UMH Properties
Annual Report 2019

Plain-text annual report

UMH PROPERTIES, INC. 2019 ANNUAL REPORT U M H P R O P E R T I E S , I N C . | 2 0 1 9 A n n u a l R e p o r t UMH PROPERTIES, INC. Established in 1968 3499 Route 9 North | Freehold, NJ 07728 www.umh.reit 732.577.9997 NYSE: UMH BOARD OF DIRECTORS OFFICERS & EXECUTIVE MANAGEMENT Realtor and Partner of Butewicz Equestrian Lifestyle Real Estate at Keller Williams Princeton Real Estate President and Chief Executive Officer Founder and Managing Partner of JAC Partners, LLC Vice President, Chief Financial and Accounting Officer Vice President, Chief Financial and Accounting Officer CRAIG KOSTER EUGENE W. LANDY Chairman of the Board SAMUEL A. LANDY ANNA T. CHEW and Treasurer AMY L. BUTEWICZ Doctor of Pharmacy JEFFREY A. CARUS ANNA T. CHEW and Treasurer MATTHEW I. HIRSCH Attorney-At-Law Law Office of Matthew I. Hirsch EUGENE W. LANDY Chairman of the Board MICHAEL P. LANDY President and Chief Executive Officer of Monmouth Real Estate Investment Corporation SAMUEL A. LANDY President and Chief Executive Officer STUART LEVY Vice President of Real Estate Finance of Helaba-Landesbank Hessen-Thüringen WILLIAM E. MITCHELL Managing Partner of Strategy Capital LLC KENNETH K. QUIGLEY, JR. Attorney-At-Law President of Curry College STEPHEN B. WOLGIN General Counsel and Secretary BRETT TAFT Vice President and Chief Operating Officer REGINA BEASLEY Vice President AYAL DREIFUSS Vice President of Rental Division DANIEL LANDY Vice President CHRISTINE LINDSEY Vice President of Sales JAMES O. LYKINS Vice President of Capital Markets ROBERT VAN SCHUYVER Vice President JEFFREY WOLFE Vice President of Operations JEFFREY V. YORICK Vice President of Engineering KRISTIN LANGLEY BRITTNEE SPERLING Assistant Controller NELLI MADDEN Director of Investor Relations INDEPENDENT AUDITORS PKF O’Connor Davies, LLP 665 Fifth Avenue, New York, NY 10022 www.umh.reit EMAIL ADDRESS ir@umh.com Managing Director of U.S. Real Estate Advisors, Inc. Controller CORPORATE INFORMATION CORPORATE OFFICE 3499 Route 9 North, Freehold, NJ 07728 TRANSFER AGENT & REGISTRAR 6201 15th Avenue, Brooklyn, NY 11219 COMMON STOCK LISTING NYSE:UMH American Stock Transfer & Trust Company WEBSITE ADDRESS Our Vision UMH Properties, Inc. has a 52-year history of providing quality affordable housing for our Nation’s workforce. UMH owns and operates a portfolio of 122 manufactured home communities containing 23,100 developed homesites situated in eight states. Manufactured home communities satisfy a fundamental need – quality affordable housing. As home prices continue to rise and available home inventory continues to shrink, the supply of affordable housing becomes an ever-increasing concern. We are committed to being a part of the solution to America’s affordable housing crisis. UMH has long believed that we have an obligation to create sustainable and environmentally friendly communities that have a positive societal impact. Throughout our history, we have and continue to develop and invest in environmentally friendly initiatives that will conserve energy and natural resources. We build, upgrade and manage well-maintained communities that our residents are proud to call home. We believe in enriching the lives of the people impacted by our Company – our employees, our residents and our neighbors. On Our Cover: CINNAMON WOODS Conowingo, MD 2019 YEAR IN REVIEW 40%Total Shareholder Return CHAIRMAN’S AWARD Manufactured Housing Institute 2019 Chairman’s Award, Samuel A. Landy Manufactured Housing Institute National Industry Awards 2019 Land-Lease Community of the Year, Memphis Blues Memphis, TN 10%Community NOI Growth PIKEWOOD MANOR Elyria, OH DEAR FELLOW SHAREHOLDERS Providing quality affordable housing is now the mission of the Federal government and many state and local governments. By owning and operating manufactured home communities, UMH Properties, Inc. has been providing this housing for the past 52 years. We have learned a lot about our residents and affordable housing during that time. Most importantly, we have learned that the residents who live in our communities are hard-working people seeking, above all, housing that they can afford. These people value their privacy and deserve respect. They desire to live in well-maintained communities where their families can flourish. When we manage our communities with pride, they manage their homes and the surroundings with pride. Providing housing and quality communities for them is our pleasure. We have also learned about the fear and NIMBYism that unfortunately comes with providing affordable housing. These misperceptions result in the creation of giant barriers that greatly impede new construction for all types of housing. UMH is proud to be a leader in the ongoing efforts to break through these barriers and build more affordable housing. UMH reacted to the strong demand for affordable housing and the tremendous constraints on supply by making the decision over ten years ago to acquire communities with a substantial amount of vacancy. Purchasing communities with a large vacancy factor allowed us to add significant value by implementing our business plan of investing time and capital in improving these communities, which has resulted in improved community operations. As a result of our long history in the industry, we knew it was easier to buy communities with vacancy and fill them than to attempt the next to impossible task of greenfield development of new communities. Our community portfolio now consists of 122 communities containing 23,100 developed homesites. Our community occupancy rate is now 82%, leaving us 4,200 vacant sites to fill and grow our income. Once occupied, these sites will generate over $20 million in annual site rent plus potential sales profits from homesales. Our portfolio also contains 1,700 acres of undeveloped land. Most of this substantial land bank, much of which resides in the energy rich Marcellus and Utica shale regions, adjoins our existing communities. We believe professional planners recognize that when a municipality needs to expand its supply of affordable housing, the best location to do so is adjacent to the existing areas that are serving this need. Invariably the best developer to supply this demand is us, as UMH is the tried and true provider of quality affordable housing in the areas in which we operate. While developing our 1,700 acres of undeveloped land can OUR TEAM Page 2 2019 ANNUAL REPORT yield nearly 10,000 new homesites, this will happen gradually over time. The most direct path to increased profitability is achieved by filling our 4,200 existing sites. Our plan to fill our 4,200 vacant sites is as follows: 1. Improve the communities Most communities we acquired were virtually 100% occupied from the time they were built in the 1970’s until about 2001. The loss of manufacturing jobs then caused vacancies and foreclosures. Those vacancies resulted in very few, if any, improvements being made to these properties right up until our purchase. All of our acquisitions have a robust improvement plan the infrastructure, amenities and general well-being of the community. This is the first and most important step in improving the reputation of a property and creating a better quality of life for our residents. involving upgrades to 2. Provide brand new homes for sale or rent UMH has adapted to the stringent changes in finance laws by renting homes. These new rental homes enhance the aesthetics of our communities which results in increased demand for our homesites. 3. Provide intelligent marketing and strong management UMH strives to provide safe, high quality, affordable communities so that our residents are confident that they made the right choice in buying or renting a home from us. Our conservative principles and long-term focus form the key pillars of our 52-year track record of success. The success of our business plan is depicted by our same property results. Our same property revenue was up 7.0% or $7.8 million this year, and our same property NOI was up 6.4% or $4 million. Same property occupancy at year end was 83.8% representing a 160-basis point improvement over 2018. Our same property occupied site count increased by 333 sites and we added 677 rental homes to our same property pool. Same property operating expenses rose 7.6% as we continued to improve our communities and bring them up to our standards. The 6.4% increase in same property NOI, when valued at a 5% market cap rate equates to an increase in portfolio value of $80 million. We anticipate continued strong growth in our same property NOI going forward. SAMUEL A. LANDY MHI Innovative Housing Showcase Our Normalized FFO for 2019 was $0.63 per share which is down from $0.74 per share in 2018. The two primary causes for this decline were a $2.8 million reduction in dividend income from our REIT securities portfolio, and the added preferred dividend expense from the $100 million increase in our 6.75% Series C Preferred Stock that we issued in April of 2019. While the dividend expense from this offering hit our income statement immediately, it takes time for these funds to be fully deployed. The combination of these two items had an impact of over $5 million on our FFO, representing $0.13 per share. The capital raised from our Series C offering has now been deployed which we expect will positively contribute to our earnings in 2020. At year end, we owned $116.2 million in REIT securities earning 6.3% in dividend income. While 2019 was a difficult year for our securities portfolio as dividend income fell by $2.8 million, since 2010 our securities portfolio has generated $52.1 million in dividend income and an additional $18.7 million in realized gains. This represents a very satisfactory long- term return on capital. Additionally, our securities portfolio provides us with needed liquidity. Our issuance of preferred stock and common equity is what allows us to grow assets and income. Increasing our per share earnings is our goal and this new capital will be deployed accretively. In 2019, we acquired four communities containing 1,500 sites for $56.2 million. These acquisitions will result in long- term value creation for our common shareholders. A good example of our success in this regard is demonstrated by the recent refinancing of our Twin Page 3 2019 ANNUAL REPORT LAKEVIEW MEADOWS Lakeview, OH Oaks community. We acquired this community in 2012 for $4.4 million. Twin Oaks was acquired with a mortgage for $2.8 million at an interest rate of 5.75%. This year, the community appraised for $8.1 million and we refinanced it with a new $6.1 million mortgage at an interest rate of 3.37%. This is but one example of the substantial capital appreciation that our assets generate. Our sales operation enjoyed another good year in 2019. Gross sales increased by 14% to approximately $18 million. We sold a total of 299 homes at an average price of $60,000. We financed 64% of these homesales and now own a portfolio of approximately $36 million in chattel loans at a weighted average interest rate of approximately 8%. Demand for homesales remains strong across our portfolio. As our community expansions come online and our recently opened sales centers continue to grow their pipelines, we expect sales growth to accelerate. At year end, our total market capitalization was $1.5 billion comprised of $647 million in common equity, $457 million in debt and $405 million in preferred stock. Our pool of well over $1.0 billion in real estate assets is owned by 40 million shares of common stock. Every 1% increase in value represents $10 million or $0.25 in additional per share appreciation. Our business model generates appreciation in value for our assets each year. For 2019, UMH’s total return per common share, which is appreciation plus dividends, was approximately 40%. Looking to 2020, our profitability should increase as a result of rent increases. We also plan to add Page 4 2019 ANNUAL REPORT approximately 800 rental units which will generate additional income. Our homesales have the potential to increase our earnings further. Our expansions will also generate additional sales profits and rental income. We also will provide financing for some of the homesales at our communities and we have the ability to generate additional income streams by providing insurance for our residents. All of these sources, coupled with the refinancing of our high coupon 8% Series B Preferred Stock, which becomes redeemable later this year, can result in very meaningful increases in our earnings per share. Lastly, we are very proud of being a quality affordable housing provider. We have had several meetings with mayors and township officials who have thanked us for the work we did to improve their communities. We have been recognized by Dr. Ben Carson, our nation’s Secretary of Housing and Urban Development, and by the Manufactured Housing Institute for the quality work we do. We look forward to growing our Company and continuing to supply America with the quality affordable housing it needs. Very truly yours, SAMUEL A. LANDY President and Chief Executive Officer March 2020 LETTER FROM THE CHAIRMAN I am extremely proud of the company that we have built over our 52-year history. Our business plan has evolved over the years but generally remains the same. Our conservative stewardship of capital has built long- term shareholder value. Our decision to invest in manufactured housing all those years ago has proven to be wise. Affordable housing is possibly the most critical domestic issue facing our nation today. UMH is perfectly positioned to be an integral solution to this affordable housing crisis. In an age where environmental, social, and governance concerns are highly valued, UMH should become a preferred investment for institutional investors. Affordable housing is the number one concern socially. Our industry is finally getting the attention that it deserves from Legislators that are looking for solutions to this crisis. This past summer, UMH was honored to participate in the Inaugural Innovative Housing Showcase sponsored by HUD. We set up a manufactured home on that National Mall in Washington, D.C. This event increased awareness about our product on a national level. Since this event, Secretary Carson has been advocating for manufactured housing as a part of the solution to the affordable housing crisis. UMH has a capital stack that includes about $470 million in perpetual preferred stock requiring over $32 million in preferred dividends per year. This preferred capital has allowed us to more than triple the size of the company since 2010. Historically, a blended 6.8% cost of capital is relatively inexpensive. We are living in a world with negative interest rates and the 10-year Treasury yield around 1%. Replacing our preferred with lower cost interest debt or replacing it with high multiple common shares will result in improved earnings. In October of 2020, we anticipate calling our $95 million 8% Series B Preferred Stock. If we are able to borrow at 3%, we will be able to improve earnings by $4.5 million or $.11 per share. UMH can call our $244 million 6.75% Series C Preferred Stock in July of 2022. Assuming refinancing at 3.75%, we can generate improved earnings of $7.3 million, or $0.18 per share. UMH needs to grow our equity market capitalization in order to attract larger investors and ultimately trade at higher multiples. We project that by recapitalizing the Company, continuing to improve FFO metrics and selectively acquiring new properties, we will be able to surpass $1 billion in equity market capitalization in EUGENE W. LANDY 2022. Issuing new shares is both accretive to earnings and enhances value as scale is achieved. As a result, share prices can rise with a rise in earnings. At some time and some price, it may be accretive to our common share value to call some of our outstanding preferred shares with the proceeds of a common shares offering. The low interest returns available in the bond market make UMH common and preferred shares an attractive investment. The low interest cost currently available also allows UMH ample capital to finance existing communities, acquisitions and expansions. In 2022 and 2023, UMH has a total of approximately $100 million of existing mortgages coming due. Based on today’s in place operating results, we can refinance these properties with $200 million in new GSE mortgages. The potential for favorable restructuring of UMH’s capital stack is a factor in our business plan. The availability of financing to raise common equity capital and preferred equity capital together with record low long-term interest rates coupled with favorable economics in the housing markets provide a pathway for UMH to emulate the success of other manufactured home REITs. Financing terms can of course be different in the future. UMH can plan for but not assure that favorable refinancing conditions will occur when our preferred is callable. We look forward to continuing to deliver exceptional results for our shareholders for years to come. Very truly yours, EUGENE W. LANDY Chairman of the Board March 2020 Page 5 2019 ANNUAL REPORT WOODS EDGE West Lafayette, IN PROPERTY PORTFOLIO AND YEAR IN REVIEW OUR ACCOMPLISHMENTS “UMH’s innovative approach, focusing on value-added acquisitions and embracing rental homes, has allowed us to build one of the best portfolios of manufactured housing communities in the country.” - Samuel A. Landy, President and Chief Executive Officer During 2019, UMH has made substantial progress on multiple fronts – generating solid operating results, achieving strong growth and improving our financial position. We have: • • • • • • • Increased Rental and Related Income by 13%; Increased Community Net Operating Income (“NOI”) by 10%; Increased Same Property NOI by 6%; Increased Same Property Occupancy by 333 sites or 160 bps over the prior year period from 82.2% to 83.8%; Increased home sales by 14%; Increased our rental home portfolio by 882 homes to approximately 7,400 total rental homes, representing an increase of 14%; four containing approximately 1,500 homesites for a total cost of approximately $56.2 million; Issued and sold 4 million shares of our 6.75% Series C Preferred Stock resulting in net proceeds of approximately $96.7 million; communities • Acquired • Raised $31.5 million through our Dividend Reinvestment and Stock Purchase Plan; • Completed the financing/refinancing of four of our communities for total proceeds of approximately Portfolio Growth 30,000 25,000 20,000 15,000 10,000 5,000 0 Developed Sites No. of Communities 23,100 122 21,500 118 20,000 112 17,800 18,000 98 101 15,000 88 2014 2015 2016 2017 2018 2019 Page 8 2019 ANNUAL REPORT $44.9 million with a weighted average interest rate of 3.40%, paying off the existing $13.8 million mortgages with a weighted average rate of 5.91%; • Reduced the weighted average interest rate on our mortgages payable from 4.3% to 4.1%; • Reduced our Net Debt to Total Market • • $80 $70 $60 $50 $40 $30 $20 $10 $0 Capitalization from 37% to 29%; Increased our total market capitalization to $1.5 billion, representing an increase of 28%; and, Implemented a Preferred Stock At-The-Market Program (“ATM Program”) under which the Company may offer and sell shares of our 6.75% Series C Preferred Stock and/or 6.375% Series D Preferred Stock, having an aggregate sales price of up to $100 million. During 2019, we sold approximately 651,000 shares of our Series D Preferred for net proceeds of approximately $15.9 million, after offering expenses. We have sold additional shares of Series D Preferred under the ATM Program during 2020.” Community Net Operating Income ($ in millions) $66.9 $60.9 e s a e r c n $54.0 1 % I 2 1 $48.0 $37.7 $30.3 2014 2015 2016 2017 2018 2019 PROPERTY PORTFOLIO Acquired prior to 2018 112 communities and 20,000 sites Acquired in 2018 6 communities and 1,600 sites Acquired in 2019 4 communities and 1,500 sites 220 acres to be developed into a manufactured home community Marcellus and Utica Shale Regions Sites per State 23,088 Sites NJ - 1,006 4% NY - 1,170 5% MI - 740 3% MD - 62 1% TN - 1,750 8% PA - 7,630 33% IN - 3,991 17% OH - 6,739 29% Total Acreage 6,642 Acres Total Shale Region Acreage - 3,396 Total Non Shale Region Acreage - 3,246 Developed 2,597 39% Developed 2,354 35% Vacant 892 14% Vacant 799 12% Vacant Acreage per State 1,691 Acres MD - 67 4% TN - 92 5% NJ - 162 10% IN - 234 14% OH - 466 28% PA - 361 21% NY - 309 18% For drone video footage of our communities, visit www.umh.reit/VideoGallery. MARCELLUS AND UTICA SHALE REGIONS UMH Properties, Inc. owns approximately 3,400 acres in the Marcellus and Utica shale regions. Owning communities near these tremendous oil and gas reserves is a great benefit. These benefits are derived directly from the oil and gas industry through drilling, power and cracker plant projects and pipeline construction. We also benefit indirectly because this vast source of domestic energy will greatly reduce energy prices and thereby lower the cost of manufacturing in the Northeast and create new jobs in our regions. Our communities in these regions are currently experiencing increased demand and have improved their overall operations. As the oil and gas industry continues to develop, we expect the local economies to further strengthen, resulting in even greater occupancy and increased rents. As an added benefit, we have also started to receive oil and gas royalty payments at several properties throughout the region. Page 9 2019 ANNUAL REPORT BOARDWALK AND PARKE PLACE Elkhart, IN VALUE-ADDED ACQUISITIONS Since 2009, we have tripled the size of our property portfolio from 28 communities with approximately 6,800 developed homesites to 122 communities with 23,100 developed homesites. We are focused on acquiring value-add communities and leveraging our expertise to increase property level value. Manufactured home communities have historically been owned by operators that may not have had the capital to make the necessary improvements required to retain residents, resulting in diminished operating results. We have proven that by investing in the necessary capital improvements, implementing strong management that enforces the rules and regulations and bringing in new homes for sale and rent, we can improve operating results. The communities that we have acquired have significantly increased in value as a result of our improved operations and the impact of compressed cap rates. This increase in value is realized when we refinance the communities. 20,000 16,000 12,000 8,000 4,000 0 Number of Acquired Sites 16,346 14,851 13,236 10,950 11,239 8,176 6,564 3,826 1,727 2,099 868 2,738 2,774 1,612 1,997 1,615 1,495 289 2011 2012 2013 2014 2015 2016 2017 2018 2019 RENTAL HOME OPERATIONS Growth in Rental Home Portfolio 7,400 6,500 5 % 8 s - 1 o m e 5,600 e o s a e r c n I 0 h 0 f 4 , 8 4,700 3,700 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,600 2,000 1,000 0 2014 2015 2016 2017 2018 2019 A key driver of the success of our value-added acquisition program is our rental home operations. The inability to satisfy down payment requirements, more stringent credit terms and steadily increasing home prices, continue to create hurdles for would-be homebuyers. Rental homes are the most efficient way to improve occupancy and increase revenue. For many residents this is their first experience in a manufactured housing community. Often, these first-time renters are pleased with their experience and ultimately end up becoming long-term residents. Over the past six years, UMH has been increasing its rental home portfolio, and as of year-end 2019, owned 7,400 rental homes. We plan to add approximately 800 rental homes in 2020. Our rental homes are high- quality and built to withstand the typical wear and tear of the rental business. They provide more stable income streams than comparable apartments. Our rental home turnover rate is approximately 30%. Our average cost per unit is under $600. Page 10 2019 ANNUAL REPORT SALES OPERATIONS Our sales operation has the potential to become a major profit center for UMH. In 2019, we posted our fourth consecutive year of double-digit sales growth with sales improving by 14%. We are optimistic that we can continue to build upon our recent success. Historically, there were thousands of manufactured housing dealers across the nation. When shipments fell from 250,000 homes per year to less than 50,000, most of these dealerships closed. UMH is leveraging its expertise to reopen dealerships in areas where we believe there is strong demand for sales both within our communities and on customers’ privately-owned land. Our geographic footprint allows us to leverage our communities’ proximity to one another to drive demand to and from our sales centers. Potential homebuyers can tour model homes, browse floor plans and hand-select custom features. $20 $16 $12 $8 $4 $0 Increase in Sales Sales ($ in millions) # of Homes Sold $18.0 299 $15.8 295 $10.8 222 $7.5 134 $6.8 135 $8.5 170 2014 2015 2016 2017 2018 2019 400 300 200 100 0 VALUE-ADDED EXPANSIONS Sites Engineered for Expansion 786 767 456 537 2020 2021 2022 1,000 800 600 400 200 0 UMH owns 1,700 acres of vacant land adjoining its existing manufactured housing communities. The most likely place to build new manufactured home sites is next to an existing manufactured home community. We have the potential to build 6,800 home sites on our vacant land. These potential sites provide UMH with a runway to organically improve its earnings while upgrading the quality of the community and improving the efficiency of operations. In 2020, we expect to obtain approvals at over 750 sites and complete construction of 350 sites. All of our expansions are located at successful communities that should generate profitable sales and add value to the existing community. PINE MANOR Carlisle, PA Page 11 2019 ANNUAL REPORT ESG HIGHLIGHTS Environmental, social and corporate governance (“ESG”) responsibilities have become hot button topics and are at the forefront of the minds of many people. UMH Properties, Inc. is pleased to report that these attributes have been among our core principles for decades and a part of our DNA since inception. We recognize our obligation, as well as that of the industry, to reduce our impact on the environment and to conserve our natural resources. UMH believes in enriching the lives of the people impacted by our Company, including our employees, residents, neighbors and the rest of society. We are also committed to integrating strong corporate governance practices across our Company. We are proud of all our efforts, some of which are highlighted below. For more information, we encourage our investors to review the Environmental, Social and Governance Report posted on the Company’s website at www.umh.reit. 3 4 2 1 UMH Stage Home on the Hill Manufactured by Cavco Industries, Inc. 1 The company has been heavily investing in our communities by submetering our homes which has significantly reduced water consumption by promoting water conservation. We also continually upgrade communities’ infrastructures by replacing water lines to eliminate leakage and conserve water. our 2 Many of the homes in our communities are Energy Star Certified and/or contain Energy Star appliances which reduce energy consumption and help our residents save on expenses. 3 We have partnered with local utility to provide residents, at no cost, with LED companies lightbulbs, low-flow showerheads, energy efficient faucet aerators, weatherization materials and water heater pipe insulation. 4 Manufactured housing results in less waste than the amount produced from building homes on site. Homes that are built in a factory are more energy efficient. Special Strides Monroe, NJ Page 12 2019 ANNUAL REPORT INNOVATIVE HOUSING SHOWCASE Innovative Housing Showcase Washington, D.C. is dedicated to “UMH supporting and advancing affordable housing on a national level.” - Samuel A. Landy, President and Chief Executive Officer UMH owns and invests in communities located in and in close proximity to opportunity zones. This helps spur economic development and job creation in these distressed locations which will aid in positively transforming these areas. Ben S. Carson, Sr. U.S. Secretary of Housing and Urban Development Samuel A. Landy President and Chief Executive Officer 38 Million AFFORDABLE HOUSING CRISIS 3.6 Million Up to 50% Households are considered cost burdened, spending over 30% of their household income on housing.(1) Affordable housing units are needed to bridge the gap between the supply and demand of affordable housing in the United States.(2) Less cost for factory-built housing than conventional, site-built housing due to automated equipment and economic assembly lines. Over 60,000 $765 Residents have chosen to live in UMH communities because of the benefits provided by our product. Per month was UMH’s average total rent for a rental home in 2019 and $447 was UMH’s average monthly site rent for homeowners. The average nationwide rent for apartments in 2019 was $1,463. (3) (1) The Joint Center for Housing Studies of Harvard University, “The State Of The Nation’s Housing 2018”, March 2019. (2) National Low Income Housing Coalition, “The GAP A Shortage of Affordable Housing”, March 2019. (3) Yardi Matrix Multifamily National Report, January 2020. Page 13 2019 ANNUAL REPORT COMPANY GROWTH 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 ) s n o i l l i m n i $ ( Equity Market Capitalization Preferred Equity Total Debt $1,509 $1,157 $1,182 e s a e r I n c 2 9 1 % $752 $980 $495 $582 $386 2012 2013 2014 2015 2016 2017 2018 2019 RECENT SHARE ACTIVITY First Quarter Second Quarter Third Quarter Fourth Quarter High $14.31 14.38 14.16 16.32 2019 Low $11.37 12.24 11.66 14.09 Distribution $0.18 0.18 0.18 0.18 $0.72 High $14.96 15.40 16.69 15.70 2018 Low $11.38 12.77 14.89 11.14 Distribution $0.18 0.18 0.18 0.18 $0.72 2019 2018 2017 2016 2015 2014 Share Volume Opening Price Closing Price Dividend Paid Total Return 40,567,400 47,226,100 40,160,500 23,498,900 17,683,400 18,773,700 $11.84 $15.73 14.90 15.05 10.12 9.55 9.42 11.84 14.90 15.05 10.12 9.55 $0.72 0.72 0.72 0.72 0.72 0.72 40.21% -16.24% 3.69% 59.0% 14.1% 9.1% UMH Properties, Inc. common shares are traded on the New York Stock Exchange (NYSE:UMH). Page 14 2019 ANNUAL REPORT FINANCIAL HIGHLIGHTS (dollars in thousands except per share amounts) (unaudited) Operating Information Number of Communities Number of Sites Rental and Related Income Community Operating Expenses (1) Community NOI (1) Expense Ratio (1) Sales of Manufactured Homes Number of Homes Sold Number of Rentals Added Net Income (Loss) (2) Net Income (Loss) Attributable to Common Shareholders (2) Adjusted EBITDA FFO Attributable to Common Shareholders Normalized FFO Attributable to Common Shareholders Shares Outstanding and Per Share Data Weighted Average Shares Outstanding Basic Diluted Net Income (Loss) Attributable to Common Shareholders per Share (2) Basic Diluted FFO per Share - Diluted Normalized FFO per Share - Diluted Dividends per Common Share Balance Sheet Total Assets Total Liabilities Market Capitalization Total Debt, Net of Unamortized Debt Issuance Costs Equity Market Capitalization Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Total Market Capitalization $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ December 31, 2019 December 31, 2018 122 23,088 128,611 61,154 67,457 47.5% 17,980 299 882 27,750 2,566 67,681 24,573 25,207 39,909 40,203 0.07 0.06 0.61 0.63 0.72 1,025,453 479,114 457,344 646,976 95,030 243,750 66,268 1,509,368 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 118 21,510 113,833 52,949 60,884 46.5% 15,754 295 905 (36,216) (56,532) 63,541 26,965 27,470 36,871 36,871 (1.53) (1.53) 0.72 0.74 0.72 880,902 456,204 439,078 453,714 95,030 143,750 50,000 1,181,572 (1) Excludes a one-time settlement of a utility billing dispute of $375,000 over a prior ten-year period and emergency windstorm tree removal expenses in three communities totaling $179,000 for the year ended December 31, 2019. (2) Includes increase (decrease) in fair value of marketable securities. Page 15 2019 ANNUAL REPORT SAME PROPERTY STATISTICS Same Property Performance ($ in millions) Same Property Occupancy 2018 2019 2017 2018 2019 $119.7 $111.9 $140 $120 $100 $80 $60 $40 $20 $0 85% 84% 83% 84.0% 83.8% 83.6% 83.1% $66.5 $62.5 82% 81.9% 81.4% $53.2 $49.4 82.2% 82.3% 82.2% 81% 80% 79% Rental and Related Income Community Operating Expenses(1) Community NOI Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Total Sites Occupied Sites Occupancy % Number of Properties Total Rentals Occupied Rentals Rental Occupancy Monthly Rent Per Site Monthly Rent Per Home Including Site December 31, 2019 December 31, 2018 19,927 16,695 83.8% 112 6,921 6,438 93.0% $457 $769 19,903 16,362 82.2% 112 6,244 5,776 92.5% $441 $746 (1) Excludes a one-time settlement of a utility billing dispute of $375,000 over a prior ten-year period and $53,000 from emergency windstorm damage cleanup for the year ended December 31, 2019. Page 16 2019 ANNUAL REPORT COMPANY 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ____________________ to _____________________ Commission File Number 001-12690 UMH Properties, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification number) Maryland 22-1890929 3499 Route 9, Suite 3C, Freehold, New Jersey (Address of principal executive offices) 07728 (Zip code) Registrant's telephone number, including area code (732) 577-9997 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.10 par value 8.0% Series B Cumulative Redeemable Preferred Stock, $.10 par value 6.75% Series C Cumulative Redeemable Preferred Stock, $.10 par value 6.375% Series D Cumulative Redeemable Preferred Stock, $.10 par value Trading Symbol(s) UMH UMH PRB Name of exchange on which registered New York Stock Exchange New York Stock Exchange UMH PRC UMH PRD New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ___Yes X No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ___Yes X No 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. X Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). X Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Accelerated filer Smaller reporting company Emerging growth company X If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes X No Based upon the assumption that directors and executive officers of the registrant are not affiliates of the registrant, the aggregate market value of the voting stock of the registrant held by nonaffiliates of the registrant at June 30, 2019 was $498.3 million. Presuming that such directors and executive officers are affiliates of the registrant, the aggregate market value of the voting stock of the registrant held by nonaffiliates of the registrant at June 30, 2019 was $460.4 million. The number of shares outstanding of issuer's common stock as of February 29, 2020 was 41,203,958 shares. Documents Incorporated by Reference: -Part III incorporates certain information by reference from the Registrant’s definitive proxy statement for the 2020 annual meeting of shareholders, which will be filed no later than 120 days after the close of the Registrant’s fiscal year ended December 31, 2019. -Exhibits incorporated by reference are listed in Part IV; Item 15 (a) (3). -1- TABLE OF CONTENTS PART I .......................................................................................................................................................................... 3 Item 1 – Business ..................................................................................................................................................... 3 Item 1A – Risk Factors............................................................................................................................................. 6 Item 1B – Unresolved Staff Comments ................................................................................................................. 19 Item 2 – Properties ................................................................................................................................................. 19 Item 3 – Legal Proceedings .................................................................................................................................... 29 Item 4 – Mine Safety Disclosures .......................................................................................................................... 29 PART II ...................................................................................................................................................................... 29 Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .............................................................................................................................................. 29 Item 6 – Selected Financial Data ............................................................................................................................ 31 Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations ................... 32 Item 7A – Quantitative and Qualitative Disclosures about Market Risk ............................................................... 46 Item 8 – Financial Statements and Supplementary Data ........................................................................................ 47 Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................... 48 Item 9A – Controls and Procedures ....................................................................................................................... 48 Item 9B – Other Information .................................................................................................................................. 50 PART III..................................................................................................................................................................... 50 Item 10 – Directors, Executive Officers and Corporate Governance ..................................................................... 50 Item 11 – Executive Compensation ........................................................................................................................ 50 Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............................................................................................................................................................. 50 Item 13 – Certain Relationships and Related Transactions, and Director Independence ....................................... 50 Item 14 – Principal Accounting Fees and Services ................................................................................................ 50 PART IV ..................................................................................................................................................................... 50 Item 15 – Exhibits, Financial Statement Schedules ............................................................................................... 51 Item 16 – Form 10-K Summary ............................................................................................................................. 55 SIGNATURES ......................................................................................................................................................... 