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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period ____________________ to
_____________________
Commission File Number 0-13130
United Mobile Homes, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1890929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
125 Wyckoff Road, Eatontown, New Jersey 07724
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (732) 389-3890
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K X .
Based upon the assumption that directors and executive officers
of the registrant are not affiliates of the registrant, the
aggregate market value of the voting stock of the registrant held
by nonaffiliates of the registrant at March 12, 1998 was
$79,513,139. Presuming that such directors and executive
officers are affiliates of the registrant, the aggregate market
value of the voting stock of the registrant held by nonaffiliates
of the registrant at March 12, 1998 was $59,223,564.
The number of shares outstanding of issuer's common stock as of
March 12, 1998 was 6,876,812 shares.
Documents Incorporated by Reference:
- - Exhibits incorporated by reference are listed in Part IV, Item (a)(3).
PART I
ITEM I - BUSINESS
General Development of Business
United Mobile Homes, Inc. (the Company) owns and operates
twenty-four manufactured home communities containing 5,609 sites.
The communities are located in New Jersey, New York, Ohio,
Pennsylvania and Tennessee.
The Company was incorporated in the State of New Jersey in
1968. Its executive offices are located at 125 Wyckoff Road,
Eatontown, New Jersey 07724. Its telephone number is (732) 389-
3890.
Effective January 1, 1992, the Company elected to be taxed
as a real estate investment trust (REIT) under Sections 856-858
of the Internal Revenue Code. The Company received from the
Internal Revenue Service a favorable revenue ruling that it
qualified as a REIT. The Company will not be taxed on the
portion of its income which is distributed to shareholders,
provided it distributes at least 95% of its taxable income, has
at least 75% of its assets in real estate investments and meets
certain other requirements for qualification as a REIT.
Background
Monmouth Capital Corporation, a publicly-owned Small
Business Investment Corporation, that had owned approximately 66%
of the Company's stock, spun off to its shareholders in a
registered distribution three shares of United Mobile Homes, Inc.
for each share of Monmouth Capital Corporation. The Company in
1984 and 1985 issued additional shares through rights offerings.
The Company has been in operation for twenty-nine years, the last
thirteen of which have been as a publicly-owned corporation.
Narrative Description of Business
The Company's primary business is the ownership and
operation of manufactured home communities - leasing manufactured
home spaces on a month-to-month basis to private manufactured
home owners. The Company also leases homes to residents.
A manufactured home community is designed to accommodate
detached, single family manufactured housing units, which are
produced off-site by manufacturers and delivered by truck to the
site. Such dwellings, referred to as manufactured homes (which
should be distinguished from travel trailers), are manufactured
in a variety of styles and sizes. Manufactured homes, once
located, are rarely transported to another site; typically, a
manufactured home remains on site and is sold by its owner to a
subsequent occupant. This transaction is commonly handled
through a broker in the same manner that the more traditional
single-family residence is sold. Each owner of a manufactured
home leases the site on which the home is located from the
Company.
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.
-1-
The size of a modern manufactured home community is limited,
as are other residential communities, by factors such as
geography, topography, and funds available for development.
Generally, modern manufactured home communities contain buildings
for recreation, green areas, and other common area facilities,
which, as distinguished from resident owned manufactured homes,
are the property of the community owner. In addition to such
general improvements, certain manufactured home communities
include recreational improvements such as swimming pools, tennis
courts and playgrounds. Municipal water and sewer services are
available to some manufactured home communities, while other
communities supply these facilities on site. The housing
provided by the manufactured home community, therefore, includes
not only the manufactured dwelling unit (owned by the resident),
but also the physical community framework and services provided
by the manufactured home community.
The community manager interviews prospective residents,
ensures compliance with community regulations, maintains public
areas and community facilities and is responsible for the overall
appearance of the community. The manufactured home community,
once fully occupied, tends to achieve a stable rate of occupancy.
The cost and effort in moving a home once it is located in a
community encourages the owner of the manufactured home to resell
his manufactured home there rather than to remove it from the
community. This ability to produce relatively predictable
income, together with the location of the community, its
condition and its appearance, are factors in the long-term
appreciation of the community.
The long-term industry trend may be toward condominium
conversions. A change from investor community ownership to
resident ownership would enhance the value of existing
manufactured home communities. All of the Company's communities
are located in areas of the country that have not yet accepted
this concept. Condominium conversion is a long-term possibility
and has no impact on the Company's current operations.
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 may also
invest in the securities of other REITs.
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.
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 1998 will be
consistent with 1997 expenditures. It is the policy of the
Company to maintain adequate insurance coverage on all of its
properties; and, in the opinion of the Company, all of its
properties are adequately insured where such insurance is
available at a reasonable cost as determined by management.
-2-
General Risks of Real Estate Ownership
The Company's investments will be subject to the risks
generally associated with the ownership of real property,
including the uncertainty of cash flow to meet fixed obligations,
adverse changes in national economic conditions, changes in the
relative popularity (and thus the relative price) of the
Company's real estate investments when compared to other
investments, adverse local market conditions due to changes in
general or local economic conditions or neighborhood values,
changes in interest rates and in the availability of mortgage
funds, costs and terms of mortgage funds, the financial
conditions of residents and sellers of properties, changes in
real estate tax rates and other operating expenses (including
corrections of potential environmental issues as well as more
stringent governmental regulations regarding the environment),
governmental rules and fiscal policies including possible
proposals for rent controls, as well as expenses resulting from
acts of God, uninsured losses and other factors which are beyond
the control of the Company. The Company's investments are
primarily in rental properties and are subject to the risk or
inability to attract or retain residents with a consequent
decline in rental income as a result of adverse changes in local
real estate markets or other factors.
Competition for Manufactured Home Community Investments
The Company will be competing for manufactured home
community investments with numerous other real estate entities,
such as individuals, corporations, real estate investment trusts
and other enterprises engaged in real estate activities, possibly
including certain affiliates of the Company. In many cases, the
competing concerns may be larger and better financed than the
Company, making it difficult for the Company to secure new
manufactured home community investments. Competition among
private and institutional purchasers of manufactured home
community investments has increased substantially in recent
years, with resulting increases in the purchase price paid for
manufactured home communities and consequent higher fixed costs.
Environmental, Regulatory and Energy Problems
The availability of suitable investments and the cost of
construction and operation of manufactured home communities in
which the Company may invest may be adversely affected by
legislative, regulatory, administrative and enforcement action at
the local, state and national levels in the areas, among others,
of housing and environmental controls. In addition to possible
increasingly restrictive zoning regulations and related land use
controls, such restrictions may relate to air, ground and water
quality standards, wetlands regulations, noise pollution and
indirect environmental impacts such as increased motor vehicle
activity.
The Company owns and operates 11 manufactured home
communities which either have their own waste water treatment
facility, water distribution system, or both. At these
locations, the Company is subject to compliance of monthly,
quarterly and yearly testing for contaminants as outlined by the
individual state's Department of Environmental Protection
Agencies.
The Company must also comply with certain Federal
Environmental Protection Agency Regulations which may be more
stringent than the state and local governmental regulations. The
costs of such testing are included in the Company's operating
expenses. As of the date of this report, there are no
enforcement actions pending by any federal, state or local
environmental agencies and management believes that the Company
is in compliance with all such regulations.
-3-
Currently, the Company is not subject to radon or asbestos
monitoring requirements.
In its normal course of business, the Company does not incur
costs related to local or state zoning issues. However, zoning
regulations often restrict expansion of the Company's
communities, but allow continuing operation of existing
communities.
Rent control affects only two of the Company's manufactured
home communities which are in New Jersey and has resulted in a
slower growth of earnings from these properties.
Number of Employees
On March 12, 1998, the Company had approximately 90
employees, including Officers. During the year, the Company
hires approximately 20 part-time and full-time temporary
employees as lifeguards, grounds keepers and for emergency
repairs.
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ITEM 2 - PROPERTIES
United Mobile Homes, Inc. is engaged in the ownership and
operation of manufactured home communities located in New Jersey,
New York, Ohio, Pennsylvania and Tennessee. The Company owns
twenty-four manufactured home communities. The following is a
brief description of the properties owned by the Company:
Number 1997 Current
of Average Rent Per
Name of Community Sites Occupancy Month Per Site
Allentown 414 86% $209
4912 Raleigh-Millington Rd.
Memphis, TN 38128
Brookview Village 133 85% $285
Route 9N
Greenfield Center, NY 12833
Cedarcrest 283 99% $325
1976 North East Avenue
Vineland, NJ 08360
Cranberry Village 201 95% $285
201 North Court
Mars, PA 16046
Cross Keys Village 133 97% $232
Old Sixth Avenue Rd.
RD #1
Duncansville, PA 16635
D & R Village 244 96% $322
Route 146, RD 13
Clifton Park, NY 12065
Edgewood Estates 218 80% $190
700 Edgewood Estates
Apollo, PA 15613
Fairview Manor 197 91% $315
2110 Mays Landing Rd.
Millville, NJ 08360
Forest Park Village 252 96% $251
724 Slate Avenue
Cranberry Twp., PA 16066
Heather Highlands 457 71% $188
109 S. Main Street
Pittston, PA 18640
-5-
Number 1997 Current
of Average Rent Per
Name of Community Sites Occupancy Month Per Site
Highland Estates 229 88% $312
60 Old Route 22
Kutztown, PA 19530
Kinnebrook 212 92% $312
Route 17-B
Monticello, NY 12701
Lake Sherman Village 210 97% $232
7227 Beth Avenue, SW
Navarre, OH 44662
Memphis Mobile City 168 86% $193
3894 N. Thomas Street
Memphis, TN 38127
Oxford Village 224 100% $326
2 Dolinger Drive
West Grove, PA 19390
Pine Ridge Village 137 97% $281
147 Amy Drive
Carlisle, PA 17013
Port Royal Village 402 88% $206
400 Patterson Lane
Belle Vernon, PA 15012
River Valley Estates 208 82% $177
2066 Victory Rd.
Marion, OH 43302
Sandy Valley Estates 364 94% $209
801 First, Route #2
Magnolia, OH 44643
Southwind Village 250 95% $248
435 E. Veterans Highway
Jackson, NJ 08527
Spreading Oaks Village 153 92% $147
7140-29 Selby Road
Athens, OH 45701
Waterfalls Village 202 100% $303
3450 Howard Road
Hamburg, NY 14075
Woodlawn Village 157 97% $400
Route 35
Eatontown, NJ 07724
Wood Valley 161 91% $173
1493 N. Whetstone River Rd.
Caledonia, OH 43314
-6-
Occupancy rates are very stable with little year-to-
year changes once the community is filled (generally 90% or
greater occupancy). It is the Company's experience that, once
home is set up in the community, it is seldom moved. The home if
sold, is sold on-site to a new owner.
