Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period _____________ to __________________
Commission File Number 0-13130
United Mobile Homes, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1890929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
125 Wyckoff Road, Eatontown, New Jersey 07724
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (732) 389-3890
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to
this Form 10-K X.
Based upon the assumption that directors and executive
officers of the registrant are not affiliates of the
registrant, the aggregate market value of the voting stock of
the registrant held by nonaffiliates of the registrant at
March 12, 1999 was $69,295,421. 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, 1999 was
$51,975,793.
The number of shares outstanding of issuer's common stock as
of March 12, 1999 was 7,246,580 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 5,615
sites. The communities are located in New Jersey, New York,
Ohio, Pennsylvania and Tennessee.
The Company was incorporated in the State of New Jersey in
1968. Its executive offices are located at 125 Wyckoff Road,
Eatontown, New Jersey 07724. Its telephone number is (732) 389
3890.
Effective January 1, 1992, the Company elected to be taxed
as a real estate investment trust (REIT) under Sections 856-858
of the Internal Revenue Code. The company received from the
Internal Revenue Service a favorable revenue ruling that it
qualified as a REIT. The Company will not be taxed on the
portion of its income which is distributed to shareholders,
provided it distributes at least 95% of its taxable income, has
at least 75% of its assets in real estate investments and meets
certain other requirements for qualification as a REIT.
Background
Monmouth Capital Corporation, a publicly-owned Small
Business Investment Corporation, that had owned approximately
66% of the Company's stock, spun off to its shareholders in a
registered distribution three shares of United Mobile Homes,
Inc. for each share of Monmouth Capital Corporation. The
Company in 1984 and 1985 issued additional shares through
rights offerings. The Company has been in operation for thirty
years, the last fourteen of which have been as a publicly-owned
corporation.
Narrative Description of Business
The Company's primary business is the ownership and
operation of manufactured home communities - leasing
manufactured home spaces on a month-to-month basis to private
manufactured home owners. The Company also leases homes to
residents.
A manufactured home community is designed to accommodate
detached, single family manufactured housing units, which are
produced off-site by manufacturers and delivered by truck to
the site. Such dwellings, referred to as manufactured homes
(which should be distinguished from travel trailers), are
manufactured in a variety of styles and sizes. Manufactured
homes, once located, are rarely transported to another site;
typically, a manufactured home remains on site and is sold by
its owner to a subsequent occupant. This transaction is
commonly handled through a broker in the same manner that the
more traditional single-family residence is sold. Each owner
of a manufactured home leases the site on which the home is
located from the Company.
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.
-2-
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 has no restrictions on how it finances new
manufactured home communities. It may finance communities by
purchase money mortgages or other financing, including first
liens, wraparound mortgages or subordinated indebtedness. In
connection with its ongoing activities, the Company may issue
notes, mortgages or other senior securities. The Company
intends to use both secured and unsecured lines of credit. The
Company is exposed to interest rate changes primarily as a
result of its line of credit and long-term debt used to
maintain liquidity and fund capital expenditures and expansion
of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management
objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing
costs. To achieve its objectives, the Company borrows
primarily at fixed rates. At December 31, 1998, the Company
had $21,411,576 of fixed rate debt, of which $14,777,112, with
an average interest rate of 7.67% matures in 2000 and
$6,634,464 with an average interest rate of 7.55%
matures in 2003. In addition, the Company has approximately
$3.3 million in variable rate debt due on demand.
-3-
The Company may issue securities for property, however,
this has not occurred to date, and it may repurchase or
reacquire its shares from time to time if in the opinion of the
Board of Directors such acquisition is advantageous to the
Company.
The Company also invests in both debt and equity
securities of other REITs. Based on current market conditions,
management believes that the price of those REIT shares are at
a discount from the value of the underlying properties. The
Company from time to time may purchase these securities on
margin when the interest and dividend yields exceed the cost of
funds. Such securities are subject to risk arising from
adverse changes in market rates and prices, primarily interest
rate risk relating to debt securities and equity price risk
relating to equity securities.
Property Maintenance and Improvement Policies
It is the policy of the Company to properly maintain,
modernize, expand and make improvements to its properties when
required. The Company anticipates that renovation expenditures
with respect to its present properties during 1999 will be
consistent with 1998 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.
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, REITs and other enterprises
engaged in real estate activities, possibly including certain
affiliates of the Company. In many cases, the competing
concerns may be larger and better financed than the Company,
making it difficult for the Company to secure new manufactured
home community investments. Competition among private and
institutional purchasers of manufactured home community
investments has increased substantially in recent years, with
resulting increases in the purchase price paid for manufactured
home communities and consequent higher fixed costs.
-4-
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 wastewater treatment
facility, water distribution system, or both. At these
locations, the Company is subject to compliance of monthly,
quarterly and yearly testing for contaminants as outlined by
the individual state's Department of Environmental Protection
Agencies.
The Company must also comply with certain Federal
Environmental Protection Agency Regulations which may be more
stringent than the state and local governmental regulations.
The costs of such testing are included in the Company's
operating expenses. As of the date of this report, there are
no enforcement actions pending by any federal, state or local
environmental agencies and management believes that the Company
is in compliance with all such regulations.
Currently, the Company is not subject to radon or asbestos
monitoring requirements.
In its normal course of business, the Company does not
incur costs related to local or state zoning issues. However,
zoning regulations often restrict expansion of the Company's
communities, but allow continuing operation of existing
communities.
Rent control affects only two of the Company's
manufactured home communities which are in New Jersey and has
resulted in a slower growth of earnings from these properties.
Number of Employees
On March 12, 1999, the Company had approximately 100
employees, including Officers. During the year, the Company
hires approximately 20 part-time and full-time temporary
employees as lifeguards, grounds keepers and for emergency
repairs.
-5-
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 of 1998 Average Current Rent Per
Name of Community Sites Occupancy Month Per Site
Allentown 414 88% $220
4912 Raleigh-Millington Road
Memphis, TN 38128
Brookview Village 133 84% $300
Route 9N
Greenfield Center, NY 12833
Cedarcrest 283 99% $337
1976 North East Avenue
Vineland, NJ 08360
Cranberry Village 201 95% $300
201 North Court
Mars, PA 16046
Cross Keys Village 133 96% $247
Old Sixth Avenue Road, RD #1
Duncansville, PA 16635
D & R Village 244 93% $337
Route 146, RD 13
Clifton Park, NY 12065
Edgewood Estates 218 83% $200
700 Edgewood Estates
Apollo, PA 15613
Fairview Manor 197 84% $327
2110 Mays Landing Road
Millville, NJ 08332
Forest Park Village 252 94% $261
724 Slate Avenue
Cranberry Township, PA
16066
Heather Highlands 457 69% $197
109 S. Main Street
Pittston, PA 18640
Highland Estates 229 84% $322
60 Old Route 22
Kutztown, PA 19530
-6-
Number of 1998 Average Current Rent Per
Name of Community Sites Occupancy Month Per Site
Kinnebrook 212 89% $322
201 Route 17B
Monticello, NY 12701
Lake Sherman Village 210 96% $243
7227 Beth Avenue, SW
Navarre, OH 44662
Memphis Mobile City 168 86% $203
3894 N. Thomas Street
Memphis, TN 38127
Oxford Village 224 100% $354
2 Dolinger Drive
West Grove, PA 19390
Pine Ridge Village 137 96% $296
147 Amy Drive
Carlisle, PA 17013
Port Royal Village 402 89% $217
400 Patterson Lane
Belle Vernon, PA 15012
River Valley Estates 214 82% $177
2066 Victory Road
Marion, OH 43302
Sandy Valley Estates 364 90% $220
801 First, Route #2
Magnolia, OH 44643
Southwind Village 250 97% $252
435 E. Veterans Highway
Jackson, NJ 08527
Spreading Oaks Village 153 90% $157
7140-29 Selby Road
Athens, OH 45701
Waterfalls Village 202 99% $314
3450 Howard Road
Hamburg, NY 14075
Woodlawn Village 157 96% $424
Route 35
Eatontown, NJ 07724
Wood Valley 161 88% $181
1493 N. Whetstone River Road
Caledonia, OH 43314
-7-
Occupancy rates are very stable with little year-to-year
changes once the community is filled (generally 90% or greater
occupancy). It is the Company's experience that, once a home
is set up in the community, it is seldom moved. The home if
sold, is sold on-site to a new owner.
Residents generally rent on a month-to-month basis. Some
residents have one-year leases. Southwind Village and Woodlawn
Village (both in New Jersey) are the only communities subject to
local rent control laws.
