MANUFACTURED HOUSING PROPERTIES INC. Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to "we," "our" and the "Company" refer toManufactured Housing Properties Inc. , aNevada corporation, and its consolidated subsidiaries and variable interest entities, or VIEs.
Special Note Regarding Forward Looking Statements
This report contains "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"), which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation: statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management's goals and objectives; trends affecting our financial condition, results of operations or future prospects; statements regarding our financing plans or growth strategies; statements concerning litigation or other matters; and other similar expressions concerning matters that are not historical facts. Words such as "may," "will," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes" and "estimates," and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management's good faith beliefs as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Potential investors should not make an investment decision based solely on our projections, estimates or expectations. The specific discussions herein about our company include financial projections and future estimates and expectations about our company's business. The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our management's own assessment of our business, the industry in which we operate and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections. Overview
We are a self-administered, self-managed, vertically integrated owner and
operator of manufactured housing communities. We earn income from leasing
manufactured home sites to tenants
2
We own and operate fifty-two manufactured housing communities containing
approximately 2,472 developed sites and 1,324 company-owned, manufactured homes.
Our communities are located in
As of
?
in Charlotte, North Carolina .
?
in Gastonia, North Carolina , a suburb of Charlotte, North Carolina .
?
Gastonia, North Carolina , a suburb ofCharlotte North Carolina .
?
South Carolina .
?
in Chapel Hill, North Carolina .
?
in Mills River, North Carolina , which is part of the Asheville, North
Carolina , Metropolitan Statistical Area.
?
located in the Columbia, South Carolina metro area.
? B&D - a 96 lot all-age community situated on 17.75 acres and located in
Chester, South Carolina .
? Crestview - a 113 lot all age community situated on 17.1 acres and located in
the
? Springlake - three all-age communities with 224 lots situated on 72.7 acres
and located in
? ARC - five all-age communities with 180 lots situated on 39.34 acres and
located in
? Countryside - a 110 lot all-age community situated on 35 acres and located in
Lancaster ,North Carolina .
? Evergreen - a 65 lot all-age community situated on 28.4 acres and located in
Dandridge, Tennessee . ?Golden Isles - a 107 lots all-age community situated on 16.76 acres and located inBrunswick, Georgia .
?
located in
? Capital View - a 32 lot all-age community situated on 9.84 acres and located
in
?
?
and located in Franklin and Granville Counties, North Carolina .
3
? Dixie - a 37 lot all-age community situated on 3.43 acres and located in Kings
Mountain,
? Driftwood - a 26 lot all-age community situated on 34.92 acres and located in
? Meadowbrook - a 94 lot all-age community situated on 40.1 acres and located in
York,
?
?
? Sunnyland - a 73 lot all-age community situated on 18.57 acres and an adjacent
parcel of 15 acres of undeveloped land both located in
?
located in
?
and located in
? Solid Rock - a 39 lot all-age community situated on 11 acres and located in
? Red Fox - a 51 lot all-age community situated on 9 acres and located in
?
in
? Timberview - a 55 lot all age community situated on 50 acres and located in
? Northview - a 23 lot all age community situated on 3.75 acres and located in
Thomasville, North Carolina .
