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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, 2003
[ ] 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)
Maryland 22-1890929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
3499 Route 9, Suite 3C, Freehold, New Jersey 07728
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (732) 577-
9997
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
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes X No ____
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 June 30, 2003 was
$118,649,528. 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 June 30, 2003 was $89,070,503.
The number of shares outstanding of issuer's common stock as of
March 1, 2004 was 8,273,139 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-six manufactured home communities containing 6,129 sites.
The communities are located in New Jersey, New York, Ohio,
Pennsylvania and Tennessee.
Effective January 1, 1992, the Company elected to be taxed
as a real estate investment trust (REIT) under Sections 856-860
of the Internal Revenue Code. (the Code), and intends to maintain
its qualification as a REIT in the future. As a qualified REIT,
with limited exceptions, the Company will not be taxed under
Federal and certain state income tax laws at the corporate level
on taxable income that it distributes to its shareholders. For
special tax provisions applicable to REITs, refer to Sections 856
860 of the Code. The Company is subject to franchise taxes in
some of the states in which the Company owns property.
The Company was incorporated in the state of New Jersey in
1968. On September 29, 2003, the Company changed its state of
incorporation from New Jersey to Maryland. The reincorporation
was approved by the Company's shareholders at the Company's
annual meeting on August 14, 2003.
The reincorporation was accomplished by the merger of the
Company with and into its wholly-owned subsidiary, United Mobile
Homes, Inc., a Maryland corporation, (United Maryland), which was
the surviving corporation in the merger.
As a result of the merger, each outstanding share of the
Company's Class A common stock, $.10 par value per share, was
converted into one share of common stock, $.10 par value per
share of United Maryland common stock. In addition, each
outstanding option to purchase New Jersey Common Stock was
converted into the right to purchase Maryland Common Stock upon
the same terms and conditions as immediately prior to the
Merger. The Company's 1994 Stock Option Plan, as amended,
was assumed by United Maryland.
The conversion of the New Jersey Common Stock into Maryland
Common Stock occurred without an exchange of certificates.
Accordingly, certificates formerly representing shares of New
Jersey Common Stock are now deemed to represent the same number
of shares of Maryland Common Stock.
Prior to the Merger, United Maryland had no assets or
liabilities, other than nominal assets or liabilities. As a
result of the Merger, United Maryland acquired all of the assets
and all of the liabilities and obligations of the Company. The
Merger was accounted for as if it were a "pooling of interests"
rather than a purchase for financial reporting and related
purposes, with the result that the historical accounts of the
Company and United Maryland have been combined for all periods
presented. United Maryland, has the same business, properties,
directors, management, status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended, and
principal executive offices as United Mobile Homes, Inc., a New
Jersey corporation.
-2-
ITEM I - BUSINESS, (CONT'D.)
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-five years, the last
eighteen of which have been as a publicly-owned corporation.
Narrative Description of Business
The Company operates as part of a group of three public
companies (all REITs) which includes United Mobile Homes, Inc.,
Monmouth Capital Corporation, and Monmouth Real Estate Investment
Corporation (the affiliated companies). Some general and
administrative expenses are allocated between the three
affiliated companies based on use or services provided. The
Company currently has approximately 100 employees. Allocations
of salaries and benefits are made between the affiliated
companies based on the amount of the employees' time dedicated to
each affiliated company.
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, and
through its wholly-owned taxable REIT subsidiary, sells homes to
residents and prospective residents of our communities.
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 a 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.
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
-3-
ITEM I - BUSINESS, (CONT'D.)
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.
Effective April 1, 2001, the Company, through its wholly-
owned taxable REIT subsidiary, UMH Sales and Finance, Inc. (S&F),
began to conduct manufactured home sales, and financing of these
sales, in its communities. Inherent in the operation of a
manufactured home community is site vacancies. S&F was
established to fill these vacancies and potentially enhance the
value of the communities.
Additional information about the Company can be found on the
Company's website which is located at www.umh.com. The Company's
filings with the Securities and Exchange Commission are made
available through a link on the Company's website or by calling
Investor Relations.
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 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.
The Company also invests in both debt and equity securities
of other REITs. The Company from time to time may purchase these
securities on margin when the interest and dividend yields exceed
the cost of funds. The securities portfolio, to the extent not
pledged to secure borrowing, provides the Company with liquidity
and additional income. Such securities
-4-
ITEM I - BUSINESS, (CONT'D.)
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.
At December 31, 2003 and 2002, the Company had $31,096,211 and
$32,784,968, respectively, of securities available for sale.
Included in these securities are Preferred Stock and Debt
securities of $16,249,188 and $3,438,000, respectively, at
December 31, 2003, and $18,012,877 and $2,297,125, respectively,
at December 31, 2002. The unrealized gain on securities
available for sale at December 31, 2003 and 2002 amounted to
$5,308,195 and $3,988,429, respectively.
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 2004 will be
consistent with 2003 expenditures, which amounted to
approximately $2,000,000. 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.
Risk Factors
Real Estate Industry and Competition Risks
The Company's investments are 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.
The Company competes 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.
-5-
ITEM I - BUSINESS, (CONT'D.)
Governmental Regulations
Local zoning and use laws, environmental statutes and other
governmental requirements may restrict expansion, rehabilitation
and reconstruction activities. These regulations may prevent the
Company from taking advantage of economic opportunities.
Legislation such as the Americans with Disabilities Act may
require the Company to modify its properties. Future legislation
may impose additional requirements. No prediction can be made as
to what requirements may be enacted or what changes may be
implemented to existing legislation.
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.
Environmental Liability Risks
Current and former real estate owners and operators may be
required by law to investigate and clean up hazardous substances
released at the properties they own or operate or have owned or
operated. They may be liable to the government or to third
parties for property damage, investigation costs and cleanup
costs. Contamination may adversely affect the owner's ability to
sell or lease real estate or to borrow using the real estate as
collateral. There is no way of determining at this time the
magnitude of any potential liability to which the Company may be
subject arising out of unknown environmental conditions or
violations with respect to the properties it owns. Environmental
laws today can impose liability on a previous owner or operator
of a property that owned or operated the property at a time when
hazardous or toxic substances were disposed of, or released from,
the property. A conveyance of the property, therefore, does not
relieve the owner or operator from liability. The Company is not
aware of any environmental liabilities relating to its properties
which would have a material adverse effect on its business,
assets, or results of operations. However, no assurance can be
given that environmental liabilities will not arise in the
future.
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.
Currently, the Company is not subject to radon or asbestos
monitoring requirements.
Insurance Considerations
The Company generally maintains insurance policies related
to its business, including casualty, general liability and other
policies covering business operations, employees and assets. The
Company may be required to bear all losses that are not
adequately covered by insurance. Although management believes
that the Company's insurance programs are adequate, no assurance
can be given that the Company will not incur losses in excess of
its insurance coverage, or that the Company will be able to
obtain insurance in the future at acceptable levels and
reasonable cost.
-6-
ITEM I - BUSINESS, (CONT'D.)
Financing Risks
The Company finances a portion of its investments through
debt. This debt creates risks, including a) rising interest
rates on floating rate debt; b) failure to repay or refinance
existing debt as it matures, which may result in forced
disposition of assets on disadvantageous terms; c) refinancing
terms less favorable than the terms of the existing debt; and d)
failure to meet required payments of principal and/or interest.
Amendment of Business Policies
The Board of Directors determines the growth, investment,
financing, capitalization, borrowing, REIT status, operating and
distribution policies. Although the Board of Directors has no
present intention to amend or revise any of these policies, these
policies may be amended or revised without notice to
shareholders. Accordingly, shareholders may not have control
over changes in Company policies.
Other Risks
The market value of our Common Stock could decrease based
on the Company's performance and market perception and
conditions. The market value of the Company's Common Stock may be
based primarily upon the market's perception of the Company's
growth potential and current and future cash dividends, and may
be secondarily based upon the real estate market value of the
Company's underlying assets. The market price of the Company's
Common Stock is influenced by the dividend on the Company's
Common Stock relative to market interest rates. Rising interest
rates may lead potential buyers of the Company's Common Stock to
expect a higher dividend rate, which would adversely affect the
market price of our Common Stock. In addition, rising interest
rates would result in increased expense, thereby adversely
affecting cash flow and the Company's ability to service our
indebtedness and pay dividends.
There are restrictions on the transfer of the Company's
Common Stock. To maintain the Company's qualification as a REIT
under the Internal Revenue Code of 1986 (the Code), no more than
50% in value of the Company's outstanding capital stock may be
owned, actually or by attribution, by five or fewer individuals,
as defined in the Code to also include certain entities, during
the last half of a taxable year. Accordingly, the Company's
charter and bylaws contain provisions restricting the transfer of
the Company's Common Stock.
The Company's earnings are dependent, in part, upon the
performance of our investment portfolio. As permitted by the
Code, management invests in and owns securities of other real
estate investment trusts. To the extent that the value of those
investments declines or those investments do not provide a
return, the Company's earnings could be adversely affected.
The Company is subject to restrictions that may impede
management's ability to effect a change in control. Certain
provisions contained in the Company's charter and bylaws, and
certain provisions of Maryland law may have the effect of
discouraging a third party from making an acquisition proposal
for us and thereby inhibit a change in control.
-7-
ITEM I - BUSINESS, (CONT'D.)
The Company may fail to qualify as a REIT. If the
Company fails to qualify as a REIT, the Company will not be
allowed to deduct distributions to stockholders in computing our
taxable income and will be subject to Federal income tax,
including any applicable alternative minimum tax, at regular
corporate rates. In addition, the Company might be barred from
qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular
corporate rates would reduce significantly the cash flow
available for distribution to stockholders and for debt service.
Furthermore, the Company would no longer be required to
make any distributions to the Company's stockholders as a
condition to REIT qualification. Any distributions to
stockholders that otherwise would have been subject to tax as
capital gain dividends would be taxable as ordinary income to the
extent of the Company's current and accumulated earnings and
profits. Corporate distributees, however, may be eligible for the
dividends received deduction on the distributions, subject to
limitations under the Code.
To qualify as a REIT, and to continue to qualify as a
REIT, the Company must comply with certain highly technical and
complex requirements. The Company cannot be certain it has
complied, and will always be able to comply, with these
requirements. In addition, facts and circumstances that may be
beyond the Company's control may affect the Company's ability to
continue to qualify as a REIT. The Company cannot assure you that
new legislation, regulations, administrative interpretations or
court decisions will not change the tax laws significantly with
respect to the Company's qualification as a REIT or with respect
to the Federal income tax consequences of qualification. The
Company believes that it has qualified as a REIT since its
inception and intends to continue to qualify as a REIT. However,
the Company cannot assure you that the Company is qualified or
will remain qualified.
The Company may be unable to comply with the strict
income distribution requirements applicable to REITs. To obtain
the favorable tax treatment associated with qualifying as a REIT,
among other requirements, the Company is required each year to
distribute to its stockholders at least 90% of its REIT taxable
income. The Company will be subject to corporate income tax on
any undistributed REIT taxable income. In addition, we will incur
a 4% nondeductible excise tax on the amount by which our
distributions in any calendar year are less than the sum of (i)
85% of our ordinary income for the year, (ii) 95% of our capital
gain net income for the year, and (iii) any undistributed taxable
income from prior years. The Company could be required to borrow
funds on a short-term basis to meet the distribution requirements
that are necessary to achieve the tax benefits associated with
qualifying as a REIT (and to avoid corporate income tax and the
4% excise tax), even if conditions were not favorable for
borrowing.
Notwithstanding the Company's status as a REIT, the
Company is subject to various Federal, state and local taxes on
our income and property. For example, the Company will be taxed
at regular corporate rates on any undistributed taxable income,
including undistributed net capital gains, provided, however,
that properly designated undistributed capital gains will
effectively avoid taxation at the stockholder level. The Company
may also have to pay some state income or franchise taxes because
not all states treat REITs in the same manner as they are treated
for Federal income tax purposes.
-8-
ITEM I - BUSINESS, (CONT'D.)
Number of Employees
On March 1, 2004, 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.
-9-
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-six manufactured home communities containing 6,129 sites.