There are 14 sites at Sandy Valley which are under a
consent order with the Federal Government. This order provides
that, as these sites become vacant, they cannot be reused. The
restrictions on use were known at the time of purchase, and the
item is not material to the operation of Sandy Valley Estates.
In connection with the operation of its 5,615 sites, the
Company operates approximately 360 rental units. These are
homes owned by the Company and rented to residents. The Company
engages in the rental of manufactured homes primarily in areas
where the communities have existing vacancies. The rental homes
produce income on both the home and for the site which might
otherwise be non-income producing. The Company sells the older
rental homes when the opportunity arises.
The Company has approximately 700 sites in various stages
of engineering/construction. Due to the difficulties involved
in the approval and construction process, it is difficult to
predict the number of sites which will be completed in a given
year.
Significant Properties
The Company operates approximately $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 5,615 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
wellmaintained with city water and its own sewer plant, as well
as a swimming pool and community building; (b) the community has
approximately 89% occupancy; and (c) the community generates
substantial revenues and net operating income with an average
monthly gross rent of $217 per site. Management believes that
this community is a successful and valuable manufactured home
community.
-8-
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 90% occupancy; and (d) the community
generates revenues with an average monthly rental of $220 per
site, which rents are competitive with the other manufactured
home communities in the area. The Company believes that it is
an excellent investment.
CEDARCREST
On July 15, 1986, the Company paid $760,000 to acquire
94.05% of the partnership interest in a limited partnership
that owned a 283-space manufactured home community located in
Vineland, New Jersey. On June 30, 1988 the Company paid
$40,000 to acquire an additional 4.95% of the partnership
interest, brining the Company's total ownership to 99%. During
1989 the Company acquired the remaining 1% interest.
The Company believes this to be an excellent community for
the following reasons: (a) the community is well-maintained;
(b) the community has municipal sewer and water service; and
(c) the community is 99% occupied. Rents average $337 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 $220 per month per site and are competitive with
other manufactured home communities in the area. Current
occupancy is approximately 88%. This is an increase from the
prior year occupancy of 86%. The Company is continuing its
effort to bring occupancy to 90% or higher. In the future, the
Company anticipates that it will be able to increase occupancy.
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HEATHER HIGHLANDS
On January 30, 1992, the Company acquired an 88.36%
interested in a limited partnership operating a 457-space
manufactured home community located in Pittston, Pennsylvania.
This partnership has partners who are also officers, directors
and/or shareholders of the Company. Mr. Eugene Landy, Chairman
of the Board, retained the remaining 11.64% limited partnership
interest. The purchase price was approximately $2,500,000.
This purchase was based on an independent appraisal of fair
market value. In January 1995, the Company purchased the
remaining 11.64% partnership interest for $132,600. This price
per unit was the same price previously paid to non-affiliated
sellers.
The Company anticipates that the community will ultimately
have 415 sites since the use of double-wide units reduces the
total number of available sites.
The Company believes this to be a sound investment for the
following reasons: (a) the property is well-maintained; (b)
the community has municipal sewer and water service; and (c)
rents are $197 per month per site and are competitive with
other manufactured home communities in the area. Current
occupancy is approximately 69% compared to 71% during 1997.
The Company is continuing its efforts to bring occupancy to 90%
or higher.
Mortgages on Properties
The Company has mortgages on various properties. The
maturity dates of these mortgages range from the year 2000 to
2003. Interest varies from fixed rates of 7.5% to 10.5%. The
aggregate balances of these mortgages total $21,411,576 at
December 31, 1998. (For additional information, see Part IV,
Item 14(a)(1)(vi), Note 5 of the Notes to Consolidated
Financial Statements - Notes and Mortgages Payable).
ITEM 3 - LEGAL PROCEEDINGS
Legal proceedings are incorporated herein by reference and
filed as Part IV, Item 14(a)(1)(vi), Note 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
1998 to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company became publicly owned on January 3, 1985. As
of January 5, 1994, shares of the Company were traded on the
American Stock Exchange (symbol UMH). The per share range of
high and low quotes for the Company's stock for each quarterly
period is as follows:
1998 1997 1996
HIGH LOW HIGH LOW HIGH LOW
First Quarter 12-1/2 11-1/4 13-5/8 11-1/4 14 9-5/8
Second Quarter 11-13/16 10-1/2 12-1/4 10-7/8 13-3/8 10-1/4
Third Quarter 11 9-7/8 12-3/8 11-1/4 12-1/2 10-1/2
Fourth Quarter 10-7/8 9-3/8 12-3/16 11-1/4 12-1/2 11
On March 12, 1999, the closing price of the Company's stock
was 9-9/16.
As of December 31, 1998, there were approximately 1,100
shareholders of the Company's common stock based on the number
of record owners.
For the years ended December 31, 1998, 1997 and 1996, total
dividends paid by the Company amounted to $5,204,623 or $.7375
per share, $4,620,296 or $.70 per share and $3,630,891 or $.60
per share, respectively.
On December 16, 1998, the Company declared a dividend of
$.1875 per share to be paid on March 15, 1999 to shareholders
of record February 16, 1999.
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.
-11-
ITEM 6 - SELECTED FINANCIAL DATA
December 31,
1998 1997 1996 1995 1994
Income Statement
Data:
Rental and
Related Income $16,783,821 $15,423,111 $14,533,218 $13,332,961 $12,318,467
Income from
Community
Operations 9,180,332 8,606,017 8,311,469 7,449,168 6,864,080
Gain (Loss) on
Sales Of Investment
Property and
Equipment 13,095 (10,546) 333,647 5,758 59,941
Net Income 4,201,691 4,197,258 3,729,526 2,491,581 2,141,279
Net Income Per Share-
Basic and Diluted .60 .63 .61 .44 .40
- ------------------------------------------------------------------------------
Balance Sheet Data:
Total Assets $50,046,649 $43,599,259 $35,875,206 $29,758,397 $25,404,015
Mortgages Payable 21,411,576 20,111,023 17,351,030 17,707,635 15,637,325
Shareholders'
Equity 23,212,813 20,830,541 16,426,145 10,290,487 7,721,783
______________________________________________________________________________
Average Number
of Shares
Outstanding 7,042,701 6,617,479 6,072,637 5,639,455 5,365,359
Funds from
Operations * $ 6,591,995 6,324,536 5,693,631 4,358,765 3,880,507
Cash Dividends
Per Share .7375 .70 .60 .525 .425
* 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.
-12-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenue and Expense
1998 vs. 1997
Rental and related income increased from $15,423,111
for the year ended December 31, 1997 to $16,783,821 for the
year ended December 31, 1998 primarily due to rental
increases to residents, increased occupancy, expansions and
the acquisition of a new community in December 1997. During
1998, the Company was able to obtain rent increases of $4.00
to $28.00 per month on most of its occupied sites.
Overall occupancy rates are satisfactory with eleven
manufactured home communities experiencing vacancies over
ten percent. Some of these vacancies are the result of
expansions completed during 1997. The Company is also
evaluating further expansion at selected communities in
order to increase the number of available sites. Some of
these communities are in various stages of expansion.
Community operating expenses increased from $6,817,094
for the year ended December 31, 1997 to $7,603,489 for the
year ended December 31, 1998 primarily as a result of the
acquisition of an additional community in December 1997 and
increased expenses such as advertising associated with the
expansions.
The Company's income from community operations
continues to show steady growth rising from $8,606,017 in
1997 to $9,180,332 in 1998.
General and administrative expenses remained relatively
stable in 1998 and 1997.
Interest expense increased from $1,123,445 in 1997 to
$1,505,577 in 1998. This was primarily as a result of
higher average principal balances outstanding and a lower
amount of interest capitalized on construction in progress.
Interest capitalized on construction in progress amounted to
$154,000 and $250,000 for 1998 and 1997, respectively.
Interest and dividend income increased form $240,700 in
1997 to $409,457 in 1998 due to purchases of securities
available for sale during 1997 and 1998.
Depreciation expense increased from $2,116,732 in 1997
to $2,403,399 in 1998 due primarily to the addition of a new
community in December 1997.
Other expenses increased from $42,000 in 1997 to
$105,460 in 1998 due primarily to the write-off of
unamortized financing costs on the D & R Village mortgage
upon refinancing.
Gain/loss on sales of investment property and equipment
remained relatively stable in 1998 and 1997.
-13-
For the year ended December 31, 1998, the Company
reported net income of $4,201,691 as compared to net income
of $4,197,258 for the year ended December 31, 1997. 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 1999.
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.
-14-
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.