Manufactured housing communities are residential developments designed and improved for the placement of detached, single-family manufactured homes that are produced off-site and installed on residential sites within the community. The owner of a manufactured home leases the site on which it is located or the lessee of a manufactured home leases both the home and site on which the home is located. We believe that manufactured housing is one of the only non-subsidized affordable housing options in theU.S. and that manufactured housing is an economically attractive alternative to traditional single-family and multi-family housing, as it provides a housing alternative that has characteristics of single-family housing (no shared walls, dedicated parking and a yard), yet is more attainable than single-family while being competitively priced to multi-family. Demand for housing affordability continues to increase, but supply of manufactured housing remains virtually static, as there are not many new manufactured housing communities being developed, and many are redeveloped to less affordable options. We are committed to providing this attainable housing option and an improved level of service to our residents, while producing an attractive and risk adjusted return to our investors. Recent Developments
Additional Closings of Regulation A Offering
Subsequent to
Glynn Acres Acquisition OnJuly 12, 2022 ,MHP Pursuits LLC , our wholly owned subsidiary, entered into a purchase and sale agreement with a third-party for the purchase of a manufactured housing community located inBrunswick, Georgia , consisting of 21 sites and 21 homes on approximately 2.9 acres for a total purchase price of$1,125,000 . OnSeptember 27, 2022 ,MHP Pursuits LLC assigned its rights and obligations in the purchase agreement toGlynn Acres MHP LLC , an entity wholly owned by the Company, pursuant to an assignment of purchase and sale agreement. OnOctober 7, 2022 , closing of the purchase agreement was completed andGlynn Acres MHP LLC purchased the land, land improvements, and buildings, further expanding the Company's presence in theBrunswick market. Proforma financial information is included in the unaudited proforma combined results of operations in Note 4 of the notes to condensed consolidated financial statements. 4 In connection with the closing of the property, onOctober 7, 2022 ,Glynn Acres MHP LLC entered into a loan agreement with the sellers, a third-party, for a loan in the principal amount of$900,000 and issued a promissory note to the lenders for the same amount. Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at a rate of 6.00% per annum, interest only until maturity onNovember 1, 2042 . Payments of$6,448 will begin onDecember 1, 2022 and continue the 1st of every month until maturity.Glynn Acres MHP LLC may prepay the note in part or in full during the first 60 months of the loan term subject to a penalty of 3% of the outstanding loan balance or afterwards without penalty.
The note is secured by a first priority security interest in the property. The loan agreement and note contain customary financial and other covenants and events of default for a loan of its type.
Wake Forest Portfolio Acquisition
OnJune 24, 2022 ,MHP Pursuits LLC entered into a purchase and sale agreement with two individuals for the purchase of 100% membership interests inMACRAL Properties LLC andRon-Ran Enterprises LLC , twoNorth Carolina limited liability companies that own two manufactured housing communities located inWake Forest, North Carolina , a part of theRaleigh metropolitan area, for a total purchase price of$4,500,000 . The two communities consist of 72 sites and 54 homes on approximately 43 acres.
OnNovember 11, 2022 ,MHP Pursuits LLC assigned its rights and obligations in the purchase agreement toWake Forest 2MHP LLC andGvest Wake Forest 2Homes LLC pursuant to an assignment of purchase and sale agreement. OnNovember 14, 2022 , closing of the purchase agreement was completed andWake Forest 2MHP LLC purchased the membership interests. Proforma financial information is included in the unaudited proforma combined results of operations in Note 4 of the notes to condensed consolidated financial statements. In connection with the closing of the property, onNovember 14, 2022 ,MACRAL Properties LLC ,Ron-Ran Enterprises LLC , andGvest Wake Forest 2Homes LLC , entered into a loan agreement withVanderbilt Mortgage and Finance for a loan in the principal amount of$3,600,000 and issued a promissory note to the lender for the same amount. Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at a rate of 7.39% per annum. Interest only payments will begin onJanuary 10, 2023 and continue the 10th of every month untilDecember 10, 2025 and thereafter amortize over three hundred and sixty consecutive monthly installments of principal and interest throughNovember 10, 2027 . The note matures onDecember 10, 2027 at which point all accrued but unpaid interest and outstanding principal balance is due. The note may be prepaid in part or in full during the first 60 months of the loan term subject to a penalty as specified in the loan agreement or thereafter, without penalty.
The note is secured by a first priority security interest in the property. The loan agreement and note contain customary financial and other covenants and events of default for a loan of its type.
Impact of Coronavirus Pandemic
In
Some states and cities, including some where the Company's properties are located, reacted by instituting quarantines, restrictions on travel, "stay at home" rules and restrictions on the types of businesses that may continue to operate and is what capacity, as well as guidance in response to the pandemic and the need to contain it. The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company's tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. Enforcing the Company's rights as landlord against tenantswho fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords, our business would be materially affected. The extent to which the pandemic may impact the Company's results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital markets environment present material uncertainty and risk with respect to the Company's performance, financial condition, results of
operations and cash flows.