The following is a brief description of the properties owned by
the Company:
2003 Current Rent
Number of Average Per
Name of Community Sites Occupancy Month Per Site
Allentown 414 84% $278
4912 Raleigh-Millington Road
Memphis, TN 38128
Brookview Village 133 77% $334
Route 9N
Greenfield Center, NY 12833
Cedarcrest 283 99% $397
1976 North East Avenue
Vineland, NJ 08360
Cranberry Village 201 91% $377
201 North Court
Cranberry Township, PA
16066
Cross Keys Village 133 88% $254
Old Sixth Avenue Road, RD #1
Duncansville, PA 16635
D & R Village 244 93% $356
Route 146, RD 13
Clifton Park, NY 12065
Fairview Manor 276 94% $399
2110 Mays Landing Road
Millville, NJ 08332
Forest Park Village 252 86% $327
724 Slate Avenue
Cranberry Township, PA
16066
Heather Highlands 457 64% $245
109 S. Main Street
Pittston, PA 18640
Highland Estates 269 95% $386
60 Old Route 22
Kutztown, PA 19530
Kinnebrook 212 89% $376
201 Route 17B
Monticello, NY 12701
Lake Sherman Village 210 94% $300
7227 Beth Avenue, SW
Navarre, OH 44662
-10-
2003 Current Rent
Number of Average Per
Name of Community Sites Occupancy Month Per Site
Laurel Woods 220 75% $210
1943 St. Joseph Street
Cresson, PA 16630
Memphis Mobile City 168 88% $244
3894 N. Thomas Street
Memphis, TN 38127
Oxford Village 224 100% $432
2 Dolinger Drive
West Grove, PA 19390
Pine Ridge Village 137 88% $344
147 Amy Drive
Carlisle, PA 17013
Pine Valley Estates 218 79% $250
700 Pine Valley Estates
Apollo, PA 15613
Port Royal Village 427 73% $277
400 Patterson Lane
Belle Vernon, PA 15012
River Valley Estates 214 95% $227
2066 Victory Road
Marion, OH 43302
Sandy Valley Estates 364 94% $275
801 First, Route #2
Magnolia, OH 44643
Southwind Village 250 97% $282
435 E. Veterans Highway
Jackson, NJ 08527
Spreading Oaks Village 153 93% $202
7140-29 Selby Road
Athens, OH 45701
Waterfalls Village 202 96% $359
3450 Howard Road
Hamburg, NY 14075
Woodland Manor 150 42% $250
338 County Route 11, Lot 165
West Monroe, NY 13167
Woodlawn Village 157 98% $500
Route 35
Eatontown, NJ 07724
Wood Valley 161 94% $228
1493 N. Whetstone River Road
Caledonia, OH 43314
-11-
ITEM 2 - PROPERTIES (CONT'D.)
Occupancy rates are 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 sites 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 17 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. As of December
31, 2003, all of these sites were vacant. 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 6,129 sites, the
Company operates approximately 500 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 800 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 $79,000,000 (at original
cost) in manufactured home properties. These consist of 26
separate manufactured home communities and related equipment and
improvements. There are 6,129 sites in the 26 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, Fairview Manor
with 276 sites, Highland Estates with 269 sites, Allentown with
414 sites and Heather Highlands with 457 sites are the larger
properties. Heather Highlands historically has an average of 65%
to 70% occupancy. The property continues to produce positive
cash flow.
Mortgages on Properties
The Company has mortgages on various properties. The
maturity dates of these mortgages range from the year 2004 to
2018. Interest varies from fixed rates of 4.625% to 7.5% and a
variable rate of prime+1/2%. The aggregate balances of these
mortgages total $44,222,675 at December 31, 2003. (For
additional information, see Part IV, Item 15(a) (1) (vi), Note 5
of the Notes to Consolidated Financial Statements - Notes and
Mortgages Payable).
-12-
ITEM 3 - LEGAL PROCEEDINGS
Legal proceedings are incorporated herein by reference and
filed as Part IV, Item 15(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 2003
to a vote of security holders through the solicitation of proxies
or otherwise.
-13-
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's shares are 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:
2003 2002 2001
HIGH LOW HIGH LOW HIGH LOW
First Quarter 14.49 12.64 12.50 11.77 12.75 9.63
Second Quarter 16.85 13.84 13.85 12.15 12.35 10.65
Third Quarter 16.50 14.14 13.50 12.25 11.95 10.50
Fourth Quarter 17.70 14.75 13.54 12.22 12.50 10.25
On March 1, 2004, the closing price of the Company's stock
was $16.81.
As of December 31, 2003, there were approximately 1,000
shareholders of the Company's common stock based on the number of
record owners.
For the years ended December 31, 2003, 2002 and 2001, total
distributions paid by the Company amounted to $7,118,101 or
$.9050 per share ($.5603 taxed as ordinary income and $.3447
taxed as a long-term capital gain), $6,568,295 or $.8650 per
share ($.6738 taxed as ordinary income and $.1912 taxed as a long
term capital gain), and $5,980,540 or $.8025 per share (all taxed
as ordinary income), respectively.
It is the Company's intention to continue distributing
quarterly dividends. On January 14, 2004, the Company declared a
dividend of $.2325 per share to be paid on March 15, 2004 to
shareholders of record on February 17, 2004. 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.
-14-
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS, (CONT'D.)
Equity Compensation Plan Information
The following table summarizes information, as of December
31, 2003, relating to equity compensation plans of the Company
(including individual compensation arrangements) pursuant to
which equity securities of the Company are authorized for
issuance.
Number of
Securities
Number of Remaining
Securities Weighted- Available for
to be average Future Issuance
Issued Upon Exercise Under Equity
Exercise of Price of Compensation Plans
Outstanding Outstanding (excluding
Options, Options, Securities
Plan Warrants Warrants reflected in
Category and Rights and Rights column (a))
(a) (b) (c)
________ ________ ________ ________
Equity
Compensation
Plans
Approved by
Security
Holders 306,000 $11.17 1,436,000
Equity
Compensation
Plans not
Approved by
Security
Holders N/A N/A N/A
_______ _______ _________
Total 306,000 $11.17 1,436,000
======= ======= =========
-15-
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial and other
information for the Company as of and for each of the years in
the five year period ended December 31, 2003. This table should
be read in conjunction with all of the financial statements and
notes thereto included elsewhere herein.
December 31,
2003 2002 2001 2001 1999
_____ _____ _____ _____ _____
Operating Data:
TotalRevenues $33,790,503 $29,423,893 $26,882,399 $20,644,731 $18,807,085
Total Expenses 25,719,333 23,576,227 21,303,647 15,418,042 14,248,985
Gain (Loss) on
Sales of
Investment
Property and
Equipment 55,888 664,546 (28,264) (37,318) (1,964)
Net Income 8,127,058 6,512,212 5,550,488 5,189,371 4,556,136
Net Income Per
Share -
Basic 1.03 .86 .74 .71 .63
Diluted 1.02 .85 .74 .71 .63
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow Data:
Net Cash
Provided by
Operating
Activities $4,420,150 $6,747,943 $4,277,851 $7,171,086 $6,770,625
Net Cash
Provided
(Used) by
Investing
Activities 326,610 (7,076,423) (11,027,374) (4,068,797) (12,032,660)
Net Cash
Provided
(Used) by
Financing
Activities (3,840,868) 1,099,628 6,918,095 (2,427,680) 5,154,277
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheet Data:
Total Assets $94,310,212 $89,026,506 $80,334,844 $62,945,597 $58,575,312
Mortgages
Payable 44,222,675 43,321,884 38,652,025 32,055,839 30,419,153
Shareholders'
Equity 39,099,776 29,736,417 27,964,534 22,839,426 21,391,307
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Data:
Average Number
of Shares
Outstanding 7,858,888 7,600,266 7,457,636 7,339,684 7,252,774
Funds from
Operations* $10,980,239 $9,319,106 $8,263,308 $7,845,528 $7,010,633
Cash Dividends
Per Share .9050 .8650 .8025 .7575 .75
-16-
ITEM 6 - SELECTED FINANCIAL DATA, (CONT'D.)
*Funds from Operations (FFO) is defined as net income excluding
gains (or losses) from sales of depreciable assets, plus
depreciation. FFO should be considered as a supplemental measure
of operating performance used by real estate investment trust
(REITs). FFO excludes historical cost depreciation as an expense
and may facilitate the comparison of REITs which have different
cost bases. The items excluded from FFO are significant
components in understanding and assessing the Company's financial
performance. FFO (1) does not represent cash flow from
operations as defined by generally accepted accounting
principles; (2) should not be considered as an alternative to net
income as a measure of operating performance or to cash flows
from operating, investing and financing activities; and (3) is
not an alternative to cash flow as a measure of liquidity. FFO,
as calculated by the Company, may not be comparable to similarly
entitled measures reported by other REITs.
The Company's FFO is calculated as follows:
2003 2002 2001 2000 1999
_____ _____ _____ _____ _____
Net Income $8,127,058 $6,512,212 $5,550,488 $5,189,371 $4,556,136
(Gain) Loss
on Sales of
Assets (55,888) (3,546) 28,264 37,318 1,946
Depreciation
Expense 2,909,069 2,810,440 2,684,556 2,618,839 2,452,533
__________ __________ _________ __________ __________
FFO (1) $10,980,239 $9,319,106 $8,263,308 $7,845,528 $7,010,633
========== ========== ========== ========== ==========
(1) Includes gain on sale of land of $661,000 in 2002.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis of the consolidated
financial condition and results of operations should be read in
conjunction with the Consolidated Financial Statements and notes
thereto elsewhere herein.
The Company is a real estate investment trust (REIT). 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 and, through, its
taxable REIT subsidiary, sells homes to residents and prospective
residents of our communities. The Company owns twenty-six
communities containing 6,129 sites. The communities are located
in New Jersey, New York, Ohio, Pennsylvania and Tennessee.
The Company's revenue primarily consists of rental and
related income from the operation of the manufactured home
communities. Revenues also include sales of manufactured homes,
interest and dividend income and gain on sales of securities
available for sale.
See PART I, Item 1. Business for a more complete discussion
of the economic and industry-wide factors relevant to the
Company, the Company's lines of business and principal products
and services, and the opportunities, challenges and risks on
which the Company is focused.
-17-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Significant Critical Accounting Policies and Estimates
The discussion and analysis of the Company's financial
condition and results of operations are based upon the Company's
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and judgments
that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities at the date of the Company's financial
statements. Actual results may differ from these estimates under
different assumptions or conditions.
Significant accounting policies are defined as those that
involve significant judgment and potentially could result in
materially different results under different assumptions and
conditions. Management believes the following significant
accounting policies are affected by our more significant
judgments and estimates used in the preparation of the Company's
financial statements. For a detailed description of these and
other accounting policies, see Note 2 in the notes to the
Company's consolidated financial statements included in this Form
10-K. Management has discussed each of these significant
accounting policies with the Audit Committee of the Board of
Directors.
Real Estate Investments
The Company applies Financial Accounting Standards Board
Statement No.144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", (Statement 144) to measure impairment in real
estate investments. Rental properties are individually evaluated
for impairment when conditions exist which may indicate that it
is probable that the sum of expected future cash flows (on an
undiscounted basis without interest) from a rental property is
less than its historical net cost basis. These expected future
cash flows consider factors such as future operating income,
trends and prospects as well as the effects of leasing demand,
competition and other factors. Upon determination that a
permanent impairment has occurred, rental properties are reduced
to their fair value. For properties to be disposed of, an
impairment loss is recognized when the fair value of the
property, less the estimated cost to sell, is less than the
carrying amount of the property measured at the time there is a
commitment to sell the property and/or it is actively being
marketed for sale. A property to be disposed of is reported at
the lower of its carrying amount or its estimated fair value,
less its cost to sell. Subsequent to the date that a property is
held for disposition, depreciation expense is not recorded.
Securities Available for Sale
Investments in non-real estate assets consist primarily of
marketable equity securities. Management reviews our marketable
securities for impairment on an annual basis, or when events or
circumstances occur. If a decline in fair value is determined to
be other than temporary, an impairment charge is recognized in
earnings and the cost basis of the individual security shall be
written down to fair value as the new cost basis. Management's
evaluation includes consideration of events that may be
attributable to the unrealized loss, including, among other
things, the credit-worthiness of the issuer, length of time that
a security had a continuous unrealized loss, and the financial
position of the issuing company.
-18-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Other
Estimates are used when accounting for the allowance for
doubtful accounts, potentially excess and obsolete inventory and
contingent liabilities, among others. These estimates are
susceptible to change and actual results could differ from these
estimates. The effects of changes in these estimates are
recognized in the period they are determined.
Revenue and Expense
2003 vs. 2002
Rental and related income increased from $20,140,691 for the
year ended December 31, 2002 to $20,954,274 for the year ended
December 31, 2003 primarily due to the acquisition of a new
community in 2003 and rental increases to residents. During
2003, the Company was able to obtain an average rent increase of
approximately 4%.
Occupancy as well as the ability to increase rental rates
directly affect revenues. The Company has experienced a slight
decrease in occupancy of approximately 1% from 87% in 2002. The
Company has faced many challenges in filling vacant homesites.
Relatively low interest rates have made site-built housing more
accessible. Attractive apartment rental deals have also
contributed to the increased vacancies. Some of the Company's
vacancies are the result of expansions in progress. The Company
is also evaluating further expansion at selected communities in
order to increase the number of available sites.
Sales of manufactured homes increased from $5,538,202 for
the year ended December 31, 2002 to $6,758,168 for the year ended
December 31, 2003. Cost of sales of manufactured homes increased
from $4,657,988 for the year ended December 31, 2002 to
$5,360,554 for the year ended December 31, 2003. Selling
expenses increased from $1,040,005 for the year ended December
31, 2002 to $1,255,773 for the year ended December 31, 2003.
These fluctuations are directly attributable to the fluctuations
in sales. Income from the sales operations (defined as sales of
manufactured homes less cost of sales of manufactured homes less
selling expenses) increased from a loss of $159,791 for the year
ended December 31, 2002 to a profit of $141,841 for the year
ended December 31, 2003. The Company has been experiencing an
increase in sales volume as well as an increase in gross margin.
The Company believes that sales of new homes produces new rental
revenue and is an investment in the upgrading of the communities.
Interest and dividend income increased from $2,867,142 in
2002 to $3,260,261 in 2003. This was primarily as a result of a
higher average balance of securities available for sale during
2003.