Residents generally rent on a month-to-month basis. Some
residents have one-year leases. Southwind Village and Woodlawn
Village (both in New Jersey) are the only communities subject to
local rent control laws.
There are 14 sites at Sandy Valley which are under a consent
order with the Federal Government. This order provides that, as
these sites become vacant, they cannot be reused. The
restrictions on use were known at the time of purchase, and the
item is not material to the operation of Sandy Valley Estates.
In connection with the operation of its 5,609 sites, the
Company operates approximately 350 rental units. These are homes
owned by the Company and rented to residents. The Company
engages in the rental of manufactured homes primarily in areas
where the communities have existing vacancies. The rental homes
produce income on both the home and for the site which might
otherwise be non-income producing. The Company sells the older
rental homes when the opportunity arises.
The Company has approximately 700 sites in various stages of
engineering/construction. Due to the difficulties involved in
the approval and construction process, it is difficult to predict
the number of sites which will be completed in a given year.
During 1997, 10 sites were completed at D & R Village, 37 at
Fairview Manor, 37 at Highland Estates, 37 at Sandy Valley and 25
at River Valley.
Significant Properties
The Company operates approximately $61,000,000 (at original
cost) in manufactured home properties. These consist of 24
separate manufactured home communities and related equipment and
improvements. There are 5,609 sites in the 24 communities. No
one community constitutes more than 10% of the total assets of
the Company. Port Royal Village with 402 sites, Sandy Valley
Estates with 364 sites, Cedarcrest with 283 sites, Allentown with
414 sites and Heather Highlands with 457 sites are the larger
properties. The following is a description of these properties:
PORT ROYAL VILLAGE
The Company acquired Port Royal Village in 1984. This is a
402-space manufactured home community located in Belle Vernon,
Pennsylvania. The Company believes this to be a sound
acquisition for the following reasons: (a) the community is well-
maintained with city water and its own sewer plant, as well as a
swimming pool and community building; (b) the community has
approximately 88% occupancy; and (c) the community generates
substantial revenues and net operating income. Management
believes that this community is a successful and valuable
manufactured home community.
SANDY VALLEY ESTATES
The Company acquired Sandy Valley Estates in 1985. This is
a 364-space manufactured home community located in Magnolia,
Ohio. The Company believes this to be an excellent community
because (a) the community is well-maintained with municipal
sewer; (b) the community has its own well system; (c) the
community has approximately 94% occupancy; and (d) the community
generates revenues with an average monthly rental of $209 per
site, which rents are competitive with the other manufactured
home communities in the area. The Company believes that it is an
excellent investment.
-7-
CEDARCREST
On July 15, 1986 the Company paid $760,000 to acquire 94.05%
of the partnership interest in a limited partnership that owned a
283-space manufactured home community located in Vineland, New
Jersey. On June 30, 1988 the Company paid $40,000 to acquire an
additional 4.95% of the partnership interest, bringing the
Company's total ownership to 99%. During 1989 the Company
acquired the remaining 1% interest.
The Company believes this to be an excellent community for
the following reasons: (a) the community is well-maintained, (b)
the community has municipal sewer and water service; and (c) the
community is 99% occupied. Rents average $325 per month per site
and they are competitive with other communities in the area.
ALLENTOWN
On September 15, 1986 the Company paid $850,000 to all of
the limited partners to acquire 97% of the partnership interests
in a limited partnership that owned a 414-space manufactured home
community located in Memphis, Tennessee.
Royal Green, Inc., the General Partner of this partnership,
retained its 3% interest in the partnership until January, 1990
at which time the Company purchased the 3% interest for $25,500.
The Company believes this to be a sound investment for the
following reasons: (a) the property is well maintained; (b) the
community has municipal sewer and water service; and (c) rents
are competitive with other manufactured home communities in the
area. Current occupancy is approximately 86%. This is an
increase from the prior year occupancy of 82%. The Company is
continuing its effort to bring occupancy to 90% or higher. In
the future, the Company anticipates that it will be able to
increase occupancy. The community has the potential to be fully
occupied in one of the nicest areas in Memphis.
HEATHER HIGHLANDS
On January 30, 1992, the Company acquired an 88.36% interest
in a limited partnership operating a 457-space manufactured home
community located in Pittston, Pennsylvania. This partnership
has partners who are also officers, directors and/or shareholders
of the Company. Mr. Eugene Landy, Chairman of the Board,
retained the remaining 11.64% limited partnership interest. The
purchase price was approximately $2,500,000. This purchase was
based on an independent appraisal of fair market value. In
January 1995, the Company purchased the remaining 11.64%
partnership interest for $132,600. This price per unit was the
same price previously paid to non-affiliated sellers.
The Company anticipates that the community will ultimately
have 415 sites since the use of double wide units reduce the
total number of available sites.
The Company believes this to be a sound investment for the
following reasons: (a) the property is well maintained; (b) the
community has municipal sewer and water service; and (c) rents
are competitive with other manufactured home communities in the
area.
Mortgages on Properties
The Company has mortgages on various properties. The
maturity dates of these mortgages range from the year 2000 to
2003. Interest varies from fixed rates of 7.5% to 10.5%. The
aggregate balances of these mortgages total $20,111,023 at
December 31, 1997. (For additional information, see Part IV,
Item 14(a)(1)(vi), Note 5 of the Notes to Consolidated Financial
Statements - Notes and Mortgages Payable).
-8-
ITEM 3 - LEGAL PROCEEDINGS
Legal proceedings are incorporated herein by reference and
filed as Part IV, Item 14(a)(1)(vi), Note 12 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 1997
to a vote of security holders through the solicitation of proxies
or otherwise.
-9-
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company became publicly owned on January 3, 1985. As of January
5, 1994, shares of the Company were traded on the American Stock Exchange
(symbol UMH). The per share range of high and low quotes for the
Company's stock for each quarterly period is as follows:
1997 1996 1995
HIGH LOW HIGH LOW HIGH LOW
First Quarter 13-5/8 11-1/4 14 9-5/8 7-3/4 7-1/8
Second Quarter 12-1/4 10-7/8 13-3/8 10-1/4 8-7/16 7-1/2
Third Quarter 12-3/8 11-1/4 12-1/2 10-1/2 10-1/8 8-1/4
Fourth Quarter 12-3/16 11-1/4 12-1/2 11 10-1/2 9-5/8
On March 12, 1998 the closing price of the Company's stock was 11-
9/16.
As of December 31, 1997, there were approximately 1,150 holders of
the Company's common stock based on the number of record owners.
For the years ended December 31, 1997, 1996 and 1995, total
dividends paid by the Company amounted to $4,620,296 or $.70 per share,
$3,630,891 or $.60 per share and $2,954,847 or $.525 per share,
respectively.
On December 9, 1997, the Company declared a dividend of $.175 per
share to be paid on March 16, 1998 to shareholders of record February 17,
1998.
Future dividend policy will depend on the Company's earnings,
capital requirements, financial condition, availability and cost of bank
financing and other factors considered relevant by the Board of
Directors. The Company elected REIT status beginning in 1992. As a
REIT, the Company must pay out at least 95% of its taxable income in the
form of a cash distribution to shareholders.
-10-
ITEM 6 - SELECTED FINANCIAL DATA
December 31,
1997 1996 1995 1994 1993
Income Statement Data:
Rental and
Related Income $15,423,111 14,533,218 $13,332,961 $12,318,467 $11,521,677
Income from Community
Operations 8,606,017 8,311,469 7,449,168 6,864,080 6,407,937
(Loss) Gain on Sales
of Investment
Property and
Equipment (10,546) 333,647 5,758 59,941 17,022
Net Income 4,197,258 3,729,526 2,491,581 2,141,279 1,346,219
Net Income Per
Share-Basic
and Diluted .63 .61 .44 .40 .26
...............................................................................
Balance Sheet Data:
Total Assets $43,599,259 $35,875,206 $29,758,397 $25,404,015 $25,274,685
Mortgages Payable 20,111,023 17,351,030 17,707,635 15,637,325 17,936,230
Shareholders'
Equity 20,830,541 16,426,145 10,290,487 7,721,783 6,229,453
................................................................................
Average Number
of Shares
Outstanding 6,617,479 6,072,637 5,639,455 5,365,359 5,071,554
Funds from
Operations * $ 6,324,536 $ 5,693,631 $ 4,358,765 $ 3,880,507 $3,145,859
Cash Dividends
Per Share .70 .60 .525 .425 .325
* Defined as net income, excluding gains (or losses) from sales
of depreciable assets, plus depreciation. Includes gain on
sale of land of $290,303 in 1996. Funds from Operations do
not replace net income determined in accordance with
generally accepted accounting principles (GAAP) as a measure
of performance or net cash flows as a measure of liquidity.
Funds from Operations is not a GAAP measure of operating
performance and should be considered as a supplemental
measure of operating performance used by real estate
investment trusts.
-11-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenue and Expense
1997 vs. 1996
Rental and related income increased from $14,533,218 for the
year ended December 31, 1996 to $15,423,111 for the year ended
December 31, 1997 primarily due to rental increases to residents,
increased occupancy, expansions and the acquisition of a new
community. During 1997, the Company was able to obtain rent
increases of $5.00 to $15.00 per month on most of its occupied
sites.
Overall occupancy rates are satisfactory with only eight
manufactured home communities experiencing vacancies over ten
percent. Some of these vacancies are the result of expansions
completed toward the end of the year. The Company has completed a
37 site expansion at Sandy Valley Estates, a 37 site expansion at
Fairview Manor, a 37 site expansion at Highland Estates, a 10 site
expansion at D&R Village and a 25 site expansion at River Valley.
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. The
Company has also purchased a 202 site community in 1997 located in
Hamburg, New York.
