment property and equipment and placed in
service.
During the years ended December 31, 1999, 1998 and 1997, the Company
had dividend reinvestments of $1,631,789, $1,860,981 and $1,824,853,
respectively which required no cash transfers.
The following are the reclassification adjustments related to
securities available for sale included in Other Comprehensive Income:
1999 1998 1997
Unrealized holding (losses)
gains arising during the year $(1,336,870) $(510,852) $255,327
Less: reclassification adjustment
for gains realized in income (53,473) -0- (92,811)
--------- ------- -------
Net unrealized (losses) gains $(1,390,343) $(510,852) $162,516
========= ======= =======
-44-
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Column A Column B Column C Column D
Initial Cost
Site, Land Capitalization
& Building Subsequent to
Description Encumbrances Land Improvements Acquisition
Memphis, TN $ -0- $ 250,000 $ 2,569,101 $ 1,251,599
Greenfield Center, NY -0- 37,500 232,547 1,690,732
Vineland, NJ (3) 320,000 1,866,323 684,767
Duncansville, PA -0- 60,774 378,093 281,276
Cranberry Township, PA 2,480,841 181,930 1,922,931 290,706
Clifton Park, NY 3,469,814 391,724 704,021 922,567
Apollo, PA -0- 670,000 1,336,600 680,215
Cranberry Township, PA 3,969,346 75,000 977,225 1,052,222
Millville, NJ -0- 216,000 1,166,517 3,520,211
Kutztown, PA -0- 145,000 1,695,041 2,986,915
Inkerman, PA -0- 572,500 2,151,569 1,863,256
Monticello, NY -0- 235,600 1,402,572 1,689,338
Navarre, OH -0- 290,000 1,457,673 637,763
Memphis, TN -0- 78,435 810,477 1,423,640
West Grove, PA (3) 175,000 990,515 1,190,819
Carlisle, PA -0- 37,540 198,321 729,995
Belle Vernon, PA (3) 150,000 2,491,796 1,931,655
Marion, OH -0- 236,000 785,293 1,983,370
Athens, OH -0- 67,000 1,326,800 164,469
Magnolia, OH 3,925,925 270,000 1,941,430 1,584,832
Jackson, NJ (3) 100,095 602,820 1,247,503
Hamburg, NY 3,012,276 424,000 3,812,000 -0-
Eatontown, NJ (3) 157,421 280,749 139,610
Caledonia, OH -0- 260,000 1,753,206 287,656
---------- --------- ---------- ----------
$16,858,202 $5,401,519 $32,853,620 $28,235,116
13,560,951(3) ========= ========== ==========
----------
$30,419,153
==========
-45a-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Column A Column E(1) (2) Column F(1)
Gross Amount at Which Carried at 12/31/99
Site, Land
&
Building Accumulated
Description Land Improvements Total Depreciation
Memphis, TN $ 250,000 $ 3,820,700 $ 4,070,700 $ 2,156,046
Greenfield Center, NY 122,865 1,837,914 1,960,779 947,713
Vineland, NJ 408,206 2,462,884 2,871,090 1,491,088
Duncansville, PA 60,774 659,369 720,143 538,240
Cranberry Township, PA 181,930 2,213,637 2,395,567 1,379,693
Clifton Park, NY 391,724 1,626,588 2,018,312 901,360
Apollo, PA 670,000 2,016,815 2,686,815 314,536
Cranberry Township, PA 75,000 2,029,447 2,104,447 1,554,906
Millville, NJ 631,137 4,271,591 4,902,728 1,142,123
Kutztown, PA 404,239 4,422,717 4,826,956 956,202
Inkerman, PA 572,500 4,014,825 4,587,325 924,665
Monticello, NY 318,472 3,009,038 3,327,510 974,330
Navarre, OH 290,000 2,095,436 2,385,436 918,429
Memphis, TN 78,435 2,234,117 2,312,552 994,677
West Grove, PA 536,064 1,820,270 2,356,334 1,377,315
Carlisle, PA 145,473 820,383 965,856 642,649
Belle Vernon, PA 150,000 4,423,451 4,573,451 2,998,386
Marion, OH 236,000 2,768,663 3,004,663 822,160
Athens, OH 67,000 1,491,269 1,558,269 173,889
Magnolia, OH 270,000 3,526,262 3,796,262 1,808,204
Jackson, NJ 100,095 1,850,323 1,950,418 1,426,987
Hamburg, NY 424,000 3,929,765 4,353,765 291,010
Eatontown, NJ 135,421 442,359 577,780 354,917
Caledonia, OH 260,000 2,040,862 2,300,862 268,223
--------- ---------- ---------- ----------
$6,779,335 $59,828,685 $66,608,020 $25,357,748
========= ========== ========== ==========