Gains on sales of securities available for sale increased
from $794,950 in 2002 to $2,698,724 in 2003. This increase was
primarily the result of the Company's decision to take advantage
of the rise in price of the securities portfolio. The Company
has also experienced an increase in redemptions on the preferred
stock holdings by the issuers. These securities were redeemed at
par.
-19-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Community operating expenses increased from $9,457,214 for
the year ended December 31, 2002 to $10,305,372 for the year
ended December 31, 2003 primarily as a result of the acquisition
of a new community in 2003 and increased real estate taxes,
professional fees and personnel costs, including health
insurance.
General and administrative expenses increased from
$2,184,045 in 2002 to $2,589,275 in 2003 primarily as a result of
an increase in professional fees relating to growth of corporate
offices, staff and reorganization in Maryland.
Interest expense decreased from $3,314,335 in 2002 to
$3,190,490 in 2003. This was primarily as a result of a decrease
in loans payable. The Company has also extended the Waterfalls
Village mortgage and the D&R Village mortgage and reduced those
rates from over 7% to 4.625%. The balance of these mortgages
amounted to $2,632,734 and $3,044,969 at December 31, 2003,
respectively. Interest capitalized on construction in progress
amounted to $145,800 and $162,600 for 2003 and 2002,
respectively.
Depreciation expense and amortization of financing costs
remained relatively stable.
Gain on sales of investment property and equipment decreased
from $664,546 in 2002 to $55,888 in 2003 primarily due to the
sale of vacant land at a gain of $661,000 in 2002.
For the year ended December 31, 2003, the Company reported
net income of $8,127,058 as compared to net income of $6,512,212
for the year ended December 31, 2002. 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.
2002 vs. 2001
Rental and related income increased from $19,291,611 for the
year ended December 31, 2001 to $20,140,691 for the year ended
December 31, 2002 primarily due to the acquisition of a new
community in 2001 and rental increases to residents. During
2002, the Company was able to obtain an average rent increase of
approximately 3%.
Overall occupancy rates are satisfactory with eight
manufactured home communities experiencing vacancies over ten
percent. Some of these vacancies are the result of expansions.
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.
Effective April 1, 2001, the Company, through its wholly-
owned taxable subsidiary, UMH Sales and Finance, Inc. (S&F),
began to conduct manufactured home sales in its communities.
This company was established to enhance the occupancy of the
communities. Sales of manufactured homes, other income, cost of
sales of manufactured homes and selling expenses are directly
related to this operation.
-20-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Interest and dividend income increased from $2,188,430 in
2001 to $2,867,142 in 2002 due to purchases of securities
available for sale during 2001 and 2002.
Gains on sales of securities available for sale increased
from $530,324 in 2001 to $794,950 in 2002.
Community operating expenses increased from $9,004,164 for
the year ended December 31, 2001 to $9,457,214 for the year ended
December 31, 2002 primarily as a result of the acquisition of a
new community in the later part of 2001 and increased insurance
expense and personnel costs.
General and administrative expenses increased from
$2,015,685 in 2001 to $2,184,045 in 2002 primarily as a result of
an increase in personnel costs.
Interest expense increased from $2,825,894 in 2001 to
$3,314,335 in 2002. This was primarily as a result of a higher
average principal balance outstanding. Interest capitalized on
construction in progress amounted to $162,600 and $146,000 for
2002 and 2001, respectively.
Depreciation expense increased from $2,684,556 for the year
ended December 31, 2001 to $2,810,440 for the year ended December
31, 2002 primarily as a result of the acquisition of a new
community in the later part of 2001 and the completion of certain
projects.
Amortization of financing costs increased from $87,748 in
2001 to $112,200 in 2002 due to recent refinancing.
Gain (loss) on sales of investment property and equipment
increased from a loss of $28,264 in 2001 to a gain of $664,546 in
2002 primarily due to the sale of vacant land at a gain of
$661,000.
For the year ended December 31, 2002, the Company reported
net income of $6,512,212
as compared to net income of $5,550,488 for the year ended
December 31, 2001.
Off-Balance Sheet Arrangements and Contractual Obligations
The following is a summary of the Company's contractual
obligations as of December 31, 2003:
Contractual Less than More than
Obligations Total 1 year 1-3 years 3-5 years 5 years
Mortgages Payable $44,222,675 $3,495,890 $11,060,769 $15,366,900 $14,299,116
Operating Lease
Obligations 192,000 144,000 48,000
Retirement
Benefits 897,050 897,050
Purchase of
Communities 3,512,000 3,512,000
_________ _________ _________ _________ _________
Total $48,823,725 $7,151,890 $11,108,769 $15,366,900 $15,196,166
========== ========= ========== ========== ==========
-21-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Mortgages payable represents the principal amounts
outstanding by scheduled maturity. The interest rates on these
mortgages are fixed rates ranging from 4.625% to 7.5% and a
variable rate of prime plus 1/2%. The above table does not
include the Company's obligation under short-term borrowings as
described in Note 5 of the Notes to Consolidated Financial
Statements.
Operating lease obligations represent a lease, with a
related party, for the Company's corporate offices. The lease is
for a five-year term with monthly lease payments of $12,000. The
Company is also responsible for its proportionate share of real
estate taxes and common area maintenance.
Retirement benefits represent post-retirement benefits that
are not funded and therefore will be paid from the assets of the
Company.
Purchase of communities represent the purchase price of
Bishop's Mobile Home Court and Whispering Pines Community in
Somerset Township, Pennsylvania. This purchase was completed on
March 1, 2004 (See Note 16 of the Notes to Consolidated Financial
Statements).
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, purchase of
inventory of manufactured homes and investment in debt and equity
securities of other REITs. The Company generates funds through
cash flow from properties, sales of manufactured homes and its
securities portfolio, 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 $44,222,675 secured by
fourteen communities and loans payable totaling $7,840,962
primarily secured by investment securities and inventory of
manufactured homes. The Company has a $2,000,000 line of credit
with Fleet Bank, none of which was utilized at December 31, 2003.
The Company believes that its 26 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
$4,277,851 in 2001 to $6,747,943 in 2002 and decreased to
$4,420,150 in 2003. Cash flow was primarily used for capital
improvements, payment of dividends, purchases of securities
available for sale, purchase of inventory of manufactured homes,
loans to customers for the sales of manufactured homes, purchases
of manufactured home communities 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.
The Company also invests in debt and equity securities of
other REITs for liquidity and additional income. The Company
from time to time may purchase these securities on margin when
there is an adequate yield spread. The margin loan at December
31, 2003 totaled
-22-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
approximately $6,700,000. During 2003, the Company's securities
portfolio decreased by approximately $1,700,000 primarily due to
sales of approximately $11,500,000, partially offset by purchases
of approximately $8,500,000 and a change in the unrealized gain
of approximately $1,300,000. During 2003, the Company recognized
a portion of the substantial unrealized gains in the security
portfolio. The securities portfolio at December 31, 2003 has
experienced an increase in value from cost of approximately 21%,
however, there are no assurances such increases will continue.
The Company estimates that in 2004 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 2004.
The Company's only significant commitments and contractual
obligations relate to retirement benefits and the lease on its
corporate offices as described in Note 9 to the Consolidated
Financial Statements.
The Company has a Dividend Reinvestment and Stock Purchase
Plan (Plan), which provides for the reinvestment of dividends and
for monthly optional cash payments of not less than $500 per
payment nor more than $1,000 unless a request for waiver has been
accepted by the Company. During 2003, amounts received,
including dividends reinvested of $1,744,096, amounted to
$5,729,083. During 2003, the Company paid $7,118,101, including
dividends reinvested. The success of the Plan resulted in a
substantial improvement in the Company's liquidity and capital
resources in 2003.
The Company has undeveloped land which it could develop over
the next several years. 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.
Recent Accounting Pronouncements
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities "FIN 46" was issued in January 2003 and was
reissued as FASB Interpretation No. 46 (revised December 2003)
(FIN 46R). For public entities, FIN 46 or FIN 46R is applicable
to all special-purpose entities (SPEs) in which the entity holds
a variable interest no later than the end of the first
reporting period ending after December 15, 2003, and
immediately to all entities created after January 31, 2003. The
effective dates of FIN 46R vary depending on the type of
reporting enterprise and the type of entity that the enterprise
is involved with. FIN 46 and FIN 46R may
-23-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
be applied prospectively with a cumulative-effect adjustment as
of the date on which it is first applied or by restating
previously issued financial statements for one or more years with
a cumulative-effect adjustment as of the beginning of the first
year restated. FIN 46 and FIN 46R provides guidance on the
identification of entities controlled through means other than
voting rights. FIN 46 and FIN 46R specifies how a business
enterprise should evaluate its involvement in a variable interest
entity to determine whether to consolidate that entity. A
variable interest entity must be consolidated by its primary
beneficiary if the entity does not effectively disperse risks or
rewards among the parties involved. Conversely, effective
dispersion of risks among the parties involved requires that a
company that previously consolidated a special purpose entity,
upon adoption of FIN 46 or FIN 46R, to deconsolidate such entity.
Management believes that this interpretation will not have a
material impact on the Company's consolidated financial
statements.
In April 2003, the FASB issued Statement No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS No. 149). SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30,
2003, with some exceptions, and for hedging relationships
designated after June 30, 2003. The guidance should be
applied prospectively. Management believes that this Statement
will not have a material impact on the Company's consolidated
financial statements.
In May 2003, the FASB issued Statement No. 150,
"Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (SFAS No.
150). SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. It is to be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Restatement is not
permitted.
On October 29, 2003, the FASB voted to indefinitely defer
certain provisions of this statement relating to non-
controlling (minority) interests in finite-like entities.
Management believes that this Statement will not have a material
impact on the Company's consolidated financial statements.
Safe Harbor Statement
This Form 10-K contains various "forward-looking statements"
within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934, and the Company intends that
such forward-looking statements be subject to the safe harbors
created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions
-24-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to
future events and finance performance, but are based upon current
assumptions regarding the Company's operations, future results
and prospects, and are subject to many uncertainties and factors
relating to the Company's operations and business environment
which may cause the actual results of the Company to be
materially different from any future results expressed or implied
by such forward-looking statements.
Such factors include, but are not limited to, the following:
(i) changes in the general economic climate; (ii) increased
competition in the geographic areas in which the Company owns and
operates manufactured housing communities; (iii) changes in
government laws and regulations affecting manufactured housing
communities; and (iv) the ability of the Company to continue to
identify, negotiate and acquire manufactured housing communities
and/or vacant land which may be developed into manufactured
housing communities on terms favorable to the Company. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new
information, future events, or otherwise.
ITEM 7A -QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 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.
The following table sets forth information as of December
31, 2003, concerning the Company's debt obligations, including
principal cash flow by scheduled maturity, weighted average
interest rates and estimated fair value.
Variable
Long- Fixed Rate Average Rate
term Carrying Interest Carrying Total
Debt Value Rate Value Long-Term Debt
_________ ______ _________ ___________
2004 $ 3,495,890 7.00% $ 3,495,890
2005 9,411,641 7.50% 9,411,641
2006 1,649,128 6.38% 1,649,128
2007 3,859,421 6.39% 3,859,421
2008 11,507,479 4.90% 11,507,479
Thereafter 10,859,177 6.85% $3,439,939 14,299,116
__________ _________ __________
Total $40,782,736 $3,439,939 $44,222,675
========== ========= ==========
Fair Value $41,157,177 $3,439,939 $44,597,116
========== ========= ==========
The Company has assessed the market risk for its variable
rate long-term debt and believes that a 1% increase in the prime
rate would result in an approximate $35,000 increase in interest
expense based on $3,500,000 of variable rate long-term debt
outstanding at December 31, 2003.
-25-
ITEM 7A -QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(CONT'D.)
The Company also has approximately $7.8 million in variable
rate debt due on demand. This debt primarily consists of $6.7
million margin loans secured by marketable securities, and a $1.1
million inventory financing loan. The interest rates on these
loans range from 2.75% to 8% at December 31, 2003. The carrying
value of the Company's variable rate debt approximates fair value
at December 31, 2003.
The Company also invests in both debt and equity securities
of other REITs and is primarily exposed to equity price risk from
adverse changes in market rates and conditions. All securities
are classified as available for sale and are carried at fair
value. The Company has no significant interest rate risk
relating to debt securities as they are short-term in nature.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in
Part IV, Item 15(a)(1) are incorporated herein by reference.
The following is the Unaudited Selected Quarterly Financial
Data:
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
2003 March 31 June 30 September 30 December 31
____ ________ ________ ___________ ___________
Total
Revenues $7,751,172 $8,289,471 $8,834,105 $8,915,755
Total
Expenses 5,954,998 6,353,329 6,533,466 6,877,540
Net Income 1,802,476 1,967,394 2,313,737 2,043,451
Net Income
per Share -
Basic .24 .25 .29 .25
Diluted .23 .25 .29 .25
2002 March 31 June 30 September 30 December 31
_____ ________ ________ ___________ ___________
Total
Revenues $7,069,357 $7,490,084 $7,883,991 $6,980,461
Total
Expenses 5,220,940 5,965,387 6,382,832 6,007,068
Net Income 1,851,744 1,520,345 1,493,901 1,646,222
Net Income
per Share-
Basic .25 .20 .19 .22
Diluted .24 .20 .19 .22
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-26-
ITEM 9A - CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial
Officer, with the assistance of other members of the Company's
management, have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K. Based on such
evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure
controls and procedures are effective.