109 -2- Item 1 – Business General Development of Business PART I UMH Properties, Inc. (“UMH”), together with its predecessors and consolidated subsidiaries, are referred to herein as “we”, “us”, “our”, or “the Company”, unless the context requires otherwise. UMH is a self-administered and self-managed qualified real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code (the “Code”). The Company elected REIT status effective January 1, 1992 and intends to maintain its qualification as a REIT in the future. As a qualified REIT, with limited exceptions, the Company will not be taxed under Federal and certain state income tax laws at the corporate level on taxable income that it distributes to its shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code. The Company was incorporated in the state of New Jersey in 1968. On September 29, 2003, the Company changed its state of incorporation from New Jersey to Maryland by merging with and into a Maryland corporation. Narrative Description of Business The Company’s primary business is the ownership and operation of manufactured home communities – leasing manufactured homesites to private manufactured home owners. The Company also leases homes to residents, and through its wholly-owned taxable REIT subsidiary, UMH Sales and Finance, Inc. (“S&F”), conducts manufactured home sales in its communities. As of December 31, 2019, the Company owned and operated 122 manufactured home communities containing approximately 23,100 developed homesites. These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland. A manufactured home community is designed to accommodate detached, single-family manufactured homes. These manufactured homes are produced off-site by manufacturers and installed on sites within the communities. These homes may be improved with the addition of features constructed on-site, including garages, screened rooms and carports. Manufactured homes are available in a variety of designs and floor plans, offering many amenities and custom options. Each manufactured home owner leases the site on which the home is located from the Company. The Company owns the underlying land, utility connections, streets, lighting, driveways, common area amenities and other capital improvements and is responsible for enforcement of community guidelines and maintenance. Manufactured homes are accepted by the public as a viable and economically attractive alternative to conventional site-built single-family housing. The affordability of the modern manufactured home makes it a very attractive housing alternative. Depending on the region of the country, prices per square foot for a new manufactured home average up to 50 percent less than a comparable site-built home, excluding the cost of land. This is due to a number of factors, including volume purchase discounts and inventory control of construction materials and control of all aspects of the construction process, which is generally a more efficient and stream-lined process as compared to a site-built home. Modern residential land lease communities are similar to typical residential subdivisions containing central entrances, paved well-lit streets, curbs and gutters. Generally, modern manufactured home communities contain buildings for recreation, green areas, and other common area facilities, all of which 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 in some manufactured home communities, while other communities supply these facilities on-site. Typically, our leases are on an annual or month-to-month basis, renewable upon the consent of both parties. The community manager interviews prospective residents, collects rent and finance payments, ensures compliance with community regulations, maintains public areas and community facilities and is responsible for the overall -3- appearance of the community. The homeowner is responsible for the maintenance of the home and leased site. As a result, our capital expenditures tend to be less significant relative to multi‑family rental apartments. Manufactured home communities produce predictable income streams and provide protection from inflation due to the ability to annually increase rents. Many of our communities compete with other manufactured home community properties located in the same or nearby markets that are owned and operated by other companies in our business. We generally monitor the rental rates and other terms being offered by our competitors and consider this information as a factor in determining our own rental rates. In addition to competing with other manufactured home community properties, our communities also compete with alternative forms of housing (such as apartments and single-family homes). In connection with the operation of its communities, UMH also leases homes to prospective tenants. As of December 31, 2019, UMH owned a total of 7,400 rental homes, representing approximately 32% of its developed homesites. These rental homes are 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 from both the home and the site which might otherwise be non-income producing. Inherent in the operation of a manufactured home community is the development, redevelopment, and expansion of our communities. The Company sells and finances the sale of manufactured homes in our communities through S&F. S&F was established to potentially enhance the value of our communities. The home sales business is operated like other homebuilders with sales centers, model homes, an inventory of completed homes and the ability to supply custom designed homes based upon the requirements of the new homeowners. In addition, our sales centers earn a profit by selling homes to customers for placement on their own private land. Investment and Other Policies The Company may invest in improved and unimproved real property and may develop unimproved real property. Such properties may be located throughout the U.S. , but the Company has concentrated on the Northeast and Midwest. Since 2009, we have tripled the size of our property portfolio from 28 communities with approximately 6,800 developed homesites to 122 communities with over 23,100 developed homesites. We are focused on acquiring communities with significant upside potential and leveraging our expertise to build long-term capital appreciation. Our growth strategy involves purchasing well located communities in our target markets, including the energy rich Marcellus and Utica Shale regions. As part of our growth strategy, we also intend to evaluate potential opportunities to expand into additional geographic markets, including certain markets in the southeastern United States. The Company also evaluates our properties for expansion opportunities. Development of the additional acreage available for expansion allows us to leverage existing communities and amenities. We believe our ability to complete expansions translates to greater value creation and cash flow through operating efficiencies. The Company has approximately 1,700 acres of additional land potentially available for future development. See PART I, Item 2 – Properties, for a list of our additional acreage. The Company seeks to finance acquisitions with the most appropriate available source of capital, including purchase money mortgages or other financing, which may be first liens, wraparound mortgages or subordinated indebtedness, sales of investments, and issuance of additional equity securities. In connection with its ongoing activities, the Company may issue notes, mortgages or other senior securities. The Company intends to use both secured and unsecured lines of credit. The Company may issue securities for property; however, this has not occurred to date. The Company may repurchase or reacquire its shares from time to time if, in the opinion of the Board of Directors, such acquisition is advantageous to the Company. During the year ended December 31, 2019, the Company repurchased 20,000 shares of its common stock at a cost of $237,000. -4- The Company also owns a portfolio of marketable REIT securities, which is currently at 9.2% of undepreciated assets (which is the Company’s total assets excluding accumulated depreciation). The Company generally limits the portfolio to no more than approximately 15% of its undepreciated assets. These liquid real estate holdings provide diversification, additional liquidity and income, and serves as a proxy for real estate when more favorable risk adjusted returns are not available. The Company, from time to time, may purchase these securities on margin when the interest and dividend yields exceed the cost of funds. Regulations, Insurance and Property Maintenance and Improvement Manufactured home communities are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, clubhouses and other common areas, and regulations relating to operating water and wastewater treatment facilities at several of our communities. We believe that each community has all material operating permits and approvals. Our properties are insured against risks that may cause property damage and business interruption including events such as fire, business interruption, general liability and if applicable, flood. Our insurance policies contain deductible requirements, coverage limits and particular exclusions. It is the policy of the Company to maintain adequate insurance coverage on all of our properties; and, in the opinion of management, all of our properties are adequately insured. We also obtain title insurance insuring fee title to the properties in an aggregate amount which we believe to be adequate. State and local rent control laws in certain jurisdictions may dictate the structure of rent increases and limit our ability to recover increases in operating expenses and the costs of capital improvements. In 2019, the State of New York enacted the Housing Stability and Tenant Protection Act of 2019, which, among other things, set maximum collectible rent increases. Enactment of such laws has been considered at various times in other jurisdictions. We presently expect to continue to maintain properties, and may purchase additional properties, in markets that are either subject to rent control or in which rent related legislation exists or may be enacted. 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 2020 will be approximately $19 million. Information about our Executive Officers The following table sets forth information with respect to the executive officers of the Company as of December 31, 2019: Name Eugene W. Landy Samuel A. Landy Anna T. Chew Craig Koster Brett Taft Number of Employees Age 86 59 61 44 30 Position Chairman of the Board of Directors and Founder President and Chief Executive Officer Vice President, Chief Financial and Accounting Officer and Treasurer General Counsel and Secretary Vice President and Chief Operating Officer As of March 5, 2020, the Company had approximately 420 employees, including Officers. During the year, the Company hires additional part-time and full-time temporary employees as grounds keepers, lifeguards, and for emergency repairs. Available Information Additional information about the Company can be found on the Company’s website which is located at www.umh.reit. Information contained on or hyperlinked from our website is not incorporated by reference into and -5- should not be considered part of this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission (“SEC”). The Company makes available, free of charge, on or through its website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Item 1A – Risk Factors (cid:2) Our(cid:2)business(cid:2)faces(cid:2)many(cid:2)risks.(cid:2)(cid:2)The(cid:2)following(cid:2)risk(cid:2)factors(cid:2)may(cid:2)not(cid:2)be(cid:2)the(cid:2)only(cid:2)risks(cid:2)we(cid:2)face(cid:2)but(cid:2)address(cid:2)what(cid:2) we(cid:2)believe(cid:2)may(cid:2)be(cid:2)the(cid:2)material(cid:2)risks(cid:2)concerning(cid:2)our(cid:2)business(cid:2)at(cid:2)this(cid:2)time.(cid:2)(cid:2)If(cid:2)any(cid:2)of(cid:2)the(cid:2)risks(cid:2)discussed(cid:2)in(cid:2)this(cid:2)report(cid:2) were(cid:2)to(cid:2)occur,(cid:2)our(cid:2)business,(cid:2)prospects,(cid:2)financial(cid:2)condition,(cid:2)results(cid:2)of(cid:2)operation(cid:2)and(cid:2)our(cid:2)ability(cid:2)to(cid:2)service(cid:2)our(cid:2)debt(cid:2) and(cid:2)make(cid:2)distributions(cid:2)to(cid:2)our(cid:2)shareholders(cid:2)could(cid:2)be(cid:2)materially(cid:2)and(cid:2)adversely(cid:2)affected(cid:2)and(cid:2)the(cid:2)market(cid:2)price(cid:2)per(cid:2)share(cid:2) of(cid:2) our(cid:2) stock(cid:2) could(cid:2) decline(cid:2) significantly.(cid:2) Some(cid:2) statements(cid:2) in(cid:2) this(cid:2) report,(cid:2) including(cid:2) statements(cid:2) in(cid:2) the(cid:2) following(cid:2) risk(cid:2) factors,(cid:2)constitute(cid:2)forward­looking statements. Please refer to the section entitled “Cautionary Statement Regarding Forward­Looking Statements.” Real Estate Industry Risks (cid:2) (cid:2) General(cid:2)economic(cid:2)conditions(cid:2)and(cid:2)the(cid:2)concentration(cid:2)of(cid:2)our(cid:2)properties(cid:2)in(cid:2)New(cid:2)Jersey,(cid:2)New(cid:2)York,(cid:2)Ohio,(cid:2) Pennsylvania,(cid:2)Tennessee,(cid:2)Indiana,(cid:2)Michigan(cid:2)and(cid:2)Maryland(cid:2)may(cid:2)affect(cid:2)our(cid:2)ability(cid:2)to(cid:2)generate(cid:2)sufficient(cid:2)revenue.(cid:2)(cid:2) The market and economic conditions in our current markets may significantly affect manufactured home occupancy or rental rates. Occupancy and rental rates, in turn, may significantly affect our revenues, and if our communities do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to pay or refinance our debt obligations could be adversely affected. As a result of the geographic concentration of our properties in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland, we are exposed to the risks of downturns in the local economy or other local real estate market conditions which could adversely affect occupancy rates, rental rates, and property values in these markets. Other factors that may affect general economic conditions or local real estate conditions include: (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) the national and local economic climate, including that of the energy-market dependent Marcellus and Utica Shale regions, may be adversely impacted by, among other factors, potential restrictions on drilling, plant closings, and industry slowdowns; local real estate market conditions such as the oversupply of manufactured homesites or a reduction in demand for manufactured homesites in an area; the number of repossessed homes in a particular market; the lack of an established dealer network; the rental market which may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates; the safety, convenience and attractiveness of our properties and the neighborhoods where they are located; zoning or other regulatory restrictions; competition from other available manufactured home communities and alternative forms of housing (such as apartment buildings and single-family homes); -6- (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) our ability to provide adequate management, maintenance and insurance; a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19); increased operating costs, including insurance premiums, real estate taxes and utilities; and the enactment of rent control laws or laws taxing the owners of manufactured homes. Our income would also be adversely affected if tenants were unable to pay rent or if sites were unable to be rented on favorable terms. If we were unable to promptly relet or renew the leases for a significant number of sites, or if the rental rates upon such renewal or reletting were significantly lower than expected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures associated with each property (such as real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in income from the property. We(cid:2)may(cid:2)be(cid:2)unable(cid:2)to(cid:2)compete(cid:2)with(cid:2)our(cid:2)larger(cid:2)competitors(cid:2)for(cid:2)acquisitions,(cid:2)which(cid:2)may(cid:2)increase(cid:2)prices(cid:2)for(cid:2) communities. The real estate business is highly competitive. We compete for manufactured home community investments with numerous other real estate entities, such as individuals, corporations, REITs and other enterprises engaged in real estate activities. In many cases, the competing competitors may be larger and better financed than we are, making it difficult for us to secure new manufactured home community investments. Competition among private and institutional purchasers of manufactured home community investments has resulted in increases in the purchase price paid for manufactured home communities and consequently higher fixed costs. To the extent we are unable to effectively compete in the marketplace, our business may be adversely affected. (cid:2) We(cid:2) may(cid:2) not(cid:2) be(cid:2)able(cid:2) to(cid:2) integrate(cid:2) or(cid:2) finance(cid:2) our(cid:2) acquisitions(cid:2) and(cid:2) our(cid:2) acquisitions(cid:2) may(cid:2) not(cid:2) perform(cid:2) as(cid:2) expected.(cid:2) (cid:2) We acquire and intend to continue to acquire manufactured home communities on a select basis. Our acquisition activities and their success are subject to risks, including the following: (cid:2)(cid:2) if we enter into an acquisition agreement for a property, it is usually subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction, which may not be satisfied; (cid:2)(cid:2) we may be unable to finance acquisitions on favorable terms; (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) acquired properties may fail to perform as expected; the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates; acquired properties may be located in new markets where we face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures; and (cid:2)(cid:2) we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations. If any of the above were to occur, our business and results of operations could be adversely affected. In addition, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were to be asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow. -7- We(cid:2)may(cid:2)be(cid:2)unable(cid:2)to(cid:2)integrate,(cid:2)finance(cid:2)or(cid:2)accurately(cid:2)estimate or(cid:2)anticipate(cid:2)costs(cid:2)and(cid:2)timing(cid:2)associated(cid:2) with(cid:2) expansion(cid:2) activities. We periodically consider expansion of existing communities and development of new communities. Our expansion and development activities are subject to risks such as: (cid:2)(cid:2) we may not be able to obtain financing with favorable terms for community development which may make us unable to proceed with the development; (cid:2)(cid:2) we may be unable to obtain, or face delays in obtaining, necessary zoning, building and other governmental permits and authorizations, which could result in increased costs and delays, and even require us to abandon development of the community entirely if we are unable to obtain such permits or authorizations; (cid:2)(cid:2) we may abandon development opportunities that we have already begun to explore and as a result we may not recover expenses already incurred in connection with exploring such development opportunities; (cid:2)(cid:2) we may be unable to complete construction and lease‑up of a community on schedule resulting in increased debt service expense and construction costs; (cid:2)(cid:2) we may incur construction and development costs for a community which exceed our original estimates due to increased materials, labor or other costs, which could make completion of the community uneconomical and we may not be able to increase rents to compensate for the increase in development costs which may impact our profitability; (cid:2)(cid:2) we may be unable to secure long‑term financing on completion of development resulting in increased debt service and lower profitability; and (cid:2)(cid:2) occupancy rates and rents at a newly developed community may fluctuate depending on several factors, including market and economic conditions, which may result in the community not being profitable. If any of the above were to occur, our business and results of operations could be adversely affected. We(cid:2)may(cid:2)be(cid:2)unable(cid:2)to(cid:2)sell(cid:2)properties(cid:2)when(cid:2)appropriate(cid:2)because(cid:2)real(cid:2)estate(cid:2)investments(cid:2)are(cid:2)illiquid. Real estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio promptly in response to changes in economic or other conditions. In addition, the Code limits our ability to sell our properties. The inability to respond promptly to changes in the performance of our property portfolio could adversely affect our financial condition and ability to service our debt and make distributions to our stockholders. Our(cid:2)ability(cid:2)to(cid:2)sell(cid:2)manufactured(cid:2)homes(cid:2)may(cid:2)be(cid:2)affected(cid:2)by(cid:2)various(cid:2)factors,(cid:2)which(cid:2)may(cid:2)in(cid:2)turn(cid:2)adversely(cid:2) affect(cid:2) our(cid:2) profitability. S&F operates in the manufactured home market offering homes for sale to tenants and prospective tenants of our communities. The market for the sale of manufactured homes may be adversely affected by the following factors: (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) downturns in economic conditions which adversely impact the housing market; an oversupply of, or a reduced demand for, manufactured homes; the ability of manufactured home manufacturers to adapt to change in the economic climate and the availability of units from these manufacturers; the difficulty facing potential purchasers in obtaining affordable financing as a result of heightened lending criteria; and -8- (cid:2)(cid:2) an increase or decrease in the rate of manufactured home repossessions which provide aggressively priced competition to new manufactured home sales. Any of the above listed factors could adversely impact our rate of manufactured home sales, which would result in a decrease in profitability. Licensing(cid:2) laws(cid:2) and(cid:2) compliance(cid:2) could(cid:2) affect(cid:2) our(cid:2) profitability.(cid:2) (cid:2)We are subject to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), which requires that we obtain appropriate licenses pursuant to the Nationwide Mortgage Licensing System & Registry in each state where we conduct business. There are extensive federal and state requirements mandated by the SAFE Act and other laws pertaining to financing, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), and there can be no assurance that we will obtain or renew our SAFE Act licenses, which could result in fees and penalties and have an adverse impact on our ability to continue with our home financing activities. Costs(cid:2) associated(cid:2) with(cid:2) taxes(cid:2) and(cid:2) regulatory(cid:2) compliance(cid:2) may(cid:2) reduce(cid:2) our(cid:2) revenue. We are subject to significant regulation that inhibits our activities and may increase our costs. Local zoning and use laws, environmental statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us to modify our properties at a substantial cost and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We cannot predict what requirements may be enacted or amended or what costs we will incur to comply with such requirements. Costs resulting from changes in real estate laws, income taxes, service or other taxes may adversely affect our funds from operations and our ability to pay or refinance our debt. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures, which would adversely affect our business and results of operations. Laws and regulations also govern the provision of utility services. Such laws regulate, for example, how and to what extent owners or operators of property can charge renters for provision of utilities. Such laws can also regulate the operations and performance of utility systems and may impose fines and penalties on real property owners or operators who fail to comply with these requirements. The laws and regulations may also require capital investment to maintain compliance. (cid:2) Rent(cid:2)control(cid:2)legislation(cid:2)may(cid:2)harm(cid:2)our(cid:2)ability(cid:2)to(cid:2)increase(cid:2)rents. State and local rent control laws in certain jurisdictions may limit our ability to increase rents and to recover increases in operating expenses and the costs of capital improvements. In 2019, the State of New York enacted the Housing Stability and Tenant Protection Act of 2019, which, among other things, set maximum collectible rent increases. Rent control also affects two of our manufactured home communities in New Jersey. Enactment of such laws has been considered at various times in other jurisdictions. We presently expect to continue to maintain properties, and may purchase additional properties, in markets that are either subject to rent control or in which rent related legislation exists or may be enacted. Environmental(cid:2) liabilities(cid:2) could(cid:2) affect(cid:2) our(cid:2) profitability. Under various federal, state and local laws, (cid:2) ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous substances at, on, under or in such property, as well as certain other potential costs relating to hazardous or toxic substances. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous substances. A conveyance of the property, therefore, does not relieve the owner or operator from liability. As a current or former owner and operator of real estate, we may be required by law to investigate and clean up hazardous substances released at or from the properties we currently own or operate or have in the past owned or operated. We may also be liable to the government or to third parties for property damage, investigation costs and cleanup costs. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination. Contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as collateral. Persons who arrange for the disposal or treatment of hazardous substances also may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility owned or operated by another person. In addition, certain environmental laws impose liability for the management and disposal of asbestos- containing materials and for the release of such materials into the air. These laws may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials. -9- In connection with the ownership, operation, management, and development of real properties, we may be considered an owner or operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also may be liable for governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous substances at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities. We are not aware of any environmental liabilities relating to our investment properties which would have a material adverse effect on our business, assets, or results of operations. However, we cannot assure you that environmental liabilities will not arise in the future and that such liabilities will not have a material adverse effect on our business, assets or results of operation. Of the 122 manufactured home communities we currently operate, forty-five have their own wastewater treatment facility or water distribution system, or both. At these locations, we are subject to compliance with monthly, quarterly and yearly testing for contaminants as outlined by the individual state’s Department of Environmental Protection Agencies. Currently, our community-owned manufactured homes are not subject to radon or asbestos monitoring requirements. Additionally, in connection with the management of the properties or upon acquisition or financing of a property, the Company authorizes the preparation of Phase I or similar environmental reports (which involves general inspections without soil sampling or ground water analysis) completed by independent environmental consultants. Based upon such environmental reports and the Company’s ongoing review of its properties, as of the date of this Annual Report, the Company is not aware of any environmental condition with respect to any of its properties which it believes would be reasonably likely to have a material adverse effect on its financial condition and/or results of operations. However, these reports cannot reflect conditions arising after the studies were completed, and no assurances can be given that existing environmental studies reveal all environmental liabilities, that any prior owner or operator of a property or neighboring owner or operator did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any one or more properties. Some(cid:2)of(cid:2)our(cid:2)properties(cid:2)are(cid:2)subject(cid:2)to(cid:2)potential(cid:2)natural(cid:2)or(cid:2)other(cid:2)disasters. Certain of our manufactured home communities are located in areas that may be subject to natural disasters, including our manufactured home communities in flood plains or in areas that may be adversely affected by tornados, as well as our manufactured home communities in coastal regions that may be adversely affected by increases in sea levels or in the frequency or severity of hurricanes, tropical storms or other severe weather conditions. The occurrence of natural disasters may delay redevelopment or development projects, increase investment costs to repair or replace damaged properties, increase future property insurance costs and negatively impact the tenant demand for lease space. To the extent insurance is unavailable to us or is unavailable on acceptable terms, or our insurance is not adequate to cover losses from these events, our financial condition and results of operations could be adversely affected. Climate(cid:2)change(cid:2)may(cid:2)adversely(cid:2)affect(cid:2)our(cid:2)business.(cid:2)(cid:2)To the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions. Should the impact of climate change be material in nature, including significant property damage to or destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected. In addition, changes in federal, state and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our properties (for example, to improve their energy efficiency and/or resistance to inclement weather) without a corresponding increase in revenue, resulting in adverse impacts to our net income.(cid:2) Actions(cid:2)by(cid:2)our(cid:2)competitors(cid:2)may(cid:2)decrease(cid:2)or(cid:2)prevent(cid:2)increases(cid:2)in(cid:2)the(cid:2)occupancy(cid:2)and(cid:2)rental(cid:2)rates(cid:2)of(cid:2)our(cid:2) properties(cid:2)which(cid:2)could(cid:2)adversely(cid:2)affect(cid:2)our(cid:2)business. We compete with other owners and operators of manufactured home community properties, some of which own properties similar to ours in the same submarkets in which our properties are located. The number of competitive manufactured home community properties in a particular area could have a material adverse effect on our ability to attract tenants, lease sites and maintain or increase rents charged at our properties or at any newly acquired properties. In addition, other forms of multi-family residential properties, such as private and federally funded or assisted multi-family housing projects and single-family housing, provide housing alternatives to potential tenants of manufactured home communities. If our competitors offer housing at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants -10- when our tenants’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, and ability to satisfy our debt service obligations could be materially adversely affected. Losses(cid:2)in(cid:2)excess(cid:2)of(cid:2)our(cid:2)insurance(cid:2)coverage(cid:2)or(cid:2)uninsured(cid:2)losses(cid:2)could(cid:2)adversely(cid:2)affect(cid:2)our(cid:2)cash(cid:2)flow. We generally maintain insurance policies related to our business, including casualty, general liability and other policies covering business operations, employees and assets. However, we may be required to bear all losses that are not adequately covered by insurance. In addition, there are certain losses that are not generally insured because it is not economically feasible to insure against them, including losses due to riots, acts of war or other catastrophic events. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated profits and cash flow from the properties and, in the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Although we believe that our insurance programs are adequate, no assurance can be given that we will not incur losses in excess of its insurance coverage, or that we will be able to obtain insurance in the future at acceptable levels and reasonable cost. Our(cid:2)investments(cid:2)are(cid:2)concentrated(cid:2)in(cid:2)the(cid:2)manufactured(cid:2)housing/residential(cid:2)sector(cid:2)and(cid:2)our(cid:2)business(cid:2)would(cid:2) be(cid:2)adversely(cid:2)affected(cid:2)by(cid:2)an(cid:2)economic(cid:2)downturn(cid:2)in(cid:2)that(cid:2)sector.(cid:2)(cid:2)Our investments in real estate assets are primarily concentrated in the manufactured housing/residential sector. This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities included a more significant portion of other sectors of the real estate industry. Financing Risks (cid:2) (cid:2) We(cid:2)face(cid:2)risks(cid:2)generally(cid:2)associated(cid:2)with(cid:2)our(cid:2)debt. We finance a portion of our investments in properties and marketable securities through debt. We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In addition, debt creates other risks, including: (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) rising interest rates on our variable rate debt; inability to repay or refinance existing debt as it matures, which may result in forced disposition of assets on disadvantageous terms; refinancing terms less favorable than the terms of existing debt; and failure to meet required payments of principal and/or interest. We(cid:2)mortgage(cid:2)our(cid:2)properties,(cid:2)which(cid:2)subjects(cid:2)us(cid:2)to(cid:2)the(cid:2)risk(cid:2)of(cid:2)foreclosure(cid:2)in(cid:2)the(cid:2)event(cid:2)of(cid:2)non­payment.(cid:2)(cid:2)(cid:2)We mortgage many of our properties to secure payment of indebtedness. If we are unable to meet mortgage payments, then the property could be foreclosed upon or transferred to the mortgagee with a consequent loss of income and asset value. A foreclosure of one or more of our properties could adversely affect our financial condition, results of operations, cash flow, ability to service debt and make distributions and the market price of our preferred and common stock and any other securities we issue.(cid:2) (cid:2) (cid:2) We(cid:2)face(cid:2)risks(cid:2)related to “balloon payments” and refinancings. Certain of our mortgages will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.” There can be no assurance that we will be able to refinance the debt on favorable terms or at all. To the extent we cannot refinance debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would have an adverse impact on our financial performance and ability to service debt and make distributions. We(cid:2)face(cid:2)risks(cid:2)associated(cid:2)with(cid:2)our(cid:2)dependence(cid:2)on(cid:2)external(cid:2)sources(cid:2)of(cid:2)capital. In order to qualify as a REIT, we (cid:2) are required each year to distribute to our stockholders at least 90% of our REIT taxable income, and we are subject to tax on our income to the extent it is not distributed. Because of this distribution requirement, we may not be able to fund all future capital needs from cash retained from operations. As a result, to fund capital needs, we rely on third-party sources -11- of capital, which we may not be able to obtain on favorable terms, if at all. Our access to third-party sources of capital depends upon a number of factors, including (i) general market conditions; (ii) the market’s perception of our growth potential; (iii) our current and potential future earnings and cash distributions; and (iv) the market price of our preferred and common stock. Additional debt financing may substantially increase our debt-to-total capitalization ratio. Additional equity issuance may dilute the holdings of our current stockholders. (cid:2) (cid:2) We(cid:2)may(cid:2)become(cid:2)more(cid:2)highly(cid:2)leveraged,(cid:2)resulting(cid:2)in(cid:2)increased(cid:2)risk(cid:2)of(cid:2)default(cid:2)on(cid:2)our(cid:2)obligations(cid:2)and(cid:2)an(cid:2) increase(cid:2)in(cid:2)debt(cid:2)service(cid:2)requirements(cid:2)which(cid:2)could(cid:2)adversely(cid:2)affect(cid:2)our(cid:2)financial(cid:2)condition(cid:2)and(cid:2)results(cid:2)of(cid:2)operations(cid:2) and(cid:2)our(cid:2)ability(cid:2)to(cid:2)pay(cid:2)distributions. We have incurred, and may continue to incur, indebtedness in furtherance of our activities. Our governing documents do not limit the amount of indebtedness we may incur. Accordingly, our Board of Directors may vote to incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT. We could therefore become more highly leveraged, resulting in an increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay distributions to stockholders. Fluctuations(cid:2)in(cid:2)interest(cid:2)rates(cid:2)could(cid:2)materially(cid:2)affect(cid:2)our(cid:2)financial(cid:2)results.(cid:2)Because a portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense. If the U.S. Federal Reserve increases short-term interest rates, this may have a significant upward impact on shorter-term interest rates, including the interest rates that our variable rate debt is based upon. Potential future increases in interest rates and credit spreads may increase our interest expense and therefore negatively affect our financial condition and results of operations, and reduce our access to the debt or equity capital markets. (cid:2) We(cid:2) may(cid:2) be(cid:2) adversely(cid:2) affected(cid:2) by(cid:2) changes(cid:2) in(cid:2) the(cid:2)London(cid:2) Inter­bank Offered Rate (“LIBOR”) or(cid:2) the(cid:2) method(cid:2)in(cid:2)which(cid:2)LIBOR(cid:2)is(cid:2)determined.(cid:2)(cid:2)A portion of our debt bears interest at variable rates based on LIBOR for deposits of U.S. dollars. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is likely that, over time, LIBOR may be replaced by the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. We are monitoring this activity and evaluating the related risks. Although the full impact of such reforms and actions, together with any transition away from LIBOR, alternative reference rates or other reforms, remains unclear, these changes may have a material adverse impact on the availability of financing, including LIBOR- based loans, and as a result on our financing costs. (cid:2) Covenants(cid:2)in(cid:2)our(cid:2)credit(cid:2)agreements(cid:2)could(cid:2)limit(cid:2)our(cid:2)flexibility(cid:2)and(cid:2)adversely(cid:2)affect(cid:2)our(cid:2)financial(cid:2)condition. The terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations. If we were to default under our credit agreements, our financial condition would be adversely affected. (cid:2) (cid:2) A(cid:2) change(cid:2) in(cid:2) the(cid:2) U.S.(cid:2)(cid:2) government(cid:2) policy(cid:2) with(cid:2) regard(cid:2) to(cid:2) Fannie(cid:2) Mae(cid:2) and(cid:2) Freddie(cid:2) Mac(cid:2)could(cid:2) impact(cid:2)our(cid:2) (cid:2) financial(cid:2)condition.(cid:2)(cid:2)Fannie Mae and Freddie Mac are a major source of financing for the manufactured housing real estate sector. We depend frequently on Fannie Mae and Freddie Mac to finance growth by purchasing or guaranteeing manufactured housing community loans. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to our real estate sector or to us in particular. A decision by the government to eliminate Fannie Mae or Freddie Mac, or reduce their acquisitions or guarantees of our mortgage loans, may adversely affect interest rates, capital availability and our ability to refinance our existing mortgage obligations as they come due and obtain additional long- term financing for the acquisition of additional communities on favorable terms or at all. We(cid:2) face(cid:2) risks(cid:2) associated(cid:2) with(cid:2) the(cid:2) financing(cid:2) of(cid:2) home(cid:2) sales(cid:2) to(cid:2) customers(cid:2) in(cid:2) our(cid:2) manufactured(cid:2) home(cid:2) communities. To produce new rental revenue and to upgrade our communities, we sell homes to customers in our communities at competitive prices and finance these home sales through S&F. We allow banks and outside finance companies the first opportunity to finance these sales. We are subject to the following risks in financing these homes: (cid:2)(cid:2) the borrowers may default on these loans and not be able to make debt service payments or pay principal when due; -12- (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) the default rates may be higher than we anticipate; demand for consumer financing may not be as great as we anticipate or may decline; the value of property securing the installment notes receivable may be less than the amounts owed; and interest rates payable on the installment notes receivable may be lower than our cost of funds. Additionally, there are many regulations pertaining to our home sales and financing activities. There are significant consumer protection laws and the regulatory framework may change in a manner which may adversely affect our operating results. The regulatory environment and associated consumer finance laws create a risk of greater liability from our home sales and financing activities and could subject us to additional litigation. We are also dependent on licenses granted by state and other regulatory authorities, which may be withdrawn or which may not be renewed and which could have an adverse impact on our ability to continue with our home sales and financing activities. Risks Related to our Status as a REIT (cid:2) If(cid:2)our(cid:2)leases(cid:2)are(cid:2)not(cid:2)respected(cid:2)as(cid:2)true(cid:2)leases(cid:2)for(cid:2)federal(cid:2)income(cid:2)tax(cid:2)purposes,(cid:2)we(cid:2)would(cid:2)fail(cid:2)to(cid:2)qualify(cid:2)as(cid:2)a(cid:2) REIT.(cid:2) (cid:2) To qualify as a REIT, we must, among other things, satisfy two gross income tests, under which specified percentages of our gross income must be certain types of passive income, such as rent. For the rent paid pursuant to our leases to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. We believe that our leases will be respected as true leases for federal income tax purposes. However, there can be no assurance that the Internal Revenue Service (“IRS”) will agree with this view. If the leases are not respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs, and we could lose our REIT status. (cid:2) Failure(cid:2)to(cid:2)make(cid:2)required(cid:2)distributions(cid:2)would(cid:2)subject(cid:2)us(cid:2)to(cid:2)additional(cid:2)tax.(cid:2)(cid:2)In order to qualify as a REIT, we (cid:2) must, among other requirements, distribute, each year, to our stockholders at least 90% of our taxable income, excluding net capital gains. To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions (or deemed distributions) in any year are less than the sum of: (cid:2)(cid:2) 85% of our ordinary income for that year; (cid:2)(cid:2) (cid:2)(cid:2) 95% of our capital gain net earnings for that year; and 100% of our undistributed taxable income from prior years. To the extent we pay out in excess of 100% of our taxable income for any tax year, we may be able to carry forward such excess to subsequent years to reduce our required distributions for purposes of the 4% nondeductible excise tax in such subsequent years. We intend to pay out our income to our stockholders in a manner intended to satisfy the 90% distribution requirement. Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow money or sell assets to pay out enough of our taxable income to satisfy the 90% distribution requirement and to avoid corporate income tax. (cid:2) (cid:2) (cid:2) We(cid:2) may(cid:2) not(cid:2) have(cid:2) sufficient(cid:2) cash(cid:2) available(cid:2) from(cid:2) operations(cid:2) to(cid:2) pay(cid:2) distributions(cid:2) to(cid:2) our(cid:2) stockholders,(cid:2) and,(cid:2) therefore,(cid:2)distributions(cid:2)may(cid:2)be(cid:2)made(cid:2)from(cid:2)borrowings.(cid:2)(cid:2)The actual amount and timing of distributions to our stockholders will be determined by our Board of Directors in its discretion and typically will depend on the amount of cash available for distribution, which will depend on items such as current and projected cash requirements, limitations on distributions imposed by law on our financing arrangements and tax considerations. As a result, we may not have sufficient cash -13- available from operations to pay distributions as required to maintain our status as a REIT. Therefore, we may need to borrow funds to make sufficient cash distributions in order to maintain our status as a REIT, which may cause us to incur additional interest expense as a result of an increase in borrowed funds for the purpose of paying distributions. (cid:2) (cid:2) We(cid:2) may(cid:2) be(cid:2) required(cid:2) to(cid:2) pay(cid:2) a(cid:2) penalty(cid:2) tax(cid:2) upon(cid:2) the(cid:2) sale(cid:2) of(cid:2) a(cid:2) property.(cid:2) The federal income tax provisions (cid:2) applicable to REITs provide that any gain realized by a REIT on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business is treated as income from a “prohibited transaction” that is subject to a 100% penalty tax. Under current law, unless a sale of real property qualifies for a safe harbor, the question of whether the sale of real estate or other property constitutes the sale of property held primarily for sale to customers is generally a question of the facts and circumstances regarding a particular transaction. We intend that we and our subsidiaries will hold the interests in the real estate for investment with a view to long-term appreciation, engage in the business of acquiring and owning real estate, and make occasional sales as are consistent with our investment objectives. We do not intend to engage in prohibited transactions. We cannot assure you, however, that we will only make sales that satisfy the requirements of the safe harbors or that the IRS will not successfully assert that one or more of such sales are prohibited transactions. (cid:2) We(cid:2)may(cid:2)be(cid:2)adversely(cid:2)affected(cid:2)if(cid:2)we(cid:2)fail(cid:2)to(cid:2)qualify(cid:2)as(cid:2)a(cid:2)REIT.