Community operating expenses increased from $6,221,749 for the
year ended December 31, 1996 to $6,817,094 for the year ended
December 31, 1997 primarily as a result of the acquisition of an
additional community and increased expenses such as advertising,
associated with the expansions.
The Company's income from community operations continues to
show steady growth rising from $8,311,469 in 1996 to $8,606,017 in
1997.
General and administrative expenses decreased from $1,512,623
in 1996 to $1,356,736 in 1997 primarily as a result of a decrease
in professional fees.
Interest expense decreased from $1,434,875 in 1996 to
$1,123,445 in 1997. This was primarily as a result of lower
average principal balances outstanding and the capitalization of
interest during the fourth quarter of 1997 of $250,000 relating to
community expansions.
Interest and dividend income increased from $93,579 in 1996 to
$240,700 in 1997 due to purchases of securities available for sale
during 1996 and 1997.
Depreciation expense increased from $2,007,449 in 1996 to
$2,116,732 in 1997 due primarily to the addition of a new
community.
Other expenses remained relatively stable in 1997 and 1996.
Loss/gain on sales of investment property and equipment
decreased from a gain of $333,647 in 1996 to a loss of $10,546 in
1997, primarily due to the sale of 5.5 acres of vacant land at a
gain of approximately $290,000 in 1996.
-12-
For the year ended December 31, 1997, the Company reported net
income of $4,197,258 as compared to net income of $3,729,526 for
the year ended December 31, 1996. The Company is currently
experiencing modest inflation. Modest inflation is believed to
have a favorable impact on the Company's financial performance.
With modest inflation, the Company believes that it can increase
rents sufficiently to match increases in operating expenses. High
rates of inflation (more than 10%) could result in an inability to
raise rents to meet rising costs and could create political
problems such as the imposition of rent controls. The Company
anticipates continuing profits in 1998.
Revenue and Expense
1996 vs. 1995
Rental and related income increased from $13,332,961 for the
year ended December 31, 1995 to $14,533,218 for the year ended
December 31, 1996 primarily due to rental increases to residents,
increased occupancy and the acquisition of two new communities.
During 1996, the Company was able to obtain rent increases of $5.00
to $16.00 per month on most of its occupied sites.
Overall occupancy rates are satisfactory with only six
manufactured home communities experiencing vacancies over ten
percent. The Company purchased two communities in 1996. The
Company also completed a 27 site expansion at River Valley Estates.
Community operating expenses increased from $5,883,793 for the
year ended December 31, 1995 to $6,221,749 for the year ended
December 31, 1996 primarily as a result of the acquisitions of two
additional communities. Community operating expenses decreased
from 44% to 43% of gross revenues.
The Company's income from community operations continued to
show steady growth rising from $7,449,168 in 1995 to $8,311,469 in
1996.
General and administrative expenses increased from $1,228,850
in 1995 to $1,512,623 in 1996 primarily as a result of an increase
in personnel costs.
Interest expense decreased from $1,675,998 in 1995 to
$1,434,875 in 1996. This was primarily as a result of a decrease
in the interest rate. During 1995, the Company negotiated new long-
term debt. Interest rates dropped from prime plus 1% to a fixed
rate of 7.5% on a substantial portion of the Company's debt.
Interest and dividend income increased from $65,999 in 1995 to
$93,579 in 1996 due to purchases of securities available for sale
during 1996.
Depreciation expense increased from $1,872,942 in 1995 to
$2,007,449 in 1996 due to the addition of two new communities.
Other expenses decreased from $251,554 in 1995 to $54,222 in
1996 due to a decrease in amortization expenses.
Gain on sales of investment property and equipment increased
from $5,758 in 1995 to $333,647 in 1996 primarily due to the sale
of 5.5 acres of vacant land at a gain of approximately $290,000.
-13-
Liquidity and Capital Resources
As a real estate company, the Company uses funds for real estate
acquisitions, real property improvements and amortization of debt
incurred in connection with such acquisitions and improvements. The
Company generates funds through cash flow from properties, mortgages
on properties and increases in shareholder investments. The Company
has liquidity available from a combination of short and long-term
sources. The Company currently has mortgages payable totaling
$20,111,023 secured by eight communities. The Company also has a
$500,000 line of credit with Summit Bank, all of which was utilized at
December 31, 1997. The Company believes that its 24 manufactured home
communities have market values in excess of historical cost.
Management believes that this provides significant additional borrowing
capacity.
Net cash provided by operating activities increased from
$4,642,256 in 1995 to $5,823,597 in 1996 to $6,258,913 in 1997. Cash
flow was primarily used for capital improvements, payment of dividends,
purchases of securities available for sale, expansion of existing
communities and purchase of a new community. The Company meets
maturing mortgage obligations by using a combination of cash flow and
refinancing. The dividend payments were primarily made from cash flow
from operations.
In addition to normal operating expenses, the Company requires
cash for additional investments in manufactured home communities,
capital improvements, purchase of manufactured homes for rent,
scheduled mortgage amortization and dividend distributions. As a REIT,
the Company must distribute at least 95% of its taxable income.
The Company estimates that it will purchase in 1998 approximately
25 manufactured homes to be used as rentals for a total cost of
$400,000. 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 1998.
The Company has a Dividend Reinvestment and Stock Purchase Plan
(Plan). Cash received from the Plan is a significant additional source
of liquidity and capital resources. During 1997, the Company paid
$4,620,296 in dividends. Amounts received under the Plan amounted to
$4,347,668. The success of the Plan resulted in a substantial
improvement in the Company's liquidity and capital resources in 1997.
The Company has undeveloped land which it could develop over the
next several years. During 1997, approximately 150 sites were
completed. In 1998, construction is expected to commence on
approximately 180 sites. The Company is also exploring the utilization
of vacant land for self storage or town houses. The Company continues
to analyze the highest and best use of its vacant land, and uses it
accordingly. In addition, the Company purchased an additional
community containing 202 sites. The Company plans to continue
acquiring additional manufactured home communities.
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.
-14-
Impact of Year 2000
The Company is conducting a comprehensive review of its computer
systems and third party vendors to identify the systems that could be
affected by the "Year 2000" issue. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to
define the applicable year. Programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the Year
2000. This could result in system failure or miscalculations. The
Company is devoting the necessary internal and external resources in
the development of an implementation plan to address Year 2000.
Management anticipates that all year 2000 initiatives and testing will
be completed in a timely manner. Expenditures in future years are not
expected to have a material impact on the Company.
-15-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Part
IV, Item 14(a)(1) are incorporated herein by reference.
The following is the Unaudited Selected Quarterly Financial
Data:
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
Rental & Related
Income $ 3,765,720 $ 3,804,373 $ 3,862,240 $ 3,990,778
Income from Community
Operations 2,235,925 2,110,522 2,061,932 2,197,638
Net Income 1,072,954 975,294 889,132 1,259,878
Net Income per Share-
Basic and Diluted .16 .15 .13 .19
THREE MONTHS ENDED
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
Rental & Related
Income $ 3,561,274 $ 3,582,925 $ 3,671,970 $ 3,717,049
Income from Community
Operations 2,025,485 2,084,359 1,968,868 2,232,757
Net Income 1,063,209 916,854 784,134 965,329
Net Income Per Share-
Basic and Diluted .18 .15 .12 .16
THREE MONTHS ENDED
1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
Rental & Related
Income $ 3,247,040 $ 3,304,765 $ 3,382,423 $ 3,398,733
Income from Community
Operations 1,839,493 1,814,328 1,838,716 1,956,631
Net Income 589,940 558,878 629,741 713,022
Net Income per Share-
Basic and Diluted .11 .10 .11 .12
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-16-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age & Principal Occupation Director Shares Owned Percent
Office Held During Past Five Years Since Beneficially (1) of Stock
Robert A. Anderson Vice President of The 1980 15,817 0.23%
Age: 75 David Cronheim Company;
Director past President of the
Industrial Real Estate
Brokers Association of New
York and New Jersey.
Ernest V. Bencivenga Financial Consultant; 1969 23,267(2) 0.34%
Age: 80 Treasurer and Director
Secretary/Treasurer (1961 to present) and Secretary
Director (1967 to present) of Monmouth
Capital Corporation;
Treasurer and Director (1968
to present) of Monmouth Real
Estate Investment Corporation.
Anna T. Chew Certified Public Accountant; 1994 17,758(3) 0.26%
Age: 39 Controller (1991 to present) and
Vice President and Director (1993 to present) of Monmouth
Chief Financial Real Estate Investment Corporation;
Officer Controller (1991 to present) and
Director Director (1994 to present) of Monmouth
Capital Corporation; Senior Manager
(1987 to 1991) of KPMG Peat Marwick LLP
Charles P. Kaempffer Investor; Director (1970 1969 50,469(4) 0.73%
Age: 60 to present) of Monmouth
Director Capital Corporation; Director
(1974 to present) of Monmouth Real
Estate Investment Corporation;
Vice Chairman and Director (1996
to present) of Community Bank
of New Jersey; Director (1989
to 1996) of Sovereign Community
Bank (formerly Colonial Bank)
-17-
Name, Age & Principal Occupation Director Shares Owned Percent
Office Held During Past Five Years Since Beneficially (1) of Stock
Eugene W. Landy Attorney at Law for the 1969 842,970 (5) 12.25%
Age: 64 firm of Landy & Landy;
Chairman of the President and Director
Board and (1961 to present) of Monmouth
Director Capital Corporation;
President and Director (1968
to present) of Monmouth Real
Estate Investment Corporation.
Samuel A. Landy Attorney at Law for the 1992 242,709 (6) 3.53%
Age: 37 firm of Landy & Landy;
President and Director (1989 to present) of
Director Monmouth Real Estate Investment
Corporation; Director (1994 to
present) of Monmouth Capital
Corporation.
Richard A. Molke Vice President of Remsco 1986 339,153 (7) 4.93%
Age: 71 Associates, Inc.,
Director a construction firm.
Eugene Rothenberg Obstetrician and 1977 81,163 (8) 1.18%
Age: 65 Gynecologist; Investor
Director
Robert G. Sampson Investor; Director (1968 1969 131,468 (9) 1.91%
Age: 72 to present) of Monmouth Real
Director Estate Investment Corporation;
Director (1963 to present) of
Monmouth Capital Corporation,;
Director (1972 to 1993) of
United Jersey Bank;
General Partner (1983 to
present) of Sampco, Ltd., an
investment group.