The Company's Chief Executive Officer and Chief Financial
Officer have also concluded that there have not been any changes
in the Company's internal control over financial reporting that
has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-27-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the Directors and Executive Officers of
the Company as of December 31, 2003.
Present Position with the Company;
Business Experience During Past Five Director
Name Age Years; Other Directorships Since
____ ___ _______________________________ _______
Ernest V. 85 Secretary/Treasurer (1984 to 1969
Bencivenga present) and Director. Financial
Consultant (1976 to present);
Treasurer and Director (1961 to
present) and Secretary (1967 to
present) of Monmouth Capital
Corporation, an affiliate of the
Company; Treasurer and Director
(1968 to present) Monmouth Real
Estate Investment Corporation, an
affiliate of the Company.
Anna T. Chew 45 Vice President and Chief Financial 1995
Officer (1995 to present) and
Director. Vice President (2001 to
present) and Director (1994 to
present) of Monmouth Capital
Corporation, an affiliate of the
Company; Certified Public
Accountant; Controller (1991 to
present) and Director (1993 to
present) of Monmouth Real Estate
Investment Corporation, an affiliate
of the Company.
Charles P. 66 Director. Director (1970 to present) 1969
Kaempffer of Monmouth Capital Corporation, an
affiliate of the Company; Director
(1974 to present) of Monmouth Real
Estate Investment Corporation, an
affiliate of the Company; Vice
Chairman and Director (1996 to
present) of Community Bank of New
Jersey.
Eugene W. Landy 70 Chairman of the Board (1995 to 1969
present), President (1969 to 1995)
and Director. Attorney at Law;
Chairman of the Board (2001 to
present), President and Director
(1961 to present) of Monmouth
Capital Corporation, an affiliate of
the Company; President and Director
(1968 to present) of Monmouth Real
Estate Investment Corporation, an
affiliate of the Company. Eugene W.
Landy is the father of Samuel A.
Landy.
Samuel A. Landy 43 President (1995 to present), Vice 1992
President (1991-1995) and Director.
Attorney at Law; Director (1994 to
present) of Monmouth Capital
Corporation, an affiliate of the
Company; Director (1989 to present)
of Monmouth Real Estate Investment
Corporation, an affiliate of the
Company. Samuel A. Landy is the son
of Eugene W. Landy.
-28-
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
(CONT'D.)
Present Position with the Company;
Business Experience During Past Director
Name Age Five Years; Other Directorships Since
____ ___ _______________________________ _______
James E. 63 Director. Attorney at Law; General 2001
Mitchell Partner, Mitchell Partners, L.P.
(1979 to present); President,
Mitchell Capital Management, Inc.
(1987 to present).
Richard H. Molke 77 Director. Vice President (1984 to 1986
1998) of Remsco, Associates, Inc.,
a construction firm.
Eugene 70 Director. Director (2001 to 1977
Rothenberg present) of Monmouth Capital
Corporation, an affiliate of the
Company. Retired physician.
Robert G. 77 Director. Director (1963 to 1969
Sampson present) of Monmouth Capital
Corporation, an affiliate of the
Company; Director (1968 to 2001)
of Monmouth Real Estate Investment
Corporation, an affiliate of the
Company; General Partner (1983 to
present) of Sampco, Ltd., an
investment group.
Audit Committee
The Company's Board of Directors has determined that at
least one member of the Audit Committee is a financial expert.
Delinquent Filers
There have been no delinquent filers pursuant to Item 405 of
regulation S-K, to the best of management's knowledge.
Code of Ethics
The Company has adopted the Code of Business Conduct and
Ethics (the Code of Ethics). The Code of Ethics can be found at
the Company's website at www.umh.com, as well as attached to this
filing at Exhibit 14.
-29-
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table.
The following Summary Compensation Table shows compensation
paid by the Company for services rendered during 2003, 2002 and
2001 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 2003 $150,000 $ - $35,776 (1) -0-
Chairman of the 2002 150,000 - 17,276 (1) -0-
Board 2001 150,000 - 15,076 (1) -0-
Samuel A. Landy 2003 $299,250 $54,862 $23,085 (2) 25,000
President 2002 285,000 14,961 21,585 (2) 25,000
2001 224,615 25,704 21,028 (2) 25,000
Anna T. Chew 2003 $177,200 $16,194 $19,631 (3) 10,000
Vice President 2002 160,488 16,194 19,000 (3) 10,000
2001 145,898 15,631 17,646 (3) 10,000
(1) Represents Directors' fees, legal fees and fringe
benefits.
(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.
Stock Option Plan.
On August 14, 2003, the shareholders approved and ratified
the Company's 2003 Stock Option Plan (the 2003 Plan) authorizing
the grant to officers and key employees of options to purchase up
to 1,500,000 shares of common stock. All options are exercisable
one year from the date of grant. The option price shall not be
below the fair market value at date of grant. If options granted
under the 2003 Plan expire or terminate for any reason without
having been exercised in full, the Shares subject to, but not
delivered under, such options shall become available for
additional option grants under the 2003 Plan. This Plan replaced
the Company's 1994 Stock Option Plan which, pursuant to its
terms, terminated December 31, 2003.
-30-
ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.)
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, 2003:
Potential Realized
Value at Assumed
Annual
Price Rates for Option
Options Granted to Per Expiration Terms
Name Granted Employees Share Date 5% 10%
______ ______ ______ ______ ______ ______ ______
Samuel
A.Landy 25,000 39% $16.92 08/18/11 $145,082 $401,210
Anna T. Chew 10,000 16% $15.00 08/25/11 $ 71,618 $171,538
The following table sets forth for the executive officers
named in the Summary Compensation Table, information regarding
stock options outstanding at December 31, 2003:
Value of
Number of Unexercised Unexercised Options
Shares Value Options at Year-End At Year-End
Name Exercised Realized Exercisable/Unexercisable Exercisable/Unexercisable
Eugene W.
Landy 25,000 $ 85,500 50,000/ -0- $438,000/ $ -0-
Samuel A.
Landy 25,000 $137,945 100,000/ 25,000 $686,624/ $ 2,250
Anna T.
Chew 20,000 $130,275 30,000/ 10,000 $193,300/ $20,100
Compensation of Directors.
The Directors receive a fee of $1,500 for each Board meeting
attended, and an additional fixed annual fee of $10,000, payable
$2,500 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. Landy
receives an annual base compensation of $150,000 (as amended)
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.
Additionally, there may be bonuses voted by the Board of
Directors. The Employment Agreement is terminable by either
party at any time subject to certain notice requirements. On
severance of employment by the Company, Mr. Landy will receive
severance of $450,000, payable $150,000 on severance and $150,000
on the first and second anniversaries of severance. In the event
of disability, Mr. Landy's compensation will continue for a
period of three years, payable monthly. On retirement, Mr. Landy
will receive a pension of $50,000 a year for ten years, payable
in monthly installments. In the event of death, Mr. Landy's
designated beneficiary will receive $450,000, $100,000 thirty
days after death and the balance one year after death. The
Employment Agreement automatically renews each year for
successive one-year periods.
-31-
ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.)
Effective January 1, 2002, the Company and Samuel A. Landy
entered into a three-year Employment Agreement under which Mr.
Samuel Landy receives an annual base salary of $285,000 for 2002,
$299,250 for 2003 and $314,212 for 2004 plus bonuses and
customary fringe benefits. Bonuses are at the discretion of the
Board of Directors and are 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 by the Company or disability, Mr.
Samuel Landy is entitled to one year's salary.
Effective January 1, 2003, the Company and Anna T. Chew
entered into a three-year Employment Agreement. Ms. Chew will
receive an annual base salary of $177,200 for 2003, plus bonuses
and customary fringe benefits. Each year Ms. Chew will receive a
10% increase in her base salary. On severance by the Company,
Ms. Chew is entitled to an additional one year's salary. In the
event of disability, her salary shall continue for a period of
two years.
Report of Board of Directors on Executive Compensation
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.
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 and $35,776 in director's fees, fringe
benefits and legal fees).
-32-
ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.)
The Committee also reviewed the progress made by Mr. Samuel
A. Landy, President, including funds from operations which
increased by approximately 18%. Mr. Samuel Landy is under an
employment agreement with the Company. His base compensation
under this contract is $299,250 for 2003. Mr. Samuel Landy also
received bonuses totaling $54,862. These bonuses were primarily
based upon his meeting certain performance goals as outlined in
his employment agreement.
Compensation Committee:
Richard H. Molke
Eugene Rothenberg
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.
1998 1999 2000 2001 2002 2003
____ ____ ____ ____ ____ ____
United Mobile
Homes, Inc. 100 84 106 146 174 231
NAREIT All REIT 100 94 118 136 143 198
S & P 500 100 121 110 97 76 97
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table lists information with respect to
the beneficial ownership of the Company's Shares as of December
31, 2003 by:
- each person known by the Company to beneficially own
more than five percent of the Company's outstanding
Shares;
- the Company's directors;
-33-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, (CONT'D.)
- the Company's executive officers; and
- all of the Company's executive officers and directors
as a group.
Unless otherwise indicated, the person or persons named
below have sole voting and investment power and that person's
address is c/o United Mobile Homes, Inc., Juniper Business Plaza,
3499 Route 9 North, Suite 3-C, Freehold, New Jersey 07728. In
determining the number and percentage of Shares beneficially
owned by each person, Shares that may be acquired by that person
under options exercisable within 60 days of December 31, 2003 are
deemed beneficially owned by that person and are deemed
outstanding for purposes of determining the total number of
outstanding Shares for that person and are not deemed outstanding
for that purpose for all other shareholders.
Amount and Nature Percentage
Name and Address of Beneficial of Shares
of Beneficial Owner Ownership(1)
Outstanding(2)
Ernest V. Bencivenga 30,318(3) *
Anna T. Chew 113,392(4) 1.38%
Charles P. Kaempffer 32,425(5) *
Eugene W. Landy 1,027,432(6)(12) 12.51%
Samuel A. Landy 381,170(7) 4.61%
James E. Mitchell 170,322(8) 2.09%
Richard H. Molke 109,656(9) 1.34%
Eugene D. Rothenberg 81,419(10) 1.00%
Robert G. Sampson 130,589(11) 1.60%
Directors and Officers as a
Group 2,076,723(12) 24.87%
* Less than 1%
-34-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, (CONT'D.)
(1) Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the Company
believes that the persons named in the table have sole voting and
investment power with respect to all Shares listed.
(2) Based on the number of Shares outstanding on December
31, 2003 which was 8,164,830 Shares.
(3) Includes (a) 9,095 shares owned by Mr. Bencivenga's
wife, (b) 9,183 shares held in Mr. Bencivenga's 401(k) Plan, and
(c) 5,000 shares issuable upon exercise of stock options.
Excludes 5,000 shares issuable upon exercise of a stock option,
which stock option is not exercisable until August 25, 2004.
(4) Includes (a) 77,377 shares owned jointly with Ms.
Chew's husband, (b) 6,015 shares held in Ms. Chew's 401(k) Plan,
and (c) 30,000 shares issuable upon exercise of stock options.
Excludes 10,000 shares issuable upon exercise of a stock option,
which stock option is not exercisable until August 25, 2004.
(5) Includes (a) 2,000 shares owned by Mr. Kaempffer's
wife, and (b) 30,425 shares held in the Charles P. Kaempffer
Defined Benefit Pension Plan of which Mr. Kaempffer is Trustee
with power to vote.
(6) Includes (a) 84,468 shares owned by Mr. Landy's wife,
(b) 172,608 shares held by Landy Investments, Ltd. for which Mr.
Landy has power to vote, (c) 93,212 shares held in the Landy &
Landy Profit Sharing Plan of which Mr. Landy is a Trustee with
power to vote, (d) 57,561 shares held in the Landy & Landy
Pension Plan of which Mr. Landy is a Trustee with power to vote,
(e) 50,000 shares held in the Eugene W. Landy Charitable Legal
Annuity Trust, a charitable trust for which Mr. Landy has power
to vote, (f) 5,000 shares held in the Eugene W. Landy and Gloria
Landy Family Foundation, a charitable trust for which Mr. Landy
has power to vote, and (g) 50,000 shares issuable upon exercise
of stock options. Excludes 217,068 shares held by Mr. Landy's
adult children in which he disclaims any beneficial interest.
(7) Includes (a) 26,927 shares owned jointly with Mr.
Landy's wife, (b) 28,229 shares in custodial accounts for Mr.
Landy's minor children under the NJ Uniform Transfers to Minors
Act in which he disclaims any beneficial interest but has power
to vote, (c) 10,105 shares in the Samuel Landy Limited
Partnership, (d) 10,105 shares held in Mr. Landy's 401(k) Plan,
and (e) 100,000 shares issuable upon exercise of stock options.
Excludes 25,000 shares issuable upon exercise of a stock option,
which stock option is not exercisable until August 25, 2004.
(8) Includes 135,354 shares held by Mitchell Partners in
which Mr. Mitchell has a beneficial interest.
(9) Includes 50,563 shares owned by Mr. Molke's wife.
(10) Includes 56,878 shares held by Rothenberg Investments,
Ltd. in which Dr. Rothenberg has a beneficial interest.