(cid:2)If we fail to qualify as a REIT, we will not be allowed to deduct distributions to shareholders in computing our taxable income and will be subject to federal income tax at regular corporate rates and possibly increased state and local taxes. In addition, we might be barred from qualification as a REIT for the four years following the year of disqualification. The additional tax incurred at regular corporate rates would reduce significantly the cash flow available for distribution to shareholders and for debt service. Furthermore, we would no longer be required to make any distributions to our shareholders as a condition to REIT qualification. Any distributions to shareholders would be taxable as ordinary income to the extent of our current and accumulated earnings and profits, although such dividend distributions to non-corporate shareholders would be subject to a top federal income tax rate of 20% (and potentially a Medicare tax of 3.8%), provided applicable requirements of the Code are satisfied. Furthermore, corporate shareholders may be eligible for the dividends received deduction on the distributions, subject to limitations under the Code. Additionally, if we fail to qualify as a REIT, non-corporate stockholders would no longer be able to deduct up to 20% of our dividends (other than capital gain dividends and dividends treated as qualified dividend income), as would otherwise generally be permitted for taxable years beginning after December 31, 2017 and before January 1, 2026. (cid:2) (cid:2) To(cid:2)qualify(cid:2)as(cid:2)a(cid:2)REIT,(cid:2)we(cid:2)must(cid:2)comply(cid:2)with(cid:2)certain(cid:2)highly(cid:2)technical(cid:2)and(cid:2)complex(cid:2)requirements. We cannot be certain we have complied, and will always be able to comply, with the requirements to qualify as a REIT because there are few judicial and administrative interpretations of these provisions. In addition, facts and circumstances that may be beyond our control may affect our ability to continue to qualify as a REIT. We cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the Federal income tax consequences of qualification. We believe that we have qualified as a REIT since our inception and intend to continue to qualify as a REIT. However, we cannot assure you that we are so qualified or will remain so qualified. (cid:2) (cid:2) There(cid:2)is(cid:2)a(cid:2)risk(cid:2)of(cid:2)changes(cid:2)in(cid:2)the(cid:2)tax(cid:2)law(cid:2)applicable(cid:2)to(cid:2)REITs. Because the IRS, the U.S. Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Numerous changes to the U.S. federal income tax laws are proposed on a regular basis. Any of such legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our investors. Additionally, the REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain proposed changes could have an adverse impact on our business and financial results. Importantly, legislation has been proposed in several states specifically taxing REITs. If such legislation were to be enacted, our income from such states would be adversely impacted. (cid:2) The act popularly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their shareholders. Changes made by the Tax Act that could affect us and our shareholders include: -14- (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) temporarily reducing individual U.S. federal income tax rates on ordinary income; the highest individual U.S. federal income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026; permanently eliminating the progressive corporate tax rate structure, with a maximum corporate tax rate of 35%, and replacing it with a flat corporate tax rate of 21%; permitting a deduction for certain pass-through business income, including dividends received by our shareholders from us that are not designated by us as capital gain dividends or qualified dividend income, which will allow individuals, trusts, and estates to deduct up to 20% of such amounts for taxable years beginning after December 31, 2017 and before January 1, 2026; reducing the highest rate of withholding with respect to our distributions to non-U.S. stockholders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%; limiting our deduction for net operating losses to 80% of REIT taxable income (prior to the application of the dividends paid deduction); generally limiting the deduction for net business interest expense in excess of 30% of a business’s adjusted taxable income except for taxpayers that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system for certain property); and eliminating the corporate alternative minimum tax. The Tax Act is subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the United States Treasury Department and the IRS, any of which could lessen or increase certain impacts of the Tax Act. Some technical corrections, proposed regulations and final regulations have already been promulgated, some of which specifically address REITs. It is unclear how these U.S. federal income tax changes will affect state and local taxation in various states and localities, which often use federal taxable income as a starting point for computing state and local tax liabilities. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory, judicial or administrative developments and proposals and their potential effect on an investment in our securities. We(cid:2)may(cid:2)be(cid:2)unable(cid:2)to(cid:2)comply(cid:2)with(cid:2)the(cid:2)strict(cid:2)income(cid:2)distribution(cid:2)requirements(cid:2)applicable(cid:2)to(cid:2)REITs. To (cid:2) maintain qualification as a REIT under the Code, a REIT must annually distribute to its stockholders at least 90% of its REIT taxable income, excluding the dividends paid deduction and net capital gains. This requirement limits our ability to accumulate capital. We may not have sufficient cash or other liquid assets to meet the distribution requirements. Difficulties in meeting the distribution requirements might arise due to competing demands for our funds or to timing differences between tax reporting and cash receipts and disbursements, because income may have to be reported before cash is received, because expenses may have to be paid before a deduction is allowed, because deductions may be disallowed or limited or because the IRS may make a determination that adjusts reported income. In those situations, we might be required to borrow funds or sell properties on adverse terms in order to meet the distribution requirements and interest and penalties could apply which could adversely affect our financial condition. If we fail to make a required distribution, we could cease to be taxed as a REIT. (cid:2) Our taxable REIT subsidiary (“TRS) is subject to special rules that may result in increased taxes. As a REIT, we must pay a 100% penalty tax on certain payments that we receive if the economic arrangements between us and our TRS is not comparable to similar arrangements between unrelated parties. The IRS may successfully assert that the economic arrangements of any of our inter-company transactions are not comparable to similar arrangements between unrelated parties. This would result in unexpected tax liability which would adversely affect our cash flows. (cid:2) (cid:2) -15- Notwithstanding(cid:2)our(cid:2)status(cid:2)as(cid:2)a(cid:2)REIT,(cid:2)we(cid:2)are(cid:2)subject(cid:2)to(cid:2)various(cid:2)federal,(cid:2)state(cid:2)and(cid:2)local(cid:2)taxes(cid:2)on(cid:2)our(cid:2)income(cid:2) (cid:2) and(cid:2)property. For example, we will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains; provided, however, that properly designated undistributed capital gains will effectively avoid taxation at the stockholder level. We may be subject to other Federal income taxes and may also have to pay some state income or franchise taxes because not all states treat REITs in the same manner as they are treated for federal income tax purposes. Other Risks We(cid:2)may(cid:2)not(cid:2)be(cid:2)able(cid:2)to(cid:2)obtain(cid:2)adequate(cid:2)cash(cid:2)to(cid:2)fund(cid:2)our(cid:2)business.(cid:2) Our business requires access to adequate cash to finance our operations, distributions, capital expenditures, debt service obligations, development and redevelopment costs and property acquisition costs, if any. We expect to generate the cash to be used for these purposes primarily with operating cash flow, borrowings under secured and unsecured loans, proceeds from sales of strategically identified assets and, when market conditions permit, through the issuance of debt and equity securities from time to time. We may not be able to generate sufficient cash to fund our business, particularly if we are unable to renew leases, lease vacant space or re-lease space as leases expire according to our expectations. (cid:2) We(cid:2)are(cid:2)dependent(cid:2)on(cid:2)key(cid:2)personnel.(cid:2) Our executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely affect our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets. (cid:2) (cid:2) Some(cid:2) of(cid:2) our(cid:2) directors(cid:2) and(cid:2) officers(cid:2) may(cid:2) have(cid:2) conflicts(cid:2) of(cid:2) interest(cid:2) with(cid:2) respect(cid:2) to(cid:2) certain(cid:2) related(cid:2) party(cid:2) transactions(cid:2) and(cid:2) other(cid:2) business(cid:2) interests.(cid:2) (cid:2) Mr. Eugene W. Landy, the Founder and Chairman of the Board of the Company, owns a 24% interest in the entity that is the landlord of the property where the Company’s corporate office space is located. Effective October 1, 2019, the Company entered into a new lease for its executive offices in Freehold, New Jersey which combines the existing corporate office space with additional adjacent office space. This new lease extends our existing lease through April 30, 2027 and requires monthly lease payments of $23,098 through April 30, 2022 and $23,302 from May 1, 2022 through April 30, 2027. The Company is also responsible for its proportionate share of real estate taxes and common area maintenance. Mr. Eugene Landy may have a conflict of interest with respect to his obligations as our officer and/or director and his ownership interest in the landlord of the property.(cid:2) (cid:2) (cid:2) We(cid:2)may(cid:2)amend(cid:2)our(cid:2)business(cid:2)policies(cid:2)without(cid:2)stockholder(cid:2)approval. Our Board of Directors determines our growth, investment, financing, capitalization, borrowing, REIT status, operations and distributions policies. Although our Board of Directors has no present intention to change or reverse any of these policies, they may be amended or revised without notice to stockholders. Accordingly, stockholders may not have control over changes in our policies. We cannot assure you that changes in our policies will serve fully the interests of all stockholders. (cid:2) The(cid:2)market(cid:2)value(cid:2)of(cid:2)our(cid:2)preferred(cid:2)and(cid:2)common(cid:2)stock(cid:2)could(cid:2)decrease(cid:2)based(cid:2)on(cid:2)our(cid:2)performance(cid:2)and(cid:2)market(cid:2) (cid:2) perception(cid:2) and(cid:2)conditions. The market value of our preferred and common stock may be based primarily upon the market’s perception of our growth potential and current and future cash dividends, and may be secondarily based upon the real estate market value of our underlying assets. The market price of our preferred and common stock is influenced by their respective distributions relative to market interest rates. Rising interest rates may lead potential buyers of our stock to expect a higher distribution rate, which could adversely affect the market price of our stock. In addition, rising interest rates would result in increased expense, thereby adversely affecting cash flow and our ability to service our indebtedness and pay distributions. (cid:2) There(cid:2)are(cid:2)restrictions(cid:2)on(cid:2)the(cid:2)transfer(cid:2)of(cid:2)our(cid:2)capital(cid:2)stock. To maintain our qualification as a REIT under the Code, no more than 50% in value of our outstanding capital stock may be owned, actually or by attribution, by five or fewer individuals, as defined in the Code to also include certain entities, during the last half of a taxable year. Accordingly, our charter contains provisions restricting the transfer of our capital stock. These restrictions may discourage a tender offer or other transaction, or a change in management or of control of us that might involve a premium price for our common stock or preferred stock or that our shareholders otherwise believe to be in their best interests, and may result in the transfer -16- of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares. (cid:2) (cid:2) (cid:2) Our(cid:2)earnings(cid:2)are(cid:2)dependent,(cid:2)in(cid:2)part,(cid:2)upon(cid:2)the(cid:2)performance(cid:2)of(cid:2)our(cid:2)investment(cid:2)portfolio. As permitted by the Code, we invest in and own securities of other REITs, which we generally limit to no more than approximately 15% of our undepreciated assets. To the extent that the value of those investments declines or those investments do not provide a return, our earnings and cash flow could be adversely affected. (cid:2) (cid:2) (cid:2) We(cid:2)are(cid:2)subject(cid:2)to(cid:2)restrictions(cid:2)that(cid:2)may(cid:2)impede(cid:2)our(cid:2)ability(cid:2)to(cid:2)effect(cid:2)a(cid:2)change(cid:2)in(cid:2)control. Certain provisions contained in our charter and bylaws and certain provisions of Maryland law may have the effect of discouraging a third party from making an acquisition proposal for us and thereby inhibit a change in control. These provisions include the following: (cid:2)(cid:2) Our charter provides for three classes of directors with the term of office of one class expiring each year, commonly referred to as a “staggered board.” By preventing common stockholders from voting on the election of more than one class of directors at any annual meeting of stockholders, this provision may have the effect of keeping the current members of our Board of Directors in control for a longer period of time than stockholders may desire. (cid:2)(cid:2) Our charter generally limits any holder from acquiring more than 9.8% (in value or in number, whichever is more restrictive) of our outstanding equity stock (defined as all of our classes of capital stock, except our excess stock). While this provision is intended to assure our ability to remain a qualified REIT for Federal income tax purposes, the ownership limit may also limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an investor was attempting to assemble a block of shares in excess of 9.8% of the outstanding shares of equity stock or otherwise effect a change in control. (cid:2)(cid:2) The request of stockholders entitled to cast at least a majority of all votes entitled to be cast at such meeting is necessary for stockholders to call a special meeting. We also require advance notice by common stockholders for the nomination of directors or proposals of business to be considered at a meeting of stockholders. (cid:2)(cid:2) Our Board of Directors may authorize and cause us to issue securities without shareholder approval. Under our charter, the board has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the Board of Directors may determine. (cid:2)(cid:2) “Business combination” provisions that provide that, unless exempted, a Maryland corporation may not engage in certain business combinations, including mergers, dispositions of 10 percent or more of its assets, certain issuances of shares of stock and other specified transactions, with an “interested shareholder” or an affiliate of an interested shareholder for five years after the most recent date on which the interested shareholder became an interested shareholder, and thereafter unless specified criteria are met. An interested shareholder is defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within the two-year period immediately prior to the date in question. In our charter, we have expressly elected that the Maryland Business Combination Act not govern or apply to any transaction with our affiliated company, Monmouth Real Estate Investment Corporation (“MREIC”), a Maryland corporation. (cid:2)(cid:2) The duties of directors of a Maryland corporation do not require them to, among other things (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any shareholders rights plan, (c) make a determination under the Maryland Business Combination Act or the Maryland -17- Control Share Acquisition Act to exempt any person or transaction from the requirements of those provisions, or (d) act or fail to act solely because of the effect of the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the shareholders in an acquisition. (cid:2) (cid:2) We(cid:2)cannot(cid:2)assure(cid:2)you(cid:2)that(cid:2)we(cid:2)will(cid:2)be(cid:2)able(cid:2)to(cid:2)pay(cid:2)distributions(cid:2)regularly.(cid:2)(cid:2)Our ability to pay distributions in the future is dependent on our ability to operate profitably and to generate cash from our operations and the operations of our subsidiaries and is subject to limitations under our financing arrangements and Maryland law. Under the Maryland General Corporation Law, (“MGCL”), a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts became due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the charter permits otherwise, the amount that would be needed if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution. Accordingly, we cannot guarantee that we will be able to pay distributions on a regular quarterly basis in the future. (cid:2) Dividends(cid:2) on(cid:2) our(cid:2) capital(cid:2) stock(cid:2) do(cid:2) not(cid:2) qualify(cid:2) for(cid:2) the(cid:2) reduced(cid:2) tax(cid:2) rates(cid:2) available(cid:2) for(cid:2) some(cid:2) dividends.(cid:2)Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Although these rules do not adversely affect our taxation or the dividends payable by us, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may perceive an investment in us to be relatively less attractive than an investment in the stock of a non-REIT corporation that pays dividends, which could materially and adversely affect the value of the shares of, and per share trading price of, our capital stock. It should be noted that the Tax Act provides for a deduction from income for individuals, trusts and estates up to 20% of certain REIT dividends, which reduces the effective tax rate on such dividends below the effective tax rate on interest, though the deduction is generally not as favorable as the preferential rate on qualified dividends. The deduction for certain REIT dividends, unlike the favorable rate for qualified dividends, expires after 2025. (cid:2) We(cid:2)are(cid:2)subject(cid:2)to(cid:2)risks(cid:2)arising(cid:2)from(cid:2)litigation. We may become involved in litigation. Litigation can be costly, and the results of litigation are often difficult to predict. We may not have adequate insurance coverage or contractual protection to cover costs and liability in the event we are sued, and to the extent we resort to litigation to enforce our rights, we may incur significant costs and ultimately be unsuccessful or unable to recover amounts we believe are owed to us. We may have little or no control of the timing of litigation, which presents challenges to our strategic planning. (cid:2) Future(cid:2) terrorist(cid:2) attacks(cid:2) and(cid:2) military(cid:2) conflicts(cid:2) could(cid:2) have(cid:2) a(cid:2) material(cid:2) adverse(cid:2) effect(cid:2) on(cid:2) general(cid:2) economic(cid:2) conditions,(cid:2)consumer(cid:2)confidence(cid:2)and(cid:2)market(cid:2)liquidity. Among other things, it is possible that interest rates may be affected by these events. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our earnings. Terrorist acts affecting our properties could also result in significant damages to, or loss of, our properties. Additionally, we may be unable to obtain adequate insurance coverage on acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance even if we do not believe this insurance is necessary or cost effective. Should an act of terrorism result in an uninsured loss or a loss in excess of insured limits, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types would adversely affect our financial condition. (cid:2) Disruptions(cid:2)in(cid:2)the(cid:2)financial(cid:2)markets(cid:2)could(cid:2)affect(cid:2)our(cid:2)ability(cid:2)to(cid:2)obtain(cid:2)financing(cid:2)on(cid:2)reasonable(cid:2)terms(cid:2)and(cid:2)have(cid:2) other(cid:2)adverse(cid:2)effects(cid:2)on(cid:2)us(cid:2)and(cid:2)the(cid:2)market(cid:2)price(cid:2)of(cid:2)our(cid:2)capital(cid:2)stock. Uncertainty in the stock and credit markets may negatively impact our ability to access additional financing at reasonable terms, which may negatively affect our ability to acquire properties and otherwise pursue our investment strategy. A prolonged downturn in the stock or credit markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our investment strategy accordingly. These types of events in the stock and credit markets may make it more difficult or costly for us to raise capital through the issuance of the common stock, preferred stock or debt securities. The potential disruptions in the financial markets may have a material adverse effect on the market value of the common stock and preferred stock, or the -18- economy in general. In addition, the national and local economic climate, including that of the energy-market dependent Marcellus and Utica Shale regions, may be adversely impacted by, among other factors, potential restrictions on drilling, plant closings and industry slowdowns, which may have a material adverse effect on the return we receive on our properties and investments, as well as other unknown adverse effects on us. (cid:2) (cid:2) (cid:2) We(cid:2) face(cid:2) risks(cid:2) relating(cid:2) to(cid:2) cybersecurity(cid:2) attacks(cid:2)which(cid:2)could(cid:2) adversely(cid:2) affect(cid:2)our(cid:2) business,(cid:2)cause(cid:2)loss(cid:2) of(cid:2) confidential(cid:2) information(cid:2) and(cid:2)disrupt(cid:2) operations.(cid:2) (cid:2) We rely extensively on information technology to process transactions and manage our business. In the ordinary course of our business, we collect and store sensitive data, including our business information and that of our tenants, clients, vendors and employees on our network. This data is hosted on internal, as well as external, computer systems. Our external systems are hosted by third-party service providers that may have access to such information in connection with providing necessary information technology and security and other business services to us. This information may include personally identifiable information such as social security numbers, banking information and credit card information. We employ a number of measures to prevent, detect and mitigate potential breaches or disclosure of this confidential information. We have established a Cybersecurity Subcommittee of our Audit Committee to review and provide high level guidance on cybersecurity related issues of importance to the Company. We also maintain cyber risk insurance to provide some coverage for certain risks arising out of data and network breaches. While we continue to improve our cybersecurity and take measures to protect our business, we and our third-party service providers may be vulnerable to attacks by hackers (including through malware, ransomware, computer viruses, and email phishing schemes) or breached due to employee error, malfeasance, fire, flood or other physical event, or other disruptions. Any such breach or disruption could compromise the confidential information of our employees, customers and vendors to the extent such information exists on our systems or on the systems of third-party providers. Such an incident could result in potential liability, a loss of confidence and legal claims or proceedings; damage our reputation, competitiveness, stock price and long-term value; increase remediation, cybersecurity protection and insurance premium costs; disrupt and affect our business operations; or have material adverse effects on our business. We(cid:2)are(cid:2)dependent(cid:2)on(cid:2)continuous(cid:2)access(cid:2)to(cid:2)the(cid:2)Internet(cid:2)to(cid:2)use(cid:2)our(cid:2)cloud­based(cid:2)applications. Damage or failure to our information technology systems, including as a result of any of the reasons described above, could adversely affect our results of operations as we may incur significant costs or data loss. We continually assess new and enhanced information technology solutions to manage risk of system failure or interruption. We(cid:2)face(cid:2)risks(cid:2)relating(cid:2)to(cid:2)expanding(cid:2)use(cid:2)of(cid:2)social(cid:2)media(cid:2)mediums. The use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us or our properties on any social networking website could damage our, or our properties’ reputations. In addition, employees or others might disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of social media may present us with new challenges and risks. The considerable increase in the use of social media over recent years has greatly expanded the potential scope and scale, and increased the rapidity of the dissemination of negative publicity that could be generated by negative posts and comments. (cid:2) (cid:2) Item 1B – Unresolved Staff Comments None. Item 2 – Properties UMH Properties, Inc. is engaged in the ownership and operation of manufactured home communities located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland. As of December 31, 2019, the Company owned 122 manufactured home communities containing approximately 23,100 developed sites. The rents collectible from the land ultimately depend on the value of the home and land. Therefore, fewer but more expensive homes can actually produce the same or greater rents. There is a long-term trend toward larger manufactured homes. Manufactured home communities designed for older manufactured homes must be modified to accommodate modern, wider and longer manufactured homes. These changes may decrease the number of homes that may be accommodated in a manufactured home community. For this reason, the number of developed sites operated by the Company is subject to change, and the number of developed sites listed is always an approximate -19- number. The following table sets forth certain information concerning the Company’s real estate investments as of December 31, 2019. Name of Community Allentown 4912 Raleigh-Millington Road Memphis, TN 38128 Arbor Estates 1081 North Easton Road Doylestown, PA 18902 Auburn Estates 919 Hostetler Road Orrville, OH 44667 Birchwood Farms 8057 Birchwood Drive Birch Run, MI 48415 Boardwalk 2105 Osolo Road Elkhart, IN 46514 Broadmore Estates 148 Broadmore Estates Goshen, IN 46528 Brookside Village 107 Skyline Drive Berwick, PA 18603 Brookview Village 2025 Route 9N, Lot 137 Greenfield Center, NY 12833 Camelot Village 2700 West 38th Street Anderson, IN 46013 Candlewick Court 1800 Candlewick Drive Owosso, MI 48867 Carsons 649 North Franklin St. Lot 116 Chambersburg, PA 17201 Catalina 6501 Germantown Road Middletown, OH 45042 Cedarcrest Village 1976 North East Avenue Vineland, NJ 08360 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 434 92% 89% 76 -0- $465 230 91% 93% 31 -0- $716 42 93% 90% 13 -0- $422 143 93% 90% 28 -0- $459 195 99% 97% 45 -0- $381 390 88% 91% 93 19 $460 170 81% 79% 37 2 $459 150 88% 91% 52 22 $536 95 84% 78% 32 50 $323 211 64% 61% 40 -0- $473 131 78% 71% 14 4 $409 463 55% 54% 75 26 $428 283 95% 96% 71 30 $628 -20- Name of Community Chambersburg I & II 5368 Philadelphia Ave Lot 34 Chambersburg, PA 17201 Chelsea 459 Chelsea Lane Sayre, PA 18840 Cinnamon Woods 70 Curry Avenue Conowingo, MD 21918 City View 110 Fort Granville Lot C5 Lewistown, PA 17044 Clinton Mobile Home Resort 60 N State Route 101 Tiffin, OH 44883 Collingwood 358 Chambers Road Lot 001 Horseheads, NY 14845 Colonial Heights 917 Two Ridge Road Wintersville, OH 43953 Countryside Estates 1500 East Fuson Road Muncie, IN 47302 Countryside Estates 6605 State Route 5 Ravenna, OH 44266 Countryside Village 200 Early Road Columbia, TN 38401 Cranberry Village 100 Treesdale Drive Cranberry Township, PA 16066 Crestview Wolcott Hollow Rd & Route 220 Athens, PA 18810 Cross Keys Village 259 Brown Swiss Circle Duncansville, PA 16635 Crossroads Village 549 Chicory Lane Mount Pleasant, PA 15666 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 99 80% 75% 11 -0- $379 84 95% 98% 12 -0- $417 62 95% 98% 10 67 $514 57 93% 93% 20 116 99% 99% 23 2 1 $337 $423 102 85% 88% 20 -0- $461 160 83% 75% 31 1 $333 162 83% 83% 36 28 $354 143 95% 92% 27 -0- $352 349 96% 97% 89 63 $387 187 96% 94% 36 -0- $619 98 93% 82% 19 -0- $386 132 85% 83% 21 2 $463 34 76% 71% 9 -0- $383 -21- Name of Community Dallas Mobile Home Community 1104 N 4th Street Toronto, OH 43964 Deer Meadows 1291 Springfield Road New Springfield, OH 44443 D & R Village 430 Route 146 Lot 65A Clifton Park, NY 12065 Evergreen Estates 425 Medina Street Lodi, OH 44254 Evergreen Manor 26041 Aurora Avenue Bedford, OH 44146 Evergreen Village 9249 State Route 44 Mantua, OH 44255 Fairview Manor 2110 Mays Landing Road Millville, NJ 08332 Fifty-One Estates Hayden Boulevard Elizabeth, PA 15037 Forest Creek 855 E. Mishawaka Road Elkhart, IN 46517 Forest Park Village 102 Holly Drive Cranberry Township, PA 16066 Fox Chapel Village 7 Greene Drive Cheswick, PA 15024 Frieden Manor 102 Frieden Manor Schuylkill Haven, PA 17972 Friendly Village 27696 Oregon Road Perrysburg, OH 43551 Green Acres 4496 Sycamore Grove Road Chambersburg, PA 17201 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 145 79% 77% 21 -0- $264 98 87% 91% 22 8 $334 235 91% 91% 44 -0- $603 55 100% 100% 10 3 $357 68 85% 75% 7 -0- $337 50 98% 98% 10 4 $371 317 94% 95% 66 132 $648 171 78% N/A 42 3 $445 167 96% 98% 37 -0- $488 247 96% 91% 79 -0- $546 121 74% 66% 23 2 $369 193 88% 87% 42 22 $486 824 46% N/A 101 -0- $401 24 100% 100% 6 -0- $403 -22- Name of Community Gregory Courts 1 Mark Lane Honey Brook, PA 19344 Hayden Heights 5501 Cosgray Road Dublin, OH 43016 Heather Highlands 109 Main Street Inkerman, PA 18640 High View Acres 399 Blue Jay Lane Apollo, PA 15613 Highland 1875 Osolo Road Elkhart, IN 46514 Highland Estates 60 Old Route 22 Kutztown, PA 19530 Hillcrest Crossing 100 Lorraine Drive Lower Burrell, PA 15068 Hillcrest Estates 14200 Industrial Parkway Marysville, OH 43040 Hillside Estates Snyder Avenue Greensburg, PA 15601 Holiday Village 201 Grizzard Avenue Nashville, TN 37207 Holiday Village 1350 Co Road 3 Elkhart, IN 46514 Holly Acres Estates 7240 Holly Dale Drive Erie, PA 16509 Hudson Estates 100 Keenan Road Peninsula, OH 44264 Huntingdon Pointe 240 Tee Drive Tarrs, PA 15688 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 39 82% 77% 9 -0- $657 115 99% 100% 19 -0- $402 407 73% 70% 79 -0- $456 156 83% 80% 43 -0- $383 246 88% 94% 42 -0- $398 318 97% 97% 98 65 $592 198 62% 55% 60 16 $318 222 90% 77% 46 45 $440 90 82% 80% 29 20 $360 266 97% 98% 36 29 $532 326 75% 76% 53 153 91% 90% 30 2 9 $476 $385 159 93% 95% 19 -0- $311 70 99% 91% 42 7 $299 -23- Name of Community Independence Park 355 Route 30 Clinton, PA 15026 Kinnebrook 351 State Route 17B Monticello, NY 12701 Lake Sherman Village 7227 Beth Avenue, SW Navarre, OH 44662 Lakeview Meadows 11900 Duff Road, Lot 58 Lakeview, OH 43331 Laurel Woods 1943 St. Joseph Street Cresson, PA 16630 Little Chippewa 11563 Back Massillon Road Orrville, OH 44667 Maple Manor 18 Williams Street Taylor, PA 18517 Marysville Estates 548 North Main Street Marysville, OH 43040 Meadowood 9555 Struthers Road New Middletown, OH 44442 Meadows 11 Meadows Nappanee, IN 46550 Meadows of Perrysburg 27484 Oregon Road Perrysburg, OH 43551 Melrose Village 4400 Melrose Drive, Lot 301 Wooster, OH 44691 Melrose West 4455 Cleveland Road Wooster, OH 44691 Memphis Blues (1) 1401 Memphis Blues Avenue Memphis, TN 38127 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 92 96% 91% 36 15 $385 250 94% 96% 66 8 $607 243 91% 91% 54 43 $461 81 93% 86% 21 32 $360 207 78% 79% 43 -0- $413 62 92% 79% 13 -0- $353 316 78% 78% 71 -0- $406 306 57% 55% 58 -0- $404 122 92% 91% 20 -0- $417 335 68% 61% 61 -0- $408 191 88% 87% 39 16 $402 293 90% 90% 71 -0- $365 29 100% 97% 27 3 $392 90 43% 100% 22 -0- $416 -24- Name of Community Monroe Valley 15 Old State Road Jonestown, PA 17038 Moosic Heights 118 1st Street Avoca, PA 18641 Mount Pleasant Village 549 Chicory Lane Mount Pleasant, PA 15666 Mountaintop Mountain Top Lane Narvon, PA 17555 Mountain View (2) Van Dyke Street Coxsackie, NY 12501 New Colony 3101 Homestead Duquesne Road West Mifflin, PA 15122 Northtowne Meadows 6255 Telegraph Road Erie, MI 48133 Oak Ridge Estates 1201 Country Road 15 (Apt B) Elkhart, IN 46514 Oakwood Lake Village 308 Gruver Lake Tunkhannock, PA 18657 Olmsted Falls 26875 Bagley Road Olmsted Township, OH 44138 Oxford Village 2 Dolinger Drive West Grove, PA 19390 Parke Place 2331 Osolo Road Elkhart, IN 46514 Perrysburg Estates 23720 Lime City Road Perrysburg, OH 43551 Pikewood Manor 1780 Lorain Boulevard Elyria, OH 44035 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 44 91% 86% 11 -0- $522 151 93% 92% 35 -0- $424 115 95% 93% 19 -0- $330 39 90% 95% 11 2 $605 -0- N/A N/A -0- 220 $-0- 114 68% N/A 16 -0- $423 386 85% N/A 85 -0- $415 205 93% 99% 40 -0- $480 79 63% 73% 40 -0- $462 125 95% 93% 15 -0- $420 224 98% 99% 59 2 $693 364 96% 95% 79 30 $385 133 65% 67% 24 9 $365 488 67% 66% 86 31 $458 -25- Name of Community Pine Ridge Village/Pine Manor 100 Oriole Drive Carlisle, PA 17013 Pine Valley Estates 1283 Sugar Hollow Road Apollo, PA 15613 Pleasant View Estates 6020 Fort Jenkins Lane Bloomsburg, PA 17815 Port Royal Village 485 Patterson Lane Belle Vernon, PA 15012 Redbud Estates 1800 West 38th Street Anderson, IN 46013 River Valley Estates 2066 Victory Road Marion, OH 43302 Rolling Hills Estates 14 Tip Top Circle Carlisle, PA 17015 Rostraver Estates 1198 Rostraver Road Belle Vernon, PA 15012 Sandy Valley Estates 11461 State Route 800 N.E. Magnolia, OH 44643 Shady Hills 1508 Dickerson Pike #L1 Nashville, TN 37207 Somerset Estates/Whispering Pines 1873 Husband Road Somerset, PA 15501 Southern Terrace 1229 State Route 164 Columbiana, OH 44408 Southwind Village 435 E. Veterans Highway Jackson, NJ 08527 Spreading Oaks Village 7140-29 Selby Road Athens, OH 45701 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 194 87% 83% 50 30 $543 212 68% 67% 38 -0- $377 110 76% 71% 21 9 $403 473 60% 55% 101 -0- $467 580 94% 90% 128 20 $283 232 76% 75% 60 -0- $391 90 92% 96% 31 1 $383 66 79% 80% 17 66 $455 364 71% 70% 102 10 $421 212 96% 87% 25 -0- $501 249 79% 78% 74 24 $389/$461 118 100% 100% 26 4 $352 250 97% 97% 36 -0- $588 148 89% 89% 37 24 $410 -26- Name of Community Springfield Meadows 4100 Troy Road Springfield, OH 45502 Suburban Estates 33 Maruca Drive Greensburg, PA 15601 Summit Estates 3305 Summit Road Ravenna, OH 44266 Summit Village 246 North 500 East Marion, IN 46952 Sunny Acres 272 Nicole Lane Somerset, PA 15501 Sunnyside 2901 West Ridge Pike Eagleville, PA 19403 Trailmont 122 Hillcrest Road Goodlettsville, TN 37072 Twin Oaks I & II 27216 Cook Road Lot 1-A Olmsted Township, OH 44138 Twin Pines 2011 West Wilden Avenue Goshen, IN 46528 Valley High 229 Fieldstone Lane Ruffs Dale, PA 15679 Valley Hills 4364 Sandy Lake Road Ravenna, OH 44266 Valley Stream 60 Valley Stream Mountaintop, PA 18707 Valley View I 1 Sunflower Drive Ephrata, PA 17522 Valley View II 1 Sunflower Drive Ephrata, PA 17522 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 123 96% 90% 43 77 $363 200 90% 91% 36 -0- $363 141 95% 93% 25 1 $416 89 85% 74% 25 33 $359 207 92% 93% 56 2 $241 63 83% 88% 8 -0- $399 129 96% 93% 32 -0- $685 141 99% 96% 21 -0- $525 238 86% 83% 48 2 $508 74 80% 84% 13 16 $447 271 89% 92% 66 67 $374 143 71% 73% 37 6 $351 104 97% 97% 19 -0- $344 43 100% 100% 7 -0- $525 -27- Name of Community Valley View – Honey Brook 1 Mark Lane Honey Brook, PA 19344 Voyager Estates 1002 Satellite Drive West Newton, PA 15089 Waterfalls Village 3450 Howard Road Lot 21 Hamburg, NY 14075 Wayside 1000 Garfield Avenue Bellefontaine, OH 43331 Weatherly Estates 271 Weatherly Drive Lebanon, TN 37087 Wellington Estates 58 Tanner Street Export, PA 15632 Woodland Manor 338 County Route 11, Lot 165 West Monroe, NY 13167 Woodlawn Village 265 Route 35 Eatontown, NJ 07724 Woods Edge 1670 East 650 North West Lafayette, IN 47906 Wood Valley 2 West Street Caledonia, OH 43314 Worthington Arms 5277 Columbus Pike Lewis Center, OH 43035 Youngstown Estates 999 Balmer Road Youngstown, NY 14174 Number of Developed Sites Occupancy Occupancy Percentage Percentage Acreage at 12/31/18 Developed at 12/31/19 Weighted Average Additional Monthly Rent Per Acreage Site at 12/31/19 147 84% 89% 28 13 $641 259 61% 61% 72 20 $371 196 82% 77% 35 -0- $582 84 83% 77% 16 5 $315 270 99% 97% 41 -0- $492 206 60% 53% 46 1 $300 148 68% 63% 77 -0- $381 156 91% 92% 14 -0- $679 599 58% 52% 151 50 $394 160 62% 56% 31 56 $343 224 91% 84% 36 -0- $584 89 61% 64% 14 59 $369 Total 23,088 82.0% 82.0% 4,951 1,691 $447 ______________________ (1)(cid:2) Community was closed due to an unusual flooding throughout the region in May 2011. We are currently working on the redevelopment of this community. The total redevelopment will be 134 sites. Phase I, consisting of 39 sites, was 100% occupied as of December 31, 2018. Phase II, consisting of 51 sites, was recently completed and in the process of being occupied. (2)(cid:2) We are currently seeking site plan approvals for approximately 220 sites for this property. -28- The Company also has approximately 2,500 additional sites at its properties 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 manufactured home properties with an approximate cost of $1.0 billion. These properties consist of 122 separate manufactured home communities and related improvements. No single community constitutes more than 10% of the total assets of the Company. Our larger properties consist of: Friendly Village with 824 developed sites, Woods Edge with 599 developed sites, Redbud Estates with 580 developed sites, Pikewood Manor with 488 developed sites, and Port Royal Village with 473 developed sites. Mortgages on Properties The Company has mortgages on many of its properties. The maturity dates of these mortgages range from the years 2021 to 2029, with a weighted average term of 6.0 years. Interest on these mortgages are at fixed rates ranging from 3.37% to 6.5%. The weighted average interest rate on our mortgages, not including the effect of unamortized debt issuance costs, was approximately 4.1% and 4.3% at December 31, 2019 and 2018, respectively. The aggregate balances of these mortgages, net of unamortized debt issuance costs, total $373.7 million and $331.1 million at December 31, 2019 and 2018, respectively. (For additional information, see Part IV, Item 15(a) (1) (vi), Note 5 of the Notes to Consolidated Financial Statements – Loans and Mortgages Payable). Item 3 – Legal Proceedings The Company is subject to claims and litigation in the ordinary course of business. For additional information about legal proceedings, see Part IV, Item 15(a)(1)(vi), Note 12 of the Notes to Consolidated Financial Statements – Commitments, Contingencies and Legal Matters. Item 4 – Mine Safety Disclosures Not Applicable. PART II Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common and preferred shares are traded on the New York Stock Exchange (“NYSE”), under the symbol “UMH” , “UMHPRB”, “UMHPRC” and “UMHPRD”. Shareholder Information As of February 28, 2020, there were 981 registered shareholders of the Company’s common stock based on the number of record owners. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities On January 15, 2019, the Board of Directors reaffirmed its Share Repurchase Program (the “Repurchase Program”) that authorizes the Company to purchase up to $25 million in the aggregate of the Company's common stock. The Repurchase Program may be made using a variety of methods, which may include open market purchases, -29- privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The Repurchase Program does not require the Company to acquire any particular amount of common stock and may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. On September 16, 2019, the Company repurchased 20,000 shares of its common stock at a price of $11.87 per share, and a total cost of $237,000. Comparative Stock Performance The following line graph compares the total return of the Company’s common stock for the last five years to the FTSE NAREIT All REITs Index published by the National Association of Real Estate Investment Trusts (“NAREIT”) and to the S&P 500 Index for the same period. The graph assumes a $100 investment in our common stock and in each of the indexes listed below on December 31, 2014 and the reinvestment of all dividends. 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. Our stock performance shown in the graph below is not indicative of future stock performance. 250 200 150 100 50 0 s r a l l o D 188 138 181 114 112 121 158 132 116 103 114 101 100 221 174 150 2014 2015 2016 2017 2018 2019 YEAR(cid:2)ENDED(cid:2)DECEMBER(cid:2)31, UMH(cid:2)PROPERTIES,(cid:2)INC. FTSE(cid:2)NAREIT(cid:2)ALL(cid:2)REIT S(cid:2)&(cid:2)P(cid:2)500 -30- Item 6 – Selected Financial Data The following table sets forth selected financial and other information for the Company as of and for each of the years in the five year period ended December 31, 2019. The historical financial data has been derived from our historical financial statements. This following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements and Notes thereto included elsewhere herein (in(cid:2)thousands(cid:2)except(cid:2)per(cid:2)share(cid:2)amounts). 2019 2018 (1) 2017 (1) 2016 (1) 2015 (1) Operating Data: Rental and Related Income Sales of Manufactured Homes Total Income Community Operating Expenses Community NOI (2) Total Expenses Interest Income Dividend Income Gain on Sales of Marketable Securities, net Increase (Decrease) in Fair Value of Marketable Securities (3) Interest Expense Net Income (Loss) Net Income (Loss) Attributable to Common Shareholders Net Income (Loss) Attributable to Common Shareholders Per Share Basic Diluted Cash Flow Data: Net Cash Provided (Used) by: Operating Activities Investing Activities Financing Activities Balance Sheet Data: Total Investment Property Total Assets Mortgages Payable, net of unamortized debt issuance costs Loans Payable, net of unamortized debt issuance costs Series A 8.25% Cumulative Redeemable Preferred Stock Series B 8.0% Cumulative Redeemable Preferred Stock Series C 6.75% Cumulative Redeemable Preferred Stock Series D 6.375% Cumulative Redeemable Preferred Stock Total Shareholders’ Equity Other Information: Average Number of Shares Outstanding Basic Diluted Funds from Operations (2) Normalized Funds from Operations (2) Cash Dividends Per Common Share $128,611 17,980 146,591 61,708 66,903 126,582 2,619 7,535 -0- 14,915 17,805 27,750 $113,833 15,754 129,587 52,949 60,884 111,010 2,255 10,367 20 (51,675) 16,039 (36,216) $101,801 10,847 112,648 47,847 53,954 96,617 2,007 8,135 1,748 -0- 15,877 12,668 $90,680 8,534 99,214 42,638 48,042 83,256 1,585 6,636 2,285 -0- 15,432 11,535 2,566 (56,532) (7,679) (2,569) 0.07 0.06 (1.53) (1.53) (0.24) (0.24) (0.10) (0.10) $74,763 6,754 81,517 37,049 37,714 72,077 1,820 4,399 204 -0- 14,074 2,144 (6,123) (0.24) (0.24) $38,516 (122,350) 90,053 $40,175 (137,603) 82,314 $40,858 (152,921) 130,604 $29,203 (77,567) 45,895 $29,647 (148,675) 121,420 $1,015,281 1,025,453 $881,456 880,902 $764,439 823,881 $640,217 680,445 $577,709 600,317 373,658 331,093 304,895 293,026 283,050 83,686 107,985 84,704 -0- -0- -0- 95,030 95,030 95,030 243,750 143,750 143,750 58,285 91,595 95,030 -0- 66,268 546,339 50,000 424,698 -0- 421,215 -0- 317,032 39,909 40,203 $24,573 $25,207 $0.72 36,871 36,871 $26,965 $27,470 $0.72 32,676 32,676 $23,462 $21,714 $0.72 27,809 27,809 $20,732 $18,446 $0.72 57,862 91,595 45,030 -0- -0- 246,238 25,933 25,933 $14,267 $14,188 $0.72 -31- (1)(cid:2) (cid:2)(cid:3)(cid:4)(cid:5)(cid:4)(cid:6)(cid:3)(cid:5)(cid:7)(cid:8) (cid:3)(cid:4)(cid:9)(cid:10)(cid:11)(cid:12)(cid:5)(cid:13)(cid:3)(cid:10)(cid:4)(cid:8) (cid:14)(cid:5)(cid:15)(cid:8) (cid:16)(cid:17)(cid:17)(cid:4)(cid:8) (cid:11)(cid:17)(cid:18)(cid:3)(cid:15)(cid:17)(cid:19)(cid:8) (cid:13)(cid:10)(cid:8) (cid:11)(cid:17)(cid:9)(cid:7)(cid:17)(cid:6)(cid:13)(cid:8) (cid:6)(cid:17)(cid:11)(cid:13)(cid:5)(cid:3)(cid:4)(cid:8) (cid:11)(cid:17)(cid:6)(cid:7)(cid:5)(cid:15)(cid:15)(cid:3)(cid:9)(cid:3)(cid:6)(cid:5)(cid:13)(cid:3)(cid:10)(cid:4)(cid:15)(cid:8) (cid:3)(cid:4)(cid:8) (cid:20)(cid:11)(cid:3)(cid:10)(cid:11)(cid:8) (cid:20)(cid:17)(cid:11)(cid:3)(cid:10)(cid:19)(cid:15)(cid:8) (cid:13)(cid:10)(cid:8) (cid:6)(cid:10)(cid:4)(cid:9)(cid:10)(cid:11)(cid:12)(cid:8) (cid:13)(cid:10)(cid:8) (cid:13)(cid:14)(cid:17)(cid:8) (cid:6)(cid:21)(cid:11)(cid:11)(cid:17)(cid:4)(cid:13)(cid:8) (cid:20)(cid:17)(cid:11)(cid:3)(cid:10)(cid:19)(cid:8) (cid:20)(cid:11)(cid:17)(cid:15)(cid:17)(cid:4)(cid:13)(cid:5)(cid:13)(cid:3)(cid:10)(cid:4)(cid:22) (2)(cid:2) Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Supplemental Measures, contained in this Form 10-K for information regarding the presentation of community NOI, and for the presentation and reconciliation of funds from operations and normalized funds from operations to net income (loss) attributable to common shareholders. (3)(cid:2) Represents change in unrealized gain (loss) in marketable securities which is included in the Consolidated Statements of Income (Loss) in accordance with ASU 2016-01 adopted January 1, 2018. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements Statements contained in this Form 10-K, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about the Company’s expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, performance and underlying assumptions and other statements that are not historical facts. Forward-looking statements can be identified by their use of forward-looking words, such as “may,” “will,” “anticipate,” “expect,” “believe,” “intend,” “plan,” “should,” “seek” or comparable terms, or the negative use of those words, but the absence of these words does not necessarily mean that a statement is not forward-looking. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described below and under the headings “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These and other risks, uncertainties and factors could cause our actual results to differ materially from those included in any forward-looking statements we make. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results to differ materially from our expectations include, among others: (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) changes in the real estate market conditions and general economic conditions; the inherent risks associated with owning real estate, including local real estate market conditions, governing laws and regulations affecting manufactured housing communities and illiquidity of real estate investments; increased competition in the geographic areas in which we own and operate manufactured housing communities; our ability to continue to identify, negotiate and acquire manufactured housing communities and/or vacant land which may be developed into manufactured housing communities on terms favorable to us; our ability to maintain rental rates and occupancy levels; changes in market rates of interest; our ability to repay debt financing obligations; our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us; our ability to comply with certain debt covenants; our ability to integrate acquired properties and operations into existing operations; the availability of other debt and equity financing alternatives; continued ability to access the debt or equity markets; the loss of any member of our management team; our ability to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected; -32- the ability of manufactured home buyers to obtain financing; the level of repossessions by manufactured home lenders; (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) market conditions affecting our investment securities; (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) changes in federal or state tax rules or regulations that could have adverse tax consequences; our ability to qualify as a REIT for federal income tax purposes; and those risks and uncertainties referenced under the heading "Risk Factors" contained in this Form 10-K and the Company's filings with the Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, as events described or implied in such statements may not occur. The forward-looking statements contained in this Form 10-K speak only as of the date hereof and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. 2019 Accomplishments During 2019, UMH made substantial progress on multiple fronts – generating solid operating results, achieving strong growth and improving our financial position. We have: (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) (cid:2)(cid:2) Increased Rental and Related Income by 13%; Increased Community Net Operating Income (“NOI”) by 10%; Increased Same Property NOI by 6%; Increased Same Property Occupancy by 333 sites or 160 bps over the prior year period from 82.2% to 83.8%; Increased home sales by 14%; Increased our rental home portfolio by 882 homes to approximately 7,400 total rental homes, representing an increase of 14%; (cid:2)(cid:2) Acquired four communities containing approximately 1,500 homesites for a total cost of approximately $56.2 (cid:2)(cid:2) million; Issued and sold 4 million shares of our 6.75% Series C Preferred Stock resulting in net proceeds of approximately $96.7 million; (cid:2)(cid:2) Raised $31.5 million through our Dividend Reinvestment and Stock Purchase Plan; (cid:2)(cid:2) Completed the financing/refinancing of four of our communities for total proceeds of approximately $44.9 million with a weighted average interest rate of 3.40%, paying off the existing $13.8 million mortgages with a weighted average rate of 5.91%; (cid:2)(cid:2) Reduced the weighted average interest rate on our mortgages payable from 4.3% to 4.1%; (cid:2)(cid:2) Reduced our Net Debt to Total Market Capitalization from 37% to 29%; (cid:2)(cid:2) (cid:2)(cid:2) Increased our total market capitalization to $1.5 billion, representing an increase of 28%; and, Implemented a Preferred Stock At-The-Market Program (“ATM Program”) under which the Company may offer and sell shares of our 6.75% Series C Preferred Stock and/or 6.375% Series D Preferred Stock having an aggregate sales price of up to $100 million. During 2019, we sold approximately 651,000 shares of our Series D Preferred Stock for net proceeds of approximately $15.9 million, after offering expenses. We have sold additional shares of Series D Preferred Stock under the ATM Program during 2020. Overview The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with "Selected Financial Data" and the historical Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. The Company is a self-administered, self-managed, REIT with headquarters in Freehold, New Jersey. The Company’s primary business is the ownership and operation of manufactured home communities, which includes leasing manufactured home spaces on an annual or month-to-month basis to residential manufactured home owners. The Company also leases homes to residents and, through its taxable REIT subsidiary, S&F, sells and finances homes to residents and prospective residents of our communities. -33- Our communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland. UMH has continued to execute our growth strategy of purchasing well-located communities in our target markets, including the energy-rich Marcellus and Utica Shale regions. During the year ended December 31, 2019, we purchased four manufactured home communities, for an aggregate purchase price of $56.2 million. These acquisitions added approximately 1,500 developed homesites to our portfolio, bringing our total to 122 communities containing approximately 23,100 developed homesites. The Company earns income from the operation of its manufactured home communities, leasing of manufactured homesites, the rental of manufactured homes, the sale and finance of manufactured homes, the brokering of home sales, and from appreciation in the values of the manufactured home communities and vacant land owned by the Company. Management views the Company as a single segment based on its method of internal reporting in addition to its allocation of capital and resources. The Company also invests in securities of other REITs which the Company generally limits to no more than approximately 15% of its undepreciated assets. Occupancy in our properties, as well as our ability to increase rental rates, directly affects revenues. In 2019, total income increased 13% from the prior year and Community NOI (as defined below) increased 10% from the prior year, primarily due to the acquisition and rental programs in 2018 and 2019. Overall occupancy was 82.0% at December 31, 2019 and 2018, respectively. Overall occupancy includes communities acquired in 2019 with an average occupancy of 62%. Same property occupancy, which includes communities owned and operated as of January 1, 2018, increased from 82.2% at December 31, 2018 to 83.8% at December 31, 2019. Sales of manufactured homes performed well during 2019, increasing by 14% year-over-year. Demand for housing remains healthy, due to improvements in the economy, sustained wage and job growth and still favorable interest rates. Demand for quality affordable housing is even greater. Conventional single-family home prices continue their rise supported by low inventories and increasing sales. As household formation strengthens and for- sale inventory remains limited, a large share of housing demand will be looking at alternative forms of housing. Our property type offers substantial comparative value that should result in increased demand. The macro-economic environment and current housing fundamentals continue to favor home rentals. The inability to satisfy down payment requirements, more stringent credit terms, and steadily increasing home prices continue to create hurdles for would-be homebuyers. Rental homes in a manufactured home community allow the resident to obtain the efficiencies of factory-built housing and the amenities of community living for less than the cost of other forms of affordable housing. We continue to see increased demand for rental homes. During 2019, our portfolio of rental homes increased by 882 homes. Occupied rental homes represent approximately 36.0% of total occupied sites. Occupancy in rental homes continues to be strong and is at 92.3% as of December 31, 2019. We compare favorably with other types of rental housing, including apartments, and we will continue to allocate capital to rental home purchases, as demand dictates. The Company holds a portfolio of marketable securities of other REITs with a fair value of $116.2 million at December 31, 2019, representing 9.2% of our undepreciated assets (total assets excluding accumulated depreciation). The REIT securities portfolio provides the Company with additional diversification, liquidity and income, and serves as a proxy for real estate when more favorable risk adjusted returns are not available. As of December 31, 2019, the Company’s portfolio consisted of 3% REIT preferred stocks and 97% REIT common stocks. The Company invests in these REIT securities and, from time to time, may use margin debt when an adequate yield spread can be obtained. As of December 31, 2019, the Company has borrowings of $37.5 million under its margin line at 2.25% interest. The Company’s weighted average yield on the securities portfolio was approximately 6.3% at December 31, 2019. At December 31, 2019, the Company had unrealized losses of $(25.2) million in its REIT securities portfolio. The dividends received from our securities investments continue to meet our expectations. It is our intent to hold these securities for investment on a long-term basis. The Company continues to strengthen its balance sheet. During 2019, the Company raised approximately $31.5 million in new capital through the Dividend Reinvestment and Stock Purchase Plan (“DRIP”). The Company also issued and sold 4 million shares of our 6.75% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) for net proceeds of $96.7 million. Additionally, the Company entered into a Preferred Stock At- The-Market Sales Program and issued and sold approximately 651,000 shares of our 6.375% Series D Preferred Stock -34- during 2019 for net proceeds of approximately $15.9 million. Subsequent to year end, the Company raised an additional $64.1 million through sales of Series D Preferred Stock under the ATM Program. At December 31, 2019, the Company had approximately $12.9 million in cash and cash equivalents and $60 million available on our credit facility, with an additional $50 million potentially available pursuant to an accordion feature. We also had $14.2 million available on our revolving lines of credit for the financing of home sales and the purchase of inventory. Subsequent to year end, the Company paid down approximately $54.5 million in loans using proceeds from the ATM Program. In addition, we held approximately $116.2 million in marketable REIT securities encumbered by $37.5 million in margin loans. In general, the Company may borrow up to 50% of the value of the marketable securities. The Company intends to continue to increase its real estate investments. Our business plan includes acquiring communities that yield in excess of our cost of funds and then making physical improvements, including adding rental homes onto otherwise vacant sites. In 2018 and 2019, we added a total of ten manufactured home communities to our portfolio, encompassing approximately 3,100 developed sites. These manufactured home communities were acquired with an average occupancy rate of 71%. The Company will utilize the rental home program to increase occupancy rates and improve operating results at these communities. There is no guarantee that any additional opportunities will materialize or that the Company will be able to take advantage of such opportunities. The growth of our real estate portfolio depends on the availability of suitable properties which meet the Company’s investment criteria and appropriate financing. Competition in the market areas in which the Company operates is significant and affects acquisitions, occupancy levels, rental rates and operating expenses of certain properties. See PART I, Item 1- Business and Item 1A – Risk Factors for a more complete discussion of the economic and industry-wide factors relevant to the Company, the Company's lines of business and principal products and services, and the opportunities, challenges and risks on which the Company is focused. Acquisitions Community Acquisitions in 2019 Date of Acquisition State Number of Sites Purchase Price (in(cid:2) thousands) Number of Acres Occupancy at Acquisition Friendly Village New Colony and Fifty One Estates Northtowne Meadows July 3, 2019 OH July 30, 2019 August 27, 2019 PA MI Total 2019 Acquisitions in 2018 Redbud Estates and Camelot Village Summit Village Pikewood Manor Perrysburg Estates and Meadows of Perrysburg Total 2018 May 30, 2018 August 31, 2018 November 30, 2018 IN IN OH December 19, 2018 OH 824 285 386 $19,386 11,650 25,201 1,495 $56,237 669 134 488 324 $20,500 3,500 23,000 12,093 1,615 $59,093 101 61 85 247 231 58 117 88 494 46% 76% 88% 62% 91% 60% 67% 79% 79% -35- Results of Operations 2019(cid:2)vs.(cid:2)2018(cid:2) Rental and related income increased from $113.8 million for the year ended December 31, 2018 to $128.6 million for the year ended December 31, 2019, or 13%. This increase was due to the acquisitions during 2018 and 2019, as well as an increase in rental rates, same property occupancy and additional rental homes. During 2019, the Company raised rental rates by 3% to 4% at most communities. Rent increases vary depending on overall market conditions and demand. Occupancy, as well as the ability to increase rental rates, directly affects revenues. The Company has been acquiring communities with vacant sites that can potentially be occupied and earn income in the future. Overall occupancy was 82.0% at December 31, 2019 and 2018, respectively. Overall occupancy includes communities acquired in 2019 and 2018, which had an average occupancy of 62% and 79%, respectively, at the time of acquisition. Same property occupancy has increased from 82.2% at December 31, 2018 to 83.8% at December 31, 2019. The same property occupancy rate is exclusive of the sites at Memphis Blues, which is under redevelopment due to a flood in 2011. Demand for rental homes continues to be strong. As of December 31, 2019, we had approximately 7,400 rental homes with an occupancy of 92.3%. We continue to evaluate the demand for rental homes and will invest in additional homes as demand dictates. Vacant sites allow for future revenue growth. Community operating expenses increased from $52.9 million for the year ended December 31, 2018 to $61.7 million for the year ended December 31, 2019, or 17%. These increases were primarily due to an increase in water and sewer costs, tree removal, rental home expenses and payroll and personnel costs primarily from the acquisitions made during 2018 and 2019 and the increase in rental homes. In addition, we incurred emergency windstorm tree removal expenses totaling $179,000. Also included in Community Operating Expenses was a one-time settlement of $375,000 for a utility billing dispute over a prior 10-year period. Community NOI increased from $60.9 million for the year ended December 31, 2018 to $66.9 million for the year ended December 31, 2019, or 10%. This increase was primarily due to the acquisitions during 2018 and 2019 and an increase in rental rates, occupancy and rental homes. The Operating Expense Ratio (defined as Community Operating Expenses divided by Rental and Related Income) was 46.5% and 47.5%, excluding non-recurring operating expenses, for the year ended December 31, 2018 and 2019, respectively. Many recently acquired communities have deferred maintenance requiring higher than normal expenditures in the first few years of ownership. Because most of the community expenses are fixed costs, as occupancy rates continue to increase, these expense ratios will continue to improve. Because of the Company’s ability to increase its rental rates annually, increasing costs due to inflation and changing prices have generally not had a material effect on revenues and income from continuing operations. Sales of manufactured homes increased from $15.8 million for the year ended December 31, 2018 to $18 million for the year ended December 31, 2019, or 14%. The total number of homes sold was 299 homes in 2019 as compared to 295 homes in 2018. There were 135 new homes sold in 2019 as compared to 125 in 2018. The Company’s average sales price was approximately $60,000 and $53,000 for the years ended December 31, 2019 and 2018, respectively. Cost of sales of manufactured homes increased from $11.7 million for the year ended December 31, 2018 to $12.9 million for the year ended December 31, 2019, or 10%. The gross profit percentage was 28% and 26% for 2019 and 2018, respectively. Selling expenses increased from $3.8 million for the year ended December 31, 2018 to $5.1 million for the year ended December 31, 2019, or 35%. Gain (Loss) from the sales operations (defined as sales of manufactured homes less cost of sales of manufactured homes less selling expenses less interest on the financing of inventory) decreased from a gain of $75,000 for the year ended December 31, 2018 to a loss of $290,000 for the year ended December 31, 2019. Many of these costs, such as rent, salaries, and to an extent, advertising and promotion, are fixed. Although sales of manufactured homes have not yet returned to pre-recession levels, the Company has experienced four consecutive years of double-digit sales growth. Management is encouraged by our continued sales growth and anticipate a return to profitability for our sales operations in 2020. The U.S. homeownership rate was 65.1% in the fourth quarter of 2019, according to the U.S. Census. This is down from 69.2% at its peak at the end of 2004. The conventional single-family housing market has strengthened, and conventional home prices continue their rise. The inherent affordability of our property type becomes more and more apparent which should result in increased demand. The Company continues to be optimistic about future sales and rental prospects given the fundamental need for affordable housing. The Company believes that sales of new homes produce new rental revenue and represents an investment in the upgrading of our communities. -36- General and Administrative Expenses decreased from $10.9 million for the year ended December 31, 2018 to $10 million for the year ended December 31, 2019, or 8%. This decrease was due to a decrease in incentive compensation. General and Administrative expenses, excluding non-recurring operating expenses, as a percentage of gross revenue (Total Income plus Interest, Dividend and Other Income) was 6.3% and 7.3% at December 31, 2019 and 2018, respectively. Depreciation expense increased from $31.7 million for the year ended December 31, 2018 to $36.8 million for the year ended December 31, 2019, or 16%. This increase was primarily due to the acquisitions and the increase in rental homes during 2019 and 2018. Interest income increased from $2.3 million for the year ended December 31, 2018 to $2.6 million for the year ended December 31, 2019, or 16%. This increase was primarily due to an increase in the average balance of notes receivable from $26.9 million for the year ended December 31, 2018 to $33.1 million for the year ended December 31, 2019. Dividend income decreased from $10.4 million for the year ended December 31, 2018 to $7.5 million for the year ended December 31, 2019, or 27%. This decrease was primarily due to a reduction in dividends from three securities. It is the Company’s intent to hold its marketable securities long-term. Dividends received from our marketable securities investments were at a weighted average yield of approximately 6.3% and 7.3% at December 31, 2019 and 2018, respectively, and continue to meet our expectations. Increase (Decrease) in Fair Value of Marketable Securities increased from an unrealized loss of $(51.7) million for the year ended December 31, 2018 to a gain of $14.9 million for the year ended December 31, 2019. As of December 31, 2019, the Company had total net unrealized losses of $(25.2) million in its REIT securities portfolio. Other income remained relatively stable for the year ended December 31, 2019 as compared to the year ended December 31, 2018. Interest expense, including amortization of financing costs, increased from $16.0 million for the year ended December 31, 2018 to $17.8 million for the year ended December 31, 2019. During the year, we obtained 3 new mortgage loans, and assumed 2 loans in conjunction with acquisitions, totaling $64.3 million. The average balance of mortgages payable was approximately $352.4 million during 2019 as compared to approximately $318 million during 2018. The weighted average interest rate on its mortgages, not including the effect of unamortized debt issuance costs, was 4.1% at December 31, 2019 as compared to 4.3% at December 31, 2018. 2018(cid:2)vs.(cid:2)2017(cid:2) Rental and related income increased from $101.8 million for the year ended December 31, 2017 to $113.8 million for the year ended December 31, 2018, or 12%. This increase was due to the acquisitions during 2017 and 2018, as well as an increase in rental rates, same property occupancy and additional rental homes. During 2018, the Company raised rental rates by 3% to 4% at most communities. Rent increases vary depending on overall market conditions and demand. Occupancy, as well as the ability to increase rental rates, directly affects revenues. The Company has been acquiring communities with vacant sites that can potentially be occupied and earn income in the future. Overall occupancy has increased from to 81.4% at December 31, 2017 to 82.0% at December 31, 2018. Overall occupancy includes communities acquired in 2018 and 2017, which had an average occupancy of 79% and 67%, respectively, at the time of acquisition. Same property occupancy has increased from 82.6% at December 31, 2017 to 83.0% at December 31, 2018. The same property occupancy rate is exclusive of the sites at Memphis Blues, which is under redevelopment due to a flood in 2011. Demand for rental homes continues to be strong. As of December 31, 2018, we had approximately 6,500 rental homes with an occupancy of 92.3%. We continue to evaluate the demand for rental homes and will invest in additional homes as demand dictates. Vacant sites allow for future revenue growth. Community operating expenses increased from $47.8 million for the year ended December 31, 2017 to $53 million for the year ended December 31, 2018, or 11%. This increase was due to the acquisitions during 2017 and 2018. -37- Community NOI increased from $54 million for the year ended December 31, 2017 to $60.9 million for the year ended December 31, 2018, or 13%. This increase was primarily due to the acquisitions during 2017 and 2018 and an increase in rental rates, occupancy and rental homes. The Operating Expense Ratio (defined as Community Operating Expenses divided by Rental and Related Income) also improved from 47.0% for the year ended December 31, 2017 to 46.5% for the year ended December 31, 2018. Many acquisitions have deferred maintenance requiring higher than normal expenditures in the first few years of ownership. Because most of the community expenses are fixed costs, as occupancy rates continue to increase, these expense ratios will continue to improve. Because of the Company’s ability to increase its rental rates annually, increasing costs due to inflation and changing prices have generally not had a material effect on revenues and income from continuing operations. Sales of manufactured homes increased from $10.8 million for the year ended December 31, 2017 to $15.8 million for the year ended December 31, 2018, or 45%. The total number of homes sold was 295 homes in 2018 as compared to 222 homes in 2017. There were 125 new homes sold in 2018 as compared to 74 in 2017. The Company’s average sales price was $53,000 and $49,000 for the years ended December 31, 2018 and 2017, respectively. Cost of sales of manufactured homes increased from $8.5 million for the year ended December 31, 2017 to $11.7 million for the year ended December 31, 2018, or 38%. The gross profit percentage was 26% and 22% for 2018 and 2017, respectively. Selling expenses increased from $3.1 million for the year ended December 31, 2017 to $3.8 million for the year ended December 31, 2018, or 22%. Gain (Loss) from the sales operations (defined as sales of manufactured homes less cost of sales of manufactured homes less selling expenses less interest on the financing of inventory) decreased from a loss $1.1 million for the year ended December 31, 2017 to a gain of $75,000 for the year ended December 31, 2018, an improvement of 107%. The gain on sales include selling expenses of approximately $3.8 million for the year ended December 31, 2018. Many of these costs, such as rent, salaries, and to an extent, advertising and promotion, are fixed. Although sales of manufactured homes have not yet returned to pre-recession levels, the Company has experienced three consecutive years of double-digit sales growth. The U.S. homeownership rate was 64.8% in the fourth quarter of 2018, according to the U.S. Census. This is down from 69.2% at its peak at the end of 2004. The conventional single-family housing market has strengthened, and conventional home prices continue their rise. The inherent affordability of our property type becomes more and more apparent which should result in increased demand. The Company continues to be optimistic about future sales and rental prospects given the fundamental need for affordable housing. The Company believes that sales of new homes produce new rental revenue and is an investment in the upgrading of our communities. General and Administrative Expenses increased from $9.7 million for the year ended December 31, 2017 to $10.9 million for the year ended December 31, 2018, or 13%. This increase was primarily due to an increase in personnel and personnel costs, as headcount, wages and incentive compensation increased in connection with the Company's growth, and an increase in non-cash stock compensation expense. Stock compensation expense increased from $1.3 million for the year ended December 31, 2017 to $1.6 million for the year ended December 31, 2018. These increases were primarily due to an increase in the weighted-average fair value of options granted from $1.81 per share for the year ended December 31, 2017 to $2.05 per share for the year ended December 31, 2018. Additionally, the Founder and Chairman of the Board was granted a discretionary stock option award of 100,000 shares, as well as 1,000 shares of restricted stock. Although these awards are usually recognized over the vesting period, the entire compensation cost of approximately $210,000 was recognized at the time of grant since he is of retirement age. Additionally, for the year ended December 31, 2018, there was a one-time payroll expenditure of $525,000 for two employees. General and Administrative expenses without this one-time payroll expenditure as a percentage of gross revenue (Total Income plus Interest, Dividend and Other Income) remains in line at 7.3% and 7.8% at December 31, 2018 and 2017, respectively. Depreciation expense increased from $27.6 million for the year ended December 31, 2017 to $31.7 million for the year ended December 31, 2018, or 15%. This increase was primarily due to the acquisitions and the increase in rental homes during 2017 and 2018. Interest income increased from $2.0 million for the year ended December 31, 2017 to $2.3 million for the year ended December 31, 2018, or 12%. This increase was primarily due to an increase in the average balance of notes receivable from $21.2 million for the year ended December 31, 2017 to $26.9 million for the year ended December 31, 2018. -38- Dividend income increased from $8.1 million for the year ended December 31, 2017 to $10.4 million for the year ended December 31, 2018, or 27%. This increase was due to an increase in the cost of securities from $121.4 million for the year ended December 31, 2017 to $139.8 million for the year ended December 31, 2018. The dividends received from our securities investments were at a weighted average yield of 7.3% and 7.4% as of December 31, 2018 and 2017, respectively, and continue to meet our expectations. It is the Company’s intent to hold these marketable securities long-term. Realized gain on sales of marketable securities, net consists of the following (in(cid:2)thousands): Gross realized gains Gross realized losses Total Gain on Sales of Marketable Securities, net Year Ended December 31, 2018 2017 $20 -0- $20 $1,749 (1) $1,748 Decrease in Fair Value of Marketable Securities decreased from $0 for the year ended December 31, 2017 to a loss of $51.7 million for the year ended December 31, 2018. On January 1, 2018, the Company adopted ASU 2016-01, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "Accumulated Other Comprehensive Income" on our Consolidated Balance Sheets. As a result, on January 1, 2018 the Company recorded an increase to beginning undistributed income (accumulated deficit) of $11.5 million to recognize the unrealized gains previously recorded in "Accumulated Other Comprehensive Income" on our Consolidated Balance Sheets. As of December 31, 2018, the Company had total net unrealized losses of $(40.2) million in its REIT securities portfolio. Other income decreased from $705,000 at December 31, 2017 to $410,000 at December 31, 2018. This decrease is mainly due to an upfront oil and gas bonus payment in 2017 of $252,000 that the Company received at one of its communities. Interest expense, including amortization of financing costs, remained relatively stable for the year ended December 31, 2018 as compared to the year ended December 31, 2017. During the year, we obtained two new mortgage loans, and assumed two loans in conjunction with acquisitions, totaling $33 million. The average balance of mortgages payable was approximately $318 million during 2018 as compared to approximately $299 million during 2017. The weighted average interest rate on its mortgages, not including the effect of unamortized debt issuance costs, was 4.3% at December 31, 2018 as compared to 4.2% at December 31, 2017. Supplemental Measures In addition to the results reported in accordance with GAAP, management’s discussion and analysis of financial condition and results of operations include certain non-GAAP financial measures that in management’s view of the business we believe are meaningful as they allow the investor the ability to understand key operating details of our business both with and without regard to certain accounting conventions or items that may not always be indicative of recurring annual cash flow of the portfolio. These non-GAAP financial measures as determined and presented by us may not be comparable to related or similarly titled measures reported by other companies, and include Community Net Operating Income (“Community NOI”), Funds from Operations Attributable to Common Shareholders (“FFO”) and Normalized Funds from Operations Attributable to Common Shareholders (“Normalized FFO”). We define Community NOI as rental and related income less community operating expenses such as real estate taxes, repairs and maintenance, community salaries, utilities, insurance and other expenses. We believe that Community NOI is helpful to investors and analysts as a direct measure of the actual operating results of our manufactured home communities, rather than our Company overall. Community NOI should not be considered a substitute for the reported results prepared in accordance with GAAP. Community NOI should not be considered as -39- an alternative to net income (loss) as an indicator of our financial performance, or to cash flows as a measure of liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. The Company’s Community NOI is calculated as follows (in(cid:2)thousands): (cid:2) 2019 2018 2017 2016 2015 Rental and Related Income Community Operating Expenses $128,611 (61,708) $113,833 (52,949) $101,801 (47,847) $90,680 (42,638) $74,763 (37,049) Community NOI $66,903 $60,884 $53,954 $48,042 $37,714 We assess and measure our overall operating results based upon an industry performance measure referred to as Funds from Operations Attributable to Common Shareholders (“FFO”), which management believes is a useful indicator of our operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of a REIT. FFO, as defined by The National Association of Real Estate Investment Trusts (“NAREIT”), represents net income (loss) attributable to common shareholders, as defined by accounting principles generally accepted in the U.S. of America (“U.S. GAAP”), excluding extraordinary items, as defined under U.S. GAAP, gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, and the change in the fair value of marketable securities plus certain non-cash items such as real estate asset depreciation and amortization. Included in the NAREIT FFO White Paper - 2018 Restatement, is an option pertaining to assets incidental to our main business in the calculation of NAREIT FFO to make an election to include or exclude gains and losses on the sale of these assets, such as marketable equity securities and include or exclude mark-to-market changes in the value recognized on these marketable equity securities. In conjunction with the adoption of the FFO White Paper - 2018 Restatement, for all periods presented, we have elected to exclude the change in the fair value of marketable securities from our FFO calculation. NAREIT created FFO as a non-U.S. GAAP supplemental measure of REIT operating performance. We define Normalized Funds from Operations Attributable to Common Shareholders (“Normalized FFO”), as FFO, excluding gains and losses realized on marketable securities investments and certain one-time charges. FFO and Normalized FFO should be considered as supplemental measures of operating performance used by REITs. FFO and Normalized FFO exclude historical cost depreciation as an expense and may facilitate the comparison of REITs which have a different cost basis. However, other REITs may use different methodologies to calculate FFO and Normalized FFO and, accordingly, our FFO and Normalized FFO may not be comparable to all other REITs. The items excluded from FFO and Normalized FFO are significant components in understanding the Company’s financial performance. FFO and Normalized FFO (i) do not represent Cash Flow from Operations as defined by GAAP; (ii) should not be considered as an alternative to net income (loss) as a measure of operating performance or to cash flows from operating, investing and financing activities; and (iii) are not alternatives to cash flow as a measure of liquidity. FFO and Normalized FFO, as calculated by the Company, may not be comparable to similarly titled measures reported by other REITs. -40- The Company’s FFO and Normalized FFO attributable to common shareholders are calculated as follows (in(cid:2)thousands(cid:2)except(cid:2)footnotes): (cid:2) 2019 2018 2017 2016 2015 Net Income (Loss) Attributable to Common Shareholders Depreciation Expense (Gain) Loss on Sales of Investment Property and Equipment Acquisition Costs Early Extinguishment of Debt (1) (Increase) Decrease in Fair Value of Marketable Securities (4) Redemption of Preferred Stock FFO Attributable to Common Shareholders Adjustments: Gain on Sales of Marketable Securities, net Non- Recurring Other Expense(2) Settlement of Memphis Mobile City Litigation (3) Normalized FFO Attributable to Common Shareholders $2,566 36,811 $(56,532) 31,691 $(7,679) 27,558 $(2,569) 23,214 $(6,123) 18,878 111 -0- -0- 131 -0- -0- 81 -0- -0- 2 79 5 80 957 475 (14,915) -0- 51,675 -0- -0- 3,502 -0- -0- -0- -0- 24,573 26,965 23,462 20,731 14,267 -0- 634 -0- (20) 525 -0- (1,748) -0- (2,285) -0- (204) -0- -0- -0- 125 $25,207 $27,470 $21,714 $18,446 $14,188 Included in Interest Expense on the Consolidated Statements of Income (Loss). (1)(cid:2) (2)(cid:2) Consists of utility billing dispute over a prior 10-year period ($375,000), emergency windstorm tree removal expenses in three communities ($179,000) and costs associated with acquisitions not completed ($80,000) in 2019 and one-time payroll expenditures ($525,000) in 2018. Included in Community Operating Expenses on the Consolidated Statements of Income (Loss). (3)(cid:2) (4)(cid:2) Represents change in unrealized gain (loss) in marketable securities which is included in the Consolidated Statements of Income (Loss) in accordance with ASU 2016-01, adopted January 1, 2018. Liquidity and Capital Resources The Company operates as a REIT deriving its income primarily from real estate rental operations. The Company’s principal liquidity demands have historically been, and are expected to continue to be, payments of expenses relating to real estate operations, acquisitions, capital improvements, development and expansions of properties, debt service, purchases of manufactured homes, investment in debt and equity securities of other REITs, financing of manufactured home sales and distribution requirements. The Company’s ability to generate cash adequate to meet these demands is dependent primarily on income from its real estate investments and securities portfolio, the sale of real estate investments and securities, financing and refinancing of mortgage debt, leveraging of real estate investments, availability of bank borrowings, proceeds from the DRIP, and access to the capital markets. The Company intends to operate its existing properties from the cash flows generated by the properties. However, the Company’s expenses are affected by various factors, including inflation. Increases in operating expenses raise the breakeven point for a property and, to the extent that they cannot be passed on through higher rents, reduce the amount of available cash flow which can adversely affect the market value of the property. The Company continues to strengthen its capital and liquidity positions and maintains financial flexibility. On April 29, 2019, the Company issued and sold 4 million shares of its Series C Preferred Stock in an underwritten registered public offering, raising net proceeds of approximately $96.7 million, after deducting the underwriting discount and other estimated offering expenses. -41- On October 21, 2019, the Company entered into a Preferred Stock At-The-Market Sales Program (“ATM Program”) with B. Riley FBR, Inc. (“B. Riley”), as distribution agent, under which the Company may offer and sell shares of the Company’s Series C Preferred Stock and/or Series D Preferred Stock, having an aggregate sales price of up to $100 million. We began selling shares under the ATM Program on October 22, 2019 and through December 31, 2019, 651,000 shares of our Series D Preferred Stock were sold at a weighted average price of $25.19 per share, generating gross proceeds of $16.4 million and net proceeds of $15.9 million, after offering expenses. Subsequent to yearend, we sold an additional 2.6 million shares of our Series D Preferred Stock under the ATM Program at a weighted average price of $25.06 per share, generating gross proceeds subsequent to year end of $64.1 million and net proceeds of $63.1 million, after offering expenses. In addition, the Company has a DRIP in which participants can purchase stock from the Company at a price of approximately 95% of market. During 2019, amounts received, including dividends reinvested of $7.7 million, totaled $31.5 million. On August 14, 2019, the Company announced that it was discontinuing granting waivers to the $1,000 monthly maximum for the purchase of shares for cash under its DRIP, which will result in less capital being raised through the DRIP going forward. Subsequent to yearend, the monthly maximum was increased from $1,000 to $5,000. On November 29, 2018, the Company entered into a First Amendment to Amended and Restated Credit Agreement to expand and extend its existing unsecured revolving credit facility. The Facility is syndicated with two banks led by BMO Capital Markets Corp., as sole lead arranger and sole book runner, with Bank of Montreal as administrative agent, and includes JPMorgan Chase Bank, N.A. as the sole syndication agent. The Amendment provides for an increase from $50 million in available borrowings to $75 million in available borrowings with a $50 million accordion feature, bringing the total potential availability up to $125 million, subject to certain conditions including obtaining commitments from additional lenders. The Amendment also extends the maturity date of the Facility from March 27, 2020 to November 29, 2022, with a one-year extension available at the Company’s option, subject to certain conditions including payment of an extension fee. Availability under the Facility is limited to 60% of the value of the unencumbered communities which the Company has placed in the Facility’s unencumbered asset pool. The Amendment increased the value of the Borrowing Base communities by reducing the capitalization rate applied to the Net Operating Income generated by the communities in the Borrowing Base from 7.5% to 7.0%. As of December 31, 2019, $60 million was available on this credit facility. The Company has the ability to finance home sales, inventory purchases and rental home purchases. The Company has a $15 million revolving line of credit for the financing of homes, of which $10 million was utilized at December 31, 2019, and revolving credit facilities totaling $28.5 million to finance inventory purchases, of which $19.3 million was utilized at December 31, 2019. Subsequent to year end, the Company paid down $15 million on our revolving credit agreement to finance inventory, $5 million on its revolving line of credit and approximately $34.5 million on its margin loan. As of December 31, 2019, the Company had $12.9 million of cash and cash equivalents and marketable securities of $116.2 million encumbered by $37.5 million in margin loans. The Company owned 122 communities of which 47 are unencumbered. The Company’s marketable securities and non-mortgaged properties provide us with additional liquidity. The Company believes that cash on hand, funds generated from operations, the DRIP and capital market, the funds available on the lines of credit, together with the ability to finance and refinance its properties will provide sufficient funds to adequately meet its obligations over the next several years. The Company’s focus is on real estate investments. The Company has historically financed purchases of real estate primarily through mortgages. During 2019, total investment property increased 15% or $136.2 million. The Company made acquisitions of four manufactured home communities totaling approximately 1,500 developed sites at an aggregate purchase price of $56.2 million. These acquisitions were funded through new mortgages, the use of our unsecured credit facility and the issuance of preferred stock. See Note 3 of the Notes to Consolidated Financial Statements for additional information on our acquisitions and Note 5 of the Notes to Consolidated Financial Statements for related debt transactions. The Company continues to evaluate acquisition opportunities. The funds for these acquisitions may come from bank borrowings, proceeds from the DRIP, and private placements or public offerings of common or preferred stock, including under the ATM Program. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made. -42- The Company also invests in rental homes and as of December 31, 2019 the Company owned approximately 7,400 rental homes, or approximately 32% of our total homesites. During 2019, our rental home portfolio increased by 882 homes or $42.8 million. The Company markets these rental homes for sale to existing residents. The Company estimates that in 2020 it will purchase approximately 800 - 900 manufactured homes to use as rental units for a total cost, including setup, of approximately $36 - $40 million. Rental home rates on new homes range from approximately $600-$1,600 per month, including lot rent, depending on size, location and market conditions. During 2019, the Company also invested approximately $22 million in other improvements to our communities. Additionally, the Company invests in marketable debt and equity securities of other REITs. The REIT securities portfolio provides the Company with additional liquidity and income and serves as a proxy for real estate when more favorable risk adjusted returns are not available. The Company generally limits its marketable securities investments to no more than approximately 15% of its undepreciated assets. During 2019, the securities portfolio increased 17% or $16.6 million primarily due to a net unrealized gain of $14.9 million and purchases of $1.8 million offset by redemption of securities with a cost of $125,000. The Company had dividend income earned of $7.5 million. The Company from time to time may purchase these securities on margin when there is an adequate yield spread. At December 31, 2019, $37.5 million was outstanding on the margin loan at a 2.25% interest rate. The following table summarizes cash flow activity for the years ended December 31, 2019, 2018 and 2017 (in(cid:2)thousands): Net Cash Provided by Operating Activities Net Cash Used in Investing Activities Net Cash Provided by Financing Activities Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash $ $ 2019 2018 2017 $ 38,516 (122,350) 90,053 $ 40,175 (137,603) 82,314 40,858 (152,921) 130,604 6,219 $ (15,114) $ 18,541 Net cash provided by operating activities remained relatively stable from 2018 to 2019. Net cash used in investing activities decreased by $15.3 million in both 2019 and 2018, primarily due to a decrease in acquisitions of manufactured home communities and a decrease in purchases of REIT securities. Net cash provided by financing activities increased by $7.7 million in 2019 to $90.1 million. The Company received $31.5 million, including dividends reinvested, through the DRIP, and sold 4 million shares of its Series C Preferred Stock in an underwritten registered public offering, raising net proceeds of approximately $96.7 million. In addition, in 2019 the Company sold 651,000 shares of its Series D Preferred Stock through its ATM Program, raising net proceeds during 2019 of approximately $15.9 million. During 2019, the Company also distributed to our common shareholders a total of $28.8 million, including dividends reinvested. In addition, the Company also paid $25.7 million in preferred dividends. Net cash provided by financing activities decreased by $48.3 million in 2018 to $82.3 million. The Company received $35.1 million, including dividends reinvested, through the DRIP, and sold 2 million shares of its Series D Preferred Stock in an underwritten registered public offering, raising net proceeds during 2018 of approximately $48 million. During 2018, the Company also distributed to our common shareholders a total of $26.6 million, including dividends reinvested. In addition, the Company also paid $20.0 million in preferred dividends. Cash flows were primarily used for purchases of manufactured home communities, capital improvements, payment of dividends, purchases of marketable securities, purchase of inventory and rental homes, loans to customers for the sales of manufactured homes, 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. -43- Cash flows used for 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 and rental home purchases, the Company is budgeting approximately $19 million in capital improvements for 2020. The Company’s significant commitments and contractual obligations relate to its mortgages and loans payable, acquisitions of manufactured home communities, retirement benefits, and the lease on its corporate offices as described in Note 8 to the Consolidated Financial Statements. The Company has 1,700 acres of undeveloped land which it could develop over the next several years. The Company continues to analyze the best use of its vacant land. As of December 31, 2019, the Company had total assets of $1.0 billion and total liabilities of $479.1 million. Our net debt (net of cash and cash equivalents) to total market capitalization as of December 31, 2019 and 2018 was approximately 29% and 37%, respectively. Our net debt, less securities (net of cash and cash equivalents and marketable securities) to total market capitalization as of December 30, 2019 and 2018 was approximately 22% and 28%, respectively. The Company believes that it has the ability to meet its obligations and to generate funds for new investments. Off-Balance Sheet Arrangements and Contractual Obligations The Company has not executed any material off-balance sheet arrangements. The following is a summary of the Company’s contractual obligations as of December 31, 2019 (in(cid:2)thousands): Contractual Obligations Total year 1-3 years 3-5 years 5 years Less than 1 More than Mortgages Payable Interest on Mortgages Payable Loans Payable Interest on Loans Payable Operating Lease Obligations Retirement Benefits $377,045 83,681 84,044 4,157 2,044 450 $8,524 15,690 67,655 3,045 277 -0- Total $551,421 $95,191 $38,489 29,429 16,090 1,094 555 -0- $85,657 $76,034 22,157 299 18 560 -0- $253,998 16,405 -0- -0- 652 450 $99,068 $271,505 Mortgages payable represents the principal amounts outstanding based on scheduled payments. The interest on these mortgages are at fixed rates ranging from 3.37% to 6.5%. The weighted average interest rate, not including the effect of unamortized debt issuance costs, was approximately 4.1% at December 31, 2019. As of December 31, 2019, the weighted average loan maturity of the mortgage payable is 6.0 years. Loans payable represents $15 million outstanding on the Company’s unsecured line of credit with an interest rate ranging from LIBOR plus 1.50% to 2.20% or Prime plus 0.50% to 1.20%, based on the Company’s overall leverage (interest rate of 3.40% as of December 31, 2019); $37.5 million outstanding on its margin line with an interest rate of 2.25% at December 31, 2019; $19.3 million outstanding on the Company’s revolving credit agreements to finance inventory with interest rates ranging from prime with a minimum of 6% to Prime plus 2% with a minimum of 8% after 18 months (weighted average interest rate of 5.87% as of December 31, 2019); $322,000 loans outstanding for the finance of rental homes with an interest rate of 6.99% at December 31, 2019; $10 million outstanding on the Company’s revolving line of credit secured by eligible notes receivables with an interest rate of prime plus 25 basis points (interest rate of 5% as of December 31, 2019); and $1.9 million outstanding on its automotive loans with a weighted average interest rate of 4.71%. -44- Operating lease obligations represent a lease with a related party for the Company’s corporate offices. On October 1, 2019, the Company entered into a new lease for its executive offices which combines the existing corporate office space with additional adjacent office space. This new lease extends our existing lease through April 30, 2027 and requires monthly lease payments of $23,098 through April 30, 2022 and $23,302 from May 1, 2022 through April 30, 2027. The Company is also responsible for its proportionate share of real estate taxes and common area maintenance. In conjunction with this new lease, the Company terminated the additional office space leases dated July 1, 2017 and February 14, 2018. Mr. Eugene W. Landy, the Founder and Chairman of the Board of the Company, owns a 24% interest in the entity that is the landlord of the property where the Company’s corporate office space is located. Management believes that the aforesaid rent is no more than what the Company would pay for comparable space elsewhere. Retirement benefits of $450,000 represent the total future amount to be paid, on an undiscounted basis, relating to the Company’s Founder and Chairman. These benefits are based upon his specific employment agreement. The agreement does not require the Company to separately fund the obligation and therefore it will be paid from the general assets of the Company. The Company has accrued these benefits on a present value basis over the term of the agreement (See Note 8 of the Notes to Consolidated Financial Statements). Critical Accounting Policies and Estimates The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Significant accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions. Management believes the following critical accounting policy is affected by our more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. For a detailed description of this and other accounting policies, see Note 2 of the Notes to Consolidated Financial Statements included in this Form 10-K. (cid:2) Real(cid:2)Estate(cid:2)Investments(cid:2) (cid:2) The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Property, Plant & Equipment (“ASC 360-10”) to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that an other than temporary impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. Upon acquisition of a property, the Company applies ASC 805, Business Combinations (“ASC 805”) and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase. -45- In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business”. ASU 2017-01 seeks to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, intangible assets and consolidation. The adoption of ASU 2017-01 was effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective dates. Early adoption is permitted. The Company adopted this standard effective January 1, 2017, on a prospective basis. The Company evaluated its acquisitions and has determined that its acquisitions of manufactured home communities during 2018 and 2019 should be accounted for as acquisitions of assets. As such, transaction costs, such as broker fees, transfer taxes, legal, accounting, valuation, and other professional and consulting fees, related to acquisitions are capitalized as part of the cost of the acquisitions, which is then subject to a purchase price allocation based on relative fair value. Prior to the adoption of ASU 2017- 01, the Company’s acquisitions were considered an acquisition of a business and therefore, the acquisition costs were expensed. The Company conducted a comprehensive review of all real estate asset classes in accordance with ASC 360-10-35-21, which indicates that asset values should be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. The process entailed the analysis of property for instances where the net book value exceeds the estimated fair value. In accordance with ASC 360-10-35-17, an impairment loss shall be recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The Company utilizes the experience and knowledge of its internal valuation team to derive certain assumptions used to determine an operating property’s cash flow. Such assumptions include lease-up rates, rental rates, rental growth rates, and capital expenditures. The Company reviewed its operating properties in light of the requirements of ASC 360-10 and determined that, as of December 31, 2019, the undiscounted cash flows over the holding period for these properties were in excess of their carrying values and, therefore, no impairment charges were required.(cid:2) Recent Accounting Pronouncements See Note 2 of the Notes to Consolidated Financial Statements. Item 7A – Quantitative and Qualitative Disclosures about Market Risk Market risk is the risk of loss from adverse changes in market prices and interest rates. The Company's principal market risk exposure is interest rate risk. The Company’s future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond the Company’s control contribute to interest rate risk. The Company mitigates this risk by maintaining prudent amounts of leverage, minimizing capital costs and interest expense while continuously evaluating all available debt and equity resources and following established risk management policies and procedures, which may include the periodic use of derivatives. The Company's primary strategy in entering into derivative contracts is to minimize the variability that changes in interest rates could have on its future cash flows. The Company generally employs derivative instruments that effectively convert a portion of its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes. -46- The following table sets forth information as of December 31, 2019, concerning the Company’s mortgages and loans payable, including principal cash flow by scheduled maturity, weighted average interest rates and estimated fair value (in(cid:2)thousands). Mortgages Payable Loans Payable Carrying Value Weighted Average Interest Rate Carrying Value Weighted Average Interest Rate 2020 2021 2022 2023 2024 Thereafter Total Estimated Fair Value -0-% 6.50% 4.42% 3.87% -0-% 4.05% 4.14%(1) $-0- 2,119 19,914 66,958 -0- 288,054 $377,045 $381,189 3.72% 4.87% 3.45% 5.53% 6.14% -0-% 3.69%(1) $67,655 640 15,450 184 115 -0- $84,044 $84,044 (1) Weighted average interest rate, not including the effect of unamortized debt issuance costs. The weighted average interest rate, including the effect of unamortized debt issuance costs, at December 31, 2019 was 4.18% for mortgages payable and 3.70% for loans payable. All mortgage loans are at fixed rates. The Company has approximately $81.9 million in variable rate loans payable. If short-term interest rates increased or decreased by 1%, interest expense would have increased or decreased by approximately $820,000. The Company invests in equity securities of other REITs and is primarily exposed to market price risk from adverse changes in market rates and conditions. The Company generally limits its marketable securities investments to no more than approximately 15% of its undepreciated assets. All securities are carried at fair value. Item 8 – Financial Statements and Supplementary Data The financial statements and supplementary data listed in Part IV, Item 15(a)(1) are incorporated herein by reference and filed as part of this report. The following is the Unaudited Selected Quarterly Financial Data (in(cid:2)thousands except(cid:2)per(cid:2)share(cid:2)amounts): SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) THREE MONTHS ENDED 2019 March 31 June 30 September 30 December 31 Total Income Total Expenses Other Income (Expense) Net Income (Loss) from continuing operations Net Income (Loss) Attributable to Common Shareholders Net Income (Loss) Attributable to Common Shareholders per Share – Basic Diluted $34,287 29,750 6,521 11,037 5,914 0.16 0.15 $37,230 32,588 (3,906) 749 (5,537) (0.15) (0.15) $37,329 32,387 7,519 12,433 5,622 0.14 0.14 $37,745 31,857 (2,282) 3,531 (3,433) (0.08) (0.08) -47- 2018 March 31 June 30 September 30 December 31 Total Income Total Expenses Other Income (Expense) Net Income (Loss) from continuing operations Net Income (Loss) Attributable to Common Shareholders Net Income (Loss) Attributable to Common Shareholders per Share – Basic and Diluted $29,796 25,492 (26,496) (22,208) (27,155) (0.76) $32,099 27,761 15,800 20,072 14,949 $33,447 28,436 (11,333) (6,349) (11,473) $34,245 29,321 (32,633) (27,731) (32,853) 0.41 (0.31) (0.87) Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in, or any disagreements with, the Company’s independent registered public accounting firm on accounting principles and practices or financial disclosure during the years ended December 31, 2019 and 2018. Item 9A – Controls and Procedures Disclosure Controls and Procedures Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rule 13a- 15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder as of December 31, 2019. Internal Control over Financial Reporting (a) Management’s Annual Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, including the possibility of collusion or improper management override of controls, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the Company’s internal control over financial reporting as of December 31, 2019. This assessment was based on criteria for effective internal control over financial reporting established in Internal(cid:2)Control(cid:2) —(cid:2) Integrated(cid:2) Framework(cid:2) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019. PKF O’Connor Davies, LLP, the Company’s independent registered public accounting firm, has issued their report on their audit of the Company’s internal control over financial reporting, a copy of which is included herein. -48- (b) Attestation Report of the Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of UMH Properties, Inc. Opinion on Internal Control over Financial Reporting We have audited UMH Properties, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control–Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and our report dated March 5, 2020, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. -49- Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PKF O’Connor Davies, LLP March 5, 2020 New York, New York (c) Changes in Internal Control over Financial Reporting There have been no changes to our internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Item 9B – Other Information None. Item 10 – Directors, Executive Officers and Corporate Governance PART III The information required by this item is incorporated herein by reference to the definitive proxy statement for the Company’s 2020 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A and the information included under the caption " Information about our Executive Officers" in Part I hereof, in accordance with General Instruction G(3) to Form 10-K. Item 11 – Executive Compensation The information required by this item is incorporated herein by reference to the definitive proxy statement for the Company’s 2020 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A, in accordance with General Instruction G(3) to Form 10-K. Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated herein by reference to the definitive proxy statement for the Company’s 2020 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A, in accordance with General Instruction G(3) to Form 10-K. Item 13 – Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated herein by reference to the definitive proxy statement for the Company’s 2020 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A, in accordance with General Instruction G(3) to Form 10-K. Item 14 – Principal Accounting Fees and Services The information required by this item is incorporated herein by reference to the definitive proxy statement for the Company’s 2020 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A, in accordance with General Instruction G(3) to Form 10-K. -50- Item 15 – Exhibits, Financial Statement Schedules PART IV (a) (1) The following Financial Statements are filed as part of this report. (i) Report of Independent Registered Public Accounting Firm (ii) Consolidated Balance Sheets as of December 31, 2019 and 2018 (iii) (iv) (iv) (v) Consolidated Statements of Income (Loss) for the years ended December 31, 2019, 2018 and 2017 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and 2017 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017 Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 (vi) Notes to Consolidated Financial Statements (a) (2) The following Financial Statement Schedule is filed as part of this report: Page(s) 56 57-58 59-60 61 62-63 64 65-98 (i) Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2019 99-108 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 consolidated financial statements or notes thereto. -51- (a) (3) The Exhibits set forth in the following index of Exhibits are filed as part of this Report. Exhibit No. Description (2) 2.1 (3) 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession Agreement and Plan of Merger dated as of June 23, 2003 (incorporated by reference from the Company’s Definitive Proxy Statement as filed with the Securities and Exchange Commission on July 10, 2003, Registration No. 001-12690). Articles of Incorporation and By-Laws Articles of Incorporation of UMH Properties, Inc., a Maryland corporation (incorporated by reference from the Company’s Definitive Proxy Statement as filed with the Securities and Exchange Commission on July 10, 2003, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the 8-K as filed by the Registrant with the Securities and Exchange Commission on April 3, 2006, Registration No. 001- 12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on May 26, 2011, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on May 26, 2011, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 10, 2012, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 10, 2012, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 31, 2012, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 31, 2012, Registration No. 001- 12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 20, 2015, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 20, 2015, Registration No. 001- 12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 5, 2016, Registration No. 001-12690). -52- Exhibit No. Description 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21 3.22 (4) 4.1 4.2 Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 5, 2016, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on August 11, 2016, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on June 5, 2017, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on July 26, 2017, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on July 26, 2017, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on January 22, 2018, Registration No. 001- 12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 29, 2019, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 29, 2019, Registration No. 001-12690). Amendment to Articles of Incorporation (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 22, 2019, Registration No. 001-12690). Articles Supplementary (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 22, 2019, Registration No. 001- 12690). Bylaws of the Company, as amended and restated, dated March 31, 2014 (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on March 31, 2014, Registration No. 001-12690). Instruments Defining the Rights of Security Holders, Including Indentures Specimen certificate of common stock of UMH Properties, Inc. (incorporated by reference to Exhibit 4.1 to the Form S-3 as filed by the Registrant with the Securities and Exchange Commission on December 21, 2010, Registration No. 333-171338). Specimen certificate representing the Series A Preferred Stock of UMH Properties, Inc. (incorporated by reference to Exhibit 4.2 to the Form 8-A12B filed by the Registrant with the Securities and Exchange Commission on February 28, 2012, Registration No. 001-12690). -53- Exhibit No. Description 4.3 4.4 4.5 (10) 10.1 10.2 10.3 10.4 Specimen certificate representing the Series B Preferred Stock of UMH Properties, Inc. (incorporated by reference to Exhibit 4.3 to the Form S-3 as filed by the Registrant with the Securities and Exchange Commission on January 21, 2016, Registration No. 333-209078). Specimen certificate representing the Series C Preferred Stock of UMH Properties, Inc. (incorporated by reference to Exhibit 4.2 to the Form 8-A12B as filed by the Registrant with the Securities and Exchange Commission on July 26, 2018, Registration No. 001-12690). Specimen certificate representing the Series D Preferred Stock of UMH Properties, Inc. (incorporated by reference to Exhibit 4.2 to the Form 8-A12B as filed by the Registrant with the Securities and Exchange Commission on January 22, 2018, Registration No. 001-12690). Material Contracts + + + + Employment Agreement with Mr. Eugene W. Landy dated December 14, 1993 (incorporated by reference to the Company’s 1993 Form 10-K as filed with the Securities and Exchange Commission on March 28, 1994). Amendment to Employment Agreement with Mr. Eugene W. Landy effective January 1, 2004 (incorporated by reference to the Company’s 2004 Form 10-K/A as filed with the Securities and Exchange Commission on March 30, 2005, Registration No. 001-12690). Second Amendment to Employment Agreement of Eugene W. Landy, dated April 14, 2008 (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 16, 2008, Registration No. 001-12690). Third Amendment to Employment Agreement with Mr. Eugene W. Landy effective October 1, 2014 (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 8, 2014, Registration No. 001-12690). 10.5 + 10.6 + + + 10.7 10.8 10.9 Amended and Restated Employment Agreement Effective January 1, 2018, between UMH Properties, Inc. and Samuel A. Landy (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2018, Registration No. 001-12690). Amended and Restated Employment Agreement Effective January 1, 2018, between UMH Properties, Inc. and Anna T. Chew (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2018, Registration No. 001-12690). Form of Indemnification Agreement between UMH Properties, Inc. and its Directors and Executive Officers (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 23, 2012, Registration No. 001-12690). UMH Properties, Inc. Amended and Restated 2013 Incentive Award Plan (incorporated by reference to the Company’s Definitive Proxy Statement (DEF 14A) as filed with the Securities and Exchange Commission on April 20, 2018, Registration No. 001-12690). Dividend Reinvestment and Stock Purchase Plan (incorporated by reference to the Company’s Registration Statement filed on Form S-3D as filed with the Securities and Exchange Commission on June 17, 2019, Registration No. 333-232162). -54- Exhibit No. 10.10 10.11 (21) (23) (31.1) (31.2) (32) * * * * * Description Amended and Restated Credit Agreement by and among UMH Properties, Inc. and Bank of Montreal dated March 28, 2018 (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 4, 2018, Registration No. 001-12690). At-the-Market Sales Agreement by and between UMH Properties, Inc. and B. Riley FBR, Inc. (incorporated by reference to the Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 22, 2019, Registration No. 001-12690). Subsidiaries of the Registrant. Consent of PKF O’Connor Davies, LLP. Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (101) Interactive Data File 101.INS ++ 101.SCH ++ 101.CAL ++ 101.LAB ++ ++ 101.PRE ++ 101.DEF XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document * + ++ Filed herewith. Denotes a management contract or compensatory plan or arrangement. Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act, is deemed not “filed” for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections. Item 16 – Form 10-K Summary Not applicable. -55- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of UMH Properties, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of UMH Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the in the period ended December 31, 2019, and the related notes and schedule listed in the Index at Item 15(a)(2)(i) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 5, 2020, expressed an unqualified opinion. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PKF O’Connor Davies, LLP We have served as the Company’s auditor since 2008. March 5, 2020 New York, New York -56- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2019 and 2018 (in(cid:2)thousands(cid:2)except(cid:2)per(cid:2)share(cid:2)amounts)(cid:2) -ASSETS- 2019 2018 Investment Property and Equipment Land Site and Land Improvements Buildings and Improvements Rental Homes and Accessories Total Investment Property Equipment and Vehicles Total Investment Property and Equipment Accumulated Depreciation Net Investment Property and Equipment Other Assets Cash and Cash Equivalents Marketable Securities at Fair Value Inventory of Manufactured Homes Notes and Other Receivables, net Prepaid Expenses and Other Assets Land Development Costs Total Other Assets $ 72,459 618,041 27,380 297,401 1,015,281 21,145 1,036,426 (232,783) 803,643 $ 68,154 533,547 25,156 254,599 881,456 18,792 900,248 (197,208) 703,040 12,902 116,186 31,967 37,995 10,762 11,998 221,810 7,433 99,596 23,703 31,494 6,195 9,441 177,862 TOTAL ASSETS $ 1,025,453 $ 880,902 See Accompanying Notes to Consolidated Financial Statements -57- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) AS OF DECEMBER 31, 2019 and 2018 (in(cid:2)thousands(cid:2)except(cid:2)per(cid:2)share(cid:2)amounts)(cid:2) - LIABILITIES AND SHAREHOLDERS’ EQUITY - 2019 2018 LIABILITIES: Mortgages Payable, net of unamortized debt issuance costs $ 373,658 $ 331,093 Other Liabilities: Accounts Payable Loans Payable, net of unamortized debt issuance costs Accrued Liabilities and Deposits Tenant Security Deposits Total Other Liabilities Total Liabilities Commitments and Contingencies Shareholders’ Equity: Series B – 8.0% Cumulative Redeemable Preferred Stock, par value $0.10 per share, 4,000 shares authorized; 3,801 shares issued and outstanding as of December 31, 2019 and 2018 Series C – 6.75% Cumulative Redeemable Preferred Stock, par value $0.10 per share, 13,750 and 5,750 shares authorized; 9,750 and 5,750 shares issued and outstanding as of December 31, 2019 and 2018, respectively Series D – 6.375% Cumulative Redeemable Preferred Stock, par value $0.10 per share, 6,000 and 2,300 shares authorized; 2,651 and 2,000 shares issued and outstanding as of December 31, 2019 and 2018, respectively Common Stock - $0.10 par value per share,123,664 and 111,364 shares authorized; 41,130 and 38,320 shares issued and outstanding as of December 31, 2019 and 2018, respectively Excess Stock - $0.10 par value per share, 3,000 shares authorized; no shares issued or outstanding as of December 31, 2019 and 2018 Additional Paid-In Capital Undistributed Income (Accumulated Deficit) Total Shareholders’ Equity 4,572 83,686 10,575 6,623 105,456 479,114 3,873 107,985 7,411 5,842 125,111 456,204 95,030 95,030 243,750 143,750 66,268 50,000 4,113 3,832 -0- 162,542 (25,364) 546,339 -0- 157,450 (25,364) 424,698 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,025,453 $ 880,902 See Accompanying Notes to Consolidated Financial Statements -58- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017 (in(cid:2)thousands)(cid:2) INCOME: Rental and Related Income Sales of Manufactured Homes 2019 2018 2017 $ 128,611 17,980 $ 113,833 15,754 $ 101,801 10,847 Total Income 146,591 129,587 112,648 EXPENSES: Community Operating Expenses Cost of Sales of Manufactured Homes Selling Expenses General and Administrative Expenses Depreciation Expense 61,708 12,938 5,079 10,046 36,811 52,949 11,716 3,774 10,880 31,691 47,847 8,471 3,095 9,646 27,558 Total Expenses 126,582 111,010 96,617 OTHER INCOME (EXPENSE): Interest Income Dividend Income Gain on Sales of Marketable Securities, net Increase (Decrease) in Fair Value of Marketable Securities Other Income Interest Expense 2,619 7,535 -0- 14,915 588 (17,805) 2,255 10,367 20 (51,675) 410 (16,039) 2,007 8,135 1,748 -0- 705 (15,877) Total Other Income (Expense) 7,852 (54,662) (3,282) Income (Loss) Before Loss on Sales of Investment Property and Equipment Loss on Sales of Investment Property and Equipment Net Income (Loss) Less: Preferred Dividends Less: Redemption of Preferred Stock 27,861 (36,085) (111) (131) 27,750 (36,216) (25,184) -0- (20,316) -0- 12,749 (81) 12,668 (16,845) (3,502) Net Income (Loss) Attributable to Common Shareholders $ 2,566 $ (56,532) $ (7,679) See Accompanying Notes to Consolidated Financial Statements -59- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017 (in(cid:2)thousands(cid:2)except(cid:2)per(cid:2)share(cid:2)amounts)(cid:2) 2019 2018 2017 Basic Income (Loss) Per Share: Net Income (Loss) Less: Preferred Dividends Less: Redemption of Preferred Stock Net Income (Loss) Attributable to Common Shareholders $0.70 (0.63) -0- $0.07 Diluted Income (Loss) Per Share: Net Income (Loss) Less: Preferred Dividends Less: Redemption of Preferred Stock Net Income (Loss) Attributable to Common Shareholders Weighted Average Common Shares Outstanding: Basic Diluted $0.69 (0.63) -0- $0.06 39,909 40,203 $(0.98) (0.55) -0- $(1.53) $(0.98) (0.55) -0- $(1.53) 36,871 36,871 $0.39 (0.52) (0.11) $(0.24) $0.39 (0.52) (0.11) $(0.24) 32,676 32,676 See Accompanying Notes to Consolidated Financial Statements -60- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017 (in(cid:2)thousands)(cid:2) 2019 2018 2017 Net Income (Loss) $27,750 $(36,216) $12,668 Other Comprehensive Income (Loss): Unrealized Holding Gains (Losses) Arising During the Year Reclassification Adjustment for Net Gains Realized in Income Change in Fair Value of Interest Rate Swap Agreements Comprehensive Income (Loss) Less: Preferred Dividends Less: Redemption of Preferred Stock -0- -0- -0- -0- -0- -0- 27,750 (25,184) -0- (36,216) (20,316) -0- (3,449) (1,748) 4 7,475 (16,845) (3,502) Comprehensive Income (Loss) Attributable to Common Shareholders $2,566 $(56,532) $(12,872) See Accompanying Notes to the Consolidated Financial Statements -61- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017 (in(cid:2)thousands) Balance December 31, 2016 29,389 $2,939 $91,595 $95,030 $-0- Common Stock Issued and Outstanding Number Amount Preferred Stock Series A Preferred Stock Series B Preferred Stock Series C Common Stock Issued with the DRIP* Common Stock Issued through Restricted Stock Awards Common Stock Issued through Stock Options Common Stock Issued through Registered Direct Placement, net Preferred Stock Issued through Underwritten Registered Public Offering, net Preferred Stock Called for Redemption Distributions Stock Compensation Expense Net Income Unrealized Net Holding Gain on Securities Available for Sale, Net of Reclassification Adjustment Interest Rate Swaps 4,095 56 548 1,400 -0- -0- -0- -0- -0- -0- -0- 409 6 55 140 -0- -0- -0- -0- -0- -0- -0- Balance December 31, 2017 35,488 3,549 Unrealized Net Holding Gain on Securities Available for Sale, Net of Reclassification Adjustment (See Note 2) Common Stock Issued with the DRIP* Common Stock Issued through Restricted Stock Awards Common Stock Issued through Stock Options Preferred Stock Issued through Underwritten Registered Public Offering, net Distributions Stock Compensation Expense Net Income (Loss) -0- 2,654 49 129 -0- -0- -0- -0- -0- 265 5 13 -0- -0- -0- -0- Balance December 31, 2018 38,320 3,832 Common Stock Issued with the DRIP* Common Stock Issued through Restricted/ Unrestricted Stock Awards Common Stock Issued through Stock Options Repurchase of Common Stock Preferred Stock Issued through Underwritten Registered Public Offering, net Preferred Stock Issued in connection with At-The-Market Offerings, net Distributions Stock Compensation Expense Net Income (Loss) 2,468 122 240 (20) -0- -0- -0- -0- -0- 247 12 24 (2) -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- (91,595) -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- 143,750 -0- -0- -0- -0- -0- -0- 95,030 143,750 -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- 95,030 143,750 -0- -0- -0- -0- -0- -0- -0- -0- -0- 100,000 -0- -0- -0- -0- -0- -0- -0- -0- Balance December 31, 2019 41,130 $4,113 $-0- $95,030 $243,750 *Dividend(cid:2)Reinvestment(cid:2)and(cid:2)Stock(cid:2)Purchase(cid:2)Plan See Accompanying Notes to Consolidated Financial Statements -62- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017 (cid:2)(in(cid:2)thousands) Balance December 31, 2016 $-0- $111,423 $16,713 $ (668) $317,032 Preferred Stock Series D Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Undistributed Income (Accumulated Deficit) Total Shareholders’ Equity Common Stock Issued with the DRIP* Common Stock Issued through Restricted Stock Awards Common Stock Issued through Stock Options Common Stock Issued through Registered Direct Placement, net Preferred Stock Issued through Underwritten Registered Public Offering, net Preferred Stock Called for Redemption Distributions Stock Compensation Expense Net Income Unrealized Net Holding Gain on Securities Available for Sale, Net of Reclassification Adjustment Interest Rate Swaps Balance December 31, 2017 Unrealized Net Holding Gain on Securities Available for Sale, Net of Reclassification Adjustment (See Note 2) Common Stock Issued with the DRIP* Common Stock Issued through Restricted Stock Awards Common Stock Issued through Stock Options Preferred Stock Issued through Underwritten Registered Public Offering, net Distributions Stock Compensation Expense Net Income (Loss) -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- 50,000 -0- -0- -0- Balance December 31, 2018 50,000 157,450 Common Stock Issued with the DRIP* Common Stock Issued through Restricted Stock Awards Common Stock Issued through Stock Options Repurchase of Common Stock Preferred Stock Issued through Underwritten Registered Public Offering, net Preferred Stock Issued in connection with At-The-Market Offerings, net Distributions Stock Compensation Expense Net Income (Loss) -0- -0- -0- -0- -0- 16,268 -0- -0- -0- 31,256 (12) 2,579 (235) (3,312) (337) (26,786) 1,939 -0- 59,956 (6) 5,381 22,378 (4,774) 3,488 (31,125) 1,314 -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- (5,197) 4 -0- -0- -0- -0- -0- (3,488) (9,180) -0- 12,668 -0- -0- 60,365 -0- 5,436 22,518 138,976 (91,595) (40,305) 1,314 12,668 (5,197) 4 168,035 11,520 (668) 421,216 34,849 (5) 1,372 (1,753) (46,661) 1,613 -0- (11,520) -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- 11,520 -0- -0- -0- -0- -0- -0- (36,216) -0- 35,114 -0- 1,385 48,247 (46,661) 1,613 (36,216) (25,364) 424,698 -0- -0- -0- -0- -0- -0- (27,750) -0- 27,750 31,503 -0- 2,603 (237) 96,688 15,931 (54,536) 1,939 27,750 Balance December 31, 2019 $66,268 $162,542 $-0- $(25,364) $546,339 *Dividend(cid:2)Reinvestment(cid:2)and(cid:2)Stock(cid:2)Purchase(cid:2)Plan.