-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R6WSCnsjFqhN5rSxy1diasudDqEJEuNiFLRzSk8GBBPl5+Df7VXpY1uHk5TvlpkK d9VbXaEVR4gpewekbmWviA== 0000752642-99-000001.txt : 19990323 0000752642-99-000001.hdr.sgml : 19990323 ACCESSION NUMBER: 0000752642-99-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED MOBILE HOMES INC CENTRAL INDEX KEY: 0000752642 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 221890929 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12690 FILM NUMBER: 99569756 BUSINESS ADDRESS: STREET 1: 125 WYCKOFF RD CITY: EATONTOWN STATE: NJ ZIP: 07724 BUSINESS PHONE: 7323893890 MAIL ADDRESS: STREET 1: P O BOX 335 STREET 2: 125 WYCKOFF ROAD CITY: EATONTOWN STATE: NJ ZIP: 07724 10-K 1 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. -9- 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. -10- 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 -47- (This page intentionally left blank) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UNITED MOBILE HOMES, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 DEC-31-1998 832,408 7,752,565 882,343 147,619 0 9,488,212 63,987,833 25,091,588 50,046,649 5,422,260 21,411,576 724,658 0 0 22,488,155 50,046,649 0 17,206,373 0 7,603,489 3,895,616 0 1,505,577 4,201,691 0 4,201,691 0 0 0 4,201,691 .60 .60
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