-35-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, (CONT'D.)
(11) Includes 48,492 shares held by Sampco Ltd. in
which Mr. Sampson has a beneficial interest.
(12) Excludes 30,200 shares (.37%) owned by Monmouth Real
Estate Investment Corporation. Eugene W. Landy owns beneficially
approximately 4.14% of Monmouth Real Estate Investment
Corporation.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain relationships and related party transactions are
incorporated herein by reference to Part IV, Item 15(a)(1)(vi),
Note 9 of the Notes to Consolidated Financial Statements -
Related Party Transactions.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
KPMG LLP served as the Company's independent auditors for
the years ended December 31, 2003 and 2002. The following are
the fees billed by KPMG in connection with services rendered:
2003 2002
____ ____
Audit Fees $ 46,000 $ 39,500
Audit-Related Fees -0- -0-
Tax Fees 47,250 47,250
All Other Fees -0- -0-
_________ _________
Total Fees $ 93,250 $ 86,750
======= =======
Audit fees include professional services rendered by KPMG
LLP for the audit of the Company's annual financial statements
and reviews of financial statements included in the Company's
quarterly reports on Form 10-Q.
Tax fees include professional services rendered by KPMG LLP
for the preparation of the Company's federal and state corporate
tax returns and supporting schedules as may be required by the
Internal Revenue Service and applicable state taxing authorities.
Tax fees also include other work directly affecting or supporting
the payment of taxes, including planning and research of various
tax issues.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a policy for the pre-
approval of audit and permitted non-audit services provided by
the Company's principal independent accountants. The policy
requires that all services provided by KPMG LLP to the Company,
including audit services, audit-related services, tax services
and other services, must be pre-approved by the Committee. The
pre-approval requirements do not prohibit day-to-day normal tax
consulting services, where each individual matter will not exceed
$5,000 and in the aggregate will not exceed $25,000 for 2003 and
2004.
-36-
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
Form 8-K
The following Financial Statements are filed
(a)(1) as part of this report.
Page(s)
(i) Independent Auditors' Report 40
Consolidated Balance Sheets as of December 31, 41
(ii) 2003 and 2002
Consolidated Statements of Income for the
(iii) years ended December 31, 2003, 2002, and 2001 42
Consolidated Statements of Shareholders'
(iv) Equity for the years ended December 31, 2003, 43-44
2002 and 2001
Consolidated Statements of Cash Flows for the
(v) years ended December 31, 2003, 2002 and 2001 45
(vi) Notes to Consolidated Financial Statements 46-60
(a)(2) The following Financial Statement Schedule for
the years ended December 31, 2003, 2002 and
2001 is filed as part of this report
(i) Schedule III - Real Estate and Accumulated 61
Depreciation
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.
-37-
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
Form 8-K
(a) (3) The Exhibits set forth in the following index of
Exhibits are filed as part of this Report.
Exhibit No. Description
___________ ___________
(12) Agreement and Plan of Merger dated as of June 23, 2003.
(incorporated by reference from the Company's
Definitive Proxy Statement as filed with the Securities
Exchange Commission on July 10, 2003).
(3) Articles of Incorporation and By-Laws:
(3.1) Articles of Incorporation of United Mobile Homes,
Inc., a Maryland corporation (incorporated by reference
from the Company's Definitive Proxy Statement as filed
with the Securities Exchange Commission on July 10,
2003).
(3.2) Bylaws of United Mobile Homes, Inc. (incorporated
by reference from the Company's Definitive Proxy
Statement as filed with the Securities Exchange
Commission on July 10, 2003).
(10) Material Contracts:
(10.1) 2003 Stock Option Plan (incorporated by
reference from the Company's Definitive Proxy Statement
as filed with the Securities Exchange Commission on
July 10, 2003).
(10.2) 401(k) Plan Document and Adoption Agreement
effective April 1, 1992 (incorporated by reference from
the Company's 1992 Form 10-K as filed with the
Securities Exchange Commission on March 9, 1993).
(10.3) Employment contract with Mr. Eugene W. Landy
dated December 14, 1993 (incorporated by reference from
the Company's 1993 Form 10-K as filed with the
Securities Exchange Commission on March 28, 1994).
(10.4) Employment contract with Mr. Ernest V.
Bencivenga dated November 9, 1993 (incorporated by
reference from the Company's 1993 Form 10-K as filed
with the Securities Exchange Commission on March 28,
1994).
(10.5) Employment contract with Mr. Samuel A. Landy
effective January 1, 2002 (incorporated by reference
from the Company's 2002 Form 10-K as filed with the
Securities Exchange Commission on March 28, 2003.
(10.6) Employment contract with Ms. Anna T. Chew
effective January 1, 2003.
(14) Code of Business Conduct and Ethics.
-38-
Exhibit No. Description
___________ ___________
(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.
(31.1) Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
(31.2) Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
(32) Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(b) Reports of Form 8-K - Form 8-K was filed on
October 2, 2003 to report that the Company changed
its state of incorporation from New Jersey to
Maryland.
-39-
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. and subsidiaries 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
consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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. and subsidiaries as of
December 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
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.
Short Hills, New Jersey /s/ KPMG LLP
March 5, 2004
-40-
UNITED MOBILE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
________________________________________
ASSETS 2003 2002
_____ _____
INVESTMENT PROPERTY AND EQUIPMENT
Land $ 6,927,971 $ 6,850,970
Site and Land Improvements 59,202,516 56,437,044
Buildings and Improvements 2,790,612 2,748,600
Rental Homes and Accessories 9,581,123 8,798,433
__________ __________
Total Investment Property 78,502,222 74,835,047
Equipment and Vehicles 4,664,006 3,919,983
__________ __________
Total Investment Property and
Equipment 83,166,228 78,755,030
Accumulated Depreciation (37,660,693) (34,969,453)
__________ __________
Net Investment Property and
Equipment 45,505,535 43,785,577
__________ __________
OTHER ASSETS
Cash and Cash Equivalents 3,244,871 2,338,979
Securities Available for Sale 31,096,211 32,784,968
Inventory of Manufactured Homes 3,635,954 2,775,459
Notes and Other Receivables, net 7,338,580 4,800,969
Unamortized Financing Costs 407,401 403,663
Prepaid Expenses 559,594 422,323
Land Development Costs 2,522,066 1,714,568
__________ __________
Total Other Assets 48,804,677 45,240,929
__________ __________
TOTAL ASSETS $94,310,212 $89,026,506
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
MORTGAGES PAYABLE $44,222,675 $43,321,884
__________ __________
OTHER LIABILITIES
Accounts Payable 655,648 956,663
Loans Payable 7,840,962 12,358,965
Accrued Liabilities and Deposits 1,988,525 2,141,636
Tenant Security Deposits 502,626 510,941
__________ __________
Total Other Liabilities 10,987,761 15,968,205
__________ __________
Total Liabilities 55,210,436 59,290,089
__________ __________
SHAREHOLDERS' EQUITY:
Common Stock - $.10 par value per
share, 20,000,000 and 15,000,000
shares authorized 8,557,130 and
8,063,750 shares issued and
8,164,830 and 7,671,450 shares
outstanding as of December 31,
2003 and 2002, respectively 855,713 806,375
Excess Stock - $.10 par value per
share, 3,000,000 shares
authorized, no shares issued or
outstanding -0- -0-
Additional Paid-In Capital 36,304,626 29,411,328
Accumulated Other
Comprehensive Income 5,308,195 3,988,429
Undistributed Income
(Accumulated Deficit) 341,164 (667,793)
Treasury Stock at Cost (392,300
shares at December 31, 2003 and
2002) (3,709,922) (3,709,922)
Notes Receivable from Officers
(8,000 shares at December 31,
2002) -0- (92,000)
__________ __________
Total Shareholders' Equity 39,099,776 29,736,417
__________ __________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $94,310,212 $89,026,506
========== ==========
See Accompanying Notes to Consolidated Financial Statements
-41-
UNITED MOBILE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_____________________________________________________
2003 2002 2001
_____ _____ _____
REVENUES:
Rental and Related Income $20,954,274 $20,140,691 $19,291,611
Sales of Manufactured Homes 6,758,168 5,538,202 4,766,189
Interest and Dividend Income 3,260,261 2,867,142 2,188,430
Gain on Sales of Securities
Available for Sale 2,698,724 794,950 530,324
Other Income 119,076 82,908 105,845
__________ __________ __________
Total Revenues 33,790,503 29,423,893 26,882,399
__________ __________ __________
EXPENSES:
Community Operating Expenses 10,305,372 9,457,214 9,004,164
Cost of Sales of
Manufactured Homes 5,360,554 4,657,988 3,930,666
Selling Expenses 1,255,773 1,040,005 754,934
General and Administrative 2,589,275 2,184,045 2,015,685
Interest Expense 3,190,490 3,314,335 2,825,894
Depreciation Expense 2,909,069 2,810,440 2,684,556
Amortization of Financing
Costs 108,800 112,200 87,748
__________ __________ __________
Total Expenses 25,719,333 23,576,227 21,303,647
__________ __________ __________
Income Before Gain (Loss) on
Sales of Investment
Property and Equipment 8,071,170 5,847,666 5,578,752
Gain (Loss) on Sales of
Investment Property and
Equipment 55,888 664,546 (28,264)
__________ __________ __________
Net Income $8,127,058 $6,512,212 $5,550,488
========== ========== ==========
Net Income Per Share -
Basic $ 1.03 $ .86 $ .74
========== ========== ==========
Diluted $ 1.02 $ .85 $ .74
========== ========== ==========
Weighted Average Shares
Outstanding:
Basic 7,858,888 7,600,266 7,457,636
========== ========== ==========
Diluted 7,942,459 7,677,200 7,496,371
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
-42-
UNITED MOBILE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_______________________________________________________
Accumulated
Additional Other
Common Stock Issued Paid-In Comprehensive
Number Amount Capital Income/(Loss)
_________ _________ __________ __________
Balance December 31, 2000 7,711,141 $771,114 $26,026,006 $(490,795)
Common Stock Issued with
the DRIP* 163,491 16,349 1,669,682 -0-
Common Stock Issued
through the Exercise
of Stock Options 14,000 1,400 143,725 -0-
Distributions -0- -0- (430,052) -0-
Net Income -0- -0- -0- -0-
Unrealized Net Holding
Gains on Securities
Available for Sale
Net of Reclassification
Adjustment -0- -0- -0- 4,031,796
Purchase of Treasury
Stock -0- -0- -0- -0-
__________ _________ __________ _________
Balance December 31, 2001 7,888,632 788,863 27,409,361 3,541,001
Common Stock Issued with
the DRIP* 135,418 13,542 1,641,407 -0-
Common Stock Issued
through the Exercise
of Stock Options 39,700 3,970 416,643 -0-
Distributions -0- -0- (56,083) -0-
Net Income -0- -0- -0- -0-
Unrealized Net Holding
Gains on Securities
Available for Sale
Net of Reclassification
Adjustment -0- -0- -0- 447,428
Purchase of Treasury
Stock -0- -0- -0- -0-
__________ _________ __________ __________
Balance December 31, 2002 8,063,750 806,375 29,411,328 3,988,429
Common Stock Issued with
the DRIP* 378,380 37,838 5,691,245 -0-
Common Stock Issued
through the Exercise
of Stock Options 115,000 11,500 1,174,400 -0-
Distributions -0- -0- -0- -0-
Payments on Notes
Receivable from
Officers -0- -0- -0- -0-
Stock Compensation
Expense -0- -0- 27,653 -0-
Net Income -0- -0- -0- -0-
Unrealized Net Holding
Gains on Securities
Available for Sale
Net of Reclassification
Adjustment -0- -0- -0- 1,319,766
__________ _________ __________ __________
Balance December 31, 2003 8,557,130 $855,713 $36,304,626 $5,308,195
========== ========= ========== ==========
*Dividend Reinvestment and Stock Purchase Plan
See Accompanying Notes to Consolidated Financial Statements
-43-
UNITED MOBILE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_______________________________________________________
Undistributed
Income Notes
(Accumulated Treasury Receivable Comprehensive
Deficit) Stock From Officers Income
__________ __________ __________ __________
Balance December 31,
2000 $(667,793) $(2,799,106) $ -0-
Common Stock Issued
with the DRIP* -0- -0- -0-
Common Stock Issued
through the
Exercise of Stock
Options -0- -0- -0-
Distributions (5,550,488) -0- -0-
Net Income 5,550,488 -0- -0- $5,550,488
Unrealized Net
Holding Gains on
Securities
Available for
Sale Net of
Reclassification
Adjustment -0- -0- -0- 4,031,796
Purchase of
Treasury
Stock -0- (307,792) -0-
__________ _________ __________ _________
Balance December 31,
2001 (667,793) (3,106,898) -0- $9,582,284
=========
Common Stock Issued
with the DRIP* -0- -0- -0-
Common Stock Issued
through the
Exercise of Stock
Options -0- -0- (92,000)
Distributions (6,512,212) -0- -0-
Net Income 6,512,212 -0- -0- $6,512,212
Unrealized Net
Holding Gains on
Securities
Available for
Sale Net of
Reclassification
Adjustment -0- -0- -0- 447,428
Purchase of
Treasury Stock -0- (603,024) -0-
__________ __________ __________ __________
Balance December 31,
2002 (667,793) (3,709,922) (92,000) $6,959,640
==========
Common Stock Issued
with the DRIP* -0- -0- -0-
Common Stock Issued
through the
Exercise of Stock
Options -0- -0- -0-
Distributions (7,118,101) -0- -0-
Payments on Notes
Receivable
from Officers -0- -0- 92,000
Stock Compensation
Expense -0- -0- -0-
Net Income 8,127,058 -0- -0- $8,127,058
Unrealized Net
Holding Gains on
Securities
Available for
Sale
Net of
Reclassification
Adjustment -0- -0- -0- 1,319,766
_________ _________ __________ _________
Balance December 31,
2003 $ 341,164 $(3,709,922) $ -0- $9,446,824
========= ========= ========== =========
*Dividend Reinvestment and Stock Purchase Plan.