(cid:2)(cid:2) See Accompanying Notes to Consolidated Financial Statements -63- UMH PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 and 2017 (in(cid:2)thousands)(cid:2) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) Non-cash items included in Net Income (Loss): Depreciation Amortization of Financing Costs Stock Compensation Expense Provision for Uncollectible Notes and Other Receivables Gain on Sales of Marketable Securities, net (Increase) Decrease in Fair Value of Marketable Securities Loss on Sales of Investment Property and Equipment Changes in Operating Assets and Liabilities: Inventory of Manufactured Homes Notes and Other Receivables, net of Notes Acquired with Acquisitions Prepaid Expenses and Other Assets Accounts Payable Accrued Liabilities and Deposits Tenant Security Deposits Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Manufactured Home Communities, net of mortgages assumed Purchase of Investment Property and Equipment Proceeds from Sales of Investment Property and Equipment Additions to Land Development Costs Purchase of Marketable Securities Proceeds from Sales/ Redemption of Marketable Securities Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Mortgages, net of mortgages assumed Net (Payments) Proceeds from Short Term Borrowings Principal Payments of Mortgages and Loans Financing Costs on Debt Proceeds from Issuance of Preferred Stock, net of offering costs Proceeds from At-The-Market Preferred Equity Program, net of offering costs Redemption of 8.25% Series A Preferred Stock Proceeds from Registered Direct Placement of Common Stock, net of offering costs Proceeds from Issuance of Common Stock in the DRIP, net of Dividend Reinvestments Repurchase of Common Stock Proceeds from Exercise of Stock Options Preferred Dividends Paid Common Dividends Paid, net of Dividend Reinvestments Net Cash Provided by Financing Activities Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash Cash, Cash Equivalents and Restricted Cash at Beginning of Year 2019 2018 2017 $ 27,750 $ (36,216) $ 12,668 36,811 758 1,939 1,408 -0- (14,915) 111 (8,264) (7,909) (3,817) 699 3,164 781 38,516 (38,799) (64,535) 2,745 (20,086) (1,800) 125 (122,350) 44,850 (24,373) (21,624) (752) 96,688 15,931 -0- -0- 23,796 (237) 2,603 (25,709) (21,120) 90,053 6,219 12,777 31,691 625 1,613 1,231 (20) 51,675 131 (6,134) (6,438) (457) 913 846 715 40,175 (55,880) (52,970) 2,754 (13,221) (18,555) 269 (137,603) 28,192 23,652 (6,866) (749) 48,247 -0- -0- -0- 30,038 -0- - 1,385 (20,050) (21,535) 82,314 (15,114) 27,891 27,558 661 1,314 1,274 (1,748) -0- 81 (144) (2,332) 455 (1) 264 808 40,858 (61,670) (62,012) 2,300 (3,881) (45,075) 17,417 (152,921) 44,420 26,401 (34,971) (641) 138,976 -0- (91,595) 22,518 57,506 -0- 5,436 (16,666) (20,780) 130,604 18,541 9,350 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR $ 18,996 $ 12,777 $ 27,891 See Accompanying Notes to Consolidated Financial Statements -64- UMH PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 and 2018 NOTE 1 – ORGANIZATION UMH Properties, Inc., a Maryland corporation, and its subsidiaries (the “Company”) operates as a real estate investment trust (“REIT”) deriving its income primarily from real estate rental operations. The Company, through its wholly-owned taxable subsidiary, UMH Sales and Finance, Inc. (“S&F”), also sells manufactured homes to residents and prospective residents in our communities. Inherent in the operations of manufactured home communities are site vacancies. S&F was established to fill these vacancies and enhance the value of the communities. The Company also owns a portfolio of REIT securities which the Company generally limits to no more than approximately 15% of its undepreciated assets (which is the Company’s total assets excluding accumulated depreciation). Management views the Company as a single segment based on its method of internal reporting in addition to its allocation of capital and resources. Description of the Business As of December 31, 2019, the Company owns and operates 122 manufactured home communities containing approximately 23,100 developed sites. These communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan and Maryland. These manufactured home communities are listed by trade names as follows: MANUFACTURED HOME COMMUNITY LOCATION Allentown Arbor Estates Auburn Estates Birchwood Farms Boardwalk Broadmore Estates Brookside Village Brookview Village Camelot Village Candlewick Court Carsons Catalina Cedarcrest Village Chambersburg I & II Chelsea Cinnamon Woods City View Clinton Mobile Home Resort Collingwood Colonial Heights Countryside Estates Countryside Estates Countryside Village Cranberry Village Crestview Cross Keys Village Crossroads Village Dallas Mobile Home Community Deer Meadows D & R Village Memphis, Tennessee Doylestown, Pennsylvania Orrville, Ohio Birch Run, Michigan Elkhart, Indiana Goshen, Indiana Berwick, Pennsylvania Greenfield Center, New York Anderson, Indiana Owosso, Michigan Chambersburg, Pennsylvania Middletown, Ohio Vineland, New Jersey Chambersburg, Pennsylvania Sayre, Pennsylvania Conowingo, Maryland Lewistown, Pennsylvania Tiffin, Ohio Horseheads, New York Wintersville, Ohio Muncie, Indiana Ravenna, Ohio Columbia, Tennessee Cranberry Township, Pennsylvania Athens, Pennsylvania Duncansville, Pennsylvania Mount Pleasant, Pennsylvania Toronto, Ohio New Springfield, Ohio Clifton Park, New York -65- MANUFACTURED HOME COMMUNITY LOCATION Evergreen Estates Evergreen Manor Evergreen Village Fairview Manor Fifty One Estates Forest Creek Forest Park Village Fox Chapel Village Frieden Manor Friendly Village Green Acres Gregory Courts Hayden Heights Heather Highlands High View Acres Highland Highland Estates Hillcrest Crossing Hillcrest Estates Hillside Estates Holiday Village Holiday Village Holly Acres Estates Hudson Estates Huntingdon Pointe Independence Park Kinnebrook Lake Sherman Village Lakeview Meadows Laurel Woods Little Chippewa Maple Manor Marysville Estates Meadowood Meadows Meadows of Perrysburg Melrose Village Melrose West Memphis Blues Monroe Valley Moosic Heights Mount Pleasant Village Mountaintop New Colony Northtowne Meadows Oak Ridge Estates Oakwood Lake Village Olmsted Falls Oxford Village Parke Place Perrysburg Estates Pikewood Manor Pine Ridge Village/Pine Manor Pine Valley Estates Pleasant View Estates Port Royal Village Lodi, Ohio Bedford, Ohio Mantua, Ohio Millville, New Jersey Elizabeth, Pennsylvania Elkhart, Indiana Cranberry Township, Pennsylvania Cheswick, Pennsylvania Schuylkill Haven, Pennsylvania Perrysburg, Ohio Chambersburg, Pennsylvania Honey Brook, Pennsylvania Dublin, Ohio Inkerman, Pennsylvania Apollo, Pennsylvania Elkhart, Indiana Kutztown, Pennsylvania Lower Burrell, Pennsylvania Marysville, Ohio Greensburg, Pennsylvania Nashville, Tennessee Elkhart, Indiana Erie, Pennsylvania Peninsula, Ohio Tarrs, Pennsylvania Clinton, Pennsylvania Monticello, New York Navarre, Ohio Lakeview, Ohio Cresson, Pennsylvania Orrville, Ohio Taylor, Pennsylvania Marysville, Ohio New Middletown, Ohio Nappanee, Indiana Perrysburg, Ohio Wooster, Ohio Wooster, Ohio Memphis, Tennessee Jonestown, Pennsylvania Avoca, Pennsylvania Mount Pleasant, Pennsylvania Narvon, Pennsylvania West Mifflin, Pennsylvania Erie, Michigan Elkhart, Indiana Tunkhannock, Pennsylvania Olmsted Township, Ohio West Grove, Pennsylvania Elkhart, Indiana Perrysburg, Ohio Elyria, Ohio Carlisle, Pennsylvania Apollo, Pennsylvania Bloomsburg, Pennsylvania Belle Vernon, Pennsylvania -66- MANUFACTURED HOME COMMUNITY LOCATION Redbud Estates River Valley Estates Rolling Hills Estates Rostraver Estates Sandy Valley Estates Shady Hills Somerset Estates/Whispering Pines Southern Terrace Southwind Village Spreading Oaks Village Springfield Meadows Suburban Estates Summit Estates Summit Village Sunny Acres Sunnyside Trailmont Twin Oaks I & II Twin Pines Valley High Valley Hills Valley Stream Valley View I Valley View II Valley View Honeybrook Voyager Estates Waterfalls Village Wayside Weatherly Estates Wellington Estates Woodland Manor Woodlawn Village Woods Edge Wood Valley Worthington Arms Youngstown Estates Anderson, Indiana Marion, Ohio Carlisle, Pennsylvania Belle Vernon, Pennsylvania Magnolia, Ohio Nashville, Tennessee Somerset, Pennsylvania Columbiana, Ohio Jackson, New Jersey Athens, Ohio Springfield, Ohio Greensburg, Pennsylvania Ravenna, Ohio Marion, Indiana Somerset, Pennsylvania Eagleville, Pennsylvania Goodlettsville, Tennessee Olmsted Township, Ohio Goshen, Indiana Ruffs Dale, Pennsylvania Ravenna, Ohio Mountaintop, Pennsylvania Ephrata, Pennsylvania Ephrata, Pennsylvania Honey Brook, Pennsylvania West Newton, Pennsylvania Hamburg, New York Bellefontaine, Ohio Lebanon, Tennessee Export, Pennsylvania West Monroe, New York Eatontown, New Jersey West Lafayette, Indiana Caledonia, Ohio Lewis Center, Ohio Youngstown, New York NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The Company prepares its financial statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s subsidiaries are all 100% wholly-owned. The consolidated financial statements of the Company include all of these subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority interest in any other company, either consolidated or unconsolidated. Use of Estimates In preparing the consolidated financial statements in accordance with GAAP, 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. These estimates and assumptions include the allowance for doubtful accounts, valuation of inventory, depreciation, valuation of securities, reserves and accruals, and stock compensation expense. Actual results could differ from these estimates and assumptions. -67- Investment Property and Equipment and Depreciation Property and equipment are carried at cost less accumulated depreciation. Depreciation for Sites and Buildings is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 15 to 27.5 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 27.5 years). Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Site and Land Improvements. Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statements and any gain or loss is reflected in the current year’s results of operations. The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Property, Plant & Equipment (“ASC 360-10”) to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that an other than temporary impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded. The Company conducted a comprehensive review of all real estate asset classes in accordance with ASC 360-10-35-21. The process entailed the analysis of property for instances where the net book value exceeded the estimated fair value. The Company utilizes the experience and knowledge of its internal valuation team to derive certain assumptions used to determine an operating property’s cash flow. Such assumptions include lease-up rates, rental rates, rental growth rates, and capital expenditures. The Company reviewed its operating properties in light of the requirements of ASC 360-10 and determined that, as of December 31, 2019, the undiscounted cash flows over the expected holding period for these properties were in excess of their carrying values and, therefore, no impairment charges were required. Acquisitions The Company accounts for acquisitions in accordance with ASC 805, Business Combinations (“ASC 805”) and allocates the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party appraisal of the property obtained in conjunction with the purchase. Effective January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business”. The Company evaluated its acquisitions and has determined that its acquisitions of manufactured home communities during 2018 and 2019 should be accounted for as acquisitions of assets. As such, transaction costs, such as broker fees, transfer taxes, legal, accounting, valuation, and other professional and consulting fees, related to acquisitions are capitalized as part of the cost of the acquisitions, which is then subject to a purchase price allocation based on relative fair value. See “Recently Adopted Accounting Pronouncements” below for additional information regarding the adoption of this ASU. Cash and Cash Equivalents Cash and cash equivalents include all cash and investments with an original maturity of three months or less. The Company maintains its cash in bank accounts in amounts that may exceed federally insured limits. The Company has not experienced any losses in these accounts in the past. The fair value of cash and cash equivalents approximates their current carrying amounts since all such items are short-term in nature. -68- Marketable Securities Investments in marketable securities consist of marketable common and preferred stock securities of other REITs, which the Company generally limits to no more than approximately 15% of its undepreciated assets. These marketable securities are all publicly-traded and purchased on the open market, through private transactions or through dividend reinvestment plans. The Company normally holds REIT securities on a long-term basis and has the ability and intent to hold securities to recovery, therefore as of December 31, 2019 and 2018, gains or losses on the sale of securities are based on average cost and are accounted for on a trade date basis. On January 1, 2018, the Company adopted ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-01 requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "Accumulated Other Comprehensive Income" on our Consolidated Balance Sheets. As a result, on January 1, 2018 the Company recorded an increase to beginning undistributed income (accumulated deficit) of $11.5 million to recognize the unrealized gains previously recorded in "Accumulated Other Comprehensive Income" on our Consolidated Balance Sheets. Subsequent changes in the fair value of the Company’s marketable securities are recorded in Increase (Decrease) in Fair Value of Marketable Securities on our Consolidated Statements of Income (Loss). See “Recently Adopted Accounting Pronouncements” below for additional information regarding the adoption of this ASU. Inventory of Manufactured Homes Inventory of manufactured homes is valued at the lower of cost or net realizable value and is determined by the specific identification method. All inventory is considered finished goods. Accounts and Notes Receivables The Company’s accounts, notes and other receivables are stated at their outstanding balance and reduced by an allowance for uncollectible accounts. The Company evaluates the recoverability of its receivables whenever events occur or there are changes in circumstances such that management believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the notes receivable or lease agreements. The collectability of notes receivable is measured based on the present value of the expected future cash flow discounted at the notes receivable effective interest rate or the fair value of the collateral if the notes receivable is collateral dependent. Total notes receivables at December 31, 2019 and 2018 were $36.4 million and $29.7 million, respectively. At December 31, 2019 and 2018, the reserves for uncollectible accounts, notes and other receivables were $1.3 million and $1.1 million, respectively. For the years ended December 31, 2019, 2018 and 2017, the provisions for uncollectible notes and other receivables were $1.4 million, $1.2 million and $1.3 million, respectively. Charge-offs and other adjustments related to repossessed homes for the years ended December 31, 2019, 2018 and 2017 amounted to $1.2 million, $1.4 million and $1.2 million, respectively. The Company’s notes receivable primarily consists of installment loans collateralized by manufactured homes with principal and interest payable monthly. The weighted average interest rate on these loans is approximately 7.8% and the average maturity is approximately 12 years. Unamortized Financing Costs Costs incurred in connection with obtaining mortgages and other financings and refinancings are deferred and presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability. These costs are amortized on a straight-line basis over the term of the related obligations, and included as a component of interest expense. Unamortized costs are charged to expense upon prepayment of the obligation. Upon amendment of the line of credit or refinancing of mortgage debt, unamortized deferred financing fees are accounted for in accordance with ASC 470-50-40, Modifications and Extinguishments. As of December 31, 2019 and 2018, accumulated amortization amounted to $5.1 million and $4.4 million, respectively. The Company estimates that aggregate amortization expense will be approximately $794,000 for 2020, $729,000 for 2021, $658,000 for 2022, $476,000 for 2023, $430,000 for 2024 and $657,000 thereafter. -69- Derivative Instruments and Hedging Activities In the normal course of business, the Company is exposed to financial market risks, including interest rate risk on our variable rate debt. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of derivative financial instruments. The Company's primary strategy in entering into derivative contracts is to minimize the variability that changes in interest rates could have on its future cash flows. The Company generally employs derivative instruments that effectively convert a portion of its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes. The Company had entered into various interest rate swap agreements that have had the effect of fixing interest rates relative to specific mortgage loans. As of December 31, 2019 and 2018, these agreements have expired and the Company no longer had any interest rate swap agreements in effect. Revenue Recognition The Company derives its income primarily from the rental of manufactured homesites. The Company also owns approximately 7,400 rental units which are rented to residents. Rental and related income is recognized on the accrual basis over the term of the lease, which is typically one year or less. Sale of manufactured homes is recognized on the full accrual basis when certain criteria are met. These criteria include the following: (a) initial and continuing payment by the buyer must be adequate: (b) the receivable, if any, is not subject to future subordination; (c) the benefits and risks of ownership are substantially transferred to the buyer; and (d) the Company does not have a substantial continued involvement with the home after the sale. Alternatively, when the foregoing criteria are not met, the Company recognizes gains by the installment method. Interest income on loans receivable is not accrued when, in the opinion of management, the collection of such interest appears doubtful. Net Income (Loss) Per Share Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period (39.9 million, 36.9 million and 32.7 million in 2019, 2018 and 2017, respectively). Diluted net income (loss) per share is calculated by dividing net income (loss) 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. For the year ended December 31, 2019, common stock equivalents resulting from employee stock options to purchase 2.6 million shares of common stock amounted to 294,000 shares, which were included in the computation of Diluted Net Income (Loss) per Share. For the years ended December 31, 2018 and 2017, employee stock options to purchase 2.3 million and 1.8 million, respectively, shares of common stock were excluded from the computation of Diluted Net Income (Loss) per Share as their effect would be anti-dilutive. Stock Compensation Plan The Company accounts for awards of stock, stock options and restricted stock in accordance with ASC 718- 10, Compensation-Stock Compensation. ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). The compensation cost for stock option grants are determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. The compensation expense for restricted stock are recognized based on the fair value of the restricted stock awards less estimated forfeitures. The fair value of restricted stock awards are equal to the fair value of the Company’s stock on the grant date. Compensation costs, which is included in General and Administrative Expenses, of $1.9 million, $1.6 million and $1.3 million have been recognized in 2019, 2018 and 2017, respectively. During 2019, 2018 and 2017, compensation costs included a one-time charge of $179,000, $210,000 and $201,000, respectively, for restricted stock and stock option grants awarded to one participant who is of retirement age and therefore the entire amount of measured compensation cost has been recognized at grant date. Included in Note 6 to these consolidated financial statements are the assumptions and methodology used to calculate the fair value of stock options and restricted stock awards. -70- Income Tax The Company has elected to be taxed as a REIT under the applicable provisions of Sections 856 to 860 of the Internal Revenue Code. Under such provisions, the Company will not be taxed on that portion of its income which is distributed to shareholders, provided it distributes at least 90% of its taxable income, has at least 75% of its assets in real estate or cash-type investments and meets certain other requirements for qualification as a REIT. The Company has and intends to continue to distribute all of its income currently, and therefore no provision has been made for income or excise taxes. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent taxable years. The Company is also subject to certain state and local income, excise or franchise taxes. In addition, the Company has a taxable REIT Subsidiary (“TRS”) which is subject to federal and state income taxes at regular corporate tax rates (See Note 11). The Company follows the provisions of ASC Topic 740, Income Taxes, that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on its evaluation, the Company determined that it has no uncertain tax positions and no unrecognized tax benefits as of December 31, 2019. The Company records interest and penalties relating to unrecognized tax benefits, if any, as interest expense. As of December 31, 2019, the tax years 2016 through and including 2019 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress. Comprehensive Income (Loss) Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) consists of the change in unrealized gains or losses on marketable securities through December 31, 2017 and the change in the fair value of derivatives. Reclassifications Certain amounts in the consolidated financial statements for the prior years have been reclassified to conform to the financial statement presentation for the current year. Recently Adopted Accounting Pronouncements Adopted(cid:2)2019(cid:2) (cid:2) In August 2018, the Securities and Exchange Commission adopted the final rule under SEC Release No. 33- 10532, “Disclosure Update and Simplification”, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The first presentation of changes in stockholders’ equity was included in the Form 10-Q for the quarter ended March 31, 2019. In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets as a right- of-use asset and a corresponding liability. ASU 2016-02 also makes targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”, which included amendments to clarify certain aspects of the new lease standard. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 842) – Target Improvements.” ASU No. 2018- 11 provides a new transition method and a practical expedient to separating contract components as required by ASU 2016-02. Under ASU 2018-11, an entity applying the new lease accounting standard may record a cumulative adjustment to the opening balance of undistributed income (accumulated deficit) in the period of adoption, instead of having to restate comparative results, as initially required. Additionally, ASU No. 2018-11 provide lessors with a -71- practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance if both 1. the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same (instead of the timing and pattern of revenue recognition, as proposed); and 2. the lease component, if accounted for separately, would be classified as an operating lease. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842) – Narrow-Scope Improvements for Lessors.” ASU 2018-20 allow lessors to make an accounting policy election not to evaluate whether sales taxes and similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction are the primary obligation of the lessor as owner of the underlying leased asset. The amendments also require a lessor to exclude lessor costs paid directly by a lessee to third parties on the lessor’s behalf from variable payments and include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense. In addition, the amendments clarify that when lessors allocate variable payments to lease and non-lease components they are required to follow the recognition guidance in the new lease standard for the lease component and other applicable guidance, such as the new revenue standard, for the non-lease component. The Company adopted this standard effective January 1, 2019, and it did not have a material impact on the Company’s financial position, results of operations or cash flows. Our primary source of revenue is generated from lease agreements for our sites and homes, where we are the lessor. The non-lease components of our lease agreements consist primarily of utility reimbursements. We have elected the lessor practical expedient to combine the lease and non-lease components. We are the lessee in other arrangements, primarily for our corporate office and a ground lease at one community. For leases with a term greater than one year, right-of-use assets and corresponding liabilities are included on the Consolidated Balance Sheet. The right-of-use asset and corresponding lease liabilities are measured as the estimated present value of minimum lease payments at the commencement of the lease agreement and discounted by our borrowing rate. As of December 31, 2019, the right-of-use assets and corresponding lease liabilities of $3.9 million is included in Prepaid Expenses and Other Assets and Accrued Liabilities and Deposits on the Consolidated Balance Sheets. Future minimum lease payments under these leases over the remaining lease terms are as follows (in(cid:2)thousands): 2020 2021 2022 2023 2024 Thereafter Total Lease Payments $ 427 427 417 384 384 8,502 $ 10,541 The weighted average remaining lease term for these leases is 143.2 years. The right of use assets and lease liabilities was calculated using an interest rate of 5%. Additionally, for all leases, we have elected the package of practical expedients, which permits the Company not to reassess expired or existing contracts containing a lease, the lease classification for expired or existing contracts, and measurement of initial direct costs for any existing leases. Adopted(cid:2)2018(cid:2) (cid:2) In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017-09 clarifies which changes to the terms or conditions of a share based payment award are subject to the guidance on modification accounting under FASB Accounting Standards Codification Topic 718. Entities would apply the modification accounting guidance unless the value, vesting requirements and classification of a share based payment award are the same immediately before and after a change to the terms or conditions of the award. ASU No. 2017-09 was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this standard effective January 1, 2018, and it did not have a material impact on our financial position, results of operations or cash flows. -72- In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets.” ASU 2017-05 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets and in-substance non-financial assets in contracts with non-customers, unless other specific guidance applies. The standard requires a company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial asset. Additionally, when a company transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the company is required to measure any non-controlling interest it receives or retains at fair value. The guidance requires companies to recognize a full gain or loss on the transaction. As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20 is eliminated. As such, sales and partial sales of real estate assets are now subject to the same derecognition model as all other nonfinancial assets. The guidance was effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard effective January 1, 2018, and it did not have a material impact on our financial position, results of operations or cash flows. In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires inclusion of restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The guidance was effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard effective January 1, 2018. The Company’s restricted cash consists of amounts primarily held in deposit for tax, insurance and repair escrows held by lenders in accordance with certain debt agreements. Restricted cash is included in Prepaid Expenses and Other Assets on the Consolidated Balance Sheets. Previously, changes in restricted cash were reported on the Consolidated Statements of Cash Flows as operating, investing or financing activities based on the nature of the underlying activity. The following table reconciles beginning of period and end of period balances of cash, cash equivalents and restricted cash for the periods shown (in(cid:2)thousands): 12/31/19 12/31/18 12/31/17 Cash and Cash Equivalents Restricted Cash Cash, Cash Equivalents And Restricted Cash $12,902 6,094 $7,433 5,344 $23,242 4,649 $18,996 $12,777 $27,891 In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 was effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. The Company adopted this standard effective January 1, 2018, and it did not have a material impact on our financial position, results of operations or cash flows. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 was effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. The Company adopted this standard effective January 1, 2018. The Company previously classified its marketable securities as available-for-sale and carried at fair value with unrealized holding gains and losses excluded from earnings and reported as a separate component of Shareholders’ Equity until realized. The change in the unrealized net holding gains (losses) was reflected in the Company’s Comprehensive Income (Loss). As a result of adoption, these securities will continue to be measured at fair value; however, the change in the unrealized net holding gains and losses is now recognized through net income. As of January 1, 2018, unrealized net -73- holding gains of $11.5 million were reclassed to beginning undistributed income (accumulated deficit) to recognize the unrealized gains previously recorded in "accumulated other comprehensive income" on our consolidated balance sheets. In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)" (ASC 606). The objective of this amendment is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this amendment, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. This amendment applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. An entity should apply the amendments using either the full retrospective approach or retrospectively with a cumulative effect of initially applying the amendments recognized at the date of initial application. In July 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard effective January 1, 2018. For transactions in the scope of ASU 2014-09, we recognize revenue when control of goods or services transfers to the customer, in the amount that we expect to receive for the transfer of goods or provision of services. The adoption of ASU 2014-09 did not result in any change to our accounting policies for revenue recognition. Accordingly, retrospective application to prior periods or a cumulative catch-up adjustment was unnecessary. Our primary source of revenue is generated from lease agreements for our sites and homes. Resident leases are generally for one-year or month-to-month terms and are renewable by mutual agreement from us and the resident, or in some cases, as provided by jurisdictional statute. The lease component of these agreements is accounted for under ASC 842 “Leases.” The non-lease components of our lease agreements consist primarily of utility reimbursements, which are accounted for with the site lease as a single lease under ASC 842. Prior to the adoption of ASC 606, sales of manufactured homes were recognized under ASC 605 “Revenue Recognition” since these homes are not permanent fixtures or improvements to the underlying real estate. In accordance with the core principle of ASC 606, we recognize revenue from home sales at the time of closing when control of the home transfers to the customer. After closing of the sale transaction, we have no remaining performance obligation. Interest income is primarily from notes receivables for the previous sales of manufactured homes. Interest income on these receivables is accrued based on the unpaid principal balances of the underlying loans on a level yield basis over the life of the loans. Interest income is not in the scope of ASC 606. Dividend income and gain on sales of marketable securities, net are from our investments in marketable securities and are presented separately but are not in the scope of ASC 606. Other income primarily consists of brokerage commissions for arranging for the sale of a home by a third party, service and marketing agreements with cable providers, and in 2017 included an upfront oil and gas bonus payment. This income is recognized when the transactions are completed and our performance obligations have been fulfilled. As of December 31, 2019 and 2018, the Company had notes receivable of $36.4 million and $29.8 million, respectively. Notes receivables are presented as a component of Notes and Other Receivables, net on our Consolidated Balance Sheets. These receivables represent balances owed to us for previously completed performance obligations for sales of manufactured homes. Due to the nature of our revenue from contracts with customers, we do not have material contract assets or liabilities that fall under the scope of ASC 606. Other Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The -74- measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2019. As of January 1, 2020, we adopted the fair value option for our notes receivable and do not expect there to be a material impact. In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within that year. The Company anticipates making the required updates to its fair value disclosures beginning with its Form 10-Q for the quarter ending March 31, 2020. Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying Consolidated Financial Statements. NOTE 3 – INVESTMENT PROPERTY AND EQUIPMENT Acquisitions in 2019 On July 3, 2019, the Company acquired Friendly Village, located in Perrysburg, Ohio, for approximately $19.4 million. This all-age community contains a total of 824 developed homesites that are situated on approximately 101 total acres. At the date of acquisition, the average occupancy for this community was approximately 46%. In conjunction with this acquisition, the Company assumed a mortgage of approximately $7.3 million on this property (See Note 5). On July 30, 2019, the Company acquired two communities, New Colony and 51 Estates, located in Pennsylvania, for approximately $11.7 million. These communities contain a total of 285 developed homesites that are situated on approximately 61 acres. At the date of acquisition, the average occupancy for these communities was approximately 76%. On August 27, 2019, the Company acquired Northtowne Meadows, located in Erie, Michigan, for approximately $25.2 million. This community contains a total of 386 developed homesites that are situated on approximately 85 total acres. At the date of acquisition, the average occupancy for this community was approximately 88%. In conjunction with this acquisition, the Company assumed a mortgage of approximately $12.1 million on this property (See Note 5). Acquisitions in 2018 On May 30, 2018, the Company acquired two manufactured home communities, Camelot Village and Redbud Estates, located in Anderson, Indiana, for approximately $20.5 million. These all-age communities contain a total of 669 developed homesites that are situated on approximately 231 total acres. At the date of acquisition, the average occupancy for these communities was approximately 91%. In conjunction with this acquisition, the Company drew down $20 million on its unsecured line of credit. On July 13, 2018, the Company obtained a 10-year, $13.4 million mortgage on these properties with an interest rate of 4.27% and a 30-year amortization (see Note 5). On August 31, 2018, the Company acquired Summit Village, a manufactured home community located in Marion, Indiana, for approximately $3.5 million. This all-age community contains a total of 134 developed homesites that are situated on approximately 58 total acres. At the date of acquisition, the occupancy for this community was approximately 60%. This acquisition was funded by a drawdown from the Company’s margin line. On November 30, 2018, the Company acquired Pikewood Manor, a manufactured home community located in Elyria, Indiana, for approximately $23 million. This all-age community contains a total of 488 developed homesites that are situated on approximately 117 total acres. At the date of acquisition, the average occupancy for this community was approximately 67%. In conjunction with this acquisition, the Company obtained a 10-year, $14.8 million mortgage with an interest rate of 5.0% and a 25-year amortization (see Note 5). -75- On December 19, 2018, the Company acquired two manufactured home communities, Perrysburg Estates and Meadows of Perrysburg, located in Perrysburg, Ohio, for approximately $12.1 million. These all-age communities contain a total of 324 developed homesites that are situated on approximately 88 total acres. At the date of acquisition, the average occupancy for these communities was approximately 79%. In conjunction with this acquisition, the Company assumed two mortgages of approximately $4.6 million on these properties (see Note 5). The Company has evaluated these acquisitions and has determined that they should be accounted for as acquisitions of assets. As such, we have allocated the total cash consideration, including transaction costs of approximately $2.1 million, to the individual assets acquired on a relative fair value basis. The following table summarizes our purchase price allocation for the assets acquired for the years ended December 31, 2019 and 2018, respectively (in(cid:2)thousands): 2019 Acquisitions 2018 Acquisitions Assets Acquired: Land Depreciable Property Notes Receivable and Other Total Assets Acquired $ $ $ 4,296 53,909 127 58,332 $ 6,463 53,206 835 60,504 Total Income, Community Net Operating Income (“Community NOI”)* and Net Income (Loss) for communities acquired in 2019 and 2018, which are included in our Consolidated Statements of Income (Loss) for the years ended December 31, 2019 and 2018, are as follows (in(cid:2)thousands): 2019 Acquisitions 2019 2018 Acquisitions 2019 2018 Total Income Community NOI * Net Income (Loss) $ $ $ 2,308 1,347 (205) $ $ $ 6,276 2,198 (2,053) $ $ $ 1,634 932 (311) *Community NOI is defined as rental and related income less community operating expenses. See Note 5 for additional information relating to Loans and Mortgages Payable and Note 16 for the Unaudited Pro Forma Financial Information relating to these acquisitions. Accumulated Depreciation The following is a summary of accumulated depreciation by major classes of assets (in(cid:2)thousands): Site and Land Improvements Buildings and Improvements Rental Homes and Accessories Equipment and Vehicles Total Accumulated Depreciation Other December 31, 2019 December 31, 2018 $ 152,456 7,720 56,808 15,799 $ 232,783 $ 132,121 6,690 44,337 14,060 $ 197,208 Many oil and gas companies compete for the opportunity to acquire sub surface mineral rights, including oil and gas. Successful bidders pay an upfront purchase price (“bonus payment”). In May 2017, the Company received a bonus payment of $252,000 for the right to allow a company to extract oil and gas at one of its communities. The bonus payment is not refundable and the Company has no further obligations related to it. Therefore, this bonus -76- payment received by the Company is considered earned by the Company and has been recorded as Other Income in the accompanying Consolidated Statements of Income (Loss). In addition to this upfront bonus payment, the Company entered into an agreement (“Lease”) whereby the oil and gas company may remove the oil and gas from the property, provided that it pays the Company an 18% royalty fee based on the amount of the oil and gas removed. The term of the Lease is for five years. NOTE 4 – MARKETABLE SECURITIES The Company’s marketable securities primarily consist of common and preferred stock of other REITs. The Company does not own more than 10% of the outstanding shares of any of these securities, nor does it have controlling financial interest. The Company generally limits its investment in marketable securities to no more than approximately 15% of its undepreciated assets. The REIT securities portfolio provides the Company with additional liquidity and additional income and serves as a proxy for real estate when more favorable risk adjusted returns are not available. The following is a listing of marketable securities at December 31, 2019 (in(cid:2)thousands): Interest Number of Shares Series Rate Cost Market Value D E B C I C B D H 7.375% 6.625% 7.250% 6.500% 7.150% 6.625% 7.375% 6.875% 6.250% Equity Securities: Preferred Stock: CBL & Associates Properties, Inc. CBL & Associates Properties, Inc. Cedar Realty Trust, Inc. Cedar Realty Trust, Inc. Colony Capital Inc. Investors Real Estate Trust Pennsylvania Real Estate Investment Trust Pennsylvania Real Estate Investment Trust Urstadt Biddle Properties, Inc. Total Preferred Stock Common Stock: CBL & Associates Properties, Inc. Franklin Street Properties Corporation Office Properties Income Trust Industrial Logistics Properties Trust Kimco Realty Corporation Monmouth Real Estate Investment Corporation (1) Pennsylvania Real Estate Investment Trust Diversified Healthcare Trust Tanger Factory Outlet Urstadt Biddle Properties, Inc. Vereit, Inc. Washington Prime Group Total Common Stock 2 63 9 20 20 20 40 20 13 1,600 220 562 502 910 2,573 222 171 180 100 1,410 800 $ 50 1,487 203 494 500 500 1,000 498 313 5,045 16,692 2,219 36,418 9,951 17,052 23,987 2,316 2,920 4,229 2,049 12,059 6,489 136,381 $ 10 294 219 464 483 525 802 386 333 3,516 1,680 1,883 18,047 11,261 18,846 37,251 1,183 1,443 2,651 2,484 13,029 2,912 112,670 Total Marketable Securities $141,426 $116,186 (1) Related entity – See Note 8. -77- The following is a listing of marketable securities at December 31, 2018 (in(cid:2)thousands): Interest Number of Shares Series Rate Cost Market Value D E B C I C B D G H 7.375% 6.625% 7.250% 6.500% 7.150% 6.625% 7.375% 6.875% 6.750% 6.250% Equity Securities: Preferred Stock: CBL & Associates Properties, Inc. CBL & Associates Properties, Inc. Cedar Realty Trust, Inc. Cedar Realty Trust, Inc. Colony Capital Inc. Investors Real Estate Trust Pennsylvania Real Estate Investment Trust Pennsylvania Real Estate Investment Trust Urstadt Biddle Properties, Inc. Urstadt Biddle Properties, Inc. Total Preferred Stock Common Stock: CBL & Associates Properties, Inc. Franklin Street Properties Corporation Government Properties Income Trust Industrial Logistics Properties Trust Kimco Realty Corporation Monmouth Real Estate Investment Corporation (1) Pennsylvania Real Estate Investment Trust Senior Housing Properties Trust Tanger Factory Outlet Urstadt Biddle Properties, Inc. Vereit, Inc. Washington Prime Group Total Common Stock 2 63 8 20 20 20 40 20 5 13 1,600 220 2,246 502 910 2,446 210 171 180 100 1,410 800 $ 50 1,487 189 494 500 500 1,000 498 125 313 5,156 16,692 2,219 36,418 9,951 17,052 22,292 2,226 2,920 4,229 2,049 12,059 6,489 134,596 $ 21 600 186 380 369 462 654 311 124 293 3,400 3,072 1,371 15,430 9,879 13,332 30,331 1,247 2,003 3,640 1,922 10,082 3,887 96,196 Total Marketable Securities $139,752 $99,596 (1) Related entity – See Note 8. On January 1, 2018, the Company adopted ASU 2016-01, which requires changes in the fair value of our marketable securities to be recorded in current period earnings. Previously, changes in the fair value of marketable securities were recognized in "Accumulated Other Comprehensive Income" on our Consolidated Balance Sheets. As a result, on January 1, 2018 the Company recorded an increase to beginning undistributed income (accumulated deficit) of $11.5 million to recognize the unrealized gains previously recorded in "Accumulated Other Comprehensive Income" on our Consolidated Balance Sheets. Subsequent changes in the fair value of the Company’s marketable securities is recorded in Increase (Decrease) in Fair Value of Marketable Securities on our Consolidated Statements of Income (Loss). The Company normally holds REIT securities long term and has the ability and intent to hold securities to recovery. As of December 31, 2019, 2018 and 2017, the securities portfolio had net unrealized holding gains (losses) of $(25.2) million, $(40.2) million and $11.5 million, respectively. -78- During the years ended December 31, 2019, 2018 and 2017, the Company received proceeds of $125,000, $269,000 and $17.4 million, on sales or redemptions of marketable securities, respectively. The Company recorded the following Gain (Loss) on Sale of Securities, net (in(cid:2)thousands): Gross realized gains Gross realized losses Total Gain on Sales of Marketable Securities, net 2019 2018 2017 $-0- -0- $-0- $20 -0- $1,749 (1) $20 $1,748 The Company had margin loan balances of $37.5 million and $32.0 million at December 31, 2019 and 2018, respectively, which were collateralized by the Company’s securities portfolio. NOTE 5 – LOANS AND MORTGAGES PAYABLE Loans Payable The Company may purchase securities on margin. The interest rates charged on the margin loans at December 31, 2019 and 2018 was 2.25% and 2.75%, respectively. These margin loans are due on demand. At December 31, 2019 and 2018, the margin loans amounted to $37.5 million and $32.0 million, respectively, and are collateralized by the Company’s securities portfolio. The Company must maintain a coverage ratio of approximately 2 times. The Company has revolving credit agreements totaling $28.5 million with 21st Mortgage Corporation (“21st Mortgage”), Customers Bank and Northpoint Commercial Finance to finance inventory purchases. Interest rates on these agreements range