5
Results of Operations
Comparison of Three Months Ended
The following table sets forth key components of our results of operations
during the three months ended
Three Months Ended Three Months Ended
September 30, 2022 September 30, 2021
Percent of Percent of
Amount Revenues Amount Revenues
Revenue
Rental and related income $ 3,697,558 99.50 % 2,250,169 99.60 %
Gross revenues from home sales 18,570 0.50 % 9,000 0.40 %
Total revenues 3,716,128 100.00 % 2,259,169 100.00 %
Community operating expenses
Repair and maintenance 287,686 7.74 % 177,878 7.87 %
Real estate taxes 186,358 5.01 % 97,328 4.31 %
Utilities 259,758 6.99 % 189,022 8.37 %
Insurance 87,044 2.34 % 35,315 1.56 %General and administrative expense 510,036 13.72 % 218,830 9.69 % Total community operating expenses 1,330,882 35.81 % 718,373 31.80 % Corporate payroll and overhead 1,519,271 40.88 % 580,109 25.68 % Depreciation expense 898,963 24.19 %
507,493 22.46 %
Interest expense 1,506,290 40.53 % 546,065 24.17 %
Refinancing costs 3,604,671 97.00 % - -
Cost of home sales 22,676 0.61 % - -
Total expenses 8,882,753 239.03 % 2,352,040 104.11 %
Other income 500 0.01 % - - %
Net loss $ (5,166,125 ) (139.02 )% (92,871 ) (4.11 )%
Variable interest entity share of net
loss (376,105 ) (10.12 )% (516,506 ) (22.86 )%
Net income (loss) attributable to our
company $ (4,790,020 ) (128.90 )% 423,635 18.75 %
Preferred stock dividends and put option
value accretion 523,161 14.08 % 557,580 24.68 %
Net loss attributable to common
stockholders $ (5,313,181 ) (142.98 )% (133,945 ) (5.93 )%
Revenues. For the three months ended September 30, 2022 , we earned total
revenues of $3,716,128 , as compared to $2,259,169 for the three months ended
September 30, 2021 , an increase of $1,456,959 , or 64.49%. The increase in
revenues between the periods was primarily due to $1,060,338 of rental income
from the acquisition of twenty-two manufactured housing communities during and
subsequent to September 2021 . The remaining increase was due to occupancy and
rental rate increases.
Community Operating Expenses. For the three months ended September 30, 2022 , we
incurred total community operating expenses of $1,330,882 , as compared to
$718,373 for the three months ended September 30, 2021 , an increase of $612,509 ,
or 85.26%. The increase in community operating expenses was primarily due to
$387,757 of additional expenses associated with the twenty-two properties
acquired during and subsequent to September 2021 , including additional repairs
and maintenance, insurance, utilities, and real estate tax expenses and
additional payroll as we hired additional on-site maintenance staff at several
of our new parks to increase efficiencies and decrease contract labor costs.
6
Corporate Payroll and Overhead Expenses. For the three months ended September
30, 2022 , we incurred corporate payroll and overhead expenses of $1,519,271 , as
compared to $580,109 for the three months ended September 30, 2021 , an increase
of $939,162 , or 161.89%. This increase was primarily due to increased payroll
including corporate salaries and benefits expense of $330,770 due to hiring
additional personnel to support our future growth, $154,000 of additional legal
and accounting expense accruals, and approximately $100,000 of pursuit costs
written off during the quarter related to an acquisition that the Company
abandoned based on late-stage due diligence findings. Additionally, during the
three months ended September 30, 2022 , we accrued $225,000 for employee year-end