See Accompanying Notes to Consolidated Financial Statements
-44-
UNITED MOBILE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
_______________________________________________________
2003 2002 2001
______ ______ ______
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $8,127,058 $6,512,212 $5,550,488
Depreciation 2,909,069 2,810,440 2,684,556
Amortization of
Financing Costs 108,800 112,200 87,748
Stock Compensation
Expense 27,653 -0- -0-
Gain on Sales of
Securities
Available for Sale
Transactions (2,698,724) (794,950) (530,324)
(Gain) Loss on Sales
of Investment
Property &
Equipment (55,888) (664,546) 28,264
Changes in Operating
Assets and Liabilities -
Inventory of
Manufactured Homes (860,495) 7,206 (2,782,665)
Notes and Other
Receivables, net (2,537,611) (1,509,614) (1,376,909)
Prepaid Expenses (137,271) (308,643) 1,953
Accounts Payable (301,015) 120,075 497,414
Accrued Liabilities and
Deposits (153,111) 430,404 88,960
Tenant Security Deposits (8,315) 33,159 28,366
__________ __________ __________
Net Cash Provided by
Operating Activities 4,420,150 6,747,943 4,277,851
__________ __________ __________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Manufactured
Home Community (918,000) -0- (2,503,126)
Purchase of Investment
Property and Equipment (3,155,336) (2,640,164) (2,199,133)
Proceeds from Sales of
Investment Property
and Equipment 394,254 1,698,262 352,494
Additions to Land
Development Costs (1,701,555) (509,679) (816,899)
Purchase of Securities
Available for Sale (8,528,110) (9,360,375) (9,858,324)
Proceeds from Sales of
Securities Available
for Sale 14,235,357 3,735,533 3,997,614
__________ __________ __________
Net Cash Provided
(Used) by Investing
Activities 326,610 (7,076,423) (11,027,374)
__________ __________ __________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Mortgages
and Loans 3,500,000 6,862,500 7,525,000
Net Proceeds from
(Payments on)
Short-Term Borrowings (4,518,003) 1,666,282 5,053,213
Principal Payments of
Mortgages and Loans (2,599,209) (2,192,641) (928,814)
Financing Costs on Debt (112,538) (48,756) (274,128)
Proceeds from Issuance
of Common Stock 3,984,987 -0- -0-
Proceeds from Exercise
of Stock Options 1,185,900 271,113 145,125
Collection on Notes
Receivable from
Officers 92,000 57,500 -0-
Dividends Paid (5,374,005) (4,913,346) (4,294,509)
Purchase of Treasury
Stock -0- (603,024) (307,792)
__________ __________ __________
Net Cash (Used)
Provided by Financing
Activities (3,840,868) 1,099,628 6,918,095
NET INCREASE IN CASH 905,892 771,148 168,572
CASH & CASH EQUIVALENTS -
BEGINNING 2,338,979 1,567,831 1,399,259
__________ __________ __________
CASH & CASH EQUIVALENTS -
END $ 3,244,871 $2,338,979 $1,567,831
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
-45-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST
United Mobile Homes, Inc. (the Company) owns and operates
twenty-six manufactured home communities containing 6,129 sites.
The communities are located in New Jersey, New York, Ohio,
Pennsylvania and Tennessee.
The Company has elected to be taxed as a real estate
investment trust (REIT) under Sections 856-860 of the Internal
Revenue Code (the Code), and intends to maintain its
qualification as a REIT in the future. As a qualified REIT, with
limited exceptions, the Company will not be taxed under Federal
and certain state income tax laws at the corporate level on
taxable income that it distributes to its shareholders. For
special tax provisions applicable to REITs, refer to Sections 856
860 of the Code. The Company is subject to franchise taxes in
some of the states in which the Company owns property.
The Company was incorporated in the state of New Jersey in
1968. On September 29, 2003, the Company changed its state of
incorporation from New Jersey to Maryland. The reincorporation
was approved by the Company's shareholders at the Company's
annual meeting on August 14, 2003.
The reincorporation was accomplished by the merger of the
Company with and into its wholly-owned subsidiary, United Mobile
Homes, Inc., a Maryland corporation, (United Maryland), which was
the surviving corporation in the merger.
As a result of the merger, each outstanding share of the
Company's Class A common stock, $.10 par value per share, was
converted into one share of common stock, $.10 par value per
share of United Maryland common stock. In addition, each
outstanding option to purchase New Jersey Common Stock was
converted into the right to purchase Maryland Common Stock upon
the same terms and conditions as immediately prior to the
Merger. The Company's 1994 Stock Option Plan, as amended,
was assumed by United Maryland.
The conversion of the New Jersey Common Stock into Maryland
Common Stock occurred without an exchange of certificates.
Accordingly, certificates formerly representing shares of New
Jersey Common Stock are now deemed to represent the same number
of shares of Maryland Common Stock.
Prior to the Merger, United Maryland had no assets or
liabilities, other than nominal assets or liabilities. As a
result of the Merger, United Maryland acquired all of the assets
and all of the liabilities and obligations of the Company. The
Merger was accounted for as if it were a "pooling of interests"
rather than a purchase for financial reporting and related
purposes, with the result that the historical accounts of the
Company and United Maryland have been combined for all periods
presented. United Maryland, has the same business, properties,
directors, management, status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended, and
principal executive offices as United Mobile Homes, Inc., a New
Jersey corporation.
-46-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS - The Company owns and operates
twenty-six manufactured home communities containing 6,129 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
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
Laurel Woods Cresson, Pennsylvania
Memphis Mobile City Memphis, Tennessee
Oxford Village West Grove, Pennsylvania
Pine Ridge Village Carlisle, Pennsylvania
Pine Valley Estates Apollo, 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 Manor West Monroe, New York
Woodlawn Village Eatontown, New Jersey
Wood Valley Caledonia, Ohio
Effective April 1, 2001, the Company, through its wholly-
owned taxable REIT subsidiary, UMH Sales and Finance, Inc.,
(S&F), began to conduct manufactured home sales and the financing
of these sales in its communities. Inherent in the operation of
manufactured home communities is site vacancies. S&F was
established to fill these vacancies and potentially enhance the
value of the communities.
BASIS OF PRESENTATION - The Company's subsidiaries are all 100%
wholly-owned. The consolidated financial statements of the
Company include all of these subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
The Company does not have a majority or minority interest in any
other Company, either consolidated or unconsolidated.
-47-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
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 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 consist
primarily of debt securities and common and preferred stock of
other REITs. These securities are all publicly-traded and
purchased on the open market or through dividend reinvestment
plans. These securities are classified as available-for-sale and
are carried at fair value based upon quoted market prices. 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.
INVENTORY OF MANUFACTURED HOMES - Inventory of manufactured homes
is valued at the lower of cost or market value and is determined
by the specific identification method. All inventory is
considered finished goods.
NOTES AND OTHER RECEIVABLES - The Company's notes receivable
primarily consists of installment loans collateralized by
manufactured homes with principal and interest payable
monthly. Interest rates on these loans range from 6.36%
to 13%. Maturity is approximately 15
-48-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
years. The Company evaluates the recoverability of its
receivables whenever events occur or there are changes in
circumstances such that management believes it is probable that
it will be unable to collect all amounts due according to the
contractual terms of the loan and lease agreements. The
collectibility of loans is measured based on the present value of
the expected future cash flow discounted at the loan's effective
interest rate or the fair value of the collateral if the loan is
collateral dependent. At December 31, 2003 and 2002, the reserve
for uncollectible notes receivables was $485,900 and $232,500,
respectively. The provision for uncollectible notes receivables
was $274,618 and $199,300, respectively. Charge-offs amounted to
$21,218 and $-0-, respectively.
REVENUE RECOGNITION - The Company derives its income primarily
from the rental of manufactured home sites. The Company also
owns approximately 500 rental units which are rented to
residents. Rental and related income is recognized on the
accrual basis.
Sale of manufactured homes is recognized on the full accrual
basis when certain criteria are met. These criteria include the
following: (a) initial and continuing payment by the buyer must
be adequate: (b) the receivable, if any, is not subject to
future subordination; (c) the benefits and risks of ownership are
substantially transferred to the buyer; and (d) the Company does
not have a substantial continued involvement with the home after
the sale. Alternatively, when the foregoing criteria are not
met, the Company recognizes gains by the installment method.
Interest income on loans receivable is not accrued when, in the
opinion of management, the collection of such interest appears
doubtful.
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 (7,858,888, 7,600,266 and
7,457,636 in 2003, 2002 and 2001, 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
(7,942,459, 7,677,200 and 7,496,371 in 2003, 2002 and 2001,
respectively) (See Note 6). Options in the amount of 83,571,
76,934 and 38,735 for 2003, 2002, and 2001, respectively, are
included in the diluted weighted average shares outstanding.
STOCK OPTION PLANS - Prior to January 1, 2003 the Company's stock
option plan was 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 was recorded on the date of grant only if
the current market price on the underlying stock exceeded the
exercise price.
The Company adopted the fair value recognition provisions
of SFAS No. 123, "Accounting for Stock Based Compensation" on
January 1, 2003. Under the prospective method of adoption
selected by the Company under the provisions of SFAS No. 148.
"Accounting for Stock Based Compensation, Transition and
Disclosure", compensation costs of $27,653 have been recognized
in 2003, as follows:
-49-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
2003 2002 2001
_____ _____ _____
Net income prior
to compensation
expense for
grants in 2003 $8,154,711 $6,512,212 $5,550,488
Compensation
expense
recognized 27,653 -0- -0-
__________ __________ __________
Net income as
reported 8,127,058 6,512,212 5,550,488
Compensation
expenses if
the fair value
method had been
applied to
grants in 2002
and 2001 8,815 45,036 63,861
__________ __________ __________
Net Income Pro
forma $8,118,243 $6,467,176 $5,486,627
========== ========== ==========
Net Income Per
Share - As
Reported
Basic $ 1.03 $ .86 $ .74
Diluted 1.02 .86 .74
Net Income Per
Share - Pro
Forma
Basic $ 1.03 $ .85 $ 74
Diluted 1.02 .84 .73
See Note 6 for the assumptions used to calculate compensation
expense.
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.
NOTE 3 - INVESTMENT PROPERTY AND EQUIPMENT
On May 15, 2003, the Company acquired Woodland Manor
(formerly Northway Manor), a manufactured home community located
in West Monroe, New York. This community consists of 150
manufactured sites, of which 65 are currently occupied. This
community was purchased from MSCI 1998-CF1 West Monroe, LLC, an
unrelated entity, for a purchase price, including closing costs,
of approximately $918,000.
On October 1, 2002, the Company sold its vacant land
consisting of 65 acres in Chester County, Pennsylvania. Net
proceeds from the sale amounted to approximately $1,385,000,
resulting in a realized gain of $661,000.
-50-
NOTE 3 - INVESTMENT PROPERTY AND EQUIPMENT, (CONT'D.)
The following is a summary of accumulated depreciation by
major classes of assets:
December 31, 2003 December 31, 2002
____________ ____________
Site and Land Improvements $30,001,381 $28,022,091
Buildings and Improvements 1,688,413 1,599,404
Rental Homes and Accessories 2,768,670 2,466,630
Equipment and Vehicles 3,202,229 2,881,328
____________ ____________
Total Accumulated Depreciation $37,660,693 $34,969,453
========== ==========
NOTE 4 - SECURITIES AVAILABLE FOR SALE
The Company's securities available for sale consist
primarily of debt securities and common and preferred stock of
other REITs. The Company does not own more than 10% of the
outstanding shares of any of these securities, nor does it have
controlling financial interest.
The following is a summary of securities available for sale
at December 31, 2003 and 2002:
2003 2002
Market Market
Cost Value Cost Value
____ _____ ____ ______
Equity Securities:
Monmouth Real
Estate Investment
Corporation *
(745,250 and
738,942 shares at
December 31, 2003
and 2002,
respectively) $4,532,874 $6,476,218 $4,404,622 $5,113,476
Monmouth Capital
Corporation *
(78,910 and
73,575 shares at
December 31, 2003
and 2002,
respectively) 260,161 519,225 230,864 255,304
Preferred Stock 14,199,142 16,249,188 15,599,262 18,012,877
Other Equity
Securities 3,554,641 4,413,580 6,320,593 7,106,186
Monmouth Capital
Corporation *
Convertible
Debentures 1,000,000 1,000,000 -0- -0-
Other Debt
Securities
(maturing in
2009) 2,241,198 2,438,000 2,241,198 2,297,125
__________ __________ __________ __________
$25,788,016 $31,096,211 $28,796,539 $32,784,968
========== ========== ========== ==========
*Related entity -
See Note 9
-51-
NOTE 4 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
Gross unrealized gains on debt securities amounted to
$196,802 and $55,927 as of December 31, 2003 and 2002,
respectively. Gross unrealized gains on equity securities
amounted to $5,111,393 and $4,033,203 as of December 31, 2003 and
2002, respectively. Gross unrealized losses on equity securities
amounted to $-0- and $100,701 as of December 31, 2003 and 2002,
respectively.