from prime with a minimum of 6% to LIBOR plus 7.75% after 2 years. As of December 31, 2019 and 2018, the total amount outstanding on these lines was $19.3 million and $15.9 million, respectively, with a weighted average interest rate of 5.87% and 7.04%, respectively. In April 2019, the Company expanded its revolving line of credit with OceanFirst Bank (“OceanFirst Line”) from $10 million to $15 million. This line is secured by the Company’s eligible notes receivable. Interest rate on this line of credit was reduced to prime plus 25 basis points. The new maturity date is June 1, 2020. As of December 31, 2019 and 2018, the amount outstanding on this revolving line of credit was $10 million and $4 million, respectively, and the interest rate was 5.0% and 5.5%, respectively. The Company has an agreement with 21st Mortgage to finance the Company’s purchase of rental units. These loans are at an interest rate of 6.99%, with an origination fee of 2% on new units and 3% on existing units. These loans will have a 10 year term from the date of the borrowing. The amount outstanding on this loan was $322,000 and $373,000, as of December 31, 2019 and 2018, respectively. The Company had a $4 million loan from Two River Community Bank, secured by 1 million shares of Monmouth Real Estate Investment Corporation common stock. This loan was at an interest rate of 4.625%, with interest only payments through October 2018. The Company repaid this loan on October 25, 2019. The Company also has $1.9 million in automotive loans with a weighted average interest rate of 4.71%. Unsecured Line of Credit On November 29, 2018, UMH Properties, Inc. (“UMH” or the “Company”) entered into a First Amendment to Amended and Restated Credit Agreement (the “Amendment”) to expand and extend its existing unsecured revolving credit facility (the “Facility”). The Facility is syndicated with two banks led by BMO Capital Markets Corp. (“BMO”), as sole lead arranger and sole book runner, with Bank of Montreal as administrative agent, and includes JPMorgan Chase Bank, N.A. (“J.P. Morgan”) as the sole syndication agent. The Amendment provides for an increase from $50 million in available borrowings to $75 million in available borrowings with a $50 million accordion feature, bringing the total potential availability up to $125 million, subject to certain conditions including obtaining commitments from additional lenders. The Amendment also extends the maturity date of the Facility from March 27, 2020 to November 29, 2022, with a one-year extension available at the Company’s option, subject to certain conditions including payment of an extension fee. Availability under the Facility is limited to 60% of the value of the unencumbered communities -79- which the Company has placed in the Facility’s unencumbered asset pool (“Borrowing Base”). The Amendment increased the value of the Borrowing Base communities by reducing the capitalization rate applied to the Net Operating Income (“NOI”) generated by the communities in the Borrowing Base from 7.5% to 7.0%. Interest rates on borrowings are based on the Company’s overall leverage ratio and decreased from LIBOR plus 1.75% to 2.50% or BMO’s prime lending rate plus 0.75% to 1.50%, at the Company’s option, to LIBOR plus 1.50% to 2.20%, or BMO’s prime lending rate plus 0.50% to 1.20%. Based on the Company’s current leverage ratio, borrowings under the Facility will bear interest at LIBOR plus 1.60% or at BMO’s prime lending rate plus 0.60%, which results in an interest rate of 3.4% at December 31, 2019. As of December 31, 2019 and 2018, the amount outstanding under this Facility was $15 million and $50 million, respectively. The aggregate principal payments of all loans payable, including the Credit Facility, are scheduled as follows (in(cid:2)thousands): Year Ended December 31, 2020 2021 2022 2023 2024 Thereafter Total Loans Payable Unamortized Debt Issuance Costs Total Loans Payable, net of Unamortized Debt Issuance Costs Mortgages Payable $ 67,655 640 15,450 184 115 -0- 84,044 (358) $ 83,686 Mortgages Payable represents the principal amounts outstanding, net of unamortized debt issuance costs. Interest is payable on these mortgages at fixed rates ranging from 3.37% to 6.5%. The weighted average interest rate was 4.2% and 4.3% as of December 31, 2019 and December 31, 2018, respectively, including the effect of unamortized debt issuance costs. The weighted average interest rate as of December 31, 2019 was 4.1%, compared to 4.3% as of December 31, 2018, not including the effect of unamortized debt issuance costs. The weighted average loan maturity of the Mortgage Notes Payable was 6.0 years at December 31, 2019 and 6.3 years at December 31, 2018. -80- The following is a summary of mortgages payable at December 31, 2019 and 2018 (in(cid:2)thousands): Property Allentown Brookview Village Candlewick Court Catalina Cedarcrest Village Clinton Mobile Home Resort Cranberry Village D & R Village Fairview Manor Forest Park Village Friendly Village Hayden Heights Highland Estates Holiday Village Holiday Village- IN Holly Acres Estates Kinnebrook Village Lake Sherman Village Meadows of Perrysburg Northtowne Meadows Olmsted Falls Oxford Village Perrysburg Estates Pikewood Manor Shady Hills Somerset Estates and Whispering Pines Springfield Meadows Suburban Estates Sunny Acres Southwind Village Trailmont Twin Oaks Valley Hills Waterfalls Weatherly Estates Wellington Estates Woods Edge Worthington Arms Various (2 properties) Various (2 properties) Various (2 properties) Various (4 properties) Various (5 properties) Various (5 properties) Various (6 properties) Various (13 properties) Total Mortgages Payable Unamortized Debt Issuance Costs Total Mortgages Payable, net of Unamortized Debt Issuance Costs At December 31, 2019 Due Date Interest Rate Balance at December 31, 2018 2019 4.06% 3.92% 4.10% 4.20% 3.71% 4.06% 3.92% 3.85% 3.85% 4.10% 4.618% 3.92% 4.12% 4.10% 3.96% 6.50% 3.92% 4.10% 5.413% 4.45% 3.98% 3.41% 4.98% 5.00% 3.92% 4.89% 4.83% 4.06% 4.06% 5.94% 3.37% 5.75% 4.32% 4.38% 3.92% 6.35% 4.30% 4.10% 4.56% 4.27% 3.41% 4.975% 4.25% 4.75% 4.18% 4.065% $12,865 2,664 4,294 5,095 11,510 3,376 7,305 7,362 15,399 8,006 7,150 2,007 16,054 7,619 8,176 2,119 3,881 5,294 2,946 12,049 2,007 15,604 1,587 14,420 4,786 -0- 3,033 5,364 5,971 -0- 3,191 6,047 3,285 4,474 7,785 2,316 6,214 8,976 13,583 13,132 22,810 7,765 13,061 6,853 12,829 46,781 377,045 (3,387) $13,133 2,722 4,383 5,319 11,772 3,447 7,466 7,527 15,711 8,173 -0- 2,052 16,353 7,777 8,349 2,158 3,966 5,405 3,002 -0- 2,051 6,526 1,615 14,723 4,891 32 3,089 5,476 6,095 5,213 3,261 2,333 3,348 4,559 7,956 2,367 6,477 9,163 13,821 13,354 -0- 7,926 13,413 7,007 13,068 47,932 334,411 (3,318) $373,658 $331,093 10/01/25 04/01/25 09/01/25 08/19/25 04/01/25 10/01/25 04/01/25 03/01/25 11/01/26 09/01/25 05/06/23 04/01/25 06/01/27 09/01/25 11/01/25 10/05/21 04/01/25 09/01/25 10/06/23 09/06/26 04/01/25 07/01/29 09/06/25 11/29/28 04/01/25 02/26/19 10/06/25 10/01/25 10/01/25 01/01/20 10/01/29 12/01/19 06/01/26 06/01/26 04/01/25 01/01/23 01/07/26 09/01/25 02/01/27 08/01/28 07/01/29 07/01/23 01/01/22 12/06/22 08/01/27 03/01/23 -81- At December 31, 2019 and 2018, mortgages were collateralized by real property with a carrying value of $695.5 million and $614.3 million, respectively, before accumulated depreciation and amortization. Interest costs amounting to $1.5 million, $1.0 million and $501,000 were capitalized during 2019, 2018 and 2017, respectively, in connection with the Company’s expansion program. Recent(cid:2)Transactions(cid:2) During(cid:2)the(cid:2)year(cid:2)ended(cid:2)December(cid:2)31,(cid:2)2019(cid:2) On July 1, 2019, the Company obtained two Federal National Mortgage Association (“Fannie Mae”) mortgages totaling $38.8 million through Wells Fargo Bank, N.A. (“Wells Fargo”) on Oxford Village, Southwind Village and Woodlawn Village. The interest rate on these mortgages are fixed at 3.41%. These mortgages mature on July 1, 2029, with principal repayments based on a 30-year amortization schedule. Proceeds from these mortgages were used to repay the existing Oxford Village and Southwind Village mortgages of approximately $11.5 million, which had a weighted average interest rate of 5.94%. On July 3, 2019, the Company assumed a mortgage loan with a balance of approximately $7.3 million, in conjunction with its acquisition of Friendly Village. The interest rate on this mortgage is fixed at 4.6175%. This mortgage matures on May 6, 2023. On August 27, 2019, the Company assumed a mortgage loan with a balance of approximately $12.1 million, in conjunction with its acquisition of Northtowne Meadows. The interest rate on this mortgage is fixed at 4.45%. This mortgage matures on September 6, 2026. On September 30, 2019, the Company obtained a $6.1 million Fannie Mae mortgage through Wells Fargo on Twin Oaks I & II. The interest rate on this mortgage is fixed at 3.37%. This mortgage matures on October 1, 2029, with principal repayments based on a 30-year amortization schedule. Proceeds from this mortgage was used to repay the existing Twin Oaks I & II mortgage of approximately $2.3 million, which had an interest rate of 5.75%. During(cid:2)the(cid:2)year(cid:2)ended(cid:2)December(cid:2)31,(cid:2)2018(cid:2) On July 13, 2018, the Company obtained a $13.4 million Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage through Wells Fargo Bank, N.A. (“Wells Fargo”) on Camelot Village and Redbud Estates. This mortgage is at a fixed rate of 4.27% and matures on August 1, 2028. Principal repayments are based on a 30- year amortization schedule. On November 30, 2018, the Company obtained a $14.8 million mortgage on Pikewood Manor from OceanFirst Bank. This mortgage is at a fixed rate of 5.0% and matures on November 29, 2028. The interest rate will be reset after five years to the weekly average yield on U.S. Treasury Securities plus 2.25%. Principal repayments are based on a 25-year amortization schedule. On December 18, 2018, the Company assumed a mortgage loan with a balance of approximately $3 million, in conjunction with its acquisition of Meadows of Perrysburg. The interest rate on this mortgage is fixed at 5.4125%. This mortgage matures on October 6, 2023. On December 18, 2018, the Company assumed a mortgage loan with a balance of approximately $1.6 million, in conjunction with its acquisition of Perrysburg Estates. The interest rate on this mortgage is fixed at 4.98%. This mortgage matures on September 6, 2025. -82- The aggregate principal payments of all mortgages payable are scheduled as follows (in(cid:2)thousands): Year Ended December 31, 2020 2021 2022 2023 2024 Thereafter Total $ 8,524 23,276 15,213 68,645 7,389 253,998 $ 377,045 NOTE 6 – STOCK COMPENSATION PLAN On June 13, 2013, the shareholders approved and ratified the Company's 2013 Stock Option and Stock Award Plan (the “2013 Plan”) authorizing the grant of stock options or restricted stock awards to directors, officers and key employees of options to purchase up to 3 million shares of common stock. The 2013 Plan replaced the Company's 2003 Stock Option Plan (the “2003 Plan”), which, pursuant to its terms, terminated in 2013. The outstanding options under the 2003 Stock Option and Award Plan, as amended, remain outstanding until exercised, forfeited or expired. On June 14, 2018, the shareholders approved and ratified an amendment and restatement (and renaming) of the Company's Amended and Restated 2013 Incentive Award Plan (formerly 2013 Stock Option and Stock Award Plan). The amendment and restatement made two substantive changes: (1) provide an additional 2 million common shares for future grant of option awards, restricted stock awards, or other stock-based awards; and (2) allow for the issuance of other stock-based awards. The Compensation Committee has the exclusive authority to administer and construe the 2013 Plan and shall determine, among other things: persons eligible for awards and who shall receive them; the terms and conditions of the awards; the time or times and conditions subject to which awards may become vested, deliverable, exercisable, or as to which any may apply, be accelerated or lapse; and amend or modify the terms and conditions of an award with the consent of the participant. Generally, the term of any stock option may not be more than 10 years from the date of grant. The option price may not be below the fair market value at date of grant. If and to the extent that an award made under the 2013 Plan is forfeited, terminated, expires or is canceled unexercised, the number of shares associated with the forfeited, terminated, expired or canceled portion of the award shall again become available for additional awards under the 2013 Plan. The Company accounts for stock options and restricted stock in accordance with ASC 718-10, Compensation-Stock Compensation. ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). Stock Options During the year ended December 31, 2019, forty one employees were granted options to purchase a total of 644,000 shares. During the year ended December 31, 2018, forty employees were granted options to purchase a total of 605,000 shares. During the year ended December 31, 2017, thirty-four employees were granted options to purchase a total of 576,000 shares. The fair value of these options for the years ended December 31, 2019, 2018 and 2017 was approximately $1.1 million, $1.2 million and $1.0 million, respectively, based on assumptions noted below and is being amortized over the 1-year vesting period. The remaining unamortized stock option expense was $210,000 as of December 31, 2019, which will be expensed in 2020. -83- The Company calculates the fair value of each option grant on the grant date using the Black-Scholes option- pricing model which requires the Company to provide certain inputs, as follows: • The assumed dividend yield is based on the Company’s expectation of an annual dividend rate for regular dividends over the estimated life of the option. • Expected volatility is based on the historical volatility of the Company’s stock over a period relevant to the related stock option grant. • The risk-free interest rate utilized is the interest rate on U.S. Government Bonds and Notes having the same life as the estimated life of the Company’s option awards. • Expected life of the options granted is estimated based on historical data reflecting actual hold periods. • Estimated forfeiture is based on historical data reflecting actual forfeitures. 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 the following years: Dividend yield Expected volatility Risk-free interest rate Expected lives Estimated forfeitures 2019 2018 2017 5.13% 24.04% 2.50% 10 -0- 4.79% 25.78% 2.74% 10 -0- 5.80% 26.30% 2.37% 10 -0- During the year ended December 31, 2019, options to sixteen employees to purchase a total of 240,000 shares were exercised. During the year ended December 31, 2018, options to eight employees to purchase a total of 129,000 shares were exercised. During the year ended December 31, 2017, options to twenty-seven employees to purchase a total of 548,000 shares were exercised. During the year ended December 31, 2019, options to one employee to purchase a total of 20,000 shares were forfeited. During the year ended December 31, 2018, options to one employee to purchase a total of 2,000 shares were forfeited. During the year ended December 31, 2017, options to one employee to purchase a total of 10,000 shares were forfeited. A summary of the status of the Company’s stock option plans as of December 31, 2019, 2018 and 2017 and changes during the years then ended are as follows (in(cid:2)thousands): 2019 2018 2017 Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Shares 2,253 644 (240) (20) -0- $12.09 13.67 10.84 13.50 -0- 1,778 605 (129) (1) -0- $11.60 13.26 10.78 12.41 -0- Weighted- Average Exercise Price $9.97 14.96 9.92 9.77 -0- Shares 1,760 576 (548) (10) -0- 2,637 12.05 2,253 12.09 1,778 11.60 1,196 1,648 1,202 $1.72 $2.05 $1.81 Outstanding at beginning of year Granted Exercised Forfeited Expired Outstanding at end of year Options exercisable at end of year Weighted average fair value of options granted during the year -84- The following is a summary of stock options outstanding as of December 31, 2019 (in(cid:2)thousands): Date of Grant Number of Employees Number of Shares Option Price Expiration Date 08/29/12 06/26/13 06/11/14 06/24/15 04/05/16 01/19/17 04/04/17 04/02/18 07/09/18 12/10/18 01/02/19 04/02/19 * Unexercisable 4 8 7 8 16 2 32 35 4 1 2 37 26 159 142 240 329 60 505 478 40 25 60 * 573 * 2,637 11.29 10.08 9.85 9.82 9.77 14.25 15.04 13.09 15.75 12.94 11.42 13.90 08/29/20 06/26/21 06/11/22 06/24/23 04/05/24 01/19/27 04/04/27 04/02/28 07/09/28 12/10/28 01/02/29 04/02/29 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options that were in-the-money. The aggregate intrinsic value of options outstanding as of December 31, 2019, 2018 and 2017 was $8.3 million, $2.0 million and $5.9 million, respectively, of which $6.9 million, $2.0 million and $5.9 million relate to options exercisable. The intrinsic value of options exercised in 2019, 2018 and 2017 was $914,000, $510,000 and $3.0 million, respectively, determined as of the date of option exercise. The weighted average remaining contractual term of the above options was 9.1, 7.9 and 6.8 years as of December 31, 2019, 2018 and 2017, respectively. For the years ended December 31, 2019, 2018 and 2017, amounts charged to stock compensation expense relating to stock option grants, which is included in General and Administrative Expenses, totaled $1.2 million, $1.1 million and $929,000, respectively. Restricted Stock On April 2, 2019, the Company awarded a total of 118,000 shares of restricted stock to two participants, pursuant to their employment agreements. On April 2, 2018, the Company awarded a total of 45,000 shares of restricted stock to two participants, pursuant to their employment agreements. During 2018, the Company also awarded 2,000 shares of restricted stock to our ten directors as additional directors’ fees. On April 4, 2017, the Company awarded 45,000 shares of restricted stock to two participants. On September 27, 2017, the Company awarded 11,000 shares of restricted stock to our ten directors as additional directors’ fees. The grant date fair value of restricted stock grants awarded to participants was $1.6 million, $616,000 and $846,000 for the years ended December 31, 2019, 2018 and 2017, respectively. These grants primarily vest in equal installments over five years. As of December 31, 2019, there remained a total of $2.3 million of unrecognized restricted stock compensation related to outstanding non-vested restricted stock grants awarded and outstanding at that date. Restricted stock compensation is expected to be expensed over a remaining weighted average period of 3.6 years. For the years ended December 31, 2019, 2018 and 2017, amounts charged to stock compensation expense related to restricted stock grants, which is included in General and Administrative Expenses, totaled $723,000, $498,000 and $386,000, respectively. -85- A summary of the status of the Company’s non-vested restricted stock awards as of December 31, 2019, 2018 and 2017, and changes during the year ended December 31, 2019, 2018 and 2017 are presented below (in(cid:2) thousands): 2019 2018 2017 Weighted- Average Grant Date Fair Value Weighted- Average Grant Date Fair Value Shares Shares Weighted- Average Grant Date Fair Value Shares 161 118 11 -0- (52) 238 $12.44 11.12 13.51 -0- 5.69 $13.33 147 47 8 -0- (41) 161 $11.98 13.11 13.37 -0- 11.76 $12.44 133 56 7 -0- (49) 147 $10.04 15.10 14.83 -0- 10.67 $11.98 Non-vested at beginning of year Granted Dividend Reinvested Shares Forfeited Vested Non-vested at end of year Other Stock-Based Awards Effective June 20, 2018, a portion of our quarterly directors’ fee was paid with our unrestricted common stock. During 2019, 4,000 unrestricted shares of common stock were granted with a weighted average fair value on the grant date of $13.52 per share. During 2018, 2,000 unrestricted shares of common stock were granted with a weighted average fair value on the grant date of $15.13 per share. As of December 31, 2019, there were 1.2 million shares available for grant as stock options, restricted stock or other stock-based awards under the 2013 Plan. NOTE 7 – 401(k) PLAN All full-time employees who are over 21 years old are eligible for the Company’s 401(k) Plan (“Plan”). Under this Plan, an employee may elect to defer his/her compensation, subject to certain maximum amounts, and have it contributed to the Plan. Employer contributions to the Plan are at the discretion of the Company. During 2019, 2018 and 2017, the Company made matching contributions to the Plan of up to 100% of the first 3% of employee salary and 50% of the next 2% of employee salary. The total expense relating to the Plan, including matching contributions amounted to $376,000, $344,000 and $330,000 in 2019, 2018 and 2017, respectively. NOTE 8 – RELATED PARTY TRANSACTIONS AND OTHER MATTERS Transactions with Monmouth Real Estate Investment Corporation There are five Directors of the Company who are also Directors and shareholders of Monmouth Real Estate Investment Corporation (“MREIC”). The Company holds common stock of MREIC in its securities portfolio. As of December 31, 2019, the Company owns a total of 2.6 million shares of MREIC common stock, representing 2.6% of the total shares outstanding at December 31, 2019 (See Note 4). The Company shares 1 officer (Chairman of the Board) with MREIC. Employment Agreements and Compensation The Company has three year employment agreements with Mr. Eugene W. Landy, Mr. Samuel A. Landy and Ms. Anna T. Chew. The agreements provide for base compensation aggregating approximating $1.4 million. In addition, the agreements call for incentive bonuses, and an extension of services and severance payments upon certain future events, such as a change in control. -86- Other Matters Mr. Eugene W. Landy, the Founder and Chairman of the Board of the Company, owns a 24% interest in the entity that is the landlord of the property where the Company’s corporate office space is located. On October 1, 2019, the Company entered into a new lease for its executive offices in Freehold, New Jersey which combines the existing corporate office space with additional adjacent office space. This new lease extends our existing lease through April 30, 2027 and requires monthly lease payments of $23,098 through April 30, 2022 and $23,302 from May 1, 2022 through April 30, 2027. The Company is also responsible for its proportionate share of real estate taxes and common area maintenance. In conjunction with this new lease, the Company terminated the additional office space leases dated July 1, 2017 and February 14, 2018. Management believes that the aforesaid rents are no more than what the Company would pay for comparable space elsewhere. NOTE 9 – SHAREHOLDERS’ EQUITY Common Stock The Company has a Dividend Reinvestment and Stock Purchase Plan (“DRIP”), as amended. Under the terms of the DRIP, shareholders who participate may reinvest all or part of their dividends in additional shares of the Company at a discounted price (approximately 95% of market value) directly from the Company, from authorized but unissued shares of the Company common stock. Shareholders may also purchase additional shares at this discounted price by making optional cash payments monthly. Optional cash payments must be not less than $500 per payment nor more than $1,000 unless a request for waiver has been accepted by the Company. On August 14, 2019, the Company announced that it has discontinued granting waivers to the $1,000 monthly maximum for the purchase of shares for cash under its DRIP, which will result in less capital being raised through the DRIP going forward. After December 31, 2019, the Company increased the monthly maximum for the purchase of shares for cash under its DRIP from $1,000 to $5,000. Amounts received in connection with the DRIP for the years ended December 31, 2019, 2018 and 2017 were as follows (in(cid:2)thousands): 2019 2018 2017 Amounts Received Less: Dividends Reinvested Amounts Received, net $31,501 (7,705) $23,796 $35,114 (5,076) $30,038 $60,365 (2,859) $57,506 Number of Shares Issued 2,468 2,655 4,095 On June 5, 2017, the Company issued and sold 1.4 million shares of its Common Stock in a registered direct placement at a sale price of $16.60 per share. The Company received net proceeds from the offering after expenses of approximately $22.5 million and used the net proceeds for general corporate purposes, which included purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, acquisitions of additional properties and repayment of indebtedness on a short-term basis. Issuer Purchases of Equity Securities On January 15, 2019, the Board of Directors reaffirmed its Share Repurchase Program (the “Repurchase Program”) that authorizes the Company to purchase up to $25 million in the aggregate of the Company's common stock. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The Repurchase Program does not require the Company to acquire any particular amount of common stock, and the Repurchase Program may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. During 2019, the Company repurchased 20,000 shares at an aggregate cost of $237,000, or a weighted average price of $11.87 per share. -87- Preferred Stock 8.25%(cid:2)Series(cid:2)A(cid:2)Cumulative(cid:2)Redeemable(cid:2)Preferred(cid:2)Stock(cid:2) On August 31, 2017, the Company redeemed all 3.7 million issued and outstanding shares of its 8.25% Series A Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share (“Series A Preferred Stock”) at a redemption price of $25.00 per share, totaling $91.6 million. Unpaid dividends on the Series A Preferred Stock accruing for the period from June 1, 2017 through the redemption date, totaling $1.9 million (or $0.515625 per share) were paid on September 15, 2017 to holders of record as of the August 15, 2017 record date previously established by the Company’s Board of Directors and accordingly such dividends were not included in the redemption price. The Company recognized a deemed dividend of $3.5 million on the Consolidated Statement of Income for the year ended December 31, 2017, which represents the difference between the redemption value and the carrying value net of original deferred issuance costs. 8.0%(cid:2)Series(cid:2)B(cid:2)Cumulative(cid:2)Redeemable(cid:2)Preferred(cid:2)Stock On October 20, 2015, the Company issued and sold 1.8 million shares of its 8.0% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”) in a registered direct placement at a sale price of $25.00 per share. The Company received net proceeds from the offering of approximately $43 million, after deducting offering related expenses. Dividends on the Series B Preferred Stock are cumulative from October 20, 2015 at an annual rate of $2.00 per share and will be payable quarterly in arrears at March 15, June 15, September 15, and December 15. The first quarterly dividend payment date for the Series B Preferred Stock was payable March 15, 2016 and was for the dividend period from October 20, 2015 to February 29, 2016. A portion of the dividend to be paid on March 15, 2016, covering the period October 20, 2015 to December 31, 2016, amounting to $711,000 is included in the computation of net loss attributable to common shareholders in the accompanying consolidated financial statements for the year ended December 31, 2016. The Series B Preferred Stock, par value $0.10, has no maturity and will remain outstanding indefinitely unless redeemed or otherwise repurchased. Except in limited circumstances relating to the Company’s qualification as a REIT, and as described below, the Series B Preferred Stock is not redeemable prior to October 20, 2020. On and after October 20, 2020, the Series B Preferred Stock will be redeemable at the Company’s option for cash, in whole or, from time to time, in part, at a price per share equal to $25.00, plus all accrued and unpaid dividends (whether or not declared) to the date of redemption. Upon the occurrence of a Delisting Event or Change of Control, as defined in the Prospectus of the Preferred Offering, each holder of the Series B Preferred Stock will have the right to convert all or part of the shares of the Series B Preferred Stock held, unless the Company elects to redeem the Series B Preferred Stock. Holders of the Series B Preferred Stock generally have no voting rights, except if the Company fails to pay dividends for six or more quarterly periods, whether or not consecutive, or with respect to certain specified events. In conjunction with the issuance of the Company’s Series B Preferred Stock, the Company filed with the Maryland State Department of Assessments and Taxation (the “Maryland SDAT”), an amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 22 million shares. As a result of this amendment, the Company’s total authorized shares were increased from 48.7 million shares (classified as 42 million shares of common stock, 3.7 million shares of 8.25% Series A Cumulative Redeemable Preferred Stock and 3 million shares of excess stock) to 70.7 million shares (classified as 64 million shares of common stock, 3.7 million shares of 8.25% Series A Cumulative Redeemable Preferred Stock and 3 million shares of excess stock). Immediately following this amendment, the Company filed with the Maryland SDAT Articles Supplementary setting forth the rights, preferences and terms of the Series B Preferred Stock and reclassifying 2 million shares of Common Stock as shares of Series B Preferred Stock. After the reclassification, the Company’s authorized stock consisted of 62 million shares of common stock, 3.7 million shares of 8.25% Series A Cumulative Redeemable Preferred Stock, 2 million shares of 8% Series B Cumulative Redeemable Preferred Stock and 3 million shares of excess stock. -88- On April 5, 2016, the Company issued an additional 2 million shares of its Series B Preferred Stock in a registered direct placement at a sale price of $25.50 per share, including accrued dividends. The Company received net proceeds from the offering after expenses of approximately $49.1 million and used the net proceeds for general corporate purposes, which included purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, acquisitions of additional properties and repayment of indebtedness on a short-term basis. In conjunction with the issuance of the Company’s Series B Preferred Stock, on April 4, 2016, the Company filed with the Maryland SDAT an amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 11 million shares. As a result of this amendment, the Company’s total authorized shares were increased from 70.7 million shares (classified as 62 million shares of common stock, 3.7 million shares of Series A Preferred stock, 2 million shares of Series B Preferred stock and 3 million shares of excess stock) to 81.7 million shares (classified as 73 million shares of common stock, 3.7 million shares of Series A Preferred stock, 2 million shares of Series B Preferred stock and 3 million shares of excess stock). Immediately following this amendment, the Company filed with the Maryland SDAT Articles Supplementary reclassifying 2 million shares of Common Stock as shares of Series B Preferred stock. After the reclassification, the Company’s authorized stock consisted of 71 million shares of common stock, 3.7 million shares of Series A Preferred stock, 4 million shares of Series B Preferred stock and 3 million shares of excess stock. On August 11, 2016, the Company filed with the Maryland SDAT a further amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 4 million shares. As a result of this amendment, the Company’s total authorized shares were increased from 81.7 million shares (classified as 71 million shares of common stock, 3.7 million shares of Series A Preferred stock, 4 million shares of Series B Preferred stock and 3 million shares of excess stock) to 85.7 million shares (classified as 75 million shares of common stock, 3.7 million shares of Series A Preferred stock, 4 million shares of Series B Preferred stock and 3 million shares of excess stock). Additionally, on June 2, 2017, the Company filed with the Maryland SDAT a further amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 10 million shares. 6.75%(cid:2)Series(cid:2)C(cid:2)Cumulative(cid:2)Redeemable(cid:2)Preferred(cid:2)Stock On July 26, 2017, the Company issued 5 million shares of its new 6.75% Series C Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share (“Series C Preferred Stock”) at an offering price of $25.00 per share in an underwritten registered public offering. The Company received net proceeds from the sale of these 5 million shares, after deducting the underwriting discount and other estimated offering expenses, of approximately $120.8 million. On August 2, 2017, the Company issued an additional 750,000 shares of Series C Preferred Stock pursuant to the underwriters’ exercise of their overallotment option and received additional net proceeds of approximately $18.2 million. The Company used a portion of the net proceeds from the sale of Series C Preferred Stock to redeem all of the 3.7 million outstanding shares of our Series A Preferred Stock. The balance of the offering proceeds will be used for general corporate purposes, which may include purchase of manufactured homes for sale or lease to customers, expansion of our existing communities, potential acquisitions of additional properties and possible repayment of indebtedness on a short-term basis. Dividends on the Series C Preferred Stock shares are cumulative from July 26, 2017 at an annual rate of $1.6875 per share and will be payable quarterly in arrears on March 15, June 15, September 15, and December 15. The first quarterly dividend on the Series C Preferred Stock was payable September 15, 2017 and amounted to $970,000 or $0.16875 per share for the dividend period from July 26, 2017 to August 31, 2017. The Series C Preferred Stock, par value $0.10 per share, has no maturity and will remain outstanding indefinitely unless redeemed or otherwise repurchased. Except in limited circumstances relating to the Company’s qualification as a REIT, and as described below, the Series C Preferred Stock is not redeemable prior to July 26, 2022. On and after July 26, 2022, the Series C Preferred Stock will be redeemable at the Company’s option for cash, in whole or, from time to time, in part, at a price per share equal to $25.00, plus all accrued and unpaid dividends (whether or not declared) to the date of redemption. The Series C Preferred Stock ranks on a parity with the Company’s Series B Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up. -89- Upon the occurrence of a Delisting Event or Change of Control, each as defined in the Prospectus pursuant to which the shares of Series C Preferred Stock were offered, each holder of the Series C Preferred Stock will have the right to convert all or part of the shares of the Series C Preferred Stock held into common stock of the Company, unless the Company elects to redeem the Series C Preferred Stock. Holders of the Series C Preferred Stock generally have no voting rights, except if the Company fails to pay dividends for nine or more quarterly periods, whether or not consecutive, or with respect to certain specified events. In conjunction with the issuance of the Company’s Series C Preferred Stock, the Company filed with the Maryland SDAT, an amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 30.8 million shares. As a result of this amendment, the Company’s total authorized shares were increased from 95.7 million shares (classified as 85 million shares of Common Stock, 3.7 million shares of Series A Preferred, 4 million shares of Series B Preferred and 3 million shares of excess stock) to 126.4 million shares (classified as 115.8 million shares of Common Stock, 3.7 million shares of Series A Preferred Stock, 4 million shares of Series B Preferred Stock and 3 million shares of excess stock). Immediately following this amendment, the Company filed with the Maryland SDAT Articles Supplementary setting forth the rights, preferences and terms of the Series C Preferred Stock and reclassifying 5.8 million shares of Common Stock as shares of Series C Preferred Stock. After the reclassification, the Company’s authorized stock consisted of 110 million shares of Common Stock, 3.7 million shares of Series A Preferred, 4 million shares of Series B Preferred, 5.8 million shares of Series C Preferred Stock and 3 million shares of excess stock. Additionally, upon the redemption on August 31, 2017 of all 3.7 million outstanding shares of the Series A Preferred, the authorized shares of Series A Preferred automatically reverted to authorized Common Stock, which increased our authorized Common Stock to 113.7 million shares. On April 29, 2019, the Company issued and sold a total of 4 million shares, including as a result of the underwriters’ exercise in full of their overallotment option of 400,000 shares, of our Series C Preferred Stock at an offering price of $25.00 per share in an underwritten registered public offering. The additional shares of Series C Preferred Stock form a single series with, have the same terms as, and vote as a single class with, the 5.8 million previously outstanding shares of Series C Preferred Stock issued in July 2017 and rank on a parity with the Company's outstanding Series B Preferred Stock and its outstanding 6.375% Series D Cumulative Redeemable Preferred Stock. As of December 31, 2019, after giving effect to the offering, the Company had a total of 9.8 million shares of Series C Preferred Stock outstanding. The Company received net proceeds from the sale of the 4 million shares of Series C Preferred Stock of approximately $96.7 million, after deducting the underwriting discount and other estimated offering expenses, and used the proceeds for general corporate purposes, which included purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, acquisitions of additional properties and repayment of indebtedness on a short-term basis. In conjunction with the issuance of the Company’s Series C Preferred Stock, on April 26, 2019 the Company filed with the Maryland SDAT, an amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 16 million shares. As a result of this amendment, the Company’s total authorized shares were increased from 126.4 million shares (classified as 111.4 million shares of Common Stock, 4 million shares of Series B Preferred Stock, 5.8 million shares of Series C Preferred Stock, 2.3 million shares of Series D Preferred Stock and 3 million shares of excess stock) to 142.4 million shares (classified as 127.4 million shares of Common Stock, 4 million shares of Series B Preferred Stock, 5.8 million shares of Series C Preferred Stock, 2.3 million shares of Series D Preferred Stock and 3 million shares of excess stock). Immediately following this amendment, the Company filed with the Maryland SDAT Articles Supplementary reclassifying 4 million shares of Common Stock as shares of Series C Preferred Stock. After this amendment, the Company’s authorized stock consisted of 123.4 million shares of Common Stock, 4 million shares of Series B Preferred Stock, 9.8 million shares of Series C Preferred Stock, 2.3 million shares of Series D Preferred Stock and 3 million shares of excess stock. -90- 6.375%(cid:2)Series(cid:2)D(cid:2)Cumulative(cid:2)Redeemable(cid:2)Preferred(cid:2)Stock(cid:2) On January 22, 2018, the Company issued 2 million shares of its new 6.375% Series D Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 Per Share (“Series D Preferred Stock”) at an offering price of $25.00 per share in an underwritten registered public offering. The Company received net proceeds from the sale of these 2 million shares, after deducting the underwriting discount and other estimated offering expenses, of approximately $48.2 million and has used the net proceeds of the offering for general corporate purposes, which includes the purchase of manufactured homes for sale or lease to customers, expansion of its existing communities, potential acquisitions of additional properties and possible repayment of indebtedness on a short-term basis. Dividends on the Series D Preferred Stock shares are cumulative from January 22, 2018 and are payable quarterly in arrears on March 15, June 15, September 15, and December 15 at an annual rate of $1.59375 per share. On September 17, 2018, the Company paid $797,000 in dividends or $0.3984375 per share for the period from June 1, 2018 through August 31, 2018 to holders of record as of the close of business on August 15, 2018 of our Series D Preferred Stock. The Series D Preferred Stock, par value $0.10 per share, has no maturity and will remain outstanding indefinitely unless redeemed or otherwise repurchased. Except in limited circumstances relating to the Company’s qualification as a REIT, and as described below, the Series D Preferred Stock is not redeemable prior to January 22, 2023. On and after January 22, 2023, the Series D Preferred Stock will be redeemable at the Company’s option for cash, in whole or, from time to time, in part, at a price per share equal to $25.00, plus all accrued and unpaid dividends (whether or not declared) to the date of redemption. The Series D Preferred Stock shares rank on a parity with the Company’s Series B Preferred Stock shares and the Company’s Series C Preferred Stock shares with respect to dividend rights and rights upon liquidation, dissolution or winding up. Upon the occurrence of a Delisting Event or Change of Control, each as defined in the Prospectus pursuant to which the shares of Series D Preferred Stock were offered, each holder of the Series D Preferred Stock will have the right to convert all or part of the shares of the Series D Preferred Stock held into common stock of the Company, unless the Company elects to redeem the Series D Preferred Stock. Holders of the Series D Preferred Stock generally have no voting rights, except if the Company fails to pay dividends for nine or more quarterly periods, whether or not consecutive, or with respect to certain specified events. In conjunction with the issuance of the Company’s Series D Preferred Stock, in January 2018 the Company filed with the Maryland SDAT Articles Supplementary setting forth the rights, preferences and terms of the Series D Preferred Stock shares and reclassifying 2.3 million shares of Common Stock as shares of Series D Preferred Stock. After the reclassification, the Company’s authorized stock consisted of 111.4 million shares of common stock, 4 million shares of Series B Preferred Stock, 5.8 million shares of Series C Preferred Stock, 2.3 million shares of Series D Preferred Stock and 3 million shares of excess stock. (cid:2) Preferred(cid:2)Stock(cid:2)At­The­Market(cid:2)Sales(cid:2)Program(cid:2) (cid:2) On October 21, 2019, the Company entered into a Preferred Stock At-The-Market Sales Program (“ATM Program”) with B. Riley FBR, Inc. (“B. Riley”), as distribution agent, under which the Company may offer and sell shares of the Company’s Series C Preferred Stock and/or Series D Preferred Stock, having an aggregate sales price of up to $100 million. Sales of shares under the ATM Program are “at the market offerings” as defined in Rule 415 under the Securities Act, including, without limitation, sales made directly on or through the NYSE, or on any other