TOTALS............. 1,744,774 25.37%
-18-
1.) Beneficial ownership, as defined herein, includes common
stock as to which a person has or shares voting and/or investment
power as of March 14, 1997.
2.) Includes 8,865 shares held by Mr. Bencivenga's wife and
2,599 shares held in the United Mobile Homes, Inc. 401(k) Plan.
3.) Includes 12,977 shares held jointly with Ms. Chew's husband
and 4,780 shares held in the United Mobile Homes, Inc. 401(k)
Plan.
4.) Includes (a) 48,469 shares held as Trustee for Defined
Benefit Pension Plan for which Mr. Kaempffer has power to vote
and (b) 2,000 shares held by Mr. Kaempffer's wife.
5.) Includes (a) 54,855 shares held by Mr. Landy's wife, (b)
172,608 shares held by Landy Investments, Ltd. in which Mr. Landy
has a beneficial interest, (c) 52,442 shares held in the Landy &
Landy, Employee's Pension Plan, of which Mr. Landy is a Trustee
with power to vote, and (d) 98,281 shares held in the Landy &
Landy, Employees' Profit Sharing Plan, of which Mr. Landy is a
Trustee with power to vote. Excludes 199,509 shares held by Mr.
Landy's adult children in which he disclaims any beneficial
interest.
6.) Includes (a) 23,855 shares held jointly with Mr. Samuel A.
Landy's wife, (b) 13,751 in a custodial account for his sons, and
(c) 4,550 shares held in the United Mobile Homes, Inc. 401(k)
Plan.
7.) Includes (a) 33,870 shares owned by Mr. Molke's wife, (b)
132,849 shares in the Richard H. Molke Grantor Retained Annuity
Trust dated December 21, 1992, and (c) 132,849 shares in the
Louise G. Molke Grantor Retained Annuity Trust dated December 21,
1992.
8.) Includes (a) 56,878 shares held by Rothenberg Investment,
Ltd. in which Dr. Rothenberg has a beneficial interest and (b)
20,173 shares held as Trustee for a Profit Sharing Plan of which
Dr. Rothenberg has power to vote.
9.) Includes (a) 32,400 shares held by the Estate of Helen
Haskell Sampson and (b) 48,492 shares held by Sampco, Ltd. in
which he has a beneficial interest.
-19-
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table.
The following Summary Compensation Table shows compensation
paid by the Company for services rendered during 1997, 1996 and
1995 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 Options Year Salary Bonus All Other
Eugene W. Landy 50,000 1997 $ - $ - $343,850 (1)
Chairman of the 50,000 1996 $ - $ - $347,350 (1)
Board - 1995 $ - $ - $310,160 (1)
Samuel A. Landy 25,000 1997 $181,500 $ 39,981 $ 18,880 (2)
President 25,000 1996 $165,000 $ 10,846 $ 18,880 (2)
25,000 1995 $150,000 $ 15,769 $ 16,674 (2)
Anna T. Chew 8,000 1997 $100,000 $ 11,846 $ 14,955 (3)
Vice President 10,000 1996 $ 86,650 $ 10,333 $ 13,509 (3)
Chief Financial 10,000 1995 $ 76,650 $ 10,948 $ 11,428 (3)
Officer
(1) Represents base compensation of $150,000 in 1997,
1996 and 1995, and a bonus of $15,000 in 1996, as well
as Directors' fees and legal fees.
Includes an accrual of $160,000, $160,000 and
$130,000 for 1997, 1996 and 1995, respectively for
pension and other benefits in accordance with Eugene W.
Landy's employment contract.
(2) Represents Directors' fees, fringe benefits and
discretionary contributions by the Company to the
Company's 401(k) Plan allocated to an account of the
named executive officer.
(3) Represents Directors' fees and discretionary contributions
by the Company to the Company's 401(k) Plan allocated to an
account of the named executive officer.
-20-
Stock Option Plan.
The following table sets forth, for the executive officers named
in the Summary Compensation Table, information regarding individual
grants of stock options made during the year ended December 31, 1997:
Potential Realized
Value at Assumed
% of Total Price Annual Rates for
Options Granted to Per Expiration Option Term
Name Granted Employees Share Date 5% 10%
Eugene W. Landy 25,000 23% $13.375 3/17/02 $52,500 $153,800
Eugene W. Landy 25,000 23% $13.0625 12/15/02 $52,333 $151,558
Samuel A. Landy 25,000 23% $13.125 1/03/02 $50,775 $150,000
Anna T. Chew 8,000 7% $11.5 6/25/02 $25,440 $ 56,160
The following table sets forth for the executive officers named
in the Summary Compensation Table, information regarding stock
options outstanding at December 31, 1997:
Value of
Unexercised
Options
Number of Unexercised at Year-End
Shares Value Options at Year-End Exercisable/
Name Exercised Realized Exercisable/Unexercisable Unexercisable
Eugene W. Landy -0- N/A 50,000 / 50,000 $175,000 / $ -0-
Samuel A. Landy -0- N/A 75,000 / 25,000 $181,250 / $ -0-
Anna T. Chew 10,000 $73,750 40,000 / 8,000 $142,500 / $2,000
Compensation of Directors.
The Directors receive a fee of $1,000 for each Board meeting
attended. Directors also receive a fixed annual fee of $7,600,
payable $1,900 quarterly. Directors appointed to house committees
receive $150 for each meeting attended. Those specific committees are
Compensation Committee, Audit Committee and Stock Option Committee.
Employment Contracts.
On December 14, 1993, the Company and Eugene W. Landy entered
into an Employment Agreement under which Mr. Eugene Landy receives an
annual base compensation of $150,000 plus bonuses and customary
fringe benefits, including health insurance, participation in the
Company's 401(k) Plan, stock options, five weeks vacation and use of
an automobile. In lieu of annual increases in compensation, there
will be additional bonuses voted by the Board of Directors.
On severance of employment for any reason, Mr. Eugene Landy will
receive severance pay of $450,000 payable $150,000 on severance and
$150,000 on the first and second anniversaries of severance. If
employment is terminated following a change in control of the
Company, Mr. Eugene Landy will be entitled to severance pay only if
actually severed either at the time of merger or subsequently.
-21-
In the event of disability, Mr. Eugene Landy's compensation
shall continue for a period of three years, payable monthly.
On retirement, Mr. Eugene Landy shall receive a pension of
$50,000 a year for ten years, payable in monthly installments.
In the event of death, Mr. Eugene Landy's designated
beneficiary shall receive $450,000, $100,000 thirty days after
death and the balance one year after death.
The Employment Agreement terminates December 31, 1998.
Thereafter, the term of the Employment Agreement shall be
automatically renewed and extended for successive one-year
periods.
Effective January 1, 1996, the Company and Samuel A. Landy
entered into a three-year Employment Agreement under which Mr.
Samuel Landy receives an annual base salary of $165,000 for 1996,
$181,500 for 1997 and $199,650 for 1998 plus bonuses and
customary fringe benefits. Bonuses shall be at the discretion of
the Board of Directors and shall be based on certain guidelines.
Mr. Samuel Landy will also receive four weeks vacation, use of an
automobile, and stock options for 25,000 shares in each year of
the contract.
The Company agrees to loan to Mr. Samuel Landy $100,000 at
the Company's corporate borrowing rate with a 5-year maturity and
a 15-year principal amortization. Additional amounts, secured by
Company stock, may be borrowed at the same terms for the exercise
of stock options.
On severance and disability, Mr. Samuel Landy is entitled to
one year's pay.
Effective January 1, 1997, the Company and Anna T. Chew
entered into a three-year Employment Agreement under which Ms.
Chew receives an annual base salary of $100,000 for 1997,
$110,000 for 1998 and $121,000 for 1999 plus bonuses and
customary fringe benefits. On severance for any reason, Ms. Chew
is entitled to one year's pay. In the event of disability, her
salary shall continue for a period of two years.
Report of Board of Directors.
Overview and Philosophy
The Company has a Compensation Committee consisting of two
independent outside Directors. This Committee is responsible for
making recommendations to the Board of Directors concerning
executive compensation. The Compensation Committee takes into
consideration three major factors in setting compensation.
The first consideration is the overall performance of the
Company. The Board believes that the financial interests of the
executive officers should be aligned with the success of the
Company and the financial interests of its shareholders.
Increases in funds from operations, the enhancement of the
Company's equity portfolio, and the success of the Dividend
Reinvestment and Stock Purchase Plan all contribute to increases
in stock prices thereby maximizing shareholders' return.
-22-
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
The Company had a satisfactory year. The stock price rose
from 11-3/8 at December 31, 1996 to 11-3/4 at December 31, 1997.
The Committee reviewed the progress made by Mr. Eugene W. Landy,
Chairman of the Board, in expanding the Company. Mr. Eugene
Landy completed the purchase of an additional community during
1997. 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 shows an annual
compensation to Mr. Eugene Landy of $150,000 plus $33,850 in
director's and other legal fees plus $160,000 accrual for pension
and other benefits for a total of $343,850 in 1997.) The
Committee granted Mr. Eugene Landy an option to purchase 25,000
shares for 1996 and an option to purchase 25,000 shares for 1997.
Both options were granted in 1997.
The Committee also reviewed the progress made by Mr. Samuel
A. Landy, President. Net income and funds from operations
increased by approximately 13% and 11%, respectively. Mr. Samuel
Landy is under an employment agreement with the Company. His
base compensation under this contract is $181,500 for 1997 and
will increase to $199,650 for 1998. The Committee granted Mr.
Samuel Landy a bonus of $33,000 for 1996 which was paid in 1997.
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 Trusts (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.