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 longterm
sources. The Company currently has mortgages payable
totaling $21,411,576 secured by eight communities and loans
payable totaling $3,368,512 primarily secured by investment
securities. The Company also has a $1,000,000 line of
credit with Summit Bank, all of which was available at
December 31, 1998. 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 $5,823,597 in 1996 to $6,258,913 in 1997 to $6,556,937
in 1998. Cash flow was primarily used for capital
improvements, payment of dividends, purchases of securities
available for sale and expansion of existing communities.
The Company meets maturing mortgage obligations by using a
combination of cash flow and refinancing. The dividend
payments were primarily made from cash flow from operations.
In addition to normal operating expenses, the Company
requires cash for additional investments in manufactured
home communities, capital improvements, purchase of
manufactured homes for rent, scheduled mortgage amortization
and dividend distributions. As a REIT, the Company must
distribute at least 95% of its taxable income.
The Company estimates that in 1999 it will purchase
approximately 25 manufactured homes to be used as rentals
for a total cost of $500,000. Management believes that
these manufactured homes will each generate approximately
$300 per month in rental income in addition to lot rent.
Once rental homes reach 10 years old, the Company generally
sells them.
Capital improvements include amounts needed to meet
environmental and regulatory requirements in connection with
the manufactured home communities that provide water or
sewer service. Excluding expansions, the Company is
budgeting approximately $1,000,000 in capital improvements
for 1999.
-15-
The Company has a Dividend Reinvestment and Stock
Purchase Plan (Plan). Cash received from the Plan is a
significant additional source of liquidity and capital
resources. During 1998, the Company paid $5,204,623 in
dividends. Amounts received under the Plan amounted to
$3,731,056. The success of the Plan resulted in a
substantial improvement in the Company's liquidity and
capital resources in 1998.
The Company has undeveloped land which it could develop
over the next several years. In 1999, construction is
expected to be completed on approximately 200 sites. The
Company is also exploring the utilization of vacant land for
town houses. The Company continues to analyze the highest
and best use of its vacant land, and uses it accordingly.
The Company believes that funds generated from
operations, together with the financing and refinancing of
its properties, will be adequate to meet its needs over the
next several years.
Impact of Year 2000
The Company is currently in the process of implementing
its Year 2000 compliance plan. The Company has assessed all
hardware and software for Year 2000 readiness. The Company
has developed and is currently implementing renovation
plans, including hardware replacement and software upgrades,
to ensure all hardware and software is Year 2000 compliant.
The Company has no significant suppliers or vendors.
Renovation and testing are scheduled to be completed during
the first half of 1999.
The Company has developed contingency plans for each of
its critical systems which includes moving many of the
Company's operations to a manual system. There can be no
assurances that the Year 2000 compliance plan will be
completed successfully by the Year 2000, in which event the
Company could incur additional costs to implement its
contingency plans. Management does not anticipate that such
costs would be significant to the Company. The total costs
associated with the Company's Year 2000 plan are anticipated
to be less than $20,000.
Successful and timely completion of the Year 2000 plan
is based on management's best estimates derived from various
assumptions of future events, which are inherently
uncertain, including the effectiveness of remediation and
validation plans, and all vendors and suppliers readiness.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
See Item 1 - Business.
-16-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in
Part IV, Item 14(a)(1) are incorporated herein by reference.
The following is the Unaudited Selected Quarterly
Financial Data:
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
____________________________________________________________________________
1998 March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------
Rental & Related
Income $ 4,118,835 $ 4,179,675 $ 4,225,218 $ 4,260,093
Income from Community
Operations 2,302,499 2,348,817 2,224,582 2,304,434
Net Income 1,051,103 1,066,737 955,431 1,128,420
Net Income per Share-
Basic and Diluted .15 .16 .13 .16
____________________________________________________________________________
1997 March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------
Rental & Related
Income $ 3,765,720 $ 3,804,373 $ 3,862,240 $ 3,990,778
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
____________________________________________________________________________
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
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-17-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age & Principal Occupation Director Shares Owned Percent
Office Held During the Past Five Years Since Beneficially of Stock
Robert J. Vice President of The 1980 17,004 (1) 0.23%
Anderson David Cronheim Company;
Age: 76 past President
Director of the Industrial Real
Estate Brokers
Association of New York
and New Jersey
Ernest V. Financial Consultant; 1969 24,245 (2) 0.33%
Bencivenga Treasurer and Director
Age: 81 (1961 to present) and
Secretary/ Secretary (1967 to
Treasurer and present) of Monmouth
Director Capital Corporation;
Treasurer and Director
(1968 to present) of
Monmouth Real Estate
Investment Corporation
Anna T. Chew Certified Public Accountant 1994 22,977 (3) 0.32%
Age: 40 Controller (1991 to present) and
Vice President Director (1993 to present)
Chief of Monmouth Real Estate
Financial Investment Corporation; Controller
Officer and (1991 to present) and Director
Director (1994 to present) of Monmouth
Capital Corporation.
Charles P. Investor; Director (1970 1969 59,106 (4) 0.82%
Kaempffer to present) of Monmouth
Age: 61 Capital Corporation;
Director Director (1974 to present)
of Monmouth Real Estate
Investment Corporation;
Vice Chairman and Director
(1996 to present) of
Community Bank of New
Jersey; Director (1989 to
1996) of Soverign Community
Bank (formerly Colonial Bank)
Eugene W. Attorney at Law for the 1969 865,670 (5) 11.95%
Landy firm of Landy & Landy;
Age: 65 President and Director
Chairman of (1961 to present) of
the Board Monmouth Capital Corporation;
and Director President and Director (1968
to present) of Monmouth Real
Estate Investment Corporation.
-18-
Name, Age & Principal Occupation Director Shares Percent
Office Held During the Past Five Years Since Beneficially of Stock
Samuel A. Attorney at Law for the 1992 244,967 (6) 3.38%
Landy firm of Landy & Landy;
Age: 38 Director (1989 to
President and present) of Monmouth Real
Director Estate Investment Corporation;
Director (1994 to present) of
Monmouth Capital Corporation.
Richard H. Vice President of Remsco 1986 364,603 (7) 5.03%
Molke Associates, Inc., a
Age: 72 construction firm.
Director
Eugene Obstetrician and 1977 81,163 (8) 1.12%
Rothenberg Gynecologist;
Age: 66 Investor
Director
Robert G. Investor; Director (1968 1969 131,468 (9) 1.81%
Sampson to present) of
Age: 73 Monmouth Real Estate
Director Investment Corporation; (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........................ 1,811,203 24.99%
1) Beneficial ownership, as defined herein, include common stock
as to which a person has or shares voting and/or investment
power as of March 14, 1997.
2) Includes 8,901 shares held by Mr. Bencivenga's wife and
3,497 shares held in the United Mobile Homes, Inc. 401(k)
Plan.
3) Includes 22,978 shares held jointly with Ms. Chew's husband
and 6,417 shares held in the United Mobile Homes, Inc.
401(k) Plan.
4) Includes (a) 57,106 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) 58,597 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) 56,377 shares held in
the Landy & Landy, Employee's Pension Plan, of which Mr.
Landy is a Trustee with power to vote, and (d) 105,006
shares held in the Landy & Landy, Employees' Profit Sharing
Plan, of which Mr. Landy is a Trustee with power to vote.
Excludes 209,991 shares held by Mr. Landy's adult children
in which he disclaims any beneficial interest.
6) Includes (a) 24,721 shares held jointly with Mr. Samuel A.
Landy's wife, (b) 14,377 in a custodial account for his
sons, and (c) 5,312 shares held in the United Mobile Homes,
Inc. 401(k) Plan.