During the years ended December 31, 2003, 2002 and 2001, the
Company received proceeds of $14,235,357, $3,735,533, and
$3,997,614 on sales or redemptions of securities available for
sale, respectively. Gross gains on these sales of securities
amounted to $2,757,737, $823,573 and $737,417, respectively.
Gross losses on these sales of securities amounted to $59,013,
$28,623 and $74,144, respectively. During the year ended
December 31, 2001, the Company also realized a loss of $132,949
due to a writedown to fair value of securities available for sale
which was considered other than temporarily impaired. Dividend
income for the years ended December 31, 2003, 2002 and 2001
amounted to $2,342,095 $2,376,286 and $1,910,909, respectively.
Interest income for the years ended December 31, 2003, 2002 and
2001 amounted to $918,166, $490,856 and $277,521, respectively.
NOTE 5 - LOANS AND MORTGAGES PAYABLE
LOANS PAYABLE
The Company purchases securities on margin. The margin loan
interest rate at December 31, 2003 and 2002 was 2.75% and 3%,
respectively and is due on demand. At December 31, 2003 and
2002, the margin loan amounted to $6,747,818 and $9,165,645,
respectively, and is secured by investment securities with a
market value of $31,096,211 and $32,784,968, respectively.
The Company has a $2,000,000 revolving credit agreement with
Transamerica Commercial Finance Corporation (Transamerica) to
finance inventory purchases. The interest rates range from prime
(with a minimum of 6%) for each advance to prime plus 2% after
one year. This agreement originally terminated April 25, 2003,
but automatically renews on an annual basis. Advances under this
line of credit were secured by the manufactured homes for which
the advances were made. As of December 31, 2003 and 2002, the
amount outstanding with Transamerica was $1,074,550 and $908,340,
respectively.
The Company also has miscellaneous loans payable for
equipment and vehicles and inventory totaling $18,594 and
$284,980 at December 31, 2003 and 2002, respectively.
UNSECURED LINE OF CREDIT
The Company has a $2,000,000 unsecured line of credit with
Fleet Bank, none of which was utilized at December 31, 2003. The
interest rate on this line of credit is prime. This line of
credit expires on June 15, 2004. The balance outstanding on this
line at December 31, 2002 was $2,000,000.
-52-
NOTE 5 - LOANS AND MORTGAGES PAYABLE, (CONT'D.)
MORTGAGES PAYABLE
The following is a summary of mortgages payable at December
31, 2003 and 2002:
Interest
Property Due Date Rate 2003 2002
________ ________ ________ ________ ________
Allentown 12/01/11 6.36% $5,576,541 $5,675,439
Cranberry Village 08/01/08 5.17% 2,242,222 2,309,000
D & R Village 05/01/08 4.625% 3,044,969 3,188,122
Fairview Manor 07/27/07 6.39% 3,859,421 3,960,632
Forest Park Village 08/01/08 5.17% 3,587,554 3,694,400
Heather Highlands 08/28/18 Prime+1/2% 3,439,939 -0-
Laurel Woods 10/10/06 6.38% 1,649,128 1,695,862
Port Royal Village 04/01/12 7.36% 5,282,636 5,330,337
Sandy Valley 03/01/04 7% 3,495,890 3,615,247
Waterfalls Village 01/01/08 4.625% 2,632,734 2,762,313
Various
(4 properties) 12/01/05 7.5% 9,411,641 11,090,532
__________ __________
TOTAL MORTGAGES PAYABLE $44,222,675 $43,321,884
========== ==========
At December 31, 2003 and 2002, mortgages are collateralized
by real property with a carrying value of $47,105,448 and
$40,409,176, respectively, before accumulated depreciation and
amortization. Interest costs amounting to $145,800 and $162,600
and $146,000 were capitalized during 2003, 2002 and 2001,
respectively, in connection with the Company's expansion program.
RECENT FINANCING
On June 20, 2002, the Company took down the additional
$1,500,000 on the Fairview Manor mortgage. The total balance of
$4,000,000 was converted to a fixed rate mortgage with an
interest rate of 6.39%. This mortgage is due July 27, 2007.
On March 28, 2002, the Company obtained a $5,362,500
mortgage with Prudential Mortgage Capital Company. This mortgage
is at an interest rate of 7.36% for a ten-year term with a thirty
year amortization schedule. This loan is secured by Port Royal
Village.
Effective January 1, 2003, the Company extended the
Waterfalls Village mortgage for an additional five years. The
interest rate was reset to 4.625%.
Effective May 1, 2003, the Company extended the D&R Village
mortgage for an additional five years. The interest rate was
reset to 4.625%.
-53-
NOTE 5 - LOANS AND MORTGAGES PAYABLE, (CONT'D.)
On August 28, 2003, the Company obtained a $3,500,000
mortgage loan with First National Community Bank, located in
Dunmore, PA. This mortgage payable is due on August 28, 2018
with an interest rate of prime plus 1/2% (with a minimum rate of
4 1/2 % and a maximum rate of 7 1/2%), for the first seven years.
Effective August 28, 2010, the interest rate will be prime plus
1% (but not more than 3% greater than the prime rate on August
28, 2010). This loan is secured by Heather Highlands Mobile Home
Park in Pittston, PA.
Effective October 1, 2003, the Company extended the
Cranberry Village mortgage and the Forest Park Village mortgage
to August 1, 2008. The interest rate was reset to a fixed rate
of 5.17%.
The aggregate principal payments of all mortgages payable
are scheduled as follows:
2004 $5,265,495
2005 9,740,535
2006 2,651,671
2007 4,547,078
2008 9,648,491
Thereafter 12,369,405
__________
Total $44,222,675
==========
NOTE 6 - EMPLOYEE STOCK OPTIONS
On August 14, 2003, the shareholders approved and ratified
the Company's 2003 Stock Option Plan (the 2003 Plan) authorizing
the grant to officers and key employees of options to purchase up
to 1,500,000 shares of common stock. All options are exercisable
one year from the date of grant. The option price shall not be
below the fair market value at date of grant. If options granted
under the 2003 Plan expire or terminate for any reason without
having been exercised in full, the Shares subject to, but not
delivered under, such options shall become available for
additional option grants under the 2003 Plan. This Plan replaced
the Company's 1994 Stock Option Plan which, pursuant to its
terms, terminated December 31, 2003.
The Company adopted the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock Based Compensation" on
January 1, 2003. During the year ended December 31, 2003, eleven
employees were granted 64,000 options. The fair value of those
options was approximately $83,000 based on assumptions noted
below and is being amortized over the 1-year vesting period.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following weighed-average assumptions used for grants in the
following years:
2003 2002 2001
_____ _____ _____
Dividend yield 6.14% 6.75% 8%
Expected 19% 13% 25%
volatility
Risk-free Interest
Rate 3.91% 3.40% 4.29%
Expected lives 8 8 5
-54-
NOTE 6 - EMPLOYEE STOCK OPTIONS, (CONT'D.)
A summary of the status of the Company's stock option plans
as of December 31, 2003, 2002 and 2001 and changes during the
years then ended are as follows:
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
______ _______ _______ _______ _______ _______
Outstanding
at Beginning
of year 388,000 $10.28 440,200 $10.44 433,500 $10.45
Granted 64,000 15.75 68,000 12.73 62,700 10.49
Exercised (115,000) 10.31 (39,700) 10.59 (14,000) 10.37
Expired (31,000) 12.66 (80,500) 13.06 (42,000) 10.68
_______ _______ _______
Outstanding
at end of
year 306,000 11.17 388,000 10.28 440,200 10.44
======= ======= =======
Options
exercisable
at end of
year 242,000 320,000 377,500
======= ======= =======
Weighted-
average
fair
value of
options
granted
During
the year 1.30 .35 1.18
======= ======= =======
The following is a summary of stock options outstanding as
of December 31, 2003:
Date of Number of Number of Option Expiration
Grant Employees Shares Price Date
________ ________ ________ ________
01/05/95 2 75,000 8.25 01/05/05
09/28/99 2 10,000 8.8125 09/28/04
01/06/00 1 25,000 9.0625 01/06/05
07/17/00 4 22,000 8.50 07/17/05
01/02/01 1 25,000 10.3125 01/02/06
10/04/01 5 24,000 10.60 10/04/09
01/04/02 1 25,000 12.95 01/04/10
06/20/02 10 36,000 12.60 06/20/10
08/18/03 1 25,000* 16.92 08/18/11
08/25/03 10 39,000* 15.00 08/25/11
________
306,000
========
* Unexercisable
-55-
NOTE 6 - EMPLOYEE STOCK OPTIONS, (CONT'D.)
During the year ended December 31, 2003, eleven employees
exercised their stock options and purchased 115,000 shares for a
total of $1,185,900. During 2002, 13,000 shares for a total of
$149,500 were exercised through the issuance of notes receivable
from officers. These notes receivable were at an interest rate
of 5%, mature on June 25, 2007 and were collateralized by the
underlying common shares. The balance of these notes receivable
at December 31, 2002 amounted to $92,000, collateralized by 8,000
shares. These notes receivable were fully repaid at December 31,
2003.
As of December 31, 2003, there were 1,436,000 shares
available for grant under the 2003 plan.
NOTE 7 - TREASURY STOCK
During the year ended December 31, 2002, the Company
purchased 46,000 shares, of its own stock for a total cost of
$603,024.
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 $12,000,
annually adjusted) and have it contributed to the Plan. Employer
contributions to the Plan are at the discretion of the Company.
During 2003, 2002 and 2001, the Company made matching
contributions to the Plan of up to 50% of the first 6% of
employee salary. This amounted to $37,961, $42,411 and $48,243
in 2003, 2002 and 2001, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS AND OTHER MATTERS
The Company operates as part of a group of three public
companies (all REITs) which includes the Company, Monmouth Real
Estate Investment Corporation (MREIC) and Monmouth Capital
Corporation (MCC), (collectively the affiliated companies).
Some general and administrative expenses are allocated between
the affiliated companies based on use or services provided.
Allocations of salaries and benefits are made based on the amount
of the employees' time dedicated to each affiliated company.
There are five Directors of the Company who are also
Directors and shareholders of MREIC and there are seven Directors
of the Company who are also Directors and shareholders of MCC.
TRANSACTIONS WITH MONMOUTH REAL ESTATE INVESTMENT CORPORATION
During 2003, 2002 and 2001, the Company purchased shares of
MREIC common stock primarily through its Dividend Reinvestment
and Stock Purchase Plan (See Note 4). During 2003, the Company
sold 50,000 shares of MREIC and recorded a gain on sale of
$131,727.
-56-
NOTE 9 - RELATED PARTY TRANSACTIONS AND OTHER MATTERS, (CONT'D.)
TRANSACTIONS WITH MONMOUTH CAPITAL CORPORATION AND SUBSIDIARY
During 2003, 2002 and 2001, the Company purchased shares of
MCC common stock primarily through its Dividend Reinvestment and
Stock Purchase Plan (See Note 4).
Prior to April 1, 2001, MCC, through its wholly-owned
subsidiary sold and financed the sales of manufactured homes.
MCC paid the Company market rent on sites where MCC had a home
for sale. Total site rental income from MCC amounted to $33,370
for the year ended December 31, 2001.
Effective April 1, 1996 through April 1, 2001, MCC leased
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 $38,370 for the year ended
December 31, 2001.
During 2001, the Company had approximately $49,000 of rental
homes that were sold to MCC at book value.
During 2003, 2002 and 2001, the Company purchased from MCC
at its cost, 4, 2 and 3 homes, respectively totaling $78,195,
$43,181 and $47,953, respectively to be used as rental homes. On
March 30, 2001, the Company also purchased at carrying value all
of the remaining inventory of MCC. This amounted to $2,261,624.
The Company also assumed the inventory financing of $1,833,871.
During 2003, the Company financed/refinanced certain loans
on sales made by MCC to third parties. The total amount financed
amounted to $307,746 during 2003.
On October 23, 2003, the Company invested $1,000,000 in the
Convertible Debenture Private Placement Offering of MCC (the MCC
Debenture). The MCC Debenture pays interest at 8% and is
convertible into 166,667 shares of Common Stock of MCC at any
time prior to redemption or maturity. The MCC debenture is due
in 2013.
SALARY, DIRECTORS', MANAGEMENT AND LEGAL FEES
During the years ended December 31, 2003, 2002 and 2001,
salary, Directors' fees, legal fees and fringe benefits to Mr.
Eugene W. Landy and the law firm of Landy & Landy amounted to
$185,776, $167,276 and $165,076, respectively.
OTHER MATTERS
The Company has employment agreements with certain executive
officers, which in addition to base compensation, bonuses and
fringe benefits, provides for specified retirement benefits. The
Company has accrued these benefits over the terms of the
agreements. Amounts accrued under these agreements were
$780,058 and $817,058 at December 31, 2003 and 2002,
respectively.