1992 1993 1994 1995 1996 1997
United Mobile Homes, Inc. 100 162 177 249 307 336
NAREIT All REIT 100 119 120 141 192 228
S & P 500 100 110 111 153 188 251
-23-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
On March 12, 1998, no person owned of record, or was known
by the Company to own beneficially more than five percent (5%) of
the shares of the Company, except the following:
Percent
Name and Address Shares Owned of
Title of Class of Beneficial Owner Beneficially Class
Common Stock Beechmont Co., as Agent 394,400 5.74%
122 East 42nd St.
New York, NY 10168
Common Stock Eugene W. Landy 842,970 12.25%
20 Tuxedo Road
Rumson, NJ 07760
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain relationships and related party transactions are
incorporated herein by reference to Part IV, Item 14(a)(1)(vi),
Note 8 of the Notes to Consolidated Financial Statements -
Related Party Transactions.
-24-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(a) (1) The following Financial Statements are filed as part of
this report.
Page(s)
(I) Independent Auditors' Report 27
(ii) Consolidated Balance Sheets as of December 31, 1997 28
and 1996
(iii) Consolidated Statements of Income for the years 29
ended December 31, 1997, 1996 and 1995
(iv) Consolidated Statements of Shareholders' Equity for 30
the years ended December 31, 1997, 1996 and 1995
(v) Consolidated Statements of Cash Flows for the years 31
ended December 31, 1997, 1996 and 1995
(vi) Notes to Consolidated Financial Statements 32-43
(a) (2) The following Financial Statement Schedule for the
years ended December 31, 1997, 1996 and 1995 is
filed as part of this report.
(i) Schedule III - Real Estate and Accumulated 44
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.
-25-
PART IV
(a) (3) The Exhibits set forth in the following index of Exhibits are
filed as a part of this Report.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws:
Articles of Incorporation and By-Laws, Certificate of
Incorporation and Amendments thereto are incorporated
by reference to the Company's Registration Statement
No. 2-92896-NY, and Amendments thereto, filed with the
SEC on August 22, 1984.
(10) Material Contracts:
(a) Stock Option Plan is incorporated by
reference to the Company's Proxy Statement dated April
25, 1994 filed with the SEC April 27, 1994.
(b) 401(k) Plan Document and Adoption
Agreement effective April 1, 1992 is incorporated by
reference to that filed with the Company's 1992 Form
10-K filed with the SEC on March 9, 1993.
(c) Employment contract with Mr. Eugene W.
Landy dated December 14, 1993 is incorporated by
reference to that filed with the Company's 1993 Form
10-K filed with the SEC on March 28, 1994.
(d) Employment contract with Mr. Ernest V.
Bencivenga dated November 9, 1993 is incorporated by
reference to that filed with the Company's 1993 Form
10-K filed with the SEC on March 28, 1994.
(e) Employment contract with Mr. Samuel A.
Landy effective January 1, 1996 is incorporated by
reference to that filed with the Company's 1995 Form
10-K filed with the SEC on March 28, 1996.
(f) Employment contract with Ms. Anna T.
Chew effective January 1, 1997 is incorporated by
reference to that filed with the Company's 1996 Form
10-K filed with the SEC on March 27, 1997.
(21) Subsidiaries of the Registrant:
The Company operates through eight 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 Peat Marwick LLP
(a)(3)(b) Reports of Form 8-K
On December 19, 1997, the Company filed Form
8-K to report the acquisition of Waterfalls Village.
-26-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United Mobile Homes, Inc.:
We have audited the consolidated financial statements of United
Mobile Homes, Inc. as listed in the accompanying index. In
connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements
and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of United Mobile Homes, Inc. as of December 31, 1997 and
1996, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Short Hills, New Jersey
March 10, 1998
/s/KPMG Peat Marwick LLP
-27-
UNITED MOBILE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
- ASSETS -
INVESTMENT PROPERTY AND EQUIPMENT
Land $ 6,351,506 $ 5,927,136
Site and Land Improvements 43,927,856 35,983,165
Buildings and Improvements 2,592,125 1,930,345
Rental Homes and Accessories 5,339,857 4,907,832
---------- ----------
Total Investment Property 58,211,344 48,748,478
Equipment and Vehicles 2,416,402 2,163,179
---------- ----------
Total Investment Property and Equipment 60,627,746 50,911,657
Accumulated Depreciation (22,918,677) (21,024,163)
---------- ----------
Net Investment Property and Equipment 37,709,069 29,887,494
---------- ----------
OTHER ASSETS
Cash and Cash Equivalents 191,319 1,195,095
Securities Available for Sale 3,547,236 1,441,037
Notes and Other Receivables 678,280 507,199
Unamortized Financing Costs 172,694 160,744
Prepaid Expenses 109,415 284,993
Land Development Costs 1,191,246 2,398,644
----------- ----------
Total Other Assets 5,890,190 5,987,712
----------- ----------
TOTAL ASSETS $ 43,599,259 $ 35,875,206
=========== ==========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
LIABILITIES:
MORTGAGES PAYABLE $ 20,111,023 $ 17,351,030
---------- ----------
OTHER LIABILITIES
Accounts Payable 222,474 206,426
Loans Payable 578,973 -0-
Accrued Liabilities and Deposits 1,477,855 1,520,641
Tenant Security Deposits 378,393 370,964
---------- ----------
Total Other Liabilities 2,657,695 2,098,031
---------- ----------
Total Liabilities 22,768,718 19,449,061
---------- ----------
SHAREHOLDERS' EQUITY:
Common Stock - $.10 par value per share,
10,000,000 shares authorized, 6,865,312
and 6,433,676 issued and outstanding as
of December 31, 1997 and 1996,
respectively 686,531 643,368
Additional Paid-In Capital 20,572,786 16,275,434
Unrealized Holding Gains on
Securities Available for Sale 239,017 76,501
Accumulated Deficit (667,793) (569,158)
---------- ----------
Total Shareholders'Equity 20,830,541 16,426,145
---------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 43,599,259 $ 35,875,206
========== ==========
See Accompanying Notes to
Consolidated Financial Statements
-28-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Rental and Related Income $ 15,423,111 $ 14,533,218 $ 13,332,961
Community Operating Expenses 6,817,094 6,221,749 5,883,793
---------- ---------- ----------
Income from Community
Operations 8,606,017 8,311,469 7,449,168
Other Expenses (Income):
General and Administrative 1,356,736 1,512,623 1,228,850
Interest Expense 1,123,445 1,434,875 1,675,998
Interest and Dividend Income ( 240,700) ( 93,579) ( 65,999)
Depreciation Expense 2,116,732 2,007,449 1,872,942
Other 42,000 54,222 251,554
----------- ---------- ----------
Income Before (Loss) Gain
on Sales of Assets 4,207,804 3,395,879 2,485,823
(Loss) Gain on Sales of Assets ( 10,546) 333,647 5,758
---------- ----------- -----------
Net Income $ 4,197,258 $ 3,729,526 $ 2,491,581
========== =========== ===========
Net Income Per Share -
Basic and Diluted $ .63 $ .61 $ .44
========== =========== ===========
Weighted Average Shares
Outstanding:
Basic 6,617,479 6,072,637 5,639,455
Diluted 6,679,994 6,155,018 5,693,011
See Accompanying Notes to
Consolidated Financial Statements
-29-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Unrealized
Holding
Gains on
Additional Securities
Common Stock Paid-In Available Accumulated
Number Amount Capital For Sale Deficit
Balance 12/31/94 5,496,163 $549,616 $7,839,960 $ -0- $( 667,793)
Common Stock Issued with
the Dividend Reinvestment
and Stock Purchase Plan 354,468 35,447 2,996,523 -0- -0-
Distributions -0- -0- -0- (463,266) (2,491,581)
Net Income -0- -0- -0- -0- 2,491,581
--------- ------- --------- ------- ---------
Balance 12/31/95 5,850,631 585,063 10,373,217 -0- ( 667,793)
Common Stock Issued with
the Dividend Reinvestment
and Stock Purchase Plan 526,045 52,605 5,619,417 -0- -0-
Common Stock Issued
through the Exercise of
Stock Options 57,000 5,700 282,000 -0- -0-
Distributions -0- -0- -0- -0- (3,630,891)
Net Income -0- -0- -0- -0- 3,729,526
Unrealized Holding Gains
on Securities Available
for Sale -0- -0- -0- 76,501 -0-
--------- ------- ---------- ------ ---------
Balance 12/31/96 6,433,676 643,368 16,275,434 76,501 ( 569,158)
Common Stock Issued with
the Dividend Reinvestment
and Stock Purchase Plan 382,636 38,263 4,309,405 -0- -0-
Common Stock Issued
Through the Exercise of
Stock Options 49,000 4,900 312,350 -0- -0-
Distributions -0- -0- ( 324,403) (4,295,893)
Net Income -0- -0- -0- -0- 4,197,258
Unrealized Holding Gains
on Securities Available
for Sale -0- -0- -0- 162,516 -0-
-------- ------- -------- ------- --------
Balance 12/31/97 6,865,312 $686,531 $20,572,786 $ 239,017 $( 667,793)
========= ======= ========== ======= ==========
See Accompanying Notes to Consolidated Financial Statements
-30-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,197,258 $ 3,729,526 $ 2,491,581
Depreciation 2,116,732 2,007,449 1,872,942
Amortization 42,000 54,222 251,554
Gains on Sales of Securities ( 92,811) -0- -0-
Available for Sale
(Loss) Gain on Sales of Investment
Property and Equipment 10,546 ( 333,647) ( 5,758)
Changes in Operating Assets
and Liabilities -
Notes and Other Receivables ( 171,081) 40,580 129,475)
Prepaid Expenses 175,578 ( 12,289) 13,444
Accounts Payable 16,048 9,069 45,809
Accrued Liabilities & Deposits ( 42,786) 276,955 76,955
Tenant Security Deposits 7,429 51,732 25,204
--------- --------- ---------
Net Cash Provided by Operating
Activities 6,258,913 5,823,597 4,642,256
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Manufactured Home
Communities (4,236,000) (3,435,506) ( 1,810,906)
Acquisition of Minority Interest -0- -0- ( 132,600)
Purchase of Investment Property
and Equipment (2,537,589) (2,217,809) ( 1,778,402)
Proceeds from Sales of Investment
Property and Equipment 332,615 636,731 288,494
Additions to Land Development (2,300,481) (2,247,827) ( 955,546)
Purchase of Securities Available
for Sale (2,743,605) (1,364,536) -0-
Proceeds from Sales of Securities
Available for Sale 892,733 -0- -0-
--------- --------- ---------
Net Cash Used by Investing Activities (10,592,327) (8,628,947) ( 4,388,960)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Mortgages and Loans 3,150,000 1,300,000 18,700,000
Net Proceeds from (Repayments of
Short-Term Borrowings 578,973 -0- ( 500,000)
Principal Payments of Mortgages
and Loans ( 390,007) (1,656,605) (16,629,690
Financing Costs on Debt ( 53,950) ( 15,863) 214,994)
Proceeds from Dividend Reinvestment
and Stock Purchase Plan 2,522,815 4,219,869 1,729,159
Proceeds from Exercise of Stock
Options 317,250 288,500 -0-
Dividends Paid ( 2,795,443) (2,178,738) ( 1,652,036)
----------- --------- ----------
Net Cash Provided by
Financing Activities 3,329,638 1,957,163 1,432,439
----------- --------- ----------
NET (DECREASE) INCREASE IN CASH ( 1,003,776) ( 848,187) 1,685,735
CASH & CASH EQUIVALENTS - BEGINNING 1,195,095 2,043,282 357,547
--------- --------- ---------
CASH & CASH EQUIVALENTS - ENDING $ 191,319 $1,195,095 $ 2,043,282
========== ========= ==========
See Accompanying Notes to Consolidated Financial Statements
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST
Effective January 1, 1992, United Mobile Homes, Inc. (the
Company) elected to be taxed as a Real Estate Investment Trust (REIT)
under Sections 856-858 of the Internal Revenue Code. The Company
will not be taxed on the portion of its income which is distributed
to shareholders, provided it distributes at least 95% of its taxable
income, has at least 75% of its assets in real estate investments and
meets certain other requirements for qualification as a REIT.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS - The Company owns and operates twenty-
four manufactured home communities containing 5,609 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 Twp., Pennsylvania
Cross Keys Village Duncansville, Pennsylvania
D & R Village Clifton Park, New York
Edgewood Estates Apollo, Pennsylvania
Fairview Manor Millville, New Jersey
Forest ParK Village Cranberry Township, Pennsylvania
Heather Highlands Inkerman, Pennsylvania
Highland Estates Kutztown, Pennsylvania
Kinnebrook Monticello, New York
Lake Sherman Village Navarre, Ohio
Memphis Mobile City Memphis, Tennessee
Oxford Village West Grove, Pennsylvania
Pine Ridge Village Carlisle, Pennsylvania
Port Royal Village Belle Vernon, Pennsylvania
River Valley Estates Marion, Ohio
Sandy Valley Estates Magnolia, Ohio
Southwind Village Jackson, New Jersey
Spreading Oaks Village Athens, Ohio
Waterfalls Village Hamburg, New York
Woodlawn Village Eatontown, New Jersey
Wood Valley Caledonia, Ohio
BASIS OF PRESENTATION - The consolidated financial statements of the
Company include all of its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation.