7) Includes (a) 36,411 shares owned by Mr. Molke's wife, (b)
142,819 shares in the Richard H. Molke Grantor Retained
Annuity Trust dated December 21, 1992, and (c) 142,818
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
1998, 1997 and 1996 to the Chairman of the Board, President
and Vice President. There were no other executive officers
whose aggregate cash compensation exceeded $100,000:
Name and Annual Compensation
Principal Position Year Salary Bonus All Other Options
Eugene W. Landy 1998 $ 75,000 $ - $173,376 (1) -
Chairman of the 1997 $ - $ - $343,850 (1) 50,000
Board 1996 $ - $ - $347,350 (1) 50,000
Samuel A. Landy 1998 $199,650 $ 43,979 $ 18,559 (2) 25,000
President 1997 $181,500 $ 39,981 $ 18,880 (2) 25,000
1996 $165,000 $ 10,846 $ 18,880 (2) 25,000
Anna T. Chew 1998 $110,000 $ 16,231 $ 14,752 (3) 10,000
Vice President 1997 $100,000 $ 11,846 $ 14,955 (3) 8,000
1996 $ 86,650 $ 10,333 $ 13,509 (3) 10,000
(1) Represents base compensation of $75,000 in 1998 and
$150,000 in 1997 and 1996, and a bonus of $15,000 in 1996,
as well as Directors' fees, fringe benefits and legal
fees. Also includes an accrual of $80,000, $160,000 and
$160,000 for 1998, 1997 and 1996, 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, 1998:
Potential Realized
% of Total Price Value at Assumed Annual
Options Granted to Per Expiration Rates for Option Term
Name Granted Employees Share Date 5% 10%
Samuel A. Landy 25,000 43% $12.75 1/08/03 $50,175 $146,788
Anna T. Chew 10,000 17% $10.00 8/05/03 $27,628 $ 61,051
The following table sets forth for the executive
officers named in the Summary Compensation Table, information
regarding stock options outstanding at December 31, 1998:
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 100,000 / -0- $118,750 / $ -0-
Samuel A.
Landy -0- N/A 100,000 / 25,000 $ 89,875 / $ -0-
Anna T. Chew 10,000 $54,375 38,000 / 10,000 $ 57,500 / $6,250
Compensation of Directors.
The Directors receive a fee of $1,000 for each Board
meeting attended. Directors also receive a fixed annual fee of
$7,600, payable $1,900 quarterly. Directors appointed to house
committees receive $150 for each meeting attended. Those
specific committees are Compensation Committee, Audit Committee
and Stock Option Committee.
Employment Contracts.
On December 14, 1993, the Company and Eugene W. Landy
entered into an Employment Agreement under which Mr. Eugene
Landy receives an annual base compensation of $150,000 plus
bonuses and customary fringe benefits, including health
insurance, participation in the Company's 401(k) Plan, stock
options, five weeks vacation and use of an automobile. In lieu
of annual increases in compensation, there will be additional
bonuses voted by the Board of Directors. On severance of
employment for any reason, Mr. Eugene Landy will receive
severance pay of $450,000 payable $150,000 on severance and
$150,000 on the first and second anniversaries of severance.
If employment is terminated following a change in control of
the Company, Mr. Eugene Landy will be entitled to severance pay
only if actually severed either at
-21-
the time of merger or subsequently. In the event of
disability, Mr. Eugene Landy's compensation shall continue for
a period of three years, payable monthly. On retirement, Mr.
Eugene Landy shall receive a pension of $50,000 a year for ten
years, payable in monthly installments. In the event of death,
Mr. Eugene Landy's designated beneficiary shall receive
$450,000, $100,000 thirty days after death and the balance one
year after death. The Employment Agreement 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. On severance or
disability, Mr. Samuel Landy is entitled to one year's pay.
The Company also agrees to loan to Mr. Samuel Landy $100,000 at
the Company's corporate borrowing rate with a 5-year maturity
and a 15-year principal amortization. Additional amounts,
secured by Company stock, may be borrowed at the same terms for
the exercise of stock options.
Effective January 1, 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 an additional one year's pay. In the event
of disability, her salary shall continue for a period of two
years.
Report of Board of Directors.
Overview and Philosophy
The Company has a Compensation Committee consisting of two
independent outside Directors. This Committee is responsible
for making recommendations to the Board of Directors concerning
executive compensation. The Compensation Committee takes into
consideration three major factors in setting compensation.
The first consideration is the overall performance of the
Company. The Board believes that the financial interests of
the executive officers should be aligned with the success of
the Company and the financial interests of its shareholders.
Increases in funds from operations, the enhancement of the
Company's equity portfolio, and the success of the Dividend
Reinvestment and Stock Purchase Plan all contribute to
increases in stock prices thereby maximizing shareholders'
return.
The second consideration is the individual achievements
made by each officer. The Company is a small real estate
investment trust (REIT). The Board of Directors is aware of
the contributions made by each officer and makes an evaluation
of individual performance based on their own familiarity with
the officer.
-22-
The final criteria in setting compensation is comparable
wages in the industry. In this regard, the REIT industry
maintains excellent statistics.
Evaluation
Mr. Eugene Landy is under an employment agreement with the
Company. His base compensation under this contract is $150,000
per year. (The Summary Compensation Table for Mr. Eugene Landy
shows a salary of $75,000, base compensation of $75,000,
$18,376 in director's fees, fringe benefits and legal fees plus
$80,000 accrual for pension and other benefits in 1998).
The Committee also reviewed the progress made by Mr.
Samuel A. Landy, President. Funds from operations increased by
approximately 4%. Mr. Samuel Landy is under an employment
agreement with the Company. His base compensation under this
contract is $199,650 for 1998. The Committee is currently
finalizing Mr. Samuel Landy's new contract. The Committee
granted Mr. Samuel Landy a bonus of $36,300 for 1997 which was
paid in 1998.
COMPARATIVE STOCK PERFORMANCE.
The line graph compares the total return of the Company's
common stock for the last five years to the NAREIT ALL REIT
Total Return Index published by the National Association of
Real Estate Investment Trust (NAREIT) and to the S&P 500 Index
for the same period. The total return reflects stock price
appreciation and dividend reinvestment for all three
comparative indices. The information herein has been obtained
from sources believed to be reliable, but neither its accuracy
nor its completeness is guaranteed.
1993 1994 1995 1996 1997 1998
United Mobile Homes, Inc. 100 109 153 189 207 201
NAREIT All REIT 100 101 119 162 192 156
S & P 500 100 101 139 171 228 294
-23-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
On March 12, 1999, no person owned of record, or was known
by the Company to own beneficially more than five percent (5%)
of the shares of the Company, except the following:
Percent
Name and Address Shares Owned of
Title of Class of Beneficial Owner Beneficially Class
Common Stock Eugene W. Landy 865,670 11.95%
20 Tuxedo Road
Rumson, NJ 07760
Common Stock Richard H. Molke 364,603 5.03%
8 Ivins Place
Rumson, NJ 07760
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Certain relationships and related party transactions are incorporated
herein by reference to Part IV, Item 14(a)(1)(vi), Note 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, 1998 and 28
and 1997
(iii) Consolidated Statements of Income for the years 29
ended December 31, 1998, 1997 and 1996
(iv) Consolidated Statements of Shareholders' Equity for 30
the years ended December 31, 1998, 1997 and 1996
(v) Consolidated Statements of Cash Flows for the years 31
ended December 31, 1998, 1997 and 1996
(vi) Notes to Consolidated Financial Statements 32-44
(a)(2) The following Financial Statement Schedule for the
years ended December 31, 1998, 1997 and 1996 is
filed as part of this report.
(i) Schedule III - Real Estate and Accumulated Depreciation 45
All other schedules are omitted for the reason that they
are not required, are not applicable, or the required information
is set forth in the financial statements or notes thereto.
-25-
(a)(3) The Exhibits set forth in the following index of Exhibits
are filed as part of this Report.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws: Articles of
Incorporation and By-Laws, Certificate of Incorporation and
Amendments thereto are incorporated by reference to the
Company's Registration Statement No. 2-92896-NY, and
Amendments thereto, filed with the SEC on August 22, 1984.
Material Contracts:
(a) Stock Option Plan is incorporated by reference to the
Company's Proxy Statement dated April 25, 1994 filed with the
SEC April 27, 1994.
(b) 401(k) Plan Document and Adoption Agreement effective
April 1, 1992 is incorporated by reference to that filed with
the Company's 1992 Form 10-K filed with the SEC on
March 9, 1993.
(c) Employment contract with Mr. Eugene W. Landy dated
December 14, 1993 is incorporated by reference to that
filed with the Company's 1993 Form 10-K filed with the
SEC on March 28, 1994.
(d) Employment contract with Mr. Ernest V. Bencivenga dated
November 9, 1993 is incorporated by reference to that filed
with the Company's 1993 Form 10-K filed with the SEC
on March 28, 1994.
(e) Employment contract with Mr. Samuel A. Landy effective
January 1, 1996 is incorporated by reference to that filed
with the Company's 1995 Form 10-K filed with the SEC on
March 28, 1996.
(f) Employment contract with Ms. Anna T. Chew effective
January 1, 1997 is incorporated by reference to that
filed with the Company's 1996 Form 10-K filed with the
SEC on March 27, 1997.
(21) Subsidiaries of the Registrant:
The Company operates through nine wholly-owned multiple
Subsidiaries carrying on the same line of business. The
parent company of these subsidiaries is the Registrant.
The line of business is the operation of manufactured home
communities.