-57-
NOTE 9 - RELATED PARTY TRANSACTIONS AND OTHER MATTERS, (CONT'D.)
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 $12,000, plus its
proportionate share of real estate taxes and common area
maintenance. The lessor of the property is owned by certain
officers and directors of the Company. The lease payments and
the resultant lease term commenced on May 1, 2000. Approximately
50% of the monthly lease payment of $12,000, plus its
proportionate share of real estate taxes and common area
maintenance is reimbursed by other related entities utilizing the
leased space (MREIC and MCC).
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 were no
longer able to purchase additional shares by making optional cash
payments. The dividend reinvestment feature of the Plan remained
unchanged.
On March 19, 2003, the Company amended the Dividend
Reinvestment and Stock Purchase Plan to provide for monthly
optional cash payments of not less than $500 per payment nor more
than $1,000 unless a request for waiver has been accepted by the
Company.
Amounts received, including dividends reinvested of
$1,744,096, $1,654,949 and $1,686,031, respectively, and shares
issued in connection with the DRIP for the years ended December
31, 2003, 2002 and 2001 were as follows:
2003 2002 2001
Amounts
Received/Dividends
Reinvested $5,729,083 $1,654,949 $1,686,031
Number of Share Issued 378,380 135,418 163,491
NOTE 11 - DISTRIBUTIONS
The following gross distributions, including dividends
reinvested, were paid to shareholders during the three years
ended December 31, 2003, 2002 and 2001:
2003 2002 2001
Per Per Per
Quater Ended Amount Share Amount Share Amount Share
_______ _______ _______ _______ _______ _______
March 31 $1,710,236 $ .2225 $1,602,74 $.2125 $1,442,387 $.1950
June 30 1,742,618 .2250 1,705,309 .2150 1,466,787 .1975
September 30 1,797,855 .2275 1,581,064 .2175 1,494,309 .2000
December 31 1,867,392 .2300 1,679,176 .2200 1,577,057 .2100
_________ _______ _________ ______ _________ ______
$7,118,101 $ .9050 $6,568,295 $.8650 $5,980,540 $.8025
========= ======== ========= ====== ========= ======
-58-
NOTE 11 - DISTRIBUTIONS, (CONT'D.)
For the years ended December 31, 2003, 2002 and 2001, total
distributions paid by the Company amounted to $7,118,101 or
$.9050 per share, $6,568,295 or $.8650 per share, and $5,980,540
or $.8025 per share, respectively. These amounts do not include
the discount on shares purchased through the Company's Dividend
Reinvestment and Stock Purchase Plan.
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, 2003, 2002 and 2001. For the year ended December
31, 2003, S&F has accrued $50,000 in federal and state income
taxes which has been included in general and administrative
expenses.
NOTE 13 - CONTINGENCIES AND LEGAL MATTERS
The Company is under an investigation by the Environmental
Protection Agency regarding its operation of its wastewater
treatment facility at one community. The Company's wastewater
treatment facilities are operated by licensed operators and
supervised by a professional engineer. Management does not
believe that this matter will have a material adverse effect on
its business, assets, or results of operations.
The Company is subject to claims and litigation in the
ordinary course of business. Management does not believe that
any such claim or litigation will have a material adverse effect
on the business, assets, or results of operations of the Company.
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. All of the Company's securities
available for sale have quoted market prices. However, for a
portion of the Company's other financial instruments, no quoted
market value exists. Therefore, estimates of fair value are
necessarily based on a number of significant assumptions (many of
which involve events outside the control of management). Such
assumptions include assessments of current economic conditions,
perceived risks associated with these financial instruments and
their counterparties, future expected loss experience and other
factors. Given the uncertainties surrounding these assumptions,
the reported fair values represent estimates only and, therefore,
cannot be compared to the historical accounting model. Use of
different assumptions or methodologies is likely to result in
significantly different fair value estimates.
-59-
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONT'D.)
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 variable rate mortgages payable and loans
payable approximate their current carrying amounts since such
amounts payable are at approximately a weighted-average current
market rate of interest. For 2003, the fair and carrying value
of fixed rate mortgages payable amounted to $41,157,177 and
$40,782,736, respectively. For 2002, the fair and carrying
values of fixed rate mortgages payable amounted to $43,543,545
and $43,321,884, 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, 2003, 2002 and
2001 for interest was $3,336,290, $3,476,935 and $2,971,894,
respectively.
During the years ended December 31, 2003, 2002 and 2001,
land development costs of $894,057, $697,627 and $954,585,
respectively were transferred to investment property and
equipment and placed in service.
During the years ended December 31, 2003, 2002 and 2001, the
Company had dividend reinvestments of $1,744,096, $1,654,949 and
$1,686,031, respectively which required no cash transfers.
The following are the reclassification adjustments related to
securities available for sale included in Other Comprehensive
Income:
2003 2002 2001
____ ____ ____
Unrealized holding gains
arising during the year $4,018,490 1,242,378 $4,562,120
Less: reclassification
adjustment for gains
realized in income (2,698,724) (794,950) (530,324)
_________ ________ ________
Net unrealized gains $1,319,766 $447,428 $4,031,796
========== ========= ==========
NOTE 16 - SUBSEQUENT EVENTS
On March 1, 2004, the Company acquired Bishop's Mobile Home
Court and Whispering Pines Community, in Somerset Township,
Pennsylvania. Bishop's Mobile Home Court is an existing family
community consisting of 124 sites, located next to Whispering
Pines Community, a 55-and-older community consisting of 15
existing home sites and an additional 60 acres for expansion.
The Company will rename Bishop's Mobile Home Court as Somerset
Estates. The total purchase price was approximately $3,500,000.
The Company obtained a $2,000,000 mortgage with Somerset Trust
Company which matures on February 26, 2019. The interest rate is
fixed at 5.25% for three years and is adjusted every three years
based upon the three-year Treasury rate plus 3.25%.
-60-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
Column A Column B Column C Column D
Initial Cost
Site, Land & Capitalization
Building Subsequent to
Description Encumbrances Land Improvements Acquisition
________ ________ ________ ________ ________
Memphis, TN 5,576,541 250,000 2,569,101 1,381,338
Greenfield
Center,NY -0- 37,500 232,547 2,280,765
Vineland, NJ (3) 320,000 1,866,323 859,405
Duncansville PA -0- 60,774 378,093 518,978
Cranberry
Township, PA 2,242,222 181,930 1,922,931 284,296
Clifton
Park, NY 3,044,969 391,724 704,021 1,213,716
Apollo, PA -0- 670,000 1,336,600 783,027
Cranberry
Township, PA 3,587,554 75,000 977,225 1,155,274
Millville, NJ 3,859,421 216,000 1,166,517 4,590,478
Kutztown, PA -0- 145,000 1,695,041 4,615,674
Inkerman, PA 3,439,939 572,500 2,151,569 2,682,705
Monticello, NY -0- 235,600 1,402,572 1,955,031
Navarre, OH -0- 290,000 1,457,673 777,904
Cresson, PA 1,649,128 432,700 2,070,426 268,100
Memphis, TN -0- 78,435 810,477 1,483,001
West Grove, PA (3) 175,000 990,515 943,718
Carlisle, PA -0- 37,540 198,321 1,055,360
Belle
Vernon, PA 5,282,636 150,000 2,491,796 2,901,503
Marion, OH -0- 236,000 785,293 2,405,907
Athens, OH -0- 67,000 1,326,800 257,311
Magnolia, OH 3,495,890 270,000 1,941,430 1,821,429
Jackson, NJ (3) 100,095 602,820 1,289,561
Hamburg, NY 2,632,734 424,000 3,812,000 243,735
West Monroe, NY -0- 77,000 841,000 225,199
Eatontown, NJ (3) 157,421 280,749 206,397
Caledonia, OH 260,000 1,753,206 611,997
________ ________ _________ ________
34,811,034 $5,911,219 $35,765,046 $36,811,809
========= ========= =========
Various 9,411,641 (3)
________
$44,222,675
==========
-61A-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
Column A Column E (1) (2) Column F (1)
Gross Amount at Which Carried at
12/31/03
Site, Land &
Building Accumulated
Description Land Improvements Total Depreciation
___________ _______ ___________ ______ __________
Memphis, TN 250,000 3,950,439 4,200,439 2,923,121
Greenfield
Center, NY 122,865 2,427,947 2,550,812 1,155,342
Vineland, NJ 408,206 2,637,522 3,045,728 1,952,876
Duncansville PA 60,774 897,071 957,845 593,224
Cranberry
Township, PA 181,930 2,207,227 2,389,157 1,818,226
Clifton
Park, NY 391,724 1,917,737 2,309,461 1,057,064
Apollo, PA 670,000 2,119,627 2,789,627 628,621
Cranberry
Township, PA 75,000 2,132,499 2,207,499 1,737,443
Millville, NJ 631,137 5,341,858 5,972,995 1,927,628
Kutztown, PA 404,239 6,051,476 6,455,715 1,711,316
Inkerman, PA 572,500 4,834,274 5,406,774 1,607,714
Monticello,NY 318,472 3,274,731 3,593,203 1,459,140
Navarre, OH 290,000 2,235,577 2,525,577 1,223,537
Cresson, PA 432,700 2,338,526 2,771,226 181,026
Memphis, TN 78,435 2,293,478 2,371,913 1,369,663
West Grove, PA 175,000 1,934,233 2,109,233 1,491,330
Carlisle, PA 145,473 1,145,748 1,291,221 742,511
Belle
Vernon, PA 150,000 5,393,299 5,543,299 3,294,815
Marion, OH 236,000 3,191,200 3,427,200 1,339,964
Athens, OH 67,000 1,584,111 1,651,111 414,091
Magnolia, OH 270,000 3,762,859 4,032,859 2,403,091
Jackson, NJ 100,095 1,892,381 1,992,476 1,526,910
Hamburg, NY 424,000 4,055,735 4,479,735 871,137
West Monroe, NY 77,000 1,066,199 1,143,199 23,583
Eatontown, NJ 135,421 509,146 644,567 379,648
Caledonia, OH 260,000 2,365,203 2,625,203 611,295
_________ _________ _________ _________
6,927,971 $71,560,103 $78,488,074 $34,444,316
========= ========= ========= ==========
-61B-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2003
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 prior to 1970 1977 3 to 27.5
Center, NY
Vineland, NJ 1973 1986 3 to 27.5
Duncansville, PA 1961 1979 3 to 27.5
Cranberry 1974 1986 5 to 27.5
Township, PA
Clifton Park, NY 1972 1978 3 to 27.5
Apollo, PA prior to 1980 1995 5 to 27.5
Cranberry prior to 1980 1982 3 to 27.5
Township, PA
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
Cresson, PA prior to 1980 2001 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 5 to 27.5
West Monroe, NY prior to 1980 2003 5 to 27.5
Eatontown, NJ 1964 1978 3 to 27.5
Caledonia, OH prior to 1980 1996 5 to 27.5
-61C-
/----------FIXED ASSETS-----------/
(1) Reconciliation: 12/31/03 12/31/02 12/31/01
Balance - Beginning
of Year $74,820,899 $73,015,447 $68,265,859
__________ __________ __________
Additions:
Acquisitions 918,000 -0- 2,503,126
Improvements 3,220,960 2,952,693 2,710,384
Depreciation -0- -0- -0-
__________ __________ __________
Total Additions 4,138,960 2,952,693 5,213,510
__________ __________ __________
Deletions 471,785 1,147,241 463,922
__________ __________ __________
Balance - End of Year $78,488,074 $74,820,899 $73,015,447
========== ========== ==========
/-----ACCUMULATED DEPRECIATION-----/
Reconciliation: 12/31/03 12/31/02 12/31/01
Balance - Beginning
of Year $32,073,978 $29,763,492 $ 27,526,792
__________ __________ __________
Additions:
Acquisitions -0- -0- -0-
Improvements -0- -0- -0-
Depreciation 2,494,445 2,433,867 2,360,623
__________ __________ __________
Total Additions 2,494,445 2,433,867 2,360,623
__________ __________ __________
Deletions 124,107 123,381 123,923
__________ __________ __________
Balance - End of Year $34,444,316 $32,073,978 $ 29,763,492
========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates
historical cost.
(3) Represents one mortgage note payable secured by four
properties.
-61D-
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
Chief Executive Officer
Dated: March 8, 2004
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 Chief Executive March 8, 2004
EUGENE W. LANDY Officer and
Director
/s/Samuel A. Landy President and March 8, 2004
SAMUEL A. LANDY Director
/s/Anna T. Chew Vice President and March 8, 2004
ANNA T. CHEW Chief Financial
Officer
and Director
/s/Ernest V. Secretary/Treasurer March 8, 2004
Bencivenga and
ERNEST V. BENCIVENGA Director
/s/Charles P. Director March 8, 2004
Kaempffer
CHARLES P. KAEMPFFER
/s/James Mitchell Director March 8, 2004
JAMES MITCHELL
/s/Richard H. Molke Director March 8, 2004
RICHARD H. MOLKE
/s/Eugene Rothenberg Director March 8, 2004
EUGENE ROTHENBERG
/s/Robert G. Sampson Director March 8, 2004
ROBERT G. SAMPSON
-62-