bonuses, as compared to no accrual during the three months ended September30, 2021. Depreciation Expense. For the three months endedSeptember 30, 2022 , we recorded depreciation of our assets totaling$898,963 , as compared to$507,493 for the three months endedSeptember 30, 2021 , an increase of$391,470 , or 77.14%. The increase in depreciation was driven by approximately$327,000 related to assets in twenty-two manufactured housing communities that were acquired during and subsequent toSeptember 2021 . The remaining increase was due to depreciation of capital improvement projects completed subsequent toSeptember 30, 2021 , such as home renovations and new home installations. Interest Expense. For the three months endedSeptember 30, 2022 , we incurred interest expense of$1,506,290 , as compared to$546,065 for the three months endedSeptember 30, 2021 , an increase of$960,225 , or 175.84%. The increase was primarily due to$379,079 of interest on additional debt incurred to acquire new properties and new homes during and subsequent toSeptember 2021 ,$183,175 of interest on related party debt issued subsequent toSeptember 30, 2021 , and an increase of$217,291 in dividends paid to series C preferred stockholders, which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Cumulative Redeemable Preferred Stock. Refinancing Costs.For the three months endedSeptember 30, 2022 , we incurred refinancing costs of$3,604,671 , as compared to$0 for the three months endedSeptember 30, 2021 , an increase of 100% caused by a non-recurring major portfolio refinance throughKeyBank National Association and Fannie Mae, which refinanced most of the outstanding debt in our portfolio for a total new principal balance of$62,000,000 . We incurred refinancing expense of$3,604,672 in connection with the debt we extinguished including write-off of net unamortized debt issuance costs totaling$2,203,841 , prepayment penalties of$1,385,596 , and other fees of$15,234 . Net Loss. The factors described above resulted in a net loss of$5,166,125 for the three months endedSeptember 30, 2022 , as compared to$92,871 for the three months endedSeptember 30, 2021 , an increase of$5,073,254 , or 5,462.69%, predominately driven by non-recurring refinance costs. 7
Comparison of Nine Months Ended
The following table sets forth key components of our results of operations
during the nine months ended
Nine Months Ended Nine Months Ended
September 30, 2022 September 30, 2021
Percent of Percent of
Amount Revenues Amount Revenues
Revenue
Rental and related income $ 10,021,357 98.81 % 5,690,227 98.71 %
Gross revenues from home sales 121,164 1.19 % 74,244 1.29 %
Total revenues 10,142,521 100.00 % 5,764,471 100.00 %
Community operating expenses
Repair and maintenance 803,505 7.92 % 401,068 6.96 %
Real estate taxes 584,280 5.76 % 296,568 5.14 %
Utilities 735,638 7.25 % 488,334 8.47 %
Insurance 226,341 2.23 % 103,712 1.80 %General and administrative expense 1,291,276 12.73 % 522,952 9.07 % Total community operating expenses 3,641,040 35.90 % 1,812,634 31.44 % Corporate payroll and overhead 3,683,267 36.32 % 1,744,576 30.26 % Depreciation expense 2,477,642 24.43 %
1,411,158 24.48 %
Interest expense 3,843,031 37.89 % 1,439,419 24.97 %
Refinancing costs 3,620,422 35.70 % 16,675 0.29 %
Cost of home sales 177,410 1.75 % - -
Total expenses 17,442,812 171.98 % 6,424,462 111.45 %
Other Income 500 - 139,300 2.42 %
Net loss $ (7,299,791 ) (71.97 )% (520,691 ) (9.03 )%
Variable interest entity share of net
loss (786,590 ) (7.76 )% (343,073 ) (5.95 )%
Net loss attributable to our company $ (6,513,201 ) (64.22 )% (177,618 ) (3.08 )%
Preferred stock dividends and put option
value accretion 1,619,585 15.97 % 1,627,254 28.23 %
Net loss attributable to common
stockholders $ (8,132,786 ) (80.19 )% (1,804,872 ) (31.31 )%
Revenues. For the nine months ended September 30, 2022 , we earned total revenues
of $10,142,521 , as compared to $5,764,471 for the nine months ended September
30, 2021 , an increase of $4,378,050 , or 75.95%. The increase in revenues between
the periods was primarily due to $2,411,928 of rental income from the
acquisition of twenty manufactured housing communities subsequent to September
30, 2021 , an increase of $1,451,175 from nine full months of rental income from
thirteen communities acquired during the nine months ended September 30, 2021
and increased gross revenues from home sales of $46,920 . The remaining increase
was due to occupancy and rental rate increases.