(23) Consent of KPMG LLP
(a)(3)(b) Reports on Form 8-K
None.
-26-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United Mobile Homes, Inc.:
We have audited the consolidated financial statements of United
Mobile Homes, Inc. as listed in the accompanying index. In
connection with our audits of the consolidated financial
statements, we also have audited the financial statement
schedule as listed in the accompanying index. These financial
statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of United Mobile Homes, Inc. as of December
31, 1998 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended
December 31, 1998 in conformity with generally accepted
accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
Shorts Hills, New Jersey /s/ KPMG LLP
February 19, 1999
-27-
UNITED MOBILE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
- ASSETS - 1998 1997
INVESTMENT PROPERTY AND EQUIPMENT
Land $ 6,797,935 $ 6,351,506
Site and Land Improvements 46,198,257 43,927,856
Buildings and Improvements 2,691,426 2,592,125
Rental Homes and Accessories 5,656,441 5,339,857
---------- ----------
Total Investment Property 61,344,059 58,211,344
Equipment and Vehicles 2,643,774 2,416,402
---------- ----------
Total Investment Property and Equipment 63,987,833 60,627,746
Accumulated Depreciation (25,091,588) (22,918,677)
---------- ----------
Net Investment Property and Equipment 38,896,245 37,709,069
---------- ----------
OTHER ASSETS
Cash and Cash Equivalents 832,408 191,319
Securities Available for Sale 7,752,565 3,547,236
Notes and Other Receivables 734,724 678,280
Unamortized Financing Costs 157,928 172,694
Prepaid Expenses 168,515 109,415
Land Development Costs 1,504,264 1,191,246
---------- ----------
Total Other Assets 11,150,404 5,890,190
---------- ----------
TOTAL ASSETS $50,046,649 $43,599,259
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
MORTGAGES PAYABLE $21,411,576 $20,111,023
---------- ----------
OTHER LIABILITIES
Accounts Payable 152,011 222,474
Loans Payable 3,368,512 578,973
Accrued Liabilities and Deposits 1,495,653 1,477,855
Tenant Security Deposits 406,084 378,393
---------- ----------
Total Other Liabilities 5,422,260 2,657,695
---------- ----------
Total Liabilities 26,833,836 22,768,718
---------- ----------
SHAREHOLDERS' EQUITY:
Common Stock - $.10 par value per share,
10,000,000 shares authorized,
7,246,580 and 6,865,312 issued and
outstanding as of December 31, 1998
and 1997, respectively 724,658 686,531
Additional Paid-In Capital 23,427,783 20,572,786
Accumulated Other
Comprehensive (Loss) Income (271,835) 239,017
Accumulated Deficit (667,793) (667,793)
---------- ----------
Total Shareholders' Equity 23,212,813 20,830,541
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $50,046,649 $43,599,259
========== ==========
See Accompanying Notes to Consolidated Financial Statements
-28-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
Rental and Related Income $16,783,821 $15,423,111 $14,533,218
Community Operating Expenses 7,603,489 6,817,094 6,221,749
---------- ---------- ----------
Income from Community
Operations 9,180,332 8,606,017 8,311,469
Other Expenses (Income):
General and Administrative 1,386,757 1,356,736 1,512,623
Interest Expense 1,505,577 1,123,445 1,434,875
Interest and Dividend Income ( 409,457) ( 240,700) ( 93,579)
Depreciation Expense 2,403,399 2,116,732 2,007,449
Other 105,460 42,000 54,222
--------- --------- ---------
Income Before Gain (Loss)
On Sales of Assets 4,188,596 4,207,804 3,395,879
Gain (Loss) on Sales of Assets 13,095 ( 10,546) 333,647
--------- --------- ---------
Net Income $ 4,201,691 $ 4,197,258 $3,729,526
========= ========= =========
Net Income Per Share -
Basic and Diluted $ .60 $ .63 $ .61
========= ========= =========
Weighted Average Shares
Outstanding:
Basic 7,042,701 6,617,479 6,072,637
========= ========= =========
Diluted 7,060,542 6,679,994 6,155,018
========= ========= =========
See Accompanying Notes to
Consolidated Financial Statements
-29-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Additional
Common Stock Paid-In
Number Amount Capital
Balance 12/31/95 5,850,631 $585,063 $10,373,217
Common Stock Issued with the DRIP 526,045 52,605 5,619,417
Common Stock Issued through the
Exercise of Stock Options 57,000 5,700 282,800
Distributions -0- -0- -0-
Net Income -0- -0- -0-
Unrealized Net Holding
Gains on Securities
Available for Sale -0- -0- -0-
--------- ---------- ---------
Balance 12/31/96 6,433,676 16,275,434 643,368
Common Stock Issued with the DRIP 382,636 38,263 4,309,405
Common Stock Issued through the
Exercise of Stock Options 49,000 4,900 312,350
Distributions -0- -0- (324,403)
Net Income -0- -0- -0-
Unrealized Net Holding
Gains on Securities
Available for Sale Net of
Reclassification Adjustment
of $92,811 for Gains
Included in Net Income -0- -0- -0-
--------- ---------- ---------
Balance 12/31/97 6,865,312 20,572,786 686,531
Common Stock Issued with the DRIP 357,268 35,727 3,695,329
Common Stock Issued through the
Exercise of Stock Options 24,000 2,400 162,600
Distributions -0- -0- (1,002,932)
Net Income -0- -0- -0-
Unrealized Net Holding Gains on
Securities Available for Sale -0- -0- -0-
--------- ------- ----------
Balance 12/31/98 7,246,580 $724,658 $23,427,783
========= ======= ==========
* Dividend Reinvestment and Stock Purchase Plan
See Accompanying Notes to Consolidated Financial Statements
-30a-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Accumulated
Other
Comprehensive Accumulated Comprehensive
(Loss)/Income Deficit Income
Balance 12/31/95 $ -0- $( 667,793)
Common Stock Issued with the DRIP -0- -0-
Common Stock Issued through the
Exercise of Stock Options -0- (3,630,891)
Distributions -0- (3,630,891)
Net Income -0- $3,729,526 $ 3,729,526
Unrealized Net Holding Gains on
Securities Available for Sale 76,501 -0- 76,501
------ --------- --------
Balance 12/31/96 76,501 ( 569,158) $ 3,806,027
=========
Common Stock Issued with the DRIP -0- -0-
Common Stock Issued through the
Exercise of Stock Options -0- -0-
Distributions -0- (4,295,893)
Net Income -0- $4,197,258 $ 4,197,258
Unrealized Net Holding Gains on
Securities Available for Sale
Net of Reclassification
Adjustment of $92,811 for
Gains Included in Net Income 162,516 -0- 162,516
------- -------- ---------
Balance 12/31/97 239,017 ( 667,793) $ 4,359,774
=========
Common Stock Issued with the DRIP -0- -0-
Common Stock Issued through the
Exercise of Stock Options -0- -0-
Distributions -0- (4,201,691)
Net Income -0- 4,201,691 $ 4,201,691
Unrealized Net Holding Gains on
Securities Available for Sale (510,852) -0- ( 510,852)
------- ------- ---------
Balance 12/31/98 $(271,835) $(667,793) $ 3,690,839
======= ======= =========
* Dividend Reinvestment and Stock Purchase Plan
See Accompanying Notes to Consolidated Financial Statements
-30b-
UNITED MOBILE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,201,691 $ 4,197,258 $ 3,729,526
Depreciation 2,403,399 2,116,732 2,007,449
Amortization 105,460 42,000 54,222
Gross Gains on Sales of Securities
Available for Sale -0- ( 92,811) -0-
Gain (Loss) on Sales of Investment
Property and Equipment ( 13,095) 10,546 ( 333,647)
Changes in Operating Assets and
Liabilities -
Notes and Other Receivables ( 56,444) ( 171,081) 40,580
Prepaid Expenses ( 59,100) 175,578 ( 12,289)
Accounts Payable ( 70,463) 16,048 9,069
Accrued Liabilities and Deposits 17,798 ( 42,786) 276,955
Tenant Security Deposits 27,691 7,429 51,732
--------- --------- ---------
Net Cash Provided by Operating
Activities 6,556,937 6,258,913 5,823,597
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Manufactured Home
Communities -0- (4,236,000) (3,435,506)
Purchase of Investment Property and
Equipment (2,169,674) (2,537,589) (2,217,809)
Proceeds from Sales of Investment
Property and Equipment 303,972 332,615 636,731
Additions to Land Development Costs (2,024,796) (2,300,481) (2,247,827)
Purchase of Securities Available for
Sale (4,716,181) (2,743,605) (1,364,536)
Proceeds from Sales of Securities
Available for Sale -0- 892,733 -0-
--------- ---------- ---------
Net Cash Used by Investing Activities (8,606,679) (10,592,327) (8,628,947)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Mortgages and Loans 3,600,000 3,150,000 1,300,000
Net Proceeds from (Repayments of)
Short-Term Borrowings 2,789,539 578,973 -0-
Principal Payments of Mortgages and
Loans (2,299,447) ( 390,007) (1,656,605)
Financing Costs on Debt ( 90,694) ( 53,950) ( 15,863)
Proceeds from Dividend Reinvestment
and Stock Purchase Plan 1,870,075 2,522,815 4,219,869
Proceeds from Exercise of Stock
Options 165,000 317,250 288,500
Dividends Paid (3,343,642) (2,795,443) (2,178,738)
--------- --------- ---------
Net Cash Provided by Financing
Activities 2,690,831 3,329,638 1,957,163
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 641,089 (1,003,776) ( 848,187)
CASH & CASH EQUIVALENTS - BEGINNING 191,319 1,195,095 2,043,282
--------- --------- ---------
CASH & CASH EQUIVALENTS - END $ 832,408 $ 191,319 $ 1,195,095
========= ========= =========
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
United Mobile Homes, Inc. (the Company) has elected to be
taxed as a Real Estate Investment Trust (REIT) under Sections
856858 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 5,615
sites. The communities are located in New Jersey, New York,
Ohio, Pennsylvania and Tennessee.