USE OF ESTIMATES - In preparing the consolidated financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, as well
as contingent assets and liabilities as of the dates of the
consolidated balance sheets and revenue and expenses for the years
then ended. Actual results could differ significantly from these
estimates and assumptions.
-32-
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. Maintenance and repairs are charged to
income as incurred and improvements are capitalized. The costs and
related accumulated depreciation of property sold or otherwise
disposed of are removed from the accounts and any gain or loss is
reflected in the current year's results of operations. If there is
an event or change in circumstances that indicates that the basis of
an investment property may not be recoverable, management assesses
the possible impairment of value through evaluation of the estimated
future cash flows of the property, on an undiscounted basis, as
compared to the property's current carrying value. If a property is
determined to be impaired, it will be recorded at fair value.
UNAMORTIZED FINANCING COSTS - Legal fees and loan processing fees for
new and restructured mortgages are being amortized over the life of
the related debt. Amortization expenses charged to Other Expenses
for the years ended December 31, 1997, 1996 and 1995 were $42,000,
$54,222 and $251,554, respectively.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
certificates of deposit and bank repurchase agreements with
maturities of 90 days or less.
SECURITIES AVAILABLE FOR SALE - The Company's securities are
classified as available-for-sale and are carried at fair value.
Gains or losses on the sale of securities are based on identifiable
cost and are accounted for on a trade date basis. Unrealized
holding gains and losses are excluded from earnings and reported as a
separate component of Shareholders' Equity until realized.
MINORITY INVESTMENTS - The Company consolidates the results of
certain operations that have minority interests. On January 30,
1992, the Company acquired an 88.36% interest in a limited
partnership. On February 3, 1995, the Company acquired the remaining
11.64% interest in this limited partnership.
REVENUE RECOGNITION - The Company derives its income from the rental
of manufactured home sites. The Company also owns approximately 350
rental units which are rented to residents. Revenue is recognized on
the accrual basis.
NET INCOME PER SHARE - Effective December 31, 1997, the Company
adopted the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." All prior years' net income per share
have been restated in accordance with the Statement. Basic net
income per share is calculated by dividing net income by the weighted-
average number of common shares outstanding during the period
(6,617,479, 6,072,637 and 5,639,455 in 1997, 1996 and 1995,
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
(6,679,994, 6,155,018 and 5,693,011 in 1997, 1996 and 1995,
respectively (See Note 6). Options in the amount of 62,515, 82,381
and 53,556 for 1997, 1996 and 1995, respectively, are included in the
diluted weighted average shares outstanding.
STOCK OPTION PLANS - Stock option plans are accounted for under the
intrinsic value based method as prescribed by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees". Included in these Notes to Consolidated Financial
Statements are the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation," which assumes the fair
value based method of accounting had been adopted.
-33-
NOTE 3 - INVESTMENT PROPERTY AND EQUIPMENT
On January 10, 1996, the Company acquired Wood Valley, a 161-
space manufactured home community located in Caledonia, Ohio.
The purchase price, including closing costs, totaled $2,013,706.
On March 28, 1996, the Company sold 5.5 acres of excess
vacant land at a sales price of $385,000 for a net gain of
$290,303.
On August 1, 1996, the Company acquired Spreading Oaks
Village, a 153-space manufactured home community located in
Athens, Ohio. This community was purchased from a partnership
whose partners are also officers, directors and shareholders of
the Company. The purchase price, including closing costs totaled
$1,421,800. This purchase was based on an independent appraisal
of fair market value.
On October 11, 1996, the Company purchased approximately
sixty-five acres of vacant land adjacent to one of its
communities in Vineland, New Jersey for a purchase price of
$390,000.
On December 19, 1997, the Company acquired Waterfalls
Village, a 202-space manufactured home community located in
Hamburg, New York. The purchase price, including closing costs,
totaled $4,236,000.
The Company is currently conducting an expansion program at
a number of its communities. During 1997, 146 spaces were added
to existing communities.
The following is a summary of accumulated depreciation by
major classes of assets:
December 31, 1997 December 31, 1996
Site & Land Improvements $ 19,018,397 $ 17,528,736
Buildings & Improvements 1,129,522 1,026,567
Rental Homes & Accessories 1,251,986 1,099,786
Equipment & Vehicles 1,518,772 1,369,074
---------- ----------
Total Accumulated
Depreciation $ 22,918,677 $ 21,024,163
========== ==========
-34-
NOTE 4 - SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale at
December 31, 1997 and 1996:
1997 1996
Market Market
Cost Value Cost Value
Equity Securities:
Monmouth Real Estate Investment *
Corporation (203,550 shares and
72,433 shares at December 31,
1997 and 1996, respectively) $1,183,693 $1,323,078 $ 415,587 $ 416,486
Monmouth Capital Corporation *
(21,269 shares and 18,195
shares at December 31, 1997
and 1996, respectively) 54,036 61,148 44,561 45,488
Other Equity Securities 995,480 1,021,635 308,428 362,625
Debt Securities 1,075,010 1,141,375 595,960 616,438
--------- --------- --------- ---------
Total $3,308,219 $3,547,236 $1,364,536 $1,441,037
========= ========= ========= =========
* Related Company - See Note 8.
Gross unrealized gains and losses on the above securities
amounted to $240,470 and $1,453, respectively, at December 31, 1997
and $76,501 and $-0-, respectively at December 31, 1996. The
maturity dates on debt securities range from 2001 to 2003.
NOTE 5 - NOTES AND MORTGAGES PAYABLE
The following is a summary of mortgages payable at December 31,
1997 and 1996:
Interest
Mortgages Due Rate 1997 1996
Date
D & R Village 09-01-00 8.35% $ 1,790,191 $ 1,815,738
Sandy Valley 05-01-00 10.50% 862,238 878,944
Waterfalls Village 01-01-03 7.625% 3,150,000 -0-
Various 5 properties) 12-01-00 7.50% 14,308,594 14,656,348
---------- ----------
TOTAL MORTGAGES PAYABLE $20,111,023 $17,351,030
========== ==========
At December 31, 1997 and 1996, mortgages are collateralized by
real property with a carrying value of $20,584,479 and $15,038,668,
respectively, before accumulated depreciation and amortization. Interest
costs amounting to $250,000 was capitalized during the fourth quarter
of 1997 in connection with the Company's expansion program.
-35-
UNSECURED LINE OF CREDIT
The Company has a $500,000 unsecured line of credit with Summit
Bank, all of which was utilized at December 31, 1997. The
interest rate on this line of credit is prime plus 1/2%. This
line of credit expired on December 20, 1997 but was extended and
increased to $1,000,000 in January 1998.
RECENT FINANCING
On December 19, 1997, the Company entered into a $3,150,000
mortgage payable to Summit Bank. The interest rate on this
mortgage is fixed at 7.625%. This mortgage loan is due on
January 1, 2003. Proceeds of this mortgage were used to purchase
Waterfalls Village (See Note 3).
The aggregate principal payments of all mortgages payable are
scheduled as follows:
1998 - $ 487,728
1999 - 527,032
2000 - 16,160,692
2001 - 83,431
2002 - 90,114
Thereafter - 2,762,026
----------
Total - $ 20,111,023
==========
NOTE 6 - EMPLOYEE STOCK OPTIONS
Effective January 1, 1984, the shareholders approved a Stock
Option Plan for officers and key employees. This plan expired
during 1994. As of December 31, 1997 and 1996, 14,000 and 41,000
shares, respectively, of stock options previously granted
remained outstanding under this plan.