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Community Operating Expenses. For the nine months endedSeptember 30, 2022 , we incurred total community operating expenses of$3,641,040 , as compared to$1,812,634 for the nine months endedSeptember 30, 2021 , an increase of$1,828,406 , or 100.87%. The increase in community operating expenses was primarily due to additional expenses of$1,417,792 associated with the thirty-three properties acquired during 2021 and 2022, including additional repairs and maintenance, insurance, utilities, and real estate tax expenses and we hired additional on-site maintenance staff at several of our new parks to increase efficiencies and decrease contract labor costs. Corporate Payroll and Overhead Expenses. For the nine months endedSeptember 30, 2022 , we incurred corporate payroll and overhead expenses of$3,683,267 , as compared to$1,744,576 for the nine months endedSeptember 30, 2021 , an increase of$1,938,691 , or 111.13%. This increase was primarily due to increased payroll related expenses including corporate salaries and benefits expense of$766,730 , one-time bonuses and recruiter service fees of$119,000 related to new hires and one-time separation payments of approximately$226,000 , and an increase in stock compensation expense of$67,850 due to issuance of stock options to officers hired to support our growth. Additionally, during the nine months endedSeptember 30, 2022 , we accrued$225,000 for employee year-end bonuses, as compared to no accrual during the nine months endedSeptember 30, 2021 . The increase in corporate overhead expenses was also due to approximately$120,000 of additional marketing and travel expenses and$152,000 of pursuit costs written off during 2022 in relation to abandoned potential acquisitions and development deals. Depreciation Expense. For the nine months endedSeptember 30, 2022 , we recorded depreciation expense of$2,477,642 , as compared to$1,411,158 for the nine months endedSeptember 30, 2021 , an increase of$1,066,484 , or 75.58%. The increase in depreciation was driven by approximately$970,000 of additional deprecation related to the assets acquired in thirty-three manufactured housing communities during 2021 and 2022. The remaining increase was due to depreciation of capital improvement projects completed subsequent toSeptember 30, 2021 , such as home renovations and new home installations. Interest Expense. For the nine months endedSeptember 30, 2022 , we incurred interest expense of$3,843,031 , as compared to$1,439,419 for the nine months endedSeptember 30, 2021 , an increase of$2,403,612 , or 166.98%. The increase was primarily due to$813,059 of interest on additional debt incurred to acquire new properties and new homes during or subsequent toSeptember 2021 ,$346,274 of interest on related party debt added subsequent toSeptember 30, 2021 , an increase in amortization of debt issuance costs of$335,824 , and an increase of$548,213 in dividends to series C preferred stockholders, which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Cumulative Redeemable Preferred Stock. 9 Refinancing Costs. For the nine months endedSeptember 30, 2022 , we incurred refinancing costs of$3,620,422 , as compared to$16,675 for the three months endedSeptember 30, 2021 , an increase of$3,603,747 primarily driven by a non-recurring major portfolio refinance onSeptember 1, 2022 throughKeyBank National Association and Fannie Mae, which refinanced most of the outstanding debt in our portfolio for a total new principal balance of$62,000,000 . We incurred refinancing expense of$3,604,672 in connection with the debt we extinguished including write-off of net unamortized debt issuance costs totaling$2,203,841 , prepayment penalties of$1,385,596 , and other fees of$15,235 .
Other Income. For the nine months ended
Net Loss. The factors described above resulted in a net loss of$7,299,791 for the nine months endedSeptember 30, 2022 , as compared to$520,691 for the nine months endedSeptember 30, 2021 , an increase of$6,779,100 , or 1,301.94%, predominately driven by non-recurring refinancing costs.
Liquidity and Capital Resources
The Company's main liquidity demands have been and are expected to continue to include distributions to the Company's preferred stockholders, acquisitions, capital improvements including renovations of company owned manufactured homes and development and expansion of communities, debt service, and expenses relating to rental real estate operations. Our business plan includes acquiring communities that yield more than our cost of funds and then investing in physical improvements, including adding rental homes onto otherwise vacant sites. We intend to continue to increase our real estate investments. The growth of our real estate portfolio depends on the availability of suitable properties which meet our investment criteria and appropriate financing, which includes our ability to raise capital. There is no guarantee that any of these additional opportunities will materialize or that we will be able to take advantage of such opportunities. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all. To the extent that funds or appropriate communities are not available, fewer acquisitions will be made. As ofSeptember 30, 2022 , we held cash and cash equivalents of$1,896,839 and restricted cash of$5,018,079 . We believe that our current available cash along with anticipated revenues is sufficient to meet our cash needs for the near future. We plan to meet our short-term liquidity requirements for the next twelve months, generally through available cash, cash provided by operating activities, and with funds available to us under the existing two$2 million revolving promissory notes from our officers, described below. Proceeds from theKeyBank portfolio refinance completed during the third quarter of 2022 were used to pay off debt attached to a significant percentage of our company owned manufactured homes which are now unencumbered and can be sold for additional cash flow, if needed. Summary of Cash Flow
The following table provides detailed information about our net cash flow for the period indicated:
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