These manufactured home communities are listed by trade names as
follows:
MANUFACTURED HOME COMMUNITY LOCATION
Allentown Memphis, Tennessee
Brookview Village Greenfield Center, New York
Cedarcrest Vineland, New Jersey
Cranberry Village Cranberry Township, Pennsylvania
Cross Keys Village Duncansville, Pennsylvania
D & R Village Clifton Park, New York
Edgewood Estates Apollo, Pennsylvania
Fairview Manor Millville, New Jersey
Forest Park Village Cranberry Township, Pennsylvania
Heather Highlands Inkerman, Pennsylvania
Highland Estates Kutztown, Pennsylvania
Kinnebrook Monticello, New York
Lake Sherman Village Navarre, Ohio
Memphis Mobile City Memphis, Tennessee
Oxford Village West Grove, Pennsylvania
Pine Ridge Village Carlisle, Pennsylvania
Port Royal Village Belle Vernon, Pennsylvania
River Valley Estates Marion, Ohio
Sandy Valley Estates Magnolia, Ohio
Southwind Village Jackson, New Jersey
Spreading Oaks Village Athens, Ohio
Waterfalls Village Hamburg, New York
Woodlawn Village Eatontown, New Jersey
Wood Valley Caledonia, Ohio
-32-
BASIS OF PRESENTATION - The consolidated financial statements of
the Company include all of its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation.
USE OF ESTIMATES - In preparing the consolidated financial
statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, as well as contingent assets and liabilities as of
the dates of the consolidated balance sheets and revenue and
expenses for the years then ended. Actual results could differ
significantly from these estimates and assumptions.
INVESTMENT PROPERTY AND EQUIPMENT AND DEPRECIATION - Property
and equipment are carried at cost. Depreciation for Sites and
Building (15 to 27.5 years) is computed principally on the
straight-line method over the estimated useful lives of the
assets. Depreciation of Improvements to Sites and Buildings,
Rental Homes and Equipment and Vehicles (3 to 27.5 years) is
computed principally on the straight-line method. Land
Development Costs are not depreciated until they are put in use,
at which time they are capitalized as Sites or Site
Improvements. 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, 1998, 1997 and
1996 were $105,460, $42,000 and $54,222, 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.
REVENUE RECOGNITION - The Company derives its income from the
rental of manufactured home sites. The Company also owns
approximately 360 rental units which are rented to residents.
Revenue is recognized on the accrual basis.
-33-
NET INCOME PER SHARE - Basic net income per share is calculated
by dividing net income by the weighted-average number of common
shares outstanding during the period (7,042,701, 6,617,479 and
6,072,637 in 1998, 1997 and 1996, respectively). Diluted net
income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding plus the
weighted-average number of net shares that would be issued upon
exercise of stock options pursuant to the treasury stock method
(7,060,542, 6,679,994 and 6,155,018 in 1998, 1997 and 1996,
respectively) (See Note 6). Options in the amount of 17,841,
62,515 and 82,381 for 1998, 1997, and 1996, respectively, are
included in the diluted weighted average shares outstanding.
STOCK OPTION PLANS - Stock option plans are accounted for under
the intrinsic value based method as prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees". As such, compensation expense would be
recorded on the date of grant only if the current market price
on the underlying stock exceeds the exercise price. Included in
these Notes to Consolidated Financial Statements are the pro
forma disclosures required by SFAS No. 123, "Accounting for
StockBased Compensation," which assumes the fair value based
method of accounting had been adopted.
OTHER COMPREHENSIVE INCOME - On January 1, 1998, the Company
adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income consists
of net income and net unrealized gains or losses on securities
available for sale and is presented in the consolidated
statements of shareholders' equity.
RECLASSIFICATION - Certain amounts in the financial statements
for the prior years have been reclassified to conform to the
statement presentation for the current year.
-34-
NOTE 3 - INVESTMENT PROPERTY AND EQUIPMENT
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.
The following is a summary of accumulated depreciation by
major classes of assets:
December 31, 1998 December 31, 1997
Site and Land Improvements $ 20,749,083 $ 19,018,397
Buildings and Improvements 1,236,080 1,129,522
Rental Homes and Accessories 1,363,402 1,251,986
Equipment and Vehicles 1,743,023 1,518,772
---------- ----------
Total Accumulated Depreciation $ 25,091,588 $ 22,918,677
========== ==========
NOTE 4 - SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for
sale at December 31, 1998 and 1997:
1998 1997
Market Market
Cost Value Cost Value
Equity Securities:
Monmouth Real Estate Investment
Corporation * (270,568 shares
and 203,550 shares at
December 31, 1998 and
1997, respectively) $1,620,390 $1,488,125 $1,183,693 $1,323,078
Monmouth Capital Corporation *
(21,545 shares and 21,269
shares at December 31, 1998
and 1997, respectively) 55,004 75,409 54,036 61,148
Other Equity Securities 4,521,710 4,357,957 995,480 1,021,635
Debt Securities (maturing
in 2001 to 2003) 1,827,297 1,831,074 1,075,010 1,141,397
--------- --------- --------- ---------
Total $8,024,401 $7,752,565 $3,308,219 $3,547,236
========= ========= ========= =========
* Related entity - See Note 8.
-35-
Gross unrealized gains on debt securities amounted to
$22,975 and $66,365 as of December 31, 1998 and 1997,
respectively. Gross unrealized losses on debt securities
amounted to $19,198 and $-0- at December 31, 1998 and 1997,
respectively. Gross unrealized gains on equity securities
amounted to $111,698 and $240,470 as of December 31, 1998 and
1997, respectively. Gross unrealized losses on equity
securities amounted to $387,311 and $1,453 as of December 31,
1998 and 1997, respectively.
NOTE 5 - LOANS AND MORTGAGES PAYABLE
LOANS PAYABLE
During 1998, the Company purchased securities on margin.
The margin loan is at 8% and due on demand. At December 31,
1998, the margin loan amounted to $3,257,386 and is secured by
investment securities with a market value of $7,752,565.
MORTGAGES PAYABLE
The following is a summary of mortgages payable at
December 31, 1998 and 1997:
Interest
Property Due Date Rate 1998 1997
D & R Village 05-01-03 7.5% $ 3,550,650 $ 1,790,191
Sandy Valley 05-01-00 10.50% 843,691 862,238
Water Falls Village 01-01-03 7.625% 3,083,814 3,150,000
Various (5 properties) 12-01-00 * 7.50% 13,933,421 14,308,594
---------- ----------
TOTAL MORTGAGES PAYABLE $21,411,576 $20,111,023
========== ==========
* May be extended by the Company for an additional five
years.
At December 31, 1998 and 1997, mortgages are
collateralized by real property with a carrying value of
$21,569,697 and $20,584,479, respectively, before accumulated
depreciation and amortization. Interest costs amounting to
$154,000 and $250,000 were capitalized during 1998 and 1997,
respectively, in connection with the Company's expansion
program.
UNSECURED LINE OF CREDIT
The Company has a $1,000,000 unsecured line of credit with
Summit Bank, all of which was available at December 31, 1998.
The interest rate on this line of credit is prime plus 1/2%.