On May 26, 1994, the shareholders approved and ratified the
Company's 1994 Stock Option Plan authorizing the grant to
officers and key employees of options to purchase up to 750,000
shares of common stock. Options may be granted any time up to
December 31, 2003. No option shall be available for exercise
beyond ten years. All options are exercisable after one year
from the date of grant. The option price shall not be below the
fair market value at date of grant. Cancelled or expired options
are added back to the "pool" of shares available under the plan.
-36-
A summary of the status of the Company's stock option plans as
of December 31, 1997, 1996 and 1995 and changes during the years
then ended are as follows:
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
Beginning of year 278,000 $ 8.31 272,000 7.08 160,000
Granted 107,500 12.69 63,000 10.70 112,000 8.29
Exercised ( 49,000 6.47 ( 57,000) 5.06 -0- -0-
Outstanding at ------- ------- -------
End of year 336,500 9.97 278,000 8.31 272,000 7.08
======= ======= =======
Options exercisable
at end of year 229,000 215,000 160,000
Weighted-average
Fair value of
Options granted
During the year 1.99 2.08 1.61
The Company elected to continue following APB Opinion No. 25 in
accounting for its stock option plans and, accordingly, no
compensation cost has been recognized. Had compensation cost
been determined consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro
forma amounts as follows:
1997 1996 1995
Net Income As reported $4,197,258 $3,729,526 $2,491,581
Pro forma 4,066,414 3,603,216 2,349,981
Net Income Per
Share - Basic As reported .63 .61 .44
and Diluted Pro forma .61 .59 .41
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997,
1996 and 1995: dividend yield of 5 percent; expected volatility
of 25 percent; risk-free interest rates of 6.24 percent in 1997
and 6.5 percent in 1996 and 1995; and expected lives of five
years.
-37-
The following is a summary of stock options outstanding as of
December 31, 1997:
Date of Number of Number of Option Expiration
Grant Employees Shares Price Date
07/27/93 2 4,000 * 5.625 07/27/98
09/27/93 1 10,000 * 6.50 09/27/98
05/31/94 1 25,000 * 9.125 05/31/99
10/18/94 6 29,000 * 7.125 10/18/99
01/05/95 2 75,000 * 8.25 01/05/00
08/03/95 4 14,000 * 8.375 08/03/00
08/17/95 2 15,000 * 8.375 08/17/00
01/10/96 1 25,000 * 10.625 01/10/01
06/27/96 6 32,000 * 10.75 06/27/01
01/03/97 1 25,000 13.125 01/03/02
03/17/97 1 25,000 13.375 03/17/02
06/25/97 8 32,500 11.50 06/25/02
12/15/97 1 25,000 13.0625 12/15/02
-------
336,500
=======
* Exercisable
As of December 31, 1997, there were 405,500 shares available
for grant under these plans.
NOTE 7 - 401(K) PLAN
All 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 18%) and
have it contributed to the Plan. Employer contributions to the
Plan are at the discretion of the Company. During 1997, 1996 and
1995, the Company made matching contributions to the Plan of up
to 50% of the first 6% of employee salary. This amounted to
$33,218, $36,445 and $34,056 for 1997, 1996 and 1995,
respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS AND OTHER MATTERS
TRANSACTIONS WITH AFFILIATED PARTNERSHIPS
Royal Green Ltd., a partnership in which Mr. Eugene W. Landy
has a significant ownership interest, owns 30 homes located in
Allentown in Memphis, Tennessee. The Company charges Royal
Green, Ltd. market rent on each occupied unit.
TRANSACTIONS WITH MONMOUTH REAL ESTATE INVESTMENT CORPORATION
During 1997 and 1996, the Company purchased shares of Monmouth
Real Estate Investment Corporation (MREIC) common stock primarily
through its Dividend Reinvestment and Stock Purchase Plan (See
Note 4). There are five Directors of the Company who are also
Directors and shareholders of MREIC.
-38-
TRANSACTIONS WITH MONMOUTH CAPITAL CORPORATION AND THE MOBILE
HOME STORE, INC.
During 1997 and 1996, the Company purchased shares of Monmouth
Capital Corporation (MCC) common stock primarily through its
Dividend Reinvestment and Stock Purchase Plan (See Note 4). Six
directors of the Company are also directors and shareholders of
MCC.
The Company receives rental income from The Mobile Home Store,
Inc. (MHS), a wholly-owned subsidiary of MCC. MHS sells and
finances the sales of manufactured homes.
MHS pays the Company market rent on sites where MHS has a home
for sale. Total site rental income from MHS amounted to
$117,709, $98,167 and $40,423, respectively for the years ended
December 31, 1997 and 1996 and 1995.
Effective April 1, 1995, the Company and MHS entered into an
agreement whereby MHS leases space from the Company to be used as
sales lots, at market rates, at most of the Company's
communities. Total rental income relating to these leases
amounted to $90,000, $90,000 and $67,500 for the years ended
December 31, 1997, 1996 and 1995, respectively.
As a REIT, the Company cannot be in the business of selling
manufactured homes for profit. During 1997, 1996 and 1995, the
Company had approximately $134,000, $64,000 and $180,000
respectively, of rental homes that were sold to MHS at book
value.
During 1997, 1996 and 1995, the Company purchased from MHS at
its cost 7, 13 and 10 new homes, respectively totaling $198,374,
$298,025 and $196,952, respectively to be used as rental homes.
DIRECTORS', MANAGEMENT AND LEGAL FEES
During the years ended December 31, 1997, 1996 and 1995,
Directors', management, and legal fees to Mr. Eugene W. Landy and
the law firm of Landy & Landy amounted to $183,850, $187,350 and
$180,160, respectively.
OTHER MATTERS
During 1994, the Company entered into a three-year employment
agreement and a five-year employment agreement with two of its
executive officers. The agreements provide for base
compensation, bonuses and fringe benefits, in addition to
specified severance and retirement benefits. The Company is
accruing these benefits over the terms of the agreements.
Included in general and administrative expense for the years
ended December 31, 1997, 1996 and 1995 were $167,500, $174,050
and $155,650, respectively, relating to these agreements.
-39-
NOTE 9 - 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.
Amounts received and shares issued in connection with the DRIP
for the years ended December 31, 1997, 1996 and 1995 were as
follows:
1997 1996 1995
Amounts Received/Dividends $4,347,668 $5,672,022 $3,031,970
Reinvested
Number of Shares Issued 382,636 526,045 354,468
NOTE 10 - DISTRIBUTIONS
The following dividends were paid to shareholders during the
years ended December 31, 1997, 1996 and 1995:
1997 1996 1995
Quarter Ended Amount Per Share Amount Per Share Amount Per Share
March 31 $1,129,043 $ .175 $ 877,906 $ .15 $687,020 $ .125
June 30 1,144,741 .175 894,971 .15 696,425 .125
September 30 1,163,882 .175 915,813 .15 707,884 .125
December 31 1,182,630 .175 942,201 .15 863,518 .150
--------- ---- --------- ----- --------- -----
$4,620,296 $ .70 $3,630,891 $ .60 $2,954,847 $ .525
========= ==== ========= ===== ========= =====
Total distributions to shareholders for 1997 amounted to
$4,620,296, or $.70 per share, of which $.608 per share was taxed
as ordinary income, $.012 per share was taxed as a capital gain
and $.08 per share was a return of capital. This amount does not
include the dividend resulting from the discount on shares
purchased through the Company's Dividend Reinvestment and Stock
Purchase Plan.
On December 9, 1997, the Company declared a dividend of $.175
per share to be paid on March 16, 1998 to shareholders of record
February 17, 1998.
NOTE 11 - 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, 1997, 1996 and 1995.
-40-
NOTE 12 - LEGAL MATTERS
There are no lawsuits pending against the Company that
management believes will have a material effect on the financial
condition or results of operations of the Company.
The Company is a Defendant in various personal injury cases,
all of which are being defended by our insurance company.
The Company was also a Defendant in a case Jackson Township v.
Southwind Village. The Township alleged that the Company was
wrongfully refusing to comply with the Township ordinance
requiring operation of the community as a "senior citizen"
manufactured home community. The Company believed that under
Federal law, the Company cannot exclude families from the
community. On June 15, 1995, the Company was granted a
Summary Judgment Order allowing families into Southwind Village
in Jackson, New Jersey. In January 1996, the Company was awarded
$70,000 for legal fees and other damages.
The Company was a Plaintiff in a lawsuit, United Mobile Homes,
Inc., et al v. Bondy Oil, Inc., et al. The Company spent
approximately $200,000 in 1990 and 1991 to remedy contamination
to soil from home heating oil. United Mobile Homes, Inc. seeks
to recover that money from the oil suppliers. This case was
settled for $80,000 in January 1996.
The Company was a Plaintiff in a lawsuit, Heather Highlands v.
Jenkins Township Sanitary Authority. Jenkins Township Sanitary
Authority constructed public sewers and attempted to extract
connection fees from the Company of over $150,000. The Company
challenged the legality of the proposed fees. The Company
settled this matter and has paid Jenkins Township Sanitary
Authority $104,760 plus interest for a total of $111,042.
On May 13, 1997 an engineering firm, Stults and Associates,
Inc. (Stults) obtained a judgment against the Company in the
amount of $59,071. The Company has refused to pay Stults since
the Company believes that the work was not done pursuant to the
contract. The Company filed a counterclaim against Stults which
was dismissed by the trial judge. The Company and Stults
continue to appeal. The Company seeks $200,000 from Stults based
on the dismissed counterclaim. Stults seeks attorneys fees and
additional fees by way of appeal. Management believes that the
outcome of this lawsuit will not have a material effect on the
financial condition or results of operations of the Company.
On January 17, 1996, a home owned by a resident at one of the
Company's communities was damaged due to a propane gas explosion
in the resident's home. This explosion damaged other surrounding
resident owned homes. Along with the gas company, the Company
was named in a lawsuit by a resident. This suit is in discovery
stages and is being defended by our insurance company.
-41-
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose certain information about
fair values of financial instruments, as defined in SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments."