-45b-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Column A Column G Column H Column I
Date of Date Depreciable
Description Construction Acquired Life
Memphis, TN Prior to 1980 1986 3 to 27.5
Greenfield Center, NY Prior to 1970 1977 3 to 27.5
Vineland, NJ 1973 1986 3 to 27.5
Duncansville, PA 1961 1979 3 to 27.5
Cranberry Township, PA 1974 1986 5 to 27.5
Clifton Park, NY 1972 1978 3 to 27.5
Apollo, PA Prior to 1980 1995 5 to 27.5
Cranberry Township, PA Prior to 1980 1982 3 to 27.5
Millville, NJ Prior to 1980 1985 3 to 27.5
Kutztown, PA 1971 1979 5 to 27.5
Inkerman, PA 1970 1992 5 to 27.5
Monticello, NY 1972 1988 5 to 27.5
Navarre, OH Prior to 1980 1987 5 to 27.5
Memphis, TN 1955 1985 3 to 27.5
West Grove, PA 1971 1974 5 to 27.5
Carlisle, PA 1961 1969 3 to 27.5
Belle Vernon, PA 1973 1983 3 to 27.5
Marion, OH 1950 1986 3 to 27.5
Athens, OH Prior to 1980 1996 5 to 27.5
Magnolia, OH Prior to 1980 1985 5 to 27.5
Jackson, NJ 1969 1969 3 to 27.5
Hamburg, NY Prior to 1980 1997 27.5
Eatontown, NJ 1964 1978 3 to 27.5
Caledonia, OH Prior to 1980 1996 5 to 27.5
-45c-
/-------------FIXED ASSETS------------/
(1) Reconciliation: 12/31/99 12/31/98 12/31/97
Balance - Beginning of Year $ 61,329,910 $ 58,197,197 $ 48,733,757
---------- ---------- ----------
Additions:
Acquisitions -0- -0- 4,236,000
Improvements 5,739,997 3,512,719 5,628,858
Depreciation -0- -0- -0-
--------- --------- ---------
Total Additions 5,739,997 3,512,719 9,864,858
---------- ---------- ----------
Deletions 461,887 380,006 401,418
---------- ---------- ----------
Balance - End of Year $66,608,020 $61,329,910 $58,197,197
========== ========== ==========
/---ACCUMULATED DEPRECIATION---/
Reconciliation: 12/31/99 12/31/98 12/31/97
Balance - Beginning of Year $ 23,335,294 $ 21,388,924 $ 19,646,362
---------- ---------- ----------
Additions:
Acquisitions -0- -0- -0-
Improvements -0- -0- -0-
Depreciation 2,128,474 2,079,649 1,812,903
---------- ---------- ----------
Total Additions 2,128,474 2,079,649 1,812,903
---------- ---------- ----------
Deletions 106,020 133,279 70,341
---------- ---------- ----------
Balance - End of Year $ 25,357,748 $ 23,335,294 $ 21,388,924
========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates historical
cost.
(3) Represents one mortgage note payable secured by five properties.
-45d-
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
United Mobile Homes, Inc.
We consent to incorporation by reference in the Registration Statement (No.
333-13053) on Form S-8 of our report dated March 15, 2000, relating to the
consolidated balance sheets of United Mobile Homes, Inc., as of December
31, 1999 and 1998 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1999, and the related schedule, which report
appears in the December 31, 1999 annual report on Form 10-K of United
Mobile Homes, Inc.
/s/ KPMG LLP
Short Hills, New Jersey
March 17, 2000
-46-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
UNITED MOBILE HOMES, INC.
BY: /s/Eugene W. Landy
EUGENE W. LANDY
Chairman of the Board
Dated: March 15, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
Title Date
/s/Eugene W. Landy Chairman of the March 15, 2000
EUGENE W. LANDY Board and
Director
/s/Samuel A. Landy President and March 15, 2000
SAMUEL A. LANDY Director
/s/Anna T. Chew Vice President and March 15, 2000
ANNA T. CHEW Chief Financial
Officer
and Director
/s/Ernest V. Secretary/Treasurer March 15, 2000
Bencivenga and Director
ERNEST V. BENCIVENGA
/s/Robert J. Director March 15, 2000
Anderson
ROBERT J. ANDERSON
/s/Charles P. Director March 15, 2000
Kaempffer
CHARLES P. KAEMPFFER
/s/Richard H. Molke Director March 15, 2000
RICHARD H. MOLKE
/s/Eugene Rothenberg Director March 15, 2000
EUGENE ROTHENBERG
/s/Robert G. Sampson Director March 15, 2000
ROBERT G. SAMPSON
-47-