This line of credit expires on February 9, 2000.
-36-
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).
On April 28, 1998, the Company entered into a $3,600,000
mortgage payable to Summit Bank. The interest rate on this
mortgage is fixed at 7.5%. This mortgage loan is due on May 1,
2003. Proceeds of this mortgage were used to retire existing
debt and to purchase securities available for sale.
The aggregate principal payments of all mortgages payable
are scheduled as follows:
1999 - $ 577,676
2000 - 14,514,903
2001 - 177,456
2002 - 191,544
2003 - 5,949,997
----------
Total - $ 21,411,576
==========
NOTE 6 - EMPLOYEE STOCK OPTIONS
The Company maintains Stock Option Plans for officers and
key employees to purchase up to 750,000 shares of common stock. Options
may be granted any time up to December 31, 2003. No option shall be
available for exercise beyond ten years. All options are exercisable
after one year from the date of grant. The option price shall not be
below the fair market value at date of grant. Cancelled or expired
options are added back to the "pool" of shares available under the plan.
-37-
A summary of the status of the Company's stock option
plans as of December 31, 1998, 1997 and 1996 and changes during
the years then ended are as follows:
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 336,500 $ 9.97 278,000 $ 8.31 272,000 $ 7.08
Granted 58,000 11.19 107,500 12.69 63,000 10.70
Exercised ( 24,000) 6.88 ( 49,000) 6.47 ( 57,000) 5.06
Expired ( 11,000) 11.16 -0- -0- -0- -0-
------- ------- -------
Outstanding at
end of year 359,500 10.34 336,500 9.97 278,000 8.31
======= ======= =======
Options
exercisable
at end of year 301,500 229,000 215,000
======= ======= =======
Weighted-average
fair value of
options granted
during the year 1.36 1.99 2.08
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:
1998 1997 1996
Net Income As reported $ 4,201,691 $4,197,258 $ 3,729,526
Pro forma 4,036,731 4,066,414 3,603,216
Net Income Per
Share - Basic As reported .60 .63 .61
and Diluted Pro forma .57 .61 .59
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
1998, 1997 and 1996: dividend yield of 7 percent for 1998 and
5 percent for 1997 and 1996; expected volatility of 25 percent;
risk-free interest rates of 5.74 percent, 6.24 percent and 6.5
percent in 1998, 1997 and 1996, respectively; and expected
lives of five years.
-38-
The following is a summary of stock options outstanding as
of December 31, 1998:
Date of Number of Number of Option Expiration
Grant Employees Shares Price Date
05/31/94 1 25,000 9.125 05/31/99
10/18/94 5 24,000 7.125 10/18/99
01/05/95 2 75,000 8.25 01/05/00
08/03/95 3 9,000 8.375 08/03/00
08/17/95 2 15,000 8.375 08/17/00
01/10/96 1 25,000 10.625 01/10/01
06/27/96 5 27,000 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 6 26,500 11.50 06/25/02
12/15/97 1 25,000 13.0625 12/15/02
01/08/98 1 25,000 * 12.75 01/08/03
08/05/98 8 33,000 * 10.00 08/05/03
-------
359,500
=======
* Unexercisable
As of December 31, 1998, there were 358,500 shares
available for grant under these plans.
NOTE 7 - 401(K) PLAN
Any full-time employees who are over 21 years old and have
completed one year of service (as defined) are eligible for the
Company's 401(k) Plan (Plan). Under this Plan, an employee may
elect to defer his/her compensation (up to a maximum of 15%)
and have it contributed to the Plan. Employer contributions to
the Plan are at the discretion of the Company. During 1998,
1997 and 1996, the Company made matching contributions to the
Plan of up to 50% of the first 6% of employee salary. This
amounted to $38,271, $33,218 and $36,445 for 1998, 1997 and
1996, 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 approximately
10 homes located in Allentown in Memphis, Tennessee. The
Company charges Royal Green, Ltd. market rent on each occupied
home.
-39-
TRANSACTIONS WITH MONMOUTH REAL ESTATE INVESTMENT CORPORATION
During 1998, 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.
TRANSACTIONS WITH MONMOUTH CAPITAL CORPORATION AND THE MOBILE
HOME STORE, INC.
During 1998, 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
$152,935, $117,709 and $98,167, respectively for the years
ended December 31, 1998, 1997 and 1996.
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 $139,200, $90,000 and $90,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
As a REIT, the Company cannot be in the business of
selling manufactured homes for profit. During 1998, 1997 and
1996, the Company had approximately $139,000, $134,000 and
$64,000 respectively, of rental homes that were sold to MHS at
book value.
During 1998, 1997 and 1996, the Company purchased from MHS
at its cost, 10, 7 and 13 new homes, respectively totaling
$269,192, $198,374 and $298,025, respectively to be used as
rental homes.
SALARY, DIRECTORS', MANAGEMENT AND LEGAL FEES
During the years ended December 31, 1998, 1997 and 1996, salary,
Directors', management and legal fees to Mr. Eugene W. Landy and the
law firm of Landy & Landy amounted to $166,100, $183,850 and $187,350,
respectively.
-40-
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, 1998, 1997 and 1996 were $83,750, $167,500
and $174,050 respectively, relating to these agreements.
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.
Effective June 24, 1998, the Company amended the Dividend
Reinvestment and Stock Purchase Plan. Shareholders may no
longer purchase additional shares by making optional cash payments.
The dividend reinvestment feature of the Plan remains unchanged.
Amounts received and shares issued in connection with the
DRIP for the years ended December 31, 1998, 1997 and 1996 were
as follows:
1998 1997 1996
Amounts Received/Dividends
Reinvested $3,731,056 $4,347,668 $5,672,022
Number of Shares Issued 357,268 382,636 526,045
-41-
NOTE 10 - DISTRIBUTIONS
The following dividends were paid to shareholders during
the three years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
Quarter Ended Amount Per Share Amount Per Share Amount Per Share
March 31 $1,202,990 $ .175 $1,129,043 $ .175 $877,906 $ .15
June 30 1,311,297 .1875 1,144,741 .175 894,971 .15
September 30 1,340,697 .1875 1,163,882 .175 915,813 .15
December 31 1,349,639 .1875 1,182,630 .175 942,201 .15
--------- ----- --------- ---- ------- ---
$5,204,623 $ .7375 $4,620,296 $ .70 $3,630,891 $ .60
========= ===== ========= === ========= ===
Total distributions to shareholders for 1998 amounted to
$5,204,623, or $.7375 per share, of which 94.34% was taxed as
ordinary income, and 5.66% 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 16, 1998, the Company declared a dividend of
$.1875 per share to be paid on March 15, 1999 to shareholders
of record February 16, 1999.
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,
1998, 1997 and 1996.
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 the Company's
insurance carrier.
During 1998, the Company paid a judgment of $68,142 to
Stults and Associates, Inc. (Stults), an engineering firm. The
Company has filed a counterclaim for $200,000 against Stults
seeking damages based on Stults' negligence. Management
believes that the outcome of these lawsuits will not have a
material effect on the financial condition or results of
operations of the Company.
-42-
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. 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.
The Company is a Defendant in a wrongful discharge case,
Marion Kurth v. United Mobile Homes, Inc., alleging sexual
discrimination. The Company strongly contests the plaintiff's
claim. Additionally, the plaintiff had signed a release which
the Company believes is valid. The Company intends to
vigorously defend the lawsuit. 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.
The Company is also a Defendant in a wrongful discharge
case, Frank Van Fossen v. United Mobile Homes, Inc. The
Company does not see any merit to this case. Management
believes that the outcome of this lawsuit will not have a
material effect on the financial condition or results of
operations of the Company.
NOTE 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. The fair value of mortgages payable approximates their
current carrying amounts since such amounts payable are at
approximately a weighted-average current market rate of
interest.
-43-
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the years ended December 31, 1998,
1997 and 1996 for interest was $1,351,577, $1,373,445 and
$1,434,875, respectively.
During the years ended December 31, 1998, 1997 and
1996, land development costs of $1,711,778, $3,507,879
and $518,058, respectively were transferred to investment
property and equipment and placed in service.
During the years ended December 31, 1998, 1997 and 1996,
the Company had dividend reinvestments of $1,860,981, $1,824,853
and $1,452,153, respectively which required no cash transfers.