Limitations
Estimates of fair value are made at a specific point in time,
based upon, where available, relevant market prices and
information about the financial instrument. Such estimates do
not include any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a
particular financial instrument. For a portion of the Company's
financial instruments, no quoted market value exists. Therefore,
estimates of fair value are necessarily based on a number of
significant assumptions (many of which involve events outside the
control of management). Such assumptions include assessments of
current economic conditions, perceived risks associated with
these financial instruments and their counterparties, future
expected loss experience and other factors. Given the
uncertainties surrounding these assumptions, the reported fair
values represent estimates only and, therefore, cannot be
compared to the historical accounting model. Use of different
assumptions or methodologies is likely to result in significantly
different fair value estimates.
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
(See Note 4). The fair value of mortgages payable approximates
their current carrying amounts since such amounts payable are at
a current market rate of interest.
NOTE 14 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (Statement
130). Statement 130 establishes standards for reporting and
display of comprehensive income and its components in a full set
of general purpose financial statements. Under Statement 130,
comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items
previously recorded directly in equity, such as unrealized gains
or losses on securities available for sale. Statement 130 is
effective for interim and annual periods beginning after December
15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect application of
the provisions of the Statement. The adoption of Statement
130 is not expected to have a material impact on the Company's
consolidated financial statements.
-42-
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the years ended December 31, 1997, 1996 and
1995 for interest was $1,373,445, $1,434,875 and $1,701,454,
respectively.
During the years ended December 31, 1997, 1996 and 1995, land
development costs of $3,507,879, $518,058 and $843,448,
respectively were transferred to investment property and
equipment and placed in service.
During the year ended December 31, 1995, the Company purchased
Edgewood Estates. This purchase calls for an additional $200,000
payment if certain conditions are met. This amount, which is
included in accrued liabilities, has been added to investment
property and equipment.
During the years ended December 31, 1997, 1996 and 1995, the
Company had dividend reinvestments of $1,824,853, $1,452,153 and
$1,302,811, respectively which required no cash transfers.
-43-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Column A Column B Column C Column D
Year of Acquisition
Site, Land Capitalization
& Building Subsequent to
Description Encumbrances Land Improvements Acquisition
Memphis, TN $ -0- $250,000 $ 2,569,101 $ 888,611
Greenfield Center, NY -0- 37,500 232,547 1,405,698
Vineland, NJ (3) 320,000 1,866,323 602,844
Cranberry Township, PA -0- 181,930 1,922,931 170,674
Duncansville, PA -0- 60,774 378,093 270,140
Clifton Park, NY 1,790,191 391,724 704,021 550,318
Apollo, PA -0- 670,000 1,336,600 391,585
Millville, NJ -0- 216,000 1,166,517 1,688,009
Zelienople, PA -0- 75,000 977,225 994,080
Inkerman, PA -0- 572,500 2,151,569 1,462,149
Kutztown, PA -0- 145,000 1,695,041 1,678,571
Monticello, NY -0- 235,600 1,402,572 1,327,221
Navarre, OH -0- 290,000 1,457,673 612,109
Memphis, TN -0- 78,435 810,477 1,126,160
West Grove, PA (3) 175,000 990,515 820,168
Carlisle, PA -0- 37,540 198,321 636,676
Belle Vernon, PA (3) 150,000 2,491,796 1,183,947
Marion, OH -0- 236,000 785,293 1,297,114
Magnolia, OH 862,238 270,000 1,941,430 1,344,360
Jackson, NJ (3) 100,095 602,820 1,275,526
Athens, OH -0- 67,000 1,326,800 37,638
Hamburg, NY 3,150,000 424,000 3,812,000 -0-
Caledonia, OH -0- 260,000 1,753,206 49,038
Eatontown, NJ (3) 157,421 280,749 129,422
---------- --------- ---------- ----------
5,802,429 $5,401,519 $32,853,620 $19,942,058
========= ========== ==========
Various 14,308,594(3)
----------
$20,111,023
==========
-44-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Column A Column E(1)(2) Column F(1)
Gross Amount at Which
Carried at 12/31/97
Site, Land
& Building Accumulated
Description Land Improvements Total Depreciation
Memphis, TN $ 250,000 $ 3,457,712 $ 3,707,712 $1,803,530
Greenfield Center, NY 37,500 1,638,245 1,675,745 848,426
Vineland, NJ 408,206 2,380,961 2,789,167 1,256,095
Cranberry Twp., PA 181,930 2,093,605 2,275,535 1,159,102
Duncansville, PA 60,774 648,233 709,007 511,510
Clifton Park, NY 391,724 1,254,339 1,646,063 845,116
Apollo, PA 670,000 1,728,185 2,398,185 164,564
Millville, NJ 631,137 2,439,389 3,070,526 901,311
Zelienople, PA 75,000 1,971,305 2,046,305 1,461,576
Inkerman, PA 572,500 3,613,718 4,186,218 631,318
Kutztown, PA 422,839 3,095,773 3,518,612 685,260
Monticello, NY 318,472 2,646,921 2,965,393 753,401
Navarre, OH 290,000 2,069,782 2,359,782 801,223
Memphis, TN 78,435 1,936,637 2,015,072 796,686
West Grove, PA 175,000 1,810,683 1,985,683 1,322,141
Carlisle, PA 145,473 727,064 872,537 645,685
Belle Vernon, PA 150,000 3,675,743 3,825,743 2,739,576
Marion, OH 236,000 2,082,407 2,318,407 615,045
Magnolia, OH 270,000 3,285,790 3,555,790 1,506,171
Jackson, NJ 100,095 1,878,346 1,978,441 1,368,785
Athens, OH 67,000 1,364,438 1,431,438 68,153
Hamburg, NY 424,000 3,812,000 4,236,000 -0-
Caledonia, OH 260,000 1,802,244 2,062,244 126,841
Eatontown, NJ 135,421 432,171 567,592 377,409
--------- ---------- ---------- ----------
$6,351,506 $51,845,691 $58,197,197 $21,388,924
========= ========== ========== ==========
-44a-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Column A Column G Column H Column I
Date of Date Depreciable
Description Construction Acquired Life
Memphis, TN prior to 1980 1986 3 to 27.5
Greenfield Center, NY prior to 1970 1977 3 to 27.5
Vineland, NJ 1973 1986 3 to 27.5
Cranberry Twp., PA 1974 1986 5 to 27.5
Duncansville, PA 1961 1979 3 to 27.5
Clifton Park, NY 1972 1978 3 to 27.5
Apollo, PA prior to 1980 1995 5 to 27.5
Millville, NJ prior to 1980 1985 3 to 27.5
Zelienople, PA prior to 1980 1982 3 to 27.5
Inkerman, PA 1970 1992 5 to 27.5
Kutztown, PA 1971 1979 5 to 27.5
Monticello, NY 1972 1988 5 to 27.5
Navarre, OH prior to 1980 1987 5 to 27.5
Memphis, TN 1955 1985 3 to 27.5
West Grove, PA 1971 1974 5 to 27.5
Carlisle, PA 1961 1969 3 to 27.5
Belle Vernon, PA 1973 1983 3 to 27.5
Marion, OH 1950 1986 3 to 27.5
Magnolia, OH prior to 1980 1985 5 to 27.5
Jackson, NJ 1969 1969 3 to 27.5
Athens, OH prior to 1980 1996 5 to 27.5
Hamburg, NY prior to 1980 1997 27.5
Caledonia, OH prior to 1980 1996 5 to 27.5
Eatontown, NJ 1964 1978 3 to 27.5
-44b-
/------FIXED ASSETS-----/
(1) Reconciliation: 12/31/97 12/31/96 12/31/95
Balance - Beginning of Year $ 48,733,757 $ 43,300,828 $ 39,505,503
---------- ---------- ----------
Additions:
Acquisitions 4,236,000 3,407,006 2,006,600
Improvements 5,628,858 2,410,284 2,237,114
Depreciation -0- -0- -0-
---------- ---------- ----------
Total Additions 9,864,858 5,817,290 4,243,714
---------- ---------- ----------
Deletions 401,418 384,361 448,389
---------- ---------- ----------
Balance - End of Year $ 58,197,197 $ 48,733,757 $ 43,300,828
========== ========== ==========
/--ACCUMULATED DEPRECIATION---/
12/31/97 12/31/96 12/31/95
Balance - Beginning of Year $ 19,646,362 $ 18,013,841 $ 16,544,208
Additions:
Acquisitions -0- -0- -0-
Improvements -0- -0- -0-
Depreciation 1,812,903 1,743,042 1,649,255
---------- ---------- ----------
Total Additions 1,812,903 1,743,042 1,649,255
---------- ---------- ----------
Deletions 70,341 110,521 179,622
---------- ---------- ----------
Balance - End of Year $ 21,388,924 $ 19,646,362 $ 18,013,841
========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates
historical cost.
(3) Represents one mortgage note payable secured by five
properties.
-44c-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED MOBILE HOMES, INC.
By:/s/Eugene W. Landy
EUGENE W. LANDY
Chairman of the Board
Dated: March 16, 1998
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been duly signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
Title Date
/s/Eugene W. Landy Chairman of the Board and March 16, 1998
EUGENE W. LANDY Director
/s/Samuel A. Landy President and March 16, 1998
SAMUEL A. LANDY Director
/s/Anna T. Chew Vice President and March 16, 1998
ANNA T. CHEW Chief Financial Officer
and Director
/s/Ernest V. Bencivenga Secretary/Treasurer and March 16, 1998
ERNEST V. BENCIVENGA Director
/s/Robert J. Anderson Director March 16, 1998
ROBERT J. ANDERSON
/s/Charles P. Kaempffer Director March 16, 1998
CHARLES P. KAEMPFFER
/s/Richard H. Molke Director March 16, 1998
RICHARD H. MOLKE
/s/Eugene Rothenberg Director March 16, 1998
EUGENE ROTHENBERG
/s/Robert G. Sampson Director March 16, 1998
ROBERT G. SAMPSON
-45-
EXHIBIT 23
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
United Mobile Homes, Inc.
We consent to incorporation by reference in the Registration Statement (No.
333-13053) on Form S-8 of our report dated March 10, 1998, relating to the
consolidated balance sheets of United Mobile Homes, Inc. as of December 31,
1997 and 1996 and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1997 and the related schedule, which report
appears in the December 31, 1997 annual report on Form 10-K of United Mobile
Homes, Inc.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 16, 1998