existing trading market for the Series C Preferred Stock or Series D Preferred Stock, as applicable, or to or through a market maker or any other method permitted by law, including, without limitation, negotiated transactions and block trades. The Company began selling shares under the ATM Program on October 22, 2019 and through December 31, 2019, 651,000 shares of Series D Preferred Stock were sold at a weighted average price of $25.19 per share, generating gross proceeds of $16.4 million and net proceeds of $15.9 million, after offering expenses. See Note 15 for information about sales of Series D Preferred in 2020 under the ATM Program. In conjunction with the ATM Program, on October 21, 2019, the Company filed with the Maryland SDAT, an amendment to the Company’s charter to increase the authorized number of shares of the Company’s common stock by 8 million shares. As a result of this amendment, the Company’s total authorized shares were increased from 142.4 million shares (classified as 123.4 million shares of common stock, 4 million shares of Series B Preferred Stock, 9.8 -91- million shares of Series C Preferred Stock, 2.3 million shares of Series D Preferred Stock and 3 million shares of excess stock) to 150.5 million shares (classified as 131.4 million shares of common stock, 4 million shares of Series B Preferred Stock, 9.8 million shares of Series C Preferred Stock, 2.3 million shares of Series D Preferred Stock and 3 million shares of excess stock). Immediately following this amendment, the Company filed with the Maryland SDAT Articles Supplementary reclassifying and designating (i) 4 million shares of the Company’s common stock as shares of Series C Preferred Stock and (ii) 3.7 million shares of the Company’s common stock as shares of Series D Preferred Stock. After giving effect to the filing of the Articles of Amendment and the Articles Supplementary, the authorized capital stock of the Company consists of 150.4 million shares, classified as 123.7 million shares of common stock, 4 million shares of Series B Preferred Stock, 13.8 million shares of Series C Preferred Stock, 6 million shares of Series D Preferred Stock and 3 million shares of excess stock. NOTE 10 – DISTRIBUTIONS Common Stock The following cash distributions, including dividends reinvested, were paid to common shareholders during the three years ended December 31, 2019, 2018 and 2017: Quarter Ended Amount Per Share Amount Per Share Amount Per Share 2019 2018 2017 March 31 June 30 September 30 December 31 $6,980,052 7,159,331 7,321,730 7,364,054 $0.18 0.18 0.18 0.18 $6,492,774 6,600,506 6,693,069 6,824,288 $0.18 0.18 0.18 0.18 $5,416,827 5,700,036 6,188,961 6,333,573 $28,825,167 $0.72 $26,610,637 $0.72 $23,639,397 These amounts do not include the discount on shares purchased through the Company’s DRIP. $0.18 0.18 0.18 0.18 $0.72 On January 15, 2020, the Company declared a cash dividend of $0.18 per share to be paid on March 16, 2020 to shareholders of record as of the close of business on February 18, 2020. Preferred Stock The following dividends were paid to holders of our Series A Preferred Stock during the year ended December 31, 2017: Declaration Date Record Date Payment Date Dividend Dividend per Share 1/19/2017 4/3/2017 7/3/2017 2/15/2017 5/15/2017 8/15/2017 3/15/2017 6/15/2017 9/15/2017 $1,889,147 1,889,147 1,889,147 $0.515625 0.515625 0.515625 $5,667,441 $1.546875 -92- Declaration Date 1/15/2019 4/1/2019 7/1/2019 10/1/2019 1/15/2018 4/1/2018 7/1/2018 10/1/2018 1/19/2017 4/3/2017 7/3/2017 10/2/2017 Declaration Date 1/15/2019 4/1/2019 7/1/2019 10/1/2019 1/15/2018 4/1/2018 7/1/2018 10/1/2018 The following dividends were paid to holders of our Series B Preferred Stock during the years ended December 31, 2019, 2018 and 2017: Record Date Payment Date Dividend 2/15/2019 5/15/2019 8/15/2019 11/15/2019 2/15/2018 5/15/2018 8/15/2018 11/15/2018 2/15/2017 5/15/2017 8/15/2017 11/15/2017 Dividend per Share $0.50 0.50 0.50 0.50 3/15/2019 6/17/2019 9/16/2019 12/16/2019 $1,900,600 1,900,600 1,900,600 1,900,600 $7,602,400 $2.00 3/15/2018 6/15/2018 9/17/2018 12/17/2018 $1,900,600 1,900,600 1,900,600 1,900,600 $0.50 0.50 0.50 0.50 $7,602,400 $2.00 3/15/2017 6/15/2017 9/15/2017 12/15/2017 $1,900,600 1,900,600 1,900,600 1,900,600 $0.50 0.50 0.50 0.50 $7,602,400 $2.00 On January 15, 2020, the Board of Directors declared a quarterly dividend of $0.50 per share for the period from December 1, 2019 through February 29, 2020, on the Company's Series B Preferred Stock payable March 16, 2020 to shareholders of record as of the close of business on February 18, 2020. The following dividends were paid to holders of our Series C Preferred Stock during the years ended December 31, 2019, 2018 and 2017: Record Date Payment Date Dividend Dividend per Share $0.421875 0.421875 0.421875 0.421875 3/15/2019 6/17/2019 9/16/2019 12/16/2019 $2,425,781 4,113,281 4,113,281 4,113,281 $14,765,624 $1.68750 3/15/2018 6/15/2018 9/17/2018 12/17/2018 $2,425,781 2,425,781 2,425,781 2,425,781 $0.421875 0.421875 0.421875 0.421875 $9,703,124 $1.68750 2/15/2019 5/15/2019 8/15/2019 11/15/2019 2/15/2018 5/15/2018 8/15/2018 11/15/2018 -93- Declaration Date Record Date Payment Date Dividend Dividend per Share 7/3/2017 10/2/2017 8/15/2017 11/15/2017 9/15/2017 12/15/2017 $970,313 2,425,781 $0.168750 0.421875 $3,396,094 $0.590625 On January 15, 2020, the Board of Directors declared a quarterly dividend of $0.421875 per share for the period from December 1, 2019 through February 29, 2020, on the Company's Series C Preferred Stock payable March 16, 2020 to shareholders of record as of the close of business on February 18, 2020. The following dividends were paid to holders of our Series D Preferred Stock during the years ended December 31, 2019 and 2018: Declaration Date Record Date Payment Date Dividend 1/15/2019 4/1/2019 7/1/2019 10/1/2019 1/15/2018 4/1/2018 7/1/2018 10/1/2018 2/15/2019 5/15/2019 8/15/2019 11/15/2019 2/15/2018 5/15/2018 8/15/2018 11/15/2018 3/15/2019 6/17/2019 9/16/2019 12/16/2019 3/15/2018 6/15/2018 9/17/2018 12/17/2018 Dividend per Share $0.3984375 0.3984375 0.3984375 0.3984375 $796,876 796,876 796,876 950,760 $3,341,388 $1.59375 $354,166 796,876 796,876 796,876 $0.1770830 0.3984375 0.3984375 0.3984375 $2,744,794 $1.372396 On January 15, 2020, the Board of Directors declared a quarterly dividend of $0.3984375 per share for the period from December 1, 2019 through February 29, 2020, on the Company's Series D Preferred Stock payable March 16, 2020 to shareholders of record as of the close of business on February 18, 2020. NOTE 11 – FEDERAL INCOME TAXES Characterization of Distributions The following table characterizes the distributions paid for the years ended December 31, 2019, 2018 and 2017: 2019 2018 2017 Amount Percent Amount Percent Amount Percent Common Stock Ordinary income Capital gains Return of capital $ -0- -0- 0.72 -0-% $ -0-% 100.00% -0- -0- 0.72 -0-% $ -0-% 100.00% -0- -0- 0.72 -0-% -0-% 100.00% $ 0.72 100.00% $ 0.72 100.00% $ 0.72 100.00% -94- 2019 2018 2017 Amount Percent Amount Percent Amount Percent Preferred Stock - Series A Ordinary income Capital gains Return of capital $ $ -0- -0- -0- -0- -0-% $ -0-% -0-% -0-% $ -0- -0- -0- -0- -0-% $ -0-% -0-% 0.494148 0.138204 0.914523 31.95% 8.93% 59.12% -0-% $ 1.546875 100.00% Preferred Stock - Series B Ordinary income Capital gains Return of capital $ 1.18476 0.05394 0.76130 59.24% $ 2.70% 38.06% 1.288868 -0- 0.711132 64.44% $ -0-% 35.56% 0.638896 0.178688 1.182416 31.95% 8.93% 59.12% $ 2.00000 100.00% $ 2.00000 100.00% $ 2.00000 100.00% Preferred Stock - Series C Ordinary income Capital gains Return of capital 0.999640 0.045508 0.642352 $ 59.24% $ 2.70% 38.06% 1.087484 -0- 0.600016 64.44% $ -0-% 35.56% 0.188674 0.052769 0.349182 31.95% 8.93% 59.12% $ 1.687500 100.00% $ 1.687500 100.00% $ 0.590625 100.00% Preferred Stock - Series D Ordinary income Capital gains Return of capital $ 0.94410 0.04298 0.60667 59.24% $ 2.70% 38.06% 0.884419 -0- 0.487978 64.44% $ -0-% 35.56% $ 1.593750 100.00% $ 1.372397 100.00% $ -0- -0- -0- -0- -0-% -0-% -0-% -0-% In addition to the above, taxable income from non-REIT activities conducted by S&F, a Taxable REIT Subsidiary (“TRS”), is subject to federal, state and local income taxes. Deferred income taxes pertaining to S&F are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors. For the years ended December 31, 2019, 2018 and 2017, S&F had operating losses for financial reporting purposes of $1.3 million, $1.2 million and $2.1 million, respectively. Therefore, a valuation allowance has been established against any deferred tax assets relating to S&F. For the years ended December 31, 2019, 2018 and 2017, S&F recorded $8,000, $8,000 and $0, respectively, in federal, state and franchise taxes. NOTE 12 – COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS The Company is subject to claims and litigation in the ordinary course of business. Management does not believe that any such claim or litigation will have a material adverse effect on the business, assets, or results of operations of the Company. The Company has an agreement with 21st Mortgage Corporation (“21st Mortgage”) under which 21st Mortgage can provide financing for home purchasers in the Company’s communities. The Company does not receive referral fees or other cash compensation under the agreement. If 21st Mortgage makes loans to purchasers and those purchasers default on their loans and 21st Mortgage repossesses the homes securing such loans, the Company has -95- agreed to purchase from 21st Mortgage each such repossessed home for a price equal to 80% to 95% of the amount under each such loan, subject to certain adjustments. This agreement may be terminated by either party with 30 days written notice. As of December 31, 2019, the total loan balance under this agreement was approximately $2.4 million. Additionally, 21st Mortgage previously made loans to purchasers in certain communities we acquired. In conjunction with these acquisitions, the Company has agreed to purchase from 21st Mortgage each repossessed home, if those purchasers default on their loans. The purchase price ranges from 55% to 100% of the amount under each such loan, subject to certain adjustments. As of December 31, 2019, the total loan balance owed to 21st Mortgage with respect to homes in these acquired communities was approximately $2.5 million. Although this agreement is still active, this program is not being utilized by the Company’s new customers as a source of financing. S&F entered into a Chattel Loan Origination, Sale and Servicing Agreement (“COP Program”) with Triad Financial Services, effective January 1, 2016. Neither the Company, nor S&F, receive referral fees or other cash compensation under the agreement. Customer loan applications are initially submitted to Triad for consideration by Triad’s portfolio of outside lenders. If a loan application does not meet the criteria for outside financing, the application is then considered for financing under the COP Program. If the loan is approved under the COP Program, then it is originated by Triad, assigned to S&F and then assigned by S&F to the Company. Included in Notes and Other Receivables is approximately $25.4 million of loans that the Company acquired under the COP Program as of December 31, 2019. NOTE 13 - FAIR VALUE MEASUREMENTS The Company follows ASC 825, Fair Value Measurements, for financial assets and liabilities recognized at fair value on a recurring basis. The Company measures certain financial assets and liabilities at fair value on a recurring basis, including marketable securities. The fair value of these certain financial assets and liabilities was determined using the following inputs at December 31, 2019 and 2018 (in(cid:2)thousands): Fair Value Measurements at Reporting Date Using December 31, 2019: Equity Securities - Preferred Stock Equity Securities - Common Stock Total December 31, 2018: Equity Securities - Preferred Stock Equity Securities - Common Stock Total Total $3,516 112,670 $116,186 $3,400 96,196 $99,596 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $3,516 112,670 $116,186 $3,400 96,196 $99,596 $-0- -0- $-0- $-0- -0- $-0- $-0- -0- $-0- $-0- -0- $-0- In addition to the Company’s investment in Marketable Securities at Fair Value, the Company is required to disclose certain information about fair values of its other financial instruments, as defined in ASC 825-10, Financial Instruments. Estimates of fair value are made at a specific point in time, based upon, where available, relevant market prices and information about the financial instrument. Such estimates do not include any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. All of the Company’s marketable securities have quoted market prices. However, for a portion of the Company's other financial instruments, no quoted market value exists. Therefore, estimates of fair value are necessarily based on a number of significant assumptions (many of which involve events outside the control of management). Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties, future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only and, therefore, cannot be compared -96- 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 marketable securities is primarily based upon quoted market values. The fair value of variable rate mortgages payable and loans payable approximate their current carrying amounts since such amounts payable are at approximately a weighted average current market rate of interest. The estimated fair value of fixed rate mortgage notes payable is based on discounting the future cash flows at a year-end risk adjusted borrowing rate currently available to the Company for issuance of debt with similar terms and remaining maturities. These fair value measurements fall within level 2 of the fair value hierarchy. As of December 31, 2019, the fair and carrying value of fixed rate mortgages payable amounted to $381.2 million and $377.0 million, respectively. As of December 31, 2018, the fair and carrying value of fixed rate mortgages payable amounted to $332.1 million and $334.4 million, respectively. Prior to 2017, if the Company acquired a property that was considered an acquisition of a business, the Company was required to fair value all of the acquired assets and liabilities, including intangible assets and liabilities (See Note 1). Those fair value measurements fell within level 3 of the fair value hierarchy. NOTE 14 – SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the years ended December 31, 2019, 2018 and 2017 was $18.4 million, $16.4 million and $15.7 million, respectively. During the years ended December 31, 2019 and 2018, the Company assumed mortgages totaling $19.4 million and $4.6 million, respectively for the acquisition of communities. During the years ended December 31, 2019, 2018 and 2017, land development costs of $17.5 million, $10.1 million and $7.8 million, respectively were transferred to investment property and equipment and placed in service. During the years ended December 31, 2019, 2018 and 2017, the Company had dividend reinvestments of $7.7 million, $5.1 million and $2.9 million, respectively which required no cash transfers. NOTE 15 – SUBSEQUENT EVENTS Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were issued. In February 2020, the Company paid down $15 million on its revolving credit agreement to finance inventory, $5 million on its revolving line of credit and approximately $34.5 million on its margin line. From January 1 through February 28, 2020, the Company sold an additional 2.6 million shares of its Series D Preferred Stock under the Company’s ATM Program at a weighted average price of $25.06 per share, generating gross proceeds of $64.1 million and net proceeds of $63.1, after offering expenses. NOTE 16 – PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following unaudited pro forma condensed financial information reflects the 2019 and 2018 acquisitions that have closed. This information has been prepared utilizing the historical financial statements of the Company and the effect of additional revenue and expenses from the properties acquired during 2019 and 2018 assuming that the acquisitions had occurred as of January 1, 2018, after giving effect to certain adjustments including (a) rental and related income; (b) community operating expenses; (c) interest expense resulting from the assumed increase in mortgages and loans payable related to the new acquisitions and (d) depreciation expense related to the new acquisitions. The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisitions reflected herein been consummated on the dates indicated or that will be achieved in the future (in(cid:2)thousands). -97- Rental and Related Income Community Operating Expenses Net Income (Loss) Attributable to Common Shareholders Net Income (Loss) Attributable to Common Shareholders per Share: Basic Diluted For the years ended December 31, 2019 2018 $131,819 63,018 2,019 $123,986 58,155 (59,150) 0.05 0.05 (1.59) (1.59) NOTE 17 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) THREE MONTHS ENDED (in(cid:2)thousands(cid:2)except(cid:2)per(cid:2)share(cid:2)amounts)(cid:2) 2019 March 31 June 30 September 30 December 31 Total Income Total Expenses Other Income (Expense) Net Income (Loss) from continuing operations Net Income (Loss) Attributable to Common Shareholders Net Income (Loss) Attributable to Common Shareholders per Share – Basic Diluted $34,287 29,750 6,521 11,037 5,914 0.16 0.15 $37,230 32,588 (3,906) 749 (5,537) (0.15) (0.15) $37,329 32,387 7,519 12,432 5,622 0.14 0.14 $37,745 31,857 (2,282) 3,531 (3,433) (0.08) (0.08) 2018 March 31 June 30 September 30 December 31 Total Income Total Expenses Other Income (Expense) Net Income (Loss) from continuing operations Net Income (Loss) Attributable to Common Shareholders Net Income (Loss) Attributable to Common Shareholders per Share – Basic and Diluted $29,796 25,492 (26,496) (22,208) (27,155) (0.76) $32,099 27,761 15,800 20,072 14,949 $33,447 28,436 (11,333) (6,349) (11,473) $34,245 29,321 (32,633) (27,731) (32,853) 0.41 (0.31) (0.87) -98- UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (in(cid:2)thousands) Column A Description Column B Name Location Encumbrances Land Column C Initial Cost Site, Land Column D & Building Improvements and Rental Homes Capitalization Subsequent to Acquisition Allentown Arbor Estates Auburn Estates Memphis, TN Doylestown, PA Orrville, OH Birch Run, MI Elkhart, IN Goshen, IN Berwick, PA Greenfield Ctr, NY Anderson, IN Owosso, MI Chambersburg, PA Middletown, OH Vineland, NJ Chambersburg, PA Sayre, PA Conowingo, MD Lewistown, PA Tiffin, OH Horseheads, NY Wintersville, OH Muncie, IN Ravenna, OH Columbia, TN Cranberry Twp, PA Athens, PA Duncansville, PA Mount Pleasant, PA Clifton Park, NY Birchwood Farms Boardwalk Broadmore Estates Brookside Brookview Camelot Village Candlewick Court Carsons Catalina Cedarcrest Village Chambersburg Chelsea Cinnamon Woods City View Clinton Collingwood Colonial Heights Countryside Estates Countryside Estates Countryside Village Cranberry Crestview Cross Keys Crossroads Village D&R Dallas Mobile Home Toronto, OH Deer Meadows Evergreen Estates Evergreen Manor Evergreen Village Fairview Manor Fifty One Estates Forest Creek Forest Park Fox Chapel Village Frieden Manor Friendly Village Green Acres Gregory Courts Hayden Heights Heather Highlands High View Acres Highland Highland Estates Hillcrest Crossing Hillcrest Estates Hillside Estates Holiday Village Holiday Village New Springfield, OH Lodi, OH Bedford, OH Mantua, OH Millville, NJ Elizabeth, PA Elkhart, IN Cranberry Twp, PA Cheswick, PA Schuylkill Haven, PA Perrysburg, OH Chambersburg, PA Honey Brook, PA Dublin, OH Inkerman, PA Apollo, PA Elkhart, IN Kutztown, PA Lower Burrell, PA Marysville, OH Greensburg, PA Nashville, TN Elkhart, IN $ 12,865 $ (1) (4) (1) 13,583 (6) 46,781 (1) (3) 2,664 (7) 4,294 -0- 5,095 11,510 -0- (2) -0- -0- 3,376 -0- (1) -0- -0- -0- 7,305 -0- -0- -0- 7,362 -0- -0- -0- -0- -0- 15,399 -0- (1) 8,006 -0- 12,829 (2) 7,150 -0- (1) 2,007 -0- -0- (1) 16,054 -0- -0- (5) 7,619 8,176 -99- 250 $ 2,650 114 70 1,796 1,120 372 38 824 159 176 1,008 320 108 124 1,884 137 142 196 67 174 205 394 182 188 61 183 392 276 226 99 49 105 216 1,214 440 75 372 643 1,215 63 370 248 573 825 510 145 961 1,277 484 1,632 491 2,569 $ 8,266 1,174 2,797 4,768 11,136 4,776 233 2,480 7,087 2,411 11,735 1,866 2,397 2,049 2,116 613 3,302 2,318 2,383 1,926 2,896 6,917 1,923 2,258 378 1,403 704 2,729 2,299 1,121 2,372 1,277 1,167 5,746 7,004 977 4,082 5,294 18,141 584 1,220 2,148 2,152 4,264 7,084 1,695 1,464 3,034 2,679 5,618 13,808 12,146 1,765 670 3,652 (38) 10,573 3,246 9,106 278 4,841 1,620 6,587 2,953 800 1,711 485 1,422 374 2,319 5,576 4,349 5,463 9,485 4,385 2,607 4,146 75 3,426 2,151 2,835 513 1,330 1,062 10,485 440 1,871 8,617 1,545 2,814 2,182 165 752 723 12,918 352 5,372 12,769 5,230 4,404 2,952 7,270 6,020 UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (in(cid:2)thousands) Column A Description Column B Name Location Encumbrances Land Column C Initial Cost Column D Site, Land & Building Improvements and Rental Homes Capitalization Subsequent to Acquisition Wooster, OH Wooster, OH Memphis, TN Jonestown, PA Avoca, PA Narvon, PA West Mifflin, PA Erie, MI Elkhart, IN Tunkhannock, PA Olmsted Township, OH West Grove, PA Elkhart, IN Perrysburg, OH Elyria, OH Erie, PA Peninsula, OH Tarrs, PA Clinton, PA Monticello, NY Navarre, OH Lakeview, OH Cresson, PA Orrville, OH Taylor, PA Marysville, OH New Middletown, OH Nappanee, IN Holly Acres Hudson Estates Huntingdon Pointe Independence Park Kinnebrook Lake Sherman Lakeview Meadows Laurel Woods Little Chippewa Maple Manor Marysville Estates Meadowood Meadows Meadows of Perrysburg Perrysburg, OH Melrose Village Melrose West Memphis Blues Monroe Valley Moosic Heights Mount Pleasant Village Mount Pleasant, PA Mountaintop New Colony Northtowne Meadows Oak Ridge Oakwood Lake Olmsted Falls Oxford Parke Place Perrysburg Estates Pikewood Manor Pine Ridge/Pine Manor Carlisle, PA Apollo, PA Pine Valley Bloomsburg, PA Pleasant View Belle Vernon, PA Port Royal Anderson, IN Redbud Estates Marion, OH River Valley Carlisle, PA Rolling Hills Estates Belle Vernon, PA Rostraver Estates Magnolia, OH Sandy Valley Nashville, TN Shady Hills Somerset, PA Somerset/Whispering Columbiana, OH Southern Terrace Jackson, NJ Southwind Athens, OH Spreading Oaks Springfield, OH Springfield Meadows Greensburg, PA Suburban Estates Ravenna, OH Summit Estates Marion, IN Summit Village Somerset, PA Sunny Acres Eagleville, PA Sunnyside Goodlettsville, TN Trailmont Olmsted Township, OH Twin Oaks Goshen, IN Twin Pines Ruffs Dale, PA Valley High Ravenna, OH Valley Hills Mountaintop, PA Valley Stream Honeybrook, PA Valley View HB $ 2,119 -0- -0- $ 7,765 (5) 3,881 5,294 -0- -0- (4) 13,061 (3) -0- (1) -0- 2,946 6,853 (4) (4) -0- (2) (3) -0- (2) -0- 12,049 (1) (3) 2,007 15,604 (6) 1,587 14,420 -0- -0- (3) -0- 13,132 (7) -0- -0- (5) -0- 4,786 -0- (1) 22,810 (8) -0- 3,033 5,364 -0- -0- 5,971 (1) 3,191 6,047 (1) (5) 3,285 -0- (1) -100- $ 194 141 399 686 236 290 574 433 113 674 810 152 549 2,146 767 94 78 114 330 280 134 429 1,272 500 379 569 175 4,317 399 1,053 38 670 282 150 1,739 236 301 814 270 337 1,485 63 100 67 1,230 299 198 522 287 450 411 823 650 284 996 323 1,380 3,591 $ 3,516 865 2,784 1,403 1,458 1,104 2,070 1,135 9,433 4,556 3,191 6,721 5,541 5,429 1,040 810 994 3,794 3,502 1,665 4,129 23,859 7,524 1,639 3,031 991 10,341 4,047 22,068 198 1,337 2,175 2,492 15,091 785 1,419 2,204 1,941 3,379 2,050 3,387 603 1,327 3,093 5,837 2,779 2,821 6,114 2,674 1,867 3,527 6,307 2,267 6,542 3,191 5,348 1,087 5,712 1,817 3,273 14,381 12,810 1,918 4,641 2,118 6,337 4,220 4,080 7,556 408 5,565 80 7,968 494 3,425 1,120 658 306 1,152 2,408 1,179 2,236 2,537 5,230 788 4,871 10,084 6,170 1,972 13,645 2,841 7,540 1,613 2,361 10,157 4,409 8,311 544 2,937 3,887 1,486 3,681 3,917 1072 2,623 498 3,773 2,158 4,687 1,699 8,390 923 2,819 UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (in(cid:2)thousands) Column A Description Column B Name Location Encumbrances Land Column C Initial Cost Column D Site, Land & Building Improvements and Rental Homes Capitalization Subsequent to Acquisition Valley View I Valley View II Voyager Estates Waterfalls Wayside Weatherly Estates Wellington Estates Wood Valley Woodland Manor Woodlawn Woods Edge Worthington Arms Youngstown Estates Ephrata, PA Ephrata, PA West Newton, PA Hamburg, NY Bellefontaine, OH Lebanon, TN Export, PA Caledonia, OH West Monroe, NY Eatontown, NJ West Lafayette, IN Lewis Center, OH Youngstown, NY $ (2) $ (2) -0- 4,474 -0- 7,785 2,316 -0- -0- -0- (8) 6,214 8,976 (4) $ 191 72 742 424 196 1,184 896 260 77 157 1,808 437 269 4,359 $ 1,746 3,143 3,812 1,080 4,034 6,179 1,753 841 281 13,321 12,706 1,606 1,350 39 3,547 4,734 1,548 4,159 1,053 5,201 3,876 1,713 6,212 3,975 1,396 $ 377,045 $ 65,248 $ 480,687 $ 462,169 -101- UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (in(cid:2)thousands) Column A Description Column E (9) (10) Gross Amount at Which Carried at 12/31/19 Column F Site, Land & Building Improvements Accumulated Name Location Land and Rental Homes Total Depreciation $ Allentown Arbor Estates Auburn Estates Birchwood Farms Boardwalk Broadmore Estates Brookside Brookview Camelot Village Candlewick Court Carsons Catalina Cedarcrest Village Chambersburg Chelsea Cinnamon Woods City View Clinton Collingwood Colonial Heights Countryside Estates Countryside Estates Countryside Village Cranberry Crestview Cross Keys Crossroads Village D&R Dallas Mobile Home Deer Meadows Evergreen Estates Evergreen Manor Evergreen Village Fairview Manor Fifty One Estates Forest Creek Forest Park Fox Chapel Village Frieden Manor Friendly Village Green Acres Gregory Courts Hayden Heights Heather Highlands High View Acres Highland Highland Estates Hillcrest Crossing Hillcrest Estates Hillside Estates Holiday Village Holiday Village Memphis, TN Doylestown, PA Orrville, OH Birch Run, MI Elkhart, IN Goshen, IN Berwick, PA Greenfield Ctr, NY Anderson, IN Owosso, MI Chambersburg, PA Middletown, OH Vineland, NJ Chambersburg, PA Sayre, PA Conowingo, MD Lewistown, PA Tiffin, OH Horseheads, NY Wintersville, OH Muncie, IN Ravenna, OH Columbia, TN Cranberry Twp, PA Athens, PA Duncansville, PA Mount Pleasant, PA Clifton Park, NY Toronto, OH New Springfield, OH Lodi, OH Bedford, OH Mantua, OH Millville, NJ Elizabeth, PA Elkhart, IN Cranberry Twp, PA Cheswick, PA Schuylkill Haven, PA Perrysburg, OH Chambersburg, PA Honey Brook, PA Dublin, OH Inkerman, PA Apollo, PA Elkhart, IN Kutztown, PA Lower Burrell, PA Marysville, OH Greensburg, PA Nashville, TN Elkhart, IN 480 2,650 114 70 1,796 1,120 372 123 828 159 176 1,008 408 118 124 1,884 137 142 196 67 174 205 609 182 362 61 183 392 276 226 119 49 105 2,535 1,268 440 75 372 643 1,265 63 370 248 573 825 510 404 961 1,277 484 1,632 491 $ 14,485 $ 10,031 1,844 6,449 4,730 21,709 8,022 9,254 2,754 11,928 4,031 18,322 4,731 3,187 3,760 2,601 2,035 3,676 4,637 7,959 6,275 8,359 16,187 6,308 4,691 4,524 1,478 4,130 4,880 5,134 1,614 3,702 2,339 9,333 6,132 8,875 9,594 5,627 8,108 20,273 749 1,972 2,871 15,070 4,616 12,456 14,205 6,694 7,438 5,631 12,888 19,828 -102- $ 14,965 12,681 1,958 6,519 6,526 22,829 8,394 9,377 3,582 12,087 4,207 19,330 5,139 3,305 3,884 4,485 2,172 3,818 4,833 8,026 6,449 8,564 16,796 6,490 5,053 4,585 1,661 4,522 5,156 5,360 1,733 3,751 2,444 11,868 7,400 9,315 9,669 5,999 8,751 21,538 812 2,342 3,119 15,643 5,441 12,966 14,609 7,655 8,715 6,115 14,520 20,319 6,529 2,349 362 1,384 512 4,796 1,934 2,898 154 1,959 870 2,911 2,969 771 777 236 466 1,058 964 1,610 1,245 1,324 4,203 3,232 859 1,574 130 2,251 813 852 313 644 429 5,582 92 2,468 3,800 393 1,957 322 180 441 577 5,964 343 2,807 7,569 541 536 881 2,769 3,014 UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (in(cid:2)thousands)(cid:2) Column A Description Column E (9) (10) Gross Amount at Which Carried at 12/31/19 Column F Name Location Land and Rental Homes Total Site, Land & Building Improvements Accumulated Depreciation Holly Acres Hudson Estates Huntingdon Pointe Independence Park Kinnebrook Lake Sherman Lakeview Meadows Laurel Woods Little Chippewa Maple Manor Marysville Estates Meadowood Meadows Meadows of Perrysburg Melrose Village Melrose West Memphis Blues Monroe Valley Moosic Heights Mount Pleasant Village Mountaintop New Colony Northtowne Meadows Oak Ridge Oakwood Lake Olmsted Falls Oxford Parke Place Perrysburg Estates Pikewood Manor Pine Ridge/Pine Manor Pine Valley Pleasant View Port Royal Redbud Estates River Valley Rolling Hills Estates Rostraver Estates Sandy Valley Shady Hills Somerset/Whispering Southern Terrace Southwind Spreading Oaks Springfield Meadows Suburban Estates Summit Estates Summit Village Sunny Acres Sunnyside Trailmont Twin Oaks $ Erie, PA Peninsula, OH Tarrs, PA Clinton, PA Monticello, NY Navarre, OH Lakeview, OH Cresson, PA Orrville, OH Taylor, PA Marysville, OH New Middletown, OH Nappanee, IN Perrysburg, OH Wooster, OH Wooster, OH Memphis, TN Jonestown, PA Avoca, PA Mount Pleasant, PA Narvon, PA West Mifflin, PA Erie, PA Elkhart, IN Tunkhannock, PA Olmsted Township, OH West Grove, PA Elkhart, IN Perrysburg, OH Elyria, OH Carlisle, PA Apollo, PA Bloomsburg, PA Belle Vernon, PA Anderson, IN Marion, OH Carlisle, PA Belle Vernon, PA Magnolia, OH Nashville, TN Somerset, PA Columbiana, OH Jackson, NJ Athens, OH Springfield, OH Greensburg, PA Ravenna, OH Marion, IN Somerset, PA Eagleville, PA Goodlettsville, TN Olmsted Township, OH 194 141 399 686 353 290 726 433 113 674 818 152 549 2,182 767 94 336 114 330 280 134 448 1,312 500 379 569 155 4,317 407 1,071 145 732 282 505 1,753 236 301 814 270 337 1,489 63 100 67 1,230 299 198 522 287 450 411 998 $ -103- $ 4,678 9,228 2,682 6,057 15,667 14,268 2,870 6,711 3,253 15,770 8,768 7,271 14,277 5,913 10,994 1,120 8,520 1,488 7,219 4,622 2,323 4,416 24,971 9,932 2,818 5,267 3,548 15,571 4,827 26,921 10,175 7,445 4,147 15,782 17,918 8,325 3,032 4,565 12,098 7,788 10,357 3,931 3,540 5,214 4,579 9,518 6,696 3,893 8,737 3,172 5,640 5,510 $ 4,872 9,369 3,081 6,743 16,020 14,558 3,596 7,144 3,366 16,444 9,586 7,423 114,826 8,095 11,761 1,214 8,856 1,602 7,549 4,902 2,457 4,864 26,283 10,432 3,197 5,836 3,703 19,888 5,234 27,992 10,320 8,177 4,429 16,287 19,671 8,561 3,333 5,379 12,368 8,125 11,846 3,994 3,640 5,281 5,809 9,817 6,894 4,415 9,024 3,622 6,051 6,508 751 1,520 279 983 5,959 4,767 315 2,522 522 4,202 765 1,508 1,795 224 2,088 242 1,847 362 1,706 381 583 66 418 2,580 744 1,083 2,172 1,701 208 1,073 3,833 3,228 1,000 7,454 941 3,886 898 781 5,266 1,921 3,891 1,012 2,125 2,045 425 2,551 1,099 325 2,460 732 1,387 1,330  UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (in(cid:2)thousands)(cid:2) Column A Description Column E (9) (10) Gross Amount at Which Carried at 12/31/19 Column F Name Location Land and Rental Homes Total Site, Land & Building Improvements Accumulated Depreciation $ $ Twin Pines Valley High Valley Hills Valley Stream Valley View HB Valley View I Valley View II Voyager Estates Waterfalls Wayside Weatherly Estates Wellington Estates Wood Valley Woodland Manor Woodlawn Woods Edge Worthington Arms Youngstown Estates Goshen, IN Ruffs Dale, PA Ravenna, OH Mountaintop, PA Honeybrook, PA Ephrata, PA Ephrata, PA West Newton, PA Hamburg, NY Bellefontaine, OH Lebanon, TN Export, PA Caledonia, OH West Monroe, NY Eatontown, NJ West Lafayette, IN Lewis Center, OH Youngstown, NY 650 284 996 323 1,380 280 72 742 424 261 1,184 896 260 77 135 1,808 437 269 $ 10,994 3,966 14,932 4,114 8,167 5,620 1,785 6,690 8,546 2,563 8,193 7,232 6,954 4,717 2,016 19,533 16,681 3,002 $ 11,644 4,250 15,928 4,437 9,547 5,900 1,857 7,432 8,970 2,824 9,377 8,128 7,214 4,794 2,151 21,341 17,118 3,271 2,483 680 2,638 651 1,840 1,418 473 922 4,258 197 3,468 598 3,214 1,344 919 2,738 2,400 521 $ 70,241 $ 937,863 $ 1,008,104 $ 216,332 -104- UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 Column A Description Name Location Allentown Arbor Estates Auburn Estates Birchwood Farms Boardwalk Broadmore Estates Brookside Brookview Camelot Village Candlewick Court Carsons Catalina Cedarcrest Village Chambersburg Chelsea Cinnamon Woods City View Clinton Collingwood Colonial Heights Countryside Estates Countryside Estates Countryside Village Cranberry Crestview Cross Keys Crossroads Village D&R Dallas Mobile Home Deer Meadows Evergreen Estates Evergreen Manor Evergreen Village Fairview Manor Fifty One Estates Forest Creek Forest Park Fox Chapel Village Frieden Manor Friendly Village Green Acres Gregory Courts Hayden Heights Heather Highlands High View Acres Highland Highland Estates Hillcrest Crossing Hillcrest Estates Hillside Estates Memphis, TN Doylestown, PA Orrville, OH Birch Run, MI Elkhart, IN Goshen, IN Berwick, PA Greenfield Ctr, NY Anderson, IN Owosso, MI Chambersburg, PA Middletown, OH Vineland, NJ Chambersburg, PA Sayre, PA Conowingo, MD Lewistown, PA Tiffin, OH Horseheads, NY Wintersville, OH Muncie, IN Ravenna, OH Columbia, TN Cranberry Twp, PA Athens, PA Duncansville, PA Mount Pleasant, PA Clifton Park, NY Toronto, OH New Springfield, OH Lodi, OH Bedford, OH Mantua, OH Millville, NJ Elizabeth, PA Elkhart, IN Cranberry Twp, PA Cheswick, PA Schuylkill Haven, PA Perrysburg, OH Chambersburg, PA Honey Brook, PA Dublin, OH Inkerman, PA Apollo, PA Elkhart, IN Kutztown, PA Lower Burrell, PA Marysville, OH Greensburg, PA Column G Column H Column I Date Acquired Depreciable Life 1986 2013 2013 2013 2017 2013 2010 1977 2018 2015 2012 2015 1986 2012 2012 2017 2011 2011 2012 2012 2012 2014 2011 1986 2012 1979 2017 1978 2014 2014 2014 2014 2014 1985 2019 2013 1982 2017 2012 2019 2012 2013 2014 1992 2017 2013 1979 2017 2017 2014 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 Date of Construction prior to 1980 1959 1971/1985/1995 1976-1977 1995-1996 1950/1990 1973-1976 prior to 1970 1998 1975 1963 1968-1976 1973 1955 1972 2005 prior to 1980 1968/1987 1970 1972 1996 1972 1988/1992 1974 1964 1961 1955/2004 1972 1950-1957 1973 1965 1960 1960 prior to 1980 1970 1996-1997 prior to 1980 1975 1969 1970 1978 1970 1973 1970 1984 1969 1971 1971 1995 1980 -105- UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 Column A Description Name Location Holiday Village Holiday Village Holly Acres Hudson Estates Huntingdon Pointe Independence Park Kinnebrook Lake Sherman Lakeview Meadows Laurel Woods Little Chippewa Maple Manor Marysville Estates Meadowood Meadows Meadows of Perrysburg Melrose Village Melrose West Memphis Blues Monroe Valley Moosic Heights Mount Pleasant Village Mountaintop New Colony Northtowne Meadows Oak Ridge Oakwood Lake Olmsted Falls Oxford Parke Place Perrysburg Estates Pikewood Manor Pine Ridge/Pine Manor Pine Valley Pleasant View Port Royal Redbud Estates River Valley Rolling Hills Estates Rostraver Estates Sandy Valley Shady Hills Somerset/Whispering Southern Terrace Southwind Spreading Oaks Springfield Meadows Suburban Estates Summit Estates Summit Village Sunny Acres Sunnyside Trailmont Twin Oaks Twin Pines Valley High Nashville, TN Elkhart, IN Erie, PA Peninsula, OH Tarrs, PA Clinton, PA Monticello, NY Navarre, OH Lakeview, OH Cresson, PA Orrville, OH Taylor, PA Marysville, OH New Middletown, OH Nappanee, IN Perrysburg, OH Wooster, OH Wooster, OH Memphis, TN Jonestown, PA Avoca, PA Mount Pleasant, PA Narvon, PA West Mifflin, PA Erie, MI Elkhart, IN Tunkhannock, PA Olmsted Township, OH West Grove, PA Elkhart, IN Perrysburg, OH Elyria, OH Carlisle, PA Apollo, PA Bloomsburg, PA Belle Vernon, PA Anderson, IN Marion, OH Carlisle, PA Belle Vernon, PA Magnolia, OH Nashville, TN Somerset, PA Columbiana, OH Jackson, NJ Athens, OH Springfield, OH Greensburg, PA Ravenna, OH Marion, IN Somerset, PA Eagleville, PA Goodlettsville, TN Olmsted Township, OH Goshen, IN Ruffs Dale, PA Column G Column H Column I Date Acquired Depreciable Life 2013 2015 2015 2014 2015 2014 1988 1987 2016 2001 2013 2010 2017 2012 2015 2018 2013 2013 1985 2012 2010 2017 2012 2019 2019 2013 2010 2012 1974 2017 2018 2018 1969 1995 2010 1983 2018 1986 2013 2014 1985 2011 2004 2012 1969 1996 2016 2010 2014 2018 2010 2013 2011 2012 2013 2014 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 Date of Construction 1967 1966 1977/2007 1956 2000 1987 1972 prior to 1980 1995 prior to 1980 1968 1972 1960s to 2015 1957 1965-1973 1998 1970-1978 1995 1955 1969 1972 1977-1986 1972 1930/1973 1988 1990 1972 1953/1970 1971 1995-1996 1972 1962 1961 prior to 1980 1960's 1973 1966/1998/2003 1950 1972-1975 1970 prior to 1980 1954 prior to 1980 1983 1969 prior to 1980 1970 1968/1980 1969 2000 1970 1960 1964 1952/1997 1956/1990 1974 -106- UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 Column A Description Name Location Valley Hills Valley Stream Valley View HB Valley View I Valley View II Voyager Estates Waterfalls Wayside Weatherly Estates Wellington Estates Wood Valley Woodland Manor Woodlawn Woods Edge Worthington Arms Youngstown Estates Ravenna, OH Mountaintop, PA Honeybrook, PA Ephrata, PA Ephrata, PA West Newton, PA Hamburg, NY Bellefontaine, OH Lebanon, TN Export, PA Caledonia, OH West Monroe, NY Eatontown, NJ West Lafayette, IN Lewis Center, OH Youngstown, NY Column G Column H Column I Date of Construction Date Acquired Depreciable Life 1960-1970 1970 1970 1961 1999 1968 prior to 1980 1960’s 1997 1970/1996 prior to 1980 prior to 1980 1964 1974 1968 1963 2014 2015 2013 2012 2012 2015 1997 2016 2006 2017 1996 2003 1978 2015 2015 2013 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 5 to 27.5 -107- UMH PROPERTIES, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2019 (1)(cid:2) Represents one mortgage note payable secured by thirteen properties. (2)(cid:2) Represents one mortgage note payable secured by six properties. (3)(cid:2) Represents one mortgage note payable secured by five properties. (4)(cid:2) Represents one mortgage note payable secured by five properties. (5)(cid:2) Represents one mortgage note payable secured by four properties. (6)(cid:2) Represents one mortgage note payable secured by two properties. (7)(cid:2) Represents one mortgage note payable secured by two properties. (8)(cid:2) Represents one mortgage note payable secured by two properties. (9)(cid:2) Reconciliation /----------FIXED ASSETS-----------/ (in(cid:2)thousands)(cid:2) 12/31/18 12/31/19 12/31/17 Balance – Beginning of Year $874,601 $758,487 $636,577 Additions: Acquisitions Improvements Total Additions Deletions 56,015 81,399 137,414 (3,911) 58,730 61,102 119,833 (3,718) 59,308 65,458 124,766 (2,856) Balance – End of Year $1,008,104 $874,601 $758,487 /-----ACCUMULATED DEPRECIATION-----/ (in(cid:2)thousands) 12/31/18 12/31/17 12/31/19 Balance – Beginning of Year $182,599 $153,592 $128,781 Additions: Depreciation Total Additions Deletions 34,816 34,816 (1,083) 29,841 29,841 (834) 25,307 25,307 (496) Balance – End of Year $216,332 $182,599 $153,592 (10) The aggregate cost for Federal tax purposes approximates historical cost. -108- Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES UMH PROPERTIES, INC. BY: /s/Samuel A. Landy SAMUEL A. LANDY President, Chief Executive Officer and Director (Principal Executive Officer) BY: /s/Anna T. Chew ANNA T. CHEW Vice President, Chief Financial and Accounting Officer, Treasurer and Director (Principal Financial and Accounting Officer) Dated: March 5, 2020 Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been duly signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/Eugene W. Landy EUGENE W. LANDY /s/Samuel A. Landy SAMUEL A. LANDY /s/Anna T. Chew ANNA T. CHEW /s/Amy Butewicz AMY BUTEWICZ /s/Jeffrey A. Carus JEFFREY A. CARUS /s/Matthew Hirsch MATTHEW HIRSCH /s/Michael P. Landy MICHAEL P. LANDY /s/Stuart Levy STUART LEVY /s/William Mitchell WILLIAM MITCHELL /s/Kenneth K. Quigley, Jr. KENNETH K. QUIGLEY /s/Stephen B. Wolgin STEPHEN B. WOLGIN Title Chairman of the Board Date March 5, 2020 President, Chief Executive Officer and Director March 5, 2020 Vice President, Chief Financial and Accounting Officer, Treasurer and Director March 5, 2020 Director Director Director Director Director Director Director Director -109- March 5, 2020 March 5, 2020 March 5, 2020 March 5, 2020 March 5, 2020 March 5, 2020 March 5, 2020 March 5, 2020 -110- BOARD OF DIRECTORS AMY L. BUTEWICZ Doctor of Pharmacy Realtor and Partner of Butewicz Equestrian Lifestyle Real Estate at Keller Williams Princeton Real Estate JEFFREY A. CARUS Founder and Managing Partner of JAC Partners, LLC ANNA T. CHEW Vice President, Chief Financial and Accounting Officer and Treasurer MATTHEW I. HIRSCH Attorney-At-Law Law Office of Matthew I. Hirsch EUGENE W. LANDY Chairman of the Board MICHAEL P. LANDY President and Chief Executive Officer of Monmouth Real Estate Investment Corporation SAMUEL A. LANDY President and Chief Executive Officer STUART LEVY Vice President of Real Estate Finance of Helaba-Landesbank Hessen-Thüringen WILLIAM E. MITCHELL Managing Partner of Strategy Capital LLC KENNETH K. QUIGLEY, JR. Attorney-At-Law President of Curry College STEPHEN B. WOLGIN Managing Director of U.S. Real Estate Advisors, Inc. OFFICERS & EXECUTIVE MANAGEMENT EUGENE W. LANDY Chairman of the Board SAMUEL A. LANDY President and Chief Executive Officer ANNA T. CHEW Vice President, Chief Financial and Accounting Officer and Treasurer CRAIG KOSTER General Counsel and Secretary BRETT TAFT Vice President and Chief Operating Officer REGINA BEASLEY Vice President AYAL DREIFUSS Vice President of Rental Division DANIEL LANDY Vice President CHRISTINE LINDSEY Vice President of Sales JAMES O. LYKINS Vice President of Capital Markets ROBERT VAN SCHUYVER Vice President JEFFREY WOLFE Vice President of Operations JEFFREY V. YORICK Vice President of Engineering KRISTIN LANGLEY Controller BRITTNEE SPERLING Assistant Controller NELLI MADDEN Director of Investor Relations CORPORATE INFORMATION CORPORATE OFFICE 3499 Route 9 North, Freehold, NJ 07728 TRANSFER AGENT & REGISTRAR American Stock Transfer & Trust Company 6201 15th Avenue, Brooklyn, NY 11219 COMMON STOCK LISTING NYSE:UMH INDEPENDENT AUDITORS PKF O’Connor Davies, LLP 665 Fifth Avenue, New York, NY 10022 WEBSITE ADDRESS www.umh.reit EMAIL ADDRESS ir@umh.com Our Vision UMH Properties, Inc. has a 52-year history of providing quality affordable housing for our Nation’s workforce. UMH owns and operates a portfolio of 122 manufactured home communities containing 23,100 developed homesites situated in eight states. Manufactured home communities satisfy a fundamental need – quality affordable housing. As home prices continue to rise and available home inventory continues to shrink, the supply of affordable housing becomes an ever-increasing concern. We are committed to being a part of the solution to America’s affordable housing crisis. UMH has long believed that we have an obligation to create sustainable and environmentally friendly communities that have a positive societal impact. Throughout our history, we have and continue to develop and invest in environmentally friendly initiatives that will conserve energy and natural resources. We build, upgrade and manage well-maintained communities that our residents are proud to call home. We believe in enriching the lives of the people impacted by our Company – our employees, our residents and our neighbors. On Our Cover: CINNAMON WOODS Conowingo, MD UMH PROPERTIES, INC. 2019 ANNUAL REPORT U M H P R O P E R T I E S , I N C . | 2 0 1 9 A n n u a l R e p o r t UMH PROPERTIES, INC. Established in 1968 3499 Route 9 North | Freehold, NJ 07728 www.umh.reit 732.577.9997 NYSE: UMH 

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