-44-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
Column A Column B Column C Column D
Initial Cost
Site, Land Capitalization
& Building Subsequent to
Description Encumbrances Land Improvements Acquisition
Memphis, TN $ -0- $ 250,000 $ 2,569,101 $ 996,208
Greenfield
Center, NY -0- 37,500 232,547 1,517,859
Vineland, NJ (3) 320,000 1,866,323 628,307
Duncansville, PA -0- 60,774 378,093 280,002
Cranberry
Township, PA -0- 181,930 1,922,931 172,397
Clifton Park, NY 3,550,650 391,724 704,021 768,055
Apollo, PA -0- 670,000 1,336,600 563,635
Zelienople, PA -0- 75,000 977,225 995,494
Millville, NJ -0- 216,000 1,166,517 2,216,233
Kutztown, PA -0- 145,000 1,695,041 2,223,367
Inkerman, PA -0- 572,500 2,151,569 1,567,629
Monticello, NY -0- 235,600 1,402,572 1,409,044
Navarre, OH -0- 290,000 1,457,673 581,577
Memphis, TN -0- 78,435 810,477 1,222,965
West Grove, PA (3) 175,000 990,515 1,225,507
Carlisle, PA -0- 37,540 198,321 619,472
Belle Vernon, PA (3) 150,000 2,491,796 1,461,811
Marion, OH -0- 236,000 785,293 1,641,465
Athens, OH -0- 67,000 1,326,800 79,508
Magnolia, OH 843,691 270,000 1,941,430 1,438,547
Jackson, NJ (3) 100,095 602,820 1,248,826
Hamburg, NY 3,083,814 424,000 3,812,000 -0-
Eatontown, NJ (3) 157,421 280,749 100,194
Caledonia, OH -0- 260,000 1,753,206 96,116
---------- --------- ---------- ----------
$ 7,478,155 $5,401,519 $32,853,620 $23,054,218
13,933,421 (3) ========= ========== ==========
----------
$21,411,576
==========
-45a-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
Column A Column E(1)(2) Column F(1)
Gross Amount at Which Carried at 12/31/98
Site, Land &
Building Accumulated
Description Land Improvements Total Depreciation
Memphis, TN $ 250,000 $ 3,565,309 $ 3,815,309 $ 1,980,774
Greenfield
Center, NY 122,865 1,665,041 1,787,906 886,438
Vineland, NJ 408,206 2,406,424 2,814,630 1,372,230
Duncansville, PA 60,774 658,095 718,869 524,963
Cranberry
Township, PA 181,930 2,095,328 2,277,258 1,268,026
Clifton Park, NY 391,724 1,472,076 1,863,800 869,804
Apollo, PA 670,000 1,900,235 2,570,235 239,387
Zelienople, PA 75,000 1,972,719 2,047,719 1,507,029
Millville, NJ 631,137 2,967,613 3,598,750 1,010,717
Kutztown, PA 422,839 3,640,569 4,063,408 810,133
Inkerman, PA 572,500 3,719,198 4,291,698 771,201
Monticello, NY 318,472 2,728,744 3,047,216 865,590
Navarre, OH 290,000 2,039,250 2,329,250 858,843
Memphis, TN 78,435 2,033,442 2,111,877 893,601
West Grove, PA 536,064 1,854,958 2,391,022 1,351,635
Carlisle, PA 145,473 709,860 855,333 632,329
Belle Vernon, PA 150,000 3,953,607 4,103,607 2,910,811
Marion, OH 236,000 2,426,758 2,662,758 709,704
Athens, OH 67,000 1,406,308 1,473,308 119,143
Magnolia, OH 270,000 3,379,977 3,649,977 1,653,041
Jackson, NJ 100,095 1,851,646 1,951,741 1,404,274
Hamburg, NY 424,000 3,832,553 4,256,553 145,767
Eatontown, NJ 135,421 402,943 538,364 355,234
Caledonia, OH 260,000 1,849,322 2,109,322 194,620
_________ __________ __________ __________
$ 6,797,935 $ 54,531,975 $ 61,329,910 $ 23,335,294
========= ========== ========== ==========
-45b-
UNITED MOBILE HOMES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
Column A Column G Column H Column I
Date of Date Depreciable
Description Construction Acquired Life
Memphis, TN Prior to 1980 1986 3 to 27.5
Greenfield Center, NY Prior to 1970 1977 3 to 27.5
Vineland, NJ 1973 1986 3 to 27.5
Duncansville, PA 1961 1979 3 to 27.5
Cranberry Township, PA 1974 1986 5 to 27.5
Clifton Park, NY 1972 1978 3 to 27.5
Apollo, PA Prior to 1980 1995 5 to 27.5
Zelienople, PA Prior to 1980 1982 3 to 27.5
Millville, NJ Prior to 1980 1985 3 to 27.5
Kutztown, PA 1971 1979 5 to 27.5
Inkerman, PA 1970 1992 5 to 27.5
Monticello, NY 1972 1988 5 to 27.5
Navarre, OH Prior to 1980 1987 5 to 27.5
Memphis, TN 1955 1985 3 to 27.5
West Grove, PA 1971 1974 5 to 27.5
Carlisle, PA 1961 1969 3 to 27.5
Belle Vernon, PA 1973 1983 3 to 27.5
Marion, OH 1950 1986 3 to 27.5
Athens, OH Prior to 1980 1996 5 to 27.5
Magnolia, OH Prior to 1980 1985 5 to 27.5
Jackson, NJ 1969 1969 3 to 27.5
Hamburg, NY Prior to 1980 1997 27.5
Eatontown, NJ 1964 1978 3 to 27.5
Caledonia, OH Prior to 1980 1996 5 to 27.5
-45c-
/-------------FIXED ASSETS------------/
(1) Reconciliation: 12/31/98 12/31/97 12/31/96
Balance - Beginning of Year $ 58,197,197 $ 48,733,757 $ 43,300,828
---------- ---------- ----------
Additions:
Acquisitions -0- 4,236,000 3,407,006
Improvements 3,512,719 5,628,858 2,410,284
Depreciation -0- -0- -0-
---------- ---------- ----------
Total Additions 3,512,719 9,864,858 5,817,290
---------- ---------- ----------
Deletions 380,006 401,418 384,361
---------- ---------- ----------
Balance - End of Year $ 61,329,910 $ 58,197,197 $ 48,733,757
========== ========== ==========
/-----ACCUMULATED DEPRECIATION-----/
Reconciliation: 12/31/98 12/31/97 12/31/96
Balance - Beginning $ 21,388,924 $ 19,646,362 $ 18,013,841
---------- ---------- ----------
Additions:
Acquisitions -0- -0- -0-
Improvements -0- -0- -0-
Depreciation 2,079,649 1,812,903 1,743,042
---------- ---------- ----------
Total Additions 2,079,649 1,812,903 1,743,042
---------- ---------- ----------
Deletions 133,279 70,341 110,521
---------- ---------- ----------
Balance - End of Year $ 23,335,294 $ 21,388,924 $ 19,646,362
========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates historical cost.
(3) Represents one mortgage note payable secured by five properties.
-45d-
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
United Mobile Homes, Inc.
We consent to incorporation by reference in the
Registration Statement (No. 333-13053) on Form S-8 of our
report dated February 19, 1999, relating to the
consolidated balance sheets of United Mobile Homes, Inc.,
as of December 31, 1998 and 1997 and the related
consolidated statements of income, shareholders' equity,
and cash flows for each of the years in the three-year
period ended December 31, 1998, and the related schedule,
which report appears in the December 31, 1998 annual
report on Form 10-K of United Mobile Homes, Inc.
/s/ KPMG LLP
Short Hills, New Jersey
March 15, 1999
-46-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED MOBILE HOMES, INC.
BY:/s/Eugene W. Landy
EUGENE W. LANDY
Chairman of the Board
Dated: March 15, 1999
Pursuant to the requirements of the Securities and
Exchange Act of 1934, this report has been duly signed
below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
Title Date
/s/Eugene W. Landy Chairman of the March 15, 1999
EUGENE W. LANDY Board and Director
/s/Samuel A. Landy President and March 15, 1999
SAMUEL A. LANDY Director
/s/Anna T. Chew Vice President and March 15, 1999
ANNA T. CHEW Chief Financial
Officer and Director
/s/Ernest V. Bencivenga Secretary/Treasurer March 15, 1999
ERNEST V. BENCIVENGA and Director
/s/Robert J. Anderson Director March 15, 1999
ROBERT J. ANDERSON
/s/Charles P. Kaempffer Director March 15, 1999
CHARLES P. KAEMPFFER
/s/Richard H. Molke Director March 15, 1999
RICHARD H. MOLKE
/s/Eugene Rothenberg Director March 15, 1999
EUGENE ROTHENBERG
/s/Robert G. Sampson Director March 15, 1999
ROBERT G. SAMPSON
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